City of Santa Monica v. Baron & Budd

Filed 6/26/07 City of Santa Monica v. Baron & Budd CA2/1

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION ONE

APPEAL from an order of the Superior Court of Los Angeles County, David L. Minning, Judge. Affirmed.

Morgan Lewis & Bockius, Andrea Sheridan Ordin, David M. Halbreich, Thomas M. Peterson and Brett M. Schuman; Marsha Jones Moutrie, City Attorney, Joseph Lawrence, Assistant City Attorney, Anthony P. Serritella, Deputy City Attorney, for Plaintiff, Cross-defendant and Appellant.

Alschuler Grossman Stein & Kahan, Marshall B. Grossman, Jonathan A. Loeb and Roland Tellis; Greines, Martin, Stein & Richland, Robin Meadow and Robert A. Olson for Defendants, Cross-complainants and Respondents Baron & Budd, P.C.; Miller, Sher & Sawyer; Miller & Sawyer; Miller, Axline & Sawyer; Sher Leff, LLP; Frederick M. Baron; Scott Summy; Victor M. Sher; Duane C. Miller; and A. Curtis Sawyer, Jr.

Kirkland W. Garey for Defendant, Cross-complainant and Respondent Cooper & Scully, P.C.

In May 2004, the City of Santa Monica (the City) sued Baron & Budd, P.C.; Miller, Sher & Sawyer; Miller & Sawyer; Miller, Axline & Sawyer; Sher Leff, LLP; Cooper & Scully, P.C.; Frederick M. Baron; Scott Summy; Victor M. Sher; Duane C. Miller; and A. Curtis Sawyer, Jr. (the Lawyers), regarding a fee agreement executed in 2000. In October 2005, after litigating this case for 17 months, including moving for summary adjudication of the Lawyers cross-complaints and engaging in extensive discovery, the City moved to compel arbitration of the matter on the ground that the Citys discharge of Cooper & Scully in February 2002 triggered an arbitration provision in the fee agreement. The trial court denied the motion on various grounds, including that the City had waived arbitration. We agree that the City waived arbitration and affirm.

BACKGROUND

In June 1996, the City discovered contamination of its municipal water wells by the gasoline additive methyl tertiary butyl ether (MtBE), a suspected carcinogen, and other gasoline components. The City contracted with the Lawyers to represent the City as outside counsel in litigation against the oil companies that caused the pollution. In June 2000, the City and the Lawyers signed a fee agreement, the Legal Services Agreement (LSA). The LSA stated that the agreement was between the City and a consortium of three law firms  Baron & Budd; Miller, Sher & Sawyer; and Cooper & Scully  that the LSA identified and referred to throughout as Attorney.

The LSA contained a contingent fee provision based on a formula which considered both monetary and nonmonetary recoveries and the time it took to make such recoveries. The agreement allowed the City to discharge Attorney at any time by written notice. Any modifications were to be in writing. Most crucially for our purposes, paragraph 8C of the LSA provided that Attorney would receive a reasonable fee if the contingent fee provision was unenforceable, and that the amount of the fee was subject to arbitration if the parties could not agree: In the event the contingent fee portion of this agreement is determined to be unenforceable for any reason or the Attorney is prevented from representing the Client on a contingent fee basis, the Client shall pay a reasonable fee for the services rendered. If the parties are unable to agree on the reasonable fee for the services rendered, the fee shall be determined by arbitration proceedings before the Judicial Arbitration and Mediation Services (JAMS).

In June 2000, the City, represented by the Lawyers, sued several oil companies. A dispute over venue was not resolved until May 2001. Discovery began in August 2001. On August 20, 2001, the trial court stayed the case. On February 13, 2002, the City purportedly discharged Cooper & Scully from representation after the firms principal attorney in the litigation, Scott Summy, left the firm and went to work for Baron & Budd. The other firms included in the LSA continued to represent the City in settlement negotiations with the oil companies that began in March 2002.

On July 18, 2002, a memorandum of understanding with ChevronTexaco and ExxonMobil was signed but never finalized. During 2003, various other oil companies settled with the city, culminating in a major settlement on December 19, 2003, under which Shell Oil joined ChevronTexaco and ExxonMobil in a settlement agreement based on the July 2002 memorandum. Shell agreed to pay $62.5 million in cash. ChevronTexaco and ExxonMobil agreed to pay $30 million jointly. Separate settlements with other oil companies brought the City a total cash recovery of $121.1 million. In addition, the oil companies promised to restore the Citys water supply, including construction of a major, costly remediation facility. The trial court approved all settlements.

During 2002, while settlement negotiations were continuing, a dispute arose between the City and the Lawyers about calculating legal fees. This dispute went unresolved, and on May 6, 2004, the City sued the Lawyers, alleging unprofessional conduct and seeking to have the LSA declared unenforceable. The City alleged that by their misconduct, the Lawyers forfeited the right to recover contingency fees under the LSA, but instead they may be entitled to reasonable compensation but only on a quantum meruit basis.^[1] The complaint included a single cause of action for declaratory relief. On June 25, 2004, the City filed a first amended complaint that repeated the same factual allegations but added five other causes of action. Neither the original nor first amended complaint ever mentioned arbitration or any desire to arbitrate, or that the discharge of Cooper & Scully triggered the arbitration clause.

On September 23, 2004, the City filed its second amended complaint, in which it repeated various allegations from its earlier complaint but included only two causes of action: declaratory relief and breach of fiduciary duty. Its cause of action for declaratory relief now sought a declaration that the LSA was void ab initio because there was never a meeting of the minds, and alternatively alleged that the LSA was voidable due to the Lawyers unprofessional conduct. It further alleged that even if the LSA was enforceable, the Lawyers still were not entitled to the 25 percent contingency fee they claimed. The Citys prayer for relief sought a declaration that the [Lawyers] are entitled only to reasonable attorneys fees and not any contingency fee and a judgment limiting the Lawyers recovery to the reasonable value of their attorney[s] fees. The second amended complaint mentioned the discharge of Cooper & Scully but did not allege that this discharge had any significance regarding the appropriate dispute resolution forum and never mentioned arbitration. In their answer, the Lawyers expressly reserved the right to compel arbitration under paragraph 8C of the LSA.

On August 3, 2004, the Lawyers filed a cross-complaint against the City for breach of the LSA and to enforce attorneys liens they had filed earlier.^[2] In their answer, the City did not demand arbitration or reserve the right to do so.

The City acknowledges in its opening brief that hard-fought litigation ensued, including extensive discovery and motion practice and over thirty days of depositions. The Citys numerous document requests, interrogatories, requests for admission, and depositions covered the issues broadly raised in the Citys complaint, including the value of the Lawyers services, how to measure that value, and whether the fees the Lawyers claimed are reasonable.^[3] Trial was set for August 1, 2005.

On May 13, 2005, the City filed a motion for summary adjudication of the Lawyers respective causes of action for breach of contract in their cross-complaints. In this motion, for the first time, the City argued that the discharge of Cooper & Scully made the contingency provision of the LSA unenforceable. The motion did not mention arbitration. The Lawyers responded that the contingency fee provision as well as the entire LSA remained enforceable. On August 12, 2005, the court found that material questions of fact remained and denied the motion. On September 22, 2005, the court continued trial to February 6, 2006.

On October 3, 2005, almost 17 months after it filed its original complaint, the City filed a motion to compel arbitration and to stay judicial proceedings. The City argued that because the LSA had no formula for dividing the contingency fee among the Lawyers, the discharge of Cooper & Scully made the contingency fee unenforceable. The City further argued that the Lawyers therefore were entitled to reasonable fees, and that under paragraph 8C, reasonable fees are to be determined by arbitration.

In opposition, the Lawyers argued, among other grounds, that the City waived its right to compel arbitration by unreasonably and prejudicially delaying its request and making that request in bad faith, and that the request was merely an improper motion for reconsideration of the courts denial of the Citys motion for summary adjudication. The Lawyers also requested that the court sanction the City for filing a frivolous motion that raised the same issue as the Citys unsuccessful motion for summary adjudication.

At the hearing on October 27, 2005, the trial court had before it three motions filed by the City, including the motion to compel arbitration. Regarding arbitration, the court announced its tentative ruling to deny and to impose $3,500 in sanctions on the City. After argument, the court adopted its tentative ruling but stated that it would not issue a written order on any of the motions. The October 27 minute order states that all the motions were denied for the reasons stated by the Court, as reflected in the court reporters notes. Regarding the motion at issue, the transcript is unclear as to the courts reasons for denying it. On October 31, the Lawyers filed a notice of ruling which stated that the court denied the motion for all the reasons set forth in the Lawyers opposition.

On November 14, 2005, the City appealed the denial of its motion to compel arbitration and the order awarding sanctions. On the same date the City filed a writ of mandate with this court, asking us to order the trial court to grant the motion to compel arbitration. The Citys argument in the writ was based on the assumption that the only reason the trial court had denied the motion was because it had denied the earlier motion for summary adjudication.^[4] On November 21, the Lawyers applied ex parte to the trial court, requesting a nunc pro tunc order that the trial court denied the motion to compel arbitration for all the reasons in their opposition brief, which included waiver. That same day, the court heard argument. Counsel for the City opposed the nunc pro tunc request, contending that the record showed that the denial of the petition to compel arbitration was solely on the ground that the petition was a frivolous motion to reconsider. The court agreed with the Lawyers and on November 22, 2005, issued a nunc pro tunc order that the Citys motion to compel arbitration was denied for all the reasons set forth in the [opposition].

DISCUSSION

The City contends that the trial court erroneously denied its motion to compel arbitration. We disagree, because the record supports the trial courts finding that the City waived the right to arbitrate.

Because state and federal law both strongly favor arbitration agreements, waivers of such agreements are not to be lightly inferred and the party seeking to establish a waiver bears a heavy burden of proof. [Citations.] (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1195 (St. Agnes).) Where appropriate, a court may deny a petition to compel arbitration on the ground of waiver. (Ibid.; Code Civ. Proc.,  1281.2, subd. (a).) Generally, the determination of waiver is a question of fact, and the trial courts finding, if supported by sufficient evidence, is binding upon the appellate court. (St. Agnes, supra, 31 Cal.4th at p. 1196.)

There is no single determinative test of waiver. (Guess?, Inc. v. Superior Court (2000) 79 Cal.App.4th 553, 557 (Guess).) The Supreme Court has identified various factors to be relevant and properly considered in assessing waiver claims. (St. Agnes, supra, 31 Cal.4th at p. 1196.) These include: (1) whether the partys actions are inconsistent with the right to arbitrate; (2) whether the litigation machinery has been substantially invoked and 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. (Ibid., quoting Sobremonte v. Superior Court (1998) 61 Cal.App.4th 980, 992 (Sobremonte).) California courts have found waiver of the right to arbitration in various situations, including where the party seeking to compel arbitration has previously taken steps inconsistent with an intent to invoke arbitration, has unreasonably delayed in undertaking the procedure, or has shown bad faith or wilful misconduct. (St. Agnes, supra, 31 Cal.4th at p. 1196.) Notwithstanding the various other relevant factors, under both California and federal law, whether or not litigation results in prejudice . . . is critical in waiver determinations. (Id. at p. 1203.)

Considering the first five of the six Sobremonte/St. Agnes factors, we find that the Citys actions were inconsistent with the right to arbitrate (factor 1), in that the City never mentioned arbitration or paragraph 8C in its pleadings even as it actively litigated the very matter potentially subject to arbitration  reasonable attorney fees. (See Law Offices of Dixon R. Howell v. Valley (2005) 129 Cal.App.4th 1076, 10981099.) The City never mentioned arbitration or sought to stay the action until 17 months after it filed its complaint, two months after the first trial date and only four months before the continued trial date (factor 3). (See id. at p. 1100.) The City acknowledges there was hard-fought litigation and extensive discovery and motion practice before the City moved to compel arbitration a few months before trial was to begin; clearly, by then the litigation machinery had been substantially invoked and the parties were well into preparation of a lawsuit (factor 2). (See id. at pp. 10991100.) It is without question that important intervening steps (Sobremonte, supra, 61 Cal.App.4th at p. 992) took place in this action (factor 5), including extensive discovery and motion practice; the only step remaining was the trial itself. (Law Offices of Dixon R. Howell v. Valley, supra, 129 Cal.App.4th at p. 1102.) These four factors all support waiver.

As to the critical issue of prejudice, courts have found prejudice where the party seeking arbitration used the judicial discovery processes to gain information about the other sides case that could not have been gained in arbitration [citation]. (St. Agnes, supra, 31 Cal.4th at p. 1204.) As a result of the Citys extensive discovery, the Lawyers have disclosed more of their trial tactics to the City than arbitration would have required, as well as having been exposed to substantial expense that would have been avoided by timely arbitration and having lost whatever other efficiencies arbitration would have provided. (See Guess, supra, 79 Cal.App.4th at p. 558.)^[5] Courts also have found prejudice where a party unduly delayed and waited until the eve of trial to seek arbitration. (St. Agnes, supra, 31 Cal.4th at p. 1204.) As mentioned above, the City did not seek arbitration until October 3, 2005, 17 months after filing suit, two months after the first trial date, and only four months before the continued trial date. Thus, substantial evidence supports the trial courts implied finding of prejudice as well as the other Sobremonte/St. Agnes criteria.^[6]

The City contends that case law involving standard broad-form arbitration clauses does not apply here because of the peculiar nature of LSA paragraph 8C, which assumes and requires litigation before arbitration and makes litigation an essential contractual prerequisite to arbitration. The City maintains that because arbitration is unavailable under paragraph 8C unless and until there is a judicial determination that the contingent fee is unenforceable for any reason, it had no right or duty to seek arbitration until such a determination was made. The City also notes that arbitration rights can be structured contractually to be triggered only by particular conditions precedent (see Platt Pacific, Inc. v. Andelson (1993) 6 Cal.4th 307, 313314 (Platt Pacific)), and that the right to demand arbitration sometimes may depend on preliminary litigation of gateway issues that parties would have expected a court to decide, such as whether the parties have a valid arbitration agreement at all or whether a concededly binding arbitration clause applies to a certain type of controversy. (Green Tree Financial Corp. v. Bazzle (2003) 539 U.S. 444, 452 [123 S.Ct. 2402].) The City contends that it could not seek arbitration until the trial court ruled that the LSA was unenforceable, and that until that determination was made, all aspects of the dispute [were litigable]. The City also notes that paragraph 8C comes under the Federal Arbitration Act (9 U.S.C.  1 et seq.).^[7]

The City cites no relevant authority, federal or state, that supports its position that the condition precedent in paragraph 8C allowed it to litigate all issues without limit but keep the potential right to compel arbitration in reserve until the court found the LSAs contingent fee arrangement unenforceable.^[8] Indeed, the sole gateway factual issue that the Citys motion to compel arbitration raised was whether Cooper & Scully had been discharged, a fact the City was aware of as early as February 13, 2002, when it sent its notice of discharge to Cooper & Scully, and resolution of which required little, if any, discovery. In its second amended complaint, the City contended that the Lawyers are limited to recovering the reasonable value of their [services]. The City acknowledges that the entire dispute could have been resolved through arbitration, with the exception of the gateway issue regarding Cooper & Scullys discharge. As the City argued in the trial court on its motion to compel arbitration and in its opening brief on appeal, An order denying a motion to compel arbitration invokes the courts fact-finding power. (See Rosenthal v. Great Western Fin. Securities Corp., supra, 14 Cal.4th at p. 406.) Thus, by the Citys own argument, there was no need to litigate any other issue, and the City could have sought at any time after February 13, 2002, as it did on October 3, 2005, in its motion to compel arbitration, the courts determination whether Cooper & Scully had been discharged.

The City maintains that it had no right to compel arbitration until after the trial court determined that the contingency fee was unenforceable. But that does not excuse the Citys failure to seek that very determination by earlier filing a motion to compel arbitration. The City attempts to support its late filing of the motion to compel arbitration by arguing that the litigation of gateway issues or of nonarbitrable claims does not waive the right to arbitrate. But the City concedes that its litigation and discovery went far beyond the only gateway issue, the discharge of Cooper & Scully. All of the Citys causes of action in all of its various pleadings essentially were focused on the issue of attorney fees and what compensation the Lawyers should receive for their earlier representation of the City. From its original complaint through its second amended complaint, the City sought to limit the Lawyers to recovering the reasonable value of their services. That is what the litigation and discovery had been about, and that is also what arbitration, not court process, would determine under the Citys motion to compel arbitration. The Citys discovery requests were clearly designed to probe the question of reasonable attorney fees.^[9] In short, the Citys actions were not limited to litigation of gateway issues or nonarbitrable claims.

By its actions in the trial court and its contentions on appeal, the City seeks to enjoy all the benefits of litigation while holding a right to compel arbitration in reserve until the last minute, or in other words, to have its cake and eat it, too. (See Guess, supra, 79 Cal.App.4th at p. 555 and fn. 1.) This we will not allow. Simply put, [t]he courtroom may not be used as a convenient vestibule to the arbitration hall so as to allow a party to create his own unique structure combining litigation and arbitration. (Guess, supra, 79 Cal.App.4th at p. 558.) If a party wishes to compel arbitration, [it] must take active and decided steps to secure that right. (Sobremonte, supra, 61 Cal.App.4th at p. 993.) The City did not take such steps in a timely manner. The record provides substantial evidence to support the trial courts finding of waiver. (See Berman, supra, 80 Cal.App.4th at p. 1368.)

The City contends that the Lawyers did not suffer prejudice from the Citys discovery and litigation, because the Lawyers also engaged in extensive discovery and such discovery is consistent with the Lawyers reserved right to arbitrate reasonable compensation if, as, and when judicial litigation resolves the gateway-condition precedent to arbitration: whether the contingent fee part of the LSA was enforceable. That both parties participated in discovery does not prove the absence of prejudice. (See Berman, supra, 80 Cal.App.4th at p. 1370.) As to the latter argument, the City fails to note that the Lawyers reserved their right to arbitrate before the extensive discovery and motion practice that caused waiver, at a time when neither party knew how extensive that discovery and motion practice would be. At any rate, the mere reservation of a right to arbitrate does not overcome waiver based upon actions inconsistent with an intent to arbitrate (see Berman, supra, 80 Cal.App.4th at pp. 13661367), particularly when that reservation is made, as here, by the party not seeking arbitration.

The City does not dispute the Lawyers claim that the Citys prolonged litigation and discovery gained it access to information it could not have gotten through arbitration. (See Berman, supra, 80 Cal.App.4th at p. 1368.)^[10] Given the Citys failure to contradict the evidence presented of extensive discovery going to the heart of the case [namely, reasonable fees], which would not be available in arbitration, the trial court could have reasonably concluded this constituted substantial, and uncontradicted, evidence of waiver and prejudice. (Berman, supra, 80 Cal.App.4th at p. 1364, fn. 3.)

The City maintains that unlike other cases involving more typical arbitration agreements where arbitration is designed as a complete substitute for litigation, here arbitration is not an alternative to litigation. But arbitration is always an alternative to litigation, either for entire disputes or particular issues, and that is why it exists and is favored by state and federal policy. Arbitration is favored specifically as a speedy and relatively inexpensive means of dispute resolution that avoids the delays incident to a civil action . . . . (St. Agnes, supra, 31 Cal.4th at p. 1204, quoting Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9.) Courts favor arbitration for this reason, not for its own sake. In keeping with the purpose behind arbitration, when courts consider waiver of the right to arbitrate, [p]rejudice typically is found only where the petitioning partys conduct has substantially undermined this important public policy or substantially impaired the other sides ability to take advantage of the benefits and efficiencies of arbitration. (St. Agnes, supra, 31 Cal.4th at p. 1204.) By engaging in full-blown, costly litigation for 17 months when limited litigation of the ramifications of Cooper & Scullys discharge followed by arbitration concerning a reasonable fee might have resolved the entire dispute with the Lawyers, the City substantially undermined the important public policy favoring arbitration as a speedy and inexpensive means of dispute resolution and substantially impaired the Lawyers ability to gain the benefits and efficiencies of arbitration.

Because of our decision regarding waiver, we need not and shall not address most of the Citys other arguments. But we will briefly address two arguments incidental to the waiver issue.

The City contends that the trial courts sanction order is appealable along with the denial of its motion to compel arbitration. The sanction imposed was $3,500, and sanction orders under $5,000 are not reviewable except after final judgment or by writ petition. (Code Civ. Proc.,  904.1, subds. (a)(12), (b).) It is well settled that the right to appeal is wholly statutory and that a judgment or order is simply not appealable unless expressly made so by statute. [Citations.] (Ricki J. v. Superior Court (2005) 128 Cal.App.4th 783, 788.) The City cites no statutory authority that undoes the express legislative statement of nonappealability in Code of Civil Procedure section 904.1, subdivision (a)(12). Moreover, [t]he fact that part of a judgment is appealable does not confer appellate jurisdiction over interlocutory rulings which happen to accompany it. [Citation.] (Kinoshita v. Horio (1986) 186 Cal.App.3d 959, 966, fn. 3.) Accordingly, we do not review the trial courts sanction order.^[11]

The City also contends that the trial courts nunc pro tunc order clarifying that it denied the Citys motion to compel arbitration for all the reasons stated in the Lawyers opposition was an improper correction of a judicial error, not a clerical error. But a courts inherent power to correct its records so they conform to the facts is not suspended by an appeal from the order nor because the record itself does not show that the entry was incorrect. (Carter v. J. W. Silver Trucking Co. (1935) 4 Cal.2d 198, 204; see also Bed, Bath & Beyond of La Jolla, Inc. v. La Jolla Village Square Venture Partners (1997) 52 Cal.App.4th 867, 883884.) Where a court inadvertently does not state the grounds on which an order was granted, it may do so nunc pro tunc. (See Carter, at pp. 204205; see also Stevens v. Superior Court (1936) 7 Cal.2d 110, 113; APRI Ins. Co. v. Superior Court (1999) 76 Cal.App.4th 176, 185.) Here, the trial court stated in its minute order that it denied the Citys motion for the reasons stated by the Court, as reflected in the court reporters notes, but those notes did not in fact offer any clear indication of the courts grounds for denying the motion. The record indicates that the courts omission of its reasons was inadvertent and was properly corrected nunc pro tunc.

DISPOSITION

The order is affirmed. Respondents shall recover their costs on appeal.

NOT TO BE PUBLISHED.

MALLANO, Acting P. J.

I concur:

JACKSON, J.^*

ROTHSCHILD, J., Concurring.

I agree that we should affirm the trial courts denial of the Citys motion to compel arbitration, but I respectfully disagree with the majoritys analysis. I believe that the City has not waived its right to compel arbitration. The trial court, however, properly denied the Citys motion because it called upon the court to resolve factual disputes that cannot be resolved on such a motion.

I.

The LSA is a contract between a California city, on the one hand, and Cooper & Scully and other law firms, on the other. Cooper & Scully is a Texas firm with all of its offices in Texas, so the LSA involves interstate commerce and hence is governed by the Federal Arbitration Act (9 U.S.C.  1 et seq.) (the FAA). Under the FAA, waiver of the right to arbitrate is not to be lightly inferred. (Microstrategy, Inc. v. Lauricia (4th Cir. 2001) 268 F.3d 244, 249.) Accordingly, a party who resists arbitration on the ground of waiver bears a heavy burden (id. at p. 251; Walker v. J.C. Bradford & Co. (5th Cir. 1991) 938 F.2d 575, 577), and any doubts regarding a waiver allegation should be resolved in favor of arbitration (see Moses H. Cone Hospital v. Mercury Constr. Corp. (1983) 460 U.S. 1, 24-25 [74 L. Ed. 2d 765, 103 S. Ct. 927]). (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1195 (St. Agnes).)^[12] Waiver ordinarily presents a question of fact that we review for sufficiency of the evidence, but when the material facts are undisputed, as here, the issue is one of law. (Id. at p. 1196.)

Although no single test delineates the nature of the conduct that will constitute a waiver of arbitration under either federal or California law (St. Agnes, supra, 31 Cal.4th at p. 1195), well-established general principles exist. Litigation of arbitrable issues can ordinarily form the basis for a claim of waiver, provided that the party opposing arbitration has been prejudiced. (See, e.g., Kramer v. Hammond (2d Cir. 1991) 943 F.2d 176, 178-179.) But litigation of nonarbitrable issues ordinarily does not constitute a waiver. (See, e.g., Subway Equipment Leasing Corp. v. Forte (5th Cir. 1999) 169 F.3d 324, 326-328.) And issues that must be determined before a court can compel arbitration are by definition nonarbitrable, so litigation of such issues ordinarily does not constitute a waiver.

In the instant case, the arbitrable issues and the nonarbitrable issues overlap, for the following reasons. Under the LSA, the only arbitrable issue is the amount of a reasonable fee. The enforceability of the LSAs contingent fee provision is not arbitrable. But the contingent fee provision may be unenforceable if it is unconscionable, and the City, having alleged unconscionability, can pursue that claim, at least at the discovery stage, by seeking evidence that the contingent fee called for by the LSA is unreasonably high. (See, e.g., Carboni v. Arrospide (1991) 2 Cal.App.4th 76, 81-84.) Thus, the reasonableness of the contingent fee is relevant to the nonarbitrable issue of enforceability. In this way, reasonableness arises among both arbitrable and nonarbitrable issues. And the City must seek to resolve enforceability before seeking to compel arbitration, because the City has no right to compel arbitration unless and until it triggers the LSAs arbitration provision by showing that the contingent fee provision is unenforceable or that the Lawyers are unable to work for a contingent fee.^[13]

Under these circumstances, I conclude that the Citys litigation of the enforceability of the LSA, including the Citys discovery concerning the reasonableness of the contingent fee called for by the LSA, does not constitute a waiver of the right to arbitrate. A contrary conclusion would mean that by agreeing to arbitrate the amount of a reasonable fee if the contingent fee provision is unenforceable, the City gave up its right to argue that the contingent fee provision is unenforceable on the ground that it calls for an unconscionably high fee. Nothing in the LSA indicates that the City intended to give up that right. Rather, the LSA suggests that the City intended to preserve its right to argue every possible basis for unenforceability, because the LSA calls for arbitration if the contingent fee provision is determined to be unenforceable for any reason. (Italics added.)

The Lawyers arguments to the contrary are not persuasive. First, they argue that the LSAs arbitration provision can be triggered by either (1) a judicial determination that the contingent fee provision is unenforceable, or (2) the Lawyers inability to represent the City on a contingent fee basis. According to the Lawyers, the second trigger does not require a judicial determination, so the City could have sought arbitration even before filing suit because, on the Citys theory, Cooper & Scullys purported discharge prevents the Lawyers from receiving a contingent fee. Thus, the Lawyers conclude, it is now far, far too late for the City to seek to compel arbitration.

The argument is unpersuasive. It is true that, on the Citys theory, Cooper & Scullys purported discharge prevents the Lawyers from receiving a contingent fee. But it is equally true that the Lawyers categorically reject the Citys theory. That dispute is not arbitrable, so it must be judicially resolved. And unless and until the dispute is resolved in favor of the City, or the contingent fee provision of the LSA is found to be unenforceable on some other ground, the City cannot compel the Lawyers to arbitrate anything. Thus, even if the LSA does not expressly provide that a judicial determination of the second arbitration trigger is necessary, as a matter of fact such a determination is necessary. The Citys litigation of the enforceability of the contingent fee provision, as well as its litigation of the effect of Cooper & Scullys purported discharge, therefore does not constitute a waiver.

Second, the Lawyers argue that the St. Agnes factors all support a finding of waiver here. (See St. Agnes, supra, 31 Cal.4th at p. 1196 [listing six factors].) The Lawyers analysis of those factors is flawed, however, because it fails to acknowledge that litigation of nonarbitrable issues, including issues that must be determined before arbitration can be compelled, ordinarily does not constitute a waiver. Thus, for example, litigation of nonarbitrable issues does not constitute conduct inconsistent with an intent to arbitrate (factor 1), nor does such litigation show that the litigating party has substantially invoked the litigation machinery in the relevant sense (factor 2). (See Subway Equipment Leasing Corporation v. Forte, supra, 169 F.3d at p. 328 [for purposes of waiver analysis, a party only invokes the judicial process to the extent it litigates a specific claim it subsequently seeks to arbitrate].) The Lawyers arguments concerning the remaining factors are unpersuasive for similar reasons.

I conclude that the City has not waived its right to arbitrate, so I would not affirm the trial courts denial of the Citys motion to compel arbitration on that ground.

II

The trial court denied the Citys motion for summary adjudication on the ground that there were disputed questions of fact concerning the Citys purported discharge of Cooper & Scully. The City argues (and the Lawyers do not deny) that in ruling on the Citys subsequent motion to compel arbitration, the trial court had the power to resolve those factual disputes. I disagree, and on that basis I agree with the majority that the trial courts denial of the Citys motion should be affirmed.^[14]

The ordinary mechanism for resolution of factual disputes is a trial on the merits before a jury or a court. (Code Civ. Proc.,  592.) A court trial differs substantially from the sort of summary hearing that courts employ for deciding most motions, including motions to compel arbitration. (Id.,  1290.2.) For example, in law and motion hearings, oral testimony is presumptively disallowed, although the court may permit such testimony for good cause shown. (Cal. Rules of Court, rule 3.1306.) In contrast, bench trials (like jury trials) generally afford the parties the opportunity to present evidence subject only to the limitations imposed by the Evidence Code, so oral testimony is permitted as a matter of course. (Code Civ. Proc.,  607, 631.7; Evid. Code,  140, 300, 351.)

Trial courts do, nonetheless, have the power to resolve a limited range of factual disputes on a motion to compel arbitration. Under Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413, a trial court deciding such a motion can resolve factual disputes concerning the existence or validity of the arbitration agreement. No Supreme Court case extends the trial courts fact-finding powers beyond those limits. One Court of Appeal case, however, held that, when ruling on a motion to compel arbitration, the trial court has the power to resolve factual disputes concerning whether the claim for which arbitration is sought is actually covered by the parties arbitration agreement. (See Engineers & Architects Assn. v. Community Development Dept. (1994) 30 Cal.App.4th 644, 653-655.)^[15]

The factual disputes concerning the Citys purported discharge of Cooper & Scullywhether Cooper & Scully was really discharged from representing the City or, alternatively, merely discharged of responsibility in some sense that allowed the firm to continue representing the Cityare not disputes concerning the existence or validity of the arbitration agreement. Nor do any factual disputes exist concerning the identity of the issues covered by the parties arbitration agreement. Rather, it is undisputed that if the LSAs contingent fee provision is unenforceable and the parties cannot agree on a reasonable fee, then the sole arbitrable issue will be the amount of the reasonable fee. The factual disputes concerning Cooper & Scullys purported discharge consequently fall outside the limited scope of the trial courts fact-finding powers in ruling on a motion to compel arbitration.

The Citys arguments to the contrary are not persuasive. The City argues that because [a] petition to compel arbitration is in essence a suit in equity to compel specific performance of a contract (Spear v. CaliforniaState Auto. Assn. (1992) 2 Cal.4th 1035, 1040), courts may resolve whatever legal or factual issues are necessary to determine whether specific performance should be ordered, or arbitration compelled. The resolution of disputed factual issues in a suit for specific performance (or any other action in equity), however, ordinarily takes place upon trial of those issues before the court, not after a summary hearing.

The City also cites Platt Pacific Inc. v. Andelson (1993) 6 Cal.4th 307, for the proposition that a court can resolve factual and legal issues concerning conditions precedent to the parties right to compel arbitration. That case says nothing about a trial courts fact-finding powers on a motion to compel arbitration, however, because the facts relating to the condition precedent at issue in that case were undisputed. (Id. at p. 311 [The facts material to a resolution of this case are undisputed.].)

The Citys motion to compel arbitration called upon the trial court to resolve factual disputes that the court could not resolve on such a motion. The motion was therefore properly denied.^[16]

ROTHSCHILD, J.

Publication Courtesy of San Diego County Legal Resource Directory.

Analysis and review provided by El Cajon Property line attorney.

^[1]At this point in the record and elsewhere, including at the hearing on the motion to compel arbitration, the City expressed its understanding that quantum meruit and reasonable fees are the same thing.

^[2]Cooper & Scully answered and cross-complained separately on December 6, 2004. Its cross-complaint included causes of action for breach of contract, unjust enrichment, and quantum meruit.

^[3]In their initial discovery requests in late October 2004, the City served broad-ranging lists of 26 to 30 interrogatories, 59 to 60 document requests, and roughly 100 requests for admission on various individual lawyers and their firms. This was followed by second, third, and fourth rounds of discovery requests plus depositions of 21 individuals from February to July 2006. Counsel for Cooper & Scully stated in a declaration that the firm had provided more than 10,000 pages of documents to the City.

^[4]We summarily denied the Citys writ petition on December 15, 2005 (B187136).

^[5]The Lawyers claim that the fee litigation with the City has cost them roughly $4 million. Although a finding of prejudice cannot be based solely upon time and money spent (St.Agnes, supra, 31 Cal.4th at p. 1203), we may consider [along with other factors] the length of the delay in demanding arbitration and the expense incurred by the party alleging prejudice and waiver of the right to arbitrate. (Sobremonte, supra, 61 Cal.App.4th at p. 995.)

^[6]A trial courts finding of waiver and of factors supporting waiver may be implied rather than explicit, as in this case. (See Berman v. Health Net (2000) 80 Cal.App.4th 1359, 1364 (Berman); Davis v. Continental Airlines, Inc. (1997) 59 Cal.App.4th 205, 214.)

^[7]We note that there is little difference in practice between the federal and California statutory schemes on enforcement of private arbitration agreements. (See Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 406408 [federal and California regimes are similar but states may set their own procedural rules for applying federal law]; St. Agnes, supra, 31 Cal.4th at pp. 11941196, 1203.)

^[8]The City argues that in Platt Pacific, supra, 6 Cal.4th 307, the California Supreme Court held that the general rules of waiver do not apply to arbitration contracts with conditions precedent. The court stated that (1) a partys intent to waive arbitration and (2) prejudice to the other party were irrelevant where neither party had demanded arbitration by a deadline set forth in the arbitration contract (the condition precedent). (Id. at pp. 313, 318319.) The court noted that the question whether a party has abandoned its right to arbitration by conduct inconsistent with the exercise of the right is altogether different from the question of whether a condition precedent to the contractual right to arbitrate has occurred or has been legally excused. (Id. at p. 318.) Platt Pacific is inapposite because this case does not involve a missed contractual deadline to arbitrate but conduct inconsistent with exercising the right to arbitrate, specifically, full-blown litigation of the merits of the dispute in a judicial forum.

^[9]See, for example, Interrogatory No. 11: If YOU contend that the fees YOU seek for YOUR representation of the CITY in the MtBE LITIGATION are not unreasonable, describe in what way(s) the fees YOU seek are not unreasonable; Requests for Production Nos. 111 (seeking all documents, time records, billing information, and communications between the Lawyers relating to the MtBE litigation, among other data).

^[10]The Citys motion to augment the record is granted; this does not change our analysis.

^[11]The City cites Rice v. Dean Witter Reynolds, Inc. (1991) 235 Cal.App.3d 1016 (disapproved on a different point in Rosenthal v. Great Western Fin. Securities Corp., supra, 14 Cal.4th at p. 407), in which the Court of Appeal upheld the trial courts denial of the defendants motion to compel arbitration but reversed the denial of the defendants request for a stay of proceedings and the trial courts order of sanctions for filing the motion. (Rice, at pp. 10291032.) The court reasoned, We believe the sanctions order is reviewable on appeal, even though the amount imposed was less than the statutory minimum to be appealable, because the sanctions order may be reviewed as part of the appeal from the orders denying arbitration, which are properly before us. [Citation.] (Id. at p. 1031, fn. 5.) The Rice court offered no statutory authority to support the appealability of the sanctions. But in that case, the sanctions were imposed for bringing a motion that the trial court found totally and completely without merit, which the Court of Appeal found partially meritorious. So the sanctions were directly related to, and inconsistent with, the basis for the Court of Appeals decision, unlike in this case. (Id. at pp. 10301031.)

^*Judge of the Los Angeles Superior Court assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.)

^[12] The Lawyers contend that even if the FAA governs the LSA, California law should still govern the waiver issue because the enforceability of an arbitration clause under generally applicable contract principles is a matter of state law. In this case, however, there are no relevant differences between federal law and California law concerning the applicable waiver principles. (See generally St. Agnes, supra, 31 Cal.4th at pp. 1195-1196.)

^[13] The Lawyers cite one California case for the proposition that litigation of nonarbitrable issues can constitute a waiver, but the case is distinguishable. In Berman v. Health Net (2000) 80 Cal.App.4th 1359, the trial court found that the defendant had waived arbitration even though the lawsuit contained one arguably nonarbitrable claim and the discovery propounded by the defendant was arguably relevant to that claim. (Id. at pp. 1372-1373.) The Court of Appeal affirmed the finding of waiver because the defendant had never sought to sever the nonarbitrable claim and send all of the other claims in the caseall of which were arbitrable from the outsetto arbitration. (Ibid.) Here, there was nothing for the City to sever, because none of the disputes between the City and the Lawyers is arbitrable unless the contingent fee provision of the LSA is unenforceable or the Lawyers are prevented from working for a contingent fee.

^[14] We may affirm the decision of the trial court on any basis supported by the record. (Transamerica Ins. Co. v. Tab Transportation, Inc. (1995) 12 Cal.4th 389, 399, fn. 4.)

^[15] The Lawyers assert that in determining whether to compel arbitration, a trial court may be required to resolve factual issues beyond the existence or validity of the arbitration agreement itself. But the five cases cited by the Lawyers in support of that assertion do not in fact extend trial courts fact-finding powers beyond those described in Rosenthal v. Great Western Fin. Securities Corp., supra. In two of the cited cases, trial courts resolved factual disputes concerning alter ego allegations in order to determine who was a party to the arbitration agreements in question. (City of Hope v. Bryan Cave, L.L.P. (2002) 102 Cal.App.4th 1356; Unimart v. Superior Court (1969) 1 Cal.App.3d 1039.) That is, the courts determined whether arbitration agreements between the relevant parties existed. In two other cases, trial courts were called upon to decide the validity of arbitration agreements by determining whether the agreements were illegal or against public policy. (Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064; Hotels Nevada, LLC v. Bridge Banc, LLC (2005) 130 Cal.App.4th 1431.) And in the fifth case, the trial court determined whether a party had authority to enter into the arbitration agreement, which goes to the existence and validity of the agreement itself. (City of Vista v. Sutro & Co. (1997) 52 Cal.App.4th 401.)

^[16] In its reply brief on appeal, the City argues that the Lawyers conceded in their respondents brief that [t]he City . . . discharged Cooper & Scully, so the discharge is no longer a disputed issue of fact. The Lawyers have not, however, unequivocally conceded that the Citys motion for summary adjudication should have been granted, or that Cooper & Scully was really discharged from representation rather than merely discharged of responsibility (whatever that might mean), or that the purported factual disputes that served to defeat the Citys motion for summary adjudication no longer exist. I would therefore decline, on this record, to give the Lawyers laconic and ambiguous concession the broad interpretation urged by the City.