Originally from World Arbitration And Mediation Review (WAMR)

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NATIONAL ARBITRATION FORUM

CASE SUMMARIES
Provided by Ryan Chandlee∗ & Kirk Knutson**

I. CALIFORNIA COURT ERRS BY HOLDING HEARING AFTER, NOT
BEFORE, MOTION TO COMPEL ARBITRATION
A California court of appeal held that a trial court erred by holding an
evidentiary hearing after, not before, denying a motion to compel
arbitration. This sequence of proceedings improperly relieved the opposing
party of its burden of showing that the arbitration agreement was
unenforceable.
In Hotels Nevada v. L.A. Pacific Center, Inc., 50 Cal.Rptr.3d 700 (Cal.
Ct. App. 2006), Hotels Nevada and L.A. Pacific were negotiating the sale of
two Las Vegas properties. After the parties signed a purchase agreement, a
dispute arose over the repayment period contemplated by a $5 million
“holdback” provision. When Hotels Nevada sued for fraud, L.A. Pacific
moved to compel arbitration pursuant to the purchase agreement.
L.A. Pacific satisfied its initial burden of proof by “quoting the pertinent
portions of the arbitration clause” in its motion papers. The trial court,
however, denied the motion to compel arbitration, finding that L.A. Pacific
failed to meet its burden because the allegations in Hotels Nevada’s
complaint would render the contract and arbitration clause unenforceable.
The trial court also found that the allegations in Hotels Nevada’s complaint
required an evidentiary hearing as to whether there was a meeting of the
minds on “material issues” in the contract.
On appeal, the court found that the trial court misapplied the burdens of
proof. As the court observed, a court must determine facts relevant to the
enforcement of an arbitration agreement before denying a motion to compel
arbitration. Instead of proceeding in this manner, the lower court denied the
motion to compel arbitration based solely on the allegations in Hotels
Nevada’s unverified complaint.
The proper procedure, the court held, was to hold an evidentiary hearing
after L.A. Pacific satisfied its initial burden of introducing the arbitration
agreement. At that hearing, the burden would shift to Hotels Nevada to
show that no arbitration agreement existed. Hotels Nevada would have to