Elliott v. Richmond American Homes

Filed 3/13/06 Elliott v. Richmond American Homes of Cal. CA4/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

APPEAL from an order of the Superior Court of San Diego County, Jacqueline M.

Stern, Judge. Reversed with directions.

In June 2003, Kimberley Elliott contracted to purchase a home from Richmond American Homes of California, Inc. Elliott and her husband subsequently signed an amendment to the agreement requiring disputes arising out of the contract be resolved by arbitration. The initial attempt at arbitration stalled; consequently, Elliott filed a lawsuit. Richmond filed a motion to compel arbitration and stay the lawsuit. The court denied the motion because it found Richmond had waived its right to arbitration; it also awarded Elliott attorneys' fees incurred in her defense of the motion. Richmond contends insufficient evidence supported the trial court's decision. We reverse.

FACTUAL AND PROCEDURAL SUMMARY

The parties, pursuant to paragraph 25 (a) of their contract, first sought to mediate their dispute, but that attempt failed. Accordingly, on June 15, 2004, Elliott submitted a demand for arbitration with the American Arbitration Association (AAA) as required by paragraph 26 of the contract. Under the contract, the arbitrator must be appointed within 60 days after AAA receives a demand for arbitration, and "the arbitration shall commence promptly after appointment of the arbitrator, but no later than ninety (90) days of the delivery of the Demand to AAA." The contract specifies, "[t]he arbitration shall be conducted by the [AAA] in accordance with the usual rules and procedures of the AAA."

AAA informed the parties by letter dated July 1, 2004, that their contract's arbitration provision did not comply with Code of Civil Procedure section 1284.3 subd. (a),^[1] and advised, "However, so that we may commence administration of this matter, the parties must waive the contractual requirement that the consumer pays the fees and costs of the opposing party if the consumer does not prevail in the arbitration agreement to have the arbitration administered in accordance with California law. After the parties have agreed to waive the mandatory award of fees and costs to the prevailing party, the arbitrator still has the discretion to award the above referenced fees and costs upon motion by a party. Please confirm your agreement by signing and returning a copy of this letter.

"Upon receipt of the above the Association will proceed with administration of this case. If we do not receive the requested information within 7 days, we will return all paperwork and will not consider this matter properly filed." (Emphasis added.)

On July 19, 2004, AAA wrote the parties a follow-up letter in which it declined to administer the arbitration. The letter stated in its substantive entirety,

"Pursuant to the Association's letter dated July 1, 2004, we have not received the required submissions agreeing to waive the provision in the parties' agreement that conflicts with [section] 1284.3(a) and the appropriate fees from both parties in this matter. Therefore we cannot offer our administrative services at this time. Any payment submitted by a party is enclosed for that party.

"If at some point in the future the parties agree to submit this matter in accordance with [section] 1284.3(a), please return the completed submission forms, along with the appropriate filing fees, and we will commence administration." (Emphasis added.)

On July 29 2004, Elliott's attorney demanded that Richmond return the signed letter and appropriate fees to AAA, and provide Elliott with certain discovery or else Elliott would file a lawsuit.

On August 18, 2004, Richmond's attorney signed and forwarded the letter and required fees to AAA.^[2]

On August 24, 2004, AAA acknowledged receipt of Richmond's filing fees and signed letter, and wrote, "At this time we request [Elliott] remit [the] signed waiver on or before August 31, 2004. If we do not receive the requested information within 7 days, we will return all paperwork and will not consider this matter properly filed." There is no evidence in the record that Elliott returned the signed letter.

On January 10, 2005, Elliott filed a lawsuit against Richmond and alleged causes of action for breach of contract and intentional infliction of emotional distress.

Richmond's attorney, in a February 9, 2005 letter to Elliott's attorney, objected to the lawsuit and urged that the parties stipulate to its dismissal as required by Paragraph 26(g) of the parties' contract, which states:

"Since this Section requires mandatory binding arbitration of disputes, if any party commences litigation in violation of this Section, then upon any other party's written objection, the party commencing litigation shall immediately stipulate to the dismissal of such proceedings without prejudice. If, within five business days after receipt of such objection, the party filing the litigation fails to stipulate to the dismissal of the litigation pending conclusion of the arbitration, such party shall reimburse the other parties to the litigation for their costs and expenses, including attorneys' fees incurred in seeking a dismissal or stay of such litigation if such dismissal or stay is obtained."

On February 24, 2005, Richmond filed a motion to compel arbitration and stay the pending action. Elliott opposed the motion on two grounds: the arbitration agreement was substantially unconscionable; and, Richmond had waived its right to arbitration when it delayed in signing and returning the AAA letter.

On April 29, 2005, the trial court denied the motion and ruled that Richmond had waived the right to compel arbitration under section 1281.2 subd. (a) because it "took no action until Aug 18, 2004, when it mailed the signed waiver to AAA, along with the filing fees. . . . In the meantime, the 90-day deadline for commencing arbitration continued to run. This failure to immediately act on the AAA July 1, 2004 letter is inconsistent with an intention to arbitrate by Sept. 15, 2004."^[3].

DISCUSSION

I.

We agree the trial court abused its discretion in denying the motion to compel arbitration and stay proceedings. "Waiver of a contractual right to arbitration is ordinarily a question of fact and determination of this question, if supported by substantial evidence, is binding on an appellate court." (Doers v. Golden Gate Bridge Etc. Dist. (1979) 23 Cal.3d 180, 185.)

Section 1281.2 states, "On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that:

(a) The right to compel arbitration has been waived by the petitioner; or

(b) Grounds exist for the revocation of the agreement."

Here, the existence of the arbitration agreement is not in dispute; the sole issue involves the basis for the trial court's finding of waiver. "Although a court may deny a petition to compel arbitration on the ground of waiver [citation], waivers are not to be lightly inferred and the party seeking to establish a waiver bears a heavy burden of proof." (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1196 (St. Agnes).)

To find waiver of the right to enforce an arbitration provision, "the delay must be substantial, unreasonable, and in spite of the claimant's own reasonable diligence. . . . The burden is on the one opposing the arbitration agreement to prove to the trial court that the other party's dilatory conduct rises to such a level of misfeasance as to constitute a waiver." (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 984, emphasis added.)

Here, the court found that Richmond's delay in returning the signed letter to AAA resulted in waiver and ruled, "while a six-week delay might not demonstrate waiver in most situations, where there is a 90-day deadline on commencement of the arbitration, a six-week delay is substantial and even prejudicial." At the hearing regarding the court's tentative ruling, the court asked Elliott's attorney, "[W]as there any requirement for you to sign a waiver?" The attorney replied, "No, of course not." The court found that the parties' contract did not require Elliott to sign the AAA waiver; therefore, her failure to do so did not breach the arbitration agreement. However, the court did not apply this same logic to Richmond. Instead it faulted Richmond for the delay in returning the signed waiver. AAA did not consider that a proper submission to arbitration was made until both parties' returned the signed waivers.

The trial court incorrectly assumed that once Elliott submitted the demand for arbitration on June 15, 2004, the 90-day limit for the commencement of the arbitration began to run, and it irrevocably expired on September 18, 2005, several months before the court's ruling. The court overlooked that the arbitration was to be conducted under AAA's rules, and here AAA did not consider Elliott's demand properly filed. As demonstrated by AAA's correspondence with the parties, the 90-day period never commenced because Elliott did not return the signed letter.

It was clear error for the court to rule that Richmond's delay was substantial and unreasonable because Richmond is the only party that signed and returned the waiver. Indeed, Elliott's failure to comply with AAA's repeated request that she simply sign and return the AAA letter defeats her claim of waiver because it demonstrates her own lack of diligence.^[4]

In any event, Elliott did not carry her burden of proving she was prejudiced by Richmond's delay in returning the signed letter to AAA. (Christensen v. Dewor Developments (1983) 33 Cal.3d 778, 782 ["[W]e stressed the 'significance of the presence or absence of prejudice' "].) "[C]ourts assess prejudice with the recognition that California's arbitration statutes reflect a ' "strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution" '. . . Prejudice typically is found only where the petitioning party's conduct has substantially undermined this important public policy [favoring arbitration] or substantially impaired the other side's ability to take advantage of the benefits and efficiencies of arbitration." (St. Agnes, supra, 31 Cal.4th at p. 1204.) Elliott does not explain how Richmond's delay in any way hindered her from also returning the signed waiver. Separately, Elliott, like the trial court, overlooked the AAA's rules that permit the arbitrator to "postpone any hearing upon agreement of the parties, upon request of a party for good cause shown, or upon the arbitrator's own initiative" (Rule R-30) and "may for good cause extend any period of time established by [the] rules except the time for making the award." (Rule R-40, emphasis added.) In other words, the ninety day period set forth in the contract was not set in concrete. Rather, it was subject to the arbitrator's power to postpone proceedings under AAA's rules and with due regard not to "recreate the very 'delays incident to a civil action' that the arbitration agreement was designed to avoid." (McRae v. Superior Court (1963) 221 Cal.App.2d 166, 171.)

Given our reversal of the trial court's finding of waiver, we vacate its award of attorneys' fees to Elliott. Under paragraph 26(g) of the parties' agreement, Richmond also was entitled to the fees and costs incurred in seeking a dismissal or stay of the lawsuit if such a stay is obtained.

DISPOSITION

The trial court's order denying Richmond American Homes of California, Inc.'s motion to compel arbitration, staying proceedings and awarding attorney fees and costs is reversed with directions to grant the motion, stay proceedings, vacate the fee award and grant Richmond its costs and fees incurred in seeking the stay. (Accord, Groom v. Health Net (2000) 82 Cal.App.4th 1189, 1199.) Richmond American Homes of California, Inc. is awarded costs on appeal.

O'ROURKE, J.

WE CONCUR:

McCONNELL, P. J.

HALLER, J.

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^[1] All statutory references are to the Code of Civil Procedure unless otherwise stated. Section 1284.3 subd. (a) states, "No neutral arbitrator or private arbitration company shall administer a consumer arbitration under any agreement or rule requiring that a consumer who is a party to the arbitration pay the fees and costs incurred by an opposing party if the consumer does not prevail in the arbitration, including, but not limited to, the fees and costs of the arbitrator, provider organization, attorney, or witnesses."

^[2] Richmond's reply to AAA stated in its substantive entirety, "Enclosed you will find the original signature of our client on the waiver form provided us by your office. Additionally, enclosed is the original filing fee and an additional check for $500.00 for the filing fee for the counter-claim. Accordingly, we ask that you reinstate the arbitration matter referenced above. Please confirm once the matter has been reopened."

^[3] The trial court did not rule on Elliott's claim that the arbitration agreement was unconscionable, and Elliot has not renewed it on appeal; accordingly, we deem any such claim abandoned. (Tan v. California Fed. Sav.& Loan Assn. (1983) 140 Cal.App.3d 800, 811.) We note that Elliott claimed unconscionability based in part on the limited discovery rights afforded her in arbitration. However, "The fact that an arbitration may limit a party's discovery rights is not 'substantive unconscionability.' If it were, every arbitration clause would be subject to an unconscionability challenge on that ground." (Coast Plaza Doctors Hospital v. Blue Cross of California (2000) 83 Cal.App.4th 677, 690.)

^[4] Elliott, even on appeal, disregards the AAA letter that required her to return the signed waiver. In her reply brief, she states: "It is not Elliott's conduct which supported a finding of waiver; it is Richmond's conduct. Whether Elliott signed the waiver or not, it was Richmond's delay which was substantial, unexplained, inexcusable and prejudicial to Elliott. Richmond didn't need any discovery, they had all of the facts and documents." Elliott's assertion is equivocal regarding whether she complied with AAA's requirement, and it deflects any insinuation that her action or inaction caused the arbitration to never commence. In fact, at oral argument, Elliott's counsel acknowledged the signed waiver was never returned.