Platt Pacific, Inc. v. Andelson

• Decision Date: 02 December 1993
• Docket Number: No. S026251,S026251
• Citation: 862 P.2d 158,24 Cal.Rptr.2d 597,6 Cal.4th 307
• Court: California Supreme Court
• Parties: , 862 P.2d 158 PLATT PACIFIC, INC., et al., Plaintiffs and Appellants, v. Bruce D. ANDELSON et al., Defendants and Respondents.

Page 597

24 Cal.Rptr.2d 597

6 Cal.4th 307, 862 P.2d 158

PLATT PACIFIC, INC., et al., Plaintiffs and Appellants, v. Bruce D. ANDELSON et al., Defendants and Respondents.

No. S026251.

Supreme Court of California,

In Bank.

Dec. 2, 1993.

Joseph Liebman, Los Angeles, Haight, Brown & Bonesteel, Roy G. Weatherup, Lori R. Behar, Thomas N. Charchut and Zeb Francoeur Gleason, Santa Monica, for plaintiffs and appellants.

Bruce D. Andelson, in pro. per., Weinstock & Feinberg and Irwin B. Feinberg, Los Angeles, for defendants and respondents.

KENNARD, Justice.

May a party that did not demand arbitration within the time specified in an agreement to arbitrate nevertheless compel arbitration on the ground that it did not intend to relinquish the right to arbitrate the dispute when it failed to make a timely demand?

We conclude that, unless legally excused, a contracting party cannot compel arbitration when it has failed to make a timely demand, that the absence of an intent to forego submission of a dispute to arbitration is not a legal excuse, and that in this case the failure to make a timely demand was not excused by waiver or estoppel based on the conduct of the other contracting party. We further conclude that in this case the time for making a demand to arbitrate was not changed by a subsequent modification of the agreement. We therefore affirm the judgment of the Court of Appeal.

I.

The facts material to a resolution of this case are undisputed. In May 1984, Platt Pacific, Inc., sued Bruce and Janice Andelson to recover funds allegedly owed it under a contract to construct a house and a garage. Mecca Properties, Ltd., a partnership, also sued the Andelsons to recover on a promissory note assigned to it by Platt Pacific, Inc., one of its general partners. Defendants answered both complaints, and cross-complained in both cases for, among other things, fraud and fraud in the inducement in relation to a purchase agreement by which the Andelsons acquired the property upon which the house and garage were to be constructed. By court order, the two actions were consolidated for all purposes. Trial was set for April 7, 1989.

In March 1989, the parties entered into an agreement for alternative resolution of their disputes. The agreement stated that the parties would dismiss their lawsuits without prejudice, that a voluntary settlement conference would be held before Judge Jerry Pacht (a retired judge of the Los Angeles County Superior Court) on July 6 and 7, 1989, and that the matter would be submitted to arbitration if the settlement efforts were unsuccessful.

In paragraph 2, subdivision (c) of the agreement, the parties agreed that (1) if Judge Pacht was unable or unwilling to conclude a settlement conference by July 31, 1989, a joint demand for arbitration would be filed with the American Arbitration Association no later than August 10, 1989, and (2) if any party failed to cooperate in the filing of a joint demand for arbitration, the failure to cooperate would be a breach of the agreement and the other party could file a demand for arbitration, "but in no event shall such a demand be filed later than August 31, 1989." (Italics added.) Paragraph 4 of the agreement stated: "In the event any party fails to abide by the terms set forth in this agreement, any other party may seek enforcement of this agreement by submitting this matter to the American Arbitration Association."

The agreement was drafted primarily by plaintiffs' attorney. The italicized words, "but in no event ... later than August 31, 1989," however, were added to subdivision (c) at the request of defendant Bruce Andelson. Andelson requested a "cut-off date so that this action would not drag on ad infinitum and would finally be concluded after a long delay." Andelson also reminded plaintiffs' attorney, before the agreement was executed, of a previous telephone conversation in which Andelson informed plaintiffs' attorney that although the dates of July 6 and 7, 1989, selected for the voluntary settlement conference could remain in the agreement, the conference would most likely have to be rescheduled.

Thereafter, on May 12, 1989, plaintiffs' attorney asked Judge Pacht to schedule a settlement conference on July 6 and 7. On June 28, defendants' attorney telephoned plaintiffs' attorney and said that his client, Bruce Andelson, could not attend the scheduled settlement conference and that he would reset the settlement conference on dates that would be acceptable to all involved.

When some time thereafter plaintiffs' attorney tried to contact defendants' attorney, he was told that defendants' attorney was involved in several trials, but that after conclusion of these trials, the defense attorney would contact defendant Andelson to select new dates for the settlement conference. Consequently, plaintiffs' attorney did not attempt to reschedule the settlement conference; he also delayed filing a demand for arbitration because of the death on August 28, 1989, of Gilbert Platt, a principal of Platt Pacific, Inc. Because the decedent's wife, Blossom Platt, was an essential witness in the case, plaintiffs' attorney delayed filing a demand for arbitration to allow her to recover to some extent from her loss.

In October 1989, plaintiffs' attorney telephoned defendants' attorney to reschedule the settlement conference. When defendants' attorney did not return the telephone calls, plaintiffs' attorney notified him in writing of plaintiffs' intent to file a demand for arbitration.

On October 30, 1989, plaintiffs filed a demand for arbitration with the American Arbitration Association. In mid-1990, the association determined that the arbitration agreement was not self-executing, and that the association did not have authority to arbitrate the matter without a court order. Plaintiffs then petitioned the superior court to compel arbitration. In denying arbitration, the court stated that the arbitration agreement set forth a date (Aug. 31, 1989) by which arbitration had to be demanded, that plaintiffs had the right and ability to initiate arbitration within the specified time, and that plaintiffs had failed to timely seek arbitration.

The Court of Appeal affirmed the trial court's ruling. It held that plaintiffs had lost their contractual right to arbitration because they did not demand arbitration within the time set forth in the agreement; and the plaintiffs had failed to establish that defendants were estopped from asserting plaintiffs' failure to timely demand arbitration, because the trial court could reasonably have concluded that defendants' conduct did not induce plaintiffs to refrain from filing such a demand.

II.

The courts of this state have held that "where a contract provides that arbitration may be demanded within a stated time, failure to make demand within that time constitutes a waiver of the right to arbitrate." (Freeman v. State Farm Mut. Auto. Ins. Co. (1975) 14 Cal.3d 473, 483, 121 Cal.Rptr. 477, 535 P.2d 341; accord, Butchers Union v. Farmers Markets (1977) 67 Cal.App.3d 905, 909, 136 Cal.Rptr. 894; Jordan v. Friedman (1946) 72 Cal.App.2d 726, 727, 165 P.2d 728; 3 Cal.Law Revision Com.Rep. (1961) p. G-36.)

In this case, plaintiffs contend the Court of Appeal erred in holding that a failure to demand arbitration by the date specified in an arbitration agreement is a "waiver" of the right to arbitrate. Plaintiffs assert that a determination of waiver requires an evaluation of (1) the state of mind of the party alleged to have waived arbitration, and (2) the extent of prejudice to the other contracting party. We disagree, as we shall discuss below.

A.

Private arbitration is a matter of agreement between the parties and is governed by contract law. (See, e.g., Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 8, 10 Cal.Rptr.2d 183, 832 P.2d 899; Ericksen, Arbuthnot, McCarthy, Kearney & Walsh, Inc. v. 100 Oak Street (1983) 35 Cal.3d 312, 323, 197 Cal.Rptr. 581, 673 P.2d 251; Code Civ.Proc., § 1280 et seq.) Under the law of contracts, parties may expressly agree that a right or duty is conditional upon the occurrence or nonoccurrence of an act or event. (See, e.g., Civ.Code, § 1434 et seq.; Rest.2d Contracts, § 224; 3A Corbin, Contracts (1960) § 631, p. 21; 1 Witkin, Summary of Cal.Law (9th ed. 1987) (Contracts, § 722, p. 654.) Thus, a condition precedent is either an act of a party that must be performed or an uncertain event that must happen before the contractual right accrues or the contractual duty arises. (Civ.Code, § 1436; 1 Witkin, Summary of Cal.Law, supra, Contracts, § 722, p. 654.)

When, as here, the parties have agreed that a demand for arbitration must be made within a certain time, that demand is a condition precedent that must be performed before the contractual duty to submit the dispute to arbitration arises. The nonoccurrence of a condition precedent may be excused for a number of legally recognized reasons. But when a party has failed to fulfill a condition that was within its power to perform, it is not an excuse that the party did not thereby intend to surrender any rights under the agreement. (See 5 Williston, Contracts (3d ed. 1961) § 676, pp. 219-223.) A contrary conclusion would undermine the law of contracts by vesting in one contracting party the power to unilaterally convert the other contracting party's conditional obligation into an independent, unconditional obligation notwithstanding the terms of the agreement. Thus, it is inconsistent with the law governing private arbitration agreements to assert, as plaintiffs do here, that the failure to satisfy the contractual requirement of making a timely demand for arbitration has no effect absent an intent to abandon submission of the dispute to arbitration.

Moreover, plaintiffs' assertion is contrary to the rule that the failure to timely demand arbitration is a "waiver" of the right to arbitrate. As we shall see, the term "waiver," as used in the context of the...