No More Third Party Discovery in Arbitrations

Aixtron, Inc. v. Veeco Inst. Inc., H045126 (D6 Jul. 16, 2020)

Clarifying an issue that has long been unsettled, the Court of Appeal holds that, except under narrow circumstances, arbitrators are not authorized to issue or enforce third-party subpoenas for pre-hearing discovery.

It’s an employment arbitration. Old Employer says employee took its confidential information and gave it to his New Employer. Old Employer serves New Employer with a pretty invasive subpoena, demanding inspection of all sorts of computers and other stuff like that. New Employer objects, but the arbitrator ultimately says the subpoena is enforceable.

New Employer petitioned the court and sought de novo review under Berglund v. Arthroscopic & Laser Surgery Center of San Diego, L.P., 44 Cal. 4th 528 (2008), which provides a non-partie to arbitration, who hasn’t contractually consented to the jurisdiction of an arbitrator, a right to “full judicial review” of arbitrator’s discovery order. The trial court denied the petition. Old Employer then petitioned to enforce the award, which was granted. NE appeals from both orders.

There’s two threshold questions. First, a question about the record. OE’s appendix contains some declarations from forensic experts that weren’t in the trial court record. That’s not proper. Nor can the court take judicial notice of them because they are contested. Same goes for a request by NE to take judicial notice of a similar declaration.

There’s also an issue about appealability. An order denying a petition to vacate an arbitrator’s discovery order against a third party or granting a petition to enforce such an order isn’t an enumerated in Code of Civil Procedure § 904.1 as appealable order. But the decisions on the petition did effectively resolve all controversy between NE and OE. Thus they are the functional equivalent of final judgments and appealable under § 904.1(a).* A third party’s right to litigate through a final appeal is also consistent with the “full judicial review” afforded by Berglund.

Moving on to the merits, there’s some dispute about whether the case is governed by the FAA or the CAA. But it doesn’t matter in the end. In 2017, the Ninth Circuit held that § 7 of the FAA doesn’t authorize arbitrators to compel the production of non-parties' testimony or documents prior to the commencement of an arbitration hearing. CVS Health Corp. v. Vividus, LLC, 878 F.3d 703 (9th Cir. 2017). And since the Court finds that same rule applies in California, albeit for different reasons, the choice of law is irrelevant.

The CAA includes a provision that permits discovery mirroring that available in state court. See Code Civ. Proc. § 1283.05(a). But that provision only applies to PI cases. § 1283.1(a). Or when the parties specifically agree that state-court-scoped discovery applies. § 1283.1(b).

In a cogent statutory analysis, the court explains that the CAA’s subpoena provision, § 1282.6, says that arbitration parties can served third party discovery subpoenas only in cases where § 1283.05 applies. The parties can also issue trial testimony preservation subpoenas under § 1283, and both the parties and the arbitrator can sign subpoenas for the attendance of witnesses or the production of documents at the arbitration hearing. Id. But unless § 1283.05 is in play, discovery subpoenas—whether deposition or duces tecum—are off the table.

Here, the parties here did not specifically agree to the application of § 1283.05. Nor did the fact that they agreed to arbitrate under the JAMS rules constitute such an agreement. The JAMS rules addressed to subpoenas do not provide for third party discovery. Instead, they—consistent with the FAA and § 1282.6—permit the arbitrator to issue subpoenas for attendance or production of documents at the arbitration hearing.

And even if the JAMS rules did permit discovery subpoenas, NE never agreed to litigate under the JAMS rules. In the absence of consent, NE could only be forced to participate in arbitration discovery to the extent authorized by a statute, such as § 1283.05. Which authority was lacking in this case.

Reversed.

*The court cites Brun v. Bailey, 27 Cal. App. 4th 641 (1994) as stating that an order resolving a nonparty discovery dispute is an appealable order, since it’s the equivalent of a final judgment between the party and the nonparty. But Brun—which dealt with the payment of witness fees—doesn’t clearly state that point, which has been unclear in the case law for a long time. The logic of appealability analysis in this case, however, should apply equally to a superior court order compelling a nonparty to produce discovery, since that is a final resolution of the dispute.