Gallo v. Wood Ranch USA, Inc.

• Decision Date: 25 July 2022
• Docket Number: B311067
• Parties: Sunny GALLO, Plaintiff and Respondent, v. WOOD RANCH USA, INC., Defendant and Appellant.
• Court: California Court of Appeals Court of Appeals

81 Cal.App.5th 621

297 Cal.Rptr.3d 373

Sunny GALLO, Plaintiff and Respondent,

v.WOOD RANCH USA, INC., Defendant and Appellant.

B311067

Court of Appeal, Second District, Division 2, California.

Filed July 25, 2022

Raines Feldman, Beth A. Schroeder and Matthew D. Pate, Los Angeles, for Defendant and Appellant.

Bordin Semmer, Joshua D. Bordin-Wosk and Benjamin A. Sampson, for Plaintiff and Respondent.

HOFFSTADT, J.

Perceiving that employees and consumers were being placed in a "procedural limbo" when they were forced to sign arbitration agreements by entities who subsequently refused to pay the necessary fees to allow the arbitrations to move forward, the California Legislature enacted Code of Civil Procedure sections 1281.97, 1281.98 and 1281.99.¹ (Stats. 2019, ch. 870, § 4; Assem. Floor Analysis, 3d reading analysis of Sen. Bill No. 707 (2019-2020 Reg. Sess.) as amended May 20, 2019, p. 2.) These provisions 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, and specify that the failure to do so constitutes a "material breach of the arbitration agreement" that gives the employee or consumer, in addition to a mandatory award of attorney fees and costs related to the breach as well as other discretionary sanctions, the options of either (1) continuing in arbitration with the company or business paying attorney fees and costs related to the arbitration as a whole or (2) withdrawing from arbitration and resuming the litigation in a judicial forum. ( §§ 1281.97, 1281.98, 1281.99.) This appeal presents a question of first impression: Are these provisions preempted by the Federal Arbitration Act (FAA) ( 9 U.S.C. § 1 et seq. )? We hold that they are not because the procedures they prescribe further —rather than frustrate —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. We accordingly affirm the trial court's order vacating its earlier order compelling arbitration between the parties in this case.

FACTS AND PROCEDURAL BACKGROUND

I. Facts

In 2015, Wood Ranch USA, Inc. (Wood Ranch) hired Sunny Gallo (plaintiff) to work as a server for its chain of restaurants.

As a condition of her employment with Wood Ranch, plaintiff was required to sign an arbitration agreement and to agree to the terms of the employee handbook. The agreement provides that "[a]ny controversy, dispute or claim between any employee and [Wood Ranch] ... shall be settled by binding arbitration." The agreement also specifies that the arbitrator is to "apply applicable California and/or federal substantive law to determine issues of liability and damages regarding all claims," but is to look to the "California Arbitration Act ... to conduct the arbitration and any pre-arbitration activities." The employee handbook reinforces the parties' agreement that they will look to the California Arbitration Act, including its "procedural provisions," "to conduct the arbitration and any pre-arbitration activities."

Plaintiff's employment was terminated in March 2018.

II. Procedural Background

A. Complaint

In January 2020, plaintiff sued Wood Ranch for compensatory and punitive damages on nine different causes of action.² Without any further details, plaintiff alleged that she suffered discrimination and retaliation on the basis of gender and religion.

B. Arbitration is compelled

In February 2020, Wood Ranch moved to compel arbitration. After briefing and a hearing, the trial court in July 2020 granted the motion and stayed the pending court proceedings.

C. Selection of arbitrator, but late payment of fees

By September 2020, plaintiff and Wood Ranch had agreed which arbitrator to use.³ The arbitrator was affiliated with the American Arbitration Association (AAA).

On October 20, 2020, AAA sent a letter to counsel for both parties, informing them that plaintiff's "portion of the initial filing fee is $300," that it was due by October 27, 2020, and that "payment should be submitted by credit card or electronic check" using a "secured paylink" that would be "forthcoming with instructions."

Plaintiff paid the $300 the very same day.

The next day, on October 21, 2020, AAA sent a letter to counsel for both parties, informing them that plaintiff had paid her fees, that Wood Ranch now had to "pay its share of the filing fee in the amount of $1,900," and that the fee was due by November 4, 2020. The letter included this admonition:

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.

(Boldface and underline in original.) Like the letter requesting payment from plaintiff, this letter also specified that Wood Ranch's payment "should be submitted by credit card or electronic check" and that "[a] secured paylink" would "be forthcoming."

The November 4 due date came and went without any payment from Wood Ranch.

On November 9, 2020, AAA sent a further letter to counsel for both parties reminding Wood Ranch that it had not yet paid and informing Wood Ranch, again in boldface, that "in accordance with California Code of Civil Procedure 1281.97 and 1281.98, the AAA will close its case on December 4, 2020 if payment is not received. "

All of these letters were sent to a partner of the law firm representing Wood Ranch, but the partner—for reasons unknown—never forwarded any of this correspondence to the law firm associate handling the case on a day-to-day basis or to the assigned law firm secretary.

The December 4 due date came and went without any payment from Wood Ranch.

Four days after that second due date, the law firm associate representing Wood Ranch contacted AAA about the missed deadline. Two days later—on December 10, 2020—Wood Ranch paid the $1,900 fee.

D. Motion to vacate the order compelling arbitration

On December 16, 2020, plaintiff filed a motion to vacate the trial court's prior order compelling arbitration. Invoking sections 1281.97 and 1281.99, plaintiff argued that Wood Ranch's late payment of its share of the initiation fees constituted a material breach of the arbitration agreement, and declared plaintiff's election to withdraw from arbitration and pursue her case in court.

After further briefing, and a hearing, the trial court granted the motion. The court rejected both of Wood Ranch's main defenses to the motion. The court ruled that sections 1281.97 and 1281.99 were not preempted by the FAA because those provisions "enforce[ ], rather than frustrate[ ], the purpose of the FAA." The court also ruled that Wood Ranch had no viable excuse for its late payment, as there was "no competent evidence of pandemic-related excuses, whether due to a closed restaurant ... or internal office problems" because the assigned partner at the law firm Wood Ranch retained had been "included on all correspondence."

The court also imposed monetary sanctions of $2,310 reflecting the attorney fees and costs plaintiff incurred as a result of Wood Ranch's breach of the arbitration agreement. The court declined to impose any evidentiary or terminating sanctions.

E. Appeal

Wood Ranch filed this timely appeal.

DISCUSSION

Wood Ranch argues that the trial court erred in vacating its previous order compelling arbitration because, in its view, the statutes on which the order vacating arbitration is based— sections 1281.97 and 1281.99 —are preempted by the FAA. We will review the trial court's order de novo: As a general matter, an order vacating an order compelling arbitration is the functional equivalent of an order denying a petition to compel arbitration in the first place because both divert a case into court rather than arbitration; because the former is reviewed de novo ( Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 376, fn. 9, 36 Cal.Rptr.2d 581, 885 P.2d 994 ), so should the latter. Further, because the propriety of the order in this case rests on questions of federal preemption as well as the application of undisputed facts to the law, de novo review is particularly appropriate. ( Farm Raised Salmon Cases (2008) 42 Cal.4th 1077, 1089, fn. 10, 72 Cal.Rptr.3d 112, 175 P.3d 1170 ["federal preemption presents a pure question of law" warranting "de novo standard of review"]; Boling v. Public Employment Relations Bd. (2018) 5 Cal.5th 898, 912, 236 Cal.Rptr.3d 109, 422 P.3d 552 ["the application of law to undisputed facts ordinarily presents a legal question that is reviewed de novo"].)

I. Applicable Law

A. The California provisions at issue

In 1961, the California Legislature enacted the California Arbitration Act (CAA) ( § 1280 et seq. ) as a way to protect the right of private parties to resolve their disputes through the "efficient, streamlined procedures" of arbitration. ( AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 344, 131 S.Ct. 1740, 179 L.Ed.2d 742 ( Concepcion ).) The CAA also defines what those procedures are, at least in the absence of the parties' mutual decision to adopt different procedures. ( Cronus Investments, Inc. v. Concierge Services (2005) 35 Cal.4th 376, 394, 25 Cal.Rptr.3d 540, 107 P.3d 217 ( Cronus ).)

In 2019, the California Legislature added sections 1281.97 and 1281.99 to the CAA.

Section 1281.97 lays out the procedures by which the initial arbitration-related fees and costs are to be paid by a "company or business" that has "included a predispute arbitration provision in a contract with a consumer or employee." ( §§ 1281.97, 1280, subd. (e).)⁴ Specifically, once the "employee or consumer meets the filing requirements necessary to initiate an arbitration," the company or business must then pay its share of initiation fees or costs "within 30 days after the due date" set by the arbitration provider.⁵ ( § 1281.97, subd. (...