Judge Thomas D. Long, Case 20STCP01281 2022-09-13 Tentative Ruling

On April 6, 2020, Seviinth Wave, Inc. (“Seviinth Wave”) and Dott Nguyen (collectively, “Petitioners”) filed a petition to compel arbitration against Teri VanLandingham, and to stay her unpaid wages and retaliation claims with the Labor Commissioner, State of California, Department of Industrial Relations, Division of Labor Standards Enforcement (“DLSE”). On October 6, 2020, the Court granted the petition and ordered the DLSE proceeding stayed as to Seviinth Wave and Nguyen. The DLSE proceeding against Marjorie DeHey was not stayed because she is not a party, and the petition was not brought on her behalf.

On June 1, 2022, the Court granted Seviinth Wave’s motion to compel arbitration in Case No. 21STCV40374 as to Seviinth Wave’s claims against VanLandingham and denied the motion as to the claims of Dott Nguyen, Graham Bradstreet, and Marjorie DeHey. The Court stayed all proceedings in Case No. 21STCV40374 pending the arbitration.

On July 14, 2022, the American Arbitration Association (“AAA”) provided an invoice to Seviinth Wave in the amount of $2,000 as a deposit for the arbitrator’s compensation, with a Bill Line Date of June 3, 2022. (Cowan Decl. ¶ 3 & Ex. B.) The invoice stated, “Unless instructed otherwise, invoice balance due upon receipt.” (Cowan Decl., Ex. B.) Also on July 14, 2022, AAA provided a follow-up letter to the arbitration parties (including Nguyen, Bradstreet, and DeHey), stating, “This will confirm that we have not received the Arbitrator Compensation deposit requested and invoiced in our letters dated June 3, 2022 and June 22, 2022,” and warning that the case may be subject to suspension for nonpayment is they deposits were not paid in full. (Cowan Decl. ¶ 3 & Ex. C.) The letter also directed: “Pursuant to CA CCP 1281.98, AAA request Teri VanLandingham review the relevant section of the statute and provide a response on how they wish to proceed. Please respond on or before July 19, 2022.” (Cowan Decl., Ex. C.) VanLandingham’s counsel contacted AAA on August 2, 2022 and was told that Seviinth Wave had not made the payment. (Cowan Decl. ¶ 4.) As of September 6, 2022, Seviinth Wave still had not made the payment. (Cowan Reply Decl. ¶ 2.)

On August 8, 2022, VanLandingham filed a motion to vacate the October 6, 2020 order compelling arbitration.

The request for judicial notice of this Court’s October 6, 2022 order (RJN, Ex. A) is granted, and Petitioners’ objection is overruled. (Evid. Code, § 452, subd. (d).) The Court generally will not consider new evidence submitted with a reply.¿¿(See¿Jay v. Mahaffey¿(2013) 218 Cal.App.4th 1522, 1537-1538.) However, the delayed presentation of this document does not prejudice Petitioners because it is an order in this action that largely forms the basis for this motion.

The request for judicial notice of the employment agreement (RJN, Ex. B) is granted, and Petitioners’ objection is overruled. Petitioners submitted the same document in support of their petition to compel arbitration, so the existence of the arbitration agreement and its terms are not reasonably subject to dispute. (See Evid. Code, § 452, subd. (h); see also Salvaty v. Falcon Cable Television (1985) 165 Cal.App.3d 798, 800, fn. 1.) Also for that reason, the delayed presentation of this document with the reply does not prejudice Petitioners.

The request for judicial notice of two orders in other cases (RJN, Exs. C, D) is denied, and Petitioners’ objections are sustained. These orders are irrelevant to this action and are not published authority. (See Hernandez v. Restoration Hardware, Inc. (2018) 4 Cal.5th 260, 269, fn. 2 [declining to judicially notice several unpublished opinions because “[w]ith certain exceptions, not applicable here, the Rules of Court generally prohibit us from noticing unpublished opinions”].)

In an employment arbitration that requires the drafting party pay certain fees and costs, the drafting party is in material breach of the arbitration agreement if the fees or costs required to continue the arbitration proceeding are not paid within 30 days after the due date. (Code Civ. Proc., § 1281.98, subd. (a)(1).) If the drafting party materially breaches the arbitration agreement and is in default, the employee may unilaterally elect to withdraw the claim from arbitration and proceed in court. (Code Civ. Proc., § 1281.98, subd. (b).)

Petitioners argue that Section 1281.98 does not apply because it was enacted on January 1, 2020, after this arbitration agreement was signed in November 2018. (Opposition at pp. 5-6.) Although Petitioners argue that generally a statute is presumed to operate prospectively, not retroactively, they cite no authority holding that Section 1281.98 does not actually apply here. In fact, the Court of Appeal recently considered a related section with respect to an arbitration agreement covering employment from 2015 to March 2018. (Gallo v. Wood Ranch USA, Inc. (2022) 81 Cal.App.5th 621, 2022 WL 2913128 (Gallo). Although the issue in Gallo was whether the FAA preempted Code of Civil Procedure section 1281.97, the Court of Appeal noted that “where, as here, the parties to a contract incorporate a law that is to be used at some time in the future (here, at the time the arbitration takes place), the parties are deemed to have contemplated—and hence, consented to—the incorporation of postcontract changes to that law.” (Id. at p. *8.) Additionally, “applying section 1281.97 and 1281.99 is fully consistent with the parties’ more general intent to arbitrate because the parties’ agreement was to arbitrate the dispute, not let it die on the vine and languish in limbo while the party who demanded arbitration thereafter stalls it by not paying the necessary costs in a timely fashion.” (Ibid.) Here too the arbitration agreement incorporates California law, and the parties are deemed to have consented to changes in the applicable law. (RJN, Ex. B at Ex. A.)

Petitioners also argue that the motion should be denied as to claims against Nguyen, Bradstreet, and DeHey because they are not the “drafting party.” (Opposition at pp. 6-8.) But the motion seeks to vacate only the Court’s October 6, 2020 order compelling arbitration with Seviinth Wave and Nguyen. (See Motion at p. 2.) Moreover, Bradstreet and DeHey are not parties to this action.

With respect to Nguyen, who is a party, Petitioners argue he is not the drafting party and VanLandingham “concedes that [he was] not by seeking fees solely against Seviinth Wave.” (Opposition at p. 7.) However, the motion refers to both Seviinth Wave and Nguyen collectively as “Seviinth Wave,” and thus this is not a concession by VanLandingham. (Motion at p. 2, fn. 1.) Petitioners also argue that Gallo “held that Section 1281.98 applies to ‘a company or business who drafts an arbitration agreement.’” (Opposition at pp. 6-7.) That was not the holding of the case. Rather, in what is—at most—dicta, the Court of Appeal summarized that Code of Civil Procedure sections 1281.97, 1281.98, and 1281.99 “obligate a company or business who drafts an arbitration agreement to pay its share of arbitration fees by no later than 30 days after the date they are due . . . .” (Gallo, supra, 81 Cal.App.5th 621 at p. *1.)

The Employment Agreement that includes the arbitration agreement identifies the employer as “Seviinth Wave, Inc., a Wyoming Corporation [¶] Attn.: Dott Nguyen, Chairman,” with an email address featuring Nguyen’s name. (RJN, Ex. B at p. 1.) VanLandingham’s Complaint filed with the Labor Commissioner alleges that she was employed by both Seviinth Wave and Nguyen (as well as the other defendants to the Labor Commissioner Complaint who are not parties to this action), and they failed to pay her wages. (Petition, Ex. 7.) Under these circumstances, the Court cannot conclude that Nguyen is not an employer and drafting party.

Petitioners also argue that the motion should be denied with respect to VanLandingham’s new claims that were asserted for the first time in her arbitration demand and not asserted in the DLSE Complaint that Petitioners sought to compel to arbitration. (Opposition at p. 8.) VanLandingham does not address this argument in her reply. The motion seeks to vacate the Court’s October 6, 2020 order compelling VanLandingham’s claims to arbitration. (E.g., Motion at p. 2.) Accordingly, withdrawing any newly asserted claims is beyond the scope of the requested relief.

In sum, the Court finds that Petitioners materially breached the arbitration agreement by failing to timely pay the arbitration fees and costs, and VanLandingham may withdraw her claims that were compelled to arbitration.

An employee who withdraws a claim from arbitration may recover attorney fees and costs associated with the abandoned arbitration proceeding, and the Court shall impose sanctions on the drafting party. (Code Civ. Proc., § 1281.98, subd. (c); see Code Civ. Proc., § 1281.99.)

Petitioners argue that they should not be sanctioned because their “nonpayment was not strategic or was not intended to seek any advantage against VanLandingham,” and they made good faith efforts to settle the claims. (Opposition at p. 9.) However, when an employee withdraws a claim from arbitration, the Court “shall” impose sanctions by ordering the payment of the employee’s reasonable attorney fees and expenses incurred as a result of the material breach. (Code Civ. Proc., §§ 1281.98, subd. (c)(2), 1281.99, subd. (a).)

California courts apply the “lodestar” approach to determine what fees are reasonable. (See, e.g., Holguin v. DISH Network LLC (2014) 229 Cal.App.4th 1310, 1332.) This inquiry “begins with the ‘lodestar,’ i.e., the number of hours reasonably expended multiplied by the reasonable hourly rate.” (PLCM Group v. Drexler (2000) 22 Cal.4th 1084, 1095.) From there, the “lodestar figure may then be adjusted, based on consideration of factors specific to the case, in order to fix the fee at the fair market value for the legal services provided.” (Ibid.) Relevant factors include “(1) the novelty and difficulty of the questions involved, (2) the skill displayed in presenting them, (3) the extent to which the nature of the litigation precluded other employment by the attorneys, [and] (4) the contingent nature of the fee award.” (Ketchum v. Moses (2001) 24 Cal.4th 1122, 1132.) The party seeking fees has the burden of documenting the appropriate hours expended and hourly rates. (City of Colton v. Singletary (2012) 206 Cal.App.4th 751, 784.)

VanLandingham seeks $24,600.00 in attorney fees, reflecting 27.6 hours for activities that were unique to the arbitration and 5.2 hours for preparing this motion. (Cowan Decl. ¶ 5.) Counsel’s regular hourly rate is $750.00. (Cowan Decl. ¶ 6.)

Petitioners argue that there is insufficient evidence to demonstrate that the work was reasonably necessary because VanLandingham’s counsel “worked a lump sum of hours without breaking down the time on which she spent on the tasks identified in her counsel’s declaration,” and the evidence does not show whether the case was overstaffed, how much time each attorney spent on a particular task, and whether the hours were reasonably expended. (Opposition at p. 9.) VanLandingham seeks attorney fees for only one attorney, so the matter was not overstaffed. (See Cowan Decl. ¶ 5.) Counsel declares that “the total time spent by counsel related to conducting the arbitration (not the merits of the underlying claims) was 32.8 hours.” (Cowan Decl. ¶ 5.) This include the pre-motion “27.6 hours engaged in activities that were unique to the arbitration, including, but not limited, to arbitrator selection, arbitration management conferences, communication and written briefing regarding the status of the case and how the case should proceed in arbitration, preparation of scheduling orders, and preparation of answer to a purported cross-claim brought in arbitration.” (Cowan Decl. ¶ 5.) Although VanLandingham’s counsel does not provide an itemized list or invoice, this sufficiently identifies the work performed. The pre-motion 27.6 hours is reasonable for a case that was ordered to arbitration almost two years ago, and the 5.2 hours spent on this motion is also reasonable.

Petitioners also argue that VanLandingham’s counsel failed to show that her hourly rate is reasonable and comparable to other attorneys of similar skill and experience in Los Angeles. (Opposition at p. 10.) Counsel declares that her 2019 hourly rate of $695 was approved by the Equal Employment Opportunity Commission in a different action. (Cowan Decl. ¶ 6.) The Court finds that a reasonable hourly rate for similarly experienced counsel in the area handling these types of cases is $495.

VanLandingham also seeks $360.00 in costs, consisting of a $300.00 filing fee with AAA and a $60.00 filing fee for this motion. (Cowan Decl. ¶ 5.) This amount is reasonable and was incurred as a result of the material breach. Petitioners did not oppose this request.

The motion is GRANTED. VanLandingham’s claims against Seviinth Wave and Nguyen, as asserted in her DLSE Complaint and at issue in the October 6, 2020 order, are withdrawn from arbitration.

Because the claims against Seviinth Wave and Nguyen are intertwined with the claims against DeHey, the DLSE proceeding remains stayed as to Seviinth Wave and Nguyen pending the completion of the arbitration with DeHey.

VanLandingham is awarded $16,236.00 in attorney fees (32.8 hours at $495) and $360.00 in costs, to be paid within 10 days of this order. (Code Civ. Proc., §§ 1281.98, subd. (c)(2), 1281.99, subd. (a).)

Parties who intend to submit on this tentative must send an email to the Court at SMCDEPT48@lacourt.org indicating intention to submit. Parties intending to appear are encouraged to appear remotely and should be prepared to comply with Dept. 48’s new requirement that those attending court in person wear a surgical or N95 or KN95 mask.

Hon. Thomas D. Long

Judge of the Superior Court