Gallo v. Wood Ranch USA, Inc. ( 2022 )

Filed 7/25/22
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION TWO
SUNNY GALLO, B311067
Plaintiff and Respondent, (Los Angeles County
Super. Ct. No.
v. 20STCV00432)
WOOD RANCH USA, INC.,
Defendant and Appellant.
APPEAL from an order of the Superior Court of Los
Angeles County, Rafael A. Ongkeko, Judge. Affirmed.
Raines Feldman, Beth A. Schroeder and Matthew D. Pate,
for Defendant and Appellant.
Bordin Semmer, Joshua D. Bordin-Wosk and Benjamin A.
Sampson, for Plaintiff and Respondent.
* * *
Perceiving that employees and consumers were being
placed in a “procedural limbo” when they were forced to sign
arbitration agreements by entities who subsequently refused to
pay the necessary fees to allow the arbitrations to move forward,
the California Legislature enacted Code of Civil Procedure
sections 1281.97, 1281.98 and 1281.99. 1 (Stats. 2019, ch. 870, § 4;
Assem. Floor Analysis, 3d reading analysis of Sen. Bill No. 707
(2019-2020 Reg. Sess.) as amended May 20, 2019, p. 2.) These
provisions obligate a company or business who drafts an
arbitration agreement to pay its share of arbitration fees by no
later than 30 days after the date they are due, and specify that
the failure to do so constitutes a “material breach of the
arbitration agreement” that gives the employee or consumer, in
addition to a mandatory award of attorney fees and costs related
to the breach as well as other discretionary sanctions, the options
of either (1) continuing in arbitration with the company or
business paying attorney fees and costs related to the arbitration
as a whole or (2) withdrawing from arbitration and resuming the
litigation in a judicial forum. (§§ 1281.97, 1281.98, 1281.99.)
This appeal presents a question of first impression: Are these
provisions preempted by the Federal Arbitration Act (FAA) (9
U.S.C. § 1 et seq.)? We hold that they are not 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. We accordingly affirm the trial
1 All further statutory references are to the Code of Civil
Procedure unless otherwise indicated.
2
court’s order vacating its earlier order compelling arbitration
between the parties in this case.
FACTS AND PROCEDURAL BACKGROUND
I. Facts
In 2015, Wood Ranch USA, Inc. (Wood Ranch) hired Sunny
Gallo (plaintiff) to work as a server for its chain of restaurants.
As a condition of her employment with Wood Ranch,
plaintiff was required to sign an arbitration agreement and to
agree to the terms of the employee handbook. The agreement
provides that “[a]ny controversy, dispute or claim between any
employee and [Wood Ranch] . . . shall be settled by binding
arbitration.” The agreement also specifies that the arbitrator is
to “apply applicable California and/or federal substantive law to
determine issues of liability and damages regarding all claims,”
but is to look to the “California Arbitration Act . . . to conduct the
arbitration and any pre-arbitration activities.” The employee
handbook reinforces the parties’ agreement that they will look to
the California Arbitration Act, including its “procedural
provisions,” “to conduct the arbitration and any pre-arbitration
activities.”
Plaintiff’s employment was terminated in March 2018.
II. Procedural Background
A. Complaint
In January 2020, plaintiff sued Wood Ranch for
compensatory and punitive damages on nine different causes of
action. 2 Without any further details, plaintiff alleged that she
2 The nine causes of action are (1) discrimination, in
violation of the California Fair Employment and Housing Act
(FEHA) (Gov. Code, § 12940 et seq.), (2) failure to prevent
discrimination, in violation of FEHA, (3) harassment, in violation
3
suffered discrimination and retaliation on the basis of gender and
religion.
B. Arbitration is compelled
In February 2020, Wood Ranch moved to compel
arbitration. After briefing and a hearing, the trial court in July
2020 granted the motion and stayed the pending court
proceedings.
C. Selection of arbitrator, but late payment of fees
By September 2020, plaintiff and Wood Ranch had agreed
which arbitrator to use. 3 The arbitrator was affiliated with the
American Arbitration Association (AAA).
On October 20, 2020, AAA sent a letter to counsel for both
parties, informing them that plaintiff’s “portion of the initial
filing fee is $300,” that it was due by October 27, 2020, and that
“payment should be submitted by credit card or electronic check”
using a “secured paylink” that would be “forthcoming with
instructions.”
of FEHA, (4) failure to prevent harassment, in violation of FEHA,
(5) retaliation, in violation of FEHA, (6) retaliation, in violation of
Labor Code sections 1102.5 and 98.6, (7) failure to engage in the
interactive process, (8) wrongful termination in violation of public
policy, and (9) intentional infliction of emotional distress.
3 Wood Ranch suggests that the two months it took for the
parties to agree on an arbitrator is akin to plaintiff breaching the
agreement to arbitrate. On these facts, the case law is to the
contrary. (Accord, Radonjic v. Princess Cruise Lines (C.D.Cal.
Aug. 25, 2021, No. CV-21-2174-DMG) 2021 U.S.Dist. Lexis
206287, *10 [“Radonjic has not cited to any case law that
indicates that a litigant’s disagreement with the choice of
arbitrator is sufficient to constitute an act ‘inconsistent with’ the
right to arbitrate”].)
4
Plaintiff paid the $300 the very same day.
The next day, on October 21, 2020, AAA sent a letter to
counsel for both parties, informing them that plaintiff had paid
her fees, that Wood Ranch now had to “pay its share of the filing
fee in the amount of $1,900,” and that the fee was due by
November 4, 2020. The letter included this admonition:
As this arbitration is subject to California Code
of Civil Procedure 1281.97 and 1281.98, payment
must be received by December 4, 2020 [that is,
30 days after the November 4 deadline] or the
AAA will close the parties’ case. The AAA will
not grant any extensions to this payment
deadline.
(Boldface and underline in original.) Like the letter requesting
payment from plaintiff, this letter also specified that Wood
Ranch’s payment “should be submitted by credit card or
electronic check” and that “[a] secured paylink” would “be
forthcoming.”
The November 4 due date came and went without any
payment from Wood Ranch.
On November 9, 2020, AAA sent a further letter to counsel
for both parties reminding Wood Ranch that it had not yet paid
and informing Wood Ranch, again in boldface, that “in
accordance with California Code of Civil Procedure
1281.97 and 1281.98, the AAA will close its case on
December 4, 2020 if payment is not received.”
All of these letters were sent to a partner of the law firm
representing Wood Ranch, but the partner—for reasons
unknown—never forwarded any of this correspondence to the law
5
firm associate handling the case on a day-to-day basis or to the
assigned law firm secretary.
The December 4 due date came and went without any
payment from Wood Ranch.
Four days after that second due date, the law firm associate
representing Wood Ranch contacted AAA about the missed
deadline. Two days later—on December 10, 2020—Wood Ranch
paid the $1,900 fee.
D. Motion to vacate the order compelling
arbitration
On December 16, 2020, plaintiff filed a motion to vacate the
trial court’s prior order compelling arbitration. Invoking sections
1281.97 and 1281.99, plaintiff argued that Wood Ranch’s late
payment of its share of the initiation fees constituted a material
breach of the arbitration agreement, and declared plaintiff’s
election to withdraw from arbitration and pursue her case in
court.
After further briefing, and a hearing, the trial court
granted the motion. The court rejected both of Wood Ranch’s
main defenses to the motion. The court ruled that sections
1281.97 and 1281.99 were not preempted by the FAA because
those provisions “enforce[], rather than frustrate[], the purpose of
the FAA.” The court also ruled that Wood Ranch had no viable
excuse for its late payment, as there was “no competent evidence
of pandemic-related excuses, whether due to a closed restaurant
. . . or internal office problems” because the assigned partner at
the law firm Wood Ranch retained had been “included on all
correspondence.”
The court also imposed monetary sanctions of $2,310
reflecting the attorney fees and costs plaintiff incurred as a result
6
of Wood Ranch’s breach of the arbitration agreement. The court
declined to impose any evidentiary or terminating sanctions.
E. Appeal
Wood Ranch filed this timely appeal.
DISCUSSION
Wood Ranch argues that the trial court erred in vacating
its previous order compelling arbitration because, in its view, the
statutes on which the order vacating arbitration is based—
sections 1281.97 and 1281.99—are preempted by the FAA. We
will review the trial court’s order de novo: As a general matter,
an order vacating an order compelling arbitration is the
functional equivalent of an order denying a petition to compel
arbitration in the first place because both divert a case into court
rather than arbitration; because the former is reviewed de novo
(Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362,
376, fn. 9), so should the latter. Further, because the propriety of
the order in this case rests on questions of federal preemption as
well as the application of undisputed facts to the law, de novo
review is particularly appropriate. (Farm Raised Salmon Cases
(2008) 42 Cal.4th 1077, 1089, fn. 10 [“federal preemption presents
a pure question of law” warranting “de novo standard of review”];
Boling v. Public Employment Relations Bd. (2018) 5 Cal.5th 898,
912 [“the application of law to undisputed facts ordinarily
presents a legal question that is reviewed de novo”].)
I. Applicable Law
A. The California provisions at issue
In 1961, the California Legislature enacted the California
Arbitration Act (CAA) (§ 1280 et seq.) as a way to protect the
right of private parties to resolve their disputes through the
“efficient, streamlined procedures” of arbitration. (AT&T
7
Mobility LLC v. Concepcion (2011) 563 U.S. 333, 344
(Concepcion).) The CAA also defines what those procedures are,
at least in the absence of the parties’ mutual decision to adopt
different procedures. (Cronus Investments, Inc. v. Concierge
Services (2005) 35 Cal.4th 376, 394 (Cronus).)
In 2019, the California Legislature added sections 1281.97
and 1281.99 to the CAA.
Section 1281.97 lays out the procedures by which the initial
arbitration-related fees and costs are to be paid by a “company or
business” that has “included a predispute arbitration provision in
a contract with a consumer or employee.” (§§ 1281.97, 1280,
subd. (e).) 4 Specifically, once the “employee or consumer meets
the filing requirements necessary to initiate an arbitration,” the
company or business must then pay its share of initiation fees or
costs “within 30 days after the due date” set by the arbitration
provider. 5 (§ 1281.97, subd. (a)(1) & (2).) Critically, the failure to
4 Section 1281.98, which was added in 2019 along with its
neighboring statutes, prescribes the procedures for the company
or business’s payment of fees and costs “during the pendency of
the arbitration proceeding” (rather than at its initiation).
(§ 1281.98, subd. (a)(1).) Its procedures largely parallel those set
forth in section 1281.97. (§ 1281.98, subds. (b), (c) & (d).)
Because the fees at issue in this case were to initiate the
arbitration, we focus our analysis on section 1281.97. But our
analysis applies with equal force to the parallel provisions of
section 1281.98.
5 In 2021, our Legislature amended section 1281.97 to
expressly obligate the arbitration provider to supply the parties
with invoices setting forth the “full amount owed” and the date
due, and to set a statutory default due date of “due upon receipt”
8
pay the initiation fees or costs within the 30-day grace period
that follows the arbitration provider’s due date constitutes a
“material breach of the arbitration agreement” that
simultaneously qualifies as a “waiv[er] of [the] right to compel
arbitration” and a “default of the arbitration,” all of which confer
upon the consumer or employee the choice of (1) “[w]ithdraw[ing]
the claim from arbitration and proceed[ing] in a court of
appropriate jurisdiction” or (2) “[c]ompel[ling] arbitration,” but
requiring the company or business to “pay reasonable attorney’s
fees and costs related to the arbitration.” (§§ 1281.97, subds.
(a)(1), (b).) Upon its breach, the company or business is also
obligated to pay the “reasonable expenses, including attorney’s
fees and costs, incurred by the employee or consumer as a result
of the material breach” (§1281.99, subd. (a)), and may also suffer
an evidentiary, terminating, or contempt sanction unless it “acted
with substantial justification” or “other circumstances make the
imposition of the sanction unjust” (§ 1281.99, subd. (b)).
In enacting sections 1281.97 and 1281.99, the California
Legislature was aiming to solve a very specific problem—namely,
the “procedural limbo and delay” that consumers and employees
face when they are “forced to submit to mandatory arbitration to
resolve a[] . . . dispute,” and the business or company that pushed
the case into an arbitral forum then “stalls or obstructs the
arbitration proceeding by refusing to pay the required fees.”
(Assem. Floor Analysis, 3d reading analysis of Sen. Bill No. 707
(2019-2020 Reg. Sess.) as amended May 20, 2019, p. 2; Sen. Bill
No. 707 (2019-2020 Reg. Sess.) § 1, subds. (c) & (d).) Section
1281.97 grants deliverance from this procedural purgatory by
unless the parties agree otherwise. (§ 1281.97, subd. (a)(2),
added by Stats. 2021, ch. 222, § 2.)
9
deeming late payment to be a material breach of the arbitral
agreement that gives the affected employee or consumer the
choice of (1) remaining in the arbitral forum on the business’s or
company’s dime or (2) treating the arbitration agreement as
being rescinded and returning to a judicial forum, as the Ninth
Circuit had previously held to be an appropriate remedy (e.g.,
Sink v. Aden Enterprises, Inc. (9th Cir. 2003) 352 F.3d 1197,
1200, 1201 (Sink); Brown v. Dillard’s, Inc. (9th Cir. 2005) 430
F.3d 1004, 1012 (Brown)). (Sen. Bill No. 707 (2019-2020 Reg.
Sess.) § 1, subd. (e); Assem. Com. on Judiciary, Analysis of Sen.
Bill No. 707 (2019-2020 Reg. Sess.) as amended May 20, 2019, p.
8.)
B. Federal preemption
1. Preemption, generally
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, to preempt—“contrary” state laws. (People ex rel.
Harris v. Pac. Anchor Transp., Inc. (2014) 59 Cal.4th 772, 777;
Crosby v. National Foreign Trade Council (2000) 530 U.S. 363,
372 (Crosby); U.S. Const., art. VI, cl. 2.)
Federal statutes can preempt state law in several ways. 6
Congress can expressly preempt state law by using “explicit
statutory language” to “define . . . the extent to which its
enactment[] pre-empt[s] state law.” (English v. General Electric
Co. (1990) 496 U.S. 72, 78-79.)
6 So can federal regulations (Fidelity Federal Sav. & Loan
Assn. v. de la Cuesta (1982) 458 U.S. 141, 153), but no such
regulations are at issue in this case.
10
Congress can also preempt state law by implication, and
courts have identified three mechanisms for such implied
preemption; those mechanisms are known as “conflict
preemption,” “obstacle preemption,” and “field preemption.”
(Viva! International Voice for Animals v. Adidas Promotional
Retail Operations, Inc. (2007) 41 Cal.4th 929, 936 (Viva!).) 7
Conflict preemption occurs when federal and state law conflict to
such a degree that it is “impossib[le]” to comply with both.
(Hillsborough County v. Automated Medical Laboratories, Inc.
(1985) 471 U.S. 707, 713 (Hillsborough County).) Obstacle
preemption occurs when “under the circumstances of [a]
particular case, [state law] stands as an obstacle to the
accomplishment and execution of the full purposes and objectives
of Congress” in enacting the federal statute. (Hines v. Davidowitz
(1941) 312 U.S. 52, 67 (Hines).) “What is a sufficient obstacle is a
matter of judgment, to be informed by examining the federal
statute as a whole and identifying its purpose and intended
effects.” (Crosby, supra, 530 U.S. at p. 373.) Field preemption
occurs when the federal statute at issue is “sufficiently
comprehensive to make reasonable the inference that Congress
‘left no room’ for supplementary state regulation” and hence
intended to occupy the field regulated by the federal statute.
(Hillsborough County, at p. 713, quoting Rice v. Santa Fe
Elevator Corp. (1947) 331 U.S. 218, 230.)
Under all of these preemption analyses, the “‘ultimate
touchstone’” is the intent of Congress in enacting the potentially
7 These categories are not “‘rigidly distinct’” (Crosby, supra,530 U.S. at 372, fn. 6); “conflict preemption and obstacle
preemption” are sometimes “group[ed]” “together in a single
category.” (Viva!, at p. 935, fn. 3.)
11
preemptive federal statute. (Medtronic, Inc. v. Lohr (1996) 518
U.S. 470, 485, 494.) When it comes to implied preemption,
however, Congress’s intent to displace state law must be “‘clear
and manifest’” except in “areas where there has been a history of
federal presence,” such as international law or maritime law.
(Arizona v. United States (2012) 567 U.S. 387, 400 (Arizona);
United States v. Locke (2000) 529 U.S. 89, 108 (Locke); Hines,
supra, 312 U.S. at p. 66 [international law]; Curtin Maritime
Corp. v. Pacific Dredge & Construction, LLC (2022) 76
Cal.App.5th 651, 670 [maritime law].) This “‘assumption’ of
nonpre-emption” reflects deference to the “‘historic police powers
of the States.’” (Arizona, at p. 400; Locke, at p.108.)
2. Preemption, under the FAA
Congress enacted the FAA in 1925 with two overarching
goals in mind. First, the FAA was aimed at “overrul[ing] the
judiciary’s longstanding refusal to enforce agreements to
arbitrate.” (Dean Witter Reynolds, Inc. v. Byrd (1985) 470 U.S.
213, 219-220 (Byrd); Volt Information Sciences, Inc. v. Board of
Trustees (1989) 489 U.S. 468, 474 (Volt); Concepcion, supra, 563
U.S. at p. 339.) Second, the FAA sets out the default procedural
rules that govern how arbitrations and judicial proceedings
related to arbitrations are to be conducted in federal court, unless
and until the parties to such agreements mutually agree to use
different procedures. (9 U.S.C. §§ 3-13, 16 [setting forth various
procedural rules]; Volt, at pp. 476, 479.)
Congress achieved its first purpose by enacting section 2 of
the FAA, which provides in pertinent part that:
“[a] written provision in . . . a contract evidencing a
transaction involving commerce to settle by
arbitration a controversy thereafter arising out of
12
such contract or transaction, or the refusal to perform
the whole or any part thereof, or an agreement in
writing to submit to arbitration an existing
controversy arising out of such a contract,
transaction, or refusal, shall be valid, irrevocable,
and enforceable, save upon such grounds as exist at
law or in equity for the revocation of any contract
. . . .” (9 U.S.C. § 2.)
In pronouncing that arbitration contracts “involving
commerce” are to be “valid” and “enforceable,” section 2 of the
FAA by its terms invalidates contrary state laws except those
that “exist at law or in equity for the revocation of any contract.”
Thus, section 2 evinces Congress’s intent to preempt some state
laws, whether they be “imposed by statute or judicial rule.”
(Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899,
923-924 (Sanchez).) In trying to fit section 2 into the more
general rubric used to apply the preemptive force of federal
statutes, the U.S. Supreme Court has declared that section 2 is
neither an “express pre-emptive provision” nor an exercise in
field preemption. (Volt, supra, 489 U.S. at p. 477.) Thus,
whether the FAA invalidates a particular state law is a function
of whether the state law conflicts with or obstructs the FAA’s
purposes. (Rosenthal v. Great Western Financial Securities Corp.
(1996) 14 Cal.4th 394, 408.)
Our analysis of precedent indicates that state laws
regulating arbitration conflict with or obstruct the FAA in one of
two situations. Each is discussed separately.
a. State laws that single out arbitration for
disfavored treatment
13
As a general rule, a state law that singles out arbitration
contracts for disfavored treatment—and thereby “discriminate[s]
on its face” against such contracts—will conflict with the FAA or
stand as an obstacle to its objectives (and will therefore be
preempted by the FAA). Preemption-inducing disfavor can
manifest in two ways.
(i) Arbitration-specific state laws that
outright prohibit arbitration
First, the FAA will preempt a state law that singles out one
or more types of arbitration agreements in order to “outright”
“prohibit[]” their formation or enforcement, thereby creating a
direct conflict between the state law declaring such agreements
invalid and the FAA declaring them “valid” and “enforceable.”
(Concepcion, supra, 563 U.S. at p. 341; Doctor’s Associates v.
Casarotto (1996) 517 U.S. 681, 687 (Doctor’s Associates) [“courts
may not . . . invalidate arbitration agreements under state laws
applicable only to arbitration provisions”]; Kindred Nursing
Centers Ltd. Partnership v. Clark (2017) 137 S.Ct. 1421, 1426
(Kindred) [“The FAA . . . preempts any state rule discriminating
on its face against arbitration”]; Epic Systems Corp. v. Lewis
(2018) 138 S.Ct. 1612, 1622 [same]; Cronus, supra, 35 Cal.4th at
p. 385 [“courts may not invalidate arbitration agreements under
state law contract principles applicable only to arbitration
provisions, and that therefore disfavor such contracts, or single
them out for ‘suspect status’”]; Blair v. Rent-A-Center, Inc. (9th
Cir. 2019) 928 F.3d 819, 825 [same]; Southland Corp. v. Keating
(1984) 465 U.S. 1, 16, fn. 10 [FAA “preempts a state law that
withdraws the power to enforce arbitration agreements”];
Kindred, at p. 1428 [the FAA “cares not only about the
‘enforce[ment]’ of arbitration agreements, but also about their
14
initial ‘valid[ity]’”]). Thus, the FAA has preempted a state law
that invalidated agreements to arbitrate certain franchise
disputes (Southland Corp., at pp. 10-16), a state law that
invalidated agreements to arbitrate certain wage collection
claims (Perry v. Thomas (1987) 482 U.S. 483, 490-491), and a
state law that invalidated agreements to arbitrate certain Labor
Code violations (Nixon v. AmeriHome Mortgage Co., LLC (2021)
67 Cal.App.5th 934, 950).
(ii) Arbitration-specific state
laws that discourage arbitration
Second, the FAA will preempt a state law that singles out
arbitration agreements (or a subset thereof) in order to impose
requirements on them that “more subtly” discourage their
formation or enforcement. (Concepcion, supra, 563 U.S. at pp.
343-344; Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th
899, 923-924 (Sanchez); Sonic-Calabasas A, Inc. v. Moreno (2013)
57 Cal.4th 1109, 1145.) Thus, the FAA has preempted a state
law that declared arbitration contracts to be invalid unless they
contained a particular form of notice (Doctor’s Assocs., supra, 517
U.S. at p. 688), a state law that declared arbitration contracts to
be invalid if they were signed by a party’s representative using a
power of attorney (Kindred, supra, 137 S.Ct. at pp. 1424-1425),
and a state law that declared arbitration contracts under a
consumer protection statute to be invalid if they contained a
waiver of class arbitration (Sanchez, at pp. 923-924). Conversely,
the FAA does not preempt a state law that specifically requires
arbitration agreements to be consensual between the parties,
because mutual consent is an essential ingredient of all contracts
(e.g., Monster Energy Co. v. Schechter (2019) 7 Cal.5th 781, 789
[“‘An essential element of any contract is “consent” [and] [t]he
15
“consent” must be “mutual.”’”]) and does not discourage parties
from entering into arbitration agreements. (Chamber of
Commerce of the United States v. Bonta (9th Cir. 2021) 13 F.4th
766, 778-781 [so holding, except as to portion of state law that
makes it a crime to enter into nonconsensual arbitration
agreements, which may discourage such agreements].)
(iii) Arbitration-specific state
laws that neither outright prohibit nor discourage arbitration
As the above-stated rules imply, a state law will not be
preempted by the FAA merely because it is arbitration specific.
Of particular relevance here are state laws, like the CAA,
that define the standard rules “governing the conduct of
arbitration.” (Volt, supra, 489 U.S. at p. 476.) “There is no
federal policy favoring arbitration under a certain set of
procedural rules” (ibid.), so “the FAA leaves room for states to
enact some rules affecting arbitration” that the parties may
choose to adopt (Mt. Diablo Medical Center v. Health Net of
California (2002) 101 Cal.App.4th 711, 718 (Mt. Diablo)). Those
state laws will, by definition, be arbitration specific. If such state
laws were preempted merely because they singled out arbitration
for differential treatment, states would never be able to enact
rules defining the procedures for arbitration unless the
procedures mirrored those for every other case handled in a
judicial forum (as that would render them no longer “arbitration-
specific”), yet requiring such parity would utterly defeat the very
purpose of arbitration in the first place—namely, to create an
alternative, more “efficient and speedy dispute resolution”
mechanism. (Byrd, supra, 470 U.S. at p. 221.) In the end,
declaring the factor of whether a state law “singles out”
arbitration to be the sine qua non of preemption would invalidate
16
the CAA and every other state’s arbitration laws like it; that is
antithetical to the very purpose of the FAA to encourage
arbitration. (Volt, supra, 489 U.S. at p. 476; Mt. Diablo, at pp.
717-718, 725-726; cf. Mastrobuono v. Shearson Lehman Hutton
(1995) 514 U.S. 52, 56-63 [where it is unclear whether parties
agreed to incorporate a standard rule that would limit one party’s
rights, courts should construe uncertainty against
incorporation].)
Indeed, specific provisions of the CAA have been upheld as
not preempted by the FAA, even though those provisions are
necessarily arbitration specific.
Section 1281.2, a provision of the CAA that is arbitration-
specific, empowers a trial court to stay arbitration or even
altogether deny a petition to compel arbitration if one of the
parties to the arbitration agreement is “also a party to a pending”
judicial action with a third party that involves the same
transaction as the nascent arbitration and that could result in a
conflicting ruling. (§ 1281.2 [final stand-alone paragraph] &
subd. (c).) Yet where the parties to an arbitration agreement
have agreed to apply the CAA, applying this state law—even if it
results in an arbitration being stayed or denied—does not conflict
with or stand as an obstacle to the FAA’s goals; to the contrary,
this state law effectuates one of the FAA’s main purposes (as
discussed more fully below)—namely, giving effect to the parties’
agreement. (Volt, supra, 489 U.S. at pp. 470, 477-479; Cronus,
supra, 35 Cal.4th at pp. 391-394 [holding that section 1281.2,
subd. (c) “does not undermine or frustrate the FAA’s substantive
policy favoring arbitration” and, thus, is not preempted]; Mt.
Diablo, supra, 101 Cal.App.4th at p. 714 [holding that section
1281.2 is not preempted when the “parties intended to
17
incorporate” the CAA “governing the enforcement of their
agreement to arbitrate”].)
Section 1286.2, a provision of the CAA that is arbitration-
specific, narrows the scope of judicial review of the merits of an
arbitrator’s award. Under this provision, a trial court reviewing
an arbitration award may not vacate the award due to the
“arbitrator’s legal or factual error, even an error appearing on the
face of the award.” (Moshonov v. Walsh (2000) 22 Cal.4th 771,
775; Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 8-28
(Moncharsh).) Yet where parties to an arbitration agreement
have agreed to apply the CAA, applying this state law—even if it
means the losing party no longer has the ability to obtain a
reversal due to the arbitrator’s error—does not conflict with or
stand as an obstacle to the FAA’s goals; to the contrary, this state
law’s curtailment of judicial review both gives effect to the
parties’ agreement as well as furthers another of the FAA’s main
purposes (as discussed more fully below)—namely, ensuring the
“‘quick, inexpensive, and conclusive resolution to [a] dispute.’”
(Heimlich v. Shivji (2019) 7 Cal.5th 350, 367, quoting Moncharsh,
at p. 11; Siegel v. Prudential Ins. Co. (1998) 67 Cal.App.4th 1270,
1282-1283 (Siegel) [“California’s rule precluding on the merits
review of an arbitration award does not stand as an obstacle to
full effectuation of the purpose of the [FAA]”].)
b. Generally applicable state laws that
affect arbitration adversely
Even if a state law does not single out arbitration
agreements for outright prohibition or disfavored treatment, it
still will be preempted by the FAA if it “stand[s] as an obstacle to
the accomplishment of the FAA’s objectives”; thus, the fact that a
state law is generally applicable does not shield it from
18
preemption. (Concepcion, supra, 563 U.S. at p. 343; Lamps Plus,
Inc. v. Varela (2019) 139 S.Ct. 1407, 1418 (Lamps Plus) [“The
general applicability of [a state law does] not save it from
preemption under the FAA” if the rule “‘interferes with
fundamental attributes of arbitration.’”].)
In seeking to achieve its overarching goal of squelching
judicial hostility toward arbitration, the FAA has as its objective
the enforcement of the two “fundamental attributes” of
arbitration itself.
The first fundamental attribute of arbitration is its
grounding in the mutual consent of the parties, such that the
first objective of the FAA is to honor the parties’ mutual desire to
engage in arbitration. (Volt, supra, 489 U.S. at p. 478 [FAA “‘was
motivated, first and foremost, by a congressional desire to enforce
agreements into which parties had entered,’” quoting Byrd,
supra, 470 U.S. at p. 220; Mastrobuono, supra, 514 U.S. at pp. 53-
54 [“central purpose” of the FAA is “to ensure ‘that private
agreements to arbitrate are enforced according to their terms’”];
Lamps Plus, supra, 139 S.Ct. at p. 1415; Concepcion, supra, 563
U.S. at p. 344 [“overarching purpose” of the FAA is “to ensure the
enforcement of arbitration agreements according to their terms so
as to facilitate streamlined proceedings”].) By seeking to honor
the parties’ mutual intent, the FAA seeks to put arbitration
agreements on “the same footing” as all other contracts. (Allied-
Bruce Terminix Cos. v. Dobson (1995) 513 U.S. 265, 275 [“basic
purpose” of the FAA is “to put arbitration provisions on ‘“the
same footing”’ as a contract’s other terms”]; Scherk v. Alberto-
Culver Co. (1974) 417 U.S. 506, 511 [same]; Volt, at p. 478 [FAA
“simply requires courts to enforce privately negotiated
19
agreements to arbitrate, like other contracts, in accordance with
their terms”].)
The second fundamental attribute of arbitration is its
“promise of quicker, more informal, and often cheaper [dispute]
resolutions for everyone involved” (Epic Systems, supra, 138 S.Ct.
at p. 1621), such that the second objective of the FAA is to
safeguard “arbitration’s fundamental attributes of speed and
efficiency.” (Sanchez, supra, 61 Cal.4th at pp. 923-924;
Concepcion, at p. 344; Byrd, supra, 470 U.S. at 220.)
Safeguarding this attribute is why the FAA has been read to
preempt state laws mandating class arbitration (absent the
parties’ clear expression of intent to allow for class arbitration),
because the unwieldy nature of class litigation is thought to
sacrifice the efficiency and speed at the heart of arbitration.
(Concepcion, supra, 563 U.S. at pp. 339-340; Lamps Plus, supra,139 S.Ct. at p. 1416.)
II. Analysis
Under the law set forth above, the FAA does not preempt
sections 1281.97 and 1281.99.
Sections 1281.97 and 1281.99 undeniably single out
arbitration insofar as they define procedures that apply only to
arbitrated disputes. But, as noted above, that they are
arbitration-specific is not sufficient to warrant preemption by the
FAA. Critically, sections 1281.97 and 1281.99 do not commit the
additional—and, as noted above, necessary for preemption—sin of
outright prohibiting arbitration or more subtly discouraging
arbitration. Instead, sections 1281.97 and 1281.99 define the
procedures governing the date by which the party who drafted an
agreement to arbitrate against an employee or consumer must
pay the initial fees and costs to arbitrate, and specify the
20
consequences of untimely payment. (§§ 1281.97, 1281.99.) In this
respect, sections 1281.97 (and its attendant sanctions-provision,
section 1281.99) are akin to a statute of limitation. (E.g., PGA
West Residential Assn., Inc. v. Hulven International, Inc. (2017)
14 Cal.App.5th 156, 176 [noting how a “garden-variety statute of
limitations is procedural,” but also implements substantive
policy]; see cf. Lehto v. Underground Constr. Co. (1977) 69
Cal.App.3d 933, 942-945 [section 1288’s 100-day limitations
period to vacate or correct arbitration preempted by the federal
Labor Management Relations Act because that act permits
litigation of claims in both federal or state fora, and shorter 100-
day period cuts off a worker’s rights in one forum but not the
other].) Just as the FAA does not preempt the CAA’s procedures
for confirming arbitration awards, including its statutes of
limitations periods for doing so (Swissmex-Rapid S.A. de C.V. v.
SP Systems, LLC (2012) 212 Cal.App.4th 539, 544-547), the FAA
does not preempt sections 1281.97 and 1281.99. More broadly,
sections 1281.97 and 1281.99 are part of the CAA and thus help
to define what it means to arbitrate under the CAA. In this
regard, despite dealing with a different aspect of arbitration, they
are functionally indistinguishable from other provisions of the
CAA—such as sections 1281.2 and 1281.6, discussed above—that
have been repeatedly found not to be preempted by the FAA, at
least where, as here, the parties have agreed to incorporate the
CAA into their agreement to arbitrate. These sections also do not
disfavor arbitration because the consequences of blowing the
payment limitations period they erect do not necessarily end the
nascent arbitration: Section 1281.97 gives the employee or
consumer the option of continuing in arbitration or returning to a
judicial forum. (§ 1281.97, subd. (b).)
21
Nor do sections 1281.97 and 1281.99 stand as an obstacle to
the accomplishment of either of the FAA’s objectives.
Applying these sections in this case does not interfere with
the FAA’s first goal of honoring the parties’ intent. That is
because the parties in this case signed an arbitration agreement
that incorporated the “California Arbitration Act . . . to conduct
the arbitration and any pre-arbitration activities.” To be sure,
sections 1281.97 and 1281.99 were not part of the CAA at the
time plaintiff agreed to the arbitration policy drafted by Wood
Ranch. However, where, as here, the parties to a contract
incorporate a law that is to be used at some time in the future
(here, at the time the arbitration takes place), the parties are
deemed to have contemplated—and hence, consented to—the
incorporation of postcontract changes to that law. (Torrance v.
Workers’ Comp. Appeals Bd. (1982) 32 Cal.3d 371, 379 [“‘[When]
an instrument provides that it shall be enforced according . . . to
the terms of a particular . . . statute, the provision must be
interpreted as meaning the . . . statute in the form in which it
exists at the time of such enforcement.’”]; United Bank & Trust
Co. v. Brown (1928) 203 Cal. 359, 362-363 [same]; see generally,
Swenson v. File (1970) 3 Cal.3d 389, 393-395 [when parties do not
reference the law to be used at a future time, “[t]he parties are
presumed to have had existing law in mind when they executed
their agreement”]; Doe v. Harris (2013) 57 Cal.4th 64, 70 [“as a
general rule, contracts incorporate existing but not subsequent
law”].) Further, applying section 1281.97 and 1281.99 is 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
22
demanded arbitration thereafter stalls it by not paying the
necessary costs in a timely fashion.
Applying these sections in this case does not interfere with
the FAA’s second goal of safeguarding arbitration as an expedited
and cost-efficient vehicle for resolving disputes. That is because
sections 1281.97 and 1281.99 facilitate arbitration by preventing
parties from insisting that a dispute be resolved through
arbitration and then sabotaging that arbitration by refusing to
pay the fees necessary to move forward in arbitration. And
although these sections only regulate the payment of fees by the
drafters of agreements (rather than the employees or consumers
who are required to sign them), this reflects the reality that an
employee or consumer would never want to stall their own claim
in arbitration (by not paying the dues) because doing so would
afford them no relief.
As our analysis implies, the FAA does not have a third goal
of “favoring arbitration under a certain set of procedural rules”
because, as explained above, “the federal policy is simply to
ensure the enforceability, according to their terms, of private
agreements to arbitrate.” (Volt, supra, 489 U.S. at pp. 476, 479.)
Here, the parties have expressed their intent to incorporate the
CAA—which included sections 1281.97 and 1281.99 by the time
Wood Ranch sought to enforce the agreement to arbitrate. Thus,
plaintiff’s insistence upon employing these provisions as a means
of facilitating the arbitration to which the parties agreed in no
way frustrates the FAA’s goals of honoring the parties’ intent or
safeguarding arbitration as a means of expediting the resolution
of their dispute.
We are not alone in concluding that the FAA does not
preempt section 1281.97 or section 1281.99. Although no
23
California appellate court has yet addressed this issue, the
federal district courts have uniformly rejected Wood Ranch’s
precise challenge. (See Postmates, Inc. v. 10,356 Individuals
(C.D.Cal. Jan. 19, 2021, No. CV-20-2783-PSG) 2021 U.S.Dist.
Lexis 28554, *21-*22 [so holding]; Agerkop v. Sisyphian LLC
(C.D.Cal. Apr. 13, 2021, No. CV-19-10414-CBM) 2021 U.S.Dist.
Lexis 93905, *11-*13 [same].)
III. Wood Ranch’s Arguments
Wood Ranch resists our conclusion with several arguments
that collapse into four general objections.
First, Wood Ranch argues that sections 1281.97 and section
1281.99 frustrated the arbitral proceedings in this case because
Wood Ranch’s tardiness in paying its initial arbitration fee of
$1,900 resulted in the matter being returned to the trial court
without any showing that Wood Ranch was to blame for the late
payment or that plaintiff was prejudiced by it. To be sure,
section 1281.97 declares 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. (§
1281.97, subd. (a).) At its core, this section implements the usual
rule that a material breach of contract may provide a ground for
rescinding the contract (Civ. Code, § 1689, subd. (b)(2); Pennel v.
Pond Union School Dist. (1973) 29 Cal.App.3d 832, 838) and, if
the contract is an agreement to arbitrate, for rescinding that
agreement and kicking the case back into a judicial forum (Sink,
supra, 352 F.3d at p. 1201; Brown, supra, 430 F.3d at p. 1010).
Where section 1281.97 departs from the usual rule is that it
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
24
materiality as an issue of fact for the trier of fact to determine.
(Cf. Civ. Code, § 1511 [“[t]he want of performance” may be
“excused” by acts of God or by inducement]; Superior Motels, Inc.
v. Rinn Motor Hotels, Inc. (1987) 195 Cal.App.3d 1032, 1051-
1052.) The California Legislature had a good reason for declaring
untimely payment a material breach as a matter of law rather
than leaving materiality a question of fact in this context:
Employees and consumers were facing either the complete denial
of any relief or delays in obtaining relief by virtue of the
“‘perverse incentive’” companies and businesses had to push
claims into arbitration and then to refuse to pay the resulting
arbitration fees; in such circumstances and to combat those
incentives, the Legislature reasoned, no breach was immaterial
to the stranded employee or consumer. (Assem. Com. on
Judiciary, Analysis of Sen. Bill No. 707 (2019-2020 Reg. Sess.) as
amended May 20, 2019, p. 8.)
The mere fact that application of section 1281.97 in this
case deprives Wood Ranch of the arbitral forum that it initially
invoked does not warrant the conclusion that section 1281.97 is
preempted by the FAA. As noted above, section 1281.97 is one of
several statutes that are part of the CAA, which defines the very
procedures by which arbitration is to be conducted under
California law. These statutes, by definition, set up different
procedures from those governing litigation in the California
courts. In any given case (and thus in every single case), one of
the parties to an arbitration will be able to show that it was
harmed by being subject to those arbitration-specific procedures:
A party who might have obtained a reversal due to legal or
factual error in the trial court will be denied that reversal under
the more limited review provisions of section 1286.2, just as Wood
25
Ranch is now arguing that it might not have been found in
material breach of the arbitration agreement had it been in court
(and not subject to section 1281.97), where it could have
advanced its counsel’s inattentiveness as a possible excuse for its
36-day-late payment. If that showing were enough to justify
preemption under the FAA, then preemption would be found in
every case and the CAA would cease to exist. This is contrary to
the law, explained above, which has repeatedly rejected FAA
preemption challenges to the CAA’s provisions defining how
arbitration is to proceed. (Volt, supra, 489 U.S. at pp. 470, 477-
479; Cronus, supra, 35 Cal.4th at pp. 391-394; Siegel, supra, 67
Cal.App.4th at pp. 1282-1283.) We decline Wood Ranch’s
invitation to stab this body of precedent in the back.
Second, Wood Ranch argues that section 1281.97 frustrates
the FAA’s accomplishment of its objectives. Wood Ranch asserts
that section 1281.97 frustrates the FAA’s objective of honoring
the parties’ intent because section 1281.97 had the effect of
ending the arbitration in this case. However, this assertion
ignores that the parties agreed to be bound by the CAA when
arbitrating their dispute, that the CAA at the time of arbitration
in this case included section 1281.97, that it was Wood Ranch’s
36-day-late payment that triggered section 1281.97, and that the
parties did not agree to let Wood Ranch commit such violations of
section 1281.97 with impunity. It appears that what Wood
Ranch is really seeking is a right to keep the dispute in
arbitration without following the arbitration rules of the CAA
that Wood Ranch expressly agreed to. The FAA does not sanction
this outcome, for the FAA’s goal is put arbitration “on equal
footing” with other contracts, not to put one of the parties to the
arbitration on better footing. (Cronus, supra, 35 Cal.4th at p. 384
26
[“the FAA’s purpose is not to provide special status for arbitration
agreements, but only ‘to make arbitration agreements as
enforceable as other contracts, but not more so.’”], quoting Prima
Paint Corp. v. Flood & Conklin Mfg. Co. (1967) 388 U.S. 394, 404,
fn. 12.) Wood Ranch also contends that section 1281.97 is
contrary to the FAA’s objective of providing for a speedier and
more efficient dispute resolution mechanism because Wood
Ranch only missed the deadline by a few days. However, this
contention ignores that Wood Ranch missed AAA’s deadline by 36
days, and more importantly that section 1281.97’s procedures
putting a business’s feet to the fire to pay on time facilitates the
resolution of disputes with alacrity. Wood Ranch posits that
section 1281.97 is “hostile” to arbitration. However, this position
ignores our prior conclusion that this statute, when incorporated
into an agreement by the parties, honors the parties’ intent and
results in a faster proceeding; in this situation, section 1281.97 is
a friend of arbitration and not its foe.
Third, Wood Ranch argues that we (or the trial court)
misread precedent. To begin, Wood Ranch argues that Volt (and
its analysis rejecting an FAA preemption challenge to an
arbitration-specific state law defining how arbitration is to
proceed when that law is incorporated into an arbitration
agreement) has been “eclipsed” by subsequent cases such as
Concepcion and Epic Systems (and their analysis generally
disapproving of arbitration-specific state laws). We disagree.
Concepcion and Epic Systems dealt with state laws that allowed a
party to demand classwide arbitration notwithstanding the
party’s prior waiver of the right to do so (Concepcion, supra, 563
U.S. at pp. 346-347; Epic Systems, supra, 138 S.Ct. at p. 1619).
Neither case purported to examine a state law defining how the
27
default procedural rules for arbitration was to operate in a
particular state. Thus, Concepcion and Epic Systems had no
occasion to address Volt’s analysis, let alone overturn it. Next,
Wood Ranch argues that the Ninth Circuit’s decision in Sink was
overruled by a subsequent Ninth Circuit case, Dekker v. Vivint
Solar, Inc. (9th Cir., Oct. 26, 2021, No. 20-16584) 2021 Lexis
32092 (Dekker). This argument is both irrelevant and incorrect.
It is irrelevant because Sink was merely the impetus for our
Legislature’s enactment of section 1281.97 (Sen. Bill No. 707
(2019-2020 Reg. Sess.) § 1, subds. (e) & (f)), and does not bear on
our preemption analysis. It is incorrect because Dekker did not
purport to overturn Sink but instead held that the question of
whether a party had breached the agreement by nonpayment was
one for the arbitrator, not the court, because the arbitration
agreement there delegated issues of “breach, default, or
termination” to the arbitrator (Dekker, at pp. *3-*4); indeed,
Dekker could not have overruled Sink because Dekker is an
unpublished memorandum disposition (e.g., Phelps v. Alameida
(9th Cir. 2009) 569 F.3d 1120, 1136; U.S. Cir. Ct. Rules (9th Cir.),
rule 36-3(a).) Further, Wood Ranch disputes plaintiff’s reading of
several federal district court cases. (E.g., Daniels v. Securitas
Sec. Servs. v. United States (C.D.Cal., May 27, 2021, No. SACV-
18-00265-CJC) 2021 U.S.Dist. Lexis 109388; Hagan v. Park
Miller LLC (N.D.Cal. Apr. 29, 2021, No. 20-CV-06818-CRB) 2021
U.S.Dist. Lexis 84904; Tapia v. Braiform Enters. (C.D.Cal., July
17, 2020, No. SACV-19-2434-JVS) 2020 U.S.Dist. Lexis 161652.)
Because these cases do not speak to the issue of preemption, how
they are read is irrelevant to our preemption analysis.
Fourth and finally, Wood Ranch argues that the question of
whether it ran afoul of section 1281.97 was a question that
28
should have been presented to the arbitrator, and not the trial
court. We need not entertain this argument because it was not
brought to the trial court’s attention until the hearing, and not
brought to our attention until the reply brief. Such tardiness
amounts to a forfeiture or waiver. (Reed v. Mutual Service Corp.
(2003) 106 Cal.App.4th 1359, 1372, fn. 11 [argument raised for
first time in reply brief; waived]; Acosta v. Los Angeles Unified
School Dist. (1995) 31 Cal.App.4th 471, 480 [argument raised for
first time at hearing on motion; waived]); cf. Kinney v. Vaccari
(1980) 27 Cal.3d 348, 356, fn. 6 [argument raised for first time at
oral argument; waived].)
DISPOSITION
The order is affirmed. Plaintiff is entitled to her costs on
appeal.
CERTIFIED FOR PUBLICATION.
______________________, J.
HOFFSTADT
We concur:
_________________________, Acting P. J.
ASHMANN-GERST
_________________________, J.
CHAVEZ
29