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Filed 10/24/03 The Regents of the U. of Cal. v SSW, Inc. CA1/2
NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or
ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION TWO

THE REGENTS OF THE UNIVERSITY

OF CALIFORNIA,

Plaintiff and Respondent,
A097298, A096947

v.
(San Francisco County
SSW, INC. et al.,
Super. Ct. No. 304352)

Defendants and Appellants.
Introduction

Tuthill Corporation (Tuthill) and SSW, Inc. (SSW) appeal from an order of the
San Francisco Superior Court denying their petitions to compel arbitration of claims filed
against them by the Regents of the University of California (Regents). The trial court
denied the petitions under Code of Civil Procedure section 1281.2, subdivision (c)1
(hereafter section 1281.2(c)), which allows the court to stay arbitration pending
resolution of related litigations where there is a possibility of conflicting rulings and
contradictory judgments. The court ruled that the contracting parties had agreed that their
arbitration agreement would be governed and enforced by California law (including
section 1281.2(c)) and that the Federal Arbitration Act (9 U.S.C. § 1 et seq.) (FAA) did
not preempt that state statute.

Tuthill and SSW contend that provisions of their contracts--and particularly the
choice-of-law provisions--do not demonstrate an intention to make the contracts subject

1
All statutory references are to the Code of Civil Procedure unless otherwise
indicated.

1

to section 1281.2(c). Consequently, they argue that the California statute is preempted by
the FAA and that the FAA requires enforcement of the arbitration agreement despite the
potential for conflicting results. We shall affirm the order.
Facts and Procedural Background

In early 1994, the Regents contracted with Walsh Construction Company (Walsh)
for construction and renovation of the Parnassus Central Utilities Plant at the University
of California at San Francisco. Tuthill and SSW2 are out-of-state corporations who were
subcontractors for the design and construction of heat recovery steam generators, the
steam turbine generator, and auxiliary boilers on the cogeneration power plant project.
After the project was underway, Walsh's parent company filed for bankruptcy. Project
sureties, Fidelity and Deposit Company of Maryland and Universal Underwriters
Insurance Company, took assignment of Walsh's obligations and rights under Walsh's
contract with the Regents. In June 1999 the Regents filed suit against the sureties to
recover on the performance bond and alleged that Walsh had failed to fulfill its
obligations on the project. On June 8, 2001, the Regents amended their original
complaint to include causes of action against Tuthill and SSW based upon the Regents'
status as a third party beneficiary to the Walsh subcontracts and alleging numerous
defects and inadequate construction in the equipment designed, built, or supplied by
Tuthill and SSW.

The subcontracts between Walsh and Tuthill and Walsh and SSW contained
identical choice-of-law provisions:
"Governing
laws. This Contract Order shall be governed by, construed, and
enforced in accordance with the laws of the State of California, exclusive of conflicts by
laws provisions."

The arbitration provisions of the subcontracts were also identical and provided:

"Arbitration: If the forgoing procedures do not resolve the dispute, the dispute
shall be decided by arbitration in accordance with the Construction Industry Arbitration

2

Rules of the American Arbitration Association then prevailing as supplemented by
Sections 1282.6, 1283 and 1283.05 of the California Code of Civil Procedure, unless the
parties mutually agree otherwise. Selection of arbitrators shall be in accordance with
rules of the American Arbitration Association. The Arbitrator(s) shall be bound by, and
apply California law. Each party hereto expresses consent and agrees that any arbitration
arising of or relating to this Agreement, or the breach thereof, may, at the option of either
party, include by consolidation, joinder or in any other manner, other persons involved in
or affected by such claim, dispute or other matter. . . . The forgoing agreement to
arbitrate . . . shall be specifically enforceable under the prevailing Arbitration Law. The
award rendered by the Arbitrators shall be final, and judgment may be entered upon it in
accordance with applicable law in any court having jurisdiction thereof. All arbitration
proceedings hereunder shall, unless all parties hereto otherwise agree, be conducted in the
County of San Francisco."

The prime contract between the Regents and Walsh did not contain a mandatory
arbitration provision.

Tuthill and SSW filed demurrers and petitions to compel arbitration. The Regents
opposed the petitions to compel arbitration on the ground that the court should exercise
the discretion afforded it under section 1281.2(c) to refuse to compel arbitration because
of the potential for inconsistent rulings if the controversy were adjudicated in multiple
forums. Tuthill and SSW responded that the FAA, which gives the court no discretion to
deny arbitration on such grounds, preempted section 1281.2(c). After briefing and
hearing before the Honorable Stuart Pollak, the court denied the demurrers and the
petitions to compel arbitration. The court ruled that Volt Info. Sciences v. Leland
Stanford Jr. U. (1989) 489 U.S. 468 (Volt) controlled. Accordingly, the court found that
the parties to the arbitration agreements had agreed that the subcontracts not only would

2
SSW obtained or assumed the assets and liabilities of its predecessor National
Dynamics Corporation on June 23, 1998. For ease of reference, SSW shall refer either to
SSW or to its predecessor National Dynamics.

3

be "governed" by California law, but would be "enforced" in accordance with California
law, including section 1281.2(c), and the FAA did not preempt California law.3

Tuthill and SSW filed timely appeals to the court's order denying their petitions to
compel arbitration.4 On April 15, 2002, we granted the Regents' motion to consolidate
the two appeals. After briefing was complete, the parties requested that we defer
disposition of the appeal pending settlement. In May 2003, having been notified of the
failure of settlement negotiations, we returned the case to the regular calendar.
Discussion

"Congress passed the FAA `to overcome courts' refusals to enforce agreements to
arbitrate.' [Citations.]" (Mastrobuono v. Shearson Lehman Hutton, Inc. (1995) 514 U.S.
52, 55 (Mastrobuono); see also, Volt, supra, at p. 474.) The federal statute was intended
to place arbitration agreements " `upon the same footing as other contracts . . . .'"
(Scherk v. Alberto-Culver Co. (1974) 417 U.S. 506, 511.) As explained in Southland
Corp. v. Keating (1984) 465 U.S. 1, "the FAA not only `declared a national policy
favoring arbitration,' but actually `withdrew the power of the states to require a judicial
forum for the resolution of claims which the contracting parties agreed to resolve by

3
In his order denying the petitions to arbitrate, Judge Pollak reasoned:

"The Petitions to Compel Arbitration by SSW, Inc. and Tuthill Corporation are
DENIED. The rule enunciated in Volt Information Sciences v. Board of Trustees (1989)
489 U.S. 468 is still controlling, and has been reaffirmed in the most recent decisions
cited by the moving parties. (E.g., Hyundai America, Inc. v. Meissner & Wurst GMBH &
Co. (1998) 26 F.Supp.2d 1217, 1219 (`The Volt Court held that the FAA did not preempt
the California Arbitration Act's provision allowing a court to stay arbitration pending
resolution of related litigation where the parties had agreed that their arbitration
agreement would be governed by California law'). [] None of the other cases cited by
the parties are to the contrary. In the present case, the controlling contract explicitly
specifies not only that it shall be governed by California law, but that it will be `enforced
in accordance with the laws of the State of California.' In this critical respect, the
contract provision differs from the contract language in Warren-Guthrie v. Health Net
(2000) 84 Cal.App.4th 804. Since the subcontract is governed by California law, CCP
section 1281.2(c) applies, and is not preempted."

4
An order dismissing a petition to compel arbitration is appealable pursuant to
section 1294.

4

arbitration.' 465 U.S., at 10." (Mastrobuono, supra, at p. 1216.) "State laws that apply
to contracts generally can be applied to arbitration agreements, but `[c]ourts may not . . .
invalidate arbitration agreements under state laws applicable only to arbitration
provisions.' (Doctor's Associates, Inc. v. Casarotto (1996) 517 U.S. 681, 687.)" (Mount
Diablo Medical Center v. Health Net of California, Inc. (2002) 101 Cal.App.4th 711,
718 (Mount Diablo).)

"Section 1281.2(c) authorizes the court to refuse to enforce a contractual
arbitration provision if arbitration threatens to produce a result that may conflict with the
outcome of related litigation not subject to arbitration." (Mount Diablo, supra, at p.
717.)5 The FAA contains no similar provision. Nevertheless, in Volt, supra, 489 U.S.
468 (Volt), the United States Supreme Court held that application of section 1281.2(c) is
not pre-empted by the FAA in cases "where the parties have agreed that their arbitration
agreement will be governed by the law of California." (Volt, supra, at p. 470; see also
Mastrobuono, supra, at p. 57.)
The
Volt Court recognized that the primary purpose of the FAA is to "ensure[] that
private agreements to arbitrate are enforced according to their terms. Arbitration under
the Act 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 [citation], 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

5
Section 1281.2 provides that on petition of a party to an arbitration agreement, the
court shall order the parties to arbitrate the controversy "unless it determines that . . . . [¶]
. . . [¶] (c) A party to the arbitration 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 of conflicting rulings on a common issue of law or fact," in
which case "the court (1) may refuse to enforce the arbitration agreement and may order
intervention or joinder of all parties in a single action . . . ; (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 . . . pending the outcome of
the arbitration proceeding; or (4) may stay arbitration pending the outcome of the court
action . . . ."

5

fully consistent with the goals of the FAA, even if the result is that the arbitration is
stayed where the Act would otherwise permit it to go forward." (Id. at p. 479.)
Following
Volt, California courts examine the underlying contract containing the
arbitration clause to determine whether the parties have agreed to application of section
1281.2(c) to their agreement. (Mount Diablo, supra, at p. 717; Warren-Guthrie v. Health
Net (2000) 84 Cal.App.4th 804, 808.) Consequently, the key issue in this case is
whether, by the choice-of-law and arbitration provisions of the subcontracts, the parties
agreed to application of section 1281.2(c). This issue presents a question of law subject
to de novo review by this court. (Mount Diablo, supra, at p. 717; Warren-Guthrie v.
Health Net, supra, at p. 814; 24 Hour Fitness, Inc. v. Superior Court (1998) 66
Cal.App.4th 1199, 1212.)
The particular choice-of-law clause involved in Volt provided that "`[t]he Contract
shall be governed by the law of the place where the Project is located.'" (Id. at p. 470.)
The California Court of Appeal concluded that by this choice-of-law provision "the
parties had incorporated the California rules of arbitration, including § 1281.2(c), into
their arbitration agreement." (Volt, supra, at p. 472.) "The Supreme Court held that the
parties had thereby `agreed that arbitration would not proceed in situations which fell
within the scope of [section 1281.2(c)]' (Volt, supra, at p. 475) and that the FAA did not
prevent application of this provision to stay the arbitration. (Id. at p. 477.) `[A]pplication
of the California statute is not pre-empted by the [FAA] in a case where the parties have
agreed that their arbitration agreement will be governed by the law of California.' (Id. at
p. 470.)" (Mount Diablo, supra, at p. 719.)

The Regents contend, and the trial court agreed, that Volt controls. Tuthill and
SSW counter that the Supreme Court in Volt did not itself determine whether the state
appellate court's construction of the choice-of-law provision in the contract was correct,
but considered itself bound to accept that court's interpretation of the contract. (See Volt,
supra, at p. 474.) Tuthill and SSW rely instead upon the later-decided Mastrobuono,
supra, 514 U.S. 52 and upon federal cases that have followed it, contending that the use
of a "generic" choice-of-law provision does not evince an intent by the parties to choose

6

California arbitration law in preference to federal arbitration law. Building upon
Mastrobuono, Tuthill and SSW contend that the arbitration clause and choice-of-law
clause in the subcontracts here did not incorporate section 1281.2(c); that section
1281.2(c) cannot be used to delay or avoid arbitration of a contract dispute governed by
the FAA; and that any interpretation of the subcontracts to incorporate section 1281.2(c)
results in ambiguity that must be resolved in favor of arbitration.

Mastrobuono involved interpretation of a standard-form contract between a
securities brokerage firm and its customers requiring arbitration, but which expressly
provided that "it `shall be governed by the laws of the State of New York,'. . ." (Id. at p.
53.) New York law allowed courts, but not arbitrators, to award punitive damages. A
panel of arbitrators awarded punitive damages. A federal district court and federal Court
of Appeals disallowed the punitive damages award. The Supreme Court reversed, citing
Volt. The choice-of-law provision could reasonably be read in isolation to be "merely a
substitute for the conflict-of-laws analysis that otherwise would determine what law to
apply to disputes arising out of the contractual relationship" (id. at p. 59) and New York
law would be pre-empted by the FAA because the provision did not show the parties'
intention to preclude the award of punitive damages by arbitrators. The clause might also
be read to "include only New York's substantive rights and obligations, and not the
State's allocation of power between alternative tribunals." (Id. at p. 60.) Consequently,
the court concluded the clause was "not, in itself, an unequivocal exclusion of punitive
damages claims." (Ibid.) Rejecting a broader reading of the clause, the court refused to
defer to the lower courts' interpretation of the contract. Mastrobuono distinguished Volt,
in which the Supreme Court "deferred to the California court's construction of its own
States law" on the grounds that, in Mastrobuono, it was reviewing a lower federal court's
interpretation of the contract and the only deference arguably called for was to the
arbitrator. (Mastrobuono, supra, at p. 60, fn. 4.) The Mastrobuono majority then
contrasted the choice-of-law provision with the arbitration provision which authorized
arbitration in accordance with NASD rules, and "strongly implie[d]" that arbitrators
might appropriately award punitive damages. (Id. at pp. 60-61.) The court reasoned that

7

the choice-of-law clause at most, "introduces an ambiguity into an arbitration agreement
that would otherwise allow punitive damages. As we pointed out in Volt, when a court
interprets such provisions in an agreement covered by the FAA, `due regard must be
given to the federal policy favoring arbitration, and ambiguities as to the scope of the
arbitration clause itself resolved in favor of arbitration.' 489 U.S., at 476 . . . ." (Id. at
p. 62.) Finally, the court concluded the "best way to harmonize the choice-of-law
provision with the arbitration provision is to read `the laws of the State of New York' to
encompass substantive principles that New York courts would apply, but not to include
special rules limiting the authority of arbitrators. Thus, the choice-of-law provision
covers the rights and duties of the parties, while the arbitration clause covers arbitration;
neither sentence intrudes upon the other. In contrast, respondents' reading sets up the
two clauses in conflict with another: one foreclosing punitive damages, the other
allowing them. This interpretation is untenable." (Id. at pp. 63-64.)

Considering itself "bound by Mastrobuono," the Ninth Circuit in Wolsey, Ltd. v.
Foodmaker, Inc. (9th Cir. 1998) 144 F.3d 1205 (Wolsey), held that a choice-of-law clause
providing that " `[t]his Agreement . . . shall be interpreted and construed under the laws
of the State of California, U.S.A.' " did not incorporate section 1281.2(c). (Id. at
p. 1213.) Wolsey read Mastrobuono as dictating that generic choice-of-law clauses do
not incorporate state procedural rules governing the allocation of authority between
courts and arbitrators. (Wolsey, supra, at pp. 1212-1213.) It determined the choice-of-
law clause before it was "general" and did not contain a specific reference to the state
arbitration rule at issue. (Id. at p. 1212.) Therefore, it proceeded to determine "whether
section 1281.2(c) is a `substantive principle that [California] courts would apply' or is
instead `a special rule[] limiting the authority of arbitrators.'" (Ibid.) Wolsey concluded
that section 1281.2(c) did not affect " `only [California's] substantive rights and
obligations,'" but affects [California's] allocation of power between alternative
tribunals.' [Citation.] It therefore reversed the district court's refusal to compel
arbitration. (Id. at p. 1213.)

8

In
Mount Diablo, supra, 101 Cal.App.4th 711, an opinion published after briefing
was completed in this case, another division of this court wrestled with " `the thorny
question of contract construction raised by the generic choice-of-law clause' in an
agreement calling for the resolution of disputes by arbitration.[6]" (Id. at p. 714.) In a
comprehensive7 and thoughtful opinion, former Judge, now Justice Pollak, distinguished
Mastrobuono and disagreed "with the implicit determination in Wolsey that section
1281.2(c) is ` "a special rule[] limiting the authority of arbitrators"' [citation], as was the
New York rule involved in Mastrobuono." (Mount Diablo, supra, at p. 725.) Justice
Pollak explained that "[t]his view contradicts the characterization of section 1281.2(c) by
the Supreme Court itself not only in Volt . . . . (Volt, supra, 489 U.S. at p. 476, fn. 5) but
in the subsequent decision in Doctor's Associates, Inc. v. Casarotto, supra, 517 U.S. 681.
In rejecting a Montana statute requiring arbitration agreements to contain a particular
form of notice in order to be enforceable, the Supreme Court contrasted that statute with
section 1281.2(c): `The state rule examined in Volt determined only the efficient order of
proceedings; it did not affect the enforceability of the arbitration agreement itself. We
held that applying the state rule would not "undermine the goals and policies of the
FAA," [citation], because the very purpose of the Act was to "ensur[e] that private
agreements to arbitrate are enforced according to their terms.' (517 U.S. at p. 688;
[citation].)" (Mount Diablo, supra, at pp. 725-726.)

Mount Diablo rebuffed the attempt to lump all choice-of-law clauses that do not
explicitly reference arbitration under the rubric "generic," recognizing that "the term has
no precise definition" and pointing out that if such "generic" provision were insufficient
to incorporate state law regarding the enforcement of arbitration agreements without
further elaborating the specific provisions of state law to which it applies, such a
redundancy would also logically be required of other provisions incorporated by choice-

6
"Note, An Unnecessary Choice of Law: Volt, Mastrobuono, and Federal
Arbitration Act Preemption (2002) 115 Harv.L.Rev. 2250, 2251 . . . .)"

9

of-law clauses, "e.g., provisions treating indemnification rights or termination events in
contracts involving the interstate transportation of products.' [Citation.]" (Id. at p. 722.)
Therefore,
Mount Diablo rejected a " `default rule' that `a generic choice-of-law
clause, standing alone, is insufficient to support a finding that contracting parties intended
to opt out of the FAA's default standards.' [Citation.]" (Id. at p. 721.) Rather than
requiring " `extrinsic evidence of the parties' intent to contract out of the FAA's default
regime' " or an express reference to particular state statutes which the parties intend to
incorporate into their agreement, Mount Diablo followed the traditional approach of
attempting to discern the intention of the parties from the language of the agreement,
affirming that the "starting point in the interpretation of the choice-of-law clause, like any
contractual provision, is with the language of the contract itself." (Id. at p. 722.) In
undertaking to discern the parties' intentions from the language of the agreements, the
Mount Diablo court "agree[d] with the observation of the concurring judge in Roadway
Package [System, Inc. v. Kayser (3d Cir. 2001) 257 F.3d 287, cert. den.], . . . that `[t]he
choice-of-law almost invariably is meant to encompass the entire agreement' (id. at p.
308)." (Id. at p. 722.)

The broad choice-of-law clause in Mount Diablo provided that " `[t]he validity,
construction, interpretation and enforcement of this Agreement' shall be governed by
California law." (Id. at p. 722, italics added.) Although the clause was "generic" in the
sense that it does not mention arbitration or any other specific issue that might become a
subject of controversy" (id. at p. 722), it was "nonetheless broad, unqualified and all
encompassing. . . . The explicit reference to enforcement reasonably includes such
matters as whether proceedings to enforce the agreement shall occur in court or before an
arbitrator." (Id. at p. 722.) Moreover, only a "strained" reading of this broad choice-of-
law provision could exclude reference to the chapter in which section 1281.2 appears,

7
Observing that [t]he decisions in Volt and Mastrobuono have given rise to a good
bit of commentary as well as criticism" (id. at p. 720), the Mount Diablo opinion
canvasses that commentary. (Id. at pp. 720-721, and fn. 7.)

10

Chapter 2 of title 9 of part III of the Code of Civil Procedure, titled "Enforcement of
Arbitration Agreements." (Ibid.)

Mount Diablo contrasted this broad and unqualified provision with the choice-of-
law provision of the agreement in Mastrobuono, which provided only that it `"shall be
governed by the laws of the State of New York."' [Citation.]" (Mount Diablo, supra, at
p. 723.) Mount Diablo also contrasted the choice-of-law provision in the agreement
before it with that interpreted by the California appellate court in Warren-Guthrie v.
Health Net, supra, 84 Cal.App.4th 804 (Warren-Guthrie), providing only that "[a]ll
Arbitration shall be conducted in accordance with the California Code of Civil Procedure,
commencing with Section 1280." (Id. at p. 815, italics added; Mount Diablo, supra, at p.
723.)

Based on the narrow language of that choice-of-law clause, Warren-Guthrie
concluded that the parties had not agreed that the enforceability of the arbitration
agreement would be determined by California law. (Warren-Guthrie at pp. 815-816.)
While reaffirming Volt's holding that a petition to compel arbitration may be denied
pursuant to section 1281.2, where the parties have agreed to application of California law
for this purpose, Warren-Guthrie focused upon the use of the term "conducted" in the
narrow choice-of-law provision before it, reasoning: "There is no express language
indicating that California law shall be determinative as to whether or not arbitration is
required. Unlike in Volt, the parties did not agree that California law shall apply for all
purposes. Rather, the agreement limits application of California law to California
contractual arbitration law, and further limits the scope of California law to that
pertaining to the manner in which the arbitration is to be conducted." (Id. at p. 815.) The
"key term" of the choice-of-law provision was "conducted" (ibid.), leading Warren-
Guthrie to conclude that "[a]greement to apply California contractual arbitration law is
expressly limited to that law which bears on how the arbitration shall be conducted, as
distinguished from agreeing the plan shall be governed by California law for all purposes,
including the determination as whether or not arbitration is required. There being no
such express language to the contrary, and in light of the overriding state and federal

11

policy of enforcing privately negotiated agreements to arbitrate in accordance with their
terms [citations]," the court concluded that the choice-of-law provision "does not allow
nonarbitration based on the section 1281.2(c) exception to arbitration. [Citation.]" (Id.,
at p. 816.)

In reconciling the disparate authorities, the Mount Diablo court emphasized the
difference in language of the various choice-of-law clauses being construed, pointing out
that several of the federal cases following Mastrobuono "contain choice-of-law
provisions that use language similar to that in Mastrobuono and Wolsey, to the effect that
the agreement would be governed by the law of a particular jurisdiction, without
reference to enforcement. [Citations.]" (Id. at p. 723.) The significance of this
difference in language was recognized in Warren-Guthrie, supra, and by the Court of
Appeals of New York in Smith Barney, etc. v. Luckie (1995) 85 N.Y.2d 193.) (Id. at
p. 724 [language that New York law governs the agreement and its enforcement indicates
intent to arbitrate to the extent allowed by New York law, even if application of state law
would relieve parties of their responsibility under the contract to arbitrate].) (Mount
Diablo, supra, at p. 724.)

Having determined that the language of the choice-of-law clause before it was
"unquestionably" "broad enough to include state law on the subject of arbitrability,"
Mount Diablo proceeded to analyze "whether the particular provision of state law in
question is one that reflects a hostility to the enforcement of arbitration agreements that
the FAA was designed to overcome. If so, the choice-of-law clause should not be
construed to incorporate such a provision, at least in the absence of unambiguous
language in the contract making the intention to do so unmistakably clear. In
Mastrobuono itself, the state law in question would have denied an arbitrator the ability
to award the same relief as a court, and the Supreme Court held that the ambiguity in the
contract should be resolved by reading the choice-of-law clause `not to include special
rules limiting the authority of arbitrators.' (Mastrobuono, supra, 514 U.S. at p. 64 . . . .)"
(Id. at p. 724.) Cases concluding application of state law would contravene the FAA,
often involved state rules, like the New York rule in Mastrobuono, that "tended to restrict

12

rather than to facilitate the use of arbitration . . . ." (Id. at p. 725.) In contrast, "where the
state arbitration provision is not inconsistent with the FAA policy of enforcing arbitration
procedures chosen by the parties, choice-of-law clauses making no explicit reference to
arbitration commonly have been interpreted to incorporate the state's law governing the
enforcement of arbitration agreements. [Citations.]" (Id. at p. 725.)

Mount Diablo recognized that section 1281.2(c) 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. That was
the explicit holding in Volt and nothing in Mastrobuono casts doubt on that conclusion."
(Id. at p. 726.) Mount Diablo therefore concluded that section 1281.2(c) was not
designed to discourage the use of arbitration or to limit the rights of parties choosing to
arbitrate. (Ibid.)

Having determined that the language of the choice-of-law provision was broad
enough to incorporate section 1281.2(c) and that the statute did not reflect a hostility to
the enforcement of arbitration agreements and was not inconsistent with the FAA policy
of enforcing arbitration procedures chosen by the parties, Mount Diablo affirmed the
superior court order denying the petition to compel arbitration. (Id. at pp. 724-727.)

The choice-of-law clause in the case before us is of similar breadth to that
interpreted in Mount Diablo, providing that the contract "shall be governed by, construed,
and enforced in accordance with the laws of the State of California, exclusive of conflicts
by laws provisions." (Italics added.) We agree with Mount Diablo, that such broad
language--particularly use of the term "enforced" evinces the intention of the parties to
apply California law (including section 1281.2(c)) to enforcement of the agreement.

Nothing in the arbitration clause itself is inconsistent with our reading of the
choice-of-law clause presented here. Tuthill and SSW contend that the specific

13

references to other sections of California's arbitration law, specifically sections 1282.6
[issuance of subpoenas], 1283 [depositions], and 1283.05 [manner of taking depositions],
demonstrate an intent to exclude other provisions not specifically mentioned, including
section 1281.2(c). We disagree. These particular code sections are included in the
arbitration clause itself, which sets forth the rules by which the arbitration is to be
conducted. That clause provides for arbitration in accordance "with the Construction
Industry Arbitration Rules of the American Arbitration Association then prevailing as
supplemented by Sections 1282.6, 1283 and 1283.05 . . . ." Specifying the particular
rules under which the arbitration is to be conducted does not conflict with the parties'
choice of California law to govern how the agreement is enforced. (See Warren-Guthrie,
supra, at p. 815; Mount Diablo, supra, at pp. 723-724.) The subcontracts clearly require
that they be "enforced" according to California law and we construe them to incorporate
section 1281.2(c). Nothing in the arbitration provision or any other provision of the
subcontracts conflicts with this choice-of-law or creates an "ambiguity" which must be
resolved in favor of FAA preemption of section 1281.2(c). (See Moses H. Cone Hospital
v. Mercury Constr. Corp. (1983) 460 U.S. 1, 24-25.)

Nor do we find Mastrobuono requires a different result. As Mount Diablo
explains, the circumstances in that case were very different from those involved in the
present case. The choice-of-law clause at issue in Mastrobuono was considerably
narrower than that present here. Moreover, the New York arbitration law at issue in
Mastrobuono "would have denied an arbitrator the ability to award the same relief as a
court" in contravention of the FAA and it tended to restrict the use of arbitration. In
contrast, section 1281.2(c) is not inimical to or discouraging of arbitration, but rather "is
part of California's statutory scheme designed to enforce the parties' arbitration
agreements, as the FAA requires." (Mount Diablo, supra, at p. 726.) The statute
addresses a particular problem arising in when an arbitrable controversy affects claims by
or against others not bound by the arbitration agreement. By giving the trial court
discretion not to compel arbitration in order to avoid potential inconsistency in outcome

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and duplication of effort, section 1281.2(c) contravenes neither the letter nor the spirit of
the FAA. (Mount Diablo, supra, at p. 726.)

SSW relies extensively upon Energy Group, Inc. v. Liddington (1987) 192
Cal.App.3d 1520 which held that section 1281.2(c) applied only to contracts subject to
arbitration and was therefore preempted by the FAA to the extent it was used to avoid or
delay arbitration. (Id. at pp. 1522, 1528.) The case predates Volt and the court did not
undertake to interpret the contract to determine whether the parties intended to
incorporate section 1281.2(c) Volt, Mastrobuono, and subsequent cases have rendered its
analysis obsolete. We agree with the analysis of Mount Diablo and reiterate the
observation of the Supreme Court in Volt that California's arbitration laws generally
foster the goals of the FAA and that "California has taken the lead in fashioning a
legislative response to this problem [of multiparty contractual disputes leading to
potentially inconsistent rulings and contradictory judgments]. . . ." (Volt, supra, 489 U.S.
at p. 476, fn. 5.) Insofar as Warren-Guthrie, supra, and Energy Group, Inc. v.
Liddington, supra, could be viewed as supporting the proposition that the FAA bars the
operation of section 1281.2(c) solely because it constitutes a special rule for arbitration,
without examining the roots of the rule, we believe they were wrongly decided.

In summary, the subcontracts call for arbitration of disputes. By providing in a
broad conflict-of-law clause that the contract "shall be governed by, construed, and
enforced in accordance with the laws of the State of California, exclusive of conflicts by
laws provisions," the parties to the subcontracts demonstrated an intention to incorporate
section 1281.2(c) and thus agreed to allow a court to stay arbitration in situations falling
within the scope of that statute. As the Supreme Court recognized in Volt, section
1281.2(c) is not hostile to the goals and policies of the FAA, and the FAA does not
preempt the statute in these circumstances. (Id. at p. 1324.)
Disposition

The order denying Tuthill and SSW's petition to compel arbitration is affirmed.
Regents shall recover costs on appeal.

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