Flores v. Kertel Communications, Inc. CA5

Filed 5/26/22 Flores v. Kertel Communications, Inc. CA5
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication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
FIFTH APPELLATE DISTRICT
ADRIAN FLORES,
F081777
Plaintiff and Respondent,
(Super. Ct. No. 19CECG01334)
v.
KERTEL COMMUNICATIONS, INC., OPINION
Defendant and Appellant.
APPEAL from an order of the Superior Court of Fresno County. Rosemary T.
McGuire, Judge.
Fishman, Larsen, & Callister, Douglas M. Larsen and Trinity E. Taylor for
Defendant and Appellant.
Lawyers for Employee & Consumer Rights, Shelley K. Mack and Eric D.
Hitchcock for Plaintiff and Respondent.
-ooOoo-
Appellant Kertel Communications, Inc., doing business as Sebastian (Kertel),
appeals the superior court’s order denying Kertel’s petition to confirm (petition to
confirm) an arbitration award (Arbitration Award) rendered against respondent Adrian
Flores. We reverse and remand to the superior court with directions to enter a new order
vacating the Arbitration Award, and to cause the appointment of an arbitrator to hear the
arbitration pursuant to Code of Civil Procedure section 1281.6.1
FACTUAL AND PROCEDURAL BACKGROUND
Flores, as a condition of employment with Kertel, entered into an “AGREEMENT
FOR AT-WILL EMPLOYMENT AND ARBITRATION” (Agreement). The Agreement
contained an arbitration provision (arbitration provision), which provides as follows:
“The parties agree to submit to final and binding arbitration any
dispute, controversy or claim that arises from the employment relationship,
unless arbitration of the dispute would be prohibited by law. This means
that a neutral arbitrator, rather than a court or jury, will decide the dispute.
This will be the parties’ sole and exclusive remedy.
“This Agreement extends to all claims relating to Employee’s
employment and termination of employment, including, but not limited to:
Claims for breach of contract or an express or implied covenant of good
faith and fair dealing; intentional or negligent infliction of emotional
distress; defamation; wrongful termination or constructive discharge;
unlawful discrimination or harassment, including claims arising under the
Fair Employment and Housing Act, the Civil Rights Act of 1964; the
Americans with Disabilities Act; wage and hour claims under state or
federal law; claims under the Employee Retirement Income Security Act
(“ERISA”) and the Consolidated Omnibus Budget Reconciliation Act
(“COBRA”); and any allegation of injury to physical, mental or economic
interests. This Agreement extends to claims that could be brought in court,
or before an administrative body, such as the Labor Commissioner, unless
the law compels that such claims be brought before the administrative
1 All further statutory references are to the Code of Civil Procedure unless otherwise
indicated.
Section 1281.6 provides a method for appointing a neutral arbitrator in the event
an arbitration agreement is silent on the manner of appointment. In such cases, absent an
agreement on the method of appointment, “the court shall nominate five persons from
lists of persons supplied jointly by the parties … or obtained from a … private
disinterested association concerned with arbitration.” (§ 1281.6.) Thereafter, the parties
may choose an arbitrator from the list (or from outside the list) within five days of
receiving notice of the nominees from the court. (Ibid.) “If the parties fail to select an
arbitrator within the five-day period, the court shall appoint the arbitrator from the
nominees. (Ibid.)
2.
body. The arbitrator will have authority to determine all issues between the
parties, including the validity or enforceability of this Agreement.
“The parties will settle their dispute(s) according to the provisions of
California Arbitration Act (“CAA”), including provisions for discovery,
provided that the CAA does not undermine the goals and policies of the
Federal Arbitration Act (“FAA”) or is preempted by the FAA. The parties’
designation of the CAA does not preclude the application of the FAA if the
FAA would be applicable.[2]
“To start the arbitration process, either party must submit a written
request for arbitration to the other within the applicable statute of
limitations. Employee will pay $435 toward the cost of the arbitration.”
On or about July 23, 2018, after his employment with Kertel was terminated,
Flores filed a demand for arbitration (arbitration demand) with the American Arbitration
Association (AAA) and served it on Kertel. The arbitration demand alleged causes of
action for failure to pay wages (Lab. Code, §§ 204, 206, 216, 218.5, 218.6); failure to pay
overtime (id., §§ 510, 1194); failure to timely pay wages (id., §§ 204, 206); failure to
provide compliant wage statements (id., §§ 226, 226.3); waiting time penalties (id.,
§§ 201–203); unfair competition (Bus & Prof. Code, § 17200 et seq.); wrongful
termination (Gov. Code, § 12900 et seq.); wrongful termination in violation of public
policy; harassment, discrimination, and retaliation (Gov. Code, § 12940, subd. (k)); and
failure to produce wage records (Lab. Code, § 226, subd. (b)). The arbitration demand
was served along with a cover letter from Flores’ counsel, which read in part: “We have
elected to arbitrate the issue[s] per [the Agreement]. This letter serves as our formal
demand for arbitration. [¶] As a reminder, [the Agreement] states, ‘The parties will
settle their dispute(s) according to the provisions of [the CAA], including provisions for
discovery.…’ ”
2 The parties do not argue the CAA does not apply.
3.
The parties agreed to arbitrate Flores’ claims before the Honorable Howard R.
Broadman (retired) (Arbitrator). Over the next nine months, as part of the arbitration
process, the parties engaged in discovery and motion practice.
The Arbitrator ordered the parties to engage in mediation prior to the arbitration
hearing. A half-day mediation was scheduled for April 16, 2019. On April 10, 2019,
Flores’ counsel requested confirmation from Kertel’s counsel that Kertel would cover the
costs of mediation. Receiving no response, Flores’ counsel reiterated the request on
April 11, 2019. When no response followed, Flores’ counsel unsuccessfully attempted to
reach the mediator to determine whether Kertel had paid the full costs of mediation.
On April 15, 2019, the day prior to the scheduled mediation, Flores’ counsel
notified Kertel’s counsel that Flores would not attend because Kertel failed to confirm it
would pay the full costs of mediation. Kertel’s counsel responded by proposing each
party pay half the costs of mediation; that if the case settles at mediation, Kertel will pay
the entire costs of mediation; and if it does not settle and Flores prevails, Flores may
request the Arbitrator award Flores the costs of mediation as part of an award of costs.
Flores’ counsel declined the proposal and argued case law required Kertel to pay the full
costs of mediation. Kertel’s counsel disagreed. He reiterated his proposal on cost
allocation but no agreement was reached. That same day, the parties presented the issue
to the Arbitrator, who ruled as follows: “The ma[tt]er shall be mediated. I will reallocate
fees at the Arbitra[ti]on. Pending the realloca[ti]on each party shall pay 1/2.”
On April 17, 2019, Flores filed a complaint in the superior court (civil action)
alleging substantively identical claims as those set forth in his arbitration demand.3 Five
days later, Flores’ counsel advised Kertel’s counsel that Flores “will be moving forward
with his claims in Superior Court” and asked whether Kertel would stipulate to stay the
3 Flores v. Kertel Com, Inc. (Super. Ct. Fresno County No. 19CECG01334).
4.
arbitration while Flores requested a ruling from the court on whether Flores must share in
the costs of mediation. Kertel declined to stipulate to a stay.
On April 29, 2019, Flores’ counsel requested the Arbitrator stay arbitration
proceedings pending a ruling from the superior court on Flores’ ability to pay mediation
costs. Kertel opposed the request noting, among other things, no such costs were
incurred due to Flores’ refusal to attend the mediation. The Arbitrator denied the stay
request.
On May 3, 2019, Flores’ counsel served the Arbitrator and Kertel’s counsel with a
document entitled “NOTICE OF FLORES WITHDRAWAL OF CLAIMS” (withdrawal
notice). The withdrawal notice indicated Flores was withdrawing his claims from
arbitration and would pursue them in the civil action. The withdrawal notice was largely
premised on the contention the Arbitrator’s mediation order that Flores pay half the costs
of mediation violates the holding in Armendariz v. Foundation Health Psychcare
Services, Inc. (2000) 24 Cal.4th 83 (Armendariz). The withdrawal notice indicated Flores
was unable to pay the costs of mediation and that he could not continue with the
arbitration without violating the order and exposing himself to charges of contempt and
potential fines.
On May 7, 2019, the Arbitrator proposed a conference call with the parties to
discuss the withdrawal notice. Kertel’s counsel agreed and a call was tentatively
scheduled for May 10, 2019. On May 8, 2019, Flores’ counsel indicated he would not be
available for the call and that, “In any event, Mr. Flores has withdrawn his claims before
[the Arbitrator].”
The Arbitrator then set a conference call for May 14, 2019, at 2:00 p.m. Upon
being advised that Flores’ lead counsel would not be available, the Arbitrator responded,
“The call will go forward. If he is unavailable someone else can a[tt]end.”
The conference call went forward but Flores’ counsel did not participate. The
results of the conference call were reported by Kertel’s counsel in a document entitled
5.
“NOTICE OF ARBITRATION STATUS CONFERENCE” served on Flores’ counsel
and the Arbitrator on May 17, 2019. It noted that the Arbitrator “ordered the arbitration
to take place at 9:00 a.m. on May 22, 2019,” at the offices of Kertel’s counsel.
On May 21, 2019, Flores’ counsel confirmed receipt of the notice of arbitration
status conference but contended the Arbitrator “has no legal or contractual authority to
continue to hold hearings on his own motions on this matter” and “[t]here are no claims
or counterclaims before [the Arbitrator].”
The arbitration went forward without Flores’ participation. On May 22, 2019, the
Arbitrator issued the Arbitration Award in which he ordered “[Flores] take nothing,
award in favor of [Kertel].” The Arbitration Award was purportedly served on the
parties. However, the proof of service indicated the Arbitration Award was served on
May 23, 2019, yet the proof of service was signed five days prior thereto on May 17,
2019.
On June 17, 2019, Kertel filed a petition to confirm the Arbitration Award.4 A
hearing on the petition was not scheduled until March 11, 2020, and notice of the hearing
was not served until February 11, 2020. The petition to confirm (which included a copy
of the Arbitration Award) was personally served on Flores on June 26, 2019.
On July 10, 2019, Kertel filed a motion to compel arbitration of the claims set
forth in the civil action. In its motion, Kertel disclosed the fact that an Arbitration Award
had previously been issued and that a petition to confirm had been filed. A copy of the
Arbitration Award was filed with the superior court and served on Flores’ counsel in
connection with the motion to compel arbitration. Flores opposed the motion.
4 Kertel Communications, Inc., dba Sebastian v. Flores (Super. Ct. Fresno County
No. 19CECG02124).
6.
On September 4, 2019, the superior court granted Kertel’s motion to compel
arbitration and stayed the civil action.5 The court rejected Flores’ claim that the
arbitration provision was unconscionable, finding no substantive unconscionability. In so
finding, the court, citing Armendariz, supra, 24 Cal.4th at page 113, indicated it was
interpreting the arbitration provision as requiring Kertel to “bear the arbitration forum
costs, including mediation costs which would not otherwise arise.”6 The court ruled that
“each of plaintiff’s claims are subject to arbitration” and rejected Flores’ claim that he
may continue to pursue his claims in the civil action. The court wrote:
“In the case at bar, [Flores] cites to Roldan [v. Callahan & Blaine
(2013) 219 Cal.App.4th 87] for the proposition that he has the right to bring
this lawsuit—as a result of [Kertel’s] refusal to pay mediation costs.
However, Roldan holds no such thing. Rather, as stated above, Roldan
allows a plaintiff to seek relief from having to pay such fees via motion, not
via lawsuit. [Flores] also cites to Tillman v. Rheingold, Valet, Rheingold,
Shkolnik & McCartney (9th Cir. 2016) 825 F.3d 1069. But Tillman is non-
binding federal authority.”
On February 28, 2020, Flores filed his opposition to the petition to confirm
arguing that he had withdrawn his claims from arbitration due to his inability to pay half
the costs of mediation as ordered by the Arbitrator; that the Arbitrator lacked subject
matter jurisdiction over Flores’ claims; and that the petition to confirm “must be
dismissed pursuant to … [s]ection 1287.2 because [Flores] was no longer a party to the
arbitration proceedings at the time that [Arbitration Award] was issued.” In the
alternative, Flores argued the petition to confirm should be denied in the superior court’s
“sound exercise of its equitable discretion, in order to avoid the manifest injustice that
would result from confirmation of the [A]rbitration [A]ward under these circumstances.”
5 The superior court’s order to compel arbitration is not on appeal.
6 The superior court rejected Kertel’s argument that it was “justified in requiring
[Flores] to pay for mediation because [he] would have had to do so, if the case was
litigated in Superior Court.” The court found that “using court ordered mediation
services, [Flores] would be entitled to initial mediation services at no cost.”
7.
On July 28, 2020, the superior court issued its order denying the petition to
confirm and ordered the matter consolidated with the civil action. The court determined
that, because Flores had withdrawn his claims from the arbitration on May 3, 2019, he
“was not a party to the arbitration” and was not bound by the Arbitration Award.
On September 25, 2020, Kertel timely appealed the superior court’s order denying
the petition to confirm.
DISCUSSION
I. Standard of Review
In reviewing a superior court’s ruling on a petition to confirm an arbitration award,
“[w]e apply the substantial evidence test to the [superior] court’s determination of
disputed factual issues. [Citation.] ‘Issues of statutory interpretation and the application
of that interpretation to a set of undisputed facts are questions of law subject to
independent review by this court.’ ” (Soni v. SimpleLayers, Inc. (2019) 42 Cal.App.5th
1071, 1087.)
The relevant facts are undisputed. There is no dispute the parties agreed to
mediate Flores’ claims by signing the Agreement which contains the arbitration
provision, that Flores invoked the right to arbitrate those claims when he filed the
arbitration demand with the AAA and served it upon Kertel, and that the parties
conducted discovery and motion practice as part of the arbitration process. Similarly,
there is no dispute as to the content of the Arbitrator’s mediation order, the parties’
attempts to resolve the dispute over payment of mediation costs, Flores’ subsequent
service of the withdrawal notice, and the parties’ practice before the superior court with
regard to the petition to confirm, the civil action, and the petition to compel arbitration. It
is the legal effect of these undisputed facts that is at issue.
The first question before us is whether the superior court correctly determined, on
the basis of the undisputed facts, that Flores was not a “party to the arbitration” as that
term is defined in the CAA, and that Flores was, therefore, not bound by the Arbitration
8.
Award. Accordingly, our review is de novo. (Soni v. SimpleLayers, Inc., supra,
42 Cal.App.5th at p. 1087.)
II. Analysis
A. Armendariz v. Foundation Health Psychcare Services, Inc.
Flores’ decision to “withdraw” from the arbitration was premised primarily on the
holding in Armendariz in which the California Supreme Court held that “a mandatory
employment arbitration agreement that contains within its scope the arbitration of
FEHA[7] claims impliedly obliges the employer to pay all types of costs that are unique to
arbitration.” (Armendariz, supra, 24 Cal.4th at p. 113.) That holding has been extended
to other employment related claims. (See, e.g., Little v. Auto Stiegler, Inc. (2003)
29 Cal.4th 1064, 1076 [wrongful termination in violation of public policy]; Mercuro v.
Superior Court (2002) 96 Cal.App.4th 167, 180 [statutes enacted for a public reason,
including Lab. Code, §§ 230.8 & 970].)
In Armendariz, as in the present case, the arbitration agreement at issue did not
contain an express provision obligating the employee to pay costs unique to the
arbitration. (Armendariz, supra, 24 Cal.4th at p. 92.) As a result, the Supreme Court
“interpret[ed] the arbitration agreement … as providing … that the employer must bear
the arbitration forum costs.” (Id. at p. 113.) The Supreme Court stated, “The absence of
specific provisions on arbitration costs would therefore not be grounds for denying the
enforcement of an arbitration agreement.” (Ibid.)
Consistent with the approach laid out in Armendariz, the superior court, in its
order compelling arbitration of the civil action, interpreted the arbitration provision as
impliedly obligating Kertel to pay the costs unique to the arbitration—including
mediation costs.
7 Fair Employment and Housing Act (Gov. Code, § 12900 et seq.).
9.
B. Petition to Confirm
Kertel brought its petition to confirm pursuant to section 1285 which reads: “Any
party to an arbitration in which an award has been made may petition the [superior] court
to confirm, correct or vacate the award. The petition shall name as respondents all parties
to the arbitration and may name as respondents any other persons bound by the
arbitration award.” (§ 1285.) In responding to such a petition, a party “may request the
court to dismiss the petition or to confirm, correct or vacate the award.” (§ 1285.2.) If a
party seeks to vacate or correct an arbitration award, either by way of a separate petition
or in response to a petition to confirm the award, that party must do so within “100 days
after the date of the service of a signed copy of the award” on him or her. (§§ 1288,
1288.2; Coordinated Construction, Inc. v. Canoga Big “A,” Inc. (1965) 238 Cal.App.2d
313, 316.) The 100-day limitation period is jurisdictional. (Abers v. Rohrs (2013)
217 Cal.App.4th 1199, 1211.)
Upon proper service and filing of a petition to confirm or response thereto, the
superior court “shall confirm the award as made, … unless in accordance with this
chapter [i.e., §§ 1285–1288.8] it corrects the award and confirms it as corrected, vacates
the award or dismisses the proceeding.” (§ 1286.)
In opposing the petition to confirm, Flores contended that because he withdrew his
claims from arbitration, the Arbitrator lacked subject matter jurisdiction over those
claims. He requested the superior court dismiss the petition to confirm pursuant to
section 1287.2 on grounds he was not a “party to the arbitration proceedings.” In that
regard, section 1287.2 provides: “The court shall dismiss the proceeding under this
chapter as to any person named as a respondent if the court determines that such person
was not bound by the arbitration award and was not a party to the arbitration.”
(§ 1287.2.) In the alternative, Flores requested the court deny the petition in the “sound
exercise of its equitable discretion, in order to avoid … manifest injustice.”
10.
The superior court found merit in Flores’ objections. Although the court
concluded Flores was “not moving to vacate on any of the grounds provided in … section
1286.2,” it ruled: “[Flores] was not a party to the arbitration that occurred on May 22,
2019. It is undisputed that [Flores’] claims against defendant were withdrawn from
arbitration on May 3, 2019. Pursuant to [] section 1287.2, as [Flores] was not a party to
the arbitration, he is not bound by the [A]rbitration [A]ward.”
C. Douglass v. Serenivision, Inc.
On appeal, Kertel relies on Douglass v. Serenivision, Inc. (2018) 20 Cal.App.5th
376 (Douglass) for the proposition that subject matter jurisdiction is a matter of contract.
Kertel further contends the facts of Douglass are similar to the case at bar and that the
result should be the same.
In Douglass, the respondent signed a contract on behalf of his company to obtain
services from an internet advertising company. (Douglass, supra, 20 Cal.App.5th at
p. 381.) The contract incorporated terms of a master agreement which required all
disputes relating to the contract be resolved by binding arbitration and provided that an
individual who signs the contract guarantees his company’s performance under the
contract. (Ibid.) When the advertising company did not get paid, it filed a demand for
arbitration against the respondent and his company. (Ibid.) In his answer, the respondent
admitted signing the contract but denied liability because he refused to sign the master
agreement. (Id. at pp. 381–382.)
Five months after answering, the Douglass respondent appeared at a preliminary
hearing before the arbitrator and said he was “ ‘appear[ing] voluntarily and
submit[ting]’ ” to the arbitrator’s jurisdiction. (Douglass, supra, 20 Cal.App.5th at
p. 382.) The following month, the respondent wrote opposing counsel and indicated he
would “ ‘decline to participate in the arbitration’ ” unless the advertising company posted
a bond to cover his attorney fees in the event he prevailed. (Ibid.) Several months later,
and only 19 days before an evidentiary hearing was to be held in the arbitration, the
11.
respondent wrote the arbitrator and advised of his previous demand to the advertising
company for a bond and its refusal of that demand. (Ibid.) He stated a bond was
necessary for the arbitrator to exercise jurisdiction over the dispute. (Ibid.) The
arbitrator construed the letter as an expedited request for an order requiring the bond and
denied the motion. (Ibid.) In response, the respondent wrote the arbitrator and indicated
he was “ ‘terminat[ing] his voluntary appearance’ ” and would not participate further in
the arbitration proceedings. (Ibid.)
The arbitration proceeding in Douglass went forward without the respondent’s
participation and an award issued in favor of the advertising company. (Douglass, supra,
20 Cal.App.5th at pp. 382‒383.) The trial court confirmed the award and the appellate
court affirmed. (Id. at pp. 383, 394.) The appellate court held “the subject matter
jurisdiction of an arbitrator is purely a product of contract [citation], which by definition
turns on the parties’ mutual consent” and found the respondent’s conduct amounted to
consent to the arbitrator’s jurisdiction and a waiver of his right to proceed in a judicial
forum. (Id. at pp. 385, 390, 391.)
Flores contends Douglass is readily distinguishable from the case at hand because
Douglass involved “two business entities,” not “mandatory employment arbitration.” He
argues, “None of the public policy consideration protecting employees and their ability to
vindicate their statutory and constitutional rights in the context of mandatory employment
arbitration were at play in Douglass.” He further notes the respondent in Douglass “had
withdrawn from arbitration simply to evade an adverse ruling against him, within the
scope of the arbitrator’s legitimate discretion,” whereas, here, “the only ruling the
[A]rbitrator made on the merits prior to [Flores’] withdrawal—his denial of [Kertel’s]
motion for summary judgment—was in [Flores’] favor, not [Kertel’s].” Flores argues
Douglass does not stand for the proposition that “no claimant in arbitration may ever
withdraw unilaterally after having first voluntarily participated in the arbitration process.”
12.
Flores also cites National Union Fire Ins. Co. v. Stites Prof. Law Corp. (1991)
235 Cal.App.3d 1718 (National Union) for the proposition that subject matter jurisdiction
can be challenged at any stage of the proceedings and that Douglass “did nothing to
‘correct’ or ‘clarify’ the National Union court’s ruling with regard to the timing of
challenges to an arbitrator’s subject matter jurisdiction.”
We generally agree with Flores that challenges to subject matter jurisdiction may
be raised at any stage of the proceedings. (National Union, supra, 235 Cal.App.3d at
pp. 1723–1724.) However, Kertel does not contend on appeal that Flores is barred from
raising the issue. We also agree with Flores that there are policy differences and factual
distinctions between Douglass and the case at bar. On the other hand, we largely agree
with the proposition that a party, through his or her conduct, “can waive their right to
litigate in a particular judicial forum” and that, generally speaking, “ ‘[a] claimant may
not voluntarily submit his claim to arbitration, await the outcome, and if the decision is
unfavorable, challenge the authority of the arbitrator to act.’ ” (Douglass, supra,
20 Cal.App.5th at p. 389.) A contrary ruling would encourage forum shopping and
would frustrate the “ ‘ “ ‘strong public policy in favor of arbitration as a speedy and
relatively inexpensive means of dispute resolution.’ ” ’ ” (Id. at p. 389.)
We also agree with Kertel that parties are free to confer subject matter jurisdiction
on an arbitrator by contract. Generally speaking, an arbitrator may “ ‘decide any issue
which the parties willingly present to it.’ ” (Hydrothermal Energy Corp. v. Fort Bidwell
Indian Community Council (1985) 170 Cal.App.3d 489, 497.) “ ‘The powers of an
arbitrator are limited and circumscribed by the agreement or stipulation of submission.’ ”
(O’Malley v. Petroleum Maintenance Co. (1957) 48 Cal.2d 107, 110.)
D. Subject Matter Jurisdiction
Flores’ contention that the Arbitrator lacked subject matter jurisdiction is premised
solely on the fact that Flores withdrew his claims from the arbitration pursuant to his
withdrawal notice. The parties do not dispute, however, that Flores’ claims were of a
13.
type that were required to be arbitrated under the express terms of the arbitration
provision. The arbitration provision was broad enough to encompass all of Flores’
claims.
E. Party to the Arbitration
Notably, in issuing its order denying the petition to compel, the superior court did
not consider the statutory definition of the phrase “party to the arbitration.” That phrase
is defined in the CAA as follows:
“ ‘Party to the arbitration’ means a party to the arbitration
agreement, including any of the following: [¶] (1) A party who seeks to
arbitrate a controversy pursuant to the agreement. [¶] (2) A party against
whom such arbitration is sought pursuant to the agreement. [¶] (3) A party
who is made a party to the arbitration by order of the neutral arbitrator upon
that party’s application, upon the application of any other party to the
arbitration, or upon the neutral arbitrator’s own determination.” (§ 1280,
subd. (h).)
Here, Flores was a party to the Agreement which contained the arbitration
provision. The arbitration provision provided: “To start the arbitration process, either
party must submit a written request for arbitration to the other within the applicable
statute of limitations.” Thus, the arbitration provision was self-executing in that it
“permitted and provided for arbitration under rules therein incorporated without the
necessity of securing a prior court order under section 1281.2.” (Titan Enterprises, Inc.
v. Armo Construction, Inc. (1973) 32 Cal.App.3d 828, 830, disapproved on other grounds
in Doers v. Golden Gate Bridge etc. Dist. (1979) 23 Cal.3d 180, 188.) Consistent with
the arbitration provision’s terms, Flores sought to arbitrate “a controversy” (i.e., his
claims) by filing the arbitration demand with the AAA, serving it on Kertel, and by
participating in arbitration proceedings.
In response, Kertel voluntarily submitted to the jurisdiction of Arbitrator. Thus,
no judicial involvement was necessary to commence arbitration proceedings. (See
Rosenson v. Greenberg Glusker Fields Claman & Machtinger LLP (2012)
14.
203 Cal.App.4th 688, 694 [noting that an order compelling arbitration under § 1281.2
may only be obtained upon allegations of the “existence” of an agreement to arbitrate a
controversy and that a party to the agreement “refuses to arbitrate the controversy”].)
We conclude Flores was a “party to the arbitration” at least up until the time he
served his withdrawal notice on Kertel and the Arbitrator. Accordingly, we consider the
effect of the withdrawal notice and whether that altered Flores’ status as a party to the
arbitration.
F. Withdrawal Notice
Kertel has framed the issue before this court as follows: “Whether an employee
who signs an arbitration agreement, and thereafter engages in arbitration proceedings,
including discovery and motion practice for over a period of nine months, can withdraw
from arbitration within weeks of the scheduled arbitration hearing and thereafter claim
the arbitrator lacks subject matter jurisdiction to hold the arbitration hearing.” To this,
we would add to our consideration Flores’ contention he had sufficient cause to withdraw
from the arbitration. We conclude Flores’ withdrawal was ineffective to alter his status
as a party to the arbitration.
In Arrieta v. Paine, Webber, Jackson & Curtis, Inc. (1976) 59 Cal.App.3d 322(Arrieta), a plaintiff sued his stockbroker and its employees for various torts, breach of
contract, and common counts. (Id. at p. 325.) The parties stipulated to stay the matter in
order to arbitrate their disputes before either of two arbitral forums. (Id. at p. 326.) The
plaintiff paid the arbitration fees and the arbitration went forward in the chosen forum.
(Ibid.) The arbitrator’s ruling resulted in a dismissal of all claims and counterclaims.
(Ibid.) The plaintiff petitioned to vacate the award and for an order referring the
arbitration to the alternate forum and stockbroker petitioned for confirmation of the
award. (Ibid.) The trial court confirmed the award and the plaintiff appealed. (Ibid.)
In his affidavit to the trial court, the Arrieta plaintiff averred that there were
numerous irregularities in the first day of proceedings which the plaintiff said unduly
15.
influenced the arbitrators and rendered the proceedings unfair; that the proceedings were
then continued for a month due to scheduling conflicts; and that before the second day of
hearing commenced, the plaintiff requested a postponement of proceedings so that he
could seek arbitration before the alternate arbitral forum. (Arrieta, supra, 59 Cal.App.3d
at p. 327.)
One of the grounds for appeal asserted by the Arrieta plaintiff was that “he had the
power to revoke the right of the arbitrators to proceed.” In response, the appellate court
wrote:
“An agreement to submit to arbitration is valid, enforceable, and
irrevocable, save upon grounds for revocation of any contract. (Code Civ.
Proc., § 1281.) ‘Once a controversy is submitted to arbitration, it remains
before the arbitrators until they have completed their determination of the
matter, unless the parties mutually agree to withdraw it.’ ” (Arrieta, supra,
59 Cal.App.3d at pp. 329–330, italics added, quoting Gerard v. Salter
(1956) 146 Cal.App.2d 840, 844 (Gerard).)
In Gerard, the trial court confirmed an arbitration award rendered in two
consolidated actions. (Gerard, supra, 146 Cal.App.2d at p. 842.) The first action was
brought by a builder against a property owner for whom it did construction work and for
which he was claiming additional compensation. (Ibid.) The second action was brought
by the property owner against the builder for construction defects. (Ibid.) The first
action was arbitrated pursuant to a contractual arbitration provision. (Ibid.) At a hearing
on confirmation of the award, the parties stipulated that the matter be referred back to the
same panel of arbitrators for the additional consideration and determination of the second
action along with the first. (Ibid.) An award was issued on the consolidated cases and
confirmed by the trial court. (Id. at p. 843.)
On appeal, the Gerard court rejected the property owners’ contention that “the
arbitrators had no power or jurisdiction to determine” the property owners’ construction
defect suit. (Gerard, supra, 146 Cal.App.2d at pp. 843–844.) The Gerard court wrote:
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“The issues were fairly submitted by stipulation to arbitrators for
determination under section 1280 et seq. of the Code of Civil Procedure.
No action was ever taken in the court by appellant to be relieved of the
stipulation. No sufficient revocation is indicated as suggested by section
1280 of the Code of Civil Procedure. A hearing was had, findings were
made, and the court, after a full consideration of the entire matter, adopted
those findings and rendered judgment in accordance with them. Once a
controversy is submitted to arbitration, it remains before the arbitrators
until they have completed their determination of the matter, unless the
parties mutually agree to withdraw it. Thus, when the parties agree upon
an umpire to abide by his decision, neither of them, without the consent of
the other, may, in the absence of fraud, withdraw the question of
performance from the common arbiter for the purpose of referring it to a
court or jury. (5 Cal.Jur.2d 100, § 26; Church v. Shanklin [(1892)] 95 Cal.
626.)” (Gerard, supra, 146 Cal.App.2d at p. 844, italics added.)
The Arrieta and Gerard cases differ from the case at bar in that the arbitration
hearings had either concluded (Gerard) or were in progress (Arrieta). Moreover, they
did not involve arbitration of employment related disputes between an employer and
employee. Nonetheless, the cases are instructive. They stand for the general proposition
that once parties submit a matter to arbitration, they may not, in the absence of fraud,
withdraw from the arbitration absent agreement of all parties. The agreement to arbitrate
remains valid and enforceable “save upon such grounds as exist for the revocation of any
contract.”8 (§ 1281.) The foregoing proposition is also consistent with the principle
stated in Douglass that “ ‘[a] claimant may not voluntarily submit his claim to arbitration,
await the outcome, and if the decision is unfavorable, challenge the authority of the
arbitrator to act.’ ” (Douglass, supra, 20 Cal.App.5th at p. 389.)
Here, Kertel did not consent to Flores’ attempt to withdraw his claims from the
arbitration. Consequently, we conclude the withdrawal notice did not alter Flores’ status
as a “party to the arbitration.” Thus, we cannot affirm the superior court’s ruling on the
8 “ ‘[T]he “revocation of a contract” … is something of a misnomer. “Offers are
‘revoked.’ … Contracts are extinguished by rescission.” ’ ” (Armendariz, supra,
24 Cal.4th at p. 98, fn. 4.)
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grounds relied upon by the court. However, as discussed in the next section of this
opinion, we are of the opinion that relief of a different type is warranted.
G. Flores’ Request for Equitable Relief to Prevent a Miscarriage of Justice
In opposing Kertel’s petition to confirm the Arbitration Award, Flores requested
the superior court deny the petition in its equitable discretion “to avoid the manifest
injustice that would result from confirmation” of the award. After examining the various
policy considerations implicated by Flores’ request, the superior court’s analysis and
ruling on Kertel’s motion to compel arbitration, and this court’s authority (albeit, limited)
to grant extraordinary relief where necessary to protect a party’s statutory rights, we
conclude Flores is entitled to relief.
1. Policy Considerations
We begin our analysis by recognizing various policy considerations relevant to
arbitrations, in general, and, in the employer/employee context.
Undoubtedly, there is a “ ‘strong public policy in favor of arbitration as a speedy
and relatively inexpensive means of dispute resolution.’ ” (Moncharsh v. Heily & Blase
(1992) 3 Cal.4th 1, 9 (Moncharsh).) “ ‘The policy of the law in recognizing arbitration
agreements and in providing by statute for their enforcement is to encourage persons who
wish to avoid delays incident to a civil action to obtain an adjustment of their differences
by a tribunal of their own choosing.’ ” (Ibid.) There is both a strong federal and state
policy favoring the enforcement of arbitration provisions. (Armendariz, supra,24 Cal.4th at pp. 96–97.)
However, the policy favoring enforcement of arbitration agreements is not without
limits. Armendariz and its progeny hold that employment contracts which require an
employee to arbitrate certain employment related claims may not impose on the
employee additional costs unique to the arbitration. (Armendariz, supra, 24 Cal.4th at
p. 113; Little v. Auto Stiegler, Inc., supra, 29 Cal.4th at p. 1076; Mercuro v. Superior
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Court, supra, 96 Cal.App.4th at p. 180.) Notably, the latter limitation on enforcement of
arbitration agreements was not at issue in Arrieta, Gerard or Douglass.
More generally, there is a “policy of the law to have every litigated case tried on
its merits.” (Sanford v. Smith (1970) 11 Cal.App.3d 991, 998.) Unlike the parties in
Arrieta and Gerard, Flores did not actually participate in the arbitration hearings that
commenced on May 22, 2019. This came as no surprise to Kertel or the Arbitrator
because Flores notified them he did not intend to move forward with the arbitration
hearing, and that he had filed a complaint in the superior court asserting the same claims
he had asserted in his arbitration demand. Kertel moved to compel arbitration of the
complaint but not until after the arbitration hearing and issuance of the Arbitration
Award. As a result, the Arbitration Award was akin to entry of a default award against
Flores.
Notably, within the last several years, the Legislature has passed legislation to
further protect an employee’s rights in the context of employee/employer arbitrations. In
2019, the Legislature passed Senate Bill No. 707 (2019–2020 Reg. Sess.) which codified
sections 1281.97 and 1281.98. Section 1281.98 provides, in relevant part: “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, that the drafting party pay
certain fees and costs during the pendency of an arbitration proceeding, if the fees or
costs required to continue the 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 the employee or consumer to proceed
with that arbitration as a result of the material breach.” (Id., subd. (a)(1), italics added;
see § 1281.97, subd. (a)(1) [providing similarly in situations where the drafting party is
required to pay “certain costs and fees before the arbitration can proceed” (italics
added)].)
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Neither section 1281.97 nor 1281.98 were in effect at the time Flores attempted to
withdraw from the arbitration and we have found nothing in the text of those statutes or
in their legislative history to suggest the Legislature intended them to have retroactive
effect. (See Phillips v. St. Mary Regional Medical Center (2002) 96 Cal.App.4th 218,
229 [“Generally, statutes do not apply retroactively unless the Legislature clearly
indicated otherwise.”].) Nonetheless, these recently enacted statutes reflect a shift in
public policy by permitting an employee to unilaterally withdraw from an arbitration
when, for example, the employer is obligated by law to pay certain costs of the arbitration
and fails to do so within 30 days of them becoming due. (§§ 1281.97, subd. (b)(1),
1281.98, subd. (b)(1).)
2. The Superior Court’s Ruling on Kertel’s Motion to Compel
Arbitration
In considering whether Flores is entitled to relief from the Arbitration Award, we
next examine the superior court’s order on Kertel’s motion to compel arbitration. After
finding the arbitration provision procedurally unconscionable, the court considered
whether it was likewise substantively unconscionable.9 Citing Armendariz, supra,24 Cal.4th at pages 102–114, the court noted that, to be enforceable, the provision must
have “no requirement that employees pay either unreasonable costs or any arbitrators’
fees or expenses as a condition of access to the arbitration forum.” The court found, we
believe correctly, that the cost of mediation (in the context of this case) was unique to the
arbitration. Had the Agreement contained an express provision requiring Flores to pay
costs unique to the arbitration, the court could have refused enforcement of the arbitration
9 The trial court’s determination the Agreement was procedurally unconscionable
rested on its findings that (1) Kertel, the party with superior bargaining power, drafted the
Agreement; (2) the Agreement was a standardized contract; and (3) Flores was not given
an opportunity to opt out of the arbitration provision contained in the Agreement.
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provision or, at a minimum, enforcement of the offending provision on grounds of
unconscionability. (Civ. Code, § 1670.5.)
Although the Agreement was silent on the issue of mediation costs, the
Arbitrator’s mediation order, as applied, had the effect of rendering the arbitration
provision unconscionable. In order to save the provision from a determination it was
unconscionable, the superior court was required to construe the Agreement in a manner
contrary to the Arbitrator’s mediation order. It was not until the court issued its ruling on
Kertel’s motion to compel arbitration that Flores obtained a judicial determination he
could not be forced to pay mediation costs.
3. Judicial Review of Arbitration Awards
Finally, we are cognizant of the limitations on judicial review of arbitration
awards. As stated in Moncharsh, “an award reached by an arbitrator pursuant to a
contractual agreement to arbitrate is not subject to judicial review except on the grounds
set forth in sections 1286.2 (to vacate) and 1286.6 (for correction).… [¶] [T]he normal
rule of limited judicial review may not be avoided by a claim that a provision of the
contract, construed or applied by the arbitrator, is ‘illegal,’ except in rare cases when
according finality to the arbitrator’s decision would be incompatible with the protection
of a statutory right. (Moncharsh, supra, 3 Cal.4th at p. 33.) We conclude this is one of
those rare cases.
There are certain anomalies presented by the facts of this case which we feel
compelled to discuss. For example, Flores never received proper notice of the
Arbitration Award sufficient to apprise him of any jurisdictional time limits on seeking to
vacate the award. The proof of service for the Arbitration Award is defective on its face
having been signed on May 17, 2019, and attesting to conduct that, by its own wording,
would not have occurred until May 23, 2019. The record does not show that defect was
ever corrected by the parties.
21.
Although one might argue Flores received actual notice of the Arbitration Award
due to the fact it was attached to Kertel’s petitions to confirm the award and to compel
arbitration, Flores still could not thereby determine an actual date by which he would
have had to seek to vacate the Arbitration Award. This procedural anomaly caused
uncertainty and operated to Flores’ prejudice.
Under the facts of this case, had Flores brought a petition to vacate the award, the
superior court would have been justified in granting the petition. Section 1286.2 provides
that a court “shall vacate the award” if the “arbitrators exceeded their powers and the
award cannot be corrected without affecting the merits of the decision.” (Id.,
subd. (a)(4).) Here, the Arbitrator exceeded his powers by issuing the mediation order
in violation of well-established case law. Moreover, because the matter was not decided
on the merits, the Arbitration Award could not be corrected to reflect a decision on the
merits.10
The earliest Flores received actual notice of the Arbitration Award was upon
receipt of Kertel’s petition to confirm the Arbitration Award. The proof of service for
said petition indicates it was personally served on Flores on June 26, 2019. If we were to
use that date as the date upon which the Arbitration Award was filed and served on
Flores, we calculate that Flores would have had until October 4, 2019, to seek a ruling
from the trial court to vacate the Arbitration Award. (See §§ 1288 [petition to vacate
“shall be served and filed not later than 100 days after” valid service of an arbitration
10 Flores had additional grounds to petition the superior court to vacate the
Arbitration Award. Section 1286.2 provides, in part, “the court shall vacate the award if
… [¶] …[¶] The rights of the party were substantially prejudiced by the refusal of the
arbitrators to postpone the hearing upon sufficient cause being shown therefor ….” (Id.,
subd. (a)(5).) Here, Flores sought a continuance from the Arbitrator in order to obtain a
ruling from the court as to whether, contrary to Armendariz, he must bear costs of
mediation. The court could have reasonably found sufficient cause existed to postpone
the hearing and that the failure to postpone substantially prejudiced Flores.
22.
award], 1288.2 [same time limit for requesting an arbitration award be vacated in
response to a petition to confirm].)
Although Flores did not do so in the context of a petition to vacate the Arbitration
Award, he did raise his objections to the Arbitration Award and to the mediation order
within 100 days of first receiving actual notice. Specifically, on August 21, 2019, Flores
raised those objections in his opposition to Kertel’s motion to compel arbitration.
Moreover, he reiterated those objections in his opposition to Kertel’s petition to confirm.
We conclude this is one of the “rare cases when according finality to the
arbitrator’s decision would be incompatible with the protection of [Flores’] statutory
right[s].” (Moncharsh, supra, 3 Cal.4th at p. 33.) Flores timely presented the superior
court with facts and arguments that would have supported an order vacating the
Arbitration Award, albeit in the context of opposing a motion to compel arbitration.
Although he requested the court find he was not a “party to the arbitration,” it is clear his
goal was to invalidate the Arbitration Award. Because he was not properly served with
the Arbitration Award (due to an invalid proof of service), Flores could not definitively
determine the jurisdictional time frame within which to bring a petition to compel.
Accordingly, we will not hold it against him that his arguments were not presented in a
formal petition to vacate or in a response to a petition to confirm.
Our conclusion is further supported by the policy in favor of having cases
determined on their merits (Sanford v. Smith, supra, 11 Cal.App.3d at p. 998), the
policies reflected in Armendariz and its progeny, and the policy reflected in sections
1281.97 and 1281.98, which now authorize unilateral withdrawals from arbitration under
facts similar to those at issue here.
DISPOSITION
The order denying Kertel’s motion to confirm is reversed with directions to the
superior court to enter a new order vacating the Arbitration Award, and to cause the
appointment of an arbitrator to hear the arbitration pursuant to section 1281.6. Our
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holding is limited to the facts of this case. In the interests of justice, the parties shall bear
their own costs on appeal.
DE SANTOS, J.
WE CONCUR:
HILL, P. J.
PEÑA, J.
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