Business That Dilly-Dally About Paying Arbitration Fees Face Consequences.
In a case of first impression, the California Court of Appeal asks whether California Code of Civil Procedure, §§ 1281.97, 1281.98, and 1281.99 are preempted by the Federal Arbitration Act, 9 U.S.C. § 1 et seq. Sunny Gallo v. Wood Ranch, USA, B311067 (2/1 7/25/22) (Hoffstadt, Ashmann-Gerst, Chavez). Those statutory provisions were enacted in California to protect employees and consumers from falling into a state of "procedural limbo" when a business that has drafted an arbitration agreement fails to pay arbitration fees within 30 days after the fees are due. This failure to pay fees can lead to delay and "procedural limbo" in an arbitration. The consequences are significant under the recent California statutes because the "drafter" can end up paying all the fees, or lose the right to arbitrate, or even face sanctions such as termination, evidence preclusion, monetary payment, and even contempt.
The court holds that the California statutes are not preempted, "because the procedures they prescribe further—rather than frustrate—the objectives of the FAA to honor the parties’ intent to arbitrate and to preserve arbitration as a speedy and effective alternative forum for resolving disputes."
COMMENT: Businesses with arbitration provisions should not dilly-dally about paying their share of arbitration fees in employment and consumer disputes, given the severe consequences. Consumers and employees should also be alert to whether fees are timely paid, as the failure by the "drafter" to make timely payment creates options for the consumer or employee.
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