Azteca Construction, Inc. v. ADR Consulting, Inc.
121 Cal. App. 4th 1156 (3d Dist. Aug. 25, 2004)
A dispute arose out of a written contract pursuant to which ADR had agreed to provide consulting services to Azteca. The contract required the dispute to be resolved through the American Arbitration Association. In compliance with Code of Civil Procedure Section 1281.9, the proposed arbitrator submitted a disclosure statement which revealed the proposed arbitrator’s possible non-neutrality.
Pursuant to Section 1281.91 of the Code of Civil Procedure, Azteca demanded disqualification of the proposed arbitrator. The AAA, pursuant to its internal construction industry rules, determined that there was no good cause for disqualification and the arbitration proceeded. After the arbitration concluded, Azteca petitioned to vacate the award under Code of Civil Procedure Section 1286.2(a)(6)(B).
The Court of Appeal reversed the trial court’s finding that Azteca had waived the applicable statutory provisions by agreeing to AAA arbitration. The Court of Appeal explained that statutory provisions regarding arbitrator disqualification may not be waived or superseded by a private contract and found that the proposed arbitrator here should have been disqualified under Section 1282.91 before the arbitration began. The Court directed the trial court to grant Azteca’s petition to vacate the award.
Hedges v. Carrigan
117 Cal. App. 4th 578 (2d Dist. Apr. 6, 2004)
Home purchasers sued sellers, sellers’ broker, and their own broker after discovering defects in their residence that defendants allegedly failed to disclose. Sellers’ broker filed a petition to compel arbitration pursuant to the residential purchase agreement. The trial court concluded that there was no enforceable arbitration agreement because the arbitration provision in the purchase agreement was not initialed by sellers. Thus the trial court denied broker’s petition and broker appealed.
On appeal, plaintiffs contended that the arbitration clause in the residential purchase agreement was unenforceable because it failed to comply with California Code of Civil Procedure Section 1298 (imposing various notice and format requirements on arbitration clauses in specified real estate agreements). The Court of Appeal declined to address whether the arbitration clause complied with Section 1298 and instead the court itself advanced the issue of whether the preemption doctrine would apply to the arbitration agreement.
Agreeing that the parties here did not enter into a contract to arbitrate and affirming the trial court order, the Court of Appeal went on to conclude that the United States Arbitration Act, 9 U.S.C. § 2 (the Act), would preempt a statutory requirement or judicial holding that compliance with CCP § 1298 is a condition precedent to enforcement of an arbitration clause contained in one of the specified contracts. The Act makes unlawful any state policy enforcing all of a contract’s basic terms (e.g., price, service, credit), but not its arbitration clause. The Act applied to the subject purchase agreement because federal financing of the home purchase rendered the agreement one involving interstate commerce.
In a concurring opinion, Justice Mosk criticized the majority’s decision to raise sua sponte the constitutional issue of preemption where the parties had waived that issue by failing to raise it at trial or on appeal. Justice Mosk also observed that the factual record in this case failed to establish a sufficient connection between the transaction and interstate commerce so as to result in the Act preempting state arbitration law in this case.
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