Ronald S. Gass
Reinsurance and Insurance Arbitrator and Umpire
Reinsurance and Insurance Dispute Resolution Services Consultant

3rd Circuit Rules That FAA Does Not Authorize Use of Pre-Hearing Non-Party Document Discovery Subpoenas in Arbitrations

In an important non-reinsurance Federal Arbitration Act (“FAA”) discovery ruling that may significantly curtail the use of pre-hearing non-party document subpoenas in arbitrations, the U.S. Court of Appeals for the Third Circuit held that the FAA does not authorize arbitration panels to issue such subpoenas. Instead, if a party wants to discover non-party documents, it must seek a panel subpoena requesting that the non-party representatives appear in person before the arbitrator(s) and bring the documents with them.

In this action for breach of a non-solicitation clause in an employee separation agreement, which included an arbitration clause, the employee’s former employer requested and received subpoenas from an arbitration panel seeking documents to be produced prior to the hearing by two of the employee’s subsequent employers. When both of those non-parties refused to comply, the former employer sought to enforce the subpoenas in federal district court pursuant to the FAA.

Reversing the district court’s holding that the FAA authorized arbitration panels to issue subpoenas on non-parties for pre-hearing document production, the Third Circuit adopted a position similar to precedent established in the neighboring Fourth Circuit but contrary to the rule prevailing in the Eighth Circuit and several district courts.

Finding that the language of Section 7 of the FAA to be unambiguous, the Third Circuit observed that the power conferred on arbitrators to compel the production of documents by a non-party was strictly limited to the authority granted by the FAA, i.e., to “summon in writing any person to attend before [the arbitrators] 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 power to summon a non-party “to bring” items “with him,” according to the court, “clearly applies only to situations in which the non-party accompanies the items to the arbitration proceeding, not to situations in which the items are simply sent or brought by a courier.” Hence, the panel’s subpoena power is restricted “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.”

Concluding that such a literal reading of Section 7 actually furthers arbitration’s goal of resolving disputes in a timely and cost-efficient manner, the Third Circuit suggested that its interpretation may “in the long run” discourage the issuance of large-scale subpoenas to non-parties given the time, money, and effort that subpoenaing parties will be required to expend if an actual appearance before an arbitrator is needed. The court also rejected the Fourth Circuit’s “special need” exception for the issuance of non-party document subpoenas (i.e., that there must be a showing of unusual circumstances or special need or hardship) because the court lacked any statutory authority to confer such a power.

Despite what some may perceive as inefficiencies in forcing non-parties to appear at an arbitration proceeding during which the documents are to be produced, the Third Circuit reasoned that “[t]his slight redistribution of bargaining power is unlikely to have any substantial effect on the efficiency of arbitration” and might in fact “facilitate efficiency by reducing overall discovery in arbitration.” Convening and adjourning an arbitration panel is not an “insurmountable obstacle,” according to the court, and the costs will be “slight” in comparison to amassing and transporting a huge volume of documents. In his concurring opinion, one member of the three-judge panel commented on the court’s cost and efficiency rationale observing that non-party witnesses could be compelled to appear before a single arbitrator (as opposed to all three) and that the inconvenience of making such a personal appearance may well prompt the witness to deliver the documents and waive presence.

In dicta, the Third Circuit found unpersuasive the non-parties’ argument that the district court could not enforce subpoenas for company representatives to appear with documents at an arbitration proceeding if the requested documents were located outside of the 100-mile radius of the place in which the production or inspection was to be made. First, the court noted that the applicable Federal Rule of Civil Procedure did not imply that a witness subpoenaed to testify may not also be directed to bring documents that are located beyond the court’s territorial limits. Second, the term “production” referred to the delivery of documents, not their retrieval. Thus, the district in which the “production” is to be made is not the district in which the documents are housed but the district in which the subpoenaed party is required to turn them over.

Hay Group, Inc. v. E.B.S. Acquisition Corp., No. 03-1161/1162, 2004 U.S. App. LEXIS 4715 (3d Cir. Mar. 12, 2004).


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