Filed 9/4/26 Hernandez v. Maryland MarketSource CA2/5
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FIVE
ROBERT HERNANDEZ, B341976
Plaintiff and Respondent, (Los Angeles County
Super. Ct. No.
v. 22STCV16129)
MARYLAND
MARKETSOURCE, INC.,
Defendant and Appellant.
APPEAL from an order of the Superior Court of Los
Angeles County, Michelle C. Kim, Judge. Reversed and
remanded.
Epstein Becker & Green and Christopher C. Cianci for
Defendant and Appellant.
Romero Law, Alan J. Romero and Sara M. Simms for
Plaintiff and Respondent.
I. INTRODUCTION
Defendant Maryland MarketSource, Inc. appeals from an
order vacating an earlier order compelling arbitration of
plaintiff’s claims pursuant to Code of Civil Procedure section
1281.981 after defendant failed to timely pay an arbitration fee.
While defendant’s appeal was pending, our Supreme Court in
Hohenshelt v. Superior Court (2025) 18 Cal.5th 310 (Hohenshelt)
interpreted section 1281.98 to equate nonpayment of arbitration
fees with a waiver of the right to arbitrate only when the
nonpayment was “willful, grossly negligent, or fraudulent” and
not the result of “a good faith mistake, inadvertence, or other
excusable neglect.” (Id. at p. 323.) In light of Hohenshelt, we
reverse and remand to the trial court to determine whether
defendant’s nonpayment of fees satisfies the newly articulated
standard.
II. BACKGROUND
A. Complaint and Order Compelling Arbitration
On May 13, 2022, plaintiff Robert Hernandez filed a
complaint against defendant and others2 arising from his
employment with defendant and alleging violations of the Labor
1 All further undesignated statutory references are to the
Code of Civil Procedure unless otherwise stated.
2 Plaintiff’s claims against defendant Ford Motor Company
were dismissed on May 24, 2024; and his claims against
defendant South Bay Ford, Inc. were stayed pending arbitration
on October 28, 2022.
2
Code and the Fair Employment and Housing Act (Gov. Code,
§ 12900 et seq.).
On June 20, 2022, defendant filed an answer alleging,
among other things, that plaintiff was required to arbitrate his
claims pursuant to an arbitration agreement.
On September 26, 2022, defendant filed a motion to compel
arbitration pursuant to a “Mutual Arbitration Agreement”
bearing plaintiff’s electronic signature and dated July 23, 2018.
The arbitration agreement provided that plaintiff and defendant
would arbitrate all disputes before Judicial Arbitration and
Mediation Services (JAMS) and that it would be governed by the
Federal Arbitration Act (FAA; 9 U.S.C. § 1 et seq.). The
agreement obligated plaintiff to pay “any JAMS filing or
administrative fee up to the amount of the initial filing fee to
commence an action” and defendant to pay “any other JAMS
administrative fees, the Arbitrator’s fees, and any additional fees
unique to arbitration.”
On October 17, 2022, plaintiff opposed the motion to compel
arbitration.
On October 28, 2022, the trial court granted defendant’s
motion to compel arbitration and stayed the proceedings.
B. Failure to Pay Fees
On February 9, 2023, plaintiff filed a demand for
arbitration with JAMS.
On February 16, 2023, JAMS sent defendant an invoice for
$1,600 in fees, which defendant paid on March 6, 2023.
On May 9, 2023, JAMS sent defendant a second invoice for
$10,000 in fees, which defendant paid on May 22, 2023.
3
On March 13, 2024, JAMS sent the parties a “revised notice
of hearing,” setting the arbitration hearing to begin on July 8,
2024. The notice included an invoice for $84,800.
On May 24, 2024, JAMS sent an email to the parties
reminding them that fees were outstanding and that the
arbitration hearing would be removed from the calendar if
payment was not received by June 7, 2024.
On May 31, 2024, JAMS sent the parties a “final request to
post fees” and repeated that the scheduled arbitration hearing
would be canceled if fees were not paid by June 7, 2024. That
same date, plaintiff advised defendant and JAMS that he
intended to withdraw from arbitration pursuant to section
1281.98, subdivision (b).
On June 25, 2024, the assigned arbitrator issued a ruling in
which he noted a split in authority as to whether section 1281.98
was preempted by the FAA and determined that “because
[plaintiff] intends to seek relief in the superior court, it is most
prudent not to set a new hearing date, but to await developments
in the superior court, appellate, and Supreme Courts.” The
arbitrator ordered that the arbitration “will remain open without
setting a hearing date pending future developments.”
C. Ruling Vacating Order Compelling Arbitration
On July 3, 2024, plaintiff filed a motion to vacate the order
compelling arbitration and for attorney fees. Plaintiff argued
that because defendant had failed to pay arbitration fees within
30 days of the due date, plaintiff was entitled to an order
vacating the order compelling arbitration and an award of
attorney fees, pursuant to sections 1281.98 and 1281.99.
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Defendant opposed the motion, arguing that section
1281.98 did not apply to plaintiff’s complaint because the parties
had agreed their arbitration would be governed by the FAA.
Defendant alternatively argued that section 1281.98 was
preempted by the FAA. In support of its opposition, defendant
submitted a declaration from counsel which described defendant’s
prior timely payment of fees and plaintiff’s expressed intent to
withdraw from arbitration. The declaration also noted that
defendant had a credit balance of $5,906.07 with JAMS.
On September 18, 2024, the trial court conducted a hearing
on the motion to vacate and attorney fees and issued an order
granting the motion to vacate. After noting the split in authority
as to whether section 1281.98 was preempted by the FAA, the
court elected to follow Espinoza v. Superior Court (2022) 83
Cal.App.5th 761, 777, 779 (Espinoza), disapproved by Hohenshelt,
supra, 18 Cal.5th at page 349 [finding that section 1281.98
applied “to any circumstance in which a drafting party fails
timely to pay [arbitration fees], and not just when the drafting
party does so deliberately” and was not preempted by the FAA].)
The court stated: “It is undisputed that [d]efendant failed to …
timely pay fees required to continue with their arbitration.
Section 1281.98 does not permit substantial compliance. The [30
day] deadline is firm, and [d]efendant missed it. The motion is
granted.” As to plaintiff’s request for attorney fees, the court
awarded plaintiff only $400 in JAMS filing fees.
Defendant timely appealed.
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III. DISCUSSION
A. Legal Principles
“Section 1281.98 governs payment of fees during an
ongoing arbitration. It provides that where ‘an employment or
consumer arbitration ... requires ... the drafting party’ to ‘pay
certain fees and costs,’ those fees or costs must be ‘paid within 30
days after the due date.’ (§ 1281.98, subd. (a)(1).) If the fees are
not timely paid, ‘the drafting party 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.’ (Ibid.) The
consumer or employee may then ‘unilaterally elect’ to ‘[w]ithdraw
the claim from arbitration and proceed in a court of appropriate
jurisdiction’ (id., subd. (b)(1)) or ‘[c]ontinue the arbitration
proceeding, if the arbitration provider agrees to continue
administering the proceeding, notwithstanding the drafting
party’s failure to pay fees or costs’ (id., subd. (b)(2)).”
(Hohenshelt, supra, 18 Cal.5th at p. 330.)3
As noted, while defendant’s appeal was pending, our
Supreme Court issued its opinion in Hohenshelt, supra, 18
Cal.5th 310, which expressly disapproved of Espinoza, supra, 83
Cal.App.5th 761, cited by the trial court, and construed section
1281.98 to allow a consumer or employee to withdraw from
arbitration only when the drafting party’s nonpayment was
“willful[ ], fraudulent[ ], or … gross[ly] negligen[t]” and not the
result of “a good faith mistake, inadvertence, or excusable
3 Defendant does not dispute that it was the “drafting party”
within the meaning of section 1281.98, subdivision (a)(1).
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neglect.” (Hohenshelt, supra, 18 Cal.5th at pp. 342, 346, 349.)
The court observed that section 1281.98 “construed in harmony
with background statutes, makes arbitration contracts
enforceable on the same grounds as those that apply to other
contracts” and, as so construed, was not preempted by the FAA.
(Id. at pp. 346, 348.) The court then directed the Court of Appeal
to “remand the matter to the trial court for consideration of
whether [the defendant] may be excused for its failure to timely
pay arbitration fees, such that the stay of litigation should not be
lifted and the parties should be returned to arbitration, and
whether the delay resulted in compensable harm to [the
plaintiff].” (Id. at p. 349.)
B. Analysis
Citing Hohenshelt, supra, 18 Cal.5th 310, defendant
contends the trial court erred in granting plaintiff’s motion to
vacate the prior order compelling arbitration. Plaintiff responds
that we must affirm the court’s ruling because absent compliance
with Civil Code section 3275, which conditions relief from
forfeiture upon a party’s “making full compensation to the other
party,” defendant cannot demonstrate that it is entitled to relief
from forfeiture, as a matter of law. Plaintiff further argues that
because defendant did not pay the outstanding arbitration fees
for two years, including the time during which this appeal was
pending, it acted with gross negligence, and willfully and
fraudulently breached its obligations under the arbitration
agreement.
Plaintiff’s contention that defendant “cannot invoke” Civil
Code section 3275 is inapposite because defendant did not seek
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relief from forfeiture under that statute. Moreover, although the
court in Hohenshelt, supra, 18 Cal.5th 310 cited to Civil Code
section 3275, as one of the “backdrop of long-standing statutes”
against which the Legislature enacted section 1281.98 (id. at
p. 332), it did not suggest that the failure to pay outstanding fees
constitutes willful, fraudulent, or grossly negligent conduct, as a
matter of law.
Accordingly, we will remand the cause to the trial court to
determine, in the first instance, whether defendant has waived
the right to arbitrate under the standard articulated in
Hohenshelt, supra, 18 Cal.5th at page 349.
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IV. DISPOSITION
The order vacating the order compelling arbitration is
reversed and remanded for the trial court to determine whether
defendant has waived its right to arbitrate under the standard
articulated in Hohenshelt, supra, 18 Cal.5th at page 349. The
parties are to bear their own costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
KIM (D.), J.
We concur:
BAKER, Acting P. J.
MOOR, J.
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