Law School Case Brief
Volt Info. Scis. v. Bd. of Trs. - 489 U.S. 468, 109 S. Ct. 1248 (1989)
Arbitration under the Federal Arbitration Act (FAA) is a matter of consent, not coercion, and parties are generally free to structure their arbitration agreements as they see fit. Just as they may limit by contract the issues which they will arbitrate, so too may they specify by contract the rules under which that arbitration will be conducted. 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 FAA would otherwise permit it to go forward.
Under the terms of a construction contract between Stanford university and a construction firm for installation work on the university's campus, the parties agreed that (1) all disputes between them arising out of or relating to the contract or the breach thereof would be decided by arbitration, and (2) the contract would be governed "by the law of the place where the Project is located." When a dispute developed during construction regarding compensation for extra work, the firm made a formal demand for arbitration of its claim. Stanford responded by filing an action in California Superior Court, alleging fraud and breach of contract against the firm, and additionally seeking indemnity from two other companies involved in the construction project with whom the university did not have arbitration agreements. The firm moved to compel arbitration of the dispute pursuant to the contract. In turn, Stanford moved to stay arbitration, pursuant to a California procedural statute, which allowed a court to stay arbitration pending resolution of related litigation between a party to an arbitration agreement and third parties not bound by such agreement, where there was a possibility of conflicting rulings on a common issue of law or fact. The Superior Court denied the firm's motion to compel arbitration and granted the university's stay motion. On appeal, the California Court of Appeal affirmed, holding that (1) under the contract's choice-of-law provision, the parties had chosen to be governed by California law, and (2) application of the California procedural statute invoked by the university in its motion to stay arbitration was not pre-empted by the Federal Arbitration Act, 9 U.S.C.S. §§ 1 et seq., although the parties' contract involved interstate commerce, and although the Act governed contracts in interstate commerce. The Supreme Court of California denied review. Further appellate review was sought in the United States Supreme Court.
Did the state appellate court err in denying the firm’s motion to compel arbitration?
The Court had jurisdiction because the validity of the federal statute was at issue. The Court affirmed the state court and held that, while the Federal Arbitration Act enforced arbitration agreements in interstate commerce matters, it was not preemptive of state law where the parties agreed in their contract to be bound thereby.
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