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Court of Appeal:
No Attorney Fees Due for ‘Late’ Arbitration-Costs Payment
Opinion Says Defendant Social Media Company Paid on Time, Under Statute Providing Lawyer Costs to Other Side for Delays, Where Billing Stalled Due to Plaintiff’s Mistake
By Kimber Cooley, associate editor
Div. Five of the First District Court of Appeal has held that a plaintiff cannot recovery attorney fees under a statute providing for such an award as a penalty for the other side’s late payment of an arbitration-initiation fee where the claimant’s counsel caused the delay by accidentally paying the first invoice where it was the defendant that was on the hook for it.
At issue in the dispute was Code of Civil Procedure §1281.97 which provides that the employer who drafts an arbitration agreement must pay any initiation fees associated with the process “within 30 days after the due date.” If the fees are late, the employee plaintiff may “[c]ompel arbitration in which the drafting party shall pay reasonable attorney’s fees…related to the arbitration.”
Sarah Anoke and 15 other claimants initiated arbitration proceedings with Judicial Arbitration and Mediation Services (“JAMS”) on Feb. 24, 2023, to resolve employment-related disputes with their former employer, X Corp., formerly known as Twitter Inc. The plaintiffs allege breach of contract and other causes of action against the social media giant relating to their employment with and termination from the company.
On March 7, 2023, JAMS emailed an invoice for $27,200—representing X’s share of the case initiation fee—to all parties. Anoke’s counsel mistakenly paid the invoice that same day.
A refund check was issued by JAMS two weeks later after Anoke’s counsel notified the arbitrator of the error. X was not notified of the refund and the JAMS payment system reflected that the invoice was paid.
The second invoice was sent on April 7, 2023, indicating that “payment is due upon receipt,” and was accompanied by an email to all parties indicating that the original invoice was “nulled.” X paid in full within 30 days, on May 5.
Motion to Compel
The plaintiffs filed a petition in court on April 27, 2023 to compel arbitration and to demand attorney fees under §1281.97. In the supporting memorandum to the petition, Anoke argued:
“On March 28, 2023, due to an internal error, JAMS sent an email to counsel for all parties erroneously informing them that ‘[t]he initial filing fees in the above referenced matters’…‘have now been paid’….They had not, in fact, been paid by Twitter, who still owed those fees. As of April 7, 2023—thirty-one days after the March 6 Invoice was issued and due Twitter still had not paid those fees….
“As of April 7, 2023—thirty-one days after the March 6 Invoice was issued and due—Twitter still had not paid those fees. On April 8, 2023, JAMS emailed counsel for the parties to issue a second invoice for those same fees….
“Twitter’s decision not to pay the invoice on receipt reflects its intentional policy. In other arbitration proceedings, Twitter confirmed…that it was deliberately delaying payment of JAMS invoices marked due upon receipt until the end of the statutory 30-day grace period provided by…Section 1281.97….That 30-day period began on March 7, the day the Invoice was issued to Twitter….”
After a hearing, San Francisco Superior Court Judge Richard B. Ulmer Jr. denied the petition, finding that the first invoice had been effectively voided and that X timely paid on the second bill within the statutory time frame.
Justice Gordon B. Burns wrote the opinion, filed Aug. 27 and certified for publication, with modifications, on Wednesday, affirming the order denying the motion to compel. Acting Presiding Justice Mark B. Simons and Justice Danny Y. Chou joined in the opinion.
Timely Payment
Burns noted that §1281.97 was enacted with the purpose of frustrating any desire by an employer to delay arbitration by strategically failing to pay the initiation fees on time, “particularly when the company refusing to pay the fees is the party who insisted on arbitration in the first place.” Turning to the payment in question, he remarked:
“After the arbitrator issued the first invoice, properly marked due upon receipt, Anoke’s counsel immediately paid the invoice in full. When the arbitrator issued a new invoice, also marked due upon receipt, X paid the fees within 30 days. Neither invoice was ever past due for 31 days, as the statute requires for a default.”
Anoke argues that the arbitrator had no authority to issue a second invoice and, by doing so, extended the grace period for payment beyond the statutory time frame of 30 days, citing case law providing that an arbitrator may not cure a default by extending the payment due date.
Unpersuaded, the jurist said:
“Here,…the arbitrator did not try to cure a default or extend a 30-day grace period. There was no missed payment. Anoke fails to accept responsibility for the fact that it was her attorney who timely paid the first invoice. The statute did not bar the arbitrator from accepting that payment. At that point, as far as the statute goes, the arbitrator had nothing more to do. The arbitration could proceed without delay, which it did. The arbitrator marked the invoice ‘paid’ and ‘closed,’ which it was.”
He continued:
“When Anoke’s counsel then demanded a refund, her counsel put the arbitrator back to square one. The statute does not tell the arbitrator what to do when a timely payment is refunded. The arbitrator made a rational decision to issue a new invoice ‘due upon receipt,’ which X paid within the statutory grace period….The circumstances are unusual…but we cannot fault the arbitrator. Even if it could have somehow reinstated the first invoice after it had been paid and closed, Anoke does not persuade us that the statute required it to do so.”
Anoke also contends that her attorney never ‘paid’ the invoice within the meaning of the statute, making the first payment void from its inception. Only a payment by X would satisfy the statute, she asserts, because it was responsible for paying the fees.
Looking to the statutory language, Burns concluded:
“[S]ection 1281.97, subdivision (a)(1) uses passive voice to describe the condition (‘if the fees or costs…are not paid’) but active voice to describe the consequences (‘the drafting party is in material breach…, is in default…, and waives its right to compel arbitration’). The switch in voices indicates that, if the fees are not paid—regardless of how or why—the drafting party bears the consequences. But for purposes of determining whether a breach has occurred, section 1281.97 turns on whether the fees were paid within 30 days of the invoice’s due date—not how they were paid or why.”
He added:
“[T]o adopt Anoke’s position would require us to ignore the Legislature’s scheme for setting, and putting parties on notice of, the statutory deadline. As explained, the statute ties the 30-day deadline to an invoice from the arbitrator….The Legislature could have set a deadline based on some other fixed event, like the date the employee met the initial filing requirements….By instead tying the 30-day deadline to an arbitrator’s invoice, it leveraged the existing business practice by which companies bill each other. Here, a mistaken payment resulted in a second invoice, which is consistent with ordinary business billing practices. We are not going to rewrite the statute to say that, in the event one invoice is mistakenly paid, a second invoice is improper.”
The case is Anoke v. Twitter Inc., 2024 S.O.S. 3278.
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