California Case Underscores Importance of Arbitration Choice-of-Law Provisions


The California Court of Appeal recently upheld the denial of a motion to compel arbitration because the parties’ arbitration agreement contained a choice-of-law provision selecting California law without also selecting applicable federal law – specifically, the Federal Arbitration Act (FAA). In the same case, however, the court required arbitration of claims against a different defendant because that defendant’s agreement contained a Nebraska choice-of-law provision. Particularly for companies that face consumer litigation potentially involving multiple defendants, the case illustrates the importance of drafting choice-of-law provisions with arbitration in mind.

Three Defendants, Two Arbitration Agreements -

Mastick v. TD Ameritrade, Inc. involved three defendants: an accountant, an investment management company (Oakwood), and a broker-dealer (TD Ameritrade). Two of the three defendants moved to compel arbitration of the plaintiff's claims – Oakwood with the American Arbitration Association (AAA) and TD Ameritrade with the Financial Industry Regulatory Authority (FINRA) – and to stay plaintiff’s action. The plaintiff had no arbitration agreement with the accountant, but she had agreed to arbitrate any disputes with Oakwood before the AAA and any with TD Ameritrade before FINRA. Plaintiff’s agreements with Oakwood stated that the parties would be governed by California law, and her agreements with TD Ameritrade provided that the parties would be governed by Nebraska law.

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