BILL ANALYSIS                                                                                                                                                                                                    Ķ






                             SENATE JUDICIARY COMMITTEE
                         Senator Hannah-Beth Jackson, Chair
                              2013-2014 Regular Session


          AB 2617 (Weber)
          As Amended April 30, 2014
          Hearing Date: June 24, 2014
          Fiscal: No
          Urgency: No
          RD


                                        SUBJECT
                                           
                           Civil Rights: Waiver of Rights

                                      DESCRIPTION  

          This bill would impose specified restrictions on the future  
          contractual waivers of rights under the Ralph Civil Rights Act  
          and the Tom Bane Civil Rights Act. 

                                      BACKGROUND  

          California has led the nation in enacting a statutory scheme  
          which provides for civil, criminal, and administrative penalties  
          for violations of civil rights laws.  In particular, the Ralph  
          Civil Rights Act and Bane Civil Rights Act were designed to  
          protect individuals from hate-based crimes of violence.  Despite  
          these statutory protections, hate crimes are still a common  
          occurrence in some areas of California.  

          This bill seeks to implement specified restrictions on future  
          contractual waivers of rights under these civil rights statutes  
          so as to ensure that the private and public enforcement of these  
          rights are not undermined.

                                CHANGES TO EXISTING LAW
           
           Existing law  authorizes a court, if it finds as a matter of law  
          that the contract or any clause of the contract was  
          unconscionable at the time it was made, to refuse to enforce the  
          contract, or it may enforce the remainder of the contract  
          without the unconscionable clause, or it may so limit the  
          application of any unconscionable clause as to avoid any  
                                                                (more)



          AB 2617 (Weber)
          Page 2 of ?



          unconscionable result.   (Civ. Code Sec. 1670.5(a).)
           
          Existing law  , the Ralph Civil Rights Act, provides that all  
          persons within the jurisdiction of this state have the right to  
          be free from any violence, or intimidation by threat of  
          violence, committed against their persons or property because of  
          personal or other characteristics or statuses, such as political  
          affiliation, sex, race, color, religion, marital status, sexual  
          orientation, or position in a labor dispute.  (Civ. Code Sec.  
          51.7.)

           Existing law  , the Bane Civil Rights Act, prohibits violence or  
          the threat of violence based on grounds such as race, color,  
          religion, ancestry, national origin, political affiliation, sex,  
          sexual orientation, age, disability, or position in a labor  
          dispute.  (Civ. Code Sec. 52.1.)

           Existing law  provides that a person who violates the Ralph Civil  
          Rights Act or aids, incites, or conspires in that act, is liable  
          for actual damages suffered by any person denied that right, as  
          well as a civil penalty and attorney's fees.  (Civ. Code Sec.  
          52(b).)

           Existing law  provides that whenever there is reasonable cause to  
          believe that any person or group of persons is engaged in  
          conduct of resistance to the full enjoyment of any of the  
          foregoing rights the Attorney General, any district attorney or  
          city attorney, or any person aggrieved by the conduct may bring  
          a civil action.  (Civ. Code Sec. 52(c).)

           Existing law  provides that a person whose enjoyment of legal  
          rights has been interfered with, or attempted to be interfered  
          with, may bring a civil action for damages, including injunctive  
          relief, and other appropriate equitable relief.  (Civ. Code Sec.  
          52.1.)

           This bill  would provide that a person shall not require another  
          person to waive any legal right, penalty, remedy, forum, or  
          procedure for violation of the Ralph Civil Rights Act or the  
          Bane Civil Rights Act as a condition of entering into a contract  
          for the provision of goods and services, including the right to  
          file and pursue a civil action or complaint with or otherwise  
          notify the Attorney General or any other public prosecutor or  
          any law enforcement agency, the Department of Fair Employment  
          and Housing, or any court or other governmental entity.

                                                                      



          AB 2617 (Weber)
          Page 3 of ?



           This bill  would provide that a person shall not refuse to enter  
          into a contract with, or refuse to provide goods or services to,  
          another person on the basis that the other person refuses to  
          waive any legal right, penalty, remedy, forum, or procedure for  
          violation of these civil rights acts, including the right to  
          file and pursue a civil action or complaint with or otherwise  
          notify the Attorney General or any other public prosecutor or  
          any law enforcement agency, the Department of Fair Employment  
          and Housing, or any court or other governmental entity.

           This bill  would provide that the exercise of a person's right to  
          refuse to waive any legal right, penalty, remedy, forum, or  
          procedure for a violation of these civil rights laws shall not  
          affect any otherwise legal terms of a contract or an agreement.

           This bill  would require that any waiver of any legal right,  
          penalty, remedy, forum, or procedure for violation of these  
          civil rights acts be knowing and voluntary, and in writing, and  
          expressly not made as a condition of entering into the contract  
          or as a condition of providing or receiving goods and services,  
          and that any person who seeks to enforce such a waiver shall  
          have the burden of proving that it was knowing and voluntary and  
          not made as a condition of the contract or of providing or  
          receiving the goods or services.  

           This bill  would provide that any waiver of any legal right,  
          penalty, remedy, forum or procedure for a violation of this bill  
          that is required as a condition of entering into a contract for  
          goods or services shall be deemed involuntary, unconscionable,  
          against public policy, and unenforceable.  This provision does  
          not affect the enforceability or validity of any other provision  
          of the contract. 

           This bill  would provide that the foregoing protections apply to  
          any agreement to waive any legal right, penalty, remedy, forum,  
          or procedure for a violation of these civil rights laws entered  
          into, altered, modified, renewed, or extended on or after  
          January 1, 2015.  The bill would not apply to any agreement to  
          waive any legal rights, penalties, remedies, forums, or  
          procedures for a violation of these civil rights acts after a  
          legal claim has arisen. 
           
          This bill  would provide that these provisions shall not be  
          construed to negate or otherwise abrogate certain rights under  
          the law that are currently unwaivable.  

                                                                      



          AB 2617 (Weber)
          Page 4 of ?



           This bill  would include legislative findings and declarations as  
          follows:
           it is the policy of the State of California to ensure that all  
            persons have the full benefit of the rights, penalties,  
            remedies, forums, and procedures established by the Ralph  
            Civil Rights Act and the Tom Bane Civil Rights Act, and that  
            individuals shall not be deprived of those rights, penalties,  
            remedies, forums, or procedures through the use of involuntary  
            or coerced waivers; and
           it is the purpose of this act to ensure that a contract to  
            waive any of the rights, penalties, remedies, forums, or  
            procedures under the Ralph Civil Rights Act or the Tom Bane  
            Civil Rights Act, including any provision that has the effect  
            of limiting the full application or enforcement of any right,  
            remedy, forum, or procedure available under the Ralph Civil  
            Rights Act or the Tom Bane Civil Rights Act, is a matter of  
            voluntary consent, not coercion.

                                        COMMENT
           
          1.    Stated need for the bill  

          According to the author: 

            The Ralph Civil Rights Act ([Civ. Code Sec.] 51.7) and the  
            Bane Civil Rights Act ([Civ. Code Sec.] 52.1) prohibit  
            violence or the threat of violence based on race, color,  
            religion, ancestry, national origin, political affiliation,  
            sex, sexual orientation, age, disability, or position in a  
            labor dispute. An aggrieved individual can sue based on  
            violations of the rights expressed in these acts, but courts  
            are increasingly inclined to honor a signed waiver requiring  
            the parties to submit to arbitration.

            Arbitration can be a legitimate form of conflict resolution  
            provided that the parties involved are fully informed of how  
            arbitration works and both agree to submit to it voluntarily.  
            Unfortunately, the increasingly widespread practice of making  
            mandatory arbitration a condition of a contract puts the  
            consumer at an extreme disadvantage as there is not equity in  
            the agreement where a waiver of legal rights is a condition of  
            the contract. This is especially true in civil rights cases,  
            where the intent of the laws is [  ] to provide a mechanism  
            for a legal remedy and to reinforce through public proceedings  
            that these actions are not sanctioned by the state. Because  
            the nature of arbitration is secret and decisions can be  
                                                                      



          AB 2617 (Weber)
          Page 5 of ?



            rendered by the arbitrator without reference to statute or  
            case law, the spirit and intent of the state's civil rights  
            laws are being seriously undermined.

            The case of DC v. Harvard Westlake [(2009) 176 Cal.App.4th  
            836] illustrates why the bill is needed. A high school student  
            received death threats from classmates based on his  
            misperceived sexual orientation. On the advice of law  
            enforcement, he withdrew from the private school and moved to  
            another part of the state. His parents decided to hold the  
            school accountable for inaction on disciplining the  
            perpetrators and for revealing the student's new school. Like  
            any victim of hate crimes and violation of civil rights, he  
            deserved his day in court, yet was denied because of a  
            mandatory arbitration clause in the enrollment contract signed  
            by his parents. 

            There is no right without a remedy and the remedy for  
            violations in these cases is best adjudicated under the  
            state's civil rights statutes and enforced by the courts.  
            Mandatory arbitration preemptively forces victims to submit to  
            arbitration proceedings conducted behind closed doors where  
            arbitrators are not required to adhere to the state's civil  
            rights statutes or existing case law, yet their decisions are  
            still binding and enforced by the courts.

            The forum of redress in civil rights cases should be chosen  
            freely rather than dictated to them by fine-print contract  
            provisions.  The courts play an irreplaceable role by  
            establishing precedents and issuing decisions in these cases  
            which bear on the public's interest in protecting citizens  
            from bias-based intimidation and discrimination.

          In support of the bill, the California State Conference of the  
          NAACP writes that "AB 2617 is good public policy in that it  
          strengthens the circumvention of California Civil Rights by  
          closing a loophole and prevents consumer abuse.  Currently some  
          employers, landlords and merchants abuse consumers by requiring  
          the consumer as a condition of receiving employment, housing, or  
          goods and services to enter a contract with a mandatory  
          arbitration clause buried in the contract preventing the  
          consumer from going to court to seek justice under California's  
          civil rights statutes.  [ . . . ]  Unfortunately, because of the  
          widespread mandatory arbitration waivers in contracts, the  
          effectiveness of the protections afforded by these [civil  
          rights] laws is being seriously undermined.  A right that is not  
                                                                      



          AB 2617 (Weber)
          Page 6 of ?



          enforceable in the courts is no right at all." 

          2.    Bill seeks to respond to a problem highlighted in a  
            controversial appellate court decision regarding hate crimes
           
          This bill would impose specified restrictions on the future  
          contractual waivers of rights under the Ralph Civil Rights Act  
          and the Bane Civil Rights Act, in part in response to the case  
          of D.C. et al. v. Harvard-Westlake School et al., (2009) 176  
          Cal.App.4th 836.  D.C. involved alleged threats of violence  
          against a student, D.C., at Harvard-Westlake school, a private  
          educational institution in Los Angeles.  According to the facts  
          of the case, several students at Harvard-Westlake used the  
          school's computers, went to D.C.'s Web site and posted death  
          threats against D.C., along with derogatory comments about him.   
          Several other posts contained threats with references to D.C.'s  
          misperceived sexual orientation as a homosexual.  When D.C.'s  
          father read the threats on the Web site, he immediately informed  
          Harvard-Westlake of the problem, believing that some of its  
          students were responsible.  The father also contacted the Los  
          Angeles Police Department, which, in turn, notified the Federal  
          Bureau of Investigation.  On the advice of the police, D.C.  
          withdrew from Harvard-Westlake.  He and his family moved to  
          another part of California, where he enrolled at a different  
          educational institution.  The Chronicle, Harvard-Westlake's  
          student newspaper, ran an article disclosing D.C.'s new  
          residential location and the name of the school he was  
          attending.  The article also disclosed that postings at the Web  
          site had referred to D.C. as a "faggot."  The faculty advisor to  
          the staff of The Chronicle approved the article before  
          publication.  Harvard-Westlake did not suspend or expel any of  
          the students who admitted posting the threats.

          D.C. and his parents attempted to sue Harvard-Westlake under the  
          hate crimes law.  (Civ. Code Secs. 51.7, 52.1.)  In response,  
          the school filed a petition to compel arbitration of all claims.  
           The petition was based on the contents of Harvard-Westlake's  
          "Enrollment Contract," signed by D.C.'s father, which consisted  
          of five pages.  The contract contained an arbitration provision,  
          stating: "I understand that any legal and actionable controversy  
          or claim arising out of or relating to this Agreement (including  
          but not limited to the determination of the scope and  
          applicability of this Agreement to arbitrate), the student's  
          enrollment in/departure from Harvard-Westlake or the student's  
          educational experience at Harvard-Westlake (including, but not  
          limited to academic matters and extracurricular activities and  
                                                                      



          AB 2617 (Weber)
          Page 7 of ?



          community service) shall be submitted to final and binding  
          arbitration to be held in Los Angeles County, California, before  
          a single, neutral arbitrator in accordance with JAMS'  
          Comprehensive Arbitration Rules and Procedures.  This  
          arbitration agreement applies during the term of this enrollment  
          agreement and survives after the termination of the enrollment  
          agreement."  The contract further contained an attorney's fees  
          provision, stating that in the event of any arbitration or  
          litigation between the parties, the prevailing parties would be  
          entitled to recover all reasonable attorney's fees.   

          The trial court granted the petition to compel arbitration and  
          the case went to a private arbitrator retained by JAMS (Judicial  
          Arbitration and Mediation Services) as specified in the  
          enrollment contract.  The arbitrator found for the school on all  
          counts, and ordered the parents to pay the school over half a  
          million dollars in attorney's fees and arbitration costs.  The  
          school then filed a petition to confirm the arbitrator's award.   
          The appellate court concluded that because hate crimes laws  
          constitute unwaivable statutory rights comparable to  
          antidiscrimination laws, arbitral expenses and attorney's fees  
          may not be imposed on plaintiffs.  The court noted that the  
          plaintiffs would not have been required to pay these expenses  
          had the dispute been heard in court and allowing them to be  
          imposed in arbitration would deter the filing of hate crimes  
          claims.  Thus, the court, although recognizing that the rights  
          provided for hate crimes statutes are unwaivable, upheld the  
          order to arbitrate, but reversed the order for the plaintiff to  
          pay the school's arbitral expenses and costs. 

          3.    Controversy surrounding mandatory arbitration

           In recent years, there have been frequent discussions as to the  
          merits and benefits of mandatory private arbitration as an  
          alternative forum to the civil justice system.  Supporters of  
          mandatory arbitration generally assert that it is a more  
          efficient and less costly manner of resolving legal disputes  
          because they are able to limit discovery, set their own rules  
          for presenting evidence, schedule proceedings at their own  
          convenience, and select the third party who will decide their  
          cases.  However, critics of private arbitration contend that it  
          is an unregulated industry, which is often costly and  
          unreceptive to consumers.  Consumer advocates view mandatory  
          arbitration as putting consumers and businesses employees on an  
          uneven playing field that creates an inclination by arbitrators  
          to decide cases in favor of businesses.  They further view  
                                                                      



          AB 2617 (Weber)
          Page 8 of ?



          arbitration as an expensive process which also puts consumers at  
          a disadvantage by imposing procedural limitations on their  
          ability to pursue their legal claims.  This is especially true  
          in cases where the business has pre-selected the company in the  
          contract who will arbitrate the claim.  Critics contend that  
          arbitrators have far less incentive to be fair to both sides  
          when they owe their engagement to the business that will  
          repeatedly appear before them, unlike the consumer party who did  
          not choose the arbitration company and is not likely to be the  
          source of future work for the arbitrator.  

          These concerns are compounded by the fact that there are little,  
          if any, regulations or legal standards imposed on arbitrators or  
          their decisions.  Regardless of the level or type of mistake, or  
          even misconduct, by the arbitrator, the grounds on which a court  
          will allow judicial review of an arbitration are extremely  
          narrow.  (See Moncharsh v. Heiley & Blase (1992) 3 Cal.4th 1  
          (holding that a court is not permitted to vacate an arbitration  
          award based on errors of law by the arbitrator, except for  
          certain narrow exceptions).)  Courts have recently begun to make  
          some exceptions to Moncharsh, and allowed for more expanded  
          judicial review of arbitral awards in certain circumstances.   
          (See Pearson Dental Supplies Inc. v. Superior Court (2010) 48  
          Cal.4th 665 (holding that error of law was sufficient grounds to  
          vacate the arbitral award because an arbitrator whose legal  
          error barred an employee subject to a mandatory arbitration  
          agreement from obtaining a hearing on the merits of a  
          discrimination claim under the Fair Employment and Housing Act  
          (or other claims based on unwaivable statutory rights) exceeded  
          his or her legal powers).)  Although the Pearson decision does  
          provide some recourse for individuals who were compelled to  
          arbitrate claims of unwaivable statutory rights, and effectively  
          denied a hearing on the merits for their claim, the general rule  
          providing for limited judicial review of arbitral awards is  
          still controlling.  

          4.    Mandatory arbitration may infringe upon meaningful  
            enforcement of unwaivable civil rights laws 
           
          While arbitration may be appropriate where parties have  
          relatively equal bargaining power and have mutually agreed upon  
          the forum, it arguably is not appropriate when the contract is  
          one of adhesion that a person has been forced to sign without  
          the right to negotiation.  This is particularly true in  
          instances where an individual signs arbitration agreements that  
          encompass unwaivable statutory rights.  
                                                                      



          AB 2617 (Weber)
          Page 9 of ?




          While a party is free to waive the advantage of a law intended  
          solely for his or her benefit, a law established for a public  
          reason cannot be waived by private agreement.  (Civ. Code Sec.  
          3513.)  Both the Ralph and Bane Civil Rights Acts provide for  
          enforcement by the Attorney General and other public  
          prosecutors, as well as the Department of Fair Employment and  
          Housing (DFEH), in addition to private rights of action for  
          equitable relief, civil penalties, and damages.  The rights and  
          remedies afforded under these Acts reflect their purpose in not  
          only vindicating individual rights, but also to provide a  
          mechanism to redress the harms hate-based violence causes to the  
          larger community.  

          Indeed, the court in D.C. v. Harvard-Westlake recognized the  
          fundamental public nature of the hate crimes statutes in holding  
          that the rights they establish should not be subject to waiver  
          by private contracts.  However, the court disregarded the  
          implications of upholding the mandatory arbitration of a  
          violation of the hate crimes laws.  The court instead  
          distinguished the required waiver of the right to have claims  
          resolved by the court from a complete waiver of statutory  
          rights.  ("While we recognize that a party compelled to  
          arbitrate such rights does not waive them, but merely 'submits  
          to their resolution in an arbitral, rather than judicial, forum'  
          ? arbitration cannot be misused to accomplish a de facto waiver  
          of these rights." (citing Little v. Auto Stiegler, Inc. (2003)  
          29 Cal.4th 1064).)  In other words, according to the D.C. Court,  
          requiring a party to allow a private arbitrator to decide hate  
          crimes violations is not, inherently, a waiver of rights and  
          procedures provided by the statutes.  However, as discussed in  
          the previous comment, there are many problematic aspects of  
          private arbitration which arguably indicates that a waiver of  
          the right to have the claims resolved by the court does  
          essentially equate with a complete waiver of rights.  

          This is especially true with arbitration of civil rights cases,  
          where private arbitration may block not only an individual's  
          access to the civil justice system, but also public prosecution  
          by the Attorney General or other prosecutors or a complaint to  
          the DFEH.  (See Sonic-Calabasas A, Inc. v. Moreno (2013) 57  
          Cal.4th 1109) (private arbitration clause precluded employee  
          from making use of the enforcement mechanism of the state Labor  
          Commissioner for redress of alleged labor law violation).)   
          Moreover, a fundamental feature of the hate crimes enforcement  
          scheme is that immediate protective and/or restraining orders  
                                                                      
                                   


          AB 2617 (Weber)
          Page 10 of ?



          may often be needed to prevent further abuse.  Even if an  
          arbitrator were to believe that immediate intervention was  
          necessary, private arbitration does not provide for orders  
          necessary for immediate injunctive relief.  Thus, there are  
          ample policy reasons for which to conclude that claims rooted in  
          unwaivable civil rights are not appropriate for private  
          arbitration, particularly mandatory private arbitration.

          5.    Bill would prohibit waiver of rights under hate crimes laws  
          except as specified

           This bill would provide that no person shall require another  
          person to waive any legal rights, penalty, remedy, forum, or  
          procedure for a violation of the Ralph Civil Rights Act or Bane  
          Civil Rights Act as a condition of entering into a contract for  
          goods or services.  This bill would further provide that no  
          person shall refuse to enter into a contract with, or refuse to  
          provide goods and services to another person on the basis that  
          the person refuses to waive his or her rights.  Thus, for  
          example, a private school could not require, as in the D.C.  
          case, a student's parents to sign a mandatory arbitration  
          agreement as a condition of enrolling the student at the school.  
           Nor could the private school refuse to enroll the student  
          because his or her parents refused to waive their rights.  Any  
          waiver of legal rights, penalty, remedy, forum, or procedure for  
          a violation of the Ralph Civil Rights Act or Bane Civil Rights  
          Act that is required as a condition of entering into a contract  
          for goods and services would be deemed to be involuntary,  
          unconscionable, against public policy, and unenforceable.

          In addition, this bill would prohibit waivers of any legal  
          right, penalty, remedy, forum, or procedure for violations of  
          the Ralph and Bane Civil Rights Act, unless they are knowing and  
          voluntary, in writing, and expressly not made as a condition of  
          entering into a contract for, or receiving, goods and services.   
          Any person seeking to enforce a waiver of rights under this bill  
          would have the burden of proving that the waiver was made  
          knowingly and voluntarily, and not made as a condition of  
          receiving goods or services.  

          This bill would apply to any agreement, including an agreement  
          to accept private arbitration, entered into, altered, modified,  
          renewed, or extended on or after January 1, 2015.

          As articulated by the D.C. court, the legal rights to be free  
          from unlawful violence afforded under the Ralph and Bane Civil  
                                                                      



          AB 2617 (Weber)
          Page 11 of ?



          Rights Act, are unwaivable statutory rights.  However, this bill  
          would provide that an individual may knowingly and voluntarily  
          waive a legal right, remedy, forum, or procedure for violations  
          of the Acts, which could arguably be interpreted as authorizing  
          a complete waiver of all rights.  This would be contrary to the  
          longstanding public policy that civil rights established by the  
          state for a public reason cannot be contravened by a private  
          agreement.  (Civ. Code Sec. 3513; see also Civ. Code Sec. 1668  
          (stating that all contracts which have for their object,  
          directly or indirectly, to exempt anyone from responsibility for  
          his own fraud, or willful injury to the person or property of  
          another, or violation of law, whether willful or negligent, are  
          against the policy of the law) and Civ. Code Sec. 1953 (stating  
          that any provision of a lease or rental agreement of a dwelling  
          by which the lessee agrees to modify or waive specified rights  
          shall be void as contrary to public policy).)  

          As it is not the author's intent to allow individuals to  
          completely waive otherwise unwaivable rights by contract, this  
          bill also provides that its provisions shall not be construed to  
          authorize the knowing and voluntary waiver of such rights that  
          currently are unwaivable.

          6.    Federal Arbitration Act
           
          The Federal Arbitration Act (FAA) (9 U.S.C. Sec. 2) provides  
          that an arbitration agreement shall be valid, irrevocable, and  
          enforceable, except on such grounds as exist at law or in equity  
          for the revocation of any contract.  Opponents have raised  
          concerns that the restrictions on waivers in this bill may be  
          preempted by federal law.  In a coalition letter, they write:

            The Federal Arbitration Act (FAA) and the California  
            Arbitration Act (CAA) evidence a strong preference for  
            enforcement of arbitration agreements, so long as the  
            underlying contract is fair.  The FAA generally prohibits  
            state laws that restrict enforcement of arbitration  
            agreements.   [See Armanderiz v. Foundation Health Psychcare  
            Services, Inc. 24 Cal.4th 83 (2000) ("California law, like  
            federal law, favors enforcement of valid arbitration  
            agreements."); Sonic-Calabasas A, Inc. v. Moreno, 57 Cal.4th  
            1109 (2013) (agreeing that FAA preempts state law that seeks  
            to limit the waiver of administrative hearing in arbitration  
            agreement, as it interferes with arbitration goals of  
            providing "'streamlined proceedings and expeditious  
            results'"); and AT&T Mobility LLC v. Concepcion, 131 S.Ct.  
                                                                      



          AB 2617 (Weber)
          Page 12 of ?



            1740 (2011) (holding that the FAA prohibits states from  
            conditioning the enforceability of an arbitration agreement on  
            the availability of class wide arbitration procedures, as such  
            a requirement would be inconsistent with the intent of the  
            FAA).]  

            Despite consistent authority from both the United States  
            Supreme Court and California Supreme Court regarding the  
            inclination to promote arbitration and limit any statutes or  
            common law that interfere with arbitration, AB 2617 seeks to  
            do just that.  Specifically, AB 2617 prohibits any contract  
            that requires a waiver of the right to pursue a civil action  
            for the violation of any alleged civil rights under the Civil  
            Code or Fair Employment and Housing Act.  Given that all valid  
            arbitration agreements for goods and services require both  
            parties to waive their rights to pursue a civil action, AB  
            2617 directly interferes with the FAA and CAA.

          In response, the author argues that "[n]o court has ever  
          suggested that the FAA compels anyone to enter into an  
          involuntary arbitration contract. State laws that govern  
          arbitration, but do not affect its enforcement, are outside the  
          Act's preemptive scope.   This bill simply allows the individual  
          to make the choice to enter into an arbitration agreement  
          knowingly and voluntarily."

          Staff notes that this bill generally applies to all waivers of  
          legal rights, penalties, remedies, forums, or procedures under  
          the hate crimes statutes, not just specifically to arbitration  
          agreements.  This bill also relies on the general contract law  
          principle of unconscionability to invalidate waivers that are  
          required as a condition of entering into a contract for goods or  
          services.  Unconscionability is routinely applied by the courts  
          to invalidate contracts, including arbitration agreements.  It  
          would be difficult to imagine a scenario where a required waiver  
          of civil rights is not unconscionable.  Finally, this bill does  
          not completely bar waivers of legal rights under the hate crimes  
          statutes, or agreements to arbitrate such claims.  Instead, this  
          bill requires that all waivers be knowing and voluntary.  Thus,  
          it does not appear that this bill conflicts with the FAA.

          7.   Other opposition arguments  

          The opposition coalition to this bill raises not only federal  
          preemption under the California and Federal Arbitration Acts  
          (see Comment 2 above), but it also makes several other  
                                                                      



          AB 2617 (Weber)
          Page 13 of ?



          arguments.  First, the opposition argues that courts already  
          provide adequate protection for arbitration agreements.  For  
          example, the coalition cites Armanderiz v. Foundation Health  
          Psychcare Services, Inc. 24 Cal.4th 83 (2000), where "the  
          California Supreme Court held that, for employment arbitration  
          agreements that encompass unwaivable statutory rights, the  
          following protections must be included: (1) provide for a  
          neutral arbitrator; (2) no limitation of remedies; (3) adequate  
          opportunity to conduct discovery; (4) written arbitration award  
          and judicial review of the award; and, (5) no requirement for  
          the employee to pay unreasonable costs  that they would not  
          incur in litigation or arbitration fees."  The opposition also  
          cites several other recent cases, including Wherry v. Award,  
          Inc., 192 Cal.App.4th 1242 (2011), where "a court deemed an  
          independent contractor arbitration agreement unconscionable  
          where it expanded the right to attorney's fees for FEHA  
          violations to the company, and reduced the time to file a FEHA  
          claim from one year to 180 days;" and Ajamian v. CantorCO2e,  
          L.P., 203 Cal.App.4th 771 (2012), where the court denied  
          arbitration "where terms that required California independent  
          contractor to pay upfront costs, arbitrate in New York, and  
          waived statutory rights was substantively unconscionable." 

          Second, the opposition argues that arbitration provides an  
          effective and efficient means to resolve claims, compared to the  
          courts.  

            According to the U.S. District Court Judicial Caseload  
            Profiler, there were 278,442 civil cases filed in 2012, which  
            was approximately three percent lower than the previous year.   
             Over [30,000] of those cases were filed in California.  As of  
            September 2012, California had over 25,000 civil cases  
            pending, approximately 8,000 of which have been pending for  
            over a year.  Of those 8,000 cases, approximately 2,000 of  
            them have been pending for over three years.  
            Comparatively, in 2007 the American Arbitration Association  
            [AAA] produced a study titled 'AAA Arbitration Roadmap' that  
            provided the following statistics: for cases involving a claim  
            of up to $75,000, the median time for a final resolution was  
            175 days; for claims between $75,000 and $499,999, the median  
            time for final resolution was 297 days; and, for claims  
            between $500,000 and $999,999, the median time for final  
            resolution was 356 days.  [ . . . ]  Not only is arbitration  
            more efficient, but also it is less costly for  
            employers/businesses, as well as financially beneficial to  
            consumers/ employees."  The opposition cites a study that  
                                                                      



          AB 2617 (Weber)
          Page 14 of ?



            analyzed data from California that "found that consumers  
            prevail in arbitration 65.5 [percent] of the time, as compared  
            to 61 [percent] of the time in court.  Additionally,  
            California businesses paid an average of $149.50 in  
            arbitration fees whereas consumers only paid an average of  
            $46.63. [ . . . ]"   

          Lastly, the opposition argues that AB 2617 potentially prohibits  
          pre-litigation settlement agreements, because of a provision  
          that "states that the provisions of AB 2617 do not apply 'after  
          a legal claim has arisen.'  To the extent this section refers to  
          claims that have actually been filed in civil court, AB 2617  
          would restrict pre-litigation settlement agreements as well.   
          There are certainly numerous situations where two parties are  
          able to come to a resolution regarding a dispute before  
          litigation is filed.  AB 2617 would remove this opportunity and  
          force the parties to actually file a claim in civil court before  
          they could proceed with a settlement agreement that includes a  
          waiver of all claims."

          In response to these arguments, the author stresses that "AB  
          2617 is about choice.   When a dispute arises, it leaves open all  
          dispute resolution options open, including going to arbitration  
          if both parties voluntarily agree. Forced arbitration limits the  
          forum of resolution to a single choice made by a single party."   
          With respect to any limitation on pre-litigation settlement  
          agreements, the author outright rejects this assertion, arguing  
          that "[t]he bill does not even address pre-litigation settlement  
          agreements and there is nothing in the bill that affects them." 
            
          8.   Governor's veto message of AB 1680  

          This bill is substantially similar to the AB 1680 (Saldaņa,  
          2010) as was approved by this Committee. In vetoing AB 1680,  
          Governor Arnold Schwarzenegger stated:

            This bill would prohibit businesses from being able to enter  
            into contracts that require disputes to be resolved through  
            arbitration. Arbitration has evolved into a productive and  
            useful method for resolving disputes. It allows parties the  
            opportunity to resolve cases faster than traditional  
            litigation and without incurring the enormous expenses  
            associated with going to court. 

            Since this measure limits the ability of parties to use  
            arbitration, I am unable to sign this bill.
                                                                      



          AB 2617 (Weber)
          Page 15 of ?




           Support  :  American Civil Liberties Union; California School  
          Employees Association; California State Conference of the NAACP;  
          Consumer Attorneys of California; Equality California; Western  
          Center on Law & Poverty 

           Opposition  :  California Chamber of Commerce; Acclamation  
          Insurance Management Services; Allied Managed Care; California  
          Apartment Association; California Association of Health  
          Facilities; California Bankers Association; California Chapter  
          of American Fence Association; California Employment Law  
          Council; California Farm Bureau Federation; California Fence  
          Contractor's Association; California Grocers Association;  
          California Hospital Association; California Manufacturers and  
          Technology Association; California New Car Dealers Association;  
          California Restaurant Association;  
          California Retailers Association; California Citizens Against  
          Lawsuit Abuse; Civil Justice Association of California;  
          Coalition of Small and Disabled Veteran Business; 
          Cooperative of American Physicians; Flasher Barricade  
          Association; Marin Builders Association; National Federation of  
          Independent Business; Southwest California Legislative Council;  
          Torrance Area Chamber of Commerce; Western Growers Association

                                        HISTORY
           
           Source  :  Author 

           Related Pending Legislation  :  None Known 

           Prior Legislation  :

          AB 1680 (Saldaņa, 2010) See Comment 8. 

          AB 1715 (Committee on Judiciary, 2003) would have, among other  
          things, made it an unlawful employment practice for a covered  
          employer to require an employee to waive any rights or  
          procedures under the Fair Employment and Housing Act (FEHA) as a  
          condition of employment.  This bill was vetoed by Governor Gray  
          Davis.

          SB 1538 (Burton, 2002) would have, among other things, made it  
          an unlawful employment practice to require an employee to waive  
          any rights or procedures under FEHA, and would have made any  
          predispute arbitration agreement between an employer and  
          employee that violated this prohibition unenforceable.  This  
                                                                      



          AB 2617 (Weber)
          Page 16 of ?



          bill was vetoed by Governor Gray Davis.

           Prior Vote  :

          Assembly Floor (Ayes 49, Noes 25)
          Assembly Judiciary Committee (Ayes 7, Noes 2) 

                                   **************