Federal Arbitration Act Preempts Contrary California Law and Prevents Purchaser of Real Property from Bringing an Action in Court for Construction and Design Defects

Posted on April 5, 2007 by Sheppard Mullin

Shepard v. Edward Mackay Enterprises, Inc., et al., --- Cal. Rptr. 3d ---, No. C052564, 2007 WL 853456 (Cal. Ct. App. Mar. 22, 2007)

While Section 1298.7 of the California Code of Civil Procedure generally allows homebuyers to pursue defect litigation in court regardless of an agreement to arbitrate, the Third District Court of Appeal recently ruled the Federal Arbitration Act preempts California law and binds homebuyers to arbitration provisions when the transaction involves interstate commerce.  Because homes built in California today likely incorporate at least some construction materials originating outside the state and therefore implicate interstate commerce, the court's ruling may effectively preclude homebuyers from relying on this section of the Code of Civil Procedure to avoid arbitration.

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Court Of Appeal Vacates $3 Million Arbitration Award Because Arbitrator Failed To Make Timely Disclosures

Posted on November 10, 2005 by Sheppard Mullin

By Robert T. Sturgeon

The California Court of Appeal has vacated an arbitration award of over $3 million in damages and attorney's fees on the grounds that the arbitrator failed to disclose that he would entertain offers to serve as an arbitrator in other cases involving the parties or their attorneys, and failed to timely disclose that he had been engaged to serve as an arbitrator in a separate arbitration involving the attorneys for one of the parties. While this case did not involve parties in the construction industry, given the prevalence of arbitration agreements in construction contracts, it is noteworthy for construction industry professionals because it illustrates some potential pitfalls of contractual arbitrations.

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