SB 319 - ARBITRATION CHAIRMAN LEMAN called the Senate Labor and Commerce Committee meeting to order at 3:55 p.m. and announced SB 319 to be up for consideration. MR. JERRY BURNETT, Staff to Representative Randy Phillips, explained that last year the legislature directed the Judicial Council to propose a program for alternative dispute resolution for arbitration which is now being used as a standard procedure in contracts. One of the most common uses where it affects a number of people is in real estate contracts where people don't fully realize the implications of arbitration. There are no guidelines currently established anywhere governing many aspects of an arbitration proceeding. There are no provisions that arbitration be preceded by mediation. The arbitrator doesn't have a state law or any other law in making a decision and there is no limit on the amount of money requested by a party to arbitration by another and no limit on the time in which an arbitration can be pursued after a contract is signed. SB 319 requires language in a contract subject to arbitration stating clearly that a party to arbitration may be limiting or waiving rights to other remedies, including appeal of an arbitrators decision to a court of law, and limits the amount that can be arbitrated to $5,000. MR. BURNETT pointed out that Section 11 refers to Section Five and it should refer to Section Six and needs to be amended. CHAIRMAN LEMAN said he didn't know why they chose $5,000 as the limit instead of the $7,500 limit for small claims court. (This technical error was corrected in a later hearing - committee staff.) Number 86 MR. STEVE DEVRIES, Department of Law, said he had two minor problems with the proposed bill in Section Three,(b))(4) determination of whether a dispute under the contract is arbitrable, seems to be at odds with existing Supreme Court precedent, and (b)(9), waiving your right to recover punitive damages, would only exist in law if there was an express prohibition on recovery of punitive damages in the underlying contract. This was in a decision that came down from a U.S. Supreme Court in 1995. CHAIRMAN LEMAN asked him to provide suggested language that would correct the problems. MR. BILL MCNALL, said he was representing no one in particular, but he has clients he represents in arbitration who are real estate agents as well as just plain folks. It is obvious in the arbitration process that the lack of guidelines was going to be a real hindrance and the lack of knowledge on behalf of both the real estate professional and the consuming public about what arbitration was vastly different than what they expected. Everyone thought that it would be easier and less expensive than litigation. The truth is that it can be more complex, expensive, and take longer than litigation, because of the lack of rules. He explained the reason for the $5,000 limit is because there is a trouble/damage section in the seller's disclosure law and if it turns out that someone intentionally doesn't disclose something, they can be liable for up to $15,000. As a result, it was felt if the treble damage amount was low enough, arbitration might still be an effective way to deal with it. He said this bill is trying to help the consuming public by giving them some advance notice of what it means to go to arbitration. SENATOR KELLY thought they should consider repealing what they did last year, rather than try to go forward and fix a broken system. MR. MCNALL said it seems to him that a lot of the small dollar amounts could be handled in small claims court a whole lot more efficiently than in the arbitration process. The only way to fix it is to make arbitration available only to matters that are above the small claims limit. CHAIRMAN LEMAN said the Committee would hold the bill for further work.