Court of Appeal rules order deeming arbitration waived was appealable: Arzate v. ACE American Insurance Company

In Arzate v. ACE American Insurance Company,           Cal.App.5th           (Feb. 21, 2025), the Court of Appeal (Second Appellate District, Division One) held that a court order lifting a stay and deeming a defendant’s right to arbitration waived was appealable under the functional equivalent doctrine. 

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Plaintiffs filed a putative class action, alleging various wage and hour violations, and later amended their complaint to include representative PAGA claims. The trial court granted Defendant’s motion to compel arbitration, staying Plaintiff’s remaining PAGA claim. After the deadline for initiating arbitration had passed, Plaintiffs moved to lift the stay, arguing that Defendant was required to initiate arbitration under the parties’ agreement. The trial court agreed, finding that Defendant was in material breach of the arbitration agreement, because it hadn’t filed a demand within the prescribed 30 days. Defendant appealed.

The Court of Appeal reversed the approval of Plaintiff’s motion to lift the stay. As a threshold matter, following Hernandez v. Sohnen Enterprises, Inc. (2024) 102 Cal.App.5th 222, the Court of Appeal determined that the trial court’s order was functionally equivalent to an order denying a motion to compel arbitration, and thus appealable. It also found that, under 9 U.S.C. § 16, Defendants were entitled to appeal from an order refusing a stay. The court examined the parties’ agreement and found that Plaintiff, not Defendant, was required to initiate arbitration. The parties’ dispute centered on the definition of “the party who wants to start the [a]rbitration [p]rocedure.” The court found that, in the context of the entire agreement and its incorporated arbitration rules (which were generally based on the AAA rules), the phrase necessarily referred to Plaintiff.

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