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.,

Plaintiffs and Respondents,

v.

CJ CGV AMERICA HOLDINGS, INC. et 

al.,

Defendants and Appellants.

 B246945

 (Los Angeles County

 Super. Ct. No. BC487990)

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).
2

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. 
3

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 AsianAmerican 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 
4

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 
5

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, 
6

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 AsianAmerican 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. 
7

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 
8

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. 
9

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 
10

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 
11

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 
12

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 
13

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 
14

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.)
15

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 labormanagement layoff controversy falls within the arbitration clause of a collectivebargaining 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.)
16

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. 
17

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 
18

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 
19

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 
20

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.”
21

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 
22

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 . . . .”
23

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, 
24

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.” 
25

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. 
26

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.