California Mediation and Arbitration

Deadlines, FAA: First Dist. Div. 1 Sides With Courts Holding FAA Does Not Preempt Prompt Payment Of Arbitrator CA Statute

The Court Distinguishes The Case From Hernandez v. Sohnen Enterprises, Inc.

        Jenny-Ashley Colon-Perez sued her former employer, Security Industry Specialists, Inc. (SIS), for various employment-related claims. After agreeing to arbitrate, SIS failed to pay arbitration fees within the 30-day deadline required by California Code of Civil Procedure section 1281.98. Colon-Perez chose to withdraw from arbitration, and the trial court ruled that SIS had materially breached the arbitration agreement. SIS attempted to vacate the order, citing the Federal Arbitration Act (FAA) and other arguments, but the trial court denied the motion.

        The court held that section 1281.98 applied and was not preempted by the FAA. The failure to pay the arbitration fees within the statutory period constituted a material breach, allowing Colon-Perez to proceed with her claims in court. Colon-Perez v. Security Industry Specialists, Inc., A168297 (1/1  1/29/2025) (Banke, Humes, Langhorne Wilson).

        Justice Kathleen Banke explained: "We recently addressed whether the FAA preempts section 1281.98 in Keeton v. Tesla, Inc. (2024) 103 Cal.App.5th 26, 32 (Keeton), review granted September 11, 2024, S286860. We concluded it does not, as have all but one of the Courts of Appeal that have considered the issue. We are not persuaded to depart from our conclusions in Keeton."

        The Court of Appeal also addressed whether the denial of arbitration violated the Contract Clause of the Constitution. It concluded that it did not violate the clause, because insisting on prompt payment of the arbitrator did not substantially interfere with arbitration.

        Also of note, the Court distinguished Colon-Perez from Hernandez v. Sohnen Enterprises, Inc., which holds that when the agreement is governed by the Federal Arbitration Act, § 1281.98 is preempted. Unlike the Hernandez arbitration provisions, the Colon-Perez provisions mentioned California state law and did not only refer to procedures in the FAA. 

        COMMENT: This last argument distinguishing Hernandez seems a bit sketchy. The arbitration clause in Colon-Perez provided: "Any proceeding pursuant to this Employment Dispute Arbitration Procedure is deemed to be an arbitration proceeding subject to the Federal Arbitration Act, 9 U.S.C. §§ 1–16, if applicable, to the exclusion of any state law inconsistent therewith; or, if the FAA is not applicable, to the law of the state of venue . . ." 

        I wrote an article for the Daily Journal published April 10, 2024, entitled: California: Friend or Foe of Arbitration?, addressing the preemption issue presented by the statutory deadline for paying attorney fees to the arbitrator. The article is available online here.

Deadlines: 30-Day Deadline To Pay Arbitration Fees Not Violated Where Mistake Was Made By Provider, Not Employer

First Invoice Was Paid By Employee And Marked "Paid" And Employer Timely Paid Second Invoice.

        In Anoke v. Twitter, Inc., A168675 (1/5 pub. 9/18/24) (Burns, J.), Sarah Anoke and other employees initiated arbitration against Twitter ("X") for employment-related disputes. Under California Code of Civil Procedure section 1281.97, an employer must pay its share of arbitration fees within 30 days of receiving the invoice, or the employer may face penalties, including paying the employee’s attorney fees.

        Here, the arbitration provider mistakenly accepted payment from the employees' counsel for the employer's portion of the fees. The arbitration provider later refunded this mistaken payment and issued a new invoice to X, which was paid within the 30-day window. Anoke argued X’s payment was untimely because it was not made within 30 days of the first invoice. However, the court ruled that since the first invoice was marked “paid” and a new invoice was issued, the 30-day period started from the second invoice.

        Held: X timely paid its share of arbitration fees within the 30-day grace period after receiving a second invoice. As a result, X was not in default under section 1281.97, and Anoke was not entitled to recover attorney fees under the statute. The superior court’s denial of Anoke’s petition was affirmed.

 

Deadlines, Preemption: First Dist. Div. 1 Agrees That 30-Day Deadline To Pay Arbitration Fees Is Not Preempted

The California Courts Are Divided.

        One more case lines up with those courts holding the 30-day deadline requirement in consumer and employment cases, set by Cal. Code of Civ. Proc. § 1281.98, for the drafting party to pay arbitration fees, is not preempted by the Federal Arbitration Act. Keeton v. Tesla, Inc., A166690 (1/1  6/26/24) (Wilson, Humes, Siggins).

        COMMENT: We agree that Keeton v. Tesla, Inc. is in accord with most California cases that have addressed the subject. See our sidebar category "Deadlines". However, the law is unsettled. On 7/3/24, we blogged about Hernandez v. Sohnen Enterprises, Inc., which holds that when the agreement is governed by the Federal Arbitration Act, § 1281.98 is preempted. Justice Wiley in a dissent has staked the same preemption position in Hohenshelt v. Superior Court. See my 4/11/24 blog post.

        Eventually this split of opinion will need to be decided by a higher court. That's my opinion.

Deadlines, Federal Preemption: California Judges Disagree About Whether 30-Day Deadline To Pay Fees Furthers Purpose Of Arbitration

Thirty-Day Deadline Applies.

        The Court of Appeal, Fifth District, following the weight of California precedent, applies California Code of Civ. Proc. § 1281.98, requiring that the party who has drafted an arbitration agreement must pay arbitration fees within 30 days of when they are due, or else the other party gets an option to reject arbitration and litigate instead. In Reynosa v. Superior Court (Real Party in Interest Advanced Transportation Services, Inc., F086342 (5th Dist.  5/6/24) (Detjen, Meehan, Snauffer), employee Reynosa did not expressly agree to the extension of a due date for his employer to pay arbitration fees, and the employer did not pay within 30 days, in violation of 1281.98. The Court of Appeal issued  a writ of mandate issue directing the Superior Court to vacate its  order denying plaintiff Reynosa’s motion to withdraw from arbitration. and to enter an order granting Reynosa's motion to withdraw from arbitration.

Thirty-Day Deadline Does Not Apply If There Is Federal Preemption.

        The arbitration agreement stated "this agreement is governed by the FAA" in Hernandez v. Sohnen Enterprises, Inc. B323303 (2/5  5/22/24). Justice Moor, writing for the majority, explains that this results in federal preemption of California procedural and substantive provisions. Furthermore, the majority takes the position that the California requirement of payment within 30 days unduly burdens arbitration. Usually, a payment deadline is only enforce in a contract if time is of the essence and the breach is material. Thus, the majority opinion aligns with Justice Wiley's dissent in Hohenshelt, and in fact cites to Wiley's dissent in footnote 8 of the Hernandez opinion.

        Justice Baker, dissenting, believes there is no preemption. He takes the position, consistent with other California cases, that the statutory 30-day limit to pay fees furthers the goal of arbitration by preventing employers from compelling arbitration and then delaying arbitration by not paying fees. "The majority’s opinion rather obviously invites a grant of review from our Supreme Court," writes Justice Baker.

        COMMENT: I have written about conflicting California and Federal views of whether California is a friend or foe of arbitration, as well as about Justice Wiley's dissent in Hohenshelt. For my April 10, 2024 article in the Daily Journal, use this link to the ARC website. I also have an April 11, 2024 blog post on the subject.

 

Arbitration, Deadlines, FAA Preemption: California: Friend Or Foe Of Arbitration?

Our Article In The Daily Journal Examines Hohenshelt v. The Superior Court.

        Our article in the April 10, 2024 Daily Journal begins: "The majority and minority opinions in a recent California appellate decision highlight the conflict between California and federal attitudes about arbitration. The case is Dana Hohenshelt v. The The Superior Court of Los Angeles County; Golden State Foods Corp. (real party in interest) (2024) 99 Cal.App.5th 1319.  The majority opinion, authored by Justice Maria Stratton, claims to further the objectives of arbitration. Sharply dissenting, Justice John Shepard Wiley Jr. writes, “Judged by actions, California law over the last few decades . . . has not been a friend of arbitration.”

        The narrow issue raised by the case concerns the application of Cal. Code of Civ. Proc. § 1281.98. This is the provision requiring payment within 30 days of arbitration fees and costs by drafters of arbitration agreements, or else the right to arbitrate is waived, and consumers and employers can then choose to arbitrate or litigate. The majority opinion joins the many California cases that have strictly interpreted the statute, leading to waiver of the right to arbitrate by employers and corporations that miss the due date for payment. The majority opinion claims that the prompt payment requirement furthers the purpose of arbitration, and prevents the abuse of initiating arbitration and leaving it in limbo.

        Justice Wiley, dissenting, lays out the argument that this statute unfairly burdens arbitration agreements more than other contracts. As a result, he concludes that it is preempted by the Federal Arbitration Act. Because preemption relies on the Supremacy Clause, it presents an issue of constitutional significance. Justice Wiley suggests that once again the US Supreme Court will eventually send a message that California law concerning arbitration is preempted by the FAA.

 

 

Arbitration, Deadlines: Once Again, Requirement In Employment And Consumer Arbitration To Pay Fees In 30 Days Is Strictly Interpreted

California Courts Have Posted Plenty Of Warnings About The 30-Day Deadline To Pay The Arbitration Fees Or Lose The Right To Arbitrate.

        And we have posted plenty of times about those warnings about this particular deadline. The latest warning that the 30-day deadline found in Cal. Code of Civ. Proc. § 1281.97 will be strictly interpreted is to be found in an employment law case, Suarez v. Superior Court of San Diego; Real Party in Interest, Rudolph & Sletten, Inc., D082429 (4/2  1/24/24) (Dato, O'Rourke, Do).

        JAMS issued an e-mail invoice on December 2, 2022 marked "due upon receipt." It was undisputed that the employer did not pay its share before January 4, 2023, more than 30 days after the amount was due. The employer argued that its time to pay was extended for two reasons. First, January 1 was a Sunday and January 2 was a holiday. Second, the employer argued it should get two more days on top of the holiday, based on § 1010.6, pertaining to electronic filing of court documents. However, neither argument had traction, because the 30-day deadline provision for paying arbitration fees does not relate to motions or to documents filed with the court.

        COMMENT: It is surprising that parties miss the strict deadline by only a few days in reported cases. The lesson here, for employers and providers of consumer products who want to arbitrate, is do not wait till the last moment to pay fees.

        At the end of the opinion, the court lets drop, "[W]aiver and material breach do not automatically remove a matter from arbitration. Instead, the employee is given the option of resolving the stagnant dispute in an action before the court." Evidently the Court of Appeal is concerned that the strict deadline, if interpreted to impose an extra burden on arbitration, could result in an FAA preemption argument.

 

 

MFAA, Deadlines: Missing Deadline For Serving Petition To Vacate Was Not Jurisdictional Under Mandatory Fee Arbitration Act

And The Court Also Decides An Issue Of First Impression Concerning Adequacy Of Service.

        The Appellate Division of the Superior Court, County of Los Angeles, addressed Mandatory Fee Arbitration Act (MFAA) issues in Folke v. Pulliam (10/6/23). In an employment dispute, Pulliam, the client, hired attorney Folke to assist Pulliam's attorney Akinyemi. Afterwards she arbitrated a fee dispute under California's MFAA with Folke, and received a favorable award. The MFAA offers clients an expeditious way to arbitrate attorney fee disputes, and if no one timely challenges the fee award, it becomes final.

        The fee award here became final after 30 days, because no one requested a trial de novo. However, one has 100 days after service of the award to file and serve a petition to confirm, correct, or vacate the award. Folke filed a petition to vacate within the 100 day limit. However, the trial court determined he did not serve the petition within the 100 day deadline, and because that was "jurisdictional", Folke was stuck with the adverse award.

        The appellate division decided two issues. First, it addressed an issue of first impression: whether the rules governing service of a petition to vacate in an ordinary arbitration applied to an arbitration under the MFAA. Specifically, the question here was whether service by mail upon Pulliam's attorney Akinyemi was sufficient, where there had been no appearance yet in the court proceeding. The answer is that mail service was not sufficient.

        Folke's fallback argument relied on equitable tolling. The trial court had rejected an equitable tolling argument on the ground that the 100 day deadline was jurisdictional. The Appellate Division rejected the argument that the deadline was jurisdictional. So Folke will get another bite of the apple.

    BONUS. The court states that the elements of equitable tolling are: "(1) timely notice to the opposing party, (2) lack of prejudice to the opposing party, and (3) reasonable and good faith conduct by the moving party." Folke argues that he made numerous good faith efforts at service.

Prompt Payment: Along With Other Courts, 1st District Div. 3 Strictly Interprets Statutory Prompt Payment Requirement For Employer Wanting To Arbitrate

The Payment Must Be Received By The Arbitrator Within 30 Days Of When It Was Due.

        September 1, 20221 was the “due date” for the employer in a sexual harassment dispute to pay arbitration fees and costs to the arbitrator, making payment due October 3. Cal. Code of Civ. Proc., § 1281.98(a)(1). The employer mailed the check on September 30, and it was received on October 5, two days after the 30 day grace period expired. That was good enough for the superior order, which issued an order compelling arbitration, but not good enough for the Court of Appeal. "We do not find that the proverbial check in the mail constitutes payment and agree with petitioner that real parties’ payment, received more than 30 days after the due date established by the arbitrator, was untimely." Jane Doe v. The Superior Court of the City and County of San Francisco, Respondent, and Na Hoku, Inc., et al, Real Parties in Interest, A167105 (1/3  9/8/23) (Petrou, Tucker, Fujisaki).

        What can one say? Almost doesn't count? Close but no cigar? How about: close only counts in horseshoes.

        We have now posted a number of times that California courts have been real sticklers about strictly interpreting the 30 day requirement in § 1281.98. See posts of  7/10/23,  8/1/22, 12/11/22, 1/2/23, 3/21/23. Employers who do not comply with the requirement risk ending up outside arbitration and inside court.

 

Arbitration, Deadlines, Prompt Payment, Fees: Plaintiff Successfully Exercises Option To Withdraw From Arbitration Because Defendant Employer Was Tardy Paying Arbitration Fees

Courts Have Been Unforgiving In Interpreting An Unambiguous Statute. See CCP § 1281.98.

        "A statute gave Milan Cvejic the option to get out of arbitration if Skyview was tardy in paying its arbitration fees. Skyview was tardy in paying its arbitration fee. Cvejic was entitled to get out." Milan Cvejic v. Skyview Capital, LLC, B318880 (2/8  6/28/23) (Wiley, Grimes, Viramontes).

        COMMENTS: (1) A panel of three arbitrators got it wrong. (2) Cvejic was smart and did not sit on his rights. "Within about an hour of the call [whereby the arbitration panel set a new deadline for defendant to pay the fees], Cvejic’s counsel wrote the panel to say Cvejic was withdrawing from the arbitration under section 1281.98." 

        See previous posts about § 1281.98 dated 8/1/22, 12/11/22, 1/2/23, 3/21/23.

Arbitration, Vacatur: California Supreme Court Rules 100-Day Deadline Is Not Jurisdictional And Equitable Tolling/Estoppel Could Apply

Missing The 100-Day Deadline For Seeking Vacatur Of An Arbitration Award Was Not The End Of The Story Here.

        It is not possible to improve on the California Supreme Court's summary of the case and its holding:

        "Law Finance Group, LLC, prevailed in an arbitration against Sarah Plott Key and filed a petition to confirm the award. Key filed a response seeking vacatur of the award, but she did so outside the 100-day deadline prescribed by Code of Civil Procedure section 1288.2. The primary questions now before us are whether, as the Court of Appeal held, this 100-day deadline is jurisdictional and, if not, whether the deadline is subject to the equitable doctrines of tolling and estoppel. We hold that the section 1288.2 deadline neither is jurisdictional nor otherwise precludes equitable tolling or estoppel. We remand for the Court of Appeal to determine in the first instance whether Key is entitled to equitable relief from the deadline." Law Finance Group, LLC v. Key, S270798 (S.Ct.  6/26/23).

        Justice Leondra R. Kruger authored the opinion of the court.