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 . . . .”].)

2

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

I.

On July 31, 2018, real party in interest Golden State

Foods Corporation (Golden State) hired plaintiff Dana

Hohenshelt as a sanitation employee. Prior to his start date,

Hohenshelt signed a “pre-dispute resolution agreement”

providing that “all claims” against Golden State concerning his

employment “shall be submitted to final and binding arbitration

in accordance with the rules of” a “mutually selected”

arbitration organization, and that “such arbitration shall be

governed by the Federal Arbitration Act.” That agreement also

provided that while his employer “shall not be responsible for

[Hohenshelt’s] attorney’s fees, witness fees, court reporter fees,

deposition costs, or initial filing fee,” Golden State “will pay all

other reasonable fees and costs unique to arbitration as well as

the costs of the arbitrator.”

According to Hohenshelt, in late 2019 he reported to his

superiors that a sanitation lead was sexually harassing one of

his coworkers. When management failed to take action, he

reported the harassment to Golden State’s operations director

and senior human resources manager. Hohenshelt alleges that

Golden State subsequently retaliated and ultimately

terminated him in April 2020.

In November 2020, Hohenshelt sued Golden State in

superior court, alleging discriminatory retaliation, failure to

prevent harassment and retaliation, and various Labor Code

violations. Golden State moved to compel arbitration and stay

court proceedings, which Hohenshelt did not oppose. The

superior court granted the motion, and in August 2021,

arbitration commenced through JAMS. The arbitrator billed

3

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

Golden State a $7,000 “preliminary deposit to cover the expense

of all pre-hearing work,” which Golden State paid.

The arbitration proceeded for approximately one year.

Upon setting the date for a final hearing, the arbitrator issued

an invoice to Golden State for $32,300 on July 29, 2022, followed

by another invoice for $11,760 on August 29 of the same year.

On September 30, JAMS sent a letter to both parties stating

that it “has not yet received full payment of the fees” and that

“[p]ursuant to [its] fee and cancellation policy” a failure to pay

by October 28 could subject the hearing to cancellation. Because

more than 30 days had passed since the July 29 and August 29

invoices, Hohenshelt filed a motion in superior court on

September 30 asserting that Golden State was “ ‘in default of

the arbitration’ ” and that he was electing to “withdraw his

claims ‘from arbitration and proceed in . . . court.’ ”

Shortly thereafter, Golden State paid the fees and sent an

email objecting to Hohenshelt’s request to withdraw from

arbitration, noting that he could not “point to any delays or

burdens whatsoever that have occurred in its case” and that he

had “waived any technical objections to continuing” by “fully

engaging in arbitration” thus far. Golden State also noted that

on July 7, 2022, JAMS had informed the parties that the

arbitrator would be unavailable from August 8 through

September 18, 2022 and had asked that any “urgent matters”

should be submitted to her “no later than July 25, 2022.” The

invoices were issued after July 25, and Golden State’s counsel

claimed that his “office was unaware that these invoices had

been issued given the arbitrator’s previously issued Notice of

unavailability.” “The invoices were also issued during a time

that [counsel] was preparing to go out on paternity leave,” which

4

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

counsel “had communicated to JAMS, the arbitrator and

Plaintiff’s counsel on multiple occasions prior to July 2022.”

At a subsequent hearing on his motion to lift the stay of

court proceedings, Hohenshelt responded that section 1281.98,

as interpreted by the Courts of Appeal, neither required nor

permitted “ ‘an inquiry into the reasons for a drafting party’s

nonpayment.’ ” (Quoting Williams v. West Coast Hospitals, Inc.

(2022) 86 Cal.App.5th 1054, 1074 (Williams).) In any event,

Hohenshelt said, the invoices “are issued electronically,” and

“there was actually substantial activity in this precise case over

[the] time frame” that Golden State’s counsel suggested he was

unavailable, including a deposition attended by counsel on

August 4, 2022.

The trial court denied Hohenshelt’s motion to lift the stay

of court proceedings. It interpreted Gallo v. Wood Ranch USA,

Inc. (2022) 81 Cal.App.5th 621 (Gallo) as establishing a rule

that the drafting party has 30 days following the arbitration

provider’s deadline to pay fees before forfeiting its right to

continue with the arbitration. In the trial court’s view, “the

arbitrator seemingly set a new due date of October 28, 2022,”

and Golden State paid within 30 days. (Boldface and

underscoring omitted.)

The Court of Appeal reversed. Observing that “both [the

July 29 and August 29] invoices provide that payment is ‘due

upon receipt,’ ” the court said “the trial court’s ruling ignored the

clear language of section 1281.98, subdivision (a)(2), which

expressly provides that ‘[a]ny extension of time for the due date

shall be agreed upon by all parties.’ ” (Hohenshelt v. Superior

Court (2024) 99 Cal.App.5th 1319, 1322, 1324 (Hohenshelt).)

That provision “ ‘ “would have no meaning, force, or effect” ’ ’ if

5

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

the arbitrator could simply issue a “new due date” without the

other party’s consent. (Id. at p. 1324.) Thus, Golden State’s

payment was untimely and resulted in “material breach” under

section 1281.98. (Hohenshelt, at p. 1325.)

The Court of Appeal then turned to Golden State’s

argument “that section 1281.98 is preempted by the [FAA].”

(Hohenshelt, supra, 99 Cal.App.5th at p. 1325.) Adopting the

reasoning in Gallo, the court held that section 1281.98 is not

preempted because its procedures “ ‘further — rather than

frustrate — the objectives of the FAA to honor the parties’ intent

to arbitrate and to preserve arbitration as a speedy and effective

alternative forum for resolving disputes.’ ” (Hohenshelt, at

pp. 1325–1326, quoting Gallo, supra, 81 Cal.App.5th at p. 630.)

Although section 1281.98 has the effect of ending arbitration in

this case, the court reasoned, “[o]ther employers presumably

would take note of this incentive to speed up the arbitration.”

(Hohenshelt, at p. 1326.) By incentivizing faster proceedings,

the timely payment procedures are “ ‘a friend of arbitration and

not its foe.’ ” (Ibid., quoting Gallo, at p. 645.) Accordingly, the

Court of Appeal granted Hohenshelt’s petition and directed the

trial court to lift the stay.

Justice Wiley dissented. Because “[n]o other contracts are

voided on a hair trigger basis due to tardy performance,” he

explained, the CAA’s payment rules single out arbitration and

are preempted. (Hohenshelt, supra, 99 Cal.App.5th at p. 1328

(dis. opn. of Wiley, J.); see id. at p. 1329 [“A friend of arbitration

does not make the arbitration agreement unenforceable.

Federal law does not allow a state to save arbitration by

destroying it.”].)

6

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

We granted review to resolve whether the FAA preempts

section 1281.98. With one exception, the Courts of Appeal have

upheld the CAA’s payment provisions against preemption

challenges. (Compare Hernandez v. Sohnen Enterprises, Inc.

(2024) 102 Cal.App.5th 222, 243 (Hernandez) [finding

preemption] with Gallo, supra, 81 Cal.App.5th at pp. 629–630

[no preemption], Espinoza v. Superior Court (2022) 83

Cal.App.5th 761, 783–784 (Espinoza) [same], De Leon v.

Juanita’s Foods (2022) 85 Cal.App.5th 740, 753–754 [same],

Suarez v. Superior Court (2024) 99 Cal.App.5th 32, 41–42

[same], Keeton v. Tesla, Inc. (2024) 103 Cal.App.5th 26, 37,

review granted and held Sept. 11, 2024 [same].) The federal

district courts are split, with one published opinion finding

preemption. (See Belyea v. Green Sky, Inc. (2022) 637 F.Supp.3d

745, 759 (Belyea).)

II.

As an initial matter, we note that Golden State’s briefing

before us contends that section 1281.98, whether preempted or

not, “do[es] not apply because the parties unambiguously agreed

[in the contract] to be bound by the FAA and JAMS’ rules.”

Hohenshelt says section 1281.98 applies because “ ‘the

procedural provisions of the CAA apply in California courts by

default’ ” (quoting Valencia v. Smyth (2010) 185 Cal.App.4th

153, 174), and the Attorney General as amicus curiae suggests

that state law does not permit parties to opt out of the CAA’s

payment provisions. Golden State did not raise this argument

in the trial court or the Court of Appeal, and neither court

addressed it. Moreover, whether the parties did, or whether

they may, opt out of the CAA is distinct from the issue on which

Golden State sought our review — namely, “whether sections

1281.97 et seq. are preempted.” Accordingly, we decline to

7

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

address the belated contention that the CAA does not apply

here. We assume the CAA applies and proceed to examine the

issue on which we granted review.

Congress enacted the FAA in 1925 to “ensure the

enforceability . . . of private agreements to arbitrate” and

“encourage the expeditious resolution of disputes.” (Volt Info.

Sciences v. Leland Stanford Jr. U. (1989) 489 U.S. 468, 476, 478

(Volt).) Section 2 of the FAA provides that a written arbitration

agreement is “valid, irrevocable, and enforceable, save upon

such grounds as exist at law or in equity for the revocation of

any contract or as otherwise provided [under the Ending Forced

Arbitration of Sexual Assault and Sexual Harassment Act of

2021 (9 U.S.C. §§ 401–402)].” (9 U.S.C. § 2.) This provision was

designed “ ‘to overrule the judiciary’s long-standing refusal to

enforce agreements to arbitrate,’ [citation], and to place such

agreements ‘ “upon the same footing as other contracts.” ’ ”

(Volt, at p. 478.)

Section 2 of the FAA contains two parts. First, the

“enforcement mandate” sets out a general rule that “renders

agreements to arbitrate enforceable as a matter of federal law.”

(Viking River, supra, 596 U.S. at p. 650.) Second, as an

exception to that rule, the “saving clause . . . permits

invalidation of arbitration clauses on grounds applicable to ‘any

contract.’ ” (Ibid.) Together, the enforcement mandate and

saving clause “establish ‘an equal-treatment principle: A court

may invalidate an arbitration agreement based on “generally

applicable contract defenses” like fraud or unconscionability,

but not on legal rules that “apply only to arbitration or that

derive their meaning from the fact that an agreement to

arbitrate is at issue.” ’ ” (Ibid.)

8

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

Other provisions of the FAA set forth default procedures

for arbitration in the absence of an explicit agreement. For

example, the section covering the appointment of arbitrators

provides that in the absence of a contractually agreed-upon

method, the court will appoint a single arbitrator. (9 U.S.C. § 5.)

But because the procedures in the FAA are not comprehensive,

every state has enacted its own arbitration act to fill in gaps left

by the FAA. (See Derner & Haydock, Confirming an Arbitration

Award (1997) 23 Wm. Mitchell L.Rev. 879, 882–883, fn. 19.)

Those state rules govern so long as they are consistent with the

FAA’s mandate that “an agreement in writing to submit to

arbitration . . . shall be valid, irrevocable, and enforceable, save

upon such grounds as exist . . . for the revocation of any

contract.” (9 U.S.C. § 2; see Volt, supra, 489 U.S. at p. 476

[“There is no federal policy favoring arbitration under a certain

set of procedural rules . . . .”].)

California’s procedures governing arbitration date back to

1851, when the Legislature first provided that “[p]ersons

capable of contracting may submit to arbitration any

controversy which might be the subject of a civil action between

them, except a question of title to real property in fee or for life.”

(Stats. 1851, ch. 4, § 380, p. 111.) That statute outlined, among

other things, the power of an arbitrator “to appoint a time and

place for hearing,” to hear witnesses and evidence, and to issue

an award. (Id., § 383, p. 112.) But a contractual agreement to

submit to arbitration was deemed revocable. (See, e.g., Holmes

v. Richet (1880) 56 Cal. 307, 312; M. E. Church v. Seitz (1887) 74

Cal. 287, 291.) For an arbitration agreement to become

irrevocable and thus judicially enforceable, an order had to be

first secured from a court. (Stats. 1851, ch. 4, §§ 382, 385,

p. 112.)

9

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

California’s contemporary approach to arbitration

originated two years after Congress enacted the FAA. In 1927,

the Legislature amended existing arbitration provisions to

“reject[] the common law hostility to the enforcement of

arbitration agreements” and “provide[] a modern, expeditious

method of enforcing such agreements and awards made

pursuant to them.” (Recommendation and Study Relating to

Arbitration (Dec. 1960) 3 Cal. Law Revision Com. Rep. (1961)

p. G-5 (1960 Recommendations).) Central to the 1927

amendments was the directive, modeled after section 2 of the

FAA, that written arbitration agreements “ ‘ “shall be valid,

enforceable and irrevocable, save upon such grounds as exist at

law or in equity for the revocation of any contract.” ’ ” (Clogston

v. Schiff-Lang Co. (1935) 2 Cal.2d 414, 415, quoting former

§ 1280; see § 1281.)

The next major overhaul occurred in 1961 when the

California Law Revision Commission proposed revisions that

modernized arbitration procedure while retaining “the basic

principles of the present California arbitration statute.” (1960

Recommendations, supra, at p. G-5; see Feldman, Arbitration

Modernized – the New California Arbitration Act (1961) 34

S.Cal. L.Rev. 413, 416.) Since then, California has continued to

modify or build on its existing procedures. (See, e.g., §§ 1281.85

[requiring neutral arbitrators to comply with specific ethics

standards], 1281.9 [requiring neutral arbitrators to make

specific disclosures], 1281.91 [giving parties the right to

disqualify neutral arbitrators based on their disclosures], 1282.5

[right to transcriptions in arbitrations], 1286.2 [limiting judicial

review of arbitration awards], 1288 [100 days to file petitions to

vacate or correct an award], 1288.2 [100 days to respond to a

petition to vacate or correct an award], 1294 [allowing appeals

10

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

from orders dismissing or denying motions to compel

arbitration, but not from orders granting such motions].)

In 2019, the Legislature passed Senate Bill No. 707 (2019–

2020 Reg. Sess.) (Senate Bill 707), the statute at issue here, in

response to “a concerning and troubling trend” in consumer and

employment arbitrations: “employers are refusing to pay

required fees to initiate arbitration, effectively stymieing the

ability of employees to assert their legal rights.” (Sen. Judiciary

Com., Analysis of Sen. Bill No. 707 (2019–2020 Reg. Sess.) as

amended Apr. 11, 2019, p. 6 (Senate Judiciary Committee

Analysis); Sen. Rules Com., Off. of Sen. Floor Analyses, 3d

reading analysis of Sen. Bill. No. 707 (2019–2020 Reg. Sess.) as

amended May 20, 2019, p. 4 (Senate Rules Committee

Analysis).) The Legislature noted instances in which

companies, having drafted and enforced waivers of class

proceedings in employment contracts, faced large numbers of

individual arbitration demands and then failed to timely pay

arbitration fees, thereby frustrating adjudication of employees’

claims. (Sen. Judiciary Com. Analysis, supra, at pp. 6–7.) The

Legislature observed, for example, that 2,800 Chipotle workers

filed a class action against Chipotle in 2013 and were ordered to

individually arbitrate their claims. (Id. at p. 7.) After the trial

court rebuked Chipotle’s request to suspend the arbitration,

Chipotle “continued to frustrate the efforts of its employees to

have their claims adjudicated by failing to pay its share of the

filing fee.” (Id. at pp. 7–8.) “Six years later not a single claim

ha[d] been heard.” (Id. at p. 8.)

According to the Legislature, “existing case law” did “not

provide clear remedies for employees or consumers who are

caught in limbo by unpaid arbitration fees,” and “this lack of

clarity mean[t] that a drafting party [could] avoid the

11

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

consequences of their behavior by not paying for the dispute to

be arbitrated.” (Assem. Com. on Judiciary, Analysis of Sen. Bill

No. 707 (2019–2020 Reg. Sess.) as amended May 20, 2019, p. 7

(Assembly Committee on Judiciary Analysis).) The Legislature

thus enacted Senate Bill 707 to “solve a very specific problem —

namely, the ‘ “procedural limbo and delay” ’ that consumers and

employees face when they are ‘ “forced to submit to mandatory

arbitration to resolve [a] . . . dispute,” ’ and the business or

company that pushed the case into an arbitral forum then

‘ “stalls or obstructs the arbitration proceeding by refusing to

pay the required fees.” ’ ” (Gallo, supra, 81 Cal.App.5th at

p. 634, quoting Sen. 3d reading analysis of Sen. Bill No. 707

(2019–2020 Reg. Sess.) as amended May 20, 2019, p. 2.) In

addressing this problem, the Legislature “narrowly target[ed]

those who are most at risk” of “extreme hardship” from

“needlessly delay[ed] arbitration” — namely, consumers and

employees, whose “livelihood may be the subject of the

adjudication.” (Assem. Com. on Judiciary Analysis, supra, at

pp. 8–9, boldface and italics omitted.)

Senate Bill 707 added section 1281.98 to the CAA. Section

1281.98 governs payment of fees during an ongoing arbitration.

It provides that where “an employment or consumer arbitration

. . . requires . . . the drafting party” to “pay certain fees and

costs,” those fees or costs must be “paid within 30 days after the

due date.” (§ 1281.98, subd. (a)(1).) If the fees are not timely

paid, “the drafting party is in material breach of the arbitration

agreement, is in default of the arbitration, and waives its right

to compel the employee or consumer to proceed with that

arbitration as a result of the material breach.” (Ibid.) The

consumer or employee may then “unilaterally elect” to

“[w]ithdraw the claim from arbitration and proceed in a court of

12

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

appropriate jurisdiction” (id., subd. (b)(1)) or “[c]ontinue the

arbitration proceeding, if the arbitration provider agrees to

continue administering the proceeding, notwithstanding the

drafting party’s failure to pay fees or costs” (id., subd. (b)(2)).

After the passage of Senate Bill 707, litigants disputed

what counts as the “due date” after which the 30-day payment

period begins to run. (Sen. Judiciary Com., Analysis of Sen. Bill

No. 762 (2021–2022 Reg. Sess.) as amended Mar. 9, 2021, p. 5.)

In addition, the drafting party could repeatedly ask for

extensions, each time resetting the clock for when payment was

due without the other party’s awareness or consent. (Ibid.) To

address these issues, the Legislature passed Senate Bill No. 762

(2021–2022 Reg. Sess.), which modified section 1281.98 to state

that arbitrators must promptly issue their invoices and that

invoices are “due upon receipt” unless the parties have adopted

“an express provision in the arbitration agreement stating the

number of days in which the parties to the arbitration must pay

any required fees or costs.” (§ 1281.98, subd. (a)(2).) Further,

Senate Bill No. 762 added a sentence that says: “Any extension

of time for the due date shall be agreed upon by all parties.”

(§ 1281.98, subd. (a)(2).)

III.

To address the preemption issue, we begin by examining

the operation of section 1281.98. In construing this statute,

“ ‘ “our fundamental task is ‘to ascertain the intent of the

lawmakers so as to effectuate the purpose of the statute.’ ” ’ ”

(Apple Inc. v. Superior Court (2013) 56 Cal.4th 128, 135.) “We

begin by examining the statute’s words, giving them a plain and

commonsense meaning. [Citation.] We do not, however,

consider the statutory language ‘in isolation.’ . . . [W]e construe

13

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

the words in question ‘ “in context, keeping in mind the nature

and obvious purpose of the statute . . . .” ’ ” (People v. Murphy

(2001) 25 Cal.4th 136, 142.) We also “construe every statute

with reference to the whole system of law of which it is a part,

so that all may be harmonized and anomalies avoided.”

(Coachella Valley Mosquito & Vector Control Dist. v. California

Public Employment Relations Bd. (2005) 35 Cal.4th 1072, 1089

(Coachella Valley); see Stafford v. Realty Bond Service Corp.

(1952) 39 Cal.2d 797, 805.) “This rule applies although the

statutes to be harmonized appear in different codes.” (Bozung

v. Local Agency Formation Com. (1975) 13 Cal.3d 263, 274, fn. 7

(Bozung).) Further, in the preemption context, we adhere to

“the rule that courts should, if reasonably possible, construe a

statute ‘in a manner that avoids any doubt about its

[constitutional] validity.’ ” (Kleffman v. Vonage Holdings Corp.

(2010) 49 Cal.4th 334, 346, original brackets; see id. at pp. 345–

346 [construing Bus. & Prof. Code, § 17529.5, subd. (a)(2) to

avoid “significant preemption problems”]; County of Los Angeles

v. Superior Court (1999) 21 Cal.4th 292, 298 [preemption is a

constitutional issue].)

A.

The premise of Golden State’s preemption argument is

that section 1281.98 imposes an inflexible rule that deems any

failure to make timely payment a material breach, regardless of

circumstances, with the automatic consequence that the

drafting party loses its arbitral rights. Several courts have read

the statute this way. (See, e.g., Williams, supra, 86 Cal.App.5th

at p. 1074 [“nothing in section 1281.98 as drafted depends on the

intent or good faith of a particular drafting party in a specific

case”]; Colon-Perez v. Security Industry Specialists, Inc. (2025)

108 Cal.App.5th 403, 418 (Colon-Perez) [§ 1281.98’s “ ‘bright

14

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

line’ ” rule does not permit discretionary relief under § 473,

subd. (b) for mistake, inadvertence, or excusable neglect];

Keeton v. Tesla, Inc., supra, 103 Cal.App.5th at p. 40; Doe v.

Superior Court (2023) 95 Cal.App.5th 346, 357; see also Gallo,

supra, 81 Cal.App.5th at p. 644 [similarly strict reading of

§ 1281.97, which governs initial payment of arbitration fees];

Espinoza, supra, 83 Cal.App.5th at pp. 775–777.) According to

Golden State, courts have interpreted section 1281.98 as an

“unambiguous legislative mandate that ‘requires strict

enforcement’ and provides for ‘no exceptions,’ ” with “[t]he result

. . . that objectively insignificant conduct is legislatively decreed

to be ‘material’ and amount to ‘waiver’ of an important

contractual right.” Because this strict approach “elevate[s]

every arbitration agreement to a higher plane than all (or nearly

all) contracts,” Golden State contends, it violates the FAA’s

equal-treatment principle and is preempted.

It is true that the text of section 1281.98 says without

exception that if a drafting party does not make timely payment,

it “is in material breach of the arbitration agreement, is in

default of the arbitration, and waives its right to

compel [arbitration]” (§ 1281.98, subd. (a)(1)), and the consumer

or employee may “[w]ithdraw . . . from arbitration and proceed

in . . . court” (id., subd. (b)(1)). It is also true the statute has

been applied strictly, regardless of whether an untimely

payment was deliberate or inadvertent. (E.g., Colon-Perez,

supra, 108 Cal.App.5th at pp. 409–410, 413, 421, fn. 12 [loss of

arbitral rights where counsel was “caught in the throes of a

natural disaster” and payment was six days late]; Doe v.

Superior Court, supra, 95 Cal.App.5th at p. 350 [payment was

mailed within the 30-day period but arrived two days late].)

15

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

But we do not think the language of section 1281.98 is by

itself dispositive of the statute’s operation and effect. As noted,

“we construe every statute with reference to the whole system

of law of which it is a part, so that all may be harmonized and

anomalies avoided” (Coachella Valley, supra, 35 Cal.4th at

p. 1089), and “our primary goal is to determine and give effect

to the underlying purpose of the law” (Goodman v. Lozano

(2010) 47 Cal.4th 1327, 1332). We undertake such

harmonization even when the “plain language” of a statute

directs one thing while a background statute specifies another.

(In re Greg F. (2012) 55 Cal.4th 393, 400, 411.) “When the

Legislature intends for a statute to prevail over all contrary law,

it typically signals this intent by using phrases like

‘notwithstanding any other law’ or ‘notwithstanding other

provisions of law.’ ” (Id. at p. 406.) The Legislature has not done

so here.

Instead, the Legislature enacted section 1281.98 against

the backdrop of longstanding statutes that authorize courts to

prevent unjust forfeitures of contractual rights. One such

statute is Civil Code section 3275. Generally, “[w]hen a party’s

failure to perform a contractual obligation constitutes a material

breach of the contract, the other party may be discharged from

its duty to perform under the contract.” (Brown v. Grimes (2011)

192 Cal.App.4th 265, 277.) Civil Code section 3275 codifies an

equitable exception: “Whenever, by the terms of an obligation,

a party thereto incurs a forfeiture, or a loss in the nature of a

forfeiture, by reason of his failure to comply with its provisions,

he may be relieved therefrom, upon making full compensation

to the other party, except in case of a grossly negligent, willful,

or fraudulent breach of duty.” (See Ebbert v. Mercantile Trust

Co. of California (1931) 213 Cal. 496, 499; Magic Carpet Ride

16

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

LLC v. Rugger Investment Group, L.L.C. (2019) 41 Cal.App.5th

357, 368 (Magic Carpet).) Under this provision, a

nonperforming party is not entitled to relief from forfeiture

when its delay was willful, fraudulent, or grossly negligent. But

“when it appears that [the party] has acted in good faith, given

some reasonable excuse for the delay, and thereafter tendered

performance promptly and with reasonable diligence,” equity

can excuse nonperformance so long as the breaching party can

and does “adequately compensate[]” the nonbreaching party for

any harm caused by the delay. (Hopkins v. Woodward (1932)

216 Cal. 619, 622; see Ebbert, at p. 500.)

Civil Code section 3275 excuses a failure to perform an

“obligation,” which is defined as “a legal duty, by which a person

is bound to do or not to do a certain thing.” (Civ. Code, § 1427.)

“An obligation arises either from” a contract or from “[t]he

operation of law.” (Id., § 1428.) The requirement to timely pay

arbitration fees under section 1281.98 is a legal duty that arises

from the operation of law and is thus an “obligation” within the

meaning of these statutes. If Civil Code section 3275 is

operative as a background statute here, then a drafting party

that has not acted willfully, fraudulently, or with gross

negligence in making a late payment “may be relieved” from

forfeiting their right to continue the arbitration “upon making

full compensation to the other party” for any losses resulting

from the delay. (Civ. Code, § 3275; see Coughlin v. Blair (1953)

41 Cal.2d 587, 603 [“Damages are awarded in an action for

breach of contract to give the injured party the benefit of his

bargain and insofar as possible to place him in the same position

he would have been in had the promisor performed the

contract.”].) Consistent with this compensation requirement,

the CAA “order[s] the drafting party to pay the reasonable

17

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

expenses, including attorney’s fees and costs, incurred by the

employee or consumer as a result of the material breach.”

(§ 1281.99, subd. (a).)

Another exception to the general forfeiture rule appears in

Civil Code section 1511, which provides that a breach may be

excused when performance of the contractual obligation would

be impossible, illegal, or impracticable “because of extreme and

unreasonable difficulty, expense, injury, or loss involved.”

(Oosten v. Hay Haulers Dairy Emp. & Helpers Union (1955) 45

Cal.2d 784, 788; see Civ. Code, § 1511 [“The want of performance

of an obligation . . . is excused . . . [w]hen such performance

. . . is prevented or delayed . . . [(1)] by operation of law . . . or

[(2)] by an irresistible, superhuman cause, or by the act of public

enemies of this state or of the United States.”]; Baird v. Wendt

Enterprises, Inc. (1967) 248 Cal.App.2d 52, 55.) Like Civil Code

section 3275, Civil Code section 1511 excuses nonperformance

“of an obligation.” But whereas Civil Code section 3275 provides

for relief from forfeiture while requiring compensatory damages,

Civil Code section 1511 fully excuses the nonperforming party

when its conditions are met. (See Ontario Deciduous Fruit-

Growers’ Assn. v. Cutting Fruit-Packing Co. (1901) 134 Cal. 21,

25.)

A third relevant statute is section 473, subdivision (b)

(section 473(b)), which says: “The court may, upon any terms as

may be just, relieve a party or his or her legal representative

from a judgment, dismissal, order, or other proceeding taken

against him or her through his or her mistake, inadvertence,

surprise, or excusable neglect.” This provision for discretionary

relief “ha[s] been in place since the 1800’s” (Lee v. Wells Fargo

Bank, N.A. (2001) 88 Cal.App.4th 1187, 1192 (Lee)), and “this

court has given a very liberal interpretation to the provisions of

18

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

this section” (In re Simmons’ Estate (1914) 168 Cal. 390,

396). As early as 1914, we summarized various cases in which

relief had been granted under section 473, noting that they were

all “cases in which a step in a pending action or proceeding was

required by the Code to be taken within a specified time, and

the holding, in each instance, was that the objection to the

belated taking of such step was a ‘proceeding taken against’ the

delaying party, and that relief might be given him under section

473.” (In re Simmons’ Estate, at p. 396.)

Section 473(b) “applies to any ‘judgment, dismissal, order,

or other proceeding.’ ” (Zamora v. Clayborn Contracting Group,

Inc. (2002) 28 Cal.4th 249, 254.) It has been interpreted from

“[v]ery early on” to encompass “the failure of counsel to meet a

procedural deadline.” (Lee, supra, 88 Cal.App.4th at p. 1193;

see id. at pp. 1188–1189 [upholding trial court’s award of

discretionary relief under § 473 to excuse an untimely request

for fees and costs].) And it has been applied to judgments that

are not defaults or dismissals of the underlying case. (See

Elston v. City of Turlock (1985) 38 Cal.3d 227, 232 [holding that

§ 473 can excuse a party’s failure to timely respond to a request

for admissions, avoiding the “deemed admissions” that would

otherwise result].) Moreover, it has been applied to relieve a

defendant from an arbitration award after proceedings were

conducted in the defendant’s absence. (See MJM, Inc. v. Tootoo

(1985) 173 Cal.App.3d 598, 601; see also Austin v. Los Angeles

Unified School Dist. (2016) 244 Cal.App.4th 918, 930 [§ 473(b)

relief available where one party asked the court “to set aside the

judgment and the order granting the [other party’s] summary

judgment motion so she could have a fair opportunity to submit

opposition papers demonstrating the existence of triable issues

of fact and the potential merit of her claims”]; Minick v. City of

19

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

Petaluma (2016) 3 Cal.App.5th 15, 18 [upholding trial court’s

grant of discretionary relief under § 473(b) where counsel was

suffering from a serious illness when preparing the summary

judgment opposition papers which “led him to overlook readily

available evidence”].)

In light of this broad construction of section 473(b), and

assuming the statute has not been displaced here, a judicial

determination that an employee or consumer is entitled to

withdraw from arbitration and “proceed in . . . court” (§ 1281.98,

subd. (b)(1)) is readily understood as an “order . . . taken against

[the drafting party]” as well as a “proceeding taken against [the

drafting party]” (§ 473(b)). Section 473(b) may provide another

path by which a drafting party that does not timely pay fees can

be relieved from forfeiting its right to arbitration.

B.

When a statute is enacted against a “legal backdrop,” we

assume the background legal rules continue to apply absent a

“definitive indication” that the Legislature intended to displace

them. (In re Friend (2021) 11 Cal.5th 720, 734.) “The

Legislature is presumed to be aware of all laws in existence

when it passes or amends a statute” (In re Greg F., supra, 55

Cal.4th at p. 407), and “[r]epeals by implication are disfavored”

(Lopez v. Sony Electronics, Inc. (2018) 5 Cal.5th 627, 637).

Where “[n]either statute expressly refers to the other[,] [o]ur

task is to harmonize the two statutes.” (Mejia v. Reed (2003) 31

Cal.4th 657, 663.) We have undertaken such harmonization

whether the statutes are in the same code or different codes.

(See, e.g., In re Greg F., at p. 407 [“For over 40 years, [Welfare

and Institutions Code] section 782 has given juvenile courts the

power to dismiss a delinquency petition if doing so serves the

20

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

interests of justice and the welfare of the minor. [Citation.] If

the Legislature had intended to deprive courts of this long-held

discretionary power when a dismissal would conflict with

[Welfare and Institutions Code section 733, subdivision (c)], it

could have easily made this intent plain. It did not.”]; Coachella

Valley, supra, 35 Cal.4th at p. 1090 [harmonizing the Myers-

Milias-Brown Act as part of a larger system of other public

employment relations laws]; Mejia v. Reed, at p. 663

[harmonizing the Uniform Fraudulent Transfer Act with Fam.

Code, § 916]; Bozung, supra, 13 Cal.3d at p. 274 [harmonizing

the California Environmental Quality Act and the Knox-Nisbet

Act].)

The question here is whether there is a clear indication

that section 1281.98 was intended to limit the ordinary

operation of section 473(b) or Civil Code sections 3275 and 1511.

The question is not whether section 1281.98’s language or

legislative history indicates an intent to preserve the operation

of these background legal rules (see dis. opn., post, at p. 6); as

noted, it is settled that background rules apply absent a

“definitive indication” of the Legislature’s intent to displace

them. (In re Friend, supra, 11 Cal.5th at p. 734.) The Court of

Appeal in Colon-Perez held that “the excuse-laden inquiry

required for discretionary relief under section 473(b) is

incompatible with the ‘simple bright-line’ rule set forth in

section 1281.98 and the Legislature’s purpose in enacting it.”

(Colon-Perez, supra, 108 Cal.App.5th at p. 419.) And several

Courts of Appeal have concluded that the Legislature intended

strict enforcement of the payment provisions with “[n]o

[e]xceptions.” (Espinoza, supra, 83 Cal.App.5th at p. 775, italics

omitted; see ante, at p. 14 [citing cases]; dis. opn., post, at pp. 7–

21

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

12.) But this overreads the Legislature’s purpose in enacting

the payment provisions.

In the text of Senate Bill 707, the Legislature stated

among its findings and declarations: “(e) In Brown v. Dillard’s,

Inc. (2005) 430 F.3d 1004, the United States Court of Appeals

for the Ninth Circuit held that, under federal law, an employer’s

refusal to participate in arbitration pursuant to a mandatory

arbitration provision constituted a breach of the arbitration

agreement. In Sink v. Aden Enterprises, Inc. (2003) 352 F.3d

1197, the Ninth Circuit held that, under federal law, an

employer’s failure to pay arbitration fees as required by an

arbitration agreement constitutes a material breach of that

agreement and results in a default in the arbitration. [¶] (f) It

is the intent of the Legislature in enacting this measure to

affirm the decisions in . . . Brown v. Dillard’s, Inc., and Sink v.

Aden Enterprises, Inc. that a company’s failure to pay

arbitration fees pursuant to a mandatory arbitration provision

constitutes a breach of the arbitration agreement and allows the

non-breaching party to bring a claim in court.” (Stats. 2019,

ch. 870, § 1, subd. (f).)

Given the Legislature’s express intent to affirm Brown v.

Dillard’s, Inc. (2005) 430 F.3d 1004 (Brown) and Sink v. Aden

Enterprises, Inc. (2003) 352 F.3d 1197 (Sink), the facts and

holdings of those decisions are instructive. In Brown, an

employee claiming wrongful termination (Brown) had

attempted to initiate arbitration as required by her employment

contract, but her employer (Dillard’s) refused to pay its portion

of arbitration fees. (Brown, at pp. 1008–1009.) “For more than

two months, Brown tried to contact Dillard’s to discuss its

refusal to participate in arbitration. She was not successful until

October 2002, when she enlisted the aid of her mother and

22

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

arranged a telephone conference call with Savage [an employee

in Dillard’s legal department]. During that call, Savage told

Brown that her complaint had no merit and that Dillard’s

refused to arbitrate.” (Id. at p. 1009.) The Ninth Circuit

concluded that “[u]nder general principles of California contract

law, Dillard’s breach of its obligations under the arbitration

agreement deprives it of the right to enforce that agreement.”

(Id. at p. 1010.) Alternatively, if analyzed “as a waiver case,”

Dillard’s waived its right to enforce the arbitration agreement

because it clearly had knowledge of the employee’s right to

compel arbitration, acted inconsistently with that right, and

prejudiced the employee through its delay. (Id. at p. 1012.)

In Sink, the employee (Sink) had sued his employer (Aden)

for unpaid compensation. (Sink, supra, 352 F.3d at p. 1198.)

“Because of an arbitration clause in [the] employment

agreement, the district court . . . stayed Sink’s action and

referred the matter to arbitration.” (Ibid.) The parties

scheduled the arbitration and agreed in June 2001, with written

confirmation, that Aden would prepay fees to the arbitration

organization by August 6, 2001. (Id. at pp. 1198–1199.) Despite

multiple notices, “Aden did not pay these costs by August 6,

2001 and gave no prior notice that it would be unable to pay.

Further, Aden did not present any evidence that at the time

payment was due in the arbitration, Aden made genuine efforts

to make alternate payment arrangements.” (Id. at p. 1199.)

The district court found that Aden had defaulted in the

arbitration and accordingly lifted the stay of arbitration, but

Aden argued that the court should have instead “order[ed] the

parties to return to arbitration.” (Id. at p. 1200.)

The Ninth Circuit rejected this argument: “Accepting

Aden’s reading of the FAA would also allow a party refusing to

23

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

cooperate with arbitration to indefinitely postpone litigation.

Under Aden’s interpretation, the sole remedy available to a

party prejudiced by default would be a court order compelling a

return to arbitration. The same offending party could then

default a second time, and the prejudiced party’s sole remedy,

again, would be another order compelling arbitration. This cycle

could continue, resulting in frustration of the aggrieved party’s

attempts to resolve its claims. One purpose of the FAA’s liberal

approach to arbitration is the efficient and expeditious

resolution of claims. [Citations.] This purpose is not served by

requiring a district court to enter an order returning parties to

arbitration upon the motion of a party that is already in default

of arbitration. Another, and preeminent, purpose of the FAA is

to ensure ‘judicial enforcement of privately made agreements to

arbitrate.’ [Citation.] But this purpose also is not served by

returning parties to arbitration upon the motion of a party that

is in default of arbitration. Aden’s failure to pay required costs

of arbitration was a material breach of its obligations in

connection with the arbitration. Aden had a fair chance to

proceed with arbitration, but Aden scuttled that prospect by its

non-payment of costs, impeding the arbitration to the point

where the arbitrator cancelled the arbitration and declared

Aden in default. In these circumstances, we hold that § 4 of the

FAA does not compel a district court to return the parties once

more to arbitration.” (Sink, supra, 352 F.3d at p. 1201.)

As the facts of these cases make clear, the Legislature was

concerned about cases where willful nonpayment of fees by a

defendant stymies the ability of employees and consumers to

have their claims resolved in arbitration pursuant to a pre-

dispute arbitration agreement. Neither Brown nor Sink

involved any suggestion of excusable neglect or good faith effort

24

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

by the defendant to make timely payment. The employer in

Brown simply “refus[ed] to arbitrate” (Brown, supra, 430 F.3d

at p. 1012), and Sink also involved “a party refusing to cooperate

with arbitration” (Sink, supra, 352 F.3d at p. 1201; see Assem.

Com. on Judiciary Analysis, supra, at p. 8). In both cases, the

courts expressed concern about nonpayment of fees as a “tactic”

(Brown, at p. 1012) to “indefinitely postpone” (Sink, at p. 1201)

resolution of employee or consumer claims. The Legislature’s

express focus on cases of manipulative or intentional delay does

not support the view that section 1281.98 was intended to

curtail the operation of extant statutes excusing

nonperformance in circumstances not involving willful,

fraudulent, or grossly negligent conduct.

Consistent with Brown and Sink, the legislative history of

Senate Bill 707 identifies the willful withholding of fees as the

mischief it sought to remedy. The Senate Rules Committee

noted that the “bill seeks to affirm that when a company refuses

to pay fees required under an employment or consumer

arbitration agreement it is in material breach of the arbitration

agreement . . . . In order to deter companies and employers

from strategically withholding the payment of arbitration fees,

the company in breach is required to pay reasonable attorney’s

fees and costs and the court is required to impose

sanctions.” (Sen. Rules Com. Analysis, supra, at p. 4, italics

added.) Similarly, the Assembly Committee on Judiciary

observed: “The sanctions provided in this bill are intended to

deter bad actors.” (Assem. Com. on Judiciary Analysis, supra,

at p. 8, boldface and some italics omitted.) Nothing in the

legislative history suggests that the Legislature intended to

penalize inadvertent or excusable delay, to ignore the relevance

of the breaching party’s conduct as in Brown and Sink, or to

25

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

displace avenues for relief from forfeiture that have long been

available in law and equity. (See In re Greg F., supra, 55 Cal.4th

at pp. 408–409 [finding “nothing [in legislative history] to

suggest that the Legislature intended to deprive juvenile courts

of their long-standing discretion to dismiss delinquency

petitions when appropriate” despite unambiguously mandatory

language of Welf. & Inst. Code, § 733, subd. (c)].)

The court in Espinoza observed that along with the

provisions requiring timely payment, the Legislature in Senate

Bill 707 enacted a sanctions provision that distinguishes

between mandatory and discretionary sanctions. (Espinoza,

supra, 83 Cal.App.5th at p. 776; compare § 1281.99, subd. (a)

[“The court shall . . . order[] the drafting party to pay the

reasonable expenses, including attorney’s fees and costs,

incurred by the employee or consumer as a result of the material

breach.”] with id., subd. (b) [the court “may order” evidence

sanctions or terminating sanctions “unless the court finds that

the one subject to the sanction acted with substantial

justification or that other circumstances make the imposition of

the sanction unjust”].) “Given the Legislature’s express grant of

discretion as to imposition of nonmonetary sanctions,” Espinoza

reasoned, “we may presume the Legislature did not intend

implicitly to grant that same discretion on the issues of material

breach and imposition of monetary sanctions.” (Espinoza, at

p. 776.) But this argument does not contend with the

background statutes and principles discussed above that

provide for relief in certain instances of nonperformance. If the

Legislature did not intend to limit the operation of that

background law — and we see no indication that it did — there

would have been no need for it to explicitly “grant [the] same

discretion on the issues of material breach.” (Ibid.)

26

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

Our dissenting colleague notes that the language of

section 1281.99 “presumes that a finding of material breach will

result from a delinquent payment even when the defaulting

party acted with substantial justification” and finds this

“difficult to square” with our construction of section 1281.98.

(Dis. opn., post, at p. 11.) We see no such tension. Consistent

with general contract law, a material breach is enough to trigger

an award of compensatory damages, which the mandatory

sanctions provision of section 1281.99, subdivision (a) provides

for. But other consequences depend on the circumstances: the

background statutes discussed above can in some situations

prevent a material breach from occasioning a loss of the

defaulting party’s right to arbitrate, just as “substantial

justification” for delay can relieve a defaulting party from

discretionary sanctions under section 1281.99, subdivision (b).

The Espinoza court also said the Assembly Committee on

Judiciary’s analysis of Senate Bill 707 “indicates the Legislature

considered and rejected the argument that [the payment

provisions] would unfairly penalize drafting parties for minor

errors.” (Espinoza, supra, 83 Cal.App.5th at p. 777; see dis.

opn., post, at pp. 9–10.) The committee analysis acknowledged

a concern raised by opponents of the bill that “provisions may

impose sanctions even if[] ‘the drafting party paid a majority of

the fees and costs, but yet a small, minor portion was not paid.’ ”

(Assem. Com. on Judiciary Analysis, supra, at p. 8.) That may

be true, the committee responded, but the “risk” that the statute

could subject the drafting party to sanctions for a “relative[ly]

small non-payment of arbitration fees or costs” should “be

viewed in light of the harm that the drafting party’s breach of

contract could impose on employees or consumers who are in

limbo.” (Ibid.) “[T]he ensuing delay associated with this minor

27

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

error could be significant to the employee, who may not be able

to pay bills, rent or other expenses that could result in the loss

of their residence, or damage to their credit rating, while the

dispute remains unresolved.” (Id. at pp. 8–9.) “In light of the

extreme hardship that needlessly delaying arbitration may

cause to plaintiffs, the material breach and sanction provisions

of this bill would seem to be a strict yet reasonable method to

ensure the timely adjudication of employee and consumer claims

that are subject to arbitration.” (Id. at p. 9.)

Although this passage of the committee analysis makes

reference to “the material breach and sanction provisions” (see

dis. opn., post, at p. 10, fn. 4), it primarily responds to the

opponents’ concern that a “minor error” may result in

“sanctions” (Assem. Com. on Judiciary Analysis, supra, at p. 8).

The committee explained that an error, though “minor” or

“immaterial” to the drafting party, “could be significant to the

employee, who may not be able to pay bills, rent or other

expenses that could result in the loss of their residence, or

damage to their credit rating, while the dispute remains

unresolved.” (Id. at pp. 8–9.) This response supplies a

justification for section 1281.99’s mandatory sanction provision,

which requires the drafting party to pay any reasonable

expenses incurred by the employee or consumer as a result of its

failure to timely pay arbitration fees (§ 1281.99, subd. (a)) — in

essence, to make the other party whole (Civ. Code, § 3275) —

whether the nonpayment was willful or not.

But the cited passage does not address whether the

drafting party may be excused from loss of arbitral rights in the

event of a “minor error” that is unintentional, inadvertent, or

otherwise excusable. Indeed, the passage appears in a section

titled “The sanctions provided in this bill are intended to

28

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

deter bad actors.” (Assem. Com. on Judiciary Analysis, supra,

at p. 8.) To illustrate the concerns that the committee had in

mind, the passage cites the case of Chipotle’s “ ‘unseemly’ ”

conduct in “attempt[ing] to delay and obfuscate the adjudication

of claims” in arbitration, as well as the drafting party’s “refus[al]

to pay the arbitrator” “in the Dillard’s case.” (Id. at p. 9.) These

examples cohere with the Legislature’s declaration in the

statute that “[a] company’s strategic non-payment of fees and

costs severely prejudices the ability of employees or consumers

to vindicate their rights.” (Stats. 2019, ch. 870, § 1, subd. (d),

italics added.) We find no indication that the Legislature, in

enacting a “strict yet reasonable method” to ensure timely

payment of arbitration fees (Assem. Com. on Judiciary Analysis,

supra, at p. 9), intended that any instance of nonpayment by the

drafting party, regardless of the circumstances, would result in

loss of its right to arbitration. It is “reasonable to infer that the

Legislature intended no such anomaly, and that it intended,

rather, a coherent and harmonious system of [contract] laws.”

(Coachella Valley, supra, 35 Cal.4th at p. 1090.)

Our dissenting colleague cites letters from opponents of

Senate Bill 707 complaining that the bill would penalize

unintentional or minor defaults, and observes that “no response

was given to assure opponents that the new law would apply

only to willful or strategic nonpayment” and that the text and

“legislative history of Senate Bill 707 say[] nothing at all about

making an exception for unintentional or trivial delinquencies.”

(Dis. opn., post, at p. 9.) But “that construction reads too much

into legislative silence.” (Stone v. Alameda Health System

(2024) 16 Cal.5th 1040, 1079; see People v. Superior Court

(Sahlolbei) (2017) 3 Cal.5th 230, 243 [“inferences from

legislative inaction are necessarily speculative”].) As noted, we

29

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

presume the Legislature is aware of existing laws and intends

to enact new law in harmony with background laws absent a

“definitive indication” to the contrary. (In re Friend, supra, 11

Cal.5th at p. 734.) On that presumption, the Legislature had no

need to respond or to enact exceptions to address those concerns.

None of this is to say that the strict reading of the payment

provisions adopted by Espinoza and other courts is an

implausible construction. (See Espinoza, supra, 83 Cal.App.5th

at p. 777 [“Although strict application may in some cases impose

costs on drafting parties for innocent mistakes, the Legislature

could have concluded a bright-line rule is preferable to requiring

the nondrafting party to incur further delay and expense

establishing the nonpayment was intentional and

prejudicial.”].) But because that reading would raise

preemption concerns, as discussed below, we “should, if

reasonably possible, construe [the] statute ‘in a manner that

avoids any doubt about its [constitutional] validity.’ ”

(Kleffman, supra, 49 Cal.4th at p. 346.) Here it is not just

“reasonably possible” (ibid.) to construe section 1281.98 in

harmony with background statutes and principles that allow

relief from forfeiture where nonperformance is not willful,

fraudulent, or grossly negligent. That construction is amply

supported by the Legislature’s own declaration of purpose in the

statute and legislative history.

IV.

We now consider whether section 1281.98 is preempted by

the FAA.

A.

As noted, section 2 of the FAA provides that a written

arbitration agreement is “valid, irrevocable, and enforceable,

30

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

save upon such grounds as exist at law or in equity for the

revocation of any contract . . . .” (9 U.S.C. § 2.) This provision

establishes “ ‘an equal-treatment principle: A court may

invalidate an arbitration agreement based on “generally

applicable contract defenses” . . . but not on legal rules that

“apply only to arbitration or that derive their meaning from the

fact that an agreement to arbitrate is at issue.” ’ ” (Viking River,

supra, 596 U.S. at p. 650.)

As an initial matter, Hohenshelt contends that the equal-

treatment inquiry is not triggered in this case because section

1281.98 does not revoke, invalidate, or make unenforceable any

arbitration agreement. He notes that section 1281.98 comes

into play only after an arbitration agreement has been enforced

and an arbitration is underway, and that the drafting party’s

failure to make timely payments does not end the arbitration

but rather gives the other party the option of continuing the

arbitration or proceeding to court. In response, Golden State

argues that section 1281.98 “clearly ‘affect[s] the enforceability

of the arbitration agreement itself,’ as it deprive[s] [the drafting

party] of the right to enforce the agreement altogether.”

According to Golden State, “giving one party the ‘option’ to

withdraw from the arbitration impairs the other party’s right to

enforce their agreement to arbitrate by definition.” (See Belyea,

supra, 637 F.Supp.3d at p. 758 [“A rule affects the

‘enforceability’ of a contract when it determines that one side

may enforce the contract, but the other may not.”].)

The FAA “does not define” revocability, invalidity, or

enforceability (Concepcion, supra, 563 U.S. at p. 354 (conc. opn.

of Thomas, J.)), and we need not do so here. Assuming that

section 1281.98 renders the arbitration agreement

unenforceable within the meaning of the FAA by authorizing

31

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

Hohenshelt to withdraw from arbitration and proceed in court

in light of Golden State’s failure to timely pay arbitration fees,

we conclude that the payment rules do not offend the equal-

treatment principle.

Golden State argues that section 1281.98 discriminates

against arbitration agreements as compared to other contracts

in three respects: It makes payment “due upon receipt” of the

arbitrator’s invoice (§ 1281.98, subd. (a)(2)), whereas the

general rule for service contracts is that payment is not due until

services are performed. It defines failure to make timely

payment as “material breach of the arbitration agreement” (id.,

subd. (a)(1)), whereas material breach is generally a factual

question resolved on a case-by-case basis. And it renders the

arbitration agreement unenforceable by the drafting party even

in cases of inconsequential delay (id., subd. (b)), whereas short

delays in performance do not typically result in the loss of

important contractual rights in other contexts. (See Hernandez,

supra, 102 Cal.App.5th at pp. 243–244; Belyea, supra, 637

F.Supp.3d at pp. 757–758.)

To begin, we note that section 1281.98 does not mandate

that arbitration fees invariably be paid within 30 days of the

arbitrator’s invoice regardless of the parties’ preferences. (Cf.

dis. opn., post, at p. 13 [doubting that “a statute may amend

arbitration contracts by inserting a material term to which the

parties did not agree”].) The statute provides a default rule that

invoices are “due upon receipt” and must be “paid within 30

days.” (§ 1281.98, subd. (a)(1), (2).) But parties are free to

contract for any due date they want by adopting their own

“provision in the arbitration agreement stating the number of

days in which the parties to the arbitration must pay any

required fees or costs.” (Id., subd. (a)(2).) Even after a dispute

32

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

has arisen, they may mutually agree to “[a]ny extension of time

for the due date” (ibid.); indeed, nothing in the statute appears

to prohibit parties from agreeing on an extension even within

the 30-day period after a due date has passed. Under the

statute, parties retain flexibility to establish and revise their

own payment agreements to be “ ‘enforced according to their

terms.’ ” (Concepcion, supra, 563 U.S. at p. 344.)

Moreover, section 1281.98’s default timeline is consistent

with the FAA’s policy of “increasing the speed of dispute

resolution.” (Concepcion, supra, 563 U.S. at p. 345.) A 30-day

payment deadline after issuance of the arbitrator’s invoice

tracks other situations where contextual clues suggest that

parties want time to be of the essence. (See, e.g., Champion

Gold Mining Co. v. Champion Mines (1912) 164 Cal. 205, 213

[“where mines or mining properties are the subject of

contract, time is of the essence, independent of any express

stipulation inserted in the instrument”]; Hendren v. Yonash

(1966) 243 Cal.App.2d 672, 679 [“The fact that the words ‘time

is of the essence’ are not in the contract is not

important . . . . Generally, time is of the essence in an option

without specification in the contract.”]; 2 Corbin on Contracts

(2024) § 78.03; see also Centurion Air Cargo, Inc. v. United

Parcel Service Co. (11th Cir. 2005) 420 F.3d 1146, 1151 [“Time

is of the essence under Florida law when (1) the agreement

explicitly so specifies; or (2) such may be determined from the

subject matter of the contract; or (3) treating time as non-

essential would produce a hardship; or (4) notice has been given

to the defaulting party requesting performance within a

reasonable time.”].)

Our dissenting colleague asserts that unlike other

situations in which courts have presumed that time is of the

33

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

essence, late payment of arbitration fees “does not cause

inestimable harm or defeat the very purpose of the contract.”

(Dis. opn., post, at p. 14.) But our Legislature has concluded

that late payment and the resulting delay in vindicating

plaintiffs’ rights can cause nonpecuniary harm in the form of

“extreme hardship” due to loss of “livelihood.” (Assem. Com. on

Judiciary Analysis, supra, at pp. 8–9.) And as explained above,

the Legislature enacted the payment provisions because failure

to timely pay fees does “defeat the very purpose of the

[arbitration] contract.” (Dis. opn., post, at p. 14; see ante, at

pp. 11–12, 24–25.)

Next, Golden State contends that outside of section

1281.98, the question of whether a party has materially

breached or substantially performed its contractual obligations

is subject to case-by-case factual determination. (See Belyea,

supra, 637 F.Supp.3d at p. 757.) This feature of section 1281.98,

Golden State contends, uniquely penalizes trivial delays in

performance. We agree that if section 1281.98 were construed

to mean that any failure to make timely payment, regardless of

the circumstances, invariably results in forfeiture of arbitral

rights, the statute would be anomalous in the context of general

contract law principles. As we have explained, however, a

drafting party can avoid forfeiture of its right to arbitration by

showing that the delay was excusable under section 473, Civil

Code section 3275, or Civil Code section 1511, the background

principles that generally apply to other contractual obligations.

And while it is true that whether a party has substantially

performed is generally a fact-specific question, we have long

held that good faith is a necessary condition to a finding of

substantial performance. (See Perry v. Quackenbush (1894) 105

Cal. 299, 308 [“ ‘The party must have intended in good faith to

34

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

comply with the terms of the contract. . . . [A] voluntary

abandonment of the agreement, or a willful departure from its

stipulations, are not allowed.’ ”]; Connell v. Higgins (1915) 170

Cal. 541, 556 [“Substantial performance means that there has

been no willful departure from the terms of the contract, and no

omission of any of its essential parts, and that the contractor has

in good faith performed all of its substantive terms.”]; see also

CACI No. 312 [“[t]o overcome” a finding of material breach that

excuses the nonbreaching party’s performance under the

contract, the breaching party must “prove” that it “made a good

faith effort to comply with the contract”].)

Accordingly, under general contract law principles as

under section 1281.98, a drafting party cannot avoid

discharging the other party’s contractual duty to proceed in

arbitration if it willfully withholds fees necessary to move

arbitration forward. Conversely, if the drafting party acted in

good faith, it may seek relief under the above statutes, and its

claim should be evaluated under the usual principles in law and

equity governing relief from forfeiture or default, including

whether the other party has been prejudiced. (See, e.g., Magic

Carpet, supra, 41 Cal.App.5th at p. 365 [discussing five factors

bearing on such relief: “(1) ‘the extent to which the injured party

will be deprived of the benefit which he reasonably expected’;

(2) ‘the extent to which the injured party can be adequately

compensated for the part of that benefit of which he will be

deprived’; (3) ‘the extent to which the party failing to perform or

to offer to perform will suffer forfeiture’; (4) ‘the likelihood that

the party failing to perform or to offer to perform will cure his

failure, taking account of all the circumstances including any

reasonable assurances’; and (5) ‘the extent to which the behavior

35

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

of the party failing to perform or to offer to perform comports

with standards of good faith and fair dealing’ ”].)

Our dissenting colleague cites MacFadden v. Walker

(1971) 5 Cal.3d 809, 814, for the proposition that “California

common law has long recognized a defense even for willful

delinquencies, so long as the other contracting party has

suffered no significant prejudice related to the default.” (Dis.

opn., post, at pp. 15–16.) But “[t]he reasoning of the MacFadden

decision is grounded in the fact that the court was enforcing

what is commonly referred to as a ‘land sale contract’ which,

typically, is a transaction wherein the buyer takes possession of

the property and promises to pay the consideration by

installments, but the seller withholds delivery of the deed until

a substantial part or all of the payments have been received.”

(Nash v. Superior Court (1978) 86 Cal.App.3d 690, 697.) “The

MacFadden opinion acknowledges that this kind of land sale

contract is functionally similar to a security device, such as a

mortgage; and that the law gives a wilfully defaulting mortgagor

an opportunity to cure his default.” (Ibid.)

Neither this court nor any Court of Appeal has ever

applied MacFadden to excuse a willful breach from occasioning

forfeiture outside of contracts involving real property. Peterson

v. Hartell (1985) 40 Cal.3d 102, 106, which “reaffirmed

MacFadden” (dis. opn., post, at p. 17), likewise involved an

installment land sale contract. Outside of that context,

MacFadden and Peterson did not purport to displace the

longstanding common law rule, codified in Civil Code section

3275, that a breaching party will not be relieved from forfeiture

where the breach was grossly negligent, willful, or fraudulent.

Although Magic Carpet, supra, 41 Cal.App.5th 357 and Saika v.

Gold (1996) 49 Cal.App.4th 1074 cited MacFadden in disputes

36

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

not involving real property (see dis. opn., post, at pp. 17–18 &

fn. 8), neither involved a willful breach of an otherwise

enforceable agreement. (See Magic Carpet, at p. 364 [“The

evidence . . . shows that Rugger had not willfully departed from

the terms of the contract but diligently sought to obtain a lien

release from Cutter.”]; Saika v. Gold, at p. 1082 [refusing to

enforce an illusory promise].)

Nor does Harriman v. Tetik (1961) 56 Cal.2d 805, which

involved a claim for restitution under a theory of unjust

enrichment, support a contrary view. (Dis. opn., post, at p. 17.)

Harriman held that “in a variety of situations,” even a willfully

breaching party can recover any excess retained by the other

party beyond the actual harm caused by the breach. (Harriman,

at p. 811; see Freedman v. The Rector (1951) 37 Cal.2d 16, 19–

20.) Such a situation can arise when the nonbreaching party

keeps a deposit or other consideration paid by the other party in

anticipation of further contractual performance. (See

Harriman, at p. 812 [escrow]; Freedman, at p. 19

[downpayment]; Magic Carpet, supra, 41 Cal.App.5th at p. 362

[escrow].) It is not clear how a consumer or employee could be

unjustly enriched when a drafting party delays an arbitration

under the CAA’s payment provisions. But if such a situation

were to arise, the statute does not foreclose restitution as an

ordinary contractual remedy. In any event, the principle

embodied in Harriman and Freedman is that an injured party

is entitled to “an award for ‘losses caused and gains prevented

by the defendant’s breach, in excess of savings made possible,’ ”

and no more. (2 Corbin on Contracts, supra, § 55.05; accord,

Rest.2d Contracts, § 347.) By ordering breaching parties to pay

no more than “the reasonable expenses . . . incurred by the

37

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

employee or consumer as a result of the material breach”

(§ 1281.99, subd. (a)), the CAA is in accord.

To be sure, at the time Senate Bill 707 was enacted,

California and federal courts maintained a special rule

requiring a party asserting waiver of arbitration to show

prejudice, even in cases of willful delay. (See Brown, supra, 430

F.3d at p. 1012; Quach, supra, 16 Cal.5th at pp. 569, 573–574.)

But as we recently held, consistent with the high court’s decision

in Morgan, supra, 596 U.S. 411, 418, the unique prejudice

requirement for arbitral waivers cannot be squared with the

FAA’s equal-treatment principle. (Quach, at pp. 569, 578; see

id. at p. 585 [“The waiver inquiry is exclusively focused on the

waiving party’s words or conduct; neither the effect of that

conduct on the party seeking to avoid enforcement of the

contractual right nor that party’s subjective evaluation of the

waiving party’s intent is relevant.”].)

In sum, instead of “[i]mposing a higher standard for

enforcement of arbitration agreements” (Hernandez, supra, 102

Cal.App.5th at p. 244), section 1281.98, construed in harmony

with background statutes, makes arbitration contracts

enforceable on the same grounds as those that apply to other

contracts: When a party breaches its contractual obligations

willfully, fraudulently, or with gross negligence, it cannot escape

the consequences by pointing to a lack of harm to the other

party. But short of such wrongful conduct, a breaching party

may be relieved from forfeiting its right to enforce an arbitration

agreement based on the circumstances, as provided by

longstanding legal principles.

38

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

B.

Golden State further contends that section 1281.98 is

preempted because it “interfere[s] with the fundamental aspects

of arbitration” by stripping arbitrators of control of their own

financial affairs, by eliminating individualized determinations

of waiver and breach, by imposing procedural rigor stricter than

judicial proceedings, and by upsetting the fundamental

expectation that parties will have no contact with the court after

agreeing to arbitrate.

In Concepcion, the high court described “fundamental

attributes of arbitration” in terms of the parties’ “discretion in

designing arbitration processes” and “the informality of arbitral

proceedings,” which are “desirable” because they “allow for

efficient, streamlined procedures tailored to the type of dispute”

and “reduc[e] the cost and increas[e] the speed of dispute

resolution.” (Concepcion, supra, 563 U.S. at pp. 344–345.)

Concepcion invalidated a state-law rule against class waivers as

applied to arbitration agreements, explaining that class

arbitration “requires procedural formality” (id. at p. 349) and

“makes the process slower, more costly, and more likely to

generate procedural morass than final judgment” (id. at p. 348).

The high court emphasized that “ ‘[a] prime objective of an

agreement to arbitrate is to achieve “streamlined proceedings

and expeditious results.” ’ ” (Id. at p. 346, quoting Preston v.

Ferrer (2008) 552 U.S. 346, 357 (Preston).)

Whereas rules barring waiver of class arbitration or

requiring administrative exhaustion have been held to interfere

with fundamental attributes of arbitration (see Concepcion,

supra, 563 U.S. at pp. 348–349; Preston, supra, 552 U.S. at

p. 359), Golden State’s concerns about section 1281.98 are far

39

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

afield. No authority suggests that an arbitrator’s control over

payment deadlines is a fundamental attribute of arbitration.

What is a fundamental attribute is “affording parties discretion

in designing arbitration processes” (Concepcion, at p. 344, italics

added), and section 1281.98 preserves that discretion by setting

a default rule for timely payment that parties can override (ante,

at pp. 1, 13). We are also unpersuaded that section 1281.98

imposes on arbitration a degree of procedural rigor that exceeds

what occurs in court. For this proposition, Golden State cites

Lamps Plus, Inc. v. Varela (2019) 587 U.S. 176, but the high

court’s discussion in that case focused on the “ ‘procedural

rigor’ ” entailed by class arbitration and how its “ ‘risks and

costs’ ” threatened to undermine arbitration’s virtues of “ ‘speed

and simplicity and inexpensiveness’ ” (id. at pp. 184–185).

Unlike a rule against class arbitration waivers, section 1281.98

presents no risk of “generat[ing] procedural morass”

(Concepcion, supra, 563 U.S. at p. 348); instead, it simplifies

payment procedures with a clearer rule.

As for Golden State’s contention that section 1281.98

improperly returns the parties to court after agreeing to

arbitrate, the FAA itself “envisions” a “supervisory role . . . for

the courts” as arbitration proceeds. (Smith v. Spizzirri (2024)

601 U.S. 472, 478.) Section 3 of the FAA provides that when a

federal court has determined that a claim is referable to

arbitration under an arbitration agreement, the court “shall on

application of one of the parties stay the trial of the action until

such arbitration has been had in accordance with the terms of

the agreement, providing the applicant for the stay is not in

default in proceeding with such arbitration.” (9 U.S.C. § 3.) The

high court in Smith explained that this statute, by authorizing

a stay and not dismissal of the action, “ensures that the parties

40

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

can return to federal court if arbitration breaks down or fails to

resolve the dispute,” including in circumstances where “ ‘the

applicant for the stay is . . . in default in proceeding with such

arbitration.’ ” (Smith, at pp. 476–477.) By offering a “return

ticket” to court (id. at p. 477) when the drafting party has

defaulted on its obligation to timely pay the arbitrator, section

1281.98 does not conflict with the policy of the FAA.

C.

Finally, Golden State says the operation of section 1281.98

is “more likely to delay resolution of disputes than expedite it.”

According to Golden State, “[t]his case perfectly illustrates how

sections 1281.97 et seq. can result in substantial delay. Golden

State Foods and Hohenshelt arbitrated for over a year. In a

world without section 1281.98, the parties would have proceeded

in arbitration pursuant to the agreed-upon scheduling order,

and this case would have been resolved nearly two years ago.”

(See Hernandez, supra, 102 Cal.App.5th at p. 244 [CAA’s

payment rules “increas[e] the overall cost of litigation and

wast[e] resources already invested toward arbitration”].)

To be sure, where the drafting party has refused to make

timely payment during an arbitration already underway, a

decision by the other party to withdraw from arbitration and

proceed in court may add time and costs to the dispute’s

resolution. But what about the mine-run of cases where the

drafting party timely pays required fees or makes a good-faith

effort to do so? (See Hernandez, supra, 102 Cal.App.5th at

p. 248, fn. 3 (dis. opn. of Baker, Acting P. J.) [“[W]hether [the

payment rule] is an obstacle to accomplishment of the Federal

Arbitration Act’s purposes must be considered at scale, meaning

in the great many cases the statute was enacted to govern, not

41

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

a select few. To draw an analogy, one does not decide whether

strict notice of appeal timeliness rules enable prompt

adjudication of challenges to trial court rulings by considering

only those appeals that are dismissed because the notice of

appeal was not timely filed.”].) Although Golden State says this

case would have been resolved two years ago “[i]n a world

without section 1281.98,” that is also true in a world in which

Golden State had complied with section 1281.98. We have no

reason to doubt that most companies will make good-faith

efforts to comply with the payment deadline or write

agreements with an alternative payment schedule that likewise

promotes certainty and ensures that arbitration goes forward.

(See Hernandez, supra, 102 Cal.App.5th at p. 248, fn. 4 (dis. opn.

of Baker, Acting P. J.) [“Even if a few matters are removed from

arbitration in a case of a minor or inadvertent delay, it is still

[the] case that [the statute] overall ensures arbitrations proceed

more quickly.”].)

Without a rule requiring timely payment of arbitration

fees and imposing meaningful consequences for willful

nonpayment, companies could continue to stymie dispute

resolution “by refusing to participate in the arbitration

proceedings” initiated by their consumers or employees.

(Brown, supra, 430 F.3d at p. 1010.) The Legislature enacted

section 1281.98 to deter strategic nonpayment and thereby

remedy a “concerning and troubling trend” of delay. (Sen. Com.

on Judiciary Analysis, supra, at p. 6.) The FAA does not

foreclose this approach to “increasing the speed of dispute

resolution” and ensuring “efficient, streamlined procedures

tailored to the type of dispute.” (Concepcion, supra, 563 U.S. at

pp. 344–345.) Indeed, it would be ironic if the FAA’s policy of

enforcing agreements to arbitrate effectively cannibalized a

42

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

state law that aims to keep parties to such agreements moving

forward in arbitration by requiring timely payment of

arbitration fees.

CONCLUSION

We agree with the Court of Appeal that section 1281.98 is

not preempted by the FAA. But in light of our clarification that

section 1281.98 does not displace background statutes

permitting relief to a breaching party in certain circumstances,

we reverse the Court of Appeal’s order “direct[ing] the trial court

to vacate its order denying the motion to lift the stay of litigation

and to enter an order lifting the stay.” (Hohenshelt, supra,

99 Cal.App.5th at p. 1326.) We direct the Court of Appeal to

remand the matter to the trial court for consideration of whether

Golden State may be excused for its failure to timely pay

arbitration fees, such that the stay of litigation should not be

lifted and the parties should be returned to arbitration, and

whether the delay resulted in compensable harm to Hohenshelt.

We disapprove Gallo v. Wood Ranch USA, Inc., supra, 81

Cal.App.5th 621, Espinoza v. Superior Court, supra, 83

Cal.App.5th 761, De Leon v. Juanita’s Foods, supra,

85 Cal.App.5th 740, Williams v. West Coast Hospitals, Inc.,

supra, 86 Cal.App.5th 1054, Doe v. Superior Court, supra, 95

Cal.App.5th 346, Suarez v. Superior Court, supra, 99

Cal.App.5th 32, Hernandez v. Sohnen Enterprises, Inc., supra,

102 Cal.App.5th 222, Keeton v. Tesla, Inc., supra, 103

Cal.App.5th 26, Trujillo v. J-M Manufacturing Co., Inc. (2024)

107 Cal.App.5th 56, Colon-Perez v. Security Industry

Specialists, Inc., supra, 108 Cal.App.5th 403, and Sanders v.

Superior Court (2025) 110 Cal.App.5th 1304, to the extent they

are inconsistent with this opinion.

43

HOHENSHELT v. SUPERIOR COURT

Opinion of the Court by Liu, J.

LIU, J.

We Concur:

GUERRERO, C. J.

KRUGER, J.

GROBAN, J.

EVANS, J.

44

HOHENSHELT v. SUPERIOR COURT

S284498

Concurring Opinion by Justice Groban

I write separately to highlight a significant question that

the majority opinion sensibly leaves open. As the majority

opinion notes, Golden State Foods Corporation (Golden State)

argues in its briefing before us that the parties agreed that their

disputes would be governed by the Federal Arbitration Act’s

(FAA; 9 U.S.C. § 1 et seq.) procedural rules and the rules of

whichever private arbitrator they selected. (Maj. opn., ante, at

pp. 7–8.) Golden State contends that for this reason, the

California Arbitration Act’s (CAA; Code Civ. Proc., § 1280 et

seq.) rules — including Code of Civil Procedure section

1281.98 (section 1281.98) — therefore do not govern this

dispute. I concur in the majority opinion’s conclusion that

Golden State waived this argument by not raising it below. (Maj.

opn., ante, at p. 7.) Given this waiver, it makes sense not to

address questions related to the interpretation of the arbitration

agreement and, instead, to focus our analysis on the

interpretation of section 1281.98. I also concur in the majority

opinion’s conclusion that section 1281.98, properly interpreted,

is not preempted under the FAA’s equal treatment principle or

otherwise. (Maj. opn., ante, at pp. 1–2.)

However, because the majority opinion focuses on Golden

State’s arguments concerning section 1281.98 and the equal

treatment principle, it does not address an analytically prior

question, the answer to which will often be dispositive of FAA

1

HOHENSHELT v. SUPERIOR COURT

Groban, J., concurring

preemption challenges: Did the parties agree that the CAA’s

procedural rules would govern their disputes?

As the United States Supreme Court has emphasized, the

FAA’s “primary purpose” is to ensure that courts enforce

arbitration agreements “according to their terms.” (Volt Info.

Sciences v. Leland Stanford Jr. U. (1989) 489 U.S. 468, 479

(Volt).) The FAA contemplates that states will enact their own

rules governing arbitration proceedings in state courts. (Volt, at

pp. 474–475.)1 When the parties to an arbitration agreement

have agreed that state procedural rules will govern their

disputes, applying those rules furthers the overarching federal

policy of “ensur[ing] the enforceability, according to their terms,

of private agreements to arbitrate.” (Id. at p. 476.)

In Volt, the United States Supreme Court addressed a

FAA preemption challenge to a CAA provision — Code of Civil

Procedure section 1281.2, subdivision (c) — that allows courts to

deny a motion to compel arbitration or to stay arbitration

pending resolution of related litigation. (Volt, supra, 489 U.S. at

p. 471.) Upholding the provision, the court observed: “There is

no federal policy favoring arbitration under a certain set of

procedural rules.” (Id. at p. 476.) The court reasoned that since

1

As the Court of Appeal has observed, “[t]hose state laws

will, by definition, be arbitration specific. If such state laws

were preempted merely because they singled out arbitration for

differential treatment, states would never be able to enact rules

defining the procedures for arbitration unless the procedures

mirrored those for every other case handled in a judicial forum

(as that would render them no longer ‘arbitration specific’), yet

requiring such parity would utterly defeat the very purpose of

arbitration in the first place — namely, to create an alternative,

more ‘efficient and speedy dispute resolution’ mechanism.”

(Gallo v. Wood Ranch USA, Inc. (2022) 81 Cal.App.5th 621, 639.)

2

HOHENSHELT v. SUPERIOR COURT

Groban, J., concurring

the arbitration agreement at issue incorporated the CAA’s

procedural rules, the stay provision would only be preempted if

applying it “in accordance with the terms of the arbitration

agreement itself, would undermine the goals and policies of the

FAA.” (Id. at pp. 477–478.) The court concluded: “Where, as

here, the parties have agreed to abide by state rules of

arbitration, enforcing those rules according to the terms of the

agreement is fully consistent with the goals of the FAA, even if

the result is that arbitration is stayed where the [FAA] would

otherwise permit it to go forward.” (Id. at p. 479.) Thus, when

the parties to an arbitration agreement have agreed that state

procedural rules will govern the adjudication of their disputes,

a court’s application of those rules to their disputes is not

preempted. (Id. at pp. 477–479.)

In many, if not most, cases, it will be readily apparent

whether the parties agreed that the CAA’s procedural rules

would govern their disputes. By contrast to federal preemption,

the interpretation of contracts is a matter of state law. (Volt,

supra, 489 U.S. at p. 474.) It has long been the rule in California

that “the CAA’s procedural rules apply by default to cases

brought in California courts, including those in which the FAA

governs the arbitrability of the controversy.” (Quach v.

California Commerce Club, Inc. (2024) 16 Cal.5th 562, 582; see

Rosenthal v. Great Western Fin. Securities Corp. (1996)

14 Cal.4th 394, 409.)2 We assume that California arbitration

2

The FAA’s procedural provisions do not, by their terms,

apply in state court. (See 9 U.S.C. §§ 3 [referring to proceedings

“brought in any of the courts of the United States”], 4 [referring

to “any United States district court”]; Volt, supra, 489 U.S. at

p. 477, fn. 6; Cronus Investments, Inc. v. Concierge Services

(2005) 35 Cal.4th 376, 389–390 (Cronus Investments).)

3

HOHENSHELT v. SUPERIOR COURT

Groban, J., concurring

agreements are drafted with this rule in mind, and so that they

incorporate the CAA’s procedural rules absent an express

indication to the contrary. (14A Cal.Jur.3d (2025) Contracts, §

241 [“Parties are presumed to have had existing law in mind

when they executed their contractual agreement, and ‘existing

law’ includes decisions of appellate courts interpreting

statutes”]; see Cronus Investments, supra, 35 Cal.4th at p. 394

[For the FAA’s procedural rules to apply, “parties to an

arbitration agreement” must “expressly designate that any

arbitration proceeding should move forward under the FAA’s

procedural provisions rather than under state procedural law”].)

Accordingly, there is no obvious reason to treat an agreement to

which the CAA’s procedural rules apply by default differently

from one that expressly states that the CAA’s procedural rules

apply. (See Espinoza v. Superior Court (2022) 83 Cal.App.5th

761, 785 [observing that the distinction between agreements

that “expressly incorporate the CAA” and those that do not does

not affect the preemption analysis because “the arbitration

agreement . . . incorporates the CAA by default”].) Indeed, to

require an express statement that the CAA’s procedural rules

apply would turn the default rule on its head, making it so that

the CAA’s procedural rules are, by default, inapplicable. Absent

an express indication to the contrary, a California arbitration

agreement generally should be interpreted as incorporating the

CAA’s procedural rules.

Where a court has interpreted an arbitration agreement

as reflecting the parties’ agreement that the CAA’s procedural

rules will apply to their disputes, the court need not then go on

to consider any argument that applying those rules would

violate the equal treatment principle. (See Hernandez v. Sohnen

Enterprises, Inc. (2024) 102 Cal.App.5th 222, 240 [“[I]f the

4

HOHENSHELT v. SUPERIOR COURT

Groban, J., concurring

parties have agreed to apply” a provision of the CAA, “no

discussion of preemption is required”].) The equal treatment

principle comes into play only when state statutory or case law

renders an arbitration agreement invalid, revocable, or

unenforceable. (See 9 U.S.C. § 2 [An arbitration agreement

“shall be valid, irrevocable, and enforceable, save upon such

grounds as exist at law or in equity for the revocation of any

contract”].) A state court decision that enforces an arbitration

agreement in accordance with its terms has none of these

effects. Even when applying state procedural law “in accordance

with the terms of the arbitration agreement itself” results in a

dispute returning to court that otherwise would be subject to

arbitration, its application does not “undermine the goals and

policies of the FAA.” (Volt, supra, 489 U.S. at pp. 477, 478.)

I agree with the majority’s determination that, in the

circumstances of this case, it makes sense to address the

argument that section 1281.98 is preempted under the FAA’s

equal treatment principle. But in many cases, a California court

will not need to engage in this analysis. When an arbitration

agreement incorporates the CAA’s procedural rules, the CAA

will apply, and no federal preemption concerns arise.

GROBAN, J.

I Concur:

EVANS, J.

5

HOHENSHELT v. SUPERIOR COURT

S284498

Dissenting Opinion by Justice Corrigan

I disagree that Code of Civil Procedure section 1281.981

can be saved from preemption, as the majority suggests, because

significant differences remain in the statute’s treatment of

employment and consumer arbitration contracts as compared to

other binding agreements negotiated between the parties. Even

with the ameliorative measures provided by the majority’s

modifications, section 1281.98 still fails “to place arbitration

agreements ‘on equal footing with all other contracts’ ” under

California law. (Kindred Nursing Centers L.P. v. Clark (2017)

581 U.S. 246, 248 (Kindred).) As a result, I would hold it is

preempted by the Federal Arbitration Act (FAA; 9 U.S.C. § 1 et

seq.).

I.

The relevant provisions of section 1281.98 state: “(a) (1) In

an employment or consumer arbitration that requires, either

expressly or through application of state or federal law or the

rules of the arbitration provider, that the drafting party pay

certain fees and costs during the pendency of an arbitration

proceeding, if the fees or costs required to continue the

arbitration proceeding are not paid within 30 days after the due

date, the drafting party is in material breach of the arbitration

1

All statutory references are to the Code of Civil Procedure

unless otherwise stated.

1

HOHENSHELT v. SUPERIOR COURT

Corrigan, J., dissenting

agreement, is in default of the arbitration, and waives its right

to compel the employee or consumer to proceed with that

arbitration as a result of the material breach. [¶] (2) . . .

[A]bsent an express provision in the arbitration agreement

stating the number of days in which the parties to the

arbitration must pay any required fees or costs, the arbitration

provider shall issue all invoices to the parties as due upon

receipt. Any extension of time for the due date shall be agreed

upon by all parties. . . . [¶] (b) If the drafting party materially

breaches the arbitration agreement and is in default under

subdivision (a), the employee or consumer may unilaterally elect

to do any of the following: [¶] (1) Withdraw the claim from

arbitration and proceed in a court of appropriate jurisdiction.”

(Italics added.) If the employee or consumer chooses instead to

continue with arbitration (§ 1281.98, subd. (b)(2)), the payment

of delinquent fees may be compelled by the court (id.,

subd. (b)(3)), reimbursed to the employee or consumer as part of

the arbitration award (id., subd. (b)(4)), or collected by the

arbitration provider in a separate action (id., subd. (b)(2)).

The statute also subjects the delinquent party to

mandatory sanctions in the resulting court or arbitral

proceeding. (§§ 1281.98, subds. (c)–(d), 1281.99.) Court-ordered

sanctions must cover “the reasonable expenses, including

attorney’s fees and costs, incurred by the employee or consumer

as a result of the material breach” (§ 1281.99, subd. (a)) and may

also include evidentiary or terminating sanctions “unless the

court finds that the one subject to the sanction acted with

substantial justification or that other circumstances make the

imposition of the sanction unjust” (id., subd. (b)).

These terms impose substantial strictures. First, the

statute establishes a default rule that arbitration providers

2

HOHENSHELT v. SUPERIOR COURT

Corrigan, J., dissenting

make invoices for fees and costs due upon receipt. (§ 1281.98,

subd. (a)(2).) Then, if an invoice is not paid within 30 days, the

statute declares as a matter of law that the drafting party is “in

material breach of the arbitration agreement,” “in default of the

arbitration,” and has “waive[d] its right to compel the employee

or consumer to proceed with that arbitration.” (Id., subd. (a)(1).)

Although contracting parties may agree to make arbitration

invoices due at another time than “upon receipt” (id.,

subd. (a)(2)), the statute allows no alternative to its 30-day grace

period. Nor can parties contract around the statute’s

requirement that “all parties” (ibid.) must agree to any

extensions of time. Thus, even if the arbitration provider agrees

to accept payment 45, or 35, or even 31 days after an invoice is

due, a material breach of the arbitration agreement will result

if the nonpaying party does not agree to an extension.2 As a

remedy for this statutorily declared breach, section 1281.98

allows employees and consumers to unilaterally withdraw from

arbitration and proceed with their claims in court. (Id.,

subd. (b)(1).)

In short, the statute prescribes strict rules requiring early

payment of arbitration-related costs and makes no allowances

for delinquency of any kind, under any circumstances. The text

of section 1281.98 permits “no exceptions . . . for substantial

compliance or lack of prejudice.” (Hernandez v. Sohnen

Enterprises, Inc. (2024) 102 Cal.App.5th 222, 234 (Hernandez).)

2

Due dates are even more strict under section 1281.97, the

companion statute governing payments to initiate arbitration.

Section 1281.97 requires that such payments be made within 30

days of the due date and makes no allowance for parties to agree

otherwise. (Compare § 1281.97, subd. (a)(2) with § 1281.98,

subd. (a)(2).)

3

HOHENSHELT v. SUPERIOR COURT

Corrigan, J., dissenting

Even if the delinquency was trivial, or due to an excusable

oversight, and even if it caused no harm to the employee or

consumer or any actual delay in the arbitration proceeding,

section 1281.98 establishes that there was a material breach

and waiver of the drafting party’s right to arbitrate as a matter

of law. With no need to show prejudice in any form to anyone,

the other party can immediately withdraw from arbitration and

move the dispute to court. A drafting party’s contractual right

to arbitrate may be imperiled multiple times over the course of

a lengthy arbitration because section 1281.98’s rules apply each

time a payment is due. The question before us is whether these

rules can be squared with the FAA.

The United States Supreme Court has repeatedly

explained that section 2 of the FAA (9 U.S.C. § 2) “establishes

an equal-treatment principle: A court may invalidate an

arbitration agreement based on ‘generally applicable contract

defenses’ like fraud or unconscionability, but not on legal rules

that ‘apply only to arbitration or that derive their meaning from

the fact that an agreement to arbitrate is at issue.’ ” (Kindred,

supra, 581 U.S. at p. 251, quoting AT&T Mobility LLC v.

Concepcion (2011) 563 U.S. 333, 339 (Concepcion).) “[C]ourts

must place arbitration agreements on an equal footing with

other contracts [citation] and enforce them according to their

terms [citation].” (Concepcion, at p. 339.) The equal treatment

principle is central to FAA preemption law. In Kindred, for

example, the high court held the FAA preempted a Kentucky

rule requiring that arbitration agreements be executed only by

principals or representatives expressly authorized to waive the

principal’s access to the courts. (Kindred, at p. 248.) Whatever

benevolent intent may have motivated the Kentucky legislature

to adopt the provision, the high court ruled it could not stand

4

HOHENSHELT v. SUPERIOR COURT

Corrigan, J., dissenting

because it “fail[ed] to put arbitration agreements on an equal

plane with other contracts.” (Id. at p. 252.)

Section 1281.98 likewise violates the equal treatment

principle for two reasons that are plain from its text. First, by

making payment of arbitration costs presumptively due “upon

receipt” and by imposing a short grace period that parties cannot

alter with different contract terms, section 1281.98 effectively

converts all employment and consumer arbitration contracts

into contracts that make time of the essence for paying

arbitration fees. This requirement is contrary to the general

rule that time is not of the essence in a contract unless the

parties so agree. (See Henck v. Lake Hemet Water Co. (1937) 9

Cal.2d 136, 143 (Henck).) Second, section 1281.98 “mandates

findings of material breach and waiver for late payment that do

not apply generally to all contracts or even to all arbitrations.”

(Hernandez, supra, 102 Cal.App.5th at p. 243.) In other

contexts, questions of waiver and breach of contract are fact

specific. (See Wild Dancer Production Group v. Walt Disney

Pictures (2017) 10 Cal.App.5th 56, 78; Boston LLC v. Juarez

(2016) 245 Cal.App.4th 75, 87; 23 Williston on Contracts (4th ed.

2024) § 63:15.)

Neither the parties nor the majority point to any other

contracts that our law renders unenforceable on such stringent

terms as those defined in section 1281.98. The statute makes

contracts unenforceable on grounds that are specific to

arbitration. (See Belyea v. GreenSky, Inc. (N.D.Cal. 2022) 637

F.Supp.3d 745, 756.) Because it singles out arbitration

contracts for disfavored treatment, section 1281.98 is

preempted by the FAA. (See Kindred, supra, 581 U.S. at p. 248.)

5

HOHENSHELT v. SUPERIOR COURT

Corrigan, J., dissenting

II.

The majority opinion does not discuss the actual language

of the statute in much detail. Instead, it begins its analysis by

considering three statutory defenses to the forfeiture of

contractual rights: section 473, subdivision (b), and Civil Code

sections 3275 and 1511. (Maj. opn. ante, at pp. 16–20.) These

statutes, the majority asserts, form a “ ‘legal backdrop’ ” against

which the admittedly harsh terms of section 1281.98 must be

“harmoniz[ed].” (Maj. opn. ante, at p. 20.) Finding no “clear

indication that section 1281.98 was intended to limit the

ordinary operation” of these statutory defenses (maj. opn. ante,

at p. 21), the majority reasons that they remain available.

Contrary to all Court of Appeal decisions that have examined

section 1281.98, and to the plain language of the statute itself,

the majority concludes the Legislature intended to punish only

“willful nonpayment of fees.” (Maj. opn. ante, at p. 24.)

The majority acknowledges that reading these statutory

defenses into section 1281.98 is essential to save it from

preemption. (See maj. opn. ante, at p. 30.) But the workaround

doesn’t quite work. There are three barriers to the majority’s

approach. The first problem is that harmonization is merely a

tool to ascertain legislative intent, and the Legislature’s clear

intent was to deter all late payments and punish all

transgressions, not merely those deemed willful. Neither the

statutory language nor legislative history points to an intent to

limit the harsh consequences of breach, default, and waiver to

cases of willful violations. Moreover, even under the majority’s

interpretation, section 1281.98 still singles out arbitration

agreements for disfavored treatment in two key ways. The

majority’s construction does not change the fact that

section 1281.98 presumptively makes time to be “of the essence”

6

HOHENSHELT v. SUPERIOR COURT

Corrigan, J., dissenting

in all consumer and employment arbitration contracts and

imposes timeliness rules the parties cannot contract around.

(Maj. opn. ante, at p. 33.) In addition, even accounting for the

statutory defenses the majority grafts onto section 1281.98,

drafting parties do not enjoy the benefit of the common law rule,

applicable to all other contracts, that even willful breaches may

be excused if they have resulted in no prejudice. (See

MacFadden v. Walker (1971) 5 Cal.3d 809, 814 (MacFadden).)

A.

We have cautioned that “the principle of harmonization

does not authorize courts to rewrite statutes.” (Kaanaana v.

Barrett Business Services, Inc. (2021) 11 Cal.5th 158, 175.)

Harmonization is an appropriate tool when it allows a court to

choose a plausible interpretation of one statute in order to avoid

a conflict with a second statute. (State Dept. of Public Health v.

Superior Court (2015) 60 Cal.4th 940, 956.) “But the

requirement that courts harmonize potentially inconsistent

statutes when possible is not a license to redraft the statutes to

strike a compromise that the Legislature did not reach.” (Ibid.;

see Michael G. v. Superior Court (2023) 14 Cal.5th 609, 635

(Michael G.).)

The majority maintains its interpretation of

section 1281.98 is consistent with legislative intent because the

Legislature was concerned only about strategic, therefore

willful, nonpayment of arbitration fees. (See maj. opn. ante, at

pp. 22–26.) Certainly, the legislative history of Senate Bill

No. 707 (2019–2020 Reg. Sess.) (Senate Bill 707) includes

expressions of dismay about the willful behavior of “bad actors.”

(Assem. Com. on Judiciary, Analysis of Sen. Bill No. 707 (2019–

2020 Reg. Sess.) as amended May 20, 2019, p. 8, boldface and

7

HOHENSHELT v. SUPERIOR COURT

Corrigan, J., dissenting

italics omitted.) But the Legislature was put on notice that the

bill’s language swept more broadly and would encompass minor

and unintentional defaults. Its response was not to clarify that

such circumstances would not trigger the statute, but instead to

rationalize that any hardship imposed on drafting parties was

justified by the costs delay might cause employees and

consumers.

Opponents raised concerns that under Senate Bill 707

even a trivial or unintentional delinquency would constitute a

material breach and subject the drafting party to mandatory

sanctions. Some observed that if a drafting party paid all but a

small portion of fees and costs, that nominal amount would be

deemed a “ ‘material breach,’ thereby subjecting the employer or

company to the same list of punishments as [one] who

intentionally withheld the entire payment in an effort to delay

the arbitration.” (Jennifer Barrera, Cal. Chamber of Commerce,

letter to Cal. State Assem., Jun. 20, 2019, p. 1; see William R.

Manis, San Gabriel Valley Economic Partnership, letter to

Assemblyman Mark Stone, Jun. 7, 2019, p. 2 (Manis letter).)

Another concern was raised that a finding of material breach

could be triggered even when a company withheld payment due

to a valid, good faith dispute. (See Manis letter, at p. 2.)3

3

One opponent also questioned who would decide whether

a material breach had occurred: “Is it the arbitrator? Does the

employee, consumer, or plaintiff’s attorney simply get to make

this determination unilaterally? Or is it a new action in civil

court, resulting in more litigation, which the whole point of

arbitration is to avoid?” (Manis letter, supra, at p. 2.) The

question is not before us here, but the Courts of Appeal have

held that courts must make this determination, even if the

8

HOHENSHELT v. SUPERIOR COURT

Corrigan, J., dissenting

Committee reports noted these issues (see Assem. Com. on

Judiciary, Analysis of Sen. Bill No. 707, supra, as amended May

20, 2019, p. 11; Sen. Rules Com., Off. of Sen. Floor Analyses, 3d

reading analysis of Sen. Bill No. 707 (2019–2020 Reg. Sess.) as

amended May 20, 2019, p. 2), but no response was given to

assure opponents that the new law would apply only to willful

or strategic nonpayment. On the contrary, just like the text of

the statutes enacted, the legislative history of Senate Bill 707

says nothing at all about making an exception for unintentional

or trivial delinquencies.

The Legislature did consider amending the bill to address

“the scenario of a good-faith fee dispute” (Assem. Judiciary

Com., Mandatory Information Worksheet on Sen. Bill No. 707

(2019–2020 Reg. Sess.) p. 4, italics omitted), but no specific

language was ever proposed. Similarly, an Assembly committee

report acknowledged the opposition’s concern about the bill’s

severe punishment for even a minor or mistaken failure to pay

in full, but it reasoned that a bright-line rule was necessary to

prevent harmful delays: “Although a large company may view

its failure to pay a few hundred dollars for arbitration as a

minor, immaterial, mistake, that mistake may delay the hearing

of an employee’s claims. While immaterial to the drafting party,

parties’ agreement includes a delegation clause. (See Sanders

v. Superior Court (2025) 110 Cal.App.5th 1304, 1316–1318;

Cvejic v. Skyview Capital, LLC (2023) 92 Cal.App.5th 1073,

1079; Williams v. West Coast Hospitals, Inc. (2022) 86

Cal.App.5th 1054, 1069; but see Dekker v. Vivint Solar, Inc. (9th

Cir. Oct. 26, 2021, No. 20-16584) 2021 WL 4958856 [finding

dispute to be within the scope of the parties’ delegation clause].)

In such a case, section 1281.98 will entail further delay and

expense, contrary to the goals of arbitration, as issues of

material breach are litigated in court.

9

HOHENSHELT v. SUPERIOR COURT

Corrigan, J., dissenting

the ensuing delay associated with this minor error could be

significant to the employee . . . .” (Assem. Com. on Judiciary,

Analysis of Sen. Bill No. 707, supra, as amended May 20, 2019,

p. 8.) In other words, late or incomplete payment was not a

“mistake” that could be excused, as the majority has construed

section 1281.98. Instead, the Legislature set out the process it

did because it concluded the drafting party could better bear the

associated costs.4

Finally, although the validity of section 1281.99 is not

before us, that statute sheds light on the legislative intent

question. Its text requires that a drafting party found to be in

material breach “pay the reasonable expenses, including

attorney’s fees and costs, incurred by the employee or consumer

as a result of the material breach.” (§ 1281.99, subd. (a).) In

addition to these monetary sanctions, however, section 1281.99

says the court may impose an evidentiary, terminating, or

contempt sanction on the drafting party “unless the court finds

4

The majority opinion dismisses these and similar

statements in this committee report by suggesting they refer

“primarily” to the bill’s sanctions provisions (maj. opn. ante, at

p. 28), but the statements were made in a discussion of sanctions

and material breach. (See Assem. Com. on Judiciary, Analysis

of Sen. Bill No. 707, supra, as amended May 20, 2019, pp. 8–9.)

A concluding sentence confirms that the report’s author was

responding to both concerns: “In light of the extreme hardship

that needlessly delaying arbitration may cause to plaintiffs, the

material breach and sanction provisions of this bill would seem

to be a strict yet reasonable method to ensure the timely

adjudication of employee and consumer claims that are subject

to arbitration.” (Id. at p. 9, italics added.) As to specific

concerns about the bill’s harsh sanctions, the report was openly

hostile to arbitration, suggesting that drafting parties might

“lessen their risk of sanctions” by “reconsider[ing] their liberal

use of binding arbitration provisions in contracts.” (Id. at p. 10.)

10

HOHENSHELT v. SUPERIOR COURT

Corrigan, J., dissenting

that the one subject to the sanction acted with substantial

justification or that other circumstances make the imposition of

the sanction unjust.” (Id., subd. (b), italics added.) The

exception thus presumes that a finding of material breach will

result from a delinquent payment even when the defaulting

party acted with substantial justification. It is difficult to square

this provision with the majority’s construction of

section 1281.98.5

In short, nothing in the legislative history indicates

section 1281.98 was limited to punishing only willful defaults.

On the contrary, it appears the Legislature chose to enact a clear

rule capable of expedient application. It was “not interested in

any excuses, even reasonable ones, as to why” a payment might

have been delayed (Colon-Perez v. Security Industry Specialists,

Inc. (2025) 108 Cal.App.5th 403, 420), nor does it appear to have

contemplated allowing litigation on this subject. Yet litigation

will indeed result from the majority’s interpretation of the

statute, which rests highly consequential determinations of

material breach and sanctions on whether the defaulting party

5

The majority suggests a party that “acted with substantial

justification” (§ 1281.99, subd. (b)) could refer to one who is

prevented from losing its right to arbitrate by “the background

statutes” (maj. opn. ante, at p. 27). This reading might be

plausible if there were any hint in the language or legislative

history of section 1281.98 that a delinquent party’s material

breach could be excused for any reason. There is none. More

likely, the Legislature meant what it said: A drafting party who

fails to pay on time is in material breach and “waives its right

to compel the employee or consumer to proceed with th[e]

arbitration as a result of the material breach” (§ 1281.98,

subd. (a)(1)), even though the court may excuse those who “acted

with substantial justification” from the harshest sanctions

(§ 1281.99, subd. (b)).

11

HOHENSHELT v. SUPERIOR COURT

Corrigan, J., dissenting

acted in good faith. While the majority’s construction may

render the statute more palatable from a preemption

standpoint, it does not appear to reflect a “fairly possible”

reading of what the Legislature actually had in mind. (Michael

G., supra, 14 Cal.5th at p. 635.)

B.

Even accepting the majority’s “harmonization” of

section 1281.98 with certain statutory defenses, the problem

remains that the statute enacts a presumption that time is of

the essence in all consumer and employment arbitration

contracts.

As noted, “absent an express provision in the arbitration

agreement” to the contrary, the statute requires that arbitration

providers make their invoices “due upon receipt.” (§ 1281.98,

subd. (a)(2).) “Any extension of time for the due date shall be

agreed upon by all parties.” (Ibid.) Then, if fees and costs are

not paid in their entirety within 30 days after the due date, the

drafting party is declared to be in material breach as a matter

of law, with all the consequences that follow. (Id., subd. (a)(1).)

While parties may contract around the “due upon receipt”

default rule, the statutory language permits no deviation from

its 30-day grace period or its requirement that “all parties” agree

to any extension of time (id., subd. (a)(2)). Thus, even when an

arbitration provider is willing to extend the time for payment

and continue with the arbitration, the employee or consumer can

withhold agreement, triggering the statute’s material breach

and sanctions provisions.

Reading these terms into all consumer and employment

arbitration contracts effectively converts them into contracts

making time of the essence as to the payment of arbitration fees.

12

HOHENSHELT v. SUPERIOR COURT

Corrigan, J., dissenting

The majority implicitly acknowledges this fact when it compares

section 1281.98’s timing rules to contracts that make time of the

essence. (See maj. opn. ante, at p. 33.) But I question whether

the California Legislature has the authority, consistent with the

FAA, to establish a presumption that time is of the essence for

a large subset of arbitration agreements. For all other contracts,

the presumption is exactly the reverse: “The general rule of

equity is that time is not of the essence of the contract, unless it

clearly appear from the terms of the contract, in the light of all

the circumstances, that such was the intention of the parties.”

(Henck, supra, 9 Cal.2d at p. 143, italics added; see 15 Williston

on Contracts (4th ed. 2025) § 46.1.) Given that “[t]he ‘principal

purpose’ of the FAA is to ‘ensur[e] that private arbitration

agreements are enforced according to their terms’ ” (Concepcion,

supra, 563 U.S. at p. 344, italics added), it is by no means clear

that a statute may amend arbitration contracts by inserting a

material term to which the parties did not agree.

The majority opinion attempts to avoid this difficulty by

comparing section 1281.98 to contracts that have been

construed to make time of the essence even though they contain

no such express term. (See maj. opn. ante, at p. 33.) But the

comparison does not survive scrutiny. The cases in which courts

have inferred time to be of the essence absent a clear agreement

to this effect all involve special circumstances not present here.

For example, in cases involving contracts to purchase real

property, courts have inferred the parties intend time to be of

the essence because the “damage resulting to the seller by

reason of delay in performance on the part of the purchaser

cannot be estimated nor compensated.” (Henck, supra, 9 Cal.3d

at p. 144; see Skookum Oil Co. v. Thomas (1912) 162 Cal. 539,

546.) Similarly, time is of the essence by the very nature of an

13

HOHENSHELT v. SUPERIOR COURT

Corrigan, J., dissenting

option contract, because an option “by its terms must be

exercised within a specified time.” (Rosenaur v. Pacelli (1959)

174 Cal.App.2d 673, 676.) Courts cannot extend the time for

performance of an option contract because to do so “would give

the optionee, not the option he bargained for, but a longer and

therefore more extensive option.” (Holiday Inns of America, Inc.

v. Knight (1969) 70 Cal.2d 327, 330.)6 Arbitration contracts are

different. A late payment of arbitration fees does not cause

inestimable harm or defeat the very purpose of the contract.

The majority cites no decision holding that time is of the essence,

absent an express term, based on some unique characteristic of

arbitration contracts.

Thus, even accounting for the statutory defenses to

forfeiture the majority has grafted onto it, section 1281.98

disfavors consumer and employment arbitration agreements by

making time presumptively of the essence. It flips the normal

presumption that time is not of the essence without an express

agreement to this effect. It also deprives parties of the ability to

contract for a longer grace period or for extensions of time to be

negotiated without the assent of every party involved in the

case, even when no delay or interruption in the arbitration will

possibly result. “Because [the statute] singles out arbitration

6

Indeed, even with option contracts, “a reasonable time”

will be allowed for performance if the contract does not specify a

deadline (Patel v. Liebermensch (2008) 45 Cal.4th 344, 346, 351),

and what constitutes a reasonable time is determined from case-

specific circumstances (see Murfee v. Porter (1950) 96

Cal.App.2d 9, 18). Section 1281.98 replaces that “ ‘reasonable

time’ ” rule with a legislatively imposed date for performance

untethered to “ ‘the circumstances of the particular case’ ”

(Murfee, at p. 18).

14

HOHENSHELT v. SUPERIOR COURT

Corrigan, J., dissenting

agreements for disfavored treatment, . . . it violates the FAA.”

(Kindred, supra, 581 U.S. at p. 248.)

C.

The majority opinion concedes “that if section 1281.98

were construed to mean that any failure to make timely

payment, regardless of the circumstances, invariably results in

forfeiture of arbitral rights, the statute would be anomalous”

with general contract law principles (maj. opn. ante, at p. 34)

and “would raise preemption concerns” (id. at p. 30). It

concludes preemption is nevertheless unproblematic because, by

employing its harmonization analysis, “a drafting party can

avoid forfeiture of its right to arbitration by showing that the

delay was excusable under section 473, Civil Code section 3275,

or Civil Code section 1511, the background principles that

generally apply to other contractual obligations.” (Maj. opn.

ante, at p. 34.)

But there is one important “background principle[]” the

majority leaves out. (Maj. opn. ante, at p. 34.) In addition to the

statutory defenses to forfeiture discussed in the majority

opinion,7 California common law has long recognized a defense

7

The majority opinion does not discuss Civil Code,

section 1492, which provides: “Where delay in performance is

capable of exact and entire compensation, and time has not been

expressly declared to be of the essence of the obligation, an offer

of performance, accompanied with an offer of such

compensation, may be made at any time after it is due, but

without prejudice to any rights acquired by the creditor, or by

any other person, in the meantime.” (Civ. Code, § 1492.)

Although the statute would appear to excuse late performance

when no prejudice has resulted, it presumably does not apply

here because section 1281.98 makes time of the essence as a

15

HOHENSHELT v. SUPERIOR COURT

Corrigan, J., dissenting

even for willful delinquencies, so long as the other contracting

party has suffered no significant prejudice related to the default.

In MacFadden, supra, 5 Cal.3d 809, the parties entered an

installment contract for the sale of land. The buyer made

monthly payments for more than 10 years but stopped after she

discovered that timber had been removed from the property.

(Id. at pp. 811–812.) More than two years later, with no

resumption of the installment payments, the seller sued to quiet

title. (Id. at p. 812.) In response, the buyer offered to pay the

entire principal balance, with interest, and sought specific

performance of the contract. (Ibid.) On review, we concluded

the buyer was not entitled to relief under Civil Code

section 3275, one of the statutory defenses discussed in the

majority opinion, because the evidence established that her

cessation of payments had been willful. (MacFadden, at p. 813.)

The question then became whether there are any circumstances

under which a party who has willfully breached a contract may

nevertheless obtain specific performance. (See ibid. [noting

Civil Code “section 3275 is not the exclusive source of the right

to relief from forfeiture”].) To answer this question, we looked

to a policy developed in the common law “that precludes any

forfeiture having no reasonable relation to the damage caused

by the vendee’s breach even when that breach is wilful.” (Id. at

p. 814, italics added; see Freedman v. The Rector (1951) 37

Cal.2d 16, 19–22.) We concluded this common law anti-

forfeiture policy “also justifies awarding even wilfully defaulting

vendees specific performance in proper cases.” (MacFadden, at

matter of law. This is yet another way that the “flipped

presumption” enacted by section 1281.98 disfavors arbitration

agreements. (See ante, at pp. 12–15.)

16

HOHENSHELT v. SUPERIOR COURT

Corrigan, J., dissenting

p. 814, italics added.) We reasoned that, “ ‘when the default has

not been serious and the vendee is willing and able to continue

with his performance of the contract, the vendor suffers no

damage by allowing the vendee to do so. In this situation, if

there has been substantial part performance or if the vendee has

made substantial improvements in reliance on his contract,

permitting the vendor to terminate the vendee’s rights under

the contract and keep the installments that have been paid can

result only in the harshest sort of forfeitures.’ ” (Ibid.)

We later reaffirmed MacFadden and held that, under

certain circumstances, a willfully defaulting buyer has an

“absolute right” to specific performance of the contract.

(Peterson v. Hartell (1985) 40 Cal.3d 102, 106.) The availability

of this equitable relief was not “contingent on any showing of

facts that would mitigate the wilfulness or seriousness of the

vendee’s default.” (Id. at p. 113.) Contrary to the majority’s

suggestion, nothing in the MacFadden opinion, or our

reaffirmance of it in Peterson, purported to limit application of

the anti-forfeiture principle to contracts involving the sale of

real property. Nor have the courts understood it to be so limited.

In one case involving the sale of a business, we observed that

the anti-forfeiture “principle extends beyond real estate

transactions and applies in a variety of situations to avoid

unjust enrichment.” (Harriman v. Tetik (1961) 56 Cal.2d 805,

811.) More recently, a Court of Appeal applied the principle to

the sale of an airplane. (Magic Carpet Ride LLC v. Rugger

Investment Group, L.L.C. (2019) 41 Cal.App.5th 357, 367–368

(Magic Carpet).) While acknowledging that MacFadden and

related cases involved real property sales, the court saw “no

reason why the rule . . . should be different for a contract for the

17

HOHENSHELT v. SUPERIOR COURT

Corrigan, J., dissenting

purchase and sale of an airplane.”8 (Id. at p. 368; see Bird v.

Kenworthy (1954) 43 Cal.2d 656, 659–660 [applying principle to

tractor sales contract but concluding equity did not favor relief].)

Indeed, one court cited MacFadden’s anti-forfeiture rule as one

of the equitable principles underlying the enforcement of

arbitration contracts. (See Saika v. Gold (1996) 49 Cal.App.4th

1074, 1081–1082.)

Accordingly, common law permits an equitable remedy for

willful delinquencies when the other party has suffered no

prejudice. (See MacFadden, supra, 5 Cal.3d at pp. 813–815.)

This remedy is available even when a contract makes time of the

essence. (See Magic Carpet, supra, 41 Cal.App.5th at pp. 367–

368.)

Although the majority opinion judicially amends

section 1281.98’s harsh terms by making them subject to

various statutory defenses, it fails to account for equitable

defenses that may apply in other contexts to excuse even a

willful breach. This is no mere oversight. The equitable relief

discussed in MacFadden cannot be simply appended to the list

of defenses to section 1281.98 because allowing any defense to

willful delays in paying arbitration costs would starkly

contradict the Legislature’s clear intent in enacting the statute.

As the majority itself points out, Senate Bill 707 was expressly

designed to punish and deter delays in arbitration that may

8

Although evidence suggested the default in Magic Carpet

was not willful (see Magic Carpet, supra, 41 Cal.App.5th at

p. 364), the court did not mention Civil Code section 3275 or any

of the statutory defenses discussed in the majority opinion.

Instead, it focused on the equitable anti-forfeiture policies

developed in MacFadden and other cases. (See Magic Carpet,

at pp. 367–368.)

18

HOHENSHELT v. SUPERIOR COURT

Corrigan, J., dissenting

result from the intentional nonpayment of costs and fees. (See

maj. opn. ante, at pp. 24–26.)

Allowing case-specific litigation of equitable defenses was

certainly not what the Legislature had in mind when it enacted

section 1281.98. And yet these defenses are generally available

for other contracts, including those making time of the essence.

(See Magic Carpet, supra, 41 Cal.App.5th at pp. 367–368.) In

this way, section 1281.98 singles out arbitration contracts for

disfavored treatment. In so doing, it violates the equal

treatment principle and is preempted by the FAA.

III.

I do not dispute that section 1281.98 was intended to

address a real and vexing problem. The party holding the purse

strings should not be permitted to delay the resolution of claims

against it through a strategic refusal to pay arbitration costs.

But by making arbitration contracts unenforceable on grounds

that do not apply to other contracts, section 1281.98 runs afoul

of the FAA. The Legislature might have achieved the same end

with some version of section 1281.99 alone, allowing courts or

arbitrators to impose monetary, evidentiary, or even

terminating sanctions for tardy payments. Depending on their

particulars, procedural rules such as these may well be held

permissible because they would not interfere with the progress

of arbitration and thus would not “undermine the goals and

policies of the FAA.” (Volt Info. Sciences v. Leland Stanford Jr.

U. (1989) 489 U.S. 468, 478.) The same cannot be said of

section 1281.98, even with the majority’s amendatory

interpretation. Because I conclude section 1281.98 is preempted

by federal law, I respectfully dissent.

19

HOHENSHELT v. SUPERIOR COURT

Corrigan, J., dissenting

CORRIGAN, J.

I Concur:

JENKINS, J.

20

See next page for addresses and telephone numbers for counsel who

argued in Supreme Court.

Name of Opinion Hohenshelt v. Superior Court

__________________________________________________________

Procedural Posture (see XX below)

Original Appeal

Original Proceeding

Review Granted (published) XX 99 Cal.App.5th 1319

Review Granted (unpublished)

Rehearing Granted

__________________________________________________________

Opinion No. S284498

Date Filed: August 11, 2025

__________________________________________________________

Court: Superior

County: Los Angeles

Judge: Thomas C. Falls

__________________________________________________________

Counsel:

Mayall Hurley and Nicholas F. Scardigli for Petitioner.

Arbogast Law, David M. Arbogast; Smoger & Associates and Gerson H.

Smoger for Arbitration and Civil Procedure Law Professors as Amici

Curiae on behalf of Petitioner.

Mara Law Firm and David Mara for Consumer Attorneys of California

as Amicus Curiae on behalf of Petitioner.

The Law Offices of Melinda Jane Steuer, Melinda Jane Steuer; and

Leonard Steiner for Public Investors Advocacy Bar Association as

Amicus Curiae on behalf of Petitioner.

Soderstrom Law and Jamin S. Soderstrom for Lionel Harper as

Amicus Curiae on behalf of Petitioner.

Rob Bonta, Attorney General, Michael J. Mongan, State Solicitor

General, Samuel T. Harbourt and Julie Veroff, Deputy State Solicitors

General, and Haley Amster, Associate Deputy State Solicitor General,

for the California Attorney General as Amicus Curiae on behalf of

Petitioner.

Seth E. Mermin, David S. Nahmias, MacKenna Alvarez; and Hannah

M. Kieschnick for UC Berkeley Center for Consumer Law and

Economic Justice, California Employment Lawyers Association and

Public Justice as Amici Curiae on behalf of Petitioner.

No appearance for Respondent.

Sanders Roberts, Reginald Roberts, Jr., Melvin L. Felton, Anand

Singh, Ashley N. Bobo, Tyler S. Dobberstein; Bendon & Serlin, Wendy

S. Albers and Kelly Riordan Horwitz for Real Party in Interest.

Gibson, Dunn & Crutcher, Jesse A. Cripps, Bradley J. Hamburger,

Patrick J. Fuster and Lindsey K. Tanita for California Employment

Law Council as Amicus Curiae on behalf of Real Party in Interest.

Mayer Brown, Andrew J. Pincus, Daniel E. Jones and Archis A.

Parasharami for the Chamber of Commerce of the United States of

America, the California Chamber of Commerce, the Restaurant Law

Center and CTIA—The Wireless Association as Amici Curiae on behalf

of Real Party in Interest.

McGuireWoods and Sabrina A. Beldner for the Retail Litigation

Center, Inc., and the National Retail Federation as Amici Curiae on

behalf of Real Party in Interest.

Eimer Stahl, Robert E. Dunn, Collin James Vierra and Jonathan Breit

for the Manhattan Institute as Amicus Curiae on behalf of Real Party

in Interest.

Seyfarth Shaw and Brian T. Ashe for Employers Group as Amicus

Curiae on behalf of Real Party in Interest.

Counsel who argued in Supreme Court (not intended for

publication with opinion):

Nicholas F. Scardigli

Mayall Hurley P.C.

112 South Church Street

Lodi, CA 95240

(209) 513-9315

Julie Veroff

Deputy State Solicitor General

455 Golden Gate Avenue, Suite 11000

San Francisco, CA 94102

(415) 510-3776

Melvin L. Felton

Sanders Roberts LLP

1055 West 7th Street, Suite 3200

Los Angeles, CA 90017

(213) 426-5000

Daniel E. Jones

Mayer Brown LLP

1999 K Street N.W.

Washington, DC 20006

(202) 263-3860