2020 Adr Case Review
| Publication year | 2020 |
| Author | By Paul Dubow |
By Paul Dubow
The COVID 19 pandemic did not deter courts from issuing decisions in 2020 that involved alternate dispute resolution. The United States Supreme Court, the Ninth Circuit, the California Supreme Court, and the Court of Appeal issued 59 decisions that touched on ADR. All of them involved arbitration and the total is the highest in several years. We have summarized below nine of the most interesting cases from 2020.
It is not unusual for a party in an arbitration to request the arbitrator issue a subpoena to a third party. If it is a subpoena for a witness to appear at the hearing and the arbitrator signs the subpoena, it is not a complicated matter. Either the witness shows up at the hearing (and often the requesting party knows that in advance) or the witness moves to quash (in which case the requesting party takes appropriate steps to defend the subpoena) or the witness fails to show (something that the requesting party can do little about).
A subpoena duces tecum is another matter. The third party may have documents that are crucial to the requesting party’s case and a failure to obtain the documents could be devastating.
The problems that a requesting party might have with a recalcitrant third party were illustrated in Aixtron, Inc. v. Veeco Instruments, Inc.1 Aixtron and Veeco were competitors in the development of a technology used to manufacture LED’s, sensors, compound semiconductors, and other products. Miguel Saldana worked for Veeco from September 2014 until May 2016 as its senior director of hardware engineering. In March 2016, Saldana accepted an offer of employment from Aixtron. He resigned from Veeco seven weeks later.
Veeco subsequently determined that Saldana had taken confidential documents with him when he resigned and delivered them to Aixtron. Although Saldana denied the allegations, Veeco commenced an arbitration proceeding against him before the Judicial Arbitration and Mediation Service (“JAMS”). Almost immediately thereafter, the arbitrator signed a subpoena duces tecum requested by Veeco that required Aixtron to produce a comprehensive amount of material prior to the hearing. Aixtron’s motion to quash was denied by the arbitrator. Aixtron then asked the Superior Court to quash the subpoena arguing, inter alia, that the arbitrator did not have the power to issue the subpoena. The motion was denied.
Aixtron appealed. There were two issues before the court. The first was whether the lower court’s order was appealable. The Court of Appeal held the order was appealable under the one final judgment rule.2 It noted that Aixtron had filed a special proceeding in the Superior Court for the express purpose of challenging the arbitrator’s discovery order and that the Superior Court finally determined Aixtron’s and Veeco’s rights as to the discovery order when it denied Aixtron’s petition. The order embodied the final determination of Aixtron’s and Veeco’s rights in the special proceeding.
Next, the Court decided whether the subpoena was enforceable. The parties disputed whether the California Arbitration Act (“CAA”)3 or Federal Arbitration Act (“FAA”)4 applied. Veeco argued that the CAA applied because Aixtron cited it when it filed its petition in the Superior Court. Aixtron argued that the FAA applied because the dispute involved interstate commerce, given that Saldana moved from New Jersey to California. The Court of Appeal determined that the result was the same under either statute and reversed the order enforcing the subpoena.
Code of Civil Procedure, section 1283.05, describes the circumstances under which “depositions may be taken and discovery obtained in arbitration proceedings,” as well as the powers of the arbitrator with regard to such discovery. However, Section 1283.05 begins with the qualifying phrase: “[t]o the extent provided in section 1283.1.” Subdivision (a) of Section 1283.1, in turn, provides that section 1283.05 is incorporated into and made part of every agreement to arbitrate any dispute arising out of a claim for wrongful death or personal injury. Because the dispute between Veeco and Saldana was not a claim for wrongful death or personal injury, subdivision (a) of Section 1283.1 did not apply. Subdivision (b) of
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Section 1283.1 provides that, in "all other arbitrations, the arbitrator may grant discovery '[o]nly if the parties by their agreement so provide.'" Because the arbitration agreement at issue did not have a provision giving the arbitrator the power to issue discovery orders, the subpoena could not be enforced under the CAA.
The Court also determined that the FAA did not apply, citing CVS Health Corp. v. Vividus LLC.5 In that case, the Ninth Circuit, after reviewing Section 7 of the FAA, concluded that the FAA did not grant arbitrators the power to issue discovery subpoenas to third parties. It held that section 7 gives arbitrators two powers: (1) to compel the attendance of persons to appear as witnesses at the hearin and (2) to compel such persons to bring relevant documents to the hearing. The court held that a "plain reading of the text of section 7 reveals that an arbitrator's power to compel the production of documents is limited to production at an arbitration hearing," and that "section 7 grants an arbitrator no freestanding power to order third parties to produce documents other than in the context of a hearing."6
Interestingly, while not discussed by the court, a review of the record reveals the arbitration agreement at issue provided that the arbitration would be conducted in accordance with the National Employment Rules for the Resolution of Employment Disputes of the American Arbitration Association ("AAA"). Rule 9 provides that "the arbitrator shall have the authority to order such discovery, by way of deposition, interrogatory, document production, or otherwise...". Thus, it appears that the agreement did in fact give the arbitrator the power to order third party discovery and the subpoena should have been enforceable, provided that the CAA applied.
In several contexts, nonsignatories can enforce or be equitably estopped from refusing to comply with an arbitration agreement in domestic arbitrations for various reasons, including whether the nature of the dispute is intertwined with the subject matter of the underlying contract. But there has been a question whether this rule applies to an international arbitration because the FAA or state arbitration acts may not apply. In GE Power Conversion France SAS v. Outokumpu Stainless USA, LLC,7 the United States Supreme Court appears to have resolved the issue in certain situations.
The background of the case is as follows. In 2007, Thyssenkrupp Stainless USA, LLC, entered into three contracts with F.L. Industries, Inc. ("F.L.") to construct a rolling mill plant in Alabama. Each contract contained a similar arbitration clause. F.L. entered into a subcontract with GE to deliver engines for the plant. Subsequently, Outokumpu acquired the plant from Thyssenkrupp. Outokumpu alleged that the engines failed and sued GE in Alabama state court. GE removed the case to federal court and moved to compel arbitration. The District Court granted the motion on the ground that the contract defined "seller" and "parties" to include subcontractors. Hence, it did not reach GE's second argument that Outokumpu was equitably estopped from challenging GE's right to compel arbitration. On appeal, the Eleventh Circuit reversed. It interpreted the Convention on the Recognition and Enforcement of Arbitration Awards ("New York Convention") to include a requirement that parties actually sign the agreement in order to gain the right to compel arbitration. It held that GE could not rely on state law equitable estoppel doctrines to enforce the arbitration agreement because that would conflict with the Convention's signatory requirement.
The Supreme Court granted GE's petition for certiorari and reversed and remanded. It held the text of the Convention did not address whether nonsignatories may enforce arbitration agreements under domestic doctrines such as equitable estoppel. The Convention was simply silent on the issue of nonsignatory enforcement, and in general, a matter not covered is to be treated as not covered. Nothing in the text of the Convention could be read to otherwise prohibit the application of domestic equitable estoppel doctrines. Only one Article of the Convention addressed arbitration agreements—Article II—and only one provision of Article II addressed the enforcement of those agreements—Article II(3). Article II(3) stated that courts of a contracting state "shall . . . refer the parties to arbitration" when the parties to an action entered into a written agreement to arbitrate and one of the parties requested referral to arbitration. The provision, however, did not restrict contracting states from applying domestic law to refer parties to arbitration in other circumstances. Thus, Article II(3) provided that arbitration agreements must be enforced in certain circumstances, but it did not prevent the application of...
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