69 Cal.App.5th 357
Cal. Ct. App.2021Background
- Banc loaned N977CB Holdings $3.5 million on June 29, 2016 and the parties executed seven loan-related documents (promissory note, loan agreement, security agreement, assignment, insurance agreement, subordination agreement, UCC filings). None of those seven documents contained an arbitration clause.
- Seven weeks later (August 18, 2016) Banc, Holdings, and Jet Edge executed a separate Aircraft Usage Agreement that contained an arbitration clause incorporating AAA rules (including an arbitrator-delegation provision).
- Banc sued for breach of the loan documents (seeking repayment, enforcement of security, and rights under the charter agreement) and asserted two additional claims based on the Aircraft Usage Agreement; Banc later dismissed the two Aircraft Usage Agreement claims.
- Holdings (and Jet Edge) petitioned to compel arbitration of Banc’s remaining claims, arguing the Aircraft Usage Agreement’s arbitration clause (and incorporated AAA rules) delegated arbitrability to the arbitrator and that the clause should be read broadly to reach the loan-related disputes.
- The trial court granted the petition as to the threshold arbitrability question, relying on Henry Schein to hold that the AAA delegation authorized the arbitrator to decide arbitrability even though the disputed claims arise from different, non‑arbitration loan documents.
- The Court of Appeal granted Banc’s writ petition, vacated the trial court order, and held that the court—not an arbitrator—must decide in the first instance whether parties agreed to arbitrate disputes arising from contracts that do not contain arbitration clauses.
Issues
| Issue | Plaintiff's Argument (Banc) | Defendant's Argument (Holdings) | Held |
|---|---|---|---|
| Whether the arbitrator should decide arbitrability of disputes that arise from the loan documents (which lack arbitration clauses) because the Aircraft Usage Agreement contains an arbitration+delegation clause | The arbitration clause applies only to the Aircraft Usage Agreement; Banc dismissed those claims, so remaining loan-document disputes are not covered and the court must decide whether an agreement to arbitrate exists | The Aircraft Usage Agreement’s broad "relating to this Agreement" language plus incorporation of AAA rules (delegation) make arbitrability for related disputes a matter for the arbitrator | Court: Court must decide whether there is an agreement to arbitrate disputes arising from the loan documents; Holdings failed to show clear and unmistakable agreement to arbitrate those claims |
| Whether Schein requires deference to an arbitrator on arbitrability here (despite disputes arising from different contracts) | Schein addressed who decides scope under the same contract; it does not compel arbitration of disputes that arise from different contracts without arbitration clauses | Schein’s rule that delegation clauses displace judicial decision-making applies regardless of relatedness, and the AAA rules delegate arbitrability to the arbitrator | Court: Agrees with Moritz/Bautista — Schein does not apply where the threshold question is whether parties agreed to arbitrate disputes under a different, non‑arbitration contract |
| Whether the loan documents’ forum, jury‑waiver, and referee provisions indicate parties intended judicial resolution (undermining a reading that loan claims are arbitrable) | Loan documents expressly specify jurisdiction/venue, jury waivers, and referee procedures—showing intent to leave loan disputes to courts/referee, not arbitration | Forum provisions do not preclude arbitration; filing suit before moving to compel arbitration is common and not inconsistent with arbitration agreement elsewhere | Court: The presence of forum/jury/referee provisions in multiple loan documents supports that parties did not clearly and unmistakably agree to arbitrate loan‑document disputes |
Key Cases Cited
- Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (U.S. 2019) (where contract delegates arbitrability to arbitrator, courts must honor that delegation)
- AT&T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643 (U.S. 1986) (court decides arbitrability unless parties clearly and unmistakably provide otherwise)
- Granite Rock Co. v. International Brotherhood of Teamsters, 561 U.S. 287 (U.S. 2010) (disputes about contract formation are generally for courts)
- Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (U.S. 2010) (arbitration is a matter of contract)
- Moritz v. Universal City Studios LLC, 54 Cal.App.5th 238 (Cal. Ct. App. 2020) (arbitration clauses in earlier contracts did not compel arbitration of dispute arising from a later contract without an arbitration clause)
- Bautista v. Fantasy Activewear, Inc., 52 Cal.App.5th 650 (Cal. Ct. App. 2020) (Schein did not require deference to arbitrator because threshold question was whether an agreement to arbitrate existed for PAGA representative claims)
- Pinnacle Museum Tower Assn. v. Pinnacle Market Dev. (US), LLC, 55 Cal.4th 223 (Cal. 2012) (a party cannot be compelled to arbitrate disputes it did not agree to submit)