Abrogast Law, David M. Abrogast; The Bronson Firm and Steven M. Bronson for Petitioner. No appearance for Respondent. California Appellate Law Group, Pablo Drobny, Kelly Woodruff; Tyson & Mendes, Susan A. Gruskin; and Morgan T. Jackson for Real Parties in Interest.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (San Diego County Super. Ct. No. 37-2016-00016040-CU-PA-CTL) Original proceedings in mandate challenging order of the Superior Court. Eddie C. Sturgeon, Judge. Petition granted. Abrogast Law, David M. Abrogast; The Bronson Firm and Steven M. Bronson for Petitioner. No appearance for Respondent. California Appellate Law Group, Pablo Drobny, Kelly Woodruff; Tyson & Mendes, Susan A. Gruskin; and Morgan T. Jackson for Real Parties in Interest.
The issue in this original proceeding is whether the trial court or an arbitrator should consider Tamara Nelson's claim that defendants Uber Technologies, Inc. and Raiser-CA, LLC (collectively Uber) waived any right to arbitrate her personal injury lawsuit by engaging in three years of active litigation before moving to compel arbitration. Nelson contends the court erred in granting Uber's motion to compel arbitration on the basis that the parties' arbitration agreement delegated the issue to the arbitrator. We agree with Nelson that the court is in the best position to decide waiver by litigation conduct in this case and we conclude the arbitration agreement did not clearly and unmistakably delegate the issue of waiver by litigation conduct to the arbitrator. However, we decline Nelson's invitation to decide the issue in the first instance. Therefore, we grant Nelson's petition and remand the matter for further proceeding consistent with this decision.
In May 2016, Nelson sued Uber along with individual defendants for negligence related to a ride she requested through the Uber mobile phone application. She alleged the driver who responded to her Uber request took a wrong exit and violently jolted the vehicle when he drove over a steep roadway divider to correct his error. Nelson claimed the driver's negligent conduct caused fractures to her vertebrae. Nelson alleged Uber knew or should have known registered Uber drivers shared or swapped Uber account profiles, including photographs, with nonregistered drivers. She alleged Uber breached its duties to her and compromised her safety by allowing the unknown driver to use a registered Uber driver's account and profile.
The court granted Nelson's motion for terminating sanctions against the registered driver whose name was used on the Uber app because that individual refused to participate in the litigation.
Uber answered the complaint generally denying the allegations and asserting 38 affirmative defenses. The 37th affirmative defense asserted the dispute was subject to an arbitration agreement. However, Uber also requested a jury trial.
Uber participated in extensive litigation over the next three years. It propounded written discovery, noticed and took depositions, obtained both medical and psychological examinations of Nelson, participated in case management conferences to set trial dates, deposited jury fees, and engaged in motion practice before the court. The result of one such motion was an order compelling Uber to produce discovery and awarding Nelson monetary sanctions.
Nelson filed a first amended complaint in August 2017. After the court denied Uber's motion to strike portions of the first amended complaint, Uber answered the first amended complaint again generally denying the allegations and asserting among its numerous affirmative defenses the existence of an arbitration agreement. Uber sought appointment of a discovery referee.
Uber participated in a case management conference in April 2018 during which it demanded a jury trial and estimated trial would last 10 days. Uber left blank a box on the case management form where it could have indicated an intention to pursue private arbitration. Uber also filed a cross-complaint against a third party.
In July 2018, the court granted another request by Nelson for monetary sanctions against Uber because Uber engaged in "fruitless motion practice efforts" for over a year regarding the court's prior discovery order and Uber had still not complied. The court denied Uber's motion for protective order.
In October 2018, the court granted Uber's request to continue trial to May 2019 to allow Uber to file a dispositive motion. The court ordered appointment of a discovery referee in November 2018.
Uber moved to compel arbitration at the end of December 2018. Uber claimed Nelson agreed to arbitrate any disputes by agreeing to the terms and conditions for using the Uber application, which included an arbitration clause. Uber also contended the agreement delegated to the arbitrator any issue regarding waiver by litigation.
Nelson opposed the motion contending Uber's litigation conduct waived its ability to assert the benefits of arbitration. Nelson contended the court should decide the issue of litigation waiver. Nelson also contended Uber's registration process did not create an enforceable contract.
The court granted the motion to compel arbitration. On the issue of waiver, the court stated, "The court is very troubled with the issue of waiver, especially in light of the goal of arbitration: speedy, inexpensive relief. Three years have passed, multiple motions filed, massive discovery completed, the appointment of a discovery referee, and the potential prejudice to the plaintiff. Plaintiff has provided evidence Uber acted inconsistently by requesting a jury." Yet the court determined the parties delegated the issue of waiver to the arbitrator and ordered the parties to arbitration.
Nelson moved for reconsideration of the order compelling arbitration when, a couple of days after the court entered its order, the discovery referee issued a report recommending the court order Uber to provide further discovery responses and documents and recommending the imposition of more than $20,000 in sanctions against Uber. The court modified the order to include additional authorities, but otherwise reaffirmed its order compelling arbitration.
Nelson petitioned this court for a writ of mandate directing the trial court to vacate its order and enter a new order denying Uber's motion to compel arbitration. After considering Uber's informal response and Nelson's reply thereto, we issued an order to show cause why the requested relief should not be granted. We have considered Uber's return and Nelson's reply to the return.
"California statutory and decisional authority recognizes the issue of waiver by litigation conduct is ordinarily resolved by the trial court, not an arbitrator." (Hong v. CJ CGV America Holdings, Inc. (2013) 222 Cal.App.4th 240, 243 (Hong).) When a party to an arbitration agreement petitions to compel arbitration, Code of Civil Procedure section 1281.2 states in pertinent part: "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 that: [¶] (a) The right to compel arbitration has been waived by the petitioner; or [¶] (b) Grounds exist for the rescission of the agreement. ..." (Italics added.)
The California Supreme Court identified the following relevant factors a court may consider in determining waiver by litigation conduct: " ' "(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.) "The question of waiver is generally one of fact." (Hoover v. American Income Life Ins. Co. (2012) 206 Cal.App.4th 1193, 1202 (Hoover).)
After surveying both state and federal authorities, the Hong court determined waiver by litigation conduct is traditionally decided by courts rather than arbitrators. (Hong, supra, 222 Cal.App.4th at p. 258.) Several federal courts have distinguished language used by the Supreme Court in Howsam v. Dean Witter Reynolds (2002) 537 U.S. 79, 84 and Moses H. Cone Memorial Hospital (1983) 460 U.S. 1, 24-25 suggesting a presumption that arbitrators decide "allegation[s] of waiver, delay, or a like defense to arbitrability." The majority of courts considering the issue have concluded the language in those two cases referred " 'only to waiver, delay or like defenses arising from non-compliance with contractual conditions precedent to arbitration, ..., not to claims of waiver based on active litigation in court.' " (Hong, supra, 222 Cal.App.4th at p. 256 quoting Ehleiter v. Grapetree Shores, Inc. (3rd Cir. 2007) 482 F.3d 207, 219 and citing Grigsby & Assocs. v. M Sec. Inv. (11th Cir. 2011) 664 F.3d 1350, 1353-1354; Marie v. Allied Home Mortg. Corp. (1st Cir. 2005) 402 F.3d 1, 11; see Hong, supra, 222 Cal.App.4th at p. 258 [collecting state supreme court cases holding the same].) These authorities explain an arbitrator decides "issues of substantive arbitrability such as time limits, notice, laches, and estoppel," but courts decide waiver based on litigation conduct. (Hong, supra, 222 Cal.App.4th at p. 257.)
These authorities noted two policy reasons which favor courts deciding the issue of waiver by litigation conduct: (1) "the judicial branch [is] better qualified to decide the waiver by litigation conduct question" because " 'the trial judge, having been directly involved in the entire course of the legal proceedings, is better positioned to determine whether the belated request for arbitration is a thinly veiled attempt to forum shop' " and (2) it is inefficient to have "an arbitrator decide arbitration has been waived only then to return it to a district court for trial." (Hong, supra, 222 Cal.App.4th at p. 257; see Martin v. Yasuda (9th Cir. 2016) 829 F.3d 1118, 1123, fn. 3 (Martin) [an arbitrator "does not have expertise regarding whether litigation conduct in front of the district court was enough to constitute revocation of the arbitration clause and would not be expected to resolve that dispute"].)
The Hong court noted parties could place language in their agreement "requiring the arbitrator to determine the waiver issue under all circumstances." (Hong, supra, 222 Cal.App.4th at p. 258.) The United States Supreme Court also recognizes "parties can agree to arbitrate 'gateway' questions of arbitrability,' such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy." (Rent-A-Center, W., Inc. v. Jackson (2010) 561 U.S. 63, 68-69 (Rent-A-Center).) However, the agreement to delegate such questions must be done "by 'clear and unmistakable' evidence." (Henry Schein, Inc. v. Archer & White Sales, Inc. (2019) ___ U.S. ___ [139 S.Ct. 524, 530, 202 L.Ed.2d 480, 487] (Henry Schein).)
We, therefore, consider whether the parties did so in this case. The arbitration provision here states in pertinent part: "You and Company agree that any dispute, claim or controversy arising out of or relating to this Agreement or the breach, termination, enforcement, interpretation or validity thereof or the use of the Service or Application (collectively, 'Disputes') will be settled by binding arbitration ...." The provision also stated the arbitration was to be subject to the rules of the American Arbitration Association. We independently interpret the agreement. (Hong, supra, 222 Cal.App.4th at p. 252; Hoover, supra, 206 Cal.App.4th at p. 1202.)
The Ninth Circuit, in Martin, supra, 829 F.3d 1118, determined a similar arbitration clause delegating the issue of "enforceability" to an arbitrator was "insufficient to show an intent that an arbitrator decide the waiver by litigation conduct issue and to overcome the presumption to the contrary." (Id. at p. 1124, citing Cox v. Ocean View Hotel Corp. (9th Cir. 2008) 533 F.3d 1114, 1117 [court should decide issue of waiver by litigation conduct despite language delegating to the arbitrator " '[a]ny controversy ... arising out of or related to' " the agreement].) A decision from the United States District Court for the Northern District of California also determined language delegating authority to the arbitrator to resolve disputes relating to "enforceability" did not "clearly and unmistakably delegate the waiver question to the arbitrator." (Armstrong v. Michaels Stores, Inc. (N.D.Cal. Dec. 11, 2018, No. 17-CV-06540-LHK) 2018 U.S.Dist. Lexis 208976, at *21.) We agree with the rationale of these cases. We conclude neither the inclusion of the term "enforcement" in the arbitration clause here nor the reference to the American Arbitration Association's rules generally delegating issues of arbitrability to an arbitrator is sufficient to clearly and unmistakably delegate the specific question of waiver by litigation conduct to the arbitrator.
"Unpublished federal district court decisions may be persuasive authority." (Khani v. Ford Motor Co. (2013) 215 Cal.App.4th 916, 922, fn. 1.) --------
Some courts have determined delegation of enforceability of an agreement to an arbitrator delegates the question of whether the agreement was unconscionable. (Malone v. Superior Court (2014) 226 Cal.App.4th 1551, 1560; Tiri v. Lucky Chances, Inc. (2014) 226 Cal.App.4th 231, 242-244.) However, the issue of unconscionability raises substantive questions regarding the validity of the agreement itself.
In contrast, a claim of waiver by the party's litigation conduct does not challenge the validity of the agreement. Rather, as is evident by the St. Agnes factors, a claim of waiver by litigation conduct challenges the fairness of the conduct of the party seeking arbitration and considers whether a belated arbitration demand would be prejudicial to the opposing party by substantially impairing the opponent's ability to use the benefits and efficiencies of arbitration. (See Hoover, supra, 206 Cal.App.4th at p. 1205.) Delegating a litigation waiver issue to an arbitrator late in the litigation process risks encouraging manipulative and abusive litigation tactics, giving a party the ability to use the courthouse " 'as a convenient vestibule to the arbitration hall so as to allow a party to create his own unique structure combining litigation and arbitration.' " (Christensen v. Dewor Developments (1983) 33 Cal.3d 778, 784.)
Recent cases from the United States Supreme Court do not compel a different conclusion. In Henry Schein, supra, ___ U.S. ___ [139 S.Ct. 524, 202 L.Ed.2d 480] the U.S. Supreme Court rejected a judicially created exception to the Federal Arbitration Act in which certain federal circuit courts determined the threshold issue of arbitrability where the "argument for arbitration [was] wholly groundless," irrespective of whether the agreement delegated the issue of arbitrability to the arbitrator. (Henry Schein, at p. ___ [139 S.Ct. at pp. 527-528, 202 L.Ed.2d at pp. 485-486].) In reaching this holding, the court stated that "when the parties' contract delegates the arbitrability question to an arbitrator, the courts must respect the parties' decision as embodied in the contract." (Id. at p. ___ [139 S.Ct. at p. 531, 202 L.Ed.2d at p. 489.) However, the Supreme Court expressed no view about whether the contract in that case delegated the arbitrability question to an arbitrator because the lower court had not decided the issue. The court also cautioned, "courts 'should not assume that the parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so.' " (Ibid.)
New Prime Inc. v. Oliveira (2019) ___ U.S. ___ [139 S.Ct. 532, 202 L.Ed.2d 536], decided the week after Henry Schein, concluded some matters are for the court to decide even if a delegation provision is in place. (New Prime, at p. ___ [139 S.Ct. at pp. 537-538, 202 L.Ed.2d at pp. 542-543.) In that case, the Supreme Court determined "that a court should decide for itself whether [the Federal Arbitration Act] [section] 1's 'contracts of employment' exclusion applies before ordering arbitration" because "to invoke its statutory powers under [sections] 3 and 4 to stay litigation and compel arbitration according to a contract's terms, a court must first know whether the contract itself falls within or beyond the boundaries of [sections] 1 and 2." (Id. at p. 537.) The court stated: "The parties' private agreement may be crystal clear and require arbitration of every question under the sun, but that does not necessarily mean the [Federal Arbitration] Act authorizes a court to stay litigation and send the parties to an arbitral forum." (Id. at pp. 537-538.) Similarly, Code of Civil Procedure section 1281.2 contemplates the court will decide the issue of waiver by litigation conduct. The parties' agreement here does not compel an exception to the statutory preference.
Finally, we reject Uber's contention that Nelson forfeited the issue of who decides waiver by litigation conduct because she did not specifically challenge the delegation clause. In Rent-A-Center, the plaintiff challenged an agreement to arbitrate, arguing it was unconscionable under Nevada law. (Rent-A-Center, supra, 561 U.S. at p. 66.) Because the plaintiff did not challenge the delegation clause specifically, the court held that the determination of whether the entire arbitration agreement was unconscionable was a question for the arbitrator. (Id. at p. 72.) Unlike Rent-A-Center, the issue here is whether Uber's years of litigation conduct waived its right to seek the benefit of the agreement, not whether the arbitration agreement or the delegation clause within that agreement is valid or enforceable.
The court is in the best position to decide the issue of waiver by litigation conduct absent clear and unmistakable language to the contrary. Such language is not present in the arbitration agreement here. (Hong, supra, 222 Cal.App.4th at p. 257.)
Let a writ of mandate issue directing the respondent court to vacate its order granting Uber's motion to compel arbitration and to enter a new order determining whether Uber's litigation conduct has resulted in waiver of the right to arbitrate. Nelson shall recover her costs.
McCONNELL, P. J. WE CONCUR: O'ROURKE, J. GUERRERO, J.