SB 940

 

Most of our efforts concerned SB 940, which was introduced by Senator Tom Umberg, the chair of the Senate Judiciary Committee. Senator Umberg asserted that he was filing the bill in reaction to a Los Angeles Times article about “rogue mediators”. The bill was signed by the Governor on September 29.

 

The purported “rogue mediators” were neither rogues nor acting as mediators when they engaged in the activities cited by the Times. They were three well respected retired judges, retained as special masters to monitor settlement funds that arose from lawsuits filed by attorney Tom Girardi and they purportedly allowed Girardi to withdraw a substantial amount of money from the funds for his personal use. In their defense, the retired judges asserted that they could not have prevented Girardi from withdrawing the funds and that they were not aware that the withdrawals were for personal expenditures.  The connection to mediators is that these retired judges also sometimes served as mediators though they were not doing so in the subject cases. Thus, SB 940 will not affect the activities in which Girardi engaged though justice has been served, at least with respect to Girardi, given that he has been convicted of fraud and faces prison.

 

SB 940 can be divided into two sections---a revision affecting California ADR practice that, in Senator Umberg’s words, will “help level the playing field in consumer arbitration and preserve arbitrator neutrality” and a certification process for both arbitrators and mediators.

 

CDRC supported two parts of the section concerning arbitration practice. One of these affected litigation as well as arbitration.  It adds Section 1799.208 to the Civil Code and provides that a seller shall not require a consumer to agree to a provision that would require the consumer to adjudicate outside of California a claim arising in California nor deprive the consumer of the substantive protection of California law with respect to a controversy arising in California. If a contract contains these provisions, they are voidable at the option of the consumer. 

 

The other, denoted as Section 1799.209 of the Civil Code, gives a consumer who has signed an arbitration agreement the option of adjudicating the dispute in Small Claims Court if the amount in controversy is within the monetary limits of Small Claims Court. However, the original bill limited the option to consumers who signed arbitration agreements that would be administered by a provider. CDRC proposed that the option be extended to consumers who executed non-administered arbitration agreements as well and Senator Umberg agreed.

 

The bill also touches on the use of discovery in arbitration. Currently, Code of Civil Procedure Section 1283.05 permits general discovery in arbitration, except that subsection (e) only allows depositions with the prior permission of the arbitrator(s). However, the statutory language was preceded by the phrase “to the extent provided in Section 1283.1”.  Section 1283.1 gave these broad discovery rights only to the arbitration of wrongful death and negligence claims In all other cases, these broad discovery rights were available only if the provisions of Section 1283.05 were incorporated into or made applicable to the arbitration agreement.  Given that the rules of JAMS and the AAA largely permitted broad discovery, broad discovery was allowed in most arbitrations administered by JAMS and the AAA, with an exception for agreements that contained discovery limitations in the arbitration clause. SB 940 repealed Section 1283.1 and so it would allow the same type of discovery that is available in litigation to be available in arbitration and may very well negate discovery limitations in arbitraton clauses. Nevertheless, CDRC believes that this expansion of discovery rights will not have a major effect on arbitration practice because we expect that an advocate who believes that his or her adversary is abusing the discovery process will bring the matter to the attention of the arbitrator.  Arbitrators are often more prone to limit abusive discovery than judges.

 

The main problem with this part of SB 940 is its possible effect on the ability of an arbitrator to accept an assignment from an attorney or party in a pending arbitration. In the initial version of this portion of the bill, new Section 1281.93(a) prohibited outright the ability of an arbitrator to accept or solicit an assignment to arbitrate a new case from an attorney or party in a pending arbitration unless, prior to the selection of the arbitrator, all parties agreed in writing to allow the arbitrator to do so. CDRC objected to this section and Senator Umberg withdrew it.  The new section now practice before the arbitrator was selected.is added to the California Arbitration Act, and it states: “During the pendency of the consumer arbitration, a solicitation shall not be made of a party to the arbitration or of a lawyer for a party to the arbitration”.  An addition to Section 1281.9 of the CAA states that “solicitation” includes “private presentations made to a party or lawyer for a party by the private arbitration company…”  Thus, it is unclear whether an arbitrator can serve in a second case with a party or attorney while the first case is still pending. The question is whether inclusion of the arbitrator’s name on a list of potential arbitrators given to parties and/or counsel is such a “private presentation”.

 

The certification portion of the bill took a more tortured path to its final rendition and raised many questions. The original bill did not require the State Bar to create a certification program, it merely stated that the Bar “may” do so.  Further, the certification program applied only to “firms”, but the term “firm” was not defined.  Did it only affect providers, or could a single practitioner be considered to be a “firm”? The only requirement for certification was that the firm have procedures in place 1) for persons to file complaints about its arbitrators or mediators, 2) for its arbitrators to comply with the Ethical Standards for Arbitrators in Contractual Arbitrations, 3) for its mediators to comply with the Rules of Conduct for Mediators in Court Connected Mediations, and 4) to remedy failures by its arbitrators and mediators to comply with the aforementioned standards.

 

CDRC objected to the certification proposal for various reasons. It noted that certification normally implies a certain degree of expertise. Yet a person who had no prior experience with ADR could start a firm, adhere to the four principles denoted above, and become certified immediately.

 

The certification provision was then amended to cure some of the problems of the original version. Among other things, the amended bill applied to “providers” and “practitioners” in addition to “firms” and therefore largely clarified the coverage issue. There is still a question whether a single ADR practitioner, particularly one who employs a scheduler and/or a secretary, is a “firm”. In addition, while retaining the requirement to adhere to the four principles, it provided for tiers or levels that “demonstrate higher public protection based on criteria developed by the State Bar”. The amendment further required the State Bar to create the program. CDRC opposed the creation of tiers because it believes that it will raise the barriers for entrance to the ADR profession. However, CDRC  was not able to induce the author to modify or remove the tier provision. CDRC plans to work with the State Bar to develop the certification program.

 

AB 924

 

AB 924 also traces its roots to the Los Angeles Times articles, but it is more draconian than SB 940. The bill requires mediators to send complaints against them to the State Bar. To establish a claim, a complainant would be expected to reveal mediation communications and, in doing so, mediation confidentiality would undoubtedly be breached. In addition, a mediator who would be defending himself or herself against a complaint in a State Bar proceeding would either be forced to breach mediation confidentiality if the mediator chose to testify or be unable to defend against the complaint if he or she declined to testify, citing mediation confidentiality. The mediation participant who did not file the complaint and that person’s attorney could also be subpoenaed to testify in a State Bar trial of the mediator, even though the participant entered into the mediation in the belief that anything said therein would be confidential and thought that he or she bought peace when the case settled. The bill, if enacted, would have seriously diminished the attraction of mediation because of the inroads to confidentiality.

 

AB 924 was introduced during the 2023 legislative session and the author resisted most attempts to amend the bill, probably in the belief that any bill purportedly curtailing the activities of Tom Girardi would meet little resistance in the Legislature. CDRC ultimately enlisted the Consumer Attorneys of California and the California Judges Association to join in the opposition to the bill. This combined opposition led the author to convert the bill to a two-year bill. That meant that the bill could be reintroduced in 2024. The re-introduction of the bill needed to be done by the end of June. The bill was not re-introduced by the deadline and so it is dead.

 

AB 1903

 

In 1988, the California Legislature enacted the California International Arbitration and Conciliation Act (CIAC), codified as Code of Civil Procedure Section 1297.11 et. seq.  The bill conformed to the Model Law on International Commercial Arbitration (the Model Act) that was adopted by the United Nations Commission on International Trade Law (UNCITRAL) in 1985. Prior to CIAC’s enactment, most international arbitrations conducted in the United States were held in New York or Washington, D.C., even where one of the parties may have been based in California. After CIAC was enacted, the number of international arbitrations that were conducted in California increased. However, in 2006, substantial amendments were made to the Model Act. California did not follow suit. Consequently, California once again lagged behind other United States locales, including locales other than New York and Washington, in the number of international arbitrations conducted.

 

To rectify this situation, the California Lawyers Association organized a task force in 2022 to amend CIAC so that it once again would largely conform to the Model Act. CDRC had a representative on the task force. The bill was drafted in 2023 and introduced as AB 615. It sailed through the Assembly easily and moved on to the Senate, where the Senate Appropriations Committee concluded that the amended statute would negatively affect California’s budget. The Committee felt that the state’s trial courts would be burdened by motions to confirm or vacate international arbitrations as well as other motions that might emanate from an arbitration and the bill was placed in the suspense file, effectively killing it. The Committee’s conclusions were erroneous. Most of the litigation arising from international arbitration agreements is filed in or removed to federal courts because of the geographical diversity that is inherent in international arbitrations.

 

In 2024, the task force tried again by introducing AB 1903, which was virtually identical to AB 615 and supported by CDRC. But this time, the bill’s proponents made the legislators aware that the bill did not have an impact on California’s fiscal status. The bill passed both houses without dissent and was signed by the Governor.

 

 

SB 1141

 

SB 1141 increased the ceiling to “order” a case into mediation from $50,000 to $150,000. Senator Umberg subsequently asked the author to include certain conditions precedent that had to be met before the court could do so, including that a case be set for trial, that at least one party notify the court of an interest in mediation, and that a mediator be provided to the parties at no cost if they didn’t stipulate to a mutually agreeable mediator. The bill passed 38-0 in the California Senate.

 

Just prior to the Assembly Judiciary Committee hearing, opponents insisted on more amendments that were not acceptable to the author. The bill did not pass in the Assembly Judiciary Committee.

 

AB 3281

 

One of the strangest situations that CDRC had to deal with was a bill which could have eviscerated a large portion of the California Arbitration Act.

 

Every year, the Legislature passes an omnibus bill. An omnibus bill is designed to correct typos in an existing statute or bring the statute in line with a law that was subsequently passed. An omnibus bill is not expected to create substantive changes in the law. AB 3281 was the Assembly’s omnibus bill in 2024.

 

The core of the California Arbitration Act is its very first section, Code of Civil Procedure Section 1281(a), which states that a written agreement to arbitrate a controversy is valid, enforceable, and irrevocable save upon such grounds that exist for the revocation of any contract.

 

Tucked into page 39 of AB 3281 was an amendment to Section 1281(a) which stated that it only applied “if the arbitration agreement is valid, enforceable, and irrevocable under the Federal Arbitration Act”. Thus, those sections of the CAA that are not found in the FAA would be eviscerated. Most of these sections improve arbitration practice. This certainly was not the type of change normally associated with an omnibus bill.

 

The legislative analysis that accompanied the bill indicated that the provision on page 39 was based on a comment by the Second Circuit in Bissonnette v. LePage Bakeries Park Street LLC, 49 F. 655 (2d Cir. 2022) that indicated that transportation workers who are exempt from arbitration under Section 1 of the FAA could still be required to arbitrate if the arbitration agreement could be interpreted to be also covered by the state arbitration act and the state  act did not have a similar exemption.

 

Regardless of what one thinks about the availability or non-availability of an exemption for transportation workers under the CAA, an omnibus bill is not the place to consider such legislation. CDRC contacted the author of AB 3281 and pointed this out. The language on page 39 was stricken.

 

AB 3281 is a good reason for the existence of CDRC, the only entity that represents ADR professionals in Sacramento, and why it is imperative to join CDRC. Many legislators and staffers feel that arbitration is not a good thing and should be limited, if not eliminated. They do so in the sincere but erroneous belief that arbitration is merely a tool used by corporations to deny justice to consumers and employees. That leads to the regular introduction of bills that cripple arbitration. This belief also affects mediation because these individuals do not understand ADR and hence do not understand the difference between arbitration and mediation.

 

CDRC is the only entity that protects the livelihoods of ADR professionals in Sacramento. It constantly monitors ADR legislation, and the aforementioned section of AB 3281 might have become law had it not been for CDRC. Thus, we hope that those of you who read this newsletter and who are not CDRC members will join us and those of you who are members will renew. You can sign up or renew by going to our website at www.cdrc.net. And, if you are a member and want to become more active in our organization, you can do so through the member profile on the website.