Legislature Sends Anti-Arbitration Bill to Governor

The California Chamber of Commerce's Alert newsletter recently reported that a California Chamber of Commerce-opposed job killer bill that provides the perfect pleading pathway for class action attorneys to avoid arbitration has passed the Legislature and is on its way to the Governor. SB 33 (Dodd; D-Napa) will negatively impact employers with unnecessary and costly class action litigation that benefits trial attorneys, not consumers. The bill passed the Assembly on September 5, 46-23. The Senate concurred in Assembly amendments a day later, 25-13.

Despite being amended eight times, SB 33 still contains ambiguous terms that will create further litigation. Ambiguity, inconsistencies and confusion serve only to benefit trial attorneys and their ability to pursue costlier litigation with high attorney fee recoveries, not consumers.

SB 33 is not limited to the fraudulent creation of financial accounts, as the proponents claim. SB 33 states that a respondent cannot be compelled to arbitration regarding a "purported contractual relationship." This term is undefined and will create significant litigation over what relationships are included or excluded.

The bill also creates confusion between who is the respondent and the respondent consumer. SB 33 amends a section of the Code of Civil Procedure that refers to "petitioners" and "respondents" of a motion to compel arbitration, meaning the parties to the litigation.

Instead of applying and utilizing these same terms, recent amendments to SB 33 include undefined terms, therefore adding another layer of ambiguity and concern to this bill that will create further litigation.

As amended, SB 33 specifies that its provisions do not go into effect until January 1, 2018. The bill does not limit its application, however, only to contracts created after January 1, 2018, thereby invalidating all existing consumer contracts with a financial institution that include an arbitration provision.

SB 33 precludes the enforcement of a valid arbitration agreement for claims of fraud with a depository institution. SB 33 is sponsored and supported by trial attorneys who would prefer class action litigation as opposed to arbitration because it provides a significantly higher financial recovery for trial attorneys.

Finally, SB 33 is preempted under the Federal Arbitration Act, as emphasized by a recent U.S. Supreme Court opinion, which determined that a Kentucky agreement with a similar anti-arbitration bias is preempted by federal law.

The CalChamber is urging members to contact the Governor and ask him to veto SB 33 as a job killer.