Court Opinion

ID: 9953247
Source: CourtListenerOpinion
Date Created: 2024-03-21 17:03:30.418527+00
Date Added: 2024-06-11T14:45:47.642797
License: Public Domain

Filed 3/21/24 Doe v. Lawyers for Employee and Consumer Rights CA2/6
     NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion
has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                         SECOND APPELLATE DISTRICT

                                         DIVISION SIX

JANE DOE,                                                      2d Civ. No. B330052
                                                             (Super. Ct. No. 56-2022-
     Plaintiff and Respondent,                                      00573119)
                                                                (Ventura County)
v.

LAWYERS FOR EMPLOYEE
AND CONSUMER RIGHTS,
APC et al.,

     Defendants and Appellants.

      Lawyers for Employee and Consumer Rights, a professional
corporation; Robert Byrnes; Sabrina Sanders; and Daniel
Sorenson (collectively LFECR) appeal a superior court order
denying their motion to compel arbitration of the employment
dispute lawsuit Jane Doe filed against them. We conclude,
among other things, that LFECR may not reinstate the prior
arbitration proceeding that was dismissed because it failed to
timely pay arbitration fees required by Code of Civil Procedure
section 1281.97, subdivision (a)(1).1 We affirm.
                               FACTS
       Doe was a former employee of LFECR. She entered into an
employment agreement that contained an arbitration provision.
It provided, among other things, that all disputes regarding her
employment be resolved by binding arbitration subject to the
Federal Arbitration Act “with a duly authorized representative of
the American Arbitration Association (‘AAA’) in accordance with
AAA’s procedures.” Doe claimed she was wrongfully terminated.
       On February 25, 2022, Doe filed a demand for arbitration
with the AAA.
       The AAA sent notices to the parties that arbitration fees
must be paid. One notice to LFECR stated, “ ‘As this arbitration
is subject to California Code of Civil Procedure [section] 1281.97,
payment must be received by April 13th, 2022 or the AAA will
close the parties’ case.’ ”
       LFECR owed AAA fees in the amount of $1,950, which
were due by October 2, 2022. AAA sent notice to LFECR that its
payment was due within 30 days as required by section 1281.97,
and if payment was not made by that date, then AAA would close
its case.
       LFECR did not pay the fees by the 30-day due date. It sent
in the payment seven days after the deadline.
       On October 13, 2022, Doe informed AAA and LFECR that
she was exercising her statutory right under section 1281.97 to
withdraw her claims from arbitration and proceed in court.

      1   All statutory references are to the Code of Civil Procedure.

                                   2.
       On December 9, 2022, Doe filed a complaint for damages in
the Ventura County Superior Court against LRECR for wrongful
termination and other causes of action.
       LFECR filed a motion to compel arbitration.
       The trial court denied the motion and imposed sanctions
against LFECR pursuant to sections 1281.97, subdivision (d), and
1281.99, subdivision (a). It ruled, among other things, that
section 1281.97 applied; LFECR did not timely pay the
arbitration fees required by the statute; Doe had the right to
withdraw from the arbitration proceeding and proceed in court;
and “[s]ection 1281.97 is [n]ot [p]reempted by the FAA.” (Italics
omitted.)
                            DISCUSSION
                           Section 1281.97
       California law mandates that the party who drafts an
arbitration agreement has a mandatory duty to timely pay
arbitration fees or face dismissal of the arbitration proceeding.
Section 1281.97, subdivision (a)(1), provides, “In an employment
or consumer arbitration that requires, either expressly or
through application of state or federal law or the rules of the
arbitration provider, the drafting party to pay certain fees and
costs before the arbitration can proceed, if the fees or costs to
initiate an arbitration proceeding are not paid within 30 days
after the due date the drafting party is in material breach of the
arbitration agreement, is in default of the arbitration, and waives
its right to compel arbitration under Section 1281.2.” (Italics
added.)
       Section 1281.97, subdivision (b), provides, in relevant part,
“If the drafting party materially breaches the arbitration
agreement and is in default under subdivision (a), the employee

                                 3.
or consumer may do either of the following: (1) Withdraw the
claim from arbitration and proceed in a court of appropriate
jurisdiction”; or (2) elect to return to arbitration. (Italics added.)
       Here there was a pending arbitration initiated by Jane Doe
in the AAA. LFECR was the drafting party and had the duty to
pay arbitration fees. AAA gave notice to LFECR that this statute
applied and that LFECR had 30 days to pay arbitration fees.
LFECR did not timely pay those fees within the time limit.
Under the terms of the statute, this was a “material breach” of
the arbitration agreement under section 1281.97, subdivision (a).
(Cvejic v. Skyview Capital, LLC (2023) 92 Cal.App.5th 1073,
1078.)2
       That LFECR paid the fees after the expiration of the 30-day
time limit does not change the result. The Legislature intended
the statute “to be strictly applied’ when the drafting party does
not pay the fees within the 30-day deadline. (De Leon v.
Juanita’s Foods (2022) 85 Cal.App.5th 740, 753.) The 30-day
statutory period establishes “a clear-cut rule for determining if a
drafting party is in material breach of an arbitration agreement.”
(Id. at p. 755.) Late payments do not prevent a court from
making a material breach finding against the drafting party.
(Ibid.; see also Cvejic v. Skyview Capital, LLC, supra, 92
Cal.App.5th at p. 1078.) The trial court found that Doe properly
exercised her statutory right to terminate the arbitration
agreement and file a lawsuit in superior court.
       LFECR claims that because the arbitration agreement
provides the arbitration is conducted under Federal Arbitration
Act (FAA) rules, section 1281.97 is not applicable.

      2We grant LFECR’s request for judicial notice filed

December 12, 2023.

                                  4.
       But “ ‘even when the [FAA] applies, interpretation of the
arbitration agreement is governed by state law principles. . . .
Under California law, ordinary rules of contract interpretation
apply to arbitration agreements. . . .’ ” Valencia v. Smyth (2010)
185 Cal.App.4th 153, 177.) “Under general principles of
California contract law,” LFECR’s “breach of its obligations” to
timely pay the fee “deprives it of the right to enforce that
agreement.” (Brown v. Dillard’s, Inc. (9th Cir. 2005) 430 F.3d
1004, 1010.) Section 1281.97 is thus part of the substantive law
of contracts in California. It defines what constitutes a breach of
an arbitration contract and whether that agreement is
enforceable. It governs the “rules of contract interpretation” to
determine whether an arbitration agreement is enforceable or
invalid under California law. (Valencia, at p. 177.)
     Is the Right to Withdraw from Arbitration Decided by an
                  Arbitrator or by the Trial Court?
       LFECR contends only an arbitrator may decide whether
Doe could withdraw from the arbitration agreement. It notes the
arbitration agreement provides that “any disputes over the
enforceability, applicability, conscionability or any other issues
relating to this arbitration provision shall be delegated to the
arbitrator to decide.” But the issue here was not the “arbitration
provision”; it was the applicability of section 1281.97 and Doe’s
right to proceed in state court. There was no express agreement
regarding these issues.
       Moreover, a similar claim to the one LFECR makes was
recently rejected in Cvejic v. Skyview Capital, LLC, supra, 92
Cal.App.5th 1073. There the court held a general delegation
provision that allows the arbitrator to decide all issues did not
override or replace the superior court’s “jurisdiction” to decide a

                                5.
party’s statutory right under section 1281.97 to withdraw from
an arbitration. (Id. at p. 1076.) The court wrote, “The statute’s
intent for the trial court to decide this statutory issue controls.”
(Id. at p. 1079.) “In enacting sections 1281.97 through 1281.99,
the Legislature perceived employers’ and companies’ failure to
pay arbitration fees was foiling the efficient resolution of cases.
This contravened public policy.” (Ibid.) “The point was to take
this issue away from arbitrators, who may be financially
interested in continuing the arbitration and in pleasing regular
clients. The trial court was right to decide this matter of
statutory law.” (Ibid., italics added.)
       LFECR claims AAA rules apply and override a trial court’s
authority to apply section 1281.97. But in Espinoza v. Superior
Court (2022) 83 Cal.App.5th 761, 787, the court held, ”Nothing in
the AAA rules purports to limit or modify the trial court’s
powers” to apply section 1281.97.
       Moreover, LFECR’s claim that the trial court should have
sent this case back to AAA to decide if section 1281.97 applies
fails for another reason. The parties agreed to be bound by AAA
procedures. Those procedures incorporate section 1281.97. AAA
said section 1281.97 applies to this case. It notified the parties
that “ ‘[a]s this arbitration is subject to California Code of Civil
Procedure [section] 1281.97, payment must be received by April
13th, 2022 or the AAA will close the parties’ case.’ ” (Italics
added.) AAA’s arbitration rules provide that AAA may
“terminate the proceedings” for non-payment of the fees. LFECR
wants an AAA decision on whether section 1281.97 applies, but it
has already received AAA’s answer. Sending the case back to
AAA would be a procedural dead end.

                                 6.
       LFECR Cannot Return to Arbitration After Its Default
       LFECR has not shown that it has a right to reinstate the
AAA prior arbitration that was dismissed after it did not timely
pay the fees required by section 1281.97 and the AAA. (Sink v.
Aden Enterprises, Inc. (9th Cir. 2003) 352 F.3d 1197, 1201-1202
[party in default in arbitration for failure to pay fees cannot seek
return to arbitration after the arbitration was dismissed].) An
arbitrator cannot enforce an arbitration agreement that has been
invalidated by LFECR’s conduct. “The statute does not empower
an arbitrator to cure a party’s missed payment.” (Cvejic v.
Skyview Capital, LLC, supra, 92 Cal.App.5th at p. 1078.)
       The trial court found, “The court has no power to require an
arbitrator who has not been fully compensated to do anything.”
It correctly observed, “Indeed, it would be nothing short of ironic
that a party who has refused to timely pay the arbitrator should
nonetheless demand that anything be decided by that same
arbitrator.” (Cvejic v. Skyview Capital, LLC, supra, 92
Cal.App.5th at p. 1078.)
       The trial court also found, “Requiring the arbitrator to
decide the predicate issue of whether the nonpaying drafting
party had waived the right to arbitration would only allow that
party to further delay the resolution of the aggrieved party’s
claim by continuing its foot-dragging, both perpetrating and
exacerbating the prejudice to the claimant.” Such a result would
violate state public policy (Cvejic v. Skyview Capital, LLC. supra,
92 Cal.App.5th at p. 1079) and FAA policy (Sink v. Aden
Enterprises, Inc., supra, 352 F.3d at pp. 1201-1202).
       LFECR claims Doe violated her arbitration responsibilities
by withdrawing from the arbitration. But Doe initiated an
arbitration in the AAA in compliance with the arbitration

                                 7.
agreement and she had a right to “withdraw unilaterally” from
arbitration in compliance with statutory law. (Cvejic v. Skyview
Capital, LLC, supra, 92 Cal.App.5th at p. 1078.) She complied
with her arbitration responsibilities. It was LFECR that did not
comply with its responsibilities by not timely paying the AAA
fees.
             Is Section 1281.97 Preempted by the FAA?
      LFECR incorrectly claims section 1281.97 is preempted by
the FAA.
      In Espinoza v. Superior Court, supra, 83 Cal.App.5th at
page 771, the court wrote, “We reject defendant’s argument that
the FAA preempts section 1281.97. The FAA preempts state
laws that prohibit or discourage the formation or enforcement of
arbitration agreements, or that interfere with fundamental
attributes of arbitration.” “[Section 1281.97] set forth procedural
requirements to ensure timely payment of arbitration fees, thus
‘further[ing]’ – rather than frustrat[ing] – the objectives of the
FAA to honor the parties’ intent to arbitrate and to preserve
arbitration as a speedy and effective alternative forum for
resolving disputes.’ ” (Ibid.)
      In Gallo v. Wood Ranch USA, Inc. (2022) 81 Cal.App.5th
621, 645, the court wrote that section 1281.97 meets the FAA
goals by “putting a business’s feet to the fire to pay on time,”
which “facilitates” the resolution of disputes “with alacrity.”
      We have reviewed LFECR’s remaining contentions and we
conclude it has not shown grounds for reversal.

                                 8.
                         DISPOSITION
     The order is affirmed. Costs on appeal are awarded to
respondent.
     NOT TO BE PUBLISHED.

                                   GILBERT, P. J.
We concur:

             YEGAN, J.

             BALTODANO, J.

                              9.
                    Mark S. Borrell, Judge

               Superior Court County of Ventura

                ______________________________

     Law Office of Jon Borderud and Jon Borderud for
Defendants and Appellants Lawyers for Employee and Consumer
Rights, Robert Byrnes, Sabrina Sanders and Daniel Sorenson.
     Anticouni & Ricotta, Nicole K. Ricotta, Bruce N. Anticouni
and Heather A. Quest for Plaintiff and Respondent Jane Doe.