March 31, 2023
Stroock Client Alert
By: Stephen J. Newman, Alina Edep
The recent harsh ruling in Williams v. West Coast Hospitals, Inc., 86 Cal. App. 5th 1054 (2022), by the California Court of Appeal adopted a strict reading of the California statutes which require the drafting parties of arbitration agreements to timely pay arbitration fees or risk waiver of their right to arbitrate. The Court held that if the drafting party does not pay its share of the arbitration fees within 30 days, the plaintiff can claim waiver and avoid arbitration of the claims without first securing a default from the arbitrator. In light of this ruling, businesses seeking to enforce their arbitration provisions must take special care to ensure that their arbitration fees are timely paid in order to avoid waiver.
The arbitration in the Williams case arose from a wrongful death and elder abuse lawsuit brought against West Coast Hospital by the surviving family members of an elderly woman who died while in the hospital’s care. West Coast Hospital successfully compelled arbitration of the family members’ claims and contacted the arbitration provider to begin the process. The arbitration provider informed West Coast Hospital that the filing fee was outstanding and set a deadline for payment. Plaintiffs timely filed their portion of the filing fee, but West Coast Hospital failed to timely pay its portion. More than 30 days after the deadline to pay the fees, Plaintiffs filed a motion to vacate the stay and an election to withdraw from arbitration on the grounds that the hospital had failed to timely pay its portion of the fees, citing California Code of Civil Procedure Section 1281.98. The trial court granted Plaintiffs’ motion and West Coast Hospital appealed, claiming that Section 1281.98 required the plaintiffs to first submit to the arbitrator the question of whether the drafting party had defaulted.
California Code of Civil Procedure Sections 1281.97 and 1281.98 require that the drafting party of an arbitration agreement pay its portion of the arbitration fees within 30 days after the due date or the party will have materially breached the agreement and be in default of arbitration, allowing the opposing party to avoid arbitration. The statutes define the “drafting party” as “the company or business that included a predispute arbitration provision in a contract with a consumer or employee.”
Section 1281.97 provides that a business pursuing arbitration of a dispute under an arbitration agreement “is in material breach of the arbitration agreement, is in default of the arbitration, and waives its right to compel arbitration” if “the fees or costs to initiate an arbitration proceeding are not paid within 30 days after the due date.” Section 1281.98 states that even where an arbitration has commenced, once the drafting party materially breaches the agreement by failing to pay its portion of the fees, “the employee or consumer may unilaterally elect” to “[w]ithdraw the claim from arbitration and proceed in a court of appropriate jurisdiction.” The Court of Appeal did not find any ambiguity in the Legislature’s description of unliteral election or use of the words “material breach,” “default,” or “waiver.” The Court noted that the Legislature was silent in regards to any formalities such as the consumer first raising the issue of default with the arbitrator rather than the court, and also noted that nothing in the plain language of Section 1281.98 suggested that any such formalities were required.
The Court stated that the statutory scheme “ensures that the consumer’s unilateral election designates a forum for determining the further consequences of the default” rather than requiring an initial determination of default by someone other than the consumer. In fact, the Court pointed out, the statute provides for various approaches a consumer can follow when a drafting party fails to pay its portion of the arbitration fees, including resuming litigation by seeking to vacate the order to compel arbitration, paying the drafting party’s fees in order to continue in arbitration, petitioning the court to order the drafting party pay its fees, or proceeding in arbitration without paying the fees, none of which requires the consumer to first raise the issue of waiver with the arbitrator.
The Court also noted that the legislative history is consistent with the statute’s plain language, as the intent in enacting the statute was to prevent drafting parties from prejudicing consumers by failing to pay their portion of the fees and affirm that failure to timely pay fees constitutes a breach of the arbitration agreement, as well as provide a procedural recourse for consumers in this situation. As a result, the Court ruled that “employees and consumers may make their ‘unilateral’ election under section 1281.98, subdivision (b) upon learning of the default, without first seeking approval from the arbitrator.” The Court emphasized that the statute’s purpose is to “incentivize timely payment and to provide procedural recess for employees and consumers whose arbitration is delayed by the drafting party’s nonpayment.” Thus, the Court declined to impose a burden on the consumers, who the Court determined to be the intended beneficiaries of the statute, to secure a default by the arbitrator.
Given this ruling, it is imperative that businesses who seek to enforce their right to arbitrate claims arising from agreements containing an arbitration provision ensure that all arbitration fees are timely paid in order to prevent waiver of their right to arbitrate. Businesses should take extra care to immediately note and pay all arbitration invoices to ensure the payments are received within 30 days. Furthermore, businesses should ensure that the method of payment used to pay arbitration invoices ensures that the payment is timely received by the arbitration provider. For example, if making payment via ACH transfer, businesses should keep in mind that the funds will likely not be immediately available to the recipient, and thus may not be available to the arbitration provider until a few business days after the transfer, which could result in waiver under this harsh ruling. Alternative payment methods such as via credit card might be necessary if the payment deadline is approaching, and businesses should verify with the arbitration provider that credit card payments will be deemed made on the day the card is charged.
March 31, 2023
Stroock Client Alert
By: Stephen J. Newman, Alina Edep
The recent harsh ruling in Williams v. West Coast Hospitals, Inc., 86 Cal. App. 5th 1054 (2022), by the California Court of Appeal adopted a strict reading of the California statutes which require the drafting parties of arbitration agreements to timely pay arbitration fees or risk waiver of their right to arbitrate. The Court held that if the drafting party does not pay its share of the arbitration fees within 30 days, the plaintiff can claim waiver and avoid arbitration of the claims without first securing a default from the arbitrator. In light of this ruling, businesses seeking to enforce their arbitration provisions must take special care to ensure that their arbitration fees are timely paid in order to avoid waiver.
The arbitration in the Williams case arose from a wrongful death and elder abuse lawsuit brought against West Coast Hospital by the surviving family members of an elderly woman who died while in the hospital’s care. West Coast Hospital successfully compelled arbitration of the family members’ claims and contacted the arbitration provider to begin the process. The arbitration provider informed West Coast Hospital that the filing fee was outstanding and set a deadline for payment. Plaintiffs timely filed their portion of the filing fee, but West Coast Hospital failed to timely pay its portion. More than 30 days after the deadline to pay the fees, Plaintiffs filed a motion to vacate the stay and an election to withdraw from arbitration on the grounds that the hospital had failed to timely pay its portion of the fees, citing California Code of Civil Procedure Section 1281.98. The trial court granted Plaintiffs’ motion and West Coast Hospital appealed, claiming that Section 1281.98 required the plaintiffs to first submit to the arbitrator the question of whether the drafting party had defaulted.
California Code of Civil Procedure Sections 1281.97 and 1281.98 require that the drafting party of an arbitration agreement pay its portion of the arbitration fees within 30 days after the due date or the party will have materially breached the agreement and be in default of arbitration, allowing the opposing party to avoid arbitration. The statutes define the “drafting party” as “the company or business that included a predispute arbitration provision in a contract with a consumer or employee.”
Section 1281.97 provides that a business pursuing arbitration of a dispute under an arbitration agreement “is in material breach of the arbitration agreement, is in default of the arbitration, and waives its right to compel arbitration” if “the fees or costs to initiate an arbitration proceeding are not paid within 30 days after the due date.” Section 1281.98 states that even where an arbitration has commenced, once the drafting party materially breaches the agreement by failing to pay its portion of the fees, “the employee or consumer may unilaterally elect” to “[w]ithdraw the claim from arbitration and proceed in a court of appropriate jurisdiction.” The Court of Appeal did not find any ambiguity in the Legislature’s description of unliteral election or use of the words “material breach,” “default,” or “waiver.” The Court noted that the Legislature was silent in regards to any formalities such as the consumer first raising the issue of default with the arbitrator rather than the court, and also noted that nothing in the plain language of Section 1281.98 suggested that any such formalities were required.
The Court stated that the statutory scheme “ensures that the consumer’s unilateral election designates a forum for determining the further consequences of the default” rather than requiring an initial determination of default by someone other than the consumer. In fact, the Court pointed out, the statute provides for various approaches a consumer can follow when a drafting party fails to pay its portion of the arbitration fees, including resuming litigation by seeking to vacate the order to compel arbitration, paying the drafting party’s fees in order to continue in arbitration, petitioning the court to order the drafting party pay its fees, or proceeding in arbitration without paying the fees, none of which requires the consumer to first raise the issue of waiver with the arbitrator.
The Court also noted that the legislative history is consistent with the statute’s plain language, as the intent in enacting the statute was to prevent drafting parties from prejudicing consumers by failing to pay their portion of the fees and affirm that failure to timely pay fees constitutes a breach of the arbitration agreement, as well as provide a procedural recourse for consumers in this situation. As a result, the Court ruled that “employees and consumers may make their ‘unilateral’ election under section 1281.98, subdivision (b) upon learning of the default, without first seeking approval from the arbitrator.” The Court emphasized that the statute’s purpose is to “incentivize timely payment and to provide procedural recess for employees and consumers whose arbitration is delayed by the drafting party’s nonpayment.” Thus, the Court declined to impose a burden on the consumers, who the Court determined to be the intended beneficiaries of the statute, to secure a default by the arbitrator.
Given this ruling, it is imperative that businesses who seek to enforce their right to arbitrate claims arising from agreements containing an arbitration provision ensure that all arbitration fees are timely paid in order to prevent waiver of their right to arbitrate. Businesses should take extra care to immediately note and pay all arbitration invoices to ensure the payments are received within 30 days. Furthermore, businesses should ensure that the method of payment used to pay arbitration invoices ensures that the payment is timely received by the arbitration provider. For example, if making payment via ACH transfer, businesses should keep in mind that the funds will likely not be immediately available to the recipient, and thus may not be available to the arbitration provider until a few business days after the transfer, which could result in waiver under this harsh ruling. Alternative payment methods such as via credit card might be necessary if the payment deadline is approaching, and businesses should verify with the arbitration provider that credit card payments will be deemed made on the day the card is charged.
