Judge Robert B. Broadbelt, Case Number: 23STCV00392, Date: 2024-04-18 Tentative Ruling

Judge: Robert B. Broadbelt, Case: 23STCV00392, Date: 2024-04-18 Tentative Ruling

Tentative rulings are sometimes, but not always, posted. The purpose of posting a tentative ruling is to to help focus the argument. The posting of a tentative ruling is not an invitation for the filing of additional papers shortly before the hearing.

RESPONDING PARTIES: (1) Defendants Calstar Motors Inc., Mercedes-Benz Financial Services, and Daimler Trust, and (2) Defendant Mercedes-Benz USA, LLC

The court considered the moving and reply papers filed in connection with this motion.

The court did not consider the opposition papers filed by defendants Calstar Motors Inc., Mercedes-Benz Financial Services, and Daimler Trust because those papers were not served on plaintiffs Steven Trinh and Linda Trinh within the time required by Code of Civil Procedure sections 1005 and 1013. (Opp., p. 6 [proof of service establishing service by mail on April 5, 2024]; Code Civ. Proc., §§ 1005, subds. (b) [opposing papers shall be filed and served at least nine court days before the hearing on the motion], (c), 1013 [any period of notice in the case of service by mail shall be extended by five calendar days]; Reply, p. 2:1-17 [objecting to service].)

The court considered the opposition papers filed by defendant Mercedes-Benz USA, LLC.

Plaintiffs Steven Trinh and Linda Trinh (“Plaintiffs”) move the court for an order (1) permitting Plaintiffs to withdraw from arbitration, and (2) awarding Plaintiffs reasonable fees and costs. Plaintiffs move for this relief on the ground that defendants Mercedes-Benz USA, LLC (“Mercedes”), CalStar Motors Inc., Mercedes-Benz Financial Services USA LLC, Daimler Trust, and Lithia Motors, Inc., d/b/a Mercedes-Benz of Los Angeles (collectively, “Defendants”) have waived their right to participate in arbitration pursuant to (1) Code of Civil Procedure sections 1281.97 and 1281.98, (2) federal law, (3) the JAMS rules, and (4) Civil Code sections 1657 and 1657.1.

On August 17, 2023, the court issued a minute order stating that counsel for the parties represented “that the parties have submitted the issues of arbitrability of Plaintiffs’ claims to arbitration at JAMS.” (Aug. 17, 2023 Minute Order, p. 1.) In support of their motion, Plaintiffs have submitted evidence showing that (1) on June 23, 2023, Plaintiffs submitted the JAMS form necessary to commence arbitration in this action, seeking “arbitration of arbitrability per the terms of the arbitration clause[;]” (2) after Plaintiffs served their demand for arbitration, the parties selected an arbitrator from a panel of neutrals provided by JAMS; (3) JAMS confirmed that the parties had selected an arbitrator; and (4) JAMS issued an invoice dated August 18, 2023 to defendants Calstar Motors, Inc., Mercedes-Benz Financial Services USA LLC, and Daimler Trust, in the amount of $9,000, which was “due upon receipt.” (Parnell Decl., ¶¶ 79, 84, 87; Parnell Decl., Ex. 4, JAMS Demand for Arbitration, p. 2, ¶ 4; Parnell Decl., Ex. 5 [JAMS Aug. 18, 2023 Invoice].) Thereafter, on September 29, 2023, JAMS issued a notice to all of the parties involved in the arbitration (1) stating that JAMS had not received the $9,000 necessary to proceed with arbitration from the respondents and (2) placing the matter on an administrative stay, to be lifted upon receipt of the full payment. (Parnell Decl., Ex. 5.)

First, the court finds that Plaintiffs have not shown that they may withdraw from arbitration under Code of Civil Procedure sections 1281.97 and 1281.98.

“Perceiving that a ‘company’s failure to pay the fees of an arbitration provider’ as required by an arbitration agreement or applicable law ‘hinders the efficient resolution of disputes and contravenes public policy,’ in 2019 the California Legislature passed Senate Bill No. 707 and added sections 1281.97 and 1281.98 to the California Arbitration Act (CAA) (§ 1280 et seq.).” (De Leon v. Juanita’s Foods (2022) 85 Cal.App.5th 740, 750 [internal citations and internal footnote omitted].) “Whereas section 1281.97 concerns a failure to timely pay ‘the fees or costs to initiate’ an arbitration proceeding (§ 1281.97, subd. (a)(1), italics added), section 1281.98 concerns a failure to timely pay ‘the fees or costs required to continue’ an arbitration proceeding (§ 1281.98, subd. (a)(1), italics added).” (Ibid.)

Here, the arbitration agreement relied on by the parties, set forth in the “Retail Installment Sale Contract – Simple Finance Charge (with Arbitration Provision)” (the “RISC”) executed by and between plaintiff Steven Trinh and defendant Calstar Motors Inc., states that “[a]ny arbitration under this Arbitration Provision shall be governed by the Federal Arbitration Act (9 U.S.C. § 1 et seq.) and not by any state law concerning arbitration.” (Parnell Decl., Ex. 2, RISC, p. 5.) Ordinarily, California procedural statutes governing arbitration (i.e., the California Arbitration Act (Code Civ. Proc., § 1280, et seq.) “apply by default because Congress intended the comparable FAA sections [citations] to apply in federal court.” (Victrola 89, LLC v. Jaman Properties 8 LLC (2020) 46 Cal.App.5th 337, 345.) However, parties are permitted to expressly designate that arbitration proceedings should move forward under the Federal Arbitration Act’s procedural provisions rather than state procedural law. (Ibid.; Cronus Investments, Inc. v. Concierge Services (2005) 35 Cal.4th 376, 394 [Supreme Court’s opinion “does not preclude parties to an arbitration agreement to expressly designate that any arbitration proceeding should move forward under the FAA’s procedural provisions rather than under state procedural law”] [emphasis in original].)

The court finds that the language in the RISC’s Arbitration Provision, in stating both that any arbitration thereunder shall be governed by the Federal Arbitration Act and not by any state law concerning arbitration, shows that the parties intended to “adopt[] the FAA—all of it—to govern their arbitration[,]” such that the procedural rules of the Federal Arbitration Act apply here. (Rodriguez v. American Technologies, Inc. (2006) 136 Cal.App.4th 1110, 1122.) Thus, the court finds that (1) the parties expressly agreed to incorporate the Federal Arbitration Act's procedural provisions in place of California law, and (2) therefore the California Arbitration Act, including Code of Civil Procedure sections 1281.97 and 1281.98, do not apply to the arbitration proceedings involving the parties in this action. (Parnell Decl., Ex. 2, RISC, p. 5; Rodriguez, supra, 136 Cal.App.4th at pp. 1121-1122; Code Civ. Proc., §§ 1281.97, 1281.98.)

Second, the court acknowledges, as Plaintiffs point out, that sections 1281.97 and 1281.98 are not preempted by the Federal Arbitration Act. (Suarez v. Superior Court of San Diego County (2024) 99 Cal.App.5th 32, 42-43 [court followed other cases “to conclude that section 1281.97 neither prohibits nor discourages the formation of arbitration agreements” and that that “rule of procedure for the conduct of the arbitration proceeding is not preempted by the FAA”]; Gallo v. Wood Ranch USA, Inc. (2022) 81 Cal.App.5th 621, 641 [“the FAA does not preempt sections 1281.97 and 1281.99”].) However, the issue presented by Plaintiffs’ motion does not concern preemption by the Federal Arbitration Act, and instead concerns whether the procedural provisions of the California Arbitration Act (including those statutes) are applicable. As set forth above, the court has concluded that the parties’ arbitration agreement adopted the procedural provisions of the Federal Arbitration Act, rendering sections 1281.97 and 1281.98 inapplicable to this motion.

Third, the court finds that Plaintiffs have not shown that they may withdraw from arbitration pursuant to federal law.

Plaintiffs rely on Sink v. Aden Enterprises, Inc. (2003) 352 F.3d 1197, 1201, in which the Ninth Circuit held “that a party to an arbitration agreement may not compel arbitration of claims under FAA § 4 where a prior default in arbitration of those claims precludes that party from obtaining a stay of litigation pending arbitration under § 3.” In so holding, the Ninth Circuit found that the employer’s “failure to pay required costs of arbitration was a material breach of its obligations in connection with the arbitration.” (Id. at p. 1201.)

The court recognizes that, under federal law, the failure to timely pay arbitration costs may be considered a material breach of the parties’ arbitration agreement. (Sink, supra, 352 F.3d at p. 1201.) However, Plaintiffs have not shown that Defendants did not make a timely payment to JAMS. As set forth above, the August 18, 2023 invoice issued by JAMS stated that payment of the $9,000 was “due upon receipt.”[1] (Parnell Decl., Ex. 5.) However, the invoice did not set forth an express deadline by which payment was to be received by JAMS. (Ibid.) Thereafter, JAMS sent its “Notice of Administrative Stay” to all the parties to the arbitration, which advised them that (1) the $9,000 payment had not been received, and (2) JAMS would close its file on the matter if it did not receive the outstanding amount by October 30, 2023. (Parnell Decl., Ex. 6.)

Thus, the first express deadline by which Defendants were required to make the $9,000 payment to JAMS was the date of October 30, 2023. (Parnell Decl., Ex. 6.) Defendant Mercedes has submitted evidence in support of its opposition establishing that Defendants paid the arbitration fees on October 13, 2023, and October 27, 2023, before this deadline. (Aliviado Decl., ¶ 31.) The court therefore finds that defendant Mercedes has shown that Defendants are not in material breach of the arbitration agreement.

Even if the court were to find that Defendants breached the arbitration agreement by failing to pay the arbitration fees upon receipt of the August 18, 2023 invoice, the court would exercise its discretion to deny Plaintiffs’ motion because (1) Plaintiffs did not demonstrate undue prejudice by the short delay in Defendants’ failure to make a timely payment, and (2) Mercedes has introduced evidence explaining that the delay in payment was caused by the resulting confusion among counsel for Defendants as to which defendant was to pay the arbitration fees since the August 18, 2023 invoice was addressed solely to counsel for defendants Calstar Motors, Inc., Mercedes-Benz Financial Services USA LLC, and Daimler Trust.[2] (Aliviado Decl., ¶¶ 25, 27, 30.)

Fourth, the court finds that Plaintiffs have not shown that they may withdraw from arbitration pursuant to the JAMS rules. Rule 6, subdivision (c) of “JAMS Streamlined Arbitration Rules & Procedures” states, in relevant part, the following: “If, at any time, any Party has failed to pay fees or expenses in full, JAMS may order the suspension or termination of the proceedings.” (Parnell Decl., Ex. 7, p. 4, § Rule 6, subd. (c).) The plain language of this rule permits only JAMS – and not Plaintiffs – to suspend or terminate arbitration proceedings based on a party’s failure to timely pay all arbitration fees. (Ibid.) Thus, Plaintiffs have not shown that this rule allows them to unilaterally terminate arbitration.

Finally, the court finds that Plaintiffs have not shown that they may withdraw from arbitration pursuant to Civil Code sections 1657 and 1657.1. Under these statutes, the time for performance in a contract of adhesion shall be reasonable (Civ. Code, § 1657.1), and the time for performance in a contract that does not specify the time for performance may also be reasonable, except “[i]f the act is in its nature capable of being done instantly—as, for example, if it consists in the payment of money only—it must be performed immediately upon the thing to be done being exactly ascertained” (Civ. Code, § 1657). Plaintiffs have not cited any authority establishing that any failure on the part of Defendants to pay the required arbitration fees in accordance with these statutes entitles Plaintiffs to withdraw from arbitration and proceed in court, particularly where Defendants have since performed within a reasonable time. (Aliviado Decl., ¶ 30.)

Thus, for the reasons set forth above, the court finds that Plaintiffs have not shown that they may elect to unilaterally terminate and withdraw from arbitration, proceed in court, and obtain an award for fees and costs against Defendants based on their failure to pay all required arbitration fees upon receipt of the August 18, 2023 invoice. The court therefore denies Plaintiffs’ motion.

The court denies plaintiffs Steven Trinh and Linda Trinh’s motion to withdraw from arbitration and proceed in court.

The court orders defendant Mercedes-Benz USA, LLC to give notice of this ruling.

[1] The court notes that Plaintiffs appear to acknowledge this, stating in their moving papers that (1) “JAMS rules do not articulate when parties must pay arbitration costs,” and (2) the “JAMS rules do not include a deadline by which costs must be paid.” (Mot., p. 11:2-3, 11:7-8.)

[2] The court notes that, while motions brought under sections 1281.97 and 1281.98 do not permit a court to exercise its discretion to consider factors such as prejudice or delay caused by the late payment of arbitration fees, the federal cases cited by Plaintiffs do not appear to limit the court’s discretion in that manner. (De Leon, supra, 85 Cal.App.5th at pp. 754-755.)

steven trinh , et al.; Plaintiffs, vs. MERCEDES-BENZ USA, LLC, et al.; Defendants.	Case No.:	23STCV00392

	Hearing Date:	April 18, 2024

	Time:	10:00 a.m.

	[Tentative] Order RE: plaintiffs’ motion to withdraw from arbitration and proceed in court