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
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA, SECOND APPELLATE DISTRICT, DIVISION ONE
September 27, 2022
ORIGINAL PROCEEDING; petition for writ of mandate. Richard L. Fruin, Judge. Petition is granted. CERTIFIED FOR PUBLICATION. (Los Angeles County Super. Ct. No. 20STCV34704)
Pairavi Law, Edwin Pairavi and Joshua M. Mohrsaz for Petitioner.
No appearance by Respondent.
Fisher & Phillips, Grace Y. Horoupian, Hassan A. Aburish and Megan E. Walker 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.
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 Procedure1 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
We agree with plaintiff that, based on the plain language as well as the legislative history of
We reject defendant‘s argument that the FAA preempts
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,
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
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
DISCUSSION
A. Code of Civil Procedure Section 1281.97
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 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
In the event the drafting party does not pay the invoice within the 30 days, thus materially breaching the arbitration agreement under
Should the employee or consumer choose to proceed in court, “the court shall impose sanctions on the drafting party in accordance with Section
The court “may” impose additional specified sanctions “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.” (
B. Section 1281.97 Contains No Exceptions for Substantial Compliance, Unintentional Nonpayment, or Absence of Prejudice
The parties do not dispute that defendant did not pay the arbitration provider‘s invoice within 30 days of the due date for payment. The trial court nonetheless denied plaintiff‘s motion under
“‘“‘When we interpret a statute, “[o]ur fundamental task . . . is to determine the Legislature‘s intent so as to effectuate the law‘s purpose. We first examine the statutory language, giving it a plain and commonsense meaning. We do not examine that language in isolation, but in the context of the statutory framework as a whole in order to determine its scope and
The language of
Supporting our conclusion is that elsewhere in the statutory scheme enacted under Senate Bill No. 707, the Legislature expressly granted the trial court discretion whether to order certain remedies for nonpayment.
Given the Legislature‘s express grant of discretion as to imposition of nonmonetary sanctions, we may presume the Legislature did not intend implicitly to grant that same discretion on the issues of material breach and imposition of monetary sanctions. (Jarman v. HCR ManorCare, Inc. (2020) 10 Cal.5th 375, 385 [“‘When one part of a statute contains a term or provision, the omission of that term or provision from another part of the statute indicates the Legislature intended to convey a different meaning.‘“]; People v. Buycks (2018) 5 Cal.5th 857, 880
Defendant argues the legislative history of Senate Bill No. 707 indicates the Legislature‘s intent was to discourage drafting parties from deliberately delaying payment of fees, “not to punish innocent parties who unintentionally delayed” payment. Defendant contends to apply the remedies of section 1281.97 in the present circumstance, in which defendant‘s delay in payment was inadvertent and due to a clerical error, would be an “absurd consequence[ ].”
It is certainly true that “strategic non-payment of fees” was a motivating concern behind Senate Bill No. 707. (Stats. 2019, ch. 870, § 1, subd. (d).) Had the Legislature intended to limit the reach of the statute to that circumstance, it could have done so, including by adding a provision to
We do not agree that applying the statute strictly, even when nonpayment is inadvertent, leads to absurd consequences. Although strict application may in some cases impose costs on drafting parties for innocent mistakes, the Legislature could have concluded a brightline rule is preferable to requiring the nondrafting party to incur further delay and expense establishing the nonpayment was intentional and prejudicial. The Legislature also reasonably could have decided that whatever the reason for a delay in payment, the drafting party should bear the consequences of that delay rather than the nondrafting party.
Indeed, the legislative history indicates the Legislature considered and rejected the argument that
Defendant argues that Sink, the Ninth Circuit case cited in the legislation enacting
In sum, the trial court erred in denying plaintiff‘s motion on the basis that defendant substantially complied with
C. The FAA Does Not Preempt Section 1281.97
Our conclusion that
“The FAA makes arbitration agreements ‘valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the
The FAA also preempts facially neutral state-law rules that “disfavor arbitration as applied by imposing procedural requirements that ‘interfere[ ] with fundamental attributes of arbitration,’ especially its ‘“lower costs, greater efficiency and speed, and the ability to choose expert adjudicators to resolve specialized disputes.” [Citation.]’ [Citation.]” (Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1143 (Sonic), quoting AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 344, 348 (Concepcion).)
Defendant argues
After completion of briefing and oral argument in the instant case, our colleagues in Division Two issued their decision in Gallo, supra, 81 Cal.App.5th 621, upholding the validity of
In Gallo, the defendant failed to pay its arbitration fees within 30 days of the deadline set by the arbitration provider, apparently due to miscommunications within the law firm representing the defendant. (Gallo, supra, 81 Cal.App.5th at pp. 631-632.) The defendant ultimately paid its fees 10 days past the 30-day cutoff. (Id. at p. 632.) The trial court granted the plaintiff‘s motion under
The Court of Appeal affirmed the trial court. (Gallo, supra, 81 Cal.App.5th at p. 647.) The appellate court acknowledged that
The court disagreed with the defendant, however, that this required a finding of preemption.
Analyzing precedent, the Gallo court observed that the mere fact that a law applies solely to arbitration is insufficient to preempt it under the FAA. (Gallo, supra, 81 Cal.App.5th at p. 638.) Rather, the FAA preempts state laws that “single[] out one or more types of arbitration agreements in order to ‘outright’ ‘prohibit[]’ their formation or enforcement,” such as laws prohibiting arbitration of certain categories of claims. (Id. at pp. 637-638.) The FAA also preempts state laws that, while not outright barring arbitration of certain claims, “‘more subtly’ discourage” the formation or enforcement of arbitration agreements, for example by imposing heightened notice requirements for arbitration agreements, limiting the ability of representatives with power of attorney to sign arbitration agreements, or prohibiting waivers of class arbitration. (Id. at p. 638.)
In contrast, Gallo noted state laws “that define the standard rules ‘governing the conduct of arbitration,‘” such as provisions within the California Arbitration Act (CAA) (
Applying these principles, the Gallo court concluded that, although
The court also concluded
The court further held that
As for the FAA‘s “goal of safeguarding arbitration as an expedited and cost-efficient vehicle for resolving disputes,” the Gallo court concluded
The Gallo court rejected the defendant‘s argument, similar to defendant‘s argument in this case, that
The court further noted that all arbitration-specific rules alter rights the parties otherwise would have under generally applicable litigation principles—for example, the rules limiting judicial review of arbitration awards deprive the losing party of the full right to appeal available in litigation. (Gallo, supra, 81 Cal.App.5th at p. 644Id. at p. 645.) The court explained: “[S]ection 1281.97 is one of several statutes that are part of the CAA, which defines the very procedures by which arbitration is to be conducted under California law. These statutes, by definition, set up different procedures from those governing litigation in the California courts. In any given case (and thus in every single case), one of the parties to an arbitration will be able to show that it was harmed by being subject to those arbitration-specific procedures: A party who might have obtained a reversal due to legal or factual error in the trial court will be denied that reversal under the more limited review provisions of section 1286.2, just as [the defendant] is now arguing that it might not have been found in material breach of the arbitration agreement had it been in court (and not subject to § 1281.97), where it could have advanced its counsel‘s inattentiveness as a possible excuse for its 36-day-late payment. If that showing were enough to justify preemption under the FAA, then preemption would be found in every case and the CAA would cease to exist. This is contrary to the law, explained above, which has repeatedly rejected FAA preemption challenges to the CAA‘s provisions defining how arbitration is to proceed.” (Id. at pp. 644-645.)
Addressing other arguments the defendant in Gallo raised, the court concluded the fact that
Gallo noted that federal district courts uniformly had rejected arguments the FAA preempted
2. Analysis
a. Under Gallo‘s reasoning, defendant‘s preemption argument fails
We agree with Gallo that
Once a court has enforced an arbitration agreement, however (or the parties have agreed to arbitrate under it),
Further distinguishing
Also compelling is Gallo‘s reasoning that the mere fact an arbitration specific rule alters the rights the parties would have in ordinary litigation does not necessarily mean the rule conflicts with the FAA‘s equal treatment principle. As Gallo explained, courts have upheld the CAA‘s limitations on judicial review of arbitration awards, despite those rules depriving the parties of their full appellate rights. (Gallo, supra, 81 Cal.App.5th at pp. 644-645.) Similarly,
Defendant argues Gallo is inapposite because the court in that case “was not presented with the issue of whether strict application of [
Nothing in Gallo suggests its holding depends on the trial court‘s ruling under
Defendant further argues
b. The arbitration agreement at issue incorporated the CAA by default
As we explain below, the arbitration agreement in the instant case differs from the arbitration agreement in Gallo in that it does not expressly incorporate the CAA. That distinction does not affect our holding, because we conclude the arbitration agreement in the instant case incorporates the CAA by default.
The arbitration agreement in Gallo stated that the arbitrator was “to look to the ‘California Arbitration Act . . . to conduct the arbitration and any pre-arbitration activities.‘”
(Gallo, supra, 81 Cal.App.5th at p. 630.) The Gallo court emphasized this express agreement to incorporate the CAA, which now includes
The arbitration agreement at issue in the instant case does not include express language broadly incorporating the CAA. On the subject of governing law, the agreement states, “The arbitrator shall be bound by the provisions and procedures set forth in the Employment Arbitration Rules and Mediation Procedures of the [American Arbitration Association]. The applicable substantive law shall be the law of the state in which [the employee] provide[s] services or federal law. If both federal and state law speak to a cause of action, the party commencing the action shall have the right to elect his/her choice of law.”
The agreement also provides that discovery is governed by “the civil discovery statutes of the state in which [the employee] provide[s] services.” The agreement further states, “Following the issuance of the arbitrator‘s decision, any party may petition a court to confirm, enforce, correct or vacate the arbitrator‘s opinion and award under the Federal Arbitration Act,
We need not, and do not, decide whether Gallo‘s holding depends on the arbitration agreement at issue incorporating the CAA, because we conclude that requirement is satisfied here, despite the lack of express incorporation. As this court held in Valencia v. Smyth (2010) 185 Cal.App.4th 153 (Valencia), “the procedural provisions of the CAA apply in California courts by default.” (Id. at p. 174, italics omitted.)
In Valencia, we confronted whether the arbitration agreement at issue was governed by the procedural provisions of the CAA or the FAA. As we explained, “‘parties may expressly designate that any arbitration proceeding [may] move forward under the FAA‘s procedural provisions rather than under state procedural law.’ [Citation.] Absent such an express designation, however, the FAA‘s procedural provisions do not apply in state court.” (Valencia, supra, 185 Cal.App.4th at p. 174; accord, Nixon v. AmeriHome Mortgage Co., LLC (2021) 67 Cal.App.5th 934, 945; see Mave Enterprises, Inc. v. Travelers Indemnity Co. (2013) 219 Cal.App.4th 1408, 1429 [“the procedural provisions of the CAA” apply in California courts “absent a choice-of-law provision expressly mandating the application of the procedural law of another jurisdiction“].)
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. (See Judge v. Nijjar Realty, Inc. (2014) 232 Cal.App.4th 619, 631 [when arbitration agreement “does not mention the FAA or the CAA, and . . . does not include a choice-of-law provision,” California procedural law applies]; Valencia, supra, 185 Cal.App.4th at p. 179 [“Assuming the parties failed to incorporate the CAA‘s procedural provisions, that failure was of no consequence: A state‘s procedural statutes automatically apply in state court unless the parties expressly agree otherwise,” italics omitted].) Thus, as in Gallo, application of the provisions does not conflict with the FAA‘s goal of honoring the parties’ intent.
We acknowledge that the trial court, in granting defendant‘s motion to compel arbitration, ruled that “the FAA governs the terms of the parties’ agreement,” a ruling plaintiff does not challenge. The trial court made that
In its supplemental briefing, defendant argues the arbitration agreement is not silent as to which procedural rules apply, because it expressly incorporates the Employment Arbitration Rules and Mediation Procedures of the American Arbitration Association (AAA rules).8 Rule 47 of those rules, entitled “Suspension for Non-Payment,” provides “If arbitrator compensation or administrative charges have not been paid in full, the AAA may so inform the parties in order that one of them may advance the required payment. If such payments are not made, the arbitrator may order the suspension or termination of the proceedings. If no arbitrator has yet been appointed, the AAA may suspend or terminate the proceedings.”
Defendant argues AAA rule 47 “do[es] not require that the [arbitration] be immediately terminated if payment is not received within 30 days of the invoice.” Rather, the arbitrator has “the discretion to suspend or terminate the arbitration proceedings upon non-payment.”
Assuming arguendo parties contractually may waive the provisions of
Because the trial court denied plaintiff‘s motion under
DISPOSITION
The petition for writ of mandate is granted. Let a peremptory writ of mandate issue directing the trial court to (1) vacate its order denying plaintiff‘s motion under
CERTIFIED FOR PUBLICATION.
BENDIX, J.
We concur:
ROTHSCHILD, P. J.
CHANEY, J.