Sometimes the answers to our most difficult questions are found hiding in plain view.
Take for example a question of transcendent global importance — where a New York-seated international arbitrator should “sit” to take testimony from America’s leading non-party witnesses like Google, or Facebook, or Microsoft or Apple Computer. I have been urging you since 2015 to fly to San Jose or Seattle — and upon arrival, to sit — or at least make a plan to do that. This turns out to have been pretty good advice. But for reasons that were, well, hiding in plain view.
You can read about this hot topic in a case from the U.S. Ninth Circuit Court of Appeals, called – don’t be frightened – Jones Day v. Orrick, Herrington & Sutcliffe, 42 F.4th 1131 (9th Cir. Aug. 1, 2022). If that case caption is too daunting, I understand. Relax, I’m here for you.
Simple facts. A Paris-based Jones Day partner jumps ship and moves to Orrick. (Some people just can’t resist the 16th Arr., right? I get it. I’m one of them). A dispute ensues, and the Jones Day partnership agreement requires arbitration seated in Washington D.C. (Does anyone remember Cleveland?) Jones Day gets from the Arbitrator an arbitral subpoena to Orrick calling for compliance in, and potential enforcement in, San Francisco — Orrick’s ancestral home and continuing global HQ. But NO, says Orrick, FAA Section 7 says a US District Court “for the district in which such arbitrators … are sitting may” enforce the subpoena, and the Arbitrator is “ sitting” in Washington because that’s the arbitral seat, and there is no personal jurisdiction over Orrick in Washington, so leave us alone. Jones Day goes to the US District Court in San Francisco, and the US District Judge agrees with Orrick that FAA Section 7 makes the US District Court at the arbitral seat the only proper venue for a subpoena enforcement. Case dismissed, subpoena not enforced. By dismissing on venue grounds, the District Court opted not to address Jones Day’s position that the Court had subject matter jurisdiction under FAA Chapter Two. But as it turns out, in the Ninth Circuit’s decision , the question of Chapter Two subject matter jurisdiction and venue for enforcement go hand-in-hand.
So on to the Ninth Circuit went this much-discussed case … but not of course before your Commentator had been skewered by many colleagues – who, upon learning of the District Court’s decision, expressed remorse about their reliance on the New York City Bar Model Arbitral Witness Summons report of 2015 for whose errors (if any) I am mostly at fault. “Goldstein you have been preaching for seven years that the arbitrators can ‘sit‘ to hear non-party evidence wherever they want, far away from the arbitral seat, and telling us to make plans to do that, and we listened to you, and now look!, an actual thoughtful learned federal district judge is San Francisco says you are wrong!” Ouch.
But wait. Patientez. In the Ninth Circuit, the Court finds it necessary to address subject matter jurisdiction because unlike the District Court it does not agree that the District Court’s analysis of subpoena enforcement venue under FAA Section 7 is dispositive. The panel is captivated by a Jones Day argument that our 2015 Report really did not treat in depth: that the enforcement of an arbitral subpoena in a US-seated international arbitration is a proceeding “falling under the [New York] Convention,” even though it does not involve directly the enforcement of an Award or an arbitration clause. Enforcement of the subpoena is instrumental to the effective enforcement of the Parties’ agreement to arbitrate, says the Ninth Circuit, and that makes it a “proceeding falling under the Convention.” Adopting reasoning from the Supreme Court’s decision in the Outokumpu case – that domestic law grounds for enforcement of arbitration agreements such as equitable estoppel are available in international arbitrations governed by the Convention and FAA Chapter Two unless the text of the Convention or the FAA clearly prohibits their application – the Ninth Circuit held that nothing in the Convention or FAA Chapter Two clearly the disallows the subpoena enforcement process mandated by Section 7 of the FAA:
The only limitation is set forth in §208 [of the FAA], which as the Supreme Court noted in [Outokumpu], disallows only those processes provided for in domestic arbitrations under Chapter One that conflict with Chapter Two or the Convention. … Far from conflicting with the Convention, judicial enforcement of an arbitrator’s summons only aids in the arbitration process. We therefore conclude that “Section 7 is a nonconflicting provision in Chapter 1 that residually applies through Chapter [] 2” [Citations to the International Arbitration Restatement, for which Professor Bermann has our awe/admiration and gratitude for more than a decade of work, and the City Bar Report!].
All well and good, you say… but you ask … how does the Ninth Circuit come to accept that venue of the subpoena enforcement action is proper in San Francisco when, even though the witness resides in San Francisco, (i) the seat of the arbitration is in Washington, (ii) FAA Section 7 provides for enforcement by the District Court where the arbitrators are sitting, and (iii) FAA Chapter Two Section 204 provides that an action or proceeding falling under the Convention “may be brought in any court in which save for the arbitration agreement an action or proceeding with respect to the controversy between the parties could be brought, or in such court for the district and division which embraces the place designated in the agreement as the place of arbitration if such place is within the United States.” Easy says the Ninth Circuit – the venue provision in FAA Chapter Two is to be construed as permissive not exclusive unless its text clearly indicates otherwise, which it does not. So FAA Section 204 is not exclusive but permissive, as to venue, and does not foreclose reliance on the general federal venue statute to lay venue in a particular district. The panel adopts this rule of FAA construction from a domestic FAA case in the Supreme Court (concerning venue under Sections 9 and 11) —
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Cortez Byrd Chips, Inc. v. Bill Harbert Constr. Co.
, 529 U.S. 193 (2000). Extending the Cortez case to Chapter Two’s venue provision in Section 204, the Ninth Circuit held that Section 204 is permissive not exclusive, that Jones Day could therefore venue the enforcement action against Orrick in San Francisco based on the general federal venue statute (i.e. in San Francisco where Orrick has its headquarters). In what I will call a rather tongue-in-cheek concluding footnote, the panel writes that “[b]ecause we hold that 9 U.S.C. § 204 is a non-exclusive venue provision that supplements, rather than supplants, other venue rules … we need not resolve the parties’ dispute as to whether 9 U.S.C. § 7 provides for venue (or where).”
Perhaps it is a case of necessity being the mother of invention, and if so Jones Day’s team deserves a well-provisioned maternity leave in the Napa Valley. But after reading the Ninth Circuit panel’s decision, Jones Day’s core argument in favor of taking the step from Section 208 — which makes Section 7 applicable to US-based Convention arbitrations – to finding that Chapter Two is the source of federal subject matter jurisdiction over the subpoena enforcement case, seems an obvious one. Here was part one of the solution hiding in plain view. Part two of the solution is to think in terms of venue – obvious under Chapter Two, Section 204, which slaps you across the cheek with the word “Venue”. Hello! Good morning! It is less obvious to think of Chapter One, Section 7 as containing language pertaining to “venue,” because Section 7 is such a mash-up of different subpoena ingredients – witness appearance, documents, method of service, witness fees, number of arbitrators who must sign the summons, number of arbitrators who must be “sitting,” enforcement court, etc.
This is big stuff. Keep in mind that there has been no meaningful judicial resistance to the conclusions we drew in the 2015 Model Witness Summons Report that an arbitrator sitting in New York or in Washington has power (i) to summon a witness located in San Francisco, (ii) to require compliance with the subpoena in San Francisco, and (iii) to convene a hearing in San Francisco in the presence of the Tribunal to hear from the witness. The unsettling question about the “are sitting” language in FAA Section 7 has been about judicial power to enforce the subpoena in a court at the place of compliance, not about the intrinsic enforceability of the subpoena’s terms or the right of the New York-seated Tribunal to jet off to the West Coast for a witness hearing. Venue for the enforcement case has been the major concern, because many witnesses will not be subject to personal jurisdiction in the courts at the arbitral seat, or at least not clearly so, and FRCP 45 as interpolated into FAA Section 7 would make the subpoena unenforceable if it purported to require the witness to travel from San Francisco to Washington to appear before the Tribunal. [Rule 45 geographically limits the reach of a trial subpoena, and Section 7 tracks this limitation by saying the summons “shall be served in the same manner as subpoenas to appear and testify before the court”]. The ability to venue the enforcement case in a district court in proximity to the residence or principal place of business of the witness removes a major basis for resistance to the arbitral subpoena by a witness looking to withhold cooperation.
The Jones Day/Orrick case also has significance for domestic arbitrations, where FAA Chapter 2 and the New York Convention do not come into play. In such cases of course the issue of federal subject matter jurisdiction most often depends upon diversity of citizenship between the applicant for arbitral subpoena enforcement and the resisting witness. If there is no diversity of citizenship, the enforcement case should end up in a state court. But if the interstate commerce requirement is met, the state court should apply the FAA (or state arbitration law that gets to the same outcome). And if the enforcing court, state or federal, is persuaded that the venue provision is FAA Section 7 is permissive and non-exclusive, following the reasoning in Cortez and in Jones Day/Orrick, then subpoenas from Washington-seated arbitrators calling for San Francisco witnesses to testify before them in San Francisco should be enforceable in a court where venue is proper under a general venue statute (state or federal), and arbitrators should be able to issue such subpoenas with confidence in their enforceability.
There are attractive arguments for treating as a permissive venue clause Section 7’s laying of venue in a “United States district court for the district in which such arbitrators, or a majority of them, are sitting.” For one thing, the statute says that such a district court “may” enforce the subpoena. Now, “may” could perhaps only mean discretion to say thumbs up or thumbs down. On the other hand, “may” could mean “we grant you permission.”
The latter interpretation is supported by history. In 1925 when the FAA (including Section 7) was enacted, the general venue statute for the federal courts dated from 1887-1888 and provided that no civil suit could be brought against “any person” in “any other district than that whereof he is an inhabitant, but where the jurisdiction is founded only on the fact that the action is between citizens of different states, suit shall be brought only in the district of residence of either the plaintiff or the defendant.” See 25 Stat. 433 (1888) as quoted in Edward L. Barrett, Jr., Venue and Service of Process in the Federal Courts – Suggestions for Reform, 7 Vand. L. Rev. 608 (1954), available at https://scholarship.law.vanderbilt.edu/vlr/vol7/iss4/11 (last visited August 30, 2022).
Congress in 1925, legislating for arbitration against a backdrop of a general venue statute that made venue of civil actions possible in only one or two judicial districts, logically might have decided that enforcement of an arbitral subpoena should be permitted in the district where the arbitration hearing would take place, say the Southern District of New York, even if the non-party witness and the party seeking enforcement resided elsewhere, say New Jersey. That seems much more logical than to suppose that Congress wished to make the place of an arbitration hearing the only place where enforcement of an arbitral subpoena could be sought. To make that supposition effectively attributes to Congress in 1925 a specific purpose to limit the enforceability of arbitral subpoenas, in order to make them less effective tools in arbitrations than they were in court litigation. I have not studied the matter, but I seriously doubt that any such legislative history of Section 7 exists. And if that was the objective, how does one explain that so much of Section 7 makes the procedure applicable to an arbitral subpoena align with procedure applicable to a federal trial court subpoena? Why would Congress have aligned nearly all other aspects of Section 7 with federal court subpoena practice, but then completely spurn the default federal court position on the venue of civil proceedings?
It is reasonable to forecast that the Jones Day/Orrick case will bring about an important clarification of FAA Section 7 in domestic cases, including a much-needed rejection of the position that “where the arbitrators, or a majority of them, are sitting” means the place of arbitration as provided for in the arbitration agreement. Although the Ninth Circuit panel found it unnecessary to reach that issue, this was the District Court’s rationale, and it was undone by the Ninth Circuit’s reversal. And that reversal includes a remand with directions to the District Court to enter an order enforcing the subpoena.
Granted there are a handful of federal district court cases that have relied on this “are sitting” equals “arbitral seat” rationale. But they are thinly and poorly reasoned, and are impliedly criticized by the Ninth Circuit judgment (the District Court order having cited them in support of its rejected rationale). Moreover, none of those cases, to my knowledge, demonstrated through legislative history that in 1925 the phrase “are sitting” referred to the “seat of arbitration” as the latter term came to be understood in US legal parlance much later in the 20th Century. Finally, none of those cases, to my knowledge, explains why it is that Congress when it enacted Chapter Two in 1970, did not frame the venue provision, Section 204, to refer to the place where the arbitrators “are sitting”, but instead adopted the phrase “the place designated in the agreement as the place of arbitration.” Further, Congress in 1970 did not amend Section 7 to conform its text to that of Section 204. Are we not bound by rules of statutory construction to conclude that different phrases within a single statute have different meanings, unless some clear indicator of legislative intent to establish equivalency exists?
And so, dear colleagues “sitting” in cases whose “place of arbitration” is on the US East Coast, international or domestic, keep up those subpoenas wherein you vow to appear in San Francisco or San Jose to hear the non-party witness (and negotiate the Zoom later)! The enforcement picture looks quite bright.
And please don’t leave your heart in San Francisco. There are supply chain issues.
