BILL ANALYSIS
AB 2426
Page 1
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