Judge Holly J. Fujie, Case Number: 22STCV35055, Date: 2023-04-26 Tentative Ruling

MOVING PARTY: Defendants Edith Uribe (“Uribe”), Melanie Bernaola (“Bernaola”), Jessica Pineda (“Pineda”), and Diana Moreno (“Moreno”) (collectively, “Moving Defendants”)

This action arises out of employment relationships. On November 3, 2022, Plaintiff filed a complaint (the “Complaint”) alleging: (1) breach of duty of loyalty; (2) aiding and abetting breach of duty of loyalty; (3) breach of contract/covenant of good faith and fair dealing; (4) interference with prospective economic advantage; (5) misappropriation of trade secrets; and (6) unfair competition. On March 9, 2023, Bernaola, Pineda, and Moreno filed a cross-complaint (the “XC”) alleging: (1) declaratory relief; and (2) unfair competition.

On March 29, 2023, Moving Defendants filed a motion to compel arbitration and stay proceedings (the “Motion”) on the grounds that Moving Defendants and Plaintiff are parties to binding arbitration agreements (collectively, the “Agreements”) that require that the claims alleged in the Complaint and XC be resolved in individual binding arbitrations.

The purpose of the Federal Arbitration Act (“FAA”) is to move the parties in an arbitrable dispute out of court and into arbitration as quickly and easily as possible. (Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp. (1983) 460 U.S. 1, 23.) The FAA is consistent with the federal policy to ensure the enforceability, according to their terms, of private agreements to arbitrate. (Mastrobuono v. Shearson Lehman Hutton, Inc. (1995) 514 U.S. 52, 57.) Under California Code of Civil Procedure (“CCP”) section 1281.2, upon petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party to the agreement refuses to arbitrate that controversy, the court shall order the petitioner and the respondent to arbitrate the controversy unless grounds exist not to compel arbitration. (CCP § 1281.2.) The moving party bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence. (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972.) The party opposing arbitration has the burden of demonstrating that an arbitration clause cannot be interpreted to require arbitration of the dispute. (Rice v. Downs (2016) 248 Cal.App.4th 175, 185.)

Moving Defendants provide evidence of the Agreements they signed while employed with Plaintiff. (See, e.g., Declaration of Edith Uribe (“Uribe Decl.”) ¶ 4, Exhibit A.)[1] In relevant part, the Agreements provide:

“You and the Company voluntarily agree to resolve by binding arbitration any and all claims, disputes, causes of action, lawsuits, proceedings, and/or controversies (‘Claims’), past, present, or future, relating to or arising out of Your employment with the Company. This includes Claims that the Company may have against You or that You may have against the Company and its parent companies, holding companies, agents, subsidiaries and affiliated companies, officers, directors, successors, assigns, clients, customers, or alleged joint employers (collectively, the ‘Parties’ to this Agreement).” (Uribe Decl., Exhibit A at 1.)

The Agreements further provide that they are governed by the FAA and “shall be construed, interpreted, governed, and enforced in accordance with the FAA.” (Id.)

Moving Defendants have met their burden to demonstrate the existence of agreements to arbitrate. Plaintiff does not dispute the existence or validity of the Agreements; rather, Plaintiff argues that Moving Defendants’ conduct and participation in this litigation before they filed the Motion constitute a waiver their right to assert their contractual right to arbitration.

A judge may deny a petition for arbitration when the petitioner has waived the right to compel arbitration. (CCP § 1281.2, subd. (a).) Where 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, 963.) Section 2 of the FAA provides that arbitration agreements shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. (Id. at 964.) However, like any contract right, the right to arbitrate may be waived—either expressly or by implication. (Id.) The U.S. Supreme Court has made clear that the “strong federal policy in favor of enforcing arbitration agreements” is based upon the enforcement of contract, rather than a preference for arbitration as an alternative dispute resolution mechanism. (Davis v. Shiekh Shoes, LLC (2022) 84 Cal.App.5th 956, 964.) Thus, the question of whether there has been waiver in the arbitration agreement context should be analyzed in much the same way as in any other contractual context. (Id.) The essential question is whether, under the totality of the circumstances, the defaulting party has acted inconsistently with the arbitration right. (Id.) Relevant factors to consider include: (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. (Id.)

In 2022, the U.S. Supreme Court held that prejudice is not a condition of finding that a party, by litigating too long, waived its right to stay litigation or compel arbitration under the FAA. (Morgan v. Sundance, Inc. (2022) 142 S.Ct. 1708, 1713 (“Morgan”).) As a result of the decision in Morgan, a party opposing the enforcement of an arbitration agreement governed by the FAA no longer bears a “heavy burden” to show waiver of the right to arbitration. (Armstrong v. Michaels Stores, Inc. (9th Cir. 2023) 59 F.4th 1011, 1016.) In view of Morgan, the party asserting waiver must demonstrate: (1) knowledge of an existing right to compel arbitration; and (2) intentional acts inconsistent with that existing right. (Id. at 1015.)

Plaintiff argues that Moving Defendants’ conduct and use of judicial resources prior to their invocation of the Arbitration Agreements is inconsistent with the right to arbitrate and that their belated attempt to compel arbitration is a strategic maneuver that would prejudice Plaintiff.

Moving Defendants first communicated their intention to resolve this matter in arbitration on March 14, 2023. (Declaration of Philip K. Lem (“Lem Decl.”) ¶ 3, Exhibit 1.) On March 15, 2023, Plaintiff represented that it would not voluntarily submit its claims to arbitration. (Lem Decl. ¶ 4, Exhibit 2.)[2]

In its opposition (the “Opposition”), Plaintiff provides evidence that on November 3, 2022, Moving Defendants’ then-counsel requested copies of arbitration agreements from Plaintiff. (Declaration of Russell F. Wolpert (“Wolpert Decl.”) ¶ 2, Exhibit 1.) Plaintiff’s counsel’s November 6, 2022, response expressed Plaintiff’s willingness to submit the dispute to arbitration and inquired if Moving Defendants wished to proceed to arbitration and enter into a stipulation to that effect. (See Wolpert Decl. ¶ 3, Exhibit 2.) Plaintiff sent copies of the Agreements on November 9, 2022. (See Wolpert Decl., Exhibit 5.) On November 21, 2022, Plaintiff confirmed that Moving Defendants’ deadline to file their response to the Complaint was January 6, 2023 and reiterated its willingness to submit to arbitration. (See Wolpert Decl., Exhibit 6.)

On January 5, 2023, Uribe, Pineda, and Moreno submitted responses to Plaintiff’s document requests setting forth numerous objections to them that did not include arbitrability. (See Wolpert Decl. ¶ 7.) On January 6, 2023, Moving Defendants filed a demurrer (the “Demurrer”) to the Complaint which the Court overruled on February 6, 2023. Although Plaintiff does not present direct evidence of the communications, the Opposition indicates that Plaintiff raised the issue of arbitration with Moving Defendants’ former counsel twice in January 2023 and Moving Defendants’ counsel represented that they wished to proceed with the Demurrer. (See Opp. 7:12-18.)[3] Moving Defendants’ Case Management Statement filed on February 21, 2023 requested a jury trial and did not mention arbitration as an issue in the case.

Following their retention of new counsel, on March 13, 2023, Moving Defendants filed an answer (the “Answer”) to the Complaint. The Answer raises arbitration as Moving Defendants’ 23rd affirmative defense.

The Court finds that Plaintiff’s arguments to support its contention that Moving Defendants waived their right to arbitrate do not compel a finding that Moving Defendants waived their right to arbitrate. The record before the Court shows only an approximate 4.5 month delay in asserting the right to arbitrate, after which time Moving Defendants retained new counsel when the Court overruled their Demurrer. The Court finds that the inclusion of the right to arbitrate in their Answer and the filing of the Motion within this time period supports a finding that there was no waiver of that right.[4] The Court therefore GRANTS the Motion and orders the stay of this action pending arbitration. The Court sets a non-appearance case review for December 28, 2023 at 8:30 a.m. to review the status of the arbitration. The parties are ordered to submit a joint status report seven Court days before that date.

Parties who intend to submit on this tentative must send an email to the Court at SMC_DEPT56@lacourt.org as directed by the instructions provided on the court website at www.lacourt.org. If the department does not receive an email and there are no appearances at the hearing, the motion will be placed off calendar.

Hon. Holly J. Fujie

Judge of the Superior Court

[1] The four Agreements contain the same language.

[2] On March 9, 2023, Moving Defendants filed Substitution of Attorney forms reflecting that they retained new counsel.

[3] In law and motion practice, factual evidence is supplied to the court by way of declarations. (Calcor Space Facility, Inc. v. Superior Court (1997) 53 Cal.App.4th 216, 224.)

[4] In contrast, in Davis v. Shiekh Shoes, LLC (2022) 84 Cal.App.5th 956, 968, the moving party had delayed nearly one and a half years and had participated in the litigation to an extent that justified the Court’s finding of waiver.