Judge: Mark H. Epstein, Case: 22SMCV01886, Date: 2024-04-18 Tentative Ruling

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Case Number: 22SMCV01886    Hearing Date: April 18, 2024    Dept: I

This is a motion to withdraw from arbitration in this wage and hour/PAGA case.

Defendant successfully compelled arbitration of plaintiff’s individual claim in this case pursuant to an arbitration agreement—indeed, plaintiff did not oppose the arbitration demand.  The arbitration was to be before JAMS.  What followed was a confusing set of notifications by JAMS. 

On February 17, 2023, JAMS sent an initial invoice.  It obligated plaintiff to pay an initial deposit of $400 and defendant to pay an initial deposit of $1600.  These were required to begin the arbitration.  It appears that both parties paid that invoice in a timely way and the arbitrator was appointed on March 27, 2023.  At that time, another invoice was sent, this time for $12,000 payable by the defense.  It appears that defendant timely paid that invoice.

On February 2, 2024, JAMS issued another invoice.  This one was for $29,832 and was payable by the defense.  The invoice was “due upon receipt.”  Under the law, defendant had 30 days to make the required deposit.  Defendant’s payment was therefore due on March 1, 2024 (or perhaps a day or so later if the invoice was not actually sent on 2/2/24).  On February 5, 2024, JAMS sent a Notice of Hearing.  That notice stated that all fees had to be paid by May 4, 2024, to proceed with the hearing.  It attached the February 2, 2024, invoice.

After the March 1, 2024, date had passed, plaintiff’s counsel called JAMS to see if defendant had made the payment and was told that the payment had not been made.  On March 7, 2024, plaintiff wrote to the defense and said it was withdrawing from arbitration.  Defendant wrote back later that day noting the May 4, 2024, payment deadline.  JAMS then said that the Notice of Hearing was in error.  On March 8, 2024, JAMS sent a new invoice (apparently replacing or attempting to replace the February 2, 2024 invoice) dated March 7, 2024.  The notice was accompanied by a letter from JAMS stating that the prior Notice of Hearing was premature and that the wrong notice was attached.  A new Notice of Hearing—this time dated March 7, 2024, was attached to the JAMS letter.  As just stated, it included the prior invoice, but this time it was dated March 7, 2024 (which would make it due on April 6, 2024).  Defense counsel wrote to plaintiff on March 8, 2024, noting that the February 2, 2024, invoice was sent in error and thus was not reliable.  Plaintiff responded by stating that there was nothing wrong or ambiguous about the February 2, 2024, invoice and that defendant was still in breach.  Defendant wrote back that day and said that the February 2, 2024, invoice was sent in error, and that issues of waiver were for the arbitrator to decide.  Defendant in fact paid the invoice on March 11, 2024.  In its reply papers, plaintiff attached an email from JAMS dated February 3, 2024, attaching the February 2, 2024, invoice.  The email also said payment was due upon receipt.  Defendant objects to the reply evidence as untimely.

Plaintiff contends that the February 2, 2024, invoice was proper and started the clock.  According to plaintiff, pursuant to Code of Civil Procedure section 1281.98(a), if payment is not made timely (which generally means 30 days according to the statute) then the matter must be restored to the civil calendar on plaintiff’s demand and plaintiff is entitled to its fees.  Plaintiff notes that the time cannot be extended by JAMS, but rather is set by statute once the invoice is sent.  Defendant argues that the FAA preempts the statute in question and thus the court should consider the matter according to traditional waiver principles.  Under such an analysis, defendant contends (and this court agrees) no waiver could be found.  Alternatively, defendant states that a revised notice was issued on March 7, 2024, and defendant paid that revised invoice timely.

CCP section 1281.98 states that “in an employment or consumer arbitration that requires . . . the drafting party pay certain fees and costs during the pendency of an arbitration proceeding, if the fees or costs . . . are not paid within 30 days after the due date, the drafting party is in material breach of the arbitration agreement.”  The statute goes on to provide that in that circumstance, the non-drafting party may withdraw from the arbitration as of right.

The court must agree with plaintiff here, albeit somewhat reluctantly.  As to FAA preemption, the court is unsure what it would do were it writing upon a clean slate.  But it is not.  The Court of Appeal has at least twice opined that the statute is not preempted.  (Hohenshelt v. Superior Court (2024) 99 Cal.App.5th 1319; Cvejic v. Skyview Capital, LLC (2023) 92 Cal.App.5th 1073.)  The court is aware of no California appellate authority to the contrary.  Under Auto Equity, the court is bound by those precedents and the court therefore holds in conformity with those decisions that the FAA does not preempt the statute.  Those cases also hold that the arbitration entity cannot extend the statutory time period.  Thus, once the invoice issued, assuming it was not improper to issue it, the clock started running.  The court has looked at the February 2, 2024, invoice and it sees no infirmity.  If that invoice was not improper, the March 11, 2024, was not timely.

The court is aware of the Notice of Hearing procedure and what it means.  By the time of the hearing, much more work likely would have been done, including procedural hearings and perhaps even substantive ones.  As a result, the payments already made would have to be augmented.  JAMS, likely having been burned in the past, has a policy that its invoices be paid up before the substantive hearing and there needs to be money on hand to cover the anticipated hearing expenses.  And that is what the Notice of Hearing meant.  It was not an extension for the prior invoice; it was the deadline by which the parties had to be current if they wanted a trial to go forward including any future invoices that might be sent.  The February 2, 2024, invoice could well reflect only a deposit toward what would be the bill incurred for the arbitration—in other words, the work may well not yet have been done.  But that is no moment.  It says what it says, which is that it is due upon receipt.

The court is somewhat perplexed by the notion that JAMS claims that the February 5, 2024, Notice of Hearing was sent in error or that the February 2, 2024, invoice was sent in error.  If it was truly sent in error and recalled, that would be one thing.  But the court has no competent evidence of such a fact.  Rather, it appears that JAMS recognized the confusion that it caused and attempted, in a practical manner, to rectify the problem by sending a new invoice and re-starting the clock with clarity.  Doing so is laudable, but ultimately not effective.  Because the court sees nothing wrong with the original invoice, JAMS had no ability to recall the invoice and re-issue it to re-start the clock.  The clock, once properly started, cannot be stopped.  The court is aware that JAMS stated that the invoice was in error, but the statement is hearsay and even if it were not it would not suffice without some explanation as to why that might be.  That is especially so in that the March 7, 2024, revised Notice of Intent attaches an identical invoice with an identical statement that an identical payment is due upon receipt with the only difference being the invoice date.  In other words, it would be one thing if JAMS stated that the invoice was wrongly calculated and was withdrawn.  That could stop the clock, maybe even after the fact.  However, there is no such explanation nor can the court reasonably infer one from the evidence submitted.  In this way, plaintiff’s reply evidence bolster’s the court’s view—the email suggests that there was no error in the February 2, 2024, invoice—but it is hardly dispositive and the court need not rely on it.  If defendant really wants an opportunity to reply to it, the court will discuss the matter, but the court does not deem that evidence to be motion dispositive.  In short, once an invoice is sent, absent some proof or explanation that it was truly sent by mistake, the court agrees that the 30 day clock starts to tick under the statute.  If payment is not made, the statutory remedies kick in.

Nor does the court believe that the question is for JAMS to decide.  The statute seems to place that issue in the court’s lap, and that makes sense.  The court agrees that it must decide the matter.  The unpublished Ninth Circuit case does not persuade the court and the court is not bound by it.  And the court believes that the holding in Cvejic, which stated that the trial court was correct in deciding the issue of whether the waiver applied supports the notion that the matter is for the court not the arbitrator, although the court recognizes that it would be too strong to say that Cvejic actually held that the decision was non-delegable.  In any case, the statutory language also seems to compel the conclusion that the matter is for the court to decide, not the arbitrator.

Defendant also states that the breach is not material.  As the court noted earlier, were this to be decided under what this court views as normal contract law, the court would agree.  But the statute expressly states that the failure to make the payment within 30 days is material.  The Legislature has therefore made that determination and case law does not allow the court to rule to the contrary.

Finally, defense counsel attempts to invoke section 473.  That statute has no effect here.  The case is not dismissed; it is merely changing venue.  Defendant has all of its substantive defenses available to it.  Thus, while the court has some sympathy for the defense given the way this came about, the statutory language is clear and unambiguous and case law supports enforcement of the statute without judicial revision.  The court is bound by the Legislature’s policy choices unless they are unconstitutional or preempted by federal law.  Based on binding precedent, the court holds that the statute is not preempted, and the court sees no other ground upon which the statute might be unconstitutional under the California or United States Constitutions.  Given that, the court does not believe that section 473 offers defendant an escape hatch.  The statute will be enforced according to its terms.

As to sanctions, the court believes that although the statute states that fees are recoverable, the confusion here makes such an award inequitable.  Were it up to the court, the court would not impose fees.  But the statute’s language gives the court no discretion here.  The imposition of fees is mandatory.  The fees sought are $13,885.  The court has reviewed the fee declaration.  The hourly rate is reasonable.  However, unless plaintiff takes the position that the discovery done in arbitration has no effect on the instant case and must be re-done (which would be an unreasonable position, in the court’s view), the time spent on discovery is equally attributable to the instant court case.  The court does not believe that the Legislature intended those fees to be recovered as that would be punitive in nature and the court has discretion under the statute whether or not to award a punitive sanction.  (It should be plain that the court exercises its discretion not to make such an award.)  The fee aspect of the motion is therefore DENIED WITHOUT PREJUDICE.  Plaintiff may bring a fee request that includes fees that are unique to the arbitration, which would include (perhaps among other things) time spent determining whether to stipulate to the arbitration, the time attending any arbitration hearings and conferences (including time to prepare for them), and the time related to the withdrawal. 

However, the motion to withdraw from the arbitration is GRANTED.  The court will set a CMC.