BILL ANALYSIS SENATE JUDICIARY COMMITTEE Senator Ellen M. Corbett, Chair 2009-2010 Regular Session AB 2365 (Lieu) As Amended April 8, 2010 Hearing Date: June 29, 2010 Fiscal: No Urgency: No BCP:jd SUBJECT Veterans Affairs: Administration DESCRIPTION This bill would permit a service member to recover actual damages, reasonable attorney's fees, and costs from any person who violates specified rights and protections of the Military and Veterans Code. This bill would also grant service members an expedited review of a specified petition for relief, and provide that a court shall not charge a filing fee or court costs for specified actions. BACKGROUND California law provides various financial and consumer-related protections for service members. Those provisions generally seek to provide protections against various potential adverse effects of a deployment, and include provisions enacted by AB 1433 (Horton, Chapter 60, Statutes of 2002), which provided financial protection with regards to court proceedings, credit contract obligations, rental agreements, taxes, health insurance, and eviction protection, and AB 1666 (Frommer, Chapter 345, Statutes of 2005), which provided additional protection for members called into active duty with regards to fees for recording a power of attorney, termination of mobile telephone contracts, academic tuition, state bar fees, vehicle leases, and residential utility service. In order to assist service members in bringing actions to (more) AB 2365 (Lieu) Page 2 of ? protect their rights, the California Military Department, sponsor, has coordinated with State Military Reserve Judge Advocate General (JAG) Officers to assist service members who have incurred financial hardship because of their deployments. This bill seeks to help additional service members enforce their rights and protections by permitting the recovery of reasonable attorney's fees and costs, removing filing fees and court costs for specified actions, and permitting an expedited review for certain cases. This bill was approved by the Senate Veterans Affairs Committee on June 22, 2010. CHANGES TO EXISTING LAW 1. Existing law generally 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. (Mil. & Vet. Code Secs. 401 - 409.4; 800 - 811; 820 - 828.) Existing law , the California Military Families Financial Relief Act, permits any member of the United States Military Reserve or the National Guard who is called to active duty as part of the Iraq and Afghanistan conflict to defer payments on specified obligations while serving on active duty. (Mil. & Vet. Code Sec. 800 et seq.) Existing law , the California Military Families Financial Relief Act of 2005, provides financial protection to members called into active duty regarding fees for recording a power of attorney, termination of mobile telephone contracts, academic tuition, state bar fees, vehicle leases, and residential utility service. (Mil. & Vet. Code Sec. 820 et seq.) This bill would provide that any person who violates the above provisions shall be liable for actual damages, reasonable attorney's fees, and costs incurred by the injured party. This bill would provide that a service member or other person seeking to enforce the above rights shall not be required to pay a filing fee or court costs. 2. Existing law permits a service member to, at any time AB 2365 (Lieu) Page 3 of ? during his or her period of service or within six months thereafter, apply to a court for relief from an obligation or liability incurred by the member prior to his or her period of military service, or from any tax or assessment falling due prior to or during the period of service. (Mil. & Vet. Code Sec. 409.3(a).) Existing law 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. (Mil. & Vet. Code Sec. 409.3(a).) This bill would, instead, require a court to set a hearing on the petition within 25 days from the date the petition is filed, unless the court shows good cause for extending the date of the hearing. That petition must be served at least 10 days before the hearing, and the respondent must file and serve a response to the petition at least five days before the hearing. This bill would provide that a court shall not charge a filing fee or court costs for those petitions, and provide that any person violating the section shall be liable for actual damages, reasonable attorney's fees, and costs incurred by the injured party. COMMENT 1. Stated need for the bill According to the author: This bill would authorize service members to recover an award of reasonable attorney fees. Not only is finding an attorney to represent a service member claimant 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. For example, if a creditor has refused to defer a mortgage or lower the interest rate to six percent for pre-service debts, the over-charged interest may only amount to several hundred dollars. Another significant example is if an attorney is able to recover $10,000 for a service member who needs this to pay a loan he or she is in default on because of the lender's AB 2365 (Lieu) Page 4 of ? violation of the [Military & Veterans Code] and the attorney takes a 1/3 or 40% contingency, the service member will still be in default, as the funds needed to clear the problem are now going to the attorney. The service member is still not out of the hole. . . . Further, due to being deployed overseas, many service members do not have the ability to immediately pay court fees at the time of filing because of geographical limitations or financial hardship. This bill would grant a service member a waiver of court fees so that the service member may proceed to enforce these important protections. This bill would also grant service members an expedited review of their case. Under current law, a service member may not be able to enforce these protections until the service member returns from deployment. A delay in enforcement often puts the service member in irreversible credit problems, regardless of the eventual outcome of the case. 2. Awarding reasonable attorney's fees and costs To assist service members in bringing actions for violations of their rights and protections that have previously been granted by the Legislature, this bill would provide that any person violating various sections of the Military and Veterans Code shall be liable for actual damages, reasonable attorney's fees, and costs incurred by the injured parties. The result of that provision would be to shift the cost of the service member's attorney (and any other costs incurred) to a defendant who is found to have violated those sections. The general rule governing attorney's fees in the United States is that each party must bear the costs of his or her own attorney's fees, regardless of who prevails in litigation. Fee shifting statutes are enacted only when society considers a statutory or constitutional right important enough to justify fee shifting. (See Choate v. County of Orange (2000) 86 Cal.App.4th 312, 322-23; Code Civ. Proc. Sec. 1021.) Regarding the importance of shifting attorney's fees onto those individuals who violate specified provisions of the Military and Veterans Code, the author asserts: Many of the rights sought to be enforced have either no damages or minimal damages. The service member is primarily AB 2365 (Lieu) Page 5 of ? seeking an order from the court compelling the lender to stop violating the [Military & Veterans Code (MVC)] and honor his or her requests. An example is a case to defer a service member's mortgage after the institution has wrongfully denied the service member the deferral protections. There would be no damages in a case where the service member is only seeking a deferment. There are no damages to pay an attorney in an injunction action. 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. Voluntary compliance will be much more likely if creditors know that litigation over violations of the MVC may result in an award against them of the service member's reasonable fees and costs. Considering that the Legislature has already enacted numerous important protections for service members, and that those protections may be unlikely to be enforced absent the provision of attorney's fees, the proposed fee shift appears appropriate and consistent with the original intent of those statutes. The protections at issue - including those regarding charging high interest rates, and protecting the service member from foreclosure for a period of time - represent important statutory rights that have previously been recognized by the Legislature. The following clarifying amendment is suggested to clarify the addition of the attorney fee language to two sections pertaining mostly to court actions. Clarifying amendments: 1) On page 3, strike out lines 37 through 39, inclusive. 2) On page 4, line 5, after the period insert: That person shall also be liable for actual damages, reasonable attorney's fees, and costs incurred by the injured party. 3) On page 11, line 34, after the period insert: Any person violating this subdivision shall be liable for AB 2365 (Lieu) Page 6 of ? actual damages, reasonable attorney's fees, and costs incurred by the injured party. 4) On page 12, strike out lines 5 through 7, inclusive. 3. No filing fees or court costs The Judicial Council's Self-Help Center provides the following three ways that an individual may qualify for a fee waiver: (1) if the person is receiving public benefits; (2) if the person's household income, before taxes, is less than a specified amount; or (3) if the court finds that the person does not have enough income to pay for their household's basic needs and the court fees. This bill would also provide that a service member or other person seeking to enforce specific rights shall not be required to pay a filing fee or court costs. The author asserts that this waiver is necessary because "due to being deployed overseas, many service members do not have the ability to immediately pay court fees at the time of filing because of geographical limitations or financial hardship." As a result, the waiver would remove this barrier in the filing of an action to enforce their rights. Committee staff notes that while fee waivers are currently available in the above circumstances, this bill would essentially guarantee that service members qualify for those waivers when enforcing the rights at issue. As of the writing of this analysis, the Committee has received no opposition from the Judicial Council to the proposed fee waiver. 4. Expedited review This bill would also permit a service member to receive an expedited hearing regarding: (1) any obligation or liability incurred prior to their service; or (2) a tax or assessment that fell due prior to, or during, their period of service. That hearing must be within 25 days from the date the petition is filed, unless the court shows good cause for extending the date. That petition must be served at least 10 days before the hearing, and the respondent must file and serve a response to the petition at least five days before the hearing. The author notes that: "[u]nder current law, a service member may not be able to enforce these protections until the service AB 2365 (Lieu) Page 7 of ? member returns from deployment. A delay in enforcement often puts the service member in irreversible credit problems, regardless of the eventual outcome of the case." Although court calendars are currently highly impacted in certain areas of the state, with some cases being delayed for months, the Committee has received no opposition to this provision that would prioritize these cases. Similar to the above provisions, this provision reflects the policy choice of the Legislature to provide enhanced protections for service members when they are called to active military duty. The California Military Department, sponsor, further asserts that this bill is "crucial, as Servicemembers and their Families continue to experience the hardships of ongoing deployments." 5. California Bankers Association in a neutral if amended position The California Bankers Association (CBA) states that they "believe that government enforcement is more effective than an enforcement mechanism that encourages civil litigation. If the bill was amended to require government enforcement, CBA would adopt a neutral position on the bill." Support : California Association of County Veterans Service Officers; National Guard Association of California; Vietnam Veterans of America, California State Council; one individual Opposition : California Bankers Association HISTORY Source : California Military Department Related Pending Legislation : None Known Prior Legislation : None Known Prior Vote : Assembly Veterans Affairs Committee (Ayes 8, Noes 0) Assembly Judiciary Committee (Ayes 10, Noes 0) Assembly Floor (Ayes 71, Noes 0) Senate Veterans Affairs Committee (Ayes 4, Noes 0) ************** AB 2365 (Lieu) Page 8 of ?