Arbitration offers parties a streamlined, cost-effective, and confidential method of dispute resolution. Especially when compared to litigating claims in court. Arbitration requires all parties' consent, frequently in the form of pre-dispute arbitration agreements. If one party refuses to arbitrate as agreed, the other party may seek to compel arbitration. However, a court can refuse to compel arbitration by finding the party seeking arbitration waived its right to compel. Recently, the California Supreme Court in Quach v. California Commerce Club, Inc. made it easier for a party to waive that right.

What Was the Law Before?

For decades, California law on the waiver of arbitration required a showing of prejudice to the party opposing arbitration, among other factors. This prejudice requirement was based on California's strong public policy favoring arbitration over litigation. Prejudice required the party seeking arbitration to have substantially undermined the public policy in favor of arbitration or substantially impaired the other party's ability to take advantage of arbitration's benefits and efficiencies.

What Precipitated the Change?

In 2022, the United States Supreme Court ruled that federal law does not allow for the prejudice requirement in determining the waiver of arbitration. The Court held the federal policy on arbitration was "about treating arbitration contracts like all others, not about fostering arbitration".

What Is the Law Now?

In Quach, the California Supreme Court followed the United States Supreme Court's lead. Thus, the California Supreme Court ruled there is no basis for the prejudice requirement in determining issues of arbitration waiver under California law. The Court held that the waiver of arbitration is instead established under generally applicable contract law. Under this new test for waiver, the party opposing arbitration must prove by clear and convincing evidence that the party seeking arbitration knew of the contractual right to arbitrate and intentionally relinquished or abandoned that right. The new waiver test is exclusively focused on the words and conduct of the party seeking to compel arbitration.

What Is the Takeaway?

Ultimately, Quach makes it easier for a party to waive the right to compel arbitration. As such, if a dispute arises, parties should immediately investigate whether there is an applicable arbitration agreement, and, if so, promptly move to compel arbitration. Delay in moving to compel arbitration may result in waiver, whether or not a party has suffered prejudice.

If you have any questions about arbitration waivers or any other litigation issues, please reach out to the authors.

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