Simms v. Npck Enterprises, Inc.

• Decision Date: 28 May 2003
• Docket Number: No. C039756.,C039756.
• Citation: 134 Cal.Rptr.2d 557,109 Cal.App.4th 233
• Court: California Court of Appeals Court of Appeals
• Parties: Vicki SIMMS et al., Plaintiffs and Appellants, v. NPCK ENTERPRISES, INC. et al., Defendants and Respondents.

134 Cal.Rptr.2d 557

109 Cal.App.4th 233

Vicki SIMMS et al., Plaintiffs and Appellants, v. NPCK ENTERPRISES, INC. et al., Defendants and Respondents.

No. C039756.

Court of Appeal, Third District.

May 28, 2003.

Philip H. Weber, Placerville, for Plaintiffs and Appellants.

Gerald W. Filice, Sacramento, for Defendants and Respondents.

MORRISON, J.

Plaintiffs, Vicki Simms and Kenneth Simms, appeal from orders in which the trial court found they had waived the right to arbitrate their dispute over a commercial lease and that defendant NPCK Enterprises, Inc. (NPCK) was entitled to an injunction requiring plaintiffs to relinquish fixtures and equipment in which NPCK had a security interest.¹ NPCK moves for sanctions for a frivolous appeal.

We reverse. Although plaintiffs filed suit for damages and sought a preliminary injunction, substantial evidence does not support a finding of waiver of arbitration as there is no evidence defendants were prejudiced by plaintiffs' inconsistent actions and delay in seeking arbitration. The appropriate prejudgment remedy to recover possession of personal property is a writ of possession under the claim and delivery law, not an injunction. Since we find merit in plaintiffs' appeal, we award no sanctions.

FACTUAL AND PROCEDURAL BACKGROUND

On March 1, 1998, plaintiffs, doing business as Grandpa's Brand Food, leased property in Somerset, California, from NPCK for a restaurant, deli, and meat market. The lease provided that plaintiffs granted NPCK a security interest in trade fixtures and equipment as security for the faithful performance of the lease. Plaintiffs purchased certain equipment from NPCK pursuant to a conditional sale agreement. The lease gave plaintiffs a right of first refusal on any sale of the lease site and surrounding property. The lease had an arbitration clause: "Lessor and lessee agree to binding arbitration on any and all disputes that they are not able [to] resolve themselves."

On August 30, 2001, plaintiffs filed suit against defendants, NPCK, Paul Kargl, Norm Kargl, and Nelma Kargl. The complaint alleged plaintiffs notified defendants that the roof leaked and defendants promised to fix it, but failed to do so. While defendants expended considerable sums on the convenience store they operated, they spent nothing to comply with their maintenance obligations under the lease. Defendants told plaintiffs that if they did not purchase the property on defendants' terms, they would be evicted. Since then, defendants embarked on a course of conduct to force plaintiffs out of business and off the premises. Defendants failed to make repairs to the leased property, made false accusations against plaintiffs to local officials about unhealthful conditions and illegal animal slaughtering, falsely disparaged plaintiffs' food, unreasonably refused requests for improvements, told building officials plaintiffs were not authorized to receive building permits, intimidated plaintiffs and their employees, failed to paint the exterior of the building, overcharged for electricity, maintained improper sewer and septic systems, and wrongfully instituted eviction proceedings. Plaintiffs attempted to mitigate their damages by withholding rent since May 1, 2001.

The complaint sought damages under theories of breach of contract, breach of the implied covenant of good faith and fair dealing, breach of the implied covenant of habitability, breach of the implied covenant of fitness for a particular purpose, intentional interference with prospective business advantage, abuse of process, specific performance of the first refusal clause in the lease, and declaratory relief.

The last cause of action was a request for an order compelling arbitration. Plaintiffs alleged they made a formal demand for arbitration and defendants refused to agree to arbitration. Defendants had filed an unlawful detainer action against plaintiffs. In that action the court determined all disputes relating to the lease must be submitted to arbitration. Defendants dismissed that action, intentionally circumventing the order for arbitration. Plaintiffs requested the court order all causes of action be submitted to binding arbitration and that the court appoint an arbitrator.

On September 14, 2001, plaintiffs sought a temporary restraining order to prevent defendants from demolishing a structure plaintiffs had built on the property. The temporary restraining order issued, but two weeks later the court denied a preliminary injunction and dissolved the temporary restraining order.

On October 10, 2001, defendants filed an ex parte application for an order compelling plaintiffs to relinquish all fixtures and equipment pursuant to defendants' security interest. In a supporting declaration, counsel stated that when the shed was demolished two sheriffs deputies were present. Defendants, as secured creditors, wanted to repossess two meatsmoking units. The deputies did not want defendants to attempt the repossession, fearing a breach of the peace, and told defendants to obtain a court order. Plaintiffs removed the meat smokers to another location, but there remained other fixtures defendants wanted to repossess.

The ex parte application was also supported by a declaration of Norm Kargl, that had been filed in opposition to plaintiffs' application for the temporary restraining order. Kargl stated plaintiffs had enclosed a walkway without permission or obtaining building permits. Plaintiffs carried on an illegal meat processing business. The El Dorado County Environmental Management Department issued a cease and desist order, but plaintiffs continued. Plaintiffs failed to pay rent for five months, refused to provide evidence of insurance, and Kenneth Simms threatened Kargl's son with a pipe.

A temporary restraining order not to dispose of fixtures or equipment issued the next day and the matter was set for a hearing.

The following day, defendants filed an answer to plaintiffs' complaint and a cross-complaint, seeking rescission of the lease, damages for breach of contract and fraud, and an injunction so defendants could repossess fixtures and equipment.

In opposition to the motion for repossession, plaintiffs asserted the dispute was subject to arbitration, and the remedy for repossession under a security agreement was a writ of possession and defendants had not complied with the requirements for such a writ.

After a tentative ruling in favor of defendants, plaintiffs requested oral argument. Plaintiffs argued the ruling served as a summary judgment on the cross-complaint and the dispute was subject to arbitration. The court found plaintiffs waived arbitration by filing suit and seeking an injunction without moving to stay the proceedings. The court agreed a bond should be required. Defendants argued for no undertaking or one of only $5,500. Plaintiffs wanted an undertaking of $100,000, claiming seizure of the equipment would put their restaurant out of business. The court ordered a bond of $15,000.

Plaintiffs appealed from these orders.

Defendants posted the bond and the court ordered plaintiffs to relinquish all fixtures and equipment.

DISCUSSION

I

Plaintiffs contend the court erred in finding they waived arbitration. They argue their lawsuit requested arbitration and seeking an ancillary remedy of a temporary restraining order to preserve the status quo does not waive arbitration.

California has a detailed statutory scheme regulating private arbitration. (Code Civ. Proc, § 1280 et seq.) "Through this detailed statutory scheme, the Legislature has expressed a `strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution.' [Citations.]" (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9, 10 Cal.Rptr.2d 183, 832 P.2d 899.)

A trial court shall refuse to compel arbitration if it determines that the right to compel arbitration has been waived. (Code Civ. Proc, § 1281.2, subd. (a).) There is no single test to determine whether arbitration has been waived; the determination is a question of fact. A finding of waiver is binding on an appellate court if it is supported by substantial evidence. (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 983, 64 Cal.Rptr.2d 843, 938 P.2d 903.) The facts, however, must be viewed in light of the strong policy favoring arbitration and a party claiming waiver has a heavy burden. (Thorup v. Dean Witter Reynolds, Inc. (1986) 180 Cal.App.3d 228, 234, 225 Cal. Rptr. 521.)

"In determining waiver, a court can consider `(1) whether the party's actions are inconsistent with the right to arbitrate; (2) whether "the litigation machinery has been substantially invoked" and the parties "were well into preparation of a lawsuit" before the party notified the opposing party of an intent to arbitrate; (3) whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; (4) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings; (5) "whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place"; and (6) whether the delay "affected, misled, or prejudiced" the opposing party. [Citations.]' [Citation.]" (Sobremonte v. Superior Court (1998) 61 Cal. App.4th 980, 992, 72 Cal.Rptr .2d 43.)

In finding waiver, the trial court relied on two actions by plaintiffs it found inconsistent with requesting arbitration. First, plaintiffs filed suit for damages. However, suing on an arbitrable claim does not per se result in waiver of plaintiffs' right to compel arbitration. (Doers v. Golden Gate Bridge etc. Dist. (1979) 23 Cal.3d 180, 188, 151 Cal.Rptr. 837, 588 P.2d 1261.) "But even if a party has initiated the litigation process, the court may not necessarily find a waiver. The court must be satisfied not only that the party seeking arbitration acted...