Comsat Corp. v. Nat'l Science Foundation

• Decision Date: 08 June 1999
• Docket Number: No. 99-1348,CA-98-108-MC,No. 99-1446,99-1348,99-1446
• Citation: 190 F.3d 269
• Parties: (4th Cir. 1999) COMSAT CORPORATION, Plaintiff-Appellee, v. NATIONAL SCIENCE FOUNDATION, Defendant-Appellant, and NATIONAL SCIENCE FOUNDATION DOCUMENT CUSTODIAN; ROBERT J. DICKMAN; HUGH VAN HORN, Defendants. COMSAT CORPORATION, Plaintiff-Appellee, v. NATIONAL SCIENCE FOUNDATION; NATIONAL SCIENCE FOUNDATION DOCUMENT CUSTODIAN; ROBERT J. DICKMAN; HUGH VAN HORN, Defendants-Appellants. () Argued:
• Court: U.S. Court of Appeals — Fourth Circuit

Page 269

190 F.3d 269 (4th Cir. 1999)

COMSAT CORPORATION, Plaintiff-Appellee, v. NATIONAL SCIENCE FOUNDATION, Defendant-Appellant and NATIONAL SCIENCE FOUNDATION DOCUMENT CUSTODIAN; ROBERT J. DICKMAN; HUGH VAN HORN, Defendants.

COMSAT CORPORATION, Plaintiff-Appellee, v. NATIONAL SCIENCE FOUNDATION; NATIONAL SCIENCE FOUNDATION DOCUMENT CUSTODIAN; ROBERT J. DICKMAN; HUGH VAN HORN, Defendants-Appellants.

No. 99-1348 No. 99-1446 (CA-98-108-MC)

UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

Argued: June 8, 1999

Decided: August 23, 1999

Appeals from the United States District Court for the Eastern District of Virginia, at Alexandria. James C. Cacheris, Senior District Judge.

COUNSEL ARGUED: William Barnett Schultz, Deputy Assistant Attorney General, Appellate Staff, Civil Division, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellant. Peter Buscemi, MORGAN, LEWIS & BOCKIUS, L.L.P., Washington, D.C., for Appellee. ON BRIEF: David W. Ogden, Acting Assistant Attorney General Helen F. Fahey, United States Attorney, Arthur E. Peabody, Assistant United States Attorney, John C. Hoyle, August E. Flentje, Appellate Staff, Civil Division, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C.; Lawrence Rudolph, General Counsel, Theodore Miles, Deputy General Counsel, Charisse Carney Nunes, Assistant General Counsel, NATIONAL SCIENCE FOUNDATION, Washington, D.C., for Appellant. Jacob B. Pankowski, Brian O. Quinn, MORGAN, LEWIS & BOCKIUS, L.L.P., Washington, D.C., for Appellee.

Before ERVIN, HAMILTON, and WILLIAMS, Circuit Judges.

Reversed by published opinion. Judge Ervin wrote the opinion, in which Judge Hamilton and Judge Williams joined.

OPINION

ERVIN, Circuit Judge:

The National Science Foundation ("NSF") appeals from an order requiring the agency to comply with subpoenas issued by an arbitrator during pre-hearing discovery. The subpoenas demanded that the agency, which was not a party to the arbitration agreement, produce documents and employee testimony related to a construction contract between appellee COMSAT, Inc. ("COMSAT"), and an NSF awardee. We reverse the district court's order and hold as follows: (1) The Federal Arbitration Act, 9 U.S.C.A. §§ 1-307 (West 1999) (the "FAA"), does not authorize an arbitrator to subpoena third parties during pre-hearing discovery, absent a showing of special need or hardship; (2) when the government is not a party to the underlying action, an agency's refusal to comply with a subpoena must be reviewed under the standards established for final agency actions by the Administrative Procedure Act ("APA"), 5 U.S.C.A. §§ 702 8301 (West 1996 & Supp. 1999); and (3) NSF did not violate its own regulations or the APA when the agency decided not to comply with the subpoenas at issue in this case.

I.

Appellant NSF is the government agency charged with supporting much of this nation's federally-funded basic science and engineering research. See 42 U.S.C.A. § 1862(a) (West 1994). In accordance with its congressional mandate, NSF awards grants and fellowships to researchers and enters contractual or cooperative agreements with research institutions.¹ The agency does not engage directly in scientific research. See 42 U.S.C.A. §§ 1862(a)-(c).

Associated Universities, Incorporated ("AUI") is a not-for-profit corporation organized for the purpose of conducting scientific research and education. In 1988 AUI entered a cooperative agreement with NSF, by the terms of which AUI agreed to administer the National Radio Astronomy Observatory, a network of research telescopes. The cooperative agreement imposed no obligation upon NSF or the government to fund AUI operations beyond the upper limits of the award, which was provisional and subject to congressional appropriations. NSF retained the right to terminate the agreement due to a lack of available funds or for other reasons. The agreement also specified that in the absence of written notice to the contrary from NSF's Grants and Contracts Officer, "the Government shall not be obligated to reimburse the Awardee for any costs in excess of the total amount then allotted to the agreement."

On October 19, 1990, AUI entered into a contract with COMSAT² to build a state-of-the art radio telescope in Green Bank, West Virginia (the "Green Bank telescope"), at a cost of $55 million. Some years later, in October of 1997, a dispute arose between the parties over AUI's liability for cost overruns. COMSAT claimed that various acts and omissions by AUI, including after-the-fact changes to the telescope specifications, entitled the contractor to $29 million in additional costs. The contract between AUI and COMSAT contained a mandatory arbitration clause, and pursuant to the contract, the parties submitted the claim to the American Arbitration Association for resolution.

At COMSAT's request, on July 10, 1998, the arbitrator issued a subpoena to NSF requiring the agency to produce all documents related to the Green Bank telescope. NSF declined to comply with this subpoena. The agency responded in writing to COMSAT's counsel, justifying its decision not to comply with citations to NSF regulations governing subpoenas.³ See 45 C.F.R. § 615.5. By way of further explanation, NSF noted in this letter that COMSAT had already sought substantially the same documents with an August, 1997 Freedom of Information Act ("FOIA") request. See 5 U.S.C.A. § 552(a) (West 1996 & Supp. 1999). NSF had suspended its efforts to comply with that voluminous request because COMSAT had been delinquent in paying the associated photocopying charges.⁴

On August 20, 1998, COMSAT moved the arbitrator to issue the three subpoenas that are the subject of this litigation. One of these subpoenas required the NSF's "Document Custodian" to appear and to produce "[a]ll documents relating to the Green Bank Telescope project."⁵ The two additional subpoenas ordered NSF employees Robert Dickman, a liaison to AUI for the telescope program, and Hugh Van Horn, Dickman's supervisor and a former member of the AUI board of trustees, to appear and produce all documents in their possession related to the telescope project. The subpoenas were issued returnable to COMSAT's counsel.

NSF responded on August 25, 1998, with a letter to COMSAT indicating that the agency's prior decision not to produce documents was a final agency decision. This letter also described the agency's analysis of the relevant considerations under its housekeeping or "Touhy" regulations.

Pursuant to NSF's Touhy regulations, when responding to a subpoena in a legal proceeding to which the NSF is not a party, NSF's General Counsel must consider the following:

(1) Whether allowing testimony and document production would serve the stated purposes of the regulation (these are promoting efficient NSF operations, avoiding the involvement of NSF in tangential and controversial issues, maintaining NSF impartiality in relation to private litigants, and protecting sensitive, confidential information and the agency's deliberative process);

(2) Whether allowing testimony or document production is necessary to prevent a miscarriage of justice;

(3) Whether NSF has an interest in the decision that will be rendered in the legal proceeding; and

(4) Whether compliance with the subpoena is in the best interests of NSF and the United States. See 45 C.F.R. § 615.5(b).

NSF's General Counsel concluded in his written response to COMSAT that NSF would not produce the subpoenaed documents. The Counsel's Touhy analysis reached these conclusions:

(1) Production of the documents would be uneconomical, as the demand is substantially duplicative of COMSAT's earlier FOIA request;

(2) Production would be unnecessarily burdensome because many of the documents originated from AUI and may be discovered from that organization;

(3) NSF has no indemnity or joint defense agreement with AUI, so production would not further the goal of maintaining NSF's neutrality as a third party;

(4) Because the documents are available via FOIA or through AUI, compliance is unnecessary to prevent a miscarriage of justice; thus,

(5) The balance of NSF's and the public's interests favor non-compliance.

In this same August 25, 1998, letter to COMSAT's counsel, NSF requested further clarification of COMSAT's justification for seeking to depose Van Horn and Dickman. COMSAT responded with the explanation that these NSF employees had discussed the Green Banks project with AUI officials. NSF responded in turn with a request for additional clarification from COMSAT, and in a September 28, 1998, letter the agency indicated that it had not reached a final decision with respect to the deposition subpoenas. COMSAT then petitioned the federal district court to compel NSF's compliance.

On December 4, 1998, NSF and COMSAT argued the motion to compel before a magistrate judge. COMSAT insisted that by naming NSF in the caption of its motion, it had made the agency a party to the underlying dispute and thereby subjected it to the requirements of Federal Rule of Civil Procedure 45 governing responses to a subpoena. See Fed. R. Civ. P. 45. The magistrate judge accepted this argument and ruled from the bench that NSF could not assert sovereign immunity as a defense to enforcement of the subpoenas.

The magistrate judge concluded further that NSF had waived its right to object to the subpoenas because the agency had ignored its own regulations, which state

[i]f a response to a demand is required before the General Counsel has made the determination [whether to respond] . . . the General Counsel shall provide the court or other competent authority with a copy of this part, inform the court or other competent authority that the demand is being reviewed, and seek a stay of the demand pending a final determination.

45 C.F.R. § 615.6(c). The magistrate judge then entered an order requiring

NSF to comply with the COMSAT subpoenas. NSF immediately appealed this order to the...