Hohenshelt v. Superior Court

IN THE SUPREME COURT OF CALIFORNIA

DANA HOHENSHELT, Petitioner, v. THE SUPERIOR COURT OF LOS ANGELES COUNTY, Respondent; GOLDEN STATE FOODS CORP., Real Party in Interest.

S284498

Second Appellate District, Division Eight B327524

Los Angeles County Superior Court 20PSCV00827

August 11, 2025

Justice Liu authored the opinion of the Court, in which Chief Justice Guerrero and Justices Kruger, Groban, and Evans concurred. Justice Groban filed a concurring opinion, in which Justice Evans concurred. Justice Corrigan filed a dissenting opinion, in which Justice Jenkins concurred.

HOHENSHELT v. SUPERIOR COURT S284498

Opinion of the Court by Liu, J.

The question here is whether the Federal Arbitration Act (FAA; 9 U.S.C. § 1 et seq.) preempts California Code of Civil Procedure section 1281.98, a provision of the California Arbitration Act (CAA; Code Civ. Proc., § 1280 et seq.) that governs the payment of fees in employment and consumer arbitrations. (All undesignated statutory references are to the Code of Civil Procedure.) Section 1281.98 establishes a default rule that when the party who drafted an arbitration agreement is responsible for paying fees and costs to an arbitrator, that party must pay an arbitrator’s invoice “within 30 days after the due date” (§ 1281.98, subds. (a)(1)), and “the arbitration provider shall issue all invoices to the parties as due upon receipt” (id., subd. (a)(2)). The parties may contract around the default rule by specifying in their agreement “the number of days in which the parties to the arbitration must pay any required fees or costs” or by agreeing to an “extension of time for the due date.” (Ibid.) If the drafting party fails to make timely payment, it “waives its right to compel the employee or consumer to proceed with that arbitration” (id., subd. (a)(1)), and the employee or consumer may choose to “withdraw the claim from arbitration” and proceed in court (id., subd. (b)(1)) or “[c]ontinue the arbitration” if the arbitrator agrees (id., subd. (b)(2)). We hold that section 1281.98, properly construed, is not preempted by the FAA. Although section 1281.98 has been 1

HOHENSHELT v. SUPERIOR COURT Opinion of the Court by Liu, J.

interpreted by various Courts of Appeal to impose an inflexible and sometimes harsh rule resulting in loss of arbitral rights, we reject that rigid construction and instead conclude that the statute does not abrogate the longstanding principle, established by statute and common law, that one party’s nonperformance of an obligation automatically extinguishes the other party’s contractual duties only when nonperformance is willful, grossly negligent, or fraudulent. As explained below, the Legislature sought to deter companies and employers from engaging in strategic nonpayment of arbitration fees; we find no indication that it intended to strip companies and employers of their contractual right to arbitration where nonpayment of fees results from a good faith mistake, inadvertence, or other excusable neglect. So understood, the operation of section 1281.98 does not deviate from “generally applicable state law contract principles.” (Quach v. California Commerce Club, Inc. (2024) 16 Cal.5th 562, 572 (Quach); see Viking River Cruises, Inc. v. Moriana (2022) 596 U.S. 639, 650 (Viking River).) Nor does it “disfavor[] arbitration” or “interfere[] with fundamental attributes of arbitration” (AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 341, 344 (Concepcion)), or “invent special, arbitration-preferring procedural rules” (Morgan v. Sundance, Inc. (2022) 596 U.S. 411, 418 (Morgan)). Instead, the statute aims to ensure that arbitration fees are paid in a timely manner so that parties to an arbitration agreement can move forward in arbitration. (See Dean Witter Reynolds Inc. v. Byrd (1985) 470 U.S. 213, 221 [“The preeminent concern of Congress in passing the [FAA] was to enforce private agreements into which parties had entered . . . .”].)