OUR COMMENTS ON ARBITRATOR ETHICAL STANDARDS
February 22, 2002 Via Email and Fax Ms. Camilla Kieliger
Judicial Council
455 Golden Gate Avenue
San Francisco, CA 94102 Re: Ethics Standards for Neutral Arbitrators in Contractual Arbitration Oppose Unless Substantially Amended Dear Ms. Kiegler: Thank you for the opportunity to comment on the proposed ethics standards for arbitrators in contractual arbitration. I am President of California Dispute Resolution Council (CDRC), an organization composed of mediators and arbitrators, many of whom are not aligned exclusively with just one dispute resolution provider. As you may know, our eight-year old organization has developed dispute resolution principles and standards of practice that value the principles of parties voluntarily electing to participate in any dispute resolution settlement process, of full disclosure of any conflicts by the neutral, of fairness and impartiality in all aspects of a proceeding and of parties having accessibility to a full range of neutrals and processes. We, therefore, support in principle legislative efforts to insure the integrity and fairness of contractual arbitration proceedings. Having said that, we must respectfully object to the ethics standards as currently drafted. They are unduly burdensome and it is unreasonable to place the burden for disclosure solely on the shoulders of individual arbitrators. The proliferation of non-voluntary, pre-dispute consumer arbitration agreements in contracts of adhesion is the problem. Targeting the neutral arbitrators, who are chosen jointly by the opposing attorneys and their parties to bring resolution to the dispute, is not the solution to this challenge. Adding 37 pages of text rules and commentary to an already comprehensive set of arbitrator disclosure statutes will, in our view, complicate and confuse the requirements and bring unintended consequences to a well intentioned effort. While we understand the pressure on the Judicial Council to comply with the legislative mandate to adopt ethics standards for neutral arbitrators effective July 1, 2002, it nonetheless leaves a totally inadequate period of time to consider, draft and refine language that will accomplish the goal. It precludes consideration of alternative approaches; it eliminates time for thoughtful debate; and it prevents a thorough identification of unintended adverse consequences for contract based private adjudication. Even though the drafting task has the benefit of exceptionally qualified personnel, it is simply too ambitious a project, and one with too great potential for unanticipated consequences, to be rushed. The Uniform Arbitration Act, which was recently approved by the National Conference of Commissioners on Uniform State Laws was the product of more than three years of nationwide analysis, debate and revision. Therefore, we first request the Judicial Council to explore every opportunity to extend the deadline. The legislative mandate was to draft ethical standards for arbitrators which would be consistent with the standards established for arbitrators in the judicial arbitration program and which could expand, but not limit, the existing arbitrator disclosure statutes. Somehow, this effort aligned itself with the concern over the proliferating non-voluntary consumer arbitration contracts. The arbitrator has been targeted as the villain of these adhesive contracts as distinguished from entities which impose them, or provider organizations which administer them. Moreover, other possible solutions, such as expanding the grounds of review of arbitration awards, or the requirement for finding consent to such contracts, are being disregarded. Granted the Judicial Council has been conferred authority only over arbitrators; however, it should consider that the process of drafting arbitrator ethics is being exploited for the express purpose of eliminating these adhesive contracts, and this may result in the de-stabilization of all arbitration. Characterization of the standards in Standard 1(a) as being minimum standards is, in our view, really a misnomer. These are the most comprehensive disclosure and conduct requirements required of arbitrators anywhere, and that is in addition to a very comprehensive arbitrator disclosure statute which already exists in CCP §1281.9. The Uniform Arbitration Act was able to describe disclosure standards in several sentences. Case law articulates it as a reasonable person standard or an impression of possible bias. These lengthy standards, cross referencing CCP §1281.9 with CCP §170.1 and Rules of Court 1606 are confusing, ambiguous and over-reaching. They have prompted several of our members to throw up their arms and request the Judicial Council to draft a questionnaire that would just itemize the required information. The typical arbitrator who belongs to CDRC, unlike a judge, does not have a full schedule of cases and does not spend each day arbitrating. In an informal poll I conducted, it appears that even our most active arbitrator members are selected for, at the most, five to ten arbitrations a year which might be characterized as consumer arbitrations. The typical arbitrator member might be selected for one or two such arbitrations, but may not hear any because the cases settle before a hearing is held. The vast majority of these cases involve claims under $50,000. These arbitrators also serve in other neutral capacities such as mediators, judges pro tem, judicial arbitrators, collective bargaining arbitrators, volunteer and community dispute resolvers. Record keeping will become a challenge for these individual practitioners. While some may have the advantage of a comprehensive computerized conflicts check system, many do not have the resources nor the access to technology to comply. The complexity of these standards has led some arbitrators to speculate that they would be at risk for personal liability. As a result, those arbitrators who do as few cases as indicated above, may simply drop out and the private justice system may become even more exclusive and expensive, or litigants will just go back to court for everything. The most unreasonable requirement in the Judicial Council draft is the arbitrator’s obligation to provide information about the role ADR provider organizations play in the identification and selection of arbitrators, any financial interest the provider organization has in a party, any interest a party, lawyer or law firm has in the provider organization, any gifts the provider organization may have received and any administration by the provider organization of other cases involving lawyers or parties. While a party may have a legitimate interest in this information, it is not reasonable to place the burden of providing it on the individual arbitrator who may be on the roster of several provider organizations. The Assembly Judiciary Committee may agree since it is our understanding that AB 1699 will call for disclosure and regulation of ADR provider organizations. But regulating ADR providers alone may not be the only solution to the problem of disclosure. Attorneys and parties are often in a much better position to know of conflicts. Attorneys choose ADR providers and arbitrators. “Currently expected” relationships as defined in the standards, may include the selection of the arbitrator in a future dispute resolution capacity. Often ADR providers send lists of neutrals to the lawyers. Therefore, it is the lawyer, and not the arbitrator, who knows whether the arbitrator is under consideration for future business. It is also the lawyer or law firms who know how much business they do with the ADR provider. And it is the lawyer and the law firm that have knowledge of law firm mergers or new hires that could give rise to potential conflict. While the standards may have relevance for un-represented parties in consumer arbitrations, lawyers who represent business interests and lawyers who represent the consumers should not be excluded from an obligation to disclose conflicts. Moreover, the courts should not be excluded from the definition of ADR providers and disclosure requirements. Some courts, like the U.S. District Court for the Northern District of California, refer cases to arbitration. State courts, under CCP §1281.6, may appoint an arbitrator from lists supplied by the parties or from a private disinterested association. Most courts now maintain ADR rosters listing names of qualified neutrals from which referrals are made. This is often an important source of business for dispute resolution neutrals. The neutral’s name may be on a list sent to parties in another dispute without their knowledge. Here is another potential for conflict with lawyers, law firms or parties in the current dispute and the neutral again may not be aware of it to report it. Therefore, courts, as characterized in Standard 2(a)(1)(B), who select neutral arbitrators, are ADR providers, and should have an obligation to provide information. CDRC also believes that even though some of the judicial referrals for arbitration may be non-binding, it is nonetheless confusing and inequitable to exclude courts from disclosure. As now written these standards may inadvertently create unintended consequences. In order to protect consumers, the standards may unintentionally do the opposite by enabling those with the greater resources to challenge awards they find disagreeable. Because of the extensive arbitrator disclosure requirements, a deep pocket losing party could conceivably hire a private investigator to probe the life of arbitrator and family post award in order to delay or overturn an award. In the end, the consumer may not be helped at all, but frustrated even further by costly litigation tactics. While the more burdensome draft standards ostensibly apply only to consumer arbitrations as defined, that definition could include other areas of commercial arbitration not targeted by the drafters. With these standards, a losing party could claim that the arbitration was a “consumer arbitration” and while disclosures were made, they were not made to the extent required for a consumer arbitration. The award in such a commercial case could be challenged on the basis of not providing the extensive disclosure these standards require. Therefore, arbitration, which is chosen in many cases because of expediency, economy and the availability of a knowledgeable decision maker, could be converted into a lengthy and expensive process of litigation the parties hoped to avoid. The burden falls especially hard on the consumer who cannot interest a lawyer to take a case where the damages are under $50,000. To deal with the repeat player problem, the definition of “consumer arbitration” should be limited to an arbitration contract which names a particular ADR provider and/or arbitrator. By doing so, it would eliminate some unintended consequences such as unnecessarily scrutinizing all arbitrations and all arbitrators. Because we believe these standards target the arbitrator to resolve a consumer adhesive contract problem, CDRC cannot support the current draft rules. Nonetheless, we offer some further selected specific comments on the draft. Standard 1 – The purpose of the standards is characterized as minimum standards of conduct for arbitrators that are intended to guide the conduct of arbitrators. This implies some other standard of misconduct may be cause for disqualifying an arbitrator or vacating an award. Is it the intent of the drafters to create a new ground for vacating an award or are the standards intended to provide for vacatur under existing CCP §1286.2 (c) which provides for vacatur if “…the rights of the party were substantially prejudiced by the misconduct of the neutral arbitrator”? CDRC believes this must be clarified since the finality of arbitration awards is subject only to exceptions provided by statute. Standard 2 – We recommend restricting the definition of consumer arbitration to those standardized contracts which name an ADR provider or arbitrator. Standard 4 – The duration of duty for the arbitrator extends from acceptance of appointment until conclusion of the arbitration. The term, “conclusion of arbitration” needs to be defined. Does it mean when all avenues of review have been exhausted? Does it also include settlement before a hearing commences? Standard 5 – The general duty of an arbitrator to uphold the integrity and fairness of the arbitration process is undisputed. But who will judge whether a fair hearing was held? The losing party and the winning party often disagree on that point. Does this section then create a new cause of action to overturn an arbitration award in court? Or is it suggesting some future regulation or oversight by some other authority? Implementation of these kind of goals, which are not easily subject to objective enforcement, is difficult. Standard 6 – The duty to refuse appointment notwithstanding consent or waiver by the parties is objectionable to those who believe that arbitration is matter of contract. Nothing, not even a paternalistic concern to protect the integrity of the process, should interfere with the ability of represented parties to agree. However, if one of the parties is un-represented by counsel, or if one or both parties object to an arbitrator’s known limitation, the arbitrator should decline appointment. But this section is silent as to who would determine the arbitrator’s physical and mental limitations if the arbitrator does not or cannot acknowledge them. Section 7 – The most controversial aspect of this standard, sub-section (6) has already been discussed previously in this letter. It is simply not reasonable to task an arbitrator with the sole responsibility of procuring information that is exclusively within the province of an ADR provider. We believe additional thought should be given to this whole section which repeats language in other statutes, which adds new disclosure requirements and is so lengthy and complex that it will result in eliminating the finality of arbitration awards. Section 8 – The right to disqualify should be linked to disclosure that would be prejudicial. There are too many ways in which a party who wants to jettison the arbitration mid-way could engineer some contact with the arbitrator’s family or colleagues in order to force disclosure and disqualification. Section 9 – The duty to refuse a gift, bequest, favor or honoraria from a party is essential. However, requiring this standard to apply for two years after the conclusion of the arbitration particularly as to the arbitrator’s duty to discourage family members from doing so is again burdensome. Wouldn’t it be better to express this prohibition in terms of a duty for the arbitrator and immediate family to refuse any gifts, etc. before, during and after an arbitration which would lead a reasonable person to question the impartiality of the arbitrator. Section 10 – The duty to refuse future professional relationships requires the arbitrator to express whether s/he will entertain offers of new professional relationships during the course of the arbitration. We suggest that an arbitrator should have the duty to disclose any concurrent or subsequent offers of future employment or professional relationships made to them by one of the parties or law firms during the course of the arbitration. The neutral should only be able to accept a future engagement other than as a neutral with the informed consent of both parties. This works when the parties are represented by counsel but added protection may be needed if a party is not represented by counsel. Section 11 – Legislating the conduct of the proceeding could result in some unexpected results. For example, inappropriate behavior by counsel or party, which requires the arbitrator to demand order, could lead to charges of an “unfair” hearing by a losing party. Therefore, we would like to see stronger language acknowledging the arbitrator has the power to conduct the hearing in an orderly and judicious manner. Section 12 –Eliminating any ex parte communication as this standard is now written disadvantages the single practitioner who may not have a secretary to handle administrative matters. Furthermore, statutorily prohibiting informal talk about weather, sports, etc. increases tension in the hearing room and may create more anxiety for already nervous witnesses. This lengthy and detailed prohibition goes too far and the intent could be expressed in more economical language. Both Sections 11 and 12 suggest a profound distrust of arbitrators. As practicing dispute resolution neutrals who abide by the highest ethical standards, CDRC members are offended by this unwarranted characterization. Frankly, we are not aware of any justification for including these sections. In summary, from the individual arbitrator’s point of view, this detailed, comprehensive code of behavior, as written, takes power away from the arbitration process. By targeting only the arbitrator with an over-reaching responsibility as articulated in these standards, arbitration will be adversely affected as a viable alternative to litigation. CDRC offers its continuing assistance in the effort to develop meaningful and enforceable language to insure the integrity and fairness of contractual arbitration proceedings. Sincerely, Ruth V. Glick President, CDRC
