{"id":1464,"date":"2024-05-28T14:44:28","date_gmt":"2024-05-28T18:44:28","guid":{"rendered":"https:\/\/blogs.duanemorris.com\/classactiondefense\/?p=1464"},"modified":"2024-05-28T14:44:28","modified_gmt":"2024-05-28T18:44:28","slug":"california-court-of-appeal-finds-california-law-imposing-forfeiture-of-arbitration-rights-for-late-payment-of-arbitration-fees-is-preempted-by-the-faa","status":"publish","type":"post","link":"https:\/\/blogs.duanemorris.com\/classactiondefense\/2024\/05\/28\/california-court-of-appeal-finds-california-law-imposing-forfeiture-of-arbitration-rights-for-late-payment-of-arbitration-fees-is-preempted-by-the-faa\/","title":{"rendered":"California Court Of Appeal Finds California Law Imposing Forfeiture Of Arbitration Rights For Late Payment Of Arbitration Fees Is Preempted By The FAA"},"content":{"rendered":"

\"\"<\/a>By Eden E. Anderson, Rebecca S. Bjork, and Gerald L. Maatman, Jr.,<\/strong><\/p>\n

Duane Morris Takeaways: <\/strong>\u00a0On May 22, 2024, the California Court of Appeal held<\/a> in Hernandez v. Sohnen Enterprises, Inc., 2024 WL 2313710 (Cal. App. May 22, 2024), that the Federal Arbitration Act (\u201cFAA\u201d) preempts the California Arbitration Act\u2019s provisions that impose forfeiture of the right to arbitration for late payment of arbitration fees.\u00a0 Although employers should continue to closely monitor and fully adhere to arbitration fee payment deadlines, the Hernandez decision recognizes that mistakes can occur and should not result in the overly harsh penalty of forfeiture of the arbitral forum.\u00a0 The decision creates a split of authority within the California Courts of Appeal that may ultimately need to be resolved by the California Supreme Court.<\/em><\/p>\n

Case Background <\/strong><\/p>\n

After Hernandez initially filed various claims against her employer in court, the parties stipulated to move the claims into arbitration and to stay the court case.\u00a0 The applicable arbitration agreement provided that it was governed by the FAA and that the Federal Rules of Civil Procedure (\u201cFRCP\u201d) would apply in arbitration.\u00a0 After Hernandez\u2019s demand was filed in arbitration, JAMS requested payment from the employer of its share of the filing fees.\u00a0 The employer paid those fees one week past the 30-day statutory deadline of Section 1281.97 of the California Code of Civil Procedure (\u201cSection 1281.97\u201d).\u00a0 <\/strong>Hernandez then filed a motion to withdraw from arbitration and to lift the stay of the court case.<\/p>\n

The trial court granted the motion. It concluded that the employer\u2019s late payment of arbitration fees was a material breach of the arbitration agreement.\u00a0 The court also imposed monetary sanctions against the employer.\u00a0 The employer appealed on the basis that the arbitration agreement was governed by the FAA and that the FAA preempted Section 1281.97.<\/p>\n

The Court Of Appeal\u2019s Decision <\/strong><\/p>\n

The Court of Appeal reversed.\u00a0 It held that, because the parties agreed that the FAA and FRCP would apply to the arbitration agreement and in arbitration, the procedures of the California Arbitration Act, including Section 1281.97\u2019s 30-day arbitration fee payment deadline, did not apply.\u00a0 Additionally, the Court of Appeal held that, even if Section 1281.97 applied, it was preempted by the FAA.<\/p>\n

Under the FAA and its \u201cequal treatment\u201d principle, arbitration agreements must be treated the same as any other contract and can only be invalidated based on generally applicable contract defenses.\u00a0 The Court of Appeal held that Section 1281.97 violated this equal treatment principle because it mandates a finding of material breach (and resulting waiver of the right to arbitration for late payment of arbitration fees) that would not apply generally to all contracts.\u00a0 The Court of Appeal noted that, ordinarily, a party to a contract can argue substantial compliance, but Section 1281.97 precludes such an argument because it mandates strict adherence to fee payment deadlines.\u00a0 Additionally, the Court of Appeal found that Section 1281.97 frustrates the FAA\u2019s objective of cheaper, more efficient resolution of disputes by increasing the overall cost of litigation and wasting resources already invested in arbitration.<\/p>\n

Implications Of The Decision <\/strong><\/p>\n

The Hernandez<\/em> decision marks the first time the California Court of Appeal has held that Section 1281.97 is preempted by the FAA.\u00a0 The decision creates a split in authority amongst the California Courts of Appeal.\u00a0 Other appellate courts in California have concluded that Section 1281.97 promotes the goals of the FAA because, in requiring prompt payment of arbitration fees, arbitrations can proceed without delay.\u00a0 Employers must continue to closely monitor arbitration fee payment deadlines to ensure timely payment.\u00a0 However, if a mistake happens, the Hernandez <\/em>case may, if followed by trial courts, provide relief so long as the applicable arbitration agreement makes clear that the FAA and federal law, and not the California Arbitration Act or California law, govern.<\/p>\n","protected":false},"excerpt":{"rendered":"

By Eden E. Anderson, Rebecca S. Bjork, and Gerald L. Maatman, Jr., Duane Morris Takeaways: \u00a0On May 22, 2024, the California Court of Appeal held in Hernandez v. Sohnen Enterprises, Inc., 2024 WL 2313710 (Cal. App. May 22, 2024), that the Federal Arbitration Act (\u201cFAA\u201d) preempts the California Arbitration Act\u2019s provisions that impose forfeiture of … <\/p>\n

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