California Landmark Cases on the Enforceability of Arbitration Provisions
The Federal Arbitration Act (FAA) provides that a written arbitration agreement "shall be valid, irrevocable, and enforceable, save upon such grounds as exist in law or in equity for the revocation of any contract." (9 U.S.C. 2.)
Thus, the validity and enforceability of an arbitration agreement is governed by state law applicable to contracts generally to the extent it does not conflict with the FAA. (Sanchez v. Western Pizza Enterprises, Inc. (2009) 172 Cal.App.4th 154, at p. 165.)
This language is echoed in the California Arbitration Act, Code of Civil Procedure section 1280 et seq.
Code of Civil Procedure section 1281 states:
"A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract."
In deciding whether to enforce an arbitration agreement, California courts examine whether its terms are both procedurally and substantively unconscionable. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83 at p. 114.)
Procedural unconscionability focuses on oppression or unfair surprise; substantive unconscionability focuses on overly harsh or one-sided terms. (Sanchez, supra, 172 Cal.App.4th at p. 171.)
The two factors are interrelated and are to be balanced in determining the enforceability of an arbitration provision. "But they need not be present in the same degree. 'Essentially, a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves.' " (Armendariz, supra, at p. 114, citing 15 Williston on Contracts (3d ed. 1972) 1763A, pp. 226, 227.)
"The more procedural unconscionability is present, the less substantive unconscionability is required to justify a determination that a contract or clause is unenforceable. Conversely, the less procedural unconscionability is present, the more substantive unconscionability is required to justify a determination. " (Sanchez, supra, at p. 171.)
Strong public policies favor enforcement of agreements to arbitrate disputes. Under the California Arbitration Act (Code Civ. Proc., 1280 et seq.; CAA), "On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists ... ." (Code Civ. Proc., 1281.2.)
Under that provision, the court shall order arbitration of any dispute that it determines is within the parties' arbitration agreement unless the right to compel arbitration has been waived or the agreement is otherwise unenforceable. (Code Civ. Proc., 1281.2.)
Under both the CAA and the Federal Arbitration Act (9 U.S.C. 1 et seq.; FAA), arbitration agreements are "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." (9 U.S.C. 2; see AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 343-344 179 L.Ed.2d 742, 131 S.Ct. 1740, 1748; Rebolledo v. Tilly's, Inc. (2014) 228 Cal.App.4th 900, 912 175 Cal. Rptr. 3d 612.)
With respect to agreements to which the FAA applies, the federal policy favoring arbitration preempts any state law impediments to the policy's fulfillment. If a state law interferes with the FAA's purpose of enforcing arbitration agreements according to their terms, the FAA preempts the state law provision, no matter how laudable the state law's objectives. (AT&T Mobility LLC v. Concepcion, supra, 563 U.S. at p. 352 131 S.Ct. at p. 1753; Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 384 173 Cal. Rptr. 3d 289, 327 P.3d 129.) Under the supremacy clause of the United States Constitution (art. VI, cl. 2), the FAA requires any conflicting state law to give way. (Nitro-Lift Technologies, L. L. C. v. Howard (2012); Moses H. Cone Memorial Hospital v. Mercury Constr. Corp. (1983) 460 U.S. 1, 24-25 74 L.Ed.2d 765, 103 S.Ct. 927, 941 Under FAA "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration ...".)
Arbitration nevertheless is a matter of contract. No public policy favors requiring arbitration of issues that the parties have not agreed to arbitrate. (Rebolledo v. Tilly's, Inc., supra, 228 Cal.App.4th at p. 912; Mendez v. Mid-Wilshire Health Care Center (2013) 220 Cal.App.4th 534, 540-541 163 Cal. Rptr. 3d 80.) In ruling on a motion to compel arbitration, the court, guided by general principles of California law, must first determine whether the parties actually agreed to arbitrate the dispute. (Mendez v. Mid-Wilshire Health Care Center, supra, 220 Cal.App.4th at p. 541.)
Code of Civil Procedure sections 1281.2 and 1290.2 provide for summary proceedings in the trial court to resolve petitions to compel arbitration, in which the trial court sits as a trier of fact, weighing documentary evidence and any oral testimony that the court may hear in its discretion. (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972 64 Cal. Rptr. 2d 843, 938 P.2d 903; Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413 58 Cal. Rptr. 2d 875, 926 P.2d 1061.) In such proceedings the petitioner bears the burden of proving the existence of a valid arbitration agreement by a preponderance of the evidence, while a party opposing the petition bears the burden of proving any fact necessary to its defense. (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236 145 Cal. Rptr. 3d 514, 282 P.3d 1217.)