Filed 9/28/17 Arbitech, LLC v. Hackney CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

Appeal from an order of the Superior Court of Orange County, Gregory H. Lewis, Judge. Affirmed.

Wilbert Bark, Joseph R. Wilbert, Brian Z. Bark, and Michael E. Lopez for Plaintiff and Appellant.

Law Offices of Einwechter & Hyatt, John P. Einwechter and John T. Hyatt; Rutan & Tucker, Mark Payne and Brian C. Sinclair for Defendant and Respondent.

Arbitech appeals from an order denying its second motion to compel arbitration of a former employee’s wage dispute. The court denied Arbitech’s first motion after it determined the parties’ arbitration agreement, executed in 2013, was unenforceable because it contained substantive and procedurally unconscionable provisions. Arbitech did not appeal that ruling. After waiting several months, Arbitech again sought to compel arbitration based on what it believed was a valid back-up arbitration agreement executed in 2008. The court denied the motion on the grounds of waiver. Finding no error, we affirm the order.

FACTS

I. The Terms of Employment

The following undisputed facts were contained in Arbitech’s complaint against its former employee, Jessica Hackney, and her new employer, PNH Technology, Inc. (PNH). Arbitech, founded in 2000, is an “independent distributor of data center products, primarily name-brand computer hardware used in data centers.” The marketplace for data center products is highly competitive, and employees have access to “valuable trade secret information.” When Arbitech hired Hackney to work as a sales coordinator in September 2004, she was asked to sign a confidentiality agreement, promising not to disclose trade secrets. She also promised in writing to follow the strict confidentiality provisions outlined in the employee handbook.

On March 16, 2015, after 11 years of employment, Hackney left Arbitech and went to work for a competitor, PNH. In April 2015, Arbitech filed a lawsuit against Hackney and PNH, and they in turn filed a cross-complaint.

II. The Arbitech Lawsuit

Arbitech’s lawsuit alleged misappropriation of trade secrets, breach of contract, and breach of the implied covenant of good faith and fair dealing. It also sought an accounting and declaratory relief. Arbitech alleged PNH recruited Hackney to obtain Arbitech’s trade secrets and Hackney “abruptly resigned” in March 2015. It attached a copy of the confidentiality agreement, which does not contain an arbitration provision.

III. The PNH Lawsuit/Cross-Complaint

PNH’s lawsuit against Arbitech alleged breach of contract and unfair competition. The complaint stated that in 2012 PNH began to directly compete with Arbitech “in the information technology hardware distribution industry.” PNH alleged, “Arbitech has engaged in a sustained campaign of disparagement, threats and interference with PNH’s business relationships, with the manifest intent to undermine, harm, and oppress PNH and thereby gain an unfair competitive advantage . . . .”

Larry Weng was the majority owner of PNH. Weng had a prior contentious relationship with Arbitech. In February 2007, Arbitech hired Weng as an independent contractor to perform various services, including the sale and marketing of Arbitech’s products. In 2009, a dispute between the parties arose after Arbitech terminated Weng’s contract “without cause.” They entered into a settlement agreement that included a “non-disparagement covenant of infinite duration.” In it, Arbitech promised to refrain from making any negative or disparaging comments about Weng as well as his successor and assigns.

PNH incorporated in 2008, and although Weng was a 50 percent owner, he did not participate in the business until after his relationship with Arbitech ended. From 2008 to 2012, PNH did not compete with Arbitech “for sales in the independent distributer channel, but limited its business to sales and services to end-users, which were not generally in Arbitech’s customer base.” In 2012, Weng became PNH’s CEO and he expanded the business model to include other customers, directly competing with Arbitech. The complaint alleged Arbitech had sought to damage Weng’s and PNH’s business reputation, goodwill, and profitability. They asserted Arbitech’s frivolous and groundless trade secret lawsuit was designed to intimidate and interfere with PNH’s business.

PNH alleged Weng contacted Hackney in February 2015 about working for him. Hackney “could no longer tolerate the working environment, unethical and unfair business practices, discrimination against female employees, inadequate and unequal compensation, imminent loss of her assigned accounts, and Arbitech’s mistreatment and retaliation against her since returning from three months of [m]aternity leave in December 2014.” After several weeks of “informal discussions,” Hackney accepted PNH’s offer to work as a sales executive and she gave Arbitech two weeks notice. Arbitech rejected her notice and fired Hackney and her husband (who also worked for Arbitech) immediately. Arbitech then sent a cease and desist letter to PNH and Hackney. Before they could prepare a reply, Arbitech filed its lawsuit.

IV. Hackney’s Lawsuit/Cross-Complaint

Hackney filed an individual and class action. Her individual claims were for the following: (1) violations of the Pregnancy Disability Leave Act and the Family Rights Act; (2) sex discrimination; (3) unlawful constructive termination; (4) intentional infliction of emotional distress (IIED); and (5) declaratory relief. Her class action claims concerned seven different wage and hour Labor Code violations, as well as allegations of unlawful business practices and PAGA civil penalties.

In the complaint, Hackney alleged females were underrepresented in Arbitech’s workforce, and those who were hired “faced a systematic company policy of favoring males . . . in pay, promotions, job titles, discipline, and other matters.” In the 15 years of the company’s existence, only one woman had been promoted to the position of sales account executive and her “tenure was cut short by a sexual harassment dispute.” In 2014, Hackney experienced a “pattern of adverse employment actions” that “made her continued employment at Arbitech intolerable.” Arbitech denied her request for pregnancy leave. Arbitech executives harassed and criticized her before she took her family care leave and after her daughter’s birth in September 2014. When she returned to work, the harassment continued. Arbitech denied Hackney’s and her husband’s requests for bereavement leave. She received harsh disciplinary action in response to a frivolous accusation. Arbitech refused to give Hackney a pay raise, took away her accounts, and assigned her new ones. It created a “discriminatory pay scheme that would make it hard for her growing family to make ends meet.” Due to these working conditions, she was forced to find alternative employment. After delivering her two-week notice of resignation, “she was berated, humiliated, threatened, accused of wrongful conduct, screamed at in front of other employees, and summarily fired, together with her husband, who was also employed at Arbitech.”

V. The First Motion to Compel Arbitration

Soon after receiving Hackney’s cross-complaint, Arbitech moved for an order to compel arbitration and sought dismissal of Hackney’s cross-complaint. It attached an arbitration agreement Hackney executed on March 4, 2013 (the 2013 Agreement), containing the following relevant provisions:

“In consideration of being employed/retained by Arbitech . . . the Employee/Contractor identified below agrees to the following:

“1. To the fullest extent allowed by law, and except as set forth in paragraph 4 below, any controversy or claim arising out of or relating to the above referenced Independent Contractor Agreement, shall be fully and finally resolved by binding arbitration, employing a neutral arbitrator, and administered by JAMS pursuant to its Comprehensive Arbitration Rules and Procedures for employment disputes. . . . Such claims shall include, but are not limited to . . . The Family and Medical Leave Act of 1993 . . . state wage and hour laws, and any other federal, state or local statute, regulation or common law doctrine, including but not limited to tort and contract laws.”

Paragraph four of the 2013 Agreement listed the exceptions to mandatory arbitration. It provided as follows: “This agreement shall not apply to claims by Arbitech for injunctive or other equitable relief, compensatory and/or punitive damages arising out of or related to misappropriation of confidential information or trade secrets, unfair competition, or breach of any confidentiality agreement between Employee/Contractor and Arbitech. Jurisdiction over any and all such claims shall be in the California Superior Court and venue shall lie in Orange County, California. Arbitech and Employee/Contractor each waive their respective rights to trial by jury.”

The 2013 Agreement also contained several provisions related to general contract law topics. First, it stated the entire agreement would be governed by California law. Second, “This agreement sets forth the entire agreement between Arbitech and Contractor relating to the subject matter herein and merges all prior discussions between them.” Third, the agreement could only be modified in writing. Fourth, if any provision was deemed void, the others would continue in full force and effect. The last sentence, in bold capital print, contained an acknowledgement the parties had the opportunity to seek the advice of counsel and that both parties read and understood all the terms of the agreement.

Hackney opposed the motion, arguing the 2013 Agreement was unconscionable and unenforceable as a matter of law. In addition, she asserted the PAGA claims were not subject to the 2013 Agreement. She noted the 2013 Agreement permitted, but did not require, Arbitech to pursue its trade secret claims in superior court. “If Arbitech truly believed that arbitration was an equally satisfactory tribunal for adjudication of claims, it would have made the [a]greement mutually binding” and pursued those claims in arbitration.

In her supporting declaration, Hackney described events leading to execution of the 2013 Agreement. She attached to her declaration a copy of an arbitration agreement she executed in 2008 (the 2008 Agreement). This earlier version did not have paragraph four’s provision excluding trade secret lawsuits. In the 2008 Agreement, paragraph four only excluded claims for “workers’ compensation or unemployment.” The 2008 Agreement provided the parties agreed to arbitrate using the American Arbitration Association (AAA).

Hackney declared Arbitech’s general counsel directed her to sign the 2013 Agreement and explained the only reason for the new contract was to change arbitration services from AAA to JAMS. Arbitech’s general counsel did not mention the revisions to paragraph four. Hackney stated that when she raised several concerns about the 2013 Agreement to her supervising manager, he told her to sign it and not worry about it.

On January 25, 2016, the court denied the motion to compel arbitration after concluding the 2013 Agreement was “unconscionable.” It stated the following: “Procedural unconscionability is shown by the manner in which the agreement was presented to [Hackney]. The e-mail from [Arbitech’s g]eneral [c]ounsel stated that all employee’s sign an arbitration agreement when becoming an employee, and the old agreement was outdated, and that he asked that the signed agreement be returned within eight days. Nothing in this e-mail indicated the employee had an option not to sign or to negotiate different terms. Further, the e-mail was misleading in indicating the primary issue was the change in provider and that the change benefitted the employees while at the same time not mentioning [Arbitech] was excluding from the arbitration requirement claims commonly brought by employers against employees. The failure to provide the employees with the rules of JAMS also is an indicator of procedural unconscionability.”

The court next explained “[t]he lack of mutuality renders the agreement substantively unconscionable.” It noted Hackney was required to arbitrate all claims, including injunctive relief “while claims likely to be brought by an employer against an employee (misappropriation; violation of trade secrets) are exempted from the arbitration requirement.” The court rejected Arbitech’s argument there were “business realities” that justified the lack of mutuality. Arbitech stated cases for misappropriation against an employee often name the new employer, who is not a party to the agreement, leading to litigation in two forums. The court noted Code of Civil Procedure section 1281.2, subdivision (c), addressed this scenario, giving the trial court discretion to refuse to order arbitration so that all related claims are decided in court. In addition, the employer could obtain provisional remedies from the superior court even when a binding arbitration agreement is in place under Code of Civil Procedure section 1281.8. The court concluded, “[S]everance of the offending provision is not an option as the unconscionability (the lack of mutuality) permeates the agreement.”

VI. The Second Motion to Compel Arbitration

On June 2, 2016, a little more than four months after the court ruled the 2013 Agreement was unenforceable, Arbitech filed a “renewed” motion to compel arbitration. The motion discussed two grounds. First, under Code of Civil Procedure section 1008, subdivision (b), Arbitech argued the court could consider “new law” contained in an opinion issued by our Supreme Court on March 28, 2016 (Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237 (Baltazar)), which suggested the 2013 Agreement was enforceable. Alternatively, it maintained the court should compel arbitration under the terms of the back-up 2008 Agreement.

Hackney filed an opposition, arguing the 2013 Agreement was still unconscionable and unenforceable after the recent Supreme Court ruling. She asserted the 2008 Agreement was “extinguished by novation” and “even if the 2008 Agreement was in effect, Arbitech waived any right to compel arbitration under that Agreement.” She maintained the renewed motion sought an illogical and unjust remedy. Arbitech was urging the court to sever unconscionable provisions from the 2013 Agreement, and enforce “the defunct” 2008 Agreement, while “adher[ing] to its original petition for arbitration of Hackney’s claims only.” Hackney argued if severance occurred or the 2008 Agreement were revived, Arbitech would have to dismiss and arbitrate its claims. Moreover, if the entire action were arbitrated, Hackney’s PAGA claims would have to be bifurcated and stayed during arbitration, frustrating the PAGA’s law enforcement goals. She concluded it would be inefficient and unjust to adjudicate her claims in separate forums.

In its reply, Arbitech argued Hackney intended to arbitrate claims because she signed “not one, but two separate sequential arbitration agreements.” It asserted Hackney “seeks a windfall” and to avoid the 2008 Agreement simply because the trial court deemed the 2013 Agreement unconscionable. It maintained the 2008 Agreement applies because the 2013 Agreement was deemed void.

The trial court agreed with Hackney. It stated the requirements for a renewed motion under Code of Civil Procedure section 1008 had been satisfied because there was new law on the subject of lack of mutuality issued by the Supreme Court after the trial court’s ruling. However, it ruled the Baltazar case did not change the outcome of this case. After repeating the reasons it found the 2013 Agreement unconscionable, the court stated the following: “[T]he unconsionability issue cannot be resolved by severing the offending provision. The employer . . . has already been litigating for over a year pursuant to the offending provision and even now is not offering to arbitrate its claims against [Hackney]. It is thus unclear how severance could work as it is too late to render the offending provision unenforceable. And, in any event, the unconscionability (the complete lack of mutuality) permeates the agreement.”

With respect to the 2008 Agreement, which required both parties to arbitrate their claims, the court determined it was not enforceable. It ruled as follows: “It appears [Arbitech] wants to force [Hackney] to abide by the 2008 [A]greement [to] arbitrate—while [Arbitech] continues to litigate its claims in violation of that agreement. The court is cognizant that [Arbitech] was not aware when it filed this case that its 2013 arbitration agreement would be found unconscionable. However, by filing this case and litigating it for over a year, [Arbitech] has waived its right to enforce the 2008 [A]greement.” Arbitech timely filed an appeal.[1]

DISCUSSION

I. The 2008 Agreement

Ordinarily, the threshold question in deciding a petition to compel arbitration is whether there exists an agreement to arbitrate. (Cheng-Canindin v. Renaissance Hotel Associates (1996) 50 Cal.App.4th 676, 683.) Here, the trial court determined Arbitech waived its right to arbitrate without first deciding there was a valid arbitration agreement. Hackney’s opposition argued waiver as an alternative argument to her contention the parties rescinded the 2008 Agreement by novation. Thus, before delving into the issue of waiver, we must decide if there existed a valid and enforceable arbitration agreement, i.e., was the 2008 Agreement completely extinguished when the parties executed the 2013 Agreement.

A novation is the “substitution of a new obligation for an existing one” with the intent to extinguish the latter. (Civ. Code, § 1530; Meadows v. Lee (1985) 175 Cal.App.3d 475, 482, fn. 1.)[2] Under principles of novation, a new contract may be substituted for an old contract by creating a new obligation between the same parties or with a new party. (§§ 1531, 1532.) Accordingly, a novation is a “new contract which supplants the original agreement and ‘completely extinguishes the original obligation

. . . .’ [Citations.]” (Wells Fargo Bank v. Bank of America (1995) 32 Cal.App.4th 424, 431 (Wells Fargo).) In contrast, a modification does not terminate the pre-existing contract. (Davies Machinery Co. v. Pine Mountain Club, Inc. (1974) 39 Cal.App.3d 18, 25.) A subsequent agreement that expressly recognizes and affirms the continuing existence and validity of the original agreement is a modification rather than a novation. (Howard v. County of Amador (1990) 220 Cal.App.3d 962, 977-978 (Howard).)

The question of whether a novation has occurred is always one of intent. “Essential to a novation is that it ‘clearly appear’ that the parties intended to extinguish rather than merely modify the original agreement. [Citation.]” (Howard, supra, 220 Cal.App.3d at p. 977.) “Nevertheless it is not necessary to meet and state either in writing or orally that the original contract was rescinded. ‘If the intent to abandon can be ascertained from the acts and conduct of the parties the same result will be attained. Abandonment may be implied from surrounding facts and circumstances. [Citations.]’ [Citations].” (Hunt v. Smyth (1972) 25 Cal.App.3d 807, 818.)

The uncontroverted evidence clearly establishes the parties intended to substitute the 2013 Agreement for the 2008 Agreement. Arbitech could have asked Hackney to sign an addendum or modification to the 2008 Agreement. Instead, it required her to sign an entirely new agreement addressing the same confidentiality issues but also adding several very different and more onerous terms. The new agreement not only changed the arbitration provider, but it also added terms that lacked mutuality. The new agreement expressly authorized Arbitech to avoid arbitrating certain claims. These changes cannot be reconciled with the earlier agreement. A court may infer novation when a new agreement is so inconsistent with the earlier agreement that the two cannot subsist together. (Producers Fruit Co. v. Goddard (1925) 75 Cal.App. 737, 754-755 (Goddard).)

Moreover, the 2013 Agreement contained an explicit integration clause, which signified the parties’ intent for it to supersede all prior agreements and declared the contract was the complete and final agreement between the parties. The final paragraph stated, “This agreement sets forth the entire agreement between Arbitech and [Hackney] relating to the subject matter herein and merges all prior discussions between them.” [Italics added.] The agreement also provided its provisions could only be modified by a signed writing by the parties. Together, these provisions show the parties intended the 2013 Agreement to contain the exclusive terms on the “subject matter” of arbitration. (Cf. Jenks v. DLA Piper Rudnick Gray Cary U.S. LLP (2015) 243 Cal.App.4th 1, 15 [termination agreement containing integration clause explicitly limited to “‘the subject matter hereof,’” which was terms of resignation not arbitration, and did not supersede separate arbitration agreement].) We conclude the intended effect of the integration clause in an agreement concerning only arbitration terms was a complete replacement of all prior arbitration agreements. Arbitech does not present evidence suggesting it believed the 2008 and 2013 Agreements should be read together or the terms of one were integrated into the other. And finally, Arbitech’s conduct shows it clearly understood the 2013 Agreement extinguished the 2008 Agreement because it filed its misappropriation claims against Hackney in superior court rather than initiate arbitration proceedings (as required by the 2008 Agreement).

Arbitech’s argument on appeal focuses on the lack of what it claims is an essential element of novation, i.e., validity of the new contract. It maintains that once the trial court voided the 2013 Agreement, there could be no novation and the 2008 Agreement was automatically restored. That is not an accurate statement of the applicable law. In cases such as this, where the agreement is voidable (not void), the issue turns on the evidence showing the parties’ intent.

As noted by Hackney, the 2013 Agreement contained all the fundamental elements of a valid contract. The court determined the agreement was unenforceable and voidable only after making the equitable finding it contained several unconscionable terms. She correctly notes a finding of unconscionabilty does not render the contract invalid for all purposes. (§ 1670.5, subd. (a).) The court may enforce the remainder of the contract without the unconscionable clause or “limit the application of any unconscionable clause as to avoid any unconscionable result.” (Ibid.) Sometimes a court can cure unconscionability through severance, reformation, or augmentation. (Armendarz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 125, disapproved on another ground in AT & T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 340.) However, in this case, the trial court determined severance was not an option and denied the petition to compel arbitration. Thus, although the court did not officially declare the agreement void, the upshot of its ruling was that it effectively voided the entire agreement. (Id. at p. 123.)

After reviewing the few ancient California cases discussing novation and the requirement of a second valid contract, we discovered there were some contradictions in the law. Three cases hold the second agreement must be legally valid, but offer little legal analysis on the issue. (Young v. Benton (1913) 21 Cal.App. 382, 384; Pearsall v. Henry (1908) 153 Cal. 314, 317; Adler v. Friedman (1860) 16 Cal. 138, 140.) In 1925, an appellate court held a novation was valid even though the new contract could not be enforced under the statute of frauds. (See Goddard, supra, 75 Cal.App. at pp. 755-756.)

This inconsistency in the case authority was detected and mentioned by one noteable treatise (1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 962,

p. 1054 (Witkin)). Citing to a law review case note, Witkin criticized the Goddard holding, stating the result could be “sometimes” contrary to the parties’ intent “and hence inconsistent with the theory of novation.” (Ibid., citing Note, Novation: Statute of Frauds: Invalid Agreement as Discharge of Prior Valid Agreement (1926) 14 Cal. L. Rev. 408 (Note).) “The question of whether or not a later contract will constitute a novation of a prior contract should always be determined in accordance with the intention of the parties. When they intend the rescission of the first contract to be unconditional, that should be the case; but when the discharge of the first agreement is intended to be conditional upon the enforceability of the second, there should be no novation when the second agreement cannot be enforced.” (Note, supra, at p. 410.)

Arbitech noted a similar critique of Goddard was made by a federal district court in Airs Int’l v. Perfect Scents Distributions (N.D. Cal. 1995) 902 F.Supp. 1141, 1148-1149 (Airs). Although not binding precedent on our court, we may consider relevant federal district court opinions as persuasive. (See, e.g., Olinick v. BMG Entertainment (2006) 138 Cal.App.4th 1286, 1301, fn. 11.)

After careful consideration, we will adopt the reasoning discussed in Witkin and the Airs case. When a later contract is not void but merely voidable due to unconsionability, mistake, fraud, etc., the novation is effective if the parties intended rescission of the first contract to be unconditional. However, if the discharge of that agreement was conditional upon the enforceability of the later agreement, there is no novation.

In this case, it can be inferred from the evidence that rescission of the 2008 Agreement was conditional upon the enforceability of the 2013 Agreement. Both agreements concerned the same subject matter. The parties understood the later agreement was intended to simply update the earlier version. The evidence showed Arbitech’s desire to arbitrate its employee’s disputes was unequivocal. It did not intend to destroy the first contract without establishing a new enforceable contract in its place. We conclude the 2013 Agreement did not constitute an effective novation. The 2008 Agreement was not completely extinguished.

II. Waiver

Having determined there existed an arbitration agreement we now review the trial court’s determination the right to arbitration was waived. Code of Civil Procedure section 1281.2 provides in pertinent part: “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 . . . .”

“‘No single test defines the conduct that will constitute waiver of an arbitration right. Rather, courts look to a number of factors to determine whether waiver has occurred. [Citation.] In St. Agnes [Medical Center v. Pacificare of California (2003) 31 Cal.4th 1187 (St. Agnes)], the Supreme Court confirmed that a court may consider the following six factors in assessing a waiver claim: “‘“(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 proceedings not available in arbitration] had taken place”; and (6) whether the delay “affected, misled, or prejudiced” the opposing party.’” [Citation.]’ [Citations.]” (Oregel v. PacPizza, LLC (2015) 237 Cal.App.4th 342, 354-355 (Oregel).)

“There is no fixed stage in a lawsuit beyond which further litigation waives the right to arbitrate. Rather, the court views the litigation as a whole in determining whether the parties’ conduct is inconsistent with a desire to arbitrate. [Citation.]” (Hoover v. American Income Life Ins. Co. (2012) 206 Cal.App.4th 1193, 1204.) “Because of the strong policy favoring arbitration, prejudice typically is found only where the petitioning party has unreasonably delayed seeking arbitration or substantially impaired an opponent’s ability to use the benefits and efficiencies of arbitrations. [Citation.]” (Id. at p. 1205.)

“Generally, the determination of waiver [of the right to arbitrate] is a question of fact, and the trial court’s finding, if supported by sufficient evidence, is binding on the appellate court. [Citations.] ‘When, however, the facts are undisputed and only one inference may reasonably be drawn, the issue is one of law and the reviewing court is not bound by the trial court’s ruling.’ [Citation.]” (St. Agnes, supra, 31 Cal.4th at p. 1196.) In the case before us, the essential facts are not disputed.

Arbitech’s primary challenge to the trial court’s waiver determination is that it is unfair because there was no way it could have possibly known its one-sided 2013 Agreement was unconscionable and it always intended to arbitrate employee disputes. It cites to evidence supporting the conclusion its actions were always consistent with an intent to arbitrate. However, Arbitech’s argument focuses on its actions with respect to the cross-complaint. As noted by the trial court, Arbitech’s conduct regarding its own litigation against Hackney for 14 months was utterly inconsistent with a desire to arbitrate.

The following evidence supports the trial court’s ruling Arbitech actively pursued its litigation for over a year. It initiated its trade secret lawsuit in April 2015 pursuant to the offending provisions of the 2013 Agreement. Over the next few months, Arbitech litigated and successfully defeated Hackney’s demurrer and motion to strike the complaint. Hackney’s answer to the complaint asserted 10 affirmative defenses, which she reasonably claims forced her to reveal key elements of her litigation strategy. It was not until Hackney filed her cross-complaint in September 2015 that Arbitech sought arbitration, but its motion to compel related only to the cross-complaint.

As the parties litigated the validity of the 2013 Agreement with respect to the cross-complaint, Arbitech continued to actively litigate its lawsuit against Hackney in superior court. Counsel met and conferred regarding Arbitech’s incomplete responses to document discovery and in November 2015 they stipulated to a protective order, wherein the parties agreed to take steps to safeguard confidential and trade secret information during the discovery process. In December 2015, Hackney served notices for nine depositions and written discovery. In her case management statement, Hackney advised the court that Arbitech was refusing to produce documents relevant to the issue of damages and she was contemplating a motion to compel. In January 2016, Hackney posted jury fees.

After the trial court ruled the 2013 Agreement was unenforceable at the end of January 2016, Arbitech did not immediately seek to revive and compel arbitration under the terms of the 2008 Agreement. It waited approximately four months, during which time it served a Code of Civil Procedure section 2019.210 statement of trade secrets and sought written discovery from Hackney in the form of interrogatories, document demands and requests for admissions. In February 2016, Arbitech responded to discovery requests and agreed to several deposition dates. Arbitech asked Hackney to participate in private mediation, stating, “if mediation yields a settlement, we will of course cancel the remaining depositions.” The mediation turned out to be unsuccessful and recognizing the parties’ ongoing discovery dispute, Arbitech next proposed another meet and confer.

In March 2016, Arbitech and Hackney battled over whether the entire case should be transferred to the civil complex center. In response to Arbitech’s request, Hackney incurred the expense of filing a written opposition. Arbitech filed a supplemental brief arguing the case was complex and specifically requested, “this [c]ourt transfer the case to [c]omplex and permit the court to set trial, discovery, and related dates.” It asserted the following issues were relevant to the decision. First, Arbitech may renew its motion to compel arbitration of the cross-complaint based on the Baltazar case. Second, “[T]he parties are meeting and conferring regarding multiple discovery disputes.” Arbitech admitted it was refusing to allow Hackney to take depositions or conduct other discovery “until the conflict of interest issues are resolved.” Arbitech attached to its brief a copy of Hackney’s “[s]et [t]wo” special interrogatories.

In early June 2016, Arbitech renewed its motion to arbitrate. In seeking to enforce the 2008 Agreement, it specifically requested that the court “dismiss and compel arbitration of the [c]ross-[c]omplaint.” (Italics added.) It did not ask the court to dismiss its trade secret action against Hackney to pursue those claims in arbitration. In summary, in the four months following the court’s ruling voiding the 2013 Agreement and up until June 2016, Arbitech doggedly litigated its complaint against Hackney, showing no signs of an intention to arbitrate those claims.

We reject Arbitech’s argument on appeal that its conduct during those four months cannot be considered in the waiver analysis. Arbitech maintains its actions were “absolutely reasonable under the circumstances.” It explains that because the court did not declare the 2008 Agreement valid, “Arbitech took a few months to piece together the legal consequences” of the court’s ruling on the 2013 Agreement. It added, the delay was reasonable because “Arbitech had already put the parties on notice that it considered the dispute arbitrable.” This analysis fails to take into account that after four months of puzzling over the legal consequences of the court’s ruling, Arbitech still only considered the cross-complaint dispute as being arbitrable. In seeking to enforce its arbitration rights under the 2008 Agreement it completely ignored the mutuality of remedies provisions, requiring arbitration of its trade secret claims. Arbitech’s conduct during the four-month period leading to its renewed motion to compel arbitration, and the motion itself, do not suggest Arbitech had any intention of arbitrating its trade secret claims.[3] The record shows 14 months of behavior completely inconsistent with a desire to arbitrate.

Alternatively, Arbitech argues there cannot be a waiver unless there is also evidence Hackney was prejudiced. It argues evidence of delay and litigation costs are insufficient to prove prejudice. (Citing Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 376.) It misunderstands the applicable law.

“Prejudice will be found where the ‘petitioning party’s conduct has substantially undermined [the] important public policy [of arbitration as a speedy and relatively inexpensive means of dispute resolution] or substantially impaired the other side’s ability to take advantage of the benefits and efficiencies of arbitration.’ [Citations.]” (Oregel, supra, 237 Cal.App.4th at p. 360; see also Lewis v. Fletcher Jones Motor Cars, Inc. (2012) 205 Cal.App.4th 436, 452 [“critical factor in demonstrating prejudice” is whether party demonstrates substantially deprived advantages of arbitration].)

In addition, “[T]he expenditure of time and money are relevant to the prejudice analysis. [T]he Supreme Court endorsed the line of cases that have interpreted St. Agnes to allow consideration of the expenditure of time and money in determining prejudice where the delay was unreasonable or unjustified. [Citation.]” (Oregel, supra, 237 Cal.App.4th at p. 361.)

In light of the above, we are not persuaded by Arbitech’s argument that Hackney could not have suffered any prejudice because she had not yet provided discovery responses, no depositions were taken, and there was nothing adjudicated on the merits. This argument ignores that Hackney was forced to reveal her litigation strategies in answering the complaint, engage in mediation, and fight Arbitech’s efforts to have the case deemed complex. None of this would have occurred in arbitration. Moreover, we find relevant to the issue of prejudice the reason behind the lack of discovery—Arbitech and Hackney were engaged in a protracted battle over what was discoverable—and their dispute involved much time and expense. Consequently, over the course of 14 months Hackney completely lost any benefit associated with a more streamlined arbitration process. As aptly noted in her briefing, the advantages of a speedy and inexpensive arbitration process were particularly important in this case because she was an employee fighting a company with “vast resources.” In light of all of the above, we conclude the evidence adequately supports the finding of prejudice needed for a waiver finding.

DISPOSITION

The order is affirmed. Respondent shall recover her costs on appeal.

O’LEARY, P. J.

WE CONCUR:

IKOLA, J.

THOMPSON, J.