Distinguishing Discovery Procedures in Commercial Arbitration: A Comparative Analysis of AAA and FINRA Rules

Jun 2021

This article first appeared in Securities Arbitration Alert, here.

Introduction

In civil litigation, discovery is the process by which parties exchange information that is essential to the disposition of the case.[1]  Similarly, discovery is used to eliminate unfair surprise and to aid the parties in presenting their case.[2]  Over time, however, litigation discovery has grown burdensome—rather than promoting the speedy disposition of cases, it has led to increasingly long and expensive pre-trial proceedings.[3]  The length and cost of litigation has pushed many companies and other litigants to turn to arbitration as an alternative method of dispute resolution.[4]

With speed and efficiency as its main appeal, arbitration has long limited its discovery protocols,[5] in contrast to in-court litigation. [6]  Indeed, one of the biggest differences between arbitration and litigation is the large amount of discretion that arbitrators have in admitting evidence.[7]  Unlike litigation, where discovery proceedings are governed by the rules of civil procedure, arbitration is governed by federal and state statutes and the rules that alternative dispute resolution (“ADR”) providers have created for discovery.[8]  However, even with limited discovery, parties will still require some form of information or document exchange.[9]  Thus, discovery, though limited by various rules, does exist in arbitration.[10]

There is no binding authority that defines the extent of discovery available in arbitration.[11]  In fact, discovery can take place in accordance with the parties’ agreement.[12]  This occurs most times when parties create arbitration agreements, which will often include how the dispute ought to be handled, including discovery.[13]  With little guidance from the Federal Arbitration Act (“FAA”),[14] which is limited to conferring power upon arbitrators to summon material evidence,[15] there is a risk that the benefits of arbitration will slowly disappear, as excessive discovery can hinder the speed and efficiency of the proceedings.[16]

In order to facilitate the goals of arbitration—namely, expediency and low-cost—arbitrators have significant leeway in approaching discovery.[17]  Generally, arbitrators’ decisions pertaining to discovery are not necessarily tied to the rules of various providers.[18]  This is primarily because most of the arbitration rules give wide discretion to the arbitrators in determining the scope of discovery.[19]  Nonetheless, the various ADR providers still have rules in place to govern these exchanges.

Two well-known arbitration providers—the Financial Industry Regulatory Authority (“FINRA”) and the American Arbitration Association (“AAA”)—both have rules and procedures for dealing with discovery, but the rules are different, with their own benefits and drawbacks.  This article examines the approaches taken by these two arbitration administrators, focusing on how both seek to provide for a reasonable amount of information exchanges while maintaining arbitration’s hallmark benefits of speed, fairness, and efficiency.

The General Scope of Discovery in Arbitration

Generally, in arbitrations, discovery is limited to only that information for which  each party has a “substantial need.”[20]  The goal behind limited discovery is to enable the parties to define the issues underlying the case, as well as the strengths and weaknesses of each side, without venturing into the much more formal and extensive discovery that occurs prior to a trial.[21]  Historically, arbitration has been incredibly advantageous, due in large part to the fact that arbitrations were utilized to resolve smaller matters.[22]  This changed, however, with the increased use of arbitration in larger cases, often with millions of dollars at stake.[23]  With so much at stake, lawyers have sought more extensive discovery proceedings in arbitrations.[24]

Generally, in commercial cases, the arbitrators will want to avoid litigation-style discovery, which can often mimic a “fishing expedition.”[25]  This means that arbitrators tend to limit the witness testimony to speaking at the hearing, and will often exclude depositions.[26]  The scope of discovery is easily defined when the parties have specified it within their arbitration agreement, or a particular arbitration clause contained within a contract.[27]  In such cases, arbitrators will generally apply the procedures specified in the arbitration agreement, although they can still confer with the parties’ attorneys regarding the necessity of certain evidence.[28]

Discovery Under the Federal and State Arbitration Statutes

Federal Arbitration Act

Although arbitration has a long history in the United States, it was not until the FAA[29] was passed in 1925 that it was cemented as a true alternative to litigation.[30]  The core goal of the FAA was to give more weight to arbitration as an alternative to litigation, and to help “overcome judicial hostility” to arbitration.[31]  Thus, the Act embodies the strong federal policy favoring arbitration for resolving civil disputes.[32]

The FAA applies to all cases concerning maritime transactions and those involving commerce.[33]  Similarly it applies in all cases where the parties do not identify a specific governing rule, and the underlying transaction is either a maritime or commerce-related transaction.[34]  Section 7 of the FAA, which concerns witnesses, also states the standard for discovery, noting that the arbitrators 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.”[35]  Notably, however, the FAA does not expressly give parties an affirmative right to discovery, but rather only gives power to the arbitrators to compel certain evidence and witness attendance at evidentiary hearings.[36]

Under the FAA, courts tend to avoid interfering with the arbitral process, limiting their jurisdiction to enforcing arbitration contracts.[37]  Similarly, courts tend to ignore parties’ attempts to evade arbitration agreements based on arguments that limited discovery would harm the arbitration process.[38]  In fact, courts are generally hesitant to interfere with the arbitrators’ decisions regarding discovery, and will not allow parties to bypass the arbitrators to get a court ruling on discovery matters.[39]  Nonetheless, despite general hesitancy to interfere, courts will sometimes order discovery in arbitrations where exceptional circumstances exist.[40]

Arbitration Under State Arbitration Statutes

The Revised Uniform Arbitration Act (“RUAA”),[41] which was promulgated in 2000, has been adopted in twenty-three jurisdictions,[42] stands as the state counterpart and complement to the federally applicable FAA as the basis of arbitration law in state jurisdictions.[43]  The Uniform Arbitration Act (“UAA”),[44] the RUAA’s predecessor, was originally promulgated in 1955 and serves as the model for arbitration statutes in forty-nine jurisdictions.[45]  With respect to evidence, the UAA originally did allow for arbitrators to subpoena witnesses and to issue subpoenas for the production of “books, records, documents, and other evidence.”[46]  Similarly, the UAA gave arbitrators the power to permit depositions of witnesses who cannot be subpoenaed or are unable to attend the hearing.[47]  However, the UAA did not have a formal provision detailing discovery,[48] and section 7, entitled “Witnesses, Subpoenas, Depositions,”[49] did not specify the scope of discovery permitted, seemingly leaving it to the discretion of the arbitrator.  Indeed section 7 specifies only that subpoenas are to be issued in the manner provided for by law in a civil action.[50]

Initially intended to overcome adverse attitudes towards arbitration, the UAA was succinct in its framework, but nonetheless incredibly successful, leading the National Conference of Commissioners on Uniform State Laws to form a Study Committee to determine whether it should be revised.[51]  Ultimately, the Committee found that changes were necessary due to the increased use of arbitration, the developing field of arbitration law, and the greater complexity of disputes subject to arbitration.[52]  The RUAA, a product of this study, was unanimously passed with the goal of maintaining the UAA’s originally simple format that would allow for easy resolution by users of the arbitration process who were non-attorneys, while still incorporating provisions that acknowledged the increasing use of arbitration to resolve complicated matters.[53]

The RUAA applies to any agreement to arbitrate made on or after the effective date of the act, or prior to the effective date if the parties state so in a record.[54]  The rules were drafted with input from interested parties, including the AAA, JAMS, and the American Bar Association sections and committees.[55]  In revising the UAA, the drafting committee wanted to prioritize the autonomy of the contracting parties and their arbitration agreement (provided that the contract conforms to notions of fairness), to maintain the “essential character of arbitration as a means of dispute resolution distinct from litigation, particularly in regard to efficiency, timeliness and cost,” and to limit court involvement in the arbitration process.[56]  Specifically, in revising the UAA, the RUAA drafters wanted to clarify the scope of arbitrator flexibility in the discovery process, and to affirm the goals of arbitration clearly within the statute[57]—leading to a formal section within the statute dealing with discovery.[58]

The RUAA drafters rejected applying civil discovery rules to arbitrations.[59]  They instead created section 17, detailing discovery protocols.  Section 17, which pertains to discovery, is significantly different than the original UAA, and is much more detailed than the FAA’s provision on discovery.[60]  This is unsurprising, given that the FAA served as a precursor and model for the UAA.[61]  The RUAA allows arbitrators to subpoena witnesses,[62] depose witnesses,[63] issue protective orders,[64] and enforce subpoenas across state lines.[65]  Section 17(c), which pertains to discovery in general, notes that the arbitrator has the power to permit “such discovery as the arbitrator decides is appropriate in the circumstances, taking into account the needs of the parties to the arbitration proceeding and other affected persons and the desirability of making the proceeding fair, expeditious, and cost effective.”[66]  This emphasis on arbitrator flexibility and discretion[67] suggests the drafters’ attempt to bridge the conflict between retaining the benefits of arbitration, while allowing for discovery in complex arbitration cases, where parties need information in order to present sufficient evidence for a fair hearing.[68]  Finally, much like the federal judiciary’s emphasis on deference to arbitrators and respect for the ADR process, the RUAA emphasizes arbitrator power to oversee the process, which ideally should minimize the involvement of the courts.[69]

Determining Which Arbitration Statute Applies

Although the FAA is a federal statute, there is a strong presumption that it applies where the agreement falls within its coverage.[70]  However, even if an arbitration clause or agreement appears to fall within the scope of the FAA, parties may arbitrate under state law if there is a clear intent to do so.[71]  Generally, parties may clearly incorporate state arbitration laws into their agreement, thereby ensuring a greater set of procedural rules that are simply missing from the FAA.[72]

Although there are general statutes governing arbitrations, and more particularly, discovery processes, there are various organizations that administer arbitrations and each has its own set of rules.[73]  In particular, despite the general preclusion of formal discovery in arbitrations, both FINRA and AAA provide for some limited discovery.[74]

Discovery Under FINRA

The Financial Industry Regulatory Authority operates the largest alternative dispute resolution forum in the securities industry.[75]  FINRA requires all brokerage firms to submit customer disputes to arbitration in the event that a customer requests it or the agreement has a binding arbitration clause.[76]  Despite the general goal of efficiency, FINRA’s large and sometimes complex caseload often means that the process is complicated.[77]  Some of the claims that FINRA arbitrates include breach of contract, negligence, unauthorized trading, and breach of fiduciary duty,[78] often involving large sums of money.

The FINRA Code of Arbitration Procedure for Customer Disputes (“Code”)[79] contains rules that govern the discovery process.[80]  The Code requires parties to cooperate with each other to the fullest extent possible in exchanging documents and information.[81]  FINRA’s discovery process is limited to “paper discovery,” meaning that interrogatories, requests for admissions, and depositions are generally not permitted.[82]  In contrast to many other arbitration providers, and perhaps due to the specialized nature of claims that it administers, FINRA has a detailed Discovery Guide, which is meant to supplement the general discovery rules.[83]  Under the Discovery Guide, brokerage firms must presumptively produce twenty-two documents in all customer cases, while customers must presumptively produce nineteen documents in each proceeding.[84]  These documents should be automatically exchanged, and are presumed to be relevant to every FINRA dispute.[85]

Document Production List 1 includes account record information for the customer parties, all agreements made with the customer parties, all correspondence sent to the customer parties relating to the issue, and materials prepared or used for the customer parties in connection with the case at hand.[86]  Document Production List 2 includes customer parties’ federal income tax returns, financial statements, all documents received by the customer parties from the firm and associated persons, and all account analyses and reconciliations prepared by or for the customer parties pertaining to their accounts with the firm.[87]

Nonetheless, arbitrators have some discretion in ordering production of documents not on these lists, ordering the production of certain documents not necessary, and altering the production schedule that is set forth in the Code.[88]  Similarly, parties are permitted to voluntarily agree to an exchange of documents that is different from the Discovery Guide.[89]  Parties to the arbitration proceeding are not limited to the documents listed in the Discovery Guide, however the requests must be reasonable, and a party served with additional requests may object if the requests are overly burdensome, irrelevant, or would yield privileged information.[90]  Indeed, arbitrators can subpoena witnesses or documents from third parties, and may order FINRA members to do so without a subpoena.[91]

Parties to the arbitration must produce documents on the relevant Document Production list within sixty days.[92]  In the event of noncompliance, parties may be (and have been) sanctioned.[93]  The sanctions can include monetary penalties, precluding a party from presenting evidence, making adverse inferences against a non-complying party, postponement fees, and attorneys’ fees and expenses.[94]  FINRA arbitrators also have the authority to dismiss a claim as a sanction where the party intentionally fails to comply with, or respond to, discovery orders.[95]  Although FINRA has the power to impose sanctions for noncompliance with a discovery order, there is no clear authority for a court to enforce the order.[96]  In such cases the FAA can give a court the power to compel a witness to produce documents at a hearing,[97] but this authority generally will not extend to discovery orders issued to non-witnesses.[98]  The FINRA Code itself does not provide for judicial enforcement of discovery orders.[99]  Arbitrators may, however, refer industry non-compliance to FINRA’s Enforcement Department, which can, and has, fined and otherwise disciplined offending firms and brokers.[100]

Discovery Under the AAA Rules

The American Arbitration Association provides arbitration services, as well as bodies of rules for parties in arbitrating their disputes.[101]  The AAA administers more than ninety percent of all arbitrations involving United States-based persons.[102]  AAA rules concerning discovery seem to support the general disfavor towards extensive discovery in arbitrations.[103]  Indeed, in the rule governing discovery in commercial arbitrations, the AAA notes that the arbitrator shall approach the exchange of information “with a view to achieving an efficient and economical resolution of the dispute.”[104]  Any documents sought by the parties must be relevant and material to the outcome of disputed issues.[105]  Echoing this point, the rule governing discovery in AAA arbitrations states:

(a) Authority of arbitrator.  The arbitrator shall manager any necessary exchange of information among the parties with a view to achieving an efficient and economical resolution of the dispute, while at the same time promoting equality of treatment and safeguarding each party’s opportunity to fairly present its claims and defenses.

(b) Documents.  The arbitrator may, on application of a party or on the arbitrator’s own initiative:

  1. require the parties to exchange documents in their possession or custody on which they intend to rely;
  2. require the parties to update their exchanges of the documents on which they intend to rely as such documents become known to them;

iii.  require the parties, in response to reasonable document requests, to make available to the other party documents, in the responding party’s possession or custody, not otherwise readily available to the party seeking the documents, reasonably believed by the party seeking the documents to exist and to be relevant and material to the outcome of disputed issues; and

  1. require the parties, when documents to be exchanged or produced are maintained in electronic form, to make such documents available in the form most convenient and economical for the party in possession of such documents, unless the arbitrator determines that there is good cause for requiring the documents to be produced in a different form. The parties should attempt to agree in advance upon, and the arbitrator may determine, reasonable search parameters to balance the need for production of electronically stored documents relevant and material to the outcome of disputed issues against the cost of locating and producing them.[106]

Generally, prehearing discovery can occur either according to the parties’ agreement or by arbitrator discretion.[107]  However, given the emphasis on avoiding a lengthy discovery proceeding, restricted discovery is usually the result.[108]  Although the AAA permits most basic discovery tools, including subpoenas, depositions are generally discouraged, although not entirely restricted if the parties agree to them.[109]  The AAA vests arbitrators with a vast amount of discretion, giving the arbitrators broad power to conduct the proceedings and giving the arbitrator the ability to decide what evidence is material, relevant, and necessary.[110]  Indeed, the rules grant the arbitrator the authority to manage the necessary exchange of information[111] and to issue any orders that are necessary to enforce the discovery provisions of the rules.[112]  Similarly, parties, when producing evidence, must produce such evidence that the arbitrator “may deem necessary to an understanding and determination of the dispute.”[113]

If a party fails to comply with an order, such as the requirement that a witness who provided a written statement appear at the hearing, the arbitrator can take certain steps in response.[114]  In this scenario, the arbitrator may disregard the written statement or expert report, or make such other order that the arbitrator considers “just and reasonable.”[115]  However, the scope of the arbitrator’s authority to impose sanctions, and especially monetary sanctions, is unclear.  Although there is no ban on such sanctions, it is not evident that there is an affirmative power to do so as well.[116]  Generally, unless authorized in the arbitration agreement, arbitrators are bound by the applicable institutional arbitration rules or the governing law, and so the remedial powers are limited.[117]  However, at least one court has confirmed monetary sanctions as an arbitration award, citing the AAA’s provision allowing arbitrators to resolve any disputes concerning the exchange of information, and noting that the absence of any language limiting the means by which an arbitrator may do so, supports the notion that in the absence of a prohibition, the panel is authorized to resolve discovery disputes by imposing sanctions.[118]  Another court affirmed the award of legal fees as a sanction for late document production, looking to the AAA Commercial Rules authorizing an award of attorneys’ fees if authorized by law or in the arbitration agreement—there, the parties both requested attorneys’ fees.[119]  Nonetheless, the ability to shift legal fees is not explicitly authorized by the AAA Commercial Rules.  Instead, the ability to do so depends on whether the parties agreed to it in the contract or both asked for it in arbitration papers.[120]

Thus, generally, the ultimate sanction in discovery proceedings is the right of the arbitrator to draw adverse inferences against the non-complying party for the incomplete production of evidence.[121]  In fact, ADR providers typically train their arbitrators to draw an adverse inference in such cases.[122]  Arbitrators may also preclude the introduction of evidence that has been abusively withheld during discovery.[123]

Comparing FINRA’s and the AAA’s Approaches to Discovery

Although both FINRA and the AAA appear to have as their goal the speedy disposition of cases, the mechanisms for discovery that the two organizations have are incredibly different.  Most notably, FINRA has a Discovery Guide that specifies particular documents that are presumed to be relevant.  This could be a product of the more varied case types that FINRA repeatedly sees.[124]  It is arguably easier to craft a list of relevant documents, where the documents are almost always relevant and submitted in the same sorts of cases that the organization routinely administers.  Since the AAA is not limited to specific types of cases, even in the commercial context,[125] it might be impracticable to create a Discovery Guide with presumably relevant documents, since the documents will vary from case to case significantly.

Given the extensive FINRA Discovery Guide, the arbitrators do not have as much discretion as they normally might.  Although the arbitrators are still permitted to expand discovery beyond the document production lists in the Discovery Guide, or instead to limit the documents introduced under the lists, much of the discovery process is already structured around the production lists, thereby limiting the arbitrators’ discretion.[126]  On the other hand, the Guide makes the FINRA discovery process more consistent and predictable.  In contrast, under AAA rules, arbitrators have wide latitude to determine the scope of discovery.  Although the arbitrators are permitted to allow discovery of all relevant and necessary documents,[127] leaving the determination of what is relevant or necessary to the arbitrator’s discretion might yield discrepancies in discovery proceedings.  One arbitrator might consider a multitude of documents to be relevant, while another might choose to streamline the proceeding and keep the discovery to an absolute minimum.  Although the parties can, of course, set their own rules for discovery in the arbitration agreement,[128] if the parties incorporate the AAA rules into their agreements, they will be giving their arbitrator wide latitude.  Furthermore, given the courts’ hesitancy to review discovery rulings made by arbitrators for parties to the proceeding,[129] the parties may be at a disadvantage without a clear list of documents that are inherently considered relevant.  At the same time, the FINRA Discovery Guide presumes a very large number of relevant and permissible documents.  Although the arbitrators have the authority to limit the relevant documents from the production lists,[130] the presumption of admissibility weighs heavily.

The second major difference between the two organizations’ approaches to discovery is the explicit power that FINRA arbitrators, operating under the rules of a Self-Regulatory Organization, have in sanctioning parties – especially industry parties – for non-compliance.[131]  Under the FINRA Code, parties may be sanctioned in a multitude of forms, including monetary penalties, preclusion of evidence, attorneys’ fees, and the dismissal of claims.[132]  On the other hand, the AAA is virtually silent regarding sanctioning power.  For example, although FINRA explicitly authorizes the imposition of attorneys’ fees on the non-complying party,[133] AAA arbitrators are limited by the parties’ agreement or their consent to impose such fee sanctions.[134] Further, FINRA allows arbitrators to dismiss claims upon noncompliance.[135]  The AAA rules do not appear to grant this affirmative power.  Indeed, the AAA rules are incredibly broad in granting arbitrators the power to enforce discovery orders by necessary means, but give no affirmative powers or examples of how to do so.

Is Structured Discovery Better?

The benefit of arbitration is the efficiency, speed, and minimized costs that can be expected from the process.  This speed is due in large part to the lack of formal litigation-style discovery in arbitration proceedings. However, as explored above, the scope of discovery can vary depending on the arbitral forum.  Under FINRA’s extensive Discovery Guide, there is less room for arbitrator discretion, particularly compared to the liberal flexibility that arbitrators under the AAA rules have.  Given the primary differences between the two organization’s approaches to discovery, two questions arise:  first, whether a more structured approach to discovery like FINRA’s is preferable to the AAA’s approach in light of the general policy goals of arbitration; and second, whether FINRA’s approach to noncompliance with discovery requests better serves the goals of arbitration than the more lenient approach of the AAA.

Comparing Approaches

First, it is worth considering whether the more formal structure of discovery under FINRA is preferable to the looser and more deferential policy of the AAA.  Given the emphasis on speedy resolution of proceedings, the AAA’s rules granting arbitrators wide discretion to issue discovery orders appears particularly conducive to the preservation of the main benefit of arbitration.  However, it is important to note that FINRA proceedings are increasingly complex,[136] and indeed the presumptively relevant documents allow for a more formal structure and less variance amongst arbitration proceedings.  This, in turn, supports the premise that, despite the need to keep arbitrations speedy and efficient, the parties are still entitled to a fair resolution of the dispute.  Thus, when weighing the competing interests of arbitration proceedings, FINRA’s policy concerning discovery appears to better structured to balance both the need for efficiency and the fairness of the proceeding.  The structure of the FINRA Discovery Guide sets out a clear expectation of relevant documents, while still allowing arbitrators the power to limit certain documents from the lists.  This stands in contrast to the AAA rules, which are incredibly broad.  Although the AAA hears a greater variety of cases than FINRA, some form of presumptively discoverable documents might harm the efficiency only marginally, while allowing parties a more just resolution of the proceedings.  Further, it has been noted that arbitration proceedings are losing their speed regardless[137]—thus, the inclusion of more structure might not hurt the efficiency, and might even benefit it where the parties come into the proceeding knowing the documents they must produce (in the absence of an earlier agreement by the parties).

Second, it is worth considering whether FINRA’s affirmative right to sanction parties is preferable to the AAA’s approach to noncompliance.  Notably, FINRA, unlike the AAA, gives arbitrators the affirmative right to sanction parties.[138]  The AAA is relatively silent on this matter, allowing arbitrators wide discretion in how to enforce discovery orders, which courts have construed to allow the imposition of attorneys’ fees in cases where the parties agree on it or both request it.[139]  FINRA, however, does not require the parties to be in agreement regarding attorneys’ fees—instead, FINRA grants an affirmative power to impose such sanctions absent any agreement between parties.  Indeed, AAA arbitrators are largely limited to drawing adverse inferences against the non-complying parties.[140]  FINRA goes further, allowing the arbitrators to dismiss claims in light of the parties’ noncompliance.  Given FINRA’s incredibly structured discovery process, this “no-nonsense” policy towards compliance with discovery orders makes sense.  Not only does it make sense, but it appears preferable to the AAA’s limited discussion of this issue.  Although arbitration proceedings ought to be fair to all parties and should aim towards resolution of the issues, there should be no room for unreasonable delay or disruption from the parties.  Given the worry that arbitration is losing its key benefits of speed, efficiency, and low-costs, giving arbitrators the ability to strictly enforce compliance with discovery requests appears most conducive to streamlining cases and producing quicker resolutions of the issues.  Although the AAA does give arbitrators wide discretion to enforce discovery orders, there is little mention of any sanctions for noncompliance.[141]  Thus, courts might be hesitant to construe the AAA rules as allowing arbitrators much power in that regard, where the rules don’t affirmatively speak about it.  Consequently, courts might give arbitrators certain powers, such as the right to impose attorneys’ fees sanctions, but will limit them to the parties’ arbitration agreements or consent.[142]

Conclusion

Ultimately, although FINRA’s discovery process is a reflection of the focused nature of the cases that the organization sees, the general structure that is afforded to the discovery procedures is more compatible with the main goals of arbitration, than merely allowing the arbitrators unlimited discretion.  The detail afforded by FINRA’s discovery rules is preferable to the vague AAA rules, which appear to give arbitrators great power, but little affirmatively listed abilities.  This creates confusion and potential inconsistency, increases the possibility of judicial intervention, potentially lengthens proceeding times, and may lead to arbitrary and unpredictable arbitration procedures.  Although it is not clear that the AAA can produce document lists with presumptively admissible documents, the AAA can likely mirror some of FINRA’s rules.  Even increased sanctioning power would help streamline discovery in arbitrations.  Given the AAA’s unique position as a leading arbitration provider for those in the United States, any efforts towards increasing efficiency and maintaining order would go a long way in ultimately restoring arbitration as a cost-effective and speedy alternative to litigation, while ensuring that parties are able to resolve their disputes with the benefit of all necessary evidence.

———–

*Ksenia Matthews is a third-year student at Fordham University School of Law.  She is an Articles & Notes Editor of the Fordham Law Review, and a member of the Dispute Resolution Society and the Brendan Moore Trial Advocacy Center at Fordham Law School.  The author thanks and acknowledges Professor George H. Friedman, Professor of Commercial Arbitration at Fordham University School of Law for his assistance in the preparation of this article.

ENDNOTES:

[1] See 23 Am. Jur. 2d Depositions and Discovery § 1 (2021).

[2] See id.

[3] See Kevin Mason, Will Discovery Kill Arbitration?, 2020 J. Disp. Resol. 207, 207.

[4] See, e.g., Wendy Ho, Comment, Discovery in Commercial Arbitration Proceedings, 34 Hous. L. Rev. 199, 200 (1997) (“The increased demand for commercial arbitration, specifically, is due to the current backlogs in the civil courts and the desire to expedite disputes in a cost effective manner.”); Hossam M. Fahmy, Arbitration:  Wiping Out Consumers Rights?, 64 Tex. Bar J. 917, 917 (2001) (“Companies contend they are turning to mandatory arbitration in an effort to resolve disputes more quickly and less expensively than they could through a court settlement.”).

[5] See Jay E. Grenig, Discovery, 1 Alt. Disp. Resol. § 14:15 (4th ed. 2020).

[6] See, e.g., White v. Four Seasons Hotel & Resorts, 244 F. Supp. 3d 1, 4 (D.D.C. 2017) (“In submitting to arbitration, litigants lose, for example, the right to extensive discovery afforded by courts.”).

[7] See, e.g.id. at 4-5 (noting the various ways that arbitrators are able to avoiding following the “niceties observed by the federal courts” (quoting Howard Univ. v. Metro. Campus Police Officer’s Union, 512 F.3d 716, 721 (D.C. Cir. 2008))).

[8] See Ho, supra note 4, at 209; see also Teresa Snider, The Discovery Powers of Arbitrators and Federal Courts under the Federal Arbitration Act, 34 Tort & Ins. L.J. 101, 109 (1998).

[9] See Mason, supra note 3, at 210 (“Disputants understandably want to uncover as much evidence as they can to have the best-tried arbitration possible, especially in corporate disputes when millions of dollars are on the line.”).

[10] See George Friedman, Just Like Thanksgiving and Black Friday:  Five Truisms About Arbitration—That Aren’t True, Arb. Resol. Servs., Inc. (Nov. 26, 2014), https://www.arbresolutions.com/like-thanksgiving-black-friday-truisms-arbitration-arent-true/#.VHZgRfldX86 (dispelling the myth that discovery is unobtainable in arbitrations).

[11] See Mason, supra note 3, at 208.

[12] See Grenig, supra note 5; see also Life Receivables Tr. v. Syndicate 102 at Lloyd’s of London, 549 F.3d 210, 217 (2d Cir. 2008) (“[A]n arbitrator’s power over parties stems from the arbitration agreement . . . [w]here agreements so provide, that authority includes the power to order discovery from parties in arbitration . . . .”).

[13] See Mason, supra note 3.

[14] 9 U.S.C. § 1 (2000).

[15] See id. § 7.

[16] See Mason, supra note 3, at 210; see also Ho, supra note 4, at 204 (noting that extensive discovery is changing arbitration to look more like litigation, and thereby contravening the traditional methods of arbitration and hurting the very objectives that underlie the arbitration system).

[17] See Charles J. Moxley, Jr., Discovery in Commercial Arbitration:  How Arbitrators Think, 63 Disp. Resol. J. 36, 41 (2008); see also Landmark Ventures, Inc. v. InSightec, Ltd., 63 F. Supp. 3d 343, 352 (S.D.N.Y. 2014), aff’d, 619 F. App’x 37 (2d Cir. 2015) (“An Arbitrator has discretion to limit discovery and may limit document requests to specific requests that are narrowly tailored to issues in the case.”).

[18] See Moxley, Jr., supra note 17.

[19] See id.

[20] Grenig, supra note 5.

[21] See id.

[22] See Mason, supra note 3.

[23] See id. at 207-08.

[24] See id.

[25] Moxley, Jr., supra note 17, at 39.

[26] See id.  Depositions are not always excluded, particularly where the parties can make a convincing case for why a reasonable number of depositions are necessary. See id.

[27] See id.

[28] See id.

[29] 9 U.S.C. § 1 (2000).

[30] See Mason, supra note 3, at 208-09.

[31] See id. at 209.

[32] See Gabriel Herrmann, Note, Discovering Policy Under the Federal Arbitration Act, 88 Cornell L. Rev. 779, 790-91 (2003).

[33] See id.

[34] See Ho, supra note 4, at 206.

[35] 9 U.S.C. § 7 (2020).

[36] See Daniel R. Strader, Note, Bridging the Gap:  Amending the Federal Arbitration Act to Allow Discovery of Nonparties, 41 Stetson L. Rev. 909, 909 n.7 (2012).

[37] See Snider, supra note 8, at 108.

[38] See id. at 110.

[39] See id.

[40] See id. at 111-13 (describing cases where courts have found exceptional circumstances).

[41] RUAA § 1 (2000).

[42] See Arbitration Act, Uniform Law Commissionhttps://www.uniformlaws.org/committees/community-home?CommunityKey=a0ad71d6-085f-4648-857a-e9e893ae2736 (last visited May 4, 2021).

[43] See Timothy J. Heinsz, The Revised Uniform Arbitration Act:  An Overview, 56 Disp. Resol. J. 28, 29 (2001).

[44] UAA § 1 (1955).

[45] See Heinsz, supra note 43.

[46] UAA § 7(a).

[47] See id. § 7(b).

[48] See generally Timothy J. Heinsz, The Revised Uniform Arbitration Act:  Modernizing, Revising, and Clarifying Arbitration Law, 2001 J. Disp. Resol. 1, 46 (noting that some courts, in light of the policy concerns underling arbitration and the lack of a formal provision for discovery under the UAA, concluded that discovery was unavailable under the statutes in arbitration).

[49] UAA § 7.

[50] See id. § 7(a).

[51] See Heinsz, supra note 48, at 1-2.

[52] See id.

[53] See id. at 2-3.

[54] See RUAA § 3 (2000).

[55] See Heinsz, supra note 43.

[56] Id. at 29-30.

[57] See generally Heinsz, supra note 48, at 46-47.

[58] RUAA § 17(a).

[59] See Heinsz, supra note 43, at 34.

[60] See generally Heinsz, supra note 48, at 46-51.

[61] See id. at 1.

[62] RUAA § 17(a).

[63] Id. § 17(b).

[64] Id. § 17(e).

[65] Id. § 17(g).

[66] Id. § 17(c).

[67] See id. at cmt. 3 (noting that the language follows the majority approach under case law and the FAA, which provide that unless otherwise specified in the contract, the discretion rests with the arbitrators on whether to allow discovery).

[68] See id. (“The discovery procedure . . . is intended to aid the arbitration process and ensure an expeditious, efficient and informed arbitration, while adequately protecting the rights of the parties); see also Heinsz, supra note 43, at 34.

[69] See RUAA § 17(c), cmt. 3.

[70] See Bruce E. Meyerson, The Revised Uniform Arbitration Act:  15 Years Later, 71 Disp. Resol. J. 1, 3-4 (2016).

[71] See id. (noting that parties can show a clear intent to arbitrate under state law by agreeing to conduct the arbitration according to the arbitration law of a particular state).

[72] See id.

[73] See Paul B. Radvany, Recent Trends in Discovery in Arbitration and in the Federal Rules of Civil Procedure, 34 Rev. Litig. 705, 729 (2015).

[74] See 27A Sec. Lit. Forms and Analysis § 12:5, Westlaw (database updated Dec. 2020).

[75] See Scott L. Silver, Understanding Securities Arbitration, 51 Trial 46, 46 (2015).

[76] See id.

[77] See id. (noting the variety of cases that FINRA handles and the record-number of cases handled after each financial crisis, including claims related to mortgage-backed securities, Ponzi schemes, and new forms of investments).

[78] See id. at 47-48.

[79] FINRA Code of Arbitration Procedure for Customer Disputes (Nov. 1, 2015) [hereinafter FINRA Code].

[80] See FINRA Code Rules 12505-12511; see also Aaron Aizenberg & Benjamin Prinsen, FINRA Arbitration:  Leveling the Playing Field for Investors, 90 Wis. Law. 30, 33 (2017).

[81] See FINRA Code Rule 12505.

[82] Silver, supra note 75, at 48.

[83] See id.

[84] See id.

[85] See FINRA Code Rule 12506; see also Aizenberg & Prinsen, supra note 80.

[86] See FINRA, Discovery Guide, at 7-8 (effective December 2, 2013).

[87] See id. at 14-15.

[88] See id. at 1.

[89] See id. at 2.

[90] See Aizenberg & Prinsen, supra note 80.

[91] See Silver, supra note 75, at 48-49.

[92] See FINRA Code Rule 12506 (Nov. 1, 2015).

[93] See id.

[94] See id.see also Thomas Lee Hazen, Discovery in Arbitration Proceedings, 5 L. Sec. Reg. § 15:32, Westlaw (database updated May 2021).

[95] See FINRA Code Rule 13212(c); see also Duan v. New City Cap. LLC, FINRA ID 19-01830 (Chicago, IL, Nov. 21, 2020) (dismissing claims in their entirety with prejudice and holding claimant liable to the respondents a sum of $25,000 for discovery sanctions and for attorneys’ fees as a further sanction); Waldron v. Centaurus Fin., Inc., FINRA ID No. 19-02630 (Atlanta, GA, Aug. 24, 2020).  Courts have upheld the dismissal of claims where the party either did not comply with the orders, or where the party failed to comply after prior warnings or sanctions. See, e.g., Piston v. Transamerica Cap., Inc., 823 F. App’x 553 (10th Cir. 2020).

[96] See Hazen, supra note 94.

[97] See In re Sec. Life Ins. Co. of America, 228 F.3d 865, 870-72 (8th Cir. 2000) (noting that “implicit in an arbitration panel’s power to subpoena relevant documents for production at a hearing is the power to order the production of relevant documents for review by a party prior to the hearing”).

[98] See Empire Fin. Grp., Inc. v. Pension Fin. Servs., Inc., No. CIV.A. 3:09-CV-2155D, 2010 WL 742579, at *3 (N.D. Tex. Mar. 3, 2010) (noting that although relevant to the arbitration, under FAA § 7, “a court cannot compel the pre-hearing production of documents from a non-party to an arbitration proceeding unless the non-party has been subpoenaed to be a witness and bring documents to an arbitration hearing”); see also Hazen, supra note 94.

[99] See Empire Fin. Grp., Inc., 2010 WL 742579, at *1 (“No provision of the FINRA Code explicitly authorizes a district court to enforce a subpoena or discovery order.”); see also Hazen, supra note 94.

[100] See, e.g., News Release, FINRA Sanctions Oppenheimer & Co. $3.4 Million for Reporting Violations, Failing to Comply With Discovery Obligations in Arbitrations, and Other Supervisory Failures, FINRA:  Media Center (Nov. 17, 2016), https://www.finra.org/media-center/news-releases/2016/finra-sanctions-oppenheimer-co-34-million-reporting-violations-failing.

[101] See Radvany, supra note 73, at 734.

[102] See Thomas H. Oehmke, Alternative Dispute Resolution:  Commercial Arbitration, 44 Am. Jur. Trials 507 § 1, Westlaw (database updated Apr. 2021).

[103] See Neal M. Eiseman et al., A Tale of Two Lawyers:  How Arbitrators and Advocates Can Avoid the Dangerous Convergence of Arbitration and Litigation, 14 Cardozo J. Conflict Resol. 683, 686 (2013).

[104] American Arb. Ass’n, Comm. Arb. Rules R-22(a) (Oct. 1, 2017) [hereinafter AAA Comm. Arb. Rules].

[105] See id. R-22(b)(iii).

[106] AAA Comm. Arb. Rules R-22 (emphasis in original).

[107] See Oehmke, supra note 102, at § 33.

[108] See id.

[109] See id.

[110] See W. Scott Simpson & Omer Kesikli, The Contours of Arbitration Discovery, 67 Ala. Law. 280, 284 (2006).

[111] See AAA Comm. Arb. Rules R-22(a).

[112] See id. R-23.

[113] Id. R-34.

[114] See 3 Fed. Proc. Forms § 4:97, Westlaw (database updated June 2020).

[115] Id.

[116] See Philip D. O’Neill, The Power of Arbitrators to Award Monetary Sanctions for Discovery Abuse, 60 Disp. Resol. J. 60, 63-64 (2005) (“Institutional arbitration rules usually do not address monetary sanctioning power.  Rather, they address an arbitrator’s general procedural and remedial powers.  Parties and arbitrators have looked at the broad grants of power in these rules as possible inherent sources of authority for imposing monetary sanctions.”).

[117] See id. at 61.

[118] See Superadio Ltd. P’ship v. Winstar Radio Prods., LLC, 844 N.E.2d 246, 252-53 (Mass. 2006).

[119] See generally InterChem Asia 2000 Pte. Ltd. v. Oceana Petrochemicals AG, 373 F. Supp. 2d 340 (S.D.N.Y. 2005).

[120] See O’Neill, supra note 116, at 64.

[121] See Richard Chernick, Arbitral Power:  Confessions of a “Managerial” Arbitrator, 16 No. 1 Disp. Resol. Mag. 17, 18 (2009).

[122] See O’Neill, supra note 116, at 62.

[123] See id.

[124] See supra notes 75-78 and accompanying text.

[125] See supra notes 101-102 and accompanying text.

[126] See supra notes 83-85 and accompanying text.

[127] See supra notes 110-113 and accompanying text.

[128] See supra notes 11-12 and accompanying text.

[129] See supra notes 37-40 and accompanying text; see also Compania Panemena Maritima v. J. E. Hurley Lbr. Co., 244 F.2d 286, 290 (2d Cir. 1957) (“It would be generally incompatible with the nature and scope of an arbitration proceeding to allow a shift to the court forum of that part of a proceeding relating to the prehearing . . . .”) (quoting Matter of Katz (Burkin), 3 A.D.2d 238, 239 (N.Y. 1957)); Golden State Bank v. First-Citizens Bank & Tr. Co., EDCV 10-526-GW, 2011 WL 13047425, at *24 (C.D. Cal. July 7, 2011) (noting that under the FAA interlocutory judicial review of arbitrators’ orders is not appropriate); Kramer v. Geldwert, 123 A.D.3d 507, 507 (1st Dep’t 2014) (“[J]udicial review of procedural rulings made in this arbitration administered by the American Arbitration Association is barred.”).

[130] See generally supra notes 88-91 and accompanying text.

[131] See supra notes 92-100 and accompanying text.

[132] See supra notes 94-95 and accompanying text.

[133] See supra note 94 and accompanying text.

[134] See supra notes 116-120 and accompanying text.

[135] See supra note 95 and accompanying text.

[136] See supra notes 75-78 and accompanying text.

[137] See supra notes 22-24 and accompanying text.

[138] See supra notes 92-95 and accompanying text.

[139] See supra notes 116-120 and accompanying text.

[140] See supra notes 121-123 and accompanying text.

[141] See generally supra notes 116-117 and accompanying text.

[142] See generally supra notes 119-120 and accompanying text.

author

Ksenia Matthews

Ksenia Matthews is a third-year student at Fordham University School of Law. She is an Articles & Notes Editor of the Fordham Law Review, and a member of the Dispute Resolution Society and the Brendan Moore Trial Advocacy Center at Fordham Law School.

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