In this appeal of a relatively rare denial of a petition to compel arbitration, Presiding Justice Gilbert and Justice Tangeman each authored an opinion. After you read Gilbert's opinion, you will surely agree with it. But then read Tangeman's opinion, and tell me you haven't changed your mind.
In Wells Fargo Bank, N.A. v. Agak (Apr. 12, 2021) no. B300635 (unpublished), the bank sued to collect a $17,000 consumer debt. The consumer defendant answered, asserting a contractual right to arbitrate. But the bank did not invoke arbitration.
Instead, the bank happily litigated for over a year and a half.
A year-and-a-half later, defendant filed a cross-complaint. The cross-complaint sought leave to allege the bank illegally imposed a "credit defense" fee, turning the cross-complaint into a class action.
This got the bank's attention. The bank removed to federal court. But the district court remanded, sending the case back down (and threatened sanctions against the bank for its improper removal).
Back in state court, the bank petitioned, unsuccessfully, for arbitration.
On appeal, the majority affirmed, and the analysis went as you would expect. The bank was found to have waived arbitration, a finding of fact determined by evaluating the six factors of St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1196 (St. Agnes).) The finding is reviewed on appeal for substantial evidence. The factors are: (1) whether the party's actions are inconsistent with the right to arbitrate; (2) whether the parties are well into preparation for the lawsuit before a party notified the opposing party of the intent to invoke arbitration; (3) whether a party delayed for a long period before seeking a stay; (4) whether a party seeking arbitration filed a counterclaim before seeking a stay; (5) whether important intervening steps such as discovery procedures not available in arbitration had taken place; and (6) whether the delay affected, misled, or prejudiced the opposing party. (St. Agnes, supra, 31 Cal.4th at p. 1196.) Although the trial court may consider these factors, no single test determines the nature of the conduct that constitutes a waiver of arbitration. (Id. at p. 1195.)
(Side note: It is true that a finding on waiver of the right to arbitrate is a factual finding, and thus reviewed for substantial evidence rather than abuse of discretion. (Burton v. Cruise (2010) 190 Cal.App.4th 939, 945-946.) P.J. Gilbert accused Justice Tangeman of confusing the two. But you tell me: what else are some of the St. Agnes factors – particularly factor 6: consideration of prejudice to the nonmoving party – but a purely discretionary consideration having little to do with the petitioner's intent?)
The majority reasoned that the bank had notice of defendant's cross-claims in October 2018 when defendant sought leave to add its class-action cross-claims. But the bank's ill-fated trip to federal court did in its right to aribtrate, raised seven months later. The bank also attended case management conferences without raising arbitration.
Dissenting, Justice Tangeman said that seven months and a few measly CMCs make too thin a reed on which to hang an arbitration waiver, which is "not to be lightly inferred," and for which the proponent "bears a heavy burden of proof." (St. Agnes, supra, 31 Cal.4th at p. 1195.) Besides, it was only five months – not seven – from the time defendant filed its game-changer class-action claim. And during that five months, Wells Fargo raised arbitration five times and took no other acts inconsistent with arbitration.
The clincher: The parties' arbitration agreement expressly excluded arbitration of consumer debt claims. Thus, Tangeman reasoned, arbitration was never even available to the bank until defendant amended his cross-complaint a mere five months before the bank invoked arbitration. By drawing on factors before that time, Tangeman reasons, the majority was "penalizing Wells Fargo for not taking actions it was legally barred from taking."
The Upshot: If you decide to litigate despite having a right to arbitrate, consider raising a reservation of the right to arbitrate should new arbitrable claims or defenses be raised. Answers and CMC statements may be a good place to leave these breadcrumbs.
Be prepared for litigation to change shape. Retaining appellate counsel early is a good way be prepared for unexpected turns.
Here is the video clip from episode 11 of Tim's podcast, the California Appellate Law Podcast, discussing this issue.
Tim Kowal helps trial attorneys and clients win their cases and avoid error on appeal. He co-hosts the Cal. Appellate Law Podcast at www.CALPodcast.com, and publishes a newsletter of appellate tips for trial attorneys at www.tvalaw.com/articles. Contact Tim at [email protected] or (714) 641-1232.
