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Gov. Gray Davis approved new laws governing the private, consumer arbitration sector Monday, signing a trio of bills that regulate the investment portfolios of arbitration providers, restrict sitting state judges from job hunting as private judges and lower the costs of arbitration for consumers. The new laws are part of a six-bill arbitration ethics package passed by the state Legislature. At press time the fate of the remaining three bills on the governor’s desk was still unclear. The legislation is meant to level the playing field in mandatory arbitration, which businesses and employers are increasingly using to resolve disputes with their customers and employees, but which has come under fire from consumer advocates. While pleased with the new regulations, consumer advocates stressed that the signed bills were only part of the overall package. “It’s an important step forward, but we really need the other two,” said Gail Hillebrand, senior attorney at Consumers Union, referring to AB 3029 and AB 2656, which require arbitration providers to disclose information about repeat customers and create additional conflict-of-interest rules regarding consulting work. Davis made his first move on the arbitration front this weekend when he signed AB 2574, which prohibits arbitration providers and the parties who use their services from having any financial interests in each other. “The idea is that there’s been some regulation of the arbitrators themselves, but the companies that provide these arbitration services have not been covered in any way by any kind of ethical regulations,” said Kevin Baker, the counsel for the Assembly Judiciary Committee. Sponsored by Assemblyman Tom Harman, R-Huntington Beach, the bill uses the same rules regulating financial interests that state judges are bound by and applies them to the arbitration companies. “If you’re going to be neutral, you can’t have an investment interest in one of the parties,” Baker said. India Johnson, senior vice president for the American Arbitration Association, said the new law would have little impact on the way the organization does business. As a nonprofit, the AAA does not issue any stock. And she said the AAA’s own investment portfolio comprised mutual funds, which are allowed under the rules. Arbitration providers have spent considerable amounts of time and money lobbying against the legislation and working to soften the language in the various bills. According to Johnson, the group has hired the first lobbyist in its history as a result of the six bills in the Legislature. The AAA was initially opposed to AB 2574, but dropped its opposition after certain portions were removed. Specifically, a clause was deleted that would have prohibited an arbitration provider from taking a case in which the provider’s individual managers had a financial relationship with any of the parties. Meanwhile AB 2504 and 2915, by Assemblymembers Hannah-Beth Jackson, D- Santa Barbara and Howard Wayne, D-San Diego, respectively, make some other significant changes to arbitration. AB 2915 eliminates the loser-pays clause found in many mandatory consumer arbitration contracts. “This bill encourages consumers to pursue legal remedies for legitimate complaints through mandatory arbitration without fear of severe financial burdens,” Davis said in a statement. AB 2504 allows parties to seek the disqualification of any sitting judge who had arranged or discussed future employment with an ADR provider in the previous two years.

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