Commercial Litigation and Arbitration

Arbitration — Does the FAA Authorize Arbitrators to Issue Deposition Subpoenas Duces Tecum or Must a Hearing Be Held? — Circuit Split

McTammany v. Foundation Capital Partners LP, 2015 U.S. Dist. LEXIS 183559 (C.D. Cal. May 1, 2015):


Before the Court is Plaintiffs' Motion to Compel Deposition of Kelly Holowaty (Dkt. 1). The Court finds this matter appropriate for resolution without oral argument. See Fed. R. Civ. P. 78; L.R. 7-15. Having considered the papers, the Court DENIES Plaintiffs' Motion.

I. Background

Based on the Court's review of the record in a related action in the District of Connecticut, Case No. 3:13-cv-1426-RNC ("Conn. Action"), this matter arises from a breach of contract dispute between Chris McTammany and Noel Thompson, who are Plaintiffs in this matter, and Foundation Capital Partners, LP, who is a Defendant in this action. Plaintiffs allegedly agreed to raise funds for Defendant, a private equity fund, in return for a 2% commission; Defendant subsequently failed to pay Plaintiffs for their work in persuading Pacific Northern Capital ("PNC"), a California-based private investment firm, to invest $5 million with Defendants. See Conn. [*2]  Action Compl. (13-1426, Dkt. 1). On Defendant's motion, the federal district court in Connecticut ordered the parties to arbitrate the dispute. Conn. Action Order Granting Mot. to Compel, Jan. 30, 2014 (13-1426, Dkt. 23).The arbitration is currently pending before FINRA Dispute Resolution, Inc., the arbitration forum of the Financial Industry Regulatory Authority, Inc. ("FINRA"). Declaration of Terence J. Gallagher (Dkt. 1) ¶ 1. The arbitration proceeding is scheduled to begin on May 5, 2015. Id. ¶ 5.

On February 12, 2015, the Chair of the FINRA arbitration panel in this case issued a subpoena duces tecum and ad testificandum ("Subpoena") to PNC directing PNC to produce certain documents to Plaintiffs' counsel Terence Gallagher in Connecticut and to have an individual named Kelly Holowaty appear for a deposition in Irvine, California. Id. Ex. 1. The Subpoena was served on Mr. Holowaty on March 26, 2015. Id. Ex. 2. According to Mr. Gallagher's declaration, the testimony sought by the Subpoena is material as evidence for the arbitration proceeding. Id. ¶ 5.

On April 9, 2015, Mr. Holowaty told Mr. Gallagher that he would have his counsel contact Mr. Gallagher to make arrangements. No one [*3]  has contacted Mr. Gallagher about Mr. Holowaty's deposition. Mr. Gallagher has tried to reach out to Mr. Holowaty again without success. Id. ¶¶ 7-9.

Plaintiffs filed this Motion on April 23, 2015, seeking a court order for Mr. Holowaty to comply with the Subpoena by appearing for a deposition.

II. Legal Standard

The Federal Arbitration Act ("FAA") provides:

   [A]rbitrators . . . may 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. . . . if any person or persons so summoned to testify shall refuse or neglect to obey said summons, upon petition the United States district court for the district in which such arbitrators, or a majority of them, are sitting may compel the attendance of such person or persons before said arbitrator or arbitrators, or punish said person or persons for contempt in the same manner provided by law for securing the attendance of witnesses or their punishment for neglect or refusal to attend in the courts of the United States.

9 U.S.C. § 7.

The plain text of the statute allows an arbitrator to subpoena witnesses to appear at hearings [*4]  before the arbitrator and to bring documents with them. However, the Ninth Circuit has not addressed whether arbitrators have any authority under § 7 to subpoena non-parties to appear at depositions or to provide documents during pre-hearing discovery. Other circuits are split on the question. Plaintiffs cite the Eighth Circuit, which has held that such authority is implicit within § 7. In re Sec. Life Ins. Co. of Am., 228 F.3d 865, 870-71 (8th Cir. 2000). The Fourth Circuit, on the other hand, has held that an arbitrator has no such authority under the FAA because, under the plain language of the statute, "the FAA's subpoena authority is defined as the power of the arbitration panel to compel non-parties to appear 'before them;' that is, to compel testimony by non-parties at the arbitration hearing." COMSAT Corp. v. Nat'l Sci. Found., 190 F.3d 269, 275 (4th Cir. 1999). The Second and Third Circuits have also disagreed with the Eighth Circuit's "power-by-implication analysis," and held that § 7 does not authorize arbitrators to issue pre-hearing discovery subpoenas. Hay Grp., Inc. v. E.B.S. Acquisition Corp., 360 F.3d 404, 406-11 (3d Cir. 2004); see also Life Receivables Trust v. Syndicate 102 at Lloyd's of London, 549 F.3d 210, 217-18 (2d Cir. 2008).

The Court agrees with the Second, Third, and Fourth Circuits' interpretation of § 7. The plain language of the statute states that arbitrators "may summon in writing any person to attend before them . . . as a witness." [*5]  9 U.S.C. § 7 (emphasis added). Nothing in the language of § 7 "grant[s] an arbitrator the authority to order non-parties to appear at depositions, or the authority to demand that non-parties provide the litigating parties with documents during prehearing discovery." COMSAT Corp., 190 F.3d at 275. The Court also finds persuasive the Second and Third Circuits' reasoning that an arbitrator's authority over non-parties, particularly non-parties to the arbitration proceeding who are also non-parties to the arbitration agreement, is limited because the arbitrator's power ultimately stems from a contractual agreement to arbitrate. Non-parties, by definition, have not agreed to abide by the arbitrator's decisions. Thus, even though the FAA represents a congressional policy in favor of arbitration, which is perceived to be more efficient than litigation, and even though having the courts enforce arbitral subpoenas for pre-hearing discovery may in some ways serve the goal of efficiency, the most appropriate interpretation of § 7 is a narrow one. See Hay Grp., Inc., 360 F.3d at 406 ("An arbitrator's authority over parties that are not contractually bound by the arbitration agreement is strictly limited to that granted by the Federal Arbitration Act."); id. at 410-11 ("Although efficiency is [*6]  certainly an objective of parties who favor arbitration over litigation, efficiency is not the principal goal of the FAA. Rather, the central purpose of the FAA is to give effect to private agreements.") (citations omitted); see also Life Receivables Trust, 549 F.3d at 217 (noting that an arbitrator's power to order discovery stems from the contractual parties' agreement, with § 7 being the only means to force non-parties to comply with an arbitral subpoena).

III. Discussion

Here, Plaintiffs appear to be seeking a pre-hearing deposition of Mr. Holowaty, who does not appear to be a party to the arbitration proceeding or to the underlying arbitration agreement. Because the arbitrator's power under § 7 does not extend to ordering non-parties to appear for pre-hearing depositions, this Court DENIES Plaintiffs' motion to compel Mr. Holowaty's deposition.

IV. Disposition

For the foregoing reasons, the Court DENIES Plaintiff's Motion.

The Clerk shall serve this minute order on the parties.

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