ArbitrationBusinessJames S. SifersUsed-Car Dealerships

Failure to Pay Arbitration Fees Can Land You in Court

Starting this year, there will be new rules as to how payments must be made in consumer and employment arbitrations.  Effective as of January 1, 2020, Cal. Code Civ. Proc. §§ 1281.97, 1281.98, and 1281.99 proscribe hard deadlines for the payment of arbitration fees in consumer and employment arbitrations and provide remedies for consumers and employees in instances where businesses fail to comply with their payment obligations.  Given these changes, businesses would be wise to promptly address, and where appropriate, pay all arbitration fees in consumer and employment arbitrations.

Sections 1281.97 and 1281.98 state that if an arbitration agreement requires the payment of fees by the business, if those fees and costs are not paid within 30 days of the due date, the business “is in material breach of the arbitration agreement, is in default of the arbitration, and waives its right to compel arbitration…”  The standard Retail Installment Sales Contract contains such a provision requiring at least some payment from the business for an arbitration.  Section 1281.97 deals with the payment of the fees to initiate an arbitration and Section 1281.98 deals with those fees necessary to continue the arbitration.

If the business is in material breach due to nonpayment of the initial arbitration fees, the consumer or employee may then withdraw the claim from arbitration and proceed in Superior Court or compel arbitration and seek an award requiring the payment of “reasonable attorney’s fees and costs related to the arbitration.” (Cal. Code Civ. Proc. 1281.97(b)(1) & (2).)  If the consumer or employee elects to withdraw the claim and proceed in Superior Court, the Court must impose sanctions, as noted below, against the business. (Cal. Code Civ. Proc. 1281.97(d).)

If the business is in material breach due to nonpayment of arbitration fees billed outside of the initial payment to commence arbitration, the consumer and/or employee may withdraw the claim from arbitration and proceed in Superior Court; continue the arbitration provided the arbitration company and/or the arbitrator agrees, with the arbitration company and/or the arbitrator reserving the right to initiate a collection action against the business for nonpayment of fees; seek an order from the court compelling the business to pay the arbitration fees due to be paid by it; or pay the arbitration fees themselves and seek the recovery of those fees at the conclusion of the action, regardless of the outcome. (Cal. Code Civ. Proc. § 1281.98(b)(1)-(4).)  Under all scenarios, the court or arbitrator is empowered to impose sanctions against the business for its failure to timely pay all fees.

If the business materially breaches the arbitration agreement for failing to pay fees per Sections 1287.97 and 1287.98, then Section 1281.99 allows the court to impose sanctions against that business.  Those sanctions may include monetary sanctions, attorneys’ fees and costs incurred by the consumer or employee as a result of the material breach, evidentiary sanctions, terminating sanctions, and contempt (which is quasi-criminal).  These sanctions are likely escalating, but the fact that the Code specifically spells out the types of sanctions to be imposed indicates the California Legislature’s intentions with respect to timely payment of arbitration fees.

California has long been at odds with federal law as it relates to arbitration provisions. (See AT&T Mobility LLC v. Concepcion, 563 U.S. 333 [where the Supreme Court found that the Federal Arbitration Act preempted a California rule limiting arbitrations in certain circumstances].)  Sections 1287.97, 1287.98, and 1281.99 demonstrate the California Legislature’s attempts to chip away at arbitration provisions used by businesses.  While not prohibiting arbitration provisions, these new laws make it much easier for consumers and employees to avoid arbitration should a business not strictly comply with its obligations in paying the fees and costs due by it to the arbitration company.  Given this, it would be a good practice to promptly pay all fees and costs invoiced in connection with a consumer or employment arbitration.

James S. Sifers

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