Judge: Elaine Lu, Case: 20STCV37429, Date: 2023-02-01 Tentative Ruling

Case Number: 20STCV37429    Hearing Date: February 1, 2023    Dept: 26

Superior Court of California

County of Los Angeles

Department 26

Background

            On September 30, 2020, Plaintiff Patricia Maldonado (“Plaintiff”) filed the instant wrongful termination action.  On June 14, 2021, Plaintiff filed a First Amended Complaint against Defendants Sherbank Azizi Dental Corp. and Azizi Dental Corporation dba Green Dental & Orthodontics (jointly “Corporate Defendants”).  On July 30, 2021, Defendants filed a motion to compel arbitration.  On October 21, 2021, the Court granted the parties’ stipulation to submit to this matter to binding arbitration with the American Arbitration Association (“AAA”). 

            On June 27, 2022, Corporate Defendants filed a motion: (1) to lift the stay and terminate binding arbitration proceedings, (2) for leave to file a cross-complaint, and (3) for monetary sanctions.

            On July 11, 2022, Plaintiff filed the instant motion to terminate the arbitration proceedings pursuant to Code of Civil Procedure section 1281.97 and for sanctions.  On July 13, 2022, Plaintiff filed an ex parte application to advance the hearing on Plaintiff’s motion to terminate the arbitration proceedings.  At the hearing for the ex parte application, the parties stipulated in open court to terminate the arbitration proceedings and to lift the stay on litigation, which the Court granted, thereby mooting the parties’ motions to terminate arbitration.[1]  (Minute Order 7/19/22.)  The only portion of Plaintiff’s motion that remains is Plaintiff’s request for sanctions.  On January 20, 2022, Defendants filed an opposition to Plaintiff’s request for sanctions.  On January 25, 2023, Plaintiff filed a reply.  On January 27, 2023, Defendants filed a sur-reply.

Legal Standard

Pursuant to Code of Civil Procedure section 1281.97, “[i]n an employment or consumer arbitration that requires, either expressly or through application of state or federal law or the rules of the arbitration provider, 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.”  (CCP § 1281.97(a)(1).)

“(b)If the drafting party materially breaches the arbitration agreement and is in default under subdivision (a), the employee or consumer may … [¶] (1) Withdraw the claim from arbitration and proceed in a court of appropriate jurisdiction.”  (CCP § 1281.97(b)(1).) 

“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.”  (CCP § 1281.97(d).)

Pursuant to Code of Civil Procedure section 1281.98, “[i]n 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.”  (CCP § 1281.98.) 

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

“(c) If the employee or consumer withdraws the claim from arbitration and proceeds in a court of appropriate jurisdiction pursuant to paragraph (1) of subdivision (b), both of the following apply: [¶] (1) The employee or consumer may bring a motion, or a separate action, to recover all attorney’s fees and all costs associated with the abandoned arbitration proceeding. The recovery of arbitration fees, interest, and related attorney’s fees shall be without regard to any findings on the merits in the underlying action or arbitration. [¶] (2) The court shall impose sanctions on the drafting party in accordance with Section 1281.99.”  (CCP § 1281.98(c).)

Discussion

The Request to Terminate Arbitration is MOOT

            As noted above, on July 19, 2022, the parties stipulated in open court to terminate the arbitration proceedings and to lift the stay on litigation of this action.  (Minute Order 7/19/22.)  Accordingly, as the Court noted on July 19, 2022, insofar as Plaintiff moves to terminate arbitration and lift the stay, Plaintiff’s motion is MOOT.

Sanctions are Warranted under Code of Civil Procedure section 1281.97

            Code of Civil Procedure section 1281.97 subdivision (a)(1) provides that “[i]n an employment or consumer arbitration that requires, either expressly or through application of state or federal law or the rules of the arbitration provider, 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.”  (Id.) 

            “Section 1281.97 further requires that the arbitration provider ‘immediately provide an invoice for any fees and costs,’ which is ‘due upon receipt’ ‘absent an express provision in the arbitration agreement stating the number of days in which the parties to the arbitration must pay any required fees or costs.’ (§ 1281.97, subd. (a)(2).) Thus, unless the parties expressly agree to the contrary, the drafting party's receipt of the invoice triggers the 30-day clock under section 1281.97, subdivision (a)(1).”  (Espinoza v. Superior Court (2022) 83 Cal.App.5th 761, 774.)

            “In the event the drafting party does not pay the invoice within the 30 days, thus materially breaching the arbitration agreement under section 1281.97, subdivision (a)(1), the employee or consumer may ‘[w]ithdraw the claim from arbitration and proceed in a court of appropriate jurisdiction,’ or ‘[c]ompel arbitration in which the drafting party shall pay reasonable attorney's fees and costs related to the arbitration.’ (§ 1281.97, subd. (b).)”  (Espinoza, supra, 83 Cal.App.5th at p.774.) 

            “Should the employee or consumer choose to proceed in court, ‘the court shall impose sanctions on the drafting party in accordance with Section 1281.99.’ (§ 1281.97, subd. (d).) Section 1281.99, in turn, states that the court ‘shall impose a monetary sanction against a drafting party’ in the form of ‘the reasonable expenses, including attorney's fees and costs, incurred by the employee or consumer as a result of the material breach.’ (§ 1281.99, subd. (a).)”  (Espinoza, supra, 83 Cal.App.5th at pp.774-775.)  In addition to monetary sanctions, the court may also impose additional sanctions including evidentiary sanctions prohibiting discovery by the drafting party, terminating sanctions, or contempt sanctions.  (CCP § 1281.99(b).)
            The statute does requires strict compliance with no exceptions, as “[u]nder the plain language of the statute, [], the 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.)

            Here, on October 21, 2021, the Court signed the parties’ stipulation to submit this matter to arbitration.  (Martin Decl. ¶ 8, Exh. A; Jahani Decl. ¶ 6.)  As noted in the stipulation to compel arbitration, Corporate Defendants drafted the arbitration agreement with Plaintiff as the employee.  (Martin Decl. ¶ 8, Exh. A.)

            On November 11, 2021, Plaintiff submitted a demand for arbitration to the AAA pursuant to the arbitration agreement.  (Martin Decl. ¶ 9, Exh. C; Jahani Decl. ¶ 7.)  “On December 9, 2021, the AAA sent correspondence to the Parties which stated in pertinent part, ‘On November 29, 2021, Claimant was notified that the filing requirements for the above matter have not been met. As of this date, we have not received the requested filing fee. Accordingly, we have administratively closed our file without prejudice.’”  (Jahani Decl. ¶ 7.) 

            “Defendant noticed Plaintiff’s deposition for December 10, 2021. Then in December 8, 2021, Defendant took Plaintiff’s deposition off calendar.”  (Martin Decl. ¶ 11, Exh. E.)

            On January 28, 2022, the parties attended private mediation to resolve the action but were unable to resolve the case.  (Martin Decl. ¶ 12; Jahani Decl. ¶ 8.)  As a resolution did not appear possible, “Plaintiff demanded that the Parties continue forward with Arbitration pursuant to the Parties’ stipulation and the Court’s Order.”  (Martin Decl. ¶ 12.)  On February 14, 2022, Plaintiff paid her share of the arbitration fees to the AAA.  (Martin Decl. ¶ 11, Exh. F.)

“On February 15, 2022, the AAA sent correspondence to the Parties’ that stated in pertinent part, ‘We have received the employee’s portion of the filing fee in the amount of $300.00. Accordingly, we request that the employer pay its share of the filing fee in the amount of $1,900.00 on or before March 1, 2022. Upon receipt of the balance of the filing fee, the AAA will proceed with administration. This letter shall serve as the invoice pursuant to California Code of Civil Procedure Sections 1281.97. Payment is due on upon receipt of this letter. As this arbitration is subject to California Code of Civil Procedure 1281.97, payment must be received by March 17, 2022 or the AAA will close the parties’ case. Pursuant to California Code of Civil Procedure 1281.97, the AAA cannot grant any extensions to this payment deadline.”  (Jahani Decl. ¶ 9; Martin Decl. ¶ 14, Exh. G.) 

            “On March 3, 2022, the AAA sent correspondence to the Parties that states in pertinent part, ‘We have not yet received payment from the employer to cover their portion of the filing fee, as described in our letter dated February 15, 2022. Please note in accordance with California Code of Civil Procedure 1281.97 and 1281.98, the AAA will close its case on March 17, 2022 if payment is not received.”  (Jahani Decl. ¶ 10; Martin Decl. ¶ 15, Exh. H.)

            “On March 9, 2022, counsel for Respondent sent an email to the AAA at 12:16 pm that stated in pertinent part, ‘To the Employment Filing Team, My client is currently severely ill with COVID19. She is requesting an extension of time to pay the filing amount of $1,900.00 due in this case on behalf of the Employer until a new date set towards the middle of April 2022. Please confirm a new date for the Employer to pay in mid-April 2022 due to my client's extenuating circumstances and extremely poor health condition at this time. Thank you.’”  (Jahani Decl. ¶ 10.) 

            “On March 9, 2022, the AAA sent correspondence to all Parties at 1:11 pm that stated in pertinent part, ‘We are in receipt of the parties’ correspondence. Please note that in order to comply with the CA Statute, payment must be received by March 17, 2022. Absent receipt of the respondent’s share of the filing fee on this date, the AAA will close this file….’”  (Jahani Decl. ¶ 11.) 

            “On March 21, 2022, the AAA sent a correspondence to all Parties at 7:28 am that stated in pertinent part, ‘Please note that as we cannot provide an extension due to the CA statute, the AAA has closed this file. This case can be re-opened within 90 days of this date upon receipt of the balance of the filing fee and the Claimant’s consent to move forward as originally filed.”  (Jahani Decl. ¶ 12; Martin Decl. ¶ 16, Exh. I.)  Defendants’ Counsel represented that Defendants were insolvent and could not financially take on the cost of arbitration.  (Martin Decl. ¶ 16.) 

            “On April 7, 2022, Plaintiff accepted Defendants’ offer to resolve this matter. However, since then, Defendants have failed to finalize the terms of the agreement, leaving Plaintiff with no choice but to move this matter forward with litigation.”  (Jahani Decl. ¶ 13; Martin Decl. ¶ 17.)  “On June 2, 2022, counsel for Plaintiff sent an email at 1:40 pm that stated in pertinent part, “Please see attached proposed Stipulation to Terminate Order to Arbitrate and Proceed in State Court pursuant to CCP 1281.97. Please sign and return. If I do not hear from you by Friday, I will be filing a motion which will only increase the costs of attorney’s fees and sanctions that is required by the statute.”   (Jahani Decl. ¶ 14; see Martin Decl. ¶ 18, Exh. J.)  On June 20, 2022, Corporate Defendants responded requesting that Plaintiff allow Defendants to file an unspecified cross-complaint and refusing to stipulate to the fees incurred for the failure to arbitrate.  (Martin Decl. ¶ 19.)

            The undisputed chronology set forth by the parties clearly demonstrates that Plaintiff initiated arbitration on February 14, 2022 and that Corporate Defendants failed to timely pay their share of the arbitration costs within thirty days as required.  Under Code of Civil Procedure section 1281.97, Corporate Defendants are in material breach, and the Court must impose mandatory sanctions to compensate Plaintiff for attorneys’ fees and costs that Plaintiff incurred as a result of Corporate Defendants’ breach.  (Espinoza, supra, 83 Cal.App.5th at p.776.)  The reason for Corporate Defendants’ failure to pay is immaterial because the statute requires strict compliance of payment of arbitration fees within 30 days of arbitration being initiated.  (Espinoza, supra, 83 Cal.App.5th at p.776.)

            Accordingly, the Court turns to the reasonableness of the claimed expenses, including attorneys’ fees and costs, that Plaintiff has incurred as a result of Corporate Defendants’ failure to timely pay the arbitration fees.

            In determining what fees are reasonable, California courts apply the “lodestar” approach. (See, e.g., Holguin v. DISH Network LLC (2014) 229 Cal.App.4th 1310, 1332.)  This inquiry “begins with the ‘lodestar,’ i.e., the number of hours reasonably expended multiplied by the reasonable hourly rate.” (See PLCM Group v. Drexler (2000) 22 Cal.4th 1084, 1095.)  From there, the “[t]he lodestar figure may then be adjusted, based on consideration of factors specific to the case, in order to fix the fee at the fair market value for the legal services provided.” (Ibid.)  Relevant factors include: “(1) the novelty and difficulty of the questions involved, (2) the skill displayed in presenting them, (3) the extent to which the nature of the litigation precluded other employment by the attorneys, [and] (4) the contingent nature of the fee award.” (Ketchum v. Moses (2001) 24 Cal.4th 1122, 1132.)

            Here, Plaintiff seeks $98,590.00 in attorneys’ fees and costs incurred due to Corporate Defendants’ failure to timely pay the arbitration fees.  Plaintiff’s counsel claims an hourly rate of $650 an hour.  Plaintiff’s counsel argues that this rate is reasonable because Plaintiff’s Counsel has been an attorney for approximately 9 years focusing on employment litigation, is involved with multiple bar associations, and has previously been awarded rates of $500 in 2020 and 2019, and of $450 in 2017.  (Martin Decl. ¶¶ 22-28.)  The Court approves the hourly rate that Plaintiff’s Counsel claims.

Plaintiff’s Counsel claims to have spent 145.12 working on the instant action since September 16, 2021 in connection with the abandoned arbitration.  (Martin Decl. ¶ 33, Exh. K.)  Plaintiff’s Counsel further claims that his legal assistants spent 12.71 hours in connection with the arbitration at a rate of $200 per hour.  (Martin Decl. ¶ 33, Exh. K.)  Plaintiff’s Counsel further claims to have incurred $300 on the arbitration fee and $120 in motion filing fees.  (Martin Decl. ¶ 33.)

            However, much of Plaintiff’s claimed fees are not recoverable.  Code of Civil Procedure section 1281.99(a) mandates payment of only those expenses “incurred by the employee … as a result of the material breach.” (Id., [italics added].) The material breach here occurred when Corporate Defendants failed to pay their arbitration fees by March 17, 2022.  As the billing records reflect, a vast majority of the claimed fees occurred before Corporate Defendants’ material breach on March 17, 2022 and did not result from Corporate Defendants’ breach of their payment obligation.  Based on the record before the Court, the Court finds that only fees and costs incurred after Defendants’ failure to timely pay arbitration costs.  Moreover, the time that Plaintiff claims for the instant motion (fifteen hours) is slightly excessive.  Instead, the Court finds that $16,845.00 reasonable represents the attorneys’ fees and costs incurred as a result of Corporate Defendants’ failure to timely pay the arbitration fees.

Evidentiary and Terminating Sanctions

            “The court ‘may’ impose additional specified 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.’ (§ 1281.99, subd. (b).) The additional sanctions include ‘[a]n evidence sanction ... prohibiting the drafting party from conducting discovery in the civil action,’ ‘[a] terminating sanction’ either ‘striking out the pleadings or parts of the pleadings of the drafting party,’ or ‘rendering a judgment by default against the drafting party,’ or ‘[a] contempt sanction.’ (Id., subd. (b)(1)–(3).)”  (Espinoza, supra, 83 Cal.App.5th at p.775.)

            In addition to the monetary sanctions, Plaintiff seeks sanctions preventing Defendants from conducting further discovery in the instant action or striking Defendants’ answer.  Here, the Court finds that the imposition of such sanctions would be unjust.  Defendants show that they did request an extension to pay due to the COVID-19 illness of a principal of Defendants.  (Jahani Decl. ¶ 10.)  Thus, the material breach of the arbitration agreement does not appear to be willful such as to warrant nonmonetary sanctions.

            Accordingly, Plaintiff’s request for additional sanctions is DENIED.

CONCLUSION AND ORDER

Based on the foregoing, Plaintiff Patricia Maldonado’s motion to terminate the arbitration proceedings pursuant to Code of Civil Procedure section 1281.97 is moot. Plaintiff Patricia Maldonado’s motion for sanctions is GRANTED in the modified amount of $16,845.00.

Defendants Sherbank Azizi Dental Corp. and Azizi Dental Corporation dba Green Dental & Orthodontics are jointly and severally liable and ordered to pay monetary sanctions in the amount of $16,845.00 to Plaintiff Patricia Maldonado by and through counsel, within thirty (30) days of notice of this order. 

Moving Party is ordered to provide notice of this order and file a proof of service of such.

DATED: February 1, 2023                                                     ___________________________

                                                                                          Elaine Lu

                                                                                          Judge of the Superior Court