Amended in Senate August 2, 2016

Amended in Senate June 16, 2016

Amended in Assembly May 27, 2016

California Legislature—2015–16 Regular Session

Assembly BillNo. 2759


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 therefor.

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 criminal restitution order against an 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: yes. Fiscal committee: yes. State-mandated local program: yes.

The people of the State of California do enact as follows:

P2    1

SECTION 1.  

Section 2281 of the Corporations Code is
2amended to read:

3

2281.  

As used in this chapter:

4(a) “Agent” means a person who was an officer or director of
5a corporation, as defined in subdivision (e), at the time the
6fraudulent acts occurred, was named in a final criminal restitution
7order in connection with the fraudulent acts, and was acting in the
8person’s capacity as the corporation’s officer or director when
9committing the fraudulent acts.

10(b) “Application” means a request for payment from the fund
11submitted to the Secretary of State pursuant to this chapter.

P3    1(c) “Claimant” means an aggrieved person who resides in the
2state at the time of the fraud and who submits an application
3pursuant to this chapter.

4(d) “Complaint,” for the purpose of an application based on a
5criminal restitution order, means the facts of the underlying
6transaction or transactions upon which the criminal restitution
7order is based.

8(e) “Corporation” means a domestic corporation as defined by
9Section 162 or 2509 or a foreign corporation that is qualified to
10transact business in California pursuant to Section 2105.

11(f) “Court of competent jurisdiction” means a state or federal
12court situated in California.

13(g) “Final judgment” means a judgment, arbitration award, or
14criminal restitution order for which appeals have been exhausted
15or for which the period for appeal has expired, enforcement of
16which is not barred by the order of any court or by any statutory
17provision, which has not been nullified or rendered void by any
18court order or statutory provision, and for which the claimant has
19not otherwise been fully reimbursed. The following are examples
20of final judgments:

21(1) A civil judgment that has been entered against a corporation
22for fraud, misrepresentation, or deceit, with the intent to defraud,
23and includes findings of facts and conclusions of law.

24(2) If the matter was submitted to arbitration, a copy of the
25arbitration decision and any other documentation supporting the
26arbitration award. An arbitration award against a corporation for
27conduct constituting fraud, misrepresentation, or deceit, with the
28intent to defraud, that includes findings of fact and conclusions of
29law rendered in accordance with the rules established by the
30American Arbitration Association or another recognized arbitration
31body, and in accordance with Sections 1280 to 1294.2, inclusive,
32of the Code of Civil Procedure where applicable, and where the
33arbitration award has been confirmed and reduced to judgment
34pursuant to Section 1287.4 of the Code of Civil Procedure.

35(3) A criminal restitution order issued by a court of competent
36jurisdiction against a corporation, or an agent of the corporation,
37for fraud, misrepresentation, or deceit, with the intent to defraud,
38pursuant to subdivision (f) of Section 1202.4 of the Penal Code or
39Section 3663 of Title 18 of the United States Code. An application
P4    1for payment from the fund that is based on a criminal restitution
2order shall comply with all of the requirements of this chapter.

3(h) “Fund” means the Victims of Corporate Fraud Compensation
4Fund created by Section 2280.

5(i) “Judgment debtor” means a corporation or agent against
6which a judgment, arbitration award, or criminal restitution order
7has been entered for conduct constituting intentional fraud.

8

SEC. 2.  

Section 2282 of the Corporations Code is amended to
9read:

10

2282.  

(a) (1) When an aggrieved person obtains a final
11judgment in a court of competent jurisdiction against a corporation
12based upon the corporation’s fraud, misrepresentation, or deceit,
13made with intent to defraud, or obtains a criminal restitution order
14against an agent based upon the agent's fraud, misrepresentation,
15or deceit, made with intent to defraud while acting in the agent’s
16capacity as the corporation’s officer or director, the aggrieved
17person may, upon the judgment becoming final and after diligent
18collection efforts are made, file an application with the Secretary
19of State for payment from the fund, within the limitations specified
20in Section 2289, for the amount unpaid on the judgment that
21represents the awarded actual and direct loss, any awarded
22compensatory damages, and awarded costs to the claimant in the
23final judgment, excluding punitive damages.

24(2) Nothing in this subdivision shall be interpreted to authorize
25the collection of attorney’sbegin delete fees.end deletebegin insert fees, unless they are ordered by
26a court in the final judgment against a corporation or a criminal
27restitution order against an agent.end insert
The Legislature finds and
28declares that this paragraph does not constitute a change in, but is
29declaratory of, existing law.

30(b) The application shall be delivered in person or by certified
31mail to the Secretary of State not later than 18 months after the
32judgment has become final.

33(c) The application shall be made on a form prescribed by the
34Secretary of State and shall include each of the following:

35(1) The name and address of the claimant.

36(2) If the claimant is represented by an attorney for the
37application, the name, business address, and telephone number of
38the attorney. If the claimant is not represented by an attorney for
39the application, a telephone number where the claimant can be
40reached during regular business hours shall be included.

P5    1(3) The name and address of the corporation and the agent, if
2any.

3(4) The identification of the final judgment, the amount of the
4claim that remains unreimbursed from any source, and an
5explanation of the claim’s computation.

6(5) A copy of a final judgment and a copy of the civil complaint
7and any amendments thereto upon which the judgment finding
8fraud, misrepresentation, or deceit, made with the intent to defraud,
9was made shall be deemed to satisfy compliance with the
10requirements prescribed in this paragraph. The claimant may also
11provide any additional documentation that he or she believes may
12help the Secretary of State in evaluating the application, including,
13but not limited to, evidence submitted to the court in the underlying
14judgment or a detailed narrative statement of facts in explanation
15of the allegations of the complaint upon which the underlying
16judgment is based.

17(6) If the final judgment is a criminal restitution order, the
18claimant shall provide the charging document and the restitution
19order, and if the defendant is an agent, documentation showing
20the defendant named in the restitution order is an agent as defined
21in this chapter.

22(7) A description of searches and inquiries conducted by or on
23behalf of the claimant with respect to the judgment debtor’s assets
24liable to be sold or applied to satisfaction of the judgment. A
25court’s determination or finding of the judgment debtor’s
26insolvency or lack of assets to pay the claimant shall be deemed
27to satisfy the requirements prescribed in this paragraph.

28(8) Each of the following representations by the claimant:

29(A) That the claimant is not a spouse, registered domestic
30partner, or an immediate family member of an employee, officer,
31director, managing agent, or other principal of the corporation nor
32a personal representative of the spouse or an immediate family
33member of an employee, officer, director, managing agent, or other
34principal of the corporation.

35(B) That the claimant has complied with all of the requirements
36of this section.

37(C) That the judgment underlying the claim meets the
38requirements of subdivisions (a) and (b) of Section 2282, including
39all of the following:

P6    1(i) That the judgment was for fraud, misrepresentation, or deceit
2by the corporation or the agent of the corporation, with the intent
3to defraud.

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

5(iii) That the underlying judgment and debt have not been
6discharged in bankruptcy, or the underlying judgment is statutorily
7nondischargeable, or, in the case of a bankruptcy proceeding that
8is open at or after the time of the filing of the application, that the
9judgment and debt have been declared to be nondischargeable by
10the judge or stipulated as nondischargeable by the parties in the
11proceeding and that the claimant has been granted permission by
12the bankruptcy court to proceed with collection or otherwise
13proceed with the claimant’s claims against the judgment debtor or
14debtors.

15(D) That the claimant does not have a pending claim and has
16not collected on the final judgment from any other restitution fund.
17If the claimant has a pending claim or has collected from another
18fund, a description of the nature of the pending claim and the
19recovery amounts from any restitution fund.

20(d) (1)  Except as provided in paragraphs (2), (3), and (4) the
21Secretary of State shall not condition an award of payment from
22the fund upon a claimant providing any additional information or
23documents other than those prescribed in subdivision (c).

24(2) If the final judgment in favor of the claimant was by default,
25stipulated, a consent judgment, or pursuant to Section 594 of the
26Code of Civil Procedure or if the action against the corporation or
27its agent was defended by a trustee in bankruptcy, the Secretary
28of State may request additional documents and information from
29the claimant to determine whether the claim is valid.

30(3) If the final judgment does not expressly set forth the amount
31of damages that were awarded for actual loss and compensatory
32damages that are payable from the fund pursuant to Section 2289,
33the Secretary of State may ask the claimant to provide copies of
34documentation pertaining to the amount of the actual and direct
35loss and the awarded compensatory damages or both of those
36findings. For purposes of this section, “sufficient proof of money
37damages” may include any of the following: copies of bank account
38statements showing or confirming particular transactions, copies
39of the front and back of checks made payable to the corporation
40that have been negotiated, credit card statements showing or
P7    1confirming particular transactions, or similar documentation
2demonstrating financial loss directly resulting from the fraudulent
3acts by the corporation or its agent and the amount of compensatory
4damages awarded by the court.

5(4) If there is no court determination or finding of the insolvency
6of the judgment debtor or lack of assets to pay the claimant, the
7Secretary of State may request additional information and
8documentation from the claimant to determine what assets, if any,
9are available to satisfy the final judgment.

10(e) The Secretary of State shall include with the application
11 form a notice to the claimant of his or her obligation to protect the
12underlying judgment from discharge in bankruptcy, to be appended
13to the application.

14(f) If a claimant is a spouse, registered domestic partner, or an
15immediate family member of an employee, officer, director,
16managing agent, or other principal of the corporation, or is a
17personal representative of the spouse, registered domestic partner,
18or an immediate family member of an employee, officer, director,
19managing agent, or other principal of the corporation, the claimant
20shall not be precluded for that reason alone from receiving an
21award where the claimant can otherwise meet the requirements of
22this section.

23

SEC. 3.  

Section 2282.1 of the Corporations Code is amended
24to read:

25

2282.1.  

(a) The Secretary of State shall provide notice to the
26corporation and all agents named in the application that a claimant
27has submitted an application for payment from the fund and shall
28also provide within that notice, as prescribed by the Secretary of
29State, the method to contest the payment from the fund.

30(b) The notice to the corporation shall be provided by certified
31mail addressed to the corporation’s last designated agent for service
32of process of record with the Secretary of State and notice shall
33be deemed complete five calendar days after the notice is mailed.

34(c) If the corporation or its agent wishes to contest payment of
35an application by the Secretary of State, the corporation or agent
36shall mail or deliver a written response addressed to the Secretary
37of State within 30 calendar days of the notice of the application,
38and shall mail or deliver a copy of the response to the claimant.
39The written response of the corporation or agent shall not be
40directed to issues and facts conclusively established by the
P8    1underlying judgment. If the corporation fails to mail or deliver a
2timely response, the corporation shall have waived the
3corporation’s right to present objections to payment of the
4application, and shall not thereafter be entitled to notice of any
5action taken or proposed to be taken by the Secretary of State with
6respect to the application.

7

SEC. 4.  

Section 2286 of the Corporations Code is amended to
8read:

9

2286.  

 The Secretary of State shall give notice, as prescribed
10by the Secretary of State, to the corporation and all agents named
11in the application that the Secretary of State has made a decision
12to award funds to the claimant and shall provide a copy of the
13decision to the corporation and all agents named in the application.

14

SEC. 5.  

Section 2288 of the Corporations Code is amended to
15read:

16

2288.  

(a) Whenever the court proceeds upon a petition under
17Section 2287, it shall order payment out of the fund only upon a
18determination that the aggrieved party has a valid cause of action
19within the purview of Section 2282, and has complied with Section
202287.

21(b) (1) The Secretary of State may defend any action on behalf
22of the fund and shall have recourse to all appropriate means of
23defense and review, including examination of witnesses and the
24right to relitigate any issues that are material and relevant in the
25proceeding against the fund. The claimant’s judgment shall create
26a rebuttable presumption of the fraud, misrepresentation, or deceit
27by the corporation, which presumption shall affect the burden of
28producing evidence.

29(2) If the civil judgment, arbitration award, or criminal
30restitution order in the underlying action on which the final
31judgment in favor of the petitioner was by default, stipulation,
32consent, or pursuant to Section 594 of the Code of Civil Procedure,
33or if the action against the corporation or its agent was defended
34by a trustee in bankruptcy, the petitioner shall have the burden of
35proving that the cause of action against the corporation or its agent
36was for fraud, misrepresentation, or deceit.

37(c) If the final judgment is a criminal restitution order against
38an agent, the petitioner shall have the burden of proving that the
39defendant named in the criminal restitution order qualifies as an
40agent as defined in this chapter. An active corporation, that has
P9    1submitted a response to the application pursuant to Section 2282.2,
2may be permitted by the court to appear in the action regarding
3the sole issue of whether the defendant named in the criminal
4restitution order qualifies as its agent as defined in this chapter.

5(d) The Secretary of State may move the court at any time to
6dismiss the petition when it appears there are no triable issues and
7the petition is without merit. The motion may be supported by
8affidavit of any person or persons having knowledge of the facts,
9and may be made on the basis that the petition, and the judgment
10referred to therein, does not form the basis for a meritorious
11recovery claim within the purview of Section 2282; provided,
12however, the Secretary of State shall give written notice at least
1310 calendar days before hearing on the motion to the claimant.

14

SEC. 6.  

Section 2289 of the Corporations Code is amended to
15read:

16

2289.  

(a) Notwithstanding any other provision of this chapter
17and regardless of the number of persons aggrieved in an instance
18of corporate fraud, or misrepresentation or deceit resulting in a
19judgment meeting the requirements of Section 2282, or the number
20of judgments against a corporation or its agent, the liability of the
21fund shall not exceed fifty thousand dollars ($50,000) for any one
22claimant per single judgment finding fraud, misrepresentation, or
23deceit, made with the intent to defraud.

24(b) When multiple corporations or their agents are involved in
25the same event or series of events that are the basis of the
26claimant’s final judgment and the conduct of two or more of the
27corporations or their agents results in a judgment meeting the
28requirements of Section 2282, the claimant may seek recovery
29from the fund based on the judgment against any one of the
30corporations or their agents, subject to the limitations of subdivision
31(a).

32(c) When multiple claimants are involved in a corporate fraud,
33or in misrepresentation or deceit by a corporation or its agents,
34resulting in a judgment meeting the requirements of Section 2282,
35each claimant may seek recovery from the fund individually,
36 subject to the limitations of subdivision (a).

37(d) Claimants who are spouses, registered domestic partners,
38or persons other than natural persons, that have obtained an eligible
39final judgment shall be considered one claimant.

P10   1

SEC. 7.  

Section 2290 of the Corporations Code is amended to
2read:

3

2290.  

If, at any time, the money deposited in the fund is
4insufficient to satisfy any duly authorized award or offer of
5settlement, the Secretary of State shall, when sufficient money has
6been deposited in the fund, satisfy the unpaid awards or offer of
7settlement, in the order that the awards or offers of settlement were
8originally filed.

9

SEC. 8.  

Section 2293.1 of the Corporations Code is amended
10to read:

11

2293.1.  

If the Secretary of State pays from the fund any amount
12in settlement of a claim or toward satisfaction of a final judgment
13against a corporation or its agent, the corporation or its agent shall
14be required to pay to the fund the amount paid plus interest at the
15prevailing legal rate applicable to a judgment rendered in any court
16of this state, within 30 calendar days of the date that the Secretary
17of State provided notice of the payment of the award or
18compromise. If the corporation or its agent fails to make the
19required payment to the fund within the required time, the
20corporation shall be suspended until the payment is made. A
21discharge in bankruptcy shall not relieve a corporation or its agent
22from the penalties and disabilities provided in this chapter.

23

SEC. 9.  

Section 2294 of the Corporations Code is amended to
24read:

25

2294.  

The Secretary of State shall not make any award to a
26claimant from the fund if the claimant has received payment from
27any other restitution funds or for the portions of the judgment that
28the claimant has collected from the corporation or its agent or any
29other defendant in the underlying judgment.

30

SEC. 10.  

No reimbursement is required by this act pursuant to
31Section 6 of Article XIII B of the California Constitution because
32the only costs that may be incurred by a local agency or school
33district will be incurred because this act creates a new crime or
34infraction, eliminates a crime or infraction, or changes the penalty
35for a crime or infraction, within the meaning of Section 17556 of
36the Government Code, or changes the definition of a crime within
37the meaning of Section 6 of Article XIII B of the California
38Constitution.



O

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