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August 2021

When Parties Arbitrate: The Powers and Limitations of Discovery in Arbitration under the Federal Arbitration Act

More and more architects, engineers, and other design professionals have the ability to perform and work remotely—often times far from the actual construction site. COVID-19 has forced general contractors and owners to experiment with using and communicating with professionals who may reside outside of the state where the construction is occurring. Even though the parties’ contract may have a general choice of law provision, if the parties engaged in interstate commerce, then the Federal Arbitration Act (“FAA”) may apply to the parties’ arbitration clause.

When Does the Federal Arbitration Act Apply?

Section 2 of the FAA, 9 U.S.C. § 2, provides that the FAA applies to “[a] written provision in any….contract evidencing a transaction involving commerce to settle by arbitration. . . .” Section 2 goes on to provide that such an agreement is largely “valid, irrevocable, and enforceable . . . .” The FAA doesn’t have to be mentioned in the contract or arbitration provision in order to apply. Generally, if a contract provides for one party to provide services in another state, and a dispute is to be resolved through arbitration, then the arbitration is subject to the FAA.

This is because the FAA “rests on the authority of Congress to enact substantive rules under the Commerce Clause.” Southland Corp. v. Keating, 465 U.S. 1, 11, 104 S. Ct. 852, 858 (1984). Accordingly, the FAA applies to all arbitration agreements “involving commerce.” Comanche Indian Tribe v. 49, L.L.C., 391 F.3d 1129, 1131 (10th Cir. 2004). The “involving commerce” requirement is typically met where the parties are from different jurisdictions and the materials/services at issue came from outside the forum state. Id.; see also Parm v. Nat'l Bank of Cal., N.A., 835 F.3d 1331, 1333-34 (11th Cir. 2016); Allied-Bruce Terminix Companies, Inc. v. Dobson, 513 U.S. 265, 282 (1995).

The FAA could also apply in situations where the “intrastate aspect” is unclear. In Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 56, 123 S. Ct. 2037, 2040 (2003), the U.S. Supreme Court found that because the FAA provides for “the enforcement of arbitration agreements within the full reach of the Commerce Clause,” the FAA encompasses a wider range of transactions than those actually “in commerce,” which means that the FAA will apply “if in the aggregate the economic activity in question would represent ‘a general practice . . . subject to federal control.’” Id. at 57-58.

Does it Matter Whether the FAA Applies to Your Arbitration Provision?

As a matter of public policy, discovery in an FAA arbitration proceeding is intentionally limited in scope compared to litigation. The U.S. Supreme Court has stated that “by agreeing to arbitrate, a party trades the procedures and opportunity for review of the courtroom for the simplicity, informality, and expedition of arbitration.” Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 31 (1991). In practice, this means that the Federal Rules of Civil Procedure aren’t necessarily applicable to arbitration. For example, Rule 45 of the Federal Rules of Civil Procedure permits third parties to be subpoenaed to either or both appear for a deposition or produce documents and things during fact discovery. However, there is nothing under the FAA that authorizes an arbitrator to issue third-party subpoenas during fact discovery.

Section 7 of the FAA does permit an arbitrator to “summon in writing any person to attend before them or any of them as a witness, and in a proper case to bring with him or them any book, record, document or paper which may be deemed material as evidence in the case.” 9 U.S.C. § 7. Section 7 also states that an arbitrator may compel a witness “in the same manner provided by law for securing the attendance of witnesses.” Id. However, the Second, Third, Ninth, and Eleventh Circuits have interpreted Section 7 as only allowing subpoenas in connection with the actual arbitration hearing—and not for pre-hearing discovery.

According to those courts, “[a] plain reading of the text of section 7 reveals that an arbitrator’s power to compel the production of documents is limited to production at an arbitration hearing. The phrase ‘bring with them,’ referring to documents or other information, is used in conjunction with language granting an arbitrator the power to ‘summon . . . any person to attend before them.’ Under this framework, any document productions ordered against third parties can happen only ‘before’ the arbitrator. The text of section 7 grants an arbitrator no freestanding power to order third parties to produce documents other than in the context of a hearing.” CVS Health Corp. v. Vividus, LLC, 878 F.3d 703, 706 (9th Cir. 2017); see also Managed Care Advisory Grp., LLC v. CIGNA Healthcare, Inc., 939 F.3d 1145 (11th Cir. 2019); CVS Health Corp. v. Vividus, LLC, 878 F.3d 703 (9th Cir. 2017) (pre-hearing document subpoena found invalid); Life Receivables Tr. v. Syndicate 102 at Lloyd’s London, 549 F.3d 210 (2nd Cir. 2008) (document subpoena invalidated); Hay Group, Inc. v. E.B.S. Acquisition Corp., 360 F.3d 404 (3rd Cir. 2004) (invalidating document subpoena). These courts routinely reject “any argument in favor of ignoring the literal meaning of the FAA in the name of efficiency” because “efficiency is not the principal goal of the FAA.” Hay Group, Inc., 360 F.3d at 410. However, the Fourth Circuit has held that an arbitrator has the power to issue a subpoena to a nonparty for pre-hearing discovery “under unusual circumstances” and “upon a showing of special need or hardship.” COMSAT Corp. v. Nat’l Science Foundation, 190 F.3d 269, 275-76 (4th Cir. 1999).

Even an arbitrator’s authority to issue a subpoena to appear at the arbitration hearing may be limited. Under Rule 45, a federal district court’s power to compel appearance at trial is limited to within one hundred miles of where the non-party resides, is employed or regularly transacts business. But, the Eleventh Circuit has stated that “Section 7 [of the FAA] does not authorize district courts to compel witnesses to appear in locations outside the physical presence of the arbitrator, so the court may not enforce an arbitral summons for a witness to appear via video conference.” Managed Care Advisory Group, LLC v. CIGNA Healthcare, Inc., 939 F.3d 1145, 1160 (11th Cir. 2019); see also Roundtree v. Chase Bank USA, N.A., 13-239 MJP, 2014 WL 2480259, at *2 (W.D. Wash. June 3, 2014). There may also be a question as to whether Section 7 permits nationwide service of process. See Dynegy Midstream Services, LP v. Trammochem, 451 F.3d 89, 94 (2d Cir. 2006) (stating that Section 7 does not permit nationwide service of process).

One important consideration is that many states have granted authority to arbitrators in a manner much broader than what Congress granted under the FAA. For example, under the Uniform Arbitration Act, adopted by Arizona, Utah, Colorado, Nevada, New Mexico, Oregon, Washington, and over fifteen other states, the arbitrator has the power to issue subpoenas for discovery “to the extent a court could if the controversy were the subject of a civil action in this state.” A.R.S. § 12-3017(D); see also Utah Code Ann. § 78B-11-118; CO Rev Stat § 13-22-217; NRS 38.233; NM Stat § 44-7A-18; Or. Rev. Stat. § 36.675; RCW 7.04A.170.

However, when the state law contradicts the FAA, the contradicting law “is displaced by the FAA.” AT & T Mobility LLC v. Concepcion, 563 U.S. 333, 341 (2011). However, this may not mean that the FAA prohibits the parties from explicitly stating in their arbitration clause that a particular state’s arbitration laws (or the Federal Rules of Civil Procedure) shall apply to the parties’ agreement to arbitrate. This is because the U.S. Supreme Court has stated that parties are free “to arbitrate under different rules than those set forth in the Act itself,” because “[a]rbitration under the Act is a matter of consent, not coercion, and parties are generally free to structure their arbitration agreements as they see fit.” Volt Info. Scis., Inc. v. Bd. of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 479 (1989). This appears to be consistent with the Supreme Court’s recent decision in Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019), where the Court held that “when the parties’ contract delegates the arbitrability question to an arbitrator, a court may not override the contract, even if the court thinks that the arbitrability claim is wholly groundless.” Previously, some courts had pointed to the FAA to justify mandating that courts—not arbitrators—resolve any “gateway questions of arbitrability” prior to compelling arbitraiton.


Mark A. Nickel