Judge: Robert B. Broadbelt, Case: 21STCV26090, Date: 2023-01-18 Tentative Ruling

Case Number: 21STCV26090    Hearing Date: January 18, 2023    Dept: 53

Superior Court of California

County of Los Angeles – Central District

Department 53

MOVING PARTIES:             Plaintiffs Luciano Gauna and Sylvia Castillo Gauna

RESPONDING PARTIES:     Defendants Ford Motor Company and NGP Motors, Inc., dba Sunrise Ford North Hollywood        

(1)   Motion to Withdraw from Arbitration, Lift Stay, and Proceed in Court

(2)   Motion to Lift Stay of Action

The court considered the moving, opposition, and reply papers filed in connection with each motion.

BACKGROUND

Plaintiffs Luciano Gauna and Sylvia Gauna (“Plaintiffs”) filed this lemon law action on July 15, 2021, alleging four causes of action for (1) violation of Song-Beverly Act—breach of express warranty, (2) violation of Song-Beverly Act—breach of implied warranty, (3) violation of Song-Beverly Act—section 1793.2, and (4) negligent repair.

On June 13, 2022, the court granted in part the motion to compel arbitration filed by defendants Ford Motor Company and NGP Motors, Inc. dba Sunrise Ford Motor North Hollywood (“Defendants”), and ordered (1) Plaintiffs and defendant Ford Motor Company to arbitrate the claims alleged in Plaintiffs’ Complaint, and (2) this action is stayed until arbitration is completed.

Now pending before the court are the following two motions filed by Plaintiffs: (1) Motion to Withdraw from Arbitration, Lift Stay, and Proceed in Court, filed on November 29, 2022, and (2) Motion to Lift Stay of Action for Arbitration, filed on November 17, 2022.

MOTION TO WITHDRAW FROM ARBITRATION, LIFT STAY, AND PROCEED IN COURT

Plaintiffs move the court for an order (1) lifting the stay in this action, and (2) permitting Plaintiffs to withdraw from arbitration and proceed in court pursuant to Code of Civil Procedure sections 1281.97 and 1281.98.

Code of Civil Procedure “[s]ections 1281.97 and 1281.98 ‘largely parallel’ each other.  [Citation.]  Whereas section 1281.97 concerns a failure to timely pay ‘the fees or costs to initiate’ an arbitration proceeding [citation], section 1281.98 concerns a failure to timely pay ‘the fees or costs required to continue’ an arbitration proceeding [citation].”  (De Leon v. Juanita’s Foods (2022) 85 Cal.App.5th 740, 750 [internal citations omitted].)

Section 1281.97 provides that “[i]n an employment or consumer arbitration that requires, either expressly or through application of state or federal law or the rules of the arbitration provider, 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 [Code of Civil Procedure] Section 1281.2.”  (Code Civ. Proc., § 1281.97, subd. (a)(1).)  If the drafting party materially breaches the arbitration agreement and is in default under section 1281.97, subdivision (a), the employee or consumer may either (1) withdraw the claim from arbitration and proceed in a court of appropriate jurisdiction, or (2) compel arbitration in which the drafting party shall pay reasonable attorney’s fees and costs related to the arbitration.  (Code Civ. Proc., § 1281.97, subd. (b).) 

Similarly, in an employment or consumer arbitration that requires the drafting party to pay certain fees and costs during the pendency of an arbitration proceeding, if the fees or costs required to continue the arbitration 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, subd. (a)(1).)  If the drafting party materially breaches the arbitration agreement and is in default under section 1281.98, subdivision (a), the employee or consumer may elect to, inter alia, withdraw the claim from arbitration and proceed in a court of appropriate jurisdiction.  (Code Civ. Proc., § 1281.98, subd. (b)(1).)

The court finds that Plaintiffs have established that Defendants materially breached the arbitration agreement and are in default under section 1281.98, and therefore grants Plaintiffs’ motion. 

Plaintiffs filed and served on Defendants their demand for arbitration with the American Arbitration Association ( “AAA”) on August 31, 2022.  (Inscore Decl., ¶ 4; Dizon Decl., ¶ 10.)  By letter dated September 20, 2022, the AAA stated that, under the Consumer Arbitration Rules, the consumer pays a filing fee of $200, and the business pays a filing fee of $300.  (Inscore Decl., Ex. 3, p. 2.)  AAA then requested the business “to submit filing fees of $300 and the arbitrator’s compensation deposit of $2,500 totaling $2,800.”  (Ibid.)  On October 3, 2022, AAA informed the parties, by letter, that the business “ha[d] paid $300.”  (Inscore Decl., Ex. 4, p. 2.) 

On October 25, 2022, AAA served another letter on the parties, stating that the (1) case management fee of $1,400 and (2) arbitration compensation deposit of $2,500 “are now due from the business per the Costs of Arbitration provision of the Consumer Arbitration Rules.”  (Inscore Decl., Ex. 5, p. 2.)  Payment was due upon receipt of the letter.  (Ibid.)  AAA further advised the parties that, if the business did not pay the required fees for arbitration by November 28, 2022, AAA would “seek direction from the Consumer regarding their options” pursuant to section 1281.98.  (Ibid.)

Plaintiffs present evidence establishing that (1) Defendants did not pay the requested case management fee and arbitrator’s compensation deposit by November 28, 2022, and (2) the AAA closed the parties’ case as of December 7, 2022.  (Supp. Inscore Decl., Ex. 7, p. 2 [December 2, 2022 email confirming that AAA “has not received payment for the Case Management Fee and arbitrator compensation deposit requested and invoiced in our letter dated October 25, 2022”]; Supp. Insocre Decl., Ex. 8.)  Defendants do not appear to dispute that they did not pay the case management fee and arbitrator compensation deposit requested by AAA in its October 25, 2022 letter.  (Dizon Decl., Ex. P.)  Instead, Defendants argue that section 1281.97 is inapplicable because they paid the initial filing fee of $300 on September 29, 2022.  (Dizon Decl., ¶ 11; Dizon Decl., Ex. F.)  The court notes that Defendants’ position does appear to be supported by AAA’s October 3, 2022 letter, which states that “the filing requirements have been met.”  (Inscore Decl., Ex. 4, p. 1.)  The court also notes that Plaintiffs contend that the case management fee and arbitrator compensation deposit may fairly be construed as fees required to initiate an arbitration proceeding, since AAA stated that it would “not schedule a Preliminary Hearing until payment [was] received.”  (Dizon Decl., Ex. I, p. 2.) 

Although the parties present arguments concerning the applicability of section 1281.97, the court finds that there is no genuine dispute as to the applicability of section 1281.98, which governs a company’s “failure to timely pay ‘the fees or costs required to continue’ an arbitration proceeding [citation].”  (De Leon, supra, 85 Cal.App.5th at p. 750.)  Defendants do not present evidence disputing that (1) the $1,400 case management fee and arbitrator’s compensation deposit of $2,500 were invoiced for and payable upon receipt of the AAA’s October 25, 2022 letter, and (2) Defendants did not pay the case management fee and arbitrator’s compensation deposit within 30 days after the October 25, 2022 due date. 

Upon consideration of the evidence and arguments presented by the parties, the court finds that (1) Defendants failed to pay the fees and costs necessary to continue the arbitration proceeding that they were required to pay as drafting parties, and therefore (2) Defendants are in material breach of the arbitration agreement, are in default of the arbitration, and have waived their right to compel Plaintiffs to proceed with arbitration as a result of the material breach.  (Code Civ. Proc., § 1281.98, subd. (a)(1).)  Plaintiffs are entitled to withdraw their claims from arbitration and to proceed in court.  (Code Civ. Proc., § 1281.98, subd. (b)(1).)

MOTION TO LIFT STAY OF ACTION FOR ARBITRATION

Plaintiffs separately move the court for an order lifting the stay of this action and permitting Plaintiffs to proceed in court on the grounds that the AAA has a financial interest in this action and is prohibited from proceeding with the arbitration of Plaintiffs’ claims.  (Notice of Motion, p. 2:4-8.)

As set forth above, the court has granted Plaintiffs’ motion to withdraw from arbitration, lift stay, and proceed in court pursuant to Code of Civil Procedure section 1281.97.  The court has already granted Plaintiffs the relief requested in this motion, and therefore denies the instant motion as moot.

ORDER

            The court grants plaintiffs Luciano Gauna and Sylvia Castillo Gauna’s motion to withdraw from arbitration, lift stay, and proceed in court.

The court orders that the June 13, 2022 order compelling plaintiffs Luciano Gauna and Sylvia Castillo Gauna and defendant Ford Motor Company to arbitrate the claims alleged in Plaintiffs’ Complaint is vacated.

The court orders that plaintiffs Luciano Gauna and Sylvia Castillo Gauna are permitted to withdraw their claims from arbitration and to proceed in court.  (Code Civ. Proc., § 1281.98, subd. (b)(1).)

The court orders that the stay of this action pursuant to the court’s June 9, 2022 order is lifted.   

The court denies plaintiffs Luciano Gauna and Sylvia Castillo Gauna’s motion to lift stay of action for arbitration as moot.

The court sets a Case Management Conference in this action on _______________, 2023, at 8:30 a.m.

The court vacates (1) the Order to Show Cause re completion of arbitration, and (2) the Case Management Conference re remaining cause of action, which are set for hearing on February 2, 2023. 

The court orders plaintiffs Luciano Gauna and Sylvia Castillo Gauna to give notice of this ruling.

IT IS SO ORDERED.

DATED:  January 18, 2023

_____________________________

Robert B. Broadbelt III

Judge of the Superior Court