Definitely default

A second timely ruling just dropped on Friday, and this one is most definitely not in Patreon’s favor. An August 14 decision by a US District Court judge has settled what had hitherto been the undefined “due date” of the new California law intended to prevent corporations from delaying and evading arbitrations, and it means that Patreon is in material default of every single one of the Bears’ 91 arbitrations. 
Dekker v. Vivint Solar, Inc., No. C 19-07918 WHA (N.D. Cal. Aug. 14, 2020)

The legislature expressly sought to avoid a “perverse incentive scheme” whereby ambiguity in the law allowed companies to delay adjudication, perhaps even affording them “an incentive to refuse to arbitrate claims . . . in the hope that the frustrated [employees and consumers] would simply abandon them.” Id. at 8 (quoting Brown v. Dillard’s, 430 F.3d 1004, 1012 (9th Cir. 2005)) (emphasis added).

Yet, this “perverse incentive scheme” remains a distinct possibility under defendants’ theory of the due date. At the hearing, defense counsel admitted that, in their view, if JAMS hypothetically granted a due date extension after defendants missed a first given due date, § 1281.97’s 30-day grace period would only begin after defendants missed the second due date (Dkt. No. 81 at 14). Under this view, the arbitrator could postpone time and again, delaying the 30-day grace period for as long as the arbitrator wished. This would subvert the whole point of the new law.

Finally, a similar action involving food delivery app Postmates illustrates how other arbitration providers have responded to the new California law. There, over ten thousand former and current Postmates drivers filed individual arbitration demands against Postmates with the American Arbitration Association on February 15, 2020, pursuant to the mandatory arbitration provisions in their contracts. The AAA notified Postmates of the filings and gave a payment due date of March 16. The AAA wrote that, subject to the newly enacted § 1281.97, “payment must be received by April 15, 2020 or the AAA may close the parties’ cases,” and that it would “not grant any extensions to this payment deadline.” Postmates, now owing over $4.6 million in initial filing fees, sought a TRO to enjoin the drivers from enforcing § 1281.97. The court denied Postmates’ request, finding, among other things, that payment of filing fees would not irreparably harm Postmates, and that the balances of equities favored the drivers, who “have an interest in having their claims heard in a timely matter.” Postmates Inc. v. 10,356 Individuals, No. CV 20-2783 PSG (JEMx), 2020 WL 1908302 at *4, 9 (C.D. Cal. Apr. 15, 2020) (Judge Philip Gutierrez).

There, with Postmates owing over $4.6 million in filing fees for over ten thousand arbitrations, the court refused to temporarily suspend the due date and buy Postmates more time. Here, on the other hand, defendants owed little more than $15,000 across the eight disputes. The district court also echoed California’s legislature when it weighed the competing interests and found that the drivers’ prevailed. “[The drivers] have an interest in being permitted to pursue their wage and hour claims in arbitration, which is supposed to be a speedy and inexpensive alternative to litigation.” Id. at *8 (internal quotations omitted). This decision, along with the clear legislative intent to prevent delays in commencing arbitration, points towards a strict enforcement of the 30-day grace period that begins upon defendants’ receipt of invoice.

When AAA said payment was due by April 15 without extensions, else the arbitrators could close their case, the court enforced that deadline. This order agrees with AAA’s view of § 1281.97. Here, the JAMS invoices stated that payment was due upon receipt. It is true that JAMS, perhaps in order to keep the business, was willing to let payment slide for a few weeks, but that doesn’t change the fact that it was due and payable upon receipt. Defendants then had 30 days to pay or be in material breach, even if JAMS was willing to wait. Waiting is delay, and delay is exactly what the legislature sought to stop.