Judge: Armen Tamzarian, Case: 21STCV37269, Date: 2024-08-14 Tentative Ruling

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Case Number: 21STCV37269    Hearing Date: August 14, 2024    Dept: 52

Plaintiff Richard Hester’s Motion to Vacate Order Compelling Case to Arbitration

Plaintiff Richard Hester moves to vacate the court’s order compelling arbitration of this action.  Code of Civil Procedure section 1281.98, subdivision (a)(1) provides that in employment or consumer arbitration, the party who the arbitration agreement commits a material breach if it fails to pay “fees or costs required to continue the arbitration proceeding … within 30 days after the due date.”  Upon such a breach, the employee may unilaterally “[w]ithdraw the claim from arbitration.”  (Id., subd. (b)(1).)

Defendant Antelope Valley Healthcare District opposes this motion in part on the grounds that the Federal Arbitration Act (FAA) preempts Code of Civil Procedure section 1281.98.  Plaintiff did not respond to defendant’s argument that the FAA applies to the parties’ arbitration agreement.  The court finds the FAA applies. 

The Court of Appeal has issued conflicting opinions on whether the FAA preempts Code of Civil Procedure sections 1281.97 and 1281.98.  (Keeton v. Tesla, Inc. (2024) 103 Cal.App.5th 26, 35-41 & fn. 5; Hernandez v. Sohnen Enterprises, Inc. (2024) 102 Cal.App.5th 222, 242-244 (Hernandez).)  When “appellate decisions are in conflict,” the trial court “can and must make a choice between the conflicting decisions.”  (Auto Equity Sales, Inc. v. Superior Court of Santa Clara County (1962) 57 Cal.2d 450, 456.)

The court finds Hernandez more persuasive than the decisions holding the FAA does not preempt Code of Civil Procedure sections 1281.97 and 1281.98.  There, the court reasoned, “[A] state law that discriminates on its face against arbitration, such as barring arbitration of a particular type of claim, will be preempted by the FAA.”  (Hernandez, supra, 102 Cal.App.5th at p. 243.)  The court held, “[S]ection 1281.97 violates the equal-treatment principle because it mandates findings of material breach and waiver for late payment that do not apply generally to all contracts or even to all arbitrations.  Under California contract law, defenses to enforcement of a contract are generally questions for the trier of fact and subject to doctrines such as substantial compliance, but section 1281.97 imposes a stricter requirement, mandating a finding of material breach and waiver as a matter of law in consumer and employment arbitration contracts, and making it harder to enforce arbitration agreements in those matters.”  (Ibid.)  This reasoning applies equally to section 1281.98, which the Court of Appeal has noted is “almost identical” to section 1281.97.  (Keeton v. Tesla, Inc., supra, (2024) 103 Cal.App.5th at p. 35.) 

The court also finds the dissenting opinion in Hohenshelt v. Superior Court (2024) 99 Cal.App.5th 1319 (review granted, No. S284498) persuasive.  Justice Wiley wrote, “This California statute ‘singles out arbitration agreements for disfavored treatment.’  No other contracts are voided on a hair-trigger basis due to tardy performance.  Only arbitration contracts face this firing squad.”  (Id. at p. 481, dis. opn. of Wiley, J.).) 

The court therefore finds the FAA preempts Code of Civil Procedure section 1281.98.  Plaintiff may not withdraw the matter from arbitration.

            Plaintiff Richard Hester’s motion to vacate order compelling case to arbitration is denied.