Litigation & Arbitration,
Evidence
Sep. 24, 2024
Legal loopholes: Navigating third-party subpoena restrictions in arbitration pretrial discovery
Despite restrictions on prehearing third-party subpoenas in arbitration under federal and state laws, carefully crafted arbitration agreements can ensure full and fair pretrial discovery, preventing critical evidence from being inaccessible until it's too late to effectively shape claims and arguments.
Tricia A. Bigelow
Neutral , Signature Resolution
Hon. Tricia Bigelow (Ret.) is a neutral with Signature Resolution. As Presiding Justice and Associate Justice of the Court of Appeal, and as a trial court bench officer for a combined total of 26 years. Retired Justice Bigelow presided over complex cases involving high-profile companies and public figures. She has authored three books on California law and procedure and lectured extensively on judicial ethics and fairness, civil motions and trials, and other topics. She chaired the Los Angeles Superior Court Civil Education Committee, served on the CACI jury instruction committee, and from 2006 to 2008 was Dean of the Bernard E. Witkin California Judicial College, where she oversaw the education of all new judges in California. She was awarded the California Judicial Council Ronald M. George Award for Judicial Excellence in 2014. In 2015, she was co-recipient of the Bernard S. Jefferson /award for distinguished service to judicial education from the California Judges Association.
When litigants prepare their cases, they invest
considerable effort from the outset, gathering critical evidence in support of
their positions. They need to know the good, the bad and the ugly so that they
can get their facts straight and prepare their arguments for trial. Litigants
expect the trial judge to facilitate these efforts by issuing subpoenas and
ordering depositions of anyone who can provide information relevant to any
claim or defense.
But when an arbitrator decides
the case, different discovery rules apply. Although there is a federal circuit
split, the Ninth Circuit and a California Court of Appeal have held that the Federal
Arbitration Act (FAA) and the California
Arbitration Act (CAA) bar arbitrators from issuing prehearing third-party
subpoenas.
Under
CAA, prehearing third-party discovery is not allowed unless the arbitration
agreement expressly allows it -- by specifically referencing Code of Civil Procedure
(CCP) section 1283.05 -- or the claim involves wrongful death or
personal injury.
These limitations can
effectively blindside parties to a lawsuit, sidetracking or completely
derailing their cases. Critical information in a third party's hand -- evidence
that can prove or disprove a case -- may be out of reach until it is too late.
By the time this evidence comes to light, claims have already been asserted and
arguments made.
However,
with proper planning, this does not have to be the case. Thoughtfully drafted
arbitration agreements can allow full and fair pretrial discovery in
arbitration.
Barriers
imposed by the FAA and the CAA
The
FAA addresses the role of arbitrators in discovery as follows: "The arbitrators
selected either as prescribed in this title or otherwise, or a majority of
them, may summon in writing any person to attend before them or any of them as
a witness and in a proper case to bring with him or them any book, record,
document, or paper which may be deemed material as evidence in the case." (9 U.S.C. § 7 (section 7).)
The Ninth
Circuit in CVS Health Corp v. Vividus, LLC
(9th Cir. 2017) 878 F.3d 703, 705 (CVS Health) read this language to
mean an arbitrator has no authority to order nonparties to produce documents as
part of prehearing discovery. Section 7 gives arbitrators two powers -- they may
compel the attendance of a person to attend before them as a witness, and they
may compel that person to bring with him or them relevant documents. Thus, CVS
Health concluded, arbitrators have no power to order third-parties to produce
documents prior to the arbitration hearing. (Id. at p. 708.)
CVS Health
informed the California Court of Appeal decision in
Aixtron Inc. v. Vecco Instruments, Inc. (2020) 52 Cal.App.5th 360) (Aixtron), a case in which a
party to an arbitration proceeding sought prehearing discovery from a nonparty.
The parties stipulated to use JAMS Employment Rules, which allowed the
arbitrator to "'issue subpoenas for the attendance of witnesses or the
production of documents either before or at the hearing.'" (Aixtron, at p. 373, fn. 2.) The arbitrator ruled he
had the authority under the JAMS rules to issue the prehearing subpoena, and a
trial court that was asked to review that ruling allowed the subpoena to issue.
The Aixtron appellate court reversed, finding
there was no right to prehearing discovery under the FAA or the CAA. (Aixtron, supra, 52 Cal.App.5th at p.
394.)
The court noted the split of authority in the federal courts of appeals
regarding the scope of an arbitrator's subpoena power under section 7 of the
FAA, referencing cases out of the Sixth and Eighth
Circuits as examples of the holding that "'implicit' in the arbitrator's power
under the FAA to subpoena relevant documents for production at the arbitration
hearing 'is the power to order the production of relevant documents for review
by a party prior to the hearing.'" (Aixtron, supra,
52 Cal.App.5th at p. 394, citing In re Security Life Ins. Co. of America
(8th Cir. 2000) 228 F.3d 865, 870-871 and American Fed'n of Tel. & Radio Artists v.
WJBK-TV (6th Cir. 1999) 164 F.3d 1004, 1009.)
The
court rejected this position, however, and adopted the holding of CVS Health.
(Aixtron, supra, 52 Cal.App.5th at p.
395.) The court agreed it was reasonable for the FAA "'to restrict third-party
discovery to the disclosures that can be made at a hearing; third parties 'did
not agree to [the arbitrator's] jurisdiction' and this limit on document
discovery tends to greatly lessen the production burden'" on nonparties. (Aixtron, at pp. 395-396, quoting CVS Health,
supra, 878
F.3d at p. 708.)
The Aixtron
court also found that the legislative history of the CAA and case law
supported imposing similar limitations on prehearing discovery under CCP section 1282.6. (Aixtron,
supra, 52 Cal.App.5th at p. 402.) It rejected the notion that
arbitrators had broad powers to issue subpoenas in arbitration for purposes of
discovery, noting the right to discovery in arbitration under the CAA was
"limited" and "highly restricted." (Ibid.) Ultimately, the Aixtron court concluded that, regardless of whether
the agreement was governed by the FAA or the CAA, and because the arbitration
agreement before it did not incorporate CCP section 1283.05 or involve personal
injury (exceptions discussed below), the arbitrator had no authority to issue
the prehearing discovery subpoena to the nonparty. (Aixtron,
at p. 395.)
Aixtron
also foreclosed the possibility of relying on the JAMS
rules for issuing the subpoenas. (Aixtron,
supra, 52 Cal.App.5th at pp. 402-405.) The then-current JAMS Rule 21
allowed "subpoenas for the attendance of witnesses or the production of
documents either prior to or at a [h]earing . . . in
accordance with applicable law." (Aixtron, at
pp. 404.) Because nonparty discovery subpoenas were not permitted by the FAA or
the CAA, and the specific exceptions did not apply, the subpoena was not
authorized by law as required by JAMS Rule 21. (Ibid.)
Perhaps even more significantly, the Aixtron court noted that only the parties to an
arbitration had agreed to be bound by the JAMS rules. The court stated, "[T]he
arbitration and the application of JAMS rules obtain their legal force based on
party consent as reflected in the terms of the arbitration agreement or
statutes that authorize limited discovery in arbitration." Because the nonparty
did not consent to be bound by the JAMS rules, the arbitration agreement did
not authorize discovery from the nonparty. (Aixtron
at p. 404.)
In conclusion, the Aixtron court held the arbitrator's
prehearing discovery subpoena for the nonparty's business records and computers
was not authorized under the FAA, the CAA, or the JAMS rules. (Aixtron at p. 404.) And there is no workaround: A bifurcated prehearing with
the arbitrator and the third party for the purpose of satisfying the "hearing"
requirement of CCP section 1282.6 has been found unavailing. (McConnell v. Advantest America
(2023) 92 Cal.App.5th 596, 612-613.)
Overcoming the CAA barriers
Notably, the Aixtron court observed that parties could
avail themselves of the benefits of prehearing third-party subpoenas if they
included CCP section 1283.05 in their arbitration
agreements. (Aixtron, supra, 52 Cal.App.5th at
p. 879; see also Armendariz v. Foundation Health Psychcare
Services (2000) 24 Cal.4th 83, 105.) That
section defines the scope of third-party discovery available under the CAA, and
it allows parties to take depositions and obtain discovery on the subject
matter of the arbitration, invoking the same rights as if it were a case
pending before a court. Indeed, many arbitrators allow parties to stipulate to including CCP section 1283.05 in the agreement even after
receiving a case for arbitration.
Further,
CCP section 1283.05 has also been held to apply to claims involving personal
injury or wrongful death. Under CCP section 1283.1, subdivision
(a), "All of the provisions of Section 1283.05 shall be conclusively deemed to
be incorporated into, made a part of, and shall be applicable to, every
agreement to arbitrate any dispute, controversy, or issue arising out of or
resulting from any injury to, or death of, a person caused by the wrongful act
or neglect of another."
In
Berglund
v. Arthroscopic & Laser Surgery Center of San Diego, L.P. ((2008) 44
Cal.4th 528, 535), the plaintiff brought a personal injury action based on
medical care and treatment he received. After the case was compelled to
arbitration, the plaintiff requested production of documents from a nonparty,
who claimed the documents were privileged. (Id.
at p. 532.) The California Supreme Court upheld the Court of Appeal's
decision that an arbitrator has statutory authority to enforce discovery
subpoenas against a nonparty in personal injury cases under CCP section
1283.05. (Ibid.)
Given that more
generous discovery provisions apply to personal injury claims, it is important
to remember which claims may qualify as personal injury for purposes of CCP
section 1283.1. For example, in Bihun v. AT & T Information Systems, Inc. ((1993) 13 Cal.App.4th 976), the court
found a sexual harassment claim under the Fair Housing and Employment Act was
properly characterized as a personal injury. Similarly, in O'Hara v. Storer Communications, Inc.
((1991) 231 Cal.App.3d 1101), the court held that a defamation action was a
claim for personal injury.
Overcoming the FAA barriers
Perhaps the best way
around the FAA ban is to draft an arbitration agreement that is generally
governed by the FAA but includes an explicit exception that applies the laws of
a different jurisdiction, such as California, for prehearing third-party
discovery (and that references CCP section 1283.05 or the law of another jurisdiction
that is similarly permissible).
Even
post-Aixtron, an arbitrator might allow the
parties to stipulate or amend an agreement to stipulate that the FAA does not
apply to discovery.
If all else fails, the parties can also try to resolve the discovery dispute
with the third party.
Conclusion
Pretrial discovery is
critical, whether a case ends up in court or before an arbitrator. Litigants
should therefore take every opportunity to obtain and evaluate evidence in
advance of a proceeding. If they want full and timely pretrial access to all
valuable information for every type of claim, parties must carefully draft
their arbitration agreements or work with counsel and their arbitrator to
ensure they have access to the discovery they deserve.
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