Limitations on Arbitrator Authority to Issue Pre-Hearing, Non-Party Discovery in the Wake of Aixtron

King & Spalding

Third party discovery may be helpful to providers in arbitrations. For example, if a provider is in a dispute with a health plan, if there are questions as to whether the health plan or the medical group has financial responsibility for certain claims, the provider may want to issue a deposition subpoena to the medical group to determine what its position is regarding the financial responsibility for the claims. However, a number of courts have held that, unless the arbitration provision in the provider’s agreement with the payer expressly allows for pre-hearing discovery of third parties, the arbitrator does not have the authority to order third parties to respond to discovery requests or appear at depositions prior to the hearing. These recent cases do not prohibit the arbitrator from issuing subpoenas to third parties to appear and testify at the hearing.

In Aixtron, Inc. v. Veeco Instruments Inc., 52 Cal.App.5th 360 (2020) (“Aixtron”), the California Court of Appeal held that: 1) the Federal Arbitration Act (“FAA”) does not grant arbitrators the inherent power to issue pre-hearing discovery subpoenas of non-party documents; 2) the California Arbitration Act (“CAA”), including California Code of Civil Procedure Section 1282.6, does not grant arbitrators power to issue pre-hearing discovery subpoenas of non-parties in all circumstances; and 3) an arbitrator can issue pre-hearing discovery subpoenas to non-parties only if the parties agreed to specific provisions in their arbitration agreement to grant the arbitrator that authority. The Aixtron Court also considered whether the parties’ agreement to arbitrate under the JAMS Commercial Arbitration Rules (“JAMS Rules”) created authority for the arbitrator to issue pre-hearing discovery subpoenas and found that it did not. Aixtron, supra, 52 Cal.App.5th at 402-404.

California is not alone in holding that the FAA does not grant arbitrators inherent power to issue pre-hearing discovery subpoenas to non-parties. The Ninth Circuit previously held in CVS Health Corporation v. Vividus, LLC, 878 F.3d 703 (2017), that the FAA does not grant arbitrators the power to issue discovery subpoenas to a non-party for production of documents prior to an arbitration hearing. Id. at 708. The Vividus Court explained that an arbitrator’s power under the FAA was limited to issuing a subpoena for a person to attend an arbitration hearing as a witness and to bring “any book, record, document, or paper which may be deemed material as evidence in the case” to the hearing. Id. at 705. The Second, Third, Fourth, and Eleventh Circuits have all held that the FAA does not grant arbitrators the authority to issue pre-hearing discovery subpoenas to non-parties. See, e.g., Life Receivables Tr. v. Syndicate 102 at Lloyd's of London, 549 F.3d 210, 215–16 (2d Cir. 2008); Hay Group, Inc. v. E.B.S. Acquisition Corp., 360 F.3d 404, 407 (3rd Cir. 2004);COMSAT Corp. v. Nat'l Sci. Found., 190 F.3d 269, 275 (4th Cir. 1999); Managed Care Advisory Grp., LLC v. CIGNA Healthcare, Inc., 939 F.3d 1145, 1160 (11th Cir. 2019). The Eighth Circuit found the opposite. In In re Security Life Ins. Co. of America, 228 F.3d 865 (8th Cir. 2000), the court held that arbitrators have the implicit authority to order production of documents by a non-party pre-hearing under the FAA. Id. at 870.

A way to get around these rulings is for the parties, at the beginning of the arbitration, to stipulate that both sides can subpoena third parties to appear at depositions and to produce documents. Parties can usually agree upon the scope of discovery at the beginning of the arbitration and can expand or limit the scope of discovery regardless of what the arbitration provision in the provider agreement provides. For example, an arbitration provision in a provider agreement may allow for written discovery, such as interrogatories and requests for admission, but the parties can agree that neither side will serve written discovery in the case. By the same token, even though the arbitration provision does not expressly allow for third party discovery, the parties can stipulate to the scope of third-party discovery. This, of course, requires agreement by both sides.

Healthcare providers that are renegotiating their agreements with health plans should consider revising the arbitration provisions in those agreements to allow for third party discovery. There are benefits to being able to serve discovery on third parties in arbitrations as well as drawbacks. On the one hand, it can be useful to learn before a hearing what third parties will say if they were subpoenaed to testify at the arbitration hearing. On the other hand, third party discovery may draw out the discovery process and make litigating the case more expensive. We are happy to discuss these issues with you if you have any questions.

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King & Spalding

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