1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 ANEELA RAFIQUE, et al., Case No. 23-cv-00732-JST

8 Plaintiffs,

ORDER GRANTING PLAINTIFFS’

9 v. MOTION TO LIFT STAY

10 PREMIER FINANCIAL ALLIANCE, INC., Re: ECF No. 45 et al., 11 Defendants.

12 13 Before the Court is Plaintiffs’ motion to lift the stay of this case pending arbitration. ECF 14 No. 45. The Court finds this motion suitable for resolution without oral argument, see Fed. R. 15 Civ. P. 78(b); Civil L.R. 7-1(b), and will now grant the motion. 16 I. BACKGROUND 17 This is an employment case brought by Plaintiffs Aneela Rafique, Haidee Collado, and 18 John Soo-Hoo against Defendants Premier Financial Alliance, Inc. (“PFA”), David Carroll, and 19 Jack Wu. ECF No. 1. Defendants moved to compel arbitration, ECF No. 17, and the Court held 20 that motion in abeyance after it found “genuine issues of material fact as to whether the parties 21 formed an arbitration agreement,” ECF No. 37 at 3 (quoting Hansen v. LMB Mortg. Servs., Inc., 22 1 F.4th 667, 672 (9th Cir. 2021)). The Court ordered the parties to meet and confer and “file a 23 joint case management statement proposing a case schedule for resolving the disputed facts over 24 whether an agreement to arbitrate was formed.” Id. at 4. The Court twice approved the parties’ 25 stipulated request to extend the deadline to file such a statement. ECF Nos. 40, 42. 26 On February 2, 2024, the parties filed a statement that they had agreed to arbitrate 27 Plaintiffs’ claims with the American Arbitration Association (“AAA”) “pursuant to the 2019 1 proceeding with the three Plaintiff’s [sic] claims arbitrated together.” ECF No. 43 at 2. On 2 February 5, 2024, the Court approved the parties’ stipulated requests and ordered: “AAA will 3 conduct a single proceeding to resolve all three Plaintiffs’ claims. This case is stayed pending 4 completion of that arbitration.” ECF No. 44 at 1. 5 Plaintiffs initiated arbitration with the AAA and paid an initial $350 filing fee on May 31, 6 2024.1 ECF No. 45-6 at 2. On June 17, the AAA sent a letter addressed to Scott Wellman, 7 counsel for Plaintiffs, and Mark Figueiredo, counsel for Defendants, stating that the arbitration 8 would “be administered in accordance with the Employment Due Process Protocol and the AAA’s 9 Employment Arbitration Rules”; explaining that Plaintiffs’ portion of the filing fee was $350 per 10 employee, or $1,050 total; requesting payment of the $700 balance from Plaintiffs by June 24; and 11 stating that Defendants owed a “non-refundable fee in the amount of $2,100.” ECF No. 45-7 at 2. 12 Plaintiffs paid the $700 balance on June 19, 2024. ECF No. 45-6 at 71. 13 On June 20, the AAA sent an email to the parties stating, “Payment has been received and 14 we will follow up with formal correspondence to both parties shortly.” Id. at 74. The email was 15 sent to Havaja Frljuckic, a paralegal at Plaintiffs’ counsel’s law firm; two attorneys at that firm; 16 and five people at Defendants’ counsel’s firm: Figueiredo, Ethan Solove, Jessica Nwasike, 17 Christopher Ford, and comcaddy@structurelaw.com, which appears to be intended to reproduce 18 Christopher Addy’s email address. Id. 19 Also on June 20, the AAA sent a letter addressed to Wellman and Figueiredo explaining 20 that the AAA would not be applying the Employment Arbitration Rules after all. Instead, because 21 the parties’ dispute was “between an individual independent contractor (who has provided services 22 as an individual and is not incorporated) and a business or organization,” the AAA’s preliminary 23 determination, “subject to review by the arbitrator, [was] to apply the Commercial Arbitration 24 Rules and Employment/Workplace Fee Schedule.” ECF No. 45-8 at 8. The letter stated that the 25 AAA had received Plaintiffs’ $1,050 portion of the filing fee and “request[ed] that the company 26 pay its share of the fee in the amount of $2,100.00 on July 22, 2024.” Id. (emphasis omitted). The 27 1 letter explained, in bold print:

2 The invoice attached shall serve as the invoice pursuant to 3 California Code of Civil Procedure Sections [sic] 1281.97. Payment is due on upon [sic] receipt of this invoice. As this arbitration is 4 subject to California Code of Civil Procedure 1281.97, payment must be paid by July 22, 2024 or the AAA will close the parties’ 5 case. Pursuant to California Code of Civil Procedure [Section] 1281.97, the AAA cannot grant any extensions to this payment 6 deadline. 7 Id. (emphasis omitted). Attached to the letter was an invoice addressed to Figueiredo for $2,100. 8 Id. at 3. The invoice included the same warning about the payment deadline:

9 IMPORTANT NOTE: This arbitration is subject to California 10 Code of Civil Procedure [Section] 1281.97, and payment must be paid within 30 days of the initial notice or the AAA will close the 11 parties’ case. Pursuant to California Code of Civil Procedure [Section] 1281.97, the AAA is unable to extend the payment 12 deadline. 13 Id. at 4 (emphasis in original). 14 On July 15, 2024, the AAA sent a reminder letter addressed to both Scott Wellman and 15 Figueiredo, stating:

16 We have not yet received payment from the respondent to cover their portion of the filing fee, as described in our letter dated 17 June 20, 2024. Please note in accordance with California Code of Civil Procedure [Sections] 1281.97 and 1281.98, the AAA will 18 close its case on July 22, 2024 if payment is not paid. 19 ECF No. 45-9 at 3 (emphasis in original). The letter was emailed to Frljuckic, Solove, Chris 20 Wellman, Addy, Nwasike, Figueiredo, and Scott Wellman. Id. at 2. Later that same morning, 21 Frljuckic forwarded that email to Figueiredo, Solove, Ford, Addy, and Nwasike, asking Figueiredo 22 and Solove to “[p]lease respond as to the status of [their] submission of payment.” ECF No. 45-12 23 at 2. She did not receive any response. ECF No. 45-11 ¶ 5. 24 On July 31, 2024, the AAA sent a letter addressed to Scott Wellman and Figueiredo, 25 emailed to the same recipient list as before, stating that the AAA closed their file because 26 “Respondent has failed to submit the previously requested filing fee within the time required.” 27 ECF No. 45-10 at 2–3. 1 clerical error, this was inadvertently not paid on our end. We’ll be paying now. Can you let us 2 know the necessary steps to facilitate that and get you paid?” ECF No. 48-1 at 8. The AAA 3 responded that the “case may only be re-opened upon receipt of the claimant’s consent to re-open 4 the case and receipt of the filing fee,” and that, “[a]bsent the claimant’s agreement[,] the matter 5 will remain closed.” Id. at 7. Plaintiffs did not consent to re-opening the arbitration proceedings. 6 Id. at 6. 7 Plaintiffs have now moved the Court to lift the stay and allow them to proceed with their 8 claims in this Court. ECF No. 45. Defendants oppose the motion, arguing that the AAA 9 erroneously relied on California Code of Civil Procedure Section 1281.97; that Defendants did not 10 breach the arbitration agreement or waive their right to arbitrate; and that, in any event, the motion 11 should be denied on grounds of excusable neglect. ECF No. 48. 12 In support of their opposition, one of Defendants’ counsel, Addy, filed a declaration stating 13 that he had “an unexpected leave of absence from all work activities” “[d]ue to the sudden onset 14 and negative progression of both physical and mental ailments,” and that he “performed no work 15 activities” from June 7 through August 19, 2024. Id. at 1. He also stated that he “was internally 16 designated as the handling attorney” for this case and was “not personally aware of any payment 17 deadline for this case,” the first notice of which was sent on June 17, ten days after his leave of 18 absence began. Id. at 2. Addy also noted that Plaintiff Collado’s son, Romarico Collado, initiated 19 an arbitration “in or around June 2024,” and “[t]hat case is strikingly similar to the instant case in 20 terms of pleading length and causes of action and of course each case has ‘Collado’ in the name as 21 well as the subject line of emails with the American Arbitration Association (‘AAA’).” Id. 22 II. DISCUSSION 23 California Code of Civil Procedure Section 1281.97 provides that if a party that drafted an 24 employment or consumer arbitration agreement is required “to pay certain fees and costs before 25 the arbitration can proceed,” that party “is in material breach of the arbitration agreement, is in 26 default of the arbitration, and waives its right to compel arbitration” if those fees or costs “are not 27 paid within 30 days after the due date.” Cal. Civ. Proc. Code § 1281.97(a)(1); see also id. 1 the number of days in which the parties to the arbitration must pay any required fees or costs, the 2 arbitration provider shall issue all invoices to the parties as due upon receipt.”). If this occurs, the 3 employee or consumer may, as Plaintiffs seek to do here, “[w]ithdraw the claim from arbitration 4 and proceed in a court of appropriate jurisdiction.” Cal. Civ. Proc. Code § 1281.97(b)(1). 5 Courts in this district have held that the Federal Arbitration Act (“FAA”) preempts Section 6 1281.97. E.g., Lee v. Citigroup Corp. Holdings, Inc., 691 F. Supp. 3d 1157 (N.D. Cal. 2023). 7 Two Courts of Appeal in California have recently split on the question. Compare Hohenshelt v. 8 Superior Ct., 99 Cal. App. 5th 1319, 1325–26 (2024) (finding no preemption), with Hernandez v. 9 Sohnen Enters., Inc., 102 Cal. App. 5th 222, 244 (2024), reh’g denied (June 3, 2024) (holding 10 that, “unless the parties have expressly selected California’s arbitration provisions to apply to their 11 agreement, the FAA preempts the portion of section 1281.97 that dictates findings of material 12 breach and waiver as a matter of law”). The California Supreme Court has granted review in both 13 cases and has deferred further action in Hernandez “pending consideration and disposition of a 14 related issue in Hohenshelt . . ., or pending further order of the court.” Hernandez v. Sohnen 15 Enters., 553 P.3d 866 (Cal. 2024). 16 The Court need not decide whether Section 1281.97 is preempted or otherwise did not 17 apply to this arbitration because Plaintiffs’ more general waiver argument is dispositive. For the 18 reasons discussed below, the Court concludes that Defendants waived their right to arbitration 19 under general principles of contract law—i.e., without regard to the automatic findings of breach 20 and waiver imposed by Section 1281.97. 21 As Defendants acknowledge in their opposition brief: “[T]he test for waiver of the right to 22 compel arbitration consists of two elements: (1) knowledge of an existing right to compel 23 arbitration; and (2) intentional acts inconsistent with that existing right.” ECF No. 48 at 7–8 24 (alteration in original) (quoting Hill v. Xerox Bus. Servs., LLC, 59 F.4th 457, 468 (9th Cir. 2023)). 25 “There is no concrete test to determine whether a party has engaged in acts inconsistent with its 26 right to arbitrate; rather, [courts] consider the totality of the parties’ actions.” Hill, 59 F.4th at 471 27 (quoting Newirth ex rel. Newirth v. Aegis Senior Cmtys., LLC, 931 F.3d 935, 941 (9th Cir. 2019). 1 they, as the parties who initially sought to compel arbitration. Defendants argue that they did not 2 commit intentional acts inconsistent with their right to arbitrate, but the Court disagrees for the 3 reasons discussed below. 4 “Courts have generally found that nonpayment of filing fees demonstrates an act 5 inconsistent with the right to arbitrate.” Lee, 691 F. Supp. 3d at 1161 (citing Brown v. Dillard’s, 6 Inc., 430 F.3d 1004, 1012 (9th Cir. 2004); Freeman v. SmartPay Leasing, LLC, 771 F. App’x 926, 7 932 (11th Cir. 2019)). For example, in Sink v. Aden Enterprises, Inc., the Ninth Circuit affirmed 8 an order lifting an arbitration stay where the arbitration provider mailed two letters requiring 9 payment of fees and the defendant “did not pay these costs or inform [the plaintiff] or [the 10 arbitration provider] of [its] inability to pay before the . . . payment deadline.” 352 F.3d 1197, 11 1198–99 (9th Cir. 2003). Likewise, in Lee, another court in this district found waiver where the 12 defendant “failed to . . . pay its filing fee in a timely manner, despite receiving a reminder from the 13 AAA regarding this fee and receiving notice by the AAA that failure to pay would result in 14 termination of the proceedings.” 691 F. Supp. 3d at 1162. Defendants in this case received three 15 notices from the AAA, as well as an email from Plaintiffs’ counsel’s firm inquiring about 16 payment. Defendants failed to respond to any of these communications. It was not until the AAA 17 sent an email indicating that the case was closed that Defendants responded—twelve minutes later. 18 Defendants’ inaction cannot be explained away, as Defendants argue, as excusable neglect. 19 Unlike in the out-of-circuit authority on which Defendants rely, Defendants can point to no “good 20 faith belief that a settlement has been reached” or that they were “pursu[ing] the case in all other 21 aspects.” ECF No. 48 at 18 (emphasis omitted) (citing Shaker Heights Bd. of Educ. v. Hemmons, 22 No. 62160, 1993 WL 87700, at *2–3 (Ohio Ct. App. Mar. 25, 1993)). Nor does the Court find a 23 “rare and unexpected confluence of events—including Defendant’s company closing around the 24 same that that its lawyers changed firms—that are unlikely to be repeated.” Petrie v. GoSmith, 25 Inc., No. 18-cv-01528-CMA-MEH, 2021 WL 3630964, at *2 (D. Colo. July 29, 2021). Although 26 Defendants submitted a declaration from one lawyer who was on a leave of absence, they fail to 27 explain why the other four recipients of the communications from the AAA and Plaintiffs’ counsel 1 addressed its correspondence, including the invoice for payment. ECF No. 45-7 at 2; ECF No. 2 45-8 at 3, 8; ECF No. 45-9 at 3. Nor do Defendants explain why Solove responded within minutes 3 of the email closing the case but failed to respond to any other emails. That he did so undermines 4 Defendants’ argument that the reason emails to pay the filing fee were met with no response was 5 because another arbitration with a similar name existed. In addition, the subject lines for the 6 emails regarding the arbitration at issue in this case clearly indicated the full case name: “Aneela 7 Rafique;Haidee Collado;John Soo-Hoo v. Premier Financial Alliance, Inc.;David Carroll – Case 8 01-24-0005-7561.” ECF No. 45-6 at 74–76 (June 17); ECF No. 45-8 at 5–6 (June 20); ECF No. 9 45-9 at 2 (July 15); ECF No. 45-10 at 2 (July 31). The Court therefore finds unpersuasive 10 Defendants’ argument that it was confused by all of these emails because there was another case 11 brought by Romarico Collado. And even if Defendants were confused, there is no indication that 12 they attempted to clarify that confusion with either the AAA or Plaintiffs’ counsel. Nor did 13 Defendants ever question whether Section 1281.97 applied to this case, or otherwise ask for any 14 extension to pay the fees. 15 Other courts have found that late payment of arbitration fees did not result in waiver where 16 the defendants had demonstrated by other acts an intent to proceed with arbitration. For example, 17 in Belyea v. GreenSky, Inc., the defendant had “participated in arbitration [and] filed a timely 18 answer before JAMS.”2 637 F. Supp. 3d 745, 761 (N.D. Cal. 2022). Similarly, in Miller v. Plex, 19 Inc., the defendant had “paid its portion of the initial filing fee, submitted an answer and 20 counterclaim in response to Plaintiff’s arbitration demand and jointly selected an arbitrator with 21 Plaintiff,” and its counsel had “responded to JAMS’ follow-up emails, explaining initially that he 22

23 2 Belyea is also distinguishable because, unlike in this case, the defendant “paid the fees before the arbitration provider terminated the proceeding.” 637 F. Supp. 3d at 760. The court distinguished 24 cases finding a breach of the arbitration agreement where, as here, the “arbitration provider terminate[d] the proceedings after sending several notices of unpaid fees.” Id. (distinguishing 25 Brown, 430 F.3d 1004; Sink, 352 F.3d 1197; and Eliasieh v. Legally Mine, LLC, No. 18-cv-03622- JSC, 2020 WL 1929244 (N.D. Cal. Apr. 21, 2020)). McLellan v. Fitbit, on which Defendants 26 rely, is distinguishable for the same reason. No. 3:16-cv-00036-JD, 2018 WL 3549042, at *4–6 (N.D. Cal. July 24, 2018) (imposing sanctions but permitting continued arbitration where the 27 defendant paid fees late but before the “AAA terminated its proceedings after sending several 1 was waiting for client approval for the payment and later that the payment was being processed.” 2 No. 22-cv-05015-SVK, 2024 WL 348820, at *7 (N.D. Cal. Jan. 30, 2024). Here, by contrast, 3 || there is no evidence that Defendants ever responded to either the AAA or Plaintiffs’ counsel after 4 || repeated correspondence regarding the arbitration, were in the process of paying the filing fee, or 5 otherwise attempted to participate in the arbitration before the AAA closed the proceedings. 6 || Defendants offered to pay the required fees only when faced with the reality of a terminated 7 arbitration proceeding. Such conduct is inconsistent with the right to arbitrate. Having considered 8 the totality of the circumstances, the Court concludes that Defendants waived that right. 9 CONCLUSION 10 Plaintiffs’ motion to lift the stay in this case is granted. The Clerk shall re-open the file. 11 The parties shall file a joint case management statement on or before February 11, 2025, and 12 appear for a case management conference on February 18, 2025, at 2:00 p.m. 5 13 IT IS SO ORDERED. 14 Dated: December 27, 2024 .

Z JON S. TIGAR

a 16 nited States District Judge

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