BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2015-2016 Regular Session
AB 556 (Irwin)
Version: June 19, 2015
Hearing Date: June 30, 2015
Fiscal: Yes
Urgency: No
RD
SUBJECT
Charitable trusts: regulation and enforcement
DESCRIPTION
Existing law, the Uniform Supervision of Trustees and
Fundraisers for Charitable Purposes Act (Charitable Purposes
Act), authorizes the Attorney General (AG) to bring specified
civil actions against trustees or other persons holding property
in trust for charitable purposes or against any charitable
corporation or any director or officer thereof, at any time
within 10 years after the cause of action accrued.
This bill would apply an identical 10 year statute of limitation
to any action brought by the Attorney General:
pursuant to specified involuntary trust laws under the Civil
Code;
arising out of a violation of the Charitable Purposes Act,
pursuant to specified involuntary trust laws, or pursuant to
the Nonprofit Corporation Law; and
against a person who aids or abets a violation of the
Charitable Purposes Act, specified involuntary trust laws, or
the Nonprofit Public Benefit Corporations laws.
This bill would modify the definitions of "commercial fundraiser
for charitable purposes" and "fundraising counsel for charitable
purposes," as specified.
BACKGROUND
The Attorney General (AG) oversees registered charities to
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ensure that funds received are properly managed and devoted to
charitable programs. The office derives its authority from the
Uniform Supervision of Trustees and Fundraisers for Charitable
Purposes Act, which was originally enacted in California in
1959. This law generally requires every person or entity that
holds or solicits property for charitable purposes in California
to file specified documents and information, including annual
financial statements, with the AG. These reports are in turn
used by the AG to investigate and litigate cases of charity
fraud and mismanagement by trustees and directors of charities.
In 1989, in order to protect the interests of a donor and the
donee charitable organization, the Act was expanded to also
apply to commercial fundraisers who solicit for charitable
purposes (a commercial fundraiser is not a charity, but usually
an individual or corporation engaged in business for-profit).
(SB 502 (Lockyer, Ch. 307, Stats. 1989).) The provisions for
commercial fundraisers were further strengthened in 1991 and
1992 by adding a bond requirement for commercial fundraisers and
by adding a requirement that any person or entity who for
compensation solicits funds or other property for charitable
purposes, must disclose that the solicitation is being conducted
by a commercial fundraiser for charitable purposes.
Significantly, commercial fundraisers were thereafter required
to also disclose, upon receiving a written or oral request from
a person solicited, the ratio of total expenses of the
fundraiser to the total revenue received by the fundraiser.
(See AB 838 (Peace, Ch. 569, Stats. 1991); SB 1682 (Boatwright,
Ch. 511, Stats. 1992); AB 3066 (Sher, Ch. 249, Stats. 1992).)
Then in 1998, AB 1810 (Davis, Ch. 445, Stats. 1998) was enacted
in response to an increasing practice by sophisticated
commercial fundraisers to hire "fundraising counsels" or enter
into partnerships with "commercial conventurers," in order to
downplay the extraordinary costs of their fundraising and
exclude administrative costs from their annual financial reports
because the commercial fundraisers were aware that high
fundraising costs and administrative expenses-which translate
into smaller distributions to the charity-can discourage donors
from making donations. (See Sen. Judiciary Com. analysis of AB
1810 (1998-1999 Reg. Session), Jul. 21, 1998.) Accordingly, AB
1810 sought to close any loophole in the law by requiring
registration and reporting of fundraising counsels and
commercial conventurers. In doing so, the bill also renamed the
Act from the Uniform Supervision of Trustees for Charitable
Purposes Act to its current title of the Supervision of Trustees
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and Fundraisers for Charitable Purposes Act.
Other bills have also been enacted to provide the Attorney
General with additional tools and resources in the supervision
and enforcement of this Act. As a result of some of those
changes, the Attorney General may now also issue cease and
desist orders for violations of this Act or its implementing
regulations; impose specified civil penalties for each act or
omission that constitutes a violation; suspend the registration
of a person or entity where a penalty has been assessed; or
apply to a superior court for relief and obtain a temporary or
permanent injunctive order. Notably, the Charitable Purposes
Act provides a 10 year statute of limitations for the Attorney
General to bring an action against trustees or other persons
holding property in trust for charitable purposes or against any
charitable corporation or any director or officer thereof, to
enforce a charitable trust or to impress property with a trust
for charitable purposes or to recover property or the proceeds
thereof for and on behalf of any charitable trust or
corporation. While this 10 year statute of limitations has been
in existence since 1965 and affords the Attorney General's
office additional time to investigate and pursue action against
those in violation of the law, it is limited with respect to the
parties that the Attorney General can bring an action against.
Accordingly, this bill, sponsored by the Office of the Attorney
General, seeks to provide additional 10 year statutes of
limitations under which the AG can pursue various actions
against those who violate or aid and abet in violations of the
Charitable Purposes Act. The bill also seeks to close a
loophole in the law by better defining the differences between
"fundraising counsels" and "commercial fundraisers."
CHANGES TO EXISTING LAW
Existing law , the Uniform Supervision of Trustees and
Fundraisers for Charitable Purposes Act (hereinafter "Charitable
Purposes Act," or "Act"), generally governs all charitable
corporations, unincorporated associations, trustees, commercial
fundraisers for charitable purposes, fundraising counsel for
charitable purposes, commercial coventurers, and other legal
entities holding or soliciting property for charitable purposes.
Existing law provides the Attorney General (AG) with primary
enforcement and supervisory powers over these entities, and
requires that the AG maintain a register of charitable
organizations subject to the Act. (Gov. Code Sec. 12580 et
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seq.)
Existing law specifies that the AG has broad powers under common
law and California statutory law to carry out its charitable
trust enforcement responsibilities and that these powers
include, but are not limited to, charitable trust enforcement
actions under:
the Charitable Purposes Act;
specified laws on involuntary trusts under the Civil Code;
the Nonprofit Corporations Law;
specified provisions under the Probate Code relating to trusts
and trustees;
the Unfair Competition Law and specified law on false
advertising; and
specified Penal Code provisions relating to lotteries and
charitable solicitations. (Gov. Code Sec. 12598(a).)
Existing law requires every charitable corporation,
unincorporated association, and trustee subject to the
Charitable Purposes Act to file with the AG an initial
registration form, under oath, as specified, within 30 days
after the entity initially receives property, except as
specified. Existing law also generally requires that these
entities file with the AG periodic written reports, as
specified. (Gov. Code Secs. 12585, 12586.)
Existing law requires a "commercial fundraiser" to register with
the AG's Registry of Charitable Trusts prior to soliciting or
receiving and controlling any funds, assets, or property, and to
file an annual financial report of funds, assets, or property
solicited on behalf of each charitable purpose or organization,
as specified. (Gov. Code Sec. 12599.)
Existing law prohibits a commercial fundraiser for charitable
purposes from soliciting in the state on behalf of a charitable
organization unless that charitable organization is registered
or is exempt from registration with the AG's Registry of
Charitable Trusts. (Gov. Code Sec. 12599(m).)
Existing law generally defines "commercial fundraiser for
charitable purposes" to mean any individual, corporation,
unincorporated association, or other legal entity who for
compensation does any of the following:
solicits funds, assets, or property in this state for
charitable purposes;
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as a result of a solicitation of funds, assets, or property in
this state for charitable purposes, receives or controls the
funds, assets, or property solicited for charitable purposes;
or
employs, procures, or engages any compensated person to
solicit, receive, or control funds, assets, or property for
charitable purposes. (Gov. Code Sec. 12599(a).)
Existing law requires there to be a written contract between a
commercial fundraiser for charitable purposes and a charitable
organization for each solicitation campaign, event, or service,
as specified. The contract must be available for inspection by
the Attorney General and contain specified information. (Gov.
Code Sec. 12599(h).)
Existing law requires that a "fundraising counsel for charitable
purposes" register with the AG's Registry of Charitable Trusts,
prior to managing, advising, counseling, consulting, or
preparing material for, or with respect to, the solicitation in
this state of funds, assets, or property for charitable
purposes, and to file (1) an annual report listing each person,
corporation, unincorporated association, or other legal entity
for whom the fundraising counsel has performed specified
services for compensation, and (2) a statement certifying that
the fundraising counsel had a written contract with each listed
person, corporation, unincorporated association, or other legal
entity that complied with specified requirements. (Gov. Code
Sec. 12599.1.)
Existing law generally defines a "fundraising counsel for
charitable purposes" as any individual, corporation,
unincorporated association, or other legal entity who is
described by all of the following:
for compensation plans, manages, advises, counsels, consults,
or prepares material for, or with respect to, the solicitation
in this state of funds, assets, or property for charitable
purposes;
does not solicit funds, assets, or property for charitable
purposes;
does not receive or control funds, assets, or property
solicited for charitable purposes in this state; and
does not employ, procure, or engage any compensated person to
solicit, receive, or control funds, assets, or property for
charitable purposes. (Gov. Code Sec. 12599.1(a).)
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Existing law requires a written contract between a fundraising
counsel for charitable purposes and a charitable organization
for each service to be performed by the fundraising counsel for
the charitable organization, as specified. The contract must be
available for inspection by the AG and contain specified
information, such as:
a clear statement of the fees and any other form of
compensation, including commissions and property, that will be
paid to the fundraising counsel; and
a statement that the fundraising counsel will not at any time
solicit or receive or control funds, assets, or property for
charitable purposes, or employ, procure, or engage any
compensated person to solicit, receive, or control funds,
assets, or property for charitable purposes. (Gov. Code Sec.
12599.1(f).)
Existing law provides the AG authority to investigate
transactions and relationships of corporations and trustees
subject to the Charitable Purposes Act for the purpose of
ascertaining whether or not the purposes of the corporation or
trust are being carried out in accordance with the terms and
provisions of the articles of incorporation or other instrument.
(Gov. Code Sec. 12588.)
Existing law authorizes the AG to refuse to register or revoke
or suspend the registration of a charitable corporation or
trustee, commercial fundraiser, fundraising counsel, or
coventurer whenever the AG finds that the charitable corporation
or trustee, commercial fundraiser, fundraising counsel, or
coventurer has violated or is operating in violation of any
provisions of the Charitable Purposes Act. (Gov. Code Sec.
12598(e).)
Existing law authorizes the Attorney General to bring an action
against trustees or other persons holding property in trust for
charitable purposes or against any charitable corporation or any
director or officer thereof to enforce a charitable trust or to
impress property with a trust for charitable purposes or to
recover property or the proceedings thereof for and on behalf of
any charitable trust or corporation at any time within 10 years
after the cause of action accrued. (Gov. Code Sec. 12596.)
Existing law requires any individual, corporation, or other
legal entity who for compensation solicits funds or other
property in this state for charitable purposes to disclose prior
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to an oral solicitation or sales solicitation, as specified, or
at the same time as a written solicitation or sales
solicitation:
that the solicitation or sales solicitation is being conducted
by a commercial fundraiser for charitable purposes; and
the name of the commercial fundraiser for charitable purposes
as registered with the Attorney General pursuant to specified
law. (Bus. & Prof. Code Sec. 17510.85.)
Existing law provides that one who wrongfully detains a thing is
an involuntary trustee thereof, for the benefit of the owner.
Existing law also provides that one who gains a thing by fraud,
accident, mistake, undue influence, the violation of a trust, or
other wrongful act, is, unless he or she has some other and
better right thereto, an involuntary trustee of the thing
gained, for the benefit of the person who would otherwise have
had it. (Civ. Code Secs. 2223, 2224.)
This bill would specify that the disclosures required under
existing law prior to an oral solicitation or sales
solicitation, or at the same time of a written disclosure or
sales solicitation, must be in at least 12-point font, and be
clear and conspicuous, as specified, if printed or presented
electronically.
This bill would authorize the AG to bring an action pursuant to
specified laws relating to involuntary trustees at any time
within 10 years after the cause of action accrued. This bill
would also authorize the AG to bring a civil action for a
violation of the Nonprofit Corporation Law at any time within 10
years after the cause of action accrued.
This bill would authorize the AG, notwithstanding the limited
application of the Charitable Purposes Act to certain entities,
to bring a civil action against a person who aids or abets a
violation of that Act, specified laws relating to involuntary
trusts, or the Nonprofit Public Benefit Corporations' article
providing standards of conduct for directors and management, at
any time within 10 years after the cause of action accrued.
This bill would expand the definition of a "commercial
fundraiser for charitable purposes" to include a person or
entity who for compensation plans, manages, advises, counsels,
consults, or prepares material for, or with respect to, the
solicitation in this state of funds, assets, or property for
charitable purposes, but is disqualified as a "fundraising
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counsel for charitable purposes" pursuant to the definition of
that term. This bill would further clarify that a commercial
fundraiser for charitable purposes does not include an escrow
agent or "caging company," as specified, which receives or
controls funds received as a result of a solicitation for
charitable purposes.
This bill would modify the definition of "fundraising counsel
for charitable purposes" to clarify that "compensation" received
for planning, managing, advising, counseling, consulting, or
preparing material for, or with respect to, the solicitation in
this state of funds, assets, or property for charitable
purposes, is something other than a percentage of the funds,
assets, or property received as a result of a solicitation
campaign.
This bill would further modify the definition of "fundraising
counsel for charitable purposes" to clarify that a person or
entity is deemed to receive or control funds, assets, or
property if any of the following apply:
it has the right to approve or veto any payment from an escrow
account to which funds received from a solicitation for
charitable purposes are subject;
it maintains an interest in an account into which solicited
funds are deposited;
it has the right to access funds, assets, or property received
from a solicitation for charitable purposes and held by a
caging company;
it has any ownership or management interest in any other
entity that receives or controls the funds, assets, or
property solicited for charitable purposes, including, but not
limited to, an escrow agent or caging company, but not
including a federally insured financial institution; or
it receives any financial benefit, directly or indirectly,
from any other individual or entity that receives or controls
the funds, assets, or property solicited for charitable
purposes, other than the trustee or charitable corporation
soliciting the funds, assets, or property for charitable
purposes.
This bill would provide that any person or entity who, for
compensation, plans, manages, advises, counsels, consults, or
prepares material for, or with respect to, the solicitation in
this state of funds, assets, or property for charitable
purposes, but does not meet the qualifications of a "fundraising
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counsel for charitable purposes," as specified, shall be deemed
to be a "commercial fundraiser for charitable purposes," as
described, unless excluded by the section defining that term.
This bill would specify for these purposes that "commercial
fundraiser for charitable purposes" does not include:
a "trustee" or "charitable corporation," as defined, or any
employee thereof;
an individual who is employed by or under the control of a
commercial fundraiser for charitable purposes that is
registered with the AG; or
any federally insured financial institution that holds, as a
depository, funds received as a result of a solicitation for
charitable purposes, or an escrow agent or "caging company,"
as defined, that receives or controls funds received as a
result of a solicitation for charitable purposes.
This bill defines a caging company for purposes of the above
definitions as a business that receives contributions, processes
donor mail, and deposits all contributions into an account under
the sole control of the charitable organization.
This bill would make other technical or non-substantive changes.
COMMENT
1. Stated need for the bill
According to the author:
The Attorney General is responsible for regulating charities
and the professional fundraisers who solicit on their behalf.
The purpose of this oversight is to protect charitable assets
for their intended use and ensure that the charitable
donations contributed by Californians are not misused or
squandered through fraud or other means. [ . . . ]
Existing law regulates for-profit companies that raise money
on behalf of a charity but keep a portion of the money raised
as profit. Companies that solicit money on behalf of
charitable organizations, "commercial fundraisers," are
required to disclose to donors that a paid professional
fundraiser was involved in the solicitation campaign.
"Fundraising counsel" - persons or entities that plan, manage,
or advise charities on their charitable solicitations
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activities for profit but do not directly engage in
solicitations - are not subject to the same transparency
requirements. Both commercial fundraisers and fundraising
counsel are required to register with the Attorney General's
office.
The distinctions between commercial fundraisers and
fundraising counsel are that commercial fundraisers hold
assets and do the direct solicitation, while fundraising
counsel do not. Sometimes, in order to avoid falling into the
commercial fundraiser category, which requires disclosure to
consumers that the solicitation is being conducted by a
commercial fundraiser, fundraising companies will make it
falsely appear that the company providing advice and the
company receiving donations are separate. Other times,
fundraising counsel will receive substantial portions of a
charity's donations through fundraising fees, because they own
more than one company involved in the charity's fundraising
program.
Cases involving charity fraud are often complex,
fact-intensive, and cover misconduct occurring over an
extended period of time. Existing law allows the Attorney
General a 10 year statute of limitations for fraud conducted
by officers and directors of the charity. Other parties such
as fundraisers, accountants, etc. who directly participate in
or aid and abet the fraud[, however,] are subject to either a
three or four year statute of limitations, depending on the
cause of action.
AB 556 will close loopholes in for-profit solicitation
disclosure laws by requiring fundraisers who have any
ownership or management interest in any other entity also
involved in a charitable solicitation to register as
commercial fundraisers and therefore be subject to disclosure
to donors. The bill also states that if a fundraiser takes a
percentage of the funds raised through the solicitation rather
than a flat fee, they should register as commercial
fundraisers. The bill will also extend the 10 year statute of
limitations to include all persons and entities involved in
the fraud. [Accordingly,] AB 556 will uphold consumer and
donor confidence in charitable giving by increasing
transparency and accountability for charitable fundraisers.
The sponsor of this bill, the Office of the Attorney General
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(AG), indicates that recent litigation exposed some of the
shortcomings with both the existing 10 year statute of
limitations and the laws that distinguish a "commercial
fundraiser" from a "fundraising counsel," which is discussed
further in Comment 2 below. The AG writes that:
AB 556 will address and correct both legal deficiencies
identified in the Help Hospitalized Veterans litigation and
improve transparency and accountability for all for-profit
charitable fundraisers. The bill expands existing
transparency requirements for "commercial fundraisers" to
include "fundraising counsel," closing the loophole in current
law that allows for-profit fundraisers to avoid disclosing to
prospective donors whether a portion of their gift will be
diverted to a paid company. The bill also broadens the
Attorney General's statute of limitations for enforcement
actions to include commercial fundraisers, fundraising
counsel, and other third party entities that aid and abet
charity fraud, ensuring that all culpable parties are held
equally accountable.
This legislation will significantly improve the Attorney
General's ability to protect charitable assets and empower
responsible charitable giving. By enhancing existing
safeguards against fraud, AB 556 will maintain consumer
confidence in donating to the many nonprofit organizations
that work to make a difference in their state.
2. Bill seeks to better distinguish commercial fundraisers for
charitable purposes from fundraising counsels for charitable
purposes.
Under the Supervision of Trustees and Fundraisers for Charitable
Purposes Act ("Charitable Purposes Act," or "Act"), all
charitable entities that hold or solicit property for charitable
purposes must register with and disclose certain information to
the Attorney General. Most pertinent to this bill are
commercial fundraisers and fundraising counsel.
These classifications, and the distinctions between those
entities, are quite significant. Indeed, AB 1810 (Davis, Ch.
445, Stats. 1998) sought to close loopholes that had previously
enabled sophisticated commercial fundraisers to hire
"fundraising counsels" in order to downplay the extraordinary
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costs of their fundraising and exclude administrative costs from
their annual financial reports which might otherwise discourage
donors from making donations due to the fact that high
administration costs translate into less money for the charity.
(See Sen. Judiciary Com. analysis of AB 1810 (1998-1999 Reg.
Session), Jul. 21, 1998.) Accordingly, while under the current
Act, both charitable fundraisers and fundraising counsel must
register with and file certain documents and information with
the AG, commercial fundraisers must disclose to donors that the
solicitation is being conducted by a commercial fundraiser for
charitable purposes and, upon request, disclose their percentage
of total fundraising expenses (which signals to the donor how
much money actually ends up going to the charitable purposes).
(See Bus. & Prof. Code Sec. 17510.85 and Gov. Code Sec.
12599(j).)
Additionally, while fundraising counsels have to provide the AG
with an annual list of the charitable organizations for which
the fundraiser has performed services and make its written
contracts with those charitable organizations available for
inspection to the AG, commercial fundraisers must not only make
their contracts available for inspection, but also specifically
disclose to the AG, on an annual basis, their: (1) total
revenue; (2) the fee or commission charged by the commercial
fundraiser for charitable purposes; (3) salaries paid by the
commercial fundraiser for charitable purposes to its officers
and employees; (4) fundraising expenses; (5) distributions to
the identified charitable organization or purpose; and (6) the
names and addresses of any director, officer, or employee of the
commercial fundraiser for charitable purposes who is a director,
officer, or employee of any charitable organization listed in
the annual financial report. (See Gov. Code Secs.
12599.1(d)-(f), 12599(d).)
Indeed, the more onerous filing and disclosure requirements for
commercial fundraisers appear justified given that the
definition of fundraising counsel presumes that the fundraising
counsel's involvement generally stops at managing, advising,
counseling, consulting, or preparing materials for, or with
respect to, the solicitation of donations. Unlike their
commercial fundraiser counterparts, entities seeking to register
as fundraising counsel must not solicit the donation directly,
or receive or control the donation, or employ anyone to engage
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in such activities. That being said, the AG, the sponsor of
this bill, provides information that suggests that the lines
between these two types of entities engaged in charitable
activities is being blurred by some who seek to take advantage
of the "fundraising counsel" classification, but then engage in
activities that would seem to fall under the category of
commercial fundraising. As described by the sponsor:
In 2012, Attorney General Harris filed suit against Help
Hospitalized Veterans (HHV), a charity that solicited
donations to support programs serving veterans and active-duty
military improperly diverted more than $4.3 million in funds
toward the purchase of golf memberships, condominiums, and
excessive executive compensation. The scheme included loans
made by HHV to American Target Advertising, a for-profit firm
that directed the charity's vast direct-mail fundraising
operation while making substantial payments to HHV's former
president. Another fundraising firm, Creative Direct
Response, made deceptive statements in its direct mail
solicitations to imply that there were minimal or no
fundraising expenses associated with the campaign, while in
actuality, HHV incurred substantial costs. Meanwhile, the
nonprofit used accounting gimmicks to inflate the amount of
income purportedly spent on providing veterans' services while
artificially minimizing the amount reportedly spent on
fundraising. [Footnote excluded.]
[. . . D]espite the fact that American Target Advertising and
Creative Direct Response each unilaterally orchestrated
elaborate fundraising campaigns for HHV-designing fundraising
materials, managing prospective donor mailing lists,
etc.-neither were legally registered as "commercial
fundraisers" because the direct mail was turned over to HHV
for final mailing. Instead, both companies filed as
"fundraising counsel." A "caging operation" was used to siphon
donations off to the firms, paying out millions of dollars in
fees before turning any money over to the charity. Because
these firms stopped just short of physically sending the
solicitations they designed, none of the materials contained
written disclosures that would have been required if the
campaigns were conducted by "commercial fundraisers." In
total, between 65-72 percent of the annual gross revenue HHV
received from donors over the years went to the charity's
fundraising operation.
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This bill would help close the loophole in the law, by better
defining who is a commercial fundraiser, and who is a
fundraising counsel. First, the bill would expand the
definition of a commercial fundraiser to also include any person
or entity who for compensation plans, manages, advises,
counsels, consults, or prepares material for, or with respect
to, the solicitation in this state of funds, assets, or property
for charitable purposes, but is otherwise disqualified as a
fundraising counsel under the latter's definition. Further, the
bill would modify the fundraising counsel definition to clarify
that "compensation" received for its services, is something
other than a percentage of the funds, assets, or property
received as a result of a solicitation campaign, and to clarify
that a person or entity is deemed "to receive or control funds,
assets, or property"-and therefore not a fundraising counsel-if
it:
has the right to approve or veto any payment from an escrow
account to which funds received from a solicitation for
charitable purposes are subject;
maintains an interest in an account into which solicited funds
are deposited;
has the right to access funds, assets, or property received
from a solicitation for charitable purposes and held by a
"caging company" (defined as a business that receives
contributions, processes donor mail, and deposits all
contributions into an account under the sole control of the
charitable organization);
has any ownership or management interest in any other entity
that receives or controls the funds, assets, or property
solicited for charitable purposes, including, but not limited
to, an escrow agent or caging company, but excluding a
federally insured financial institution; or
receives any financial benefit, directly or indirectly, from
any other individual or entity that receives or controls the
funds, assets, or property solicited for charitable purposes,
other than the trustee or charitable corporation soliciting
those donations.
3. Specified actions by the Attorney General to enforce the
Charitable Purposes Act are already subject to a 10 year
statute of limitations
Under the Charitable Purposes Act, the AG may bring an action
against trustees or other persons holding property in trust for
charitable purposes or against any charitable corporation or any
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director or officer thereof, to enforce a charitable trust or to
impress property with a trust for charitable purposes or to
recover property or the proceeds thereof for and on behalf of
any charitable trust or corporation, for up to 10 years after
the action accrued.
According to the AG, however, in the Help Hospitalized Veterans
case, "despite significant evidence that Creative Direct
Response had made serious misrepresentations in its
solicitations to over 40,000 potential donors, subject to over
$4 million in civil penalties, the firm was successful on
demurrer and was not held accountable for its role in the HHV
fraud." The sponsor explains that this occurred because of the
narrow application of the 10 year statute of limitations under
existing law:
[E]ven though the Attorney General's enforcement authority
under the Supervision of Trustees and Fundraisers for
Charitable Purposes Act applies to fundraising counsel, the
express language of the Act's special 10-year statute of
limitations covering officers and directors of charities does
not cover causes of action against third parties, including
fundraisers, even though they participate in the charity
fraud. The court in the HHV case instead applied the standard
3-year statute of limitations for fraud to Creative Direct
Response's conduct and ruled that the action could not proceed
against the fundraiser. Since charitable trust enforcement
actions are often complex, fact-intensive, and cover an
extended period of time, a 10-year statute of limitations is
necessary in order to ensure that all who commit misconduct
involving charities are held accountable for their actions.
Accordingly, this bill seeks to provide a broader 10-year
statute of limitation that would allow the AG to also bring an
action at any time within 10 years after the cause of action
accrued: (1) pursuant to specified involuntary trust laws under
the Civil Code; (2) arising out of a violation of the Charitable
Purposes Act, pursuant to specified involuntary trust laws, or
pursuant to the Nonprofit Corporation Law; and (3) against a
person who aids or abets a violation of the Charitable Purposes
Act, specified involuntary trust laws, or the Nonprofit Public
Benefit Corporations laws.
As a matter of public policy, shorter limitations periods serve
important policy goals that help to preserve both the integrity
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of our legal system and the due process rights of individuals.
Their purpose is to prevent the assertion of stale claims and,
ultimately, "to promote justice by preventing surprises through
the revival of claims that have been allowed to slumber until
evidence is lost, memories have faded, and witnesses have
disappeared." (3 Witkin Cal. Proc. Actions Sec. 433.) That
being said, here, existing law already envisions providing the
AG with longer periods of time to bring enforcement
actions-albeit against a narrower number of individuals. This
longer period is largely justified by the potential complexity
of the underlying cases and the time and work that can be
required to both uncover fraud and to pursue those involved.
Arguably, therefore, the 10 year statute of limitations should
be based upon the underlying act, and not necessarily a small
subset of potential bad actors against whom the action would be
brought against.
Support : American Cancer Society Cancer Action Network;
California Association of Nonprofits (CalNonprofits); Christian
Appalachian Project; Disabled American Veterans; DMA Nonprofit
Federation; Easter Seals; Feed the Children; Food and Water
Watch; Food for the Poor; March of Dimes California Chapter;
Network American Institute for Cancer Research; Wounded Warrior
Project, Inc.
Opposition : None Known
HISTORY
Source : Attorney General
Related Pending Legislation : None Known
Prior Legislation :
AB 2327 (Feuer, Ch. 483, Stats. 2012) revised the enforcement
provisions of the Charitable Purposes Act.
SB 1262 (Sher, Ch. 919, Stats. 2004) See Background.
SB 2015 (Sher, Ch. 475, Stats. 2000) amended the Charitable
Purposes Act to grant the AG additional enforcement tools and
AB 556 (Irwin)
Page 17 of ?
resources, including: ability to assess late fees; authority to
suspend or revoke registrations; the ability to impose criminal
penalties for violations of the Act; and the appropriation of
all fines, penalties, attorney's fees and costs to the AG for
the administration and enforcement of the Act.
AB 1810 (Davis, Ch. 445, Stats. 1998) See Background.
SB 1682 (Boatwright, Ch. 511, Stats. 1992) See Background.
AB 3066 (Sher, Ch. 249, Stats. 1992) See Background.
AB 838 (Peace, Ch. 569, Stats. 1991) See Background.
Prior Vote :
Assembly Floor (Ayes 78, Noes 0)
Assembly Appropriations Committee (Ayes 17, Noes 0)
Assembly Privacy and Consumer Protection Committee (Ayes 11,
Noes 0)
Assembly Judiciary Committee (Ayes 10, Noes 0)
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