BILL ANALYSIS AB 2426 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 2426 (Bradford) As Amended June 29, 2010 Majority vote ----------------------------------------------------------------- |ASSEMBLY: |76-0 |(May 13, 2010) |SENATE: |26-9 |(July 1, 2010) | ----------------------------------------------------------------- Original Committee Reference: JUD. 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: in either an independent, bonded escrow account, or a trust account maintained by an attorney. Specifies that the non-attorney surrogacy facilitator shall not have a financial interest, as specified, in an escrow company holding client funds. 2)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. 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; or, 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 AB 2426 Page 2 for medical or psychological services. The Senate amendments specify that a non-attorney surrogacy facilitator shall not have a financial interest in the escrow company used to deposit client funds. AS PASSED BY THE ASSEMBLY , this bill was substantially similar to the version approved by the Senate. FISCAL EFFECT : None 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. 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. Couples and surrogates who are left in the lurch have legal remedies, such as actions for fraud or breach of contract, but only assuming they can locate the facilitator. This bill does not expand, diminish, or alter any existing cause 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. 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. AB 2426 Page 3 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.) 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. 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 accounts are regulated in a manner that will ensure that client funds are adequately protected. Analysis Prepared by : Thomas Clark / JUD. / (916) 319-2334 FN: 0005133