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The private judging industry was under the microscope Tuesday as lawmakers from the California Assembly Judiciary Committee made clear that a legislative package to rein in alternative dispute resolution providers would be forthcoming. While the Judicial Council of California recently issued proposed ethics rules for arbitrators, Tuesday’s hearing may be the first time any legislative body in the country has attempted to take steps to place more regulations on the business, which has grown exponentially in the past decade. And with business scandals like the Enron debacle fresh in the public’s mind, committee members spent more than six hours hearing from consumer attorneys and ADR providers on ways in which the industry could be better regulated. Possible areas of action included ethical rules for providers, a prohibition on pre-dispute agreements, putting an end to the practice of soliciting repeat business from companies, and even implementing a hiatus so retired judges can’t immediately get into the business of private judging. A watchdog agency, similar in function to the Commission on Judicial Performance, was also proposed. “This area is ripe for action,” said Assemblyman Darrell Steinberg, the Sacramento Democrat who chairs the Judiciary Committee. Steinberg called the hearing and intends to take the lead on legislation. Drew Liebert, chief counsel for the committee, said Steinberg was especially interested in the fact that providers invest in companies that often are parties before them in arbitration. Committee members also voiced concern that ADR companies have what appears to be blanket immunity from civil action, leaving consumers no recourse when an arbitration proceeding goes bad. “This affects millions of people’s lives,” Liebert said. Committee members heard from plaintiffs’ lawyers, people who said they were victimized in arbitration, and the arbitration providers themselves — although representatives from the American Arbitration Association were no-shows at the hearing. Committee members said they were upset that AAA, the world’s largest private ADR provider, was not on hand. They also heard from 1st District Court of Appeal Presiding Justice J. Anthony Kline, who told the panel that the increase in the lucrative private judging industry over the past 15 years was serving to destroy the credibility of the judiciary. He said not only has settling cases become more important than the shaping of law, but judges are actively being solicited off the bench. “Today the great judges are the ones that can settle the most cases,” Kline said. “The problem is that the attitudes of public judges are influenced by the prospect of future employment,” he added. Kline suggested a period in which judges would be prohibited from seeking employment with an ADR provider, just as appellate judges are barred from seeking public office until their 12-year term is run. ADR backers cautioned the committee to take a slow approach to any reform measures. John Welsh, vice president and general counsel of JAMS, the nation’s second largest ADR provider, told the committee that any changes had to be on the consumer side only and that business-to-business arbitration should be left alone. “If you’re going to ding around in this area, make sure the dings deal only with consumers,” Welsh told the committee. “Please make that bright line a bright line between consumer and business.” Despite the tough rhetoric from the panel and the pending legislation, critics of the ADR industry said it’s still too soon to be optimistic about change. They have to consider, they said, that any bill will have to get past a business-friendly Assembly and a governor who’s not been responsive to similar legislation in the past. San Francisco attorney Cliff Palefsky, a partner at McGuinn, Hillsman & Palefsky and a longtime foe of the ADR industry, said the hearing, combined with the recent Judicial Council action, proved that people were finally beginning to look at the issue. Still, he anticipates there will be many more battles ahead. “There’s a trend toward intellectual honesty, but that’s not politics,” Palefsky said.

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