Failure to pay arbitration fees in timely manner is breach of arbitration agreement, court says

The trial court need not consider additional factors aside from the late payment of arbitration fees in deciding whether there was a material breach under section 1281.98 of California’s Code of Civil Procedure, the California Court of Appeal recently said.

In the case of De Leon v. Juanita's Foods, the respondent filed against Aerotek, Inc. and Juanita’s Foods a civil complaint alleging 20 claims relating to his former employment. Aerotek filed a motion to compel arbitration based on an arbitration agreement.

The arbitration agreement bound the respondent to arbitrate all disputes, claims, complaints, or controversies that he had against Aerotek and bound the parties to use the Judicial Arbitration and Mediation Services (JAMS) during arbitration.

The trial court granted the motion to compel arbitration.

In line with the arbitration agreement, the respondent submitted a demand for arbitration to JAMS. JAMS sent invoices for filing fees, which billed Aerotek and Juanita’s Foods $1,300 each. Both these companies paid the filing fees.

JAMS then issued separate invoices billing the two companies $5,000 each as a deposit for certain services. Payment for these invoices was due by Jan. 4, 2021. JAMS sent reminder emails on the due date and on Jan. 27, 2021. According to a Feb. 4, 2021 email, JAM said that Aerotek paid the outstanding fees on time but that Juanita’s Foods did not.

The respondent filed a motion to vacate based on Juanita’s Foods’s failure to pay the outstanding fees to JAMS within 30 days after the due date.

The trial court stayed the lawsuit against Juanita’s Foods pending the outcome of the arbitration proceeding against Aerotek. The trial court made the following findings:

• Arbitration could continue between the respondent and Aerotek because Aerotek timely paid its portion of arbitration fees
• Juanita’s Foods’s failure to pay the arbitration fees within 30 days after the due date was a material breach of the arbitration agreement under section 1281.98 of the Code of Civil Procedure

Juanita’s Foods appealed. The California Court of Appeal for the Second District agreed with the trial court’s decision.

Late payment under section 1281.98 amounted to a material breach, as supported by the statute’s plain language and by its legislative history, the appellate court said.

The trial court correctly refused to consider any factors in addition to the late payment, including whether such late payment delayed the arbitration proceedings or prejudiced the respondent, to decide whether there was a material breach of the arbitration agreement, the appellate court concluded.