Second Circuit Enhances Enforcement of Arbitration Subpoenas in Federal Court

May 8, 2020

The U.S. Court of Appeals for the Second Circuit (covering New York, Connecticut and Vermont) has issued an opinion that enhances the effectiveness of arbitration as an alternative to litigation. This ruling makes it easier to use the federal courts to enforce subpoenas issued by arbitration panels.

A common concern about including an arbitration agreement in a contract is whether doing so gives up the ability one would have in court litigation to compel third parties to produce documents or testify. The Federal Arbitration Act (FAA) authorizes federal courts to enforce arbitration subpoenas when the parties to the arbitration have an independent basis to come into federal court. For this to occur, either a federal law must be at issue in the arbitration (i.e., federal labor law or copyright claims) or there must be at least $75,000 at stake between “diverse” parties, meaning that all the parties on one side of the case are citizens of different states from all the parties on the other side. Historically, enforcing subpoenas issued in arbitration in federal court where there is no basis for federal jurisdiction between the arbitration party and the non-party receiving the subpoena, is sometimes challenging.

On May 1, 2020, in Washington Nat'l Ins. Co. v. Obex Grp. LLC, Case No. 19-225-CV (WNIC), the Second Circuit ruled that federal courts can enforce a subpoena in arbitration so long as the party bringing the enforcement suit is diverse from the non-parties, even if there is not complete diversity among all parties to the arbitration. The court also held that the $75,000 minimum is satisfied if that much or more is at stake in the underlying arbitration and the enforcing party claims the subpoenaed information is relevant to obtaining the arbitration award. Furthermore, in a nod to the powers of arbitrators, the Second Circuit held that federal courts do not have to consider objections raised by the non-parties, as those should be resolved by the arbitrators when issuing the subpoenas. Accordingly, the Second Circuit has made it easier to bring a proceeding in federal court to enforce an arbitration subpoena and, at the same time, has limited the bases upon which the federal court might decline enforcement.

This is an interesting decision on an issue that is likely to continue to be litigated in the Second Circuit and the federal courts, as some courts in the other federal circuits have come to decisions contrary to the Second Circuit’s view. However, this decision in Washington Nat'l Ins. Co. will make arbitration a more attractive option for dispute resolution, at least in the Second Circuit, by broadening the situations in which the federal courts can and will enforce arbitration subpoenas. It will give parties greater comfort given the option to use the federal courts if they need to compel a non-party to provide information.

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Rosner, Joel H. Counsel Counsel 212.216.1187 VCard
Schoenstein, Richard C. Partner and Co-Chair of Securities and Financial Services Litigation Group Partner and Co-Chair of Securities and Financial Services Litigation Group 212.216.1120 VCard

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