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California Supreme Court:
No Special Waiver Standard Applies to Arbitration Right
Groban Writes for Unanimous Court in Announcing Abrogation of State’s Rule That Party Seeking to Avoid Agreement to Arbitrate, Based on Opponent Having Engaged in Court Litigation, Must Show Prejudice
By a MetNews Staff Writer
The California Supreme Court yesterday abrogated the rule, created by case law, that a party who had contractually agreed to binding arbitration must, in order to skirt it based on a purported waiver by the other side, show prejudice if forced to litigate outside of court.
California cases adhering to the rule were based on federal decisions, Justice Joshua P. Groban said in an opinion for a unanimous court, and, given that the U.S. Supreme Court in 2022, in Morgan v. Sundance, Inc., rejected the requirement, the state courts should do the same.
Although Morgan expressly applies to arbitrations under the Federal Arbitration Act (“FAA”), it does matter, Groban wrote, whether an action brought in a California court is subject to an arbitration under the FAA or the California Arbitration Act (“CAA”), explaining:
“[T]he stringent standards to which we have held a party seeking to establish waiver—and, in particular, the prejudice requirement—are based on a now-abrogated federal rule that we had adopted in order to conform state procedure to federal procedure….California courts have, for decades, been applying the arbitration-specific prejudice requirement regardless of whether the case was governed by the CAA or the FAA….California’s arbitration-specific prejudice requirement shares a history with the federal prejudice requirement at issue in Morgan; both originated in federal circuit court precedent reflecting the faulty understanding of the federal policy favoring arbitration that Morgan corrected.”
Procedural Uniformity
He continued:
After Morgan, the desire for procedural uniformity weighs in favor of abrogating California’s arbitration-specific prejudice requirement and applying the same principles in determining whether a party has lost the right to compel arbitration as would apply under generally applicable contract law….Because the state law arbitration-specific prejudice requirement finds no support in statutory language or legislative history, we now abrogate it.”
Groban elaborated:
“Because in the past we have applied the same principles when determining whether a party has lost the right to compel arbitration under the CAA as under the FAA, California courts have been able to avoid the sometimes tricky choice of law and preemption questions involved in determining which statute governs proceedings to enforce an arbitration agreement….Applying a different rule for determining when a party has lost the right to arbitrate a dispute in cases governed by the CAA’s procedural rules from the rule that applies in cases governed by the FAA’s procedural rules would introduce uncertainty into the law that would lead to additional litigation. Such uncertainty would be contrary to arbitration’s purpose of providing an expedient and inexpensive means of dispute resolution.”
Ex-Employee’s Suit
Yesterday’s decision comes in a case stemming from the 2018 firing of plaintiff Peter Quach by the Commerce Club, a casino on Telegraph Road in the City of Commerce. The 30-year-employee sued in Los Angeles Superior Court for wrongful termination, age discrimination, retaliation, and harassment. Quach in 2015 signed an agreement by which he consented to ant employment-related claim being arbitrated. The Commerce Club sought an order compelling arbitration—but did so 13 months after Quach had filed his complaint and after litigating in the Superior Court.
Then Judge Michael L. Stern (now retired) denied the motion, holding that the Commerce Club had waived the right to compel arbitration.
Order Reversed
Div. One of the Court of Appeal for this district reversed on May 10, 2022 in an opinion by Justice Helen Bendix, in which Presiding Justice Frances Rothschild joined. Then-San Luis Obispo Superior Court Judge Charles S. Crandall (now retired), sitting on assignment, dissented.
Bendix said, in a published portion of her opinion:
“We disagree with the trial court. Our Supreme Court has made clear that participation in litigation alone cannot support a finding of waiver, and fees and costs incurred in litigation alone will not establish prejudice on the part of the party resisting arbitration….This rule has particular force here, where Quach admitted he incurred no costs in litigation that he would not otherwise have expended had the case gone to arbitration earlier.
Crandall wrote:
“[H]ad Commerce Club’s arbitration motion been filed at the outset, i.e., during the three and a half months before the onset of the pandemic, the entire arbitration could well have been completed by now….Quach should not need to ‘prove’ the obvious point that Commerce Club’s serious delay in compelling arbitration has prejudiced him.”
Arbitration Waived
Quach cannot be forced to arbitrate, Groban said, setting forth:
“Quach raised the defense of ‘waiver’ to Commerce Club’s motion to compel arbitration. Because we conclude the trial court’s ruling that Commerce Club waived its right to compel arbitration was correct under the generally applicable law of waiver, we need not consider whether any other generally applicable state contract law defense applies.”
He declared:
“The record in this case shows that, being fully aware of its right to compel arbitration, Commerce Club chose not to do so for 13 months, affirmatively indicated its intent to pursue a jury trial rather than arbitration, and actively engaged in discovery—words and conduct markedly inconsistent with an intent to arbitrate. Accordingly, we conclude Commerce Club waived its right to arbitrate the dispute.”
The case is Quach v. California Commerce Club, Inc., 2024 S.O.S. 2517.
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