Craneveyor Corp. v. Bernards Bros. Inc.

Filed 11/1/07 Craneveyor Corp. v. Bernards Bros. Inc. CA2/4

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

SECOND APPELLATE DISTRICT

DIVISION FOUR

APPEAL from an order of the Superior Court of Los Angeles County, Terry B. Friedman, Judge. Affirmed.

Ted R. Gropman for Defendant and Appellant.

Allie & Schuster and Randall S. Guritzky for Plaintiff and Respondent.

Appellant Bernards Bros. Inc. (Bernards) appeals from the trial courts denial of its petition to compel arbitration of a dispute with respondent Craneveyor Corp. (Craneveyor). We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

In June 2004, Bernards entered into an agreement with the Santa Monica Community College District (District) to serve as general contractor for a renovation project at one of the Districts campuses. Subsequently, Bernards entered into a construction subcontract with Craneveyor.

The parties do not dispute that the subcontract provides that Craneveyor is bound by the same arbitration agreement contained in the contract between Bernards and the District. Nor do they disagree that the agreement states that any claim over $375,000 shall be resolved by arbitration. The agreement also provides that the discovery rights and procedures provided for in California Code of Civil Procedure  1283.05 shall be applicable.

A dispute arose over the timeliness of Craneveyors performance, and on September 22, 2005, Craneveyor filed suit, alleging that Bernards had failed to pay for all of the labor and materials Craneveyor had provided. On November 3, 2005, Craneveyor filed the operative first amended complaint.

In the first amended complaint, Craneveyor alleged that Bernards owed it $194,954.40. Craneveyor also claimed that it was entitled to a statutory penalty, interest from August 2, 2005, and additional damages caused . . . , in an amount according to proof.[1]

On November 29, 2005, Bernards filed its answer to the first amended complaint. It did not raise an affirmative defense alleging a right to arbitrate the dispute. On the same day, Bernards filed a cross-complaint seeking damages caused by Craneveyors failure to properly and timely perform its work on the Project. In December, Bernards and the sureties filed their case management statement and did not mention the right to arbitration. The court set a trial date of October 23, 2006.

On April 28, 2006, Bernards served its responses to Craneveyors interrogatories. Bernards claimed that [a]s a result of Craneveyors untimely performance, Bernards incurred acceleration costs, extended performance costs, delay and/or impact claims from other subcontractors who were adversely affected by Craneveyors delayed performance, and overtime inspection and re-inspection costs charged to Bernards by the Project owner. Bernards concluded that [a] current accounting of the offsets resulted in a sum of $571,475.08.

On July 31, 2006, Craneveyor served its responses to Bernardss special interrogatories. Craneveyor, in specifying its damages, stated: Plaintiff seeks to recover the $194,954.00 unpaid balance due and owing to it. Plaintiff further seeks to recover damages related to BERNARDS BROS. breach of $305,187, for a total of $503,000, plus interest, and costs of suit, including reasonable attorneys fees.

On September 27, 2006, Bernards filed an ex parte application for a continuance of the trial date. Again, Bernards did not mention the possibility of arbitrating the dispute. The trial was continued to December 18, 2006.

On October 4, 2006, Bernards demanded, for the first time, that Craneveyor submit to arbitration. When Craneveyor refused, Bernards filed its petition to compel arbitration on October 16, 2006.

In its petition, Bernards explained its delay in filing the petition by asserting that until Craneveyors response to its interrogatories, the amount in dispute was $194,954.40, which was below the threshold for arbitration. Only after Craneveyors responses were received on August 1, did Bernards realize that Craneveyors alleged damages were in excess of $500,000, an amount that triggered the arbitration agreement. Bernards did not explain why it waited until October 16 to file its petition.

Craneveyor opposed the petition, arguing, inter alia, that it was untimely. Craneveyor argued that Bernards filed interrogatory responses in April, alleging a claim against Craneveyor in an amount in excess of the required $375,000 figure. Craneveyor contended that despite having the right to arbitrate, Bernards participated wholeheartedly in the litigation process. Craneveyor alleged that the discovery process was well underway, and that Bernardss filing was merely an attempt to delay proceedings.

Bernards responded that its claim of an offset did not bring the amount in dispute above the necessary $375,000 figure. It reasoned that the offset amount minus Craneveyors damages claim left a disputed balance of $359,251.68. Thus, it was not until Craneveyor claimed potential damages of over $500,000 that the matter became subject to arbitration. Bernards contended that once it became aware of its right to arbitrate the dispute, it took no action inconsistent with that right. Although it acknowledged that it deposed one witness after August 1, it did so only after Craneveyors counsel agreed not to argue that the act constituted a waiver of the right to arbitrate. Finally, Bernards asserted that because the parties have a right to discovery under the arbitration agreement, it did not take any unfair advantage by delaying its demand for arbitration and conducting discovery that would not have been permitted in the arbitration process.

On November 21, 2006, the trial court denied the petition, finding that Bernards failed to file its petition in a timely fashion and that Craneveyor had been prejudiced by the delay, as it had been forced to engage in extensive discovery and prepare for a trial date that was fast approaching. It also found that Bernards filed the Petition after completing its discovery in advance of the trial date, which it might not have been able to pursue as fully had it filed the Petition timely. This appeal followed.

DISCUSSION

Bernards contends the trial court erred when it found that Bernards waived its right to compel arbitration. Bernards claims that it filed its petition in a timely fashion, and the delay in filing, if any, did not prejudice Craneveyor.

The Legislature has declared that arbitration is a favored method of dispute resolution. (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9.) Where the court finds that an arbitration agreement exists to resolve a controversy, it shall order arbitration upon the request of the moving party unless it finds that the petitioner waived the right to compel arbitration. (Code Civ. Proc., 1281.2, subd. (a).) The party seeking to establish a waiver bears a heavy burden of proof. (Christensen v. Dewor Developments (1983) 33 Cal.3d 778, 782.) There is no single test for determining whether the right to arbitrate has been waived. The determination is a question of fact, and a finding of waiver by the trial court is binding on the appellate court if it is supported by substantial evidence. (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 983.)

In determining waiver, a court can consider (1) whether the partys 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. (Sobremonte v. Superior Court (1998) 61 Cal.App.4th 980, 992 (Sobremonte), quoting Peterson v. Shearson/American Exp., Inc. (10th Cir. 1988) 849 F.2d 464, 467-468.)

[C]ourts have found prejudice where the petitioning party used the judicial discovery processes to gain information about the other sides 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 partys attempts to litigate resulted in lost evidence [citation]. (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1204 (St. Agnes).)

When we consider these factors, we conclude the trial court correctly determined that Bernards waived its right to arbitrate this dispute.

Bernards claims that it did nothing inconsistent with its arbitration remedy once Craneveyor revealed the true amount of its claim ($503,000) in August 2006. Bernards contends it did nothing to prepare for the trial after August 1, with the exception of deposing one witness. However, this argument begs the question. Was Bernardss right to arbitrate the dispute triggered by Craneveyors July 31 discovery responses? The answer is significant, as Bernards has made no effort to justify the October filing of the petition if its right to arbitrate arose no later than April, as Craneveyor contends.

Bernards asserts that it filed the petition to compel arbitration as soon as it became aware that the arbitration agreement applied to this controversy. It blames Craneveyor for any delay, arguing that Craneveyor did not make it clear that it was seeking more than $375,000 in damages until July 31, 2006, eight months after it filed the original complaint. Thus, Bernards contends that the earliest it could have filed its petition was August 1, the date it received Craneveyors interrogatory responses. Bernards acknowledges that on April 28, 2006, it claimed an offset of $571,475.08 as a defense against Craneveyors alleged damages. However, it argues that this was not a claim within the meaning of the arbitration agreement. Bernards urges that in order to determine whether a claim is subject to arbitration, we must calculate the net amount in dispute. Bernards concludes that the difference between its offset claim and Craneveyors damages claim, $359,251.68, was insufficient to invoke the arbitration agreement. We disagree with Bernardss analysis.

The contract provides in section 16.11.1 that claims under $375,000 shall be resolved in accordance with the procedures established in the California Public Contract Code. Under the heading Arbitration, section 16.11.2 states: Except as provided in Article 16.11.1, any other claims, disputes, disagreements or other matters in controversy between the parties shall be resolved by arbitration. In November, Bernards filed a cross-complaint seeking damages caused by Craneveyors failure to properly and timely perform its work on the Project. There is no question Bernardss allegation that Craneveyors delay resulted in damages of $571,475.08 fits squarely in the language defining the type of dispute subject to arbitration. Although Bernards asserts it is merely seeking the difference between the damages sought by the parties, its cross-complaint makes no such concession. Bernards is seeking all compensatory damages caused by Craneveyors breach. This belies Bernardss assertion that its claim is nothing more than an offset against Craneveyors claim for damages. We conclude that Bernards had a right to seek arbitration no later than April 28, 2006.[2]

As we have noted, Bernards has chosen to ignore the issue of waiver that arises if we determine, as we have, that its right to seek arbitration ripened no later than April 2006. In its opening brief, Bernards fails to address any of the factors set forth in Sobremonte.In its reply brief, it argues only that it did not take unfair advantage of any discovery tools not otherwise available in arbitration. We need not consider new arguments raised by an appellant in its reply brief. (Reichardt v. Hoffman (1997) 52 Cal.App.4th 754, 764.) In any event, whether a party took advantage of more favorable judicial discovery tools prior to seeking arbitration is only one of the factors we consider.

Craneveyor argues that the litigation process was well underway prior to the filing of the petition. Cranveyor claims that it had inspected voluminous documents, copying approximately 7,500, and reviewing them for use in the trial. Both parties had conducted discovery, through interrogatories, depositions, exchange of expert witnesses, and demands for expert reports. Craneveyor alleges that Bernards also resisted certain discovery requests, requiring Craneveyor to seek an ex parteorder compelling the appearance of certain Bernardss employees for depositions and the production of documents. Bernards does not dispute Craneveyors characterization of the trial preparation that had taken place.

In the final analysis, Bernards began this litigation taking all the steps necessary to adjudicate the dispute by trial. The parties undertook over 10 months of discovery in anticipation of the event. Despite having the right to compel arbitration, Bernards allowed trial preparation to continue. It would be too generous to say that Bernards waited until the eve of trial to file its petition. Indeed, it waited until after it had received a continuance of the original trial date before demanding that Craneveyor submit to arbitration. Craneveyor asserts that it would have been ready for trial in December.

Craneveyor points out that this dispute began in 2004, and it filed suit in 2005 when attempts to resolve the matter failed. Ordinarily, arbitration is a less costly and speedier alternative of dispute resolution than trial. Here, however, Craneveyor has endured the time and cost of trial preparation, and now that it is ready to proceed with the trial, Bernards untimely seeks arbitration, leading to further delay. Craneveyor has lost the benefits that arbitration would have provided. Having been forced to prepare and pay for the privilege of a trial, Craneveyor should have the benefit of proceeding in that forum, if they so choose. (St. Agnes, supra, 31 Cal.4th at p. 1204; Sobremonte, supra, 61 Cal.App.4th at p. 996.)

We find substantial evidence supports the trial courts finding that Bernards waived its right to arbitrate this dispute.

DISPOSITION

The trial courts order denying Bernardss petition to compel arbitration is affirmed. Craneveyor is to recover its costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

SUZUKAWA, J.

We concur:

EPSTEIN, P. J.

MANELLA, J.

Publication courtesy of California pro bono legal advice.

Analysis and review provided by La Mesa Property line Lawyers.

[1] Prior to filing its complaint, Craneveyor served a public works stop notice on the District. Bernards posted a bond in order to release monies that the District was holding pursuant to the stop notice. Craneveyor then filed claims in the first amended complaint against the sureties involved. Given our resolution of the issue, we do not address Craneveyors contention that arbitration cannot be compelled because its claims against the sureties are not subject to arbitration.

[2] Given the undisputed evidence that Craneveyor completed its work on the project in August 2005, Bernards certainly was aware of the alleged damage caused by Craneveyors performance long before it served its discovery responses on April 28, 2006. We are giving Bernards the benefit of the doubt by using the April date in our analysis.