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Court of Appeal:
Withdrawal Warranted for Late Payment of Arbitration Fees
Opinion Says Continued Participation After Late Payment by Opponent Did Not Forfeit Right to Exit Arbitration
By a MetNews Staff Writer
The Fifth District Court of Appeal has held that a defendant’s delay in paying arbitration fees in full within 30 days of the due date constituted a material breach of the arbitration agreement and that a plaintiff’s continued participation in arbitration process after the late payments did not waive his right to withdraw based on the breach where he did not know of it and did not expressly agree to tardy performance.
Acting Presiding Justice Jennifer R.S. Detjen wrote the opinion, filed Monday, directing issuance of a writ of mandate directing Tulare Superior Court Judge Bret D. Hillman to vacate an order denying a plaintiff’s motion to withdraw from arbitration and to enter a new order granting his motion. Justices Kathleen Meehan and Mark W. Snauffer joined in the opinion.
Seeking the writ was Andrew Reynosa who, in March 2017, Reynosa entered into an arbitration agreement with his then-employer Advanced Transportation Services, Inc. (“ATS”) which provided that ATS would pay the costs of arbitration beyond a one-time initial case management fee which would be paid by him. On April 26, 2019, Reynosa sued ATS, filing a complaint for damages in the Tulare Superior Court.
Binding Arbitration
On July 8, 2019, the parties stipulated that Reynosa would submit his claims to binding arbitration, and the court proceeding would be stayed. Judicate West was selected as the arbitration provider.
In March 2023, after learning that two Judicate West invoices had not been paid on time, Reynosa moved the trial court to withdraw from arbitration. Hillman denied the motion, saying in the denial order:
“The emails from the arbitration organization set forth different, specific due dates that appear to have been agreed upon by all parties. To be sure, Plaintiff did not object to these extended payment deadlines when proposed….
“Plaintiff, therefore, would not appear to have the right to unilaterally elect to terminate arbitration due to the timely payment of fees owed by Defendant pursuant to the modified schedule.”
CCP §1280
Reynosa selected California Civil Procedure §1280 et seq. as the governing rules for the arbitration in the engagement agreement with Judicate West.
Sec. 1281.98 provides:
“(a)(1) In an employment or consumer arbitration that requires…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 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.”
Subdivision (b) provides that “an employee or consumer” may unilaterally withdraw the claim from arbitration “[i]f the drafting party materially breaches the arbitration agreement and is in default under subdivision (a).”
A new subdivision (a)(2) became effective Jan. 1, 2022 and provides in relevant part:
“To avoid delay, absent 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.”
Two Late Fees
Detjen noted that §1281.98 was enacted in 2019 to curb a practice whereby a defendant could force a case into arbitration and then refuse to pay the arbitration fees, stalling the matter and interfering with a plaintiff’s efforts to obtain relief. To avoid that scenario, the code deems a late payment to be a material breech that affords the affected party the right to return to a judicial forum.
The jurist wrote:
“In his writ petition, Reynosa argues ATS ‘failed to remit payment of the arbitration fees within the statutorily prescribed thir[ty]-day period’…on two occasions. First, the company received a $27,380 invoice ‘due upon receipt’ on July 21, 2021, and rendered its $27,130 payment more than 30 days later on September 17, 2021. Second, the company received a $23,040 invoice ‘due upon receipt’ on December 12, 2022, and rendered its $23,290 payment more than 30 days later on February 22, 2023.”
December 2022 Invoice
Detjen observed that Judicate West identified Feb. 23, 2023 as the “final date” for payment of outstanding fees and said:
“Neither the earlier December 6, 2022 e-mail nor the e-mails sent between January 31 and March 7, 2023 established the parties directly discussed and/or agreed to a payment deadline beyond the one set forth in section 1281.98, subdivision (a).”
Disagreeing with Hillman that Reynosa agreed to extend the due date by not having objected to it, the justice determined that subdivision (a)(2), enacted earlier the same year, requires express consent. She said:
“[I]t is clear the Legislature sought to preempt undisclosed payment extensions that exploited a loophole in section 1281.98, former subdivision (a). As one mechanism to achieve this objective, the statute was amended to prohibit an arbitration provider…from implementing a due date extension without first affording the consumer or employee claimant the opportunity to give input thereon and then obtaining the consent of all parties….”
Detjen wrote:
“Reynosa did not directly express agreement with the February 23, 2023 due date. Therefore, pursuant to section 1281.98, subdivision (a)(2), the December 12, 2022 invoice was due upon receipt. Pursuant to section 1281.98, subdivision (a)(1), ATS had until January 11, 2023, to pay the arbitration fees and costs. By submitting payment on February 22, 2023, the company materially breached the arbitration agreement.”
She continued:
“Because ATS materially breached the arbitration agreement, it waived the right to compel Reynosa to proceed with arbitration.”
July 2021 Invoice
The jurist acknowledged that Judicate West had sent a notice indicating that the payment on the July invoice was not due until Oct. 29, 2021 and remarked:
“Section 1281.98 as it then existed—i.e., without subdivision (a)(2)—did not prescribe how to establish and/or modify the ‘due date’ from which the 30-day grace period begins to run. Thus, October 29, 2021, appears to be the appropriate due date, whether this date was amenable to both parties, amenable to only one party, or decided upon exclusively by Judicate West.”
The first payment was timely, she reasoned, but left a balance of $250, which ATS contended was Reynosa’s share of the initial case management fee under the contract. Rejecting this assessment, Detjen said “the July 21, 2021 invoice cannot be considered the ‘initial’ case management fee” because an August 2020 invoice identified a $250 charge as Reynosa’s case management fee.
Reasoning that the plain language of the section contains no exception for substantial compliance, she declared that a material breach occurred because ATS was obliged to pay $27,380 by Oct. 29, 2021, but remitted less than that sum, “and settled the remaining $250 nearly 16 months after the due date.”
The case is Reynosa v. Superior Court of Tulare County (Advanced Transportation Services, Inc.), F086342.
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