BILL ANALYSIS                                                                                                                                                                                                    Ó



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          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








                                                                    AB 2667


                                                                    Page  25







          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










                                                                    AB 2667


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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








                                                                    AB 2667


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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








                                                                    AB 2667


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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