Judge: Gregory Keosian, Case: 19STCV43159, Date: 2023-03-01 Tentative Ruling

Case Number: 19STCV43159    Hearing Date: March 1, 2023    Dept: 61

Plaintiff Manuel Parravicini’s Motion to Withdraw from Arbitration is GRANTED. Plaintiff may bring a motion against Defendant APAC Sale Group, Inc. for the fees incurred as a result of Defendant’s breach of the agreement.

Plaintiff  to give notice.

I.                MOTION TO TERMINATE ARBITRATION

Code of Civil Procedure §§ 1281.97 and 1281.98 state that in any consumer or employment arbitration where the “drafting party” is required “to pay certain fees and costs” before or during the pendency of an arbitration proceeding, the failure to pay such fees “within 30 days after the due date” constitutes a “material breach of the arbitration agreement” by the drafting party and a waiver of the right to compel or continue arbitration. (Code Civ. Proc. §§ 1281.97, subd. (a)(1); 1281.98, subd. (a)(1).)

If the breach is in regards to the fees to initiate arbitration, the employee or consumer may choose either to withdraw the claim from arbitration and proceed in court, or to compel arbitration and obtain “reasonable attorney fees and costs related to the arbitration” from the drafting party.” (Code Civ. Proc. § 1281.97, subd. (b)(1)–(2).) If the breach is in regards to fees and costs owed “during the pendency of an arbitration proceeding,” the empmloyee or consumer may withdraw from arbitration and proceed in court, or continue the arbitration without paying costs if the arbitration provider permits, or seek an order compelling the drafting party to pay all arbitration fees, or to pay all owed fees themselves in the expectation of later reimbursement for same in the arbitration award. (Code Civ. Proc. § 1281.98, subd. (b)(1)–(4).)

Plaintiff Manuel Parravicini (Plaintiff) moves to terminate arbitration and continue with his case in court, based on Defendants APAC Sale Group, Inc. (APAC) and HRC2, Inc.’s (HRC2) failure to pay arbitration fees owed to JAMS, the arbitration provider. Plaintiff contends that Defendants failed to pay an initial filing fee of $1,350.00 sent to them on August 17, 2022. (Afghani Decl. ¶¶ 5–7.) Plaintiff further argues that Defendants failed to pay a second invoice for the arbitrator’s retainer in the amount of $8,000, sent on November 16, 2022. (Afghani Decl. ¶¶ 9–11.)

Defendant APAC in opposition contends that its counsel did not review the initial August 17, 2022 invoice because he had just returned from vacation the day before, and because the invoice was included in an attachment to an email that did not make clear the subject matter of its contents. (Libman Decl. ¶ 8.) APAC received a second notice of the initial invoice on November 16, 2022, but APAC’s counsel was busy with other matters, as well as a vacation and the Thanksgiving holiday. (Libman Decl. ¶ 12.) When he returned from vacation, he learned that APAC was undergoing a change of leadership that would impede its ability to timely enter the initial $1,350.00 check. (Libman Decl. ¶ 14.) APAC thereafter was under the impression that Plaintiff was amenable to settlement and would respond to its offers prior to proceeding with arbitration. (Libman Decl. ¶ 15.) APAC paid the arbitration deposit on January 20, 2023, after this motion was filed. (Libman Decl. ¶ 21.)

HRC2, in its opposition, contends that it never received an invoice for any arbitration costs, and in any event it is not Plaintiff’s employer for the purposes of Code of Civil Procedure §§ 1281.97 and 1281.98. (Opposition at pp. 4–7.)

APAC is in material breach of the arbitration agreement. The failure to timely pay the initial arbitration deposit rests entirely on a succession of its own misapprehensions and mistakes. APAC did not open the invoice from JAMS sent in August 2022 (for which Plaintiff promptly paid his own share); APAC did not promptly respond to the second notification of invoice in November 2022 because its attorney was busy with work and the Thanksgiving vacation; APAC could not pay the fee in December 2022 because it was restructuring; and APAC could not pay the fee until late January because it was attempting to leverage payment of the fee as a condition for settlement of the case. APAC has therefore failed “to pay certain fees and costs before the arbitration [could] proceed,” and Plaintiff may properly elect to withdraw from the proceedings. (Code Civ. Proc. § 1281.97, subd. (a)(1).)

APAC in opposition argues that it has not intentionally relinquished its right to arbitration. (Opposition at pp. 6–7.) But the statutes that Plaintiff relies upon do not require him to prove that APAC intentionally relinquished a known right; only that APAC failed to timely pay fees owed. This Plaintiff has done.

APAC argues that Plaintiff implicitly agreed to extend the time for any payment, as permitted Code of Civil Procedure § 1281.98. (Opposition at pp. 6–7.) This argument also fails, first because that section applies to the failure to pay fees for continuing arbitration, where APAC failed to pay the fees necessary for arbitration to begin, under section 1281.97. It also fails because Defendant was tardy in its payment of initial fees months before it ever approached Plaintiff with a settlement offer. And it also fails because Defendant never proposed any extension of time in which to pay fees, and Plaintiff never responded to any settlement offers that APAC made to him. (Opposition at pp. 6–7.)[1]

HRC2, however, is not in breach of the agreement. The fees and costs described in Code of Civil Procedure §§ 1281.97 and 1281.98 are owed by the “drafting party” of the agreement pursuant to which arbitration is conducted. (See Code Civ. Proc. § 1281.97, subd. (a).) Here, HRC2 did not draft or sign the arbitration agreement at issue, but merely agreed after the fact to participate in the arbitration of Plaintiff’s claims against it. Although Plaintiff argues that HRC2 is one of his employers, and was listed as such on his pay stubs, HRC2’s alleged status of “employer” does not subject them to the sanctions listed in the above statutes. The court has no reason, however, to believe that the absence of a breach on the part of HRC2 limits Plaintiff’s remedies under Code of Civil Procedure §§ 1281.97 and 1281.98 in the face of a material breach of a drafting party.

Thus Plaintiff is entitled to withdraw from arbitration. He may also seek mandatory sanctions under Code of Civil Procedure § 1281.99:

(a) 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.

(b) In addition to the monetary sanction described in subdivision (a), the court may order any of the following sanctions 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, 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.

(1) An evidence sanction by an order prohibiting the drafting party from conducting discovery in the civil action.

(2) A terminating sanction by one of the following orders:

(A) An order striking out the pleadings or parts of the pleadings of the drafting party.

(B) An order rendering a judgment by default against the drafting party.

(3) A contempt sanction by an order treating the drafting party as in contempt of court.

Plaintiff accordingly seeks leave to bring a motion for attorney fees and costs pursuant to the above statute for the fees incurred as a result of APAC’s material breach. (Motion at p. 9.) Leave is granted to bring such a motion.

The motion to withdraw from arbitration is GRANTED. Plaintiff may bring a motion against Defendant APAC for the fees incurred as a result of Defendant’s breach of the agreement.