Construction of Mediation-Arbitration Clause/Venue/Severability: Third District Rules that California Subcontractor Refusing to Mediate in Nevada Did Not Violate Terms of Agreement Purporting to Require Mediation or Arbitration in Nevada

 

Case Involves Application of CCP Section 410.42 to Mediation/Arbitration Provision in Construction Contract

     Before becoming Chief Justice of the California Supreme Court, Justice Cantil-Sakauye authored the opinion in Templeton Development Corporation v. Superior Court [Dick Emard Electric, Inc. Real Party in Interest], 144 Cal.App.4th 1073, 51 Cal.Rptr.3d 19 (2006). Emard, an electrical contractor, sued petitioner Templeton, a general building contractor, for breach of contract and other claims. Templeton, relying on a contractual provision calling for mediation and arbitration in Nevada, unsuccessfully moved to dismiss Emard’s complaint on the ground of inconvenient forum. The trial court ruled that CCP section 410.42 rendered the out-of-state mediation provision unenforceable. Templeton sought a writ of mandate setting aside the trial court’s order denying their motion to dismiss for inconvenient forum, or alternatively remanding to determine whether the Federal Arbitration Act (FAA) preempted the California statute.

     Section 410.42 provides in pertinent part that, a “contract between the contractor and a subcontractor with principal offices in this state, for the construction of a public or private work of improvement in this state, shall be void and unenforceable: (a) A provision which purports to require any dispute between the parties to be litigated, arbitrated, or otherwise determined outside this state.”

     First, the Court of Appeal concluded that section 410.42 applied to the dispute, because the mediation provision requiring Nevada mediation purports to require a dispute between the parties to be “otherwise determined outside this state.” Therefore, the subcontract was void under section 410.42 to the extent that any mediation was to be held in Nevada.

     Second, however, section 410.42 did not entirely void the mediation provision, because the doctrine of severance could be applied to allow for mediation, but in California -- and apparently Emard offered to mediate in California, but Templeton failed to respond to that request.

     Third, Emard was not compelled to arbitrate in Nevada, because mediation was a condition precedent to arbitration, not to litigation. Under the contract, the only consequence of refusing to mediate was that it could ultimately affect an award of attorney’s fees (and it was not clear that Emard refused to mediate, only that it refused to mediate in Nevada).

     The Court of Appeal did not reach the issue of FAA preemption.