Locke Lord QuickStudy: Section 7 of the FAA: Compelling Evidence from the Recalcitrant Non-party Witness

Locke Lord LLP
June 3, 2020

Section 7 of the Federal Arbitration Act (“FAA”) grants arbitrators the authority to ‎‎“summon in writing any person to attend before them . . . as a witness and in a proper case to ‎bring with him or them any book, record, document, or paper which may be deemed material as ‎evidence in the case.”‎1  It is generally accepted that § 7 does not empower an arbitrator to issue ‎pre-hearing discovery summonses seeking to compel the depositions of non-parties or to compel ‎pre-hearing document discovery.‎2  Consequently, when testimony or documents is needed from a ‎non-party, a tribunal typically summons the non-party to appear at a hearing and at the hearing, ‎takes and rules on the evidence adduced by the non-party.‎

If a non-party properly summoned by a tribunal fails to obey the summons, a party to the ‎arbitration may seek court assistance pursuant to § 7 of the FAA which further provides:‎

upon petition the 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 recent case of Washington National Insurance Company v. OBEX Group LLC,‎4‎ ‎demonstrates not only a court’s willingness to enforce summonses but also its unwillingness to ‎insert itself into the arbitral process by ruling on objections to the production of documents ‎requested in the summonses.‎

Seeking $143 million in damages, Washington National Insurance Company (“WNIC”) ‎and its affiliate Bankers Conseco Life Insurance Company (“BCLIC”) instituted an arbitration ‎based on reinsurance claims.  The arbitration tribunal summoned non-parties OBEX Group LLC ‎and Randall Katzenstein (collectively “OBEX”) to testify at an arbitration hearing in the Southern ‎District of New York and to bring documents with them.  Although OBEX is domiciled in New ‎York, it failed to appear.  When OBEX failed to appear at the hearing, WNIC sought permission ‎from the tribunal to petition for judicial assistance to obtain OBEX’s compliance with the ‎summonses, and receiving that permission, filed a petition based on § 7 (“Petition”) and invoked ‎the court’s diversity jurisdiction based on its domicile being Indiana and OBEX’s being New ‎York. ‎

In response to the Petition, OBEX filed a motion to dismiss which was denied by the ‎district court.  Thereafter, OBEX filed a motion for reconsideration and a motion to quash the ‎summonses.  These were also denied.‎

On appeal, OBEX raised a number of issues.  OBEX’s initial contention was that the ‎district court lacked subject matter jurisdiction based on three arguments: (1) the court was ‎required to “look through” the Petition to the parties of the underlying arbitration to determine ‎whether there was diversity of citizenship; (2) even if diversity were to be determined solely by ‎the Petition, diversity was nevertheless lacking because WNIC had failed to name BCLIC, ‎which OBEX contended was a necessary and indispensable party domiciled in the same state as ‎OBEX; and, (3) WNIC had failed to meet the $75,000 amount in controversy requirement.‎

In addition to challenging diversity jurisdiction, OBEX made three further arguments.  ‎First, OBEX attacked the validly of the summonses under §7, alleging they did not comply with ‎the requirements of § 7.  Second, OBEX contended the district court erred in denying the ‎motion to quash and granting the Petition without considering OBEX’s objections to the ‎documents requested in the summonses. Finally, OBEX asserted that the district court lacked ‎authority to grant the Petition because the tribunal was not sitting in the Southern District of ‎New York for purposes of § 7.‎

Diversity Jurisdiction

The Court of Appeals, relying on its previous decision of Hermès of Paris, Inc. v. Swain,‎5‎ ‎held that a court in assessing its jurisdiction over a § 7 petition looks to the citizenship of the ‎parties in the action before it, as well as any indispensable parties that are required to be joined ‎pursuant to Federal Rule of Civil Procedure 19.  The citizenship of the parties to the underlying ‎arbitration is irrelevant for determining diversity jurisdiction. In this instance, the parties to the ‎Petition, WNIC and OBEX were diverse.  The Court rejected the contention that BCLIC was a ‎necessary party pursuant to Rule 19 because (1) the district court could afford complete relief ‎without BCLIC’s presence and (2) BCLIC never claimed an interest in the subject matter of the ‎Petition.‎

As for the amount in controversy, OBEX argued that even if the parties were diverse, the ‎court still lacked subject matter jurisdiction “because the value of ‘obtaining Appellants’ ‎testimony and documents’ does not exceed $75,000.” The Court noted that in actions for ‎declaratory relief or injunctive relief, the amount in controversy is measured by the object of the ‎litigation, so dismissal is appropriate only if it appears to a legal certainty that the claim is really ‎less than $75,000. ‎

The Court looked to the amount in controversy in the arbitration, $134 million, to ‎determine that the $75,000 threshold was satisfied. In reaching this conclusion the Court stated:‎

It does not appear to a legal certainty that the amount is really for less because ‎even if the documents required by the summonses pertain to only a small fraction of ‎‎[the award sought], the amount in controversy requirement would still be ‎satisfied.‎6 

Validity of the Summonses

OBEX attacked the validity of the summonses on the basis that they sought pre-hearing ‎discovery and immaterial documents.  The court made short shrift of this argument finding the ‎summonses were in accord with § 7 because they required OBEX to appear at a hearing in New ‎York City and to bring with it documents identified in the instructions annexed to the ‎summonses. OBEX further argued that the summonses were a subterfuge because WNIC had ‎previously communicated to OBEX that OBEX could comply with the summonses by producing ‎documents without appearing at the hearing.  The Court rejected this argument and noted that ‎the prior offer did not limit the power inherent in the statute:‎

A properly issued summons is not rendered invalid by a claimant's offer, a ‎respondent's offer, or a joint agreement to produce documents without a ‎hearing.  And we, like the district court, ‘will not prejudice petitioner for its sensible ‎willingness to negotiate with respondents.’ (citations omitted)‎

Rule 45 Objections

The district court had declined to rule on OBEX’s numerous Rule 45 objections, finding ‎that even if it had the power to do so, it did not have the obligation.  The district court also noted ‎that in the Second Circuit, the courts generally defer objections to the arbitrators who must ‎‎“construe the law the parties cite and evaluate the evidence the parties adduce.”‎7

On appeal, OBEX argued that § 7 summonses are to be issued and enforced as federal ‎court subpoenas.  OBEX maintained that a court, therefore, was required to impose Rule 45 ‎obligations on a § 7 arbitration summons and rule on the objections.  To bolster this argument, ‎OBEX relied on that portion of § 7 that states: 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.”‎8 ‎ 

The Court disagreed.  Finding that the text of § 7 did not support OBEX’s interpretation, ‎the Court noted that §7 provides that summonses are to be enforced in the same manner as a ‎subpoena – compulsion or contempt.  Rule 45, however, does not cover these processes. Going ‎further, the Court remarked that adopting a policy to frustrate the purpose of § 7 would also ‎frustrate the strong policy favoring arbitration:‎

The respondents’ interpretation also does not square with the strong federal policy ‎favoring arbitration as an alternative means of dispute resolution that is ‎embedded in and furthered by the FAA.  Adopting the respondents’ view would ‎frustrate this policy by turning a district court into a full-bore legal and evidentiary ‎appeals body, where arbitration would become merely a prelude to a more ‎cumbersome and time-consuming judicial review process.‎9

Venue for Enforcement

OBEX’s final argument hinged on the fact that the arbitrators had previously held a ‎hearing in Pennsylvania.  Thus, argued OBEX, the tribunal was not sitting in in the Southern ‎District of New York because § 7 did not permit the tribunal to sit in more than one district.  The ‎Court rejected that argument:‎

We agree with WNIC that “[t]he fact that the [arbitration panel] once also sat in ‎the Eastern District of Pennsylvania, in connection with another summons, is of no ‎moment.”‎10 

The Court observed that the parties’ agreement stipulated that the arbitration would take place in ‎New York, OBEX was summoned to appear in New York, and the hearing proceeded in New ‎York without OBEX’s attending, at which time the arbitration tribunal granted WNIC leave to ‎seek enforcement of the summonses.  Therefore, for the purpose of the summonses in issue, the ‎arbitrators were sitting in the Southern District of New York and the summonses were properly ‎issued.‎


1 9 U.S.C. § 7.‎
2 See Life Receivables Trust. v. Syndicate 102 at Lloyd’s of London, 549 F.3d 210, 215-16 (2d Cir. 2008) ‎‎(recognizing the “growing consensus” that “the arbitrator’s subpoena authority under FAA §7 does not include the ‎authority to subpoena nonparties or third parties for prehearing discovery even if a special need or hardship is ‎shown.”).  But see In re Sec. Life Ins. Co. of Am., 228 F.3d 865, 870-71 (8th Cir. 2000) (holding implicit in an ‎arbitration panel’s power to subpoena relevant documents for production at a hearing is the power to order the ‎production of relevant documents for review by a party prior to the hearing).‎
3 9 U.S.C. § 7.‎
4 No. ‎19-225-CV‎, 2020 WL 2092597 (2d Cir. May 1, 2020).‎
5 ‎867 F.3d 321 (2d Cir. 2017)‎.‎ 6 Washington Nat’l Ins. Co., 2020 WL 2092597, at *7 (quoting Washington Nat’l Ins. Co. v. Obex Grp. LLC, No. 18 ‎CV 9693 (VB), 2019 WL 266681, at *5 (S.D.N.Y. Jan. 18, 2019)).
7 Washington Nat’l Ins. Co. v. Obex Grp. LLC, No. 18 CV 9693 (VB), 2019 WL 266681, at *5 (S.D.N.Y. Jan. 18, ‎‎2019) ‎(quoting Shasha for Violet Shuker Shasha Living Trust. v. Malkin, No. 14-cv-9989 (AT) (RWL), 2018 ‎WL ‎‎3323818, at *5-6 (S.D.N.Y. July 5, 2018))‎.‎ 8 Washington Nat'l Ins. Co., 2020 WL 2092597, at *7 (quoting 9 U.S.C. §7). ‎ 9 Id. at *10 (internal quotations and citations omitted).‎
10 Id.