BILL ANALYSIS
AB 285
Page 1
Date of Hearing: March 23, 2009
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Pedro Nava, Chair
AB 285 (Tran) - As Introduced: February 13, 2009
SUBJECT : Corporations: electronic transmissions.
SUMMARY : Eliminates the requirement to satisfy the federal
Electronic Signatures in Global and National Commerce Act
(E-Sign Act) (15 U.S.C. Sec.7001(c) (1)). Specifically, this
bill :
1)Requires that electronic transmissions to an individual
shareholder or member who is a natural person be preceded by
or include a written statement containing:
a. any right of the recipient to have the record
provided or made available on paper or in
nonelectronic form;
b. whether the consent applies only to that
transmission, to specified categories of
communications, or to all communications from the
corporation; and,
c. the procedure the recipient must use to
withdraw consent.
EXISTING STATE LAW :
1)Establishes the Uniform Electronic Transactions Act (UETA),
which enacts procedures and establishes safeguards for the use
of electronic records and electronic signatures in business
and governmental activities [Civil Code Section 1633.1 et
seq.]
2)Defines "electronic transmission by the corporation" as a
communication that satisfies the requirements applicable to
consumer consent to electronic records, as set forth in the
Electronic Signatures in Global and National Commerce Act, and
that is all of the following [Corporations Code Section 20]:
a. Delivered by facsimile or electronic mail;
posting on an electronic message board or network that
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the corporation has designated for those
communications, together with a separate notice to the
recipient of the posting; or other means of electronic
communication;
b. Sent to a recipient who has provided an
unrevoked consent to the use of those means of
transmission for communications; and,
c. Creates a record that is capable of retention,
retrieval, and review, and that may thereafter be
rendered into clearly legible, tangible form.
EXISTING FEDERAL LAW : establishes the E-Sign Act (15 USC Section
7001 et seq.), which makes electronic signatures and records
valid for all types of transactions that occur in interstate
and foreign commerce, unless the transactions are specifically
exempted, and which establishes specific standards for any
electronic communication that is sent to a consumer relating to
a transaction.
FISCAL EFFECT : None
COMMENTS :
BACKGROUND: The President signed the E-Sign Act on June 30,
2000 to facilitate the use of electronic records and signatures
in interstate and foreign commerce by ensuring the validity and
legal effect of contracts entered into electronically. The Act
went into effect in October 2000.
On top of the E-Sign Act, California was the first state to
enact the UETA which was signed on September 22, 1999 and became
effective on January 1, 2000. The overall purpose of UETA is to
assure that electronic signatures and transactions have the same
legal effect as "wet" signatures and paper documents. Some may
consider this as a movement to become a "paperless" society.
AB 285 would in fact be eliminating the requirement to follow 15
U.S.C. Sec 7001 (C) (1) which states that information may be
provided or made available to consumers through the use of an
electronic record, and doing so will satisfy any requirement
under any statute, regulation or other rule of law, that the
information be in writing. However, there are limitations on the
ability to provide electronic disclosures to consumers. There
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are four restrictions which include, the consumer must have
affirmatively consented to the use by the other party of
electronic records to provide or make available the required
information, and the consumer must not have withdrawn that
consent. Second, the consumer must have received specified
disclosures prior to consenting. These include informing the
consumer how the consumer may obtain a paper copy of the
electronic record, and any fees the consumer may be charged.
Third, the consumer must be informed of the hardware and
software requirements for access to the disclosure information.
The consumer must consent to the use of electronic records, or
confirm his or her consent, in a manner that "reasonably
demonstrates" the consumer can access the information. This
requirement is thought to be a significant protection against
consumer mistake or abuse of the consumer, by establishing that
no consumer will receive electronic disclosures except after the
consumer has demonstrated that he or she has and can operate the
systems (hardware and software) that are required to receive the
disclosures. The disclosing party is not required to engage in
any further verification of the consumer's capabilities.
Fourth, if the hardware or software requirements are changed
after consent, the consumer must receive a revised disclosure of
the new requirements and a resolicitation of the consumer's
consent.
Although AB 285 is eliminating the above requirements, the new
language puts in place similar language which the sponsor
contends will clarify the ambiguity and make it easier for
corporations to understand and use this law accurately in
real-life.
FEDERAL PREEMPTION : One of the most significant issues arising
from the E-SIGN Act is the interplay of federal and state law.
The E-SIGN Act provides that the states may override the
preemptive effect of the federal law. A state may modify, limit
or supersede the E-SIGN act if it specifies alternative
procedures or requirements for the use and/or acceptance of
electronic records or electronic signatures. California has the
authority in this manner to determine what is best. This is an
example where state law is not preempted by federal law.
NEED FOR THE BILL : Two reasons have been stated as to why this
bill is necessary. The first is the E-Sign Act applies to
consumers, not corporate communications to members or
shareholders. Hence, existing law requires corporations to
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apply a standard to shareholder and member communications that
was not drafted for those communications. Second, existing law
is ambiguous as to whether all communications with directors are
restricted, not only those communications relating to those
directors as shareholders or members.
According to the sponsor, the Nonprofit and Unincorporated
Organizations Committee of the Business Law Section of the State
Bar of California, "AB 285 would provide a workable standard in
lieu of the E-Sign Act, while using it as a general guide. The
constraints of the federal E-Sign Act are not quite appropriate
for electronic transmissions by corporations under the
California Corporations Code. In fact, even if they were, it
would be better if the actual requirements were in the
Corporations Code rather than requiring people to go and find
and then apply the federal law. In addition, there apparently
may be some concerns that the requirements of Section 20 run
afoul of the SEC's "notice and access" regulation dealing with
proxy materials."
RELATED LEGISLATION:
SB 1409 (Ackerman), Chapter 177, Statutes of 2008. Allows
California corporations to comply with the requirement in
existing law to transmit an annual report to shareholders by
posting the annual report on an Internet website that is
accessible to shareholders free-of-charge.
AB 1959 (Tran), Chapter 214, Statutes of 2006. Expressly
authorizes written consents by shareholders to be transmitted
electronically.
SB 1306 (Ackerman), Chapter 254, Statutes of 2004. Modernizes
the statutes relating to the conduct of business by
corporations, partnerships, and limited liability companies to
permit the use of electronic transmissions as a means of
communication.
REGISTERED SUPPORT / OPPOSITION :
Support
Business Law Section of the State Bar of California (Sponsor)
California Society of Association Executives
AB 285
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Opposition
None on file.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081