BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 2426
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          Date of Hearing:  May 4, 2010

                           ASSEMBLY COMMITTEE ON JUDICIARY
                                  Mike Feuer, Chair
                   AB 2426 (Bradford) - As Amended: April 28, 2010

                    PROPOSED CONSENT (As Proposed to be Amended)
           
          SUBJECT  :  Surrogacy Facilitators 

           KEY ISSUE  :  Should a person who, for a fee, facilitates an  
          agreement between intended parents and a surrogate be required  
          to deposit client funds in an escrow or attorney trust account,  
          so as to reduce the number of "surrogacy scams?"  

           FISCAL EFFECT  :  As currently in print this bill is keyed  
          non-fiscal. 

                                      SYNOPSIS 

          This bill seeks to protect persons who turn to so-called  
          "surrogacy agencies" in an effort to have a genetically-related  
          child with the assistance of a surrogate.  Surrogacy agencies  
          promise to act as the intermediary between would-be parents -  
          who want a child but cannot have one "naturally" - and  
          surrogates who can carry the child to term.  Generally the  
          surrogacy agency asks the intended parents to make a deposit,  
          usually for tens of thousands of dollars if not more, in order  
          to compensate the surrogate, pay medical expenses, and cover the  
          agency's charge.  While many agencies apparently perform this  
          service honestly, there have been reports in recent years of  
          agencies that take advantage of the desire of would-be parents  
          and either abscond with, or fail to account for, the client  
          funds.  The author seeks to address this problem by requiring a  
          "nonattorney surrogacy facilitator," as defined, to have clients  
          deposit funds in either an escrow account or an attorney's trust  
          account, for safekeeping, until the funds are dispersed in  
          accordance with a prior agreement between the parties.  This  
          bill would only apply to surrogacy facilitators who are not  
          licensed attorneys, since licensed attorneys are already  
          required by professional rules and state law to keep client  
          funds in a trust account.  There is no licensing or regulation  
          of persons who facilitate surrogacy agreements, so in that sense  
          this law is staking out new ground.  Existing law permits  
          actions for breach of contract, fraud, misrepresentation, or  








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          similar causes of actions as likely remedies, assuming the  
          facilitator can be found.  This bill, by requiring funds to be  
          placed in a protected account, would arguably greatly reduce the  
          need for such civil actions.  There is no known opposition to  
          this bill.  

           SUMMARY  :  Requires "surrogacy facilitators" (persons who  
          facilitate agreements between intended parents and surrogates)  
          to direct clients to deposit all client funds in an escrow  
          account or attorney trust account.  Specifically,  this bill  :  

          1)Requires a surrogacy facilitator, as defined, who is not a  
            licensed attorney in good standing, to direct clients to  
            deposit all client funds into either of the following:

             a)   An independent, bonded escrow account.
             b)   A trust account maintained by an attorney. 

          1)Provides that client funds, as deposited above, may be  
            disbursed by the attorney or escrow agent as set forth in the  
            assisted reproduction agreement and the fund management  
            agreement entered into by the parties. 

          2)Defines "fund management agreement" to mean the agreement  
            between the intended parents and the surrogacy facilitator  
            relating to the fee or other valuable consideration for  
            services rendered or that will be rendered by the surrogacy  
            facilitator. 

          3)Defines "surrogacy facilitator" to mean a person or  
            organization that engages in either of the following  
            activities: 

             a)   Advertising for the purpose of soliciting parties to an  
               assisted reproduction agreement or acting as an  
               intermediary between the parties to an assisted agreement.
             b)   Charging a fee or other valuable consideration for  
               services rendered relating to an assisted reproduction  
               agreement. 

          4)Specifies that the provisions of this bill shall not apply to  
            funds that are not provided for in the fund management  
            agreement and are paid directly to a doctor or psychologist  
            for medical or psychological services. 









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           EXISTING LAW  defines "assisted reproduction" to mean conception  
          by any means other than sexual intercourse.  Defines "assisted  
          reproduction agreement" to mean a written contract that includes  
          a person who intends to be the legal parent of the child or  
          children born through assisted reproduction and that sets forth  
          the terms of the relationship between the parties to the  
          contract.  (Family Code Section 7606.)


           COMMENTS  :  With this bill the author intends to bring a measure  
          of regulation to an expanding business that is currently almost  
          entirely unregulated: "surrogacy agencies" that facilitate  
          agreements between hopeful parents-to-be and the surrogates who  
          assist those parents in realizing their hopes.  In the last year  
          there have been a number of reported incidents in California  
          (and elsewhere) of so-called "surrogacy scams."  The typical  
          scenario involves a person or agency promising to locate a  
          surrogate for a couple who desperately want a  
          genetically-related child.  The surrogacy agent also promises to  
          make all necessary medical and legal arrangements.  The usual  
          charge for this service appears to range from about $40,000 to  
          $80,000.  (Though, as noted below, one couple claimed to spend,  
          and lose, $2.5 million.)  Clients are usually asked to pay all  
          or some substantial portion of the money up front in order to  
          allow the facilitator to pay for and arrange the necessary  
          services.  Unfortunately, there have been cases in which a  
          person puts up this money and then never sees the surrogacy  
          facilitator again.  In one case, a Sacramento woman disappeared  
          with $40,000, leaving the surrogate six weeks pregnant and all  
          medical bills unpaid.  (See e.g."Surrogate Scam Artist May Have  
          Struck Again," at  
           http://cbs13.com/local/surrogate.mothers.scam.2.474166.html  .)   
          More recently, a Modesto-based surrogacy broker doing business  
          as SurroGenesis USA closed operations after several newspapers  
          reported that the company had stolen about $2 million from  
          clients.  ("More Fraud and Scandal in the California Fertility  
          Industry," at  http://www.biopoliticaltimes.org  ; and Dallas  
          Morning News, April 26, 2009.)  In Beverly Hills, a surrogacy  
          agency operating as "B Coming" allegedly kept most of a $90,000  
          deposit that was supposed to pay the surrogate and the doctor  
          who cared for the surrogate during the pregnancy and performed  
          the delivery.  The expectant couple was forced to pay for these  
          services, once again, out of pocket.  (Los Angeles Times, March  
          26, 2009.) 









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          Couples and surrogates who are left in the lurch have legal  
          remedies, assuming they can locate the facilitator.  For  
          example, last year a couple who claimed to have lost a $2.5  
          million deposit brought a class action suit against Surrogenesis  
          USA, the Modesto-based company.  In this case, interestingly,  
          the surrogacy agency represented to the client that the funds  
          would be held by an independent, licensed, and bonded escrow  
          company, though this appears not to have been the case.  The  
          class action complaint alleged breach of contract, fraud, and  
          misrepresentation, among other causes of actions.  (Class action  
          complaint filed in Alameda County Superior Court, on file with  
          the Committee.) 


          This bill does not expand, diminish, or alter any of the above  
          causes of action; rather, it would arguably lessen the need for  
          such actions by requiring that client funds be deposited for  
          safekeeping in an escrow or attorney's trust account, to be  
          disbursed according to the terms of the agreement between the  
          client and the surrogacy facilitator.  All of the reports cited  
          in the author's background material, and others reviewed by the  
          Committee, indicate that most if not all of the scams have  
          involved the deposit that would-be parents paid the surrogacy  
          agency or person claiming to be a surrogacy facilitator.  The  
          author, therefore, quite reasonably believes that requiring the  
          deposits to be placed in a bonded escrow account or in a trust  
          account maintained by a licensed attorney will offer much  
          greater protection to consumers than is now afforded to them in  
          this presently unregulated market. 


           The Bill Applies Only to Nonattorney Surrogacy Facilitators.   It  
          should be stressed that this bill would only apply to surrogacy  
          facilitators who are not licensed attorneys.  Licensed  
          attorneys, of course, are already required by the Rules of  
          Professional Conduct to deposit client funds in a trust account  
          for the client's benefit and kept strictly separate from the  
          attorney's own funds.  (California State Bar Rules of  
          Professional Conduct, Rule 4-100.)  Thus, where an attorney acts  
          as a facilitator, the requirement created by this bill would be  
          redundant.  A nonattorney surrogacy facilitator - who is not  
          required to maintain a trust account and, unlike an attorney,  
          has no fiduciary duty to the client - must, under this bill,  
          direct the client to deposit the money in either a bonded escrow  








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          account or in an attorney's trust account.  (Presumably, unless  
          the client of the surrogacy facilitator has also retained an  
          attorney who can receive the client funds, a client would most  
          often deposit the funds in a bonded escrow account.)  Whether  
          the funds are placed in a bonded escrow account or an attorney's  
          trust account, this bill would provide that the funds can only  
          be disbursed by the attorney or escrow agent as set forth in a  
          fund management agreement.  In short, the facilitator will not  
          touch the money until it is disbursed by the escrow agent or  
          attorney as agreed upon. 


          This bill does not provide any penalty, criminal or civil, for  
          failure to comply with its provisions.  However, in cases where  
          a facilitator receives and absconds with the client's funds, the  
          client would still have available all existing remedies at law,  
          such as fraud or breach of contract.  This bill, ideally, will  
          lessen the need for such actions by adequately protecting the  
          funds and preventing the wrongdoing in the first place. 


           Author's Amendment  :  In order to correct a drafting error in the  
          bill in print, the author will take the following amendment in  
          this Committee: 


          - On page 2, line 21 after "shall" insert:  direct the client to  



           Arguments in Support  :  According to the author, "surrogacy  
          agencies are perhaps the least regulated multi-billion industry  
          in California.  As a result, southern California is thought to  
          be the center of the surrogacy industry because the state's laws  
          are favorable to parents who want to use surrogates."  The  
          author additionally notes that persons practicing in this area  
          are not licensed or regulated, and the past few years have seen  
          several reports of abuse - most notably cases of surrogacy  
          agents who take money in advance from the client, ostensibly to  
          pay for the surrogacy and related medical expenses, and then  
          either disappear or are unable to account for client funds.  As  
          such, the author believes, "it is important that agencies place  
          unearned funds into an independent, bonded escrow account . . .   
          [or] an attorney trust account to store client funds."  The  
          author notes that both escrow accounts and attorney trust  








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          accounts are regulated in a manner that will ensure that client  
          funds are adequately protected. 
           
          REGISTERED SUPPORT / OPPOSITION :   

           Support 
           
          None on file

           Opposition 
           
          None on file
           
          Analysis Prepared by  :   Thomas Clark / JUD. / (916) 319-2334