DAILY JOURNAL NEWSWIRE ARTICLE
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February 13, 2002
LAWMAKERS EXAMINE AT ARBITRATION
Fairness, recruitment of judges and ethical standards are part of discusson in Assembly Judiciary Committee.
By Linda Rapattoni
Daily Journal Staff Writer
SACRAMENTO - The rush to resolve legal disputes through arbitration is getting out of hand, often putting consumers at a disadvantage in an arena ungoverned by ethical restraints or standards, the state Assembly Judiciary Committee was told Tuesday.
Consumers, arbitrators and plaintiffs' lawyers told committee members in a day-long hearing focused on arbitration service providers that legislation is needed to ensure that the process is fair and reasonable.
"It's starting to get a little out of control," Justice J. Anthony Kline, a presiding justice of the Court of Appeal in San Francisco, told the committee. "I regret to say I don't have a lot of solutions."
Part of the problem is that arbitration firms are recruiting judges while they are still on the bench but it's a problem "you're never going to prove," the justice said. He said the problem is caused by the large difference in pay between private and public judges.
The hearing by committee chairman Darrell Steinberg, D-Sacramento, did not focus on ethical standards for arbitrators, which are being developed by the Judicial Council of California. The council is holding public hearings on a proposed set of standards that would apply to private judges.
Conspicuously absent from the legislative hearing were any representatives of the American Arbitration Association, which was criticized repeatedly for allegedly violating its own ethical standards. Lawyers complained to the committee that AAA owns "millions of dollars in stock" in corporations who hire them and sends its arbitrators to solicit business from parties whose disputes it may hear.
Steinberg repeatedly expressed his disappointment that AAA did not send a representative to the hearing.
"It's sort of like Mr. [Kenneth] Lay [chief executive officer of Enron] not coming in on Enron's behalf," Assemblywoman Hannah Beth Jackson said, referring to congressional investigations into the embattled energy trader's accounting practices.
Kersten Norlin, a spokeswoman for the New York-based arbitration service, said the company did not receive notice of the hearing until Jan. 25 because of a typographical error in the address on the invitation.
"We submitted a substantial written response," she said. "So we replied to the information in the request."
Arnold Zack, former president of the National Academy of Arbitrators, told the committee it is common nationally for corporations to have exclusive agreements with arbitration providers.
Some services dismiss arbitrators from their rosters who have returned awards unfavorable to corporate clients, Zack said. Many do not conform to the due process standards adopted by the courts and JAMS, one of the better known arbitration and mediation service providers, he said.
In the last five years, more arbitration service rules have banned punitive damages, limited the remedies the arbitrator can award and banned class actions, said Jim Sturdevant, vice president of the board of governors of the plaintiffs bar group Consumer Attorneys of California. Some rules require confidentiality clauses that restrict parties from disclosing even the existence of a dispute to spouses, children and others.
Even when arbitration services have standards for maintaining neutrality, they sometimes drop them in the face of opposition from corporate clients, Sturdevant said.
Panelists at the hearing recommended numerous legislative reforms, including increasing public judges' pay, banning exclusive arbitration agreements with arbitration services and opening the results of private arbitrations to the public.
Other proposed solutions included capping the costs of arbitration for consumers, eliminating pre-dispute mandatory arbitration, but not arbitration generally, adopting conflict of interest standards for providers, instituting penalties for violations of ethical standards and eliminating absolute immunity for arbitrators and arbitration providers.
Jay Welsh, vice president and general counsel of JAMS, said he would oppose banning exclusive agreements with arbitration providers because he did not believe it would address the problem of fairness.
"That forces parties to go to court in more expensive proceedings and seek clarification," he said.
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