In Bower v. Inter-Con Security Systems, ___ Cal.App.4th ___ (December 31, 2014), the California Court of Appeal (First Appellate District, Division Three) affirmed the order of the San Francisco County Superior Court (Judge Kahn) denying defendant’s motion to compel arbitration of class action claims for wage and hour violations.
Plaintiff was an armed security officer for defendant employer who had signed an arbitration agreement that contained a clause in which plaintiff agreed not to assert claims against defendant “on behalf of a class or in a representative capacity. It also specified that the parties agreed to arbitrate claims for breaks and rest periods.” Subsequently, plaintiff filed a putative class action on behalf himself and all other non-exempt Armed Security Guards who worked for defendant. The Complaint included claims for failure to: provide meal and rest periods; pay wages; and provide accurate itemized wage statements. Instead of filing a petition to compel arbitration, defendant filed an Answer to the Complaint which contained an affirmative defense that Plaintiff’s claims were subject to arbitration. Defendant then responded to written discovery propounded by plaintiff but agreed to provide responses and documents only as to Plaintiff in his individual capacity. However, Defendant provided at least one substantive response relating to class issues, identifying the number of class members. Defendant then propounded its own discovery on Plaintiff, a substantial portion of which sought documents pertaining to the entire putative class of armed security guards. Then the parties agreed to informally stay discovery in order to pursue class-wide settlement discussions. When these fell through, discovery (and discovery disputes) recommenced. At this point, Defendant finally filed a motion to compel arbitration, which the trial court denied. The trial court found that Defendant waived its right to compel arbitration by engaging in litigation conduct inconsistent with the right to demand arbitration. Defendant appealed.
The appellate court agreed with the trial court, concluding that, although the law generally favors arbitration and (consequently) waiver “will not lightly be inferred,” substantial evidence supported the finding that Defendant waived its right to compel arbitration. To prove a waiver of the right to arbitrate, Plaintiff was required to demonstrate that Defendant “was (1) aware of its right to compel arbitration, (2) acted inconsistently with that right, and (3) prejudiced [Plaintiff] as a result.” First, it was “beyond dispute that [Defendant] was aware of its right to compel arbitration from the outset,” as shown by its Answer to the Complaint. Second, Defendant “acted inconsistently with the right to compel arbitration primarily by propounding class-wide discovery.” Furthermore, Defendant’s “attempt to settle the case on a class-wide basis was inconsistent with its right under the arbitration agreement to insist that any claims had to be arbitrated on an individual basis only.” Third and finally, Plaintiff was prejudiced because Defendant’s “actions substantially impaired [Plaintiff]’s ability to obtain the cost savings and other benefits associated with arbitration. Aside from the delay in seeking to arbitrate the matter, [Defendant] required [Plaintiff] to respond to discovery that would have been unavailable in arbitration.”