Editor’s note: This article discusses a hypothetical situation
Bob is an experienced alternative dispute resolution, or ADR, practitioner. Just yesterday, for instance, he patted himself on the back after a case management conference. During the conference, the parties discussed the pre-hearing discovery that they needed. The arbitrator pointed out that Bob should move quickly in lining up his intended third-party depositions because it might be necessary to get a court to enforce the arbitrator’s subpoena — and that process could take a lot of time.
Bob’s response: “I already am well on my way, and I will send you [the arbitrator] my subpoena form tomorrow.” The arbitrator was impressed with Bob’s diligence. Bob was impressed with his experience and skill.
Bob promptly delivered the subpoena form to the arbitrator, who signed it and returned it to Bob in less than one day. The process server served the subpoena on the third-party witness a day later. One week later, Bob received the third-party witness’ motion to quash the subpoena, filed in federal court.
Bob had figured that he would be the moving party, seeking to enforce the subpoena. It had not dawned on him that he might have to respond to a motion that sought to stop the deposition. No matter. Bob knew that it was only a matter of time before he would have the opportunity to depose the third-party witness.
Then the boom fell. The court granted the third party’s motion to quash, holding that the Federal Arbitration Act, or FAA, does not authorize an arbitrator to subpoena pre-hearing discovery from a nonparty. In support of its holding, the court quoted Section 7 of the FAA:
“The arbitrators selected either as prescribed in this title or otherwise, or a majority of them, may summon in writing any person to attend before them or any of them as a witness and in a proper case to bring with him or them any book, record, document, or paper which may be deemed material as evidence in the case. … [I]f any person or persons so summoned to testify shall refuse or neglect to obey said summons, upon petition the United States district court for the district in which such arbitrators, or a majority of them, are sitting may compel the attendance of such person or persons before said arbitrator or arbitrators.”
Does this mean that there is no pre-hearing discovery — document productions and depositions alike — in arbitration? Must a litigant seek helpful testimony from a third party witness without having the benefit of deposition testimony? Must litigants always risk the possibility of third-party ambush in arbitration hearings?
The federal courts have not uniformly decided whether an arbitrator can subpoena pre-hearing discovery from a third party. In the 3rd Circuit, however, the rule is clear. The 3rd U.S. Circuit Court of Appeals, in rejecting lots of contrary authority, held as follows in its 2004 decision in Hay Group, Inc. v. E.B.S. Acquisition Corp.: “Section 7’s language unambiguously restricts the arbitrator’s subpoena power to situations in which the non-party has been called to appear in the physical presence of the arbitrator and to hand over the documents at that time.”
The 3rd Circuit and other courts that have rebuffed pre-hearing discovery from third parties point not only to the language of the FAA. They also justify their decisions by pointing out that parties in arbitration have opted to forgo the safeguards, expenses and costs of litigation in return for simplicity, informality, cost savings and limited discovery. (Try convincing Bob that this rationale makes sense. He opts for arbitration not to save time or money or to avoid complexity or discovery; but for only one reason — to have an experienced decision-maker be the finder of fact.)
What about preventing a yawnfest as a party at an arbitration hearing endlessly seeks testimony from a third-party witness who can set off the ambush at any time? The 3rd Circuit dismissed this concern: “[A]ny argument in favor of ignoring the literal meaning of the FAA in the name of efficiency seems to cut against Supreme Court precedent regarding the role of efficiency considerations in interpreting the Act. Although efficiency is certainly an objective of parties who favor arbitration over litigation, … efficiency is not the principal goal of the FAA. Rather, the central purpose of the FAA is to give effect to private agreements.”
In seeking to preserve his “right” to pre-hearing discovery from a third party, Bob came up with a proposed solution: Draft an arbitration agreement — a private agreement, after all — in which the parties would agree that they have opted for arbitration in order to have an experienced decision-maker adjudicate the dispute; that they intend to use any and all discovery techniques that would otherwise be available in court; and that they recognize that they may not save any time or money in choosing arbitration. The only problem with Bob’s solution is that the agreement of the parties would not be binding on a third party, who would not be a party to the agreement and who would dispute that he or she can be forced to appear at a pre-hearing deposition. Bob’s solution also disregards the language of Section 7 of the FAA.
Then- 3rd Circuit Judge Michael Chertoff’s concurring opinion in Hay Group Inc. v. E.B.S. Acquisition Corp. suggests another solution: “Under section 7 of the [FAA], arbitrators have the power to compel a third-party witness to appear with documents before a single arbitrator, who can then adjourn the proceedings. This gives the arbitration panel the effective ability to require delivery of documents from a third-party in advance, notwithstanding the limitations of Section 7 of the FAA. In many instances, of course, the inconvenience of making such a personal appearance may well prompt the witness to deliver the documents and waive presence.”
Chertoff’s suggestion — which, again, is set forth only in a concurring opinion — deals with pre-hearing documents discovery.
Charles F. Forer
