Judge: Michael Shultz, Case: 23STCV12612, Date: 2025-02-06 Tentative Ruling

DEPARTMENT 40 - MICHAEL J. SHULTZ  - LAW AND MOTION RULINGS
The Court issues tentative rulings on certain motions.The tentative ruling will not become the final ruling until the hearing [see CRC 3.1308(a)(2)]. If the parties wish to submit on the tentative ruling and avoid a court appearance, all counsel must agree and choose which counsel will give notice. That counsel must 1) email Dept 40 by 8:30 a.m. on the day of the hearing (smcdept40@lacourt.org) with a copy to the other party(ies) and state that all parties will submit on the tentative ruling, and 2) serve notice of the ruling on all parties. If any party declines to submit on the tentative ruling, then no email is necessary and all parties should appear at the hearing in person or by Court Call. 

Case Number: 23STCV12612    Hearing Date: February 6, 2025    Dept: 40

23STCV12612 Yesenia Reyes v. South Cord Holdings, LLC, et al.

[TENTATIVE] ORDER GRANTING PLAINTIFF’S MOTION TO VACATE ORDER COMPELLING ARBITRATION

                                                        I.          BACKGROUND

       The first amended complaint alleges that Plaintiffs were subjected to harassment and discrimination while employed by Defendants. Plaintiffs allege violations of the Fair Employment and Housing Act, wrongful termination, and related statutory violations.

                                                         II.         ARGUMENTS

       Plaintiff, Ysenia Reyes, moves to vacate the order of September 19, 2023, granting the motion to compel arbitration by Defendant, South Cord Holdings, LLC, dba Catalyst Cannabis Co. (“Catalyst”). Catalyst failed to pay arbitration fees by the due date, which results in a waiver of the right to arbitrate.

       All Defendants jointly oppose the motion on grounds Defendants were not obligated to pay the fees because the arbitrator vacated the February 2025 arbitration hearing, and the invoice for that hearing no longer applies. A new hearing date has not been set. The arbitrator’s Scheduling Order No. 3 requires payment 60 days before the scheduling hearing. The arbitrator vacated the hearing date before the deadline for payment. JAMS records do not indicate that Defendants are in default of the required payment. There is a split in authority regarding the statutes at issue and whether it is preempted by the Federal Arbitration Act.

       In reply, Plaintiff argues that the JAMS invoice at issue requires payment upon receipt. Any extension of time must be agreed to by the parties. Defendants tried to cure their failure to pay by having the hearing vacated two weeks after they already failed to pay timely. None of the Defendants have paid arbitrator fees. Plaintiff did not neglect to inform the court of the salient facts as Defendants contend as they are included in the exhibits submitted by Plaintiff.  Case authority holds that Defendants cannot cure a failure to timely pay an invoice.

                                              III.        LEGAL STANDARDS

       If an arbitration agreement or statute requires that the drafting party pay certain fees and costs during the pendency of the arbitration and such fees and costs 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 the employee or consumer to proceed with that arbitration as a result of the material breach." (Code Civ. Proc., § 1281.98 (a)(1).) If the agreement does not provide for the number of days in which the parties must pay fees and costs, "the arbitration provider shall issue all invoices to the parties as due upon receipt. Any extension of time for the due date shall be agreed upon by all parties." (Code Civ. Proc., § 1281.98 (a)(2).)

       In the event of a material breach, the employee “may unilaterally elect” to withdraw the claim from arbitration and proceed in a court of appropriate jurisdiction. (Code Civ. Proc., § 1281.98 (b).) The determination of a material breach and waiver “operate[s] as a complete defense to [the employer’s] enforcement of the arbitration agreement; it is a functional equivalent of an order denying a petition to compel arbitration." (Williams v. West Coast Hospitals, Inc. (2022) 86 Cal.App.5th 1054, 1065.)

                                                         IV.        DISCUSSION

A.      Timeline

B.      Analysis

       As demonstrated by the exhibits submitted by Plaintiff, the $63,400 retainer fee was required 60 days prior to the February 3, 2025 hearing date, which is December 5, 2024. Defendant submits an October 22, 2024 notice of hearing, sent with the retainer invoice, scheduling the arbitration for February 3-7, 2025. The notice reflects that “all fees are due upon receipt.” (Defendant’s A.),

       The arbitrator’s fee schedule states: “All fees are due and payable in advance of services rendered and by any applicable due date as stated in a hearing confirmation letter.”  (Id.)

       On November 20, 2024, at a status conference, the arbitrator decided to vacate the current arbitration hearing dates and not reschedule them until after the consolidation issue was resolved. (Defendant’s Ex. B, ¶ 6-7.)

       The arbitrator sent a statement of fees incurred for $226.00 for December 2024, revealing a credit balance of $2,078.80.  (Defendant’s Ex. C, p. 2.)

       The 60-day due date stated in the arbitrator’s Order No. 3 conflicts with the requirements of statute.

       The pertinent statute provides as follows:

"In an employment or consumer arbitration that requires, either expressly or through application of state or federal law or the rules of the arbitration provider, that the drafting party pay certain fees and costs during the pendency of an arbitration proceeding, if the fees or costs required to continue the 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 the employee or consumer to proceed with that arbitration as a result of the material breach." (Code Civ. Proc., § 1281.98 subpart (a).)

       Notwithstanding the arbitrator’s “order,” the payment of fees and costs are set by statute and requires payment “30 days after the due date.” (Id.) Absent an express provision in the arbitration agreement stating the number of days in which the parties to the arbitration must pay any required fees or costs, the arbitration provider shall issue all invoices to the parties “as due upon receipt.” Any extension of time for the payment of fees shall be agreed upon by the parties. (Code Civ. Proc., § 1281.98 subd. (a)(2). The Notice of Hearing submitted by Defendant indicates “due upon receipt” consistent with statute. (Defendant’s Ex. A.)

       Accordingly, fees became due 30 days from receipt of the invoice dated October  11, 2024. Defendant admittedly did not pay, believing that the arbitrator’s order vacating the hearing date also vacated the statutory payment deadline, and because payment was actually due 60 days before the hearing as ordered by the arbitrator. Since no hearing was scheduled, Defendant believes payment deadlines are moot. However, failure to pay within the time set forth by statute constitutes a material breach and statutorily waives the right to compel arbitration. (Id.)

       By Plaintiff’s calculation, payment was due on November 7, 2024.  (Aarons Decl., ¶ 6.) The day after, on November 8, 2024, defense counsel sent an email to Plaintiffs’ counsel and others contending that there was an issue with respect to consolidation and duration of the hearing because “issues are inextricably intertwined.”(Plaintiff’s Ex. F.) Mr. Augustini, in his email, surmised that it would be difficult for the arbitrator to address the duration issue before a consolidation issue and suggested Plaintiff’s counsel should submit a demand for arbitration. (Id.)

       The payment deadlines are strictly enforced. In Doe v. Superior Court of City and County of San Francisco (Cal. Ct. App., Sept. 8, 2023, No. A167105) 2023 WL 5813102, the court concluded the following:

"[W]e strictly enforce the 30-day grace period in section 1281.98(a)(1) and conclude fees and costs owed for a pending proceeding must be received by the arbitrator within 30 days after the due date. We do not find that the proverbial check in the mail constitutes payment and agree with petitioner that real parties’ payment, received more than 30 days after the due date established by the arbitrator, was untimely." (Doe  at *1 [italics in original].)

       The Second District Court of Appeal determined that "based on the plain language as well as the legislative history of section 1281.97, the Legislature intended courts to apply the statute's payment deadline strictly" and the court rejected the contention that the FAA preempts section 1281.97 as Defendant argues here.  (Espinoza v. Superior Court (2022) 83 Cal.App.5th 761, 771.) Espinoza acknowledged that Division 2 of the Second District Court of Appeal agreed after a considered analysis that the FAA did not preempt § 1281.98. (Gallo v. Wood Ranch USA, Inc. (2022) 81 Cal.App.5th 621, 641.)

       Espinoza granted the plaintiff’s motion for writ of mandate, and ordered the trial court to lift the stay and allow the plaintiff to bring her claims in court. (Espinoza at 788.) The statute did not allow for “substantially compliance,” with the payment deadlines nor did it provide for an exception when nonpayment was due to clerical error and the plaintiff did not suffer prejudice. (Id. at 772). The Espinoza court agreed with Plaintiff’s interpretation of the statute in that it did not provide for any of the exceptions advanced by defense. (Id. at 775.)

       Defendant attempts to distinguish the foregoing cases because they involved “initial case fee payments.” The statute does not distinguish the type of fees at issue. Defendant offers no authority that the arbitrator’s 60-day payment “Order No. 3” supersedes the Legislature’s determination. Regardless, even if it had applied, 60 days from the February hearing date was December 5, 2024. The invoice remains unpaid. (Plaintiff’s Ex. E.)

       Defendant cites Cvejic v. Skyview Capital, LLC (2023) 92 Cal.App.5th 1073 as it “indirectly addressed the very situation at issue in this case.” (Opp. 24-26.) Cvejic opined that section 1291.98 established a bright line rule which the court applied: “Skyview's fees were due June 4, 2021. By July 9th, Skyview had not paid. Skyview was in material breach of the parties’ arbitration agreement. Section 1281.98 entitled Cvejic to withdraw from the arbitration. It is that simple." (Cvejic at 1078.)

       Section 1281.9 does not make exceptions for when a hearing has been vacated and its effect upon the payment deadline, or that vacating the hearing would render the payment deadlines “moot,” or that a dispute of the amount of the retainer permitted delay in payment. (Opp. 6:10-16.) Contrary to Defendant’s contention, the arbitrator did not vacate the retainer payment deadline at the time it vacated the February 2025 hearing. (Opp. 6:15-16, Defendant’s Ex. B.) Defendant construes the arbitrator’s order vacating the February hearing “and all related dates” as relieving Defendant from the strict payment requirements set forth by statute. (Defendant’s Ex. B, ¶ 7.)  Defendant has not provided any authority that the arbitrator has the authority to override the deadlines required by statute.

                                                        V.         CONCLUSION

       Having failed to pay the invoiced arbitration fees by the due date as provided by statute, Defendant is in material breach of the arbitration agreement, is in default of the arbitration, and waives its right to compel or to proceed with arbitration as a result of the material breach. (Code Civ. Proc., § 1281.98 subd. (a).) Accordingly, Plaintiff’s motion to vacate the order compelling arbitration is GRANTED.