BILL ANALYSIS Ó
AB 2667
Page 1
Date of Hearing: April 26, 2016
ASSEMBLY COMMITTEE ON JUDICIARY
Mark Stone, Chair
AB 2667
(Thurmond) - As Amended March 15, 2016
SUBJECT: UNRUH CIVIL RIGHTS ACT: MANDATORY WAIVERS OF LEGAL
RIGHTS AND PROTECTIONS
KEY ISSUE: SHOULD THE LEGISLATURE LIMIT CERTAIN CONTRACTUAL
AGREEMENTS THAT FORCE CALIFORNIA RESIDENTS TO WAIVE THEIR RIGHTS
UNDER THE STATE'S CORNERSTONE ANTI-DISCRIMINATION LAW, WHICH
PROHIBITS BUSINESSES FROM DENYING EQUAL ACCOMMODATION AND
SERVICES ON THE BASIS OF PERSONAL CHARACTERISTICS-SIMILAR TO A
FRAMEWORK ADOPTED BY THE LEGISLATURE AND SIGNED BY THE GOVERNOR
AIMED AT PROTECTING CALIFORNIA'S HATE CRIME LAWS?
SYNOPSIS
In 2014, Governor Brown signed into law AB 2617 (Weber, Chap.
910, Stats. 2014), which limits, but does not prohibit, certain
contractual waivers of rights under the Ralph Civil Rights Act
and the Bane Civil Rights Act, California's statutory scheme
designed to protect individuals from hate crimes. Replicating
the framework enacted under AB 2617, this bill similarly limits,
but does not prohibit, certain contractual waivers of rights
under California's Unruh Civil Rights Act (Unruh), the State's
cornerstone antidiscrimination law which prohibits business
establishments from denying equal accommodations and services on
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the basis of personal characteristics, including sex, race,
color, religion, ancestry, national origin, disability, medical
condition, genetic information, marital status, sexual
orientation, citizenship, primary language, or immigration
status. Simply put, this bill ensures that all Californians
enjoy the full benefit of the rights, penalties, remedies,
forums, and procedures established by the Unruh and that
individuals shall not be deprived of those rights, penalties,
remedies, forums, or procedures through the use of involuntary
or coerced waivers. Although this bill still allows such
waivers, it would require that the waivers be knowing and
voluntary. Additionally, this bill prohibits waivers that are
required as a condition of entering into a contract for goods
and services.
Supporters of the bill, including its co-sponsors, the NAACP-
California State Conference and the Consumer Attorneys of
California, contend that when consumers are able to enforce
their civil rights in court, the individual, as well as society
as a whole, benefits. Beginning with Brown v. Board of
Education, civil rights lawsuits have proven to be a
powerful-and sometimes the only-available tool in the fight to
ensure equal opportunity for all and have enacted significant
changes in society. The recent three part New York Times series
has highlighted the harms that forced arbitration inflicts on
Americans every single day. This bill, similar to AB 2617,
ensures that California residents can enjoy the full bulwark of
rights provided under California's civil rights laws.
Opponents of the bill, consisting of various business interests
led by the Chamber of Commerce, primarily contend that this bill
is likely pre-empted by the Federal Arbitration Act (FAA)
because it discriminates against arbitration clauses and
disfavors arbitration generally. Additionally, opponents argue
that arbitration benefits consumers, and this bill will result
in increased litigation costs to businesses.
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SUMMARY: Limits, but does not prohibit, certain contractual
waivers of California's civil rights statutes. Specifically,
this bill:
1)Prohibits a person from requiring another person-as a
condition of entering into a contract for goods and
services-to waive any legal right, penalty, remedy, forum, or
procedure for a violation of the Unruh Civil Rights Act,
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 law enforcement agency, the
Department of Fair Employment and Housing, or any court or
other governmental entity.
2)Prohibits a person from refusing 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 a
violation of the Unruh Civil Rights Act, 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 law enforcement agency, the Department of Fair
Employment and Housing, or any other governmental entity.
3)Provides that any waiver of any legal right, penalty, remedy,
forum, or procedure for a violation of the Unruh Civil Rights
Act 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.
Additionally provides that nothing in this subdivision shall
affect the enforceability or validity of any other provision
of the contract.
4)Requires any waiver of any legal right, penalty, remedy,
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forum, or procedure for a violation of the Unruh Civil Rights
Act to be knowing and voluntary, and in writing, and expressly
not made as a condition of entering into a contract for goods
or 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 law enforcement
agency, the Department of Fair Employment and Housing, or any
other governmental entity.
5)Provides that any person who seeks to enforce a waiver of any
legal right, penalty, remedy, forum, or procedure for a
violation of the Unruh Civil Rights Act shall have the burden
of proving that the waiver was knowing and voluntary and not
made as a condition of the contract or of providing or
receiving the goods or services.
6)Provides that the foregoing protections apply to any agreement
to waive any legal right, penalty, remedy, forum or procedure
for a violation of the Unruh Civil Rights Act entered into,
altered, modified, renewed, or extended on or after January 1,
2017.
7)Provides that the foregoing provisions are severable, and that
injunctive relief and other remedies are available for
violations of these provisions.
8)Makes the following legislative findings and declarations:
a) The Legislature finds and declares that 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 Unruh Civil
Rights Act and that individuals shall not be deprived of
those rights, penalties, remedies, forums, or procedures
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through the use of involuntary or coerced waivers.
b) 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 Unruh 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 Unruh Civil Rights Act, is a
matter of voluntary consent, not coercion.
EXISTING LAW:
1)Establishes the Unruh Civil Rights Act (Unruh), which provides
that all persons in California are free and equal, regardless
of a person's sex, race, color, religion, ancestry, national
origin, disability, medical condition, genetic information,
marital status, sexual orientation, citizenship, primary
language, or immigration status, and everyone is entitled to
the full and equal accommodations, advantages, facilities,
privileges, or services in all business establishments.
(Civil Code Section 51.)
2)Establishes the California Arbitration Act which provides that
agreements to arbitrate shall be valid, irrevocable, and
enforceable, except such grounds as exist at law or in equity
for the revocation of any contract. (Code of Civil Procedure
Section 1280 et seq.)
3)Similarly establishes the Federal Arbitration Act (FAA) which
provides that agreements to arbitrate shall be valid,
irrevocable, and enforceable, except such grounds as exist at
law or in equity for the revocation of any contract. (9
U.S.C. Section 1 et seq.)
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4)Provides that trial by jury is an inviolate right and shall be
secured to all. (Cal. Const. Article 1, Section 16.)
5)Permits arbitrators to disregard the law and/or the evidence
in rendering their decisions. Awards may be enforced by the
court, even if they are legally and factually erroneous.
(Moncharsh v. Heily & Blase et al (1992) 3 Cal.4th 1.)
6)Allows private arbitrators to issue binding decisions that are
legally enforceable but essentially not reviewable by a court;
there is no appeal from an arbitrator's decision to a public
court unless the arbitration agreement expressly provides for
judicial review. (Crowell v. Downey Community Hospital
Foundation (2002) 95 Cal. App. 4th 730; Cable Connection, Inc.
v. DIRECTV, Inc., 44 Cal. 4th 1334 (2008).)
7)Permits enforcement of private arbitration agreements that
preclude not only access to the courts but also access to
other governmental bodies responsible for enforcing state
laws, such as administrative complaint procedures regarding
employment laws. (Sonic-Calabasas A, Inc. v. Moreno, 174 Cal.
App. 4th 546 (2009), rev. granted, 99 Cal. Rptr. 3d 866
(2009).)
8)Allows arbitrators to conduct arbitrations without allowing
for discovery, complying with the rules of evidence, or
explaining their decisions in written opinions. (Code of
Civil Procedure Sections 1283.1, 1282.2, 1283.4.)
9)Permits arbitrations to be conducted in private with no public
scrutiny. (Ting v. AT&T (2002) 182 F.Supp. 2d 902 (N.D.
Cal.), affirmed, 319 F.3d 1126 (9th Cir 2003).)
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10)Allows arbitrators substantial, if not absolute, immunity
from civil liability for acts relating to their decisions,
even in the case of bias, fraud, corruption or other violation
of law. (Baar v. Tigerman (1983) 140 Cal. App. 3d 979.)
11)Provides that a court may vacate an arbitrator's decision if
the the award was procured by corruption, fraud or other undue
means; there was corruption in any of the arbitrators; the
rights of the party were substantially prejudiced by
misconduct of a neutral arbitrator, or other specified
conditions. (Code of Civil Procedure Section 1286.2.)
FISCAL EFFECT: As currently in print this bill is keyed
non-fiscal.
COMMENTS: The Unruh Civil Rights Act. California law has long
afforded its residents with broad protection against
unreasonable, arbitrary, or invidious discrimination based on
personal characteristics. Enacted in 1958, the Unruh Civil
Rights Act (Unruh Act) is a cornerstone of antidiscrimination
law in California that prohibits business establishments from
denying equal accommodations and services on the basis of sex,
race, color, religion, ancestry, national origin, disability,
medical condition, genetic information, marital status, sexual
orientation, citizenship, primary language, or immigration
status. Yet, the true scope of Unruh Act is even broader. The
Unruh Act has been consistently interpreted to cover all
arbitrary and intentional discrimination. (See In re Cox (1970)
3 Cal.3d 205, 212.)
In recent years, the Legislature has enacted several bills
amending the Unruh Act to expressly cover new classifications:
AB 1400 (Laird, Chap. 420, Stats. 2005) added marital status and
sexual orientation; AB 887 (Atkins, Chap. 719, Stats. 2011)
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added gender identity and gender expression; SB 559 (Padilla,
Chap. 261, Stats. 2011) added genetic information; and most
recently, SB 600 (Pan, Chap. 282, Stats. 2015) added
citizenship, primary language, and immigration status.
Consistent with California's goals of affording its residents
with broad protection against unreasonable, arbitrary, or
invidious discrimination, this bill bolsters the current
antidiscrimination statutory framework and imposes limits on
certain contractual agreements that seek to undermine the
state's statutory scheme that provides vital civil rights to
California residents.
Simply put, this bill ensures that all Californians enjoy the
full benefit of the rights, penalties, remedies, forums, and
procedures established by the Unruh Act and that individuals
shall not be deprived of those rights, penalties, remedies,
forums, or procedures through the use of involuntary or coerced
waivers. Although this bill still allows such waivers, it would
require that waivers are knowing and voluntary. Additionally,
this bill prohibits waivers that are required of the consumer as
a condition of entering into a contract for goods and services.
Application of the Unruh Act. Given that one of the policy
questions behind this bill is whether Californians should not be
coerced into waiving rights and privileges attached to their
civil rights (including the remedies, the forums, and the
procedures established under Unruh, and the ability to pursue a
civil action or complaint with, or otherwise notify the Attorney
General or any other public prosecutor, or law enforcement
agency, the Department of Fair Employment and Housing, or any
court or other government entity), a few real life examples that
demonstrate the importance of Unruh seem appropriate:
Angela Washington was in need of medical care. Because
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she was a minor at the time, her father contacted a
physician on her behalf to schedule a medical visit. The
physician agreed to treat Angela the following day. Both
Angela and her father are black. On the day of the
appointment, the physician refused to provide medical
treatment because of Angela's and her father's race.
Angela and her father filed a complaint against the doctor
for an Unruh violation and prevailed. (Washington v.
Blampin (1964) 226 Cal.App.2d 604.)
Birgit Koebke was an avid golfer. In fact, she paid
$18,000 in membership fees to join her local country club,
which provides a golf course, clubhouse, and dining room.
Members of the country club (and their spouses) are allowed
to play golf at the club as often as they wish without
paying any additional fees; guests of members pay a green
fee. A few years after joining the club, Birgit started a
relationship with Kendall French; the two later became
domestic partners. Kendall is also an avid golfer. After
several failed attempts by the couple to have the club
extend its spousal privileges to Kendall, the couple filed
a complaint against the club for an Unruh violation.
(Koebke v. Bernardo Heights Country Club (2005) 36 Cal.4th
824.)
Lydia Ortiz Hagberg was a member of a bank in Pasadena.
One day, she went to her branch to cash a check issued to
her by a different bank. The check appeared smudged, but
she presented her driver's license, her ATM card, and the
account printout from the issuing bank to the teller. When
she presented the smudged check, the teller had the
impression that the check was counterfeit. The teller
spoke to her direct supervisor who agreed that something
was suspicious. The supervisor called the issuing bank to
see if the check was fake. Then, the regional manager got
involved. The supervisor told her regional manager that
she was told that the check is a fake. While the
supervisor called the police, the regional manager called
the issuing bank to confirm one-last-time that the check is
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fake; the regional manager was told that the check was
indeed, real. The regional manager tried to cancel the
police call, but by then, it was too late because the
police had arrived. The police stopped and searched Lydia,
and then handcuffed her. As Lydia was being placed under
arrest, the teller said to Lydia that she "looked like a
criminal." Lydia, who is Hispanic, filed a complaint
against the bank for an Unruh violation. (Hagberg v.
California Federal Bank (2004) 32 Cal.4th 350.)
It seems safe to say that in these three cases, the agreement
between the business establishment (i.e. the medical office, the
country club, and the bank) and the consumer (i.e. Angela,
Birgit, Lydia) did not include a contractual provision that
coerced the consumer to waive her rights, penalties, remedies,
forums, or procedures under Unruh. Indeed, if that had been the
case, it would be unlikely that these cases would have reached a
judge or a courtroom. That is because such waivers - which this
bill seeks to limit - would require that violations be decided
in secret tribunals, conducted by private judging companies
(usually pre-selected and paid for by the alleged wrongdoer),
where the decision makers are not required to apply the law or
respect the evidence, and the process is not governed by
traditional legal principles of due process and the right to
appeal.
In support of the bill, the author writes:
Civil rights lack a public forum to ensure enforcement in
forced arbitration. When American consumers are able to
enforce their civil rights in court, more than just the
individual benefits. Beginning with Brown v. Board of
Education, civil rights lawsuits have proven to be a
powerful-and sometimes the only-available tool in the fight to
ensure equal opportunity for all and have enacted significant
changes in society. However, in recent years, corporations
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have used forced arbitration as a tool to evade
accountability. As the New York Times reported, in forced
arbitration, "they may have found, in the words of one law
firm, the 'silver bullet' for killing off legal
challenges?.The beauty of the clauses, the lawyers said, is
that often the lawsuit 'simply goes away.' (Silver-Greenberg
& Corkery, Sued Over Old Debt, and Blocked From Suing Back,
N.Y. Times (Dec. 22, 2015).)
The recent three part New York Times series has highlighted
the harms that forced arbitration inflicts on Americans every
single day. The stories are based on thousands of court
records, interviews with lawyers, judges, arbitrators and the
people who have been affected by forced arbitration, in 35
states - including California. Forced arbitration clauses are
routinely inserted into the fine print of contracts that
people must sign to buy a product or service or get a job.
Five of the largest banks in the country, PNC, Wells Fargo,
JPMorgan Chase, Citigroup and US Bancorp, all use it. A recent
petition signed by more than 100,000 consumers and activists
called on them to end the practice. And many popular online
services-Uber, Airbnb, Netflix, Instagram, Snapchat, and
Amazon, for example-all use it as well.
AB 2667 ensures that all Californians enjoy the full benefit
of the rights, penalties, remedies, forums, and procedures
established by the Unruh 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.
Private arbitration is essentially unregulated and highly
controversial when it is mandatory, rather than voluntary.
Proponents of the bill contend that, in their experience,
private arbitration is an "anything-goes" private justice
industry which can be costly and unreceptive to consumers.
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There is little, if any, regulation, oversight or legal
accountability of arbitrators to the parties, or the public.
Surprisingly to some, arbitrators are not regulated in any
fashion; they need not be trained in the law, or render a
decision consistent with the evidence presented to them, or even
apply the law in a particular dispute.
A recent New York Times investigation neatly summarized some of
the challenges that ordinary people face when they find
themselves compelled into arbitration:
The Times, examining records from more than 25,000
arbitrations between 2010 and 2014 and interviewing
hundreds of lawyers, arbitrators, plaintiffs and judges in
35 states, uncovered many troubling cases. Behind closed
doors, proceedings can devolve into legal free-for-alls.
Companies have paid employees to testify in their favor. A
hearing that lasted six hours cost the plaintiff $150,000.
Arbitrations have been conducted in the conference rooms of
lawyers representing the companies accused of wrongdoing.
Winners and losers are decided by a single arbitrator who
is largely at liberty to determine how much evidence a
plaintiff can present and how much the defense can
withhold. To deliver favorable outcomes to companies, some
arbitrators have twisted or outright disregarded the law,
interviews and records show.
"What rules of evidence apply?" one arbitration firm asks
in the question and answer section of its website. "The
short answer is none."
Like the arbitrator in [a case detailed in the piece], some
have no experience as a judge but wield far more power.
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And unlike the outcomes in civil court, arbitrators'
rulings are nearly impossible to appeal. When plaintiffs
have asked the courts to intervene, court records show,
they have almost always lost. Saying its hands were tied,
one court in California said it could not overturn
arbitrators' decisions even if they caused "substantial
injustice." (Silver-Greenberg & Corkery, In Arbitration, a
Privatization of the Justice System, N.Y. Times (Nov. 2,
2015).)
What evidence is presented in an arbitration proceeding may, in
fact, be incomplete because the parties in arbitration have no
legal right to obtain evidence in support of their claims or
defenses, or the claims or defenses of the other party, contrary
to the longstanding discovery practice in public courts.
Indeed, unlike judges, arbitrators need not explain or defend
the rationale for their decisions.
Furthermore, a private arbitrator's award may be enforced by a
court even if the decision is legally and factually erroneous.
(Moncharsh v. Heily & Blasé (1992) 3 Cal.4th 1.) (See also
Crowell v. Downey Community Hospital Foundation (2002) 95
Cal.App.4th 730, allowing private arbitrators to issue binding
decisions that are legally enforceable but essentially
unreviewable by a court even if the arbitration agreement
expressly provides for judicial review.) The Moncharsh court
also stated that "arbitrators, unless specifically required to
act in conformity with rules of law, may base their decisions
upon broad principles of justice and equity, and in doing so may
expressly or impliedly reject a claim that a party might
successfully have asserted in a judicial action." (Id. at pp.
10-11.) Thus, under Moncharsh, there appears to be little need
for an arbitrator to justify his or her decision because the law
and the evidence need not be followed, and because there is no
right for any party to appeal or obtain an independent review of
the arbitrator's ruling unless expressly provided by contract.
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Regardless of the level or type of mistake, or even misconduct,
by the arbitrator, the most relief a court may grant to a party
in arbitration is to vacate the award and return the parties to
further arbitration, perhaps with the same arbitrator or
arbitration company. Under Code of Civil Procedure Section
1286.2, the grounds on which an arbitrator's decision may be
vacated are extremely narrow. Under existing law, the
arbitrator's award may only be vacated if, for example, (1) the
award was procured by corruption, fraud or other undue means;
(2) there was corruption in any of the arbitrators; (3) the
rights of the party were substantially prejudiced by misconduct
of a neutral arbitrator; or other specified conditions.
Additionally, if parties are wronged by an arbitrator's
misconduct, generally, the parties cannot obtain a remedy from
the arbitrator because arbitrators are afforded substantial, if
not absolute, immunity from civil liability for acts relating to
their decisions, even in the case of bias, fraud, corruption or
other violations of law.
Arbitration's dramatic differences from the public justice
system are believed to be appropriate where parties with
relatively equal bargaining power have voluntarily chosen to
have their dispute and legal rights resolved by a method other
than the courts. For example, the use of binding arbitration
has a long and honored history in the resolution of
labor-management disputes where both parties are repeat-players
to whom arbitrators must be equally accountable in order to
enjoy repeat employment. Private arbitration becomes more
controversial, however, when it is imposed by more powerful
parties without negotiation or the right to withhold consent to
unfair terms.
This bill essentially has an identical framework to AB 2617
(Weber), which was signed by the Governor in 2014, and has not
been found to be preempted. In 2014, the Governor signed AB
2617 (Weber, Chap. 910, Stats. 2014), which limits certain
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contractual waivers under the Ralph Civil Rights Act and the
Bane Civil Rights Act - a statutory scheme designed to protect
individuals from hate crimes. This bill replicates the
framework enacted under AB 2617. This Committee is unaware of
any court decision that has found AB 2617 to be preempted.
Additionally, this Committee is unaware of any pending
litigation challenging AB 2617 on any grounds, including
preemption.
This bill appears to be carefully crafted to focus on general
contract formation issues that are not subject to preemption
under the FAA. Enacted in 1947, the Federal Arbitration Act
generally provides that an arbitration agreement "shall be
valid, irrevocable and enforceable, save upon such grounds as
exist at law or in equity for the revocation of any contract."
(9 U.S.C. Section 2.)
Opponents assert that the restrictions on waivers in this bill
are likely preempted by the FAA because the bill conflicts with
the FAA's policy of encouraging arbitration and disapproving
special impediments to the enforcement of arbitration contracts.
The coalition of opponents, led by the California Chamber of
Commerce, state that:
AB 2667 deems any arbitration agreement made as a condition of
a contract for goods and services that waives "any legal
right, penalty, forum, or procedure" for Civil Rights
violations as unconscionable, involuntary, and against public
policy." This prohibition directly conflicts with rulings
from both the California Supreme Court and the United States
Supreme Court.
The Federal Arbitration Act and the California Arbitration Act
(CAA) evidence a strong preference for the enforcement of
arbitration agreements, so long as the underlying contract is
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fair. In 2011, the U.S. Supreme Court in AT&T Mobility LLC v.
Concepcion, 131 S.Ct. 1740 (2011) held 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. Specifically, the Court stated that,
"[w]hen state law prohibits outrights the arbitration of a
particular type of claim, the analysis is straightforward: The
conflicting rule is displaced by the FAA." Id. While the
Court specified that states could still regulate contractual
defenses, those defenses must be applicable to all contracts,
not just targeted at arbitration agreements.
In re-emphasizing this point, the U.S. Supreme Court recently
issued another opinion in DIRECTV, Inc. v. Imburgia, that
criticized California for discriminating against consumer
arbitration agreements. In DIRECTV, a California court had
applied a rule of law to invalidate an arbitration agreement,
which the Supreme Court had already deemed unlawful. In the
opinion authored by Justice Breyer, the Court stated that,
because California applied an invalid state law to only
arbitration agreements and no other contracts, such an
application did not place arbitration agreements on "'equal
footing'" with other contracts and, therefore, was preempted
by the FAA. DIRECTV, 136 S.Ct. 463 (2015); See also Doctor's
Associates, Inc. v. Cassarotto, 517 U.S. 681 (1996) (striking
down a state requirement for a special notice required only
for arbitration agreements, not contracts in general, as
preempted by the FAA).
Additionally, in August 2015, the California Supreme Court
issued its decision in Sanchez v. Valencia Holding Co., LLC 61
Cal.4th 899, in which Justice Goodwin Liu delivered the
opinion of the court and held that the Consumer Legal Remedies
Act (CLRA), which prohibited any waiver of the provisions of
that section, including the right to pursue a class action,
was preempted by the FAA. The Court determined that the
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anti-waiver provisions under the CLRA that barred class action
waivers interfere with the "fundamental attributes of
arbitration, such as speed and efficiency, and thus disfavors
arbitration as a practical matter." Sanchez, 61 Cal.4th at
923-924.
The holdings in recent United States and California Supreme
Court decisions are not what the opposition suggests.
Supporters and opponents debate about whether this bill is
pre-empted by the Federal Arbitration Act (FAA). Accordingly, a
brief review of the recent court decisions on the subject is in
order.
In 2005, the California Supreme Court held that in certain
adhesive take-it-or-leave-it consumer contracts, a contractual
provision requiring the consumer to waive class-action is
unconscionable and void. This is known as the Discovery Bank
rule. (36 Cal. 4th 148, 159.)
In the well-known Concepcion decision, the U.S. Supreme Court
struck down the Discovery Bank rule. (AT&T Mobility LLC v.
Concepcion (2011) 563 U.S. 333, 344-47.) In that case, Vincent
and Liza Concepcion entered into a cellphone contract that
required claims to be brought in an "individual capacity, and
not as a plaintiff or class member in any purported class or
representative proceeding." (Id. at 336.) Relying on Discovery
Bank, the Concepcions challenged the class-action waiver as an
unconscionable contract provision. (Id. at 338.) In abrogating
the Rule, the Court held that the Rule stood "as an obstacle to
the accomplishment and execution of the full purposes and
objectives of Congress" because it "interferes with fundamental
attributes of arbitration." (Id. at 344-47.)
Although the Supreme Court has not defined a "fundamental
attribute of arbitration," the Court did say that there were
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potential advantages of arbitration: lower costs, greater
efficiency and speed, and the ability to choose expert
adjudicators to resolved specialized disputes. (Id. at 348.)
Indeed, the Court analogized to several examples on the kinds of
rules or laws that would amount to "interference" with the
"fundamental attribute of arbitration." For example, a rule to
require arbitration agreements and proceedings to provide
judicially-monitored discovery, or to follow the Federal Rules
of Evidence would clearly violate the FAA. (Id. at 342.) In
those instances, those additional protections and
procedures-admirable as they are-would increase costs, reduce
efficiency and speed, and prevent an arbitrator from applying
the rules he or she wants to apply; accordingly, states and
courts cannot create such rules. Relying on these principles,
parties have argued-similarly to the opponents of this bill-that
anything that interferes with arbitration is preempted by the
FAA, as interpreted under Concepcion; however, this argument is
mistaken.
This bill does not interfere with the fundamental attributes of
arbitration, and thus, is unlikely to be preempted by the FAA,
as interpreted by Concepcion. Contrary to what the opponents of
this bill may argue, this bill does not stop parties from going
to arbitration, increase the costs of arbitration, reduce the
efficiencies of arbitration, or dictate the rules of an arbitral
proceeding. This bill merely requires that if a California
resident is required to waive his or her rights penalties,
remedies, forums, and procedures established by the Unruh Civil
Rights Act, the waiver must be voluntary, and not coerced.
Additionally, this bill prohibits waivers that are required of
the consumer as a condition of entering into a contract for
goods and services. Given that this bill applies to all
contracts and agreements entered into after January 1, 2017, and
not just arbitration agreements, this bill does not appear to
discriminate against arbitration clauses; in other words, this
bill seems to place arbitration agreements on equal footing with
other contracts, not in violation of the FAA.
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The Supreme Court's recent holding in DIRECTV does not support
the argument that the FAA has more preemptive force. Last year,
the United States Supreme Court issued a ruling in DIRECTV, Inc.
v. Imburgia (2015) 577 U.S. __. Although opponents of this bill
argue that DIRECTV strengthens their argument that the bill is
preempted by the FAA, the Court's narrow decision in that case
does not go so far. In that case, Amy Imburgia and Kathy
Greiner entered into a service agreement with DIRECTV in
2007-after Discovery Bank (2005), but before Concepcion (2011).
In that service agreement, some of the terms provided that if
the "law of your state" makes the waiver of class arbitration
unenforceable, then the entire arbitration provision is
unenforceable. At the time of this agreement, a waiver of class
arbitration was unenforceable (see Discovery Bank). In 2008, a
legal dispute arose between the parties and litigation ensued.
The litigation did not reach the California Court of Appeal
until 2014-after Concepcion (2011). In 2014, our California
Court of Appeal held that since the term "law of your state"
meant the body of law in 2007 (before Concepcion prohibited
class arbitration waivers), the "law of your state" included a
prohibition of classwide arbitration waivers - notwithstanding
Concepcion. When this case was appealed to the United State
Supreme Court last year, the Supreme Court held that the "law of
your state" included, simply, the body of law after Concepcion.
Although some find this decision of retroactive application
troubling, the DIRECTV decision merely re-applies Concepcion,
and does not create a substantially new body of law. Since this
bill survives Concepcion, this bill would appear to survive
DIRECTV.
This bill does not violate the principle established under
Sanchez v. Valencia Holding Co., LLC. (2015) 61 Cal.4th 889. In
that case, the California Supreme Court held that the Consumer
Legal Remedies Act (CLRA)'s rule, which prohibits class action
waivers outright, is preempted by the FAA. However, this bill
does not prohibit waivers outright - indeed, as previously
mentioned, this bill still allows parties to go to arbitration.
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This bill merely requires waivers of certain rights and
privileges under the Unruh Civil Rights Act to be voluntary, and
not coerced. Additionally, this bill prohibits waivers to the
extent that they are required as a condition of entering into a
contract for goods and services. Accordingly, this bill does
not violate the Sanchez principle.
This bill defines the level of consent that is necessary to
support the waiver of rights, without prohibiting or disfavoring
arbitration in violation of the FAA. This bill seeks to
establish general contract principles about the level of consent
needed to support a waiver of rights-more specifically, it seeks
to ensure that agreements to waive important statutory rights
are made knowingly and voluntarily, and are not required to be a
condition of entering into a contract for goods or services.
Federal law does not preempt states from enacting basic
protections around the formation of contracts. While federal
preemption is broad, states are permitted to set standards
around fair contracting. No court has suggested that the FAA
compels anyone to enter into an involuntary arbitration
contract. Unconscionability is often applied by courts to
invalidate contracts, including arbitration agreements, where a
waiver of rights is required as a condition of entering into a
contract. This bill does not frustrate the purpose of the FAA
because that purpose follows the basic precept, emphasized
numerous times by the Supreme Court, that arbitration "is a
matter of consent, not coercion." Volt Information Sciences,
Inc. v. Board of Trustees of Leland Stanford Junior Univ. (1989)
489 U.S. 468; Mastrobuono v. Shearson Lehman Hutton, Inc.(1995)
514 US 52. Furthermore, in Concepcion, the U.S. Supreme Court
explicitly left room for states to regulate the formation of
arbitration agreements to address matters of consent. (131
S.Ct. 1740; see Footnote 6.) Consequently, AB 2667 does not
appear to run afoul of Concepcion because it addresses in a
broad and general way the concerns that attend contracts of
adhesion - that is, that the contract is entered into knowingly
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and voluntarily and not as a condition of entering into a
contract for goods or services.
Furthermore, this bill does not seek to bar arbitration or other
waiver agreements; it simply makes it unlawful to seek an
unknowing and involuntary waiver of rights or procedures
regarding abuse laws prior to a dispute arising. No court
decision has been brought to the attention of the Committee or
discovered in the Committee's own research that lends support to
such a far-reaching view of FAA pre-emption.
This bill appears to address the Governor's concerns that were
raised in his veto message of Assembly Bill 465. Opponents of
this bill point to the fact that this bill is similar to AB 465,
which was vetoed by the Governor. The Governor's veto message
provides the following:
Assembly Bill 465 would outlaw the use of mandatory
arbitration agreements as a condition of employment, making
California the only state in the country to have this
particular prohibition.
I have reviewed in depth the arguments from both sides about
the fairness and utility of mandatory arbitration agreements.
While most evidence shows that arbitration is quicker and more
cost-effective than litigation, there is significant debate
about whether arbitration is less fair to employees. The
evidence on actual outcomes in arbitration versus litigation
is conflicting and unclear, with some studies showing
employees receive more in arbitration while other studies show
the opposite.
While I am concerned about ensuring fairness in employment
disputes, I am not prepared to take the far-reaching step
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proposed by this bill for a number of reasons.
California courts have addressed the issue of unfairness by
insisting that employment arbitration agreements must include
numerous protections to be enforceable, including neutrality
of the arbitrator, adequate discovery, no limitation on
damages or remedies, a written decision that permits some
judicial review, and limitations on the costs of arbitration.
See, e.g., Armendariz v. Foundation Health Psychcare Services,
Inc. 24 Cal.4th 83 (2000). If abuses remain, they should be
specified and solved by targeted legislation, not a blanket
prohibition.
In addition, a blanket ban on mandatory arbitration agreements
is a far-reaching approach that has been consistently struck
down in other states as violating the Federal Arbitration Act
("FAA"). Recent decisions by both the California and United
States Supreme Courts have found that state policies which
unduly impede arbitration are invalid. Indeed, the U.S.
Supreme Court is currently considering two more cases arising
out of California courts involving preemption of state
arbitration policies under the FAA. Before enacting a law as
broad as this, and one that will surely result in years of
costly litigation and legal uncertainty, I would prefer to see
the outcome of those cases.
For these reasons, I am returning AB 465 without my signature.
This bill appears to be specifically targeted to address the
Governor's concern of crafting a more specific and targeted
approach. Moreover, as previously mentioned, the recent Supreme
Court and California Supreme Court decisions do not further
limit California's ability to regulate in this area of the law.
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ARGUMENTS IN SUPPORT: According to the Consumer Attorneys of
California, a co-sponsor of this bill, AB 2667 protects the
rights of victims of Unruh Civil Rights abuses. In support,
they write:
The rights protected by virtue of the historic Unruh Civil
Rights Act, one of the past century's most treasured statutes,
hand in the balance. The Unruh Civil Rights Act is rendered
effectively toothless when the rights granted therein can be
arbitrated away in silence without the standard due process of
law that we hold dear. While voluntary arbitration agreements
are appropriate in many instances, preemptively forcing a
person to give up their rights to take a civil rights case to
court as a condition of receiving a good or service is
involuntary and coercive.
American Civil Liberties Union echoes the sentiments about the
harm that mandatory arbitration agreements imposes on consumers,
by writing:
Enforcement of civil rights laws has become increasingly
frustrated by the pervasive use of contractual waivers that
consumers are forced to agree to as a condition of doing
business with many companies, including contracts that require
mandatory private arbitration. Private arbitration contracts
strip victims of their constitutional right to seek redress in
court and their legal right to the protection of the laws?.Not
surprisingly, many observers believe this process stacks the
deck in favor of the business that writes the contract, selects
and pays the arbitration company, and is the continuing source
of repeat business - giving the arbitration company at least the
unconscious incentive to favor the business over the consumer.
The proponents of private arbitration contend that it is as fair
and just as the judicial system while being faster and less
expensive for the parties. If that is so, they should have no
concern with a bill like this, which simply makes the choice
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voluntary.
ARGUMENTS IN OPPOSITION: The coalition of opponents, led by the
California Chamber of Commerce, also states that this bill will
drive up California employers' litigation costs. In opposition,
they write:
Banning pre-dispute arbitration agreements for alleged Civil
Rights violations will force consumers into an already
overburdened judicial system. Assuming a consumer can find an
attorney willing to pursue the case, a consumer will
potentially have to wait years for a resolution, as opposed to
arbitration that is generally resolved in less than a year.
California's economic recovery is dependent on its ability to
create an environment where job creation can flourish. In the
2014 Chief Executive's tenth annual survey of CEOs' opinions
of Best and Worst States in which to do business, California
was ranked as one of the worst three states in which to do
business. The magazine stated: "[a]ccording to Dun &
Bradstreet, 2,565 California businesses with three or more
employees have relocated to other states between January 2007
and 2011, and 109,000 jobs left with those employers".
Similarly, the American Tort Reform Association's "Judicial
Hellholes Watch List" for 2014/2015 found that California was
ranked as having the second worst litigation environment. The
Institute for Legal Reform in 2015 ranked California as having
the third worst litigation environment.
REGISTERED SUPPORT / OPPOSITION:
Support
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NAACP - California State Conference (co-sponsor)
Consumer Attorneys of California (co-sponsor)
Asian Americans Advancing Justice
California Conference Board of the Amalgamated Transit Union
California Conference of Machinists
California Employment Lawyers Association
California Rural Legal Assistance Foundation
California Teamsters Public Affairs Council
Center for Justice & Democracy
Congress of California Seniors
Consumer Federation of California
Engineer & Scientists of California, Local 20, IFPTE Local 20,
AFL-CIO
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Equality California
International Longshore and Warehouse Union
Mexican American Bar Association
The National Association of Consumer Advocates
The National Consumer Voice for Quality Long-Term Care
The National Lawyers Guild, Labor and Employment Committee
Professional & Technical Engineers, IFPTE Local 21, AFL-CIO
Public Advocates
UNITE-HERE, AFL-CIO
Utilities Workers Union of America, Local 132, AFL-CIO
Opposition
California Chamber of Commerce
American Insurance Association
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California Apartment Association
California Association of Health Facilities
California Association of Joint Powers Authorities
California Building Industry Association
California Building Properties Association
California Citizens Against Lawsuit Abuse
California League of Food Processors
California Newspaper Publishers Association
California Professional Association of Specialty Contractors
California Retailers Association
Civil Justice Association of California
National Federation of Independent Business
Oxnard Chamber of Commerce
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Southwest California Legislative Council
West Coast Lumber & Building Material Association
Western Growers Association
Analysis Prepared by:Eric Dang / JUD. / (916) 319-2334