California Court of Appeal Upholds Limited Discovery in Arbitration

Prepared by Jeffrey N. Brown, Esq.
February 9, 2010

A recent decision by the California Court of Appeal for the Second Appellate District held that an arbitration provision in an employment contract that limited discovery was not unconscionable and, therefore, bound the parties. Dotson v. Amgen, Inc., 2d Civil No. B212965, January 21, 2010, published February 3, 2010.

Amgen, Inc. hired Dotson as an in-house counsel under an employment contract that contained an arbitration provision. The provision stated that “Each party shall have the right to take the deposition of one individual and any expert witness designated by another party.... Additional discovery may be had where the arbitrator selected pursuant to this agreement so orders, upon a showing of need.”

Four years later, Amgen fired Dotson and he then filed a lawsuit for wrongful termination. In response, Amgen filed a motion to compel arbitration of Dotson’s claims. The trial court denied Amgen’s motion, finding that the discovery provision of the arbitration agreement was unconscionable, making the entire arbitration agreement unenforceable.

The appellate court held that California courts analyze arbitration provisions to determine if they are both procedurally and substantively unconscionable. Procedural unconscionability refers to oppression or unfair surprise, while substantive unconscionability focuses on overly harsh or one-sided terms. The court held that there is a sliding scale in the analysis; the more procedural unconscionability that is present, the less substantive unconscionability is needed to justify a ruling that the arbitration provision is unenforceable.

The appellate court focused on substantive unconscionability, finding that there was only a minimal level of procedural unconscionability primarily because Dotson was a trained attorney who entered into the contract in exchange for a “generous compensation and benefits package.” The trial court held the provision unconscionable because, though it allowed for each party to take one percipient witness deposition, expert depositions, and any other depositions ordered by the arbitrator based upon need, the provision did not provide the wide open discovery allowed during California litigation. The appellate court disagreed with the trial court, first holding that “arbitration is meant to be a streamlined procedure. Limitations on discovery, including the number of depositions, is one of the ways streamlining is achieved.” “‘Adequate’ discovery does not mean ‘unfettered’ discovery.” The appellate court then held that the agreement gave the arbitrator broad discretion to order the discovery “needed to sufficiently [arbitrate] the parties’ claims.” Based on this finding, the appellate court held that the provision was not unconscionable, reversed the decision of the trial court and ordered that arbitration be compelled.

One of the primary reasons that parties agree to binding arbitration is the hope that resolution can be obtained less expensively and more expeditiously than through litigation. The discovery process is one of the most expensive aspects of litigation. Therefore, in many arbitration provisions, the parties agree to limit the otherwise broad discovery allowed in litigation. The importance of the Dotson decision is that it recognizes that limitations on arbitration discovery are acceptable as long as the parties are given sufficient ability to pursue their claims. The Dotson court held that permitting the arbitrator to order additional discovery “for need” was sufficient to make the arbitration provision enforceable.

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