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Court of Appeal:
Plaintiffs Who Resisted Arbitration Are ‘Party Who Wants’ It
Justices Say Employees Who Signed Agreements Barring Court Resolution of Disputes Necessarily Evinced Desire for Alternate Dispute Resolution When They Filed a Class Action Complaint in Los Angeles Superior Court
By a MetNews Staff Writer
The Court of Appeal for this district, in an opinion certified for publication yesterday, held that agreements placing a burden on the “party who wants to start the Arbitration Procedure” refers to the plaintiffs, even though, in suing their employer for alleged Labor Code violations, they had no desire to resolve their disputes other than in a courtroom, and sought relief from an order compelling alternate dispute resolution.
The court also determined that the order in issue is appealable.
Justice Gregory Weingart authored the opinion, initially filed on Jan. 27 and designated, “not for publication.” It reverses a Feb. 2, 2024 order by Los Angeles Superior Court Judge Kenneth R. Freeman lifting a March 14, 2023 stay of court proceedings pending arbitration.
Agreements signed by the five plaintiffs in a putative class action provide: “A party who wants to start the Arbitration Procedure should submit a demand within the time periods required by applicable law.”
The prescribed time period, under the agreements, is 30 days after an order is made compelling arbitration.
The motion to compel was filed by the defendant.
Freeman’s Ruling
Freeman deemed the defendant, ACE American Insurance Company, to have waived arbitration by virtue of having failed to start the dispute resolution process by filing a demand for arbitration. ACE, he declared, was the “holder of the right to arbitration of Plaintiffs’ claims” and “did not act on that right.”
He noted:
“While Plaintiffs are the parties who filed the instant wage-and-hour complaint and seek relief, they have heavily contested any requirement to arbitrate these claims.”
So intent were the plaintiffs to avoid arbitration that they had made ill-fated efforts to block it through seeking a writ of mandate in the Court of Appeal and then petitioning for review in the California Supreme Court.
Freeman continued:
“They never ‘wanted’ or ‘demanded’ to initiate arbitration, within the meaning of the agreement and governing rules; in fact, they opposed Defendant’s demand. It was incumbent on Defendant, following the Court’s order granting their motion, to commence the process. Because it took no action within 30 days of the March 14, 2023 Ruling and Order, Defendant was in material breach.”
Weingart’s Opinion
Weingart said in his opinion reversing Freeman’s order:
“The plaintiffs expressly agreed to ‘submit’ their claims to arbitration. In context, the agreements’ language concerning the ‘party who wants to start the [arbitration [p]rocedure’ refers to the party that wants to assert a legal claim governed by the arbitration agreements. In this case, that is the plaintiffs, not ACE. Thus, the plaintiffs were required to initiate arbitration, and ACE did not breach the arbitration agreements or waive its right to arbitration by failing to submit the plaintiffs’ claims for them.”
The jurist elaborated:
“[T]e phrase ‘want[ing] to start the [arbitration [p]rocedure’ cannot refer to a preference for arbitration over litigation because the parties already ruled out litigation as an option in any dispute governed by the arbitration agreements. Instead, where the only option for addressing a dispute is in arbitration, ‘wantfing] to start the [arbitration [p]rocedure’ means a desire to seek redress for an employment related legal claim. In other words, it must refer to an action by a plaintiff.”
Order Is Appealable
The plaintiffs argued that the appeal must be dismissed because an order lifting a stay is rendered appealable by no statute. Weingart disagreed, pointing to Code of Civil Procedure §1294 which provides, in part:
“An aggrieved party may appeal from: [¶] (a) An order dismissing or denying a petition to compel arbitration.”
He wrote:
“The trial court’s order differed from an order denying a motion to compel arbitration only in its timing. By lifting the stay after granting ACE’s motion to compel, the trial court left ACE in the same position as if it had denied the motion to compel in the first place.”
He said Freeman’s order was the “functional equivalent” of an order denying a motion to compel arbitration.
The plaintiffs contend that Ace has misclassified them as exempt employees, thereby denying them benefits, such as overtime pay, enjoyed by hourly employees.
The case is Arzate v. ACE American Insurance Company, B336829.
Attorneys on appeal were Susannah K. Howard and Jason M. Zarrow of the downtown Los Angeles firm of O’Melveny and Myers, for Ace, and Allan Shenoi, Daniel Koes, and Benjamin Caryan of the Pasadena firm of Shenoi Koes, for the plaintiffs.
Requests for publication of the opinion were made by Ace and by Horvitz & Levy LLP, a leading appellate law firm, based in Burbank.
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