Second Circuit Accepts Appeal of Subpoena Order and Holds That FAA Does Not Authorize Nationwide Service of Process

The Second Circuit Court of Appeals held that Section 7 of the Federal Arbitration Act (“FAA”) does not authorize nationwide service of process, noting that “not even the strong federal policy favoring arbitration can lead to jurisdiction over a non-party without some basis in federal law.”

In Dynegy Midstream Services v. Trammochem, No. 05-3544-CV, 2006 WL 1612722 (2nd Cir. June 13, 2006), arbitrators in New York issued a subpoena directing Dynegy Midstream Services (“DMS”) to produce documents and electronic data. DMS was not a party to the arbitration and had no contacts with New York. The subpoena was served on the company’s registered agent in Houston. When DMS failed to comply with the subpoena, the Southern District of New York ordered DMS to comply.

On appeal, the Court first considered the issue of appellate jurisdiction sua sponte. Section 16 of the FAA allows an appeal from “a final decision with respect to an arbitration that is subject to this title.” After noting that “[t]he litigation to enforce the subpoena [was] an entirely self-contained court proceeding, and the court’s order compelling compliance completely disposed of the case, leaving nothing more for the court to do but enforce the judgment,” the Court concluded that the order was a “final decision” within the meaning of Section 16.

The Court then considered whether Section 7 authorizes nationwide service of process. Noting that Section 7 requires an arbitrator’s summons to “be served in the same manner as subpoenas to appear and testify before the court,” the Court looked to Rule 45 of the Federal Rules of Civil Procedure, which governs the service and enforcement of subpoenas to appear before the federal courts.

The Court found that the territorial limits of Rule 45 apply to service of process under the FAA because “nothing in the language of FAA Section 7 suggests that Congress intended to authorize nationwide service of process.” Accordingly, the Court found that the district court had erred in asserting personal jurisdiction over DMS.

Section 7 provides for enforcement by “the United States district court for the district in which [the] arbitrators, or a majority of them, are sitting.” Therefore, the Court’s holding renders unenforceable an arbitrator’s subpoena directed to a non-party outside the territorial limits of this district. The Court acknowledged “this gap in enforceability” but offered little sympathy, noting that the parties in this case “chose to arbitrate in New York even though the underlying contract and all of the activities giving rise to the arbitration had nothing to do with New York.”