California Legislation on Arbitral Ethics

The California Assembly has passed a comprehensive legislative package that will overhaul the arbitration process, and maybe ruin it.

Reinforcing the ethical standards that have been developed by the California Judicial Council (SAA 02-17) for full implementation on July 1, the California Assembly has passed in recent weeks a comprehensive legislative package that will overhaul the arbitration process and maybe ruin it.

First of all, California has been the only state in the country (advocates are fond of saying that it is the first) that has imposed minimum ethical standards for neutrals in private arbitrations. It was done on a fast track, pursuant to legislation, and by a “blue-ribbon panel” of a standing committee called the Judicial Council of California, which was tasked with the job by the Legislature. Since the announcement of the stringent standards, the Judicial Council has, to its credit, promised to take additional comments on the rules through September 2002.

According to an article on the topic (5/24/02), the Administrative Office of the Courts has written to ADR providers and public interest groups inviting additional “input.” At the same time, though, California legislators have been busy, following up on the initial legislation with at least six new bills, the last of which passed the California Assembly on May 29, 2002 and was sent to the Senate Judiciary Committee for consideration by that house.

In brief summary, the bills provide for the following changes in “consumer arbitration” (which is defined to include “financial services” disputes):

  • AB 2504: standards for the disqualification of a judge, which are then made applicable to the neutral arbitrator; those disclosures required by the ethics standards adopted by the Judicial Council; information about past Awards where a party was involved; disclosure by the neutral arbitrator and certain relatives of professional or significant relationships with parties or lawyers.
  • AB 2574: forum providers, referred to as “private arbitration companies,” may not administer “consumer arbitrations,” wherein a party would have a financial interest in the PAC or the PAC, its owners, managers, and immediate family would have a financial interest in the party. (ed: This seems like an especially difficult problem for the SRO providers as membership organizations).
  • AB 2656: PACs will make available to the public information about each consumer arbitration, including names, type of dispute, who prevailed, representation, date of claim, arbitrator appointment, and disposition, the nature of the disposition, the amount of the claim, the amount of the award, if any, the name of the arbitrator, his/her total fee, and the fee allocation among the parties. PACs must also make public the number of occasions on which they administered arbitrations or mediations for the non-consumer party.
  • AB 2915: Consumer parties may request fee waivers, if indigent, and, in any case, may not be charged with the opposing party’s costs or fees. Confidentiality, notice requirements and streamlined procedures are part of this package.
  • AB 3029: Defines terms such as “consumer arbitration” and “consumer party,” guarantees choice of PACs to consumer party (including ex-agreement PACs), regulates PAC solicitations and representations about services, and prohibits PACs from providing paid or unpaid services or products to any party or attorney for a party, other than training or dispute resolution services specific to the dispute.
  • AB 3030: PACs may not be immunized from civil liability, other than for vicarious liability for the acts of an arbitrator, and may not contractually disclaim liability. PACs and arbitrators who are the subject of a vacated Award are disqualified from administering further arbitration of that dispute.

Heard enough? The details are even more devilish. Readers can find the actual text of this legislation on the California Assembly’s WebSite, (SAC Ref. No. 02-23-01) MURRAY v. UNITED FOOD & COMMERCIAL WORKERS INTL., No. 01-1602 (4th Cir., 5/10/02). At first, we passed

Copyright 2000-2002 Securities Arbitration Commentator, Inc. P.O. Box 112, Maplewood, NJ 07040; t: 973-761-5880 f: 973-761-1504. Materials denoted with a SAC Reference No. (e.g. SAC Ref. No. 99-01-001) are on hand at SAC and may be obtained by calling the Securities Arbitration Commentator, or by email to The Securities Arbitration Commentator is the leading publication for securities arbitration news and information, and maintains the most complete database of arbitration awards availalble anywhere. For more information regarding their services, visit their website at

Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.

Return to The Securities Law Home Page 

Visit Sallah Astarita & Cox, LLC, securities arbitration, regulation and litigation attorneys

What is Securities Law?

Overview of the Securities Arbitration Process