## Facts

- Volt Information Sciences, Inc. and Stanford University’s board entered a construction contract for electrical conduit installation on Stanford’s campus.
- The contract included (1) an arbitration clause covering all disputes arising out of the contract and (2) a choice-of-law clause selecting the law of the place where the project was located (California).
- A payment dispute arose concerning extra work allegedly performed by Volt, and Volt demanded arbitration.
- Stanford filed suit in California state court alleging fraud and breach of contract against Volt and seeking indemnity from two additional entities not bound by the Volt–Stanford arbitration agreement.
- Stanford moved to stay the arbitration under California Code of Civil Procedure § 1281.2(c), which allows a stay when related litigation with a third party could create inconsistent rulings on common issues.
- The trial court stayed arbitration and denied Volt’s motion to compel arbitration; the California Court of Appeal affirmed, concluding the choice-of-law clause incorporated California arbitration procedures, including § 1281.2(c), and that the FAA did not preempt applying § 1281.2(c).
- The U.S. Supreme Court granted review to address the FAA preemption question in light of the state courts’ contract interpretation.

## Issues

1. Whether the contract’s choice-of-law clause incorporated California arbitration procedures, including California Code of Civil Procedure § 1281.2(c), into the parties’ arbitration agreement.
2. If incorporated, whether applying § 1281.2(c) to stay arbitration is preempted by the Federal Arbitration Act in a contract involving interstate commerce.

## Decision

- The Supreme Court affirmed (6–2).
- The Court accepted the state court’s determination, as a matter of state contract law, that the choice-of-law clause incorporated California arbitration procedures, including § 1281.2(c).
- The Court held the FAA did not preempt enforcement of § 1281.2(c) in these circumstances because the FAA’s primary function is to enforce arbitration agreements according to the parties’ terms, and the parties’ terms allowed the stay.

## Legal Principles

- The FAA does not confer an unconditional right to compel immediate arbitration; it requires that arbitration proceed “in the manner provided for” in the parties’ agreement.
- State-law rules that affect the timing or conduct of arbitration are not preempted when they are applied because the parties, through their contract (including a choice-of-law clause), selected those rules.
- The FAA’s central objective is enforcement of private arbitration agreements as written; it does not require arbitration to be compelled in every situation irrespective of contractual limitations the parties adopted.
- A state rule is more likely to be displaced by the FAA when it reflects hostility to arbitration or undermines enforceability of arbitration agreements as a class; a neutral procedural rule applied by contractual incorporation is consistent with the FAA.

## Conclusion

The Court held that, where contracting parties select California law and state courts interpret that choice to incorporate California arbitration procedures, the FAA does not preempt applying California Code of Civil Procedure § 1281.2(c) to stay arbitration pending related third-party litigation.


Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468 (1989)