Vividus, LLC v. Express Scripts, Inc. , 878 F.3d 703 ( 2017 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
CVS HEALTH CORPORATION; No. 16-16187
CAREMARK, LLC; CAREMARK PCS,
LLC, D.C. No.
Plaintiffs, 2:15-mc-00093-
JJT
v.
VIVIDUS, LLC, FKA HM OPINION
Compounding Services, LLC; HMX
SERVICES, LLC,
Defendants.
VIVIDUS, LLC, FKA HM
Compounding Services, LLC; HMX
SERVICES, LLC,
Petitioners-Appellants,
v.
EXPRESS SCRIPTS, INC.,
Respondent-Appellee.
2 VIVIDUS V. EXPRESS SCRIPTS
Appeal from the United States District Court
for the District of Arizona
John Joseph Tuchi, District Judge, Presiding
Argued and Submitted November 14, 2017
San Francisco, California
Filed December 21, 2017
Before: Ronald M. Gould and Mary H. Murguia, Circuit
Judges, and James E. Gritzner, * District Judge.
Opinion by Judge Gritzner
*
The Honorable James E. Gritzner, United States District Judge for
the Southern District of Iowa, sitting by designation.
VIVIDUS V. EXPRESS SCRIPTS 3
SUMMARY **
Arbitration / Discovery
The panel affirmed the district court’s denial of a petition
pursuant to 9 U.S.C. § 7 to enforce a subpoena issued pre-
hearing by an arbitration panel against a company that was
not a party to the arbitration.
Agreeing with the Second, Third, and Fourth Circuits,
and disagreeing with the Eighth Circuit, the panel held that
the Federal Arbitration Act does not grant arbitrators the
power to compel the production of documents from third
parties outside of a hearing.
COUNSEL
Lawrence Victor Ashe (argued), Boies Schiller & Flexner
LLP, Miami, Florida, for Petitioners-Appellants.
Derek Shaffer (argued), Quinn Emmanuel Urquhart &
Sullivan LLP, Washington, D.C.; Christopher A. Smith,
Husch Blackwell LLP, St. Louis, Missouri; for Respondent-
Appellee.
**
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
4 VIVIDUS V. EXPRESS SCRIPTS
OPINION
GRITZNER, District Judge.
The Federal Arbitration Act (FAA) confers upon
arbitrators the power to “summon in writing any person to
attend before them . . . as a witness and in a proper case to
bring with him . . . any book, record, document, or paper
which may be deemed material as evidence in the case.”
9 U.S.C. § 7 In this case, an arbitration panel issued a
subpoena against Respondent-Appellee Express Scripts,
Inc., who was not a party to the arbitration in question,
directing Express Scripts to produce certain documents prior
to an arbitration hearing. After Express Scripts failed to
respond to the subpoena, Petitioners-Appellants Vividus,
LLC f/k/a HM Compounding Services and HMX Services,
LLC (collectively, HMC) attempted to enforce the subpoena
in federal court in Arizona. The district court held that the
FAA does not grant arbitrators the power to compel the
production of documents from third parties outside of a
hearing, and HMC appealed. We affirm the district court.
I. BACKGROUND
In September 2014, HMC and multiple individuals filed
suit in New York state court against numerous pharmacy
benefit managers, including Express Scripts and
CVS/Caremark Corp., alleging violations of antitrust laws.
The case was then removed to the United States District
Court for the Eastern District of New York. In October
2014, the district court in New York severed HMC’s claims
against the various defendants and ordered that those claims
be litigated or arbitrated in separate proceedings based on
forum selection and arbitration clauses in HMC’s
preexisting agreements with the defendants. HMC’s claims
against Express Scripts were transferred to the United States
VIVIDUS V. EXPRESS SCRIPTS 5
District Court for the Eastern District of Missouri (the
Missouri Litigation), where they remain pending. HMC’s
claims against CVS/Caremark were submitted to arbitration
in Arizona (the Arizona Arbitration). Express Scripts was
not a party to the Arizona Arbitration.
In the Missouri Litigation, Express Scripts produced
certain documents to HMC pursuant to a protective order
dated October 16, 2015. On November 25, 2015, the
arbitrators in the Arizona Arbitration issued a subpoena
directing Express Scripts to produce certain documents that
had been produced in the Missouri Litigation for use in the
Arizona Arbitration. The subpoena directed Express Scripts
to produce these documents at the offices of HMC’s counsel
in Miami, Florida. Though the subpoena contained
provisions regarding procedures for making objections to the
subpoena, Express Scripts did not respond.
On December 29, 2015, HMC filed a petition pursuant
to 9 U.S.C. § 7 to enforce the arbitrators’ subpoena in the
United States District Court for the District of Arizona. In
the petition, HMC stated that the subpoena’s purpose was to
allow HMC to use in the Arizona Arbitration the documents
marked confidential that HMC had received from Express
Scripts in the Missouri Litigation. HMC requested that the
district court issue an order directing Express Scripts to
respond to the subpoena or to assert its legal objections to
the subpoena.
The district court denied HMC’s petition. The district
court concluded that section 7 of the FAA, 9 U.S.C. § 7, does
not confer upon an arbitrator authority to compel pre-hearing
document discovery from a non-party to the arbitration
outside the presence of an arbitrator. Instead, the district
court ruled that the statute’s text only allows an arbitrator to
6 VIVIDUS V. EXPRESS SCRIPTS
summon testimony and documents from a non-party during
a hearing.
II. STANDARD OF REVIEW
The district court’s interpretation of the FAA is a legal
question that we review de novo. See, e.g., Whittaker Corp.
v. United States, 825 F.3d 1002, 1006 (9th Cir. 2016).
III. DISCUSSION
This Court has not addressed whether the FAA allows an
arbitrator to order a third party to produce documents as part
of pre-hearing discovery. After considering the text of the
FAA and opinions from other courts of appeals, the district
court concluded that the FAA does not grant arbitrators that
power. On appeal, HMC argues that the district court erred
in interpreting the FAA as denying arbitrators this power.
“In construing the provisions of a statute, we begin by
looking at the language of the statute to determine whether
it has a plain meaning.” United States ex rel. Hartpence v.
Kinetic Concepts, Inc., 792 F.3d 1121, 1128 (9th Cir. 2015)
(en banc). If the language has a plain meaning or is
unambiguous, the statutory interpretation inquiry ends there.
Id.Section 7 of the FAA, titled “Witnesses before
arbitrators; fees; compelling attendance,” reads as follows,
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
VIVIDUS V. EXPRESS SCRIPTS 7
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 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.
9 U.S.C. § 7. The FAA gives arbitrators two powers that are
relevant here. First, arbitrators may compel the attendance
of a person “to attend before them . . . as a witness,” and
second, arbitrators may compel such person “to bring with
him or them” relevant documents. Id. If a person summoned
as a witness does not comply, the statute gives the district
court in the district in which the arbitrator sits the power to
compel the person’s attendance before the arbitrator. Id.A plain reading of the text of section 7 reveals that an
arbitrator’s power to compel the production of documents is
limited to production at an arbitration hearing. The phrase
“bring with them,” referring to documents or other
information, is used in conjunction with language granting
an arbitrator the power to “summon . . . any person to attend
before them.” Id. Under this framework, any document
productions ordered against third parties can happen only
“before” the arbitrator. The text of section 7 grants an
8 VIVIDUS V. EXPRESS SCRIPTS
arbitrator no freestanding power to order third parties to
produce documents other than in the context of a hearing. 1
The circuit courts that have addressed this question most
recently have interpreted section 7 similarly. See Life
Receivables Tr. v. Syndicate 102 at Lloyd’s of London,
549 F.3d 210, 215–16 (2d Cir. 2008) (collecting cases and
noting an “emerging rule” in favor of this interpretation). In
Hay Group, Inc. v. E.B.S. Acquisition Corp., 360 F.3d 404,
407 (3d Cir. 2004), then-Judge Alito found that section 7
“speaks unambiguously to the issue.” Id. (“The power to
require a non-party ‘to bring’ items ‘with him’ clearly
applies only to situations in which the non-party
accompanies the items to the arbitration proceeding, not to
situations in which the items are simply sent or brought by a
courier.” (quoting 9 U.S.C. § 7)). The Second and Fourth
Circuits have come to similar conclusions: the text of section
7 is unambiguous and does not grant arbitrators the power to
subpoena documents from third parties to be produced
outside the presence of the arbitrators. See Life Receivables
Tr., 549 F.3d at 216 (“The language of section 7 is
straightforward and unambiguous. Documents are only
discoverable in arbitration when brought before arbitrators
by a testifying witness.”); COMSAT Corp. v. Nat’l Sci.
Found., 190 F.3d 269, 275 (4th Cir. 1999) (“Nowhere does
the FAA grant an arbitrator the authority to order non-parties
to appear at depositions, or the authority to demand that non-
parties provide the litigating parties with documents during
prehearing discovery. By its own terms, the FAA’s
1
Because arbitration is a creation of contract, arbitration agreements
may provide arbitrators greater discovery powers with respect to the
parties bound by such agreements. Life Receivables Tr. v. Syndicate 102
at Lloyd’s of London, 549 F.3d 210, 217 (2d Cir. 2008).
VIVIDUS V. EXPRESS SCRIPTS 9
subpoena authority is defined as the power of the arbitration
panel to compel non-parties to appear ‘before them.’”
(quoting 9 U.S.C. § 7)). 2
The Eighth Circuit has interpreted section 7 differently.
In In re Security Life Insurance Co. of America, 228 F.3d
865 (8th Cir. 2000), that court recognized that section 7
“does not . . . explicitly authorize the arbitration panel to
require the production of documents for inspection by a
party.” Id. at 870. 3 Nevertheless, the Eighth Circuit held
that “implicit in an arbitration panel’s power to subpoena
relevant documents for production at a hearing is the power
to order the production of relevant documents for review by
a party prior to the hearing.” Id. at 870–71. The court stated
that this implicit power furthered the goal of facilitating
efficient resolution of disputes by allowing parties to
“review and digest” documents before hearings. Id. at 870.
The court also noted the fact that the third party in that case
was “not a mere bystander” but was “integrally related to the
underlying arbitration.” Id. at 871. HMC argues we should
follow the Eighth Circuit’s reasoning from In re Security
Life Insurance Co., because to deny arbitrators this pre-
2
The Fourth Circuit also opined that “a party might, under unusual
circumstances, petition the district court to compel pre-arbitration
discovery upon a showing of special need or hardship.” COMSAT,
190 F.3d at 276 (emphasis added). But even here the Fourth Circuit
appears to assume that arbitrators could not compel such discovery
against a person who is not a party to the arbitration agreement.
3
Similarly, in a case involving an interpretation of section 301 of
the Labor-Management Relations Act, the Sixth Circuit noted that
“courts may look to the FAA for guidance in labor arbitration cases,”
and followed decisions from district courts interpreting section 7 as
implicitly allowing pre-hearing document discovery from third parties.
Am. Fed’n of Tel. & Radio Artists v. WJBK-TV, 164 F.3d 1004, 1009
(6th Cir. 1999).
10 VIVIDUS V. EXPRESS SCRIPTS
hearing discovery power would produce an absurd result and
because Express Scripts is integrally related to the Arizona
Arbitration proceedings.
“[W]hen the statute’s language is plain, the sole function
of the courts—at least where the disposition required by the
text is not absurd—is to enforce it according to its terms.”
Hartford Underwriters Ins. Co. v. Union Planters Bank,
N.A., 530 U.S. 1, 7 (2000) (citation omitted). According to
HMC, it would be absurd to grant an arbitrator the power to
compel witnesses to testify at an arbitration hearing and to
bring any documents that are relevant while not also
allowing such witnesses to produce those documents on an
earlier date. This line of reasoning posits that the greater
power (compelled testimony and document production at a
hearing) implies the existence of a lesser power (document
production at a date prior to a hearing). However, as the
Third Circuit explained, it is not absurd to restrict third-party
discovery to the disclosures that can be made at a hearing;
third parties “did not agree to [the arbitrator’s] jurisdiction”
and this limit on document discovery tends to greatly lessen
the production burden upon non-parties. Hay Grp., 360 F.3d
at 409 (“Under a system of pre-hearing document
production, by contrast, there is less incentive to limit the
scope of discovery and more incentive to engage in fishing
expeditions that undermine some of the advantages of the
supposedly shorter and cheaper system of arbitration.”).
And it is not apparent that the power to order pre-hearing
document discovery is a power “lesser” than the power to
order documents to be brought forth at a hearing. Practical
constraints on document production during an arbitration
hearing may often result in lower production demands upon
third parties. See Life Receivables Tr., 549 F.3d at 218(“Section 7’s presence requirement . . . forces the party
seeking the non-party discovery—and the arbitrators
VIVIDUS V. EXPRESS SCRIPTS 11
authorizing it—to consider whether production is truly
necessary.”). Moreover, an arbitrator’s power under section
7 extends only to documentary evidence “which may be
deemed material as evidence in the case,” further
demonstrating that under the FAA an arbitrator is not
necessarily vested with the full range of discovery powers
that courts possess. 9 U.S.C. § 7. Given the clear statutory
language, we reject the proposition that section 7 grants
arbitrators implicit powers to order document discovery
from third parties prior to a hearing. Further, we decline
HMC’s invitation to create additional discovery powers for
arbitrators beyond those granted in section 7. 4
IV. CONCLUSION
We hold that section 7 of the FAA does not grant
arbitrators the power to order third parties to produce
documents prior to an arbitration hearing. We affirm the
district court’s denial of HMC’s petition to enforce the
arbitrators’ subpoena.
AFFIRMED.
4
HMC also argues that the district court should have entered an
order directing Express Scripts to, at the least, respond to the subpoena
with its objections. But section 7 provides that a district court has the
power and discretion to compel a response to an arbitrator’s summons.
9 U.S.C. § 7. The district court was the proper forum to adjudicate
Express Scripts’ objection that the arbitrators in the Arizona Arbitration
lacked the power to require it to produce documents outside of a hearing.