Opinion
The California Association of Realtors publishes and periodically revises a standard form residential purchase agreement commonly used in California. The agreement contains an arbitration provision. We previously interpreted the October 2000 version of the agreement, concluding that, under the California Arbitration Act (CAA) (Code Civ. Proc., §§ 1280-1294.2), the trial court had the authority to stay or deny arbitration where (1) some of the parties to the action were not parties to the agreement,
The Federal Arbitration Act (FAA) (9 U.S.C. §§ 1-16) does not permit a trial court to stay or deny arbitration in those circumstances. Rather, the FAA requires the arbitration of all claims within the scope of an arbitration provision even if the action includes nonarbitrable claims by or against third parties. (See 9 U.S.C. §§ 3, 4.)
In accordance with choice-of-law principles, the parties may limit the trial court’s authority to stay or deny arbitration under the CAA by adopting the more restrictive procedural provisions of the FAA. Here, the question is whether the October 2002 version of the residential purchase agreement (Agreement), unlike the earlier version we interpreted, incorporates the FAA’s procedural provisions. The Agreement states, as did its predecessor, that disputes arising out of the Agreement shall be “decided by neutral arbitration as provided by California law,” and the arbitrator’s decision “shall be rendered in accordance with substantive California Law.” The only material difference is the addition of a single sentence: “Interpretation of this agreement shall be governed by the [MA].” (Italics added.)
We conclude that, by adopting the FAA for purposes of contract interpretation, the parties did not displace the procedural provisions of the CAA. Both the FAA and the CAA employ the same principles of contract interpretation. Thus, regardless of which act governs the interpretation of the Agreement, the result is the same: Under the “plain meaning” rule, the Agreement’s choice-of-law provision requires the application of the CAA’s procedural provisions. The trial court had the authority under the CAA, which it properly exercised, to deny arbitration and to join all parties in a single action to be adjudicated in court. We therefore affirm.
I
BACKGROUND
The facts and allegations in this case are taken from the pleadings and the parties’ submissions on the motion to compel arbitration.
A. Complaint
On March 31, 2008, Jose A. Valencia and Maricela Mendoza (plaintiffs) filed this action. An amended complaint (complaint) was filed on June 11, 2008. It alleged as follows.
Letrado and Smyth convinced plaintiffs to offer $949,000 for the property. Velasco accepted the offer. Plaintiffs were unaware that Velasco was in default on his “mortgage” in the amount of $660,000 and that the property was in foreclosure. Plaintiffs made a downpayment of $175,000, which was wired to either Fidelity National Title Company or United Title Company (formerly known as New Century Title Company). Without informing plaintiffs, Velasco transferred ownership of the property to Smyth before the close of escrow. Smyth’s wife, Pam, executed interspousal transfer deeds to assist in the transaction. Reliable Trust Deed Services, Inc., became “a Trustee of the Deed of Trust in favor of Smyth.” At the time of closing, plaintiffs believed that Velasco was the property owner and that they were buying the property from him.
After escrow closed, plaintiffs regularly deposited funds into a designated bank account to cover the “mortgage,” insurance, taxes, and utilities. At some point, plaintiffs learned they had purchased the property from Smyth, not Velasco; they had been depositing funds into the Smyths’ personal checking account; and the Smyths, together with others, had misappropriated plaintiffs’ funds and used the money to finance other real estate transactions of their own.
In late 2007, Peter Smyth demanded that plaintiffs make additional “mortgage” payments, more than doubling the size of their monthly payment. Plaintiffs refused to make the additional payments, and Smyth initiated foreclosure proceedings.
The complaint named as defendants Peter Smyth, Pam Smyth, Letrado, Keller Williams Realty, United Title Company, Fidelity National Title Company, and Reliable Trust Deed Services, Inc. (collectively defendants). Plaintiffs alleged seven causes of action: fraud, conversion, breach of fiduciary duty, negligence, declaratory and injunctive relief, unfair business practices (Bus. & Prof. Code, §§ 17200-17210), and negligent infliction of emotional distress. They sought damages of at least $1 million.
B. Default and Discovery
Plaintiffs had difficulty serving process on the Smyths. Eventually, service was made by publication. The deadline for a responsive pleading passed.
Defendants took plaintiffs’ depositions over a four-day period. Plaintiffs produced more than 700 pages of documents in response to discovery requests.
C. Motion to Compel Arbitration
On March 17, 2009, the Smyths filed a motion to compel arbitration, relying on the arbitration provision in the Agreement, a standard form residential purchase agreement published by the California Association of Realtors. The Agreement, revised in October 2002, indicated that plaintiffs were the buyers, and Velasco was the seller. It identified the real estate agents and brokers by name. The arbitration provision stated:
“17. DISPUTE RESOLUTION:
“A. MEDIATION: Buyer and Seller agree to mediate any dispute or claim arising between them out of this Agreement, or any resulting transaction, before resorting to arbitration or court action. . . .
“B. ARBITRATION OF DISPUTES: (1) Buyer and Seller agree that any dispute or claim in Law or Equity arising between them out of this Agreement or any resulting transaction, which is not settled through mediation, shall be decided by neutral, binding arbitration .... The arbitrator shall be a retired judge or justice, or an attorney with at least 5 years of residential real estate Law experience, unless the parties mutually agree to a different arbitrator, who shall render an award in accordance with substantive California Law. The parties shall have the right to discovery in accordance with California Code of Civil Procedure § 1283.05. In all other respects, the arbitration shall be conducted in accordance with Title 9 of Part III of the California Code of Civil Procedure. Judgment upon the award of the arbitrator(s) may be entered [in] any court having jurisdiction. Interpretation of this agreement to arbitrate shall be governed by the Federal Arbitration Act. [¶]... [¶]
“ ‘NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE “ARBITRATION OF DISPUTES” PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL.BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE “ARBITRATION OF DISPUTES” PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.’
“ ‘WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE “ARBITRATION OF DISPUTES” PROVISION TO NEUTRAL ARBITRATION.’ ” (Italics & boldface added.)
Plaintiffs initialed the spaces for the buyers. Velasco initialed as the seller.
In support of the motion to compel arbitration, Peter Smyth asserted that, as the owner and seller of the property, he was Velasco’s assignee and could enforce the arbitration provision. Pam Smyth argued that, because she had been a joint owner of the property with her husband, she could enforce the arbitration provision as a third party beneficiary. Together, the Smyths argued they had not waived their right to arbitration by delaying the motion to compel or by engaging in discovery. They also contended the trial court had no authority to stay or deny arbitration under the CAA because the Agreement adopted the FAA’s procedural provisions.
Plaintiffs opposed the motion to compel, arguing the Smyths had waived any right to arbitration by delay in seeking arbitration and by participating in discovery. Plaintiffs also argued the Smyths were not parties to the Agreement and thus could not invoke the arbitration provision, and, in any event, the trial court should stay or deny arbitration under the CAA and consolidate all of the claims, arbitrable and nonarbitrable, for determination in court. Plaintiffs requested a stay or denial of arbitration pursuant to Code of Civil Procedure section 1281.2, subdivision (c) (hereafter section 1281.2(c)), which provides: “On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a 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, unless it determines that: [¶] . . . [¶] (c) A party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact. . . . [¶]••• [¶] If the court determines that a party to the arbitration is also a party to litigation in a pending court action or special proceeding with a third
D. Trial Court’s Ruling
The motion was heard on April 14, 2009. After argument, the trial court continued the hearing to allow the parties an opportunity to discuss settlement. The case did not settle. On May 18, 2009, the trial court denied the motion and issued a final order. The order recited that Peter Smyth could enforce the arbitration provision as Velasco’s assignee; Pam Smyth had no standing to seek arbitration; and Peter Smyth had waived any right to arbitration by delay in bringing the motion and by participating in discovery. The trial court also invoked its authority under section 1281.2(c), denying arbitration and joining all parties in a single action to be adjudicated in court.
The Smyths appealed.
II
DISCUSSION
The Smyths contend (1) the trial court erred by finding they had waived their right to arbitration, and (2) the trial court lacked the authority to deny arbitration under section 1281.2(c) because the parties had adopted the procedural provisions of the FAA. In addition, Pam Smyth argues she had standing to invoke the Agreement’s arbitration provision.
Based on the plain meaning of the arbitration provision, we conclude the parties agreed that the CAA, not the FAA, would govern the arbitration. Further, the trial court did not abuse its discretion in denying arbitration given the possibility of conflicting rulings if the claims against the Smyths had been arbitrated and the claims against the remaining defendants had been adjudicated in court. Because we conclude the trial court properly denied the motion to compel arbitration under section 1281.2(c), we do not address the Smyths’ other contentions.
A. Standard of Review
The question of whether the Agreement incorporated the FAA’s procedural provisions, thereby eliminating the trial court’s authority under section
We interpret the Agreement and section 1281.2(c) in light of their plain meaning. (See
Zakarian v. Bekov
(2002)
B. Arbitration and Choice of Law
In a series of cases, the United States Supreme Court, the California Supreme Court, and the California Courts of Appeal have discussed whether and when the FAA’s procedural provisions apply in state court.
1. Volt
In
Volt Info. Sciences v. Leland Stanford Jr. U.
(1989)
The motion was brought pursuant to both the CAA and the FAA.
(Volt, supra,
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,
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,
2. Rosenthal
That question was before our Supreme Court in
Rosenthal v. Great Western Fin. Securities Corp.
(1996)
Section 4 of the FAA (9 U.S.C. § 4) provides: “A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any
United States district court
which, save for such agreement, would have jurisdiction under Title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement. . . . The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. ... If the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue,
In
Rosenthal, supra,
“ ‘Section 2 is a congressional declaration of a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary. The effect of the section is to create a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the [FAA].’ . . . The rule of enforceability established by section 2 of the [FAA] preempts any contrary state law and is binding on state courts as well as federal. . . .
“The policy of enforceability stated in section 2 of the [FAA] is implemented in the remaining sections of the [act], especially sections 3 and 4, which concern attempts to resist arbitration or to litigate an issue subject to arbitration. Section 3 requires any court ‘of the United States’ to grant a party’s request for a stay of litigation on an arbitrable issue, pending completion of the arbitration. (9 U.S.C. § 3.) Section 4 requires a ‘United States district court’ to entertain an application to compel arbitration. (9 U.S.C. § 4.) . . . The court is to order arbitration if satisfied ‘that the making of the agreement for arbitration or the failure to comply therewith is not in issue.’ If such an issue is presented, the court is to ‘proceed summarily to the trial thereof.’ . . . Despite the summary nature of the proceeding [under section 4], the party resisting arbitration may demand a jury trial on issues of the existence of the arbitration agreement or the party’s default thereunder. . . .
“. . . Code of Civil Procedure section 1281.2 . . . , like the [FAA’s] section 4, provides a procedure by which a party may petition the court to order
“The question thus arises whether section 4 of the [FAA], or sections 1281.2 and 1290.2 [of the CAA], provide the procedure to be followed in a California court in a case where the [FAA] governs arbitrability of the controversy. ... In light both of the specific language of the [FAA] and of general principles of federal preemption, we conclude the [FAA] does not require California courts to hold a jury trial on the existence of an arbitration agreement. . . .
“Section 4 of the [FAA] does not explicitly govern the procedures to be used in state courts. . . . [T]he statute contemplates a petition in ‘United States district court,’ and provides that certain steps are to be taken ‘in the manner provided by the Federal Rules of Civil Procedure.’ This language has led the United States Supreme Court to express its doubt that section 4 is applicable in state courts. ... [¶].. . [¶]
“The question whether a jury trial is called for . . . requires us to go beyond the language of section 4 of the [FAA] and apply broader principles of federal preemption. It is a ‘general and unassailable proposition . . . that States may establish the rules of procedure governing litigation in their own courts,’ even when the controversy is governed by substantive federal law. . . . ‘By the same token, however, where state courts entertain a federally created cause of action, the “federal right cannot be defeated by the forms of local practice.” ’ . . .
“Like other federal procedural rules, therefore, ‘the
procedural provisions of the [FAA] are not binding on state courts
. . . provided applicable
state procedures
do not defeat the rights granted by Congress.’ . . . We think it plain the
California procedures
for a summary determination of the petition to compel arbitration serve to further, rather than defeat, the enforceability policy of the [FAA]. Sections 1281.2 and 1290.2 are neutral as between state and federal law claims for enforcement of arbitration agreements. They display no hostility to arbitration as an alternative to litigation; to the contrary, the summary procedure provided, in which the existence and validity of the arbitration agreement is decided by the court in the manner of
“[Plaintiffs maintain the use of a motion procedure to decide the petition to compel arbitration violates the [FAA] because it constitutes a special rule for arbitration agreements, not applicable to contracts generally. . . . [S]ection 2 of the [FAA], where applicable, precludes states from ‘singling out arbitration provisions for suspect status, requiring instead that such provisions be placed “upon the same footing as other contracts.” ’ . . . Thus, a substantive state law rule may be applied to agreements subject to the [FAA] only if the state law ‘arose to govern issues concerning the validity, revocability and enforceability of contracts generally.’ . . . Contrary to plaintiffs’ claim, however, nothing in the California procedures violates this principle. Sections 1281.2 and 1290.2 establish no special rule of nonenforceability applicable only to arbitration agreements. Nor do the California procedures place arbitration agreements at a disadvantage compared to other contracts, or single them out for suspect status. Our statutes do establish procedures for determining enforceability not applicable to contracts generally, but they do not thereby run afoul of the [FAA’s] section 2, which states the principle of equal enforceability, but does not dictate the procedures for determining enforceability.”
(Rosenthal, supra,
3. Mount Diablo
In
Mount Diablo Medical Center
v.
Health Net of California, Inc.
(2002)
On appeal, Health Net asserted the FAA’s procedural provisions were applicable because (1) the contract involved interstate commerce, and (2) the choice-of-law provision made no reference to arbitration. The Court of Appeal rejected that assertion, saying: “The choice-of-law provision in the present case may be ‘generic’ in the sense that it does not mention arbitration or any other specific issue that might become a subject of controversy, but it is nonetheless broad, unqualified and all-encompassing. It provides that ‘[t]he validity, construction, interpretation and enforcement of this Agreement’ shall be governed by California law. The explicit reference to enforcement reasonably includes such matters as whether proceedings to enforce the agreement shall occur in court or before an arbitrator. Chapter 2 (in which § 1281.2 appears) of title 9 of part III of the California Code of Civil Procedure is captioned ‘Enforcement of Arbitration Agreements.’ An interpretation of the choice-of-law provision to exclude reference to this chapter would be strained at best.”
(Mount Diablo, supra,
The
Mount Diablo
court also discussed whether section 1281.2(c) was inconsistent with the FAA’s primary goal of ensuring that arbitration agreements are enforced according to their terms: “Section 1281.2(c) is not a provision designed to limit the rights of parties who choose to arbitrate or otherwise to discourage the use of arbitration. Rather, it is part of California’s statutory scheme designed to enforce the parties’ arbitration agreements, as the FAA requires. Section 1281.2(c) addresses the peculiar situation that arises when a controversy also affects claims by or against other parties not bound by the arbitration agreement. The California provision giving the court discretion not to enforce the arbitration agreement under such circumstances—in order to avoid potential inconsistency in outcome as well as duplication of effort—does not contravene the letter or the spirit of the FAA. . . . Thus, there is no reason why the broad language of the choice-of-law clause in this case, calling for the enforcement of the agreement under California law, should not be read to invoke the provisions of section 1281.2(c).”
(Mount Diablo, supra,
4. Cronus
In
Cronus Investments, Inc. v. Concierge Services
(2005)
For several reasons, the Supreme Court concluded the FAA did not preempt section 1281.2(c). First, the court examined the language and legislative history of the FAA’s procedural provisions, observing: “The language used in sections 3 and 4 [(9 U.S.C. §§ 3, 4)] and the legislative history of the FAA suggest that the sections were intended to apply only in federal court proceedings.”
(Cronus, supra,
In closing,
Cronus
commented: “Our opinion does not preclude parties to an arbitration agreement [from]
expressly
designating] that any arbitration proceeding should move forward under the FAA’s procedural provisions rather than under state procedural law. We simply hold that the language of the arbitration clause in this case, calling for the application of the FAA ‘if it would be applicable,’ should not be read to preclude the application of 1281.2(c), because it does not conflict with the applicable provisions of the
5. Rodriguez
In
Rodriguez, supra,
The Court of Appeal reversed, stating: “The contract specifies that claims shall be arbitrated ‘pursuant to the FAA.’ In common understanding, the phrase ‘pursuant to’ means ‘in conformance to or agreement with’ and ‘according to.’ . . . Plainly, the language of the contract requires the parties to arbitrate ‘in conformance to’ and ‘agreement with’ the FAA. There is no other contract provision suggesting the parties intended to incorporate California arbitration law, nor is there any language suggesting the parties intended to arbitrate ‘in conformance to’ some provisions of the FAA but not others. The phrase ‘pursuant to the FAA’ is broad and unconditional, unlike the Cronus clause, which deferred to the contract’s California choice-of-law provision by invoking only ‘applicable’ provisions of the FAA. . . .
“. . . [T]here is no ambiguity regarding the parties’ intent. They adopted the FAA—all of it—to govern their arbitration. The FAA controls, including section 3 which requires the court to stay the judicial proceeding and compel arbitration. Although section 3 may not generally apply to state courts, here the parties did as Cronus suggested they could: They expressly designated their arbitration proceeding ‘should move forward under the FAA’s procedural provisions rather than under state procedural law.’ . . .
“Thus, the [trial] court erred by denying [the defendant’s] motion to compel arbitration and stay the court proceeding as to plaintiffs and [the defendant]. . . . While we may question the wisdom of the parties’ choice, and decry the potential for inefficiency, delay, and conflicting rulings, the parties were free to choose their arbitration rules. The court will not rewrite their contract.”
(Rodriguez, supra,
In
Warren-Guthrie v. Health Net
(2000)
“We conclude the [contract] is sufficiently clear in stating that arbitration is required. No other exception is specified. Agreement to apply California contractual arbitration law is expressly limited to that law which bears on how the arbitration shall be conducted, as distinguished from agreeing that the [contract] shall be governed by California law for all purposes, including the determination as whether or not arbitration is required. There being no such express language to the contrary, and in light of the overriding state and federal policy of enforcing privately negotiated agreements to arbitrate in accordance with their terms . . . , we conclude the [contract’s] limited choice of law provision does not allow nonarbitration based on the section 1281.2(c) exception to arbitration. . . . Hence, under the FAA, the trial court erred in relying on section 1281.2(c) in denying [the] motion to compel arbitration.” (Warren-Guthrie, supra, 84 Cal.App.4th at pp. 815-816, citations & fti. omitted.)
7. DIRECTV
More recently, in
Cable Connection, Inc. v. DIRECTV, Inc.
(2008)
In
DIRECTV,
the parties were required to arbitrate any “ ‘claim arising out of the interpretation, performance, or breach of this Agreement.’ ”
(DIRECTV, supra,
The agreement contained two choice-of-law provisions, one for substantive law and one for procedural law. The former stated: “ ‘The arbitrators shall apply California substantive law to the proceeding, except to the extent Federal substantive law would apply to any claim.’ ” (Id. at p. 1341, fn. 3, italics added.)
The parties disagreed about the meaning of the
procedural
choice-of-law clause, which read: “ ‘[A]ny arbitration conducted hereunder shall be governed by the [FAA].’ ”
(DIRECTV, supra,
The enforcement proceedings in
DIRECTV
were brought in superior court, thus raising the question of whether the FAA’s provisions governing judicial review (9 U.S.C. §§ 10-11) applied in state court. On that point, our Supreme Court explained: “Section 2 of the FAA, declaring the enforceability of arbitration agreements, ‘createfs] a body of federal
substantive
law of arbitrability, applicable to any arbitration agreement within the coverage of the Act.’ . . . The FAA governs agreements in contracts involving interstate commerce, like those in this case. . . . The United States Supreme Court has frequently held that state laws invalidating arbitration agreements on grounds
“However, ‘the United States Supreme Court does not read the FAA’s procedural provisions to apply to state court proceedings.’. . . Sections 3 and 4 of the FAA, governing stays of litigation and petitions to enforce arbitration agreements, do not apply in state court. ... As we have noted, the provisions for judicial review of arbitration awards in sections 10 and 11 of the FAA are directed to ‘the United States court in and for the district wherein the award was made.’ . . . We have held that similar language in sections 3 and 4 of the FAA reflects Congress’s intent to limit the application of those provisions to federal courts, [¶] . . . [¶]
“. . . [A]s in Cronus and Rosenthal, the FAA’s procedural provisions are not controlling, and the determinative question is whether CAA procedures conflict with the FAA policy favoring the enforcement of arbitration agreements.” (DIRECTV, supra, 44 Cal.4th at pp. 1350-1352, citations omitted, italics added.)
DIRECTV found no conflict: “[T]he terms of the parties’ agreement [prevail] over considerations of expediency in the dispute resolution process. ‘After all, the basic objective in this area is not to resolve disputes in the quickest manner possible, no matter what the parties’ wishes . . . , but to ensure that commercial arbitration agreements, like other contracts, “ ‘are enforced according to their terms,’ ”... and according to the intentions of the parties The court has viewed the federal policy served by the FAA as ‘at bottom a policy guaranteeing the enforcement of private contractual arrangements.’ . ..[¶]... [¶]
“We conclude that the Hall Street holding is restricted to proceedings to review arbitration awards under the FAA, and does not require state law to conform with its limitations. Furthermore, a reading of the CAA that permits the enforcement of agreements for merits review is fully consistent with the FAA ‘policy guaranteeing the enforcement of private contractual arrangements.’ ” (DIRECTV, supra, 44 Cal,4th at pp. 1353-1354, citations omitted.)
DIRECTV went on to hold that, under the CAA, parties may expand the scope of review to include errors of law if the agreement explicitly and unambiguously provides for review on the merits. (DIRECTV, supra, 44 Cal.4th at pp. 1355, 1361.)
8. Rosenthal-Cronus-DIRECTV Trilogy
A trilogy of cases,
Rosenthal, Cronus,
and
DIRECTV,
recognizes that if a contract involves interstate commerce, the FAA’s
substantive
provision
' In
Cronus, supra,
And in
DIRECTV, supra,
C. The Present Agreement
In
Gravillis, supra,
On appeal, we held that the bodily injury exclusion did not apply to claims alleging emotional distress and that, on remand, the motion to compel arbitration should be granted unless the trial court determined that a stay or denial of arbitration was appropriate under section 1281.2(c). (See
Gravillis, supra,
143 Cal.App.4th at pp. 773-784.) We also concluded the parties had adopted the CAA’s procedural provisions, explaining: “[T]he contracting parties agreed that California law would govern the arbitration provision. The Agreement states: ‘By initialing in the space below you are agreeing to have any dispute arising out of the matters included in the “Arbitration of Disputes” provision decided by neutral arbitration
as provided by California law
.... If you refuse to submit to arbitration after agreeing to this provision,
you may be compelled to arbitrate
under the authority of the
California Code of Civil
Procedure.’. . . The CAA, which contains section 1281.2(c), is found in the Code of Civil Procedure. [¶]... [T]he Agreement [therefore] provides that a motion to compel arbitration is to be decided under California law . . . .”
(Gravillis, supra,
In the present case, the Agreement includes the language we cited in
Gravillis
for the proposition that the parties had adopted the CAA’s procedural provisions. But the Agreement also contains additional language that
The Agreement contains the following additional language, consisting of two sentences: “The parties shall have the right to discovery in accordance with California Code of Civil Procedure § 1283.05. . . . Interpretation of this agreement to arbitrate shall be governed by the Federal Arbitration Act.”
The first sentence, which pertains to the right to discovery under the CAA, is simply a more specific reference to one of the CAA’s procedural provisions. (See § 1283.1, subds. (a), (b) [if dispute does not involve injury or death of a person, § 1283.05, governing discovery, is not conclusively deemed part of arbitration agreement, and parties must incorporate § 1283.05 into agreement].) The second sentence, requiring the Agreement to be interpreted in accordance with the FAA, merits closer attention.
The rules of contract interpretation employed under the FAA are the same as those used under the CAA. For example, under the FAA, courts interpret arbitration agreements using the plain meaning rule. (See, e.g.,
Lambert
v.
Austin Ind.
(11th Cir. 2008)
“ ‘In most important respects, the California statutory scheme on enforcement of private arbitration agreements is similar to the [FAA]; the similarity is not surprising, as the two share origins in the earlier statutes of New York and New Jersey.’ ”
(DIRECTV, supra,
“California courts often look to federal law when deciding arbitration issues under state law. . . . California law is consistent with federal law on the
Generally, the FAA obligates
federal
courts to apply
state law
when interpreting an arbitration clause. (See, e.g.,
First Options of Chicago, Inc. v. Kaplan
(1995)
In short, “even when the [FAA] applies, interpretation of the arbitration agreement is governed by state law principles. . . . Under California law, ordinary rules of contract interpretation apply to arbitration agreements. . . . ‘ “The fundamental goal of contractual interpretation is to give effect to the mutual intention of the parties. ... If contractual language is clear and explicit, it governs.” ’ ”
(Hotels Nevada, LLC
v.
Bridge Banc, LLC
(2005)
As noted, under the Rosenthal-Cronus-DIRECTV trilogy, the FAA’s procedural provisions do not apply in state court unless the parties expressly adopt them. The trilogy makes clear that the question is not whether the parties adopted the CAA’s procedural provisions: The state’s procedural statutes (§§ 1281.2, 1290.2) apply by default because Congress intended the comparable FAA sections (9 U.S.C. §§ 3, 4, 10, 11) to apply in federal court. The question, therefore, is whether the parties expressly incorporated the FAA’s procedural provisions into their agreements.
Here, the Agreement states, “ ‘ “By initialing in the space below you are agreeing to have any dispute arising out of the matters included in the
Our conclusion is at odds with the Smyths’ contention that “[t]he reason [the] standard California Association of Realtors [Residential] Purchase Contract[] utilizes federal arbitration law is to obviate what has occurred in the present case. Usually in a dispute regarding a real estate sales transaction for the purchase of a house, not only are the buyers and sellers parties, but also the real estate agents and brokers and escrow become parties. Reliance on federal law prevents the arbitration agreement from being circumvented by the plaintiff (seller or buyer) naming as defendants the agents, brokers, and escrow.”
But the plain meaning of the Agreement does not support the Smyths’ contention. The FAA and the CAA employ the same rules of contract interpretation. It follows that
interpreting
an arbitration agreement in accordance with the FAA does not accomplish the Smyths’ goal of displacing section 1281.2(c). “[T]he federal policy is simply to ensure the enforceability,
according to their terms,
of private agreements to arbitrate.”
(Volt, supra,
Further,
Volt, Cronus,
and
Mount Diablo
concluded section 1281.2(c) was consistent with the objectives of the FAA. (See
Volt, supra,
489 U.S. at pp. 476-479;
Cronus, supra,
35 Cal.4th at pp. 391-393;
Mount Diablo, supra,
We also note that in
Volt, Rosenthal, Mount Diablo, Cronus, Rodriguez, Warren-Guthrie,
and
DIRECTV,
the parties’ agreements involved interstate
In
Mount Diablo, supra,
That brings us, finally, to
Warren-Guthrie, supra,
But
Warren-Guthrie
asked and answered the wrong question. The complaint and the motion to compel arbitration were brought in superior court. The CAA’s procedural provisions therefore applied unless the parties expressly adopted the FAA. (See
Rodriguez, supra,
D. Trial Court’s Discretion Under Section 1281.2(c)
All that remains is the question of whether the trial court properly exercised its discretion under section 1281.2(c). In its order denying arbitration and joining all parties in a single action to be adjudicated in court, the trial court stated; “[Defendants are not entitled to arbitration as a matter of right. This is so because this action names third parties who are not parties to the arbitration agreement. The claims against these third parties arise out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact. Based on the complaint, plaintiffs are alleging that defendants Letrado and Peter Smyth fraudulently concealed their use of plaintiffs’ monies to acquire the subject property for themselves. Plaintiffs are alleging joint action against these defendants.
“Similarly, plaintiffs are alleging negligence against defendants Peter Smyth, Letrado, Keller Williams [Realty], United [Title Company] and Fidelity [National Title Company], Plaintiffs allege that all these defendants breached their duties to plaintiffs by failing to disclose conflicts of interest, failing to disclose the true nature of the real estate purchase and failing to disclose all their financial relationships with each other.
“At the very least, all of these theories of liability hinge on findings regarding the conduct of defendants Smyth and Letrado. As such, there will be an overlap of issues of law and fact. Based on this finding, it is within the Court’s discretion to deny the motion to compel arbitration and force the parties to join in a single action. See § 1281.2[(c)]. Although the parties may expressly agree that FAA procedural rules apply to an arbitration proceeding, there is nothing in the parties’ arbitration clause indicating such an agreement.” (Italics added.)
The trial court’s analysis is persuasive. We find no abuse of discretion. (See
Birl
v.
Heritage Care LLC
(2009)
DISPOSITION
The order is affirmed.
Rothschild, J., and Johnson, J., concurred.