California Supreme Court Narrows the Scope of Arbitration Fee Payment Statute — Avoiding Federal Preemption
On August 11, 2025, the California Supreme Court issued its opinion in Hohenshelt v. Superior Court (S284498), addressing the interpretation of California’s statute governing the failure to timely pay arbitration fees — Code of Civil Procedure §§ 1281.97–1281.99. The case clarified how far the statute reaches and avoided a collision with the Federal Arbitration Act (FAA).
This decision carries significant implications for parties in arbitration — especially those seeking to confirm or vacate arbitration awards — because it refines when late fee payments can end an arbitration and send the matter back to court.
To read the opinion, click here.
The Statutory Background
California enacted §§ 1281.97–1281.99 in 2019 to address concerns that businesses or employers could slow arbitration proceedings by failing to pay required arbitration fees on time. The statutes provide that if a drafting party (often the business) fails to pay arbitration fees or costs within 30 days of the due date, they are in “material breach” of the arbitration agreement. This breach gives the non-drafting party several options, including:
Withdrawing from arbitration and proceeding in court
Seeking monetary, evidentiary, or terminating sanctions
Requesting an order compelling payment
The legislative intent was clear — to prevent strategic nonpayment from undermining arbitration. However, because arbitration is governed in part by the FAA, the breadth of these California statutes has been subject to challenge on federal preemption grounds.
The Dispute in Hohenshelt
The dispute in Hohenshelt arose out of an employment arbitration administered by the American Arbitration Association (AAA). The employer, as the drafting party, was required to pay certain arbitration fees. Those fees were invoiced with a stated due date.
The issue was timing — the employer did not pay the fees by the specified due date, but the AAA continued to allow the case to move forward. The employee argued that under § 1281.97, the employer’s late payment was a material breach, automatically entitling the employee to withdraw from arbitration and proceed in court. The trial court agreed, ordering the matter back to court.
The employer sought writ relief, arguing that the statute should not apply in situations where the arbitration provider grants an extension or otherwise continues the proceedings. If interpreted otherwise, the employer argued, the statute would conflict with the FAA by interfering with the parties’ agreement and the arbitrator’s authority.
The California Supreme Court’s Decision
The California Supreme Court reversed the trial court’s ruling and narrowed the statute’s application.
The Court held that §§ 1281.97–1281.99 apply only when an arbitration provider formally closes or suspends a case due to nonpayment. If the arbitration provider, in its discretion, continues proceedings despite a late payment — including granting extensions or accepting payment after the initial due date — the statutory “material breach” provisions are not triggered.
In other words, the statutory clock is tethered to the provider’s own payment rules and enforcement decisions. The Court reasoned that allowing California law to override the arbitration provider’s discretion on timing would impermissibly interfere with the FAA’s protection of the parties’ contractual choices and the arbitrator’s authority.
Avoiding Federal Preemption
The Court’s narrower reading of the statute was driven by federal preemption concerns. The FAA generally preempts state laws that “stand as an obstacle” to the enforcement of arbitration agreements.
If California’s statute were interpreted to nullify an arbitration proceeding every time a fee payment was late — even when the arbitrator or provider allowed the case to proceed — it would directly conflict with the FAA’s strong policy favoring arbitration and respect for the procedural framework agreed to by the parties.
By aligning the statute’s operation with the arbitration provider’s own rules, the Court preserved its core purpose (deterring strategic nonpayment) without stepping into preempted territory.
Impact on Confirming or Vacating Arbitration Awards
For litigators and parties engaged in arbitration, the decision in Hohenshelt has direct consequences for later motions to confirm or vacate an arbitration award:
Vacating an Award for Nonpayment: After Hohenshelt, a party cannot successfully argue that an award should be vacated under §§ 1281.97–1281.99 unless the arbitration provider actually terminated or suspended the arbitration for nonpayment. Mere lateness, without formal closure, is not enough.
Confirming an Award Despite Payment Delays: On the flip side, parties seeking to confirm an award can point to Hohenshelt to argue that payment timing disputes do not undermine the validity of the arbitration unless the provider itself halted the process.
Strategic Considerations: While late payment will rarely be a winning ground for vacatur after Hohenshelt, chronic delay in payment may still have reputational and procedural consequences. Arbitrators can impose sanctions, and courts may still enforce other contractual or statutory remedies.
Practical Guidance Going Forward
For businesses and employers:
Continue to treat arbitration fee payment deadlines seriously. While Hohenshelt reduces the risk of immediate termination for late payment, repeated delays can still damage credibility and strategy in the arbitration.
Communicate proactively with the arbitration provider if payment cannot be made by the stated due date. Written confirmation of any extension or provider accommodation will be critical evidence if disputes arise.
For employees and consumers:
Understand that fee-shifting statutes like § 1281.97 remain in force — but only in the narrow circumstance where the arbitration provider closes or suspends the case for nonpayment.
If payment is late but the arbitration continues, remedies under this statute will likely not be available.
For counsel on both sides:
When drafting arbitration agreements, consider whether to incorporate explicit timelines for payment or to defer entirely to the provider’s rules.
Document every communication with the provider about payment timing, as these records may be decisive if the fee statute is later invoked in a motion to confirm or vacate.
Why This Case Matters
Hohenshelt is another example of California’s ongoing effort to regulate arbitration in a way that protects participants without clashing with the FAA. By reading the statute in harmony with provider discretion, the California Supreme Court preserved an important safeguard against bad-faith nonpayment — but without overstepping into federally preempted territory.
For arbitration practitioners, this decision reinforces the importance of understanding both state statutory protections and the FAA’s supremacy. It also underscores that the key battleground in motions to confirm or vacate an award is often not just the merits of the dispute, but the procedural integrity of the arbitration itself.
Unlocking Solutions for Demanding Cases. At Nationwide ADR, arbitration is handled with precision, balance, and an unwavering focus on fairness. Whether you are seeking to confirm an award, challenge one, or ensure compliance with payment requirements, the goal remains the same — a resolution that stands the test of scrutiny in both arbitration and court.