Construction of Arbitration Clause: Clear Enough to Require Reversal of Order Denying Arbitration

 

First District, Division 3, Takes Practical Approach to Interpreting Arbitration Clause Between Two Merchants.

     The next case is a fount of curious factoids – such as (1) there is an American Spice Trade Association (ASTA) with its own set of arbitration rules; and (2) in 2009 a multi-state outbreak of Salmonella Rissen was traced back to Union products that contained white pepper. The outbreak of Salmonella Rissen led to Union suing its supplier Harris Freeman & Co., Inc., and to Harris Freeman moving, unsuccessfully, in the trial court, to compel arbitration in New York under the rules of the ASTA. Union International Food      Company v. Harris Freeman & Co., Inc., Case No. A132384 (1^st Dist. Div. 3 March 8, 2012) (authored by Siggins, J.) (not for publication).

     The trial court had denied the motion to compel arbitration on two grounds: “(1) Harris Freeman did not sufficiently advise Union of the specific terms and rules governing the proposed arbitration; and (2) the existence of a related third-party action raised the possibility of conflicting rulings and duplication of resources.”

     The Court of Appeal, however, found overwhelming evidence of a course of dealing whereby Union for several years accepted ASTA contracts containing arbitration clauses – even though Union didn’t always sign the contracts. The clauses were never questioned, and they “clearly and unequivocally” incorporated ASTA arbitration rules.

     Under Cal. Code of Civ. Proc. section 1281.2(c), a court may deny a request to arbitrate if “[a] party to the arbitration is also a party to a pending court action or special proceeding with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact.” While there may have been legitimate concern that other litigation involving product liability could generate conflicting results here, that concern had ceased to be an issue, because the related litigation had been settled and dismissed.

     The Court of Appeal has taken a pragmatic approach here to enforcing an arbitration clause between two merchants and holding them to it. Some of the considerations that are prominent in cases involving an employer and employee seem not to have troubled the Court, given that the contractual relationship was between two companies. Perhaps the Court would have been more troubled in an employee/employer context by the fact that some of the contracts were not signed, rules were not attached, there was an incorporation by reference, and the arbitration was to take place in New York. Indeed, the Court made short shrift of an unconscionability issue – the trial court “made no determination on whether Union met its burden of proof on the issue”, and besides, “Union’s evidence is far from overwhelming.”