Bill banning forced arbitration on Gov. Brown’s desk

Bill banning forced arbitration on Gov. Brown’s desk

jams logoA bill that the California Chamber of Commerce warns will drive up litigation costs for California businesses is on Gov. Jerry Brown’s desk.

For disputes involving civil rights, currently businesses can provide contracts for customers in which civil-rights disputes are settled by arbitration. Assembly Bill 2617 would prohibit that practice, requiring a court trial if the customer seeks it. However, arbitration still would be possible if both parties agree to it.

The matter also applies to students and parents who sign arbitration agreements with private schools.

The bill’s author, Assemblywoman Shirley Weber, D-San Diego, told the Senate Judiciary Committee people should not be forced to waive their right to a trial before a judge and jury when their civil rights have been violated.

“Forced arbitration waivers require a person to give up their right to take hate crime or civil rights cases to court in exchange for employment, housing, education or even simple consumer transactions,” she said.

“We passed the state’s civil rights laws not only to provide a mechanism of legal redress for victims, but also to send a signal to the rest of society that these acts are not sanctioned, whether committed by an individual or abetted by an institution.

“Requiring an individual to waive their rights to legal redress, even if they become a victim of a hate crime, is extremely destructive to the spirit of the state’s laws intended to affirm the value of the individual and protect them from being victimized on the basis of their race, gender, religion, sexual preference or political affiliation.”

Cyber-bullying

Weber’s main witness was Lee Caplin, whose son was a victim of cyber-bullying at Harvard-Westlake School in Los Angeles 10 years ago. Caplin sued the school for $100 million, and has been in litigation with various parties since then. Initially he was forced into arbitration, which he lost.

He said that when he enrolled his 15-year-old son, “I was presented with a contract that just said, ‘Here’s your student agreement, please sign right here.’ So, of course, it was not a negotiable contract, nothing that I could take home and read. Even though I’m a lawyer, I didn’t read it. And I knew the headmaster and I signed it.

“What happened is that we were forced into arbitration. I spent all my savings defending this, never before seeing the negative impact of a secret hearing, denied the opportunity of public review, the press, a jury of one’s peers, and most importantly denied the rules of evidence that apply in a court situation.”

Caplin believes arbitration stacks the deck against the little guy.

“At the end of the day, with all the back-slapping that the JAMS [arbitrator] applied to the people that came from the school, they didn’t care about a one-off case when they were faced with the one-off person as opposed to their regular customer, which was the school, which was in there very frequently,” he said.

“I understand arbitration and the need to streamline the justice system. And I’ve seen what private prisons do for taking care of what the public prison system can’t take care of. But I think that it’s not right to off-load to a private corporation the rights that the Constitution gave us as citizens of the United States.”

The legislative analysis of the bill for the Assembly supports Caplin’s contention that arbitration may not always provide a level playing field:

“Private arbitration becomes … controversial … when it is imposed by more powerful parties without negotiation or the right to withhold consent to unfair terms. Not only is private arbitration effectively unregulated, it has caused concerns because it is a revenue-driven system where, critics contend, ‘repeat players’ have unfair advantages when they are involved in mandatory arbitration against ‘one-shot’ users, such as individual consumers.

“[C]ritics contend arbitrators have far less incentive to be fair to both sides when they owe their engagement (and future work) to the business that pre-selected the arbitration company in the contract and who will repeatedly appear before them, unlike the consumer party who did not choose the arbitration company and is not likely to be the source of future work for the arbitrator.

“This reluctance to offend the source of repeat business may be particularly true where the dispute involves stigmatizing allegations, such as the hate-crimes charges at issue in this bill.”

The analysis also points out that arbitration is ineffective when the hate-crime victim needs to obtain a restraining order to prevent further abuse. “For an arbitrator’s order to be legally enforceable, it must be confirmed by a court judgment – a time-consuming process that does not lend itself to immediate injunctive relief,” it states.

Job killer

The Chamber of Commerce is urging its members to ask Brown to veto AB2617, dubbing it a “job killer” that will increase litigation costs for all employers by “forc[ing] more civil disputes into the already-overcrowded judicial system.

“Given the protections courts have imposed in arbitration, there is existing evidence that proves arbitration is equally effective and more efficient than the judiciary system to resolve claims. Not only is arbitration more efficient, but also it is less costly for employers/businesses, as well as financially beneficial to consumers/employees.”

Two Republicans argued against the bill on the Assembly floor Aug. 27. Assemblyman Jeff Gorell, R-Camarillo, called it unconstitutional.

“Current law allows for arbitration agreements as long as they are fair,” he said. “Both the United States and the California Supreme Court have consistently ruled against laws limiting arbitration. But AB2617 seeks to do just that.

“Arbitration exists to streamline proceedings and expedite rulings to ensure fairness for both sides. The courts have imposed safety requirements on arbitration agreements, providing protections for the side making the complaint. We should not pass a law that would take away a method of dispute resolution that is cost-effective for both parties.”

Assemblyman Donald Wagner, R-Irvine, pointed out that California’s court system is overburdened. Some 25,000 civil cases were pending as of September 2012, he said, with 8,000 pending for more than a year and 2,000 for more than three years.

“This bill unfairly restricts the arbitration process,” he said. “We are taking away an affordable option and forcing people into a system that very often runs up the cost, sends money into the pockets of attorneys and does not expeditiously resolve the case.

“Justice delayed is justice denied. If we’re interested in justice, especially justice for some of our poorer people, we ought to be looking at expanding the opportunities to go to arbitration – rather than sticking people into a court system that is underfunded and takes years to work through the system.”

Opportunity

But Assemblyman Roger Dickinson, D-Sacramento, noted AB2617 does not deny the opportunity to go to arbitration.

“There’s nothing more important or fundamental to us as citizens of the United States than our basic civil rights,” he said. “This bill only safeguards the opportunity of any citizen to pursue his or her basic rights in the forum of his or her choosing. And if that person chooses, as would be permitted under this bill, to use arbitration as the forum for that purpose, then let them do so.

“But if they choose instead to have the right and the option to go and seek a judge’s review or a jury’s review of whether their basic, fundamental civil rights have been violated, we should protect that alternative and that option.”

Weber concluded the debate saying, “We fought too hard and too long in this country for various civil rights laws to basically be implemented in this state and across this nation to simply say we’ll give it up in an arbitration agreement where there is not equal participation in that process.”

5 comments

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  1. LetitCollapse
    LetitCollapse 22 September, 2014, 13:14

    Civil rights or hate crime cases in the workplace?

    Straight white males move along. Nothing to see here.

    Reply this comment
  2. Wayne Lusvardi
    Wayne Lusvardi 22 September, 2014, 15:23

    The California Association of Realtors Residential and Commercial Purchase Agreement forms provide for mandatory arbitration rather than a court trial for all real estate disputes.

    One way this can be abused is that a buyer can sign and purchase agreement with a seller and has 10 days to verify that he/she has sufficient funds to close the transaction. If he can’t verify that he has the funds or he doesn’t have enough money to buy the property, the seller has the right to cancel the contract. But if the seller reasonably cancels the contract for failure of buyer to verify funds or prove enough funds, the buyer can still force the seller into mandatory arbitration at a cost of about $125,000 in legal fees to settle the dispute. This is nothing but a full employment act for lawyers and a way for rich developers to extort small property owners. I commend Assemblywoman Weber for taking on this issue.

    Reply this comment
  3. Ulysess Uhaul
    Ulysess Uhaul 23 September, 2014, 10:27

    Over 650,000 attorneys in California…….they have to eat too!

    Real estate contracts and disclosures are intended to be very consumer friendly reading……every page of ten pounds of papers.

    Whew-

    Reply this comment
  4. Rex the Wonder Dog!
    Rex the Wonder Dog! 23 September, 2014, 12:46

    [email protected] 650,000 CA lawyers! 🙂

    Try about 175K current, living lawyers, of which maybe half that are active AND actually practicing law.

    Arbitration is a scam, the only ones who do it are Big Businesses and similarly situated where there are no other options. Harvard Westlake is the top private school in LA, so they may be able to get away with it. I would never sign a contract like this, which is referred to as an “Adhesion Contract”.

    Reply this comment
  5. lazy eye
    lazy eye 15 October, 2014, 14:40

    Largely an exercise in futility. The overwhelming pro-arbitration policy in federal law (as expanded by the U.S. Supreme Court over the last 20+ years) invalidates any state law that outright forbids arbitration of specific claims, even civil rights claims. California courts have been forced to retreat from various anti-arbitration decisions. The scope of federal preemption in this area is the broadest possible, and is itself a question of federal law. That makes it immune from state court efforts to restrict application of federal law (not that that California state courts aren’t trying, good for them). The five chamber-of-commerce justices (aided and abetted by the four “liberal” wimp justices) have used federal arbitration law to effectively re-institute the early-1900s Lochner regime of “economic due process.” The reality that these arbitration provisions are forced on weaker parties by stronger parties in “contracts” involving life necessities (jobs, health care, cell phones, cars) doesn’t concern the Supreme Court. No Democratic congressman, and certainly not President Obama, attempts to do anything about it (the Republicans are all for it, of course). The pretense is that BOTH sides have to arbitrate, so it’s fair, right? “The law, in its majestic equality, equally forbids the rich and the poor from begging in the streets, sleeping under bridges, and stealing bread.” Well, because the business side is a repeat customer, and the arbitrator gets paid directly by the parties, the arbitrator knows that if he or she rules against the repeat customer, he won’t be in business very long. Good for California in calling BS on chamber of commerce justices of the Supreme Court. However, the law will have no, or extremely limited, practical effect.

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