Payment Remitted or Received? CA Appeals Court Reverses Order Compelling Arbitration
In a detailed analysis of the meaning of the word “paid,” a California appellate court reversed an order to compel arbitration where an employer’s arbitration fees arrived beyond a 30-day grace period deadline despite having been mailed timely.
The strict reading of a California Code of Civil Procedure enforcing the deadline—a 2019 law seeking to protect consumers and employees from defense foot-dragging--produced a tough result for the employer and its manager in Doe v. Superior Court of the City and County of San Francisco, No. A167105 (CA 1st A.D. 3rd Dist. Sept. 8) (available at https://bit.ly/3McV6NV).
“We do not find that the proverbial check in the mail constitutes payment,” wrote Court of Appeal Justice Ioana Petrou, of San Francisco for the unanimous three-judge panel, “and agree with petitioner that [the defendants’] payment, received more than 30 days after the due date established by the arbitrator, was untimely.”
The case revolved around a woman who filed suit against her former manager and employer, Na Hoku Inc., a Honolulu jewelry retailer, for sexual harassment and assault. The plaintiff had originally signed an agreement that claims such as these would be arbitrated; the employer requested arbitration and the lower court agreed.
The arbitration costs payment was due to the American Arbitration Association on Oct, 3, 2022, and the check was mailed Sept. 30, but didn’t arrive until Oct. 5. The state appeals court addressed the question of whether the word “paid” referred to when the payment was remitted or when it was received.
The payment sought by the AAA was "to cover the arbitrator’s anticipated compensation and expenses for the arbitration"--including $22,500 in arbitrator fees that also included a $750 administrative fee.
The panel held that construing the word “paid” to mean the receipt of payment rather than the remittance of payment better effectuated the statute’s purpose. Citing the legislative history, the unanimous three-judge appellate panel noted that employees are put in a difficult position when they are compelled to arbitrate claims, but the employer is slow to pay, dragging out the ADR process.
In addition, the court squarely rejected the defendants’ argument that since they complied with the language in the AAA invoice, the court should rule in their favor and compel arbitration. The court noted that an AAA courtesy reminder about the grace period for payment doesn’t permit the AAA nor the defendants to extend the statutory mandate.
Interestingly, the court did not discuss whether the Federal Arbitration Act preempts California Civil Procedure Code Section 1281.98, which provides that arbitration fees be “paid within 30 days after the due date”—a built-in grace period that the court ruled was missed by the defendants. The appeals court strictly construed that period even though the defendants, eschewing electronic or credit card payments, mailed their fees check on Sept. 30, 2022, and told the AAA on Oct. 3, the last day of the grace period, that they had remitted. The payment arrived on Oct. 5
Several courts have dealt with this issue and most of them have rejected FAA preemption. Eric Witt, “California Court Says ‘Check Is in the Mail’ Violates California Arbitration Act; Lets Employee Avoid Arbitration Over Non-Prejudicial Technicality (US),” Employment Law Worldview (Squire Patton Boggs) (Sept. 18) (available at https://bit.ly/45M7U50).
In Belyea v. GreenSky, Inc., 637 F.Supp.3d 745, 759 (N.D. Cal. 2022) (available at https://bit.ly/3SmSsJk), the federal California Northern District Court found that the Section 1281.97 was preempted on the grounds that the statute disfavored arbitration agreements and therefore offended the FAA’s “equal treatment” principle. From a defense perspective, a credible interpretation of the statute’s real purpose is to provide employees with a weapon to dodge arbitration—"a means to avoid arbitration, and not to facilitate it.” Id.
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The result in Doe v. Superior Court of the City and County of San Francisco is that the 30-day payment deadline will be construed by California courts to strictly require actual receipt of payment, at least until the California courts address Section 1281.98 more fully.
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The author, a second-year law student at Brooklyn Law School in New York, is a Fall 2023 CPR Institute intern.