One of the reasons parties to a legal dispute opt for arbitration is because that method of alternative dispute resolution usually offers a much faster timeframe than going to court. Accordingly, numerous contracts include language requiring disagreements to be resolved by an arbitrator rather than in a courtroom. However, until the passage of a new California law, conflicts over the application of arbitration clauses were making some cases run much longer. 

Known as SB 365, the new law significantly alters the arbitration landscape by eliminating the automatic stay of trial proceedings when a motion to compel arbitration is denied. Previously, if a trial court refused to send a case to arbitration, the underlying lawsuit would be automatically paused once the party seeking arbitration filed an appeal. Now, trial proceedings can move forward even while an appeal is pending, which may have important consequences for arbitration and litigation strategies.

Given the amount of time it can take an appellate court to review an order and issue a decision of its own, some parties benefited from the litigation delay even if their effort to compel arbitration ultimately failed. Under the new law, a trial court has the discretion to determine whether the case should continue. This likely will persuade litigants to consider the merits of an appeal more carefully rather than using the proceeding as a stall tactic. Parties also now face the risk of parallel proceedings—appealing the arbitration denial while simultaneously preparing for trial.

The new law does present the risk that meritorious appeals will be discouraged as parties fear incurring additional costs and being spread too thin. Should the appellate court issue a reversal and order arbitration, the time, effort and cost associated with discovery, pre-trial motions, and trial preparation would be squandered. 

California has long supported arbitration as a tool to reduce the strain on the court system, and SB 365 seems to be another step in this direction. By keeping cases moving, removing the automatic stay might encourage parties to resolve disputes more quickly. Parties may be more inclined to negotiate settlements rather than face the expense of litigation alongside arbitration appeals.

Should your case go to arbitration, your top priority should be finding a qualified neutral with substantial experience arbitrating complex disputes. At Quinn & Kronlund LLP in Stockton, we are attorneys who arbitrate a wide range of cases throughout northern California. To discuss your specific needs, please call 209-943-3950 or contact us online.