A construction contract between appellant and appellee contained an agreement to arbitrate all disputes arising out of the contract and a choice-of-law clause providing that the contract would be governed by the law of "the place where the Project is located." When a dispute arose under the contract, appellant made a formal demand for arbitration. In response, appellee filed an action against appellant in the California Superior Court alleging fraud and breach of contract; in the same action, appellee sought indemnity from two other parties involved in the construction project, with whom it did not have arbitration agreements. The trial court denied appellants motion to compel arbitration and granted appellees motion to stay arbitration under Cal. Civ. Proc. Code Ann. 1281.2(c), which allows such a stay pending resolution of related litigation between a party to the arbitration agreement and third parties not bound by it. The State Court of Appeal affirmed, holding that (1) by specifying that the contract would be governed by "the law of the place where the Project is located," the choice-of-law clause incorporated the California rules of arbitration, including 1281.2(c), into the parties arbitration agreement, and (2) application of 1281.2(c) was not pre-empted by the Federal Arbitration Act (FAA or Act), even though the contract involved interstate commerce.

Held:

1. The Court of Appeals conclusion that the parties intended the choice-of-law clause to incorporate the California arbitration rules into their arbitration agreement is a question of state law, which this Court will not set aside. Pp. 474-476.

(a) Appellants contention that the state courts construction of the choice-of-law clause was in effect a finding that appellant had "waived" its federally guaranteed right to compel arbitration, a waiver whose validity must be judged by reference to federal rather than state law, fundamentally misconceives the nature of the rights created by the FAA. Section 4 of that Act does not confer an absolute right to compel arbitration, but only a right to obtain an order directing that "arbitration proceed in the manner provided for in [the parties] agreement." (Emphasis [489 U.S. 468, 469] added.) Here, the state court found that, by incorporating California arbitration rules into their agreement, the parties had agreed that arbitration would not proceed in situations within the scope of 1281.2(c). This was not a finding that appellant had "waived" an FAA-guaranteed right to compel arbitration, but a finding that it had no such right in the first place, because the parties agreement did not require arbitration to proceed in this situation. Pp. 474-475.

(b) Also without merit is appellants argument that the state courts construction of the choice-of-law clause must be set aside because it violates the settled federal rule that questions of arbitrability in contracts subject to the FAA must be resolved with a healthy regard for the federal policy favoring arbitration. See Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24-25. There is no federal policy favoring arbitration under a certain set of procedural rules; the federal policy is simply to ensure the enforceability, according to their terms, of private agreements to arbitrate. Interpreting a choice-of-law clause to make applicable the California arbitration rules - which are manifestly designed to encourage resort to the arbitral process - does not offend Moses H. Cones rule of liberal construction. Pp. 475-476.

2. Application of 1281.2(c) to stay arbitration under the parties contract is not pre-empted by the FAA. The FAA contains no express preemptive provision, nor does it reflect a congressional intent to occupy the entire field of arbitration. Moreover, since the FAAs principal purpose i