Judge: Armen Tamzarian, Case: 21STCV25914, Date: 2023-01-04 Tentative Ruling

Case Number: 21STCV25914    Hearing Date: January 4, 2023    Dept: 52

Defendant Nissan North America, Inc.’s Motion to Compel Arbitration and Stay Proceedings

Defendant Nissan North America, Inc. (Nissan) moves to compel arbitration of the complaint by plaintiff Jose H. Mendez and to stay this action pending arbitration.

Waiver

Defendant waived any right to compel arbitration. Nissan relies on the proposition that “merely participating in litigation, by itself, does not result in a waiver, courts will not find prejudice where the party opposing arbitration shows only that it incurred court costs and legal expenses.” (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1203 (St. Agnes.))

That rule does not apply. “[W]here the FAA applies, whether a party has waived a right to arbitrate is a matter of federal, not state, law.” (Davis v. Shiekh Shoes, LLC (2022) 84 Cal.App.5th 956, 300 Cal.Rptr.3d 787, 793 (Davis).) The FAA applies to this agreement—as defendant argues in its moving papers. (Memo, p. 6.) The agreement provides, “Any arbitration under this Arbitration Provision shall be governed by the Federal Arbitration Act… and not by any state law concerning arbitration.” (Memo, p. 3.)

Under federal law, waiver does not require prejudice to the opposing party. Davis noted that under the recent United States Supreme Court decision Morgan v. Sundance, Inc. (2022) 142 S.Ct. 1708, 212 L.Ed.2d 753, “prejudice … is no longer required to demonstrate a waiver of one’s right to arbitration, and the waiver inquiry should instead focus on the actions of the holder of that right.” (Davis, supra, 300 Cal.Rptr.3d at p. 795.)

Apart from prejudice, courts consider other factors including “(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.” (St. Agnes, supra, 31 Cal.4th at p. 1196, internal quotes omitted.) The first three factors support a finding of waiver.

Defendant’s actions are inconsistent with the right to arbitrate. Aside from filing this motion, its only action consistent with the right to arbitrate was asserting a demand for arbitration in its answer filed August 20, 2021. (Answer, ¶ 22.) On the other hand, defendant took actions inconsistent with the right to arbitrate. On October 26, 2021, Nissan filed a case management statement requesting a jury trial. Nissan did not check the box indicating it is willing to participate in or agreed to participate in binding private arbitration. (Case management statement, p. 3, ¶ 10.c(5).) Nissan also responded to plaintiff’s discovery requests. (Law Decl., ¶ 3, Ex. 3.)

Furthermore, plaintiff substantially invoked the litigation machinery (and the court’s process) to resolve a discovery dispute. On October 3, 2022, plaintiff filed a request for an informal discovery conference. Defendant filed a brief in support of its position in the discovery dispute on October 18. Nissan’s brief discusses the substance of the discovery dispute. It does not mention arbitration. The informal discovery conference was initially scheduled for October 26, only two days after Nissan filed this motion. The court held the informal discovery conference on November 7.

This motion is also being heard only one month before the final status conference on February 6, 2023, and six weeks before the trial on February 15. As in Davis, Nissan’s “lengthy delay moving to compel arbitration cannot be squared with an intent to arbitrate.” (Davis, supra, 300 Cal.Rptr.3d at p. 796.)

Finally, Nissan did not give a reasonable explanation for its delay. “[T]he absence of a reasonable explanation for delay is a significant factor weighing in favor of finding waiver.” (Davis, supra, 300 Cal.Rptr.3d at p. 798.) Defendant offers no explanation for the delay. Defendant should have known early on that plaintiff purchased his vehicle via a contract with this arbitration provision. Nissan should have moved to compel arbitration far sooner.

After considering all relevant factors, the court finds Nissan waived any right to compel arbitration.

Delegation Clause

Defendant argues an arbitrator—not the court—must determine whether the arbitration agreement is enforceable. “Parties to an arbitration agreement may agree to delegate to the arbitrator, instead of a court, questions regarding the enforceability of the agreement. [Citation.] They ‘can agree to arbitrate almost any dispute—even a dispute over whether the underlying dispute is subject to arbitration.’ [Citation.]” (Tiri v. Lucky Chances, Inc. (2014) 226 Cal.App.4th 231, 241.) “[T]he language of the [delegation] clause must be clear and unmistakable.” (Id. at p. 242.)

The retail installment sales contract between plaintiff and non-party dealership Nissan of Bakersfield includes the following delegation provision: “Any claim or dispute, whether in contract, tort, statute or otherwise (including the interpretation and scope of this Arbitration Provision and the arbitrability of the claim or dispute)” must be “resolved by neutral, binding arbitration and not by a court action.” (Memo., p. 3.)

The court’s ruling on this motion turns on waiver. Persuasive authority supports the conclusion that the arbitration provision does not clearly and unmistakably delegate the question of waiver to the arbitrator. The Ninth Circuit held so in a case with a similar delegation clause. “The arbitration clause at issue in this case states that ‘any dispute as to the arbitrability of a particular issue or claim pursuant to this arbitration provision is to be resolved in arbitration.’ This language, requiring that the arbitrability of individual issues or claims be resolved by the arbitrator, does not encompass disputes over whether the clause remains valid in light of the parties’ litigation conduct.” (Morgan Stanley & Co. LLC v. Couch (9th Cir. 2016) 659 Fed.Appx. 402, 404–405.) “The arbitration clause is not clear and unmistakable evidence that the parties intended for an arbitrator to decide claims of waiver by litigation.” (Id. at p. 405.)

Similarly, the Third Circuit held a provision delegating “the issue of arbitrability of any claim or dispute” did not include the issue of waiver. (Ehleiter v. Grapetree Shores, Inc. (3d Cir. 2007) 482 F.3d 207, 222.) The court stated, “While it is clear from this provision that the parties intended to have an arbitrator determine the gateway question of whether the underlying substantive dispute between them is arbitrable, whether it be a Title VII claim, a common law tort action, or any other legal claim for relief, we do not believe that this provision similarly evinces a clear and unmistakable intent to have an arbitrator decide procedural questions of arbitrability that arise only after the parties have bypassed a gateway determination of substantive arbitrability by the arbitrator and actively litigated the underlying dispute in court.” (Ibid.) “Litigants would expect the court, not an arbitrator, to decide the question of waiver based on litigation conduct, and the Agreement here does not manifest a contrary intent.” (Ibid.)

Here, the delegation clause provides for arbitrating “the interpretation and scope of this Arbitration Provision and the arbitrability of the claim or dispute” (Memo, p. 3) rather than the enforceability of the agreement. One would expect an arbitrator to interpret the arbitration provision to determine whether it applies to the underlying substantive dispute—not whether a party’s conduct during the course of a dispute results in waiver.

Disposition

Defendant Nissan North America, Inc.’s motion to compel arbitration and stay proceedings is denied.