It seems like most contracts these days contain arbitration clauses. The purpose of these clauses is to speed up the pace of litigation and hopefully truncate the process. However, a problem can arise when you need to procure documents from a non-party witness. Recently, the Sixth District Court of Appeal took up this very issue in Aixtron, Inc. v. Veeco Instruments Inc., ((2020) 52 Cal.App.5th 360.). While the case involved an employment dispute, the holding of the court will likely have an effect on arbitrations across the board.  

There were a number of issues addressed in the case. However, the heart of the dispute was whether or not an arbitrator had the right to issue subpoenas to non-party witnesses prior to the arbitration hearing. The issue had been heard in Federal courts, but this was the first time it has been addressed by a California Court of Appeal. (Id. at 394.).

The case involved a dispute between a former employee named Miguel Saldana and his former employer Veeco Instruments, Inc. (Veeco). Mr. Saldana resigned from his job and went to work for a competitor named Aixtron, Inc. (“Aixtron”). Veeco initiated arbitration against Mr. Saldana pursuant to an arbitration clause in his employment agreement alleging causes of action for breach of contract, breach of the duty of loyalty, and conversion, including alleged data theft. Aixtron was not a party to the arbitration.

The arbitrator granted a request from Veeco for business records from Aixtron including a computer used by Mr. Saldana. Veeco brought a motion to compel the request. Despite the objection of Aixtron, the arbitrator granted the motion to compel. Aixtron initiated a proceeding with the superior court to review the order. It was denied. Veeco filed a petition with the court to confirm the order, which was granted. Aixtron appealed both orders.

One of the issues that the Veeco Court addressed was whether the Federal Arbitration Act (“FAA”) or the California Arbitration Act (“CAA”) applied to the claims, and it came to the same conclusion under both acts. (Id. at 393).

In its analysis under the FAA, the Veeco Court relied heavily on the CVS Health Corporation v. Vividus, LLC case. (9th Cir. 2017)(878 F.3d 703, 705). There, the Ninth Circuit held that an arbitrator’s broad power to compel production of documents is limited to production at the arbitration hearing under the FAA. They did not have the broad power to issue pre-arbitration subpoenas.  Under the CAA, the Veeco Court held that granting arbitrators broad powers of discovery to issue subpoenas did not comport with the limitations on discovery in the CAA. Further the court held that under the CAA the right to discovery is “limited” and “highly restricted”.

The final analysis of the court was whether or not the rules of arbitration venue, in this case JAMS, allowed for such discovery. The JAMS rules did not give the arbitrator the authority for broad discovery on non-parties. (Id. at 404). Further, the court commented that it was only the parties to the arbitration that agreed to be bound by those rules.

Based upon this ruling, parties to an arbitration need to be concerned about relying upon the powers of an arbitrator to issue subpoenas to non-party witnesses as they likely do not have the right to do so. As such, parties need to find an alternative means to obtain necessary documents or refrain from petitioning arbitration. Furthermore, it is something to consider when drafting contracts for your clients as to whether or not you want to include an arbitration provision in the first place.