Court Opinion

ID: 9945595
Source: CourtListenerOpinion
Date Created: 2024-02-27 22:05:34.945403+00
Date Added: 2024-06-11T14:25:34.076859
License: Public Domain

Filed 2/27/24
                CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                SECOND APPELLATE DISTRICT

                        DIVISION EIGHT

DANA HOHENSHELT,                    B327524

      Petitioner,                   Los Angeles County
                                    Super. Ct. No. 20PSCV00827
      v.

THE SUPERIOR COURT OF
LOS ANGELES COUNTY,

      Respondent;

GOLDEN STATE FOODS CORP.,

      Real Party in Interest.

      ORIGINAL PROCEEDINGS in Mandate. Thomas Falls,
Judge. Petition granted.
      Mayall Hurley and Nicholas F. Scardigli for Petitioner.
      Sanders Roberts, Reginald Roberts, Jr., Melvin L. Felton,
Ashley N. Bobo and Tyler S. Dobberstein for Real Party in
Interest.
      No appearance for Respondent.
                   _________________________
      FACTUAL AND PROCEDURAL BACKGROUND

       On November 25, 2020, Dana Hohenshelt (Hohenshelt)
filed a complaint against his former employer Golden State Foods
Corp. (Golden State). The complaint alleges four causes of action:
retaliation under the California Fair Employment and Housing
Act (FEHA); failure to prevent retaliation under FEHA; violation
of Labor Code section 226, subdivision (c), failure to timely
provide copies of wage statements; and violation of Labor Code
section 1198.5, subdivision (b), failure to timely provide copies of
personnel records. Golden State moved to compel arbitration
according to the parties’ arbitration agreement. On April 1, 2021,
the trial court granted the motion and stayed court proceedings
pending binding arbitration.
       On August 3, 2021, arbitration commenced via Judicial
Arbitration and Mediation Services (JAMS). An arbitrator was
appointed on August 16, 2021. Per the arbitrator’s fee schedule,
“All fees are due and payable in advance of services rendered.”
On July 29, 2022 JAMS sent an invoice to Golden State for
$32,300. On August 29, 2022, JAMS sent another invoice for
$11,760. Both invoices were due to be paid within 30 days of
their respective due dates; both invoices provide that payment is
“due upon receipt.”
       On September 30, 2022, JAMS sent a letter stating:
“Pursuant to our fee and cancellation policy, all fees must be paid
in full by October 28, 2022, or your [arbitration] hearing may be
subject to cancellation.”
       Later that same day, on September 30, 2022, Hohenshelt
notified JAMS and the court that because Golden State did not
pay within 30 days of the due date, he was “unilaterally
elect[ing]” to withdraw his claims from arbitration and to proceed

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in court pursuant to Code of Civil Procedure1 section 1281.98,
subdivision (b)(1).
       On October 5, 2022, Golden State confirmed via email to
Hohenshelt that “all outstanding fees have been paid in full.”
       On October 6, 2022, Hohenshelt filed a motion to lift the
litigation stay pending arbitration.
       On February 2, 2023, the court denied the motion. It
deemed Golden State’s payment timely based on the September
30, 2022 letter providing a new due date of October 28, 2022 for
payment. The court held that “the arbitrator seemingly set a new
due date of October 28, 2022.” (Italics added.)
       Hohenshelt filed a writ petition challenging the court’s
denial of this motion to lift the litigation stay pending
arbitration. He requests that we issue a peremptory writ of
mandate directing the trial court to vacate its February 2, 2023
order and enter an order lifting the stay of litigation to allow him
to pursue his claims in court.
                          DISCUSSION
    I.   Applicable Law
       In 2019, the Legislature enacted section 1281.98 to curb a
particular arbitration abuse. (Cvejic v. Skyview Capital, LLC
(2023) 92 Cal.App.5th 1073, 1076 (Cvejic).) The abuse was that a
defendant could force a case into arbitration but, once there,
could refuse to pay the arbitration fees, thus effectively stalling
the matter and stymying the plaintiff's effort to obtain relief.
(Ibid.) The Legislature called this “ ‘ “procedural limbo.” ’ ”

1     Further undesignated statutory references are to the Code
of Civil Procedure.

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(Gallo v. Wood Ranch USA, Inc. (2022) 81 Cal.App.5th 621, 634
(Gallo).)
       Section 1281.98 provides: “In an employment or consumer
arbitration that requires . . . the drafting party pay certain fees
and costs during the pendency of an arbitration proceeding, if the
fees or costs . . . 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.” (§ 1281.98, subd. (a)(1), italics
added.)
       Subdivision (b) of section 1281.98 provides employees and
consumers with a choice of forum upon breach—they may elect to
“[w]ithdraw the claim from arbitration and proceed in a court of
appropriate jurisdiction” or “[c]ontinue the arbitration
proceeding” should the provider agree to continue.
       Effective January 1, 2022, the Legislature amended section
1281.98 to include a new sentence in subdivision (a)(2): “Any
extension of time for the due date shall be agreed upon by all
parties.” (Stats. 2023, ch. 478, § 17.)
II.   Standard of Review
      Our review is independent because we interpret a statute
on undisputed material facts. (Cvejic, supra, 92 Cal.App.5th at
p. 1077.) We give statutory words their plain meaning. (Ibid.)
Our goal is to effectuate the statute’s purpose. (Ibid.)

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III.   Analysis
        The trial court’s ruling was inconsistent with statutory
 mandate as well as recent appellate opinions.
        First, the trial court’s ruling ignored the clear language of
 section 1281.98, subdivision (a)(2), which expressly provides that
 “[a]ny extension of time for the due date shall be agreed upon by
 all parties.” Here, there is no evidence that Hohenshelt agreed to
 any extension.
        Second, we dealt with this exact same situation in Cvejic.
 In that case, the defendant employer Skyview’s fees were due
 June 4, 2021; by July 8, Skyview had not paid. (Cvejic, supra,
 92 Cal.App.5th at p. 1075.) The panel of arbitrators “set a new
 deadline” of July 14 for payment of fees. (Ibid.) Within an hour,
 Cvejic informed the panel that he was “withdrawing from the
 arbitration under section 1281.98.” The chair of the arbitration
 panel responded that Cvejic’s request was “premature”—
 presumably because the deadline was now July 14. (Ibid.)
 Skyview paid the arbitration fee by the new due date. (Ibid.) We
 held in Cvejic that Skyview was “in material breach of the
 parties’ arbitration agreement. Section 1281.98 entitled Cvejic to
 withdraw from arbitration. It is that simple. [¶] The statute does
 not empower an arbitrator to cure a party’s missed payment.
 There is no escape hatch for companies that may have an
 arbitrator’s favor. Nor is there a hatch for an arbitrator eager to
 keep hold of a matter. As the trial court observed, ‘If . . . the
 drafting party were permitted numerous continuances for failure
 to pay arbitration fees, therefore delaying the proceedings,
 [section 1281.98] would have no meaning, force, or effect.’ ”
 (Cvejic, at p. 1078, italics added.)

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      Our colleagues in Gallo similarly held that “any payment
that exceeds the arbitration provider’s deadline and a statutorily
granted 30-day grace period to be a material breach as a matter
of law.” (Gallo, supra, 81 Cal.App.5th at p. 644, italics omitted.)
The Gallo court further explained that section 1281.972
“statutorily defines a material breach as a matter of law to be the
failure to pay anything less than the full amount due by the
expiration of the statutory grace period, rather than leaving
materiality as an issue of fact for the trier of fact to determine.”
(Gallo, at p. 644.)
      We believe the same logic applies in the case before us.
Golden State’s arbitration fees were due to be paid within 30
days of the two invoices. Payment for the July 29, 2022 invoice
was due August 28, 2022, and payment for the August 29, 2022
invoice was due September 28, 2022. Section 1281.98 entitled
Hohenshelt to withdraw from the arbitration. Section 1281.98
does not allow for any extension of time for the due date absent
an agreement “by all parties.” (§ 1281.98, subd. (a)(2).) JAMS’s
September 30, 2022 letter allowing payment until October 28,
2022 in no way cured Golden State’s missed payment and
material breach.

2     The Legislature enacted section 1281.97 along with section
1281.98. The procedures and remedies under sections are largely
parallel and “require no different analysis.” (Williams v. West
Coast Hospitals, Inc. (2022) 86 Cal.App.5th 1054, 1066.) Section
1281.98 applied to the failure to pay fees during the course of the
arbitration whereas section 1281.97 applies to the failure to pay
fees due at the initiation of arbitration.

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       Next, Golden State argues for the first time via its
supplemental brief that section 1281.98 is preempted by the
Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.) and that we
should uphold the trial court’s order to allow the parties to return
to arbitration. The Supremacy Clause of the United States
Constitution declares federal law to be the supreme law of the
land, and thereby empowers Congress to enact statutes that
displace—in the vernacular, preempt—contrary state laws.
(Gallo, supra, 81 Cal.App.5th at p. 635.) We exercise our
discretion to address a constitutional question raised for the first
time in this court. (See Hittle v. Santa Barbara County
Employees Retirement Assn. (1985) 39 Cal.3d 374, 391, fn. 10.)
       The question of whether section 1281.98, as well as sections
1281.97 and 1281.99, are preempted by the FAA was addressed
and answered in Gallo and followed thereafter by other courts.
(See Suarez v. Superior Court (2024) 99 Cal.App.5th 32, 41–42;
Espinoza v. Superior Court (2022) 83 Cal.App.5th 761, 783–784;
De Leon v. Juanita’s Foods (2022) 85 Cal.App.5th 740, 753–754.)
       Gallo held these state laws are not preempted “because the
procedures they prescribe further—rather than frustrate—the
objectives of the FAA to honor the parties’ intent to arbitrate and
to preserve arbitration as a speedy and effective alternative
forum for resolving disputes.” (Gallo, supra, 81 Cal.App.5th at
p. 630.) Analyzing precedent, the Gallo court observed that the
mere fact that a law applies solely to arbitration is insufficient to
preempt it under the FAA. (Id. at p. 638.) These state laws “do
not commit the additional—and . . . necessary for preemption—
sin of outright prohibiting arbitration or more subtly
discouraging arbitration. Instead, [they] define the procedures
governing the date by which the party who drafted an agreement

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to arbitrate against an employee . . . must pay the initial fees and
costs to arbitrate, and specify the consequences of untimely
payment.” (Id. at p. 641, italics omitted.) These state laws are
“fully consistent with the parties’ more general intent to arbitrate
because the parties’ agreement was to arbitrate the dispute, not
let it die on the vine and languish in limbo while the party who
demanded arbitration thereafter stalls it by not paying the
necessary costs in a timely fashion.” (Id. at p. 643.) Moreover,
these state laws also do not disfavor arbitration “because the
consequences of blowing the payment limitations period they
erect do not necessarily end the nascent arbitration” as the
employee maintains “the option of continuing in arbitration or
returning to a judicial forum.” (Id. at p. 642, italics omitted.) It
“both gives effect to the parties’ agreement as well as furthers
another of the FAA’s main purposes . . . —namely, ensuring the
‘ “quick, inexpensive, and conclusive resolution to [a] dispute.” ’ ”
(Id. at p. 640.)
        The Gallo court did note its ruling “had the effect of ending
the arbitration in this case.” (Gallo, supra, 81 Cal.App.5th at p.
645, italics added.) The opinion reasoned the fault belonged with
the employer, which had not paid its fees on time. The same
could be said of respondent employer Golden State (and the
employer in Cvejic). Other employers presumably would take
note of this incentive to speed up the arbitration. This incentive
to speed arbitration in other cases means the California statute
“is a friend of arbitration and not its foe.” (Ibid.)

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                         DISPOSITION
       We grant the petition for writ of mandate and direct the
trial court to vacate its order denying the motion to lift the stay of
litigation and to enter an order lifting the stay. Costs are
awarded to petitioner.

      CERTIFIED FOR PUBLICATION

                                            STRATTON, P. J.

I concur:

            VIRAMONTES, J.

                                  9
WILEY, J., Dissenting:
       What preempts this statute is the decision to make
arbitration the hostage of delay.
       Delaying contract performance in bad faith is an odious
tactic. Employers pursuing this tactic may deserve sanction. But
sanctions like damages, a statutory fine of a motivating
magnitude, and attorney fees would amply deter delay. Why
abolish the arbitration itself?
       One answer is that California state law disagrees, strongly
and persistently, with federal law about whether arbitration is
desirable.
       Indeed, the plaintiff’s attorney was candid about this
stance in oral argument, saying he disagreed with the Supreme
Court of the United States about forcing arbitration on
employees. He spoke strongly in the statute’s defense. From a
preemption perspective, that is the problem. People opposed to
arbitration are supporting this statute. People opposed to
arbitration are not friends of arbitration.
       Judged by actions, California law over the last few decades
also has not been a friend of arbitration.
       By again putting arbitration on the chopping block, this
statute invites a seventh reprimand from the Supreme Court of
the United States.
       Recall the past six. Over and over again, with determined
but unavailing persistence, the Supreme Court of the United
States has rebuked California state law that continues to find
new ways to disfavor arbitration.
       First, the high court held the Federal Arbitration Act set
forth a federal policy favoring arbitration that was clear and in
unmistakable conflict with California’s “requirement that

                                1
litigants be provided a judicial forum for resolving wage disputes.
Therefore, under the Supremacy Clause, the [California] statute
must give way.” (Perry v. Thomas (1987) 482 U.S. 483, 491
[preempting California law].)
       Second, the high court held the Federal Arbitration Act
preempted California state law referring certain disputes initially
to an administrative agency. “When parties agree to arbitrate all
questions arising under a contract, the [Federal Arbitration Act]
supersedes state laws lodging primary jurisdiction in another
forum, whether judicial or administrative.” (Preston v. Ferrer
(2008) 552 U.S. 346, 359; see also id. at pp. 349–350, 355–356.)
       Third, the high court’s decision in AT&T Mobility v.
Concepcion (2011) 563 U.S. 333, 337–338, 352 preempted
California’s rule that class-action waivers in arbitration
agreements were unconscionable.
       Fourth, in DIRECTV, Inc. v. Imburgia (2015) 577 U.S. 47,
the high court pointedly addressed California’s continuing
defiance of federal law. The “Supremacy Clause forbids state
courts to dissociate themselves from federal law because of
disagreement with its content or a refusal to recognize the
superior authority of its source. . . . The Federal Arbitration Act
is a law of the United States, and Concepcion is an authoritative
interpretation of that Act. Consequently, the judges of every
State must follow it.” (Id. at p. 53 [preempting California law].)
       Fifth, the decision in Lamps Plus, Inc. v. Varela (2019) 587
U.S. __ [139 S.Ct. 1407, 1414–1415] reversed the Ninth Circuit
for applying a California state law requiring courts to construe
ambiguities against the drafter, a rule that applied with peculiar
force, said California law, in the case of a contract of adhesion,
like the arbitration contract there at issue. The proper approach

                                2
required the federal Act’s default rule, which is that “ambiguities
about the scope of an arbitration agreement must be resolved in
favor of arbitration.” (Id. at p. 1418.) The Lamps Plus decision
thus preempted a California law disfavoring arbitration.
       Sixth, Viking River Cruises, Inc. v. Moriana (2022) 596 U.S.
639, 662 preempted a California arbitration law that invalidated
contractual waivers of the right to assert representative claims
under California’s Private Attorneys General Act. Federal law
established an equal treatment principle: state courts may
invalidate an arbitration agreement based on generally
applicable contract defenses like fraud or unconscionability, but
not on legal rules that apply only to arbitration or that derive
their meaning from the fact that an agreement to arbitrate is at
issue. (Id. at p. 649.)
       So, the federal arbitration preemption rule is simple. The
Federal Arbitration Act preempts a state rule that “singles out
arbitration agreements for disfavored treatment.” (Kindred
Nursing Centers L.P. v. Clark (2017) 581 U.S. 246, 248.)
       This California statute “singles out arbitration agreements
for disfavored treatment.” No other contracts are voided on a
hair-trigger basis due to tardy performance. Only arbitration
contracts face this firing squad.
       This statute thus is preempted. California cannot create a
rule specific to the arbitration context that contravenes the
arbitration on which the parties agreed. After six epistles, we
should get the message.
       A federal decision made short work of the argument
favoring this statute. This pro-statute argument claims the
statute is a friend to arbitration. The federal decision debunked
this claim. (See Belyea v. GreenSky, Inc. (N.D.Cal. 2022)

                                3
637 F.Supp.3d 745, 759.) The Belyea court examined this friend-
of-arbitration claim that the statute encourages arbitration.
Belyea then asked the incisive question: “But how? It does so by
making arbitration agreements unenforceable.” (Ibid., emphasis
added.)
      A friend of arbitration does not make the arbitration
agreement unenforceable. Federal law does not allow a state to
save arbitration by destroying it.
      The Belyea critique was devastating.
      Yet California state cases that postdate Belyea continue to
espouse the friend-of-arbitration logic without engaging, or
acknowledging, Belyea’s critique. (See Suarez v. Superior Court
(2024) 99 Cal.App.5th 32, 41–42; De Leon v. Juanita’s Foods
(2022) 85 Cal.App.5th 740, 753–754; cf. Espinoza v. Superior
Court (2022) 83 Cal.App.5th 761, 783–784 [pre-Belyea decision
rejected preemption].)
      In my estimation, this devastating critique accurately
states overriding federal law. This state statute is invalid
because it violates a clear federal rule.

                                          WILEY, J.

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