Quach Case Study

For at least 40 years, the law in California required a showing of prejudice by a party arguing that the opposing party had waived a contractual right to enforce an arbitration agreement. Starting with Doers v. Golden Gate Bridge etc. Dist. (1979), 23 Cal.3d 180 (1979), the Supreme Court of California reasoned that, if a party could show that it had been prejudiced by the opposing party’s delay in seeking to compel arbitration, then the party seeking to compel arbitration could be found to have waived any contractual right to arbitrate. This prejudice rule was later codified in the seminal case of St. Agnes Medical Center v. PacifiCare of California, (2003) 31 Cal.4th 1187, which stated that prejudice to the party asserting waiver was the most “critical” or “determinative” factor in determining whether a contractual right to arbitration had been waived.

This prejudice requirement for waiver of a contractual right to arbitrate differed from the general rule for contractual waiver. In any other contractual context, a party is deemed to have waived a contractual right if it can be shown that the party knew about the contractual right but intentionally relinquished or abandoned that right, for instance, by taking actions inconsistent with the enforcement of that right. Under this general rule, there is no requirement that the waiver work any kind of prejudice upon the other party. Courts justified the arbitration-specific requirement of prejudice by invoking a so-called judicial policy favoring arbitration as form of dispute resolution. Moreover, courts did not consider delay or incursion of legal expenses by the plaintiff as sufficiently prejudicial to meet this requirement.

Under this regime, abusive gamesmanship was common. Defendants would routinely litigate matters for months, if not longer, even seeking discovery and filing motions, before invoking a claimed right to arbitrate. Then, after having forced the plaintiff to spend both time and money litigating the matter in court, defendants would successfully compel the matter to arbitration. Such was the case for our client Peter Quach in his lawsuit against California Commerce Club, Inc. for age discrimination and wrongful termination after twenty-nine years of employment. In our case, the defendant had waited 13 months before seeking to compel arbitration after having engaged in extensive discovery, including the deposition of Mr. Quach. Mr. Quach’s case was ordered into arbitration, and the order was upheld on appeal.

At that point, The Vora Law Firm sensed an opportunity to challenge this abusive defense tactic and the law that supported it, and The Vora Law Firm stepped in to brief the matter before the Supreme Court of State of California. To overturn this case prevailing precedent, we demonstrated for the Court, through a detailed reading of over 100 years of case law, that the so-called policy favoring arbitration over litigation that had been the justification for an arbitration-specific requirement of prejudice was, in fact, an artifact of the judiciary’s long and troubled history with arbitration. In the late nineteenth century, courts in California and elsewhere were actively hostile to arbitration. As the courts’ attitude toward arbitration evolved, by the mid-twentieth century, California courts began to speak of a policy “favoring arbitration” as a shorthand for expressing a policy that did not actively disfavor arbitration. In short, when viewed in context, the phrase was meant to express the idea that arbitration agreements should not be treated any differently from any other contractual agreement. By the late-twentieth century, however, the so-called policy “favoring arbitration” had become dissociated from its original context and was being invoked to justify the imposition of arbitration-specific requirements, such as the requirement of a showing of prejudice before finding that a party had waived its contractual right to arbitration. Aided by the recent United States Supreme Court decision of Morgan v. Sundance, Inc., (2022) 596 U.S. 411, which followed a similar line of reasoning for federal law, we convinced the California Supreme Court to overturn 40 years of established law, to abrogate the arbitration-specific rule of waiver, and hold that the general standard for contractual waiver applied to arbitration agreements.

Under this standard, the California Supreme Court found that Commerce Club had waived its right to arbitration and remanded the case back to the trial court. Shortly following remand of Mr. Quach’s case to the trial court, the case settled on terms favorable to our client.