Volume 10, No. 3

Civil Litigation Civil Litigation Section

Chair Janis L. Wilson Chair-elect Stanley J. Parker Update Vice Chair Malcolm L. MacGregor Fall 2005 Secretary Robert E. Rosenthal Treasurer David R. Fine Non-Party Discovery in Immediate Past Chair Mark L. Tunnell Commercial Arbitration: Newsletter Editor Henry M. Sneath Legal Hurdles and Practical Associate Newsletter Editor Bridget M. Gillespie Suggestions PBA Newsletter Liaison Patricia M. Graybill By Albert Bates Jr. PBA Staff Liaison Michael Shatto The propriety and extent of discovery Since arbitration in complex commercial arbitration has is a creature of con- been the subject of extensive debate. tract, the parties are While the exchange of potential exhibits free to craft the pro- Contents and identification of witnesses prior to the cedures that will arbitration is required by the rules of most govern their arbitra- arbitral institutions, other aspects of dis- tion, including the Message from the Chair...... 2 covery, including the extent of document nature and extent of Message from the Editor...... 2 exchange, the use of expert reports, the discovery among the Albert Bates Jr. permissibility of depositions or interroga- parties. However, Recent Cases of Note...... 3 tories and the issuance of subpoenas com- third parties are generally not bound by Federal Business pelling discovery from non-parties, are the terms of an agreement to arbitrate to Decisions...... 6 generally left to the discretion of the arbi- which they are not signatories. trators. Consequently, while an arbitrator can Expert’s Corner Visual Strategy: issue a subpoena duces tecum to require Optimizing the Evidence...... 9 Albert Bates Jr. is a partner in the a non-party to appear for deposition Litigation and Construction Services and/or to produce documents in advance Dates to Remember...... 15 Groups of Reed Smith, and is the leader of the arbitration, the arbitrators cannot Annual Civil Litigation Section of Reed Smith’s Commercial and Inter- enforce the subpoena if a non-party fails Retreat ...... 24 national Arbitration Team. He is also a to comply. In the court proceeding to member of the Council of the Civil enforce the arbitrator’s subpoena, the Litigation Section. central question is whether the arbitrator

CONTINUED ON PAGE 10 Non-Party Discovery in arbitration unless the parties specifi- an arbitrator to order a non-party to Commercial Arbitration: cally agree that the arbitration shall produce documents in advance of the Legal Hurdles and be governed by the arbitration law of hearing or appear for a discovery Practical Suggestions a particular state. For example, lan- deposition. guage such as the following demon- In a recent case, the Court of strates an objective intent that the Appeals for the Third Circuit held CONTINUED FROM PAGE 1 agreement to arbitrate be subject to a that an arbitrator’s subpoena power state arbitration law rather than the under the FAA is limited to ordering had the legal authority to compel the FAA: “This arbitration, and any sub- a non-party to appear before the arbi- non-party to produce the documents sequent proceeding to enforce, mod- trator to testify or produce docu- in advance of the hearing and/or ify, vacate or confirm the arbitration ments. Hay Group, Inc. v. E.B.S. appear for the discovery deposition. award, shall be governed by the Acquisition Corp., 360 F.3d 404, 407 Unfortunately, the answer to that Pennsylvania Arbitration Act of (3rd Cir. 2004). See also Recent question depends upon the law gov- 1980.” An unequivocal expression of Developments, Hay Group Inc. v. erning the arbitration proceeding. contractual intent to be bound by a E.B.S. Acquisition Corp., 20 J. Disp. The two potential sources of state arbitration act will not be pre- Resol. 1039 (2005). The Fourth governing arbitration law are the empted by the FAA unless the state Circuit has taken a more tempered Federal Arbitration Act (FAA) and arbitration law conflicts with the pur- approach, holding that the FAA does various state arbitration acts, includ- poses of the FAA. However, the not grant an arbitrator the authority ing the Pennsylvania Arbitration Act majority of cases hold that a general to demand that a non-party produce (PAA). After addressing the issue of choice of law provision determines documents for pre-hearing discovery, whether federal or state law governs the substantive law applicable to the but suggesting in dicta that an arbi- the conduct of the arbitration and the underlying transaction, but is not suf- trator may order discovery upon a enforcement of the arbitral award, ficient to invoke the arbitration law non-party “under special circum- this article will discuss the split of of that state. Id. Consequently, in the stances” and “upon a showing of spe- authority among the courts of absence of a specific agreement as to cial need or hardship.” COMSAT appeals concerning non-party dis- the law governing the arbitration, the Corp. v. Nat’l Science Foundation, covery under the FAA, and the diver- FAA will generally apply so long as 190 F.3d 269, 276 (4th Cir. 1999). At gence among state arbitration acts the arbitration agreement involves the opposite end of the spectrum interstate or international from Hay, the Eighth Circuit has regarding non-party discovery in 1 arbitration. Specifically, this article commerce. held that the power to compel non- will address the extent of permissible parties to produce documents prior to II. Availability of Third-Party the arbitration hearing is “implicit” non-party discovery under the Discovery Under the Federal Pennsylvania Arbitration Act (PAA), in the authority granted to arbitrators and State Arbitration Acts in Section 7 of the FAA, and that the the Uniform Arbitration Act (UAA) A. Federal Arbitration Law: and the Revised Uniform Arbitration “efficient resolution of disputes Third-Party Discovery through arbitration” is furthered by Act (RUAA). This article will con- Under the FAA: clude by offering practical sugges- permitting limited third party discov- Section 7 of the FAA grants arbi- ery. Arbitration between Security tions to assist in creating more cer- trators the authority to summon “any tainty in the arbitration process. Life Insurance Company and person to attend before them or any Duncanson & Holt, Inc., 228 F.3d of them as a witness and in the prop- I. What Law Governs the 865, 870 – 71 (8th Cir. 2000). The er case to bring with him or them any Conduct of the Arbitration? Sixth Circuit, in a case arising under Anne Devens, a partner in Reed book, record, document or paper Section 301 of the Labor Smith’s Northern Virginia office, which may be deemed material as the Management Act of 1947 and decid- recently authored an article entitled, evidence indicates.” 9 U.S.C. § 7 ed prior to Duncanson, also com- “Federal Versus State Arbitration (2000). Consequently, the FAA mented that the FAA “has been held Laws: Whose Law Applies and Why expressly permits an arbitrator to to implicitly include the authority to Does it Matter?” (www.vba.org/ compel a non-party to attend the compel the production of documents comm/Fed%20v.%20State%20 arbitration and/or to produce docu- for inspection by a party prior to the Arbitration%20Final.pdf). In her ments to the arbitrators at the arbi- hearing.” Am. Fed’n of Television & article, Devens concludes the FAA tration. However, federal courts are Radio Artists v. WJBK-TV, 164 F.3d generally governs the conduct of the split over whether Section 7 permits 1004, 1009 (6th Cir. 1999).

10 Civil Litigation Update While several district courts have The Uniform Arbitration Act conferring the authority upon an also addressed this issue, the remain- (UAA), promulgated in 1955, has arbitrator to compel witnesses to ing federal courts of appeals have not been adopted with varying modifica- attend the hearings or produce docu- ruled upon the availability of third- tions in 49 states, including ments to the arbitrators, the Hay party discovery in arbitration pro- Pennsylvania. Section 7 of the UAA, court took a different view, stating: ceedings. which addresses witnesses, subpoe- [S]ome states have recently While the federal law is not set- nas and depositions, is similar in adopted versions of the tled, two general points can be most respects to Section 7 of the Uniform Arbitration Act, gleaned from these cases. First, the FAA. Like the federal courts of which differ from the Federal location of the arbitration may appeals, state courts are split on Arbitration Act. Some of determine the extent to which third- whether Section 7 of the UAA per- these state statutes explicitly party discovery requests are mits an arbitrator to order a non- grant arbitrators the power to enforceable under Section 7 of the party to produce documents or issue pre-hearing document FAA. Under current law, permissi- appear for a discovery deposition. production subpoenas upon ble discovery upon non-parties While the majority of courts have third parties. See, e.g. … 42 under the FAA is far broader in an allowed discovery at the discretion of Pa. C.S.A. § 7309 (“The arbitration conducted in St. Louis the arbitrator and enforced subpoe- arbitrators may issue subpoe- than in one conducted in nas accordingly, some courts have nas in the form prescribed by or . The extent of per- interpreted Section 7 as not permit- general rules for the atten- missible third-party discovery in ting any pre-trial discovery, and dance of witnesses and for arbitrations conducted under the other courts have required a showing production of books, records, FAA in venues such as Chicago, of “extraordinary circumstances” documents and other evi- California, Florida or Texas remains before allowing discovery in an arbi- dence.”) The language of an open issue, at least at the appel- tration proceeding. See Official these state statutes clearly late level. Second, while the avail- Comment to Section 17 of RUAA shows how a law can give ability of document discovery from (collecting cases). authority to an arbitrator to non-parties in advance of an arbitra- 2. Non-Party Discovery issue pre-hearing document tion hearing is an open issue in Pursuant to the Pennsylvania production orders on third many federal circuits, relatively few Arbitration Act parties. federal courts have interpreted The provisions of 42 Pa. C.S.A. § Section 7 of the FAA as authorizing 7309 are applicable to statutory arbi- Hay, 360 F.3d at 407 n.1. a discovery deposition of a non- tration pursuant to the Pennsylvania party. In a practical sense, the logic Arbitration Act of 1927, the While the issue has not been seems to be the more intrusive the Pennsylvania Arbitration Act of 1980 finally resolved, and Pennsylvania third-party discovery sought, the and Pennsylvania common-law case law is not nearly as strong as less likely a court will find that the arbitration. See 42 Pa. C.S.A. § this footnote from Hay suggests, sev- arbitrator had the authority under 7342(a). 42 Pa. C.S.A. § 7309 gener- eral Pennsylvania cases indicate that Section 7 of the FAA to order that ally mirrors the language of Section the decision on whether to allow a non-party discovery. 7 of the FAA. Section 7309 provides discovery deposition or to issue a While the rules invoked in Hay that arbitrators “may issue” subpoe- document subpoena falls squarely and COMSAT may appear impracti- nas for the attendance of witnesses within the discretion of the arbitra- cal in today’s world of complex com- and for production of books, records tors. See Cotterman v. Allstate Ins. mercial arbitration, legislative or other evidence. § 7309(a). The act Co., 446 Pa. Super 202, 212 – 213 change to Section 7 of the FAA does is silent as to whether the production (1995) (whether to order a discovery not appear likely. The issue will must occur before the arbitrators at deposition is within discretion of remain unresolved on the national the time of hearing. The statute also arbitrators because PAA does not level until the Supreme provides that the arbitrators “may “mandate that arbitrators provide for Court addresses the issue. See Recent permit” a deposition “for use as evi- discovery.”); Savage v. Comm. Union Dev., 20 J. Disp. Resol. at 1049. dence” if the witness is unavailable Ins. Co., 326 Pa. Super. 204, 216 – for the hearing. 217 (1984) (decisions on permissible B. State Arbitration Law: While other courts have inter- discovery should be considered by 1. Third-Party Discovery preted language similar to that con- Under the UAA tained in 42 Pa. C.S.A. § 7309(a) as CONTINUED ON PAGE 12

PBA Civil Litigation Section Newsletter Fall 2005 11 Non-Party Discovery in Alaska, Colorado, Hawaii, Nevada, Prefatory Note to RUAA. Since the Commercial Arbitration: New Jersey, New Mexico, North RUAA supports the pro-arbitration Legal Hurdles and Carolina, North Dakota, Oregon, policy of the FAA, the parties Practical Suggestions Utah and Washington. Bills to enact express choice of governing arbitra- the RUAA are currently pending in tion law should be honored by a state

CONTINUED FROM PAGE 11 seven other jurisdictions: or federal court. Connecticut, Indiana, Iowa, In other words, in drafting the Massachusetts, Oklahoma, Vermont arbitration agreement, the parties can the arbitrators as “part and parcel of and West Virginia. agree that the RUAA will be the gov- the dispute resolution process”). In sum, the RUAA expressly per- erning arbitration law, thereby grant- 3. Unlike the FAA, PAA or mits “such discovery as the arbitrator ing the arbitrator the authority to per- UAA, the RUAA Expressly decides is appropriate in the circum- mit that discovery that is appropriate Authorizes the Arbitrator to stances,” with the intent of safe- in his or her judgment under the cir- Permit Such Discovery as guarding the rights of third parties cumstances of the case. By including the Arbitrator Determines while ensuring that there is sufficient a specific choice of arbitration law is Appropriate disclosure of information to provide provision, the court would apply the The RUAA, promulgated in a full and fair hearing. RUAA in determining whether to 2000, provides that, unless the agree- enforce the arbitrator’s subpoena. III. Practical Suggestions to ment to arbitrate specifies to the con- While agreeing to conduct the arbi- Create More Certainty in the tration under the rules of an arbitral trary, discretion rests with the arbi- Arbitration Process trators as to the nature and extent of institution vests with the arbitrator There are practical ways to the authority to direct the exchange permissible discovery, if any. See address the uncertainty surrounding RUAA at § 17(c). Specifically, the of information among the parties, non-party discovery in arbitration. institutional rules do not bind a non- arbitrator “may permit such discov- When planning for the resolution of ery as the arbitrator decides is appro- party that is an outsider to the agree- potential future disputes, or when ment to arbitrate. Consequently, priate in the circumstances, taking agreeing to submit an existing dis- into account the needs of the parties selection of the governing arbitration pute to arbitration, strategic consid- law defines the authority of the arbi- to the arbitration proceeding and eration must be given to the applica- other affected persons.” RUAA at trator to permit third-party discovery. ble arbitration law. However, even in 2. Conduct Discovery § 17(c) (emphasis added). Section the absence of a governing arbitra- 17(d) explicitly states that an arbitra- Proceedings Before tion law provision, there are ways to A Single Arbitrator tor has the authority to issue a sub- reconcile the need for important poena for a discovery proceeding Section 7 of the FAA authorizes information in the possession of third the arbitrator to subpoena witnesses such as a document request or depo- parties with the arbitral authority sition. The RUAA also attempts to to attend the hearing and to provide granted in Section 7 of the FAA. documents at the hearing. address the need for depositions and 1. Contractually Agree that the document productions in states other Conventional wisdom has been that RUAA is the Governing “hearing” means the final evidentiary than the locale of the pending arbi- Arbitration Law tration. In Section 17(g), the RUAA hearings conducted before the arbi- Arbitration is a creature of con- tration panel. In a complex commer- expressly authorizes a court to tract. Consequently, the parties may enforce a subpoena or discovery- cial arbitration, such authority obvi- specifically agree that the arbitration ously has its limitations, as arbitrators related order issued by an arbitrator shall be governed by and conducted in state B compelling the attendance become impatient watching attorneys pursuant to the New Jersey Revised and paralegals review boxes of docu- of a witness or production of docu- Uniform Arbitration Act, N.J. ments or records in state A, so long ments or conduct uninformed discov- Stat.Ann. § 2A: 23B-1 et seq., or the ery depositions. The conduct of dis- as state A has adopted the RUAA. arbitration law of another state that This provision is intended to elimi- covery is generally not an effective has adopted the RUAA. The contrac- use of the time set aside for arbitra- nate duplicative and unnecessary tual election to proceed under state court proceedings to obtain evidence tion hearings. Further, non-parties law instead of the FAA will be hon- that possess relevant and material for use in a complex commercial ored unless that specified state law is arbitration. information may not reside within the antithetical to the pro-arbitration subpoena power of the arbitrators, As of July 2005, the RUAA has public policy of the FAA. See been adopted in 11 jurisdictions: further complicating matters.

12 Civil Litigation Update One way to avoid this problem is ly discovery, and will focus the dis- age the case, and tend to allow only for one of the arbitrators to conduct a covery on essential information. The minimal discovery beyond document limited scope hearing for the purpose court noted that preliminary eviden- exchange among the parties, even if of allowing the parties to take evi- tiary hearings can proceed expedi- the parties jointly request more dence for later use at the arbitration tiously before a single arbitrator extensive discovery. On the other hearings. Pursuant to Section 7 of the authorized to rule upon issues of extreme, some arbitrators view their FAA, one arbitrator may convene privilege, admissibility, relevance role passively, allowing the parties to hearings at the location of the third and the like during the discovery pro- set their own rules and time frames, party, rather than the venue of the ceeding, with the full panel to hear and only become involved in manag- hearing, solely for the purpose of the more central issues during the ing the process if one of the parties taking that evidence. arbitration hearings. refuses to abide by the rules to which The leading case is Odfjell ASA v. This practical approach balances they have agreed. These passive arbi- Celanese, 2004 WL 2922152 the need for the information and lim- trators give great deference to the (S.D.N.Y. Dec. 18, 2004). There are itations on arbitral authority under wishes of the parties because arbitra- a series of opinions in the Celanese Section 7. Among the unanswered tion is a consensual, contractual saga addressing non-party discovery questions are whether telephonic forum. They view their roles as lim- issues under Section 7 of the FAA. In appearance, video conferencing or ited to taking the evidence submitted earlier opinions, the court held that some other live and interactive by the parties and reaching decisions Section 7 of the FAA only confers appearance before one arbitrator based on the information presented. upon the arbitrators the power to would be authorized by Section 7 of If the parties agree to a lengthy pre- compel non-parties to appear before the FAA. While the Celanese hearing period to permit litigation- the arbitrators, not the power to com- approach has its drawbacks in terms style discovery, that is their preroga- pel non-parties to participate in depo- of cost, transparency and efficiency, tive. Most arbitrators lie somewhere sitions or other forms of pre-hearing it permits necessary discovery and between the two extremes, but recog- discovery outside the presence of the inherently causes the parties to limit nize that each brings certain views, arbitrators. Id. at 2. Taking their cue their requests for non-party discov- biases and experiences to their serv- from the court’s prior decisions, the ery to the truly significant issues in ice as arbitrators. These biases can be arbitrators issued new subpoenas the case. influenced by the arbitrator’s profes- requiring custodians of records from 3. Select the Right Arbitrator sional and educational background, several non-parties to “appear and The nature and extent of permis- as well as his or her training, experi- testify in an arbitration proceeding” sible discovery in commercial arbi- ence, culture, personality and a vari- and to produce large volumes of doc- tration matters lies, at least in the ety of other factors. uments. The primary response to the first instance, with the arbitrators. If Selecting the right arbitrator for a motion to compel was that the sub- the non-party witnesses fail to volun- given case is a critical strategic deci- poenas were nothing more than a tarily comply with a subpoena, the sion, second in importance only to thinly-veiled attempt to obtain pre- court is then presented with the ques- hiring a lawyer that thoroughly hearing discovery, authority that the tion of whether the arbitrator had the understands the arbitration process. arbitrators lack Section 7 of the FAA. legal authority to compel the non- Litigators that primarily handle com- The court held that the arbitra- party to produce documents in mercial matters in federal and state tors, “or any of them,” may call for advance of the hearing and/or appear court often lack an understanding of the non-party to appear before them for deposition under the applicable the fundamental differences between to testify and produce documents at law. However, enforcement does not litigation — an inherently rules- any time in the case. “Nothing in the become an issue unless you have driven forum — and arbitration — a language of the FAA limits the point convinced the arbitrator of the need flexible and creative process in in time in the arbitration process for the requested non-party discov- which the parties and the arbitrators when this power can be involved or ery. craft the specific rules governing that says that the arbitrators may only Arbitrator’s views and biases case. One of the key defining differ- involve this power under Section 7 at concerning discovery in arbitration ences between the processes is that the time of the trial-like final hear- vary widely. Some arbitrators view you cannot select your judge in court, ing.” Id. at 3. In the court’s view, the their role as a protector of the arbi- but in arbitration the parties select or necessity of appearing before at least tration system, placing a premium on strongly influence the selection of one arbitrator will prevent the parties speed, efficiency and cost-effective- from engaging in extensive and cost- ness. These arbitrators actively man- CONTINUED ON PAGE 14

PBA Civil Litigation Section Newsletter Fall 2005 13 Non-Party Discovery in carefully consider the need for the However, even in the absence of an Commercial Arbitration: information, the burden upon the express choice of law provision, there Legal Hurdles and third-party from whom discovery is are practical ways to reconcile the Practical Suggestions sought, the availability of the infor- need for information in the posses- mation from another source, the rela- sion of third parties with the arbitral tionship of the non-party to the dis- authority granted by the appropriate CONTINUED FROM PAGE 13 pute and various other criteria in arbitration law. deciding whether to permit non-party arbitrators that will manage and discovery. It is imperative that the Footnotes decide their case. Parties have the party seeking non-party discovery demonstrate the necessity for the ability to screen potential arbitrators 1 In Trombetta v. Raymond James based on a wide variety of criteria. As information sought. The focus needs Financial Services et al., 153 P.L.J. a general rule, arbitrators whose prac- to be on why the arbitrators need the 167 (March 2, 2005) (published July tice was/is primarily federal and state information in their decision-making 8, 2005), Judge Wettick reviewed the court litigation tend to permit more process, not that the information standards for vacatur under the FAA discovery than seasoned arbitration could have some bearing on a minor and PAA. In that case, the arbitration lawyers, in-house counsel, transac- issue in the case, or that it may lead provision did not specify the law to tional lawyers or non-lawyer arbitra- to admissible evidence. govern the review of the arbital tors. In today’s information age, spe- Counsel who do not fully under- award. Judge Wettick stated, “The cific information may also be avail- stand the arbitration process often Pennsylvania appellate courts have able about the potential arbitrators, fail to take advantage of the pre- never addressed the issue of whether including written opinions, articles, hearing conference or initial meeting federal or state standards of review anecdotal experience, jointly con- with the arbitrators. The parties have govern a petition filed in the ducted interviews, references or an opportunity to educate the arbitra- Pennsylvania state courts to enforce word-of-mouth. Selecting the right tors about their case, to present their or vacate an arbitration award arbitrator for your case is imperative theory of the case, outline the diffi- entered in an arbitration proceeding to your success in that arbitration. cult factual and legal issues to be governed by the [FAA].” Id. at 168. 4. Maximize the Benefit of the resolved and explain why certain In a footnote, Judge Wettick con- Pre-Hearing Conference information is relevant and material cludes, “until the United States Prior to the pre-hearing confer- to significant issues in dispute, or Supreme Court addresses this issue, ence or initial meeting with the arbi- conversely why discovery on certain it is for state courts to decide whether trators, the parties and their counsel issues would be a waste of every- to apply state legislation or § 10 of should develop a detailed case man- one’s time and money. If the pre- the FAA. State courts are divided.” agement plan. If the parties can joint- hearing conference is properly uti- Id. at 172. n.1. Consequently, while ly agree to a case management plan, lized, it is invaluable for defining the most courts have concluded that the many arbitrators will accept that information exchange process and FAA will govern the conduct of the plan, including the nature and extent streamlining the arbitration proceed- arbitration proceedings unless the of discovery agreed between the par- ings. parties specifically agree that the law ties. Often the parties do not agree on Conclusion of a particular state is to be applied, a case management plan, leaving the Arbitration is a flexible and cre- the Trombetta opinion creates some plan to be developed with the arbitra- ative process in which the parties and uncertainty as to whether the PAA or tors during the initial meeting or con- the arbitrators craft the rules govern- the FAA provides the standard of ference call. ing the resolution of that particular review of arbitration awards in the At the time of the initial meeting dispute. While an arbitrator has the courts of common pleas of this com- or conference call, you will be authority to order non-party discov- monwealth when the underlying required to demonstrate for the arbi- ery under the RUAA, the availability agreement involves interstate com- trators why the discovery that you of non-party discovery under the merce. ◆ seek is important to their decision- PAA, the FAA and the UAA is less making process. Many arbitrators certain. One of the key strategic use as touchstones that the informa- issues that parties should consider in tion sought is “relevant and material” drafting agreements to arbitrate is a to “significant issues in dispute” choice of arbitration law provision. among the parties. Most arbitrators

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