Watts v. Pacific Window Products

Filed 6/25/07 Watts v. Pacific Window Products CA2/4

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

APPEAL from orders of the Superior Court of Los Angeles County, Ramona G. See, Judge. Affirmed.

Law Office of Christopher P. Blaxland and Christopher P. Blaxland for Cross-complainant and Appellant.

Graves & King, Michael G. Martin, and Dennis J. Mahoney for Cross-defendant and Respondent.

This is an appeal from an order granting a petition to compel arbitration and an order confirming the arbitration award. We affirm the orders.

FACTUAL AND PROCEDURAL BACKGROUND

Appellant Dorothy K. Watts (appellant) and her late husband George J. Watts (George) owned and occupied a home in Redondo Beach. In August 2000, appellant entered into a remodeling agreement (the Contract) with Pacific Window Products Inc., doing business as Pacific Builders (Pacific), for a price of $50,000.[1] The Contract provided that appellant was to pay $2,000 in cash to Pacific and to place the balance of the funds in an escrow account, with funds to be disbursed on a periodic basis. The Contract contained several clauses requiring the parties to submit disputes arising out of the Contract to arbitration.[2] Pacific did not complete the project, and appellant, George, and their son, Herbert Watts, filed a complaint against Pacific on June 29, 2001. The causes of action were for fraud, breach of contract, breach of the implied covenant of good faith and fair dealing, violation of Business and Professions Code section 17200 et seq., negligence, intentional infliction of emotional distress, negligent infliction of emotional distress, and declaratory relief (the Pacific action). Pacific then filed a petition to compel arbitration, which was granted on September 28, 2001.

In September 2002, appellant filed a lawsuit in connection with the same remodeling project against Castle Escrow Company, Inc. (Castle), alleging that Castle wrongfully released $30,000 to Pacific from the escrow account established by appellant. The complaint contained two causes of action, one for violation of the Consumers Legal Remedies Act (Civ. Code, 1750 et seq.) and one for violation of Business and Professions Code section 17200 et seq. (the Castle action). Castle answered and filed a cross-complaint against Pacific, seeking indemnity for any liability to appellant (the Castle cross-complaint).

In November 2003, appellant and Castle agreed to a settlement of the Castle action in which Castle assigned to appellant all of its interest in the Castle cross-complaint. At a hearing on November 18, 2003, the parties announced the settlement to the court and the court provided appellant and Pacific with a stipulation to sign, agreeing to a trial date of March 29, 2004.

In December 2003, Pacific filed a petition to compel arbitration of the Castle cross-complaint. On January 30, 2004, the court ruled that the Castle cross-complaint was subject to the Contracts arbitration provision and granted the petition.

Both the Pacific action and the Castle cross-complaint were arbitrated before a three-person panel in September 2005. The panel concluded, inter alia, that: 1) appellants and her relatives conduct in hindering and preventing performance by Pacific constituted a breach of the Contract; 2) the escrow entered into between appellant and Castle was a valid escrow; and 3) Castle properly made payments to Pacific. The panel awarded Pacific $15,639 on the cross-complaint and denied appellants claim against Pacific for indemnification of fees incurred in the action against Castle. All other claims that existed between appellant and Pacific were denied. Each party was to be responsible for its own legal fees.

On February 9, 2006, Pacific filed a petition to confirm the arbitration award and a motion for judgment on the pleadings in the Pacific action. The court granted both motions on March 15, 2006. Appellant filed a notice of appeal of the September 28, 2001 order granting the petition to compel and of the March 15, 2006 orders confirming the award and granting the motion for judgment on the pleadings (Case No. B191162, the Pacific appeal).[3] In March 2007, we filed an opinion affirming the judgment confirming the arbitration award.[4]

In the Castle action, Pacific filed a petition to confirm the arbitration award on February 9, 2006. On April 7, 2006, the court granted the petition.

During the pendency of the Pacific appeal, appellant filed a notice of appeal in the Castle action (this appeal, hereinafter the Castle appeal), with respect to both the January 2004 order to compel arbitration and the April 7, 2006 order confirming the arbitration award.

DISCUSSION

I. Waiver of the Right to Arbitrate

A. The Stipulation Setting a Trial Date and Pacifics Participation in Discovery

Appellant contends that because Pacific signed a stipulation to set a trial date in the Castle action, Pacific waived any right to arbitrate the matter. There is no dispute that on November 18, 2003, when announcing their settlement, the parties were presented with a preprinted court form stipulation which provides in pertinent part: It is hereby stipulated, by and between Plaintiff(s), and Cross-Defendant(s), through their respective attorneys of record, that the following dates be continued: . . . . 2) The Final Status Conference[] is continued to 3/22/2004 at 8:30 a.m. in division 009. [] 3) The Trial is continued to 3/29/2004 at 8:30 a.m. in division 009 from 11/18/2003. [] Parties have confer [sic] and agree that all parties, trial counsel, lay and expert witnesses will be available and ready for trial on date selected on [sic] above. . . . The form was signed by appellants attorney on December 9, 2003. There is no date next to the signature of Pacifics attorney. The superior court judge signed the stipulation on January 12, 2004.[5] Appellant argues that the signing of the stipulation was a binding agreement on the parties to try the matter, and thus the court erred by granting the petition to compel arbitration.

Appellant also asserts that Pacific fully participated in the litigation process by propounding interrogatories, serving requests for admissions and documents, and noticing and conducting depositions. Therefore, appellant claims, Pacific waived its right to arbitrate the matter.

The record reveals that Pacific noticed six depositions, answered form interrogatories and special interrogatories, propounded interrogatories to Castle and appellant, propounded and answered demands for production and inspection of documents, and responded to requests for admissions from Castle and appellant. Pacific also worked with other counsel to prepare a joint witness list, joint exhibit list, joint statement of the case, and joint jury instructions.

The Legislature has expressed a strong public policy in favor of arbitration in order to resolve disputes. (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9.) Code of Civil Procedure section 1281.2 expressly provides that the court shall order [the parties] 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 . . . . There is no dispute in this case that there is an agreement to arbitrate contained in the Contract between Pacific and appellant.

The trial courts determination of waiver is a factual one. (Platt Pacific, Inc. v. Andelson (1993) 6 Cal.4th 307, 315.) On appeal, we determine whether the trial courts decision is supported by substantial evidence. If it is, we must affirm. If not, and the facts are undisputed, we are not bound by the trial courts ruling and we decide the issue as a matter of law. (St. Agnes Medical Center v. PacifiCare of California(2003) 31 Cal.4th 1187, 1196 (St. Agnes); Guess?, Inc. v. Superior Court (2000) 79 Cal.App.4th 553, 557 (Guess?).)

There is no single test in determining whether a party has waived its right to arbitrate. Mere participation in litigation does not necessarily compel a finding of waiver. (Keating v. Superior Court (1982) 31 Cal.3d 584, 605; Davis v. Continental Airlines, Inc. (1997) 59 Cal.App.4th 205, 212.) The court can consider: (1) whether the partys 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, supra, 31 Cal.4th at p. 1196, citing Sobremonte v. Superior Court (1998) 61 Cal.App.4th 980, 992 (Sobremonte).)

B. Conduct Inconsistent with Arbitration, Delay, and Invocation of Litigation Machinery

We consider together the three factors of inconsistent conduct, delay, and invocation of litigation machinery. During the eight months from the filing of the answer to the filing of the petition to compel, Pacific filed a case management statement with the court indicating its intent to try the case and propounded discovery. The parties then entered into a stipulation to continue the trial. Then, appellant and Castle entered into a settlement agreement. The nature of the dispute changed from one involving an escrow companys duties and obligations to one involving a contractors right to payment pursuant to an agreement containing an arbitration clause. Moreover, although appellant had a right to a trial in her dispute with Castle, Castle was no longer a party.

We conclude that the signing of the stipulation to continue the trial date and the participation in the trial setting conference did not constitute conduct inconsistent with arbitration, nor did it rise to the level of invoking the litigation machinery. The parties merely agreed to continue the trial date after settling a critical portion of the case. Nothing in the stipulation purported to have any effect on Pacifics right to seek arbitration. Thus, we disagree with appellants assertion that the stipulation constitutes an absolute bar to a later arbitration.

As far as the discovery undertaken by the parties, appellant cannot point to any discovery which took place after Castle assigned its rights against Pacific to appellant.

Appellant argues that although Pacific asserted the arbitration clause as an affirmative defense in its answer to the cross-complaint filed on July 2, 2003, it did not bring up the agreement to arbitrate until four months later. We agree that mere assertion of an affirmative defense, without more, does not preclude a finding that subsequent conduct may cause a waiver of the right to arbitration. (Law Offices of Dixon R. Howell v. Valley (2005) 129 Cal.App.4th 1076, 1099.) However, Castle did not assign its rights against Pacific to appellant until November 18, 2003. Pacific filed its notice to compel less than one month later, on December 8, 2003.[6] There was no unreasonable delay given the change in the nature of the case.

C. Prejudice

Factors to be considered in assessing prejudice are: the length of delay in demanding arbitration, the expense and time invested by the opposing party in the litigation process, and the disclosure of the partys defenses and strategies. (Sobremonte, supra, 61 Cal.App.4th at p. 995; Guess?, supra, 79 Cal.App.4th at p. 558.)

The expenditure of court costs and legal fees alone is not enough to compel a finding of prejudice. Rather, courts assess prejudice with the recognition that Californias arbitration statutes reflect a strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution and are intended to encourage persons who wish to avoid delays incident to a civil action to obtain an adjustment of their differences by a tribunal of their own choosing. [Citation.] Prejudice 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. [] For example, courts have found prejudice where the petitioning party used the judicial discovery processes to gain information about the other sides case that could not have been gained in arbitration [citations]; where a party unduly delayed and waited until the eve of trial to seek arbitration [citation]; or where the lengthy nature of the delays associated with the petitioning partys attempts to litigate resulted in lost evidence [citation]. (St. Agnes, supra, 31 Cal.4th at p. 1204.)

Davis v. Continental Airlines, Inc., supra, held that defendants who moved to compel arbitration after answering plaintiffs complaint, serving plaintiff with a discovery demand, taking plaintiffs deposition, and responding to interrogatories and a request for documents could be deemed to have waived their right to arbitrate. (59 Cal.App.4th at pp. 208, 212-213.) The trial court could reasonably infer from these facts that defendants unreasonably delayed their motion to compel arbitration in order to take advantage of court discovery procedures to learn plaintiffs strategies, evidence, and witnesses and to pin plaintiff down to a particular version of the facts. (Id. at p. 213.) The court also stated, There is more prejudice in the present case than plaintiffs mere incurring of court costs or legal expenses. The vice involved here, whether characterized as unreasonable delay, bad faith misconduct, gamesmanship or unilateral discovery (all are words mentioned in Christensen [v. Dewor Developments (1983) 33 Cal.3d 778]) is that defendants used the discovery processes of the court to gain information about plaintiffs case which defendants could not have gained in arbitration. After obtaining discovery from plaintiff by court processes, defendants then belatedly sought to change the game to arbitration, where plaintiff would not have equivalent discovery rights. (Brock v. Kaiser Foundation Hospitals [(1992)] 10 Cal.App.4th [1790] at p. 1802 & fn. 10.) (Davis, supra, at p. 215.)

This case is distinguishable from the situation presented in Davis. We do not find any prejudice occurred in this case, especially since appellant and Pacific were already proceeding to arbitrate their contractual dispute in the Pacific action when Castle removed itself from the proceedings, leaving only Pacific and appellant in the Castle action. Significantly, appellant offers no argument that she was prejudiced by participating in the discovery process, other than the time and money she expended. As we have noted, that showing is insufficient to deny Pacifics request to compel arbitration on the grounds that appellant suffered undue prejudice.

We conclude that Pacific did not waive its right to arbitrate the matter.

II. Unconscionability

In the Pacific appeal, appellant raised the same claim she presents here, that the arbitration provision was unconscionable because: 1) the contract was on a preprinted form; 2) appellant and George were 83 years old at the time the contract was signed; 3) appellant and George were informed that the contract had to be signed in order for work to begin; 4) Pacifics representative did not review the contract terms with them or explain the effect of the arbitration clause; 5) the arbitration clause was the last entry on a densely printed form with many clauses in small typeface; 6) the contract did not include a copy of the Better Business Bureau rules; and 7) the Better Business Bureau rules limit the legal remedies available to the parties.

We addressed each of these contentions in the opinion filed April 4, 2007, and determined that the arbitration clause was not procedurally or substantively unconscionable. We need not revisit the issue.

Appellant contends that the opinion in the Pacific appeal has no bearing on this case since it deals with different facts and different causes of action. This contention is unpersuasive. Without Castle present in this action, the remaining dispute involved only the contractual duties of appellant and Pacific. Because the same arbitration clause between the same parties is at issue here, we similarly reject appellants contentions. (Nally v. Grace Community Church (1988) 47 Cal.3d 278, 301; In re Marriage of Balcof (2006) 141 Cal.App.4th 1509, 1518.)

III. Order Confirming the Arbitration Award

Appellant contends that the court erred in confirming the award because the arbitrators should not have consolidated the two proceedings and failed to consider material evidence on her allegations of code violations and fraud by Pacific.

The superior court stated in its minute order confirming the award, (1) The consolidation of matters in arbitration is an issue for the assigned arbitrators to decide. Yuen v. Superior Court (2004) 121 Cal.App.4th 1133, 1138-1138 [sic]; and (2) plaintiff was allowed an opportunity to argue and to present exhibits relating to the contractor state licensing board proceeding in her rebuttal.

Appellant asserts the trial court had no jurisdiction to enforce the arbitration award. She argues that the two matters (the Pacific action and the Castle cross-complaint) were decided by a consolidated arbitration hearing without an order by the court pursuant to Code of Civil Procedure section 1281.3. She claims that the arbitrators lacked the authority to order the matters consolidated, and thus the entire hearing was wholly tainted and without any legal basis or foundation. We disagree.

Contrary to appellants claims, the two matters did not constitute separate disputes. Once Castle was removed as a party, the resulting matter involved the same contract, arbitration clause, and parties. The ultimate issue to be decided was Pacifics right to payment under the contract. Any adjudication of that issue was inextricably intertwined with the controversy concerning the Castle escrow. Simply put, if Pacific was entitled to be paid, then Castle appropriately disbursed funds. The arbitrators could properly determine the scope of the proceedings and decide all questions necessary to resolve the matter. (Code Civ. Proc., 1283.4; Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 372.)

As far as the decision to include or exclude evidence, appellant did not have the absolute right to present witnesses on the issue of Pacifics code violations at the arbitration hearing. (Schlessinger v. Rosenfeld, Meyer & Susman (1995) 40 Cal.App.4th 1096, 1106-1107.) Moreover, the Better Business Bureau rules that applied to this arbitration gave the arbitrators discretion to limit evidence that was repetitious or irrelevant.

Appellants contention that the arbitrators denied her the right to present material evidence could be made in virtually every case where the arbitrator has excluded some evidence or placed limitations on discovery. Further, such a challenge would be available regardless of how the case was decidedby motion or trial. Plainly, this type of attack on the arbitrators decision, if not properly limited, could swallow the rule that arbitration awards are generally not reviewable on the merits. Accordingly, a challenge to an arbitrators evidentiary rulings or limitations on discovery should not provide a basis for vacating an award unless the error substantiallyprejudiced a partys ability to present material evidence in support of its case. ( 1286.2, subd. (e).) (Schlessinger, supra, 40 Cal.App.4th at p. 1110.)

In any event, appellant did have the opportunity to present live testimony on the allegations she made against Pacific. A declaration filed by Pacifics attorney states that appellants son testified about state contractor license board proceedings against Pacific in an unrelated matter. Appellant then delivered new written material in conjunction with her final written argument, but she failed to submit the material she now claims was so important to her case. Appellant does not dispute the accuracy of counsels declaration. She does not demonstrate how the arbitrators asserted failure to consider additional evidence relating to the same state contractor license board allegations prejudiced her.

DISPOSITION

The orders appealed from are affirmed. Pacific is to recover its costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

SUZUKAWA, J.

We concur:

WILLHITE, Acting P. J.

MANELLA, J.

Publication Courtesy of California attorney referral.

Analysis and review provided by Vista Property line attorney.

[1] George did not sign the Contract.

[2] There were three separate arbitration clauses in the Contract and related documents, each providing that [a]ny controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration in accordance with the uniform rules for Better Business Bureau arbitration . . . .

[3] There was a prior appeal of the order granting the petition to compel arbitration, case number B154978, and an opinion was filed on March 21, 2003, dismissing the appeal and remanding the matter to the trial court to order a stay of the action. The issues in the prior appeal are not germane to this case.

[4] As requested by Pacific in its respondents brief, we take judicial notice of the record on appeal filed in the Pacific action. Pacific also filed a motion to dismiss this appeal as moot, which we denied.

[5] The stipulation bears the incorrect file stamp date of January 12, 2003, although it is clear that it was filed with the court in January 2004.

[6] We note Pacific filed its notice the day before appellants counsel signed the stipulation to continue the trial on December 9.