Court of Appeal upholds strict interpretation of 2019 Arbitration Act amendments

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In a November 23, 2022, published decision, DeLeon v. Juanita’s Foods, B315394, the Second Appellate District upheld a Los Angeles Superior Court’s strict interpretation of the California legislature’s 2019 amendments to the California Arbitration Act that a failure by a drafting party to pay arbitration fees timely constitutes a material breach of the arbitration agreement and allows the employee-claimant to (among other things) withdraw from arbitration and pursue their claim in court. This applied not just to the initial filing fee, but also subsequent invoices.

DeLeon filed a civil lawsuit alleging many causes of action related to his former employment, and the trial court granted the motion to compel arbitration. DeLeon’s arbitration involved two respondents; only one of which, Juanita’s, failed to pay its share of the arbitration fees on time because it was involved in a dispute with the other respondent over who should remit Juanita’s assessed fee share. Faced with a motion to vacate arbitration in the trial court, Juanita’s conceded that, although it eventually paid the JAMS fee, it failed to make timely payment under the Code of Civil Procedure. Yet Juanita’s argued that its tardiness was not material, did not prejudice DeLeon because the parties’ arbitration was not significantly delayed, and the parties’ resources had already been expended with the goal of resolving the dispute in arbitration. Juanita’s further argued that an order vacating the arbitration as to Juanita’s only would produce the wasteful spectacle of duplicate proceedings: one in arbitration against the non-breaching respondent and a second in state court against Juanita’s. But the trial court refused to consider any other factor beyond the timing of Juanita’s payment because the statute now defines a late payment as a material breach worthy of sanctions in favor of the non-breaching party. The appellate court upheld this draconian result.

The takeaway for employers and businesses wishing to arbitrate disputes is that this and other recent decisions of California appeals courts give motivated claimants cover to withdraw from arbitration and seek heavy sanctions from respondents over any failure to timely pay fees, regardless of whether real or perceived. Parties must give their fullest attention to prompt payment of arbitral notices or risk additional costly litigation. A similar result was reached in Espinoza v. Superior Court, 83 Cal. App. 5th 761 (2022), another employment case where the failure to pay arbitration fees was considered a material breach/waiver of the right to arbitrate.