California Supreme Court Allows More Flexibility On Arbitration Fee Payment Rules

The California Supreme Court's recent decision inHohenshelt v. Superior Courtaddressed whether California's Code of Civil Procedure section 1281.98, which requires the party that drafted the arbitration agreement to pay arbitration fees within 30 days of the due date or face consequences such as forfeiting arbitration rights, is preempted by the Federal Arbitration Act (FAA).

The Court held that section 1281.98 is not preempted by the FAA but clarified that courts should not apply the statute as a rigid, automatic forfeiture rule – as many courts had been doing. Instead, courts may excuse late payments or nonpayments that are not willful, grossly negligent, fraudulent, or due to impossibility.