BILL ANALYSIS Ó AB 2759 Page 1 ASSEMBLY THIRD READING AB 2759 (Levine) As Amended May 27, 2016 Majority vote ------------------------------------------------------------------ |Committee |Votes|Ayes |Noes | | | | | | | | | | | | | | | | |----------------+-----+----------------------+--------------------| |Judiciary |10-0 |Mark Stone, Wagner, | | | | |Alejo, Chau, Chiu, | | | | |Gallagher, Weber, | | | | |Holden, Maienschein, | | | | |Ting | | | | | | | |----------------+-----+----------------------+--------------------| |Banking |11-0 |Dababneh, Travis | | | | |Allen, Achadjian, | | | | |Bonilla, Brown, Chau, | | | | |Gatto, Kim, Low, | | | | |Ridley-Thomas, Mark | | | | |Stone | | | | | | | |----------------+-----+----------------------+--------------------| |Appropriations |20-0 |Gonzalez, Bigelow, | | | | |Bloom, Bonilla, | | | | |Bonta, Calderon, | | | | |Chang, Daly, Eggman, | | | | |Gallagher, Eduardo | | AB 2759 Page 2 | | |Garcia, Roger | | | | |Hernández, Holden, | | | | |Jones, Obernolte, | | | | |Quirk, Santiago, | | | | |Wagner, Weber, Wood | | | | | | | | | | | | ------------------------------------------------------------------ SUMMARY: Seeks to compensate victims of corporate fraud committed by corporate officers from the Victims of Corporate Fraud Compensation Fund (Fund). Specifically, this bill: 1)Allows an individual who is a victim of corporate fraud and who wins a judgment against a corporate officer, but is unable to collect the judgment from the officer after diligent efforts to do so, to collect damages from the Fund as a similarly situated victim of corporate fraud with a judgment against a corporation would be able to do. 2)Specifies that attorney fees are not costs that can be recovered from the Fund and declares that the limitation on attorney fees is declaratory of existing law. 3)Eliminates the requirement in existing law that the Fund must pay interest to a claimant on an unpaid claim in the event that it does not have enough money to pay a claim when it is initially submitted for payment. 4)Defines relevant terms. FISCAL EFFECT: According to the Assembly Appropriation committee, expanding the type of claims eligible against the AB 2759 Page 3 Fund will result in unknown additional expenditures. Estimated fund expenditures in 2016-17 are $1.5 million. Additional valid claims would likely increase expenditures by several hundred thousand dollars annually. According to the Secretary of State (SOS), the Fund had a balance of $11.9 million as of January 2016. COMMENTS: According to the Secretary of State's Office, the Victims of Corporate Fraud Compensation Fund had a balance of approximately $11,900,000 as of January 2016. According to information provided by the author: The Victims of Corporate Fraud Compensation Fund has not received any applications based upon a criminal restitution order against AGA Financial Inc. However, the Victims of Corporate Fraud Compensation Fund has received numerous claims based upon four criminal restitution orders naming James Koenig and Asset Real Estate and Investment Company in a related criminal proceeding. The first three criminal restitution orders named victims who testified at trial. Administrative review has been completed for all of the submitted Applications based upon the first three restitution orders and the Victims of Corporate Fraud Compensation Fund has paid out more than $1.1 million dollars to victims named in the three orders. The court issued its fourth restitution order, on June 24, 2015, naming victims who had not testified at trial. The Victims of Corporate Fraud Compensation Fund received nearly 300 claims based upon the June 24, 2015 criminal restitution order. Unfortunately, James Koenig has filed a Notice of Appeal with respect to the June 24, 2015 criminal restitution order which is still pending. AB 2759 Page 4 California Corporations Code sections 2281(f) and 2282(a) preclude the payment of claims while an appeal is pending. Therefore, the Victims of Corporate Fraud Fund is statutorily precluded from awarding applications based upon the June 24, 2015 criminal restitution order until the appeal has run its course. Statement of the Author. According to the author: We know that there are victims of corporate fraud that are unable to access the victims of corporate fraud compensation fund. That is because to access the fund an individual must have been a victim of a corporation that has been convicted. Very rarely are corporations charged with crimes almost always it is an individual who is charged with a crime. AB 2759 will correct this problem and allow many individuals who should have access to the fund access. Access to the Victims of Corporate Fraud Compensation Fund. If a plaintiff successfully obtained a judgment against an officer of a corporation based upon the tortious act by the officer him or herself; the act of the officer on behalf of the corporation; or the act of the officer violated the "Responsible Corporate Officer Doctrine," the plaintiff's theory of liability would be based upon misdeeds of the corporation that are attributable to the officer (and vice versa). It therefore seems reasonable to provide such a plaintiff with the same remedies available to a plaintiff who obtains a judgment against the corporation itself. Analysis Prepared by: AB 2759 Page 5 Alison Merrilees / JUD. / (916) 319-2334 FN: 0003146