BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 802
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          ASSEMBLY THIRD READING
          AB 802 (Wieckowski) 
          As Amended  January 27, 2014
          Majority vote 

           JUDICIARY           7-2                                         
           
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          |Ayes:|Wieckowski, Alejo, Chau,  |     |                          |
          |     |Dickinson, Garcia,        |     |                          |
          |     |Muratsuchi, Stone         |     |                          |
          |     |                          |     |                          |
          |-----+--------------------------+-----+--------------------------|
          |Nays:|Wagner, Maienschein       |     |                          |
          |     |                          |     |                          |
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           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.

          3)Provides that it is the intent of the Legislature that private  
            arbitration companies comply with the legal obligations of  
            this act.

           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.))

          Code of Civil Procedure (CCP) Section 1281.96 requires private  
          arbitration companies to periodically publish on their Internet  








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          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.)

          4)No company conducting employment arbitrations fully complies  








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            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.)

          Unfortunately, the significant omission of required data may  








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          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.

          In order to address the longstanding problem of non-compliance,  








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          the bill also states the intent of the Legislature that private  
          arbitration companies comply with all legal obligations of the  
          act.  Finally, the bill clarifies existing obligations and  
          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: 0003012