Prejudice Did Occur Plus Bad Faith Inference That Late Motion To Compel Arbitration Was Sought For Strategic Purposes.
The Fourth District, Division Three has a rich body of case law on arbitration waiver as enunciated through a trio of cases: Burton v. Cruise, 190 Cal.App.4th 939 (2010); Adolph v. Coastal Auto Sales, Inc., 184 Cal.App.4th 1443 (2010); and Lewis v. Fletcher Jones Motor Cars, Inc., 205 Cal.App.4th 436 (2012). These cases have been applied often in subsequent cases involving waiver scenarios.
In Masimo Corp. v. Welch, Case No. G054803 (4th Dist., Div. 3 June 18, 2018) (unpublished; Goethals, J., author, concurred in by Bedsworth, A.P.J. and Ikola, J.), the 4/3 DCA had to confront a trial court’s denial of a motion to compel arbitration in an unusual situation—an employee was seeking to arbitrate against a corporate employer filing a lawsuit for misappropriation of trade secrets. The problem was the late juncture in which employee attempted to invoke arbitration rights. The circumstances showed the following: (1) employee litigated employer’s claims for over 3 ½ years in superior court; (2) employee did not list entitlement to arbitration as an affirmative defense in his answer to the complaint; (3) employee actively participated in discovery at the superior court level; (4) employee obtained numerous continuances of scheduled trial dates; (5) employee sought to delay things further through the bankruptcy of his subsequent employer, removing to federal court and obtaining yet another trial continuance before the matter was remanded to state court; and (6) employee filed his petition to compel arbitration three weeks before the newly scheduled trial date, gaining yet another continuance. The trial judge denied the petition to compel arbitration based upon waiver, with employee appealing the denial (which introduced more delay because the appeal stayed further trial court proceedings).
The 4/3 DCA affirmed. It found that the substantial evidence review standard applied because of conflicting inferences from the evidence, with prejudice shown by depriving employer of the expedited benefits of an arbitration given how it was staked at the last moment on the cusp of another trial. Aside from facts showing litigation in a manner inconsistent with arbitration, the result was supported by the conclusion substantial evidence showed that employee’s invocation was strategic and done in bad faith—to obtain another delay of the trial and then appeal to introduce further delay. Lest someone think that an appeal alone will support bad faith, the appellate panel was careful to observe that this was confined to facts showing that it was strategically used in abusive fashion: “We do not mean to suggest that every attorney who appreciates the strategic significance of an immediate right to appeal would be acting in bad faith by pursuing that strategy.” (Slip Op., p. 16.)
BLAWG BONUS MILEAGE—Marc’s colleague Mike Hensley successfully defended an appeal of an order denying a motion to compel arbitration earlier in Eagle Iron Erectors, Inc. v. W&W Steel Co., Case No. G053406 (4th Dist., Div. 3 Aug. 25, 2017) (unpublished; Fybel, J., author, concurred in by Bedsworth, A.P.J. and Moore, J.). There, defendant brought a motion to compel 7 ½ months after the initial complaint was filed, although bringing two demurrers, engaging in discovery (with the plaintiff having to bring motions to compel which were granted along with sanctions), and bringing the motion so as to postpone a looming trial. It did rely on the trio of 4/3 DCA decisions when it came to affirming the waiver determination.
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