Prehearing Discovery In Arbitrations—Sixth District Recognizes Significant Limitations

07/24/2020 Patrick Hammon

Aixtron, Inc. v. Veeco Instruments Inc. (Cal. Ct. App. July 16, 2020) No. H045126, 2020 WL 4013981, the Sixth District weighed in on whether arbitrators are authorized to issue subpoenas to third parties in connection with arbitration proceedings under either the California Arbitration Act (CAA) or the Federal Arbitration Act (FAA).  In an important decision that may drastically change the landscape of discovery in arbitrations, the Court of Appeal concluded that arbitrators do not generally have the power to compel the prehearing production of documents from third parties by subpoena.

In 2017, Miguel Saldana, a former employee of Veeco Instruments, resigned and joined a competitor, Aixtron, Inc.  Veeco subsequently initiated arbitration proceedings against Saldana pursuant to the dispute resolution provisions in his employment agreement, asserting various causes of action, including breach of contract, conversion, and breach of the duty of loyalty. 

After granting Veeco’s application for a prehearing subpoena for the records of Aixtron, a third party to the arbitration, the latter objected and did not comply with the request.  The arbitrator granted Veeco’s motion to compel, ordering Aixtron to comply with the subpoena, causing Aixtron to initiate a special proceeding in the Superior Court to challenge the arbitrator’s order, and prompting Veeco to file a petition in the same court to enforce the order.  The court denied Aixtron’s petition and granted Veeco’s request, thereby ratifying the arbitrator’s authority to issue and enforce the prehearing discovery subpoena.  Aixtron appealed. 


While the parties disputed whether the FAA or CAA governed, the Sixth District concluded that it was not necessary to resolve that issue.  Under either statutory scheme, the arbitrator did not have authority to issue a discovery subpoena to Aixtron.  With respect to the FAA, the Court of Appeal agreed with federal appellate cases, which held  there is no right to pre-hearing discovery.  With respect to the CAA, the court ruled, as a matter of first impression, that California’s statutory scheme does not grant an arbitrator broad powers to issue such subpoenas either, where such pre-hearing discovery is not specifically authorized in the parties’ arbitration agreement.  In light of those two holdings, the Sixth District reversed the Superior Court’s decision, thereby relieving Aixtron of any obligation to comply with Veeco’s subpoena.


In its interpretation of the FAA, the Sixth District ruled on an issue that no California appellate court had addressed to date.  In finding that an arbitrator has no power to issue prehearing subpoenas under the Act, the court aligned itself with the majority view about prehearing discovery under the FAA adopted by the Ninth Circuit, which narrowly construes an arbitrator’s powers under Section 7 of the Act, and rejected the minority view embraced by the Sixth and Eighth Circuits, which recognizes the power to compel production before a hearing as an implicit aspect of the arbitrator’s recognized power to compel production at the hearing itself. 


In navigating the statutory scheme of the CAA, the Sixth District acknowledged that certain provisions, including CCP 1283.05, actually do carve out circumstances in which an arbitrator has certain powers with respect to discovery, including the authority to issue pre-hearing discovery subpoenas.  The Court of Appeal acknowledged however that those circumstances are expressly limited to two situations: (1) arbitrations arising out of claims for wrongful death or personal injury, and (2) arbitrations where the parties have specifically agreed to empower the arbitrator to grant such discovery rights.  Because Veeco’s claim was not one for wrongful death or personal injury, the Sixth District examined the underlying agreement to determine if the parties had agreed to adopt such broad discovery rights.  The Court of Appeal concluded that the parties had not so agreed, observing that the arbitration provision did not mention the California Discovery Act or section 1283.05, let alone even contain the word “discovery.”

The Sixth District also refused to adopt Veeco’s textual argument that a different section of the CAA—specifically CCP 1282.6—empowers an arbitrator to issue a pre-hearing subpoena when an arbitrator “issues and signs” a subpoena.  While no courts had ruled one way or the other with regard to the text of that provision, the Court of Appeal rejected Veeco’s argument because (1) it would render the other express limitations on an arbitrator’s power to authorize discovery nullities since discovery would basically be allowed any time an arbitrator signed a subpoena, and (2) it would be inconsistent with the case law that described the right to discovery under the CAA as “limited” and “highly restricted.”

Accordingly, as neither of the two circumstances in which pre-hearing subpoenas are authorized was present, the Court of Appeal found the arbitrator had exceeded his authority in issuing—and attempting to enforce—the subpoena to Aixtron. 


The Sixth District’s opinion is highly significant as it substantially limits discovery rights in arbitration proceedings, regardless of whether they arise under the FAA or the CAA.  While third parties like Aixtron may breathe sighs of relief, as the burdens imposed on strangers to arbitration are now meaningfully circumscribed, parties to arbitrations should undoubtedly be concerned about their ability to discover evidence to prove their claims or defenses.  Moreover, lawyers drafting arbitration provisions post-Aixtron, especially for employers who, like Veeco, will likely need discovery from subsequent employers to prove claims relating to employee mobility, would be wise specifically to provide in such agreements that the CAA applies and that the parties have agreed to prehearing discovery.