Defendants Waived Right To Arbitrate, California Court Affirms

The waiver of the right to arbitrate is based on conduct, not prejudice, a California appellate court held when affirming the denial of an employer’s motion to arbitrate.

Four former employees sued the lithium extraction technology company where they worked, as well as several managers, asserting wrongful termination, discrimination, exposure to harmful chemicals and sexual harassment.

Each of the employees had signed an agreement to arbitrate disputes arising out of their employment.

In responding to the complaint, the defendants asserted their right to arbitrate under the agreements – and they filed a cross-complaint and an amended cross-complaint. They also served the plaintiffs with 12 sets of written discovery, noticed depositions of each of the plaintiffs and two depositions of third parties, responded to 33 sets of the plaintiffs’ discovery requests and filed seven motions requesting action by the court on various procedural matters.

When the plaintiffs filed an anti-SLAPP motion seeking to strike the amended cross-complaint, the defendants then filed a motion to compel arbitration.

The plaintiffs argued that the defendants waived their right to arbitrate by seeking to take discovery and by filing several motions and generally availing themselves to rights unique to a judicial proceeding; in addition, the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (EFAA) barred arbitration due to their sexual harassment claim.

Denying the defendants’ motion, the trial court ruled that the defendants had waived their right to arbitration.

The defendants appealed and the appellate panel affirmed.

While the trial court made its finding based on factors derived from Fleming Distribution Co. v. Younan and Kokubu v. Sudo, which the defendants pointed out were superseded by 2024’s Quach v. California Commerce Club, Inc., the court explained that the trial court still applied the correct standard.

“The Quach court emphasized that, going forward, waiver determinations should be solely focused on the waiving party’s conduct rather than any resulting harm to the party opposing arbitration,” the court said.

At the hearing, the parties discussed Quach extensively, and while the trial court didn’t cite the case in its ruling, “we always presume a trial judge knows the law absent some affirmative indication in the record to the contrary, which is not present here,” the court said. “Nothing in the court’s order mentions prejudice.”

The trial court considered whether the defendants’ actions were inconsistent with the right to arbitrate and found “substantial evidence” that the defendants “intentionally relinquished their right to arbitrate,” the court said. “Not only did they file a cross-complaint and an amended cross-complaint seeking affirmative relief, but they engaged in extensive discovery over a span of three months.”

In addition, the trial court evaluated whether the litigation machinery had been substantially invoked and whether the defendants took advantage of judicial discovery procedures not available in arbitration, answering in the affirmative to both.

“[O]verall, the focus of the trial court’s waiver analysis, as Quach explained it should be, was on the [defendants’] conduct insofar as it bore on their intent,” the court wrote.

The defendants also told the court that their delay in moving to compel arbitration reflected their efforts to grapple with the quandary created by the EFAA, asserting that they were not in a position to mount a credible challenge to the harassment claim’s merits until they had time to develop facts about the viability of the plaintiffs’ claim.

But the court was not persuaded.

“While there is some surface logic to this proffered excuse, it does not square with the record of contemporaneous events,” the court said. The scope of the defendants’ discovery “went well beyond” what they claim was necessary to position the sexual harassment claim for a dispositive motion, with a “suspicious” chronology, the court added.

The defendants had other procedural options, the court added, such as filing a motion seeking leave to extend the time for responsive pleadings while simultaneously asking for a stay of proceedings except for defense-initiated discovery that was laser-focused on the sexual harassment allegations.

“Other than some hand-waving about the difficulty of navigating the procedural cross-pressures they faced, the [defendants] are left with nothing to refute the most natural reading of the record: That their motion to compel arbitration was filed in reaction to the Plaintiffs’ anti-SLAPP motion in an apparent effort to forum shop,” the court concluded. “The problem for the [defendants] here is not why they moved to compel when they did. It is their change of course after engaging in significant litigation activity in a judicial forum.”

The court affirmed denial of the defendants’ motion to compel arbitration.

To read the opinion in Mitchell v. Lilac Solutions, Inc., click .

Why it matters: In California, the waiver of a right to arbitrate analysis should be solely focused on the waiving party’s conduct rather than any resulting harm to the party opposing arbitration, as established by Quach, the court explained. The waiver inquiry is extensively focused on the waiving party’s words or conduct and neither the effect of that conduct on the party seeking to avoid enforcement of the contractual right nor that party’s subjective evaluation of the waiving party’s intent is relevant. The court also addressed the defendants’ contention that the EFAA put them in a position where they needed to develop a factual record, disagreeing based on the timeline.