Opinion ID: 1860623
Heading Depth: 2
Heading Rank: 1

Heading: Permissive Arbitration

Text: IMS contends that the trial court's order ... should be upheld regardless of whether KSEA refused to mediate IMS's claims because the arbitration provision expressly provides that arbitration is optional to the aggrieved party, not mandatory. Brief of Appellee, at 30 (emphasis in original). This point is evident, IMS continues, from the language of the provision, which uses the mandatory verb `shall' in reference to mediation but uses the permissive verb `may' with regard to arbitration. Id. (emphasis in original). In this connection, § XII provides: A. Except as otherwise specifically provided for herein, any dispute relating to whether a material breach of this agreement has occurred by any party... shall initially be attempted to be resolved by the involved parties through non-binding mediation to be commenced within 30 days following expiration of the period for cure of a noticed breach.... B. If within 30 days after the commencement of mediation, a resolution of the dispute has not been achieved, the dispute may thereafter be submitted by any party to binding arbitration under the commercial rules of the American Arbitration Association then in effect.... (Emphasis added.) We disagree with IMS. Its construction of these provisions is contrary to logic and to the weight of authority, both California and federal. The California rule was thoroughly discussed in Erickson v. Aetna Health Plans of California, 71 Cal.App.4th 646, 84 Cal.Rptr.2d 76 (1999). In that case, Aetna Health Plans of California, Inc. (Aetna), appealed from an order denying its motion to compel arbitration of a dispute over its duty to provide cancer treatment.... under a [replacement Medicare] plan called Senior Choice. Id. at 649, 84 Cal.Rptr.2d at 78. The arbitration provision, which was included in the Senior Choice handbook, provided: `If you are not satisfied with the [grievance panel's] proposed resolution, you may request binding arbitration.' Id. (emphasis added). The insured argued that the word may rendered arbitration voluntary. Id. at 659 n. 6, 84 Cal.Rptr.2d at 83, n. 6. The California Court of Appeal for the Fourth District rejected that argument. In doing so, it first set forth the general framework in which California construes agreements to arbitrate, stating: `California law incorporates many of the basic policy objectives contained in the FAA, including a presumption in favor of arbitrability....' 71 Cal.App.4th at 655, 84 Cal.Rptr.2d at 82. Thus, even in non-FAA cases, courts `are guided by the rule that, contractual arbitration being a favored method of resolving disputes, every intendment will be indulged to give effect to such proceedings.' Id. (some internal quotation marks omitted). Next, the court discussed the legal effect of the word may in the arbitration context. It explained: The parties have not identified any authority construing the precise language at issue here, and we are aware of none. They do, however, cite three decisions which are instructive, as all concerned agreements which, like the present one, provided that disputes `may' be submitted to arbitration. In the first, Service Employees Internat[ional] Union, Local 18 v. American Building Maintenance Co., (1972) 29 Cal.App.3d 356 [105 Cal.Rptr. 564] ( Service Employees ), the agreement provided that `the issue in dispute may be submitted to an impartial arbitrator.' ( Id., at p. 358 [, 105 Cal.Rptr. 564], italics omitted.) The court held the clause provided for mandatory rather than consensual arbitration. Since the parties always could elect consensual arbitration without a contract provision, interpretation of the clause to require only consensual arbitration would make the provision of little purpose. ( Ibid ). The court concluded the word `may' in this context merely meant a party who did not want arbitration had the option to abandon the claim. ( Id., at p. 360 [, 105 Cal.Rptr. 564].) In Titan Group, Inc. v. Sonoma Valley [County] Sanitation Dist., [164 Cal. App.3d 1122, 211 Cal.Rptr. 62 (Ct.App. 1985)] ( Titan ), the agreement similarly stated that disputes `may' be subject to the decision of a third person to be agreed upon by the parties. However, it also provided that all disputes `... will be decided by arbitration if the parties hereto mutually agree, or in a court of competent jurisdiction within the State in which the owner is located.' ( Id., at p. 1125 [, 211 Cal.Rptr. 62], original and added [emphasis].) The court found no mandatory arbitration requirement, distinguishing Service Employees on the basis that the agreement in that case made no mention of a court proceeding as an available option. ( Id., at p. 1129 [, 211 Cal.Rptr. 62].) In Pacific Gas and Electric Co. v. The Superior Court of Sutter County, [15 Cal.App.4th 576, 19 Cal.Rptr.2d 295 (Ct.App.1993)] ( Pacific Gas & Electric ), the agreement stated disputes `may be submitted' by either party to arbitration. ( Id., at p. 595 [, 19 Cal.Rptr.2d 295].) The court concluded this provision mandated arbitration, stating, `In this context the may signifies the right of the party to invoke arbitration.' ( Ibid ). Applying these decisions, and keeping in mind the policy, discussed ante, favoring construction of agreements in favor of arbitration, we conclude the provision in this case should be interpreted to require arbitration rather than merely to permit it. As did the courts in Service Employees and Pacific Gas & Electric, we construe the permissive language to mean simply that a member may, in lieu of proceeding to arbitration, merely forgo further review and accept the proposed resolution of the grievance panel. 71 Cal.App.4th at 656-57, 84 Cal.Rptr.2d at 83 (some internal quotation marks omitted). Consequently, the court reversed the order of the trial court denying Aetna's motion to compel arbitration. Erickson is fully consistent with cases from federal courts addressing similar language. See, e.g., Held v. National R.R. Passenger Corp., 101 F.R.D. 420, 424 (D.D.C.1984) ([T]he use of the word `may' in an arbitration agreement does not imply that the parties to the agreement have the option of invoking some remedy other than arbitration.); Austin v. Owens-Brockway Glass Container, Inc., 78 F.3d 875, 879 (4th Cir.) (If the parties to such an agreement intended for arbitration to be permissive, there would be no reason to include... the arbitration provision in the contract, for the parties to an existing dispute could always voluntarily submit it to arbitration), cert. denied, 519 U.S. 980, 117 S.Ct. 432, 136 L.Ed.2d 330 (1996); American Italian Pasta Co. v. Austin Co., 914 F.2d 1103, 1104 (8th Cir.1990); Atkins v. Louisville & Nashville R.R., 819 F.2d 644, 648-49 (6th Cir.1987) (arbitration was mandatory, despite language stating that disputes may be referred by either party to an arbitration committee); Bonnot v. Congress of Indep. Unions, Local No. 14, 331 F.2d 355, 359 (8th Cir.1964); Deaton Truck Line, Inc. v. Local Union 612, 314 F.2d 418, 422 (5th Cir.1962); McCrea v. Drs. Copeland, Hyman & Shackman, P.A., 945 F.Supp. 879, 881 (D.Md.1996); Block 175 Corp. v. Fairmont Hotel Mgmt. Co., 648 F.Supp. 450 (D.Colo.1986). Moreover, IMS's argument that the Agreement makes arbitration optional to the aggrieved party, Brief of Appellee, at 30 (emphasis added and omitted), directly contradicts the express language of § XII.B. Specifically, that section begins: If within 30 days after the commencement of mediation, a resolution of the dispute has not been achieved, the dispute may thereafter be submitted by any party to binding arbitration under the commercial rules of the American Arbitration Association then in effect.... Thus, the right to proceed in arbitration is not secured for the aggrieved party only, as IMS contends, but for all parties. As a logical and practical matter, this provision can only mean what KSEA contends that § XII provides, namely, that neither party may force the other party into a judicial forum. Under the rules set forth in Erickson, IMS and KSEA merely agreed, either to arbitrate their disputes, or, to forgo further review and accept the [status of the dispute after mediation]. 71 Cal. App.4th at 657, 84 Cal.Rptr.2d at 83.