Filed 8/11/17 Farrell v. Hines CA3
NOT TO BE PUBLISHED

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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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
THIRD APPELLATE DISTRICT
(Placer)
----



ROBERT FARRELL et al.,

Plaintiffs and Appellants,

v.

JAMES HINES et al.,

Defendants and Respondents.


C078542

(Super. Ct. No. SCV0031020)





Plaintiffs Robert and Lorraine Farrell sued defendants James and Michelle Hines for alleged defects in a purchased house. Although the purchase agreement provided for arbitration of disputes, plaintiffs filed suit and did not move to compel arbitration until shortly before trial. The trial court concluded plaintiffs waived their right to arbitration.
Plaintiffs now challenge the trial court’s order. We will affirm.
BACKGROUND
Plaintiffs, as buyers, and defendants, as sellers, executed a purchase agreement for the purchase of real property. The agreement contained a dispute resolution provision which both parties initialed. The parties agreed to mediate any dispute arising out of the agreement before resorting to arbitration or court action. They agreed that any dispute not settled through mediation would be decided by binding arbitration. At that point the parties had the right to discovery in accordance with Code of Civil Procedure section 1283.05 and in all other respects, the arbitration would be conducted in accordance with section 1280 et seq. The agreement further provided that interpretation of the agreement to arbitrate would be governed by the Federal Arbitration Act. The agreement did not require the mediation or arbitration of disputes involving the brokers.
A dispute arose and the parties participated in mediation in February 2012. They did not resolve their dispute through mediation. Rather than immediately proceeding to arbitration, plaintiffs sued defendants and ultimately filed a second amended complaint. Defendants filed an answer to the second amended complaint, asserting affirmative defenses including that defendants reserved their right to compel arbitration pursuant to the purchase agreement.
Many months later, plaintiffs filed a notice of conditional settlement and asked the trial court to take a mandatory settlement conference off calendar. A trial date had been set at that time. However, the settlement fell through and plaintiffs filed a notice of failed conditional settlement. Plaintiffs asked the trial court to place the case back on the trial calendar schedule. Defendants asked the trial court to set the matter for trial.
The parties attended a mandatory settlement conference but no settlement was reached. The trial court set a new trial date.
About a month and a half after the mandatory settlement conference, plaintiffs filed a motion to reopen discovery to allow plaintiffs to take the deposition of defendants’ expert witnesses. Plaintiffs’ motion and reply did not mention arbitration. The trial court granted plaintiffs’ motion to reopen discovery, finding good cause because, among other things, plaintiffs needed to take the defense expert depositions to prepare for trial and permitting the depositions to go forward would not prevent the case from going to trial.
Leading up to the trial date, plaintiffs asked defendants to stipulate to arbitrate under the purchase agreement. Plaintiffs’ appellate opening brief states all discovery had been completed before that request. Defendants declined, asserting that plaintiffs had waived their right to arbitrate under the contract. Plaintiffs then filed a motion to compel arbitration.
The trial court denied plaintiffs’ motion. It found that plaintiffs took no steps to pursue arbitration for two and a half years even though they knew of the existence of the arbitration agreement; instead plaintiffs filed a court action and actively litigated the case, bringing a motion to compel arbitration six days before the trial date and only after a failed settlement. The trial court also found that granting plaintiffs’ motion would greatly prejudice defendants, who had invested more than two years in litigation and were ready to proceed with trial. The trial court concluded plaintiffs waived their right to arbitration.
STANDARD OF REVIEW
“Generally, the determination of waiver is a question of fact, and the trial court’s finding, if supported by sufficient evidence, is binding on the appellate court. [Citations.]” (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1196 (St. Agnes Medical Center).) We presume the trial court found every fact and drew every permissible inference necessary to support its judgment. (NORCAL Mutual Ins. Co. v. Newton (2000) 84 Cal.App.4th 64, 71.) “ ‘When . . . the facts are undisputed and only one inference may reasonably be drawn, the issue is one of law and [we are] not bound by the trial court’s ruling.’ ” (St. Agnes Medical Center, supra, 31 Cal.4th at p. 1196.)
DISCUSSION
Plaintiffs challenge the trial court’s order denying their motion to compel arbitration, arguing they did not waive their contractual right to arbitrate.
The contractual right to arbitration is subject to waiver. The principle of “ ‘default’ ” under section 3 of the Federal Arbitration Act is akin to waiver. (St. Agnes Medical Center, supra, 31 Cal.4th at p. 1195.) Waiver is “ ‘a shorthand statement for the conclusion that a contractual right to arbitration has been lost.’ ” (Id. at p. 1195, fn. 4.) In light of the federal policy favoring arbitration, waiver is not lightly inferred. (Id. at p. 1195.)
And under California law, the California Supreme Court has said that the right to arbitration “ ‘may be lost, as any contractual right which exists in favor of a party may be lost, through a failure properly and timely to assert this right . . . . If a party wishes to compel arbitration, he must take active and decided steps to secure that right.’ ” (Davis v. Blue Cross of Northern California (1979) 25 Cal.3d 418, 425.) As under the Federal Arbitration Act, California law requires close judicial scrutiny of a claim of waiver and imposes a heavy burden of proof for the party claiming waiver. (St. Agnes Medical Center, supra, 31 Cal.4th at p. 1195.)
Federal and California law do not set forth a single test for determining whether a party has waived his or her contractual right to arbitrate. (St. Agnes Medical Center, supra, 31 Cal.4th at p. 1195.) Waiver has been found where the party seeking to compel arbitration has taken steps inconsistent with an intent to invoke arbitration, unreasonably delayed in seeking to enforce an arbitration agreement, or engaged in bad faith or willful misconduct justifying a refusal to compel arbitration. (Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 374-375 (Iskanian).) The following factors are relevant and properly considered in assessing waiver claims: “ ‘ “(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, supra, 31 Cal.4th at p. 1196.) All of the above factors except the fourth, which is inapplicable because defendants did not move to compel arbitration in this case, weigh in favor of a finding that plaintiffs waived their right to arbitrate.
Plaintiffs’ conduct was inconsistent with an intent to arbitrate. It is true that the filing of a lawsuit alone does not waive contractual arbitration rights. (St. Agnes Medical Center, supra, 31 Cal.4th at p. 1200.) The fact that the party seeking to compel arbitration has participated in litigation, short of a judicial determination on the merits, also does not by itself constitute a waiver. (Iskanian, supra, 59 Cal.4th at p. 375.) However, requesting a jury trial, conducting discovery in the course of the civil action, and not pursuing arbitration during the course of litigation is inconsistent with an intent to arbitrate. (Burton v. Cruise (2010) 190 Cal.App.4th 939, 946-947 (Burton).)
Instead of proceeding to arbitration following mediation, plaintiffs elected to file a court action. Their complaint did not mention arbitration. Plaintiffs knew or should have known of the existence of the arbitration agreement, yet they did not seek to enforce that agreement for more than two and a half years after filing their complaint. They conducted discovery in their court action rather than through arbitration. When the conditional settlement failed, plaintiffs asked the trial court to place the case on the trial calendar instead of seeking arbitration. They then filed a motion to reopen discovery, arguing they needed to take the depositions of defendants’ expert witnesses in order to prepare for trial. Plaintiffs’ motion did not mention arbitration. In addition, plaintiffs posted jury fees after filing their first amended complaint. The payment of the fee indicated that plaintiffs requested a jury trial. (§ 631, subd. (b).) Paying jury fees while remaining silent about arbitration is inconsistent with a right to arbitrate. (Oregel v. PacPizza, LLC (2015) 237 Cal.App.4th 342, 356 (Oregel).) Plaintiffs cannot now complain that defendants prepared for a jury trial when plaintiffs’ conduct indicated they intended to litigate, rather than arbitrate, their claims.
Plaintiffs contend they waited to pursue arbitration because former defendants Whitechat and NRT West, Inc. were not required to arbitrate, but plaintiffs did not pursue arbitration until two years and three months after they had dismissed their complaint against Whitechat and NRT West, Inc. After they dismissed Whitechat and NRT West, Inc. as defendants, plaintiffs opposed defendants’ demurrer, posted jury fees, filed a second amended complaint, dismissed a cause of action against defendants, asked the trial court to place their case back on the trial calendar after settlement failed, participated in a mandatory settlement conference, and moved to reopen discovery in the court action. Plaintiffs never indicated any desire to proceed with arbitration prior to December 2, 2014.
Plaintiffs also claim that the allegation in defendants’ answer that defendants reserved their right to compel arbitration should bar defendants’ opposition to plaintiffs’ motion to compel arbitration. The claim is forfeited because it is not supported by citation to authority. (Okasaki v. City of Elk Grove (2012) 203 Cal.App.4th 1043, 1045, fn. 1.) In any event, the inquiry before us is whether the party who requested arbitration (plaintiffs) waived the right to arbitrate. (Iskanian, supra, 59 Cal.4th at pp. 374-375.) Defendants did not seek to enforce the arbitration agreement. (Sobremonte v. Superior Court (1998) 61 Cal.App.4th 980, 993 (Sobremonte) [assertion of arbitration agreement as an affirmative defense is not enough to secure that right].)
Even where, as here, the “arbitration agreement does not specify the time within which arbitration must be demanded, a reasonable time is allowed; a party who does not demand arbitration within a reasonable time is deemed to have waived the right to arbitration. [Citations.] ‘[W]hat constitutes a reasonable time is a question of fact, depending on the situation of the parties, the nature of the transaction, and the facts of the particular case. [Citations.]’ [Citation.] Among the facts a court may consider is any prejudice the opposing party suffered because of the delay.” (Spear v. California State Automobile Association (1992) 2 Cal.4th 1035, 1043.)
Nothing in the record explains why plaintiffs waited more than two years after dismissing Whitechat and NRT West, Inc. to pursue arbitration. Plaintiffs did not ask defendants to arbitrate until shortly before the trial date. Important intervening steps had taken place by that time. Under the circumstances, plaintiffs unreasonably delayed in moving to compel arbitration. (Burton, supra, 190 Cal.App.4th at p. 943 [waiver found in a case where the plaintiff sought to arbitrate after participating in litigation for about ten months and when trial was only about two months away]; Sobremonte, supra, 61 Cal.App.4th at p. 993 [waiver found in a case where the defendant actively engaged in litigation and then moved to compel arbitration ten months after service of the complaint and six weeks before the trial]; contrast Khalatian v. Prime Time Shuttle, Inc. (2015) 237 Cal.App.4th 651, 656, 661 [the defendant waited 14 months after the complaint was filed to move to compel arbitration but its motion to compel arbitration was heard more than a year before the trial date]; St. Agnes Medical Center, supra, 31 Cal.4th at p. 1193 [the defendant filed a petition to compel arbitration four months after filing its counter lawsuit]; Franco v. Arakelian Enterprises, Inc. (2015) 234 Cal.App.4th 947, 951-952, 959 [the defendant filed petition to compel arbitration about two months after the filing of the complaint].)
The presence or absence of prejudice is an important part of waiver determinations under federal and California law. (St. Agnes Medical Center, supra, 31 Cal.4th at p. 1203.) Waiver can occur prior to a judgment on the merits if prejudice is demonstrated. (Ibid.) While incurring court costs and legal expenses alone does not result in prejudice, the expenditure of time and money are relevant to the prejudice analysis. (Ibid.; Oregel, supra, 237 Cal.App.4th at p. 361.)
Prejudice typically is found where the conduct of the party seeking to compel arbitration has substantially impaired the other side’s ability to take advantage of the benefits and efficiencies of arbitration or substantially undermined the public policy behind favoring arbitration. (St. Agnes Medical Center, supra, 31 Cal.4th at p. 1204.) An egregious delay results in prejudice when it substantially deprives the other party of a speedy and relatively inexpensive resolution of the dispute. (Burton, supra, 190 Cal.App.4th at pp. 947-948; Adolph v. Coastal Auto Sales, Inc. (2010) 184 Cal.App.4th 1443, 1451-1452.)
Here, by the time plaintiffs asked defendants to arbitrate, defendants had incurred tens of thousands of dollars to defend the case and, in addition, counsel for defendants had spent in excess of 60 hours to prepare for a jury trial. “By litigating rather than arbitrating until the time of trial, [plaintiffs] circumvented the expected benefits to be achieved from a speedy and relatively inexpensive arbitral forum. Depriving a party of the benefits of his or her bargain is the epitome of prejudice.” (Burton, supra, 190 Cal.App.4th at p. 949.)
Plaintiffs argue there can be no prejudice as a result of engaging in discovery because the parties agreed that discovery pursuant to section 1283.05 would be available. Even if plaintiffs obtained the same discovery in litigation that they would have obtained in arbitration, defense counsel’s preparations were geared toward a jury trial rather than the presentation of the case to an arbitrator. Counsel’s preparations for the presentation of his case to an arbitrator would reasonably differ from the preparations for a trial before a jury. (Burton, supra, 190 Cal.App.4th at pp. 950-951; see also §1282.2, subd. (d) [rules of evidence need not be observed in arbitration].) A delayed request for arbitration results in prejudice where trial counsel has made strategic decisions based on an assumption that the case would be presented to a jury rather than an arbitrator. (Burton, supra, 190 Cal.App.4th at pp. 949-951; see Bower v. Inter-Con Security Systems, Inc. (2014) 232 Cal.App.4th 1035, 1046-1047 [plaintiff suffered prejudice where much of the expense he incurred would have no value in arbitration].)
Substantial evidence supports the trial court’s factual findings. Viewing the litigation as a whole, we conclude the trial court properly determined that plaintiffs waived their contractual arbitration rights. This is because plaintiffs unreasonably delayed in seeking to enforce their right to arbitrate, plaintiffs engaged in conduct inconsistent with an intent to arbitrate, and plaintiffs’ dilatory arbitration request prejudiced defendants.
DISPOSITION
The order denying arbitration is affirmed. Defendants shall recover their costs on appeal. (Cal. Rules of Court, rule 8.278(a).)



/S/
MAURO, J.



We concur:



/S/
NICHOLSON, Acting P. J.



/S/
ROBIE, J.