Judiciary Committee chair wants State Bar to regulate ADR firms

The State Bar would regulate alternate dispute resolution companies under a bill introduced by the chair of the Senate Judiciary Committee.

SB 940, written by Sen. Tom Umberg, D-Santa Ana, would create a voluntary system under which firms could be certified by the bar in exchange for meeting specific requirements and paying a fee. Umberg introduced the bill by inserting new language into an unrelated measure on Tuesday.

“What inspired this is some of the events surrounding the Tom Girardi debacle and the fact that there’s not a mechanism for real oversight over ADR firms or individuals,” Umberg said. “The State Bar, while it has oversight over licensed attorneys, many of those who are in the ADR space, they’re not licensed attorneys or don’t have an active bar license.”

He added, “This is an effort create a mechanism which I hope will cause ADR firms and individuals to apply to get a certificate to get some sort of validation by the state bar that they’re adhering to some basic ethical standards and transparency standards.”

Umberg said he would add more specifics to the bill going forward. He also said he had not talked to the leading ADR firms active in the state.

“We don’t wish to comment on this specific bill, however, we would support any legislation that would assure that individuals desiring to serve as mediators are qualified,” Dario Higuchi, managing partner of Signature Resolution, said in an email.

“Our policies and procedures are very closely aligned to what is outlined in the proposed legislation. In addition, JAMS follows the law as set out by legislatures and the courts,” said Kristine Snyder, director of public relations & content with JAMS.

The new bill follows the failure last year of a bill that would have created a system for people to register complaints about ADR companies with the State Bar. Assemblyman Jesse Gabriel, D-Woodland Hills, also touted AB 924 as a response to disclosures that Girardi had stolen millions from clients. In a news release last May touting the bill’s 74-0 passage in the Assembly, Gabriel cited the “role private judges and dispute resolution neutrals in enabling the Girardi scandal,” adding that Girardi often “relied on private judges that he selected and paid for, and who appeared to disregard the management of client funds or look the other way at blatant ethical concerns.”

But AB 924 stalled in Umberg’s committee amid concerns it would undermine mediation confidentiality by allowing testimony and exhibits to be subpoenaed. In a rare show of unity, the Consumer Attorneys of California, the California Defense Council and the California Judges Association all opposed AB 924, according to a letter circulated last year by Berkeley-based arbitrator and mediator Ron Kelly.

“Given that Umberg is Judiciary Chair, I’m guessing this bill will be enacted in some form,” Kelly said when reached by email on Thursday. “Both sets of standards referenced in the bill are ones that have been in place for decades in California and have worked reasonably well.”

Umberg said that certification will not be mandatory. He added that when he started researching the industry he was surprised how many arbitrators and mediators were not current or even past members of the State Bar, particularly in certain specialties like construction defects.

Lucie Barron, founder and president of ADR Services Inc., said she had no objections based on what she knew about SB 940 so far.

“All of our neutrals are members of the State Bar,” Barron said “Every single one. That’s a requirement for our company.”

Umberg also acknowledged the irony of his office proposing to give new duties to the State Bar. He has battled the bar for years over efforts to explore alternate licensing and law firm ownership, ideas that have caught on in some other states. Umberg has responded by threatening or limiting the bar’s funding, including what it can spend on lobbying, and urging it to focus on its core mission of regulating attorneys.

“It’s my hope that in the marketplace, when lawyers or consumers are choosing an entity or individual to mediate or arbitrate, that this will be one of the criteria the use,” Umberg said.