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« Court, not arbitrator, decides waiver issue | Main | A frolic of its own »

Volt revisited, with a twist
March 20, 2005 by Ross Runkel at LawMemo

The Federal Arbitration Act (FAA) preempts state law that is contrary or frustrates the FAA's purposes. But parties can agree to state law arbitration rules and avoid FAA preemption. A simple matter of allowing folks to voluntarily opt out of the FAA. Volt Information Services v. Stanford University 489 US 468 (1989).

Cronus Investments v. Concierge Services (California 03/10/2005) put a twist on Volt.

The parties agreed to follow California law, and that the designation of California law "shall not be deemed an election to preclude application of the [FAA], if it would be applicable." A multi-party set of disputes arose, involving six agreements, some with and some without arbitration clauses. All this went to court, and the trial judge stayed the arbitrations pending resolution of the court litigation - as allowed by California Code of Civil Procedure 121.2 subdivision (c).

State law question - choice of laws

The California Supreme Court held that agreeing to use California law meant agreeing to use California's arbitration statutes.

Federal law question - preemption

(1) The court saw no actual conflict between the FAA and the California statute. This was based in large part on a finding that FAA Sections 3 and 4 (directing "courts of the United States" to stay court trials until arbitration has taken place, and directing "United States district court[s]" to order parties to proceed to arbitration) do not apply in state courts, and thus have no preemptive effect.

(2) The court saw no conflict with the spirit of the FAA, and said that the state law actually fosters the federal policy favoring arbitration. "It is an evenhanded law that allows the trial court to stay arbitration proceedings while the concurrent lawsuit proceeds or stay the lawsuit while arbitration proceeds to avoid conflicting rulings on common issues of fact and law amongst interrelated parties."

Significance of the case

I would not read much "law" into this case. It really means only that the parties are allowed to decide for themselves whether they want the procedural rules of the FAA or the procedural rules of the state statute to control.

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