Proposed Legislation to Tighten Grip on California Forced Arbitration

07/08/2013 // Keller Grover LLP // Carey Been // (press release)

Mandatory arbitration is sweeping the nation, appearing in virtually every consumer contract from cell phones to medical care, and not everyone is thrilled with this avenue of dispute resolution. To help protect consumers and create greater transparency between arbitrators and consumers, California lawmakers have proposed a bill to require arbitrators to make certain information public or face hefty fines, says Los Angeles consumer protection attorney Carey Been.

As mandatory arbitration became a standard clause in almost every consumer contract, the state Assembly’s Judiciary Committee decided in 2002 to require arbitrators to make public specific information about the thousands of cases that were being heard by their private judges, reported.

This 2002 bill, AB 2656, which was enacted into law and codified as Code of Civil Procedure section 1281.96, has been long forgotten by many arbitration providers, who simply have ignored it or only provide some of the required information.

As a result, the Judiciary Committee re-examined the legislation and introduced a new bill, AB 802, in March, which would levy a $25,000 fine if arbitrators do not follow the transparency regulations.

One of the key questions lawmakers are hoping to answer is whether arbitrations are biased or as fair as some claim?

Arbitration has been under scrutiny since it has become the norm in consumer contracts, and many believe it’s unfairly one-sided towards big business. One lawsuit brought against one of the country’s leading arbitration providers, the National Arbitration Forum (NAF), in 2008 by the San Francisco City Attorney, revealed that NAF ruled in favor of corporations in 99.8 percent of the thousands of cases it heard. In addition, it was found that the NAF was owned by an investment group that also owned many of the companies its private judges were siding with in arbitration hearings.

With the proposed bill, California lawmakers are hoping to determine if other arbitration firms are operating in the state with similar judgment records, says Been, a Los Angeles consumer protection lawyer. But the problem is that many arbitrators are paying little attention to the law and are not complying with reporting requirements.

David Jung, director of the Center for State and Local Government Law at the University of California, Hastings College of the Law, and his team searched the Internet for arbitration firms doing business in California and found 26 companies. Out of these 26 companies, only about half of the firms were making any information public. The American Arbitration Association was the only organization that came close to meeting the legal requirements.

AB 802 was introduced to force all 26 companies to be compliant and any other arbitration companies in that state more transparent, or face a $25,000 penalty per violation.

Under AB 802, arbitrators must share their data in a searchable Excel spreadsheet or in a similar format. But the proposed bill is facing tough scrutiny from opponents.

The American Arbitration Association asserts they can’t meet the additional reporting requirements, since they don’t have access to the information required for public viewing. They also allege, “The creation of grounds for potentially frivolous lawsuits against a reputable and ethical arbitration provider, in concert with 18 additional data points that are either impossible to provide or are exceptionally onerous in aggregate will likely lead AAA and other organizations to cease administering consumer and employment arbitrations in California.”

“It was not revealed when lawmakers will vote on this proposed legislation, but any legislation that can clearly document how one sided and unbalanced these contracts have become, or put a damper on continued forced arbitration, will be a step in the right direction for consumers,” adds Been the LA consumer protection attorney. “For too long the pendulum has swung towards big business at the expense of consumers, from the Supreme Court’s Concepcion decision to the ignoring of transparency laws hiding the facts from the public as in this case.”

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