Judge Upinder S. Kalra, Case Number: 23STCV02036, Date: 2023-08-17 Tentative Ruling

On January 31, 2023, Plaintiff Bradley Schamel (“Plaintiff”) filed a complaint against Defendant Epirus, Inc. (“Defendant.”) The complaint alleged eight causes of action, including discrimination, harassment, and retaliation. Plaintiff, an officer in the United States Army, was employed by Defendant and had continuing military service obligations. In late 2019, Plaintiff informed Defendant about an upcoming military deployment to Ukraine. After returning from his deployment, Plaintiff was informed that his position as Chief of Strategy and Chief of Staff were no longer needed. After later being denied a promotion, Plaintiff eventually was terminated.

On April 6, 2023, the parties entered a Stipulation and Order Submitting the Matter to Arbitration and stayed the action.

On May 31, 2023, Plaintiff filed a Motion for Order Lifting Stay Pursuant to CCP §§ 1281.97 and 1287.99. Defendant’s Opposition was filed on August 4, 2023. Plaintiff’s Reply was filed on August 10, 2023.

(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, the drafting party to pay certain fees and costs before the arbitration can proceed, if the fees or costs to initiate an 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 arbitration under Section 1281.2.

(2) After an employee or consumer meets the filing requirements necessary to initiate an arbitration, the arbitration provider shall immediately provide an invoice for any fees and costs required before the arbitration can proceed 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.

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

(1) Withdraw the claim from arbitration and proceed in a court of appropriate jurisdiction.

(2) Compel arbitration in which the drafting party shall pay reasonable attorney's fees and costs related to the arbitration.

(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.

Defendant request that the Court take judicial notice of the following documents:

The Court may take judicial notice of the existence of the records, but not the truth of matters asserted in such records. (Sosinsky v. Grant (1992) 6 Cal.App.4th 1548, 1565). As a result, although the court may take judicial notice that the documents exists, the Court may not take judicial notice of the truth of the facts in the documents.

Additionally, Evidence Code only allows the Court to take judicial notice of certain types of documents. The court may take judicial notice of “official acts of the legislative, executive, and judicial departments of the United States and of any state of the United States,” “[r]ecords of (1) any court of this state or (2) any court of record of the United States or of any state of the United States,” and “[f]acts and propositions that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy.” (Evid. Code § 452, subds. (c), (d), and (h).) The Evidence Code does not allow the Court to take judicial notice of discovery responses or parts of cases, such as depositions.

Plaintiff moves for an order lifting the stay on litigation in the current matter. Plaintiff argues that Defendant are in material breach of the arbitration agreement for failure to pay the required arbitration fees in a timely fashion pursuant to CCP § 1281.97(a)(1).

Defendant argues that this motion fails for various reasons. First, Defendant timely paid the arbitration fees based on the invoice sent on May 17, 2023, based on JAMS Rule 8 as documents are deemed complete when filed with the JAMS Electronic Filing System. Moreover, Defendant did not agree to email service. Second, whether Plaintiff can rescind his agreement is an issue for the arbitrator not the court. Third, this agreement is a written contract involving interstate commerce, which triggers the FAA and makes CCP § 1281.97 inapplicable. Lastly, Defendant has acted consistently with the right to arbitrate and therefore, has not materially breached the agreement.

The Court finds that Defendant’s did not timely file the required arbitration fees. The Court in Espinoza provided that the language in Section § 1281.97 indicates that the receiving the invoice starts the 30-day period.

Section 1281.97 further requires that the arbitration provider “immediately provide an invoice for any fees and costs,” which is “due upon receipt” “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.” (§ 1281.97, subd. (a)(2).)5 Thus, unless the parties expressly agree to the contrary, the drafting party's receipt of the invoice triggers the 30-day clock under section 1281.97, subdivision (a)(1).

Here, Exhibit 4 attached to the Declaration of Rachael Levi is the Deposit Request. It states the “Invoice Date” as April 25, 2023 and transmitted via email on April 26, 2023. (Dec. Sumell ¶6, Ex. 2.) As of May 30, 2023, the fees had yet to be paid. (Dec. Sumell ¶¶7-8, Ex. 3.) Based on the language of CCP § 1281.97(a)(2), the “arbitration provider shall issue all invoices to the parties as due upon receipt.” Here, the undisputed evidence indicates that the invoice that was sent on April 26, 2023, remained unpaid for at least 30 days.[1]

Second, as to Defendant’s argument about having the arbitrator determine this issue, the Court finds this unavailing. The Court in Belyea went on to say the following:

This interpretation comports with common sense. While payment timing seems “procedural,” it would defy logic to require that an arbitrator must presumptively resolve issues of waiver and breach under § 1281.97 where the dispute's substance is the failure to pay the arbitrator to decide the case. If a party continued to withhold payment, the arbitrator would never resolve the dispute.”

(Belyea v. GreenSky, Inc. (N.D. Cal., Oct. 26, 2022, No. 20-CV-01693-JSC) 2022 WL 14965532, at *3.)

Here, the issue is whether Defendant timely paid the arbitrator. Thus, had Defendant not paid the arbitrator in June, it would not have reached the arbitrator in any manner.

Third, as to Defendant’s argument concerning the FAA, the Court also finds this unavailing. Here, Defendant argues that because the Arbitration Agreement is a “written contract involving interstate or foreign commerce.” However, the Arbitration Agreement does not state that the FAA governs the agreement. In the Employee Confidential Information and Inventions Assignment Agreement further states that it is governed by the laws of the State of California. (Dec. Levi, Ex.1, pg. 5, 12.1.) The Court in Espinoza stated that if the agreement does not expressly incorporate either the CAA or the FAA, the CAA applies.

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.”

Lastly, while Defendant argues that it “acted consistently with the right to arbitrate,” the express language of CCP § 1281.97 states that a party who fails to timely pay a fee is in material breach of the agreement and waives its right to compel arbitration. The Court in Williams stated, “We perceive no ambiguity in the Legislature's description of the consumer's choice as unilateral or in its resort to the language of “material breach,” “default,” and “waiver” in giving legal consequence to the drafting party's failure of timely payment.” (Williams v. West Coast Hospitals, Inc. (2022) 86 Cal.App.5th 1054, 1066, (review denied (Mar. 29, 2023).) The Court further provided that the legislative history indicates a strict reading of the plaint language of the statute. “In enacting sections 1281.97 and 1281.98, the Legislature intended to prevent drafting parties from abusing their obligation to pay arbitration fees as a means of “severely prejudic[ing]” employees and consumers in the vindication of their rights by “hinder[ing] the efficient resolution of disputes.” (Id. at 1067.) Thus, based on the plain language of the statute, Defendant failed to timely pay the arbitration fees. Despite Defendant’s willingness and desire to arbitrate the claims, the intent behind CCP § 1281.97 indicates that failure to pay is a material breach and thus, a breaching party waives their right to arbitrate.

The Motion for Order Lifting the Stay is GRANTED. Pursuant to CCP § 1281.99 monetary sanction are mandatory. The Court finds that the requested fees of $1300 are reasonable based on the lodestar of two hours at the rate of $650 per hour. The Court also awards costs in the amount of $68.91. As such, counsel for Defendant is ordered to pay those amounts to Plaintiff within 30 days of this order.

The Motion for Order Lifting the Stay is GRANTED. Fees and costs are also imposed in the amount of $1368.91.

[1] Defendant contends that the reminder notice sent on May 17, 2023, is the operative date that triggered the 30 day clock because the April notice was sent via email and Defendant had not agreed to email service. The Court does not find Defendant’s position tenable. First, Defendant does not contend that they did not receive the email. Second, Defendant provides no authority that service of the invoice by electronic means requires consent. Third, electronic service is mandatory of represented parties in the Los Angeles Superior Court. Fourth, Defendant utilized electronic service exclusively while the case was being litigated in the Superior Court.