Judge Michelle C. Kim, Case 21STCV06700 2023-03-23 Tentative Ruling

Plaintiff, Alister Konrath (“Plaintiff”) filed this action against Defendant, Circuit Works Santa Monica, LLC (“Defendant”) for negligence, products liability, and premises liability. The complaint alleges that on January 27, 2021, Plaintiff was performing exercise related activities for his own personal use and benefit at Defendant’s fitness location center. When Plaintiff was using a metal contraption device believed to be a wall mount anchor, it became unattached to the wall and hit Plaintiff in the right eye and face.

Defendant previously moved to compel arbitration arguing that it hired Plaintiff as a trainer, and that in connection with the hiring, Plaintiff executed a Mutual Agreement to Arbitrate Claims (the “Agreement”) in which Plaintiff agreed to arbitrate all claims arising out of, related to, or connected with Plaintiff’s employment relationship with Defendant. Defendant contended that Plaintiff’s claims are for injuries Plaintiff suffered while performing exercise related activities at Defendant’s location prior to a class he was scheduled to teach, so the claims are connected to Plaintiff’s employment relationship with Defendant. On September 22, 2021, Defendant’s motion to compel arbitration was granted, and the action was stayed pending the outcome of arbitration.

On February 28, 2023, Plaintiff filed this motion to vacate the order compelling arbitration pursuant to CCP § 1281.98, et seq. because Defendant failed to pay the arbitrator’s fees within 30 days of their January 24, 2023 due date. Defendant opposes the motion, and Plaintiff filed a reply.[1]

Plaintiff provides that the Hon. Gerald Rosenberg was selected as the arbitrator by the parties, and an initiation of arbitration letter was served on the parties on April 21, 2022. On January 10, 2023, ADR Services, Inc. (“ADR”) sent an invoice in the amount of $4,000 to defense counsel, which indicated that payment was due on January 24, 2023. Plaintiff states that on January 25, 2023, ADR sent a past due notice to the parties’ counsel requesting immediate payment of the invoice. Plaintiff asserts that defense counsel did not respond and on February 9, 2023, ADR sent another past due notice. Plaintiff states that ADR then sent another past due notice on February 24, 2023, again requesting immediate payment. Plaintiff states that defense counsel responded on that date stating the invoice would be paid, but on February 28, 2023, Plaintiff followed up with ADR to confirm if the invoice had been paid and learned that as of that date, the invoice had not been paid.

Plaintiff argues that Defendant’s failure to pay the required fees within 30 days after their due date is material breach of the arbitration agreement, and that whether Plaintiff was prejudiced by Defendant’s late payment is irrelevant to vacating the arbitration order. Further, Plaintiff contends that the Federal Arbitration Act (“Act”) does not preempt CCP §§ 1281.97, 1281.98, and 1281.99. Plaintiff contends that Defendant thus has waived the right to compel Plaintiff to proceed with arbitration by failing to pay the arbitrator’s fees by February 23, 2023, which was 30 days after the January 24, 2023 payment due date for the fees.

In opposition, Defendant contends that Plaintiff’s motion should be denied for at least four reasons. First, Defendant contends that the Court must defer the issues presented in the motion, including the alleged violation of CCP § 1281.98, to the arbitrator because the parties clearly and unmistakably agreed in the Mutual Agreement to Arbitrate claims that the arbitrator has exclusive authority to decide these issues. Second, Defendant contends that Plaintiff fails to show that a fee or cost required to continue the arbitration proceeding was not paid by Defendant. Defendant argues that the arbitration continued after the due date in the January 10, 2023 invoice, so the payment requested therein was not needed to continue the arbitration proceeding. Third, Defendant argues that CCP § 1281.98 does not apply to the arbitration at issue because this personal injury action was not brought by a consumer as defined in CCP § 1280(c), nor was Plaintiff’s related arbitration characterized as an employment arbitration. Fourth, Defendant contends that Plaintiff fails to show that this Court is a court of appropriate jurisdiction in which Plaintiff may proceed with his work-related claims, as opposed to the Workers’ Compensation Appeals Board. Additionally, Defendant provides that it is current on all payment owed to ADR.

In reply, Plaintiff avers that the facts are clear that Defendant was late in paying the January 10, 2023 invoice, which indicated a payment due date of January 24, 2023, but Defendant did not pay until 37 days after the due date on March 2, 2023. Plaintiff asserts that Defendant has waived any arguments that issues of arbitrability are to be decided by the arbitrator by not raising the argument in Defendant’s motion to compel arbitration, and that the relevant provision Defendant relies on concerns issues about the enforceability of the underlying arbitration agreement only. Plaintiff contends that the legislature chose courts to decide this issue by enacting CCP § 1281.98. Further, Plaintiff argues that Defendant breached the parties’ arbitration agreement as a matter of law, and that Defendant has repeatedly argued in this action that Plaintiff’s injuries arose out of his employment. Lastly, Plaintiff contends that this Court is the court of appropriate jurisdiction, and that Defendant’s arguments regarding Plaintiff’s alleged unclean hands are irrelevant to finding Defendant violated CCP § 1281.98.

Plaintiff with the motion requests judicial notice be taken of the fact that 30 days after January 24, 2023, was February 23, 2023. Additionally, in connection with the reply, Plaintiff requests judicial notice of the fact that 37 days after January 24, 2023, is March 2, 2023. Plaintiff’s request for judicial notice as to the number of days between the above days is unnecessary but granted. (Evid. Code § 452(h).)

(1) 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.

(2) The arbitration provider shall provide an invoice for any fees and costs required for the arbitration proceeding to continue to all of the parties to the arbitration. The invoice shall be provided in its entirety, shall state the full amount owed and the date that payment is due, and shall be sent to all parties by the same means on the same day. To avoid delay, 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 due date shall be agreed upon by all parties.

If the drafting party materially breaches the arbitration agreement and is in default under subdivision (a), the employee or consumer may unilaterally elect to withdraw the claim from arbitration and proceed in a court of appropriate jurisdiction. (Id. at § 1281.98(b)(1).)

In this case, ADR sent invoice No. 22-2547-GSR-04 in the amount of $4,000 to defense counsel on January 10, 2023. (Mot. Slatkin Decl. ¶ 5, Exh. 1.) The invoice indicated that payment was due on January 24, 2023. Thirty days after January 24, 2023, was February 23, 2023. However, despite multiple past due notices, as of the filing of the motion on February 28, 2023, the January 10, 2023 invoice had not been paid. In its opposition, Defendant provides that the invoice was paid on March 2, 2023, which was 37 days after the due date of January 24, 2023. Accordingly, Defendant did not pay the January 10, 2023 invoice within 30 days after its due date.

Defendant first argues that pursuant to the delegation clause in the parties’ arbitration agreement, section 7 of the agreement, the Court must defer the issues presented in this motion to the arbitrator. In particular, Defendant contends the arbitrator must decide Plaintiff’s claim that CCP § 1281.98 was violated because such claim requires resolution of issues relating to the interpretation or enforceability of the arbitration agreement.

3. Claims Subject to Arbitration… this Agreement specifically includes (without limitation) all claims under or relating to any federal, state or local law or regulation prohibiting discrimination. harassment or retaliation based on race, color, religion. national origin, sex, sexual orientation. age, disability or any other condition or characteristic protected by law; demotion, discipline, termination or other adverse action in violation of any contract, law or public policy; and any claim for personal, emotional, physical, economic or other injury.

7. Interpretation of Arbitrability. The Arbitrator, and not any federal or state court, shall have exclusive authority to resolve any issue relating to the interpretation, formation or enforceability of this Agreement, or any issue relating to whether a Claim is subject to arbitration under this Agreement, …

As Plaintiff argues in his reply, the plain language of section 7 indicates that the parties agreed to have the arbitrator resolve all issues concerning the interpretation, formation, or enforceability of the agreement, or issues relating to whether a claim is subject to arbitration. This Court already found that Plaintiff’s claims against Defendant were subject to arbitration when it granted Defendant’s motion to compel arbitration. However, this motion does not concern any such issues relating to the interpretation, formation or enforceability of the agreement, or as to whether Plaintiff’s claims are subject to arbitration. Instead, Plaintiff is seeking to vacate the order compelling the parties to arbitration under CCP § 1281.98. This is no language in the agreement showing that the parties agreed to defer the § 1281.98 issue to the arbitrator.[2]

Defendant argues that Plaintiff fails to show that “fees or costs required to continue the arbitration proceeding” were not timely paid. (CCP § 1281.98(a)(1).) Defendant asserts that the only invoice that Plaintiff contends Defendant did not pay was the January 10, 2023 invoice for “Retainer for Future Services,” (Opp. Emanuel Decl. Exh. 15), but Defendant contends that even after the January 24, 2023 due date passed, the arbitration continued. Defendant contends that ADR scheduled an Informal Discovery Conference with Arbitrator Rosenberg, attended the Conference, and that the arbitrator issued an informal ruling. Defendant argues that these facts show that the arbitration continued after the January 24, 2023 due date. Further, Defendant contends that even after Plaintiff filed this motion, ADR confirmed that no dates in the arbitration had been taken off calendar and the arbitration was continuing.

CCP § 1281.98’s “language establishes a simple bright-line rule that a drafting party's failure to pay outstanding arbitration fees within 30 days after the due date results in its material breach of the arbitration agreement.” (De Leon v. Juanita’s Foods (2022) 85 Cal.App.5th 740, 753.) In De Leon, an employee filed an action against his former employer relating to his employment. (Id. at 745-46.) After the employer’s motion to compel arbitration was granted and arbitration proceedings were commenced, the employer failed to timely pay an invoice for the “initial retainer deposit request” within 30 days of its due date. (Id. at 747-48.) The employer argued in part that the phrase ““fees or costs required to continue the arbitration proceeding” in CCP § 1281.98 (a)(1) was ambiguous, and that because the arbitration service was willing to proceed with scheduling a management conference, such fees were not required to continue the arbitration. (Id. at 754 n. 11.) This argument was rejected because the phrase is not ambiguous. (Id.) The phrase describes those “fees and costs imposed on a drafting party ‘during the pendency of an arbitration proceeding’ required ‘either expressly or through application of state or federal law or the rules of the arbitration provider.’ ” (Id.) The employer did not dispute the due date the arbitration service provider set for the employer’s outstanding arbitration fees, nor did the employer explain what such fees were for if not for the purpose of continuing the arbitration proceeding. (Id.) Therefore, the fees were “ ‘required to continue the arbitration proceeding’ ” within the meaning of § 1281.98(a)(1), notwithstanding the arbitration service’s brief willingness to overlook the employer’s nonpayment. (Id.)

Defendant, in this case, attempts to distinguish De Leon by arguing that the retainer fee was not a fee required to continue the arbitration proceeding because ADR held a hearing, issued an order, and confirmed that no dates had been taken off calendar after the due date to pay the January 10, 2023 invoice had passed. This argument is unavailing. As articulated in De Leon, fees or costs required to continue an arbitration proceeding refers to fees and costs imposed on the drafting party- Defendant- during the pendency of the arbitration proceeding. Defendant does not dispute that the fees required to be paid by Defendant in the January 10, 2023 invoice were in fact imposed on it by ADR during the pendency of the arbitration proceeding. Furthermore, Defendant does not dispute that it failed to pay the outstanding arbitration fees by the due date set by ADR. (Id., supra.) Nor does Defendant explain what the retainer fees were for if not to continue the arbitration proceeding. If the retainer fee were not required to continue the arbitration, it is completely unclear what it was for since Defendant offers no alternative explanation for the fee. Consequently, as in De Leon, the fees required by the January 10, 2023 invoice were required to continue the arbitration proceeding, notwithstanding that ADR may have been willing to overlook Defendant’s nonpayment. (Id.)

Defendant further contends that pursuant to the parties’ arbitration agreement, Defendant was not required to pay the retainer fee. Defendant contends that it agreed to pay only fees that were actually incurred, but it did not agree to pay fees in the manner ADR billed them. Defendant does not state what provision of the agreement requires it to pay only fees that are actually incurred. Moreover, the arbitration agreement states in pertinent part, “6. Costs. The Company shall bear all fees and costs unique to the arbitration forum (e.g., filing fees, transcript fees, transcript costs and Arbitrator’s fees)…” (Opp. Emanuel Decl. Exh. 3.) As analyzed above, Defendant fails to show that the fees required to be paid by the January 10, 2023 invoice were not required by the arbitrator.

Defendant, therefore, fails to show that the relevant fees were not required to continue the arbitration proceeding within the meaning of CCP § 1281.98.

Next, Defendant avers that CCP § 1281.98 applies only to employment and consumer arbitrations, but Plaintiff does not meet the required definitions for these categories. Defendant contends that because Plaintiff was not a consumer at the time of his injuries, the arbitration is not a consumer arbitration.[3] Additionally, Defendant asserts the arbitration was never characterized as an employment arbitration as Plaintiff has consistently denied that his claims arise out of or relate to his employment with Defendant.

In reply, Plaintiff primarily argues that Defendant has consistently asserted that Plaintiff’s injuries arose out of his employment. Plaintiff asserts that this Court and ADR have concluded that Plaintiff’s claims do indeed arise out of his employment relationship with Defendant, and that Defendant cannot now argue that Plaintiff’s claims are unrelated to his employment relationship with Defendant.

CCP § 1280 states, “ ‘Employee’ means any current employee, former employee, or applicant for employment. The term includes any person who is, was, or who claims to have been misclassified as an independent contractor or otherwise improperly placed into a category other than employee or applicant for employment.” While Defendant argues that the arbitration was never characterized or categorized by ADR or Plaintiff as an employment arbitration, as Plaintiff asserts, in moving to compel arbitration, Defendant specifically argued that Plaintiff executed the arbitration agreement in connection with his hiring, and that Plaintiff’s claims against Defendant all arose out of, relate to, or are connected with Plaintiff’s employment relationship with Defendant.

Further, Plaintiff was compelled to arbitrate his claims under an employment arbitration agreement after it was determined that Plaintiff’s claims arose out of or were connected to Plaintiff’s employment relationship with Defendant. Plaintiff was thus forced to arbitrate his claims because of his employment contract with Defendant, and because his claims arose out of and were connected to the employment relationship. Defendant does not otherwise cite any authority to support its contention that the arbitration at issue is not an employment arbitration.

Accordingly, Defendant fails to show that CCP § 1281.98 does not apply to this arbitration.

f. Whether this is a Court of Appropriate Jurisdiction and Whether Plaintiff Unclean Hands

Defendant further contends that Plaintiff’s claims fall within the Workers’ Compensation exclusivity rule and are not properly brought before this Court because this Court and the arbitrator have already determined that Plaintiff’s claims arose out of, relate to, or have their roots in Plaintiff’s employment relationship with Defendant. Additionally, Defendant contends that Plaintiff has unclean hands and is precluded from relying on CCP § 1281.98 because Plaintiff is the only party guilty of causing delay in the arbitration process.

Plaintiff, in reply, asserts that his claims did not arise out of his employment with Defendant, and that Plaintiff does not have unclean hands by simply litigating this case.

Defendant fails to cite any authority showing that the motion to vacate the arbitration order must be denied because Plaintiff’s claims arise out of his employment relationship with Defendant. Defendant, at this time, does not establish that Plaintiff cannot pursue his claims against Defendant in this Court.

Furthermore, although Defendant argues that Plaintiff has unclean hands because Plaintiff has attempted to thwart the arbitration process by challenging the order compelling arbitration, Defendant does not argue or suggest that Plaintiff did anything that caused Defendant to fail to pay the January 10, 2023 invoice within 30 days of its due date. CCP § 1281.98(a)(1) is clear that “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.” (Emphasis added.) The plain language of CCP § 1281.99 thus shows that a drafting party is automatically in material breach of the arbitration agreement once that party fails to pay the arbitration fees or costs within 30 days after the due date, and Defendant in this case failed to timely pay the arbitration fees within 30 days after they were due. This section does not provide that the Court has discretion to consider any other factors in determining if a drafting party is in material breach of the arbitration agreement.[4]

Lastly, the parties dispute whether Plaintiff is entitled to sanctions for this motion. However, Plaintiff states he will be filing a separate motion for such. Therefore, the Court does not address this issue, and makes no finding regarding such, at this time.

Plaintiff’s motion to vacate the order compelling arbitration is granted. The stay in this action is lifted. The Court sets a Trial Setting Conference for _______________ in this Department. Defendant is ordered to file its answer or responsive pleading within thirty (30) days.

[1] Defendant filed two oppositions and memoranda of points and authorities on March 10, 2023. One was filed at 2:10 p.m. and the other at 6:18 p.m. The Court thus considers only the opposition filed at 6:18 p.m.

[2] Additionally, as Plaintiff points out in the reply, in moving to compel arbitration, Defendant did not ask the Court to defer the question of arbitrability to the arbitrator. Defendant asked the Court to decide the question of arbitrability and obtained a favorable result against Plaintiff. “While the parties may agree to delegate a dispute within a court's jurisdiction to an arbitrator, the contractual right to an arbitration is waivable—the parties' agreement does not of itself divest the court of jurisdiction.” (Williams v. West Coast Hospitals, Inc. (2022) 86 Cal. App. 5th 1054, 1071.)

[3] CCP § 1280 provides, “ ‘Consumer’ means an individual who seeks, uses, or acquires, by purchase or lease, any goods or services for personal, family, or household purposes.”

[4] In analyzing the similar provisions of CCP § 1281.97, the Court of Appeal in Espinoza, Espinoza v. Superior Court of Los Angeles County (2022) 83 Cal.App.5th 761, 776, held:

The language of section 1281.97 is unambiguous. It provides that the drafting party is in “material breach,” and the nondrafting party is entitled to the remedies under the statute, “if the fees or costs to initiate an arbitration proceeding are not paid within 30 days after the due date ....” (§ 1281.97, subd. (a)(1).) Under the plain language of the statute, then, the triggering event is nothing more than nonpayment of fees within the 30-day period—the statute specifies no other required findings, such as whether the nonpayment was deliberate or inadvertent, or whether the delay prejudiced the nondrafting party. The plain language therefore indicates the Legislature intended the statute to be strictly applied whenever a drafting party failed to pay by the statutory deadline.