Opinion
Case No. 22-cv-02718-SK
2023-09-14
Josephine LEE, Plaintiff, v. CITIGROUP CORPORATE HOLDINGS, INC., et al., Defendants.
Michael Frederick Cardoza, Lauren Brooks Sabb Veggian, The Cardoza Law Corporation, San Francisco, CA, Erika Heath, Erika Heath, Attorney at Law, San Francisco, CA, for Plaintiff. Brian H. Gunn, Wolfe & Wyman LLP, Walnut Creek, CA, for Defendant Citigroup Corporate Holdings, Inc. Lyndsey C. Heaton, Sideman Bancroft LLP, San Francisco, CA, for Defendant PayPal, Inc.
Michael Frederick Cardoza, Lauren Brooks Sabb Veggian, The Cardoza Law Corporation, San Francisco, CA, Erika Heath, Erika Heath, Attorney at Law, San Francisco, CA, for Plaintiff. Brian H. Gunn, Wolfe & Wyman LLP, Walnut Creek, CA, for Defendant Citigroup Corporate Holdings, Inc. Lyndsey C. Heaton, Sideman Bancroft LLP, San Francisco, CA, for Defendant PayPal, Inc.
ORDER TO LIFT STAY
Regarding Docket No. 23 SALLIE KIM, United States Magistrate Judge
This matter comes before the Court upon consideration of the motion by Josephine Lee ("Plaintiff") to lift the stay in this matter and allow Plaintiff to pursue her claims in this Court. (Dkt. No. 23.) Plaintiff seeks only to pursue her claims against Defendant PayPal, Inc. ("PayPal"). Arbitration continues with Defendant Citigroup Corporate Holdings Inc. ("Citigroup"), and this order does not have bearing on the arbitration against Citigroup. In a previous order, the Court requested additional briefing from parties. (Dkt. No. 29.) Parties provided additional briefing on September 7, 2023. (Dkt. Nos. 30, 31.) Having carefully considered the parties' papers, relevant legal authority, and the record in the case, the Court hereby GRANTS Plaintiff's motion to lift stay as to PayPal.
BACKGROUND
The case background has been discussed at length by this Court in a prior order. (Dkt. No. 29.) Plaintiff and PayPal entered into a binding arbitration agreement binding all disputes arising between parties. The contract between Plaintiff and PayPal states:
You and PayPal each agree that any and all disputes or claims that have arisen or may arise between you and PayPal, including without limitation federal and state statutory claims, common law claims, and those based in contract, tort, fraud, misrepresentation or any other legal theory, shall be resolved exclusively through final and binding arbitration, rather than in court . . .(Dkt. No. 26-1 (Declaration of Lyndsey Heaton, Ex. A).) On June 15, 2022, the parties stipulated to stay this case pending arbitration, based on the fact that there were binding arbitration clauses in the agreements between Plaintiff and both PayPal and Citigroup. (Dkt. No. 13.) The Court stayed this case and required the parties to file continuing status reports regarding the arbitration. (Dkt. No. 19.) On July 22, 2022, Plaintiff filed a claim against PayPal with the AAA and sent a letter to PayPal requesting PayPal pay its share of the arbitration fees. (Dkt. No. 23-1 (Declaration of Erika Heath, ¶ 2 and Ex. A).) Plaintiff paid her portion of the arbitration fees on August 17, 2022. (Id. (Heath Dec. Ex. C)) On August 7, 2022, the AAA sent a letter to the parties to remind them of the fees and consequences of failing to pay the fees, and on August 19, 2022, the AAA issued an invoice to PayPal to pay its portion of the arbitration fee. (Id. (Heath Decl. Exs. C, D).) On September 7, 2022, the AAA sent a reminder to parties of PayPal's obligation to pay by September 20, 2022, and informed the parties that, under California Code of Civil Procedure §§ 1281.97 and 1281.98, the AAA could not grant extensions and that the AAA would close the case if payment was not made by the deadline. (Id. (Heath Decl. Ex. E).) The AAA wrote on September 7, 2022: "According to R-1(d) of the Consumer Arbitration Rules, should the AAA decline to administer this arbitration, either party may choose to submit its dispute to the appropriate court for resolution." (Id.)
. . .
The arbitration will be conducted by the American Arbitration Association (referred to as the "AAA") under its rules and procedures, as modified by this Agreement to Arbitrate.
. . .
The arbitrator(s) will decide the substance of all claims in accordance with applicable law, including recognized principles of equity, and will honor all claims of privilege recognized by law.
On September 26, 2022, six days after the deadline and after the repeated notices from the AAA, PayPal made its payment. (Dkt. No. 26-1 (Declaration of Lyndsey Heaton, ¶ 6).)
On September 28, 2022, the AAA issued a second letter to parties, informing parties that, because PayPal had paid fees after the deadline, AAA would begin closing the case. (Id. (Heath Decl. Ex. F).) The AAA closed the case on October 11, 2022. (Id. (Heath Decl. Ex. H).)
Plaintiff filed a brief requesting this matter return to this Court on May 19, 2023. (Dkt. No. 23.) Defendant filed a brief supporting arbitration on July 17, 2023, and Plaintiff filed a reply on July 24, 2023. (Dkt. Nos. 26, 27.) Plaintiff argued that the stay should be lifted due to PayPal's failure to pay under the rules of the AAA and under Cal. Code of Civil Procedure § 1281.97.
The Court, held in an Order on August 29, 2023, that the Federal Arbitration Act preempts the Cal. Code of Civil Procedure § 1281.97, and the Court requested the parties to submit additional briefing regarding issues related to waiver, breach of contract, and termination of arbitration by the AAA. (Dkt. No. 29.) The parties provided additional briefing on September 7, 2023. (Dkt. Nos. 30, 31.)
ANALYSIS
Plaintiff moves to lift the stay on this case for two reasons. First, Plaintiff argues that, under the terms of the contract, the AAA's payment 30-day payment policy controls and thus Plaintiff maintains the right to return this matter to Court. Second, Plaintiff argues that PayPal's failure to pay amounts to a material breach of contract or waiver of the right to arbitrate. The Court finds that under the terms of the Agreement to Arbitrate, the parties agreed to abide by AAA's rules and policies, which allow for this matter to return to this Court. The Court further finds that PayPal's failure to timely pay filing fees waived its right to compel arbitration.
A. Termination Under the AAA
The Court finds that the AAA's termination of this matter was proper under the terms of parties' Agreement to Arbitrate and thus that the termination allows for Plaintiff to move this matter back to this Court. The Agreement to Arbitrate states that "the arbitration will be conducted by the American Arbitration Association (referred to as the "AAA") under its rules and procedures, as modified by this Agreement to Arbitrate." (Dkt. No. 26-1 at 59.) Also, it states: "Payment of all filing, administration, and arbitrator fees will be governed by the AAA's rules, unless otherwise stated in this Agreement." (Dkt. No. 26-1 at 61.) PayPal agreed to "pay as much of the filing, administration, and arbitrator fees as the arbitrator(s) deem necessary." (Id. at 62.) The parties additionally agreed to abide by the terms of the Federal Arbitration Act, which guides that courts must stay proceedings on issues subject to arbitration "until such arbitration has been had in accordance with the terms of the agreement." Tillman v. Tillman, 825 F.3d 1069, 1073 (9th Cir. 2016) (citing 9 U.S.C. § 3.) Separately, the AAA rules state that, "should the AAA decline to administer this arbitration, either party may choose to submit its dispute to the appropriate court for resolution." (Dkt. No. 31-7 (Declaration of Lyndsey Heaton, Ex. F at R-1)); see also Dkt. No. 23-1 (Declaration of Erika Heath, Ex. E.)
Courts have consistently held that termination by the AAA allows for the cases to return to district court. See e.g., Tillman, 825 F.3d at 1074-76; Eliasieh v. Legally Mine, LLC, No. 18-CV-03622-JSC, 2020 WL 1929244, at *3 (N.D. Cal. Apr. 21, 2020). In Tillman, a district court lifted the stay on a case in arbitration where the AAA terminated the proceeding without entering an award or judgment. Tillman v. Tillman, 825 F.3d 1069 (9th Cir. 2016). In Tillman, the Plaintiff ran out of funds before arbitration concluded, and the AAA terminated the proceedings for failure to pay. 825 F.3d at 1072 The court held that, since the AAA had terminated the arbitration, the arbitration "ha[d] been had in accordance with the terms of the [arbitration] agreement," and thus the court could properly lift the stay in the case. Id. at 1074. Although the facts of the instant case do not contain facts that perfectly mirror those in Tillman, the AAA similarly here terminated the arbitration without an award and judgment.
Similarly, in Eliasieh, the court held that, under California law, "[t]he bottom line is that AAA terminated the arbitration due to Defendant's conduct." Eliasieh, 2020 WL 1929244, at *4 "Under well-settled caselaw and the AAA's own rules, the termination of the arbitration due to Defendant's non-payment of fees means that Plaintiff can pursue his claims in court." Id.
Paypal argues that requiring arbitration is appropriate, citing cases in which courts have required arbitration, but those do not involve a termination by the AAA. See Brunner v. Lyft, Inc., No. 19-CV-04808-VC, 2019 WL 6001945, at *2 (N.D. Cal. Nov. 14, 2019) (noting that the plaintiff "withdrew from arbitration before the AAA invoked its own suspension or termination procedures"); McLellan v. Fitbit, Inc., No. 3:16-CV-00036-JD, 2018 WL 3549042, at *5 (N.D. Cal. July 24, 2018) (permitting continued arbitration because "AAA did not trigger the suspension and termination procedures for non-payment of fees as provided for in Rule 54 of the Consumer Arbitration Rules."); Belyea v. GreenSky, Inc., 637 F.Supp.3d 745, 756 (N.D. Cal. 2022) (permitting continued arbitration where arbitrators did not terminate the proceedings despite late payment.) These cases materially differ from the case at hand, where the AAA terminated arbitration proceedings.
Here, as noted above, PayPal failed to pay the fees required by AAA within the 30 days the AAA mandated, received a reminder of its obligation to pay, failed to pay within the required time period, and the AAA terminated the proceeding. (Dkt. No. 26-1 (Declaration of Lyndsey Heaton, ¶ 6; Exs. E, F. H).) The Court finds that, under these circumstances, the AAA's termination of the proceedings suffices to show a final arbitration action that allows the case to return to this Court. Thus, the Court may lift the stay here.
PayPal argues that, because the AAA's 30-day policy was premised on a preempted statute, California Code of Civ. Proc. § 1281.97, the AAA's 30-day policy and subsequent termination of this matter does not require termination of arbitration. PayPal argues the Court should look to AAA Consumer Rule 54 to determine if termination was proper. However, PayPal contracted to abide by the AAA's rules and policies, which at the time of arbitration included the 30-day payment policy. The Court cannot find - and PayPal does not cite - any cases finding that the AAA is not permitted to enforce payment schedules it deems appropriate or any basis to set aside a termination by the AAA. On the contrary, courts often defer greatly to the AAA on such matters. Brunner v. Lyft, Inc., No. 19-CV-04808-VC, 2019 WL 6001945, at *2 (N.D. Cal. Nov. 14, 2019) (finding against terminating an arbitration and holding that "the arbitrator—or, in this case, the AAA itself—is well positioned to decide in the first instance whether the non-payment of fees justifies the termination of arbitral proceedings"). Further, the AAA Consumer Rules state, "The AAA has the initial authority to apply or not to apply the Consumer Arbitration Rules. If either the consumer or the business disagrees with the AAA's decision, the objecting party must submit the objection by the due date for filing an answer to the demand for arbitration. If an objection is filed, the arbitrator shall have the authority to make the final decision on which AAA rules will apply." (Dkt. No. 31-7 (Declaration of Lyndsey Heaton, Ex. F at R-1).) As such, the AAA had full discretion under its own rules to not apply Consumer Rule 54 in terminating its proceedings. If PayPal wished to object to this choice, under the terms of its Arbitration Agreement and the AAA's own Rules, it could have objected to the AAA directly. The Court has no basis to vary the rules parties contracted to follow.
B. Waiver of Right to Arbitrate
As a separate and independent reason for returning this case to this Court, Plaintiff additionally argues that PayPal has waived its right to arbitrate by failing to pay filings fees to the AAA in a timely manner. Courts often apply federal law to determine questions of waiver. The Supreme Court noted in Morgan v. Sundance that courts of appeals generally resolve issues of waiver in arbitration using federal law. Morgan v. Sundance, Inc., 596 U.S. 411, 142 S. Ct. 1708, 1712, 212 L. Ed. 2d 753 (2022). This is true in the Ninth Circuit, where the court has used federal law to analyze waiver of arbitration. See, e.g., Brown v. Dillard's, Inc., 430 F.3d 1004 (9th Cir. 2005). "A party seeking to prove waiver of a right to arbitrate must demonstrate (1) knowledge of an existing right to compel arbitration; (2) acts inconsistent with that existing right; and (3) prejudice to the party opposing arbitration resulting from such inconsistent acts." Brown v. Dillard's, Inc., 430 F.3d 1004, 1012 (9th Cir. 2005) (quoting Britton v. Coop Banking Group, 916 F.2d 1405, 1412 (9th Cir. 1990).) The Supreme Court found that waiver does not require a showing of prejudice, eliminating the third prong of this test. Morgan, 142 S. Ct. at 1712. Courts have generally found that nonpayment of filing fees demonstrates an act inconsistent with the right to arbitrate. Brown v. Dillard's, Inc., 430 F.3d 1004, 1012 (9th Cir. 2005) (finding waiver for a "refusal to arbitrate" where defendant did not pay arbitration fees for months); see Freeman v. SmartPay Leasing, LLC, 771 F. App'x 926, 932 (11th Cir. 2019) (finding waiver under federal law after JAMS terminated proceedings due to nonpayment).
In the instant case, PayPal was aware of its right to compel arbitration because it drafted the Agreement to Arbitration and filed a stipulation with the Court in 2022 to stay the case pending arbitration. (Dkt. No. 13; Dkt. No. 26-1 (Declaration of Lyndsey Heaton, Ex. A).) Additionally, PayPal failed to timely pay its filing fee in a timely manner, despite receiving a reminder from the AAA regarding this fee and receiving notice by the AAA that failure to pay would result in termination of the proceedings. (Dkt. No. 26-1 (Declaration of Lyndsey Heaton, Ex. E).) PayPal's delayed action serves as waiver of its right to arbitrate.
CONCLUSION
For the reasons stated herein, the Court hereby GRANTS Plaintiff's motion to lift the stay in this matter. An initial case management conference is hereby set for October 23, 2023. Parties shall file a joint case management statement by October 16, 2023.
IT IS SO ORDERED.