Quach v. Cal. Com. Club, Inc.

• Docket Number: S275121
• Decision Date: 25 July 2024
• Citation: 551 P.3d 1123,323 Cal.Rptr.3d 126
• Parties: Peter QUACH, Plaintiff and Respondent, v. CALIFORNIA COMMERCE CLUB, INC., Defendant and Appellant.
• Court: California Supreme Court

551 P.3d 1123

323 Cal.Rptr.3d 126

Peter QUACH, Plaintiff and Respondent,

v.CALIFORNIA COMMERCE CLUB, INC., Defendant and Appellant.

S275121

Supreme Court of California.

July 25, 2024

Second Appellate District, Division One, B310458, Los Angeles County Superior Court, 19STCV42445, Michael L. Stem, Judge

Sanders Roberts, Reginald Roberts, Jr., Eric S. Mintz, Los Angeles, Ayan K. Jacobs; Benedon & Serlin, Wendy S. Albers, Gerald M. Serlin and Kelly Riordan Horwitz, Woodland Hills, for Defendant and Appellant.

Law Offices of Dilip Vithlani, Dilip Vithlani; The Law Office of Jonathan J. Moon, Jonathan J. Moon, Los Angeles; The Vora Law Firm, Nilay U. Vora, Jeffrey A. Atteberry, Los Angeles, William M. Odom and Amy (Lou) Egerton-Wiley, Los Angeles, for Plaintiff and Respondent.

Bosko and David Bosko for Asian Americans Advancing Justice Southern California, Thai Community Development Center and Council on American-Islamic Relations, California, as Amici Curiae on behalf of Plaintiff and Respondent.

McGuinn, Hillsman & Palefsky, Cliff Palefsky, Keith Ehrman, San Francisco; Pine Tillett Pine and Norman Pine, Sherman Oaks, for California Employment Lawyers Association and Consumer Attorneys of California as Amici Curiae.

Opinion of the Court by Groban, J.

Private parties may agree to resolve their disputes in arbitration rather than in court.If a party to an arbitration agreement files a complaint in court raising a claim covered by the agreement, the defendant can file a motion asking the court to stay the lawsuit and send the dispute to arbitration.A defendant who instead litigates the case risks losing the contractual right to compel arbitration.

[1, 2] One way a contractual right may be lost is by waiver.Outside the arbitration context, a California court will find waiver when the party seeking to enforce a known contractual right has intentionally relinquished or abandoned that right.(Lynch v. California Coastal Com.(2017)3 Cal.5th 470, 475, 219 Cal.Rptr.3d 754, 396 P.3d 1085(Lynch).)In the arbitration context, however, our cases have added a requirement: to find waiver, we have required that the party seeking to avoid arbitration show prejudice.(SeeSt. Agnes Medical Center v. PacifiCare of California(2003)31 Cal.4th 1187, 1203, 8 Cal.Rptr.3d 517, 82 P.3d 727(St. Agnes).)To explain our adoption of this additional, arbitration-specific requirement, we relied on a policy favoring arbitration over litigation aa a form of dispute resolution.(Id. at p. 1204, 8 Cal.Rptr.3d 517, 82 P.3d 727.)

Until recently, most federal appellate courts similarly applied an arbitration-specific rule that required a showing of prejudice to establish waiver.Our California rule is based upon these federal cases.In Morgan v. Sundance, Inc.(2022)596 U.S. 411,142 S.Ct. 1708, 212 L.Ed.2d 753(Morgan), the United States Supreme Court rejected this rule.Morgan clarified that the federal "‘policy favoring arbitration’ " is about putting arbitration agreements on equal footing with other contracts, not about favoring arbitration.(Id. at p. 418, 142 S.Ct. 1708.)Accordingly, the Supreme Court held that, under federal law, a court must apply the same rules that apply to any other contract when determining whether a party to an arbitration agreement has lost the right to enforce the agreement.(Ibid.)

Because our state-law arbitration-specific prejudice requirement is based upon the federal precedent that Morgan overruled, we now abrogate it.California policy, like federal policy, puts arbitration agreements on equal footing with other types of contracts.Accordingly, under California law, as under federal law, a court should apply the same principles that apply to other contracts to determine whether the party seeking to enforce an arbitration agreement has waived its right to do so.The Court of Appeal below applied an arbitration-specific prejudice requirement to overrule the trial court’s order denying California Commerce Club’s motion to compel arbitration.We now reverse.

I.FACTUAL AND PROCEDURAL BACKGROUND

Peter Quach filed this suit in 2018, after California Commerce Club (Commerce Club), which operated the casino where Quach had worked for almost 30 years, terminated his employment.Quach’s complaint alleges claims for wrongful termination, age discrimination, retaliation, and harassment and demands a jury trial.

Before Quach filed his complaint, Commerce Club provided him with a copy of the signature page of a form arbitration agreement he had signed in 2015, while he was working at the casino.The agreement provided for binding arbitration of employment-related disputes.

Rather than filing a motion to compel arbitration, Commerce Club answered Quach’s complaint and initiated discovery, propounding form interrogatories, special interrogatories, requests for admission, and a request for production of documents.In its answer, Commerce Club asserted as an "affirmative defense" that Quach "should be compelled to arbitrate" any claims he had agreed to arbitrate.However, Commerce Club’s counsel did not raise the issue of arbitration with Quach’s counsel or with the court in any other way.On the form Commerce Club submitted as its first case management conference statement, it requested a jury trial, did not check the box indicating it was willing to participate in "binding private arbitration," and did not list a motion to compel arbitration in the space provided for listing motions it expected to file before trial, instead indicating that it only intended to file a "dispositive motion."(See JCC form CM-110, July 1, 2011.)

At the case management conference, the court set a trial date.Thereafter, both sides posted jury fees and continued to engage in discovery.Commerce Club responded to Quach’s initial discovery requests and pro- pounded a second set of special interrogatories.In response to a discovery request, Commerce Club again provided Quach a copy of the signed signature page of his arbitration agreement.Although trial court proceedings were delayed due to the COVID-19 pandemic, Commerce Club continued to actively participate in discovery, engaging in meet and confer over discovery disputes and taking Quach’s deposition by videoconference for a full day.

Then — 13 months after Quach filed his lawsuit — Commerce Club filed a motion to compel arbitration under the Federal Arbitration Act,9 U.S.C. § 1 et seq.(FAA)"and/or" the California Arbitration Act,Code of Civil Procedure, sections 1281 et seq.(CAA).¹Attempting to explain its delay, Commerce Club asserted that it had just located a complete copy of Quach’s arbitration agreement.It argued that Quach was not prejudiced by the delay because there had been only "minimal discovery" due to the pandemic’s impact on Commerce Club’s access to information and witnesses.

Quach opposed the motion, arguing that Commerce Club had waived its contractual right to compel arbitration.He pointed out that Commerce Club had provided him a copy of the signed signature page of his arbitration agreement before he even filed his lawsuit and that the first page of the two-page agreement contained boilerplate language that was the same in all the arbitration agreements Commerce Club had its employees sign in 2015.Quach argued that Commerce Club’s delay was prejudicial because Quach had spent significant time and money on the litigation and had lost the advantage of arbitration as a way to obtain an expedited resolution of the dispute.

The trial court denied Commerce Club’s motion.It found that Commerce Club "knew of its right to compel arbitration" and instead of moving to compel arbitration, propounded a "large amount" of written discovery, spent "significant" time meeting and conferring "over many months," and took Quach’s deposition, demonstrating "a position inconsistent [with the intent] to arbitrate" and causing "prejudice."

Commerce Club appealed and a divided Court of Appeal reversed.(Quach v. California Commerce Club, Inc.(2022)78 Cal. App.5th 470, 293 Cal.Rptr.3d 737(Quach).)The majority held that Commerce Club did not waive its right to compel arbitration, concluding that the trial court’s finding that Quach had shown prejudice was not supported by substantial evidence.(Quach,at p. 478, 293 Cal.Rptr.3d 737;id. at p. 484, 293 Cal.Rptr.3d 737, citingSt. Agnes, supra,31 Cal.4th at p. 1203, 8 Cal.Rptr.3d 517, 82 P.3d 727.)The dissenting justice would have deferred to the trial court’s prejudice finding and concluded that Commerce Club had waived its right to compel arbitration.(Quach,at pp. 487–488, 293 Cal.Rptr.3d 737(conc. & dis. opn. of Crandall, J.).)

Two weeks after the Court of Appeal published its decision, the United States Supreme Court issued Morgan, supra,596 U.S. 411, 142 S.Ct. 1708, holding that federal law does not require a showing of prejudice to establish waiver of the right to arbitrate.(Id. at pp. 413–414, 142 S.Ct. 1708.)We granted review to reexamine our California prejudice rule in light of Morgan.

II.DISCUSSION

At the time the Court of Appeal issued its decision in this case, the framework for determining whether a party had "waived" its right to compel arbitration by engaging in litigation-related conduct was well settled in California.(§ 1281.2.)As we will explain, California courts, like most federal courts, applied an arbitration-specific prejudice requirement and did so regardless of whether the proceedings were governed by the FAA or the CAA.Morgan, supra,596 U.S. 411, 142 S.Ct. 1708, has clarified that there is no arbitration-specific prejudice requirement for cases governed by the FAA’s procedural rules.(Id. at pp. 413–414, 142 S.Ct. 1708.)Commerce Club contends, however, that the CAA’s procedural rules apply in this case.²It argues that California policy is distinct from federal policy in that it treats requests to enforce arbitration agreements more favorably than requests to enforce other types of contracts,...