Judge: Armen Tamzarian, Case: 23STCV21894, Date: 2025-05-15 Tentative Ruling

Case Number: 23STCV21894    Hearing Date: May 15, 2025    Dept: 52

Plaintiff’s Motion to Set Aside Order Compelling Arbitration

Plaintiff Donna Pociecha moves under Code of Civil Procedure section 1281.98 to set aside the court’s order granting defendant The Lobster LLC’s motion to compel arbitration of this action.

Defendant argues the Federal Arbitration Act (FAA) preempts Code of Civil Procedure section 1281.98.  The issue is pending review before the California Supreme Court.  (Hohenshelt v. Superior Court (2024) 321 Cal.Rptr.3d 633; Hernandez v. Sohnen Enterprises (2024) 324 Cal.Rptr.3d 318, 319.)  In granting review of these cases, the California Supreme Court permitted citing both opinions for their persuasive value and for the purpose of establishing a conflict in authority.  When “appellate decisions are in conflict,” the trial court “can and must make a choice between the conflicting decisions.”  (Auto Equity Sales, Inc. v. Superior Court of Santa Clara County (1962) 57 Cal.2d 450, 456.)

The court finds Hernandez v. Sohnen Enterprises, Inc. (2024) 102 Cal.App.5th 222, review granted August 21, 2024, S285696 (Hernandez) the most persuasive opinion on FAA preemption of sections 1281.97 and 1281.98.  There, the court reasoned, “[A] state law that discriminates on its face against arbitration, such as barring arbitration of a particular type of claim, will be preempted by the FAA.”  (Hernandez, supra, at p. 243.)  The court held, “[S]ection 1281.97 violates the equal-treatment principle because it mandates findings of material breach and waiver for late payment that do not apply generally to all contracts or even to all arbitrations.  Under California contract law, defenses to enforcement of a contract are generally questions for the trier of fact and subject to doctrines such as substantial compliance, but section 1281.97 imposes a stricter requirement, mandating a finding of material breach and waiver as a matter of law in consumer and employment arbitration contracts, and making it harder to enforce arbitration agreements in those matters.”  (Ibid.)  This reasoning applies equally to section 1281.98, which the Court of Appeal has noted is “almost identical” to section 1281.97.  (Keeton v. Tesla, Inc. (2024) 103 Cal.App.5th at p. 35.) 

The court also finds the dissenting opinion in Hohenshelt v. Superior Court (2024) 99 Cal.App.5th 1319, review granted June 12, 2024, S284498, persuasive.  Justice Wiley wrote, “This California statute ‘singles out arbitration agreements for disfavored treatment.’  No other contracts are voided on a hair-trigger basis due to tardy performance.  Only arbitration contracts face this firing squad.”  (Id. at p. 1328, dis. opn. of Wiley, J.).)

As in Hernandez, the court disagrees with opinions that “concluded section 1281.97 [or 1281.98] furthers the goals of the FAA by encouraging or facilitating arbitration.”  (Hernandez, supra, 102 Cal.App.5th at p. 243.)  This case exemplifies how these statutes present an obstacle to accomplishing the FAA’s purposes.  The parties have been arbitrating this dispute for over a year (not counting the five months between this court’s order compelling arbitration and plaintiff’s submission of her demand for arbitration to JAMS).  (Denis Decl., ¶ 4.)  The proceeding on the merits was set to begin on May 19, 2025.  (Id., ¶ 5.)  Withdrawing the matter from arbitration on the eve of the proceeding and undoing all progress made toward resolution would undermine the purpose of “ ‘ “arbitration as a speedy and relatively inexpensive means of dispute resolution.” ’ ”  (Wagner Construction Co. v. Pacific Mechanical Corp. (2007) 41 Cal.4th 19, 25.) 

Plaintiff argues that, even if the court follows Hernandez in finding the FAA can preempt Code of Civil Procedure section 1281.98, Hernandez is distinguishable.  Plaintiff contends Hernandez does not apply because there, the parties’ agreement adopted the FAA and Federal Rules of Civil Procedure and made no reference to state law.  “If parties expressly agree to apply the CAA, or agree to apply California law, including California’s arbitration rules, then the state arbitration laws will not be preempted by the FAA.”  (Hernandez, supra, 102 Cal.App.5th at p. 240.) 

Here, the parties’ arbitration agreement provides, “This Agreement shall be governed by the Federal Arbitration Act and otherwise by the substantive law of the state of employment of Employee.”  (Denis Decl., Ex. B, ¶ 9.)  Code of Civil Procedure 1281.98 is a procedural rule of the California Arbitration Act (CAA), not a substantive law.  Moreover, the agreement’s preamble refers to the FAA and not the CAA: “The parties hereby agree that any claim, dispute, or controversy arising out of or relating to the employment or prospective employment by the Company of Employee which by law may be resolved by arbitration under the Federal Arbitration Act shall be resolved by final and binding arbitration before a neutral arbitrator… .”  (Denis Decl., Ex. B, p. 1.) 

Hernandez also indicates a second reason the court must deny plaintiff’s motion.  Code of Civil Procedure section 1281.98 does not apply to the parties’ arbitration agreement.  “[I]f parties agree to apply the FAA’s procedural provisions, rather than the procedures of the CAA, then the state arbitration procedures do not apply and there is no preemption issue.”  (Hernandez, supra, 102 Cal.App.5th at p. 240.)  Where “[t]he parties selected the procedural provisions of the FAA and the Federal Rules of Civil Procedure,” “the procedures of the CAA, including section 1281.97, do not apply.”  (Id. at p. 242.) 

As in Hernandez, the parties’ agreement expressly provides that it is governed by the FAA.  (Denis Decl., Ex. B, ¶ 9.)  It does not adopt the California Arbitration Act’s procedures except as to “confirmation, correct, or vacation” of the arbitrator’s award.  (Id., ¶ 8.)  It refers to state law only in defining the scope of arbitrable disputes (id., ¶¶ 1-2), limiting the employee’s fees “beyond those which he/she would incur in filing a state court action” (id., ¶ 4), and by stating the agreement is governed “otherwise by the substantive law of the state of employment” (id., ¶ 9).  The agreement thus adopts the FAA over any California procedural rules of arbitration except those on confirming, correcting, or vacating an award.  (Code Civ. Proc., §§ 1285-1287.6.)  The agreement does not adopt the California Arbitration Act’s procedures under section 1281.98.  Even without FAA preemption, the court cannot grant relief under Code of Civil Procedure section 1281.98.

Disposition

            Plaintiff Donna Pociecha’s motion to set aside order granting arbitration is denied.