In reversing a district court’s order enforcing an arbitral subpoena under the Federal Arbitration Act (FAA), 9 U.S.C. Section 7, the Second Circuit Court of Appeals held that the FAA does not authorize arbitrators to issue pre-hearing document discovery subpoenas to entities that are not parties to such proceedings. Although this ruling aligns the Second Circuit with the Third Circuit, other circuits have enforced such subpoenas.  

The arbitration giving rise to the discovery subpoena at issue concerned a trust’s claim against an insurer under a so-called “contingent cost” insurance policy that contained a broad arbitration clause. During the discovery phase of the arbitration, the insurer sought to compel production of documents from the entity responsible for purchasing the policy for the trust (Peachtree). Although Peachtree was a party to the same arbitration agreement as the trust and the insurer, it was not a party to the arbitration. After the arbitration panel issued a subpoena requiring Peachtree to produce documents in advance of the arbitration hearing, Peachtree moved unsuccessfully in the district court to quash.  

On appeal, the Second Circuit, applying basic principles of statutory construction, examined the plain language of Section 7, which provides that “[t]he arbitrators… may summon in writing any person to attend before them… as a witness and in a proper case to bring with him… any book, record, document, or paper which may be deemed material as evidence in the case” (emphasis added). The Court held that this language “unambiguous[ly]” provides that “documents are only discoverable in arbitration when brought before arbitrators by a testifying witness.” Thus, the proper way for the insurer to have obtained access to the requested documents by subpoena would have been to subpoena Peachtree to appear as a witness at the arbitration hearing and produce the documents at that time. The Court rejected the insurer’s argument that an exception should be applied because Peachtree and the trust were “intimately related.” Even if this were true, the Court ruled that Section 7 does not contain a discovery exception for closely related entities. (Life Receivables Trust v. Syndicate 102 at Lloyd’s of London, 2008 WL 4978550 (2d Cir. Nov. 25, 2008))