A California appeals court has ruled that a defendant that actively litigated a case for 17 months, incurring more than $500,000 in expenses to the plaintiff, was not entitled to enforce an arbitration agreement between the two parties.
In Oregel v. PacPizza, LLC, pizza delivery driver Julio Oregel filed a putative class action suit against his employer, PacPizza in June 2012. From then until November 2013, PacPizza actively litigated the suit through multiple discovery requests, depositions and motions. During this time, PacPizza gave no indication that it intended to seek enforcement of a purported arbitration agreement.
In November 2013, PacPizza sent a letter to Oregel’s counsel demanding arbitration of the claims. PacPizza also filed a motion to compel arbitration. The trial court denied the motion, finding that by its substantial invocation of “litigation machinery,” PacPizza had waived its right to enforce the purported arbitration agreement (Sobremonte v. Superior Court (1998) 61 Cal.App.4th 980)
The First Appellate District affirmed the trial court’s ruling, reiterating that under Sobremonte, there are six factors a court may consider to determine waiver:
(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.
The appeals court found that there was only one factor (#4) that did not apply in this case, and that the trial court had properly considered all the factors in reaching its decision.
In addition, the appeals court noted that PacPizza “delayed for an astonishing 17 months after Oregel filed his complaint before it sought to enforce the arbitration agreement. It waited a full year after providing discovery responses asserting the existence of the arbitration agreement.” Per Sobremonte, the court said, “`A demand for arbitration must not be unreasonably delayed. . . . [A] party who does not demand arbitration within a reasonable time is deemed to have waived the right to arbitration.'”
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