Charles J. Rounds Co. v. Joint Council of Teamsters No. 42

In Charles J. Rounds Co. v. Joint Council of Teamsters No. 42 (1971) 4 Cal. 3d 888, an employer filed a complaint against the Teamsters Union for breach of the "no strike" clause in their collective bargaining agreement. The collective bargaining agreement also provided that " 'all grievances or disputes arising between the parties over . . . this Agreement shall be settled by binding arbitration.' " ( Rounds, supra, 4 Cal. 3d at p. 892.) The union made three separate attempts in the trial court to force the employer into arbitration, but their efforts were unsuccessful. Approximately four years after the employer's lawsuit was filed, the union brought an action in the federal courts to compel arbitration, but that action was dismissed on laches and statutes of limitations grounds. Six years after the employer's suit was filed, it came to trial. The parties stipulated to try the special defense (that the dispute was covered by the arbitration agreement) first. Following trial on this defense, the trial court determined that the arbitration procedure was intended to cover all disputes, including the one before it. Accordingly, the trial court dismissed the lawsuit. The California Supreme Court affirmed. In so doing, it made the following observations: "Where the only issue litigated is covered by the arbitration clause, and where plaintiff has not first pursued or attempted to pursue his arbitration remedy, it should be held that: (1) plaintiff has impliedly waived his right to arbitrate, such that defendant could elect to submit the matter to the jurisdiction of the court; (2) defendant may also elect to demur or move for summary judgment on the ground that the plaintiff has failed to exhaust arbitration remedies; (3) defendant may also elect to move for a stay of proceedings pending arbitration if defendant also moves to compel arbitration. Plaintiff may of course sue preliminarily to enforce its arbitration rights. Where plaintiff has attempted to exhaust its arbitration remedy or raises issues not susceptible to arbitration or not covered by the arbitration agreement, defendant may not merely assert failure to arbitrate an issue as an affirmative defense; a stay rather than dismissal of the suit is then proper. The Supreme Court went on in the next sentence to state, "What remedies plaintiff may have to now compel arbitration must await assertion of that right. Defendant was entitled to the dismissal." ( Rounds, supra, 4 Cal. 3d. at pp. 899-900.) In other words, the Rounds court left open the question of what remedies might be available to a plaintiff who had failed to initiate arbitration notwithstanding an agreement to arbitrate. The Supreme Court affirmed a judgment dismissing the employer's complaint on the grounds that the dispute constituting the subject of the lawsuit was covered by an arbitration clause in such agreement. In a lengthy discussion of California law, the Supreme Court noted: "Our courts for many years have held that, in the absence of waiver by the other party, an aggrieved party must seek to enforce his contractual right to arbitration before suing for breach of contract. '"Such arbitration, or an unsuccessful attempt to secure the same, is a condition precedent" to the right to maintain an action for breach of the contract.'" (Id. at p. 894.) The Supreme Court also noted case law analogizing contractual arbitration to "an administrative remedy that must be exhausted before seeking judicial relief." (Ibid.) Further, the Supreme Court observed: "Several of our Courts of Appeal have adopted this reasoning, giving summary judgment to defendants or dismissing plaintiff's cause of action where failure to pursue a contractual arbitration remedy is proved as an affirmative defense. In none of these cases, it may be added, did defendant demand arbitration, but rather raised failure of plaintiff to arbitrate as a defense to the cause of action. In each of the above-entitled cases, the fact situation was similar to the one at bar: Plaintiff had sued on the contract rather than arbitrate and had never sought to pursue its arbitration remedy. Moreover, each and every issue alleged in plaintiff's cause of action could have been settled through arbitration procedures. Finally, defendant did not waive its right to arbitration, but consistently asserted failure to pursue arbitration as an affirmative defense." ( Id. at pp. 894-895.)