Aronow v. Superior Court of San Francisco Cnty.

76 Cal.App.5th 865

291 Cal.Rptr.3d 784

Gerald ARONOW, Petitioner,

v.The SUPERIOR COURT OF SAN FRANCISCO COUNTY, Respondent;

Emergent, LLP et al., Real Parties in Interest.

A162662

Court of Appeal, First District, Division 4, California.

Filed March 28, 2022

As Modified on Denial of Rehearing April 22, 2022

Law Offices of Paul J. Steiner, Paul J. Steiner, San Francisco; Gary S. Garfinkle, Maria J. Garfinkle, Lafayette, for Petitioner

No appearance for Respondent.

Murphy, Pearson, Bradley & Feeney, Harlan B. Watkins, Geoffrey T. Macbride, San Francisco, for Real Parties in Interest

Ross, J.^*

We address a narrow issue, which the trial court certified for appellate resolution ( Code Civ. Proc.,¹ § 166.1 ): Does a trial court that granted a defendant's petition to compel arbitration have jurisdiction to lift the stay of trial court proceedings where a plaintiff demonstrates financial inability to pay the anticipated arbitration costs? If so, may the court require defendant either to pay plaintiff's share of arbitration costs or to waive the right to arbitration? We answer both questions in the affirmative, and will issue a writ of mandate directing the trial court to allow Aronow to attempt to demonstrate his inability to pay the arbitrator's fees and, if necessary, to conduct an evidentiary hearing. If the trial court finds Aronow is unable to pay the arbitrator's fee, it should give Emergent the choice either to pay Aronow's share of the arbitrator's fee or to waive the right to arbitrate.

BACKGROUND

Aronow sued his former attorneys, Emergent LLP, Christopher Wimmer, and Peter Roldan (collectively, "Emergent," the real parties in interest) for legal malpractice. Emergent invoked the arbitration provision in the retainer agreement, which required that any dispute be resolved by "binding arbitration before a retired judge at ADR Services, Inc., in San Francisco, California, according to the rules of that organization." The agreement stated that Aronow "waiv[ed] [his] right to submit any dispute or any cause of action ... to a jury or court trial. The parties shall bear their own legal fees and costs for all claims ...." Aronow opposed Emergent's section 1281.2 petition to compel arbitration, challenging the arbitration provision on various grounds, including unconscionability. On August 4, 2020, the trial court granted the petition after finding the agreement was valid; there was consideration for the fee agreement; the arbitration agreement was not unconscionable; and Emergent had not waived its right to arbitrate.²

Aronow and Emergent agreed on ADR Services, Inc. arbitrator Hon. Alfred Chiantelli (Ret.), whose hourly rate is $600; $3,600 for a half (up to four-hour) day; and $6,000 for a full (up to eight-hour) day. Aronow was required to make "a $1,500 advance payment" for the arbitrator's fee. ADR Services, Inc. agreed to apply its "consumer" waiver of its usual $450 administrative fee because Aronow was a consumer of legal services. At the initial conference with the arbitrator, Aronow advised that he was unable to pay the arbitration fees. The conference was adjourned and the arbitration did not proceed.

In the trial court, Aronow filed a motion for arbitration fees and costs waiver or alternatively to lift the court stay, which the trial court denied. Recognizing a split of authority, the court followed the appellate opinion that held a trial court does not have jurisdiction to lift a stay despite a plaintiff's claim that he cannot afford to pay arbitration fees. (See MKJA, Inc. v. 123 Fit Franchising, LLC (2011) 191 Cal.App.4th 643, 658–659, 119 Cal.Rptr.3d 634 ( MKJA ).) The court also found Aronow had not documented "his share of the arbitration costs," "did not seek or obtain permission from this Court to proceed in forma pauperis," and "does not make a persuasive showing that he is unable to pay that estimated amount."

Aronow asked the court, pursuant to section 166.1,³ to certify the question of whether a trial court that granted a defendant's petition to compel arbitration has jurisdiction to lift the stay of trial court proceedings where a plaintiff demonstrates financial inability to pay the anticipated arbitration costs. The court granted Aronow's request. In its order, the court acknowledged it found in its prior order that even if contrary authority, including Roldan v. Callahan & Blaine (2013) 219 Cal.App.4th 87, 161 Cal.Rptr.3d 493 ( Roldan ) applied, Aronow "did not make a sufficient factual showing to support a finding that he is unable to pay his anticipated share of the cost of the arbitration.... However, the court notes that, based on the representations of counsel at the hearing, it has a reasonable basis to believe that [Aronow] may be able to fill those gaps in his evidentiary presentation. For example, [Aronow's] counsel pointed out that [Aronow] is currently receiving public assistance relief in the State of Alaska, and would not be eligible to receive such relief if he had any substantial assets."

Aronow then filed a petition for writ of mandate or other relief, which, in response to our request for a preliminary opposition, Emergent opposed. We issued an order to show cause to the respondent superior court, and these proceedings followed.

DISCUSSION

I. Legal Background

Trial court stays during arbitration

A stay of trial court proceedings pending arbitration is governed by section 1281.4, which provides: "If a court of competent jurisdiction, whether in this State or not, has ordered arbitration of a controversy which is an issue involved in an action or proceeding pending before a court of this State, the court in which such action or proceeding is pending shall, upon motion of a party to such action or proceeding, stay the action or proceeding until an arbitration is had in accordance with the order to arbitrate or until such earlier time as the court specifies. [¶] If an application has been made to a court of competent jurisdiction, whether in this State or not, for an order to arbitrate a controversy which is an issue involved in an action or proceeding pending before a court of this State and such application is undetermined, the court in which such action or proceeding is pending shall, upon motion of a party to such action or proceeding, stay the action or proceeding until the application for an order to arbitrate is determined and, if arbitration of such controversy is ordered, until an arbitration is had in accordance with the order to arbitrate or until such earlier time as the court specifies."

" ‘The purpose of the statutory stay [required pursuant to section 1281.4 ] is to protect the jurisdiction of the arbitrator by preserving the status quo until arbitration is resolved. [Citations.] [¶] In the absence of a stay, the continuation of the proceedings in the trial court disrupts the arbitration proceedings and can render them ineffective.’ " ( MKJA, supra , 191 Cal.App.4th at p. 658, 119 Cal.Rptr.3d 634.) " ‘ "Once a petition is granted and the lawsuit is stayed, ‘the action at law sits in the twilight zone of abatement with the trial court retaining merely vestigial jurisdiction over matters submitted to arbitration.’ [Citation.] During that time, under its ‘vestigial’ jurisdiction, a court may: appoint arbitrators if the method selected by the parties fails ( [Code Civ. Proc.,] § 1281.6 ); grant a provisional remedy ‘but only upon the ground that the award to which an applicant may be entitled may be rendered ineffectual without provisional relief’ ( [Code Civ. Proc.,] § 1281.8, subd. (b) ); and confirm, correct or vacate the arbitration award ( [Code Civ. Proc.,] § 1285 ). Absent an agreement to withdraw the controversy from arbitration, however, no other judicial act is authorized." ’ " ( MJKA, at pp. 658–659, 119 Cal.Rptr.3d 634.)

Split of Authority on consequence of a plaintiff's indigency

As the trial court recognized, appellate courts disagree whether a trial court may lift a stay in response to a plaintiff's claimed inability to pay arbitration costs. The trial court followed MKJA , the authority it found to be "better-reasoned" (see Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 456, 20 Cal.Rptr. 321, 369 P.2d 937 [trial courts must choose between conflicting decisions]), and concluded it did not have jurisdiction to grant Aronow relief.

In MKJA , franchisees sued the franchisor for fraudulently inducing them to enter into the relationship and failing to provide operational support pursuant to the agreement, which contained an arbitration provision. ( MKJA, supra, 191 Cal.App.4th at pp. 648–649, 119 Cal.Rptr.3d 634.) The franchisor filed a motion to stay pursuant to section 1281.4, which the trial court granted. ( MJKA, at p. 649, 119 Cal.Rptr.3d 634.) When the franchisees filed a motion to lift the stay because they could not afford arbitration costs, the trial court lifted the stay concluding that the "arbitration provisions were unconscionable and/or unenforceable." ( Id . at p. 653, 119 Cal.Rptr.3d 634.)

Division One of the Fourth District Court of Appeal reversed. The court interpreted section 1281.4 and "conclude[d] that a trial court may not lift a stay of litigation merely because a party cannot afford the costs associated with arbitration." ( MJKA, supra , 191 Cal.4th at p. 660, 119 Cal.Rptr.3d 634.) The court reasoned "the purpose of section 1281.4 is to protect the jurisdiction of the arbitrator by preserving the status quo until the arbitration is resolved," which is "essential to the enforceability of arbitration agreements generally." ( Id . at pp. 660–661, 119 Cal.Rptr.3d 634.) In its view, "[i]nterpreting section 1281.4 to broadly permit a trial court to allow litigation to proceed whenever the court determines that a party cannot afford the costs of arbitration ... would be fundamentally inconsistent with [both] California's ‘strong public policy favoring contractual arbitration’ [citation] [¶] ... [and] well-established case law holding th...