{"id":279581,"date":"2023-12-07T14:02:19","date_gmt":"2023-12-07T13:02:19","guid":{"rendered":"https:\/\/dailyjus.com\/?p=279581"},"modified":"2023-12-01T14:22:34","modified_gmt":"2023-12-01T13:22:34","slug":"arbitrating-offshore-wind-project-disputes-in-california","status":"publish","type":"post","link":"https:\/\/dailyjus.com\/index.php\/2023\/12\/07\/arbitrating-offshore-wind-project-disputes-in-california\/","title":{"rendered":"\u00a0Arbitrating Offshore Wind Project Disputes in California\u202f"},"content":{"rendered":"\n
\n

This article was featured in our 2023 Construction Arbitration Report, which is part of a series of industry-focused arbitration reports<\/strong><\/a> edited by Jus Connect<\/a><\/strong> and Jus Mundi<\/strong><\/a>.<\/strong> <\/p>\n\n\n\n

This issue explores the construction industry and presents a goldmine of information based on data available on Jus Mundi<\/a> and Jus Connect <\/a>as of May 2023<\/strong>. Discover updated insights into construction arbitration and exclusive statistics & rankings, as well as in-depth global and regional perspectives on construction projects, disputes, & arbitration from leading lawyers, arbitrators, experts, arbitral institutions, and in-house counsel. <\/p>\n\n\n\n

\n
Download it now<\/a><\/div>\n<\/div>\n<\/blockquote>\n\n\n\n
<\/div>\n\n\n\n
\n\n\n\n

THE AUTHORS:<\/strong>
Nathan O\u2019Malley<\/strong><\/a>, Partner at Musick Peeler<\/strong><\/a>
Giorgio Sassine<\/strong>, Associate at Musick Peeler<\/strong><\/a> <\/p>\n\n\n\n

\n\n\n\n
<\/div>\n\n\n\n

Through government initiatives and legislation, California\u2019s offshore wind project market is expanding exponentially. The 100 Percent Clean Energy Act requires California to be carbon neutral by 2045. As part of the effort to move the State to total reliance on renewable energy,  California (through collaboration with the Federal government) has initiated steps towards bringing two large offshore wind projects into development: the Humboldt Wind Energy Area and the Morro Bay Wind Energy Area. The projects will have the combined potential to generate up to 4.6 gigawatts of renewable energy. <\/p>\n\n\n\n

To address the business, policy, and legal issues raised by the future of offshore wind energy in California, Musick Peeler & Garrett LLP hosted a Law & Policy Roundtable in April 2023, in collaboration with the University of Southern California\u2019s Schwarzenegger Institute for State and Global Policy, the USC Gould School of Law, and the Energy Industries Council. This Report expands on the topics addressed during the Roundtable and provides an overview of some of the most important laws and cases of direct relevance to parties who arbitrate renewable energy disputes in California.\u00a0<\/p>\n\n\n\n

<\/div>\n\n\n\n

Foreign Attorneys Can Participate in International Arbitrations Seated in California\u00a0<\/strong><\/h2>\n\n\n\n

In 2018, California\u2019s legislature passed legislation<\/a> expressly permitting non-California lawyers to appear in international arbitrations in California without any registration or local counsel requirements. Prior to then, the California Supreme Court considered in Birbrower, Montalbano, Condon & Frank v. Superior Court<\/em><\/a> whether California\u2019s unauthorized practice of law statute precluded non-California licensed attorneys from participating in arbitrations seated in California. The Supreme Court concluded the unauthorized practice of law statute applied to arbitration. In response to Birbrower<\/em>, California\u2019s legislature adopted a pro hac vice <\/em>approach for out-of-state attorneys, but the law did not address foreign attorneys. Through much effort from California\u2019s international arbitration community, this issue was resolved and foreign attorneys can now participate in arbitrations seated in the State<\/a>. <\/p>\n\n\n\n

The Federal Arbitration Act Typically Applies, But Parties May Agree to Use the California Arbitration Act\u202f <\/p>\n\n\n\n

Nearly all international arbitrations in California are governed by the Federal Arbitration Act<\/a> (the \u201cFAA\u201d). However, California has also enacted its own international arbitration law, i.e., the California International Arbitration and Conciliation Act<\/a> (the \u201cCAA\u201d). California was the first state in the United States to adopt its own international arbitration law and based it on the UNCITRAL Model Law<\/a>. Legislation is currently pending<\/a> to amend the CAA in order to update it to be in line with the 2006 amendments to the Model Law and addresses various issues including the form of the arbitration agreement<\/a> and interim measures. Federal courts have held<\/a> that parties who want to opt out of the FAA must specify their choice for the CAA in the agreement to arbitrate.\u00a0<\/p>\n\n\n\n

<\/div>\n\n\n\n

Arbitrations with California-based Contractors Involving Public and Private Work Projects in the State Must be Seated in California<\/strong>\u202f\u00a0<\/h2>\n\n\n\n

California law requires any dispute resolution clause in a contract between a contractor and a subcontractor with its principal offices in California for the construction of public or private works in the State to designate a California seat<\/a>. A failure to do so renders the provision void and unenforceable.  <\/p>\n\n\n\n

In particular, California Civil Procedure Code \u00a7 410.42 voids any provision  <\/p>\n\n\n\n

\n

\u201cwhich purports to require any dispute between the parties to be litigated, arbitrated, or otherwise determined outside [California]<\/em>\u201d  <\/p>\n<\/blockquote>\n\n\n\n

and is  <\/p>\n\n\n\n

\n

\u201cbetween the contractor and a subcontractor with principal offices in [California], for the construction of a public or private work of improvement in this state<\/em>\u201d.   <\/p>\n<\/blockquote>\n\n\n\n

\n

This also includes any provision \u201cwhich purports to preclude a party from commencing such a proceeding or obtaining a judgment or other resolution in [California] or the courts of [California]<\/em>\u201d.  <\/p>\n<\/blockquote>\n\n\n\n

California Civil Procedure Code \u00a7 410.42 has also been applied by California state courts<\/a> to hold a contract provision requiring mediation in another State to be void.\u00a0<\/p>\n\n\n\n

<\/div>\n\n\n\n

Competence \u2013 Competence in California<\/strong> \u00a0<\/h2>\n\n\n\n

The principal of competence-competence<\/a> does not automatically apply<\/a> for those arbitrations falling under the FAA. Where issues arise as to the arbitral jurisdiction, the parties must \u201cclearly and unmistakably<\/a>\u201d delegate to the arbitrator  by virtue of the agreement to arbitrate, the power to determine their own jurisdiction<\/a>, or otherwise U.S. federal courts will decide such matters. <\/p>\n\n\n\n

Most of the popular arbitration rules will include specific provisions delegating to the arbitrator the power to consider and rule on their own jurisdictional competence. Many state and federal courts have found that the incorporation of such rules into an agreement to arbitrate is sufficient to meet the clear and unmistakable test, thus, ousting federal courts of their presumptive jurisdiction in this area in favor of arbitrators. In the Ninth Circuit case of Portland GE v. Liberty Mut. Ins. Co<\/em><\/a>., which was successfully argued by Musick Peeler, the top federal appellate court for California ruled that the provisions of the ICC Rules of Arbitration<\/a> effectively delegate to arbitrators the ability to rule on jurisdictional challenges. <\/p>\n\n\n\n

Therefore, when the FAA applies, parties to an arbitration agreement seated in California may expect that in most cases where modern and well used rules, such as those of the ICC<\/a> or AAA-ICDR<\/a>, apply, the competence-competence rule will be upheld.\u00a0\u00a0<\/p>\n\n\n\n

<\/div>\n\n\n\n

Conditions Precedent in Escalating Dispute Resolution Clause Must Be Followed\u202f\u00a0<\/strong><\/h2>\n\n\n\n

Escalating dispute resolution clauses are often used in construction and renewable energy project agreements. An escalation clause typically requires the parties to engage in a series of steps, such as negotiations and mediation before submitting the dispute to final adjudication. Often times, the steps before submitting the dispute to final adjudication are conditions precedent, meaning that the parties cannot submit to litigation or arbitration unless and until they complete the antecedent phases.  <\/p>\n\n\n\n

For arbitrations seated in the United States, the U.S. Supreme Court held in BG Group PLC<\/em> v. Republic of Argentina<\/em><\/a> <\/em>that \u201ccourts presume that the parties intend arbitrators, not courts, to decide disputes about the meaning and application of particular procedural preconditions for the use of arbitration<\/em>\u201d. Thus, whether certain conditions precedent have been followed will be for arbitrators to decided, and this principal holds for arbitrations seated in California under the FAA.  <\/p>\n\n\n\n

The above notwithstanding, where the parties have agreed to require certain pre-arbitration steps, the courts may require such actions to be taken before compelling arbitration. For example, in Synopsys, Inc. v. Siemens Indus. Software<\/em><\/a>, Siemens moved to stay the action under the FAA, arguing that the parties agreed to resolve any dispute under their licensing agreement pursuant to arbitration. However, the Northern District of California found that \u201cthe conditions precedent for arbitration set out in the licensing agreement have not yet been met and there is currently no ripe issue referable to arbitration<\/em>\u201d.  <\/p>\n\n\n\n

The holding and reasoning in Synopsys<\/em> has been followed in other cases, including in Mosotwfi v. I2 Telecom Int\u2019l, Inc<\/em><\/a>., Chess v. CF Arcis IX LLC<\/em><\/a>, and Lopez v. Fountain View Subacute & Nursing Ctr., LLC<\/em><\/a>. According to this line of authority, the FAA does not even apply until the arbitration provision has been appropriately activated.  <\/p>\n\n\n\n

Therefore, parties whose arbitration is governed by an escalation clause should be mindful of compliance with those pre-arbitration steps prior to initiating proceedings.\u00a0<\/p>\n\n\n\n

<\/div>\n\n\n\n

Arbitrators Do Not Have the Power to Issue Third-Party Subpoenas for Depositions or Documents\u00a0<\/strong><\/h2>\n\n\n\n

Section 7 of the FAA<\/a> provides: \u201c[A]rbitrators (…) may summon in writing any person to attend before them or any of them as a witness and in a proper case to bring with him or them any book, record, document, or paper which may be deemed material as evidence in the case (\u2026)\u201d  <\/em> <\/p>\n\n\n\n

Following the text of section 7 of the FAA, the Ninth Circuit held in CVS Health Corp. v. Vividus LLC<\/em><\/a> that an arbitrator does not have the power to authorize non-party subpoenas for documents prior to an arbitration hearing. Courts in the Ninth Circuit have followed CVS Health Corp.<\/em> and extended it to non-party subpoenas for depositions. For example, in Gellman v. Hunsinger<\/em><\/a>, the court stated that \u201c[n]owhere does the FAA grant an arbitrator the authority to order non parties to appear at depositions<\/em>\u201d.  <\/p>\n\n\n\n

Similarly, the court in McTammany v. Found. Capital Partners L.P<\/em> <\/em>reasoned that \u201can arbitrator\u2019s authority over non-parties, particularly non-parties to the arbitration proceeding who are also non-parties to the arbitration agreement, is limited because the arbitrator\u2019s power ultimately stems from a contractual agreement to arbitrate. Non-parties, by definition, have not agreed to abide by the arbitrator\u2019s decisions<\/em>.\u201d  <\/p>\n\n\n\n

The result is no different under the CAA. In Aixtron, Inc. v. Veeco Instruments Inc<\/em>.<\/a>, the California Court of Appeal held that \u201cunder either statutory scheme<\/em>,\u201d an arbitrator does \u201cnot have the authority to issue a discovery subpoena<\/em>\u201d to a non-party.\u00a0\u00a0<\/p>\n\n\n\n

<\/div>\n\n\n\n

The Vacatur Provisions Applicable When Challenging an Arbitral Award\u00a0<\/strong><\/h2>\n\n\n\n

In addition to the foregoing pre-arbitration and arbitration related issues, in California it is important to understand what options a party has to challenge<\/a> an international arbitration award<\/a> rendered in the State. <\/p>\n\n\n\n

Parties challenging an arbitral award rendered in the Ninth Circuit<\/a> will generally have to frame their challenge according to the FAA\u2019s provisions on vacatur. <\/em>The FAA\u2019s Chapter 1, section 10 provides that a party may seek to vacate an award (1) where it was procured by corruption, fraud, or undue means; (2) where there was partiality<\/a> or corruption<\/a> in the arbitrators; (3) where there was arbitrator misconduct or refusal to hear evidence pertinent and material to the controversy or other prejudicial behavior; or (4) where the arbitrators exceeded their powers.  <\/p>\n\n\n\n

The Ninth Circuit therefore looks to the FAA\u2019s vacatur provisions to supply the controlling standard when an arbitral award is challenged for the purposes of setting it aside, consistent with the Second, Third, Fifth, Sixth, Seventh, Tenth, Eleventh, and D.C. Circuits. <\/p>\n\n\n\n

For parties who agree to utilize the California International Arbitration and Conciliation Act, which defaults to the CAA\u2019s grounds for vacatur, California Code of Civil Procedure \u00a7 1286.2 provides an expanded set of options to vacate an arbitral award. These include (1) where the award was procured by corruption, fraud or other undue means; (2) there was corruption in the arbitration; (3) the rights of a party were prejudiced by arbitrator misconduct; (4) the arbitrators exceeded their powers; (5) the rights of a party were prejudiced by a refusal to postpone a hearing or hear evidence; (6) an arbitrator failed to disclose grounds for disqualification<\/a>; and (7) an arbitrator was subject to disqualification, but failed to disqualify themselves.\u00a0<\/p>\n\n\n\n

<\/div>\n\n\n\n

California Arbitration Act Allows for Appeal of Awards\u202f\u00a0<\/strong><\/h2>\n\n\n\n

The grounds for challenging an arbitration award under the FAA are \u201cextremely narrow<\/a>.\u201d Ninth Circuit case law holds that the FAA permits a final award to be challenged on procedural grounds, but \u201cneither erroneous legal conclusions nor unsubstantiated factual findings justify federal court review of an arbitration award<\/em>.\u201d <\/p>\n\n\n\n

To further tighten the scope of possible post-award challenges, the U.S. Supreme Court ruled in Hall Street Associates v Mattel<\/em><\/a> that the limited grounds of vacatur in the FAA \u201cprovide the exclusive regimes<\/em>\u201d for review of an arbitral award and parties cannot expand upon them. Thus, even if an arbitration agreement purported to grant a federal court a wider level of review, so as to permit an appeal on the merits of a decision, it would be void under the FAA. However, the Supreme Court did explain that \u201c[t]he FAA is not the only way into court for parties wanting review of arbitration awards: they may contemplate enforcement under state statutory or common law (…)<\/em>\u201d. <\/p>\n\n\n\n

As the above quote from Hall Street<\/em> indicates, state arbitration law may permit an appeal of the merits of an arbitration decision where the FAA does not, and that is certainly true of the CAA<\/a>. Even though the CAA\u2019s statutory language speaks to only limited grounds for reviewing an arbitral award, California\u2019s state courts have held<\/a> that parties may contractually expand the scope of review so that the merits of an arbitration award may be appealed. This, in essence, sets up California\u2019s Superior Courts as an appellate body with the power to vacate an arbitral award if it is erroneous \u2013 but only if the parties have agreed to this in advance. The California Supreme Court has emphasized<\/a> that \u201cparties seeking to allow judicial review of the merits (\u2026) would be well advised to provide for that review explicitly and unambiguously<\/em>\u201d in their arbitration agreement. <\/p>\n\n\n\n

Thus, parties looking to seat an arbitration in California and provide for a right of appeal to a court, have a route to doing so under the CAA. Such a choice must be made in advance, and any arbitral agreement needs to expressly exclude the FAA in favor of the CAA, if the former would otherwise apply. Moreover, express language setting up the expanded level of appeal needs to be included in any clause.\u00a0\u00a0<\/p>\n\n\n\n

<\/div>\n\n\n\n

Conclusion\u202f\u00a0<\/strong><\/h2>\n\n\n\n

As the foregoing overview of some of the most important laws and cases indicate, foreign entities who come to California to perform work related to the State\u2019s offshore wind projects may be assured that arbitration is favored in this jurisdiction. That being said, careful consideration should be had for choosing the best legal framework, the FAA or state law, for the arbitration. These and other considerations must be taken into account during the drafting of the agreement to arbitrate. <\/p>\n\n\n\n

<\/div>\n\n\n\n
\n\n\n\n

ABOUT THE AUTHORS<\/strong><\/p>\n\n\n\n

Nathan O\u2019Malley<\/strong><\/a> is a partner in the Los Angeles office of Musick Peeler<\/strong><\/a> where he leads the International Arbitration and Litigation Practice Group. Nathan\u2019s practice is largely focused on disputes in the renewable and clean energy sector where he represents clients involved in the engineering, construction, operation and sale of various energy producing assets, such as solar thermal power facilities and natural gas-fired electricity plants. In recent years, he has developed a particular expertise in the field of onshore and offshore wind farms, and has served as an arbitrator in disputes involving wind energy.  <\/p>\n\n\n\n

Giorgio Sassine<\/strong> is an associate with the Firm<\/strong><\/a>\u2019s Los Angeles office and is a member of the International Arbitration and Litigation and Construction Practice Groups. Mr. Sassine has extensive experience on domestic and international high-value, complex commercial, construction, and energy disputes. Mr. Sassine has represented clients in the United States, Europe, the Middle East, and North Africa.  <\/p>\n\n\n\n

<\/div>\n\n\n\n
\n\n\n\n
\n

Find more data-backed insights in our 2023 Construction Arbitration Report<\/p>\n\n\n\n

\n
Download the full Report<\/a><\/div>\n<\/div>\n<\/blockquote>\n","protected":false},"excerpt":{"rendered":"

The article discusses legal aspects of offshore wind projects in California, addressing foreign attorney participation, choice of arbitration laws, requirements for California contractors, competence principles, dispute resolution conditions, limits on arbitrators’ powers, and grounds for challenging awards.<\/p>\n","protected":false},"author":4,"featured_media":279584,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"jnews-multi-image_gallery":[],"jnews_single_post":{"subtitle":"","format":"standard","video":"","gallery":"","source_name":"","source_url":"","via_name":"","via_url":"","override_template":"0","override":[{"template":"custom","single_blog_custom":"274736","parallax":"1","fullscreen":"1","layout":"right-sidebar","sidebar":"author","second_sidebar":"default-sidebar","sticky_sidebar":"1","share_position":"hide","share_float_style":"share-monocrhome","show_share_counter":"0","show_view_counter":"0","show_featured":"1","show_post_meta":"1","show_post_author":"0","show_post_author_image":"0","show_post_date":"1","post_date_format":"default","post_date_format_custom":"Y\/m\/d","show_post_category":"0","show_post_reading_time":"0","post_reading_time_wpm":"300","show_zoom_button":"0","zoom_button_out_step":"2","zoom_button_in_step":"3","show_post_tag":"0","show_prev_next_post":"0","show_popup_post":"0","number_popup_post":"1","show_author_box":"0","show_post_related":"0","show_inline_post_related":"0"}],"override_image_size":"0","image_override":[{"single_post_thumbnail_size":"crop-500","single_post_gallery_size":"crop-500"}],"trending_post":"0","trending_post_position":"meta","trending_post_label":"Trending","sponsored_post":"0","sponsored_post_label":"Sponsored by","sponsored_post_name":"","sponsored_post_url":"","sponsored_post_logo_enable":"0","sponsored_post_logo":"","sponsored_post_desc":"","disable_ad":"0"},"jnews_primary_category":{"id":"196","hide":""},"jnews_social_meta":{"fb_title":"","fb_description":"The article discusses legal aspects of offshore wind projects in California, addressing foreign attorney participation, choice of arbitration laws, requirements for California contractors, competence principles, dispute resolution conditions, limits on arbitrators' powers, and grounds for challenging awards.","fb_image":"279584","twitter_title":"","twitter_description":"","twitter_image":""},"jnews_review":[],"enable_review":"0","type":"percentage","name":"","summary":"","brand":"","sku":"","good":[{"good_text":""}],"bad":[{"bad_text":""}],"score_override":"0","override_value":"","rating":[{"rating_text":"","rating_number":"10"}],"price":[{"shop":"","price":"","link":"","icon":""}],"jnews_override_counter":{"override_view_counter":"0","view_counter_number":"0","override_share_counter":"0","share_counter_number":"0","override_like_counter":"0","like_counter_number":"0","override_dislike_counter":"0","dislike_counter_number":"0"},"footnotes":""},"categories":[205,196,195,188],"tags":[],"coauthors":[],"class_list":["post-279581","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-arbitration","category-construction","category-industry","category-legal-insights"],"_links":{"self":[{"href":"https:\/\/dailyjus.com\/index.php\/wp-json\/wp\/v2\/posts\/279581","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/dailyjus.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/dailyjus.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/dailyjus.com\/index.php\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/dailyjus.com\/index.php\/wp-json\/wp\/v2\/comments?post=279581"}],"version-history":[{"count":4,"href":"https:\/\/dailyjus.com\/index.php\/wp-json\/wp\/v2\/posts\/279581\/revisions"}],"predecessor-version":[{"id":279588,"href":"https:\/\/dailyjus.com\/index.php\/wp-json\/wp\/v2\/posts\/279581\/revisions\/279588"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/dailyjus.com\/index.php\/wp-json\/wp\/v2\/media\/279584"}],"wp:attachment":[{"href":"https:\/\/dailyjus.com\/index.php\/wp-json\/wp\/v2\/media?parent=279581"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/dailyjus.com\/index.php\/wp-json\/wp\/v2\/categories?post=279581"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/dailyjus.com\/index.php\/wp-json\/wp\/v2\/tags?post=279581"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/dailyjus.com\/index.php\/wp-json\/wp\/v2\/coauthors?post=279581"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}