BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2015-2016 Regular Session
SB 1078 (Jackson)
Version: April 14, 2016
Hearing Date: April 26, 2016
Fiscal: No
Urgency: No
RD
SUBJECT
Civil procedure: arbitration
DESCRIPTION
This bill would prohibit an arbitrator from entertaining or
accepting, from the time of appointment until the conclusion of
the arbitration, either of the following: (1) any offers of
employment or new professional relationships as a lawyer, expert
witness, or consultant from a party or lawyer for a party in the
pending arbitration; or (2) any offers of employment as a
dispute resolution neutral in another case involving a party or
lawyer for a party in the pending arbitration without the prior
written consent of the parties, as specified.
This bill also would authorize a party to recover costs incurred
in an arbitration proceeding from a private arbitration company
if the arbitration award is vacated or the arbitrator is
dismissed during the pendency of the arbitration because of a
violation of the specified ethical standards or disclosure
requirements. Lastly, this bill would add specified
prohibitions and disclosure requirements relating to
solicitations made by, or at the direction of, a private
arbitration company to a party or a lawyer for a party in a
pending arbitration.
BACKGROUND
As a general matter, arbitrations provide an alternative method
of dispute resolution, outside of the courts, wherein a neutral
third party, known as the arbitrator, renders a decision after a
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hearing to which both parties have had an opportunity to be
heard. Under California law, there are two distinguishable types
of arbitration: judicial arbitration (also known as
court-annexed arbitration, governed under Code of Civil
Procedure Sections 1141.10 -1141.31) and private arbitrations
(also commonly known as "contractual," "voluntary," or
"nonjudicial" arbitrations; governed under the California
Arbitration Act, Code of Civil Procedure Section 1280 et seq.).
On March 1, 2016, the Senate Judiciary Committee held an
informational hearing on the topic of private or contractual
arbitration agreements, entitled The Federal Arbitration Act,
the U.S. Supreme Court, and the Impact of Mandatory Arbitration
on California Consumers and Employees. In that hearing, many
issues facing consumers and employees who are subject to
arbitration clauses contained in standardized,
take-it-or-leave-it, or "adhesive" contracts were brought to
light. That hearing also brought to light the various
difficulties facing the State in addressing some of the
underlying, fundamental harms faced by consumers and employees
as a result of federal preemption and U.S. Supreme Court
precedent interpreting the Federal Arbitration Act. A package
of arbitration bills, of which this bill is one, arose out of
the hearing, seeking to address various fairness issues
surrounding the rules that govern the conduct and operation of
arbitrators and arbitrations in this state.
Of particular relevance to this bill are issues surrounding
arbitrator ethics, as discussed during the March hearing. (See
Comment 2.) In 2001, as a result of a concern mutually shared
by Governor Davis, Chief Justice George, and the Chair of this
Committee that the Legislature must take a serious look at the
growing use of private judges and how that growing use raises
questions of fairness and the creation of a dual justice system
that favors the wealthy litigant over the poor litigant, SB 475
(Escutia, Ch. 362, Stats. 2001) was enacted to require the
Judicial Council to adopt ethical rules for arbitrators. (See
Sen. Judiciary Com., analysis of SB 475 (2001-2002 Reg. Session)
Apr. 17, 2001, p. 4.)
The resulting Judicial Council ethical standards are "intended
to guide the conduct of arbitrators, to inform and protect
participants in arbitration, and to promote public confidence in
the arbitration process," and require covered arbitrators to
make basic disclosures regarding potential conflicts of interest
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and to comply with certain standards of conduct. In addition,
the California Arbitration Act (Code Civ. Proc. Sec. 1280 et
seq.) requires a proposed neutral arbitrator to make specified
disclosures and allows a party to disqualify the arbitrator
within certain timelines based on those disclosures or improper
non-disclosures. These ethical standards and requirements for
neutral arbitrators are not subject to negotiation and may not
be waived. (See AB 1090 (Monning, Ch. 133, Stats. 2009).)
This bill now seeks to build upon the current ethical rules and
disclosure requirements under California law to: (1) prohibit an
arbitrator from being offered future cases involving either
party during the pendency of the arbitration, without the prior
written consent of both parties, including the attorneys in the
arbitration; (2) require arbitrators to disclose certain
targeted marketing activities made by, or at the direction of,
the private arbitration company to a party or a lawyer for a
party to a consumer arbitration, and prohibits such activities
during the pendency of an arbitration; and, (3) ensure that a
party can recover costs incurred in an arbitration proceeding
from a private arbitration company if the arbitration award is
vacated or the arbitrator is dismissed during the pendency of
the arbitration because of a violation of specified ethical
standards or disclosure requirements.
CHANGES TO EXISTING LAW
Existing law , the California Arbitration Act (CAA), governs
arbitrations in California, including the enforcement of
arbitration agreements, rules for neutral arbitrators, the
conduct of arbitration proceedings, and the enforcement of
arbitration awards. (Code Civ. Proc. Sec. 1280 et. seq.) The
CAA generally requires a person serving as a neutral arbitrator
pursuant to an arbitration agreement to comply with the ethics
standards for arbitrators adopted by the Judicial Council.
(Code Civ. Proc. Sec. 1281.85.)
Existing law , the CAA, requires a proposed neutral arbitrator to
make specified disclosures and allows a party to disqualify the
arbitrator. (Code Civ. Proc. Sec. 1281.9(a).) Existing law
provides that, subject only to the disclosure requirements of
law, the proposed neutral arbitrator shall disclose all matters
required to be disclosed pursuant to this section to all parties
in writing within 10 calendar days of service of notice of the
proposed nomination or appointment. (Code Civ. Proc. Sec.
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1281.9(b).)
Existing law generally provides 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
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 , under the Judicial Council's "Ethics Standards for
Neutral Arbitrators in Contractual Arbitration," requires
covered arbitrators to make basic disclosures regarding
potential conflicts of interest and requires compliance with
certain standards of conduct. Existing ethical rules, Standards
7 and 8, provide for various disclosures that the arbitrator
must make on behalf of him or herself, and on behalf of the
arbitration company, respectively.
Existing ethical rule , Standard 12(a), provides that, from the
time of appointment until the conclusion of the arbitration, an
arbitrator must not entertain or accept any offers of employment
or new professional relationships as a lawyer, an expert
witness, or a consultant from a party or a lawyer for a party in
the pending arbitration.
Existing ethical rule , Standard 12(b), provides with respect to
offers for employment or professional relationships other than
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as a lawyer, expert witness, or consultant, that:
in addition to disclosures under Standards 7 and 8, above, a
proposed arbitrator must disclose a written disclosure to all
parties, within 10 calendar days of service of notice of the
proposed nomination or appointment, if, while that
arbitration is pending, he or she will entertain offers of
employment or new professional relationships in any capacity
other than as a lawyer, expert witness, or consultant from a
party or a lawyer for a party, including offers to serve as a
dispute resolution neutral in another case;
if the arbitrator discloses that he or she will entertain such
offers of employment or new professional relationships while
the arbitration is pending, the disclosure must also state
that the arbitrator will inform the parties as required,
below, if he or she subsequently receives an offer while that
arbitration is pending; and
a party may disqualify the arbitrator based on this disclosure
by serving a notice of disqualification in the manner and
within the time specified in Section 1281.91(b) of the Code of
Civil Procedure (within 10 calendar days of service of notice
of the proposed nomination or appointment).
Existing ethical rule , Standard 12(d) provides that if, in the
disclosure made pursuant to Standard 12(b), above, the
arbitrator stated that he or she will entertain offers of
employment or new professional relationships other than as a
lawyer, expert witness, or consultant, the arbitrator must then,
from the time of appointment until the conclusion of the
arbitration, inform all parties to the current arbitration of
any such offer and whether it was accepted, as specified. If
the arbitrator fails to inform the parties of an offer or an
acceptance, such failure constitutes a failure to comply with
the arbitrator's obligation to make a disclosure required under
these ethics standards. However, if an arbitrator has informed
the parties in a pending arbitration about an offer as required,
receiving or accepting that offer does not, by itself,
constitute corruption in, or misconduct by, the arbitrator.
Additionally, if the arbitrator has informed the parties in a
pending arbitration about an offer as required, then the
arbitrator is not subject to disqualification on the basis of
that offer or the arbitrator's acceptance of that offer.
Existing ethical rule , Standard 17(a), requires an arbitrator to
be truthful and accurate in marketing his or her services. An
arbitrator may advertise a general willingness to serve as an
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arbitrator and convey biographical information and commercial
terms of employment, but must not make any representation that
directly or indirectly implies favoritism or a specific outcome.
An arbitrator must ensure that his or her personal marketing
activities and any activities carried out on his or her behalf,
including those of a provider organization that he or she
affiliates with, comply with this requirement.
Existing ethical rule , Standard 17, further provides that an
arbitrator must not solicit business from a participant in the
arbitration while the arbitration is pending, and an arbitrator
must not solicit appointment as an arbitrator in a specific case
or specific cases. For this standard, "solicit" generally means
to communicate in person, by phone, or through real-time
electronic contact to any prospective participant in the
arbitration concerning the availability for professional
employment of the arbitrator in which a significant motive is
pecuniary gain.
This bill would codify the ethical rule, above, that, from the
time of appointment until the conclusion of the arbitration, an
arbitrator shall not entertain or accept any offers of
employment or new professional relationships as a lawyer, expert
witness, or consultant from a party or lawyer for a party in the
pending arbitration. This bill would also prohibit, during that
same time period, an arbitrator from entertaining or accepting
any offers of employment as a dispute resolution neutral in
another case involving a party or lawyer for a party in the
pending arbitration unless all parties to the pending
arbitration, including the lawyers in the arbitration, have
conferred and agreed in writing, before any solicitation of the
arbitrator, to allow offers of future employment as a dispute
resolution neutral to be made to the arbitrator.
This bill would add to the statutory list of disclosures that an
arbitrator must make pursuant to Section 1281.9, above, that for
a consumer arbitration case, an arbitrator must disclose any
solicitation made within the last two years by, or at the
direction of, the private arbitration company to a party or
lawyer for a party to the consumer arbitration. This bill would
also provide that, during the pendency of the arbitration, no
solicitation shall be made of a party to the arbitration or of a
lawyer for a party to the arbitration. "Solicitation" includes
an oral or written request for arbitration business, but does
not include advertising directed to the general public or
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communications indicating a general willingness to serve as an
arbitrator or private arbitration company.
This bill would permit a party to recover costs incurred in an
arbitration proceeding from a private arbitration company if the
arbitration award is vacated pursuant to the existing law
vacatur statute. This bill would further permit a party to also
petition the court to recover costs incurred in an arbitration
proceeding from a private arbitration company if the arbitrator
is dismissed during the pendency of the arbitration because of a
violation of the ethical standards or a violation of the CAA's
disclosure requirements.
COMMENT
1. Stated need for the bill
According to the author:
SB 1078 addresses issues of unfairness and bias in consumer
arbitrations. The bill strengthens current rules relating to
targeted marketing activities of private arbitration companies
as well as rules relating to the ability of arbitrators to
enter into future arrangements with one party to a pending
arbitration. This bill also prevents unjust enrichment to an
arbitration company where an award has been vacated or where
the arbitrator has been removed during an arbitration for
violations of ethical rules or disclosure requirements.
In support of the bill, the California Advocates for Nursing
Home Reform (CANHR) states that it supports the bill's efforts
to better ensure that parties to an arbitration are aware of
possible conflicts of interest with an arbitrator. CANHR writes
that "[t]hese days, a vast majority of long-term care facilities
require residents to sign pre-dispute mandatory arbitration
agreements so more and more disputes are being settled by
arbitrators who have financial and other reasons to rule against
the residents. Therefore it is increasingly important that
arbitrators be as impartial as possible. Prohibiting employment
offers to arbitrators while a matter is pending and requiring
disclosure of solicitations to parties or lawyers involved in
the arbitration are eminently reasonable measures to safeguard
the integrity of arbitrations."
Also in support, the Consumer Attorneys of California writes
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that "SB 1078 addresses issues of unfairness and bias in forced
consumer arbitrations. Private arbitration firms that administer
the arbitrations (firms like JAMS and AAA) often operate with
defendant companies on a regular basis without disclosing a
conflict of interest to the consumer plaintiff."
2. Informational hearing reviewed issues surrounding mandatory
arbitration and efficacy of current ethical standards for
arbitrators
Arbitration is a method of alternative dispute resolution where
the disputing parties present their disagreement(s) to one or
more third-party arbitrators whose decisions are generally final
and binding, instead of litigating the issues in courts.
Mandatory arbitration clauses, however, have been a topic of
significant controversy over the years as a form of alternative
disputes resolution. Generally, supporters of arbitration
assert that private arbitration provides a cheaper, faster, more
efficient form of dispute resolution than the overburdened
courts, because they are able to limit discovery, set their own
rules for presenting evidence, schedule proceedings at their own
convenience, and select the third party who will decide their
cases. However, critics of private arbitration contend that it
is an unregulated industry, which is often costly and
unreceptive to consumers. Consumer advocates view mandatory
arbitration as putting consumers and businesses employees on an
uneven playing field that creates an inclination by arbitrators
to decide cases in favor of businesses. They further view
arbitration as an expensive process which also puts consumers at
a disadvantage by imposing procedural limitations on their
ability to pursue their legal claims. This is especially true
in cases where the business has pre-selected the company in the
contract who will arbitrate the claim. Critics contend that
arbitrators have far less incentive to be fair to both sides
when they owe their engagement to the business that will
repeatedly appear before them, unlike the consumer party who did
not choose the arbitration company and is not likely to be the
source of future work for the arbitrator.
These concerns are compounded by the fact that there are little,
if any, regulations or legal standards imposed on arbitrators or
their decisions. Regardless of the level or type of mistake, or
even misconduct, by the arbitrator, the grounds on which a court
will allow judicial review of an arbitration are extremely
narrow. (See Moncharsh v. Heiley & Blase (1992) 3 Cal.4th 1
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(holding that a court is not permitted to vacate an arbitration
award based on errors of law by the arbitrator, except for
certain narrow exceptions).) Courts have recently begun to make
some exceptions to Moncharsh, and allowed for more expanded
judicial review of arbitral awards in certain circumstances.
(See Pearson Dental Supplies Inc. v. Superior Court (2010) 48
Cal.4th 665 (holding that error of law was sufficient grounds to
vacate the arbitral award because an arbitrator whose legal
error barred an employee subject to a mandatory arbitration
agreement from obtaining a hearing on the merits of a
discrimination claim under the Fair Employment and Housing Act
(or other claims based on unwaivable statutory rights) exceeded
his or her legal powers).) Although the Pearson decision does
provide some recourse for individuals who were compelled to
arbitrate claims of unwaivable statutory rights, and effectively
denied a hearing on the merits for their claim, the general rule
providing for limited judicial review of arbitral awards is
still controlling.
In this Committee's informational hearing on mandatory
arbitration, several issues relating to bias or the appearance
of unfairness in arbitrations were brought to light, suggesting
that California's ethical rules for arbitrators must be enhanced
to better ensure a fair process for all parties to an
arbitration. Some of those issues, which this bill seeks to
address, include: (1) the ability of an arbitrator to take on
numerous cases involving one party to a pending arbitration; (2)
the ability of a provider organization to engage in various
(undisclosed) marketing activities intended to solicit business
from businesses and firms, including those that may be involved
in an ongoing arbitration using one of the provider's
arbitrators; and (3) the unfairness of allowing arbitrator and
arbitrator providers to keep the money paid for their services
when the award has been vacated due to ethical violations or
other misconduct.
3. Bill seeks to address gaps and otherwise strengthen current
ethical rules
As discussed in Comment 2 above, the increased use of mandatory
arbitration clauses in consumer contracts has been highly
controversial for a variety of reasons, including alleged issues
surrounding concerns of "repeat players," whereby a repeat
defendant, such as a corporate defendant, may, conspicuously or
not, receive preferential treatment or rulings from arbitrators
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who rely on being selected by the corporate defendant to earn a
living as an arbitrator. Prior bills have attempted to address
the repeat player problem by requiring private arbitration
companies (also known as provider organizations) to disclose
certain information about the parties and outcomes of consumer
arbitrations that they have conducted. (See AB 2656 (Corbett,
Ch. 1158, Stats. 2002); AB 802 (Wieckowski, Ch. 870, Stats.
2012.) In support of the bill, the California Employment
Lawyers Association (CELA) writes:
[T]he current rules are deficient in numerous respects. The
original rules actually provided that if in the multi-page
disclosure statement the arbitrator checks a box that says
they will accept additional cases from the parties, the
arbitrator may then [ . . .] accept an unlimited number of new
cases from one side of the dispute without ever telling the
other side. [Thus,] while a case was pending the other side
could offer and enter into any number of additional, very
lucrative financial arrangements with the arbitrator and keep
those relationships and contacts secret.
[Today,] in a 'consumer or employment' arbitration as defined
by the rules, the arbitrator now must disclose the new cases
they have taken from one party but there is still no
opportunity to reject the arbitrator or oppose the
solicitation or acceptance of that new case based merely on
the disclosure. In commercial cases the old rule remains the
same which means that one party can offer and the arbitrator
can accept an unlimited number of new matters and keep those
professional and financial relationships secret. This is
obviously an unacceptable practice.
The impact of arbitrators' repeat dealings with the same party
is very troubling. A recent study by Cornell University's ILR
Review journal examined results of 11 years of employment
arbitration cases administered by the American Arbitration
Association (AAA). Their findings show a significant repeat
"employer/arbitrator pairing" effect: employers that use the
same arbitrator on multiple occasions win more often and have
lower damages awarded against them than do employers appearing
before an arbitrator for the first time.
One of our member's recent arbitration experience illustrates
how the "repeat player" phenomenon loads the deck against
employees in mandatory arbitration. In 2013, our member's
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client sued his employer to recover unpaid sales commissions
that were owed to him [. . .]. During the pendency of the
arbitration, the arbitrator disclosed that he had accepted
forty four additional matters from the same defense firm
representing the defendant in that case. A motion to
disqualify the arbitrator in that matter was recently denied
by JAMS.
Staff notes that while advocates on the various sides of
arbitration may dispute as to whether there is an actual "repeat
player" problem in arbitrations, it is undeniable that there is
an entrenched belief amongst a large sector of the public that a
problem exists, which ultimately undermines the integrity of
arbitration as a fair forum for dispute resolutions. This
problem, or the perception of the problem, is aggravated when a
party that has been "forced" to resolve their disputes pursuant
to an arbitration clause, learns that the opposing party has
used or is under contract to use that arbitrator or arbitration
company in dozens of other cases. In the March hearing, it was
relayed that, as a matter of form, some well-known arbitration
providers will require their arbitrators to "disclose" the
possibility of them taking future cases with one party to the
arbitration. Thus, while the current rules allow a party to
object to the use of the arbitrator based upon that disclosure,
they will only find that all other arbitrators in that
organization have the same disclosures in their disclosure forms
as well, leaving the objecting party with no viable
alternatives. Moreover, under the existing rules, when the
proposed arbitrator makes a disclosure that he or she might take
future cases with either party, if the party does not object to
the proposed arbitrator within 10 days of that initial
disclosure, the party cannot later seek to remove the arbitrator
in the middle of the arbitration if the arbitrator actually
takes additional cases with the opposing party.
Accordingly, this bill seeks to address that problem by
requiring that, during the pendency of an arbitration, both
parties provide prior written consent before either party can
approach the arbitrator to take future cases. This bill would
not otherwise affect the ability of the parties or their lawyers
to approach the arbitrator for future cases before the
arbitration has commenced or after it has ended. Thus, arguably,
the bill would not unduly restrict any such offers of future
employment but would help combat the perception of a repeat
player problem during an arbitration.
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4. Bill addresses marketing activities and adds accountability
for ethical violations
In addition to strengthening existing rules regarding the
ability of an arbitrator to take future cases involving either
party during the pendency of an arbitration between those
parties, this bill seeks to address issues relating to marketing
activities of provider organizations and the lack of enforcement
mechanisms when ethical or disclosure rules are violated.
First, as noted by CELA in support of this bill, a provider
"stands to make thousands, if not millions of dollars, if they
are named as the arbitration service provider in a company's
standard employment or consumer agreements. [T]hese providers
are putting on seminars on 'how to win in arbitration' and
holding private meetings with companies to try to lure their
business. In one situation, we were informed that a proposed
specialized panel of arbitrators was shown to prospective
arbitration users in advance in an effort to get their business.
Those kinds of practices, whether done by the arbitrators or by
their agents, should not be permitted. Providers should be
required to disclose targeted marketing and solicitation of
cases done on behalf of the arbitrators on their panels." Such
activities, the author argues "understandably cause the consumer
or employee to question the objectivity of the company and its
arbitrators."
The author also seeks to address an issue arising out of the
hearing relating to the ability of parties to recover costs
against an arbitrator who acts unethically or engages in other
misconduct. The author writes that "currently, there are few
consequences to an arbitrator or private arbitration company
that fails to comply with the ethical rules and disclosure
requirements, because there is no entity with general oversight
or enforcement authority over arbitrators. In fact, when an
arbitrator's award is vacated or the arbitrator is removed for
failure to comply with the ethical rules or make necessary
disclosures, the arbitrator and/or private arbitrator company is
permitted to retain the fees collected, even though the parties
may have to restart the proceedings, resulting in an unjust
enrichment to the arbitrator and the private arbitration
company."
Thus, this bill also seeks to require arbitrators to disclose
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certain targeted marketing activities (as opposed to general
solicitations to the public) made by, or at the direction of,
the private arbitration company, to a party or lawyer for a
party to an ongoing consumer arbitration in the prior two years.
The bill also prohibits such targeted solicitation activities
during the pendency of an arbitration with respect to either
party or the party's lawyer in the arbitration. For these
purposes, "solicitation" specifically is defined to include an
oral or written request for arbitration business, but exclude
advertising directed to the general public or communications
indicating a general willingness to serve as an arbitrator or
private arbitration company. Lastly, to encourage strict
adherence to the ethical and disclosure rules and dissuade any
corruption or bias on the part of an arbitrator, and to prevent
unjust enrichment to a provider organization whose arbitrators
violate these rules, the bill would ensure that a party can
recover costs incurred in an arbitration proceeding from a
private arbitration company if the arbitration award is vacated
or the arbitrator is dismissed during the arbitration due to
ethical or disclosure rule violations, or other misconduct.
5. Opposition arguments
California Dispute Resolution Council (CDRC) writes in
opposition to this bill in large degree because it believes the
current ethical rules are working properly. More specifically,
CDRC believes that Rule 12 of the Ethics Standards adopted by
Judicial Council works very well, as is, because a party who is
concerned by an arbitrator's disclosure that he or she will
accept solicitations as a dispute resolution neutral while the
arbitration is pending can disqualify the arbitrator within 15
days after receiving the disclosure. If not, "then the party
obviously is aware that the arbitrator may accept offers from
its adversaries (or itself) for future work as a dispute
resolution neutral and is not concerned about that possibility."
CDRC argues that the approach taken by this bill to require
prior written consent of both parties before an arbitrator can
accept cases with either lawyer for a party in the pending
arbitration is "more cumbersome."
CDRC also expresses concern that the bill allows a party to an
arbitration to recover undefined costs incurred in an
arbitration proceeding from the private arbitration company (the
provider) if the award is vacated under the existing law grounds
for vacatur. The bill would "therefore make the provider
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vicariously liable for any act of an arbitrator that led to the
vacat[ur] of an award. The proposed legislation seems to imply
that arbitration awards are vacated solely because of fraud or
other chicanery committed by the arbitrator and that the
provider had something to do with it. But there is absolutely
no evidence that this is the case. Arbitrators, like judges,
are human and they can make mistakes that might lead to
vacatur."
The Civil Justice Association of California (CJAC) also writes
in opposition because the bill "will prohibit arbitration
companies from soliciting business from a party to a consumer
arbitration for as long as the arbitration lasts. Because some
arbitration companies offer dozens or hundreds of neutrals, any
one of whom could be providing service as a neutral at any time
for a party that frequently uses arbitration, SB 1078 will
operate as a ban on solicitation by arbitration companies of
their most frequent users. SB 1078 will also prohibit an
arbitrator, during an arbitration, from entertaining any offers
of employment as a dispute resolution neutral from a party to
the arbitration. If a party to an ongoing arbitration is a
frequent user of arbitration, this ban constitutes a practical
barrier to the arbitrator scheduling subsequent work, and will
complicate the logistical challenge faced by arbitration
companies as they try to keep track of which neutrals are
available." CJAC believes that existing law is already
sufficient to address issues of corruption or misconduct of a
neutral arbitrator.
In response, the author asserts that while the opponents may
believe that the status quo is adequately protective against
conflicts of interest and bias in the private arbitration
system, there are multiple other indicators that a significant
sector of the public believes that they cannot obtain a fair
chance in mandatory arbitrations. The author writes:
There remains a strong perception amongst consumers and
employees, and their representatives, that arbitrations are
unfair and biased against them from the outset. Though the
opposition can disagree as to whether issues of actual bias or
unfairness exist in arbitrations, the reality is that the
appearance of bias and unfairness continues to persist amongst
the public, undermining their confidence in their ability to
obtain a fair shake in the resolution of their disputes in
this private forum. Such a perception is compounded by the
fact that consumers and employees are often forced into
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arbitration as a result of a non-negotiable clause in a
take-it-or-leave-it contract, and the fact that arbitrators
rely on the repeat business of the companies paying for the
arbitration.
Moreover, most of the current ethical rules focus on the
activities of the arbitrator- not the arbitration company. So
while an arbitrator cannot directly solicit a law firm for
business in specific cases, nothing stops the provider
organization from approaching the firm and holding seminars on
how to do better in arbitration, on which cases to submit to
arbitration and to which arbitrators. Worse, they do not even
have to disclose those activities to the parties. So, if, in
midst of an arbitration, or after the award was made against
them, a consumer or employee finds out about such targeted
marketing activities of the arbitration company that was
supposed to provide them with a "neutral arbitrator," that
information could cause the consumer or employee to question
the neutrality of the arbitrator that was provided to them.
So long as private arbitrations are part of our justice
system, the public needs to have some measure of confidence in
the system. This bill seeks to enhance and build upon the
existing ethical and disclosure rules, until more can be done
by the federal government on issues relating to the Supreme
Court's interpretations of the Federal Arbitration Act.
Lastly, with regard to the cost provisions in this bill, the
author states that the intent is to prevent the unjust
enrichment of a provider organization if their arbitrators
engage in ethical violations or misconduct that results in
vacatur or removal of the arbitrator in midst of the
proceedings. CELA adds that "[w]hen an arbitrator goes through
the arbitration process and violates the ethical rules with some
misconduct, causing the award to be vacated after the parties
have paid thousands of dollars, it is unjust for the Provider to
be able to keep the money. In all other industries, if a company
provides a product or service that is defective, the company has
to pay the money back. Similarly, the Arbitration Service
Provider should have to pay the money back if the service they
provide results in vacatur because of ethical violations."
Support : California Advocates for Nursing Home Reform;
California Employment Lawyers Association; Consumer Attorneys of
California
SB 1078 (Jackson)
Page 16 of ?
Opposition : California Disputes Resolution Council; Civil
Justice Association of California
HISTORY
Source : Author
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
specified, are voidable by the consumer or employee.
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.
SB 1007 (Wieckowski, 2016) 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. The
refusal of this right would be a ground for vacatur of the
arbitration award.
Prior Legislation : None Known
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