Opinion
D075945
02-04-2020
PALM DESERT RESORTER ASSOCIATION, Plaintiff and Respondent, v. SR MUTUAL INVESTMENT CORPORATION, Defendant and Appellant.
Nossaman, Jennifer L. Meeker and David Graeler; Legacy Pro Law, PC dba LPL Lawyers and Gi Nam Lee, for Defendant and Appellant. Epsten Grinnell & Howell, Anne L. Rauch, Rian W. Jones and Mandy D. Hexom, 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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. PSC1601376) APPEAL from an order of the Superior Court of Riverside County, James T. Latting, Judge. Affirmed. Nossaman, Jennifer L. Meeker and David Graeler; Legacy Pro Law, PC dba LPL Lawyers and Gi Nam Lee, for Defendant and Appellant. Epsten Grinnell & Howell, Anne L. Rauch, Rian W. Jones and Mandy D. Hexom, for Plaintiff and Respondent.
Defendant SR Mutual Investment Corporation (SR Mutual) appeals the order denying its motion to compel Palm Desert Resorter Association (Association) to arbitrate some, but not all, of its claims against SR Mutual. Association manages and maintains the Palm Desert Resorter (PDR), a gated, master-planned residential community comprised of 960 homes and common areas. Within the PDR is the Palm Desert Resorter Country Club (PDR Country Club), which, since 2003, SR Mutual has owned and managed.
Association and SR Mutual—including the latter's predecessor-in-interest—over the years have had various disputes regarding the operation and maintenance of PDR Country Club, which includes an 18-hole golf course, a club house with a restaurant, tennis facilities, and various other recreational amenities. The instant dispute began in August 2015, and ultimately led Association to file a lawsuit against SR Mutual in March 2016. Association's operative complaint is based on the parties' July 2013 settlement agreement, which required SR Mutual to make a detailed list of repairs to PDR Country Club, and which set forth a more general set of guidelines—subject to industry standards—for its continued operation and maintenance.
Particularly relevant in this appeal, the parties' 2013 settlement agreement included an express waiver of a detailed, multipage arbitration provision that had been included both in a 1997 stipulated judgment entered between Association and SR Mutual's predecessor-in-interest, and in the 2010 Amended and Restated Declaration of Restrictions governing Association, which was recorded in September 2011 in the Official Records of the County of Riverside (2010 Declaration).
In November 2017, SR Mutual for the first time took the position that certain claims of Association were subject to arbitration, arguing the waiver of arbitration provision only applied to the detailed list of repairs set forth in the parties' 2013 settlement agreement. Association opposed SR Mutual's motion to compel arbitration (arbitration motion), arguing SR Mutual had both expressly and impliedly waived the right to arbitrate based on that agreement and its use of the "litigation machinery" over about a 20-month period, respectively. The court agreed with Association, found SR Mutual expressly waived the right to arbitrate, and denied SR Mutual's arbitration motion.
As we explain, we conclude substantial evidence supports the finding that SR Mutual waived the right to arbitrate based on its almost 20-month delay in seeking to invoke arbitration, with resulting prejudice to Association. Affirmed.
Based on our decision, we conclude it is unnecessary to decide whether SR Mutual's express waiver of the arbitration provision in the parties' 2013 settlement agreement applied to all of Association's claims, as it argues, or just a portion of such claims, as SR Mutual argues.
FACTUAL AND PROCEDURAL BACKGROUND
Association is a California nonprofit, mutual benefit corporation, created to manage and govern PDR. SR Mutual purchased the PDR Country Club in 2003 from Guymo Golf USA, Inc. (Guymo). At that time, the contractual maintenance and operation obligations of PDR Country Club were set forth in the " 'Judgment interpreting the First Amendment to the Covenants, Conditions, and Restrictions, and Reservation of Easements . . . for the Palm Desert Resorter Subdivision,' dated March 28, 1997 and the attached 'Stipulation for Settlement and for Entry of Judgment' " (collectively, 1997 Stipulated Judgment). These obligations were restated verbatim—including the arbitration provision—in the 2010 Declaration, which burdened all lots within PDR, including PDR Country Club.
The 1997 Stipulated Judgment arose after Association in 1994 filed a first amendment to the declaration of the covenants, conditions, and restrictions (CC&Rs), which had been originally filed in August 1980. Guymo in February 1996 filed an action in Riverside County for declaratory and other relief, arguing the first amendment was void and unenforceable because Guymo had not consented to its terms and conditions. Association cross-complained, seeking a declaration the first amendment was valid and enforceable. The parties eventually settled their dispute, agreeing to a revised first amendment to the CC&Rs, which was incorporated into, and became part of, the 1997 Stipulated Judgment.
Among the many terms of the 1997 Stipulated Judgment was section 9, subpart a, which provided as follows: "The Owner of the [PDR] Country Club shall operate and maintain the physical condition and appearance of the [PDR] Country Club in a manner consistent with the operation, maintenance, and physical condition of industry standards for other country clubs in the Coachella Valley and in particular as a comparative standard, Sunrise Country Club, Monterey Country Club and Chaparral Country Club (hereinafter, collectively, 'Comparative Clubs'). The Comparative Clubs are intended to be the measure as to whether the operation, maintenance, and physical condition of [PDR] Country Club are consistent with industry standards. The Comparative Clubs will be the standard for the next five years."
Subpart b of section 9 provided that after five years, Association's board of directors and the owner of PDR Country Club would determine if the Comparative Clubs "remain the appropriate standard or other clubs should be chosen as the Comparative Clubs." It further provided that if the parties could not reach an agreement, the dispute would be settled by alternative dispute resolution (ADR).
As noted, included in the 1997 Stipulated Judgment was a detailed arbitration provision spanning several pages. The provision set forth two different categories and procedures to resolve disputes "related to the operation, maintenance, and physical condition" of PDR Country Club. Category 1 applied to disputes less than $5,000, and also applied if the parties could not reach agreement on the issue of Comparative Clubs. Category 2 involved disputes deemed to be in excess of $5,000. In both categories, if the parties themselves could not reach agreement as required under the terms of the ADR, the dispute would be settled by binding arbitration.
The ADR arbitration provisions in the 1997 Stipulated Judgment included the following: "All decisions by an Arbitrator shall be binding upon the parties. Judgment upon any award rendered by the Arbitrator may be entered in any state or Federal Court having jurisdiction thereof. It is intended that this arbitration process shall be established as an efficient, final, and binding out-of-court dispute resolution procedure to be followed in the unlikely event that any controversy should arise out of or concerning issues under Categories 1 or 2. It is also intended that this dispute shall be resolved in an informal process and without reference to the rules of evidence or advocacy through the use of attorneys. (Either party may have an attorney at any arbitration, but this process is intended to be used without the need or reference to attorneys.) Reasonable notice must be provided to either party if attorneys are intended to be used by either party."
As also noted, the terms of the 1997 Stipulated Judgment were included in the 2010 Declaration. Section 18.4 provides: "The effective date of the remainder of this Article shall be March 1, 1997. This Article, from Section 18.4 to the end of the Article, is intended to be a restatement of the [1997 Stipulated Judgment], and nothing in this Article is intended to modify that Judgment. Should any conflict be found to exist between this Article and the Judgment, this Article shall be immediately amended so as to be consistent with the provisions of the Judgment." Thus, the 2010 Declaration included the requirement that the owner (now SR Mutual) operate and maintain PDR Country Club in a manner consistent with such operation and maintenance of Comparative Clubs and that any dispute regarding its operation and maintenance be resolved by ADR (i.e., Categories 1 & 2).
A dispute arose circa 2013 between Association and SR Mutual over the operations and maintenance of the physical condition and appearance of PDR Country Club. The parties in early July entered into the 2013 Settlement Agreement (as amended in early October 2014). That Agreement repeated the obligation of SR Mutual to "operate and maintain the physical condition and appearance of the [PDR] Country Club in a manner consistent with the operation, physical condition and appearance of like facilities." The parties agreed in the 2013 Settlement Agreement to "meet at a later time to determine which clubs should be the measure of 'Comparative Clubs' for purposes of . . . the [2010] Declaration."
The preamble to the 2013 Settlement Agreement included the following provision: "The Parties met and conferred with each other in an effort to reach an agreement regarding the operation and maintenance of the physical condition and appearance of the [PDR] Country Club. The parties agree it is in their best interests to enter into this Agreement in lieu of the time and expense involved with litigation." The 2013 Settlement Agreement obligated SR Mutual to address and correct 31-identified subject matters, most of which were specific, including by way of example only, repairs to the asphalt, and broken tiles "on the west[-]facing patio"; refurbishing patio furniture; removing exterior carpet surrounding the clubhouse; inspecting and repairing bar-area furniture; cleaning, renovating, and upgrading the main bar and kitchen of the clubhouse; and so on.
However, starting with item 29, the list of agenda items became open-ended. Specifically, item 29 provided: "ROUTINE GOLF COURSE UPKEEP. SR Mutual shall maintain the golf course within Industry standards for like facilities." Item 30 provided: "CLEANLINESS OF FACILITY. SR Mutual's management will make cleanliness a high priority utilizing club staff and/or outside contractor, maintaining the facility within Industry standards for like facilities." Item 31 included similar language regarding the clubhouse's bar and restaurant.
Key to the instant dispute, the 2013 Settlement Agreement included a waiver of the arbitration provision in the 1997 Stipulated Judgment, as restated in the 2010 Declaration: "The Parties agree that either Party has an immediate right to sue the other in Superior Court for any breach of this Agreement. The Parties expressly waive the arbitration provision in Article 18.12.7 of the [2010] Declaration as to the obligations in Paragraphs 1 through 31 above. [¶] . . . [¶] Except for the rights and obligations subject to this agreement including but not limited to the express waiver of the arbitration provision in Article 18.12.7 as recited above, nothing in this Agreement amends, alters, or rescinds any of the Parties obligations under the [2010] Declaration. [¶] . . . [¶] In the event of a default claim, [Association] will give S.R. Mutual notice via certified mail. . . . S.R. Mutual will have 20 days from the date of received notification to remedy the item or items prior to commencement of litigation. [¶] . . . [¶] This Agreement shall be construed and governed by the laws of the State of California."
The parties amended the 2013 Settlement Agreement effective October 2014 with respect to concrete cart paths (item No. 17) and tee boxes (No. 18). In so doing, they provided that other than this modification, "[n]o other change, revision, or amendment to the [2013] Settlement Agreement is effectuated."
In August 2015, Association notified SR Mutual of a default claim as provided under the 2013 Settlement Agreement, identifying 13 items that SR Mutual had yet to complete as contemplated under that Agreement. Association requested that SR Mutual complete the maintenance and repair of these 13 items by the end of the month; and warned that failure to do so would result in Association taking "further action, including the commencement of litigation." SR Mutual in late August responded to the default claim, noting it was working on various items identified by Association, some of which it would complete by its "opening date" of October 23, 2015.
Association agreed that SR Mutual could have until October 1 to complete the list of items Association had identified in its August default claim. Included in its September correspondence to SR Mutual was a draft complaint that Association intended to file if SR Mutual did not timely complete such maintenance and repairs. Association noted it had "been more than patient" with SR Mutual and its failure to complete timely the maintenance and repairs was a breach of the 2013 Settlement Agreement.
The record shows the parties engaged in myriad back-and-forth correspondence attempting to resolve short of litigation the issues between them. SR Mutual in one such letter suggested the parties identify new "[c]omparable [c]lubs" that were not private, claiming PDR Country Club was a " 'public' club" with less funding than private clubs. SR Mutual also proposed a meeting with representatives of Association to designate " 'like facilities'/'comparable clubs' " in order to determine the "proper industry standard"; and repeatedly requested the parties consider mediation, in order to come up with "some reasonable solutions" to Association's August "punch list."
As noted, Association filed suit in mid-March 2016. In April, SR Mutual responded it was disappointed, as SR Mutual perceived there had been meaningful discussions between them to resolve informally their dispute. SR Mutual suggested Association stay the litigation "pending conclusion of a private mediation or sale" of PDR Country Club. It noted that "litigation [would] be costly for the Association and SR [Mutual]. All parties' (including the individual homeowners) best interests would be better served by mediating before incurring extensive and irreversible costs and attorney's fees."
Association on April 13, 2016 responded that SR Mutual could avoid litigation by immediately beginning the much-needed repairs to the clubhouse and golf course facilities that "fall within the standard of care in the Coachella Valley." Association noted that it already had spent months trying to obtain SR Mutual's cooperation to make these repairs, and that, if SR Mutual was willing to agree to split the costs of a golf course expert consultant to advise on such repairs and to execute a stipulation for judgment to ensure the repairs were timely made, Association would agree to stay or dismiss its lawsuit.
SR Mutual answered the complaint in late April 2016. In addition to a general denial, SR Mutual alleged 25 affirmative defenses. However, none of these defenses were based on the arbitration provision in the 1997 Stipulated Judgment, as restated in the 2010 Declaration.
In June 2016, Association informed SR Mutual it was considering filing a "TRO and preliminary injunction" to prevent irreparable harm to the golf course during the pendency of the lawsuit. SR Mutual responded that it was still open to mediation, which would save "money and not expend judicial resources," as it believed the issues between them could be "resolved quickly through mediation." SR Mutual also took the position that a court would be unable to issue an "appropriate order" if Association sought such relief because SR Mutual was already "taking corrective measures and the Association has not identified specific conditions" with respect to the "lakes and golf paths."
In a June 20, 2016 letter, SR Mutual reiterated that the parties should mediate their dispute; and that because the crux of the complaint filed by Association was for repairs and maintenance, it made sense for the parties to "meet ASAP to discuss resolutions rather than escalating litigation." The June 20 letter also provided an update regarding various maintenance and repair items to the golf course.
On June 28, Association's legal counsel sent a letter to Association members advising on July 1 it would seek to obtain a temporary and preliminary court order against SR Mutual. Association claimed such an order was necessary because SR Mutual had stopped watering the fairways of the golf course because the water well and related pumps needed repair. Legal counsel further advised that Association had commenced "written discovery (questions and demands to produce documents)" to SR Mutual; that a status conference was upcoming where a trial date could be set; and that the court file was a public record and could be viewed by any interested member.
The record shows the parties in early August conducted a site inspection for the clubhouse, golf course, and related facilities; that in early September, Association complained that SR Mutual had improperly closed the snack bar, café, and bar/lounge while it was "over seeding" the course, and thus was required to reimburse or credit Association members for dues they paid during the closures; and that SR Mutual disagreed with Association's demands and expressed concern that the parties were "steering further away from an amicable resolution" of their dispute.
SR Mutual submitted its case management statement on a five-page preprinted form for use at the September 19, 2016 case management conference. In this statement, SR Mutual requested a "jury trial," represented that the case would be ready for trial "within 12 months of the date of the filing of the complaint"; estimated the case would take four days to try; left unchecked the boxes stating the case was subject to binding private arbitration, while checking the boxes showing its willingness to participate in mediation and/or a settlement conference in furtherance of ADR; and represented that depositions of defendants and various insureds, subpoenas, and other written discovery undertaken by Association would be completed by April 2017.
The Riverside Superior Court issued a January 5, 2017 minute order providing the parties had stipulated to participate in a private mediation, which was to be completed by April 30, 2017; scheduled a trial setting conference for May 9, 2017; and found the case "at issue."
The record shows the parties engaged in law and motion practice, as Association moved to compel further responses to discovery propounded on SR Mutual, which motions SR Mutual opposed. In so doing, SR Mutual included an attorney declaration stating that from the outset of the litigation, SR Mutual "has pushed for judicial efficiency," including taking "actions to minimize unnecessary expenses by keeping an open dialogue with Plaintiff." Association and SR Mutual in early January 2017 entered into an 11-page stipulation and protective order to "facilitate the exchange of information and documents which may be subject to confidentiality limitations on disclosure due to federal laws, state laws, and privacy rights . . . ."
In March 2017, SR Mutual propounded on Association form and special interrogatories, and requests for admission and production of documents. In May 2017, SR Mutual answered Association's first amended complaint. In addition to a general denial, SR Mutual asserted 23 affirmative defenses, none of which mentioned the arbitration provision in the 1997 Stipulated Judgment/2010 Declaration.
In August 2017, Association made a second demand for site inspection of the golf course and related golf course facilities. On September 8, 2017, SR Mutual served Association with a one-page document titled, "Demand for Jury Trial." This document provided trial was to commence on January 29, 2018, and repeated that SR Mutual "hereby demands trial by jury in the above-entitled matter."
By October 2017, SR Mutual had associated in new counsel, as evidenced by its October 4 demand for exchange of expert witness information pursuant to Code of Civil Procedure section 2034.210 et seq. In this document, SR Mutual demanded the parties by December 8, 2017 simultaneously exchange information concerning each other's expert witnesses, including the expert's name, business or residence address; his or her business, occupation, or profession; and a statement of the subject matter to which the testimony relates.
SR Mutual's new counsel sent an October 11, 2017 e-mail to Association's counsel, confirming that SR Mutual would stipulate to allow Association to file a second amended complaint (SAC) to allege a new cause of action for trespass, conditioned on Association's agreement to stipulate to a trial continuance to allow SR Mutual to investigate the new cause of action and "because [his] firm [was] new to the case." Counsel of SR Mutual reiterated "that additional efforts should be made to seek a negotiated resolution to the entire case." On October 13, 2017, SR Mutual served Association with a second set of requests for admissions.
On November 2, 2017, the court approved the stipulation of the parties allowing Association to file its SAC. As proposed by the parties, the stipulation included a request of the parties to continue the trial date up to 60 days to "allow the filing of the Second Amended Complaint, and because SR Mutual has recently retained new counsel to be trial counsel in this matter, and because additional discovery will be necessary." The court continued the trial from January 29 to April 27, 2018, and ordered that "cut-off dates and trial-related deadlines, including, without limitation, discovery cut-off, and the demand for exchange of expert witnesses," were continued and were to be calculated pursuant to "statute" and "court rules" based on the new trial date. In early November 2017, SR Mutual made another demand for exchange of expert witness information, with a date of March 8, 2018.
On or about November 22, 2017, SR Mutual filed its arbitration motion. Rather than answer Association's complaint as before, SR Mutual on that same date demurred to the SAC, alleging all the causes of action failed under Code of Civil Procedure section 430.10, subdivision (e) to state sufficient facts.
The court in early January 2018 sustained the demurrer with leave to amend to the first through fourth causes of action, and overruled the demurrer to the fifth, sixth, and seventh causes of action. The court in that same order denied SR Mutual's arbitration motion. In so doing, the court relied exclusively on the parties' express waiver of the arbitration provision found in the 2013 Settlement Agreement, despite Association's argument that SR Mutual also waived the arbitration provision as a result of its use of the "litigation machinery" for about 20 months before raising this defense.
Association filed its third amended complaint (TAC), the operative pleading in this case, in early February 2018, asserting causes of action for breaches of the 2010 Declaration and 1997 Stipulated Judgment; injunctive and declaratory relief; nuisance; and trespass.
In denying the arbitration motion, the court ruled in part as follows: "The parties entered into a Settlement Agreement, effective July 1, 2013, arising out of their previous litigation. In this case, Association seeks to enforce the provisions of that settlement agreement. This Settlement Agreement expressly waived the arbitration provision in Article 18.12.7 of the [2010 Declaration]. Pursuant to Code of Civil Procedure section 1281.2(a) the arbitration agreement in the [2010 Declaration] is not enforceable as it has been expressly waived as to any dispute involving the parties' Settlement Agreement. Accordingly, the Court denies the motion."
DISCUSSION
As noted, the trial court denied SR Mutual's arbitration motion on the ground that it expressly waived its right to arbitrate as a result of the parties' 2013 Settlement Agreement. We agree with the trial court's order, but for reasons different than those stated by the court; as we conclude substantial record evidence supports the finding that SR Mutual waived (i.e., forfeited) the right to arbitrate as a result of its nearly 20-month delay in seeking to assert such a right, to the prejudice of Association. (See Blech v. Blech (2018) 25 Cal.App.5th 989, 999 (Blech) [noting that an appellate court will review a trial court's "ruling, not its reasons," that as such, it will "affirm if the ruling is correct albeit the reasons are not," and that it will "resolve any ambiguities in favor of affirmance"]; see also. E.L. White, Inc. v. City of Huntington Beach (1978) 21 Cal.3d 497, 511 [appellate court will affirm a correct order whether or not ground on which trial court relied was correct].)
A. Guiding Principles and Standard of Review
Code of Civil Procedure section 1281.2 provides that one ground for denying arbitration is that "[t]he right to compel arbitration has been waived by the petitioner . . . ." (§ 1281.2, subd. (a).) Although "waiver" often denotes the voluntary relinquishment of a known right, it can also refer to the loss of a right based on a party's failure to perform an act it is required to perform, regardless of the party's intent to relinquish the right. (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1195, fn. 4 (St. Agnes).) "In the arbitration context, '[t]he term "waiver" has also been used as a shorthand statement for the conclusion that a contractual right to arbitration has been lost.' [Citation.]" (Ibid.; see also Burton v. Cruise (2010) 190 Cal.App.4th 939, 944 (Burton) [noting that in the context of a contractual right to arbitrate, "waiver is more like a forfeiture arising from the nonperformance of a required act"].) Because of the strong policy favoring arbitration agreements under both federal and state law, "waivers are not to be lightly inferred and the party seeking to establish a waiver bears a heavy burden of proof." (St. Agnes, at p. 1195.)
All further statutory references are to the Code of Civil Procedure, unless noted otherwise.
Section 1281.2 was amended effective January 1, 2019. (See Stats. 2018, ch. 106 (Assem. Bill No. 3247), § 1, eff. Jan. 1, 2019.) Subdivision (a) of section 1281.2, at issue in the instant case, was unaffected by the amendment.
No single test delineates the nature of the conduct that will constitute a waiver of arbitration. (St. Agnes, supra, 31 Cal.4th at p. 1195.) " '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 "willful misconduct" of a party may constitute a waiver and thus justify a refusal to compel arbitration. [Citation.]' " (Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 374-375 (Iskanian), quoting Davis v. Blue Cross of Northern California (1979) 25 Cal.3d 418, 425-426.)
Our high court has suggested the following factors be used to guide the waiver inquiry: " ' " '(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, supra, 59 Cal.4th at p. 375.)
The fact that the party petitioning for arbitration has participated in litigation of the dispute, short of a determination of the merits, does not by itself constitute a waiver. (Iskanian, supra, 59 Cal.4th at p. 375, citing St. Agnes, supra, 31 Cal.4th at p. 1203.) Rather, a waiver based on participation in litigation will only be found if the litigation results in prejudice to the party opposing arbitration. (St. Agnes, at p. 1203; see Keating v. Superior Court (1982) 31 Cal.3d 584, 606-607 (Keating) [concluding preliminary motions relating to removal to federal court and coordination of related actions did not compel finding waiver], overruled on another ground as stated in Southland Corporation v. Keating (1984) 465 U.S. 1, 16; Christensen v. Dewor Developments (1983) 33 Cal.3d 778, 782 (Christensen) [describing the motions in Keating as "certain preliminary skirmishes" that did not compel a finding of waiver].)
For litigation activity to be deemed prejudicial, it generally must have resulted in prejudice relating to the nature of the arbitration remedy and the statutory purposes for it: "[C]ourts assess prejudice with the recognition that California's arbitration statutes reflect ' "a strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution" ' and are intended ' "to encourage persons who wish to avoid delays incident to a civil action to obtain an adjustment of their differences by a tribunal of their own choosing." ' [Citation.] Prejudice typically is found only where the petitioning party's conduct has substantially undermined this important public policy or substantially impaired the other side's ability to take advantage of the benefits and efficiencies of arbitration." (St. Agnes, supra, 31 Cal.4th at p. 1204.)
Obvious examples of such prejudice include when (i) the petitioning party used the judicial discovery process to gain information about the other side's case that could not have been gained in arbitration; (ii) a party unduly delayed and waited until the eve of trial to seek arbitration; or (iii) the lengthy nature of the delays associated with the petitioning party's attempts to litigate resulted in lost evidence. (St. Agnes, supra, 31 Cal.4th at p. 1204.)
While delay and expense from litigation do not by themselves constitute prejudice, unreasonable or unjustified delay combined with substantial expenditure of time and money may, in particular cases, support the conclusion that prejudice occurred depriving the parties of the benefits of arbitration. (Iskanian, supra, 59 Cal.4th at p. 377; accord, Sprunk v. Prisma LLC (2017) 14 Cal.App.5th 785, 809 [concluding petitioning party defendant waived its right to arbitrate when it made a " 'strategic decision' " to file and then withdraw its arbitration motion against the named plaintiff, and then waited until after a class had been certified to renew its request to arbitrate against putative class members]; Lewis v. Fletcher Jones Motor Cars, Inc. (2012) 205 Cal.App.4th 436, 441 (Lewis) [concluding petitioning party car dealer waived its right to submit dispute to binding arbitration by filing demurrers to the plaintiff lessee's complaints, engaging in discovery, and refusing to extend the statutory deadline and thereby forcing the plaintiff to file three motions to compel further responses, then, without explanation, moving the day before such motions were due to demand the plaintiff arbitrate her dispute]; Burton, supra, 190 Cal.App.4th at p. 948 [concluding petitioning party waived her contractual right to arbitrate a medical malpractice dispute with defendant doctor by filing a case management statement in which the petitioner requested a jury trial, engaging in discovery, including propounding and responding to interrogatories, requests for documents, and taking depositions, and exchanging expert lists, and further concluding 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' "]; Adolph v. Coastal Auto Sales, Inc. (2010) 184 Cal.App.4th 1443, 1451-1452 [concluding petitioning party car dealership waived its right to arbitrate by not only waiting six months after the complaint was filed to seek such relief, but also by interposing two demurrers, uncooperatively contesting plaintiff's discovery efforts, and only when litigation no longer seemed to be working to its advantage, petitioning to compel arbitration about three to four months prior to the trial date].)
Although the burden of proof is heavy on the party seeking to establish waiver, a determination by a trial court that the right to compel arbitration has been waived ordinarily involves a question of fact, which is binding on the appellate court if supported by substantial evidence. (See St. Agnes, supra, 31 Cal.4th at p. 1196 [noting the determination of waiver is generally a question of fact, and the trial court's finding, if supported by sufficient evidence, is binding on the appellate court, and further noting " '[w]hen, 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' [citation]"].)
Under the substantial evidence standard of review, "[w]e infer all necessary findings supported by substantial evidence [citations] and 'construe any reasonable inference in the manner most favorable to the judgment, resolving all ambiguities to support an affirmance' [citation]." (Lewis, supra, 205 Cal.App.4th at p. 443.) The testimony of a single witness, including a party, may be sufficient. (Evid. Code, § 411; In re Marriage of Mix (1975) 14 Cal.3d 604, 614.)
An "appellate court may not reverse the trial court's finding of waiver unless the record as a matter of law compels finding nonwaiver. [Citations.]" (Davis v. Continental Airlines, Inc. (1997) 59 Cal.App.4th 205, 211.) "If more than one reasonable inference may be drawn from undisputed facts, the substantial evidence rule requires indulging the inferences favorable to the trial court's judgment. [Citations.]" (Ibid.)
Here, the parties dispute whether the substantial evidence or the de novo standard of review governs our determination of this appeal. SR Mutual argues that the de novo standard applies because the facts, including any reasonable inferences, are undisputed, and because the waiver issue is merely a matter of interpreting the parties' 2013 Settlement Agreement as applied to waiver. Association, on the other hand, contends that the substantial evidence standard applies because the waiver issue involves not only the parties' express waiver of arbitration in the 2013 Settlement Agreement, but also the conduct of SR Mutual in litigating this case for about 20 months, before moving to compel Association to arbitrate certain of its claims.
We agree with Association that the substantial evidence standard applies in this case because the parties dispute the inferences to be drawn from the facts. For example, SR Mutual contends that, even though it admittedly delayed almost 20 months before seeking to compel arbitration of certain claims of Association, no inference of prejudice should be drawn merely from that delay. Association, however, maintains that we can infer from the length of the delay and timing of the arbitration motion that SR Mutual has lost the advantages of arbitration, including the speedy and efficient resolution of Association's claims against it. In light of that dispute, we must review SR Mutual's contentions on appeal for substantial evidence.
B. Analysis
Applying the factors identified by our high court in Iskanian and St. Ages, on this record we conclude substantial evidence supports the finding that SR Mutual waived the right to arbitrate any of Association's claims.
Turning to factors one, two, and three, each supports a finding of waiver. SR Mutual's actions in this case were "inconsistent" with its intent to arbitrate, as it "substantially invoked" the "litigation machinery" over a nearly 20-month period before moving to compel arbitration. As shown by the record, during this period SR Mutual twice answered the complaint of Association, each time asserting more than 20 affirmative defenses, none of which mentioned arbitration. In its September 19, 2016 case management statement, SR Mutual requested a jury trial, represented the case would be ready for trial within 12 months of the filing of Association's complaint, and estimated the case would take four days to try. In this same case management statement, SR Mutual also requested the court order the parties to participate in mediation and/or a settlement conference, but neglected to advise the court of its intent to arbitrate some or all of the dispute, based on its failure to check various boxes on the form.
The record shows that in January 2017, the trial court found the case "at issue," ordered the parties to participate in a private mediation to be completed by the end of April, and set a trial schedule hearing for May 9, 2017; that the parties engaged in law and motion practice, as Association moved to compel further responses to its discovery, which motions were opposed by SR Mutual; that to facilitate the exchange of confidential information, the parties in early January 2017 entered into an 11-page stipulation and protective order; and that in March 2017, SR Mutual propounded on Association special and form interrogatories, requests for admission, and requests for production of documents. Thus, the record shows SR Mutual took advantage of judicial discovery procedures that were potentially unavailable in arbitration, satisfying another of the Iskanian and St. Ages factors.
But that's not all. In early September 2017, with trial about four months away, SR Mutual served Association with a one-page document titled "Demand for Jury Trial." In early October, with trial now only about three months away, SR Mutual demanded expert witness information be exchanged on or before December 8, 2017. In mid-October 2017, SR propounded a second set of requests for admission on Association. In early November 2017, SR Mutual made a second demand for exchange of expert witness information, after the parties agreed to a short continuance of the trial date to allow Association to file its SAC to add a single cause of action for trespass, on the one hand; and to give newly substituted in counsel of SR Mutual the opportunity to come up to speed on the case, on the other hand.
It was not until late November 2017 that SR Mutual for the first time moved to compel arbitration of certain of Association's claims and to stay the lawsuit pending a decision on its arbitration motion. Nonetheless, at the same time it filed its arbitration motion, SR Mutual again invoked the "litigation machinery" of the courts by demurring to Association's SAC, despite the fact the SAC was substantially similar to Association's earlier pleadings. SR Mutual not only demurred to the SAC, it asked the court to sustain the demurrer without leave to amend. Thus, at the same time SR Mutual took the position that the dispute, or portions of it at least, should be arbitrated, it also asked the court to dismiss the entire case.
As noted, the overarching consideration regarding waiver is prejudice to the party opposing arbitration. (See St. Agnes, supra, 31 Cal.4th at pp. 1203-1204.) SR Mutual argues there is no prejudice to Association because it failed to show, as was its burden, that any of the "work performed in this case would have been unnecessary had the Arbitral Claims," as defined by SR Mutual, "been referred to arbitration earlier." We disagree.
As noted ante the arbitration provision in the 1997 Stipulated Judgment was the subject of negotiation between Association and Guymo, SR Mutual's predecessor-in-interest, as opposed to being a boiler-plate provision in a contract between two unfamiliar contracting parties. This provision spanned multiple pages and included two categories and procedures of ADR based on the amount deemed at issue, which the parties were required to use to resolve disputes related to the operation and maintenance of PDR Country Club. As also noted ante, the arbitration provision was included verbatim in the 2010 Declaration, which went into effect about seven years after SR Mutual became the owner and manager of PDR Country Club.
The parties, however, agreed to waive the arbitration provision in entering into the 2013 Settlement Agreement. There is a dispute, however, concerning the scope of that waiver: SR Mutual takes the position the parties only waived arbitration with respect to the 31 identified items set forth in that Agreement. Association's position is that the parties waived the arbitration provision with respect to all disputes over SR Mutual's operation and maintenance of PDR Country Club, as some of the 31 items are more general, as we have noted, and require SR Mutual to manage the golf course, club house and related facilities to "industry standard."
That the parties disagree as to the scope of the waiver of arbitration provision is exactly why this issue should have been resolved at the outset of the litigation, at the latest, and not near the end of the litigation, after a trial date had been set and the parties were preparing to exchange expert witness information. If SR Mutual had raised this threshold issue at the outset of the case, the parties could have litigated it then and, depending on the outcome, made decisions early on in the litigation regarding how to proceed, including submitting the entire cause to arbitration, or staying some of Association's claims and arbitrating the others first, or not arbitrating any of the claims, and so on.
But that did not happen. SR Mutual's decision, whether or not tactical, in waiting about 20 months after the litigation commenced to invoke arbitration deprived the parties not only of a " ' "speedy and relatively inexpensive means of dispute resolution" ' " (see St. Agnes, supra, 31 Cal.4th at p. 1204), but also the benefits of their bargain, as set forth in the 1997 Stipulated Judgment, repeated verbatim in the 2010 Declaration, which unambiguously set forth their intent to resolve disputes through "an informal process and without reference to the rules of evidence or advocacy through the use of attorneys."
As noted ante, the arbitration provisions in the 1997 Stipulated Judgment/2010 Declaration allowed for attorneys upon reasonable notice by a party, but reiterated that this dispute resolution process (i.e., Category 1 or 2) was "intended to be used without the need or reference to attorneys."
Because the issue of the scope of the waiver negotiated by the parties should have been decided at or near the time of commencement of the lawsuit, at the latest, and not near the end of the litigation, after the parties already had incurred significant costs and consumed precious judicial resources, we conclude substantial record evidence supports the finding SR Mutual waived the right to arbitrate any claims in this case.
While we recognize that mere delay and expense from litigation alone do not constitute prejudice, we separately conclude SR Mutual's decision to wait about 20 months to seek arbitration was unreasonable and unjustified. The record shows a dispute arose in August 2015—almost seven months before Association filed its lawsuit—regarding SR Mutual's compliance with the terms of the 2013 Settlement Agreement, which Agreement was based on an earlier dispute between the same parties regarding the same issues, namely repair to, and operation and maintenance of, PDR Country Club.
Key to the issue of prejudice, at no time prelawsuit did SR Mutual raise the issue of arbitration, despite the fact SR Mutual clearly was aware, or will be deemed to have been aware, of the detailed arbitration provision. Moreover, the record shows SR Mutual repeatedly sought an informal resolution to the parties' dispute, requesting party representatives meet and discuss the issues before them, and/or consider mediation. Even after suit was commenced, the record shows SR Mutual continued to press Association to mediate the dispute, as demonstrated not only by the correspondence of the parties' counsel, but also by the case management statement SR Mutual filed with the court, in which it checked the mediation and settlement conference boxes, but left unchecked the arbitration boxes.
Clearly, if SR Mutual believed in 2015, 2016, and throughout 2017 up until November that certain claims of Association were subject to arbitration, it would have made that intent known, as it continually sought to invoke ADR other than arbitration as a means to resolve the case. It was only after newly appointed counsel substituted into the case that SR Mutual, after propounding more discovery and making demands for exchange of expert information, filed its arbitration motion, claiming the waiver of arbitration provision in the 2013 Settlement Agreement was limited in scope.
But as we have noted, by November 2017 the parties already had incurred significant costs, and expended significant resources, in litigating the case, which included law and motion practice; substantial written discovery; a stipulated protective order; site inspections; multiple amendments to pleadings; a challenge to the pleadings; demands for exchange of expert witness information; and requests for a jury trial, among other components of, or "cogs" in, the "litigation machinery."
The end result of these litigation tactics—in terms of the substantial time, effort and expense involved—has taken the instant dispute far from the speedy, streamlined and inexpensive process that arbitration is supposed to be, as contemplated by the parties under their 1997 Stipulated Judgment. Under these circumstances, we separately conclude substantial evidence supports the finding that SR Mutual's 20-month delay in seeking to invoke arbitration was unreasonable and unjustified, as it substantially impaired the parties' ability to take advantage of the benefits and efficiencies of arbitration. (See Iskanian, supra, 59 Cal.4th at p. 377 [recognizing that the expenditure of time and money is a relevant factor in assessing prejudice in cases where the delay was unreasonable]; St. Agnes, supra, 31 Cal.4th at p. 1204 [noting prejudice exits when the "petitioning party used the judicial discovery process to gain information about the other side's case that could not have been gained in arbitration"]; Burton, supra, 190 Cal.App.4th at p. 948 [observing that "[a]rbitration 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"]; compare, Christensen, supra, 33 Cal.3d at p. 782 [observing that in employing applicable principles to the determination of waiver in Keating, supra, 31 Cal.3d 584, that court "concluded that the record supported the trial court's refusal to find waiver on the part of a defendant who, confronted with several lawsuits, engaged in certain preliminary skirmishes before moving to compel arbitration" (italics added)].)
C. Sanctions
Association seeks about $18,900 in sanctions, equal to the attorney fees and costs it incurred in responding to what it claims is a frivolous appeal by SR Mutual.
Whether to impose appellate sanctions is a matter within our broad discretion. (Winick Corp. v. County Sanitation Dist. No. 2 (1986) 185 Cal.App.3d 1170, 1181-1182.) Under Code of Civil Procedure section 907 and California Rules of Court, rule 8.276(a)(1), we may award sanctions when an appeal is frivolous and taken solely to cause delay. "[A]n appeal should be held to be frivolous only when it is prosecuted for an improper motive—to harass the respondent or delay the effect of an adverse judgment—or when it indisputably has no merit—when any reasonable attorney would agree that the appeal is totally and completely without merit. [Citation.]" (In re Marriage of Flaherty (1982) 31 Cal.3d 637, 650 (Flaherty).) "The two standards are often used together, with one providing evidence of the other. Thus, the total lack of merit of an appeal is viewed as evidence that appellant must have intended it only for delay." (Id. at p. 649.)
Code of Civil Procedure section 907 provides: "When it appears to the reviewing court that the appeal was frivolous or taken solely for delay, it may add to the costs on appeal such damages as may be just."
California Rules of Court, rule 8.276(a) provides in relevant part: "On motion of a party or its own motion, a Court of Appeal may impose sanctions, including the award or denial of costs under rule 8.278, on a party or an attorney for: (1) Taking a frivolous appeal or appealing solely to cause delay . . . ."
Although we find substantial record evidence supports a finding of waiver, we nonetheless conclude SR Mutual's appeal is not totally lacking in merit. (See Flaherty, supra, 31 Cal.3d at p. 649.) As we have noted, whether a party waives the right to arbitrate must be evaluated through a variety of factors, with no single test being decisive. (See St. Agnes, supra, 31 Cal.4th at p. 1195.)
Moreover, as we also have noted mere delay and expense does not compel a finding of waiver. (See Iskanian, supra, 59 Cal.4th at p. 375.) And, because there is a strong policy favoring arbitration (St. Agnes, supra, 31 Cal.4th at p. 1195), waiver is "not to be lightly inferred" and the party seeking to show waiver "bears a heavy burden of proof." (Ibid.) While Association has met that "heavy burden," we nonetheless conclude it is not entitled to sanctions in this case.
DISPOSITION
The order denying SR Mutual's arbitration motion is affirmed. Association to recover its costs of appeal.
BENKE, J. WE CONCUR: McCONNELL, P. J. IRION, J.