Judge: Peter A. Hernandez, Case: 23STCV17135, Date: 2025-01-03 Tentative Ruling

Case Number: 23STCV17135    Hearing Date: January 3, 2025    Dept: 34

Plaintiff Finn Weaver’s Motion To Vacate Order Submitting Action To Arbitration is GRANTED.

Background

            On July 21, 2023, Plaintiff Finn Weaver (“Plaintiff”) filed a complaint against Defendants Kaiser Foundation Hospitals, Kaiser Foundation Health Plan, Inc. and Southern California Permanente Medical Group (“Defendants”) on a cause of action for medical malpractice.

On August 4, 2023, the court appointed Benjamin Weaver as the guardian ad litem for Plaintiff, who is a minor.

On October 4, 2023, Defendants filed an answer to Plaintiff’s complaint.

On December 20, 2023, the court granted Defendants’ Motion to Compel Arbitration.

On October 23, 2024, Plaintiff filed this Motion to Vacate the Order Submitting this Action to Arbitration. On December 19, 2024, Defendants filed an opposition. On December 26, 2024, Plaintiff filed a reply.

Legal Standard

            “Sections 1281.97 and 1281.98 each prescribe procedures for payment and remedies for nonpayment of arbitration fees and costs by the drafting party, i.e., the company or business that included a predispute arbitration provision in a contract with a consumer or employee.” (Williams v. West Coast Hospitals, Inc. (2022) 86 Cal.App.5th 1054, 1065.) “Both sections provide that a drafting party who fails in its obligation to pay fees and costs required to initiate or continue the arbitration within 30 days after the due date 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.” (Id., at p. 1066.) “Consequently, even where an arbitration has commenced, the employee or consumer may unilaterally elect[,] among other alternatives, to [w]ithdraw the claim from arbitration and proceed in a court or appropriate jurisdiction.” (Ibid., emphasis in original.) “If the consumer elects to proceed in court to commence or resume litigation, the consumer must . . . seek vacatur of a prior order compelling arbitration and staying the litigation.” (Ibid.) 

            “After an employee or consumer meets the filing requirements necessary to initiate an arbitration, the arbitration provider shall immediately provide an invoice for any fees and costs required before the arbitration can proceed 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.” (Code Civ. Proc. § 1281.97(a)(2).) “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 the required fees or costs, the arbitration provider shall issue all invoices to the parties as due upon receipt.” (Code Civ. Proc. § 1281.97(a)(2).) California Code of Civil Procedure section 1281.97 contains no exceptions for a party’s delay to timely pay fees and “requires strict enforcement.” (Espinoza v. Superior Court (2022) 83 Cal.App.5th 761, 775.)

Discussion

Evidentiary Objections

            Defendants’ evidentiary objections to Plaintiff’s evidence supporting this motion are overruled.

Merits

            Plaintiff moves to vacate this court’s order compelling arbitration pursuant to California Code of Civil Procedure section 1281.97 on the grounds that Defendants failed to the pay the arbitrator’s invoices within 30 days. (Motion, at p. 2.) Plaintiff contends that on July 2, 2024, Judicate West sent an invoice to Defendants for $9,670.00 to initiate arbitration of this matter. (Raven Decl., ¶ 8, Exh. 3.) Subsequently, Plaintiff received a billing statement from Judicate West on October 21, 2024, showing that Defendants did not pay the July 2, 2024 invoice until August 9, 2024. (Id., ¶ 9, Exh. 4.) As such, Plaintiff argues that as section 1281.97 requires that the initial arbitration fee be paid within 30 days or defendant waives the right to arbitrate, Defendants payment to Judicate West seven days after the due date constitutes a waiver of their right to arbitrate. (Motion, at p. 12.)

            In opposition, Defendants argue that section 1281.97 is preempted by the Federal Arbitration Act (“FAA”) relying on Hernandez v. Sohnen Enterprise (2024) 102 Cal.App.5th 222 (“Hernandez”). (Opp., at p. 2.)

            In reply, Plaintiff argues that Defendants fail to produce any evidence showing a timely payment of the arbitration fees. (Reply, at p. 2.) Additionally, Plaintiff contends that in ordering this action to arbitration, this court did not rely on the FAA nor did Defendants rely on the FAA to support their petition to compel arbitration. (Id., at pp. 2-3.) Plaintiff also argues that Defendants continued to rely on California law to disqualify the selection of an arbitrator using Code of Civil Procedure section 1281.91(b)(1). (Ibid.) Plaintiff also notes that page 80 of the arbitration agreement between the parties state that arbitration shall be governed by the California Code of Civil Procedure. (Id., at p. 4.) Plaintiff contends that Defendants also failed to provide evidence that the FAA applies over this matter in their opposition. (Ibid.)

            The court relies upon Hernandez for its persuasive authority. (Cal. Rules of Court, rule 8.1115.)  

            In Hernandez, an employer did not pay arbitration costs within 30 days of the due date and the employee filed a motion to withdraw from arbitration and litigate in state court as permitted under Code of Civil Procedure section 1281.97. The Court held that the arbitration agreement was governed by the FAA, both substantively and procedurally, rather than by California’s arbitration laws. Further, the Court held that when an agreement falls within the scope of the FAA and does not expressly adopt California arbitration laws, the FAA preempts the provisions of section 1281.97 that mandate findings of breach and waiver. As the Court reasoned, because the arbitration agreement states, “this agreement is governed by the FAA,” the statement is broad and encompasses both the procedural and substantive provisions of the FAA. (Id., at p. 241.) Further, there is no provision explicitly referring to California law in the agreement. (Id., at p. 242.) The parties selected the procedural provisions of the FAA, and therefore, the procedures of the California Arbitration Act, including section 1281.97, do not apply. (Ibid.)  

            Here, however, after reviewing the arbitration agreement between the parties it is clear that it selected to be governed by both FAA and, most importantly, the California Code of Civil Procedure, which is the basis of Plaintiff’s withdrawal from arbitration after Defendants failed to submit timely payment to Judicate West. Specifically, the Arbitration Agreement, itself, provides that “[a]rbitrations shall be governed by this ‘Binding Arbitration’ section, Section 2 of the Federal Arbitration, and the California Code of Civil Procedure provisions relating to arbitrations that are in effect at the time the statute is applied[.]” (See Motion to Compel Arbitration, Declaration of Svetlana Sarah Fertel, Exh. A. at pp. 80-81 [emphasis added].) Moreover, Defendants do not dispute that they failed to pay its filling fees in a timely manner.

            Additionally, Hernandez explicitly held that “[e]ven if [the Court] were to conclude that section 1281.97 applies, however, [the Court] would still reverse, because when an agreement falls within the scope of the FAA and does not expressly adopt California arbitration laws, the FAA preempts the provisions of section 1281.97 that mandate findings of breach and waiver.” (Hernandez, supra, 102 Cal.App.5th, 296.) In other words, since the parties here explicitly adopted California Code of Civil Procedure, the FAA cannot preempt the provisions of section 1281.97 that mandate findings of breach and waiver.

            The court finds that Defendants’ failure to pay the requisite fees by the due date of August 2, 2024, constitutes a material breach of the arbitration agreement between the parties. As such, Defendants waived their right to arbitrate by failing to pay arbitration fees in a timely manner as section 1281.97 is explicitly applicable to this arbitration agreement.

Conclusion

Plaintiff Finn Weaver’s Motion To Vacate Order Submitting Action To Arbitration is GRANTED.