SB 940 and the Changing Landscape of Arbitration in California

For decades, potential litigants have utilized arbitration, at least in part, as a means to reduce the scope and cost of discovery arising from claims and lawsuits. However, new legislation in California threatens to substantially drive up the cost of arbitration in the state.

In 2024, California passed Senate Bill 940 (SB 940), which became effective on January 1, 2025. SB 940 revises California Code of Civil Procedure Section 1283.05 to greatly expand the scope of discovery in all arbitrations.

Earlier versions of Section 1283.05 provided for arbitration discovery only if the parties specifically incorporated discovery into their agreement or if discovery was included by default in the case of personal injury or wrongful death. Now, through SB 940, the Legislature has extended the full scope of discovery rights to all arbitration claims in California. In other words, SB 940 permits the complete range of discovery in arbitration that parties would typically be permitted if their matter was being tried in state superior court. SB 940 gives the arbitrator power that is virtually as broad as a civil judge, including the right to issue subpoenas for discovery and to grant leave to conduct and control depositions. And while litigators are certainly familiar with depositions and subpoenas, there are several issues raised by SB 940 as to its applicability that are unclear.

The starting point of any arbitration is the contract between the parties, and that remains the same with SB 940. If the parties simply adopt California law and the California Arbitration Act (CAA) then it appears that the new revised version of Section 1283.05 will govern. But what if the parties choose to adopt American Arbitration Association (AAA) or Judicial Arbitration and Mediation Services (JAMS) rules? JAMS rules permit only one deposition by right and do not expressly allow for interrogatories, requests for production, or admissions, though the arbitrator may permit these on a showing of good cause. The AAA, on the other hand, vests the arbitrator with broad discretion to order “such discovery, by way of deposition, interrogatory, document production, or otherwise, as the arbitrator considers necessary to a full and fair exploration of the issues in dispute, consistent with the expedited nature of arbitration.” In this way, the AAA is more similar to SB 940 but also explicitly states that arbitrators should manage the exchange of information “with a view to achieving an efficient and economical resolution of the dispute.”

What if the parties adopt no standardized procedures and instead specifically spell out the scope of allowed discovery in their agreement? It remains to be seen whether appellate courts will find that SB 940 and the newly expanded Section 1283.05 will supersede JAMS or AAA rules, or the express agreements of contracting parties.

Further complicating matters is federal law, as the Federal Arbitration Act (FAA) is often cited by contracting parties and used to control arbitration. The FAA does not provide for discovery, and no witness depositions are permitted under the FAA. If the parties adopt the FAA for their arbitration, and no other provisions, a question of preemption potentially arises that pits the FAA against SB 940 and Section 1283.05.

SB 940 also raises a panoply of other questions. For example, SB 940 is effective January 1, 2025, but makes no mention of retroactivity. Are pending arbitrations now subject to the expanded scope of discovery? What about contracts entered into before January 1, 2025? And while the contracting parties are the primary focus of SB 940, arbitrators too will no doubt be affected as they find themselves having to control depositions and deal with increased requests for discovery from the parties. SB 940 grants arbitrators great power, like that of civil judges, but this will come with increased responsibility as well. As things currently stand, practitioners would do well to explain to their clients that the California Legislature has recently adopted a bill greatly expanding the scope of discovery allowed in civil arbitration cases, but it remains to be seen whether the new bill will preempt AAA/JAMS rules or federal rules. If clients choose to proceed with arbitration, there is a possibility that in the future, a state appellate court or even the state Supreme Court, could issue a ruling that expands the scope of discovery allowed in arbitration or finds that SB 940 preempts the arbitration procedures agreed to by the parties. On the business side, clients should have their in-house and transactional counsel closely track SB 940 as it works its way through the courts, to determine how best to draft their arbitration provisions in this evolving area of law, so that they will know in advance the nature and scope of the discovery obligations they will face in the event they must participate in arbitration proceedings.

For more information, please contact Dee Cohen Katz or Andrew Taylor.