California Arbitration: The Early Bird Catches the Worm

Delaying Motion to Compel Arbitration Can Waive Right in California

By Hanna B. Raanan © Ogletree Deakins Oct 4, 2016

On June 16, a California Court of Appeal, in an unpublished decision, issued yet another ruling applying the doctrine of waiver to arbitration agreements in the employment litigation context.

In Ogannesian v. ICC Collision Centers, Inc., a defendant waited eight months after responding to a complaint before bringing its motion to compel arbitration. During those eight months, the court-determined trial date had been set and the defendant had participated in the discovery process by serving and responding to written discovery.

The court of appeal affirmed the trial court's decision that the defendant had waived its right to compel arbitration by waiting eight months to file a motion.

Background

The plaintiff, Aleksan Ogannesian filed a lawsuit against ICC Collision Centers Inc. in March 2013. ICC filed its answer in April 2013. In July of the same year, both parties filed case management statements.

In ICC's case management statement, it indicated, for the first time, that it might file a motion to compel arbitration. The trial court then scheduled a jury trial for February 2014.

In September 2013, ICC substituted in new counsel and, two months later, ICC moved to compel arbitration. ICC participated in written discovery between the time it filed its original answer and the time that it moved to compel arbitration.

The trial court denied ICC's motion to compel arbitration on the grounds that it had waived its right to compel arbitration. The trial court noted that ICC waited eight months before filing its arbitration motion and observed that this was "a delay that was inconsistent with its assertion of the right to arbitrate."

In response, ICC argued that the delay was due to prior counsel's incompetence or lack of knowledge regarding the arbitration agreement. However, the record indicated that prior counsel knew about the agreement based on the notation made in ICC's case management statement. In November 2013, ICC's new counsel learned of the arbitration agreements and immediately moved to compel arbitration. 

The Court of Appeal's Ruling

The court of appeal affirmed the trial court's ruling, holding that ICC's eight-month delay in bringing its motion to compel arbitration and its participation in discovery constituted a waiver. 

The court explained that California appellate courts will only reverse a trial court's finding of a waiver in cases where the record clearly establishes a lack of waiver.

Furthermore, the court confirmed that the burden rested with ICC to provide an adequate appellate record. The court noted that where the trial court record is silent, it must draw all inferences in favor of the appealed judgment or order.

The court also observed that the record provided by ICC was "woefully inadequate." As such, ICC could not establish a lack of waiver as a matter of law. Specifically, the court noted that it did not have the entire record even though ICC's arbitration motion stated that it was based on "'the documents on file in the action' — in other words, the entire trial court file."

The court indicated that ICC's failure to provide the entire record was fatal because it prevented the court from considering any evidence, including any potential rationale justifying ICC's delay.

The court then discussed the factors showing a lack of waiver—one of which is whether or not the moving party "substantially invoked the use [of] litigation machinery" prior to moving for arbitration. The court indicated that it needed specific evidence showing a lack of waiver, which ICC failed to provide.

Furthermore, the court of appeal found ICC's argument that prior counsel failed to pursue the issue due to inadvertence or incompetence unpersuasive. Specifically, Ogannesian, in opposing the appeal, moved to submit a case management statement filed by ICC in the trial court wherein ICC indicated that it "may file a Motion to Compel Arbitration and Stay Proceeding[s]."

In considering this case management statement, which contradicted ICC's assertions that it was not aware of its right to arbitrate prior to moving to compel arbitration, the court focused on the fact that ICC had failed to meet its record preparation obligation on appeal. As a result, the court found that the record, as presented by ICC, was deficient and did not allow them to even consider whether the record before the trial court established a lack of waiver as a matter of law.

Practical Impact

The Ogannasian case reminds employers facing litigation to consider the following:

Determine if the plaintiff signed an arbitration agreement or otherwise agreed to arbitrate his or her claims. To prepare, review the plaintiff's personnel file at the onset of litigation to ensure that an arbitration agreement is not missed.

If a motion to compel arbitration is not an employer's first responsive pleading, the employer may want to include arbitration as an affirmative defense.

Be careful about engaging in discovery either before or after moving to compel arbitration.  Employers may take the position that, under the California Arbitration Act, no discovery may take place until an arbitrator is in place. Indeed, they may not want to participate in discovery unless the trial court orders them to do so.

If there is a delay or some other active engagement in litigation prior to moving to compel arbitration, ensure that the trial court record is clear that there was no waiver of the right to arbitrate.

If an employer appeals an order denying a motion to compel arbitration, it should ensure that the appellate record is complete as presented.

Hanna B. Raanan is an attorney with Ogletree Deakins in Orange County, Calif. © Ogletree Deakins. All rights reserved. Reposted with permission.

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