Case Alert — An Arbitrator’s Power To Order Third Party Discovery Depends On The Applicable Arbitration Language

On July 16, 2020, the California Court of Appeal held in Aixtron v. Veeco Instruments, 52 Cal.App.5th 360, as an issue of first impression, that arbitrators do not have the statutory power to issue pre-hearing discovery subpoenas to third parties unless authorized by the applicable arbitration provision.

In Aixtron, an employee resigned from his position and began to work for a competitor.  The former employer initiated arbitration proceedings against the employee pursuant to an arbitration clause for, inter alia, data theft.  The arbitrator issued a pre-hearing discovery subpoena for the current employer’s business records.  The current employer sought judicial review of the arbitrator’s order compelling production of these records.  The Court of Appeal concluded that the arbitrator did not have the authority to issue pre-hearing subpoenas to third parties under either the California Arbitration Act (CAA) or the Federal Arbitration Act (FAA).

Specifically, Aixtron confirmed that the right to discovery under the CAA is limited.  Thus, California Code of Civil Procedure (CCP) section 1283.05 incorporates the California Discovery Act and authorizes discovery as if the arbitration “were pending before a superior court.”  However, this authorization is only conferred if: 1) the dispute arises out of claims for wrongful death or for personal injury; or 2) the arbitration provision so provides.  Because the arbitration provision In Aixtron did “not mention the California Discovery Act or section 1283.05, or even contain the word discovery,” the Court of Appeal held that the pre-hearing subpoenas were not authorized.

The right to discovery under the FAA is also limited.  Although there is a circuit split, the Ninth Circuit Court of Appeals has decided that the FAA does not allow an arbitrator to order a third party to produce documents as part of pre-hearing discovery.  See CVS Health Corp. v. Vividus, LLC,  878 F.3d 703, 706 (9th Cir. 2017).  Rather, the FAA gives arbitrators only two powers: 1) the power to compel the attendance of persons to appear as witnesses at the hearing; and 2) the power to compel persons to bring documents to the hearing.

Thus, arbitration provisions can create enforceable rights for full discovery by stating, for example, that the arbitration shall provide for discovery “pursuant to the California Discovery Act” or “pursuant to CCP § 1298.05.”  However, absent doing so, such discovery (including third party discovery) is limited.  

The Aixtron holding should have every California employer with an arbitration program reviewing their arbitration agreements regarding discovery so that they can understand and potentially revise those agreements.   

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