Appellate Reports

Federal Arbitration Act (FAA) preemption; also arbitration of wrongful death claims and attorney’s failure to verify accuracy of citations

2025 November

California Arbitration Act (CAA)

Failure to timely pay arbitration fees in employment and consumer arbitrations not preempted, when statute is construed to include general contract principles that excuse non-performance in certain circumstances

Hohenshelt v. Superior Court (2025) 18 Cal.5th 310.

The question decided by the Supreme Court is whether the FAA preempts California Code of Civil Procedure section 1281.98, a provision of the CAA that governs the payment of fees in employment and consumer arbitrations. Section 1281.98 establishes a default rule that when the party who drafted an arbitration agreement is responsible for paying fees and costs to an arbitrator, that party must pay an arbitrator’s invoice “within 30 days after the due date” (§ 1281.98, subds. (a)(1)), and “the arbitration provider shall issue all invoices to the parties as due upon receipt” (id., subd. (a)(2)). The parties may contract around the default rule by specifying in their agreement “the number of days in which the parties to the arbitration must pay any required fees or costs” or by agreeing to an “extension of time for the due date.” (Ibid.) If the drafting party fails to make timely payment, it “waives its right to compel the employee or consumer to proceed with that arbitration” (id., subd. (a)(1)), and the employee or consumer may choose to “withdraw the claim from arbitration” and proceed in court (id., subd. (b)(1)) or “[c]ontinue the arbitration” if the arbitrator agrees (id., subd. (b)(2)).

The Court held that section 1281.98, properly construed, is not preempted by the FAA. Although section 1281.98 has been interpreted by various Courts of Appeal to impose an inflexible and sometimes harsh rule resulting in loss of arbitral rights, the Court rejected that rigid construction and instead concluded that the statute does not abrogate the longstanding principle, established by statute and common law, that one party’s nonperformance of an obligation automatically extinguishes the other party’s contractual duties only when nonperformance is willful, grossly negligent, or fraudulent.

The Legislature sought to deter companies and employers from engaging in strategic nonpayment of arbitration fees; the Court found no indication that it intended to strip companies and employers of their contractual right to arbitration where nonpayment of fees results from a good faith mistake, inadvertence, or other excusable neglect.

So understood, the operation of section 1281.98 does not deviate from generally applicable state law contract principles nor does it “disfavor[ ] arbitration” or “interfere[ ] with fundamental attributes of arbitration” (AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 341, 344, 131 S.Ct. 1740) or “invent special, arbitration-preferring procedural rules” (Morgan v. Sundance, Inc. (2022) 596 U.S. 411, 418, 142 S.Ct. 1708.) Instead, the statute aims to ensure that arbitration fees are paid in a timely manner so that parties to an arbitration agreement can move forward in arbitration.

Arbitration of wrongful-death claims

When patient’s agreement to arbitrate will bind patient’s heirs; patient’s agreement does not bind heirs when the claim arises from the facility’s neglect of a patient’s basic welfare and safety needs

Holland v. Silverscreen Healthcare, Inc. (2025) 18 Cal.5th 364.

As a general rule, plaintiffs cannot be compelled to arbitrate their disputes if they have not previously agreed to arbitration. But in Ruiz v. Podolsky (2010) 50 Cal.4th 838, the Supreme Court identified an exception for certain wrongful-death claims based on medical malpractice. Under Ruiz, if a patient agreed to arbitrate medical-malpractice disputes in compliance with the arbitration provision of the Medical Injury Compensation Reform Act (MICRA) (codified as Code Civ. Proc., § 1295), the patient-provider agreement may bind the patient’s heirs in a wrongful-death action, even if the heirs themselves never agreed to arbitration. (Ruiz, at pp. 849-850.)

The question before the Court in this case concerns the application of Ruiz in a recurring context. Plaintiffs sued a 24-hour skilled nursing facility, alleging that the facility’s neglect caused their son’s death. Before his death, plaintiffs’ son had signed an agreement to arbitrate medical-malpractice disputes against the facility. Parting company with appellate courts that had taken different approaches to the issue, the Court of Appeal held that the patient-provider agreement binds plaintiffs because their wrongful-death claim based on the nursing facility’s neglect is necessarily a claim about the manner in which a health care provider rendered its professional services.

The Supreme Court concluded that the Court of Appeal’s decision extended Ruiz past statutory bounds. Ruiz does not apply to every type of wrongful-death claim that might be brought against a health care provider – particularly a provider that, like the skilled nursing facility in this case, provides both medical care and day-to-day custodial care of dependent adults. Under Ruiz, plaintiffs’ claim must be submitted to arbitration only if they are raising a dispute about medical malpractice as that term is defined in MICRA’s arbitration provision – that is, a dispute “as to whether any medical services ... were improperly, negligently or incompetently rendered.” (Code Civ. Proc., § 1295, subd. (a).) Ruiz does not require plaintiffs to arbitrate their disputes about a facility’s neglect of a resident’s basic welfare and safety needs.

To the extent the plaintiffs’ complaint in this case fails to detail whether they are alleging deficiencies in the nursing facility’s rendering of medical services or instead in its provision of custodial care, we conclude that they should be permitted to amend their complaint to specify.

Failure to verify accuracy of citations in appellate brief

AI hallucinations; $10,000 in sanctions

Noland v. Land of the Free, LP (2025) __ Cal.App.5th __ (Second Dist., Div. 3)

Plaintiff’s action against her former employer for various wage-and-hour violations was dismissed on summary judgment. The Court of Appeal affirmed. It published its opinion to address the issue of the consequences of submitting a brief that contains AI-generated false or “hallucinated” citations, that is, citations to cases that either do not exist, or to cases that do exist, but do not contain the propositions of law for which they are cited.

Nearly all the legal quotations in appellant’s opening brief, and many in the reply, were fabricated. Plaintiff’s counsel admitted that he had used AI to assist him in writing the brief. He claimed to be unaware that AI could hallucinate fabricated legal citations.

The opinion explains: “We therefore publish this opinion as a warning. Simply stated, no brief, pleading, motion, or any other paper filed in any court should contain any citations – whether provided by generative AI or any other source – that the attorney responsible for submitting the pleading has not personally read and verified. Because plaintiff’s counsel’s conduct in this case violated a basic duty counsel owed to his client and the court, we impose a monetary sanction on counsel [of $10,000], direct him to serve a copy of this opinion on his client, and direct the clerk of the court to serve a copy of this opinion on the State Bar.” The Court chose not to order any sanctions payable to the opposing side, since they did not point out the defects in the briefing in the Respondent’s brief.