Judge: Daniel S. Murphy, Case: 23STCV11457, Date: 2025-02-26 Tentative Ruling

Case Number: 23STCV11457    Hearing Date: February 26, 2025    Dept: 32

BACKGROUND

            On May 22, 2023, Plaintiff Kennan Tillman filed this action against CHA Hollywood Medical Center. Plaintiff filed the operative First Amended Complaint on July 31, 2023, alleging (1) wrongful termination in violation of public policy, (2) blacklisting in violation of Labor Code section 1050, and (3) intentional infliction of emotional distress.

            On September 7, 2023, the Court ordered the matter to arbitration pursuant to the stipulation of the parties.

            On January 27, 2025, Plaintiff filed the instant motion to withdraw from arbitration. Defendant filed its opposition on February 11, 2025. Plaintiff filed his reply on February 19, 2025.

LEGAL STANDARD

            “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(a)(1).) “If the drafting party materially breaches the arbitration agreement and is in default under subdivision (a), the employee or consumer may unilaterally elect to . . . [w]ithdraw the claim from arbitration and proceed in a court of appropriate jurisdiction.” (Id., § 1281.98(b)(1).)

            The statute is applied strictly, and the Court may not consider any other factors or mitigating circumstances. (Espinoza v. Superior Court (2022) 83 Cal.App.5th 761, 775-76; DeLeon v. Juanita Foods (2022) 85 Cal.App.5th 740, 749.) “[C]ases have uniformly rejected invitations to consider discretionary factors, e.g., the intent of the employer or prejudice to the employee, in determining compliance with the statutes or materiality of the breach.” (Doe v. Superior Court (2023) 95 Cal.App.5th 346, 358.)

DISCUSSION

I. Section 1281.98 Applies to This Case

“[T]he Legislature intended to limit section 1281.98’s applicability to arbitration arising from a predispute agreement.” (Trujillo v. J-M Manufacturing Co., Inc. (2024) 107 Cal.App.5th 56, 70, emphasis in original.) This is because “Section 1281.98, subdivision (a)(1) refers to the failure to timely pay arbitration fees by ‘the drafting party,’ a term defined by section 1280, subdivision (e) as ‘the company or business that included a predispute arbitration provision in a contract with a consumer or employee.’” (Ibid.)

            The plaintiff in Trujillo filed an action in civil court against her former employer in January 2021. (Trujillo, supra, 107 Cal.App.5th at p. 60.) In February 2021, the employer reminded plaintiff that she had signed an arbitration agreement in 2012 and asked her to submit to arbitration. (Ibid.) The plaintiff disputed the validity of certain terms in the predispute agreement and “proposed ‘exploring a potential stipulation to arbitrate that would take the place of the claimed agreement’ and ‘agree on the governing terms of any arbitration.’” (Id. at pp. 60-61.) In March 2021, the plaintiff “circulated a draft of her proposed stipulation regarding arbitration.” (Id. at p. 61.) After some back-and-forth, the parties signed a finalized stipulation for arbitration, which the trial court entered as an order in May 2021. (Id. at pp. 61-62.)  

The Court of Appeal held that “while the parties here were previously bound by a mandatory predispute arbitration agreement signed in 2012, that is not the operative arbitration agreement and does not govern the arbitration proceedings between the parties in this present case.” (Trujillo, supra, 107 Cal.App.5th at pp. 69-70.) Instead, the parties executed a postdispute stipulation in May 2021. (Id. at p. 70.) Furthermore, the employer was not the “drafting party” because the plaintiff primarily drafted the agreement. (Id. at pp. 71-72.)

Trujillo is distinguishable from the instant case because the plaintiff in Trujillo drafted her own stipulation specifically to take the place of the predispute agreement. By contrast, the parties in this case expressly stipulated to “binding arbitration pursuant to the terms of the Agreement, which is attached hereto as Exhibit ‘A’ and fully incorporated herein.” (Sept. 7, 2024 Stipulation for Binding Arbitration, § 6.) The Exhibit “A” incorporated into the stipulation is the predispute arbitration agreement that was drafted by Defendant and signed by Plaintiff in November 2021. (Id., Ex. A.) Thus, unlike the parties in Trujillo, who stipulated to a separate agreement to “take the place of the [predispute] agreement” (Trujillo, supra, 107 Cal.App.5th at pp. 60-61), the parties here expressly stipulated to the predispute agreement. As a result, the operative agreement in this case is the predispute agreement, and Code of Civil Procedure section 1281.98 applies.

II. Defendant Failed to Timely Pay the Required Fees

            On December 19, 2024, the American Arbitration Association (AAA) invoiced Defendant in the amount of $43,800 as a “deposit for anticipated arbitrator compensation covering evidentiary matters reflecting a five-day hearing.” (Neiderman Decl. ¶ 5, Ex. 2.) The balance on the invoice was “due upon receipt.” (Ibid.) AAA reminded Defendant that it had 30 days to make the payment under Code of Civil Procedure section 1281.98. (Ibid.) Defendant admits that it did not pay the fee on time. (See Opp. at p. 3, fn. 4 [acknowledging that payment was made on January 24, 2025 even though the due date was January 21, 2025].)

            Defendant argues that the stipulation does not include an explicit deadline. However, Defendant cites no authority suggesting that a deadline has to be specified in an arbitration agreement in order for section 1281.98 to apply. As discussed above, the parties stipulated to the arbitration agreement signed in November 2021. That agreement states that arbitration will be subject to the AAA and California Arbitration Act. (Sept. 7, 2024 Stipulation for Binding Arbitration, Ex. A.) AAA made the invoice due upon receipt, and the California Arbitration Act gives 30 days past the due date. This means Defendant had until January 21, 2025 to make the payment, as Defendant itself acknowledges. Thus, Defendant’s payment on January 24, 2025 was untimely.  

            The fact that Plaintiff suffers no prejudice from the late payment is immaterial. “[C]ases have uniformly rejected invitations to consider discretionary factors, e.g., the intent of the employer or prejudice to the employee, in determining compliance with the statutes or materiality of the breach.” (Doe, supra, 95 Cal.App.5th at p. 358.) Section 1281.98 grants the employee or consumer an unqualified, unilateral right to withdraw from arbitration upon the triggering event. “[T]he 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.” (Espinoza, supra, 83 Cal.App.5th at p. 776.) Therefore, Plaintiff is entitled to withdraw the matter from arbitration.

III. Plaintiff is Entitled to Sanctions

            “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.” (Code Civ. Proc., § 1281.99(a).)

            As discussed above, Defendant materially breached the arbitration agreement under section 1281.98(a). Thus, Plaintiff is entitled recover the reasonable attorney’s fees incurred in making this motion. Plaintiff’s counsel reasonably claims 4 hours for preparing the motion and reply. (See Neiderman Decl. ¶ 7.) However, the Court reduces the hourly rate to $450. Plaintiff also incurred $68.91 in filing fees. (Ibid.) Therefore, the Court awards $1,868.91.

CONCLUSION

            Plaintiff’s motion to withdraw from arbitration is GRANTED. The Court sanctions Defendant in the amount of $1,868.91.