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When it comes to arbitration, federal regulations almost always seem to trump state rules. Not this time. On Thursday, the California Supreme Court unanimously ruled that the Federal Arbitration Act doesn’t pre-empt a state statute that lets judges stay arbitration proceedings to await the outcome of related court litigation. As long as all parties agree to be governed by California law, Justice Ming Chin wrote, the state provision “does not contravene the letter or the spirit of the FAA.” The ruling came nine days after an arbitration loss for California. On March 1, the Ninth Circuit U.S. Court of Appeals held that California’s heightened disclosure standards for neutral arbitrators conflicted with federally sanctioned rules imposed by self-regulating organizations, such as the New York Stock Exchange. On Tuesday, the state Supreme Court seemed to agree during oral arguments in a nearly identical case. Thursday’s ruling involved breach-of-contract allegations by several parties as the result of a complex business transaction. While there were six contracts between related parties, only four contained agreements to arbitrate. According to the ruling, all parties had agreed that arbitration would be controlled by California law, but that the FAA wouldn’t be precluded if applicable. Los Angeles County Superior Court Judge Richard Wolfe used his discretion under Code of Civil Procedure � 281.2(c) to stay arbitration and allow trial to proceed “in order to promote efficiency in the resolution of disputes among the parties, and to avoid the possibility of contradictory outcomes.” L.A.’s Second District Court of Appeal upheld Wolfe’s opinion, even though opponents had argued that the agreements were pre-empted by the FAA because they affected interstate commerce. In affirming Thursday, the state Supreme Court relied heavily on the U.S. Supreme Court’s 1989 ruling in Volt Information Sciences v. Board of Trustees of Leland Stanford Junior University, 489 U.S. 468. Citing Volt word for word, Chin wrote that “where, as here, the parties have agreed to abide by state rules of arbitration, enforcing those rules according to the terms of the agreement is fully consistent with the goals of the FAA.” Volt held that was true even if FAA rules would have permitted arbitration to proceed, rather than putting it on hold. Chin also stated that the California provision allowing judges to stay arbitration in multi-party cases doesn’t limit arbitrators’ authority. “It is an evenhanded rule that allows the trial court to stay arbitration proceedings while the concurrent lawsuit proceeds, or stay the lawsuit while arbitration proceeds to avoid conflicting rulings on common issues of fact and law,” he wrote. Chin also ruled that the decision doesn’t prevent parties to an arbitration agreement from “expressly” designating that FAA rules govern. None of the lawyers who argued at oral arguments in January could be reached for comment Thursday. Woodland Hills attorney William Soroky, who represented one of the warring parties, and Robert Olson, a partner in L.A.’s Greines, Martin, Stein & Richland who argued for Health Net of California as an amicus curiae, had fought for federal pre-emption. Encino lawyer Thomas Ready had argued the opposite. The ruling is Cronus Investments v. Concierge Services, 05 C.D.O.S. 2130.

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