Arbitration: You say “California,” you get “California”

Parties who specify “California law” in a contract are have elected to subject it to California’s own rules governing arbitration, even if the agreement also it includes a general arbitration clause referring to the Federal Arbitration Act, according to the California Supreme Court.

California has a law that allows a state court to consolidate concedely arbitrable claims into a judicial action—and thus effectively take them away from arbitrators—where some parties to the dispute have not signed arbitration agreements and there is a possibility of inconsistent factual findings.  There is no similar provision in the FAA.  In this case, the parties specified “California law,” but also included an arbitration provision that said it was to be governed by the FAA.

Disapproving two of its prior decisions and a Ninth Circuit opinion, Wolsey, Ltd. v. Foodmaker, Inc., 144 F.3d 1205 . (9th Cir. 1998), the court held that merely mentioning the FAA did not preempt those parts of California’s law governing procedure.  While parties are free to invoke the FAA’s own procedures, a mere reference to the FAA will not do so.

Cronus Investments, Inc. v. Concierge Services, 35 Cal. 4th 376, 2005 Cal. LEXIS 2644 (March 10, 2005).