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Court Rules that Federal Arbitration Act Preempts California State Law

arbitration.jpgRecently, the United States District Court for the Northern District of California issued an important opinion in the case of Bell Prods. v. Hosp. Bldg. & Equip. Co. The court ruled that the Federal Arbitration Act (FAA) preempts a California state statute that requires that arbitration proceedings must remain in state. The decision could potentially have significant ramifications for California businesses and contractors who deal with out of state firms.

The Background of the Dispute

In June of 2012, Hospital Bill and Equipment (HBE) signed a contract to build a hospital in Willits, California. To carry out this agreement, HBE also entered into agreements with several different sub-contractors, including Bell Products, Inc (Bell). Eventually, a contract dispute arose between these two companies. As a result, Bell brought a lawsuit against HBE. Based on the terms of their deal, the lawsuit would be settled via arbitration. The contract itself stated that the arbitration proceedings would be governed by the Federal Arbitration Act and the venue of the arbitration would be in Missouri. This is where it is important to note that HBE is based in St. Louis, whereas Bell is headquartered in Napa, California. Despite the contract language, Bell attempted to get the venue shifted to California. Bell argued that California was the appropriate venue for the arbitration because California Code of Civil Procedure essentially mandates that arbitration related to disputes over construction projects that are located in California must also occur within the state.

Understanding the Decision of the Court

The federal district court had determined whether or not California's statute applied to this case or whether it was preempted by the FAA. In assessing the issue, the court looked to a 2001 9th Circuit Court of Appeals case that it believed controlled on this issue. That case, Bradley v. Harris Research, Inc, involved a dispute over a franchise agreement. That franchise contract contained an arbitration provision that provided for an out-of-state venue. Once again, this provision was in violation of California's state statutes. However, the 9th circuit determined that the FAA preempted the statute. Based off that ruling, the US district court ruled that the appropriate venue in the Bell v. HBE dispute was in Missouri. It is clear that despite the alternative view of California state law, federal law strongly favors using the arbitration venue that is spelled out in the contract. Companies must ensure that their contracts call for an arbitration venue that is truly in the best interests of their business.

Contact Our Office Today

At Diemer, Whitman & Cardosi, LLP, our experienced San Jose business litigation attorneys have extensive experience handling arbitration cases. For assistance with your case, please call our team today at 408-971-6270. We offer initial legal consultations free of charge. From our office in San Jose, we proudly serve business throughout Silicon Valley, including in Mountain View, Sunnyvale and Cupertino.



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