Navigating California’s New Arbitration Landscape: Understanding SB 82 and Its Potential Impact

California Governor Gavin Newsom recently signed Senate Bill (SB) 82 into law, introducing significant changes that could reshape the enforcement of arbitration clauses in California consumer agreements. This legislation, effective January 1, 2026, aims to narrow the scope of arbitrable disputes, targeting clauses perceived as overbroad or exploitative.

Proponents of SB 82, including Consumer Attorneys of California, argued that infinite arbitration clauses unfairly bind individuals to arbitration far beyond their original agreement. The bill seeks to ensure contract terms apply only to the product or service covered at signing, preventing businesses from using broad "any claims" clauses for unrelated disputes.

The legislative history cites a Disney wrongful death lawsuit as an example of the issues SB 82 aims to address. Consumer advocates argued that a grieving husband was initially forced into arbitration for his wife's death at a Disney resort due to an "infinite" arbitration clause from a Disney+ subscription he had signed years earlier, invoked to cover this allegedly unrelated park incident.

Arguments Regarding FAA Preemption of SB 82:

The potential for federal preemption by the Federal Arbitration Act (FAA) is a central point of contention for SB 82.

• Opponents' Argument: SB 82's attempt to narrow arbitrable disputes could be seen as a state-imposed restriction undermining contractual freedom, interfering with the "terms of the agreement" or "fundamental attributes of arbitration" akin to Concepcion's view of Discover Bank. This perspective suggests the law disfavors arbitration agreements.
• Proponents' Counterargument: SB 82 does not ban imposing arbitration; it merely limits the scope to the specific contract from which the dispute arises. For example, a business could still have separate arbitration clauses for different services. This arguably clarifies the scope, aligning with FAA Section 2 which addresses agreements "arising out of a contract," rather than disfavoring arbitration itself.

Opposition Concerns:

SB 82 faces strong opposition from business groups, including the California Chamber of Commerce. Opponents argue the bill could:

• Increase litigation and costs.
• Interfere with freedom of contract.
• Create legal uncertainty due to vague language.
• Raise retroactivity concerns, potentially impairing existing contracts.
• Undermine arbitration benefits such as efficiency and cost-effectiveness.
• Conflict with federal law, specifically the Federal Arbitration Act (FAA).

Effect of Violating the Statute

If an arbitration clause violates SB 82, the new Civil Code Section 1670.15(c) explicitly states, "A waiver of the provisions of this section is contrary to public policy and void and unenforceable." This means any overreaching arbitration scope will be voided.

Courts will likely apply California Civil Code Section 1670.5 (unconscionable contracts) and principles of severability. A court could:

1. Refuse to enforce the entire contract.
2. Enforce the remainder of the contract without the offending portion of the arbitration clause.
3. Limit the application of the offending clause by conforming it to Section 1670.15, narrowing its scope.

Businesses should proactively review and revise their arbitration agreements to comply with the new statute, or prepare for challenges.

Implications for Ancillary Claims

This new statutory language raises questions for claims under statutes like TCPA, FDCPA, FCRA, CCRAA, or data breach claims. For instance, in Torres v. Veros Credit LLC (2023), a data breach claim was compelled to arbitration under a broad arbitration clause in a retail installment sale contract for a motor vehicle. The contract was assigned to Veros Credit, an automobile finance company, and the arbitration clause covered disputes "arising out of or relates to your credit application, purchase or condition of this vehicle, this contract or any resulting transaction or relationship." The court compelled arbitration, finding the delegation clause enforceable and the data breach claim falling within the broad scope.

Under SB 82, however, such an outcome might be challenged. SB 82 explicitly limits "dispute resolution terms and conditions of a consumer use agreement" to "the use, payment, or provision of the good, service, money, or credit provided by that consumer use agreement." A data breach, while related to the customer relationship, might be argued not to "arise out of the use, payment, or provision of the good, service, money, or credit" itself. The "use" of credit, for example, might refer to its application or repayment, not necessarily the incidental storage of personal information that subsequently leads to a breach.

Similarly, the "provision" of credit focuses on the act of supplying the loan, not the security measures for customer data. Therefore, SB 82 introduces a significant question as to whether claims like data breaches, which are ancillary to the core transaction, would fall outside the permissible scope of an arbitration agreement under the new law, potentially leading to such claims being litigated in court.

FAA Preemption

The most significant hurdle for SB 82 is potential preemption by the Federal Arbitration Act (FAA). The FAA strongly favors arbitration, making agreements "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." The U.S. Supreme Court consistently holds that the FAA preempts state laws that "stand as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress," particularly those that disfavor arbitration agreements compared to other contracts.

Conclusion

Immediate legal challenges based on FAA preemption are highly anticipated. California has a history of anti-arbitration laws struck down by federal courts, and the U.S. Supreme Court consistently prioritizes the FAA's policy favoring arbitration, particularly in cases of California hostility to arbitration.

• Review Arbitration Agreements: Businesses should promptly review existing and draft new arbitration clauses in consumer use agreements to ensure compliance with SB 82's scope limitations.
• Assess Risk: Evaluate potential exposure to litigation for disputes that may now fall outside the scope of arbitration under SB 82.
• Carefully Review: Seek advice to assess and adjust arbitration agreements in light of this dynamic legal landscape and the likelihood of preemption challenges.
• Stay Informed: Monitor legal developments, as court decisions will definitively determine if SB 82 survives FAA preemption.

In the interim, proactive compliance and careful consideration of arbitration clause drafting are essential for businesses operating in California.