Keeton v. Tesla, Inc.

1

DOMINIQUE KEETON, Plaintiff and Respondent, v. TESLA, INC., Defendant and Appellant.

A166690

California Court of Appeals, First District, First Division

September 12, 2024

CERTIFIED FOR PARTIAL PUBLICATION [^*]

REVIEW GRANTED. See Cal. Rules of Court, rules 8.1105 and 8.1115 (and corresponding Comment, par. 2, concerning rule 8.1115(e)(3)).

Filed Date 6/26/24

Trial Court: Alameda Superior Court No. RG21109088, Trial Judge Hon. James Reilly

Reed Smith, Raymond A. Cardozo and Kathryn M. Bayes; Tesla, Kiran S. Lopez for Defendant and Appellant.

Hunter Pyle Law and Hunter Pyle, Katie Fiester, and Andrea Nunez for Plaintiff and Respondent.

LANGHORNE WILSON, J.

Plaintiff Dominique Keeton sued her employer, Tesla, Inc. (Tesla), for discrimination, harassment, and retaliation. The parties agreed to submit the dispute to arbitration as provided in their arbitration agreement. After Tesla failed to pay its arbitration fees within the 30-day window established by Code of Civil Procedure section 1281.98, subdivision (a)(1) Keeton moved to vacate the order submitting the dispute to arbitration.^[1] The trial court granted the motion finding that under section 1281.98, Tesla materially breached the parties' arbitration agreement, and thus Keeton was entitled to proceed with her claims in court.

On appeal, Tesla argues the trial court erred in granting Keeton's motion to vacate because (1) the arbitration agreement delegated issues of arbitrability to the arbitrator; (2) the Federal Arbitration Act (FAA) (9 U.S.C § 1 et seq.) preempts section 1281.98; and (3) section 1281.98 constitutes an unconstitutional impairment of the arbitration agreement. We disagree and affirm.

I. BACKGROUND

Keeton began working for Tesla in 2017 as a production associate. She signed an employment agreement that contained an arbitration provision. It provided, among other things, that all disputes regarding her employment be resolved by binding arbitration conducted by the Judicial Arbitration and Mediation Services, Inc. (JAMS) "under the then current rules of JAMS for employment disputes."

In August 2021, Keeton filed a complaint against Tesla asserting claims for harassment, race-based discrimination, failure to prevent harassment and discrimination, and retaliation. Thereafter, the parties stipulated to submit the dispute to binding arbitration before JAMS. The court granted the stipulation and stayed the action pending completion of arbitration.

A few months later, Keeton submitted her demand for arbitration to JAMS. Both parties paid a filing fee to commence the arbitration.

On February 25, 2022, JAMS sent the parties a letter confirming the appointment of an arbitrator and seeking payment of a deposit for "all prehearing work." The letter said payment was "due upon receipt." Over the next month, JAMS sent four additional letters to the parties stating that payment was due "upon receipt" in order "to move forward with the arbitration." Each letter attached an invoice for the pre-hearing deposit.

On March 28, JAMS e-mailed the parties another reminder to pay the pre-hearing deposit. The following day, Tesla mailed a check to JAMS for the full amount of the deposit. JAMS received the payment the next day, thirty-three days from the date of the initial invoice.

Approximately a month later, Keeton moved to vacate the trial court's order submitting the action to binding arbitration and to lift the stay on litigation on the ground that Tesla failed to pay its arbitration fees within 30 days of the due date as required by section 1281.98, subdivision (a)(1). She argued its late payment was a material breach of the arbitration agreement and waived its right to compel arbitration.

In opposition, Tesla argued section 1281.98 was preempted by the FAA. It further contended that the arbitration agreement delegated to the arbitrator the issues of whether section 1281.98 applied and whether Tesla complied with the statute.

The trial court granted the motion. The court first determined that it had jurisdiction to decide the motion because the arbitration agreement did not delegate issues of breach or arbitrability to the arbitrator. Turning to the merits of the motion, the court concluded that pursuant to section 1281.98, Tesla materially breached the arbitration agreement by failing to pay its arbitration fees within 30 days of the due date. It therefore lifted the stay and imposed a $1,000 monetary sanction on Tesla under section 1281.99.

II. DISCUSSION

Tesla challenges the trial court's order granting Keeton's section 1281.98 motion on three grounds, each of which we will address in turn. Before reaching these arguments, however, we begin with an overview of section 1281.98, which is part of the California Arbitration Act (CAA).

A. Section 1281.98

The CAA" 'represents a comprehensive statutory scheme regulating private arbitration in this state. (§ 1280 et seq.) Through this detailed statutory scheme, the Legislature has expressed a "strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution." '" (Aguilar v. Lerner (2004) 32 Cal.4th 974, 983.) It establishes, among other things, procedures for the enforcement of arbitration agreements and rules for the conduct of arbitration proceedings. (Ibid.)

In 2019, the Legislature added section 1281.98 to the CAA.^[2] (Stats. 2019, ch. 870, § 5.) Subdivision (a)(1) of the statute 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 compel the employee or consumer to proceed with that arbitration as a result of the material breach." (§ 1281.98, subd. (a)(1), italics added.)

Section 1281.98, subdivision (b), states, in relevant part, "If the drafting party materially breaches the arbitration agreement and is in default under subdivision (a), the employee or consumer may unilaterally elect to do any of the following: [¶] (1) Withdraw the claim from arbitration and proceed in a court of appropriate jurisdiction"; or (2) continue the arbitration.

The Legislature enacted section 1281.98 due to a concern that "[a] company's failure to pay the fees of an arbitration service provider . . . hinders the efficient resolution of disputes and contravenes public policy." (Stats. 2019, ch. 870, § 1, subd. (c).) Because an employer is responsible for paying arbitration fees, the statute "aim[ed] 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, citing Assem. Floor Analysis, 3d reading analysis of Sen. Bill No. 707 (20192020 Reg. Sess.) as amended May 20, 2019, p. 2.) Prior to the enactment, state law did "not provide clear guidance for courts and litigants in the event a drafting party fails to properly pay to commence arbitration in a timely manner." (Assem. Com. on Judiciary, Analysis of Sen. Bill No. 707 (20192020 Reg. Sess.) as amended May 20, 2019, p. 6.)

In this case, the trial court found that under the terms of section 1281.98, subdivision (a)(1), Tesla, as the drafting party, "materially breached" the arbitration agreement because it failed to pay arbitration fees within 30 days after the due date. Although Tesla made the payment a few days after the expiration of the 30-day time limit, the Legislature intended the statute "to be strictly applied" when the drafting party does not pay the fees within the 30-day deadline. (De Leon v. Juanita's Foods (2022) 85 Cal.App.5th 740, 753; accord, Doe v. Superior Court (2023) 95 Cal.App.5th 346, 357-358, 362.) The court therefore granted Keeton's motion to vacate the order submitting the parties' dispute to arbitration.

Tesla does not take issue with the trial court's findings regarding its untimely payment or the court's interpretation of section 1281.98. We therefore presume the court correctly applied the statute to the facts and turn to Tesla's first argument, which is that the court erroneously disregarded the arbitration agreement's delegation clause.

B. Delegation to the Arbitrator

Tesla claims the arbitration agreement delegated to the arbitrator issues of arbitrability, issues which it contends include whether section 1281.98 applies in this case and whether Tesla materially breached the arbitration agreement by failing to pay its share of the arbitration fees in a timely manner.^[3] Even assuming the statutory issues constitute issues of arbitrability, we conclude from our de novo review the trial court did not err in resolving those issues. (Aanderud v. Superior Court (2017) 13 Cal.App.5th 880, 890 [standard of review where facts are undisputed].)

"Under California law, it is presumed the judge will decide arbitrability, unless there is clear and unmistakable evidence the parties intended the arbitrator to decide arbitrability." (Dennison v. Rosland Capital LLC (2020) 47 Cal.App.5th 204, 209.) This is a "heightened standard" since" 'contracting parties would likely have expected a court to have decided'" arbitrability. (Rent-A-Center, West, Inc. v. Jackson (2010)...