Judge: Daniel S. Murphy, Case: 21STCV32134, Date: 2022-09-30 Tentative Ruling

Case Number: 21STCV32134    Hearing Date: September 30, 2022    Dept: 32

BACKGROUND

            On August 30, 2021, Plaintiffs Liana Gabrielyan and Sona Simonyan filed this action against Defendants BMW of North America, LLC and Finchey Corporation of California, asserting two causes of action under the Song-Beverly Act. BMW of North America is the only remaining Defendant.

On February 28, 2022, this Court granted BMWNA’s motion to compel arbitration. The parties thereafter initiated arbitration with JAMS, but due to a credit card error, Defendant’s payment of arbitration fees was not processed. On September 2, 2022, Plaintiff filed a motion for sanctions under Code of Civil Procedure section 1281.99 for Defendant’s purported default. On September 8, 2022, Defendant filed a corresponding motion to proceed with arbitration on the grounds that it did not default in its obligations.

LEGAL STANDARD

“In 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.” (Code Civ. Proc., § 1281.97(a)(1).) “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 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.” (Id., § 1281.99(a).)  

DISCUSSION

I. The Parties Agreed to Apply FAA Procedural Rules

Defendant argues that Section 1281.97 does not apply because the lease agreement states that “[t]his lease involves interstate commerce and this Arbitration Clause and any arbitration hereunder shall be governed by the Federal Arbitration Act, 9 U.S.C. section 1 et seq. (‘FAA’) and not by any state law concerning arbitration.” (Lease, § 38.) Plaintiff counters that Section 1291.97 is not preempted by the FAA because it furthers the FAA’s purpose to remand a matter to court when a party drags its feet to delay resolution of the dispute.

While the FAA does not preempt Section 1281.97 (Gallo v. Wood Ranch USA, Inc. (2022) 81 Cal.App.5th 621, 642), parties may nonetheless contract to apply the procedural rules of the FAA as opposed to the CAA (Valencia v. Smyth (2010) 185 Cal.App.4th 153, 177). Because state procedural rules apply by default, and the FAA is intended to apply in federal proceedings, “the FAA’s procedural provisions do not apply in state court unless the parties expressly adopt them.” (Ibid.) Where the parties expressly agree to adopt the FAA’s procedural rules, Section 1281.97 would not apply. (See Espinoza v. Superior Court (Sep. 27, 2022, No. B314914) 2022 Cal.App.LEXIS 816, at *30-33].)     

Here, the lease agreement expressly adopts FAA procedural rules by stating that “any arbitration hereunder shall be governed by the Federal Arbitration Act, 9 U.S.C. section 1 et seq. (‘FAA’) and not by any state law concerning arbitration.” (Lease, § 38.) In opposition, Plaintiff points to further language in the provision stating that “the governing law as to the substantive issues of the Lease and Vehicle shall be the law of the state in which this Lease was executed.” (Ibid.) Plaintiff argues that this “means when determining whether or not the Lease has been breached, state law applies.” (Plntf.’s Reply ISO Mtn. for Sanctions 3:13-20.) However, that sentence applies to substantive matters, not procedure. Section 1281.97 is a procedural rule that the parties have expressly agreed not to apply. Even if California law applies to determine whether the lease has been breached, there is no provision in the lease regarding a deadline to pay fees.

II. Defendant Did Not Default Under the FAA

            The FAA does not compel arbitration where a defendant “had a fair chance to proceed with arbitration, but [the defendant] scuttled that prospect by its non-payment of costs, impeding the arbitration to the point where the arbitrator cancelled the arbitration and declared [the defendant] in default.” (Sink v. Aden Enters. (2003) 352 F.3d 1197, 1201.) The FAA compels arbitration only if the party seeking arbitration “is not in default in proceeding with such arbitration.” (9 U.S.C. § 3.)

On May 12, 2022, JAMS sent an invoice to Defendant for $1,750. (Bravo Decl., Ex. B.) JAMS then sent Defendant a request for missing items on May 13 for the $1,750 filing fee. (Id., Ex. C.) With the payment still not processed, JAMS sent reminders to Defendant on June 2 and 22. (Id., Ex. D.) JAMS confirmed Defendant’s payment on June 23. (Ibid.) Defendant timely submitted payment in May 2022, and the JAMS portal indicated the payment was “pending approval.” (Amir Decl. ¶ 4.) JAMS never indicated that the payment had been rejected. (Ibid.) The credit card company used by defense counsel made an error regarding the billing address, causing the payment to be rejected. (Id., ¶ 6.) Defense counsel discovered this on June 23 and immediately corrected it, resulting in the payment on June 23. (Ibid.) Defense counsel did not receive the earlier reminders from JAMS because JAMS did not send them to the proper email address as defense counsel requested. (Id., ¶ 5.)

Based on the foregoing facts, this is not a case of “a party refusing to cooperate with arbitration to indefinitely postpone litigation.” (See Sink, supra, 352 F.3d at p. 1201.) Rather, the evidence indicates that Defendant was willing to proceed with arbitration, timely submitted its fees, and immediately corrected an error that was not its fault. The credit card company’s failure to process the payment and JAMS’s failure to use the correct email address does not constitute Defendant dragging its feet and delaying arbitration. Furthermore, while the invoice was issued on May 12, JAMS sent reminders on May 13, June 2, and June 22. At no point did JAMS indicate the matter would be closed due to lack of payment. Thus, it is unclear what due date JAMS actually imposed on the payment. JAMS accepted Defendant’s payment on June 23, one day after its latest reminder. Therefore, Defendant did not default in its obligations.

CONCLUSION

            Plaintiff’s motion for sanctions is DENIED. Defendant’s motion to proceed with arbitration is GRANTED.