Dynegy Midstream Services, Lp, Also Known as Dms v. Trammochem, Division of Transammonia, Inc., A.P. Moller (Maersk Gas Carriers) and Igloo Shipping, A/s, Docket No. 05-3544-Cv

Citation: 451 F.3d 89Docket: 89

Court: Court of Appeals for the Second Circuit; June 13, 2006; Federal Appellate Court

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Respondents-appellees are involved in an arbitration case in New York, where arbitrators issued a subpoena for petitioner-appellant Dynegy Midstream Services, LP (DMS) to produce documents and electronic data. DMS ignored the subpoena, prompting respondents to file a motion to compel compliance in the Southern District of New York. The district court granted the motion despite DMS's objection regarding lack of personal jurisdiction. DMS then appealed the decision.

The court determined that an order compelling compliance with an arbitrator's subpoena is a final order for appellate jurisdiction. It ruled that the Federal Arbitration Act does not allow for nationwide service of process, leading to the conclusion that the district court lacked personal jurisdiction over DMS. Consequently, the court found it unnecessary to consider whether the Act permits documents-only subpoenas to third parties.

Background details indicate that Trammochem chartered a vessel from A.P. Moller and Igloo Shipping for transport, which included an arbitration clause mandating arbitration in New York. A dispute arose over cargo contamination, allegedly linked to DMS's shore-flare system. A.P. Moller sought to involve DMS in the arbitration, but DMS declined, citing insufficient preparation time and a strategic desire to limit its involvement. Following the issuance of the subpoena, which was served to DMS's registered agent in Houston, DMS again refused compliance, leading to the motion to compel in court. It is noted that DMS has no contacts with New York.

Jurisdictional issues arise regarding the subpoena power of arbitrators under the Federal Arbitration Act (FAA). Section 7 of the FAA allows arbitrators to summon witnesses and compel the production of evidence, with enforcement by the district court where the arbitration occurs. Section 16 permits appeals from final arbitration decisions. Although neither party disputes appellate jurisdiction, the court is obligated to assess it independently. A prior case raised questions about whether an order compelling compliance with an arbitrator's subpoena qualifies as a final order for appeal. This court concludes that such an order is final and immediately appealable if it resolves all issues before the district court. 

The FAA's Section 16 defines a final decision as one that concludes the litigation on its merits. Generally, an order to compel compliance with a subpoena is not considered final and thus not immediately appealable. Instead, the subpoenaed party must defy the enforcement order, face contempt, and then appeal the contempt order, which is deemed final. This approach applies equally to non-parties, aimed at maintaining the continuity of the litigation process without interruption from appeals regarding subpoena enforcement.

The enforcement of agency subpoenas differs from standard civil, criminal, and grand jury proceedings as they can be appealed immediately without the necessity of a contempt order. This is due to the self-contained nature of agency subpoena enforcement, which does not impede further judicial inquiry. Although there are arguments for requiring a contempt finding before appeal, Section 7 of the FAA allows a district court to address non-compliance through contempt powers. This provision indicates that the court can simultaneously compel attendance and punish for contempt, rather than following a sequential approach. Furthermore, the impact of appeals on arbitration speed is uncertain; however, in the current case, arbitration has continued despite non-participation by one party. The analysis concludes that enforcement of arbitration subpoenas resembles that of administrative subpoenas, as the proceedings are self-contained and fully resolved upon the court's compliance order.

The Seventh Circuit recognizes appellate jurisdiction over orders enforcing an arbitrator's subpoena if the proceeding is independent, defined as one where a party seeks a court order solely under the Federal Arbitration Act (FAA). In contrast, an embedded proceeding arises during ongoing litigation in district court. Although the Supreme Court's ruling in Green Tree questioned this independent-embedded distinction, it indicated that an independent proceeding, which resolves all claims, qualifies as a final order under FAA Section 16. In the present case, the district court's order compelled compliance with a subpoena, concluded the litigation, and instructed the case's closure, thus establishing it as a final order eligible for appellate review.

Regarding personal jurisdiction, the district court's assertion is reviewed de novo. Proper service of summons is necessary for a federal court to exercise personal jurisdiction. The appellees argue that FAA Section 7 allows for nationwide service, but this was rejected. Consequently, the district court lacked personal jurisdiction over DMS to enforce the subpoena. FAA Section 7 stipulates that an arbitrator's summons must be served similarly to subpoenas for court appearance, with enforcement governed by Federal Rule of Civil Procedure 45. This rule allows subpoenas to be served within the district of issuance or within 100 miles of specified locations, or where state law permits service for state court subpoenas.

Federal Rule of Civil Procedure 45(b)(2) establishes the default rule for subpoena service, allowing courts, upon proper application, to authorize service at other locations when permitted by U.S. statutes. Service and enforcement of subpoenas are geographically limited. Specifically, Rule 45(e) states that noncompliance with a subpoena may result in contempt, and typically, subpoenas for document production are issued by the district court where the production will occur. Similarly, Rule 37(a)(1) requires applications to compel discovery to be made in the district where discovery is taking place.

In the case discussed, a subpoena was issued by arbitrators rather than a court, requiring DMS to produce documents in Houston, compliant with Rule 45. Normally, such a subpoena would be enforced by the District Court for the Southern District of Texas. However, under Section 7 of the Federal Arbitration Act (FAA), subpoenas may be enforced by the district court where the arbitrators are located—in this instance, the Southern District of New York. 

The appellees argued that this analysis necessitates the Southern District of New York having jurisdiction over DMS to enforce the subpoena. However, federal district courts do not possess nationwide jurisdiction unless explicitly authorized by statute. When the defendant resides outside the forum state, personal jurisdiction rules of the forum state apply unless a federal statute allows national service. FAA Section 7 does not indicate any intention for nationwide service; instead, it suggests adherence to existing district court rules regarding subpoenas.

The absence of language in Section 7 that permits nationwide service contrasts with statutes that do allow for such jurisdiction. The conclusion is that FAA Section 7 does not authorize nationwide service of process, leading to the determination that the district court incorrectly asserted personal jurisdiction over DMS.

Appellees contend that the decision will yield an unreasonable outcome, where FAA Section 7 allows for the issuance of unenforceable subpoenas. They propose adopting a compromise from Amgen, Inc. v. Kidney Center, which permitted an attorney for a party to issue a subpoena enforceable by the district court where the non-party resided. The court rejects this, asserting no textual support for the Amgen compromise exists within the FAA. It reiterates that Section 7 grants authority solely to arbitrators and implies that parties cannot use it to subpoena third parties. The court also notes that Congress may have intentionally limited arbitration subpoena enforceability to protect non-parties from excessive involvement. The parties involved chose to arbitrate in New York despite the underlying contract’s connections to Texas, where DMS would be subject to subpoenas. The court emphasizes that the strong federal policy favoring arbitration does not extend jurisdiction over non-parties without a legal basis. Consequently, the court does not address the validity of documents-only subpoenas because it lacks personal jurisdiction over DMS. The decision of the district court is reversed, and the matter is remanded for a judgment consistent with this opinion.