Hohenshelt v. Superior Court, S284498 – Decided August 11, 2025
The California Supreme Court today, by a 5–2 vote, rejected the theory that nonpayment of arbitration fees and costs always results in waiver of the right to arbitrate under Code of Civil Procedure section 1281.98. Having concluded that section 1281.98 does not create an inflexible and harsh rule that mandates an automatic waiver for any late payments, the Court held that the Federal Arbitration Act does not preempt the statute.
“Although section 1281.98 has been interpreted by various Courts of Appeal to impose an inflexible and sometimes harsh rule resulting in loss of arbitral rights, we reject that rigid construction and instead conclude that the statute does not abrogate the longstanding principle, established by statute and common law, that one party’s nonperformance of an obligation automatically extinguishes the other party’s contractual duties only when nonperformance is willful, grossly negligent, or fraudulent. . . . So understood, the operation of section 1281.98 does not deviate from ‘generally applicable state law contract principles.’”
Justice Liu, writing for the Court
California Code of Civil Procedure section 1281.98 provides that if an arbitration agreement in the employment or consumer context requires the party that drafted the agreement to “pay certain fees and costs during the pendency of an arbitration proceeding,” failure to pay those fees and costs within 30 days of their being due...
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