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Steele v. Lundgren

April 28, 1997


Appeal from Superior Court of King County. Docket No: 93-2-27443-2. Date filed: 05/10/95. Judge signing: Hon. Michael C. Hayden.

z Petition for Review Denied October 7, 1997,

Authored by Mary K. Becker. Concurring: C. Kenneth Grosse, Ronald E. Cox.

The opinion of the court was delivered by: Becker

BECKER, J. -- Following 10 months of litigation in superior court, the defendant in a sexual discrimination suit became aware that the parties' employment contract included an arbitration clause, and moved to compel arbitration. The superior court denied the motion, concluding that the defendant had waived his right to arbitration by first conducting lengthy and aggressive litigation. Finding the waiver determination adequately supported, we affirm.


The defendants (Lundgren) are Gary Lundgren and several investment companies he controls. The plaintiff, J.L. Steele, was self-employed at "Nails by Jama" before she began working for Lundgren. In January 1991, she became a regular, full-time employee performing various administrative tasks, including tasks associated with bond and mutual fund trading for one of Lundgren's companies, Interpacific Investors Services, Inc. Interpacific is a member of the National Association of Securities Dealers. Steele says she became an officer of Interpacific; Lundgren described her position as being his executive assistant.

This suit arises from Steele's allegations that Lundgren, as her supervisor, violated the Washington Law Against Discrimination by engaging in a pattern and practice of improper sexual advances, comments and actions. She alleges that because she rebuffed his advances, he retaliated by demoting her, eliminating various privileges, and reducing her pay.

Steele's employment with Lundgren ended in November 1992. She claims damages of wage loss, disability and emotional distress.

By her attorney's letter to Lundgren on January 13, 1993, Steele first notified Lundgren of her claim and sought to settle the matter privately. Lundgren refused to discuss settlement, responding that he would "vigorously defend any lawsuit" brought against him. In October 1993 Steele initiated the present suit. Attached to her complaint was a request for discovery. Shortly thereafter, Lundgren appeared, answered, and responded to the discovery request.

On February 2, 1994, at the defendants' request, the parties attended a mediation session. The mediation was unproductive. Lundgren filed an extensive discovery request on March 3. On April 13, 1994, Steele filed a Confirmation of Joinder of Parties, Claims, and Defenses, a form document in which the parties represent "This case is not subject to mandatory arbitration."

On July 26, 1994, Lundgren substituted counsel. Lundgren later explained that he did so because his previous attorney had failed to advise him that persons licensed by the NASD agree, as a condition of licensure, to submit to arbitration all claims against their employers. Lundgren had learned this from a business publication.

Lundgren did not immediately assert arbitration as a defense. On August 23, 1994, the case was assigned to Judge Michael Hayden on the Individual Calendar. The case was given a trial date of May 15, 1995. The first mention of arbitration came on September 22, 1994 when the parties filed a required joint status report. This status report noted that "Defendant plans to file a motion to dismiss plaintiff's claims in the near future due to an arbitration agreement."

On October 7, 1994, Steele moved for summary judgment on the issues of strict liability and punitive damages. Two weeks later Lundgren moved the court to allow him to amend his answer to add mandatory arbitration as an affirmative defense and to summarily dismiss Steele's claims on the basis that she had failed to arbitrate.

Lundgren's motions introduced into the court file an agreement to arbitrate contained in a SEC Form U-4 Uniform Application for Security Industry Registration or Transfer. Steele had signed the Form U-4 during her employment with Lundgren in the process of trying to obtain an SEC Series 7 license. The Form U-4 is a four-page document. The final page of the Form U-4 is the signature page. Above Steele's signature are 10 numbered paragraphs under the heading "THE APPLICANT MUST READ THE FOLLOWING VERY CAREFULLY". The fifth paragraph contains an arbitration agreement:

5. I agree to arbitrate any dispute, claim or controversy that may arise between me and my firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of [the NASD] as may be amended from time to time and that any arbitration award rendered against me may be entered as a judgment in any court of competent jurisdiction.

The court treated Lundgren's motions as a consolidated motion to compel arbitration, and sought briefing on the issue whether Lundgren had waived his right to arbitrate.

The court first determined, appropriately, that under our decision in Kinsey v. Bradley *fn1, the issue of waiver was governed by federal law. Kinsey states the federal standard as adopted by the Ninth Circuit: a party seeking to prove waiver of a right to arbitration must demonstrate: "(1) knowledge of an existing right to compel arbitration, (2) acts inconsistent with that right, and (3) prejudice." *fn2

Following Kinsey, the trial court held that the first element was satisfied by Lundgren's constructive notice of the arbitration clause contained in the Form U-4. The court assigned to Steele the burden of proving the two remaining elements of waiver: acts inconsistent with arbitration, and prejudice. The court then permitted the parties to conduct discovery limited to the issue of waiver and to submit briefs addressing waiver and the applicability of a new Ninth Circuit decision, Prudential Insurance Co. of America v. Lai. *fn3 Steele argued that Lundgren had waived his right to arbitrate under the Kinsey test. Relying on Prudential, she also contended that her own ...

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