September 15, 2010

Arbitral Subpoenas for the Non-Party Witness: Some Problems and Possible Solutions

 

This is the initial draft of what will eventually be a longer and hopefully more thoughtful article concerning the difficulties, under existing American law and practice, of arbitral subpoenas in U.S.-seated international arbitrations. Your comments on this draft, on this site or to the author privately, are most welcome.

 

 

Parties to international commercial contracts often select New York as the place of their arbitration, and they do so for a variety of reasons, some of them related to the hospitable legal and professional environment for arbitration, including New York’s concentration of skilled arbitrators who are well-versed in New York commercial law.  

 

But the ability of the arbitral tribunal seated in New York to secure the testimony and records from witnesses other than the parties is likely not a major consideration.  Foreign companies, even when represented in contract drafting be competent counsel, probably have only a hazy understanding of the territorial limits that U.S. law and procedural rules place upon the effectiveness of an arbitrator’s subpoena to require the appearance of a non-party witness.  This is understandable, as a well-developed body of case law on this subject has only recently begun to emerge, and many issues have not been addressed.

 

American arbitration lawyers who gain familiarity with the UNCITRAL Model Law and other modern national arbitration laws have a general understanding that the courts in countries having such laws have the power to require the appearance of a non-party witness to testify, and that this power effectively extends from border to border. If a foreign lawyer made the same assumption about the United States, she might be surprised to find that American judges and practitioners generally consider the arbitral subpoena power to be territorially limited to a certain radius around the juridical seat of the arbitration.

 

The reason is that the subpoena power of an international arbitrator sitting in New York (or elsewhere in the U.S.) is no different than that of an arbitrator sitting in New York in a non-international case that involves interstate commerce and to which the Federal Arbitration Act (“FAA”) therefore applies.

 

The subpoena power under the FAA is governed by the same provision for domestic and international cases — Section 7. Section 7 is found in Chapter 1 of the FAA, in the original arbitration statute enacted in 1925, 45 years before the U.S. accession to the New York Convention.[1]

 

Under Section 7, the subpoena of an arbitrator is required to be served upon the witness “in the same manner as a subpoena to appear and testify before the court.” Therefore, the service requirements of Rule 45 of the U.S. Federal Rules of Civil Procedure (“FRCP”) apply, and those requirements scarcely reflect policies attuned to international arbitration, but rather reflect pragmatic compromises made in consideration of the vast expanse of American territory:

1) in the case of an individual, the subpoena must be delivered in person to the witness.

2) the subpoena may be served (i) within the federal judicial district of the seat of the arbitration[2], or (ii) outside that district but within a 100 mile radius of the seat of the arbitration[3], or (iii) within the state of the seat of the arbitration, if a statute or court rule of the state permits statewide service of a subpoena (as New York’s Civil Practice Law and Rules, for example, does).

 

In an international arbitration (and indeed in some domestic arbitrations), these limits will often leave many witnesses beyond the generally-understood reach of an arbitrator’s subpoena. If an important witness might for example be a retired officer or employee of a corporate party who has moved her primary residence to Florida or Arizona, the subpoena of the arbitral tribunal sitting in New York cannot be served with legal effect unless she is found, for personal delivery, in New York State or within 100 miles of New York City.[4]

 

Whereas the party who applies to the tribunal for issuance of the subpoena is (by custom) responsible for its effective service, parties will sometimes ask the tribunal to issue a subpoena even though the witness’s residence is known to be outside the permitted range for service. This presents something of a dilemma for the arbitral tribunal.

 

The tribunal might issue the subpoena, leaving its effectiveness to be determined by the actions of the party that requested it. A process server instructed by the party or its counsel might conceivably locate the witness in New York and deliver it to her at a conference or in a hotel room.  But it is more probable that the party will put the subpoena in the hands of a process server in Florida, Arizona, etc., and the witness, if she is not represented by counsel, may proceed under the mistaken impression that the subpoena is legally effective to require her compliance by traveling to New York to appear and give testimony on the date specified.

 

In the latter case, the arbitral tribunal has been made a party to a deception, unless the subpoena on its face indicates the conditions for its effectiveness. Here, the arbitrator has the ability to take practical steps, because the content and format of the arbitral subpoena are for the arbitrator to decide. Thus, the tribunal might elect to include a legend that the subpoena will only be valid if it is served “in compliance with territorial restrictions on effective service provided by the Federal Arbitration Act and the Federal Rules of Civil Procedure.” That formula, without delving into the details, should give the witness fair notice that a subpoena calling for an appearance to testify at a distant venue may not be valid, and that the witness should consult counsel to find out whether the subpoena is valid.

 

Even if the subpoena has been validly served, the attempt to secure testimony from a witness located far from the where the arbitrators are sitting may fail. Rule 45(d)(3) FRCP provides that “the issuing court must quash” a subpoena that “requires a person who is neither a party nor a party’s officer to travel more than 100 miles from where that person resides, is employed, or regularly transacts business in person….” (except within a state that provides for statewide service of process). Here the language of Rule 45 and FAA Section 7 produce a complication.

The Rule 45 motion to quash procedure is not directly applicable to a subpoena issued by an arbitral tribunal as opposed to an “issuing court.” Further, Section 7 of the FAA does not provide for a motion to quash.[5] Instead it provides that if a person fails to comply with a validly served subpoena, the federal district court for the district in which the arbitrators are sitting “may compel the attendance of such person or persons….” The phrase “may compel” leaves the court with discretion to deny a motion to compel under the circumstances in which the court would quash a judicial subpoena. But this result is not compelled by the text. There does not appear to be case law on this point, as it is understandable that the instances when an arbitral subpoena can be effectively served within its territorial limits on a witness who normally resides beyond those limits, will occur infrequently. But given the overall position of the FAA to make the obligation of a non-party to participate as an involuntary witness more limited in arbitration than in judicial proceedings, a court should normally exercise it discretion to decline to compel attendance of a witness before an arbitrator sitting in a particular place, if the court could not compel the same witness to comply with, and indeed would be required upon motion to quash, a judicial subpoena of a similarly-located witness to appear and give testimony.

 

Another issue that may arise is whether Section 7’s empowerment of arbitrators to subpoena witnesses to “attend before them” might be construed to permit an arbitral subpoena that calls for a witness to testify by video conference. This issue does not appear to have been addressed in any reported case. One would think that under settled rules of statutory construction, the 1925 arbitration statute should be interpreted according to the ordinary meaning that its terms had at the time of their enactment, and so “attendance” should be interpreted to mean a physical appearance in the presence of the arbitrators. In that case, a subpoena for video or telephonic testimony, designed to avoid the requirement that the witness travel more than 100 miles to the place of the arbitration, exceeds the powers of the arbitrator under the current law.

 

A solution that is sometimes discussed in arbitration circles — but how frequently it is practiced is unclear — is for the tribunal to move its “sitting” place to the location where the witness can be effectively served with an arbitral subpoena. In international arbitration the selection of the “seat” or “place” of arbitration by the parties, or in default of a party choice by the administering institution, has considerable legal significance. That significance lies in the resulting invocation of the legal regime governing arbitration at the seat, including the powers of the courts to set aside awards and to support the arbitral process as needed. But it is more than arguable that the word “sitting” as used in Section 7 of the FAA (“….upon petition the United States District Court for the district in which the arbitrators, or a majority of them, are sitting” may compel compliance with the subpoena) refers not to the legal seat of the arbitration as that term is understood in contemporary international practice, but simply to the physical location where the arbitrators, by agreement of the parties, convene to hear testimony. If the parties have adopted arbitration rules, such as ICDR Article 13(2), that permit the tribunal to convene at any location they deem appropriate to hear witnesses[6], then the agreement of the parties fully supports the Tribunal in “sitting” for FAA Section 7 purposes, wherever it needs to “sit” to obtain power to compel the appearance of a witness. The New York-based tribunal’s subpoena for the Houston-based witness should simply command the witness to appear before the tribunal (or at least one of its members, as Section 7 provides) at a Houston location on the specified date, and the arbitrators (or one of them) should plan to be there. A motion to compel compliance could then properly be brought before the federal district court in Houston, which would be where the tribunal is “sitting” in relation to this particular witness and subpoena for Section 7 purposes, even if the “place” of arbitration designated by the parties or the ICDR is in New York.

 

Whether it is prudent for the tribunal to take such a step is a different issue.  Sometimes the distant witness will be one that only one party is eager to present, while the other party might prefer that this witness be treated as beyond the reach of arbitral and judicial compulsion.  Further, the testimony of this witness might be more significant, in the scheme of things, if the proponent’s theory of the case is adopted, while the other side might contend that, on its theory of the case, that witness’s testimony is largely irrelevant. Thus, a tribunal that ventures to be a pioneer in testing uncharted Section 7 waters risks being perceived by the parties, at a relatively early stage, as having has already inclined toward the witness-proponent’s theory of the case. On the other hand, if the witness is clearly an important one on any theory of the case, and the testimony (or records in that witness’s possession) cannot be obtained with the same degree of personal knowledge from others, then the tribunal quite justifiably may wish to test the limits of its Section 7 powers by “sitting” temporarily where the witness is located, and issuing a subpoena commanding the witness’s appearance before them at that location.  (Obtaining the agreement of the parties to add the distant location as a second “place” of the arbitration is another solution, and there should be no doctrinal or practical difficulty in having two “places” of arbitration in the same country and sharing a common legal regime, the FAA, and the same judicial system.  But the agreement of the parties in this respect will not always be forthcoming.)

The need for a tribunal sitting in New York to go through such contortions to compel the appearance of a witness residing in Miami, or else to forego that witness’s testimony, exposes the fundamental problem, which is that the United States has failed to modernize its arbitration law in important ways. At least for international arbitrations, there should be nationwide service of process for arbitral subpoenas. It is against the reasonable expectations of a foreign party that agrees to arbitrate in the United States that there should be no mechanism (or at least no tested and legally established mechanism) to secure the testimony of a former officer of a U.S. corporate party, who resided in New York (where the corporation has its headquarters) at the time of the contract and at the time of events giving rise to the dispute, but who prior to the request for her appearance to testify had retired and moved to Arizona. The Arizona witness should, in turn, have the ability to seek a protective order from the federal district court at the place where she is served with the New York tribunal’s subpoena, and that court should have the power to modify the subpoena to reconcile the competing concerns of the parties, the tribunal, and the witness by, for example, requiring the tribunal (or one of its members) to preside at a hearing in Arizona to hear the testimony, or requiring that the testimony be adduced by video conference.

But modernizing amendments to the FAA are the stuff of arbitrators’ dreams.  In our waking hours, arbitrators should be keenly aware of the precise words of FAA Section 7, and Rule 45 FRCP, and how the unvarnished plain meaning of words like “sitting” in an arbitration statute enacted during Prohibition and the presidency of Calvin Coolidge might sometimes legitimately be used to good advantage in serving the needs of parties to international arbitrations taking place in the United States.

 


[1] Section 7 applies in judicial proceedings related to international arbitrations seated in the United States by reason of Section 208 of the FAA, which provides for residual application of FAA Chapter 1 in cases falling under the New York Convention. Confusion may arise as to the Court’s jurisdiction when a motion to compel compliance with an arbitral subpoena is brought by a party to a U.S.-seated arbitration that does not involve at least one U.S. party. A proceeding under Chapter 1 of the FAA, which includes Section 7, requires an “independent” basis for subject matter jurisdiction — and thus insofar as Section 7 authorizes a federal district court to compel compliance with an arbitral subpoena, that is a grant of substantive authority, but has been held not to be a grant of subject matter jurisdiction. An action between two non-U.S. parties does not qualify for federal diversity jurisdiction, and some judges not fully familiar with the New York Convention, and lacking proper briefing from the parties, may be tempted to dismiss the proceeding. But the correct solution is that FAA Chapter 2, applicable to international arbitrations, does, unlike domestic Chapter 1, confer subject matter jurisdiction on the federal courts. A Section 7 motion to compel compliance with an arbitral subpoena in an international arbitration to which the New York Convention applies is in reality made under Chapter 2, Section 208 (to which Section 7 belongs, by incorporation). There is “federal question” jurisdiction because, under Section 203, “an action or proceeding falling under the Convention shall be deemed to arise under the laws and treaties of the United States.” The potential for confusion is illustrated by Stolt-Nielsen Transp. Group, Inc. v. Celanese AG, 430 F.3d 567 (2d Cir. 2005), which was an appeal from the District Court’s order compelling compliance with an arbitral subpoena in a maritime arbitration in New York that involved non-U.S. parties on both sides and therefore apparently did not qualify for diversity jurisdiction. The Court found that jurisdiction was proper based on federal admiralty and maritime law, and expressly acknowledged that for this reason it did not need to consider whether the Convention and FAA Chapter 2 also furnished jurisdiction.

[2] In the case of Manhattan, the judicial district is the Southern District of New York. It encompasses the Boroughs of Manhattan and the Bronx, and several suburban and rural counties north of New York City.

[3] This radius includes, outside of New York State, most of the State of New Jersey, Philadelphia, and the western portion of the State of Connecticut.

[4] The Second Circuit held in Dynegy Midstream Servs. v. Trammochem, 451 F.3d 89 (2d Cir. 2006) that FAA Section 7 does not authorize nationwide service of process, that the territorial limitations of Rule 45 FRCP therefore apply to an arbitral subpoena, and accordingly a New York federal court lacked personal jurisdiction over the witness and could not enforce an arbitral subpoena issued by a New York-based tribunal that had been served in Houston on a Houston-based witness. Service in Texas of a New York arbitral tribunal’s subpoena was not authorized, and valid service is a prerequisite to personal jurisdiction. This position appears to be clearly correct, but there are outlier decisions taking a different view. See, e.g., Festus & Helen Stacy Foundation, Inc. v. Merrill, Lynch Pierce Fenner, & Smith, Inc., 432 F. Supp. 1375 (N.D. Ga. 2006), where the Court — without giving attention to Section 7’s language concerning service in accordance with the rules governing subpoenas — stated that “the territorial limits of personal jurisdiction do not apply to enforcement of a subpoena under the FAA” and that Rule 45’s territorial limits on service did not apply because only the requested documents and not their custodian would have to incur travel burdens.

 

[5] The Fourth Circuit held in COMSAT Corp. v. Nat’l Science Foundation, 190 F.3d 269 (4th Cir. 1999) that “once subpoenaed by an arbitrator the recipient is under no obligation to move to quash the subpoena. By failing to do so, the recipient does not waive the right to challenge the subpoena on the merits if faced with a petition to compel. The FAA imposes no requirement that a subpoenaed party file a petition to quash or otherwise challenge the subpoena; the Act’s only mechanism for obtaining federal court review is the petition to compel…..

 

[6] ICDR Article 13(2) states: “The tribunal may hold conferences or hear witnesses or inspect property or documents at any place it deems appropriate. The parties shall be given sufficient written notice to enable them to be present at any such proceedings.

4 Responses to “Arbitral Subpoenas for the Non-Party Witness: Some Problems and Possible Solutions”

  1. The power of subpoena given in the FAA and, I understand (but do not know for myself) in some States of the USA is odd in view of the fact that two people (the parties) ought not have the power to command a third person without that third person’s agreement. As I have said, an arbitrator is not a Judge.
    The classic solution is for the Tribunal, having heard submissions, to certify that the third party witness’s testimony would be nesessary for the determination of the matter. That certificate. notarised if necessary, could then be taken to any Court having the witness under jurisdiction.
    There is another tactic, which I have used. It is to request testimony by appealing to professional affiliation. In an arbitration between employer and contractor, I requested testimony from the engineer on the basis of fraternal assosiation. I agreed a set of written questions with Counsel and received replies.

  2. admin says:

    Thank you Geoffrey for your comments. Given that the subpoena power derives from a federal statute on the books for 85 years, the FAA, here in the U.S. we would not look at the arbitral subpoena as an oddity because it is issued in a “private” proceeding. The arbitrator is in fact a quasi-Judge in regard to the subpoena because Congress made the choice to support the arbitral subpoena with judicial remedies for non-compliance. Further, the arbitral subpoena unlike a judicial subpoena cannot be unilaterally issued by the party. And since only the court may impose or threaten sanctions for non-compliance, the U.S. arbitral subpoena is really not so different from the arbitral request for judicial support that you describe as a U.K. practice.

  3. Linda Alpert says:

    Marc,
    Thanks for the interesting article. One issue you didn’t discuss was who would pay if the tribunal needed to move to a location nearer the witness in order to make a subpoena’s jurisdictional reach effective. A more practical solution might be to start another proceeding in the jurisdiction where the witness lived and have that court issue the subpoena. Of course the parties’ counsels would have to travel there to hear the evidence, but the testimony could be transcribed and then sent to the arbitrators in paper or CD form in the same way a deposition would be.
    Regarding the idea of having an arbitrator add a legend to the subpoena, I am in favor of adding not only the legend you suggested but the additional comment that they should consult counsel to verify their rights and obligations. I think arbitrators have to be careful not to overstep their powers, and have an obligation to warn non-lawyer witnesses that there may be some issues concerning the jurisdictional validity of the subpoena.
    Finally, when companies and/or individuals are writing arbitration agreements into their contracts, they should give some consideration to these issues as they may be able to write in some kind of “work-around” to solve the problem. Since arbitration is a creature of contract, they could conceivably avoid the entire jurisdictional issue by agreeing to cooperate with regards to having testimony taken either by video conference or even telephonically.

  4. admin says:

    Linda many thanks for your comment. I would have some concerns about the legal efficacy of commencing a judicial proceeding in the locale of the witness in order to obtain the testimony. Is that not in violation of the agreement to arbitrate? At least in federal practice, I do not know of any mechanism to commence a special proceeding to obtain discovery in aid of an arbitration pending elsewhere in the United States.

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