BILL ANALYSIS                                                                                                                                                                                                    


          |SENATE RULES COMMITTEE            |                  AB 2426|
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                                 THIRD READING

          Bill No:  AB 2426
          Author:   Bradford (D)
          Amended:  6/29/10 in Senate
          Vote:     21

           SENATE JUDICIARY COMMITTEE  :  3-1, 6/22/10
          AYES:  Corbett, Hancock, Leno
          NOES:  Harman
          NO VOTE RECORDED:  Walters

           ASSEMBLY FLOOR  :  76-0, 5/13/10 (Consent) - See last page  
            for vote

           SUBJECT  :    Surrogacy facilitators

           SOURCE  :     Author

           DIGEST  :    This bill regulates nonattorney surrogacy  
          facilitators by requiring them to direct a client to  
          deposit all client funds into either an independent, bonded  
          escrow account, as specified, or a trust account maintained  
          by an attorney.  This bill provides that those funds could  
          only be disbursed by the attorney or escrow agent as  
          provide in the agreements between the parties.

           ANALYSIS  :    Existing law does not license or regulate the  
          practice of surrogacy facilitators.

          Existing law defines "assisted reproduction" as conception  
          by any means other than sexual intercourse and "assisted  


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          reproduction agreement" as a written contract that includes  
          a person who intends to be the legal parent of a child or  
          children born through assisted reproduction and that  
          defines the terms of the relationship between the parties  
          to the contract.  (Family Code Section 7606.)

          Existing Rules of Professional Conduct require attorneys to  
          deposit client funds in a trust account for the client's  
          benefit and keep the funds separate from the attorney's own  
          funds.  (California Rules of Professional Conduct, Rule  

          This bill requires a nonattorney surrogacy facilitator to  
          direct a client to deposit all client funds into either an  
          independent, bonded escrow deposition maintained by a  
          licensed independent bonded escrow company or a trust  
          account maintained by an attorney.  

          This bill provides that the funds deposited in the escrow  
          or trust account may only be disbursed by the attorney or  
          escrow agent as provided in the assisted reproduction  
          agreement and fund management agreement.  

          This bill does not apply to funds that are both:  (1) paid  
          directly to a medical doctor for medical services or a  
          psychologist for psychological services; and (2) are not  
          provided for in the fund management agreement. 

          This bill defines a "surrogacy facilitator" as a person or  
          organization that engages in advertising for the purpose of  
          soliciting parties to an assisted reproduction agreement or  
          acting as an intermediary between those parties.  Surrogacy  
          facilitator would also include a person or organization  
          that charges a fee or other valuable consideration for  
          services rendered regarding an assisted reproduction  

          This bill specifies that for purposes of this bills  
          provisions, a nonattorney surrogacy facilitator may not  
          have a financial interest in any escrow company holding  
          client funds.  A nonattorney surrogacy facilitator and any  
          of its directors or employees shall not be an agent of any  
          escrow company holding client funds.



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          This bill provides that a "nonattorney surrogacy  
          facilitator" is a surrogacy facilitator who is not licensed  
          to practice law in California. 

          This bill specifies that "assisted reproduction agreement"  
          has the same meaning as defined in Family Code Section  
          7606(b) and would define "fund management agreement" as the  
          agreement between the intended parents and the surrogacy  
          facilitator relating to the fee or other valuable  
          consideration for services rendered by the surrogacy  

          Under existing law, surrogacy facilitators are not licensed  
          or regulated.  Although there are very few statistics on  
          surrogacy, the U.S. Centers for Disease Control and  
          Prevention tracks births by gestational surrogates (where  
          the surrogate is not biologically related to the child).   
          From 2001 to 2006, the number of gestational surrogates  
          doubled to 1,042, nationwide.  Couples unable to have  
          children on their own are increasingly turning to surrogate  
          mothers.  This increase in the use of surrogates has led to  
          a growth in surrogate brokers who promise to match a couple  
          with a surrogate mother.  Prospective parents often pay  
          large fees to surrogacy facilitators to help them in their  
          desire to have a baby.  These fees, which appear to range  
          from $40,000 to more than $100,000, are intended to cover  
          the facilitator's services in matching families and  
          surrogates, as well as the surrogate's medical bills,  
          prescriptions, and legal arrangements.  

          Recent reports indicate that, unfortunately, some surrogacy  
          facilitators are engaged in surrogacy scams in which they  
          collect funds from a client, but never pass along those  
          payments to the surrogate, as promised.  In one case, a  
          company called SurroGenesis, based in Modesto, stopped  
          making payments to surrogates and closed operations.  The  
          president of the company is alleged to have stolen as much  
          as $2 million from clients.  Some couples lost nearly  
          $90,000 that they had put in an escrow account with an  
          escrow company that was supposed to be safeguarding the  
          clients' money.  Instead, the president of SurroGenesis was  
          listed as the registered agent for the escrow company,  



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          which was supposed to be independent and bonded.  As a  
          result, several pregnant surrogates did not receive  
          payments to cover expenses or, in the case of one surrogate  
          who was confined to bed rest, lost wages.  That surrogate  
          apparently received an eviction notice because of the  
          financial situation.  In another case, a Sacramento-area  
          woman was charged with 19 counts of grand theft for  
          stealing tens of thousands of dollars from hopeful parents.  

          Under existing law, would-be parents and surrogates may be  
          able to bring an action against a surrogacy facilitator  
          engaged in a scam for fraud, breach of contract,  
          misrepresentation, or similar causes of action.  These  
          actions may be limited, however, if the facilitator cannot  
          be located or is judgment-proof.  As a result, this bill  
          focuses on the front end of the process, attempting to  
          address this growing industry and guard against abuses by  
          requiring nonattorney surrogacy facilitators to direct a  
          client to deposit all client funds into either an  
          independent, bonded escrow account or a trust account  
          maintained by an attorney.  Those funds cannot be accessed  
          directly by a surrogacy facilitator, and instead may only  
          be disbursed by the attorney or escrow agent as provided in  
          the agreements between the parties. 

          The author writes, "Over the past few years, there have  
          been many incidences in which a surrogacy agency suddenly  
          closes its doors and embezzles millions of dollars from  
          their clients.  Just last year, the Los Angeles Times  
          reported that a Modesto-based surrogacy practitioner who  
          suddenly and unexpectedly closed its doors, failed to  
          account for more than $2 million in its customers' funds.   
          When this type of embezzlement occurs, surrogates are left  
          mid-pregnancy and some clients who have handed over their  
          life's savings in pursuit of a genetically related child  
          are left without recourse. 

          "It is important that agencies place unearned funds into an  
          independent, bonded escrow account because in order for a  
          company to be licensed as an escrow company in California,  
          they have to prove they have five years of actual escrow  



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          experience, demonstrate a minimum level of financial  
          strength (CA requires that the company have $50,000 in  
          liquid assets), submit to a background check by the state,  
          purchase one or more Bonds (to cover such things a  
          misappropriation of trust funds), and go through an  
          application process.

          "Non-attorney facilitators should be allowed to use an  
          attorney trust account to store client funds.  . . .  The  
          accounts are regulated by the State, and the attorney is  
          accountable to the State Bar for every penny held in trust.  
           The attorney can be disciplined for the slightest  
          oversight, including the suspension or loss of the  
          attorney's license to practice law.  The interest earned on  
          the account goes to the State Bar in which they practice,  
          so they are not gaining interest on the funds they hold,  
          and there is no financial advantage to holding your funds  
          for longer than necessary.  The State Bar also mandates the  
          type of bank in which the funds can be held, and the amount  
          of insurance that must be provided by the bank."

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  No    
          Local:  No

           ASSEMBLY FLOOR  :
          AYES: Adams, Ammiano, Anderson, Arambula, Bass, Beall, Bill  
            Berryhill, Tom Berryhill, Blakeslee, Block, Blumenfield,  
            Bradford, Brownley, Buchanan, Charles Calderon, Carter,  
            Chesbro, Conway, Cook, Coto, Davis, De La Torre, De Leon,  
            DeVore, Emmerson, Eng, Evans, Feuer, Fletcher, Fong,  
            Fuentes, Fuller, Furutani, Gaines, Galgiani, Garrick,  
            Gilmore, Hagman, Hall, Harkey, Hayashi, Hernandez, Hill,  
            Huber, Huffman, Jeffries, Jones, Knight, Lieu, Logue,  
            Bonnie Lowenthal, Ma, Mendoza, Miller, Monning, Nava,  
            Nestande, Niello, Nielsen, V. Manuel Perez, Portantino,  
            Ruskin, Salas, Saldana, Silva, Smyth, Solorio, Audra  
            Strickland, Swanson, Torlakson, Torres, Torrico, Tran,  
            Villines, Yamada, John A. Perez
          NO VOTE RECORDED:  Caballero, Norby, Skinner, Vacancy

          RJG:do  6/30/10   Senate Floor Analyses 




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