As discussed in an earlier post, obtaining discovery from a non-party to an arbitration often is easier said than done. Depending on the law of the place of arbitration, arbitrators may not be able to compel document production or testimony from a non-party before a hearing on the merits. This can impair a claimant’s ability to prove its claims considerably, or in some cases altogether inhibit a potential claimant from learning the facts necessary to identify the correct respondent(s) or to articulate a competent claim. Moreover, while Fed. R. Civ. P. 27 permits pre-action discovery to “perpetuate testimony regarding [a] matter that may be cognizable,” many federal courts have interpreted the phrase “perpetuate testimony” to mean that Rule 27 may only be used to “preserve testimony which could otherwise be lost,” rather than as a “substitute for discovery.” Ash v. Cort, 512 F.2d 909, 912 (3d Cir. 1975); accord Bryant v. Am. Fedn. of Musicians of the United States, 666 Fed. Appx. 14, 16 (2d Cir. 2016); In re Allegretti, 229 F.R.D. 93, 96 (S.D.N.Y. 2005) (“[Rule 27] is not a method of discovery to determine whether a cause of action exists; and, if so, against whom the action should be instituted.”)).
Todd Rosenbaum is an Associate in the firm’s New York office. His practice has included litigation ancillary to international arbitrations, general commercial litigation, government enforcement matters, and securities litigation.
Litigators in the U.S. often take for granted the ease with which they can obtain discovery from non-parties in our federal and state courts. One might assume that the “presumption in favor of arbitrability” embodied in the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq. (“FAA”), would have been implemented with, among other things, a statutory grant of subpoena power to arbitrators that is virtually coextensive with that of a federal district court. No so, however. And depending on the place of arbitration, a party’s ability to compel document production from a non-party, much less to depose that witness, prior to a hearing, may be very limited indeed. Problems and issues abound.
When a claimant who is party to an arbitration agreement initiates litigation of arbitrable claims, the defendant in that case typically expects to be able to move successfully to compel arbitration under the Federal Arbitration Act (“FAA”), 9 U.S.C. § 4. In cases where the litigation is commenced in a federal district court whose geographical jurisdiction includes the agreed place or “situs” of arbitration, that expectation is likely valid. However, if the litigation is commenced in a district other than one in which the parties agreed to arbitrate their disputes, the federal court may not only be unable to enforce the contractual provision regarding the “place” of arbitration, but it may be unable to compel arbitration altogether. The courts are divided on the issue.
In most countries, it is uncontroversial that a court sitting at the situs of an arbitration has jurisdiction to adjudicate a petition to confirm or vacate or modify an award issued in that arbitration. In the United States federal courts, however, the mix of issues concerning subject matter jurisdiction and personal jurisdiction, respectively, has made for bewilderment galore.
Last month, we described the split among Federal Circuit Courts regarding the question of whether the Federal Arbitration Act (“FAA”), 9 U.S.C. § 3, mandates a stay rather than dismissal of a judicial proceeding after a district court compels arbitration of all of the claims in an action before it. (LINK) But what is the practical significance of the district court’s retaining jurisdiction? Among other things, it may thus be able to grant interim relief in order to preserve the status quo pending arbitration.
Under the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1 et seq., if a District Court compels arbitration of all of the claims that are before it, and thereupon dismisses the suit, its order compelling arbitration is final and appealable; but if the District Court stays the suit, its order compelling arbitration is “non-final” and not immediately appealable. So what’s a right and proper court to do? The Federal Courts of Appeal are divided on the question of whether the FAA requires a stay or dismissal of judicial proceedings after a District Court sends all of the claims in suit before it to arbitration. Currently, some parts of the U.S. are in effect more “arbitration friendly” in this regard than others.
(Note that we are not considering here the case of an “independent” motion to compel or to stay arbitration. In that case, a petition under FAA § 4 commences a special proceeding, and no ordinary claim in suit is before the court.)