BILL ANALYSIS                                                                                                                                                                                                    Ó







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        |Hearing Date:April 9, 2012         |Bill No:SB                         |
        |                                   |1077                               |
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                      SENATE COMMITTEE ON BUSINESS, PROFESSIONS 
                               AND ECONOMIC DEVELOPMENT
                          Senator Curren D. Price, Jr., Chair
                                           

                          Bill No:        SB 1077Author:Price
                    As Introduced:     February 14, 2012 Fiscal:Yes

        
        SUBJECT:  Alarm companies. 
        
        SUMMARY:  Authorizes a licensed alarm company to be organized as a 
        LLC; authorizes an alarm company to apply to the Bureau of Security 
        and Investigative Services to assign the license to another business 
        entity as long as the direct and indirect owners are unchanged; 
        establishes a comprehensive system for the BSIS to issue a citation 
        and fine not to exceed $5,000 to a person for unlicensed alarm company 
        activities.

        Existing law:
        
       1)Provides for the licensure and regulation of alarm companies and 
          alarm company managers and employees by the Bureau for Security and 
          Investigative Services (BSIS) within the Department of Consumer 
          Affairs (DCA) under the Alarm Company Act (Business and Professions 
          Code (BPC), Division 3, Chapter 11.6, commencing with § 7590).  The 
          BSIS further licenses and regulates security guards, proprietary 
          private security employers, proprietary private security officers, 
          private investigators, alarm companies, locksmiths, private patrol 
          operators, and repossession companies and their employees.

       2)Provides that a "licensee" under the Act means a business entity, 
          whether an individual, partnership, or corporation.  (BPC § 7590.1)

       3)Prohibits an alarm company operator from transferring his or her 
          license to another person, as specified.  (BPC § 7599.47)

       4)Under a general provision of the BPC, authorizes any board, bureau or 
          commission within DCA to establish by regulation a system for the 





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          issuance of citations and fines to a  licensee  for violation of the 
          applicable licensing act.  The law makes several exemptions from 
          that authorization, including those regulated under the Alarm 
          Company Act.  The citation must be in writing, and describe the 
          violation and the law violated, and any fine assessed may not be for 
          more than $5,000 for each violation.  The citation shall also 
          provide the licensee with an opportunity to request an 
          administrative hearing on the citation.  (BPC § 125.9)

       5)Authorizes any board, bureau or commission within DCA to establish by 
          regulation a system for the issuance of citations and fines to 
           unlicensed  persons acting in the capacity of a licensee which meets 
          the requirements of BPC § 125.9.  (BPC § 148)

       6)Authorizes the BSIS to issue a citation and fine to a  licensed  alarm 
          company operator, qualified manager, or an alarm agent for  specified 
          violations  of the Act, and requires the citation to be in writing, 
          containing a written description of the violation, and the provision 
          of law violated.  The citation shall contain an order of abatement 
          and shall not exceed $2,500.  (BPC 7591.9)

       7)The Beverly-Killea Limited Liability Company (LLC) Act prohibits 
          domestic and foreign limited liability companies from rendering 
          professional services in California.  (Corporations Code (CC) § 
          17375).

          a)   Defines "professional services" as "any type of professional 
             services which may be lawfully rendered only pursuant to a 
             license, certification, or registration authorized by the 
             Business and Professions Code, the Chiropractic Act, or the 
             Osteopathic Act."  (CC § 13401(a)).

          b)   Explicitly provides that an LLC may render services that may be 
             lawfully rendered only pursuant to a license, certificate, or 
             registration authorized by the BPC if the applicable provisions 
             of the BPC authorize a limited liability company to hold that 
             license, certificate, or registration.  (CC§ 17002 (c))

        This bill:

       1)Authorizes a licensed alarm company to be organized as an LLC, and 
          makes conforming changes to the licensing provisions of the Act.

       2)Authorizes an alarm company to apply to the BSIS to assign the 
          license to another business entity as long as the direct and 
          indirect owners are unchanged.  





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       3)Establishes a processing fee not to exceed $125 for the assignment of 
          an alarm company operator license. 

       4)Establishes a comprehensive system for the BSIS to issue a citation 
          and fine not to exceed $5,000 to a person for unlicensed activity 
          under the Act.

       5)Provides that a citation for unlicensed activity must be in writing 
          and meet the following criteria:

           a)   Describe the nature of the violation and the provision of law 
             violated.

           b)   Inform the cited person that he or she may, within 30 days, 
             request a hearing to contest the citation.

           c)   Inform the cited person that he or she may, within 10 days, 
             request an informal conference on the citation with the chief of 
             BSIS.

           d)   Be served upon the cited person by certified mail. 

           e)   Require the BSIS to consider the following factors when 
             determining the amount of an administrative fine:

             i.     The good or bad faith exhibited by the cited person.
             ii.       The nature and severity of the violation.
             iii.      Evidence that the violation was willful.
             iv.       History of violations of the same or similar nature.
             v.     The extent to which the cited person has cooperated with 
               the BSIS.
             vi.       The extent to which the cited person has mitigated or 
               attempted to mitigate any damage or injury caused by the 
               violation.
             vii.      Any other factors as justice may require.

       6)Makes technical corrections and conforming changes.


        FISCAL EFFECT:  Unknown.  This bill has been keyed "fiscal" by 
        Legislative Counsel.

        COMMENTS:
        
       1.Purpose.  This bill is sponsored by the  California Alarm Association  





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          (Sponsor) to make three changes to the Alarm Company Act.  First, 
          the bill authorizes a licensed alarm company to be organized as an 
          LLC, and makes conforming changes in the licensing provisions of the 
          Act.  

          Second, the bill authorizes an alarm company to keep the same alarm 
          license if it changes its business structure.  For example, if an 
          alarm company is organized as a corporation and then converts to an 
          LLC, it would be allowed to transfer its license to the new business 
          structure.  The bill also establishes a processing fee not to exceed 
          $125 for the assignment of an alarm company operator license.

          Third, the bill authorizes the BSIS to cite and fine alarm companies 
          operating without a license.

          According to the Sponsor, the BSIS staff reviewed these provisions 
          and their technical advice is reflected in the bill's language.

        2. Background.  The BSIS licenses and regulates the private security 
           industry.  The BSIS jurisdiction includes, not only alarm companies 
           and their employees, but also security guards, proprietary private 
           security employers, proprietary private security officers, private 
           investigators, alarm companies, locksmiths, private patrol 
           operators, and repossession companies.

        3. Unlicensed Activity.  Under current law, the BSIS lacks the direct 
           authority to regulate unlicensed alarm companies.  When discovering 
           an alarm company is operating illegally without a proper license, 
           the BSIS must rely on the local District Attorney to enforce the 
           Alarm Act.  Securing the support of the local DA is difficult, as 
           they often have more pressing issues to deal with.  Granting the 
           BSIS direct authority to deal with unlicensed alarm companies will 
           be more efficient and effective in preventing unfair competition in 
           the market place.  More importantly, it will also provide greater 
           protection for consumers who may be victimized by unscrupulous 
           alarm companies operating without the proper license and without 
           the background review conducted by the BSIS as a condition of 
           receiving an alarm company license.

        The BSIS states that:  "Identifying unlicensed activity and obtaining 
           compliance from people who are not properly licensed or registered 
           is a high priority for the Bureau.  Individuals and businesses that 
           are operating without a license pose a threat to both the industry 
           and the public.  The behavior of an unlicensed practitioner often 
           reflects poorly upon the private security industry and can tarnish 
           the industry's reputation.  Consumers assume they can afford to be 





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           less wary because they are dealing with a regulated industry and 
           with licensed practitioners."

        By giving the BSIS the authority to issue citations and fines to 
           unlicensed alarm company operators, this will enable the Bureau to 
           further address unlicensed practices and obtain greater compliance 
           in order to protect consumers.

        4. Engaging in Licensed Practice as an LLC.  Limited liability 
           companies are a relatively new form of business entity for the 
           state.  Formation and operation of such entities in California was 
           authorized in 1994 through the Beverly-Killea Limited Liability 
           Company Act (SB 469, Chapter 1200, Statutes of 1994).  As 
           originally enacted, an uncodified provision specified that nothing 
           in the Act shall be construed to permit a domestic or foreign 
           limited liability company to render professional services, as 
           defined in the Corporations Code, unless expressly authorized under 
           applicable provisions of the Business and Professions Code or the 
           Chiropractic Act.  This provision was codified in 1999 (SB 284, 
           Kelley, Chapter 1000, Statutes of 1999). 

        Under the Moscone-Knox Professional Corporation Act (Corporations Code 
           § 13400 ff.), "professional services" is defined as any type of 
           professional services that may be lawfully rendered only pursuant 
           to a license, certification, or registration authorized by the 
           Business and Professions Code, the Chiropractic Act, or the 
           Osteopathic Act.

        The rationale for the exclusion was apparently that service providers 
           who harm others by their misconduct, incompetence, or negligence 
           should not be able to limit their liability by operating as an LLC 
           and thus become potentially judgment-proof.

        Based upon these provisions of law, it has been commonly understood 
           that the boards and bureaus under the Department of Consumer 
           Affairs are prohibited from issuing a license, certification or 
           registration to an entity organized as an LLC.

        More recently, SB 392 (Florez, Chapter SB 392, 698, Statutes of 2010) 
           authorized the Contractors State License Board to issue a 
           contractor license to an LLC, and incorporated the LLC business 
           structure into the contractor license provisions.  The bill 
           additionally added paragraph (c) to Corporations Code Section 17002 
           to read "(c) Notwithstanding Section 17375, a limited liability 
           company may render services that may be lawfully rendered only 
           pursuant to a license, certificate, or registration authorized by 





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           the Business and Professions Code if the applicable provisions of 
           the Business and Professions Code authorize a limited liability 
           company to hold that license, certificate, or registration."  

        Thus, if a licensing law under the BPC specifically authorizes an LLC 
           to hold a license, then an LLC may obtain a professional license 
           under that provision.  This bill seeks to make that same 
           authorization for alarm companies.

        5. Attorney General Opinion.  In 2004, Attorney General Opinion 
           No. 04-103 concluded that a business that provides services 
           requiring a license, certification, or registration pursuant to 
           the Business and Professions Code may conduct its activities as 
           a limited liability company if the services rendered require 
           only a nonprofessional, occupational license.

          In discussing the distinctions between professional services and 
          nonprofessional occupational services, the AG Opinion further 
          discusses Mann v. Department of Motor Vehicles (1999) 76 
          Cal.App.4th 312, (Mann), in which the court concluded that the 
          services performed pursuant to a vehicle salesperson license 
          issued under the Vehicle Code were not "professional services," 
          but rather were "nonprofessional, occupational" services.  

          The AG Opinion further states that: 

             "Following the reasoning of Mann, we find that some services 
             that require a license, certification, or registration 
             pursuant to the Business and Professions Code are 
             "professional services" and others are "nonprofessional 
             services."  To determine whether a particular service is one 
             or the other requires an examination of the educational, 
             training, and testing prerequisites."

        6. Assignment of an Alarm Company License.  The law explicitly 
           prohibits an alarm company operator from transferring his or her 
           license to another person, as specified.  This bill would authorize 
           an alarm company to keep the same alarm license if it changes its 
           business structure.  This would allow an alarm company organized as 
           a corporation to convert its organizational structure to an LLC, 
           and allow the license to be transferred to the new business 
           structure.  According to the Sponsor, this change in law will save 
           alarm companies as well as the BSIS, which regulates and licenses 
           alarm companies, from unnecessary work that would otherwise be 
           necessary when applying for a new alarm company license.  






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        A similar change in code was made for repossessor licenses in 1995 (AB 
           1541, Lee, Chapter 505, Statutes of 1995).

        7. Related Legislation.   SB 392  (Florez, Chapter, 698, Statutes of 
           2010) authorized the Contractors State License Board to issue a 
           contractor license to an LLC, and incorporated the LLC business 
           structure into the contractor license provisions.  The bill 
           additionally amended the Corporations Code to authorize an LLC to 
           render services pursuant to a license, certificate, or registration 
           under the BPC if the applicable provisions of the BPC authorize a 
           LLC to hold that license, certificate, or registration.

         SB 1225  (Harman, Chapter 114, Statutes of 2008) authorized a LLC to 
           operate as a cemetery authority (licensed cemetery) and provide 
           various cemetery and funeral-related services, by employing persons 
           licensed for these services, if the LLC maintains a specified 
           minimum amount of insurance and/or assets.

         SB 1337  (Correa, 2008) would have allowed a limited liability company 
           to render contractor services that are "professional services" 
           prohibited by the LLC Act, by authorizing the issuance of a 
           contractor's license to a LLC under the BPC.  That bill died in 
           Senate Judiciary Committee.

         AB 2235  (Parra, 2006) would have expanded the definition of "person" 
           under the Real Estate Law to include an LLC.  That bill died in the 
           Senate Judiciary Committee without being heard.

         SB 1022  (Campbell, 2005) sought to authorize professional limited 
           liability companies to provide specified professional services.  
           That bill would have defined "professional services" to mean any 
           type of professional services that may only be lawfully rendered 
           pursuant to a license, certification, or registration under the BPC 
           or the Chiropractic Act.  That bill died in the Senate Judiciary 
           Committee without being heard.

         AB 2724  (Runner, 2002) would authorize contractor's licenses to be 
           issued to limited liability companies that meet certain 
           requirements.  That bill died in the Assembly Business and 
           Professions Committee without being heard.

         AB 2401 (Miller, 1996) would have provided that an LLC may not render 
           professional services, unless the LLC is expressly authorized under 
           the BPC or the Chiropractic Act, or is a real estate broker 
           licensed under the real estate law.  The bill sought to amend the 
           contractor, architectural, engineering, and land surveying 





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           provisions of the B&P Code to authorize the licensure of LLCs.  
           That bill failed passage in Senate Business and Professions 
           Committee.

         AB 1541  (Lee, Chapter 505, Statutes of 1995) included LLCs in the 
           statutory definition of the types of business entities (e.g., 
           corporations) that can be licensed as repossession agencies, and 
           specified the contents of an application for license by a limited 
           liability company.

            SB 469  (Killea, Chapter 1200, Statutes of 1994) established the 
           initial LLC Act, to provide for LLCs to organize and do business in 
           California, and allow LLCs organized outside of California to 
           register to do business in California.  The bill provided that an 
           LLC may engage in any lawful activity except banking, insurance or 
           trust company operations, and in an uncodified provision, stated 
           that nothing in the Act shall be construed to permit an LLC to 
           render professional services, as defined, for which a license, 
           certification or registration is required, unless expressly 
           authorized under provisions of the B&P Code or the Chiropractic 
           Act.

        8. Arguments in Support.  In sponsoring the bill, the  California Alarm 
           Association  states that the original language prohibiting other 
           licensed professions to become LLCs still remains.  The Sponsor 
           believes this language is outdated and was adopted before many 
           professional companies, such as alarm companies, began organizing 
           as LLCs.  The Sponsor states that forty-nine other states allow 
           alarm companies to organize as LLCs.  Consumers will still be able 
           to sue alarm companies organized as LLC for damages in the rare 
           cases where disputes arise.

        The Sponsor further indicates that the provision allowing an alarm 
           company to keep the same alarm license if it changes its business 
           structure is related to the provision allowing an LLC to hold a 
           license.  If an alarm company is organized as a corporation and 
           then converts to an LLC, it would be allowed to transfer its 
           license to the new business structure.  This change will save alarm 
           companies and the bureau from unnecessary work that would otherwise 
           be necessary when applying for a new alarm company license.  

        Authorizing the BSIS to issue a citation and fine for unlicensed 
           activity provides greater protection for consumers who may be 
           victimized by unscrupulous alarm companies operating without the 
           proper license and without the background review conducted by the 
           BSIS as a condition of receiving an alarm company license.





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         NOTE:   Double-referral to Judiciary Committee second.  Any amendments 
        proposed to this bill during our hearing should be made in the Senate 
        Judiciary Committee.
        

        SUPPORT AND OPPOSITION:
        
         Support:  

        California Alarm Association (Sponsor)

         Opposition:  

        None received as of April 2, 2012



        Consultant:G. V. Ayers