Closing of Pre-Hearing Discovery Loopholes in Arbitration

Arbitration is a creature born of contract, and is favored as an expeditious and economical alternative to a civil lawsuit — in part due to the limited discovery available to parties in arbitration. Increasingly, however, arbitrations have increased in complexity, with discovery growing to proportions more typically seen in civil lawsuits (and likewise growing in cost). However, a California Court of Appeal has now explicitly enforced one of the limitations on discovery in arbitration, foreclosing discovery efforts from spilling over to nonparties to an arbitration unless the parties have otherwise agreed.

In California, arbitrators have always had the ability to issue subpoenas to nonparties, compelling their attendance and production of evidence at an arbitration proceeding (under California Code of Civil Procedure (“Code Civ. Proc.”), section 1282.6) — but such subpoenas were meant to make necessary witnesses or evidence available at the arbitration hearing and not as a means for obtaining third-party discovery. However, under Code Civ. Proc, section 1282.2(b), an arbitrator also has the power to adjourn a hearing as necessary. This allowed for a neat workaround whereby an arbitrator could call a hearing for a nonparty to appear and produce documents, with the intention that the hearing be adjourned once the documents were secured. No court had previously disapproved of this practice.

However, the Court of Appeal in McConnell v. Advantest America, Inc. has now closed this “loophole”, finding under the specific facts of the case that this workaround should not be allowed as an unauthorized discovery subpoena. (McConnell v. Advantest America, Inc. (2023) 309 Cal.Rptr.3d 526, 540.) The Court opined that otherwise, parties to an arbitration could simply demand any manner of documents so long as they are produced at an arbitration “proceeding” — defeating the purpose of the statutory scheme and leading to absurd results.

In McConnell, the subpoenas directed nonparties to appear and produce documents at an arbitration proceeding specially set “for the limited purpose of receiving documents”, and also allowed the nonparties to upload the documents to a website controlled by (and presumably accessible only to) the subpoenaing attorney. Moreover, the subpoenas provided that after the documents were produced, the “hearing” would promptly be adjourned until the arbitration hearing on the merits, nearly 12 months later. This loophole allowed for third-party discovery even though under Code Civ. Proc., section 1283.1 third-party discovery is only allowed where the parties have expressly agreed or in cases involving wrongful death of personal injury. (Id. at 535.) In closing the loophole, the McConnell court’s ruling reinforces the view held by a majority of courts that arbitration is intended to be an expeditious and economical means of dispute resolution. 

This is yet another factor that should be carefully considered when deciding between defending a case in civil court or at arbitration. This factor should also be carefully considered when drafting or revising the arbitration agreement itself.  If you have any questions about which method of dispute resolution favors your case or defense (or whether arbitration is even an option for you), please contact the authors or your usual counsel at Atkinson, Andelson, Loya, Ruud & Romo for a thorough discussion as to the advantages or disadvantages of each.

This AALRR post is intended for informational purposes only and should not be relied upon in reaching a conclusion in a particular area of law. Applicability of the legal principles discussed may differ substantially in individual situations. Receipt of this or any other AALRR publication does not create an attorney-client relationship. AALRR is not responsible for inadvertent errors that may occur in the publishing process. 

© 2023 Atkinson, Andelson, Loya, Ruud & Romo

Categories: Arbitration, Litigation
  • David  Kang
    Senior Associate

    David Kang has extensive experience with a broad range of commercial litigation matters, including matters pertaining to wage & hour issues, with a focus on class action and PAGA representative lawsuits; matters pertaining to ...

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