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Burd, Inc. v. Stoneville Furniture Co.

OPINION FILED MAY 23, 1985.

BURD, INC., PLAINTIFF AND PETITIONER-APPELLANT,

v.

STONEVILLE FURNITURE COMPANY, DEFENDANT AND RESPONDENT-APPELLEE.



Appeal from the Circuit Court of Cook County; the Hon. Arthur L. Dunne, Judge, presiding.

PRESIDING JUSTICE JIGANTI DELIVERED THE OPINION OF THE COURT:

This action was brought by the plaintiff, Burd, Inc., through a petition to the circuit court of Cook County to vacate an arbitrator's award. The defendant, Stoneville Furniture Company, then filed a motion to dismiss Burd's petition and to confirm the arbitration award. The trial court denied Burd's petition and granted Stoneville's motion to dismiss Burd's petition and also granted Stoneville's motion to confirm the arbitration award. Subsequently, the trial court granted Stoneville's motion for modification of judgment with respect to interest. It is from these orders that Burd now appeals.

On appeal, Burd contends that Stoneville waived its right to arbitrate as a result of its filing a lawsuit in California, that the arbitrator exceeded his powers by refusing or neglecting to rule on the question of jurisdiction, and that Burd was prejudiced by not having an opportunity to brief the merits of the case pending before the arbitrator.

On April 1, 1980, Stoneville and Burd entered into an agreement (the agreement) under which Stoneville agreed to purchase from Burd certain real and personal property located in Azusa, California. The agreement included the following arbitration provision:

"Any dispute between the parties hereto arising out of and under this agreement shall be submitted by them to the American Arbitration Association for arbitration of said dispute or disputes and the decision of said association shall be binding on all parties hereto. Such arbitration shall be conducted in the jurisdiction in which the dispute arose."

A dispute arose over the value of certain accounts receivable transferred by Burd to Stoneville. On November 30, 1981, Stoneville submitted the dispute to arbitration in Chicago. Burd submitted to the arbitration and on January 20, 1983, an arbitration hearing was commenced at the office of the American Arbitration Association. The hearing was continued for the purpose of filing briefs, affidavits and other documentary evidence.

On January 14, 1983, Stoneville filed a complaint against Burd in the United States District Court for the Central District of California alleging Burd's breach of its warranty of good title regarding real property transferred to Stoneville under the agreement. Joined as a plaintiff in that action was Milton Perloff, the chairman of the board of Stoneville. He became a party to the suit as a result of being a personal guarantor on a promissory note executed between Stoneville and Burd.

On February 11, 1983, Burd notified the arbitrator that Stoneville had instituted the California lawsuit. Burd then requested that the arbitrator dismiss the pending arbitration proceeding for the reason that Stoneville's lawsuit constituted a waiver or revocation of the agreement to arbitrate, thereby revoking the authority of the arbitrator.

On April 15, 1983, Burd and Stoneville moved, pursuant to stipulation before any discovery proceedings commenced, to stay the California action pending arbitration, and the Federal court accordingly stayed the California suit. On May 24, 1983, Burd again requested the arbitrator to rule on the question of jurisdiction.

On August 23, 1983, the arbitrator made an award in favor of Stoneville. Subsequently, Burd filed his petition to vacate the arbitrator's award. The trial court then denied the petition and granted Stoneville's motion to dismiss the petition and to confirm the arbitrator's award.

The first issue Burd raises on appeal is whether Stoneville waived its right to arbitrate the dispute in Chicago by filing a lawsuit in California. Pursuant to paragraph 23 of the agreement, the parties agreed that the agreement would be construed under the laws of the State of California.

• 1 In California, as a matter of public policy, arbitration is a strongly favored means of settling disputes. (Ericksen, Arbuthnot, McCarthy, Kearney & Walsh, Inc. v. 100 Oak Street (1983), 35 Cal.3d 312, 673 P.2d 251, 197 Cal.Rptr. 581.) Because arbitration is such a highly favored means of settling disputes, the courts have been admonished to closely scrutinize any allegation of waiver of such right. (Doers v. Golden Gate Bridge, Highway & Transportation Dist. (1979), 23 Cal.3d 180, 588 P.2d 1261, 151 Cal.Rptr. 837.) Therefore, the mere filing of a lawsuit does not constitute a waiver of the right to arbitrate (Golden Gate Bridge, Highway & Transportation Dist. (1979), 23 Cal.3d 180, 188, 588 P.2d 1261, 1265, 151 Cal.Rptr. 839, 841), nor does the mere participation in litigation. There must be "judicial litigation of the merits of arbitrable issues." (Keating v. Superior Court (1982), 31 Cal.3d 584, 645 P.2d 1192, 183 Cal.Rptr. 360, appeal dismissed in part, rev'd in part sub nom. Southland Corp. v. Keating (1984), 465 U.S. 1, 79 L.Ed.2d 1, 104 S.Ct. 852.) However, waiver could occur prior to a judgment on the merits if prejudice would be demonstrated. Doers v. Golden Gate Bridge, Highway & Transportation Dist. (1979), 23 Cal.3d 180, 588 P.2d 1261, 151 Cal.Rptr. 837.

Both parties acknowledged that Keating v. Superior Court (1982), 31 Cal.3d 584, 645 P.2d 1192, 183 Cal.Rptr. 360, appeal dismissed in part, rev'd in part sub nom. Southland Corp. v. Keating (1984), 465 U.S. 1, 79 L.Ed.2d 1, 104 S.Ct. 852, sets forth the applicable law regarding waiver of an agreement to arbitrate. However, Burd cites to a recent California high court decision, Christensen v. Dewor Developments (1983), 33 Cal.3d 778, 661 P.2d 1088, 191 Cal.Rptr. 8, a case that is factually on point to the instant matter and one that cites Keating. In Christensen, the court explained that while there is no single test for establishing waiver, the relevant factors include whether the party seeking arbitration (1) has previously taken steps inconsistent with the intent to invoke arbitration; (2) is unreasonably delayed in seeking arbitration; (3) has acted in bad faith or with wilful misconduct; or (4) has caused undue prejudice. (Christensen v. Dewor Developments (1983), 33 Cal.3d 778, 782, 661 P.2d 1088, 1091, 191 Cal.Rptr. 8, 10.) In Christensen, the plaintiff filed a lawsuit over admittedly arbitrable disputes for the asserted purpose of discovering his opponent's legal theories. One day before the scheduled hearing on the adequacy of his amended complaint, the plaintiff abandoned his action and sought to pursue the matter through arbitration. The court found the plaintiff to have waived his right to arbitrate.

• 2 In the instant case, there are several key facts that distinguish it from Christensen. First of all, the subject matter for the two disputes in the case at bar are not factually related. While they both derive from the same original buy/sell agreement, the dispute in Chicago involved the value of accounts receivable, while the dispute in California involved an encroachment on real property. This is ...


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