APPEAL-LIFTING OF STAY

Arzate v. ACE American Insurance Co., 108 Cal. App. 5th 1191


Plaintiffs filed a class action against ACE, alleging wage and hour violations. ACE’s motion to compel arbitration was granted. No arbitration demand was filed by either party. Plaintiffs argued that the burden to file the demand belonged to ACE and they moved to lift the stay, arguing that ACE had waived its right to arbitration by failing to initiate it. The trial agreed and lifted the stay. ACE appealed. Plaintiffs moved to dismiss the appeal, arguing that the California Arbitration Act (CAA) barred appeals from orders lifting stays. ACE argued that the Federal Arbitration Act (FAA) applied.

The Court of Appeal denied the motion. Code of Civ. Proc. section 1294(a) states that “[a]n order dismissing or denying a petition to compel arbitration” is appealable, but there was no provision addressing the appealability of an order like the one in this case, where the trial court deemed arbitration waived after having previously granted a motion to compel arbitration. 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. California courts have concluded orders that are the “functional equivalent” of denying a petition to compel arbitration are appealable under section 1294(a). Hernandez v. Sohnen Enterprises, Inc. (2024) 102 Cal.App.5th 222, 236.The plaintiffs argued that the functional equivalent doctrine violated the rule that arbitration contracts should be treated like all other contracts by treating orders concerning arbitration agreements as appealable where other orders would not be. The functional equivalent doctrine does not create a special exception for cases involving arbitration agreements but rather is an application of the general rule that an appeal may be taken from an order not specified in a statute as appealable if in legal effect it is tantamount to one or more of the orders listed. To disregard the functional equivalent doctrine here would in effect single out appeals of arbitration orders for special disfavor. The trial court's order was also appealable under federal law. Section 3 of the FAA entitles litigants in federal court to a stay of any action that is referable to arbitration under an agreement in writing. Section 16(a)(1)(A), in turn, allows an appeal from an order refusing a stay of any action under section 3. The trial court's order in this case was an order refusing a stay under section 3 of the FAA.