BILL NUMBER: AB 2759	INTRODUCED
	BILL TEXT


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  or an
agent of a corporation  based upon the corporation's  or the
agent'   s  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  corporation. 
 corporation or the agent of the corporation. 
   (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  or
agent's  assets liable to be sold or applied to satisfaction of
the judgment. A court's determination or finding of the corporation's
 or agent's  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  corporation,   corporation or the agent
of the corporation,  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  corporation. 
 corporation or its agent. 
   (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 
or its agent  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 
or its agent  and the amount of compensatory damages awarded by
the court.
   (4) If there is no court determination or finding of the 
corporation's  insolvency  of the corporation or its
agent  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  or its agent  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  or its agent  wishes to contest
payment of an application by the Secretary of State, the corporation
 or agent  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
 or agent  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  or its agent 
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 
corporation.   corporation or its agent. 
  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  or its agent  was
defended by a trustee in bankruptcy, the petitioner shall have the
burden of proving that the cause of action against the corporation
 or its agent  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  corporation,   corporation
or its agent,  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  or its agents  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  or its agents  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 
corporations,   corporations or its agents, 
subject to the limitations of subdivision (a).
   (c) When multiple claimants are involved in a corporate fraud, or
in misrepresentation or deceit by a  corporation, 
 corporation or its agents,  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  corporation,   corporation or its
agent,  the corporation  or its agent  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  or its agent  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  or its agent  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  or its agent 
or any other defendant in the underlying judgment.