The Power of Arbitrators and Courts to Order Discovery in Arbitration-part I

• Jurisdiction: United States,Federal
• Citation: Vol. 25 No. 2 Pg. 55
• Pages: 55
• Publication year: 1996

25 Colo.Law. 55 Colorado Lawyer 1996.

1996, February, Pg. 55. The Power of Arbitrators and Courts to Order Discovery in Arbitration-Part I

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Vol. 25, No. 2, Pg. 55

The Power of Arbitrators and Courts to Order Discovery in Arbitration---Part I

by Robert E. Benson

Editor's Note

This is the first part of a two-part series. This Part I discusses an arbitrator's power to order discovery in arbitration. Part II, to be published in the March issue, will examine the courts'power to order such discovery.

Parties in arbitration increasingly are seeking discovery--- depositions, production of documents, and even requests for admissions and occasionally interrogatories---directed to nonparties as well as to the opposing party. This article explores the power of arbitrators and of courts to order discovery in arbitration---discovery between the parties and discovery directed to nonparties.

No attempt is made in this article to summarize all of the positions taken by the courts on the issue of discovery in arbitration or to reconcile the many conflicting decisions.(fn1) Indeed, there is a case to support practically any position concerning discovery in arbitration that the advocate might choose to advance. Rather, the effort is to review generally the case law considering the powers of courts and arbitrators to compel discovery, and to suggest an approach to discovery in arbitration.

Generally, this article is limited to the discovery powers of courts and arbitrators under the Federal Arbitration Act ("FAA"),(fn2) the Uniform Arbitration Act ("UAA") as adopted by Colorado(fn3) and the common law of arbitration.

Background

The historical black letter law of discovery in arbitration has been stated frequently and succinctly:

An arbitration hearing is not a court of law.... When contracting parties stipulate that disputes will be submitted to arbitration, they relinquish the right to certain procedural niceties which are normally associated with a formal trial.... One of these accoutrements is the right to pre-trial discovery....(fn4)

Similarly, in McKenna v. Shearson Lehman Hutton Inc., the court noted the difference between litigation and arbitration

The arbitration ... procedures do not ... provide for discovery depositions. In agreeing to proceed according to arbitration and the arbitration department rules, the parties have limited their access to the full panoply of procedures available in ordinary litigation. Thus, the parties are bound to this limitation by their agreement.(fn5)

Another court noted that the procedural differences between litigation and arbitration "demonstrate[] the need of pretrial discovery in one and its superfluity and utter incompatibility in the other."(fn6) Indeed, some early decisions stated that courts had absolutely no power to order any discovery in arbitration.(fn7)

The reasons for rejection or reluctance to have discovery in arbitration are premised on discovery being unnecessary for a fair adjudication, and on avoidance of increased costs, delay, complexity and unnecessary intrusion into parties' affairs.(fn8) Gradually, however, as more and more cases have been submitted to arbitration, as the cases submitted to arbitration have been more complex, and as the persons representing the parties in the arbitration and serving as arbitrators have been more frequently trial lawyers steeped in the civil rules of procedure, the pressure for discovery in arbitration has increased.

Today, limited discovery is a common and often important part of arbitration, although the question often remains: what is the power of an arbitrator or a court to order discovery in arbitration when the parties or nonparties will not voluntarily comply.

Discovery and the Nature of Arbitration

The Consensual Nature Of Arbitration

With the exception of statutorily mandated arbitrations (which are not covered in this article), the dominant characteristic of arbitration is that it is contractual and not statutory. An arbitration largely is what is agreed to by the parties. Parties can define the arbitration process to be whatever they want and thereby tailor the dispute resolution process to their particular circumstances and dispute. Because it is contractual in nature, the parties in arbitration are free to contract, inter alia, as to the scope of discovery(fn9)--- at least as between themselves. On the other hand, absent a statute, the parties have no right or power to contract to impose discovery obligations on nonparties. Only the government can impose such burdens.

The consensual nature of arbitration is to be contrasted to the judicial system. Litigation is what Congress, the legislature

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and the courts define it to be; judicial systems are created by state and federal constitutions, and supplemented by legislatures and Congress. The courts are given powers over both parties and nonparties far in excess of the powers that parties can grant to arbitrators, such as contempt and disbarment. The system is imposed on the disputants, practically regardless of their consent. (There are, of course, certain agreements of the parties as to litigation that the courts will usually honor, such as venue selection and choice of law.)

Both the FAA and the UAA preserve the consensual nature of arbitration, by primarily being applicable only to those situations where the parties have failed to agree or where the contractual process might fail or be ineffective without the assistance of the judiciary. Many provisions of these arbitral statutes are expressly applicable only to the extent to which the parties do not otherwise agree.

Thus, the obvious conclusion to be drawn from the statutes and the consensual nature of arbitration is that the parties have the "right" to control (define, limit or prohibit) discovery as between themselves, and at least the power to urge, limit or forbid discovery to nonparties.(fn10)

Is Discovery Desirable or Needed in Arbitration?

To most modern litigators, discovery is an essential part of the litigation process, and essential to obtaining a just result. A party, or a nonparty, should not be allowed to conceal facts prior to trial that may be of help to the other party to prepare its case. All parties and witnesses should undergo the rigors of cross-examination prior to trial as a part of the exploration for potential relevant facts and preparation for trial.

To others, perhaps the traditional trial lawyers, discovery is an added layer to the trial process that usually results only in delay in obtaining a resolution of the dispute at increased cost to the client. Indeed, the procedures, limitations and experiences of other countries with respect to discovery and the history of arbitration itself suggest that discovery is not always a necessary ingredient to a fair resolution of disputes.(fn11) If arbitration is acknowledged as an alternative to litigation, perhaps the importance of discovery should diminish.

Obviously, both views of the need for discovery are right, and both are wrong. Arbitration provides the answer: sometimes. In some cases there should be some discovery, and in others, not. Sometimes some discovery might be necessary to achieve the just result, but often it is not. One conclusion can be stated with certainty: discovery in arbitration should not automatically mirror discovery in litigation.

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