# Hohenshelt v. Superior Court

> California Supreme Court · August 11, 2025

URL: https://www.frixlaw.com/law-library/cases/11118031

## Case

- **Court:** California Supreme Court
- **Decided:** August 11, 2025
- **Precedential status:** Published
- **Opinion:** Opinion
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

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
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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 . . . .”].)

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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

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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

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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

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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.”].)

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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
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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.)

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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.)

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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

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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
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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

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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

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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
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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].)

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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

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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

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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
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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

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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

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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–

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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
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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
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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

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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

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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.)

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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

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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
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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

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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,

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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
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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
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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
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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
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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

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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
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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

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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.

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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

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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

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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

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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

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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.

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LIU, J.

We Concur:
GUERRERO, C. J.
KRUGER, J.
GROBAN, J.
EVANS, J.

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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

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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.)

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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).)

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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

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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.

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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.

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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

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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).)

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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
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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.)

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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”

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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

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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

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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.

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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.)

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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)).

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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.

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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).

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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 wilf

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/11118031. Public record. Not legal advice.