Fall 2023

Pre-Hearing Third Party Discovery is Generally a “No-No” under the Federal Arbitration Act

The primary vehicle for third party discovery in arbitration are hearings. American Arbitration Association (“AAA”) Construction Industry Arbitration Rule 26, for example, gives arbitrators discretion in determining the attendance of any third parties. It is well established that parties to arbitration agreements governed by federal arbitration law cannot obtain discovery from third parties before arbitration hearings commence. That can still be a hard pill to swallow, however, when time is of the essence. Tactical jealousy sets in when third parties implicated by the same underlying facts quickly avail themselves of ordinary discovery tools in litigation, like depositions, while parties subject to arbitration must wait months for hearings. Federal limitations on third party discovery are, therefore, critical considerations when negotiating arbitration agreements.

President Calvin Coolidge signed the Federal Arbitration Act (“FAA”) into law on February 12, 1925. Pub. L. 68-401, 43 Stat. 883 (codified as amended at 9 U.S.C. §§ 1 et seq.). The FAA and state analogues drafted in its image embody a public policy supporting arbitration as an alternative dispute resolution vehicle on the theory that arbitration is more cost-effective and efficient. Compare, e.g., 9 U.S.C. § 1, and Peoples Sec. Life Ins. Co. v. Monumental Life Ins. Co., 867 F.2d 809 (4th Cir. 1989), with Maryland Arbitration Act of 1965, Md. Code Ann. Cts. & Jud. Proc. §§ 3-201 et seq., and Linton v. Access Funding, LLC, 253 Md. App. 507, 519, 268 A.2d 937, 944 (Md. App. Ct. 2022) (citing Walter v. Sov. Bank, 36 Md. 412, 423–24, 872 A.2d 735 (2005)). Section 7 of the FAA provides arbitrators with subpoena-like authority to summon witnesses to hearings along with discoverable materials like books, records, documents, papers, etc. Parties to arbitrations can petition courts to compel attendance on pain of contempt if witnesses refuse summons. 9 U.S.C. § 7.

“Timing,” as they say, “is everything.” The question therefore arises whether there are any circumstances when a party to an FAA arbitration can obtain third party discovery before a hearing in the context of a document request, deposition, etc. The Supreme Court of the United States has no precedent directly on point.  The answer is generally “No,” amongst the lower courts, but there are some jurisdictional nuances. The United States Court of Appeals for the Eighth Circuit is the only federal circuit with precedent affirmatively condoning pre-hearing third party discovery under the FAA. In re Security Life Ins. Co. of Am., 228 F.3d 865 (8th Cir. 2000). The Eighth Circuit did not identify any doctrinal basis or employ any canons of construction in arriving at that interpretation. The Eighth Circuit’s rationale that Section 7 implicitly authorized pre-hearing discovery in some cases solely rested on the interest of efficiency advanced by the FAA as a whole. Id. at 870–71.

The United States Court of Appeals for the Fourth Circuit took a somewhat more intermediate position: Section 7 of the FAA does not authorize pre-hearing third party discovery by default. COMSAT Corp. v. Nat’l Sci. Found., 190 F.3d 269, 275–76 (4th Cir. 1999). The unanimous panel turned the Eighth Circuit’s reasoning on its head by determining that Section 7’s stronger constraints on discovery illustrated the efficiency of arbitration vis-à-vis litigation. Id. at 276. The panel concluded its analysis by briefly discussing its prior opinion in Burton v. Bush. Id. (citing 614 F.2d 389, 390–91 (4th Cir. 1980)). The Burton court noted that a party might, in unusual circumstances, petition a court to compel pre-hearing third party discovery in the event of special need or hardship. Id. (citing 614 F.2d at 391). The COMSAT court reiterated its recognition of a “special need” exception to the general rule imposed by Section 7 in Burton. But that exception was inapplicable to the appeal before it because the appellee never raised that issue.

One example in the Fourth Circuit of a successful special need petition is Robertson v. T-Mobile US, Inc., Case No. RDB-19-2567, 2019 WL 5683455, at **1, 1 (D. Md. Nov. 1, 2019). The petitioner, Darnell Robertson, demanded arbitration with the AAA. He alleged that Credit Acceptance Corporation (“CAC”) violated the Telephone Consumer Protection Act of 1991, 47 U.S.C. § 227, by using an automatic dialing system to call Mr. Robertson’s cell phone after he revoked his consent. Mr. Robertson obtained a subpoena from the arbitrator for pre-hearing document production from Mr. Robertson’s cell service provider, MetroPCS. But MetroPCS objected and justified itself by invoking FAA Section 7’s silence on pre-hearing third party discovery. The district court found that Mr. Robertson’s petition to enforce the subpoena was justified under the special need exception. The district court’s reasoning, interestingly, was based on the unavailability of the cell phone records sought—not under MetroPCS’ cell phone record keeping practices relative to the timing of the arbitration hearing—but under CAC’s record keeping practices as a general matter. See id. at *2.

The majority view adopted by the United States Courts of Appeals for the Second, Third, Ninth, and Eleventh Circuits is that the FAA categorically prohibits pre-hearing third party discovery. Managed Care Advisory Grp., LLC v. CIGNA Healthcare, Inc., 939 F.3d 1145, 1159–1161 (11th Cir. 2019); CVS Health Corp. v. Vividus, LLC, 878 F.3d 703, 708 (9th Cir. 2017); Lie Receivables Trust v. Syndicate 102 at Lloyd’s of London, 549 F.3d 210, 212 (2d Cir. 2008); Hay Grp., Inc. v. E.B.S. Acquisition Corp., 360 F.3d 404, 411 (3d. Cir. 2004). The United States Court of Appeals for the Sixth Circuit issued the most recent federal appellate decision on this issue. That decision, though unpublished, indicates that the Sixth Circuit may precedentially adopt the majority view in the future. See Symetra Life Ins. Co. v. Admin. Sys. Res. Corp., Int’l, Case No. 21-2742, 2022 WL 16730542, at **1, 6 (6th Cir. Nov. 7, 2022); see also Am. Fed. Of Tel. & Radio Artists, AFL-CIO v. WJBK-TV (New World Commc’ns of Detroit, Inc.), 164 F.3d 1004, 1009 & n.7 (6th Cir. 1999) (citing Integrity Ins. Co. v. Am. Centennial Ins. Co., 885 F. Supp. 69 (S.D.N.Y. 1995)).

The 2-1 panel decision in Hay Group, written by then Circuit Judge and now Associate Justice of the United States Samuel Anthony Alito Jr., is representative of the majority view. Judge Alito contrasted the “power-by-implication” analysis of the Eighth Circuit with a plain-text analysis of Section 7 favored by most lower courts. Judge Alito emphasized, among other things, that Federal Rule of Civil Procedure 45 did not permit federal courts to compel pre-hearing document production by third parties until the judiciary amended Rule 45 in 1991. Section 7, therefore, similarly ought not be construed to allow pre-hearing third party discovery until the United States Congress passes a similar amendment. The special need exception recognized by the Fourth Circuit, in Judge Alito’s view, is also unjustified without an amendment. 360 F.3d at 408–410.

The FAA does not generate federal question jurisdiction under 28 U.S.C. § 1331. Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 & 32. (1983). Not all FAA petitions under Section 7 satisfy the requirements of diversity jurisdiction. State courts have concurrent jurisdiction over the enforcement of the FAA. The views of state courts are, therefore, relevant when considering how parties might pursue enforcement of pre-hearing third party discovery under the FAA. Unfortunately, no court of last resort of any state, to my knowledge, has any precedent on this question. The California Court of Appeal is the only intermediate state appellate court I know of that took a stand to date—and it adopted the majority view. Aixtron, Inc. v. Veeco Instruments, Inc., 52 Cal. App. 5th 360, 394–95, 22 Cal. Rptr. 3d 851, 876–77 (Catl. Ct. App.2020) (citing CVS Health, 878 F.3d at 708).

Parties that wish to have more intensive discovery in arbitrations can take proactive steps to protect that interest. They can negotiate for their arbitration agreements to be governed by the laws of jurisdictions that allow for pre-hearing third party discovery. The State of Washington’s Uniform Arbitration Act, unlike the FAA, for example, authorizes pre-hearing depositions of third parties who cannot be subpoenaed, pre-hearing depositions of third parties who cannot attend hearings, and pre-hearing depositions otherwise necessary to make arbitration more efficient. See Wash. Rev. Code Ann. § 7.04A.170 (West 2006).

Parties can alternatively negotiate for their arbitration agreements to be generally governed by the FAA but include an exception that elects different rules for pre-hearing third party discovery. Parties may be especially inclined to avoid the FAA’s prohibition on pre-hearing third party discovery when they anticipate that the complexity of their commercial relationship will result in litigation involving third parties that is concurrent or consecutive to arbitration. Those parties may wish to ensure pre-hearing third party discovery is available in arbitration to synchronize with the flow of information exchanged in related litigation.

Parties seeking to avoid the constraints of the FAA must remember, however, that enforcement of more liberal third party discovery rules is still subject to jurisdictional challenges and limitations. In Colorado Mills, LLC v. SunOpta Grains & Foods, Inc., for example, the Supreme Court of Colorado held that arbitration subpoenas issued under Colorado’s Revised Uniform Arbitration Act were unenforceable against out-of-state third parties because, among other reasons, Colorado’s long-arm statute was inapplicable. 2012 CO 4, 16–21 (en banc). Parties therefore need to assess whether a substitute for Section 7 is enforceable in order to confirm whether it is viable alternative.

Written by associate Joshua Carback.