The Holding Fills A Gap In California Law.
Los Angeles Unified School District v. Safety National Casualty Corporation, B275597 (2/8 7/12/17) (Grimes, Bigelow, Sortino) addresses a problem that can bedevil litigators when a party seeks to use California Code of Civil Procedure section 1281.2 to thwart arbitration. Section 1281.2 allows a court to deny a motion to compel arbitration based on the possibility of conflicting rulings in pending litigation with third parties. The provision is procedural in nature. The Federal Arbitration Act, however, requires that arbitration must go forward when there is an enforceable arbitration agreement. No ands, ifs, or buts. When does the FAA, which must be applied when interstate commerce exists, preempt state law?
The contours of preemption are generally well-established. Substantive aspects of the FAA apply where there is preemption, but procedural aspects of the FAA do not generally preempt state procedure, with an important exception. State rules of procedure apply in state court procedures except where such rules would defeat the purposes of federal law. It does not defeat the purposes of federal law to apply state procedure if the arbitration provision provides that state procedure shall apply -- after all, the FAA exists to carry out the intent of the parties who enter into an arbitration agreement.
The unanswered question has been: what happens if the FAA applies, because interstate commerce is involved, but the contract is silent about whether state or federal procedure applies? Is CCP section 1281.2 nevertheless preempted, because its application, which can hinder enforcing an arbitration agreement, would defeat the purposes of federal law? No, concludes the Court in Los Angeles Unified School District.
Los Angeles Unified School District holds that the procedural provisions of the FAA do not preempt the application of section 1281.2(c) where the arbitration agreement has no choice-of-law provision, and no provision stating the FAA's procedural provisions govern the arbitration. The explanation is that the California provision does not defeat the purposes of federal law. Read the case for further details.
The underlying case here was an offshoot of the Miramonte litigation that entangled the Los Angeles Unified School District in the defense of an appalling sexual abuse scandal, resulting in a $140M settlement. When the LAUSD sued one of its carriers, Safety National Casualty Corporation, the carrier unsuccessfully moved to compel arbitration in the superior court. The ruling of the Court of Appeal affirms the order denying the carrier's motion to compel arbitration with the LAUSD.
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