What Happens If One Party Refuses to Arbitrate? Compelling Arbitration, Court Involvement, and Legal Remedies in California and Under the FAA

Arbitration clauses are intended to steer disputes away from traditional litigation and into private, binding resolution. But what happens when one party refuses to participate in arbitration, despite a valid agreement? Both federal law—with the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1–16—and California statutes, Cal. Civ. Proc. Code §§ 1280–1294.2, provide clear steps for compelling arbitration, court intervention, and managing risks for all involved.

The Binding Nature of Arbitration Agreements

Arbitration clauses are widely enforceable under both the FAA and California law. The FAA, 9 U.S.C. § 2, declares that written arbitration agreements “shall be valid, irrevocable, and enforceable,” subject only to defenses available at law or in equity for the revocation of any contract. California mirrors this principle at Cal. Civ. Proc. Code § 1281, which requires courts to order disputes to arbitration when there is a valid agreement to do so—unless grounds exist to revoke the contract.

Typical Scenario: Refusal and Its Consequences

Refusal to arbitrate can arise in several ways:

• One party ignores a demand to arbitrate.

• A respondent contests the validity or applicability of the arbitration clause.

• A party files a lawsuit hoping to bypass or invalidate the arbitration requirement.

If a party refuses, the aggrieved party may pursue remedies through the courts, seeking to compel arbitration.

Step 1: Formal Demand for Arbitration

Before court involvement, parties must generally serve a formal demand for arbitration, outlining the dispute, the arbitration agreement, and their intent to proceed. Some contracts require arbitration to be administered by organizations such as AAA or JAMS, with their own procedures for initiating cases.

Step 2: Filing a Petition to Compel Arbitration

If the opposing party fails to respond or contests their obligation, the next step is to seek a court order compelling arbitration:

California Procedure:

The petition is filed in superior court under Cal. Civ. Proc. Code § 1281.2. The petition must show the existence of a valid agreement, describe the dispute, and attach the relevant contract.

Federal Procedure:

In federal court, a motion to compel arbitration is brought under FAA, 9 U.S.C. § 4. The court examines whether an agreement exists, whether the dispute falls within its scope, and whether statutory defenses apply.

Opposing parties can challenge the motion, raising issues such as fraud, duress, unconscionability, or waiver (Cal. Civ. Proc. Code §§ 1281.2(a)–(c)).

Court Hearing and Ruling

The court conducts a summary proceeding. Unless there is clear evidence of invalidity or defenses, the strong legal policy favors arbitration (see Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983); Ericksen, Arbuthnot, McCarthy, Kearney & Walsh, Inc. v. 100 Oak Street, 35 Cal. 3d 312 (1983)). If the agreement is valid, the court will stay any related litigation and order the parties to proceed in arbitration (Cal. Civ. Proc. Code § 1281.4; FAA, 9 U.S.C. §§ 3–4).

Remedies for Continued Refusal

If a party still refuses after the court orders arbitration, remedies are available:

Dismissal or Stay:

The court may dismiss or stay claims asserted contrary to the arbitration agreement (Cal. Civ. Proc. Code § 1281.4; 9 U.S.C. § 3).

Default Proceedings:

In institutional arbitration (e.g., AAA/JAMS), rules often allow proceeding in the respondent’s absence, potentially resulting in a default award.

Contempt or Sanctions:

Refusal to comply with a court order may result in contempt proceedings under Cal. Civ. Proc. Code § 1218, or similar federal rules, including monetary sanctions.

Compelling Specific Performance:

Courts may issue orders compelling parties to participate in arbitration via injunctive relief.

Risks of Refusing Arbitration

Refusing to arbitrate does not generally confer any strategic advantage. It can cause:

• Delay and additional legal costs

• Loss of evidentiary or procedural rights, especially if default is entered

• Court sanctions or contempt penalties

• Adverse inferences in subsequent proceedings

Moreover, courts are unlikely to hear or resolve any aspect of a dispute covered by an enforceable arbitration agreement, absent a successful challenge to validity.

Exceptions and Defenses

Not every agreement to arbitrate can be enforced. Courts may deny a petition to compel if:

• Fraud or duress induced the agreement (Cal. Civ. Proc. Code § 1281.2(a); FAA).

• The clause is unconscionable or imposes prohibitive costs (Armendariz v. Foundation Health Psychcare Servs., Inc., 24 Cal. 4th 83 (2000)).

• Statutory claims (some labor disputes, public policy issues) are exempt or preempted.

• The party seeking arbitration has waived the right by substantial litigation conduct.

Challenges must be proven with factual and legal support; mere dislike of arbitration is inadequate.

Federal vs. State Law: Interplay and Preemption

The FAA governs most agreements involving interstate commerce and will preempt conflicting state law, ensuring broad enforcement of arbitration agreements (AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011)). California statutes supplement the process, detailing procedures for compelling arbitration and related stay orders (Cal. Civ. Proc. Code §§ 1281.2, 1281.4).

Practical Guidance

• Review contracts for arbitration clauses and applicable rules.

• Respond promptly to a valid arbitration demand.

• Raise any legal challenge to the clause early and with specific evidence.

• Seek legal advice if unsure about grounds to oppose or compel arbitration.

• Comply with court orders to avoid default, sanctions, or contempt.

Conclusion

Refusal to arbitrate when a valid contract requires it will almost always result in a court order compelling participation, and persistent refusal risks sanctions, default, and negative legal consequences. Arbitration agreements are robustly enforced under both federal and state law; parties should approach disputes and demands thoughtfully and ensure compliance to protect their rights.

Citations

• Cal. Civ. Proc. Code §§ 1280–1294.2

• Cal. Civ. Proc. Code §§ 1281, 1281.2, 1281.4, 1218

• Federal Arbitration Act, 9 U.S.C. §§ 1–16

• Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983)

• AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011)

• Armendariz v. Foundation Health Psychcare Servs., Inc., 24 Cal. 4th 83 (2000)

• Ericksen, Arbuthnot, McCarthy, Kearney & Walsh, Inc. v. 100 Oak Street, 35 Cal. 3d 312 (1983)