Introduction
Two commonly used third-party discovery mechanisms available to parties in FINRA arbitrations are the subpoena and the order of production. While the functional purpose of these tools is the same and the procedure to obtain them is similar, they derive their power from different rules. Their utility depends upon the relationship between FINRA and the third party from whom discovery is sought. Understanding the differences is crucial. Using the wrong device may increase costs and lead to a procedural quagmire. This article addresses the differences between arbitrator-issued subpoenas and orders of production, and explains the circumstances in which a party should use each device.
Orders of Production Under Rules 12513 and 13513
The order of production is unique to FINRA arbitrations. Authority for an arbitrator’s ability to issue an order of production is found in Rule 12513 of the Code of Arbitration Procedure for Customer Disputes (Customer Code) and Rule 13513 of the Code of Arbitration Procedure for Industry Disputes (Industry Code). An order of production is the discovery mechanism that a party uses to obtain relevant testimony and documents from nonparty FINRA associated persons and firms. FINRA has jurisdiction over those individuals and entities and has the power to compel associated persons and employees of firms to testify or produce documents in arbitrations before FINRA.
An associated person or firm served with an order of production must comply at risk of incurring sanctions or disciplinary action. There are no geographical limitations to the arbitrator’s authority to compel an associated person or a firm to provide documents or testimony. However, the requesting party must reimburse the responding nonparty for the reasonable costs of the appearance or production unless the panel directs otherwise.
Although an order of production serves the same functional purpose as a subpoena, it cannot be applied to a non-registrant. The arbitrator’s power to issue the order is derived solely from FINRA’s authority over the persons and entities it regulates. FINRA is unable to enforce an order of production against an unaffiliated third party, and courts will not enforce an order of production because it is not a judicial order or subpoena.
FINRA Rules 12513 and 13513 govern the “Authority of Panel to Direct Appearances of Associated Person Witnesses and Production of Documents Without Subpoenas.” According to Rules 12513 and 13513, a party requesting the order of production must file a motion with FINRA requesting an order directing “the appearance of any employee or associated person of a member of FINRA or the production of any documents in the possession or control of such persons or members.” The motion must include a draft order of production for the arbitrator’s signature, and be served upon all parties. The other parties to the arbitration are given 10 days to file an opposition to the request, and then the moving party is given five days to file its reply. If the arbitrator(s) decides to issue the order of production, FINRA will transmit the signed order of production to the moving party to serve on the third party. The recipient of the order of production is then given 10 days to file its own objections to the order of production.
Subpoenas Under Rules 12512 and 13512
Unlike orders of production, subpoenas are not unique to FINRA arbitration. They are a common mechanism for third-party discovery used throughout U.S. courts and arbitration. A subpoena is a judicial order that directs a nonparty to provide discovery in a legal proceeding. Although the law governing the validity and enforcement of subpoenas issued by arbitration panels is far from settled and beyond the scope of this article, there are federal and state statutes that may authorize courts to enforce a subpoena issued by a FINRA arbitrator to a third party.
For example, New York Civil Practice Law and Rules Section 7505 permits New York courts to enforce arbitrator-issued subpoenas directing a nonparty to testify and produce documents at the final hearing of an arbitration. Likewise, the Federal Arbitration Act provides federal courts with the authority to enforce some subpoenas issued by arbitration panels, though what kind of subpoena and to what extent it will be enforced is subject to the laws of the particular jurisdiction in which the arbitration is venued and the third party resides. These laws often contain geographical limitations on the authority to compel compliance from a third party and require the requesting party to reimburse the nonparty for the costs of complying with the subpoena. FINRA provides parties with a procedure to obtain a subpoena from the arbitration panel, which is similar to that of obtaining an order of production. The party requesting the subpoena must make its request in the form of a motion to the panel, which should include a draft subpoena. The motion must be served upon all parties, who are then given 10 days to oppose the request, which is followed by a five-day period for the moving party to file a reply. If the arbitrator issues the subpoena, FINRA will transmit the signed subpoena to the moving party to serve on the nonparty in accordance with the rules for service of subpoenas in the applicable jurisdiction. FINRA provides the nonparty 10 days to object to the subpoena, although the nonparty may also choose to file a motion to quash the subpoena in court. If the nonparty ignores the subpoena, the moving party can seek to have the subpoena enforced in a court. FINRA rules provide that the party requesting the subpoena must pay the nonparty for the reasonable costs of complying with the subpoena, unless the panel directs otherwise.
Practical Considerations When Seeking Non-party Discovery
Parties in FINRA arbitration who seek discovery from a third party should first consider whether that third party is subject to FINRA’s jurisdiction. If the third party is an associated person or firm, parties should seek discovery using an order of production under Rules 12513 or 13513. Under those circumstances, FINRA has the ability to enforce compliance with the order of production through its regulatory powers, obviating any need for judicial intervention to secure compliance. Although it is possible to obtain a subpoena directed at an associated person or firm, FINRA rules explicitly direct parties and arbitrators to use an order of production unless there are unusual circumstances dictating the need for a subpoena.
If the third party is not subject to FINRA’s jurisdiction then the only procedural option available is to move the panel to issue a subpoena under Rule 12512 or 13512. Prior to requesting a subpoena, the party should ascertain whether it will be able to obtain court enforcement of the arbitrator-issued subpoena. As mentioned, the law regarding enforceability of arbitrator-issued subpoenas varies among jurisdictions. For example, although the federal courts of the Sixth and Eighth Circuits interpret the Federal Arbitration Act as authorizing courts to enforce arbitrator-issued subpoenas directing the production of documents prior to a final hearing, the federal courts of the Fourth Circuit will enforce such subpoenas only if the requesting party can demonstrate a “special need” for the discovery, while the courts of the Second and Third Circuits will not enforce arbitrator-issued subpoenas for prehearing document production. State law may also provide a basis for enforcing subpoenas issued by an arbitration panel, as is the case in New York and Ohio where there are state statutes authorizing some forms of arbitrator-issued subpoenas. However, every state has its own rules governing the enforceability of arbitrator-issued subpoenas.
Conclusion
Whenever possible, parties should use an order of production to obtain discovery from a third party because it is the easiest and most cost effective way to do so. When a party cannot avail itself of an order of production, it should proceed with caution and consider the practicalities of enforcement prior to requesting an arbitrator-issued subpoena. There may be less costly, non-judicial means available to the party to obtain the sought-after information such as determining whether another document or documents can provide the same information, or whether an associated person or firm has the same information. If a party requests a subpoena from the panel, it should be careful to make its request pursuant to the correct FINRA rule to ensure proper judicial enforcement, and also consult the law of the local jurisdiction to ascertain the enforceability of an arbitration subpoena.