Hernandez v. Maryland MarketSource CA2/5

Opinion

Filed 9/4/26 Hernandez v. Maryland MarketSource CA2/5 NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FIVE

ROBERT HERNANDEZ, B341976

Plaintiff and Respondent, (Los Angeles County Super. Ct. No. v. 22STCV16129)

MARYLAND MARKETSOURCE, INC., Defendant and Appellant.

APPEAL from an order of the Superior Court of Los Angeles County, Michelle C. Kim, Judge. Reversed and remanded. Epstein Becker & Green and Christopher C. Cianci for Defendant and Appellant. Romero Law, Alan J. Romero and Sara M. Simms for Plaintiff and Respondent. I. INTRODUCTION Defendant Maryland MarketSource, Inc. appeals from an order vacating an earlier order compelling arbitration of plaintiff’s claims pursuant to Code of Civil Procedure section 1281.981 after defendant failed to timely pay an arbitration fee. While defendant’s appeal was pending, our Supreme Court in Hohenshelt v. Superior Court (2025) 18 Cal.5th 310 (Hohenshelt) interpreted section 1281.98 to equate nonpayment of arbitration fees with a waiver of the right to arbitrate only when the nonpayment was “willful, grossly negligent, or fraudulent” and not the result of “a good faith mistake, inadvertence, or other excusable neglect.” (Id. at p. 323.) In light of Hohenshelt, we reverse and remand to the trial court to determine whether defendant’s nonpayment of fees satisfies the newly articulated standard.

II. BACKGROUND

A. Complaint and Order Compelling Arbitration On May 13, 2022, plaintiff Robert Hernandez filed a complaint against defendant and others2 arising from his employment with defendant and alleging violations of the Labor 1 All further undesignated statutory references are to the Code of Civil Procedure unless otherwise stated.

2 Plaintiff’s claims against defendant Ford Motor Company were dismissed on May 24, 2024; and his claims against defendant South Bay Ford, Inc. were stayed pending arbitration on October 28, 2022.

2 Code and the Fair Employment and Housing Act (Gov. Code, § 12900 et seq.). On June 20, 2022, defendant filed an answer alleging, among other things, that plaintiff was required to arbitrate his claims pursuant to an arbitration agreement. On September 26, 2022, defendant filed a motion to compel arbitration pursuant to a “Mutual Arbitration Agreement” bearing plaintiff’s electronic signature and dated July 23, 2018. The arbitration agreement provided that plaintiff and defendant would arbitrate all disputes before Judicial Arbitration and Mediation Services (JAMS) and that it would be governed by the Federal Arbitration Act (FAA; 9 U.S.C. § 1 et seq.). The agreement obligated plaintiff to pay “any JAMS filing or administrative fee up to the amount of the initial filing fee to commence an action” and defendant to pay “any other JAMS administrative fees, the Arbitrator’s fees, and any additional fees unique to arbitration.” On October 17, 2022, plaintiff opposed the motion to compel arbitration. On October 28, 2022, the trial court granted defendant’s motion to compel arbitration and stayed the proceedings.

B. Failure to Pay Fees On February 9, 2023, plaintiff filed a demand for arbitration with JAMS. On February 16, 2023, JAMS sent defendant an invoice for $1,600 in fees, which defendant paid on March 6, 2023. On May 9, 2023, JAMS sent defendant a second invoice for $10,000 in fees, which defendant paid on May 22, 2023.

3 On March 13, 2024, JAMS sent the parties a “revised notice of hearing,” setting the arbitration hearing to begin on July 8, 2024. The notice included an invoice for $84,800. On May 24, 2024, JAMS sent an email to the parties reminding them that fees were outstanding and that the arbitration hearing would be removed from the calendar if payment was not received by June 7, 2024. On May 31, 2024, JAMS sent the parties a “final request to post fees” and repeated that the scheduled arbitration hearing would be canceled if fees were not paid by June 7, 2024. That same date, plaintiff advised defendant and JAMS that he intended to withdraw from arbitration pursuant to section 1281.98, subdivision (b). On June 25, 2024, the assigned arbitrator issued a ruling in which he noted a split in authority as to whether section 1281.98 was preempted by the FAA and determined that “because [plaintiff] intends to seek relief in the superior court, it is most prudent not to set a new hearing date, but to await developments in the superior court, appellate, and Supreme Courts.” The arbitrator ordered that the arbitration “will remain open without setting a hearing date pending future developments.”

C. Ruling Vacating Order Compelling Arbitration On July 3, 2024, plaintiff filed a motion to vacate the order compelling arbitration and for attorney fees. Plaintiff argued that because defendant had failed to pay arbitration fees within 30 days of the due date, plaintiff was entitled to an order vacating the order compelling arbitration and an award of attorney fees, pursuant to sections 1281.98 and 1281.99.

4 Defendant opposed the motion, arguing that section 1281.98 did not apply to plaintiff’s complaint because the parties had agreed their arbitration would be governed by the FAA. Defendant alternatively argued that section 1281.98 was preempted by the FAA. In support of its opposition, defendant submitted a declaration from counsel which described defendant’s prior timely payment of fees and plaintiff’s expressed intent to withdraw from arbitration. The declaration also noted that defendant had a credit balance of $5,906.07 with JAMS. On September 18, 2024, the trial court conducted a hearing on the motion to vacate and attorney fees and issued an order granting the motion to vacate. After noting the split in authority as to whether section 1281.98 was preempted by the FAA, the court elected to follow Espinoza v. Superior Court (2022) 83 Cal.App.5th 761, 777, 779 (Espinoza), disapproved by Hohenshelt, supra, 18 Cal.5th at page 349 [finding that section 1281.98 applied “to any circumstance in which a drafting party fails timely to pay [arbitration fees], and not just when the drafting party does so deliberately” and was not preempted by the FAA].) The court stated: “It is undisputed that [d]efendant failed to … timely pay fees required to continue with their arbitration. Section 1281.98 does not permit substantial compliance. The [30 day] deadline is firm, and [d]efendant missed it. The motion is granted.” As to plaintiff’s request for attorney fees, the court awarded plaintiff only $400 in JAMS filing fees. Defendant timely appealed.

5 III. DISCUSSION A. Legal Principles “Section 1281.98 governs payment of fees during an ongoing arbitration. It provides that where ‘an employment or consumer arbitration ... requires ... the drafting party’ to ‘pay certain fees and costs,’ those fees or costs must be ‘paid within 30 days after the due date.’ (§ 1281.98, subd. (a)(1).) If the fees are not timely paid, ‘the drafting party is in material breach of the arbitration agreement, is in default of the arbitration, and waives its right to compel the employee or consumer to proceed with that arbitration as a result of the material breach.’ (Ibid.) The consumer or employee may then ‘unilaterally elect’ to ‘[w]ithdraw the claim from arbitration and proceed in a court of appropriate jurisdiction’ (id., subd. (b)(1)) or ‘[c]ontinue the arbitration proceeding, if the arbitration provider agrees to continue administering the proceeding, notwithstanding the drafting party’s failure to pay fees or costs’ (id., subd. (b)(2)).” (Hohenshelt, supra, 18 Cal.5th at p. 330.)3 As noted, while defendant’s appeal was pending, our Supreme Court issued its opinion in Hohenshelt, supra, 18 Cal.5th 310, which expressly disapproved of Espinoza, supra, 83 Cal.App.5th 761, cited by the trial court, and construed section 1281.98 to allow a consumer or employee to withdraw from arbitration only when the drafting party’s nonpayment was “willful[ ], fraudulent[ ], or … gross[ly] negligen[t]” and not the result of “a good faith mistake, inadvertence, or excusable 3 Defendant does not dispute that it was the “drafting party” within the meaning of section 1281.98, subdivision (a)(1).

6 neglect.” (Hohenshelt, supra, 18 Cal.5th at pp. 342, 346, 349.) The court observed that section 1281.98 “construed in harmony with background statutes, makes arbitration contracts enforceable on the same grounds as those that apply to other contracts” and, as so construed, was not preempted by the FAA. (Id. at pp. 346, 348.) The court then directed the Court of Appeal to “remand the matter to the trial court for consideration of whether [the defendant] may be excused for its failure to timely pay arbitration fees, such that the stay of litigation should not be lifted and the parties should be returned to arbitration, and whether the delay resulted in compensable harm to [the plaintiff].” (Id. at p. 349.)

B. Analysis Citing Hohenshelt, supra, 18 Cal.5th 310, defendant contends the trial court erred in granting plaintiff’s motion to vacate the prior order compelling arbitration. Plaintiff responds that we must affirm the court’s ruling because absent compliance with Civil Code section 3275, which conditions relief from forfeiture upon a party’s “making full compensation to the other party,” defendant cannot demonstrate that it is entitled to relief from forfeiture, as a matter of law. Plaintiff further argues that because defendant did not pay the outstanding arbitration fees for two years, including the time during which this appeal was pending, it acted with gross negligence, and willfully and fraudulently breached its obligations under the arbitration agreement. Plaintiff’s contention that defendant “cannot invoke” Civil Code section 3275 is inapposite because defendant did not seek 7 relief from forfeiture under that statute. Moreover, although the court in Hohenshelt, supra, 18 Cal.5th 310 cited to Civil Code section 3275, as one of the “backdrop of long-standing statutes” against which the Legislature enacted section 1281.98 (id. at p. 332), it did not suggest that the failure to pay outstanding fees constitutes willful, fraudulent, or grossly negligent conduct, as a matter of law. Accordingly, we will remand the cause to the trial court to determine, in the first instance, whether defendant has waived the right to arbitrate under the standard articulated in Hohenshelt, supra, 18 Cal.5th at page 349.

8 IV. DISPOSITION The order vacating the order compelling arbitration is reversed and remanded for the trial court to determine whether defendant has waived its right to arbitrate under the standard articulated in Hohenshelt, supra, 18 Cal.5th at page 349. The parties are to bear their own costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

KIM (D.), J.

We concur:

BAKER, Acting P. J.

MOOR, J.