The California Supreme Court recently issued a significant decision in Hohenshelt v. Superior Court, holding that the Federal Arbitration Act (FAA) does not preempt California laws requiring businesses to pay consumer or employment arbitration fees within 30 days.
The ruling in Hohenshelt, issued on August 11, 2025, is particularly relevant to businesses facing mass arbitrations, as it upholds a mechanism for creating settlement pressure by forcing a Hobson’s choice between (1) facing sanctions and a potential class action, or (2) immediately paying substantial arbitration fees.
SB 707 overview
Codified at California Code of Civil Procedure §§ 1281.97–99, SB 707 was enacted to address concerns about businesses delaying or refusing to pay arbitration fees in a consumer or employment dispute. The statute imposes an unconditional obligation on the drafting party of an arbitration agreement to pay all initial filing, administrative, and arbitrator fees within 30 days of receiving an invoice. Failure to meet this deadline constitutes a “material breach” of the arbitration agreement. In that event, the employee or consumer may withdraw his or her claims from arbitration, proceed in court, or compel the drafting party to pay sanctions, attorney’s fees, and the full share of arbitral costs needed to move forward.
Since its enactment, SB 707’s approach to fee-payment obligations has led to repeated challenges by defendants and disagreement among lower courts. Among other things, state and federal courts split on whether SB 707 is preempted by the FAA due to its impact on arbitration procedures.
Case background and decision in Hohenshelt
In Hohenshelt, the California Supreme Court resolved the split in a 5–2 decision, holding that SB 707 is not preempted by the FAA because it does not “single-out” arbitration contracts for unfavorable treatment. The Court concluded that just as failure for timely payment constitutes material breach under ordinary principles of contract law, SB 707’s requirement for timely payment simply specifies one scenario in which a material breach occurs. It also held that SB 707 “promotes” arbitration, as it requires timely payment of arbitration fees.
While the decision in Hohenshelt maintains SB 707’s enforceability, the California Supreme Court also held that certain pre-existing California statutes provide exemptions from the statute’s 30-day payment deadline. Specifically, the Court held that a drafting party may avoid penalties under SB 707 by showing that the delay was excusable under certain “background” statutes addressing mistake, inadvertence, surprise, or excusable neglect. However, the burden of proof lies with the party that missed the deadline to establish entitlement to an exemption, introducing potential uncertainty and risk.
Key takeaways
Under the Hohenshelt decision, businesses are encouraged to remain acutely aware of the risks associated with mass arbitrations involving California law, consumers, or employees.
In the short term, the tactic of mass-filing thousands of identical arbitration demands with instantaneous invoice deadlines will likely remain a viable means to coerce settlements. Over the longer term, SB 707 may become the subject of further judicial scrutiny, potentially taken up by the US Supreme Court.
As many practitioners may recall, the US Supreme Court previously held that California’s Discover Bank rule was preempted by the FAA. That decision allowed for the enforcement of class action waivers in consumer and employee arbitration agreements. It remains to be seen whether the Supreme Court takes up SB 707.
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