In April 2021, John Goshorn hired Aqua Blue Construction, Inc. to build a swimming pool, spa, and barbeque at his home for $109,475. Aqua Blue drafted the contract, which included an arbitration clause stating that any disputes would be resolved through arbitration and that Goshorn’s agreement to arbitrate was “voluntary.” Aqua Blue’s owner, Julien Britton, signed the contract on behalf of the company.

A dispute arose over unpaid balances and alleged construction defects. In May 2022, Aqua Blue sued Goshorn for breach of contract, seeking $32,305 in damages and alleging fraud related to change orders. Goshorn denied the allegations and filed a cross-complaint raising claims including breach of contract, fraud, negligence, and contracting without a license, asserting that Aqua Blue had deviated from the agreed plans and produced defective, unfinished work.

In September 2022, Goshorn moved to compel arbitration based on the contract’s arbitration clause. Aqua Blue filed limited opposition but the trial court granted the motion. The parties then agreed to arbitrate before retired Justice Richard Aldrich of JAMS, whose rate was $9,000 per day – an arbitrator Aqua Blue itself had suggested.

In April 2023, JAMS designated the case a “consumer arbitration” under its rules, which meant Aqua Blue, as the drafting party, would bear all arbitration fees. Aqua Blue’s counsel acknowledged JAMS’s determination and indicated the issue could be raised with the arbitrator. JAMS issued an initial invoice of $9,000, which Aqua Blue paid late but did pay. A preliminary conference set a ten-day hearing, and JAMS then issued retainer invoices totaling approximately $174,700. Aqua Blue protested the fees as unconscionable for a $32,305 dispute, questioned the ten-day estimate, and asked JAMS for guidance on how to challenge the consumer designation. No hearing on the challenge was ever set. By September 2023, Aqua Blue had not paid the retainer invoices, and JAMS administratively stayed the arbitration.

In March 2024, Goshorn filed a motion for sanctions under Code of Civil Procedure section 1281.98, which allows a consumer to withdraw from arbitration and recover fees and costs when the drafting party fails to timely pay arbitration fees. Aqua Blue opposed the motion, arguing that this was not a consumer arbitration and that it should not be solely responsible for the fees.

In April 2024, the trial court granted Goshorn’s motion. Relying on Hohenshelt v. Superior Court (2024) 99 Cal.App.5th 1319 and Williams v. West Coast Hospitals, Inc. (2022) 86 Cal.App.5th 1054 – both of which were later overruled – the court held that once Aqua Blue was more than 30 days past due on the JAMS invoices, it was in material breach regardless of any good-faith basis for disputing the fees. The court lifted the arbitration stay, ordered the matter to proceed in the trial court, and awarded Goshorn $36,974.79 in sanctions. However, the court declined to impose evidentiary or terminating sanctions, finding that the law was unclear on how to challenge a consumer arbitration designation and that such harsher sanctions would be unjust. The court also denied Aqua Blue’s cross-motions for contempt and sanctions against Goshorn.

The Court of Appeal reversed and remanded in the unpublished case of Aqua Blue Construction, Inc. v. Goshorn, No. B338632 (February 2026).

While the appeal was pending, the California Supreme Court decided Hohenshelt v. Superior Court (2025) 18 Cal.5th 310, which fundamentally changed the arbitration legal framework. The Supreme Court held that under section 1281.98, a drafting party’s nonpayment of arbitration fees results in forfeiture of arbitral rights only when the nonpayment was “willful, grossly negligent, or fraudulent.” This interpretation was adopted to avoid preemption by the Federal Arbitration Act and was grounded in the long-standing contract principle that one party’s nonperformance automatically extinguishes the other’s duties only when culpability is present. The Hohenshelt court overruled the Court of Appeal decisions the trial court had relied upon.

On the threshold question of whether this was a consumer arbitration at all, the appellate court held that it was. Goshorn fit the statutory definition of a “consumer” under section 1280, subdivision (c) of the Code of Civil Procedure because he hired Aqua Blue for personal, household purposes. The court noted that although Williams was overruled by Hohenshelt on the culpability issue, the Supreme Court did not disturb Williams’s analysis on this particular point.

Turning to the central issue, the appellate court found clear error in the trial court’s failure to evaluate Aqua Blue’s culpability. The record contained competing evidence: Aqua Blue argued it could not afford the fees, had actively sought review of JAMS’s consumer designation, and that paying $164,000 to arbitrate a $32,305 dispute was unreasonable. Goshorn countered that Aqua Blue had itself chosen the expensive arbitrator, had agreed to JAMS’s rules, and should have foreseen the costs. Because the trial court made no factual findings on whether the nonpayment was willful, strategic, grossly negligent, or excusable, the appellate court remanded for a new determination under the Hohenshelt standard. The court distinguished Wilson v. Tap Worldwide, LLC (2025) 114 Cal.App.5th 1077, where remand was unnecessary because the trial court had already made findings establishing that the late payment was not culpable.

Supreme Court Hohenshelt Ruling Gains Traction in Pending Cases