October 2016 Bar Bulletin
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October 2016 Bar Bulletin

“Discovery” in Arbitration:
You Can Always Get What You Need … Almost

By Philip E. Cutler

 

One of the canards I hear frequently about arbitration — always as a reason not to use it — is that discovery is not available in arbitration. Having served as an arbitrator in commercial cases for over 20 years, and as a lawyer trying cases for clients engaged in arbitration over that period as well, I strenuously disagree.

That said, it is important to understand that, except for disputes subject to mandatory arbitration under the Washington Superior Court MARs,1 arbitration is a creature of contract, and if the parties’ arbitration agreement restricts (or grants) discovery, the arbitrator is obligated to follow their agreement. Moreover, in most arbitration contexts the wide-ranging (some would say oppressive and costly) discovery commonly available in court litigation (in the federal arena, at least prior to the December 2015 amendments to the Federal Rules of Civil Procedure) is not generally available in arbitration.

However, the rules of most arbitration-provider organizations provide for some “discovery” as of right and good arbitrators are open to party requests for additional “information” from each other, and not only grant such requests, but encourage them. Wise counsel will bear in mind their clients’ discovery needs when drafting a pre-dispute contractual arbitration agreement or, post-dispute, in drafting an agreement to submit a dispute to arbitration.2

Litigants’ (i.e., your clients’) general complaint about discovery in court litigation is that it is the single most expensive litigation cost.3 That may be because the general touchstone in discovery in the court context has for years been whether the discovery sought may “reasonably lead to the discovery of admissible evidence,” a standard that accommodates, if not encourages, “turn over every stone” discovery. The December 2015 amendments to the federal rules jettison that standard in favor of “proportionality.” Over time, it may be that state court rules will be amended to reflect a similar approach.

Good arbitrators have for years followed the proportionality rule in evaluating parties’ discovery requests or proposals. The determination depends on whether discovery is necessary and appropriate, given: (1) the legal and/or factual complexity of the case; (2) the amount in controversy; and (3) the impact of the discovery on expense and delay.4 Moreover, the Washington Uniform Arbitration Act (WUAA, RCW ch. 7.04A, particularly RCW § 7.04A.170 and .170(3)) and the rules of most arbitration-
provider organizations contemplate some discovery and vest the arbitrator with substantial authority to order needed discovery (e.g., AAA Commercial Rule R-22).5

In the securities field, most customer-
broker disputes are handled by the Financial Industry Regulatory Authority (FINRA). FINRA’s rules not only mandate the production of “core” documents (e.g., Rule 12506 and the “Discovery Guide”),6 but also provide that certain party-held documents are presumptively discoverable. Further, Rule 12514 requires that the parties, at least 20 days prior to the evidentiary hearing, identify witnesses who may testify and produce documents to be used at the hearing. FINRA rules also grant the arbitrator the authority to order additional appropriate discovery (e.g., Rules 12507, 12512, 12513 and 12514).

In AAA, JAMS and FINRA cases, shortly after confirmation of her appointment, the arbitrator schedules an initial preliminary hearing to discuss a variety of subjects important to efficient management of the case (e.g., AAA Commercial Rules R-21 and P-1 and P-2; FINRA Rule 12500), and good arbitrators in any case will schedule such a hearing. Counsel should discuss their discovery needs with each other prior to that conference and then raise those issues with the arbitrator at the conference.

Most arbitrators are receptive to, and will approve, party-proposed discovery plans as long as they are appropriately tailored to the case. Many commercial arbitrators use Article 21 of the AAA/ICDR International Dispute Resolution Procedures7 as a guide when evaluating party discovery requests and any disputes concerning them.

Notwithstanding the general availability of discovery in arbitration, there are important qualifications.

Depositions. While it is certainly within the arbitrator’s authority to permit depositions under the WUAA, the statute does not grant parties the right to take depositions. The same is true under most arbitration-provider rules.

The key to obtaining the arbitrator’s blessing for depositions is to identify (and get agreement) on only the most important depositions; one can always return for additional depositions if an appropriate showing of necessity is made. Depositions are strongly discouraged in FINRA cases (FINRA Rule 12510), which unfortunately sometimes makes the evidentiary hearing unduly lengthy.

Interrogatories. Generally, interrogatories are not available as of right under either the WUAA or most provider-organization rules, and most arbitrators discourage the use of interrogatories except as a means of discovering the whereabouts of relevant documents and the identity of persons with knowledge or information about the issues in dispute.

Most arbitrators will require the parties to produce, shortly after the initial preliminary hearing, documents on which they rely and, on a similar schedule, to identify key witnesses (e.g., AAA Commercial Rule R-21(b)). In FINRA cases, the arbitrator may approve properly framed “requests for information” under FINRA Rule 12507(a).

Documents. Carefully tailored requests for production are almost always permitted by arbitrators (e.g., AAA Commercial Rule R-21(b)), and are essential in most commercial cases. As noted above, in customer-broker securities cases FINRA Rule 12506 and the “Discovery Guide” require the production of core documents in a party’s possession, and FINRA Rule 12514 permits the arbitrator to order that additional documents be produced.

Requests for Inspection. A request for a site visit or inspection of other “things” is uncommon in most commercial cases, but counsel should consider making such a request in the appropriate case. Providing the request is legitimate and not burdensome, an arbitrator is likely to permit it even over the objection of the other party.


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