California Arbitration Law: Stay of Judicial Proceedings Pending Arbitration

The California Court of Appeals has determined that when an ongoing arbitration and lawsuit necessarily require the resolution of a common issue, judicial proceedings must be stayed pending arbitration. The Court found stays mandated despite an opposing litigating party’s status as a non-party to the arbitration agreement.

In Sony BMG Music Entm’t v. Super. Ct., No. B212888, 2009 WL 543735 (Cal.App. 2 Dist. Mar 5, 2009), employment was terminated for personal managers Stephen Stewart-Short and Michael Rosenblatt, of the musical group Augustana. In response, Stewart-Short and Rosenblatt initiated two proceedings: arbitration against Augustana pursuant to an arbitration agreement and a lawsuit against Sony and Peter Giberga, a Sony executive, who were both non-parties to the arbitration agreement. The arbitration claim was based on breach of contract theories, while the lawsuit asserted intentional and negligent interference in the managers’ services. The trial was set to begin six weeks before the arbitration.

Sony moved to issue a stay of the trial court action pending conclusion of the arbitration pursuant to the California Code of Civil Procedure § 1281.4 and a recent holding in Heritage Provider Network, Inc. v Sup. Ct., 158 Cal.App.4th 1146 (2008). However, the trial court denied Sony’s motion, stating in relevant part: “A decision in this court is likely to assist the parties in any arbitration proceeding, and ultimately, there is no policy reason to defer a properly filed lawsuit where the parties are different in order to allow arbitration, with, again, different parties to proceed.” The Court of Appeal reversed and ordered the proceedings stayed pending arbitration.

The Court determined that when ongoing arbitration proceedings involve the same wrongful conduct subject of judicial proceedings, a court must stay its proceedings pending arbitration. The court highlighted that a single overlapping issue is enough to mandate a stay. Heritage, 158 Cal.App.4th at 1153.

The Court found that that Stewart-Short and Rosenblatt commenced arbitration against one party for breach of contract, and sued a different party for alleged interference with that same contract. The Court concluded that the evidence to be introduced on the alleged interference claim would necessarily overlap with the evidence to be introduced in arbitration. The Court stated that, in essence, the same story would have to be told, involving the same documents and many of the same witnesses testifying about the same events. As a result, the Court ordered the stay of the superior court case pending arbitration, reasoning that, even though different parties were involved in the commenced arbitration and pending lawsuit, both proceedings necessitate the resolution of overlapping issues.

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