The Center, joined by Public Justice and the California Employment Lawyers Association, filed an amicus brief this week in the California Supreme Court in support of a California law establishing deterrence mechanisms to prevent corporations from stalling arbitration proceedings by refusing to pay arbitration fees.
The Center’s brief highlights the problem that the California law was designed to address. The proliferation of contractually mandated private arbitration in consumer and employment disputes––already a severe disadvantage for individual plaintiffs––has led some corporate contract-drafters to take even further advantage by refusing to pay the fees for the arbitration proceedings their own form contracts require. That refusal immediately pauses or even ends the arbitral process, too often leaving plaintiffs without any forum in which to bring their claims.
To rein in corporations’ exploitation of the arbitration process, the California Legislature amended the California Arbitration Act with Senate Bill 707 in 2019 and Senate Bill 762 in 2021––collectively “the Payment Law.” The Payment Law provides that a party to an arbitration may choose to transfer the case to court and to seek sanctions if the other party does not pay the required fees within 30 days. Defendant Golden State Foods challenged the law as preempted by the Federal Arbitration Act (FAA).
The Center’s brief argues the Payment Law is consistent with the FAA because it furthers the core attributes of arbitration and codifies existing principles of California contract law. By deterring parties from withholding payment and dragging out the arbitration process, the Payment Law supports the FAA’s purpose of providing efficient, expedient arbitration. And because the Payment Law treats arbitration agreements as California treats any other contract, rather than targeting arbitration for disfavored treatment as the defendant claims, it is consistent with the FAA”s “equal footing” principle. The brief observes that the Payment Law codifies basic principles of contract law: The failure to pay arbitration fees is a breach of the agreement, a default freeing the non-paying party from the obligation of continuing with arbitration; it is also a waiver of the defaulting party’s right under the contract to compel arbitration.
In addition, the 30-day timeline in the Payment Law provides a concrete manifestation in statute of the long-standing, overarching principle that contract terms (especially unspecified terms) must be reasonable. (See, e.g., Greenberg v. Cal. Bituminous Rock Co. (1895) 107 Cal. 667.) It provides sufficient time for the party compelling arbitration to make its payments while ensuring that consumers are protected against manipulative drafters of take-it-or-leave-it form contracts.
Manipulative arbitration tactics need to be prohibited in order to ensure efficient and expedient resolutions for consumers. That is just what the court of appeal did here, and it is what we have now urged the Supreme Court to do on its second encounter with the case.