FAILURE TO INITIATE ARBITRATION FOLLOWING GRANT OF MOTION TO COMPEL

Lew-Williams v. Petrosian, 101 Cal. App. 5th 9

The plaintiffs sued the Petrosians, alleging that they had embezzled funds from their joint medical partnership. The Petrosians’ motion to compel arbitration was granted. The plaintiffs never initiated arbitration. After two years, the court granted the Petrosians’ motion to dismiss the matter. The plaintiffs appealed.

The Court of Appeal reversed. Once a trial court grants a petition to compel arbitration and stays the action, the trial court retains only vestigial jurisdiction over the matter to determine once the arbitration is concluded whether the action should be dismissed. However, the Petrosians had recourse within the arbitration process to prevent unreasonable or abusive delay. Contrary to the trial court's finding that the Petrosians could not initiate the arbitration because they had no affirmative demands, the AAA Commercial Arbitration Rules and Mediation Procedures expressly recognize that a defendant may initiate arbitration. Although it would need to pay a substantial filing fee it ultimately will not be unfairly saddled with the expense because payment of filing fees is an advancement “subject to final apportionment by the arbitrator in the award,” (AAA rule R55), and the parties' arbitration agreement further provideds for the arbitrator to award the costs of the arbitration to the prevailing party. Further, if the plaintiffs refused to participate in arbitration, the arbitration could proceed in their absence. (AAA rule R-32.) The arbitrator also has discretion to dismiss the arbitration because of a party's failure to proceed with reasonable diligence.

The plaintiffs maintained they did not commence arbitration because they did not have sufficient funds to pay the AAA fees. But they never submitted documentation to show they did not have the ability to pay. And if they could make that showing, they should have raised their inability to pay in opposition to the Petrosians' motion to compel arbitration. If the court found a substantial hardship for the plaintiff to pay the fees, it could have required the plaintiffs to pay the fees or waive arbitration. The AAA may also defer or reduce fees in cases of “extreme hardship.” (AAA rule R-55.) Further, if the arbitrator denied the plaintiffs' request for relief and terminated the arbitration for failure to pay the fees, the case would be returned to the superior court, which would have the power to lift the stay and make further orders on how to proceed.