Opinion
NOT TO BE PUBLISHED
Monterey County Super. Ct. No. M86505
ELIA, J.In this commercial dispute, appellant PECO Pallet, Inc. (PECO) sought to compel arbitration in accordance with a clause in its contract with respondent Valley Pallet, Inc. (Valley). The court granted PECO's motion to compel on the condition that the proceeding be held in California rather than New York, the venue specified in the contract. We conclude that the order is not appealable and will therefore dismiss the appeal.
Background
PECO leases commercial pallets to retailers and vendors throughout the United States. Valley manufactures, stores, cleans, and repairs pallets for pallet distributors. In the fall of 2007 the parties filed cross-actions over a written agreement for the construction, storage, and repair of pallets by Valley for PECO. Valley alleged that PECO had failed to pay the amounts due, while PECO disputed the amounts charged for the components and performance of the repair work by Valley.
On April 29, 2008 PECO moved to stay the action and compel arbitration. PECO pointed out that the parties' contract required any disputes to be resolved through arbitration. Anticipating Valley's opposition, PECO acknowledged that the parties had engaged in discovery since the inception of the action in September 2007. PECO insisted, however, that it had not waived its right to arbitration because there had been no prejudice to Valley's ability to proceed in that forum.
Valley responded that the arbitration provision itself was unconscionable, as it had been hidden in the contract. According to Valley, the arbitration term was buried in a paragraph labeled "MISCELLANEOUS" in a "boiler plate contract" that had never been negotiated but instead had been presented "on a take it or leave it basis." Addressing PECO's denial of waiver, Valley maintained that PECO had indeed waived arbitration: it had filed an answer and a cross-complaint, and it had engaged in extensive discovery over a nine-month period at "substantial" cost, all without even mentioning arbitration, much less reserving that right.
Significantly, Valley called the court's attention to the detail PECO had omitted from its moving papers: that the contract specified New York as the place where the arbitration was to be held. Valley countered PECO's assertion of no prejudice by explaining that it would have to retain New York counsel, who would have to repeat much of the work already done by its California attorney at thousands of dollars in fees. Had PECO demanded arbitration at the outset, Valley could have retained New York counsel earlier and saved additional travel expense for its attorney to take the depositions of PECO employees and officers. In addition, Valley estimated that it would need at least eight of its employees to testify, at great cost in airfare and hotel bills.
The last paragraph before the signature page was the "MISCELLANEOUS" provision, which stated: "This Agreement may not be assigned in whole or in part by either party. Unless otherwise under Federal law [sic], this Agreement will be interpreted in accordance with the laws of the State of New York excluding its conflict of laws rules. Any disputes arising under this Agreement will be resolved through binding arbitration under the commercial rules of the American Arbitration Association. Any arbitration proceedings shall be conducted in New York."
At the hearing the trial court suggested the "possibility of granting arbitration, but designating it to be here." Valley's attorney acknowledged that such an outcome would dispose of his prejudice argument. In its oral ruling on the motion, the court observed that these were "two entities that have presumably lawyers or at least access to lawyers and they have to be bound by what's written in the agreement. [¶] So I believe that the case should be arbitrated. But I do think there has been delay that has caused expense and inconvenience. And I think the court does have the equitable power to adjust that. So I will order that the arbitration take place in California." The court filed its written order on the motion on June 10, 2008.
PECO moved for reconsideration on the ground that it had not had an opportunity to argue the issue of "severability of the venue selection clause." PECO then offered the court "the benefit of legal briefing on the issue of the Court's authority to sever portions of the arbitration agreement and... the American Arbitration Association commercial rules of arbitration." According to PECO, once the court found no waiver and no unconscionability in the arbitration requirement, it lacked authority to sever the venue provision from the parties' agreement. Only the American Arbitration Association (AAA) had the power and discretion to determine the location of arbitration, and venue could be changed by the AAA under its rules. In opposition, Valley contended that no new facts had been presented and that the law supported its position on both unconscionability and waiver. Valley cited Civil Code section 1670.5, which permits the court to sever any unconscionable clause or limit its application to avoid an unconscionable result. Valley also urged the court to find PECO in contempt for filing its demand for arbitration to be held in New York, in "clear and defiant violation" of the court's order.
A hearing on the reconsideration motion took place on August 1, 2008. The trial court found a "strong showing of a waiver," but it believed the arbitration provision to be "salvageable as long as the arbitration can go forward here in California." The court also expressed the view that the arbitration clause was "buried" in the contract so that it "was highly unlikely that anybody was aware of it." The hearing concluded with the court's finding of a "partial waiver" and its denial of "any change in the earlier ruling."
Discussion
At the outset we must consider a threshold jurisdictional issue raised by Valley: whether PECO has appealed from a nonappealable order. The right to appeal, of course, is "wholly statutory." (Powers v. City of Richmond (1995) 10 Cal.4th 85, 109.)
Code of Civil Procedure section 1294 permits an aggrieved party to appeal from an order "dismissing or denying a petition to compel arbitration" as well as specified orders and judgments that follow arbitration awards. An order granting a motion or petition to compel arbitration is considered interlocutory and not appealable. (Vivid Video, Inc. v. Playboy Entertainment Group, Inc. (2007) 147 Cal.App.4th 434, 442; State Farm Fire & Casualty v. Hardin (1989) 211 Cal.App.3d 501, 506.) "The rationale behind the rule making an order compelling arbitration nonappealable is that inasmuch as the order does not resolve all of the issues in controversy, to permit an appeal would delay and defeat the purposes of the arbitration statute." (Wheeler v. St. Joseph Hospital (1976) 63 Cal.App.3d 345, 353.) More specifically, the arbitration procedure prescribed in Code of Civil Procedure section 1280, et. seq. expresses this state's " 'strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution.' " (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9.) In addition, the order compelling arbitration " 'works no hardship on the litigant because the party who objects to arbitration may win at the arbitration hearing, and if he does not, the issue is reviewable on appeal from the order of confirmation.' " (La Pietra v. Freed (1978) 87 Cal.App.3d 1025, 1031, quoting Maddy v. Castle (1976) 58 Cal.App.3d 716, 719-720, disapproved of on another point in Doers v. Golden Gate Bridge etc. Dist. (1979) 23 Cal.3d 180, 188; accord, State Farm Fire & Casualty v. Hardin, supra, 211 Cal.App.3d at p. 506.) The party compelled to arbitrate may, however, seek review of the order on appeal from a judgment confirming the resulting award. (Wheeler v. St. Joseph Hospital, supra, 63 Cal.App.3d at p. 353.)
In its oral ruling on the motion to compel, the superior court announced its "order that the arbitration take place in California." Its ensuing written order stated that "the motion to compel arbitration in New York is denied. The Court finds that the arbitration provision contained in the parties' Agreement... is an enforceable arbitration agreement and its terms have not been waived. The terms of the Agreement are not unconscionable. The Court declines, however, to order arbitration proceedings in New York. Any arbitration proceedings shall be conducted in California."
The minute order pertaining to the reconsideration hearing states only, "Court finds a partial waiver existed. [¶] Defendant's motion to change court's previous order is DENIED. [¶] Arbitration to be conducted in California." The minute order clearly reflected the court's oral decision not to alter its earlier ruling; accordingly, despite a "strong showing of a waiver," the arbitration provision was "salvageable as long as the arbitration can go forward here in California." The subsequent written order denying reconsideration, however, states that the arbitration agreement "is enforceable in all its terms except the provision regarding the place of arbitration designated as New York, which the Court specifically finds to be an unconscionable provision, and therefore sets California as the place of venue for this arbitration."
The order denying reconsideration, which was drafted by Valley and filed the day after PECO's notice of appeal, reflects a finding of unconscionability that is inconsistent with the court's oral ruling and the minute order following the hearing. PECO has called this court's attention to the discrepancy and to the fact that it did not approve the order "as to form" in the space provided on the order. Having no basis for determining whether the parties both complied with California Rules of Court, rule 3.1312, we will review the trial court's ruling based on the only legal ground it affirmatively expressed at both hearings, that of "partial waiver."
It is the substance and effect of an adjudication which determine whether a ruling is appealable. (State Farm Fire & Casualty v. Hardin, supra, 211 Cal.App.3d at p. 507.) In this case the court's disposition of PECO's motion to compel was something of a hybrid between a grant and a denial: It allowed arbitration to proceed, but only if it occurred in California. Although the court effectively denied one aspect of the arbitration procedure contemplated in the final clause of the contract, it nonetheless found no legal impediment to arbitration as the agreed-upon forum for resolution of the parties' dispute. Thus, in substance and overall effect, the court's order was a grant of PECO's motion to compel arbitration. Because the order directed the parties to arbitrate the matter, it is not appealable.
PECO relies on Porter v. United Services Automobile Assn. (2001) 90 Cal.App.4th 837, for the proposition that the refusal to compel arbitration at the location specified in the parties' contract is tantamount to a denial, which is therefore appealable. In Porter the trial court expressly denied the plaintiff's petition to compel arbitration in California, because the terms of the parties' agreement (an automobile insurance policy) called for arbitration to take place in New Jersey, where the insured lived.
Valley urges this court to disagree with Porter as "not [an] accurate holding of the law." A departure from that court's analysis is unnecessary, however, because the procedural circumstances presented in this case lead to a different result. The trial court in Porter did not order arbitration, but only "advised" the parties to proceed with arbitration in New Jersey. The parties were left with a clear disposition: the plaintiff's petition to compel arbitration was denied. Arbitration was not foreclosed (as long as it took place in New Jersey), but neither was it required. Here, by contrast, the court found that the parties' agreement to arbitrate was not unconscionable, but it was susceptible of a finding of waiver, as there had already been a long history of costly litigation in California that would have to be duplicated in New York along with the burden of new expenses. Apparently the court believed that the only way to avert the prejudice caused by PECO's delay in seeking arbitration was to direct that the proceeding be conducted in California. Thus, notwithstanding the court's rejection of New York as the venue, here arbitration was affirmatively ordered, not merely suggested as it was in Porter. Because the "substance and effect" of the ruling was to compel arbitration, section 1294 does not offer a remedy by appeal. (See State Farm Fire & Casualty v. Hardin, supra, 211 Cal.App.3d at p. 506; cf. Bushley v. Credit Suisse First Boston (9th Cir. 2004) 360 F.3d 1149, 1150 [rejecting theory that order compelling arbitration in New York rather than London was equivalent to an order denying arbitration; appellant's position would contribute to frustration of arbitration through lengthy preliminary appeals.])
PECO asserts that the finding of partial waiver did not authorize the court to sever a provision of the agreement absent unconscionability. In light of the court's comments at the two hearings, it is unlikely that appellate review of the court's ruling on the merits would help PECO. The court implied that if it did not "adjust" the arbitration venue, it would deny PECO's motion to compel altogether based on the "strong showing of a waiver." A determination of waiver must be upheld if supported by substantial evidence. (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 983.) A finding of waiver may not be overturned on appeal unless the record as a matter of law compels a finding of nonwaiver. (Davis v. Continental Airlines, Inc. (1997) 59 Cal.App.4th 205, 211.)
PECO contends that to treat the trial court's ruling as a denial and therefore appealable would further the statutory policy of judicial deference to and enforcement of arbitration agreements. But the settlement of disputes through the efficient and less costly process of arbitration is not furthered by a lengthy appeal process that must run its course before arbitration has even commenced. On the contrary, the preclusion of appeals in cases anticipating arbitration comports with this state's strong policy to afford litigants an expeditious and comparatively inexpensive method of dispute resolution. (See Moncharsh v. Heily & Blasé, supra, 3 Cal.4th at p. 9.) To permit appellate review of what is essentially an interlocutory ruling would only promote the delay and additional legal costs that the arbitration procedure is designed to avoid. PECO's suggestion that Valley raise the forum-selection issue before the AAA is well taken when applied to PECO itself.
In its motion for reconsideration PECO argued that the AAA, not the court, "has the sole authority and discretion to determine the location of the arbitration, and the AAA rules may allow for a change in venue." PECO emphasized that if Valley were to object to holding arbitration hearings in New York, it could request a change in venue from the arbitrator, who would have "the exclusive authority" to rule on this issue.
Both parties recognize that a nonappealable order compelling arbitration may be reviewed as a petition for a writ of mandate in "exceptional circumstances." (Muao v. Grosvenor Properties (2002) 99 Cal.App.4th 1085, 1088-1089; see Branham v. State Farm Mut. Auto. Ins. Co. (1975) 48 Cal.App.3d 27, 32.) But PECO has not requested such treatment, nor do we find exceptional circumstances to justify it.
Disposition
The appeal is dismissed.
WE CONCUR: PREMO, Acting P. J., MIHARA, J.