“Applicable State Law” Does Not Include Preempted State Law

Sahei v. White Memorial Med. Cntr., No. B283217 (D2d8 Mar. 14, 2018)

Under California law, special protections are required before party can agree to arbitrate claims brought under the Ralph and Bane Civil Rights Acts. See Civil Code § 51.7, 52.1. These protections, however, are preempted by the FAA, which doesn’t permit states to enact special rules that discriminate against or are hostile to arbitration. On the other hand, preemption won’t apply if the agreement isn’t governed by the FAA or if parties nonetheless agree that their agreement to arbitrate will be governed exclusively by preempted California law.

In this case, the parties’ agreement specifically carved out from the scope of arbitration several categories of generally non-arbitrable claims, as well as “any claim that is non-arbitrable under applicable state or federal law.” So the question comes down to contract interpretation: Does “applicable state law” mean the Ralph and Bane Acts as written, or as applied, i.e., baking in the fact that their anti-arbitration provisions are preempted. Following the U.S. Supreme Court’s 2015 decision in DIRECTV v. Imbrugia, the Court takes the as-applied approach. “Applicable state law” incorporates the idea that some state laws are preempted, so the FAA trumps the Ralph and Bane Acts on the arbitrability question.

Reversed.