Williams v. W. Coast Hosps., Inc.

86 Cal.App.5th 1054

302 Cal.Rptr.3d 803

Ann WILLIAMS et al., Plaintiffs and Respondents,

v.WEST COAST HOSPITALS, INC., Defendant and Appellant.

H049177

Court of Appeal, Sixth District, California.

Filed December 22, 2022

Attorneys for Defendant and Appellant West Coast Hospitals, Inc.: Lewis Brisbois Bisgaard & Smith, Jeffry A. Miller, Daniel R. Velladao, San Diego, Reuben B. Jacobson, Walnut Creek, Tracy D. Forbath, San Diego

Attorneys for Plaintiffs and Respondents Ann Williams et al.: Scruggs, Spini & Fulton, G. Dana Scruggs, Santa Cruz, Samuel Forbes-Roberts, Watsonville

LIE, J.

Code of Civil Procedure sections 1281.97 and 1281.98¹ provide that a company or business pursuing arbitration of a dispute under a predispute arbitration agreement is in material breach and default of that agreement—thereby waiving its right to arbitrate—if it fails to timely pay its share of arbitration fees. Among the consumer's potential remedies for this material breach is to eschew arbitration and litigate. This appeal by defendant West Coast Hospitals, Inc. (West Coast), calls for us to decide (1) whether sections 1281.97 or 1281.98 required plaintiffs Ann Williams, John Williams, and Paul Williams to first obtain an arbitrator's determination of West Coast's default before returning to the trial court; and (2) whether these statutory provisions apply only to mandatory predispute arbitration agreements.² Because nothing in the statute authorizes the restrictive interpretation that West Coast posits, we affirm the trial court's order permitting the resumption of litigation.

I. BACKGROUND

West Coast does business as Valley Convalescent Hospital, which admitted Ann as a resident in November 2018 to recover from a hip surgery. The following February, Valley Convalescent discharged Ann to an assisted living facility, where she died five days later.

John, Ann's son, initiated the present action against West Coast in his individual capacity and in his representative capacity as Ann's successor in interest and as his brother Paul's guardian ad litem. Plaintiffs alleged that Ann, unable due to dementia to communicate her need for nutrition or hydration, lost nearly forty pounds and became severely dehydrated at Valley Convalescent, resulting in acute and ultimately fatal renal failure. Plaintiffs alleged that West Coast "watch[ed] [Ann] waste away," "bill[ing] her Medicare A plan until her eligibility expired and then, when profitability was no longer available, ... dumped her on the doorstep of a non-medical Assisted Living Facility, misrepresenting to the family and facility that [Ann] was stable and healthy enough to be suitable for the transfer." Plaintiffs alleged five causes of action against West Coast: (1) elder abuse; (2) violation of the Patient's Bill of Rights; (3) constructive fraud; (4) fraud by concealment; and (5) wrongful death.

West Coast moved to compel arbitration. In support of its motion, West Coast submitted an arbitration agreement that John had signed on Ann's behalf. According to its caption, the arbitration agreement was "Not Part of Admission Agreement," and residents were "not ... required to sign [it] as a condition of admission."

The trial court granted the motion in part, compelling arbitration of Ann and John's claims but not Paul's claims, which the court stayed. The next day, the court entered a stipulated order submitting the entire action to arbitration.

Defense counsel contacted the arbitration provider to open the arbitration proceeding. The arbitration provider later notified the parties that the filing fee remained outstanding and set a deadline for payment. Plaintiffs timely paid their portion of the filing fee. West Coast did not timely pay the balance.

More than 30 days after the deadline, citing section 1281.98, plaintiffs filed in the trial court a motion to vacate the stay and an election to withdraw from arbitration on the ground that West Coast had to that point failed to pay the arbitration fees. West Coast belatedly paid its share of the arbitration fees that same day. The trial court granted plaintiffs' motion. West Coast timely appealed.

II. DISCUSSION

In West Coast's view, a consumer seeking relief from a predispute arbitration agreement under section 1281.98 must first submit to the arbitrator the question of whether the drafting party has defaulted within the meaning of the statute. West Coast posits that the trial court lacked jurisdiction to act on any contrary interpretation. Alternatively, West Coast asserts that the statutory default provisions apply only to mandatory arbitration clauses. Independent of these questions of law, West Coast also asserts for the first time on appeal that the parties agreed to be bound by an enforceable delegation clause, likewise requiring the arbitrator to decide the application of section 1281.98 in the first instance.³ As a matter of appellate process, we reject plaintiffs' contention that the order at issue is not appealable, but we decline to reach West Coast's forfeited claim as to the enforceability of any delegation clause. On the merits of West Coast's preserved claims, we conclude that the statute empowers a consumer otherwise subject to a voluntary predispute arbitration agreement to unilaterally withdraw from the arbitration upon the drafting party's failure to pay contractually required arbitration fees.

A. Appealability

Dispensing first with plaintiffs' contention that the trial court's order is not appealable, we conclude that it is, notwithstanding our recognition of the Legislature's intention to secure prompt dispute resolution, whether in arbitration or in litigation.⁴

"The right to appeal is wholly statutory." ( Dana Point Safe Harbor Collective v. Superior Court (2010) 51 Cal.4th 1, 5, 118 Cal.Rptr.3d 571, 243 P.3d 575.) As relevant here, "[a]n aggrieved party may appeal from" "[a]n order dismissing or denying a petition to compel arbitration."

( § 1294, subd. (a).) Although the trial court's order does not fall neatly within the plain language of section 1294, subdivision (a), courts have permitted appeals from orders that are the "functional equivalent" of orders denying a petition to compel arbitration. ( Henry v. Alcove Investment, Inc. (1991) 233 Cal.App.3d 94, 99-100, 284 Cal.Rptr. 255 ( Henry ) [order staying arbitration is appealable, as a functional equivalent of an order denying a petition to compel arbitration]; MKJA, Inc. v. 123 Fit Franchising, LLC (2011) 191 Cal.App.4th 643, 655, 119 Cal.Rptr.3d 634 ( MKJA ) [an order declaring arbitration provisions unenforceable was the functional equivalent of an order denying a petition to compel arbitration].) "[A]n order vacating an order compelling arbitration is the functional equivalent of an order denying a petition to compel arbitration in the first place because both divert a case into court rather than arbitration." ( Gallo, supra , 81 Cal.App.5th at p. 633, 297 Cal.Rptr.3d 373 [holding that this functional equivalency supports reviewing the former under the de novo standard applicable to the latter].)

Against this conclusion, plaintiffs rely on Wells Fargo Bank, N.A. v. The Best Service Co., Inc. (2014) 232 Cal.App.4th 650, 181 Cal.Rptr.3d 597 ( Wells Fargo ) and Gastelum v. Remax Internat., Inc. (2016) 244 Cal.App.4th 1016, 198 Cal.Rptr.3d 234 ( Gastelum ). Both cases are distinguishable. In Wells Fargo , the defendants had not made "any effort ... to compel plaintiff to arbitrate his claims," and had repeatedly claimed that its motion to stay litigation pending mediation and arbitration was not a petition or motion to compel arbitration. ( Wells Fargo, supra , 232 Cal.App.4th at pp. 652, 654-655, 181 Cal.Rptr.3d 597.) In Gastelum , the trial court denied the defendant supervisor's motion to compel arbitration but stayed the litigation of the plaintiff employee's claims against the supervisor in view of the plaintiff's agreement that her claims against defendant Remax, her employer, were subject to a predispute arbitration provision. ( Gastelum, supra , 244 Cal.App.4th at p. 1018, 198 Cal.Rptr.3d 234.) After the arbitration was dismissed for Remax's refusal to pay fees, the trial court granted plaintiff's motion to lift the stay of the litigation against both Remax and the supervisor. ( Ibid. ) On appeal, the court held that the request to lift the stay was not itself an appealable order. ( Ibid. ) In Gastelum , the arbitrator had already dismissed the arbitration and there was no pending cross-motion to compel resumption of the arbitration. ( Id. at pp. 1020-1021, 198 Cal.Rptr.3d 234.) Thus, the trial court's order lifting the stay neither vacated an order compelling an arbitration nor denied a renewed attempt to compel arbitration—the arbitration had concluded without a decision on the merits as a result of the arbitrator's dismissal. ( Id. at pp. 1018, 1020-1023, 198 Cal.Rptr.3d 234.)

Here, the trial court determined that West Coast's failure to pay the contractually mandated arbitration fees constituted a material breach of the arbitration agreement and a waiver of the right to compel plaintiffs to arbitrate. Because that determination of material breach and waiver operated as a complete defense to West Coast's enforcement of the arbitration agreement, it is a functional equivalent of an order denying a petition to compel arbitration. (See MKJA, supra , 191 Cal.App.4th at p. 655, 119 Cal.Rptr.3d 634 ; Gallo, supra , 81 Cal.App.5th at p. 633, 297 Cal.Rptr.3d 373.) The order is therefore appealable under section 1294, subdivision (a), and we accordingly address its merits.

B. Withdrawal from Arbitration under Sections 1281.97 and 1281.98

"[I]n construing a statute, we ascertain the Legislature's intent in order to effectuate the law's purpose." ( Green v. State of California (2007) 42 Cal.4th 254, 260, 64 Cal.Rptr.3d 390, 165 P.3d 118.) "We must look to the statute's words and give them their usual and ordinary meaning." ( Ibid. ) "The statute's plain meaning controls ...