The Expert's Examiner

April 9, 2019

In a concise, well-written Opinion, Judge Vincent L. Briccetti takes on several procedural and technical aspects of Federal Arbitration Act (“FAA”) section 7, which governs the Arbitrators’ authority to compel witnesses to attend hearings. Washington National Insurance Co. v. Obex Group, LLC, No. 18-CV-9693 (S.D. N.Y. Jan. 18, 2019), involved an action to enforce a non-party summons to appear at an arbitration (ed: in this case, technically not a subpoena), issued by the Arbitrators to Obex and its principal, Katzenstein, arising out of an AAA reinsurance arbitration involving at least $134 million. The Court, applying FAA section 7, ultimately validated the summonses and denied motions to quash. How Judge Briccetti got there makes for interesting reading, which we cover below in Q&A format.

Q: What Does Section 7 Provide?

A: At a high level, this section empowers arbitrators to summon individuals – parties and non-parties – to appear at arbitration hearings, with documents. There’s a circuit court split on whether this power includes discovery subpoenas, but that was not at issue in this case.

Q: How is Diversity Measured?

A: Diversity is not measured by the citizenship of the parties to the underlying arbitration. Instead, the court must look to the citizenship of the parties to the court proceeding to enforce the summons. The Court distinguished a section 7 case from those involving motions to compel arbitration or enforce/vacate Awards: “Moreover, Section 7 actions -- unlike those involving Section 4 or Section 10 – involve different parties than those in the underlying arbitration. Respondents’ approach would have the Court ignore the citizenship of the parties to the controversy actually before the Court and rely on the citizenship of parties to a different controversy.”

Q: How is the Amount in Controversy Determined?

A:  The $75,000 requirement may be measured by looking at the amount in dispute in the underlying arbitration: “Petitioner seeks at least $134 million in damages in the underlying arbitration. Even if documents responsive to the summonses pertain to only a small fraction of that sum, the amount in controversy requirement would still be satisfied. Moreover, the panel has already determined that the summonses seek relevant information, thus increasing the responsive documents’ value.”

Q: What is the Arbitrators’ “Place of Sitting”?

A: The panel “sits” where the arbitration hearings are held. FAA section 7 authorizes an aggrieved party to seek enforcement from the district “in which such arbitrators, or a majority of them, are sitting” (emphasis added). The resisting party had argued without success that the Court should look to the Arbitrators’ business addresses to determine where the Arbitrators were sitting for section 7 purposes. In rejecting this argument, Judge Briccetti states: “Respondents do not cite any case in which a court looked to the arbitrators’ business addresses to determine where the arbitrators are sitting, and the Court knows of none. Moreover, such an approach contradicts Dynergy Midstream Services, in which the Second Circuit assumed the arbitrators were sitting in New York because that was where the arbitration was to occur. 451 F.3d at 90, 96.” The Court also held that the panel could hold hearings in multiple districts, facilitating non-party summons enforcement.

(ed: Good decision -- helpful guidance on a topic that does not get a lot of play.) (SAC Ref. No. 2019-07-03)