AB 2759, as introduced, Levine. Corporations: agents: victims of corporate fraud compensation fund.
Existing law establishes the Victims of Corporate Fraud Compensation Fund, a continuously appropriated fund, within the State Treasury administered by the Secretary of State, the sole purpose of which is to provide restitution to victims of corporate fraud. Existing law provides that an aggrieved person who obtains a final judgment, as specified, against a corporation based upon the corporation’s fraud, misrepresentation, or deceit, made with intent to defraud, may file an application with the Secretary of State for payment from the fund for the amount unpaid on the judgment that represents the awarded actual and direct loss to the claimant in the final judgment.
This bill would additionally apply those provisions if an aggrieved person obtains a final judgment against an agent of a corporation based upon those same circumstances. The bill would also make conforming changes.
Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.
The people of the State of California do enact as follows:
Section 2282 of the Corporations Code is
2amended to read:
(a) When an aggrieved person obtains a final judgment
4in a court of competent jurisdiction against a corporation based upon the corporation’s
6 fraud, misrepresentation, or deceit, made with intent to defraud,
7the aggrieved person may, upon the judgment becoming final and
8after diligent collection efforts are made, file an application with
9the Secretary of State for payment from the fund, within the
10limitations specified in Section 2289, for the amount unpaid on
11the judgment that represents the awarded actual and direct loss,
12any awarded compensatory damages, and awarded costs to the
13claimant in the final judgment, excluding punitive damages.
14(b) The application shall be delivered in person or by certified
15mail to the Secretary of State not later than 18 months after the
16judgment has become final.
17(c) The application shall be made on a form prescribed by the
18Secretary of State and shall include each of the following:
19(1) The name and address of the claimant.
20(2) If the claimant is represented by an attorney for the
21application, the name, business address, and telephone number of
22the attorney. If the claimant is not represented by an attorney for
23the application, a telephone number where the claimant can be
24reached during regular business hours shall be included.
25(3) The name and address of the
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27(4) The identification of the final judgment, the amount of the
28claim that remains unreimbursed from any source, and an
29explanation of the claim’s computation.
30(5) A copy of a final judgment and a copy of the civil complaint
31and any amendments thereto upon which the judgment finding
32fraud, misrepresentation, or deceit, made with the intent to defraud,
33was made shall be deemed to satisfy compliance with the
34requirements prescribed in this paragraph. The claimant may also
35provide any additional documentation that he or she believes may
36help the Secretary of State in evaluating the application, including,
37but not limited to, evidence submitted to the court in the underlying
38judgment or a detailed narrative statement of facts in explanation
P3 1of the allegations of the complaint upon which the underlying
2judgment is based.
3(6) A description of searches and inquiries conducted by or on
4behalf of the claimant with respect to the corporation’s
5 assets liable to be sold or applied to satisfaction of the judgment.
6A court’s determination or finding of the corporation’s
7 insolvency or lack of assets to pay the claimant shall be deemed
8to satisfy the requirements prescribed in this paragraph.
9(7) Each of the following representations by the claimant:
10(A) That the claimant is not a spouse or an immediate family
11member of an employee, officer, director, managing agent, or other
12principal of the corporation nor a personal representative of the
13spouse or an immediate family member of an employee, officer,
14director, managing agent, or other principal of the corporation.
15(B) That the claimant has complied with all of the requirements
16of this section.
17(C) That the judgment underlying the claim meets the
18requirements of subdivisions (a) and (b) of Section 2282, including
19all of the following:
20(i) That the judgment was for fraud, misrepresentation, or deceit
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22 with the intent to defraud.
23(ii) That the judgment is unpaid in part or in whole.
24(iii) That the underlying judgment and debt have not been
25discharged in bankruptcy, or the underlying judgment is statutorily
26nondischargeable, or, in the case of a bankruptcy proceeding that
27is open at or after the time of the filing of the application, that the
28judgment and debt have been declared to be nondischargeable by
29the judge or stipulated as nondischargeable by the parties in the
30proceeding and that the claimant has been granted permission by
31the bankruptcy court to proceed with collection or otherwise
32proceed with the claimant’s claims against the
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34(D) That the claimant does not have a pending claim and has
35not collected on the final judgment from any other restitution fund.
36If the claimant has a pending claim or has collected from another
37fund, a description of the nature of the pending claim and the
38recovery amounts from any restitution fund.
39(d) (1) Except as provided in paragraphs (2), (3), and (4) the
40Secretary of State shall not condition an award of payment from
P4 1the fund upon a claimant providing any additional information or
2documents other than those prescribed in subdivision (c).
3(2) If the final judgment in favor of the claimant was by default,
4stipulated, a consent judgment, or pursuant to Section 594 of the
5Code of Civil Procedure or if the action against the corporation was defended by a trustee in bankruptcy, the Secretary
7of State may request additional documents and information from
8the claimant to determine whether the claim is valid.
9(3) If the final judgment does not expressly set forth the amount
10of damages that were awarded for actual loss and compensatory
11damages that are payable from the fund pursuant to Section 2289,
12the Secretary of State may ask the claimant to provide copies of
13documentation pertaining to the amount of the actual and direct
14loss and the awarded compensatory damages or both of those
15findings. For purposes of this section, “sufficient proof of money
16damages” may include any of the following: copies of bank account
17statements showing or confirming particular transactions, copies
18of the front and back of checks made payable to the corporation
19that have been negotiated, credit card statements showing or
20confirming particular transactions, or similar documentation
21demonstrating financial loss directly resulting from the fraudulent
22acts by the corporation and the amount of
23compensatory damages awarded by the court.
24(4) If there is no court determination or finding of the
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26assets to pay the claimant, the Secretary of State may request
27additional information and documentation from the claimant to
28determine what assets, if any are available to satisfy the final
30(e) The Secretary of State shall include with the application
31 form a notice to the claimant of his or her obligation to protect the
32underlying judgment from discharge in bankruptcy, to be appended
33to the application.
34(f) If a claimant is a spouse or an immediate family member of
35an employee, officer, director, managing agent, or other principal
36of the corporation, or is a personal representative of the spouse or
37an immediate family member of an employee, officer, director,
38managing agent, or other principal of the corporation, the claimant
39shall not be precluded for that reason alone from receiving an
P5 1award where the claimant can otherwise meet the requirements of
Section 2282.1 of the Corporations Code is amended
(a) The Secretary of State shall provide notice to the
6corporation that a claimant has submitted an application
7for payment from the fund and shall also provide within that notice,
8as prescribed by the Secretary of State, the method to contest the
9payment from the fund.
10(b) The notice shall be provided by certified mail addressed to
11the corporation’s last designated agent for service of process of
12record with the Secretary of State and notice shall be deemed
13complete five calendar days after the notice is mailed.
14(c) If the corporation wishes to contest payment of
15an application by the Secretary of State, the corporation
16 shall mail or deliver a written response addressed to the Secretary
17of State within 30 calendar days of the notice of the application,
18and shall mail or deliver a copy of the response to the claimant.
19The written response of the corporation shall not be
20directed to issues and facts conclusively established by the
21underlying judgment. If the corporation fails to mail or deliver a
22timely response, the corporation shall have waived the
23corporation’s right to present objections to payment of the
24application, and shall not thereafter be entitled to notice of any
25action taken or proposed to be taken by the Secretary of State with
26respect to the application.
Section 2286 of the Corporations Code is amended to
The Secretary of State shall give notice, as prescribed
30by the Secretary of State, to the corporation that the
31Secretary of State has made a decision to award funds to the
32claimant and shall provide a copy of the decision to the
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Section 2288 of the Corporations Code is amended to
(a) Whenever the court proceeds upon a petition under
37Section 2287, it shall order payment out of the fund only upon a
38determination that the aggrieved party has a valid cause of action
39within the purview of Section 2282, and has complied with Section
P6 1(b) (1) The Secretary of State may defend any action on behalf
2of the fund and shall have recourse to all appropriate means of
3defense and review, including examination of witnesses and the
4right to relitigate any issues that are material and relevant in the
5proceeding against the fund. The claimant’s judgment shall create
6a rebuttable presumption of the fraud, misrepresentation, or deceit
7by the corporation, which presumption shall affect the burden of
9(2) If the civil judgment, arbitration award, or criminal
10restitution order in the underlying action on which the final
11judgment in favor of the petitioner was by default, stipulation,
12consent or pursuant to Section 594 of the Code of Civil Procedure,
13or if the action against the corporation was defended
14by a trustee in bankruptcy, the petitioner shall have the burden of
15proving that the cause of action against the corporation
16 was for fraud, misrepresentation, or deceit.
17(c) The Secretary of State may move the court at any time to
18dismiss the petition when it appears there are no triable issues and
19the petition is without merit. The motion may be supported by
20affidavit of any person or persons having knowledge of the facts,
21and may be made on the basis that the petition, and the judgment
22referred to therein, does not form the basis for a meritorious
23recovery claim within the purview of Section 2282; provided,
24however, the Secretary of State shall give written notice at least
2510 calendar days before hearing on the motion to the claimant.
Section 2289 of the Corporations Code is amended to
(a) Notwithstanding any other provision of this chapter
29and regardless of the number of persons aggrieved in an instance
30of corporate fraud, or misrepresentation or deceit resulting in a
31judgment meeting the requirements of Section 2282, or the number
32of judgments against a
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33liability of the fund shall not exceed fifty thousand dollars
34($50,000) for any one claimant per single judgment finding fraud,
35misrepresentation, or deceit, made with the intent to defraud.
36(b) When multiple corporations
are involved in
37the same event or series of events that are the basis of the
38claimant’s final judgment and the conduct of two or more of the
39corporations results in a judgment meeting the
40requirements of Section 2282, the claimant may seek recovery
P7 1from the fund based on the judgment against any one of the
begin delete corporations,end delete subject to the limitations
3of subdivision (a).
4(c) When multiple claimants are involved in a corporate fraud,
5or in misrepresentation or deceit by a
begin delete corporation,end delete resulting in a judgment meeting the requirements of
7Section 2282, each claimant may seek recovery from the fund
8individually, subject to the limitations of subdivision (a).
9(d) Claimants who are spouses, registered domestic partners,
10or persons other than natural persons, that have obtained an eligible
11final judgment shall be considered one claimant.
Section 2293.1 of the Corporations Code is amended
If the Secretary of State pays from the fund any amount
15in settlement of a claim or toward satisfaction of a final judgment
begin delete corporation,end delete the corporation shall be required to pay to the fund the amount paid plus
18interest at the prevailing legal rate applicable to a judgment
19rendered in any court of this state, within 30 calendar days of the
20date that the Secretary of State provided notice of the payment of
21the award or compromise. If the corporation fails to
22make the required payment to the fund within the required time,
23the corporation shall be suspended until the payment is made. A
24discharge in bankruptcy shall not relieve a corporation
25 from the penalties and disabilities provided in this chapter.
Section 2294 of the Corporations Code is amended to
The Secretary of State shall not make any award to a
29claimant from the fund if the claimant has received payment from
30any other restitution funds or for the portions of the judgment that
31the claimant has collected from the corporation or any
32other defendant in the underlying judgment.