The Availability Of Third-Party Discovery In Arbitration

Friday, June 22, 2012 - 10:23

As arbitration clauses have become more common in commercial contracts, many parties have discovered that arbitration is not as streamlined or as inexpensive as they had hoped. Among other things, arbitral panels in the United States are increasingly willing to permit wide-ranging discovery from the parties (both documents and depositions), particularly in complex commercial disputes. But the availability (and scope) of third-party discovery in aid of arbitration – whether an arbitration in the U.S. or a private international arbitration – remains uncertain under applicable law. As a result, the potential burdens of arbitration are harder for parties to gauge: will third-party discovery add layers of process and expense to an arbitration proceeding? And parties may have a more difficult time assessing whether arbitration is an attractive option in particular contexts; in many cases, third parties may have documents or other information that is highly relevant to a dispute. The wide variation in the relevant law by jurisdiction also should inform parties' choices when contracting for the location of an arbitration.  

Third-Party Discovery In Aid Of U.S. Arbitrations

For arbitrations taking place in the United States, much of the litigation concerning third-party discovery has focused on Section 7 of the Federal Arbitration Act ("FAA" or the "Act"). The FAA broadly applies to a wide range of arbitrations in the United States involving interstate commerce. Section 7 of the Act provides that 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." Courts, however, have taken widely varying approaches to the question whether, or under what circumstances, Section 7 authorizes pre-hearing discovery from third parties.

The Second and Third Circuits have held that Section 7 does not authorize pre-hearing discovery – whether for documents or depositions – from third parties. In Hay Group, Inc. v. E.B.S. Acquisition Corp., 360 F.3d 404 (3d Cir. 2004), the Third Circuit concluded that the subpoena power under Section 7 was limited to compelling third parties to testify or bring documents to an arbitration hearing. The Second Circuit has adopted the same view, see Life Receivables Trust v. Syndicate 102 at Lloyd's of London, 549 F.3d 210 (2d Cir. 2008), but has also made clear that Section 7 "authorizes the use of subpoenas at preliminary proceedings even in front of a single arbitrator, before the full panel 'hears the more central issues.'” Stolt-Nielsen SA v. Celanese AG, 430 F.3d 567, 579 (2d Cir. 2005).

By contrast, the Eighth Circuit has concluded that "implicit in an arbitration panel's power to subpoena relevant documents for production at a hearing is the power to order the production of relevant documents for review by a party prior to the hearing.” In re Security Life Insurance Co. of America, 228 F.3d 865, 870-71 (8th Cir.2000). But most (although not all) courts taking this more permissive approach have drawn the line at depositions, citing the different burdens and efficiencies involved in producing documents and appearing for testimony (potentially twice if testimony also is sought for the merits hearing).

The Fourth Circuit has taken something of a middle approach, finding that Section 7 authorizes prehearing discovery only “under unusual circumstances” and “upon a showing of special need or hardship.” COMSAT Corp. v. Nat'l Sci. Found., 190 F.3d 269, 276 (4th Cir.1999).

The courts have also split on the question whether the territorial limitations of Rule 45 of the Federal Rules of Civil Procedure apply to Section 7. The Second and Third Circuits have held that a Section 7 subpoena may issue only from a district court in the jurisdiction where the arbitration is being held. See Dynegy Midstream Services v. Trammochem, 451 F.3d 89 (2d Cir. 2006); Legion Ins. v. John Hancock Mutual Life Ins., 33 Fed. Appx. 26 (3d Cir. 2002). Other courts have held that – at least for document subpoenas – Section 7 is not limited in this manner. See In re Security Life Insurance Co. of America, 228 F.3d at 871.

State arbitration laws, however, may also be an option for an arbitral party to obtain third-party discovery. Many states have adopted laws modeled on the Revised Uniform Arbitration Act that permit non-party discovery in aid of arbitration. Such laws have typically been used in connection with intra-state arbitrations not governed by the FAA, but yet another issue that remains open is whether the FAA preempts their use in FAA-governed arbitrations. Although Section 7 speaks to the subpoena power of the arbitral tribunal, there is no clear guidance whether more permissive state statutes are inconsistent with the purposes of the Act. Accordingly, state court procedures remain a potential tool for obtaining third-party discovery in aid in arbitration (some coming with many potential advantages, such as permitting an attorney to issue a subpoena or providing procedures to have the subpoena recognized out of state).

Third-Party Discovery In Aid Of International Arbitrations

For arbitrations taking place outside the United States, parties may be able to seek discovery from third parties in the United States. Under 28 U.S.C. § 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 for use in a proceeding in a foreign or international tribunal." Section 1782 is a potentially powerful tool for obtaining third-party discovery in aid of a foreign arbitrations. The statute makes no distinction between document or deposition discovery; it has no territorial limitation akin to FRCP 45; and it permits third- party discovery even if such would not be allowed in the forum of the predicate foreign proceeding. However, courts have disagreed about how to apply Section 1782 to private international arbitrations.

Before the Supreme Court's decision in Intel v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004), most courts had held that Section 1782 did not authorize discovery in aid of private international arbitrations. In National Broadcasting Co. v. Bear Stearns & Co., 165 F.3d 184, 190 (2d Cir.1999), for example, the Second Circuit held that private arbitral tribunals did not qualify as "foreign or international tribunal[s]" within the meaning of the statute. The Court explained that Section 1782 was “intended to cover governmental or intergovernmental arbitral tribunals and conventional courts and other state-sponsored adjudicatory bodies.” National Broadcasting Co. v. Bear Stearns & Co., 165 F.3d 184, 190 (2d Cir.1999). The Fifth Circuit came to the same conclusion. See Republic of Kazakhstan v. Biedermann International, 168 F.3d 880 (5th Cir.1999).

In Intel, however, the Supreme Court held that the European Community Directorate General for Competition (the "DG") was a "foreign or international tribunal" within the meaning of Section 1782. Although the DG was not an arbitral tribunal, the Court explained that "Congress introduced the word 'tribunal' [in Section 1782] to ensure that 'assistance is not confined to proceedings before conventional courts,' but extends also to 'administrative and quasi-judicial proceedings.'" 542 U.S. at 249. 

But courts since have not agreed on whether – or to what extent – international arbitrations should qualify as "foreign or international tribunals" on the basis of Intel. Some courts have read Intel as support for a broad interpretation of Section 1782 to include purely private arbitrations. See, e.g., In re Roz Trading Ltd., 469 F.Supp.2d 1221, 1224-25 (N.D.Ga. 2006); In re Hallmark Capital Corp., 534 F. Supp. 2d 951 (D. Minn. 2007); In re Babcock Borsig AG, 583 F.Supp.2d 233 (D. Mass. 2008). But others, including most notably the Fifth Circuit, have held to the view that only "governmental or intergovernmental arbitral tribunals" are covered by Section 1782, noting that application of the statute to private arbitrations was not before the Court in Intel. See, e.g., El Paso Corp. v. La Comision Ejecutiva Hidroelectrica Del Rio Lempa, 341 Fed. Appx. 31 (5th Cir. 2009); In re Matter of the Application of Oxus Gold PLC, No. Misc. 06-82, 2006 WL 2927615 (D.N.J. Oct. 11, 2006); In re Operadora DB Mexico, S.A. de C.V., No. 6:09–cv–383–Orl–22GJK, 2009 WL 2423138 (M.D. Fla. 2009). And still other courts have purported to limit Section 1782 to "public" arbitrations, but have allowed that purely private arbitrations conducted pursuant to the UNCITRAL Rules may fall within the statute because “a reasoned distinction can be made between arbitrations such as those conducted by UNCITRAL, ‘a body operating under the United Nations and established by its member states,’ and purely private arbitrations established by private contract.” See, e.g., In re Arbitration between Norfolk Southern Corp., Norfolk Southern Ry. Co. and General Sec. Ins. Co. and Ace Bermuda Ltd., 626 F. Supp.2d 882 (N.D. Ill. 2009).

The availability of Section 1782 discovery is further complicated by the fact that even if authorized by the statute, Section 1782 gives the district courts discretion whether to grant or limit any requested discovery. The Court in Intel set out four factors for the district courts to consider in exercising this discretion: (i) whether “the person from whom discovery is sought is a participant in the foreign proceeding”; (ii) whether the foreign tribunal is receptive to the application; (iii) whether the discovery sought is an attempt to “circumvent foreign proof-gathering restrictions”; and (iv) whether the discovery sought is “unduly intrusive or burdensome.” 542 U.S. 264-65. As a practical matter, these factors underscore that courts are more receptive to Section 1782 applications when the arbitral tribunal has consented to or issued the discovery requests.


Although the availability of third-party discovery may be important to both the burdens and outcome of an arbitration, the relevant law is unsettled and varies considerably by jurisdiction. That variation affects not only how parties should approach the decision whether to include an arbitration clause in their contracts (and where to arbitrate if they do), but also provides potentially fertile ground for litigation once they find themselves in arbitration.

Anthony Candido is a Partner in the New York office of Clifford Chance LLP. He has litigated numerous complex commercial disputes in state and federal courts and in a variety of arbitral forums. Mr. Candido has experience in securities, white collar criminal, antitrust, and general commercial litigation in the context of a wide array of industries.

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