Judge Katherine Chilton, Case 20STLC02870 2022-10-10 Tentative Ruling

Judge: Katherine Chilton, Case: 20STLC02870, Date: 2022-10-10 Tentative Ruling

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Case Number: 20STLC02870 Hearing Date: October 10, 2022 Dept: 25

PROCEEDINGS: MOTION FOR TERMINATING SANCTIONS

MOVING PARTY: Plaintiff Wilbur A. Olivarez

RESP. PARTY: Defendant Austra Motors, Inc.

MOTION FOR TERMINATING SANCTIONS

(CCP §§ 1281.97, 1281.99)

TENTATIVE RULING:

Plaintiff Wilbur Olivarez’s Motion for Terminating Sanctions is GRANTED in part.

The Court DENIES Plaintiff’s request to issue any sanctions against Defendant Tustin Community Bank, as Defendant was dismissed from the lawsuit on August 31, 2022.

The Court DENIES Plaintiff’s request to issue terminating sanctions against Defendant Austra Motors, Inc.

The Court GRANTS Plaintiff’s request to issue evidence sanctions against Defendant Austra Motors, Inc. The Court orders that Defendant Austra Motors is prohibited from conducting discovery in this action.

SERVICE:

[X] Proof of Service Timely Filed (CRC, rule 3.1300) OK

[X] Correct Address (CCP §§ 1013, 1013a) OK

[X] 16/21 Court Days Lapsed (CCP §§ 12c, 1005(b)) OK

OPPOSITION: Filed on August 25, 2022 [ ] Late [ ] None

REPLY: Filed on August 31, 2022 [ ] Late [ ] None

ANALYSIS:

I. Background

On March 30, 2020, Plaintiff Wilbur A. Olivarez (“Plaintiff”) filed an action against Defendants Austra Motors, Inc. (“Austra Motors”), Tustin Community Bank (“Tustin Bank”), and State National Insurance Company, Inc. (“State National”), (collectively “Defendants”) for violation of the Consumers Legal Remedies Act, violation of Business and Professions Code § 17200, negligent misrepresentation, violation of warranties, and claim against surety.

On April 9, 2020, Plaintiff filed a Motion to Compel Defendants Austra Motors and Tustin Bank to Arbitration. Austra Motors’ agent for service of process was served with the Summons and Complaint and the Motion to Compel on April 20, 2020. (5-21-20 Proof of Service – Austra Motors.) The Court twice continued the hearing on the Motion to Compel Arbitration, but no notice was provided to Austra Motors. (5-21-20 Notice, 7-2-20 Notice.) Notice was provided for the third continuance, to October 22, 2020, to counsel for Austra Motors, although Austra Motors had not appeared in the case yet. (8-13-20 Notice.) The Motion to Compel Arbitration was heard and granted on October 22, 2020. (10-22-20 Minute Order.) Austra Motors did not appear at the hearing. (Ibid.) The Court ordered the matter to be arbitrated by the American Arbitration Association (the “AAA”) and ordered Defendant Austra Motors to pay any outstanding fees and reinstate the case. (Ibid.) The action was also stayed pending arbitration. (Ibid.) On the same day, Plaintiff served Defendant Austra Motors with the Court’s order. (10-22-20 Notice of Ruling.)

Plaintiff filed a Motion to Lift Stay on January 19, 2021. The Court granted Plaintiff’s Motion on June 21, 2021. (6-21-21 Minute Order.)

On June 29, 2021, Plaintiff filed Request for Entry of Default against Defendant Austra Motors and default was entered on the same day. (6-29-21 Request for Entry of Default.)

On July 29, 2021, Plaintiff filed an Amended Complaint. On August 13, 2021, Defendant Austra Motors filed an Answer to the First Amended Complaint. On October 20, 2021, Defendant Tustin Community Bank filed an Answer to the First Amended Complaint, as well as a Cross-Complaint against Austra Motors, Inc. and Ali Fard.

On December 21, 2021, Defendant State National was dismissed from the case.

On January 11, 2022, Cross-Defendants Austra Motors and Ali Fard each filed an Answer to Tustin Bank’s Cross-Complaint.

On July 25, 2022, Plaintiff filed the instant Motion for Terminating Sanctions (“Motion”), requesting terminating sanctions or, in the alternative, evidence sanctions against Defendants Austra Motors and Tustin Bank. On August 25, 2022, Defendant Austra Motors filed an Opposition to the Motion. On August 31, 2022, Plaintiff filed a Reply to the Opposition.

On August 30, 2022, Plaintiff filed a Request for Dismissal of Defendant Tustin Bank; Defendant was dismissed on August 31, 2022.

On September 8, 2022, the Court denied Plaintiff’s request for sanctions against Defendant Tustin Community Bank given that Defendant had been dismissed from the action. (9-8-22 Minute Order.) The Court also continued the hearing on sanctions against Defendant Austra Motors. (9-8-22 Minute Order.) On September 30, 2022, Plaintiff filed Supplemental Points and Authorities in Support of the Motion for Terminating Sanctions.

II. Legal Standard

Pursuant to Code of Civil Procedure § 1281.97(a),

In an … consumer arbitration that requires, either expressly or through application of state or federal law …, 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 [then] the drafting party is [1] in material breach of the arbitration agreement, is [2] in default of the arbitration, and [3] waives its right to compel arbitration under Section 1281.2.

If a drafting party materially breaches the arbitration agreement and is in default under the subdivision above, the consumer may unilaterally withdraw the claim from arbitration and proceed in court or move to compel arbitration. (Code Civ. Proc. § 1281.97(b).) If the consumer proceeds in court, then the court “shall impose sanctions on the drafting party in accordance with Section 1281.99.” (Code Civ. Proc. § 1281.97(d).)

According to 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 …, 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… 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 rending a judgment by default against the drafting party.

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

“Although in extreme cases a court has the authority to order a terminating sanction as a first measure [citations], a terminating sanction should generally not be imposed until the court has attempted less severe alternatives and found them to be unsuccessful and/or the record clearly shows lesser sanctions would be ineffective.” (Lopez v. Watchtower Bible and Tract Society of New York, Inc. (2016) 246 Cal.App.4th 566, 604-605.)

III. Discussion

On or around April 20, 2020, Plaintiff’s counsel filed to have the matter between Plaintiff and Defendants arbitrated by the American Arbitration Association (“AAA.”) (Sadr Decl. ¶ 6.) In response, Plaintiff’s counsel received a letter from the AAA stating that it had closed the file because of Defendant Tustin Bank’s previous failure to comply with AAA’s policies. (Ibid. at ¶ 7.) As a result, Plaintiff sought an order compelling arbitration from the Court. (Ibid. at ¶ 8.) On October 22, 2020, the Court ordered the instant matter to be arbitrated by the AAA and ordered Defendant Austra Motors to pay any outstanding fees and reinstate the case. (Ibid. at ¶ 9; Ex. 4; 10-22-20 Minute Order.) Austra Motors, however, had not yet appeared in the case.

On or around October 28, 2020, Plaintiff’s counsel filed a Statement of Claims with the AAA and served it on defense counsel by mail and email. (Sadr Decl. ¶ 10.) The AAA accepted arbitration over the case and required Defendants to pay the arbitration fees by November 24, 2020. (Ibid. at ¶ 11; Exs. 5-6.) The fee was not paid by November 24, 2020, so AAA sent another letter stating that if the fee in the amount of $3000 was not paid by December 24, 2020, the case would be closed. (Ibid. at ¶¶ 13-14; Exs. 7-8.) On January 5, 2021, the AAA sent a letter informing parties that the fees were not paid and the case had been closed. (Ibid. at ¶ 17; Exs. 9-10.)

Plaintiff states that the Court had ordered Defendants to pay the arbitration fees in accordance with the arbitration clause of the Retail Installment Contract. (10-22-20 Minute Order.) The Retail Installment Contract states that the Defendants “will pay [the Plaintiffs’] filing, administration, service or case management fee and [the Plaintiffs’] arbitrator or hearing fee all up to a maximum of $5,000, unless the law or the rules of the chosen arbitration organization require us to pay more.” (Ibid.; 4-9-20 Heydari Decl., Ex. 1.) Plaintiff argues that Defendants’ failure to pay the arbitration fee constitutes material breach of the arbitration clause and a violation of the Court order to pay arbitration fees, thus, the Court should grant Plaintiff’s request for terminating sanctions and allow Plaintiff to file for default judgment against Defendants. (Mot. p. 6.) In the alternative, Plaintiff requests that the court grant evidence sanctions against Defendants to prohibit them from conducting discovery. (Ibid. p. 7.) Finally, Plaintiff states that it has not made a request for attorney’s fees because it “will need additional work to bring a motion for fees.” (Ibid.)

In its Opposition, Defendant Austra Motors argues that the terminating sanctions would be unjust because the parties have spent two years litigating the case, discovery is complete, and Plaintiff has waited until the eve of trial to bring the instant Motion. (Oppos. pp. 2-4; Evans Decl. ¶¶ 2-7.) Moreover, Defendant Austra Motors argues that there are issues of due process and notice related to the order to compel arbitration, as “[t]here was no valid service of Notice of this Hearing on Defendant Austra Motors” following several continuances and Austra Motors did not appear at the hearing on the Motion to Compel Arbitration on October 20, 2020. (Oppos. at p. 3; Evans Decl. ¶¶ 8-12.) Defendant Austra Motors also argues that Defendant Tustin Bank has already provided $12,000 to Plaintiff and Plaintiff should not be allowed to recover from Defendant Austra Motors “without allowing it to defend itself and assert any an [sic] all offsets and credits” because that “would be a miscarriage of justice.” (Oppos. at p. 5; Evans Decl. ¶ 13.) Defendant further argues that the “failure to state the amount of damages” in the original Complaint is “another due process denial,” while the First Amended Complaint was filed late and “did not exist at the time of the alleged Arbitration Violation.” (Oppos. at pp. 5-6; Evans Decl. ¶¶ 14-16.)

In its Reply, Plaintiff begins by arguing that the Opposition should not be considered because it was not properly served via mail and counsel for Plaintiff never agreed to be served by email. (Reply Sadr Decl. ¶ 3.) Then, Plaintiff states that none of Defendants arguments are defenses to a material breach of the arbitration provision. (Reply p. 2.) Plaintiff also states that “Defendant has baselessly refused to timely comply with Plaintiff’s discovery requests, despite falsely stating that discovery is complete.” (Reply pp. 1-2.) Plaintiff contends that Defendant has failed to respond to its discovery requests and is making false statements about discovery. (Ibid. at p. 2; Reply – Sadr Decl. ¶¶ 4-5; Ex. 1.) In response to Defendant’s argument that Plaintiff’s motion is untimely, Plaintiff argues that “waiting periods are not a defense to violations of Code of Civil Procedure Sections 1281.97 and 1281.99” and any delays are “due to Defendant’s refusal to comply with the arbitration clause of the subject matter.” (Ibid. at p. 3.) Plaintiff does not address Defendant’s argument regarding lack of notice of the hearing on Motion to Compel Arbitration but does state that it served Defendant with the Notice of the Ruling and that the Court had jurisdiction “to order arbitration on petition, without an answer from any respondent” and Defendant’s argument “is not a defense to material breach of the relevant arbitration clause.” (Ibid. at pp. 3-4; Reply – Sadr Decl. ¶ 6; Ex. 2.)

On September 8, 2022, the Court noted that after filing the Motion, Defendant Tustin Bank was dismissed from the lawsuit, and denied sanctions against Defendant Tustin Bank. (8-30-22 Request for Dismissal; 9-8-22 Minute Order, p. 6.) Thus, Plaintiff’s Motion is now directed at Defendant Austra Motors only. Second, the Court considered Defendant’s Opposition because it was timely filed and electronically served on Plaintiff and Plaintiff filed a Reply to the Opposition. (Cal. Rules of Court, rule 2.251(b).) Third, the Court noted that even if Defendant Austra was not notified about the continuance of the hearing on Motion to Compel Arbitration, it was notified of the initial hearing and the final hearing when the Court ruled on the Motion. (8-13-20 Notice of Continued Motion.) Defendant Austra was also served with the Court’s Order granting the Motion. (10-22-20 Notice of Ruling.) Fourth, Defendant argues that the Motion is not timely because the case has been in litigation for two years. The Court disagrees with this assessment. The Court granted Plaintiff’s Motion to Lift Stay on June 21, 2021, and nothing in the Code of Civil Procedure prohibits Plaintiff’s Motion from being filed a year after the litigation was re-commenced. (6-21-21 Minute Order.)

Nonetheless, the Court expressed concern that Austra Motors had not appeared in the action at the time the Court ordered the parties to arbitration. (9-8-22 Minute Order.) Accordingly, the Court continued the hearing on the Motion to October 10, 2022, and ordered the parties to submit memoranda of points and authorities of no more than five (5) pages each, addressing the issue of whether the Court had jurisdiction to order Austra Motors to arbitration given that it had not yet appeared in the case. (9-8-22 Minute Order, p. 6.)

On September 30, 2022, Plaintiff filed Supplemental Points and Authorities in Support of the Motion for Terminating Sanctions. Defendant Austra Motors did not file supplemental papers. In the Supplemental Points and Authorities, Plaintiff argues that according to Code of Civil Procedure § 1281.2, the Court may compel parties to arbitrate a dispute on petition, regardless of whether the parties have made an appearance. (Supp. p. 2.) Plaintiff states that the notice of petition for order compelling arbitration “is notice given for purpose of acquiring jurisdiction of other party to dispute, and upon valid service thereof, its effect is to give court personal jurisdiction over said other party and to vest in court authority to enter personal judgment against said other party upon such award as may be made in proceeding.” (Ibid. at p. 3, citing Frey & Horgan Corp. v. Superior Court of San Francisco (1936) 5 Cal. 2d 401.)

Plaintiff also argues that the Court’s order regarding arbitration is irrelevant as to whether Defendant materially breached the arbitration clause of the agreement. (Ibid.) “If a business forced an arbitration clause into a consumer contract and failed to comply with the terms of the arbitration clause, the business is in material breach of said arbitration clause.” (Ibid. at p. 3.)

The Court finds that it had jurisdiction to compel Defendant Austra Motors to arbitration. There is no indication in Code of Civil Procedure § 1281.2 that a defendant’s/respondent’s appearance is required prior to the filing of the motion to compel arbitration. According to § 1281.2, the Court must order arbitration if the moving party demonstrates the existence of an arbitration agreement and none of the exceptions listed, such as waiver of arbitration, recission of agreement, or pending proceedings, apply. Furthermore, “making of an agreement in this State providing for arbitration to be had within this State shall be deemed a consent of the parties thereto to the jurisdiction of the courts of this State to enforce such agreement by the making of any orders provided for in this title and by entering of judgment on an award under the agreement.” (Code of Civ. Proc. § 1293.) Finally, § 1290.2 requires notice to be provided at least 10 days before the hearing on the petition or motion. Here, Notice was served on Defendant Austra for the initial date scheduled for the hearing on the Motion and the date on which the Court ruled on the Motion, thus, Defendant Austra was provided with sufficient notice regarding the hearing on the Motion to Compel. (5-21-20 Proof of Personal Service, 8-13-20 Notice.) Defendant Austra has not filed supplemental papers in response to the September 8, 2022, Court order, providing any reasons that the Court did not have jurisdiction to compel Defendant to arbitration.

Since Defendant Austra Motors was appropriately compelled to arbitration and failed to pay the arbitrator fees, it materially breached parties’ arbitration agreement under Code of Civil Procedure § 1281.97. Plaintiff argues that terminating sanctions are warranted because Defendant has failed to comply with the parties’ arbitration agreement and the Court’s order compelling the parties to arbitration. In the alternative, Plaintiff seeks an evidence sanction prohibiting the Defendant from conducting discovery in this action.

The Court has the discretion to impose either evidence or terminating sanctions. (Code Civ. Proc., § 1281.99(b)(1)-(2).) Here, the Court finds terminating sanctions unnecessary given that a less severe alternative (an evidence sanction) is available. Defendant Austra Motor’s Opposition does not show that it acted with substantial justification in refusing to pay the arbitrator fees or other circumstances would make the imposition of evidence sanctions unjust. Therefore, the Court grants Plaintiff’s request to issue evidence sanctions against Defendant Austra and orders that it is prohibited from conducting discovery in this action.

The Court further notes that it is required to impose monetary sanctions against Defendant Austra Motors, including ordering it to pay the reasonable expenses (such as attorney’s fees and costs) incurred by Plaintiff as a result of the material breach. (Code Civ. Proc., § 1281.99(a).) However, Plaintiff has not indicated how much, if any, expenses he has incurred as a result of the material breach, and, thus, Court cannot impose monetary sanctions.

IV. Conclusion & Order

For the foregoing reasons,

Plaintiff Wilbur Olivarez’s Motion for Terminating Sanctions is GRANTED in part.

The Court DENIES Plaintiff’s request to issue any sanctions against Defendant Tustin Community Bank, as Defendant was dismissed from the lawsuit on August 31, 2022.

The Court DENIES Plaintiff’s request to issue terminating sanctions against Defendant Austra Motors, Inc.

Moving party is ordered to give notice.