Arbitration clause not enforced when possibility of inconsistent ruling exists in pending action

By:  Philip H. Lo

The California Court of Appeal, Second District, in Lindemann v. Hume, upheld the denial of a motion to compel arbitration pursuant to California Code of Civil Procedure section 1281.2(c), which states that an arbitration need not be ordered if a “party to the arbitration agreement is also a party to a pending court action or special proceeding 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.”  An action by a home buyer against the seller and seller’s agent, on the one had and the developer, for negligence, construction defect and non-disclosure, survived the seller’s motion to compel arbitration and subsequent appeal.  The appellate court held that though nondisclosure claims against vendors arise from the same series of transactions as negligent design and construction claims against the builder, the risk of inconsistent rulings precluded arbitration.

Practical note:  While arbitration clauses are all but standard language inserts, compelling arbitration is not entirely guaranteed.  The presence of non signatories or “third parties” can eliminate the once iron clad arbitration clause.  This case makes it clear that one only need the “possibility” of inconsistent rulings is sufficient to preclude arbitration.

For your reading pleasure:  Lindemann v. Hume

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