Petition for Writ of Certiorari — Safety National Casualty Corporation, Petitioner v. Los Angeles Unified School District

Supreme Court briefDec 21, 2017

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No. 17In the

Supreme Court of the United States

SAFETY NATIONAL CASUALTY CORPORATION,

Petitioner,

LOS ANGELES UNIFIED SCHOOL DISTRICT,

Respondent.

On Petition for a Writ of Certiorari

to the California Court of A ppeal

PETITION FOR A WRIT OF CERTIORARI

Philip R. Matthews

Paul J. Killion

Christine C. Ross

Duane Morris LLP

Spear Tower

One Market Plaza, Suite 2200

San Francisco, CA 94105

(415) 957-3000

Robert L. Byer

Counsel of Record

Duane Morris LLP

600 Grant Street, Suite 5010

Pittsburgh, PA 15219

(412) 497-1000

rlbyer@duanemorris.com

Counsel for Petitioner

277033

(800) 274-3321 • (800) 359-6859

QUESTION PRESENTED

Section 2 of the Federal Arbitration Act (“FAA”) (9

U.S.C. § 2) makes written agreements to arbitrate “valid,

irrevocable, and enforceable, save upon such grounds as

exist at law or in equity for the revocation of any contract.”

Section 1281.2(c) of the California Arbitration Act (Cal.

Code of Civil Proc. § 1281.2(c)) provides that a California

state court may “refuse to enforce” an otherwise valid

arbitration provision based on the possibility of conflicting

rulings in pending litigation with third parties. In Volt

Information Services, Inc. v. Board of Trustees of

Leland Stanford Jr. University, 489 U.S. 468, 479 (1989),

this Court held that where the parties expressly choose

California law to govern their agreement, § 1281.2(c) could

be applied to stay an arbitration.

Where an arbitration agreement is governed by

the FAA (because it involves interstate commerce), and

the agreement is silent on choice of law—containing no

provision adopting California (or any state) law—does

the FAA preempt application of California Code of Civil

Procedure § 1281.2(c), a provision of the California

Arbitration Act (“CAA”), where the state statute is being

used to deny enforcement of a valid arbitration provision?

RULE 29.6 CORPORATE DISCLOSURE

STATEMENT

Petitioner Safety National Casualty Corporation is a

wholly owned subsidiary of Delphi Financial Group, Inc.

Delphi Financial Group, Inc. is a wholly owned subsidiary

of Tokio Marine Holdings, Inc. Tokio Marine Holdings,

Inc. is publically traded on the Tokyo Stock Exchange.

iii

TABLE OF CONTENTS

Page

QUESTION PRESENTED . . . . . . . . . . . . . . . . . . . . . . . . i

RULE 2 9.6 CORPOR ATE DISCLOSURE

STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii

TABLE OF CONTENTS . . . . . . . . . . . . . . . . . . . . . . . . iii

TABLE OF APPENDICES . . . . . . . . . . . . . . . . . . . . . . . v

TABLE OF AUTHORITIES . . . . . . . . . . . . . . . . . . . . . . vi

OPINIONS BELOW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

CONST I T U T IONA L A N D STAT U T ORY

PROVISIONS INVOLVED . . . . . . . . . . . . . . . . . . . . . 1

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

STATEMENT OF THE CASE . . . . . . . . . . . . . . . . . . . . 7

A. The Federal and State Arbitration Statutes . . . 8

B. The Arbitration Agreement and Underlying

Dispute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

C. The Trial Court Proceedings . . . . . . . . . . . . . . . 11

D. The Decision Below . . . . . . . . . . . . . . . . . . . . . . . 14

Table of Contents

Page

REASONS FOR GRANTING THE PETITION . . . . 16

A. The California Decision Conflicts with the

FAA, This Court’s Precedent, and Decisions

from the High Courts of Other States . . . . . . . .16

B. The Decision Below Conflicts With Decisions

of the Federal Circuit Courts and Creates

a Clear Incentive to Forum Shop . . . . . . . . . . . . 27

C. The Issue Presented is Exceptionally

Important . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

TABLE OF APPENDICES

Page

APPENDIX A — OPINION OF THE COURT

OF APPEAL OF CALIFORNIA, SECOND

A P PEL L AT E DI S T R IC T, DI V I SION

EIGHT, FILED JULY 12, 2017 . . . . . . . . . . . . . . . . . 1a

A PPEN DI X B — OR DER OF T H E

SUPERIOR COURT OF THE STATE OF

CALIFORNIA FOR THE COUNTY OF LOS

ANGELES, FILED MAY 31, 2016 . . . . . . . . . . . . . 19a

APPENDIX C — DENIAL OF PETITION

F OR R E V I E W B Y T H E S U PR E M E

C OU RT OF CA LI FOR N I A , FI LED

OCTOBER 11, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . 36a

APPENDIX D — RELEVANT STATUTORY

PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37a

TABLE OF AUTHORITIES

Page

CASES

Allied-Bruce Terminix Cos. v. Dobson,

513 U.S. 265 (1995) . . . . . . . . . . . . . . . . . . 23, 26, 30, 32

Ario v. Underwriting Members of Syndicate 53, etc.,

618 F.3d 277 (3d Cir. 2010) . . . . . . . . . . . . . . . . . . 27, 28

AT&T Mobility LLC v. Concepcion,

563 U.S. 333 (2011) . . . . . . . . . . . . . . . . . . . . . . 6, 25, 33

BioMagic Inc. v.

Dutch Brothers Enterprises LLC,

729 F. Supp. 2d 1140 (C.D. Cal. 2010) . . . . . . . . . . . . 22

Brown v. KFC Nat’l Mgmt. Co.,

82 Haw. 226, 921 P.2d 146 (1996) . . . . . . . . . . . . . . 5, 27

Citizens Bank v. Alafabco, Inc.,

539 U.S. 52 (2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Cronus Investments, Inc. v. Concierge Services,

35 Cal. 4th 376, 107 P.3d 217,

25 Cal.Rptr.3d 540 (2005) . . . . . . . . . . . . . . . . . . passim

Dean Witter Reynolds, Inc. v. Byrd,

470 U.S. 213 (1985) . . . . . . . . . . . . . . . . . . . . . . . . 25, 32

DIRECTV, Inc. v. Imburgia,

136 S. Ct. 463 (2015) . . . . . . . . . . . . . . . . . . . . . . . . 6, 31

vii

Page

Doctor’s Associates, Inc. v. Casarotto,

517 U.S. 681 (1996) . . . . . . . . . . . . . . . . . . . . . 15, 22, 23

Doctor’s Associates, Inc. v. Distajo,

107 F.3d 126 (2nd Cir. 1997), cert. denied,

522 U.S. 948 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Ex parte Scrushy,

940 So.2d 290 (Ala. 2006) . . . . . . . . . . . . . . . . . . . . . . 27

Ferro Corp. v. Garrison Indus.,

142 F.3d 926 (6th Cir. 1998) . . . . . . . . . . . . . . . . . . . . 29

Kennamer v. Ford Motor Credit Co.,

153 So.3d 752 (Ala. 2014) . . . . . . . . . . . . . . . . . . . . 5, 27

Kindred Nursing Centers Limited Partnership

v. Clark,

137 S. Ct. 1421 (2017) . . . . . . . . . . . . . . . . . . . . . . . . . 24

Kong v. Allied Professional Ins. Co.,

750 F.3d 1295 (11th Cir. 2014) . . . . . . . . . . . . . . . . . . 29

KPMG LLP v. Cocchi,

565 U.S. 18 (2011) . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 32

Marmet Health Care Center, Inc. v. Brown,

565 U.S. 530 (2012) . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Mastrobuono v. Shearson Lehman Hutton, Inc.,

514 U.S. 52 (1995) . . . . . . . . . . . . . . . . . . . . . . . . passim

viii

Page

Moses H. Cone Memorial Hosp. v.

Mercury Const. Corp.,

460 U.S. 1 (1983) . . . . . . . . . . . . . . . . . . . . . . . . . passim

Nitro-Lift Technologies, L.L.C. v. Howard,

568 U.S. 17 (2012) . . . . . . . . . . . . . . . . . . . . . . . . . 31, 32

PaineWebber Inc. v. Elahi,

87 F.3d 589 (1st Cir. 1996) . . . . . . . . . . . . . . . . . . . . . 28

Pedcor Management Co., Inc. Welfare Benefit

Plan v. Nations Personnel of Texas, Inc.,

343 F.3d 355 (5th Cir. 2003) . . . . . . . . . . . . . . . . . . . . 29

Perry v. Thomas,

482 U.S. 483 (1987) . . . . . . . . . . . . . . . . . . . 6, 23, 24, 31

Porter Hayden Co. v. Century Indem. Co.,

136 F.3d 380 (4th Cir. 1998) . . . . . . . . . . . . . . . . . 17, 29

Preston v. Ferrer,

552 U.S. 346 (2008) . . . . . . . . . . . . . . . . . . . . . . 6, 22, 23

Rosenthal v. Great Western Fin. Securities Corp.,

14 Cal.4th 394, 926 P.2d 1061,

58 Cal.Rptr.2d 875 (1996) . . . . . . . . . . . . . . . . . . . . . . . 8

Southland Corp. v. Keating,

465 U.S. 1 (1984) . . . . . . . . . . . . . . . . . . . . . . . . . passim

Page

Sovak v. Chugai Pharmaceutical Co.,

280 F.3d 1266 (9th Cir. 2002) . . . . . . . . . . . . . . . . 29, 30

Taylor v. Extendicare Health Facilities, Inc.,

637 Pa. 163, 147 A.3d 490 (2016),

cert. denied, 137 S. Ct. 1375 (2017) . . . . . . . . . . . . 5, 26

UHC Management Co., Inc. v.

Computer Sciences Corp.,

148 F.3d 992 (8th Cir. 1998) . . . . . . . . . . . . . . . . . . . . 29

Vaden v. Discover Bank,

556 U.S. 49 (2009) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Valencia v. Smyth,

185 Cal. App. 4th 153, 110 Cal.Rptr.3d 180 (2010) . . 12

Volt Information Services, Inc. v. Board of

Trustees of Leland Stanford Jr. University,

489 U.S. 468 (1989) . . . . . . . . . . . . . . . . . . . . . . . passim

Wolsey Ltd. v. Foodmaker, Inc.,

144 F.3d 1205 (9th Cir. 1998) . . . . . . . . . . . . . . . . . . . . 6

Zell v. Jacoby-Bender, Inc.,

542 F.2d 34 (7th Cir. 1976) . . . . . . . . . . . . . . . . . . . . . 29

STATUTES

9 U.S.C. § 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 12, 17, 21

Page

9 U.S.C. § 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9, 12

9 U.S.C. § 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

9 U.S.C. § 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

9 U.S.C. § 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

28 U.S.C. § 1257(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

28 U.S.C. § 1332 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

California Code of Civil Procedure § 1280. . . . . . . . . . . . 8

California Code of Civil Procedure § 1281 . . . . . . . . . 8, 9

California Code of Civil Procedure § 1281.2(c) . . . passim

Supremacy Clause of the Constitution, art. VI, Cl. 2 . . 1

Other Authorities

C. Drahozal, Federal Arbitration Act Preemption,

79 Ind. L.J. 393, 406 (2004) . . . . . . . . . . . . . . . . . . . . 22

Lyra Haas, The Endless Battleground: California’s

Continued Opposition to the Supreme Court’s

Federal Arbitration Act Jurisprudence,

94 B. U. L. Rev. 1419 (2014) . . . . . . . . . . . . . . . . . . . . . 7

PETITION FOR WRIT OF CERTIORARI

Petitioner Safety National Casualty Corporation

respectfully petitions for a writ of certiorari to review the

judgment of the California Court of Appeal in this case.

OPINIONS BELOW

The decision of the California Court of Appeal, Second

Appellate District, Division Eight, is reported at 13 Cal.

App.5th 471, 220 Cal.Rptr.3d 546 (2017) and reprinted

at Appendix (“App.”) 1a-18a. The order of the California

Supreme Court denying Petitioner’s petition for review

is not reported, but is reprinted at App. 36a. The opinion

of the trial court is not reported, but is reprinted at App.

19a-35a.

JURISDICTION

The California Court of Appeal entered its decision

on July 12, 2017. (App. 1a.) The California Supreme Court

denied Petitioner’s petition for review on October 11, 2017.

(App. 36a.) The Court has jurisdiction under 28 U.S.C.

§ 1257(a).

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

The Supremacy Clause of the Constitution, art. VI,

Cl. 2, provides in pertinent part:

This Constitution, and the Laws of the United

States which shall be made in Pursuance

thereof … shall be bound thereby, any Thing

in the Constitution or Laws of any State to the

Contrary notwithstanding.

Section 2 of the Federal Arbitration Act (“FAA”), 9

U.S.C. § 2, provides in pertinent part:

A written provision in … a contract evidencing

a transaction involving commerce to settle by

arbitration a controversy thereafter arising out

of such contract or transaction, or the refusal

to perform the whole or any part thereof, or an

agreement in writing to submit to arbitration

an existing controversy arising out of such

contract, transaction, or refusal, shall be valid,

irrevocable, and enforceable, save upon such

grounds as exist at law or in equity for the

revocation of any contract.

Section 1281.2 of the California Code of Civil

Procedure, part of the California Arbitration Act (“CAA”),

provides in pertinent part:

On petition of a party to an arbitration

agreement alleging the existence of a written

agreement to arbitrate a controversy and

that a party thereto refuses to arbitrate such

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:

(a) The right to compel arbitration has been

waived by the petitioner; or

(b) Grounds exist for the revocation of the

agreement.

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 party as set forth under subdivision

the arbitration agreement and may order

intervention or joinder of all parties in a single

action or special proceeding; (2) may order

intervention or joinder as to all or only certain

issues; (3) may 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; or (4) may stay arbitration pending

the outcome of the court action or special

proceeding.

(The full text of section 1281.2 is set forth in Appendix D.)

INTRODUCTION

The California Court of Appeal refused to enforce a

valid arbitration agreement, in a contract governed by

the FAA, based on a California statute granting the state

court discretion to deny enforcement of an arbitration

provision where there is the possibility of conflicting

rulings in pending litigation with third parties. See

California Code of Civil Procedure § 1281.2(c) (“Section

1281.2(c)”). The California court reached its decision based

on the view that state procedural law trumps the FAA

unless the contracting parties have expressly adopted the

FAA in their agreement (App. 1a-2a), and that “Section

1281.2(c) does not contravene the letter or spirit of the

FAA.” (App. 13a.)

The decision below follows from and extends

the California Supreme Court’s decision in Cronus

Investments, Inc. v. Concierge Services, 35 Cal.4th

376, 107 P.3d 217, 25 Cal.Rptr.3d 540 (2005), which held

that Section 1281.2(c) applies to arbitration agreements

governed by the FAA, but did “not preclude parties to

an arbitration agreement to expressly designate that

any arbitration proceeding should move forward under

the FAA’s procedural provisions, rather than under state

procedural law.” 35 Cal.4th at 394, 107 P.3d at 229.

The California courts have the law backwards. State

statutes that permit a court to deny enforcement of a

valid arbitration provision conflict with the FAA and are

preempted. See Southland Corp. v. Keating, 465 U.S.

1, 10 (1984). Only where the contracting parties have

expressly adopted state arbitration procedures has this

Court approved application of such procedures instead

of the FAA. See Volt Information Services, Inc. v. Board

of Trustees of Leland Stanford Jr. University, 489

U.S. 468, 496 (1989); see also Mastrobuono v. Shearson

Lehman Hutton, Inc., 514 U.S. 52, 62 (1995) (holding that

state procedural law did not apply under an agreement

containing a choice of law provision generally adopting

New York law). By flipping the order of priority and

allowing state law to control over the substantive rights

granted under the FAA, the California courts are acting

in conflict with this Court’s precedent.

The California courts are also acting in conflict

with application of this Court’s precedent by other state

supreme courts. In Moses H. Cone Memorial Hosp.

v. Mercury Const. Corp., this Court held: “Under the

[FA A] an arbitration agreement must be enforced

notwithstanding the presence of other persons who are

parties to the underlying dispute but not to the arbitration

agreement,” even if enforcement of the agreement

“requires piecemeal resolution.” 460 U.S. 1, 20 (1983). The

California Supreme Court has rejected the application of

this principle from Moses H. Cone, holding the decision

“does not address the appropriate procedure in state

courts.” Cronus, 35 Cal.4th at 391, 107 P.3d at 227. Other

state supreme courts disagree, holding that Moses H.

Cone’s principle is a matter of substantive federal law that

controls in state courts too. See, e.g., Taylor v. Extendicare

Health Facilities, Inc., 637 Pa. 163, 191, 147 A.3d 490, 507

(Pa. 2016), cert. denied, 137 S. Ct. 1375 (2017); Brown v.

KFC Nat’l Mgmt. Co., 82 Haw. 226, 240, 921 P.2d 146, 160,

n.17 (Haw. 1996); Kennamer v. Ford Motor Credit Co.,

153 So.3d 752, 763 (Ala. 2014). Here, by applying Section

1281.2(c) to deny enforcement of Petitioner’s arbitration

agreement, the California court is acting in conflict with

Moses H. Cone and numerous state court authorities.

To make matters worse, the California courts

recognize that their views on Section 1281.2(c) conflict

with that of the Ninth Circuit. See Cronus, 35 Cal.4th at

393, 107 P.3d at 229, fn.8 (declining to follow Wolsey Ltd.

v. Foodmaker, Inc., 144 F.3d 1205 (9th Cir. 1998)). The

decision below widens that conflict, creating a situation

where the enforcement of a valid arbitration agreement

covered by the FAA now depends on the fortuity of

whether federal jurisdiction is available. No one can

deny that Petitioner’s arbitration agreement would have

been enforced in federal court. As this Court recognizes:

“Congress can hardly have meant that an agreement to

arbitrate can be enforced against a party who attempts

to litigate an arbitrable dispute in federal court, but not

against one who sues on the same dispute in state court.”

Moses H. Cone, 460 U.S. at 26, fn.34.

California courts have a disturbing trend of hostility

towards arbitration extending back thirty years.1 This

1. See, e.g., Southland Corp. v. Keating, 465 U.S. 1, 16-17

(1984) (reversing judgment of California Supreme Court denying

enforcement of arbitration agreement and holding the FAA

preempts contrary provision of California Franchise Investment

Law); Perry v. Thomas, 482 U.S. 483, 492 (1987) (reversing

judgment of California Court of Appeal denying enforcement of

arbitration agreement, and holding the FAA preempts contrary

provision of California Labor Code § 229); Preston v. Ferrer, 552

U.S. 346, 349-50 (2008) (reversing judgment of California Court

of Appeal denying enforcement of arbitration agreement, and

holding the FAA preempts contrary provisions of the California

Talent Agencies Act); AT&T Mobility LLC v. Concepcion, 563

U.S. 333, 352 (2011) (holding that FAA preempts the California

Supreme Court’s judicial rule regarding the unconscionability of

class arbitration waivers in consumer contracts, and abrogating

contrary California Supreme Court decision); DIRECTV, Inc.

v. Imburgia, 136 S.Ct. 463, 471 (2015) (reversing judgment of

California Court of Appeal denying enforcement of arbitration

Court’s intervention is needed once again to stop that

trend. California’s violation of federal authorities is so

manifest in this case that a summary reversal may be

appropriate.

STATEMENT OF THE CASE

Petitioner Safety National issued an insurance policy

to LAUSD that requires arbitration of “any dispute arising

out of this Agreement.” (App. 3a-4a.) It is undisputed that

the insurance coverage conflict at issue falls within the

arbitration provision, that the contract involves interstate

commerce and therefore is governed by the FAA, and that

the insurance contract contains no choice of law provision.

(App. 1a-18a.) Despite the clear arbitration provision in

the contract, the court below found that Section 1281.2(c)

permits a trial court to deny enforcement of an arbitration

provision “where the arbitration agreement is governed

by the FAA (because it involves interstate commerce),

but the agreement has no choice-of-law provision, and

no provision stating the FAA’s procedural provisions

govern the arbitration.” (App. 1a-2a.). According to the

California court, when an agreement is silent on choice

of law, “California procedure applies” and the trial court

may apply Section 1281.2(c) to “den[y] an insurer’s motion

to compel arbitration with its insured, based on the

possibility of conflicting rulings in pending litigation with

third parties.” (App. 2a.). The issue presented is whether

the FAA preempts Section 1281.2(c).

agreement, and holding the FAA preempted the California court’s

contrary contract interpretation that failed to place arbitration

contracts on equal footing with other contracts); see generally

Lyra Haas, The Endless Battleground: California’s Continued

Opposition to the Supreme Court’s Federal Arbitration Act

Jurisprudence, 94 B. U. L. Rev. 1419 (2014).

A. The Federal and State Arbitration Statutes

The FAA was enacted in 1925 by Congress “[t]o

overcome judicial resistance to arbitration, and to declare

a national policy favoring arbitration of claims that parties

contract to settle in that manner.” Vaden v. Discover Bank,

556 U.S. 49, 58 (2009) (internal citations and quotation

marks omitted). Under the FAA, “[a] written provision in

. . . a contract evidencing a transaction involving commerce

to settle by arbitration a controversy thereafter arising

out of such contract or transaction, or the refusal to

perform the whole or any part thereof, . . . shall be valid,

irrevocable, and enforceable, save upon such grounds as

exist at law or in equity for the revocation of any contract.”

9 U.S.C. § 2. The FAA “reflects an ‘emphatic federal policy

in favor of arbitral dispute resolution.’” KPMG LLP v.

Cocchi, 565 U.S. 18, 21 (2011) (quoting Mitsubishi Motors

Corp. v. Soler Chrysler-Plymouth, Inc. 473 U.S. 614, 631

(1985).)

The California Arbitration Act (“CAA”), Code of

Civil Procedure section 1280 et seq., was enacted in 1927.

See History and Notes, Deering’s Ann. Code Civ. Proc.

§ 1281.2, citing Stats. 1927, ch. 225, §§ 3, 7. Subdivision (c)

of Section 1281.2 was added in 1978. Id., citing Stats. 1978,

ch. 260, § 1. “In most important respects, the California

statutory scheme on enforcement of private arbitration

agreements is similar to the [FAA],” due in large part

to the fact that both the FAA and CAA “share origins

in the earlier statutes of New York and New Jersey.”

Rosenthal v. Great Western Fin. Securities Corp., 14

Cal.4th 394, 406, 926 P.2d 1061, 1067, 58 Cal.Rptr.2d 875

(1996). For example, like the FAA, the CAA provides that

a written arbitration agreement is “valid, enforceable,

and irrevocable, save upon such grounds as exist for the

revocation of any contract.” Cal. Code Civ. Proc. § 1281.

And like the FAA, the CAA permits a trial court to stay

litigation pending completion of a related arbitration. See

9 U.S.C. § 3; Cal. Code Civ. Proc. § 1281.2(c).

But in at least one important respect—and of central

concern to this dispute—the FAA and the CAA conflict:

only Section 1281.2(c) permits a trial court to “refuse

to enforce” a valid arbitration provision. See Cal. Code

Civ. Proc. §1281.2(c) (where “[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,” a trial court “may refuse to enforce

the arbitration agreement and may order intervention

or joinder of all parties in a single action or special

proceeding[.]”) (emphasis added.) That is the provision

the court below relied upon to deny enforcement of the

arbitration provision in the Safety National insurance

contract. (App. 34a.)

B. The Arbitration Agreement and Underlying

Dispute.

Petitioner Safety National Casualty Corporation is

a defendant in the action entitled Los Angeles Unified

School District v. Ace Property and Casualty Insurance

Company, et al., currently pending in Los Angeles

Superior Court, Case No. BC593234. The action involves

an insurance coverage dispute between Plaintiff Los

Angeles Unified School District and 27 of its insurers.

Safety National issued a high-level excess liability

policy to LAUSD for a period of 13 months in 1982-83.

(App. 3a; 3AA(14)0588-590.) 2 The policy is subject to limits

of $5,000,000 per occurrence, excess of $20,000,000 per

occurrence and a self-insured retention of $1,500,000.

Id. The policy contains an arbitration clause, which

provides, inter alia, that “any dispute arising out of this

Agreement shall be submitted to the decision of a board of

arbitration.” (App. 3a-4a (text of provision); 3AA(14)0597.)

The policy contains no choice of law provision. (App. 8a.)

In its complaint, LAUSD alleges the insurers each

breached their insurance contracts and that some

insurers (but not Safety National) tortiously breached

the covenant of good faith and fair dealing by refusing to

provide coverage—under more than 100 insurance policies

spanning 1975-2012—for third party claims and lawsuits

referred to collectively as the Miramonte litigation. These

third party claims alleged that LAUSD’s negligence

“in hiring, retaining, and supervising caused hundreds

of students to be repeatedly exposed to abuse by two

teachers working at Miramonte Elementary School for

decades….” (App. 2a; 1AA(1)0022[p.1:12-15].)

LAUSD seeks declaratory relief and claims more

than $200 million in damages. The complaint alleges 203

causes of action against the various insurers, including

two against Safety National for declaratory relief as to

the duties to indemnify and to defend or pay defense costs,

and one against all the insurers seeking a declaration that

2. Citations to the underlying record appendix filed

with the California Court of Appeal take the following form:

VolumeAA(Tab)Page[Pincite].

the Miramonte litigation constitutes a single occurrence

under the insurance policies, such that “all defense

and indemnity sums incurred by or on behalf of the

[plaintiff] in connection with that Litigation result from

that single occurrence.” (App. 3a; 2AA(1)0277[p.256:1-3].)

The remaining 200 causes of action do not name Safety

National. (2AA(1)0386-394.) The lawsuit is currently

pending without a trial date.

Although Safety National is a citizen of Missouri, it

could not remove this action to federal court because it was

sued along with a defendant that is a resident of California.

(1AA(1)23-24, 26, 28.) Thus, diversity jurisdiction did not

exist. See 28 U.S.C. §1332.

C. The Trial Court Proceedings.

Safety National filed a motion to compel arbitration

and to dismiss or stay the action against it in accordance

with the arbitration provision and the FAA. (App. 4a;

2A A(2)0423-436, (3)0437-446.) Because the dispute

came within the agreement to arbitrate, Safety National

contended the trial court was required under the

FAA to direct the parties to proceed to arbitration in

accordance with the terms of the agreement. (App. 4a;

2AA(3)0444[p.6:10-15].)

LAUSD opposed the motion, proffering multiple

arguments, including that Section 1281.2(c) applied and

compelled denial of the motion because the dispute arose

out of a series of related transactions and there was

a possibility of conflicting rulings; and that the FAA’s

“procedural provisions” do not apply unless the contract

contains a choice-of-law clause expressly incorporating

those provisions. (App. 4a; 3AA(15)0614-636.) Safety

National is the only party seeking arbitration. No other

party besides LAUSD opposed Safety National’s motion

to compel arbitration.

The trial court denied the motion to compel arbitration

based on Section 1281.2(c). (App. 5a; 3AA(20)0666-677.)

The court found: (1) that “by purchasing the insurance

coverage under the Safety National policy, LAUSD agreed

to arbitration” (App. 26a; 3AA(20)0671[p.6:1-2]); (2) that

“an agreement to binding arbitration exists” (App. 27a:

3AA(20)0671[p.6:17]); (3) that “the dispute at the center

of this litigation—insurance coverage for the events

arising from the underlying Miramonte litigation—

falls under the agreement to arbitrate” (App. 26a-27a;

3AA(20)0671[p.6:11-14]); and (4) that “the FAA applies

to the agreement” because “the insurance transaction

between Safety National, a Missouri insurer, and LAUSD,

a California school district, ‘involves commerce’” within

the ambit of the FAA. (App. 28a-29a; 3AA(20)0672-673

[p.7:27-p.8:6].)

Relying on California state court precedent purporting

to interpret the FAA (Valencia v. Smyth, 185 Cal.App.4th

153, 110 Cal.Rptr.3d 180 (2010)), the trial court ruled:

“[I]f a contract involves interstate commerce, the

FAA’s substantive provision (9 U.S.C. § 2) applies to the

arbitration. But the FAA’s procedural provisions (9 U.S.C.

§§ 3, 4, 10, 11) do not apply unless the contract contains

a choice-of-law clause expressly incorporating them.”

(App. 29a; 3AA(20)0673 [p.8:7-10], quoting Valencia, 185

Cal.App.4th at 173-174, italics in original, underlining

by the trial court.) Instead, the trial court held that

“California rules of procedure govern the agreement”

because “there is no choice-of law provision in the

Safety National arbitration agreement which expressly

incorporates the FAA’s procedural provisions.” (App.

29a; 3AA(20)0673[p.8:11-15].) According to the trial court,

“[Section] 1281.2(c)’s procedural rule permits the Court

to not order the parties to arbitrate where 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.” (App. 32a; 3AA(20)0675[p.10:1-4].)

In effect, the trial court found California rules of

procedure, including Section 1281.2(c), trumped the FAA

where the parties had not expressly adopted the FAA in

their contract.

Turning to application of Section 1281.2(c), the trial

court refused to enforce the arbitration provision in

the Safety National policy because “LAUSD is also a

party to the instant court action with several insurers

which are not parties to the Safety National-LAUSD

arbitration agreement,” and that the action “arises out

of a series of related transactions – namely, LAUSD’s

alleged entitlement to insurance coverage arising out

of the underlying Miramonte litigation.” (App. 32a;

3AA(20)0675[p.10:6-9].) The court further found that

“[t]here certainly is a possibility of conflicting rulings

on common issues of law or fact if the Safety NationalLAUSD arbitration were to proceed concurrently with

the litigation of the LAUSD’s case against the insurers,”

because, as LAUSD argued, the Miramonte litigation

represents a single occurrence under the insurance

contracts and “depending on the outcome of the occurrence

question, it may or may not trigger potential excess

coverage obligations on the part of Safety National.” (App

32a-33a; 3AA(20)0675[p.10:9-18].)

The trial court concluded that “[u]nder these

circumstances, the Court has discretion under § 1281.2(c)

to refuse to enforce the arbitration agreement and order

joinder of all parties in a single proceeding. There is no

need to order joinder…since the Defendant insurers are

already before the Court. The Court need only decline

to enforce the arbitration agreement, consistent with

§ 1281.2(c). For these reasons, the motion to compel

arbitration is denied.” (App. 34a; 3AA(20)0676[p.11:9-15].)

D. The Decision Below.

In its published decision, the California Court of

Appeal affirmed the trial court’s order denying arbitration.

(App. 1a-18a.) The court held that California procedure

applies “where the arbitration agreement is governed

by the FAA (because it involves interstate commerce),

but the agreement has no choice-of-law provision, and no

provision stating the FAA’s procedural provisions govern

the arbitration.” (App. 1a-2a.)

In reaching its conclusion, the court principally relied

on the California Supreme Court’s decision in Cronus

Investments, Inc. v. Concierge Services, 35 Cal.4th 376,

107 P.3d 217, 25 Cal.Rptr.3d 540 (2005). (App. 9a-13a.) In

Cronus, the California Supreme Court interpreted Volt

to mean that the FAA “does not preempt the application

of section 1281.2, subdivision (c) where the parties have

agreed that their arbitration agreement would be

governed by the law of California.” Cronus, 35 Cal.4th

at 380, 107 P.3d at 219 (emphasis added). In that context,

the California Supreme Court held Section 1281.2(c) does

not conflict with the FAA nor does it contravene the spirt

of the FAA because “‘[t]here is no federal policy favoring

arbitration under a certain set of procedural rules,’” and

the parties are free to fashion their private arbitration

agreement as they see fit. Id. at 391-92, quoting Volt, 489

U.S. at 476. 3

The court of appeal read Cronus as concluding “both

that section 1281.2(c) does not conflict with the procedural

provisions of the FAA and that section 1281.2(c) does

not contravene the substantive goals and policies of the

FAA.” (App. 10a.) The court of appeal quoted the Cronus

decision’s explanation of Section 1281.2(c) as “‘determining

only the efficient order of proceedings [and] not affect[ing]

the enforceability of the arbitration agreement itself.’”

(App. 10a, fn. 2, quoting Cronus, 35 Cal.4th at 389-390, 107

P.3d at 225-26 which in turn quotes Doctor’s Associates,

Inc. v. Casarotto, 517 U.S. 681, 688 (1996) (explaining

the Volt decision).) And it relied on a lengthy quote from

Cronus describing the function of Section 1281.2(c) as in

harmony with the FAA (but with reference only to the

trial court’s power under 1281.2(c) to “stay arbitration”

or “stay the lawsuit,” not the court’s power to “refuse to

enforce” the arbitration provision). (App 11a-12a, quoting

Cronus, 35 Cal.4th at 393, 107 P.3d at 228-29.) The court of

appeal concluded that where the parties do not expressly

designate application of the FAA procedures, “California

procedures necessarily apply.” (App. 13a.)

3. No party filed a petition for a writ of certiorari to review

the California Supreme Court’s Cronus decision.

Finally, turning to application of Section 1281.2(c),

the court held that denial of Safety National’s motion to

compel arbitration was proper because the conditions of

Section 1281.2(c) were satisfied. (App. 14a-18a.)

Safety National’s timely petition for review to the

California Supreme Court was denied October 11, 2017.

(App. 36a.)

REASONS FOR GRANTING THE PETITION

A. The California Decision Conflicts with the FAA,

This Court’s Precedent, and Decisions from the

High Courts of Other States.

The decision below conflicts with the FAA, this Court’s

precedent, and decisions from other states in several

respects, including by (1) giving priority to state law over

federal law, (2) failing to enforce the plain language of FAA

§2, and (3) concluding that avoiding piecemeal litigation

provides a basis to refuse to enforce a valid arbitration

agreement governed by the FAA.

1. By holding that absent an express election of

the FAA in the contract, Section 1281.2(c) governs any

arbitration agreement litigated in California court, even

agreements involving interstate commerce, the decision

below violates the Supremacy Clause and defies both

the FAA and this Court’s precedent. In Volt, this Court

addressed Section 1281.2(c) specifically, and held the

state statute applied in that case because the parties

expressly elected to “abide by state rules of arbitration.”

Volt, 489 U.S. at 479 (“Where [] 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, even if the result is

that arbitration is stayed where the Act would otherwise

permit it to go forward.”) But where the parties have not

expressly adopted California law, and the contract involves

interstate commerce, the FAA governs and Section

1281.2(c) is preempted.

The California court’s decision flouts this Court’s Volt

decision by adopting the opposite rule: a contract which

involves interstate commerce is subject to Section 1281.2

the California Supreme Court’s statement in Cronus that

nothing “preclude[s] parties to an arbitration agreement

to expressly designate that any arbitration proceeding

should move for ward under the FA A’s procedural

provisions, rather than under state procedural law.” See

35 Cal.4th at 394, 107 P.3d at 229.

In effect, the California courts hold that the state’s

arbitration rules govern by default where the parties have

not expressly adopted the FAA, even if those rules permit

the court to refuse to enforce the arbitration agreement

on grounds that do not “exist at law or in equity for the

revocation of any contract.” 9 U.S.C. § 2. This view is at

odds with settled federal law. See, e.g., Porter Hayden Co.

v. Century Indem. Co., 136 F.3d 380, 383 (4th Cir. 1998)

(“[A]bsent a clearer expression of the parties’ intent to

invoke state arbitration law, we will presume that the

parties intended federal arbitration law to govern.”); see

also cases cited in Section B, infra. The view is also at

odds with this Court’s decision in Mastrobuono, 514 U.S.

at 59, which recognized that where a contract otherwise

governed by the FAA is silent on choice of law, the FAA

necessarily applies.

In Mastrobuono, the parties’ contract had an

arbitration provision and a choice of law clause selecting

New York law. Id. at 58-59. The Circuit Court interpreted

the choice of law clause to incorporate New York’s

decisional law that arbitrators, unlike courts, may not

award punitive damages, despite the fact that the clause

did not reference punitive damages. Id. at 54–55 (citing

Garrity v. Lyle Stuart, Inc., 40 N.Y.2d 354, 386 N.Y.S.2d

831, 358 N.E.2d 793 (1976)). The Court held that general

choice of law provisions incorporating a specific state’s

laws are not sufficient to defeat arbitration rights. 514 U.S.

at 60-64. In other words, to incorporate state procedural

rights that limit or defeat arbitration (such as Section

1281.2(c)), the contract’s choice of law provision must

clearly incorporate the state’s procedural laws, as was

the situation in Volt. See Volt, 514 U.S. at 474 (expressly

declining to review the state court’s interpretation of

the arbitration agreement as incorporating California’s

procedural rules).

To make its point, this Court explained in Mastrobuono

that if the contract had not contained a New York choice

of law provision, the FAA would have governed: “if a

similar contract, without a choice-of-law provision, had

been signed in New York and was to be performed in New

York, presumably ‘the laws of the State of New York’ would

apply, even though the contract did not expressly so state.

In such event, there would be nothing in the contract that

could possibly constitute evidence of an intent to exclude

punitive damages claims. Accordingly, punitive damages

would be allowed because, in the absence of contractual

intent to the contrary, the FAA would pre-empt the

Garrity rule.” Id. at 59 (emphasis added). In other words,

unless the contracting parties have expressly adopted

state arbitration procedures, the FAA governs. While

the California Supreme Court in Cronus attempted to

distinguish Section 1281.2(c) from the state rule addressed

in Mastrobuono (Cronus, 35 Cal.4th at 393, 107 P.3d at

228), the court of appeal decision below was more blunt:

“where, as here, the parties do not ‘expressly designate

that any arbitration proceeding should move forward

under the FA A’s procedural provisions rather than

under state procedural law’ (Cronus [35 Cal.4th at 394]),

California procedures necessarily apply.” (App. 13a)

The California courts, including Cronus and the

court below, have given Volt too broad a reading—one

that cannot be reconciled with this Court’s precedent. In

Cronus, the California Supreme Court held that Section

1281.2(c) applied to allow a court to stay arbitration, even

when the arbitration agreement expressly provided that

the parties’ choice of California law “shall not be deemed

an election to preclude application of the [FAA], if it would

be applicable.” Cronus, 35 Cal.4th at 380, 393-94, 107 P.3d

at 219, 228-29. In the present case, the California court of

appeal extended Cronus further, by holding that Section

1281.2(c) can be invoked to deny the right to arbitrate

under a contract governed by the FAA even when there

is no attempt whatsoever to choose a particular state’s

procedural laws to displace the FAA’s rules. (App. 8a9a [“Under these circumstances [e.g., no choice of law],

we hold the principles discussed in Cronus compel the

conclusion that [Section 1281.2(c)] applies in California

courts.”].)

The California courts have the law backwards. They

assume that Section 1281.2(c) is available to deny parties

their right to arbitrate unless the arbitration agreements

expressly provides that the FAA controls. See Cronus,

35 Cal.4th at 229, 107 P.3d at 394 (“[o]ur opinion does not

preclude parties to an arbitration agreement to expressly

designate that any arbitration proceeding should move

forward under the FAA’s procedural provisions, rather

than under state procedural law.”); (App. 8a-9a.)

This reversal in assumptions stems from the California

Supreme Court’s misapplication of Volt and Mastrobuono.

In Cronus, the California court put forth the following

approach: “Under United States Supreme Court

jurisprudence, we examine the language of the contract to

determine whether the parties intended to apply the FAA

to the exclusion of California procedural law and, if any

ambiguity exists, to determine whether Section 1281.2(c)

conflicts with or frustrates the objectives of the FAA.”

Cronus, 35 Cal.4th at 383, 107 P.3d at 221. This flips the

burden. Application of the FAA is not conditioned on the

contracting parties’ consent; the FAA applies to every

contract that involves interstate commerce.

In contrast, this Court made clear in Volt and

Mastrobuono that the application of state arbitration

rules in place of the FAA depends on the contracting

parties’ intent to apply the state arbitration law. See

Volt, 489 U.S. at 479 (“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, even if the

result is that arbitration is stayed where the Act would

otherwise permit it to go forward.”); Mastrobuono, 514

U.S. at 60-64 (holding that general choice of law provisions

incorporating a specific state’s laws are not sufficient to

defeat arbitration rights). The Decision below cannot be

squared with Volt and Mastrobuono.

2. By permitting California’s Section 1281.2(c) to be

used to deny enforcement of a valid arbitration provision

where the parties have not adopted California law in their

contract, the California court’s decision defies the plain

language of the FAA’s § 2 and numerous decisions of this

Court construing that language. Section 2 commands that

an arbitration agreement involving interstate commerce

“shall be valid, irrevocable, and enforceable save upon

such grounds as exist…for the revocation of any contract.”

9 U.S.C. § 2. This broad principle of enforceability

embodied in Section 2 “is [not] subject to any additional

limitations under state law.” Southland, 465 U.S. at 11.

By permitting the trial court to “refuse to enforce” the

arbitration provision in the Safety National insurance

contract, forcing Safety National to litigate in court a

dispute involving interstate commerce that the parties

agreed to arbitrate, Section 1281.2(c) violates § 2 of the

FAA and is pre-empted. See Volt, 489 U.S. at 478 (“the

FAA pre-empts state laws which ‘require a judicial forum

for the resolution of claims which the contracting parties

agreed to resolve by arbitration.’”) (quoting Southland,

465 U.S. at 10.)

Although this Court in Volt held that application of

Section 1281.2(c) in that case did not conflict with the FAA,

that holding turned on the parties’ agreement “to abide by

state rules of arbitration.” 489 U.S. at 479. Importantly,

Volt does not hold that Section 1281.2(c) always controls

over the terms of the FAA; it held that the parties, by

agreement, may choose to follow Section 1281.2(c) instead

of the FAA’s general rules. Enforcing arbitration pursuant

to state procedures such as California’s Section 1281.2(c) is

not inconsistent with the FAA when the contract provides

that the parties elect to adopt such state procedures. Id.

At least one commentator has observed that application

of Section 1281.2(c) likely would have been preempted in

Volt absent the parties’ express adoption of California law.4

Furthermore, the issue presented in Volt was a stay

of arbitration under Section 1281.2(c), not, as is the case

here, an outright denial of arbitration. See Volt, 489 U.S.

at 471, 479. In explaining its Volt decision, this Court

has twice made reference to the fact that only a stay of

arbitration was at issue in Volt. See Doctor’s Associates,

517 U.S. at 688 (“Volt involved an arbitration agreement

that incorporated state procedural rules, one of which, on

the facts of that case, called for arbitration to be stayed

pending the resolution of a related judicial proceeding.”);

Preston v. Ferrer, 552 U.S. 346, 360-361 (2008) (also

explaining Volt as addressing only a stay of litigation).

In Doctor’s Associates, the Court further explained that

application of a stay under Section 1281.2(c) in Volt did

not undermine the goals and policies of the FAA because

“[t]he state rule [§ 1281.2(c)] examined in Volt determined

4. See C. Drahozal, Federal Arbitration Act Preemption,

79 Ind. L.J. 393, 406 (2004) (“Although the Court did not say so

in Volt, § 1281.2(c) likely would have been preempted by the FAA

in the absence of the choice-of-law clause. (Indeed, the entire

rationale of Volt would have been unnecessary otherwise.)”). See,

e.g., BioMagic Inc. v. Dutch Brothers Enterprises, LLC, 729

F.Supp.2d 1140, 1143 (C.D. Cal. 2010) (recognizing that under §3 of

the FAA “if there’s a chance of conflicting rulings in an arbitration

and litigation, the court may not stay the arbitration.”) (emphasis

added).

only the efficient order of proceedings; it did not affect

the enforceability of the arbitration agreement itself.”

Doctor’s Associates, 517 U.S. at 688.

But Section 1281.2(c) involves more than simply the

efficient order of proceedings—it also empowers the trial

court to “refuse to enforce” an arbitration provision,

which is what the trial court relied on here. (App. 34a.)

This Court has never addressed whether the “refus[al]

to enforce” aspect of Section 1281.2(c) comports with the

FAA. It does not.

As this Court has stated repeatedly, the “primary

purpose” of the FA A is to “ensur[e] that private

agreements to arbitrate are enforced according to their

terms.” Volt, 489 U.S. at 479; see also Southland, 465 U.S.

at 16 (the FAA “creat[es] a substantive rule applicable

in state as well as federal courts…intended to foreclose

state legislative attempts to undercut the enforceability of

arbitration agreements.”); Perry v. Thomas, 482 U.S. 483,

489 (1987) (“Section 2 … embodies a clear federal policy of

requiring arbitration unless the agreement to arbitrate is

not part of a contract evidencing interstate commerce or

is revocable ‘upon such grounds as exist at law or in equity

for the revocation of any contract.’”); Doctor’s Associates,

517 U.S. at 687 (“Courts may not…invalidate arbitration

agreements under state laws applicable only to arbitration

provisions.”); Allied-Bruce Terminix Cos. v. Dobson,

513 U.S. 265, 272 (1995) (“state courts cannot apply

state statutes that invalidate arbitration agreements.”);

Preston, 552 U.S. at 349-50 (“[W]hen parties agree to

arbitrate all questions arising under a contract, state laws

lodging primary jurisdiction in another forum, whether

judicial or administrative, are superseded by the FAA.”).

Thus, when the California court below stated that “Section

1281.2(c) does not contravene the letter or spirit of the

FAA” (App. 13a), repeating a similar statement by the

California Supreme Court in Cronus, 35 Cal.4th at 393,

107 P.3d at 228, it defies this Court’s holdings as to the

Congressional intent behind the FAA.

3. The California court’s additional justification for

applying California law instead of the FAA—that Section

1281.2(c) merely implicates “procedural” provisions of

the FAA which are not applicable to the states (App.

11a-13a)—ignores that the conflict presented is with

the FAA’s substantive provision in § 2. In other words,

by granting to a trial court the discretion to “refuse

to enforce” an arbitration agreement based on case

management concerns, Section 1281.2(c)—which applies

only to arbitration agreements—squarely conf licts

with the Congressional directive in the FAA’s § 2 that

arbitration agreements “shall be valid, irrevocable, and

enforceable, save upon such grounds as exist at law or

in equity for the revocation of any contract.” This result

conflicts with this Court’s clear precedent. See Perry, 482

U.S. at 492, fn.9 (“[T]he text of § 2 provides the touchstone

for choosing between the state-law principles and the

principles of federal common law envisioned by passage of

that statute…A state-law principle that takes its meaning

precisely from the fact that a contract to arbitrate is at

issue does not comport with this requirement of § 2.”);

Kindred Nursing Centers Limited Partnership v.

Clark, 137 S.Ct. 1421, 1426 (2017) (under the FAA, “[a]

court may invalidate an arbitration agreement based

on ‘generally applicable contract defenses’ like fraud or

unconscionability, but not on legal rules that ‘apply only to

arbitration or that derive their meaning from the fact that

an agreement to arbitrate is at issue.’”) (quoting AT&T

Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011).)

Moreover, the same case management concerns

that permit a California court to “refuse to enforce”

an arbitration provision under Section 1281.2(c)—the

presence of other parties or other claims not subject to

the arbitration agreement—have been rejected by this

Court as a basis to deny arbitration under the FAA. Unlike

Section 1281.2(c), the FAA does not permit arbitration to

be denied because it would be inefficient to maintain two

proceedings. See Dean Witter Reynolds, Inc. v. Byrd, 470

U.S. 213, 217 (1985) (the FAA “requires district courts

to compel arbitration of pendent arbitrable claims when

one of the parties files a motion to compel, even where

the result would be the possibly inefficient maintenance

of separate proceedings in different forums”). And unlike

Section 1281.2(c), the FAA does not permit arbitration to

be denied because the litigation also involves persons not

parties to the arbitration agreement. See Moses H. Cone,

460 U.S. at 20 (“Under the [FAA] an arbitration agreement

must be enforced notwithstanding the presence of other

persons who are parties to the underlying dispute

but not to the arbitration agreement”). As this Court

explained in Moses H. Cone, the FAA “requires piecemeal

resolution when necessary to give effect to an arbitration

agreement.” Id.

In Cronus, however, the California Supreme Court

found that “[Dean Witter] and Moses H. Cone do not

address the appropriate procedure in state courts,”

characterizing this Court’s holdings in those cases as

addressing only procedural aspects of the FAA, not the

substantive aspects, and therefore inapplicable in state

court. 35 Cal.4th at 391, 107 P.3d at 227. Turning to Section

1281.2(c), the Cronus court then concluded, in direct

disregard of the holding in Moses H. Cone, that nothing in

the FAA prevents a California state court from refusing

to give effect to an arbitration agreement in order to

avoid piecemeal resolution: “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.” 35 Cal.4th at 393 (internal citations omitted).

The Decision below relied on this language from Cronus

to conclude that Section 1281.2(c) “does not contravene

the letter or spirit of the FAA.” (App. 13a.)

Once again, the California courts have it backwards.

The holding in Moses H. Cone that arbitration agreements

must be enforced, even if it means piecemeal litigation,

cannot be dismissed as simply an FAA procedural rule,

inapplicable to the states. Under the FAA, “state courts

cannot apply state statutes that invalidate arbitration

agreements.” Allied-Bruce, 513 U.S. at 272. Other state

courts addressing the same issue have concluded that

avoiding piecemeal litigation provides no basis to refuse

to enforce an otherwise valid arbitration agreement

governed by the FAA. See, e.g., Taylor v. Extendicare

Health Facilities, Inc., 637 Pa. 163, 191, 147 A.3d 490,

507 (2016), cert. denied, 137 S. Ct. 1375 (2017)(“where a

plaintiff has multiple disputes with separate defendants

arising from the same incident, and only one of those

claims is subject to an arbitration agreement, the [United

States Supreme] Court requires, as a matter of law,

adjudication in separate forums.”); Brown v. KFC Nat’l

Mgmt. Co., 82 Haw. 226, 240, 921 P.2d 146, 160, n.17 (1996)

(“we deem the reasoning of … Moses H. Cone Memorial

Hosp. to be controlling”); Kennamer v. Ford Motor Credit

Co., 153 So.3d 752, 763 (Ala. 2014)(“The United States

Supreme Court has recognized that, even though ordering

arbitration as to fewer than all defendants may result in

proceedings in two forums, the FAA ‘requires piecemeal

resolution when necessary to give effect to an arbitration

agreement’”); Ex parte Scrushy, 940 So.2d 290, 296

(Ala. 2006) (“the United States Supreme Court has also

concluded that concepts of judicial economy are secondary

to the strong federal policy favoring arbitration.”).

In sum, where an arbitration agreement is governed

by the FAA (because it involves interstate commerce),

and the agreement is silent on choice of law, the FAA

preempts application of California Code of Civil Procedure

§ 1281.2(c), particularly where the state statute is being

used, as here, to deny enforcement of a valid arbitration

provision. Any other result defies the FAA, the Supremacy

Clause and this Court’s precedent.

B. The Decision Below Conflicts With Decisions of

the Federal Circuit Courts and Creates a Clear

Incentive to Forum Shop.

1. Federal courts hold that the FAA presumptively

applies, absent an intent to apply a specific state law. In

Ario v. Underwriting Members of Syndicate 53, etc., 618

F.3d 277 (3rd Cir. 2010), for example, the Third Circuit

explained “[w]e have interpreted the FAA and Volt to

mean that ‘parties [may] contract to arbitrate pursuant

to arbitration rules or procedures borrowed from state

law, [and] the federal policy is satisfied so long as their

agreement is enforced.” Id. at 288 (citation omitted).

The court further explained “[t]his is not because the

agreements ‘cease being subject to the FAA,’ but is instead

because ‘the FAA permits parties to ‘specify by contract

the rules under which …arbitration will be conducted.’”

Id. (citations omitted). And that, “while parties may opt

out of the FAA’s default rules, they cannot ‘opt out’ of

FAA coverage in its entirety because it is the FAA itself

that authorizes parties to choose different rules in the

first place.” Id. (citation omitted). The Third Circuit

concluded: “‘[T]he FAA standards control ‘in the absence

of contractual intent to the contrary.’” Id. at 292 (citations

omitted).

The First Circuit applied the same analysis in

PaineWebber Inc. v. Elahi, 87 F.3d 589, 594 (1st Cir.

1996), concluding that the FAA applies absent intent to

the contrary. There, the court held federal arbitration law

provides “default rules and presumptions” such that “New

York law cannot require the parties in this case to submit

[the question of whether a time bar applied] to a court; the

question is whether the parties intended, through their

general choice of New York law, to adopt for themselves the

New York caselaw requiring that courts, not arbitrators,

decide the time bar.” Id. at 593-94.

The other circuits to address the issue agree. See

Doctor’s Associates, Inc. v. Distajo, 107 F.3d 126, 131,

(2nd Cir. 1997) cert. denied, 522 U.S. 948, (“[E]ven the

inclusion in the contract of a general choice-of-law clause

does not require application of state law to arbitrability

issues, unless it is clear that the parties intended state

arbitration law to apply on a particular issue”); Porter

Hayden Co. v. Century Indem. Co. 136 F.3d 380, 383

(4th Cir. 1998) (“[A]bsent a clearer expression of the

parties’ intent to invoke state arbitration law, we will

presume that the parties intended federal arbitration

law to govern”); Pedcor Management Co., Inc. Welfare

Benefit Plan v. Nations Personnel of Texas, Inc., 343

F.3d 355, 361 (5th Cir. 2003) (because “the FAA is part

of the substantive law of Texas…the FAA applies in an

arbitration agreement unless the choice-of-law provision

‘specifically exclude[s] the application of federal law’”);

Ferro Corp. v. Garrison Indus., 142 F.3d 926, 937 (6th

Cir. 1998) (FAA applies where “the choice-of-law clause

is not an ‘unequivocal inclusion’ of [state law]”); Zell

v. Jacoby-Bender, Inc., 542 F.2d 34, 37 (7th Cir. 1976)

(“[F]ederal law governs the validity of an arbitration

agreement when the Federal Arbitration Act is applicable”);

UHC Management Co., Inc. v. Computer Sciences Corp.,

148 F.3d 992, 997 (8th Cir. 1998) (“[W]e will not interpret

an arbitration agreement as precluding the application

of the FAA unless the parties’ intent that the agreement

be so construed is abundantly clear”); Sovak v. Chugai

Pharmaceutical Co., 280 F.3d 1266, 1269 (9th Cir. 2002),

opinion amended on denial of reh’g 289 F.3d 615 (9th Cir.

2002) (“[T]he strong default presumption is that the FAA,

not state law, supplies the rules for arbitration”); Kong

v. Allied Professional Ins. Co., 750 F.3d 1295, 1303 (11th

Cir. 2014) (“[t]he FAA applies to all contracts involving

interstate commerce” such that “if a contract involves

interstate commerce, a court must resolve arbitration

disputes according to the FAA, regardless of whether

that court is a federal court sitting in diversity.”). By

adopting a contrary rule, one requiring application of

state arbitration procedure unless the contracting parties

expressly adopted the FAA, the decision below conflicts

with this settled federal authority.

2. Additionally, for California litigants in particular,

the decision below now creates a clear incentive to forum

shop. As it now stands, parties subject to arbitration

agreements in California will receive different substantive

decisions on whether arbitration is required depending

on whether their case is filed in federal or state court. In

the Ninth Circuit, arbitration contracts silent on choice

of law are subject to the FAA. E.g. Sovak, 280 F.3d at

1269. In California state court, under the decision below,

contracts silent on choice of law are now subject to Section

1281.2(c) by default. (App. 1a-2a.) In other words, but for

being joined in a lawsuit with non-diverse co-defendants,

Petitioner Safety National would have had the right to

a federal forum, which in turn would have mandated

enforcement of the arbitration provision.

This Court has repeatedly recognized that disparities

between state and federal enforcement of arbitration

provisions are contrary to the intent of Congress in

enacting the FAA. See Moses H. Cone, 460 U.S. at 26, fn.34

(“Congress can hardly have meant that an agreement to

arbitrate can be enforced against a party who attempts

to litigate an arbitrable dispute in federal court, but

not against one who sues on the same dispute in state

court.”); Southland, 465 U.S. at 15 (“We are unwilling

to attribute to Congress the intent, in drawing on the

comprehensive powers of the Commerce Clause, to create

a right to enforce an arbitration contract and yet make

the right dependent for its enforcement on the particular

forum in which it is asserted.”); Allied Bruce, 513 U.S. at

272 (“Congress would not have wanted state and federal

courts to reach different outcomes about the validity of

arbitration in similar cases.”)

This Court’s review is essential to restore uniformity

to the rules of law that govern the FAA.

C. The Issue Presented is Exceptionally Important.

1. Review is warranted because “[s]tate courts

rather than federal courts are most frequently called

upon to apply the … FAA,” and “[i]t is a matter of great

importance … that state supreme courts adhere to a

correct interpretation of the legislation.” Nitro-Lift

Technologies, L.L.C. v. Howard, 568 U.S. 17, 17-18 (2012).

And where a state supreme court has declined to review

an intermediate appellate court that incorrectly interprets

the FAA, review by this Court is appropriate. E.g., Perry,

482 U.S. 483, 489 (reversing California Court of Appeal

decision that incorrectly interpreted the FAA, after

California Supreme Court declined review); DIRECTV,

136 S.Ct. 463, 467 (same).

“‘It is this Court’s responsibility to say what a

statute means, and once the Court has spoken, it is the

duty of other courts to respect that understanding of

the governing rule of law.’” Nitro-Lift, 568 U.S. at 21

(quoting Rivers v. Roadway Express, Inc., 511 U.S. 298,

312 (1994)). This Court has repeatedly intervened, and

summarily reversed, state court decisions that refused to

follow precedent and to enforce valid, binding arbitration

provisions. Examples include:

• Marmet Health Care Center, Inc. v. Brown, 565

U.S. 530 (2012) (per curiam)—vacating judgment

of the Supreme Court of Appeals of West Virginia,

where that court “by misreading and disregarding

the precedents of this Court interpreting the FAA,

did not follow controlling federal law implementing

th[e] basic principle” that both “[s]tate and federal

courts must enforce the Federal Arbitration Act.”

Id. at 530-31.

• Nitro-Lift, 568 U.S. at 20 (per curiam)—vacating

the Oklahoma Supreme Court’s decision refusing

to apply this Court’s severability doctrine

and instead declaring the underlying contract

containing an arbitration provision null and void

– a decision which blatantly “disregard[ed] this

Court’s precedents on the FAA.”

• KPMG LLP v. Cocchi, 565 U.S. 18, 22 (2011) (per

curiam)— vacating the Florida court’s refusal to

compel arbitration as “fail[ing] to give effect to

the plain meaning of the [Federal Arbitration] Act

and to the holding of Dean Witter [Reynolds, Inc.

v. Byrd, 470 U.S. 213 (1985)].”

• Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 5658 (2003) (per curiam)—reversing the Alabama

Supreme Court’s refusal to apply the FAA based

on an “improperly cramped view of Congress’

Commerce Clause power” that was inconsistent

with this Court’s decision in Allied-Bruce, 513 U.S.

265.

This case also is a good candidate for summary reversal.

2. Intervention by this Court is also warranted

because it furthers the important goal of the FAA in

protecting the right to arbitration from state rules hostile

to that procedure. As this Court has explained when

interpreting the FAA, the “fundamental attributes of

arbitration” are “lower costs, greater efficiency and speed,

and the ability to choose expert adjudicators to resolve

specialized disputes.” AT&T Mobility LLC v. Concepcion,

563 U.S. 333, 344, 348 (2011) (citing Stolt–Nielsen S.A. v.

AnimalFeeds Int’l Corp., 559 U.S. 662, 685 (2010)). Many

businesses, including insurance companies like Safety

National, price and structure their contractual obligations

around arbitration agreements. And businesses that

use standardized contracts on a nationwide basis, like

Safety National, rarely include specific state choice of law

provisions. These companies rely on the fair enforcement

of their contracts to ensure they will not be deprived of the

benefits of arbitration. Compelling a party to participate

in multi-party litigation, involving many issues that

will have no impact on Safety National’s own rights and

obligations, adds costs to the insurance transaction not

contemplated when Safety National priced its products,

thereby depriving Safety National of the benefits of the

contract with its insured. See Allied-Bruce, 513 U.S. at 281

(“What States may not do is decide that a contract is fair

enough to enforce all its basic terms (price, service, credit),

but not fair enough to enforce its arbitration clause.”)

Absent intervention by this Court, Safety National will

be compelled to litigate in court a dispute the contracting

parties agreed to arbitrate. That violates the FAA.

The Court should grant review, reverse the judgment

of the California Court of Appeal, and remand the case

with instructions to compel arbitration.

CONCLUSION

The petition for writ of certiorari should be granted.

The Court may wish to consider summary reversal.

Respectfully submitted,

Philip R. Matthews

Paul J. Killion

Christine C. Ross

Duane Morris LLP

Spear Tower

One Market Plaza, Suite 2200

San Francisco, CA 94105

(415) 957-3000

Robert L. Byer

Counsel of Record

Duane Morris LLP

600 Grant Street, Suite 5010

Pittsburgh, PA 15219

(412) 497-1000

rlbyer@duanemorris.com

Counsel for Petitioner

December 21, 2017

APPENDIX

AppendixOF

A THE COURT OF

APPENDIx A — OPINION

APPEaL OF CaLIFORNIa, SEcOND APPELLaTE

DIsTRIcT, DIVIsION EIGHT, FILED JULY 12, 2017

COURT OF APPEaL OF CaLIFORNIa

SEcOND APPELLaTE DIsTRIcT

DIVIsION EIGHT

B275597

LOS ANGELES UNIFIED SCHOOL DISTRICT,

Plaintiff and Respondent,

SAFETY NATIONAL CASUALTY CORPORATION,

Defendant and Appellant.

July 12, 2017, Opinion Filed

APPEAL from an order of the Superior Court of Los

Angeles County, No. BC593234, Kenneth R. Freeman,

Judge. Affirmed.

GRIMES, J.

SUMMARY

The question in this case is whether the procedural

provisions of the Federal Arbitration Act (FAA; 9 U.S.C.

§ 1 et seq.) apply to a motion to compel arbitration in a

Appendix A

California state court, where the arbitration agreement

is governed by the FAA (because it involves interstate

commerce), but the agreement has no choice-of-law

provision, and no provision stating the FAA’s procedural

provisions govern the arbitration.

We conclude California procedure applies in these

circumstances, and the trial court did not abuse its

discretion when it denied an insurer’s motion to compel

arbitration with its insured, based on the possibility of

conflicting rulings in pending litigation with third parties.

(Code Civ. Proc., § 1281.2, subd. (c) (section 1281.2(c)).)

FACTS

In September 2015, plaintiff Los Angeles Unified

School District sued 27 insurance companies that had

issued policies of primary or excess liability insurance

to plaintiff. Plaintiff alleged the insurers breached

their insurance contracts and tortiously breached the

covenant of good faith and fair dealing by refusing to

provide coverage—under more than 100 insurance policies

spanning the years between 1975 and 2012—for third

party claims and lawsuits referred to collectively as the

Miramonte litigation. These third party claims alleged

that plaintiff’s negligence “in hiring, retaining, and

supervising caused hundreds of students to be repeatedly

exposed to abuse by two teachers working at Miramonte

Elementary School for decades … .”

Plaintiff sought declaratory relief and more than

$200 million in damages. The complaint alleged 203

Appendix A

causes of action against the various insurers, the last

one seeking a declaration against all the insurers that

the Miramonte litigation constituted a single occurrence

under the policies, and “all defense and indemnity sums

incurred by or on behalf of the [plaintiff] in connection

with that Litigation result from that single occurrence.”

The lawsuit was designated a complex case. (Cal. Rules

of Court, rule 3.400.)

Defendant Safety National Casualty Corporation

is one of the 27 insurers. Plaintiff alleged defendant‘s

wrongful refusal to defend and indemnify plaintiff

under two policies, the “Safety 82/83 1ST XS Policy”

and the “Safety 83/84 1ST XS Policy.” (A declaration

from defendant says it issued a policy “for at least the

policy period June 1, 1982 to July 1, 1983,” and that an

endorsement “appears to extend coverage for the following

year, but there is evidence … that makes it unclear if

that extended coverage was subsequently cancelled.”

The policy “contains limits of $5,000,000 per occurrence

excess of $20,000,000 per occurrence, and a self-insured

retention of $1,500,000.”)

Defendant’s policy contained an arbitration clause,

and defendant filed a motion to compel arbitration, and

to dismiss or stay the action against it. The policy’s

arbitration clause provides, in pertinent part:

“As a condition precedent to any right of action

under this Agreement, … any dispute arising

out of this Agreement shall be submitted to the

decision of a board of arbitration. The board of

Appendix A

arbitration will be composed of two arbitrators

and an umpire, meeting in St. Louis, Missouri,

unless otherwise agreed. [¶] The members

of the board of arbitration shall be active or

retired, disinterested officials of insurance

or reinsurance companies. Each party shall

appoint its arbitrator, and the two arbitrators

shall choose an umpire before instituting the

hearing. … [¶] … [¶] The board shall make its

decision with regard to the custom and usage

of the insurance and reinsurance business.

The board shall issue its decision in writing

based upon a hearing in which evidence may

be introduced without following strict rules of

evidence but in which cross examination and

rebuttal shall be allowed.”

Defendant contended the FAA applied as a matter

of law to the parties’ dispute, because the policy is a

contract evidencing a transaction involving interstate

commerce. Because there was a valid agreement to

arbitrate encompassing the dispute at issue, defendant

argued, the court was required under the FAA to “make

an order directing the parties to proceed to arbitration in

accordance with the terms of the agreement.” (9 U.S.C.

§ 4.)

Plaintiff opposed the motion, proffering multiple

arguments, including that section 1281.2(c) applied

and compelled denial of the motion and that the FAA’s

procedural provisions do not apply unless the contract

contains a choice-of-law clause expressly incorporating

those provisions.

Appendix A

Defendant’s reply contended the lack of any choiceof-law clause mandated application of the FAA, and even

if California rules applied, arbitration would be proper

because plaintiff “failed to make any showing to support

a finding of possible inconsistent rulings, as is necessary

under … section 1281.2(c).”

The trial court denied the motion to compel arbitration.

The court found an agreement to binding arbitration

existed, and the policies themselves, together with

pertinent legal authorities, showed the insurance

transaction involved interstate commerce. Relying on

Valencia v. Smyth (2010) 185 Cal.App.4th 153 [110 Cal.

Rptr. 3d 180], the court concluded the FAA’s substantive

provisions applied, but its procedural provisions did not,

because the contract did not contain a clause expressly

incorporating those provisions. Accordingly, the court

found California rules of procedure governed. The court

further found there was a possibility of conflicting rulings

under section 1281.2(c). (We will describe the court’s

comments on the last point in connection with our legal

discussion, pt. 3, post.)

Defendant filed a timely notice of appeal.

DISCUSSION

Defendant contends the trial court’s application of

California’s procedural law on arbitration was error, and

even if California law applies, the trial court erred in

denying arbitration based on the possibility of inconsistent

rulings. We disagree on both points.

Appendix A

We review the first question de novo, and the second

for abuse of discretion. (Mastick v. TD Ameritrade, Inc.

(2012) 209 Cal.App.4th 1258, 1262–1263 [147 Cal. Rptr.

3d 717].)

1. The Legal Background

We begin with a brief description of the relevant

statutes and principles.

It is undisputed that the substantive provisions of

the FAA govern the arbitration agreement, because

the insurance contract involves interstate commerce.

As the high court has said, “the FAA’s ‘substantive’

provisions—§§ 1 and 2—are applicable in state as well as

federal court … .” (Volt Info. Sciences v. Leland Stanford

Jr. U. (1989) 489 U.S. 468, 477, fn. 6 [103 L.Ed.2d 488, 109

S.Ct. 1248] (Volt).) Section 1 defines the term “commerce,”

and section 2 is “the primary substantive provision of the

FAA … .” (Cronus Investments, Inc. v. Concierge Services

(2005) 35 Cal.4th 376, 384 [25 Cal. Rptr. 3d 540, 107 P.3d

217] (Cronus).) Section 2 provides in pertinent part that “[a]

written provision in … a contract evidencing a transaction

involving commerce to settle by arbitration a controversy

thereafter arising out of such contract or transaction, or

the refusal to perform the whole or any part thereof, …

shall be valid, irrevocable, and enforceable, save upon such

grounds as exist at law or in equity for the revocation of

any contract.” (9 U.S.C. § 2.)

Sections 3 and 4 of the FAA are procedural provisions.

(Cronus, supra, 35 Cal.4th at p. 389.) Section 3 of the FAA

Appendix A

provides that if a suit is brought “in any of the courts of

the United States” on an issue referable to arbitration

under a written arbitration agreement, the court “shall on

application of one of the parties stay the trial of the action

until such arbitration has been had in accordance with

the terms of the agreement … .” (9 U.S.C. § 3.) Section 4

allows a party aggrieved by an alleged refusal to arbitrate

to “petition any United States district court” that would

have jurisdiction of the subject matter in a civil action “for

an order directing that such arbitration proceed in the

manner provided for in such agreement.” (9 U.S.C. § 4.)

In California, section 1281.2(c) allows a court to

refuse to enforce an agreement to arbitrate, if the court

determines that “[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.”1

Unlike the procedure in California, the FAA by its terms

“leaves no place for the exercise of discretion by a district

court, but instead mandates that district courts shall

direct the parties to proceed to arbitration on issues as to

1. Under those circumstances, “the court (1) may refuse to

enforce the arbitration agreement and may order intervention or

joinder of all parties in a single action or special proceeding; (2) may

order intervention or joinder as to all or only certain issues; (3) may

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; or (4) may stay arbitration

pending the outcome of the court action or special proceeding.”

(§ 1281.2(c).)

Appendix A

which an arbitration agreement has been signed.” (Dean

Witter Reynolds Inc. v. Byrd (1985) 470 U.S. 213, 218 [84

L. Ed. 2d 158, 105 S. Ct. 1238]; id. at p. 217 [holding the

FAA “requires district courts to compel arbitration of

pendent arbitrable claims when one of the parties files

a motion to compel, even where the result would be the

possibly inefficient maintenance of separate proceedings

in different forums”].)

2. California Procedure Applies.

Many cases have discussed whether and when the

FAA’s procedural provisions apply in state courts. Volt

tells us the FAA “simply requires courts to enforce

privately negotiated agreements to arbitrate, like other

contracts, in accordance with their terms.” (Volt, supra,

489 U.S. at p. 478.) The FAA does not “prevent[] the

enforcement of agreements to arbitrate under different

rules than those set forth in the Act itself.” (Volt, at p.

479.) So, for example, “[w]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, even if the result is

that arbitration is stayed where the Act would otherwise

permit it to go forward.” (Ibid.)

In this case, however, there is no agreement to

abide by state rules, and no agreement to abide by FAA

procedural rules. Instead the agreement is completely

silent, with no terms mentioning or alluding to the FAA,

California law, or any other state law or rules of procedure.

Appendix A

Under these circumstances, we hold the principles

discussed in Cronus compel the conclusion that California

procedure applies in California courts.

Cronus described or established several pertinent

principles.

First, the FAA “does not preempt the application

of section 1281.2, subdivision (c) where the parties

have agreed that their arbitration agreement would be

governed by the law of California.” (Cronus, supra, 35

Cal.4th at p. 380 [describing the holding in Volt, supra,

489 U.S. 468].)

Second, the Cronus case presented circumstances

where the parties agreed that their arbitration agreement

would be governed by California law, “but they further

agreed that the designation of California law ‘shall not be

deemed an election to preclude application of the [FAA],

if it would be applicable.’” (Cronus, supra, 35 Cal.4th at p.

380.) The court concluded that “in this situation, the FAA

also does not preempt the application of section 1281.2,

subdivision (c).” (Ibid.)

Third, in reaching its conclusion, the Cronus court

stated the analytical principle to be applied: “Under

United States Supreme Court jurisprudence, we examine

the language of the contract to determine whether the

parties intended to apply the FAA to the exclusion of

California procedural law and, if any ambiguity exists,

to determine whether section 1281.2(c) conflicts with or

frustrates the objectives of the FAA.” (Cronus, supra, 35

Cal.4th at p. 383.)

10a

Appendix A

Fourth, Cronus concluded both that section 1281.2(c)

does not conflict with the procedural provisions of the

FAA and that section 1281.2(c) does not contravene the

substantive goals and policies of the FAA. The court first

discussed procedure, and then turned to substance.

In concluding that “the procedural provisions of the

FAA [(§§ 3, 4)] and section 1281.2 do not conflict” (Cronus,

supra, 35 Cal.4th at p. 390), the court observed: “[t]he

language used in sections 3 and 4 and the legislative

history of the FAA suggest that the sections were intended

to apply only in federal court proceedings.” (Id. at p.

388; see also Cable Connection, Inc. v. DIRECTV, Inc.

(2008) 44 Cal.4th 1334, 1351 [82 Cal. Rptr. 3d 229, 190

P.3d 586] (Cable Connection) [“Sections 3 and 4 of the

FAA, governing stays of litigation and petitions to enforce

arbitration agreements, do not apply in state court”].)2

2. Cronus also observed that the high court “does not read the

FAA’s procedural provisions to apply to state court proceedings.

‘[W]e do not hold that §§ 3 and 4 of the Arbitration Act apply to

proceedings in state courts. Section 4, for example, provides that

the Federal Rules of Civil Procedure apply in proceedings to compel

arbitration. The Federal Rules do not apply in such state court

proceedings.’ [Citation.] In Volt, the high court later confirmed that,

‘While we have held the FAA’s “substantive” provisions—§§ 1 and

2—are applicable in state as well as federal court [citation], we have

never held that §§ 3 and 4, which by their terms appear to apply only

to proceedings in federal court [citations], are nonetheless applicable

in state court.’ (Volt, supra, 489 U.S. at p. 477, fn. 6.) Reaffirming

Volt’s distinction between the procedural and substantive aspects

of the FA A, the court further described section 1281.2(c) as

‘determin[ing] only the efficient order of proceedings [and] not

affect[ing] the enforceability of the arbitration agreement itself.’

[Citation.]” (Cronus, supra, 35 Cal.4th at pp. 389–390.)

11a

Appendix A

Cronus also relied on the court’s prior decision in

Rosenthal v. Great Western Fin. Securities Corp. (1996)

14 Cal.4th 394 [58 Cal. Rptr. 2d 875, 926 P.2d 1061]

(Rosenthal), quoting Rosenthal’s statement (id. at p. 409)

that, “‘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.”’” (Cronus,

supra, 35 Cal.4th at p. 390, italics added by Rosenthal.)

Further: “‘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.’” 3 (Cronus, at p. 390.)

Finally, Cronus rejected claims that application of

section 1281.2(c) would contravene the substantive goals

and policies of the FAA (Cronus, supra, 35 Cal.4th at p.

387), and that section 1281.2(c) “conflicts with the spirit

of the FAA because its application would undermine

and frustrate … section 2’s policy of enforceability of

arbitration agreements.” (Cronus, at p. 391; see id., pp.

391–393.) The court observed:

“[S]ection 1281.2(c) is not a special rule limiting the

authority of arbitrators. It is an evenhanded law that

3. In Rosenthal, the court held that, while an agreement was

subject to the FAA, “the federal provision for a jury trial of questions

regarding the existence of an arbitration agreement (9 U.S.C. § 4)

does not operate in California state courts.” (Rosenthal, supra, 14

Cal.4th at p. 402.)

12a

Appendix A

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 amongst interrelated parties. Moreover,

‘[s]ection 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.’” (Cronus,

supra, 35 Cal.4th at p. 393.)

The court concluded: “Our opinion does not preclude

parties to an arbitration agreement to expressly designate

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

FAA and does not undermine or frustrate the FAA’s

substantive policy favoring arbitration.” (Cronus, supra,

35 Cal.4th at p. 394.)

13a

Appendix A

In sum, Cronus leaves us with several incontrovertible

principles. Section 1281.2(c) does not contravene the letter

or spirit of the FAA. (Cronus, supra, 35 Cal.4th at p.

393.) California procedure ordinarily applies in California

courts, and sections 3 and 4 of the FAA ordinarily do

not. (Cronus, at p. 388; see also Cable Connection,

supra, 44 Cal.4th at p. 1351.) Consequently, where, as

here, the parties do not “expressly designate that any

arbitration proceeding should move forward under the

FAA’s procedural provisions rather than under state

procedural law” (Cronus, at p. 394), California procedures

necessarily apply. (See also Judge v. Nijjar Realty,

Inc. (2014) 232 Cal.App.4th 619, 632 [181 Cal. Rptr. 3d

622] [“Absent an agreement by the parties to apply the

procedural provisions of the FAA to their arbitration,

federal procedural rules apply only where state procedural

rules conflict with or defeat the rights Congress granted

in the FAA.”]; Valencia v. Smyth, supra, 185 Cal.App.4th

at p. 174 [“the procedural provisions of the [California

Arbitration Act] apply in California courts by default”].)

3. Denial of the Motion to Compel Was Proper.

Defendant argues the trial court abused its discretion

when it denied arbitration under the authority of section

1281.2(c). Again, we disagree.

As stated earlier, section 1281.2(c) allows a court to

refuse to enforce an arbitration agreement if a party to

the agreement is also a party to a pending court action

with a third party, “arising out of the same transaction

or series of related transactions and there is a possibility

14a

Appendix A

of conflicting rulings on a common issue of law or fact.”

A trial court “may deny a party’s contractual right to

arbitration only when all of section 1281.2(c)’s conditions

are satisfied.” (Acquire II, Ltd. v. Colton Real Estate

Group (2013) 213 Cal.App.4th 959, 980 [153 Cal. Rptr. 3d

135] (Acquire II).)

Defendant contends two conditions are not satisfied.

Defendant first asserts plaintiff ’s court action

against the other insurers does not arise out of “the

same transaction or series of related transactions” as

plaintiff’s action against defendant. Defendant tells us the

“transactions at issue” are the insurance contracts issued

by each insurer, and “[t]here are no related ‘transactions’

because the policies were purchased at different times,

from different insurers, and involve different contract

terms and cover different time periods.”

Defendant—who did not make this argument to

the trial court—admits that section 1281.2(c) does not

define the term “transaction,” and cites no authority

that supports its constricted notion of the term.4 The

4. Defendant cites Acquire II, supra, 213 Cal.App.4th 959,

where “the record fail[ed] to show that … the claims of any group

of Plaintiffs who agreed to arbitration and the claims of any group

of Plaintiffs who did not agree to arbitration arose out of the same

transaction or series of related transactions … .” (Id. at p. 973.) The

case involved a wide variety of fraud-related claims by 250 investors

against the defendants, who had created six different investment

funds over a 10-year period to purchase and manage six portfolios

of commercial real estate. (Id. at pp. 963, 965–966.) The defendants

filed six motions to compel six of the 12 groups of plaintiffs to

15a

Appendix A

trial court’s view was this: “This litigation arises out

of a series of related transactions—namely, [plaintiff’s]

alleged entitlement to insurance coverage arising out of

the underlying Miramonte litigation.” Defendant says this

ruling was “incorrect,” but offers no cogent reason for

that assertion. Indeed, defendant admits that plaintiff’s

claims “against all its insurers arise out of a common

set of underlying claims,” but at the same time insists

that plaintiff’s dispute “with each insurer arises out of

each separate insurance transaction.” We think not; the

dispute arises out of each insurer’s refusal to defend or

indemnify against the very same underlying claims, and

further arises in the context of plaintiff’s claim, against

all the insurers, that the Miramonte litigation constituted

a single occurrence under the policies. We find no fault in

the trial court’s assessment.

Defendant’s second contention is that plaintiff “failed

to provide substantial evidence that there would be a

possibility of conflicting rulings on a common issue of law

or fact.” Specifically, defendant says the “only possibility

of inconsistent rulings noted in the trial court’s order”

arbitrate their claims. (The other six groups invested in funds that

had no arbitration agreements in their governing documents.) (Id.

at p. 963.) Each group of plaintiffs invested in different funds or

properties, at different times, under separate private placement

memoranda, and “executed separate agreements to define their

rights and obligations depending on the fund or property in which

they invested.” (Id. at p. 974.) And the plaintiffs’ claims “regarding

Defendants’ management of the funds and properties also arose out

of separate transactions because Defendants managed different

funds and different properties for each group of Plaintiffs.” (Ibid.)

We see nothing in Acquire II that assists defendant in this case.

16a

Appendix A

is whether or not the underlying litigation represents a

single “occurrence” for purposes of insurance coverage.

And, defendant tells us, “there is no real possibility of

either the court or the arbitration panel ruling that there

was only one occurrence, and even if one tribunal did, such

inconsistent rulings would not impact the triggering of

the excess coverage obligations under [defendant’s policy]

because they are so high level.”

Defendant’s view is mistaken on multiple levels.

First, “the allegations of the parties’ pleadings may

constitute substantial evidence sufficient to support a trial

court’s finding that section 1281.2(c) applies. [Citation.] A

party relying on section 1281.2(c) to oppose a motion to

compel arbitration does not bear an evidentiary burden

to establish a likelihood of success or make any other

showing regarding the viability of the claims and issues

that create the possibility of conflicting rulings. [Citation.]

An evidentiary burden is unworkable under section

1281.2(c) because the question presented is whether a

‘“possibility”’ of conflicting rulings exists [citation] and a

motion to compel arbitration is typically brought before

the parties have conducted discovery.” (Acquire II, supra,

213 Cal.App.4th at p. 972.)

Second, defendant’s mere assertion “there is no

real possibility” that any tribunal would rule there was

only one occurrence is of no moment. Defendant tells

us “[t]he majority of jurisdictions” follow the rule “that

multiple acts of sexual abuse against different victims do

not constitute one occurrence” and, in a footnote, cites

17a

Appendix A

10 cases from California and other jurisdictions (one of

which held otherwise). Defendant presents no analysis or

argument as to why and how these cases are analogous to

the facts alleged here, and cites no controlling authority

from our Supreme Court. It is obvious that an appellate

court cannot decide that issue in the absence of a record

developed in the trial court.

Third, we see no error in the trial court’s analysis.

The court explained: “There certainly is a possibility

of conflicting rulings on common issues of law or fact

if the [defendant-plaintiff] arbitration were to proceed

concurrently with the litigation of the [plaintiff’s] case

against the insurers. As [plaintiff] notes, its position

is that the Miramonte litigation represents a ‘single

occurrence,’ entitling it to coverage. While the Court is

in no position to make that assessment at this time, the

gravamen of this case will require the Court to ultimately

resolve this important coverage question. This question

will certainly also be part of any arbitration proceeding

between [defendant] and [plaintiff]; depending on the

outcome of the occurrence question, it may, or may not,

trigger potential excess coverage obligations on the part[]

of [defendant]. To allow the arbitration to proceed would

risk potentially inconsistent results with the Court’s

ultimate findings in the instant litigation.”

Further, the trial court properly rejected the claim

defendant repeats on appeal, that even if there were

conflicting rulings, “there would be no practical impact

on the litigation,” because defendant “is a high-level

excess carrier and the policy attaches excess of $20

18a

Appendix A

million.” Defendant asserts that “even if the $200 million

loss alleged by [plaintiff] is divided over the 40 years of

coverage, the $5 million assigned to [defendant’s] policy

year would not impact [defendant‘s] Policy, which attaches

excess of $20 million.” Like the trial court, we are not

prepared to so conclude as a matter of law. As the court

stated: “The Court is not persuaded by [defendant’s]

argument that [defendant’s] potential for coverage, at

most, would be for two years, and that any overlap is

‘minimal.’ The standard under § 1281.2(c) requires only

a ‘possibility’ of conflicting rulings on a common issue of

law or fact. Certainly, and at the very least, there is such

a possibility here.” (Fn. omitted.)

DISPOSITION

The order denying defendant’s motion to compel

arbitration is affirmed. Plaintiff shall recover its costs

on appeal.

Bigelow, P. J., and Sortino, J.,* concurred. 5

Judge of the Los Angeles Superior Court, assigned by the

Chief Justice pursuant to article VI, section 6 of the California

Constitution.

19a

AppendixoF

B THE SUPERIOR

APPENDIx B — ORDER

COURT OF THE STATE OF CALIFORNIA FOR THE

COUNTY OF LOS ANGELES, FILED MAY 31, 2016

SUPERIOR COURT OF THE STATE OF

CALIFORNIA FOR THE COUNTY

OF LOS ANGELES

LASC Case No: BC593234

LOS ANGELES UNIFIED SCHOOL DISTRICT,

a school district,

Plaintiff,

ACE PROPERTY AND CASUALTY INSURANCE

COMPANY AS SUCCESSOR-IN-INTEREST

TO AETNA INSURANCE COMPANY; ACE

PROPERTY AND CASUALTY INSURANCE

COMPANY AS SUCCESSOR-IN-INTEREST TO

CENTRAL NATIONAL INSURANCE COMPANY

OF OMAHA; ACE PROPERTY AND CASUALTY

INSURANCE COMPANY AS SUCCESSORIN-INTEREST TO INSURANCE COMPANY

OF NORTH AMERICA; AIG SPECIALTY

INSURANCE COMPANY AS SUCCESSOR-ININTEREST TO AMERICAN INTERNATIONAL

SPECIALTY LINES INSURANCE COMPANY;

AIU INSURANCE COMPANY: ALLIANZ

GLOBAL RISKS US INSURANCE COMPANY,

AS SUCCESSOR-IN-INTEREST TO RIUNIONE

20a

Appendix B

ADRIATICA DI SICURTA; ALLIED WORLD

NATIONAL INSURANCE COMPANY; ALLIED

WORLD NATIONAL ASSURANCE COMPANY AS

SUCCESSOR IN-INTEREST TO NEWMARKET

UNDERWRITERS INSURANCE COMPANY;

ALLSTATE INSURANCE COMPANY AS

SUCCESSOR-IN-INTEREST TO NORTHBROOK

INSURANCE COMPANY; ASSOCIATED

INTERNATIONAL INSURANCE COMPANY;

ENDURANCE AMERICAN SPECIALTY

INSURANCE COMPANY, AS SUCCESSORIN-INTEREST TO TRADERS AND PACIFIC

INSURANCE COMPANY; EVEREST NATIONAL

INSURANCE COMPANY; FIREMAN’S FUND

INSURANCE COMPANY: FIRST STATE

INSURANCE COMPANY; GRANITE STATE

INSURANCE COMPANY; INSURANCE COMPANY

OF THE STATE OF PENNSYLVANIA; LEXINGTON

INSURANCE COMPANY; NATIONAL UNION FIRE

INSURANCE COMPANY OF PITTSBURGH, PA;

NEW ENGLAND REINSURANCE CORPORATION;

NORTH AMERICAN SPECIALTY INSURANCE

COMPANY; PROGRESSIVE CASUALTY

INSURANCE COMPANY; RLI INSURANCE

COMPANY; SAFETY NATIONAL CASUALTY

CORPORATION AS SUCCESSOR-IN-INTEREST TO

SAFETY MUTUAL CASUALTY CORPORATION;

STARR INDEMNITY AND LIABILITY COMPANY;

UNITED NATIONAL INSURANCE COMPANY;

WESTPORT INSURANCE COMPANY, AS

SUCCESSOR IN-INTEREST TO EMPLOYERS

REINSURANCE CORPORATION; WESTPORT

21a

Appendix B

INSURANCE CORPORATION AS SUCCESSOR-ININTEREST TO MANHATTAN FIRE AND MARINE

INSURANCE COMPANY; and DOES 1-250, Inclusive,

Defendants.

COURT’S RULING AND ORDER RE:

MOTION TO COMPEL ARBITRATION

AND EITHER TO DISMISS OR STAY

ACTION AGAINST SAFETY NATIONAL

Hearing Date: May 24, 2016

BACKGROUND

In this insurance coverage litigation, Plaintiff Los

Angeles Unified School District (“LAUSD”) has sued

several of its insurers for allegedly breaching their

insurance contracts and committing bad faith in failing to

provide coverage for numerous claims and lawsuits. Such

lawsuits include complex litigation consolidated in A.M.

v. Los Angeles Unified School District, LASC Case No.

BC4841 11 (also known as the Miramonte litigation).1 The

primary and/or excess policies were in effect from August

31, 1975 to July 1, 2012. 2 In all, the complaint alleges 203

causes of action, and seeks $200 million in damages.

1. Complaint, ¶1.

2. Complaint, ¶2.

22a

Appendix B

One of LAUSD’s excess insurers, Safety National

Corporation (“Safety National”), has moved to compel

arbitration pursuant to the terms of the Safety National

policy. For the reasons discussed infra, the motion to

compel arbitration is denied.

II.

MOTION TO COMPEL ARBITRATION

A. Standards on Petitions/Motions

to Compel Arbitration

A written agreement to submit to arbitration, a

controversy thereafter arising is valid, enforceable and

irrevocable, save upon such grounds as exist for the

revocation of any contract. CCP § 1281. California has a

strong public policy in favor of arbitration. Moncharsh v.

Heily & Blase (1992) 3 Cal.4th 1, 9. On petition of a party

to an arbitration agreement alleging the existence of a

written agreement to arbitrate a controversy and where

a patty thereto refuses to arbitrate such controversy,

the court shall order the petitioner and the respondent

to arbitrate if it determines an agreement to arbitrate

the controversy exists. CCP § 1281.2; Gorlach v. Sports

Club Co. (2012) 209 Cal.App.4th 1497, 1505 (noting that

“when presented with a petition to compel arbitration, the

trial court’s first task is to determine whether the parties

have in fact agreed to arbitrate the dispute’’). The initial

burden is on the party petitioning to compel arbitration to

prove the existence of the agreement by a preponderance

of that evidence. Villacreses v. Molinari (2005) 132 Cal.

App.4th 1223, 1230.

23a

Appendix B

Once petitioners allege that an arbitration agreement

exists, the burden shifts to respondents to prove the

falsity of the prompted agreement, and no evidence

or authentication is required to find the arbitration

agreement exists. Condee v. Longwood Mgt. Corp. (2001)

88 Cal.App.4th 215, 219. See also Brodke v. Alphatec

Spine Inc. (2008) 160 Cal.App.4th 1569, 1575-76 (petition

or motion to compel arbitration must allege arbitration

agreement exists, and cannot contest it). But see Bouton

v. USAA Casualty Ins. Co. (2008) 167 Cal.App.4th 412,

423-24 (“in considering a Code of Civil Procedure section

1281.2 petition to compel arbitration, a trial court must

make the preliminary determinations whether there is

an agreement to arbitrate and whether the petitioner is

a party to that agreement (or can otherwise enforce the

agreement)”); Segal v. Silberstein (2007) 156 Cal.App.4th

627, 633 (“petitioner bears the burden of proving the

existence of a valid arbitration agreement ....”); Giuliano

v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th

1276, 1284 (“‘petitioner bears the burden of proving

the existence of a valid arbitration agreement by the

preponderance of the evidence ....’”); Rosenthal v. Great

Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413

(as to a petition to compel arbitration, “petitioner bears

the burden of proving its existence by a preponderance

of the evidence.”); Banner Ent., Inc. v. Sup. Ct. (1998) 62

Cal.App.4th 348, 356 (citing Rosenthal, supra).

“‘Absent a clear agreement to submit dispute to

arbitration, courts will not infer that the right to a jury

trial has been waived.’ [Citation.]” Sparks v. Vista Del

Mar Child & Family Services (2012) 207 Cal.App.4th

1511, 1518.

24a

Appendix B

Further, “the FAA [Federal Arbitration Act] relies on

state-law contract principles in determining whether an

arbitration agreement exists.” Peleg v. Neiman Marcus

Group, Inc. (2012) 204 Cal.App.4th 1425, 1466.

B. Discussion

1. An Agreement to Arbitrate Exists

As the party moving for arbitration, the burden is on

Defendant Safety National to prove, by a preponderance

of the evidence, that an agreement to arbitrate exists

between itself and Plaintiff LAUSD. The excess

liability coverage form also includes a provision entitled

“Arbitration,” which provides as follows:

11. Arbitration

As a condition precedent to any right of action

under this Agreement, with the exception of

commutation, any dispute arising out of this

Agreement shall be submitted to the decision of

a board of arbitration. The board of arbitration

will be composed of two arbitrators and an

umpire, meeting in St. Louis, Missouri, unless

otherwise agreed.

The members of the board of arbitration shall

be active or retired, disinterested officials of

insurance or reinsurance comp1mies. Each

party shall appoint its arbitrator, and the two

arbitrators shall choose an umpire before

25a

Appendix B

instituting the hearing. If the respondent fails

to appoint its arbitrator within four weeks after

being requested to do so by the claimant, the

latter shall also appoint the second arbitrator.

If the two arbitrators fail to agree upon the

appointment of an umpire with four weeks after

their nominations, each of them shall name

three, of whom the other shall decline two and

the decision shall be made by drawing lots.

The claimant shall submit its initial brief within

twenty (20) days from the appointment of the

umpire. The respondent shall submit its brief

within twenty (20) days after receipt of the

claimant’s brief and the claimant may submit

a reply brief within ten (10) days after receipt

of the respondent’s brief.

The board shall make its decision with regard

to the custom and usage of the insurance and

reinsurance business. The board shall issue

its decision in writing based upon a hearing

in which evidence may be introduced without

following strict rules of evidence but in which

cross examination and rebuttal shall be allowed.

If more than one Employer is involved in

the same dispute, all such Employers shall

constitute and act as one party for purposes of

this Clause and communications shall be made

by the Corporation to each of the Employers

constituting the one party; provided, however,

26a

Appendix B

that nothing therein shall impair the rights of

such Employers to assert several, rather than

joint, defenses or claims, nor be construed as

changing the liability of the Employers under

the terms of this Agreement from several to

joint.

Each party shall bear the expense of its

own arbitrator and shall jointly and equally

bear with the other party the expense of the

umpire. The remaining costs of the arbitration

proceeding shall be allocated by the board. 3

It is evident that the above provision exists, and

that, by purchasing the insurance coverage under the

Safety National policy, LAUSD agreed to arbitration.

The language providing that “[a]s a condition precedent

to any right of action”, as well as the language stating

that the dispute “shall be submitted to the decision of a

board of arbitration” suggests that the parties intended

for the arbitration to be binding. “It is the general rule

that parties to a private arbitration agreement impliedly

agree that the arbitrator’s decision will be both binding

and final. Indeed, the very essence of the term ‘arbitration

... connotes a binding award.” Moncharsh v. Heily &

Blase, supra, 3 Cal.4th at 9. As such, the Court is not

persuaded by LAUSD’s argument to the contrary (that

the arbitration agreement calls only for a non-binding,

advisory arbitration).

It is also apparent that the dispute at the center of

this litigation—insurance coverage for the events arising

3. Hansen Decl., ¶2. Exh. A at 11.

27a

Appendix B

from the underlying Miramonte litigation—falls under the

agreement to arbitrate. The agreement, as noted above,

applies to “any dispute arising out of this Agreement[.]”

This language is broad, and necessarily encompasses the

coverage claims alleged against Safety National.

Accordingly, tlle Court finds that an agreement to

binding arbitration exists.

2. Applicability of FAA vs. CCP §1281.2

The Federal Arbitration Act (“FAA”) provides for

enforcement of arbitration provisions in any contract

“‘evidencing a transaction involving commerce.’”

California Practice Guide, Alternative Dispute Resolution,

¶5:50 (The Rutter Group 2015) (citing 9 USC §2; Rent-ACenter West, Inc. v. Jackson (2010) 130 S. Ct. 2772, 276;

Rogers v. Royal Caribbean Cruise Line (9th Cir. 2008) 547

F.3d 1148, 1153-1154).

The term “involving commerce” is functionally

equivalent to “affecting commerce’’ and “signals an

intent to exercise Congress’ commerce power to the full.”

California Practice Guide, Alternative Dispute Resolution,

¶5:50.1 (The Rutter Group 2015) (citing Allied-Bruce

Terminix Cos., Inc. v. Dobson (1995) 513 U.S. 265, 277

(emphasis added by Rutter Guide)).

The words “evidencing a transaction’’ ‘‘mean only that

the transaction must turn out, in fact, to involve interstate

commerce, i.e., the parties need not have intended any

interstate activity when they entered into the contract.”

28a

Appendix B

California Practice Guide, Alternative Dispute Resolution,

¶5:50.2 (The Rutter Group 2015) (citing Allied-Bruce

Terminix Cos., Inc. v. Dobson, supra, 513 U.S. at 277;

Shepard v. Edward Enterprises, Inc. (2007) 148 Cal.

App.4th 1092, 1097). Additionally, the dispute need not

arise from the particular part of the transaction involving

interstate commerce. The FAA applies if the underlying

transaction as a whole involved interstate commerce.

Shepard v. Edward Mackay Enterprises, Inc., supra,

148 Cal.App.4th at 1101. A party seeking to enforce an

arbitration agreement has the burden of showing FAA

preemption. See Lane v. Francis Capital Management,

LLC (2014) 224 Cal.App.4th 676, 687 (citing Wools v.

Superior Court (2005) 127 Cal.App.4th 197, 211).

At the outset, the Court must determine whether

the insurance transaction at issue “involves commerce.”

The 9th Circuit recognized that in the context of federal

antitrust regulation, “[i]nterstate insurance transactions

fall within the definition of interstate commerce[.]” De

Voto v. Pacific Fidelity Life Ins. Co. (9th Cir. 1975) 516

F.2d 1, 5, cert. denied, 423 U.S. 894. The U.S. Supreme

Court declined to except insurance from being beyond the

regulatory power of Congress under the Commerce Clause

in U.S. v. South-Eastern Underwriters Ass’n. (1944) 322

U.S. 533, 553 (noting that “[n]o commercial enterprise of

any kind which conducts its activities across state lines

has been held to be wholly beyond the regulatory power of

Congress under the Commerce Clause. We cannot make

an exception of the business of insurance”).

Here, it is evident that the insurance transaction

between Safety National, a Missouri insurer, and LAUSD,

29a

Appendix B

a California school district, “involves commerce.” The

excess policies issued by Safety Mutual Casualty are

attached as Exhibits A and B to the motion. While

there is an evidentiary burden under California law to

demonstrate the transaction involves interstate commerce

(see Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227,

234), the policies themselves, along with the authorities

cited above, show that the insurance transaction involves

commerce. As such, the FAA applies to the agreement.

Importantly, however, “if a contract involves interstate

commerce, the FAA’s substantive provision (9 U.S.C. §2)

applies to the arbitration. But the FAA’s procedural

provisions (9 U.S.C. §§3, 4, 10, 11) do not apply unless

the contract contains a choice-of-law clause expressly

incorporating them.’’ Valencia v. Smyth (2010) 185 Cal.

App.4th 153, 173-174 (italics in original; underlining

added). Here, there is no choice-of-law provision in the

Safety National arbitration agreement which expressly

incorporates the FAA’s procedural provisions. As such,

those provisions do not apply. Instead, California rules

of procedure govern the agreement here. See Rosenthal

v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th

394, 409 (noting that “[i]t 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. [Citation.]”)

With that in mind, CCP § 1281.2 ‘‘provides a

procedure by which a party may petition the court to order

arbitration of a controversy.’’ Rosenthal v. Great Western

30a

Appendix B

Fin. Securities Corp., supra, 14 Cal.4th at 406 (emphasis

added). CCP §1281.2(c) states as follows:

On petition of a party to an arbitration

agreement alleging the existence of a written

agreement to arbitrate a controversy and

that a party thereto refuses to arbitrate such

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:

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

conf licting rulings on a common issue of

law or fact. For purposes of this section, a

pending court action or special proceeding

includes an action or proceeding initiated

by the party refusing to arbitrate after the

petition to compel arbitration has been filed,

but on or before the date of the hearing on the

petition. This subdivision shall not be applicable

to an agreement to arbitrate disputes as to

the professional negligence of a health care

provider made pursuant to Section 1295.

Further, CCP § 1281.2 provides that “[i] f the court

determines that a party to the arbitration is also a party

31a

Appendix B

to litigation in a pending court action or special proceeding

with a third party as set forth under subdivision (c)

herein, the court (1) may refuse to enforce the arbitration

agreement and may order intervention or joinder of all

parties in a single action or special proceeding; (2) may

order intervention or joinder as to all or only certain

issues; (3) may 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; or (4) may stay arbitration pending

the outcome of the court action or special proceeding.”

CCP § 1281.2.

The Practice Guide addresses the effect of § 1281.2(c)

as follows:

When one of the parties to an arbitration

agreement is involved in litigation with third

party arising out of the same transaction, CCP

§ 1281.2(c) allows a court to refuse to enforce

the arbitration provision or stay arbitration

pending the outcome of the related litigation

(see ¶5:327).The FAA contains no such provision

and would require the arbitration to proceed

(see 9 USC §§ 3, 4). When the FAA applies, and

it is determined that the parties also intended

to apply California procedural law, no conflict

exists between the procedural provisions of the

FAA and CCP § 1281.2(c). A court may apply

§ 1281.2(c) notwithstanding the FAA. California

Practice Guide, Alternative Dispute Resolution,

¶5:49.15 The Rutter Group 2015) (citing Volt

32a

Appendix B

Information Sciences, Inc. v. Board of Trustees

of Leland Stanford Junior Univ. (1989) 489

US 468, 477-479; Cronus Investments, Inc. v.

Concierge Services (2005) 35 Cal.4th 376, 383,

388-390, 394; Mastick v. TD Ameritrade, Inc.

(2012) 209 Cal.App.4th 1258, 1263-1264).

Again, pursuant to Valencia, supra, absent a specific

agreement to apply the FAA’s procedural rules to the

arbitration, California’s procedural rules control. In this

case, § 1281.2(c)’s procedural rule permits the Court to

not order the parties to arbitrate where 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.

ln this case, LAUSD is also a party to the instant

court action w ith several insurers which are not

parties to the Safety National-LAUSD arbitration

agreement. This litigation arises out of a series of related

transactions—namely, LAUSD’s alleged entitlement

to insurance coverage arising out of the underlying

Miramonte litigation. There certainly is a possibility

of conflicting rulings on common issues of law or fact if

the Safety National-LAUSD arbitration were to proceed

concurrently with the litigation of the LAUSD’s case

against the insurers. As LAUSD notes, its position is that

the Miramonte litigation represents a “single occurrence,”

entitling it to coverage. While the Court is in no position

to make that assessment at this time, the gravamen of

33a

Appendix B

this case will require the Court to ultimately resolve this

important coverage question. This question will certainly

also be part of any arbitration proceeding between Safety

National and LAUSD; depending on the outcome of the

occurrence question, it may, or may not, trigger potential

excess coverage obligations on the party of Safety

National. To allow the arbitration to proceed would risk

potentially inconsistent results with the Court’s ultimate

findings in the instant litigation.

The Court is not persuaded by Safety National’s

argument that Safety National’s potential for coverage,

at most, would be for two years, and that any overlap is

“minimal.”4 The standard under §1281.2(c) requires only

a “possibility” of conflicting rulings on a common issue of

law or fact. Certainly, and at the very least, there is such

a possibility here.

It should also be noted that, based on LAUSD’s

counsel’s review of the 91 insurance policies relevant

to this action (and that have been located to date), 53

policies do not have arbitration clauses, 27 policies have

arbitration clauses with varied provisions and which

designate different locations (California; New York, NY;

Boston, MA; St. Louis. MO), and 11 policies follow form

to some terms of policies with arbitration clauses. 5 This

illustrates that there are multiple third party insurers

in this case which are not parties to the arbitration

agreement between Safety National and LAUSD.

4. Safety National’s Reply Brief at 8:23.

5. Declaration of Stephen Masterson, ¶2.

34a

Appendix B

Under these circumstances, the Court has discretion

under § 1281.2(c) to refuse to enforce the arbitration

agreement and order joinder of all parties in a single

proceeding. There is no need to order joinder of all parties

in a single proceeding, since the Defendant insurers are

already before the Court. The Court need only decline

to enforce the arbitration agreement, consistent with

§ 1281.2(c).

For these reasons, the motion to compel arbitration

is denied.

3. Missouri Revised Statutes

Given the Court’s determination that it will exercise

the authority to deny arbitration based on CCP § 1281.2(c),

it need not address LAUSD’s non-enforceability argument

under §435.350 of the Mo. Rev. Statutes.6

6. Mo. Rev. Statutes §435.350 provides:

A w r itt en ag reement t o subm it a ny ex ist i ng

controversy to arbitration or a provision in a written

contract, except contracts of insurance and contracts

of adhesion, to submit to arbitration any controversy

thereafter arising between the parties is valid,

enforceable and irrevocable, save upon such grounds

as exist at law or in equity for the revocation of any

contract. Contracts which warrant new homes against

defects in construction and reinsurance contracts are

not “contracts of insurance or contracts of adhesion”

for purposes of the arbitration provisions of this

section.

35a

Appendix B

III.

RULING AND ORDER

For the foregoing reasons, Safety National’s motion

to compel arbitration against LAUSD is denied.

Dated: May 31, 2016

/s/

Kenneth Freeman

Judge of the Superior Court

36a

AppendixOF

C PETITION FOR

APPENDIx C — DENIAL

REVIEW BY THE SUPREME COURT OF

CALIFORNIA, FILED OCTOBER 11, 2017

IN THE SUPREME COURT OF CALIFORNIA

S243836

En Banc

LOS ANGELES UNIFIED SCHOOL DISTRICT,

Plaintiff and Respondent,

SAFETY NATIONAL CASUALTY CORPORATION,

Defendant and Appellant.

Court of Appeal, Second Appellate

District, Division Eight - No. B275597

The petition for review is denied.

/s/

Chief Justice

37a

D STATUTORY

APPENDIx D —Appendix

RELEVANT

PROVISIONS

California Code of Civil Procedure Section 1281.2

§ 1281.2. Order to arbitrate controversy; petition;

determination of court

On petition of a party to an arbitration agreement alleging

the existence of a written agreement to arbitrate a

controversy and that a party thereto refuses to arbitrate

such 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:

(a) The right to compel arbitration has been waived by

the petitioner; or

(b) Grounds exist for the revocation of the agreement.

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. For

purposes of this section, a pending court action or special

proceeding includes an action or proceeding initiated by

the party refusing to arbitrate after the petition to compel

arbitration has been filed, but on or before the date of

the hearing on the petition. This subdivision shall not be

applicable to an agreement to arbitrate disputes as to the

professional negligence of a health care provider made

pursuant to Section 1295.

38a

Appendix D

If the court determines that a written agreement to

arbitrate a controversy exists, an order to arbitrate such

controversy may not be refused on the ground that the

petitioner’s contentions lack substantive merit.

If the court determines that there are other issues between

the petitioner and the respondent which are not subject to

arbitration and which are the subject of a pending action

or special proceeding between the petitioner and the

respondent and that a determination of such issues may

make the arbitration unnecessary, the court may delay its

order to arbitrate until the determination of such other

issues or until such earlier time as the court specifies.

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 party as set forth under

subdivision (c) herein, the court (1) may refuse to enforce

the arbitration agreement and may order intervention

or joinder of all parties in a single action or special

proceeding; (2) may order intervention or joinder as to

all or only certain issues; (3) may 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; or (4) may stay

arbitration pending the outcome of the court action or

special proceeding.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.