De Leon v. Juanita's Foods

Filed 11/23/22
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION THREE
KAIL DE LEON, B315394
Plaintiff and Respondent, (Los Angeles County
Super. Ct. No. 20STCV03552)
v.
JUANITA’S FOODS,
Defendant and Appellant.
APPEAL from an order of the Superior Court of
Los Angeles County, Mel Red Recana, Judge. Affirmed.
Jackson Lewis, James P. Carter and Jessica M. Ewert for
Defendant and Appellant.
Guerra & Casillas, Ruben Guerra and Tizoc Perez-Casillas,
for Plaintiff and Respondent.
‗‗‗‗‗‗‗‗‗‗‗‗‗‗‗‗‗‗‗‗‗‗‗‗‗‗‗‗
Code of Civil Procedure sections 1281.97 and 1281.98
provide that if a company or business that drafts an arbitration
agreement does not pay its share of required arbitration fees or
costs within 30 days after they are due, the company or business
is in “material breach” of the arbitration agreement. (Code Civ.
Proc., §§ 1281.97, subd. (a)(1); 1281.98, subd. (a)(1).1) In the case
of such a material breach, an employee or consumer can, among
other things, withdraw his or her claim from arbitration and
proceed in court. (§§ 1281.97, subd. (b)(1); 1281.98, subd. (b)(1).)
Following commencement of arbitration proceedings
between appellant Juanita’s Foods and respondent Kail De Leon,
Juanita’s Foods failed to pay its share of arbitration fees within
30 days after such fees were due. Based on that late payment,
the trial court concluded that Juanita’s Foods was in material
breach of the parties’ arbitration agreement and allowed De Leon
to proceed with his claims against Juanita’s Foods in court.
Juanita’s Foods argues that the trial court should have
considered factors in addition to its late payment—for example,
whether the late payment delayed arbitration proceedings or
prejudiced De Leon—to determine the existence of a material
breach of the arbitration agreement.
We conclude that the trial court correctly declined to
consider these additional factors, and we affirm.
1 All subsequent undesignated statutory references are to
the Code of Civil Procedure.
2
FACTUAL AND PROCEDURAL BACKGROUND
I. The arbitration agreement
The material facts underlying this appeal are not in
dispute. De Leon filed a civil complaint against Aerotek, Inc. and
Juanita’s Foods on January 28, 2020, alleging 20 causes of action
relating to his former employment.2 Aerotek thereafter filed a
motion to compel arbitration and Juanita’s Foods filed a joinder
in that motion.
Aerotek’s motion was based on its arbitration agreement
with De Leon. The arbitration agreement states that De Leon
entered into the agreement “[a]s consideration for [his]
application for and/or [his] employment with Aerotek, Inc. . . . .”
In their arbitration agreement, Aerotek and De Leon agreed that
De Leon would arbitrate “all disputes, claims, complaints, or
controversies” he had against Aerotek “and/or any of its clients or
customers,” and that the parties would “use Judicial Arbitration
and Mediation Services (‘JAMS’) subject to its then-current
employment arbitration rules and procedures . . . .” Aerotek and
De Leon further agreed that the arbitration agreement was
“governed by the [Federal Arbitration Act, 9 U.S.C. § 1 et seq.
(FAA)] and, to the extent not inconsistent with or preempted by
the FAA, by the laws of the state of California . . . .”
2 It appears that Aerotek is a staffing agency that referred
De Leon to work at Juanita’s Foods. De Leon’s complaint alleged
that Aerotek and Juanita’s Foods were each his employer.
3
It is undisputed that the arbitration agreement between
Aerotek and De Leon applies to De Leon’s claims against
Juanita’s Foods.3
II. Juanita’s Foods’s failure to timely pay arbitration
fees
The trial court granted the motion to compel arbitration on
October 16, 2020. On October 22, 2020, De Leon submitted a
demand for arbitration to JAMS, identifying both Aerotek and
Juanita’s Foods as respondents.
JAMS then sent separate invoices dated November 2, 2020,
to Aerotek and Juanita’s Foods. The invoices billed $1,300 to
each Aerotek and Juanita’s Foods, and identified the invoiced
amounts as “Filing Fee[s].” The invoices stated, “For Arbitration
Cases, please contact your case manager for due date, otherwise,
payment is due upon receipt.” Aerotek paid the filing fee on
November 10, 2020, and Juanita’s Foods paid the filing fee on
November 25, 2020.
On December 3, 2020, JAMS sent a letter to the parties
confirming commencement of the arbitration proceedings.
Among other things, the letter notified the parties that the “only
fee a consumer employee may be required to pay is $400 of the
Filing Fee,” and that “[a]ll other costs, including the remainder of
3 Although not addressed directly by the parties, we presume
this is because Juanita’s Foods is one of Aerotek’s “clients or
customers” within the meaning of the arbitration agreement.
4
the Filing Fee, must be borne by the company.”4 The parties
thereafter selected an arbitrator from a list provided by JAMS.
Then, on December 17, 2020, JAMS issued separate
invoices for $5,000 to each Juanita’s Foods and Aerotek. The
invoices stated in part that the fees were a “[d]eposit for services:
To be applied to professional time (session time, pre and post
session reading, research, preparation, conference calls, travel,
etc.), expenses and case management fees.” Juanita’s Foods does
not dispute that JAMS appropriately allocated these fees
between Juanita’s Foods and Aerotek.5
The next day, JAMS sent a letter to the parties confirming
appointment of the arbitrator and attaching the arbitrator’s fee
schedule. In its letter, JAMS again notified the parties that other
than “$400 of the Filing Fee,” “[a]ll other costs, including the
remainder of the Filing Fee, must be borne by the company.” The
4 JAMS’s correspondence is consistent with the arbitration
agreement between Aerotek and De Leon. The arbitration
agreement provided that De Leon would pay any “JAMS filing or
administrative fee up to the amount of the initial filing fee to
commence an action in a Court that otherwise would have
jurisdiction (‘filing fee’),” and that Aerotek would “pay any
amount in excess of the filing fee” and “any other JAMS
administrative fees, the Arbitrator’s fees, and any additional fees
unique to arbitration.”
5 In an email dated February 5, 2021, counsel for Juanita’s
Foods informed the parties and JAMS that there “was some
required discussion between Respondents Juanita’s [Foods] and
Aerotek about responsibility for the entire payment, which was
resolved yesterday,” and that Juanita’s Foods “informed JAMS
yesterday of its commitment to pay the other half of the
arbitration fee in the immediate future.”
5
letter further advised the parties that the “paying party has been
billed a preliminary deposit to cover the expense of all pre-
hearing work” and that “[p]ayment is due no later” than January
4, 2021.6 According to the fee schedule attached to the letter,
“[a]ll fees are due and payable in advance of services rendered
and by any applicable due date as stated in a hearing
confirmation letter.”
On January 4, 2021, the due date for the JAMS invoices,
JAMS emailed the parties reminding them that the “initial
retainer payment is due today” and provided them with payment
instructions. JAMS sent a follow-up email to the parties on
January 27, 2021, advising them that JAMS still had not
received the “initial retainer deposit request.”
JAMS sent another email to the parties on February 4,
2021, advising them that although Aerotek had paid the
outstanding fees, JAMS had not received the “outstanding
balance of $5,000 for the initial retainer in this matter” from
Juanita’s Foods. Counsel for Juanita’s Foods responded the same
day, notifying JAMS that it had advised Juanita’s Foods “to pay
the invoice [as soon as possible].”
On February 5, 2021, counsel for De Leon advised JAMS
and the parties that De Leon would file a motion to terminate
arbitration proceedings because of Juanita’s Foods’s failure to
pay the outstanding balance within 30 days after its due date.
Later that same day, counsel for Juanita’s Foods advised JAMS
and the parties that Juanita’s Foods intended to pay the
6 The letter mistakenly states that “[p]ayment is due no later
than January 4, 2020.” All parties agree the fees were actually
due January 4, 2021.
6
outstanding fee “in the immediate future” and asked JAMS to
proceed with the arbitration.
At first, JAMS responded that it would proceed with
scheduling an arbitration management conference because
Juanita’s Foods had “advised that payment . . . is forthcoming.”
Minutes later, De Leon advised JAMS and the parties that he
had filed a motion to vacate the order compelling arbitration.
JAMS then promptly changed course, notifying the parties it
would not proceed with arbitration proceedings until De Leon’s
motion was resolved.
Juanita’s Foods paid JAMS the outstanding fees on
February 8, 2021. The parties agree that Juanita’s Foods did not
pay the outstanding fees of $5,000 within 30 days after the due
date set by JAMS.
III. Motion to vacate order compelling arbitration
De Leon’s motion to vacate the order compelling arbitration
sought termination of the arbitration proceedings with both
Juanita’s Foods and Aerotek, relying on Juanita’s Foods’s failure
to pay the outstanding fees to JAMS within 30 days after the due
date. The trial court concluded that arbitration could continue
between De Leon and Aerotek because Aerotek had timely paid
its portion of arbitration fees. That aspect of the trial court’s
ruling is not before us.
Relevant here, the trial court also concluded that Juanita’s
Foods’s failure to pay the required arbitration fees within 30 days
after the due date constituted a material breach of the arbitration
7
agreement pursuant to section 1281.98.7 Relying on the “plain
language” of section 1281.98, the court concluded that “a
defendant is automatically in material breach of the arbitration
agreement once the defendant fails to pay the arbitration fees or
costs within 30 days of the due date.” The court thus declined
Juanita’s Foods’s request that the court consider additional
factors beyond the late payment—such as whether the late
payment created delay in the arbitration proceedings or
otherwise prejudiced De Leon—to determine whether Juanita’s
Foods materially breached the arbitration agreement.
Last, although it found that section 1281.98 was
“unambiguous and clear,” the court also considered the statute’s
legislative history. The court found that the legislative history
7 In an order dated July 12, 2021, the trial court noted that
De Leon’s initial motion to vacate the order compelling
arbitration relied on section 1281.97, not section 1281.98, and
that Juanita’s Foods and Aerotek opposed the motion because,
among other things, the fees at issue were not to “initiate an
arbitration proceeding.” (See § 1281.97, subd. (a)(1).) The court’s
July 12 order concluded that it was “not entirely clear whether
the initial retainer fee at issue here is a fee ‘to initiate an
arbitration proceeding,’ ” but that regardless of such uncertainty
“it appears the section immediately following CCP § 1281.97,
section 1281.98, would apply to this matter if [De Leon’s] request
does not fall within section 1281.97.” Despite acknowledging the
two statutes were “substantially the same,” the court granted a
continuance to allow the parties to submit further briefing to
address the applicability of section 1281.98. De Leon’s amended
motion cited both sections 1281.97 and 1281.98. Because the
trial court’s subsequent order vacating its order compelling
arbitration and Juanita’s Foods’s appeal focus on section 1281.98,
we do too.
8
failed to support Juanita’s Foods’s contention that “the
legislature only wanted the statute to apply when there has been
some kind of delay in the arbitration proceeding.”
The court stayed the lawsuit against Juanita’s Foods
pending the outcome of the arbitration proceeding against
Aerotek to “address any issues regarding conflicting rulings on
common issues of law or fact.”
Juanita’s Foods timely appealed.
DISCUSSION
Juanita’s Foods contends the trial court erred by failing to
consider additional factors aside from its late payment in
determining the existence of a “material breach” pursuant to
section 1281.98. We disagree. Like the trial court, we conclude
that late payment as provided in section 1281.98 constitutes a
“material breach” without regard to any additional
considerations. We reach that conclusion based on the statute’s
plain language. However, like the trial court, we also find that
the statute’s legislative history supports our interpretation.
I. Standard of review and statutory construction
principles
Ordinarily, a trial court’s determination that a party
waived the right to arbitrate is subject to substantial evidence
review. (Burton v. Cruise (2010) 190 Cal.App.4th 939, 946.)
Here, however, the parties do not dispute the factual support for
the trial court’s ruling. Rather, they dispute the proper
interpretation of section 1281.98. In this circumstance, our
review is de novo. (Carmel Development Co., Inc. v. Anderson
(2020) 48 Cal.App.5th 492, 503 [“We review a trial court’s
interpretation and application of statutes de novo.”]; cf. Ramos v.
9
Westlake Services LLC (2015) 242 Cal.App.4th 674, 686 [denial of
motion to compel resting on a decision of law subject to de novo
review].)
We apply well-established rules of statutory interpretation
in construing section 1281.98. “As in any case involving
statutory interpretation, our fundamental task here is to
determine the Legislature’s intent so as to effectuate the law’s
purpose. [Citation.] We begin by examining the statute’s words,
giving them a plain and commonsense meaning. [Citation.]”
(People v. Murphy (2001) 25 Cal.4th 136, 142.) “[W]e must first
look to the words of the statute because they are the most reliable
indicator of legislative intent. [Citation.] If the statutory
language is clear and unambiguous, the plain meaning of the
statute governs. [Citation.]” (People v. Lopez (2003) 31 Cal.4th
1051, 1056.)
“If, however, the language supports more than one
reasonable construction, we may consider ‘a variety of extrinsic
aids, including the ostensible objects to be achieved’ ” and the
statute’s legislative history. (People v. Sinohui (2002) 28 Cal.4th
205, 211.)
II. Section 1281.98
Perceiving that a “company’s failure to pay the fees of an
arbitration provider” as required by an arbitration agreement or
applicable law “hinders the efficient resolution of disputes and
contravenes public policy,” in 2019 the California Legislature
passed Senate Bill No. 707 and added sections 1281.97 and
10
1281.98 to the California Arbitration Act (CAA) (§ 1280 et seq.).8
(Stats. 2019, ch. 870, § 1(c); see also id, §§ 4 [adding section
1281.97], 5 [adding section 1281.98].) Sections 1281.97 and
1281.98 “largely parallel” each other. (Gallo v. Wood Ranch USA,
Inc. (2022) 81 Cal.App.5th 621, 633, fn. 4 (Gallo).) Whereas
section 1281.97 concerns a failure to timely pay “the fees or costs
to initiate” an arbitration proceeding (§ 1281.97, subd. (a)(1),
italics added), section 1281.98 concerns a failure to timely pay
“the fees or costs required to continue” an arbitration proceeding
(§ 1281.98, subd. (a)(1), italics added).
Subdivision (a)(1) of section 1281.98 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, 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
8 Senate Bill No. 707 also added section 1281.99, which
establishes various sanctions in the event of a material breach
pursuant to sections 1281.97 and 1281.98. (Stats. 2019, ch. 870,
§ 6.) In 2021, the California Legislature amended sections
1281.97 and 1281.98 to obligate an arbitration provider to supply
the parties with invoices setting forth the “full amount owed and
the date that payment is due,” and to set a statutory default due
date of “due upon receipt” unless the parties agree otherwise.
(§§ 1281.97, subd. (a)(2); 1281.98, subd. (a)(2); see Stats. 2021,
ch. 222, §§ 2, 3.)
11
compel the employee or consumer to proceed with that
arbitration as a result of the material breach.”
Subdivision (b) of section 1281.98 allows the employee or
consumer to “unilaterally elect” any of several options if “the
drafting party materially breaches the arbitration agreement and
is in default” under subdivision (a). The employee or consumer
may “[w]ithdraw the claim from arbitration and proceed in a
court of appropriate jurisdiction” (§ 1281.98, subd. (b)(1)),
“[c]ontinue the arbitration proceeding, if the arbitration provider
agrees to continue administering the proceeding,
notwithstanding the drafting party’s failure to pay fees or costs”
(§ 1281.98, subd. (b)(2)), “[p]etition the court for an order
compelling the drafting party to pay all arbitration fees that the
drafting party is obligated to pay under the arbitration
agreement or the rules of the arbitration provider” (§ 1281.98,
subd. (b)(3)), or “[p]ay the drafting party’s fees and proceed with
the arbitration proceeding” (§ 1281.98, subd. (b)(4)).
Subdivision (c) of section 1281.98 provides that if the
employee or consumer withdraws the claim from arbitration and
proceeds in court, he or she “may bring a motion, or a separate
action, to recover all attorney’s fees and all costs associated with
the abandoned arbitration proceeding” (§ 1281.98, subd. (c)(1)),
and the “court shall impose sanctions on the drafting party” in
accordance with section 1281.99 (§ 1281.98, subd. (c)(2)).
Last, subdivision (d) of section 1281.98 provides that if the
employee or consumer elects to continue arbitration, “the
arbitrator shall impose appropriate sanctions on the drafting
party, including monetary sanctions, issue sanctions, evidence
sanctions, or terminating sanctions.”
12
The California Legislature’s enactment of Senate Bill
No. 707 “was aiming to solve a very specific problem—namely,
the ‘ “procedural limbo and delay” ’ that consumers and
employees face when they are ‘ “forced to submit to mandatory
arbitration to resolve a[ ] . . . dispute,” ’ and the business or
company that pushed the case into an arbitral forum then ‘ “stalls
or obstructs the arbitration proceeding by refusing to pay the
required fees.” ’ ” (Gallo, supra, 81 Cal.App.5th at p. 634 [quoting
legislative history].) Addressing section 1281.97, the Court of
Appeal in Gallo described the statute as “grant[ing] deliverance
from this procedural purgatory by deeming late payment to be a
material breach of the arbitral agreement” that gives the
employee or consumer the choice to remain in the arbitration at
the employer’s cost or pursue his or her claims in court. (Gallo,
at p. 634.)
III. The trial court correctly ruled that Juanita’s Foods
was in material breach of the arbitration agreement
Juanita’s Foods argues the trial court misapplied section
1281.98 in granting De Leon’s motion to vacate the order
compelling arbitration. It contends the California Legislature’s
purpose in enacting section 1281.98 was to prevent delay in
arbitration proceedings, and that its late payment did not cause
any delay here.
In support of its argument, Juanita’s Foods emphasizes
several facts. It notes that Aerotek and Juanita’s Foods timely
paid the fees to initiate arbitration; that the parties selected an
arbitrator and had begun scheduling proceedings; that counsel
for Juanita’s Foods informed JAMS on February 4, 2021, that
Juanita’s Foods was advised to pay the outstanding fees as soon
as possible; that JAMS was initially willing to proceed with
13
scheduling an arbitration management conference even though
Juanita’s Foods’s portion of the arbitration fees remained
outstanding after the 30-day deadline; and that Juanita’s Foods
paid the outstanding fees shortly after the 30-day deadline.
Juanita’s Foods further contends that if anyone is to blame
for delay here, it is De Leon. It claims that De Leon required
Aerotek and Juanita’s Foods to compel arbitration instead of
simply agreeing to arbitrate his claims, and that De Leon sought
to vacate the order compelling arbitration even though Aerotek
and Juanita’s Foods, and initially JAMS, were willing to continue
with arbitration proceedings.
Based on these contentions, Juanita’s Foods claims the trial
court erred by applying a “hyper-technical reading” of section
1281.98 that failed to account for whether its late payment
caused delay or prejudiced De Leon. Notably missing from this
argument, however, is an examination of the words of the
statute, “the most reliable indicator of legislative intent.” (People
v. Lopez, supra, 31 Cal.4th at p. 1056.) Because we find the
language of section 1281.98 clear and unambiguous, we reject
this argument.
Section 1281.98 explicitly defines what occurs when “the
fees or costs required to continue the arbitration proceeding are
not paid within 30 days after the due date,” namely, that “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.” (§ 1281.98, subd. (a)(1).) We find
nothing in this language that is ambiguous regarding the
requisite circumstances to determine the existence of a
statutorily defined material breach of an arbitration agreement.
14
To the contrary, the statute’s language establishes a simple
bright-line rule that a drafting party’s failure to pay outstanding
arbitration fees within 30 days after the due date results in its
material breach of the arbitration agreement.
Courts construing the similar provisions of section 1281.97
have reached that same conclusion. For example, in Espinoza v.
Superior Court (2022) 83 Cal.App.5th 761 (Espinoza),9 the Court
of Appeal reversed the trial court’s conclusion that a defendant’s
late payment of an arbitration provider’s invoice was “in
‘substantial[] compliance’ with the arbitration agreement and ‘not
in material breach,’ because the delayed payment was due to
‘ “clerical error,” ’ and the delay did not prejudice plaintiff.” (Id.
at p. 775.) The Court of Appeal concluded that the “language of
section 1281.97 is unambiguous.” (Id. at p. 776.) “Under the
plain language of the statute, then, the triggering event is
nothing more than nonpayment of fees within the 30-day
period—the statute specifies no other required findings, such as
whether the nonpayment was deliberate or inadvertent, or
whether the delay prejudiced the nondrafting party.” (Ibid.) The
court concluded that the “plain language therefore indicates the
Legislature intended the statute to be strictly applied whenever a
drafting party failed to pay by the statutory deadline.”10 (Ibid.)
9 Because Espinoza was published after the briefing on
appeal was completed in this case, we requested supplemental
briefs from the parties addressing its impact, if any, on this case.
We have read and considered the parties’ briefs.
10 The court in Espinoza found further support for its
conclusion in the surrounding “statutory scheme” enacted by
Senate Bill No. 707. (Espinoza, supra, 83 Cal.App.5th at p. 776.)
15
The Court of Appeal in Gallo reached a similar conclusion
in rejecting an FAA preemption challenge to sections 1281.97 and
1281.98. In Gallo, the arbitration provider sent its invoice for
initiation of arbitration to the defendant’s counsel, but the
defendant’s counsel failed to pay the invoice within 30 days of its
due date. (Gallo, supra, 81 Cal.App.5th at p. 631.) The trial
court thereafter granted the plaintiff’s motion to vacate the
pending arbitration pursuant to sections 1281.97 and 1281.98.
(Id. at p. 632.) On appeal, the defendant argued that those
statutes “frustrated the arbitral proceedings,” and thus were
preempted by the FAA, because, among other things, there was
no “showing that [the defendant] was to blame for the late
payment or that plaintiff was prejudiced by it.” (Id. at p. 644.) In
addressing this argument, Gallo explained that “section 1281.97
declares any payment that exceeds the arbitration provider’s
deadline and a statutorily granted 30-day grace period to be a
The court noted that “[s]ection 1281.99 states that the court ‘shall
impose a monetary sanction’ in the event of a material breach
under section 1281.97 (§ 1281.99, subd. (a), italics added), but the
court ‘may order’ additional nonmonetary sanctions ‘unless the
court finds that the one subject to the sanction acted with
substantial justification or that other circumstances make the
imposition of the sanction unjust’ (id., subd. (b), italics added).”
(Ibid.) “Given the Legislature’s express grant of discretion as to
imposition of nonmonetary sanctions, we may presume the
Legislature did not intend implicitly to grant that same
discretion on the issues of material breach and imposition of
monetary sanctions.” (Ibid.) Because these same provisions of
section 1281.99, subdivisions (a) and (b) apply equally to a
material breach under section 1281.98, we find this reasoning
applicable here.
16
material breach as a matter of law.” (Ibid., italics omitted.) The
court further explained that section 1281.97 “statutorily defines a
material breach as a matter of law to be failure to pay anything
less than the full amount due by the expiration of the statutory
grace period, rather than leaving materiality as an issue of fact
for the trier of fact to determine.” (Ibid.)
Because sections 1281.97 and 1281.98 share similar
provisions, Espinoza and Gallo strengthen our conclusion that
the trial court correctly construed section 1281.98 in determining
that Juanita’s Foods materially breached the arbitration
agreement. That conclusion follows from the plain language of
the statute and Juanita’s Foods fails to explain otherwise.11
11 In its reply brief and at oral argument, Juanita’s Foods
argued that the phrase “fees or costs required to continue the
arbitration proceeding” in section 1281.98, subdivision (a)(1) is
ambiguous. It further contends that because JAMS was initially
willing to proceed with scheduling an arbitration management
conference despite Juanita’s Foods’s failure to pay outstanding
fees by January 4, 2021, such fees were not “required to continue”
the arbitration. We reject this argument for two reasons. First,
it was not clearly raised in Juanita’s Foods’s opening brief. (See
Hernandez v. First Student, Inc. (2019) 37 Cal.App.5th 270, 277–
278; Provost v. Regents of University of California (2011) 201
Cal.App.4th 1289, 1295 [“[W]e will not address arguments raised
for the first time in the reply brief”].) Second, we do not find the
phrase ambiguous. It refers to those fees and costs described in
the preceding clause of section 1281.98, subdivision (a)(1), i.e.,
fees and costs imposed on a drafting party “during the pendency
of an arbitration proceeding” required “either expressly or
through application of state or federal law or the rules of the
arbitration provider.” Juanita’s Foods does not dispute that
JAMS set a due date of January 4, 2021, for its share of
17
Nor does Juanita’s Foods direct our attention to any
language in section 1281.98 that grants a trial court discretion to
depart from the statute’s straightforward material breach rule.
Instead, Juanita’s Foods maintains that the statute is “silent”
regarding a trial court’s discretion to consider factors such as
prejudice or delay caused by the late payment of required
arbitration fees. In the face of that purported silence, Juanita’s
Foods contends we should consider the public policy and
legislative history of section 1281.98 to determine its appropriate
application here.
We disagree. That section 1281.98 says nothing regarding
a trial court’s discretion to consider these additional factors
reinforces our conclusion that the statute’s 30-day deadline
establishes a clear-cut rule for determining if a drafting party is
in material breach of an arbitration agreement. (See Espinoza,
supra, 83 Cal.App.5th at p. 776 [concluding that because the
Legislature granted trial courts discretion elsewhere in statutory
scheme enacted by Senate Bill No. 707 “we may presume the
Legislature did not intend implicitly to grant that same
discretion on the issue[] of material breach.”].) Adopting
Juanita’s Foods’s argument would thus be tantamount to re-
writing section 1281.98 to create exceptions to the statutory
definition of material breach where none exists. We lack that
outstanding arbitration fees. Nor does Juanita’s Foods explain
what such fees were for if not for the purpose “to continue the
arbitration proceeding.” (See § 1281.98, subd. (a)(1).) We
therefore conclude such fees were “required to continue the
arbitration proceeding” within the meaning of section 1281.98,
subdivision (a)(1), notwithstanding JAMS’s brief willingness to
overlook Juanita’s Foods’s nonpayment.
18
power. (Abbott Laboratories v. Franchise Tax Bd. (2009) 175
Cal.App.4th 1346, 1360 [“This court has no power to rewrite the
statute to make it conform to a presumed intention which its
terms do not express.”].)
If anything, in arguing a trial court should consider various
factors in addition to a late payment to determine the existence of
a drafting party’s material breach under section 1281.98,
Juanita’s Foods turns the language of the statute on its head. As
noted, Juanita’s Foods emphasizes that no prejudice occurred
here in part because JAMS was initially willing to proceed with
scheduling an arbitration management conference even though
Juanita’s Foods had yet to pay the overdue fees. In rejecting this
argument below, the trial court correctly observed that section
1281.98 accounts for this circumstance already, not by identifying
it as a mitigating factor to weigh in determining the existence of
a material breach, but by permitting an employee or consumer to
continue with arbitration notwithstanding a material breach:
Under subsection (b)(2), if the “drafting party materially breaches
the arbitration agreement and is in default under subdivision (a),
the employee or consumer may unilaterally elect to . . . [c]ontinue
the arbitration proceeding, if the arbitration provider agrees to
continue administering the proceeding, notwithstanding the
drafting party’s failure to pay fees or costs.” (§ 1281.98, subd.
(b)(2), italics added.) Juanita’s Foods does not address, let alone
reconcile, this inconsistency in its argument.
Because we reject Juanita’s Foods’s argument based on the
plain language of section 1281.98, “we need go no further.”
(Microsoft Corp. v. Franchise Tax Bd. (2006) 39 Cal.4th 750, 758.)
Even so, we have reviewed the legislative history of Senate Bill
No. 707, which added section 1281.98 to the CAA, and are
19
unconvinced that the legislative history supports Juanita’s
Foods’s interpretation of the statute.
According to Juanita’s Foods, the intent of the California
Legislature in passing Senate Bill No. 707 was to prevent the
party that drafted an arbitration agreement from delaying
arbitration proceedings through nonpayment or late payment of
required fees. To be sure, the legislative findings in support of
the law emphasize that a “company’s failure to pay the fees of an
arbitration service provider in accordance with its obligations . . .
hinders the efficient resolution of disputes and contravenes public
policy,” and that a “company’s strategic non-payment of fees and
costs severely prejudices the ability of employees or consumers to
vindicate their rights,” a particularly unfair result “when the
party failing or refusing to pay those fees and costs is the party
that imposed the obligation to arbitrate disputes.”12 (Stats. 2019,
ch. 870, §§ 1(c), (d).)
12 See also Senate Rules Committee, Office of Senate Floor
Analyses, third reading analysis of Senate Bill No. 707 (2019–
2020 Reg. Sess.), as amended May 20, 2019, page 4 [“Recently, a
concerning and troubling trend has arisen in arbitration:
employers are refusing to pay required fees to initiate
arbitration, effectively stymieing the ability of employees to
assert their legal rights.”]; Senate Committee on Judiciary,
Analysis of Senate Bill No. 707 (2019–2020 Reg. Sess.), as
amended April 11, 2019, page 9 [describing concern of California
Employment Lawyers Association, one of bill’s sponsors, that
there is “a glaring loophole in this new era of mandatory
arbitration: workers and consumers must submit to arbitration,
while corporations may choose their forum by either submitting
to arbitration or stalling the process back to court by refusing to
pay fees.”].
20
But it does not follow from this legislative history that
section 1281.98 allows a trial court to weigh factors in addition to
late payment—such as the degree of prejudice or delay caused by
late payment—in determining the existence of a material breach
under the statute. Quite the opposite, the legislative history
indicates the California Legislature sought a clear and
unambiguous rule for courts to apply in determining whether late
payment of arbitration fees by a drafting party constituted a
material breach of an arbitration agreement. (See Espinoza,
supra, 83 Cal.App.5th at p. 777 [rejecting argument that reach of
Senate Bill No. 707 was limited to circumstances involving
strategic nonpayment of fees].)
“The California Legislature had a good reason for declaring
untimely payment a material breach as a matter of law rather
than leaving materiality a question of fact in this context:
Employees and consumers were facing either the complete denial
of any relief or delays in obtaining relief by virtue of the
‘ “perverse incentive” ’ companies and businesses had to push
claims into arbitration and then to refuse to pay the resulting
arbitration fees; in such circumstances and to combat those
incentives, the Legislature reasoned, no breach was immaterial
to the stranded employee or consumer.” (Gallo, supra, 81
Cal.App.5th at p. 644, quoting Assem. Com. on Judiciary,
Analysis of Sen. Bill No. 707 (2019–2020 Reg. Sess.) as amended
May 20, 2019, p. 8.) Indeed, the California Legislature was
concerned that “when the drafting party fail[ed] to properly pay
for the arbitration, existing law [did] not provide the employee
and customer with a clear means to redress their harms.”
(Assem. Com. on Judiciary, Analysis of Sen. Bill No. 707 (2019–
2020 Reg. Sess.), as amended May 20, 2019, p. 6.) That problem
21
was fixed with the “material breach and sanction provisions” of
the statute, which constitute a “strict yet reasonable method to
ensure the timely adjudication of employee and consumer claims
that are subject to arbitration.” (Id. at p. 9; see also Espinoza,
supra, 83 Cal.App.5th at p. 777 [“Although strict application may
in some cases impose costs on drafting parties for innocent
mistakes, the Legislature could have concluded a bright-line rule
is preferable to requiring the nondrafting party to incur further
delay and expense establishing the nonpayment was intentional
and prejudicial.”]) Applying section 1281.98’s material breach
provisions in a straightforward fashion, as the trial court did
here, is therefore consistent with the statute’s legislative
purpose.13
13 According to Juanita’s Foods, the “Legislature, in drafting
Senate Bill 707, did not anticipate a defendant eager to arbitrate
against a recalcitrant Respondent; instead, it worried about only
the opposite.” We have doubts about whether this accurately
describes the events here. For one thing, JAMS gave Juanita’s
Foods ample notice regarding the deadline for the fees in
question. If Juanita’s Foods was eager to arbitrate it would have
paid those fees on time, or within 30 days of the due date, even if
it was still resolving fee-sharing matters with Aerotek.
Moreover, it does not appear that De Leon was recalcitrant. He
submitted his arbitration claims to JAMS within a week of the
trial court’s order compelling arbitration. Nor can he be blamed
for quickly seeking to pursue his claims in court after Juanita’s
Foods materially breached the arbitration agreement—he had a
right to do so pursuant to section 1281.98, subdivision (b)(1).
22
In sum, we conclude the trial court did not err in ruling
that Juanita’s Foods materially breached the arbitration
agreement by its late payment of required arbitration fees.14
14 Juanita’s Foods’s remaining arguments lack merit. It
complains that the trial court’s ruling will allow De Leon’s claims
against Juanita’s Foods to proceed in court, while his similar
claims against Aerotek will proceed in arbitration, resulting in
duplicative effort and waste of judicial resources. Even if this
were correct, it is not sufficient to overcome the plain language of
section 1281.98, which, as we have already described, compelled
the trial court’s ruling. Also, Juanita’s Foods overlooks the trial
court’s order staying litigation against it pending the outcome of
the arbitration proceedings against Aerotek. As the trial court
found, that measure will minimize the potential for conflicting
rulings on common issues of law or fact.
In its reply brief and in its supplemental brief addressing
the impact of Espinoza on this case, Juanita’s Foods also argues
that only the arbitrator, not the trial court, had authority to
determine whether Juanita’s Foods materially breached the
arbitration agreement pursuant to section 1281.98. We do not
address this argument, which was raised for the first time in the
reply brief. (Gallo, supra, 81 Cal.App.5th at p. 646 [declining to
address argument that “whether [party] ran afoul of section
1281.97 was a question that should have been presented to the
arbitrator, and not the trial court,” where, among other things, it
was “not brought to our attention until the reply brief”]; see also
Hernandez v. First Student, Inc., supra, 37 Cal.App.5th at pp.
277–278; Provost v. Regents of University of California, supra,
201 Cal.App.4th at p. 1295.)
23
DISPOSITION
The order granting De Leon’s motion to vacate the order
compelling arbitration as to Juanita’s Foods is affirmed. De Leon
is entitled to his costs on appeal.
CERTIFIED FOR PUBLICATION
EDMON, P. J.
We concur:
EGERTON, J.
RICHARDSON (ANNE K.), J.*
* Judge of the Los Angeles Superior Court, assigned by the
Chief Justice pursuant to article VI, section 6 of the California
Constitution.
24