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Wednesday, June 27, 2012

Cinel v. Barna: Failure to Pay Arbitration Fees Waives Right to Compel Arbitration

Another wrinkle in the Arbitration Wars. In Cinel v. Barna (6/15/12) --- Cal.App.4th ---, the plaintiff, Cinel, sued for securities fraud, and defendant Barna petitioned to compel arbitration. The trial court (Los Angeles Superior, Judge Malcolm H. Mackey) granted the petition, and the parties initiated arbitration proceedings. Barna paid his mediation fees, but Cinel and several defendants refused to do so. The arbitrator terminated the proceedings.

Back in the trial court, one of the defendants moved to confirm the arbitrator's termination ruling and dismiss Cinel's complaint. The trial court denied the motion, finding the termination of the arbitration did not constitute an award subject to confirmation. The Court of Appeal affirmed this ruling. Cinel v. Christopher (2012) 203 Cal.App.4th 759. 

On remand, Barna once again petitioned to compel arbitration. The trial court "admonished the paying parties to 'work it out,' or the matter would proceed to trial." Barna advised the court he did not have the funds to pay for the nonpaying parties to the arbitration, and the court denied the motion to compel.

The Court of Appeal affirmed, holding that "the defendants have waived their right to arbitrate by refusing to reach a resolution with Cinel on the fee dispute." Slip op. at 6.

Here, by refusing to agree among themselves to pay the fees of the nonpaying parties, both plaintiff and defendant Barna have waived the arbitration agreement by their collective and simultaneous repudiation of it through their refusal to reach an agreement as ordered by the arbitrator over the payment of fees. The panel, under the authority of the AAA Rules, ordered the parties to split the fees of the nonpaying parties; when the paying parties refused to do so, the arbitration was terminated. By failing to come to an agreement that would permit them to proceed with the arbitration, the parties have collectively waived their right to arbitrate. Unless and until the parties agree to pay the pro rata share of the nonpaying parties per the panel's order, there can be no arbitration.
Slip op. at 7-8.  The opinion is available here

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