Judge Audra Mori, Case 20STCV18763 2023-02-16 Tentative Ruling

Plaintiff Maresa Avalos (“Plaintiff”) filed this action against Defendant Neutron Holdings, Inc. (“Defendant”) for injuries Plaintiff sustained while riding a scooter she rented from Defendant. Plaintiff alleges that the scooter’s brakes failed while she was riding it, which resulted in Plaintiff falling backwards off the scooter. On July 31, 2020, the Court signed a stipulation to binding arbitration prepared and filed by Defendant. The stipulation confirmed that Plaintiff had entered into a binding user agreement containing an arbitration provision that requires Plaintiff to submit any disputes to binding arbitration. It further provided that there was good cause for the matter to be ordered into arbitration based on the user agreement, the parties’ intent, and to conserve judicial resources. The action was ordered to binding arbitration based upon the stated good cause and was stayed.

On August 24, 2022, Plaintiff filed this motion to vacate order compelling arbitration under CCP § 1281.97 and to lift the stay on the case. Additionally, Plaintiff seeks sanctions of $6,575 against Defendant. Defendant opposes the motion, and Plaintiff filed a reply.

Plaintiff contends that Defendant waived its right to arbitration by waiting almost a full year to propose arbitrators, and then after the parties chose an arbitrator, Defendant materially breached the arbitration agreement by failing to pay the arbitration fees for more than 295 days. Plaintiff asserts that as of the date of the filing of the motion Defendant had not paid the arbitrator’s fees. Plaintiff argues that as a result, she is entitled to withdraw the case from arbitration and proceed with this action in this Court.

In opposition, Defendant contends that Plaintiff has not established she is entitled to the requested relief because CCP § 1287.97 does not provide for the rescission of the parties’ stipulation. Defendant argues that Plaintiff’s contention about Defendant’s failure to pay the arbitration fees is immaterial because Plaintiff was not compelled to arbitrate the matter under the arbitration agreement. Further, Defendant argues that even if it is found that CCP § 1281.97 allows the rescission of the parties’ stipulation to arbitrate, the Court’s ability to terminate the arbitration under California law is nevertheless preempted by the Federal Arbitration Act (“FAA”) because the terms of the user agreement mandate that the arbitrator decide whether late payment of arbitration fees constitutes grounds to end the arbitration. In addition, Defendant contends that under general principles of California contract law, late payment of arbitration fees does not constitute a material breach of the arbitration agreement. Lastly, Defendant provides that of the filing of the opposition, Defendant has paid all outstanding balances due to the arbitrator.

In reply, Plaintiff asserts that Defendant admittedly failed to pay arbitration fees within 30 days of the date they were due, and as a result, Defendant materially breached the arbitration agreement. Plaintiff argues that CCP § 1281.97 applies to parties who stipulate to arbitration, and that whether the failure to pay arbitration fees is material does not need to be determined by the arbitrator.

(1) In an employment or consumer arbitration that requires, either expressly or through application of state or federal law or the rules of the arbitration provider, the drafting party to pay certain fees and costs before the arbitration can proceed, if the fees or costs to initiate an 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 arbitration under Section 1281.2.

(2) After an employee or consumer meets the filing requirements necessary to initiate an arbitration, the arbitration provider shall immediately provide an invoice for any fees and costs required before the arbitration can proceed to all of the parties to the arbitration. The invoice shall be provided in its entirety, shall state the full amount owed and the date that payment is due, and shall be sent to all parties by the same means on the same day. To avoid delay, absent an express provision in the arbitration agreement stating the number of days in which the parties to the arbitration must pay any required fees or costs, the arbitration provider shall issue all invoices to the parties as due upon receipt.

If the drafting party materially breaches the arbitration agreement and is in default under subdivision (a), the employee or consumer may withdraw the claim from arbitration and proceed in a court of appropriate jurisdiction. (Id. § 1281.97(b)(1).)

In this case, the Court ordered the parties to binding arbitration based on their stipulation on July 20, 2020. Plaintiff asserts that after numerous attempts to get the arbitration process moving, Defendant proposed a list of arbitrators on April 9, 2021, and on September 28, 2021, the parties agreed on an arbitrator. The arbitrator selected April 8, 2022, as the arbitration date, and on October 30, 2021, the arbitrator sent an invoice requiring all parties to submit a $1,600 deposit on or before March 1, 2022. Three months later, instead of paying the arbitration fee, Defendant requested a continuance of the arbitration date, to which Plaintiff agreed. The arbitration was continued to July 27 and 28, 2022. On January 27, 2022, the arbitrator sent an amended invoice requiring all parties to submit a $3,200 deposit on or before June 1, 2022. Thereafter, defense counsel requested the arbitration date again be continued, and the parties agreed to continue the arbitration to September 12 and 13, 2022. On June 2, 2022, the arbitrator sent a second amended invoice requiring all parties to submit a $3,200 deposit on or before July 15, 2022. Plaintiff made a deposit of $1,600 on July 20, 2022, and then attempted to meet and confer with Defendant multiple times about the need to pay the arbitration fees, but as of the filing of the motion on August 24, 2022, which was more than 30 days after the second amended invoice was served on the parties, Defendant failed to pay any arbitration fees.

While Defendant states that as of the filing of its opposition, which was filed February 2, 2023, all outstanding balances due to the arbitrator have been paid, Defendant does not dispute any of the above facts, including failing to pay the arbitration fees within 30 days after the second amended invoice was served on the parties. Instead, Defendant contends that Plaintiff is not entitled to relief under CCP § 1281.97 because Plaintiff stipulated to binding arbitration.

However, nothing in the plain language of CCP § 1281.97 suggests that this section applies only after a motion to compel arbitration is granted. The Court will not now read such a requirement into the statute. To do so would discourage parties from efficiently stipulating to arbitration when they determine that a valid arbitration agreement exists, as they did here,[1] and encourage them to needlessly file a motion to compel arbitration. It would also serve as a trap for an unwary plaintiff, who by cooperatively acknowledging that an arbitration agreement applies unknowingly waives their rights under CCP § 1281.97. This would thwart the purpose of CCP § 1281.97, which was intended to prevent drafting parties from prejudicing employees and consumers in the vindication of their rights through efficient dispute resolution. (Williams v. W. Coast Hosps. (2022) Inc., 86 Cal. App. 5th 1054, 302 Cal. Rptr. 3d 803, 813.)

In Williams v. West Coast Hospitals, Inc. (2022) 86 Cal.App.5th 1054, cited by Plaintiff in reply to Defendant’s contention, the trial court granted in part the defendant’s motion to compel arbitration as to one of the plaintiffs but denied it as to a different plaintiff. (Id. at 809.) The case was stayed as to the other plaintiff, but the next day, the trial court entered a stipulated order submitting the entire action to arbitration. (Id.) The plaintiffs later timely paid their portion of the arbitration filing fee, but the defendant did not timely pay the balance. (Id. at 810.) In relevant part, the Williams Court concluded “that the statute empowers a consumer otherwise subject to a voluntary predispute arbitration agreement to unilaterally withdraw from the arbitration upon the drafting party's failure to pay contractually required arbitration fees.” (Id., emphasis added.) After noting that CCP §§ 1281.97 and 1281.98 were “ ‘largely parallel’ … and require no different analysis,” (Id. at 812), the Court rejected the contention that CCP § 1281.98 did not apply to a voluntary agreement to arbitrate. The defendant’s proposed limitation that this section applied only to “mandatory” agreements was inconsistent with the statute's plain language. (Id. at 818.) “… [T]he Legislature did not declare that the strategic delay of arbitration through non-payment of fees and costs is ‘only’ problematic and unfair where it is achieved by the party that imposed the arbitration obligation predispute.” (Id. at 819.)

Accordingly, to the extent that Defendant argues that CCP § 1281.97 does not apply because Plaintiff stipulated to having the matter ordered into arbitration based on the user agreement or voluntarily agreed to arbitrate her claims against Defendant, this contention is rejected. Because Defendant does not dispute failing to timely pay the arbitration fees, Plaintiff may seek to withdraw the matter from arbitration pursuant to CCP § 1281.97(b)(1).

Defendant contends that the decision to terminate arbitration must be delegated to the arbitrator because the FAA preempts CCP § 1281.97. Defendant asserts that under Belyea v. GreenSky, Inc. (N.D. Cal. 2022) 2022 WL 14965532, a CCP § 1281.97 challenge to an arbitration agreement with a valid delegation clause is an issue to be decided by the arbitrator.

The federal case, Belyea, is not binding authority on this Court. Rather, the California Court of Appeal has expressly rejected Defendant’s arguments in this regard. (Gallo v. Wood Ranch USA, Inc. (2022) 81 Cal.App.5th 621, 641 [“the FAA does not preempt sections 1281.97 and 1281.99.”]; Espinoza v. Superior Court of Los Angeles County (2022) 83 Cal.App.5th 761, 780-83 [agreeing with Gallo].) The procedures prescribed in CCP §§ 1281.97 and 1281.99 “further – rather frustrate – the objectives of the FAA to honor the parties' intent to arbitrate and to preserve arbitration as a speedy and effective alternative forum for resolving disputes.” (Gallo, 81 Cal.App.5th at 629-30, emphasis in original.) This Court is bound by Gallo and Espinoza.

Requiring plaintiffs to remain in arbitration to obtain a decision to terminate an arbitration under § 1281.97 "from an arbitrator who did not receive timely payment and may still remain unpaid” invites the type of abuse that the statute is intended to eradicate, unnecessary delay and inefficient resolution of claims. (Williams v. W. Coast Hosps., Inc., (2022) 86 Cal. App. 5th 1054 [discussing requiring plaintiffs to obtain a finding of default from the arbitrator].) It does not "preserve arbitration as a speedy and effective alternative forum for resolving disputes.” (Gallo, 81 Cal.App.5th at 629-30.)

Defendant contends that its late payment of the arbitration fees does not necessarily constitute breach of the arbitration agreement because the parties’ arbitration agreement does not contain a time is of the essence clause and Defendant has acted consistent with its right to arbitrate. Further, Defendant contends that granting the motion would be contrary to public policy because it would negate the parties’ intent to settle the dispute by binding arbitration.

Defendant’s argument that the late payment of arbitration fees does not constitute a breach of the arbitration agreement is directly at odds with the express language of CCP § 1281.97. This statute states in pertinent part, “if the fees or costs to initiate an 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 arbitration under Section 1281.2.” (CCP § 1281.97(a)(1), emphasis added.) The plain language of CCP § 1281.97 thus shows that a drafting party is automatically in material breach of the arbitration agreement once that party fails to pay the arbitration fees or costs within 30 days after the due date. Defendant does not dispute failing to timely pay the arbitration fees within 30 days after they were due. The statute provides no other factors the Court may consider in determining whether a material breach, and Defendant cites no authority demonstrating that the Court may consider any other factors.

The language of section 1281.97 is unambiguous. It provides that the drafting party is in “material breach,” and the nondrafting party is entitled to the remedies under the statute, “if the fees or costs to initiate an arbitration proceeding are not paid within 30 days after the due date ....” (§ 1281.97, subd. (a)(1).) Under the plain language of the statute, then, the triggering event is nothing more than nonpayment of fees within the 30-day period—the statute specifies no other required findings, such as whether the nonpayment was deliberate or inadvertent, or whether the delay prejudiced the nondrafting party. The plain language therefore indicates the Legislature intended the statute to be strictly applied whenever a drafting party failed to pay by the statutory deadline.

(Espinoza, 83 Cal.App.5th at 776; see also Williams, 86 Cal.App.5th at 819 [“To further its stated purpose, the Legislature in enacting sections 1281.97 … chose to neither require nor permit an inquiry into the reasons for a drafting party's nonpayment.”].)

Defendant’s public policy contentions are similarly unavailing in this case. Applying CCP § 1281.97 does not negate the parties’ intent to arbitrate this matter or obstruct the goals of speedy resolution, as argued by Defendant. Rather, in enacting CCP § 1281.97, “the Legislature expressed concern that ‘[a] company's failure to pay the fees of an arbitration service provider in accordance with its obligations contained within an arbitration agreement or through application of state or federal law or the rules of the arbitration provider hinders the efficient resolution of disputes and contravenes public policy.’ (Stats. 2019, ch. 870, § 1, subd. (c).)” (Espinoza, 83 Cal.App.5th at 773.) “Further, “[a] company's strategic non-payment of fees and costs severely prejudices the ability of employees or consumers to vindicate their rights. This practice is particularly problematic and unfair when the party failing or refusing to pay those fees and costs is the party that imposed the obligation to arbitrate disputes.” (Id., § 1, subd. (d).)” (Id.) Consequently, vacating the order compelling arbitration serves the purpose of CCP § 1281.97 by providing procedural redress for Plaintiff whose arbitration has been delayed by Defendant’s nonpayment. CCP § 1281.97 promotes the goal of speedy and efficient dispute resolution by incentivizing timely payment of arbitration fees, which in this case, was hindered by Defendant.

Based on the foregoing, Plaintiff’s request to vacate the order ordering the parties to arbitration is granted.

CCP § 1281.97(d) provides, “If the employee or consumer proceeds with an action in a court of appropriate jurisdiction, the court shall impose sanctions on the drafting party in accordance with Section 1281.99.” CCP § 1281.99(a) states, “The court shall impose a monetary sanction against a drafting party that materially breaches an arbitration agreement pursuant to subdivision (a) of Section 1281.97 or subdivision (a) of Section 1281.98, by ordering the drafting party to pay the reasonable expenses, including attorney's fees and costs, incurred by the employee or consumer as a result of the material breach.”

Here, Plaintiff is entitled to sanctions against Defendant for Defendant’s material breach of the arbitration agreement. Defendant, in opposition, contends the Court is empowered to deny Plaintiff’s request for monetary sanctions under CCP § 1281.99(b) because Defendant acted with substantial justification. This provision states:

In addition to the monetary sanction described in subdivision (a), the court may order any of the following sanctions against a drafting party that materially breaches an arbitration agreement pursuant to subdivision (a) of Section 1281.97 or subdivision (a) of Section 1281.98, unless the court finds that the one subject to the sanction acted with substantial justification or that other circumstances make the imposition of the sanction unjust.

(1) An evidence sanction by an order prohibiting the drafting party from conducting discovery in the civil action.

(A) An order striking out the pleadings or parts of the pleadings of the drafting party.

(3) A contempt sanction by an order treating the drafting party as in contempt of court.

CCP § 1281.99(b), therefore, authorizes the Court to impose evidence, terminating, and/or contempt sanctions in addition to the mandatory monetary sanction required by CCP § 1281.99(a). CCP § 1281.99(a) is clear monetary sanctions shall be imposed against a party found in material breach under CCP § 1281.97.

Plaintiff is awarded two hours for researching proposed arbitrators, three hours reviewing the rules for arbitration and communicating with Defendant about facilitating arbitration, three hours for preparing the instant motion, two hours for the reply, and one hour for appearing at the hearing all at the reasonable rate of $250 per hour, for a total attorney fees award of $2,750. Furter, Plaintiff is awarded the $60 motion filing fee as costs. Sanctions are imposed against Defendant. Defendant is ordered to pay sanctions to Plaintiff, by and through Plaintiff’s counsel of record, in the total amount of $2,810.00 within twenty (20) days.

Plaintiff’s motion to vacate the order compelling arbitration is granted. The stay in this action is lifted. The Court sets a Trial Setting Conference for _______________ in this Department. Defendant is ordered to file its answer or responsive pleading within twenty (20) days. Pursuant to CCP § 1281.99(a), Defendant is ordered to pay Plaintiff sanctions of $2,810.00 via Plaintiff’s counsel of record within 20 days.

Hon. Audra Mori

Judge of the Superior Court

[1] Indeed, the stipulation prepared by Defendant and signed by both parties provided, “GOOD CAUSE exists for the Action to be ordered into arbitration based on the User Agreement, intentions of the parties and in support of the judicious use of court resources.”