Volt Info. Sciences v. Leland Stanford Jr. U

In Volt Info. Sciences v. Leland Stanford Jr. U. 489 U.S. 468 (1989), Stanford University filed suit against a construction contractor and two other companies in California superior court. The contractor responded with a motion to compel arbitration. The agreement between Stanford and the contractor involved interstate commerce, making it subject to the FAA. (See 9 U.S.C. 2; Volt, at pp. 471-472, 476.) There was no arbitration agreement between Stanford and the other two companies. The motion was brought pursuant to both the CAA and the FAA. (Volt, supra, 489 U.S. at p. 471, fn. 2; see Code Civ. Proc., 1281.2; 9 U.S.C. 4.) The contract required the arbitration of " 'all claims, disputes and other matters in question between the parties to this contract, arising out of or relating to this contract or the breach thereof ... .' " (Volt, at p. 470, fn. 1.) A choice-of-law provision stated, " 'The Contract shall be governed by the law of the place where the Project is located,' " namely, California. (Id. at pp. 470, 472, 474, 476.) Stanford moved to stay the arbitration under section 1281.2(c) on the ground that the claims against two of the defendants were not arbitrable. The superior court denied the contractor's motion to compel and granted Stanford's motion to stay the arbitration pending the outcome of the litigation. The Court of Appeal affirmed, concluding the choice-of-law provision incorporated the CAA's procedural provisions into the contract. The United States Supreme Court agreed, stating: "We do not think the Court of Appeal offended federal law by interpreting the choice-of-law provision to mean that the parties intended the California rules of arbitration, including the 1281.2(c) stay provision, to apply to their arbitration agreement. There is no federal policy favoring arbitration under a certain set of procedural rules; the federal policy is simply to ensure the enforceability, according to their terms, of private agreements to arbitrate. Interpreting a choice-of-law clause to make applicable state rules governing the conduct of arbitration--rules which are manifestly designed to encourage resort to the arbitral process--simply does not ... offend any ... policy embodied in the FAA." (Volt, supra, 489 U.S. at p. 476.) "We think the California arbitration rules which the parties have incorporated into their contract generally foster the federal policy favoring arbitration. ... The FAA itself contains no provision designed to deal with the special practical problems that arise in multiparty contractual disputes when some or all of the contracts at issue include agreements to arbitrate. California has taken the lead in fashioning a legislative response to this problem, by giving courts authority to consolidate or stay arbitration proceedings in these situations in order to minimize the potential for contradictory judgments. See Calif. Civ. Proc. Code Ann. 1281.2(c)." (Volt, at p. 476, fn. 5.) Volt continued: "The question remains whether ... application of Cal. Civ. Proc. Code Ann. 1281.2(c) is nonetheless pre-empted by the FAA to the extent it is used to stay arbitration under this contract involving interstate commerce. It is undisputed that this contract falls within the coverage of the FAA, since it involves interstate commerce, and that the FAA contains no provision authorizing a stay of arbitration in this situation." (Volt, supra, 489 U.S. at p. 476.) "We have held that the FAA pre-empts state laws which 'require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration.' ... But it does not follow that the FAA prevents the enforcement of agreements to arbitrate under different rules than those set forth in the Act itself. ... Such a result would be quite inimical to the FAA's primary purpose of ensuring that private agreements to arbitrate are enforced according to their terms. Arbitration under the FAA is a matter of consent, not coercion, and parties are generally free to structure their arbitration agreements as they see fit. Just as they may limit by contract the issues which they will arbitrate, ... so too may they specify by contract the rules under which that arbitration will be conducted. Where, as here, the parties have agreed to abide by state rules of arbitration, enforcing those rules according to the terms of the agreement is fully consistent with the goals of the FAA, even if the result is that arbitration is stayed where the Act would otherwise permit it to go forward. By permitting the courts to 'rigorously enforce' such agreements according to their terms, ... we give effect to the contractual rights and expectations of the parties, without doing violence to the policies behind by the FAA." (Volt, supra, 489 U.S. at pp. 478-479.) Volt declined to decide whether the procedural provisions of the FAA were intended to apply only in federal court, saying: "While the argument favoring that limitation is not without some merit, we need not resolve it to decide this case, for we conclude that even if the procedural provisions of the FAA are fully applicable in state-court proceedings, they do not prevent application of Cal. Civ. Proc. Code Ann. 1281.2(c) to stay arbitration where, as here, the parties have agreed to arbitrate in accordance with California law." (Volt, supra, 489 U.S. at p. 477, ) Thus, Volt left open the question of whether, in a case involving interstate commerce, the FAA's procedural provisions would apply in state court absent a choice-of-law provision incorporating state law. The United States Supreme Court upheld section 1281.2(c)'s application to an arbitration provision governed by the FAA. The construction contract for work to be performed in California contained a clause applying "the law of the place where the Project is located." (Id. at p. 470.) The high court concluded that the FAA did not preempt application of section 1281.2(c) "where, as here, the parties have agreed to arbitrate in accordance with California law." (Id. at p. 477.) It reasoned: "Just as parties may limit by contract the issues which they will arbitrate, so too may they specify by contract the rules under which that arbitration will be conducted. Where the parties have agreed to abide by state rules of arbitration, enforcing those rules according to the terms of the agreement is fully consistent with the goals of the FAA, even if the result is that arbitration is stayed where the FAA would otherwise permit it to go forward." (Volt, supra, 489 U.S. at p. 479.)