De Leon v. Juanita's Foods

• Citation: 85 Cal.App.5th 740,301 Cal.Rptr.3d 678
• Decision Date: 23 November 2022
• Docket Number: B315394
• Parties: Kail DE LEON, Plaintiff and Respondent, v. JUANITA'S FOODS, Defendant and Appellant.
• Court: California Court of Appeals

85 Cal.App.5th 740

301 Cal.Rptr.3d 678

Kail DE LEON, Plaintiff and Respondent,

v.JUANITA'S FOODS, Defendant and Appellant.

B315394

Court of Appeal, Second District, Division 3, California.

Filed November 23, 2022

Jackson Lewis, James P. Carter and Jessica M. Ewert, Irvine, for Defendant and Appellant.

Guerra & Casillas, Ruben Guerra and Tizoc Perez-Casillas, for Plaintiff and Respondent.

EDMON, P. J.

Code of Civil Procedure sections 1281.97 and 1281.98 provide that if a company or business that drafts an arbitration agreement does not pay its share of required arbitration fees or costs within 30 days after they are due, the company or business is in "material breach" of the arbitration agreement. ( Code Civ. Proc., §§ 1281.97, subd. (a)(1) ; 1281.98, subd. (a)(1).¹ ) In the case of such a material breach, an employee or consumer can, among other things, withdraw his or her claim from arbitration and proceed in court. ( §§ 1281.97, subd. (b)(1) ; 1281.98, subd. (b)(1).)

Following commencement of arbitration proceedings between appellant Juanita's Foods and respondent Kail De Leon, Juanita's Foods failed to pay its share of arbitration fees within 30 days after such fees were due. Based on that late payment, the trial court concluded that Juanita's Foods was in material breach of the parties’ arbitration agreement and allowed De Leon to proceed with his claims against Juanita's Foods in court.

Juanita's Foods argues that the trial court should have considered factors in addition to its late payment—for example, whether the late payment delayed arbitration proceedings or prejudiced De Leon—to determine the existence of a material breach of the arbitration agreement.

We conclude that the trial court correctly declined to consider these additional factors, and we affirm.

FACTUAL AND PROCEDURAL BACKGROUND

I. The arbitration agreement

The material facts underlying this appeal are not in dispute. De Leon filed a civil complaint against Aerotek, Inc. and Juanita's Foods on January 28, 2020, alleging 20 causes of action relating to his former employment.² Aerotek thereafter filed a motion to compel arbitration and Juanita's Foods filed a joinder in that motion.

Aerotek's motion was based on its arbitration agreement with De Leon. The arbitration agreement states that De Leon entered into the agreement "[a]s consideration for [his] application for and/or [his] employment with Aerotek, Inc....." In their arbitration agreement, Aerotek and De Leon agreed that De Leon would arbitrate "all disputes, claims, complaints, or controversies" he had against Aerotek "and/or any of its clients or customers," and that the parties would "use Judicial Arbitration and Mediation Services (‘JAMS’) subject to its then-current employment arbitration rules and procedures ...." Aerotek and De Leon further agreed that the arbitration agreement was "governed by the [Federal Arbitration Act, 9 U.S.C. § 1 et seq. (FAA)] and, to the extent not inconsistent with or preempted by the FAA, by the laws of the state of California ...."

It is undisputed that the arbitration agreement between Aerotek and De Leon applies to De Leon's claims against Juanita's Foods.³

II. Juanita's Foods's failure to timely pay arbitration fees

The trial court granted the motion to compel arbitration on October 16, 2020. On October 22, 2020, De Leon submitted a demand for arbitration to JAMS, identifying both Aerotek and Juanita's Foods as respondents.

JAMS then sent separate invoices dated November 2, 2020, to Aerotek and Juanita's Foods. The invoices billed $1,300 to each Aerotek and Juanita's Foods, and identified the invoiced amounts as "Filing Fee[s]." The invoices stated, "For Arbitration Cases, please contact your case manager for due date, otherwise, payment is due upon receipt." Aerotek paid the filing fee on November 10, 2020, and Juanita's Foods paid the filing fee on November 25, 2020.

On December 3, 2020, JAMS sent a letter to the parties confirming commencement of the arbitration proceedings. Among other things, the letter notified the parties that the "only fee a consumer employee may be required to pay is $400 of the Filing Fee," and that "[a]ll other costs, including the remainder of the Filing Fee, must be borne by the company."⁴ The parties thereafter selected an arbitrator from a list provided by JAMS.

Then, on December 17, 2020, JAMS issued separate invoices for $5,000 to each Juanita's Foods and Aerotek. The invoices stated in part that the fees were a "[d]eposit for services: To be applied to professional time (session time, pre and post session reading, research, preparation, conference calls, travel, etc.), expenses and case management fees." Juanita's Foods does not dispute that JAMS appropriately allocated these fees between Juanita's Foods and Aerotek.⁵

The next day, JAMS sent a letter to the parties confirming appointment of the arbitrator and attaching the arbitrator's fee schedule. In its letter, JAMS again notified the parties that other than "$400 of the Filing Fee," "[a]ll other costs, including the remainder of the Filing Fee, must be borne by the company." The letter further advised the parties that the "paying party has been billed a preliminary deposit to cover the expense of all pre-hearing work" and that "[p]ayment is due no later" than January 4, 2021.⁶ According to the fee schedule attached to the letter, "[a]ll fees are due and payable in advance of services rendered and by any applicable due date as stated in a hearing confirmation letter."

On January 4, 2021, the due date for the JAMS invoices, JAMS emailed the parties reminding them that the "initial retainer payment is due today" and provided them with payment instructions. JAMS sent a follow-up email to the parties on January 27, 2021, advising them that JAMS still had not received the "initial retainer deposit request."

JAMS sent another email to the parties on February 4, 2021, advising them that although Aerotek had paid the outstanding fees, JAMS had not received the "outstanding balance of $5,000 for the initial retainer in this matter" from Juanita's Foods. Counsel for Juanita's Foods responded the same day, notifying JAMS that it had advised Juanita's Foods "to pay the invoice [as soon as possible]."

On February 5, 2021, counsel for De Leon advised JAMS and the parties that De Leon would file a motion to terminate arbitration proceedings because of Juanita's Foods's failure to pay the outstanding balance within 30 days after its due date. Later that same day, counsel for Juanita's Foods advised JAMS and the parties that Juanita's Foods intended to pay the outstanding fee "in the immediate future" and asked JAMS to proceed with the arbitration.

At first, JAMS responded that it would proceed with scheduling an arbitration management conference because Juanita's Foods had "advised that payment ... is forthcoming." Minutes later, De Leon advised JAMS and the parties that he had filed a motion to vacate the order compelling arbitration. JAMS then promptly changed course, notifying the parties it would not proceed with arbitration proceedings until De Leon's motion was resolved.

Juanita's Foods paid JAMS the outstanding fees on February 8, 2021. The parties agree that Juanita's Foods did not pay the outstanding fees of $5,000 within 30 days after the due date set by JAMS.

III. Motion to vacate order compelling arbitration

De Leon's motion to vacate the order compelling arbitration sought termination of the arbitration proceedings with both Juanita's Foods and Aerotek, relying on Juanita's Foods's failure to pay the outstanding fees to JAMS within 30 days after the due date. The trial court concluded that arbitration could continue between De Leon and Aerotek because Aerotek had timely paid its portion of arbitration fees. That aspect of the trial court's ruling is not before us.

Relevant here, the trial court also concluded that Juanita's Foods's failure to pay the required arbitration fees within 30 days after the due date constituted a material breach of the arbitration agreement pursuant to section 1281.98.⁷ Relying on the "plain language" of section 1281.98, the court concluded that "a defendant is automatically in material breach of the arbitration agreement once the defendant fails to pay the arbitration fees or costs within 30 days of the due date." The court thus declined Juanita's Foods's request that the court consider additional factors beyond the late payment—such as whether the late payment created delay in the arbitration proceedings or otherwise prejudiced De Leon—to determine whether Juanita's Foods materially breached the arbitration agreement.

Last, although it found that section 1281.98 was "unambiguous and clear," the court also considered the statute's legislative history. The court found that the legislative history failed to support Juanita's Foods's contention that "the legislature only wanted the statute to apply when there has been some kind of delay in the arbitration proceeding."

The court stayed the lawsuit against Juanita's Foods pending the outcome of the arbitration proceeding against Aerotek to "address any issues regarding conflicting rulings on common issues of law or fact."

Juanita's Foods timely appealed.

DISCUSSION

Juanita's Foods contends the trial court erred by failing to consider additional factors aside from its late payment in determining the existence of a "material breach" pursuant to section 1281.98. We disagree. Like the trial court, we conclude that late payment as provided in section 1281.98 constitutes a "material breach" without regard to any additional considerations. We reach that conclusion based on the statute's plain language. However, like the trial court, we also find that the statute's legislative history supports our interpretation.

I. Standard of review and statutory construction principles

Ordinarily, a trial court's determination that a party waived the right to arbitrate is subject to substantial evidence review. ( Burton v....