I would like to highlight for the arbitration community a recent vacatur decision. A federal court vacated an award because the arbitrator denied the claimant’s discovery request. Lindsey v. Travelers Com. Ins. Co., No. 219CV01855KJMCKD, 2022 WL 12071302 (E.D. Cal. Oct. 20, 2022) (click here for a copy of the decision)
In this employment discrimination case, the arbitrator denied the claimant worker’s request for discovery of salary information regarding other co-workers, and the arbitrator appears to have reasoned that such salary comparisons were not relevant. The arbitrator ultimately granted summary judgment in favor of the employer because the claimant worker had failed to produce evidence showing that race was a factor in the employer’s decisions.
A federal court vacated the arbitrator’s award. As explained by the court, “the arbitrator denied [the worker] the very evidence he later faulted him for not producing. That decision rendered the proceedings fundamentally unfair.” The court, relying on section 10 of the FAA, found that the arbitrator had “refused ‘to hear evidence pertinent and material to the controversy.’”
The district court’s decision to vacate the arbitral award in effect suggests there may be a right to certain limited discovery in arbitration. In other words, if one considers the potential implications of this vacatur decision, a party does not merely have a right to present critical evidence at a hearing in light of section 10 of the FAA, but also a right to obtain or uncover critical evidence from the other party through discovery before the hearing takes place.
Finality is a hallmark of arbitration and captured in the FAA’s limited vacatur standards. (However, the Supreme Court’s recent Badgerow decision and the Court’s 2008 decision in Mattel suggest room for more searching review of arbitral awards under state law.) In AT&T Mobility LLC v. Concepcion (2011), a less-textualist Supreme Court considered the “fundamental attributes” of arbitration under the FAA, and the Court suggested that limited discovery is also a hallmark of arbitration. In the Supreme Court case of Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. (1985), the Court approved of the arbitrability of complex antitrust claims even though the arbitration procedures at issue did not provide any right to evidentiary, pre-hearing discovery. The Mitsubishi Court was not troubled by the lack of discovery rights for these complex antitrust claims. The Mitsubishi Court recognized that when a party agrees to arbitrate, the party “trades the procedures and opportunity for review of the courtroom for the simplicity, informality, and expedition of arbitration.”
The district court’s recent decision in the Lindsey case seems to be in tension with these well-established arbitration principles regarding finality and discovery. One way of analyzing Lindsey is that the arbitrator in Lindsey made a procedural, evidentiary ruling on relevance, and the court disagreed with the arbitrator’s ruling. Normally, courts do not review errors, even serious errors, of an arbitrator. However, Lindsey may be limited to its facts. This Lindsey case is a civil rights employment case where there is strong public interest in eradicating discrimination, and it seems that the court is interpreting the right to present material evidence embodied in section 10 of the FAA as including a related power to uncover evidence from another party. Furthermore, the court in Lindsey is not suggesting broad, absolute discovery rights exist; instead, the discovery at issue was limited. Also, the claimant in Lindsey was not going on a “fishing expedition,” and the claimant instead had a reasonable belief the discovery he was seeking did in fact exist based on a conversation with a former manager.
Is there a right to discovery in arbitration? At the front-end, where courts are reviewing arbitration agreements and deciding whether to compel arbitration, I’ve seen cases where courts address discovery limits in arbitration agreements, from the perspective of unconscionability or the effective vindication doctrine set forth in the Supreme Court’s Mitsubishi decision (and later questioned in the Supreme Court’s American Express decision). Just recently, I read a case about arbital discovery limits, from the front end. Beco v. Fast Auto Loans, Inc., 2022 WL 17038163, at *10 (Cal. Ct. App. Nov. 17, 2022) (although reasonable limits on discovery are appropriate for arbitration, “giving the arbitrator unfettered discretion” whether to permit discovery or not makes the arbitration agreement substantively unconscionable.) I’ve written a law review article about these “front-end” arbitral discovery cases, “A Constitutional Right To Discovery? Creating and Reinforcing Due Process Norms Through the Procedural Laboratory of Arbitration.” (click here for a copy of the article). I’m more accustomed to seeing “front-end” judicial review regarding arbitral discovery, and this recent Lindsey case caught my attention because it involves a rare vacatur and “back-end” judicial review of arbitral discovery matters.
The Lindsey court conceptualizes this denial of a discovery request as a refusal to hear material evidence under section 10 of the FAA. Consider the following three examples: (A) an arbitrator’s refusal to allow claimant’s witness X to testify at the hearing; (B) an arbitrator’s refusal to allow claimant to cross-examine respondent’s witness Y at the hearing; and (C) an arbitrator’s refusal to allow a claimant to take a deposition or seek other pre-hearing discovery from the respondent (or a third party non-signatory). Further suppose that the arbitrator’s thoughtful reasoning in each of these refusals was based on a finding that the information is not relevant. Should these situations be analyzed differently for purposes of vacatur under section 10 for refusal to hear pertinent and material evidence?
Whether the right to present material evidence suggested by section 10 of the FAA embodies a right to uncover evidence through discovery reminds me of a debate about section 7 of the FAA. Although the situations are not identical, there are some parallels. Does the section 7 subpoena power include both compelled testimony of witnesses at a hearing in front of the arbitrators as well as pre-hearing discovery or depositions? Or should the section 7 subpoena power be interpreted differently and as limited to forcing witnesses to attend an evidentiary hearing in front of the arbitrators, as opposed to pre-hearing depositions? See Int’l Seaway Trading Corp. v. Target Corp., 2021 WL 672990, at *3 (D. Minn. Feb. 22, 2021) (discussing circuit split concerning section 7’s subpoena powers); compare In re Security Life Insurance Co. of America, 228 F.3d 865 (8th Cir. 2000) (implicit in the power to compel attendance at hearing is the power to order pre-hearing discovery), with Hay Group v. E.B.S. Acquisition Corp, 360 F.3d 404 (3d Cir. 2004) (section 7 does not cover pre-hearing discovery). In an analogous manner, does the “refus[al] to hear evidence” vacatur standard under section 10 refer to an arbitrator’s refusal to allow testimony or evidence at hearings, or is this vacatur standard broad enough to encompass an arbitrator’s denial of pre-hearing discovery requests to uncover more evidence? The court in Lindsey characterized the arbitrator’s error regarding discovery as a refusal to hear evidence, and as suggested by the cases taking a restrictive view of section 7, maybe this phrase “refus[al] to hear evidence” in section 10 should not cover pre-hearing discovery requests. (Section 10, however, covers situations beyond a refusal to hear evidence, and section 10 covers “any other misbehavior by which the rights of any party have been prejudiced.”) Borrowing from the circuit split regarding section 7’s subpoena power and taking into account the expansive view of section 7, one could argue that the right to present critical evidence under section 10 may imply a power to obtain critical evidence through discovery. But the opposing, more restrictive view of section 7’s subpoena power is that pre-hearing discovery was not envisioned by the FAA’s drafters during the 1920s, before the liberalization of discovery with the adoption of the Federal Rules of Civil Procedure in 1938. The restrictive view of section 7, whereby section 7 is limited to subpoenas for hearings, but not subpoenas for pre-hearing discovery, suggests a similar narrow reading for section 10.
The docket for this Lindsey case shows that the employer just filed a notice of appeal on November 17, 2022, and so we may get a decision from the Ninth Circuit addressing the issues raised in Lindsey.