Enforceability of a FINRA Arbitration Subpoena



FINRA operates the largest securities dispute resolution forum in the United States.  Virtually all disputes between customers and brokerage firms are resolved by arbitration before FINRA.  Similarly, virtually all disputes between employees and brokerage firms are likewise resolved by arbitration before FINRA.


It is common in any arbitration that a party may seek documents or testimony from a non-party.  If the non-party is a FINRA member or an employee of a FINRA member, the arbitrators are free simply to “order” that person or company to testify or supply documents (FINRA Rule 12513).  However, does the jurisdiction of FINRA arbitrator extend to companies or persons that are not FINRA members or employees of FINRA members? The answer is, kind of sort of yes, but with some wrinkles.


Let me explain and take it from the top.  First, the laws in the United States favor arbitration.  The Federal Arbitration Act (ʺFAAʺ), 9 U.S.C. § 1 et seq., ʺreflects a legislative recognition of ʹthe desirability of arbitration as an alternative to the complications of litigation.ʹʺ  Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 844 (2d Cir. 1987).  Thus, one question is:  does FINRA even have a rule which permits an arbitrator to issue a subpoena to a non-member or an individual not employed by a member?  The answer is, yes:  FINRA Rule 12512 states, “Arbitrators shall have the authority to issue subpoenas for the production of documents or the appearance of witnesses.”


Ok, so the next question is:  what happens if the recipient of the subpoena refuses to comply?  The answer to that question is found in two places.  First, the answer is found in the FAA.  Second, and importantly, the answer changes depending upon which court is interpreting the FAA.


The language of the FAA is pretty clear.  Section 7 states:


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.  The fees for such attendance shall be the same as the fees of witnesses before masters of the United States courts.  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.


Ok, so the FAA clearly gives arbitrators the right to compel a non-party witness to appear at a hearing and bring documents with him.  But does the FAA give an arbitrator the right to compel a non-party to produce documents in advance of a hearing?   The answer to that depends on the judge you ask.


The U.S. Courts of Appeals for the Sixth and Eighth Circuits have answered the question in the affirmative.  See Am. Fed’n of TV & Radio Artists v. WJBK-TV, 164 F.3d 1004, 1009 (6th Cir. 1999) and Sec. Life Ins. Co. of Am. v. Duncanson & Holt, 228 F.3d 865, 870-71 (8th Cir. 2000).  However, the U.S. Courts of the Appeal for the Second and Third Circuits have answered the question in the negative.  See Life Receivables Tr. v. Syndicate 102 at Lloyd’s of London, 549 F.3d 210, 216 (2d Cir. 2008) and Hay Grp., Inc. v. E.B.S. Acquisition Corp., 360 F.3d 404, 408 (3d Cir. 2004).  The U.S. Court of Appeals for the Fourth Circuit sort of hedged it bets by answering the question with a maybe, depending on special need or hardship.  See COMSAT Corp. v. NSF, 190 F.3d 269, 278 (4th Cir. 1999).


This blog post is limited to an analysis of  in federal court, under the FAA.  The analysis changes upon consideration of state laws.  Some state statutes explicitly grant arbitrators the power to issue pre-hearing document production subpoenas on third parties See, e.g., 10 Del.Code § 5708(a) (2003) (“The arbitrators may compel the attendance of witnesses and the production of books, records, contracts, papers, accounts, and all other documents and evidence, and shall have the power to administer oaths.”); 42 Pa.C.S.A. § 7309 (“The arbitrators may issue subpoenas in the form prescribed by general rules for the attendance of witnesses and for the production of books, records, documents and other evidence.”).



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