A03265 Summary:

COSPNSRSeawright, Stirpe
Add §§7500, 7505-a, 7516 & 7517, amd §§7501, 7506, 7507 & 7511, CPLR
Requires employment and consumer dispute arbitrations to be submitted to neutral third party arbitrators, and establishes prohibited arbitration agreements and provisions; requires disclosure of information by certain arbitrators.
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A03265 Actions:

01/29/2019referred to judiciary
02/27/2019reported referred to codes
01/08/2020referred to codes
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A03265 Committee Votes:

JUDICIARY Chair:Dinowitz DATE:02/27/2019AYE/NAY:16/5 Action: Favorable refer to committee Codes

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A03265 Floor Votes:

There are no votes for this bill in this legislative session.
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A03265 Memo:

submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A3265            REVISED 2/28/2019
SPONSOR: Dinowitz
  TITLE OF BILL: An act to amend the civil practice law and rules, in relation to arbitration agreements   PURPOSE OR GENERAL IDEA OF BILL This bill would clearly define the "neutral third party' arbitrator and void any agreement or contract that does not require any disputed be submitted to a neutral third party arbitrator. The bill also would require a series of disclosures by an arbitrator that may impact his or her impartiality.   SUMMARY OF SPECIFIC PROVISIONS: Section 1. Amends the civil practice law and rules by adding a new section 7500, providing definitions. Section 2. Amends section 7501 of the civil practice law and rules to ensure arbitrator neutrality and objectivity. Section 3. Amends the civil practice law and rules by adding a new section 7505-a, requiring potential arbitrators to make specific disclo- sures to ensure their neutrality and objectivity. Section 4. Amends section 7506 of the civil practice law and rules outlining new provisions to ensure fairness and objectivity in arbi- tration proceedings. Section 5. Amends Section 7507 of the civil practice law and rules to enact new provisions related to arbitration awards, requiring arbitra- tors to state the issues in dispute and a basis for their findings. Section 6. Amends Section 7511 of the civil practice law and rules to allow awards to be vacated if a manifest disregard of the law is demon- strated. Section 7. Amends the civil practice law and rules by adding new sections 7516 and 7517, together providing definitions, prohibitions, and requirements for specific arbitration cases. Section 8. Provides provisions for enforcement of the provisions of this act. Section 9. provides for severability of the provisions of this act. Section 10. Provides the effective date.   JUSTIFICATION: "Forced arbitration" or "mandatory arbitration" clauses are fine-print terms included in contracts of adhesion - often contracts between an employee and her employer or a consumer and a merchant - that, in the case of consumer and employment contracts in non-unionized workplaces, require the consumer or employee to give up her right to assert claims against the merchant or employer in court as a condition of obtaining or keeping her job or using the consumer goods or services. These clauses a re prevalent in a number of types of contracts including, among others, cellphone contracts, and employment contracts in non- union workplaces. Instead of providing employees and consumers with access to state or federal court or administrative agencies, these clauses purport to provide employees and consumers with a private forum to resolve their claims against the company. But in actuality many consumers and employ- ees are never actually able to access this alternative, private forum, because forced arbitration clauses also often require the employee or consumer to pursue her claims individually, without the benefit of class or collective action procedures that many consumers and employees rely on to assert their rights. Moreover, some clauses require the consumer or employee to pay exorbitant arbitration fees or even to arbitrate in a far-off forum. This bill builds upon the proscription against mandatory arbitration clauses which is contained in General Business Law Sec.399-c. The presumption that an arbitration clause is enforceable has, however, become a sword to wield against parties of lesser means rather than a shield to protect against unnecessary litigation. Currently, a party must prove, either during the course of misconduct by the arbitrator or after an award by an arbitrator is perceived to be unfair, that the arbitrator was biased even if the arbitrator clearly has an economic stake in the outcome of the dispute. This outcome is in direct oppo- sition to the reasons (efficiency and fairness) why arbitration is favored. As arbitration is commonly thought to be a dispute resolution procedure that occurs in front of a neutral third party, codifying it as such will enforce the original intent of the law. Even when the employee or consumer is able - or required - to pursue her claims in arbitration, she often finds that the deck is stacked against her. The arbitration process is secret, and arbitrators are often subject to "repeat player" bias in favor of the business and against the employee or consumer, because the business is the entity appearing in front of the arbitrator most frequently and i s the one paying the arbitrator's salary. What is more, under both state and federal law, the right to vacate an arbitrator's decision is extremely limited. A consum- er or employee cannot obtain relief on a challenge to an arbitrator's decision even when the arbitrator is clearly wrong on the facts or the law. This bill requires that an arbitrator in such matters state the basis for her decision, which is modeled after 11 NYCRR 65-4.5 (s), which has been used in no-fault insurance arbitrations for many years. The bill also allows an arbitration award to be vacated because of an arbitrator's manifest disregard of the law. This latter standard is used in arbitrations which are sought to be vacated pursuant to federal law. See, Schwartz v. Merrill Lynch & Co., Inc. 665 F.3d 444 (2011).Likewise for the provisions in the bill that call for arbitrators to provide basic conflict disclosure. Given the high bar presently contained in CPLR 7511 (b)(1)(ii), it is very difficult to establish arbitrator partiality. This bill sets affirmative requirements for arbitrators concerning disclosure of conflicts. For the most part, business are allowed to write their contracts in a way which is not consumer or employee-friendly, because of the Supreme Court's recent interpretations of the Federal Arbitration Act (FAA), a law that has been on the books for over 90 years. Although Congress's purpose in enacting the FAA was to allow companies, bargaining at arm's- length, to settle on an alternative dispute resolution forum, a series of recent Supreme Court decisions have expanded the Act's reach to cover almost all employment and consumer contracts, whether or not the parties actually bargained over the term. As a result, given these judicial interpretations, and given that mandatory arbitration may well be a more common occurrence in New York State, it is felt that procedural modifi- cations to the way arbitrations are conducted, such as set forth in this bill and in a way that they comport with the FAA, are warranted. In addition, the bill makes it clear that arbitration clauses in contracts exempted under federal law, or not governed by federal law in the first instance, are not preempted by federal law, and proscribed. Finally, the bill specifically provides that it shall not apply to collectively bargained agreements with unions, so as not to upset the delicate balance that is had in agreements typically negotiated by lawyers for both sides, as contrasted to the typically non-negotiated agreement between businesses and employers and consumers.   PRIOR LEGISLATIVE HISTORY: 2017-18: A.6983 - Third Reading Calendar 2015-16: A.8191 - Third Reading Calendar   FISCAL IMPLICATIONS: None   EFFECTIVE DATE: This act shall take effect on the first of January next succeeding the date on which it shall have become a law.
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A03265 Text:

                STATE OF NEW YORK
                               2019-2020 Regular Sessions
                   IN ASSEMBLY
                                    January 29, 2019
        Introduced  by  M.  of  A.  DINOWITZ, SEAWRIGHT, STIRPE -- read once and
          referred to the Committee on Judiciary
        AN ACT to amend the civil practice law and rules, in relation  to  arbi-
          tration agreements
          The  People of the State of New York, represented in Senate and Assem-
        bly, do enact as follows:

     1    Section 1. Article 75 of the civil practice law and rules  is  amended
     2  by adding a new section 7500 to read as follows:
     3    § 7500. Definitions. As used in this article:
     4    (a) "Arbitration" means a form of dispute resolution that is an alter-
     5  native  to  litigation,  in  which  the parties agree to be bound by the
     6  determination of a neutral third party arbitrator.
     7    (b) "Neutral third party arbitrator" means an arbitrator or  panel  of
     8  arbitrators  each  of whom does not have an undisclosed known, direct or
     9  material interest, including a financial or  personal  interest  in  the
    10  outcome  of  the  arbitration  proceeding,  or a known, existing or past
    11  relationship with any of the parties to the agreement  to  arbitrate  or
    12  the arbitration proceeding, their counsel or representatives, a witness,
    13  or another arbitrator.
    14    (c)  "Employment"  means  a  relationship  between  an employer and an
    15  employee as defined in section three of the Fair Labor Standards Act  of
    16  1938 (29 U.S.C. § 203).
    17    (d) "Consumer" means a natural person residing in this state.
    18    (e)  "Consumer goods" means goods, wares, paid merchandise or services
    19  purchased or paid for by a consumer, the  intended  use  or  benefit  of
    20  which is intended for the personal, family or household purposes of such
    21  consumer.
    22    §  2.  Section 7501 of the civil practice law and rules, as amended by
    23  chapter 532 of the laws of 1963, is amended to read as follows:
    24    § 7501. Effect of arbitration  agreement.    A  written  agreement  to
    25  submit any controversy thereafter arising or any existing controversy to
         EXPLANATION--Matter in italics (underscored) is new; matter in brackets
                              [ ] is old law to be omitted.

        A. 3265                             2
     1  arbitration  is  enforceable without regard to the justiciable character
     2  of the controversy and confers jurisdiction on the courts of  the  state
     3  to enforce it and to enter judgment on an award; provided, however, that
     4  any  portion  of  an  agreement  or  contract  requiring the controversy
     5  concerning employment or the providing of consumer goods be submitted to
     6  an arbitrator or arbitration organization that is not  a  neutral  third
     7  party  arbitrator,  shall  be  deemed  void.    The requirement that the
     8  controversy be heard by a neutral third  party  arbitrator  may  not  be
     9  waived  by  a  party  prior to the service on such party of a demand for
    10  arbitration. Upon disclosure pursuant to  section  seventy-five  hundred
    11  five-a  of  this  article,  a  party  shall be deemed to have waived any
    12  objection to the arbitrator or composition of any arbitration panel,  by
    13  failing to raise same prior to the commencement of the arbitration hear-
    14  ing.  In  determining  any  matter arising under this article, the court
    15  shall not consider whether the claim with respect to  which  arbitration
    16  is sought is tenable, or otherwise pass upon the merits of the dispute.
    17    Arbitration  of  any employment or consumer dispute shall be conducted
    18  by a neutral third party arbitrator.    Appointment  of  any  arbitrator
    19  shall  reasonably  ensure the personal objectivity of the arbitrator and
    20  the right of each party to present its case, to be in attendance  during
    21  any  presentation  made  by  the other party and to rebut or refute such
    22  presentation.
    23    § 3. The civil practice law and rules  is  amended  by  adding  a  new
    24  section 7505-a to read as follows:
    25    §  7505-a. Disclosure by arbitrator. (a) Before accepting appointment,
    26  an individual who is requested to serve as an arbitrator, after making a
    27  reasonable inquiry, shall disclose to all parties to  the  agreement  to
    28  arbitrate  and  the arbitration proceeding, and to any other arbitrators
    29  any known facts that a reasonable person would consider likely to affect
    30  the impartiality  of  the  arbitrator  in  the  arbitration  proceeding,
    31  including:
    32    (1) a financial or personal interest in the outcome of the arbitration
    33  proceeding; and
    34    (2)  an  existing  or past relationship with any of the parties to the
    35  agreement to arbitrate or the arbitration proceeding, their  counsel  or
    36  representatives, a witness, or another arbitrator.
    37    (b)  An  arbitrator  has  a  continuing  obligation to disclose to all
    38  parties to the agreement to arbitrate and  the  arbitration  proceeding,
    39  and  to any other arbitrators any facts that the arbitrator learns after
    40  accepting appointment which a reasonable person would consider likely to
    41  affect the impartiality of the arbitrator.
    42    (c) If an arbitrator discloses a fact required by subdivision  (a)  or
    43  (b)  of  this  section  and a party timely objects to the appointment or
    44  continued service of the arbitrator based upon the fact  disclosed,  the
    45  objection may be a ground for vacating an award made by the arbitrator.
    46    (d)  If the arbitrator did not disclose a fact as required by subdivi-
    47  sion (a) or (b) of this section, upon timely objection by a  party,  the
    48  court may vacate an award based on such non-disclosure.
    49    (e)  An  arbitrator  appointed  as  a  neutral arbitrator who does not
    50  disclose a known, direct and material interest in  the  outcome  of  the
    51  arbitration proceeding or a known, existing and substantial relationship
    52  with  a party is presumed to act with evident partiality in rendering an
    53  award.
    54    § 4. Section 7506 of the civil practice law and rules  is  amended  to
    55  read as follows:

        A. 3265                             3
     1    § 7506. Hearing. (a) Oath of arbitrator. Before hearing any testimony,
     2  an  arbitrator  shall be sworn to hear and decide the controversy faith-
     3  fully and fairly by an officer authorized to administer an oath.
     4    (b)  Time and place. The arbitrator shall appoint a time and place for
     5  the hearing and notify the parties in writing personally  or  by  regis-
     6  tered or certified mail not less than eight days before the hearing. The
     7  arbitrator may adjourn or postpone the hearing. The court, upon applica-
     8  tion  of  any  party, may direct the arbitrator to proceed promptly with
     9  the hearing and determination of the controversy.
    10    (c) Evidence. The  parties  are  entitled  to  be  heard,  to  present
    11  evidence and to cross-examine witnesses.
    12    (d) Postponements and adjournments.  The arbitrator may for good cause
    13  postpone  or  adjourn  the  hearing  upon request of a party or upon the
    14  arbitrator's own initiative. Notwithstanding the failure of a party duly
    15  notified to appear, the arbitrator may hear and determine the controver-
    16  sy upon the evidence produced.  If a party to an arbitration intends  to
    17  present  testimony  from  a  witness  at  the hearing, absent good cause
    18  shown, the identity of the witness must be given to all parties at least
    19  seven calendar days prior to the hearing.
    20    (e) Representation by attorney. A party has the right  to  be  repres-
    21  ented by an attorney and may claim such right at any time as to any part
    22  of  the  arbitration  or hearings which have not taken place. This right
    23  may not be waived. If a party is represented by an attorney,  papers  to
    24  be  served  on  the  party  shall be served upon his or her attorney. It
    25  shall be discretionary with the arbitrator to permit the  attendance  of
    26  any other persons.
    27    [(e)] (f) Determination by majority. The hearing shall be conducted by
    28  all  the  arbitrators,  but  a  majority  may determine any question and
    29  render an award.
    30    [(f)] (g) Waiver.  Except  as  provided  in  subdivision  [(d)](e),  a
    31  requirement  of  this  section  may  be waived by written consent of the
    32  parties and it is waived if the parties continue  with  the  arbitration
    33  without objection.
    34    §  5.  Section 7507 of the civil practice law and rules, as amended by
    35  chapter 952 of the laws of 1981, is amended to read as follows:
    36    § 7507. Award; form; time;  delivery.    (a)  Except  as  provided  in
    37  section  7508, the award shall be in writing, signed and affirmed by the
    38  arbitrator making it within the time fixed by the agreement, or, if  the
    39  time is not fixed, within such time as the court orders.
    40    (b)  In  a  matter  involving a consumer arbitration or an arbitration
    41  between an employer and an employee, as defined in section three of  the
    42  Fair  Labor  Standards  Act of 1938 (29 U.S.C. § 203), where arbitration
    43  was held pursuant to a contract, the award shall  state  the  issues  in
    44  dispute  and shall contain the arbitrator's findings of fact and conclu-
    45  sions of law. The award shall contain a decision on all issues submitted
    46  to the arbitrator.
    47    (c) The parties may in writing extend the time either before or  after
    48  its  expiration. A party waives the objection that an award was not made
    49  within the time required unless he or she  notifies  the  arbitrator  in
    50  writing  of  his  or her objection prior to the delivery of the award to
    51  him or her.
    52    (d) The arbitrator shall deliver a copy of the award to each party  in
    53  the  manner  provided  in the agreement, or, if no provision is so made,
    54  personally or by registered or certified mail, return receipt requested.

        A. 3265                             4
     1    § 6. Subparagraph (iv) of paragraph 1 of subdivision  (b)  of  section
     2  7511  of  the civil practice law and rules is amended and a new subpara-
     3  graph (v) is added to read as follows:
     4    (iv) failure to follow the procedure of this article, unless the party
     5  applying  to vacate the award continued with the arbitration with notice
     6  of the defect and without objection[.]; or
     7    (v) the arbitrator evidenced  a  manifest  disregard  of  the  law  in
     8  rendering the award.
     9    §  7.  The  civil  practice law and rules is amended by adding two new
    10  sections 7516 and 7517 to read as follows:
    11    § 7516. Prohibited  predispute  arbitration  agreements.    (a)  Defi-
    12  nitions.  (i)  The  term  "consumer  dispute" means a dispute between an
    13  individual who seeks or acquires real  or  personal  property,  services
    14  (including  services  relating  to  securities  and  other investments),
    15  money, or credit for personal, family  or  household  purposes  and  the
    16  seller or provider of such property, services, money or credit.
    17    (ii) The term "employment dispute" means a dispute between an employer
    18  and employee arising out of the relationship of employer and employee as
    19  defined  in  section  three  of the Fair Labor Standards Act of 1938 (29
    20  U.S.C. § 203).
    21    (iii) The term "predispute arbitration agreement" means any  agreement
    22  to arbitrate a dispute that had not yet arisen at the time of the making
    23  of the agreement.
    24    (b) Prohibition.  Notwithstanding any other provision of this article,
    25  no  predispute arbitration agreement shall be valid or enforceable if it
    26  requires arbitration of an employment dispute or consumer dispute.
    27    § 7517. Prohibited provisions.  (a) Prohibition of effect  of  certain
    28  arbitration  clauses  or  agreements.   Mandatory arbitration clauses or
    29  agreements covering consumers and employees are contrary to  the  estab-
    30  lished  public policy of this state. Because employees and consumers are
    31  forced to assent to these agreements as a condition of being an employee
    32  or consumer before any dispute has arisen with the employer or merchant,
    33  these agreements do not  offer  employees  and  consumers  a  meaningful
    34  choice  about  how  to  resolve  their  disputes  with  the  employer or
    35  merchant. In addition, mandatory arbitration agreements prevent  employ-
    36  ees  and consumers from effectively vindicating their rights under state
    37  law. For these reasons, except when inconsistent with federal  law,  the
    38  state  prohibits  the formation and enforcement of mandatory arbitration
    39  agreements in employment and consumer contracts.
    40    (b) Prohibition of arbitration clauses  in  employment  contracts  for
    41  workers  exempted  from  the Federal Arbitration Act.  A mandatory arbi-
    42  tration agreement within or part of any written contract  of  employment
    43  of  seamen,  railroad employees or any other class of workers engaged in
    44  foreign or interstate commerce is unenforceable and void. Any such arbi-
    45  tration  agreement  shall  be  considered  severable,  and   all   other
    46  provisions  of  the employment contract shall remain in effect and given
    47  full force.
    48    (c) Prohibition of arbitration clauses that are not governed by feder-
    49  al law.  Any mandatory arbitration agreement, or portion thereof, in  an
    50  employment or consumer contract is invalid, unenforceable and void, when
    51  the  enforceability  of  such  arbitration  agreement, or the portion at
    52  issue, is governed by state law. Any such arbitration agreement shall be
    53  considered  severable,  and  all  other  provisions  of  the  employment
    54  contract shall remain in effect and given full force.

        A. 3265                             5
     1    (d)  Exclusion.  The  provisions  of  this  section shall not apply to
     2  agreements negotiated with any labor union through  collective  bargain-
     3  ing.
     4    §  8.  Enforcement.   Any private person and any enforcement agency or
     5  official responsible for enforcing the provisions of this act may  bring
     6  suit  for  injunctive  relief  against  an  entity  that  violates  such
     7  provisions, and may recover reasonable attorney fees and other costs  if
     8  an  injunction  or equivalent relief is awarded. Injunctive relief shall
     9  be the only relief available in a suit arising from  failure  to  comply
    10  with this act.
    11    §  9.  Severability.   If any provision of this act or the application
    12  thereof to any person or circumstance is held invalid,  such  invalidity
    13  shall  not  affect other provisions or applications of this act that can
    14  be given effect without the invalid provision  or  application,  and  to
    15  that end the provisions of this act are declared to be severable.
    16    § 10. This act shall take effect on the first of January next succeed-
    17  ing the date on which it shall have become a law.
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A03265 LFIN:

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A03265 Chamber Video/Transcript:

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