Stolt-Nielsen SA v. Celanese AG

Issue Discussed: Third Party Issues

Submitted by Steven Gaines

Date Promulgated: November 21, 2005

Issues Addressed: FAA Section 7; Arbitrators’ Power to Compel Testimony from Third Parties

In Stolt-Nielsen SA v Celanese AG, 430 F.3d 567 (2nd Cir. 2005), the 2nd Circuit interpreted Section 7 of the Federal Arbitration Act (the “Act”) (See Note 1). Section 7 of the Act provides in relevant part:

The arbitrators selected either as prescribed in this title or otherwise, or a majority of them, may summon in writing any person to attend before them or any of them as a witness and in a proper case to bring with him or them any book, record, document, or paper which may be deemed material as evidence in the case.… Said summons shall issue in the name of the arbitrator or arbitrators, or a majority of them, and shall be signed by the arbitrators, or a majority of them, and shall be directed to the said person and shall be served in the same manner as subpoenas to appear and testify before the court; if any person or persons so summoned to testify shall refuse or neglect to obey said summons, upon petition the United States district court for the district in which such arbitrators, or a majority of them, are sitting may compel the attendance of such person or persons before said arbitrator or arbitrators, or punish said person or persons for contempt in the same manner provided by law for securing the attendance of witnesses or their punishment for neglect or refusal to attend in the courts of the United States.

The arbitrators followed the statute, summoning non-party witnesses to give testimony and produce records. The appellants argued that while the arbitrators followed the statute, what was really being accomplished amounted to pre-hearing depositions and pre-hearing document discovery of non-parties, which in appellants view was not allowable under the Act (See Note 2). The appellants pointed out that the hearing was actually held during the period set aside for discovery, and about 10 months prior to the actual time set for the hearing on the merits, feeling the timing of the order was critical.

The 2nd Circuit said there was no limitation as to when hearings could be held, and cited many reasons why hearings might be held on one or more occasions prior to the main hearing on the merits for things like: admissibility of evidence, motion for interim relief, enforceability of an arbitration clause, whether a claim is barred by relevant statues of limitations, preservation of status quo, privilege, authenticity, protection or conservation of property, and disposition of perishable goods. As the Court ultimately stated:

In sum, we again leave to another day the question whether Section 7 authorizes arbitrators to issue discovery-type subpoenas to those who are not parties to the arbitration. We decide only that Section 7 unambiguously authorizes arbitrators to summon non-party witnesses to give testimony and provide material evidence before an arbitration panel, and that is precisely what occurred in this case.

Notes
1 The Court spent a great deal of time discussing whether the District Court even had jurisdiction to hear the motions (holding it did), and whether the Court of Appeals even had an appealable issue (holding it did, partially because of pendent jurisdiction).
2 The arbitrators had earlier tried to go that route, but failed to get the District Court to go along with it.

* Mr. Gaines is an ARIAS•U.S. Certified Arbitrator. He is a lawyer, licensed in Washington and California. He was formerly President of Contractors Bonding and Insurance Company for 20 years.