Opinion
G059522
12-20-2021
KIM A. LE, Plaintiff and Respondent, v. UNITED MEDICAL IMAGING, INC., et al., Defendants and Appellants.
Novian & Novian, Farhad Novian, Joon Song, and Nicholas Baltaxe for Defendants and Appellants. Aegis Law Firm, Samuel A. Wong, and Fawn F. Bekam for Plaintiff and Respondent.
NOT TO BE PUBLISHED
Appeal from an order of the Superior Court of Orange County No. 30-2019-01103694, Eugene Chan, Temporary Judge. (Pursuant to Cal. Const., art. VI, § 21.) Affirmed in part and reversed in part.
Novian & Novian, Farhad Novian, Joon Song, and Nicholas Baltaxe for Defendants and Appellants.
Aegis Law Firm, Samuel A. Wong, and Fawn F. Bekam for Plaintiff and Respondent.
OPINION
MARKS, J. [*]
Defendants United Medical Imaging, Inc. (UMI) and United Medical Imaging Healthcare, Inc. appeal from an order denying their motion to compel arbitration. The court found defendants waived their contractual right to arbitrate plaintiff's claims because their conduct was inconsistent with the right to arbitrate. The court also held defendants materially breached the parties' arbitration agreement by failing to pay necessary filing fees pursuant to Code of Civil Procedure section 1281.97, subdivision (a). Based on this finding of a material breach, the court imposed $3,600 in monetary sanctions.
All further statutory references are to the Code of Civil Procedure.
On appeal, defendants argue they did not waive their right to arbitration. Defendants' claim they intended to enforce the arbitration agreement but were hampered by plaintiff's bad faith conduct. Defendants also contend they did not violate section 1281.97, subdivision (a) because the arbitration proceedings never went forward and an invoice for payment of any arbitration filing fees was never received. For the reasons below, substantial evidence supports the court's finding that defendants waived their right to arbitration because their conduct was inconsistent with the right to arbitrate. We otherwise agree with defendants' latter contention that they did not violate section 1281.97, subdivision (a), but we reach that conclusion based on a different rationale. We accordingly affirm and reverse the order in part.
FACTS
The Arbitration Agreement and Plaintiff's Complaint
In 2015, plaintiff started working for UMI. About one year later, she signed an arbitration agreement requiring any employment related disputes to be arbitrated by ADR Services, Inc. (ADR). According to the agreement, arbitration would "be conducted in accordance with the arbitration rules and procedures of ADR . . . except to the extent such rules conflict with the procedure set forth herein." The agreement also stated: "Notwithstanding the above, in any arbitration commenced pursuant to this section, Company shall be exclusively responsible for paying all arbitrator's fees, all meeting room charges, and all other administrative charges which Employee would not have incurred were the dispute being litigated in the judicial forum having jurisdiction over it."
In October 2019, plaintiff filed the operative complaint in the instant action alleging claims for: (1) retaliation; (2) disability discrimination; (3) failure to prevent retaliation and disability discrimination; and (4) wrongful termination in violation of public policy.
The Parties' Arbitration Related Conduct and Defendants' Motion to Compel Arbitration
On January 3, 2020, defendants' counsel sent an e-mail to plaintiff's counsel requesting plaintiff arbitrate the instant action. On January 14, 2020, defendants filed a motion to compel arbitration. They argued the parties' arbitration agreement was enforceable and plaintiff's claims fell within the scope of the agreement. They also noted the court enforced the same arbitration agreement in a prior action plaintiff had filed against defendants and that the court deemed related to the instant case (the 2017 Action).
On March 9, 2020, plaintiff's counsel responded to defendants' prior e-mail and stated they were amenable to arbitration. Plaintiff then initiated arbitration with Judicate West on March 11, 2020.
On March 18, 2020, defendants' counsel sent an e-mail to plaintiff's counsel that is central to this appeal. The e-mail stated in pertinent part: "We stipulate to stay and arbitrate [the instant action] on the following conditions: [¶] 1. Arbitrate with ADR . . . (and not Judicate West) as the arbitration agreement that plaintiff signed requires. [¶] 2. That you dismiss the individual (and class) claims in [the 2017 Action] with prejudice." (Italics added.) On the same day, plaintiff informed Judicate West to close its file and commenced arbitration with ADR. But, plaintiff did not agree with the second condition to dismiss her 2017 Action claims with prejudice.
The record on appeal does not include the arbitration demands filed with Judicate West or ADR, but other documents suggest plaintiff filed the arbitration demand with ADR on March 18, 2020.
Defendants received notice of the ADR arbitration on March 23, 2020. On March 25, 2020, defendants' counsel sent an e-mail to ADR indicating they had not received plaintiff's arbitration demand and requested their response be continued to 15 days after they receive the demand. On the same day, plaintiff's counsel opposed the request for additional time and stated the "demand merely attached the Complaint that [defendants] have been in possession of for months." It appears plaintiff's counsel also attached a copy of the demand to her e-mail, but the attachment is not included in the record on appeal. On April 7, 2020, defendants' counsel sent another e-mail to ADR stating they "object to the wholly improper manner in which [plaintiff] has filed these claims and on such basis do not consent to the arbitration as demanded at this time. Motions are pending in civil court that will determine the appropriate forum, claims, and procedure for arbitration." They later requested confirmation that the arbitration would be "on hold pending further superior court determinations." On April 16, 2020, ADR confirmed it could not administer the arbitration unless there was consensus among the parties or a court order requiring the parties to arbitrate.
In September 2020, plaintiff filed an opposition to defendants' motion to compel arbitration and argued defendants had waived their right to compel arbitration by breaching the terms of the arbitration agreement. According to plaintiff, she agreed to proceed with arbitration in March 2020, but defendants refused to arbitrate unless plaintiff agreed to dismiss her claims in the 2017 Action. She further argued she demanded arbitration with ADR, but defendants did not consent to arbitration or pay the necessary filing fees in accordance with ADR's rules. Plaintiff accordingly requested $3,600 in monetary sanctions for defendants' breach of the arbitration agreement.
In their reply brief, defendants argued they did not breach the arbitration agreement and accused plaintiff of attempting to "cover up her own mistakes and violations . . . ." They claimed plaintiff had initially filed a demand for arbitration with Judicate West in violation of the arbitration agreement. After defendants objected, plaintiff properly filed a demand with ADR. However, plaintiff failed to serve copies of the demands filed with Judicate West or ADR. Defendants accordingly objected to improper service of the arbitration demand and requested an extension of time to respond. After plaintiff's counsel objected to the requested extension, ADR decided not to proceed with arbitration until there was consensus among the parties. Given these facts, defendants argued they did not owe any arbitration filing fees because the arbitration did not proceed, and ADR did not send any invoices for payment. Defendants would have agreed to arbitration before ADR if "[p]laintiff agreed to dismiss her wage claims in the 2017 Action with prejudice or arbitrate both her wage and non-wage claims, which were brought in two actions that [the court] already found to be related, in the same arbitration."
Order Denying Defendants' Motion to Compel Arbitration
The court denied defendants' motion to compel arbitration for two reasons. First, relying on Cinel v. Barna (2012) 206 Cal.App.4th 1383 (Cinel), the court found defendants waived their right to arbitrate because "their conduct [was] inconsistent with the right to arbitrate." The court emphasized defendants improperly placed a condition on arbitration unrelated to the instant action, namely, plaintiff's dismissal of the wage claims in the 2017 Action. In reaching this conclusion, the court referenced the March 2020 e-mail defendants sent to plaintiff after she filed an arbitration demand with Judicate West. In the e-mail, defendants' counsel stated they would agree to arbitration if plaintiff filed an arbitration demand with ADR and dismissed the claims in the 2017 Action. The court noted the e-mail was sent after defendants had filed their motion to compel arbitration. According to the court, the latter "condition in [the] email [ran] counter to arbitrating the claims in this case." While defendants suggested they wanted to have the claims in the 2017 Action arbitrated with the claims in this case, the court found defendants simply could have consolidated the arbitration proceedings under section 1281.3. Finally, the court pointed to another example of defendants' inconsistent conduct-they objected to responding to the demand for arbitration filed with ADR after telling plaintiff to initiate arbitration with ADR. The court explained: "Other than receiving notice five days 'late' after the arbitration was filed, defendants have not expressed how they would have responded differently if they were given an extension of time."
Second, the court found defendants materially breached the arbitration agreement by failing to pay the initial filing fee. The court noted the ADR rules required payment of an initial filing fee upon filing of the arbitration demand, and the arbitration agreement required UMI to be "exclusively responsible for paying all arbitrator's fees.'" Although defendants claim they did not have to pay the filing fee because ADR did not continue with the proceedings, the court found this argument was disingenuous. According to the court, section 1281.97, subdivision (a) expressly states: "'[I]f 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.'" The court accordingly held defendants breached the arbitration agreement and waived their right to compel arbitration under section 1281.2. Based on this finding of a material breach, the court issued $3,600 in monetary sanctions for plaintiff's attorneys fees pursuant to section 1281.99.
In May 2021, defendants requested that we take judicial notice of various documents filed in the 2017 Action, including two complaints, the parties' briefing on defendants' motion to compel arbitration, the court's related order, and a motion for preliminary approval of class action settlement. We deny defendants' request because the documents are not relevant to this appeal. But we grant defendants' request that we take judicial notice of the rules of the arbitration administrator, ADR, and legislative materials concerning Senate Bill No. 707 (Stats. 2019, ch. 870, § 4.), codified at section 1281.97.
Defendants contend the court erred by finding they waived their right to arbitration. They claim their "every communication and action was in an effort to enforce the Arbitration Agreement," but they were "hampered by [plaintiff's] continued bad-faith conduct . . . ." They also argue the court erred by applying section 1281.97, subdivision (a) because the "'due date'" for payment of the arbitration filing fee "never began as ADR did not initiate arbitration" or send an invoice for payment.
For the reasons below, the court did not err by finding defendants waived their right to arbitration because their conduct was inconsistent with the right to arbitrate. But we agree defendants did not violate section 1281.97, subdivision (a) because the arbitration did not proceed before expiration of the 30-day grace period for payment of the initial filing fee.
Applicable Law and Standard of Review
Our Supreme Court has identified the following factors for evaluating whether a party has waived a contractual right to arbitration: "'"(1) whether the party's actions are inconsistent with the right to arbitrate; (2) whether 'the litigation machinery has been substantially invoked' and the parties 'were well into preparation of a lawsuit' before the party notified the opposing party of an intent to arbitrate; (3) whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; (4) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings; (5) 'whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place'; and (6) whether the delay 'affected, misled, or prejudiced' the opposing party."'" (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1196.) None of these factors predominates, and each case must be examined in context. (Id. at p. 1195.)
"[W]aiver [also] is not to be lightly inferred and the party seeking to establish it bears a 'heavy burden of proof,' with all doubts resolved in favor of arbitration." (Burton v. Cruise (2010) 190 Cal.App.4th 939, 945.) This heightened burden "guide[s] the trial court's determination, but [does] not alter the standard of review on appeal." (Id. at p. 946.) "'[A] determination by a trial court that the right to compel arbitration has been waived ordinarily involves a question of fact, which is binding on the appellate court if supported by substantial evidence. The appellate court may not reverse the trial court's finding of waiver unless the record as a matter of law compels finding nonwaiver.'" (Ibid.) We "'presume the court found every fact and drew every permissible inference necessary to support its judgment, and defer to its determination of credibility of the witnesses and the weight of the evidence.'" (Engineers & Architects Assn. v. Community Development Dept. (1994) 30 Cal.App.4th 644, 653.)
Substantial Evidence of Defendants' Waiver of the Right to Arbitrate
Here, the court found defendants waived the right to arbitrate by: (1) acting inconsistently with the right to arbitrate; and (2) breaching the arbitration agreement when they failed to pay the arbitration filing fee. Substantial evidence supports the court's former finding. But defendants did not materially breach the arbitration agreement by violating section 1281.97, subdivision (a).
A. Conduct Inconsistent with an Intent to Arbitrate
"'"California courts have found a waiver of the right to demand arbitration in a variety of contexts, ranging from situations in which the party seeking to compel arbitration has previously taken steps inconsistent with an intent to invoke arbitration [citations] to instances in which the petitioning party has unreasonably delayed in undertaking the procedure."'" (Fleming Distribution Co. v. Younan (2020) 49 Cal.App.5th 73, 80.) "[A] party that wishes to pursue arbitration must take '"active and decided steps to secure that right"' because an arbitration agreement '"is not . . . self-executing."' [Citation.] 'Mere announcement of the right to compel arbitration is not enough. To properly invoke the right to arbitrate, a party must (1) timely raise the defense and take affirmative steps to implement the process, and (2) participate in conduct consistent with the intent to arbitrate the dispute. Both of these actions must be taken to secure for the participants the benefits of arbitration.[']" (Id. at pp. 80-81.) Finally, "waiver does not require relinquishment of a known right, but arises from a party's failure to perform an act it is required to perform, regardless of the party's intent to relinquish the right to arbitration." (Cinel, supra, 206 Cal.App.4th at p. 1389.)
Here, the record reflects defendants undertook actions inconsistent with the right to arbitrate. While defendants suggested they wanted to proceed with arbitration, they simultaneously took steps that made arbitration impossible. First, they told plaintiff they would agree to arbitration if plaintiff dismissed her claims in the 2017 Action. This was after they had already filed a motion to compel arbitration. As the court properly noted, the condition (to dismiss the claims in the 2017 Action) was unrelated to the claims in this action. After plaintiff filed an arbitration demand with ADR pursuant to defendants' request, defendants again objected, did not consent to arbitration, and requested ADR put the arbitration on hold. While defendants claimed plaintiff did not timely serve the arbitration demand, it appears plaintiff's counsel sent a copy of the demand to defendants' counsel on March 25, 2020 (only one week after filing the demand). Plaintiff's counsel indicated the "demand merely attached the Complaint that [defendants were] in possession of for months." Defendants also previously received notice of the arbitration proceedings in an e-mail from ADR on March 23, 2020 (only five days after plaintiff filed the demand). Based on these facts, it is unclear why defendants objected to the arbitration and requested the matter be put on hold merely because they insisted on an extension of time to respond to the demand. As the court explained, "[D]efendants have not expressed how they would have responded differently if they were given an extension of time."
Cinel, which the court cited in its order, is instructive. In Cinel, an appellate court held the parties waived their rights to arbitrate when they refused to reach an agreement as ordered by the arbitrator over the payment of fees. (Cinel, supra, 206 Cal.App.4th at p. 1390.) The arbitration ultimately was terminated due to the parties' disagreement. (Id. at pp. 1387-1388.) While the defendants had a clear intention to arbitrate, intent was not a factor as their conduct constituted a waiver. (Id. at pp.13891390.) Likewise, here, the arbitration could not proceed due to defendants' various objections regardless of their intent to arbitrate.
Defendants argue they intended to enforce the arbitration agreement but were "hampered by [plaintiff's] continued bad-faith conduct . . . ." They claim plaintiff delayed the initiation of arbitration, commenced arbitration in the wrong forum, and failed to timely serve the arbitration demands filed with Judicate West and ADR. As discussed ante, we are not persuaded by defendants' argument regarding service of the arbitration demands. With respect to any delay in the initiation of arbitration, it appears plaintiff did not immediately respond to defendants' January 2020 e-mail demanding arbitration. But she ultimately agreed to arbitration and filed an arbitration demand in March 2020. While defendants note plaintiff initiated arbitration with Judicate West rather than ADR as required by the arbitration agreement, plaintiff withdrew her demand with Judicate West and filed an arbitration demand with ADR. This occurred only one week after plaintiff had initiated proceedings with Judicate West and on the same day defendants requested arbitration with ADR.
In any event, none of plaintiff's conduct explains or excuses defendants' refusal to arbitrate unless plaintiff dismissed her claims in the 2017 Action. Indeed, defendants concede they sought dismissal of the 2017 Action, but they claim they objected for strategic reasons because they wanted to avoid paying duplicative arbitration fees for both cases. As the court noted, defendants simply could have consolidated the arbitration proceedings under section 1281.3 instead of placing a condition on their willingness to arbitrate.
For the foregoing reasons, substantial evidence supports the court's finding that defendants waived their right to arbitration. Nothing in the record compels a contrary finding as a matter of law.
While the question of "whether or not litigation results in prejudice also is critical in waiver determinations," defendants do not dispute this element or address the question of prejudice. (St. Agnes Medical Center v. PacifiCare of California, supra, 31 Cal.4th at p. 1203.) We accordingly need not address the issue.
B. Payment of Arbitration Filing Fee
Defendants next contend the court erred by finding they materially breached the arbitration agreement by violating section 1281.97. They claim they did not owe any filing fee because there was never a "'due date'" for payment as ADR would not proceed with the arbitration. They also argue no filing fees were due because they never received an invoice for payment. We agree the court erred but for different reasons.
Section 1281.97, subdivision (a) provides: "In an employment . . . arbitration that requires, either expressly or through application of state or federal law or the rules of the arbitration administrator, 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.) The plain language of the statute dictates that a drafting party is not in material breach of the arbitration agreement unless the party fails to pay the relevant fees or costs "within 30 days after the due date." (Ibid.) In other words, the drafting party has a 30-day grace period that begins to run once the fees are due. If the 30-day grace period expires and the party still has not paid the relevant fees or costs, then the party is in material breach of the arbitration agreement.
The arbitration agreement in the instant case incorporated ADR's rules, which required an initial filing fee "due upon filing of the arbitration claim in accordance with ADR Services' Fee Schedules." The "due date" for the filing fee accordingly was March 18, 2020 when plaintiff filed the arbitration demand. Pursuant to section 1281.97, subdivision (a), defendants had 30 days after March 18, 2020 to pay the fee before they were in material breach of the arbitration agreement. The 30-day grace period therefore expired on April 17, 2020. But on April 16, 2020, ADR sent an e-mail to the parties stating, "Please be advised that unless there is a consensus among the parties, or the Court orders the parties to arbitrate, our office cannot administer the above-referenced matter." The arbitration accordingly was put on hold before the 30-day grace period expired. We accordingly cannot find defendants breached section 1281.97 by failing to pay fees "within 30 days" of March 18, 2020. (§ 1281.97, subd. (a).)
We also note ADR sent an e-mail to both parties on March 23, 2020 confirming receipt of the arbitration demand and attaching certain correspondence. The correspondence is not included in the record on appeal so we cannot determine if ADR referenced a fee schedule or specified a date for payment of the initial filing fee. Regardless, even assuming ADR specified a later "due date" for payment of the filing fee, the 30-day grace period still would not have expired because the arbitration was put on hold as of April 16, 2020.
Defendants do not dispute they were responsible for the filing fee under the parties' arbitration agreement. Instead, relying on Dekker v. Vivint Solar, Inc. (N.D.Cal. 2020) 479 F.Supp.3d 834 (Dekker), revd. and cause remanded (9th Cir., Oct. 26, 2021, No. 20-16584) 2021 U.S.App. Lexis 32092, they contend no filing fees were due because they never received an invoice. But Dekker does not suggest a defendant must receive an invoice before it is obligated to pay arbitration filing fees. Nor does it suggest a defendant's receipt of an invoice is the only way to determine the "due date" under section 1281.97, subdivision (a). Instead, the defendants in Dekker received an invoice from JAMS stating payment "was due upon receipt." (Dekker, at p. 840.) After defendants failed to timely pay their share of arbitration fees, plaintiffs argued the court should vacate its order compelling arbitration. (Id. at p. 836.) Interpreting section 1281.97, the court explained: "It is clear, and undisputed, that the drafting party gets a 30-day grace period after payment comes due to settle up with the arbitrator before [section] 1281.97 considers the party in material breach." (Dekker, at p. 839.) The court concluded case law and "the clear legislative intent to prevent delays in commencing arbitration, points towards a strict enforcement of the 30-day grace period that begins upon defendants' receipt of invoice." (Id. at p. 840.) This conclusion makes sense because JAMS had sent an invoice due upon receipt. The ADR rules applicable here required a filing fee due upon submission of a demand for arbitration. The facts in Dekker accordingly are distinguishable from the facts in the instant case, and we do not rely on it to reach our decision.
In any event, the Ninth Circuit Court of Appeals recently reversed and remanded the decision in Dekker because the issue of whether the arbitration agreement was breached fell within the scope of the parties' delegation clause. (Dekker v. Vivint Solar, Inc. (9th Cir., Oct. 26, 2021, No. 20-16584) 2021 U.S.App. Lexis 32092.) An arbitrator (not the court) accordingly should have decided the issue. (Ibid.)
For the foregoing reasons, the 30-day grace period under section 1281.97 never materialized so defendants could not have materially breached the arbitration agreement. (§ 1281.97, subd. (a) [drafting party is in material breach "if the fees or costs to initiate an arbitration proceeding are not paid within 30 days after the due date"].) The court accordingly erred by imposing sanctions under section 1281.99. (§ 1281.99, subd. (a) ["The court shall impose a monetary sanction against a drafting party that materially breaches an arbitration agreement pursuant to subdivision (a) of Section 1281.97].)
DISPOSITION
The order is reversed as to the court's determination that defendants violated section 1281.97 and the court's imposition of sanctions under section 1281.99. In all other respects, the order is affirmed. In the interest of justice, each party shall bear their own costs on appeal.
WE CONCUR: FYBEL, ACTING P. J., GOETHALS, J.
[*]Judge of the Orange County Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.