BILL ANALYSIS Ó
SB 1078
Page 1
SENATE THIRD READING
SB
1078 (Jackson)
As Amended June 14, 2016
Majority vote
SENATE VOTE: 24-12
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|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Judiciary |8-2 |Mark Stone, Wagner, |Gallagher, |
| | |Alejo, Chau, Chiu, |Maienschein |
| | |Cristina Garcia, | |
| | |Holden, Ting | |
| | | | |
| | | | |
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SUMMARY: Prohibits arbitrators in consumer arbitration cases
from accepting certain work assignments or offers of employment
during the course of an arbitration and requires them to make
additional disclosures about solicitations for work received
during the course of an ongoing arbitration. Specifically, this
bill:
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1)Prohibits, from the time of appointment until the conclusion
of the arbitration, an arbitrator - except when conducting an
arbitration regulated by the Securities and Exchange
Commission (SEC)-- from entertaining or accepting either of
the following:
a) Any offer of employment or new professional relationship
as a lawyer, expert witness, or consultant from a party or
lawyer for a party in the pending arbitration.
b) In a consumer arbitration case, any offer of employment
as a dispute resolution neutral [arbitrator] 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 to be made
to the arbitrator.
1)Defines, for purposes of 1) above, a "lawyer for a party" to
include any lawyer or law firm currently associated in the
practice of law with the lawyer hired to represent a party.
2)Requires, in a consumer arbitration case other than in a case
subject to regulation by the SEC, if an arbitration award is
vacated because of a violation of the ethics standards adopted
by the Judicial Council or specified improper conduct of the
arbitrator, the consumer to be reimbursed for any costs
incurred in the arbitration proceeding from the private
arbitration company or from the arbitrator to whom the costs
were paid.
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3)Clarifies that a recovery of costs from the private
arbitration company or from the arbitrator authorized in 3)
above, is only allowed after the private arbitration company
or the arbitrator is provided notice and an opportunity to be
heard only on the issue of whether there was a violation of
the ethics standards or disclosure requirements and is
prohibited if the arbitration award is vacated solely on the
basis of a harmless error.
4)Requires, in any arbitration pursuant to an arbitration
agreement, the proposed neutral arbitrator to disclose the
following, in addition to other disclosures required by
existing law, in a consumer arbitration case: 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 and provides
that any solicitation made before January 1, 2017, is not
required to be disclosed.
5) Prohibits, during the pendency of the consumer arbitration,
any "solicitation" to be made of a party to the arbitration or
of a lawyer for a party to the arbitration.
6)Defines "solicitation" to include private presentations and
oral and written requests for arbitration business, but
exclude interactions such as advertising directed to the
general public.
FISCAL EFFECT: None.
COMMENTS: Arbitration is a sometimes controversial form of
alternative dispute resolution held outside of courts where a
third-party (rather than a judge) makes a binding (and rarely
appealable) award. In an effort to protect consumers and
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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.
Restriction on solicitation of business during arbitration.
This bill would codify the ethical rule 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 an
arbitrator, in a consumer arbitration case, 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, something which is not prohibited by
existing Judicial Council regulations. Therefore, arbitrators
in consumer arbitration cases would be prohibited from
entertaining and accepting a wider range of employment for a
party involved in the pending arbitration. There is an
exception if all parties to the pending arbitration, including
the lawyers in the arbitration, confer and agree 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.
Disclosure rules under current law and as proposed to be
enhanced by this bill. In an effort to protect against
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conflicts of interest in consumer arbitrations, this bill
requires arbitrators to disclose certain targeted solicitation
activities, beginning January 1, 2017, made by, or at the
direction of, the private arbitration company to a party or
lawyer for a party to a consumer arbitration, and prohibits
arbitrators from undertaking such activities during the pendency
of an arbitration. Specifically, the bill requires the proposed
neutral arbitrator to disclose any solicitation made within the
last two years (but not including any such solicitation prior to
January 1, 2017) by, or at the direction of, the private
arbitration company to a party or lawyer for a party to the
consumer arbitration. The bill exempts from these requirements
"an arbitration conducted or administered by a self-regulatory
organization, as defined by the federal Securities Exchange Act
of 1934 (15 United States Code Section 78a) or regulations
adopted under that act"- or in other words, an arbitration
proceeding that is regulated by the SEC.
Recovery of costs. Code of Civil Procedure (CCP) Section 1285
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." A court is required to vacate the award if the
court determines any of a number of facts or circumstances that
would reasonably compromise the fairness of the proceeding,
including the fact that the award was procured by corruption,
fraud or other undue means. (CCP Section 1286.2 (a)(1).) One
reason for vacating an award is that the arbitrator who made 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.
(CCP Section 1286.2 (a)(6).)
Opponents and concerned third parties focus on this provision in
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the bill, saying - in the words of JAMS -- that it is
"unworkable, patently unfair to Providers and arbitrators and
disrupts long-standing principles ensuring the Provider and
arbitrator remain neutral." Regarding the solicitation
provision, JAMS states that it would "significantly restrain a
provider's ability to conduct business."
However, the bill appears to deliberately exclude cases where an
award is vacated for a reason other than misconduct by the
arbitrator. For example, the bill reasonably does not include
CCP Section 1286.2 (a)(2), the award was procured by corruption,
fraud or other undue means, which otherwise seems to be a
perfectly appropriate (and necessary) reason to vacate an award,
apparently because that language does not specify that the
arbitrator must be responsible for the corruption, fraud or
other undue means. The bill does not even include CCP Section
1286.2(a)(4), the arbitrators exceeded their powers and the
award cannot be corrected, presumably out of an abundance of
deference to arbitrators who may sometimes act in excess of
their authority. Finally, the bill specifies that "recovery of
costs under this paragraph is prohibited if the arbitration
award is vacated solely on the basis of a harmless error." As a
result, the only grounds for vacating an award in CCP Section
1286.2 that are included in the bill are those which are based
upon clear and significant misconduct by the arbitrator which
seems to be a perfectly reasonable basis for awarding costs to
the consumer as a result.
Analysis Prepared by:
Eric Dang and Alison Merrilees / JUD. / (916)
319-2334 FN:
0003505
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