Opinion
A130266
02-14-2012
DINA PARTRIDGE et al., Plaintiffs and Respondents, v. HOTT WINGS, INC., et al., Defendants and Appellants.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Alameda County
Super. Ct. No. RG09454660)
Defendants appeal the denial of their motion to compel arbitration of the claims of plaintiffs. Defendants contend they did not waive their right to arbitrate, and therefore the court erroneously denied their motion to compel arbitration. We reject the contention and affirm.
Defendants are Hott Wings, Inc.; Dublin Wings, Inc., doing business as Hooters of Dublin; S.F. Wings, Inc., doing business as Hooters of San Francisco; Fremont Wings, Inc., doing business as Hooters of Fremont; and Campbell Wings, Inc., doing business as Hooters of Campbell; Nick Trani; Shirley Trani; John Trani; Craig Guynes; Doug Kappy; and Donald Speckhals.
Plaintiffs are Dina Partridge; Jessica Rose; Marcie O'Brien; Danielle Firkins; Nicole Talbert Donoghue; Sarah Peterson; Sarah Klaren; Briana Garcia; Mercedes Fritz; Misty Nance; Danielle Sitnyakovsky; Becky Fryer; Sunnie Heng; Sandra Sandoval; Alisha Dawson; Trevasia Walls; Michelle Motyl; Jimisha Baker; and Raul de la Pena, Jr., on behalf of all others similarly situated and on behalf of the General Public as Private Attorneys General.
BACKGROUND
The facts are essentially undisputed. Plaintiffs executed written agreements to arbitrate any employment-related dispute or the termination of their employment with defendants.
It is undisputed that Jessica Rose did not execute an arbitration agreement.
Plaintiffs' initial complaint was filed in May 2009. On June 22, defendants' then counsel, David McNamara, proposed arbitration of the claims alleged in plaintiffs' first amended complaint, and threatened to file a motion to compel arbitration if plaintiffs did not agree to arbitration.
In a June 29, 2009 letter, plaintiffs' counsel, Burton Boltuch, informed McNamara that plaintiffs were willing to consider arbitration of the matter under various conditions regarding payment of arbitrator fees, selection of the arbitrator, and discovery.
On July 6, 2009, McNamara said he would send Boltuch "a stipulation regarding the timing of any motion to compel arbitration in the near future." McNamara's proposed stipulation indicated that while the parties were discussing a possible arbitration, defendants did not waive the right to compel arbitration. However, no such stipulation was further discussed or agreed to by the parties.
In November 2009, the law firm of Littler Mendelson substituted into the case as defendants' counsel.
On June 15, 2010, plaintiffs filed their fourth amended (and operative) complaint against defendants alleging class action and individual claims. The class action claims alleged numerous statutory violations including improper tip pooling, failure to provide rest and meal periods, failure to provide or maintain uniforms, improper deductions from wages, failure to pay minimum wages and expenses, failure to pay reporting time, alteration of time records, failure to pay compensation upon termination, unfair business practices, and a state Private Attorney General Act claim. (Lab. Code, § 2698 et seq.) Plaintiffs O'Brien, Rose, Heng and Partridge alleged individual claims, including violations of the Fair Employment and Housing Act (Gov. Code, § 12900, et seq.), violation of their state constitutional right to privacy, and wrongful termination. On June 29, defendants filed their answer to the fourth amended complaint.
On August 19, 2010, defendants' counsel, Matthew Ruggles, requested that all plaintiffs, except Rose, who did not sign an arbitration agreement, submit to binding arbitration.
In an August 24, 2010 letter, Boltuch informed Ruggles that plaintiffs refused to stay the litigation and submit to arbitration and asserted that defendants had waived their right to arbitration.
On September 13, 2010, defendants filed their motion to compel arbitration and to stay the judicial proceedings pending the conclusion of arbitration pursuant to the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.) and the California Arbitration Act (Code Civ. Proc., § 1280 et seq.).
All undesignated section references are to the Code of Civil Procedure.
A supporting declaration by Ruggles merely stated that on August 19, 2010, he sent Boltuch a letter requesting arbitration; on August 24, Boltuch responded, asserting plaintiffs' refusal to submit their claims to arbitration; and, prior to August 24, the parties discussed the possibility of agreeing to arbitrate. Ruggles also stated that defendants would file a motion to amend their answer to allege an affirmative defense that the allegations in the fourth amended complaint are covered by plaintiffs' arbitration agreements.
Boltuch's declaration opposing defendants' motion to compel stated that, since July 2009, defendants had filed demurrers or answers to plaintiffs' initial and amended complaints. In addition, between March and July 2010, defendants served 225 sets of discovery on 19 plaintiffs, comprising 3,381 individual requests and 1,210 pages. This discovery included form interrogatories, special interrogatories, requests for production of documents, requests for admission of facts, and a supplemental request for production of documents. In response to defendants' discovery, plaintiffs served 162 sets of verified responses comprising 2,487 pages. Defendants' form interrogatories generally sought calculations of plaintiffs' estimated damages, witness names, and information as to which defendants were responsible for which violations. The court ordered plaintiffs to respond to the form interrogatories by October 7.
The discovery undertaken in this case was not presented in support or opposition to defendants' motion to compel and is not included in the appellate record.
Boltuch's declaration also stated that defendants completed or partially completed the depositions of seven plaintiffs, deposed two third-party witnesses, and asserted a desire to soon depose six more plaintiffs. Boltuch opined that defendants used the judicial discovery procedures to impose "great burdens" on plaintiffs and their counsel. Boltuch noted that defendants were seeking to compel continuation of a discovery referee appointed by stipulation, despite plaintiffs' right under the stipulation to terminate the reference. In addition, defendants had filed and fully litigated two motions to compel further responses to discovery and for sanctions, and a motion for a protective order. In numerous meet and confer proceedings, mostly initiated by defendants, defendants threatened to file additional motions to compel further discovery responses and for sanctions or motions to enforce discovery orders, as a means of extracting additional discovery responses from plaintiffs or preventing plaintiffs from obtaining discovery responses from defendants.
Boltuch stated that plaintiffs had only recently started their depositions, and had not yet obtained basic documents from defendants through discovery. Boltuch also stated that, based on his experience, if the case was referred to arbitration, further discovery would be limited and plaintiffs would not have an equal opportunity to complete the discovery necessary for class certification or to support their claims.
Motion to Compel Hearing
At the hearing on defendants' motion to compel arbitration, Ruggles described the discovery defendants had conducted prior to filing their motion to compel as "very basic," "limited," and directed only to the liability of the individual defendants. He also argued defendants' discovery could have been conducted during arbitration. Ruggles conceded that defendants could have filed their motion to compel arbitration sooner, but argued plaintiffs had not established prejudice due to the delay.
Plaintiffs' counsel responded that, during the pendency of their motion to compel, defendants filed an additional five sets of discovery and asserted that the discovery sought by defendants focused on the liability of individual defendants as well as the franchise defendants that employ plaintiffs.
Court's Order Denying Motion to Compel
On October 29, 2010, the trial court's order issued on defendants' motion to compel arbitration. After rejecting plaintiffs' argument that the arbitration agreements are unenforceable as unconscionable, the court ruled that defendants waived their right to compel arbitration. In particular, the order stated, "While the record reflects that arbitration was the subject of communications between counsel up to the summer of last year, there were apparently no further discussions about arbitration until defense counsel's letter of August 19, 2010. In the interim, . . . there has been a substantial amount of litigation activity, including voluminous discovery taken by both sides and multiple discovery disputes arising therefrom, some of which have been before this court and others before a discovery referee appointed pursuant to Code of Civil Procedure section 638. Defendant[s'] actions have been inconsistent with the right to arbitrate, and they have substantially invoked the litigation machinery. [(St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1196 (St. Agnes)]).) Most significantly, they have made extensive use of the judicial discovery procedures. Defendants point out that plaintiffs have also engaged in a significant amount of discovery, and argue that this mitigates any prejudice that plaintiffs may otherwise have suffered. The court disagrees. Where, as here, defendants have used the discovery processes of the court to gain information about plaintiffs' claims that could not have been gained in arbitration, the late transition to a more discovery limited arbitration process would clearly be prejudicial. (Ibid.; Berman v. Health Net et al. (2000) 80 Cal.App.4th 1359, 1367.) The discovery taken by plaintiffs does not impact this analysis."
Defendants filed a timely notice of appeal from the order.
DISCUSSION
Defendants contend the trial court erred in denying their motion to compel arbitration. They argue that they did not waive their right to arbitrate because their actions were not inconsistent with the right to arbitrate, they did not invoke the litigation machinery, the information they gained during discovery would have been available in arbitration, their delay in moving to compel arbitration was slight and plaintiffs failed to establish any prejudice resulting from the delay.
"State law, like the FAA, reflects a strong policy favoring arbitration agreements and requires close judicial scrutiny of waiver claims. [Citation.] Although a court may deny a petition to compel arbitration on the ground of waiver (§ 1281.2, subd. (a)), waivers are not to be lightly inferred and the party seeking to establish a waiver bears a heavy burden of proof. [Citations.]" (St. Agnes, supra, 31 Cal.4th 1187, 1195.)
Noting that under state and federal law there is no single test for waiver of the right to compel arbitration, St. Agnes stated the following factors are relevant and properly considered by the court 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." ' [Citations.]" (St. Agnes, supra, 31 Cal.4th at p. 1196.)
Plaintiffs concede this factor is not applicable here; defendants did not file a counterclaim without asking for a stay of the proceedings.
"[A] determination by a trial court that the right to compel arbitration has been waived ordinarily involves a question of fact, which is binding on the appellate court if supported by substantial evidence. The appellate court may not reverse the trial court's finding of waiver unless the record as a matter of law compels finding nonwaiver." (Davis v. Continental Airlines, Inc. (1997) 59 Cal.App.4th 205, 211.) Even where the facts are undisputed, "[i]f more than one reasonable inference may be drawn from undisputed facts, the substantial evidence rule requires indulging the inferences favorable to the trial court's judgment." (Ibid.)
I. Unreasonable Delay
"A petition to compel arbitration 'should be brought within a reasonable time.' [Citation.]" (Augusta v. Keehn & Associates (2011) 193 Cal.App.4th 331, 338 (Augusta).) What constitutes a reasonable time is a question of fact, depending on the parties' situation, and the nature of the transaction. (Sobremonte v. Superior Court (1998) 61 Cal.App.4th 980, 992-993.) Courts may consider whether a party provides a reasonable explanation for its delay in seeking arbitration when considering whether the right to compel arbitration has been waived. (Law Offices of Dixon R. Howell v. Valley (2005) 129 Cal.App.4th 1076, 1100-1101.) In Augusta, unreasonable delay was found where the plaintiff knew about the arbitration clause when he filed his original complaint, but had no reasonable explanation for waiting six and a half months to file his petition to compel arbitration. (Augusta, at p. 338; see also Guess?, Inc. v. Superior Court (2000) 79 Cal.App.4th 553, 557 [delay unreasonable where party knew about arbitration provisions before action was filed and offered no explanation for three-month delay].)
Here, on June 22, 2009, a month after plaintiffs filed their first amended complaint, defendants' counsel McNamara proposed to plaintiffs' counsel that the parties arbitrate the plaintiffs' claims. A week later, plaintiffs said they were willing to consider arbitration pursuant to certain conditions. In early July, defendants proposed a stipulation regarding the timing of "any motion to compel arbitration in the near future," but did not raise the issue of arbitration again until August 19, 2010, when defendants' counsel Ruggles sent plaintiffs' counsel a demand for arbitration. Ruggles' declaration in support of defendants' motion to compel offered no reason for the delay in seeking to compel arbitration. And, at the hearing on the motion, Ruggles conceded defendants could have filed their motion to compel arbitration sooner; he asserted only that plaintiffs had not established prejudice due to the delay.
Defendants appear to argue that plaintiffs contributed to the delay by refusing to submit to defendants' initial arbitration demand. However, following plaintiffs' June 2009 statement of their willingness to consider arbitration under certain conditions, defendants did nothing to move the case toward arbitration until August 2010 when they filed their motion to compel.
In addition, defendants' reliance on Britton v. Co-op Banking Group (9th Cir. 1990) 916 F.2d 1405 is misplaced because it is factually distinguishable. In that case, a pro se party (Liebling) pursued informal settlement before seeking arbitration and actively resisted discovery and acted to avoid litigation. The court concluded Liebling did not waive his right to compel arbitration on the grounds that no evidence established when he had "knowledge" of his right to compel arbitration, and his avoidance of discovery and his motions to stay trial court proceedings were not inconsistent with his pursuit of arbitration. The court also concluded respondents failed to show prejudice because their costs incurred in pursuing litigation should not count against Liebling's effort to avoid litigation.
We conclude substantial evidence supports the court's finding that defendants' more than 12-month delay in filing their motion to compel arbitration was unreasonable.
II. Acts Inconsistent with Right to Arbitrate
Defendants' delay in filing their petition to compel arbitration connotes an intent not to arbitrate. (See Augusta, supra, 193 Cal.App.4th at p. 339.) In addition, defendants' conduct during the period of delay supports the court's finding that their actions were inconsistent with the right to arbitrate. (St. Agnes, supra, 31 Cal.4th at p. 1196.)
Between March 2010 and the October 2010 hearing on defendants' motion to compel arbitration, defendants engaged in voluminous written discovery to which plaintiffs responded. In addition, defendants deposed numerous plaintiffs and third party witnesses. Although plaintiffs had begun deposing witnesses, they had not yet obtained basic documents from defendants through discovery. The discovery focused on the liability of individual defendants and the franchise defendants that employ plaintiffs. As a result of defendants' discovery requests, plaintiffs provided information regarding plaintiffs' estimated damages, which defendants were responsible for which violations, and the liability of the individual as well as the franchise defendants. A reasonable inference is that the information gained from defendants' discovery goes to significant issues in plaintiffs' case.
In addition to conducting voluminous discovery, defendants substantially invoked the litigation machinery by filing and fully litigating two motions to compel further responses to discovery, a motion for sanctions and a motion for a protective order. They also initiated numerous meet and confer proceedings and threatened to file additional motions to compel, for sanctions or to enforce discovery orders. The court's order noted it had presided over some of the discovery disputes, while others were before the appointed discovery referee.
Defendants' reliance on Groom v. Health Net (2000) 82 Cal.App.4th 1189 is misplaced. In that case, although the party seeking arbitration propounded discovery requests, the opposing party did not respond to them and conceded she did not suffer prejudice from discovery requests to which she did not respond. (Id. at p. 1196.)
III. Prejudice
Defendants contend plaintiffs have failed to establish prejudice because "there is no indication that the discovery that has been done in this case so far would not be allowed under the [American Arbitration Association] Employment Rules, which the [arbitration agreements] provide for."
"Despite the delay in seeking arbitration and lack of intent to arbitrate, the conduct of the party demanding arbitration must have prejudiced the opposing party. 'In California, whether or not litigation results in prejudice also is critical in waiver determinations.' [Citation.] 'The moving party's mere participation in litigation is not enough; the party who seeks to establish waiver must show that some prejudice has resulted from the other party's delay in seeking arbitration.' [Citation.] '[C]ourts have found prejudice where the petitioning party used the judicial discovery processes to gain information about the other side's 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 party's attempts to litigate resulted in lost evidence.' [Citations.]" (Augusta, supra, 193 Cal.App.4th at p. 340, fn. omitted.)
The arbitration agreements in this case were silent on the issue of discovery. They stated, in part: "By signing this Agreement, you and the Company each agree that all Claims between you and the Company shall be exclusively decided by arbitration governed by the [FAA] before one or more NEUTRAL ARBITRATORS AND NOT BY A COURT OR A JURY. In all cases, such arbitration shall be final and binding and conducted under the most current version of the American Arbitration Association's National Rules for the Resolution of Employment Disputes, and/or such other procedures as the parties both agree in writing."
The American Arbitration Association's (AAA) National Rules for the Resolution of Employment Disputes are now known as the Employment Arbitration Rules and Mediation Procedures (2009) ((http://www.adr.org) [as of Sept. 21, 2011]).
In reliance on Rule 9 of the AAA's "Employment Arbitration Rules and Mediation Procedures," defendants argue that their use of the discovery process was not prejudicial because they did not seek and obtain information not available in arbitration. They conclusorily assert, "The type of discovery conducted in this case is consistent with what would be allowed, and necessary given the facts of the case, the number of parties involved, and the claims made." They also assert that the only conceivable prejudice to plaintiffs is the sanctions against plaintiffs' attorney ordered by the discovery referee. Plaintiffs rejoin that the AAA standard "is quite different from, and much more limited than, the standard of the Civil Discovery Act which favors open discovery without any presumptive limitations."
Rule 9 provides, in relevant part: "The arbitrator shall have the authority to order such discovery, by way of deposition, interrogatory, document production, or otherwise, as the arbitrator considers necessary to a full and fair exploration of the issues in dispute, consistent with the expedited nature of arbitration." (Employment Arbitration Rules and Mediation Procedures (http://www.adr.org) [as of Sept. 21, 2011].)
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"Discovery in arbitration is generally limited. [Citations.] Sections 1283.1 and 1283.05, however, grant arbitrators authority over discovery in certain arbitration proceedings. Section 1283.1's subdivision (a) provides that section 1283.05 is incorporated into and made a part of every agreement to arbitrate any dispute arising out of a claim for wrongful death or for personal injury." (Berglund v. Arthroscopic & Laser Surgery Center of San Diego, L.P. (2008) 44 Cal.4th 528, 534-535.) AAA Rule 9 reflects the limited nature of discovery in arbitrations by expressly providing for discovery considered "necessary" by the arbitrator and "consistent with the expedited nature of arbitration." Although it provides that the arbitrator has authority to order the types of discovery conducted here, it does not establish that the specific, voluminous discovery conducted by defendants would have been ordered by an arbitrator and was, therefore, available in arbitration.
The court's order establishes that it was familiar with at least some of the discovery conducted by defendants. The court expressly found that defendants "used the discovery processes of the court to gain information about Plaintiff's claims that could not have been gained in arbitration." Defendants have failed to demonstrate that this finding was erroneous.
In addition, contrary to defendants' assertion, the fact that plaintiffs also engaged in discovery does not overcome the prejudice plaintiffs suffered because "the prejudice— is in use of discovery processes 'to gain information about plaintiff's case which defendants could not have gained in arbitration.' " (Berman v. Health Net, supra, 80 Cal.App.4th 1359, 1370.)
The circumstances here, considered as a whole, establish that defendants unreasonably delayed in moving to compel arbitration and conducted voluminous discovery to gain information regarding plaintiffs' case not available in arbitration, and that plaintiffs were prejudiced. Substantial evidence supports the court's finding that defendants waived the right to compel arbitration.
DISPOSITION
The order denying defendants' motion to compel arbitration is affirmed. Costs on appeal are awarded to plaintiffs.
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SIMONS, J.
We concur.
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JONES, P.J.
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BRUINIERS, J.