Existing law authorizes a party to appeal, among other things, an order dismissing or denying a petition to compel arbitration. Existing law generally stays proceedings in the trial court on the judgment or order appealed from when the appeal is perfected, subject to specified exceptions.

This bill would provide that, notwithstanding the general rule described above, trial court proceedings would not be automatically stayed during the pendency of an appeal of an order dismissing or denying a petition to compel arbitration.

Existing law authorizes a party to appeal, among other things, an order dismissing or denying a petition to compel arbitration. Existing law generally stays proceedings in the trial court on the judgment or order appealed from when the appeal is perfected, subject to specified exceptions.

This bill would provide that, notwithstanding the general rule described above, trial court proceedings would not be automatically stayed during the pendency of an appeal of an order dismissing or denying a petition to compel arbitration.

Existing law authorizes a party to appeal, among other things, an order dismissing or denying a petition to compel arbitration. Existing law generally stays proceedings in the trial court on the judgment or order appealed from when the appeal is perfected, subject to specified exceptions.

This bill would additionally prohibit a trial court from staying proceedings provide that, notwithstanding the general rule described above, trial court proceedings would not be automatically stayed during the pendency of an appeal of an order dismissing or denying a petition to compel arbitration.

Existing law authorizes a party to appeal, among other things, an order dismissing or denying a petition to compel arbitration. Existing law generally stays proceedings in the trial court on the judgment or order appealed from when the appeal is perfected, subject to specified exceptions.

This bill would additionally prohibit a trial court from staying proceedings during the pendency of an appeal of an order dismissing or denying a petition to compel arbitration.

SENATE THIRD READING

STR Bill Id:SB 365

Author:(Wiener)

As Amended Ver:May 18, 2023

Majority vote

SUMMARY

Prohibits the automatic staying of civil legal proceedings during the pendency of an appeal of a denial or dismissal of a petition to compel arbitration.

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COMMENTS

Arbitration is a method of alternative dispute resolution that allows parties to a contract to have their issues heard by a neutral third party, rather than a judge. This third party, or arbitrator, issues a binding decision that is rarely appealable. The theory supporting the process of arbitration is that it can provide a swifter, less financially burdensome process to formal litigation that simultaneously eases burdens on the court system, and both federal and state law aim to encourage its use. Arbitration agreements are ubiquitous in business and employment contracts, and while the alternative proceedings do theoretically provide a more efficient method to resolving conflicts, the modern practice of arbitration comes with a litany of potential pitfalls that overwhelmingly impact consumers and employees.

Arbitration can pose significant difficulties for the party forced to adjudicate its claims outside of court. Existing law permits arbitration agreements to contain limits on evidence presented and the claims that can be considered. The arbitration agreement will lay out the procedures that will be followed during the arbitration hearing. For example, the terms of the arbitration agreement may stipulate that the award need not be written or justified, unlike in court, and that the entire process is secret. Arbitrators do not need to be lawyers, nor do they need to be trained in the law. Arbitrators who issue favorable awards to a particular company can be repeatedly hired by that same company to serve as the arbitration-neutral without ever notifying the public about that award-history. Essentially, it's easy to predict the calls if you can hire the umpire. Arbitration can also save employers and providers of consumer goods and services significant time and costs when compared to court, thus there is little question why the more powerful signatory to a contract would demand arbitration.

Under existing law, Code of Civil Procedure Section 1294 identifies various orders or judgements which may be appealed by an aggrieved party, including an order dismissing or denying a petition to compel arbitration. Code of Civil Procedure Section 916 further provides that, subject to exceptions, the perfecting of such an appeal stays proceedings in trial court. That is to say, when a party is denied in their effort to compel arbitration, upon their appeal, the court proceedings to adjudicate the underlying conflict are postponed until the appeal is decided. Interestingly, no such postponement is provided should a party seek to appeal a decision compelling arbitration. This poses significant difficulties for consumers and employees, due to the inherent power dynamic between them and the opposing businesses and employers. The ultimate judicial or arbitration award, intended to make an employee or consumer whole, may pale in light of the growing costs of maintaining ongoing litigation. It is more likely that a business or employer will have greater resources than individual employees or consumers, and therefore greater capacity to handle a delayed resolution of the dispute.

This bill would prohibit civil legal proceedings from automatically being stayed, or delayed, during the pendency of an appeal of an order denying or dismissing a party's petition to compel arbitration.

This bill is arguably a modest step towards balancing the equity of arbitration. The current practice of arbitration is one that is significantly skewed in favor of parties seeking to arbitrate disputes. This preference is underlined by various statutory functions, including requiring parties to arbitrate a matter completely before a party may appeal an order compelling arbitration, and automatically staying any court proceedings in the event a party appeals the denial of an order to compel arbitration. While this approach may further the goal of streamlining dispute resolution, the current status quo nonetheless appears to risk burdening plaintiffs, namely employees and consumers. Considering that this measure does not obligate parties to continue with court proceedings before appealing the denial of the order to compel arbitration, as is currently the case for matters that have been directed to arbitration, the process would still be skewed in favor of the party seeking to arbitrate. Ultimately, this bill is arguably a modest step towards equalizing an adjudicatory process that is often perceived to have its thumb on the scale in favor of businesses and employers, thereby providing some additional support to consumers and employees.

According to the Author

SB 365 gives courts the discretion to prevent corporations from using a common delay tactic against workers and consumers – in both private and public enforcement actions – when a court has determined that a particular case cannot not be sent to arbitration. Current law allows corporate defendants to pause a consumer, government, or worker's case by simply filing an appeal of a trial court's denial of a motion to compel arbitration. Through this process, powerful corporations delay cases filed against them for typically one to three years. This bill gives courts discretion to allow consumers, governments, or workers to move their case forward if a company files an appeal, rather than waiting for years while the appeal is heard. SB 365 will level the playing field for consumers, governments, and workers who deserve to move their case forward when a company or employer violates their rights.

Existing law gives an aggrieved party, for example – a defendant corporation, the right to a full appeal when a court orders the case dismissed, or denies the defendant's petition to compel a case to private arbitration. The law, however, does not afford consumers, governments, and workers the same luxury; they do not have the same automatic appeal rights when the court grants a corporate defendant's petition to move the case to private arbitration. This results in powerful entities delaying cases for typically one to three years, but sometimes even longer. Meanwhile, corporate defendants have the time and resources to wait out lengthy appeals processes that workers and consumers simply do not. SB 365 takes an important step toward righting this imbalance in our legal system.

SB 365 does nothing to impact whether an arbitration agreement is enforceable or not. SB 365 is simply a procedural bill that comes into play once a judge has determined that an arbitration agreement is unenforceable.  People deserve meaningful access to justice at the time their rights are violated, not years later. SB 365 helps deliver them that justice.

Arguments in Support

This bill is supported by a broad coalition of labor organizations, workers' rights and consumer protection groups. It is co-sponsored by the Office of the Attorney General, the Consumer Attorneys of California, and the California Employment Lawyers Association. They write the following in support of the measure:

The issue of corporations filing appeals only to delay justice has become increasingly problematic as current law allows corporate defendants to effectively freeze a worker's or a consumer's case – often for years at a time – by simply filing an appeal. Californians have an urgent need to address this delay tactic that obstructs access to justice.

Powerful corporations abuse this appeal right to force lengthy delays on plaintiffs seeking justice – during which time important documents disappear, key witnesses move away, and witnesses' memories fade. Corporate defendants are appealing even in instances where there clearly is no arbitration agreement such as in cases brought by City Attorneys and the Attorney General against Uber and Lyft for worker misclassification.

Another example involves a class action brought against Tesla on behalf of thousands of Black workers who were subject to egregiously racist working conditions, including constant racist slurs, racist graffiti, epithets, and symbols around the factory. Even though the plaintiff never signed an arbitration agreement Tesla has delayed the case for five years through motions to compel arbitration and frivolous appeals. The plaintiffs are still fighting for justice.

SB 365 will help consumers and workers seeking justice by allowing them to continue their court cases if a corporation appeals the court's denial of their motion to compel arbitration. For these reasons our organizations write in support.

Arguments in Opposition

This bill is opposed by business advocates including the California Chamber of Commerce and the Construction Employers' Association. In opposition to the measure they state:

It is clear that the true motive behind SB 365 is an attempt to severely restrict the use of arbitration agreements altogether. SB 365 incorrectly assumes that all appeals related to arbitration are meritless. Moreover, the motive behind SB 365 is to deter arbitration and single out arbitration from other types of proceedings. This will ultimately result in a finding that the bill is preempted by the Federal Arbitration Act (FAA), as the Ninth Circuit recently did by striking down another attempt at limiting arbitration – AB 51 (Gonzalez) from 2019. Allowing a court the discretion to continue with the underlying trial while an appeal regarding a motion to compel arbitration is pending eliminates the entire purpose of arbitration and runs afoul of the FAA. SB 365 would also incentivize forum shopping even more than what occurs now, with trial attorneys filing claims in venues where they believe there will be judges more inclined to deny current law's requirement to stay a case during an appeal regarding the enforceability of an arbitration agreement. SB 365 will lead to additional litigation and more money in the pockets of trial attorneys, which will increase the cost of doing business in California and exacerbate the ongoing affordability crisis we are facing.

FISCAL COMMENTS

According to the Assembly Appropriations Committee, costs (Trial Court Trust Fund, General Fund) to the courts of an unknown but potentially significant amount, likely exceeding $150,000 annually statewide. Actual costs will depend on the number of petitions to compel arbitration filed, denied, and appealed, and the discretion of individual judges who decide whether to stay proceedings pending appeal or allow them to continue in trial court. There may be some cost savings to the courts to the extent this bill discourages parties from filing frivolous motions to compel arbitration for the purpose of delaying the underlying litigation. There will likely also be workload costs to the courts due to duplicative proceedings – in some circumstances, a trial court will continue spending court time and resources on proceedings that are rendered moot when the appellate court overturns the trial court's ruling and moves the dispute into arbitration. It generally costs approximately $1,000 per hour to operate a courtroom. Although courts are not funded on the basis of workload, increased pressure on the Trial Court Trust Fund may create a need for increased funding for courts from the General Fund. The 2023-24 proposed budget anticipates an ongoing annual allocation of $109.3 million from the General Fund to backfill declining revenue to the Trial Court Trust Fund.

VOTES

SENATE FLOOR: 30-9-1

YES: Allen, Archuleta, Ashby, Atkins, Becker, Blakespear, Bradford, Caballero, Cortese, Dodd, Durazo, Eggman, Gonzalez, Hurtado, Laird, Limón, McGuire, Menjivar, Min, Newman, Padilla, Portantino, Roth, Rubio, Skinner, Smallwood-Cuevas, Stern, Umberg, Wahab, Wiener

NO: Alvarado-Gil, Dahle, Grove, Jones, Nguyen, Niello, Ochoa Bogh, Seyarto, Wilk

ABS, ABST OR NV: Glazer

ASM JUDICIARY: 8-3-0

YES: Maienschein, Connolly, Haney, Kalra, Pacheco, Papan, Reyes, Robert Rivas

NO: Essayli, Dixon, Sanchez

ASM APPROPRIATIONS: 11-4-1

YES: Holden, Bryan, Calderon, Wendy Carrillo, Mike Fong, Hart, Lowenthal, Papan, Pellerin, Weber, Wilson

NO: Megan Dahle, Dixon, Mathis, Sanchez

ABS, ABST OR NV: Soria

UPDATED

VERSION: May 18, 2023

CONSULTANT: Manuela Boucher / JUD. / (916) 319-2334 FN: 0001489

Date of Hearing: July 12, 2023

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Chris Holden, Chair

SBPCA Bill Id:SB 365

Author:(Wiener) – As Amended Ver:May 18, 2023

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill allows a trial court judge, after dismissing or denying a petition to compel arbitration, to decide whether to continue trial court proceedings or stay the proceedings pending appeal of the petition to compel arbitration.

FISCAL EFFECT:

Costs (Trial Court Trust Fund, General Fund) to the courts of an unknown but potentially significant amount, likely exceeding $150,000 annually statewide. Actual costs will depend on the number of petitions to compel arbitration filed, denied, and appealed, and the discretion of individual judges who decide whether to stay proceedings pending appeal or allow them to continue in trial court. There may be some cost savings to the courts to the extent this bill discourages parties from filing frivolous motions to compel arbitration for the purpose of delaying the underlying litigation. There will likely also be workload costs to the courts due to duplicative proceedings – in some circumstances, a trial court will continue spending court time and resources on proceedings that are rendered moot when the appellate court overturns the trial court’s ruling and moves the dispute into arbitration. It generally costs approximately $1,000 per hour to operate a courtroom. Although courts are not funded on the basis of workload, increased pressure on the Trial Court Trust Fund may create a need for increased funding for courts from the General Fund. The 2023-24 proposed budget anticipates an ongoing annual allocation of $109.3 million from the General Fund to backfill declining revenue to the Trial Court Trust Fund.

COMMENTS:

1. Purpose. According to the author:

SB 365 gives courts the discretion to prevent corporations from using a common delay tactic against workers and consumers – in both private and public enforcement actions – when a court has determined that a particular case cannot not be sent to arbitration. Current law allows corporate defendants to pause a consumer, government, or worker’s case by simply filing an appeal of a trial court’s denial of a motion to compel arbitration. Through this process, powerful corporations delay cases filed against them for typically one to three years. This bill gives courts discretion to allow consumers, governments, or workers to move their case forward if a company files an appeal, rather than waiting for years while the appeal is heard. SB 365 will level the playing field for consumers, governments, and workers who deserve to move their case forward when a company or employer violates their rights. 

1. Background. Arbitration is a form of alternative dispute resolution through which parties settle disagreements using a process overseen by a neutral third party rather than through litigation in court. Typically, at the end of the process, the neutral arbitrator issues a binding decision that cannot be appealed in court. In theory, arbitration is supposed to be a quicker, less costly way to resolve disputes. However, in some contexts, including consumer and employment contracts, agreeing to resolve disputes in arbitration rather than in court can put individual consumers and employees at a significant disadvantage due to their relative lack of power and knowledge, both when entering into a contract containing an arbitration agreement and during the arbitration process.

When a plaintiff sues a defendant based on claims covered by an arbitration agreement, the defendant can file a petition to compel the plaintiff to resolve the case in arbitration instead of in court. Under existing law, if the trial court judge denies or dismisses the defendant’s petition to compel arbitration, the defendant can immediately appeal that decision. While the appeal is pending, the trial court proceedings are automatically stayed, or paused, until the appellate court resolves the matter. This bill instead allows the trial court judge to choose whether to continue the trial court proceedings or stay the proceedings until the appeal is resolved. If the judge continues the proceedings, the parties will continue litigating the case at the trial court level while they wait for the appellate court to rule. If the case is later ordered into arbitration by the appellate court, any decisions that were made by the trial court in the meantime are not binding. In some cases, this will result in courts and parties expending time and resources that have no impact on the final outcome of the case, straining already limited court resources. On the other hand, this bill may promote judicial efficiency by reducing the number of meritless appeals that are filed only to delay litigation.

Of note, the U.S. Supreme Court ruled last month in Coinbase, Inc. v. Bielski that a federal district court must stay its proceedings pending resolution of an interlocutory appeal of a denial of a motion to compel arbitration. Although that case pertained to federal courts, the Supreme Court’s decision likely makes the procedural change advanced by this bill more vulnerable to legal challenges.

Analysis Prepared by: Annika Carlson / APPR. / (916) 319-2081

Date of Hearing: June 13, 2023

ASSEMBLY COMMITTEE ON JUDICIARY

Brian Maienschein, Chair

SBPCA Bill Id:SB 365

Author:(Wiener) – As Amended Ver:May 18, 2023

SENATE VOTE: 30-9

SUBJECT: CIVIL PROCEDURE: ARBITRATION

KEY ISSUE: SHOULD CIVIL LEGAL PROCEEDINGS BE PERMITTED TO PROCEED DURING THE PENDENCY OF AN APPEAL OF A DENIAL OR DISMISSAL OF A PETITION TO COMPEL ARBITRATION?

SYNOPSIS

Arbitration is a method of alternative dispute resolution that allows parties to a contract to have their issues heard by a neutral third party, rather than a judge. This third party, or arbitrator, issues a binding decision that is rarely appealable. The theory supporting the process of arbitration is that it can provide a swifter, less financially burdensome alternative to formal litigation, and thus both federal and state law aim to encourage its use. Arbitration agreements are ubiquitous in business and employment contracts and while the alternative proceedings do theoretically provide a more efficient method to resolving conflicts, the modern practice of arbitration comes with a collection of potential pitfalls that overwhelmingly impact consumers and employees.

Under existing law, Section 1294 of the Code of Civil Procedure, identifies various orders or judgements which may be appealed by an aggrieved party, including an order dismissing or denying a petition to compel arbitration. (Code of Civil Procedure Section 1294(a).) Code of Civil Procedure Section 916 further provides that, subject to exceptions, the perfecting of such an appeal stays proceedings in trial court. That is to say, when a party is denied in their effort to compel arbitration, upon their appeal, the court proceedings to adjudicate the underlying conflict are postponed. This poses significant difficulties for consumers and employees, due to the inherent power dynamic between them and the opposing businesses and employers. The ultimate judicial or arbitration award, intended to make an employee or consumer whole, may pale in light of the growing costs of maintaining ongoing litigation. It is more likely that a business or employer will have greater resources than individual employees or consumers, and therefore greater capacity to handle a delayed resolution of the dispute. This bill would prohibit civil legal proceedings from automatically being stayed, or delayed, during the pendency of an appeal of an order denying or dismissing a party’s petition to compel arbitration.

This bill is co-sponsored by the Office of the Attorney General, the Consumer Attorneys of California, and the California Employment Lawyers Association. It is supported by a coalition of labor and consumer protection advocates. It is opposed by a number of business advocates, including the California Chamber of Commerce who, historically, have opposed the overwhelming majority of bills dealing with arbitration to be heard before this Committee.

SUMMARY: Prohibits the automatic staying of civil legal proceedings during the pendency of an appeal of a denial or dismissal of a petition to compel arbitration.

EXISTING LAW:

1. Establishes the Federal Arbitration Act (FAA), which provides that a written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. (9 U.S.C. Section 2.)
2. Establishes the California Arbitration Act (CAA), which governs arbitrations in California, including the enforcement of arbitration agreements, rules for neutral arbitrators, the conduct of arbitration proceedings, and the enforcement of arbitration awards. (Code of Civil Procedure Section 1280 et seq. Unless otherwise specified all future references are to the Code of Civil Procedure.)
3. Authorizes appeals in civil actions to the Court of Appeal of specified orders and judgments, including:
   1. From a judgment, except an interlocutory judgment or a judgment of contempt, as provided;
   2. From an order made after a judgment;
   3. From an order granting a motion to quash service of summons or granting a motion to stay the action on the ground of inconvenient forum, or from a written order of dismissal following an order granting a motion to dismiss the action on the ground of inconvenient forum;
   4. From an order granting a new trial or denying a motion for judgment notwithstanding the verdict;
   5. From an order granting or dissolving an injunction, or refusing to grant or dissolve an injunction;
   6. From an order made appealable by the Probate Code or the Family Code;
   7. From an interlocutory judgment directing payment of monetary sanctions by a party or an attorney for a party, as provided; or
   8. From an order granting or denying a special motion to strike. (Section 904.1.)
4. Authorizes an aggrieved party to appeal from the following orders:
   1. An order dismissing or denying a petition to compel arbitration;
   2. An order dismissing a petition to confirm, correct, or vacate an award;
   3. An order vacating an award unless a rehearing in arbitration is ordered;
   4. A judgment entered pursuant to this title; and
   5. A special order after final judgment. (Section 1294.)
5. Provides that, except as specified, the perfecting of an appeal stays proceedings in the trial court upon the judgment or order appealed from or upon the matters embraced therein or affected thereby, including enforcement of the judgment or order, but the trial court may proceed upon any other matter embraced in the action and not affected by the judgment or order. (Section 916 (a).)
6. Provides that there is a stay of proceedings other than the enforcement of the judgment, the trial court shall have jurisdiction of proceedings related to the enforcement of the judgment as well as any other matter embraced in the action and not affected by the judgment or order appealed from. (Section 916 (b).)
7. Requires a court, upon petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, to order arbitration of the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines certain conditions exist, including that the right to compel arbitration has been waived by the petitioner or grounds exist for the rescission of the agreement. (Section 1281.2.)
8. Provides that a party may not appeal an order compelling arbitration until after final judgment is reach in the arbitration, but may, under extraordinary circumstances, seek a writ of mandate to request review of the ruling by the court of appeal in advance of the arbitration hearing. (Laufman v. Hall-Mack Co. (1963) 215 Cal.App.2d 87; United Firefighters of Los Angeles v. City of Los Angeles (1991) 231 Cal.App.3d 1576; Mid-Wilshire Associates v. O’Leary (1992) 7 Cal.App.4th 1450.)

FISCAL EFFECT: As currently in print this bill is keyed non-fiscal.

COMMENTS: Arbitration is a method of alternative dispute resolution that allows parties to a contract to have their issues heard by a neutral third party, rather than a judge. This third party, or arbitrator, issues a binding decision that is rarely appealable. The theory supporting the process of arbitration is that it can provide a swifter, less financially burdensome process to formal litigation that simultaneously eases burdens on the court system, and both federal and state law aim to encourage its use. Arbitration agreements are ubiquitous in business and employment contracts, and while the alternative proceedings do theoretically provide a more efficient method to resolving conflicts, the modern practice of arbitration comes with a litany of potential pitfalls that overwhelmingly impact consumers and employees.

In both consumer and employment contexts, the party offering a contract – namely the provider of a service or goods or the employer – will also opt to include an arbitration agreement in those contracts. While California law theoretically prohibits employers from conditioning employment on an applicant’s acceptance of an arbitration agreement, there are two key facts limiting the impact of this statutory protection: first, the statute prohibiting such behavior is currently enjoined by the Ninth Circuit based on the court’s determination that it is preempted by the Federal Arbitration Act (FAA or Act); second, even assuming the validity of the statutory prohibition, its effectiveness would be contingent on applicants and employees actively declining such agreements. Nothing in the law prohibits employers from relying on applicants and employees lack of knowledge regarding their workplace rights when entering into an employment contract.

In the context of business relationships, most arbitration agreements are contained within a broader contract, usually a contract that is adhesive or take-it-or-leave-it, and are often in a “click-through” contract or buried in the fine print. In combination, these practices leave consumers with little choice but to agree to arbitrate any potential dispute. Over the past twenty years, federal courts have significantly expanded the validity of arbitration provisions in contracts of adhesion and considerably limited the state’s ability to regulate such agreements. (See, e.g., AT&T Mobility LLC v. Concepcion (2011) 562 U.S. 333.) In both the employment and business contexts, the employer or goods provider holds the power to offer or decline a valuable thing to the other party and these parties also benefit from greater financial resources, creating an inherent unbalanced power dynamic.

Arbitration can pose significant difficulties for the party forced to adjudicate its claims outside of court. Existing law permits arbitration agreements to contain limits on evidence presented and the claims that can be considered. The arbitration agreement will lay out the procedures that will be followed during the arbitration hearing. For example, the terms of the arbitration agreement may stipulate that the award need not be written or justified, unlike in court, and that the entire process is secret. Arbitrators do not need to be lawyers, nor do they need to be trained in the law. Arbitrators who issue favorable awards to a particular company can be repeatedly hired by that same company to serve as the arbitration-neutral without ever notifying the public about that award-history. Essentially, it’s easy to predict the calls if you can hire the umpire. Arbitration can also save employers and providers of consumer goods and services significant time and costs when compared to court, thus there is little question why the more powerful signatory to a contract would demand arbitration.

The impact of arbitration on consumers’ and workers’ recovery. Even assuming the arbitration process is quicker, and therefore less financially burdensome than litigation, there is an outstanding question regarding the disparate recovery between arbitration and traditional litigation for consumers and workers. In just one example, a 2015 study by the Consumer Financial Protection Bureau found that while millions of consumers are eligible for relief every year, very few seek relief through arbitration. This is seemingly a result of limitations on class actions within arbitration clauses and consumers’ general lack of clarity regarding whether they are covered by an arbitration clause. More specifically, the CFPB’s research indicated that tens of millions of consumers are covered by arbitration clauses, yet only approximately 600 arbitration cases and 1,200 individual federal law suits are initiated by consumer each year. The study further explained that despite 32 million consumers being eligible for relief through class action settlements each year, “[b]y design, arbitration clauses can be used to block class actions in court. The CFPB found that it is rare for a company to try to force an individual lawsuit into arbitration but common for arbitration clauses to be invoked to block class actions. For example, in cases where credit card issuers with an arbitration clause were sued in a class action, companies invoked the arbitration clause to block class actions 65 percent of the time.” (CFPB Study Finds That Arbitration Agreements Limit Relief for Consumers, Consumer Financial Protection Bureau (March 10, 2015) available at: https://www.consumerfinance.gov/about-us/newsroom/cfpb-study-finds-that-arbitration-agreements-limit-relief-for-consumers/.)

In the context of employment disputes, arbitration likewise appears to pose a significant concern for workers’ financial recovery. According to a 2018 study by the Economic Policy Institute, approximately 56 percent of private-sector, nonunion employees were subject to mandatory arbitration, and 30 percent of employers included class action waivers. Also in 2018, the United States Supreme Court upheld the validity of forced arbitration agreements and class waivers in Epic Systems Corp. v. Lewis (128 S. Ct. 161 1612 (2018).) In light of the existing dominance of arbitration agreements and the Epic Systems decision, the Center for Popular Democracy and the Economic Policy Institute estimate that by 2024, more than 80% of nonunion private-sector workers will be covered by arbitration agreements. (Hamaji et. al., Unchecked corporate power: Forced arbitration, the enforcement crisis, and how workers are fighting back, Economic Policy Institute (May 20, 2019) at https://www.epi.org/publication/unchecked-corporate-power/.)

Arbitration typically results in poorer recovery for workers, even if they prevail in their claims. In a 2015 study, the Economic Policy Institute reported that employees prevailed in approximately 57% of cases brought before state courts in non-civil rights matters, such as wage violations, but only 21% of the time in mandatory arbitration. (Stone and Colvin, The arbitration epidemic Mandatory arbitration deprives workers and consumers of their rights, Economic Policy Institute (December 7, 2015) at https://www.epi.org/publication/the-arbitration-epidemic/.) The report also detailed an average recovery for employees in state court of $85,000 as compared to $36,000 in arbitration. (Ibid.) While arguably more efficient and less costly for employers, arbitration frustrates the ability of workers to enforce existing statutory protections through claims in civil court and fully recover the wages and civil penalties to which they are entitled.

Under existing law, Section 1294 of the Code of Civil Procedure identifies various orders or judgements which may be appealed by an aggrieved party, including an order dismissing or denying a petition to compel arbitration. Section 916 further provides that, subject to exceptions, the perfecting of such an appeal stays proceedings in trial court. That is to say, when a party is denied in their effort to compel arbitration, upon their appeal, the court proceedings to adjudicate the underlying conflict are postponed until the appeal is decided. Interestingly, no such postponement is provided should a party seek to appeal a decision compelling arbitration. This poses significant difficulties for consumers and employees, due to the inherent power dynamic between them and the opposing businesses and employers. The ultimate judicial or arbitration award, intended to make an employee or consumer whole, may pale in light of the growing costs of maintaining ongoing litigation. It is more likely that a business or employer will have greater resources than individual employees or consumers, and therefore greater capacity to handle a delayed resolution of the dispute.

This bill would prohibit civil legal proceedings from automatically being stayed, or delayed, during the pendency of an appeal of an order denying or dismissing a party’s petition to compel arbitration. According to the author:

SB 365 gives courts the discretion to prevent corporations from using a common delay tactic against workers and consumers – in both private and public enforcement actions – when a court has determined that a particular case cannot not be sent to arbitration. Current law allows corporate defendants to pause a consumer, government, or worker’s case by simply filing an appeal of a trial court’s denial of a motion to compel arbitration. Through this process, powerful corporations delay cases filed against them for typically one to three years. This bill gives courts discretion to allow consumers, governments, or workers to move their case forward if a company files an appeal, rather than waiting for years while the appeal is heard. SB 365 will level the playing field for consumers, governments, and workers who deserve to move their case forward when a company or employer violates their rights. 

Existing law gives an aggrieved party, for example -- a defendant corporation, the right to a full appeal when a court orders the case dismissed, or denies the defendant’s petition to compel a case to private arbitration. The law, however, does not afford consumers, governments, and workers the same luxury; they do not have the same automatic appeal rights when the court grants a corporate defendant’s petition to move the case to private arbitration. This results in powerful entities delaying cases for typically one to three years, but sometimes even longer. Meanwhile, corporate defendants have the time and resources to wait out lengthy appeals processes that workers and consumers simply do not. SB 365 takes an important step toward righting this imbalance in our legal system.

SB 365 does nothing to impact whether an arbitration agreement is enforceable or not. SB 365 is simply a procedural bill that comes into play once a judge has determined that an arbitration agreement is unenforceable.  People deserve meaningful access to justice at the time their rights are violated, not years later. SB 365 helps deliver them that justice.

This bill in the context of the Federal Arbitration Act. The Federal Arbitration Act is structured to promote the use of arbitration in order to facilitate efficient settlement of legal disputes. Over the past two decades, the United States Supreme Court has broadened the scope and applicability of the FAA, thereby causing the Act to preempt a growing number of state laws. The opposition to this bill contend it is preempted by federal law. Writing for a coalition of business organizations in opposition, the California Chamber of Commerce notes that the Supreme Court has struck down a variety of state laws seeking to reign in arbitration provisions and that the high court “has consistently and unequivocally declared a national policy favoring arbitration of claims.”

Throughout the United States Supreme Court’s jurisprudence regarding arbitration, three primary holdings of the court have become clear. First, as reaffirmed in 2018, the purpose of the Federal Arbitration Act was designed to promote arbitration. (Epic Systems Corp. v. Lewis (2018) 138 S. Ct. 1612.) Secondly, state laws or other rules that explicitly interfere with the enforcement of an arbitration agreement are preempted, unless grounds exist to void the contract as a whole. (AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333.) Finally, the Supreme Court has held that the FAA, in addition to preempting any “state rule discriminating on its face arbitration… [also] displaces any rule that covertly accomplishes the same objective by disfavoring contracts that (oh so coincidentally) have the defining features of arbitration agreements.” (Kindred Nursing Centers Limited Partnership v. Clark (2017) 137 S. Ct. 1421, 1426.)

However, the Supreme Court has also on numerous occasions distinguished between the FAA’s substantive provisions (those addressing enforcement of the substance of arbitration agreements) and its procedural provisions (those dictating how disputes should move through the judicial process). The court has clarified that while the FAA does preempt state efforts to undermine the enforceability of arbitration, it does not preempt legislation to the degree it impacts civil court procedural rules: “There is no federal policy favoring arbitration under a certain set of procedural rules; the federal policy is simply to ensure enforceability, according to their terms, of private agreements to arbitrate.” (Volt Info. Scis. V. Bd. Of Trs., 489 U.S. 468, 476 (1989).) This same notion has been reaffirmed repeatedly in the decades since the Volt decision. As recently as March of 2022, the Court wrote: “We have never decided whether the FAA’s more procedural provisions, including Sections 4 and 9 through 11 also apply in state courts.” (Badgerow v. Walters, 1412 S. Ct. 1310, 1316 (2022).)

As the opposition indicates, the Ninth Circuit has previously struck down attempts at limiting arbitration, including earlier this year in Chamber of Commerce of the United States v. Bonta (2023) 62 F.4^th 473, 486. In Chamber of Commerce, the Ninth Circuit struck down the law established by AB 51 (Gonzalez, Stats. 2019, Chap. 711), which effectively prohibited employers from requiring employees to enter into arbitration agreements as a condition of employment. In its opinion, the circuit court reasoned: “AB 51 does not expressly bar arbitration agreements. There is no doubt, though that AB 51 disfavors the formation of agreements that have the essential terms of an arbitration agreement. […] Because a person who agrees to arbitrate disputes must necessarily waive the right to bring civil actions regarding those disputes in any other forum, AB 51 burdens the defining feature of arbitration agreements.” (Chamber of Commerce of the United States v. Bonta (2023) 62 F.4th 473, 486.) However, this bill and AB 51 are distinguishable.

While the current bill may modify aspects of procedure relating to enforcement of arbitration agreements, it would likely not preclude nor significantly burden their formation or the enforcement of their contents. Businesses and employers would see no change from this bill in their ability to develop and implement arbitration agreements. Rather, the bill would provide an opportunity to adjudicate the underlying claim in civil court prior to an ultimate determination of the interlocutory appeal. Depending on the result of the appeal, the defendant may ultimately succeed in sending the matter to arbitration, even assuming a decision on the underlying claim is granted in civil court. In other words, permitting parties to litigate the underlying claim in civil court while one party appeals a denial of a request to compel arbitration does not, in and of itself, impact the question of whether or not the arbitration agreement is valid and enforceable – that determination would be conducted, consistent with existing law, by the appellate court in the interlocutory appeal.

In sum, there appears to be a strong argument that the current bill does not disfavor arbitration in California. First, nothing in the bill creates additional barriers for parties agreeing to arbitration at the initiation of their contractual relationship, nor does the bill impose any additional requirements on those agreements or heighten any burden of proof. Rather, the bill focuses on civil procedure within state courts in cases in which a petition to compel arbitration has been dismissed or denied. As stated by the Supreme Court in Badgerow, the Court has not made a determination about whether the FAA’s procedural sections preempt state law.

The Supreme Court’s past decisions settling issues addressing the substantive portions of the FAA does not preclude any future holdings on the Act’s procedural provisions. Earlier this year, the Supreme Court heard oral argument in Coinbase, Inc. v. Bielski which posed the issue of whether a non-frivolous appeal of the denial of a motion to compel arbitration removed a district court’s jurisdiction to proceed with litigation pending appeal. While the issue presented to the Court relates specifically to the jurisdiction of district courts, rather than state courts, nonetheless a ruling on this matter presents the potential for a more direct conflict with this bill. A decision in Coinbase is expected later this summer.

This bill continues a practice of exempting certain procedures from the automatic stay provided for in Section 916. Section 916 of the Code of Civil Procedure provides that, subject to specified exceptions, the perfecting of an appeal shall stay the underlying proceedings in trial court until the appeal is adjudicated. In a letter submitted to a previous committee, the opposition identified a concern that this bill will undermine the intent of Section 916 and “completely divests the trial court of [the inherent power to grant a discretionary stay if it serves the interests of justice and judicial efficiency] when it comes to arbitration.”

Amendments taken in the Senate modified the bill to grant trial courts the discretion to issue or decline a stay pending appeal by modifying the language to state that “the perfecting of such an appeal shall not automatically stay any proceedings…” (emphasis added). Therefore this bill does not appear to completely divest the trial court of their discretion in granting or denying a stay, but rather allows the trial court precisely the “inherent power to grant a discretionary stay if it serves the interest of justice and judicial efficiency” described by the opponents. Subsequent letters from the opposition coalition do not include reference to this concern, and as such it appears the worry has been assuaged. Additionally, it is worthwhile to note despite the effect of Section 916 to create a default to stay proceedings, subsequent sections have carved out exceptions, rendering this effort just the latest in a long history of exceptions to the rule. (Sections 927.2 et seq.)

The opponents also voice a concern that SB 365 will lead to forum shopping. “Forum shopping,” typically refers to attorneys’ practice of selecting a court with laws that may be most favorable to their client and does not typically occur in selecting between different judges. Judges throughout state courts apply the same law, although their reasoning or determination may differ. Moreover, attorneys theoretically have little to no control over which judge will be assigned to preside over their matter. While there may be some game playing involved in deciding which county or court to file in, it is arguably insufficient to truly allow for “forum shopping.” Finally, to the extent that any piece of legislation increases or decreases the discretion of a single judge, each and every individual piece of legislation adopted by the Legislature may lead to “forum shopping” to the same degree as the current measure.

Will this bill increase litigation to the detriment of the parties? Opponents of the measure argue that this bill will “increase litigation to the detriment of consumers, employees, and businesses.” As an example, the opposition points to the significant variation in recovery amounts between arbitration awards and monetary recovery by workers in PAGA (the Private Attorneys General Act) suits. However, this argument poses a false equivalency. PAGA claims allow workers to stand in the shoes of the state to recover only the civil penalties against an employer who has violated state labor law. Unlike an arbitration award, which in theory would make a worker whole for their employer’s violation of their employment contract, PAGA is not structured to allow workers a complete recovery. Moreover, provisions of the PAGA statute specify a breakdown of distribution in the resulting monetary recovery, with a significant portion directed to the state. The more appropriate comparison, therefore, is between the amount a worker (or consumer) may recover in their own litigation for damages against their employer (or provider of goods or services). As detailed previously in this analysis, studies have actually demonstrated that as arbitration is currently practiced, workers and consumers seemingly recover less in arbitration than in civil court proceedings.

The opposition also contends that this measure is likely to result in an increase of civil litigation. Allowing parties to litigate the underlying claim during the pendency of the proceeding may effectively increase some court proceedings in that it will allow parties to litigate matters that may ultimately be directed to arbitration. However, it is questionable how much of an increase this would actually trigger. In order to avail themselves of the bill’s provision, a plaintiff must first opt to file in court rather than proceed with arbitration. Second, a defendant must petition for an order compelling arbitration, which must ultimately be denied or dismissed. Assuming the majority of arbitration agreements consist of boilerplate language which have been vetted by the defendant’s own attorneys and potentially even held to be valid in previous litigation, reaching this stage alone is likely rare. Finally, a judge would then have to determine that it is in the interest of the parties to proceed with the underlying claim pending the perfecting of the claim. According to the opposition, such interest is almost always in favor of staying the underlying proceedings, and thus would happen only in the case of a patently invalid or nonexistent arbitration agreement. The amount by which the overall number of court proceedings would potentially increase would hinge on the willingness of judges to not only dismiss or deny an order to compel arbitration but also decline to stay the proceedings. Further, any increase would have to be considered in the context of the status quo where parties may be extensively delayed in litigating their matter pending appeals and delays of the appeal to such an extent that plaintiffs merely elect to drop their matters entirely. The increase in litigation does not necessarily indicate an increase in superfluous court proceedings, but rather may very well include legitimate proceedings that would have otherwise been dropped by the plaintiffs due to the financial burden of waiting for a determination. Additionally, in the event the appeal is successful and the parties are subject to an order to compel arbitration, much of the work conducted in the underlying matter, including discovery, may very well be used by both parties during the arbitration proceedings. Therefore, not only would the court proceedings not have been entirely superfluous but may arguably expedite the ultimate arbitration proceedings.

Even if the opponents are correct to conclude that the entire trial court proceedings would be unnecessary, the question is not whether the increase in litigation in isolation is good or bad, but whether, in context, it is justifiable. The proponents of the measure would contend that it is, as it allows for an arguably more efficient use of both parties’ time and resources by permitting them to litigate the underlying claim while waiting for the disposition of the appeal. Moreover, in the event the appeal fails, the underlying claim may have been entirely adjudicated and the plaintiff will be significantly closer to recovery. Finally, it is arguable that allowing court proceedings to continue pending the appeal is equally as superfluous as requiring parties to complete arbitration before a plaintiff may appeal the order to compel arbitration.

This bill is arguably a modest step towards balancing the equity of arbitration. As noted various times throughout this analysis, the current practice of arbitration is one that is significantly skewed in favor of parties seeking to arbitrate disputes. This preference is underlined by various statutory functions, including requiring parties to arbitrate a matter completely before a party may appeal an order compelling arbitration, and automatically staying any court proceedings in the event a party appeals the denial of an order to compel arbitration. While this approach may further the goal of streamlining dispute resolution, the current status quo nonetheless appears to risk burdening plaintiffs, namely employees and consumers. Considering that this measure does not obligate parties to continue with court proceedings before appealing the denial of the order to compel arbitration, as is currently the case for matters that have been directed to arbitration, the process would still be skewed in favor of the party seeking to arbitrate. Ultimately, this bill is arguably a modest step towards equalizing an adjudicatory process that is often perceived to have its thumb on the scale in favor of businesses and employers, thereby providing some additional support to consumers and employees.

ARGUMENTS IN SUPPORT: This bill is supported by a broad coalition of labor organizations, workers’ rights and consumer protection groups. It is co-sponsored by the Office of the Attorney General, the Consumer Attorneys of California, and the California Employment Lawyers Association. They write the following in support of the measure:

The issue of corporations filing appeals only to delay justice has become increasingly problematic as current law allows corporate defendants to effectively freeze a worker’s or a consumer's case – often for years at a time – by simply filing an appeal. Californians have an urgent need to address this delay tactic that obstructs access to justice.

Powerful corporations abuse this appeal right to force lengthy delays on plaintiffs seeking justice – during which time important documents disappear, key witnesses move away, and witnesses’ memories fade. Corporate defendants are appealing even in instances where there clearly is no arbitration agreement such as in cases brought by City Attorneys and the Attorney General against Uber and Lyft for worker misclassification.

Another example involves a class action brought against Tesla on behalf of thousands of Black workers who were subject to egregiously racist working conditions, including constant racist slurs, racist graffiti, epithets, and symbols around the factory. Even though the plaintiff never signed an arbitration agreement Tesla has delayed the case for five years through motions to compel arbitration and frivolous appeals. The plaintiffs are still fighting for justice.

SB 365 will help consumers and workers seeking justice by allowing them to continue their court cases if a corporation appeals the court’s denial of their motion to compel arbitration. For these reasons our organizations write in support.

The California Dispute Resolution Council has submitted a position of support if amended. They write the following:

The bill, as currently drafted, eliminates the stay of litigation that remains in effect while the appeal proceeds. Thus, it will allow an employee to try the dispute in the Superior Court prior to a decision by the Court of Appeal and perhaps obtain a favorable result before the appellate court rules on the denial of the motion to compel arbitration.

But if the trial proceeds while the appeal is ending, and the employee prevails, the employer will still have a right to appeal from that decision and that will stay enforcement of the judgment. Even if the employer chooses not to appeal, it can be expected that it will move to stay enforcement of the judgment. And so, the employee will be in the same position that he or she would be if the bill were not enacted by the Legislature.

The bill will also hurt employees if the denial of the motion to compel arbitration is reversed, not only because the employee will have wasted time and money trying the case in court while the appeal was pending, but because the wasted trial will have given the employer a free peek at the employee’s case which will enable the employer to better defend itself in the arbitration.

The problems described above can easily be resolved by amending the bill so that it would be similar to Code of Civil Procedure Section 1294.4, which requires the Court of Appeal to issue its decision involving a claim under the Elder and Dependent Adult Civil Protection Act no later than 100 days after the notice of appeal is filed. Such an amendment will ensure that the trial (or arbitration if the denial of the motion to compel arbitration is reversed) would commence not long after the claim was originally filed and witness memories would not be impaired.

We also note that the bill applies to all motions to compel arbitration that are denied and not just to claims filed by employees who are subject to a mandatory pre-dispute arbitration agreement. Thus, the bill covers business to business disputes, which are not in need of the benefits that the bill is intended to provide. We recommend that the bill be amended so that it is limited only to appeals where an employee who has filed a mandatory pre-dispute arbitration agreement is the appellee.

ARGUMENTS IN OPPOSITION: This bill is opposed by business advocates including the California Chamber of Commerce and the Construction Employers’ Association. In opposition to the measure they state:

It is clear that the true motive behind SB 365 is an attempt to severely restrict the use of arbitration agreements altogether. SB 365 incorrectly assumes that all appeals related to arbitration are meritless. Moreover, the motive behind SB 365 is to deter arbitration and single out arbitration from other types of proceedings. This will ultimately result in a finding that the bill is preempted by the Federal Arbitration Act (FAA), as the Ninth Circuit recently did by striking down another attempt at limiting arbitration – AB 51 (Gonzalez) from 2019. Allowing a court the discretion to continue with the underlying trial while an appeal regarding a motion to compel arbitration is pending eliminates the entire purpose of arbitration and runs afoul of the FAA. SB 365 would also incentivize forum shopping even more than what occurs now, with trial attorneys filing claims in venues where they believe there will be judges more inclined to deny current law’s requirement to stay a case during an appeal regarding the enforceability of an arbitration agreement. SB 365 will lead to additional litigation and more money in the pockets of trial attorneys, which will increase the cost of doing business in California and exacerbate the ongoing affordability crisis we are facing.

A number of organizations, consisting of construction industry employers, have submitted a position of oppose unless amended. They write:

State law authorizes a party to appeal an order dismissing or denying a petition to compel arbitration. Typically, a stay in the trial court proceedings is provided when the appeal for arbitration is perfected. This measure would prohibit a trial court from staying proceedings during the pendency of an appeal of an order dismissing or denying a petition to compel arbitration. Appeals to an order dismissing or denying a petition to compel arbitration are common in the construction industry as industry CBAs are nuanced and the courts need time to decipher and understand their coverage.

SB 365, as currently in print, would have a significant negative impact on the union construction industry. Construction employers who are signatory to industry CBAs depend on the certainty those agreements provide relating to costs and efficiencies. Arbitration and grievance procedures provided for within industry CBAs play an important role in the industry’s ability to compete in an open market and yet provide robust pensions, top in class healthcare and significantly higher wages than our nonunion competitors. These negotiated wages and benefits take into account other efficiencies such as arbitration procedures that expedite resolution to disagreements and grievances.

Elected officials routinely praise unionized construction employers as responsible businesses, who work collaboratively with labor representatives to set living wages, benefits, and working conditions throughout the industry. Removing a collectively bargained incentive to be a union construction employer weakens the industry overall. Because of this, we request that SB 365 be amended to respect our industry CBAs and exempt from the proposed prohibition on a trial court from staying proceedings during the pendency of an appeal of an order denying arbitration as follows

Prior related legislation. SB 1065 (Monning, Ch. 628, Stats. 2016) provided an expedited appeal process for the review of an interlocutory order dismissing or denying a petition to compel arbitration for claims involving the Elder and Dependent Adult Civil Protection Act where the party has been granted a trial preference. Specifically, this bill required a court of appeal to issue its decision within 100 days after the notice of appeal, consistent with a rule of court promulgated on or before July 1, 2017. Status: Chapter 628, Stats. 2016.

AB 1062 (Dickinson, 2011) would have established consistent appeal rights with respect to a petition to compel arbitration by eliminating the right to an immediate appeal when a petition to compel arbitration is denied, just as there is no right to appeal when a petition to compel is granted. Either side would nevertheless have continued to seek appellate review by writ of mandate for serious errors. The bill was later amended in the Senate to address an unrelated issue. Status: Failed on the Senate Floor.

REGISTERED SUPPORT / OPPOSITION:

Support

Attorney General Rob Bonta (co-sponsor)

Consumer Attorneys of California (co-sponsor)

California Employment Lawyers Association (co-sponsor)
California Conference Board of The Amalgamated Transit Union
California Conference of Machinists
California Rural Legal Assistance Foundation, INC.
California Teamsters Public Affairs Council
Church State Council
Consumer Federation of California
Consumer Watchdog
Consumers for Auto Reliability and Safety
Courage California
Engineers and Scientists of California, IFPTE Local 20, AFL-CIO

Equality California
Equal Rights Advocates
Public Justice
Roots of Change
San Diego City Attorney's Office
San Francisco City Attorney's Office
SEIU California
Smart Justice California
TechEquity Collaborative
UFCW - Western States Council
Unite-HERE, AFL-CIO
Utility Workers Union of America
Utility Workers Union of America, AFL-CIO

Support if Amended

California Dispute Resolution Council (CDRC)

Opposition

Acclamation Insurance Management Services
Air Conditioning Sheet Metal Association
Allied Managed Care
Anaheim Chamber of Commerce
Calbroadband
California Chamber of Commerce
California Apartment Association
California Association for Health Services At Home
California Association of Health Facilities
California Association of Sheet Metal & Air Conditioning Contractors National Association
California Attractions and Parks Association
California Bankers Association
California Beer and Beverage Distributors
California Business Properties Association
California Chamber of Commerce
California Credit Union League
California Defense Counsel
California Employment Law Council
California Farm Bureau
California Hotel & Lodging Association
California League of Food Producers
California Legislative Conference of Plumbing, Heating & Piping Industry
California Lodging Industry Association
California New Car Dealers Association
California Restaurant Association
California Retailers Association
California Retailers Association
California Trucking Association
Carlsbad Chamber of Commerce
Chino Valley Chamber of Commerce
Civil Justice Association of California
Coalition for Small and Disabled Veteran Businesses
Coalition of California Chambers – Orange County
Coalition of Small and Disabled Veteran Businesses
Construction Employers' Association
Corona Chamber of Commerce
Elk Grove Chamber of Commerce
Finishing Contractors Association of Southern California
Flasher Barricade Association
Fontana Chamber of Commerce
Fresno Chamber of Commerce
Gilroy Chamber of Commerce
Glendora Chamber of Commerce
Greater Coachella Valley Chamber of Commerce
Greater High Desert Chamber of Commerce
Greater Riverside Chambers of Commerce
Hollywood Chamber of Commerce
Housing Contractors of California
Independent Lodging Industry Association.
LA Canada Flintridge Chamber of Commerce
LA Verne Chamber of Commerce
Laguna Niguel Chamber of Commerce
Murrieta Wildomar Chamber of Commerce
National Electrical Contractors Association (NECA)
Northern California Allied Trades
Norwalk Chamber of Commerce
Official Police Garage Association of Los Angeles
Orange County Business Council
Palos Verdes Peninsula Chamber of Commerce
Paso Robles Chamber of Commerce
Rancho Cordova Area Chamber of Commerce
Roseville Area Chamber of Commerce

San Diego Regional Chamber of Commerce
San Juan Capistrano Chamber of Commerce
Santa Barbara South Coast Chamber of Commerce
Santa Clarita Valley Chamber of Commerce
Santa Maria Valley Chamber of Commerce
Santee Chamber of Commerce
Securities Industry and Financial Markets Association
Simi Valley Chamber of Commerce
South County Chambers of Commerce
Southern California Contractors Association
Southern California Glass Management Association (SCGMA)
Templeton Chamber of Commerce
Tri County Chamber Alliance
Tulare Chamber of Commerce
United Contractors (UCON)
Vista Chamber of Commerce
Wall and Ceiling Alliance
Walnut Creek Chamber of Commerce
West Ventura County Business Alliance
Western Electrical Contractors Association
Western Growers Association
Western Line Constructors Chapter, Inc., Neca, INC.
Western Painting and Coating Contractors Association
Western Wall and Ceiling Contractors Association (WWCCA)

Oppose Unless Amended

Northern California Floor Covering Association

Analysis Prepared by: Manuela Boucher-de la Cadena / JUD. / (916) 319-2334

 THIRD READING  

Bill No: SB 365

Author: Wiener (D), et al.

Amended: 5/18/23

Vote: 21

SENATE JUDICIARY COMMITTEE: 8-2, 4/11/23

AYES: Umberg, Allen, Ashby, Durazo, Laird, McGuire, Min, Wiener

NOES: Wilk, Niello

NO VOTE RECORDED: Stern

SENATE APPROPRIATIONS COMMITTEE: 5-2, 5/18/23

AYES: Portantino, Ashby, Bradford, Wahab, Wiener

NOES: Jones, Seyarto

SUBJECT: Civil procedure: arbitration

SOURCE: Attorney General Rob Bonta

California Employment Lawyers Association

Consumer Attorneys of California

DIGEST:

This bill provides that an appeal of a denial or dismissal of a petition to compel arbitration shall not automatically stay civil legal proceedings.

ANALYSIS:

Existing law:

1. Establishes the California Arbitration Act (CAA), which governs arbitrations in California, including the enforcement of arbitration agreements, rules for neutral arbitrators, the conduct of arbitration proceedings, and the enforcement of arbitration awards. (Code Civ. Proc. § 1280 et. seq.)
2. Establishes the Federal Arbitration Act (FAA), which provides that a written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. (9 U.S.C. § 2.)
3. Authorizes appeals in civil actions to the Court of Appeal of specified orders and judgments, including from a judgment, except an interlocutory judgment, as provided. (Code Civ. Proc. § 904.1.)
4. Authorizes an aggrieved party to appeal from the following orders:
   1. An order dismissing or denying a petition to compel arbitration;
   2. An order dismissing a petition to confirm, correct, or vacate an award;
   3. An order vacating an award unless a rehearing in arbitration is ordered;
   4. A judgment entered pursuant to this title; and
   5. A special order after final judgment. (Code Civ. Proc. § 1294.)
5. Provides that, except as specified, the perfecting of an appeal stays proceedings in the trial court upon the judgment or order appealed from or upon the matters embraced therein or affected thereby, including enforcement of the judgment or order, but the trial court may proceed upon any other matter embraced in the action and not affected by the judgment or order. (Code Civ. Proc. § 916(a).)
6. Provides that there is a stay of proceedings other than the enforcement of the judgment, the trial court shall have jurisdiction of proceedings related to the enforcement of the judgment as well as any other matter embraced in the action and not affected by the judgment or order appealed from. (Code Civ. Proc. § 916(b).)
7. Requires a court, upon petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, to order arbitration if it determines that an agreement to arbitrate the controversy exists, unless it determines certain conditions exist, including that the right to compel arbitration has been waived by the petitioner or grounds exist for the rescission of the agreement. (Code Civ. Proc. § 1281.2.)
8. Provides that a party may not appeal an order compelling arbitration until after final judgment, but may, under extraordinary circumstances, seek a writ of mandate to request review of the ruling by the court of appeal in advance of the arbitration hearing. (Laufman v. Hall-Mack Co. (1963) 215 Cal.App.2d 87; United Firefighters of Los Angeles v. City of Los Angeles (1991) 231 Cal.App.3d 1576; Mid-Wilshire Associates v. O’Leary (1992) 7 Cal.App.4th 1450.)

This bill provides that an appeal of a denial or dismissal of a petition to compel arbitration shall not automatically stay civil legal proceedings during the pendency of the appeal, notwithstanding Section 916 of the Code of Civil Procedure.

Background

Under California law, the power to appeal is wholly statutory and is generally from a final judgment or order. While in civil actions those rights are generally provided under Code of Civil Procedure Section 904.1, existing law also specifically enumerates the orders from which appeal may be taken in relation to arbitration. Code of Civil Procedure Section 1294 is a statutory right to appeal the dismissal or denial of a petition to compel arbitration. When a defendant appeals an order dismissing or denying a petition to compel arbitration, it automatically stays the proceedings during the pendency of the appeal.

Proponents of this bill argue that corporate defendants are abusing the automatic stay when a motion to compel arbitration is denied by the court and then appealed by the defendant, using it as a delay tactic causing real harm to consumers and workers. This bill provides that there shall be no automatic stay of the proceedings when an order dismissing or denying a motion to compel arbitration is appealed. However, discretion is still left to the court to appeal the stay.

This bill is co-sponsored by Attorney General Rob Bonta, the California Employment Lawyers Association, and the Consumer Attorneys of California. It is supported by an array of labor groups and public prosecutors, including the California Teamsters Public Affairs Council and the San Diego and San Francisco City Attorneys’ Offices. It is opposed by a variety of business groups, including California Chamber of Commerce.

Comments

According to the author:

Senate Bill 365 allows consumers, workers, and public entities to continue their court cases when a trial court rules that a forced arbitration agreement is invalid. Current law allows corporate defendants to pause a consumer, government, or worker’s case by simply filing an appeal of a trial court’s denial of a motion to compel arbitration. Through this process, powerful corporations delay cases filed against them for typically one to three years. This bill allows consumers, governments, or workers to move their case forward if a company files an appeal, rather than waiting for years while the appeal is heard. SB 365 will level the playing field for consumers, governments, and workers who deserve to move their case forward when a company or employer violates their rights.

Attempts to “level the playing field”

In 2011, AB 1062 (Dickinson, 2011) would have addressed the disparity between defendants and plaintiffs by largely reducing the ability to appeal a dismissal or denial of petition to compel arbitration on an interlocutory basis. That bill would have required both parties to await final judgment to appeal the motion. It was ultimately gutted and amended and failed passage. SB 1065 (Monning, Chapter 628, Statutes of 2016) sought to take a narrower approach by addressing only the specific harm that arises for elderly individuals who have been granted a trial preference under other applicable law, and who bring claims under the Elder and Dependent Adult Civil Protection Act. It would have prevented an interlocutory appeal of an order denying arbitration under Section 1294 under these limited circumstances. Ultimately, the bill was amended to simply provide for an expedited review by the appellate courts of appeals in such cases.

This bill again approaches the issue with a narrower solution. While still maintaining the right of a party to immediately appeal an order dismissing or denying a petition to compel arbitration, it simply holds that such an appeal does not automatically stay the proceedings in the trial court during the appeal, notwithstanding Section 916. Therefore, should a court find grounds to deny a petition seeking to force the parties to arbitration, the proceedings may continue simultaneously with the appeals process.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

According to the Senate Appropriations Committee, unknown, potentially significant court workload cost pressures in order to adjudicate civil cases that ultimately will be ordered to arbitration after a decision by the appellate court (Trial Court Trust Fund, General Fund).

SUPPORT: (Verified 5/19/23)

Attorney General Rob Bonta (co-source)

California Employment Lawyers Association (co-source)

Consumer Attorneys of California (co-source)

California Conference Board of the Amalgamated Transit Union

California Conference of Machinists

California Rural Legal Assistance Foundation

California Teamsters Public Affairs Council

Church State Council

Consumer Federation of California

Consumer Watchdog

Consumers for Auto Reliability and Safety

Courage California

Engineers and Scientists of California, IFPTE Local 20, AFL-CIO

Equal Rights Advocates

Roots of Change

San Diego City Attorney's Office

San Francisco City Attorney's Office

San Francisco District Attorney Brooke Jenkins

SEIU California

Smart Justice California

TechEquity Collaborative

UFCW Western States Council

UNITE-HERE, AFL-CIO

Utility Workers Union of America, AFL-CIO

OPPOSITION: (Verified 5/19/23)

Acclamation Insurance Management Services

Air Conditioning Sheet Metal Association

Allied Managed Care

Anaheim Chamber of Commerce

CalBroadband

California Apartment Association

California Association for Health Services At Home

California Association of Health Facilities

California Association of Sheet Metal & Air Conditioning Contractors National Association

California Attractions and Parks Association

California Bankers Association

California Beer and Beverage Distributors

California Business Properties Association

California Chamber of Commerce

California Credit Union League

California Defense Counsel

California Employment Law Council

California Farm Bureau

California Hotel & Lodging Association

California League of Food Producers

California Legislative Conference of Plumbing, Heating & Piping Industry

California Lodging Industry Association

California New Car Dealers Association

California Restaurant Association

California Retailers Association

California Trucking Association

Carlsbad Chamber of Commerce

Chino Valley Chamber of Commerce

Civil Justice Association of California

Coalition for Small and Disabled Veteran Businesses

Coalition of California Chambers – Orange County

Construction Employers' Association

Corona Chamber of Commerce

Elk Grove Chamber of Commerce

Finishing Contractors Association of Southern California

Flasher Barricade Association

Fontana Chamber of Commerce

Fresno Chamber of Commerce

Gilroy Chamber of Commerce

Glendora Chamber of Commerce

Greater Coachella Valley Chamber of Commerce

Greater High Desert Chamber of Commerce

Greater Riverside Chambers of Commerce

Hollywood Chamber of Commerce

Housing Contractors of California

Independent Lodging Industry Association.

La Canada Flintridge Chamber of Commerce

La Verne Chamber of Commerce

Laguna Niguel Chamber of Commerce

Murrieta Wildomar Chamber of Commerce

National Electrical Contractors Association

Northern California Allied Trades

Northern California Floor Covering Association

Norwalk Chamber of Commerce

Official Police Garage Association of Los Angeles

Orange County Business Council

Palos Verdes Peninsula Chamber of Commerce

Paso Robles Chamber of Commerce

Rancho Cordova Area Chamber of Commerce

Roseville Area Chamber of Commerce

San Juan Capistrano Chamber of Commerce

Santa Barbara South Coast Chamber of Commerce

Santa Clarita Valley Chamber of Commerce

Santa Maria Valley Chamber of Commerce

Santee Chamber of Commerce

Simi Valley Chamber of Commerce

South County Chambers of Commerce

Southern California Contractors Association

Southern California Glass Management Association

Templeton Chamber of Commerce

Tri County Chamber Alliance

Tulare Chamber of Commerce

United Contractors

Vista Chamber of Commerce

Wall and Ceiling Alliance

Walnut Creek Chamber of Commerce

West Ventura County Business Alliance

Western Electrical Contractors Association

Western Growers Association

Western Line Constructors Chapter, Inc.

Western Painting & Coating Contractors Association

Western Wall and Ceiling Contractors Association

ARGUMENTS IN SUPPORT: The California Employment Lawyers Association and the Consumer Attorneys of California write:

SB 365 will put consumers and workers back on track toward justice by allowing them to continue their court cases while a corporation’s appeal of a court’s denial of the corporation’s motion to compel arbitration is pending. Specifically, SB 365 amends Code of Civil Procedure § 1294 to establish that an appeal of a court’s decision denying a corporation’s motion to compel arbitration will not stay the consumer or worker’s court proceedings in the trial court while the appeal is pending. Therefore, the consumer or worker’s case can continue to move forward at the same time that the appeal is being considered.

The issue of corporations filing appeals only to delay justice has become increasingly problematic as current law allows corporate defendants to effectively freeze a worker or a consumer's case – often for years at a time – by simply filing an appeal. Californians have an urgent need to address this delay tactic that obstructs access to justice.

ARGUMENTS IN OPPOSITION: The California Chamber of Commerce writes:

By requiring litigation to continue in every case during the appeal of a denial of a motion to compel, SB 365 undercuts the benefits of arbitration in providing a speedier, less costly forum in which to resolve disputes. Similar to the Ninth Circuit’s analysis of AB 51, it is clear that the intent behind SB 365 and its impact of forcing litigation in every case where an appeal is pending is to have a deterrent effect on a company’s willingness to enter into arbitration agreements. That is “antithetical” to the “liberal federal policy favoring arbitration agreements.” A state law “evincing hostility toward arbitration” is in direct conflict with the equal-treatment principle.

Further, SB 365 “singles out arbitration provisions as an exception” to the law. It does so by removing appeals related to the denial of a motion to compel arbitration from the purview of Code of Civil Procedure Section 916 as well as eliminating a trial court’s inherent power to grant a discretionary stay in that circumstance only. SB 365 is clearly preempted by the FAA.^[1]

Prepared by: Christian Kurpiewski / JUD. / (916) 651-4113

5/23/23 13:28:12

**** END ****

1. Citing Chamber of Commerce of the United States v. Bonta (9th Cir. 2023) No. 20-15291, 2023 U.S. App. LEXIS 3586, at *16-17, throughout. ↑

SENATE COMMITTEE ON

Senator Anthony Portantino, Chair

2023 - 2024 Regular Session

SB 365 (Wiener) - Civil procedure: arbitration

Bill Summary:

SB 365 would prohibit the staying of civil legal proceedings during the pendency of an appeal of a denial or dismissal of a petition to compel arbitration.

*********** ANALYSIS ADDENDUM – SUSPENSE FILE ***********

The following information is revised to reflect amendments

adopted by the committee on May 18, 2023

Fiscal Impact:

Unknown, potentially significant court workload cost pressures in order to adjudicate civil cases that ultimately will be ordered to arbitration after a decision by the appellate court (Trial Court Trust Fund, General Fund).

Author Amendments:

Provide that the perfecting of an appeal of a denial or dismissal of a petition to compel arbitration shall not automatically stay any proceedings in the trial court during the pendency of the appeal.

-- END --

SENATE COMMITTEE ON APPROPRIATIONS

Senator Anthony Portantino, Chair

2023 - 2024 Regular Session

SB 365 (Wiener) - Civil procedure: arbitration

Bill Summary:

SB 365 would prohibit the staying of civil legal proceedings during the pendency of an appeal of a denial or dismissal of a petition to compel arbitration.

Fiscal Impact:

Unknown, potentially significant court workload cost pressures in order to adjudicate civil cases that ultimately will be ordered to arbitration (Trial Court Trust Fund, General Fund). See Staff Comments for additional details.

Background:

Arbitration is an alternative method for resolving legal disputes. Instead of going through the formal, public court process, the parties to the dispute submit their evidence and legal arguments to a private arbitrator (or a panel of arbitrators) who decides the case. Critics of arbitration point out that it can be one-sided, especially when it is forced upon the party with much less bargaining power, and that it lacks the transparency of the public court system, among other things.

Currently, when a plaintiff brings suit against a defendant based upon claims covered by an arbitration agreement, the defendant may petition the court to compel the plaintiff to arbitrate the controversy. The court is required to order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists. When a plaintiff files an action in court and the defendant’s petition to compel arbitration is denied or dismissed, the defendant has the ability to immediately appeal the order as a matter of right and does not have to await final judgment in the matter. The proceedings are then halted pending that appeal. In contrast, the plaintiff who opposes the validity or the applicability of the arbitration agreement in that dispute and who wishes to proceed to trial is not permitted to immediately appeal an order compelling arbitration and must wait until after arbitration is complete to appeal from the final arbitration award. In extraordinary circumstances, a plaintiff may seek a writ of mandate to obtain interlocutory appellate review of the matter before proceeding to arbitration pursuant to the court order. Unlike an appeal, that is a matter of right, a writ of mandate is discretionary; a court has the discretionary power to issue a writ only in exceptional circumstances.

This bill would maintain the right of a party to immediately appeal an order dismissing or denying a petition to compel arbitration, however, it would provide that such an appeal must not stay the proceedings in the trial court during the pendency of the appeal. Therefore, should a court find grounds to deny a petition seeking to force the parties to arbitration, the proceedings will continue simultaneously with the appeals process. In this way, the bill would prevent appeals that are unlikely to succeed from sidelining court proceedings that will ultimately have to be undertaken once the appeal is denied. On the other hand, it may be inefficient to undergo a series court proceedings that will ultimately be irrelevant when an appeal is successful and the case is sent to arbitration.

Proposed Law:

Prohibits the staying of civil legal proceedings during the pendency of an appeal of a denial or dismissal of a petition to compel arbitration.

Related Legislation:

SB 1065 (Monning) Ch. 628, Stats. 2016 provided that in an appeal from an order dismissing or denying a petition to compel arbitration, the court of appeal must issue its decision within 100 days after the notice of appeal is filed if the appeal involves a claim under the Elder and Dependent Adult Civil Protection Act and other conditions are met, as specified.

Staff Comments:

SB 365 is likely to promote some efficiency in terms of the volume of cases that are heard by the courts of appeal. Under its provisions, litigants are likely to be discouraged from filing appeals of denials of motions to compel arbitration that are weak or legally tenuous. On the other hand, trial courts are likely to experience an increase in workload. A successful motion to compel arbitration takes the case out of the courts and requires the case to be heard by a private arbitrator. Because this bill would prohibit a court from staying court proceedings while an appeal of a denial of a motion to compel arbitration is pending, there will be cases that proceed in superior court, use judicial time and resources, and produce rulings and opinions that are ultimately unbinding because the case is sent to arbitration once the appeal is complete. It is unknown how many cases will be required to proceed through the court process while a denial of a motion to compel arbitration is pending on appeal under the provisions of this bill, nor how many will eventually result in a reversal of the denial of the motion to compel arbitration. However, it appears that during the last year California appellate courts have overturned dozens of denials of motions to compel arbitration. Appeals can take many months, and sometimes a year or more to complete. Numerous court proceedings may take place during that time, requiring significant court resources and staff time. It generally costs about $1,000 to operate a courtroom for one hour. Although courts are not funded on the basis of workload, increased staff time and resources may create a need for increased funding for courts from the General Fund (GF) to perform existing duties. Numerous trial court operations are funded through the imposition and collection of criminal fines and fees. However, the Legislature has reduced and eliminated criminal fines and fees over the past decade. As a result, the 2023-24 proposed budget anticipates an ongoing annual allocation of $109.3 million from the GF to backfill declining revenue to the Trial Court Trust Fund.

-- END --

SENATE JUDICIARY COMMITTEE

Senator Thomas Umberg, Chair

2023-2024 Regular Session

Bill No: SB 365 (Author:Wiener)

Version: February 8, 2023

Hearing Date: April 11, 2023

Fiscal: No

Urgency: No

Consultant: CK

SUBJECT

Civil procedure: arbitration

DIGEST

This bill prohibits the staying of civil legal proceedings during the pendency of an appeal of a denial or dismissal of a petition to compel arbitration.

EXECUTIVE SUMMARY

Under California law, the power to appeal is wholly statutory and is generally from a final judgment or order. While in civil actions those rights are generally provided under Code of Civil Procedure Section 904.1, existing law also specifically enumerates the orders from which appeal may be taken in relation to arbitration. Code of Civil Procedure Section 1294 is a statutory right to appeal the dismissal or denial of a petition to compel arbitration. When a defendant appeals an order dismissing or denying a petition to compel arbitration, it stays the proceedings during the pendency of the appeal.

Proponents of this bill argue that corporate defendants are abusing the automatic stay when a motion to compel arbitration is denied by the trial court and then appealed by the defendant, using it as a delay tactic causing real harm to consumers and workers. This bill provides that there shall be no stay of the proceedings when an order dismissing or denying a motion to compel arbitration is appealed.

The bill is co-sponsored by Attorney General Rob Bonta, the California Employment Lawyers Association, and the Consumer Attorneys of California. It is supported by an array of labor groups and public prosecutors, including the California Teamsters Public Affairs Council and the San Diego and San Francisco City Attorneys’ Offices. It is opposed by a variety of business groups, including the California Chamber of Commerce who argue it improperly strips courts of discretion and is preempted by federal law.

PROPOSED CHANGES TO THE LAW

Existing law:

1. Establishes the California Arbitration Act (CAA), which governs arbitrations in California, including the enforcement of arbitration agreements, rules for neutral arbitrators, the conduct of arbitration proceedings, and the enforcement of arbitration awards. (Code Civ. Proc. § 1280 et. seq.)
2. Establishes the Federal Arbitration Act (FAA), which provides that a written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. (9 U.S.C. § 2.)
3. Authorizes appeals in civil actions to the Court of Appeal of specified orders and judgments, including:
   1. from a judgment, except an interlocutory judgment or a judgment of contempt, as provided;
   2. from an order made after a judgment;
   3. from an order granting a motion to quash service of summons or granting a motion to stay the action on the ground of inconvenient forum, or from a written order of dismissal following an order granting a motion to dismiss the action on the ground of inconvenient forum;
   4. from an order granting a new trial or denying a motion for judgment notwithstanding the verdict;
   5. from an order granting or dissolving an injunction, or refusing to grant or dissolve an injunction;
   6. from an order made appealable by the Probate Code or the Family Code;
   7. from an interlocutory judgment directing payment of monetary sanctions by a party or an attorney for a party, as provided; or
   8. from an order granting or denying a special motion to strike. (Code Civ. Proc. § 904.1.)
4. Authorizes an aggrieved party to appeal from the following orders:
   1. an order dismissing or denying a petition to compel arbitration;
   2. an order dismissing a petition to confirm, correct, or vacate an award;
   3. an order vacating an award unless a rehearing in arbitration is ordered;
   4. a judgment entered pursuant to this title; and
   5. a special order after final judgment. (Code Civ. Proc. § 1294.)
5. Provides that, except as specified, the perfecting of an appeal stays proceedings in the trial court upon the judgment or order appealed from or upon the matters embraced therein or affected thereby, including enforcement of the judgment or order, but the trial court may proceed upon any other matter embraced in the action and not affected by the judgment or order. (Code Civ. Proc. § 916(a).)
6. Provides that there is a stay of proceedings other than the enforcement of the judgment, the trial court shall have jurisdiction of proceedings related to the enforcement of the judgment as well as any other matter embraced in the action and not affected by the judgment or order appealed from. (Code Civ. Proc. § 916(b).)
7. Requires a court, upon petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, to order arbitration of the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines certain conditions exist, including that the right to compel arbitration has been waived by the petitioner or grounds exist for the rescission of the agreement. (Code Civ. Proc. § 1281.2.)
8. Provides that a party may not appeal an order compelling arbitration until after final judgment, but may, under extraordinary circumstances, seek a writ of mandate to request review of the ruling by the court of appeal in advance of the arbitration hearing. (Laufman v. Hall-Mack Co. (1963) 215 Cal.App.2d 87; United Firefighters of Los Angeles v. City of Los Angeles (1991) 231 Cal.App.3d 1576; Mid-Wilshire Associates v. O’Leary (1992) 7 Cal.App.4th 1450.)

This bill prohibits the staying of civil legal proceedings during the pendency of an appeal of a denial or dismissal of a petition to compel arbitration, notwithstanding Section 916 of the Code of Civil Procedure.

COMMENTS

1. Arbitration and appeals

Arbitration is an alternative method for resolving legal disputes. Instead of going through the formal, public court process, the parties to the dispute submit their evidence and legal arguments to a private arbitrator (or a panel of arbitrators) who decides the case. Critics of arbitration point out that it can be one-sided, especially when it is forced upon the party with much less bargaining power, and that it lacks the transparency of the public court system, among other things.

Currently, when a plaintiff brings suit against a defendant based upon claims covered by an arbitration agreement, the defendant may petition the court to compel the plaintiff to arbitrate the controversy. Pursuant to Section 1281.2 of the Code of Civil Procedure, the court is required to order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists. Section 1281.2 provides a number of exceptions, however.

Prior to 1961, California courts widely held that neither an order compelling arbitration, nor an order denying a petition to compel arbitration is an appealable order. These cases relied on United States Supreme Court cases that held a ruling as to the right to arbitration is interlocutory and not appealable as a final judgment, and the fact that such orders were not enumerated among those made appealable under then-Section 1293, the precursor to today’s Section 1294.^[1] As a result, whether or not the court granted or denied a party’s petition to compel arbitration, parties on both sides of the issue were limited to appealing the order after judgment – either from the award made in arbitration, or from the judgment entered after trial.

The Legislature changed the law in 1961, based on the recommendations of a California Law Revision Commission (CLRC) report examining California laws on arbitration. The CLRC recommended that California law provide for an appeal of an order denying a motion to compel arbitration in order to “be in conformity with the present spirit of the statute and with the similar provision in Section 19 of the Uniform Arbitration Act.” The resulting law, Section 1294 of the Code of Civil Procedure, currently provides for a statutory right to immediately appeal the dismissal or denial of a petition to compel arbitration. It does not, however, provide for a parallel right of immediate appeal if the motion to compel has been granted.^[2] Furthermore, when a party immediately appeals a denial or dismissal of a petition to compel arbitration, Section 916 of the Code of Civil Procedure then operates to stay the proceedings pending that appeal.^[3]

In other words, under existing law, when a plaintiff files an action in court and the defendant’s petition to compel arbitration is denied or dismissed, the defendant has the ability to immediately appeal the order as a matter of right and does not have to await final judgment in the matter. The proceedings are then halted pending that appeal. In contrast, the plaintiff who opposes the validity or the applicability of the arbitration agreement in that dispute and who wishes to proceed to trial is not permitted to immediately appeal an order compelling arbitration and must wait until after arbitration is complete to appeal from the final arbitration award. At best, the plaintiff, under extraordinary circumstances, may seek a writ of mandate to obtain interlocutory appellate review of the matter before proceeding to arbitration pursuant to the court order. A writ of mandate, unlike an appeal that is a matter of right, is discretionary; a court has the discretionary power to issue a writ only in those exceptional circumstances that warrant such interlocutory review.

Attorneys for workers and consumers have repeatedly raised concerns that this uneven playing field denies their clients justice:

Powerful corporations abuse this appeal right to force lengthy delays on plaintiffs seeking justice – during which time important documents disappear, key witnesses move away, and witnesses’ memories fade. Corporate defendants are appealing even in instances where there clearly is no arbitration agreement such as in cases brought by the city attorney and Attorney General. In People of the State of California v. Uber and Lyft, et al., a coordinated government enforcement action by the Attorney General, the California Labor Commissioner, and the City Attorneys of San Francisco, Log Angeles, and San Diego against Uber and Lyft for misclassifying their workers as purported “independent contractors,” the companies filed meritless motions in an attempt to compel the case into private arbitration.

The court ruled against Uber and Lyft because the government agencies did not sign the arbitration agreements and therefore could not be bound by them. But, due to the one-sided provision in the Code of Civil Procedure that places the court case on pause if an appeal is filed – even though no arbitration clause even existed to bind the State or Labor Commissioner to arbitration – Uber and Lyft were able to file a frivolous appeal to delay the State’s case and prevent it from proceeding until the appeal is resolved. These delays typically last one to three years.

1. Attempts to “level the playing field”

In 2011, AB 1062 (Dickinson, 2011) would have addressed the identified disparity between defendants and plaintiffs by largely reducing the ability to appeal a dismissal or denial of petition to compel arbitration on an interlocutory basis. That bill would have generally required both parties to await final judgment to appeal the motion. That bill was ultimately gutted and amended and failed passage.

SB 1065 (Monning, Ch. 628, Stats. 2016) sought to take a narrower approach by addressing only the specific harm that arises for elderly individuals who have been granted a trial preference under other applicable law, and who bring claims under the Elder and Dependent Adult Civil Protection Act. It would have prevented an interlocutory appeal of an order denying arbitration under Section 1294 under these limited circumstances. Ultimately, the bill was amended to simply provide for an expedited review by the appellate courts of appeals in such cases.

This bill again approaches the issue with a narrower solution. While still maintaining the right of a party to immediately appeal an order dismissing or denying a petition to compel arbitration, it holds that such an appeal must not stay the proceedings in the trial court during the pendency of the appeal, notwithstanding Section 916. Therefore, should a court find grounds to deny a petition seeking to force the parties to arbitration, the proceedings will continue simultaneously with the appeals process.

According to the author:

Senate Bill 365 allows consumers, workers, and public entities to continue their court cases when a trial court rules that a forced arbitration agreement is invalid. Current law allows corporate defendants to pause a consumer, government, or worker’s case by simply filing an appeal of a trial court’s denial of a motion to compel arbitration. Through this process, powerful corporations delay cases filed against them for typically one to three years. This bill allows consumers, governments, or workers to move their case forward if a company files an appeal, rather than waiting for years while the appeal is heard. SB 365 will level the playing field for consumers, governments, and workers who deserve to move their case forward when a company or employer violates their rights.

Concerns have been raised that allowing a case to move forward pending the appeal could risk wasting judicial resources, especially should an appeal drag on so long that the case went to trial.

1. Stakeholder positions

The California Employment Lawyers Association and the Consumer Attorneys of California, co-sponsors of the measure, make the case for the bill:

SB 365 will put consumers and workers back on track toward justice by allowing them to continue their court cases while a corporation’s appeal of a court’s denial of the corporation’s motion to compel arbitration is pending. Specifically, SB 365 amends Code of Civil Procedure § 1294 to establish that an appeal of a court’s decision denying a corporation’s motion to compel arbitration will not stay the consumer or worker’s court proceedings in the trial court while the appeal is pending. Therefore, the consumer or worker’s case can continue to move forward at the same time that the appeal is being considered.

The issue of corporations filing appeals only to delay justice has become increasingly problematic as current law allows corporate defendants to effectively freeze a worker or a consumer's case – often for years at a time – by simply filing an appeal. Californians have an urgent need to address this delay tactic that obstructs access to justice.

The Church State Council writes in support of the bill:

The Church State Council represents workers denied religious accommodation or otherwise suffering employment discrimination, harassment and/or retaliation because of their religious practices. Too often, these cases are delayed for years by appeals to denial of arbitration. In one such case, currently pending, the plaintiff sued Charter Communications in September, 2019, nearly four years ago! It took three years to resolve the arbitration issue, so that the case could proceed.

Justice delayed is no justice at all for workers who lose their jobs. In our cases, workers lose their jobs for no other crime than seeking to practice their religious beliefs. SB 365 is an important measure to keep the wheels of justice turning.

Writing in opposition, the California Chamber of Commerce argues:

It is clear that the true motive behind SB 365 is an attempt to eliminate the use of arbitration agreements altogether. SB 365 incorrectly assumes that all appeals related to arbitration are meritless. It also undermines the judicial principles embodied in Code of Civil Procedure section 916 and eliminates a trial court’s inherent right to stay its own proceedings.

Attorney General Rob Bonta, also a co-sponsor, writes in support:

The denial of a motion to compel arbitration is a rare instance in which the law allows an immediate appeal of a trial court ruling that occurs other than at the end of a case. Notably, workers and consumers are not afforded the same luxury. Existing law does not allow a worker or consumer the same automatic appeal rights and a pause on the arbitration when the court grants a company’s petition to move the case to private arbitration. Corporate defendants are appealing even in instances where there clearly is no valid arbitration agreement. This specific issue deserves attention, with more than half of America’s workforce forced to sign forced arbitration clauses as a condition of employment.5 These agreements are becoming more common for consumers too, as a precondition to using certain websites and apps that are embedded into modern day living.

Defendants have even employed these tactics in an effort to derail law enforcement proceedings. For example, defendant corporations filed interlocutory appeals following the denial of their motions to compel arbitration in both People v. Handy Technologies (Cal. Super. Ct., No. CGC21590442), brought by the district attorneys of Los Angeles and San Francisco, and People v. Maplebear, Inc. (Cal. Super. Ct., No. 37-2019-00048731-CU-MC-CTL), brought by the City Attorney of San Diego.

This important bill will improve Californians’ access to justice, by allowing a worker’s or consumer’s case to proceed when a court denies a motion to compel arbitration, denials that have already been made in public and private enforcement cases in California. As these meritless appeals and stays continue, so too is justice denied.

1. Interaction with federal law

The California Chamber of Commerce also puts forth the argument that the bill is likely preempted by the Federal Arbitration Act (FAA):

By requiring litigation to continue in every case during the appeal of a denial of a motion to compel, SB 365 undercuts the benefits of arbitration in providing a speedier, less costly forum in which to resolve disputes. Similar to the Ninth Circuit’s analysis of AB 51, it is clear that the intent behind SB 365 and its impact of forcing litigation in every case where an appeal is pending is to have a deterrent effect on a company’s willingness to enter into arbitration agreements. That is “antithetical” to the “liberal federal policy favoring arbitration agreements.” A state law “evincing hostility toward arbitration” is in direct conflict with the equal-treatment principle.

Further, SB 365 “singles out arbitration provisions as an exception” to the law. It does so by removing appeals related to the denial of a motion to compel arbitration from the purview of Code of Civil Procedure Section 916 as well as eliminating a trial court’s inherent power to grant a discretionary stay in that circumstance only. SB 365 is clearly preempted by the FAA.^[4]

The FAA provides:

A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.^[5]

The concept of preemption derives from the “supremacy clause” of the federal Constitution, which provides that the laws of the United States “shall be the supreme Law of the Land.”^[6] Courts have typically identified three circumstances in which federal preemption of state law occurs:

(1) express preemption, where Congress explicitly defines the extent to which its enactments preempt state law; (2) field preemption, where state law attempts to regulate conduct in a field that Congress intended the federal law exclusively to occupy; and (3) conflict preemption, where it is impossible to comply with both state and federal requirements, or where state law stands as an obstacle to the accomplishment and execution of the full purpose and objectives of Congress.^[7]

In assessing whether a state law is preempted by the FAA, three key aspects of the law surrounding arbitration and preemption are especially relevant. First, the federal courts have ruled that the FAA was intended to promote arbitration.^[8] Second, state laws or rules that interfere with the enforcement of arbitration agreements are preempted, except on such grounds as exist at law or in equity for the revocation of any contract.^[9] Third, state laws that explicitly or covertly discriminate against arbitration agreements as compared to other contracts are also preempted.^[10]

Relevant here, in Bielski v. Coinbase, Inc., No. C 21-07478 WHA, 2022 U.S. Dist. LEXIS 65689, at *1 (N.D. Cal. Apr. 8, 2022), the Federal Court for the Northern District of California denied the defendant cryptocurrency corporation’s motion to compel arbitration. The court subsequently denied the defendant’s motion to stay the proceedings pending appeal.^[11] The court found that a denial of a motion to compel arbitration does not result in an automatic stay of proceedings pending appeal of that order, but rather requires the court to apply a series of factors to determine whether to issue a stay pending appeal. The Ninth Circuit Court of Appeals upheld the denial of a stay.^[12]

The United States Supreme Court recently granted a petition for certiorari filed by the defendant in Coinbase.^[13] The appeal seeks to resolve a circuit split on the issue of whether a lawsuit in federal court should be automatically stayed pending an appeal of a decision denying a motion to compel arbitration. Similar to California law, the FAA provides that when a district court denies a motion to compel arbitration, the party seeking arbitration may file an immediate interlocutory appeal. However, a circuit split exists over whether the appeal automatically requires the district court proceedings to be stayed until the appeal is resolved or whether the district court retains the discretion to proceed with litigation while an appeal is pending.

Federal courts in California and other states thus find the continuation of proceedings during the pendency of an appeal of a denial of a motion to compel arbitration does not upset the goals and purpose of the FAA. One federal court has explicitly found that “a federal policy favoring arbitration ‘does not, by itself, require a stay.’”^[14]

In should also be noted that the statute, even with the changes made by this bill, explicitly favors arbitration agreements by granting defendants the right to appeal a denial of a motion to compel arbitration on an interlocutory basis but providing no such right when such motions are granted.

SUPPORT

Attorney General Rob Bonta (co-sponsor)

California Employment Lawyers Association (co-sponsor)

Consumer Attorneys of California (co-sponsor)

California Conference Board of the Amalgamated Transit Union

California Conference of Machinists

California Rural Legal Assistance Foundation

California Teamsters Public Affairs Council

Church State Council

Consumer Federation of California

Consumer Watchdog

Consumers for Auto Reliability and Safety

Courage California

Engineers and Scientists of California, IFPTE Local 20, AFL-CIO

Equal Rights Advocates

Roots of Change

San Diego City Attorney's Office

San Francisco City Attorney's Office

San Francisco District Attorney Brooke Jenkins

SEIU California

Smart Justice California

TechEquity Collaborative

UFCW Western States Council

UNITE-HERE, AFL-CIO

Utility Workers Union of America, AFL-CIO

OPPOSITION

Acclamation Insurance Management Services

Allied Managed Care

Anaheim Chamber of Commerce

CalBroadband

California Apartment Association

California Association for Health Services At Home

California Association of Health Facilities

California Attractions and Parks Association

California Beer and Beverage Distributors

California Business Properties Association

California Chamber of Commerce

California Defense Counsel

California Employment Law Council

California Farm Bureau

California Hotel & Lodging Association

California League of Food Producers

California Lodging Industry Association

California Restaurant Association

California Retailers Association

California Trucking Association

Carlsbad Chamber of Commerce

Chino Valley Chamber of Commerce

Civil Justice Association of California

Coalition for Small and Disabled Veteran Businesses

Coalition of California Chambers – Orange County

Construction Employers' Association

Corona Chamber of Commerce

Elk Grove Chamber of Commerce

Flasher Barricade Association

Fontana Chamber of Commerce

Gilroy Chamber of Commerce

Greater Coachella Valley Chamber of Commerce

Greater High Desert Chamber of Commerce

Greater Riverside Chambers of Commerce

Hollywood Chamber of Commerce

Housing Contractors of California

Independent Lodging Industry Association.

La Canada Flintridge Chamber of Commerce

La Verne Chamber of Commerce

Laguna Niguel Chamber of Commerce

Murrieta Wildomar Chamber of Commerce

Norwalk Chamber of Commerce

Official Police Garage Association of Los Angeles

Orange County Business Council

Palos Verdes Peninsula Chamber of Commerce

Paso Robles Chamber of Commerce

Rancho Cordova Area Chamber of Commerce

Roseville Area Chamber of Commerce

San Juan Capistrano Chamber of Commerce

Santa Barbara South Coast Chamber of Commerce

Santa Clarita Valley Chamber of Commerce

Santa Maria Valley Chamber of Commerce

Santee Chamber of Commerce

Simi Valley Chamber of Commerce

South County Chambers of Commerce

Templeton Chamber of Commerce

Tri County Chamber Alliance

Tulare Chamber of Commerce

Vista Chamber of Commerce

Walnut Creek Chamber of Commerce

West Ventura County Business Alliance

Western Electrical Contractors Association

RELATED LEGISLATION

Pending Legislation: SB 716 (Alvarado-Gil, 2023) enacts the Excluded Employee Arbitration Act to permit an employee organization that represents an excluded employee who has filed certain grievances with the Department of Human Resources to request binding arbitration of the grievance if specified conditions are met. This bill is currently in the Senate Labor, Public Employment and Retirement Committee.

Prior Legislation:

AB 272 (Kiley, Ch. 146, Stats. 2021) authorizes a minor to disaffirm a provision in an educational institution’s enrollment agreement that purports to waive a legal right, remedy, forum, proceeding, or procedure, arising out of a criminal sexual assault or criminal sexual battery, as defined, on that minor regardless of whether a parent or legal guardian has signed the enrollment agreement on the minor’s behalf.

SB 1065 (Monning, Ch. 628, Stats. 2016) See Comment 2.

AB 1062 (Dickinson, 2011) See Comment 2.

**************

1. (Sjoberg v. Hastrof (1948) 33 Cal.2d 116, 118-119, citing Shanferoke Co. v. Westchester Co. (1935) 239 U.S. 449 and Schoenamsgruber v. Hamburg Line (1935) 294 U.S. 454; Jardine-Matheson Co., Ltd. v. Pacific Orient Co. (1929) 100 Cal.App. 572; Fischer v. Superior Court (1930) 105 Cal.App. 466.) ↑

2. Code Civ. Proc. § 1294(a). ↑

3. See also, Varian Med. Sys., Inc. v. Delfino (2005) 35 Cal. 4th 180, 190 (“an appeal from the denial of a motion to compel arbitration automatically stays all further trial court proceedings on the merits.”) ↑

4. Citing Chamber of Commerce of the United States v. Bonta (9th Cir. 2023) No. 20-15291, 2023 U.S. App. LEXIS 3586, at *16-17, throughout. ↑

5. 9 U.S.C. § 2. ↑

6. U.S. Const., art. VI, cl. 2. ↑

7. English v. Gen. Elec. Co. (1990) 496 U.S. 72, 78-80. ↑

8. Epic Sys. Corp. v. Lewis (2018) ___U.S.___ [138 S.Ct. 1612, 1621]. ↑

9. 9 U.S.C. Sec. 2; AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 339. ↑

10. Epic Sys. Corp., 138 S.Ct. at 1645-1646. ↑

11. Id., at *2. ↑

12. It should be noted that the decision does not have any legal effect on the state of the law in California. ↑

13. The petition also included a request to review a similar denial of a stay by the Ninth Circuit in Suski v. Coinbase, Inc., No. 22-15209, 2022 U.S. App. LEXIS 14737, at *1 (9th Cir. May 27, 2022). ↑

14. Bielski v. Coinbase, Inc., No. C 21-07478 WHA, 2022 U.S. Dist. LEXIS 101748, at *4 (N.D. Cal. June 7, 2022). ↑