Efficient Arbitration, Part IV: Non-Party Discovery

In the earlier articles in the series we addressed the main thing that makes arbitrations expensive: discovery.  As arbitration expanded over the years, many lawyers who were used to litigation-style discovery got involved. They demanded – and often got – litigation-style discovery with its attendant expense.  We have been exploring ways to get the parties the information they need to present their positions, but cut down on unnecessary expense and effort in getting it.  This includes limiting document discovery and e-discovery to the specific needs of the case and limiting depositions to those that are actually necessary.

So far we have been focusing on discovery between or among the parties to the arbitration.  We now take up non-party discovery.

There are a few things to keep in mind at the outset to help you plan any needed non-party discovery.  First, arbitrators have subpoena powers, but they are not the same as courts’ powers, and the power differs among jurisdictions.  Second, arbitrators can’t enforce subpoenas.  Courts must do that.  Third, because of the first and second things, some creativity may be necessary.

Arbitrator subpoena power in general

Most commercial arbitrations will be governed by the Federal Arbitration Act (“FAA”) because the issues typically involve interstate commerce.  The FAA preempts state law.

The FAA provides at 9 U.S.C. § 7 that arbitrators may “summon in writing” any person to “attend before them” as a witness and bring material documents.  The written summons is served in the same manner as a subpoena to appear and testify before a court.  So that is easy enough for arbitration hearings.  Arbitrators can issue subpoenas to require witnesses to appear and bring documents.

But what if they don’t appear?  The FAA also answers that in section 7.  The federal court in the district where the arbitration is being held can compel the attendance of the witness and can punish the witness for refusal to attend, just as if a court proceeding was involved.  Note the arbitrator can’t do that.  Arbitrators don’t have marshals, jails and the ability to charge fines.  But courts do.  The actual process to enforce the subpoena may be cumbersome, requiring a court filing and appearance.  But the power to subpoena is clear enough that witnesses will normally obey an arbitration subpoena.

Of course, not even a federal court can subpoena everybody anywhere.  Generally, a non-party witness can only be required to travel 100 miles, or within the state for a trial.  Fed. R. Civ. P. 45(c).  A witness outside that area isn’t subject to a subpoena issued by a court and also, presumably, not one issued by an arbitrator, either.

Discovery: documents

But what about discovery before the arbitration?  Different courts treat that differently.  For example, the Eighth Circuit has decided that the power of an arbitrator to issue a subpoena for testimony and documents implies the power to subpoena documents for review by a party prior to a hearing.  In the Matter of Arbitration Between Sec. Life Ins. Co. of Am. & Duncanson & Holt, 228 F.3d 865. 870-71 (8th Cir. 2000).

By contrast, the Third Circuit recognizes no such power. The only power explicitly stated in the FAA is to require a non-party to “attend before” the arbitrator and bring documents.  This, the court reasoned, does not allow a subpoena for pre-hearing document discovery.  Hay Group, Inc. v. E.B.S. Acquisition Corp., 360 F.3d 404, 407 (3d Cir. 2004).  You will need to check the law of your jurisdiction to determine if a third-party document discovery subpoena is allowed.

But the courts in your jurisdiction may not have addressed the issue.  It will not be very efficient for you to take a trip to court and possibly an appeal to get it figured out in your jurisdiction.  This may affect you choice of location for the arbitration in your arbitration clause if you think that third-party document discovery is likely to be important.  Or you may be able to be a little more creative, as discussed below.

Discovery: depositions

The Eighth Circuit has ruled on documents but not witnesses.   An Eighth Circuit trial court, however, has concluded that arbitrators do not have to power to subpoena witnesses for discovery depositions.  The court reasoned that production of documents is less onerous and imposes a lesser burden than does a witness deposition.  ShlumbergerSema, Inc. v. Xcel Energy, Inc., 2004 WL 67647 (D. Minn. 2004).  Of course, in the Third Circuit, for example, a deposition subpoena likely isn’t any more available than document discovery since the subpoena has to be tied to an appearance before the arbitrator – not just discovery.  This issue is open in other jurisdictions. The bottom line is this: don’t count on non-party depositions in your next arbitration. You may be disappointed.

Other avenues

Interestingly, the Revised Uniform Arbitration Act does provides arbitrators the power to require prehearing depositions and documents production, at least in the Minnesota version.  See Minn. Stat. § 572B.17 (c) and (d).  So this might provide a route for non-party discovery depositions in jurisdictions that apply the act, although that may be preempted by the FAA. Recall that the FAA preempts state law on matter involving arbitration if the dispute involves interstate commerce, which most do.  You’ll have to check your state’s arbitration act and address the possible preemption issue.

Another possibility is for the arbitrator to hold a separate hearing to take the testimony of a non-party witness and review of subpoenaed documents.   The Second Circuit recognizes an arbitrator’s power to compel testimony and documents from a non-party at a preliminary hearing.  Stolt-Nielsen SA v. Celanese AG, 430 F.3d 567 (2d Cir. 2005). Thus, so long as the arbitrator is there, the testimony could be taken and documents provided at a preliminary hearing set up for the purpose of obtaining that information.

But consider this.  This is an expensive way to proceed that would require you to convince the arbitrator that the information is vital and this is the only way to obtain it.  And you still have the problem of a witness beyond the arbitrator’s subpoena power.  It may be possible to convene the arbitration, with the parties’ permission, in a place where the witness is subject to jurisdiction if the information is that vital.

Another alternative is to take the deposition and get the documents by agreement of the parties and witness.  If everyone agrees, the deposition can go ahead.  You can make it less expensive by taking it over the phone or by Skype or satellite.  Counsel for the parties are likely to agree to the deposition if both sides have some non-party discovery they think is important. Non-parties may be willing to cooperate if the issues are discrete and the process is not burdensome.

Efficient?

This all suggests that you may or may not be able to force non-party discovery in an arbitration.  You will want to think long and hard whether the information is really needed and is worth the cost of obtaining it. That will be on the arbitrator’s mind.  To once again quote the AAA Commercial rules, the arbitrator must seek to achieve “an efficient and economical resolution of the dispute, while at the same time promoting equality of treatment and safeguarding each party’s opportunity to fairly present its claims and defenses.”

The bottom line is, if the information is vital to a claim or defense and a deposition or document demand on a non-party is the only way to get it, an arbitrator will likely try to find a way to help a party obtain it.  If, on the other hand, a party is simply “fishing,” it is unlikely to get much help from the arbitrator.

Up next

Litigation-like things that add to the expense of arbitration are not limited to discovery.  We will take up pre-hearing motions next.

Efficient Arbitration, Part II: Getting Control of Electronic Discovery

In the last article on this topic, we identified cost as one of the major complaints about arbitration.  While arbitration is supposed to be faster and cheaper than litigation, the perception often is that it is not.  The culprit, as usual in legal disputes, is discovery.  If we are to maintain – or at this point perhaps re-establish – arbitration as a preferred alternative to litigation, we will need to deal with the cost of discovery.

One way to do that is to forego the sort of one-size-fits-all approach we have seen to discovery in court in favor of an approach thoughtfully balancing the need for information with the expense of getting it.  Arbitrators, who typically have a deep background in the sorts of issues presented in the arbitrations before them, are well suited to help the parties with the balance.

The last article in this series noted the general help provided by CPR’s document discovery protocol which presents different possible modes of general document discovery depending on the needs of the case.  We now take up discovery of electronically stored information, often called “ESI” for short.  This has the potential to be extraordinarily expensive if not handled properly.

The easy things to fix

Let’s start with the low hanging fruit. Not all cases require a great deal of electronic discovery.  More and more businesses simply have electronic versions of their files that are analogous to the paper files they used to keep. For many cases, the issue is no more complicated than simply looking in “the file” kept for the contract at issue and perhaps the related emails of those most involved.  But other cases may demand more.  And some counsel, used to federal court discovery, will demand a search of the opposing parties’ entire electronic storage system.  Dealing with electronic discovery at the initial scheduling conference will help determine how much of an issue this is likely to become in any given case and what level of expense makes sense to get the needed information.

At very least, if the case will involve electronic discovery  – and these days most cases will involve at least some – there needs to be some agreement on the format for electronic documents.  Some lawyers are used to producing documents in .pdf, others in native format, and others in .tif files, usually depending on their document management system, if any.  Before producing documents, counsel must discuss the format they want. Otherwise there will inevitably be a dispute about whether the documents should be produced in some other format and who should pay for it if they were produced in the “wrong” format.

Then there is the whole issue of metadata.  Metadata is data about data, including, who created it, when, where, in what form, what revisions were made, etc.  It is usually expensive to deal with and rarely critical.  It may be important to have it if the authenticity of an electronic document is in question.  But that is rare.  Normally, you will not want to require that extra effort be made to gather it for each document absent a showing it is needed for a specific purpose for specific documents.

Fitting the search to the need

Of course, the main issue is how to get information the parties need to prepare and present their cases without breaking the bank.  Again, CPR has a useful protocol that provides a way to think about this.

CPR posits different modes of electronic discovery.  The first is simply disclosure of copies of electronic information to be presented at the hearing, either printed out or in other usable form.  This would often be adequate for a routine matter.

The second mode includes disclosure in usable form of documents (a) from a specific, limited number of custodians, (b) provided from the time of signing the contract at issue to the date of filing the arbitration demand, (c) only from primary storage facilities with no need for disclosure from backup servers, tapes, PDAs, voicemails, etc., and (d) with no need to provide anything but reasonably accessible data.

The third mode would include the second mode, but with more custodians and a wider time period to fit the specifics of the case.  The mode would also allow require, upon a showing of special need and relevance, disclosure of deleted, fragmented or documents otherwise difficult to obtain by other than forensic means.

The final mode would be full discovery of electronic information relevant to any party’s claims or defenses, subject to limitations of reasonableness, duplication, and undue burden. This would be like federal court discovery in a large case.

Of course, these are just suggestions, but provide a good starting point for discussion and may even provide a basis for agreement between counsel for the parties.

Cost shifting

Another fairly simple approach to e-discovery sometimes proposed is to require the requesting party to pay the cost of responding.  Some arbitrators I know swear by this as the answer to overreaching demands requiring searching and production of electronic documents.  This seems like a simple solution, but may not always be as it may involve the arbitrator in determining whether the amounts charged are reasonable and the like.  For cases involving serious e-discovery disputes, however, this approach is worth considering.

Keeping a practical mind set

The key to all this is really a more sophisticated way of asking, “If I were this party, where would I go to find the important information regarding the dispute?”  In most cases, the starting point – and often the ending point – would be on the systems used by the people most involved in the contract and subsequent dispute for the time period of the dispute.  This normally would not require searching  all the company’s servers, PDAs, voicemails, and backup tapes or searching a whole system for key words, or using predictive coding .  Most disputes in arbitration are likely to be more discrete and focused than that.  If they aren’t, the parties need to be prepared to explain that to the arbitrator and maybe even pay the other side’s cost for extraordinary effort in looking.

That should go a long way to reigning in the costs of arbitration and making it a real alternative to litigation.

Of course, discovery isn’t only about documents.  Counsel is used to taking depositions for cases in court and will very often want to do the same in arbitration.  We’ll take that up in the next installment.

Arbitrating the Patent Case Part XVII: Presenting Documents at the Hearing

We have previously had a look at many aspects of arbitrating patent cases, beginning with the type of cases likely to be arbitrated, arbitration clauses, and the arbitration process up to the hearing.  We then began looking at the hearing itself, beginning with sequestration issues that can arise, opening statements, and case organization.  We will now continue on to presenting documents at the hearing.  This may seem a little mundane, but it is not.  It can have a significant effect on the efficiency and effectiveness of the hearing.

Patent arbitration tends to be document heavy, and the current technology available to present documents leads to many possibilities.  Here are a few thoughts on that from one arbitrator’s point of view.  Not all arbitrators will necessarily agree with me on all this, but this reflects what I have found over the years.

Presenting written documents

With the advent of Trial Director and other systems to present documents electronically, it can be tempting to default to that system for everything.  I’m not sure it is worth the expense in many cases.  I am sure that, if done improperly, use of these systems can be a detriment rather than a benefit.

But first let’s consider the benefits of trial presentation systems. These systems allow you to focus the witnesses’ and arbitrator’s attention to specific documents and passages in the way you choose.  You can project the page of the document, blow up or highlight a particular passage of interest, and otherwise direct everyone’s attention to the particular part of the document you are working on.  If done correctly, there is no need to fumble around through a book of exhibits and then call out page numbers and paragraphs so everyone can get to the right place.  Nor is the witness or arbitrator as likely to get distracted by other document content you aren’t dealing with at the time.  You may be able to avoid dragging pounds of paper copies around the country if everything is on your computer.

On the other hand, this way of presenting documents doesn’t take into consideration the way many people process and use information from documents in an arbitration.  I, and most arbitrators I have worked with, tend to take notes on exhibits, and underline or highlight key parts of the documents. This is very useful when it comes to analyzing the case and writing an award.  No one I know can memorize all the pertinent language in a document for later recall.  Thus, for matters where the information in the document is critical, you will often see arbitrators reaching for their copy of the document if it is available or asking for a copy if it is not. Be aware that a transitory projection doesn’t usually get the job done.  You need a way to put important evidence you want the arbitrator to rely on into the arbitrator’s hands.

Use of a document projection system can sometimes be annoying.  Have you ever been at a hearing where a vendor was hired to do the document retrieval and the presentation went something like this?

Lawyer:  [To vendor running system].  Put up bates number 14578. [Pause and wait for projection].   Oh, wait sorry, go to 14587.

Arbitrator:  Can I have the Exhibit number please?

Lawyer:  Just a minute.  [Pause.]  I’ll have to get that to you at the break.  OK, please blow up paragraph 2 – or I mean 3.  [Long pause.]  Can you highlight the second sentence?  Okay, blow it up, please.  Oh, before we do that, can we go to bates number 14586 for a little context?  [Pause]. Now, Ms. Witness, see that date?  Ok.  Now back to 14587.  [Pause.] I’ve blown up paragraph 2 . . . See where it says . . .

Witness:  Excuse me. It is hard for me to get the context of this without reviewing the whole document. May I see it instead of just the parts you are projecting?

You get the idea.  The whole process of explaining how to project the right part of the document can get lengthy and tedious.  And it may well appear unfair to the witness to pick out a sentence or two from a document he or she hasn’t seen in three years and start asking about it.

The answer, of course, is to have things better organized.  But in some cases, it is just easier and less time consuming to have a notebook with the exhibit tabbed and refer to it.  This goes more like:

Lawyer:  Let me direct you to Exhibit 27.  You will find it tabbed in the notebook you have in front of you.  Is this an email you sent to Joe Dokes on March 12, 2013?

 

Witness:  It appears so.

 

Lawyer:  Please turn to page two, the second paragraph.  Here you say, “I agree that we should be paying license fees on this product . . .” [Etc.]

If the arbitrator is going to turn to the tabbed exhibit to highlight it or make notes on the document anyway, it might be better to just get everyone to that document.

You may want to do a combination of the two, projecting the document to lead the witness through it, but giving the arbitrator a chance to pull it up in the exhibit book.  But if you want to forego some expense, use tabbed exhibits in three-ringed notebooks − one for you, one for the witness and one for the arbitrator − and skip the presentation system for written documents.  Or, if the technology is too challenging for you, but there is an advantage to having a particular document projected, just use a document camera to project it.

You can be sure of this: You won’t lose your arbitration because you didn’t project exhibits.   But tabbed exhibits are almost always necessary and generally are effective enough in the context of your patent arbitration.

Two more thoughts on notebooks.  First, giant notebooks with 5 inch spines are heavy and awkward, particularly if there is more than one of them everyone has to retrieve and you are moving between them.  Use more, smaller notebooks, clearly labeled so it is easy to find the one that has the right exhibit in it.

Second, it may seem like a good idea to simply have a book for each witness with the exhibits you will use for that witness.  This works well during testimony.  But it can get confusing in a long arbitration.  The arbitrator ends up with a jumble of notebooks, many with the same exhibits, so it is difficult to locate an exhibit and may be nearly impossible to locate the copy with the arbitrator’s notes.  Exhibit books with exhibits tabbed in order are usually best.  Make a list of exhibits organized by date, too, to allow easier retrieval and review.

Visual information

For drawings, photos, or other highly visual documents critical to patent cases, projection will often be the way to go, so everyone can follow along.  Thus, if you are trying to show where each element of a claim is in an accused product, or that an element is missing, a large visual you or the witness can point to is a must.  But remember to have a smaller version available in permanent form so that arbitrator can easily locate and study it as part of the decision or award writing process.

Sometimes you are better off with a large chart or two so you can easily write on it, draw arrows, or the like.  It depends on your case and what you are presenting with a given witness.  But the arbitrator won’t be hauling charts around, so remember to provide a small version of it for later reference.  A smaller version of the drawing and a document camera may be all you  need.

Computer animation

You can spend a small fortune on computer animations and the like, but this is rarely necessary.  Most patent arbitrators can visualize what is necessary from drawings or photos without the expense of animations that may or may not be completely accurate.

Of course, you can simply bring smaller devices to the hearing or take a field trip to observe large devices or systems in operation.

Helpful technology

It has become more and more common for counsel to provide arbitrators with documents electronically, either on a USB drive or by emailing pdfs.  Patent arbitrations tend to involve traveling to the hearing, so this is a good way to allow everyone having a computer or tablet to easily retrieve exhibits at the hearing and for review afterwards.  One typically can’t take notes on the documents (absent some extra software and practice using it), but having them easily accessible anywhere is a real plus.  Talk this over with the arbitrator early on to see whether he or she uses a computer or tablet and in what format to provide the documents.

Unused exhibits

Parties usually provide exhibits in books or electronically that they don’t end up using and that never make it into the record.  You may be worried that the arbitrator will go off on his or her own quest and review unused exhibits and use them to come to conclusions.  The arbitrators I know are very unlikely to do that.  There is always plenty to consider without looking for more outside the record, and it is thought to be unfair to consider documents that are not part of the record.  In fact, many arbitrators tell the parties that if an exhibit is in the record, but hasn’t been discussed with a witness, you shouldn’t expect them to consider it.

But if you are worried about having exhibits available to the arbitrator that aren’t in the record, the arbitrator will certainly let you remove them from the notebooks.  You will have to keep track of what exhibits are in the record and agree with opposing counsel on that.  If you provided pdfs of exhibits, you’ll have to ask the arbitrator to delete the old set and substitute a new set you’ll provide with only the exhibits of record.

Next up.  Presenting testimony.