Tenant Waived Its Right to Arbitrate by Starting Lawsuit Against Landlord

What Happened: If there are any disputes under this lease, we’ll try to resolve them via mediation. If that doesn’t work, we’ll go to binding arbitration. Those were the essential terms of a commercial lease between a landlord and gas station owner. Sure enough, a dispute arose over the landlord’s failure to consent to the tenant’s assignment of the lease. But instead of going to mediation, the tenant started a lawsuit against the landlord. A few months later, mediation was tried and failed. All the while, the lawsuit continued. Finally, the tenant sent the landlord a letter requesting arbitration. Too late, replied the landlord, you’ve already waived your right to arbitrate. The trial court agreed and refused to order the case to be resolved by arbitration.

Ruling: The California appeals court upheld the lower court’s ruling.  

Reasoning: Parties can waive their right to arbitration. The court found that the tenant had, in fact, exercised its waiver rights in this case. It began the lawsuit before initiating mediation, ignoring the ADR provisions of the lease. Not only did the tenant file the lawsuit, it “substantially invoked the machinery of litigation” by bringing a motion to challenge the judge assigned, sending deposition notices, and engaging in discovery. And while investing all of this time and effort in pursuing litigation—and forcing the landlord to do likewise—it didn’t once bring up arbitration.

• Imaco Invs. v. Nazarian Props.: 2020 Cal. App. Unpub. LEXIS 8535