Case Number: EC062214 Hearing Date: June 06, 2014 Dept: NCD

Defendant Covient, Inc’s Motion for Order to Compel Arbitration and Stay This Action Pending Arbitration

TENTATIVE:
Motion to Compel Arbitration is DENIED for the reasons stated in the opposition. Moving party by its conduct in failing repeatedly to timely comply with the orders of the arbitrator, including delaying in payment of fees, and subsequently ignoring three separate deadlines for payment of fees, as well as requesting and then failing to appear at a conference call, has repudiated the arbitration agreement and waived its right to compel arbitration of the dispute, to the prejudice of plaintiff.

FACTUAL BACKGROUND:
Plaintiff Unique Vintage alleges that it entered into a written agreement with defendant Covient pursuant to which Covient was to implement a software system for plaintiff’s business. Plaintiff alleges that defendant has breached the agreement by delaying in performance, and refusing to return the money paid by plaintiff for services plaintiff did not receive.

ANALYSIS:
In this case, both parties agree that this action arises out of a written agreement which contains an arbitration clause. The Project Agreement and Statement of Work provides:
“Any controversy between the parties hereto involving the construction or application of any of the terms, covenants or conditions of this Agreement will, on the written request of one party served on the other be submitted to arbitration. The arbitration will comply with and be governed by the provisions of the State of California Code of Civil Procedure. The parties will each appoint one person to hear and determine the dispute and if they are unable to agree, then the two persons so chosen will select a third impartial arbitrator whose decision will be final and conclusive on both parties. The cost of arbitration will be borne in such proportions as the arbitrators decide.”
[Ex. A, para. 9].

Plaintiff argues, however, that the right to compel arbitration has been waived by defendant.

In order to avoid arbitration on the ground of waiver, a respondent must satisfy a heavy burden of proof that petitioner waived its right to arbitration. The court will apply three factors, including whether the party:
(1) has previously taken steps inconsistent with an intent to invoke arbitration;
(2) has unreasonably delayed seeking arbitration;
(3) has acted in bad faith or engaged in willful misconduct.
Keating v. The Superior Court of Alameda County (1982) 31 Cal.3d 584, 604-5, reversed in part on other grounds, Southland Corp. v. Keating (1984) 465 U.S. 1.

Additionally, the court must make a finding that the party asserting there has been a waiver has suffered prejudice. Id.

Here, both sides agree that the matter was initially submitted to arbitration in April of 2013, that the parties have paid some fees to JAMS, and that the matter has not yet been arbitrated.

The following rough timeline is instructive:

April 3, 2013—JAMS sends letter to parties confirming commencement of arbitration as of date of letter (Ahourian Decl., Ex. A)

April 12, 2013—JAMS advises parties to pay retainer fee of one thousand dollars (Beitchman Decl, para. 2).

April 19, 2013—Defendant files Answer and Notice of Counter-Claim (Ahourian Decl., Ex. B)

June 25, 2013—Plaintiff pays retainer fee (Beitchman Decl., para. 2, Ex. A)

July 3, 2013—JAMS emails parties that once it receives the retainer from defendant, it will schedule a Conference Call with the Arbitrator. Counsel for plaintiff contacts counsel for defendant, who states she was not aware payment was not made, and would follow up. (Beitchman Decl., para. 2)

September 6, 2013—JAMS emails parties that once it receives the retainer from respondent, a conference call with the arbitrator will be scheduled. JAMS confirms that it has not received check from defendant. (Beitchman Decl., para. 3, Ex. B)

September 12, 2013—Defendant represents a new check is being issued. (Beitchman Decl., para. 3, Ex. B).

September 16, 2013– Check dated 9/11/13 is deposited by JAMS (Ahouraian Decl., Ex. A0

October 14, 2013—Preliminary Hearing Conference Call conducted

October 15, 2013—Arbitrator Sends Scheduling Order Number One, ordering parties to complete exchange of information pursuant to JAMS Streamlined Rule 13 by November 11, 2013, and setting the Arbitration Hearing for February 26, 2014, and requesting deposit of fees at least 30 days in advance of hearing

November 7, 2013—Both sets of counsel agree to an extension of time for completion of discovery. (Ex. D0

January 30, 2014—JAMS sends “Request to Post Fees” requiring that all fees be paid in full by February 12, 2014, or the hearing may be subject to cancellation. (Beitchman Decl., Ex. E).

January 31, 2014 (upon receipt of request)—Plaintiff pays fees. (Beitchman Decl., para. 7).

February 13, 2014—JAMS sends Notice to parties that since JAMS had not received all fees by the payment deadline from Respondent, the hearing date had been removed from the calendar. (Beitchman Decl., para. 7, Ex. F).

February 18, 2014—Plaintiff sends letter to arbitrator requesting previously scheduled hearing be converted to a prove up date. (Beitchman Decl., Ex. G).

February 18, 2014—JAMS responds to Plaintiff’s letter, and orders that respondent submit its share of the arbitration hearing fees by February 19, 2014, and that the arbitrator would make a ruling on plaintiff’s request following the deadline. (Beitchman Decl., Ex. H).

February 24, 2014—JAMS (having apparently received objection concerning the prove up request from defendant) sends Notice of Conference Call to counsel, scheduling a conference call for March 10, 2014. (Beitchman Decl., Ex. I, J).

February 28, 2014—JAMS confirms that defendant has not paid fees. (Beitchman Decl., Ex. J).

March 10, 2014—Conference call is conducted. No appearance was made by defendant. (Beitchman Decl., Ex. K).

March 11, 2014—Plaintiff files this action.

In sum, defendant paid the initial $400 fee, delayed from April until December in paying the $1,000 retainer fee, ignored or otherwise missed three deadlines for the payment of additional fees, resulting in the hearing being cancelled, and then requested a conference call concerning a request to conduct a prove up hearing, which defendant then did not attend.

Plaintiff argues that the fees have still not been paid, and that this pattern of delay and failure to pay fees indicates a waiver on the part of defendant of any right to arbitrate this matter. Plaintiff also indicates that it has been prejudiced by the conduct, as this simple breach of contract claim has been delayed for more than a year, parties and witnesses have cancelled their flights to attend the arbitration hearing due to defendant’s conduct, and that plaintiff has incurred attorneys’ fees during the entire process. [Beitchman Decl., para. 15].

Plaintiff relies on Cinel v. Barna (2012) 206 Cal.App.4th 1383, in which the Second District affirmed the trial court’s denial of a petition to compel arbitration. The Second District in that case engaged in an analysis based on repudiation of the arbitration agreement through defendant’s conduct, and found that the moving defendant, despite his payment of his share of fees, had waived the arbitration agreement by the refusal to reach an agreement as ordered by the arbitrator over the payment of fees which had not been paid by the other parties Cinel, at 1390. The Second District also noted that it declined to participate in a cycle of noncompliance, resulting in “frustration of the aggrieved party’s attempts to resolve its claims,” as in that case moving defendant “could compel a return to arbitration only to refuse to pay what the panel has ordered, resulting in another termination for nonpayment of fees. We decline to endorse such a result.” Cinel. At 1391.

Defendant argues here that it had been assuming all along that the hearing date would be rescheduled given the parties’ agreement to delay conducting discovery, and that counsel for defendant simply failed to properly calendar the March 10, 2014 hearing. (Ahouraian Decl., para. 6, 7). This does not justify repeatedly ignoring the arbitrator’s orders regarding payment, or somehow formally requesting a continuance of the deadlines. There is also no mention anywhere of a willingness to pay the fees, or that they have now been deposited with JAMS. (See Ahouraian Decl., Ex. 7). As noted above, the defendant in Cinel was held to have repudiated the agreement and waived his rights even though he had actually paid the fees, when he refused to follow orders of the arbitrator to reach agreement concerning nonpayment by other parties. The conduct here, consisting of repeatedly declining to timely pay defendant’s undisputed share of the fees, can be considered to demonstrate a repudiation and waiver on the part of defendant.

To the extent that a party seeks to avail itself of a right to arbitrate set forth in any given agreement, it is apparent that such right carries with it certain responsibilities as set forth, for example, in the subject arbitration clause and in the rules of the arbitration provider before which the arbitration has been convened. Dragging feet and moving at a snail’s pace may as here properly defeat such right to arbitrate.

Given the pattern here of simply disregarding rules and orders made by the arbitrator, plaintiff is reasonably concerned that this conduct will continue, and this delay in obtaining a resolution appeared to be recognized in Cinel as giving rise to sufficient prejudice. The motion is denied.