Department 58

Hearing Date: March 9, 2023

Case Name: Sheena Christian v. American Guard Services, Inc.

Case No.: 22STCV40030

Matter: Motion to compel arbitration

Moving Parties: Defendant American Guard Services, Inc.

Responding Party: Plaintiff Sheena Christian

Tentative Ruling: The motion to compel arbitration is denied. The Court awards sanctions payable to Plaintiff in the amount of $4,875.

Background

This is an employment action for whistleblower retaliation and wrongful termination. Sheena Christian (Plaintiff) alleged that American Guard Services, Inc. (Defendant) terminated her employment because she reported Defendant’s failure to comply with COVID-19 safety measures during the pandemic.

The Complaint also alleges that on August 17, 2022, Plaintiff made a demand for arbitration with the American Arbitration Association (AAA). The AAA sent a letter for payment to Defendant, due on or before October 3, 2022. After Defendant allegedly failed to pay, AAA closed their file on October 5, 2022, and Plaintiff filed suit in this Court.

On January 30, 2023, Defendant filed a motion to compel arbitration. It acknowledged the prior arbitration demand but stated that Plaintiff’s demand “was not transferred to the Legal Department and was not reviewed by an attorney.” Defendant further asserted that “the few month delay in proceeding with Binding Arbitration did not cause Plaintiff material prejudice.” Plaintiff filed an opposition, asserting that Defendant waived its right to arbitration and there are no exceptions for mistake or neglect. She further requests sanctions. In reply, Defendant argues there are jurisdictional and due process concerns. It contends that service on its registered agent did not result in proper notice and the failure to forward the demand for arbitration was not intentional.

The motion to compel arbitration is denied. The award of monetary sanctions against Defendant is mandatory.

Legal Standard

Code of Civil Procedure section 1281.97, subdivision (a)(1) states that “[i]n an employment or consumer arbitration that requires . . . 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.” (Italics added.) “If the drafting party materially breaches the arbitration agreement and is in default under subdivision (a), the employee or consumer may . . . [w]ithdraw the claim from arbitration and proceed in a court of appropriate jurisdiction.” (Id., subd. (b).)

The parties do not dispute that Plaintiff previously filed and served a demand for arbitration on August 17, 2022. (Hinden Decl., ¶ 8(a).) Plaintiff mailed the demand to Defendant at its agent for service of process. (Id. at ¶ 3.) On September 2, 2022, AAA mailed a letter indicating that Defendant must pay its fees by October 3, 2022. (Id. at ¶ 8(b), Ex. D.) Because Defendant failed to pay, AAA closed its file on October 5, 2022. (Id. at ¶ 8(d), Ex. E.)

Instead, Defendant argues that the demand was not properly transferred to the legal department. In other words, the argument is that the failure to respond was inadvertent and Plaintiff suffers no prejudice from the minor delay.

The recent case of Espinoza v. Superior Court (2022) 83 Cal.App.5th 761, 770-771 (Espinoza) is directly on point. There, a former employee sued her employer for discrimination in court and the employer moved to compel arbitration. After the trial court granted the motion, the arbitration provider sent an invoice to the employer for fees that were due on May 31, 2021. The employer did not pay until July 9, 2021, arguing that a clerical error caused the delay. The employee moved to lift the stay and to proceed in court. The trial court denied the employee’s request, finding that the employer substantially complied with the arbitration provision and the employee suffered no material prejudice.

The Court of Appeal reversed and ordered the trial court allow the employee to bring her claims in court. Under the plain language of section 1281.97, the appellate court held, “the triggering event is nothing more than nonpayment of fees within the 30-day period.” Thus, “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, supra, 83 Cal.App.5th at p. 776.) The court compared the mandatory language in section 1281.97 with the wording in 1281.99, which afforded trial courts discretion in ordering nonmonetary sanctions. (Ibid. [“Section 1281.99 states that the court ‘shall impose a monetary sanction’ in the event of a material breach . . ., but the court ‘may order’ additional monetary sanctions ‘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’ ”].) Thus, the absence of such discretionary language “indicates an intent to apply the statute to any circumstance in which a drafting party fails timely to pay, and not just when the drafting party does so deliberately.” (Id. at p. 777.)

Here, under Espinoza’s reasoning, Defendant’s arguments fail. It asserts that the documents were not forwarded to its legal department and plaintiff suffers no prejudice. But the statute requires “strict enforcement” and offers no exception for mistakes or inadvertence. (See Id. at p. 775; Gallo v. Wood Ranch USA, Inc. (2022) 81 Cal.App.5th 621, 630-632 [affirming trial court’s order vacating prior order to compel arbitration because Defendant paid the arbitration fees six days after it was due]; cf. De Leon v. Juanita’s Foods (2022) 85 Cal.App.5th 740, 752-753 [during the pendency of an arbitration under section 1281.98, trial court has no discretion to consider delay or prejudice and the statute establishes a “bright-line rule that a drafting party’s failure to pay outstanding arbitration fees . . . results in its material breach of the arbitration agreement”].)

In its reply, Defendant makes a tenuous argument that while Plaintiff’s service of the arbitration demand on Defendant’s registered agent of service was not “frivolous, it did create an unusual situation in which [sic] would not invoke this Court’s jurisdiction.” Defendant cites no legal authority. No issue of jurisdiction is involved. Under Code of Civil Procedure section 416.10, Plaintiff may serve the registered agent of the corporation, its president or other authorized person to receive service of process. Thus, service of the arbitration demand was proper. (Hinden Decl., Ex. A.)

Defendant next cites to Code of Civil Procedure section 1290.4, subdivision (b)(1) and Frey & Horgan Corp. v. Superior Court (1936) 5 Cal.2d 401. Section 1290.4 involves service of a petition or motion to compel arbitration. The statute does not apply to service of a demand for arbitration. Under the parties’ agreement, Paragraph 8 allows for service by U.S. Mail “addressed to the party or its representative at the last known address or by personal service, in or outside the state where the arbitration is to be held.” (Hinden Decl., Ex. C.) Service is therefore proper. Similarly, because there is no issue of jurisdiction here, Defendant’s citation to Frey & Horgan Corp. v. Superior Court (1936) 5 Cal.2d 401 is inapposite. That case involved an out-of-state corporation moving to quash service of a notice of arbitration. The Supreme Court found that the parties’ contract was an “agreement to submit to the jurisdiction within which the arbitration must operate in order to give it the effect contemplated by the contract and by the law”; thus, the corporation submitted to California’s jurisdiction. (5 Cal.2d at pp. 404-405.) No such scenario is presented here.

Because Defendant is in material breach of the arbitration agreement under Code of Civil Procedure section 1281.97, subdivision (a)(1) for failure to timely pay the arbitration fees, plaintiff may withdraw her claim from arbitration and proceed in this court. (Code Civ. Proc., § 1281.97, subd. (b)(1).) Accordingly, Defendant’s motion to compel arbitration is denied.

Sanctions

“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.” (Code Civ. Proc., § 1281.97, subd. (d). Under section 1281.99, subdivision (a), “[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.” The statute makes sanctions mandatory.

Plaintiff requests $6,840 for 7.2 hours of work multiplied by an hourly rate of $950. (Hinden Decl., ¶ 11.) The Court reduces the hourly rate to $750 per hour for 6.5 hours of work and awards a total of $4,875 against Defendant. Defendant shall pay to Plaintiff’s counsel $4,875 on or before April 9, 2023.