67 The Alabama Lawyer 280 (2006). The Contours of Arbitration Discovery.

• Author: BY W. SCOTT SIMPSON AND OMER KESIKLI

The Alabama Lawyer

2006.

67 The Alabama Lawyer 280 (2006).

The Contours of Arbitration Discovery

The Contours of Arbitration DiscoveryBY W. SCOTT SIMPSON AND OMER KESIKLIIntroduction

Arbitration is now generally accepted in the legal community as a mainstream method of alternative dispute resolution. Arbitration is widely used in a variety of contexts, including disputes involving commercial transactions, consumer transaction and employment relationships. Some of the primary benefits of arbitration are speed, efficiency and cost savings. However, these benefits come with significant trade-offs as well - the primary one being limited discovery. Unlike litigation under the Federal Rules of Civil Procedure, discovery in arbitration can be very limited. Discovery devices such as interrogatories, requests for admissions and mental examinations are generally not employed in arbitration. Depositions of parties are common in arbitration, but depositions of nonparties are rare and somewhat controversial. These discovery devices although usually helpful in developing case, can be very expensive. John C. Koski, From Hide-And-Seek to Show-And-Tell: Evidentiary Disclosure Rules, 17 Am. J. Trial Advoc. 497 (1993)(Noting that attorney's fees generated from discovery account for 40 to 60 percent of a law firm's profits). That's why many potential litigants are opting for arbitration of their disputes. Arbitration is a streamlined process that limits discovery and saves people money in the process.

This begs the question: How much discovery is permitted in arbitration? The answer to that question is it depends on a variety of factors, including the institution chosen by the parties to administer the arbitration, and the person against whom the discovery is directed. This article will explore these issues, beginning first with the public policy of arbitration and its application to discovery issues. This article will explore the scope of discovery available under Section 7 of the Federal Arbitration Act ("FAA"), and the controversial issue of nonparty discovery in arbitration. This article will then discuss the scope of discovery permitted under mainstream institutional arbitration rules - the Commercial Rules of the American Arbitration Association ("AAA"), as well as issues involving the enforcement of arbitration discovery orders.

Ideally, a dispute that parties have agreed to arbitrate should be handled within the confines of arbitration, without resorting to litigation either before or after the hearing. Unfortunately, this does not always happen. It is common for parties to litigate the arbitrability of their dispute in court before submitting to arbitration. Similarly, after an arbitrator issues an award, parties sometimes choose to attack the award in court under one or more of the statutory and common law grounds for vacating an award. 9 U.S.C. § 10 (statutory grounds for vacating arbitration award); Birmingham News Co. v. Horn, 901 So. 2d 39, 65 (Ala. 2004)(adopting "manifest disregard of the law" as a common law ground for vacating arbitration award).

Fortunately, the policy of limited discovery in arbitration bleeds-over into "arbitration-related proceedings" in court, which this article defines as litigation leading up to arbitration (a motion to compel arbitration under Section 3 of the FAA, or an original petition to compel arbitration under Section 4 of the FAA), and litigation instituted to challenge an arbitration award (an application to vacate an arbitration award under Section 10 of the FAA). State and federal courts have crafted special rules to limit discovery in arbitration-related proceedings because parties frequently try to circumvent the discovery limitations of arbitration through broad-based discovery in court. This article will discuss the contours of those rules.

The Public Policy of Arbitration and Its Application to Discovery Issues

The primary goals of arbitration are speed, efficiency and reduction of litigation expense. Burton v. Bush, 614 F. 2d 389, 391 (4th Cir. 1980). Potential litigants opt for arbitration, as opposed to litigation, because arbitration is a faster and less formal method of dispute resolution. Forsythe Internat'l, S.A. v. Gibbs Oil Co. of Texas, 915 F. 2d 1017, 1022 (5th Cir. 1990). A primary reason for this is that formal discovery under the Rules of Civil Procedure generally is not allowed in an arbital proceeding. Commercial Solvents Corp. v. Louisiana Liquid Fertilizer Co., 20 F.R.D. 359, 362 (S.D. N.Y. 1957); Schacht v. Hartford Fire Ins. Co., No. 91 C 2228, 1991 U.S. Dist. LEXIS 16430, *12 - *13 (N.D. Ill. November 6, 1991). The court in In re Technostroyexport underscored the differences between discovery in arbitration and litigation:

It appears to be generally accepted that the rules and procedures in arbitration are intended to be radically different from the rules and procedures in the courts. Arbitrators govern their won proceedings, generally without assistance or intervention by a court. Whether or not there is to be pre-hearing discovery is a matter governed by the applicable arbitration rules (as distinct from court rules) and by what the arbitrators decide. It has been expressly held that a Federal District Court has no power to order discovery under court rules where the matter is being litigated in an arbitration.

853 F. Supp. 695, 697-98 (S.D. N.Y. 1994(citations omitted).

In Gilmerv. Interstate/Johnson Lane Corp., the United States Supreme Court affirmed the policy of limited discovery in arbitration. There, the Court rejected the argument of a plaintiff, who made an age discrimination claim, that the limitations of discovery in arbitration precluded him from effectively proving his case.

Gilmer also complains that the discovery allowed in arbitration is more limited that in the federal courts, which he contends will make it difficult to prove discrimination. It is unlikely, however, that age discrimination claims require more extensive discovery than other claims that we have found to be arbitrable, such as RICO and antitrust claims. Moreover, there has been no showing in this case that the NYSE discovery provisions, which allow for document production, information requests, depositions and subpoenas will prove insufficient to allow ADEA claimants such as Gilmer a fair opportunity to present their claims. Although those procedures might not be as extensive as in the federal courts, by agreeing to arbitrate a party "trades the procedures and opportunity for review of the courtroom for the simplicity, informality and expedition of arbitration."

500 U.S. 20, 31 (1991)(citations omitted).

Because discovery is limited in arbitration, a court should stay discovery when ordering a case to arbitration pursuant to Section 3 of the FAA. 9 U.S.C. § 3; Bender v. A.G. Edwards & Sons, Inc., 971 F. 2d 698, 699 (11th Cir. 1992); Owens v. Coosa Valley Health Care, Inc., 890 So. 2d 983, 989 (Ala. 2004). Similarly, the courts should not permit discovery to be undertaken simultaneously in court and arbitration because of conflicts with the arbitration process. In Mississippi Power Co. v. Peabody Coal Co., the court discussed the rule precluding dual or "double-barreled" discovery.

[T]he parties should be held to their agreement and to the availability of Rule 30 of the Rules of the American Arbitration Association. Backed up by the federal statute, this rule allows the arbitrator, in his discretion, to permit any discovery necessary to the performance of his function. There should be no necessity for double-barreled discovery, proceeding simultaneously under the supervision of the court, on one hand, and under the supervision of the arbitrator, on the other, a situation fraught with the likelihood of conflicts, duplications, hindrances and delays, all basically in conflict with the arbitration process, as demonstrated by the many cases hereinabove cited. This course avoids anything inimical to the obligation to arbitrate, yet it will not deprive the plaintiffs of the benefits of discovery, which can be had, if needed, at the hands of the arbitrator and under his discretion.

69 F.R.D. 558, 567 (S.D. Miss. 1976).

Federal Rule of Civil Procedure 81(a)(3) specifically limits the application of the Federal Rules to proceedings in court "relating to arbitration." The discovery rules applicable in...