Rafique v. Premier Financial Alliance, Inc.

Background

Aneela Rafique, Haidee Collado, and John Soo-Hoo sued Premier Financial Alliance, Inc., David Carroll, and Jack Wu in an employment case. Defendants moved to compel arbitration, but the court found genuine disputes about whether the parties had formed an arbitration agreement and held that motion in abeyance while the parties addressed those disputed facts.

The parties later agreed to arbitrate all three plaintiffs’ claims together through the American Arbitration Association. The court stayed the case pending completion of that arbitration. Plaintiffs paid their required filing fees. The AAA then invoiced defendants for a $2,100 fee and sent several notices stating that the arbitration would be closed if the fee was not paid by July 22, 2024. Plaintiffs’ counsel also asked defendants’ counsel about the payment. Defendants did not respond or pay before the AAA closed the arbitration on July 31, 2024.

After the file was closed, one of defendants’ lawyers stated that the nonpayment was a clerical error and offered to pay. The AAA said the arbitration could be reopened only with plaintiffs’ consent, and plaintiffs did not consent. Plaintiffs then moved to lift the stay and proceed with their claims in court.

Arguments and legal framework

Defendants argued that the AAA had improperly relied on California Code of Civil Procedure section 1281.97, that they had not breached or waived the arbitration agreement, and that their failure to pay was excusable neglect. One lawyer stated that he had been on leave because of physical and mental ailments and had not known about the payment deadline. Defendants also suggested that communications may have been confused with another arbitration involving Romarico Collado.

Section 1281.97 provides that, in certain employment or consumer arbitrations, a party required to pay fees before arbitration can proceed may materially breach the arbitration agreement, default, and waive the right to compel arbitration if it does not pay within the statutory period. The court noted that federal courts in the district had held that the Federal Arbitration Act preempts that section, while California appellate courts had disagreed. The court did not decide whether section 1281.97 applied or was preempted.

Instead, the court applied general contract-law principles. Under the test stated in the opinion, waiver requires knowledge of an existing right to compel arbitration and intentional acts inconsistent with that right. Courts assess the totality of the parties’ actions, rather than applying a fixed test for inconsistent conduct.

Court’s analysis

The court concluded that defendants’ nonpayment and inaction were inconsistent with their claimed right to arbitrate. Defendants received three AAA notices and an email from plaintiffs’ counsel asking about payment, yet they did not respond. They responded only after receiving notice that the arbitration had been closed, doing so twelve minutes later.

The court rejected the excusable-neglect argument. It found that defendants did not explain why the other recipients of the AAA communications failed to respond or why one lawyer responded promptly after the case closed but not to the earlier payment notices. The court also found the proposed explanation involving another Collado arbitration unpersuasive because the relevant emails clearly identified this case, and defendants did not try to clarify any confusion with the AAA or plaintiffs’ counsel.

The court distinguished cases in which late payment did not result in waiver because defendants had otherwise shown an intent to proceed with arbitration, such as by participating, filing an answer, selecting an arbitrator, or paying before the provider terminated the proceeding. Here, the court found no evidence that defendants responded, were processing the payment, or otherwise tried to participate before the AAA closed the arbitration. The court concluded that defendants waived their right to arbitration.

Disposition

The court granted plaintiffs’ motion to lift the stay. It ordered the Clerk to reopen the file. The parties were ordered to file a joint case-management statement by February 11, 2025, and to appear for a case-management conference on February 18, 2025, at 2:00 p.m. The opinion did not decide the underlying employment claims.