Judge Barbara M. Scheper, Case Number: 22STCV35064, Date: 2024-10-18 Tentative Ruling

Judge: Barbara M. Scheper, Case: 22STCV35064, Date: 2024-10-18 Tentative Ruling

Case Number: 22STCV35064 Hearing Date: October 18, 2024 Dept: 30

Dept. 30

Calendar No.

Assaad vs. Zenith Insurance Co., et. al., Case No. 22STCV35064

Tentative Ruling re: Plaintiff’s Motion to Withdraw Case from Arbitration

Essam Assaad (Plaintiff) moves for an order withdrawing his case against Zenith Insurance Co., Linda Carmody, Guillermo Gabriel, and Julie Venia (Defendants) from arbitration. The motion is denied.

“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).) Any extension of time for the payment due date must be agreed upon by all parties. (Id., § 1281.98, subd. (a)(2); Hohenshelt v. Superior Court (2024) 99 Cal.App.5th 1319, 1325.) If the drafting party is in default under subdivision (a), the employee may “[w]ithdraw the claim from arbitration and proceed in a court of appropriate jurisdiction.” (Code Civ. Proc., § 1281.98, subd. (b)(1).)

Plaintiff commenced the present suit against Defendants on November 3, 2022. Defendants compelled Plaintiff to arbitrate his claims pursuant to the arbitration provision in his employment contract on April 7, 2023. (Rand-Lewis Decl. ¶ 4.) On April 10, 2024, Defendants were issued an invoice from the arbitrator for $40,000, due in 30 days. (Id. ¶ 9.) The arbitrator then continued the next arbitration hearing from July 8, 2024, to December 9, 2024, extending the due dates of Defendants’ fees as well. (Id. ¶ 12.) Plaintiff did not agree to any extension of the due date. (Id. ¶ 13.) Plaintiff was notified of Defendant’s failure to pay on September 10, 2024, when the arbitrator issued a new invoice to Defendants. (Id. ¶ 17–18.)

Section 1281.98 is not preempted by the FAA.

Defendants assert that the Federal Arbitration Act (FAA) applies to the present arbitration agreement, and that it preempts Code of Civil Procedure section 1281.98. “The FAA preempts state laws that prohibit or discourage the formation or enforcement of arbitration agreements, or that interfere with fundamental attributes of arbitration.” (Espinoza v. Superior Court (2022) 83 Cal.App.5th 761, 771.) In Espinoza, the court held that the FAA did not preempt Code of Civil Procedure section 1281.97 because that section merely “set forth procedural requirements to ensure timely payment of arbitration fees,” still in keeping with the objectives of the FAA to “preserve arbitration as a speedy and effective alternative forum.” (Ibid.) More recently, the court held that the FAA does not preempt section 1281.98 either. (Keeton v. Tesla, Inc. (2024) 103 Cal.App.5th 26, 37.)

Here, Defendants make no attempt to distinguish section 1281.98 from section 1281.97 and fail to address the definitive ruling in Keeton. The two statutes are nearly identical, the only difference being that section 1281.98 pertains to payments during an active arbitration proceeding, while 1281.97 instead addresses payments meant to initiate an arbitration proceeding. (See Cvejic v. Skyview Capital, LLC (2023) 92 Cal.App.5th 1073, 1077.) The reasoning in Espinoza holds just as strongly here, where 1281.98 provides more procedural requirements which ensure the timely payment of fees, while still in keeping with the objectives of the FAA. Accordingly, following Keeton, the Court finds that the FAA does not preempt section 1281.98.

The arbitrator’s continuance of the arbitration hearing does not affect the outcome.

Defendants argue that they were justified in failing to pay arbitration fees within 30 days of the April 10, 2024, invoice. The arbitrator issued that invoice as advance payment for the upcoming July 8 arbitration hearing. (Rand-Lewis Decl. ¶ 9.) The email accompanying the invoice made clear that the arbitrator would not extend the payment due date unless agreed to by all parties. (Ibid.) At Defendants’ request, the arbitrator later continued the hearing to December 9, 2024, along with the payment deadline. (Id. ¶ 12.) Plaintiff did not agree to extend the due date. (Id. ¶ 13.) Yet Defendants contend that the arbitrator’s extension renders their late payment timely.

Section 1281.98 does not empower the arbitrator to cure a party’s missed payment. (Cvejic, supra, at p. 1078.) Specifically, “If . . . the drafting party were permitted numerous continuances for failure to pay arbitration fees, therefore delaying the proceedings, C.C.P. section 1281.98 would have no meaning, force, or effect.” (Ibid.) Under section 1281.98, a late payment “constitutes a ‘material breach’ without regard to any additional considerations.” (De Leon v. Juanita’s Foods (2022) 85 Cal.App.5th 740, 749.) The statute is meant to ensure the efficient resolution of cases by imposing a grave penalty for failing to pay arbitration fees. (Cvejic, supra, at p. 1079.) “The point was to take this issue away from arbitrators, who may be financially interested in continuing the arbitration and in pleasing regular clients.” (Ibid.)

Here, the arbitrator continued the upcoming hearing before payment became due and extended the due date of the payment as well. Defendants did not cause this delay by being delinquent on payments, nor does Plaintiff present any evidence that Defendants asked for the hearing to be continued so that the payment deadline would be extended. Rather, Plaintiff is partly at fault for the delay by failing to timely serve initial disclosures, being compelled to provide further responses, and delaying his own deposition. (Becerra Decl. ¶ 4.)

Nevertheless, the language of section 1281.98 is explicit. Any extension of time for a payment due date shall be agreed upon by all parties. (Code Civ. Proc., § 1281.98, subdivision (a)(2).) While Plaintiff’s delays may have caused the continuance of the arbitration hearing, that did not necessitate a concurrent change in payment due date. (Rand-Lewis Decl. ¶ 14, 33.) Assurances from the arbitrator that the section would not apply are inapposite. (Id. ¶ 38; see Cvejic, supra, at pp. 1078–1079 [noting that rulings on the applicability of section 1281.98 are to be made by the trial court].) Further, the Court of Appeal recently held that a payment due date extension by the arbitrator without the consent of all parties does not fix a violation of section 1281.98. (Hohenshelt, supra, at p. 1325.) Thus, Defendants were still required to make a payment by May 10, 2024, because Plaintiff did not agree to extend the due date.

Withdrawal from arbitration is not a question for the arbitrator.

Defendants argue that the delegation clause within the arbitration agreement prohibits the Court from ruling on Plaintiff’s motion. However, “employees and consumers may make their ‘unilateral’ election of relief under section 1281.98, subdivision (b) upon learning of the default, without first seeking approval from the arbitrator.” (Williams v. West Coast Hospitals, Inc. (2022) 86 Cal.App.5th 1054, 1067–1068.) Indeed, requiring employees to remain in arbitration to secure a default from an arbitrator who did not receive timely payment “invites the very abuse that the statute is intended to eradicate.” (Id. at p. 1068.) The Court need not respect any decisions made by arbitrators regarding the applicability of section 1281.98. (Cvejic, supra, at p. 1078–1079.) Thus, delegation provisions in an arbitration agreement do not apply to parties seeking withdrawal under section 1281.98, subdivision (b).

Plaintiff waived relief pursuant to section 1281.98.

Defendants argue that even if they materially breached the arbitration agreement by failing to pay on time, Plaintiff waived any relief under section 1281.98. The essential elements of waiver include the relinquishment or abandonment of a known right with knowledge of the facts. (Lynch v. California Coastal Commission (2017) 3 Cal.5th 470, 475.) “Waiver always rests upon intent . . . express, based on the waiving party’s words, or implied, based on conduct that is so inconsistent with an intent to enforce the right as to induce a reasonable belief that such right has been relinquished.” (Ibid.)

Here, Plaintiff first learned of the changed payment deadline on May 3, 2024, when the arbitrator notified both parties of the changed due date. (Becerra Decl. ¶ 14, Ex. K.) At this point, Plaintiff became aware that a payment deadline was being changed without both parties’ consent, in violation of section 1281.98, subdivision (a)(2). Plaintiff did not object to the extended deadline until September 10, 2024, long after Defendants lost their chance to cure this violation. Plaintiff’s conduct is not consistent with an intent to enforce section 1281.98. The Court also notes that Plaintiff only raised his objection after Defendant filed its motion for summary judgment in the arbitration proceeding. This appears to the Court to demonstrate gamesmanship designed to prevent the motion for summary judgment from being heard. According to Defendant, Plaintiff had not conducted any discovery prior to the filing of the motion making it likely that the motion would be granted. This Court will not countenance such gamesmanship.