BILL ANALYSIS AB 2365 Page 1 Date of Hearing: May 4, 2010 ASSEMBLY COMMITTEE ON JUDICIARY Mike Feuer, Chair AB 2365 (Lieu) - As Amended: April 8, 2010 PROPOSED CONSENT SUBJECT : VETERANS AFFAIRS: ADMINISTRATION KEY ISSUE : SHOULD U.S. SERVICE MEMBERS BE GIVEN ADDITIONAL TOOLS, INCLUDING THE ABILITY TO RECOVER REASONABLE ATTORNEY'S FEES, THAT WILL ENABLE THEM TO ENFORCE, ON THEIR OWN ACCORD, SPECIFIED RIGHTS AND FINANCIAL PROTECTIONS UNDER THE MILITARY AND VETERANS CODE THAT EXIST FOR THEIR BENEFIT? FISCAL EFFECT : As currently in print this bill is keyed non-fiscal. SYNOPSIS This non-controversial bill seeks to increase the ability of service members to enforce, on their own accord, certain financial and consumer-related rights and protections granted to them under the Military and Veterans Code to assist them with financial hardships associated with deployment. To accomplish this objective, the bill expressly authorizes service members to recover actual damages, reasonable attorney's fees, and costs from any person who violates any of these rights and protections as specified throughout the Military and Veterans Code. Supporters contend that the attorney's fees provision will provide an incentive for attorneys to represent service members and their families in cases where they are attempting to cope with financial hardships associated with deployment of the service member, which also has the effect of making the service member unavailable to participate in efforts to enforce these statutory rights on their own accord. This bill would also grant service members an expedited review of a certain petition for relief, which would potentially help resolve the dispute before the service member must ship out for deployment and becomes unavailable to participate in the action. This bill is sponsored by the California Military Department and supported by the National Guard Association of California. It previously passed the Assembly Committee on Veterans Affairs on consent and has no registered opposition. AB 2365 Page 2 SUMMARY : Seeks to increase the ability of service members deployed or facing deployment to enforce, on their own accord, certain rights and protections granted to them under the Military and Veterans Code. Specifically, this bill : 1)Makes a person who has violated certain sections of the Military and Veterans Code liable for actual damages, reasonable attorney's fees, and costs incurred by the injured party. These sections generally afford financial and consumer-related rights and protections to service members designed to ease financial hardships associated with deployment. The existing code sections for which violators are liable under this bill provide that: a) A stay or postponement of payment of any tax, fine or other civil liability shall not alone provide the basis for a denial or revocation of credit, or a change in terms of an existing credit arrangement, with respect to credit transactions between the service member and creditors. (Military and Veterans Code Section 401. All further references are to this code unless otherwise noted.) b) The legal right of a service member who is a defendant in a civil case to have an attorney represent and protect his or her interests before any default judgment may be entered against the service member in the case. (Section 402.) c) The service member's period of military service (deployment) shall not be included in computing any statute of limitations for bringing a civil action or other court proceeding. (Section 404.) d) No obligation bearing interest at a rate greater than 6% per year incurred by the service member before that member's entry into service shall bear interest at a rate greater than 6% during any part of the period of military service. (Section 405.) e) The service member's family may not be evicted from their principal residence during the member's period of military service, unless otherwise ordered by a court. (Section 406.) f) No person engaged in an installment contract with the service member prior to that member's deployment may rescind or terminate the installment contract for any breach for nonpayment of an installment occurring prior to or during the service member's period of military service. AB 2365 Page 3 (Section 407.) g) In any proceeding to enforce nonpayment of an obligation secured by mortgage or deed of trust, the court shall stay the proceedings upon application of the service member. In addition, no sale, foreclosure, or seizure of property for nonpayment of such an obligation shall be valid if made during the service member's period of service or within three months thereafter, except as provided. (Section 408.) h) No assignee of a service member's life insurance policy shall, during the period of military service, exercise any right or option by virtue of that assignment unless upon leave of the court. Furthermore, no person shall exercise any right to foreclose or enforce any lien for storage of household goods, furniture, or personal effects during the service member's period of service or within three months thereafter, except as provided. (Section 409.1.) i) The court may grant relief to the service member by staying enforcement during the member's period of military service of an obligation payable under a mortgage or a contract to purchase real estate, as provided, and of payment of any tax or assessment incurred by the member. (Section 409.3.) j) An exclusion or waiting period may not be imposed in connection with reinstatement of health insurance coverage held by the service member prior to the member's period of military service. (Section 409.4.) 2)Provides that, with respect to the California Military Families Financial Relief Act, or any provision of the California Military Families Financial Relief Act of 2005: a) Any person violating any provision of either Act shall be liable for actual damages, reasonable attorney's fees, and costs incurred by the injured party. b) A service member or other person seeking to enforce rights under either Act shall not be required to pay a filing fee or court costs. 3)Prohibits the court from charging a service member any filing fee or court costs for a petition for relief from an obligation or liability incurred prior to the member's period of military service, or from a tax or assessment falling due prior to or during the period of service. Specifies further procedural requirements, including that: AB 2365 Page 4 a) The court shall set a hearing on the petition within 25 days from the filing date of the petition. b) The petition shall be served at least 10 days before the hearing. c) The respondent shall file and serve a response at least five days before the hearing. EXISTING LAW : 1)Provides legal rights and financial protections for service members, with respect to credit agreements, court proceedings, interest liabilities, eviction proceedings, contracts, mortgages and trusts, leases, life insurance policies, taxes and assessments, and health insurance policies, as specified. (Sections 401 to 409.4, 800 to 811, 820 to 828.) 2)Establishes the California Military Families Financial Relief Act (Chapter 3 of Division 4 of the Military and Veterans Code, commencing with Section 800) which provides financial relief for a service member who is called to active duty as part of the Iraq and Afghanistan conflicts. (Sections 800 to 811.) 3)Establishes the California Military Families Financial Relief Act of 2005 (Chapter 3.3 of Division 4 of the Military and Veterans Code, commencing with Section 820), which provides financial rights and relief to service members called into active duty, generally. (Sections 820 to 828.) 4)Permits a service member to apply to the court for relief from an obligation or liability incurred prior to the member's period of military service, or from a tax or assessment falling due prior to or during the period of service, and allows the court to grant specified relief after appropriate notice and hearing, unless in its opinion the ability of the service member to comply with the obligation or pay the tax or assessment has not been materially affected by reason of the member's military service. (Section 409.3.) COMMENTS : This non-controversial bill seeks to increase the ability of service members to enforce, on their own accord, certain financial and consumer-related rights and protections granted to them under the Military and Veterans Code to assist them with financial hardships associated with deployment. To AB 2365 Page 5 accomplish this objective, the bill expressly authorizes service members to recover actual damages, reasonable attorney's fees, and costs from any person who violates any of these rights and protections as specified throughout the Military and Veterans Code. The attorney's fees provision, in particular, is intended to provide an incentive for attorneys to represent service members and their families in cases where they are attempting to cope with financial hardships associated with the deployment (and prolonged absence) of the service member. Statutory Protections for Service Members in the California Military and Veterans Code. In 2002, the Military Department sponsored AB 1433 (Horton), which was chaptered into law and repealed California MVC 399 and 399.5 and added Chapter 7.5 "Protections," commencing with 400 through 420. The new law provided financial protection for military members performing military service in regards to court proceedings, credit contract obligations, rental agreements, taxes (except income taxes), and health insurance, as well as eviction protection for the military members' families. The law also enabled National Guard members serving in state or federal status and other military reservists performing federal duty to receive financial protections consistent with those found within the federal SSCRA. In December 2003, President Bush signed an updated version of the SSCRA, now known as the Servicemembers Civil Relief Act (SCRA). The new federal statute revised and expanded the protections included in the outdated SSCRA to reflect new economic realities. California Military and Veterans Code Sections 800 to 811 were amended in 2005, with the chaptering of AB 306 (Baca). As part of the California Military Families Financial Relief Act of 2005, this legislation applied to members of the California National Guard or Reserves called to active federal duty for the Iraq or Afghanistan conflicts, and ensured that these service members would be provided enhanced financial protections during the period of their deployment. Also in 2005, AB 1666 (Frommer), the California Military Families Financial Relief Act of 2005, was enacted to provide additional protections for members of the California National Guard and Reserves ordered to military duty. AB 2365 Page 6 Need for the Bill. According to the author, the California Military Department has recently coordinated with State Military Reserve Judge Advocate General (JAG) Officers to assist deployed and deploying service members who incur financial hardship because of their deployments. In the past year, these experienced lawyers have either counseled or represented 22 service members, but the resources that the California Military Department can expend on these issues are very limited. Generally, these cases arise when service members seek to exercise the financial rights and protections afforded to them under the Military and Veterans Code. The form of relief may vary from deferment of a financial obligation or reduction of an interest rate to the statutory requirement of 6%. In a typical case, the service member might contact a creditor directly seeking relief, but is denied the protection of his statutory right to relief. At this point, many service members are at an impasse. Judge Advocates are limited by regulation and geography from doing anything more than sending a letter on behalf of the service members. The service member is limited by geography and his or her own limited sophistication in enforcing these rights in court. The author of this bill, himself a Judge Advocate General, contends that this legislation is necessary to enable service members, on their own accord, to fully enforce the rights and protections afforded to them under the Military and Veterans Code. In support, the author states: This legislation is critical because more Citizen Soldiers and Airmen of California are being called to active duty in Iraq and Afghanistan. As a result, service members and their families are suffering the hardships of these ongoing deployments. It is necessary to provide an enforcement mechanism to ensure the Legislature's stated intent to enable service members to devote their entire energy to the defense needs of the nation or state. This bill enables service members to recover an award of reasonable attorney fees. Not only is finding an attorney to represent a service member difficult without an attorney's fees provision, but on a typical claim the service member cannot be made whole when a significant portion of his or her damages award must go toward non-recoverable attorney's fees. According AB 2365 Page 7 to the author, finding an attorney to take such a case is nearly impossible unless that attorney knows that reasonable compensation will be allowed by the court for undertaking such an action to protect the rights of a service member. The author further explains: Many of the rights sought to be enforced have either no damages or minimal damages. The service member is primarily seeking an order from the court compelling the lender to stop violating the Military and Veterans Code and honor his or her requests. An example is a case to clear up the service members' credit after the institution has wrongfully denied the service members the protections of the Military and Veterans Code. There would be no damages in a case where the service members is only seeking a court order to accurately reflect his or her credit if no attorney's fees are available. There is no money to pay an attorney in an injunction action. The author believes voluntary compliance will be much more likely if creditors know that litigation over violations of the Military and Veterans Code may result in an award against them of the service members' reasonable attorney's fees and costs. In addition, many service members do not have the ability to immediately pay court fees at the time of filing because of financial hardship, which is compounded when the member has been deployed overseas or faces imminent deployment. This bill would also waive some court filing fees for service members so that they may proceed to enforce statutory protections on their own accord. This bill would also grant service members an expedited review of a petition for relief . Under current law, a service member may not be able to enforce these protections until the service member returns from deployment. Expedited review of a service member's petition for relief can be very helpful in resolving disputes before the service member must ship out for deployment and becomes unavailable to participate in the action. Delay in enforcement unfortunately may cause irreversible credit problems for some service members, regardless of the eventual outcome of the case. In a matter concerning obligations, taxes, or assessments that are past due, this bill requires a court to set a hearing on the service member's petition for relief within 25 days from filing, lending more certainty to the process than the AB 2365 Page 8 current statute which simply authorizes the court to grant relief "after appropriate notice and hearing." ARGUMENTS IN SUPPORT : The National Guard Association of California writes in support: "AB 2365 will ensure that California National Guard members and Reservists receive court awarded damages, including reasonable attorney fees and court costs, incurred while pursuing certain protections under specified sections of the Military and Veterans Code. AB 2365 will greatly assist Service members in accessing the courts to enforce their rights." REGISTERED SUPPORT / OPPOSITION : Support California Military Department (sponsor) National Guard Association of California (NGAC) Opposition None on file Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334