Dunham v. Sierra Process
Systems
Filed 1/21/14 Dunham v. Sierra Process Systems CA1/2
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 This opinion has not been
certified for publication or ordered published for purposes of rule 8.1115.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,
v.
SIERRA PROCESS SYSTEMS, INC.,
Defendant and
Appellant.
A137240
(Contra
Costa County
Super. Ct. No. C12-00879)
Richard Dunham filed a lawsuit
against Sierra Process Systems, Inc. (SPS) for wrongful termination and other
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
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 ri
denial of the petition was not supported by substantial evidence. We disagree and affirm.
BACKGROUND
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)].â€
B.
On April 11, 2012,
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.
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.â€
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.â€
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.
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.
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.
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.
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 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.â€
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
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.â€
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.
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 arbitrateâ€; (2) “[SPS]
‘substantially invoked’ the litigation machinery by serving discovery upon
[Dunham]â€; (3) “[t]he discovery undertaken gave [SPS] an advantage not normally
available in arbitration proceedingsâ€; and (4) “[i]f [SPS] intended to invoke
its arbitration right, it misled [Dunham] to his prejudice.â€
SPS timely filed a notice of appeal
on December 3.
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.
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
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 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
placeâ€; and (6) whether the delay “affected, misled, or prejudiced†the
opposing party. [Citations.]’ [Citation.]â€
(Sobremonte,
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 participation, 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.†’ â€
(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 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.
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.
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.
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
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.
title="">[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 (
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 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.
We conclude that ample evidence supports
a finding that SPS’s actions were inconsistent with a right to arbitrate.
B.
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
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.
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.
In arguing that it had not
substantially invoked the machinery of litigation, SPS cites
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.
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.)
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?,
month delay]; Adolph,
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].)
inconsistent with an intent to arbitrate, we conclude that ample evidence
supports a finding that SPS’s delay was unreasonably long.
D.
a Stay for Arbitration
Because
SPS had no counterclaims, this factor is not applicable to the facts of the
case before us.
E.
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
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 Arbitration Rules and Mediation Procedures
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.â€
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 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.
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.â€
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.â€
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.†(
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 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.†(
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.
We conclude that four of the
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.
The order denying SPS’s petition to
compel arbitration is affirmed. Dunham
is awarded costs.
_________________________
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.
the year 2012.
considered in Sobremonte as the
