Crafting Arbitration Provisions for the 21st Century: Taking Non-Party Testimony Under the Federal Arbitration Act

Client Advisory

March 14, 2012
Many commercial agreements provide for arbitration in the event that a dispute arises under the contract. Arbitration generally seeks to avoid the burden and expense of protracted litigation. However, one important question to consider at the outset is whether testimony or documents will be needed from people or entities who are not parties to the agreement since traditional “discovery” is far more limited in arbitration. This is particularly so when the relationship between the parties implicates non-signatories such as customers, suppliers, or marketing agents. Unless the arbitration provision is carefully drafted, a party may find itself in the unenviable position of being unable to present its best case to the arbitrator as documents and testimony of non-parties to the agreement may be unavailable.  
The Problem
Under § 7 of the Federal Arbitration Act (“FAA”), an arbitrator is empowered to issue a subpoena to a third-party to appear before the arbitrator to give testimony and, in a proper case, bring any book, record, document, or paper which may be deemed material as evidence in the case. The FAA provides that the subpoena shall be served in the same manner as subpoenas to appear before a court and that the district court for the district in which the arbitrator is “sitting” may compel the witness’ attendance (or punish the witness’ non-compliance). Federal Rule of Civil Procedure 45(b)(2), which governs the service of subpoenas in federal court, provides that the subpoena can only be served “within the district of the issuing court” or outside the district but “within 100 miles of the place specified for the … hearing.” This is the jurisdictional “reach” of the district court. The interplay between the FAA and Federal Rule of Civil Procedure 45 means that (i) the district court where the arbitrator sits has no power to compel the attendance of a witness who resides outside the district or the 100 mile radius of where the arbitration sits; and (ii) the district court where the witness is located has no authority to compel compliance with a subpoena issued in the district where the arbitrator sits. Putting aside whether pre-hearing “discovery” is available under the FAA,[1] the thorny question is how do you achieve compliance with a subpoena validly issued under § 7 of the FAA for a witness to appear before the arbitrator and give evidence when the witness is not in the jurisdiction where the arbitrator “sits” and thus cannot be compelled to comply by the district court empowered by the FAA to enforce the subpoena.  
By way of example, assume your agreement provides for arbitration in New York, New York (your primary place of business). In the regular course of business the arbitrator would issue a subpoena in New York and you would proceed to serve it on your ex-supplier in Texas. Assuming your ex-supplier is not willing to cooperate, § 7 of the FAA allows you to petition the District Court for the Southern District of New York (since that is the district court “in which such arbitrators, or a majority of them, are sitting”) to compel attendance or punish persons with contempt for failure to appear.   The problem, however, is that under Federal Rule of Civil Procedure 45, the jurisdiction of the District Court for the Southern District of New York does not extend to Texas, so your ex-supplier in Texas is out of reach. Because the FAA empowers only the district court where the arbitrator is sitting to enforce subpoenas, you can’t seek to enforce the subpoena in federal court in Texas. What do you do?
A line of cases starting with the Third Circuit’s decision in Hay Group, Inc. v. E.B.S. Acquisition Corp., 360 F.3d 404 (3d Cir. 2004), suggests how careful planning can mitigate this problem. In Hay Group the court found that under the FAA the arbitrators “have the power to compel third-party witnesses to appear with documents before a single arbitrator, who can then adjourn the proceedings.” Id. at 577-78. This gives the arbitration panel the “effective ability to require delivery of documents from a third party in advance [of the merits hearing], notwithstanding the limitations of Section 7 of the FAA.” Id. Put differently, a single arbitrator can convene a short hearing at which the third party will produce documents. A year later the Second Circuit, in Stolt-Nielsen SA v. Celanese AG, 430 F.3d 567, 577-78 (2d Cir. 2005), extended the same rule to live testimony before the arbitrators.[2] 
Finally, if the parties and arbitrators agree that a hearing should be temporarily relocated to a venue where the witness is located, where the arbitrator issues a subpoena and where the witness is to appear to give testimony and produce documents, then the parties can seek assistance from the local district court to compel compliance with the subpoena. In the example above, the arbitrator would “sit” in Texas when issuing the subpoena. The FAA allows you to go to the district court in Texas that has jurisdiction over the former supplier to enforce the subpoena. At least one district court in Connecticut held that a witness in this situation has no standing to object to the temporary relocation of the hearing, even if its sole reason is to obtain evidence. See Seaton Insurance Company v. Cavell USA, No. 3:07-cv-356 (D. Conn. Mar. 21, 2007) at *5-6.
It may very well be the case, however, that your adversary, in the midst of a hotly contested arbitration, may object to temporarily relocating your hearing to Texas so that you can take testimony to bolster your case. He may even argue that by selecting “New York, New York” (your primary place of business) as the location of the arbitration, you should be prevented from moving the hearing to help your case. The arbitrator may agree with that position. To combat this prospectively, a carefully drafted arbitration provision would replace a simple designation of “New York, New York” as the location of arbitration with a provision that additionally provides for the arbitrator to temporarily move the arbitration to take testimony and accept documents from third parties as needed. By making this provision part of the contract, one is more likely to convince the arbitrator to temporarily move the arbitration to accept such evidence.

Questions regarding this advisory should be addressed to Jeffrey S. Boxer (212-238-8626, or Alexander G. Malyshev (212-238-8616,

[1] The Sixth and Eights Circuits may allow limited document discovery on a pre-hearing basis, the Second and Third Circuits allow no pre-hearing “discovery” at all, and the Fourth Circuit allows some limited exceptions to that rule.
[2] The Court found that any rule there may be “against compelling non-parties to participate in discovery cannot apply” to situations in which the non-party is summoned in writing to attend before the arbitrators or any of them as a witness and to bring with him documents which may be deemed material as evidence in the case.   

Carter Ledyard & Milburn LLP uses Client Advisories to inform clients and other interested parties of noteworthy issues, decisions and legislation which may affect them or their businesses. A Client Advisory does not constitute legal advice or an opinion. This document was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. © 2018 Carter Ledyard & Milburn LLP.
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