Waiver of Agreement to Arbitrate Requires Denial of Petition to Compel Arbitration

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In Cinel v. Barna, 2012 DJDAR 7995 (2012), the California Second District Court of Appeal affirmed the trial court’s denial of a petition to compel arbitration. The trial court refused to confirm as an “award” the arbitrator’s termination of the action for non‑payment of arbitration fees.

The plaintiff purchased significant shares of preferred stock from Good News Holdings LLC (Good News). George Barna (“the defendant”) was one of the original members of Good News. After purchasing the stock shares, the plaintiff grew concerned about the financial condition of Good News. Subsequently, the plaintiff initiated a lawsuit alleging claims for fraud.

Subsequent to the filing of the lawsuit, the defendant filed a petition to compel arbitration and the trial court granted the request. The matter was sent to arbitration, but proceedings stopped because the required fees were not paid to the arbitrator. The arbitration was terminated on that basis. The trial court found that the termination of the arbitration did not constitute an award subject to confirmation. The defendant filed a second petition to compel arbitration and to stay the proceedings. However, after the defendant advised the court that he did not have the funds to pay for the arbitration, the court denied the second petition to compel arbitration.

The defendant filed an appeal and the court of appeal affirmed the decision of the trial court, citing Code of Civil Procedure Section 1281.2. The court of appeal noted that the case must be sent to arbitration if the parties agreed to arbitrate the dispute. There is an exception, however, if the court finds that the right to arbitrate has been waived. To prove a valid waiver, however, a party must show acts inconsistent with the right to pursue arbitration proceedings.

The court of appeal concluded that by failing to agree how to pay the necessary fees to complete the arbitration proceedings, the parties waived the agreement to arbitrate. The court found that through the refusal to reach an agreement over the payment of fees, this resulted in a de facto waiver by their conduct.

 

Published In: Alternative Dispute Resolution (ADR) Updates, Civil Procedure Updates, General Business Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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