Discovery in Arbitration
Non-party Discovery in the United States
Arbitral discovery from non-parties presents a fundamental problem. While information in the hands of non-parties is often critical to the effective resolution of a dispute, arbitration is a creature of contract and arbitrators, therefore, must rely on the power of the state to compel disclosure from non-parties.1 In the United States, state and federal statutes offer somewhat grudging assistance to non-party discovery in arbitrations. This article describes the scope of these state and federal statutes; discusses two critical splits in decisions among federal circuit courts of appeal that create a disparity in arbitral discovery power among US jurisdictions; and suggests four strategies for attorneys seeking to beat a course through this thicket.
Background: US law in aid of non-party discovery in international arbitration
All 50 states and the District of Columbia have statutes that govern arbitration to some extent.4 Although state statutes may be useful in some international disputes (a possibility we discuss in more detail below), they are primarily intended to support arbitrations involving parties from the same state. Most of the statutes are based on the Uniform Arbitration Act (UAA) or the Revised Uniform Arbitration Act (RUAA).5 Both of these model statutes empower arbitrators to issue enforceable subpoenas for the attendance of witnesses and the production of documents and other evidence at a hearing,6 but the RUAA is the more discovery-friendly of the two. Unlike the UAA, it explicitly provides arbitrators with the power to subpoena witnesses for depositions or to produce records or appear at a ‘discovery proceeding.’7 In addition, New York’s arbitration statute permits ‘any attorney of record’ - and not only arbitrators - to issue subpoenas.8
28 USC section 1782 - US discovery in aid of foreign tribunals
28 USC section 1782 authorises federal courts to aid ‘international and foreign tribunal[s]’ seeking discovery from entities located within US borders. Until recently, most federal courts refused to grant arbitral discovery requests involving commercial arbitral tribunals on the grounds that they were not ‘international or foreign tribunal[s]’.9 The Supreme Court’s decision in Intel Corp v Advanced Micro Devices, Inc10 appeared to have reversed this trend.11 Subsequently, several district courts granted foreign arbitral discovery requests,12 but the Fifth Circuit Court of Appeals recently ruled that Intel effected no change in the law and adhered to its prior decision that private arbitral tribunals were not within the scope of section 1782.13 The question remains unsettled.
In jurisdictions where use of section 1782 in support of foreign private arbitration is permitted, four features of section 1782 make it a robust tool for securing discovery from non-parties. First, the Supreme Court has held that section 1782 empowers courts to compel discovery from non-parties.14 Second, aside from expressly shielding privileged material, section 1782 contains no restrictions on the type or extent of pre-hearing discovery. 15 Third, its discovery powers reach the entire US, allowing parties to seek discovery in the district court of the district in which a person ‘resides or is found.’16 Fourth, section 1782 permits a court to grant a discovery request even if it is or would be disallowed under the lex arbitri of the seat of the arbitration.17
For all that, though, there are two important limitations on section 1782 discovery: the seat of the arbitration must be located outside the US;18 and the statute does not create a right to discovery, but rather gives the courts discretion to aid foreign tribunals in what the courts consider appropriate circumstances.19
FAA section 7 - US discovery in aid of US tribunals
Section 7 of the FAA empowers arbitrators to issue a subpoena duces tecum to non-parties.20 Arbitrators may summon ‘any person to attend before them […] and in a proper case to bring with him any book, record, document, or paper which may be deemed material as evidence in the case.’21 Subpoenas issued pursuant to section 7 are enforceable in federal district courts.22
However, the scope of the section 7 discovery power remains uncertain. In particular, there are circuit splits regarding whether section 7 authorises pre-hearing discovery, and whether section 7 subpoenas are subject to the territorial limitations on subpoenas for judicial proceedings issued pursuant to Federal Rule of Civil Procedure 45.
Limitations on pre-hearing discovery of documents
Section 7 does not expressly authorise pre-hearing requests for document discovery. Four circuits have addressed the issue of implicit authorisation of pre-hearing discovery, producing three different approaches. The Eighth Circuit found that an authorisation of pre-hearing discovery is implicit in section 7’s authorisation of at-hearing discovery. 23 The Second and Third Circuits found that section 7 only expressly authorises compelling witnesses to bring evidence with them to a hearing, thereby foreclosing pre-hearing discovery.24 The Fourth Circuit splits the difference between the Eighth Circuit’s broad approach and the Second and Third Circuits’ narrow approach, holding that section 7 authorises pre-hearing discovery only upon a special showing of need or hardship.25
The circuits have also split on the question of whether the territorial limitations of rule 45 of the Federal Rules of Civil Procedure should be read into section 7. Section 7 provides that arbitral subpoenas ‘shall be served in the same manner as subpoenas to appear and testify before the court’.26 Rule 45 provides that subpoenas may issue only from the district court in the jurisdiction in which a hearing is to take place.27 The reach of these court-issued subpoenas is limited to ‘any place within the district of the issuing court’, any place within ‘100 miles of the place of [a] deposition’ that is to take place in the district or ‘any place within the state where a state statute or rule of court permits service of a subpoena issued by a state court’.28
The Second and Third Circuits found that section 7 expressly incorporates rule 45’s territorial provisions because rule 45 governs ‘subpoenas to appear before the federal courts,’ and section 7 provides that arbitral subpoenas ‘shall be served in the same manner as subpoenas to appear and testify before the court’ and the district court may compel attendance ‘in the same manner provided by law for securing the attendance of witnesses […] in the courts of the United States’.29 The Eighth Circuit held that rule 45 did not apply to document subpoenas, because the ‘burden of producing documents need not increase appreciably with an increase in the distance those documents must travel’.30 The court reserved the question of whether witness subpoenas must also conform to rule 45 for another day.31
Four strategies for maximising the effectiveness of non-party discovery
What is the significance of these circuit splits for practising attorneys? First, the site of the arbitration matters. An attorney involved in an arbitration with a seat outside of the US and an attorney seeking discovery from a non-party for use in an arbitration sited in the Eighth Circuit’s geographical jurisdiction (a part of the US midwest) will likely have more options for non-party discovery than an attorney who is seeking discovery from a non-party for an arbitration taking place in the Second and Third Circuit’s jurisdiction (New York, Connecticut, Vermont, New Jersey, Pennsylvania and Delaware).
Second, some difficult questions are not adequately answered by any consistent line of existing case law. Can a non-merits hearing (eg, one held exclusively for the purposes of obtaining documents) before one or more of the arbitrators be scheduled as a basis for a subpoena duces tecum in the Second and Third Circuits? May an attorney or a tribunal seeking discovery in those circuits issue enforceable subpoenas returnable at a hearing in a jurisdiction other than the seat of an arbitration? Can the lawyer or tribunal try to take advantage of state discovery laws to circumvent the potential limitations of section 7? Is it ethical to issue discovery requests to non-parties that the attorney knows are or may not be judicially enforceable under existing law? Below, we offer some thoughts on these questions.
Scheduling a hearing for the purpose of obtaining documents
Arbitral tribunals sitting in jurisdictions that do not permit pre-hearing document discovery of non-parties (eg, the Second and Third Circuits), or in jurisdictions in which the question is not settled, can and do schedule special-purpose hearings in advance of substantive proceedings to assist parties in obtaining timely access to important documents. Such a hearing usually will involve rulings by the arbitrators on discovery disputes.
There is nothing wrong with this. Institutional rules generally give arbitrators broad discretion over the management of hearings,32 and the Second Circuit has upheld the practice.33 In a 2005 case, the court rejected an argument that a hearing scheduled for the purposes of obtaining documents was ‘a thinly disguised effort to obtain pre-hearing discovery’, even though it was not a ‘trial-like arbitration hearing on the merits’.34
Thus, where the documents or information sought are demonstrably important, the requests are limited to those documents or that information, and the propriety of a pre-hearing subpoena is in genuine doubt, asking arbitrators to schedule hearings in a way that facilitates discovery is generally a good strategy.
Holding a part of a hearing in a jurisdiction other than the seat of arbitration
Just as attorneys may seek to achieve their discovery goals by moving a proceeding to a favourable point in time, similar advantages may be had by moving a proceeding to a favourable point in space - namely to the jurisdiction where the witness is or to a jurisdiction that allows pre-hearing discovery or out-of-jurisdiction discovery.
As with the special-purpose hearing strategy, the success of this approach will depend in a large part on the arbitrators’ willingness to manage the proceedings flexibly to permit non-party discovery. They, rather than counsel, control whether such discovery will be permitted at all, and they must be convinced of its need.
Institutional rules generally allow arbitrators to hold proceedings in locations other than the seat for convenience, including the convenience of non-parties.35 The language of section 7, however, creates uncertainty for this strategy because it only authorises a district court to enforce a section 7 subpoena if the court is within the district where arbitrators ‘are sitting’.36 There are no published cases addressing whether the term ‘sit’ refers solely to the single ‘seat’ of arbitration or to any place where the arbitrators choose to convene a hearing, and there are good arguments on both sides. The tradition of arbitrators sitting wherever it is convenient is well-established. On the other hand, the parties’ choice of the place to hold the arbitration carries with it a variety of consequences, including determination of the lex arbitri, which governs procedural issues such as discovery. If a party objected to another party’s request to hold a ‘discovery’ hearing at a place other than the arbitral seat, courts may be reluctant to permit arbitrators to circumvent the lex arbitri originally bargained for by the parties.
Therefore, while moving proceedings to a location other than the seat of arbitration may be effective if done without the objection of any party, it may not be effective in the absence of consent.
Using state discovery law
As discussed above, some state laws are more attractive authorities for non-party discovery than the FAA.37 If a state statute is more solicitous of arbitral discovery than section 7, can it be used in interstate and international commercial arbitrations? Courts have not yet answered this question directly.
State arbitration law generally governs intra-state arbitrations, while the FAA governs arbitrations involving interstate and international commerce. In the Supreme Court’s most recent case addressing the preemptive power of the FAA, Doctor’s Associates Inc v Casarotto,38 the Court held that the FAA pre-empts state laws that ‘undermine the goals and policies of the FAA’.39 This rule demands only that state law be arbitration-neutral, that is, that state law must put arbitration agreements ‘upon the same footing as other contracts’.40 The Court suggested that state laws governing arbitral procedure will typically pass this test, because they affect ‘only the efficient order of proceedings [...] [and not] the enforceability of the arbitration agreement itself’.41 This indulgent attitude toward state authority may hold true even where the FAA clearly enumerates the scope of the powers it creates. For example, the Supreme Court has suggested that the grounds for vacatur enumerated in section 1042 might be supplemented by authority granted by other statutes.43
Because state discovery statutes are ‘procedural’ and do not typically affect the enforceability of an arbitration agreement, they would appear to fall within the Doctor’s Associates general exception to FAA preemption. There is very little reported authority on the subject,44 and none post-Doctor’s Associates.45 Consequently, while it is not clear whether the FAA preempts state discovery statutes, until there are more authoritative rulings, attorneys should consider making use of state-authorised discovery, at least if approved by the arbitrators.
Issuing voluntary subpoenas
Without question, arbitrators and attorneys for the parties to the arbitration are free to make informal document requests of non-parties. Even non-parties who want to disclose information voluntarily, however, will often prefer to receive an official subpoena from arbitrators,46 so that they know their disclosure accords with a formal, supervised process. Thus, attorneys and arbitrators must strike a balance between drafting their voluntary subpoenas in a way that gives them the requisite gravity and ensuring that they do not violate attorneys’ ethical duty of fair dealing.
The ABA Model Rules of Professional Conduct prohibit a lawyer from knowingly making ‘a false statement of material fact or law to third parties’,47 ‘engag[ing] in conduct involving dishonesty, fraud, deceit or misrepresentation’,48 and ‘us[ing] methods of obtaining evidence that violate the legal rights of [third persons]’.49 On the other hand, rule 3.1 provides that an attorney can bring or defend a proceeding on any ground for which ‘there is a basis in law and fact […] that is not frivolous.’50
Given the unsettled state of authority on the scope of FAA section 7 discovery for non-parties in many jurisdictions, a lawyer seeking to serve a discovery subpoena upon a non-party typically will have a non-frivolous argument for the subpoena’s propriety and potential enforceability. Accordingly, in jurisdictions with unsettled law, arbitrators need not distinguish between voluntary subpoenas and mandatory subpoenas, but are free to draft official-looking subpoenas and make explicit reference to the FAA.
Rule 3.1 also provides that ‘a good faith argument for an extension, modification or reversal of existing law’51 is a non-frivolous basis for a legal argument. Arguably, therefore, the rule may justify issuance of apparently binding subpoenas even in the Second or Third Circuits, where reversal of current law is the only hope for success. This strategy is not without risk, however, and it may be more prudent to structure voluntary subpoenas around ‘request’ language, not ‘command’ language, so as to avoid giving the impression that the recipient’s compliance is compelled by the FAA. The same is true for subpoenas to non-parties beyond the geographical reach of rule 45.
Exploring the intersections of federal law, state law and arbitral rules, we find uncertainty at every turn. Is there anything we can say with certainty? There are three things: non-party discovery is indeed possible, and less restricted than many attorneys believe; in the face of uncertain authority, practitioners will be well served by creative thinking; and it is wise to keep a close eye on new developments in the case law governing non-party arbitral discovery.
- The authors thank Tyler McNish and Matthew Jasilli, summer associates at Sullivan & Cromwell LLP, for their extremely able and diligent assistance in the preparation of this article.
- See, eg, Odfjell ASA v Celanese AG, 328 F Supp 2d 505, 507 (SDNY 2004) (‘[I]nasmuch as arbitration is largely a matter of contract, it would seem particularly inappropriate to subject parties who never agreed to participate in the arbitration in any way to the notorious burdens of pre-hearing discovery.’).
- 28 USC section 1782 (2008).
- Federal Arbitration Act section 7, 9 USC section 7 (2008). Institutional rules, which are fundamentally adjuncts to the parties’ contract, do not generally address discovery from non-parties. The ICC, AAA, LCIA, and UNCITRAL rules all authorise an arbitral tribunal to order ‘parties’ to provide information; none authorise similar orders to non-parties. Instead, arbitrators and parties must look to the statutes of the place of arbitration or the place where the evidence is located for the governing rules.
- American Arbitration Association, Citations to State ADR Statutes with Links to Statute Texts at Legislative Websites, www.aaauonline.org/laws_statutes.aspx.
- Thirty-eight states and the District of Columbia have enacted the UAA or the RUAA. 7 Uniform Laws Annotated 1, 10 (Supp 2009). Notable exceptions are New York and California. Id.
- Uniform Arbitration Act of 1956 (UAA) section 7(a) (‘The arbitrators may issue […] subpoenas for the attendance of witnesses and for the production of books, records, documents and other evidence […]’); Uniform Arbitration Act of 2000 (RUAA) section 17(a) (‘An arbitrator may issue a subpoena for the attendance of a witness and for the production of records and other evidence at any hearing […]’).
- RUAA section 17(b), (d).
- NY CPLR section 7505 (2009)
- Anna Conley, ‘A New World of Discovery: The Ramifications of Two Recent Federal Courts’ Decisions Granting Judicial Assistance to Arbitral Tribunals Pursuant to 28 USC section 1782’, 17 American Review of International Arbitration 45, 45 (2006); Peter B Rutledge, ‘Discovery, Judicial Assistance and Arbitration: A New Tool for Cases Involving US Entities?’, 25 Journal of International Arbitration 171, 174 (2008).
- 542 US 241 (2004).
- The Court held that ‘Congress introduced the word ‘tribunal’ to ensure that assistance is not confined to proceedings before conventional courts, but extends also to administrative and quasi-judicial proceedings.’ Id. at 249 (citations and quotations omitted). While the case concerned a proceeding before the EC Commission, not a foreign arbitral tribunal, the Supreme Court’s broad language has been read to encompass arbitration.
- In re Oxus Gold PLC, Misc 06-82, 2006 WL 2927615 (DNJ 10 October 2006) (granting a request for discovery assistance in aid of arbitration under a bilateral investment treaty); In re Roz Trading Ltd, 469 F Supp 2d 1221 (ND Ga 2006) (granting a motion seeking discovery in aid of a commercial arbitration tribunal in Austria). But see In re Operadora DB Mexico, SA de CV, No. 6:09-cv-383-Orl-22GJK, 2009 WL 2423138 (MD Fla 4 August 2009) (finding that an ICC arbitration panel is not an ‘international or foreign tribunal’ within the meaning of section 1782); In re An Arbitration in London, England Between Norfolk S Corp, Norfolk S Ry Co, and General Security Insurance Co and Ace Bermuda Ltd, 2009 US Dist LEXIS 49827 (ND Ill 15 June 2009) (confining Intel to ‘state-sponsored’ arbitral tribunals, but in dicta apparently believing (mistakenly) that arbitrations under the UNCITRAL Rules are ‘state sponsored’).
- El Paso Corp v La Comision Ejecutiva Hidroelectrica del Rio Lempa, No. 08-20771, 2009 WL 2407189 (5th Circuit 6 August 2009) (adhering to decision in Republic of Kazakhstan v Biedermann International, 168 F 3d 880 (5th Circuit 1999)).
- Intel, 542 US at 264 (in exercising their discretion, district courts should be more solicitous toward requests for discovery from non-parties than requests for discovery from parties).
- See id. at 260 - 265.
- 28 USC section 1782 (‘The district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing […]’).
- Intel, 542 US at 253 (‘[I]n view of the division among the Circuits on the question whether section 1782(a) contains a foreign-discoverability requirement. We now hold that section 1782(a) does not impose such a requirement.’).
- Conley, note 9, at 45 (‘Allowing parties to international arbitral proceedings to utilize section 1782 will create a huge disconnect between parties’ discovery rights and obligations in domestic and international arbitration.’); Martin Illmer and Ben Steinbruck, ‘US Discovery and Foreign Private Arbitration: The Foreign Lawyer’s Perspective’, Journal of International Arbitration 329, 330 - 33 (2008).
- Intel, 542 US at 266 (‘Having held that section 1782(a) authorizes, but does not require, discovery assistance, we leave it to the courts below to ensure an airing adequate to determine what, if any, assistance is appropriate.’); Advanced Micro Devices v Intel Corp, No. C 01-7033, 2004 WL 2282320 (ND Ca 4 October 2004) (denying AMD’s discovery petition on remand from Supreme Court).
- 9 USC section 7.
- Id. (emphasis added).
- In re Security Life Insurance Co, 228 F 3d 865, 870 - 71 (8th Circuit 2000) (holding that pre-hearing discovery furthers arbitral efficiency, one of Congress’s primary goals in enacting the FAA).
- Life Receivables Trust v Syndicate 102 at Lloyd’s of London, 549 F 3d 210, 214 - 17 (2nd Circuit 2008); Hay Group, Inc v EBS Acquisition Corp, 360 F 3d 404, 407 (3d Circuit 2004) (Alito, J). The courts noted that until its revision in 1991, the Federal Rules of Civil Procedure did not authorise documents-only subpoenas, and section 7, having been enacted in the same era as the original version of those rules, should be construed to be consistent with the pre-revision rule.
- COMSAT Corp v National Science Foundation, 190 F 3d 269, 275 - 76 (4th Circuit 1999).
- 9 USC section 7.
- Federal Rules of Civil Procedure 45(a)(2).
- Federal Rules of Civil Procedure 45(b)(2)(A) - (B).
- Dynegy Midstream Services v Trammochem, 451 F 3d 89, 94 - 96 (2nd Circuit 2006) (quoting 9 USC section 7). Accord Legion Ins v John Hancock Mutual Life Ins, 33 Fed Appx 26 (3rd Circuit 2002).
- In re Security Life, 228 F 3d at 871-72. Several district courts have applied the Eighth Circuit’s broader approach. See, eg, SchlumbergerSema, Inc v Xcel Energy, Inc, No. Civ. 02-4304, 2004 WL 67647, *3 (D Minn 2004) (Minnesota court ordered production in New York pursuant to subpoena issued from arbitration proceedings in Minnesota); Festus & Helen Stacy Foundation, Inc v Merrill Lynch, 432 F Supp 2d 1375 (ND Ga 2006).
- In re Security Life, 228 F 3d at 871-72.
- See, eg, LCIA Rules article 19.2 (‘[t]he Arbitral Tribunal shall fix the date, time and physical place of any meetings and hearings’); ICC Rules article 21(3) (‘[t]he Arbitral Tribunal shall be in full charge of the hearings’).
- Stolt-Nielsen SA v Celanese AG, 430 F 3d 567, 580 (2d Circuit 2005).
- Thomas Webster, Obtaining Evidence from Third Parties in International Arbitration, 17 Arbitration International 143, 148 (2000). See also UNCITRAL Rules article 17(2); ICC Rules article 14(2).
- 9 USC section 7.
- Statutes based on the RUAA, which allows for depositions and discovery hearings, are particularly attractive. RUAA section 17(d). Twelve states and the District of Columbia have enacted the RUAA. 7 Uniform Laws Annotated 1 (Supp 2009). Statutes in some states that have not enacted the RUAA are also attractive. Maryland and Vermont allow for depositions of witnesses who cannot attend the arbitration hearing. Md. Code Ann section 3-218 (2009); 12 Vt Stat Ann section 5662 (2009). As noted above, New York’s statute permits attorneys to issue arbitral subpoenas. NY CPLR section 7505.
- 517 US 681 (1996).
- Id. at 688 (citations and quotations omitted); accord Volt Info Sciences, Inc v Board of Trustees of Leland Stanford Jr Univ, 489 US 474, 478 (1989).
- Doctor’s Associates , 517 US at 687 (quoting Scherk v Alberto-Culver Co, 417 US 506, 511 (1974)).
- Id. at 688 (quoting Volt, 489 US at 478).
- 9 USC section 10 (2008).
- Hall Street Associates, LLC v Mattel, Inc, 128 S Ct 1396, 1406 (2008) (stating in dicta that while section 10 provides the exclusive grounds for vacatur when invoking the ‘expeditious judicial review’ provided by the FAA, the FAA does not preclude the possibility of other grounds for vacatur where other statutory authority provides for judicial review of arbitration awards).
- Integrity Insurance Co v American Centennial Insurance Co, 885 F Supp 69, 71 n 3 (SDNY 1995) (holding that NY CPLR section 7505 was preempted by the FAA because it conflicted with the narrower discovery authorisation in FAA section 7) (citing Prima Paint Corp v Flood & Conklin Manufacturing Co, 388 US 395 (1967)).
- See also Kenney, Becker, LLP v Kenney, 06 Civ 2975, 2008 US Dist LEXIS 19795, at *7 n 2 (SDNY 6 March 2008) (holding that NY state statute, CPLR section 7505, was inapplicable in part because the parties had previously agreed that ‘federal arbitral law - not New York procedural law - applied to the arbitration’).
- See, eg, Dynegy Midstream Services v Trammochem, 451 F 3d 89, 96 (2nd Circuit 2006) (the court recognising that its holding implied that ‘FAA Section 7 authorizes the issuance of some subpoenas that cannot be enforced’).
- Model Rules of Professional Conduct rule 4.1(a) (emphasis added). The Model Rules are not in effect in any jurisdiction but serve as the model for the ethical rules of nearly all US states.
- Model Rules of Professional Conduct rule 8.4(c).
- Model Rules of Professional Conduct rule 4.4(a).
- Model Rules of Professional Conduct rule 3.1.
- Model Rules of Professional Conduct rule 3.1.