California Law

"California law reflects a strong public policy in favor of arbitration as a relatively quick and inexpensive method for resolving disputes." (Acquire II, Ltd. v. Colton Real Estate Group, (2013) 213 Cal.App.4th 959, 967-68, citing Lewis v. Fletcher Jones Motor Cars, Inc. (2012) 205 Cal.App.4th 436, 443, 140 Cal.Rptr.3d 206.) "To further that policy, section 1281.2 requires a trial court to enforce a written arbitration agreement unless one of three limited exceptions applies." (Id., citing Laswell v. AG Seal Beach, LLC (2010) 189 Cal.App.4th 1399, 1404–1405.)

Those statutory exceptions arise where:

1. a party waives the right to arbitration;
2. grounds exist for revoking the arbitration agreement; and
3. pending litigation with a third party creates the possibility of conflicting rulings on common factual or legal issues.

(Code Civ. Proc. § 1281.2(a)–(c).)

The third-party litigation exception applies when:

1. a party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party;
2. the third-party action aris[es] out of the same transaction or series of related transactions; and
3. there is a possibility of conflicting rulings on a common issue of law or fact.

(Code Civ. Proc. § 1281.2(c).)

If all three of these conditions are satisfied, then section 1281.2(c) grants a trial court discretion to either deny or stay arbitration despite an agreement to arbitrate the dispute. (Acquire II, Ltd. v. Colton Real Estate Group, (2013) 213 Cal.App.4th 959, 967-68, citing Laswell v. AG Seal Beach, LLC (2010) 189 Cal.App.4th 1399, 1405.)

Specifically, section 1281.2(c) identifies four options from which the court may choose:

1. refuse to enforce the arbitration agreement and... order intervention or joinder of all parties in a single action or special proceeding;
2. order intervention or joinder as to all or only certain issues;
3. order arbitration among the parties who have agreed to arbitration and stay the pending court action or special proceeding pending the outcome of the arbitration proceeding; and
4. stay arbitration pending the outcome of the court action or special proceeding.

(Code Civ. Proc. § 1281.2(c).)

A trial court has no discretion to deny or stay arbitration unless all three of section 1281.2(c)'s conditions are satisfied. (Acquire II, Ltd. v. Colton Real Estate Group, (2013) 213 Cal.App.4th 959 citing Molecular Analytical Systems v. Ciphergen Biosystems, Inc. (2010) 186 Cal.App.4th 696, 709 (“‘The court's discretion under section 1281.2[(c)] does not come into play until it is ascertained that the subdivision applies’”); see also Laswell v. AG Seal Beach, LLC (2010) 189 Cal.App.4th 1399, 1405; Rowe v. Exline (2007) 153 Cal.App.4th 1276, 1288, fn. 6.)

“An arbitration clause within a contract may be binding on a party even if the party never actually read the clause.” (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC, (2012) 55 Cal.4th 223, 236.) This may hold true even if the employee did not personally understand the meaning of the contractual language; the general rule is that “one who assents to a contract is bound by its provisions and cannot complain of unfamiliarity with the language of the instrument.” (Madden v. Kaiser Found Hosp. (1976) 17 Cal.3d 699, 710; see also Asmus v. Pacific Bell (2000) 23 Cal. 4th 1, 11, citing Lang v. Burlington Northern R. Co. (D.Minn. 1993) 835 F.Supp. 1104, 1106 for the proposition that “continued employment constitutes acceptance of arbitration policy added to employment manual after employment commenced”).)

Federal Law

"The Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.) does not include a provision comparable to section 1281.2(c) and therefore requires courts to enforce written arbitration agreements even if there is pending litigation involving a third party that may result in conflicting rulings." (Acquire II, Ltd. v. Colton Real Estate Group, (2013) 213 Cal.App.4th 959, citing Dean Witter Reynolds, Inc. v. Byrd (1985) 470 U.S. 213, 217.)

"The FAA applies to agreements to arbitrate disputes arising from a contract involving interstate commerce and it preempts all state laws and rules that conflict with its provisions or its objective of enforcing arbitration agreements." (Acquire II, Ltd. v. Colton Real Estate Group, (2013) 213 Cal.App.4th 959, citing 9 U.S.C. § 2; see also AT & T Mobility LLC v. Concepcion (2011) ––– U.S. ––––, 131 S.Ct. 1740, 1747–1748.)

"The FAA does not apply to these arbitration agreements because the parties in a choice of law provision agreed to be bound by California’s arbitration law." (Acquire II, Ltd. v. Colton Real Estate Group, (2013) 213 Cal.App.4th 959, citing Mount Diablo Medical Center v. Health Net of Cal., Inc. (2002) 101 Cal.App.4th 711, 722; see also Volt Info. Sciences v. Leland Stanford Jr. U. (1989) 489 U.S. 468, 470–471, 479.) Accordingly, the FAA did not prevent the trial court from relying on section 1281.2(c) to deny Defendants' motions. (Acquire II, Ltd. v. Colton Real Estate Group, (2013) 213 Cal.App.4th 959, 967-68.)