BILL ANALYSIS Ó
AB 802
Page 1
Date of Hearing: April 9, 2013
ASSEMBLY COMMITTEE ON JUDICIARY
Bob Wieckowski, Chair
AB 802 (Wieckowski) - As Introduced: February 21, 2013
SUBJECT : PRIVATE ARBITRATION COMPANIES: DISCLOSURES
KEY ISSUE : SHOULD PRIVATE ARBITRATION COMPANIES PROVIDE
EXISTING DISCLOSURES IN A MORE COMPREHENSIBLE FORMAT?
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
SYNOPSIS
This bill arises out of the Committee's recent oversight hearing
on consumer arbitration. Existing law requires private
arbitration companies to publish certain basic information about
the consumer arbitration cases they administer or conduct.
Unfortunately, ten years after enactment of this obligation, the
Committee heard that there has been widespread non-compliance
with the law, generating continued controversy and skepticism
about the fairness of consumer arbitration. One of the most
essential reforms, according to testimony at the hearing from
both supporters and critics of consumer arbitration, is that the
required information be produced in a sortable spreadsheet
format in order to provide basic transparency and to make the
data useful to researchers and policymakers. At least one
private arbitration company currently produces its disclosures
in this format, and others agree that it would be readily
achievable for them to do so as well. The bill has no known
opposition.
SUMMARY : Clarifies existing consumer arbitration data
disclosures by private arbitration companies. Specifically,
this bill requires that private arbitration companies provide
the currently-required disclosures in a sortable database
format, rather than simply a "searchable" format.
EXISTING LAW requires a private arbitration company involved in
consumer arbitration cases to collect and make certain
information regarding those cases available to the public in a
computer-searchable format, accessible at the Internet Web site
of the private arbitration company, if it has an Internet Web
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site. (Code of Civil Procedure section 1281.96.)
COMMENTS : The need for this bill was demonstrated at the
Committee's March 18 oversight hearing examining compliance by
private arbitration companies with existing obligations to
disclose certain basic information regarding consumer
arbitrations. (See Assembly Judiciary Committee, Mandatory
Consumer Arbitration: Has Compliance With California's Landmark
Data Transparency Law Been Sufficient to Accomplish the
Legislature's Goals? (available at
http://ajud.assembly.ca.gov/reports.)
California's Landmark Consumer Arbitration Data Law Was Intended
To Help Inform The Debate Over The Alleged Pros and Cons of
Mandatory Arbitration And Deter Potential Abuses. Code of Civil
Procedure section 1281.96 requires private arbitration companies
to periodically publish on their Internet web sites a handful of
data points regarding their consumer arbitration proceedings.
With the goal of improving the availability of hard data and the
promotion of reasoned debate - and by transparency to deter any
potential abuses - section 1281.96 was designed to provide
sunshine on the process and outcomes in these cases to better
allow researchers and policymakers to evaluate the competing
contentions; to deter potential abuses; determine what if any
oversight might be needed to ensure that consumer arbitrations
are fair and accord with established notions of due process; to
reduce any potential incentives to favor business parties; and
to help address mounting public skepticism about the integrity
of the arbitration process. (See Assembly Judiciary Committee
report on AB 2656 (Corbett) of 2002.)
Despite This Worthy Goal, California's Consumer Data Publication
Law Has Apparently Not Been Successful - In Part Because There
Has Reportedly Been Widespread Noncompliance By The Arbitration
Companies. Ten years after enactment of that law, the Committee
heard that when consumer arbitration data has been properly
reported pursuant to the law, the statute has facilitated a
robust debate about outcomes in these arbitration proceedings.
Nevertheless, research reveals only two studies in the past ten
years that rely on the reported data. As experts have noted,
the paucity of research appears to reflect that the data is not
sufficiently complete or reliable to offer researchers a useful
source of information from which to analyze the consumer
arbitration process.
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A new study by the Public Law Research Institute at UC Hastings
College of Law shows that the longstanding and pervasive issues
of arbitration company compliance with the consumer data law
appear to persist. (Jung, et al, Reporting Consumer Arbitration
Data in California (March 15, 2013) (available at
http://gov.uchastings.edu/public-law/index.php.)
Roughly half of the private arbitration companies that
appear to be conducting business in California fail to post
any of the required information. (Report, pages 5-7.)
Of the remaining half, no arbitration company complies
fully. (Report, page 1.)
Of the reporting companies, 90 percent fail to disclose
the amount of the claim - an important factor in evaluating
the outcome of the arbitration process. (Report, pages
11-12.)
No company conducting employment arbitrations fully
complies with the requirement to identify the employee's
salary range - an important factor in evaluating whether
arbitration outcomes potentially vary based on the wealth
of the claimant. (Report, pages 12-13.)
Approximately half of the reporting companies do not, or
do not consistently, report the frequency with which the
business party has used the arbitration company previously
- an important factor in evaluating potential
"repeat-player" bias. Two of the noncomplying companies
have apparently been in business throughout the ten-year
life of the statute because they were identified as failing
to provide this information in a 2004 study; they have
apparently failed to comply from the very outset of the
statute. (Report, pages 14-16.)
While most of the reporting companies report the type of
disposition (e.g., settled, withdrawn, award made) at the
conclusion of the case, many companies do not report the
type of disposition in the terms required by the statute.
(Report, pages 21-22.)
A number of reporting companies fail to state or to
indicate clearly which party prevailed - a basic factor by
which to evaluate outcomes. (Report, pages 19-20.)
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A number of companies do not fully comply with the
requirement to report the fees charged by the arbitrator,
or the allocation of those fees to the parties - a key
question in the debate over the cost of mandatory consumer
arbitration. (Report, pages 26-27.)
Most companies fail to report any information regarding
other relief granted. (Report, page 19.)
Only one reporting company publishes its information in
a spreadsheet format, making it useful for reviewers. The
other reporting companies simply publish a text file (PDF
format), some of which run to nearly 80,000 cases, which
are virtually useless to researchers because they do not
allow data to be sorted by field. (Report, pages 22-24.)
Of the reporting companies, approximately one-third post
outdated information. (Report, page 8.)
Unfortunately, the significant omission of required data may
continue to foster skepticism of mandatory consumer arbitration.
In addition - apart from the problem of tolerating violations of
a legal obligation - the failure of arbitration companies to
provide the legally required data may also have the effect of
skewing the conduct of consumer arbitrations by permitting
unscrupulous arbitration companies to gain an unfair competitive
advantage over their law-abiding competitors. Like other
providers of services, arbitration companies compete with each
other to attract business. This competition can take a variety
of forms, giving rise to the criticism that it gives arbitration
companies an incentive to structure the arbitration process to
favor businesses, which are more likely than consumers and
employees to be repeat players in arbitration. Some observers
contend that self-regulation may be a valuable constraint
against the perceived incentive for arbitration companies to
favor business parties who offer the promise of repeat business.
However, the value of self-regulation would appear to be
largely lost, or at least unascertainable, without transparency.
For example, the American Arbitration Association (AAA) has
adopted important due process safeguards for consumer cases, and
reportedly will refuse to handle any case that does not meet its
standards. Businesses that fall below this standard may seek to
move their arbitrations to a less-demanding arbitration company,
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a phenomenon that would go unnoticed if that arbitration company
were permitted to disregard the data reporting law, as they
evidently have been.
Providing Data In A Sortable Database Format. The statute seeks
basic information about the time, cost and outcome of consumer
arbitrations in a "computer-searchable" format. Unfortunately,
many private arbitration companies - with the notable exception
of the AAA have interpreted "computer searchable" to mean a
simple text file, which many commenters have noted is virtually
useless for research purposes.
Amending the statute to clarify that a sortable spreadsheet
format, such as that used by the AAA, would provide
significantly greater transparency and utility according to
witnesses who testified at the hearing, including both
supporters and critics of mandatory arbitration. Because at
least one private arbitration company now publishes its
disclosures in a sortable spreadsheet format, this clarifying
amendment would appear to be highly practicable.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Opposition
None on file
Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334