Judge: Elaine Lu, Case: 22STCP03513, Date: 2023-03-07 Tentative Ruling

Case Number: 22STCP03513    Hearing Date: March 7, 2023    Dept: 26

Superior Court of California

County of Los Angeles

Department 26

Background

            On September 28 2022, Petitioners John Silva and Travis Bartlett (jointly “Petitioners”) filed the instant petition against Respondent Fusion Sign and Design, Inc. (“Respondent”) to open a court file to establish Superior Court Jurisdiction over an underlying Employment Arbitration. 

            On October 20, 2022, Petitioners filed the instant motion seeking to withdraw the underlying arbitration proceedings, for monetary sanctions against Respondent, and for terminating sanctions against Respondent.  On November 9, 2022, the parties stipulated to withdraw the underlying action from arbitration and proceed in this Court.  On November 15, 2022, Petitioners filed the related action in Los Angeles Superior Court, Case No. 22STCV36176.  On December 21, 2022, Los Angeles Superior Court, Case No. 22STCV36176 was deemed related to the instant action with the instant action as the lead action. 

            On February 22, 2023, Respondent filed an opposition.  On February 28, 2023, Petitioners filed a 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 Withdraw from Arbitration is MOOT

            On November 9, 2022, the parties stipulated to withdraw the arbitration proceeding.  Accordingly, insofar as Petitioners move to withdraw from arbitration, Petitioners’ motion is MOOT because the matter has already been withdrawn from arbitration by stipulation of the parties.

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 July 8, 2021, Petitioners submitted a demand for arbitration with Judicial Arbitrations and Mediation Services, Inc. (“JAMS”) against Respondent for Labor Code violations based on a pre-dispute arbitration agreement drafted by Avitus Group as the administrator for Respondent.  (Yepremian Decl. ¶ 3, Exh. A.)  On August 18, 2021, Petitioners paid their share of the initiation fee.  (Yepremian Decl. ¶ 5, Exh. B.)  “On September 13, 2021, both parties were notified of the appointment of an Arbitrator, and the case was assigned the JAMS Reference number 1220070788. Additionally, both parties were notified that any party who cancels the arbitration hearing will be responsible for 100% of the professional fees.”  (Yepremian Decl. ¶ 7, Exh. C.)  “On June 24, 2022, both parties were given notice that the Arbitration Hearing would occur from October 24 through 27 of 2022. The JAMS letter also indicated that fees for the services of Hon. Melinda A. Johnson were ‘due upon receipt.’”  (Yepremian Decl. ¶ 9, Exh. D.) 

            “On September 16, 2022, JAMS sent a letter informing both parties that payment of the arbitration fees had not been received. Additionally, the letter stated that if all fees were not paid in full by September 23, 2022, the arbitration hearing may be subject to cancelation.”  (Yepremian Decl. ¶ 11, Exh. E.)  On September 23, 2022, during a hearing for a discovery motion, the Hon. Melinda A. Johnson informed all parties that fees were due by the close of business on September 23, 2022 or the arbitration hearing would be vacated.  (Yepremian Decl. ¶ 13.)  On September 27, 2022, the Case manager of JAMS informed Petitioners through email that JAMS had been informed by Respondent that payment would not be remitted.  (Yepremian Decl. ¶ 17, Exh. G.)  On September 28, 2022, JAMS sent a cancelation of arbitration hearing.   (Yepremian Decl. ¶ 19, Exh. H.)  On October 10, 2022, the Hon. Melinda A. Johnson issued an order regarding the September 23, 2022 hearing and the failure to pay fees.  (Yepremian Decl. ¶ 20, Exh. I.)

            The chronology set forth by Petitioners and undisputed by Respondent, clearly demonstrates that Petitioners timely paid their initiation fees, and near the end of arbitration, Respondent failed to pay the fees for unknown reasons.  Under Code of Civil Procedure section 1281.98, Respondent is in material breach, and the Court must impose mandatory sanctions to compensate Petitioners for attorneys’ fees and costs that Petitioners incurred as a result of Respondent’s breach.  (Espinoza, supra, 83 Cal.App.5th at p.776.)  The reason for Respondent’s failure to pay is immaterial because the statute requires strict compliance of payment of arbitration fees within 30 days of receipt.  (Espinoza, supra, 83 Cal.App.5th at p.776; CCP § 1281.98.)

            Accordingly, the Court turns to the reasonableness of the claimed expenses, including attorneys’ fees and costs, that Petitioners have incurred as a result of Respondent’s 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, Petitioners request $25,000.00 in attorneys’ fees and costs but fail to present any evidence to substantiate this request.  Specifically, Petitioners have failed to provide their counsel’s hourly rate or hours billed in the arbitration.  Undoubtedly, Petitioners needlessly incurred a significant amount of attorney’s fees with the arbitration being cancelled within a month of the scheduled date for arbitration.  Thus, the Court concludes that $13,000.00 reasonably represents the attorney’s fees that Petitioners’ Counsel needlessly incurred as a result of Respondent’s material breach.

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.)  “Generally, ‘[a] decision to order terminating sanctions should not be made lightly.  But where a violation is willful, preceded by a history of abuse, and the evidence shows that less severe sanctions would not produce compliance with the discovery rules, the trial court is justified in imposing the ultimate sanction.’”  (Los Defensores, Inc. v. Gomez (2014) 223 Cal.App.4th 377, 390 [citation omitted].)

            In addition to the monetary sanctions, Plaintiffs seek entry of default against Respondent.  Though Petitioners contend that the failure to pay was intentional, Petitioners fail to provide any evidence of such.  In fact, the evidence is devoid of any reason for the failure to pay the arbitration fees.  Given that Respondent has already stipulated to the withdrawal of the instant action from arbitration, there is no reason to infer that the breach in failing to pay the arbitration costs was intentional or intended to prejudice Petitioners.  To the extent that the failure to pay may have been intentional, Petitioners have failed to introduce any evidence demonstrating as such.  Accordingly, the Court finds that the imposition of such sanctions would be unjust.  Therefore, Petitioners’ request for terminating sanctions is DENIED.

CONCLUSION AND ORDER

Based on the foregoing, Petitioners John Silva and Travis Bartlett’s motion to withdraw from arbitration pursuant to Code of Civil Procedure section 1281.98 is moot. Petitioners John Silva and Travis Bartlett’s motion for sanctions is GRANTED in the modified amount of $13,000.00.

Respondent Fusion Sign and Design, Inc. is ordered to pay monetary sanctions in the amount of $13,000.00 to Petitioners John Silva and Travis Bartlett by and through counsel, within sixty (60) days of notice of this order. 

Moving Parties are ordered to provide notice of this order and file a proof of service of such.

DATED: March 7, 2023                                                         ___________________________

                                                                                    Elaine Lu

                                                                                    Judge of the Superior Court