September 12, 2023

California Court Sets Strict Timer for Payment of Arbitration Fees

The California Court of Appeal has handed down a ruling with potential far-reaching implications for employers seeking to enforce arbitration agreements.[1]

The case centered around petitioner Jane Doe’s legal action against her former employer, Na Hoku, Inc., and her former manager, Ysmith Montoya. Doe had brought forth multiple claims stemming from Montoya’s alleged sexual harassment and assault. In response, the real parties involved successfully compelled the case into arbitration.

One critical aspect of the case revolved around the timing of payment of arbitration fees and costs. According to Code of Civil Procedure section 1281.98(a)(1), these fees had to be “paid within 30 days after the due date” to avoid a breach of the arbitration agreement. The due date stated on the American Arbitration Association’s (AAA) bill for payment was September 1, 2022, and AAA had to receive payment by Monday, October 3, 2022, to comply with the statutory requirement.

However, in this case, the real parties opted to mail a check on Friday, September 30, even though alternative electronic payment methods such as credit card and E-check were available. As a result, AAA received the payment on October 5, two days after the statutory 30-day grace period had elapsed.

Petitioner Jane Doe subsequently moved to vacate the order compelling arbitration on the grounds that the real parties failed to meet the 30-day payment deadline as stipulated by section 1281.98(a)(1). The trial court initially denied this motion, effectively preventing Doe from withdrawing from arbitration and pursuing her claims in court. In response, she filed a petition for a writ of mandate with the California Court of Appeal.

Agreeing with the petitioner, the Court of Appeal upheld the strict enforcement of the 30-day grace period outlined in section 1281.98(a)(1). The court’s ruling made it abundantly clear that fees and costs associated with a pending arbitration proceeding must be received by the arbitrator within 30 days after the specified due date. The court went on to say:

“We do not find that the proverbial check in the mail constitutes payment and agree with petitioner that real parties’ payment, received more than 30 days after the due date established by the arbitrator, was untimely. We therefore grant the writ petition.”

This decision carries significant implications for individuals and organizations involved in arbitration agreements in California. It underscores the importance of adhering to strict payment deadlines and highlights the potential risks associated with relying on traditional mail methods for fee payment. Therefore, employers should promptly pay arbitration fees to ensure that payments are made well in advance of the payment due date.  It’s not worth taking the risk to delay payment.

[1] Doe v. Superior Court