BILL ANALYSIS Ó SENATE JUDICIARY COMMITTEE Senator Hannah-Beth Jackson, Chair 2015-2016 Regular Session SB 1007 (Wieckowski) Version: April 13, 2016 Hearing Date: April 26, 2016 Fiscal: No Urgency: No RD SUBJECT Arbitration: transcription by certified shorthand reporter DESCRIPTION This bill would establish the right of a party to an arbitration to have a certified shorthand reporter transcribe any deposition, proceeding, or hearing, at the expense of the party requesting the transcript, except as specified, and would provide that the transcript shall be the official record of the deposition, proceeding, or hearing. This bill would provide that the refusal of this right is a ground for vacatur of the arbitration award and would add a new provision to the existing vacatur statute for that purpose. BACKGROUND Arbitration is a method of alternative dispute resolution where the disputing parties present their disagreement(s) to one or more neutral third-party arbitrators whose decisions are generally final and binding, instead of litigating the issues in courts. While the arbitration of certain types of disputes may be governed by specific statutes, the California Arbitration Act (CAA), Sections 1280 et seq. of the Code of Civil Procedure, provides for a comprehensive, all-inclusive statutory scheme applicable to all written agreements to arbitrate disputes. This law governs all aspects of a nonjudicial arbitration: from the conduct of arbitrators, private arbitration companies, and the arbitration proceedings, to the enforcement of arbitration agreements and arbitration awards, as well as related judicial SB 1007 (Wieckowski) Page 2 of ? proceedings. Currently, the CAA is silent as to the right of parties to court reporters in an arbitration. Arbitration has been a topic of significant controversy over the years as a form of alternative disputes resolution. Generally, some advocates assert that private arbitration provides a cheaper, faster, more efficient form of dispute resolution than the overburdened courts. At the same time, other consumer and employee advocates frequently raise issues with arbitration as an unregulated industry, which can be costly, unreceptive, and biased against consumers. These advocates assert that boilerplate, or standardized, contracts forcing consumer and employees into private arbitrations are problematic because arbitrators can conduct arbitrations without allowing for discovery, complying with the rules of evidence, or explaining their decisions in written opinions (Code Civ. Proc. Secs. 1283.1, 1282.2, and 1283.4); and arbitrations may be conducted in private with no public scrutiny (Ting v. AT&T, 182 F.Supp.2d 902 (N.D. Cal. 2002), affirmed, 319 F.3d 1126 (9th Cir. 2003)). Critics' concerns are compounded by the fact that there are little, if any, regulations or legal standards imposed on arbitrators or their decisions. Regardless of the level or type of mistake, or even misconduct, by the arbitrator, the grounds on which a court will allow judicial review of an arbitration are extremely narrow. As a result, arbitrators can disregard the law and can issue binding decisions that are legally enforceable but generally not reviewable by a court. (See Moncharsh v. Heily & Blasé (1992) 3 Cal.4th 1 (holding that a court is not permitted to vacate an arbitration award based on errors of law by the arbitrator, except for certain narrow exceptions).) As a matter of statutory law, the CAA's remedies are limited to vacatur of the award under limited circumstances. This bill would establish the right of any party to an arbitration to request a court reporter, as specified, and would provide that the refusal of an arbitrator to allow a court reporter at the expense of the requesting party is grounds for vacatur of the award. CHANGES TO EXISTING LAW Existing law , the California Arbitration Act (CAA), generally governs private arbitrations in this state, including the SB 1007 (Wieckowski) Page 3 of ? enforcement of an arbitration agreement, the conduct of arbitration proceedings, and the enforcement of arbitration awards. (Code Civ. Proc. Sec. 1280 et seq.) Existing law provides that a party to the arbitration has the right to be represented by an attorney at any proceeding or hearing in arbitration under this title. (Code Civ. Proc. Sec. 1282.4(a).) Existing law provides that any party to an arbitration in which an award has been made may petition the court to confirm, correct or vacate the award, as specified. (Code Civ. Proc. Sec. 1285.) Existing law provides that if a petition or response under the CAA is duly served and filed, the court shall confirm the award as made, whether rendered in this state or another state, unless in accordance with the CAA it corrects the award and confirms it as corrected, vacates the award or dismisses the proceedings. (Code Civ. Proc. Sec. 1286.) Existing law requires that a petition to correct or vacate an award, or a response requesting such relief, set forth the grounds on which the request for such relief is based. (Code Civ. Proc. Sec. 1285.8.) Existing law provides, generally, that, subject to specified procedural requirements, the court shall vacate the award if the court determines any of the following: 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; the arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted; the rights of the party were substantially prejudiced by the refusal of the arbitrators to postpone the hearing upon sufficient cause being shown therefor, by the refusal of the arbitrators to hear evidence material to the controversy or by SB 1007 (Wieckowski) Page 4 of ? other conduct of the arbitrators contrary to the provisions of the CAA; or an arbitrator making the award either: (1) failed to disclose within the time required for disclosure a ground for disqualification of which the arbitrator was then aware; or (2) was subject to disqualification upon specified grounds but failed upon receipt of timely demand to disqualify himself or herself as required by that provision. (Code Civ. Proc. Sec. 1286.2(a).) Existing law requires that all fees and costs charged to or assessed upon a consumer party by a private arbitration company in a consumer arbitration, exclusive of arbitrator fees, be waived for an indigent consumer. For these purposes, "indigent consumer" means a person having a gross monthly income that is less than 300 percent of the federal poverty guidelines. Existing law provides that nothing in this section shall affect the ability of a private arbitration company to shift fees that would otherwise be charged or assessed upon a consumer party to a nonconsumer party. (Code Civ. Proc. Sec. 1284.3(b)(1).) Existing law requires any consumer requesting a waiver of fees or costs may establish his or her eligibility by making a declaration under oath on a form provided to the consumer by the private arbitration company for signature stating his or her monthly income and the number of persons living in his or her household. No private arbitration company may require a consumer to provide any further statement or evidence of indigence. (Code Civ. Proc. Sec. 1284.3(b)(3).) This bill would provide that a party to an arbitration has the right to have a certified shorthand reporter transcribe any deposition, proceeding, or hearing. The transcript shall be the official record of the deposition, proceeding, or hearing. This bill would provide that if an arbitration agreement does not provide for a certified shorthand reporter, the party requesting the transcript shall incur the expense of the certified shorthand reporter. This bill would further provide, however, that in a consumer arbitration, a certified shorthand reporter shall be provided upon request of an indigent consumer, as defined under existing law, above, at the expense of the nonconsumer party. This bill would provide that if an arbitrator refuses to allow a party to have a certified shorthand reporter transcribe any SB 1007 (Wieckowski) Page 5 of ? deposition, proceeding, or hearing pursuant to this section and an award is made, the court shall vacate the award as specified. This bill would add that the court shall vacate the award, if the court determines that an arbitrator refused a party's request, under the provisions above, for a certified shorthand reporter. This bill would make other technical, nonsubstantive changes. COMMENT 1. Stated need for the bill According to the author: In arbitrations, as in all legal proceedings, the existence of a reporter's transcript of a deposition, proceeding or hearing can be absolutely essential to obtaining justice. In the absence of such a transcript or a suitable substitute, a reviewing court will conclude that an arbitration award, like all judgments or orders of lower courts, are presumed to be correct. Numerous appellate courts have refused to reach the merits of an appellant's claims because no reporter's transcript of a pertinent proceeding or a suitable substitute was provided. For this reason, the ability of a party or an arbitrator to deny the other party's request to have, at the party's own expense, a court reporter prepare a transcript of the proceeding can substantially prejudice the rights of the requesting party because no court report's transcript or suitable substitute will be available for a reviewing court. As a result, the reviewing court then has to assume that the arbitration award is correct because no official record exists. This is a denial of the fundamental due process right to fairness of an arbitration hearing. Although some of the major Alternative Dispute Resolution (ADR) providers acknowledge the importance of the ability to prepare a record of the proceedings, the practice is not universal and abuse has occurred. Arbitrators can and will deny parties the right to prepare a record of the proceedings. Particularly in cases of mandatory arbitration and unequal bargaining power between the parties, this can be a critical SB 1007 (Wieckowski) Page 6 of ? factor in the denial of justice. 2. Right to transcripts are vital to the administration of justice California law provides for the enforcement of private arbitration agreements and governs the operation and conduct of those nonjudicial proceedings under the California Arbitration Act (CAA). As noted in the Background, the relief that a court may grant to a party to the arbitration is limited to a potential vacatur of the award under the CAA. Vacatur is available, for example, if there was corruption or bias; the party's rights were substantially prejudiced by a neutral arbitrator's misconduct; or the party's rights were substantially prejudiced by the arbitrator's refusal to postpone the hearing where sufficient cause was shown, or by the arbitrator's refusal to hear evidence material to the controversy, or by other conduct of the arbitrators contrary to the provisions of the CAA. Presumably, a party might need a transcript of the original proceedings to successfully seek vacatur or to otherwise seek judicial review. According to the author and sponsor, however, even when a party seeks to have a court reporter transcribe the proceedings at the party's own expense, some arbitrators deny the party's request or make the authorization contingent upon the other party's consent. As a matter of public policy, having accurate, verbatim records of proceedings is vital to the administration of justice for multitudes of reasons: transcripts provide a record for appeal; enable opposing counsel to impeach a witness (prior inconsistent statements under oath); allow for the prosecution a person for perjury; and ensure that court orders accurately reflect what the judge actually ruled in court with respect to any range of important issues such as visitation rights, or division of property. Arguably, the importance of transcripts to the American legal system is true regardless of whether the dispute resolution proceedings are judicial or nonjudicial in nature. This is perhaps even truer in a privatized, nonjudicial legal system, where significant disputes between parties can be resolved without enforcement of traditional rules of evidence, opportunity for full discovery, in-depth written opinions, opportunity for public proceedings, or opportunity for appeals. Again, where the potential relief that a court may grant in private under the CAA is largely limited to vacatur of the award, it becomes that much more difficult for a party to ever SB 1007 (Wieckowski) Page 7 of ? prove that the arbitrator was biased, corrupt, acted in a manner that substantially prejudiced one party, or engaged in some other misconduct, if no record of the proceedings exist. As such, this bill would establish the right of a party to have a certified shorthand reporter, at the party's own expense, to transcribe the proceedings. At the same time, consistent with other public policy in this state authorizing court reporter fees to be waived for indigent parties (see Gov. Code Secs. 68086(b), 68631-68633), this bill would require that a court reporter be provided at no cost to any indigent consumer requesting a reporter. In that scenario, the non-consumer party would bear the expense. 3. Enforcement mechanism To ensure that the right to a court reporter is enforced, this bill would provide that if an arbitrator refuses to allow a party to have a certified shorthand reporter transcribe any deposition, proceeding, or hearing, as specified, and an award is made, the court shall vacate the award, as specified. Currently, when an award is vacated, the court may order a rehearing before new arbitrators, or, in some cases, order a rehearing before the original arbitrators. (Code Civ. Proc. Sec. 1286.2.) As a matter of public policy, however, requiring a party to wait until the award has been made to enforce their right to a court reporter may not be preferable. At that point, the parties have born significant time and expense to go through the arbitration, only to have to begin new proceedings over the same issues all over again. To ensure that the party is able to enforce his or her right to a court reporter for all proceedings in a more timely fashion, the author may wish to amend the bill to strike the vacatur provisions of the bill and to, instead, allow the party to petition the court for an order to compel the arbitrator to grant the party's request. As a practical matter, to avoid any calendaring issues and to ensure that parties cannot use the provision to delay proceedings that are already in progress, the author may wish to further amend the bill to ensure that the right to request a court reporter shall be made at the outset of the arbitration. 4. Opposition arguments The Civil Justice Association of California writes in opposition that: SB 1007 (Wieckowski) Page 8 of ? [C]urrent law sets standards for arbitration and requires a court to vacate an arbitration award if it makes certain findings, including: " 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. " The arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted. " The rights of the party were substantially prejudiced by the refusal of the arbitrators to postpone the hearing upon sufficient cause being shown therefor or by the refusal of the arbitrators to hear evidence material to the controversy or by other conduct of the arbitrators contrary to the provisions of this title. We do not believe that SB 1007 presents a comparable basis for vacating an arbitration award. [ . . . ] We do not believe that having a certified shorthand reporter should provide the basis for vacating a permissible arbitration award. Staff notes that the amendment suggested in Comment 3 would arguably resolve these concerns. Support : None Known Opposition : Civil Justice Association of California HISTORY Source : Conference of California Bar Associations Related Pending Legislation : SB 1241 (Wieckowski, 2016) would provide that any contract provisions that require a consumer or employee to litigate or arbitrate in a different state or that require a different state's law to govern a dispute that arose in California, as SB 1007 (Wieckowski) Page 9 of ? specified, are voidable by the consumer or employee. SB 1078 (Jackson, 2016) would add specified rules relating to marketing activities of private arbitration companies and relating to the ability of arbitrators to enter into future arrangements with one party to a pending arbitration. This bill would also allow parties to recoup fees where an award has been vacated or the arbitrator has been removed during an arbitration for violations of ethical rules or disclosure requirements. SB 1065 (Monning, 2016) would eliminate the existing law right of appeal when a motion to compel arbitration has been denied, if the case involves a claim under the Elder Abuse and Dependent Adult Civil Protection Act and the senior has received a trial preference under existing law due to age and health. Prior Legislation : None Known **************