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INTEGRITY INS. CO. v. AMERICAN CENTENNIAL INS. CO.

April 7, 1995

In the Matter of the Arbitration Between INTEGRITY INSURANCE COMPANY, IN LIQUIDATION, Claimant, -against- AMERICAN CENTENNIAL INSURANCE COMPANY, Respondent.


The opinion of the court was delivered by: SHIRA A. SCHEINDLIN

 SHIRA A. SCHEINDLIN, U.S.D.J.

 Thomas Lennon and Eugene McGee petition this Court to quash subpoenas duces tecum issued by an arbitrator pursuant to a dispute between Integrity Insurance Company, in liquidation ("Integrity"), and American Centennial Insurance Company ("ACIC"). The subpoenas were issued by the arbitrator at the request of ACIC, and direct the petitioners to appear for pre-hearing depositions and to produce documents.

 BACKGROUND

 The dispute between Integrity and ACIC arises from a number of reinsurance agreements. *fn1" See Affidavit of Brendan M. Kennedy ("Kennedy Aff."), Attorney for Integrity, at P 2. The Liquidator instituted arbitration proceedings against ACIC pursuant to those agreements. Id. Separate and apart from the arbitration proceeding, the Liquidator has filed an action in New Jersey on behalf of Integrity's policyholders, creditors, reinsurers and others, against former officers and directors of Integrity, including petitioner McGee ("D & O action"). *fn2" See Affidavit of Eugene Wollan, Attorney for ACIC, in Support of Petition ("Wollan Aff.") at P 8. McGee is a former Vice President of Integrity and Lennon is McGee's attorney in the D & O action. Petition ("Pet.") at PP 3-4. Lennon also represents Leonard Stern, a former President of Integrity and a defendant in the D & O action. Wollan Aff. at P 8. Discovery in the D & O action has been stayed pending the outcome of settlement negotiations. Pet. at P 7.

 Neither petitioner is a party to the arbitration proceeding. The subpoenas require them to appear for a deposition and to produce all relevant documents relating to the reinsurance agreements at issue between ACIC and Integrity. The subpoenas further require production of documents relating to the D & O action. Wollan Aff. at P 8. Additionally, ACIC seeks to depose Lennon in order to learn the whereabouts of Stern, so that Stern can be served with a deposition subpoena. Lennon has refused to voluntarily disclose Stern's address, claiming that it is privileged. Wollan Aff. at P 9; Brief in Support of Petition at 9.

 Petitioners request that this Court quash these subpoenas, on the grounds that an arbitrator has no authority to compel a non-party to appear at a deposition prior to an arbitration hearing. Petitioners also question the materiality of the information sought.

 A. Depositions of Nonparties

 The issue of whether an arbitrator has the authority to compel a nonparty to appear at a pre-hearing deposition appears to be a case of first impression within this district. *fn3" This Court recognizes that federal policy strongly favors arbitration as an alternative dispute resolution process, see Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 74 L. Ed. 2d 765, 103 S. Ct. 927 (1983), and that courts should interpret the Federal Arbitration Act ("FAA"), 9 U.S.C. ยงยง 1 et seq., so "as to further, rather than impede, arbitration." Bigge Crane and Rigging Co. v. Docutel Corp., 371 F. Supp. 240, 246 (E.D.N.Y. 1973).

 Arbitration is, however, a creation of contract, bargained for and voluntarily agreed to by the parties. The petitioners, who are not parties to the arbitration agreement, never bargained for or voluntarily agreed to participate in an arbitration. After weighing the policy favoring arbitration against the rights and privileges of nonparties, this Court concludes that an arbitrator does not have the authority to compel nonparty witnesses to appear for pre-arbitration depositions. concludes that an arbitrator does not have the authority to compel nonparty witnesses to appear for pre-arbitration depositions.

 To determine the extent of an arbitrator's authority, one must begin with the source of that authority. An arbitrator's power over the parties derives from both the arbitration agreement and the FAA. Arbitrators can exert no more control over parties than that which the parties, through their agreements, granted to the arbitrators. The four reinsurance agreements contain different arbitration clauses. Agreements 1080 and 4013 state "the arbitrators . . . are relieved of all judicial formalities and may abstain from following the strict rules of law." Agreements 1021 and 978 state: "the arbitrators will not be obliged to follow judicial formalities or the rules of evidence except to the extent required by the state law of the site of arbitration. . . . Except as provided above, arbitration will be based upon the procedures of the American Arbitration Association [("AAA")]." The rules of the AAA state that "an arbitrator or other person authorized by law to subpoena witnesses or documents may do so upon the request of any party." American Arbitration Association, Commercial Arbitration Rules, Rule 31 (1993). Thus, there is nothing within the reinsurance agreements that explicitly limits the power of an arbitrator to order discovery. See Chiarella v. Viscount Indus. Co. Ltd, 1993 U.S. Dist. LEXIS 16903, No. 92 Civ. 9310, 1993 WL 49767 (S.D.N.Y. Dec. 1, 1993).

 Because the parties to a contract cannot bind nonparties, they certainly cannot grant such authority to an arbitrator. Thus, an arbitrator's power over nonparties derives solely from the FAA. The contested subpoenas were issued by the arbitrator pursuant to section 7 of the FAA.

 
The arbitrators . . . 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. . . . 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 ...

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