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State & Federal Laws On Contractual Arbitration: State Or Federal Arbitration Law? Why? How?

By George W. Wolff, Esq.

Issue

State Law

Federal Law

1.

Cite/Substantive Law

CCP § 1280 et seq.
"Valid, irrevocable and enforceable, save upon such grounds as exist for the revocation of any contract."

9 U.S.C § 1 et seq.
"Valid, irrevocable and enforceable, save upon such grounds as exist in law or equity for the revocation of any contract."

2.

Application/Scope

Extent of State legislative jurisdiction.

"Transaction involving [interstate] commerce"
9 U.S.C. § 2 - involves full extent of Commerce Clause Power.
- does not create federal question jurisdiction.
- need other basis for District Court jurisdiction.

3.

Applicable Law/Choice of Law

Aral v. Earthlink (2005) 134 C.A.4th 544- can chose other than CA law by contract.

Volt Information Sciences v. Stanford (1989) 109 S.Ct. 1248- can chose state law by contract, even if FAA otherwise would apply.

4.

Preemption:
Substantive v. Procedural











-why would you want FAA to preempt state law?

9. U.S.C. § 2
- applies in state court to pre-empt inconsistent local law.
- Woolls v. Turner (2008)127 C.A.4th 197; Shepard v. Mckay (2007) 148 C.A.4th 1042. - contract must involve interstate commerce.

Allied-Bruce v. Terminex (1995) 115 S.Ct. 834 - interstate commerce involved.
- Muao v. Grovesnor (2003) 99 C.A.4th 1085
- state procedural provisions not preempted - sections after 9 U.S.C. § 3 are procedural only and don't preempt state law.

5.

Types of Agreements
- Broad







- Narrow

- Self-executing



- Party arbitrators, one neutral



"Any and all disputes arising out of or related to".
- includes torts - Shepard v. McKay (2007) 148 C.A.4th 1092
"Disputes concerning ____".

-3rd party administration/rules.
- CCP § 1281.92, 1281.96
(Consumer).



- Simula v. Autoliv (9th 1999) 175 F.3d 716.

6.

Compelling Arbitration
Court vs. Arbitrator Jurisdiction

Usually heard as a motion, on the papers-CCP § 1290 et seq.
same.

Court decides validity of arbitration clause, arbitrator decides validity of contract- Higgins (2006) 140 C.A.4th 1238.























Dream Theater, Inc. (2004) 124 C.A.4th 547 - AAA rules (new) incorporated by reference in arbitration clause give arbitrator power to rule on own jurisdiction, including "existence, scope or validity of the arbitration agreement", unless "wholly groundless".

Court can't consider merits of dispute - CCP § 1281.2( c).

There can be an evidentiary hearing, possible jury trial - 9 U.S.C § 4.



Court determines if contract contains valid arbitration agreement unless contract provides otherwise. First Options of Chicago v. Kaplan (1995) 514 U.S. 938

Arbitrator decides scope of agreement, recission, validity of contract.
Sanford v. Memberworks (9th, 2007) 483 F.3d 956, 962.

Arbitration agreement can been enforced even if contract is invalid Buckeye Check Cashing (2006) 126 S.Ct. 1204 (contract invalid under state law) - arbitrator decides validity of contract, court decides validity of arbitration clause.

Qualcomm v. Nokia (Fed, 2006) 466 F.3d 1366 - cites/follows Dreams.















Buckeye Check Cashing (2006) 126 S.Ct. 1204.

7.

Defenses to Enforcement

CCP § 1281.2 (c)
- Statutory - other actions/parties.

- Fraud in the factum as to arb clause only, not contract.
Rosenthal v. Great Western 14 C.4th 394.

- signing/initialing separate arbitration provision - e.g., B.&P. § 7191; CCP § 1298( c).

- attorney fee arbitrations.
- B.&P. § 6200, et seq.
- Ervin, Cohen v. Jessup (2007) 147 C.A.4th 821 (notice of client's right first).

9 U.S.C. § 2
- possible preemption of state law - CCP § 1281.2(c).

-Fraud as to arbitration clause only. Sparling v. Hoffman Const (9th 1988) 864 F.2d 635.





- but may be preempted - Hedges v. Carrigan (2004) 117 C.A.4th 578;







- preemption?





Bankruptcy - not a defense.
Whiting-Turner Contracting Co (11th, 2007)479 F.3d 791 (contractor defending subontractor/debtor's claim filed motion to compel arbitration) - non-core proceedings, relief from stay?

8.

Waiver

CCP § 1281.2, A 1281.5
- litigation or discovery on merits is prejudice- Keating (1982) 31 C.3d 584.
- recording lis pendens not waiver - CCP § 1298.5.
- filing mechanics lien action not waiver CCP § 1281.5.
- filing demurrer is not waiver- Groom v. Healthnet (2000) 82 C.A.4th 1189.
- waiver by delay, fraud in the inducement of agreement, breach of fiduciary duty
- Engalla v. Permanente (1997) 15 C.A.4th 951.

9 U.S.C. §§ 3,4
Fisher v. A.G. Becker Paribas (9th, 1986) 791 F.2d 691- knowledge, inconsistent actions, prejudice.

9.

Unconscionablility
- especially in consumer, employment context

Armendariz
(2000) 24 C.4th 83 - Substantive vs. procedural.
- adhesion contracts/unequal bargaining power, and harsh or one-sided provisions.
Ontiveros (2008) 164 C.A.4th 494 - can unconscionable provisions he severed?

Lowden v. Mahowald (9th, 2008) __ F.3d ___
- Shrager v. New Cingular Wireless (9th, 2007) 498 F.3d 976 - removed on federal question.
- class action waiver (state law applied).
- no pre-emption of state law under FAA .

10.

Statues of Limitation
- Protection/Jurisdiction to decide

- filing arbitration does not protect against statute.
- for arbitrator to decide
Wagner Const v. Pacific Mechanical (2007) 41 Cal.4th 19.

11.

Other Specific Types of Arbitration

Real Estate, CCP § 1298, et seq.,
International Public Contract,
CCP § 1297 et seq.,
Public Contract, CCP § 1296 Labor arbitration- different world.

9 U.S.C § 201 et seq. - convention on enforcement of foreign arbitration awards.
9 U.S.C. § 301 et seq. - Inter-American convention on international commercial arbitration.

12.

Consolidation

CCP § 1281.3
- court can resolve conflicts in arbitration agreements
- even if contracts prohibit it-
Garden Grove (1983) 140 C.A.3d 251.

No express statutory provision.

13.

Class Arbitration

Blue Cross (1998) 67 C.A.4th 42.

Green Tree Financial v. Bazzle (2003) 123 S.Ct. 2401 - whether contact permits it is for arbitrator to decide.

14.

Appealability of Order
Compelling Arbitration/Refusing to Compel Arbitration

Only appeal of order refusing arbitration CCP § 1294.


Zembsch (2005) 146 C.A.4th 153 - have to wait until an award is issued on merits to appeal order compelling arbitration.

Appeal of refusal to Compel Stays Court Action-
Varian Medical (2005) 35 C.A.4th 180-strategies?

9 U.S.C. § 16 - can appeal any order, grant or denied.
Green Tree Financial v. Rudolph (2000) 531 U.S. 79, 86: Sanford v. Memberworks, Inc.

15.

Effect of Order on Pending Action

CCP § 1281.4-
Must request a stay of pending action.
See also CCP § 1281.2(c)
re other parties, proceedings.

9 U.S.C. § 3-same, must be no delay in proceeding with arbitration.

16.

Interim Relief/ Trial Court Power during Arbitration

CCP § 1281.8 in Court during arbitration injunctions, receivers, attachment, etc.
- preempted by FAA?

No express statutory provision.

17.

Arbitrators
- appointment
- Fees

- Disclosures/Ethics



CCP § 1281.6.
CCP § 1284.2, 1284.3 (consumer).
CCP § 1281.85, 1281.9 et seq.- vacation for failure to disclose Haworth (2008) 164 C.A.4th 930 (sex).



9 U.S.C § 5


Issue - do state ethics standards, disclosure requirements apply to arbitration in California of a dispute over which District Court has jurisdiction?

18.

Discovery

CCP § 1282.2(a)(2) - if over $50,000 usually only documents, witnesses unless statute or agreement provides otherwise (15 days of the date hearing set).
AAA vs. JAMS rules; terms of arbitration agreement.
CCP § 1283, 1283.05, 1283.1 - depositions with consent of arbitrator (sanctions by arbitrator), if in contract or if bodily injury or wrongful death involved.

19.

Subpoenas

CCP § 1282.6, 1283.2
- Superior Court can enforce
- AAA/JAMS rules.

9 U.S.C § 7
- District Court enforces.

20.

Hearings

CCP §§ 1282-1283
Out of State Attorneys ok, provided-
CCP § 1282.4.

CCP § 1282.2 (d) - No rules of evidence
Frontz (1964) 229 CA 3d 269.
- Summary Judgment?

AAA/JAMS rules.
Porter v. Golden Eagle Ins. (1996) 43 C.A.4th 1282 - Argument of issue/merits to arbitrator gives arbitrators power to decide the issue, even if the contract does not;
J.C.Gury Co. v. Nippon Carbide Indus. (2007) 152 C.A.4th 1300 (party reminded arbitrator of limits on his authority, but argued merits of non-arbitrable issue) (Hobson's choice).

21.

Award
- Powers of Arbitrators, ex aequo et bono

















AMD v. Intel (1994) 9 C.4th 362 - principles of justice and equity. "Drawn from contract".
- relief not related to contract terms - (computer chips)
Moncharsh v. Heily & Balse (1992) 3 C.4th 1- no review for legal error.

Hightower (2001) 86 C.A.4th 1415- interim and final awards.
Hudson Lumber (1954) 124 C.A.2d 717 - no reasoning required.
Krauler v. Johnson (1961) 189 C.A.2d - "award reached by paths neither markable nor traceable"- arbitrator need give not reasons for award (but AAA/JAMS rules, contract provisions requiring reasoned award, findings, etc.).

J. Alexander Securities (1993) 17 C.A.4th 1083 - FAA presumption in favor of arbitration gives arbitrators power to award punitive damages, unless agreement provides otherwise - choice of law provision in contract re New York law is not enough.

- split the baby- AAA study

22.

Correction

CCP § 1284 - by arbitrator - 30 days.
CCP § 1286.6
- by court
- miscalculation
- excess of powers
- imperfect award as to form
- if no effect on merits.

9 U.S.C. § 11
- miscalculation
- imperfect award, etc.

23.

Vacation

CCP § 1286.2
- 100 days
- fraud
- corruption
- misconduct
- acts in excess of powers
- failure to disclose
- violations of public policy.
Moncharsh; All Parts Traders (1989) 211 C.A.3d 723.
CCP § 1287 - rehearing by arbitrator after vacation.

9 U.S.C § 10
- fraud
- bias
- refusal to postpone hearing
- acts in excess of powers
- manifest disregard of
law/evidence.



9 U.S.C. § 10(b)
- court has discretion to order rehearing by arbitrator.

24.

Validity of Contractual Limits on Arbitrator's Power/Enhanced Judicial Review for Legal Error etc

Yes- can limit power of arbitrators & court can review acts in excess of power under CCP § 1286.2(a)(4).
Bonshire (1997) 52 C.A.4th 803 (evidence).
Cablevision v. Direct TV (CA.S.Ct. 2008) - issue re scope/standard of review.

Can't by contract give court additional powers beyond those in FAA.

Hall Street v. Mattel (2008) 128 S.Ct. 1396
- left open 9 U.S.C. § 10(a)(4).

25.

Confirmation

CCP § 1286, 1287.4, 1288
(4 years).

9 U.S.C. § 9, 12.

26.

Appeal of Court Order of Confirmation, Grant or Denial of Petition to Vacate, Resulting Judgment on Award

CCP § 1294 (unless rehearing is ordered)
De Novo review of trial court ruling.

9 U.S.C. § 16
- appeal of denial of motion to compel & stay, modification, vacation, confirmation of award.
- appeal of interlocutory order compelling arbitration, granting stay, denial of injunction against arbitration.

27.

Attorney Fee Awards

Ajida Techs (2000) 87 C.A.4th 534; Tate v. Saratoga Savings (1989) 216 C.A.3d 843 - arbitrator can award fees even if contract only provides for court awarded fees.
Di Marco v. Cheney (1995) 31 CA 4th 1809 - arbitrator awards fees for arbitration, court for court proceedings
Issue, when do you prove up your fees?
Rosenquist (1987) 192 C.A.3d 62
- retention of jurisdiction.
Otay River Constructors (2008) 158 C.A.4th 796- award on petition to compel arbitration only.

28.

Res Judicata Effect of Arbitration Award

Vandenberg (1999) 21 C.A.4th 815 (non-party insurer can't use arbitrator's findings)
LeVine (2005) 131 C.A.4th 566 - can also be used defensively by non-parties whose position is derivative of a party.
Liska v. Arns Law Firm (2004) 117 C.A.4th 275 - attorney fee arbitration doesn't bar malpractice, breach of contract claim/arbitration by client.
- also third party beneficiaries, alter egos.
-affirmative v. defensive use by their party.

For further information on the subject of this article or for legal questions on Mechanics Liens and other Construction Law issues on Private and Public construction jobs, please call George Wolff at (415)788-1881, x 222, or Contact Us via email.