Shiekh Shoes, LLC hired Britani Davis as a sales associate in August 2018. As part of her “new hire” paperwork, Davis and Shiekh signed an agreement “to resolve any and all disputes or claims each may have against the other which relate in any manner whatsoever as to Employee’s employment . . . by binding arbitration” and to “waive their right to commence, be a party to, or class member of, any court action.”

Davis’s employment at Shiekh would prove to be short, however, as she resigned from the position a mere three months after being hired. According to Davis, she was subjected to ongoing, sexually explicit, and demeaning comments, unwanted touching, and indecent exposure from her co-worker, Danilo Ensuncho, as well as other harassing conduct from Shiekh customers.

On March 25, 2019, Davis filed a complaint against Shiekh and Ensuncho for various causes of action including sexual harassment. On July 8, Shiekh, represented by counsel, answered Davis’s complaint, asserting the arbitration agreement as an affirmative defense.

On July 30, Shiekh filed a case management statement, in which it requested a non-jury trial, estimated a trial between five to seven days, and noted that the case would be ready for trial “within 12 months of the date of the filing of the complaint.” Shiekh also anticipated conducting written discovery, depositions, and expert discovery, and filing motions. Additionally, Shiekh noted its willingness to participate in a settlement conference, neutral evaluation, or binding private arbitration.

On August 14, the court scheduled a jury trial for July 20, 2020. On January 13, 2020, Shiekh filed a substitution of attorney, listing itself as its new attorney. On June 30, Davis sought to continue the trial date, Shiekh filed no opposition. The court granted the motion and continued the trial date to September 28, 2020.

On August 24, seven months after being unrepresented by counsel, Shiekh filed a substitution of attorney designating its new attorney. On October 5, 2020 – about 17 months after Shiekh was served with the complaint and seven months before the new trial date – Shiekh moved to compel arbitration and to stay the action pursuant to both the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.) and California Arbitration Act (CAA) (Code Civ. Proc., § 1280 et seq.).

The court, denied the motion. The Court of Appeal affirmed in the published case of Davis v. Shiekh Shoes, LLC – A161961 (October 2022).

After the parties completed briefing, the United States Supreme Court issued its decision in Morgan v. Sundance, Inc. (2022) 142 S.Ct. 1708 (Morgan), holding that under the FAA, courts may not condition a determination of waiver on prejudice. In light of this, we directed the parties to submit supplemental briefs on the applicability of the FAA and Morgan, if any, to the issues raised in the appeal. Both parties submitted briefs accordingly.

Courts have recognized that where the FAA applies, whether a party has waived a right to arbitrate is a matter of federal, not state, law. The Supreme Court in Morgan remarked that “outside the arbitration context, a federal court assessing waiver does not generally ask about prejudice,” and generally, that “court[s] focus[ ] on the actions of the person who held the right,” rather than the “effects of those actions on the opposing party.”

The California Supreme Court has not yet addressed Morgan. Thus, it has not spoken on whether prejudice remains a “critical” consideration in the waiver inquiry under California law, as it held prior to Morgan.

Even if the trial court may have improperly conditioned its waiver determination on a showing of prejudice, its decision may still be affirmed so long as any other correct legal reason exists to sustain it.

Shiekh’s lengthy delay in moving to compel arbitration cannot be squared with an intent to arbitrate. By the time Shiekh filed its motion, 17 months had elapsed since it was served with the complaint. This length of time, in the court’s view, was significant, as reflected in its comments at the hearing on Shiekh’s motion: “[T]his issue of waiver comes up at least once a month in this calendar. And I gotta tell you . . . [¶] . . . [¶] . . . I’ve never seen [a delay] that’s as long as seventeen months . . . .”

The Court of Appeal concluded by noting “In light of Shiekh’s nearly one-and-a-half-year delay in moving to compel arbitration, request for trial, active participation in discovery, acquiescence to the trial and discovery schedule, and court appearances, the trial court had ample evidence from which to conclude Shiekh’s actions were inconsistent with an intent to arbitrate.”