Arbitration-Discovery of Third Parties

Critics of arbitration decry the lack of discovery in arbitration just as critics of litigation deplore “discovery wars.” In non-negotiated contracts contained in employment contracts, the California Supreme Court has mandated “reasonable” discovery for employees. Armendariz v. Foundation Health & Psychcare Services, Inc., 24 Cal.4th 83 (2000). In many cases (not including class actions) that rule only requires production of the personnel file and deposition of a supervisor or manager of the human relations department. Mercuro v. Sup.Ct., 96 Cal.App.4th 167 (2002). A dissatisfied employee can also request discovery from the arbitrator, particularly if an arbitration service provider incorporates procedural rules.

California law disallows discovery in arbitration unless the parties contractually agree or the case involves personal injury or wrongful death caused by another. CCP 1283.1 and 1283.05 allow parties to take discovery consistent with the rules in civil actions but neither of these statutes address discovery of third parties.

Collateral discovery issues with third parties in arbitration emerged in Berglund v. Arthroscopic & Laser Surgery Center of San Diego, 2006 WL 1381641. In the arbitration forum, plaintiff/claimant sought to subpoena (SDT) documents from Arthroscopic, a party previously dismissed. CCP 1282.6 (a) authorizes the arbitrator to issue subpoenas as in civil actions and to enforce sanctions for non compliance. Arthroscopic filed a motion for protective order in the trial court and claimant filed a motion in the arbitral forum seeking an order to produce documents, alleging the trial court lacked jurisdiction. The trial court agreed with claimant and the arbitrator issued the order enforcing the subpoena.

The issue: can the arbitrator issue and enforce subpoenas against non-parties in arbitration?
The Berglund court concedes that the issue is initially one of jurisdiction. An order compelling arbitration divests jurisdiction from the court except to appoint an arbitrator (CCP 1286), order provisional relief (CCP 1281.8), and confirm, correct or vacate an award. CCP 1285; Titan/Value Equities Group, Inc. v. Sup.Ct., 29 Cal.App.4th 482 (1994). This statutory authority, characterized as “vestigial jurisdiction,” authorizes no other court intervention. Blake v. Ecker, 93 Cal.App.4th 728 (2001.

Trial court review of discovery orders is limited by CCP 1283.05 (c) and...”such [discovery] orders shall be conclusive, final, and as enforceable as arbitration on the merits. . .”

According to Berglund, a non-party moving for a protective order, or to quash a subpoena, must initially file with the arbitrator. Under the doctrine that no one can compel a party to arbitrate without their consent, the majority opinion held that the only avenue for a non-party to challenge a subpoena is to permit judicial review of the arbitrator’s decision. According to the Burgland court, denial of the motion constitutes the equivalent of an “appealable order.”

To achieve this result in CCP 1283.05 and 1281, the court engages in an exegetical excursion of statutory interpretation to secure the right of non-parties to review discovery orders unlimited by the strict statutory standards for reviewing an “arbitration on the merits,” i.e., an award.; CCP 1286.2; CCP 1283.05 (c). The majority opinion concludes CCP 1283.05 only applies to “parties”and exempts those who have not agreed to arbitration.

The disturbing part of this case is discounting the role of jurisdiction in arbitration. The court discusses “fundamental” jurisdiction, i.e., the equivalent of subject matter and personal jurisdiction, and jurisdiction in the sense of a judicial inability to proceed based on non compliance with procedural conditions or the absence of power to grant relief.

The trial court in Burglund undoubtedly retained subject matter jurisdiction and personal jurisdiction. The question is the extent of its jurisdictional authority subsequent to granting a petition to compel arbitration. The Blake court concluded that “vestigial jurisdiction” was limited exclusively to statutory authority enumerated in the CCP, as noted above. Arbitration is a creature of the Legislature, and the court can only exercise jurisdiction consistent with the legislative grant. Titan/Values; Brock v. Kaiser Foundation Hospitals, 10 Cal.App.4th 1790 (1992).

As the dissent notes in Burglund, the authority of an arbitrator to order and enforce production of documents does not include the right of the losing non-party to judicial review in derogation of the language in CCP 1283.05 (c). Arbitration operates independently of litigation and is intended to avoid judicial intervention except in legislatively mandated exceptions; Brock. A non-party objecting to production of documents can obtain a hearing from the arbitrator. As the dissent points out, that should end the issue.

Arbitration Practice: after the dismissal of Arthroscopic from the case, counsel presumably did not anticipate that claimant would seek client discovery in a subsequent arbitration involving other parties. Strategy suggests that in a stipulation for dismissal and release of claims in a multiple party arbitration, counsel should include a waiver of discovery rights exercisable against the client.