Ninth Circuit addresses service of process in arbitral recognition actions
The United States Court of Appeals for the Ninth Circuit has issued its decision in Voltage Pictures, LLC v. Gussi, S.A. de C.V., 92 F.4th 815 (9th Cir. 2024), creating a circuit split on the issue of which federal rule should govern the service of an application to confirm an arbitration award under 9 U.S.C § 9 (Section 9) where the adverse party is a non-resident foreign person or entity.
The Ninth Circuit held last month that Federal Rule of Civil Procedure 5, and not Rule 4, should govern service in such circumstances, declining to follow the approach taken by the United States Court of Appeals for the Second Circuit in Commodities & Mins. Enter. Ltd. v. CVG Ferrominera Orinoco, C.A., 49 F.4th 802 (2d Cir. 2022), cert. denied, 143 S. Ct. 786, (2023).
Voltage Pictures concerned an action by Voltage seeking to confirm an arbitral award rendered following an arbitration between Voltage and Gussi S.A. de C.V., a Mexican corporation with its principal place of business in Mexico City. The arbitration concerned disputes arising from a distribution and license agreement. The agreement incorporated the Independent Film & Television Alliance (IFTA) Rules for International Arbitration, including a provision that the parties agreed to accept service in accordance with the IFTA Rules, and specifically the applicable law provision of the IFTA Rules, which states that “the laws of the State of California” “shall apply … to all arbitrations conducted under these rules.” Voltage Pictures, 92 F.4th at 820.
Following the arbitration, Voltage sought to serve Gussi with a petition to confirm the arbitral award and mailed a notice of motion to confirm the arbitral award and the accompanying motion papers to the attorneys who had represented Gussi in the underlying arbitration.
In response, Gussi filed a motion to quash service. Gussi argued that because Voltage’s petition was pending in federal court, federal procedural law – specifically FRCP Rule 4 – and not California law governed service of process, and seeking to dismiss Voltage’s motion to confirm the arbitral award.
In adjudicating the motion, the United States District Court for the Central District of California found that service of the motion to confirm by mail was improper under the agreement, in which “the parties agreed to service as allowed under California law,” which in turn did not permit service by mail on counsel with no return receipt. The District Court therefore ordered Voltage to complete service of the motion within 60 days.
The next day, Voltage mailed its notice of motion and accompanying papers to Gussi’s address in Mexico via Federal Express, return receipt requested. A few days later, Voltage received a returned receipt, signed by Silvia Torres, who had been designated by Gussi as its representative for service of process during the underlying arbitration. Voltage also personally served the papers upon Gussi, Inc., a Delaware corporation registered to do business in California that was owned by the same Mexican holding company as Gussi, and whose employees negotiated the agreement on behalf of Gussi.
Following Voltage’s efforts to re-serve Gussi, Gussi filed a second motion to quash service, arguing again that Federal Rules of Civil Procedure 4(h)(2) and 4(f) – not California law – applied to service of process, and that Voltage’s second effort to serve Gussi did not comply with Rule 4(h)(2).[1]
The District Court, however, disagreed, reaffirming its holding that California law governed service of the motion and finding that Voltage served Gussi pursuant to California state law when Voltage served Gussi Inc. Specifically, the District Court found that Gussi, Inc. was deemed to be Gussi’s “general manager” pursuant to § 416.10(d) of the California Code of Civil Procedure and § 2110 of the California Corporations Code, and so service on Gussi, Inc. was sufficient. On January 23, 2023, the District Court entered judgment confirming the arbitral award in all respects, and Gussi appealed.
The Ninth Circuit addressed, inter alia, whether the District Court was correct in ruling that California law governed service of Voltage’s notice of motion to confirm the arbitral award, and held that it was not. The court explained that while the parties to the agreement agreed to effectuate service “in accordance with the IFTA Rules,” the IFTA Rules merely provide that the parties agreed to accept service pursuant to any law, treaty, or convention (except for the Hague Convention) that applies to such motions in the prevailing party’s chosen forum. Id. at 825. Here, because Voltage filed its confirmation motion in federal court, it was required to comply with federal law governing service, not California state law.
The Ninth Circuit then analyzed whether Voltage had properly served Gussi consistent with federal law. The court began its analysis by noting that the Federal Arbitration Act (FAA), specifically 9 U.S.C. § 9, governs the procedure for confirmation of an arbitral award. Pursuant to Section 9, where an adverse party is a nonresident, the notice of the application shall be served by the US Marshal of any district within which the adverse party may be found in like manner as other processes of the court. However, where – as here – the adverse party is a foreign nonresident, the Ninth Circuit found that Section 9 could not apply, as the US Marshal service could not serve adverse parties within a US judicial district where such a party was located physically outside the United States.
The question remaining then was what rule should serve as an appropriate gap filler in such circumstances. The Ninth Circuit recognized that other federal courts, including the Second Circuit, had determined that a motion or petition to confirm an arbitral award pursuant to Section 9 of the FAA should be served in accordance with Federal Rule of Civil Procedure 4,[2] which governs the service of a summons. The Ninth Circuit, however, disagreed with these decisions, reasoning that because Section 6 of the FAA requires that an application to confirm an arbitral award should be heard “in the manner provided by law for the making and hearing of motions,” the applicable federal rule governing service of process should be Rule 5(b), which governs the service of motions. The Ninth Circuit explained that imposing the heightened requirements under Rule 4 for serving a summons would be inconsistent with Congress’s intent when it enacted the FAA.
The Ninth Circuit’s decision in Voltage answers an important procedural question concerning whether the service provision set forth under Chapter 1 of the FAA – which is usually understood to govern domestic arbitrations – should apply to applications to confirm an arbitral award against foreign persons or entities. It also creates a circuit split with the Second Circuit on the issue of which federal rule should supply the appropriate gap filler to govern service in such circumstances: Rule 4 governs in the Second Circuit, while Rule 5 governs in the Ninth Circuit. As a result, and until the circuit split is resolved, parties seeking to confirm foreign arbitral awards against foreign nonresident persons or entities will need to carefully consider which of the Federal Rules to follow when commencing service.
[1] FRCP Rule 4(h)(2) permits service on defendants outside of the United States in any manner used to serve individuals, except for personal delivery (FRCP Rule 4(f)). Service can therefore be (1) by any internationally agreed means of service that is reasonably calculated to give notice; (2) if there is no such means, by a method reasonably calculated to give notice including (a) as prescribed by the foreign country’s law; (b) as the foreign authority directs; or (c) unless prohibited, by using any form of mail that the clerk addresses and sends to the individual and that requires a signed receipt.
[2] Reed & Martin, Inc. v. Westinghouse Elec. Corp., 439 F.2d 1268, 1277 (2d Cir. 1971); Commodities & Mins. Enter. Ltd. v. CVG Ferrominera Orinoco, C.A., 49 F.4th 802, 812 (2d Cir. 2022), cert. denied, 143 S. Ct. 786 (2023); see also Technologists, Inc. v. MIR's Ltd., 725 F. Supp. 2d 120, 127 (D.D.C. 2010).
