Presented with an argument that the court lacked subject matter jurisdiction, the Southern District of New York clarified the diversity, amount in controversy, and “place of sitting” requirements under Section 7 of the FAA – which relates to compelling the attendance of witnesses at arbitration.
With regard to diversity, the court held that, when presented with a Section 7 petition to enforce arbitration summonses, the court need not “look through” the petition to the citizenship of the parties to the underlying arbitration, but rather, should look to the citizenship of the parties to the instant enforcement action, to determine whether diversity jurisdiction exists. The court distinguished a Section 7 petition from petitions brought under Section 4 and Section 10, where courts may look through the petition to determine federal question jurisdiction, but are not required to do so. The court noted that Section 7 petitions, unlike Section 4 and 10 petitions, involve different parties than those in the underlying arbitration.
As to the “amount in controversy” requirement, the court recited the well-established principle that the amount is measured by “the value of the object of the litigation.” “The amount in controversy is not necessarily the money judgment sought or recovered, but rather the value of the consequences which may result from the litigation.” The petitioner here sought at least $134 million in damages in the underlying arbitration. The court noted that, even if the documents responsive to the summons pertained to only a small fraction of the amount sought in the arbitration, the $75,000 amount in controversy requirement would nevertheless be satisfied.
Finally, regarding Section 7’s requirement that a party petition a United States district court “for the district in which such arbitrators, or a majority of them, are sitting,” the court refused to look to the arbitrators’ individual business addresses to determine the arbitrators’ “place of sitting.” Rather, the court looked to the location the arbitrators had selected for the Section 7 hearing. Furthermore, the court stated that the arbitrators are not restricted to a single location. Here, the arbitrators had summoned nonparties to appear for hearings in both New York and Philadelphia. Therefore, the court held that the Southern District of New York and the Eastern District of Pennsylvania were the arbitrators’ “place of sitting” for any contest of the respective Section 7 summonses.
Washington National Insurance Co. v. Obex Group, LLC, Case No. 18-CV-9693 (USDC S.D.N.Y. Jan. 18, 2019).