Business Law

If You Snooze, You May Lose(Paying Arbitration Fees on Time)

There are multiple reasons that a party includes an arbitration agreement in the terms of its contracts, including speed of resolution, privacy regarding the dispute and any resolution, as well as limiting costs. However, merely including such an arbitration provision, and obtaining the opposing party’s consent to have a dispute arbitrated, or obtaining a court order compelling the arbitration of a dispute, does not guarantee that the purpose(s) behind the arbitration agreement will be fulfilled.

In the matter of Williams v. West Coast Hospital, Inc. the California Court of Appeal, Sixth Appellate District, ruled that California Code of Civil Procedure §§  1281.97 and 1281.98 provide that a company or business pursuing arbitration of a dispute under a pre-dispute arbitration agreement is in material breach and default of that agreement—thereby waiving its right to arbitrate—if it fails to timely pay its share of arbitration fees. The Appellate Court also ruled that these statutes empower a consumer otherwise subject to a voluntary pre-dispute arbitration agreement to unilaterally withdraw from the arbitration upon the drafting party’s failure to pay contractually required arbitration fees and to pursue its claim in court.

In Williams, the Plaintiff’s son, on behalf of his deceased mother, sued West Coast, a healthcare provider, for negligently discharging the mother to an assisted living facility where she died five days later. West Coast moved to compel arbitration based on a voluntary arbitration agreement the son signed. The trial court granted the motion, but West Coast then failed to timely pay arbitration fees. Accordingly, Plaintiff moved to withdraw from arbitration. West Coast then paid its fees.

The party who drafted the agreement containing the arbitration provision who fails in its obligation to pay fees and costs required to initiate or continue the arbitration within 30 days after the due date is in “material breach of the arbitration agreement, is in default of the arbitration, and waives its right to compel the employee or consumer to proceed with that arbitration as a result of the material breach.” Consequently, even where an arbitration has commenced, the employee or consumer may unilaterally elect, among other alternatives, to withdraw the claim from arbitration and proceed in a court of appropriate jurisdiction.

It Is Irrelevant As To the Reasons For The Nonpayment Or Late Payment.

This timely payment obligation, and available remedy if payment is late or is not made, applies to both mandatory pre-dispute arbitration agreements, as well as voluntary arbitration agreements.  

The bottom line is that no matter on which side of the arbitration demand you may sit, our recommendation is to pay arbitrations fees as soon as the arbitrator is selected so as to not potentially waive your rights to proceed with the arbitration process, and to be vigilant as to whether the opposing party has complied with its obligation as well.