Trujillo v. J-M Manufacturing Co., Inc.Trujillo v. J-M Manufacturing Co., Inc.
Rosen Saba, James R. Rosen and Francesca N. Dioguardi for Defendants and Appellants.
McNicholas & McNicholas, Matthew S. McNicholas and Jason L. Oliver for Plaintiff and Respondent.
Stephnie Trujillo (respondent) filed a complaint against her former employer J-M Manufacturing Company (JMM)1 and four former coworkers David Merritt, David Moore, David Christian, and Chuck Clark. After weeks of negotiating, the parties entered into a stipulation for arbitration, later signed as an order by the trial court. Court proceedings were stayed and the parties initiated arbitration in May 2021. JMM timely paid the arbitrator‘s invoices for over a year. On October 18, 2022, the arbitrator contacted JMM and requested payment for the invoice with a due date of September 12, 2022. JMM immediately paid the invoice. Later that evening, Trujillo gave notice of her intent to withdraw from arbitration due to JMM‘s late payment. She filed a motion to withdraw from arbitration pursuant to
On appeal, JMM and the four coworkers (whom we collectively refer to as appellants) argue the trial court erred in ruling that
We agree with appellants and reverse. We find
FACTUAL AND PROCEDURAL BACKGROUND
I. Trujillo‘s Complaint
On January 12, 2021, Trujillo filed a complaint against JMM alleging five causes of action: 1) unlawful sexual/gender discrimination; 2) unlawful sexual/gender harassment; 3) failure to prevent sexual/gender discrimination, harassment, and retaliation; 4) retaliation for opposing forbidden practices; and 5) injunctive relief.
On February 22, 2021, JMM reminded Trujillo that in 2012, she executed JMM‘s arbitration agreement that required her to resolve any employment disputes by private arbitration. Based thereon, JMM asked Trujillo to submit to arbitration. A dispute arose regarding the applicability and validity of some of the terms of the pre-dispute arbitration agreement. On February 24, 2021, Trujillo proposed “exploring a potential stipulation to arbitrate that would take the place of the claimed agreement” and “agree on the governing terms of any arbitration.” (Boldface and italics omitted.)
II. Stipulation re: Arbitration
On March 17, 2021, Trujillo circulated a draft of her proposed stipulation re: arbitration. It included the following provision, relevant to this appeal: “If for any reason, [JMM] fails to pay the arbitral fees within thirty (30) days of presentation,
On March 22, 2021, JMM replied with proposed redlined edits and the parties continued to discuss the terms of the proposed stipulation.
On April 26, 2021, Trujillo sent a revised draft of the proposed stipulation “containing the changes [they] discussed.” On April 27, 2021, Trujillo circulated a further revised draft of the stipulation and noted: “I have accepted all of your changes except for the changes regarding the payment of arbitral fees.” (Italics added.)
On April 27, 2021, JMM sent a reply: “I was under the impression that after we discussed the harshness of your proposed term requiring [JMM] to pay [the arbitrator] in 30 days or forfeit rights[,] we agreed to remove it. If I failed to notice our having made the change then, it was an oversight. Please read my redline comments I inserted into the last document for some very good reason why this overreaching term is inappropriate and why [JMM] can‘t stipulate to it.” In the redline comments to the stipulation, JMM noted regarding the payment terms: “[T]his provision is unduly harsh and requires [JMM] to risk forfeiting its right to arbitrate if it reasonably disputes [the arbitrator‘s] bill or pay a large invoice well in advance of its due date in the event [the arbitrator] sends its estimated hearing invoice 90 days beforehand or allows 60 days to pay. Besides, [the arbitrator] is capable of enforcing its payment policies without [respondent] adding undue advantage.” Trujillo removed from the stipulation
On April 28, 2021, the parties signed their finalized five-page stipulation outlining specific terms for arbitration. In its final form, the stipulation provides:
- JMM “shall timely pay all arbitral fees and costs of arbitration.” (Italics added.)
- “It is also an express condition of this Stipulation that the Arbitration shall be governed by, and the Designated Arbitrator shall adhere to, California law, including but not limited to the California Evidence Code, the California Code of Civil Procedure, and all relevant California statutory, regulatory, and state case law . . . and all rules, codes, regulations and controlling decisional law relating thereto under California state law. . . . If any procedures or rules attempted to be employed by the Designated Arbitrator are inconsistent or conflict with the California Evidence Code, the California Code of Civil Procedure, relevant California statutory, regulatory, and/or state case law and/or any terms of this Stipulation, the relevant provisions of the aforementioned California statutory, regulatory, and/or case law shall control.”
On May 10, 2021, the trial judge approved the stipulation, which was then entered as an order. Trial court proceedings were stayed pending arbitration.
On May 11, 2021, arbitration commenced via ADR Services. Inc. (ADR). On May 12, 2021, ADR issued the first invoice, which JMM paid on June 2, 2021. On July 12, 2021, ADR issued the second invoice, which JMM paid on July 19, 2021. On July 6, 2022, ADR issued the third invoice, which JMM paid on July 26, 2022.
On July 13, 2022, ADR issued the fourth invoice for 20 hours of anticipated work to be completed on October 11 and 12, 2022. The invoice specified a payment due date of September 12, 2022.
At 2:11 p.m. on October 18, 2022, ADR sent an email to the parties, indicating that the arbitrator “completed the rulings” for October 11 and 12, 2022, and will “release them [when they] receive full payment. Please find the attached invoice and let me know when we can expect to receive your payment.” Appellants emailed and stated the failure to pay was inadvertent and immediately paid the fourth invoice.
Later that evening, at 9:26 p.m., Trujillo sent an email notifying ADR and appellants that because JMM did not pay within 30 days of the invoice‘s due date—i.e., by October 12, 2022, she was unilaterally electing to withdraw her claims from arbitration and to proceed in court pursuant to
The arbitrator issued an order staying arbitration pending the trial court‘s determination of whether
On January 11, 2023, Trujillo filed a motion electing to withdraw from arbitration pursuant to
On January 25, 2023, JMM filed their opposition to the motion to withdraw from arbitration.
On January 31, 2023, Trujillo filed a reply.
V. Trial Court‘s Ruling
On February 7, 2023, the trial court heard Trujillo‘s motion to withdraw from arbitration and issued a tentative ruling denying the motion to withdraw. The trial court stated it was inclined to find that JMM‘s failure to pay did not trigger
After hearing oral argument, the trial court took the matter under submission; later that same day, it issued its order granting the motion to withdraw. It found that because JMM immediately paid upon receipt of the October 18, 2022 email from ADR, no delay resulted in prejudice to Trujillo. Nevertheless, “were the [c]ourt to conclude that
This appeal followed.
DISCUSSION
Appellants argue
I. Standard of Review
Ordinarily, a trial court‘s determination that a party has waived the right to arbitrate is subject to substantial evidence review. (Doe v. Superior Court (2023) 95 Cal.App.5th 346, 397, as modified Sept. 28, 2023 (Doe v. S.C.).) However, “where the parties do not dispute the factual support for the trial court‘s ruling, but instead dispute the proper interpretation of
II. Section 1281.98
In 2019, to curb arbitration abuse, the Legislature added
The Legislature noted that when an employer “fails to properly pay for the arbitration, existing law does not provide the employee . . . with a clear means to redress their harms. Although courts have held that such failures to pay for arbitration may be grounds to invalidate an arbitration agreement, state law does not provide clear guidance for courts and litigants in the event a drafting party fails to properly pay to commence [or continue] arbitration in a timely manner.” (Assem. Com. on Judiciary, Analysis of Sen. Bill 707 (2019–2020 Reg. Sess.), as amended May 20, 2019, p. 6.) “One of the Legislature‘s main objectives [in enacting
The statute deems the failure to pay an arbitration fee invoice within 30 days of its due date a material breach. Subdivision (b) of the statute provides a choice of forum “[i]f the drafting party materially breaches“—an employee may “unilaterally elect” to “[w]ithdraw the claim from arbitration and proceed in a court of appropriate jurisdiction” or “[c]ontinue the arbitration proceeding . . . notwithstanding the drafting party‘s failure to pay fees or costs.” (
Prior to the enactment of
III. Recent Appellate Opinions
As expected with the enactment of new law, there have been many recent appellate opinions that consider and interpret
The reviewing court disagreed and reversed the trial court‘s determination. It found “[t]he language of [the statute] is unambiguous. It provides that the drafting party is in ‘material breach,’ and the nondrafting party is entitled to the remedies under the statute . . . . Under the plain language of the statute, the triggering event is nothing more than nonpayment of fees within the 30-day period—the statute specifies no other required findings, such as whether the nonpayment was deliberate or inadvertent, or whether the delay prejudiced the nondrafting party. The plain language therefore indicates the Legislature intended the statute to be strictly applied whenever a drafting party failed to pay by the statutory deadline.” (Espinoza, supra, 83 Cal.App.5th at p. 776.)
In Williams, the son of a hospital patient sued the hospital for elder abuse and other claims, alleging the patient lost nearly 40 pounds and became severely dehydrated at the hospital, resulting in fatal renal failure. (Williams, supra, 86 Cal.App.5th at p. 1062.) The trial court granted the son‘s motion to withdraw from arbitration because the hospital had not timely paid its share of arbitration fees under
In interpreting
Hohenshelt and Cvejic addressed the issue of whether the parties’ designated arbitration service provider may cure a missed payment by the employer by setting a new payment due date. (See generally Hohenshelt, supra, 99 Cal.App.5th 1319, review granted; see generally Cvejic, supra 92 Cal.App.5th 1073.) We held in Cvejic that “[t]he statute does not empower an arbitrator to cure a party‘s missed payment.” (Cvejic, at p. 1078.) We similarly held in Hohenshelt that the arbitration service‘s “letter allowing payment until [a new, extended date] in no way cured [the employer‘s] missed payment and material breach.” (Hohenshelt, at p. 1325.)
In Reynosa v. Superior Court (2024) 101 Cal.App.5th 967 (Reynosa), plaintiff employee argued that the employer failed to remit payment within the statutorily prescribed 30-day period on two occasions: 1) employer received a $27,380 invoice “due upon receipt” on July 21, 2021, and rendered its $27,130 payment more than 30 days later on September 17, 2021, leaving a balance of $250; 2) employer received a $23,040 invoice “due upon receipt”
As to the July 21, 2021 invoice, the reviewing court referred to evidence in the record where, “in an e-mail to counsel sent on July 19, 2021, [the arbitration service‘s] case manager indicated the parties ‘agreed upon’ October 29, 2021, as the ‘Final Date for Payment.’ ” (Reynosa, supra, 101 Cal.App.5th at p. 984, boldface omitted.) The reviewing court found October 29, 2021 “appears to be the appropriate due date” from which the 30-day grace period begins to run. (Ibid.) However, the employer did not pay the remaining $250 balance until February 22, 2023, nearly 16 months after the due date, because it alleged the remaining $250 reflected the employee‘s obligation to pay an initial case management fee per their arbitration agreement. (Id. at pp. 984–985.) The Court of Appeal found the employer was mistaken and thus in breach for its failure to remit ” ‘less than the full amount due by the expiration of the statutory grace period’ “—i.e., the entire $27,380 by October 29, 2021. (Id. at p. 985.)
As to the December 12, 2022 invoice, “[i]n an e-mail to counsel sent on December 9, 2022, [the arbitration service‘s] case manager identified February 23, 2023, as the ‘Final Date for Payment of arbitration hearing fees and other outstanding invoices.’ ” (Reynosa, supra, 101 Cal.App.5th at pp. 985–986, boldface omitted.) The Court of Appeal reasoned that “[i]n contrast to the July 19, 2021 e-mail, the December 9, 2022 e-mail did not contain any reference to the parties expressly agreeing to this due date.” (Id. at p. 986.) It referred to the trial court‘s finding that the parties had ” ‘mutually agreed upon’ ” February 23, 2023 as the due date and that the employee ” ‘did not object to
The Court of Appeal held: “In our view, the construction of ‘agreed’ in
A. Pre-Dispute vs. Post-Dispute Arbitration Agreement
Appellants contend
We preliminarily remark that while the parties here were previously bound by a mandatory pre-dispute arbitration agreement signed in 2012, that is not the operative arbitration agreement and does not govern the arbitration proceedings between the parties in this present case. On appeal, Trujillo contends the post-dispute stipulation resulted from JMM‘s attempt to enforce the pre-dispute arbitration agreement. Not true. The record shows JMM emailed a copy of the 2012 agreement to Trujillo and asked her to submit to arbitration. Trujillo did not contest the validity or enforceability of the pre-dispute agreement in court. JMM never moved to compel arbitration based on the pre-dispute agreement. Instead, Trujillo drafted and circulated a post-dispute arbitration agreement to “agree on the governing terms of any arbitration.”
We conclude the Legislature intended to limit
Trujillo minimizes any distinction between pre-dispute and post-dispute agreements to arbitrate, but the California Supreme Court recognized the crucial difference in Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83 (Armendariz), a case decided over two decades ago. When “an employer and an employee knowingly and voluntarily enter into an arbitration agreement after a dispute has arisen[,]” that employee is “free to determine what trade-offs between arbitral efficiency and formal procedural protections best safeguard their statutory rights.” (Id. at p. 103, fn. 8.) The Armendariz court actually commented on and foresaw a potential loophole years before the enactment of
We hold
B. The Drafting Party
Appellants contend that JMM was not the “drafting party” and the plain language of
Here, the statutory language is clear.
Given the unique set of circumstances in the case before us, Trujillo was subject to the pre-dispute arbitration agreement she signed in 2012. However, the parties did not submit to arbitration based on that 2012 pre-dispute arbitration agreement. JMM never moved to compel arbitration based on that pre-dispute arbitration. The record shows that after having filed a civil complaint in court on January 12, 2021, employee Trujillo—by way of her counsel—drafted and circulated to JMM a post-dispute stipulation for arbitration on March 17, 2021. The record also shows Trujillo revised her draft stipulation after continuing to negotiate with JMM for over six weeks, resulting in the final draft executed by the parties and approved by the trial court on May 10, 2021. The parties submitted to arbitration based on that post-dispute stipulation primarily drafted by Trujillo.
Here, the two glaring discrepancies are a) the drafting party was primarily Trujillo (the employee) and not the “company or business,” or in this case, employer; and b) the parties’ arbitration was not pursuant to a “predispute arbitration provision in a contract with a consumer or employee.” (
We conclude
The order granting the motion to withdraw from arbitration is reversed and the matter remanded with instructions to stay further proceedings in the superior court pending completion of arbitration.
Appellants are awarded costs on appeal.
CERTIFIED FOR PUBLICATION
STRATTON, P. J.
We concur:
GRIMES, J.
WILEY, J.
Notes
During oral argument, Trujillo again raised the issue of preemption. We acknowledge that whether this statute is preempted by the Federal Arbitration Act is subject to much debate and is currently pending before our Supreme Court. (See Hohenshelt, supra, 99 Cal.App.5th at p. 1326 (dis. opn. of Wiley, J.), review granted.)
Nevertheless, the issue of preemption was not discussed by Trujillo in her brief on appeal. Neither was the issue raised in the trial court in her motion to withdraw from arbitration or in her reply in support of the motion to withdraw. Nor did Trujillo orally raise preemption at the hearing on February 7, 2023 in the trial court. She has forfeited the issue. (See Cvejic, supra, 92 Cal.App.5th at p. 1079; see Williams, supra, 86 Cal.App.5th at p. 1063, fn. 3.)