This post first appeared on the Securities Arbitration Alert blog.  The blog’s editor-in-chief is George H. Friedman, Chairman of the Board of Directors for Arbitartion Resolution Services, Inc.

The California statute allowing a consumer to evade an arbitration agreement if a business does not pay its share of arbitration fees does not require an affirmative finding from an arbitrator and applies to voluntary arbitration agreements.

Not long ago, we covered in SAA 2022-46 (Dec. 8) De Leon v. Juanita’s FoodsNo. B315394 (Calif. Ct. App. 2 Nov. 23, 2022. Quoting the De Leon Court:

“California Code of Civil Procedure sections 1281.97 and 1281.98: “provide that if a company or business that drafts an arbitration agreement does not pay its share of required arbitration fees or costs within 30 days after they are due, the company or business is in ‘material breach’ of the arbitration agreement. (Code Civ. Proc., §§ 1281.97, subd. (a)(1); 1281.98, subd. (a)(1). In the case of such a material breach, an employee or consumer can, among other things, withdraw his or her claim from arbitration and proceed in court. (§§ 1281.97, subd. (b)(1); 1281.98, subd. (b)(1).)”

Next, the facts:

“Following commencement of arbitration proceedings between appellant Juanita’s Foods and respondent Kail De Leon, Juanita’s Foods failed to pay its share of arbitration fees within 30 days after such fees were due. Based on that late payment, the trial court concluded that Juanita’s Foods was in material breach of the parties’ arbitration agreement and allowed De Leon to proceed with his claims against Juanita’s Foods in court.”

The arguments?

“Juanita’s Foods argues that the trial court should have considered factors in addition to its late payment—for example, whether the late payment delayed arbitration proceedings or prejudiced De Leon—to determine the existence of a material breach of the arbitration agreement.”

And, the holding:

“We conclude that the trial court correctly declined to consider these additional factors, and we affirm.”

No Need for Finding from an Arbitrator …

The issues before the Court in Williams v. West Coast Hospitals, Inc., No. H049177 (Calif. Ct. App. 6 Dec. 22, 2022), were:

“to decide (1) whether sections 1281.97 or 1281.98 required plaintiffs … to first obtain an arbitrator’s determination of West Coast’s default before returning to the trial court; and (2) whether these statutory provisions apply only to mandatory predispute arbitration agreements.”

Based on statutory construction and legislative history, the Court holds in the negative on both questions. On the need for an arbitrator to make a finding, the Opinion says:

“Because nothing in the statute authorizes the restrictive interpretation that West Coast posits, we affirm the trial court’s order permitting the resumption of litigation…. [W]e see no hint from the Legislature of any requirement for consumers to first seek a purely ministerial determination from the arbitrator before making the election the Legislature has empowered them to make unilaterally. Although the clarity of the statute’s text obviates the need for further inquiry, we observe that the legislative history is consistent with the statute’s plain language.”

… and No Distinction Between Mandatory and Voluntary Arbitration

On the voluntary vs. mandatory arbitration issue, the Court states:

“The Legislature similarly chose not to condition the remedies of sections 1281.97 and 1281.98 on litigation of the voluntary or mandatory character of the predispute execution of the arbitration agreement. To limit the scope of the statute to mandatory arbitration agreements would, furthermore, invite ancillary litigation of voluntariness that would undermine the purpose of the statute…. We will not disturb the balance struck by the Legislature. Accordingly, we conclude that whether an arbitration agreement was ‘mandatory’ or ‘voluntary’ in its execution is immaterial to the section 1281.98 analysis.”

(ed: Seems right. In our experience, the administrator will deem the case withdrawn well before an arbitrator is appointed.)