Hohenshelt v. Superior Court
Holding
Code of Civil Procedure § 1281.98 — the 30-day arbitration fee payment statute — is not preempted by the Federal Arbitration Act, but only as construed by the majority: late payment forfeits the right to arbitrate solely where the nonpayment was willful, grossly negligent, or fraudulent. Justice Liu's 5-2 opinion harmonizes the statute with the background law of forfeiture relief — CCP § 473(b), Civil Code § 3275, and Civil Code § 1511 — so that a drafting party whose lateness reflects good faith mistake, inadvertence, or excusable neglect may be relieved of forfeiture, generally on condition of compensating the other party for any harm the delay caused.
The court reversed the order returning Dana Hohenshelt's case to court and remanded for two determinations: whether Golden State Foods should be excused, and whether the delay caused Hohenshelt compensable harm. In a single closing paragraph it disapproved eleven Court of Appeal decisions — the entire strict-liability line, from Gallo v. Wood Ranch through Espinoza, De Leon, Williams, Doe, Suarez, Hernandez v. Sohnen, Keeton v. Tesla, Trujillo, Colon-Perez, and Sanders — to the extent they are inconsistent with the opinion.
SB 707 and the Strict-Liability Era
Senate Bill 707 (2019) added §§ 1281.97 and 1281.98 to the California Arbitration Act to attack a specific abuse: companies compelling employees and consumers into arbitration, then starving the proceeding by not paying the arbitrator. The mechanics are unforgiving by design — under Senate Bill 762 (2021) refinements, invoices are due upon receipt unless the agreement states its own payment window, and any extension requires the agreement of all parties. The drafting party has 30 days after the due date to pay; a miss is a material breach that 'waives' the right to compel arbitration, lets the employee withdraw to court, and triggers mandatory fee-shifting under § 1281.99.
From Gallo v. Wood Ranch USA, Inc. (2022) 81 Cal.App.5th 621 forward, the Courts of Appeal read the statute literally: one day late, one dollar short, forfeiture — no materiality analysis, no prejudice inquiry, no excuse. Casualties included payment mailed inside the window that arrived two days late, and payment six days late from counsel 'caught in the throes of a natural disaster.' By 2024 the regime had a genuine preemption problem: Hernandez v. Sohnen Enterprises, Inc. (2024) 102 Cal.App.5th 222 broke ranks and held the scheme preempted by the FAA because no other California contract forfeits on such strict terms.
The Dispute
Golden State Foods compelled its former sanitation employee Dana Hohenshelt — who alleged retaliation for reporting the sexual harassment of a coworker — into JAMS arbitration and litigated there for a year. Then the arbitrator set the final hearing and issued two invoices: $32,300 in late July 2022 and $11,760 a month later. Thirty days passed on the first invoice without full payment. Hohenshelt elected to withdraw to court under § 1281.98; Golden State paid shortly afterward, protesting that JAMS had announced six weeks of arbitrator unavailability with urgent matters due by a date preceding both invoices — counsel, preparing for paternity leave, claimed his office never registered the invoices at all.
The trial court read a JAMS cancellation warning as a new due date and found the payment timely. The Court of Appeal reversed: only the parties — not the arbitrator — may extend a due date. Justice Wiley dissented — 'Federal law does not allow a state to save arbitration by destroying it' — and the Supreme Court granted review to decide whether a statute reading that way can coexist with the FAA.
The Court's Reasoning
The opinion is a study in constitutional avoidance executed through contract law. The FAA's equal-treatment principle, as applied in Morgan v. Sundance and the court's own Quach v. California Commerce Club, Inc. (2024) 16 Cal.5th 562, forbids arbitration-specific rules harsher than the rules governing contracts generally. California's general rule is that nonperformance extinguishes the other party's duties automatically only when willful, grossly negligent, or fraudulent; lesser failures are relievable. Displacing that backdrop would make arbitration contracts uniquely fragile — and uniquely vulnerable to preemption. Background statutes yield only to a definitive indication of displacement, and the court found none.
The legislative record supplied the evidence. The findings enacted with SB 707 condemn 'strategic non-payment' and affirm Brown v. Dillard's and Sink v. Aden Enterprises — Ninth Circuit decisions about employers who flatly refused to pay, with no suggestion of excusable neglect. The committee warnings the dissent cited as proof that lawmakers knowingly swept in trivial defaults sit under a heading about deterring bad actors; the majority read them as justifying the make-whole sanction, not forfeiture of the forum. And the Legislature's silence in the face of those warnings proved nothing — the inference 'reads too much into legislative silence' when background relief statutes apply unless displaced.
So construed, the statute survives every preemption theory. It applies ordinary contract principles rather than special anti-arbitration rules; no authority makes an arbitrator's control of payment deadlines a fundamental attribute of arbitration; and its 'return ticket' to court when the drafting party defaults is exactly what FAA § 3 itself contemplates (quoting Smith v. Spizzirri (2024) 601 U.S. 472). The majority also stressed an overlooked feature: § 1281.98 is a default rule, so parties may contract for their own payment schedule or extension terms — and nothing in the statute appears to bar an agreed extension even inside the 30-day window.
The Concurrence and the Dissent
Justice Groban, joined by Justice Evans, concurred to flag the analytically prior question the majority left open: whether parties can avoid §§ 1281.97–1281.98 entirely by electing FAA procedural rules. Volt Information Sciences enforces arbitration agreements according to their terms — but the concurrence's default runs the other way: a California agreement is presumed to incorporate the CAA's procedural rules absent an express contrary designation. Golden State waived the opt-out theory by raising it too late, so the majority assumed the CAA applied despite the agreement's FAA governing-law clause — the Attorney General as amicus argued the provisions cannot be contracted out of at all.
Justice Corrigan, joined by Justice Jenkins, dissented on the ground the employers' bar had pressed all along: the statute as written is strict liability, the Legislature was told it would sweep in trivial and inadvertent defaults and enacted it anyway, and the majority's harmonization is a rewrite — 'not a license to redraft the statutes to strike a compromise that the Legislature did not reach.' Because even the majority's construction leaves arbitration contracts presumptively time-of-the-essence and denies willful-but-harmless breachers the ordinary no-prejudice excuse, the dissent would have held § 1281.98 preempted outright — the blueprint for the next federal challenge.
The majority answered both points. Good faith has long been a necessary condition of substantial performance — CACI No. 312 requires the breaching party to prove a good faith effort to comply — so a fault line between willful and innocent breach is general contract law, not an arbitration-specific graft. MacFadden's no-prejudice excuse for willful default has never been applied outside installment land sale contracts, which function as security devices. And § 1281.99 creates no anomaly: material breach triggers make-whole compensation whatever the payor's state of mind, while loss of the forum is reserved for culpable nonpayment.
Subsequent Developments
The first published application clarified the remedy structure. Wilson v. Tap Worldwide, LLC (2025) 114 Cal.App.5th 1077 involved payment initiated electronically on day 30 — a Friday — and received Monday. The forfeiture order was final because the employer had dismissed its appeal, so the case stayed in court; but the Court of Appeal reversed the award of abandoned-arbitration attorney fees under § 1281.98(c)(1), holding on the trial court's own findings that a one-business-day processing delay was not willful, grossly negligent, or fraudulent as a matter of law. The $1,750 make-whole sanction under § 1281.99(a) stood — compensation is mandatory whether or not nonpayment was willful.
Relief mechanics reward preparation. Civil Code § 3275 conditions relief on 'making full compensation to the other party'; § 1511 fully excuses performance prevented by operation of law or superhuman cause; § 473(b) relief comes 'upon any terms as may be just.' The showing belongs to the drafting party — a payor avoids forfeiture 'by showing that the delay was excusable' — and no published decision through mid-2026 has shifted that allocation. The disapproved docket is unwinding: in Colon-Perez, the natural-disaster case, an unpublished February 2026 decision reversed with directions to grant the § 473(b) motion and vacate the withdrawal order — the six-day delay was neither tactical nor prejudicial.
Two boundary questions remain open. No published decision has yet mapped the willfulness standard onto § 1281.97, the pre-arbitration counterpart — whose deadline the dissent flagged as stricter still, because § 1281.97 “requires that such payments be made within 30 days of the due date and makes no allowance for parties to agree otherwise,” directing the reader to compare subdivision (a)(2) of each section. That comparison repays making precisely, because the difference is narrower than the shorthand suggests. Both subdivisions honor an agreed payment window — each defers to “an express provision in the arbitration agreement stating the number of days in which the parties to the arbitration must pay any required fees or costs.” Only § 1281.98(a)(2) adds that “[a]ny extension of time for the due date shall be agreed upon by all parties.” What § 1281.97 withholds is the agreed extension, not the agreed window. The drafting question is already generating law: Wright v. WellQuest Elk Grove, LLC (Mar. 18, 2026, C105070) adopted the concurrence's formulation — arbitrating 'in accordance with' the FAA does not displace CAA procedure; only an express designation of FAA procedural rules does. Payment hygiene, not post-hoc excuse, remains the only safe strategy.
Impact on Defense Practice
Hohenshelt converted a strict-liability trap into a fault-based regime, rescuing the arbitration lever that Adolph-era PAGA strategy depends on. Before August 2025, a missed invoice could forfeit the entire architecture — individual arbitration, the § 1281.4 stay, the sequencing leverage — over a mailroom error. After Hohenshelt, forfeiture requires culpability; Wilson confirms ordinary payment mishaps, promptly cured, do not qualify — and that compensation exposure survives even when the excuse succeeds.
But the decision cuts against complacency in three ways. Relief is equitable and conditional — the excused payor still compensates for delay-caused harm, and a payor with a pattern of lateness invites a gross-negligence finding. The dissent's preemption theory survives as ammunition for the next challenge, keeping the statute's constitutional status contested. And the concurrence signals that the § 1281.98 half of the dispute may be drafted around, which means the quality of the arbitration agreement — not the litigation — is where this issue is actually won.
Defense Strategy
- Treat arbitration invoices as jurisdictional deadlines: a dedicated calendaring protocol, redundant recipients for provider correspondence, and payment initiation well inside the 30-day window. Hohenshelt is an escape valve, not an excuse.
- Pay electronically and preserve the timestamp — Wilson turned on findings that payment was initiated on day 30 and received one business day late. The payment-rail evidence converts a missed deadline into excusable delay.
- Move for relief immediately after any late payment under the § 473(b), Civil Code § 3275, and § 1511 framework: declarations establishing good faith mistake or excusable neglect, a same-week cure, and an offer to compensate demonstrable delay harm.
- Audit the fee-payment file before the plaintiff does: repeated near-misses or a lax accounts-payable chain is exactly the record that converts inadvertence into gross negligence.
- Redraft arbitration agreements on the two axes the opinion invites: specify a payment schedule or extension mechanism under § 1281.98(a)(2), and weigh an express election of FAA procedural rules — Wright v. WellQuest confirms a bare FAA reference does not opt out.
- Frame any § 1281.98 fight as fault, not timing — and build the record knowing the excuse showing is the drafting party's: the majority relieves a payor only 'by showing that the delay was excusable.'
- Track the § 1281.97 frontier before relying on the escape valve there, and state its stricter deadline accurately. The dissent's point is that § 1281.97 “makes no allowance for parties to agree otherwise” — no agreed extension of a due date once it is set. It is not that initiation fees cannot carry a contracted payment window: § 1281.97(a)(2) and § 1281.98(a)(2) alike defer to an express agreement provision stating the number of days for payment. So fix that window in the agreement and do not plan on extending it. No published decision has yet extended Hohenshelt's standard to initiation fees.