Wagner Const. v. Pacific Mechanical

Filed 6/29/05 Wagner Construction v. Pacific Mechanical CA2/5
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or
ordered published for purposes of rule 977.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FIVE
WAGNER CONSTRUCTION
COMPANY,
Plaintiff and Appellant,
v.
PACIFIC MECHANICAL
CORPORATION,
Defendant and Respondent.
B178996
(Los Angeles County
Super. Ct. No. SC081031)
APPEAL from an order of the Superior Court of Los Angeles County, Gerald
Rosenberg, Judge. Affirmed.
Marks, Golia & Finch, P. Randolph Finch, Jr., Jason R. Thornton, for Plaintiff and
Appellant.
McInerney & Dillon, Timothy F. Winchester, William A. Barrett, Alexander
Bannon, for Defendant and Respondent.

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I. INTRODUCTION
Plaintiff, Wagner Construction Company, filed a verified complaint. Plaintiff then
filed a petition to compel arbitration which was denied. Plaintiff appeals from the order
denying its petition to compel arbitration arising out of a 1997 subcontract with
defendant, Pacific Mechanical Corporation. The subcontract required plaintiff to provide
shoring for a public work of improvement known as for the Moss Avenue Pump Station
in Santa Monica (“the project”). We affirm the order denying plaintiff’s petition to
compel arbitration.
II. BACKGROUND
Plaintiff filed the current action on July 22, 2004. The complaint contained causes
of action for: contract breach (first); a common count for reasonable value of services
(second); a violation of Public Contract Code, section 7107 (third); and a violation of
Business and Professions Code, section 7108.5 (fourth). Plaintiff alleged the general
contractor of the project, Montgomery Watson Americas, Inc., entered into a subcontract
with defendant. Under the terms of the subcontract, defendant agreed to perform
concrete shell and related work on the project. Defendant and plaintiff entered into a
written subcontract on November 1997 to perform shoring. In 1998, plaintiff filed an
action against defendant to enforce the claims asserted in the current action. While the
1998 action was pending, plaintiff and defendant became parties to a personal injury
action in Contra Costa Superior Court relating to the project. Defendant tendered its
defense and claims for indemnity in the personal injury action to plaintiff.
The complaint in this lawsuit further alleged that, in January 1999, plaintiff and
defendant through their officers and directors agreed that the 1998 action would be
dismissed and all applicable statutes of limitations would be tolled while the personal
injury action was pending. In reliance on the agreement, plaintiff filed a dismissal

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without prejudice of the 1998 action. The personal injury action was resolved on April
16, 2003.
After the filing of the complaint in this action, on August 20, 2004, plaintiff filed a
petition to compel arbitration. In support of the petition, plaintiff relied on Article 12 of
the subcontract which provides: “Should any dispute arise out of this Subcontract, or its
performance, either party may demand arbitration. The demand must be made in writing
and served upon the other party and specify the arbitrator chosen by the party making the
demand. Within ten (10) days after delivery of such demand, the other party shall
appoint an arbitrator by written notice served on the party making the demand. The two
arbitrators so chosen shall select a third arbitrator. The decision of any two arbitrators
shall be binding and conclusive, shall be in writing and shall be a condition precedent to
any right of legal action upon this contract.”
Defendant opposed the petition to compel arbitration on two grounds. First,
defendant argued plaintiff did not timely seek to arbitrate their dispute. Second,
defendant argued plaintiff failed to show that the parties agreed in writing to toll the four-
year statute of limitations which is required by sections 360 and 360.5 of the Code of
Civil Procedure.1
The trial court denied the petition to compel arbitration on the ground the claims
were barred by applicable statutes of limitations and plaintiff thus waived the right to
arbitrate the dispute. Specifically, the court ruled the four-year limitation under section
337 barred the contract and the common count claims. Also, the court concluded, the
court ruled plaintiff’s statutory claims were barred by section 338, subdivision (a). In
denying the petition, the trial court ruled that the statute of limitations was in essence one
of waiver under section 1281.2, subdivision (a). In addition, the court concluded
1 All further statutory references are to the Code of Civil Procedure unless otherwise
indicated.

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plaintiff’s tolling agreement argument was without merit in the absence of a written
waiver of the statute of limitations as required by sections 360 and 360.5. Plaintiff filed a
timely notice of appeal from the order denying the petition to compel arbitration.
III. DISCUSSION
Plaintiff asserts the trial court should not have denied the petition to compel
arbitration because the statute of limitations had expired. Plaintiff argues the merits of
the statute of limitations issue were to be decided by an arbitrator. We conclude that the
trial court properly decided whether plaintiff waived the right to compel arbitration as a
preliminary under section 1281.2, subdivision (a) which provides: “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: . . [¶] The right to
compel arbitration has been waived by the petitioner . . . .” (See Freeman v. State Farm
Mutual Automobile Ins. Co. (1975) 14 Cal.3d 473, 482-487; Boys Club of San Fernando
Valley, Inc. v. Fidelity & Deposit Co. (1992) 6 Cal.App.4th 1266, 1274-1276; Pagett v.
Hawaiian Ins. Co. (1975) 45 Cal.App.3d 620, 622.)
In Freeman v. State Farm Mutual Automobile Ins. Co., supra, 14 Cal.3d at pages
482-487, the Supreme Court held that the issue of whether the right to compel arbitration
had been waived by failure to comply with a one-year statute of limitation under former
Insurance Code section 11580.2, subdivision (i) was an issue to be determined by the
court rather than an arbitrator pursuant to section 1281.2, subdivision (a). In explaining
why the issue was properly one for the court, Freeman concluded: it is consistent with
the rule that where a contract provides that arbitration may be demanded within a specific
time, the failure to make a demand to arbitrate within the statute of limitations waives the
right to resort to the arbitral forum; under section 1281.2, subdivision (a), a court has the

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responsibility to determine whether a party has waived the right to arbitrate by failing to
seek it in a timely manner; and where there is a statutory time limit requiring compliance
with conditions precedent or waiver, the issue of waiver may be decided very differently
by the arbitrator than the court. (Id. at pp. 483-484, 486.) With respect to the statutory
time limit issue, the Supreme Court noted that former Insurance Code section 11580.2,
subdivision (i) was, in effect, a statute of limitations. The purpose of such a statute of
limitations is to preclude consideration of the merits of an untimely claim. (Id. at p. 484.)
The Freeman court explained: “‘It should not be overlooked that a determination of this
issue of waiver (or compliance with conditions precedent, whichever it be called) may be
very different it is tried before an arbitrator rather than a court. A court determines the
facts upon the weight of competent evidence, and applies the law as it is laid down by the
authorities. Arbitrators, on the other hand, “may base their decision upon broad
principles of justice and equity, and in doing so may expressly or impliedly reject a claim
that a party might successfully have asserted in a judicial action.” [Citation.] Thus, what
an arbitrator would find to be compliance could be something other than compliance as
measured by the standards of the law. [¶] [Statutes of limitation] are intended to set
controversies at rest by foreclosing consideration thereafter as to the merits of the claim.
To reject a strict application of the law in favor of “broad principles of justice and equity”
would make a statute of limitation meaningless.’ [Citation.]” (Id. at pp. 483-484.)
The Freeman decision then concluded: “[Although] we favor full and complete
determination by the arbitrator of matters properly submitted to him [or her], we cannot
allow our enthusiasm for the expeditious and economical disposition of such matters to
intrude upon our responsibility to determine whether the right to compel arbitration has
been waived through failure to seek it in a timely manner.” (Id. at pp. 485-486.)
The Freeman opinion relied in part on Sawday v. Vista Irrigation Dist. (1966) 64
Cal.2d 833, 836-837. Sawday concluded that a party seeking to compel arbitration had
waived the right to do so under section 1281.2, subdivision (a) by waiting seven years to
make contractual claims subject to the four-year statutory limit for contract actions

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(§ 337). (Id. at pp. 836-837 & fn. 2.) This is virtually the same situation as in the present
case.
As in Sawday, plaintiff seeks to compel arbitration of claims that accrued in March
1998 and were brought six years later, in July 2004. Under Freeman and Sawday, the
trial court was required to determine whether plaintiff had complied with the applicable
statutes of limitation in deciding the waiver issue pursuant to section 1281.2, subdivision
(a). The complaint in the 1997 Contra Costa County action specifically alleged that the
causes of action accrued as of March 31, 1998. The statute of limitations for the contract
and common count claims was four-years. (§ 337.) The time to pursue these claims
expired on April 1, 2002. The limitation for the statutory claims was three years. (§ 338,
subd. (a).) The time limit to present the statutory claims expired on April 1, 2001. The
claims which are brought six years after they accrued are barred by the time limits in
sections 337 and 338, subdivision (b). Therefore, the trial court properly ruled plaintiff’s
right to arbitrate was waived by the failure to seek arbitration in a timely manner.
(§ 1281.2, subd. (a); Freeman v. State Farm Mutual Auto. Ins. Co., supra, 14 Cal.3d at
pp. 482-486; Sawday v. Vista Irrigation Dist., supra, 64 Cal.2d at pp. 836-837 & fn. 2.)
Moreover, we disagree with plaintiff that a different result is required based on
Kennedy, Cabot & Co. v. National Assoc. of Securities Dealers, Inc. (1996) 41
Cal.App.4th 1167, 1174-1179 and Boys Club of San Fernando Valley, Inc. v. Fidelity &
Deposit Co., supra, 6 Cal.App.4th at pages 1274-1276. As noted above, in Freeman, the
California Supreme Court held that section 1281.2 requires the trial court to determine
whether a party has waived the right to compel arbitration by failing to comply with
statutory time limits. (Freeman v. State Farm Mutual Auto. Ins. Co., supra, 14 Cal.3d at
pp. 482-486.) In addition, as will be noted, both Kennedy and Boys Club were decided
on the facts which are materially distinguishable from those present in this case.
Kennedy, Cabot & Co. v. National Assoc. of Securities Dealers, Inc., supra, 41
Cal.App.4th at pages 1174-1179 involved a request for injunctive relief against an
arbitration of a securities matter. The party requesting injunctive relief had previously

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agreed to arbitrate within the six-year period permitted by the arbitration agreement.
During the arbitration proceeding, the parties submitted for resolution by the arbitrator
the statute of limitations issue. At issue was whether the six-year period specified in the
arbitration agreement applied or shorter California statutes of limitations had expired.
(Id. at p. 1171.) The trial court had enjoined the arbitration from proceeding against the
defendant. The Kennedy court framed the issues thusly: “Is the statute of limitations
issue within the scope of the dispute submitted to arbitration? Does a court have
authority to enjoin a pending arbitration based upon its ruling on the statute of limitations
issue?” (Id. at p. 1174.) Kennedy concluded the injunction should not have issued. The
Court of Appeal held the demand to arbitrate was made within the time frame specified in
the arbitration clause and any statute of limitations issues were within the scope of the
pending arbitral proceedings. (Id. at p. 1170; compare Platt Pacific, Inc v. Andelson
(1993) 6 Cal.4th 307, 314-321 [a court decides that issue of whether the demand to
arbitrate was timely or that right was waived where the arbitration agreement provides a
time limit for serving the demand]; Freeman v. State Farm Mut. Auto. Ins. Co., supra, 14
Cal.3d at pp. 482-486 [court is required by § 1281.2, subd. (a) to determine whether
waiver has occurred by failing to serve a demand within the time frame specified in an
insurance contract which is based on a statutory time limit]; Jordan v. Friedman (1946)
72 Cal.App.2d 726, 727 [court determines the waiver issue when the contract provides
that arbitration may be demanded within a stated time].) Kennedy differs from this case
in the following ways. In this case: there was no request for injunctive relief against a
pending arbitration; the waiver issue was raised in opposition to a section 1281.2 petition
to compel arbitration; there is no contractual time limit for bringing the arbitration; there
is no contractual time limit that exceeds the applicable California statutes of limitations;
and there is no pending arbitration which the parties had previously submitted to and in
which they had raised the timeliness issues.
In Boys Club, a party sought to compel a surety under a performance bond to
participate in an ongoing arbitration. The petition to compel was filed three years after

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the arbitration commenced. (Boys Club of San Fernando, Inc. v. Fidelity & Deposit Co.,
supra, 6 Cal.App.4th at p. 1274.) The surety opposed the petition to compel on two
grounds. First, the surety contended the plaintiff had waived its right to arbitrate by
waiting three years after commencing arbitration to amend the demand to include the
surety. Second, the surety argued the demand was untimely under the two-year statute of
limitations contained in the performance bond. (Id. at pp. 1274-1276)
Boys Club rejected the surety’s waiver contention. The Court of Appeal
concluded the waiver question is a preliminary matter which the trial court must decide in
ruling on a petition to compel arbitration under section 1281.2. (Id. at pp. 1274, 1276.)
The Court of Appeal held no waiver had occurred. (Ibid.) Boys Club further concluded
that the surety’s contention that the demand was barred under the terms of the
performance bond was an issue to be raised in the pending arbitration proceeding. (Id. at
p. 1276.) Thus, Boys Club actually supports the trial court’s ruling that the waiver issue
must be decided by the court as a preliminary matter under section 1281.2, subdivision
(a). (Id. at pp. 1274, 1276.) Boys Club differs from our case in that there was an issue of
a timely demand within the meaning of the arbitration agreement. As noted above, there
is no such issue in this case. In sum, the trial court correctly concluded that it was
required to resolve the statutes of limitations issue as it impacted on the waiver question
in deciding to deny the petition to compel arbitration. (§ 1281.2, subd. (a); Freeman v.
State Farm Mutual Automobile Ins. Co., supra, 14 Cal.3d at pp. 482-487; Boys Club of
San Fernando Valley, Inc. v. Fidelity & Deposit Co., supra, 6 Cal.App.4th at pp. 1274-
1276; Pagett v. Hawaiian Ins. Co., supra, 45 Cal.App.3d at p. 622.)
Moreover, the trial court properly concluded plaintiff failed to establish the
various statutes of limitations were tolled. Plaintiff argues the parties agreed to extend
the time to bring the present action until the Contra Costa personal injury lawsuit was
concluded. The personal injury action was concluded in April 2003. However, pursuant

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to sections 360,2 any such extension of the statute of limitations must be in writing and
signed by the party to be charged with the waiver of the statutory time limit. Section
360.53 further provides in part, “No waiver shall bar a defense to any action that the
action was not commenced within the time limited by this title unless the waiver is in
writing and signed by the person obligated.” There is no evidence that the parties ever
entered into a written agreement to extend the applicable statute of limitations. (§ 360.)
There is also no evidence that defendant waived the right to assert the lack of timeliness
of the action as a defense to the petition to compel arbitration. (§ 360.5.) Accordingly,
the trial court properly denied the petition to compel. (See Santangelo v. Allstate Ins. Co.
2 Section 360 provides: “No acknowledgment or promise is sufficient evidence of a
new or continuing contract, by which to take the case out of the operation of this title,
unless the same is contained in some writing, signed by the party to be charged thereby,
provided that any payment on account of principal or interest due on a promissory note
made by the party to be charged shall be deemed a sufficient acknowledgment or promise
of a continuing contract to stop, from time to time as any such payment is made, the
running of the time within which an action may be commenced upon the principal sum or
upon any installment of principal or interest due on such note, and to start the running of
a new period of time, but no such payment of itself shall revive a cause of action once
barred.”
3 Section 360.5 provides: “No waiver shall bar a defense to any action that the
action was not commenced within the time limited by this title unless the waiver is in
writing and signed by the person obligated. No waiver executed prior to the expiration of
the time limited for the commencement of the action by this title shall be effective for a
period exceeding four years from the date of expiration of the time limited for
commencement of the action by this title and no waiver executed after the expiration of
such time shall be effective for a period exceeding four years from the date thereof, but
any such waiver may be renewed for a further period of not exceeding four years from
the expiration of the immediately preceding waiver. Such waivers may be made
successively. The provisions of this section shall not be applicable to any
acknowledgment, promise or any form of waiver which is in writing and signed by the
person obligated and given to any county to secure repayment of indigent aid or the
repayment of moneys fraudulently or illegally obtained from the county.”

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(1998) 65 Cal.App.4th 804, 811; Hambrecht & Quist Venture Partners v. American
Medical Internat. Inc. (1995) 38 Cal.App.4th 1532, 1547.)
IV. DISPOSITION
The order denying the petition to compel arbitration is affirmed. Defendant,
Pacific Mechanical Corporation is awarded its costs on appeal from plaintiff, Wagner
Construction Company.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
TURNER, P.J.
I concur:
ARMSTRONG, J.

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MOSK, J., Dissenting
I respectfully dissent.
I believe that the arbitrator rather than the court should determine if the statute of
limitations bars the claim. In this regard, I am in agreement with recent authorities. (See
Knight, Alternative Dispute Resolution (Rutter Group 2004) § 5:166.5, p. 5-100 [“Under
California law, the arbitrator decides whether the applicable statute of limitations bars
enforcement of an arbitration agreement”]; American Federation of State, County &
Municipal Employees v. Metropolitan Water Dist. (2005) 126 Cal.App.4th 247, 265
[“We are aware of cases standing for the proposition that timeliness and waiver are issues
for the arbitrator to decide”].)
Freeman v. State Farm Mut. Auto. Ins. Co. (1975) 14 Cal.3d 473 (Freeman) does
not compel a different conclusion. In that case, a party petitioned to compel arbitration
under the uninsured motorist provisions of an automobile insurance policy. Insurance
Code section 11580.2, subdivision (i) at the time required, inter alia, that the “insured has
formally instituted arbitration proceedings,” within one year from the date of the
accident. The court held that the failure to commence arbitration within the one year
period constituted a waiver under Code of Civil Procedure section 1281.2, subdivision (a)
of the right to arbitrate and that the court rather than the arbitrator determines whether
such a waiver occurred. The Insurance Code requires arbitration of certain limited
disputes between the insured and the insurer over recovery under the uninsured motorist
provisions—the determination of whether the uninsured motorist was liable to the insured
and, if so, the amount to be recovered under the policy. (Ins. Code, § 11580.2, subd. (f).)
In this case we do not deal with a statutory requirement to commence an
arbitration, but rather with the statute of limitations as to the claim itself. If the period of
limitations has run, a party has not waived its right to arbitrate. Its claim is subject to
being extinguished, but only if the other party invokes the statute of limitations as an

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affirmative defense. (See 3 Witkin, Cal. Procedure (4th ed. 1996) Actions, § 407, p.
512.)
Also, in this case, the arbitration clause calls for arbitration of any dispute arising
out of the contract—not just the disputes specified by the Insurance Code. Thus, whether
the statute of limitations bars a claim is a dispute arising out of the contract. As the court
in Kennedy, Cabot & Co. v. National Assn. of Securities Dealers, Inc. (1990) 41
Cal.App.4th 1167, 1178 (Kennedy) said, “in Freeman, by statute, the arbitration was
narrowly limited to two issues, the liability of the uninsured motorist for the accident and
the amount of damages. It was appropriate for the court, in its determination of the
waiver issue of Code of Civil Procedure section 1281.2, to consider the statutory time
requirements expressly adopted by the Legislature for submittal of those limited issues to
arbitration.”
In Kennedy, supra, 41 Cal.App.4th 1167, the court held that the issue of whether
the six year limitation on filing an NASD (National Association of Securities Dealers)
arbitration claim was barred, is left to the arbitrator. The court said, “The arbitrators may
consider issues of accrual of the various claims as well as factors which extend or toll
applicable limitation periods. Whether Wascher’s claim has merit and whether the
various causes of action alleged in the claim may be barred on the basis of any applicable
California statutes of limitations are issues for the arbitrators, not the court in the
circumstances of this particular case.” (Id. at 1179.) In Boys Club of San Fernando
Valley, Inc. v. Fidelity & Deposit Co. (1992) 6 Cal.App.4th 1266, 1276, the court said,
“Fidelity argues that it cannot be made a party to the arbitration because the filing of the
amended demand for arbitration was barred by the statute of limitations contained in the
performance bond. That is an issue to be raised in the arbitration proceeding, not in this
judicial proceeding.”
Thus, the authorities have limited Freeman, supra, 14 Cal.3d 473 to uninsured
motorist claims and analogous situations. Freeman should be so limited. The United
States Supreme Court has suggested that statute of limitation issues are for the arbitrators

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and not the courts. (Howsam v. Dean Witter Reynolds, Inc. (2002) 537 U.S. 79, 85-86;
see Knight, Alternative Dispute Resolution, supra, at § 5.166.6, p. 5-101 [“Likewise,
under federal law, the arbitrator decides statute of limitations issues”].) If parties have
agreed to arbitrate disputes, it would be contrary to their agreement to have a court
determining such matters as the applicable period of limitations, when it accrued, whether
it has been waived or has been tolled, or whether equitable estoppel or tolling applies. It
is inappropriate for these types of issues to be decided in a summary proceeding to
compel or stay arbitration.
If Freeman, supra, 14 Cal.3d 473, can be viewed as applying to this case, I
recommend that the application of Freeman be further analyzed, for the legal issue is one
of continuing public interest. (Cal. Rules of Court, rule 976, subd. (c).) For all of the
foregoing reasons, I would reverse the order of the trial court and would instruct the trial
court to grant the petition to arbitrate.
MOSK, J.

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