Gallo v. Wood Ranch USA, Inc.
81 Cal.App.5th 621
Cal. Ct. App.2022Background
- Wood Ranch required Sunny Gallo to sign an arbitration agreement (which incorporated the California Arbitration Act) as a condition of employment; Gallo was later terminated and sued in 2020 on multiple employment-related claims.
- The trial court compelled arbitration in July 2020; parties selected an AAA arbitrator and AAA invoiced initial filing fees.
- Gallo timely paid her $300 share; AAA told Wood Ranch its $1,900 share was due and warned the case would close per CCP §§1281.97–1281.98 if not paid within the provider due date plus a 30-day statutory grace period.
- Wood Ranch’s counsel failed to forward the invoices internally; payment was made 36 days after the provider deadline (i.e., after the statutory grace period).
- Gallo moved to vacate the prior order compelling arbitration under CCP §§1281.97 and 1281.99, arguing Wood Ranch’s late payment was a material breach entitling her to withdraw from arbitration; the trial court granted the motion, awarded fees, and Wood Ranch appealed.
- The Court of Appeal affirmed, holding the California statutes are not preempted by the Federal Arbitration Act because they further — rather than frustrate — the FAA’s objectives.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether CCP §§1281.97 and 1281.99 are preempted by the Federal Arbitration Act | Sections valid and enforceable; late payment is a statutory material breach that protects employees/consumers from being stranded in arbitration; statutes further FAA goals by preventing drafters from stalling | Statutes conflict with FAA by singling out arbitration and allowing courts to end arbitration despite parties’ intent; preemption required | Not preempted. Statutes are procedural CAA rules that further FAA objectives (honoring parties’ incorporated terms and preserving arbitration’s efficiency); affirm vacatur of compel order |
Key Cases Cited
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (FAA preempts state rules that substantially discourage arbitration or single it out for disfavored treatment)
- Volt Information Sciences, Inc. v. Board of Trustees, 489 U.S. 468 (1989) (states may prescribe default procedural rules for arbitration, especially when parties incorporate state law)
- Doctor’s Associates v. Casarotto, 517 U.S. 681 (1996) (state laws that single out arbitration provisions for special enforcement rules are preempted)
- Kindred Nursing Centers Ltd. P’ship v. Clark, 137 S. Ct. 1421 (2017) (FAA preempts state rules that facially discriminate against arbitration)
- Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018) (FAA enforces arbitration agreements according to their terms against certain state-law challenges)
- Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407 (2019) (general applicability does not save a state rule that interferes with arbitration’s attributes)
- Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (1985) (FAA intended to overcome judicial hostility to arbitration and enforce arbitration agreements)
- Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967) (arbitration clauses are enforced like other contract terms)
- Cronus Investments, Inc. v. Concierge Services, 35 Cal.4th 376 (2005) (California Arbitration Act defines default procedural rules unless parties agree otherwise)
- Sanchez v. Valencia Holding Co., LLC, 61 Cal.4th 899 (2015) (state law preemption analysis under FAA; distinguishes rules that unreasonably discourage arbitration)
- Moncharsh v. Heily & Blase, 3 Cal.4th 1 (1992) (California curtails judicial review of arbitration awards to effectuate arbitration’s finality)
- Sink v. Aden Enterprises, Inc., 352 F.3d 1197 (9th Cir. 2003) (where drafter stalls arbitration, courts may allow return to judicial forum)
- Brown v. Dillard’s, Inc., 430 F.3d 1004 (9th Cir. 2005) (similar Ninth Circuit precedent on remedies where drafter obstructs arbitration)
- Swissmex-Rapid S.A. de C.V. v. SP Systems, LLC, 212 Cal.App.4th 539 (2012) (procedural limitations in CAA, such as statutes of limitation for confirming awards, are not necessarily preempted)