California Legislature—2015–16 Regular Session

Assembly Bill No. 2759

Introduced by Assembly Member Levine

February 19, 2016

An act to amend Sections 2282, 2282.1, 2286, 2288, 2289, 2293.1, and 2294 of the Corporations Code, relating to fraud.

LEGISLATIVE COUNSEL’S DIGEST

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 1.  

Section 2282 of the Corporations Code is
amended to read:

2282.  

(a) When an aggrieved person obtains a final judgment
in a court of competent jurisdiction against a corporation begin insert or an
agent of a corporation end insert based upon the corporation’s begin insert or the agent’s end insert
fraud, misrepresentation, or deceit, made with intent to defraud,
the aggrieved person may, upon the judgment becoming final and
after diligent collection efforts are made, file an application with
the Secretary of State for payment from the fund, within the
limitations specified in Section 2289, for the amount unpaid on
the judgment that represents the awarded actual and direct loss,
any awarded compensatory damages, and awarded costs to the
claimant in the final judgment, excluding punitive damages.

(b) The application shall be delivered in person or by certified
mail to the Secretary of State not later than 18 months after the
judgment has become final.

(c) The application shall be made on a form prescribed by the
Secretary of State and shall include each of the following:

(1) The name and address of the claimant.

(2) If the claimant is represented by an attorney for the
application, the name, business address, and telephone number of
the attorney. If the claimant is not represented by an attorney for
the application, a telephone number where the claimant can be
reached during regular business hours shall be included.

(3) The name and address of the begin delete corporation. end delete begin insert corporation or
the agent of the corporation. end insert

(4) The identification of the final judgment, the amount of the
claim that remains unreimbursed from any source, and an
explanation of the claim’s computation.

(5) A copy of a final judgment and a copy of the civil complaint
and any amendments thereto upon which the judgment finding
fraud, misrepresentation, or deceit, made with the intent to defraud,
was made shall be deemed to satisfy compliance with the
requirements prescribed in this paragraph. The claimant may also
provide any additional documentation that he or she believes may
help the Secretary of State in evaluating the application, including,
but not limited to, evidence submitted to the court in the underlying
judgment or a detailed narrative statement of facts in explanation
of the allegations of the complaint upon which the underlying
judgment is based.

(6) A description of searches and inquiries conducted by or on
behalf of the claimant with respect to the corporation’s begin insert or agent’s end insert
assets liable to be sold or applied to satisfaction of the judgment.
A court’s determination or finding of the corporation’s begin insert or agent’s end insert
insolvency or lack of assets to pay the claimant shall be deemed
to satisfy the requirements prescribed in this paragraph.

(7) Each of the following representations by the claimant:

(A) That the claimant is not a spouse or an immediate family
member of an employee, officer, director, managing agent, or other
principal of the corporation nor a personal representative of the
spouse or an immediate family member of an employee, officer,
director, managing agent, or other principal of the corporation.

(B) That the claimant has complied with all of the requirements
of this section.

(C) That the judgment underlying the claim meets the
requirements of subdivisions (a) and (b) of Section 2282, including
all of the following:

(i) That the judgment was for fraud, misrepresentation, or deceit
by the begin delete corporation, end delete begin insert corporation or the agent of the corporation, end insert
with the intent to defraud.

(ii) That the judgment is unpaid in part or in whole.

(iii) That the underlying judgment and debt have not been
discharged in bankruptcy, or the underlying judgment is statutorily
nondischargeable, or, in the case of a bankruptcy proceeding that
is open at or after the time of the filing of the application, that the
judgment and debt have been declared to be nondischargeable by
the judge or stipulated as nondischargeable by the parties in the
proceeding and that the claimant has been granted permission by
the bankruptcy court to proceed with collection or otherwise
proceed with the claimant’s claims against the begin delete corporation. end delete
begin insert corporation or its agent. end insert

(D) That the claimant does not have a pending claim and has
not collected on the final judgment from any other restitution fund.
If the claimant has a pending claim or has collected from another
fund, a description of the nature of the pending claim and the
recovery amounts from any restitution fund.

(d) (1)  Except as provided in paragraphs (2), (3), and (4) the
Secretary of State shall not condition an award of payment from
the fund upon a claimant providing any additional information or
documents other than those prescribed in subdivision (c).

(2) If the final judgment in favor of the claimant was by default,
stipulated, a consent judgment, or pursuant to Section 594 of the
Code of Civil Procedure or if the action against the corporation begin insert or
its agent end insert was defended by a trustee in bankruptcy, the Secretary
of State may request additional documents and information from
the claimant to determine whether the claim is valid.

(3) If the final judgment does not expressly set forth the amount
of damages that were awarded for actual loss and compensatory
damages that are payable from the fund pursuant to Section 2289,
the Secretary of State may ask the claimant to provide copies of
documentation pertaining to the amount of the actual and direct
loss and the awarded compensatory damages or both of those
findings. For purposes of this section, “sufficient proof of money
damages” may include any of the following: copies of bank account
statements showing or confirming particular transactions, copies
of the front and back of checks made payable to the corporation
that have been negotiated, credit card statements showing or
confirming particular transactions, or similar documentation
demonstrating financial loss directly resulting from the fraudulent
acts by the corporation begin insert or its agent end insert and the amount of
compensatory damages awarded by the court.

(4) If there is no court determination or finding of the
begin delete corporation’s end delete insolvency begin insert of the corporation or its agent end insert or lack of
assets to pay the claimant, the Secretary of State may request
additional information and documentation from the claimant to
determine what assets, if any are available to satisfy the final
judgment.

(e) The Secretary of State shall include with the application
form a notice to the claimant of his or her obligation to protect the
underlying judgment from discharge in bankruptcy, to be appended
to the application.

(f) If a claimant is a spouse or an immediate family member of
an employee, officer, director, managing agent, or other principal
of the corporation, or is a personal representative of the spouse or
an immediate family member of an employee, officer, director,
managing agent, or other principal of the corporation, the claimant
shall not be precluded for that reason alone from receiving an
award where the claimant can otherwise meet the requirements of
this section.

SEC. 2.  

Section 2282.1 of the Corporations Code is amended
to read:

2282.1.  

(a) The Secretary of State shall provide notice to the
corporation begin insert or its agent end insert that a claimant has submitted an application
for payment from the fund and shall also provide within that notice,
as prescribed by the Secretary of State, the method to contest the
payment from the fund.

(b) The notice shall be provided by certified mail addressed to
the corporation’s last designated agent for service of process of
record with the Secretary of State and notice shall be deemed
complete five calendar days after the notice is mailed.

(c) If the corporation begin insert or its agent end insert wishes to contest payment of
an application by the Secretary of State, the corporation begin insert or agent end insert
shall mail or deliver a written response addressed to the Secretary
of State within 30 calendar days of the notice of the application,
and shall mail or deliver a copy of the response to the claimant.
The written response of the corporation begin insert or agent end insert shall not be
directed to issues and facts conclusively established by the
underlying judgment. If the corporation fails to mail or deliver a
timely response, the corporation shall have waived the
corporation’s right to present objections to payment of the
application, and shall not thereafter be entitled to notice of any
action taken or proposed to be taken by the Secretary of State with
respect to the application.

SEC. 3.  

Section 2286 of the Corporations Code is amended to
read:

2286.  

 The Secretary of State shall give notice, as prescribed
by the Secretary of State, to the corporation begin insert or its agent end insert that the
Secretary of State has made a decision to award funds to the
claimant and shall provide a copy of the decision to the begin delete corporation. end delete
begin insert corporation or its agent. end insert

SEC. 4.  

Section 2288 of the Corporations Code is amended to
read:

2288.  

(a) Whenever the court proceeds upon a petition under
Section 2287, it shall order payment out of the fund only upon a
determination that the aggrieved party has a valid cause of action
within the purview of Section 2282, and has complied with Section
2287.

(b) (1) The Secretary of State may defend any action on behalf
of the fund and shall have recourse to all appropriate means of
defense and review, including examination of witnesses and the
right to relitigate any issues that are material and relevant in the
proceeding against the fund. The claimant’s judgment shall create
a rebuttable presumption of the fraud, misrepresentation, or deceit
by the corporation, which presumption shall affect the burden of
producing evidence.

(2) If the civil judgment, arbitration award, or criminal
restitution order in the underlying action on which the final
judgment in favor of the petitioner was by default, stipulation,
consent or pursuant to Section 594 of the Code of Civil Procedure,
or if the action against the corporation begin insert or its agent end insert was defended
by a trustee in bankruptcy, the petitioner shall have the burden of
proving that the cause of action against the corporation begin insert or its agent end insert
was for fraud, misrepresentation, or deceit.

(c) The Secretary of State may move the court at any time to
dismiss the petition when it appears there are no triable issues and
the petition is without merit. The motion may be supported by
affidavit of any person or persons having knowledge of the facts,
and may be made on the basis that the petition, and the judgment
referred to therein, does not form the basis for a meritorious
recovery claim within the purview of Section 2282; provided,
however, the Secretary of State shall give written notice at least
10 calendar days before hearing on the motion to the claimant.

SEC. 5.  

Section 2289 of the Corporations Code is amended to
read:

2289.  

(a) Notwithstanding any other provision of this chapter
and regardless of the number of persons aggrieved in an instance
of corporate fraud, or misrepresentation or deceit resulting in a
judgment meeting the requirements of Section 2282, or the number
of judgments against a begin delete corporation, end delete begin insert corporation or its agent, end insert the
liability of the fund shall not exceed fifty thousand dollars
($50,000) for any one claimant per single judgment finding fraud,
misrepresentation, or deceit, made with the intent to defraud.

(b) When multiple corporations begin insert or its agents end insert are involved in
the same event or series of events that are the basis of the
claimant’s final judgment and the conduct of two or more of the
corporations begin insert or its agents end insert results in a judgment meeting the
requirements of Section 2282, the claimant may seek recovery
from the fund based on the judgment against any one of the
begin delete corporations, end delete begin insert corporations or its agents, end insert subject to the limitations
of subdivision (a).

(c) When multiple claimants are involved in a corporate fraud,
or in misrepresentation or deceit by a begin delete corporation, end delete begin insert corporation or
its agents, end insert resulting in a judgment meeting the requirements of
Section 2282, each claimant may seek recovery from the fund
individually, subject to the limitations of subdivision (a).

(d) Claimants who are spouses, registered domestic partners,
or persons other than natural persons, that have obtained an eligible
final judgment shall be considered one claimant.

SEC. 6.  

Section 2293.1 of the Corporations Code is amended
to read:

2293.1.  

If the Secretary of State pays from the fund any amount
in settlement of a claim or toward satisfaction of a final judgment
against a begin delete corporation, end delete begin insert corporation or its agent, end insert the corporation begin insert or
its agent end insert shall be required to pay to the fund the amount paid plus
interest at the prevailing legal rate applicable to a judgment
rendered in any court of this state, within 30 calendar days of the
date that the Secretary of State provided notice of the payment of
the award or compromise. If the corporation begin insert or its agent end insert fails to
make the required payment to the fund within the required time,
the corporation shall be suspended until the payment is made. A
discharge in bankruptcy shall not relieve a corporation begin insert or its agent end insert
from the penalties and disabilities provided in this chapter.

SEC. 7.  

Section 2294 of the Corporations Code is amended to
read:

2294.  

The Secretary of State shall not make any award to a
claimant from the fund if the claimant has received payment from
any other restitution funds or for the portions of the judgment that
the claimant has collected from the corporation begin insert or its agent end insert or any
other defendant in the underlying judgment.