United States District Court, E.D. Wisconsin
ORDER ADOPTING JUDGE DUFFIN'S RECOMMENDATION
(DKT. NO. 18) AND DISMISSING CASE
PAMELA PEPPER, UNITED STATES DISTRICT JUDGE
November 19, 2018, the plaintiff filed a complaint asking the
court to quash a subpoena it had received from an arbitration
panel of the Financial Industry Regulatory Authority, and to
declare the subpoena unauthorized and unenforceable. Dkt. No.
1. The plaintiff also filed a motion to quash the subpoena.
Dkt. No. 2. The defendants answered the complaint, dkt. no.
8, and filed a cross motion to enforce the subpoena, dkt. no.
9. On January 23, 2019, this court referred the case to
Magistrate Judge William E. Duffin for a recommendation. Dkt.
No. 12. Post-briefing, Judge Duffin heard oral argument from
the parties. Dkt. No. 16. Five days later, he issued an order
and report, concluding that the arbitrator did not have the
authority to issue the subpoena; he granted the motion to
quash, and recommended that the court dismiss the complaint
as moot. Dkt. Nos. 17-18. Neither party objected.
Federal Rule of Civil Procedure 72(b), if a party does not
object to a magistrate judge's report and recommendation,
the district court reviews the recommendation for clear
error. Fed.R.Civ.P. 72(b); Johnson v. Zema Sys.
Corp., 170 F.3d 734, 739 (7th Cir. 1999) (citations
omitted). This court decides only whether Judge Duffin's
conclusions are clearly erroneous. They are not.
Duffin first considered whether he had subject-matter
jurisdiction. Dkt. No. 17 at 3. Noting that §7 of the
Federal Arbitration Act, 9 U.S.C. §7, allowed a party
seeking enforcement of an arbitrator's subpoena to do so
only in the district in which the arbitrators (or the
majority of them) sat, and that the subpoena was issued in
Chicago (which is in the Northern District of Illinois),
Judge Duffin held a hearing to find out where the arbitrators
would be sitting. Id. Learning that that the
arbitration would take place here in the Eastern District of
Wisconsin, Judge Duffin was satisfied that venue was proper
(although he observed that §7 of the FAA authorized only
the issuer of the subpoena to file an action seeking
enforcement; here the recipient of the subpoena
filed to quash the subpoena).
venue question answered, Judge Duffin then turned to whether
he- a federal district court-had subject-matter jurisdiction
to decide an action to enforce an arbitrator's subpoena.
Id. at 4. The plaintiff had alleged that the court
had diversity jurisdiction, but Judge Duffin noted that the
complaint hadn't identified the citizenship of all the
members of the plaintiff, an LLC. Id. He learned at
the hearing that the plaintiff had two members, both citizens
of Wisconsin, id., and while Judge Duffin didn't
mention it in his recommendation, the complaint indicates
that the defendant is a New Jersey citizen, dkt. no. 1 at 2.
The trickier question was whether the jurisdictional amount
prong of the diversity test had been satisfied, given that
the plaintiff was seeking declaratory relief. Dkt. No. 17 at
4-5. After discussing several ways of valuing the relief the
plaintiff was requesting, Judge Duffin concluded that the
defendant's ability to prove its claim might be impacted
by the information it sought through the subpoena, and the
parties appeared to agree that that claim involved at least
$75, 000. Id. at 5. Accordingly, Judge Duffin
concluded that the court has diversity jurisdiction under 28
U.S.C. §1332(a). Id. That conclusion was not
to the merits, Judge Duffin construed the complaint as an
action under §7 of the FAA, and noted a split in the
circuit courts of appeal “as to whether an arbitrator
may compel a non-party to produce documents in advance of a
hearing.” Id. at 7. Judge Duffin observed that
the Sixth and Eighth Circuits had enforced such subpoenas,
while the Second and Third Circuits had declined to find such
a “power-by-implication.” Id. at 8
(comparing Am. Fed'n of TV and Radio Artists v.
WJBK-TV, 164 F.3d 1004, 1009 (6th Cir. 1999) and
Sec. Life Ins. Co. of Am. v. Duncanson & Holt (in Re
Sec. Life Ins. Co. of Am.), 228 F.3d 865, 869 (8th Cir.
2000) with Hay Grp., Inc. v. E.B.S. Acquisition
Corp., 360 F.3d 404, 408 (3d Cir. 2004); Life
Receivables Tr. v. Syndicate 102 at Lloyd's of
London, 549 F.3d 210 216 (2d Cir. 2008)).
Duffin recounted that while the Seventh Circuit has not
addressed the issue, district courts within this circuit have
adopted the Second and Third Circuit reasoning. Id.
at 9 (citing Ware v. C.D. Peacock, Inc., No. 10 C
2587, 2010 WL 1856021 at *3 (N.D. Ill. May 7, 2010);
Matria Healthcare, LLC v. Duthie, 584 F.Supp.2d
1078, 1083 (N.D. Ill. 2008). Judge Duffin agreed with the
reasoning employed by those courts. Id. at 9.
Quoting the language of §7, he noted that it gave
arbitrators the ability to summon witnesses to appear before
the arbitration panel, and to bring documents or other
evidence with them. Id. at 6-7. He agreed with the
Second and Third Circuits (and, to a degree, the Fourth) that
the statute said nothing about an arbitrator's ability to
demand production of documents prior to the
arbitration hearing, and concluded that “in the face of
an unambiguous statute, it is inappropriate for a court to
read in an implied power simply because in the court's
judgment it may make good sense to include such
authority.” Id. at 9 (citing Life
Receivables, 549 F.3d at 216; Hay, 360 F.3d at
409). He reasoned that arbitration was an attractive
alternative to litigation in part because of more limited and
truncated procedural requirements; when parties choose to
take advantage of those more truncated requirements, they
must forego some of the more extensive procedures afforded by
litigation, such as extensive, fulsome discovery.
Id. at 9-10.
Duffin observed that the subject subpoena required Next Level
to produce documents in advance of an evidentiary hearing.
Id. at 11. Given his prior conclusion about the
arbitrator's statutory authority to issue such a
subpoena, he concluded that the subpoena was not authorized
by 9 U.S.C. §7. Id. Judge Duffin denied the
defendant's motion to enforce the subpoena, denied as
moot the plaintiffs motion to quash the subpoena and
recommended that this court dismiss the complaint as moot.
Id. at 13.
Duffin employed reasoning adopted by three appellate courts
and followed by other district courts within the Seventh
Circuit. The reasoning is based on a reading of the plain
language of the FAA. His conclusions were not clearly
court ADOPTS Judge Duffin's
recommendation. Dkt. No. 18.
court ORDERS that this case ...