This article was co-written by Texas Senior Fellow Leane K. Capps, Caitlin J. Morgan, and D. Rockwell Bower of Polsinelli PC, Polsinelli LLP.
Parties who have agreed to arbitrate under the Federal Arbitration Act (FAA) face a number of hurdles if they want to obtain discovery from non-parties. Often, parties do not consider the potential need for discovery from non-parties in a future dispute when they include arbitration provisions in their agreements. Once engaged in arbitration, however, parties will find that there are limited instances in which they may be able to obtain discovery from non-parties. The ability to obtain discovery from a non-party depends largely upon the jurisdiction where the arbitration is taking place and the domicile of the non-party.
Assume your client, a manufacturer in San Francisco, has initiated an arbitration against its vendor, who is located in Chicago. The arbitration agreement is governed by the FAA and requires the final hearing to take place in Chicago. Your client would like to obtain documents, and possibly testimony, from a non-party in Delaware. Your client wants the non-party's documents during the arbitration's discovery period and wants to depose the non-party before the hearing takes place before the arbitrator. You will need to obtain a subpoena from the arbitrator because the non-party will not produce documents or a witness by agreement and the vendor claims it does not have any control over the non-party. The arbitrator agrees to issue the subpoena for the non-party to produce the documents and a witness for deposition. The non-party ignores the arbitrator's subpoena. Can your client enforce the subpoena?
The Scope of Non-Party Discovery Under the FAA
The first issue you must determine is whether the arbitrator had the authority to issue the subpoena for the non-party to produce documents and a witness for deposition prior to a hearing. An arbitrator's authority to issue subpoenas originates from Section 7 of the FAA, which states that the arbitrator "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." 9 U.S.C. § 7. Section 7 does not distinguish between parties and non-parties, and allows an arbitrator to compel a non-party to bring documents and testify at a hearing.1 Most of circuits have held, however, that Section 7 does not give an arbitrator the ability to compel depositions of non-parties. See, e.g., CVS Health Corp. v. Vividus, LLC, 878 F.3d 703, 706 (9th Cir. 2017); Life Receivables Tr. v. Syndicate 102 at Lloyd's of London, 549 F.3d 210, 216 (2d Cir. 2008); Hay Group, Inc. v. E.B.S. Acquisition Corp., 360 F.3d 404, 410 (3d Cir. 2004); COMSAT Corp. v. Nat'l Sci. Found., 190 F.3d 269, 275 (4th Cir. 1999).2
Similarly, most circuit courts have also held that Section 7 does not permit parties to seek documents from non-parties outside of an arbitration hearing. Life Receivables, 549 F.3d at 216; Hay Group, 360 F.3d at 410; CVS Health Corp., 878 F.3d at 706. The Fourth Circuit recognizes a narrow exception to this rule and will allow a party to obtain documents from a non-party prior to a hearing if the party can show a special need or hardship. COMSAT Corp., 190 F.3d at 276. The Fourth Circuit has not articulated a test for what constitutes a special need or hardship, but the only case where it has found that the exception applied involved a risk that the evidence in a maritime dispute would be materially altered or physically leave the United States. Application of Deiulemar Compagnia Di Navigazione S.p.A. v. M/V Allegra, 198 F.3d 473, 479-81 (4th Cir. 1999). Thus, a majority of the circuits that have considered the issue have concluded that the FAA does not permit arbitrators to issue subpoenas that require a non-party to be deposed or to produce documents outside of a hearing before the arbitrator.
The Sixth and Eighth Circuits, however, have allowed an arbitrator to issue a subpoena and compel a non-party to produce documents without attending a hearing before an arbitrator. Am. Fed. of Television & Radio Artists, 164 F.3d at 1007; In re Sec. Life Ins. Co. of Am., 228 F.3d at 870-71. These circuits interpret Section 7 more expansively, holding that because Section 7 gives an arbitrator the power to compel the production of documents by a non-party at an arbitration hearing that it must also implicitly grant an arbitrator the authority to compel documents prior to an arbitration hearing. Id.
In sum, the FAA does not give the arbitrator the power to compel a non-party to appear for a deposition. Generally, most courts have held that the arbitrator does not have the authority to compel a non-party to produce documents unless they are produced at a hearing. There is a limited exception to this general rule in the Fourth Circuit, and the Sixth and Eighth Circuits permit arbitrator subpoenas to compel documents outside of a hearing.
Enforcing an Arbitrator's Subpoena
If the arbitrator has the authority to issue a subpoena to compel a non-party to produce documents under the law of the applicable jurisdiction, can the subpoena be enforced by a district court if the non-party refuses to comply? Although the FAA authorizes enforcement of an arbitrator's subpoena in federal courts, its procedural limitations make it extremely difficult to enforce. Section 7 of the FAA requires that any proceeding to enforce an arbitrator's subpoena must be brought "upon petition [to] the United States district court . . . in the same manner provided by law for securing the attendance of witnesses or their punishment for neglect or refusal to attend in the courts of the United States." 9 U.S.C. § 7. The greatest obstacle to enforcing an arbitrator's subpoena is that the action must be brought in the district where the final hearing will occur. Section 7 states that enforcement actions should be filed in "the United States district court for the district in which such arbitrators, or a majority of them, are sitting . . . ." The determination of where arbitrators "sit" is the situs of the final hearing. See, e.g., COMSAT Corp., 190 F.3d at 273; Alliance Healthcare Services, Inc. v. Argonaut Private Equity, LLC, 804 F. Supp. 2d 808, 811-12 (N.D. Ill. 2011).
In practice, this statutory requirement may make it impossible to compel a non-party to comply with an arbitrator's subpoena because personal jurisdiction is limited to the geographic boundaries of the district of the arbitration. See Dynegy, 451 F.3d at 95 (stating Section 7 does not contemplate nationwide service of process or enforcement); see also Legion Ins. Co. v. John Hancock Mut. Life Ins. Co., 33 Fed. App'x. 26, 28 (3d Cir. 2002) (affirming the district court's denial of motion to enforce an arbitral subpoena on grounds that it lacked personal jurisdiction over a non-party located in Florida); Republic of Kazakhstan v. Biedermann Intern., 168 F.3d 880, 883 (5th Cir. 1999) ("[F]ederal courts have a duty to enforce arbitrators' summonses only within the federal district in which the arbitrators, or a majority of them, are sitting."). The Eighth Circuit stands alone, holding that an arbitrator's subpoena is not subject to the territorial limits imposed by Rule 45. In re Sec. Life Ins. Co. of Am., 228 F.3d at 871-72. Thus, in the majority of jurisdictions, if the district court where the arbitration will occur cannot exercise personal jurisdiction over the non-party, the arbitrator's subpoena cannot be enforced.
Moreover, even if the district court can assert personal jurisdiction over the non-party, the court must also have subject matter jurisdiction over the dispute. The FAA does not establish federal question jurisdiction. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 n. 32 (1983); accord Stolt-Nielsen Transp. Group, Inc. v. Celanese AG, 430 F.3d 567, 572 (2d Cir. 2005); American Fed'n of TV & Radio Artists, 164 F.3d at 1004; Amgen Inc. v. Kidney Ctr. Of Del. Cnty., 95 F.3d 562, 567 (7th Cir. 1996); Karsner v. Lothian, 532 F.3d 876, 882 (D.C. Cir. 2008). There are limited instances where the underlying arbitration or the dispute over enforcing the arbitrator's subpoena gives rise to independent federal question jurisdiction or diversity jurisdiction.
In addition, even if diversity exists between the party seeking compliance with the subpoena and the non-party, it is still unclear how the amount in controversy should be determined. Although the amount in controversy in an underlying arbitration may be relied upon in a subsequent district court action among the parties to the arbitration, see, e.g., Karsner v. Lothian, 532 F.3d at 882-83; Garanti Finansal Kiralama A.S. v. Aqua Marine & Trading Inc., 697 F.3d 59, 68 (2d Cir. 2012), there is little guidance on whether the underlying amount in controversy could also be applied to subpoena enforcement proceedings against non-parties. See Fed. Ins. Co. v. Law Offices of Edward T. Joyce, P.C., 08C0431, 2008 WL 4348604, at *1 (N.D. Ill. Mar. 13, 2008) (accepting the amount in controversy of underlying arbitration for enforcement against non-party, without providing any reasoning for decision); compare Zurich Ins. PLC v. Ethos Energy (USA) LLC, 4:15-CV-03580, 2016 WL 4363399, at *2-3 (S.D. Tex. Aug. 16, 2016) (rejected Edward T. Joyce and dismissed with prejudice for lack of subject matter jurisdiction, concluding that the amount in controversy for the underlying arbitration could not be applied to the non-party).
Because of these hurdles, some parties have attempted to enforce an arbitrator's subpoena in a state court. These efforts have been largely unsuccessful, however, as state courts usually recognize that the FAA preempts a state court enforcement action. See, e.g., In re Beck's Superior Hybrids, Inc., 940 N.E.2d 352, 354 (Ind. Ct. App. 2011). In sum, unless the non-party is subject to the personal jurisdiction in the district where the arbitration hearing will take place, and there is an independent basis to establish subject matter jurisdiction, the arbitrator's subpoena often cannot be enforced.
Returning to our hypothetical, would the client in San Francisco have been able to enforce the arbitrator's subpoena against the non-party in Delaware? As the arbitration will take place in Chicago, any enforcement proceedings must be filed with the Northern District of Illinois. Like most courts, the Northern District of Illinois has held an arbitrator does not have the power to compel non-parties to provide testimony or produce documents outside of an arbitration hearing. Alliance Healthcare Services, 804 F. Supp. 2d at 811. As a result, the subpoena issued by our arbitrator is not enforceable. Instead, the client would have to seek a new subpoena from the arbitrator compelling the non-party to attend a hearing. If the non-party refused, the subpoena would have to be enforced in the Northern District of Illinois.
While this precludes traditional discovery from the non-party, a "hearing" under Section 7 of the FAA is not necessarily the final hearing on the merits. In our hypothetical, the client may seek to move the arbitrator to convene a preliminary hearing to review the documents and hear the testimony of the non-party. As long as at least one arbitrator is present, the arbitrator's subpoena may be enforced by the Northern District of Illinois - if the client could prove that the Northern District of Illinois can exercise personal jurisdiction over the Delaware non-party and there was subject matter jurisdiction over the dispute.
As you can see, even if a party can successfully compel a non-party to present testimony and documents at an arbitration hearing, it often comes at considerable time and expense, which often leads to parties not seeking documents or testimony from non-parties in arbitration.
1A "hearing" is sometimes assumed by practitioners assumed to be the final hearing on the merits of the dispute. However, all that Section 7 requires is that a hearing be presided over by at least one arbitrator in the location where the arbitration is seated. Therefore, arbitrators may convene preliminary hearings to resolve other matters prior to the final hearing, which may arguably include the presentation of evidence from non-parties. At least one circuit has held that the authority granted to an arbitrator under Section 7 is not limited to compelling witnesses to attend a final hearing on the merits and grants this authority for any hearing as long as it is before at least one arbitrator at the location of the final hearing. Life Receivables Tr. v. Syndicate 102 at Lloyd's of London, 549 F.3d 210, 218 (2d Cir. 2008).
2Although the Sixth and Eighth Circuits have interpreted the scope of pre-hearing document discovery under the FAA, they have not addressed whether an arbitrator may compel the attendance of a non-party at a pre-hearing deposition. Am. Fed'n of Television & Radio Artists, AFL-CIO v. WJBK-TV (New World Communications of Detroit, Inc.), 164 F.3d 1004, 1009 n. 7 (6th Cir. 1999); In re Sec. Life Ins. Co. of Am., 228 F.3d 865, 869 (8th Cir. 2000). As a result, this is still an open issue in these circuits.
Texas Senior Fellow Leane K. Capps is a shareholder at Polsinelli, PC and is a member of the firm’s commercial litigation and appellate practice groups. She has extensive experience trying complex commercial disputes in federal court and serving as lead counsel in complex business arbitrations. She has repeatedly been named in The Best Lawyers of America and Texas’ Super Lawyers. She is a Senior Fellow of the Litigation Counsel of America.
Caitlin J. Morgan is an associate at Polsinelli, PC. Her practice focuses on complex commercial litigation. She has been consistently named in Texas’ Super Lawyers as a Rising Star in Business Litigation since 2014 and is a fellow of the Texas Bar Foundation.
D. Rockwell Bower is an associate at Polsinelli, PC. His practice focuses on complex commercial litigation and data privacy.