Tenth Circuit: Federal Courts Have Authority to Order Arbitration Outside Their District

The Tenth Circuit Court of Appeals held that section 4 of the Federal Arbitration Act (“FAA”), which limits courts to ordering arbitration “within the district,” is a waivable venue provision, not a jurisdictional prerequisite. This empowers court to order arbitration in another district unless the parties object and raise venue as a defense.

In 1mage Software, Inc. v. Reynolds and Reynolds Co., 2006 WL 2424782 (10th Cir. Aug. 23, 2006), 1mage licensed imaging software to Reynolds. The licensing agreement contained an arbitration clause specifying Ohio as the venue.

Following termination of the agreement, 1mage sued Reynolds in federal court in Colorado, alleging copyright infringement and misappropriation of trade secrets. Reynolds moved to compel arbitration pursuant to the agreement. The district court granted the motion, and the parties proceeded with arbitration in Ohio, at which Reynolds ultimately prevailed.

The issue on appeal was whether the district court lacked jurisdiction to order arbitration in Ohio. In Ansari v. Qwest Communications Corp., 414 F.3d 1214 (10th Cir. 2005), the Tenth Circuit adopted the majority view of section 4 of the FAA, holding that where parties have agreed to arbitrate in a particular forum, only a district court in that forum has authority to compel arbitration.

The precise question before the Court was whether the Ansari rule is a jurisdictional prerequisite, meaning the district court was without power to rule on Reynolds’ motion to compel. The Court concluded that Ansari established a venue rule rather than a jurisdictional prerequisite.

In reaching its conclusion, the Court cited Third and Seventh Circuit precedent holding that section 4 of the FAA is a venue provision, while noting it makes sense to treat section 4 as a venue provision since the FAA itself does not confer subject matter jurisdiction. The import of the Court’s conclusion was that 1mage, by failing to raise the issue in district court, waived any objection.

The Tenth Circuit’s interpretation of section 4 is in harmony with most other circuits. See, e.g., Inland Bulk Transfer Co. v. Cummins Engine Co., 332 F.3d 1007, 1018 (6th Cir. 2003); but see Dupuy-Busching Gen. Agency, Inc. v. Ambassador Ins. Co., 524 F.2d 1275, 1276, 1278 (5th Cir.1975) (allowing court to order arbitration outside district where party trying to avoid arbitration commenced the underlying action).

The territorial limitations of section 4 may drive courts to order arbitration in a venue not contemplated by the parties. For example, in Filimex, L.L.C. v. Novoa Investments, L.L.C., No. CV 05-3792-PHX-SMM, 2006 WL 2091661 (D. Ariz. July 17, 2006), the court cited those limitations as the reason for ordering arbitration in Arizona even though the agreement called for arbitration in Los Angeles.