Zooming Into Discovery Depositions of Non-Parties in Arbitration

Zooming Into Discovery Depositions of Non-Parties in Arbitration

Subpoenas in arbitration require planning.  The Federal Arbitration Act (FAA) gives arbitrators the power to summon “any person to attend before them as a witness,” and bring material documents.  But actually getting a non-party witness to the hearing when the witness is outside the jurisdiction in which the arbitrator sits can take some doing. 

A special part of the hearing to obtain information

Arbitrators have authority under section 7 the FAA to take evidence where the witness agrees to appear or where he or she is subject to a federal subpoena.  See the leading case of Stolt-Nielsen SA v. Celanese AG, 430 Fed 577 (2d Cir. 2005).  And AAA Commercial Rule 35(b), for example,  now specifically contemplates this possibility.  So, if a party can persuade the arbitrator the information sought is important to deciding the case, a portion of the hearing can be convened where the witness lives or agrees to go to obtain the needed information.  The proceedings are considered part of the hearing and therefore within the language allowing arbitrators to require witnesses to “attend before them as a witness.” 

In the era of Zoom hearings, this can be relatively inexpensive.  But check the law in your jurisdiction before concluding that a Zoom link is the same thing as attending before the arbitrator.  At least one circuit has said it is not.  Managed Care Advisory Grp., LLC v. Cigna Healthcare, Inc., 939 F.3d 1145 (11th Cir. 2019).

Pre-hearing discovery

Still, most parties would prefer to simply subpoena a non-party for a deposition rather than hold part of the hearing  before the arbitrator to obtain the information.  If nothing else, it is expensive and inefficient to require arbitrators to preside at depositions.  And most counsel would prefer to have a discovery deposition to see what, if anything, the witness knows rather than taking the testimony as part of the hearing.  Hearings are a generally a better time to present evidence, not seek it.

Many courts just say no

But in many jurisdictions pre-hearing depositions of non-parties just aren’t available.  A number of courts have held the FAA does not allow the arbitrator to issue discovery subpoenas for depositions or documents.  See Managed Care Advisory Grp., LLC v. CIGNA Healthcare, Inc., 939 F.3d 1145 (11th Cir. 2019); CVS Health Corp. v. Vividus, LLC, 878 F.3d 703 (9th Cir. 2017); Life Receivables Tr. v. Syndicate 102 at Lloyd's London, 549 F.3d 210 (2nd Cir. 2008).  Most based their holdings in large part on the FAA’s requirement that the witness be required to “attend before” the arbitrator. 

A different approach

The Eighth Circuit, however, takes a different approach.  In In re Security Life Insurance Company of America, 228 F.3d 865 (8th Cir. 2000), the court held that arbitrators had the inherent power to issue a subpoena requiring third parties to produce documents before a hearing.  But that case did not address pre-hearing deposition subpoenas.

That issue came up before a trial court in the Eighth Circuit in ShlumbergerSema, Inc. v. Xcel Energy, Inc., 2004 WL 67647 (D. Minn. 2004).  There the court disallowed a subpoena for a discovery deposition, finding such a subpoena could be issued only in the foreign jurisdiction in which the witness was located, not in Minnesota.  The court did, however, enforce a subpoena to compel pre-hearing production of documents, relying on SchlumbergerSema.  It reasoned that production of documents is less onerous and imposes a lesser burden than a witness deposition.

Enter the age of Zoom

Recently, Zoom came to the rescue of a party who wanted to enforce an arbitrator’s deposition subpoena.  In Int'l Seaway Trading Corp. v. Target Corp., (D. Minn. Feb. 22, 2021), a former Seaway employee agreed to testify at a Zoom deposition and brought documents with him.  But the witness, at the direction of Seaway’s counsel, refused to answer several questions about revenue and ownership of Seaway. The arbitrator found the questions were relevant and required answers.  The witness then became even more uncooperative.  He argued the arbitrator had no authority to issue a subpoena for a discovery deposition.  The arbitrator disagreed and issued another subpoena.  The witness then moved the court to quash the subpoena. 

The magistrate judge refused to quash the subpoena.  First, she relied on Security Life Insurance. While she noted that Security Life Insurance did not address depositions, she decided that “nothing in the Eighth Circuit's essential reasoning permits a different outcome when considering whether [the FAA, § 7] authorizes a pre-hearing deposition subpoena.”  The same interest in efficiently resolving disputes that justified requiring documents to be produced so can they be reviewed and digested before the hearing also applied to obtaining witness testimony before the hearing.

Location

The question of the location of such a deposition remained. Assuming Fed. R. Civ. P. 45 applied, the court first noted that in 2013, after Security Life was decided, the rule was amended to allow service of a subpoena anywhere in the United States instead of only within the district of the issuing court and 100 miles from the place of deposition.  It thus didn’t matter that the subpoena was issued from Minnesota rather than Missouri where he lived.  And Rule 45’s restriction on how far the witness could be required to travel didn’t come into play.  Because the witness was required to attend the deposition by “virtual means,” he didn’t need to travel at all, let alone more than 100 miles, as forbidden by Rule 45.  He could stay home and testify via Zoom.  

The use of Zoom also overcame the concern raised by the ShlumbergerSema court that depositions are more burdensome than producing documents because the non-party witness would be called upon to travel an excessive distance to be deposed.  Now witnesses don’t need to travel at all.

Where we are now

While Int'l Seaway Trading provides help for obtaining pre-hearing non-party depositions in some cases, its reach is limited.  In those jurisdictions that find arbitrators have no power to issue any discovery subpoenas at all, it provides little help.  Even if a party could convince an arbitrator, trial court and appellate court to allow such discovery despite the rulings to the contrary in some circuits, it would take years and a couple trips to court before receiving a ruling and getting the deposition.  That hardly fits within the arbitration’s purpose of resolving disputes quickly and less expensively.

So, in many cases, parties must still ask arbitrators to hold part of the hearing in a place where the non-party witness can be compelled to appear and provide critical evidence.  Often, once the witness’s counsel understands the evidence can be obtained that way, they will agree to pre-hearing deposition, perhaps by Zoom.  That will usually be more efficient for everyone.

Within the Eighth Circuit, the reasoning of the Seaway Trading case may be persuasive to arbitrators and courts.  So rather than setting up a special hearing before the arbitrator to take evidence, some counsel will likely rely on that case to obtain a pre-hearing non-party deposition subpoena.