BILL ANALYSIS
AB 285
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Date of Hearing: March 31, 2009
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 285 (Tran) - As Introduced: February 13, 2009
PROPOSED CONSENT
SUBJECT : Corporations: Electronic Transmissions
KEY ISSUE : Should regulations on electronic communications
between a corporation and its shareholders or members be
CLARIFIED to eliminate a current reference to federal criteria
relating to consumer communications and replace it with CLEARER
criteria?
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
synopsis
Existing law requires that when a corporation communicates with
its shareholders or members by electronic means, such as e-mail,
that it comply with certain requirements showing, among other
things, that they have obtained the consent of shareholders and
members to receive communications by electronic means. In
setting forth this requirement, existing state law requires that
these communications comply with criteria set forth in the
federal "E-Sign Act." However, as the author and sponsors quite
reasonably point out, the protections in the federal "E-Sign
Act" were designed to protect and ensure the consent of
consumers; it was not designed to cover communications between a
corporation and its shareholders and members. Accordingly, the
cross-reference to federal law creates unnecessary regulations
and, moreover, confusion in light of the federal statute's
references throughout to "the consumer." This bill, therefore,
amends existing law in order to eliminate the reference to
federal law and replace it with a set of criteria more relevant
to a corporation's communications with shareholders and members,
while at the same time ensuring that shareholders and members
have appropriately consented to receive electronic
communications. (It should be stressed that this bill does not
eliminate any federal requirement; rather, it eliminates a state
requirement to comply with criteria that happens to be set out
in a federal statute.) This bill is sponsored by the Nonprofit
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and Unincorporated Committee of the Business Law Section of the
California State Bar. There is no known opposition to this
bill.
SUMMARY : Eliminates a current reference to a federal statute
relating to consumer consent to receive electronic
communications, and replaces it with expressly stated
requirements that are more specific to electronic communication
between a corporation and its members or shareholders.
Specifically, this bill :
1)Permits a corporation to send an "electronic transmission," as
defined, to a member or shareholder recipient who has provided
consent to receive such transmissions (and has not revoked
that consent), but only if the transmission includes or has
been preceded by a clear written statement informing the
recipient of all of the following:
a) Any right that the recipient has to received the
information on paper or in non-electronic form;
b) Whether the consent applies only to that transmission,
to specific categories of transmissions, or to all
transmissions from the corporation;
c) The procedures the recipient must use to withdraw
consent.
1)Specifies that this bill only applies to communications
between a corporation and shareholder or member who is a
natural person, and if communicated to an officer or director
of the corporation, only if communicated in that person's
capacity as a shareholder or member.
EXISTING LAW :
1)Provides, under the federal "E-Sign Act," that electronic
signatures, documents, and transmissions shall not be denied
legal effect solely because they are in electronic form.
However, further provides that where a statute, regulation, or
other rule of law requires that a transaction with a consumer
be in writing an electronic document will satisfy that
requirement only if the consumer has affirmatively consented
and has been provided with a clear and conspicuous statement
as to his or her right to be provided with the same
information in non-electronic form. (15 USC Section 7001 et
seq.)
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2)Regulates and establishes, under California law, safeguards
for the use of electronic signatures and transmissions by both
business and government entities. (Civil Code Section 1633.1
et seq.)
3)Requires California corporations to provide shareholders and
members with certain communications, including issuance of
annual reports and notice of shareholder meetings. Permits
the "electronic transmission" of these communications provided
that the corporation sending the electronic transmission
complies with consumer consent requirements as set out in the
federal E-Sign Act. (Corporations Code Sections 20 and 21;
see also Sections 600 et seq. and 1500 et seq., regarding
types of communication requirements that may be made
electronically.)
4)Defines "electronic transmission" as any communication to a
shareholder or member by electronic means, including fax,
e-mail, or posting on an Internet website. (Corporations Code
Section 20.)
COMMENTS : In 2000 Congress enacted and the President signed the
Electronic Signatures in Global and National Commerce Act, more
conveniently known as the "E-Sign Act." The underlying purpose
of this bill was to address the growing number of commercial
transactions that were completed electronically, or which
involved the exchange of documents in electronic form.
Specifically, the E-Sign Act provided that, for any interstate
commercial transaction, an electronic signature, contract, or
other document could not be denied legal effect solely because
it was in electronic form. However, the federal law provides
that whenever a statute, regulation, or other law requires that
information be provided to a consumer in writing, then an
electronic communication could only be used if the consumer had
given prior consent. The E-Sign Act set forth the specific
means by which the consumer could give or withdraw consent to
receive electronic communications. Because the E-Sign Act is
restricted to transactions in interstate commerce, California's
Uniform Electronic Transmissions Act (UETA) provides parallel
protections for consumers within California. (Civil Code
Section 1633.1 et seq.)
Existing State Law on Corporate Communications with Shareholders
and Members. In 2004, SB 1306 (Chapter 254, Stats. of 2004)
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amended several sections of the California Corporations Code
relating to corporate communications with shareholders and
members, including requirements for providing notice of board or
shareholder meetings, allowing participation in board or
shareholder meetings, and issuing annual reports to
shareholders. Among other things, SB 1306 added Sections 20 and
21 to the Corporation Code to permit corporations to communicate
with shareholders and members through "electronic
transmissions," which was defined to include fax, e-mail, and,
in certain cases, postings on Internet website. These
electronic transmissions, however, were only permitted if the
shareholder or member had provided prior consent. But rather
than specify criteria by which consent could be granted or
revoked, the drafters of AB 1306 elected to reference criteria
for obtaining consumer consent under the federal E-Sign Act.
The problem with this approach, however, is that the federal
E-Sign Act was written to apply to transactions between
businesses and consumers , not between corporations and their
shareholders and members. In short, many of the requirements
designed to protect consumers are irrelevant or overly
burdensome when applied to corporate communications with
shareholders and members. Moreover, as the sponsor and
supporters point out, existing law creates confusion. That is,
a corporation attempting to comply with the state law regulating
its communications with shareholders and members is referred to
a federal statute that speaks to communications with
"consumers." It would be better, as the author reasonably
points out, to simply specify in the Corporation Code how
consent should be obtained. That is precisely what AB 285 seeks
to do.
AB 285 deletes the inappropriate reference to federal law and
instead expressly states how the corporation should obtain
consent from shareholders and members. Specifically, AB 285
would permit corporations to use electronic transmissions only
if the shareholder or member has given consent - and only where
consent was preceded or accompanied by a clear written statement
informing the recipient of his or her right to receive the
information in non-electronic form and explaining the procedure
by which the recipient can revoke consent. In addition, the
prior written statement must clearly identify the categories of
communication to which the consent applies. These provisions
reasonably obtain a recipient's consent, but without the
confusing references to a federal law designed to protect
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consumers.
No Federal Preemption Issue: While a state law that eliminates
a reference to a federal requirement might suggest a preemption
issue, this is not the case with this bill. The federal E-Sign
Act does not require corporations to meet federal consent
requirements. The existing reference to the federal statute was
not made to meet a federal requirement; rather, the existing
reference is merely a state requirement to comply with criteria
that happens to be set out in a federal statute. In short, the
drafters of existing law - apparently as a matter of mere
convenience - referenced federal criteria rather than develop
their own. Yet as the Business Law Section of the State Bar
notes in its letter of support, the previous drafters
unwittingly referenced criteria that were designed for a quite
different purpose.
ARGUMENTS IN SUPPORT : According to the author and sponsors, AB
285 would provide a workable standard in lieu of the E-Sign Act,
while still using it as a general guide. The constraints of the
federal E-Sign Act, the author and sponsor contend, are not
quite appropriate for electronic transmissions by corporations
under the California Corporations Code. In fact, even if they
were, the author believes that it would be better if the actual
requirements were spelled out in the Corporations Code rather
than referencing a federal law that, while setting out criteria
for obtaining consent to receive electronic communications, does
so for an entirely different purpose.
REGISTERED SUPPORT / OPPOSITION :
Support
Business Law Section of the California State Bar (sponsor)
California Society of Association Executives
Opposition
None on file
Analysis Prepared by : Thomas Clark / JUD. / (916) 319-2334