Judge: Daniel S. Murphy, Case: 22STCV25385, Date: 2023-01-11 Tentative Ruling

Case Number: 22STCV25385    Hearing Date: January 11, 2023    Dept: 32

BACKGROUND

            This is an employment discrimination case that initially went to arbitration beginning January 21, 2022. Plaintiff withdrew the matter from arbitration in August 2022 on the grounds that Defendant failed to timely pay the requisite fees. Plaintiff filed the complaint in this action on August 4, 2022. On December 2, 2022, Defendant filed the instant motion to compel arbitration.

LEGAL STANDARD

The Federal Arbitration Act (FAA) states that “[a] written provision in any . . . contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” (9 U.S.C. § 2.) The term “involving commerce” is interpreted to mean simply “affecting commerce” to give the FAA the broadest reach possible, and does not require a transaction that is actually “within the flow of interstate commerce.” (See Allied-Bruce Terminix Co. v. Dobson (1995) 513 U.S. 265, 273-74; Citizens Bank v. Alafabco, Inc. (2003) 539 U.S. 52, 56.) Moreover, parties may agree to apply the FAA notwithstanding any effect on interstate commerce. (Victrola 89, LLC v. Jaman Properties 8 LLC (2020) 46 Cal.App.5th 337, 355.)

California law incorporates many of the basic policy objectives contained in the Federal Arbitration Act, including a presumption in favor of arbitrability. (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 971-72.) The California Arbitration Act (CAA) states that “[o]n petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party to the agreement refuses to arbitrate that controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists….” (Code Civ. Proc, § 1281.2.) “The party seeking arbitration bears the burden of proving the existence of an arbitration agreement, and the party opposing arbitration bears the burden of proving any defense, such as unconscionability.” (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236.)

Arbitration may be waived under both the FAA and CAA. California law is as follows. “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).)

Section 1281.97 is not preempted by the FAA and does not violate the FAA’s equal treatment principle. (Gallo v. Wood Ranch USA, Inc. (2022) 81 Cal.App.5th 621, 642; Espinoza v. Superior Court (2022) 83 Cal.App.5th 761, 784.) The CAA, including Section 1281.97, applies by default unless the parties expressly agree otherwise. (Valencia v. Smyth (2010) 185 Cal.App.4th 153, 177; Espinoza, supra, 83 Cal.App.5th at pp. 785-87.) If the FAA applies, arbitration may be similarly waived through the failure to pay fees. (9 U.S.C. § 3; Sink v. Aden Enters. (2003) 352 F.3d 1197, 1201.) However, the FAA does not impose a strict 30-day deadline as Section 1281.97 does.        

DISCUSSION

            On April 11, 2017, Plaintiff signed an employment agreement with an arbitration provision covering “any and all disputes and claims arising from this offer or your employment with LWF . . . .” (Borderud Decl., Ex. 1.) There is no dispute that Plaintiff signed the agreement or that the arbitration provision covers the claims at issue, and in fact Plaintiff initiated an arbitration with the American Arbitration Association (AAA) in January 2022. (Id., Ex. 2.) However, Plaintiff withdrew the matter from arbitration under Code of Civil Procedure section 1281.97 upon being notified by AAA that Defendant had not paid a case management fee of $750. (Keshishyan Decl., Ex. G-J.) AAA closed the case due to Plaintiff’s withdrawal. (Id., Ex. K.)   

The evidence shows that Defendant paid the requisite fees either within the deadline imposed by AAA or within the 30-day grace period provided by Section 1281.97. Therefore, Defendant did not default under either the FAA or CAA. On February 1, 2022, AAA notified the parties that Defendant needed to pay a filing fee of $1,900 on or before February 15, 2022 and warned that the case would be closed if payment was not received by March 3, 2022 pursuant to Section 1281.97. (Keshishyan Decl., Ex. C.) Defendant paid the $1,900 fee on February 15, 2022. (Sanders Decl., Ex. 18.) On July 15, 2022, AAA notified the parties that “$7,200 is due upon receipt of this notice for preliminary matters,” along with a case management fee. (Keshishyan Decl., Ex. E.) AAA again warned that, pursuant to Section 1281.97, “payment must be received 30 days from the date of this letter to avoid closure of the parties’ case.” (Ibid.) Thus, the payment needed to be made by August 15, 2022 to avoid default. On July 29, 2022, AAA sent a reminder to the parties that “[t]he arbitrator compensation deposit and AAA’s case management fee in the above matter are past due . . . .” (Id., Ex. G.) AAA once again reiterated that “payment must be received within 30 days of the deposit request or the AAA will close the parties’ case.” (Ibid.)

It is undisputed that Defendant paid all requisite fees, including the case management fee, by August 6, 2022 at the latest. In fact, Defendant paid the case management fee on July 18, 2022. (Sanders Decl., Ex. 19.) AAA confirmed that “the last date for payment to be received is August 15, 2022. We have received and applied full payment on August 6, 2022.” (Keshishyan Decl., Ex. I.) Plaintiff focuses on the “past due” language in AAA’s July 29 correspondence for the proposition that Defendant defaulted in its payment obligations. However, while the payment may have been past due according to the deadline imposed by AAA, Defendant’s August 6 payment was still within the 30-day grace period provided by Section 1281.97, the very statute Plaintiff relies on. A default under Section 1281.97 only occurs if payment is not made “30 days after the due date.” (Code Civ. Proc., § 1281.97(a)(1), emphasis added.) This was confirmed by AAA on multiple occasions when it reminded the parties that Section 1281.97 required the payment to be made within 30 days and then confirmed that the payment was in fact made within 30 days. (Keshishyan Decl., Ex. E, G, I.)

The FAA does not impose a strict deadline for payment of fees and focuses more generally on whether a defendant compels arbitration but then drags its feet to delay resolution of the matter. (See Sink, supra, 352 F.3d at p. 1201.) Defendant’s payment, even if technically late, does not constitute waiver under the FAA. There is no indication that Defendant “refus[ed] to cooperate with arbitration to indefinitely postpone litigation.” (Ibid.) In fact, the arbitration proceeded for six months, and an arbitrator was selected, before Plaintiff withdrew. The fact that Defendant paid its fees in compliance with the 30-day limit communicated by AAA shows that Defendant intended on cooperating with arbitration. AAA did not close the case for lack of payment. AAA closed the case because Plaintiff withdrew. (Keshishyan Decl., Ex. K.)

CONCLUSION

            Defendant’s motion to compel arbitration is GRANTED. The Court hereby stays the case in its entirety.