Attorney Was Notified By The American Arbitration Association That The Error In Applying Defendants’ Fees Had Been Corrected, And The AAA Simply Needed Plaintiff’s Confirmation Of Intent To Proceed.
In McCluskey v. Henry, Case No. A158851 (1st Dist., Div. 3 November 2, 2020) (partially published – fees discussion unpublished), plaintiff sued employees of Airbnb, Inc. for intentional infliction of emotional distress after her account was terminated. Pursuant to an arbitration clause in the parties’ contract, the trial court granted defendants’ motion to stay the action and compel arbitration. Plaintiff then filed her claim for arbitration with the American Arbitration Association, and each side paid their respective fees by the deadline set by AAA. Unfortunately, due to an error in AAA’s system, defendants’ payment was not properly credited – resulting in AAA’s administrative closing of the case. Once the error was rectified, AAA notified the parties and requested confirmation from plaintiff that she wished to continue so the case could be reopened. After receiving no response from plaintiff’s counsel by AAA’s deadline, AAA sent out a second notice with a new deadline for responding. Plaintiff’s counsel did not respond.
Instead, he went back to the trial court with an unsuccessful motion to lift the stay – asserting that, pursuant to Code Civ. Proc. § 1281.4, defendants had failed to timely pay their arbitration fee which “constituted a default, waiver, lack of good faith and fair dealing, or breach of the arbitration agreement.” The defendants were successful, however, on their request for sanctions – with the trial court awarding $22,159.50 in fees incurred for opposing the motion to lift the stay.
Attorney appealed, raising a slew of arguments – violation of his due process rights; section 128.7 “not drawn with sufficient clarity such that it properly[] informed” him as to what he must do to avoid sanctions; defendants’ motion papers failed to adequately inform him that sanctions were being sought for specific violating conduct; that section 128.7 requires a moving party to “incur” attorney fees and, since Airbnb was the entity paying defendants’ fees, defendants could not seek and be awarded sanctions; and other substantive challenges – all of which failed. The 1/3 DCA found the trial court properly based its frivolity decision on its findings that the AAA had twice notified Attorney that the arbitration case would be reopened once Attorney confirmed plaintiff’s intent to proceed.
Interestingly, Attorney made an argument that the trial court had exceeded its jurisdiction in issuing the sanctions order as Code Civ. Proc. § 1281.4 prohibited the trial court from hearing and ruling upon the sanctions motions during the stay. Ironically, pursuant to Code Civ. Proc. § 1281.4, the trial court had no jurisdiction to lift the stay and set the case for trial on the basis that defendants’ conduct inhibited arbitration. However, because Attorney’s violating conduct occurred before the trial court – not in the arbitration proceeding – and the trial court had retained jurisdiction over the original suit, the trial court had the jurisdiction and authority to address this situation.
Comments