In the first part of this blog series, we outlined a scenario that is familiar to most attorneys: You have a client who has entered into a contract that features an arbitration clause, but when a dispute arises, the other party refuses to engage in the arbitration process. What options does an attorney have for combatting this form of legal gamesmanship?
As we discussed in the previous post, one option is to proceed in arbitration, specifically seeking a default judgment. This option can sometimes yield a favorable result, but comes with many potential downsides, including costliness.
The other option is to proceed in court, something we’ll discuss here.
Proceeding to Court
Indeed, in lieu of proceeding in arbitration, the other choice is to ask the arbitrator to issue an administrative suspension of the case. This will allow you to move the process to court, where you can seek a resolution through alternative means.
This option presumes that your client has a pending lawsuit; this might be a lawsuit filed in spite of, or in ignorance of, the arbitration clause.
California’s courts have determined that, once a motion to compel arbitration has been filed, the “court in which such petition was filed retains jurisdiction to determine any subsequent petition involving the same agreement to arbitrate and the same controversy, and any such subsequent petition shall be filed in the same proceeding.” See: Dial 800 v. Fesbinder (2004) 118 Cal.App.4th 32, 45; also, Preston v. Kaiser Foundation Hospitals (1981) 126 Cal.App.3d 402, 407.
In other words, if the other party insists on arbitration in the first place but then refuses to engage in the process, you have legal standing to seek relief. This might mean asking the court to issue an Order to Show Cause for why a default ruling shouldn’t be entered. It might also mean simply asking the court to enter a default against the other side, citing their refusal to engage in the arbitration process.
When pursuing this path, it’s wise to request that the administrative suspension letter feature a brief summary of the case and where it stands. Also ask that it summarize the other party’s refusal to appear in arbitration proceedings and/or to pay their share of filing fees. Courts have upheld that such refusals can themselves constitute a breach of arbitration agreements. See Brown v. Dillard’s, Inc., 430 F.3d 1004 (9th Cir. 2005).
We hope this has been a helpful summary of handling bad faith arbitration tactics. To learn more about arbitration, or about employment laws in California, reach out to Dhillon Law Group at your convenience.
