Imagine this scenario: your client entered into a contract containing a binding arbitration clause, and the other side insists on arbitrating the dispute. However, when you attempt to move forward with arbitration, the other party is unresponsive, fails to reply to your or the arbitrator’s correspondences, refuses to pay its share of the arbitration fees, and/or generally fails to engage in the process. Surely, you can obtain a default judgment from the arbitrator under these circumstances?
Unfortunately, the answer is not straightforward, and comprises the classic attorney adage, “it depends.” This is because the options available to you will depend on two significant factors: whether the arbitrator’s procedures and policies make it viable to pursue a judgment in that forum, and whether or not your client has a pending court case that may allow you to seek judicial termination of the arbitration and subsequent litigation of your claims.
Proceeding in Arbitration
If you are lucky, in the case of non-engagement by the other side, your arbitration provider will agree to simply issue a default judgment. However, this is rare. More frequently, the arbitration provider will present you with two options: either try for a judgment via a prove-up hearing, or request an administrative suspension of the arbitration and take your troubles elsewhere. For the reasons discussed here, if you have a pending lawsuit on file, proceeding with an administrative suspension and attempting to resume litigation in court will likely be your best bet.
An arbitration prove-up hearing sounds good in theory, but has at least two significant downsides. First, obtaining a judgment in arbitration without sharing costs and fees with the opposing side can be exceedingly costly. Most arbitrators will require your client to pay the other side’s initial filing fee (which varies by arbitration provider and type of case); the arbitrator’s retainer fee upon selection of an arbitrator following issuance of a “strike list” to both sides; and all fees ultimately incurred by the arbitrator for the time he or she spends reviewing the evidence and materials that you present in order to reach a judgment. These amounts may be prohibitively expensive for your client, depending on the damages at stake and other factors.
Further, unlike in a default proceeding in court, an opposing party in arbitration is allowed to appear at any point in the proceedings to defend himself or herself, regardless of the prior failure to pay fees or otherwise engage in the process. For example, the opposing party could appear to strike arbitrators once you have already paid the initial fees on his or her behalf. Or, the opposing party could wait for your client to pay all of the required fees, and then ultimately appear at the prove-up hearing with a last-minute defense. These tactics compound the delay caused by the opposing party’s earlier gamesmanship by also jeopardizing your client’s chance of obtaining a judgment.
Proceeding in Court
The second option is to request that the arbitrator issue an administrative suspension of the case, and to try and pick up where you left off in court, presuming your client has a pending lawsuit. This is typically the scenario where you have filed a lawsuit despite (or in ignorance of) the existence of an arbitration agreement, and have lost your opposition to the other side’s motion to compel arbitration, resulting in a stay of the lawsuit during the pendency of the arbitration.
California courts have held that when a motion to compel arbitration has been filed, the “court in which such petition was filed retains jurisdiction to determine any subsequent petition involving the same agreement to arbitrate and the same controversy, and any such subsequent petition shall be filed in the same proceeding. Dial 800 v. Fesbinder (2004) 118 Cal.App.4th 32, 45; see also Preston v. Kaiser Foundation Hospitals (1981) 126 Cal.App.3d 402, 407 (holding that the Court retains jurisdiction to enter petition by plaintiff for judicial assistance in moving the arbitration forward for reasons beyond the plaintiff’s control). As such, when the opposing side fails to engage in the arbitration that they insisted on in the first place, you can request relief, including asking the court to issue an Order to Show Cause for why a default should not be entered, or simply asking the Court to enter default against the opposing party for their failure to participate in the arbitration process.
In such cases, you should request that the administrative suspension letter include a short summary of the status of the case, and recite the opposing party’s failure to respond and/or failure to pay fees. This letter can be offered in support of your attempts to terminate the arbitration and proceed in court. The Ninth Circuit has held that a party’s refusal to pay its portion of the arbitration fees, or its failure to engage in an arbitration proceeding, is in breach of the arbitration agreement, and that as such, the party may not later change course and compel arbitration following such tactics. See Brown v. Dillard’s, Inc., 430 F.3d 1004 (9th Cir. 2005). This should preclude any effective opposition to your motion to proceed in court.
While an opposing side’s bad faith delay tactics in arbitration proceedings can be frustrating and costly, they should not be the last word in the dispute. The methods discussed above should help to put an end to the gamesmanship and ultimately achieve justice for your client.
Michael Fleming is an associate of Dhillon Law Group Inc.