The Enforceability of Prehearing Arbitration Subpoenas

Posted by: Hilger Hammond On: 23rd January 2018 | no responses.

The Enforceability of Prehearing Arbitration Subpoenas After CVS Health Corporation, et al vs. Vividus, LLC, fka HM Compounding Services, LLC

By Stephen A. Hilger, Esq.

This is Part 4 in a 20-part series of articles dealing with issues of arbitration, mediation and alternate dispute resolution in the construction industry.

Those who have participated in arbitration proceedings understand the difficulty of getting documents from non-parties. For example, in a Contractor – Subcontractor dispute, litigants may want documents from the owner, architect, testing lab, and the like. However, those non-parties may not be connected to the Contractor – Subcontractor arbitration agreement. The litigants can require or request that the arbitrators issue subpoenas, which arbitrators typically do, but what happens when the third-party simply refuses to comply?

That dilemma was recently discussed, in part, by the Ninth Circuit Court of Appeals on December 21, 2017 in CVS Health Corporation, et al vs. Vividus, LLC, fka HM Compounding Services, LLC, et al, No. 16-16187 (December 21, 2017). In that case, the appellants obtained a prehearing arbitration subpoena to produce documents and attempted to enforce that subpoena on a third-party. The third-party simply ignored the subpoena, so the moving party filed litigation in the United States District Court to compel pre-hearing discovery based on the subpoena.

Section 7 of the Federal Arbitration Act confers upon arbitrators the power to summon in writing any person to attend a hearing before them as a witness and in a proper case to bring with them any book, record, document or paper which may be deemed material as evidence in the case. The “hearing” is where everyone sits in a room and presents their case to the arbitrator(s). By the time the “hearing” comes around, the litigants, and especially their lawyers, would prefer to be prepared by having the documents in advance so they can be adequately prepared. However, the United States District Court read the language of Section 7 and concluded that the plain reading of the statute did not allow for prehearing discovery from third parties outside of a hearing. The Ninth Circuit affirmed.

The court drew a fine line distinction between the enforceability of the subpoena prehearing versus during a hearing. Enforceability during a hearing does not appear to be questioned in the opinion. The court then looked at other Circuit Courts in the Second, Third, and Fourth Circuit, all of which agreed with the Ninth Circuit’s opinion. The Eighth Circuit, on the other hand disagreed.

Nothing in the opinion would discourage arbitrators from traveling to different cities and conducting mini “hearings” for the sole purposes of compelling a third-party subpoena. That means if the process is very important, it will become very expensive as parties ferry the arbitrators and their attorneys to various different cities in various different states simply to collect documents.

The opinion also did not address the enforceability of subpoenas under other rules, such as the rules of the American Arbitration Association. Those decisions will be left for another day. More than likely, the decisions will be the same.

As a practical matter, this means that complex arbitration proceedings will likely be lengthier and more expensive since the issues will not be narrowly refined by having the luxury of looking through third-party discovery documents in advance of the hearing.

If you enjoyed this article, you might also like “Should You Make Meetings of CEOs A Condition of Arbitration?”

Language You Need for an Enforceable Arbitration Clause

Posted by: Hilger Hammond On: 14th August 2017 | no responses.

By Stephen A. Hilger

This is Part 2 in a 20-part series of articles dealing with issues of arbitration in the construction industry. 

Arbitration is voluntary

Absent a statute to the contrary, arbitration is a voluntary, contractual process. A court will not require parties to arbitrate complex construction disputes without an enforceable arbitration clause in their contract. If you do not have an enforceable arbitration clause, you will not be able to compel your adversary to arbitrate, nor can your adversary force you to arbitrate unless you jointly negotiate a separate post-contract arbitration agreement.

So how do you get to an enforceable arbitration clause? You need to include specific buzzwords in your contract.

Arbitration must be mandatory

To compel parties to arbitrate, arbitration must be mandatory. Words such as “may arbitrate” or “might arbitrate” will not create that mandatory status. Typically, the language “shall arbitrate” must be in the agreement in some form.

Define what claims are presented to arbitration

The contract clause needs to outline what claims are subject to the arbitration agreement. Most arbitration clauses include all claims arising out of the contract.

The Award must be final & binding

The arbitration clause must also contain language that the decision of the arbitrator is final and binding on the parties. Without that language, the arbitration Award is merely advisory and not enforceable.

The Award must be enforceable in a court of competent jurisdiction

The arbitration clause must contain language that the arbitration award is enforceable in a court of competent jurisdiction. Otherwise, a court does not have the obligation to enforce it.

Without these four fundamental items, under the laws of most states, the parties will not be able to compel arbitration.

Other considerations

There are many other issues which should also be dealt with in an arbitration clause, not the least of which include:

  • The selection of the arbitrator(s)
  •  The number of arbitrators
  •  The arbitrator’s experience level
  •  Whether the arbitrator must be an attorney
  •  Use of discovery
  •  Which rules apply
  •  Location of the proceeding
  •  Whether third parties may be joined
  •  Whether mediation is a condition of arbitration

The absence of these items will not defeat arbitration as a dispute resolution process.

In general, whenever I review arbitration clauses, I insist that they cover all disputes in any way arising out of the contract, and that the arbitration is mandatory, final, binding, and enforceable in a court of competent jurisdiction. I also attempt to deal in some way with the non-compulsory issues.

Attorney Stephen Hilger is engaged in complex commercial litigation with an emphasis on construction law, has tried many cases in multiple state courts, and has appeared in several state courts of appeal, the Michigan Supreme Court, United States District Courts, United States District Courts of Appeal, the United States Supreme Court on cert, and multiple arbitration tribunals across the country.

If found this article to be informative, you may also be interested in Part 1 “Construction Disputes: Arbitration or Litigation”