Pay Up, Or Back To Court

Gallo v. Wood Ranch, No. B311067 (D2d2 Jul. 25, 2022)

The Legislature recently passed a series of statutes—Code of Civil Procedure §§ 1281.97, 1281.98, and 1281.99—that require a business in a consumer or employment arbitration to pay the arbitrator fees within 30 days’ of their being due. A failure to do so is a material breach of the arbitration agreement, which then gives the consumer or employee the option to go back to court.

Defendant in this case is a Restaurant that didn’t pay some AAA fees on time. The trial court vacated a prior order compelling an arbitration. Restaurant appeals, arguing that the new statutes are preempted by the FAA, 9 U.S.C. § 2. The U.S. Supreme Court has read § 2 to preempt: (1) state law rules that single out arbitration for disfavored treatment; (2) arbitration-specific rules that discourage arbitration and (3) generally applicable state rules that adversely affect arbitration. But the FAA doesn’t occupy the field of arbitration. State-specific laws addressed to arbitration are fine, so long as they are not hostile to arbitration as a dispute resolution mechanism. Hence the entire CAA.

Here, the Court finds that the new statutes facilitate arbitration by encouraging the prompt payment of the arbitrator’s fees. Indeed, in passing them, the Legislature was addressing a particular problem. Cases would get sent to arbitration and then just sit when the defendant failed to pay. So the new statutes just incentivize defendants in employment and consumer cases (the party that is invariably the one seeking arbitration) to pay the fee and get moving with the arbitration.

Affirmed.