Was Delay In Requesting Arbitration Simply A "Strategic Convenience" For Defendants?
Spracher v. Paul M. Zagaris, Inc. [Zagaris], and Higashi v. Disclosure Source, A1952941, A152962 (1/3 9/17/19) (Petrou, Siggins, Fujisaki), is a consolidated appeal brought by defendants in a class action in which plaintiffs alleged that defendants schemed to defraud plaintiffs. Plaintiffs were home sellers or buyers alleging defendant Zagaris schemed with Disclosure Source to buy natural hazard disclosure reports as part of a real estate transaction, double the price, and charge clients the higher price without a disclosure regarding the markup.
Defendants moved to compel arbitration. Relying on the six-part test in St. Agnes Medical Center v. PacifiCare of California, 31 Cal.4th 1187 (2003), the appellate court affirmed the trial court's determination that defendants waived arbitration as supported by substantial evidence. Defendants waited nearly two years to bring their motion, "substantially invoked" the litigation machinery by engaging in extensive discovery, 12 case management conference hearings, two rounds of demurrers, and filed a summary judgment motion. Ample evidence supported a showing of prejudice, including that plaintiff Higashi incurred over $315,000 in attorney's fees.
COMMENT. Given that the law of waiver (see St. Agnes) is well established, we don't know what prompted the Court to certify the original unpublished opinion for publication. But we're going to hazard some guesses. First, the Court may have wanted to send a message that it was not pleased with substantial delay in moving to arbitrate, while defendants waited to see how matters turned out in litigation, which the trial court viewed as "strategically convenient for defendants".
Second, there was one factual wrinkle to the case: there were originally five representative plaintiffs, and defendants argued they could not have moved earlier to arbitrate, because the arbitration agreements differed. The Court explains: "Presumably, if numerous plaintiffs had proceeded to arbitration there would have been appropriate efforts to coordinate the matters and motions regarding the representative plaintiffs; we have been provided with zero evidence to the contrary." This statement elides the point that consolidation may not be possible unless the agreement, the rules of the arbitral forum, or a subsequent agreement provides for consolidation. The Court's statement seems to put the burden of proof on the defendant to provide evidence that appropriate efforts to coordinate matters and motions would have been agreed to. Without explanation, the Court states that "[b]ecause this is not a case where 'only one inference may reasonably be drawn' from the underlying facts, we review the trial court's decision under a substantial evidence standard." So presumably the standard of review helped plaintiffs carry the day.
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