A California appellate court upheld a lower court's finding that an automobile dealership waived its right to demand arbitration after the parties had engaged in discovery, mediation, and other litigation mechanisms.

In Radillo v. Superior Nissan of Mission Hills, No. B198262, 2008 WL 444439 (Cal. Ct. App. Feb. 20, 2008), Radillo entered into a purchase contract for a new vehicle with Superior Nissan, on the condition that Superior Nissan pay off the balance of Radillo's trade-in vehicle.

Thereafter, Radillo learned that Superior Nissan had agreed to pay less than the balance owed for the trade-in and that the purchase contract included products and services that he did not know that he purchased.

On March 15, 2006, Radillo filed an action against Superior Nissan for various claims, including fraud, concealment, and unfair debt collection practices. Superior Nissan answered the complaint on April 27, 2006. The answer contained 23 affirmative defenses, but did not request arbitration.

Several months later, on January 25, 2007, Superior Nissan filed a motion to compel arbitration. In opposing the motion, Radillo argued that Superior Nissan had waived its right to demand arbitration because the parties had engaged in discovery, participated in mediation, and spent nine months litigating the case without any assertion of a right to arbitrate.

The lower court denied Superior Nissan's motion and determined that it had waived the right to compel arbitration. On appeal, the Court determined that under the California Arbitration Act and the Federal Arbitration Act, Superior Nissan had waived its right to demand arbitration. The Court noted that waiver of the right to arbitration is not lightly inferred because of federal and state law favoring arbitration provisions.

Superior Nissan acted inconsistently with the exercise of the right to arbitration by its lengthy and comprehensive participation in the litigation. During the time the action was pending, the parties used discovery methods applicable to civil litigation. Also, Superior Nissan requested participation in mediation, and executed a case management conference statement demanding a jury trial.

The Court concluded that Radillo had been prejudiced because during mediation Radillo revealed his case theories and evidence, and expended time and money in the mediation process. Further, the prejudice assessment included consideration of whether the petitioning party's conduct had substantially impaired or undermined the strong public policy favoring arbitration.

The Court noted that, in this case, the benefits of arbitration were lost because expense, delay, and duplication of effort deprived the parties of the opportunity to use arbitration as an efficient and low-cost means of resolving the dispute. The Court concluded that the lower court had correctly held that Superior Nissan had waived the right to demand arbitration.