Dunham v. Sierra Process Systems CA1/2 ( 2014 )

Filed 1/21/14 Dunham v. Sierra Process Systems CA1/2
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION TWO
RICHARD DUNHAM,
Plaintiff and Respondent,
A137240
v.
SIERRA PROCESS SYSTEMS, INC., (Contra Costa County
Super. Ct. No. C12-00879)
Defendant and Appellant.
Richard Dunham filed a lawsuit against Sierra Process Systems, Inc. (SPS) for
wrongful termination and other causes of action related to his employment with SPS. In
his employment application with SPS, Dunham had agreed to arbitrate any dispute
arising from his employment. SPS answered Dunham’s complaint, participated in
discovery, failed to state that it was willing to participate in arbitration in its case
management statement, and attended a case management conference with the court
without mentioning arbitration. Only after engaging new counsel to take over its
representation in this matter did SPS file a petition to compel arbitration, almost six
months after Dunham had filed his complaint.
The trial court denied SPS’s petition because it found that SPS had waived its right
to compel arbitration. On appeal, SPS contends that the trial court’s denial of the petition
was not supported by substantial evidence. We disagree and affirm.
1
BACKGROUND
A. The Arbitration Clause
SPS hired Dunham as an employee on November 30, 2010. On that date, Dunham
signed an employment application that contained an arbitration clause: “I agree to submit
to binding arbitration all disputes and claims arising out of this application and, in the
event that I am hired, all disputes and claims arising out of my employment. This
agreement includes every type of dispute that may be lawfully submitted to arbitration,
including claims of wrongful discharge, discrimination, harassment, or any injury to my
physical, mental, or economic interests. This means that a neutral arbitrator, rather than a
court or jury, will decide the dispute. As such, I am waiving my right to a court or jury
trial. I agree that any arbitration will be conducted in accordance with the rules of the
American Arbitration Association [(American Arbitration)].”
B. The Pleadings
On April 11, 2012, 1 Dunham filed a complaint alleging that SPS wrongfully
terminated his employment in retaliation for reporting workplace safety violations to the
California Division of Occupational Safety and Health (Cal/OSHA), in violation of Labor
Code section 1102.5 and in violation of public policy. The complaint also alleged causes
of action for intentional infliction of emotional distress; failure to pay overtime wages;
waiting time penalties; failure to reimburse expenses; failure to furnish accurate, itemized
wage statements; and unfair competition, in violation of Business and Professions Code
section 17200 et seq. On May 16, Dunham filed an amended complaint to include civil
penalties pursuant to Labor Code section 2698 et seq.
SPS filed its answer on June 4, stating that it denied the allegations of the
unverified complaint in its entirety. The answer raised 24 affirmative defenses in
conclusory language. SPS did not raise a right to submit the dispute to arbitration as an
affirmative defense.
1
All subsequent dates are in the year 2012.
2
C. Discovery
On May 16, Dunham served his first set of requests for production, form
interrogatories, and special interrogatories on SPS. SPS responded to these requests on
July 12. In its response to form interrogatory No. 200.1, SPS cited Dunham’s
employment application as supporting an assertion that Dunham’s employment was “at
will.”
On July 27, Dunham’s counsel informed SPS that his investigation had revealed
that SPS had been acquired by Clean Harbors, Inc. (Clean Harbors) Dunham’s counsel
requested an opportunity to meet and confer so that Dunham could determine whether
Clean Harbors should be named as a defendant. SPS’s counsel replied on the same day
that there was no need to name Clean Harbors as a defendant and suggested a time to
confer.
On July 30, counsel for Dunham and SPS conferred by phone and Dunham’s
counsel sent SPS a list of questions concerning Clean Harbors by email. On August 10,
counsel for SPS replied that Dunham’s questions went “well beyond that required of any
due diligence effort to determine the proper identity of a defendant.” The reply further
stated that “the transaction with Clean Harbors was an asset sale and SPS continues to
exist and operate.” The response concluded that SPS “fail[ed] to see any strategic value
to the opening of a peripheral litigation front.”
On August 3, SPS served its first set of discovery requests, consisting of form
interrogatories.
On August 7, SPS served a supplemental response to one set of Dunham’s form
interrogatories. In its response to interrogatory No. 200.1, SPS quoted directly from the
arbitration clause in Dunham’s employment application. The arbitration clause was also
referenced in the response to interrogatory No. 200.4.
On August 8, SPS served its second set of discovery requests, consisting of special
interrogatories and requests for production. That same day, SPS also served a deposition
notice for Dunham.
3
On August 14, Dunham served his second set of discovery requests, consisting of
requests for production, and special interrogatories. In part, the requests concerned the
alleged acquisition of SPS by Clean Harbors.
On August 21, SPS served an amended notice for Dunham’s deposition,
rescheduling the deposition for October 3 and 4, 2012.
On September 28, Dunham served his responses to SPS’s first set of discovery
requests. On the same date, SPS served responses to Dunham’s second set of discovery
requests.
D. The Case Management Statements and Conference
On August 14, Dunham and SPS filed case management statements. In section 5,
SPS requested a nonjury trial. Section 10 of the case management statement form
concerns alternative dispute resolution (ADR). In that section, SPS’s counsel indicated
that he had provided SPS with an ADR information package and discussed ADR options
with SPS. The form also calls for the filing party to indicate the ADR processes in which
it is willing to participate. SPS indicated that it was willing to participate in a settlement
conference, but did not indicate that it was willing to participate in any other ADR
process, including binding private arbitration.
On August 23, SPS deposited with the court a non-refundable jury fee of $150.00.
On August 29, Dunham and SPS participated in a case management conference
with the court. SPS did not discuss or mention arbitration.
E. SPS Retains New Counsel
In early September, SPS retained new counsel to take over as attorney of record in
this matter. SPS filed a substitution of attorney with the court on September 7.
SPS’s new counsel contacted Dunham’s counsel on September 5, 2012, and the
parties agreed to a mutual exchange of all outstanding discovery on or before September
28.
4
F. SPS Requests Arbitration
On September 11, SPS’s new counsel sent Dunham’s counsel a letter stating that
she had “discovered” the arbitration provision and requesting that Dunham stipulate to
submit the matter to arbitration.
On September 12, Dunham rejected SPS’s request for arbitration. On September
19, SPS’s counsel called Dunham’s counsel to advise that SPS intended to proceed with
filing a petition to compel arbitration. She again inquired whether Dunham would
consider stipulating to arbitration and a stay of discovery. Dunham’s counsel stated that
he would confer with Dunham. They did agree that Dunham’s deposition would not take
place in October.
On September 20, Dunham’s counsel informed SPS that Dunham had instructed
him to oppose any petition to compel arbitration. Dunham also instructed his counsel to
oppose a stay of discovery.
G. SPS’s Petition to Compel Arbitration
SPS filed a petition to compel arbitration on October 1. The notice of hearing and
the petition itself state a preparation date of September 25, 2012. Consistent with the
September 25 date, SPS argued that Dunham had not been prejudiced by SPS’s
participation in discovery because Dunham had not yet responded to SPS’s discovery
requests. Dunham opposed the petition.
On November 2, the court held a hearing on SPS’s petition. As the hearing began,
the court stated: “We know what happened, don’t we? There was a change of counsel
and a change of strategy.” SPS’s counsel stated that her predecessor “discovered the
arbitration provision” only after SPS had provided its initial responses to Dunham’s
discovery requests. From that point, SPS was “in the process of doing the research and
analysis to make sure that arbitration was actually an enforceable provision before they
wasted judicial resources and everyone’s time and money in filing a petition to compel
arbitration.” That research was underway as current counsel took over representation of
SPS in the matter. The court expressed skepticism concerning the assertion of ongoing
research: “Well, you could decide the legal issues of the arbitration enough to make that
5
decision over a weekend.” The court concluded that “the totality of these circumstances
is such that the moving party has waived the right to arbitrate.”
The court filed its order denying SPS’s petition on November 16. The order cited
the factors, listed in Sobremonte v. Superior Court (1998) 61 Cal. App. 4th 980
(Sobremonte), that a court should consider in determining whether a party has waived a
right to arbitrate.2 The court found that four of the factors weighed in favor of waiver and
the other two were neutral or did not apply. In support of that determination, the court
specifically found: (1) “[SPS’s] actions are inconsistent with the right to arbitrate”; (2)
“[SPS] ‘substantially invoked’ the litigation machinery by serving discovery upon
[Dunham]”; (3) “[t]he discovery undertaken gave [SPS] an advantage not normally
available in arbitration proceedings”; and (4) “[i]f [SPS] intended to invoke its arbitration
right, it misled [Dunham] to his prejudice.”
SPS timely filed a notice of appeal on December 3.
DISCUSSION
SPS contends the trial court’s determination that SPS waived its right to invoke
arbitration was not supported by substantial evidence. As discussed below, we conclude
otherwise.
I. Legal Standard
California state law “reflects a strong policy favoring arbitration agreements and
requires close judicial scrutiny of waiver claims. [Citation.] Although a court may deny
a petition to compel arbitration on the ground of waiver ([Code Civ. Proc.,] § 1281.2,
subd. (a)), waivers are not to be lightly inferred and the party seeking to establish a
waiver bears a heavy burden of proof.” (St. Agnes Medical Center v. PacifiCare of
California (2003) 31 Cal. 4th 1187, 1195 (St. Agnes).)
“[N]o single test delineates the nature of the conduct of a party that will constitute
[a waiver of the right to arbitrate].” (Davis v. Blue Cross of Northern California (1979)
25 Cal. 3d 418, 426.) “In the past, California courts have found a waiver of the right to
2
We refer to the factors considered in Sobremonte as the Sobremonte factors. We
list and consider them in detail below.
6
demand arbitration in a variety of contexts, ranging from situations in which the party
seeking to compel arbitration has previously taken steps inconsistent with an intent to
invoke arbitration [citations] to instances in which the petitioning party has unreasonably
delayed in undertaking the procedure. [Citations.] The decisions likewise hold that the
‘bad faith’ or ‘wilful misconduct’ of a party may constitute a waiver and thus justify a
refusal to compel arbitration.” (Id. at pp. 425-426.)
“In determining waiver, a court can consider ‘(1) whether the party’s actions are
inconsistent with the right to arbitrate; (2) whether “the litigation machinery has been
substantially invoked” and the parties “were well into preparation of a lawsuit” before the
party notified the opposing party of an intent to arbitrate; (3) whether a party either
requested arbitration enforcement close to the trial date or delayed for a long period
before seeking a stay; (4) whether a defendant seeking arbitration filed a counterclaim
without asking for a stay of the proceedings; (5) “whether important intervening steps
[e.g., taking advantage of judicial discovery procedures not available in arbitration] had
taken place”; and (6) whether the delay “affected, misled, or prejudiced” the opposing
party. [Citations.]’ [Citation.]” (Sobremonte, supra, 61 Cal.App.4th at p. 992, quoting
Peterson v. Shearson/American Exp. Inc. (10th Cir. 1988) 849 F.2d 464, 467-468;
adopted in St. Agnes, supra, 31 Cal.4th at p. 1196.)
“ ‘Waiver does not occur by mere participation in litigation . . . .’ [Citation.]
‘ “[A]s an abstract exercise in logic it may appear that it is inconsistent for a party to
participate in a lawsuit for breach of a contract, and later to ask the court to stay that
litigation pending arbitration. Yet the law is clear that such participatio n, standing alone,
does not constitute a waiver [citations], for there is an overriding federal policy favoring
arbitration . . . . [M]ere delay in seeking a stay of the proceedings without some resultant
prejudice to a party [citation], cannot carry the day.” ’ ” (Adolph v. Coastal Auto Sales,
Inc. (2010) 184 Cal. App. 4th 1443, 1450 (Adolph).)
“Prejudice typically is found only where the petitioning party’s conduct has
substantially undermined [the] important public policy [favoring arbitration as a speedy
and relatively inexpensive means of dispute resolution] or substantially impaired the
7
other side’s ability to take advantage of the benefits and efficiencies of arbitration. [¶]
For example, courts have found prejudice where the petitioning party used the judicial
discovery processes to gain information about the other side’s case that could not have
been gained in arbitration [citations]; where a party unduly delayed and waited until the
eve of trial to seek arbitration [citation]; or where the lengthy nature of the delays
associated with the petitioning party’s attempts to litigate resulted in lost evidence
[citation].” (St. Agnes, supra, 31 Cal.4th at p. 1204.)
We review the trial court’s finding that SPS waived its right to arbitrate under the
substantial evidence standard.3 (Adolph, supra, 184 Cal.App.4th at pp. 1449-1450; Doers
v. Golden Gate Bridge Etc. Dist. (1979) 23 Cal. 3d 180, 185.) Under this standard, we
resolve conflicts in evidence in favor of the prevailing party and draw all reasonable
inferences to uphold the trial court’s decision. (Chalmers v. Hirschkop (2013) 213
Cal. App. 4th 289, 300.)
II. Substantial Evidence Supports a Finding of Waiver
Based on the record before us, this is a case in which the trial court could
reasonably have found that SPS had not waived its right to compel arbitration. However,
when reviewing under the substantial evidence standard we do not reweigh the evidence
and we must affirm if the determination of waiver is supported by substantial evidence.
We examine each of the Sobremonte factors below to determine if substantial evidence
supports a conclusion that the factor favors a finding of waiver.
A. Whether SPS’s Actions were Consistent with the Right to Arbitrate
In determining that SPS’s actions were inconsistent with the right to arbitrate, the
trial court stated: “It seems rather clear that [SPS] was fully active in dealing with the
action by trial court litigation until it changed counsel in September. [SPS] participated
3
SPS urges us to review the question of waiver de novo, citing Hoover v.
American Income Life Ins. Co. (2012) 206 Cal. App. 4th 1193, 1202: “ ‘ “When . . . the
facts are undisputed and only one inference may reasonably be drawn, the issue [of
waiver] is one of law and the reviewing court is not bound by the trial court’s ruling.”
[Citation.]’ ” Because the facts of this case support inferences favoring a finding of
waiver, we do not review de novo.
8
fully in pleadings, discovery and case management. Its counsel filed a case management
conference statement which indicated its availability for trial and intentionally did not
check the box for ‘binding arbitration’. Obviously new counsel just had a different
‘strategy’ than the original counsel.” We share the trial court’s assessment.
We must presume proper due diligence in the preparation of SPS’s pleadings and,
thus, that SPS’s counsel reviewed Dunham’s employment records and was aware of the
arbitration clause in the employment application prior to filing SPS’s answer to
Dunham’s complaint. No credible evidence supports an inference to the contrary.4
SPS could have petitioned to compel arbitration in lieu of filing an answer to
Dunham’s complaint. (Code Civ. Proc., § 1281.7.) Instead, SPS answered Dunham’s
complaint and, despite pleading a very lengthy list of affirmative defenses, failed to plead
a right to arbitration as an affirmative defense. “At a minimum, the failure to plead
arbitration as an affirmative defense is an act inconsistent with the later assertion of a
right to arbitrate.” (Guess?, Inc. v. Superior Court (2000) 79 Cal. App. 4th 553, 558
(Guess?).)
SPS had the responsibility to “timely seek relief either to compel arbitration or
dispose of the lawsuit, before the parties and the court have wasted valuable resources on
ordinary litigation.” (Davis v. Continental Airlines, Inc. (1997) 59 Cal. App. 4th 205,
216.) Instead, SPS responded to Dunham’s discovery requests and propounded its own
discovery requests. SPS participated in meet and confer sessions, prepared a case
management statement, and attended a case management conference with the court. In
the entire course of these proceedings, up until SPS hired new counsel, SPS never
4
SPS’s assertion during the hearing on its petition that SPS’s original counsel had
“discovered” the arbitration agreement only after it had provided its initial responses to
Dunham’s discovery requests is both unsupported by the evidence and not credible.
Those initial responses directly cited Dunham’s employment application, which
contained the arbitration clause. The further assertion that original counsel, since
discovering the arbitration agreement, had been researching whether the arbitration
clause was enforceable was also unsupported and not credible. As the trial court
commented, such a determination could be made “over a weekend.”
9
asserted its right to arbitrate. To the contrary, SPS’s case management statement
indicated that it was not willing to participate in binding private arbitration.5
We conclude that ample evidence supports a finding that SPS’s actions were
inconsistent with a right to arbitrate.6
B. Invocation of Litigation Machinery and Degree of Preparation for the Lawsuit
SPS served discovery requests on Dunham, including a notice and a later re-notice
of Dunham’s deposition. SPS indicated in its case management statement that the case
would be ready for trial within 12 months of the date of the filing of the complaint. SPS
paid a non-refundable jury fee in anticipation of trial 7 and participated in the initial case
management conference. After SPS engaged new counsel, the parties mutually agreed
that responses to outstanding discovery requests would be completed by September 28,
2012. Nothing in the record indicates that additional discovery requests from either party
would be forthcoming.
5
SPS argues that “it is not unreasonable that the failure to simply check the box
for the ‘binding arbitration’ was either (1) an inadvertent mistake, or (2) SPS’[s] prior
counsel had not yet completed its investigation and analysis as to whether binding
arbitration was an appropriate and enforceable option for resolving this matter.” The
record provides no reason to believe that SPS’s original counsel completed the case
management statement with anything less than the proper care it deserved.
6
SPS cites Sobremonte as a case in which the court found waiver based on
conduct that, in being inconsistent with the right to arbitrate, was well beyond SPS’s
conduct. We need not discuss Sobremonte because our task is to decide whether the
evidence adduced here supports a finding of waiver.
7
SPS claims that its payment of the jury fee was not inconsistent with an intent to
arbitrate because it was required by Code of Civil Procedure section 631. The court
understood SPS’s argument to be that it paid the fee to avoid incurring a jury waiver
should it not prevail in a later petition to compel arbitration. However, SPS had indicated
in its case management statement that it was requesting a nonjury trial, so Code of Civil
Procedure section 631 presented no requirement that SPS pay a jury fee. Even if SPS had
demanded a jury trial, or wished to preserve its right to later do so, it would not have
waived that right so long as the jury fee had been paid by December 31. (Code Civ.
Proc., § 631, subd. (d).) Thus, SPS could have waited to pay a jury fee until after a ruling
on its petition to compel arbitration.
10
We consider these facts to be substantial evidence that SPS had substantially
invoked the litigation machinery and that both parties were well into preparation of the
lawsuit before SPS petitioned to compel arbitration. 8
In arguing that it had not substantially invoked the machinery of litigation, SPS
cites Roman v. Superior Court (2009) 172 Cal. App. 4th 1462 (Roman). The Roman court
denied a petition for writ of mandate challenging the trial court’s grant of a petition to
compel arbitration. (Id. at p. 1466.) In Roman, “Flo-Kem filed its notice of petition to
compel arbitration a little more than two months after Roman filed her complaint. At the
time, no substantive discovery responses had been served by either side, and no formal
hearings had taken place on the discovery issues.” (Id. at p. 1479.) SPS recognizes that
“the conduct of the petitioning party in Roman is substantially less than what occurred
here,” so SPS’s reliance on Roman is curious. Here, the petition to compel arbitration
was filed almost six months after Dunham filed his initial complaint, substantially more
than the two months in Roman. In further contrast, both parties had served discovery
requests and had received responses, and the parties had participated in the case
management conference. Nothing in Roman suggests that, as a matter of law, the facts of
this case are insufficient to support a finding that SPS substantially invoked the
machinery of litigation and that the parties were well into preparation of the lawsuit.
C. Whether SPS Delayed for a Long Period Before Seeking a Stay
“When no time limit for demanding arbitration is specified, a party must still
demand arbitration within a reasonable time. [Citation.] . . . ‘[W]hat constitutes a
reasonable time is a question of fact, depending upon the situation of the parties, the
nature of the transaction, and the facts of the particular case.’ ” (Wagner Construction
Co. v. Pacific Mechanical Corp. (2007) 41 Cal. 4th 19, 30.)
8
SPS points out that California Rules of Court required the preparation of the
case management statement and participation in the case management conference. This
is true, but beside the point. That SPS followed the rules in engaging the machinery of
litigation neither diminishes that engagement nor obviates SPS’s election in the case
management statement not to request binding arbitration.
11
In this case, even though the trial court could reasonably infer that SPS was aware
of the arbitration clause at all times, almost six months elapsed between the time that
Dunham filed his original complaint and the time that SPS filed its motion to compel
arbitration. Other courts have found a waiver where there have been comparable delays.
(See Guess?, supra, 79 Cal.App.4th at p. 556 [four month delay]; Adolph, supra, 184
Cal.App.4th at p. 1449 [six month delay]; Roberts v. El Cajon Motors, Inc. (2011) 200
Cal. App. 4th 832, 839 [five month delay after answering complaint]; Kaneko Ford Design
v. Citipark, Inc. (1988) 202 Cal. App. 3d 1220, 1229 [between five and six month delay].) 9
Considering SPS’s actions that were inconsistent with an intent to arbitrate, we conclude
that ample evidence supports a finding that SPS’s delay was unreasonably long.
D. Whether SPS Filed a Counterclaim Without Seeking a Stay for Arbitration
Because SPS had no counterclaims, this factor is not applicable to the facts of the
case before us.
E. Whether Important Intervening Steps Had Taken Place
This factor asks “ ‘ “whether important intervening steps [e.g., taking advantage of
judicial discovery procedures not available in arbitration] had taken place.” ’ ”
(Sobremonte, supra, 61 Cal.App.4th at p. 992.) The trial court apparently counted this
factor as favoring waiver because it made the finding that “[t]he discovery undertaken
gave [SPS] an advantage not normally available in arbitration proceedings.” We find no
evidence in the record that SPS gained an advantage in discovery that is not normally
available in arbitration and conclude that this factor weighs against finding a waiver.
SPS argues that Dunham’s responses to its interrogatories and requests for
production could not have given SPS an advantage because SPS could have propounded
the same discovery requests in an arbitration proceeding. Rule 9 of the Employment
9
SPS distinguishes these cases, and others that Dunham cites, from the instant
case. While all of these cases have differing facts, the point here is that a four- to six-
month delay is not de minimis or, as a matter of law, insufficient to establish an
unreasonable delay.
12
Arbitration Rules and Mediation Procedures 10 provides: “The arbitrator shall have the
authority to order such discovery, by way of deposition, interrogatory, document
production, or otherwise as the arbitrator considers necessary to a full and fair exploration
of the issues in dispute, consistent with the expedited nature of arbitration.” In support of
their argument, SPS again cites Roman, where the court observed: “[T]he discovery
requests Flo-Kem served (a set of form interrogatories and a request for production of
documents) were authorized under the [American Arbitration] rules; thus the discovery
sought (though not received) did not seek to take advantage of discovery tools
unavailable in arbitration.” (Roman, supra, 172 Cal.App.4th at p. 1479.)
Here, in contrast to Roman, Dunham actually served responses to SPS’s discovery
requests, but the content of those responses were not before the trial court, and are not in
the record before us. Thus, there was no evidence that SPS gained any advantage from
Dunham’s responses.
Dunham argues that he “propounded written discovery and met and conferred with
SPS’s counsel and, in doing so, disclosed certain trial tactics. Among other things,
Dunham disclosed to SPS his investigation of the circumstances of Clean Harbors’s
acquisition of SPS . . . and his research into the legal bases for naming Clean Harbors as a
defendant.” Dunham further argues that the acquisition would have been irrelevant in
arbitration, so that he would not have disclosed his intent to name Clean Harbors as a
defendant in the course of arbitration.
When the party seeking to compel arbitration has engaged in conduct during the
discovery process that causes the other party to disclose some of its trial tactics and these
disclosures would not have been required in arbitration, these disclosures may establish
prejudice to the other party that supports finding a waiver of the right to compel
arbitration. (Guess?, supra, 79 Cal.App.4th at p. 558.) However the disclosures must
actually have been prejudicial, giving the party seeking to compel arbitration an
advantage it would not have had in arbitration. Dunham does not explain how
10
Available at http://www.adr.org/aaa/faces/rules/searchrules/rulesdetail
?doc=ADRSTG_004366.
13
knowledge that he was considering naming Clean Harbors as a defendant gave SPS an
advantage. Whether or not Clean Harbors might have been liable to satisfy a judgment
against SPS would not be relevant to the question of SPS’s liability to Dunham.
We find no evidence in the record that supports a finding that an important
intervening step, such as utilizing discovery procedures not available in arbitration, or
obtaining information in discovery that would not have been revealed in arbitration, had
taken place.
F. Whether the Delay was Prejudicial to Dunham
The trial court’s order denying SPS’s petition stated: “If [SPS] intended to invoke
its arbitration right, it misled [Dunham] to his prejudice. Attending court conferences,
preparing full discovery responses, and relying upon case management discussions, all
cost time and money.”
SPS contends that the expenditure of time and money, standing alone, is not
sufficient for a finding of prejudice. “Because merely participating in litigation, by itself,
does not result in a waiver, courts will not find prejudice where the party opposing
arbitration shows only that it incurred court costs and legal expenses.” (St. Agnes, supra,
31 Cal.4th at p. 1203.)
Dunham, in his opposition to SPS’s petition, did not argue for prejudice based
solely on his expenditure of time and money. He also pointed out that if SPS had timely
asserted its right to arbitrate, “the efficiencies associated with arbitration would have
been realized.” Arbitration is meant to be a speedy and relatively inexpensive means of
dispute resolution and delay by the party seeking to compel arbitration may prejudice the
other party by depriving it of the benefits that arbitration is meant to provide. “Prejudice
typically is found only where the petitioning party’s conduct has substantially
undermined [the] important public policy [in favor of arbitration] or substantially
impaired the other side’s ability to take advantage of the benefits and efficiencies of
arbitration.” (St. Agnes, supra, 31 Cal.4th at p. 1204.)
In Sobremonte, the court found that the parties opposing the petition to compel
arbitration had “been further prejudiced by their now inability to take advantage of the
14
benefits of arbitration. Arbitration is an expedient, efficient and cost-effective method to
resolve disputes. If we consider the amount of time and money they have already spent
in the judicial system, any benefits they may have achieved from arbitration have been
lost.” (Sobremonte, supra, 61 Cal.App.4th at p. 996.) “[A] petitioning party’s conduct in
stretching out the litigation process itself may cause prejudice by depriving the other
party of the advantages of arbitration as an ‘expedient, efficient, and cost-effective
method to resolve disputes.’ [Citation.] Arbitration loses much, if not all, of its value if
undue time and money is lost in the litigation process preceding a last-minute petition to
compel.” (Burton v. Cruise (2010) 190 Cal. App. 4th 939, 948.)
Considering the almost six-month delay and the time and effort already expended
by Dunham, substantial evidence supports a finding that Dunham had been deprived of
the advantages of arbitration, and hence that SPS’s conduct was prejudicial to Dunham.
G. Conclusion
We conclude that four of the Sobremonte factors are supported by substantial
evidence that favors a finding of waiver, even though they are not the same four factors
used by the trial court. One factor does not apply to the facts of the case and the
remaining factor favors a finding of non-waiver. Because four of the six factors favor a
finding of waiver, including the crucial factor of prejudice to the party opposing the
petition to compel arbitration, substantial evidence supports the trial court’s
determination that SPS waived its right to compel arbitration.
DISPOSITION
The order denying SPS’s petition to compel arbitration is affirmed. Dunham is
awarded costs.
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_________________________
Brick, J.*
We concur:
_________________________
Kline, P.J.
_________________________
Richman, J.
* Judge of the Alameda County Superior Court, assigned by the Chief Justice
pursuant to article VI, section 6 of the California Constitution.
16