Mark Augusta appeals an order denying his petition to compel arbitration of his legal malpractice action against Keehn & Associates and L. Scott Keehn (together Keehn). Augusta contends the trial court erred by finding he waived his right to arbitrate by unreasonably delaying in seeking arbitration, and by taking steps inconsistent with an intent
On December 19, 2008, Augusta filed a complaint against Keehn for legal malpractice. The parties' contract included a clause for binding arbitration, but Augusta did not invoke it.
In February 2009 Augusta filed a first amended complaint (FAC), which added counts for fraud and breach of fiduciary duty based on the same conduct as the negligence claim. The FAC alleges as follows. Keehn represented Augusta, a licensed securities salesman, between 2002 and 2008 in a bankruptcy proceeding that arose from substantial awards clients obtained against him in securities litigation over certain bonds that defaulted. The bonds, which turned out to be a Ponzi scheme, were recommended to Augusta and underwritten by his then employer. In a July 3, 2002 letter, Keehn allegedly gave Augusta faulty advice that the bankruptcy filing automatically extended the statute of limitations for a legal malpractice action (Code Civ. Proc.,
Keehn represented himself during the first few months of the litigation. He responded to the FAC by serving Augusta with a prefiling copy of a motion for monetary sanctions for the bringing of a frivolous lawsuit (§ 128.7, subd. (b)), on the ground the action was time-barred since the only alleged wrongdoing occurred in 2002. Keehn argued the statute of limitations was not tolled by his continued representation of Augusta into 2008, because he represented Augusta only in the bankruptcy matter and not in the underlying malpractice action. Under section 128.7, subdivision (c)(1), the offending party may avoid sanctions by withdrawing the pleading without penalty within a 21-day "safe harbor" period. (Galleria Plus, Inc. v. Hanmi Bank (2009) 179 Cal.App.4th 535, 53 [101 Cal.Rptr.3d 803].) Augusta did not
On March 13, 2009,
Keehn did not supplement his discovery responses, and on May 1, Augusta applied ex parte for an order continuing the hearing on the demurrer so he could first move to compel discovery. The court denied the application.
On May 22, Augusta noticed Keehn's deposition for June 24 and 25. On May 28, Augusta filed motions to compel further responses to his requests for admissions and form interrogatories, and for a total of $12,260 in sanctions. On May 29, the court overruled Keehn's demurrer to the FAC.
On June 15, Keehn associated in defense counsel. Augusta notified Keehn's new counsel that a case management conference was scheduled for June 19, and the hearing on Augusta's motions to compel discovery was scheduled for August 14. Further, Augusta supplied Keehn's new counsel with a copy of the notice of Keehn's deposition. Keehn answered the FAC and alleged as an affirmative defense that the action was subject to arbitration.
At the June 19 case management hearing, the court scheduled trial for January 2010. After the hearing, Augusta confirmed in writing that Keehn advised Augusta he would not seek arbitration after all. He also confirmed that Keehn's deposition was still scheduled for June 24 and 25, and that he and his counsel had "engaged in significant efforts to prepare for this deposition." Keehn asked to reschedule the deposition, and Augusta agreed to do so until sometime in July.
On July 2, Augusta filed a petition to compel arbitration. Keehn opposed the petition on the ground of waiver.
On July 21, Augusta agreed to take his motions to compel further discovery off calendar in exchange for Keehn's agreement to provide supplemental discovery responses. In a confirming letter, Augusta's attorney stated that if he deemed the supplemental responses inadequate, and if the court denied the motion to compel arbitration, Augusta reserved the right to file a subsequent motion to compel further discovery.
Before Augusta petitioned to compel arbitration, Keehn had propounded discovery requests to him. In late August, Augusta responded to each of the requests by stating discovery is not available in arbitration. Augusta objected to Keehn's notice of his deposition on the same ground.
On October 9, the court issued a tentative ruling denying Augusta's petition to compel arbitration. The court found Augusta unreasonably delayed in demanding arbitration, and he took steps inconsistent with an intent to invoke arbitration. The court explained: "In the time between filing his lawsuit and demanding arbitration, plaintiff served discovery to defendants, engaged in meeting and conferring about defendants' discovery responses, noticed plaintiff's deposition, filed two motions to compel discovery and until June 24, 2009, notably after defendants obtained counsel, expressed his intentions of continuing with the depositions and motions to compel." The court determined Augusta's conduct prejudiced Keehn as follows: "While [Augusta] ultimately cancelled the deposition and the motions were taken off-calendar, [Keehn] responded to discovery and provided supplemental responses before the discovery motion date. In [his] discovery responses, [Keehn] disclosed at least some of [his] trial theories which would not have been disclosed if the case was in arbitration. [Keehn] lost whatever efficiencies [he] would have gained through arbitration."
During a hearing on the same date, the court asked Augusta to explain his delay in seeking arbitration. He attributed the delay to Keehn. He argued that
"Among the principal reasons motivating persons to agree to arbitrate their differences is likely to be the avoidance of the courtroom with its attendant delays, costs, and publicity, and the avoidance of procedures associated with the formal litigation of causes." (Christensen v. Dewor Developments (1983) 33 Cal.3d 778, 783 [191 Cal.Rptr. 8, 661 P.2d 1088].)
We cannot fault the court's finding of unreasonable delay. Augusta knew about the arbitration clause when he filed his original complaint, and yet he delayed in petitioning to compel arbitration for six and a half months. When the court asked Augusta's counsel at the hearing about the delay, he had no reasonable explanation. Rather, he attempted to blame Keehn for leading him to believe arbitration would occur without any action on his part. It was up to Augusta, however, to protect his own rights.
Keehn's claim in his case management conference statement that he intended to enforce the arbitration clause is immaterial for the same reason. Further, the statement is dated June 4, more than five and a half months after Augusta filed his original complaint. When Augusta learned at the June 19 case management conference that Keehn did not intend to seek arbitration, he delayed until July 2 in filing his petition, during which time he continued to pursue discovery from Keehn, as discussed below. Also, Keehn's filing of a motion for sanctions under section 128.7 and his demurrer to the FAC did not hinder Augusta from demanding arbitration as a statute of limitations defense
Augusta's delay connotes an intent not to arbitrate. Further, his conduct during the delay period supports a finding he lacked an intent to arbitrate. The arbitration clause prohibited formal discovery,
The record belies Augusta's assertion his formal discovery does not indicate an intent not to arbitrate, as it was merely defensive in nature to address Keehn's motion for sanctions and demurrer to the FAC. The court denied the motion for sanctions on April 17 and overruled the demurrer on May 29, yet Augusta persisted in demanding supplemental discovery responses from Keehn, 20 days after he filed his petition to compel arbitration on July 2.
Further, Augusta's assertion his discovery was directed solely at the issues raised by Keehn in his motion for sanctions and demurrer is untrue. Augusta also sought information on Keehn's defense to the FAC on the merits. For
This type of discovery signifies the intent to litigate rather than to arbitrate. Had the discovery pertained only to Keehn's motion for sanctions and demurrer, Augusta surely would not have persisted in obtaining supplemental responses long after the court denied Keehn any relief on his statute of limitations defense. Further, Augusta litigated Keehn's motion for sanctions and demurrer in court rather than demanding arbitration, even though the statute of limitations dispute was arbitrable. A different ruling on the intent issue would have been against the great weight of the evidence.
Augusta contends Keehn was not prejudiced because he revealed no facts or theories in his discovery responses that he had not already divulged in his
For instance, in his amended response to request for admission No. 4, Keehn admitted he understood Augusta intended to rely on his July 3, 2002 letter advising that the bankruptcy proceeding automatically extended the limitations period for bringing a malpractice action against his attorneys in the securities litigation, although Keehn expected Augusta to "take the issue up with John D. Pickett, Esq. for his independent evaluation as potential legal malpractice counsel for . . . Augusta." Augusta argues Keehn made the same admission in his motion for monetary sanctions. Augusta cites to a page from Keehn's motion for sanctions memorandum of points and authorities, which is not evidence. It discusses Keehn's July 3, 2002 letter, but it does not include any admission Keehn understood Augusta would rely on it. Augusta also cites to a page from Keehn's first declaration in support of his motion for sanctions. It discusses the July 3, 2002 letter, but it does not make any admission he intended Augusta to rely on it.
In his amended response to request for admission No. 5, Keehn admitted his July 3, 2002 letter was within the scope of his representation of Augusta. Augusta asserts Keehn had already disclosed the "substance" of this response in his motion for sanctions declaration. Keehn's declaration, however, contains no such admission. It merely states he wrote the letter in response to a request from Augusta's then malpractice attorney. The gist of the declaration was that malpractice matters were not within the scope of Keehn's representation of Augusta. The declaration states Keehn's representation "was never expanded beyond that of bankruptcy counsel." Keehn claims that other amended responses to the requests for admissions also show prejudice, but we need not belabor the point. Keehn also points out that under section 2033.410, subdivision (a), admissions are generally binding.
To show some prejudice the evidence need only show the party petitioning for arbitration "used the discovery processes of the court to gain information about [the other side's] case which [the petitioning party] could not have gained in arbitration." (Davis, supra, 59 Cal.App.4th 205, 215.) The evidence need not show the disclosures prejudiced the opposing party "in a specific,
Additionally, Augusta prejudiced Keehn by obtaining discovery from him and then refusing to reciprocate. In an analogous situation, the Davis court explained: "The vice involved here, whether characterized as `unreasonable delay,' `bad faith misconduct,' `gamesmanship' or `unilateral discovery' . . . is that defendants used the discovery processes of the court to gain information about plaintiff's case which defendants could not have gained in arbitration. After obtaining discovery from plaintiff by court processes, defendants then belatedly sought to change the game to arbitration, where plaintiff would not have equivalent discovery rights. . . . Here, the trial court could reasonably find the discovery conducted was not equivalent for both sides and would work an unfair advantage for defendants if arbitration were ordered. These facts support the trial court's finding of waiver." (Davis, supra, 59 Cal.App.4th at p. 215, citation omitted.)
Augusta's reliance on Groom v. Health Net (2000) 82 Cal.App.4th 1189 [98 Cal.Rptr.2d 836] (Groom), and Roman v. Superior Court (2009) 172 Cal.App.4th 1462 [92 Cal.Rptr.3d 153] (Roman), is misplaced. In Groom, the court found no prejudice when the party opposing an arbitration demand had not answered discovery requests. The court noted, "Groom has conceded that she did not suffer prejudice from discovery requests to which she did not respond." (Groom, at p. 1196.) In Roman, the court found no prejudice to the plaintiff when the defendant petitioned to compel arbitration within two months of the complaint's filing and no formal substantive discovery responses had been served by either side. Further, the defendant's discovery requests were authorized under the American Arbitration Association's rules, and thus "the discovery sought (although not received) did not seek to take advantage of discovery tools unavailable in arbitration." (Roman, at p. 1479.) Here, Augusta used the court's processes to obtain formal discovery not available in arbitration, and then he refused to reciprocate in discovery. It appears that the court could have found bad faith on Augusta's part.
We acknowledge the public policy in favor of arbitration, but the circumstances here, considered as a whole, merit a finding of prejudice and waiver. "[W]e cannot conclude the record before the trial court compelled a finding of nonwaiver as a matter of law." (Berman v. Health Net, supra, 80 Cal.App.4th at pp. 1366-1367.)
The order is affirmed. Keehn is entitled to costs on appeal.
Nares, J., and Irion, J., concurred.
