Hohenshelt v. Superior Court, 18 Cal.5th 310

Background

Employee Dana Hohenshelt signed a pre-dispute arbitration agreement (governed by the FAA and JAMS rules) that required the employer (Golden State Foods) to pay arbitrator costs.
Arbitration proceeded at JAMS for about a year; the arbitrator issued multiple invoices that went unpaid beyond 30 days, and JAMS warned the hearing could be canceled.
Hohenshelt invoked Code Civ. Proc. §1281.98, asserting Golden State’s untimely payment put Golden State in material breach and allowed him to withdraw from arbitration and return to court.
The trial court denied Hohenshelt’s motion to lift the stay; the Court of Appeal reversed, holding §1281.98 not preempted and directing the trial court to lift the stay.
The California Supreme Court granted review, held §1281.98 is not preempted by the FAA if construed in harmony with long‑standing contract and equitable doctrines that allow relief for non‑willful, excusable delays, and remanded for the trial court to determine whether Golden State’s delay was excused.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
FAA preemption of §1281.98	§1281.98 is a generally applicable state rule that furthers arbitration by preventing strategic nonpayment	§1281.98 singles out arbitration, imposes harsher rules than other contracts, and is preempted	Not preempted when §1281.98 is construed with background contract/equitable doctrines (so not a unique, exceptionless rule)
Whether §1281.98 is a bright‑line, no‑exception rule	It need not be read as permitting inquiry into reasons for nonpayment	It is written as automatic material breach and waiver regardless of excuse	Court rejects rigid construction; background statutes (e.g., Civ. Code §3275, §1511, CCP §473(b)) permit relief for good‑faith/excusable delays so forfeiture is not inevitable
Effect of a late payment on right to arbitrate	Late payment triggers the employee’s unilateral right to withdraw and proceed in court	Forfeiture is disproportionate when delay is inadvertent; parties can and did engage in arbitration	Material breach may justify withdrawal, but trial court must determine whether delay was excusable; remand for that inquiry and for assessment of compensable harm
Whether parties can contract to apply FAA/JAMS procedural rules instead of CAA	CAA procedures govern by default in California courts	Parties agreed to be governed by the FAA and JAMS rules, so CAA payment provisions shouldn’t apply	Court declined to decide because Golden State waived this argument below; concurrence notes this often‑dispositive threshold issue and that parties may expressly choose CAA or federal procedural regimes

Key Cases Cited

AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (state law invalidating class‑waiver rules for arbitration because they undermine arbitration’s streamlined procedures)
Volt Info. Sciences v. Leland Stanford Jr. Univ., 489 U.S. 468 (1989) (parties may agree to state arbitration procedures; no federal policy favoring a single set of procedural rules)
Viking River Cruises, Inc. v. Moriana, 596 U.S. 639 (2022) (FAA’s §2 creates an equal‑treatment principle for arbitration agreements)
Quach v. California Commerce Club, Inc., 16 Cal.5th 562 (2024) (California Supreme Court on waiver and application of generally applicable contract principles to arbitration)
Brown v. Dillard’s, Inc., 430 F.3d 1004 (9th Cir. 2005) (employer’s refusal to pay arbitration fees constituted breach and forfeited right to enforce arbitration)
Sink v. Aden Enterprises, Inc., 352 F.3d 1197 (9th Cir. 2003) (failure to pay required arbitration costs was a material breach; courts not compelled to return parties to arbitration)
Gallo v. Wood Ranch USA, Inc., 81 Cal.App.5th 621 (2022) (Court of Appeal upholding CAA payment rules; previously construed as nondiscretionary)
Belyea v. GreenSky, Inc., 637 F. Supp. 3d 745 (N.D. Cal. 2022) (district court finding preemption of California payment rules)
Kindred Nursing Centers L.P. v. Clark, 581 U.S. 246 (2017) (reiterating FAA requirement to place arbitration agreements on equal footing with other contracts)