The Recorder (California) | December.28.2012
This article, authored by intellectual property senior associate Siddhartha Venkatesan, discusses arbitration provisions as governed by the California Arbitration Act. An excerpt from the article is included below.
Arbitration provisions are a commonplace fixture in contracts for complex services as they provide certainty that any disputes will be heard by a neutral with relevant subject matter experience in an expeditious manner. Such provisions may be particularly important to companies with widespread operations as they offer the further benefit of fixing a venue, thus avoiding the risk of an out-of-town company getting "hometowned" in litigation. Generally speaking, parties understand that broadly worded arbitration provisions should be enforced.
However, under California law, there exists a significant exception to the general rule of enforceability that may blindside the unaware. Specifically, arbitration provisions governed by the California Arbitration Act are subject to a provision of the act that permits a court, in its discretion, to require litigation of an otherwise arbitrable dispute where litigation has commenced and nonarbitrable third-party claims and defenses are at issue. This rule creates a surprising escape hatch for a party to an otherwise ironclad arbitration agreement.