Opinion
E067913
11-30-2018
LAKSHMI REDDY, Plaintiff and Respondent, v. NATIONAL UNIVERSITY, Defendant and Appellant.
Ogletree, Deakins, Nash, Smoak & Stewart, Jack S. Sholkoff and Frank L. Tobin for Defendant and Appellant. Iarusso & Dagher and Michelle Iarusso for Plaintiff and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super.Ct.No. CIVDS1603294) OPINION APPEAL from the Superior Court of San Bernardino County. David Cohn, Judge. Reversed. Ogletree, Deakins, Nash, Smoak & Stewart, Jack S. Sholkoff and Frank L. Tobin for Defendant and Appellant. Iarusso & Dagher and Michelle Iarusso for Plaintiff and Respondent.
I. INTRODUCTION
Defendant and appellant, National University (NU), appeals from the order denying its motion to compel arbitration of the wrongful termination and other employment-related claims of its former employee, plaintiff and respondent, Lakshmi Reddy. (Code Civ. Proc., § 1294, subd. (a).) NU claims the trial court erroneously found that NU waived its contractual right to arbitrate Reddy's claims. We agree. Accordingly, we reverse the order denying NU's motion.
Undesignated statutory references are to the Code of Civil Procedure.
II. FACTS AND PROCEDURE
A. NU Terminates Reddy's Employment and Reddy Invokes NU's Grievance Procedures
Reddy was employed by NU as a member of NU's faculty from 2008 until July 8, 2015, when NU terminated Reddy's employment. On July 20 and August 4, 2015, Reddy's counsel sent letters to NU, notifying NU of Reddy's claim that she had been wrongfully terminated and invoking the "grievance procedures" outlined in NU's "Faculty Policies."
The record does not include a copy of the July 20 letter, but it includes a copy of the August 4 letter. In the August 4 letter, Reddy's counsel specifically asked NU's counsel to confirm that NU was "following the procedures outlined in the Faculty Policies and that the grievance process has been implemented." More specifically, the August 4 letter stated that, "[p]ursuant to Section 11.1.1.2 of the Faculty Policies, a review panel is to be appointed to consider Dr. Reddy's grievance" within 15 days of NU's receipt of the July 20 letter. The August 4 letter advised NU that, if Reddy did not receive NU's confirmation that it was implementing the faculty grievance procedures, then Reddy would assume that NU was not following the grievance procedures and would "proceed with a lawsuit."
The August 4 letter did not mention arbitration. But section 11.2.1 of the Faculty Policies required the parties to submit any employment-related claims to binding arbitration after the faculty grievance procedures were exhausted. Section 11.2.1 of the Faculty Policies stated: "After exhaustion of the Faculty grievance procedures, all claims . . . including wrongful termination or discipline, between the parties . . . arising out of or pertaining in any way to the Faculty member's appointment, non-reappointment, termination for cause, or any alleged breach of the letter of appointment or the Faculty Policies must be submitted to final and binding arbitration."
On August 20, 2015, NU's counsel sent a letter to Reddy's counsel, responding to the July 20 and August 4 letters. The August 20 letter claimed Reddy "was appropriately terminated" and did not expressly address Reddy's request to confirm that NU was implementing or would implement its grievance procedures. Among other things, the August 20 letter explained that federal law required NU to terminate Reddy's employment because Reddy was not "eligible to work in the United States" from July 1, 2015, to July 13, 2015—according to Reddy's "'employment eligibility'" information which Reddy sent to NU after she and NU entered into the June 25, 2015, letter agreement. The August 20 letter asserted that "Dr. Reddy has no standing to file a grievance or seek compliance with other Faculty Policies." B. The Parties' Arbitration Agreement (Part of Their June 25, 2015, Letter Agreement)
On June 29, 2016, before NU terminated Reddy's employment on July 8, Reddy signed a letter agreement with NU, dated June 25 and signed by NU's president. By the letter agreement, Reddy accepted "a full-time faculty appointment" with NU beginning on July 1, 2015, and ending on June 30, 2023.
The letter agreement includes an arbitration agreement (AA) which, like section 11.2.1 of the Faculty Policies, required the parties to submit any employment-related claims to binding arbitration after the faculty "grievance procedures" had been exhausted. The AA states: "Any claim, dispute or controversy arising out of or relating in any way to your appointment and employment as a faculty member must first be submitted for resolution under the grievance procedures in Article 11 of the Faculty Policies. If such claim, dispute or controversy is not resolved through the grievance procedures, then it shall be resolved in binding arbitration pursuant to the Federal Arbitration Act. . . ." C. Reddy's Initial and Amended Complaints (March to September 2016)
On March 4, 2016, Reddy filed an initial complaint against NU. The parties' counsel later met and conferred concerning NU's plan to demur to the initial complaint's contract-related claims and to move to strike its punitive damages claim. On April 18, Reddy's counsel advised NU's counsel that Reddy would be filing a first amended complaint (FAC). On May 27, Reddy filed a FAC. In a July 1 e-mail, NU's counsel advised Reddy's counsel that NU intended to demur to the FAC's contract-related claims, and outlined NU's reasons for the demurrer. In the e-mail, NU's counsel stated: "In addition, I think this matter is required to be arbitrated. Please let us know if you agree or if we are going to need to address compelling arbitration by way of noticed motion." (Italics added.)
Later in July 2015, Reddy's counsel advised NU's counsel that Reddy would be filing a second amended complaint (SAC), and during July and August 2016, the parties' counsel continued to discuss when the SAC would be filed. On August 30, NU's counsel again asked Reddy to submit Reddy's claims to arbitration based on the parties' letter agreement and AA. According to NU's counsel, Reddy's counsel "made it clear" that Reddy would not submit her claims to arbitration.
On September 19, 2016, Reddy filed the SAC, alleging seven causes of action against NU: (1) breach of contract; (2) promissory estoppel; (3) retaliation in violation of the Fair Employment and Housing Act (FEHA); (4) discrimination in violation of the FEHA; (5) wrongful termination in violation of public policy; (6) failure to prevent harassment/retaliation in violation of the FEHA; and (7) breach of the implied covenant of good faith and fair dealing. All of the SAC's alleged causes of action arise out of Reddy's employment relationship with NU. D. Reddy's Written Discovery to NU (September to November 2016)
On September 6, 2016, the parties submitted a stipulation to file Reddy's SAC, along with the SAC, but the court returned the stipulation and SAC without filing them. On September 7, the court held a trial setting conference, which was continued to December 6, 2016, and later to January 10, 2017.
After she filed the SAC, Reddy propounded three sets of written discovery to NU, namely, form and special interrogatories and a request for production of documents. In November 2016, NU responded to the discovery. The AA did not limit the scope of discovery in arbitration. In addition, arbitrations conducted pursuant to section 11.2 of the faculty grievance procedures were required to be conducted "before the American Arbitration Association under its Commercial Arbitration Rules E. NU's Motion to Compel Arbitration (November 2016)
On November 17, 2016, NU filed a motion to compel arbitration of Reddy's claims as alleged in the SAC. NU argued that because Reddy's claims were "not resolved" by the faculty grievance procedures of article 11 of the Faculty Policies, Reddy was required to submit her claims to binding arbitration pursuant to the parties' letter agreement and the AA, but she did not do so and instead wrongfully filed suit. NU submitted the letter agreement, along with evidence that Reddy had refused NU's August 30, 2016, request to submit her claims to binding arbitration. NU also submitted portions of its faculty grievance procedures, including section 11.2.1 which, as noted, requires employment-related claims to be submitted to binding arbitration after the faculty grievance procedures are exhausted. On December 7, NU filed an answer to the SAC and included a "demand for arbitration" in its answer.
On December 27, 2016, Reddy filed opposition to the motion, arguing only that NU had waived its right to compel arbitration by (1) refusing to submit Reddy's claims to the faculty grievance procedures, and (2) participating in the litigation.
In the first paragraph of her opposition points and authorities, Reddy represented that, in the July 20 and August 4, 2015, letters to NU's counsel, her counsel "asked for arbitration of her claims" but NU "denied" her "requests for arbitration, stating that its grievance procedures, which included arbitration, only appl[ied] to current employees . . . ." (Italics added.) Reddy claimed NU "seeks to mislead this court into granting arbitration by failing to inform the court that arbitration was requested by [Reddy] and denied by [NU] over one year ago. Because [NU] waited more than one and a half years to change its position and invoke arbitration via the instant motion to compel, [NU] has waived its right to arbitration of . . . Reddy's claims." (Bolding omitted.) F. The Trial Court's Ruling and Statement of Decision
NU's motion was heard on January 10, 2017. At the outset of the hearing, the court said: "I think the right to arbitration has been waived. Before the litigation began there was a demand to [initiate the grievance process] . . . that initiates the arbitration process . . . and the response was no. [¶] It was very clear in the letter that if this didn't happen, litigation was going to proceed. So since [NU] took the position that arbitration was not available in this case, I think the right to arbitration has been waived." (Italics added.)
NU's counsel told the court that Reddy did not demand arbitration; instead, "there was a discussion as to whether or not the grievance procedures . . . applied." The court replied that it was "very clear that those grievance procedures are the condition precedent to the arbitration." NU's counsel argued that the grievance procedures were set forth in the Faculty Policies, but the parties' arbitration agreement was "in a separate letter" and "clearly states [that] if the dispute is not resolved by the separate grievance procedures, then you go to arbitration."
In sum, NU's counsel argued NU did not waive its right to arbitration by refusing to submit Reddy's claims to the faculty grievance procedures, and Reddy was incorrectly trying to "lump" the grievance procedures and arbitration "as one dispute resolution process." NU's counsel also argued that NU did not waive its right to arbitration by participating in the litigation before moving to compel arbitration, because, by waiting to file its motion until after Reddy filed her SAC, NU was only trying to cooperate with Reddy in "allowing her to try to [state a] cognizable claim
The court denied the motion and issued a statement of decision. (§§ 632, 1291.) In its statement of decision, the court found NU waived its right to arbitration because (1) NU's "grievance and arbitration procedures are worded such that the grievance procedures must be exhausted prior to arbitration" and (2) NU "first appeared in the case in May 2016 and waited several months to request arbitration on November 17, 2016."
NU filed objections to the statement of decision, arguing it was ambiguous and lacked factual findings supporting its conclusion that NU waived its right to arbitration. The court overruled the objections. NU then timely appealed the order denying its motion to compel arbitration.
Following the January 10, 2017, hearing, the court held a trial setting conference and set a trial date in November 2017. Before the hearing, the trial setting conference had twice been continued and no trial date had been set.
III. DISCUSSION
A. Standard of Review
The parties dispute the applicable standard of review. NU argues the de novo standard applies because the facts are undisputed, and whether NU waived its right to arbitration is therefore a question of law subject to de novo review. (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1196, 1206 (St. Agnes) [waiver of arbitration is question of law subject to de novo review where facts are undisputed and only one inference may reasonably be drawn from the facts]; see also Hoover v. American Income Life Ins. Co. (2012) 206 Cal.App.4th 1193, 1202 [waiver of arbitration is reviewed de novo where facts are undisputed and appellate court must determine whether trial court applied correct legal standard in determining waiver].) For her part, Reddy argues the substantial evidence standard applies because waiver is generally a question of fact, and this court's task is to determine whether substantial evidence supports the trial court's factual finding that NU waived its right to arbitration. (Burton v. Cruise (2010) 190 Cal.App.4th 939, 945-946.)
We agree with NU that the facts are undisputed, only one inference may be drawn from the facts, and the facts show that NU did not waive its right to arbitration. Even if the substantial evidence standard applied, we would conclude that insufficient evidence supports the trial court's finding that NU waived its right to arbitration. B. Waiver of Arbitration, Overview
Although a petition to compel arbitration may be denied on the ground the petitioner has waived its right to compel arbitration (§ 1281.2, subd. (a)), both the Federal Arbitration Act (9 U.S.C. § 1 et seq.) and California's arbitration statutes "reflect '"a strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution"'" (St. Agnes, supra, 31 Cal.4th at p. 1204) and require courts to closely scrutinize claims that a party has waived its right to arbitration (id. at p. 1195). In keeping with the strong public policy favoring arbitration, "waivers are not to be lightly inferred and the party seeking to establish a waiver bears a heavy burden of proof." (Ibid., italics added.)
No single test delineates what constitutes waiver. (St. Agnes, supra, 31 Cal.4th at p. 1195.) A waiver determination requires the court to consider "all circumstances, including the absence or presence of prejudice" to the party opposing arbitration. (Id. at p. 1205.) Several factors are relevant to the waiver inquiry: "'"(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. at p. 1196; Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 375.) None of these factors are present here. C. NU Did Not Waive Its Right to Arbitrate Reddy's Claims
To meet its "heavy burden" of demonstrating waiver, the party opposing arbitration is not required to show the petitioner knowingly and voluntarily relinquished its right to arbitration; waiver can mean the petitioner lost its right to arbitration due to its failure to perform an act, even if it did not intend to relinquish the right. (St. Agnes, supra, 31 Cal.4th at p. 1195 & fn. 4.) Thus, in the context of a contractual right to arbitration, "waiver is more like a forfeiture arising from the nonperformance of a required act." (Burton v. Cruise, supra, 190 Cal.App.4th at p. 944.)
In its statement of decision, the trial court effectively adopted Reddy's arguments and concluded that NU waived its right to arbitration (1) by refusing Reddy's requests to submit her wrongful termination claim to the faculty grievance procedures in 2015, and (2) by participating in the litigation beginning in May 2016 and failing to "request" arbitration until it filed its motion on November 17, 2016. As we explain, neither of these findings or circumstances supports the court's determination that NU waived its right to arbitration.
1. NU Did Not Waive Arbitration by Refusing to Follow Grievance Procedures
We begin by noting that the undisputed evidence shows, and the court correctly found, that NU's Faculty Policies were "worded such that the grievance procedures must be exhausted prior to arbitration." Indeed, the AA also required the parties to submit any employment-related claims to the faculty grievance procedures (article 11 of the Faculty Policies) and exhaust those procedures before submitting the claims to arbitration. And, by its August 20, 2015, letter, NU denied Reddy's demand that NU follow the faculty grievance procedures and appoint a faculty review panel to determine Reddy's wrongful termination claim, set forth in the July 20 and August 4, 2015, letters of Reddy's former counsel. NU claimed Reddy had been "appropriately terminated" because she was ineligible to work in the United States between July 1 and July 16, 2015, and on this basis, claimed Reddy had "no standing to file a grievance or seek compliance with other Faculty Policies."
No evidence shows, however, that Reddy ever requested arbitration or that NU ever refused to submit any of Reddy's claims to arbitration, either before or after Reddy filed her initial complaint in March 2016. As NU argued in support of its motion and continues to argue in this appeal, the faculty grievance procedures were separate and distinct from the arbitration provisions of the Faculty Policies, even though the Faculty Policies and the AA required the grievance procedures to be exhausted before any claims were submitted to arbitration. Thus, NU's refusal to follow the grievance procedures, even if wrongful, was not "[an] action[] . . . inconsistent with the right to arbitrate." (St. Agnes, supra, 31 Cal.4th at p. 1196.) Nor did NU take any other action inconsistent with the right to arbitrate. After Reddy filed suit in March 2016, NU's counsel twice advised Reddy's counsel—on July 1, 2016, and August 30, 2016—that Reddy's claims were "required" to be arbitrated.
The trial court noted it was "very clear that [the faculty] grievance procedures [were] the condition precedent to the arbitration." (Italics added.) But the record does not contain all of the Faculty Policies, including all of the portions governing the faculty grievance procedures. Thus, although the record shows the faculty grievance procedures were required to be exhausted before Reddy's claims were submitted to arbitration, nothing in the record shows that, under the Faculty Policies, NU would forfeit or waive its right to arbitration if it did not follow the faculty grievance procedures. In addition, Reddy does not claim the matter must be remanded to the trial court with directions to order NU to follow the faculty grievance procedures, and appoint a faculty review panel to determine her claims, before the matter is submitted to arbitration. Rather, Reddy only claims NU waived or forfeited its right to arbitration by failing to follow the faculty grievance procedures and participating in the litigation.
We also observe that Reddy's counsel misled the court in the opening paragraph of Reddy's opposition points and authorities by incorrectly asserting that Reddy's former counsel had demanded arbitration in his July 20, 2015, and August 4, 2015, letters when, in fact, neither letter said anything about arbitration. The August 4 letter only demanded that NU follow the faculty grievance procedures and appoint a faculty review panel to determine Reddy's wrongful termination claim. The July 20 letter is not in the record, but the record indicates that it also demanded that NU follow the faculty grievance procedures and said nothing about arbitration. Indeed, in a supporting declaration, Reddy's counsel did not claim that either letter included a demand for arbitration. Instead, the declaration stated: "On July 20, 2015 and August 4, 2015, [Reddy's] former attorney . . . sent letters to [NU] stating [Reddy's] intent to invoke [NU's] grievance process outlined in [NU's] Faculty Policies, which include submitting claims to arbitration." (Italics added.) Again, however, neither letter mentioned arbitration. Thus, Reddy's counsel incorrectly asserted, in Reddy's opposition points and authorities, that "arbitration was requested by [Reddy] and denied by [NU] over one year ago." (Bolding omitted.)
The trial court correctly pointed out that the August 4, 2015, letter from Reddy's former counsel made it "very clear" that Reddy would file a lawsuit unless NU followed the faculty grievance procedures. But NU's acquiescence to Reddy's threat to file suit does not amount to a refusal to arbitrate Reddy's claims, particularly given that Reddy never requested and the parties did not discuss arbitration before Reddy filed suit. The closest NU came to refusing to arbitrate Reddy's claims was its assertion in its counsel's August 20, 2015, letter that "Dr. Reddy has no standing to file a grievance or seek compliance with other Faculty Policies." (Italics added.) This statement suggested that Reddy had no right to arbitrate her claims pursuant to article 11 of the Faculty Policies. But NU made this statement in the context of responding to Reddy's demand to follow the faculty grievance procedures, not in the context of discussing an arbitration. And as we have stressed, Reddy never requested arbitration at any time, and NU never refused to submit any of Reddy's claims to arbitration at any time, either pursuant to the AA or article 11 of the Faculty Policies. (See St. Agnes, supra, 31 Cal.4th at pp. 1202-1203 [no waiver of arbitration right where party opposing arbitration never requested arbitration and party seeking arbitration did not "unequivocally" refuse to arbitrate].)
2. NU Did Not Waive Arbitration by Participating in the Litigation
NU also claims no evidence shows, or supports the court's implicit finding, that Reddy was prejudiced either by NU's participation in the litigation between May and November 2016, or by NU's failure to move to compel arbitration until November 17, 2016. We agree.
"'[W]hether litigation results in prejudice to the party opposing arbitration is critical in waiver determinations.'" (Gloster v. Sonic Automotive, Inc. (2014) 226 Cal.App.4th 438, 448.) "'"'The moving party's mere participation in litigation is not enough [to support a finding of waiver]; the party who seeks to establish waiver must show that some prejudice has resulted from the other party's delay in seeking arbitration.' [Citation.]" [Citations.]'" (Ibid.) No prejudice is shown where the party opposing arbitration shows only that it incurred court costs and legal expenses. (Ibid.)
More generally, "[c]ourts assess prejudice with the recognition that California's arbitration statutes reflect '"a strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution"'"; thus, "[p]rejudice typically is found only where the petitioning party's conduct has substantially undermined this important public policy or substantially impaired the other side's ability to take advantage of the benefits and efficiencies of arbitration." (St. Agnes, supra, 31 Cal.4th at p. 1204.)
Here, the record indisputably shows that NU participated in the litigation solely for the purpose of allowing Reddy to fully and finally plead all of her employment-related claims before NU moved to compel arbitration of all of those claims. This was reasonable and did not deprive Reddy of any of the benefits of arbitration. Reddy filed her initial complaint in March 2016 and filed her FAC in May 2016, but Reddy's counsel acknowledged these pleadings were deficient, and Reddy's third complaint, her SAC, was not filed until September 19, 2016. As noted, while discussing the sufficiency of Reddy's pleadings, NU's counsel twice advised Reddy's counsel, on July 1, 2016, and August 30, 2016, that he believed the case was required to be arbitrated.
After she filed her SAC, Reddy propounded three sets of written discovery to NU, and NU responded to the discovery in November 2016. But NU propounded no discovery of its own, and no depositions were taken. This is the sum total of NU's participation in the litigation before NU moved to compel arbitration on November 17, 2016, and it is wholly insufficient to support a finding of prejudice to Reddy or, consequently, a waiver of NU's right to arbitration. In addition, no trial date had been set when NU moved to compel arbitration. (Khalatian v. Prime Time Shuttle, Inc. (2015) 237 Cal.App.4th 651, 660-663 [defendants did not waive arbitration by moving to compel arbitration 14 months after complaint was filed, where only one defendant propounded two sets of written discovery, no depositions were taken, and trial date was over a year away]; cf. Burton v. Cruise, supra, 190 Cal.App.4th 939 [party waived arbitration by not moving to compel arbitration until eve of trial and long after discovery, including expert discovery, had been completed].)
3. Conclusion
No evidence shows Reddy ever requested arbitration or that NU ever refused to arbitrate Reddy's claims. In addition, no evidence shows Reddy was prejudiced by NU's participation in the litigation between May and November 2016, or by NU's delay in moving to compel arbitration until November 17, 2016. Lastly, no evidence shows NU took advantage of the litigation in order to deprive Reddy of the benefits of arbitration. Thus, no evidence supports the court's finding that NU waived its right to arbitration.
IV. DISPOSITION
The order denying NU's motion to compel arbitration is reversed. NU shall recover its costs on appeal. (Cal. Rules of Court, rule 8.278.)
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
FIELDS
J. We concur: RAMIREZ
P. J. McKINSTER
J.