Opinion
G053406
08-25-2017
EAGLE IRON ERECTORS, INC., Plaintiff and Respondent, v. W&W STEEL COMPANY et al., Defendants and Appellants.
Alvarado Smith, W. Michael Hensley; Berger Harrison and Benjamin B. Berger for Plaintiff and Respondent. K&L Gates, Timothy L. Pierce, Tyler J. Cesar, Kevin S. Asfour and Rebecca Liu for Defendants and Appellants.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2015-00774560) OPINION Appeal from an order of the Superior Court of Orange County, Ronald L. Bauer, Judge. Affirmed. Alvarado Smith, W. Michael Hensley; Berger Harrison and Benjamin B. Berger for Plaintiff and Respondent. K&L Gates, Timothy L. Pierce, Tyler J. Cesar, Kevin S. Asfour and Rebecca Liu for Defendants and Appellants.
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INTRODUCTION
Defendants W&W Steel Company and W&W Steel, LLC (together W&W Steel) appeal from an order denying their petition to compel the arbitration of plaintiff Eagle Iron Erectors, Inc.'s (Eagle Iron) breach of contract claims against them. We affirm the order denying the petition to compel arbitration. W&W Steel waived the right to arbitrate because (1) it undertook actions that were inconsistent with a right to arbitrate, (2) it unreasonably delayed in seeking arbitration, and (3) Eagle Iron suffered prejudice from that delay.
BACKGROUND
In March 2015, Eagle Iron filed a complaint against W&W Steel asserting causes of action for breach of contract and late payments. Eagle Iron alleged it entered into subcontractor services agreements (the subcontracts) with W&W Steel to install steel at several different project sites in Southern California, but was not paid in full for its work.
In May 2015, W&W Steel filed a demurrer to the complaint. A month later, before the scheduled hearing on the demurrer, Eagle Iron filed a first amended complaint and also propounded discovery.
Because our record does not contain copies of those discovery requests, it is unclear whether the discovery was propounded on W&W Steel Company or W&W Steel, LLC.
In July 2015, W&W Steel demurred to the first amended complaint. Eagle Iron filed an opposition to the demurrer to the amended complaint. The trial court sustained the demurrer with leave to amend.
After W&W Steel served responses to the demand for production of documents and to the special interrogatories, in September 2015, Eagle Iron filed a motion to compel the production of documents and a motion to compel further responses to the special interrogatories.
In September 2015, Eagle Iron filed a second amended complaint, which included new allegations regarding terms of the subcontracts, including the identities of project owners and general contractors. In October 2015, W&W Steel filed an opposition to the motions to compel the production of documents and further responses to the special interrogatories.
On October 23, 2015, three days before the scheduled hearing on Eagle Iron's motions to compel the production of documents and further responses to the special interrogatories, and seven and a half months after the initial complaint was filed, W&W Steel filed a petition to compel arbitration (the petition). In the petition, W&W Steel sought an order compelling the arbitration of all claims arising out of the subcontracts on the ground "an executed, enforceable Agreement exists and that it contains a binding arbitration clause."
W&W Steel's attorney, Charles R. Gossage, filed a declaration in support of the petition, stating in part: "The executed subcontract agreement between [W&W Steel] and Eagle Iron Erectors, Inc. contains a binding arbitration clause. Specifically, it is Article 22 - Arbitration/Dispute Resolution which spells out the following arbitration clause: [¶] ARTICLE 22 - ARBITRATION/DISPUTE RESOLUTION. Any claim arising out of or related to this Subcontract shall be subject to binding arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association currently in effect. Demand for arbitration shall be filed in writing with the other party to this Subcontract and with the American Arbitration Association in California. The place of arbitration shall be San Diego, California and shall be governed by and interpreted in accordance with the laws of the State of California."
Eagle Iron filed an opposition to the petition, arguing: (1) W&W Steel failed to show any of the subcontracts contained an applicable binding arbitration provision; and (2) even if it had, W&W Steel waived its right to compel arbitration because it had acted in a manner inconsistent with arbitration by engaging in the litigation process for months before filing the petition.
In December 2015, the trial court denied the petition. The trial court granted Eagle Iron's motions to compel the production of documents and further responses to the special interrogatories and issued sanctions against W&W Steel in connection with those discovery motions. Trial was set for August 2016.
The court's minute order contained a summary denial of the petition, and our record does not include a transcript of the hearing. The parties do not agree regarding the trial court's reasons for denying the petition. In Gossage's declaration filed in support of W&W Steel's renewed motion to compel arbitration discussed post, he stated: "The Court denied the Petition to Compel Arbitration and Stay the Action on two (2) grounds: (a) that [W&W Steel] had not met its burden of proof because the subcontract was not submitted to the Court and (b) the Court, sua sponte, ruled that [W&W Steel] failed to offer evidence that Plaintiff refused to arbitrate the case." In the respondent's brief on appeal, Eagle Iron refers to Gossage's recollection of the trial court's reasons as "pure speculation." No party requested a statement of decision from the trial court pursuant to section 632 or section 1291 of the Code of Civil Procedure. (All further statutory references are to the Code of Civil Procedure.) --------
In January 2016, W&W Steel filed a "renewed motion to compel arbitration" (the renewed motion), which, in a supporting declaration, Gossage stated was "based on new or different facts and law" from the petition itself. The renewed motion was brought on the grounds that (1) Eagle Iron and W&W Steel executed valid agreements mandating arbitration of all claims arising out of the subcontracts, and these applied to Eagle Iron's claims in the second amended complaint; (2) W&W Steel did not waive its right to compel arbitration; and (3) no grounds existed for the revocation of any of the arbitration agreements.
W&W Steel's executive vice-president, Jay Meador, filed a declaration in support of the renewed motion which stated W&W Steel was not able to locate the subcontracts at the time Eagle Iron "first filed this Action . . . given that most of them related to projects that were 5-7 years old." He further stated that when the petition was filed, "our knowledge was [the subcontract agreements] contained arbitration clauses as all of W&W Steel's subcontracts do and we do not negotiate on that point. It is W&W Steel policy that all subcontracts contain arbitration clauses and all disputes are arbitrated." He also stated: "Thereafter, we commenced a search mission to locate the subcontracts. After several weeks of searching for the subcontracts, we finally located the executed subcontracts in our off-site archive storage facility," except for one executed subcontract that was not found and was still the subject of a search. He stated that the same binding arbitration provision (however modified to reflect the applicable place designated for arbitration) was contained in the subcontract agreements "for each and every project alleged in Plaintiff's complaint," copies of which were attached to his declaration.
The renewed motion was also supported by Gossage's declaration which reiterated the subcontracts were unavailable at the time W&W Steel filed the petition because they were "so old," but had since been found and were attached to the renewed motion. He also stated Eagle Iron refused W&W Steel's requests to "stipulate to arbitration on multiple occasions." The trial court denied the renewed motion.
W&W Steel filed a notice of appeal from the order denying the petition. Pursuant to section 1008, subdivision (g), we review the denial of the renewed motion as part of the appeal from the order denying the petition.
DISCUSSION
We do not need to address whether W&W Steel carried its burden to prove the existence of an applicable agreement to arbitrate. For the reasons discussed post, even assuming W&W Steel carried that burden, substantial evidence supported the implied finding that W&W Steel waived the right to arbitrate.
I.
STANDARD OF REVIEW
We review an order denying a petition to compel arbitration under the substantial evidence standard unless the trial court considered no extrinsic evidence, in which case we review the order de novo. (Lane v. Francis Capital Management LLC (2014) 224 Cal.App.4th 676, 683.) "Generally, the determination of waiver is a question of fact, and the trial court's finding, if supported by sufficient evidence, is binding on the appellate court. [Citations.] 'When, however, the facts are undisputed and only one inference may reasonably be drawn, the issue is one of law and the reviewing court is not bound by the trial court's ruling.'" (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1196 (St. Agnes).)
Under a sufficiency of the evidence standard of review, we construe all reasonable inferences and resolve all ambiguities to support a trial court's decision. (Burton v. Cruise (2010) 190 Cal.App.4th 939, 946 (Burton); Davis v. Continental Airlines, Inc. (1997) 59 Cal.App.4th 205, 211.) In this case, the facts related to the waiver issue are undisputed, but more than one reasonable inference can be drawn from them. We therefore review the trial court's finding of waiver for sufficiency of the evidence and draw all reasonable inferences in support of the trial court's decision. (St. Agnes, supra, 31 Cal.4th at p. 1196; Davis v. Continental Airlines, Inc., supra, at p. 211.)
II.
FACTORS CONSIDERED IN DETERMINING WAIVER OF ARBITRATION
A trial court may deny a petition to compel arbitration of a controversy on the ground of waiver. (§ 1281.2, subd. (a).) In determining waiver, a court may consider such factors as "'"(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 place'; and (6) whether the delay 'affected, misled, or prejudiced' the opposing party."'" (St. Agnes, supra, 31 Cal.4th at p. 1196.)
More recently, in Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348 (Iskanian), the California Supreme Court focused on three factors in its analysis of waiver of the right to arbitrate: (1) "whether the party asserting arbitration has acted inconsistently with the right to arbitrate" (id. at p. 376); (2) "whether a delay was 'unreasonable'" (ibid.); and (3) "'prejudice,'" which is "'critical in waiver determinations'" (id. at pp. 376-377).
III.
W&W STEEL WAIVED THE RIGHT TO ARBITRATE
A.
W&W Steel's Actions Were Inconsistent with Its Right to Arbitrate.
Partial or piecemeal litigation of issues in a dispute is enough to find a party's actions to be inconsistent with a right to arbitrate. (Lewis v. Fletcher Jones Motor Cars, Inc. (2012) 205 Cal.App.4th 436, 448.) Courts have classified a number of actions to be inconsistent with an intent to arbitrate, including whether the party has (1) filed a demurrer or a motion to strike (id. at p. 450); (2) accepted and contested discovery, engaged in efforts to schedule discovery, and omitted to mark or assert arbitration in a case management statement (Adolph v. Coastal Auto Sales, Inc. (2010) 184 Cal.App.4th 1443, 1451 (Adolph)); (3) requested a jury trial on a case management statement (Burton, supra, 190 Cal.App.4th at p. 947); (4) filed a cross-complaint (Sobremonte v. Superior Court (1998) 61 Cal.App.4th 980, 994); and (5) filed an answer to a complaint without asserting arbitration as a defense (Guess?, Inc. v. Superior Court (2000) 79 Cal.App.4th 553, 555).
Here, W&W Steel undertook actions inconsistent with the right to arbitrate. W&W Steel demurred to Eagle Iron's initial complaint. (Lewis v. Fletcher Jones Motor Cars, Inc., supra, 205 Cal.App.4th at p. 450.) After Eagle Iron filed the first amended complaint before the scheduled hearing on the demurrer, W&W Steel demurred to the first amended complaint. W&W Steel contends filing two demurrers was not inconsistent with the right to arbitrate. But, as established by the authorities cited ante, the action of filing a demurrer, much less two demurrers, is in itself inconsistent with the right to arbitrate. Nothing in the record suggests W&W Steel raised arbitration in either of its demurrers, or at all in the trial court, before filing the petition.
Furthermore, by the time W&W Steel filed the petition, it had responded to discovery and opposed motions to compel the production of documents and further responses to special interrogatories. Again, nothing in the record suggests W&W Steel raised arbitration in its discovery responses or oppositions to motions to compel.
W&W Steel's demurrers combined with its participation in discovery showed W&W Steel "acted inconsistently with the right to arbitrate." (Iskanian, supra, 59 Cal.4th at p. 376.)
B.
W&W Steel's Delay Was Unreasonable.
"'[A] demand for arbitration must not be unreasonably delayed. . . . [A] party who does not demand arbitration within a reasonable time is deemed to have waived the right to arbitration.'" (Sobremonte v. Superior Court, supra, 61 Cal.App.4th at p. 992.) The party seeking to compel arbitration has 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.'" (Id. at pp. 993-994.) "[A] party's unreasonable delay in demanding or seeking arbitration, in and of itself, may constitute a waiver of a right to arbitrate." (Burton, supra, 190 Cal.App.4th at p. 945.) To determine if there was unreasonable delay, courts have considered the amount of time that has passed from the commencement of the action to the expression of the desire to arbitrate. (Lewis v. Fletcher Jones Motor Cars, Inc., supra, 205 Cal.App.4th at p. 446 [four months was unreasonable delay]; Adolph, supra, 184 Cal.App.4th at p. 1451 [six months was unreasonable delay]; Guess?, Inc. v. Superior Court, supra, 79 Cal.App.4th at p. 556 [less than four months was unreasonable delay].)
Eagle Iron filed its initial complaint in March 2015. It filed the first amended complaint in June 2015, and the second amended complaint in September 2015. W&W Steel did not file the petition until October 23, 2015—about seven and a half months after Eagle Iron commenced this action. W&W Steel argues its delay was justified because at the time it filed the petition, the case was not at issue and no trial date had been set. However, W&W Steel was not required to wait for the pleadings to be at issue or for a trial date before filing the petition.
W&W Steel further argues the delay was caused by Eagle Iron's failure to attach the subcontracts to its pleadings. Eagle Iron's failure to attach the subcontracts to the pleadings did not prevent W&W Steel from filing the petition earlier. Furthermore, the declarations filed in support of the petition and the renewed motion show W&W Steel did not begin to search for copies of the subcontracts, which they believed contained arbitration provisions, until after it filed the petition. The seven and a half month period between the commencement of the action and the filing of the petition was unreasonable.
C.
Eagle Iron Suffered Prejudice.
Without some prejudice to the opposing party, participation in litigation will not be enough to find waiver. (St. Agnes, supra, 31 Cal.4th at pp. 1203-1204.) Delay in seeking arbitration can, in itself, result in prejudice: "'[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.'" (Iskanian, supra, 59 Cal.4th at p. 377.)
In Adolph, supra, 184 Cal.App.4th at page 1451, the defendant delayed six months after the complaint was filed to request arbitration. During that time period, the defendant filed two demurrers, failed to request arbitration in the case management statement, accepted and contested discovery requests, and attempted to schedule discovery. (Ibid.) A panel of this court affirmed the trial court's conclusion the defendant's delay resulted in prejudice sufficient to justify denial of the petition to compel arbitration. (Id. at pp. 1451-1452.)
The prejudice caused by W&W Steel's delay in seeking arbitration is more significant than the prejudice found in Adolph to justify denial of a petition to compel arbitration. Here, there was a seven and a half month delay from the time Eagle Iron commenced the action to the time W&W Steel filed the petition. During that period of time, W&W Steel filed two demurrers, and Eagle Iron propounded two sets of discovery requests, and filed motions to compel further discovery. By engaging in litigation of Eagle Iron's claims during this time period, W&W Steel's conduct "'depriv[ed] the other party of the advantages of arbitration as an "expedient, efficient and cost-effective method to resolve disputes."'" (Iskanian, supra, 59 Cal.4th at p. 377.) Thus, substantial evidence supported the finding that W&W Steel's sudden demand for arbitration, following its filing of two demurrers, serving responses to discovery, opposing motions to compel further discovery responses, and the otherwise inexplicable delay in pursuing arbitration, prejudiced Eagle Iron.
DISPOSITION
The order denying the petition to compel arbitration is affirmed. Respondent shall recover costs incurred on appeal.
FYBEL, J. WE CONCUR: BEDSWORTH, ACTING P. J. MOORE, J.