Judge: Stephanie M. Bowick, Case: 24STCV14962, Date: 2025-02-28 Tentative Ruling

Case Number: 24STCV14962    Hearing Date: February 28, 2025    Dept: 19

TENTATIVE RULING

After consideration of the briefing filed, Defendants McGrath Kavinoky, LLP, Jennifer McGrath, and Darren Kavinoky’s Motion for Order to Stay Action Pending Appeal is DENIED WITHOUT PREJUDICE.

Counsel for Plaintiffs to give notice.

STATEMENT OF THE CASE

This is action arises out of alleged legal malpractice. Plaintiffs Jane Doe 1 and Jane Doe 2 (collectively, “Plaintiffs”) bring suit against Defendants McGrath Kavinoky, LLP (“LLP”), Jennifer McGrath (“McGrath”), and Darren Kavinoky (“Kavinoky”) (collectively, “Defendants”) alleging the following causes of action:

1.     Professional Negligence;

2.     Breach of Fiduciary Duty;

3.     Fraudulent Misrepresentation;

4.     Fraudulent Concealment;

5.     Breach of Written Contract [against LLP only];

6.     Breach of the Implied Covenant of Good Faith and Fair Dealing [against LLP only]; and

7.     Equitable Accounting.

On December 20, 2024, Defendants filed the instant Motion for Order to Stay Action Pending Appeal (the “Motion”).

GROUNDS FOR MOTION

Pursuant to the Court’s inherent authority, Defendants move for an order staying the action pending the conclusion of Defendants’ appeal of the Court’s denial of Defendants’ Petition to Compel Arbitration on the ground that a failure to stay will unduly affect Defendant LLP’s rights regardless of the outcome of the appeal. 

DISCUSSION

As the parties agree, Code of Civil Procedure section 1294, subdivision (a) provides that, while an aggrieved party may appeal from an order dismissing or denying a petition to compel arbitration, “[n]otwithstanding Section 916, the perfecting of such an appeal shall not automatically stay any proceedings in the trial court during the pendency of the appeal.” (Code Civ. Proc., § 1294(a).)

The provision that the perfecting of such an appeal shall not automatically stay any proceedings in the trial court during the pendency of the appeal was added by the Legislature in 2023, becoming effective on January 1, 2024. (CA LEGIS 710 (2023), 2023 Cal. Legis. Serv. Ch. 710 (S.B. 365).)

However, as explained by the California Supreme Court in OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111:

“[A] court ordinarily has inherent power, in its discretion, to stay proceedings when such a stay will accommodate the ends of justice.” (People v. Bell (1984) 159 Cal.App.3d 323, 329….) As the court in Landis v. North American Co. (1936) 299 U.S. 248, 254… explained, “the power to stay proceedings is incidental to the power inherent in every court to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants.”

(Id. at 141; see Freiberg v. City of Mission Viejo (1995) 33 Cal.App.4th 1484, 1489 [“Trial courts generally have the inherent power to stay proceedings in the interests of justice and to promote judicial efficiency.”]; Daly v. San Bernardino County Bd. of Supervisors (2021) 11 Cal.5th 1030, 1039 (citing Code Civ. Proc., §§ 918, 923) [“Even when the statutes do not call for an automatic stay on appeal, the trial and appellate courts both have the power to issue discretionary stays.”].)

Here, Defendants argue that a stay is warranted because (1) without a stay, if Defendants are to prevail on the appeal and the matter proceeds to arbitration, Defendants’ appellate remedy would be effectively nullified because Defendants “w¿ould have already expanded resources on defending this action in public settings and the Court would have already ruled on many essential issues in the case”; and (2) Plaintiffs would not be prejudiced by the stay. (Motion, pp. 3-4.) Defendants also argue that the policy behind the amendment to Code of Civil Procedure section 1294 does not apply here because Defendants’ appeal is meritorious. (Id. at p. 4.)

Plaintiffs argue that the Court should not stay the action, reasoning that to stay the action would prejudice Plaintiffs because it would delay their day in court, in contradiction to the policy behind the Legislature’s amendment to Code of Civil Procedure section 1294, subdivision (a) eliminating an automatic stay, whereas proceeding with the action pending the resolution of the appeal would not cause irreparable harm to Defendants. (Opposition, pp. 5-10.) Plaintiffs also argue that Defendants’ appeal lacks merit as it merely reargues what was litigated before this Court. (Id. at pp. 7-8.)

Here, based on the briefing filed, the Court finds, under the circumstances, that a stay is not warranted at this time.

The only legal authority cited by Defendants in support of their argument that a stay is warranted under the circumstances here is Coinbase, Inc. v. Bielski (2023) 599 U.S. 736. (Motion at p. 3.)

The Court finds Defendants’ reliance on Coinbase, Inc. v. Bielski (2023) 599 U.S. 736 unpersuasive. Coinbase, Inc. involved an appeal of a federal district court’s order denying a motion to compel arbitration pursuant to 9 U.S.C. § 16, subdivision (a), with the United States Supreme Court holding that a federal district court must stay its proceedings while an interlocutory appeal on the question of arbitrability is ongoing. (Id. at 738, 747.)

In reaching its conclusion, the United States Supreme Court reasoned that:

When Congress wants to authorize an interlocutory appeal and to automatically stay the district court proceedings during that appeal, Congress need not say anything about a stay. At least absent contrary indications, the background [Griggs v. Provident Consumer Discount Co., 459 U.S. 56] principle already requires an automatic stay of district court proceedings that relate to any aspect of the case involved in the appeal. By contrast, when Congress wants to authorize an interlocutory appeal, but not to automatically stay district court proceedings pending that appeal, Congress typically says so.

(Id. at 743–744.)

9 U.S.C. § 16, subdivision (a) does not say anything about a stay. In contrast, the California Legislature amended Code of Civil Procedure section 1294, subdivision (a) to expressly provide that there is no automatic stay.

Here, the instant action is in state court, not federal court, and Defendants’ appeal is necessarily to the Court of Appeal pursuant to Code of Civil Procedure section 1294, subdivision (a), not to the United States Court of Appeals pursuant to 9 U.S.C. § 16, subdivision (a). The Court also notes that, in their Petition to Compel Arbitration, filed on September 4, 2024, Defendants only moved to compel arbitration pursuant to Code of Civil Procedure sections 1281.2 and 1281.4; Defendants did not argue that the Federal Arbitration Act governed the arbitration agreement and did not provide any evidence to establish that the Federal Arbitration Act applied. (See, e.g., Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, 234 [“The party asserting the FAA bears the burden to show it applies….”]; id. at 238 [“The party asserting FAA preemption bears the burden to present evidence establishing a contract with the arbitration provision affects one of [the three categories of activity that Congress may regulate under the commerce power], and failure to do so renders the FAA inapplicable.”]; Shepard v. Edward Mackay Enterprises, Inc. (2007) 148 Cal.App.4th 1092, 1101 [“The party claiming a state law is preempted by federal legislation has the burden of demonstrating preemption.”].)

Thus, the Court rejects Defendants’ reliance on Coinbase, Inc. To accept Defendants’ reliance on Coinbase, Inc. would in effect nullify the California Legislature’s intent in amending Code of Civil Procedure section 1294, subdivision (a) to provide that there is no automatic stay, and the Court does not find that Coinbase, Inc. compels the conclusion that a stay is warranted under the circumstances here, particularly in light of the fact that Defendants, in their Petition to Compel Arbitration, moved pursuant to California law and has never shown that the Federal Arbitration Act applies.

As correctly argued by Plaintiffs, (Opposition at p. 5), California law provides that, while a trial court has the power to issue discretionary stays where statutes  do not call for an automatic stay on appeal, (Daly, supra, 11 Cal.5th at 1039 (citing Code Civ. Proc., §§ 918, 923)), “this power should be sparingly employed and reserved for the exceptional situation,” (People ex rel. San Francisco Bay Conservation and Development Commission v. Town of Emeryville (1968) 69 Cal.2d 533, 537; see People ex rel. Van Vranken v. Piazza (1922) 59 Cal.App. 43, 45), for example, “where ‘difficult questions of law are involved and the fruits of a reversal would be irrevocably lost unless the status quo is maintained.’” (Daly, supra, 11 Cal.5th at 1039 (quoting People ex rel. S. F. Bay etc. Com. v. Town of Emeryville (1968) 69 Cal.2d 533, 537); see Deepwell Homeowners' Protective Assn. v. City Council (1965) 239 Cal.App.2d 63, 66 [supersedeas appropriate where the appellant has shown sufficient merit in the appeal and a stay is necessary “ ‘to preserve to an appellant the fruits of a meritorious appeal’ ”].)

Here, the Court does not find that the instant matter currently presents an exceptional situation sufficient to warrant a stay.

The Court rejects Defendants’ argument that proceeding with the case will cause Defendants to suffer irreparable harm. While Defendants assert that “further proceedings in this Court would effectively nullify [their] appellate remedy” because “by the time the Appeal is heard and decided, [they] would have already expanded resources on defending this action in public settings and the Court would have already ruled on many essential issues in the case,” Defendants fail to sufficiently explain. For example, Defendants do not explain how resources expended pending resolution of the appeal would not also constitute resources that would need to be expended if the matter was/is compelled into arbitration, and any concerns regarding unspecified rulings on “essential issues” are, at this time, purely speculatory. The only future motions on calendar are motions to compel further discovery responses, and Defendants fail to show that discovery conducted pending resolution of the appeal is discovery that would not need to be completed for purposes of arbitration. Moreover, Plaintiffs state they “¿are willing to stipulate that all discovery conducted in this action while it is pending in Court is applicable and could be used in that arbitration.” (Opposition at p. 8.)

In contrast, the Court agrees with Plaintiffs that, if the matter is stayed, Plaintiffs will have to wait a year or more to litigate their claims, which is exactly the harm the Legislature sought to remedy in amending Code of Civil Procedure section 1294, subdivision (a). (See California Bill Analysis, S.B. 365 Sen., 7/12/2023 [“Current law allows corporate defendants to pause a consumer, government, or worker’s case by simply filing an appeal of a trial court’s denial of a motion to compel arbitration. Through this process, powerful corporations delay cases filed against them for typically one to three years. This bill gives courts discretion to allow consumers, governments, or workers to move their case forward if a company files an appeal, rather than waiting for years while the appeal is heard. SB 365 will level the playing field for consumers, governments, and workers who deserve to move their case forward when a company or employer violates their rights.”].)

The Court also rejects Defendants’ suggestions that the nature of their appeal weighs in favor of imposing a stay. (See Motion at pp. 4-5.)  The Court does not find that the appeal involves difficult questions of law that have not been previously addressed by the Court of Appeal. Rather, Defendants merely disagree with the Court’s conclusion after applying Sheppard, Mullin, Richter & Hampton, LLP v. J-M Manufacturing Co., Inc. (2018) 6 Cal.5th 59 to the facts of this case and seek appellate review. While Defendants have the right to seek appellate review, the California Legislature made clear they are not entitled to an automatic stay, and the Court finds that Defendants fail to sufficiently show that a discretionary stay is warranted at this time.

Accordingly, for all the foregoing reasons, the Court DENIES the Motion.

Thus, the Motion is DENIED WITHOUT PREJUDICE.