In Espinoza v. Superior Court, No. B314914, 2022 Cal. App. LEXIS 816, at *10-17 (Ct. App. Sep. 27, 2022), the Court of Appeal found that the defendant’s failure to pay an arbitrator’s invoice within 30 days barred arbitration, period, even if no prejudice or if there was substantial compliance. The Court of Appeal stated.
The parties do not dispute that defendant did not pay the arbitration provider’s invoice within 30 days of the due date for payment. The trial court nonetheless denied plaintiff’s motion under section 1281.97, finding defendant was in “substantial[ ] compliance” with the arbitration agreement and “not in material breach,” because the delayed payment was due to “‘clerical error,'” and the delay did not prejudice plaintiff. Plaintiff does not contest the findings that the delay was due to clerical error and she suffered no prejudice. Rather, she argues section 1281.97 “provide[s] no such exceptions,” and requires strict enforcement. We agree with plaintiff’s interpretation of the statute. “‘”‘When we interpret a statute, “[o]ur fundamental task . . . is to determine the Legislature’s intent so as to effectuate the law’s purpose. We first examine the statutory language, giving it a plain and commonsense meaning. We do not examine that language in isolation, but in the context of the statutory framework as a whole in order to determine its scope and purpose and to harmonize the various parts of the enactment. If the language is clear, courts must generally follow its plain meaning unless a literal interpretation would result in absurd consequences the Legislature did not intend. If the statutory language permits more than one reasonable interpretation, courts may consider other aids, such as the statute’s purpose, legislative history, and public policy.” [Citation.] “Furthermore, we consider portions of a statute in the context of the entire statute and the statutory scheme of which it is a part, giving significance to every word, phrase, sentence, and part of an act in pursuance of the legislative purpose.”‘”‘ [Citation.]” (Smith v. LoanMe, Inc. (2021) 11 Cal.5th 183, 190.) Interpretation of a statute is a question of law we review de novo. (Ibid.) The language of section 1281.97 is unambiguous. It provides that the drafting party is in “material breach,” and the nondrafting party is entitled to the remedies under the statute, “if the fees or costs to initiate an arbitration proceeding are not paid within 30 days after the due date . . . .” (§ 1281.97, subd. (a)(1).) Under the plain language of the statute, then, the triggering event is nothing more than nonpayment of fees within the 30-day period—the statute specifies no other required findings, such as whether the nonpayment was deliberate or inadvertent, or whether the delay prejudiced the nondrafting party. The plain language therefore indicates the Legislature intended the statute to be strictly applied whenever a drafting party failed to pay by the statutory deadline. Supporting our conclusion is that elsewhere in the statutory scheme enacted under Senate Bill No. 707, the Legislature expressly granted the trial court discretion whether to order certain remedies for nonpayment. Section 1281.99 states that the court “shall impose a monetary sanction” in the event of a material breach under section 1281.97 (§ 1281.99, subd. (a), italics added), but the court “may order” additional nonmonetary sanctions “unless the court finds that the one subject to the sanction acted with substantial justification or that other circumstances make the imposition of the sanction unjust” (id., subd. (b), italics added). Given the Legislature’s express grant of discretion as to imposition of nonmonetary sanctions, we may presume the Legislature did not intend implicitly to grant that same discretion on the issues of material breach and imposition of monetary sanctions. (Jarman v. HCR ManorCare, Inc. (2020) 10 Cal.5th 375, 385 [“‘When one part of a statute contains a term or provision, the omission of that term or provision from another part of the statute indicates the Legislature intended to convey a different meaning.'”]; People v. Buycks (2018) 5 Cal.5th 857, 880 [“‘When the Legislature “has employed a term or phrase in one place and excluded it in another, it should not be implied where excluded.”‘”].) Defendant argues the legislative history of Senate Bill No. 707 indicates the Legislature’s intent was to discourage drafting parties from deliberately delaying payment of fees, “not to punish innocent parties who unintentionally delayed” payment. Defendant contends to apply the remedies of section 1281.97 in the present circumstance, in which defendant’s delay in payment was inadvertent and due to a clerical error, would be an “absurd consequence[ ].” It is certainly true that “strategic non-payment of fees” was a motivating concern behind Senate Bill No. 707. (Stats. 2019, ch. 870, § 1, subd. (d).) Had the Legislature intended to limit the reach of the statute to that circumstance, it could have done so, including by adding a provision to section 1281.97 similar to that in section 1281.99, subdivision (b), giving trial courts discretion not to apply the statute if the delay in payment was inadvertent or otherwise excusable. The Legislature chose not to include such a provision, however, which indicates an intent to apply the statute to any circumstance in which a drafting party fails timely to pay, and not just when the drafting party does so deliberately. We do not agree that applying the statute strictly, even when nonpayment is inadvertent, leads to absurd consequences. Although strict application may in some cases impose costs on drafting parties for innocent mistakes, the Legislature could have concluded a brightline rule is preferable to requiring the nondrafting party to incur further delay and expense establishing the nonpayment was intentional and prejudicial. The Legislature also reasonably could have decided that whatever the reason for a delay in payment, the drafting party should bear the consequences of that delay rather than the nondrafting party. Indeed, the legislative history indicates the Legislature considered and rejected the argument that section 1281.97 would unfairly penalize drafting parties for minor errors. Groups opposing Senate Bill No. 707, including the California Chamber of Commerce, objected that under the proposed law a drafting party would be subject to sanctions “even if[ ] ‘the drafting party paid a majority of the fees and costs, but yet a small, minor portion was not paid.'” (Assem. Com. on Judiciary, Analysis of Senate Bill No. 707 (2019-2020 Reg. Sess.) as amended May 20, 2019, p. 8.) An analysis by the Assembly Committee on Judiciary acknowledged “that a failure to pay the required costs and fees in full would expose a company to significant monetary penalties and potentially serious evidentiary sanctions or a contempt holding. However, this risk should also be viewed in light of the harm that the drafting party’s breach of contract could impose on employees or consumers who are in limbo, with no avenue to pursue their legal rights. Particularly in employment matters, the plaintiff’s livelihood may be the subject of the adjudication. Although a large company may view its failure to pay a few hundred dollars for arbitration as a minor, immaterial, mistake, that mistake may delay the hearing of an employee’s claims. While immaterial to the drafting party, the ensuing delay associated with this minor error could be significant to the employee, who may not be able to pay bills, rent or other expenses that could result in the loss of their residence, or damage to their credit rating, while the dispute remains unresolved.” (Id. at pp. 8-9.) Defendant argues that Sink, the Ninth Circuit case cited in the legislation enacting section 1281.97, does not support a finding of material breach in the instant case. Were the relevant language of section 1281.97 ambiguous, arguably we would look to Sink to assist us in interpreting it. As we have explained, the language is not ambiguous. We will not read implied terms into an unambiguous statute merely because the enacting legislation invoked a prior court decision. In sum, the trial court erred in denying plaintiff’s motion on the basis that defendant substantially complied with section 1281.97, subdivision (a)(1), its delayed payment was inadvertent, and plaintiff suffered no prejudice.
The Court of Appeal also found that the FAA did not pre-empt section 1281.97.