California Courts Continue Allowing Employees And Consumers To Return To Court Following Late Payment Of Arbitration Fees

• Published date: 21 August 2023
• Subject Matter: Consumer Protection, Litigation, Mediation & Arbitration, Consumer Law, Arbitration & Dispute Resolution
• Law Firm: Pillsbury Winthrop Shaw Pittman
• Author: Mr Lee Brand, Zandir Morton and Emily Young

Some cases have limited California's statutory right to withdraw from arbitration based on late fee payments, but many others have enforced this strict rule, making timely payment of arbitration fees and carefully worded arbitration provisions important best practices.

TAKEAWAYS

• Courts have split on whether (1) a court or arbitrator should rule on attempts to withdraw from arbitration based on late fee payments, and (2) the Federal Arbitration Act (FAA) preempts such withdrawal altogether.
• Companies arbitrating with employees or consumers must pay arbitration fees on time or risk waiving arbitration and paying significant attorneys' fees.
• Companies should also update their arbitration agreements with employees and consumers to reflect the current legal landscape.

Sections 1281.97 through 1281.99 of the California Code of Civil Procedure set strict penalties for nonpayment of arbitration fees in employee and consumer arbitrations. Under those sections, the drafter of an employee or consumer arbitration agreement is in material breach of the agreement if it does not pay arbitration fees within 30 days. Following such a breach, employees and consumers may withdraw their claim from arbitration and proceed in court, and are also entitled to their attorneys' fees and costs incurred both during the abandoned arbitration and in withdrawing from arbitration.

Although these sections have been in effect since 2020, California state and federal courts remain split on two key issues regarding their interpretation:

• whether the determination of a material breach under these sections can be delegated to an arbitrator, and
• whether federal law preempts these sections when the Federal Arbitration Act applies.

The Delegation Split

Dekker v. Vivint Solar, Inc., No. 20-16584, 2021 WL 4958856 (9th Cir. Oct. 26, 2021), involved an arbitration with solar panel installer Vivint for unfair business practices. The parties' arbitration agreement delegated issues regarding a breach of the agreement, and its scope, to the arbitrator. However, when Vivint failed to pay arbitration fees within 30 days, plaintiffs raised the issue of breach under section 1281.97 with the district court, which found such a breach and vacated its order compelling arbitration. Vivint appealed and the Ninth Circuit reversed. In a brief memorandum opinion, it held that the arbitration agreement at issue included a delegation clause and thus that the arbitrator should decide whether there had been a breach...