Arbitration clauses appear in many California business, employment, shareholder, and commercial agreements. When a dispute arises, a party may assume that having an arbitration provision means it can move the case out of court and into arbitration whenever it chooses.
A recent California Court of Appeal decision shows why that assumption can be dangerous.
In Mitchell v. Lilac Solutions, Inc., decided in August 2026, the court held that defendants who had contractual arbitration rights nevertheless waived those rights because of how extensively they participated in the court case before attempting to compel arbitration.
The lesson is straightforward: if arbitration is part of the litigation strategy, the decision generally needs to be made early.
What Happened in Mitchell?
The case involved four former employees who sued their former employer and several individuals for claims including wrongful termination, discrimination, and sexual harassment.
Each plaintiff had signed an arbitration agreement.
The defendants knew about those agreements and even asserted their right to arbitration in their pleadings. But they did not immediately move to compel arbitration.
Instead, they actively litigated the case in court.
Before moving to compel arbitration, the defendants served 12 sets of written discovery, noticed depositions of the plaintiffs and third parties, served 11 subpoenas on nonparties, responded to 33 sets of discovery requests, and filed several motions with the court.
They also filed a cross-complaint and an amended cross-complaint seeking affirmative relief.
Approximately three months after the lawsuit was filed, and shortly after the plaintiffs filed an anti-SLAPP motion against the defendants’ cross-complaint, the defendants moved to compel arbitration.
The trial court denied the motion.
What Did the Court of Appeal Decide?
The Court of Appeal affirmed.
The court concluded that there was sufficient evidence that the defendants had intentionally abandoned their right to arbitration through their conduct in the litigation.
Importantly, simply mentioning arbitration in an answer or other pleading was not enough to preserve the right indefinitely.
The defendants had done much more than merely defend themselves while deciding whether to arbitrate. They had filed claims of their own, pursued substantial discovery, sought information from third parties, and repeatedly asked the court to take action.
Looking at that conduct as a whole, the court concluded that it was inconsistent with an intent to arbitrate.
Why Is the Decision Important?
The decision follows the California Supreme Court’s 2024 decision in Quach v. California Commerce Club, Inc., which changed an important part of California’s arbitration-waiver analysis.
Under Quach, the party opposing arbitration no longer has to prove that it was prejudiced by the other side’s delay or litigation conduct.
Instead, the focus is primarily on the conduct of the party that possessed the arbitration right.
Did that party know it had a right to arbitrate and nevertheless act in a manner demonstrating that it intentionally relinquished or abandoned that right?
In Mitchell, the extensive litigation activity provided sufficient evidence for the trial court to answer that question yes.
Having an Arbitration Clause Is Not Enough
This is where the decision becomes important beyond employment cases.
Arbitration provisions are common in shareholder agreements, operating agreements, commercial contracts, service agreements, employment agreements, and many other business relationships.
When litigation begins, a business may initially decide to fight in court. It may conduct discovery, file motions, assert counterclaims or cross-claims, and see how the litigation develops.
Later, particularly if the case becomes more complicated or the procedural landscape changes, arbitration may suddenly appear more attractive.
Mitchell demonstrates the risk with that approach.
A contractual right to arbitration can be lost through litigation conduct. A party cannot necessarily participate substantially in the court system and then assume that the arbitration clause remains available as an alternative forum.
The Practical Lesson for Businesses
When a lawsuit involves an arbitration agreement, one of the first strategic questions should be whether the business actually intends to enforce it.
That does not necessarily mean that every defendant must immediately file a motion to compel arbitration. Different cases can present different procedural circumstances.
But the decision should not simply be postponed while the business actively litigates the merits of the case.
The more a party uses the court system, particularly discovery and affirmative motions, the greater the risk that its conduct may later be viewed as inconsistent with an intent to arbitrate.
Mitchell is a useful reminder that an arbitration provision is a contractual right, not a permanent escape hatch from litigation.
If a business wants arbitration, it should evaluate that option at the beginning of the dispute, before its conduct in court makes the decision for it.
Legal Authorities
- Mitchell v. Lilac Solutions, Inc. (Cal. Ct. App. Aug. 2026)
- Quach v. California Commerce Club, Inc. (2024) 16 Cal.5th 562
Related practice areas: Business and Commercial Litigation · Civil Litigation