Del Toro v. Pacific Bay Lending Group CA4/2 (2024) · DecisionDepot
Del Toro v. Pacific Bay Lending Group CA4/2
California Court of Appeal Jun 13, 2024 No. E080559Unpublished
Filed 6/13/24 Del Toro v. Pacific Bay Lending Group CA4/2
NOT TO BE PUBLISHED IN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION TWO
LAUREN DEL TORO,
Plaintiff and Respondent, E080559
v. (Super. Ct. No. CIVDS2010367)
PACIFIC BAY LENDING GROUP, INC. OPINION et al.,
Defendants and Appellants.
APPEAL from the Superior Court of San Bernardino County. John M. Pacheco,
Judge. Affirmed.
Sheppard, Mullin, Richter & Hampton, Greg S. Labate, Todd E. Lundell, and
Tyler Z. Bernstein, for Defendants and Appellants, Bay-Valley Mortgage Group, and
Christine Kim.
Reif Law Group, Brandon S. Reif and Rachel D. Dardashti, for Defendants and
Appellants, E.M. Capital Investments, United Trust Escrow, A-Team Funding Network
Funding Group, and Adrian Enriquez.
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Guerra & Casillas, Ruben Guerra, and Tizoc Perez-Casillas, for Plaintiff and
Respondent.
I.
INTRODUCTION
Plaintiff and respondent, Laurel Del Toro sued a number of defendants for a
number of employment claims in the superior court. Over two years later, two of the
defendants, Bay Valley Mortgage Group dba Pacific Bay Lending Group, Inc. (PBLG)
and Christine Kim moved to compel arbitration of Del Toro’s claims against them. The
motion was joined by other defendants, Adrian Enriquez, E.M. Capital Investment, Inc.,
United Trust Escrow, Inc., and Network Funding Group, Inc. (the Enrique Defendants).
The trial court found that PBLG and Kim waived their right to arbitration and denied
their motion to compel.
PBLG, Kim, and the Enriquez Defendants appeal, all asserting the same
arguments. Their main argument is the trial court erred because it incorrectly used
federal law for its waiver analysis and thus did not consider whether PBLG’s failure to
timely move to compel arbitration prejudiced Del Toro, which would have been an
important consideration under California law. They alternatively argue that, even if
federal law applies, the trial court improperly found they waived their right to arbitration.
We conclude that the trial court properly found PBLG and Kim waived their
arbitration rights, regardless of whether federal or state law applies. We therefore affirm
the court’s order denying the motion to compel arbitration.
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II.
FACTUAL AND PROCEDURAL BACKGROUND
Del Toro filed this case against PBLG, Kim, and others in May 2020. She filed
proofs of service of the summons and the complaint on PBLG and Kim, respectively, in
August 2020 and October 2020, stating that she served PBLG with the complaint and
summons in July 2020, and served Kim in September 2020.
Kim answered the complaint in October 2020 and PBLG answered it in January
2021. Both of them asserted arbitration as an affirmative defense. Not long after, Del
Toro filed a First Amended Complaint (FAC), which Kim and PBLG answered in
February 2021, again asserting arbitration as an affirmative defense.
Shortly before Del Toro filed the FAC, PBLG’s counsel (from Davis Wright
Tremaine LLP) conferred with Del Toro’s counsel about arbitration. PBLG’s counsel
stated they were “inclined to put aside the issue of the arbitration agreement at this time,”
and proposed a stipulation stating that the parties could engage in discovery without it
constituting a waiver of PBLG’s arbitration rights. Del Toro’s counsel declined the
stipulation, stating that Del Toro “reserves her right to argue [PBLG and Kim] are
waiving their rights to arbitration by engaging in discovery in this forum.”
Between January 2021 and September 2022, the parties propounded and
responded to discovery, engaged in motion practice, and submitted filings to the trial
court. Throughout this time, (1) Kim served objection-only responses to Del Toro’s first
requests for production (RFPs) and special interrogatories (SROGs), (2) PBLG
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propounded RFPs and employment form interrogatories (EFROGs), (3) PBLG and Kim
responded to Del Toro’s RFPs and SROGs with verified responses and document
productions, (4) PBLG responded to Del Toro’s request for admissions (RFAs), and her
second set of form interrogatories (FROGs), RFPs, and SROGs, (5) PBLG sent subpoena
requests to three of Del Toro’s medical providers, (6) PBLG propounded SROGs and a
second set of RFPs on Del Toro while producing documents to her, (7) PBLG served
verified responses to Del Toro’s EFROGs and FROGs, (8) PBLG served supplemental
verified responses to Del Toro’s first set of RFPs, and Kim served supplemental
responses to Del Toro’s first set of SROGs and RFPs, (9) PBLG sent corrected subpoena
requests to Del Toro’s three physicians, (10) PBLG served supplemental responses to Del
Toro’s two sets of SROGs, her second set of FROGs, and her first set of RFAs, (11)
PBLG propounded SROGs and RFPs to three other defendants, (12) PBLG served
supplemental responses to Del Toro’s EFROGs and FROGs, and Kim served
supplemental responses to Del Toro’s first set of RFPs, (13) PBLG served another
document production, (14) Del Toro took the depositions of Kim and another defendant,
(15) the parties stipulated to a protective order, which the trial court approved and
entered, (16) PBLG took Del Toro’s deposition, (17) the parties submitted a joint status
report for a status conference with the trial court, (18) PBLG responded to Del Toro’s
third set of SROGs, RFPs, and FROGs, and provided supplemental responses to her first
set of RFAs and second set of FROGs, (19) PBLG served a second set of supplemental
responses to Del Toro’s second set of FROGs, (20) PBLG served another document
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production to Del Toro, (21) PBLG served supplemental responses to Del Toro’s third set
of RFPs, (22) PBLG opposed Del Toro’s two discovery motions and her motion for leave
to file a Second Amended Complaint (SAC), (23) the trial court granted all three motions 1 and ordered PBLG to pay Del Toro $800 in sanctions for the discovery motions, (24) per
the trial court’s order, PBLG served second supplemental responses to Del Toro’s second
set of SROGs and third supplemental responses to her second set of FROGs, (25) PBLG
filed a notice of association of additional counsel and then a substitution of new counsel
(Sheppard Mullin Richter & Hampton) in September 2022, and (26) Del Toro took the
deposition of a third-party witness, during which PBLG’s counsel also questioned the
witness.
On October 3, 2022,—over two years after Del Toro served her initial complaint
on PBLG and Kim, about two years after Kim answered the complaint, and 22 months
after PBLG answered the complaint—PBLG and Kim moved to compel arbitration of
Del Toro’s claims in the operative SAC, which Del Toro filed two months before. The
Enrique defendants joined the motion in its entirety, with their only additional argument
being that they were entitled to enforce Del Toro’s arbitration agreement even though
they are non-signatories to it.
Del Toro opposed the motion on several grounds, including that PBLG and Kim
forfeited their arbitration rights by (1) waiting too long to file their motion to compel
1 Del Toro filed her operative SAC in August 2022. The specifics of Del Toro’s claims are not relevant to the issues on appeal, so we need not discuss them.
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arbitration and (2) acting inconsistently with their arbitration rights by litigating the case
in court and participating in discovery. Del Toro argued that the Federal Arbitration Act
(FAA; 9 U.S.C. § 1 et seq.) governs the parties’ arbitration agreement, and a showing of
prejudice is no longer required under federal law after Morgan v. Sundance, Inc. (2022)
142 S.Ct. 1708. Del Toro alternatively argued that PBLG and Kim’s delay and litigation
conduct nonetheless prejudiced her. In their reply, PBLG and Kim argued that California
law applied, California law requires a showing of prejudice, and Del Toro failed to
establish it, so she failed to meet her burden that they waived their arbitration rights.
Relying on Morgan and Davis v. Shiekh Shoes (2022) 84 Cal.App.5th 956, the
trial court agreed with Del Toro that the FAA applied, so the court did not need to
consider prejudice when deciding whether PBLG and Kim waived their arbitration rights.
The court found that PBLG and Kim waived their right to compel arbitration of Del
Toro’s claims because their unexplained delay in moving to compel arbitration “coupled
with the extensive activity that occurred in the case deprived the parties of a speedy
resolution of the dispute via arbitration.” The court therefore denied PBLG and Kim’s
motion to compel arbitration as to all defendants.
Defendants timely appealed.
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III.
DISCUSSION 2 Defendants contend the trial court erred by applying federal law instead of
California law when deciding whether PBLG and Kim waived their arbitration rights.
They alternatively argue that, even if federal law applies, the trial court still erroneously
found that PBLG and Kim waived their arbitration rights.
We assume without deciding that California waiver law applies. Even so, we
conclude the trial court permissibly found PBLG and Kim waived their arbitration rights.
We therefore affirm the court’s order denying their motion to compel arbitration.
A. Standard of Review
“[T]he determination of waiver is a question of fact, and the trial court’s finding, if
supported by sufficient evidence, is binding on the appellate court.” (St. Agnes Medical
Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1194-1197 (St. Agnes).) But
“[w]hen . . . the facts are undisputed and only one inference may reasonably be drawn,
the issue [of waiver] is one of law and the reviewing court is not bound by the trial
court’s ruling.” (Platt Pacific, Inc. v. Andelson (1993) 6 Cal.4th 307, 319.) Taken
together, these rules mean that we “may not reverse the trial court’s finding of waiver
2 Although the trial court’s order focused only on whether PBLG and Kim waived their arbitration rights, the Enriquez defendants offered no argument as to why they did not waive their arbitration rights, and they do not do so on appeal. Instead, the Enriquez defendants filed only a joinder to PBLG and Kim’s opening brief under California Rules of Court, rule 8.200(a)(5). The Enriquez defendants’ appeal thus rises and falls with PBLG and Kim’s appeal. We therefore need only address whether PBLG and Kim waived their arbitration rights.
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unless the record as a matter of law compels finding nonwaiver.” (Kokubu v. Sudo
(2022) 76 Cal.App.5th 1074, 1083.)
Although the facts are undisputed, they permit conflicting reasonable inferences as
to whether PBLG and Kim waived their arbitration rights. We therefore apply the
substantial evidence standard of review. (See Davis v. Shiekh Shoes, LLC, supra, 84
Cal.App.5th at pp. 962-963 [applying substantial evidence review where “the essential
facts may not be in dispute, in the sense that no one doubts that party X did or did not do
act Y on date Z[,]” but “even if there is no difference in opinion on such events or non-
occurrences, the inferences to be drawn from the essential facts are conflicting”].)
B. General Waiver Principles
Waiver is a defense to arbitration, and the party asserting it bears a “heavy
burden” since waiver is not “lightly inferred.” (St. Agnes, supra, 31 Cal.4th at p. 1195.)
There is “no single test” under California law to determine whether a party has waived its
right to compel arbitration. (Ibid.) There are, however, “six discretionary factors” courts
applying California law may consider: “‘“(1) whether the party’s actions are inconsistent
with the right to arbitrate; (2) whether ‘the litigation machinery has been substantially
invoked’ and the parties ‘were well into preparation of a lawsuit’ before the party notified
the opposing party of an intent to arbitrate; (3) whether a party either requested
arbitration enforcement close to the trial date or delayed for a long period before seeking
a stay; (4) whether a defendant seeking arbitration filed a counterclaim without asking for
a stay of the proceedings; (5) ‘whether important intervening steps [e.g., taking advantage
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of judicial discovery procedures not available in arbitration] had taken place’; and (6)
whether the delay ‘affected, misled, or prejudiced’ the opposing party.”’” (St. Agnes, 3 supra, at p. 1196.) None of these factors controls or must exist for a court to find
waiver. (Lewis v. Fletcher v. Jones Motor Cars, Inc. (2012) 205 Cal.App.4th 436, 444
(Lewis).)
C. Analysis
We conclude substantial evidence supports the trial court’s waiver finding even
though the court did not consider prejudice and made no finding on whether PBLG and
Kim’s conduct was inconsistent with their right to arbitration. (See J.R. v. Electronic
Arts, Inc. (2024) 98 Cal.App.5th 1107, 1115 [appellate court may affirm on any ground
supported by the record].)
We first reject Defendants’ argument that PBLG and Kim’s reservation of their
right to compel arbitration in their answers and in correspondence with Del Toro’s
counsel precludes a waiver finding. A party reserving its right to compel arbitration is
not the same as asserting its right to do so. “‘Mere announcement of the right to compel
arbitration is not enough. To properly invoke the right to arbitrate, a party must (1)
timely raise the defense and take affirmative steps to implement the process, and (2)
participate in conduct consistent with the intent to arbitrate the dispute.’” (Fleming
Distribution Co. v. Younan (2020) 49 Cal.App.5th 73, 80-81, italics added.) Although
3 Whether prejudice is a proper consideration after Morgan is currently pending before our Supreme Court. (Quach v. Calif. Commerce Club, Inc. (2022) 78 Cal.App.5th 470, 484, review granted Aug. 24, 2022, (S275121).)
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PBLG and Kim timely raised their right to compel arbitration, they did not “take
affirmative steps” to initiate the process of arbitration until nearly two years later, when
they moved to compel arbitration. And in the meantime, they repeatedly acted
inconsistently with their arbitration rights by engaging in discovery and motion practice
in the trial court, as we explain below. Their announcement of their right to arbitration
and their claimed reservation of that right thus had no effect. (See Davis v. Continental
Airlines, Inc. (1997) 59 Cal.App.4th 205, 210-216 [defendants waived arbitration rights
despite asserting arbitration as an affirmative defense in their answers because “they sat
on that defense and conducted discovery before bringing their motion [to compel
arbitration] months later”].)
As outlined above, PBLG and Kim engaged in extensive discovery between
answering Del Toro’s complaint in early 2021 and moving to compel arbitration in
October 2022. They answered and responded to multiple sets of discovery requests from
Del Toro, they took and defended depositions, and they propounded their own discovery
requests. (See Lewis, supra, 205 Cal.App.4th at p. 449 [defendant’s answering discovery
supported waiver finding].) Nothing in the record suggests PBLG or Kim ever objected
to Del Toro’s discovery requests on the ground that the matter had to be arbitrated. (See
Guess?, Inc. v. Superior Court (2000) 79 Cal.App.4th 553, 558 [defendant who “fully
participated in the discovery process” by “objecting to [plaintiff’s] interrogatories and
demands for production on a variety of grounds, but never once suggesting that discovery
should be barred because this dispute had to be arbitrated” had engaged in conduct that
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was “wholly inconsistent with its present desire to arbitrate”]; see also Adolph v. Coastal
Auto Sales, Inc. (2010) 184 Cal.App.4th 1443, 1451 [same].) PBLG and Kim also sent
subpoenas to three third-party medical providers under the trial court’s authority. (See
Guess?, Inc. v. Superior Court, at p. 588; see also cf. Leger v. R.A.C. Rolling Hills L.P.
(2022) 84 Cal.App.5th 240, 241 [defendant requesting court to prohibit plaintiff from
moving to quash subpoena inconsistent with right to arbitrate].)
All of this extensive discovery was inconsistent with PBLG and Kim’s arbitration
rights. (See Roberts v. El Cajon Motors, Inc. (2011) 200 Cal.App.4th 832, 845-847.)
On top of PBLG and Kim’s discovery conduct, their filings with the trial court
were also inconsistent with their arbitration rights. They stipulated to a protective order 4 “regarding confidential information” with all parties, which the trial court entered.
(Garcia v. Haralambos Beverage Co. (2021) 59 Cal.App.5th 534, 543 [entering into
protective order inconsistent with right to arbitrate].) They unsuccessfully opposed Del
Toro’s two motions to compel further discovery responses, served supplemental
discovery responses at the trial court’s direction, and opposed her motion to amend the
FAC. (See Sobremonte v. Superior Court (Bank of America Nat. Trust & Savings Assn.)
(1998) 61 Cal.App.4th 980, 994 [opposing discovery motions inconsistent with right to
arbitrate].) Nothing in the record suggests they opposed any of the three motions on the
ground that the case should be arbitrated. Finally, in May 2022, about five months before
PBLG and Kim moved to compel arbitration, the parties submitted a joint status report in
4 The protective order is not in the record.
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advance of a June 2022 status conference with the court. There is no evidence in the
record that PBLG and Kim indicated in this report (or in any other filing with the court)
that they intended to move to compel arbitration. (Cf. Adolph v. Coastal Auto Sales, Inc.,
supra, 184 Cal.App.4th 1143, 1451 [among conduct by the defendant that was considered
inconsistent with an intent to arbitrate was failure to “‘mark or assert arbitration in its
case management statement’”].)
Ample evidence thus shows PBLG and Kim acted inconsistently with their right to
compel arbitration, which in turn supports the trial court’s finding that they waived their
arbitration rights.
What’s more, PBLG and Kim acted inconsistently with that right for almost two
years. Although Kim answered Del Toro’s original complaint in late October 2020 and
PBLG answered it in January 2021, they did not move to compel arbitration until early
October 2022. This lengthy delay far exceeds the delays that other courts have found
unreasonable when affirming a trial court’s waiver finding when, as here, the moving
party acted inconsistently with their right to arbitrate. (See Semprini v. Wedbush
Securities Inc. (2024) 101 Cal.App.5th 518, 527 [citing six cases where a “four-to-six
month delay in enforcing the right to arbitrate” supported a waiver finding]; Desert
Regional Medical Center, Inc. v. Miller (2022) 87 Cal.App.5th 295, 317 [one-year delay
supported waiver finding].)
PBLG and Kim’s extensive delay was all the more unreasonable given that they
offered no reason for it in the trial court beyond noting that their new counsel promptly
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moved to compel arbitration about two months after Del Toro filed the SAC. That may
be, but it does not change the fact that PBLG and Kim knew of their right to arbitrate
when they first appeared, yet they sat on that right for almost two years for no good
reason while litigating the case. Given the lengthy delay and PBLG and Kim’s failure to
provide a compelling justification for it, substantial evidence supports the trial court’s
finding that the delay was unreasonable. (See Garcia v. Haralambos Beverage Co.,
supra, 59 Cal.App.5th at pp. 542-543 [affirming trial court’s finding of 24-month delay
to be unreasonable despite a nine-month stay for mediation when defendant asserted
arbitration as an affirmative defense in answer].) PBLG and Kim disagree, arguing that
there was no inconsistency because all of the discovery would be “usable and available”
in the arbitration proceedings.
In support, PBLG and Kim point to Quach v. Calif. Commerce Club, Inc., supra,
78 Cal.App.5th 470, review granted, which they read as standing for the proposition that
engaging in discovery is not inconsistent with the right to arbitrate when the party
moving to compel arbitration did not “gain[] information or conduct[] discovery it would
not have been able to obtain in arbitration.” (Quach, supra, at pp. 478-479.)
But the language from Quach that PBLG and Kim point to concerns that court’s
analysis of prejudice. Quach held in relevant part that the plaintiff opposing arbitration
failed to establish prejudice in part because the litigation and discovery the parties
engaged in did not allow the defendant to “‘gain information about the other side’s case
that could not have been gained in arbitration.’ [Citation.]” (Quach, supra, 78
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Cal.App.5th at p. 479, review granted.) Quach then held that the trial court mistakenly
found the defendant had waived its right to arbitration because the plaintiff was not
prejudiced, without deciding whether the defendant’s conduct was inconsistent with its
right to arbitrate. (Id. at pp. 478-479; see also id. at p. 749 (conc. & dis. opn. of Crandall,
J.) [finding the defendant’s conduct was inconsistent with its right to arbitrate].)
This leads us to address PBLG and Kim’s argument that the trial court erred
because, in their view, Del Toro had to show she was prejudiced by their conduct for the
court to find waiver under California law. We disagree.
Prejudice is a factor courts may consider and it can be “determinative.” (Hoover v.
American Income Life Ins. Co. (2012) 206 Cal.App.4th 1193, 1206.) And our Supreme
Court holds that prejudice is a “critical” consideration. (St. Agnes, supra, 31 Cal.4th at p.
1201.) But a showing of prejudice is not always required for a trial court to properly find
a party waived its arbitration rights. (See, e.g., Semprini v. Wedbush Securities, Inc.,
prejudice].) To the extent Quach holds otherwise, we disagree, as does our Supreme 5 Court. (See St. Agnes, supra, at p. 1195 [holding “no single test delineates the nature of
the conduct that will constitute a waiver of arbitration”]; Wagner Construction Co. v.
Pacific Mechanical Corp. (2007) 41 Cal.4th 19, 29 [“Delay in demanding or seeking to
compel arbitration can, indeed, justify denying a motion to compel.”]; see also Lewis,
5 Quach is also persuasive authority only because the Supreme Court granted review of the case. (Cal. Rules of Court, rule 8.1115(e)(1).)
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supra, 205 Cal.App.4th at p. 444 [“No one of these [waiver] factors [from St. Agnes]
predominates and each case must be examined in context.”]; Semprini v. Wedbush
Securities, Inc., supra, at p. 526 [“Courts have found a waiver of the right to arbitration if
the party seeking to compel arbitration has previously taken steps inconsistent with an
intent to invoke arbitration or has unreasonably delayed in undertaking the procedure,”
italics added].)
More to the point, however, the trial court did find that PBLG and Kim’s conduct
prejudiced Del Toro, even though it stated a showing a prejudice is no longer required
after Morgan. The court found that PBLG and Kim waived their arbitration rights
because their litigation conduct and delay “deprived the parties of a speedy resolution of
the dispute via arbitration.” In so doing, the court relied exclusively on Burton v. Cruise
(2010) 190 Cal.App.4th 939 at page 949, which held in relevant part that
“circumvent[ing] the expected benefits to be achieved from a speedy and relatively
inexpensive arbitral forum” by litigating a case in court “[d]epriv[es] a party of the
benefits of his or her bargain” and “is the epitome of prejudice.”
So, even though the trial court thought prejudice is no longer required, the court
nonetheless found that Del Toro was prejudiced by PBLG and Kim’s litigation conduct
and delay. Substantial evidence and substantial case law supports that finding. (See e.g.,
Burton v. Cruise, supra, 190 Cal.App.4th at p. 949; Guess?, Inc. v. Superior Court,
supra, 79 Cal.App.4th at p. 558; Adolph v. Coastal Auto Sales, Inc., supra, 184
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Cal.App.4th at p. 1452; Lewis, supra, 205 Cal.App.4th at p. 452; Kaneko Ford Design v.
Citipark, Inc. (1988) 202 Cal.App.3d 1220, 1228-1229.)
In short, the record amply shows that PBLG and Kim acted inconsistently with
their right to arbitrate Del Toro’s claims and unreasonably delayed asserting that right,
which prejudiced Del Toro. Substantial evidence thus supports the trial court’s finding
that PBLG and Kim waived their arbitration rights. We therefore affirm the trial court’s
order denying their motion to compel arbitration. (See Kokubu v. Sudo, supra, 76
Cal.App.5th 1074, 1083 [appellate court may not reverse trial court’s waiver finding
unless the record compels a finding of no waiver as a matter of law].)
IV.
DISPOSITION
The trial court’s order denying PBLG and Kim’s motion to compel arbitration,
joined by the Enriquez defendants, is affirmed. Del Toro may recover her costs on