BILL ANALYSIS AB 2656 Page 1 Date of Hearing: April 23, 2002 ASSEMBLY COMMITTEE ON JUDICIARY Ellen M. Corbett, Chair AB 2656 (Corbett) - As Amended: April 17, 2002 SUBJECT : CONSUMER ARBITRATION COMPANIES: DATA COLLECTION KEY ISSUE: SHOULD PRIVATE JUDGING COMPANIES THAT CHOOSE TO HANDLE MANDATORY CONSUMER ARBITRATIONS PROVIDE BASIC DATA REGARDING THEIR PRIOR INVOLVEMENT IN SUCH CASES? SYNOPSIS In its February and March informational hearings, the Committee heard repeated and troubling allegations that consumer arbitrations may produce outcomes that are unfair to consumers. This bill, requiring that private judging companies begin to provide some basic information regarding their involvement in consumer arbitrations, is designed to reduce incentives to favor corporate parties, and to help address mounting public skepticism about the fairness of such arbitrations. SUMMARY : Seeks to begin to shed some sunshine on the consumer arbitration industry. Specifically, this bill requires that private judging companies collect and make available to the public some basic data regarding their involvement in, and the outcome of, mandatory consumer arbitrations. EXISTING LAW : 1)Generally enforces a pre-dispute agreement to submit a future legal controversy to binding arbitration. (Code of Civil Procedure 1281. All further statutory references are to this code unless otherwise noted.) 2)Permits the parties to select a method for the appointment of an arbitrator, or to petition the court for the appointment of an arbitrator if they cannot agree. (Section 1281.6.) 3)Allows private arbitrators to issue binding decisions that are legally enforceable but essentially unreviewable by a court; there is no appeal from an arbitrator's decision to a public court, even if the arbitration agreement expressly provides for judicial review. (Crowell v. Downey Community Hospital AB 2656 Page 2 Foundation, 95 Cal. App. 4th 730 (2002).) 4)Allows arbitrators to conduct arbitrations without allowing for discovery, complying with the rules of evidence, or explaining their decisions in written opinions. (Sections 1283.1; 1282.2; 1283.4) 5)Permits arbitrations to be conducted in private with no public scrutiny. (Ting v. AT&T, 192 F. Supp. 2d 902 (N.D. Cal. 2002).) 6)Permits arbitrators to disregard the law and/or the evidence in rendering their decisions. Awards may be enforced by the court, even if they are legally and factually erroneous. (Moncharsh v. Heily & Blas? et al, 3 Cal.4th 1 (1992).) 7)Allows arbitrators substantial if not absolute immunity from civil liability for acts relating to their decisions, even in the case of bias, fraud, corruption or other violation of law. (Baar v. Tigerman, 140 Cal. App. 3d 979 (1983).) 8)The only relief that a court may grant to an arbitral party, no matter what misconduct has taken place in the arbitration, is to vacate the award and return the parties to further arbitration, perhaps with the same arbitrator or arbitration company. The grounds on which an arbitrator's decision may be vacated are narrow and the standards are high. (Section 1282.6.) FISCAL EFFECT : As currently in print, this bill is keyed non-fiscal. COMMENTS : As the Committee heard in its February and March 2002 informational hearings, in contrast to the proceedings of public courts, virtually all consumer arbitrations are conducted in secret because the arbitration clauses or rules of the designated provider impose secrecy. As the Committee also heard, however, there is nothing inherent in the nature of arbitration or the function of the arbitrator that requires such secrecy. Indeed, the Office of the Independent Administrator that overseers Kaiser health care arbitrations already publishes some data regarding its process and results, and the Department of Managed Health Care will soon be collecting more information regarding all health care arbitrations because it feels such openness is needed for the public. AB 2656 Page 3 Moreover, barring the arbitration doors to any public scrutiny only feeds apparently growing public skepticism that arbitration is really as fair as its proponents claim. In order to address these concerns and reduce any bias that may exist in favor of corporate repeat-players in consumer arbitration, AB 2656 outlines some basic data that private judging companies must keep and disclose when they choose to handle consumer arbitrations. The author state that this data will be of interest both to consumers, to businesses and to scholars and policymakers who wish to study and evaluate how the arbitration industry is working and whether there are differences among individual private judging companies. According to the author, this bill is not an end but a beginning in the state's effort to start understanding what really is happening in the rapidly growing private judging industry. In support of the bill, Consumers Union states: "AB 2656 (Corbett) will provide greater accountability for arbitration provider organizations by requiring them to plainly disclose to the public information such as the number of arbitrations handled for a particular business and the outcome of those arbitrations. Consumers deserve to know how many other cases a private judging company such as the American Arbitration Association has handled for a particular business, such as a bank, and whether the business or the consumer won most of those cases. Public disclosure of arbitration results is particularly important because of the risk that a business which is a "repeat player" in arbitration might receive more favorable treatment in the arbitration than an individual consumer who may only have one arbitration with a private judging company. This might occur as a result of the manner in which the arbitration procedure is structured." The Consumer Attorneys of California add: "Consumer Attorneys view AB 2656 as crucial to informing the public about the currently very secretive nature of arbitration proceedings. Currently, we do not have access to detailed information about the arbitration process. Arbitrations are conducted in secret and results are hidden from the public. Therefore, the public may never become aware of patterns of illegal or deceptive practices. We believe that such public information is a crucial first step to shedding light on this backroom process." AB 2656 Page 4 This bill has also merited special attention by the Los Angeles Times, which editorialized on March 16, 2002, that "HMO leaders and Sacramento legislators should embrace a package of bills introduced this week that would ? require private judging corporations to report the results of arbitration proceedings." Preserving Privacy . Notwithstanding the substantial public interest in the fairness of consumer arbitrations, it is important that the privacy of arbitration parties be preserved. Therefore, AB 2656 does not require the collection of any personal or confidential data regarding individual or business parties. Because private judging companies may do a large volume of mediation business with corporate clients which, like any other revenue stream, may contribute to an incentive to favor repeat-players in arbitration, this bill also provides that the private judging company indicate the number of times that the non-consumer party has been involved in mediations with the private judging company. It may be contended that information regarding prior involvement with a private judging company as a party to a mediation is confidential. However, this argument appears to rest on a potential misunderstanding of the mediation confidentiality law. In order to foster open communication in mediation, the statements made by parties during the mediation are wisely privileged for the purpose of civil actions in court. (Evidence Code section 1115 et seq.) Of course, there appears to be no such policy justification, and therefore no needed confidentiality protection regarding the simple fact that a party has participated in mediation. Indeed, a party's participation in family court mediation, for example, is currently a matter of public record (though the statements made in such proceedings are of course privileged). Author's Amendments to Clarify Language. The author has informed the Committee of some technical amendments to clarify some of the language. The introductory paragraph of the bill should read: 1281.96. Any private judging company thatparticipates inadministers or is otherwise involved in, a consumer arbitration shall collect, publish at least quarterly, and make available to the public in a computer searchable format, which shall be accessible at the Internet Web site of the AB 2656 Page 5 private judging company, if any, and on paper upon request, all of the following information regarding each consumer arbitration: Prior Related Legislation . SB 475 (Escutia), Ch. 362, Stats. 2001, established ethical obligations for private arbitrators. Pending Related Legislation. AB 2504 (Jackson) regarding judicial recruitment and employment by private judging companies; AB 2574 (Harman) regarding financial conflicts of interest between private judging companies and parties in consumer arbitration; AB 3029 (Steinberg) regarding designated private judging companies, consulting and solicitation; AB 3030 (Corbett) regarding immunity of private judging companies. REGISTERED SUPPORT / OPPOSITION : Support California Employment Lawyers Association Congress of California Seniors Consumer Attorneys of California Consumer's Union Older Women's League of California Opposition None on file. Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334