Opinion
D075029
04-01-2020
MARTIN MACKEY, Plaintiff and Respondent, v. BANKERS LIFE & CASUALTY COMPANY, Defendant and Appellant.
Littler Mendelson, P.C. and William Hays Weissman for Defendant and Appellant. Cornerstone Law Group, Harry Lewis and Gordon W. Renneisen for Plaintiff and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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. JCCP 4954 ) APPEAL from an order of the Superior Court of San Diego County, Ronald Frazier, Judge. Affirmed. Littler Mendelson, P.C. and William Hays Weissman for Defendant and Appellant. Cornerstone Law Group, Harry Lewis and Gordon W. Renneisen for Plaintiff and Respondent.
Martin Mackey filed a class action complaint against Bankers Life & Casualty Company (Bankers) and two of its managers, alleging he and similarly situated workers were misclassified as independent contractors and he was wrongfully terminated for complaining about this status. After conducting some class discovery and unsuccessfully attempting to fully coordinate the action with another class action, defendants moved to compel Mackey to arbitrate his claims on an individual basis. The court denied the motion on two independent grounds: (1) defendants waived their arbitration right; and (2) the parties' arbitration agreement is procedurally and substantively unconscionable.
Bankers challenges both findings. We determine substantial evidence supported the court's waiver finding and affirm the order on this basis. We thus do not reach Mackey's challenges to the court's unconscionability finding, and do not discuss the facts or law relating only to the unconscionability issues.
Although the notice of appeal includes all defendants, the opening and reply briefs identify only Bankers as the appellant.
RELEVANT FACTUAL AND PROCEDURAL SUMMARY
In 2013, Mackey began working for Bankers as an insurance agent in "Office 1040," which includes its two Orange County offices. Two years later, Bankers requested he sign an arbitration agreement mandating that covered disputes be resolved in binding arbitration and that he waive his right to bring class and other collective actions in arbitration.
Under these provisions, the parties "agree[d] that [covered] dispute[s] . . . will be resolved exclusively by individual arbitration . . . ," and that they "waive any right or authority to have any dispute . . . heard as a class, collective, representative or private attorney general action or arbitration," except the "waiver related to private attorney general actions does not apply to any claim Agent brings as a private attorney general solely on the Agent's own behalf and not as a representative for or regarding other persons."
Mackey signed the agreement, believing it was a requirement of the job. Bankers terminated Mackey about two years later in February 2017, shortly after he allegedly complained that he and other workers were misclassified as independent contractors.
Several months later, on August 31, 2017, Mackey filed a complaint in Orange County Superior Court against Bankers and two of its managers/officers (Maryam Habashi and Richard Harman). Mackey alleged wage and hour violations on behalf of himself and a class of similarly situated individuals currently or formerly working in Office 1040. He claimed Bankers misclassified him and the other workers as independent contractors instead of employees. He sought damages under applicable Labor Code sections; declaratory, injunctive and restitutionary relief under Business and Professions Code section 17200 (UCL); and penalties under the Private Attorney General Act of 2004 (PAGA). Mackey also alleged an individual wrongful discharge claim based on his assertion that Bankers terminated him for complaining about his independent contractor status.
About one month later, on October 2, defendants filed an answer denying the allegations. Defendants asserted 15 affirmative defenses, but did not include the arbitration agreement as one of these defenses or otherwise mention the agreement in its answer.
Three weeks later, on October 23, defendants moved in San Diego County Superior Court to coordinate Mackey's Orange County case with another similar class action case (Hsueh v. Bankers Life & Casualty) that had been pending in the San Diego court since 2014. The Hsueh case involved similar misclassification claims by insurance agents in Bankers's San Diego offices.
The three-year time period is attributable, in part, to the fact that Bankers twice removed the action to the federal court, but each time the court granted the plaintiff's motion to remand the matter back to the superior court.
Defendants argued that "proceeding in one forum will serve the convenience of the parties and counsel because common issues will be adjudicated in a single forum"; "[c]oordinating the matters will ease the burden on witnesses, by requiring those that may be called in both actions to only attend one court proceeding"; and coordination will "expedite the cases, keep costs reasonable, and . . . promote effective decision making by the courts, the parties, and counsel." Defendants noted that the Mackey and Hsueh plaintiffs were represented by the same counsel; Bankers and Habashi were named defendants in both actions; and both sets of defendants were represented by the same counsel. Defendants requested that the coordinated cases be heard in Orange County Superior Court.
Mackey did not object to pretrial coordination, but objected to coordinating the actions for trial or class certification proceedings and asked that the pretrial coordination occur in the San Diego court. Mackey argued that coordination for all purposes in Orange County would be unfair because the Hsueh case was more advanced than his case and had been pending in San Diego court for a substantial period. Mackey noted that the classes did not overlap because they consisted of agents working in different geographical areas. Mackey argued that the Hsueh plaintiffs would be prejudiced by being forced to wait for discovery to be completed in his own case, and/or he would be prejudiced by limiting his rights if the class certification and trial matters were moved forward to accommodate the Hsueh plaintiffs.
On January 18, 2018, the San Diego County Superior Court (Judge Ronald Frazier) held a coordination hearing. After the hearing, the court ruled it would coordinate the Mackey and Hsueh actions in the San Diego Superior Court, but only for case management and discovery purposes. The court left open the issue whether it would coordinate the cases for all purposes, and said it would reconsider the matter at the May 11, 2018 case management conference.
During the next several months, the parties engaged in discovery. On January 25, 2018, Mackey propounded written discovery on Bankers seeking information relevant to his class claims, including class member identity and contact information, and commission and payroll data. Bankers responded and produced documents, and the parties met and conferred regarding these responses.
Two months later, on about March 13, defendants propounded special interrogatories and a document production request on Mackey. The interrogatories sought information about Mackey's background and individual claims, and also included seven questions pertaining to Mackey's class allegations, including a request that Mackey state all facts supporting his contentions that "common questions of law and fact exist as to all members of the proposed class"; "class action treatment is superior to any alternative"; "members of the proposed class are so numerous that joinder of all members is impractical"; "your claims are typical of the claims of the members of the proposed class"; "you will fairly and adequately represent the interests of the proposed class"; and "you have retained and are represented by experienced counsel that will zealously advocate on behalf of the proposed class." Defendants' request for production of documents sought seven categories of documents relating to Mackey's class allegations.
The next month, Mackey responded to the interrogatories and document production requests and then produced responsive documents. Mackey's counsel met and conferred with defense counsel regarding the responses, and later provided supplemental responses.
On May 3, defendants propounded a second set of special interrogatories on Mackey pertaining primarily to his individual claims.
On May 4, the parties filed their joint status conference statement and defendants' case management statement. In the joint statement, the parties restated their earlier positions regarding consolidating the Mackey and Hsueh cases for class certification and trial purposes (Mackey was strongly opposed; and Bankers was strongly in favor). In the statement, Bankers did not identify the arbitration agreement as a matter that may "impact[] the Court's jurisdiction," or reference a petition to compel arbitration in its description of anticipated motions. In its case management statement, Bankers did not check the box asking whether it was "willing" to submit to binding arbitration.
At the May 11 case management conference, the court denied defendants' renewed request to coordinate the two class actions for class certification and trial purposes, primarily because of the three-year difference in the filing dates.
About one month later, in mid-June, defense counsel notified Mackey's counsel for the first time that it intended to seek individual arbitration of Mackey's claims. Counsel stated: "In light of the Supreme Court's Epic Systems opinion and the trial court's decision not to consolidate [the] Mackey [matter] with Hsueh, Bankers wants to enforce its arbitration agreement with Mackey."
In Epic Sys. Corp. v. Lewis (2018) 584 U.S. ___ [138 S.Ct. 1612, 1621], the United States Supreme Court held the plaintiff's National Labor Relations Act (NLRA) claim was subject to individual arbitration under the parties' arbitration agreement, rejecting the plaintiff's argument that the NLRA takes precedence over the Federal Arbitration Act. (Epic, at pp. 1623-1630; see Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 366-374 (Iskanian) [reaching same conclusion two years earlier].)
Shortly after, defendants petitioned to compel Mackey's case to individual arbitration. Defendants argued that all of Mackey's claims were subject to arbitration, and their delay in seeking arbitration did not bar their arbitration rights because no depositions had occurred; only limited discovery had been exchanged; no trial date had been set; and there was no prejudice to Mackey.
In opposing the motion, Mackey did not dispute his claims were within the scope of the parties' arbitration agreement, but argued (1) defendants waived their right to compel arbitration; (2) his PAGA claim is not subject to arbitration because the waiver is not enforceable under Iskanian, supra, 59 Cal.4th 348; and (3) the arbitration agreement is procedurally and substantively unconscionable and thus unenforceable.
On the waiver issue, Mackey argued defendants' actions in propounding classwide discovery and seeking to coordinate the matter with the Hsueh case was inconsistent with their claimed arbitration right. Mackey also asserted that defendants' delay in seeking to enforce the arbitration was the result of a tactical decision to obtain an advantageous position through a complete coordination of the class actions, and defendants changed course only when it was unsuccessful in obtaining that advantage. Mackey maintained he was prejudiced because the delay impaired his ability to " ' "take advantage of the benefits and efficiencies of arbitration" ' " and resulted in " 'legal fees and costs . . . associated with work that would be useless in arbitration.' "
Mackey submitted his counsel's supporting declaration describing the parties' discovery conduct (summarized above). Mackey's counsel attached copies of Bankers's discovery requests and Mackey's responses and supplemental responses to those requests. He also attached a copy of Mackey's own requests for production of documents, and said that Bankers responded to the discovery by producing "hundreds of documents," and then provided supplemental responses and additional documents after the parties met and conferred. Mackey's counsel said the parties were continuing to meet and confer regarding Bankers's responses when defendants filed the petition to compel.
In reply, defendants argued they did not waive their right to arbitration because moving to coordinate is not inconsistent with the right to arbitrate; it did not substantially invoke the "litigation machinery"; there was minimal delay given that the matter was stayed while the motion to consolidate was pending; and Mackey has not shown he suffered any prejudice as a result of the delay. Defendants submitted their attorney's declaration, stating: "Plaintiff's representation that Bankers has produced hundreds of pages of documents in discovery is misleading. In the Mackey action, Bankers has participated in minimal written discovery. In responding to Plaintiff Mackey's discovery, it has primarily produced Plaintiff's personnel file and emails that were sent to or from Plaintiff. The overwhelming majority of the documents that have been produced in this coordinated action instead relate to the separate Hsueh matter . . . . The discovery related to the [Mackey] action has been significantly limited in both size and duration."
After a hearing, the court denied the petition to compel arbitration on two independent grounds: unconscionability and waiver. On waiver, the court reasoned: "Bankers has acted inconsistently with the right to arbitrate by: (a) propounding class-wide discovery . . . ; (b) failing to plead arbitration as an affirmative defense in its initial answer . . . ; (c) waiting almost a year to file a motion to compel arbitration (the complaint was filed on August 31, 2017 and the motion was filed on July 2, 2018) . . . ; and (d) coordinating this case with another case . . . that is not subject to arbitration and only sought arbitration after this Court denied fully coordinating the cases." The court found Mackey was prejudiced by Bankers's conduct and delay because he "incurred fees relating to briefing and argument on the motion to coordinate and responding to discovery on class action allegations that would be useless in arbitration."
Bankers filed an unopposed request that we take judicial notice of several documents. We grant the motion, but consider the documents only to the extent they are relevant to the issues before us.
DISCUSSION
I. Governing Law
Federal and state law reflect a strong public policy favoring arbitration as " ' "a speedy and relatively inexpensive means of dispute resolution." ' " (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1204 (St. Agnes).) Although courts may refuse to enforce an arbitration agreement on waiver grounds, waiver claims receive "close judicial scrutiny" and the "party seeking to establish a waiver bears a heavy burden of proof." (Id. at p. 1195; accord, Iskanian, supra, 59 Cal.4th at p. 375; see Code Civ. Proc., § 1281.2, subd. (a).)
A " 'waiver' " in the legal sense generally refers to the " 'voluntary relinquishment of a known right.' " (Iskanian, supra, 59 Cal.4th at p. 374.) But in the arbitration context, the party's intent is not determinative. Instead, waiver is " ' "used as a shorthand . . . for the conclusion that a contractual right to arbitration has been lost" ' " because the party engaged in conduct abandoning that right and this conduct prejudiced the other party. (Ibid.)
There is no "single test" to determine whether the party waived a contractual arbitration right. (St. Agnes, supra, 31 Cal.4th at p. 1195; accord, Iskanian, supra, 59 Cal.4th at pp. 374-375; Davis v. Continental Airlines, Inc. (1997) 59 Cal.App.4th 205, 211-212 (Davis).) Instead, the courts evaluate the totality of the circumstances to determine whether a waiver exists. Relevant factors include: " ' " '(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.' " ' " (Iskanian, at p. 375; St. Agnes, at p. 1196.)
"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. . . . '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, supra, 31 Cal.4th at p. 1196.) "If more than one reasonable inference may be drawn from undisputed facts, the substantial evidence rule" governs and "requires indulging the inferences favorable to the trial court's judgment." (Davis, supra, 59 Cal.App.4th at p. 211; see Sprunk v. Prisma LLC (2017) 14 Cal.App.5th 785, 795 (Sprunk) [substantial evidence standard applies to trial court's evaluation of relevant litigation events].)
II. Analysis
The court found Bankers waived its contractual arbitration right by unreasonably delaying the arbitration demand, taking steps inconsistent with a claimed arbitration right, using the judicial forum to gain a strategic advantage, and substantially prejudicing Mackey's rights embodied in the arbitration agreement. The court had a sound basis to reach each of those factual conclusions and these conclusions support the court's waiver finding.
Most important, Bankers's class discovery and efforts to join the matter with an existing class action were incompatible with its later arbitration request. The parties' arbitration agreement mandates arbitration of individual claims and prohibits Mackey from bringing any "class, collective, representative or private attorney general action. . . ." Bankers does not deny it was aware of this agreement when Mackey filed his lawsuit. Yet, it did exactly the opposite of this contractual mandate: it sought to join Mackey's class-action case with class-action litigation in which the named plaintiff had not signed an arbitration agreement. In seeking consolidation, Bankers argued the legal claims and the nature of the class action litigation would be the same regardless whether the agents had worked in San Diego and/or in Orange County. It then engaged in discovery to obtain detailed factual information about Mackey's class claims, information it was not entitled to obtain in the arbitration context.
While the full coordination motion was still pending and it was continuing to engage in class discovery, Bankers's counsel signed the joint case management conference statement without mentioning the arbitration agreement or giving any indication to the court or Mackey that it intended to rely on the agreement to pursue individual arbitration. Bankers also left blank the question whether it was even "willing" to consider binding arbitration, leading to a reasonable inference that it was abandoning (or at least not intending to assert) its rights under the arbitration provision. Viewing Bankers's conduct " 'as a whole,' " the trial court had an ample basis to find it acted inconsistently with a desire to arbitrate. (McConnell v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1980) 105 Cal.App.3d 946, 951.)
Another Court of Appeal reached the same conclusion on a similar factual record. (Bower v. Inter-Con Security Systems, Inc. (2014) 232 Cal.App.4th 1035 (Bower).) In Bower, as here, the plaintiff brought a wage-and-hour class action complaint, and defendant waited about seven months after filing its answer to file a petition to compel arbitration. (Id. at pp. 1038-1040.) During this time, the defendant engaged in settlement discussions and class discovery, primarily by serving document requests seeking numerous categories of documents relevant to class issues. (Id. at p. 1040.) Finding this conduct constituted a waiver, the court observed: "[The defendant] acted inconsistently with the right to compel arbitration primarily by propounding classwide discovery. It is and has been [the defendant's] position that this case must be arbitrated on an individual basis only and not as to class claims. Seeking classwide discovery in litigation is fundamentally inconsistent with the claim that any arbitration under the arbitration agreement would be limited to [the plaintiff's ] individual claims." (Id. at pp. 1043-1044; accord, Roberts v. El Cajon Motors (2011) 200 Cal.App.4th 832, 846 (Roberts).) The Bower court also noted it was reasonable to infer from the record that the defendant's actions reflected a "tactical decision to resolve the matter on a classwide basis in the judicial forum" when it served its interests (when the class size was modest), but changed its tactic once it learned that the class size would be larger. (Bower, at p. 1045.)
We agree with Bower's reasoning and find it applicable here. By engaging in class discovery and seeking to coordinate the litigation with another class action, Bankers engaged in actions "fundamentally inconsistent" with its claimed arbitration right. (Bower, supra, 232 Cal.App.4th at p. 1044.) As in Bower, Bankers attempted to obtain a strategic advantage by consenting to the class action procedure until an external event (here, the court's ruling denying full coordination) triggered it to conclude this procedure would no longer serve its own best interests. Seeking to obtain tactical advantages by engaging in litigation conduct "is a paradigm of conduct that is inconsistent with the right to arbitrate." (Sprunk, supra, 14 Cal.App.5th at p. 798; accord, Bower, at p. 1045.)
Defendants contend that, unlike in Bower, its litigation actions did not seek a strategic advantage only for itself because the consolidation would have "benefit[ed] Mackey and the trial court . . . by streamlining litigation for everyone." Although this is one possible interpretation of the record, the court had a reasonable basis to reach a different conclusion. In denying the request to consolidate for all purposes, the court implicitly agreed with Mackey's argument that a complete consolidation would not benefit Mackey by streamlining the litigation because his case was at a different pretrial stage than the Hsueh case. Further, Bankers's current argument that a consolidated class action would have achieved similar objectives to an arbitration is inconsistent with its assertions that a collective action in any form would deprive the parties of the fundamental attributes of contractual arbitration (cost and time efficiencies).
Bankers also contends this case is different from Bower because its discovery requests were minimal. We agree that "de minimis" discovery while in the judicial forum does not necessarily show the defendant waived its arbitration rights. (See Zamora v. Lehman (2010) 186 Cal.App.4th 1, 20.) But the trial court had a reasonable factual basis to conclude the discovery was substantial, and not minimal. Bankers asked seven substantive interrogatory questions about Mackey's class claims and sought seven categories of documents concerning the claims. It also engaged in meet and confer sessions regarding deficient discovery responses pertaining to this discovery and Mackey agreed to provide additional responses after those sessions. Although much of the discovery related to Mackey's individual claims, this fact does not preclude a finding that Bankers's actions were inconsistent with its later arbitration petition. (See Bower, supra, 232 Cal.App.4th at p. 1040 [finding class discovery supported waiver finding even though "the majority of the [discovery] related to [the plaintiff's] individual claims"].)
Moreover, the nature of the discovery was similar to the Bower defendant's discovery (document requests); the main difference was that there were more categories of discovery requests in the Bower case. (Bower, supra, 232 Cal.App.4th at p. 1040.) This is a distinction without a material difference. Further, on the discovery issue, this case is stronger than Bower. Unlike here, the Bower defendant specifically objected to the plaintiffs' class discovery requests based on the existence of the arbitration agreement and had specifically pled the arbitration requirement as an affirmative defense. (Id. at pp. 1039-1040.)
Bankers also challenges the court's finding that class action discovery would not have been available to Bankers during the arbitration proceeding. Bankers cites to the American Arbitration Association (AAA) rules to show the discovery would have been permitted. On our review of these rules, the contention is unsupported. There is nothing in the rules permitting discovery about third party claims absent a showing the information is directly relevant to the case before the arbitrator. As the Bower court noted in rejecting a similar contention, "[d]iscovery concerning individuals who may support a plaintiff's factual claims is distinct from classwide discovery." (Bower, supra, 232 Cal.App.4th at p. 1044.)
Bankers additionally contends the class discovery was consistent with its arbitration right because it was relevant to his UCL and PAGA claims that would have remained in court even if the court had granted the arbitration petition. However, the class certification issues that were the focus of Bankers's discovery are generally not relevant to PAGA or to UCL public injunction claims that are subject to a court's jurisdiction. (See Arias v. Superior Court (2009) 46 Cal.4th 969, 975; McGill v. Citibank, N.A. (2017) 2 Cal.5th 945, 960.) Moreover, in filing its arbitration petition, Bankers argued that Mackey's PAGA and UCL claims were subject to the arbitration requirement and should not remain in the judicial arena.
Bankers also contends the court erred in relying on Bankers's failure to plead the arbitration agreement as an affirmative defense. We disagree. The lack of a reference to arbitration in the answer or case management statement is a proper factor to consider in the overall waiver analysis. (See Spracher v. Paul M. Zagaris, Inc. (2019) 39 Cal.App.5th 1135, 1139; Oregel v. PacPizza, LLC (2015) 237 Cal.App.4th 342, 355-356; Guess?, Inc. v. Superior Court (2000) 79 Cal.App.4th 553, 558-559 (Guess).) Although insufficient by itself to constitute a waiver, "[a]t 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 at p. 558; accord, Oregel at pp. 355-356.) In explaining its waiver conclusion, the trial court noted Bankers did not assert the arbitration agreement as an affirmative defense, but the court did not state or suggest it believed this factor alone supported its waiver conclusion. This observation was appropriate.
Further, the fact the delay in asserting the arbitration right was not as lengthy as in other cases does not show the court's analysis was incorrect. Many cases have found waiver under similar time delays. (See, e.g., Guess, supra, 79 Cal.App.4th at pp. 556, 558 [delay of less than four months]; Adolph v. Coastal Auto Sales, Inc. (2010) 184 Cal.App.4th 1443, 1451-1452 [six-month delay in demanding arbitration]; Roberts, supra, 200 Cal.App.4th at pp. 844-845 [five-month delay during which plaintiff conducted class discovery].)
Finally, we reject Bankers's challenge to the court's finding that Mackey suffered cognizable prejudice from defendants' delay in seeking arbitration. To establish waiver, it is essential the party show prejudice. (Iskanian, supra, 59 Cal.4th at pp. 376-377.) " 'Prejudice typically is found only where the petitioning party's conduct has substantially undermined [the] important public policy' " favoring arbitration " 'or substantially impaired the other side's ability to take advantage of the benefits and efficiencies of arbitration.' " (Id. at p. 377.)
In this case, the court found prejudice because Mackey "incurred fees relating to briefing and argument on the motion to coordinate and responding to discovery on class action allegations that would be useless in arbitration." This is a legitimate ground for a prejudice finding. (See Bower, supra, 232 Cal.App.4th at pp. 1046-1047; see also Hoover v. American Income Life Ins. Co. (2012) 206 Cal.App.4th 1193, 1205 (Hoover) ["[e]specially in class actions, the combination of ongoing litigation and discovery with delay in seeking arbitration can result in prejudice"].)
Bankers contends that "[i]ncurring legal fees" is not a proper factor to support a prejudice finding. (Boldface omitted.) This is an incomplete statement of the law. Although the fact a party incurred court costs and legal expense in responding to pleadings and motions in the judicial forum is not enough by itself to establish prejudice, the courts have recognized a party can satisfy the prejudice element if it shows the substantial expense and delay resulted from "the unreasonable or unjustified conduct of the party seeking arbitration." (Iskanian, supra, 59 Cal.4th at p. 377.) Unreasonable or unjustified conduct in the arbitration waiver context includes obtaining an advantage in court the party would not have received in arbitration and substantially interfering with the time savings and cost benefits associated with arbitration. (Ibid.; see Hoover, supra, 206 Cal.App.4th at p. 1205; Burton v. Cruise (2010) 190 Cal.App.4th 939, 948-949 (Burton).)
The record supports that Mackey's fees and costs resulted from Bankers's unreasonable or unjustified conduct in delaying its arbitration request. By requiring Mackey to spend time and funds on class action discovery issues and class action coordination proceedings for Bankers's own tactical reasons and requiring Mackey to produce information irrelevant in the individual arbitration context, Bankers substantially impaired Mackey's ability to take advantage of the benefits and efficiencies of arbitration. (See Bower, supra, 232 Cal.App.4th at p. 1046 ["As a result of [the defendant] reversing course and choosing to pursue arbitration limited to [the plaintiff's] individual claims, [the plaintiff] suffered prejudice in that much of the expense incurred and effort expended would have no value in arbitration."].)
Bankers argues there is nothing it could have done to prevent the delay because the coordination petition necessarily stayed all proceedings. But it could have adhered to the arbitration agreement at the outset by seeking to enforce the agreement before it actively sought coordination with another class action and/or it could have refrained from propounding class discovery if it was intending to assert its arbitration rights.
Bankers contends the court's prejudice finding was also faulty because Mackey did not present evidence to prove he incurred any legal fees. However, in the context of prejudice analysis on the waiver issue, the trial court could reasonably infer that Mackey incurred these costs based on the court's evaluation of the proffered documentation reflecting Mackey's counsel's work in propounding and responding to discovery requests, engaging in several meet and confer sessions, and responding to Bankers's coordination motion. (See Hoover, supra, 206 Cal.App.4th at pp. 1205-1206.)
Bankers relies on several decisions to support his arguments that the court erred in finding waiver. (See Iskanian, supra, 59 Cal.4th 348; Roman v. Superior Court (2009) 172 Cal.App.4th 1462 (Roman); Groom v. Health Net (2000) 82 Cal.App.4th 1189 (Groom).) These decisions are unhelpful to Bankers.
First, Bankers cites Iskanian as standing for the proposition that a defendant does not "waive[ ] [its] right to petition for arbitration by engaging in class discovery." The Iskanian court did not so hold. In Iskanian, a wage-and-hour class action, the defendant had immediately filed a timely petition to compel arbitration but later withdrew the petition based on new California Supreme Court authority restricting the enforceability of the individual arbitration requirement. (Iskanian, supra, 59 Cal.4th at pp. 361, 375.) After the United States Supreme Court issued a decision calling that authority into question, the defendant successfully renewed its petition to arbitrate the claim. (Ibid.) The Iskanian court held that under the circumstances, futility was a valid excuse for the delay and thus did not support that the defendant had acted inconsistent with its arbitration rights or had unduly prejudiced the plaintiff. (Id. at pp. 376-378.) The futility issue is not a factor in this case.
Bankers's reliance on Roman, supra, 172 Cal.App.4th 1462 is also misplaced. In Roman, unlike here, the defendant filed the arbitration petition less than two months after the complaint was served; no substantive discovery responses had been served; and the discovery requests "were authorized under the AAA rules" and therefore they did not reflect an attempt to "take advantage of discovery tools unavailable in arbitration." (Id. at p. 1479, italics added.)
In Groom, the defendant petitioned to compel arbitration shortly after the trial court overruled a demurrer to the third amended complaint. (Groom, supra, 82 Cal.App.4th at p. 1193.) The trial court denied the petition, finding the defendant's litigation activity and delay in seeking arbitration constituted an election to abandon the arbitration forum. (Id. at pp. 1193-1194.) The Court of Appeal reversed, concluding the plaintiff's filing of several demurrers did not constitute litigation on the merits and there was an insufficient showing of prejudice based on the plaintiff's time and expense in opposing defendant's demurrers and in amending her complaint in response to those demurrers. (Id. at pp. 1195-1197.)
Groom is distinguishable because the defendant in that case could have brought the same challenges in the arbitration context and thus there was no showing the plaintiff incurred fees and costs that would not have been incurred in the arbitration forum. It was also unclear from the Groom plaintiff's initial pleadings whether the claims asserted were subject to arbitration, and the record showed the plaintiff had attempted to "artfully draft[]" her complaint for the purpose of avoiding arbitration. (Groom, supra, 82 Cal.App.4th at pp. 1193, 1196-1197.)
Additionally, to the extent Groom suggested that time and expense associated with a substantial delay cannot be considered as a factor in the prejudice analysis, this holding has been criticized. (Burton, supra, 190 Cal.App.4th at p. 948; see also Roberts, supra, 200 Cal.App.4th at p. 844, fn. 9.) As Burton noted, "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." (Burton, at p. 948.) This observation is consistent with the high court's recently expressed views on the prejudice element. (Iskanian, supra, 59 Cal.4th at p. 377 [reaffirming St Agnes's holding that although incurring costs and legal expenses is insufficient to show prejudice, prejudice can be found where the party has "substantially impaired the other side's ability to take advantage of the benefits and efficiencies of arbitration"].)
Iskanian cited to both Groom and Burton, and appeared to harmonize the decisions by noting that the common thread in the courts' prejudice findings was the existence of the petitioning party's "unreasonable or unjustified" conduct causing expense and delay. (Iskanian, supra, 59 Cal.4th at p. 377.) --------
In this case, Bankers made an informed choice to defend Mackey's claims in a class action rather than in an arbitration forum, and could not fairly change its mind once it took actions that imposed unnecessary costs and delay on Mackey. "A party that signs a binding arbitration agreement and has subsequently been sued in court has a choice: it can either seek to compel arbitration or agree to litigate in court. It cannot choose both. A party may not delay seeking arbitration until after the . . . court rules against it in whole or in part; nor may it belatedly change its mind after first electing to proceed in what it believed to be a more favorable forum. Allowing it to do so would result in a waste of resources for the parties and the courts and would be manifestly unfair to the opposing party." (Martin v. Yasuda (9th Cir. 2016) 829 F.3d 1118, 1128.)
DISPOSITION
Order affirmed. Appellant Bankers to bear respondent's costs on appeal.
HALLER, Acting P. J. WE CONCUR: DATO, J. GUERRERO, J.