Opinion
D040901.
10-8-2003
THE RETIREMENT GROUP, Plaintiff and Respondent, v. LINSCO/PRIVATE LEDGER CORP. et al, Defendants and Appellants.
Plaintiff and respondent The Retirement Group, a sole proprietorship (TRG), brought a complaint against defendants and appellants LPL Financial Services, Inc. (LPL) and individual defendant securities sales representatives Jon Blumenthal, Peter Bellefountaine and Brandon Ross (the REPS) (collectively Defendants), alleging misappropriation of trade secrets and related theories. LPLs motion to compel arbitration and stay judicial proceedings, joined in by the REPS, was denied by the trial court, on the basis that Defendants waived the right to compel arbitration, chiefly through the discovery they conducted prior to filing the motion to compel arbitration. (Code Civ. Proc., § 1281.2; all further statutory references are to the Code of Civil Procedure unless otherwise noted.) LPL and the REPS appeal, claiming none of their actions was inconsistent with the right to assert an intent to seek arbitration to resolve the dispute, and there was no showing of prejudice to TRG through the actions that Defendants took by pursuing discovery to oppose a preliminary injunction sought by TRG.
On this record, substantial evidence supports the trial courts finding that these Defendants have waived arbitration through their failure to assert the right to pursue it in a timely matter, and there is prejudice to TRG sufficient to justify denial of the petition to compel arbitration. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
TRG is an investment firm whose principal, Frank Cuenca, is a registered representative for the branch office of a securities broker-dealer, FSC Securities Corporation (FSC Securities; not a party to this action). The defendant REPS formerly worked as registered sales representatives for TRG. In connection with their employment by TRG, each of the REPS signed a marketing and license agreement containing an arbitration clause. They also signed confidentiality and nonsolicitation agreements concerning the use of TRGs protected information.
In April 2002, the REPS left the employ of TRGs branch office to go to work for the corporate defendant LPL, and transferred their securities licenses there. They allegedly took TRGs customer lists, sales material, and other protected trade secret information with them. LPL, as well as nonparty FSC Securities, are members of the National Association of Securities Dealers, Inc. (NASD) as registered securities broker-dealers.
TRG filed its original complaint on April 21, 2002, alleging misappropriation of trade secrets, and immediately noticed ex parte proceedings for a temporary restraining order for April 24, 2002. At that time, TRG was seeking a preliminary injunction to prevent the alleged misappropriation of trade secrets by LPL and the individual REPS. At the ex parte proceedings, the parties discussed whether arbitration was going to be sought to resolve the issues alleged in the complaint. A temporary restraining order was issued against the individual REPS, but not against the corporate defendant LPL, to restrain the individuals from contacting persons on TRGs protected customer lists. According to TRG, the trial court was concerned that any injunction issued against LPL would be overbroad and difficult to enforce, since it is a nationwide business with many offices.
During May and June, 2002, the period that the hearing on the request for preliminary injunction was pending, all the parties exchanged voluminous correspondence and conducted discovery pursuant to a stipulated protective order regarding confidentiality. This protective order did not contain any restrictions on the scope of the discovery sought. LPL took depositions of three key TRG witnesses, Frank Cuenca, John Jastremski (a TRG marketing consultant who was thought by LPL to be another principal of TRG), and a former TRG employee, who was not a named party. LPL requested extensive document production from TRG and also from nonparty FSC Securities. The REPS took depositions of six current and former TRG employees. TRG took seven depositions of defense parties and witnesses.
Members of the NASD, such as registered securities broker-dealers LPL and FSC Securities, may submit trade and employment disputes to arbitration under the NASD rules. Persons associated with members of the NASD are also subject to arbitration provisions under the NASD Code of Arbitration Procedure. (All further rule references are to the NASD Rules; Rule 10201.) On May 2, 2002, LPL inquired of TRG by letter why it had not provided them a statement of claim in arbitration proceedings under the NASD rules. On May 31, 2002, LPL sent a letter to TRG demanding that it submit to NASD arbitration. The REPS fell within the scope of arbitration under the NASD rules as persons associated with members of the NASD because of their employment in the field. (Rule 10201.)
Discovery continued and TRG amended its complaint and served it May 24, 2002. Seven causes of action were alleged, including trade secret misappropriation, breach of contract, intentional and negligent interference with contractual relations, unfair competition, and other claims.
On June 26, 2002, LPL filed its motion to compel arbitration, as its first responsive pleading, in lieu of filing a formal answer. (§§ 1281.2, 1281.7.) The REPS joined in the motion and evidently also answered the first amended complaint. The telephonic hearing on the motion to compel was set for August 9 and continued to August 27, 2002.
On June 28, 2002, the trial court granted in part and denied in part TRGs motion to quash a subpoena seeking documents from nonparty FSC Securities.
On July 12, 2002, the hearing on TRGs injunction request was held, along with a contempt hearing against the REPS for violating the temporary restraining order. (The REPS were mainly exonerated on any contempt claims.)
On August 7, 2002, the trial court granted a preliminary injunction in favor of TRG against the individual REPS, restraining them from directly soliciting any clients or prospective clients identified in a list lodged with the court. The injunction also prohibited the individual REPS from using "in any manner any TRG products, samples of products, pamphlets, catalogs, booklets, advertising materials, technical advertising and selling date and information concerning TRG products of any kind," etc.
In issuing the preliminary injunction, the court stated that it appeared that TRG was likely to prevail on its claims of misappropriation of trade secrets. Based in part on its review of over 3,000 documents, the court found TRGs list of prospective customers qualified as a trade secret, because it contained additional information beyond the name, address and telephone number of potential customers, which reflected that substantial time, effort, labor and expense were expended by TRG to identify potential customers with particular needs and characteristics, as well as to cultivate these relationships through written correspondence and telephone contacts over a period of years. Accordingly, the trial court found,
"The list has economic value as it allows any competitor to direct its sales efforts to those customers who have a demonstrated need or willingness to utilize services provided by TRG or its competitors. [Citation.] [¶] TRG would be harmed if the injunction did not issue because the individual defendants and their current employer, LPL Financial Services, would be able to derive economic value from the prospective customer list to TRGs disadvantage. On the other hand, harm to the defendants appears minimal as defendants may still conduct their business by contacting other potential customers."
LPLs motion to compel arbitration and stay judicial proceedings, as joined in by the REPS, had been filed June 26, 2002 and set for hearing telephonically several weeks later. Defendants contended the case must be sent to arbitration under the rules of the NASD. Although TRG did not dispute that NASD arbitration could have been made available, TRG responded to the motion by arguing the defendants had waived their rights to arbitrate the controversy. TRG also argued it was appropriate to consider the discovery conducted by LPL and the REPS as related and coordinated, because LPL was funding a portion of the REPS defense.
On August 27, 2002, the trial court issued its telephonic ruling denying the LPL/REPS motion to compel arbitration, on the basis that the moving parties had waived their right to compel arbitration. At oral argument, the parties discussed whether NASD arbitration was currently available in California, due to a freeze on such proceedings caused by a federal court action filed by the NASD challenging certain rules and regulations on arbitrators disclosure and disqualification regarding potential conflicts of interest. (NASD & NYSE etc. v. Judicial Council of California (USDC, ND Cal., C023486), filed July 22, 2002.)
Also at oral argument, the trial court questioned LPL and the REPS as to why they had not filed any papers to compel arbitration until after extensive discovery and court appearances had been completed, and reminded them that the availability of arbitration had been discussed at the April 2002 temporary restraining order hearing. LPL and the REPS responded that the burden had been on TRG to pursue NASD arbitration, and that LPL had not been served with any complaint until a month after the temporary restraining order hearing, when they received the first amended complaint in May 2002. LPL and the REPS took the position that they had appropriately responded to the TRG request for preliminary injunction by defending against it, and this should not constitute a waiver.
On September 6, 2002, the trial court confirmed its ruling to deny the motion to compel. The ruling first observed that during the short time the case had been active, the parties had appeared before the court on numerous occasions for motions and ex parte hearings, such that the courts file consists of five volumes of papers filed with the court. The court then stated, "The court considered and reviewed over 3000 documents in camera to determine whether names and information obtained from prospective clients should be the subject of a preliminary injunction. At no time prior to the filing of this motion have these defendants submitted papers to this court indicating that the case belonged in arbitration." The ruling continued:
"The parties first appeared on April 24, 2002 when plaintiff sought a Temporary Restraining Order. At that time the parties agreed to expedited discovery, ostensibly to defend an OSC: re preliminary injunction. Both parties have conducted discovery, including discovery that would not have been available had the controversy been submitted to arbitration. [¶] Further, although defendants assert that they made demands upon plaintiff to submit to NASD arbitration, there is no indication that defendants took any steps to submit the case to NASD."
The motion was denied and the Defendants filed their notices of appeal on September 13 and October 21, 2002. (§ 1294.)
In November 2002, LPL sought a stay of the trial court proceedings pending appeal. The trial court denied the relief and LPL and the REPS filed a petition for writ of supersedeas. This court denied the petition and expedited the appeal by order of January 29, 2003.
On November 5, 2002, the REPS brought a motion for further answers to interrogatories and to produce documents from TRG. The trial court granted the motion on December 20, 2002. A trial date was set for June 13, 2003.
DISCUSSION
I
STANDARDS OF REVIEW
The appeal before this court is a substantial evidence challenge to the trial courts denial of LPLs motion to compel arbitration and stay judicial proceedings, as joined in by the REPS, due to the trial court finding these defendants had waived arbitration. In general, arbitration is considered to be a highly favored means of settling disputes. (Berman v. Health Net (2000) 80 Cal.App.4th 1359, 1363 (Berman).) However, "it is beyond dispute a trial court may deny a petition to compel arbitration if it finds the moving party has waived that right. [Citations.] [¶] `[T]he question of waiver is one of fact, and an appellate courts function is to review a trial courts findings regarding waiver to determine whether these are supported by substantial evidence. [Citation.] `The appellate court may not reverse the trial courts finding of waiver unless the record as a matter of law compels finding nonwaiver. [Citations.] [Citation.]" (Id. at pp. 1363-1364.) Also, it is well accepted that "[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 courts judgment. [Citations.]" (Davis v. Continental Airlines, Inc. (1997) 59 Cal.App.4th 205, 211 (Davis).)
"There is no single test for waiver of the right to compel arbitration, but waiver may be found where the party seeking arbitration has (1) previously taken steps inconsistent with an intent to invoke arbitration, (2) unreasonably delayed in seeking arbitration, or (3) acted in bad faith or with willful misconduct. [Citation.] The moving partys mere participation in litigation is not enough; the party who seeks to establish waiver must show that some prejudice has resulted from the other partys delay in seeking arbitration. [Citation.]" (Davis, supra, 59 Cal.App.4th at pp. 211-212.)
Additional specific criteria which may be considered in determining waiver include "`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," and `"whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay." (Sobremonte v. Superior Court (1998) 61 Cal.App.4th 980, 992.) Participating in "`important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration]" may be considered a step inconsistent with arbitration enforcement, where prejudice is shown. (Ibid.)
II
PROCEDURAL CONTEXT AND NASD RULES
Before we address the substantive waiver issue, it is necessary to set the procedural stage on two background issues. These are (1) the availability of preliminary injunction provisional relief in arbitration proceedings, and (2) the availability of discovery in arbitration proceedings.
A
Preliminary Injunction
The basis of the claimed right to arbitration is found in the arbitration provisions of the NASD Code of Arbitration Procedure, as covering members and "persons associated with members of the NASD." Rule 10201 requires submission to arbitration of "a dispute, claim, or controversy . . . between or among members and/or associated persons, and/or certain others, arising in connection with the business of such member(s) or in connection with the activities of such associated person(s), or arising out of the employment or termination of employment of such associated person(s) with such member . . . ." It is also not disputed that there was an arbitration clause in the employment agreements that the REPS signed with their former employer TRG. However, TRG maintains that any right to arbitration was waived by LPL/REPS, through their activities in opposing the preliminary injunction request.
In response, LPL/REPS argue they put TRG on notice at an early stage of the litigation that they intended to pursue NASD arbitration, and therefore, they had a right to conduct discovery relating to the apparently nonarbitrable claim for injunctive relief, as pursued by TRG in the trial court. They claimed that since the discovery they propounded was arguably relevant to the injunction claim, they did not waive arbitration by participating in discovery.
In the record on appeal, LPL/REPS have provided this court with a press release from the NASD dated March 2002, explaining that its rule 10335 had recently been amended to provide that an arbitration panel could not issue temporary injunctive relief, but that the parties to an arbitration should seek interim injunctive relief in court, while simultaneously filing a claim in arbitration requesting permanent injunctive and other relief. As explained by the press release, the rule also contemplates that an expeditious arbitration hearing on the request for permanent injunctive relief shall begin shortly after the court issues a temporary injunctive order. New rule 10335 applies to arbitration claims filed on or after March 25, 2002. This complaint was originally filed April 21, 2002, and the motion to compel arbitration was filed June 26, 2002. It therefore appears that the NASD rule 10335 would apply to this case and complaint insofar as they amount to an arbitration claim, and thus permitted the parties to seek a temporary injunctive order from a court of competent jurisdiction.
The current version of rule 10335 is consistent with the version provided in this record, and provides as follows:
"Temporary Injunctive Orders; Requests for Permanent Injunctive Relief: (a) Temporary Injunctive Orders (1) In industry or clearing disputes required to be submitted to arbitration pursuant to Rule 10201, parties may seek a temporary injunctive order, as defined in paragraph (a)(2) of this Rule, from a court of competent jurisdiction. Parties to a pending arbitration may seek a temporary injunctive order from a court of competent jurisdiction even if another party has already filed a claim arising from the same dispute in arbitration pursuant to this paragraph, provided that an arbitration hearing on a request for permanent injunctive relief pursuant to paragraph (b) of this Rule has not yet begun. [& para;] (2) For purposes of this Rule, temporary injunctive order means a temporary restraining order, preliminary injunction or other form of initial, temporary injunctive relief."
Also pursuant to rule 10335(a)(3), even though a party may be seeking a temporary injunctive order from a court with respect to a dispute otherwise required to be submitted to arbitration pursuant to rule 10201, the party is still required to "simultaneously file with the Director a Statement of Claim requesting permanent injunctive and all other relief with respect to the same dispute in the manner specified under this Code." (Rule 10335(a)(3).) Early in the case, LPL/REPS made a request that TRG file such a statement of claim in arbitration, as well as pursuing its complaint in the trial court.
Accordingly, LPL/REPS argue there could not have been any waiver of arbitration, because the TRG request for a preliminary injunction in the trial court amounted to a nonarbitrable claim on the complaint, and they were merely responding to the preliminary injunction motion. There is apparently no contention here that the provisions of section 1281.8, subdivision (b), should apply, since the matter has never been submitted to arbitration. That section allows for "an application for a provisional remedy in connection with an arbitrable controversy, but only upon the ground that the award to which the applicant may be entitled may be rendered ineffectual without provisional relief" (emphasis added; under subd. (a), a "provisional remedy" includes the following: [¶] "(3) Preliminary injunctions and temporary restraining orders issued pursuant to Section 527.")
Before reviewing the record for substantial evidence support of the waiver determination here, we next consider the manner in which Defendants conducted this litigation, through both initiating and responding to discovery in connection with the TRG preliminary injunction request.
B
Discovery in Arbitration Proceedings
In the case before us, the arbitration agreement in the TRG/REPS marketing and licensing agreement provides for nonbinding arbitration with right of discovery, to be limited to one business day in duration. Litigation is then contemplated if the arbitration does not resolve the dispute. This is a fairly limited type of arbitration provision. Under California law, "[e]xcept for tort claims for personal injury and wrongful death, parties do not have the right to conduct normal discovery unless permitted by their arbitration agreement. [Citation.] Even when discovery is allowed, depositions may be taken for discovery only after permission is granted by the arbitrator. [Citation.]" (6 Witkin, Cal. Procedure (4th ed. 1997) Proceedings Without Trial, § 513, p. 952.) The main policy promoted by an arbitration, speedy dispute resolution, would be defeated by interposing court-ordered discovery in contractual arbitration proceedings. (Brock v. Kaiser Foundation Hospitals (1992) 10 Cal.App.4th 1790, 1802 (Brock).)
It is not disputed that NASD arbitration is normally provided in this employment field, the securities industry, absent waiver. "The general rule is that discovery in aid of arbitration is not allowed under California or federal law." (Niles, The Cal. Arbitration Handbook (1998) § 12.02, pp. 12-1 to 12-2; § 17.07, p. 17-14.) However, certain statutes will afford some discovery for specific types of disputes. Also, an arbitration agreement may provide for the conducting of discovery if a dispute should arise. (Id. at § 12.02, p. 12-2.) The NASD procedural rules, in the Uniform Code of Arbitration section (rule 10300 et seq.), include general provisions governing prehearing proceedings, such as requests for documents and document production. (Rule 10321; also see rule 10322, "Subpoenas and Power to Direct Appearances.") However, these procedural provisions are not equivalent to full-blown discovery as conducted in civil litigation, including standard depositions and other discovery methods. In this case, the parties briefing has focused not on the availability of discovery in securities arbitration, but on those provisions in arbitration that permit provisional relief to be ordered, such as preliminary injunctions. (Rule 10335.) In any case, it is clear that discovery in the arbitration forum is not as extensive as discovery allowable in a court case. (Titan/Value Equities Group, Inc. v. Superior Court (1994) 29 Cal.App.4th 482, 487-489.)
Extensive discovery has taken place in this case in the judicial forum. Case law recognizes that in such a case, a significant delay in asserting the right to arbitration may serve to destroy "whatever efficiencies that would otherwise have been available to [a party] through arbitration. Simply put, "`[t]he courtroom may not be used as a convenient vestibule to the arbitration hall so as to allow a party to create his own unique structure combining litigation and arbitration."" (Guess?, Inc. v. Superior Court (2000) 79 Cal.App.4th 553, 558 (Guess), citing Christensen v. Dewor Developments (1983) 33 Cal.3d 778, 784.)
Thus, where a party extensively participates in the discovery process in court, before asserting a right to enforce an arbitration provision, it may be found to have acted in a manner inconsistent with arbitration, even where that party was responding to discovery, rather than initiating it. (Guess, supra, 79 Cal.App.4th 553, 558.) Such discovery conducted during a delay in asserting arbitration rights can serve to obtain disclosure of trial tactics and testing of the others claims, in a manner that is inconsistent with pursuing arbitration. In Guess, the court evaluated such conduct by saying, "It is the manner in which [the party] responded that matters, and it was [that partys] response that was inconsistent with its present claim of a right to arbitrate." (Ibid.)
C
Supplemental Briefing
While this appeal was pending, this court sought and obtained supplemental briefing from all parties to address certain issues raised by the briefs regarding the scope of the issues arguably subject to arbitration, as opposed to the issues properly before the trial court regarding the request for preliminary and permanent injunction. We asked them to specify what issues would now remain for arbitration under the NASD rules, following the issuance of the preliminary injunction and any permanent injunction, concerning the uses of the subject business records. In addition, we noted that the trial court has conducted enforcement proceedings regarding the temporary restraining order, and inquired about the parties views on the proper scope of the issues before the trial court with regard to the issuance and enforcement of this provisional remedy, as contrasted to any remaining arbitrable issues concerning damages or other monetary relief, for purposes of substantial evidence review of the waiver issue.
The purpose of these inquiries was to clarify the status of the corporate defendant LPL and the three individual REPS, for purposes of the temporary restraining order and preliminary injunctive relief that was ordered or withheld, to determine the waiver issue in terms of any alleged actions that were arguably inconsistent with asserting arbitration rights. The difficulty here is in identifying what discovery was conducted that arguably went beyond the defense of the preliminary injunction request, within the legitimate scope of the trial court proceedings, and therefore intruded into the claimed remaining arbitrable issues regarding, e.g., damages. To the extent that LPL/REPS exceeded the scope of the preliminary injunction issues, they arguably waived any right to enforce the arbitration agreement.
In response, LPL/REPS have outlined their position as follows. They believe all issues raised by the complaint are subject to NASD arbitration, and that the fact they were required to defend the preliminary injunction request in court rather than in arbitration should not be held against them. LPL points out that it is not subject to the preliminary injunction, and that only its current employees, the REPS, are subject to it. LPL concedes that it is difficult to draw a line concerning what information requested in discovery is directed toward the requested injunctive relief as opposed to the damages claim. Trial call was set for June 13, 2003.
The REPS do not disagree with the points made by LPL, and they further point out that the injunction in effect will reduce TRGs claim for monetary damages, since it precludes certain conduct for which TRG is seeking damages, i.e., the alleged misappropriation of trade secrets.
In response to our request for supplemental briefing, TRG concedes that absent a finding of waiver, any permanent injunctive relief request would be properly cognizable in NASD arbitration, although preliminary injunctive relief was appropriately issued by the trial court. TRG represents that the trial court recently bifurcated the trial, to hear the injunctive relief portion of the case in June 2003, with any future damages portion of the trial to follow, if any further misappropriation of trade secrets took place. TRG contends that there is no meaningful distinction between the provisional and permanent relief requested here under section 1281.8, because neither LPL nor the REPS attempted to make a showing that an arbitration award might be rendered ineffectual without provisional relief. TRG argues this strengthens a finding that LPL and the REPS waived any right to compel arbitration. TRG contends that because LPL and the REPS cooperated in the defense of the action and the preliminary injunction request, and LPL subsidized the REPS discovery, it is appropriate to consider their discovery efforts both collectively and separately. TRG concludes that nothing in the record suggests that any of the discovery conducted was meant to be or was limited to defending the preliminary injunction.
III
WAIVER ISSUES
With this factual and procedural background in mind, we return to the substantial evidence review of the record to determine if the trial court was justified in finding LPL/REPS actions were not consistent with an intention to preserve their right to enforce an arbitration clause under the NASD rules. We address the criteria identified in case law as relevant to the waiver question, including whether the parties seeking arbitration (LPL/REPS) have taken steps inconsistent with an intent to invoke arbitration, or have unreasonably delayed in seeking arbitration, or have acted in bad faith. (Davis, supra, 59 Cal.App.4th 205, 211-212.) Also, the party who seeks to opposes arbitration and establish waiver (TRG) "must show that some prejudice has resulted from the other partys delay in seeking arbitration. [Citation.]" (Ibid.) (However, it should be noted that the bad faith criterion is not seriously argued here and we do not find it necessary to consider that issue.) The relevant criteria must be discussed in terms of the effect of the pending preliminary injunction proceedings and the discovery that was conducted in connection with them.
A
Actions Consistent or Inconsistent with an Intent to Invoke Arbitration
Where a defendant engages in extensive discovery from plaintiff before moving to compel arbitration, the trial court may properly find that defendant waived arbitration. (Davis, supra, 59 Cal.App.4th 205, 214.) The rationale for such a finding is that ordinarily, discovery is not available in aid of arbitration, due to the expedited nature of such a proceeding. (Id. at p. 212; Brock, supra, 10 Cal.App.4th at p. 1802.) Also, resorting to judicial procedures to enforce discovery requests is time-consuming and expensive, and is inconsistent with a summary proceeding such as arbitration. Even where a party extensively participates in the discovery process by responding to discovery initiated by another, while not concurrently asserting a right to enforce an arbitration provision, conduct inconsistent with a claim of a right to arbitrate may be found. (Guess, supra, 79 Cal.App.4th 553, 558.)
In this case, a period of two months went by between the initial temporary restraining order proceedings and the time of filing of the motion to compel arbitration, before LPL or the REPS took any substantive action to move the matter toward arbitration. Although LPL wrote two letters to TRG in May 2002, suggesting and demanding such a course of action, Defendants did not seek relief from the trial court when that action was not forthcoming, until the preliminary injunction proceedings had been underway for approximately two months. The court pointed this out to them at oral argument on the motion to compel, and received the response that the amended complaint had not been duly served until late May 2002, and Defendants were awaiting a statement of claim under the NASD rules before they sought to enforce their arbitration rights. However, Defendants had participated in the temporary restraining order proceedings and were engaged in defending the preliminary injunction request, by conducting extensive discovery. It is appropriate to consider the Defendants actions together, due to the showing TRG made that LPL was funding at least half the REPS defense. From these actions of Defendants, the trial court could properly infer that the request for preliminary relief, concerning the client lists and protected materials, was central to the case as to both Defendants and could not properly be deferred to arbitration at some later time. The court could also reasonably conclude that any eventual damages issues would be materially affected by the scope of any injunctive relief ordered.
These criteria point to a finding that any arbitration contemplated by the parties arbitration agreement and the NASD rules was more limited in scope than would be suggested by a proceeding characterized by the extensive discovery conducted. LPL and the REPS have not shown they were precluded by NASD rules from taking action earlier to compel arbitration, and accordingly, the record supports a finding that their actions in noticing and conducting discovery, and seeking to enforce it against a nonparty in court (FSC Securities), were inconsistent with an intention to enforce arbitration rights.
B
Unreasonable Delay in Seeking Arbitration
In the Berman case, the appellate court found it relevant to a waiver determination to consider whether a party who was seeking to enforce arbitration rights had ever sought to sever from the main case a nonarbitrable injunction claim, or whether it had ever given any indication that the discovery it had conducted was directed towards that claim. (Berman, supra, 80 Cal.App.4th 1359, 1372.) The court said, "If [defendant] truly was concerned about discovery relating to the injunction claim, it could either have moved immediately to sever the arbitrable and nonarbitrable claims, or moved earlier to compel arbitration." (Ibid.)
In making a waiver determination, a court may also consider "`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," and "`whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay." (Sobremonte v. Superior Court, supra, 61 Cal.App.4th 980, 992.)
Using these analyses here, it is clear that all sides had invested significant time, effort and money in the discovery concerning the preliminary injunction request by the time the motion to compel arbitration was filed, and even more so by the time it was heard and determined. Due to the broad nature of the substantive claims, the trial court undertook an extensive review of the documents at the preliminary injunction stage to determine the merits of the claim that this was protected material in the form of customer lists and sales materials. Immediate action to move the matter to arbitration could have prevented such an expenditure of effort by the court and counsel. However, this was not done, and the trial court had a sufficient basis in the record to lay the blame for delay at the door of the parties who were seeking to compel arbitration. Defendants did not bring this motion until after much discovery had been conducted in proceedings that took place during that crucial period.
C
Existence of Prejudice Resulting From Delay in Seeking Arbitration
An example of prejudice that can be incurred through the use of discovery processes in a court case is "to gain information about plaintiffs case which defendants could not have gained in arbitration." (Berman, supra, 80 Cal.App.4th 1359, 1366.) However, even where "engaging in litigation of the matter may be inconsistent with an intent to invoke arbitration, `the party who seeks to establish waiver must show that some prejudice has resulted from the other partys delay in seeking arbitration." (Id. at pp. 1363-1364.) In this case, TRG asserts it has been prejudiced due to the expenses it incurred in responding to the broad discovery sought by both LPL and the REPS, in the approximate amount of $70,000 by the time its respondents brief on appeal was filed. It also contends the material obtained in discovery could have undue impacts in any arbitration proceeding, such as disclosing TRG strategies.
During the summer months of 2002, while the motion to compel arbitration was pending, an issue existed as to whether NASD arbitration was currently available in California, due to a freeze on such proceedings caused by the action filed by the NASD to challenge certain rules and regulations on arbitrators disclosures of potential conflicts of interest. (NASD & NYSE etc. v. Judicial Council of California (USDC, ND Cal., C023486), filed July 22, 2002.) While the motion to compel and the preliminary injunction hearings were pending, the trial court was briskly moving the case along and a trial date was eventually set on the injunction portion of the case for June 2003. According to TRG, the trial court was of the view that the resolution of the permanent injunction request may moot any future damages issue. The use of this procedure appears to be well within the trial courts discretion as a means of handling the request for equitable relief and the accompanying damages claim, under all the circumstances disclosed in the record. There is an implied finding of prejudice to TRG here, which is well supported by the record.
D
Conclusion
Here, the trial court found the evidence was sufficient to establish waiver on the part of the defendants. "This finding of fact by the trial court may not be disturbed by this court unless we find it supported by no substantial evidence." (Berman, supra, 80 Cal.App.4th at p. 1366.) "It is not the function of this court to reweigh the evidence and substitute its judgment for the judgment of the trial court." (Id. at p. 1373.) In this type of action involving alleged misappropriation of trade secrets, where both injunctive and damages forms of relief are sought, all the issues are so closely intertwined that the discovery conducted on the substantive claims cannot be allocated to one form of relief or another. In light of the trial courts determination that immediate provisional relief was appropriate, the trial court had a sufficient basis to further conclude that the respective conduct of the parties, such as their participation in discovery, showed that any right to resort to arbitration had been bypassed by the time of the filing and determination of the motion to compel arbitration.
When we consider the inferences favorable to the trial courts judgment (Berman, supra, 80 Cal.App.4th at p. 1366), we cannot conclude the record before the trial court compelled a finding of nonwaiver as a matter of law. Accordingly, we affirm the trial courts denial of the LPL/REPS petition to compel arbitration.
DISPOSITION
The judgment denying appellants petition to compel arbitration is affirmed. Respondents are awarded their costs on appeal.
WE CONCUR: McCONNELL, P. J. and McINTYRE, J.