BILL ANALYSIS
AB 1090
Page 1
ASSEMBLY THIRD READING
AB 1090 (Monning)
As Amended May 12, 2009
Majority vote
JUDICIARY 10-0
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|Ayes:|Feuer, Tran, Brownley, | | |
| |Skinner, Jones, Knight, | | |
| |Krekorian, Lieu, Monning, | | |
| |Nielsen | | |
|-----+--------------------------+-----+--------------------------|
| | | | |
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SUMMARY : Prevents waiver and negotiation regarding private
arbitrator ethics obligations. Specifically, this bill provides
that existing ethical standards and requirements are not subject
to waiver or negotiation.
FISCAL EFFECT : None
COMMENTS : In support of the bill the author states, "AB 1090
would clarify the intent of the Legislature and specify that the
ethics standards for arbitrators are nonnegotiable and shall not
be waived. The bill amends the Code of Civil Procedure to
prohibit arbitration providers and arbitrators from contracting
out of California's ethical standards. AB 1090 protects
consumers in the event of arbitration, by ensuring California's
ethics standards are nonnegotiable and shall not be waived.
This bill allows for proper disclosure of any conflict of
interest to be accessible and transparent between the parties
and the arbitration provider."
Although it should be clear that these rules were established
primarily for the purpose of public protection and therefore
should not be subject to negotiation or waiver, there have been
reported instances of private judging companies imposing and
attempting to defend contractual waivers of these obligations,
and there have no doubt been unreported instances as well.
(E.g., Azteca Construction, Inc. v. ADR Consulting, Inc., 121
Cal. App. 4th 1156 (2004); Jevne v. Superior Court, 35 Cal. 4th
935 (2005).) This bill would settle any doubt on the matter by
declaring expressly that arbitrator ethics rules are not subject
AB 1090
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to negotiation or waiver.
Parties may by contract agree to have their disputes resolved
and legal rights determined by a private arbitrator. The
private arbitration system owes much of its popularity and
goodwill to the long history of accomplishment it has enjoyed in
the resolution of labor disputes, where management and union
representatives with relatively equal bargaining power and
sophistication regularly appear before a small group of
specialists who they freely choose (or avoid) and whose function
is to resolve problems with the idea of achieving some measure
of workplace "industrial justice." Private arbitration has also
enjoyed success in many commercial disputes involving willing
parties to a business transaction who are content to pay the
cost in exchange for the speed and flexibility of a private
system.
There has been considerable controversy, however, when this
system has been applied to consumer disputes as the result of
mandatory clauses in boilerplate form contracts imposed by
corporate parties wishing to opt-out of the legal rules of
liability and accountability that are the hallmarks of the
public court system. What is more, these arbitration clauses
frequently designate a specific private arbitration company
preferred by the drafter of the clause as the exclusive provider
of the arbitration, meaning that a consumer is not only required
to arbitrate, but to do so with a particular arbitration
company.
The reason for the controversy is that private arbitration is a
mostly "anything-goes" system which is often costly and where
there is little if any regulation, oversight or legal
accountability to the parties or the public. Arbitrators need
not 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. Indeed, unlike judges, arbitrators
need not explain or defend the rationale for their decisions.
There is no need 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
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the arbitrator's ruling. 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 - typically
with the very same arbitrator or arbitration company because
they are so designated in the arbitration clause. The grounds
on which an arbitrator's decision may be vacated, moreover, are
extremely narrow and the standards for vacatur are stringent.
Neither may the parties generally obtain any remedy against the
arbitrator for misconduct 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 violation of law.
Unfortunately, legislative efforts to ensure a modicum of
fairness by ensuring that these agreements are knowing and
voluntary and not imposed as a take-it-or-leave-it condition of
the transaction have been unsuccessful in the face of vigorous
opposition by business groups. (See, e.g, AB 2947 (Eng) of 2008
(prohibiting residential care facility for the elderly from
requiring, as a condition of admission or continued care, that
the elder or dependent adult or his or her representative waive
certain rights against abuse; AB 1448 (Liu) of 2003 (precluding
long-term care facilities from requesting that residents or
applicants sign pre-dispute binding arbitration agreements or
otherwise waive the rights and procedures afforded under elder
abuse statute); SB 211 (Dunn) of 2003 (pre-dispute binding
arbitration clauses in residential care facility admission
agreements); AB 2656 (Jackson) of 2004 (automobile contracts);
AB 1715 (Judiciary) of 2003 (employment discrimination); SB 1570
(Dunn) of 2000 (mobile home tenancy).
This bill avoids that controversial issue because it is limited
only to involuntary waiver of the arbitrator ethics rules.
Ironically then, despite this worthy measure, parties would
continue to be compelled to waive their underlying statutory and
constitutional rights under mandatory private arbitration
clauses.
Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334
FN: 0000655
AB 1090
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