BILL ANALYSIS Ó SENATE JUDICIARY COMMITTEE Senator Noreen Evans, Chair 2011-2012 Regular Session SB 1045 (Emmerson) As Amended April 17, 2012 Hearing Date: May 1, 2012 Fiscal: No Urgency: No RD SUBJECT Metal Theft: Damages DESCRIPTION This bill would provide that any junk dealer or recycler who possesses a fire hydrant, a fire department connection, as specified, or a backflow device or connection to that device or part of that device without a prescribed written certification, from the agency or utility owning or previously owning the material is liable to the agency or utility for the wrongful possession of that material. The liability provided for by this bill would be for the actual damages incurred by the agency or utility, including the value and cost of replacing the material, labor costs, and the costs of repairing any damage caused by the removal of the material. The bill would additionally require the court to also award exemplary damages of three times the actual damages incurred by the agency or utility, and provide that the agency or utility shall also be entitled to recover court costs and reasonable attorney's fees. The bill also makes several legislative findings and declarations. BACKGROUND In recent years, metal theft has increased drastically. According to a Sacramento Bee article, these thefts "have increased 81 percent, driven by rising prices for the stolen recyclables, according to an insurance industry report. . . A (more) SB 1045 (Emmerson) Page 2 of ? total of 25,083 claims of theft of copper, bronze, brass and aluminum were submitted in the last three years . . . . Ninety-six percent of the thefts were copper. . . . The top five states generating the most metal theft claims: Ohio, Texas, George, California, Ýand] Illinois." (Bill Lindelof, Sacto 911: Metal thefts on the rise as copper prices increase, March 8, 2012.) The Sacramento Suburban Water District reports that metal theft is on the rise in the area, with thieves stealing fire hydrants, backflow prevention devices (preventing potential contaminants from entering the potable water system) and other equipment with brass or other metal fittings that can be sold as scrap metal. "The District responded to 65 incidents of fire hydrant theft or tampering since June 2011. The cost of replacing a fire hydrant is approximately $5,000. More than 115 backflow prevention devices were stolen in 2011, often from outside commercial businesses and apartment complexes." (< http://sswd.org/water/metal-theft.html > (as of April 25, 2012).) As a result of this growing problem, several bills have been introduced in recent legislative sessions to address the problem in varying ways. For example, SB 447 (Maldonado and Florez, Ch. 732, Stats. 2008) required scrap junk dealers and recyclers to report to local law enforcement officials specified information about materials scraped at their facilities and by whom, on a daily basis. SB 691 (Calderon, Ch. 720, Stats. 2008) provided, among other things, that a junk dealer or recycler shall not pay for nonferrous material, as defined, unless the payment is made by cash or check, the check is mailed or the cash or check is provided no earlier than three days after the date of sale, and the dealer or recycler obtains a photograph or video of the seller and certain other identifying information, as specified, including the thumbprint of a seller, to be retained by the dealer or recycler for a certain period of time. AB 844 (Berryhill, Ch. 731, Stats. 2008) also required junk dealers to conform to additional record-keeping and payment restrictions when purchasing nonferrous materials, as defined. This year, the author of this bill also introduced another bill, SB 1387, which provides, among other things, that no junk dealer or recycler shall possess any fire hydrant, or fire department connection, as specified, in the absence of a written certification as prescribed. The provisions in SB 1045 are substantially related to SB 1387. SB 1045 (Emmerson) Page 3 of ? This bill, sponsored by the Eastern Municipal Water District, would seek to address the increase in metal theft by imposing liability on junk dealers or recyclers who possess a fire hydrant, fire department connection, or backflow device, as specified, without a written certification from the agency or utility owner. CHANGES TO EXISTING LAW Existing law requires that every junk dealer and recycler, as defined, keep a written record of all sales and purchases made in the course of his or her business. Records must be kept for two years after making the final entry of any purchase or sale of junk or scrap metals and alloys, as defined. (Bus. & Prof. Code Secs. 21605, 21607.) Existing law also requires that every junk dealer and recycler set out in the written record required, specified information. (Bus. & Prof. Code Sec. 21606.) Existing law prohibits a junk dealer or recycler from providing payment for nonferrous materials, as defined, unless specified requirements are met. (Bus. & Prof. Code Sec. 21608.5) Existing law defines junk dealer as any person engaged in the business of buying, selling and dealing in junk, any person purchasing, gathering, collecting, soliciting or traveling about from place to place procuring junk, and any person operating, carrying on, conducting or maintaining a junk yard or place where junk is gathered together and stored or kept for shipment, sale or transfer. (Bus. & Prof. Code Sec. 21601.) This bill would provide that any junk dealer or recycler who possesses a fire hydrant, fire department connection, including, but not limited to, brass fittings and parts, manhole cover or lid or part of that cover or lid, or backflow device or connection to that device or part of that device without a written certification from the agency or utility owning or previously owning the material shall be liable to the agency or utility for the wrongful possession of that material. This bill would provide that the liability of the junk dealer or recycler in violation of this bill is for the actual damages incurred by the agency or utility, including the value of the material, the cost of replacing the material, labor costs, and the costs of repairing any damage caused by the removal of the material. SB 1045 (Emmerson) Page 4 of ? This bill would also require that the court award exemplary damages of three times the actual damages incurred by the agency or utility. This bill would provide that the agency or utility shall also be entitled to recover court costs and reasonable attorney's fees. This bill would provide that a written certification shall be on the agency's or utility's letterhead and shall certify both that the agency or utility has sold the material described or is offering the material for sale, salvage, or recycling, and that the person possessing the certification or identified in the certification is authorized to negotiate the sale of that material. This bill would make specified legislative findings, including, among other things, that theft of fire hydrants, manhole covers, and backflow devices has significantly increased in recent years and represents very substantial, and growing, health and safety issues. COMMENT 1. Stated need for the bill According to the author: Under current law, metal recyclers are prohibited from accepting fire hydrants for the purpose of recycling. Recyclers are also required to obtain and keep a photograph, fingerprint, address, and vehicle license plate number of the transporting vehicle that delivers the material. Furthermore, payment for metal over a specific amount must be mailed or paid after a given period. To address this metal theft epidemic and strengthen current law, SB 1045 seeks to provide cities, counties, special districts, and private utility companies with the additional tools they need to recover costs and impose stiff civil penalties on thieves and recyclers who violate the law. Specifically, SB 1045 would prohibit a junk dealer or recycler from possessing manhole covers, backflow devices, and fire hydrants without written certification on the letterhead of the public agency or utility that owns or previously owned that material. As a result, this bill would relieve junk dealers from the responsibility of determining whether or not SB 1045 (Emmerson) Page 5 of ? any of the three items in question are stolen since they will no longer be eligible for recycling without an appropriate certification. SB 1045 would enable the agency or utility to recoup the cost of the stolen items and offset repair and replacement costs, as well as be awarded exemplary damages by the court of three times the actual damages as a deterrent to metal theft. 2. Bill would provide for actual damages, exemplary damages, and attorney's fees and costs This bill would provide for liability of a junk dealer or recycler who possesses a fire hydrant or fire department connections, as specified, without a written certification from the agency or utility that owns or previously owned the material. The bill requires a written certification be on the agency's or utility's letterhead and that it specify both that (1) the agency or utility has sold the material described or is offering the material for sale, salvage, or recycling, and (2) that the person possessing the certification or identified in the certification is authorized to negotiate the sale of that material. Any junk dealer or recycler in violation of this section would be held liable to the agency or utility owning or previously owning the prohibited material for specified damages. a. Specified damages where liability is found Where a junk dealer or recycler if found to be in violation of this bill and is held liable to the agency or utility, the agency or utility is entitled to the following specified damages: actual damages incurred by the agency or utility, including the value of the material, the cost of replacing the material, labor costs, and the costs of repairing any damage caused by the removal of the material, and exemplary damages of three times the actual damages incurred by the agency or utility. According to the author, "Ým]etal theft is on the rise as the price of metal continues to climb. The theft of metals has devastated both public and private property and has harmed critical public infrastructure, making it difficult to deliver essential utilities to customers. Moreover, the theft of certain metal devices can seriously threaten public health and safety. For instance, individuals have been severely injured falling down uncovered manholes and vehicles have incurred SB 1045 (Emmerson) Page 6 of ? damage Ýwhen] driving over manholes where the covers have been stolen. In addition, stolen backflow devices leave potable water sources vulnerable to cross-contamination while stolen fire hydrants render properties defenseless to fire. While several laws have been enacted to curb metal theft, it is still prevalent in California." The ability for the agency or utility to bring an action against a junk dealer or recycler in violation of this bill is important. Relatedly, many of the available damages are not only justified, but also critical to encourage due diligence of junk dealers and recyclers when engaging in sales of these materials and to deter bad actors from engaging in the illegal sale of these materials. Many of the damages are directed at making the agency or utility whole (e.g. actual damages, including cost of material, costs of replacing the material, labor costs, and costs of repairing any damage caused by the removal of the material), while others are aimed more at deterring violations of the law in order to curb metal thefts. With respect to the exemplary damages of three times the actual damage in particular, it is less so about making the agency or utility whole, and more so about the deterrence and punishment factor of the damages to a potential or actual violator. The threat of these damages serves as a significant incentive for junk dealers and recyclers to take due care in transactions involving these materials. It would arguably also serve as a severe disincentive for junk dealers and recyclers to even risk the completion of a sale when they have even the slightest question as to the legitimacy of the written certificate, and would additionally translate into an effective and ample punishment for bad actors. Certainly, the availability of exemplary damages for three times the actual damage may also be important if the agency or utility is ever found liable to an individual who suffers harm to his or her person or property as the result of the damage caused by the theft. On the other hand, as severe as the harm caused by metal theft is and as important as it is to deter this activity, it is also important to not unduly burden or punish a good acting junk dealer or recycler who attempts to conform to the laws' requirements and is ultimately deceived by the seller. This concern arises primarily where a junk dealer or recycler could do their due diligence to determine whether the seller not SB 1045 (Emmerson) Page 7 of ? only has a written certification, as required by this bill, and even take extra steps to ensure that the certification is not forged (i.e. a fake replica of the letterhead could potentially be used), yet still be misled and ultimately found liable under the provisions of this bill. While in those instances it may still be justifiable to impose the liability for actual damages, as specified, onto the defendant, the justification for the exemplary damages is lessened. Unless there is a minimal amount of discretion provided for in awarding these otherwise justifiably harsh damages in instances in which violations happen despite the junk dealer's or recycler's demonstrated due diligence, if not extraordinary efforts to comply, this bill could unintentionally chill the entire market for these materials out of fear of being held liable for all of the above listed damages. Such an outcome arguably does not serve those agencies and utilities that actually wish to make legitimate sales of their materials. Therefore, it is important to allow for at least minimal discretion by a court in those scenarios in which the court finds the junk dealer or recycler took exceptional steps to comply, without diluting the effectiveness these exemplary damages. The following amendment achieves this: Suggested amendment : On page 3, line 10, after "utility" insert ", except where extenuating circumstances do not justify the award of such exemplary damages in the court's discretion." b. Attorneys' fees This bill would also provide that the agency or utility shall be entitled to recover court costs and reasonable attorney's fees from the junk dealer or recycler who is found to be in violation of this bill's provisions. Generally, in the United States, the "American rule" is that parties must bear their own costs of civil litigation. In Alyeska Pipeline Co. v. Wilderness Society (1975) 421 U.S. 240, the United States Supreme Court held that it was the province of the legislative branch to craft exceptions to the American rule, and courts were not free to shift such costs absent express legislative authorization. (Id. at 269-270.) In 1977, the California Legislature enacted Code of Civil Procedure Section 1021.5, which appeared to be "in significant SB 1045 (Emmerson) Page 8 of ? measure ? an explicit reaction to the United States Supreme Court's Alyeska decision." (Woodland Hills Residents Assn., Inc. v. City Council (1979) 23 Cal.3d 917, 934.) Section 1021.5 provides courts authority to award attorney's fees in actions to enforce important rights in the public interest that confer a significant benefit on a large class of persons. Specifically, Section 1021.5 was intended to encourage litigation deemed to be in the public interest by persons acting as a private attorney general. This doctrine rests on the recognition that privately initiated lawsuits are often essential to the effectuation of public policies embodied in constitutional or statutory provisions, and that without some mechanism authorizing the award of attorney's fees, private actions to enforce such public polices will be impracticable. (Daniels v. McKinney (1983)146 Cal.App.3d 42.) As explained recently by the California Supreme Court, "section 1021.5 Ýaddresses] the problem of affordability of such lawsuits. Because public interest litigation often yields nonpecuniary and intangible or widely diffused benefits, and because such litigation is often complex and therefore expensive, litigants will be unable either to afford to pay an attorney hourly fees or to entice an attorney to accept the case with the prospect of contingency fees, thereby often making public interest litigation "as a practical matter . . . infeasible." (Conservatorship of Whitley (2010) 50 Cal.4th 1206, 1219.) The standard set by Section 1021.5 is rigorous and is conditioned upon three requirements being met: (1) a significant benefit is provided to the general public; (2) the necessity and financial burden of private enforcement, or of enforcement by one public entity against another public entity, are such as to make the award appropriate; and (3) such fees should not in the interest of justice be paid out of the recovery, if any. Additionally, the statute specifically provides for an important exception to this rule when the matter involves a public agency, as follows: "With respect to actions involving public entities, this section applies to allowances against, but not in favor of, public entities, and no claim shall be required to be filed therefor, unless one or more successful parties and one or more opposing parties are public entities." (Code Civ. Proc. Sec. 1021.5.) In other words, a public agency may not receive attorneys' fees under Section 1021.5. SB 1045 (Emmerson) Page 9 of ? In addition, the types of suits that would arise as a result of this bill would largely involve a public entity bringing suit against a private person or entity, and is not one of the fee-shifting scenarios provided for by Section 1021.5. Ultimately, attorney's fees are shifted when a statutory or constitutional right is important enough to justify shifting fees from one party onto the other. The shifting helps protect those rights by allowing individuals to bring cases because otherwise they would not be able to afford to do so. (See Choate v. County of Orange (2000) 86 Cal.App.4th 312, 322-23; Code Civ. Proc. Sec. 1021.) That is not the case here. To address this issue, the following amendment is suggested, which would remove the attorney's fees provisions: Suggested amendments : On page 2, line 14, strike ", plus" and insert period On page 2, strike line 15 On page 3, line 10, strike "The" On page 3, strike lines 11 - 12 Support : California Association for Sanitation Agencies; California Professional Firefighters; East Bay Municipal Utility District Opposition : None Known HISTORY Source : Eastern Municipal Water District Related Pending Legislation : AB 1387 (Emmerson, 2012) See Background. AB 1508 (Carter, 2012) would modify a current exception to specified requirements placed on junk dealers and recyclers for payment of nonferrous materials, to state instead that those requirements do not apply to the redemption of nonferrous material having a value of not more than twenty dollars ($20) in a single transaction, when the majority (as opposed to primary SB 1045 (Emmerson) Page 10 of ? purpose) of the transaction is for the redemption of beverage containers under the California Beverage Container Recycling and Litter Reduction Act. This bill is currently in the Senate Banking and Finance Committee. Prior Legislation : AB 316 (Carter, Ch. 317, Stats. 2011), among other things, provided that every person who feloniously steals, takes, or carries away copper materials of another, including, but not limited to, copper wire, copper cable, copper tubing, and copper piping, of a value exceeding $950, is guilty of grand theft. The bill also made the grand theft of copper punishable by fines or imprisonment, or both, as specified. AB 1859 (Adams, Ch. 659, Stats. 2008) provided that any person who buys or receives, for purposes of salvage, any part of a fire hydrant or fire department connection (such as bronze or brass fittings and parts) that has been stolen or obtained in any matter constitution theft or extortion, knowing the property to be so stolen or obtained, shall be subject to a criminal fine of not more than $3,000. AB 844 (Berryhill and Maze, Ch. 722, Stats. 2008) See Background. SB 691 (Calderon, Ch. 720, Stats. 2008) See Background. SB 447 (Maldonado and Florez, Ch. 732, Stats. 2008) See Background. **************