Hong v. CJ CGV America Holdings, Inc.

Filed 12/18/13
CERTIFIED FOR PARTIAL PUBLICATION*

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FIVE

AUGUSTINE HONG et al., B246945

Plaintiffs and Respondents, (Los Angeles County
Super. Ct. No. BC487990)
v.

CJ CGV AMERICA HOLDINGS, INC. et
al.,

Defendants and Appellants.

APPEAL from an order of the Superior Court of Los Angeles County, Michael L.
Stern, Judge. Affirmed.
Bird, Marella, Boxer, Wolpert, Nessim, Drooks & Lincenberg, Ekwan R. Rhow
and David I. Hurwitz; Quinn Emmanuel, Urquhart & Sullivan, LLP and Daniel H.
Bromberg for Defendants and Appellants.
Browne George Ross, Eric M. George, Benjamin D. Scheibe and Lauren
Woodland for Plaintiffs and Respondents.

*
Pursuant to California Rules of Court, rules 8.1100 and 8.1110, this opinion is
certified for publication with the exception of part III (D).
 I. INTRODUCTION

Defendants, CJ CGV America Holdings, Incorporated (CJ CGV America), Joon
Hwan Choi, Theodore Kim and Sang Heum Cho, appeal from an order denying their
motion to compel arbitration. Plaintiffs, Augustine Hong1, Michael Hong and Nae
Young Chung, sued defendants for fiduciary duty breach. Defendants moved to compel
plaintiffs to arbitrate pursuant to an arbitration clause in a stock purchase agreement.
Plaintiffs opposed the motion, arguing, among other things, defendants waived the right
to arbitrate by their conduct in this case and filing a second suit against Augustine. The
trial court rejected defendants’ argument the waiver by litigation conduct defense should
have been decided by an arbitrator. The motion to compel arbitration was denied.
In the published portion of this opinion, we discuss defendants’ contention that the
issue of waiver by litigation conduct should have been decided by an arbitrator, not the
trial court. California statutory and decisional authority recognizes the issue of waiver by
litigation conduct is ordinarily resolved by the trial court, not an arbitrator. (Code Civ.
Proc., § 1281.2; Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 982.)
But defendants assert as this case is subject to the Federal Arbitration Act, the waiver by
litigation conduct issue should have been decided by the arbitrator. Defendants rely on
the following language appearing in Howsam v. Dean Witter Reynolds, Inc. (2002) 537
U.S. 79, 84 (Howsam): “So, too, the presumption is that the arbitrator should decide
‘allegation[s] of waiver, delay, or a like defense to arbitrability.’ Moses H. Cone
Memorial Hospital [(1983) 460 US 1,] 24-25.” Based upon the near-unanimous analysis
of federal and state courts, we conclude the foregoing language in Howsam does not
apply here. The trial court correctly ruled it, rather than an arbitrator, should decide the
merits of the waiver by litigation conduct defense to arbitration asserted by plaintiffs.
We affirm the order denying the motion to compel arbitration.

1
Because of a similarity in surnames, we will refer to Augustine Hong by his first
name for clarity’s sake. No disrespect is intended.

2
 II. BACKGROUND

A. The Second Amended Complaint

Plaintiffs filed their original complaint on July 9, 2012 against: CJ CGV America,
Mnet Media Corporation (Mnet); CJ Corporation; CJ E&M Corporation; Mi-Kyung Lee;
Joon Hwan Choi; Mr. Kim; and Mr. Cho. On August 29, 2012, plaintiffs filed their first
amended complaint. On September 19, 2012, defendants filed a demurrer to the first
amended complaint. Defendants argued plaintiffs could not proceed with a direct
lawsuit. The demurrer was sustained on October 19, 2012 with leave to amend. On
October 29, 2012, plaintiffs filed their second amended complaint, the operative
pleading, as a derivative lawsuit.
According to the second amended complaint, plaintiffs are shareholders of
ImaginAsian Entertainment, Incorporated (ImaginAsian). Mr. Chung and Mr. Hong are
common shareholders and Augustine is one of the largest common shareholders.
Plaintiffs are residents of New Jersey. ImaginAsian is a multi-media company operating
as a broadcast television network in many markets in the United States, catering to Asian-
American and South Asian-American culture and entertainment. ImaginAsian is a
corporation existing under Delaware law.
Korean conglomerate CJ Corporation expressed an interest in investing in
ImaginAsian. CJ CGV America and Mnet are affiliates of CJ Corporation. CJ CGV
America is a corporation existing under California law. On August 14, 2009, plaintiffs,
Mnet and CJ CGV America entered into a contract. The August 14, 2009 stock
arrangement is entitled, “ImaginAsian Entertainment, Inc. Series A Preferred Stock
Purchase Agreement” (purchase agreement). The stock purchase agreement contains the
arbitration clause at issue in this appeal. Mnet and CJ CGV America received preferred
stock. As a result, Mnet and CJ CGV America secured a slight majority interest in
ImaginAsian. Plaintiffs became minority shareholders. Mnet and CJ CGV America
secured the authority to select three of the five directors of ImaginAsian. Mr. Choi, who

3
is a corporate officer, and Mr. Kim are two of the directors. Mr. Choi, Mr. Kim and
Mr. Cho are residents of California. For a two-year period, Mnet and CJ CGV America
were given the ability to make additional investments in ImaginAsian under certain terms
and conditions which they exercised. Plaintiffs were offered the ability to purchase
additional shares, but did not, further reducing their percentage ownership interest.
After this two-year period elapsed, Mnet and CJ CGV America indicated an intent
to invest additional monies into ImaginAsian. But the offer was at a per share price
below what plaintiffs believed was the actual value of ImaginAsian. Defendants’
intended price would be set by ImaginAsian’s directors’ board, which CJ Corporation,
Mnet and CJ CGV America controlled. ImaginAsian retained an unidentified valuation
firm to assess its value. However, defendants sought to influence the valuation firm to
make a low value that would favor them. The low valuation would be at the expense of
plaintiffs and other common stock shareholders.
The second amended complaint alleges defendants had a fiduciary duty to engage
fairly with the minority shareholders. Plaintiffs allege: defendants valued ImaginAsian
at an artificially low price; this would allow defendants to acquire a larger ownership
interest; defendants forced ImaginAsian to devote an increasing percentage of its
programming to Korean language programs; and this programming would benefit
defendants. ImaginAsian’s stated mission was to serve all Asian-American groups and
Americans interested in Asian culture and entertainment. Plaintiffs asserted these
fiduciary duty breaches cost ImaginAsian over $9.8 million.

B. Defendants’ Motion To Require Plaintiff To Furnish Bond

On November 9, 2012, 11 days after the second amended complaint was filed,
defendants moved to require plaintiffs to furnish a bond pursuant to Corporations Code
section 800. Defendants argued there was no reasonable possibility plaintiffs’ lawsuit
would benefit ImaginAsian or its shareholders. Defendants asserted without a new influx
of funds, they were forced to take a $12 million loan. Defendants maintained they

4
complied with the programming and licensing agreement (“licensing agreement”)
regarding the amount of Korean language programming. Defendants requested that
plaintiffs be required to post a $50,000 bond to cover the probable litigation expenses in
the defense of the action. Defendants relied upon two declarations. The first declaration
was executed by David I. Hurwitz, counsel for defendants. Mr. Hurwitz indicated he had
been extensively involved in shareholder derivative litigation for over 20 years in various
state and federal courts. Mr. Hurwitz indicated the fees which would be incurred by
defendants “in connection with this action” would exceed $50,000. Mr. Hurwitz declared
that defendants had successfully demurred to the first amended complaint and anticipated
demurring to the second amended complaint as well.
In addition, Mr. Hurwitz described the extensive discovery that had occurred since
the filing of the complaint: “Defendants have had to respond to Plaintiffs’ request for
production of documents and electronically stored information, including more than sixty
separate requests to CJ CGV alone, and are in the midst of document collection efforts,
and CJ CGV has responded to Plaintiffs’ First Set of Special Interrogatories.” In
addition, Mr. Hurwitz declared, “Plaintiffs have noticed the deposition of one of the
individual defendants, Theodore Kim, and given the number of parties and issues, the
cost of preparing for, taking and defending the depositions alone would exceed fifty
thousand dollars.” Finally, Mr. Hurwitz further described both the past and anticipated
litigation, “Counsel for co-defendants (who reside[s] in China) has already filed a
successful motion to quash service on behalf of its clients. If the plaintiffs make further
attempts at service and the Court finds that the Korean resident defendants are properly in
the action, that would significantly increase the cost of litigation. [¶] . . . Should the
Second Amended Complaint survive a demurrer, Defendants would move for summary
judgment and/or summary adjudication, all of which could increase the amount of
defense costs well beyond the statutory maximum, not to mention the aggregate expense
if the action was tried.”
The second declaration was filed by Sang Heum Cho, the chief operating officer
of ImaginAsian. Much of the declaration relates to the merits of the litigation. However,

5
one part of Mr. Cho’s declaration relates to a separate agreement between the parties.
Mr. Cho explained, “Concurrently with the Stock Purchase Agreement, ImaginAsian,
entered into a Programming and Graphics License Agreement with Mnet for a total of
1,545 hours of Korean language programming to be delivered to ImaginAsian on a
weekly basis over the license period.” The licensing agreement, which contains no
arbitration clause, was negotiated and signed by Augustine.
On January 2, 2013, plaintiffs filed their opposition. Plaintiffs argued increased
Korean programming would negatively affect ImaginAsian’s outside interests.
ImaginAsian’s outside interests had advocated programming made in the United States
by Asian Americans. Plaintiffs asserted ImaginAsian’s programming was 80 to 90
percent Korean programming. Increased Korean programming also negatively affected
distribution because foreign language channels were not offered to as many subscribers.
Plaintiffs contended defendants attempted to seize a larger ownership interest at an unfair
price and wanted to enjoin any future offering. Plaintiffs filed three declarations
discussing the litigation’s merits totaling 28 pages plus 94 pages of written exhibits.
On January 8, 2013, defendants filed their reply. Defendants argued they had
increased subscribers and revenue and invested considerable resources for Asian-
American programming. Defendants asserted they never made the offering to any
shareholders. On January 15, 2013, the trial court denied defendants’ motion to require
the posting of a bond. The trial court ruled insufficient evidence existed to require
plaintiffs to furnish a bond.

C. CJ CGV America’s Complaint Against Augustine

On December 20, 2012, CJ CGV America filed a separate action against
Augustine. CJ CGV America alleged fraud, negligent misrepresentation and breach of
contract against Augustine. CJ CGV America alleged Augustine misrepresented the
number of households served by ImaginAsian’s television network. CJ CGV America
alleged it relied on this representation in signing the purchase agreement.

6
 D. Defendants’ Motion To Compel Arbitration

On January 18, 2013, defendants filed a motion to compel arbitration. Defendants
contended the arbitration clause in the purchase agreement signed by Augustine with CJ
CGV America and Mnet applied. Defendants argued, “In opposing defendants’ motion
to require plaintiffs to furnish a bond as security for their derivative claims, plaintiffs
made clear that they had essentially transformed their complaint from one of seeking an
injunction against an offering to one seeking damages based on alleged diminution in the
value resulting from defendants’ having allegedly forced ImaginAsian to broadcast
excessive Korean-language television programs.” Defendants asserted a substantial part
of the money in consideration for the purchase agreement was for more than 1,500 hours
of Korean language programming in the licensing agreement. Defendants argued the
licensing agreement was a material inducement for them to enter the purchase agreement.
The purchase agreement’s arbitration clause is located at section 9.17: “Any claim
or controversy arising out of or relating to this Agreement must be submitted and settled
as set forth in this Section 9.17. If any party to this Agreement alleges that another party
to this Agreement has breached any of the terms of the Agreement, then the party
alleging breach will inform the other parties of such breach in writing. Upon receipt of
such notice, the allegedly non-performing party will have 10 days to cure the alleged
breach.” In the event the dispute is not yet resolved, the dispute is to be submitted to
non-binding mediation in Los Angeles, California. If mediation does not resolve the
dispute, section 9.17(c) states: “[T]he dispute will be submitted to binding arbitration in
Los Angeles, California, before a sole arbitrator. . . . Except as provided by the Rules
[and Procedures of the Judicial Arbitration & Mediation Services] and this Section 9.17,
arbitration shall be the sole, exclusive, and final remedy for any dispute under this
Agreement.”
On January 28, 2013, plaintiffs filed their opposition. Plaintiffs argued the claims
asserted were not arbitrable because most of the defendants were not signatories.
Further, plaintiffs asserted the claims did not arise out of or relate to the purchase

7
agreement. Also, plaintiffs contended defendants waived their right to arbitration by
filing a demurrer, bond motion, and separate action against Augustine over the span of
six months. Even if certain claims were subject to arbitration, plaintiffs argued the court
should deny the motion to avoid inconsistent results and duplicative proceedings.
Plaintiffs also asserted defendants failed to provide statutorily required notice of the
motion. As noted, the licensing agreement contains no arbitration clause.
On February 1, 2013, defendants filed their reply. Defendants reiterated their
arguments in their motion to compel arbitration. The hearing was held on February 7,
2013, at which the trial court denied defendants’ motion to compel arbitration. Plaintiffs
issued notice of the ruling on February 8, 2013. According to the settled statement on
appeal, the trial court denied the motion for all the reasons set forth in plaintiffs’
opposition. Plaintiffs issued notice of entry of judgment on February 13, 2013.
Defendants subsequently appealed the order.

III. DISCUSSION

A. Overview

An order denying a motion to compel arbitration is appealable. (Code Civ. Proc.,
§ 1294, subd. (a); Valentine Capital Asset Management, Inc. v. Agahi (2009) 174
Cal.App.4th 606, 612, fn. 5.) There is no dispute concerning the language of the
arbitration clause. We accordingly review de novo the applicability of the arbitration
clause. (See Ronay Family Limited Partnership v. Tweed (2013) 216 Cal.App.4th 830,
837; EFund Capital Partners v. Pless (2007) 150 Cal.App.4th 1311, 1320.) We review
the trial court’s finding of arbitration waiver for substantial evidence. (St. Agnes Medical
Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1196 [“Generally, the
determination of waiver is a question of fact, and the trial court’s finding, if supported by
substantial evidence, is binding on the appellate court.”] (St. Agnes); Engalla v.

8
Permanente Medical Group, Inc., supra, 15 Cal.4th at p. 983; Platt Pacific, Inc. v.
Andelson (1993) 6 Cal.4th 307, 319.)
Code of Civil Procedure section 1281.2, subdivision (a) provides in pertinent part:
“On petition of a party to an arbitration agreement alleging the existence of a written
agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such
controversy, the court shall order the petitioner and the respondent to arbitrate the
controversy if it determines that an agreement to arbitrate the controversy exists, unless it
determines that: [¶] (a) The right to compel arbitration has been waived by the
petitioner; or [¶] (b) Grounds exist for the revocation of the agreement. . . .” Under both
the Federal Arbitration Act and state law, waivers of the right to arbitrate are not lightly
inferred. (St. Agnes, supra, 31 Cal.4th at p. 1195, citing Christensen v. Dewor
Developments (1983) 33 Cal.3d 778, 782.) Thus, any doubts concerning waiver should
be resolved in favor of arbitration. (St. Agnes, supra, 31 Cal.4th at p. 1195; see Moses H.
Cone Memorial Hospital v. Mercury Construction Corp., supra, 460 U.S. at pp. 24-25
(Moses H. Cone).)
In St. Agnes, our Supreme Court adopted a multi-factor test for determining
whether a party has waived the right to arbitrate: “‘In determining waiver, a court can
consider “(1) whether the party’s actions are inconsistent with the right to arbitrate; (2)
whether ‘the litigation machinery has been substantially invoked’ and the parties ‘were
well into preparation of a lawsuit’ before the party notified the opposing party of an
intent to arbitrate; (3) whether a party either requested arbitration enforcement close to
the trial date or delayed for a long period before seeking a stay; (4) whether a defendant
seeking arbitration filed a counterclaim without asking for a stay of the proceedings; (5)
‘whether important intervening steps [e.g., taking advantage of judicial discovery
procedures not available in arbitration] had taken place’; and (6) whether the delay
‘affected, misled, or prejudiced’ the opposing party.”’” (St. Agnes, supra, 31 Cal.4th at p.
1196, quoting Sobremonte v. Superior Court (1998) 61 Cal.App.4th 980, 992; accord
Wagner Construction Co. v. Pacific Mechanical Corp. (2007) 41 Cal.4th 19, 30-31;
Fisher v. A.G. Becker Paribas Inc. (1986) 791 F.2d 691, 694 [“A party seeking to prove

9
waiver of a right to arbitrate must demonstrate: (1) knowledge of an existing right to
compel arbitration; (2) acts inconsistent with that existing right; and (3) prejudice to the
party opposing arbitration resulting from such inconsistent acts.”].)
Under both federal and state law, whether litigation results in prejudice to the
party opposing arbitration is critical in waiver determinations. (St. Agnes, supra, 31
Cal.4th at p. 1203; Augusta v. Keehn & Associates (2011) 193 Cal.App.4th 331, 340;
Zamora v. Lehman (2010) 186 Cal.App.4th 1, 16.) Our Supreme Court explained:
“Because merely participating in litigation, by itself, does not result in a waiver, courts
will not find prejudice where the party opposing arbitration shows only that it incurred
court costs and legal expenses. [Citations.] [¶] Rather, courts assess prejudice with the
recognition that California’s arbitration statutes reflect “‘a strong public policy in favor of
arbitration as a speedy and relatively inexpensive means of dispute resolution’” and are
intended “‘to encourage persons who wish to avoid delays incident to a civil action to
obtain an adjustment of their differences by a tribunal of their own choosing.”’
[Citation.] Prejudice typically is found only where the petitioning party’s conduct has
substantially undermined this important public policy or substantially impaired the other
side’s ability to take advantage of the benefits and efficiencies of arbitration. [¶] For
example, courts have found prejudice where the petitioning party used the judicial
discovery processes to gain information about the other side’s case that could not have
been gained in arbitration [citations]; where a party unduly delayed and waited until the
eve of trial to seek arbitration [citation]; or where the lengthy nature of the delays
associated with the petitioning party’s attempts to litigate resulted in lost evidence
[citation].” (St. Agnes, supra, 31 Cal.4th at pp. 1203-1204; see O’Donoghue v. Superior
Court (2013) 219 Cal.App.4th 245, 264-265.)
Here, plaintiffs argued defendants waived arbitration by: failing to plead a right to
arbitration as a basis for the demurrer (which by itself is insufficient to support a waiver
finding); participating substantially in the discovery process; filing a case management
statement declining to submit to voluntary binding arbitration; and CJ CGV America
filing a separate lawsuit against Augustine for misrepresentations inducing it to sign the

10
purchase agreement, rather than initiating arbitration. Further, plaintiffs argued
defendants waived arbitration by filing a Corporations Code section 800 motion. If
successful, the Corporations Code section 800 motion would have required plaintiffs to
post a bond to cover potential costs incurred in the action. Also, plaintiffs argue the bond
motion: was supported by a declaration detailing the substantial law and motion and
discovery proceedings that had occurred; used the word “action” to describe the forum
where the potential litigation costs would be incurred; and described the anticipated
summary judgment or adjudication motion. Plaintiffs argue they were required to file a
lengthy opposition to the bond motion. And plaintiffs argue that much of their opposition
consisted of declarations and evidence directly pertinent to the merits of their claims.
Plaintiffs argue all of these factors taken together constitute substantial evidence
defendants waived their right to compel arbitration.

B. The Trial Court Correctly Ruled It, Rather Than The Arbitrator,
Must Decide The Waiver By litigation Conduct Issue

1. The present case is subject to the Federal Arbitration Act

Defendants argue that the arbitration agreement in our case is subject to the
Federal Arbitration Act because it involves interstate commerce. (9 U.S.C. § 2
[“transaction involving commerce”]; Allied-Bruce Terminex Companies, Inc. v. Dobson
(1995) 513 U.S. 265, 277 [“word ‘involving,’ like ‘affecting,’ signals an intent to
exercise Congress’s commerce power to the full”].) We agree. The contracts at issue
arise in commerce for purposes of the Federal Arbitration Act: ImaginAsian, a Delaware
corporation, has operated a television network in the United States; the programming is
directed towards “all Asian-American and South Asian-American groups in the United
States . . .”; Mnet is a nationwide television network which had entered into a “carriage”
agreement with Comcast Corporation; the alleged fiduciary duty breach arises in part out
of contractual duties resulting from a 2010 contract between Comcast Corporation and

11
NBC Universal concerning increased Asian programming; negotiations involving foreign
nationals and Congressional employees led to the Comcast Corporation and NBC
Universal agreement; and both individual plaintiffs and defendants reside in different
states. (Coleman v. National Movie-Dine, Inc. (E.D.Penn. 1978) 449 F.Supp. 945, 947-
948; Network Cinema Corp. v. Glassburn (S.D.N.Y. 1973) 357 F.Supp. 169, 170-171.)

2. The analysis in Howsam relied upon by defendants

Defendants contend under the Federal Arbitration Act the waiver issue should
have been decided by an arbitrator and not the trial court. As noted, defendants rely on
language appearing in Howsam, supra, 537 U.S. at page 84. The language in Howsam,
supra, 537 U.S. at page 84 finds its basis in Moses H. Cone, supra, 460 U.S. at pages 24-
25.
We begin by analyzing the facts and language in Moses H. Cone, supra, 460 U.S.
at pages 24-25. The dispute at issue was between a hospital, the plaintiff, and the
defendant, a construction contractor. The construction contact contained an arbitration
clause. (Id. at p. 5.) In Moses H. Cone, the hospital filed suit in state court. The high
court described the state court action thusly: “[T]he Hospital filed an action on the
morning of October 8 in the Superior Court of Guilford County, [North Carolina],
naming Mercury and the Architect as defendants. The complaint alleged that Mercury’s
claim was without factual or legal basis and that it was barred by the statute of
limitations. It alleged that Mercury had lost any right to arbitration under the contract
due to waiver, laches, estoppel, and failure to make a timely demand for arbitration. The
complaint also alleged various delinquencies on the part of the Architect. As relief, the
Hospital sought a declaration that there was no right to arbitration; a stay of arbitration; a
declaration that the Hospital bore no liability to Mercury; and a declaration that if the
Hospital should be found liable in any respect to Mercury, it would be entitled to
indemnity from the Architect. The complaint was served on Mercury on October 9.” (Id.
at p. 7.) The defendant immediately served an arbitration demand. After further

12
skirmishing in the state court, the defendant filed a diversity action in federal court. The
district court stayed the federal court suit pending resolution of the state court litigation as
both suits involved issues of arbitrability. (Ibid.)
The principal issue addressed by the high court was whether the district court
could stay the federal suit out of deference to the parallel litigation brought in state court.
(Moses H. Cone, supra, 460 U.S. at p. 13.) In addressing what the high court
characterized as this principal question, it engaged in a weighing process involving
abstention principles. According to the high court, the pertinent factors to be weighed
were identified in Colorado River Water Conservation District v. United States (1976)
424 U.S. 800, 813-820 (Colorado River). (Moses H. Cone, supra, 460 U.S. at p. 13.)
Apart from the factors expressly described in Colorado River, the high court identified an
additional consideration--federal statutory law (the Federal Arbitration Act) provided the
rule for decision on the merits. (Moses H. Cone, supra, 460 U.S. at pp. 24-25.) The high
court then engaged in a generalized discussion concerning the duty to arbitrate.2 The

2
The relevant discussion concerning arbitration was as follows: “The basic issue
presented in Mercury’s federal suit was the arbitrability of the dispute between Mercury
and the Hospital. Federal law in the terms of the Arbitration Act governs that issue in
either state or federal court. Section 2 is the primary substantive provision of the Act,
declaring that a written agreement to arbitrate ‘in any maritime transaction or a contract
evidencing a transaction involving commerce . . . shall be valid, irrevocable, and
enforceable, save upon such grounds as exist at law or in equity for the revocation of any
contract.’ 9 U.S.C. § 2. Section 2 is a congressional declaration of a liberal federal
policy favoring arbitration agreements, notwithstanding any state substantive or
procedural policies to the contrary. The effect of the section is to create a body of federal
substantive law of arbitrability, applicable to any arbitration agreement within the
coverage of the Act. In Prima Paint Corp. v. Flood & Conklin Mfg. Corp., 388 U.S. 395
(1967), for example, the parties had signed a contract containing an arbitration clause, but
one party alleged that there had been fraud in the inducement of the entire contract
(although the alleged fraud did not go to the arbitration clause in particular). The issue
before us was whether the issue of fraud in the inducement was itself an arbitrable
controversy. We held that the language and policies of the Act required the conclusion
that the fraud issue was arbitrable. Id., at 402-404. Although our holding in Prima Paint
extended only to the specific issue presented, the Courts of Appeals have since
consistently concluded that questions of arbitrability must be addressed with a healthy
regard for the federal policy favoring arbitration. We agree. The Arbitration Act

13
high court, as part of that weighing process, made the following observation, “The
Arbitration Act establishes that, as a matter of federal law, any doubts concerning the
scope of arbitrable issues should be resolved in favor of arbitration, whether the problem
at hand is the construction of the contract language itself or an allegation of waiver,
delay, or a like defense to arbitrability.” (Moses H. Cone, supra, 460 U.S. at pp. 24-25,
fn. omitted; italics added.) It is this language concerning “‘waiver, delay, or a like
defense to arbitrability’” that is repeated in Howsam and defendants rely upon. Of
consequence is the omitted footnote in the quoted language from Moses H. Cone. The
omitted footnote lists a series of cases which are illustrative of the scope of the duty to
arbitrate. (Id. at p. 25, fn. 31.) One of the cases cited in footnote 31 involved the issues
of waiver of the right to arbitrate based upon participation in the district court litigation.
(Ibid.) That case was Germany v. River Terminal R. Co. (6th Cir. 1973) 477 F.2d 546,
547. The Sixth Circuit panel decided the issue of whether there was waiver because of a
litigant’s participation in the district court proceedings. (Ibid.) The Court of Appeals
held the litigant did not waive the right to arbitrate by participating in the district court
proceedings. (Ibid.)
As noted, defendants rely on Howsam, supra, 537 U.S. at page 84. Howsam
involves the timeliness of commencing arbitration proceedings before the National
Association of Securities Dealers. The National Association of Securities Dealers by rule
required a submission to arbitration occur within six years from the occurrence giving
rise to the dispute. (Id. at p. 81.) The defendant, a brokerage house, upon receipt of the
submission to arbitration, filed suit in federal court. The defendant contended the issue of
whether the dispute was timely submitted to arbitration within the six-year limitation
period was to be decided by the arbitrator, not a court. (Id. at p. 82.)

establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable
issues should be resolved in favor of arbitration, whether the problem at hand is the
construction of the contract language itself or an allegation of waiver, delay, or a like
defense to arbitrability.” (Moses H. Cone, supra, 460 U.S. at pp. 24-25; fns. omitted.)

14
 The United States Supreme Court drew a distinction between a “gateway” issue
such as arbitrability and a dispute’s merits. The high court described this distinction as
follows: “Linguistically speaking, one might call any potentially dispositive gateway
question a ‘question of arbitrability,’ for its answer will determine whether the underlying
controversy will proceed to arbitration on the merits. The Court’s case law, however,
makes clear that, for purposes of applying the interpretive rule, the phrase ‘question of
arbitrability’ has a far more limited scope. See [First Options of Chicago, Inc. v. Kaplan
(1995)] 514 U.S. [938,] 942. The Court has found the phrase applicable in the kind of
narrow circumstance where contracting parties would likely have expected a court to
have decided the gateway matter, where they are not likely to have thought that they had
agreed that an arbitrator would do so, and, consequently, where reference of the gateway
dispute to the court avoids the risk of forcing parties to arbitrate a matter that they may
well not have agreed to arbitrate.” (Howsam, supra, 537 U.S. at pp. 83-84.)
The high court continued: “Thus, a gateway dispute about whether the parties are
bound by a given arbitration clause raises a ‘question of arbitrability’ for a court to
decide. See [First Options of Chicago, Inc. v. Kaplan, supra, 514 U.S.] at [pages] 943-
946 (holding that a court should decide whether the arbitration contract bound parties
who did not sign the agreement); John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543,
546-547 (1964) (holding that a court should decide whether an arbitration agreement
survived a corporate merger and bound the resulting corporation). Similarly, a
disagreement about whether an arbitration clause in a concededly binding contract
applies to a particular type of controversy is for the court. See, e.g., AT & T Technologies
[(1986) 475 U.S. 643,] 651-652 (holding that a court should decide whether a labor-
management layoff controversy falls within the arbitration clause of a collective-
bargaining agreement); Atkinson v. Sinclair Refining Co., 370 U.S. 238, 241-243 (1962)
[overruled on a different point in Boys Markets, Inc. v. Retail Clerk’s Union (1970) 398
U.S. 235, 250, fn. 18] (holding that a court should decide whether a clause providing for
arbitration of various ‘grievances’ covers claims for damages for breach of a no-strike
agreement).” (Howsam, supra, 537 U.S. at p. 84.)

15
 In the next paragraph of Howsam, the high court identified other gateway issues
which an arbitrator decides. The high court explained the phrase “question of
arbitrability” is inapplicable in circumstances where parties would likely expect that an
arbitrator would decide the gateway matter. For example, a dispute’s procedural question
which bears “on its final disposition” is presumptively for resolution by an arbitrator. As
an example as an issue reserved for the arbitrator, the high court cited John Wiley & Sons,
Inc. v. Livingston, supra, 376 U.S. at page 557 (John Wiley). (Howsam, supra, 537 U.S.
at p. 84.) John Wiley held an arbitrator should decide whether the first two steps of a
grievance procedure, which were prerequisites to arbitration, had been completed. (John
Wiley, supra, 376 U.S. at pp. 556-558.) In Howsam, after discussing the holding in John
Wiley, the high court stated: “So, too, the presumption is that the arbitrator should decide
‘allegations of waiver, delay, or a like defense to arbitrability.’ Moses H. Cone Memorial
Hospital, supra, at 24-25. Indeed, the Revised Uniform Arbitration Act of 2000
(RUAA), seeking to ‘incorporate the holdings of the vast majority of state courts and the
law that has developed under the [Federal Arbitration Act],’ states that an ‘arbitrator shall
decide whether a condition precedent to arbitrability has been fulfilled.’ RUAA § 6(c),
and comment 2, 7 U.L.A. 12-13 (Supp. 2002). And the comments add that ‘in the
absence of an agreement to the contrary, issues of substantive arbitrability . . . are for a
court to decide and issues of procedural arbitrability, i.e., whether prerequisites such as
time limits, notice, laches, estoppel, and other conditions precedent to an obligation to
arbitrate have been met, are for the arbitrators to decide.’ Id., § 6, comment 2, 7 U.L.A.,
at 13 (emphasis added).” (Howsam, supra, 537 U.S. at pp. 84-85.) Defendants rely on
the foregoing authority to support their contention an arbitrator must decide whether they
waived the right to arbitrate.

16
 3. Howsam did not require an arbitrator decide the waiver
by litigation conduct issue in this case

a. the waiver by litigation issue was not present in Howsam
nor in the case it relied upon, Moses H. Cone

We are unpersuaded that Howsam, supra, 537 U.S. at page 84 required the
arbitrator to decide the issue of waiver by litigation conduct in this case. To begin with,
the application of Moses H. Cone and Howsam to our case is highly problematic. Neither
case addresses our issue--engaging in litigation for such a duration and manner as to
waive the right to later seek to arbitrate. Moses H. Cone, supra, 460 U.S. at pages 13-26
involves the Colorado River weighing process in the context of an abstention dispute.
While doing so, the high court used the “waiver, delay, or a like defense to arbitrability
language” in a generalized discussion of federal issues raised by that case. We detailed
that general discussion in footnote 2, infra. As noted, footnote 31 of Moses H. Cone,
supra, 460 U.S. at page 25 lists examples of the application of waiver issues. One of
those cases, Germany v. River Terminal R. Co., supra, 477 F.2d at page 547 involved a
district and appellate court deciding an issue of waiver by litigation conduct issue.
Howsam, supra, involved a classic statute of limitations issue—whether the arbitration
submission was initiated within a six-year statute of limitations. (Howsam, supra, 537
U.S. at p. 81.) Neither case involves whether the right to arbitrate is waived by
participation in litigation. Thus, Moses H. Cone and Howsam are not controlling
authority given the issue in our case—waiver of the right to arbitrate based upon
prejudicial participation in litigation.
The United States Supreme Court has repeatedly emphasized that its decisions are
not controlling authority for propositions not considered by it in the case. (Landgraf v.
USI Film Products (1994) 511 U.S. 244, 265 [“[T]he ‘maxim not to be disregarded that
general expressions, in every opinion, are to be taken in connection with the case in

17
which those expressions are used.’”]; R.A.V. v. City of St. Paul (1992) 505 U.S. 377, 386,
fn. 5 [it is “contrary to all traditions of our jurisprudence to consider the law on this point
conclusively resolved by broad language in cases where the issue was not presented or
even envisioned”].) The waiver by litigation conduct issue was not directly present in
either Moses H. Cone or Howsam. They are not controlling authority in our case.

b. persuasive federal appellate court decisions holding issues of waiver
by litigation conduct are decided by a court, not an arbitrator

Our conclusions are materially premised on four Courts of Appeal opinions which
have directly addressed the issue before us--waiver by litigation conduct. (Grigsby &
Associates, Inc. v. M Securities Investment (11th Cir. 2011) 664 F.3d 1350, 1352-1354;
JPD, Inc. v. Chronimed Holdings, Inc. (6th Cir. 2008) 539 F.3d 388, 391-394; Ehleiter v.
Grapetree Shores, Inc. (3rd Cir. 2007) 482 F.3d 207, 215-221 (Ehleiter); Marie v. Allied
Home Mortgage Corp. (1st Cir. 2005) 402 F.3d 1, 9-15.) These decisions identify seven
different reasons why Moses H. Cone and Howsam do not require an arbitrator to decide
waiver by litigation conduct issues. First, traditionally waiver by litigation conduct issues
in cases subject to the Federal Arbitration Act were decided by the district court rather
than an arbitrator. (Ehleiter, supra, 482 F.3d at pp. 217-218; Marie v. Allied Home
Mortgage Corp., supra, 402 F.3d at p. 12.) Nothing in Moses H. Cone and Howsam
suggested the traditional rule was inappropriate. (Grigsby & Associates, Inc. v. M.
Securities Investment, supra, 664 F.3d at p. 1354; JPD, Inc. v. Chronimed Holdings, Inc.,
supra, 539 F. 3d at p. 394.) The only reference in either case to the traditional rule (the
court decides the waiver by litigation conduct issue) was in Moses H. Cone, supra, 460
U.S. at page 25, footnote 31. That reference was to Germany v. River Terminal R. Co.,
supra, 477 F.2d at page 547 where the district and appellate courts decided the waiver by
litigation conduct issue.
Second, three of the circuit courts have examined the context of the ‘“waiver,
delay, or a like defense”’ language in Howsam, supra, 537 U.S. at page 84. The three

18
courts have noted the context in Howsam, supra, 537 U.S. at page 84 did not relate to
waiver by litigation conduct. As noted, Howsam involved whether a six-year National
Association of Securities Dealers time limit for commencing an arbitration had been
violated. (Id. at pp. 82, 85.) The Third Circuit panel explained: “Properly considered
within the context of the entire opinion, however, we believe it becomes clear that the
Court was referring only to waiver, delay, or like defenses arising from non-compliance
with contractual conditions precedent to arbitration, such as the [National Association of
Securities Dealers] time limit rule at issue in that case, and not to claims of waiver based
on active litigation in court.” (Ehleiter, supra, 482 F.3d at p. 219; see JPD, Inc. v.
Chronimed Holdings, Inc., supra, 539 F.3d at pp. 393-394.)
Third, Howsam, supra, 537 U.S. at pages 84-85 relied upon language in the
Revised Uniform Arbitration Act of 2000 which we have previously discussed. That
language indicated that an arbitrator decides issues of substantive arbitrability such as
time limits, notice, laches, and estoppel. However, at another point, a comment to the
Revised Uniform Arbitration Act of 2000 states that courts, rather than arbitrators, decide
waiver issues. (Marie v. Allied Home Mortgage Corp., supra, 402 F.3d at p. 13.) The
comment cites to cases involving waiver based on litigation conduct. (Ehleiter, supra,
482 F.3d at p. 218.)
Fourth, the circuit courts viewed the judicial branch as better qualified to decide
the waiver by litigation conduct question; i.e., judges have greater expertise at the
identification of pre-arbitration abuses. The Third Circuit panel, synthesizing the
discussion of the First Circuit noted: “[T]he Marie court observed that the trial judge,
having been directly involved in the entire course of the legal proceedings, is better
positioned to determine whether the belated request for arbitration is a thinly veiled
attempt to forum shop. [Citation.]” (Ehleiter, supra, 482 F.3d at p. 218, citing Marie v.
Allied Home Mortgage Corp., supra, 402 F.3d at p. 13; accord Grigsby & Associates,
Inc. v. M Securities Investment, supra, 664 F.3d at p. 1354; JPD, Inc. v. Chronimed
Holdings, Inc., supra, 539 F.3d at p. 394.) Fifth, the circuit courts spoke of the
inefficiency of having an arbitrator decide arbitration has been waived only then to return

19
it to a district court for trial. (JPD, Inc. v. Chronimed Holdings, Inc., supra, 539 F.3d at
p. 394; Marie v. Allied Home Mortgage Corp., supra, 402 F.3d at pp. 13-14.)
Sixth, as noted, the ‘“waiver, delay, or a like defense”’ language in Howsam finds
its basis in Moses H. Cone, supra, 460 U.S. at pages 24-25. The Third Circuit viewed
this “waiver, delay, or a like defense to arbitrability” in Moses H. Cone, supra, at pages
24 and 25 as but part of a broader discussion about the Federal Arbitration Act. The
Third Circuit panel explained: “In our view, Moses H. Cone established only that
arbitrability defenses such as waiver should be ‘addressed with a healthy regard for the
federal policy favoring arbitration,’ id. at 24, not that these defenses should
presumptively be resolved by an arbitrator.” (Ehleiter, supra, 482 F.3d at p. 219, fn. 10.)
Seventh, several of the circuit panels relied upon the language in title 9 United
States Code section 33 which requires district courts to stay an action unless a party is in
default. The First Circuit panel stated: “We start our analysis of whether waiver by
conduct in this context is a decision for the court or for the arbitrator by noting that
textually under the [Federal Arbitration Act], a court is only permitted to stay a court
action pending arbitration if ‘the applicant for the stay is not in default in proceeding with
such arbitration.’ 9 U.S.C. § 3 (emphasis added). A ‘default’ has generally been viewed
by courts as including a ‘waiver.’ [Citations.] See, e.g., . . . County of Middlesex v.
Gevyn Constr. Corp. [(1st Cir.1971)] 450 F.2d 53, 56 [f]n. 2 (only waiver due to the
pursuit of legal remedy inconsistent with arbitration is a “default” under 9 U.S.C. § 3).
This language would seem to place a statutory command on courts, in cases where a stay
is sought, to decide the waiver issue themselves.” (Marie v. Allied Home Mortgage

3
Title 9 United States Code section 3 states, “If any suit or proceeding be brought
in any of the courts of the United States upon any issue referable to arbitration under an
agreement in writing for such arbitration, the court in which such suit is pending, upon
being satisfied that the issue involved in such suit or proceeding is referable to arbitration
under such an agreement, shall on application of one of the parties stay the trial of the
action until such arbitration has been had in accordance with the terms of the agreement,
providing the applicant for the stay is not in default in proceeding with such arbitration.”

20
Corp., supra, 402 F.3d at p. 12-13; see JPD, Inc. v. Chronimed Holdings, Inc., supra, 539
F.3d at p. 394; Ehleiter, supra, 482 F.3d at p. 218.)
We are satisfied the foregoing analysis correctly delineates why the “‘waiver,
delay, or a like defense’” language in Howsam, supra, 537 U.S. at page 84 does not apply
here. The Supreme Courts of Colorado, Nebraska, Texas and Alabama have likewise
concluded that Howsam, supra, 537 U.S. at page 84 does not apply in the litigation by
conduct waiver context. (Radil v. National Union Fire Insurance Co. (Col. 2010) 233
P.3d 688, 693-695; Good Samaritan Coffee Co. v. LaRue Distributing, Inc. (Neb. 2008)
748 N.W.2d 367, 373-374; Perry Holmes v. Cull (Tex. 2008) 258 S.W.3d 580, 588-589;
Ocwen Loan Servicing, LLC v. Washington (Ala. 2006) 939 So.2d 6, 11-14.) Other
courts are likewise in accord. (In re Toyota Motor Corp. (C.D.Cal. 2012) 838 F.Supp.2d
967, 974-975; Parler v. KFC Corporation (D.Minn. 2008) 529 F.Supp.2d 1009, 1014;
Delmarva Power & Light Co. v. United States (Fed.Cl. 2007) 79 Fed.Cl. 205, 211-212;
Boateng v. General Dynamics Corporation (D.Mass. 2007) 473 F.Supp.2d 241, 250-251;
County of Hawai’i v. Unidev, LLC (Hawaii App. 2012) 289 P.3d 1014, 1038; Ford Motor
Credit Co. v. Cornfield (lll.App. 2009) 918 N.E.2d 1140, 1154-1155.)
The parties could have placed language in their agreement requiring the arbitrator
to determine the waiver issue under all circumstances. (See Rent-A-Center, West, Inc. v.
Jackson (2010) 561 U.S. __ [130 S. Ct. 2772, 2779] [where arbitration provision states
that arbitrator will determine “enforceability” of agreement, arbitrator, not court, decides
whether entire agreement is unconscionable]; see Quilloin v. Tenet Healthsystem
Philadelphia, Inc. (E.D. Penn. 2011) 763 F. Supp.2d 707, 722-723.) They did not.
Accordingly, the trial court correctly decided the waiver by litigation conduct issue here.

C. the Eighth Circuit analysis

The Eighth Circuit, in a single case, has taken the position since Howsam was
decided, that the waiver by litigation conduct issue is to be decided by an arbitrator, not a
judge. (Nat’l Am. Ins. v. Transamerica Occidental Life Ins. Co. (8th Cir. 2003) 328 F.3d

21
462, 466 (Transamerica).) The Eighth Circuit decision arose in connection with a
motion to replace an arbitrator pursuant to title 9 United States Code section 5.4 Three
arbitrators were selected and a vacancy developed when one resigned due to health
issues. The dispute concerning naming the replacement arbitrator arose after the
arbitration had been lingering for a year. (Id. at pp. 463-464.)
In this context, different from our own, the Eighth Circuit panel explained:
“Finally, Transamerica contends that [the plaintiff] has waived the right to arbitrate
because [the plaintiff] pursued litigation in the Oklahoma courts on reinsurance contracts
to which Transamerica is a party. However, the United States Supreme Court has
recently reiterated [in Howsam] that ‘the presumption is that the arbitrator should decide
“allegation[s] of waiver, delay, or a like defense to arbitrability.’” [Citations.] Therefore,
once the panel is reconstituted with the arbitrator appointed by district court, the issue of
waiver may be presented for the panel’s consideration.” (Transamerica, supra, 328 F.3d
at p. 466.)
The Third Circuit declined to follow the Eighth Circuit’s foregoing analysis in
Transamerica, supra, 328 F.3d at page 466. (Ehleiter, supra, 482 F.3d at pp. 219-221.)
The Third Circuit panel identified two reasons. First, the waiver conduct in
Transamerica was unclear. On one hand, the language cited in the immediately
preceding paragraph refers to conduct in the Oklahoma courts. However, in the district
court, Transamerica argued the waiver occurred because of participation in a prior
arbitration. (Transamerica, supra, 328 F.3d at pp. 463-464.) The Third Circuit panel
explained: “Although the Eighth Circuit described Transamerica’s waiver argument . . .
as being based on [the plaintiff’s] pursuit of ‘litigation in the Oklahoma courts,’ on three

4
Title 9 United States Code section 5 states in part: “If in the agreement
provision be made for a method of naming or appointing an arbitrator or arbitrators . . . ,
such method shall be followed; . . . or if for any other reason there shall be a lapse in the
naming of an arbitrator or arbitrators . . . then upon the application of either party to the
controversy the court shall designate and appoint an arbitrator or arbitrators . . . , as the
case may require, who shall act under the said agreement with the same force and effect
as if he or they had been specifically named therein . . . .”

22
different occasions, . . . the court described Transamerica’s waiver argument as being
based exclusively on [the plaintiff’s] participation in a prior arbitration proceeding
involving the underlying dispute between the parties, which perhaps suggests that any
prior court action brought by [the plaintiff] had been referred to, and resolved in,
arbitration. To the extent that Transamerica may be understood as a case involving
waiver by prior arbitration conduct, rather than by prior litigation conduct, the case is
plainly distinguishable from ours on this basis.” (Ehleiter, supra, 482 F.3d at p. 220; see
Perry Homes v. Cull, supra, 258 S.W.3d at p. 589, fn. 34.)
Second, in terms of the Eighth Circuit’s analysis concerning waiver by litigation
conduct, the Third Circuit held: “To the extent that Transamerica may be fairly read as
involving a claim of waiver based on litigation conduct, we believe the result reached by
the Eighth Circuit can be explained by the rather unique procedural circumstances of that
case. In a typical waiver case, such as the one before us, a party opposing arbitration
urges the trial court to deny a motion made under Section 3 or Section 4 of the [Federal
Arbitration Act] on the ground that his opponent waived its right to arbitrate by actively
participating in the underlying proceedings before that court. As noted above,
considerations of comparative expertise and judicial economy, among others, dictate that
a waiver defense raised in this context be decided by the court, rather than being referred
to an arbitrator with no prior involvement with the case.” (Ehleiter, supra, 482 F.3d at p.
220, fn. omitted.) The Third Circuit panel concluded the arbitrators were in a better
position to determine the waiver dispute which involved conduct in the arbitral forum.
(Id. at pp. 221-222.)
Based on the foregoing, we conclude that the Eighth Circuit analysis in
Transamerica, supra, 328 F.3d at page 466 should be limited to its unique facts. Our
procedural scenario is entirely different and we decline to be bound by Transamerica in
the context of our case. We express no opinion concerning the merits of the holding in
Transamerica given its unique procedural scenario. And the Third Circuit and the Texas
Supreme Court note that the Eighth Circuit has consistently upheld district court orders
deciding waiver by litigation conduct issues since Transamerica was decided. (Ehleiter,

23
supra, 482 F.3d at p. 220, fn. 11; Perry Homes v. Cull, supra, 258 S.W.3d at p. 589, fn.
34; e.g. Erdman Co. v. Phoenix Land & Acquisition, LLC (8th Cir. 2011) 650 F.3d 1115,
1118-1119; Hooper v. Advance America, Cash Advance Centers of Missouri (8th Cir.
2009) 589 F.3d 917, 920-923; Southeastern Stud & Comp., Inc. v. American Eagle
Design (8th Cir. 2009) 588 F.3d 963, 968-969; Lewallen v. Green Tree Servicing, L.C.C.
(8th Cir. 2007) 487 F.3d. 1085, 1090-1094; Kelly v. Golden (8th Cir. 2003) 352 F.3d 344,
348-350.)

[Part III(D) is deleted from publication.]

D. Substantial Evidence Supports The Trial Court’s Ruling

The trial court’s decision denying defendants’ motion to compel arbitration is
supported by substantial evidence. Collectively defendants’ actions were inconsistent
with an intent to arbitrate. Defendants succeeded on their initial demurrer and plaintiffs
filed their second amended complaint. Defendants then filed a motion requiring plaintiffs
to furnish a bond under Corporations Code section 800.5 Plaintiffs were required to
defend this motion by furnishing evidence that the cause of action will benefit the
corporation or its shareholders. (See West Hills Farms, Inc. v. RCO AG Credit, Inc.
(2009) 170 Cal.App.4th 710, 715, quoting Donner Management Co. v. Schaffer (2006)
142 Cal.App.4th 1296, 1308 [“‘[T]he essential purpose of the section 800 bond statute is

5
Corporations Code section 800, subdivision (c), provides in pertinent part: “[A]t
any time within 30 days after service of summons upon the corporation or upon any
defendant who is an officer or director of the corporation, or held such office at the time
of the acts complained of, the corporation or the defendant may move the court for an
order, upon notice and hearing, requiring the plaintiff to furnish a bond as hereinafter
provided. The motion shall be based upon one or both of the following grounds: [¶] (1)
That there is no reasonable possibility that the prosecution of the cause of action alleged
in the complaint against the moving party will benefit the corporation or its shareholders.
[¶] (2) That the moving party, if other than the corporation, did not participate in the
transaction complained of in any capacity.”

24
to create a deterrent to unwarranted shareholder derivative lawsuits by providing a
mechanism for securing a prevailing defendant’s expenses up to $50,000.’”].) Plaintiffs
submitted documents in support of their opposition, including the declarations of:
Augustine; Julie Choi, former senior vice-president of programming at ImaginAsian; and
Benjamin Scheibe, counsel for plaintiffs. In addition, plaintiffs submitted 94 pages of
exhibits. Plaintiffs filed two separate requests to introduce oral testimony at the bond
motion hearing. Plaintiffs submitted a declaration from their attorney indicating they had
spent over 30 hours of attorney time opposing defendants’ motion.
Defendants later submitted a case management statement on January 9, 2013. In
this statement, defendants did not indicate the existence of an applicable arbitration
clause and did not assert their willingness to submit to binding private arbitration.
Defendants did not seek arbitration until six months after the filing of their lawsuit. In
the meantime, defendants had engaged in substantial use of the litigation process,
including the filing of demurrers and the bond motion.
As noted, CJ CGV America also filed a separate lawsuit on December 20, 2012,
against Augustine for his alleged misrepresentation inducing it to sign the stock purchase
agreement–the same contract that is the basis for the second amended complaint. This
cause of action falls squarely within the scope of the purchase agreement. Defendants
indicated an intent to stay the proceedings in their reply in support of their motion to
compel arbitration. However, defendants did not seek a stay of proceedings prior to
filing this appeal and it is not in the record before us. (See Truong v. Nguyen (2007) 156
Cal.App.4th 865, 882 [“Generally, documents and facts that were not presented to the
trial court and which are not part of the record on appeal, cannot be considered on
appeal.”]; Pulver v. Avco Financial Services (1986) 182 Cal.App.3d 622, 632 [same].)
Defendants contend plaintiffs fundamentally altered their case in response to their
motion to require a bond. This argument has no merit in the context of the waiver of
arbitration issue. Additionally, plaintiffs’ second amended complaint included both
allegations regarding defendants’ Korean programming and the proposed stock valuation.

25
The trial court did not err by finding defendants waived their arbitration right. We need
not discuss the parties’ other contentions.

IV. DISPOSITION

The order denying the motion to compel arbitration is affirmed. Plaintiffs,
Augustine Hong, Michael Hong and Nae Young Chung, are awarded their appeal costs
from defendants, CJ CGV America Holdings, Incorporated, Joon Hwan Choi, Theodore
Kim, and Sang Heum Cho.
CERTIFIED FOR PARTIAL PUBLICATION

TURNER, P. J.

We concur:

MOSK, J.

KUMAR, J.*

*
Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.

26