BILL ANALYSIS Ó AB 2244 Page 1 Date of Hearing: April 12, 2016 ASSEMBLY COMMITTEE ON JUDICIARY Mark Stone, Chair AB 2244 (Gatto) - As Amended April 5, 2016 As Proposed to be Amended SUBJECT: COURT FEES: ELECTRONIC FILING KEY ISSUE: IN ORDER TO REDUCE COSTS FOR LITIGANTS AND TO PROMOTE ACCESS TO JUSTICE FOR INDIGENT PARTIES, SHOULD ELECTRONIC FILING VENDORS BE PROHIBITED FROM CHARGING A PAYMENT TRANSACTION COST THAT EXCEEDS THE ACTUAL COST, AND BE REQUIRED TO PROVIDE A VARIETY OF PAYMENT METHODS, INCLUDING METHODS THAT DO NOT CHARGE A TRANSACTION COST? SYNOPSIS During the 2013-14 fiscal year, there were nearly 7.5 million cases filed in our trial courts statewide. Given the high volume of filings, a party's ability to file and serve documents electronically significantly improves the court's capacity to process filings. The now-defunct statewide Court Case Management System (CCMS) would have made it easier for courts to accept electronic filings. As a result of CCMS's termination, trial courts have looked toward private vendors to provide electronic filing services. AB 2244 Page 2 It seems safe to say that electronic filing has dramatically improved over the years and this technological improvement has helped improve access to courts. But of course, the electronic filing system isn't perfect. Indeed, courts need to ensure that any electronic filing system protects low-income and indigent litigants and reduces costs for all parties by promoting competition among vendors. Consistent with these goals, this bill reduces costs for litigants and promotes access to justice for indigent litigants. First, this bill prohibits electronic filing vendors from charging a credit card convenience fee that exceeds the cost incurred by vendors in providing that transaction, consistent with existing law. Second, this bill prohibits electronic filing vendors from charging indigent litigants a payment processing fee and clarifies existing law so that indigent litigants may more easily file electronically without being charged. Third, this bill requires the court or the electronic filing manager to provide a menu of alternative forms of payment, including payments methods that do not charge transaction fees. Lastly, this bill allows parties to recover electronic service fees as allowable recoverable costs in courts that require mandatory electronic filing. This author-sponsored bill is supported by the Coalition for Improving Court Access, a coalition of electronic filing service providers and others who support the growth of electronic filing in California courts, and has no opposition on file. SUMMARY: Prohibits electronic filing vendors from charging a payment method convenience fee that exceeds the cost incurred to provide the processing. Specifically, this bill: 1)Provides that an agent of the court may impose a fee for the use of a credit card or debit card or electronic funds transfer, not to exceed the costs incurred by the agent in AB 2244 Page 3 providing for that payment method. Provides that fees, if any, charged by the court, an electronic filing manager, or an electronic filing service provider to process a payment shall not exceed the actual costs incurred for processing. 2)Requires the court, an electronic filing manager, or an electronic filing service provider to waive processing payment fees if the court deems waiver appropriate, including in instances where a party has received a fee waiver. 3)Requires a court or an entity contracted with a court to provide a system for acceptance of electronically transmitted documents to provide a menu of payment options that may include credit or debit cards, electronic funds transfers, electronic networks for financial transactions, and payment methods that do not charge a transaction cost. 4)Allows a prevailing party to recover electronic filing service provider fees as costs. 5)Allows a prevailing party to recover electronic filing service provider hosting fees as cost until January 1, 2022. EXISTING LAW: 1)Authorizes courts to allow parties to electronically file court documents in accordance to rules established by the Judicial Council, and as provided by state law. (Code of Civil Procedure Section 1010.6(b). Unless stated otherwise, all further statutory references are to the Code of Civil Procedure.) AB 2244 Page 4 2)Authorizes courts to require parties to electronically file documents in a class action, a consolidated action, or a group of actions, a coordinated action, or an action that is deemed complex under Judicial Council rules, provided that the trial court's order does not cause undue hardship or significance prejudice to any party to the action. (Section 1010.6 (c).) 3)Authorized the Orange County Superior Court, by local rule and until July 1, 2014, to establish a pilot project to require parties to electronically file and serve documents in specified civil actions subject to specified conditions, including: a) The court shall have the ability to maintain the official court record in electronic format for all cases where electronic filing is required. b) The court and the parties shall have access either to more than one electronic filing service provider capable of electronically filing documents with the court, or to electronic filing access directly through the court. c) Any fees charged by the court shall be for no more than the actual cost of the electronic filing and service of the documents, and shall be waived when deemed appropriate by the court, including, but not limited to, for any party who has received a fee waiver. Any fees charged by an electronic filing service provider shall be reasonable and shall be waived when deemed appropriate by the court, including, but not limited to, for any party who has received a fee waiver. (Section 1010.6 (d).) 1)Authorizes trial courts to require parties to electronically file and serve documents, provided that the trial court AB 2244 Page 5 follows the rules adopted by the Judicial Council for mandatory electronic filing, and meets the conditions specified under the Orange County Superior Court pilot, as provided above in #3. (Section 1010.6 (g).) 2)Provides that rules adopted by the Judicial Council relating to mandatory electronic filing and service of documents in trial courts shall include statewide policies on vendor contracts, privacy, access to public records, unrepresented parties, parties with fee waivers, hardships, reasonable exceptions to electronic filing, and the integrity of electronic service. (Section 1010.6 (f).) 3)Sets forth the rules adopted by the Judicial Council regarding electronic filing and serving of court documents. (Cal. Rules of Court, Rules 2.250-2.261.) 4)Pursuant to the Federal Rules of Civil Procedure, a court may, by local rule, allow papers to be filed, signed, or verified by electronic means as provided. A local rule may require electronic filing only if reasonable exceptions are allowed. The clerk must not refuse to file a paper solely because it is not in the form prescribed by a local rule or practice. (Fed. Rules Civ. Proc., rule 5(d), 28 U.S.C.) 5)Requires the court to permit a party or an attorney to file an application for a fee waiver as part of the electronic filing process. (Section 1010.6 (b)(6).) 6)Authorizes a court and other specified public agencies to accept credit card, debit card, or electronic fund transfers for the payment of specified government services and fees. Provides that when a court or other specified public agencies authorizes one of the payment methods, the public agency may AB 2244 Page 6 impose a fee for the use of a debit card, or electronic fund transfer not to exceed the costs incurred by the public agency in providing for payment. If a court is imposing the fee, the fee shall be approved by the Judicial Council. (Government Code Section 6159.) 7)Provides that a prevailing party is entitled as a matter of right to recover costs in any action or proceeding, as provided. (Section 1032.) 8)Provides specified items that are allowable recoverable costs and others that are not allowable recoverable costs. (Section 1033.5) 9)Provides that any award of costs shall be subject to the following: a) Costs are allowable if incurred, whether or not paid. b) Allowable costs shall be reasonably necessary to the conduct of the litigation rather than merely convenient or beneficial to its preparation. c) Allowable costs shall be reasonable in amount. d) Items not specifically mentioned and items assessed upon application may be allowed or denied in the court's discretion. (Ibid.) FISCAL EFFECT: As currently in print this bill is keyed fiscal. COMMENTS: California's court system is one of the largest in AB 2244 Page 7 the world, with more than 2,000 judicial officers and approximately 19,000 judicial branch employees statewide who assist in the court's management of cases every year. (2015 Courts Statistics Report: Statewide Caseload Trends, Judicial Council of California (2015).) During the 2013-14 fiscal year, there were 7.5 million cases filed statewide in the superior courts. (Ibid.) Given the high volume of filings in California's courts each year, a party's ability to file and serve documents electronically significantly improves the court's capacity to process filings. Ideally, parties could file their legal documents electronically directly to the court through a statewide case management system at no additional cost (aside from the court filing fee). But given the reality of the courts not having such a system, trial courts are doing the best they can to facilitate electronic filing with county systems that rely upon fees for service. The Failure of a Statewide Court Case Management System (Which Would Have Allowed Parties to File Electronically) Has Forced Trial Courts to Look Elsewhere for Technological Improvements. The Judicial Council's Court Case Management System (CCMS), an ambitious court technology project to provide all 58 superior courts with a long-needed uniform, linked case management system would have, among other things, made it easier for parties to file their legal documents electronically with the courts. In February 2011, the California State Auditor issued a report roundly criticizing the Judicial Council's lack of proper management and oversight of the project. In its report, the Auditor concluded that, among other criticisms of the project, the Judicial Council did not ensure adequate independent oversight of CCMS, as would be expected of a project of similar size and complexity. Concern about the computer project continued, resulting in internal and independent reviews, AB 2244 Page 8 legislative hearings, and proposed legislation. In March of 2012, the Legislature concluded the project must be halted and denied any further funding to CCMS. Later that month, the Judicial Council terminated the project. The termination of CCMS, after the expenditure of more than half a billion dollars, not only depleted the courts' increasingly scarce resources, but also left many trial courts with failing case management systems. As a result, counties have turned to various private vendors to provide technology systems to their courts. Generally, these private technology systems allow for the electronic filing of documents. In support of the bill, the author writes that electronic filing represents the future in California courts and benefits the courts, litigants, lawyers and the public generally: Since the demise of the Judicial Council's proposed California Case Management System (CCMS) in the heights of the Great Recession, California courts have moved to upgrade their information technology systems with local contracts with various vendors. These contracts typically provide for case management systems, electronic filing of documents, and more. Usually the third party vendor acts as an "electronic filing managers" (EFMs) in creating the portals through which "electronic filing service providers" (EFSPs) actually file documents on behalf of law firms and other users of court services. Increasingly, courts are moving to require the filing of documents electronically. In some counties, certain case types must be filed electronically, and often complex civil cases require e-filing. In some counties, EFSPs must pay court filing fees and e-filing transaction costs with credit cards, and pay convenience fees to electronic filing managers for the use of credit cards. AB 2244 Page 9 While electronic filing represents a major benefit to the courts and public, how the systems are implemented can raise policy questions of fair access to the judicial system. In addition, present law contains a number of ambiguities which should be resolved as these systems are being implemented. AB 2244 is intended to address some of these ambiguities. Background on Electronic Filing. Many state courts throughout the country have electronic filing capabilities. Some of these courts allow electronic filing, while others mandate it. Likewise, federal rules allow federal courts to accept documents via electronic filing, if they so choose and allow federal courts to require electronic filing "only if reasonable exceptions are allowed." (Fed. Rules Civ.Proc., rule 5(d), 28 U.S.C.) Generally, under the federal approach, only attorneys are mandated to participate in electronic filling. However, the federal courts have a rule that prohibits a court clerk from refusing to accept paper filings - even if a local court rule mandates electronic filing. (Ibid.) How Does Electronic Filing Work? According to a recent staff report from the Judicial Council, an electronic filing system requires both an electronic filing service provider (EFSP) and an electronic filing manager (EFM). Generally, the litigant files the legal document with the EFSP which translates the information, and sends it to the EFM, which delivers and communicates that information to the court's case management system. (The Critical Role of the State Judiciary in Increasing Access for Self-Represented Litigants: Self-Help Access 360, Judicial Council, July 2015.) If Electronic Filing Is Not Managed Correctly, It May Create Barriers to Justice for Self-Represented and Low-Income Litigants. In that same report, concerns about electronic filing and access to justice were raised: AB 2244 Page 10 Early experiences with e-filing, both in California and in other states, suggest that many private vendor EFSPs are not focused on serving the market segment of self-represented litigants, many of whom are indigent and qualify for fee waivers. The access community believes that the exclusion of self-represented litigants from electronic filing "has the potential to enlarge the access to justice gap in the long run." Electronic filing is an area in which a slight tip of the balance means that the technology tool is no longer used to achieve greater access; rather, it becomes a barrier. The California judicial branch has the opportunity to "place a finger on the scale" in favor of low-income and self-represented litigants by developing the capacity to serve as the EFSP and EFM for all self-represented litigants in the state. In other states, the judicial branch serves as either a sole EFSP or sole EFM for all forms of electronic filing on behalf of all courts throughout the state. In California, the Judicial Council can ensure that electronic filing is available to all court users by serving as a one-stop EFSP and EFM for self-represented litigants. This function is the culmination of the work currently being undertaken to apply user-centered design concepts to the information currently available on the statewide self-help website and is the final link in providing full and equal access to the courts for self-represented litigants. (The Critical Role of the State Judiciary in Increasing Access for Self-Represented Litigants: Self-Help Access 360, supra.) Electronic Filing is Not New to California. California initially authorized electronic filing in 1999 under SB 367 (Dunn, Chap. 514, Stats. 1999). In 2012, the Legislature authorized a pilot program to allow the Orange County Superior Court to require parties to file their legal documents AB 2244 Page 11 electronically under AB 2073 (Silva, Chap. 320, Stats. 2012). Among other things, the AB 2073 pilot required the following: (1) the court to have the ability to maintain the official court record in electronic format for all cases where electronic filing is required; (2) the court and the parties to have access either to more than one EFSP capable of electronically filing documents, or to electronically file directly through the court; and (3) the court to have a procedure for the filing of non-electronic documents in order to prevent undue hardship or significant prejudice to any party in an action. Assuming that other trial courts would eventually want mandatory electronic filing, AB 2073 required the Judicial Council to adopt rules for trial courts. Those rules required a consideration of statewide policies on vendor contracts, privacy, access to public records, unrepresented parties, parties with fee waivers, hardships, reasonable exceptions to electronic filing, and the integrity of electronic service. Trial courts that choose mandatory electronic filing must also follow the conditions required under the Orange County Superior Court pilot. In 2014, the Judicial Council reported that the Orange County pilot "was a success": Mandatory electronic filing resulted in significant cost savings for the court and was generally less expensive for represented and self-represented litigants. Electronic filing also offered ease of use and convenience for litigants. And when issues arose, the court responded to address those issues. Similarly, changes to the California Rules of Court ameliorated any latent access issues by exempting SRLs [self-represented litigants] from the mandatory electronic filing requirement. (Report on the Superior Court of Orange County's Mandatory E-Filing Pilot Project, Judicial Council of California, September 30, 2014.) AB 2244 Page 12 To date, 13 trial courts have adopted some form of mandatory electronic filing system. Although mandatory electronic filing may be an attractive option for trial courts because of the significant efficiencies to courts, electronic filing has not been perfect. Indeed, as more and more courts implement electronic filing systems, this Committee discovers new issues, such as how the current process has affected indigent litigants; competition among vendors; and the high cost of electronic filing. To some extent at least, this bill addresses several of those issues. Consistent with Existing Law, this Bill Prevents Electronic Filing Vendors from Charging a Payment Method Convenience Fee that Exceeds the Cost to Vendors of that Payment Transaction. Government entities may accept credit cards, debit cards, or electronic funds transfers for the payment of certain government services, including court filings. Although current law allows a government entity, including a court, to impose a convenience fee for those transactions, the government entity may not charge a convenience fee that exceeds its costs for providing that payment method. When it comes to electronic filing, vendors who apply a convenience fee for the use of credit cards, debit cards, or electronic funds transfer are not bound by the same rules described above. For example, this Committee has learned that some vendors charge a credit card transaction fee at a percentage of a filing service fee (for example, a 2.5 percent credit card fee for $1,435 complex civil filing fee, which amounts to an additional $35.86 charge). Consistent with current law, this bill sensibly provides that an electronic filing service provider, who remits funds in order to complete an electronic filing transaction, acts as an agent of AB 2244 Page 13 the court, and may not charge a convenience fee that exceeds the provider's cost to provide that service. In order to further protect litigants and provide greater clarity about convenience costs associated with processing payment methods, this bill also requires that when a trial court adopts rules for mandatory electronic filing, the fees (if any) that are charged by the court, an electronic filing manager, or an electronic filing service provider to process a payment shall not exceed the actual costs incurred by the court, manager, or provider. This Bill Makes Electronic Filing More Accessible to Indigent Litigants and Litigants with Fee Waivers, Consistent with California's Goals of Promoting Access to Justice. As previously mentioned, trial courts that mandate electronic filing must adopt the conditions required by the Orange County Superior Court pilot and the applicable Rules of Court issued by the Judicial Council. Under Rules of Court 2.253, a party who has a fee waiver is exempt from all electronic filing fees. To ensure that litigants with fee waivers have true access to electronic filing without fees, this bill does two important things. First, it prohibits those litigants from being required to pay transaction processing fees. Second, it clarifies existing law to require an electronic filing service provider to electronically file a fee-waiver-litigant's documents if that is the litigant's preferred method. In order to protect litigants who may not have access to credit or debit cards, this bill also sensibly requires electronic filing managers to accept alternative forms of payment beyond credit cards for the payment of filing fees and e-filing transaction costs. Specifically, this bill requires the court (or the electronic filing manager) to offer a menu of payment options, including but not limited to, credit cards or debit cards, electronic fund transfers, Automated Clearing House, and payment methods that do not charge a transaction cost, such as AB 2244 Page 14 an electronic check. Given That Some Courts Mandate Electronic Filing, this Bill Would Allow Costs Associated With Electronic Filing to Be Recoverable Litigation Costs. Throughout litigation, parties pay for costs associated with the legal proceeding, such as filing fees, expert-witness fees, and attorney's fees. In addition to any judgment award, current law allows the prevailing party to recover specific litigation costs from the unsuccessful party. Current law specifically provides which items are allowable or not allowable as recoverable costs. For example, transcripts of court proceedings ordered by the court are allowable, while costs for the investigation of jurors during voir dire are not allowable. Additionally, costs must be reasonable in amount and reasonably necessary to the conduct of the litigation; if certain costs are not mentioned in statute, a court may use its discretion to allow or deny a cost. Given that some courts have mandated electronic filing, this bill reasonably adds electronic filing service provider fees to the list of allowable recoverable costs when a court requires or orders a party to file and serve documents electronically with the court. This bill also limits those costs to costs that are actually incurred. Recovering Hosting Costs. This Committee has learned that, sometimes, courts will order parties to have their documents "hosted" by an electronic filing service provider. This often occurs in complex cases when certain documents are never lodged with the court, and courts lack the infrastructure to hold these out-of-court documents. Although this bill still allows parties to recover these hosting costs, the bill, as proposed to be amended, includes a five-year sunset. On a certain level, it seems that certain depository AB 2244 Page 15 responsibilities belong to the court, and not third party vendors. Additionally, this Committee has learned that some courts may soon acquire the technology to become the depository in complex cases. In order for this Committee to assess whether trial courts should acquire hosting technology, or whether it is more appropriate for electronic filing service providers to host documents, the author proposes to make the following amendments: On page 8, line 39, after file, insert "and". On page 8, line 39, delete the first comma and ", and host" On page 8, line 40, after the period, insert "(15) Electronic filing service provider hosting fees. If a court requires or orders a party to have documents hosted by an electronic filing service provider, the recoverable costs are those actually incurred to host documents through an electronic filing service provider. This paragraph shall remain in effect only until January 1, 2022, and as of that date is repealed, unless a later enacted statute deletes or extends that date." On page 9, line 1, delete (15) and insert (16) On page 14, line 1, delete "or" and insert "and" Although this Bill Does Not Specifically Address the Issues of Vendor Competition, this Bill Highlights the Need for the Legislature's Oversight in the Courts' Progress in Mandating Electronic Filing. When AB 2073 moved through the Legislature, AB 2244 Page 16 this Committee raised several concerns about how trial courts would implement mandatory e-filing. First and foremost, this Committee signaled that indigent litigants should not be required to file electronically. (Indeed, this bill takes significant steps to help achieve that goal.) Second, this Committee signaled that "[l]itigants should not be forced to use only one vendor, but should have the ability to either directly file with the court or have a choice of multiple vendors to use." (Assembly Judiciary Committee analysis of AB 2073; April 24, 2012.) Indeed, in order to promote access to justice, there should be robust competition to keep electronic filing costs low, and to prevent a de facto increase in California's civil filing fees. As this bill was being analyzed, this Committee learned that the Judicial Council is considering a recommendation to encourage courts to have multiple electronic filing managers. While this policy is consistent with this Committee's goals of promoting robust competition among vendors, the Legislature should continue to actively monitor how our courts' are implementing electronic filing. REGISTERED SUPPORT / OPPOSITION: Support Coalition for Improving Court Access Opposition AB 2244 Page 17 None on file Analysis Prepared by:Eric Dang / JUD. / (916) 319-2334