LA Unified Sch. Dist. v. Safety Nat. Casualty Corp.
B275597
Cal. Ct. App.Jul 12, 2017Background
- Los Angeles Unified School District sued 27 insurers (including Safety National) for refusing defense/indemnity for the Miramonte child-abuse litigation, seeking declaratory relief and >$200M; the action was designated complex.
- Safety National issued excess policies (early 1980s) containing an arbitration clause (three-member panel, St. Louis, decision by custom/usage of insurance business); the clause was silent as to choice of law or application of the FAA’s procedural provisions.
- Safety National moved to compel arbitration in California state court, arguing the FAA applied (policy involved interstate commerce) and federal procedure (9 U.S.C. §§ 3–4) required enforcement.
- LAUSD opposed, invoking Cal. Code Civ. Proc. § 1281.2(c) — permitting a court to refuse enforcement of arbitration if a party is also in a pending court action with third parties arising from the same transactions and there is a possibility of conflicting rulings — and argued FAA procedural provisions do not apply absent express incorporation.
- Trial court found the FAA’s substantive provisions applied but California procedural law governed (no express incorporation of FAA procedures) and denied the motion under § 1281.2(c) because arbitration could produce conflicting rulings on common issues (e.g., whether the Miramonte litigation was a single occurrence).
- Court of Appeal affirmed: California procedural rules apply absent explicit contractual adoption of FAA procedures, and the trial court did not abuse its discretion in denying the motion under § 1281.2(c).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FAA procedural provisions (§§3–4) govern a motion to compel arbitration in California state court when the arbitration clause is silent on choice of law or FAA procedures | FAA: state procedure (§1281.2(c)) applies absent express contractual adoption of FAA procedures | FAA procedures apply by default because the contract evidences interstate commerce and contains no choice-of-law clause | California procedural law applies in state court when the arbitration clause does not expressly adopt FAA procedural provisions; FAA substantive provisions still control |
| Whether §1281.2(c) may be invoked to deny enforcement where the party seeking arbitration is also party to pending litigation with third parties over related transactions | §1281.2(c) applies because parallel litigation against other insurers could produce conflicting rulings on common issues (e.g., single occurrence) | §1281.2(c) doesn't apply: transactions are separate (different policies/periods) and there is no real possibility of conflicting rulings or practical impact on defendant's excess coverage | Trial court did not abuse discretion: §1281.2(c) conditions satisfied (same series of related transactions and a possibility of conflicting rulings) |
| Whether pleadings/evidence burden exists to show likelihood of conflicting rulings under §1281.2(c) | No evidentiary burden; pleadings can suffice to show a possibility of conflict | Must show substantial evidence or likelihood of actual conflict | Court confirmed only a possibility of conflict is required; pleadings may constitute substantial evidence |
| Whether applying §1281.2(c) conflicts with the FAA’s policy favoring arbitration | Section 1281.2(c) does not frustrate FAA substantive policy and is consistent with FAA as applied in state courts | Application of §1281.2(c) would defeat FAA by allowing state courts to block arbitration | Held §1281.2(c) does not conflict with FAA’s substantive goals; state procedures may govern unless parties expressly adopt FAA procedural rules |
Key Cases Cited
- Volt Info. Sciences v. Leland Stanford Jr. U., 489 U.S. 468 (distinguishes FAA substantive and procedural provisions; parties may select state rules)
- Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213 (FAA mandates district courts compel arbitration in federal court without discretion)
- Cronus Investments, Inc. v. Concierge Services, 35 Cal.4th 376 (California: FAA substantive applies; state procedural law governs unless parties clearly intended FAA procedures)
- Rosenthal v. Great Western Fin. Securities Corp., 14 Cal.4th 394 (federal procedural rules of the FAA do not bind state courts when state procedures do not defeat FAA rights)
- Cable Connection, Inc. v. DIRECTV, Inc., 44 Cal.4th 1334 (sections 3 and 4 of FAA do not apply in state court)
- Acquire II, Ltd. v. Colton Real Estate Group, 213 Cal.App.4th 959 (section 1281.2(c) requires all statutory conditions to be met; pleadings can support possibility of conflicting rulings)