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California Bill - AB 3029 
This Bill was vetoed by the Governor. 
Would have required private arbitration companies 
to disclose specified information, 
and otherwise regulated 
private arbitration companies
BILL NUMBER: AB 3029	ENROLLED
	BILL TEXT

	VETOED BY THE GOVERNOR SEPTEMBER 30, 2002
	PASSED THE ASSEMBLY  AUGUST 30, 2002
	PASSED THE SENATE  AUGUST 29, 2002
	AMENDED IN SENATE  AUGUST 26, 2002
	AMENDED IN SENATE  JUNE 26, 2002
	AMENDED IN SENATE  JUNE 20, 2002
	AMENDED IN ASSEMBLY  MAY 14, 2002
	AMENDED IN ASSEMBLY  APRIL 17, 2002

INTRODUCED BY   Assembly Member Steinberg
                        MARCH 12, 2002

   An act to amend Sections 1280 and 1281.6 of, and to add Sections
1281.81, 1281.82, and 1281.83 to, the Code of Civil Procedure,
relating to arbitration.



	LEGISLATIVE COUNSEL'S DIGEST


   AB 3029, Steinberg.  Consumer arbitration agreements:  private
arbitration companies.
   Existing law provides for the enforcement of arbitration
agreements and requires a court to vacate an arbitration award in
specified circumstances.
   This bill would define attorney for a party, consumer arbitration,
consumer party, neutral arbitrator, and private arbitration company
for these purposes.  The bill would specify that if a consumer
arbitration agreement, entered into or renewed on or after January 1,
2003, designates one or more exclusive private arbitration companies
or SROs or incorporates the arbitration rules of a private
arbitration company or SRO, the consumer party shall have the option,
as specified, after a dispute arises, to choose a different neutral
private arbitration company or SRO.  The bill would specify that if
the agreement is entered into or renewed on or after April 1, 2003,
the arbitration agreement shall plainly notify the consumer of this
right, as specified, as well as the right to obtain information about
private arbitration companies, as specified.  The bill would
prohibit an arbitrator or private arbitration company from
administering or otherwise participating in a consumer arbitration in
violation of these requirements.
   This bill would require a private arbitration company to disclose
specified information relating to possible conflicts of interest
within 15 days of the receipt of a demand for arbitration pursuant to
a consumer arbitration agreement.  This bill would also require
proposed private arbitration companies to be disqualified for failing
to comply with this disclosure provision under specified
circumstances.  The bill would also authorize a party to disqualify a
private arbitration company on the basis of the disclosure
statement, except as specified.
   The bill would prohibit a private arbitration company from making
certain representations regarding consumer arbitration, adopting or
enforcing specified rules governing consumer arbitration, or giving
or receiving remuneration for referrals, as specified.  The bill
would specify that it applies to all consumer arbitration proceedings
subject to the provisions of the bill or conducted in California.
The bill would also specify that the application of certain
provisions of the bill to health care service plans shall become
operative on January 1, 2004.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  The Legislature finds and declares that it is the
public policy of the state that private arbitration companies conduct
themselves in accordance with appropriate ethical standards in order
to protect participants in consumer arbitrations and to promote
public confidence in the arbitration process.
  SEC. 2.  Section 1280 of the Code of Civil Procedure is amended to
read:
   1280.  As used in this title:
   (a) "Agreement" includes but is not limited to agreements
providing for valuations, appraisals and similar proceedings and
agreements between employers and employees or between their
respective representatives.
   (b) "Attorney for a party" includes any attorney actually
representing a party and any attorney present at the arbitration
hearing or who is identified in any arbitration brief or other paper
submitted to the arbitrator as representing a party for purposes of
the arbitration.
   (c) "Award" includes but is not limited to an award made pursuant
to an agreement not in writing.
   (d) "Consumer arbitration" means an arbitration that is binding on
the consumer and conducted under a predispute arbitration provision
contained in a contract that meets both of the following criteria:
   (1) The contract is with a "consumer party."
   (2) The arbitration provision is contained in a printed form
agreement or was drafted by or on behalf of, or inserted by or on
behalf of, the nonconsumer party.
   (e) "Consumer party" means a party to an arbitration agreement
who, for the purpose of that agreement, is any of the following:
   (1) An individual who seeks or acquires, including by purchase,
lease, or license, any goods or services primarily for personal,
family, or household purposes, including financial services,
insurance, and other goods and services, as defined in Section 1761
of the Civil Code.
   (2) An individual who is an enrollee, a subscriber, or an insured
under a health care service plan, within the meaning of Section 1345
of the Health and Safety Code, or a health care insurance plan,
within the meaning of Section 106 of the Insurance Code.
   (3) An individual with a medical malpractice claim that is subject
to arbitration pursuant to a predispute arbitration agreement.
   (4) An employee or applicant for employment in a dispute arising
out of, or relating to, his or her employment or prospective
employment, except a dispute under or arising out of a collective
bargaining agreement between an employer and its employees or between
their respective representatives.
   (f) "Controversy" means any question arising between parties to an
agreement whether the question is one of law, of fact, or both.
   (g) "Neutral arbitrator" means an arbitrator who is selected or
appointed by one of the following methods:
   (1) Jointly by the parties or by the arbitrators selected by the
parties.
   (2) By the court when the parties or the arbitrators selected by
the parties fail to select an arbitrator who was to be selected
jointly by them.
   (3) By a private arbitration company, under an agreement of the
parties or applicable rules.
   (h) "Party to the arbitration" means a party to the arbitration
agreement:
   (1) Who seeks to arbitrate a controversy pursuant to the
agreement;
   (2) Against whom the arbitration is sought pursuant to the
agreement; or
   (3) Who is made a party to the arbitration by order of the neutral
arbitrator upon the party's application, upon the application of any
other party to the arbitration or upon the neutral arbitrator's own
determination.
   (i) "Private arbitration company" means any nongovernmental entity
or individual that holds itself out as managing, coordinating, or
administering arbitrations, or providing the services of neutral
arbitrators, or making referrals or appointments to, or providing
lists of, neutral arbitrators.  "Private arbitration company"
includes any entity owned, in whole or in part, by any individual or
affiliated with, a private arbitration company, but does not include
individuals appointed to serve as the arbitrator; entities that
administer, make referrals or appointments to, or provide lists of
arbitrators in, fewer than five consumer arbitration cases per year;
or any self-regulatory organization (SRO) as defined in the
Securities and Exchange Act of 1934 (15 U.S.C. 78c(a)(26)) or the
federal Commodity Exchange Act (7 U.S.C. 1 et seq.) and regulations
adopted in implementation of that act.
   (j) "Written agreement" shall be deemed to include a written
agreement which has been extended or renewed by an oral or implied
agreement.
  SEC. 3.  Section 1281.6 of the Code of Civil Procedure is amended
to read:
   1281.6.  (a) Except as provided in subdivision (b), if the
arbitration agreement provides a method of appointing an arbitrator,
that method shall be followed.
   (b) (1) If a consumer arbitration agreement entered into or
renewed on or after January 1, 2003, designates one or more exclusive
private arbitration companies or SROs, or incorporates the
arbitration rules of a private arbitration company or SRO, the
consumer party shall have the option, after a dispute arises, to
choose a different neutral private arbitration company or SRO, as the
case may be.
   (2) If a consumer arbitration agreement entered into or renewed on
or after April 1, 2003, designates one or more exclusive private
arbitration companies or SROs, or incorporates the arbitration rules
of a private arbitration company or SRO, the arbitration agreement,
in its arbitration clause, shall plainly notify the consumer of the
right to choose a different private arbitration company or SRO, as
the case may be, as well as of the right to obtain information about
private arbitration companies as provided by Section 1281.96.  This
notice shall also be provided to the consumer party by the private
arbitration company in the first communication from the private
arbitration company to the consumer party regarding the arbitration,
and in the rules of procedure governing the arbitration.
   (3) The option to choose a different neutral private arbitration
company may be exercised by the consumer party, within 45 days from
either the date the consumer party serves a demand for arbitration,
the date the nonconsumer party serves a demand for arbitration
specifying a private arbitration company or SRO, or the date a court
issues an order compelling arbitration.  No administration of the
consumer arbitration shall be conducted prior to the exercise of the
consumer's right to choose a different private arbitration company or
SRO or the expiration of the period in which the consumer may
exercise the right to choose a different private arbitration company
or SRO, whichever comes first.  If the consumer exercises the option
to choose a different private arbitration company or SRO, the parties
may agree on an alternative private arbitration company or SRO or
petition the court for appointment of an arbitrator pursuant to this
section.
   (4) No consumer arbitration may be self-administered by a party or
the parent, subsidiary, or other legal affiliate of a party.
   (5) No arbitrator or private arbitration company may administer or
otherwise participate in a consumer arbitration in violation of this
section.  Any arbitration award rendered in violation of this
section may be vacated at the request of the consumer party pursuant
to Section 1286.2.
   (6) This subdivision shall apply to all consumer arbitration
agreements subject to this article, and to all consumer arbitration
proceedings conducted in California.
   (c) If the arbitration agreement does not provide a method for
appointing an arbitrator, the parties to the agreement who seek
arbitration and against whom arbitration is sought may agree on a
method of appointing an arbitrator and that method shall be followed.

   (d) In the absence of an agreed method, or if the agreed method
fails or for any reason cannot be followed, or if an arbitrator
appointed fails to act and his or her successor has not been
appointed, the court, on petition of a party to the arbitration
agreement, shall appoint the arbitrator.
   (e) If a petition is made to the court to appoint a neutral
arbitrator, the court shall nominate five persons from lists of
persons supplied jointly by the parties to the arbitration or
obtained from a governmental agency concerned with arbitration or a
private disinterested association concerned with arbitration.  The
parties to the agreement who seek arbitration and against whom
arbitration is sought may within five days of receipt of notice of
the nominees from the court jointly select the arbitrator whether or
not the arbitrator is among the nominees.  If the parties fail to
select an arbitrator within the five-day period, the court shall
appoint the arbitrator from the nominees.
  SEC. 4.  Section 1281.81 is added to the Code of Civil Procedure,
to read:
   1281.81.  (a) Within 15 days of the receipt of a demand for
arbitration pursuant to a consumer arbitration agreement, a private
arbitration company shall disclose to the parties to that consumer
arbitration the following matters:
   (1) Any employment, consulting, or independent contractor
relationship within the past two years, that occurs after January 1,
2003, between the private arbitration company and any party or
attorney for a party to the consumer arbitration resulting in payment
to the private arbitration company of thirty thousand dollars
($30,000) or more.  For purposes of this subdivision, the provision
of dispute resolution or evaluation services and alternative dispute
resolution related training and teaching does not constitute
employment or engagement as a consultant or independent contractor.
   (2) Any financial relationship within the past two years, that
occurs after January 1, 2003, between the private arbitration company
and any party or attorney for a party in a consumer arbitration,
including an ownership interest, debt, loan, or lease.  For purposes
of this subdivision, "financial relationship" does not include the
purchase of goods or services on the same terms and conditions as are
available to the general public or the provision of alternative
dispute resolution related services.
   (3) Any solicitation within the past two years, that occurs after
January 1, 2003, made by, or at the direction of, the private
arbitration company to any party or attorney for a party to the
consumer arbitration for a consumer arbitration case.  For purposes
of this section, solicitation includes an oral or written request for
arbitration business, but does not include advertising directed to
the general public or communications indicating a general willingness
to serve as a private arbitration company.
   (b) The obligation of this section to make disclosures is a
continuing duty, applying from receipt of the demand for arbitration
until the conclusion of the arbitration proceeding.
   (c) The obligations of this section to make disclosures regarding
matters within the past two years shall operate only prospectively.
   (d) This section applies to all consumer arbitration agreements
subject to this article, and to all consumer arbitration proceedings
conducted in California.
  SEC. 5.  Section 1281.82 is added to the Code of Civil Procedure,
to read:
   1281.82.  A private arbitration company shall be disqualified for
failing to comply with Section 1281.81 if a party entitled to receive
the disclosure serves a notice of disqualification within 30
calendar days after the company fails to comply with Section 1281.81.
  If a private arbitration company complies with Section 1281.81, a
party may disqualify the private arbitration company on the basis of
the disclosure statement after serving notice of disqualification
within 30 calendar days after service of the disclosure statement.
If a private arbitration company has complied with Section 1281.81, a
party may not disqualify a private arbitration company if an
arbitrator has been agreed to by the parties, unless the private
arbitration company makes a material omission or a material
misrepresentation in the disclosure statement.
  SEC. 6.  Section 1281.83 is added to the Code of Civil Procedure,
to read:
   1281.83.  (a) A private arbitration company may not make any
representation regarding consumer arbitration that promises or
implies specific results or favoritism towards one party or
prospective party or one type of disputant or industry.
   (b) A private arbitration company may not adopt or enforce any
rule governing consumer arbitration that is inconsistent with any
statement of principle, guideline, protocol, or other nonbinding
policy representation regarding consumer arbitration made or adopted
by the private arbitration company.  A private arbitration company
may not adopt any statement of principle, guideline, protocol, or
other nonbinding policy statement regarding consumer arbitration that
is inconsistent with the rules under which consumer arbitration is
actually conducted or administered by the private arbitration
company.
   (c) A private arbitration company may not give or receive any
commission, rebate, or other remuneration for the referral of
consumer arbitration cases, prospective consumer arbitration cases,
consumer arbitration parties, or prospective consumer arbitration
parties.
   (d) This section applies to all consumer arbitration agreements
subject to this article, and to all consumer arbitration proceedings
conducted in California.
  SEC. 7.  The exclusion of self-regulatory organizations from the
definition of private arbitration company in Section 1280 of the Code
of Civil Procedure is not intended to affect the application to SROs
of the arbitrator ethics standards promulgated by the Judicial
Council pursuant to Section 1281.85 of the Code of Civil Procedure,
because this act does not relate to those issues.  This act may not
be given retroactive effect with respect to the definitions set forth
in Section 1280 of the Code of Civil Procedure.
  SEC. 8.  The obligation under Section 1281.6 of the Code of Civil
Procedure to notify consumers of their rights in the arbitration
agreement shall become operative on January 1, 2004, as to health
care service plans regulated by the Department of Managed Health
Care.
  SEC. 9.  The provisions of this act are severable.  If any
provision of this act or its application is held invalid, that
invalidity does not affect other provisions or applications that can
be given effect without the invalid provision or application.

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