California Court of Appeal Finds Arbitration Demand Not Required and That Arbitration Was Not Waived Despite Filing of Lawsuit

According to a California Court of Appeal, the California Code of Civil Procedure does not require an arbitration demand before a court can find that arbitration was refused, and the filing of a lawsuit is insufficient on its own to constitute a waiver of the right to arbitrate.

In Meyerman v. Burgess, No. E037902, 2006 WL 1682627 (Cal. Ct. App. June 20, 2006), the Meyermans brought an action against Burgess and her appointed conservator, Batchelder (hereinafter, “Batchelder”), for damages resulting from the sale and lease of real property. The agreement between the parties included a two-step dispute resolution process. Mediation was the first step and, if unsuccessful, binding arbitration followed.

The Meyermans’ attorney sent Batchelder a formal request for mediation when problems surfaced with the purchased property. The mediation request informed Batchelder that the Meyermans faced a statute of limitations issue and warned that, if no response was received, they would file an action to preserve their remedies. After Batchelder backed out of mediation, the Meyermans filed the lawsuit. The trial court ordered arbitration, and the arbitration award was confirmed. Batchelder appealed.

Batchelder contended that arbitration should not have been ordered because the Meyermans did not actually demand arbitration. The Court held that the California Code of Civil Procedure does not require a demand for arbitration to be served before a request to compel arbitration can be filed. In contrast, the statute states that “a petition to compel arbitration must include an allegation that the other party has refused arbitration.” The Court determined that even though Batchelder did not expressly refuse to arbitrate, his refusal to mediate was an implied refusal to arbitrate because it was the first dispute resolution step.

Next, Batchelder argued that the Meyermans had waived their right to arbitrate under the agreement by initiating court proceedings. The Court examined several factors including, but not limited to, whether the Meyermans’ actions were inconsistent with the right to arbitrate; whether the litigation had been substantially invoked; and whether the delay in relief prejudiced the opposing party. The last was factor identified as the most critical.

The Court determined that “many of [Batchelder’s] claims of prejudice arose from [his] own conduct” and that there was “no showing that the Meyermans filed their complaint in bad faith” because they filed the action to preserve their remedies when faced with a statute of limitations.