Party’s Strategic Use of Arbitration Clause in Gaining Discovery Advantage Constitutes Unreasonable Delay and Waives Arbitration

Posted in: Arbitration by Steven Vartabedian on

In a classic case of trying to “have ones cake and eat it too,” the plaintiff in Augusta v. Keene & Associates (filed March 4, 2011) 2011 DJDAR 3449 petitioned to compel arbitration where the arbitration clause included a ban on discovery. Plaintiff had filed his complaint alleging legal malpractice nine months earlier without invoking the right to arbitrate, conducted extensive discovery and the case had advanced to its case management hearing at which a trial date was scheduled. Just prior to plaintiff’s filing of the arbitration petition, defendant propounded discovery requests of his own. The trial court denied the petition. The California Court of Appeal, Fourth Appellate District, Division One, acknowledging the policy in favor of arbitration, found that plaintiff waived his right to arbitrate and affirmed.

The appellate court applied a three-fold analysis in reaching its conclusion. It first determined plaintiff’s delay in demanding arbitration was unreasonable. It could not fault the trial court for finding unreasonableness based on plaintiff’s knowledge of the arbitration clause when he filed the complaint and the failure of the plaintiff’s attorney to give any reasonable explanation for the nine-month delay when asked by the court. Counsel could not simply say he was led to believe the defense would concur to arbitrate. An arbitration clause is not self-executing; it must be timely invoked. (See Sobremonte v. Superior Court (1998) 61 Cal.App.4th 980.) Second, the appellate court found the factual showing below substantiated the trial court’s determination plaintiff did not intend to arbitrate during this period of delay in his persistence in seeking supplemental discovery and sanctions in spite of the arbitration clause’s waiver of discovery. And third, the appellate court was satisfied that defendant had shown prejudice in delaying the invocation of arbitration based on the extensive discovery that plaintiff had demanded of defendant.

Almost as an afterthought the court of appeal makes the point that I think is most critical here concerning prejudice–plaintiff obtained discovery and refused to reciprocate. It was tantamount to “bad faith,” noted the court, that plaintiff obtained formal discovery not available under the arbitration clause, and then asserted the right to arbitrate as a basis to refuse to reciprocate by responding to discovery.

As an arbitrator in California at Dowling Aaron Incorporated, I have seen parties file law suits in full view of contractual arbitration that I was later asked to perform, but not with the apparent strategic motivation of the plaintiff in Augusta. As I have been known to do, people sometimes overindulge after eating that first piece of cake.

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