Arbitration: FAA Does Not Preempt State Court Provisions Requiring Business To Timely Pay Its Share Of Arbitration Expenses In An Arbitration Involving An Employee Or A Consumer

Order Compelling Arbitration Was Vacated And $2,310 In Monetary Sanctions Against Company Affirmed On Appeal.

            The California Legislature recently enacted Code of Civil Procedure sections 1281.97, 1281.98, and 1281.99 which obligate a company which drafts an arbitration agreement relating to an employee or a consumer to pay its share of arbitration fees no later than 30 days after the due date, with a failure to do so being a material breach of the arbitration agreement that gives the employee or consumer, in addition to a mandatory award of attorney’s fees and costs related to the breach as well as other discretionary sanctions, the options of either (1) continuing to arbitrate, with the company paying fees and costs related to the arbitration as a whole, or (2) withdrawing from arbitration and resuming the litigation in a judicial forum.

            In Gallo v. Wood Ranch USA, Inc., Case No. B311067 (2d Dist., Div. 2 July 25, 2022) (published), the lower court vacated an order compelling arbitration and awarded $2,310 in monetary sanctions against a company which paid late its arbitration expenses under the state statutory provisions.  The defense argued that the result was preempted by the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq.  The appellate court agreed with the trial court’s conclusion that the result was not preempted by the FAA, in line with consonant federal court decisions.