Judge: Glenn R. Salter, Case: 21-1238085, Date: 2022-11-03 Tentative Ruling

The plaintiff filed a motion to lift the arbitration stay and to impose sanctions.  (ROA 53.)

Motion to Lift Stay

On December 27, 2021, the plaintiff filed a wage and hours complaint against defendant employer.  (ROA 2.)

On May 20, 2022, the parties filed a stipulation agreeing to resolve the matter through arbitration.  (ROA 47.)  The defendant had not yet filed a responsive pleading.  Pursuant to the stipulation, all proceedings were stayed pending further order of the court.

On June 23, 2022, the parties met with the arbitrator with the American Arbitration Association at an Arbitration Management Conference.  On July 18, 2022, the arbitrator sent notice that the employer would be billed $66,000 for its arbitration services.

On July 27, 2022, defendant employer advised the arbitrator that it would not pay the arbitration fees as it found them “commercially unreasonable.”  It also expressed concern that the arbitrator ethically could not act as both arbitrator and mediator.  (It is unclear from the competing declarations whether the parties asked the arbitrator to put on both hats, or whether it was the arbitrator that offered to play both roles.  But whichever way it came to pass, the court is not required to resolve that factual issue.)

On July 28, 2022, the defendant withdrew its arbitration request on the grounds of excessive costs and the arbitrator’s unresolved ethical issue.  The defendant no longer wished to participate in the arbitration.  The defendant employer indicates that on the same day the plaintiff also told the arbitrator (by separate e-mail, allegedly only to the arbitrator) that “we no longer require arbitration services.”

Beginning on September 13, 2022, the parties engaged in some discussions about returning the matter to state court, and apparently at least one proposed stipulation to that effect was circulated.  However, the parties could not agree on the terms of the stipulation.  It appears the “sticking point” is that the plaintiff wanted his attorney fees and other costs in pursuing arbitration reimbursed.

Thus, on September 28, 2022, the plaintiff filed the instant motion.

Accordingly, the court makes the following orders:

1.    The stay is LIFTED, and the matter is restored to this court’s active inventory.  The ADR Review hearing set for December 22, 2022, is OFF CALENDAR.

2.    The defendant is ORDERED to file a responsive pleading within 14 days.

3.    On the court’s own motion, a Case Management Conference is scheduled for December 22, 2022, at 8:30 am.  The parties are ORDERED to file timely Case Management Conference Statements.

Requests for Sanctions

The motion also included a request for sanctions against the defendant pursuant to Code of Civil Procedure sections 1281.98, subdivision (a) and 1281.99, subdivision (b).  It also requested monetary sanctions against defendant’s counsel and law firm.

The list of requested sanctions includes $10,665 in monetary sanctions against defendant and its counsel “for the costs and fees incurred in initiating arbitration, in engaging in arbitration matters, and in preparing and filing the instant Motion.”  The plaintiff also seeks evidentiary sanctions “prohibiting Defendant from conducting discovery,” an order “striking Defendant’s answer” as well as an “order of default judgment against defendant,” and finally “a contempt sanction.”

Sanctions may be requested under these code sections.  If the pre-condition for such an award is met, the court must impose them—unless the court finds the party’s actions were with substantial justification or there are other reasons why the imposition of sanctions would be unjust.

The pre-condition for sanctions is that the party must have materially breached the arbitration agreement.

The plaintiff makes much of the defendant’s decision to withdraw from the arbitration.  Among other arguments, he complains that only the employee may back out of the arbitration and the proposed cost of $66,000 for arbitration is actually “below average rate for arbitration in Southern California.”  The plaintiff’s view is that the defendant employer is simply “wasting time.”

Code of Civil Procedure section 1281.97, subdivision (a) provides that if the drafting party (here, the employer) does not pay the “fees and costs before the arbitration may proceed,” the drafting party is in default and “is in material breach of the arbitration agreement.”  Given the fees and costs to proceed with the arbitration were not paid by defendant employer, the defendant is in material breach of the arbitration agreement.  (Espinoza v. Superior Court (2022) 83 Cal.App.5th 761.)  It would seem to make no difference that the requested arbitration fees were deemed by the employer to be commercially unreasonable.  The failure to pay is all that matters under the applicable fee-shifting statutes.

The ethical issue poses a different problem.  The purpose of these statutes is to punish a drafting party that uses the arbitration process to delay the proceedings.  But do those fee-shifting provisions equally apply where the drafting party is presented with an arbitrator that engages in unethical conduct after arbitration has been selected?

The court does not need to answer that question here.  It is clear from the record that even if the arbitrator had not agreed to engage in what the drafting party saw as unethical conduct, the primary reason the employer pulled out of the arbitration fee was the amount of the costs and fees imposed by the American Arbitration Association.  Under Espinoza that was a material breach.

After reviewing the motion, the declarations, and the court’s file, the court finds that the imposition of the sanctions is required.  However, te court does not agree that the amount requested is justified.

The defendant is ORDERED to pay the plaintiff $6,000 in fees and costs within 20 days.  All other requests for relief are DENIED.

Notice

The plaintiff shall give notice.