BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 802
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          Date of Hearing:  April 9, 2013

                           ASSEMBLY COMMITTEE ON JUDICIARY
                                Bob Wieckowski, Chair
                AB 802 (Wieckowski) - As Introduced: February 21, 2013
                                           
          SUBJECT  :  PRIVATE ARBITRATION COMPANIES: DISCLOSURES

           KEY ISSUE  :  SHOULD PRIVATE ARBITRATION COMPANIES PROVIDE  
          EXISTING DISCLOSURES IN A MORE COMPREHENSIBLE FORMAT?

           FISCAL EFFECT  :  As currently in print this bill is keyed  
          non-fiscal.

                                      SYNOPSIS
          
          This bill arises out of the Committee's recent oversight hearing  
          on consumer arbitration.  Existing law requires private  
          arbitration companies to publish certain basic information about  
          the consumer arbitration cases they administer or conduct.   
          Unfortunately, ten years after enactment of this obligation, the  
          Committee heard that there has been widespread non-compliance  
          with the law, generating continued controversy and skepticism  
          about the fairness of consumer arbitration.  One of the most  
          essential reforms, according to testimony at the hearing from  
          both supporters and critics of consumer arbitration, is that the  
          required information be produced in a sortable spreadsheet  
          format in order to provide basic transparency and to make the  
          data useful to researchers and policymakers.  At least one  
          private arbitration company currently produces its disclosures  
          in this format, and others agree that it would be readily  
          achievable for them to do so as well.  The bill has no known  
          opposition.

           SUMMARY  :  Clarifies existing consumer arbitration data  
          disclosures by private arbitration companies.  Specifically,  
           this bill  requires that private arbitration companies provide  
          the currently-required disclosures in a sortable database  
          format, rather than simply a "searchable" format.

           EXISTING LAW  requires a private arbitration company involved in  
          consumer arbitration cases to collect and make certain  
          information regarding those cases available to the public in a  
          computer-searchable format, accessible at the Internet Web site  
          of the private arbitration company, if it has an Internet Web  








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          site.  (Code of Civil Procedure section 1281.96.)

           COMMENTS  :  The need for this bill was demonstrated at the  
          Committee's March 18 oversight hearing examining compliance by  
          private arbitration companies with existing obligations to  
          disclose certain basic information regarding consumer  
          arbitrations.  (See Assembly Judiciary Committee, Mandatory  
          Consumer Arbitration: Has Compliance With California's Landmark  
          Data Transparency Law Been Sufficient to Accomplish the  
          Legislature's Goals? (available at  
          http://ajud.assembly.ca.gov/reports.)

           California's Landmark Consumer Arbitration Data Law Was Intended  
          To Help Inform The Debate Over The Alleged Pros and Cons of  
          Mandatory Arbitration And Deter Potential Abuses.  Code of Civil  
          Procedure section 1281.96 requires private arbitration companies  
          to periodically publish on their Internet web sites a handful of  
          data points regarding their consumer arbitration proceedings.   
          With the goal of improving the availability of hard data and the  
          promotion of reasoned debate - and by transparency to deter any  
          potential abuses - section 1281.96 was designed to provide  
          sunshine on the process and outcomes in these cases to better  
          allow researchers and policymakers to evaluate the competing  
          contentions; to deter potential abuses; determine what if any  
          oversight might be needed to ensure that consumer arbitrations  
          are fair and accord with established notions of due process; to  
          reduce any potential incentives to favor business parties; and  
          to help address mounting public skepticism about the integrity  
          of the arbitration process.  (See Assembly Judiciary Committee  
          report on AB 2656 (Corbett) of 2002.)  

           Despite This Worthy Goal, California's Consumer Data Publication  
          Law Has Apparently Not Been Successful - In Part Because There  
          Has Reportedly Been Widespread Noncompliance By The Arbitration  
          Companies.   Ten years after enactment of that law, the Committee  
          heard that when consumer arbitration data has been properly  
          reported pursuant to the law, the statute has facilitated a  
          robust debate about outcomes in these arbitration proceedings.   
          Nevertheless, research reveals only two studies in the past ten  
          years that rely on the reported data.  As experts have noted,  
          the paucity of research appears to reflect that the data is not  
          sufficiently complete or reliable to offer researchers a useful  
          source of information from which to analyze the consumer  
          arbitration process.









                                                                  AB 802
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          A new study by the Public Law Research Institute at UC Hastings  
          College of Law shows that the longstanding and pervasive issues  
          of arbitration company compliance with the consumer data law  
          appear to persist.  (Jung, et al, Reporting Consumer Arbitration  
          Data in California (March 15, 2013) (available at  
          http://gov.uchastings.edu/public-law/index.php.)

                 Roughly half of the private arbitration companies that  
               appear to be conducting business in California fail to post  
               any of the required information. (Report, pages 5-7.)  

                 Of the remaining half, no arbitration company complies  
               fully. (Report, page 1.)

                 Of the reporting companies, 90 percent fail to disclose  
               the amount of the claim - an important factor in evaluating  
               the outcome of the arbitration process. (Report, pages  
               11-12.)

                 No company conducting employment arbitrations fully  
               complies with the requirement to identify the employee's  
               salary range - an important factor in evaluating whether  
               arbitration outcomes potentially vary based on the wealth  
               of the claimant. (Report, pages 12-13.)

                 Approximately half of the reporting companies do not, or  
               do not consistently, report the frequency with which the  
               business party has used the arbitration company previously  
               - an important factor in evaluating potential  
               "repeat-player" bias.  Two of the noncomplying companies  
               have apparently been in business throughout the ten-year  
               life of the statute because they were identified as failing  
               to provide this information in a 2004 study; they have  
               apparently failed to comply from the very outset of the  
               statute. (Report, pages 14-16.)

                 While most of the reporting companies report the type of  
               disposition (e.g., settled, withdrawn, award made) at the  
               conclusion of the case, many companies do not report the  
               type of disposition in the terms required by the statute.   
               (Report, pages 21-22.)

                 A number of reporting companies fail to state or to  
               indicate clearly which party prevailed - a basic factor by  
               which to evaluate outcomes. (Report, pages 19-20.)








                                                                  AB 802
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                 A number of companies do not fully comply with the  
               requirement to report the fees charged by the arbitrator,  
               or the allocation of those fees to the parties - a key  
               question in the debate over the cost of mandatory consumer  
               arbitration. (Report, pages 26-27.)

                 Most companies fail to report any information regarding  
               other relief granted. (Report, page 19.)

                 Only one reporting company publishes its information in  
               a spreadsheet format, making it useful for reviewers.  The  
               other reporting companies simply publish a text file (PDF  
               format), some of which run to nearly 80,000 cases, which  
               are virtually useless to researchers because they do not  
               allow data to be sorted by field. (Report, pages 22-24.)

                 Of the reporting companies, approximately one-third post  
               outdated information. (Report, page 8.)

          Unfortunately, the significant omission of required data may  
          continue to foster skepticism of mandatory consumer arbitration.

          In addition - apart from the problem of tolerating violations of  
          a legal obligation - the failure of arbitration companies to  
          provide the legally required data may also have the effect of  
          skewing the conduct of consumer arbitrations by permitting  
          unscrupulous arbitration companies to gain an unfair competitive  
          advantage over their law-abiding competitors.  Like other  
          providers of services, arbitration companies compete with each  
          other to attract business.  This competition can take a variety  
          of forms, giving rise to the criticism that it gives arbitration  
          companies an incentive to structure the arbitration process to  
          favor businesses, which are more likely than consumers and  
          employees to be repeat players in arbitration.  Some observers  
          contend that self-regulation may be a valuable constraint  
          against the perceived incentive for arbitration companies to  
          favor business parties who offer the promise of repeat business.  
           However, the value of self-regulation would appear to be  
          largely lost, or at least unascertainable, without transparency.  
           For example, the American Arbitration Association (AAA) has  
          adopted important due process safeguards for consumer cases, and  
          reportedly will refuse to handle any case that does not meet its  
          standards.  Businesses that fall below this standard may seek to  
          move their arbitrations to a less-demanding arbitration company,  








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          a phenomenon that would go unnoticed if that arbitration company  
          were permitted to disregard the data reporting law, as they  
          evidently have been.

           Providing Data In A Sortable Database Format.   The statute seeks  
          basic information about the time, cost and outcome of consumer  
          arbitrations in a "computer-searchable" format.  Unfortunately,  
          many private arbitration companies - with the notable exception  
          of the AAA have interpreted "computer searchable" to mean a  
          simple text file, which many commenters have noted is virtually  
          useless for research purposes.  

          Amending the statute to clarify that a sortable spreadsheet  
          format, such as that used by the AAA, would provide  
          significantly greater transparency and utility according to  
          witnesses who testified at the hearing, including both  
          supporters and critics of mandatory arbitration.  Because at  
          least one private arbitration company now publishes its  
          disclosures in a sortable spreadsheet format, this clarifying  
          amendment would appear to be highly practicable.

           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          None on file

           Opposition 
           
          None on file
           
          Analysis Prepared by  :  Kevin G. Baker / JUD. / (916) 319-2334