Judge: Martha K. Gooding, Case: 2021-01223241, Date: 2022-11-07 Tentative Ruling

1) Motion for Terminating Sanctions    

2) ADR Review Hearing

By this Motion, Plaintiff Benito Bello Leon (“Plaintiff”) asks the Court to lift the stay in this matter, withdraw the case from arbitration, and order proceedings to resume in this Court, all on the ground that, after obtaining an order from this Court compelling Plaintiff to arbitrate his claims, Defendant Panda Motors, Inc. d/b/a California Motors Direct (“Defendant”) failed to pay the required arbitration fees to the American Arbitration Association (“AAA”). 

Plaintiff also asks the Court to impose a sanction against Defendant in the form of an order prohibiting Defendant from conducting any discovery in the resumed court proceeding. 

For the reasons set forth below, the Court GRANTS the Motion.

Legal Standard

Where, either expressly or through application of state or federal law or the rules of the arbitration administrator, an employment or consumer arbitration requires the drafting party to pay certain fees and costs before the arbitration can proceed, and 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 Code of Civil Procedure (“CCP”) section 1281.2.  CCP §1281.97(a).  See also CCP § 1280(c) (defining “consumer” as “an individual who seeks, uses or acquires, by purchase or lease, any goods or service for personal, family, or household purposes”); CCP §1280(e) (defining “drafting party” as “the company or business that included a predispute arbitration provision in a contract with a consumer or employee.”).

If the drafting party does not pay the arbitration invoice within the 30 day period, thus materially breaching the arbitration agreement under section 1281.97(a)(1), the employee or consumer may do either of two things:  it may “[w]ithdraw the claim from arbitration and proceed in a court of appropriate jurisdiction,” or it may “[c]ompel arbitration in which the drafting party shall pay reasonable attorney's fees and costs related to the arbitration.”  CCP § 1281.97(b).

“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).

“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 1281.989, 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.”  CCP § 1281.99(a).

In addition to that monetary sanction, the Court also may order any of the following 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”:

(1) An evidence sanction by an order that prohibits the drafting party from conducting discovery in the civil action. (CCP §1281.99(b)(1).)

(2) A terminating sanction by (a) an order that strikes out the pleadings or parts of the pleadings of the drafting party, (b) an order that renders a judgment by default against the drafting party, or (c) a contempt sanction by an order that treats the drafting party as in contempt of court.

CCP §1281.99(b)(2).

Here, Plaintiff does not seek a monetary sanction under section 1281.99(a), but he does seek an evidentiary sanction against Defendant under section 1281.99(b)(2), prohibiting Defendant from conducting discovery in this action.

Merits

Based on the facts presented to the Court, the pertinent facts are as follows:

After the Court granted Defendant’s motion to compel arbitration on March 25, 2022, Plaintiff submitted a claim to the AAA, which was assigned the case number 01-11-0002-1391.

On June 6, 2022, the AAA sent a letter to Defendant’s counsel, Ali Parvaneh of Madison Law APC (“Parvaneh”), a letter notifying him that Defendant had to pay its arbitration fee by June 20, 2022 (the “June 6, 2022 Letter”).  See Declaration of Adam Rose (“Rose Decl.”) ¶ 2 and Exh. A.   That letter was clear.  Among other things, it notified Parvaneh of the filing of the Demand for Arbitration by Benito Bello.  Id.  It also notified him of the case number that had been assigned to the matter and the rules that would apply to the arbitration.  Id.  It notified him that the AAA was “in receipt of a court order compelling arbitration” and that it was “proceeding on that basis.”  Id.

The AAA’s June 6, 2022 Letter also advised Parvaneh that the business (i.e., California Motors) would need to pay “filing fees of $300 and the arbitrator’s compensation deposit of $2,500 totaling $2,800.”  Id.  It told Parvaneh how to submit the required payment.  Id.  It stated that the payment “should be received no later than June 20, 2022” – and then it went on to state in bold face the following:

“This letter shall serve as the invoice pursuant to California Code of Civil Procedure section 1281.  Payment is due on upon receipt of this letter.  As this arbitration is subject to California Code of Civil Procedure section 1281.97, payment must be received by July 20, 2022 or the AAA will close the parties’ case.  Pursuant to California Code of Civil Procedure section 1281.97, the AAA cannot grant any extensions to this payment deadline.”

Rose Decl. Exh. A (bold face and underscoring in original).

Despite all this, Defendant did not make the required payment.

So on June 21, 2022, the AAA sent Mr. Parvaneh another letter (the “June 21, 2022 Letter”).  It also recited the case name and case number, and in the very first paragraph, it stated: “We have not received the administrative fees and arbitrator compensation from respondent as requested in our previous correspondence.  Respondent is requested to remit payment in the amount of $2800 to the AA to be received by July 20, 2022.”  Rose Decl. Exh. B (bold in original). 

Again, Defendant did not pay the required fees.

Accordingly, on July 27, 2022 – one week after the payment deadline expired – the AAA sent another letter to the parties’ counsel stating, “As of this date we have not received the required fees from California Motors Direct in this matter.  Accordingly, we must decline to administer this case and have closed our file.”  Rose Decl., Exh. C.

At that point, Defendant’s counsel finally responded by email on July 27, 2022 asking for an invoice; the AAA responded that the case was closed. Rose Decl., Exh. D.

Defendant argues that it is not in material breach of the arbitration agreement because its obligation to pay the arbitration fees and costs never was never triggered because it never received an “invoice.”  Defendant relies on Espinoza v. Superior Court (2022) 83 Cal.App.5th 761, 774.

The argument is without merit.

First, Espinoza does not define what constitutes an “invoice” or in any way suggest that the June 6, 2022 Letter the AAA sent to Defendant’s counsel – specifically noting that it was an “invoice” – is not an invoice within the meaning of the statute.

Second, as noted above, the June 6, 2022 Letter unequivocally advised Defendant’s counsel, in bold face, that it constituted the invoice for the amounts owed:

This letter shall serve as the invoice pursuant to California Code of Civil Procedure section 1281. Payment is due on upon receipt of this letter. As this arbitration is subject to California Code of Civil Procedure section 1281.97, payment must be received by July 20, 2022 or the AAA will close the parties' case. Pursuant to California Code of Civil Procedure section 1281.97, the AAA cannot grant any extensions to this payment deadline.

Rose Decl., Exh. A.

Further, the June 6, 2022 Letter specifically states what amount Defendant must pay, stated the deadline by which it must be paid, and confirmed that Plaintiff had already paid his portion of the arbitration fees. (Id.)

Moreover, the second letter – the June 21, 2022 Letter – also cites to Code of Civil Procedure section 1281.97 and indicates that if payment is not made by the extended deadline, the case will be closed. (Rose Decl., Ex. B.)

In determining whether the Defendant is in material breach of the arbitration agreement, the statute does not authorize the Court to evaluate whether Plaintiff was prejudiced by the Defendant’s failure to pay the fee, or to examine the reason for Defendant’s failure to pay the required fee.  Espinoza v. Superior Court of Los Angeles County (2022) 83 Cal.App.5th 761.  As explained in Espinoza, “The plain language [of the statute] . . . indicates the Legislature intended the statute to be strictly applied whenever a drafting party failed to pay by the statutory deadline.”  Id.

The Court has no difficulty concluding that the June 6, 2022 Letter constituted an invoice; that Defendant received it and failed to pay the fee when required; and Defendant is therefore in “material breach of the arbitration agreement, is in default of the arbitration, and waive[d] its right to compel arbitration.”  See CCP § 1281.97(a)(1).   Plaintiff is therefore entitled to have the case withdrawn from arbitration and to proceed with his claims in this court. 

The Court turns to the issue of sanctions.

Plaintiff did not seek an award of monetary sanctions.  But Plaintiff did ask for an evidentiary sanction in the form of an order from the Court prohibiting Defendant from conducting any discovery in this action.

The Court has authority to award such a sanction unless it finds that “the one subject to the sanction acted with substantial justification or that other circumstances make the imposition of the sanction unjust.”  Code Civ. Proc. § 1281.99(b).

The Court concludes that awarding the requested sanction here is appropriate.  Defendant did not act with substantial justification and there are no circumstances shown to the Court that would make imposition of that evidentiary sanction unjust. The Court finds that none of the excuses Defenant proffers for failing to pay the fee by the deadline is credible, and that none of them constitutes either substantial justification for the failure to pay the fee or circumstances that make imposition of the sanction unjust.

Defendant argues it acted with substantial justification because the only attorney who was sent a copy of the two AAA letters was Parvaneh, who Defendant contends was not the attorney who was going to handle the case.  Sirey Decl., ¶2.  Defendant also argues that, on or about July 12, 2022, multiple staff members at Madison Law tested positive for COVID19, in response to which Madison Law elected to close its office and require all persons to work remotely until further notice, if they were able to do so.  Id. ¶6.

But that July 12, 2022 shift to remote work did not happen until more than a month after the AAA sent its first letter on June 6, 2022, identifying it as an invoice, specifying the amount due from Defendant, and imposing the July 20, 2022 deadline.  Indeed, the July 12 shift to remote work also happened weeks after the AAA sent its second letter on June 21, 2022 reiterating that Defendant was required to “remit payment in the amount of $2800 to the AAA to be received by July 20, 2022.”

Thus, Defendant cannot fairly or credibly blame its failure to pay on COVID-19.

Mr. Sifers attempts to shift the blame for Defendant’s non-payment to Plaintiff, suggesting that Plaintiff’s counsel knows Ms. Sifers from other cases they have been on together and should have given the AAA his (Mr. Sifer’s) name instead of Parvaneh’s name.  This is not a credible or persuasive argument.  Parvaneh was listed as the most senior counsel for Defendant on the Court pleadings in this action.  There is nothing improper about Plaintiff identifying Parvaneh as Defendant’s counsel to the AAA.  And if Parvaneh wanted Mr. Sifers to be the “point person” on this case with the AAA it was his responsibility to so advise the AAA.  Having failed to do so in response to either of the two letters from the AAA seeking payment, Parvaneh cannot fairly or credibly try to foist the blame for his own inaction onto Plaintiff or his counsel.

Further, if Parvaneh did not think he was the proper person at his firm to actually make arrangements to pay the invoice, it was incumbent on him to ensure the invoice was forwarded to the proper person so that it could be timely paid. 

Notably, Parvaneh’s Declaration does not state that he did not receive the invoice on June 6, or that he did not receive the second, reminder letter, or that he is not counsel for Defendant in this case.  Nor could he credibly do so.  Parvaneh’s name appears prominently on the caption page of the motion Defendant filed to compel arbitration (ROA # 19) – and it also appears on Defendant’s Opposition to this Motion.  Rather, Parvaneh declares that he “ha[s] not handled a case opposite Plaintiff’s counsel’s for likely nearly a decade.” Parvaneh Decl. ¶ 1.  For purposes of this motion and the requested sanctions, Parvaneh’s past experience (or lack thereof) with Plaintiff’s counsel is irrelevant. 

The Court finds not credible any assertion or suggestion by Defendant or its declarants that Defendant (or its counsel) did not receive the invoice from the AAA or did not have adequate opportunity to timely pay it.

In sum, the Motion is GRANTED.  The case is returned to this Court for further proceedings, and the Court imposes the requested evidentiary sanction.  Defendant is prohibited from conducting any discovery in this action.

The ADR review hearing set for this date is moot by reason of the foregoing.

The Court sets a Case Management Conference for December 5, 2022, at 9:00 a.m. in Department C31.

Plaintiff is ordered to give notice.