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Parties often opt for arbitration in the belief that they are selecting an adjudicatory process, which may be less formal but will generally track court proceedings.

Only after they have begun preparing their case, however, do many recognize that indispensable tools, which they deem crucial, may be denied them. In particular, they are often distressed to discover that extensive discovery of third-party information may not be available.

It has been my experience that in relatively straightforward, uncomplicated cases, third parties who are regularly subpoenaed to produce information pre-hearing will comply uncomplainingly because such production generally obviates their appearance at the arbitration itself. For example, hospitals and physicians involved in injury cases will almost always respond to a request for the production of documents.

Similarly, in more complex commercial litigation, parties will generally agree to the exchange of documents or acquiesce in the direction of the arbitrator in that regard because it furthers the economy of time and money which they sought in agreeing to arbitration initially.

Third parties, however, often resist pre-arbitration broad-based discovery requests in the belief that what will be involved is a major expense of time and money as to a matter in which they have minimal or no involvement. In addition, they fear that compliance may open up trade or other business secrets that they would prefer remain undisclosed. Finally, they may now be associated in business with one of the parties, and that party may prefer that the nature of their association remain undisclosed as long as possible.

In these circumstances, the arbitrator is often requested to issue a discovery subpoena to a third party for production of documents; if opposed, the arbitrator must determine whether he or she has the statutory or common law authority to issue such a subpoena.

Unfortunately, the answer to that question is not always clear and may be based upon the jurisdiction and the arbitration act under which the hearing is being conducted.

Cases addressing this issue under the Federal Arbitration Act have had varying results:

Section 7 of the FAA, provides that: “The arbitrators 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.”

The above language would appear to suggest that the arbitrators may only summon non-parties to appear with documentation before them. This position, however, has not been uniformly adopted by the circuits.

The 4th U.S. Circuit Court of Appeals, in COMSAT Corp v. National Science Foundation, although recognizing that the FAA did not grant the authority to order pre-arbitration appearance at depositions or production of documents, did find (in dicta) limited authority to petition the district court to compel pre-arbitration discovery upon a showing of special need or hardship, although what might constitute such a special need is not explained.

The 8th Circuit in In re Security Life Insurance Company of America, however, specifically found that arbitrators did have the right to compel third parties to submit to pre-hearing depositions and the production of documents. The court, although recognizing that such power is not to be found in the language of the FAA itself, based its decision on a policy of efficiency that would result from allowing parties to review documentary evidence prior to the arbitration hearing.

Subsequently, the 3rd Circuit took a different approach in Hay Group v. E.B.S. Acquisition Corp. by quashing the subpoena and holding that arbitrators lack the authority to compel a third party to produce documents as part of pre-hearing discovery. (At this point, transparency requires disclosure that I was one of the three arbitrators who ordered such discovery, although the appeals court actually reversed the district court judge who had agreed with us and concluded that the subpoena was valid).

The author of the 3rd Circuit’s opinion was then Judge (now Justice) Samuel Alito, who interpreted the FAA language strictly and concluded that the only power the arbitrator has is to summon a non-party to attend as a witness and in a proper case to bring with him any book, etc. The reasoning of the 3rd Circuit was based in part on the recognition that the non-parties had not agreed to be part of the arbitration, and that this limitation on the arbitrator’s authority would better address the objectives of arbitration to attain a shorter and cheaper system and discourage the imposition of large scale fishing expeditions upon non-parties. Alito also rejected the 4th Circuit’s notion that there might be a “special need” exception.

Interestingly, Judge Michael Chertoff, in a concurring opinion, suggested that arbitrators may have the authority and opportunity to require advance production of documents by requiring the parties to appear before them whereupon they could adjourn the hearing to allow the parties to review the documents. This approach was actually adopted in the 2nd Circuit in Stolt-Nielsen SA v. Celanese AG.

Alito’s decision, however, has an additional bit of dicta, which might further complicate the matter in Pennsylvania. In a footnote, he suggests that state statutes may compel a different result stating: “Some states have recently adopted versions of the Uniform Arbitration Act which differs from the Federal Arbitration Act. Some of these state statutes explicitly grant arbitrators the power to issue pre-hearing document production subpoenas on third parties,” (citing a provision in the Del. Code). He then continues, with respect to the Pennsylvania statute, “42 Pa.C.S. A. Section 7309 (‘The arbitrators may issue subpoenas in the form prescribed by general rules for the attendance of witnesses and for the production of books, records documents and other evidence.’) The language of these state statutes clearly shows how a law can give authority to an arbitrator to issue pre-hearing document-production orders on third parties.”

What is so clear to Alito, however, has not always been so clear to other state courts, and there does not appear to be any direct appellate decision in the matter from any of our courts. In point of fact, the Pennsylvania provision quoted above tracks almost verbatim the language appearing in the Uniform Arbitration Act of 1956. As to that provision, the comment appearing in Uniform Laws Annotated states (with cited cases omitted): “The authority in UAA Section 7 which is limited only to subpoenas and depositions for an arbitration hearing has caused some courts to conclude that ‘pre-trial discovery is not available under our present statutes for arbitration’ . . . Others require a showing of extraordinary circumstances before allowing discovery . . . Most courts have allowed discovery only at the discretion of the arbitrator.” The comment then goes on in a different tone, stating: “Most commentators and courts conclude that extensive discovery, as allowed in civil litigation, eliminates the main advantages of arbitration in terms of cost, speed and efficiency.”

To overcome this uncertainty, the UAA of 2000, which has not been adopted to this point in Pennsylvania, does provide that “an arbitrator may permit such discovery as the arbitrator decides is appropriate in the circumstances, taking into account the needs of the parties to the arbitration and other affected persons” and “ may issue subpoenas for the attendance of a witness and for the production of records and other evidence at a discovery proceeding.”

As earlier indicated, it is not clear whether parties proceeding under Pennsylvania’s Arbitration Act in its current form have the right to request third-party discovery. Assuming that they do, however, parties may be faced with yet another dilemma in light of their inability to make such a request under the FAA as reflected in the 3rd Circuit decision in Hay; after all, it is not always clear whether an arbitration is to be subject to the provisions of the UAA or the FAA.

Moreover, it may be true that the parties to the dispute have themselves agreed to proceed under Pennsylvania’s version of the Uniform Arbitration Act. Third parties, however, may claim that since they are now affected by the proceedings, the court should consider whether the procedures set forth in the FAA and not the UAA should control, notwithstanding the agreement of the parties; and, if so, under the 3rd Circuit opinion in Hay, they should not be subject to pre-arbitration discovery.

All of this leaves arbitrators and parties in a bit of a quandary as to whether in Pennsylvania discovery subpoenas may be directed to third parties. Whenever such a subpoena is issued, however, everybody involved should recognize that it may be subject to challenge by the party from whom production is sought. Or, as one experienced arbitrator recently suggested to me: “If you are seeking discovery in arbitration from a third party, you had better seek it early, because you may find yourself in an extended battle over whether it may be enforced.”

ABRAHAM J. GAFNI is a mediator/arbitrator with ADR Options and a professor at Villanova University School of Law.

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