Arbitration Insight No. 22

MICHAEL D. MARCUS’S ARBITRATION INSIGHT NO. 22

WAIVER OF THE RIGHT TO ARBITRATE

Not infrequently, where an arbitration agreement exists, a defendant will move to compel arbitration when a plaintiff has filed a complaint in the trial court. (An action to compel arbitration is in essence a suit to compel specific performance of a contractual term. [See Freeman v. State Farm Mutual Automobile Ins. Co. (1975) 14 Cal.3d 473, 479].) Plaintiffs, who don’t want to concede the motion, may argue, inter alia, that the defendant has waived the right to arbitrate the dispute. The following is a cursory review of the waiver argument.
It is well-accepted that waiver may occur where “the party seeking to compel arbitration has previously taken steps inconsistent with an intent to invoke arbitration,” “unreasonably delayed in undertaking the procedure” or acted in “bad faith” or engaged in “wilful misconduct.” (Davis v. Blue Cross of Northern California (1979) 25 Cal.3d 418, 425-426.)
Examples of conduct inconsistent with an intent to invoke arbitration: The following three cases were discussed in Service Employees International Union, Local 1021 v. San Joaquin County (2011) 202 Cal. App.4th 449, 460: Case v. Kodota Fig Assn. (1950) 35 Cal.2d 596, 605–606 (moving party pursued a lawsuit on the same issue as that to be arbitrated); Local 659, I.A.T.S.E. v. Color Corp. of America (1956) 47 Cal.2d 189, 197–198 (express refusal to participate in arbitration in order to seek ruling by the Labor Commissioner) and Bodine v. United Aircraft Corp. (1976) 52 Cal.App.3d 940, 945–946 (failed to demand arbitration on the rationale that it would have been stayed in any event by collateral litigation). Sobremonte v. Superior Court (1998) 61 Cal.App.4th 980, cited with approval in Saint Agnes Medical Center v. Pacificare of California (2003) 31 Cal. 4th 1187, 1196, discussed waiver examples including that the parties “were well into preparation of a lawsuit” before the moving party notified the opposing party of an intent to arbitrate and a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings. Saint Agnes Medical Center, on the other hand, holds that Pacificare’s filing of a separate lawsuit against St. Agnes did not preclude it from moving to compel arbitration.
Unreasonable delay in seeking arbitration: “When an arbitration agreement does not specify the time within which arbitration must be demanded, a reasonable time is allowed; a party who does not demand arbitration within a reasonable time is deemed to have waived the right to arbitration.” (Citations.) “[W]hat constitutes a reasonable time is a question of fact, depending on the situation of the parties, the nature of the transaction, and the facts of the particular case.” (Spear v. California State Automobile Association (1992) 2 Cal. 4th 1035, 1043.) Sobremonte v. Superior Court, supra, provides that unreasonable delay may include whether “a party … requested arbitration enforcement close to the trial date,” “important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place” or  “the delay ‘affected, misled, or prejudiced’ the opposing party.” (Id. at p. 992; see also Zamora v. Lehman (2010) 186 Cal. App. 4th 1, 6 holding that parties who conducted discovery before moving to compel arbitration had waived arbitration.)
Waiver, however, is not an easy finding to obtain. Because of the strong policy favoring arbitration agreements, “close judicial scrutiny of waiver claims” is required. (Citation.) “Although a court may deny a petition to compel arbitration on the ground of waiver (statute), waivers are not to be lightly inferred and the party seeking to establish a waiver bears a heavy burden of proof.” (Saint Agnes Medical Center v. Pacificare of California, supra, at p. 1195.)
Judge Michael D. Marcus (Ret.)
ADR Services, Inc.
1900 Avenue of the Stars, Suite 250
Los Angeles, California 90067
(310) 201-0010

Copyright Michael D. Marcus, February 2012

Please visit my website at www.marcusmediation.com for information about my mediation and arbitration background and experience. Copies of my previous Mediation Messages and Arbitration Insights are available by going to the articles link on the website.

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