BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 1077|
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THIRD READING
Bill No: SB 1077
Author: Price (D)
Amended: 5/1/12
Vote: 21
SENATE BUSINESS, PROF. & ECON. DEV. COMM. : 9-0, 4/16/12
AYES: Price, Emmerson, Corbett, Correa, Hernandez, Negrete
McLeod, Strickland, Vargas, Wyland
SENATE JUDICIARY COMMITTEE : 5-0, 4/24/12
AYES: Evans, Harman, Blakeslee, Corbett, Leno
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SUBJECT : Alarm companies
SOURCE : California Alarm Association
DIGEST : This bill authorizes a licensed alarm company to
be organized as a limited liability company (LLC), until
January 1, 2016.
ANALYSIS :
Existing law:
1. Provides for the licensure and regulation of alarm
companies and alarm company managers and employees by
the Bureau of Security and Investigative Services (BSIS)
within the Department of Consumer Affairs (DCA) under
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the Alarm Company Act (Act) (Business and Professions
Code (BPC), Division 3, Chapter 11.6, commencing with
Section 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 Section 7590.1)
3. Prohibits an alarm company operator from transferring
his/her license to another person, as specified. (BPC
Section 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 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
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 Section 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 Section 125.9. (BPC Section 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)
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7. The Beverly-Killea Limited Liability Company Act
prohibits domestic and foreign LLCs from rendering
professional services in California. (Corporations Code
(CORP) Section 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." (CORP Section 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 LLC to hold that license, certificate, or
registration. (CORP Section 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.
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/she may, within 30
days, request a hearing to contest the citation.
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C. Inform the cited person that he/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:
The good or bad faith exhibited by the
cited person.
The nature and severity of the violation.
Evidence that the violation was willful.
History of violations of the same or
similar nature.
The extent to which the cited person has
cooperated with the BSIS.
The extent to which the cited person has
mitigated or attempted to mitigate any damage or
injury caused by the violation.
Any other factors as justice may require.
6. Requires that an alarm company operator-LLC obtain and
maintain a minimum of $1 million in an insurance policy,
plus an additional $100,000 per licensee in excess of
five employed by the LLC, up to $5 million in total
insurance, and provides that an LLC which does not
maintain the sufficient levels of insurance under law
would be suspended, and that the members of the LLC
shall be personally liable up to $1 million each for
damages resulting to third parties in connection with
the company's performance, during the period of
suspension, of any act or contract where a license is
required by the Act.
7. Makes technical corrections and conforming changes.
8. Sunsets on January 1, 2016.
Background
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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.
Unlicensed Activity . Under existing 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 Act. Securing
the support of the local District Attorney 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 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 BSIS to further address unlicensed practices and
obtain greater compliance in order to protect consumers.
Engaging in Licensed Practice as an LLC . LLCs 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
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Liability Company Act (SB 469 (Killea), 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 LLC to render
professional services, as defined in the CC, unless
expressly authorized under applicable provisions of the BPC
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 (CORP
Section 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 BPC, 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 DCA are
prohibited from issuing a license, certification or
registration to an entity organized as an LLC.
More recently, SB 392 (Florez), Chapter 698, Statutes of
2010, authorizes 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 adds paragraph (c) to
CORP Section 17002 to read "(c) Notwithstanding Section
17375, a LLC may render services that may be lawfully
rendered only pursuant to a license, certificate, or
registration authorized by 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.
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Attorney General Opinion . In 2004, Attorney General (AG)
Opinion No. 04-103 concluded that a business that provides
services requiring a license, certification, or
registration pursuant to the BPC may conduct its activities
as a LLC 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, "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."
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
SUPPORT : (Verified 5/15/12)
California Alarm Association (source)
ARGUMENTS IN SUPPORT : In sponsoring this bill, the
California Alarm Association (CAA) states that the original
language prohibiting other licensed professions to become
LLCs still remains. CAA believes this language is outdated
and was adopted before many professional companies, such as
alarm companies, began organizing as LLCs. CAA states that
49 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.
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CAA 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
BSIS from unnecessary work that would otherwise be
necessary when applying for a new alarm company license.
JJA:kc 5/16/2012 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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