Thorup v. Dean Witter Reynolds, Inc.
Decision Date | 24 April 1986 |
Citation | 225 Cal.Rptr. 521,180 Cal.App.3d 228 |
Court | California Court of Appeals Court of Appeals |
Parties | Robert C. THORUP, Jr., Plaintiff and Respondent, v. DEAN WITTER REYNOLDS, INC. et al., Defendants and Appellants. A026706. |
Eric G. Wallis, Jay R. Martin, Peter W. Davis, James C. Martin, Crosby, Heafey, Roach & May, Oakland, for defendants and appellants.
Daniel J. Ready, Jr., Oakland, for plaintiff and respondent.
This is an appeal from the denial of a petition to compel arbitration filed within a wrongful termination action. The appeal raises the question of arbitrability of the employment dispute: specifically, whether the employer waived its right to arbitrate by firing the employee before seeking arbitration.
Plaintiff Robert Thorup had been an account executive with Dean Witter Reynolds, Inc. since 1967. In October 1982 Thorup made an error in a customer's account which resulted in a loss of $10,975. (Thorup executed a sell order when the customer had requested a purchase of a quasi-commodities contract.) Dean Witter reimbursed the customer for his loss and then sought repayment from Thorup.
On January 27, 1983, after negotiations had reached an impasse, Dean Witter fired Thorup. Two months later Dean Witter sought arbitration of Thorup's responsibility for reimbursing the $10,975 customer loss.
Thorup's employment contract was a standardized agreement required by the rules of the New York Stock Exchange. It contained the following arbitration clause: "I agree that any controversy between me and any member or member organization or affiliate or subsidiary thereof arising out of my employment or the termination of my employment shall be settled by arbitration at the instance of any such party in accordance with the arbitration procedure in the Constitution and rules then obtaining of the New York Stock Exchange." (Emphasis added.)
Thorup responded to Dean Witter's request for arbitration of the repayment dispute by requesting an extension of time to answer. At the same time Thorup filed the present lawsuit against Dean Witter for wrongful termination. Dean Witter raised as an affirmative defense in its answer that the lawsuit was barred because the issue of plaintiff's wrongful termination was subject to arbitration. Simultaneously, Dean Witter sought a stay of the court proceedings and an order compelling arbitration of the termination dispute.
After considering certain documentary evidence and argument, the trial court denied Dean Witter's petition on the ground that its antecedent election to terminate plaintiff constituted a waiver of its right to arbitrate the termination dispute. This appeal ensued.
Code of Civil Procedure section 1281.2 declares in pertinent part that the trial court "shall order [the parties] to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that: [p] (a) The right to compel arbitration has been waived by the petitioner; ..." (Emphasis added.)
The only issue presented in this appeal is whether Dean Witter's conduct in terminating plaintiff's employment constituted a waiver of arbitration. (Doers v. Golden Gate Bridge etc. Dist. (1979) 23 Cal.3d 180, 185, 151 Cal.Rptr. 837, 588 P.2d 1261.) Dean Witter contends that under the circumstances shown its conduct in terminating Thorup did not amount to a waiver as a matter of law. We agree.
Section 2 of the Federal Arbitration Act provides in relevant part: "A written provision in ... a contract evidencing a transaction involving [interstate] commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." (9 U.S.C.A. § 2.) It is indisputable that an employment contract involving an account executive of a brokerage firm is a contract "involving commerce" and is subject to the Act. (Merrill Lynch, Pierce, Fenner & Smith v. Hovey (8th Cir.1984) 726 F.2d 1286, 1288; Stokes v. Merrill Lynch, Pierce, Fenner & Smith (6th Cir.1975) 523 F.2d 433, 436-437; Dickstein v. duPont (1st Cir.1971) 443 F.2d 783, 785; Merrill Lynch, Pierce, Fenner & Smith v. Shubert (M.D.Fla.1983) 577 F.Supp. 406; Legg, Mason & Company, Inc. v. Mackall & Coe, Inc. (D.D.C.1972) 351 F.Supp. 1367, 1370-1371.) The United States Supreme Court has recently construed this statute as a substantive rule of arbitrability which applies in state courts. (Moses H. Cone Hospital v. Mercury Constr. Corp. (1983) 460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765; see also Southland Corp. v. Keating (1984) 465 U.S. 1, 10, 104 S.Ct. 852, 858, 79 L.Ed.2d 1.)
Thus, it is now generally agreed that federal law applies to enforceability of arbitration clauses involving security brokers (Main v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1977) 67 Cal.App.3d 19, 23-25, 136 Cal.Rptr. 378; Dickinson v. Heinold Securities, Inc. (7th Cir.1981) 661 F.2d 638, 643-646; Garmo v. Dean Witter, Reynolds, Inc. (1984) 101 Wash.2d 585, 681 P.2d 253, 254-255), and under federal law arbitration is strongly favored: "The Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability." (Moses H. Cone Hospital v. Mercury Constr. Corp., supra, 460 U.S. at pp. 24-25, 103 S.Ct. at pp. 941-942; see also Doers v. Golden Gate Bridge etc. Dist., supra, 23 Cal.3d at p. 189, 151 Cal.Rptr. 837, 588 P.2d 1261.)
However, the right to arbitrate, like any other contract right, can be waived, either expressly or by implication. (Reid Burton Const. v. Carpenters Dist. Council, etc. (10th Cir.1980) 614 F.2d 698, 702, cert. den., 449 U.S. 824, 101 S.Ct. 85, 66 L.Ed.2d 27; Shinto Shipping Co. v. Fibrex & Shipping Co., Inc. (9th Cir.1978) 572 F.2d 1328, 1330.) Whether a right to arbitrate has been waived will depend upon the facts and circumstances of each case. (Reid Burton Const. v. Carpenters Dist. Council, etc., supra, 614 F.2d at p. 703.) But the particular facts must be viewed in light of the strong policy favoring arbitration. (Shinto Shipping Co. v. Fibrex & Shipping Co., Inc., supra, 572 F.2d at p. 1330.) Thus, the party claiming waiver has a heavy burden; and a waiver will not be lightly inferred. (Belke v. Merrill Lynch, Pierce, Fenner & Smith (11th Cir.1982) 693 F.2d 1023, 1025; Dickinson v. Heinold Securities Inc., supra, 661 F.2d at p. 643; see Midwest Window Systems v. Amcor Industries (7th Cir.1980) 630 F.2d 535, 536.)
Waiver is frequently manifested by "inconsistent behavior." Because arbitration is an alternative to litigation, a party who actively participates in a lawsuit and thereby resorts to the courts to resolve the dispute may be found, through such inconsistent behavior, to have relinquished its right to arbitrate. (Midwest Window Systems v. Amcor Industries, supra, 630 F.2d 535 [ ]; United States, etc. v. S.T.C. Const. Co. (E.D.Pa.1979) 472 F.Supp. 1023 [ ]; Weight Watch. of Quebec Ltd. v. Weight W. Int., Inc. (E.D.N.Y.1975) 398 F.Supp. 1057, 1059-1060 [ ]; but cf. Siam Feather, etc. v. Midwest Feather Co. (S.D.Ohio 1980) 503 F.Supp. 239, 240-241, affd. 663 F.2d 1073 [ ]; Nuclear Installation, etc. v. Nuclear Services (E.D.Pa.1979) 468 F.Supp. 1187, 1194 [ ].)
Because such a waiver is based upon conduct related to the judicial process, the existence of waiver is a question for the courts to decide. (N & D Fashions, Inc. v. DHJ Industries, Inc. (8th Cir.1976) 548 F.2d 722, 728.) 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 inconsistently with the right to arbitrate but also that the objecting party was prejudiced by such action. (ATSA of California, Inc. v. Continental Ins. Co. (9th Cir.1983) 702 F.2d 172, 175; Shinto Shipping Co. v. Fibrex & Shipping Co., Inc., supra, 572 F.2d at p. 1330; Gavlik Const. Co. v. H.F. Campbell Co. (3d Cir.1975) 526 F.2d 777, 783-784.)
Another form of disabling conduct, sometimes classified as "waiver," is manifested where the party seeking arbitration is guilty of "laches": a prejudicial delay in requesting arbitration. (N & D Fashions, Inc. v. DHJ Industries, Inc., supra, 548 F.2d at p. 728.) But the question of laches...
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