Espinoza v. Superior Court of L. A. Cnty.

• Docket Number: B314914
• Decision Date: 27 September 2022
• Citation: 83 Cal.App.5th 761,299 Cal.Rptr.3d 751
• Parties: Rosa M. Quincoza ESPINOZA, Petitioner, v. The SUPERIOR COURT OF LOS ANGELES COUNTY, Respondent; Centinela Skilled Nursing & Wellness Centre West, LLC, Real Party in Interest.
• Court: California Court of Appeals Court of Appeals

83 Cal.App.5th 761

299 Cal.Rptr.3d 751

Rosa M. Quincoza ESPINOZA, Petitioner,

v.The SUPERIOR COURT OF LOS ANGELES COUNTY, Respondent;

Centinela Skilled Nursing & Wellness Centre West, LLC, Real Party in Interest.

B314914

Court of Appeal, Second District, Division 1, California.

Filed September 27, 2022

Pairavi Law, Edwin Pairavi and Joshua M. Mohrsaz, Los Angeles, for Petitioner.

No appearance by Respondent.

Fisher & Phillips, Grace Y. Horoupian, Irvine, Hassan A. Aburish and Megan E. Walker, San Diego, for Real Party in Interest.

Rob Bonta, Attorney General, Nicklas A. Akers, Assistant Attorney General, Michele Van Gelderen and Rachel A. Foodman, Deputy Attorneys General, for Attorney General as Amicus Curiae.

OPINION AND ORDER GRANTING PETITION FOR WRIT OF MANDATE

BENDIX, J.

Plaintiff and petitioner Rosa M. Quincoza Espinoza filed claims for discrimination and retaliation against her former employer, defendant and real party in interest 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.

Plaintiff's motion to lift the litigation stay contended that defendant had failed to pay the arbitration provider's initial invoice within 30 days of the due date for payment, and thus under Code of Civil Procedure ¹ section 1281.97, subdivision (a)(1) was in default and material breach of the arbitration agreement. Under those circumstances, section 1281.97 entitled her to proceed with her claims in court. Defendant opposed the motion and provided evidence that it had since made the necessary payment, and the delay was inadvertent and due to a clerical error.

The trial court found that defendant was not in material breach because it had substantially complied with its payment obligations and the delay did not prejudice plaintiff. Plaintiff filed the instant writ petition, contending that section 1281.97 must be applied strictly when payment is not made within 30 days, with no exceptions for substantial compliance or lack of prejudice. Defendant argues in opposition that strict application of section 1281.97 is contrary to legislative intent. Alternatively, defendant argues section 1281.97 is preempted by the Federal Arbitration Act (FAA) ( 9 U.S.C. § 1 et seq. ), which the trial court found applies to the arbitration agreement between defendant and plaintiff. Defendant did not raise this preemption argument below, and thus the trial court did not address it.

We agree with plaintiff that, based on the plain language as well as the legislative history of section 1281.97, the Legislature intended courts to apply the statute's payment deadline strictly. Thus, under section 1281.97, subdivision (a)(1), defendant was in material breach of the arbitration agreement even though, as the trial court found, the delay in payment was inadvertent, brief, and did not prejudice plaintiff.

We reject defendant's argument that the FAA preempts section 1281.97. The 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." ( Gallo , at p. 630, 297 Cal.Rptr.3d 373.)

Accordingly, we grant the petition.

PROCEDURAL BACKGROUND

On September 10, 2020, plaintiff filed a complaint against defendant in the trial court, asserting claims for disability discrimination, retaliation, and other causes of action arising from her employment with defendant.

On April 1, 2021, defendant moved to compel arbitration pursuant to an agreement plaintiff signed when she began her employment. The trial court granted the motion to compel and stayed further litigation pending the arbitration. In granting the motion, the court found that "the FAA governs the terms of the parties’ agreement."

On May 19, 2021, plaintiff's counsel e-mailed the arbitration provider, stating, "We are initiating arbitration," and providing copies of the complaint, arbitration agreement, and the trial court order compelling arbitration. Plaintiff's counsel sent the e-mail to defendant's counsel as well. On May 24, 2021, the arbitration provider sent the parties an initial invoice for an administrative fee and telephonic arbitration management conference, with a due date of May 31, 2021.

On July 1, 2021, the arbitration provider confirmed to plaintiff's counsel that it had yet to receive payment from defendant. Plaintiff then filed a motion in the trial court under sections 1281.97 and 1281.98 contending defendant had materially breached the arbitration agreement by failing to pay the invoice within 30 days of the due date for payment. Plaintiff sought an order lifting the litigation stay, allowing her claims to proceed in court, and imposing monetary and evidentiary sanctions on defendant under section 1281.99.

Defendant opposed plaintiff's motion, arguing that plaintiff had never served a demand for arbitration on defendant, and thus under the arbitration provider's rules, arbitration could not have commenced even had defendant timely paid the invoice. Defendant also provided declarations averring that defendant's vice president of operations had approved payment of the invoice on June 15, 2021, but "[d]ue to a clerical error, the request for cash flow was delayed and this prevented the accounts payable department from issuing a check for payment of the invoice." Defendant learned on July 1, 2021 that the invoice was unpaid, and the arbitration provider confirmed receipt of defendant's payment on July 9, 2021.

Defendant's counsel further averred that he communicated with plaintiff's counsel on other matters, including settlement negotiations, on June 15 and 24, 2021, during which plaintiff's counsel "made no mention of any delay in the commencement of the arbitration."

Following a hearing, the trial court issued an order denying plaintiff's motion to lift the litigation stay and impose sanctions. The court found defendant was "in substantial[ ] compliance with the arbitration provision and not in material breach ...." The court noted defendant's declaration establishing that defendant's "vice president approved payment of the invoice on June 15 and forwarded the invoice for payment but ... the invoice was not paid then due to ‘clerical error.’ " The court further found plaintiff "suffered no material prejudice" from the delay, as evidenced by plaintiff's counsel "engag[ing] in settlement discussions ... without ... expressing concern that the invoice was not by then paid."

Plaintiff then filed the instant writ petition challenging the trial court's order. A majority of a panel of this court issued an alternative writ directing the trial court to reverse its order, with one justice dissenting. The trial court declined to reverse its order, and we issued an order to show cause.²

DISCUSSION

A. Code of Civil Procedure Section 1281.97

Section 1281.97 was enacted as part of Senate Bill No. 707 (2019–2020 Reg. Sess.) (Senate Bill No. 707) (Stats. 2019, ch. 870, § 4). In the enacting legislation, the Legislature expressed concern that "[a] company's failure to pay the fees of an arbitration service provider in accordance with its obligations contained within an arbitration agreement or through application of state or federal law or the rules of the arbitration provider hinders the efficient resolution of disputes and contravenes public policy." (Stats. 2019, ch. 870, § 1, subd. (c).) Further, "[a] company's strategic non-payment of fees and costs severely prejudices the ability of employees or consumers to vindicate their rights. This practice is particularly problematic and unfair when the party failing or refusing to pay those fees and costs is the party that imposed the obligation to arbitrate disputes." (Id. , § 1, subd. (d).)

The enacting legislation cited two opinions by the Ninth Circuit Court of Appeals, Brown v. Dillard's, Inc. (2005) 430 F.3d 1004 and Sink v. Aden Enterprises, Inc. (2003) 352 F.3d 1197, characterizing them as holding that "an employer's refusal to participate in arbitration" or "an employer's failure to pay arbitration fees" constituted "a material breach" of the arbitration agreement. (Stats. 2019, ch. 870, § 1, subd. (e).)

The legislation also quoted Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 99 Cal.Rptr.2d 745, 6 P.3d 669 for the proposition that " ‘when an employer imposes mandatory arbitration as a condition of employment, the arbitration agreement or arbitration process cannot generally require the employee to bear any type of expense that the employee would not be required to bear if he or she were free to bring the action in court.’ " (Stats. 2019, ch. 870, § 1, subd. (b).) Senate Bill No. 707 was intended to "affirm" these three court decisions and establish "that a company's failure to pay arbitration fees pursuant to a mandatory arbitration provision constitutes a breach of the arbitration agreement and allows the non-breaching party to bring a claim in court." (Id. , § 1, subd. (f).)

Section 1281.97, subdivision (a)(1) provides, "In an employment or consumer arbitration that requires, either expressly or through application of...