WAIVER OF ARBITRATION

Hofer v. Boladian, 111 Cal. App. 5th 1
Hofer founded Airlex Law Group (the Group), an aviation law firm. In 2013, Hofer and Boladian, an associate at the Group, formed Airlex Tax Services LLC (the LLC) to provide tax services to the Group’s clients. Boladian had a 45% interest in the LLC. In 2017, they settled a dispute. The settlement agreement and two other agreements that were parts of the settlement contained arbitration clauses. The LLP became a LLC in 2023. Two weeks after the LLC was created, Boladian withdrew and took 45% of the furniture and virtually all of the LLC’s clients to BALG, a firm that she had formed. In October 2023, Hofer, the Group, and the LLC sued Boladian and BALG. Although Hofer talked to Boladian about arbitration before filing suit, the complaint made no mention of arbitration. In the next six months, the plaintiffs filed motions for a TRO and preliminary injunction, both of which were denied, propounded 734 discovery requests, noticed depositions, and requested a jury trial during a case management conference. In April 2024, Boladian and BALG filed a cross complaint. Three days later, the plaintiffs moved to compel arbitration. The trial court denied the motion, holding that the plaintiffs had waived arbitration. The plaintiffs appealed, giving several reasons why waiver did not apply.

The Court of Appeal affirmed. First, the plaintiffs argued that the mere filing of a lawsuit does not constitute a waiver of the right to arbitrate. But the Hofer plaintiffs did not merely file a lawsuit. They vigorously litigated that lawsuit in court for the ensuing six months. They claimed that their exhaustive propounding of discovery was not evidence of waiver because they did not end up obtaining any useful responses. While prior cases found that propounding discovery was prejudicial to the other side where that discovery yielded useful information not discoverable in arbitration, prejudice is irrelevant under Quach v. Commerce Club of California, 16 Cal. 5th 562. Indeed, Quach expressly found that engaging in discovery, even if ultimately unhelpful, was markedly inconsistent with an intent to arbitrate.

Second, the plaintiffs argued that their use of a judicial forum was not a waiver because it was “necessary.” They asserted they needed to file a lawsuit because only a court could issue the TRO and preliminary injunction they needed to stave off Boladian's and BALG's harmful conduct. They noted that CCP section 1281.8 explicitly sanctions such resort to the courts and specifies that such conduct does not constitute a waiver. Although section 1281.8 specifies that applying for a provisional remedy does not operate to waive any right of arbitration the statute conditions such nonwaiver upon the applicant simultaneously presenting to the court an application that all other proceedings in the action be stayed pending arbitration. The plaintiffs not only failed to apply for a stay at the time they filed their complaint, they remained in court for another four-plus months after the last of that relief was denied. The plaintiffs also asserted they needed to file a lawsuit because they were unsure whether BALG, as a non-signatory to all three contracts, could be compelled to arbitrate. But they could have promptly moved for arbitration against only Boladian or against both defendants and obtained a ruling from the court about whether BALG was bound by the three agreements. Instead, they sued Boladian and BALG and litigated against both for six months before moving to compel arbitration.

Third, the plaintiffs argued that they consistently sought to abide by the arbitration clauses in the three agreements, noting that Hofer asked Boladian about arbitration in September 2023 prior to filing suit, sent a meet-and-confer e-mail to Boladian and BALG regarding a possible motion to compel arbitration in early March 2024, and indicated a willingness and intent to seek arbitration in their case management statement in mid-March 2024. The precomplaint inquiry is of little consequence because ascertaining that the opposing party is unwilling to arbitrate is a prerequisite to petitioning a court to compel arbitration, but the complaint did not seek arbitration or even mention it. More broadly, merely mentioning a desire to arbitrate does not indicate an intent to arbitrate absent some action. Here, there was no action until the April 2024 motion to compel arbitration.