Judge: Stephen P. Pfahler, Case: 23STCV02619, Date: 2024-04-23 Tentative Ruling

Case Number: 23STCV02619    Hearing Date: April 23, 2024    Dept: 68

Dept. 68

Date: 4-23-24

Case #22STCV02619

Trial Date: Not Set

CANCEL/REMOVE FROM ARBITRATION

MOVING PARTY: Plaintiff, Denise Brown

RESPONDING PARTY: Defendant, Simplified Labor Staffing Solutions, Inc.

RELIEF REQUESTED

Motion to Cancel/Remove the Action from Arbitration

SUMMARY OF ACTION

On February 7, 2023, Plaintiff filed a complaint for (1) Sex/Gender Harassment, Violation Of Cal. Gov. Code §§ 12940 Et Seq.; (2) Sex/Gender Discrimination, Violation Of Cal. Gov. Code §§ 12940 Et Seq.; (3) Sex/Gender Retaliation, Violation of Cal. Gov. Code §§ 12940 Et Seq.; (4) Actual/Perceived Disability Harassment, Violation Of Cal. Gov. Code §§ 12940 Et Seq.; (5) Actual/Perceived Disability Discrimination, Violation of Cal. Gov. Code §§ 12940 Et Seq.; (6) Actual/Perceived Disability Retaliation, Violation of Cal. Gov. Code §§ 12940 Et Seq.; (7) Failure to Engage In The Mandatory Good-Faith Interactive Process, Cal. Gov. Code § 12940, et seq.; (8) Failure to Provide Reasonable Accommodations, Cal. Gov. Code § 12940 et seq.; (9) Whistleblower Violations, Cal. Labor Code § 1102.5; and (10) Intentional Infliction of Emotional Distress. On June 8, 2023, the court granted the motion to compel arbitration.

RULING: Granted.

Evidentiary Objections to the Declaration of Thomas Mackey: Overruled.

Evidentiary Objections to the Declaration of Arthur Escalante: Overruled.

Evidentiary Objections to the Declaration of Frank Olah: Overruled.

Plaintiff Denise Brown moves to vacate the order compelling arbitration obtained by defendant Simplified Labor Staffing Solutions, Inc., due to the failure to pay required arbitration fees within 30 days of the invoiced date. Plaintiff also moves for reimbursement of $35,647.50 in attorney fees associated with the “abandoned” arbitration proceeding.

Defendant in opposition denies any material breach of the arbitration agreement. Defendant maintains the first payment of $750 billed on December 6, 2023, was accepted on January 16, 2024, following an extension of time granted by Plaintiff, and the second invoice for $6,250 was also paid upon receipt, with any delays the result of the change to assigned counsel.

Plaintiff in reply reiterates the claim of material breach of the arbitration agreement, due to the failure to pay arbitration fees, and denies any extension for payment. Plaintiff contends Defendant lacks any valid excuse for the admittedly late payments.

The requested relief arises under Code of Civil Procedure section 1291.98 regarding consumer and employment arbitrations.

“(a) In an employment or consumer arbitration that requires, either expressly or through application of state or federal law or the rules of the arbitration provider, that the drafting party pay certain fees and costs during the pendency of an arbitration proceeding, if the fees or costs required to continue the 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 the employee or consumer to proceed with that arbitration as a result of the material breach.

(b) If the drafting party materially breaches the arbitration agreement and is in default under subdivision (a), the employee or consumer may unilaterally elect to do any of the following:

(1) Withdraw the claim from arbitration and proceed in a court of appropriate jurisdiction. If the employee or consumer withdraws the claim from arbitration and proceeds with an action in a court of appropriate jurisdiction, the statute of limitations with regard to all claims brought or that relate back to any claim brought in arbitration shall be tolled as of the date of the first filing of a claim in any court, arbitration forum, or other dispute resolution forum.

(2) Continue the arbitration proceeding, if the arbitration company agrees to continue administering the proceeding, notwithstanding the drafting party's failure to pay fees or costs. The neutral arbitrator or arbitration company may institute a collection action at the conclusion of the arbitration proceeding against the drafting party that is in default of the arbitration for payment of all fees associated with the employment or consumer arbitration proceeding, including the cost of administering any proceedings after the default.

(3) Petition the court for an order compelling the drafting party to pay all arbitration fees that the drafting party is obligated to pay under the arbitration agreement or the rules of the arbitration company.

(4) Pay the drafting party's fees and proceed with the arbitration proceeding. As part of the award, the employee or consumer shall recover all arbitration fees paid on behalf of the drafting party without regard to any findings on the merits in the underlying arbitration.

(c) If the employee or consumer withdraws the claim from arbitration and proceeds in a court of appropriate jurisdiction pursuant to paragraph (1) of subdivision (b), both of the following apply:

(1) The employee or consumer may bring a motion, or a separate action, to recover all attorney's fees and all costs associated with the abandoned arbitration proceeding. The recovery of arbitration fees, interest, and related attorney's fees shall be without regard to any findings on the merits in the underlying action or arbitration.

(2) The court shall impose sanctions on the drafting party in accordance with Section 1281.99.

(d) If the employee or consumer continues in arbitration pursuant to paragraphs (2) through (4) of subdivision (b), inclusive, the arbitrator shall impose appropriate sanctions on the drafting party, including monetary sanctions, issue sanctions, evidence sanctions, or terminating sanctions.”

Code Civ. Proc., § 1281.98

Following the June 8, 2023, order compelling arbitration, Plaintiff submitted the demand for arbitration and payment of the $350 fee on August 8 and 9, 2023. [Declaration of Lilit Demirtchian, Ex. M-N.] Defendant answered the demand for arbitration in a pleading dated September 25, 2023. [Id., Ex. T.] An arbitrator was designated on October 21, 2023. [Id., Ex. R.] Plaintiff propounded discovery on an unspecified date, but listed the items in an October 26, 2023, email. [Id., Ex. W.] In a December 6, 2023, dated letter, the American Arbitration Association (AAA) sent an invoice to counsel for payment of $750 towards the “case management fee” by Defendant/Respondent, due within 30 days from the letter date. [Id., Ex. C-D.] On January 2, 2024, AAA sent a second letter and invoice to Defendant/Respondent for payment of $6,250 representing the “initial neutral compensation deposit.” [Id., G-H.] On January 16, 2024, AAA sent an e-mail to all counsel regarding the lack of any payment for either the case management fee or initial neutral compensation deposit. AAA specifically invited potential cancellation pursuant to Code of Civil Procedure section 1281.98 by January 19, 2024. [Id., Ex. I.] A second email notice of non-payment of the January 2, 2024, invoiced initial neutral compensation deposit was sent out on February 6, 2024, with reference again to potential cancellation under Code of Civil Procedure section 1281.98. [Id., Ex. J.] On February 6, 2024, Plaintiff specifically denied any extension for payment and requested a withdrawal from arbitration. [Id., Ex. K.]

On February 7, 2024, after the notice of cancellation from Plaintiff, Frank Olah on behalf of Defendant/Respondent denied receipt of any invoice for the initial neutral compensation deposit “until February.” Olah maintained it was an “administrative error” by AAA, and represents payment either way on February 6, 2024 “via wire.” [Id., Ex. L.] On February 14, 2024, Olah again reiterated the claim of lack of “compliance” by AAA with the notice requirements via representation that the notice was only sent via email to Thomas Mackey (the identified attorney for the Jackson Lewis law firm), “during the holiday period.” An automatic reply stating that Mackey was out of the office at the time was also delivered. Olah therefore maintains insufficient notice. AAA responded to the claim of error by Frank Olah that AAA never received an auto response, and instead received a direct response from Mackey on January 9, 2024 acknowledging a return to the office. Undeterred, on February 9, 2024, Olah again reiterated the lack of service of anyone else at the Jackson Lewis firm, and requested proof of transmission, which are redacted. [Id., Ex. O.] The January 9, 2024, notice of non-payment to Thomas Mackey is included with the motion for reference. [Id., Ex. P.]

Plaintiff/Claimant specifically contends that Defendant/Response in fact twice delayed payment, thereby constituting violations of the payment rules, and entitling Plaintiff/Relief from the order compelling arbitration. Defendant/Respondent relies on a (denied by Plaintiff/Claimant) extension for payment agreement of the $750 case management fee, denial of receipt of the January 2, 2024, invoice, and the issuance of a new, “superseding” invoice from AAA on February 1, 2024, which was “promptly paid” on February 6, 2024. [Declaration of Frank Olah.]

Legally, Defendant/Respondent depends on a challenge to the “receipt” of the invoices themselves. The argument depends on a deflection of responsibility on AAA for not forwarding the invoice to Mackey’s assistant following the autoreply by Mackey for messages received between December 26, 2023 to January 6, 2024, for a holiday vacation period. Defendant/Respondent therefore maintains a failure to establish a material breach. Defendant/Respondent lastly contends that Federal Arbitration Act (FAA) rules still encourages arbitration under the circumstances, especially due to the fault of AAA.

Recent published authority on the subject of compliance allows for strict enforcement of the statutory 30-day deadline regardless of excuses tendered by responding parties for delays in payment. “Courts that have considered the legislative history of sections 1281.97 or 1281.98 share these views. The court in De Leon, supra, 85 Cal.App.5th 740, 301 Cal.Rptr.3d 678, observed that section 1281.98’s ‘30-day deadline establishes a clear-cut rule for determining if a [company] is in material breach of an arbitration agreement.’ (De Leon, at p. 755, 301 Cal.Rptr.3d 678.) The statute's ‘legislative history indicates the California Legislature sought a clear and unambiguous rule for courts to apply in determining whether late payment of arbitration fees by a drafting party constituted a material breach of an arbitration agreement.’ (Id. at p. 756, 301 Cal.Rptr.3d 678.) The court in Cvejic v. Skyview Capital, LLC (2023) 92 Cal.App.5th 1073, 309 Cal.Rptr.3d 891 (Cvejic), observed that ‘the Legislature sought a clear rule for determining whether the late payment of a fee by a drafting party constituted a material breach’ and further observed that the legislative history and caselaw directed strict enforcement of section 1281.98. (Cvejic, supra, at p. 1078, 309 Cal.Rptr.3d 891.) In construing section 1281.97, the court in Espinoza v. Superior Court (2022) 83 Cal.App.5th 761, 299 Cal.Rptr.3d 751 (Espinoza), remarked: ‘[T]he Legislature intended the statute to be strictly applied whenever a drafting party failed to pay by the statutory deadline.’ (Id. at p. 776, 299 Cal.Rptr.3d 751.) In short, the courts that have examined the legislative history agree the Legislature sought to establish a clear and unambiguous rule for determining a breach based on nonpayment as well as strict enforcement of the statute. (Doe v. Superior Court (2023) 95 Cal.App.5th 346, 357–358.)” Reviewing courts reject discretionary arguments for statutory fulfilment, such as claims of substantial compliance based on representations of inadvertence or lack of material prejudice. (Id., at pp. 358-359.)

Strict enforcement of the statute arises from concern of employers strategically delaying payment of fees or non-payment. The lack of any address in the statute allowing for a mistake or excusable neglect exemption constitutes an intentional reflection of the public policy disfavoring any such potential imposition of burden on the employee and imposing the consequences on the non-complying party. (Espinoza v. Superior Court , supra, 83 Cal.App.5th 777.) Defendant/Respondent implicitly acknowledges the strict enforcement, and instead relies on deflection of fault to AAA.

Defendant/Respondent offers neither dispute nor reason for the failure to pay the December 6, 2023, invoiced case management fee, and confirms payment was not made until January 16, 2024—well after the 30-day invoice payment date. While Mackey admittedly was on vacation from December 26 to January 6, 2024, nothing even mildly attempts to justify the late payment of the first fee, which clearly and unequivocally constitutes a breach of the statute. [Declaration of Thomas Mackey.] The court finds no support for the representation of ANY extension by Plaintiff/Claimant.

Further, again, after undisputedly returning from vacation and responding on January 9, 2024, to the January 2, 2024, second invoice for payment, [Demirtchian Decl, Ex. P], Mackey provides no address for both the apparent notice of the invoice and failure to arrange for payment. The case was only transferred to Frank Olah on January 26, 2024. [Mackey Decl.] Denial of receipt of an invoice by new counsel AFTER reassignment of the action to new counsel without any apparent proof of notice to AAA in no way constitutes a finding of fault on AAA for non-receipt of an invoice by new counsel. [Olah Decl.; Declaration of Arthur Escalante.] Whether or not Mackey forwarded any and all e-mails and file information to Olah in NO WAY reflects on AAA and their duly and properly sent invoice. Furthermore, nothing in the opposition in any way accounts for Mackey’s return to the office on January 9, 2024, and the lack of any action from January 9 to January 26, 2024. Any such argument remains irrelevant either way, since there is no mistake or inadvertence exception. The court also finds FAA in no way excuses the application of Code of Civil Procedure section 1281.97, et seq. under the facts of the subject action. (Gallo v. Wood Ranch USA, Inc. (2022) 81 Cal.App.5th 621, 641.) The court therefore finds a second, unequivocal factual breach of the statute.

The court therefore grants the motion to remove the case from arbitration based on two findings of breaches of the statute. Because of the breach of the statute, and return of the case to the active civil calendar, the court must also impose sanctions against the drafting party (defendant/ respondent).

(a) The court shall impose a monetary sanction against a drafting party that materially breaches an arbitration agreement pursuant to subdivision (a) of Section 1281.97 or subdivision (a) of Section 1281.98, by ordering the drafting party to pay the reasonable expenses, including attorney's fees and costs, incurred by the employee or consumer as a result of the material breach.

(b) In addition to the monetary sanction described in subdivision (a), the court may order any of the following sanctions against a drafting party that materially breaches an arbitration agreement pursuant to subdivision (a) of Section 1281.97 or subdivision (a) of Section 1281.98, unless the court finds that the one subject to the sanction acted with substantial justification or that other circumstances make the imposition of the sanction unjust.

(1) An evidence sanction by an order prohibiting the drafting party from conducting discovery in the civil action.

(2) A terminating sanction by one of the following orders:

(A) An order striking out the pleadings or parts of the pleadings of the drafting party.

(B) An order rendering a judgment by default against the drafting party.

(3) A contempt sanction by an order treating the drafting party as in contempt of court.

Code Civ. Proc., § 1281.99

Plaintiff/Claimant moves for $35,647.50 in fees and costs. Defendant/Respondent challenges the claim as excessive and including work not related to the arbitration. Plaintiff/Claimant maintains all work was authorized in reply.

The request depends entirely on the declaration of Adam Reisner, though the motion itself appears submitted by Lilit Demirtchian. Reisner cites to other superior court cases upholding more recent hourly fees between $950 to $1,250/hour, as well as multipliers. Reisner maintains spending nine (9) hours on the subject motion, with an anticipated two (2) additional hours on the reply. On the underlying arbitration itself, counsel represents spending 19.05 hours. Co-Counsel Lilit Demirtchian billed 16 hours on the motion at a rate of $325/hour. (Reisner represents a total 32 hours, but the articulated hours appear to add up to only 30.5 hours.)

The declaration of Reisner in and of itself includes no billing statement and the court finds no authority equating the subject request to the standard as one for a motion for attorney fees, whereby the prior court awards, multipliers and hourly fee consideration were perhaps considered in more depth and with far more documentation. Nevertheless, the language requires compensation for costs caused by the breach, which the court interprets as limited to the actual breach of the clause following the order compelling arbitration. The fees incurred should include both time spent corresponding with AAA, as well as the instant motion itself. The court therefore excludes the 19.05 sought after hours opposing the original motion to compel arbitration.

Again, the declaration of Reisner lacks any actual descriptive work regarding efforts towards the subject motion other than a general statement of drafting and review. Lilit Demirtchian appears in all correspondence and on the submitted the motion.

The court finds the 16 hours presented by Lilit Demirtchian at a rate of $325/hour reasonable compensation for purposes of the sanctions requirement, and therefore awards the full requested amount of $5,200.

The court finds the additional 11 hours spent on “drafting” and “review” by somewhat redundant and excessive given the 16 hours also spent by Lilit Demirtchian, lack of any indicated work by Reisner on the motion, including actual distinction in contributions. The court still reasonably assumes Reisner supervised the progression of the dispute however as represented in the declaration, and finds five (5) hours of time billed at the unchallenged $950/hour rate—total of $4,750) sufficiently compensates counsel for the breach. The court therefore imposes sanctions of $9,950 against both Defendant/Respondent Simplified Labor Staffing Solutions, Inc. and counsel of record joint and several, and payable within 30 days.

Plaintiff/Claimant Brown to give notice.