BILL ANALYSIS Ó
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|Hearing Date:June 17, 2013 |Bill No:AB |
| |993 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Ted W. Lieu, Chair
Bill No: AB 993Author:Linder
As Amended:June 10, 2013 Fiscal: No
SUBJECT: Contractors: arbitration.
SUMMARY: Revises and updates the provisions relating to Contractors
State License Board's arbitration program that provides for an
alternative dispute resolution process between consumers and
contractors for claims up to $50,000, and clarifies the arbitration
process, the arbitrator's authority, awarding of attorney's fees, as
specified, and makes other clarifying, technical and conforming
changes.
Existing law:
1)Licenses and regulates more than 300,000 contractors under the
Contractors State License Law (Contractors Law) by the Contractors
State License Board (CSLB) within the DCA. The CSLB is under the
direction of the registrar of contractors (Registrar). (Business
and Professions Code (BPC) § 7000 et seq.)
2) Establishes an arbitration process administered by CSLB to resolve
disputes between contractors and consumers that: (BPC §§ 7085.5 -
7085.9)
a) Requires an arbitrator or arbitrator association to be
approved by the CSLB when a dispute goes to arbitration.
b) Requires a procedure for scheduling the arbitration hearing
whereby CSLB or the appointed arbitration association provides
the parties with a list of the times, dates and locations of the
hearing to be held, and requires each party to notify the
arbitrator of the convenient times and dates for that party.
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c) Specifies that any person having a direct interest in the
arbitration is entitled to attend the hearing and provides that
the arbitrator may exclude any witness, other than a party or
other essential person, during the testimony of any other
witness, and authorizes the arbitrator to determine the propriety
of the attendance of any other person.
d) Provides that a recording of a hearing is not required, but
allows a party to pay for a recording to be made, without
obliging this party to share the recording with the arbitrator.
e) Authorizes the hearing to be reopened on the arbitrator's own
motion, and does not specify whether this can be done prior to or
after an award has been rendered.
f) Provides that service of any papers or process in connection
with the proceedings shall be by personal service or by regular
mail to a party at the last known address, but does not define
when service is considered complete.
g) Authorizes an arbitrator to grant any remedy or relief deemed
just and equitable and within the scope of the CLSB's referral to
the arbitrator and the requirements of CSLB, including costs and
expenses.
h) Requires the CSLB to pay the expenses of one board-appointed
expert witness when those services are requested by either party
to the arbitration and the case involves workmanship issues that
are itemized in the complaint and that have not been repaired or
replaced.
This bill:
1)Revises the current procedure for scheduling an arbitration hearing
and instead requires the arbitrator to fix the time, date, and
location of the hearing after considering the responses of the
parties' availability.
2)Prohibits an arbitrator from excluding a person other than the direct
party involved from attending an arbitration hearing without good
cause, consistent with the public nature of the proceeding.
3)Provides that if a party chooses to make a recording of the hearing,
they shall supply a copy of that recording to the arbitrator.
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4)Clarifies that an arbitrator can reopen a hearing upon his own motion
only prior to the rendering of an award.
5)Clarifies that service of papers by first-class mail or awards by
certified mail shall be complete upon deposit in a post office,
mailbox, subpost office, substation, or mail chute, or other like
facility regularly maintained by the United States Postal Service in
a sealed addressed envelope, with postage paid, as specified.
6)Provides that a party submitting a dispute to arbitration waives any
right to recover attorney's fees, or to challenge an arbitrator's
award of attorney's fees, in a civil action regarding the dispute.
7)Revises and recasts requirements for the CSLB to pay the expenses of
a board-appointed expert witness to clarify that both of the
following conditions must apply: (1) The expert witness services
are requested by either party, and, (2) The case involves
workmanship issues that are itemized in the complaint and that have
not been repaired or replaced.
8)Makes technical, clarifying and conforming changes.
FISCAL EFFECT: This measure has been keyed "non-fiscal" by
Legislative Counsel.
COMMENTS:
1.Purpose. This bill is sponsored by the Contractors State Licensing
Board (CSLB) to amend Business and Professions Code § 7085.5 to
clarify and refine various provisions of the [arbitration program]
section. According to the CSLB, the proposed changes will increase
the clarity of the process for both homeowners and contractors.
Additionally, the proposed changes are more in line with current
case law and best practices.
According to the Author, the Contractors Law is currently silent or
lacks clarity on several pertinent issues, including the authority
of arbitrators, the award of attorney fees and other civil remedies.
Although these issues are now managed through internal procedures,
statutory changes are needed to provide more explicit guidance to
participants in the CSLB arbitration program.
2.Background. The Contractors State License Board's (CSLB's)
Arbitration Program is governed by BPC §§ 7085-7085.9. The program
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provides an alternative dispute resolution process, the purpose of
which is to resolve consumer complaints equitably and efficiently.
Many disputes between consumers and contractors can be resolved
efficiently and satisfactorily through arbitration. Arbitration is
usually defined as an informal process in which two or more persons
agree to let an impartial third person or panel make a final
decision in a dispute between them. Because of the many advantages
arbitration can offer, the CSLB offers arbitration for the
resolution of disputes that meet certain criteria. The CSLB will
pay for the hearing, the arbitrator, and the services of one
board-appointed expert witness per complaint. Only contractors with
clear disciplinary records can qualify for participation in
arbitration. Complaints involving deceptive or fraudulent practices
will continue to be investigated by the CSLB.
For a case to qualify for voluntary arbitration under BPC § 7085, each
of the following apply:
The dispute must involve damages greater than $12,500 and
less than $50,000;
The contractor must possess a license that was in good
standing at the time of the alleged violation;
The contractor must not have a record of prior violations;
The contractor must not currently have a pending
disciplinary action;
The parties must not have previously agreed to private
arbitration of the dispute, either in their contract or
otherwise.
Depending on the type of defect, the complaint must be filed within
either four or ten years after the alleged wrongful act or omission
causing the dispute occurred, or within the duration of any written
warranty for which breach is alleged. The four-year time period
applies to disputes involving patent (obvious) defects and the
ten-year time period applies to disputes involving latent (hidden)
structural defects. (BPC § 7091).
"Voluntary" and "binding" are key terms used in reference to the
arbitration program. Participation in the CSLB's arbitration
program is voluntary for both parties. Therefore, if either party
chooses not to participate, the dispute will not be arbitrated but
will instead be investigated by the CSLB. However, if both parties
agree to arbitration, they are agreeing to binding arbitration . In
other words, both the consumer and contractor must comply with the
decision of the arbitrator. In binding arbitration, parties who
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refuse to comply may be taken to court and have a judgment entered
against them. In addition, licensed contractors who fail to comply
with an award that is issued against them may have their licenses
suspended or revoked.
1.Consumer Case Prompted Needed Changes. According to the Assembly
Business, Professions and Consumer Protection Committee analysis,
this bill originated from a homeowner who had negative experience
with the current CSLB arbitration process. After the arbitrator
issued a decision in favor of the contractor, the contractor sued
the homeowner to recover attorney's fees, even though the intent of
arbitration is to prevent additional litigation. The judge
subsequently awarded attorney's fees to the contractor, stating that
the original contract with the homeowner included a clause that
allowed the contractor to sue for recovery of attorney's fees, and
that those rights were never waived upon entering into arbitration.
2.Prior Legislation. AB 611 (Nakanishi, 2007) would have increased the
monetary cap on cases that may be referred to a voluntary
arbitration program by the CSLB, from its current maximum of
$50,000, to a maximum of $100,000; excluded attorney's fees from the
costs that may be awarded by the arbitrator. ( Status : This bill
died on the Senate Floor's Inactive File)
AB 2336 (Nakanishi, 2008) was similar to the language in AB 611.
( Status : This bill died without being heard in Assembly Business
and Professions Committee.)
SB 1112 (Business, Professions and Economic Development Committee,
Chapter 280, Statutes of 2005) increased the dollar amount of the
damages threshold for arbitration to correspond to the amount of a
contractor license bond and made clarifications regarding CSLB
arbitration proceedings.
AB 1382 (Correa, Chapter 363, Statutes of 2003) deleted the authority
of a CSLB arbitrator to order specific performance of a contract,
and further revised the existing requirement that the CSLB pay the
expenses of one expert witness in an arbitration upon the request of
either party, require the expert witness only when workmanship
issues arise.
3.Arguments in Support. In sponsoring the bill, the Contractors State
License Board (CSLB) writes that AB 993 seeks to make several
changes to the existing arbitration program, to clarify and improve
the process for both consumers and contractors. CSLB's arbitration
program provides an alternative dispute resolution process, the
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purpose of which is to resolve consumer complaints equitably and
efficiently. CSLB states, "Although the relevant law provides a
detailed guide for the arbitration process, there are practical
changes that could improve and clarify the process for both
consumers and contractors. Contractors' License Law is currently
silent or lacks clarity on several pertinent issues, including the
authority of arbitrators, the award of attorney fees and other civil
remedies. Statutory changes are needed to provide more explicit
guidance for CSLB Arbitration Program participants."
Spa & Pool Industry Education Council (SPEC) states that currently the
CSLB's arbitration program is ambiguous with respect to the
authority of arbitrators when awarding attorney fees and other civil
remedies. Statutory changes to the program will provide explicit,
needed guidance to the arbitrators during these proceedings.
NOTE : Double-referral to Judiciary Committee.
SUPPORT AND OPPOSITION:
Support:
Contractors State License Board (sponsor)
California Chapter of the American Fence Association
California Fence Contractors Association
Engineering Contractors Association
Flasher Barricade Association
Marin Builders Association
Spa & Pool Industry Education Council
Opposition:
None on file as of June 12, 2013
Consultant:G. V. Ayers