BILL ANALYSIS Ó AB 802 Page 1 ASSEMBLY THIRD READING AB 802 (Wieckowski) As Amended May 13, 2013 Majority vote JUDICIARY 7-2 ----------------------------------------------------------------- |Ayes:|Wieckowski, Alejo, Chau, | | | | |Dickinson, Garcia, | | | | |Muratsuchi, Stone | | | | | | | | |-----+--------------------------+-----+--------------------------| |Nays:|Wagner, Maienschein | | | | | | | | ----------------------------------------------------------------- SUMMARY : Clarifies existing consumer arbitration data disclosures by private arbitration companies. Specifically, this bill 1)Requires that private arbitration companies provide the currently-required disclosures in a sortable database format, rather than simply a "searchable" format. 2)Specifies further information to be provided in order to permit more accurate and comprehensive analysis and comparison, such as the identity of the initiating party, the assertion of counterclaims, specification of case types, and the location of the proceeding. 3)Provides that violation of the statute may be redressed by an action for injunctive relief. FISCAL EFFECT : None COMMENTS : The need for this bill was demonstrated at the Assembly Judiciary Committee's March 18, 2013, 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.)) AB 802 Page 2 Code of Civil Procedure (CCP) 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 - CCP 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.) Ten years after enactment of that law, the Assembly Judiciary 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 10 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. 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.)) 1)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.) 2)Of the remaining half, no arbitration company complies fully. (Report, page 1.) 3)Of the reporting companies, 90% fail to disclose the amount of the claim - an important factor in evaluating the outcome of the arbitration process. (Report, pages 11-12.) AB 802 Page 3 4)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.) 5)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 10-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.) 6)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.) 7)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.) 8)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.) 9)Most companies fail to report any information regarding other relief granted. (Report, page 19.) 10)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.) 11)Of the reporting companies, approximately one-third post outdated information. (Report, page 8.) AB 802 Page 4 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, a phenomenon that would go unnoticed if that arbitration company were permitted to disregard the data reporting law, as they evidently have been. 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. AB 802 Page 5 In order to address the longstanding problem of non-compliance, the bill also provides - comparably to similar laws in other states - that a violation of the statute may be corrected by an action for equitable relief. In an appropriate case, the bill also permits a court in its discretion to order a civil penalty, which would be dedicated to the support of nonprofit community arbitration and mediation programs funded under the Dispute Resolution Programs Act (DRPA). Finally, the bill provides for some additional data points suggested by scholars and experts to permit better analysis and comparison, consistently with the testimony at the Assembly Judiciary Committee's oversight hearing. Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334 FN: 0000544