Subpoena Power Not Available for Discovery

Arbitral Supoena Power Does Not Provide for Pre-Hearing Production by Non-Parties

Hay Group, Inc. vs. EBS Acquisition Corp., Third Circuit

HAY GROUP, INC. v. E.B.S. ACQUISITION CORP., No. 03-1161/1162 (3rd Cir., 3/12/04).

In arbitrations subject to the Federal Arbitration Act, arbitral subpoena power does not extend to requiring pre-hearing production of documents by non-parties. This Opinion, which arises in an employment and restrictive covenant context, is marked “PRECEDENTIAL” by the Third Circuit and, indeed, it illuminates an area of arbitration practice that occupies an indefinite and uncertain landscape. (See, e.g., “Subpoenas in Arbitration,” by Martin P. Unger, 6 SAC 1(1)).

Section 7 of the FAA states that arbitrators may compel the production of documents by a non-party if the non-party is summoned “to attend” before them as a witness. In that case, the witness may be ordered “to bring with him or them any book, record, or document or paper which may be deemed material as evidence in the case.”

Some courts, including the Eighth Circuit, have inferred from that power the further power to compel production of documents by non-parties before the hearing. The Fourth Circuit has developed a more limited “special needs” test. The Third Circuit views Section 7 straightforwardly and finds that such a reading makes sense, in terms of arbitration’s nature and the FAA’s objectives. By limiting the power to order non-party production, parties will be “forced to consider whether the documents are important enough to justify the time, money, and effort that the subpoenaing parties will be required to expend if an actual appearance before an arbitrator is needed.” This will ensure arbitration’s cost-effective nature and confirm the Act’s intention, i.e., that “[a] hallmark of arbitration – and a necessary precursor to its efficient operation – is a limited discovery process.”

Indeed, the Third Circuit opines, “the rule we adopt in this case may in fact facilitate efficiency by reducing overall discovery in arbitration.” Having established that an arbitral subpoena must call a non-party witness before the arbitrators in order to procure document production, the Court also settles a related issue, whether those documents must be located within the territory prescribed by FRCP 45. The answer is “no,” so long as the documents are within the control of a person who can be properly subpoenaed. “Nothing in [the FRCP’s] language suggests that a witness who is subpoenaed to testify may not also be directed to bring documents that are not located within the territorial limits set out in Rule 45(b)(2).” (SAC Ed: A concurrence by Circuit Judge Chertoff agrees fully with the majority Opinion, but speaks to the concern that Section 7 cuts off all advance production. Arbitrators will retain the effective ability to require delivery of documents from a third-party in advance, by scheduling a hearing for the purpose of summoning the witness and receiving delivery of the documents. This will cause arbitrators and parties to assess carefully the need for such pre-hearing production and, Judge Chertoff winks, “[I]n many instances, … the inconvenience of making such a personal appearance may well prompt the witness to deliver the documents and waive presence.”) (SAC Ref. No. 2004-13-04)

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Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.

Securities Attorney at Sallah Astarita & Cox | 212-509-6544 | | Website | + posts

Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.

He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page -, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.