Party in Arbitration Sanctioned for Issuing Federal Subpoena Using Caption of Stayed Action

The lawsuit Kenney, Becker LLP v. Kenney, 2008 U.S. Dist. LEXIS 19795 (S.D.N.Y. March 6, 2008), was placed on the suspense calendar when the parties were ordered to arbitration. Unknown to the defendant or the arbitrator, plaintiffs’ counsel unilaterally issued a subpoena using the caption of the federal action to compel the defendant’s bank to appear with the defendant’s banking records at the first day of the arbitral hearing. Judge Jed S. Rakoff imposed sanctions (in the form of attorneys' fees incurred in bringing the sanctions motion) under Fed.R.Civ.P. 45 and the inherent power of the court. The short opinion has several noteworthy holdings:

1. Party’s Standing to Seek Sanctions under Rule 45. Even though the text of Rule 45 appears to contemplate that sanctions will be awarded to compensate the person subject to the subpoena, “plaintiffs have pointed to no source for the proposition that a party not subject to a subpoena may seek sanctions.” The Court noted, and cited multiple cases for the proposition, that the defendant would have standing to quash the subpoena because his personal banking records were sought. In all events, there was clearly inherent power to sanction.

2. Stay Precludes Subpoena. Because “the Court had fully stayed this case pending arbitration and placed it on the suspense calendar .. it was inappropriate for plaintiffs to take any action under the purported authority of this Court in this case while the arbitration was still pending.”

3. Under the FAA, Only Arbitrators May Issue Subpoenas. “[U]nder the Federal Arbitration Act, which governs the arbitration, ... only arbitrators - and not parties to an arbitration - have the authority to issue subpoenas. See NBC v. Bear Stearns & Co., 165 F.3d 184, 187 (2d Cir. 1999) (holding that section 7 of the Federal Arbitration Act, which ‘provides statutory authority for invoking the powers of a federal district court to assist arbitrators in obtaining evidence,’ ‘explicitly confers authority only upon arbitrators; by necessary implication, the parties to an arbitration may not employ this provision to subpoena documents or witnesses.’)”

4. Notice of Subpoena Mandatory. “[E]ven if (contrary to the fact) the subpoena had been properly issued under Rule 45, plaintiffs failed to give prior notice of the subpoena to defendant, as required by Rule 45(b)(1). See generally Schweizer v. Mulvehill, 93 F. Supp. 2d 376, 411 (S.D.N.Y. 2000) (holding that Rule 45 ‘require[s] that notice be given prior to the issuance of the subpoena, not prior to its return date’).” While labeling the plaintiffs’ contrary arguments “completely meritless,” the Court did not hold that, if this subpoena were properly characterized as a trial subpoena, notice would still have been necessary. It would be surprising to see a holding that the notice obligation does not apply to trial subpoenas.

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