State Bar weighs ethics standards for ADR providers under new law

As California evaluates guidelines for certifying alternative dispute resolution providers under a new state law, there may be an emerging consensus that ethical guidelines are more important than setting minimum qualifications for neutrals. But disputes remain about what those guidelines should look like and how they would be enforced.

Members of the State Bar's Alternative Dispute Resolution Working Group met for several hours on Wednesday afternoon. Early in that session, one influential member reminded others they were there due to an ethics scandal.

Ron Kelly, an independent mediator based in Berkeley, read from a Feb. 19 letter to the working group sent by Philip R. Diamond. A mediator based in San Rafael, Diamond noted that the 2024 law that created the certification program barely mentioned qualifications. But SB 940 contains several mentions of ethical standards -- which should not be a surprise, given the law's origins.

"That begs the question: If the statute doesn't direct the State Bar to develop a certification system that involves qualifications, why should the State Bar do so (especially since, as I understand it, the L.A. 'scandal' that started all of this was wholly related to ethical issues, and had nothing to do with the provider's qualifications)?" Diamond wrote.

That scandal was the revelation that Los Angeles plaintiffs' attorney Tom Girardi stole millions of dollars from his clients over many years, often in cases before alternative dispute resolution companies. Senate Judiciary Committee Chair Tom Umberg, D-Santa Ana, mentioned Girardi by name when he introduced AB 940 one year ago.

But the committee quickly diverged on how to establish and enforce ethical norms. One key question facing the working group is whether standards should be different for arbitrators and mediators. Arbitration is a binding process by which the parties agree to accept a neutral's decision, no matter the outcome. By contrast, a mediator -- who often is not an attorney -- helps the sides negotiate a voluntary agreement.

"Maybe there isn't just one baseline code of ethics," said Eric P. Tuchmann, senior vice president and general counsel with the American Arbitration Association. "Maybe there are two."

"I think it's absolutely essential that we differentiate between different forms of ADR," said Jill Kopeikin, the alternative dispute resolution program director for the U.S. Northern District of California.

She added that arbitration and mediation are "qualitatively different processes" and that a "mediator has no authority to make any sort of decisions." But other members argued that there are also other classifications, such as court-appointed volunteer mediators, and that the lines between different groups are not always clear.

"There are some providers that offer something called binding mediation, so I think we have to be careful," said Daniel Yamshon, who offers mediation and arbitration through ADR Services Inc. "It would be wonderful if we could go back to the Legislature, but I'm not optimistic we can, given the nature of the legislative process."

"It doesn't make sense to have different levels of commitment to ethics," said Dana Curtis, a mediator based in Point Richmond. "You either are or you're not going to follow them. ... I don't think it's meaningful to imply that there are different tiers. I think it's very misleading."

According to agenda materials, there are several sources for ethical rules the working group can draw from. These include the AAA/ABA Code of Ethics for Arbitrators in Commercial Disputes and the Judicial Council Ethics Standards for Neutral Arbitrators in Contractual Arbitration adopted in 2002. Others said it was more important to focus on how the ethics rules would be enforced, such as consistent handling of grievances from parties.

"How do you establish whether a neutral is sticking to the so-called baseline?" said Walnut Creek attorney Paul J. Dubow, "You have to have some way of establishing that they're doing something."

Plaintiffs' attorney Cliff Palefsky has been a longtime critic of forced arbitration agreements -- a fight he has now taken to his position on the working group. Palefsky, of McGuinn Hillsman & Palefsky in San Francisco, argued the committee should also concern itself with the ethics of clients.

"Those kinds of business threats pose a real unique problem," Palefsky said. "I don't know if there's a way to make them public or to require disclosure."

Reached on Thursday, Kelly said in an email the working group had approved his non-binding motion to "stick with the three criteria expressly expressed in the statute which are -- adherence to an ethical set of standards, a complaint procedure, and a remedy procedure."