Thursday, February 6, 2020

Updated: Arbitration reform bill moves forward

Posted By on Thu, Feb 6, 2020 at 9:20 AM

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——-UPDATE THURSDAY, FEB. 6 AT 12:40 P.M.——-

Senate Bill 93 passed second reading in the state Senate with a long list of amendments. View them online here.

——-ORIGINAL POST THURSDAY, FEB. 6 AT 9:20 A.M.——-

A bill reforming the arbitration process in Colorado is close to passing in the state Senate, despite opposition from homebuilders and developers.

Senate Bill 93, also known as the "Consumer and Employee Dispute Resolution Fairness Act," was approved by Judiciary Committee on Jan. 29, after more than two hours of public comment. The bill awaits a Senate vote that's been delayed the past few days.

In an effort to add protections for individuals filing claims against businesses or employers in arbitration court, SB93 would establish ethical standards for arbitrators and increase transparency around the process.

It’s supported by the Colorado Consumer Protection Coalition and sponsored by Sens. Mike Foote, D-Lafayette, and Stephen Fenberg, D-Boulder.

"This is an important bill because it really does deal with such a fundamental issue, and that is, that issue is access to justice that is based on fairness and transparency," Fenberg said at a Senate Judiciary Committee hearing Jan. 29, where the bill was approved with minor amendments.

Most people have signed a contract that includes a forced arbitration clause, which often appears in employment contracts or agreements governing the purchase of goods or services. Such clauses mandate that customer or employee complaints are adjudicated in arbitration court rather than in front of a judge and jury. Often, the company gets to decide the terms of the arbitration process and may even be paying the arbitrator, and the public doesn't have access to the arbitrator's history.

The bill doesn't get rid of forced arbitration — only Congress can do that, Foote pointed out at the hearing — but creates changes that are aimed at leveling the playing field for someone suing a large corporation.

Nancy Burgess, a Highlands Ranch resident who testified in support of the bill, said she'd been hired as an independent contractor by a large company that imposed unfair conditions.

"The work was long and grueling and the pay was atrocious," Burgess said. "...My wages frequently fell below...the Colorado minimum wage."

When she considered pursuing legal action, Burgess realized she'd signed a contract that included a forced arbitration clause. Her contract said she had to go to Texas for arbitration and suggested she could end up having to pay the company's attorney fees should she lose her case.

Notably, the bill would not allow companies to require that arbitration take place more than 100 miles from where the consumer or employee lives or where the contract was executed. It would also bar either party to the dispute from choosing the arbitrator, a common practice that proponents of the bill argue stacks the odds in the favor of a business or employer.

Several people who testified on behalf of builders and developers, however, said the bill could have the unforeseen consequence of limiting the state's affordable housing supply.

To understand that reasoning, we have to look back at Colorado's history with "construction defects" litigation.

Prior to 2017, it was relatively easy for people to file expensive class-action lawsuits against developers of townhomes or condominiums for problems with construction. That limited developers' willingness to build such multifamily housing projects in an affordable price range — because insurers didn't want to work with developers who could end up on the hook for huge settlements.

Then, a Colorado Supreme Court decision in 2017 and a state law passed that same year somewhat improved the landscape.

"Over the last several years...we've gone from a market where many insurers wouldn't even write in Colorado, particularly for multifamily projects, because of the dramatic uncertainty in both litigation costs and exposure, to a market where insurers are now writing more proficiently and more prolifically within Colorado," Scott Wilkinson testified on behalf of the Colorado Association of Home Builders.

Wilkinson said builders were worried that SB93 would undermine their ability to develop affordable housing as townhomes or condos, because insurers would be less willing to cover possible costs arising from dispute resolution in a more uncertain arbitration process.

The 2017 changes "put construction cases, which are highly technical, in front of arbitrators who were knowledgeable in this subject — which meant you had verdicts that more closely resembled the cost necessary to compensate the victims, as opposed to outlier verdicts that might not have been related to the actual harms," Wilkinson said. "What this bill does is it takes that progress we’ve made and it now gives the plaintiffs’ attorneys an excuse for attacking it and introducing additional uncertainty."

The bill sponsors said they were willing to tweak the bill's language to appease those who testified in opposition.

In closing remarks, Foote acknowledged that arbitration has a "very valuable spot" in dispute resolution.

"But when you have an imbalance of power," he added, "when you have a big corporation that's represented by counsel versus a consumer that's not, when you have a student loan corporation versus a student... that's an imbalance of power."

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