Judge: Anne Richardson, Case: 23STCV04190, Date: 2023-07-11 Tentative Ruling

Case Number: 23STCV04190    Hearing Date: July 11, 2023    Dept: 40

Superior Court of California

County of Los Angeles

Department 40

Relevant Background

Plaintiff John Doe sues Defendants Indus Investments, Inc. dba Hotel Shangri La, Royal Lush, LLC, and Tehmina Adaya pursuant to a February 27, 2023 Complaint alleging claims of: (1) Sexual Harassment; (2) Assault; (3) FEHA Failure to Prevent Harassment; (4) Gender Violence; (5) FEHA Retaliation; (6) Negligent Hiring, Supervision, or Retention; (7) Wrongful Termination in Violation of Public Policy; (8) Intentional Infliction of Emotional Distress; (9) Failure to Pay Minimum Wages; (10) Failure to Pay Overtime Wages; (11) Failure to Provide Meal Periods; (12) Failure to Provide Rest Periods; (13) Failure to Make Payment Within the Required Time; (14) Failure to Provide Accurate Itemized Wage Statements; (15) Unfair Competition in Violation of CA Business & Professions Code § 17200; (16) Failure to Provide Personnel Records; (17) Failure to Provide Itemized Payroll Records; and (18) Failure to Indemnify.

A Demand for Arbitration related to these claims was originally filed with JAMS on or about June 27, 2022.

On August 22, 2022, JAMS noticed on the parties a “Commencement of Employment Arbitration.”

On September 20, 2022, JAMS sent the parties a notice of “Appointment of Arbitrator” and “Deposit Request” with an invoice date of September 20, 2022.

Defendants did not make payment on the invoice by October 20, 2022, i.e., within 30 days of September 20, 2022.

On February 27, 2023, Plaintiff filed this action with the Los Angeles Superior Court.

On April 6, 2023, Defendants moved to compel the matters raised in this action back into arbitration. The motion was set for hearing on June 27, 2023.

On the same day, Defendants made an ex parte application to stay these proceedings until a determination on the motion to compel arbitration was made.

On April 18, 2023, the Court granted the ex parte application and, pursuant to plaintiff’s request, continued the hearing on the motion to compel arbitration to July 11, 2023.

On June 26, 2023, Plaintiff opposed the motion to compel arbitration.

On July 3, 2023, Defendants replied to the June 26th opposition.

The motion to compel arbitration is now before the Court.

Petition to Compel Arbitration and Stay Proceedings

Legal Standard

Subject to specific requirements, sections 1281.97 and 1281.98 of the Code of Civil Procedure, inter alia, respectively permit an employee or consumer to withdraw from arbitration and file a lawsuit in a court of appropriate jurisdiction where the drafting party of the arbitration agreement does not pay fees and costs to respectively initiate or continue arbitration proceedings within 30 days of their due date. (See Code Civ. Proc., §§ 1281.97, 1281.98.)

Order Compelling Arbitration and to Stay Proceedings: DENIED.

In their motion, Defendants raise various grounds for return of the matters involved in this action back to arbitration with JAMS. (See Mot., pp. 7-14.)

In opposition and among other arguments, Plaintiff Doe argues that Defendants waived their right to arbitration by failing to pay the September 20, 2022 invoice within 30 days, i.e., by October 20, 2022, as required by Code of Civil Procedure sections 1281.97 and 1281.98, for which reason Defendants waived their rights to arbitration and Plaintiff was empowered to withdraw his claims from arbitration and file them with the Los Angeles Superior Court. (Opp’n, pp. 3-6.) In support, Plaintiff cites to Espinoza v. Superior Court (2022) 83 Cal.App.5th 761, 774 and De Leon v. Juanita’s Foods (2022) 85 Cal.App.5th 740, 753.

In reply, Defendants fail to address Code of Civil Procedure sections 1281.97 and 1281.98, as well as Espinoza and De Leon, confining their position, in relevant part, to an argument that Plaintiff has waived or is estopped from asserting any defense to arbitration based on Plaintiff’s repeated participation in the arbitration selection process. (Reply, p. 5.) Defendants also argue that section 1281.97 is not applicable because the arbitration had begun long before October 20, 2020.

The Court agrees with Plaintiff Doe and finds (1) that Defendants waived their right to arbitration either pursuant to Code of Civil Procedure section 1281.97 or 1281.98, (2) that Plaintiff was properly empowered to withdraw his claims from arbitration and file the same in this Court, and (3) that Plaintiff did not waive his right to withdraw from arbitration and file this action.

For the sake of ease of discussion, the Court accepts arguendo Defendants’ position that the JAMS arbitration was initiated in August 2022. (See Reply, p. 3 [arguing arbitration begun on August 22, 2022].)

The Code of Civil Procedure provides that:

“In an employment or consumer arbitration that requires … that the drafting party pay certain fees and costs during the pendency of an arbitration proceeding, if the fees or costs required to continue the arbitration proceeding are not paid within 30 days after the due date, the drafting party is in material breach of the arbitration agreement, is in default of the arbitration, and waives its right to compel the employee or consumer to proceed with that arbitration as a result of the material breach.”

(Code Civ. Proc., § 1281.98, subd. (a)(1), emphasis added.)

The Code of Civil Procedure further provides that:

Where “the drafting party materially breaches the arbitration agreement and is in default under subdivision (a), the employee or consumer may unilaterally” “[w]ithdraw the claim from arbitration and proceed in a court of appropriate jurisdiction.”

(Code Civ. Proc., § 1281.98, subd. (b)(1).)

Attached as Exhibit 3 to Defendants’ motion is a copy of the September 20, 2022 “deposit request” by JAMS, billed to defense counsel for the purposes of “arbitration” and with “[p]ayment … due upon receipt.”

Neither Defendants nor Plaintiff dispute that this invoice was not paid within 30 days of September 20, 2022, i.e., by October 20, 2022.

Under these circumstances, by failing to pay fees to continue arbitration proceedings, Defendants waived their right to arbitration and placed the ball in Plaintiff’s court to exercise his ability to pursue any of the relief provided for in Code of Civil Procedure section 1281.98, subdivision (b).

Plaintiff chose to file this action on February 27, 2023 and proceed with a court action rather than arbitration. (See FAC generally; see also Opp’n, Doe Decl., ¶ 3.)

The JAMS arbitration also appears to have been conducted in Los Angeles County, making the Los Angeles Superior Court a court of appropriate jurisdiction. (See, e.g., Mot., McGonigle Decl., Ex. 2, Disclosure [showing counsel and proposed arbitrators operating out of Los Angeles County, California].)

Plaintiff thus lawfully withdrew his claims for arbitration and filed them with this Court.

The Court also finds that Plaintiff did not waive his right to exercise his ability to pursue any of the relief provided for in Code of Civil Procedure section 1281.98, subdivision (b). Defendants argue that Plaintiff’s ongoing participation in the JAMS arbitrator selection process waived any right to withdraw from arbitration and file this action. (See Reply, p. 5 [referring to the exhibits in the motion to compel arbitration for support].) Such participation involved—after October 20, 2022—objections to the appointment of arbitrators in the JAMS proceeding on October 30, 2022, December 19, 2022, and January 17, 2023. (See Mot., McGonigle Decl., ¶¶ 8, 10, 12, Exs. 7-8 [copies of December 2022 and January 2023 objections].) The Court determines that such de minimis participation in the arbitration proceedings before JAMS is insufficient to constitute a waiver of the right to withdraw, and while there is not currently any caselaw concerning a plaintiff’s waiver of the right to bring the case back to state court following a failure to pay fees, such conduct does not reach the level of activity that has been held sufficient to find a waiver of the right to compel arbitration. (Cf. Lewis v. Fletcher Jones Motor Cars, Inc. (2012) 205 Cal.App.4th 436, 448-449 [waiver of right to arbitrate found where party delayed for five months in filing its motion to compel arbitration and during that time, litigated the merits of the action in court].)

The Court also notes that Plaintiff’s opposition cites to Code of Civil Procedure sections 1281.97 and 1281.98 in support of the right to withdraw from arbitration. (See Opp’n, pp. 3-5.) As a result, it is, in terms of results, immaterial whether the fees that Defendants failed to pay within 30 days of September 30, 2022 were fees to initiate or continue the arbitration proceedings. The provisions of sections 1281.97 and 1281.98 at subdivision (a)(1) are virtually identical regarding withdrawal. (Compare Code Civ. Proc., § 1281.97, subd. (a)(1), with Code Civ. Proc., § 1281.98, subd. (a)(1).) A failure to pay fees within 30 days under either statutory provision triggers waiver of the right to arbitration on the part of Defendants here. (See Code Civ. Proc., §§ 1281.97, subd. (a)(1), 1281.98, subd. (a)(1).)

The Court last notes that while the 30-day rule is seemingly harsh in nature, it was contemplated as such by the legislature. As the court stated in De Leon: “[I]t does not follow from this legislative history that section 1281.98 allows a trial court to weigh factors in addition to late payment–such as the degree of prejudice or delay caused by late payment–in determining a material breach under the statute. Quite the opposite, the legislative history indicates the California Legislature sought a clear and unambiguous rule for courts to apply in determining whether late payment of arbitration fees by a drafting party constituted a material breach of an arbitration agreement.” (De Leon v. Juanita’s Foods, supra, 85 Cal.App.5th at p. 756; see also Espinoza v. Superior Court, supra, 83 Cal.App.5th at p. 777 [“Although strict application may in some cases impose costs on drafting parties for innocent mistakes, the Legislature could have concluded a bright-line rule is preferable to requiring the nondrafting party to incur further delay and expense establishing the nonpayment was intentional and prejudicial”].)

Defendants’ motion to compel arbitration is therefore DENIED.

Accordingly, the Court does not consider the parties’ arguments as to whether the claims alleged in this action should have not been arbitrable in the JAMS proceeding in the first place. (See Mot., pp. 12-13; Opp’n, pp. 5-6; Reply, pp. 4-5.)

Conclusion

 Defendants Indus Investments, Inc. dba Hotel Shangri La, Royal Lush, LLC, and Tehmina Adaya’s Motion to Compel Arbitration and Stay Proceedings is DENIED.