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December 26, 2013

Do Rule 45 Amendments Impact The Arbitral Subpoena Power?

Certain amendments to Rule 45 of the Federal Rules of Civil Procedure became effective December 1, 2013. This is the Rule governing all aspects of obtaining evidence from non-parties by subpoena in federal civil proceedings.  The amendments have potential relevance to arbitral practice for arbitrations that have their seat in the United States, as Section 7 of the Federal Arbitration Act (“FAA”) in certain respects equates arbitral subpoena power with judicial subpoena power, and in certain respects equates judicial power to compel compliance or punish non-compliance with an arbitral subpoena with the court’s powers in regard to judicial subpoenas. Most important for the present discussion, Rule 45(b)(2) has been amended to provide that a subpoena may be served anywhere in the United States, whereas before December 1, 2013 the subpoena could only be served within the judicial district of the issuing court, or within 100 miles of the courthouse of the issuing court, or statewide where the judicial district was within a state that provided for statewide service of process.

I consider here the implications of nationwide service of process for a subpoena issued by an arbitral tribunal to a witness located at a considerable distance from the seat of the arbitration.

If the witness does not indicate willingness to comply, the arbitral summons served in a far-flung corner of the country with the benefit of the new Rule 45 provision for nationwide service of process may need to enforced by the local federal court in the judicial district where the arbitrators are sitting. Section 7 states: “[T]he 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.”

The new statutory authorization for nationwide service of process clears one procedural hurdle to such enforcement: that there must be statutory authorization for the service of process as a precondition to personal jurisdiction. That was a problem under FAA Section 7 before the recent Rule 45 amendment, as we know from a Second Circuit decision, Dynegy Midstream Services, LP v. Trammochem, 451 F.3d 89 (2d Cir. 2006).  In Dynegy, an Arbitral Tribunal sitting in New York issued a subpoena to a Houston witness calling for the appearance of the witness at a hearing in Houston. When the witness failed to appear, a motion to compel compliance was made in the Southern District of New York, the motion was granted, and the Houston witness appealed on grounds that the New York federal district court lacked personal jurisdiction. The Second Circuit agreed, holding that personal jurisdiction over the Houston witness could not exist because FAA Section 7 in conformity with Rule 45 did not authorize a New York-based arbitral tribunal summons to be validly served on a Houston witness, just as Rule 45 would not allow a Southern District of New York trial subpoena to be validly served in Houston on a Houston witness.

A similar outcome occurred in Legion Insurance Co. v. John Hancock Mutual Life Insurance Co., 33 Fed. Appx. 26, 2002 WL 537652 (3d Cir. April 11, 2002). There, the Third Circuit held that the federal district court in the Eastern District of Pennsylvania did not have power to enforce a subpoena, issued by an arbitral tribunal sitting in Philadelphia, directed to a nonparty witness located in Florida, which required the witness to appear for deposition in Florida and to bring with him certain documents and papers. The Court relied on the language in Section 7 that arbitration subpoenas “shall be served in the same manner as subpoenas to appear and testify before the court,” stated that Rule 45 “governs the service of arbitration subpoenas,” proceeded to quote Rule 45(b)(2), and held: “In light of the territorial limits imposed by Rule 45 upon the service of subpoenas, we conclude that the District Court did not commit error in denying John Hancock’s motion to enforce the arbitration subpoena….”

Rule 45 (b) (2) as amended to permit nationwide service of a judicial subpoena, and by extension nationwide service of an arbitral summons to a non-party witness, solves the problem found to exist in Dynegy and in Legion Insurance. But this does not mean that the federal district court at the seat of the arbitration will always have personal jurisdiction over a witness upon whom valid personal service of the arbitral summons has been made. Statutory authorization for nationwide service of process is a necessary step to establish personal jurisdiction, but there is one more step: personal jurisdiction must comport with due process under the US Constitution. See Licci v. Lebanese Canadian Bank, 673 F.3d 50, 60 (2d Cir. 2012).

Assuming no constitutional obstacle to jurisdiction, the urgent new question presented in regard to enforcement of an arbitral witness summons is this: Do Rule 45’s geographic limitations on the places where witness compliance with a judicial trial or hearing subpoena may be required apply to the arbitral summons?  Amended Rule 45 does not fundamentally change the Rule’s geographic boundaries for the place of compliance, but merely consolidates them in amended Rule 45(c).  Rule 45(c)(1) now provides that “A subpoena may command a person to attend a trial, hearing, or deposition only as follows: (A) within 100 miles of where the person resides, is employed, or regularly transacts business in person; or (B) within the state where the person resides, is employed, or regularly transacts business in person, if the person (i) is a party or a party’s officer; or (ii) is commanded to attend a trial and would not incur substantial expense.”

Until now, there has been no occasion for federal courts to consider whether Rule 45’s geographical limits on the place of compliance with a subpoena calling for the testimonial appearance of the witness apply to an arbitrator’s summons to appear and testify. As illustrated by the Dynegy and Legion Insurance cases, before the December 1, 2013 amendment, Rule 45’s territorial limitation on service of process answered the place-of-compliance question. But now that an arbitral summons, like a federal subpoena, may be served nationwide, the question is squarely presented whether there are territorial limits on where a witness served with an arbitral subpoena may be required to appear to give evidence in the arbitration.

The question does not seem to be answerable from the text of Section 7 alone. There is no mention in Section 7 of the place of compliance with an arbitral subpoena. But the final sentence of Section 7 does refer to the judicial enforcement power with respect to arbitral subpoenas, and states in part that a district court in the district where the arbitrators are sitting “may compel the attendance of such person or persons before said arbitrator or arbitrators … in the same manner provided by law for securing the attendance of witnesses … in the courts of the United States.” (I have removed, by ellipsis, the interspersed sections of the same sentence that deal with the power of the court to punish noncompliance with an arbitral subpoena by contempt.  The grammatical structure of the sentence and its punctuation are obstacles rather than guideposts to discernment of its meaning). This text is inconclusive. It might be strictly construed to refer only to the modalities of judicial compulsion. But it is also plausible to interpret this text broadly, i.e. to equate “in the same manner” with “in the same circumstances,” and thus to find that an order compelling compliance with an arbitral subpoena is available only in regard to an arbitral subpoena that respects the geographic limitations of Rule 45(c)(1).

This broader interpretation, which would maintain the territorial limits on an arbitral subpoena that have existed until now, fits well with the objectives of the FAA, and with the balance struck in the text of Section 7 between the search for truth in arbitration and privacy interests of non-parties.  The primary purpose of the FAA was to ensure enforcement of pre-dispute arbitration clauses. But the impetus to enforce those agreements, as the Supreme Court has stated, was that arbitration offered the prospect of more “streamlined proceedings” than were generally possible in the courts. Limits on the participation of non-parties, and upon the expense and burden associated with their participation — like limits on discovery, and like limits on the scope of judicial review of arbitral awards — fit with the notion of arbitration as a streamlined method to resolve disputes. It would undermine these values if, as an accidental by-product of the Rule 45 amendments, Section 7 were now understood to eliminate territorial limitations on the obligation of non-parties to comply with an arbitral subpoena. Moreover in the absence of any new expression of Congressional intent with respect to the impact of the Rule 45 amendments on arbitral subpoena practice under FAA Section 7, it would seem imprudent to find any fundamental change in the scope of the arbitral subpoena power based on a revision of Rule 45 that evolved — from the federal Judicial Conference, to formal issuance by the U.S. Supreme Court — essentially without reference to any impact on arbitration.

But this cautious approach need not mean that arbitral tribunals and courts asked to enforce or quash arbitral subpoenas must apply Section 7 without reference to the conveniences afforded by 21st century technology. Suppose that an arbitral tribunal sitting in New York does wish to hear from an unwilling nonparty witness residing in Seattle. Suppose the Tribunal issues a subpoena that calls for the witness to appear and give testimony by video conference at the offices of a Seattle law firm or in the Seattle regional office of the AAA, with a video link to a New York location where the arbitrators, or at least one of them, will be present. A judge in the Southern District of New York should have personal jurisdiction over the witness in a subpoena enforcement proceeding unless there is a constitutional due process obstacle. That judge should also find no offense to Rule 45 (c)’s explicit territorial limitations and their implicit arbitral application through FAA Section 7: the witness “attends” the proceeding in Seattle upon the command of the subpoena, and neither Rule 45 nor FAA Section 7 imposes any requirement that the arbitrator appear in the physical presence of the witness. While application of FAA Section 7 requires reference to Rule 45, it does not require reference to Rule 43, which expresses the judicial preference for testimony in open court but provides that “for good cause in compelling circumstances and with appropriate safeguards, the court may permit testimony in open court by contemporaneous transmission from a different location.” This language was added to Rule 43 in 1996, and prior to that time if a non-party witness could only “attend” a trial or hearing more than 100 miles from his residence or workplace by traveling to the physical location of the hearing, it was by virtue of Rule 43, not Rule 45.  Thus, arbitral tribunals should be able to avail themselves of the new Rule 45 provision for nationwide service of process to obtain evidence from a distant non-party, without imposing travel burdens on themselves or the witness and without deciding that there has been any change in Section 7’s limitations on the territorial boundaries of the place of compliance with an arbitral subpoena.