Judge: Teresa A. Beaudet, Case: 21STCV38179, Date: 2024-11-14 Tentative Ruling

Case Number: 21STCV38179    Hearing Date: November 14, 2024    Dept: 50

Superior Court of California

County of Los Angeles

Department 50

            Background

Plaintiff Israel Ramirez Macias (“Plaintiff”) filed this action on October 15, 2021 against Defendant American Honda Motor Company, Inc. (“Defendant”). The Complaint alleges causes of action for (1) violation of subdivision (d) of Civil Code section 1793.2, (2) violation of subdivision (b) of Civil Code section 1793.2, (3) violation of subdivision (a)(3) of Civil Code section 1793.2, (4) breach of express warranty, and (5) breach of the implied warranty of merchantability.

On June 30, 2022, the Court issued an Order granting Defendant’s motion to compel arbitration. The Court ordered, inter alia, that “[t]he entire action is stayed pending completion of arbitration of Plaintiff’s arbitrable claims.” (June 30, 2022 Order at p. 7:15-16.)

Plaintiff now moves “for an order vacating the order compelling arbitration in this matter and awarding sanctions to Plaintiff in the amount of $73,180.93 for attorney fees and costs associated with an abandoned arbitration proceeding in this matter.” Defendant opposes. 

Discussion

Plaintiff asserts that “[p]ursuant to Code of Civil Procedure, §§ 1281.98 and 1281.99, Plaintiff is entitled to an order vacating the stay and order compelling arbitration, and is further entitled to mandatory sanctions, including an award of attorney fees and costs.” (Mot. at p. 5:17-19.) Code of Civil Procedure section 1281.98 provides as follows:

“(a)

(1) 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.

(2) The arbitration provider shall provide an invoice for any fees and costs required for the arbitration proceeding to continue to all of the parties to the arbitration. The invoice shall be provided in its entirety, shall state the full amount owed and the date that payment is due, and shall be sent to all parties by the same means on the same day. To avoid delay, absent an express provision in the arbitration agreement stating the number of days in which the parties to the arbitration must pay any required fees or costs, the arbitration provider shall issue all invoices to the parties as due upon receipt. Any extension of time for the due date shall be agreed upon by all parties. Once the invoice has been paid, the arbitration provider shall provide to all parties a document that reflects the date on which the invoice was paid.

(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 provider agrees to continue administering the proceeding, notwithstanding the drafting party’s failure to pay fees or costs. The neutral arbitrator or arbitration provider 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 provider.

(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.” 

For purposes of Code of Civil Procedure section 1281.98, “drafting party” means “the company or business that included a predispute arbitration provision in a contract with a consumer or employee. The term includes any third party relying upon, or otherwise subject to the arbitration provision, other than the employee or consumer.” (Code Civ. Proc., § 1280, subd. (e).) In addition, pursuant to Code of Civil Procedure section 1281.99, subdivision (a), “[t]he 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.”

Plaintiff asserts that here, Defendant “breached the arbitration agreement and waived its right to compel arbitration by failing to timely pay arbitration fees.” (Mot. at p. 6:17-18.) In her supporting declaration, Plaintiff’s counsel states that “[a]rbitration of this matter…with Judicate West was initiated by [Defendant] on or about August 18, 2022. The same day, the parties executed the Arbitration Agreement and submitted their strikes and rankings regarding the presiding arbitrator…On or about August 25, 2022, Hon. Russell L. Hom, Ret. (‘Hon. Hom’) agreed to serve as the neutral arbitrator for the matter.” (Kornley Decl., ¶¶ 5-6.) Plaintiff’s counsel indicates that “[o]n or about April 10, 2024, Judicate West issued Invoice Number 627347…to [Defendant] for $3,575.00 to serve as a retainer for the continued services requested of Hon. Hom related to the Arbitration Proceeding.” (Kornley Decl., ¶ 12.)

Plaintiff’s counsel states that “[o]n or about July 10, 2024, Plaintiff contacted the case manager for the Arbitration, Rebecca Hoefer (‘Ms. Hoefer’), regarding outstanding fees and discovered through this conversation that defense is delinquent on an invoice billed on 4/10/2024 in the amount of $3,575.00.” (Kornley Decl., ¶ 15.) Plaintiff’s counsel indicates that “[o]n or about July 23, 2024, Plaintiff received an e-mail from Ms. Hoefer regarding the outstanding balances for the Arbitration and enclosing billing statements. Defendant’s Billing Statement, which was dated June 7, 2024, contains information regarding the outstanding invoice and clearly states, ‘Invoices are due upon receipt.’ A true and correct copy of the Billing Statement is attached hereto as Exhibit ‘A.’” (Kornley Decl., ¶ 17.)

Plaintiff asserts that “[b]y failing to timely pay the Invoice, [Defendant] materially breached the arbitration agreement pursuant to Code of Civil Procedure§ 1281.98, subd. (a). [Defendant’s] breach permits Plaintiff to ‘[w]ithdraw the claim from arbitration and proceed in a court of appropriate jurisdiction,’ and bring a motion to recover ‘all attorney’s fees and all costs associated with the abandoned arbitration proceeding.’” (Mot. at p. 7:16-20, citing Code Civ. Proc., § 1281.98.)

In the opposition, Defendant first asserts that “Plaintiff’s reliance on CCP §§ 1281.98 and 1281.99 are misplaced, as the arbitration provision in the sales contract makes clear that Plaintiff and Honda agree and acknowledge the Federal Arbitration Act (‘FAA’) applies.” (Opp’n at p. 2:24-26.) Defendant’s counsel attaches as Exhibit 1 to his supporting declaration a “copy of the sales contract executed by Plaintiff at the time he purchased the subject vehicle.” (Sentlinger Decl., ¶ 2.) Defendant notes that the “Arbitration Provision” of the sale contract provides, inter alia, that “[a]ny arbitration under this Arbitration Provision shall be governed by the Federal Arbitration Act (9 U.S.C. section 1 et. seq.) and not by any state law concerning arbitration.” (Sentlinger Decl., ¶ 2, Ex. 1, p. 7.)

Defendant cites to Rodriguez v. American Technologies, Inc. (2006) 136 Cal.App.4th 1110, 1114, where “American Technologies, Inc. (ATI), appeal[ed] from an order denying ATI’s motion to compel arbitration and stay judicial proceedings…ATI contend[ed] federal law governs the arbitration agreement and the trial court therefore lacked discretion under state arbitration law to deny the motion.” The Court of Appeal agreed. ((Ibid.) The Rodriguez Court noted that “the parties to the arbitration provision here at issue agreed to arbitrate claims arising out of the contract, ‘[p]ursuant to the Federal Arbitration Act,’ and ‘in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association.’” ((Id. at p. 1121.)

The Rodriguez Court found that “[a]s instructed by Cronus, ‘we examine the language of the contract to determine whether the parties intended to apply the FAA to the exclusion of California procedural law.’…The contract specifies that claims shall be arbitrated ‘pursuant to the FAA.’ In common understanding, the phrase ‘pursuant to’ means ‘in conformance to or agreement with’ and ‘according to.’…Plainly, the language of the contract requires the parties to arbitrate ‘in conformance to’ and ‘agreement with’ the FAA. There is no other contract provision suggesting the parties intended to incorporate California arbitration law, nor is there any language suggesting the parties intended to arbitrate ‘in conformance to’ some provisions of the FAA but not others. The phrase ‘pursuant to the FAA’ is broad and unconditional, unlike the Cronus clause, which deferred to the contract’s California choice-of-law provision by invoking only ‘applicable’ provisions of the FAA…Thus, there is no ambiguity regarding the parties’ intent. They adopted the FAA—all of it—to govern their arbitration.” ((Id. at pp. 1121-1122 [emphasis omitted].)

The Court of Appeal in Rodriguez concluded that accordingly, “the court erred by denying ATI’s motion to compel arbitration and stay the court proceeding as to plaintiffs and ATI. In accordance with the agreement of the parties, section 3 of the FAA required the court to compel arbitration between plaintiffs and ATI and to stay the court proceeding with respect to their disputes with each other. While we may question the wisdom of the parties’ choice, and decry the potential for inefficiency, delay, and conflicting rulings, the parties were free to choose their arbitration rules. The court will not rewrite their contract.” (Id. at p. 1122.)

Defendant asserts that “[h]ere, the sales contract dictates the FAA applies and Plaintiff agreed at the time he executed the sales contract. Plaintiff should not now be able to rely on CCP §§ 1281.98 and 1281.99 in an attempt to avoid arbitration or seek sanctions.” (Mot. at p. 3:9-12.)

In the reply, Plaintiff asserts that the FAA does not preempt Code of Civil Procedure section 1281.98. Plaintiff cites to Espinoza v. Superior Court (2022) 83 Cal.App.5th 761, 770, where “Plaintiff Rosa M. Quincoza Espinoza filed claims for discrimination and retaliation against her former employer, defendant Centinela Skilled Nursing & Wellness Centre West, LLC. The trial court granted defendant’s motion to stay litigation and compel the parties to proceed in arbitration. When defendant failed to pay its arbitration fees by a statutory deadline, plaintiff moved the trial court to lift the stay of litigation and allow her to proceed in court. The trial court denied the motion, and plaintiff filed the instant petition for a writ of mandate directing the trial court to reverse that denial.”

The Espinoza Court “reject[ed] defendant’s argument that the FAA preempts section 1281.97,” noting that “[t]he FAA preempts state laws that prohibit or discourage the formation or enforcement of arbitration agreements, or that interfere with fundamental attributes of arbitration. As our colleagues in Division Two recently held in Gallo v. Wood Ranch USA, Inc. (2022) 81 Cal.App.5th 621 [297 Cal.Rptr.3d 373] (Gallo), section 1281.97 does none of this. Rather, the statute set forth procedural requirements to ensure timely payment of arbitration fees, thus ‘further[ing]—rather than frustrat[ing]—the objectives of the FAA to honor the parties’ intent to arbitrate and to preserve arbitration as a speedy and effective alternative forum for resolving disputes.’” (Espinoza v. Superior Court, supra, 83 Cal.App.5th at page 771 [internal emphasis omitted].) But the Espinoza Court also noted that in Gallo, the “court…held that section 1281.97 does not interfere with fundamental attributes of arbitration, the other basis upon which courts have found state laws affecting arbitration preempted…Because the arbitration agreement at issue in Gallo expressly incorporated the CAA, applying the CAA’s procedural rules did not ‘interfere with the FAA’s first goal of honoring the parties’ intent.’” ((Id. at p. 781) Here, Plaintiff does not point to any provision in the subject sale contract expressly incorporating the CAA. Rather, as set forth above, the sale contract provides, inter alia, that “[a]ny arbitration under this Arbitration Provision shall be governed by the Federal Arbitration Act (9 U.S.C. section 1 et. seq.) and not by any state law concerning arbitration.” (Sentlinger Decl., ¶ 2, Ex. 1, p. 7, emphasis added.)

The Espinoza Court also found as follows:

“We need not, and do not, decide whether Gallo’s holding depends on the arbitration agreement at issue incorporating the CAA, because we conclude that requirement is satisfied here, despite the lack of express incorporation. As this court held in Valencia v. Smyth (2010) 185 Cal.App.4th 153 [110 Cal. Rptr. 3d 180] (Valencia), “the procedural provisions of the CAA apply in California courts by default.” (Id. at p. 174, italics omitted.)

In Valencia, we confronted whether the arbitration agreement at issue was governed by the procedural provisions of the CAA or the FAA. As we explained, “parties may ‘expressly designate that any arbitration proceeding [may] move forward under the FAA’s procedural provisions rather than under state procedural law.’ [Citation.] Absent such an express designation, however, the FAA’s procedural provisions do not apply in state court.” (Valencia, supra, 185 Cal.App.4th at p. 174; accord, Nixon v. AmeriHome Mortgage Co., LLC (2021) 67 Cal.App.5th 934, 945 [282 Cal. Rptr. 3d 609]; see Mave Enterprises, Inc. v. Travelers Indemnity Co. (2013) 219 Cal.App.4th 1408, 1429 [162 Cal. Rptr. 3d 671] [“the procedural provisions of the CAA” apply in California courts “absent a choice-of-law provision expressly mandating the application of the procedural law of another jurisdiction”].)

Although the arbitration agreement at issue in the instant case does not expressly incorporate the procedural provisions of the CAA, it also does not expressly incorporate the procedural provisions of another jurisdiction. Given the absence of contrary language, therefore, the parties implicitly consented to application of the CAA’s procedural provisions, as much as had they expressly incorporated those provisions into their arbitration agreement. (See Judge v. Nijjar Realty, Inc. (2014) 232 Cal.App.4th 619, 631 [181 Cal. Rptr. 3d 622] [when arbitration agreement “does not mention the FAA or the CAA, and … does not include a choice-of-law provision,” California procedural law applies]; Valencia, supra, 185 Cal.App.4th at p. 179 [“Assuming the parties failed to incorporate the CAA’s procedural provisions, that failure was of no consequence: A state’s procedural statutes automatically apply in state court unless the parties expressly agree otherwise” (italics omitted)].) Thus, as in Gallo, application of the provisions does not conflict with the FAA’s goal of honoring the parties’ intent.” ((Espinoza v. Superior Court, supra, at p. 786.)

Here, by contrast, the arbitration provision of the sale contract broadly provides that “[a]ny arbitration under this Arbitration Provision shall be governed by the Federal Arbitration Act (9 U.S.C. section 1 et. seq.) and not by any state law concerning arbitration.” (Sentlinger Decl., ¶ 2, Ex. 1, p. 7.) Plaintiff does not appear to address this provision in the reply. As discussed above in Espinoza, “parties may expressly designate that any arbitration proceeding [may] move forward under the FAA’s procedural provisions rather than under state procedural law.” ((Espinoza v. Superior Court, supra, 83 Cal.App.5th at p. 786 (internal quotations and emphasis omitted).)

Based on the foregoing, the Court agrees with Defendant that “Plaintiff’s reliance on CCP §§ 1281.98 and 1281.99 are misplaced, as the arbitration provision in the sales contract makes clear that Plaintiff and Honda agree and acknowledge the Federal Arbitration Act…applies.” (Opp’n at p. 2:24-26.) In light of the foregoing, the Court denies Plaintiff’s request for monetary sanctions under Code of Civil Procedure section 1281.99.[1]

Conclusion

Based on the foregoing, Plaintiff’s motion to vacate order compelling arbitration and requesting sanctions is denied. 

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Defendant is ordered to give notice of this Order. 

DATED:  November 14, 2024                                  

________________________________

Hon. Teresa A. Beaudet

Judge, Los Angeles Superior Court