Judge Bruce G. Iwasaki, Case Number: 20STCV34104, Date: 2024-03-19 Tentative Ruling

Matter: Motion to Vacate the Arbitration Order and for an Award of Sanctions, Costs and Fees

Tentative Ruling: The motion to vacate the arbitration order is denied. The request for sanctions, costs, and attorney fees is denied.

Plaintiff Jose Sanchez sued Defendant Foundation Buildings Materials, LLC. The Complaint contains causes of action for (1) Disability discrimination in violation of the Federal Employment and Housing Act (FEHA), (2) Failure to accommodate in violation of the FEHA, (3) Failure to engage in the interactive process in violation of the FEHA, and (4) Wrongful termination in violation of public policy.

On October 29, 2020, Defendant Foundation Buildings Materials, LLC moved to compel arbitration. The Court granted the motion on December 4, 2020.

On June 13, 2023, Plaintiff’s counsel moved for an order pursuant to Code of Civil Procedure Section 377.31, substituting decedent’s daughter, Irene Sanchez, in her capacity as successor in interest of her late father (decedent Jose Sanchez) under Code of Civil Procedure Section 377.11 as plaintiff in place of decedent. The Court granted the motion in part, and allowed amendment to the Complaint to substitute Irene Sanchez in as Plaintiff’s successor in interest.

Now, Plaintiff moves for an order to vacate the arbitration order and allow this matter to proceed within the Los Angeles Superior Court based on Defendant’s failure to pay all arbitration fees owed within thirty (30) days of their invoiced due date. Further, Plaintiff seeks sanctions and statutorily mandated recovery of attorneys’ fees and costs accrued to date against Defendant in the total amount of $115,921.60, pursuant to California Code of Civil Procedure Sections 1281.98(c) and 1281.99(a).

The motion to vacate the arbitration order is denied. The Request for sanctions, costs, and attorney fees is denied.

Plaintiff argues that she is entitled to relief pursuant to Code of Civil Procedure sections 1281.97 and 1281.98.

The Legislature enacted sections 1281.97 and 1281.98, recognizing that a “ ‘company's failure to pay the fees of an arbitration provider’ ” in a timely manner “ ‘hinder[ed] the efficient resolution of disputes and contravene[d] public policy.’ ” (De Leon v. Juanita's Foods (2022) 85 Cal.App.5th 740, 750.)

Sections 1281.97 and 1281.98 “largely parallel” each other. (Gallo v. Wood Ranch USA, Inc. (2022) 81 Cal.App.5th 621, 633, fn. 4.) Whereas section 1281.97 concerns a failure to timely pay “the fees or costs to initiate” an arbitration proceeding (§ 1281.97, subd. (a)(1), italics added), section 1281.98 concerns a failure to timely pay “the fees or costs required to continue” an arbitration proceeding (§ 1281.98, subd. (a)(1), italics added).

Both statutes require that the arbitration provider transmit an invoice to the parties specifying “the full amount owed and the date that payment is due,” generally indicating the invoice is “due on receipt.” (§ 1281.97, subd. (a)(2); § 1281.98, subd. (a)(2).) It also allows a grace period for payment of “30 days after the due date.” (§ 1281.98, subd. (a)(1); § 1281.97, subd. (a)(2).)

Here, Plaintiff contend that Defendant failed to timely pay arbitration fee invoices on three (3) occasions.

First, on September 19, 2022, JAMS issued an invoice to Defendant for a $61,600 retainer deposit, stating, “Payment is due upon receipt.” (Nadir Decl. ¶ 10, Ex. B.) Pursuant to Code of Civil Procedure section 1281.98(a)(1), Defendant had until October 19, 2022 (30 days from September 19, 2022) to issue payment. Defendant did not timely pay. (Nadir Decl., ¶ 10(a), Ex. C.)[1]

Second, on December 15, 2023, JAMS issued another invoice to Defendant for a $5,600 retainer deposit, stating again, “Payment is due upon receipt.” (Nadir Decl. ¶ 10(c), Ex. D.) Pursuant to Code of Civil Procedure section 1281.98(a)(1), Defendant had until January 14, 2024 (30 days from December 15, 2023) to issue payment. Defendant did not timely pay. (Nadir Decl. ¶ 10(c), Ex. D.)

Finally, JAMS issued another separate invoice on January 3, 2024 for Defendant’s $33,600 retainer deposit, again stating that payment was due immediately. (Nadir Decl. ¶ 10(d), Ex. E.) Pursuant to Code of Civil Procedure section 1281.98(a)(1), Defendant had until February 2, 2024 (30 days from January 3, 2024) to issue payment. Following some clarification regarding existing credits, Defendant did not pay the December 15, 2023 and January 3, 2024 invoices until February 5, 2024. (Wulffson Decl., ¶¶ 15-18; Nadir Decl. ¶ 10(e)-(g).)

Notwithstanding the foregoing undisputed facts, Plaintiff’s motion seeking to vacate the arbitration order is not well taken and ignores the relevant statutory law.

“If the drafting party materially breaches the arbitration agreement and is in default under subdivision (a), the employee or consumer may unilaterally elect to do any of the following:

(1) Withdraw the claim from arbitration and proceed in a court of appropriate jurisdiction. If the employee or consumer withdraws the claim from arbitration and proceeds with an action in a court of appropriate jurisdiction, the statute of limitations with regard to all claims brought or that relate back to any claim brought in arbitration shall be tolled as of the date of the first filing of a claim in any court, arbitration forum, or other dispute resolution forum.

(2) Continue the arbitration proceeding, if the arbitration provider agrees to continue administering the proceeding, notwithstanding the drafting party's failure to pay fees or costs. The neutral arbitrator or arbitration provider may institute a collection action at the conclusion of the arbitration proceeding against the drafting party that is in default of the arbitration for payment of all fees associated with the employment or consumer arbitration proceeding, including the cost of administering any proceedings after the default.

(3) Petition the court for an order compelling the drafting party to pay all arbitration fees that the drafting party is obligated to pay under the arbitration agreement or the rules of the arbitration provider.

(4) Pay the drafting party's fees and proceed with the arbitration proceeding. As part of the award, the employee or consumer shall recover all arbitration fees paid on behalf of the drafting party without regard to any findings on the merits in the underlying arbitration. ” [italics added.]

In support of her motion, Plaintiff relies heavily on Espinoza v. Superior Court (2022) 83 Cal.App.5th 761, Williams v. West Coast Hospitals (2022) 86 Cal.App.5th 1054 and De Leon v. Juanita's Foods, Inc. (2022) 85 Cal.App.5th 740.[3]

These cases are on point only to the extent that they strictly construe a material breach in failing to pay arbitration fees.

In De Leon, in discussing Section 1281.98, the court explained that it found “nothing in this language that is ambiguous regarding the requisite circumstances to determine the existence of a statutorily defined material breach of an arbitration agreement. To the contrary, the statute's language establishes a simple bright-line rule that a drafting party's failure to pay outstanding arbitration fees within 30 days after the due date results in its material breach of the arbitration agreement.” (De Leon v. Juanita's Foods, supra, 85 Cal.App.5th at 753.)

Similarly, in Espinoza, the Court of Appeal reversed the trial court’s conclusion that a defendant's late payment of an arbitration provider's invoice was “in ‘substantial[ ] compliance’ with the arbitration agreement and ‘not in material breach,’ because the delayed payment was due to ‘ “clerical error,” ’ and the delay did not prejudice plaintiff.” (Id. at p. 775.) The Court of Appeal concluded that the “language of section 1281.97 is unambiguous.” (Id. at p. 776.) “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.” (Ibid.) The court concluded that 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.” (Ibid.)

Thus, Plaintiff is correct that Defendant’s failure to pay the arbitration fees invoices in a timely manner resulted in a material default under Section 1281.98, subdivision (a).

However, Plaintiff’s actions and past course of conduct throughout the arbitration process shows that Plaintiff opted to proceed with the arbitration despite these three purported material breaches. That is, Plaintiff elected to “continue the arbitration proceeding” under Section 1981.98, subdivision (b)(2), rather than withdraw the claim from arbitration under subdivision (b)(1).

Thus, for any material default stemming from the September 19, 2022 breach, Plaintiff elected to continue with the arbitration proceeding. Plaintiff filed this motion on February 21, 2024 – a year and half later and after substantive litigation occurred between the parties in the arbitration proceeding. (Wulffson Decl., ¶¶ 7-8.)

With respect to the December 2023 and January 2024 breaches, the evidence shows that Plaintiff again elected to “continue the arbitration proceeding.”

As relevant background context to the filing of the motion to vacate the arbitration order, Plaintiff’s motion to vacate the arbitration order was filed after the Arbitrator ruled on two of Defendant’s summary judgment motions. First, in September 2023, Defendant filed a dispositive motion based on the lack of economic damages and the inability for Plaintiff Irene Sanchez, as successor in interest, to obtain emotional distress damages by a deceased claimant. (Wulffson Decl., ¶ 7.) On November 17, 2023, the Arbitrator granted Defendant’s second dispositive motion and ruled that Plaintiff Jose Sanchez did not suffer economic damages because he was totally disabled at the time of his termination and Irene Sanchez was precluded from recovering emotional distress damages as successor in interest. (Wulffson Decl., ¶ 7, Ex. F.)

Then, in December 2023, Defendant filed another dispositive motion seeking to dismiss the Complaint in its entirety based on Irene Sanchez’s inability to obtain punitive damages and attorneys’ fees in light of the Arbitrator’s prior dispositive ruling that precluded economic damages and emotional distress damages. (Wulffson Decl., ¶ 8.)

Defendant filed its motion and supporting documentation on December 13, 2023; Plaintiff Irene Sanchez filed her opposition on January 17, 2024 – after the deadline for the December 15, 2023 arbitration fees invoice had passed. Defendant filed its reply on January 24, 2024. (Nadir Decl., ¶ 8.) Oral argument was conducted via Zoom on January 31, 2024. (Nadir Decl., ¶ 8.) On or about January 31, 2024, the Arbitrator granted Defendants’ dispositive motion, in part, and ruled that Plaintiff is precluded from seeking punitive damages and associated attorneys’ fees but may seek nominal damages and associated attorneys’ costs. (Wulffson Decl., ¶ 8, Ex. G.)

Finally, the evidence shows that – after the February 2 deadline passed for the January 3, 2024 invoices – Plaintiff continued to actively seek discovery from Defendant in the arbitration proceeding following this purported default. (Wulffson Decl., ¶¶ 9, 22, Ex. H; Nadir Decl., ¶ 9.) Plaintiff even participated in a discovery conference with the Arbitrator on February 16, 2024, regarding Plaintiff’s recent attempts to take the deposition of Defendant’s PMK. (Wulffson Decl., ¶¶ 9, 22, Ex. H.) Plaintiff’s motion to vacate the arbitration order was not filed until February 21, 2024.

Plaintiff’s actions evince conduct consistent with acts of a party intending to proceed with arbitration under Section 1281.98, subdivision (b)(2) – not withdraw from arbitration under subdivision (b)(1). Specifically, Plaintiff’s conduct shows repeated and regular engagement in the arbitration proceeding after Defendant’s invoice breaches of September 2022 and December 2023. Further, with respect to the January invoice breach, Plaintiff’s subsequent conduct was consistent with past conduct where Plaintiff continued to engage in the arbitration proceeding. In this instance specifically, Plaintiff actively engaged in deposition date discussions with Defendant and participated in a discovery conference with the Arbitrator regarding this discovery. (Wulffson Decl., ¶¶ 9, 22, Ex. H.) In fact, the evidence suggests that only after the discovery conference occurred – where the Arbitrator appears to have agreed to Defendant’s suggestion that Plaintiff either settle this action or stipulate to a nominal damages – did Plaintiff give any indication that Plaintiff no longer intended to proceed with the arbitration – by filing this instant motion to vacate the arbitration order.

Moreover, on March 11, 2024, the Arbitrator issued an Order indicating: (1) Defendant has stipulated to liability in this matter, and that Claimant JOSE SANCHEZ is entitled to nominal damages in the amount of $1.00, pursuant to the Arbitrator’s prior rulings in this matter; (2) That the hearing dates of May 1 and 2, 2024 be vacated; and (3) That Claimant may file a motion for an award of attorneys’ fees and/or costs by no later than March 23, 2024, which shall include an explanation as to why such an award is warranted in light of the California Supreme Court’s decision in Chavez v. City of Los Angeles, 47 Cal.4th 970 (2010). (3/14/24 Amos Decl., ¶ 3, Ex. A.) Thus, except for Plaintiff’s request for attorney fees in the underlying arbitration proceeding, the underlying arbitration proceeding appears to be complete.

As result of the Court’s finding that Plaintiff did not “withdraw[] the claim from arbitration and proceed[] in a court of appropriate jurisdiction” under Section 1281.98, subdivision (b)(1) – subdivision (c), which allows attorney fees, costs, and sanctions, does not apply.

Lastly, as noted above, Plaintiff has demonstrated a material breach. Under Code of Civil Procedure section 1281.99, “[t]he 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, however, Plaintiff has not demonstrated any reasonable expenses incurred “as result of the material breach.” Thus, Plaintiff is not entitled to any sanctions, fees or costs pursuant to California Code of Civil Procedure Sections 1281.98(c) or 1281.99(a).

[1] Although not an excusable fact under such cases as Espinoza v. Superior Court (2022) 83 Cal.App.5th 761 – the parties had, on October 11, 2022, reached a settlement agreement in principle. (Nadir Decl., ¶ 4.) However, on December 13, 2022, Plaintiff Jose Sanchez died before executing the settlement agreement. (I. Sanchez Decl., ¶ 3, Ex. A; Nadir Decl., ¶ 6.)

[2] Although Plaintiff cites Code of Civil Procedure section 1281.97, which pertains to initial arbitration fees, it does not appear that any of the invoices in question were for initial fees.

[3] Notably, Espinoza and Williams involved Code of Civil Procedure Section 1281.97. (See Espinoza v. Superior Court (2022) 83 Cal.App.5th 761, 773; Williams v. West Coast Hospitals, Inc. (2022) 86 Cal.App.5th 1054, 1065.) With respect to De Leon, the Court of Appeal noted that there was some ambiguity as to which statute applies to an “initial retainer fee” but noted that in any case the statutes are materially identical in relevant respects. (De Leon v. Juanita's Foods (2022) 85 Cal.App.5th 740, 749, fn. 7.)