BILL NUMBER: AB 2759 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY MAY 27, 2016
INTRODUCED BY Assembly Member Levine
FEBRUARY 19, 2016
An act to amend Sections 2281, 2282, 2282.1, 2286,
2288, 2289, 2290, 2293.1, and 2294 of the Corporations
Code, relating to fraud and making an appropriation the
refor .
LEGISLATIVE COUNSEL'S DIGEST
AB 2759, as amended, 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
agent, as defined, of a corporation based upon
those same circumstances. The bill would also make conforming
changes. By allowing for additional payments to be made from the
Victims of Corporate Fraud Compensation Fund, this bill would make
an appropriation.
Existing law requires the application filed with the Secretary of
State to include specified information and documentation, and imposes
criminal penalties for the filing of any documents that are false or
untrue or contain any willful, material misstatements of fact.
This bill would require, if the final judgment is a criminal
restitution order, the claimant to provide the charging document and
the restitution order, and if the defendant is an agent,
documentation showing the defendant named in the restitution order is
an agent as defined in this bill. By expanding the scope of a crime,
this bill would impose a state-mandated local program.
Existing law requires, if, at any time, the money deposited in the
Victims of Corporate Fraud Compensation Fund is insufficient to
satisfy any duly authorized award or offer of settlement, the
Secretary of State to, when sufficient money has been deposited in
the fund, satisfy the unpaid award or offer of settlement, plus
specified accumulated interest.
This bill would eliminate the requirement to pay that specified
accumulated interest.
The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.
Vote: majority. Appropriation: no yes
. Fiscal committee: yes. State-mandated local program:
no yes .
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 2281 of the
Corporations Code is amended to read:
2281. As used in this chapter:
(a) "Agent" means a person who was an officer or director of a
corporation, as defined in subdivision (e), at the time the
fraudulent acts occurred and was acting in the person's capacity as
the corporation's officer or director when committing the fraudulent
acts.
(a)
(b) "Application" means a request for payment from the
fund submitted to the Secretary of State pursuant to this chapter.
(b)
(c) "Claimant" means an aggrieved person who resides in
the state at the time of the fraud and who submits an application
pursuant to this chapter.
(c)
(d) "Complaint," for the purpose of an application
based on a criminal restitution order, means the facts of the
underlying transaction or transactions upon which the criminal
restitution order is based.
(d)
(e) "Corporation" means a domestic corporation as
defined by Section 162 or 2509 or a foreign corporation that is
qualified to transact business in California pursuant to Section
2105.
(e)
(f) "Court of competent jurisdiction" means a state or
federal court situated in California.
(f)
(g) "Final judgment" means a judgment, arbitration
award, or criminal restitution order for which appeals have been
exhausted or for which the period for appeal has expired, enforcement
of which is not barred by the order of any court or by any statutory
provision, which has not been nullified or rendered void by any
court order or statutory provision, and for which the claimant has
not otherwise been fully reimbursed. The following are examples of
final judgments:
(1) A civil judgment that has been entered against a corporation
for fraud, misrepresentation, or deceit, with the intent to defraud,
and includes findings of facts and conclusions of law.
(2) If the matter was submitted to arbitration, a copy of the
arbitration decision and any other documentation supporting the
arbitration award. An arbitration award against a corporation for
conduct constituting fraud, misrepresentation, or deceit, with the
intent to defraud, that includes findings of fact and conclusions of
law rendered in accordance with the rules established by the American
Arbitration Association or another recognized arbitration body, and
in accordance with Sections 1280 to 1294.2, inclusive, of the Code of
Civil Procedure where applicable, and where the arbitration award
has been confirmed and reduced to judgment pursuant to Section 1287.4
of the Code of Civil Procedure.
(3) A criminal restitution order issued by a court of competent
jurisdiction against a corporation
corporation, or an agent of the corporation, for fraud,
misrepresentation, or deceit, with the intent to defraud, pursuant to
subdivision (f) of Section 1202.4 of the Penal Code or Section 3663
of Title 18 of the United States Code. An application for payment
from the fund that is based on a criminal restitution order shall
comply with all of the requirements of this chapter.
(g)
(h) "Fund" means the Victims of Corporate Fraud
Compensation Fund created by Section 2280.
(i) "Judgment debtor" means a corporation or agent against which a
judgment, arbitration award, or criminal restitution order has been
entered for conduct constituting intentional fraud.
SECTION 1. SEC. 2. Section 2282 of
the Corporations Code is amended to read:
2282. (a) (1) 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, or
obtains a criminal restitution order against an agent based upon the
agent's fraud, misrepresentation, or deceit, made with intent to
defraud while acting in the agent's capacity as the
corporation's officer or director, 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.
(2) Nothing in this subdivision shall be interpreted to authorize
the collection of attorney's fees. The Legislature finds and declares
that this paragraph does not constitute a change in, but is
declaratory of, existing law.
(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 or the agent
of the corporation. and the agent, if any.
(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) If the final judgment is a criminal restitution order, the
claimant shall provide the charging document and the restitution
order, and if the defendant is an agent, documentation showing the
defendant named in the restitution order is an agent as defined in
this chapter.
(6)
(7) A description of searches and inquiries conducted
by or on behalf of the claimant with respect to the
corporation's or agent's judgment debtor'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 judgment debtor's insolvency or lack of
assets to pay the claimant shall be deemed to satisfy the
requirements prescribed in this paragraph.
(7)
(8) Each of the following representations by the
claimant:
(A) That the claimant is not a spouse
spouse, registered domestic partner, 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 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 or its agent.
judgment debtor or debtors.
(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
insolvency of the corporation or its agent
judgment debtor 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 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 spouse,
registered domestic partner, 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 spouse, registered domestic partner, 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. SEC. 3. 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 and all agents named
in the application 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 to the corporation 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. SEC. 4. 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
and all agents named in the application 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
or its agent. and all agents named in the
application.
SEC. 4. SEC. 5. 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) If the final judgment is a criminal restitution order against
an agent, the petitioner shall have the burden of proving that the
defendant named in the criminal restitution order qualifies as an
agent as defined in this chapter. An active corporation, that has
submitted a response to the application pursuant to Section 2282.2,
may be permitted by the court to appear in the action regarding the
sole issue of whether the defendant named in the criminal restitution
order qualifies as its agent as defined in this chapter.
(c)
(d) 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. SEC. 6. 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 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
their 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 or its their 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 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. 7. Section 2290 of the
Corporations Code is amended to read:
2290. If, at any time, the money deposited in the fund is
insufficient to satisfy any duly authorized award or offer of
settlement, the Secretary of State shall, when sufficient money has
been deposited in the fund, satisfy the unpaid awards or offer of
settlement, in the order that the awards or offers of settlement were
originally filed, plus accumulated interest at the rate set
by the Federal Reserve Bank of San Francisco on advances made to
member banks under Sections 13 and 13a of the Federal Reserve Act, at
the time of the award or settlement offer, not to exceed 2 percent
per year. filed.
SEC. 6. SEC. 8. 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 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. SEC. 9. 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.
SEC. 10. No reimbursement is required by this act
pursuant to Section 6 of Article XIII B of the California
Constitution because the only costs that may be incurred by a local
agency or school district will be incurred because this act creates a
new crime or infraction, eliminates a crime or infraction, or
changes the penalty for a crime or infraction, within the meaning of
Section 17556 of the Government Code, or changes the definition of a
crime within the meaning of Section 6 of Article XIII B of the
California Constitution.