Judge Peter A. Hernandez, Case Number: 24STCV10164, Date: 2024-10-23 Tentative Ruling

On April 23, 2024, Plaintiff Krista Circenis (“Plaintiff”) filed a complaint against Defendant ENI-JR286, Inc. (“Defendant”) and Does 1-50 arising from Plaintiff’s employment with Defendant alleging causes of action for:

1. Gender-based Harassment, Discrimination, and Retaliation in Violation of the FEHA (Cal. Govt. Code § 12940(a), (h) and (j));

2. Failure to Prevent Harassment, Discrimination and Retaliation in Violation of the FEHA (Cal. Govt. Code § 12940(k));

On August 2, 2024, Defendant filed this Motion to Compel Arbitration. On October 10, 2024, Plaintiff filed an opposition to Defendant's motion. On October 14, 2024, Defendant filed a reply to Plaintiff’s opposition.

“On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party to the agreement refuses to arbitrate that controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that: (a) The right to compel arbitration has been waived by the petitioner; or (b) Grounds exist for rescission of the agreement.” (Code Civ. Proc., § 1281.2, subds. (a) and (b).)

The party seeking to compel arbitration bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence. (Hotels Nevada v. L.A. Pacific Center, Inc. (2006) 144 Cal.App.4th 754, 761.) The burden then shifts to the opposing party to prove by a preponderance of the evidence a defense to enforcement (e.g., fraud, unconscionability, etc.) (Ibid.) “In these summary proceedings, the trial court sits as a trier of fact, weighing all the affidavits, declarations, and other documentary evidence, as well as oral testimony received at the court’s discretion, to reach a final determination.” (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972.)

“If a court of competent jurisdiction. . . has ordered arbitration of a controversy which is an issue involved in an action or proceeding pending before a court of this State, the court in which such action or proceeding is pending shall, upon motion of a party to such action or proceeding, stay the action or proceeding until an arbitration is had in accordance with the order to arbitrate or until such earlier time as the court specifies.” (Code Civ. Proc., § 1281.4).

Defendant moves the court for orders compelling arbitration of Plaintiff’s claims and staying all further judicial proceedings in this action pending completion of arbitration.

Defendant argues that Plaintiff and Defendant entered into an arbitration agreement on November 5, 2018[1], when Plaintiff signed an arbitration agreement as part of her onboarding documents. (Motion to Compel Arbitration, at p. 2; Fix Decl., ¶ 6.) Defendant provides a copy of the signed arbitration agreement. (Fix Decl., Exh. A.) The arbitration agreement provides, in relevant part, as follows:

ENI-JR286, Inc. (referred to below as "the Company"), encourages open communication, but we recognize that disputes or disagreements may arise in any employment relationship that may not be capable of informal resolution. Accordingly, both the Company and you voluntarily agree that any claim, dispute, or controversy arising out of or relating to your employment with the Company or the separation of that employment shall be submitted to final and binding arbitration in accordance with the terms of this Mutual Agreement to Arbitrate Disputes.

You and the Company agree that this agreement to arbitrate and any arbitration under this agreement shall be governed by the Federal Arbitration Act ("FAA") and California Code of Civil Procedure sections 1280, et seq. (including without limitation section 1283.05 and its mandatory and permissive rights to discovery). The arbitration process shall be administered by JAMS pursuant to its Employment Arbitration Rules & Procedures in effect at the time the dispute is submitted. The JAMS Rules are available from Human Resources and may also be obtained online free of charge at http://www.jamsadr.com/rules-employment-arbitration/. The arbitration proceedings will be held before a single, neutral arbitrator in the State of California in the County in which you provide services for the Company. The fees of the arbitrator and all other costs that are unique to the arbitration process shall be paid by the Company to the extent required by law. Otherwise, each party shall be solely responsible for paying his/her/its own costs for the arbitration, including but not limited to attorneys' fees. However, if either party prevails on a claim which affords the prevailing party attorneys' fees pursuant to law, statute, or contract, the arbitrator may award reasonable attorneys' fees to the prevailing party.

“With respect to the moving party's burden to provide evidence of the existence of an agreement to arbitrate, it is generally sufficient for that party to present a copy of the contract to the court. (See Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 218, 105 Cal.Rptr.2d 597.) Once such a document is presented to the court, the burden shifts to the party opposing the motion to compel, who may present any challenges to the enforcement of the agreement and evidence in support of those challenges. [Citation]” (Baker v. Italian Maple Holdings, LLC (2017) 13 Cal.App.5th 1152, 1160.)

As such, the court finds that Defendant has met its initial burden of proving the existence of an arbitration agreement between the parties wherein the parties agreed to arbitrate this dispute by providing Exhibit A in the Declaration of Blake Fix. The burden thus shifts to Plaintiff, who may present any challenges to the enforcement of the agreement and evidence in support of those challenges.

On August 31, 2023, Plaintiff initiated arbitration proceedings of her claims against Defendant by filing a demand for arbitration before the Judicial Arbitration and Mediation Services, Inc. (“JAMS”). (Yadidsion Decl., ¶ 3.) Plaintiff then served Defendant with a copy of the Demand for Arbitration and Statement of Claims on September 11, 2023. (Id., ¶ 4.) On December 13, 2023, JAMS issued an invoice for payment of arbitration fees. (Id., ¶ 4, Exh. B.) After multiple reminders, on March 11, 2024, JAMS issued a notice advising the parties that it had not received full payment of fees for retainer services and that if payment was not made within 30 days, JAMS would close its file. (Id., ¶ 8, Exh. E.) Defendant’s counsel was aware that payment was due to JAMS by January 13, 2024, but Defendant did not learn that the fees had not been paid until March 26, 2024, at which time Defendant immediately tendered payment. (Fix Decl., ¶ 17.) As such, on April 24, 2024, Plaintiff withdrew from arbitration pursuant to California Code of Civil Procedure section 1281.98. (Yadidsion Decl., ¶ 9.)

In opposition, Plaintiff argues that Defendant’s failure to pay the JAMS arbitration fees within 30 days of the due date constitutes a material breach of the arbitration agreement under California Code of Civil Procedure section 1281.98. (Opp., at p. 4.) Additionally, Plaintiff argues that JAMS’s acceptance of Defendant's late payment did not extend the deadline or cure Defendant's material breach. (Id., at p. 7.)

In its moving papers and reply, Defendant contends that Defendant’s delay of payment of the arbitration fees was reasonable and excusable under Section 473(b). (Motion to Compel Arbitration, at pp. 14-15; Reply, at pp. 3-4.)

California Code of Civil Procedure section 1281.97 provides that “[i]n an employment or consumer arbitration that requires . . . the drafting party to pay certain fees and costs before the arbitration can proceed, if 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 Section 1281.2.” (Code Civ. Proc., § 1281.97(a)(1) [emphasis added].) “If the drafting party materially breaches the arbitration agreement and is in default under subdivision (a), the employee or consumer may . . . [w]ithdraw the claim from arbitration and proceed in a court of appropriate jurisdiction.” (Id., subd. (b).) The same applies to fees assessed during the pendency of an arbitration. (Id., § 1281.98.)

The statute is applied strictly, and a court may not consider any other factors or mitigating circumstances. (Espinoza v. Superior Court (2022) 83 Cal.App.5th 761, 775-76; DeLeon v. Juanita Foods (2022) 85 Cal.App.5th 740, 749.) A drafting party is in breach of the arbitration agreement simply if it does not pay the requisite fees within thirty days.

As such, the court finds that Defendant’s failure to pay the requisite fees by the due date of January 13, 2024, constitutes a material breach of the arbitration agreement between the parties as Defendant was required to pay arbitration fees and costs. Defendant’s argument that its delay in payment was reasonable and excusable cannot be considered to determine whether a material breach occurred under California Code of Civil Procedure sections 1281.97 and 1281.98.

Defendant argues that the California Court of Appeals in Hernandez v. Sohnen Enterprises, Inc. (2024) 102 Cal.App.5th 222 (“Hernandez”) held that where the FAA governs an arbitration agreement, the FAA preempts California Code of Civil Procedure section 1281.97 and its corresponding findings of material breach and waiver of arbitration. (Motion to Compel Arbitration, at p. 5.) As such, Defendant contends that because Plaintiff withdrew from arbitration pursuant to Section 1281.97, now preempted by the FAA, a return to arbitration is appropriate. (Ibid.)

In opposition and in response, Plaintiff argues that Hernandez considered the fact that the arbitration agreement at issue explicitly indicated the FAA as the only law governing the agreement, as such, the failure to pay arbitration fees did not rise to a material breach in that case. (Opp., at p. 8.) Plaintiff contends that the current case is different from Hernandez since the arbitration agreement at issue here specifically submits to California Code of Civil Procedure section 1280 as it provides that:

Thus, Plaintiff argues that the FAA does not preempt California’s definition of failure to pay arbitration fees as a material breach, constituting waiver. (Ibid.) In reply, Defendant argues that the parties selected procedure under both the FAA and CAA which would render the arbitration agreement within the scope of the FAA and the Hernandez preemption rule would apply. (Reply, at p. 2.)

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. (Hernandez, supra, 102 Cal.App.5th at p. 230.) The Court held that the arbitration agreement was governed by the FAA, both substantively and procedurally, rather than by California’s arbitration laws. (Id., at p. 238.) 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. (Ibid. [“When an agreement falls within the scope of the FAA and the parties have not expressly elected California law, we hold the FAA preempts the portion of section 1281.97 that requires findings of material breach and a waiver of the right to arbitrate as a matter of contract law.”]) 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 was no provision explicitly referring to California law in the agreement. (Id. at p. 242.)

Here, however, the parties selected to be governed by both the FAA and California Code of Civil Procedure sections 1280, et seq. While conceivably the agreement “falls” within the scope of the FAA, Hernandez is distinguishable in this case because the parties here have expressly elected California law, thereby finding that section 1281.97 applies. Moreover, after Hernandez, another Court concluded the FAA does not preempt section 1281.98. (Keeton v. Tesla, Inc. (2024) 103 Cal.App.5th 26, 41.) Such expression of consent to California law forms the basis for Plaintiff’s withdrawal from arbitration after Defendant failed to submit timely payment to JAMS.[2]

As such, Defendant waived its right to arbitrate by failing to pay arbitration fees in a timely manner because Section 1281.97 is explicitly applicable to this arbitration agreement sought to be enforced.

[1] Defendant’s motion states that “on November 5, 2018, Plaintiff willingly and voluntarily executed the Agreement.” (Motion to Compel Arbitration, at p. 2.) However, the copy of the arbitration agreement attached as Exhibit A to the Declaration of Blake Fix has September 5, 2018 as the date the arbitration agreement was executed. This was Plaintiff’s hiring date with Defendant.

[2] Defendant does not dispute it failed to pay its filling fees in a timely manner.