Disputing would like to thank Paul Lurie, partner at Schiff Hardin, LLP’s Chicago office for bringing In re the Subpoena Issued to Beck’s Superior Hybrids, Inc., No. 29A05-1008-MI-489, (Ind. App. January 12, 2011) to our attention.
In the case, the Court of Appeals of Indiana held that Section 7 of the Federal Arbitration Act (“FAA”) preempted an Indiana discovery statute. Here are the facts:
In 2002, Monsanto Company and Monsanto Technology, LLC (collectively, “Monsanto”) entered into two seed license agreements with Pioneer Hi-Bred International and its parent company, E.I. DuPont de Nemours & Company (collectively, “DuPont”). Both agreements contained an arbitration provision which stated any disputes would be resolved by an arbitration proceeding in New York, NY. In May 2009, Monsanto filed a demand for arbitration against DuPont in New York City. In its claim, Monsanto alleged “DuPont was engaged in a sublicensing scheme whereby DuPont distributed Monsanto’s ‘Roundup Ready technology’ to unaffiliated third parties throughout the United States, including Beck’s, an Indiana corporation,” at a lower price than Monsanto sold its seed to third parties.
After a New York arbitration panel was formed, Monsanto requested that the panel issue a subpoena duces tecum ordering “Beck’s to appear at a preliminary hearing, in Indiana, before one of the panel members and to produce business records relating to Monsanto’s arbitration claim.” In February 2010, Monsanto served Beck’s with the arbitration panel’s subpoena. Beck’s refused to comply with the subpoena because the FAA “required Monsanto to seek enforcement of its nonparty subpoena in ‘the United States district court for the district’ in which the arbitration panel was sitting, the Southern District of New York.” New York courts lacked both subject matter jurisdiction and personal jurisdiction over Beck’s, however, so Monsanto filed a “petition to assist in the Hamilton Superior Court, pursuant to Indiana Trial Rule 28(E), to compel Beck’s to comply with the subpoena.” In August 2010, the trial court ordered Beck’s to comply with the panel’s subpoena and appear before a single arbitrator in Atlanta, Indiana to provide testimony regarding “authentication of business records.” Beck’s appealed the trial court’s order on the grounds that Section 7 of the FAA preempted Indiana Trial Rule 28(E).
The Indiana Appeals Court began its review by declaring it was undisputed that the New York arbitration was governed by the FAA and that Section 7 applied to the subpoena at issue. Next, the court stated “neither express preemption nor field preemption applies here.” According to the court, “Beck’s contends that Indiana Trial Rule 28(E), as applied, is in conflict with the accomplishment and execution of Section 7’s purposes and objectives.”
According to the court,
Case law from the federal courts of appeals makes clear that the type of subpoena issued by the arbitration panel against Beck’s is authorized by Section 7. Specifically, in Hay Group, the Third Circuit held that an arbitrator may issue a Section 7 subpoena to a nonparty for the production of documents if the subpoena also requires the nonparty to appear.
….
The central question in this appeal is whether Section 7’s language that Monsanto must petition a federal district court for enforcement of the subpoena is a clear reflection of congressional intent and whether Monsanto’s use of Trial Rule 28(E) frustrates that intent. As discussed in more detail below, we hold that Section 7 is clear as written. Pursuant to its plain terms, Congress requires the enforcement of an arbitration panel’s nonparty subpoena to be brought in the federal forum. 9 U.S.C. § 7. This limited federal jurisdiction for enforcement is a reflection of Congress’ desire to keep arbitration simple and efficient, ‘to protect non-parties from having to participate in an arbitration to a greater extent than they would if the dispute had been filed in a court of law,’ and not to burden state courts with incidental enforcement procedures. See Dynegy, 451 F.3d at 96. As such, the attempt to use an Indiana trial rule when a federal forum is unavailable frustrates Congress’ intent to limit these petitions to the federal courts.
The Indiana Appeals Court continued,
Section 7 requires an arbitration panel’s nonparty subpoena to be enforced by “the United States district court for the district in which such arbitrators, or a majority of them, are sitting.” 9. U.S.C. § 7. The arbitration panel, or a majority of its members, is and will be sitting in New York City. Accordingly, if Monsanto needed to enforce the nonparty subpoena, then, by the plain text of Section 7, it needed to do so in the United States District Court for the Southern District of New York. Monsanto may not circumvent the express procedure outlined by Congress by ignoring Section 7 and instead applying for a Trial Rule 28(E) petition to assist in an Indiana trial court simply because Monsanto lacks federal jurisdiction under Section 7. See Dynegy, 451 F.3d at 94-96. That Monsanto lacked an independent basis for federal subject matter jurisdiction is not Beck’s problem. Monsanto agreed to arbitration, and it is the party chargeable with any negative results associated with that choice. Monsanto’s self-inflicted wounds do not give this court cause to ignore the plain text of Section 7.
The court then dismissed Monsanto’s argument that the Southern District of Indiana had jurisdiction over the dispute merely because the New York arbitral “panel agreed to ‘sit’ in Indiana for purposes of the preliminary hearing.” According to the court, “The suggestion that a district court in a district other than the district in which the arbitration panel is sitting could be the proper court under Section 7 was squarely rejected by the Second Circuit.” The court continued,
indulging Monsanto’s analysis one step further to assume that the Southern District of Indiana is the proper federal district under Section 7, Monsanto still did not ask the district court to enforce the subpoena. Instead, Monsanto asked an Indiana trial court to do so.
Next, the Appeals Court stated “Congress knows what a United States district court is, and we will not redefine that expression here to mean ‘any court.’” The court then rejected Monsanto’s assertion,
that Section 4’s language that a party ‘may petition any . . . district court which . . . would have jurisdiction under Title 28’ is equivalent to Section 7’s language that a party to arbitration, ‘upon petition the United States district court for the district in which such arbitrators, or a majority of them, are sitting may compel the attendance’ of a third-party. See 9 U.S.C. §§ 4, 7.
According to the court, “the language of Section 4 is not similar to the language of Section 7,” because Section 7 “requires no application of judicial power other than the mere enforcement of a subpoena,” and unlike with Section 4, “there is no risk that the federal judiciary will misapply the law of the states.”
Finally, the Indiana Appeals Court dismissed Monsanto’s argument that the panel’s authority to issue a subpoena implies they are also charged with the authority to enforce it by stating, “the Act does not grant greater authority to arbitration panels than it does to the United States district courts.” According to the court,
it would violate and conflict with congressional intent to expand enforcement jurisdiction to include the state courts, wherever they may be located. Nothing in the text of Section 7 suggests that Congress meant to authorize the courts of the fifty states to enforce the arbitration subpoena provisions of that statute. And without congressional authorization, a state statute or rule can neither restrict nor expand the operation and effect of a federal statute. To hold otherwise would stand the Supremacy Clause on its head.
The Court of Appeals of Indiana reversed the trial court and held Section 7 of the FAA preempted Indiana Trial Rule 28(E). The case was remanded with instructions to dismiss Monsanto’s petition.
Judge Baker dissented by stating,
I agree that if there were federal court jurisdiction over these parties, then Congress intended the federal district courts to be the exclusive venue in which an arbitrator’s subpoena may be enforced. But I simply cannot conclude that where, as here, there is no federal court jurisdiction, Congress intended to tie the hands of the arbitrators and the States in this fashion. If there is no federal court jurisdiction, then this is simply an intra-state dispute.
Judge Baker continued,
when there is federal court jurisdiction, the arbitrators are directed to a federal district court. But when there is no federal court jurisdiction, it obviously makes no sense to direct the arbitrators to a federal court, so the issue is left to the individual states to handle. As noted above, Indiana has decided to aid sister tribunals in matters of discovery enforcement. Consequently, I believe that the trial court herein had every right to order Beck’s to comply with the subpoena, and I would affirm.
According to a footnote in this case, although an Illinois trial court decided a similar request in Monsanto’s favor,
a Nebraska trial court denied a similar petition filed by Monsanto on two grounds. First, the Nebraska trial court concluded that the Nebraska law pursuant to which Monsanto had filed its petition was preempted by the Act. Second, the court stated that Section 7 of the Act required Monsanto to file its petition in the United States District Court for the Southern District of New York. Monsanto did not appeal that order.
What do you think? Did the Indiana Court of Appeals get it right?
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