Petition for Writ of Certiorari — Yujuico v. First Pacific Bank Ltd.

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00 631 oct 2320

NErICE OF THE CLERA

No. 00-

IN THE

Supreme Court of the United States

BENEDICTO V. YUJUICO, TERESITA M. YUJUICO

AND THE BVY GROUP, INC.,

PETITIONERS,

vs.

FIRST PACIFIC BANK LIMITED, A

HONG KONG BANKING CORPORATION,

RESPONDENT.

ON PETITION FOR WRIT OF CERTIORARI TO THE

CALIFORNIA COURT OF APPEAL FOR THE

FIRST APPELLATE DISTRICT

PETITION FOR WRIT OF CERTIORARI

GERALD M. Murpuy. Esa. [CSB No. 99994]

JACOBS, SPOTSWOOD, CASPER & MURPHY, LLP

One Maritime Plaza, Suite 400

San Francisco, California 94111

Telephone No.: (415) 835-3700

Facsimile No.: (415) 835-1072

Counsel of Record for Petitioners

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QUESTIONS PRESENTED

1. Whether California law permitting a court to unilater-

ally determine that an arbitration dispute is “wholly ground-

less”, and thereby refuse to enforce a contractual arbitration

agreement governed by the Federal Arbitration Act pursuant

to which the parties have expressly agreed to submit all dis-

putes regarding arbitrability to an arbitrator, unlawfully pre-

empts the Federal Arbitration Act in violation of the

Supremacy Clause of the United States Constitution.

2. Whether an ex parte judgment of foreclosure and or-

der of sale of a private residence entered without the parties’

bargained for notice violates the due process clause of the

Fourteenth Amendment of the Federal Constitution.

PARTIES TO THE PROCEEDINGS

All parties to the proceedings below are listed in the cap-

tion. Petitioner The BVY Group, Inc., is a California corpora-

tion wholly owned by Petitioners Benedicto and Teresita

Yujuico, husband and wife. There are no parent corporations

nor any publicly held companies which hold any stock in Peti-

tioner The BVY Group, Inc.

ill.

TABLE OF CONTENTS

Page

Questions Presented ..........5 66 ee eee eee rene renee i

Parties to the Proceedings ........-- +++ sseeeeeseeeees ii

Table of Authorities ............-- cece eee eee ee eeees v

I.

Opinions Below .........-0-0e0eeeeeeeeeeererse reese l

1.

Jurisdictional Statement .......... 6... 6 eee eee eens l

HL.

Constitutional and Statutory Provisions Involved ..... l

IV.

Statement of the Case ........... 00 cece ee ee ee eee 2

V

Reasons for Granting the Writ ..........-66--+005eeee: 7

A. The Decision by the California Supreme Court

in McCarroll to Permit the Superior Court to

Determine the Arbitrability of a Dispute Where

the Parties Have Expressly Confered That

Authority On the Arbitrator poring Federal

Arbitration Law in Violation of the Supremacy

Clause of the United States Constitution ....... 7

1. In Enacting The Federal Arbitration Act,

Congress Withdrew The States’ Power To

Require A Judicial Forum For Resolution Of

Disputes Which The Parties Agreed To

po PPPrrrerierrer ee i 7

2. This Court’s Decision In Perry v. Thomas

Expressly Determined That California Law

May Not Be Applied To Pre-Empt The

Federal Arbitration Act ..........-++-- i 8

iV.

3. The McCarroll Decision Conflicts With This

Court's Decisions Enforcing International

Commercial Arbitration Agreements

Challenged In State Court ................. 9

B. The McCarroll Decision Creates a Peremptory

Gatekeeping Exception to Enforcement of

Arbitration Agreements Which is Not

Authorized by Federal Law................... 11

1. The Parties Expressly Adopted Both The

International Arbitration Rules And Title 9.3

Of The California Code Of Civil Procedure,

Leaving No Doubt As To Their Intent To

Submit All Disputes To Arbitration ......... 13

2. The McCarroll Decision Should Be Limited

To Its Facts Which Are Distinguishable From

Those In The Case At Bar ................. 15

3. The Ninth Circuit Of The United States

Court of Appeals Recently Issued A Decision

rf masons he Right Of Private Parties To

Comtsect FOr ASOUEMIOR 2c ccc ccncccccctses 16

C. The Decision by the California Court of Appeal

to Permit the Foreclosure and Sale of

Petitioners’ Residence Without the Bargained

for Notice Violates the Due Process Clause of

the Fourteenth Amendment ..................

RRS ie Ea Me ar ae aR ALG CRE pe WS

APPENDIX A_ Decision of the Court of Appeal .....

APPENDIX B_ Judgment of the State Superior Court. . B-1

APPENDIX C_ Decision of the California Supreme

Court Denying Review .............. C-]

TABLE OF AUTHORITIES

CASES

Allied-Bruce Terminix Companies, Inc. and Terminix

International Company v. Dobson,

513 U.S. 265, 130 L.Ed.2d 753,

S53 GAA. S6-OGR vo sdivvedd Wivsrscdd tec hs 4, 6,7,

ATSA of California v. Continental Ins. Co.,

Lo By FY ERR rare 7

Bauhinia Corp. v. China Nat. Machinery

& Equipment,

CEP Fe AF OP CHE POR adc. vs ck imedennss se 7

Brant v. California Dairies,

4 Cal 24 £26, 46 P20 13 (1935S) 2... oc cece cess 14

Circuit City Stores, Inc. v. Adams,

SIE dias bn no hid cies PASE AAD oo che GAMA SLE: 16

Green Tree Financial Corp. v. Randolph,

ORs hiase CAG aad usd cae a ae ie te aoe a 16

D.H. Overmyer Co. v. Frick Co.,

40S U.S. 174, 185-186, 31 L.Ed.2d 124,

FE a CFF CEP UEE: «ch lie Basiciniads as: 2ip hee eds «is 18

District of Columbia Court of Appeals v. Feldman,

460 U.S. 462, 75 L.Ed. 2d 206, j

Fre et FO ee ron eee er eee aera 5

Drake Bakeries v. Bakery Workers,

370 U.S. 254, 8 L.Ed.2d 474, 82 S.Ct. 1346 (1962) .. 5

First Options of Chicago v. Kaplan,

514 U.S. 938, 944, 131 L.Ed.2d 985,

SE Es a hin sos ANS Sg Veen e ceeds 4,14

Hobbs v. Weiss

73 Cal.App.4" 76, 86 Cal.Rptr.2d 146 (1999) ...... 20

Lambert v. California,

355 U.S. 225, 228, 2 L.Ed.2d 228, 78 S.Ct. 240, reh

den 355 U.S. 937, 2 L. Ed. 2d 419,

oa Oe SO ee Fick a8 Fe OR AAW eS 18

McCarroll v. L.A. County etc. Carpenters,

49 Cal 2d 45, 315 P2d 322 (1957) ........20.2000.. 3, 3.6, 7,9,

11,15, 16

Vi.

Merrill Lynch, Pierce, Fenner & Smith, Inc.,

415 U.S. 117, 38 L.Ed.2d 348, 94 S.Ct. 383 (1973)

Mediterranean Co. v. State Farm

Fire & Casualty Company,

66 Cal.App.4™ 257, 77 Cal. Rptr.2d 781 .........

Moses H. Cone Memorial Hospital v. Mercury

Construction Corp.,

460 U.S. 1, 74 L.Ed.2d 765, 103 S.Ct. 927 (1985)

Perry v. Thomas,

48? U.S. 483, 96 L.Ed.2d 426, 107 S.Ct. 2520 (1987)

Portland General Electric Company v.

U.S. Bank Trust National Association

(July 18, 2000) 2000 Daily Journal D.A.R. 7819

Raytheon Co. v. Rheem Manufacturing Co.,

322 F.2d 173 (1963) bese

Rooker v. Fidelity Trust Co.,

263 U.S. 413, 68 L.Ed. 362, 44 §.Ct. 149 (1923)

Southland Corp. v. Keating,

465 U.S. 1, 79 L-Ed.2d 1, 104 S.Ct. 852 (1984)

United Steelworkers v. American Mfg. Co

(1960) 363 U.S. 564, 80 S.Ct. 1343, 4 L.Ed.2d 1403

Volt Information Sciences Inc. v. Stanford Univ.,

489 US. 468, 103 L.Ed.2d 488,

109 S.Ct. 1248 (1989) per are ee

19, 20

4.8

4.6.8

4.6, 7,8,

9.10, 11

Is

vii.

UNITED STATES CONSTITUTION

PUUREED ‘VE, BONN Do ccccccccccctccctecencme 1, 5, 9,

10, 11

Fourteenth Amendment .......................... 2,18

STATUTES

California Civil Code, section 1636 ............ “pF 14

California Code of Civil Procedure section 166(a) ... 19

California Code of Civil Procedure section 657 ...... 19

California Code of Civil Procedure section 663 ...... 19

California Code of Civil Procedure section 1003 ... 18

California Code of Civil Procedure section 1005.5 .... 19

California Code of Civil Procedure, sections

I cr ee ree 12

California Code of Civil Procedure section 1297.13 .. 12

California Code of Civil Procedure section 1297.5] 12

California Code of Civil Procedure section 1297.16] 12

California Code of Civil Procedure section 1297.166 . 12

California Code of Civil Procedure section 31512 9

California Labor Code Labor Code section 229...___. 6

Title 9, United States Code, § 1 et PR Pewter sisted’ 2

Title 9, United States Code §2 ....... Pe yea © F % |

10, 17

Title 28, United States Code, § 1257 . l

RULES

international Arbitration Rules of the American

Arbitration Association, Article 15.1 ............. 3,12, 15

International Arbitration Rules of the American

Arbitration Association, Article 15.3 ........... » eae

United Nations Commission On

International Trade Law (UNCITRAL)........... 11

Vili.

TREATISES

om Appellate Advocacy in the Federal Courts,

Fe es ee CON CEE. cco ccccbecccuceccd deca 20

Knight, Fannin, Chernick & Halderman,

CAL. PRAC. GUIDE: ALTERNATIVE DISPUTE

RESOLUTION (The Rutter Group 1999) Section

Es SN MO OE 5 « buco cca bas ch cntdethcess,

14

No.00-

IN THE

Supreme Court of the United States

PETITION FOR WRIT OF CERTIORARI

Petitioners Benedicto V. Yujuico, Teresita M. Yujuico and

the BVY Group, Inc., respectfully pray that a Writ of Certio-

rari issue to review the judgment below.

l OPINIONS BELOW

The decision of the California Court of Appeal is unre-

ported; it is reprinted in the Appendix to this Petition at p. A-1.

The Judgment of the Superior Court for the County of San

Mateo is reprinted in the Appendix at p. B-1. The decision of

the California Supreme Court denying review is reprinted in

the Appendix to this Petition at p. C-1.

11, JURISDICTIONAL STATEMENT

On July 24, 2000, the California Supreme Court filed its

decision denying review of the California Court of Appeal’s

decision entered on June 15, 2000. Pursuant to 28 U.S.C. §

1257, this Court has jurisdiction to review On a writ of certiorari

the decision of the California Court of Appeal.

Ill. CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

Article VI, Section 2 of the Constitution of the United

States states as follows:

“This Constitution, and the Laws of the United States

which shall be made in Pursuance thereof; and all Treaties

made, or which shall be made, under the Authority of the

United States, shall be the supreme Law of the Land: and

(1)

ne tt

2

the Judges in every State shall be bound thereby, any Thing

in the Constitution or Laws of any State to the Contrary

notwithstanding.”

Section 1 of the Fourteenth Amendment to the Constitu-

tion provides in pertinent part: —

“. . . No State shall make or enforce any law which shall

abridge the privileges or immunities of citizens of the

United States; nor shall any State deprive any person of

life, liberty, or property, without due process of law; nor

deny to any person within its jurisdiction the equal protec-

tion of the laws.”

9 USC § 2, states as follows:

“A written provision in any maritime transaction or a con-

tract 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 a

contract, transaction, or refusal, shall be valid, irrevocable,

and enforceable, save upon any such grounds as exist at

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

IV. STATEMENT OF THE CASE

This action was instituted by Respondent’s ex parte appli-

cation for entry of a judgment of foreclosure and order of sale

(“Judgment”) of Petitioners’ family residence in Atherton,

California (“Residence”), claiming that Petitioners had de-

faulted on a loan payment.

Petitioners opposed the ex parte application on the ground

that the parties had a written agreement (“Agreement”) to

arbitrate all disputes governed by the Federal Arbitration Act,

9 U.S.C. §$ i, et seq. (“FAA”), that Petitioners had properly

demanded arbitration, and that Respondent could not apply

directly to the courts for entry of the Judgment under the terms

of the Agreement.

3

The parties’ arbitration clause states, at paragraph 19 of

the Agreement:

“In the event of any dispute relating to or arising out of this

agreement, the exclusive forum for resolution of any such

dispute shall be by arbitration in San Francisco under the

authority of JAMS/ENDSIPUTE in accordance with the

International Rules of the American Arbitration

Association.” (CT 151.)

Article 15.1 of the International Arbitration Rules of the

American Arbitration Association (“AAA”) states that “the

tribunal shall have the power to rule on its own jurisdiction,

including any objections with respect to the existence, scope or

validity of the arbitration agreement”.

Article 15.3 of the Rules further states that “a party must

object to the jurisdiction of the tribunal or to the arbitrability of

@ claim or counterclaim no later than the filing of a statement of

defense as provided in Article 3...” [Emphasis added.]

Respondent refused to submit the dispute to arbitration,

claiming it was a sham and that the arbitration clause did

not require submitting disputes regarding arbitrability to the

arbitrator.

On October 9, 1998, during an ex parte proceeding, the

Superior Court granted Respondent’s application and entered

the Judgment. Respondent immediately sold the Residence to

itself by credit bidding its own secured interest. Petitioners

were recently evicted from the Residence on October 3, 2000.

On June 15, 2000, the California Court of Appeal for the

First Appellate District affirmed the Judgment, basing its opin-

ion on the California Supreme Court decision in McCarroll v.

L.A. County etc. Carpenters, 49 Cal.2d 45. 315 P2d 322 (1957)

(“McCarroll”).

The McCarroll decision permits judicial consideration of

the merits of a dispute governed by the FAA before submitting

4

the matter to arbitration if the superior court determines that

the claim is “wholly groundless”; notwithstanding the express

contractual intent of the parties to reserve jurisdiction exclu-

sively to the arbitrator under Articles 15.1 and 15.3 of the

International Arbitration Rules of the AAA. -

Thus, the McCarroll decision creates an unlawful peremp-

tory gatekeeping exception to enforcement of arbitration

agreements governed by the FAA which may be unilaterally

exercised by the court even when the parties have expressly

agreed to submit all disputes regarding jurisdiction and the

arbitrability of a claim to arbitration, thereby pre-empting the

Federal Arbitration Act in violation of the Supremacy Clause

of the United States Constitution.

The peremptory judicial gatekeeping exception created by

the McCarroll decision is also in direct conflict with this Court’s

decisions in First Options of Chicago v. Kaplan, 514 U.S. 938,

944, 131 L.Ed.2d 985, 115 S.Ct. 1920 (1995) (“First Options”);

Allied-Bruce Terminix Companies, Inc. and Terminix Interna-

tional Company v. Dobson, 513 U.S. 265, 130 L.Ed.2d 753, 115

S.Ct. 834 (1995) (“Allied-Bruce”), Perry v. Thomas, 482 U.S.

483, 96 L.Ed.2d 426, 107 S.Ct. 2520 (1987); Southland Corp. v.

Keating, 465 U.S. 1, 79 L.Ed.2d 1, 104 S.Ct. 852 (1984)

(“Southland”) and Moses H. Cone Memorial Hospital v. Mer-

cury Construction Corp., 460 U.S. 1, 24, 74 L. Ed. 2d 765, 103

S. Ct. 927 (1983).

Petitioners filed a Petition For Review of the Court of

Appeal’s opinion with the California Supreme Court on July

20, 2000, which was denied on July 24, 2000.’ Petitioners ob-

tained a 60-day stay of enforcement of the Judgment from the

California Superior Court for the County of San Mateo, which

stay expired on September 24, 2000.

' Petitioners obtained such quick review of the Petition because they also

requested an immediate stay of the Judgment in a companion Petition. That

q g P

stay request was denied.

5

On September 14, 2000, Petitioners filed a complaint seek-

ing rescission of the parties’ Agreement with the United States

District Court for the Northern District of California, based on

their mistake as to the enforceability of their agreement to

arbitrate all disputes in accordance with the International Ar-

bitration Rules. On September 19, 2000, Petitioners filed an

application for a temporary restraining order in the District

Court, seeking a Preliminary injunction restraining enforce-

ment of the Judgment.

On September 22, 2000, the Honorable Phyllis J.

Hamilton, United States District Court Judge, denied Petition-

ers’ application, finding that the rescission action did not raise

a federal claim, and that federal Statutory authority over direct

appeals from the state courts [including federal claims “inex-

tricably interwined” with those a State court has already de-

cided], lies exclusively with this Court pursuant to Rooker vy.

Fidelity Trust Co., 263 US. 413, 68 L.Ed. 362, 44 S.Ct. 149

(1923), and District of Columbia Court of Appeals v. Feldman,

460 U.S. 462, 75 L.Ed.2d 206. 103 S.Ct. 1301 (1983). Pursuant

thereto, Petitioners voluntarily dismissed the rescission action.

On September 28, 2000. Petitioners filed a petition for im-

mediate stay of the Judgment pending certiorari by this Court

with the Court of Appeal. That petition was denied on October

2, 2000. On October 3, 2000. Petitioners submitted an Appli-

cation For Stay Of Mandate of the Opinion of the California

Court of Appeal and the Judgment of the Superior Court of the

State of California, County of San Mateo, to the Honorable

Sandra Day O'Connor, Case No. 00-A286. Associate Justice

O'Connor denied Petitioners’ Application on October 4, 2000.

Review must be granted to resolve the conflict between the

McCarroll decision and the enforceability of arbitration agree-

ments governed by federal law, in order to preserve the integ-

rity of the FAA and the Supremacy Clause of the United States

Constitution. Otherwise, state courts will be free to pre-empt

federal arbitration law.

The time is ripe for review of this issue. Indeed, the

California Supreme Court recognized back in 1957 that the

6

McCarroll opinion was in “irreconcilable conflict” with some of

the federal decisions at that time. (McCarroll, supra, 49 Cal.2d

at 67.)

Further, the McCarroll decision has already been partially

abrogated by this Court in Drake Bakeries v. Bakery Workers

370 U.S. 254, 8 L. Ed. 2d 474, 82 S. Ct. 1346 (1962), which

held—contrary to the ruling McCarroll—that disputes about

no-strike clauses were arbitral issues.

Similarly, the decisions in Southland and Bruce-Allied ab-

rogate the McCarroll decision insofar as its permits the supe-

rior court to perform a peremptory gatekeeping function even

when the parties have expressly conferred that function upon

the arbitrator under their agreement. (Southland, supra, 465

U.S. at 7, 10, 79 L.Ed.2d at 10, 11-12; Allied-Bruce, supra, 513

U.S. at 281, 130 L.Ed.2d at 769; McCarroll, supra, 49 Cal.2d at

pp. 65-66.)

Moreover, in Perry v. Thomas, 482 U.S. 483, 96 L.Ed.2d

426, 107 S.Ct. 2520, this Court specifically held that the FAA

pre-empted a California statute (§ 229 of the Labor Code)

which permitted the collection of wages without regard to the

existence of a private international commercial arbitration

agreement.

There has been a dramatic shift during the past decade by

the legal community as a whole away from litigation as the

principal means of resolving disputes to alternative dispute

resolution (“ADR”), in particular, arbitration, especially in the

business community.

This shift has been encouraged and strongly promoted by

the courts in an effort to reduce caseload and more efficiently

dispose of disputes. As time goes by and this movement toward

ADR and away from litigation grows, the courts will begin

seeing—and having to dispose of—a tremendous amount of

arbitration disputes governed by the FAA, for with the fast

growing use of the Internet and the rapidly shrinking global

marketplace, it will soon be nearly impossible to transact any

business that does not involve interstate commerce.

J

The International Arbitration Rules of the AAA, and the

FAA will increasingly govern more and more arbitration dis-

putes in this state; and United States citizens and people doing

business in this country need to be able to contract with cer-

tainty regarding the enforceability of arbitration agreements.

Accordingly, there is a compelling need for clarity and uni-

formity on the issue of enforcement of private, commercial

arbitration agreements governed by the FAA in California and

throughout the country which necessitates this Court's review.

IV. REASONS FOR GRANTING THE WRIT

A. The Decision by the California Supreme Court to Permit the

Superior Court to Determine the Arbitrability of a Dispute

Where the Parties Have Expressly Confered That Authority

on the Arbitrator Pre-Empts Federal Arbitration Law in

Violation of the Supremacy Clause of the United States

Constitution

I. In Enacting The Federal Arbitration Act, Congress

Withdrew The States’ Power To Require A Judicial

Forum For Resolution Of Disputes Which The

Parties Agreed To Arbitrate

“Federal law governs arbitration issues in agreements af-

fecting interstate and foreign commerce.” (Bauhinia Corp. v.

China Nat. Machinery & Equipment, 819 F.2d 247. 249 (9"" Cir.

1987); see also, ATSA of California v. Continental Ins. C o., 702

F.2d 172, 175 (9"" Cir. 1983).)

The FAA: (1) makes written arbitration provisions in con-

tracts evidencing a transaction involving commerce enforce-

able; (2) preempts state law that seeks to invalidate arbitration

agreements; and (3) prohibits state courts from applying state

statutes that invalidate arbitrations. (9 U.S.C. § 2: Southland,

supra, 465 U.S. at 15-16, 79 L.Ed.2d at 14-15: Allied-Brice,

supra, 513 U.S. at 272, 130 L.Ed.2d at 763.)

8

Section 2 of the FAA is a congressional declaration of a

liberal federal policy favoring arbitration agreements, notwith-

standing any state substantive or procedural policies to the

contrary.

Thus, in enacting § 2 of the FAA, Congress withdrew the

power of the states to require a judicial forum for the resolu-

tion of claims which the contracting parties agreed to resolve

by arbitration; and created a body of federal substantive law of

arbitrability, applicable to any arbitration agreement within the

coverage of the Act. (Perry v. Thomas, supra, 482 U.S. at 489,

96 L.Ed.2d 426, 107 S.Ct. 2520, citing Southland, supra, 465

U.S. at 10-12, 79 L.Ed.2d 1, 104 S.Ct. 852 and Moses H. Cone

Memorial Hospital v. Mercury Construction Corp., supra, 460

U.S. at 24, 74 L.Ed.2d 765, 103 S. Ct. 927.)

2. This Court’s Decision In Perry v. Thomas

Expressly Determined That A California Statute

May Not Be Applied To Pre-Empt The Federal Arbitration Act

The federal courts have, of course, original jurisdiction

over actions involving the FAA. (Perry v. Thomas, supra, 482

US. 483, 96 L.Ed.2d 426, 107 S.Ct. 2520.)

In Perry v. Thomas, a former employee of a brokerage firm

brought an action in California Superior Court against his

former firm and two other employees, arising from a dispute

over commissions on the sale of securities. The former em-

ployee alleged, inter alia, breach of a contract containing an

arbitration provision, but he refused to arbitrate and the other

two employees filed a petition in the Superior Court to compel

arbitration under § 2 of the Federal Arbitration Act.

The former employee, opposing the petition, cited a Cali-

fornia statute providing that actions to collect wages may be

maintained without regard to the existence of any private

agreement to arbitrate. The Superior Court denied the peti-

tion, holding that this Court’s decision in Merrill Lynch, Pierce,

Fenner & Smith, Inc. v. Ware, 414 U.S. 117, 38 L.Ed.2d 348, 94

|

,

9

S.Ct. 383, was controlling authority to the effect that. in accor-

dance with the California Statute, actions to collect wages may

be pursued without regard to private arbitration agreements.

The California Court of Appeal, Second Appellate Dis-

trict, affirmed, holding that the California statute was not pre-

empted by the Federal Arbitration Act. The California

Supreme Court denied the two employees’ petition for review.

On certiorari, this Court reversed and remanded in a 7-2

decision. In an opinion by Justice Marshall, joined by Chief

Justice Rehnquist and Justices Brennan, White, Blackmun.

Powell and Scalia, this court determined that the California

Statute was in conflict with § 2 of the FAA and was, therefore.

pre-empted under the Federal Constitution’s Supremacy

Clause.

Similarly, the appellate opinion in this action applied the

McCarroll decision to defeat the parties’ expressed intent to

submit all disputes, including the arbitrability of a dispute, to

the arbitrator, in direct conflict with section 2 of the FAA and

in violation of the Supremacy Clause of the United States Con-

stitution.

3. The California Supreme Court's Decision Conflicts With

This Court's Decisions Enforcing International Commercial

Arbitration Agreements C hallenged In State Court

In Southland, supra, this Court held that the California

Supreme Court’s interpretation of the California Franchise In-

vestment Law (C.C.P. § 31512)? as invalidating arbitration

agreements covered by the Federai Arbitration Act was un-

constitutional.

The parties in Southland: namely, Southland Corp. and

several franchisers of 7-Eleven convenience stores, entered

into a franchise agreement which provided that any contro-

versy or claim arising thereunder would be settled by arbitra-

tion in accordance with the Rules of the American Arbitration

Association. (/d.,-465 US at 3-4, 79 L.Ed.2d at 8.)

“Unless otherwise noted. all references herein to “C.C.P.” shall refer to the

California Code of Civil Procedure.

10

The franchisers filed suit in California Superior Court al-

leging, inter alia, violations of the Franchise Investment Law,

and Southland petitioned to compel arbitration. The trial court

refused to compel arbitration under the Franchise Investment

Law, the Court of Appeal reversed, and this Court reversed the

Court of Appeal, interpreting the Franchise Investment Law as

requiring judicial consideration of all claims brought thereun-

der and refusing to enforce the parties’ agreement to arbitrate.

The Southland Court determined that the interpretation of

the Franchise Investment Law as requiring judicial consider-

ation of claims, rather than arbitration as agreed by the parties,

directly conflicted with section 2 of the Federal Arbitration Act

and violated the Supremacy Clause of the United States Con-

stitution. (Seuthland, supra, 465 U.S. at 10-11, 16, 79 L.Ed.2d at

11-12, 15.)

The Southland Court stated that the effect of the Califor-

nia Supreme Court’s refusal to enforce the arbitration agree-

ment between the parties was to “nullify a valid contract made

by private parties under which they agreed to submit all contract

disputes to final, binding arbitration”, and further opined that

“/cjontracts to arbitrate are not to be avoided by allowing one

party to ignore the contract and resort to the courts. Such a

course could lead to prolonged litigation, one of the very risks

the parties, by contracting for arbitration, sought to eliminate.”

[Emphasis added.] (/d., 465 U.S: at 7, 79 L.Ed.2d at 10.)

Similarly, the Court of Appeal’s refusal to enforce the ar-

bitration agreement between the parties herein nullifies a valid

contract made by private parties under which they agreed to

submit all contract disputes to final, binding arbitration in con-

travention of federal law.

In Allied-Bruce, this Court considered a state court dispute

concerning the enforceability of a contract’s written arbitration

clause. In concluding that the Alabama Supreme Court had

improperly applied the state’s antiarbitration statute to pre-

clude enforcement of the arbitration clause, this Court held

that the FAA reaches to the limits of Congress’ Commerce

Clause power and applies to actions brought in state court

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11

when the transaction involves interstate commerce, whether or

not the parties contemplated an interstate connection’. (Aillied-

Bruce, supra, 513 U.S. at 277, 130 L.Ed.2d at 763.)

This Court further stated:

“[w]hat 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. The

Act makes any such state policy unlawful, for that kind of

policy would place arbitration clauses on an unequal 'foot-

ing’, directly contrary to the Act’s language and Congress’

intent. See Volt Information Sciences, Inc. 489 U.S. at 474.

103 L.Ed.2d 488, 109 S.Ct. 1248.)” (Allied-Bruce, supra,

513 U.S. at 281, 130 L.Ed.2d at 769, 115 S.Ct. 834.)

In the instant action, there can be no doubt that the parties’

transaction involved interstate commerce: and that the parties

expressly agreed that any and all disputes would be resolved in

accordance with the International Arbitration Rules of the

AAA. (CT 139, Il. 7-12: 145, 151.)

Therefore, the application of the McCarroll decision by the

Court of Appeal affirming the San Mateo County Superior

Court's authority to determine the arbitrability of the parties’

dispute, when Petitioners and Respondent expressly agreed to

confer that power upon the arbitrator, directly conflicts with

the FAA, the Supremacy Clause of the United States Consti-

tution, the Southland decision and the Allied Bruce decision,

necessitating review by this Court.

B. The McCarroll Holdings Creates a Perempiory

Gatekeeping Exceptions to Enforcement of Arbitration

Agreements Which is Not Authorized by Federal Law

The International Arbitration Rules of the AAA are based

on the UNCITRAL (United Nations Commission on Interna-

tional Trade Law) model rules. Both those model rules, and the

‘In this action, there is no dispute regarding an interstate connection since

the parties expressly agreed to be governed by the International Arbitration

Rules of the AAA and, necessarily, the FAA (CT 145, 151.)

12

AAA International Rules, are patently clear regarding the ju-

risdiction of the arbitrator when parties have embedded those

rules in their underlying agreement. (International Arbitration

Rules of the AAA, Articles 15.1, 15.3, CT 199-200.)

In addition, California has an International Disputes Reso-

lution Statute (the “International Statute”) that is based on

UNCITRAL model law. That statute is found in Title 9.3 of the

California Code of Civil Procedure (§§ 1297.11-1297.432).

C.C.P. § 1297.161 reiterates the same rule reserving the

power to determine jurisdiction to the arbitrator; and C.C.P. §

1297.166 requires an objecting party to first submit a jurisdic-

tional dispute to the arbitrator before seeking relief from the

courts.

Pursuant to C.C.P. § 1297.13 of the International Statute,

the underlying transaction in this matter is international in that

(i) the parties to the Agreement have their places of business in

different states; (ii) the parties, by incorporating the Interna-

tional Rules of the AAA have evidenced that the subject mat-

ter of the Agreement relates to commercial interests in more

than one state; and (iii) the subject matter of the Agreement is

related to commercial interests in more than one state.

C.C.P. § 1297.51 of the International Statute further man-

dates that in matters governed by Title 9.3, no court shall in-

lervene except when so provided by Code of Civil Procedure

section 1297.11-1297.432), or by applicable federal law.

13

1. The Parties Expressly Adopted Both The Riess

International Arbitration Rules And Title 9.3 Of The

Code Of Civil Procedure, Leaving No Doubt As To

Their Intent To Submit All Disputes To Arbitration

In the Agreement, the parties expressly adopt both the

International Arbitration Rules of the AAA and, notably, the

International Statute, as reiterated below:

‘4. Arbitration. The parties to this Agreement have sub-

mitted all disputes between them for settlement by arbi-

tratiop under the authority of J.A.M.S/ENDISPUTE, San

Francisco, California. Said arbitration is deemed to be pri-

vate, binding, international arbitration as provided by Title

9.3 of the California Code of Civil Procedure. The parties

hereby confirm their agreement to submit their disputes to

arbitration and that this confirmation constitutes a written

arbitration agreement. The parties hereby confirm their

agreement to the appointment of the Hon. Harry Low as

sole arbitrator. . . [Emphasis added]. (CT 145, par. 4.)

“19. Arbitration. In the event of any dispute relating to or

arising out of this agreement, the exclusive forum for reso-

lution of any such dispute shall be by arbitration in San

Francisco under the authority of JAMS/ENDISPUTE in

accordance with the International Rules of the American

Arbitration Association.” [Emphasis added]. (CT 151. par.

19.)

Under California law, the rules selected by the parties to

govern their arbitration is sufficient evidence of a “clear and

unmistakable” intent to submit disputes regarding the

arbitrability of a claim to arbitration:

“The arbitrator's power to determine arbitrability might

also be derived from the rules selected by the parties in

their arbitration clause. For example, AAA Commercial

Dispute Resolution Procedures expressly give the arbitra-

lor power to determine the arbitrability of disputes, includ-

ing the scope, validity, or enforceability of the arbitration

agreement. [AAA Commercial Dispute Resolution Proce-

dures, Rule R-8.]”

14

“JAMS Comprehensive Arbitration Rules and Proce-

dures, Rule 10, is similar. Reference to one of these rules in

the arbitration clause effectively makes the rule part of the

agreement. [See First Options of Chicago, Inc. v. Kaplan,

supra, 514 U.S. at 944, 115 §.Ct. at 1925]” (Knight, Fannin,

Chernick & Halderman, CAL. PRAC. GUIDE: ALTER-

NATIVE DISPUTE RESOLUTION (The Rutter Group

1999) §5:214.4, pp. 5-81 to 5-82.)

Thus, there can be no stronger objective evidence of both

Petitioners’ and Respondent’s intent—as expressed in the

Agreement—to submit all disputes regarding jurisdiction to the

arbitrator, than their express adoption of the International Ar-

bitration Rules of the AAA and Title 9.3 of the California

Code of Civil Procedure.

In First Options of Chicago v. Kaplan, supra, 514 U.S. at

944, 131 L.Ed.2d at 994-994, this Court held that the question

of who has primary power to decide arbitrability turns upon

what the parties agreed to, since a party can only be forced to

arbitrate those issues it specifically agreed to arbitrate. In de-

ciding whether the parties agreed to arbitrate arbitrability, the

courts should apply ordinary state law contract principles that

govern formation of contracts. (/d, 514 U.S. at 844; 131

L.Ed.2d at 993.)

In First Options, as in the case at bar, the relevant state law

requires the court to see whether the parties objectively re-

vealed an intent to submit the arbitrability issue to arbitration.

(See Civil Code section 1636; Brant v. California Dairies, 4

Cal.2d 128, 133, 48 P.2d 13 (1935).)

As noted above, the selection of the International Arbi-

tration Rules and Title 9.3 of the Code of Civil Procedure

leaves no doubt as to the parties’ intent to submit disputes

regarding arbitrability to arbitration—and the appellate court's

application of the McCarroll folding to defeat the parties’ in-

tent is contrary to federal and state law and must be reversed.

2. The McCarroll Holding Should Be Limited To Its Facts

Which Are Distinguishable From Those In The Case At Bar

15

The Court of Appeal relied upon the California Supreme

Court’s decision in the McCarroll case in affirming the Judg-

ment. In so ruling, the appellate court cited the following pas-

Sage in the McCarroll decision:

“The arbitrability of a dispute may itself be subject to ar-

bitration if the parties have so provided in their contract. In

this situation the court should Stay proceedings pending

the arbiter’s determination of his own jurisdiction unless it

is clear that the claim of arbitrability is wholly groundless.”

[Italics added by appellate court] See Appendix A-6, quot-

ing McCarroll, 49 Cal.2d at 65.)

Federal law, however, Provides no such exception to en-

forcement of arbitration agreements governed by the FAA.

Indeed, as noted above, the International Arbitration Rules (in

Particular Articles 15.1 and 15.3) provide the exact

Opposite—that all disputes, including disputes regarding

arbitrability, be submitted to arbitration.

In McCarroll, the court’s entire analysis was premised

upon the scope and clarity of the parties’ agreement and the

extent to which it called for any court involvement in questions

of arbitrability and jurisdiction. At the outset, the McCarroll

Court looked at the arbitration clause and based on its lack of

clarity as to jurisdiction and arbitration, determined that the

parties had not agreed to allow the arbitrator to decide his own

jurisdiction.

In decided contrast to the arbitration clause at issue in the

parties’ Agreement, the arbitration Clause in McCarroll pro-

vided for grievances to be funneled through a series of person-

nel before even getting to an arbitrator, and the parties agreed

to present their disputes to a multitude of different entities: a

“craft steward”, “special representative”, “contractor”, “Joint

Contractor Board”, “Joint Arbitration Committee”, and

finally, if the dispute remained unresolved, to an arbiter.

(McCarroll, supra, 49 Cal.2d at 65.)

Given the long succession of decision-makers, the McCar-

roll Court determined that the parties had failed to agree that

16

the arbitrator had the power to decide his own jurisdiction. It

was only because the parties had not clearly stated an intent to

permit the arbitrator to decide jurisdiction— "there is no indi-

cation in the present contract that the parties intended any such

result” [i.e., to confer the power of determining jurisdiction

upon the arbitrator|—that the McCarroll Court assumed re-

sponsibility for determining jurisdiction. Thus, the McCarroll

holding should be expressly limited to situations where the

parties have not agreed upon who decides jurisdiction. (/d., at

65-66.)

The facts in the instant action could not be more distin-

guishable. Appellants and Respondent did agree—at Respon-

dent’s insistence—that the arbitrator should decide jurisdiction

by selecting the International Arbitration Rules of the AAA

and the International Statute to govern their disputes. In ac-

cordance therewith, the Court of Appeal’s decision is contrary

to federal law insofar as it permits superior courts to refuse to

enforce arbitration agreements where the superior court makes

a peremptory determination that there are no arbitral issues.

3. The Ninth Circuit Of The United States Court of

Appeals Recently Issued A Decision Upholding The Right

Of Private Parties To Contract For Arbitration

This issue is extremely timely, as evidenced by this Court’s

grant of review in the Circuit City Stores, supra, and Green

Tree, supra, cases for the current term; and the Ninth Circuit's

recent decision in Portland General Electric Company v. U.S.

Bank Trust National Association (July 18, 2000) 2000 Daily

Journal D.A.R. 7819.

The Portland case involved a dispute regarding whether

Oregon law or the FAA governed a challenge to a final ap-

praisal decision issued pursuant to a commercial contract. The

facts are distinguishable from those in the instant appeal, but

the Ninth Circuit’s holding that courts must keep sacrosanct

the right to contract for arbitration and must strictly enforce

those rights as written, is applicable to this case. (Portland,

supra, 2000 Daily Journal D.A.R. at 7821.)

17

The central issue in Portland was whether the district court

had properly interpreted the parties’ agreed appraisal proce-

dure as an agreement to arbitrate, based on its erroneous con-

clusion that a prior Ninth Circuit decision [Raytheon Co. v.

Rheem Manufacturing Co., 322 F.2d 173 (1963)} had held that

a contractually mandated appraisal is the equivalent of an ar-

bitration subject to the FAA. (/d.)

In distinguishing the Raytheon case, the Ninth Circuit re-

iterated the principle that courts play a limited role in constru-

ing appraisal agreements, serving only to enforce the parties’

bargain, not “to add gloss to the parties’ own language”. (/d.)

In analyzing whether the FAA applied to the Portland

agreement, the Court acknowledged that “[t]he FAA governs

any written provision in a ‘contract evidencing a transaction

involving commerce to settle by arbitration a controversy there-

after arising out of such contract.’ 9 U.S.C. § 2.” [Emphasis

added.| (/d., at 7820.)

The Court then looked to the FAA for a definition of

“appraisal”, but finding none, stated: “/a/lthough the FAA does

not provide any guidance on definitions, it does direct us to the

contract itself.” [Emphasis added.] (/d., at 7820.)

In the instant action, of course, there is no dispute as to the

applicability of the FAA because the parties expressly agreed

to arbitrate all disputes in accordance with the International

Arbitration Rules of the AAA, which are governed by the

FAA.

However, the general rule that the FAA governs all con-

tracts evidencing a transaction involving commerce, and fur-

ther requires the courts to enforce an arbitration agreement as

written, is relevant to this case.

“The function of the court is very limited when the parties

have agreed to submit all questions of contract interpreta-

tion to the arbitrator. It is confined to ascertaining whether

the party seeking arbitration is making a claim which on its

face is governed by the contract. Whether the moving party

is right or wrong is a question of contract interpretation for

18

the arbitrator. In these circumstances the moving party

should not be deprived of the arbitrator’s judgment, when

it was his judgment and all that it connotes that was bar-

gained for.” (United Steelworkers v. American Mfg. Co.,

363 U.S. 564, 80 S.CT. 1343, 4 L.Ed.2d 1403 (1960).)

That is precisely what Petitioners bargained for by ex-

pressly adopting the International Arbitration Rules of the

AAA in their arbitration agreement—the arbitrator’s

judgment—and federal law mandates that the parties’ intent to

arbitrate be enforced.

C. The Decision by the California Supreme Court to Permit

the Foreclosure and Sale of Petitioners’ Home Without the

Bargained for Notice Violates the Due Process Clause of

the Fourteenth Amendment.

The Fourteenth Amendment of the United States Consti-

tution prohibits rendering a judgment depriving a person of

property in any contested proceeding without constitutional

guarantees of due process. (D.H. Overmyer Co. v. Frick Co.,

40S U.S. 174, 185-186, 31 L. Ed. 2d 124, 92 S.Ct. 775; Lambert

v. California, 355 U.S. 225, 228, 2 L.Ed.2d 228, 78 S.Ct. 240, reh

den 355 U.S. 937, 2 L.Ed.2d 419, 78 S.Ct. 410 (1985).)

The Judgment herein was entered ex parte, without the

requisite hearing on the merits guaranteeing Petitioners of the

constitutional protection of due process. Thus, at a minimum,

there should have been a threshold hearing on the issue of the

court’s jurisdiction to even conduct an evidentiary hearing and

enter judgment prior to the conclusion of the arbitration com-

menced by Appellants on October 2, 1999.

Further, under California law any “application”, such as

Respondent’s application for ex parte application for entry of

judgment, is the same as a motion. (C.C.P. § 1003.)

A motion shall be upon all grounds stated in the written

notice, and is deemed to have been made and be pending be-

fore the court for all purposes upon the due service and filing

of the motion, but this shall not deprive party of a hearing on

a motion to which he is otherwise entitled. (C.C.P. § 1005.5.)

19

It is worth repeating that, in this case, the superior court

did not hear oral argument before entering an ex parte judg-

ment of foreclosure and order of sale of Petitioners’ home of

more than twenty-two years.

Under California Code of Civil Procedure § 166(a), only

certain specified motions may be heard in chambers, such as

motions to vacate a verdict or for new trial (C.C.P. § 657);

motions to vacate a judgment (C.C.P. § 663); all uncontested

actions or proceedings; ex parte applications; and motions to

tax costs of enforcing a judgment.

Notably, motions to enter judgment by stipulation under

Code of Civil Procedure § 664.6 are not included within the

motions permitted to be heard in chambers.

The “hearing” on Respondent’s ex parte application

herein consisted of a research clerk shuttling statements of

counsel back and forth to the Judge who was at all times in

chambers. The Judge signed the order entering judgment

against Petitioners while in chambers.

Thus, the Superior Court effectively deprived Petitioners

of their right to make oral argument, leaving all emphasis,

nuance and attention to the voluminous and complex details of

this case to the research clerk who communicated Petitioners’

argument to the Judge in chambers.

As noted in by the Court of Appeal in Mediterranean Co.

v. State Farm Fire & Casualty Company, 66 C al.App.4th 257,

264, 77 Cal.Rptr.2d 781 (1998), a hearing affords litigants their

only opportunity to orally argue their case and to respend to

the court’s inquiries through the give and take of questioning.

As one leading jurist aptly stated: “An oral argument is as

different from a brief as a love song is from a novel. It is an

opportunity to go straight to the heart!” [exclamation point in

Original text]. (Mediterranean Co. v. State Farm Fire & Casualty

Company, supra, 66 Cal.App.4th at 264, quoting Kaufman, Ap-

pellate Advocacy in the Federal Courts, 79 ER.D. 165, 171

(1977).)

In the case at bar, the love song was sung to the clerk who

Sang it to the judge. Something was lost in the translation.

20

The case of Hobbs v. Weiss, 73 Cal.App. 4th 76, 77, 86

Cal.Rptr.2d 146 (1999), (199 Daily Journal D.A.R. 6583) de-

cided by the Court of Appeal emphatically re-states the point

clearly made by the Court in the Mediterranean case:

“In Mediterranean Construction we expressed our frustra-

tion with law and motion judges who “refuse to hold oral

hearings on critical pre-trial matters of considerable sig-

nificance to the parties . . . fair warning: Both written and

oral argument are complementary parts of good judging

and elemental due process.” (/d.)

The circumstances here are more dire than those in the

Hobbs case, where a pre-trial writ of attachment was at issue,

and more akin to those at issue in the Mediterranean case,

where summary judgment was at issue.

The entry of the Judgment without a hearing by the supe-

rior court resulted in the loss of Petitioners’ home by foreclo-

sure; the forfeiture of penalty damages in the amount of

$2,300.000.00 [i.e. the full sum of $7,500,000.00 became due

upon entry of the Judgement]; and the loss of equity in the sum

of eight million ($8,000,000.00) dollars.

In the Agreement, Petitioners bargained for—and Re-

spondent agreed—to submit all disputes to arbitration before

Respondent could enforce any of the remedies under the

Agreement, specifically entry of the Judgment on an ex parte

basis. (CT 151.)

Thus, the dictates of due process hold that there should

have been a threshold hearing on the arbitrability of the par-

ties’ disputed tender before Respondent could lawfully seek

entry of the Judgment in the superior court. Moreover, that is

what Petitioners bargained for—a hearing, however brief, on

the merits of any dispute—before Respondent could enforce

the drastic remedies provided in the Agreement. Petitioners

did not receive their bargained for notice, and the ex parte

Judgment violates Petitioners’ constitutionally guaranteed

right of due process.

21

IV. CONCLUSION

A writ of certiorari should issue, since the decision of the

California Supreme Court relied upon by the Court of Appeal

in affirming the Judgment conflicts with the decisions of this

Court regarding enforceability of the FAA in state courts.

The questions presented on review are serious, important

and timely. The California Supreme Court’s decision opens the

way for pre-empting federal law in favor of state law even

though there is an express congressional declaration favoring

arbitration notwithstanding any state substantive or procedural

policies. |

For the reasons stated Petitioners respectfully request this

Court to grant the writ of certiorari.

Respectfully submitted,

GERALD M. MURPHY, ESO.

JACOBS, SPOTSWOOD.

CASPER & MURPHY, LLP

One Maritime Plaza, Suite 400

San Francisco, California 94111

Telephone No.: (415) 835-3700

Facsimile No.: (415) 835-1072

Counsel of Record for Petitioners

Dated: October 19, 2000

(THIS PAGE INTENTIONALLY LEFT BLANK)

APPENDIX A

No. A085195

IN THE

Court of Appeals of the State of California

Hirst Appellate District

Dibision Four

San Mateo County

Superior Court

No. 391951

FIRST PACIFIC BANK LIMITED,

Plaintiff and Respondent,

Vv.

THE BVY GRoupP, INC. ET AL.,

Defendants and Appellants.

The BVY Group, Inc., Benedicto Yujuico, and Teresita

Yujuico appeal from a judgment for judicial foreclosure en-

tered on the ex parte application of respondent First Pacific

Bank Limited. Appellants contend that: respondent breached

the parties’ settlement agreement by applying for entry of judg-

ment; the court lacked jurisdiction to enter the judgment; and

their due process rights were violated in connection with the

entry of judgment. We affirm.

FACTS

This action was filed by respondent for judicial foreclosure

of property securing indebtedness owed by appellants. While

the action was pending, the parties entered into a settlement

agreement dated as of August 1, 1997. Attached to the settle-

ment were an agreement for binding arbitration between the

(1)

2

parties, and an arbitration award setting forth the parties’

agreements that: appellants owed respondent $7,500,000 as of

August 1, 1997; appellants’ debt was secured by a property the

Yujuicos owned in Atherton; the Atherton property could be

sold to satisfy the debt; and appellants would be liable for any

deficiency after that sale. Also attached to the settlement were

a stipulation for enforcement of the arbitration award, and a

stipulated judgment thereon for judicial foreclosure. In the

settlement agreement, appellants agreed to pay respondent

$5,200,000 in installments ending on August 15, 1998. In the

event of a default in the payments, the settlement agreement

authorized respondent to pursue various remedies without fur-

ther notice to appellants, including entry of the stipulated judg-

ment on the arbitration award.

The settlement agreement included the following arbitra-

tion provision: “In the event of any dispute relating to or aris-

ing out of this Agreement, the exclusive forum for resolution of

any such dispute shall be by arbitration in San Francisco, Cali-

fornia under the authority of J.A.M.S./ENDISPUTE in accor-

dance with the International Arbitration rules of the American

Arbitration Association.”

In February 1998 the parties executed an amendment to

the settlement agreement which provided for a revised pay-

ment schedule extending the final payment to September 15,

1999. Benedicto Yujuico’s father, Jesus Yujuico, executed a

guaranty for the amount of the remaining payments ($2.2 mil-

lion) and a consent to the amendment. The settlement agree-

ment had recited that: respondent had made loans to Standard

Fund International Limited (SFIL), a corporation owned by

Jesus Yujuico, as set forth in agreement between respondent,

SFIL, Jesus Yujuico and Conifer Properties, Inc.; and Jesus

Yujuico had joined appellants and other parties in a cross-

complaint against respondent in the judicial foreclosure action.

However, Jesus Yujuico was not a signatory to the settlement

agreement or the amendment thereto.

3

Under the settlement agreement as amended, appellants

owed respondent a payment of $450,000, with interest, on Sep-

tember 15, 1998. Respondent’s Vice President Peter Choy re-

ceived a letter dated September 9, 1998, from Lito Bermundo,

who had previously signed correspondence to respondent as

Jesus Yujuico’s financial consultant. The letter noted Choy’s

“negative reply to our letter request dated August 30, 1998

which basically pleads for a one year extension of principal

payments for both the SFIL and BVY Group outstanding ob-

ligations,” and “submit[ted] another proposal for your consid-

eration as follows: . . .

We have found a buyer for the BVY Note with the follow-

ing terms: $100,000 downpayment and the balance to be

paid within 12 months or earlier. Interest on the account

will be paid quarterly.” The letter added: “We realize that

you can deny our request and instead foreclose the BVY

Group collateral.” Respondent rejected this proposal by

letter dated September 10, 1998.

On September 16, 1998, Choy wrote appellants and Jesus

Yujuico a letter which noted that the September 15 payment

had not been received and threatened legal action as provided

in the settlement agreement. That same day, Bermundo wrote

Choy and proposed, with emphasis in the original, that Jesus

Yujuico would “use the funds earmarked from the down pay-

ment of the Conifer refinancing to instead purchase the BVY

Note from the bank.'! He proposes a down payment of

$450,000 and the balance to be paid in full by March 15, 1999.

(The original payment term is $450,000 on September 15, 1998

and $850,000 each on March 15, 1999 and Sept. 1999.)?2 In

addition, he proposes to pay legal costs of undertaking the docu-

mentation for the purchase of the note, plus a $10,000 fee to

cover any administration costs to implement our proposal.”

' The “BVY Note” apparently referred to appellants’ debt under the

amended settlement agreement.

2 This apparent reference to the terms of the amended settlement agree-

ment overstated the $650,000 payments due under that agreement in

Marchand September 1999.

4

On September 17, 1998, Choy wrote Jesus Yujuico and

advised that respondent “may consider assigning its entire in-

terest in the BVY loan to any investor on the basis that the

Bank receives immediate good funds to satisfactor[il]ly dis-

charge full amount of the indebtedness under the BVY loan

facility. We regret that your latest proposal of defer and partial

payment is not acceptable to us.” The letter reiterated the

demand for immediate payment of the September 15 install-

ment. On September 30, 1998, respondent’s counsel wrote ap-

pellants and stated that respondent would exercise its legal

remedies if the September 15 payment was not received by

October 5.

Appellants’ counsel prepared a demand for arbitration

dated October 2, 1998, stating that “a dispute has arisen con-

cerning the rights and obligations of the parties under the

[settlement] Agreement, namely that First Pacific asserts that

BVY has defaulted in its obligations under the Agreement and

BVY asserts that it tendered performance which was improp-

erly refused by First Pacific.” In a letter dated October 7, 1998,

respondent rejected appellants’ assertion “that there is any ba-

sis whatsoever for further arbitration before J.A.M.S.” On Oc-

tober 8, respondent's counsel notified appellants’ counsel that

respondent would be presenting an ex parte application to the

superior court the next day for entry of a stipulated judgment

in accordance with the settlement agreement.

Appellants appeared at the October 9 hearing with a

memorandum in opposition to the application and presented

arguments to the court's research attorney, who conveyed them

to the judge. The judge asked appellants’ counsel, through the

research attorney, whether any provision of the amended

settlement agreement obligated respondent to accept a third-

party offer like the one made by Jesus Yujuico.

Judgment was entered as requested authorizing respon-

dent to foreclose on the Atherton property and recover any

deficiency following the sale. Appellants’ motion to vacate the

judgment was denied and this appeal ensued.

5

DISCUSSION

Appellants contend. that respondent breached the settle-

ment agreement by seeking entry of judgment before the issue

of their alleged tender of performance was arbitrated. Appel-

lants note that they waived various legal rights in the settle-

ment agreement, and maintain that the provision for

arbitration of disputes before these “draconian waivers could

be enforced” was at “the very heart of the consideration” for

the agreement. Appellants submit that once they demanded

arbitration, the only way respondent could object to the de-

mand was to assert that objection in the arbitration. They ob-

serve that the AAA International Arbitration Rules provide

for objections to the tribunal's jurisdiction. (Art. 15.3; see also

Art. 15.1, Code Civ. Proc., § 1297.161 [tribunal may rule on its

own jurisdiction].)

Whether the application for entry of judgment was a

breach of the settlement agreement hinges on appellants’ claim

that respondent’s refusal to accept Jesus Yujuico’s offer cre-

ated a “dispute relating to or arising out of” the agreement

within the meaning of the arbitration clause. If there was no

arbitrable dispute then respondent did not breach the agree-

ment by obtaining the judgment, and the arbitration demand

was an attempt to deprive respondent of ifs rights under the

agreement.

Appellants assert that the court lacked jurisdiction to rule

on the merits of their arbitration demand or enter judgment

while the arbitration proceeding was pending. Appellants take

the position that once they identified a “dispute” under the

settlement agreement and demanded arbitration, the court was

powerless to act until that alleged dispute was resolved by an

arbitrator. This position relieves appellants of any need to show

that Jesus Yujuico’s offer was a valid tender of performance

under the settlement agreement. Appellants maintain that

“[w)hether [they] did or did not make valid tender, or whether

[they] merely offered to modify the terms of the existing con-

tract, are not the issues before this Court.”

6

Appellant’s breach of contract and lack of jurisdiction ar-

guments are contrary to the law as stated in McCarroll v. L.A.

County etc. Carpenters (1957) 49 Cal.2d 45: “The arbitrability

of a dispute may itself be subject to arbitration if the parties

have so provided in their contract. In this situation the court

should stay proceedings pending the arbiter’s determination of

his own jurisdiction unless it is clear that the claim of arbitrabil-

ity is wholly groundless.” (Id. at p. 65 [italics added].)’ The

emphasized language confirms the jurisdiction of the court to

determine whether there is any substance to an arbitration

demand, and the right of a party to an arbitration agreement to

seek such a determination.

As respondent points out, appellants’ theory would enable

them to indefinitely postpone the entry of judgment with a

series of sham arbitration demands. To quote from respon-

dent’s brief: “Under [appellants’] theory, they could fail to

make a payment and file an arbitration demand, alleging that

payment was excused because the sky was gray on the payment

date. They could then successfully argue that [respondent] was

in breach by seeking entry of the [stipulated judgement] on the

ground that their ‘gray sky’ ‘excuse’ for nonpayment gave rise

to a dispute that ‘arose out of’ the [arbitration agreement] and

had to be arbitrated, and that only an arbitrator could deter-

mine its arbitrability.

Once that sham claim of arbitrability was resolved, [appel-

lants} could manufacture yet another purportedly arbi-

trable dispute—claiming, for example, that payment was

not due because the sun set before 7 p.m. on the payment

date.”

This case thus illustrates why it is sound policy to reserve a

limited “gatekeeping” function for the court, even when the

parties have agreed to arbitrate the issue of the arbitrator’s

jurisdiction. If courts cannot determine whether claims are at

* The holding of the McCarroll case on another point was abrogated by

Drake Bakeries v. Bakery Workers (1962) 370 U.S. 254, 257. (Charles J.

Rounds Co. v. Joint Council of Teamsters (1971) 4 Cal.3d 888, 893.)

J

least arguably subject to arbitration, parties can be subjected to

arbitration proceedings for which they clearly have not bar-

gained.

Accordingly, we reject the breach of contract and lack of

jurisdiction arguments. Respondent had the right to test the

merits of the arbitration demand by seeking the entry of judg-

ment, and the court had the power to determine that the de-

mand was untenable, as it implicitly found by entering

judgment over appellants’ objection.‘

Appellants’ remaining argument is that the ex parte pro-

cedure by which judgment was entered deprived them of due

process. However, parties may waive their due process rights in

connection with entry of a stipulated judgment (e.g., County of

Ventura v. Tillett (1982) 133 Cal.App.3d 105, 112-113, disap-

proved on another point in County of Los Angeles v. Soto

(1984) 35 Cal.3d 483), and appellants did so here when they

agreed that the stipulated judgment could be filed “without

further notice” if they failed to make a scheduled payment.

Despite this agreement, respondent notified appellants of the

hearing on the application for entry of judgment, and the

record shows that appellants were able to fully present their

arguments at that hearing and in their motion to vacate the

judgment.

Appellants contend that they were wrongfully deprived of

oral argument before the judge at the hearing on the applica-

tion, “leaving all emphasis, nuance and attention to the volu-

minous and complex details of this case to the research clerk

who communicated Appellants’ argument to the Judge in

chambers ...

As one leading jurist aptly stated: “*An oral argument is as

different from a brief as a love song is from a novel.” . . .

* Since appellants do not attempt to justify their claim that there was a

valid tender under the settlement agreement, we need not reach that issue.

8

In the case at bar, the love song was sung to the clerk who

sang it to the judge. Something was lost in the translation.”

However, appellants received more process than they

agreed to accept.

DISPOSITION

The judgment is affirmed with costs to respondent.

Hanlon, P.J.

We concur:

Poché, J.

Sepulveda, J.

(A085195, First Pacific Bank v. The BVY Group et al.)

APPENDIX B

Michael E. Delehunt (CSBN 070619)

Anthony Theophilos (CSBN 072912)

Philip L. Tudor (CSBN 148065)

CROSBY, HEAFEY, ROACH & MAY

Professional Corporation

1999 Harrison Street

Oakland, CA 94612

P.O. Box 2084

Oakland, CA 94604-2084

Telephone: (510) 763-2000

Facsimile: (510) 273-8832

Attorneys for Defendants and Cross-complainants,

The BVY Group, et al.

SUPERIOR COURT OF CALIFORNIA

COUNTY OF SAN MATEO

FIRST PACIFIC BANK LIMITED. No. 391951

Hong Kong banki tion,

tay ae ee [PROPOSED] JUDGMENT OF

Plaintiff, ORECLOSURE AND ORDER

OF SALE

VS.

Date: October 9, 1998

THE BVY GROUP. a California Time: 240 pan.

Corporation, et al.. Dept. 10

Defendants. Trial Date: None Set

THE BVY GROUP. a California

corporation, et al.,

Cross-Complainants,

vs.

FIRST PACIFIC BANK LIMITED.

a Hong Kong banking corporation. et al.

Cross-Defendants.

/

WHEREAS, plaintiff First Pacific Bank, Ltd. appeared by

Crosby, Heafey, Roach & May, Professional Corporation,

counsel; cross-complainants the BVY Group, Inc., Benedicto

V. Yujuico and Teresita M. Yujuico appeared by Tatro, Coffino,

Zeavin, Bloomgarden, LLP, counsel.

(1)

2

WHEREAS, the parties agreed to settle this action by

arbitration; an arbitration award was made by the Honorable

Harry W. Low, Arbitrator, and consented to by the parties;

WHEREAS, the parties have entered a Stipulation

through which Cross-Complainants The BVY Group, Inc.,

Benedicto V. Yujuico and Teresita M. Yujuico have stipulated

to confirmation of the arbitration award and entry of the in-

stant Judgment of Foreclosure and Order of Sale;

IT IS ADJUDGED, ORDERED, AND DECREED that:

1. The arbitration Award attached hereto is confirmed.

2. There are now due and owing to plaintiff First Pacific

Bank Limited from cross-complainants The BVY Group, Inc.,

Benedicto V. Yujuico and Teresita M. Yujuico, the following

sums, secured by: (1) a Deed of Trust dated on or about No-

vember 8, 1989, executed by the Yujuicos as trustor, to U.F.

Service Corporation, as trustee, for plaintiff First Pacific Bank,

Ltd. as beneficiary, recorded on November 20, 1989, as Docu-

ment No. 89157320 in the Official Records in the Office of the

Recorder of San Mateo County, California, constituting a lien

on the reai property hereinafter described: the sum of

$7,500,000, the repayment of which is guaranteed by the

Yujuicos.

3. The real property hereinafter described, or so much of

it as may be necessary, is to be sold in the manner prescribed by

law by the levying officer of San Mateo County, California, on

application for issuance of a writ of sale to the levying officer.

Any party to this action may be a purchaser at the sale.

4. From the proceeds of the sale, the levying officer shall

deduct the expenses for the levy and sale, and shall then pay to

plaintiff the sums adjudged due, together with interest from the

date of this judgment at an annual rate equal to seven (7)

percent.

5. If any surplus remains after making these payments, it -

shall be paid by the levying officer to cross-complainants The

BVY Group, Inc., Benedicto V. Yujuico and Teresita M.

Yujuico.

3

6. Cross-complainants The BVY Group, Inc., Benedicto

V. Yujuico and Teresita M. Yujuico, are liable for payment of

the sums secured by the Deeds of Trust and a deficiency judg-

ment may be ordered against them following proceedings pre-

scribed by law, and cross-complainants Benedicto V. Yujuico

and Teresita M. Yujuico have personally guaranteed repay-

ment of such sum. The Court retains jurisdiction to determine

the amount of the deficiency, if any, and to render a money

judgment on proper application therefore against BVY here-

under or Benedicto V. Yujuico and Teresita M. Yujuico under

their Guaranty..

7. A deficiency judgment not being waived or prohibited,

the property is to be sold; provided, however, that BVY has by

separate agreement waived its rights of redemption provided in

Sections 729.010 to 729.090, inclusive, of the Code of Civil

Procedure.

8. From and after the delivery of the Deeds by the levy-

ing officer to the purchaser at the sale, cross-complainants The

BVY Group, Inc., Benedicto, V. Yujuico and Teresita M.

Yujuico and all persons claiming under them, and all persons

having liens subsequent to the Deeds of Trust by any judgment

on the real property hereinafter described, and their personal

representatives, and all persons claiming under them, and all

persons claiming to have acquired any estate or interest in the

property subsequent to the filing of notice of the pendency of

this action with the county recorder are forever barred and

foreclosed from all equity of redemption in, and claim to, the

property and every part thereof.

4

9. The property which is the subject of the judgment and

order is situated in San Mateo County, California, and is de-

scribed as follows:

(1) Parcel “B”, as shown on that certain map entitled

“PARCEL MAP BEING A SUBDIVISION OF LOT 8B

AND A PORTION OF LOT 3A, MAP OF QUILLOTA

TRACT FILED IN VOLUME D OF MAPS AT PAGE

32, SAN MATEO COUNTY RECORDS, TOWN OF

ATHERTON, SAN MATEO COUNTY, CALIFOR-

NIA”, which map was filed in the office of the County

Recorder of San Mateo County, State of California, on

August 2, 1971, in Book 13 of Parcel Maps at Page 20.

DATED:

JUDGE OF THE SUPERIOR COURT

5

Court of Appeal, First Appellate District, Division Four

No. A085195

$090027

IN THE SUPREME COURT OF CALIFORNIA

En Banc

FIRST PACIFIC BANK LIMITED, Plaintiff and Respondent,

v.

THE BVY GROUP INC., et al., Defendant and Appellants.

Petition for review DENIED.

GEORGE

Chief Justice