BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2011-2012 Regular Session
AB 75 (Hill)
As Amended June 10, 2011
Hearing Date: June 21, 2011
Fiscal: Yes
Urgency: No
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SUBJECT
Documents: Notaries Public: Solicitations
DESCRIPTION
This bill would make the following changes to the law governing
notaries public:
(1) authorizes the Secretary of State (SOS) to refuse to process
("authenticate") documents that are clearly intended for
fraudulent purposes;
(2) prohibits the use of a subscribing witness when establishing
a power of attorney, just as a subscribing witness cannot now
be used for real property documents that must be recorded; and
(3) eliminates the duty of a notary public to process antiquated
documents (i.e., "protests" of nonpayment of negotiable
instruments), unless the notary public works for a financial
institution.
This bill also would clarify the requirements of nongovernment
solicitations, provide a definition of conspicuous disclosure,
and add criminal penalties and a private right of action for
violations of these solicitation requirements.
BACKGROUND
According to the SOS, as many as 15 bogus documents, i.e., those
clearly intended for fraudulent purposes, are received for
authentication each month. Authentication simply means the SOS
certifies that the notary public that acknowledged an executed
document is a state-certified notary public with a currently
valid seal, and has nothing to do with the truth or accuracy of
the underlying document that was notarized. The SOS states that
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although the office's staff cannot currently refuse to perform a
service or refuse a filing that patently meets the minimum
statutory requirements but is clearly fraudulent, staff members
have identified several distinctive markings typically used by
people requesting authentication on their bogus documents.
Those markings may include, for example, a symbol after the
person's name, using a small "u" instead of a capital "U" when
typing "united States of America," and putting a punctuation
before the surname of the person (e.g., James-Johnson:Murphy).
Apparently, these bogus documents are frequently used by "tax
defiers" who attempt to negate their tax obligations by calling
themselves "sovereign citizens" not subject to the authority of
the federal or state government.
The same or similar group of "sovereign citizens," members of a
loose coalition of extremists whose members believe the U.S.
federal government's authority is illegitimate, have also
practiced "paper terrorism," according to the SOS, by filing
false financial claims against organizations and individuals.
This group has harassed organizations and individuals with false
financial claims that are then documented with a "protest" for
nonpayment of the claim with the notary public's certification
that the claim has been "dishonored." The protest then serves
as a formal statement that a dishonor (of the financial claim)
has occurred and begins the civil legal process to recover the
money owed.
One such financial claim, validated by a protest signed by a
notary public, claims that Respondent Timothy Geithner,
Secretary of the Treasury, has been ordered to place a cash bond
for $100 billion to be used as a setoff account against the bond
beneficiary's bills, taxes, claims against the beneficiary, and
the like, giving the Secretary 30 days to dishonor the order for
a bond. Although this document is clearly fraudulent and
without basis, the notary public's issuance of such a document
is within his or her authority, even though there is no
requirement that the notary investigate the truth or validity of
the financial claim. When authenticated by the SOS that it was
notarized by a certified notary public, the document takes on
the appearance of an official, government-sanctioned valid
document that can then be used for nefarious purposes.
This bill is substantially similar to AB 898 (Lieu, 2010), which
was vetoed by Governor Schwarzenegger who argued that the
provision of AB 898 creating a private right of enforcement was
unnecessary. AB 2654 (Hill, 2010) contained similar provisions
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as this bill and was also vetoed by Governor Schwarzenegger for
the same reason as AB 898.
This author-sponsored bill is intended to limit a notary
public's involvement in issuing or acknowledging documents that
are intended for fraudulent purposes and to authorize the SOS to
refuse to authenticate notarized documents that are clearly
fraudulent or clearly intended for fraudulent purposes. This
bill also would clarify the requirements of nongovernment
solicitations, provide a definition of conspicuous disclosure,
and add criminal penalties and a private right of action for
violations of these solicitation requirements.
CHANGES TO EXISTING LAW
1. Existing law prohibits a proof of execution of any of
several types of specified documents by use of a "subscribing
witness," including a grant deed, mortgage, deed of trust,
quitclaim deed, or security agreement as it relates to the
recording of transfers of property. (Civ. Code Sec. 1195.)
This bill would add a power of attorney to the list of
documents that may not be acknowledged by use of a subscribing
witness.
This bill would expressly prohibit the use of proof of
execution to acknowledge any instrument that requires a notary
public to obtain a thumbprint from the party signing the
document in the notary public's journal.
2. Existing law provides that a protest is a certificate of
dishonor (of a payment claimed) made by a United States consul
or vice consul, or a notary public or other person authorized
to administer oaths by the law of the place where the dishonor
occurs. (U. Com. Code Sec. 3505(b).)
This bill would permit only a notary public during the course
and scope of employment with a financial institution (in
addition to a U.S. consul or vice consul or other person
authorized by the law of the state, government or country
where the dishonor occurred) to issue a protest.
3. Existing law defines the duties of a notary public,
including the duty to demand acceptance and payment of foreign
and inland bills of exchange, or promissory notes, to protest
them for nonacceptance and nonpayment. (Gov. Code Sec. 8211.)
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This bill would limit this duty to notaries public who are
employed by financial institutions.
The bill would make other conforming changes to the law
governing the charging of fees by notaries public.
4. Existing law requires specified disclosures regarding
nongovernment solicitations for the purchase of or payment for
a product or service, or to solicit the contribution of funds
or membership fees, by means of a mailing, electronic message,
or Internet Web site. (Bus. & Prof. Code Sec. 17533.6.)
This bill would clarify disclosure requirements for these
solicitations.
This bill would provide that a violation of these solicitation
requirements is a misdemeanor punishable by imprisonment in a
county jail not exceeding six months, or by a fine up to
$2,500, or both.
This bill would provide a private right of action with treble
damages to any person harmed as a result of a violation of
these solicitation requirements.
This bill would define "conspicuous" disclosure to mean the
display of requirement disclosures on the page, envelope,
outside cover, or wrapper in not less than 12-point boldface
font type in capital letters that is at least 2-point boldface
font type sizes larger than the next largest print on the
page, envelope, outside cover, or wrapper and in contrasting
type, layout, font, or color in a manner that clearly calls
attention to the language.
5. Existing law prohibits unlawful or misleading statements
made in connection with the offering or performance of an
assessment reduction filing service. (Bus. & Prof. Code Sec.
17537.9)
This bill would make clarifying revisions to this provision.
COMMENT
1. Stated need for the bill
The author writes:
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AB 75 would close significant existing loopholes and eliminate
methods of potential fraud. . . . First, private, third party
vendors are sending deceptive solicitations to companies that
appear to be official government documents and imply the
company must pay an exorbitant fee (up to $495) to file
documents with the Secretary of State. . . . Second, AB 75
gives the Secretary of State the authority to refuse to
process documents that are clearly intended for fraudulent
purposes. . . . Third, AB 75 prohibits the use of a
subscribing witness when establishing a power of attorney. . .
. Finally, AB 75 eliminates the mandate for all notaries
public, except for those that work for financial institutions,
from processing antiquated documents (i.e., protests) that are
frequently used for fraudulent purposes.
2. The Secretary of State (SOS) may refuse to perform a
service or a filing based on reasonable belief the document
would promote unlawful purpose
This bill would authorize the SOS to refuse to perform a service
or refuse a filing based on a reasonable belief that the service
or filing is being requested for an unlawful, false, or
fraudulent purpose, to promote or conduct an illegitimate object
or purpose, or is being requested or submitted in bad faith or
for the purpose of harassing or defrauding a person or entity.
One of the duties of the SOS is to authenticate notary public
signatures and seals on notarized documents. When a notarized
document is submitted to the SOS for authentication, the law
currently only permits the SOS staff to determine the
authenticity of the notary's signature and seal, not the
authenticity of the document itself. If the notary's signature
and seal are valid, the SOS staff must authenticate the notary's
signature.
Apparently, people such as members of the Sovereign Citizen
Movement (SCM) have taken advantage of this fact to submit
"bogus" documents such as travel documents, identification
affidavits, public notices, declarations, badges, and unlawful
protests to the SOS, knowing that the documents would be
"authenticated." Once "authenticated," the document appears as
if officially-issued and with the imprimatur of the state, and
can be used for all kinds of purposes. This result is
particularly troublesome, the SOS states, because the SOS office
provides authentication for public official signatures on
documents to be used outside of the United States (depending on
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the country of destination, these are known as either
"Apostiles" or "Certifications"). Members of the SCM have
leveraged this "authentication" procedure, the Secretary says,
to produce fraudulent identification documents indicating
diplomatic immunity that appear legitimate to some governmental
and private entities.
City of Riverside public officials have been victimized by
practitioners of these frivolous liens, which were recorded with
the SOS's Uniform Commercial Code Filing Office. These judgment
liens remain as public records for five years, and can thus be
accessed by anyone investigating the creditworthiness of an
individual. As stated earlier, the city engaged in a costly
process to clear the records of the city officials against whom
judgment liens were recorded with the SOS.
Staff has examined some of the sample documents provided by the
SOS that had been presented to that office for authentication.
Some are written in a strange version of the English language,
with claims of sovereign citizenship outside the jurisdiction of
the United States of America (while claiming to reside here),
and others claim outrageous sums of money that the government
"owes" them. One document was used to claim diplomatic status
to avoid customs inspection before boarding an airplane, and the
person using the "diplomatic badge" was arrested for trying to
take large sums of money out of the country.
According to the SOS, these "bogus" documents exhibit or contain
some readily identifiable symbols or words, and the office staff
who sees them should be able to form the reasonable belief,
required by this bill, that the document is to be or is being
used for an unlawful purpose.
For the SOS to refuse authenticating a document, the SOS staff
has to have this reasonable belief (that the service or filing
is being requested for an unlawful, false, or fraudulent
purpose, or to promote or conduct an illegitimate object or
purpose, or is being requested or submitted in bad faith or for
the purpose of harassing or defrauding a person or entity).
Based on experience, and a list of likely symbols and words
contained in those documents, the SOS believes that it can catch
a significant amount of fraudulent documents submitted for
authentication if given the authority provided in this bill.
3. Power of attorney may not be acknowledged through one
"subscribing witness"
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This bill would add a power of attorney to the list of documents
that may not be acknowledged by use of a subscribing witness. A
subscribing witness is a person who witnesses the signing of a
document and then appears before a notary public on behalf of
the principal signer to attest to the authenticity of the
signature. Currently, a person who wishes to appoint another as
his or her attorney-in-fact, to act in his or her stead and to
do all that the person may lawfully do, may execute a power of
attorney, which must be acknowledged by a notary. The notary's
certification is the proof that the document was signed by the
principal and that the signature of the principal is genuine
(proof of execution). A notary can make a proof of execution
even if the principal signer of the document is not present as
long as a subscribing witness testifies that the signature is
genuine.
Due to the potential for fraud, California law does not permit a
notary to certify the principal signer's signature through the
authority of a subscribing witness where the documents involve
mortgages, deeds of trust, grant deeds, quitclaim deeds, or
other security agreements (although a trustee's deed or deed of
reconveyance may be acknowledged through a proof of execution).
The SOS claims that the potential for a single individual,
acting in the role of subscribing witness, to falsely claim that
another person had granted them ownership over a mortgage or
deed, is too great, hence the limitation under the law.
A power of attorney is an extremely important document, as it
can convey to another person legal standing to execute other
documents that could result in impairment or transfer of
ownership interests in property, and denial of other legal
rights of the person who executed the power of attorney in the
first place. Under current law, a power of attorney may be
executed under authority of a subscribing witness. The SOS, a
supporter of this bill, argues this loophole must be closed.
"Although existing law prevents a subscribing witness from being
used as proof of signing on specific real property documents to
be recorded, they can be used in the proof of signing of a power
of attorney document that could be later used to fraudulently
sign multiple real property deeds or impact all aspects of a
person's estate."
This bill would prohibit the notarization of a power of attorney
under authority of a subscribing witness. With respect to a
power of attorney for health care, however, a notary can still
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acknowledge such a power of attorney, when signed in the
presence of the notary. Additionally, a power of attorney for
health care could still be valid when signed in the presence of
two qualified independent witnesses.
4. Notary public duty to issue protest curtailed
This bill would permit only a notary public during the course
and scope of employment with a financial institution (in
addition to a U.S. consul or vice consul or other person
authorized by the law of the state, government or country where
the dishonor occurred) to issue a protest. A "protest" is a
written statement by a notary public or other official
authorized to administer oaths, identifying a document such as a
check or promissory note, and certifying that the document was
either submitted for payment or the reason why the document was
not submitted for payment. The statement also includes the
reason why the document was not accepted or was not paid (i.e.,
"dishonored"). A protest serves as a formal statement that a
dishonor has occurred and begins the civil process to recover
the money owed.
For example, if a Bank of America check is presented for payment
to that bank, and there are insufficient funds in the account to
cover full payment of the check, Bank of America could request a
protest. This practice does not usually happen nowadays because
a protest is considered an archaic procedure that was created
prior to modern commercial law. The protest procedure is now
handled by financial institutions in most commercial situations
through the way they handle negotiable instruments, except for a
few cases linked to international commerce issues. The SOS
contends that because protests are mostly unnecessary, notaries
public should only file protests under the guidance of an
attorney. The SOS also states that most notarial experts agree
with this assessment.
This bill would prohibit a notary public from issuing a protest,
unless that notary issues the protest during the course and
scope of employment with a financial institution. The author
describes a recent episode of 60 Minutes which reported that in
recent years, several groups, most prominently the SCM, have
begun to use protests as a form of "paper terrorism" to harass
organizations and individuals with false financial claims. The
SOS contends that the efforts of the SCM "have the effect of
wasting the time and resources of government agencies that have
to process the paperwork associated with protests."
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In addition, the Federal Bureau of Investigations (FBI) reports
on its Web site a number of illegal SCM activities across the
country, such as:
In Sacramento, two sovereign citizens were convicted of
running a fraudulent insurance scheme. Operating outside
state insurance regulatory guidelines, the men set up their
own company and sold "lifetime memberships" to customers,
promising to pay any accident claims against their
"members." The company collected millions of dollars, but
paid out very few claims.
In Kansas City, three sovereign citizens were convicted
of taking part in a conspiracy using phony diplomatic
credentials. They charged customers between $450 and $2,000
for a diplomatic identification card, which would bestow
upon the holder "sovereign" status-meaning they would enjoy
diplomatic immunity from paying taxes and from being
stopped or arrested by law enforcement.
In Las Vegas, four men affiliated with the sovereign
citizen movement were arrested by the Nevada Joint
Terrorism Task Force on federal money laundering, tax
evasion, and weapons charges. The investigation involved an
undercover operation, with two of the suspects allegedly
laundering more than a million dollars from what they
believed was a bank fraud scheme. (Domestic Terrorism, The
Sovereign Citizen Movement (Apr. 13, 2010) The Federal
Bureau of Investigation
Ưas of June 9, 2011].)
The FBI states that these sovereign citizen groups "clog up the
court system with frivolous lawsuits and liens against public
officials to harass them." (Id.)
This bill contains the same protest provision as was contained
in AB 898. The National Notary Association (NNA) supported AB
898 because it provided "needed updates to certain California
notarial statutes and will better equip Notaries to serve as the
state's front line of defense against document fraud. ? The NNA
is in agreement with AB 898's stipulation that only Notaries in
financial institutions be allowed to perform the Protest. Our
experience has shown that Notaries who perform this as a
notarial act should have the appropriate business/commercial
training and we therefore concur that the act should only be
performed by Notaries within financial organizations."
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The City of Riverside also supported this provision of AB 898
because of its experience with protests that were turned into
judgment liens filed with the SOS against public officials.
(See Comment 5 below). The city had to take costly legal action
to erase from the public record fraudulent lien notices filed
against city officials.
5. Clarifying solicitation disclosure requirements and providing
criminal and civil penalties for violations thereof
This bill would clarify the disclosure requirements of
nongovernment solicitations. Existing law requires certain
disclosures to be conspicuously displayed on nongovernment
product or service solicitations. (Bus. & Prof. Code Sec.
17533.6.) The author argues that private vendors are sending
deceptive solicitations that appear to be official government
documents, and in some cases, threatening penalties if the
solicitation recipient does not utilize the vendor's services.
This bill would require vendors to conspicuously disclose, as
defined under this bill, that the vendor is not a governmental
entity and the product or service being solicited has not been
approved or endorsed by any government agency.
This bill also would add criminal penalties and a private right
of action for violations of these solicitation requirements.
The author argues that penalties and potential civil actions
against violating vendors are necessary to deter prohibited
solicitations and protect California citizens from financial
predators.
6. Governor Schwarzenegger's vetoes of AB 898 and AB 2654
This bill is substantially similar to the enrolled version of AB
898 (Lieu, 2010). In vetoing AB 898, Governor Schwarzenegger
stated:
While there are some laudable aspects of this bill, the
provision allowing private right of action for violating very
prescriptive criteria for the solicitation of services will no
doubt lead to spurious law suits. Existing law already allows
prosecutors to pursue persons and businesses who engage in
false and misleading business practices.
This bill also contains similar provisions as the enrolled
version of AB 2654 (Hill, 2010). In vetoing AB 2654, Governor
Schwarzenegger stated:
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I am supportive of addressing consumer protection against
fraudulent business practices. However, this bill also
establishes a private right of action allowing for the
recovery of damages up to three times the amount solicited,
which I am concerned will lead to spurious lawsuits.
Support : California Association of Clerks and Election
Officials; California Association of Realtors; Capitol Corporate
Services, Inc.; Highland Area Chamber of Commerce; Law Offices
of Harold S. Small; Long Beach Area Chamber of Commerce;
Secretary of State Debra Bowen; Simi Valley Chamber of Commerce;
South Bay Association of Chambers of Commerce; Thoits Insurance
Service; TriMark Economy Restaurant Fixtures; Turner, Aubert and
Friedman, LLP
Opposition : None Known
HISTORY
Source : Author
Related Pending Legislation : None Known
Prior Legislation :
AB 898 (Lieu, 2010) See Background.
AB 2654 (Hill, 2010) See Background.
Prior Vote :
Senate Business, Professions and Economic Development Committee
(Ayes 5, Noes 2)
Assembly Floor (Ayes 67, Noes 4)
Assembly Appropriations Committee (Ayes 17, Noes 0)
Assembly Business, Professions and Consumer Protection Committee
(Ayes 8, Noes 0)
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