Augusta v. Keehn & Assocs.

• Decision Date: 04 March 2011
• Docket Number: No. D056262.,D056262.
• Court: California Court of Appeals Court of Appeals
• Parties: Mark AUGUSTA, Plaintiff and Appellant, v. KEEHN & ASSOCIATES et al., Defendants and Respondents.

193 Cal.App.4th 331

123 Cal.Rptr.3d 595

11 Cal. Daily Op. Serv. 2935

2011 Daily Journal D.A.R. 3449

Mark AUGUSTA, Plaintiff and Appellant,

v.KEEHN & ASSOCIATES et al., Defendants and Respondents.

No. D056262.

Court of Appeal, Fourth District, Division 1, California.

March 4, 2011.

Stanford and Associates, Dan L. Stanford and David R. Hendricks, for Plaintiff and Appellant.

Pettit Kohn Ingrassia & Lutz, Douglas A. Pettit and Christina G. Bernstein, for Defendants and Respondents.

McCONNELL, P.J.

Mark Augusta appeals an order denying his petition to compel arbitration of his legal malpractice action against Keehn & Associates and L. Scott Keehn (together Keehn). Augusta contends the trial court erred by finding he waived his right to arbitrate by unreasonably delaying in seeking arbitration, and by taking steps inconsistent with an intent to invoke arbitration, e.g., obtaining discovery from Keehn through court processes, which caused prejudice to him. We affirm the order as supported by substantial evidence.

FACTUAL AND PROCEDURAL BACKGROUND

On December 19, 2008, Augusta filed a complaint against Keehn for legal malpractice. The parties' contract included a clause for binding arbitration, but Augusta did not invoke it.

In February 2009 Augusta filed a first amended complaint (FAC), which added counts for fraud and breach of fiduciary duty based on the same conduct as the negligence claim. The FAC alleges as follows. Keehn represented Augusta, a licensed securities salesman, between 2002 and 2008 in a bankruptcy proceeding that arose from substantial awards clients obtained against him in securities litigation over certain bonds that defaulted. The bonds, which turned out to be a Ponzi scheme, were recommended to Augusta and underwritten by his then employer. In a July 3, 2002 letter, Keehn allegedly gave Augusta faulty advice that the bankruptcy filing automatically extended the statute of limitations for a legal malpractice action (Code Civ. Proc.,¹ § 340.6) against the attorneys who jointly represented him and his former employer in the securities litigation (hereafter underlying malpractice action). As a result, the attorneys in the underlying malpractice action obtained summary judgment on the negligence cause of action of Augusta's complaint, which left only claims for intentional misconduct. The loss of the negligence claim caused a $3 million reduction in a settlement Augusta received.

Keehn represented himself during the first few months of the litigation. He responded to the FAC by serving Augusta with a prefiling copy of a motion for monetary sanctions for the bringing of a frivolous lawsuit (§ 128.7, subd. (b)), on the ground the action was time-barred since the only alleged wrongdoing occurred in 2002. Keehn argued the statute of limitations was not tolled by his continued representation of Augusta to 2008, because he represented Augusta only in the bankruptcy matter and not in the underlying malpractice action. Under section 128.7, subdivision (c)(1), the offending party may avoid sanctions by withdrawing the pleading without penalty within a 21–day “safe harbor” period. ( Galleria Plus, Inc. v. Hanmi Bank (2009) 179 Cal.App.4th 535, 538, 101 Cal.Rptr.3d 803.) Augusta did not dismiss the FAC, and on March 25 Keehn filed his motion for sanctions. Keehn also demurred to the FAC on the statute of limitations ground.

On March 13, 2009,² Augusta propounded to Keehn form interrogatories, special interrogatories (14), requests for admissions (29), and a demand for production of documents. Keehn served responses, and on April 17, Augusta sent Keehn a 23–page meet and confer letter complaining the responses were “inadequate and spurious” and demanding supplemental responses within five days. The letter cited provisions of the Civil Discovery Act (§ 2016.010 et seq.), and warned that “[f]ailure to do so will result in the appropriate motions to compel and ... sanctions for your failure to comply.” Also on April 17, the court denied Keehn's motion for monetary sanctions under section 128.7.

Keehn did not supplement his discovery responses, and on May 1, Augusta applied ex parte for an order continuing the hearing on the demurrer so he could first move to compel discovery. The court denied the application.

On May 22, Augusta noticed Keehn's deposition for June 24 and 25. On May 28, Augusta filed motions to compel further responses to his requests for admissions and form interrogatories, and for a total of $12,260 in sanctions. On May 29, the court overruled Keehn's demurrer to the FAC.

On June 15, Keehn associated in defense counsel. Augusta notified Keehn's new counsel that a case management conference was scheduled for June 19, and the hearing on Augusta's motions to compel discovery was scheduled for August 14. Further, Augusta supplied Keehn's new counsel with a copy of the notice of Keehn's deposition. Keehn answered the FAC and alleged as an affirmative defense that the action was subject to arbitration.

At the June 19 case management hearing, the court scheduled trial for January 2010. After the hearing, Augusta confirmed in writing that Keehn advised Augusta he would not seek arbitration after all. He also confirmed that Keehn's deposition was still scheduled for June 24 and 25, and that he and his counsel had “engaged in significant efforts to prepare for this deposition.” Keehn asked to reschedule the deposition, and Augusta agreed to do so until some time in July.

On June 24, however, Augusta cancelled Keehn's deposition. In a letter to Keehn's attorney, Augusta's attorney advised that he intended to petition to compel arbitration, and, “[f]rankly, we do not want you or Mr. Keehn to suggest to the Court that we have somehow ‘waived’ our client's right to compel arbitration by taking Mr. Keehn's deposition.” On June 25, Augusta made a written demand on Keehn for arbitration. Keehn responded that he opposed arbitration based on Augusta's litigation of the matter in superior court for many months.³

On July 2, Augusta filed a petition to compel arbitration. Keehn opposed the petition on the ground of waiver.

On July 21, Augusta agreed to take his motions to compel further discovery off calendar in exchange for Keehn's agreement to provide supplemental discovery responses. In a confirming letter, Augusta's attorney stated that if he deemed the supplemental responses inadequate, and if the court denied the motion to compel arbitration, Augusta reserved the right to file a subsequent motion to compel further discovery.

Before Augusta petitioned to compel arbitration, Keehn had propounded discovery requests to him. In late August, Augusta responded to each of the requests by stating discovery is not available in arbitration. Augusta objected to Keehn's notice of his deposition on the same ground.

On October 9, the court issued a tentative ruling denying Augusta's petition to compel arbitration. The court found Augusta unreasonably delayed in demanding arbitration, and he took steps inconsistent with an intent to invoke arbitration. The court explained: “In the time between filing his lawsuit and demanding arbitration, plaintiff served discovery to defendants, engaged in meeting and conferring about defendants' discovery responses, noticed plaintiff's deposition, filed two motions to compel discovery and until June 24, 2009, notably after defendants obtained counsel, expressed his intentions of continuing with the depositions and motions to compel.” The court determined Augusta's conduct prejudiced Keehn as follows: “While [Augusta] ultimately cancelled the deposition and the motions were taken off-calendar, [Keehn] responded to discovery and providedsupplemental responses before the discovery motion date. In [his] discovery responses, [Keehn] disclosed at least some of [his] trial theories which would not have been disclosed if the case was in arbitration. [Keehn] lost whatever efficiencies [he] would have gained through arbitration.”

During a hearing on the same date, the court asked Augusta to explain his delay in seeking arbitration. He attributed the delay to Keehn. He argued that as an attorney, Keehn should have moved to compel arbitration instead of filing a motion for sanctions and demurring to the FAC, and “ voluntarily” responding to his discovery requests. The court confirmed its tentative ruling.

DISCUSSION

IWaiver Factors/Standard of Review

“Among the principal reasons motivating persons to agree to arbitrate their differences is likely to be the avoidance of the courtroom with its attendant delays, costs, and publicity, and the avoidance of procedures associated with the formal litigation of causes.” ( Christensen v. Dewor Developments (1983) 33 Cal.3d 778, 783, 191 Cal.Rptr. 8, 661 P.2d 1088.)

“While in general arbitration is a highly favored means of settling disputes [citation], 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 court's function is to review a trial court's findings regarding waiver to determine whether [they] are supported by substantial evidence.’ [Citation.] ‘The appellate court may not reverse the trial court's finding of waiver unless the record as a matter of law compels finding nonwaiver. [Citations.]’ [Citation.] ‘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. [Citations.]’ [Citation.] While 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 party's delay in seeking arbitration.’ ” ( Berman v....