In the Matter of Arbitration Between, Security Life Insurance Company of America Congress Life Insurance Company and Duncanson & Holt, Inc. The Multiple Employers Trust Quota Share Line Slip Transamerica Occidental Life Insurance Company
Docket: 99-3523
Court: Court of Appeals for the Eighth Circuit; October 2, 2000; Federal Appellate Court
Transamerica Occidental Life Insurance Company (Transamerica) appeals a district court order concerning the enforcement of a subpoena issued by an arbitration panel under the Federal Arbitration Act. The appeal arises from a dispute involving Security Life Insurance Company, which launched a group health insurance product in 1992 and required reinsurance due to insufficient resources. Security entered into a reinsurance contract with seven insurers, including Transamerica, managed by Duncanson. Holt (D&H). The contract stipulated that reinsurers would assume 85% of both the risk and related legal expenses, including extra-contractual liabilities and claims of bad faith or negligence, contingent on Security consulting with and obtaining D&H's approval.
After Security incurred a $14 million judgment in Georgia, D&H and the reinsurers denied liability for their share of the judgment and related costs, claiming Security failed to comply with the consultation requirement. Security contended it met this obligation. The reinsurance contract included an arbitration clause for disputes, allowing either party to request arbitration, with specific procedures for appointing arbitrators.
Security initiated arbitration over the alleged failure to counsel and concur, appointing an arbitrator and prompting D&H to do the same. The two arbitrators subsequently selected a third. Transamerica contested its involvement in the arbitration, arguing that the counsel-and-concur issue was not arbitrable and that it should have a separate arbitration proceeding. The appellate court affirmed part of the district court's order and dismissed other parts, addressing the enforcement of the subpoena in the context of the arbitration proceedings.
In April 1999, Security requested a subpoena duces tecum from an arbitration panel, aimed at compelling Transamerica to produce documents and provide testimony from an employee regarding the reinsurers' decision-making in the Clark case. Security sought to demonstrate that had it known the reinsurers intended to deny coverage, it would have settled with the Clark plaintiffs, alleging that the reinsurers misled Security to maintain litigation for their own benefit. Transamerica refused to comply, arguing that it was not a party to the arbitration and that the panel lacked authority under the Federal Arbitration Act (FAA) to issue the subpoena. In response, Security petitioned the District Court for Minnesota to enforce compliance or compel Transamerica's participation in the arbitration. The court referred the matter to a magistrate, who cited section 7 of the FAA, which allows district courts to compel attendance and enforce subpoenas. However, Transamerica contended that the subpoena's enforcement was limited by Federal Rule of Civil Procedure 45(b)(2), as its Los Angeles office was more than 100 miles from Minnesota, where the arbitration was held. The magistrate referenced Amgen Inc. v. Kidney Center of Del. County, Ltd., emphasizing that the federal policy favoring arbitration justified enforcing the subpoena power of the arbitrator.
The Amgen court determined that under Rule 45(a)(3)(B), an attorney representing a petitioner can issue and sign a subpoena on behalf of the court for depositions or document production. Following this, a magistrate directed Security's attorney to issue a subpoena to Transamerica, which subsequently appealed to the district court. The district court upheld the magistrate's order, finding it neither clearly erroneous nor contrary to law. Transamerica then appealed again, raising several arguments:
1. The Federal Arbitration Act (FAA) does not permit prehearing deposition subpoenas.
2. The arbitration panel lacked authority to issue a subpoena for service in California.
3. The Minnesota court did not have the authority to instruct Security’s attorney to issue a subpoena in California.
4. Security did not demonstrate the materiality of the information sought, warranting refusal to compel compliance.
5. The district court's order constituted an impermissible advisory opinion.
6. The subpoena was improperly served because Security did not provide a witness fee.
In response, Security contended that Transamerica, being a party to the arbitration, could be compelled to provide discovery, and that the district court’s procedures for enforcing the subpoena were appropriate. Security also argued the order was not an advisory opinion and that the relevance of the discovery sought was under the arbitration panel's jurisdiction.
The court affirmed some aspects of the district court's ruling while dismissing others. It noted that the appeal's viability depended on whether Transamerica's compliance with the subpoena rendered it moot. Federal courts cannot rule on moot issues; however, if partial relief can still be granted, the controversy remains live. This principle was supported by precedents indicating that compliance with a subpoena does not necessarily moot an appeal, especially when the appellant retains a possessory interest in the materials involved.
Transamerica has a legitimate interest in maintaining the confidentiality of certain documents, which supports the potential for meaningful relief, such as the return of these documents. However, its challenge to the district court's order for an employee's deposition is now moot due to compliance with a California subpoena. The appeal regarding the subpoena for the employee's attendance is therefore dismissed as moot.
The court then addresses the merits of the appeal, particularly Transamerica's claim that the arbitration panel's subpoena lacks authorization under the Federal Arbitration Act (FAA). While Section 7 of the FAA allows arbitrators to summon witnesses and require the submission of evidence, it does not explicitly permit the production of documents for pre-hearing inspection. Nonetheless, the court holds that the implicit power to compel document production for review prior to the hearing exists, as it aligns with the goal of efficient dispute resolution.
The court finds the panel's exercise of this power appropriate, irrespective of whether Transamerica is a party to the arbitration. Transamerica is considered integrally related to the contract at the center of the dispute. Despite Transamerica's argument that the subpoena was defective due to being signed solely by the umpire and a failure to provide witness fees, these points were either raised too late (the signature issue) or rendered moot by compliance with the subpoena (the witness fees issue).
Transamerica also argues that the district court was required to independently assess the materiality of the requested information before compelling compliance with the subpoena. The court rejects this assertion, clarifying that the referenced language in Section 7 pertains solely to the panel's authority to summon witnesses with documents, not to impose an obligation on the district court to review the panel's judgments.
The document addresses the imposition of requirements on district courts regarding arbitration panel subpoenas, asserting that such a requirement contradicts federal policy favoring arbitration and undermines the panel's expertise. It discusses Transamerica's argument that Federal Rule of Civil Procedure 45(b)(2), which outlines limitations on subpoena service, restricts the arbitration panel's subpoena power, rendering the panel's subpoena of Transamerica invalid. Despite recognizing complexities regarding the enforcement of witness subpoenas under the Federal Arbitration Act (FAA), the court limits its focus to the panel's subpoena for documents. It concludes that compliance with Rule 45(b)(2)'s territorial limits does not apply to document production since the burden of producing documents does not significantly increase with distance. The court refrains from commenting on the district court's unusual enforcement procedure concerning witness subpoenas, ultimately affirming the enforcement of the panel's document production order and dismissing the appeal related to witness testimony subpoenas, indicating that Transamerica did not suffer prejudice from the enforcement of the document subpoena. The court suggests that any further issues should be raised through a proceeding to confirm or vacate the panel's award.
