BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 1077| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ UNFINISHED BUSINESS Bill No: SB 1077 Author: Price (D) Amended: 6/27/12 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 SENATE FLOOR : 38-0, 5/30/12 AYES: Alquist, Anderson, Berryhill, Blakeslee, Calderon, Cannella, Corbett, Correa, De León, DeSaulnier, Dutton, Emmerson, Evans, Fuller, Gaines, Hancock, Harman, Hernandez, Huff, Kehoe, La Malfa, Leno, Lieu, Liu, Lowenthal, Negrete McLeod, Padilla, Pavley, Price, Rubio, Simitian, Steinberg, Vargas, Walters, Wolk, Wright, Wyland, Yee NO VOTE RECORDED: Runner, Strickland ASSEMBLY FLOOR : 69-7, 8/21/12 - See last page for vote SUBJECT : Alarm companies SOURCE : California Alarm Association CONTINUED SB 1077 Page 2 DIGEST : This bill authorizes a licensed alarm company to be organized as a limited liability company (LLC), until January 1, 2016. Assembly Amendments (1) authorize the Alarm Company Operator Disciplinary Review Committee to grant a probationary license, certificate, registration, or permit with respect to certain appealed decisions; (2) authorize the Director of the Department of Consumer Affairs (Director) to grant a probationary license, registration, certificate, or permit to an applicant subject to specified terms and conditions; (3) require the Director, when considering the granting of a probationary license, registration, certificate, or permit, to request that an applicant with a dismissed conviction provide proof of that dismissal and require that special consideration be given to applicants whose convictions have been dismissed, as specified; and (4) require the Director to develop standard terms of probation, as specified. 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 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) SB 1077 Page 3 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) 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 SB 1077 Page 4 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. 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. SB 1077 Page 5 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. Authorizes the Alarm Company Operator Disciplinary Review Committee to grant a probationary license, certificate, registration, or permit with respect to appealed decisions concerning administrative fines assessed by the BSIS and decisions concerning denial, revocation, or suspension of licenses, and certificates, registrations, or permits issued by the BSIS. 8. Authorizes the Director to grant a probationary license, registration, certificate, or permit to an applicant subject to specified terms and conditions including: A. Continuing medical, psychiatric, or psychological treatment. B. Ongoing participation in a specified rehabilitation program. C. Abstention from the use of alcohol or drugs. 9. Requires the Director, when considering the granting of a probationary license, registration, certificate, or SB 1077 Page 6 permit, to request that an applicant with a dismissed conviction provide proof of that dismissal and requires that special consideration be given to applicants whose convictions have been dismissed, as specified, and the Director take into account any other reasonable documents or individual character references provided by the applicant. 10.Requires the Director to develop standard terms of probation including the following: A. A three-year limit on the individual probationary license, certificate, registration, or permit. B. A process to obtain a standard license, certificate, registration, or permit for applicants who were issued a probationary license, certificate, registration, or permit. C. Supervision requirements. D. Compliance and quarterly reporting requirements. 11.Makes technical corrections and conforming changes. 12.Sunsets on January 1, 2016. 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. 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. SB 1077 Page 7 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 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. SB 1077 Page 8 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, 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 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 LLC 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. 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 SB 1077 Page 9 "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 8/22/12) California Alarm Association (source) Los Angeles County District Attorney's Office 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. 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. ASSEMBLY FLOOR : 69-7, 8/21/12 AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall, Bill Berryhill, Block, Blumenfield, Bonilla, Bradford, SB 1077 Page 10 Brownley, Buchanan, Butler, Charles Calderon, Campos, Carter, Cedillo, Chesbro, Conway, Cook, Davis, Dickinson, Eng, Feuer, Fletcher, Fong, Fuentes, Furutani, Galgiani, Garrick, Gatto, Gordon, Gorell, Hagman, Hall, Harkey, Hayashi, Hill, Huber, Hueso, Huffman, Jeffries, Lara, Bonnie Lowenthal, Ma, Mendoza, Miller, Mitchell, Monning, Nestande, Nielsen, Norby, Olsen, Pan, Perea, V. Manuel Pérez, Portantino, Silva, Skinner, Smyth, Solorio, Swanson, Torres, Wagner, Wieckowski, Williams, Yamada, John A. Pérez NOES: Donnelly, Beth Gaines, Grove, Halderman, Jones, Logue, Morrell NO VOTE RECORDED: Roger Hernández, Knight, Mansoor, Valadao JJA:k 8/22/12 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END ****