Supreme Court, Westchester County, April 24, 2018

Hughes Hubbard & Reed LLP, New York City (Stephen S. Rabinowitz and Mitchell E. Epner of counsel), for petitioner.

Mandel Bhandari LLP, New York City (Evan Mandel of counsel), for respondent.

This proceeding concerns an arbitration currently pending in California, entitled Gilead Sciences, Inc. v Roche Molecular Sys., Inc. As stated in the demand for that arbitration, Gilead Sciences, Inc. is a leading biopharmaceutical company dedicated to the research, development and commercialization of innovative pharmaceutical products in areas of unmet medical needs, and it focuses on developing pharmaceutical products to treat patients with HIV/AIDS, liver disease, cancer, inflammatory and respiratory diseases, and cardiovascular conditions. Petitioner Roche Molecular Systems, Inc. is a medical technology manufacturer and supplier.

The dispute arises out of a 2008 amendment to a 1999 patent license. The June 28, 1999 license was between Roche and NeXstar Pharmaceuticals, Inc., relating to certain NeXstar patents, which, according to the arbitration demand, cover an innovative technology based on aptamers, which are nucleic acid sequences that can be used as therapeutic agents or for diagnostic purposes. The 1999 license granted to Roche and its affiliates an exclusive global license under the NeXstar patents to use specified aptamers for the purpose of manufacturing and selling Roche's thermus DNA polymerase products in the field of nucleic acid amplification assays for research and diagnostic purposes. In exchange, Roche would pay royalties on the sales of its thermus DNA polymerase products.

Gilead acquired NeXstar on July 29, 1999, thereby assuming NeXstar's rights and obligations under the patent license agreement.

The basis of the arbitration claim is that beginning in 2003, Roche defrauded Gilead by submitting false royalty reports that excluded certain sales and materially underreported other sales, and that it fraudulently induced Gilead to enter into an amendment to the license in 2008. Respondent Philip Gutry was the Gilead employee who acted on Gilead's behalf in negotiating the 2008 amendment. However, Gutry is no longer employed by Gilead; he currently resides in Connecticut and is employed at Regeneron in Westchester County, New York. Because Gilead was unable to produce Gutry for deposition, Roche made a letter request to the arbitral tribunal on January 24, 2018, asking it to authorize Roche to seek a commission from the Superior Court of California to take Gutry's deposition in New York. On January 25, 2018, the tribunal provided [*2]that authorization, and on January 29, 2018, Roche{**60 Misc 3d at 225} obtained a commission from the California Superior Court to take Gutry's deposition outside California.

Pursuant to that commission, on February 12, 2018, New York counsel for Roche served on Gutry the subpoena in question, directing him to appear for deposition, specifying as its basis the need for information "relat[ing] to [his] and Gilead's knowledge and actions before and at the time of executing the 2008 Amendment." In a letter dated February 26, 2018, counsel for Gutry formally objected to the subpoena and requested, pursuant to CPLR 2304, that Roche withdraw the subpoena. The argument made in that letter was that the Second Circuit has held that under section 7 of the Federal Arbitration Act (FAA) (9 USC § 7) arbitrators are not permitted to direct prehearing discovery from entities not parties to the arbitration (citing Life Receivables Trust v Syndicate 102 at Lloyd's of London, 549 F3d 210, 212 [2d Cir 2008]). The letter added that the subpoena is overbroad, unduly burdensome, and seeks information that may be obtained from other sources.

Roche disagreed, and on March 5, 2018, commenced this proceeding to enforce the subpoena.

In his answer, Gutry counterclaimed to quash the subpoena. He argues that the FAA prohibits prehearing depositions of nonparties in arbitration proceedings; that the California Civil Discovery Act does not permit arbitrators to authorize issuance of third-party subpoenas under these circumstances; and that it is improper to employ CPLR 3119 to obtain a nonparty's deposition in an arbitral context. Gutry also observes that a similar request from Roche regarding a different nonparty deposition has been denied by a Massachusetts state court.

Counsel for Gutry further point out that he was willing to appear for an early hearing before the arbitral tribunal in New York, although he would not agree to appear for a prehearing deposition. Roche declined his offer, explaining its view that it is entitled to take Gutry's deposition before deciding what portion thereof it will choose to present to the tribunal.

1. Issuance of the Commission by the California Superior Court

Gutry contends, in opposition to the subpoena, that the California court did not have the authority to issue the commission to take an out-of-state deposition on which the subpoena at issue was based. Initially, he argues that the California Civil Procedure Code does not authorize arbitrators to issue third-{**60 Misc 3d at 226}party subpoenas for domestic arbitrations. He cites Alexander v Blue Cross of Cal. (88 Cal App 4th 1082, 1088, 106 Cal Rptr 2d 431, 435 [1st Dist 2001]), stating that "[a]s a general rule, the right to discovery is highly restricted in arbitration proceedings." While the Alexander decision acknowledges that "sections 1283.1 and 1283.05 [of the California Civil Procedure Code] grant arbitrators broad authority to order discovery in certain types of arbitration proceedings" (88 Cal App 4th at 1088, 106 Cal Rptr 2d at 436), Gutry observes that the type of arbitration at issue here does not fall within those limited categories. "In all other arbitrations, the arbitrator may grant discovery '[o]nly if the parties by their agreement so provide' " (id., citing Cal Civ Proc Code § 1283.1 [b]). Because the arbitration agreement between Roche and Gilead did not expressly incorporate section 1283.05 or provide for third-party discovery, Gutry argues, the arbitrators lacked the authority to authorize issuance of a commission for an out-of-state deposition.

[1] However, Roche counters that the California statute on which Gutry relies only applies to domestic arbitration, and that California Civil Procedure Code § 1297.17 expressly provides that California Civil Procedure Code title 9.3, [*3]entitled Arbitration and Conciliation of International Commercial Disputes, "supersedes [California Civil Procedure Code] sections 1280 to 1284.2, inclusive, with respect to international commercial arbitration and conciliation." Notably, the agreement at issue here clearly falls within the term "international agreements" as defined by California Civil Procedure Code § 1297.13, entitled "International status of agreement," which provides that "[a]n arbitration or conciliation agreement is international if any of the following applies: . . . (d) The subject matter of the arbitration or conciliation agreement is otherwise related to commercial interests in more than one state." Here, the subject matter of the arbitration agreement is related to commercial interests in more than one state, and therefore qualifies as an international agreement under California Civil Procedure Code § 1297.13.

Importantly, California Civil Procedure Code § 1297.271 expressly authorizes arbitral tribunals hearing international commercial disputes to authorize a party to seek the assistance of a California court in granting a subpoena for the taking of a deposition: "The arbitral tribunal, or a party with the approval of the arbitral tribunal, may request from the superior court assistance in taking evidence and the court may execute the{**60 Misc 3d at 227} request within its competence and according to its rules on taking evidence." The procedure undertaken by Roche was exactly that which was contemplated by section 1297.271. It obtained the approval of the arbitral tribunal to request a commission from the Superior Court, and the Superior Court "execute[d] the request within its competence and according to its rules" (id.).

Respondent's reliance on a variety of articles, guidelines and protocols with regard to international arbitration is misplaced. Those authorities are not controlling, and do not apply to this dispute arising out of this California arbitration.

2. Issuance of the Subpoena Pursuant to CPLR 3119

There is no merit to respondent's suggestion that CPLR 3119 does not authorize the issuance of New York subpoenas for depositions that were directed by an arbitral tribunal, rather than by a court in the context of a lawsuit.

[2] CPLR 3119 is New York's version of the Uniform Interstate Depositions and Discovery Act, enacted to provide a cooperative interstate procedure for obtaining out-of-state discovery. It provides a way to enforce an "out-of-state subpoena," defining that term as "a document, however denominated, issued under authority of a court of record requiring a person to [inter alia] . . . attend and give testimony at a deposition" (CPLR 3119 [a] [1], [4] [i]). It allows an attorney licensed in this state to issue a subpoena where a party to an out-of-state proceeding provides the original or a true copy of an out-of-state subpoena (CPLR 3119 [b] [4]). A commission issued by a clerk of the California Superior Court to take an out-of-state deposition falls within the statute's definition of an out-of-state subpoena issued under authority of a court of record of a state other than New York (see Hyatt v State of Cal. Franchise Tax Bd., 105 AD3d 186, 200 [2d Dept 2013]).

Gutry cites commentary that discusses the use of this statute for out-of-state "litigation" (citing e.g. Connors, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR 3119, 2018 Supp Pamph at 135). However, in interpreting or applying a statute, the court must look to the language of the statute itself. "Statutory interpretation begins with the plain language of the statute; the clearest indicator of legislative intent is the statutory text" (Palm v Tuckahoe Union Free Sch. [*4]Dist., 141 AD3d 635, 638 [2d Dept 2016]).

In making reference to the out-of-state "proceeding" from which the subpoena arises, the statute does not use the words{**60 Misc 3d at 228} "action" or "litigation." Nor does it require that the out-of-state document which is "issued under authority of a court of record" be rendered by a judge following any particular form of judicial review. It is the commission to take an out-of-state deposition, issued by a clerk of the Superior Court of California, that satisfies the definition of an "out-of-state subpoena" provided by CPLR 3119 (a) (1) and (4).

Review of the language of the statute as a whole does not justify the inference that the statute's use of the term "issued under authority of a court of record" intended that the out-of-state proceeding take place in a "court of record," but rather, merely requires that the subpoena or other such document be "issued under authority of a court of record."

Since resort to legislative history is not warranted, the commentaries and articles proposing other interpretations and limitation of the scope of the statute will not be addressed. Given the clear intent of the Uniform Interstate Depositions and Discovery Act, adopted in this state as CPLR 3119, allowing for a streamlined procedure for subpoenas of materials needed for out-of-state proceedings, respondent's arguments do not justify quashing the subpoena, which was properly issued and which does not demand improper information.

Respondent's argument that CPLR 3119 does not apply to arbitral subpoenas misses the mark; Roche does not rely on an arbitral subpoena, but rather on a commission obtained from a court of record based on the arbitrator's authorization to seek such a commission.

3. The Federal Arbitration Act

This court rejects respondent's contention that the subpoena must be quashed as improper because the Federal Arbitration Act (9 USC ch 1) prohibits prehearing depositions of nonparties in arbitration proceedings, and preempts state law allowing such depositions.

[3] It is well established that disputes arising out of contracts affecting interstate commerce and which contain arbitration provisions are subject to the FAA (see Matter of Diamond Waterproofing Sys., Inc. v 55 Liberty Owners Corp., 4 NY3d 247, 251 [2005]). However, while the substantive rules of the FAA apply in state court as well as in federal court, in Southland Corp. v Keating (465 US 1 [1984]), the U.S. Supreme Court explained that the purpose of the preemption of state substantive rules regarding arbitration was "to foreclose state legislative attempts to undercut the enforceability of arbitration{**60 Misc 3d at 229} agreements" (465 US at 16), but it went on to clarify that it did not intend such preemption to extend to state rules of civil procedure that are applicable in state proceedings (465 US at 16 n 10). Roche observes that the parties' agreement selected the AAA Commercial Rules regarding the operative procedures of the arbitration, which rules allow the arbitral tribunal to order depositions under certain circumstances.

Nevertheless, Gutry is correct that many federal courts have held that section 7 of the FAA does not allow arbitrators to order discovery from nonparties. In Life Receivables Trust v Syndicate 102 at Lloyd's of London (549 F3d 210, 212 [2d Cir 2008]), on which Gutry relies, the Second Circuit analyzed the authorities that discuss whether in arbitration under the FAA, arbitrators may issue subpoenas for nonparty document discovery or depositions. It acknowledged that the Federal Circuit Courts were not in agreement on the point. Explaining the spectrum of views, it observed that

"[t]he Eighth Circuit takes the view that although the statute [*5]does not 'explicitly authorize the arbitration panel to require the production of documents for inspection by a party[,] . . . 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' " (549 F3d at 215, citing In re Security Life Ins. Co. of Am., 228 F3d 865, 870-871 [8th Cir 2000]).

The contrary view has been taken by the Third Circuit in Hay Group, Inc. v E.B.S. Acquisition Corp. (360 F3d 404, 407 [3d Cir 2004]), where the court held that the plain language of section 7 " 'unambiguously restricts an arbitrator's subpoena power to situations in which the non-party has been called to appear in the physical presence of the arbitrator and to hand over the documents at that time.' " A third, middle ground is represented by the Fourth Circuit, which, concerned that, "arbitral efficiency would be 'degraded if the parties are unable to review and digest relevant evidence prior to the arbitration hearing,' . . . has read into the FAA an exception under which a party could petition the district court to compel discovery 'upon a showing of special need or hardship' " (549 F3d at 215, citing COMSAT Corp. v National Science Found., 190 F3d 269, 276 [4th Cir 1999]).

After reviewing the existing analyses, the Second Circuit in Life Receivables concluded that "section 7 does not enable arbitrators to issue pre-hearing document subpoenas to entities{**60 Misc 3d at 230} not parties to the arbitration proceeding" (id. at 212). Gutry therefore maintains that the California commission, and the New York subpoena, are barred by FAA § 7.

There are at least two problems with Gutry's reliance on Life Receivables to disallow the subpoena.

First, as Roche points out, the foregoing cases address arbitral subpoenas. In contrast, this matter does not involve a subpoena issued by an arbitral tribunal, but rather, a New York subpoena properly issued pursuant to CPLR 3119 based on a commission properly issued by a California state court pursuant to California Civil Procedure Code § 1297.271.

Second, Life Receivables may not be controlling here, based on ImClone Sys. Inc. v Waksal (22 AD3d 387 [1st Dept 2005]). In ImClone, the First Department considered whether the FAA permits an arbitral tribunal to direct prehearing nonparty depositions, and concluded that "depositions of nonparties may be directed in FAA arbitration where there is a showing of 'special need or hardship,' such as where the information sought is otherwise unavailable" (id. at 388). This court recognizes that the ImClone decision was issued three years before the Second Circuit's decision in Life Receivables Trust, and that its reasoning included the no-longer-accurate remark that "it is an open question in the Second Circuit whether prehearing nonparty depositions are authorized under the FAA" (see id.). Nevertheless, the foundation for the First Department's determination in ImClone is not rendered invalid by the Life Receivables decision, since it was based on the reasoning that "in the absence of a decision of the United States Supreme Court or unanimity among the lower federal courts, we are not precluded from exercising our own judgment in this matter" (22 AD3d at 388). Its holding that the arbitral tribunal was, in that matter, entitled to direct nonparty depositions, was grounded in the observation that

"the information sought would plainly be unavailable from other sources, since the crucial issue in plaintiff's attempt to vitiate the agreement is its claim that it was induced by fraud, and the nonparties defendant seeks to depose are the officers and directors who took part in its drafting and negotiation" (id.).

Importantly, unlike the determination of the Second Circuit in Life Receivables, the ruling [*6]by the First Department in ImClone is controlling on this New York State trial-level court in the absence of any contrary ruling by the Second Department{**60 Misc 3d at 231} or the Court of Appeals (see Mountain View Coach Lines v Storms, 102 AD2d 663, 664 [2d Dept 1984]). In ImClone, a showing of "special need or hardship" was established since

"the information sought would plainly be unavailable from other sources, since the crucial issue in plaintiff's attempt to vitiate the agreement is its claim that it was induced by fraud, and the nonparties defendant seeks to depose are the officers and directors who took part in its drafting and negotiation" (22 AD3d at 388).

Here, similarly,

"the information sought [from Gutry] would plainly be unavailable from other sources, since the crucial issue in [respondent's demand for arbitration] is its claim that it was induced by fraud, and the nonpart[y] [petitioner] seeks to depose [is] the [representative or employee] who took part in its drafting and negotiation" (id.).

The decision of the Massachusetts Superior Court relied on by Gutry, rejecting Roche's application for court enforcement of an arbitral subpoena issued in the underlying arbitration directing document production from nonparty New England Biolabs, Inc. (NEB), does not justify quashing the subpoena at issue here (see In Re Commercial Arbitration No. 01-16-0004-7625, Gilead Sciences Inc. v Roche Molecular Sys. Inc., Mass Super Ct, Essex County, No. 1777-cv-01626, Nov. 27, 2017). Notably, Massachusetts has not enacted the Uniform Interstate Depositions and Discovery Act, so the procedure employed in the dispute before this court was not available there. The analysis employed by the Massachusetts court is inapplicable here.

Finally, the subpoena is neither overbroad nor unduly burdensome, nor does it seek irrelevant information, or information that may be obtained from other sources, as Gutry's objection protests. The sought testimony from Gutry regarding his knowledge and actions before and at the time of the execution of the 2008 amendment is sufficiently focused on the topics at issue in the arbitration.

Based upon the foregoing, it is hereby ordered that the petition to enforce the subpoena is granted, and respondent is directed to appear for deposition pursuant to the subpoena within 20 days of service of this order with notice of entry.