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FALL 2018 LEGISLATIVE REPORT

SB 766. For years, California has lagged behind, New York, Illinois, Texas, and other states with respect to the ability to conduct international arbitrations within our borders. The reason for this was that Code of Civil Procedure Section 1297.185 et. seq., which covers international arbitrations, barred individuals not admitted to practice law in California from rendering legal services with respect to international arbitrations in the state. For the past few years, attempts to amend the act have failed for various reasons. This year, proponents of international arbitration were successful. SB 766, introduced by Senator Monning, overcame objections, was passed unanimously by both houses and signed by Governor Brown. SB 766 will permit an individual who is not admitted to practice law in California but who is a member in good standing of a recognized legal profession in the United States or a foreign jurisdiction and who is subject to effective regulation and discipline by a duly constituted professional body or public authority to provide legal services in an international commercial arbitration or related proceeding in California. Such individual, however, would also be subject to the disciplinary jurisdiction of the California State Bar. CDRC supported the bill.

 

SB 954. In 2012, the California Legislature asked the California Law Review Commission (CLRC) to study the effect of mediation confidentiality upon the ability of clients to sue their attorneys for malpractice committed during a mediation. This action was taken in response to Cassel v. Superior Court (2011) 51 Cal. 4th 113, where the Court held that a plaintiff suing an attorney for mediation malpractice was barred by Evidence Code Section 1119 from introducing evidence of communications between the plaintiff and the attorney that occurred during the mediation.  After struggling with the issue for five years, the CLRC proposed an exception to mediation confidentiality that would have permitted these communications to be admitted in a malpractice suit and would have allowed the malpractice suit parties to call the adverse parties in the mediation (but not the mediator) as witnesses. The proposal was opposed by a broad array of organizations such as the Judicial Council, the California Judges Association, the Consumer Attorneys of California, and the California Defense Counsel, as well as CDRC. As a consequence, not a single legislator was willing to introduce the proposal in the 2018 legislative session.

 

Nevertheless, a concern remained that a client might not be aware of the difficulties that  might be faced if the client were dissatisfied by the outcome of the mediation and concluded that his or her attorney committed malpractice. SB 954, introduced by Senator Wieckowski, is designed to alert the client to this problem. It creates Section 1129 of the Evidence Code. Section 1129(a) requires an attorney representing a client participating in a mediation or a mediation consultation to provide the client, as soon as reasonably possible after the client has agreed to participate in the mediation or mediation consultation, with a written disclosure containing the confidentiality restrictions that are set forth in Section 1119 and obtain a written acknowledgment signed by the client stating that he or she has read and understands the confidentiality restrictions. Section 1129(b) requires that the written disclosure 1) be printed in the preferred language of the client in at least 12 point font, 2) be printed on a single page that is not attached to any other document provided to the client; and 3) include the names of the attorney and the client and be signed by the attorney and the client. Section 1129(c) contains language for the written disclosure which, if used by the attorney, will provide a safe harbor for the attorney if the disclosure otherwise complies with subsection (b). CDRC supports the bill and has played a significant role in the draft of its final language and the written disclosure. The bill was passed unanimously by the State Senate and was approved unanimously by the Assembly Judiciary Committee. We expect that it will pass the Assembly and be signed by the Governor.

 

AB 3080. One of the guiding principles of CDRC is opposition to mandatory arbitration imposed by employers. However, the Federal Arbitration Act (FAA) permits mandatory arbitration and any attempt by a state legislature to curtail mandatory arbitration will be preempted by the FAA. Nevertheless, the California legislature, for the third time in the past four years, has introduced a bill, AB 3080, designed to curtail mandatory arbitration. AB 3080’s predecessors were AB 2617, which the Court of Appeal held was preempted, Saheli v. White Memorial Center (2018), 21 Cal. App. 5th 308, and AB 465, which was vetoed by the Governor.

 

AB 3080 has two parts. One part has nothing to do with arbitration. It would not allow a person, as a condition of employment, continued employment, or receipt of an employment related benefit, or as a condition of entering into a contractual agreement, to prohibit an employee, applicant for employment, or independent contractor from disclosing to any person an instance of sexual harassment that the employee, applicant, or independent contractor suffers, witnesses, or discovers in the workplace.

 

The second part does concern arbitration, although, like the bill’s two predecessors, it does not mention the word. It prohibits an employer from requiring an employee or applicant for employment to waive any right, forum, or procedure for any violation of the Fair Employment and Housing Act or other specific statutes governing employment as a condition of employment. The United States Supreme Court has stated that courts cannot recognize “defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue” because of FAA preemption, AT&T Mobility LLC v. Concepcion (2011), 563 U.S. 333, 339. A defense that an arbitration agreement is unenforceable because it was mandatory and barred by AB 3080 would be a defense that “derives from the fact that an agreement to arbitrate is at issue”. Thus, AB 3080 is clearly preempted by the FAA.

 

Although CDRC opposes mandatory arbitration, it also believes that employers will not voluntarily arbitrate claims under $200,000 on the assumption that attorneys will not take these claims to court. Hence, in an attempt to avoid preemption and preserve employees’ access to justice for smaller claims, CDRC proposed an amendment that stated: “A dispute resolution clause in an employment contract must give the employee the right to opt out of the clause. The opt out provision must be prominently displayed and must state that the employee shall be given a reasonable time to execute the opt out and shall not lose any rights or suffer retaliation or discrimination by executing the opt out.” One effect of this amendment would be that the employee, not the employer, is the person who decides to arbitrate. And the reference to “a dispute resolution clause” avoids preemption because arbitration is not singled out.

 

CDRC representatives met with Assemblymember Gonzalez-Fletcher, the author of the bill, in the hope that she would accept the amendment. However, she did not. Although we believe that the bill will be passed by both houses, we expect that it will ultimately suffer the same fate as its predecessors.

 

AB 3247. Section 2 of the FAA provides that a court may not enforce an arbitration agreement “if grounds exist for revocation of the agreement”. Code of Civil Procedure Section 1281.2 tracks that language. In Armendariz v. Foundation Health Psychare Services, Inc. (2000), 24 Cal. 4th 83, 98, n.4, our Supreme Court noted that “ ‘revocation of a contract’ is something of a misnomer….Offers are ‘revoked’….Contracts are extinguished by rescission”, citing its prior decision in Engalla v. Kaiser Permanente Medical Group, Inc., (1997) 15 Cal. 4th 951, 973. Eighteen years after Armendariz and 21 years after Engalla, AB 3247 was introduced. It amends Section 1281.2 by substituting the word “rescission” for “revocation”. CDRC was unable to determine what motivated the Legislature to so act after such a long period of time and it did not take a position on the bill. It was passed by the Legislature and signed by the Governor.