New California laws restrict consumer arbitration

ADRnews

California Gov. Gray Davis recently signed five controversial arbitration-related bills, vetoing Assembly Bill 1538 (which would have invalidated certain predispute arbitration agreements between employers and employees) and A.B. 3029 (which among other things would have imposed onerous

requirements on ADR providers who provide arbitration services to consumers). Adrworld.com quotes Davis as saying that the latter bill was vetoed because it "casts too wide a net and could have the unintended consequences of making California's arbitration provisions so complex that national companies would not be willing to provide services in our state."

Four of the bills affect consumer arbitration. A.B. 2656 was signed into law over the objections of several ADR providers and the California Dispute Resolution Council. The other three-A.B. 2915, A.B. 3030 and A.B. 2574-were amended to respond to objections from the ADR community. The enactment of the new legislation represents a victory for the state trial attorneys and consumer groups who lobbied extensively to restrict employment and consumer arbitration in California.

A.B. 2656 (new California Code of Civil Procedure (CCCP) Section 1281.96) will require providers of consumer arbitration services to collect and publish specified data (including the names of non-consumer parties, the arbitrators and their fees, and the outcome of the case) in computer searchable form on the provider's Web site. Another provider representative noted that it will be costly to comply with A.B. 2656 and this may jeopardize the ability of small community and bar association providers to continue to provide arbitration services. This bill takes effect on Jan. 1, 2003.

A.B. 2915 (new CCCP Section 1284.3) prohibits arbitration providers and neutral arbitrators from administering consumer cases if the arbitration clause requires the nonprevailing consumer to pay the other party's attorney's fees. Among other things, the bill also will require providers to waive their administrative fees for indigent claimants.

A.B. 3030 (new CCCP Section 1281.84) will make a provider's administrative fee for a consumer arbitration subject to "disgorgement" if a court finds a violation of statutory law. The bill will also prevent a provider or arbitrator from re-administering a consumer case if a court has vacated the award, unless the consumer has agreed in writing. However, the effectiveness of A.B. 3030 is expressly made contingent on the enactment of Assembly Bills 2574, 2915 and 3029. Since A.B. 3029 was vetoed, the effectiveness of A.B. 3030 is in doubt.

A.B. 2574 (new CCCP Section 1281.92), which applies to consumer arbitrations commenced on or after Jan. 1, 2003, will prohibit an arbitration provider from administering consumer arbitrations if it has, or within the prior year had, a financial interest in a party or a party's attorney. It also will prohibit the provider from providing consumer arbitration services if the party or its attorney has or had a financial interest in the arbitration provider in the preceding year.

A.B. 2504.8, which amends CCCP Section 170.1, affects retiring judges who plan to become arbitrators or mediators. It provides for the disqualification of a judge who has a "current arrangement for prospective employment" as a neutral or, within the last two years, participated in discussions about such employment with a party to a judicial proceeding, or the case before the judge involves an arbitration agreement. In addition, A.B. 2504.9, has been amended to require judges to disclose the arrangements for prospective employment as a neutral and any discussions they had about such employment during the prior two years, which would be grounds for disqualification. California has spearheaded the movement to make arbitration appear to be more fair where businesses are involved in arbitration with individuals.

Whether these new laws will so burden the practice of arbitration that it becomes inefficient and impractical remains to be seen. (This article is partially based on a news article published by adrworld.com, an independent subsidiary of the AAA.)

ADR FOR TAXSHELTER DISPUTES

The Internal Revenue Service has announced that taxpayers who participate in tax shelters (known as "contingent liability transactions") have an option to resolve tax liability disputes with the Service under an expedited fast track procedure. The ADR option includes "baseball" arbitration using private sector arbitrators to decide between the last best offers of the taxpayer and the IRS. The eligibility and other requirements are contained in Revised Revenue Procedure 2002-67.