Milan Cvejic worked for Skyview Capital LLC. He filed a lawsuit against them and others in state court after his termination of employment, claiming causes of action for employment law issues.

His employment agreement with them contained an arbitration clause. Thus Skyview moved to compel arbitration. The trial court granted the motion and stayed proceedings.

The case went before a panel of three arbitrators through the American Arbitration Association under the rules for commercial cases. After at least one continuance, the final hearing on the merits was set to begin August 5, 2021. Skyview had to pay arbitration fees ahead of the hearing. The fees were due June 4, 2021.

On July 7, 2021, Cvejic’s counsel asked the case manager whether Skyview had paid the deposits. On July 8, 2021, the case manager confirmed by email that Skyview had not paid. The manager scheduled a call to address the situation. During the call, Skyview’s counsel reported there was “no further explanation” for his clients’ failure to pay the fees. Cvejic reserved his rights to proceed under the Code of Civil Procedure. The panel stated “[t]he Hearing fees have been requested and the deadline for making the deposits has passed.” It set a new deadline of July 14th for payment of the fees.

Within about an hour of the call, Cvejic’s counsel wrote the panel to say Cvejic was withdrawing from the arbitration under Code of Civil Procedure section 1281.98. The panel chair responded that Cvejic’s request was “premature” – presumably because the deadline was now July 14th. Thereafter the panel ruled section 1281.98 was not in play because Skyview “came into compliance with the Panel’s Orders regarding posting deposits.” Skyview ultimately paid its fee by July 14th.

On July 21, 2021, Cvejic filed in the trial court a section 1281.98 Election to Withdraw from Arbitration. Soon after, he sought ex parte relief, which the court denied due to the absence of emergency. In December 2021, Cvejic refiled his section 1281.98 election, which included a request for sanctions under the statute and a motion to vacate the earlier order staying court proceedings. Skyview opposed the filing. The court’s February 2022 order granted Cvejic’s request to withdraw from arbitration, vacated the order staying proceedings, and awarded Cvejic reasonable expenses under section 1281.99.

The employer appealed the trial court Order. The Court of Appeal affirmed the trial court in the published case of Cvejic v. Seaview Capital LLC – B318880 (June, 2023).

The Legislature enacted section Code of Civil Procedure 1281.98 in 2019 to curb a particular arbitration abuse. The abuse was that a defendant could force a case into arbitration but, once there, could refuse to pay the arbitration fees, thus effectively stalling the matter and stymying the plaintiff’s effort to obtain relief. The Legislature called this “procedural limbo.” (Gallo v. Wood Ranch USA, Inc. (2022) 81 Cal.App.5th 621, 634 (Gallo) [quoting legislative history].) It has also been described as “procedural purgatory.” (Ibid.)

Subdivision (b) of the statute provides employees and consumers with a choice of forum upon breach: They may elect to “[w]ithdraw the claim from arbitration and proceed in a court of appropriate jurisdiction” or “[c]ontinue the arbitration proceeding” should the provider agree to continue. (§ 1281.98, subds. (b)(1) & (2).) The statute also empowers courts to award fees, costs, and sanctions.

After the current fee dispute arose, the Legislature amended both sections section 1281.97 along with section 1281.98 in 2021. The amendments added a new subdivision to section 1281.98 that compelled arbitrators to provide invoices to all parties, specified requirements for these invoices, and clarified the due date for fees.

The new subdivision also includes this new sentence: “Any extension of time for the due date shall be agreed upon by all parties.” (§ 1281.98, subd. (a)(2).) The amendments became effective January 1, 2022.

The Legislature sought a clear rule for determining whether the late payment of a fee by a drafting party constituted a material contract breach.

The Court of Appeal concluded by noting “Skyview’s fees were due June 4, 2021. By July 9th, Skyview had not paid. Skyview was in material breach of the parties’ arbitration agreement. Section 1281.98 entitled Cvejic to withdraw from the arbitration. It is that simple.”

“The statute does not empower an arbitrator to cure a party’s missed payment. There is no escape hatch for companies that may have an arbitrator’s favor. Nor is there a hatch for an arbitrator eager to keep hold of a matter. As the trial court observed, ‘If . . . the drafting party were permitted numerous continuances for failure to pay arbitration fees, therefore delaying the proceedings, C.C.P. section 1281.98 would have no meaning, force, or effect.’ “

Arbitrator Has No Power to Cure Employers Late Payment of Arbitration Fees