Annual Update of Alternative Dispute Resolution Cases and Legislation

JurisdictionCalifornia,United States
AuthorPaul J. Dubow
CitationVol. 2021 No. 1
Publication year2021
Annual Update of Alternative Dispute Resolution Cases and Legislation

Paul J. Dubow

Paul Dubow began arbitrating cases in 1972 and was initially trained as a mediator in 1994. He became a full-time neutral in December 2000, following his retirement after twenty-six years as Director of Litigation at Dean Witter Reynolds. He has arbitrated or mediated over 550 cases. He can be reached at

The matters discussed below include cases issued in 2020 by California courts and federal courts that have jurisdiction over California that may be of interest to attorneys drafting contracts containing arbitration or mediation clauses.

Aixtron, Inc. v. Veeco Instruments, Inc.. 52 Cal. App. 5th 360 (2020)

Veeco filed an arbitration demand against its former employee, Saldana, alleging that he violated a confidentiality agreement by providing trade secrets to Aixtron, his new employer and a competitor of Veeco. In the course of the arbitration, the arbitrator issued a subpoena, at Veeco's request, to Aixtron demanding that Aixtron produce information on its computers. Aixtron refused to comply and sought to quash the subpoena in superior court arguing, inter alia, that the arbitrator had no power to issue the subpoena. The court denied the motion and enforced the subpoena.

Aixtron appealed, and the court of appeal reversed. Code of Civil Procedure section 1283.05 authorizes discovery "as if the subject matter of the arbitration were pending before a superior court." However, section 1283.05 begins with the phrase, "[t]o the extent provided in section 1283.1." Section 1283.1(a) provides that section 1283.05 is incorporated into and made part of every agreement to arbitrate only in the case of a dispute arising out of a claim for wrongful death or for personal injury. Section 1283.1(b) provides that in "all other arbitrations, the arbitrator may grant discovery '[o]nly if the parties by their agreement so provide.'"

Since this was neither a wrongful death nor personal injury case, the court had to determine whether Veeco and Saldana provided that authority through their arbitration agreement. Since Veeco and Saldana did not provide for discovery in their arbitration agreement, section 1283.05 did not apply.

Comment. The court cited two cases where the arbitration clause would have permitted the type of discovery that was not allowed here. In OTO, L.L.C. v. Kho,1 arbitration was to be conducted in accordance with the California Arbitration Act (CAA),2 "with full discovery permitted." In Cox v. Bonni,3 the agreement stated that discovery would be conducted in accordance with section 1283.05. Addition of either of these phrases would have permitted the subpoena to be enforced.

Davis v. Kozak, 53 Cal. App. 5th 897 (2020)

Plaintiff filed a lawsuit against Red Bull, his former employer, and several Red Bull employees, alleging various claims. The defendants moved to compel arbitration. The arbitration agreement stated that if the parties could not mutually agree on an arbitrator, then the arbitration would be conducted by the American Arbitration Association (AAA) in accordance with the provider's "rules applicable to employment disputes." At the time of plaintiff's hiring, the AAA's 2002 rules were in effect. The rules were amended in 2009 and stated that the rules applicable to a particular dispute would be those in effect at the time that the arbitration demand was filed. The trial court found that there was a high degree of procedural unconscionability because it was unclear which set of rules applied, and denied the motion. It found substantive unconscionability because the parties were limited to two depositions and repeated use of the phrase "I agree," combined with the employer's failure to sign the agreement, indicated a lack of mutuality.

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The court of appeal did not agree with the trial court on the issue of which set of arbitration rules applied and, with one exception, did not agree with the finding that there was a lack of mutuality. But it agreed with the trial court's holding that the restrictive discovery provision was substantively unconscionable, and, since the contract's adhesive nature created a degree of procedural unconscionability, it affirmed the decision.

The court held that a viable claim of procedural unconscionability for failure to identify the particular version of the applicable arbitral rules—like a claim for failure to attach the rules themselves—depends in some manner on the substantive unfairness of a term or terms contained within the unidentified version of the rules applicable to the dispute.4 If the unidentified rules are not themselves substantively unfair, then the employer cannot be faulted for vaguely referring to such rules. Notably, plaintiff did not contend that either the 2002 or the 2009 version of the AAA employment rules contained substantively unconscionable terms.

With respect to lack of mutuality, the court held that the agreement was drafted on Red Bull letterhead, and this was an indication the company intended to be bound by the agreement. Furthermore, the agreement specifically discussed what "Red Bull or I" must do to "initiate" arbitration. As a whole, the agreement was thus reasonably construed to cover arbitration of any disputes either party brought involving or relating to plaintiff's employment, with one exception. The exception pertained to disputes that involved "obligations under the Employee Confidentiality Agreement with Red Bull." The employer contended this provision was mutual because plaintiff could sue in court for any claims he had against Red Bull relating to inventions or intellectual property belonging solely to him. The court disagreed, as such disputes would not involve any "obligations" under the employee confidentiality agreement. The opening recitals of the employee confidentiality agreement made clear its provisions protected only "proprietary and confidential information relating to, owned by and regularly used by the Company." There was no corresponding obligation of the company relating to any proprietary information of the employee. Further, the agreement's section on remedies stated: "In the event of a breach or threatened breach of this Agreement by the Employee, the Company shall be entitled to all remedies available at law and equity, including injunctive relief and recovery from the Employee." In short, the employee confidentiality agreement only obligated Red Bull's employees to protect the company's confidential and proprietary information, not vice versa.

The discovery limitation to two depositions was substantively unconscionable because the arbitration agreement contained no express provisions entitling the parties to propound interrogatories, requests for admission, or demands for production of all relevant documents. The employer emphasized that, despite these limitations, the arbitrator retained the authority to order additional discovery on a showing of "sufficient cause." It averred that this was not much different in substance from the standard approved in Dotson v. Amgen, Inc.,5 where the discovery provision permitted additional discovery by the arbitrator on a "showing of need." But the court noted that in Baxter v. Genworth North America Corp.6 it was held that a requirement of "good and sufficient cause" was more onerous than the "'showing of need'" standard. Further, the arbitration clause in Dotson explicitly permitted more discovery than the agreement here.

Comment. A failure to insert provider rules will not increase the level of procedural unconscionability in an adhesive contract, so long as the rules themselves are not unconscionable or the reference to the rules is not hidden in the agreement. It might be a good idea, however, to set forth the provider's website in the agreement with an encouragement that the employee review the website.

Notwithstanding the decision here, use of the phrase "I agree" in the agreement is not recommended. There is at least one decision where the court found that the phrase indicated a lack of mutuality.7 It is suggested that, to assure a court that the agreement is mutual, the agreement should state that it covers "all disputes between the employer and the employee."

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There was no reason to exclude the confidentiality agreement from the obligation to arbitrate. An employer faces little risk when it includes the clause, because it is a rare case where an employee will sue an employer for a violation of a confidentiality clause, but the employer faces a large risk when it excludes the clause because that is virtually certain to lead to a finding of lack of mutuality. If an employer believes that an arbitrator has the ability to resolve all other disputes with its employees, there is no reason to believe that the arbitrator would act differently with respect to a confidentiality clause, particularly since arbitrators, unlike judges or juries, usually have expertise in the subject matter of an employment dispute.

Although there is no holding approving a deposition limitation as low as two, discovery restrictions on depositions, interrogatories, and other forms of discovery that were somewhat broader have been permitted. But there is no bright line determining what kind of limitation passes muster. Thus, a provision that allows an arbitrator to waive discovery limitations simply "on a showing of need" may avoid a finding of substantive unconscionability.

Dennison v. Rosland Capital LLC, 47 Cal. App. 5th 204 (2020)

The trial court refused to delegate the decision to determine arbitrability to the arbitrator, notwithstanding a delegation clause in the arbitration agreement, because the delegation to the arbitrator was not clear and unmistakable. It then denied defendant's motion to compel arbitration of a dispute involving a failed coin investment, holding that the arbitration agreement was procedurally unconscionable because plaintiff was not given an opportunity to negotiate...

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