Chan v. Properties

• Decision Date: 11 August 2010
• Docket Number: No. BC401139,B219884,BC401139
• Citation: Chan v. Glendale Auto Prop., B219884, No. BC401139 (Cal. App. Aug 11, 2010)
• Court: California Court of Appeals
• Parties: PETER CHUNG FAT CHAN, et al., Plaintiffs and Respondents, v. GLENDALE AUTO PROPERTIES, et al. Defendants and Appellants,

PETER CHUNG FAT CHAN, et al., Plaintiffs and Respondents,

v.GLENDALE AUTO PROPERTIES, et al. Defendants and Appellants,

B219884

No. BC401139

Court Of Appeal Of The State Of California

Second Appellate District

Division Seven

Filed 08/11/10

Hill, Farrer & Burrill, G. Cresswell Templeton and Clayton J. Hix for Defendants and Appellants.

Handal & Associates, Anton N. Handal and Gabriel G. Hedrick for Plaintiffs and Respondents.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

WOODS, J.

APPEAL from an order of the Superior Court of Los Angeles County. Teresa Sanchez-Gordon, Judge. Affirmed.

Appellants Glendale Auto Properties and Lin MH Family Partnership appeal from an order denying a petition to compel arbitration of appellants' dispute with respondents, Peter Chung Fat Chan and Lay Leng Lim. The court denied the petition, finding that appellants had waived their right to compel arbitration based on their litigation conduct and the prejudice respondents suffered as a result of appellants' delay in seeking arbitration. Appellants argue that the court's decision was both contrary to the law and the evidence in the record. We disagree. Although the contract governing the parties' relationship contained an arbitration provision and the provision was broad enough to cover the causes of action alleged in respondents' complaint, appellants waited more than seven months after the complaint was filed to seek arbitration. During this time they engaged in discovery and other litigation conduct, which taken as a whole supported the court's finding of waiver. Finally, as a result of appellants' litigation efforts prior to seeking arbitration, respondents suffered prejudice they lost the benefit of arbitration as being a speedy and relatively inexpensive means of resolving disputes. Accordingly, we affirm.

FACTUAL AND PROCEDURAL BACKGROUND

The San Diego Action. In early January 2008, respondents filed a complaint against appellants and 17 others alleging various causes of action arising out of a partnership agreement to purchase and manage a number of automobile dealerships and real property. The complaint alleged causes of action for accounting, fraud, breach of fiduciary duties and shareholder derivative claims. (The "San Diego Action.") Appellants were served with the complaint in early March 2008, and were given an extension to respond to the complaint until the end of May 2008. On May 27, 2008, appellants filed a motion for a change of venue on the grounds that none of the parties, real property, or businesses was located in San Diego and that the contract had not been executed in San Diego. After the motion was filed, the parties had numerous discussions concerning the case, including discussing settlement. On July 17, 2008, before the appellants' motion was heard and pursuant to an agreement of the parties, respondents voluntarily dismissed the action without prejudice. At no time during the pendency ofthe San Diego Action did appellants demand or otherwise refer to arbitration as a means to resolve the dispute.

The Current Action. The parties continued to discuss the claims during the summer and fall of 2008. On November 3, 2008, respondents filed a complaint against the same parties as in the San Diego Action, including the appellants. Respondents also asserted the same causes of action and allegations.

On December 24, 2008, appellants filed an answer. The appellants alleged various affirmative defenses, including the allegation that the claims were barred by the terms of the contract. However, appellants did not assert an affirmative defense based on the arbitration clause in the agreement.

In December 2008, respondents propounded form interrogatories, numerous special interrogatories and document production requests on appellants. In late January 2009, appellants filed a motion for a protective order and also appeared at an ex parte hearing on a discovery issue. On February 9, 2009, the parties met and conferred in anticipation of the upcoming case management conference (CMC), which was held on March 10, 2009. At the case management conference the court set the case schedule including a discovery cut-off date, a mandatory settlement conference date of December 12, 2009, and a trial date of January 25, 2010. At the CMC, apparently no mention was made of the arbitration agreement.

On April 10, 2009, appellants provided discovery requests. Respondents filed three motions to compel additional responses and the parties engaged in a meet-andconfer process, which resulted in an agreement from appellants to respond to the majority of the requests. Respondents withdrew their motions to compel.

According to appellants, at some point in April or May 2009, appellants' counsel for the first time discovered that the partnership agreement contained an arbitration clause. In paragraph 41 of the agreement the arbitration clause states: "Any controversy among the partners shall be submitted to binding arbitration before the American Arbitration Association, Los Angeles California, in accordance with its rules then in effect."¹

On May 1, 2009, each appellant served discovery requests on respondents. In total the requests consisted of: (1) three sets of form interrogatories; (2) 216 special interrogatories; (3) 24 requests for admission; and (4) 84 requests for production of various categories of documents. Although the responses were originally due on June 5, 2009, appellants granted respondents extensions of time to respond until mid-July 2009, during which respondents prepared their responses and gathered documents. Nonetheless, on July 17, 2009, one business day before the responses were due, appellants withdrew all of their discovery requests. According to respondents, by the time the requests had been withdrawn, they had completed the vast majority of the responses. Consequently, notwithstanding the notice to withdraw the requests, respondents proceeded to send the responses to appellants, who later returned the discovery to appellants.

On June 24, 2009, appellants notified respondents of their intent to demand arbitration pursuant to the arbitration agreement. The next day, appellants filed a petition for an order to compel arbitration and a request to stay the action.

Respondents opposed the petition, arguing that appellants had waived the right to compel arbitration, among other reasons, because: (1) appellants had engaged in litigation conduct inconsistent with the intent to arbitrate; (2) appellants had failed to assert the right to arbitration in their answer as an affirmative defense; and (3) respondents had suffered prejudice as a result of respondents delay in seeking arbitration.

In their reply, appellants urged, inter alia, the court to reject the waiver argument because appellants' counsel did not discover the arbitration provision in the agreement until shortly before they filed the petition, the parties had engaged in insubstantiallitigation up to that point and that respondents had not demonstrated they suffered prejudice as a result of any delay in seeking arbitration.

On August 27, 2009, at the hearing on the motion to compel arbitration, the court first observed that the parties had an agreement to arbitrate and that it appeared the terms of the arbitration provisions were sufficiently broad to include the claims in the complaint. The court also implicitly found that the arbitration provision was governed by the Federal Arbitration Act ("FAA") and thus the lower court applied the waiver rule as articulated by the case law interpreting the FAA. Accordingly, the court rejected appellants' argument that they "lacked of knowledge of the arbitration provision" based on the claim that their lawyers were unaware of the provision. The court observed that the appellants were presumably aware of the terms of the agreement they entered with respondents and that their failure to apprise their counsel of those terms did not establish a lack of knowledge as a matter of law. The court further found that appellants engaged in conduct inconsistent with the right to arbitrate. The court specifically referred to the litigation conduct that had occurred in the San Diego Action. The court also noted that although the discovery conducted "arguably may be the same" as in arbitration, the respondents had incurred costs in dismissing the San Diego Action and refiling the action in Los Angeles. In the court's view the arbitration could have gone forward in Los Angeles while the litigation was pending in San Diego. The court observed: "The dismissal and refiling also cost plaintiffs time. Plaintiffs named 17 other defendants and is prejudiced if plaintiffs must wait for the arbitration against these defendants to be complete before they can continue with the case against the other defendants. The delay would not have been so prejudicial if the issue had been raised in the San Diego Action." The lower court denied the petition.

This timely appeal followed.

DISCUSSION

For the purposes of this appeal the parties do no dispute the existence of an agreement to arbitrate, that the claims in the lawsuit were subject to the arbitration provision or the lower court's implicit determination that the FAA governed thearbitration provision. Instead the appeal centers on whether appellants waived their right to contractual arbitration. Appellants contend the lower court erred in finding that they waived their right to enforce the arbitration provision. They specifically complain that the court erred in considering the San Diego Action as evidence that they engaged in conduct inconsistent with the intent to seek arbitration. Appellants further complain the court erred in finding that respondents suffered prejudice as a result of: (a) participating in the San Diego Action; and (b) delay or additional costs associated with bringing a new action in the Los Angeles Superior Court. We examine these arguments in turn.

Both state and federal law express a strong...