Judge David S. Cunningham, Case 20STCV45658 2023-02-01 Tentative Ruling

Judge: David S. Cunningham, Case: 20STCV45658, Date: 2023-02-01 Tentative Ruling

Tentative Ruling Re: Supplemental Briefs Re: Motion to Lift Arbitration Stay

Plaintiff’s motion to lift arbitration stay and request for monetary sanctions are denied.

This is a “wage and hour” action. Atlas makes aerospace parts. Plaintiff worked for Atlas for five years. She claims Atlas failed to provide overtime pay, meal breaks, sick leave, etc. and violated the Labor Code, Unfair Competition Law, and Private Attorneys General Act.

In December 2021, the Court granted Atlas’s motion to compel arbitration and stayed the action.

In late November 2022, the Court heard Plaintiff’s motion to lift the arbitration stay and continued the hearing for supplemental briefing.

Perceiving that a “company's failure to pay the fees of an arbitration provider” as required by an arbitration agreement or applicable law “hinders the efficient resolution of disputes and contravenes public policy,” in 2019 the California Legislature passed Senate Bill No. 707 and added sections 1281.97 and 1281.98 to the California Arbitration Act (CAA) (§ 1280 et seq.). [Citations.] Whereas section 1281.97 concerns a failure to timely pay “the fees or costs to initiate” an arbitration proceeding [citation], section 1281.98 concerns a failure to timely pay “the fees or costs required to continue” an arbitration proceeding [citation].

Subdivision (a)(1) of section 1281.98 provides: “In an employment or consumer arbitration that requires, either expressly or through application of state or federal law or the rules of the arbitration provider, 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.”

Subdivision (b) of section 1281.98 allows the employee or consumer to “unilaterally elect” any of several options 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” [citation], “[c]ontinue the arbitration proceeding, if the arbitration provider agrees to continue administering the proceeding, notwithstanding the drafting party's failure to pay fees or costs” [citation], “[p]etition 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” [citation], or “[p]ay the drafting party's fees and proceed with the arbitration proceeding” [citation].

Subdivision (c) of section 1281.98 provides that if the employee or consumer withdraws the claim from arbitration and proceeds in court, he or she “may bring a motion, or a separate action, to recover all attorney's fees and all costs associated with the abandoned arbitration proceeding” [citation], and the “court shall impose sanctions on the drafting party” in accordance with section 1281.99 [citation].

Last, subdivision (d) of section 1281.98 provides that if the employee or consumer elects to continue arbitration, “the arbitrator shall impose appropriate sanctions on the drafting party, including monetary sanctions, issue sanctions, evidence sanctions, or terminating sanctions.”

The California Legislature's enactment of Senate Bill No. 707 “was aiming to solve a very specific problem—namely, the ‘“procedural limbo and delay”’ that consumers and employees face when they are ‘“forced to submit to mandatory arbitration to resolve a[ ] ... dispute,”’ and the business or company that pushed the case into an arbitral forum then ‘“stalls or obstructs the arbitration proceeding by refusing to pay the required fees.”’” [Citation.] Addressing section 1281.97, the Court of Appeal in Gallo[ v. Wood Ranch USA, Inc. (2022) 81 Cal.App.5^th 621] described the statute as “grant[ing] deliverance from this procedural purgatory by deeming late payment to be a material breach of the arbitral agreement” that gives the employee or consumer the choice to remain in the arbitration at the employer's cost or pursue his or her claims in court. [Citation.]

(De Leon v. Juanita’s Foods (2022) 85 Cal.App.5^th 740, 750-752, emphasis in original, underlined case name added, footnote omitted.)

Any period of notice, or any right or duty to do any act or make any response within any period or on a date certain after the service of the document, which time period or date is prescribed by statute or rule of court, shall be extended after service by electronic means by two court days, but the extension shall not apply to extend the time for filing any of the following:

* On 12/9/21, the Court held an evidentiary hearing with live testimony, compelled arbitration, and stayed the case.

* On 5/11/22, “Plaintiff sent an arbitration demand to the American Arbitration Association (‘AAA’)[.]” [Citation.]

* On 5/12/22, the AAA emailed a letter to defense counsel, requesting that Defendant pay its share of the arbitration filing fee by 6/11/22. [Citation.]

* On 5/19/22, AAA received Defendant’s share of the arbitration fee. [Citation.]

* On 7/22/22, emailed an invoice to defense counsel “for a $3,900 ‘Deposit of Arbitrator’s Compensation covering preliminary matters,’ which was for anticipated further fees.” [Citations.]

* On 8/23/22, AAA “informed the parties that AAA had not received the $3,900 []payment[.]” [Citations.]

* Also, on 8/23/22, defense counsel “made a second $3,900 payment via credit card . . . in the event that the check did not timely arrive,” but Plaintiff announced that she would be withdrawing from the arbitration. [Citations.]

* On 8/24/22, AAA confirmed reception of the electronic payment on 8/23/22. [Citation.]

* On 9/7/22, the arbitrator stayed the arbitration to give this Court an opportunity to consider the withdrawal issue. [Citation.]

“Plaintiff asserts that she is entitled to withdraw from the arbitration, and prosecute her claims in the Superior Court, because Atlas paid the $3,900 amount on 8/23/22, more than 30 days after receiving the 7/22/22 invoice. [Citation.]” (Id. at p. 3.)

The Court requested supplemental briefing on three issues: (1) whether Code of Civil Procedure section 1010.6 extended the payment deadline by two court days; (2) whether Code of Civil Procedure section 473(b) relief is available; and (3) whether De Leon impacts the analysis.

Atlas contends section 1010.6 governs because the arbitrator emailed the invoice to defense counsel. Atlas claims the payment on 8/23/22 was timely because section 1010.6 added two court days to section 1281.98’s payment deadline. (See Atlas’s Supp. Brief, pp. 6-9 [arguing that section 1010.6 “extend[s] ‘any prescribed time period following service’ absent an express exception”], emphasis in original.)[1]

Plaintiff contends section 1281.98’s payment deadline must be applied “strictly” because it is “akin to a statute of limitations.” (Plaintiff’s Supp. Brief, p. 5.) She asserts that appellate courts have “rejected every single challenge to strict application of Section 1281.98 – finding breach on the 31^st day.” (Id. at p. 8.) She cites Gallo, De Leon, and Espinoza v. Superior Court (2022) 83 Cal.App.5^th 761 as support. (See id. at pp. 8-9.)

In Gallo, the arbitrator sent the defendant letters on 10/20/20 10/21/20, and 11/9/20, stating that payment must be received by 12/4/20. The defendant paid on 12/10/20, then the plaintiff moved to vacate the arbitration, and the trial court granted the motion. On appeal, the defendant argued that the Federal Arbitration Act (“FAA”) preempted section 1281.97. The Court of Appeal disagreed and found that section 1281.97’s procedures “further – rather than frustrate – the objectives of the FAA to honor the parties’ intent to arbitrate and to preserve arbitration as a speedy and effective alternative forum for resolving disputes.” (See Gallo, supra, 81 Cal.App.5^th at 629.)

In De Leon, the due date was 1/4/21; the defendant paid on 2/8/21. Affirming the trial court, “[t]he Second District Court of Appeal” held that “the defendant’s failure to pay constituted a material breach under sections 1281.97 and 1281.98.” (11/30/22 Tentative Ruling Re: Motion to Lift Arbitration Stay, p. 7.) “Notably, the Court of Appeal rejected the defendant’s argument that the trial court should have considered other factors in addition to the late payment – e.g., whether the defendant’s conduct delayed the arbitration or prejudiced the plaintiff.” (Id. at pp. 7-8.)

In Espinoza, the arbitrator “sent the parties an initial invoice for an administrative fee and telephonic arbitration management conference, with a due date of [5/31/21].” (Espinoza, supra, 83 Cal.App.5^th at 772.) On 7/1/21, the arbitrator “confirmed to plaintiff’s counsel that it had yet to receive payment from defendant.” (Ibid.) Eventually, the defendant paid, and the arbitrator confirmed receipt of the payment on 7/9/21.

The plaintiff filed a motion to vacate the arbitration, and the defendant opposed. The defendant argued:

* the arbitration never commenced because the plaintiff never served a demand for arbitration (ibid.); and

* “a clerical error . . . prevented the accounts payable department from issuing” a check on time. (Ibid.)

The trial court denied the motion, determining that the defendant “substantially complied with its payment obligations,” and the plaintiff did not suffer prejudice. (Id. at 770; see also id. at 772.)

The Court of Appeal reversed and held that section 1281.97 is subject to strict enforcement, there is no exception for substantial compliance or inadvertent late payments, and the FAA does not preempt section 1281.97. (See id. at 775-785.)

None of these cases addresses section 1010.6, but they mandate strict application of section 1281.98. Strict application means substantial compliance or good faith or an honest mistake is insufficient to defeat Plaintiff’s motion. Atlas cut the check on the 28^th day, mailed it on the 31^st day, and made an electronic payment on the 32^nd day, so it needs section 1010.6 to apply to satisfy section 1281.98.

Citicorp North America, Inc. v. Superior Court (1989) 213 Cal.App.3d 563 (“Citicorp”), which Atlas cites, instructs that Code of Civil Procedure section 1013 does not apply “where a prescribed time period is commenced by some circumstance, act or occurrence other than service[.]” (Citicorp, supra, 213 Cal.App.3d at 567.) “On the other hand,” “section 1013 will extend the period” “where a prescribed time period is triggered by the term ‘service’ of a notice, document or request[.]” (Id. at 568.)

Section 1013 authorizes electronic service pursuant to section 1010.6. (See Cal. Code Civ. Proc. § 1013, subd. (g).) When a person or company is served “by electronic means[,]” section 1010.6 adds two court days to the response period or deadline. (Id. at § 1010.6, subd. (a)(4)(B).) The plain language is broad; it says the extension “shall” apply to “any right or duty to do any act or make any response within any period or on a date certain after the service of the document, which time period or date is prescribed by statute or rule of court[.]” (Ibid., emphasis added.) And it only identifies three exceptions – “[a] notice of intention to move for new trial[,]” “[a] notice of intention to move to vacate judgment[,]” and “[a] notice of appeal.” (Ibid.)

Atlas’s attorney received the 7/22/22 invoice “by electronic means[.]” (Ibid.)

Section 1281.98’s 30-day payment deadline is a response period or deadline “prescribed by statute[.]” (Ibid.)

The core question, however, is whether the payment deadline was commenced “by . . . ‘service’ of a notice, document or request” or “by some circumstance, act or occurrence other than service[.]” (Citicorp, supra, 213 Cal.App.3d at 567, 568.)

Some examples “where a prescribed time period” is not commenced by service include:

* “bail forfeiture will be exonerated if summary judgment not entered within 90 days after expiration of the 180–day period in” Penal Code section 1305(a) (id. at 568, emphasis in original);

* “petition for judicial review of adjudicatory action by local agency must be filed not later than 90 days following date when decision becomes final” (ibid., emphasis in original);

* “petition for review must be filed within 30 days after issuance of an order of the” Agricultural Labor Relations Board (Ibid., emphasis in original);

* “action must be commenced within 30 days after filing of minute order granting relief from claim filing requirement” (ibid., emphasis in original); and

* “request for trial must be filed within 20 days after filing of arbitration award.” (Ibid. [collecting cases], emphasis in original.)

* when a party seeks to accept a Code of Civil Procedure section 998 settlement offer following service by mail (see Poster v. Southern Cal. Rapid Transit Dist. (1990) 52 Cal.3d 266, 275);

* when a party files a memorandum of costs after electronic service of the notice of entry of judgment (see Kahn v. The Dewey Group (2015) 240 Cal.App.4^th 227, 235-237); and

* when a party requests a statement of decision under Code of Civil Procedure section 632 after the trial court serves the tentative decision by mail. (See Kroupa v. Sunrise Ford (1999) 77 Cal.App.4^th 835, 843 n.6.)

On balance, the facts here appear more like the service examples than the non-service ones. Section 1281.98 allows parties to an arbitration agreement to set the number of days for payment of arbitration fees. (See Code Civ. Proc. § 1281.98, subd. (a)(1).) “[A]bsent an express provision in the arbitration agreement[,]” the default payment due date is “upon receipt” of the invoice, and the fees must be “paid within 30 days after the due date[.]” (Ibid.) The Atlas agreement does not have an express provision. In line with the default option, the invoice letter states that “[p]ayment is due upon receipt of this invoice[,]” “payment must be received by the due dates specified, and [n]o later than 30 days from the due dates.” (Harris Decl., Exh. 5, emphasis added.) Per the plain language, the 30-day payment deadline should be calculated from the payment “due dates” – i.e., “upon receipt[.]” (Ibid.) Since “receipt implies a recipient upon whom a document must be served, whether by mail, fax, or, as here, email[,]” the Court agrees with Atlas that “[s]ection 1010.6 applies in such circumstances.” (Atlas’s Supp. Brief, p. 9.)

Also, the Court reiterates that “Plaintiff fails to show a statute or court rule that renders section 1010.6 inapplicable, and section 1281.98 says nothing about creating an exception to section 1010.6.” (11/30/22 Tentative Ruling Re: Motion to Lift Arbitration Stay, p. 7.)

As a matter of guidance, the Court notes that De Leon and Espinoza require strict application of section 1281.98 and prohibit consideration of substantial compliance, good faith, unintentional mistakes, and prejudice, the very kinds of factors that section 473(b) relief depends on. (See Code Civ. Proc. § 473, subd. (b) [permitting a court to “relieve a party or his or her legal counsel from a judgment, dismissal, order, or other proceeding taken against him or her through his or her mistake, inadvertence, surprise, or excusable neglect”].) The Court would be inclined to find section 473(b) relief unavailable.

[1] Last time, the Court declined to defer this motion to the arbitrator, denied Atlas’s preemption argument, found the 7/22/22 invoice compliant with section 1281.98, and rejected Atlas’s argument that “section 1281.98 does not apply because the invoice requests a deposit ‘to cover the arbitrator’s anticipated compensation and expenses for preliminary matters’ instead of ‘fees and costs required to continue the arbitration proceeding.’” (11/30/22 Tentative Ruling Re: Motion to Lift Arbitration Stay, pp. 3-5.) Those rulings stand; the Court is not reconsidering them.