Aixtron, Inc. v. Veeco Instruments Inc. - 52 Cal. App. 5th 360, 265 Cal. Rptr. 3d 851 (2020)

Rule:

Giving arbitrator discovery orders the same deference normally given arbitration awards would substantially compromise the legal rights of nonparties against whom erroneous discovery orders may be made. The normal limitations on judicial review of arbitrator decisions mean that arbitrators need not follow the law and, apart from some narrow exceptions, their errors are not subject to judicial review and correction. Thus, absent their consent, nonparties are entitled to full judicial review of any adverse discovery order issued by an arbitrator, which is necessary to protect the legal rights of nonparties who have not consented to arbitration and consequently have not agreed to the finality of arbitrator decisions. This case law establishes that a nonparty dissatisfied with an arbitrator's discovery order may seek full judicial review by a superior court of that order. It is reasonable to conclude that the phrase "full judicial review" also suggests a right to appellate review of the superior court's order. But the decision did not address the question whether a nonparty or a party to the arbitration that is dissatisfied with the superior court's decision has a right of direct appeal.

Facts:

Miguel Saldana is a former employee of respondent Veeco Instruments Inc. (Veeco). In 2017, Saldana resigned from his position at Veeco and went to work for a competitor, appellant Aixtron, Inc. (Aixtron). Veeco initiated arbitration proceedings against Saldana pursuant to an arbitration clause in his employee confidentiality agreement, alleging causes of action for breach of contract, breach of the duty of loyalty, and conversion, including alleged data theft. Aixtron was not a party to the arbitration. The arbitrator granted Veeco's application for a prehearing discovery subpoena for Aixtron's business records, which included a demand that Aixtron produce any computers that Saldana had used for forensic examination by “an agreed-upon third-party neutral expert.” Over Aixtron's objections, the arbitrator granted Veeco's motion to compel and ordered Aixtron to comply with the subpoena. Aixtron initiated a special proceeding in the superior court seeking judicial review of the arbitrator's discovery order. The superior court denied that petition. Veeco filed a separate petition in the superior court to enforce the arbitrator's discovery order, which the court granted. Aixtron appealed both orders.

Issue:

May Axitron, a nonparty to the arbitration, seek full judicial review of the arbitrator's discovery order?

Answer:

Yes.

Conclusion:

The court held that the superior court's denial of Aixtron’s petition challenging an arbitrator's discovery order was an appealable order under the one final judgment rule and Code Civ. Proc., § 904.1, because the order was a final determination under Code Civ. Proc., § 577, of discovery rights in a special proceeding commenced for the sole purpose of resolving the discovery dispute, with no issue left for future consideration except compliance. The court found that the arbitrator lacked authority to issue a pre-hearing discovery subpoena for Aixtron’s business records and computers because Federal Arbitration Act § 7 (9 U.S.C.S. § 7) restricted subpoena power to production at a hearing, Code Civ. Proc., §§ 1283.1, 1283.05, did not allow discovery without authority for it in the arbitration agreement, and Code Civ. Proc., § 1282.6, subd. (a), limited subpoena power to the circumstances stated therein.