Kathleen McLaughlin vs Neptune Management Corp et al

Case Number

23CV02691

Case Type

Hearing Date / Time

Fri, 11/15/2024 - 10:00

Nature of Proceedings

Motion to Vacate

Tentative Ruling

For the reasons set forth herein, plaintiff’s motion to vacate order compelling arbitration, to lift stay, and request for sanctions is denied.

Background:

This action commenced on June 22, 2023, by plaintiff Kathleen McLaughlin filing her verified complaint against defendants Neptune Society of America (“Neptune”), Trident Society (“Trident”), and SCI Shared Services (“SCI”) containing seven causes of action: (1) Recovery of Unpaid Overtime Wages; (2) Failure to Provide Meal Periods; (3) Failure to Provide Rest Periods; (4) Failure to Timely Furnish Accurate Itemized Wage Statements; (5) Violation of Labor Code section 203; (6) Unfair Business Practices; and (7) Disability Discrimination.

Plaintiff alleges that defendants are her former employers, and she was employed by them beginning approximately the end of 2018. Plaintiff held the position of location manager. Plaintiff was salaried and classified as exempt from overtime. Plaintiff alleges that she should not have been classified as exempt from overtime. Plaintiff also alleges that she was not provided proper meal periods, was not provided proper rest periods, and was not timely furnished accurate itemized wage statements. In addition, plaintiff alleges disability discrimination for failure to provide reasonable accommodation, and failure to engage in an interactive process, based on physical limitations related to contracting the Covid-19 virus.

Plaintiff was an employee of defendants between October 29, 2018 and March 11, 2021.

On August 1, 2023, Trident and SCI filed their answer to the complaint admitting some of the allegations, denying some of the allegations, and setting forth 16 affirmative defenses. On October 19, 2023, Neptune filed its answer to the complaint also admitting some of the allegations, denying some of the allegations, and setting forth 16 affirmative defenses.

On November 1, 2023, defendants moved to compel arbitration and stay proceedings. The hearing was scheduled to take place on February 2, 2024, and the court was inclined to grant the motion. However, on the day scheduled for hearing, the parties filed a signed stipulation to compel arbitration, which the court signed as an order of the court.

The order states: “The Court, having considered the Parties stipulation, hereby orders Plaintiff to submit her claims to arbitration and orders this matter stayed pending the conclusion of arbitration. The Court further orders based on the parties’ stipulation that the “MUTUAL RESOLUTION PROCESS AGREEMENT,” Section VIII. E. thereof, which section requires all Covered Disputes to be initiated within a one-year time period of the date the party knew or should have known of the Covered Dispute is not enforceable in the parties’ arbitration proceedings.”

Plaintiff now moves to vacate that order, to lift the stay, and requests sanctions on the grounds that defendants materially breached the arbitration agreement by failing to pay their portion of the arbitration fees.

Defendants oppose the motion on the grounds that the Federal Arbitration Act preempts Code of Civil Procedure section 1281.97, and that plaintiff has failed to show defendants owed any obligation under the Mutual Process Resolution Agreement. (“MRPA”) Defendants also argue that any relief available under Code of Civil Procedure section 1281.97 is barred by waiver and estoppel.

Analysis:

“California law, like federal law, favors enforcement of valid arbitration agreements.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 97.)

“Under both federal and California state law, arbitration is a matter of contract between the parties.” (Badie v. Bank of America (1998) 67 Cal.App.4th 779, 787.)

Arbitration agreements are valid and enforceable under both California and Federal Law. “A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.” (Code Civ. Proc., § 1281.)

As noted above, the arbitration agreement in question is contained in the MRPA and pertains to both employer and employee. (MRPA, p. 1.) “Covered Disputes include, but are not limited to, claims related to the Associate’s recruitment, background check, hire or non-hire, employment terms and conditions, wages and compensation, promotion or non-promotion, leaves of absence, benefits, and employment termination.” (MRPA, p. 3.) The MRPA goes on to list several other “covered disputes.” Plaintiff’s claims all fall within the listed covered disputes. The MRPA also sets forth the procedure for bringing a dispute to arbitration, the qualifications of any arbitrator, the location of arbitration, arbitration rules (with a link to the Employment Arbitration Rules and Procedures of JAMS), and a delegation clause.

As relevant here, the MRPA provides:

“Arbitration shall proceed before a single arbitrator. The Parties will work together to jointly select an arbitrator. If the Parties agree to a single arbitrator, then there is no need for the Judicial Arbitration and Mediations Services (“JAMS”) to administer the arbitration. If they cannot agree on an arbitrator within thirty days of receiving the initial Demand, the Parties will select an arbitrator utilizing the Arbitration Rules discussed in Section VII.”

“A party starts this Program by giving the other party notice in writing (the “Demand”). The Demand will include the nature of all claims, the facts upon which such claims are based and the relief or remedy sought. The party will send the Demand to the other party by certified or registered mail, return receipt requested. To avoid ambiguity, the Demand must be labeled "Demand for Arbitration" in a conspicuous place.” (MRPA, p. 10)

Section VII of the MRPA, referenced above, includes the following:

“If the Associate demands arbitration, he or she will pay the equivalent of an initial Case Management Fee charge of JAMS. The Company will pay all remaining fees and costs charged by the Arbitrator. If the Company demands arbitration, it will pay all fees and costs charged by the Arbitrator.” (MRPA, p. 12.)

In drawing information from both counsels’ declarations, the following appears to be the timeline of relevant events:

On March 7, 2024, plaintiffs filed a demand for arbitration with JAMS, in Los Angeles. (Cullen Decl., ¶ 4 & Exh. A; Francis Decl., ¶ 11.)

On March 12, 2024, defense counsel emailed plaintiff’s counsel regarding the MRPA’s procedure for selecting an arbitrator. (Francis Decl, ¶ 12 & Exh. 4.)

In response to the March 12, 2024 email from defense counsel, on March 20, 2024, plaintiff’s counsel emailed defense counsel stating: “I had not seen it that way. However, why don’t we plan on talking tomorrow. If you have a time, please let me know.” (Francis Decl., ¶ 13 & Exh. 4.)

On March 21, 2024, plaintiff served a Demand for Arbitration, which included a copy of plaintiff’s complaint for damages, the arbitration agreement, and stipulation and order to compel arbitration. (Cullen Decl., ¶5 & Exh. B.)

On March 26, 2024, plaintiff’s counsel and defense counsel spoke on the telephone regarding selection of an arbitrator and plaintiff’s counsel sent an email to defense counsel with a list of proposed arbitrators. (Cullen Decl., ¶ 15 & Exh. M; Francis Decl., ¶ 15 & Exh. 4.) As the email chain is in reference to a few cases, some arbitrators were selected for other cases, but not for the present case.

On April 18, 2024, JAMS served plaintiff and defendants with a Notice of Intent to Initiate Arbitration, along with an invoice for a filing fee of $1,600.00, payment due upon receipt. (Cullen Decl., ¶¶ 18, 19 & Exh. H.)

On May 12, 2024, defense counsel followed up with plaintiff’s counsel via an email, which stated: “Are you able to discuss arbitrator selection for our various other matters? I don’t want there to be any misunderstanding about why we are not paying the JAMS initiation fees. We are working to select arbitrators outside JAMS per our agreement as the MRPA requires us to work mutually to select an arbitrator.” (Francis Decl., ¶ 18 & Exh. M.) Plaintiff’s counsel did not respond. (Francis Decl., ¶ 19.)

On June 17, 2024, defense counsel followed up with an email to plaintiff’s counsel seeking to select an arbitrator. (Francis Decl., ¶¶ 20, 21 & Exh. 4.) On July 3, 2024, defense counsel followed up again in an effort to discuss the selection of an arbitrator. (Francis Decl., Exh. 4.)

As noted above, plaintiff moves to vacate the order compelling arbitration, arguing that defendants failed to pay the arbitration fees.

“In an employment or consumer arbitration that requires, either expressly or through application of state or federal law or the rules of the arbitration provider, the drafting party to pay certain fees and costs before the arbitration can proceed, if the fees or costs to initiate an arbitration proceeding are not paid within 30 days after the due date the drafting party is in material breach of the arbitration agreement, is in default of the arbitration, and waives its right to compel arbitration under Section 1281.2.” (Code Civ. Proc., § 1281.97, subd. (a)(1).)

The main problem with plaintiff’s motion is that it was plaintiff who violated the MRPA, by unilaterally selecting the arbitration forum. Compounding this violation is the fact that plaintiff, based on the evidence presented to the court, filed their demand for arbitration with JAMS before even speaking with defense counsel about selecting a mutually agreeable arbitrator.

There is nothing in the MRPA that allows plaintiff to unilaterally select an arbitrator or to submit the matter for arbitration to JAMS.

While the MRPA does mention JAMS, it does not mandate that JAMS is the sole option for arbitration. To the contrary, the MRPA requires the parties to make an attempt at selecting a mutually agreeable arbitrator, and as noted above: “The Parties will work together to jointly select an arbitrator. If the Parties agree to a single arbitrator, then there is no need for the Judicial Arbitration and Mediations Services (“JAMS”) to administer the arbitration.”

Here, based on the evidence presented to the court, defense counsel attempted in good faith to work with plaintiff’s counsel to come to a mutual agreement. Other than sending a list of proposed arbitrators on one occasion, it was plaintiff’s counsel that was lacking in his efforts to come to an agreement. Plaintiff has not met her burden of showing that defendant violated the MRPA in any way. Because plaintiff unilaterally selected the arbitration forum, defendants had no obligation to pay the fees for an arbitrator they did not have a say in selecting.

The motion will be denied.

In the alternative, the FAA preempts Code of Civil Procedure section 1281.97 under the facts of the present case.

Defendants have argued that the FAA governs the arbitration agreement in that (1) the parties expressly consented for the FAA to govern the arbitration agreement, and (2) that the FAA applies because defendants regularly transact in interstate commerce.

“The party asserting the FAA bears the burden to show it applies by presenting evidence establishing the contract with the arbitration provision has a substantial relationship to interstate commerce.” (Carbajal v. CWPCS, Inc. (2016) 245 Cal.App.4th 227, 234.) “In determining whether the employment agreement involved interstate commerce, the parties’ subjective intent is not the determining factor. “ ‘[E]videncing a transaction involving commerce’ ” (9 U.S.C. § 2) simply means that “ ‘the ‘transaction’ in fact ‘involv[e]s’ interstate commerce, even if the parties did not contemplate an interstate commerce connection.’ ” [Citation.]” (Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1286.)

The United States Supreme Court has “interpreted the term ‘involving commerce’ in the FAA as the functional equivalent of the more familiar term ‘affecting commerce’—words of art that ordinarily signal the broadest permissible exercise of Congress’ Commerce Clause power. [Citation.]” (The Citizens Bank v. Alafabco, Inc. (2003) 539 U.S. 52, 56.) Under this broad interpretation, “application of the FAA [is not] defeated because the individual [transaction], taken alone, did not have a ‘substantial effect on interstate commerce.’ [Citation.] Congress’ Commerce Clause power ‘may be exercised in individual cases without showing any specific effect upon interstate commerce’ if in the aggregate the economic activity in question would represent ‘a general practice ... subject to federal control.’ [Citations.] Only that general practice need bear on interstate commerce in a substantial way. [Citations.]” (Id. at pp. 56-57.)

Although defendants have argued that they “engage in business” ‘ “involving commerce” ’ by selling products that traveled or travel through interstate commerce and providing services, including visitation to their facilities, that involve persons that have traveled across state lines,” defendants have not provided any admissible evidence of the same. Defendants have failed to meet their burden to show that the FAA is applicable due to their involvement in interstate commerce.

However, the arbitration agreement contained in the MRPA provides: “The Parties agree that the Federal Arbitration Act (9 U.S.C., §1-16) governs the interpretation, enforcement and all proceedings pursuant to this Agreement and the Associate’s relationship with the Company and/or the Entities.” (Crawford Dec., ¶ 11 & Exh. C.)

In the absence of a substantial relationship to interstate commerce “the language of the Agreement, not an analysis of interstate commerce, dictates the applicable law.” (Valencia v. Smyth (2010) 185 Cal.App.4th 153, 179.)

Here, the parties entered into an agreement that any disputes will be determined by arbitration under the FAA. This agreement is sufficient to determine that the FAA is applicable to the arbitration.

In a similar circumstance as the present matter, in the recent case of Hernandez v. Sohnen Enterprises, Inc. (2024) 102 Cal.App.5th 222, the court found that as the result of the FAA applying to the case, “the procedures of section 1281.97 do not apply . . ..” (Id. at p. 231.) “Even if we were to conclude that section 1281.97 applies, however, we would still reverse, because when an agreement falls within the scope of the FAA and does not expressly adopt California arbitration laws, the FAA preempts the provisions of section 1281.97 that mandate findings of breach and waiver.” (Ibid.)

The motion will be denied on these grounds as well as the lack of any credible evidence that defendants violated the MRPA.