Opinion
G054886
10-10-2018
SERENE ROSENBERG, Plaintiff and Respondent, v. MICHAEL SCOTT LESLIE, Defendant and Appellant.
Michael Scott Leslie, in pro. per.; Ballard Rosenberg Golper & Savitt, Linda Miller Savitt, Zareh A. Jaltorossian and Jessica A. Gomez for Defendant and Appellant. Sessions & Kimball, Samuel P. Nielson and Bruce Lee 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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. 30-2016-00873169) OPINION Appeal from an order of the Superior Court of Orange County, Sheila B. Fell, Judge. Affirmed. Michael Scott Leslie, in pro. per.; Ballard Rosenberg Golper & Savitt, Linda Miller Savitt, Zareh A. Jaltorossian and Jessica A. Gomez for Defendant and Appellant. Sessions & Kimball, Samuel P. Nielson and Bruce Lee for Plaintiff and Respondent.
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Defendant Michael Scott Leslie appeals from an order denying his motion to compel arbitration. The court found Leslie waived his right to arbitrate. We conclude substantial evidence supports the finding because: (1) Leslie unreasonably delayed seeking arbitration; (2) Leslie undertook actions inconsistent with a right to arbitrate; and (3) plaintiff Serene Rosenberg suffered prejudice from the delay. We therefore affirm the order denying the motion to compel arbitration.
Defendant Montage Mortgage LLC (Montage) also appealed the order. However, counsel for Montage and Montage's principal, Leslie, withdrew as counsel of record, and Montage did not file a substitution of attorney. Thus, we dismissed the appeal as to Montage because a corporation may not appear in propria persona. For ease of reference, we collectively refer to Montage and Leslie as "defendants" when discussing the relevant trial court proceedings.
FACTS
In March 2015, plaintiff and Montage entered into a consulting agreement (Agreement) governing the terms of plaintiff's employment with Montage. The Agreement contained an arbitration provision requiring arbitration of any disputes arising from plaintiff's employment or termination of employment. The arbitration provision stated, "Arbitration shall be conducted in the County of Boulder, CO before a sole arbitrator in accordance with the laws of the State of Colorado for Agreements made in and to be performed in Colorado. The arbitration shall be administered by JAMS pursuant to its Streamlined Arbitration Rules and Procedures. . . . The provisions of this Article may be enforced by any court having jurisdiction . . . ." The Agreement also contained a general choice of law provision stating the "Agreement shall be governed by and construed in accordance with the laws of the State of Colorado."
In April 2015, plaintiff began her employment with Montage, and Montage terminated her employment a few weeks later. Plaintiff filed a claim for unemployment benefits with California's Employment Development Department (EDD), and Leslie submitted a copy of the Agreement to the EED's investigator in June 2015. After the EED granted unemployment benefits to plaintiff, Montage appealed the decision to the California Unemployment Insurance Appeals Board (CUIAB). During the appeal, defendants litigated the existence of the Agreement, and the appeal was resolved in February 2016.
In September 2016, plaintiff filed a complaint against defendants asserting causes of action for nonpayment of wages, waiting time penalties, violation of Penal Code section 496, fraud, and false light. In November 2016, defendants filed a case management statement requesting a jury trial. In December 2016, defendants filed an answer to the complaint, and the answer did not include arbitration as an affirmative defense.
From October 2016 to January 2017, the parties engaged in discovery. Defendants: (1) requested and received the administrative record in the CUIAB proceedings; (2) received over 500 pages of documents from plaintiff in response to Montage's requests for production of documents; (3) subpoenaed documents from plaintiff's former employer; and (4) took plaintiff's deposition, which lasted a few hours and was scheduled to continue for a second day.
In February 2017, defendants filed a motion to compel arbitration of all claims based on the arbitration provision in the Agreement. Plaintiff filed an opposition to the motion and argued a valid arbitration agreement did not exist because there was no mutual assent. Plaintiff also argued defendants waived the right to compel arbitration and the arbitration agreement was unconscionable.
At the hearing on the motion, plaintiff claimed she was prejudiced by defendants' delay in seeking arbitration because: (1) she "engaged in extensive meet and confer" regarding defendants' answer; (2) defendants learned plaintiff intended to file a motion for summary adjudication and wanted to take Leslie's deposition; and (3) defendants "continually stalled and delayed, which [caused] prejudice[]." The court considered the prejudice arguments and took the matter under submission.
In April 2017, the court denied defendants' motion to compel arbitration. The minute order stated, "Defendants' right to contractual arbitration was lost due to their unexplained, unreasonable delay in demanding arbitration; Defendants knew about the Agreement long before this action was filed but did not assert it as an affirmative defense or identify it in their CMC Statement in which they requested a jury trial. [¶] . . . [T]he [c]ourt also notes that Defendants submitted the Arbitration Agreement as part of a Labor Board hearing many months before the instant lawsuit was filed." The court did not address plaintiff's arguments regarding unconscionability or lack of mutual assent. Leslie timely filed a notice of appeal from the court's order, which is appealable pursuant to Code of Civil Procedure section 1294, subdivision (a).
In referencing a "Labor Board hearing," we assume the court was referring to the proceedings regarding plaintiff's unemployment benefits.
All statutory references are to the Code of Civil Procedure.
DISCUSSION
Choice of Law
At the outset, we note the Agreement contains a Colorado choice of law provision, but the parties primarily rely on California law. Plaintiff does not even mention the choice of law issue, and Leslie briefly suggests the Agreement "can be read to be subject to" Colorado law, California law, and the Federal Arbitration Act. Leslie also generally claims "[t]he choice of law question need not detain this Court . . . because . . . California, Colorado and federal courts use the same legal test for analyzing waiver." We agree the standard for determining waiver claims appears to be similar under California, Colorado, and federal law. (See Lewis v. Fletcher Jones Motor Cars, Inc. (2012) 205 Cal.App.4th 436, 444 (Lewis) ["[U]nder the Federal Arbitration Act [9 U.S.C. § 1 et seq.] and the California Arbitration Act [§ 1280 et seq.] courts apply the same standards in determining waiver claims."]; City and County of Denver v. District Court In and For City and County of Denver (Colo. 1997) 939 P.2d 1353, 1369 [citing six factor test similar to California and federal law].) Regardless, the parties have not developed any substantial arguments based on Colorado or federal law and do not claim California law differs so we need not address this issue.
Leslie's Waiver of the Right to Arbitrate
In the trial court proceedings, plaintiff challenged the Agreement based on unconscionability and lack of mutual assent, but the court did not reach these arguments. We also need not address these arguments, which the parties do not brief on appeal. Even assuming a valid arbitration agreement, substantial evidence supported a finding of waiver.
Standard of Review
Because the question of "[w]hether a party waived the right to contractual arbitration is . . . factual," we review the court's ruling under the substantial evidence standard. (Lewis, supra, 205 Cal.App.4th at p. 443.) This means the court's determination "'"'if supported by substantial evidence, is binding on an appellate court.'"'" (Ibid.) "'Only "'in cases where the record before the trial court establishes a lack of waiver as a matter of law, [may] the appellate court . . . reverse a finding of waiver made by the trial court.'"'" (Ibid.) Under a sufficiency of the evidence standard of review, we "construe any reasonable inference in the manner most favorable to the judgment, resolving all ambiguities to support an affirmance." (Burton v. Cruise (2010) 190 Cal.App.4th 939, 946 (Burton).)
Factors Considered in Determining Waiver of the Right to Arbitrate
Section 1281.2 provides: "On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines" "[t]he right to compel arbitration has been waived by the petitioner . . . ." (§ 1281.2, subd. (a).) Although the statute speaks in terms of "waiver," it "does not require a voluntary relinquishment of a known right; to the contrary, a party may be said to have 'waived' its right to arbitrate by an untimely demand, even without intending to give up the remedy." (Burton, supra, 190 Cal.App.4th at p. 944.) In those cases, "waiver is more like a forfeiture arising from the nonperformance of a required act." (Ibid.)
To determine if there is a waiver, courts consider a number of factors such 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 Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1196.) However, it is not enough for a party to simply show one or more of the factors is present. A determination of "prejudice [also] is critical in waiver determinations." (Id. at p. 1203.)
Substantial Evidence of Leslie's Waiver of the Right to Arbitrate
The court found Leslie waived the right to arbitrate due to: (1) defendants' "unexplained, unreasonable delay in demanding arbitration"; (2) defendants' knowledge "about the Agreement long before th[e] action was filed but [failure to] assert it as an affirmative defense or identify it in their CMC Statement in which they requested a jury trial"; and (3) defendants' submission of the "Agreement as part of a Labor Board hearing many months before the . . . lawsuit was filed." These findings justify the court's ruling, and substantial evidence supports each finding.
First, we cannot fault the court's finding of unreasonable delay. Leslie did not file his motion to compel arbitration until five months after plaintiff filed her complaint. Leslie argues this delay was minimal and cannot justify a finding of waiver. To the contrary, "[t]here is no fixed stage in a lawsuit beyond which further litigation waives the right to arbitrate. Rather, the court views the litigation as a whole in determining whether the parties' conduct is inconsistent with a desire to arbitrate." (Hoover v. American Income Life Ins. Co. (2012) 206 Cal.App.4th 1193, 1204.) "Indeed, other courts have found comparable delays to be unreasonable . . . ." (Lewis, supra, 205 Cal.App.4th at p. 446 [five months between filing of suit and motion to compel arbitration]; see Guess?, Inc. v. Superior Court (2000) 79 Cal.App.4th 553, 556 [less than four months between filing of suit and motion to compel arbitration]; Kaneko Ford Design v. Citipark, Inc. (1988) 202 Cal.App.3d 1220, 1228-1229 [five and one-half months between filing of suit and motion to compel arbitration]; Augusta v. Keehn & Associates (2011) 193 Cal.App.4th 331, 338-339 [six and one-half months between filing of suit and motion to compel arbitration]; Adolph v. Coastal Auto Sales, Inc. (2010) 184 Cal.App.4th 1443, 1450-1452 (Adolph) [six months between filing of suit and demand for arbitration].)
Second, Leslie undertook actions inconsistent with the right to arbitrate. Leslie previously submitted the Agreement to the EED investigator so he knew about the Agreement more than a year before plaintiff filed the action. However, Leslie still filed an answer that did not include arbitration as an affirmative defense and submitted a case management statement requesting a jury trial. These actions are inconsistent with a demand for arbitration. (See Guess?, Inc. v. Superior Court, supra, 79 Cal.App.4th at pp. 557-558 [finding waiver in part because party did not plead its right to arbitrate as an affirmative defense]; Oregel v. PacPizza, LLC (2015) 237 Cal.App.4th 342, 355-356 [same]; Burton, supra, 190 Cal.App.4th at pp. 943, 946-947 [finding waiver in part because party filed a case management statement requesting a jury trial]; Adolph, supra, 184 Cal.App.4th at p. 1451 [finding waiver in part because case management statement failed to assert arbitration].)
Third, substantial evidence supports the court's implied finding of prejudice. "Prejudice typically is found only where the petitioning party's conduct has substantially undermined th[e] important public policy [of arbitration as a speedy and relatively inexpensive means of dispute resolution] or substantially impaired the other side's ability to take advantage of the benefits and efficiencies of arbitration." (St. Agnes Medical Center v. PacifiCare of California, supra, 31 Cal.4th at p. 1204.) Courts, including this one, have found a party's unreasonable delay combined with expenditures of time and money can result in prejudice. (See Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 377 ["[C]ourts have . . . found that unjustified delay, combined with substantial expenditure of time and money, deprive[s] the parties of the benefits of arbitration and [i]s sufficiently prejudicial to support a finding of waiver to arbitrate."); Burton, supra, 190 Cal.App.4th at p. 948 ["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."]; Adolph, supra, 184 Cal.App.4th at pp. 1450-1452 [finding six-month delay resulted in prejudice justifying denial of motion to compel arbitration].)
Leslie argues the court rejected plaintiff's prejudice arguments at the hearing and did not find any prejudice in its minute order. To the contrary, the court considered the parties' prejudice arguments at the hearing and took the matter under submission. While the court's minute order does not expressly discuss prejudice, "[w]e shall assume . . . the court impliedly found prejudice and we search the record for any substantial evidence to support the implied finding." (Groom v. Health Net (2000) 82 Cal.App.4th 1189, 1195.)
While we are not persuaded plaintiff was prejudiced by her meet-and-confer efforts or disclosure of purported litigation strategies, we do find plaintiff was prejudiced by defendant's use of judicial discovery, which may not have been available in arbitration. Here, there was a five-month delay from the time plaintiff commenced the action to the time Leslie filed his motion to compel arbitration. During that time, Leslie received the administrative record in the CUIAB proceedings, received documents from plaintiff in response to document requests, subpoenaed documents from plaintiff's former employer, and took plaintiff's deposition. By engaging in litigation of plaintiff's claims, Leslie's conduct deprived plaintiff of the advantage of arbitration as an expedient, efficient, and cost-effective method to resolve disputes. While the prejudice to plaintiff from Leslie's delay and litigation might be relatively minimal, we cannot reweigh the evidence to reach a different conclusion. We are bound by our standard of review and cannot reverse the court's finding of waiver unless the record compels a finding of nonwaiver as a matter of law. (Burton, supra, 190 Cal.App.4th at p. 946.) Based on the record, we cannot conclude that, as a matter of law, Leslie did not waive any rights to arbitration. (Ibid.)
Leslie argues plaintiff could not have been prejudiced by the judicial discovery because the parties had the same discovery rights in arbitration. He specifically claims the Agreement provides for the arbitration to be administered by Judicial Arbitration & Mediation Services, Inc. (JAMS), pursuant to its "Streamlined Arbitration Rules and Procedures," which "provide for discovery, including depositions and the right to subpoena third parties for documents." However, the JAMS rules only require the parties to exchange basic nonprivileged documents relevant to the dispute so the court could reasonably infer the discovery responses Leslie received were more than what would have been available in arbitration. (See JAMS Streamlined Arb. Rules & Procedures, rule 13(a) ["The Parties shall cooperate in good faith in the voluntary and informal exchange of all non-privileged documents and information"].) In fact, the requests for production included broad requests for "[a]ny and all emails between [plaintiff] and Scott Leslie" and "[a]ny and all emails between [plaintiff] and Tom Black." It is unclear if Leslie would have received these documents as part of the information exchange in arbitration, and the arbitrator would have to approve any "additional information exchange . . . based upon the reasonable need for the requested information, the availability of other discovery options and the burdensomeness of the request on the opposing Parties and the witness." (Ibid.) The applicable JAMS rule on third party discovery also provides: "The [a]rbitrator may issue subpoenas for the . . . production of documents either prior to or at the Hearing pursuant to this Rule or Rule 14(c). The subpoena . . . shall be issued in accordance with the applicable law." (JAMS Streamlined Arb. Rules & Procedures, rule 16.) Because the arbitrator must issue the subpoena, Leslie arguably could not obtain the third party documents in arbitration that occurred in the judicial forum as a matter of right. Thus, Leslie took advantage of discovery that may not have been available in arbitration, thereby prejudicing plaintiff.
Leslie also claims the Agreement allows "discovery in accordance with applicable code," but it is unclear what code is referenced by the Agreement. --------
Relying on Khalatian v. Prime Time Shuttle, Inc. (2015) 237 Cal.App.4th 651, Leslie suggests his participation in discovery was minimal and does not "establish the kind of prejudice that must exist to support a waiver." The facts in Khalatian are distinguishable from the facts in this case. In Khalatian, the court found defendants did not waive their right to arbitration despite their participation in discovery. (Id. at p. 662.) The court reasoned only one defendant propounded discovery and the plaintiff responded with just 177 pages of documents. (Ibid.) In response to interrogatories, the plaintiff provided nothing more than references to allegations in the complaint or indicated discovery was ongoing. (Ibid.) The parties also had not taken any depositions. (Ibid.) Here, on the other hand, plaintiff produced over 500 pages of documents, Leslie subpoenaed additional documents from plaintiff's employer, and also took plaintiff's deposition.
Leslie further contends there is no prejudice resulting from his answer or case management statement. This misses the point as those actions are not necessarily relevant to the prejudice inquiry. Instead, the court could consider those actions as inconsistent with an intent to arbitrate. Finally, Leslie suggests waiver typically is found where "courts [a]re concerned about the possibility of gamesmanship by the party seeking arbitration." Leslie claims there is no evidence he was "gaming the system" because "defense counsel's firm was relocating offices during the November and December 2016 time frame and did not focus on the possibility that an arbitration agreement existed." Leslie also argues he "did not aggressively litigate the case," which "underlines the absence of any gamesmanship." We reject Leslie's arguments because a finding of bad faith is not a prerequisite to a finding of waiver. (Berman v. Health Net (2000) 80 Cal.App.4th 1359, 1372 ["[B]ad faith is an alternative ground for finding waiver . . . . [T]he crucial inquiry is not the subjective motivation of the party seeking arbitration"].)
DISPOSITION
The order is affirmed. Plaintiff shall recover her costs on appeal.
IKOLA, J. WE CONCUR: ARONSON, ACTING P. J. FYBEL, J.