Next Level Planning & Wealth Management, LLC v. Prudential Insurance Company of America et al

Filing 19

ORDER DISMISSING CASE signed by Judge Pamela Pepper on 4/3/2019. 18 Judge Duffin's recommendation ADOPTED; case DISMISSED. (cc: all counsel)(cb)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN

NEXT LEVEL PLANNING & WEALTH MANAGEMENT, LLC,
Plaintiff,
v.

Case No. 18-mc-65-pp

PRUDENTIAL INSURANCE CO. OF AMERICA,
and PRUCO SECURITIES, LLC,
Defendants.
ORDER ADOPTING JUDGE DUFFIN’S RECOMMENDATION (DKT. NO. 18)
AND DISMISSING CASE

On 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.

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Under 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.
Judge 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).
The 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
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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 clearly erroneous.
Moving 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)).
Judge Duffin recounted that while the Seventh Circuit has not addressed
the issue, district courts within this circuit have adopted the Second and Third
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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.
Judge 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,
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denied as moot the plaintiff’s motion to quash the subpoena and recommended
that this court dismiss the complaint as moot. Id. at 13.
Judge 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 erroneous.
The court ADOPTS Judge Duffin’s recommendation. Dkt. No. 18.
The court ORDERS that this case is DISMISSED.
Dated in Milwaukee, Wisconsin this 3rd day of April, 2019.
BY THE COURT:
_____________________________________
HON. PAMELA PEPPER
United States District Judge

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