Judge Michael Shultz, Case Number: 24STCV12055, Date: 2024-11-14 Tentative Ruling

The complaint alleges Defendants discriminated against Plaintiff based on gender and pregnancy and ultimately terminated Plaintiff’s employment. Plaintiff alleges claims for violations of the Fair Employment and Housing Act and for wrongful termination in violation of public policy.

On September 18, 2024, the Hon. Anne Richardson denied Defendants’ motion to compel arbitration concluding that all of Plaintiff’s claims relate to Plaintiff’s pregnancy harassment allegation, and therefore, arbitration of that cause of action and related claims could not be compelled under the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (“EFAA”). (9 U.S.C.A. § 401 (West).) Defendants filed their notice of appeal on October 8, 2024.

Defendants move to stay the action until their appeal of the court’s order denying their motion to compel arbitration is perfected. Defendants claim that a stay is automatic., California Code of Civil Procedure section 1294 is preempted by the Federal Arbitration Act (“FAA”) and is thus unenforceable. Defendants also seek a discretionary stay which would promote judicial efficiency, avoid the risk of conflicting and inconsistent rulings, and will prevent prejudice to Defendants.

In opposition, Plaintiff argues that California no longer permits an automatic stay of the action pending the subject appeal. Issuance of a stay will substantially injure Plaintiff. The public interest favors a denial of the motion. All claims are related to Plaintiff’s pregnancy harassment allegation, and therefore, there is no basis for a stay.

In reply, Defendant argues that the legislation Plaintiff refers to is preempted by the FAA. The court should not enforce it as it violates the “equal treatment rule.” Judicial economy and avoiding duplicative rulings will be served by a stay.

While an order denying a petition to compel arbitration is appealable, "the perfecting of such an appeal shall not automatically stay any proceedings in the trial court during the pendency of the appeal." (Code Civ. Proc., § 1294.) Defendants argue that contrary to the EFAA, a district court must stay proceedings while an interlocutory appeal on the issue of arbitrability is ongoing. (Coinbase, Inc. v. Bielski (2023) 599 U.S. 736, 738.) Defendants argue that the same reasoning applies here to preempt section 1294.

Appealability, however, is a creature of statute, and absent any conflict between section 1294 and the policies underlying the FAA enforcing arbitration agreements, California procedural law governs. (Judge v. Nijjar Realty, Inc. (2014) 232 Cal.App.4th 619, 632.) Judge concluded that where the parties’ contract did not mandate application of federal procedural law, California courts apply state procedural law. (Judge at 631.) Here, Defendants do not cite a provision requiring the application of federal procedural law.

Coinbase does not apply since the U.S. Supreme Court interpreted and relied upon 9 U.S.C.A. § 16 (West) which “divest[ed] the district court of its control over those aspects of the case involved in the appeal." (Coinbase, at 740.) This court is bound by state procedural rules.

Defendants have not established that the “equal treatment rule” requires preemption of section 1294. The FAA “establishes an equal-treatment principle” wherein a court may “invalidate an arbitration agreement based on ‘generally applicable contract defenses,’ but not on legal rules that ‘apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue, … .” (Kindred Nursing Centers Ltd. Partnership v. Clark (2017) 581 U.S. 246, 247.) Kindred concluded that the FAA “preempted any state rule that discriminated on its face against arbitration or that covertly accomplishes the same objective by disfavoring contracts that have the defining features of arbitration agreements.” (Kindred at 247.)

Kindred involved representatives who, by virtue of their powers of attorney, signed arbitration agreements on behalf of their relatives prior to moving the relatives into a nursing home. (Kindred at 246.) At issue was the Kentucky Supreme Court’s ruling applying the “clear statement” rule that "because neither power of attorney specifically entitled the representative to enter into an arbitration agreement" the agreements requiring arbitration were invalid and not enforceable. (Id.)

The U.S. Supreme Court held that the “clear-statement rule” violated the FAA as it singled out arbitration agreements for disfavored treatment. (Kindred at 247.) The FAA thus preempted Kentucky’s rule as it discriminated “on its face” against arbitration agreements and failed to put arbitration agreements on an equal plane with other contracts.” (Kindred at 246.)

Defendants have not demonstrated how Section 1294’s provision precluding an automatic stay triggered by an appeal of an order denying a petition to arbitrate is discriminatory on its face and in violation of the equal-treatment principle. On the contrary, the statute affords Defendants the right of an immediate appeal from the order at issue.

Defendants’ argument also contravenes the purpose of the statute which is to avoid delay tactics by corporate defendants who “pause a consumer, government, or worker’s case by simply filing an appeal of a trial court’s denial of a motion to compel arbitration. Through this process, powerful corporations delay cases filed against them for typically one to three years.” (Plaintiff’s RJN Ex. D, p. 1.)[1] The statute will “level the playing field for consumers, governments, and workers who deserve to move their case forward when a company or employer violates their rights.” (Id., p. 2). Section 1294’s enactment sought to correct an imbalance previously afforded a defendant corporation, that enjoys the “luxury” of “the right to a full appeal when a court orders the case dismissed, or denies the defendant's petition to compel a case to private arbitration” that is not afforded to consumers, resulting in delay. (Id.) The risk of inconsistent judgments and promoting the policy of judicial economy were not policies on which the legislation was based. The legislature sought to correct the prejudice suffered by consumers, not employer defendants.

As articulated, a mandatory stay, is not required. Similarly, Defendants have not demonstrated a basis for the court’s exercise of its discretion to impose a stay pursuant to its “fundamental inherent equity” and power to control its processes given the clear import of section 1294 as supported by its stated purpose. (Cottle v. Superior Court (1992) 3 Cal.App.4th 1367, 1376 [A trial court’s inherent authority is constitutionally derived.].) Accordingly, Defendant’s motion is DENIED.

[1] The court grants Plaintiff’s request for judicial notice of the Assembly Committee on Appropriations Summary to SB365. (Evid. Code, § 452(c); Kaufman & Broad Communities, Inc. v. Performance Plastering, Inc. (2005) 133 Cal.App.4th 26, 31 [permitting judicial notice of conference committee reports to determine legislative intent.].)