Judge Thomas Falls, Case 20PSCV00827 2023-02-03 Tentative Ruling

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PLAINTIFF’S MOTION TO LIFT STAY is DENIED. The matter is still stayed pending arbitration.

On November 25, 2020, Plaintiff filed suit alleging four causes of action relating to his former employment with Defendant: (1) Retaliation, under the California Fair Employment and Housing Act (“FEHA”); (2) Failure to Prevent Retaliation, under FEHA; (3) Violation of Labor Code § 226(c), for failure to timely provide copies of wage statements; and (4) Violation of Labor Code § 1198.5(b), for failure to timely provide copies of personnel records.

Plaintiff makes the instant motion pursuant to CCP sections 1281.97,[1] 1281.98, and 1281.99. (See Motion p. 4.)

In relevant part, CCP § 1281.98(a)(1) states that in an employment arbitration requiring: [T]hat 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.

In the event that the drafting party materially breaches the arbitration agreement and is in default under subdivision (a), the employee or consumer may unilaterally elect to withdraw the claim from arbitration and proceed in a court of appropriate jurisdiction. (CCP §§ 1281.98(b) and (b)(1).)

Defendant argues that because it paid the fee required to continue arbitration on October 5, 2022—before the October 28, 2022 due date—it is not in breach of the agreement. Plaintiff, however, asserts that it is not the October 28, 2022 that governs but rather payments by August 29, 2022, and September 28, 2022, which are the 30 day statutory time limits.

Critical to this analysis, are the following facts, which are undisputed (or at least uncontested) by both parties:

- On August 3, 2021, JAMS sent the parties a letter “confirm[ing] the commencement of the arbitration.”

- On August 16, 2021, JAMS issued an invoice for $7000.00 for the deposit of Ms. Myer’s services, which Defendant promptly paid.

- On April 26, 2022, the arbitrator issued the operative Scheduling Order in the matter, setting November 29-December 1, 2022, as the arbitration hearing dates.

- JAMS issued an invoice for arbitrator services for $32,300.00 on July 29, 2022, and another on August 29, 2022 for $11,760.00. The thirtieth day after earlier invoice was August 29, 2022, and the thirtieth day after the later invoice was September 28, 2022. Therefore, the payments on the invoices were to be paid by August 29 and September 28 of 2022.

- Defendant did not make the payments by August 29, 2022, and September 28, 2022.

- On September 30, 2022, JAMS issued a Request to Post Fees, informing the Parties for the first time that JAMS had issued invoices for the arbitrator’s services and stating: “Pursuant to our fee and cancellation policy, all fees must be paid in full by October 28, 2022, or your hearing may be subject to cancellation.”

- That same day, on September 30, 2022, Plaintiff sought to withdraw his claims from arbitration and proceed in court in light of Defendant’s overdue payments and informed both JAMS and Defendant of his election.

- Defendant paid all invoices required to continue the arbitration by the October 28, 2022.

The court first turns to Gallo v. Wood Ranch USA, Inc. (2022) 81 Cal.App.5th 621, as the case was heavily relied upon by Plaintiff.

In Gallo, the arbitration provider sent its invoice for initiation of arbitration to the defendant's counsel, but the defendant's counsel failed to pay the invoice within 30 days of its due date. Thereafter, the arbitrator sent a letter noting that the payment due on November 4, 2020 must be received by the statutory due date (30 days thereafter) by December 4, 2020. In this letter, the arbitrator stated that “As this arbitration is subject to California Code of Civil Procedure 1281.97 and 1281.98, payment must be received by December 4, 2020 [that is, 30 days after the November 4 deadline] or the AAA will close the parties' case. The AAA will not grant any extensions to this payment deadline.” (Id. at 631) (Boldface and underline in original). Despite an additional letter indicating Defendant’s failure to pay, the December 4 due date came without any payment by Defendant. Defendant paid two days late. (Id. at 632.) In affirming the trial court’s decision to grant the plaintiff’s motion to vacate the trial court's prior order compelling arbitration because the defendant’s late payment of its share of the initiation fees constituted a material breach of the arbitration agreement, the appellate court, amongst other reasoning, emphasized that the legislative intent behind enacting sections 1281.97 and 1281.99 was to “solve a very specific problem—namely, the ‘procedural limbo and delay’ that consumers and employees face when they are ‘forced to submit to mandatory arbitration to resolve a[ ] ... dispute,’ and the business or company that pushed the case into an arbitral forum then ‘stalls or obstructs the arbitration proceeding by refusing to pay the required fees.’” (Id. at p. 634) (emphasis added).[2] In turn, the Gallo court clarified “the failure to pay the initiation fees or costs within the 30-day grace period that follows the arbitration provider's due date constitutes a material breach of the arbitration agreement that qualifies as a waiver of the right to compel arbitration. (Id. at p. 634) (italics original and emphasis added). Therefore, in sum, “both sections provide that a drafting party who fails in its obligation to pay fees and costs required to initiate or continue the arbitration within 30 days after the due date 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.” (Williams v. West Coast Hospital, Inc. (2022) 86 Cal.App.5th 1054, 812.)

Here, as a prefatory matter, the court finds Gallo distinguishable for multiple reasons.

First, it is undisputed that Defendant did not fail to pay the initial invoice. As such, whereas Gallo focused on CCP 1281.97 governing initiation fees and less, if any, analysis on 1281.98, then on this fact alone the case differs.

Second, even applying CCP section 1281.97,[3] the Gallo court explained that the Legislature amended the statute “to expressly obligate the arbitration provider to supply the parties with invoices setting forth the ‘full amount owed’ and the date due, and to set a statutory default due date of ‘due upon receipt’ unless the parties agree otherwise.” (Gallo, at p. 634, fn. 5) (emphasis added). Here, the letter from JAMS required full payment by a due date of October 28, 2022.[4] Therefore, unlike the defendant in Gallo who seemingly ignored the arbitrator due dates (hence the fee letter including an admonition), here, Defendant did not ignore the due date notice as it paid JAMS by the due date.

Third, turning to legislative intent, the facts here are far from a situation wherein the legislature sought to avoid which is a “procedural limbo.” Whereas the legislature’s focus was on preventing a defendant who compels arbitration but then refuse to make payments for the very service they mandate, here, Defendant paid the initiation fee and thereafter, the “parties diligently litigated the matter, propounded and responded to written discovery, submitted to hearing on two discovery disputes before the arbitrator, took Plaintiff’s and two percipient witnesses’ depositions, and submitted and argued Dispositive Motion pleadings.” What’s more, this is not a situation wherein the “parties' agreement was to arbitrate the dispute, not let it die on the vine and languish in limbo” because arbitration hearings were not set until November 29, 2022. Thereby, Defendant’s evidenced an intention of resolving the disputes with alacrity.

Fourth, unlike Gallo wherein the defendant received notices of unfulfilled payments, here, neither party has indicated that the arbitrator provided notice of any late payment.[5] In fact, and of significant import, Defense Counsel Felton states that he “was unaware that these invoices had been issued given the arbitrator’s previously issued Notice of unavailability. The invoices were also issued during a time that [he] was preparing to go out on paternity leave, as [he] had communicated to JAMS, the arbitrator and Plaintiff’s counsel on multiple occasions prior to July 2022.” (Felton Decl., p. 3.) Accordingly, while the invoice may have been sent, it appears Defense Counsel may have not received the invoice, which is tacitly required by CCP section 1281.98 subdivision (2).

All in all, even as noted in other decisions such as DeLeon v. Juanita’s Foods (2022) 85 Cal.App.5th 740, Espinoza v. Sup. Ct. (2022) 83 Cal.App.5th 761, and Williams v. West Coast Hospitals, Inc. (2022) 2022 WL 17881773, all point to the same rule articulated in Gallo: any payment that exceeds that arbitration provider’s deadline and a statutorily granted 30-day grace period to be a material breach as a matter of law.

In sum, while Plaintiff’s point is accurate that Defendant did not pay the fees presented in the two invoices by the 30-day statutory grace period, the significant fact that Plaintiff does not accord much attention to is that the arbitrator seemingly set a new due date of October 28, 2022. And as the statutes and case law are clear that payment is due by that due date, the court cannot hold Defendant at fault for making a timely payment.

[1] Section 1281.97 pertains to fees regarding initiation of arbitration. (Gallo, infra, at fn. 4.) Here, as Defendant paid the $7,000 initiation, the court will focus on 1281.98, as further evidenced by Plaintiff’s emphasis and citation to CCP section 1281.98.

[2] And as elaborated upon in Williams v. West Coast Hospital, Inc. (2022) 86 Cal.App.5th 1054, “The Assembly Committee on Judiciary report went further, explaining that ‘this bill provides that if a drafting party fails to pay any costs or fees associated with the arbitration within 30 days of the passing of the due date, the consumer or employee is free to remove the matter to court, or continue with arbitration and seek recovery of the costs and fees.’” (Boldface added and italics original).

[3] Because procedures and remedies under both provisions are “largely parallel.” (Id. at p. 633, fn. 4.)

[4] Of import, the ‘Request to Post Fees’ letter in this case did not reference a statutory due date.

[5] In fact, it appears the arbitrator was unavailable from August 8 through September 18, 2022, which may have precluded any discussions with the arbitrator.