BILL ANALYSIS                                                                                                                                                                                                    

                                                                  AB 2426
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          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  

          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  


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            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. 


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          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 

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