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The California Court of Appeal held that while the substantive provisions of the Federal Arbitration Act (FAA) preempt conflicting state arbitration law, parties must expressly elect to arbitrate under FAA procedures.
In Rambus Inc. v. Hynix Semiconductor, Inc., Nos. A112076, A113221, 2007 WL 18829 (Cal. Ct. App. Jan. 3, 2007), Rambus sued a series of defendants, alleging a price fixing conspiracy. Two defendants moved to compel arbitration, which the trial court denied based upon a California law granting courts discretion to deny arbitration when at least one codefendant is not subject to an arbitration clause. Cal. Civ. Proc. Code §1281.2(c).
Codefendants Hynix Semiconductor, Inc. (Hynix) and Samsung Electronics Co., Ltd. (Samsung) appealed this result, arguing that the FAA and not California's arbitration procedures should govern enforcement of the arbitration clause.
The Court ultimately applied California arbitration law in favor of the FAA, since the parties had not designated the FAA as the controlling source of procedure. According to U.S. Supreme Court precedent, only the FAA's substantive provisions, found in 9 U.S.C. §§ 1 & 2, hold preemptive power over conflicting state laws. Volt Info. Sciences, Inc. v. Leland Stanford Jr. U., 489 U.S. 468, 477 (1989).
Sections 3 and 4 deal with procedural matters, and generally apply only to federal courts unless the parties to an arbitration contract name them in a choice-of-law provision. Here, the parties actually designated California as the governing law for their arbitration agreement. Thus, even though applying the California procedures resulted in the denial of arbitration, the parties were bound by their decision to forego the procedural protections of the FAA in favor of state law.
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