A trial court that granted defendant’s motion to compel arbitration has jurisdiction to lift the stay where a plaintiff demonstrates financial inability to pay arbitrations costs. The trial court may then instruct the defendant to pay the plaintiff’s share of costs for arbitration, or agree to waive its right to arbitration.
Background
Gerald Aronow filed a claim against his former legal counsel alleging malpractice. The defense demanded that the arbitration agreement signed by both parties in their initial agreement be enforced. The trial court agreed and ordered the parties to attend arbitration pursuant to their earlier agreement. The parties agreed to employ ADR Services, Inc., arbitrator Hon. Alfred Chiantelli (Ret.), who charged an hourly rate of $600 per hour, a half day rate of $3600, or a full day rate of $6,000. At the initial conference, Aronow expressed an inability to pay arbitration fees and filed a motion with the trial court requesting that his arbitration fees and costs be waived, or that the court lift the stay. The trial court denied his motion and requested certification of the following questions:
- Does a trial court that granted a defendant’s petition to compel arbitration have jurisdiction to lift the stay of the trial court proceedings where a plaintiff demonstrates financial inability to pay the anticipated arbitration costs?
- If so, may the court require a defendant to either pay plaintiff’s share of arbitration costs, or waive the right to arbitration?
The court of appeal answered yes to both questions.
Trial Court Stay of Proceedings Pending Arbitration
According to California Civil Code §1281.4, “A trial court that has ordered arbitration of a controversy which is an issue involved in an action or proceeding pending before the court shall upon motion of a party to such action, stay the action or proceeding until an arbitration is had in accordance with the order or until such earlier time as the court specifies.” The legislative purpose behind this statutory requirement is to encourage alternative dispute resolution between the parties and maintain the authority of the arbitrator while avoiding interference by the trial court until arbitration is complete. The court in MKJA v. 123 Fit Franchising, LLC (2011), 191 Cal. App. 4th 643 determined that, “In the absence of a stay, the continuation of the proceedings in the trial court disrupts the arbitration proceedings and can render them ineffective.” Once the suit is stayed, the trial court only retains residual jurisdiction and may only perform limited functions such as:
- A court may appoint arbitrators of the method selected by the parties fails CCP §1281.6
- Grant provisional relief, but only upon the ground that the award may be rendered ineffectual without provisional relief. CCP §1281.8
Without an agreement by the parties to withdraw from arbitration, this is the extent of the trial court’s reach while arbitration remains in process.
Split in Authority by California Courts
The main reason the trial court requested the court of appeals to certify the questions in this case is due to the fact that there is a split in authority on whether a trial court may lift a stay when a plaintiff cannot pay arbitration costs. The conflict is seen in the two primary cases discussed by the court here are MKJA Inc. v. 123 Fit Franchising, LLC (2011) 191 Cal.App.4th 643 and Roldan v. Callahan & Blaine (2013) Cal, App, 4th 87.
In MKJA the court found that, “when a trial court stays an action pursuant to Code of Civil Procedure §1281.4 based on an order for arbitration, a party’s inability to pay the arbitrator’s fee doesn’t authorize a trial court to lift the stay.” In other words, allowing trial courts to willy nilly authorize the lifting of a stay on the proceedings when one party claims it cannot afford arbitration costs is contrary to California’s long-standing public policy promoting arbitration and alternative dispute resolution of cases. In addition, MKJA emphasized the importance of protecting the arbitrator’s jurisdiction and authority while arbitration was still in process.
In Roldan, the court held, “If a plaintiff lacks the means to share the costs of arbitration, to [rule against a stay] might effectively deprive them of access to any forum for resolution of their claims against a defendant. We will not do that.” The court here did acknowledge the difficulty of waiving fees and the arbitrator not getting paid, and as a solution it decided to give the defendant the choice to request a lift to the stay and litigate the issue, or pay plaintiff’s portion of the arbitration costs and fees. The plaintiff would, however, have to make a clear showing of inability to pay the fees. Roldan required the trial court to determine the financial ability of the plaintiffs’ to pay the arbitration fees based on evidence of financial hardship.
The Roldan decision was further supported by a more recent case in the court of appeals in Jameson v. Desta, (2018) 5 Cal.5th 594, 621-22. In that case, which dealt with an indigent party’s inability to pay a court reporter fee, the court continued its focus on access to the court system by indigent parties. It stated, “By precluding an indigent litigant from obtaining the attendance of an official court reporter (to which the litigant would not be entitled without payment of a fee), while at the same time preserving the right of financially able litigants to obtain an officially recognized pro tempore court reporter, the challenged court policy creates the type of restriction of meaningful access to the civil judicial process that the relevant California in forma pauperis precedents and legislative policy render impermissible.”
The Jameson court also pointed out several areas in which California courts have made decisions protecting indigent civil litigants. They include areas such as:
- Right of an indigent civil litigant to obtain an injunction without providing an injunction bond. Conover v. Hall, 11 Cal.3d 842 (1974).
- The right of a civil litigant to obtain a waiver of a bond requirement imposed by former Government Code §947 County of Sutter v. Superior Court, 244 Cal.App.2d 770 (1966)
- The right of an indigent out-of-state civil plaintiff to exemption from security undertaking required by Code of Civil Procedure section 1030. Baltayan v. Estate of Getemyan, 90 Cal.App.4th 1427, 1436-1443 (2001).
Jameson primarily relied on the Roldan case, however and noted that it was representative of “California’s long-standing public policy of ensuring that all litigants have access to the justice system for resolution of their grievances, without regard to their financial means.”.
Is In Forma Pauperis Status Required to Show Inability to Pay an Arbitrator?
In forma pauperis status allows financially disadvantaged litigants to bring a claim before the court without being responsible for the costs associated with it. Under California law, when a litigant qualifies for forma pauperis status, a court may not require any private or outsourced proceedings that would prevent a poor litigant form engaging in the legal process and thereby deprive them of equal access to justice. Jameson, supra, Cal.5th at p. 622
In the current case, Aronow had not been certified as forma pauperis when the court certified the case for review, but was later granted this status. Even had Aronow not been granted in forma pauperis status, however, under California law, he still had the right to seek relief for fees and costs that may deprive him of access to pursuing his legal rights. In Conover v. Hall, 11 Cal.3d 842 (1974) the court dismissed the appellant’s argument that in forma pauperis was required for a litigant to validly request relief form fees and costs and ruled that a formal declaration of in forma pauperis is not required for relief to be granted by the court.
In contrast to the Conover decision, in which affording an indigent person relief can undercut the prevailing party’s recovery, in Roldan the court gives the defense two choices; pay the plaintiff’s share of the arbitration fees, or lift the stay and waive its right to arbitrate the case. The court asserts that in either scenario, both parties continue to be entitled to a fair and neutral authority to decide their case. The court here follows the Roldan method and instructed the trial court to present both options to the defense in the event that the plaintiff is found financially unable to pay for the fees associated with arbitration.
Procedure to determine financial ability to pay arbitrator’s fees
The trial court in this case had concerns that using the Roldan analysis puts an undue burden on the lower courts to enter into an inquiry for every litigant who claims that they lack the financial ability to pay for arbitration or court costs. It asked the court of appeals to provide guidance on this front. Although the higher court declined to issue formal guidance, it did point to significant precedent as a guide as well as emphasizing that status as in form pauperis is not required to qualify for a waiver of fees and costs associated with arbitration.
Although the court established that a litigant need not have the formal status of in forma pauperis to request financial waiver or relief from the court, the framework used to determine pauperis status can be useful for the purpose of determining whether a litigant has the financial ability to pay for the costs of arbitration. Under Government Code §68630, subd.(a), a litigant who claims financial inability to pay arbitrator fees could submit the Judicial Council application form and the financial statement prescribed by Government Code § 68633., subdivisions (c)(1) and (c)(2). The court may then grant the clerk the authority to make a determination on the fee waiver application submitted by the litigant. In cases where the clerk is unable to grant the request outright, following the applicable Government Code sections, the court may hold an evidentiary hearing in which the judge can hear all extenuating circumstances and evidence produced by the party regarding its financial status and make an independent determination.
In this case, the fact that Aronow was declared in forma pauperis does not prevent the defendant from conducting limited discovery into the finances of Aronow in order to formulate an argument on its own behalf. Aronow would also be permitted to submit documents and other evidence of his financial inability to pay at an evidentiary hearing for this purpose.
The Decision
After certifying and considering the two questions submitted by the trial court, the court of appeal determined that the trial court does have jurisdiction to consider whether Aronow is financially unable to pay for the costs associated with arbitration. If he is in fact found to be unable to pay, the trial court must then give the defendant the choice of whether to pay Aronow’s portion of the arbitration costs, or agree to lift the stay and effectively waive their right to arbitration.