SB 940 and the future of arbitration: A new era of discovery in California

Effective Jan. 1, 2025, California's Senate Bill 940 (SB 940) expanded arbitration discovery rights by amending California Code of Civil Procedure (CCP) Section 1283.05 and repealing CCP Section 1283.1. SB 940 provides arbitrating parties with relatively the same discovery rights as trial causes of action and increases the power of arbitrators to regulate discovery.

Applicability

Previously, CCP Section 1283.1 granted arbitration discovery rights only under personal injury and wrongful death actions or if discovery rights were expressly incorporated in the parties' arbitration agreement. Under the changes imposed by SB 940, any arbitration matter is subject to the same discovery rights as California trial court actions, with the exception of limited civil matters. (CCP Section 1283.05(a)). Section 85 provides the three criteria required for a matter to be a limited civil case: (1) the amount in controversy, demand or recovery exclusive of attorney's fees, is $35,000 or less; (2) the relief sought must be of a type that can be granted in limited civil matters (not declaratory relief or a permanent injunction); and (3) the relief is outlined exclusively in at least one statute as a limited civil matter. (CCP Section 85(a-c)).

Expanded discovery rights

Arbitrators have a broad scope of power over discovery rights including enforcing "the rights, remedies, procedures, duties, liabilities, and obligations of discovery by the imposition of the same terms, conditions, consequences, liabilities, sanctions, and penalties as can be or may be imposed in like circumstances in a civil action by a superior court." (CCP Section 1283.05(b)). Arbitrators may regulate and make orders as necessary at any stage in discovery, including issuing subpoenas under CCP Section 1282.6. (CCP Section1283.05(c); CCP Section 1282.6).

Parties may begin the discovery process following the appointment of the arbitrator and need not obtain the arbitrator's permission prior to engaging in discovery, apart from "depositions for discovery," which is undefined under § 1283.05.  (CCP § 1283.05(a), (e)). The arbitrating parties may also seek discovery from nonparties, through a deposition, which likely requires arbitrator approval. (CCP § 1283.05(a), (e); see Berglund v. Arthroscopic & Laser Surgery Ctr., (2008) 44 Cal.4th 528, 539 [holding that nonparties are entitled to full judicial review of any adverse discovery order]). 

SB 940 expands the duty to make, produce, and impose violations of discovery to affiliates of each party, such as officers, agents, or persons who have an immediate benefit in the matter, effectively making affiliates subject to the same discovery obligations as arbitrating parties. (CCP § 1283.05(d)).

Practical effects:

1. Arbitration costs will increase and almost mirror what trial costs are during the discovery phase of the arbitration. Arbitrators can control the number of witnesses at the Evidentiary Hearing which will save the parties time and money. Arbitrators should consider a status conference 30 days before trial to narrow the scope of the Evidentiary Hearing regardless of the discovery allowed in pre-evidentiary hearing proceedings.

2. There remains the question whether the parties can stipulate around the broad discovery allowed by this statute. It seems to suggest there can be such a stipulation just like in civil trial proceedings. It is my experience that often one party will want to limit discovery and another will want it to put pressure for different reasons on their opponents.

3. Arbitration is designed to be efficient and reduce the need for discovery in exchange for speedy resolution. This statute does not help further the goals of arbitration. However, most practitioners would agree that in most arbitration cases, the scope of discovery allowed is often already broader regardless of this statute. The difference now is that this expanded scope is codified, rather than left to the discretion of the arbitrator.