It All Depends
Justice Gilbert addresses the issue of when federal preemption applies in consolidated appeals of Mastick v. TD Ameritrade, Inc. and Mastick v. Oakwood Capital Management, Inc., LLC, Nos. B237475 and B238070 (2nd Dist. Div. 6 October 9, 2012) (published). “We answer the question when it does with judges’ and lawyers’ habitual, exasperating response: it all depends.”
In the first appeal involving Mastick and Oakwood, the arbitration agreement provided for California choice of law. California Code of Civ. Proc. section 1281.2(c) provides that a court may deny a petition to arbitrate because of the risk of inconsistent rulings. Though the FAA governs arbitration provisions in contracts that involve interstate commerce (9 U.S.C. section 1), which happened to be the case here, nevertheless, the FAA is not inconsistent with section 1281.2 if the arbitration agreement is expressly governed by California law. Why? Because the FAA requires that the agreement be carried out according to the intent of the parties. Following those principles, the trial correct correctly applied section 1281.2 to deny the petition to compel arbitration.
The TD Ameritrade agreements, however, did not contain a California choice-of-law provision. Instead, the agreements provided that they would “be governed by the laws of the State of Nebraska,” and that disputes would be resolved by arbitration “in accordance with the rules of FINRA.” But Nebraska law, like the FAA, and unlike California law, does not expressly authorize a court to stay arbitration or refuse to enforce an arbitration provision to avoid duplicative proceedings or conflicting rulings. So here, the trial court erred by relying on California law and section 1281.2(c) to deny a petition to compel arbitration.
Thus, the denial of Oakwood’s petition to compel arbitration was affirmed, and the denial of TD Ameritrade’s petition to compel arbitration was reversed.
It just depends.
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