In 2015, Wood Ranch USA, Inc. hired Sunny Gallo to work as a server for its chain of restaurants.
As a condition of her employment with Wood Ranch, she was required to sign an arbitration agreement and to agree to the terms of the employee handbook. The employee handbook reinforces the parties’ agreement that they will look to the California Arbitration Act, including its “procedural provisions,” ‘to conduct the arbitration and any pre-arbitration activities.”
Her employment was terminated in March 2018. In January 2020, she sued Wood Ranch for compensatory and punitive damages on nine different causes of action based upon alleged discrimination and harassment on the basis of gender and religion.
Wood Ranch moved to compel arbitration. The trial court in July 2020 granted the motion and stayed the pending court proceedings. The agreed upon arbitrator was affiliated with the American Arbitration Association (AAA). Both parties were asked to pay necessary fees which Gallo paid, but the November 4 due date came and went without any payment from Wood Ranch.
AAA extended the payment time to December 4, 2020 warning that the arbitration would be closed if not paid on time. On December 10, 2020 Wood Ranch paid the $1,900 fee which was two days late.
On December 16, 2020, plaintiff filed a motion to vacate the trial court’s prior order compelling arbitration, which was granted. The court ruled that Code of Civil Procedure sections 1281.97 and 1281.99 were not preempted by the Federal Arbitration Act.
Wood Ranch appealed. The Court of Appeal affirmed the trial court in the published case of Gallo v Wood Ranch USA Inc., B311067 (July 2022).
In 1961, the California Legislature enacted the California Arbitration Act (CAA) (§ 1280 et seq.) as a way to protect the right of private parties to resolve their disputes through the “efficient, streamlined procedures” of arbitration.
Perceiving that employees and consumers were being placed in a “procedural limbo” when they were forced to sign arbitration agreements by entities who subsequently refused to pay the necessary fees to allow the arbitrations to move forward, in 2019 the California Legislature enacted Code of Civil Procedure sections 1281.97, 1281.98 and 1281.99.
These provisions obligate a company or business who drafts an arbitration agreement to pay its share of arbitration fees by no later than 30 days after the date they are due, and specify that the failure to do so constitutes a “material breach of the arbitration agreement” that gives the employee or consumer, in addition to a mandatory award of attorney fees and costs related to the breach as well as other discretionary sanctions, the options of either (1) continuing in arbitration with the company or business paying attorney fees and costs related to the arbitration as a whole or (2) withdrawing from arbitration and resuming the litigation in a judicial forum.
This appeal presented a question of first impression: Are these provisions preempted by the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.)?
The court of appeal held that they are not because the procedures they prescribe further – rather than frustrate – the objectives of the FAA to honor the parties’ intent to arbitrate and to preserve arbitration as a speedy and effective alternative forum for resolving disputes.