MKJA Inc. v. 123 Fit Franchising, LLC
191 Cal. App. 4th 643
| Cal. Ct. App. | 2011Background
- California stayed this action under CCP §1281.4 after 123 Fit sought to compel arbitration in Colorado.
- Colorado court granted petition to compel arbitration; California action remained stayed pending arbitration.
- Plaintiffs claimed arbitration provisions were unconscionable and sought to lift the stay due to prohibitive arbitration costs.
- Trial court lifted the stay in 2009 and declared the arbitration provisions unenforceable/unconscionable, citing plaintiffs’ inability to pay arbitration costs.
- The appellate court held that (i) the stay could not be lifted solely because of cost, (ii) the trial court lacked jurisdiction to declare the arbitration provisions unenforceable/unconscionable, and (iii) the stay reversal was required to preserve arbitrator jurisdiction and arbitration enforceability.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| May a stay under §1281.4 be lifted solely because a party cannot afford arbitration costs? | Plaintiffs claim discretionary lifting allowed. | Court may lift only under circumstances not frustrating arbitrator. | No; cost alone cannot justify lifting the stay. |
| Does the trial court have jurisdiction to declare arbitration provisions unenforceable after lifting the stay? | Arbitration provisions unconscionable; court should decide. | Arbitrator’s jurisdiction governs; court has limited vestigial power. | Court lacked jurisdiction to declare provisions unenforceable/unconscionable. |
| Is the order lifting the stay appealable and properly reviewable as a related ruling? | Yes, as the functional equivalent of a denial to compel arbitration. | Appealability uncertain; review limited. | The stay-lifting order is appealable and reviewable. |
Key Cases Cited
- Henry v. Alcove Investment, Inc., 233 Cal.App.3d 94 (Cal. Ct. App. 1991) (stay/denial to compel arbitration is appealable and equivalent to denial of arbitration)
- SWAB Financial, LLC v. E*Trade Securities, LLC, 150 Cal.App.4th 1181 (Cal. Ct. App. 2007) (vestigial jurisdiction after stay is narrowly limited)
- Titan/Value Equities Group, Inc. v. Superior Court, 29 Cal.App.4th 482 (Cal. Ct. App. 1994) (court exceeded vestigial jurisdiction by pressuring arbitration after stay)
- Federal Insurance Co. v. Superior Court, 60 Cal.App.4th 1370 (Cal. Ct. App. 1998) (purpose of stay to protect arbitrator’s jurisdiction)
- Winter v. Window Fashions Professionals, Inc., 166 Cal.App.4th 943 (Cal. Ct. App. 2008) (arbitration unconscionability arguments considered in context of arbitration)