BILL ANALYSIS Ó
SB 1007
Page 1
Date of Hearing: June 21, 2016
ASSEMBLY COMMITTEE ON JUDICIARY
Mark Stone, Chair
SB
1007 (Wieckowski) - As Amended June 15, 2016
SENATE VOTE: 26-10
SUBJECT: ARBITRATION: TRANSCRIPTION BY CERTIFIED SHORTHAND
REPORTER
KEY ISSUE: SHOULD A PARTY HAVE A RIGHT TO A COURT REPORTER IN
AN ARBITRATION HEARING OR PROCEEDING?
SYNOPSIS
When a court renders a final judgment, parties in an action have
the right to appeal the court's judgment for appellate review.
The same is not true for arbitration. When an arbitrator issues
an award, the award is usually binding and final. Although the
parties may move to correct or vacate the award, the grounds for
correction or vacatur (vacating an award) are limited. For
instance, an award may be vacated if: (1) the award was procured
by corruption or fraud; (2) the rights of the party were
substantially prejudiced by the arbitrator's misconduct; (3) the
arbitrator exceeded his or her powers and the award cannot be
corrected without affecting the merits of the decision; or (4)
the arbitrator failed to disclose certain matters to the
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parties. Parties seeking vacatur under these limited grounds
must provide evidence to the court to prove that an award should
be vacated. However, because arbitration awards do not need to
be written or justified (unlike in court), and the entire
process may be kept in secret (rather than in public view),
parties have a difficult time proving that an arbitrator has
engaged in prejudicial misconduct.
This bill seeks to remedy this problem by allowing litigants to
obtain an official record of an arbitration or
arbitration-related proceeding to not only serve as a record of
the proceeding, but also as a check on the arbitrator and the
other parties during the proceedings. Essentially, this bill
establishes that a party to an arbitration proceeding has the
right to have a certified shorthand reporter (i.e. a court
reporter) in any arbitration deposition, proceeding, or
hearing-at the expense of the requesting party. This bill also
provides that if an arbitrator denies a party's request for a
court reporter, the party may petition the court for an order to
compel the arbitrator to grant the party's request. To ensure
that indigent consumers have access to a court reporter during
an arbitration proceeding, this bill also requires the
non-consumer to provide a court reporter upon the request of the
indigent consumer. This bill is sponsored by the Conference of
California Bar Associations, and supported by California Court
Reporters Association and Court Reporters Board of California.
There is no opposition.
SUMMARY: Allows a party to an arbitration proceeding the right
to have a court reporter during the arbitration proceeding.
Specifically, this bill:
1)Provides 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.
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2)Requires a party requesting a certified shorthand reporter to
make the request in any of the following:
a) A demand for arbitration, or in a response, answer, or
counterclaim to a demand for arbitration.
b) A pre-hearing scheduling conference where any
deposition, proceeding, or hearing is being calendared.
3)Establishes 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.
4)Requires a certified shorthand reporter to be provided to an
indigent consumer, upon request, at the expense of the
nonconsumer party in a consumer arbitration.
5)Provides that if an arbitrator refuses to allow a party to
have a certified shorthand reporter transcribe any deposition,
proceeding, or hearing, the party may petition the court for
an order to compel the arbitrator to grant the party's
request.
6)Further provides that a petition may include a request for an
order to stay any deposition, proceeding, or hearing related
to the arbitration pending the court's determination of the
petition.
7)States that this act does not add grounds for vacating an
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arbitration award or for correcting an arbitration award.
EXISTING LAW:
1)Establishes the California Arbitration Act which provides that
agreements to arbitrate shall be valid, irrevocable, and
enforceable, except upon such grounds as exist at law or in
equity for the revocation of any contract. (Code of Civil
Procedure Section 1280 et seq. Unless otherwise stated, all
further statutory references are to the Code of Civil
Procedure.)
2)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.)
3)Holds that private arbitrators may 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).)
4)Holds that arbitrators may 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.)
5)Allows arbitrators to conduct arbitrations without allowing
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for discovery, complying with the rules of evidence, or
explaining their decisions in written opinions. (Sections
1283.1, 1282.2, 1283.4.)
6)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.)
7)Requires a court to vacate an arbitration award if it
determines any of the following:
a) The award was procured by corruption, fraud, or other
undue means.
b) There was corruption in any of the arbitrators.
c) The rights of a party were substantially prejudiced by
misconduct of a neutral arbitrator.
d) The arbitrators exceeded their powers and the award
cannot be corrected without affecting the merits of the
decision.
e) The rights of a party were substantially prejudiced by
the refusal of the arbitrators to postpone the hearing upon
sufficient cause being shown for postponement, or by the
refusal of the arbitrators to hear evidence material to the
controversy, or by other misconduct of the arbitrators.
f) An arbitrator making the award failed to disclose a
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ground for disqualification or was subject to
disqualification but failed to disqualify himself or
herself. (Section 1286.2.)
8)Provides that a petition to vacate an arbitration award must
be served and filed no later than 100 days after the date of
the service of a signed copy of the award on the petitioner.
(Section 1288.)
FISCAL EFFECT: As currently in print this bill is keyed
non-fiscal.
COMMENTS: Justice Brennan once said that, "courts are the
central dispute-setting institutions of our society. They are
bound to do equal justice under the law, to rich and poor
alike." It comes as no surprise then that the phrase, "Equal
Justice Under Law," is engraved above the entrance to our
nation's highest court. And so it seems, we put a great deal of
faith in our courts - but would we expect any less? We
anticipate our courts to apply the law in a fair, neutral, and
open manner. We hold judges to high standards, and ask that
they avoid even the appearance of impropriety. We count on our
judiciary to advance the law, issue orders, and render written
opinions. And yet, we acknowledge that our system isn't perfect
and that despite their best efforts, courts sometimes get it
wrong. Acknowledging the imperfection of our justice system is
undoubtedly one reason why it has safeguards. We remember that
decisions of courts are reviewed by appellate courts and indeed,
reviewed by our elected branches. In order to facilitate the
right to appeal, we provide a record of the proceedings, in
criminal matters at least. And so, when our families, friends,
and neighbors are injured, wronged, or have a dispute, we rely
upon that faith that our courts-the institution we trust upon to
promote fairness-will deliver equal justice under the law.
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As this Committee is well-aware, arbitration is a form of
alternative dispute resolution held outside of courts where a
third-party (rather than a judge) makes a binding (and rarely
appealable) award. Because most arbitration is created by
entering into a contract (usually a contract that is adhesive or
take-it-or-leave-it), the arbitration agreement will lay-out the
procedures that will be followed during the arbitration hearing.
For example, the terms of the arbitration agreement may
stipulate that the award need not be written or justified
(unlike in court), and that the entire process be kept in secret
(rather than in public view). Arbitrators do not need to be
lawyers, nor do they need to be trained in the law. Arbitrators
who issue favorable awards to a particular company can be
repeatedly-hired by that same company to serve as the
arbitration-neutral without ever notifying the public about that
award-history. It's easy to predict the calls if you can hire
the umpire.
Last year, the New York Times issued a three-part series titled,
"Beware the Fine Print" - a special report examining how
arbitration clauses buried in contracts deprives Americans of
their fundamental constitutional rights:
Over the last 10 years, thousands of businesses across the
country - from big corporations to storefront shops - have
used arbitration to create an alternate system of justice.
There, rules tend to favor businesses, and judges and juries
have been replaced by arbitrators who commonly consider the
companies their clients. The change has been swift and
virtually unnoticed, even though it has meant that tens of
millions of Americans have lost a fundamental right: their day
in court. (Silver-Greenberg & Corkery, In Arbitration, a
Privatization of the Justice System, N.Y. Times (Nov. 1,
2015).)
In fact, some legal scholars have stated that, arbitration
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"amounts to the whole-scale privatization of the justice
system." (Ibid.) In an effort to protect consumers and
workers, this Legislature has worked on legislation aimed at
leveling the playing field, a turf that has been used by
corporate interests to evade public scrutiny, and even, avoid
the law. This is because arbitrators do not need to be trained
in the law, or even apply the law, or render a decision
consistent with the evidence presented to them. What evidence
is presented may, in fact, be incomplete because 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. Advocates continue to debate about the benefits and
harms of mandatory-arbitration. Proponents of arbitration say
that arbitration produces quicker results and reduces litigation
costs. Opponents argue that arbitration harms consumers and
workers because arbitration proceedings render unfair awards.
A brief review of recent court decisions on arbitration. Given
the preemptive issues surrounding the Federal Arbitration Act
(FAA) and the U.S. Supreme Court's interpretation of the FAA,
the ability to legislate around the issue of arbitration is
difficult. 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 (herein the Rule). (36 Cal. 4th 148, 159.)
In the well-known Concepcion decision, the U.S. Supreme Court
struck down the 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
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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 potential
advantages of arbitration: lower costs, greater efficiency and
speed, and the ability to choose expert adjudicators to resolve
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 are limited in crafting certain rules.
Despite what some may say, California may regulate issues
involving arbitration. Relying on these principles in
Concepcion, some argue that anything that interferes with
arbitration is preempted by the FAA, as interpreted under
Concepcion; however, this argument is mistaken. Federal law
does not preempt states from enacting basic protections around
the principles of contract law. While federal preemption is
broad, states are permitted to set rules that are consistent
with certain contract law principles. Additionally, states may
establish specific arbitration rules in their states. As the
Supreme Court has stated, "parties are generally free to
structure their arbitration agreements as they see fit?[Where]
parties have agreed to abide by state rules of arbitration,
enforcing those rules according to the terms of the agreement is
fully consistent with the goals of the FAA." (Volt Information
Sciences, Inc. v. Board of Trustees of Leland Stanford Junior
Univ. (1989) 489 U.S. 468, 479.) Accordingly, states can enact
legislation that affects arbitration without offending the FAA.
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What happens after an arbitrator issues an award? As previously
stated, when a court renders a final judgment, parties in an
action have the right to appeal the court's judgment for
appellate review. The same is not true for arbitration. When
an arbitrator issues an award, the award is usually binding and
final. Although the parties may move to correct or vacate the
award, the grounds for correction or vacatur (vacating an award)
are limited. For instance, an award may be vacated if: (1) the
award was procured by corruption or fraud; (2) the rights of the
party were substantially prejudiced by the arbitrator's
misconduct; (3) the arbitrator exceeded his or her powers and
the award cannot be corrected without affecting the merits of
the decision; or (4) the arbitrator failed to disclose certain
matters to the parties. Parties seeking vacatur under these
limited grounds must provide evidence to the court to prove that
an award should be vacated. However, because arbitration awards
do not need to be written or justified (unlike in court), and
the entire process may be kept in secret (rather than in public
view), parties have a difficult time proving that an arbitrator
has engaged in prejudicial misconduct. This bill seeks to
remedy this problem by allowing litigants to obtain an official
record of an arbitration or arbitration-related proceeding to
not only serve as a record of the proceeding, but also as a
check on the arbitrator and the other parties during the
proceedings.
Summary of the bill: Essentially, this bill would establish
that a party to an arbitration proceeding has the right to have
a certified shorthand reporter (i.e. a court reporter) in any
arbitration deposition, proceeding, or hearing. This bill also
provides that if an arbitrator denies a party's request for a
court reporter, the party may petition the court for an order to
compel the arbitrator to grant the party's request.
In support of the bill, the author writes:
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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.
Additionally, 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 factor in the denial of
justice.
SB 1007 will preserve the fundamental right to due process in
an arbitration proceeding and enhance consumer protection by
establishing a party's right to certified shorthand reporter
in any arbitration proceeding. Consumers will have the option
to petition for a court order to compel the arbitrator if
their request is denied. The existence of a record of the
proceedings is essential in consumers obtaining justice when
there are instances of arbitrator misconduct, unfair
procedural actions, corruption or fraud.
Access to an official transcript for any adjudicatory proceeding
is an important component of access to justice. Without an
official record of what transpired at an arbitration proceeding,
litigants may be unable to draft effective petitions to a court
and will be unable to recount what actually happened during
proceedings with any degree of accuracy. This bill reasonably
allows a party the right to request a court reporter during the
arbitration proceedings, at the expense of the requesting party,
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without interfering with the arbitration process. In order to
provide access to justice for indigent litigants, this bill also
provides that a court reporter shall be provided to an indigent
consumer at the expense of the nonconsumer party.
To prevent gamesmanship, this bill requires parties to an
arbitration proceeding to request a shorthand reporter in a
timely manner. To address the concern that this act would allow
parties to use a request for shorthand reporters to cause delay,
this bill requires a party to make a request for a certified
shorthand reporter either in the initial demand for arbitration
(or in the response or answer to the demand), or during a
scheduling conference between the parties. Although most
arbitration proceedings only have one initial pre-hearing
scheduling conference, this bill also envisions that there may
be multiple scheduling conferences before the arbitration
hearing. Accordingly, as long as a request for a shorthand
reporter is made at the scheduling conference when a deposition,
proceeding, or hearing is being calendared, the request would
appear to satisfy the parameters for timeliness under this bill.
A party may petition the court to enforce his or her right to
have a court reporter in arbitration under this bill. To ensure
that this important right can be enforced, this bill allows a
party to petition the court to compel the arbitrator to allow
the party to have a court reporter in the event that an
arbitrator denies a request. This bill additionally allows a
party to petition the court to stay the arbitration proceeding
while the court reviews the petition to compel. Although this
Committee is unaware of whether denial of a request court
reporter is a widespread practice, the author and sponsors has
provided anecdotal information that this has occurred. Given
that the work of a court reporter is important in delivering
access to justice, it seems sensible to allow a party to enforce
that right in court. It should be noted that this bill could be
strengthened in this regard. Although this bill allows parties
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to have the right to have a court reporter in an arbitration
proceeding, the state of arbitration law theoretically would
allow a party to contract away this right - even though such a
contract provision would appear to violate the public policy of
this state. The Legislature, in the future, may wish to
consider whether it should adopt a measure to prevent this type
of unscrupulous conduct by making such contractual provisions
void as against public policy.
REGISTERED SUPPORT / OPPOSITION:
Support
Conference of California Bar Associations (sponsor)
California Court Reporters Association
Court Reporters Board of California
Opposition
None on file
Analysis Prepared by:Eric Dang / JUD. / (916)
319-2334
SB 1007
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