Does Arbitration Waiver Occur by Participation In Litigation ?
The basic rule of Keating v. Superior Court (1982), 31 Cal. 3d 584, 605, is that waiver does not occur by mere participation in litigation.
In McConnell v. Merrill Lynch, Pierce, Fenner & Smith, Inc, 105 Cal. App. 3d 946, 952, footnote 2, the court said that the filing of a demurrer, without more, would not necessarily establish waiver of the right to compel arbitration:
"The trial court must still view the litigation as a whole and determine if the parties' conduct is inconsistent with a desire to arbitrate." (See also Gear v. Webster (1968) 258 Cal. App. 2d 57, 64 65 Cal. Rptr. 255 "Certainly filing a demurrer does not constitute a waiver of the right to seek affirmative relief by answer or cross-complaint after the demurrer is overruled, and neither should filing a demurrer waive the right to petition for arbitration.".)
A party to an arbitration agreement may by conduct waive its right to compel arbitration.
There is no single test for the type of conduct which may waive arbitration rights, but the conduct must have caused prejudice to the opposing party.
The California Supreme Court has summarized:
"We have stressed the significance of the presence or absence of prejudice. Waiver does not occur by mere participation in litigation; there must be 'judicial litigation of the merits of arbitrable issues,' . . . although 'waiver could occur prior to a judgment on the merits if prejudice could be demonstrated' . . . . This result is fully consistent with federal cases which have held that 'as an abstract exercise in logic it may appear that it is inconsistent for a party to participate in a lawsuit for breach of a contract, and later to ask the court to stay that litigation pending arbitration.
Yet the law is clear that such participation, standing alone, does not constitute a waiver, for there is an overriding federal policy favoring arbitration . . . . Mere delay in seeking a stay of the proceedings without some resultant prejudice to a party . . . cannot carry the day.' " (Keating v. Superior Court (1982) 31 Cal. 3d 584, 605-606 183 Cal. Rptr. 360, 645 P.2d 1192, citations omitted, overruled on other grounds in Southland Corp. v. Keating (1984) 465 U.S. 1 104 S. Ct. 852, 79 L. Ed. 2d 1; Doers v. Golden Gate Bridge etc. Dist. (1979) 23 Cal. 3d 180, 188 151 Cal. Rptr. 837, 588 P.2d 1261.)