If the person suing can't afford to pay, defendants may be required to pick up the tab. Nursing home that successfully compelled arbitration proceedings with family of decedent client was required to pay for all fees and costs or waive arbitration, where the patient was indigent. Hang v. RG Legacy I, LLC, No. G061265 (Cal. Ct. App. Feb. 8, 2023). 

Factual Background

Jimmy Hang, as a successor-in-interest and along with decedent's surviving wife, Weiping Wu, filed a complaint against RG Legacy Suites, a skilled nursing facility. Hang claimed that RG Legacy was negligent in the care of his father while he was a resident at their facility. The complaint also alleges that this neglect ultimately led to the patient's' death. Hang sued as the successor in interest for negligent hiring and supervision as well as elder abuse. Plaintiffs also included a claim for wrongful death. RG Legacy filed a petition to compel arbitration pursuant to the facility’s contract, which the court granted.

As the legal power of attorney for his father, Hang signed the arbitration agreement on his behalf. The arbitration agreement in addition to requiring arbitration for the resolution of any disputes, also provided that "each party shall bear its own costs and fees for the arbitration." Despite this Hang and his Father's wife filed an opposition to the petition to compel arbitration. They argued that because their father and husband had died indigent and the estate lacked the funds to pay for arbitration fees and costs, they should not be forced to arbitrate their claims. They also argued in the alternative, that if the court did compel arbitration, it should require RG Legacy to pay all costs and fees associated with it for both sides. The trial court granted RG Legacy's petition to compel arbitration and took under submission the issue if whether Hang as the successor in interest would be required to pay his portion of the arbitration costs.

Hang supplied the court with information on the typical cost of arbitration in an elder abuse case as well as a declaration regarding the zero balance of available funds in his father's account. He explained that his father's only source of income from 2017 until the time of his death was his $826.00 monthly social security check, which went to his father's care at the RG Legacy facility. At the time of his death his father's trust account had accumulated about $7,000 which was used to pay for his father's burial and funeral expenses. Hang also provided evidence of his father's negative balance in his checking account as well as $389.22 in his savings account both of which were closed by Hang prior to his father's passing. Based on this evidence, Hang state in his declaration that his father's estate was "unable to afford the costs associated with arbitration."

Based on Hang's presentation of evidence and submitted declarations proving his father's indigency, the court granted his request to allocate the costs and fees of arbitration to RG Legacy. The court added that if RG Legacy did not agree to pay the costs of arbitration, it would waive its right compel Hang and Wu to arbitrate this matter.

The Roldan Decision and Its Impact on the Current Case

In Roldan v. Callahan & Blaine, 219 Cal.App.4th 87 (Cal. Ct. App. 2013) four elderly plaintiffs with limited financial resources brought suit against several lawyers who had represented them in a legal matter. The attorneys filed a motion to compel the elderly plaintiffs to participate in arbitration pursuant to the retainer agreements they had signed, which contained an arbitration provision. The plaintiffs argued that they could not afford to pay for arbitration, but the trial court granted the attorneys' motion to compel arbitration despite their indigency. On appeal the court reversed that order and noted that filing fees to pursue litigation would be significantly less for the plaintiffs than the costs of arbitration. The Roldan court emphasized the "long-standing public policy of ensuring that all litigants have access to the justice system for resolution of their grievances, without regard to their financial means." Id. at p. 94. The court found that the plaintiffs could be released of their agreement to pay half of the fees for arbitration based on Code of Civil Procedure section 1284.2, which provides that "Unless the arbitration agreement otherwise provides or the parties to the arbitration otherwise agree, each party to the arbitration shall pay his pro rata share of the expenses and fees of the neutral arbitrator, together with other expenses of the arbitration incurred or approved by the neutral arbitrator, not including counsel fees or witness fees or other expenses incurred by a party for his own benefit."

The court went on to state, "If plaintiffs… lack the means to share the cost of the arbitration, to rule otherwise might effectively deprive them of access to any forum for resolution of their claims against the defendant law firm. We will not do that. Of course, as the trial court recognized, we cannot order the arbitration forum to waive its fees, as a court would do in the case of an indigent litigant. Nor do we have the authority to order the defendant law firm to pay plaintiffs' share of the fees. What we can do, however, is give the defendants a choice: if the plaintiffs are unable to share in the cost of arbitration cost, the defendants can elect to either pay that plaintiff's share and remain in arbitration or waive its right to arbitrate the claim." Roldan at 96.

In Jameson v. Desta, (2018) 5 Cal.5th 594, the California Supreme Court utilized the holding in Roldan to support its finding that a litigant who qualifies for in forma pauperis status, cannot be compelled to engage in arbitration and pay costs. It stated, "Under California law when a litigant in a judicial proceeding has qualified for in forma pauperis status, a court may not consign the indigent litigant to a costly private alternative procedure that the litigant cannot afford and that effectively negates the purpose and benefit of in forma pauperis statute." Since Jameson, several appellate court decisions have continued to support and even expand upon this principle.

A Defendant Seeking to Compel an Indigent Plaintiff to Participate in Arbitration Must Either Waive Arbitration or Pay the Indigent's Costs

Although RG Legacy argued that the Roldan holding only applied to individuals and not estates, as is present in this case, the court disagreed. RG Legacy failed to produce any persuasive authority to support this contention. RG Legacy’s other argument attempted to distinguish the current case from Roland and the subsequent caselaw arguing the estate did not qualify as in persona pauperis. The court also rejected this argument finding that in forma pauperis status was not a requirement for a plaintiff to seek relief from the fees associated with arbitration. Aronow v. The Superior Court, 76 Cal.App.5th 865, 884 (Cal. Ct. App. 2022).

Lastly, RG Legacy argued because Hang signed the arbitration agreement voluntarily as the power of attorney, he should remain responsible for the estate's share of the costs. RG Legacy supported its argument by reminding the court that admission to the nursing facility was not contingent upon the signing of the arbitration clause and Hang signed the document completely voluntarily. The court also failed to find this argument persuasive. Instead, the court quoted the Weiler v. Marcus & Millichap case which reasoned, "Though the law has great respect for the enforcement of valid arbitration provisions, in some situations those interests must cede to an even greater, unwavering interest on which our country was founded- justice for all. Consistent with Roldan, and federal and California arbitration statutes, a party's fundamental right to a forum she or he can afford may outweigh another party's contractual right to arbitrate." 22 Cal. App.5th 970, 973 (Cal. Ct. App. 2018).

Based on precedent as well as the Civil Code, the trial court did not err in its decision that the defendant should either waive arbitration or pay the fees associated thereof.

Moving Forward

Businesses and employers may be faced with plaintiffs who successfully demonstrate that they have no financial wherewithal to pay for arbitration and force Defendants to revert back to state court. This may result in increased access to litigation funding for plaintiffs. This is worrisome because it would circumvent the initial justification for requiring Defendants to pay full freight—and now defendants are faced with a well-funded plaintiff’s team as well as a jury with the potential for returning a nuclear verdict. Is it a safer bet for Defendants to pay all fees for arbitration and avoid the possibility of a nuclear verdict? Be sure to consult your trusted legal advisors for assistance on this complicated issue. The attorneys at WSHB are available to assist with any questions or concerns you may have as you navigate the right strategy for your business.

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