Court Opinion

ID: 9926433
Source: CourtListenerOpinion
Date Created: 2024-01-24 19:02:04.399906+00
Date Added: 2024-06-11T09:20:02.462442
License: Public Domain

Filed 1/24/24

                        CERTIFIED FOR PUBLICATION

                COURT OF APPEAL, FOURTH APPELLATE DISTRICT

                                   DIVISION ONE

                            STATE OF CALIFORNIA

 ONECIMO SIERRA SUAREZ,                   D082429

         Petitioner,

         v.                               (Super. Ct. No. 37-2022-00000615-
                                          CU-OE-CTL)
 THE SUPERIOR COURT OF SAN
 DIEGO COUNTY,

         Respondent;

 RUDOLPH & SLETTEN, INC.,

         Real Party in Interest.

       ORIGINAL PROCEEDING in mandate. Kenneth J. Medel, Judge.
Petition granted.
       Moon Law Group, Kane Moon, Allen Feghali, and Edwin M.
Kamarzarian, Attorneys for Petitioner.
       Nida & Romyn, Robert Nida, Matthew J. Luce, and William Schubert,
Attorneys for Real Party in Interest.
       No appearance for Respondent.
      Concerned with the fairness of adhesion contracts in the consumer and
employment context that require the arbitration of disputes, beginning in
2019 the Legislature enacted protections against delays in the arbitration
process as a result of businesses and employers failing to pay the necessary
fees before the arbitration can proceed. (Stats. 2019, ch., 870 (Sen. Bill No.
707) § 1.) Amendments to these statutes in 2021 (Stats. 2021, ch. 222 (Reg.
Sess. 2021–2022)) “obligate a company or business [that] 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.’ ” (Gallo v. Wood
Ranch USA, Inc. (2022) 81 Cal.App.5th 621, 629 (Gallo).) A material breach
waives the contractual right to arbitration and the consumer or employee is
permitted to litigate the dispute in court if he or she so chooses.
      After plaintiff Onecimo Sierra Suarez sued his employer for alleged
wage and hour violations, the employer successfully moved to stay the court
action and proceed to arbitration as provided in the employment agreement
that the employer drafted. When the employer waited more than 30 days to
pay its share of the arbitrator’s initial filing fee, Suarez unsuccessfully moved
to vacate the arbitration stay. He now seeks writ relief directing the trial
court to find that the employer has waived its right to arbitration pursuant to

Code of Civil Procedure sections 1281.97 et seq.1 We agree and grant the
petition.

1     Undesignated statutory references are to the Code of Civil Procedure
unless otherwise indicated.
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              FACTUAL AND PROCEDURAL BACKGROUND

      Suarez is the plaintiff in a pending civil action in San Diego Superior
Court. His claim asserts wage and hour violations against his former
employer, defendant and real party Rudolph & Sletten, Inc. (R&S). In late
October 2022, on R&S’s motion, the superior court stayed the action and
ordered the parties to arbitration. Then, in accordance with that order,
Suarez filed his demand for arbitration, initiating the arbitration proceeding.
      Less than a month later, on December 2, 2022, the arbitration provider,

JAMS, Inc.2 issued an e-mail invoice for the initial filing fee to Suarez and
R&S marked, “due upon receipt.” The total fee due was $1,750, allocated
$400 to Suarez and $1,350 to R&S. Though it was not required, JAMS
followed up on December 19, 2022 to request a status of payment. It is
undisputed that R&S did not pay its share of the JAMS invoice until January
4, 2023.
      Within the next two weeks both parties filed competing motions in the
superior court. R&S sought to compel compliance with the court’s earlier
arbitration order, while Suarez filed a motion to vacate the stay of his civil
action. Suarez contended that R&S had waived its right to arbitrate the
dispute by failing to pay its share of the arbitration filing fee within 30 days
as required by section 1281.97. R&S disagreed, asserting that it had until
the close of business on January 5, 2022 to pay the invoice, making its
January 4 payment timely. While conceding that its payment would
normally have been due on January 1, 2023—30 calendar days after
December 2, 2022—R&S argued that sections 12 and 1010.6 operated in
tandem to extend the due date until January 5. The superior court agreed

2     JAMS stands for Judicial Arbitration and Mediation Services.
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with R&S, granting the motion to compel compliance with the existing
arbitration order and denying Suarez’s motion to lift the stay. We issued an
order to show cause to review this issue of first impression.

                                 DISCUSSION

      The nub of this dispute is the calculation of a statutory deadline for
payment of arbitration filing fees, and whether any failure to meet that
deadline constituted a material breach of the arbitration agreement. The
superior court determined that the statutory deadline prescribed by section
1281.97 was extended by operation of other unrelated statutes such that R&S
made timely payment. R&S seeks to defend the court’s reasoning, but also
argues that even if it missed the deadline, for various other reasons it was
not in material breach of the arbitration agreement.

A.   The grace period for payment of arbitration fees by R&S was not
     extended to January 5, 2023.

      The Legislature enacted sections 1281.97 and 1281.98, recognizing that
a “ ‘company’s failure to pay the fees of an arbitration provider’ ” in a timely
manner “ ‘hinder[ed] the efficient resolution of disputes and contravene[d]

public policy.’ ”3 (De Leon v. Juanita’s Foods (2022) 85 Cal.App.5th 740, 750
(De Leon).) Section 1281.97 requires that the provider transmit an invoice to
the parties specifying “the full amount owed and the date that payment is
due,” generally indicating the invoice is “due on receipt.” (Id., subd. (a)(2).)

3      The primary difference between sections 1281.97 and 1281.98 is that
“section 1281.97 concerns a failure to timely pay ‘the fees or costs to initiate’
an arbitration proceeding,” whereas “section 1281.98 concerns a failure to
timely pay ‘the fees or costs required to continue’ an arbitration proceeding.”
(De Leon, supra, 85 Cal.App.5th at p. 750, quoting §§ 1281.97, subd. (a)(1),
1281.98, subd. (a)(1).) Because this case focuses on initial fees, we will refer
primarily to section 1281.97.
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It also allows a grace period for payment of “30 days after the due date.”
(Id., subd. (a)(1).)

      This legislation was aimed at a very specific problem—the “procedural
limbo and delay workers and consumers face when they submit to
arbitration, pursuant to a mandatory arbitration agreement, but the
employer fails or refuses to pay their share of the arbitration fees.” (Assem.
Com. on Judiciary, Analysis of Sen. Bill No. 707 (2019–2020 Reg. Sess.) as
amended May 20, 2019, p. 11 (Assembly Report).) Prior to the enactment,
state law did “not provide clear guidance for courts and litigants in the event
a drafting party fails to properly pay to commence arbitration in a timely
manner.” (Id., at p. 6.) “That problem was fixed with the ‘material breach
and sanction provisions’ of the statute, which constitute a ‘strict yet
reasonable method to ensure the timely adjudication of employee and
consumer claims that are subject to arbitration.’ ” (De Leon, supra, 85
Cal.App.5th at p. 757, quoting Assembly Report, at p. 9; see also Doe v.

Superior Court (2023) 95 Cal.App.5th 346, 357 (Doe).4)
      R&S does not take issue with the Legislature’s intent that the time
limits in section 1281.97 be strictly enforced. Rather, it contends that two
different provisions of the Code of Civil Procedure operated to extend the 30-

4      The overriding moral of this story may be to pay your bills on time.
As the Doe court explained, “One of the Legislature’s main objectives was to
deter employers from strategically withholding payments of arbitration fees
so that they could no longer stymie the ability of employees to assert their
legal rights. To do this, the Legislature established strict breach provisions
for nonpayment . . . . Any untimely payment constituted a material breach
regardless of the circumstances or status of the arbitration proceedings.”
(Doe, supra, s95 Cal.App.5th at p. 357.) Moreover, the statutes contemplate
that “such breaches [will be] strictly enforced.” (Ibid.)

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day grace period. Agreeing that the invoice due date in this case was
December 2, 2022, it first relies on section 12, which has the effect of

extending certain deadlines that fall on a holiday.5 By R&S’s calculation,
because 30 days from December 2, 2022 would be January 1, 2023, and
because both January 1 and 2 were holidays, the grace period for payment
was extended to January 3.
      R&S then seeks to tack on an additional two days based on section
1010.6, which deals with the electronic service of documents. The first
sentence of the section provides that “[a] document may be served
electronically in an action filed with the court as provided in this section.”
(Id., subd. (a).) If such a document “may be served by mail, express mail,
overnight delivery, or facsimile transmission, [then] electronic service of that
document is deemed complete at the time of the electronic transmission of the
document or at the time that the electronic notification of service of the
document is sent.” (Id., subd. (a)(3)(A).) At the same time, “any right or duty
to do any act or make any response within any period . . . shall be extended
after service by electronic means by two court days . . . .” (Id., subd.
(a)(3)(B).)
      It is this latter provision that R&S focuses on. It claims that the two-
day extension provided for by subdivision (a)(3)(B) of section 1010.6 is added
at the end of the section 12 extension to yield a revised deadline for the
payment of arbitration fees of January 5, 2023. Because R&S made its
payment to JAMS on January 4, it asserts the payment was timely.

5     Section 12 provides: “The time in which any act provided by law is to
be done is computed by excluding the first day, and including the last, unless
the last day is a holiday, and then it is also excluded.”
                                        6
      We will assume without deciding that section 12 could potentially apply
to extend the time for R&S’s payment of arbitration fees if the deadline for
payment fell on a “holiday.” Even so, the major problem with R&S’s
argument is that section 1010.6 simply does not apply to the e-mail

transmission of a JAMS fee invoice.6 By its terms, the statute governs the
service of documents in an action filed with the court. An arbitration
proceeding is not “an action filed with the court,” and the invoice required by
section 1281.97 is “provided” to the parties but is not “served.”
      That an arbitration proceeding is not a court action is axiomatic.
Private arbitration exists as an alternative to resolving disputes in the public
court system. (See Berglund v. Arthroscopic & Laser Surgery Center of San
Diego, L.P. (2008) 44 Cal.4th 528, 539.) Indeed, the parties’ agreement
drafted by R&S expressly reflects this understanding, stating that “[b]oth
[R&S] and [Suarez] understand that by using arbitration to resolve disputes
they are giving up any right that they may have to a judge or jury trial with
regard to all issues concerning employment.” It goes on to explain that the
“cost of the arbitrator and other incidental costs of arbitration that would not
be incurred in a court proceeding shall be borne by [R&S].” (Italics added.)

6     R&S relies on language in the arbitration agreement that it claims
“adopted the Code of Civil Procedure for a broad set of activities and motion
practice” to suggest that incorporation of section 1010.6 was necessarily
implied. But the language it cites is specific, incorporating the “California
rules of civil procedure relating to pleading, . . . evidence, motions for
summary judgment, judgment on the pleadings and judgment under Code of
Civil Procedure Section 631.8.” This enumerated list appears to be
exhaustive rather than illustrative. There is no reason to think the
arbitration agreement contemplated the inclusion of other, unspecified rules
and procedures. In any event, an arbitration invoice is not even reasonably
related to the subjects of pleading, evidence, motions for summary judgment,
judgment on the pleadings or judgment under section 631.8.
                                        7
In characterizing the arbitration agreement as an alternative to the use of a
judicial forum, and in agreeing to cover the costs of an arbitration conducted
in lieu of a court proceeding, R&S drew a stark line of delineation between
arbitration and an action filed with the court. Section 1010.6 applies only to
the latter.
      Moreover, as we have noted, section 1010.6 governs the electronic
service of documents. “Service” is a legal term of art. (See generally
Sheppard v. Lightpost Museum Fund (2006) 146 Cal.App.4th 315, 323.)
Typically, it involves sending service copies of documents filed with the court
to opposing parties in the litigation. Even if the service procedures of section
1010.6 somehow extended to arbitrations in general, the document that R&S
seeks to apply it to is not something that is “served.” It is an invoice—a bill
for anticipated services—that governs the economic relationship between the
provider and the parties. It is not a document filed with the court or, by
analogy, the arbitrator. Nothing in section 1281.97 (or elsewhere in the
California Arbitration Act (CAA)) says anything about the arbitration
provider “serving” the invoice on the parties. The statute merely requires the
provider to “immediately provide an invoice for any fees and costs . . . to all
the parties to the arbitration.” (§ 1281.97, subd. (a)(2).)

B.   Section 1281.97 does not make a material breach by the employer
     contingent on any payment by the employee.

      R&S argues that because Suarez did not pay his portion of the initial
arbitration fees, he never properly “initiate[d] an arbitration” within the
meaning of subdivision (a)(2) and section 1281.97 therefore does not apply.
But by its express terms, the statute contemplates the employee complying
with certain “filing requirements” to initiate the arbitration before the
provider is obligated to send an invoice. Necessarily, then, the arbitration is

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“initiated” before any fees are paid. Moreover, as we have already discussed,
the focus of section 1281.97 is unmistakably on employers and not employees.
(Doe, supra, 95 Cal.App.5th at p. 357 [statutory purpose is to “deter
employers from strategically withholding payments of arbitration fees”
(italics added.)].) The plain language of the statute does not say anything
about Suarez’s payment and does not create penalties for employees who do
not pay their share of the arbitration fees. Instead, it focuses exclusively on
the obligations of the drafter of the arbitration agreement, in this case R&S.
The drafter is the “business or company that pushed the case into an arbitral
forum” and, historically, burdened a consumer or employee with “ ‘ “the
procedural limbo and delay” ’ ” the Legislature sought to address. (Gallo,
supra, 81 Cal.App.5th at p. 634.)
      In the matter before us, R&S wanted to compel the resolution of
Suarez’s dispute in arbitration. It sought to accomplish this by removing the
dispute from the public court system and transferring it to the arbitral forum.
When it failed to pay its share of the arbitration fees before the expiration of
the grace period, it created the exact problem the Legislature sought to avoid
when it enacted sections 1281.97 and 1281.98. Now faced with the
consequences of its tardiness, R&S improperly attempts to shift the burden
back to its employee, giving rise to further “procedural limbo and delay.”
(Assembly Report, supra, p. 11.)

C.   The Federal Arbitration Act does not preempt section 1281.97.

      Finally, R&S argues we cannot disturb the trial court’s ruling because
section 1281.97 is preempted by the Federal Arbitration Act (FAA). It relies
on the FAA’s equal treatment principle, asserting that although a court can
invalidate an arbitration agreement based on normal state law contract
rules, it cannot do so by resort to rules that “ ‘apply only to arbitration or that

                                         9
derive their meaning from the fact that an agreement to arbitrate is at
issue.’ ” (Viking River Cruises, Inc. v. Moriana (2022) 142 S.Ct. 1906, 1917.)
      Two recent decisions from our colleagues in the Second Appellate
District have rejected a nearly identical argument. (Gallo, supra, 81
Cal.App.5th at pp. 635–646; Espinoza v. Superior Court (2022) 83
Cal.App.5th 761, 778–779.) In Gallo, the arbitration agreement incorporated
the “procedural provisions” of the CAA, including section 1281.97. The
employer nonetheless argued that section 1281.97 was preempted by the
FAA. The lynchpin of Gallo’s analysis is that “a state law will not be
preempted by the FAA merely because it is arbitration specific.” (Gallo, at
p. 638.) Instead, state law is preempted only where it: (1) outright prohibits
the formation or enforcement of arbitration agreements, or (2) imposes
requirements on arbitration agreements that “discourage their formation or
enforcement.” (Id. at pp. 637–638.) As the Gallo court explained, section
1281.97 does neither of these things. (Id. at p. 641.) It merely specifies
arbitration-specific procedural rules for the payment of fees. And “ ‘[t]here is
no federal policy favoring arbitration under a certain set of rules.’ ” (Id. at
p. 639, quoting Volt Info. Sciences v. Leland Stanford Jr. U. (1989) 489 U.S.
468, 476.) Accordingly, states properly enact laws “that define the standard
rules ‘governing the conduct of arbitration.’ ” (Ibid.) “Indeed, specific
provisions of the CAA have been upheld as not preempted by the FAA, even
though those provisions are necessarily arbitration specific.” (Gallo, at
p. 639.)
      In Espinoza, the parties’ arbitration agreement did not expressly
incorporate the procedural provisions of the CAA. The appellate court
nonetheless held they “ ‘apply in California courts by default.’ ” (Espinoza,
supra, 83 Cal.App.5th at p. 786, quoting Valencia v. Smyth (2010) 185

                                        10
Cal.App.4th 153, 174.) Relying on the preemption analysis in Gallo,
Espinoza concluded that section 1281.97 is not preempted by the FAA.
(Espinoza, at pp. 780–785.)
      As in Gallo, R&S elected to fully incorporate the CAA, inclusive of
section 1281.97, within the arbitration agreement. Notably, the arbitration
agreement was executed after the CAA expanded to include section 1281.97.
R&S opted into these specific rules of arbitration in lieu of resolving Suarez’s
dispute in a court action.
      We follow the precedent set in Gallo and Espinoza to conclude that
section 1281.97 neither prohibits nor discourages the formation of arbitration
agreements. Rather, the statute regulates the conduct of the parties to help
“achieve the FAA’s goal of ‘safeguarding arbitration.’ ” (Espinoza, supra, 83
Cal.App.5th at p. 783.) The rules are designed to encourage drafters of
arbitration agreements to engage in arbitration promptly. We observe that
in the matter before us, as in Espinoza and Gallo, waiver and material
breach do not automatically remove a matter from arbitration. Instead, the
employee is given the option of resolving the stagnant dispute in an action
before the court. This rule of procedure for the conduct of the arbitration
proceeding is not preempted by the FAA.

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                                   DISPOSITION

         A writ of mandate shall issue directing the superior court to vacate its
May 19, 2023 order granting R&S’s motion to compel compliance with the
existing arbitration order and denying Suarez’s motion to vacate the stay.
The court shall then enter a new order granting Suarez’s motion and denying
the one filed by R&S. The stay previously issued by this court on August 2,
2023 will dissolve upon finality of this opinion. Suarez shall recover his costs
in this writ proceeding. He is also entitled to reasonable attorney’s fees
pursuant to section 1281.99 in an amount to be determined by the superior
court.

                                                                         DATO, J.
WE CONCUR:

O’ROURKE, Acting P. J.

DO, J.

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