BILL ANALYSIS                                                                                                                                                                                                    



                                                                    AB 2878


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          Date of Hearing:   April 26, 2016


                           ASSEMBLY COMMITTEE ON JUDICIARY


                                  Mark Stone, Chair


          AB 2878  
          (Committee on Judiciary) - As Amended April 18, 2016


          SUBJECT:  STATE BAR DUES: ANNUAL AUTHORIZATION OF MEMBER DUES,  
          OVERSIGHT AND PUBLIC PROTECTION


          KEY ISSUES:  


          1)SHOULD THE LEGISLATURE AUTHORIZE THE STATE BAR TO assess  
            MEMBERSHIP dues for active bar members in 2017 AT $390, THE  
            SAME RATE AS THIS YEAR?



          2)SHOULD THE BAR'S ABILITY TO TIE THE HANDS OF FUTURE  
            LEGISLATURE IN SETTING PROPER DUES, ENACTED IN THE 1950's, be  
            ELIMINATED?   
          3)as part of THE LEGISLATURE'S annual oversight OF THE BAR,  
            CONDUCTED THROUGH THE DUES BILL, AND IN LIGHT OF THE MOST  
            RECENT and ongoing FINANCIAL AND ADMINISTRATIVE CONCERNS,  
            should the legislature consider SUBSTANTIAL CHANGES TO bar  
            GOVERNANCE AND accountability CONSISTENT WITH THE BAR'S  
            PARAMOUNT DUTY TO PROTECT THE PUBLIC? 

                                      SYNOPSIS










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          This bill continues the decades-long tradition of Judiciary  
          Committee oversight of the Bar via review of the annual dues  
          authorization bill, as part of general legislative oversight of  
          agencies within the executive and judicial branches of  
          government.  Last year, in response to troubling audit findings  
          as well as other problems in state bar governance, the  
          Legislature required that the State Auditor perform an in-depth  
          financial audit of the Bar, and that the Bar complete both a  
          workforce plan for its discipline system and a spending plan to  
          determine a reasonable amount for its annual dues.  These  
          critically important evaluations are all due to the Legislature  
          by May 15, 2016.  In addition, last year's legislation required  
          the Bar, as a state agency, to comply with normal government  
          transparency and accountability laws pursuant to the  
          Bagley-Keene Open Meeting Act and the California Public Records  
          Act.  


          This bill comes to this Committee after yet another year of  
          extensive and publically reported turmoil involving the Bar,  
          some of the information likely coming to light by way of the  
          open government laws applied to the Bar last year.  First, the  
          media reported that the Bar had failed to investigate over 300  
          complaints about the unauthorized practice of law, some awaiting  
          assignment to an investigator for years before any action was  
          taken.  According to the Bar, many of those complaints were  
          filed by immigrants seeking legal assistance with, among other  
          things, their legal status in this country.  It goes without  
          saying that failure to immediately investigate and, when  
          appropriate, take action to stop the unauthorized practice of  
          law puts the public at substantial risk and the longer the  
          delays are, the more the public is put at risk.  The Bar now  
          asserts that these cases are being assigned to an attorney  
          immediately upon receipt and the backlog has finally been  
          addressed, but when this matter was first made public, over 300  
          cases were still awaiting intake.  Had this issue not been made  
          public, it is unclear whether such swift corrective action would  
          have been taken.  Second, the Bar, without input from or  
          approval by the Legislature, and apparently without fully  








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          following its own newly established procedures, took out a $10  
          million loan for tenant improvements to its San Francisco  
          facility and attempted to secure the loan with future member bar  
          dues payments, which could have tied the hands of future  
          Legislatures in the setting of dues based on a 1950's era  
          statute.  This apparently only came to light as a result of the  
          State Auditor's recent audit of the Bar.  Other issues of  
          concern are discussed more fully below.


          As now in print, this bill maintains member bar dues for 2017 at  
          their same level as this year, while awaiting the results of the  
          workforce and spending plans, as well as the 2016 State Auditor  
          audit.  The bill also appropriately eliminates the 1950's era  
          statute that potentially allowed the Bar to tie the  
          Legislature's hands in the future, interfering with its  
          statutory duty to set member bar dues.  

          The bill in its current form does not address other broad  
          governance and oversight issues discussed in more detail in the  
          analysis, including whether the Board of Trustees, comprised of  
          a supermajority of active market participants, can legally  
          regulate attorneys and still avoid antitrust liability.  Nor  
          does it address whether the Bar's primary regulatory and public  
          protection functions should be de-coupled from its trade  
          association functions, as some, including a number of current  
          Bar trustees, have suggested.  However, both issues are  
          discussed in the analysis.

          The bill is supported, if amended, by some Bar Board trustees  
          who argue that the bill should begin the process of de-coupling  
          the Bar's regulatory functions from its trade association role.   
          This bill is opposed, unless amended, by the Center for Public  
          Interest Law which argues that it should address not only the  
          governance and de-unification issues discussed above, but also a  
          number of other concerns, including the need for an outside  
          investigator to help ensure that the Bar better focuses on its  
          paramount responsibility: protecting the public from harm.   
          Given the forthcoming audit to be released by the State Auditor  








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          and the State Bar's workforce and operational cost spending  
          plans that are all due in mid-May, it is likely that this bill  
          will be substantially amended in the near future to address  
          issues raised and reforms that may be suggested by the Auditor,  
          the Bar, and the Legislature.

          SUMMARY:  Reauthorizes attorney license fees at the same level  
          as the current year.  Specifically, this bill:  


          1)Reauthorizes the State Bar to collect up to $390 for active  
            membership dues for 2017.

          2)Eliminates the ability of the State Bar to prevent future  
            Legislatures from reducing future membership dues by securing  
            all or any portion of an obligation of the State Bar on future  
            dues.

          3)Makes various findings concerning events at the State Bar and  
            states the intent of the Legislature that this bill serve as a  
            vehicle to implement possible recommendations for  
            substantially improving the operations, effectiveness and  
            efficiency of the State Bar, based in part on reports to be  
            submitted to the Legislature in the coming months.

          EXISTING LAW:  


          1)Requires all attorneys who practice law in California to be  
            members of the State Bar and establishes the State Bar for the  
            purpose of regulating the legal profession.  Pursuant to the  
            State Bar Act, requires the annual mandatory membership fee  
            set by the State Bar's Board of Trustees (Board) to pay for  
            discipline and other functions to be ratified by the  
            Legislature.  (Business & Professions Code Section 6000 et  
            seq.  Unless stated otherwise, all further statutory  
            references refer to that code.)

          2)Authorizes the State Bar to collect $315 in annual membership  








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            fees from active members for a total annual dues bill of $390  
            for the year 2016.  Provides that the other $75 is pursuant to  
            statutory authorization to assess annually the following fees:  
             $40 for the Client Security Fund; $25 for the disciplinary  
            system; and $10 for the Lawyer Assistance Program.  (Sections  
            6140, 6140.55, 6140.6, 6140.9.)

          3)Authorizes the State Bar to collect $75 in annual membership  
            fees from inactive members for a total annual dues bill of  
            $115.  Provides that the other $40 is pursuant to statutory  
            authorization to assess annually the following fees:  $10 for  
            the Client Security Fund; $25 for the disciplinary system; and  
            $5 for the Lawyer Assistance Program.  (Sections 6141,  
            6140.55, 6140.6, 6140.9.)

          4)Directs $40 of membership dues to legal services purposes  
            unless a member elects not to support those activities.   
            (Section 6140.03.)

          5)Provides that protection of the public is the highest priority  
            of the State Bar and its Board in exercising their licensing,  
            regulatory and disciplinary functions.  Whenever the  
            protection of the public is inconsistent with other interests  
            sought to be promoted, provides that the protection of the  
            public shall be paramount.  (Section 6001.1.)

          6)Creates the Governance in the Public Interest Task Force,  
            effective February 1, 2013, and requires that the task force  
            report to the Supreme Court, the Governor and the Assembly and  
            Senate Judiciary Committees by May 15, 2014, and every three  
            years thereafter, its recommendations for enhancing public  
            protection and ensuring that public protection is the State  
            Bar's highest priority.  (The task force has yet to submit its  
            first report.)  (Section 6001.2.)

          7)Permits the State Bar, for purpose of carrying into effect and  
            promoting its objectives (of which public protection is its  
            highest priority), to sell, lease, exchange, convey, transfer,  
            assign, encumber, pledge, dispose of any of its real or  








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            personal property or any interest therein, including without  
            limitation all or any portion of its income or revenues from  
            membership fees paid or payable by members.  (Section 6001.)

          8)Provides, pursuant to a 1950's statute, that whenever the  
            Board secures an obligation of the State Bar on all or any  
            portion of the fees from membership dues the Legislature may  
            not, until the obligation is repaid in full, reduce membership  
            dues below the maximum amount in effect when the obligation  
            was created and provides that this constitutes a covenant to  
            the holder of the obligation.  (Section 6008.5.)

          9)Requires the State Bar to annually report on the performance  
            and condition of its discipline system, including the backlog  
            of discipline cases that are six months old and case  
            processing times, as provided.  (Section 6086.15.)

          10)Requires the State Bar to develop and implement a workforce  
            plan for its discipline system and conduct a public sector  
            compensation and benefits study, including a recommendation  
            for an appropriate backlog goal and an assessment of staffing  
            needed to achieve that goal.   Requires the State Bar to  
            conduct a thorough analysis of its operating costs and develop  
            a spending plan to determine a reasonable amount for its  
            annual dues.  Requires that the workforce plan and the  
            spending plan be submitted to the Legislature by May 15, 2016,  
            and be implemented by December 31, 2016.  (Section 6140.16.)


          11)Requires the State Bar's Board to contract with the  
            California State Auditor to conduct a financial audit of the  
            State Bar, including an audit of its financial statement,  
            internal controls and practices, and requires that the audit  
            be submitted to the Board, the Chief Justice of the California  
            Supreme Court, and the Assembly and Senate Judiciary  
            Committees by May 15, 2016.  Requires the audit to examine  
            revenues, expenditures, reserves and fund transfers.  (Section  
            6145 (c).)









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          12)Subjects the State Bar to the Public Records Act, with  
            specified exceptions.  Provides that identifying information  
            submitted by applicants to the State Bar for admission to  
            practice law and State Bar admissions records, as specified,  
            are confidential and may not be disclosed pursuant to any  
            state law including the Public Records Act.  (Sections 6001,  
            6026.11.)


          13)Effective April 1, 2016, subjects the State Bar to the  
            Bagley-Keene Open Meeting Act, as provided, with exemptions  
            for the Judicial Nominees Evaluation Commission and the  
            Committee of Bar Examiners.  (Sections 6001 6026.7; Government  
            Code Section 11121.)


          FISCAL EFFECT:  As currently in print this bill is keyed  
          non-fiscal.


          COMMENTS:  This bill continues the decades-long tradition of  
          oversight of the Bar by the Assembly and Senate Judiciary  
          Committees via review of the annual dues authorization bill, as  
          part of general oversight role of the Legislature over the  
          agencies in the executive and judicial branches of government.   
          Last year, in response to significant and troubling audit  
          findings and other concerns, the Legislature required the State  
          Auditor to perform an in-depth financial audit of the Bar, due  
          May 15, 2016.  Last year's bar dues bill also required the Bar  
          to comply with important government transparency and  
          accountability laws by way of the Bagley-Keene Open Meeting Act  
          and the California Public Records Act.  (SB 387 (Jackson), Chap.  
          537, Stats. 2015.)  This bill comes to this Committee after  
          another year of extensive and publically reported turmoil  
          involving the Bar, some of which has come to light because of  
          new open government laws.  

          Background on the Bar.  Attorneys who wish to practice law in  








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          California generally must be admitted and licensed in this State  
          and must be members of the State Bar.  (Cal. Const., Art. VI,  
          Sec. 9.)  The State Bar of California is the largest state bar  
          in the country.  As of March 2016, the State Bar had 186,152  
          active members and 56,929 inactive members.  Total State Bar  
          membership is listed at 257,788, which includes 2,162 judge  
          members and 12,544 members who are "not eligible to practice  
          law."  


          The Bar is governed by a 19-member board of trustees, which is  
          made up of 13 active lawyer members (6 lawyers elected by other  
          licensed attorneys in the state; 5 lawyers appointed by the  
          Supreme Court; and 2 lawyers appointed by the Legislature) and 6  
          public (non-lawyer) members (4 public members appointed by the  
          Governor and 2 public members appointed by the Legislature).   
          Currently, two public member positions, awaiting appointment by  
          the Governor, are vacant.  By statute, the Bar's highest  
          priority, as necessary and appropriate, is protection of the  
          public.  (Section 6001.1.)


          The Bill Maintains Dues at Current Rates and Eliminates a  
          Provision That Could Tie the Hands of Future Legislatures and  
          Reduce Legislative Oversight of the State Bar.  At this point,  
          this bill merely authorizes the State Bar to collect active  
          membership dues of up to $390 for 2017, the same rate as this  
          year.  The Bar's programs are financed almost exclusively by  
          annual membership dues paid by attorneys, as well as other fees  
          paid by applicants who are seeking to practice law.  The Bar  
          also uses its name and membership lists to sell items such as  
          malpractice insurance and car rentals, and receives payment for  
          those activities.  The Bar currently has complete discretion  
          over how funds from this latter activity, which amount to  
          approximately $2 million per year, are used.  The Bar's total  
          revenue for 2016 is $118 million, excluding funds from interest  
          on lawyer trust accounts that pass-through the State Bar and  
          fund legal services, with $74.3 million coming from mandatory  
          dues.  








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          As required by last year's Bar dues bill, the Bar is currently  
          conducting an analysis of its operating costs and developing a  
          spending plan to determine a proposed amount to report to the  
          Legislature for its annual dues.  The spending plan must be  
          submitted to the Legislature by May 15, 2016.  Once that report  
          is submitted, along with an audit from the State Auditor on the  
          Bar's finances that was also mandated in last year's dues bill  
          and is also due by May 15, 2016, and the Legislature has  
          thoroughly reviewed both reports, the Bar dues amount in this  
          bill could either increase or decrease, as the Legislature deems  
          appropriate, based on the actual needs of the Bar to effectively  
          and efficiently protect the public.


          As discussed in more detail below, the bill also eliminates an  
          anachronistic 1950's era statute that prohibits future  
          Legislatures, if the Bar uses any portion of membership dues as  
          security for an obligation, from reducing membership dues below  
          the amount in effect when the obligation was created by the Bar,  
          until the obligation is paid in full.  While it is highly  
          questionable whether this provision is constitutional, it is  
          clear that it reduces the important oversight role of the  
          Legislature over the Bar which is needed to ensure that public  
          protection is and remains the paramount concern of the Bar.   
          Therefore, this bill rightly deletes that provision.


          Bar Report on its Progress This Past Year:  The State Bar has  
          provided a list of its accomplishments over the past year,  
          including its hiring of its new management team last Fall:  
          executive director Elizabeth Parker, chief operating officer  
          Leah Wilson, and general counsel Vanessa Holton.  The Bar also  
          states that it is "well on its way to completing" all of the  
          recommendations from the State Auditor in the 2015 audit,  
          discussed in more detail below, including revising its  
          discipline report to the Legislature, scheduled to be submitted  
          at the end of this month, to ensure that it is consistent, clear  








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          and reliable; improving the quality of the discipline process;  
          requiring a cost-benefit analysis for all contracts above $2  
          million; streamlining its organizational structure to more  
          efficiently use existing staff resources; and beginning the  
          development of a new case management system.


          In an effort to address questionable management and budget  
          practices, the Bar has reduced its overall budget for 2016 by  
          6.2 percent and reduced budgets for temporary help, travel and  
          catering even more.  The Bar states that it has eliminated all  
          business expense accounts and the president's once secret  
          $30,000 discretionary expense account, something that has been  
          of substantial concern to this Committee for years.  It has also  
          cancelled numerous contracts with outside counsel, seeking to  
          bring more of that work in-house.  The Bar also states that it  
          is beginning an effort to use zero-based operational costs for  
          assessment of fees charged by its Admissions division, as well  
          as a review of other fees charged.  The Bar has also  
          re-established its Governance in the Public Interest Task Force  
          and is expected to submit a report to the Board in July of 2016,  
          although this report was actually due to the Legislature in  
          2014.  Finally, after media reports that the Bar has not  
          properly addressed unauthorized practice of law complaints,  
          discussed more fully below, the Bar now states that it is  
          developing a protocol for handling these cases and has adopted a  
          referral policy to allow Bar investigators and criminal  
          prosecutors to simultaneously investigate cases.


          Well Reported, Disconcerting and Longstanding Problems at The  
          Bar Continue to Raise Very Troubling Questions About Public  
          Protection, Discipline, Governance, Expenditures and Oversight.   
          The State Bar has been in the news throughout much of the past  
          year primarily due to troubling management, oversight and  
          governance problems, as well as questions about whether the Bar  
          has focused sufficiently on its primary duty, public protection.  
           









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          Bar Has Admitted Ignoring Unlawful Practice of Law Complaints,  
          Many of Which are From Immigrants, Thus Allowing the Unlawful  
          Practice of Law to Endanger the Public:  The Bar operates an  
          investigatory and discipline process to protect the public from  
          unscrupulous attorneys, with possible disciplinary actions  
          ranging from letters of warning and private reproval, to  
          disbarment.  The Bar's investigatory and regulatory duties  
          include protecting the public from the unauthorized practice of  
          law by non-attorneys and attorneys not licensed in this State.   
          Although public protection is the Bar's highest statutory  
          priority, the Bar reportedly allowed hundreds of complaints  
          alleging the unauthorized practice of law to sit idle for months  
          or even years without taking action.  Many of the complaints are  
          against "notaries," who offer to assist immigrants in securing  
          legal status or performing other legal work, but whose efforts  
          can result in denial of protective status or even deportation. 


          According to media reports, the Bar initially identified 59  
          complaints of unauthorized practice of law that were  
          uninvestigated for years, with some complaints dating as far  
          back as 2007.  (Lyle Moran, State Bar admits ignoring dozens of  
          complaints against people practicing law without a license,  
          Daily Journal (Jan. 29, 2016).)  At the time, the Bar called its  
          failure to investigate complaints "unacceptable," and blamed a  
          fired investigator.  (Ibid.)  The Daily Journal later learned  
          that the Bar actually had more than 270 additional complaints  
          alleging unauthorized practice of law that were allowed to sit  
          idle, awaiting assignment to an investigator.  These additional  
          complaints were reportedly left in a drawer for more than two  
          months or, in some cases, six months and more.  (Lyle Moran,  
          State Bar let hundreds of complaints against non-attorneys sit  
          idle, Daily Journal (March 4, 2016).)  These cases were  
          reportedly assigned to an attorney, addressing the backlog, but  
          when this matter was first made public, over 300 cases were  
          still awaiting intake.  Had this matter not been made public,  
          likely as the result of a public records request, it is unclear  
          if and when corrective action would have been taken.
                                 







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          It goes without saying that failure to immediately investigate  
          and, when appropriate, take action to stop the unauthorized  
          practice of law leaves the public at serious risk.  If legal  
          action is not taken, the unauthorized practice will likely  
          continue, unnecessarily jeopardizing vulnerable individuals who  
          are seeking legal assistance.  When the failure to investigate  
          lasts months or even years, the risk increases significantly.   
          The failure to investigate in a timely manner is even more  
          disturbing when many of the victims are immigrants, for whom  
          negative consequences may include deportation.  Those harmed,  
          particularly those who have been deported, may not have the  
          opportunity for a second chance to obtain actual legal  
          assistance.


          The Bar has acknowledged its mishandling of these complaints and  
          is seeking to improve its procedures by not only working through  
          the backlog swiftly, but also bringing together legal service  
          providers and other stakeholders for a one-day summit next  
          month, entitled "Strategies for Effective Investigation &  
          Enforcement: UPL & Immigration Attorney Misconduct."  According  
          to the Bar, the "summit discussion is intended to identify what  
          is working under the current structure and what is not, and to  
          generate ideas for improvement."  It is hoped that the summit  
          produces real and immediate improvement in the Bar's handling of  
          these critically important complaints.


          Last Year's State Audit Substantially Faulted the Bar for Not  
          Consistently Protecting the Public and For Lacking  
          Accountability:  As required by statute, the State Auditor  
          completes a performance audit (covering one part of the Bar's  
          functions) of the Bar every two years.  The 2015 audit reviewed  
          the Bar's discipline process; in particular its backlog of  
          discipline cases, and the Bar's 2012 $75 million purchase and  
          renovation of a building in Los Angeles.  The audit uncovered  
          significant, troubling decisions made by the Bar in the handling  








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          of both matters.  (California State Auditor, State Bar of  
          California:  It Has Not Consistently Protected the Public  
          Through its Attorney Discipline Process and Lacks Accountability  
          (June 2015).)


          Discipline:  To operate its discipline system effectively and  
          maximize public protection, the Bar must minimize its backlog  
          (cases not processed within six months) in order to prevent  
          wayward attorneys and non-attorneys from continuing to practice  
          law in a manner that endangers the public.  The Bar is required  
          to report annually to the Legislature, the Governor, and the  
          Chief Justice on the discipline process and any backlog.   
          (Section 6086.15.)  Unfortunately, the State Auditor discovered  
          that the Bar did not fully and consistently report its backlog  
          or its case processing times to the Legislature or the Governor,  
          and, when taking steps to reduce the backlog, did not adequately  
          protect the public.  Of particular importance, according to the  
          Auditor, was the manner in which the Bar reduced its backlog of  
          discipline cases, which may have caused "significant risk to the  
          public":


            [A]s the State Bar reduced its excessive backlog of  
            disciplinary cases, the severity of the discipline it imposed  
            on attorneys who failed to fulfill their professional  
            responsibilities decreased.  In other words, to reduce its  
            backlog, the State Bar allowed some attorneys whom it  
            otherwise might have disciplined more severely-or even  
            disbarred-to continue practicing law, at significant risk to  
            the public. . . .  The chief trial counsel confirmed that she  
            believes . . . that insufficient quality control was a key  
            factor that enabled the State Bar to decrease its backlog.   
            (Id. at 1 (emphasis added).)


          As a result of the audit findings, the Legislature, in last  
          year's dues bill, SB 387 (Jackson), Chap. 537, Stats. 2015,  
          directed the Bar to develop and implement a workforce plan for  








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          its discipline system and to conduct a public sector  
          compensation and benefits study, including a recommendation for  
          an appropriate backlog goal and an assessment of staffing needed  
          to achieve that goal.  The workforce plan and the spending plan  
          are to be submitted to the Legislature by May 15, 2016, and  
          implemented by December 31, 2016.  It is anticipated that this  
          bill will be amended to address the Bar's discipline system  
          after those plans are submitted.


          Building Purchase:  The State Auditor also determined that, when  
          purchasing a building in Los Angeles in 2012, the Bar did not  
          perform any cost-benefit analysis to determine if the purchase  
          was appropriate and warranted before receiving approval from its  
          Board to purchase the building.  The Bar, according to the  
          Auditor, did not fully inform the Legislature of its plans,  
          thereby potentially risking public safety by not prioritizing  
          other areas, such as attorney discipline:


            The State Bar of California's ? primary mission is the  
            protection of the public through its attorney discipline  
            system.  However, the State Bar's financial priorities over  
            the past six years did not consistently reflect that mission:  
            Rather than using its financial resources to improve its  
            attorney discipline system, the State Bar dedicated a  
            significant portion of its funds to purchase and renovate a  
            building in Los Angeles in 2012.  Although the Legislature  
            approved $10.3 million for this building, the State Bar  
            ultimately spent approximately $76.6 million on it.   
            Facilitating this purchase required the State Bar to transfer  
            $12 million between its various funds, some of which its Board  
            of Trustees (board) had set aside for other purposes. 


            The ultimate responsibility for ensuring that the State Bar  
            spends funds prudently rests with the board, which should have  
            ensured that the State Bar's decision to purchase the Los  
            Angeles building was justified and financially beneficial.   








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            However, the State Bar did not fully communicate its  
            questionable financial decisions regarding this new building  
            to the board because it never presented its board with  
            comprehensive cost estimates of purchasing versus leasing a  
            building.  Moreover, only four months before it purchased the  
            Los Angeles building, the State Bar informed the Legislature  
            in an annual report that a building would cost $26 million-a  
            third of the $76.6 million the State Bar ultimately paid.  In  
            addition, the State Bar could offer no evidence that it  
            informed the Legislature of its final decision to purchase the  
            Los Angeles building even though state law required it to do  
            so.  As a result, key decision makers and stakeholders lacked  
            the information necessary to make informed financial decisions  
            related to the purchase of the Los Angeles building or to  
            understand its impact on the State Bar's other financial  
            priorities.  (Id. at 43.)


          The Auditor thereby found that the decision to purchase the Los  
          Angles building jeopardized the State Bar's core function to  
          protect public safety:  "Rather than using its financial  
          resources to improve its attorney discipline system, the State  
          Bar dedicated a significant portion of its funds to purchase and  
          renovate a building in Los Angeles in 2012."  (Ibid.)


          Even more troubling was the fact that the Bar chose to secure  
          the additional funding for the Los Angeles building, in part,  
          through a loan that required the Bar to use $4.6 million of its  
          Public Protection Fund as collateral for the loan.  The sole  
          purpose of the Public Protection Fund, which the Bar itself  
          established in 2001, was to protect the public in the event of a  
          financial emergency - and that emergency is generally regarded  
          as a veto of the Bar's annual dues bill, which has happened  
          twice in the last 20 years: once in 1997 and most recently in  
          2009.  (SB 1145 (Burton), 1997; SB 641 (Corbett), 2009.)   
          However, without any notification to its members or the  
          Legislature, the Bar decided, unilaterally, to tie up over 70  
          percent of its Public Protection Fund - $4.6 million of the $6.5  








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          million fund - for the 15-year life of the loan.  The Bar may  
          not access those Public Protection funds for any reason during  
          that time, or it will default on the loan for the Los Angeles  
          building.  This completely negates the purpose of the fund -  
          public protection.  If, the Bar Board determined that the Public  
          Protection Fund is actually not necessary, the Board, in  
          consultation with the Legislature, could have decided that the  
          remaining unsecured funds, as well as the $4.5 million that is  
          securing the Los Angeles building loan after the loan is paid  
          off, could be used for other purposes, such as improving the  
          discipline system, reducing the legal services "justice gap" or  
          refunding unnecessary dues to members.


          The use of the Public Protection Fund to secure the loan on the  
          L.A. building is, according to the State Auditor, part of a  
          larger pattern in which the Bar transfers money between its  
          various funds and uses the money on unrelated items.  The  
          Auditor found that, from 2009 through 2012, the Bar made  
          approximately 50 transfers between funds involving over $64  
          million.  (Id. at 13.)  Given the concerns about the Bar's lack  
          of transparency and accountability, and the resulting potential  
          risk to public protection, last year's dues bill, SB 387,  
          directed the Auditor to do an in-depth financial audit of the  
          Bar, including a review of the Bar's internal controls.  As  
          noted, that report is due by May 15, 2016.



          S.F. Building Loan and Restructuring of L.A. Building Loan:  In  
          spite of last year's audit that questioned the cost of the Los  
          Angeles building and its impact on public protection, and  
          without waiting for the results of the legislatively-required  
          discipline workplan due next month (which could show that the  
          Bar requires significant additional spending to meet its public  
          protection mandate), the State Bar decided, without input or  
          approval from the Legislature, to take out a new $10 million  
          loan for updates and tenant improvements on three floors of its  
          San Francisco building.  








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          In order to use some of the loan as security for repayment, the  
          Bar, again without consultation with the Legislature, chose to  
          secure the loan and refinance the original $25 million loan on  
          the Los Angeles building, discussed above, through a security  
          interest in future member dues.  The loan, secured on future Bar  
          dues, was entered on March 1, 2016 for a term of ten years.   
          Before receiving approval from the Board, the Bar requested an  
          opinion from its staff on the legality of the revenue pledge.   
          While finding the loan legally permissible, legal staff  
          appropriately warned the Bar of the following:


            Such a pledge, which has the potential to impact the Bar's  
            regulatory functions, could additionally be deemed  
            inconsistent with the later adoption of Business & Professions  
            Code, section 6001.1, which provides that the Bar must place  
            public protection as its highest priority and additionally  
            states, "[w]henever the protection of the public is  
            inconsistent with other interest sought to be promoted, the  
            protection of the public shall be paramount." . . .  [S]uch a  
            pledge could subject the Bar to criticism on the basis that it  
            could place funds that govern its core regulatory activities  
            at what may be deemed to be unnecessary risk.


          These risks were not mentioned in the materials presented by the  
          Bar to its Board when it requested approval for the loan.  Nor  
          was the Board apparently provided with a cost-benefit analysis  
          that included both a recommended course of action and  
          alternatives, as the Bar's list of accomplishments states is  
          required, beginning July, 2015, for all expenditures reasonably  
          expected to exceed $2 million.  Clearly, this loan met that $2  
          million threshold.  Moreover, the decision to proceed with the  
          loan came less than one year after the State Auditor questioned  
          the Bar's decision to purchase the Los Angeles building on the  
          basis that the Bar had not considered whether the resources to  
          repay the loan might be better spent on improving the Bar's  








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          discipline system. 


          Even more troubling, Business & Professions Code Section 6008.5  
          provides that whenever the Board secures a Bar obligation with  
          all or any portion of the fees from membership dues, the  
          Legislature may not, until the obligation is repaid in full,  
          reduce membership dues below the maximum amount in effect when  
          the obligation was created, providing a covenant to the holder  
          of the obligation.  Thus, at least on its face, this statute,  
          which has been on the books since 1957, appears to provide that,  
          as a result of the loan, the Legislature cannot lower Bar dues  
          by even a single penny.  The annual legislative setting of the  
          amount of the Bar's dues is the Legislature's chief mechanism  
          for oversight of the Bar.  Without the ability to annually  
          establish Bar fees, including the ability to lower fees, the  
          Legislature would lose a key oversight tool to ensure that the  
          Bar is properly carrying out its mission and protecting the  
          public.  It appears that this issue was never presented to the  
          Board when it approved of the loan.  Nor was there apparently  
          any consultation with the Legislature before restricting future  
          legislative authority. 


          It is highly unlikely that this statute, the policy merits of  
          which are questionable, was ever constitutional.  A legislature  
          cannot restrict the powers of a subsequent legislature by  
          enacting a statute that appears to be nonrepealable.  (County  
          Mobilehome Positive Action Committee v. County of San Diego  
          (1998) 62 Cal. App. 4th 727, 734.)  "An act of one legislature  
          is not binding upon, and does not tie the hands of future  
          legislatures [citations omitted]."  (Ibid.)  This provision may  
          also run afoul of the constitutional prohibition against  
          delegation of legislative power, which prevents the Legislature  
          from, among other things, delegating rate setting ability to  
          members of the industry that is regulated.  (See State Bd. of  
          Dry Cleaners v. Thrift-D-Lux Cleaners (1953) 40 C.2d 436, 447.)   
          This statute appears to delegate to the Bar, should it choose to  
          secure a loan with future dues, the ability to fix the minimum  








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          price of future dues for as long of a loan period as the Bar  
          chooses.  


          At the request of the chairs of this Committee and the Senate  
          Judiciary Committee, the Bar and the lender have agreed to  
          restructure the loan so that it is no longer secured by future  
          member dues.  However, until the loan is repaid in full, the  
          obligation still exists and still reduces the amount of Bar's  
          resources available to protect the public.  This bill, quite  
          appropriately, therefore eliminates this anachronistic statute  
          and, with it, the Bar's ability to lock in a dues rate for  
          years, even if the Bar has no need for the funding generated by  
          those dues.  

          Firing of Executive Director and Ensuing Litigation/Arbitration:  
           In November 2014, the State Bar terminated its then-executive  
          director, Joe Dunn.  In response to that termination, the  
          executive director filed suit against the State Bar, alleging  
          whistleblower status and charging the bar with engaging in  
          "egregious" fiscal improprieties.  Bar officials reportedly  
          responded with accusations against him, including criticism of  
          his lavish expense accounts.  


          After spending months litigating the matter, the court ordered  
          the parties to arbitrate their dispute, as required in the  
          executive director's employment contract.  The arbitration,  
          which has apparently been open to the public, included release  
          of the $359,000 internal investigation of the former executive  
          director in 2014, which concluded that although "certain other  
          deficiencies in Dunn's performance would warrant counseling or  
          reprimand only (such as his inattention to proper allocation of  
          expenses between mandatory and voluntary fees), Dunn's repeated  
          failure to provide adequate or truthful information to the Board  
          plainly provides an adequate basis to terminate his at will  
          employment."  (Mark Helm and Bart Williams, Independent  
          Investigation for the State Bar of California: Summary of  
          Findings and Recommendations, p.27-28 (Munger Tolles Report).)  








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          Just this month, the arbitrator dismissed all of the former  
          executive director's claims against the Bar and its Board, its  
          prior president, and a former attorney to the California Supreme  
          Court Chief Justice, with leave to amend some of those claims.   
          Mr. Dunn has until May 1, 2016 to amend those claims. 


          Additional Firings and Ensuing Litigation:  In and around the  
          time of the firing of the executive director, the Bar also fired  
          its general counsel, who was hired by the executive director, as  
          well as the Bar's chief financial officer, and an administrative  
          specialist, who brought a $15 million wrongful termination suit  
          against the Bar this past February.  At roughly the same time,  
          the Bar laid off its public information officer.  On February  
          25, 2016, the Public Employment Relations Board issued a  
          complaint against the Bar for that termination, alleging the Bar  
          fired the public information officer as retaliation for his  
          filing a grievance against the organization.  This past winter,  
          the Bar fired its managing director of investigations after he  
          filed a whistleblower complaint against the Chief Trial Counsel.  
           While it is difficult to determine what precisely occurred in  
          each of these cases and whether any of the firings were  
          justified, the number and frequency of these incidents does  
          raise concerns about management at the State Bar.  And according  
          to media reports, the State Bar had spent over $530,000 on  
          attorney's fees for the wrongful termination litigation of its  
          former executive director and the others (as of February 2016),  
          of which less than $400,000 was covered by insurance.  (Lyle  
          Moran, State Bar spent $413K investigating Dunn, leak of report,  
          Daily Journal (Feb. 24, 2016).)  It is reasonable to assume that  
          those figures have risen substantially since then.


          Ongoing Concerns About the Chief Trial Counsel, Still Awaiting  
          Senate Confirmation:  The Bar's chief trial counsel, Jayne Kim,  
          has also been the subject of controversy.  She filed an internal  
          complaint against the former-executive director, which  








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          ultimately led to his firing.  Last October, her subordinate  
          employees in the Office of Chief Trial Counsel, members of SEIU,  
          issued a 76 percent "no confidence" vote in her leadership,  
          alleging that she misled the Board, grossly mismanaged her  
          office, and failed to protect the public.  Despite that vote,  
          the Board on December 21, 2016, at the recommendation of current  
          executive director Elizabeth Parker, voted 14-1 to seek another  
          term for the chief trial counsel, although Ms. Parker did  
          promise to address concerns regarding her management style.  The  
          additional term requires Senate approval.  The Senate has yet to  
          hold hearings on her re-appointment.  In the meantime, she  
          continues to serve in the position.


          Troubling Expenses Cause Bar to Finally Cut its Travel and  
          Catering Budget:  This Committee has long raised concerns with  
          the Bar's expenses for travel, business expenses and other  
          special allowances, when limited dues funds are required by law  
          to first and foremost support public protection and the  
          discipline system; non-dues funds could go to support woefully  
          underfunded legal services programs or potentially to reduce  
          mandatory bar dues.  According to a media report from earlier  
          this year, likely based on a public records request, the Bar had  
          a number of questionable expenses and exercised limited  
          oversight of how Bar members' funds were spent:




            In late January 2014, a group of six executives and trustees  
            from the State Bar of California embarked on a mission to  
            protect the public from unscrupulous lawyers-by traveling to  
            El Salvador.



            While there, the bar president, the executive director and a  
            bar employee classified as a public information officer signed  
            an "accord" with the nation's foreign affairs minister  








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            pledging to work together to educate Salvadorans living in  
            California about available legal resources.  The two-page  
            agreement carried no legal weight; it's unclear if the  
            American signatories had any authority to sign an  
            international pact anyway.



            Outside the signing ceremony, the trip was unremarkable-except  
            for the costs.  Expenses for hotel rooms, airfare, meals, a  
            driver's services and cellphone bills submitted to the bar by  
            just four of the travelers-the only ones readily accessed  
            through the bar's convoluted accounting system-totaled more  
            than $6,600.



            This international trip was not an isolated occurrence.   
            Between 2013 and 2014, bar executives led by then-CEO Joe Dunn  
            and, occasionally, trustees submitted thousands of dollars in  
            expenses associated with trips to El Salvador, Mexico,  
            Guatemala, Nicaragua, Peru and Mongolia, according to  
            documents compiled by The Recorder.



            The trips were paid out of bar funds.  Just how much the costs  
                                               for these trips added up to is difficult to say.  The bar does  
            not code expense reports by foreign trips, so determining who  
            went where when and for how much requires some guesswork and  
            manual calculations.  For years, the bar refused to make  
            public such records, arguing that the quasi-judicial agency  
            was not subject to state sunshine-in-government laws.  . . .



            Hundreds of pages of bar records reveal numerous expenses and  
            activities that appear to have a tenuous connection to the  
            agency's mission of pursuing bad lawyers and protecting the  








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            public-the California public, at least.  (Cheryl Miller, Joe  
            Dunn, Bar Officials Spent Freely on Foreign Travel, The  
            Recorder (Jan. 25, 2016).)

          More recently, the Bar asserts that it has begun to reduce  
          unnecessary spending.  The 2016 budget reduces spending on  
          travel by 29 percent, from $3.4 million to $2.4 million, and on  
          catering by 24 percent, from $2.1 million to $1.6 million.   
          These line items were reduced because, according to Chief  
          Operating Officer Leah Wilson, these "were areas of  
          "extraordinary costs' for the bar."  (Lyle Moran, State bar cuts  
          annual budget by 6 percent, Daily Journal (Feb. 2, 2016).)  It  
          is worth noting that, prior to seeking a financial audit by the  
          State Auditor last year, Committee staff had asked the Bar for,  
          among other things, information on Bar travel outside the  
          country and was informed (incorrectly, as is now clear) that the  
          only such trip was to Mongolia.


          Legislative Oversight Role:  While the above events and reported  
          claims and allegations may be fully understood, enough is known  
          about them to trigger legislative and public concern about how  
          the Bar is governed and overseen, particularly given that public  
          protection is required to be the Bar's paramount duty.  
          Nevertheless, at least one member of the Board has remarkably  
          and ironically questioned whether the Legislature should have  
          oversight over the Bar.  According to media reports, the  
          Governance in the Public Interest Task Force has asked to be  
          provided with "any cases in other states touching on the  
          propriety of a Legislature setting licensing fees for lawyers or  
          reviewing the appointment of a chief trial counsel."  (Lyle  
          Moran, State Bar panel may review legislative oversight of  
          agency, Daily Journal (Feb. 29, 2016).)  The current Bar  
          President is reported to have said that the final Governance  
          Task Force report "could include recommendations pertaining to  
          lawmakers' oversight of the agency.  'It is an issue,' he said  
          in an interview."  (Ibid.)










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          Given the reported mismanagement by this state agency, it would  
          certainly appear that greater oversight, and possible reform, of  
          the State Bar is needed and that a call by some trustees for  
          less oversight under such circumstances indicates reason to  
          question whether the Bar can fully carry out its paramount duty  
          to protect the public.


          Can the Bar's Board of Trustees Continue to Oversee Attorneys  
          When the Vast Majority of Board Members Are Practicing  
          Attorneys?  Under earlier governance reforms enacted by the  
          Legislature in 2011 in an effort to begin to address significant  
          concerns about the Bar's governance (SB 163 (Evans), Chap. 417,  
          Stats. 2011), the State Bar is governed by a Board of Trustees,  
          made up of 19 members, down from 23 in 2011 (though the Board  
          President may remain on the Board for one year after his or her  
          term is completed and be the 20th member, as is the case today),  
          with a substantial component of attorney members selected by the  
          Supreme Court.  (Section 6010 et seq.)  Under that legislation,  
          due to Bar insistence, the Legislature agreed to allow the Bar  
          to retain a supermajority majority of lawyer-members, or active  
          market participants, following assurances from the Bar that the  
          increased percentage of public members would completely address  
          prior Board governance problems.  Thus, of the current 20  
          possible members, 14 are lawyer members -- 6 of whom are elected  
          by bar members in districts across the state -- and 6 are public  
          members.  Currently, there are two vacant public member seats,  
          both of which are gubernatorial appointees, so the Board is  
          currently composed of 18 members, 14 of whom are active members  
          of the State Bar and 4 of whom are public members.


          A recent U.S. Supreme Court case, which found that if a state  
          licensing board has a majority of members who are active market  
          participants then the board can only invoke antitrust immunity  
          if it is subject to active state supervision, has raised serious  
          questions about the Bar's immunity from federal antitrust laws.   
          In that case, North Carolina State Board of Dental Examiners v.  
          Federal Trade Commission (2015) 135 S. Ct. 1101, the Supreme  








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          Court held, in a 6-3 decision, that the North Carolina Dental  
          Board (composed of eight members, six of whom were practicing  
          dentists) did not have state immunity to an antitrust action  
          brought by the Federal Trade Commission to stop the dental board  
          from preventing non-dentists from offering teeth whitening  
          services.  The Court held that the dental board, since it was  
          controlled by "market participants" who pose a risk of  
          self-dealing, could only invoke state immunity to an antitrust  
          action if the board is "actively supervised" by state officials.  
           It is important to note that 75 percent of the North Carolina  
          dental board members were active dentists, while currently fully  
          78 percent of the State Bar Board is composed of active Bar  
          members.  Even when all public members are appointed, the Bar's  
          Board will still be composed of a supermajority of active Bar  
          members - 68 to 70 percent (depending on whether the Board has  
          19 or 20 members) active Bar members.  


          To better understand if the Bar (and hence the State) might be  
          subject to antitrust liability in its current configuration,  
          this Committee asked Legislative Counsel for its opinion as to  
          the risk of liability after the North Carolina State Board of  
          Dental Examiners decision.  Legislative Counsel opined that the  
          Bar is indeed controlled by active market participants and, if  
          the Bar is found to be in violation of antitrust laws by not  
          being actively supervised by state officials, the State would  
          generally be responsible for defending the Bar and paying any  
          judgments against the Bar or its employees (including not only  
          fines and treble damages, but also imprisonment for up to 10  
          years for individual board members).  (Ops. Cal. Legis. Counsel,  
          No. 1602135, State Bar of California: State-Action Immunity, pp.  
          5, 13 (April 18, 2016).)  What is less clear is what is required  
          for "active state supervision."  Legislative Counsel opines  
          "that a court would analyze the presence of active supervision  
          on a case-by-case basis . . .  [I]t is our opinion that an  
          anticompetitive action of the State Bar would be actively  
          supervised by the state for purposes of state-action immunity if  
          the California Supreme Court retains strict supervisory powers  
          and ultimate full authority over the State Bar's actions by  








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          laying out specific rules and serving as the ultimate decision  
          maker."  (Id. at 9 (citations omitted).)


          Thus, as long as the Bar's Board of Trustees is controlled by  
          active market participants, as it is today, there will be a  
          significant risk that the State could be subject to liability  
          for the Board's actions.


          The Center for Public Interest Law (CPIL), which opposes this  
          bill unless amended, believes that the best course of action is  
          for the Board to be restructured in order to eliminate active  
          market participant control:  "The simplest way to avoid  
          antitrust liability (and ensure the interest of the public is  
          properly considered) in light of North Carolina is to convert  
          the Board of Trustees' composition to a supermajority of public  
          members, with the added provision that no vote may be taken  
          where those voting are not public members in the majority."   
          (CPIL adds that, at a minimum, the Legislature should eliminate  
          the six elected positions.)  However, if the Board is not  
          restructured to eliminate the Board's active market participant  
          supermajority, CPIL writes that the Legislature must establish  
          true active state supervision, which does not exist today:


            The term "active" is critical.  It cannot be simply the  
            presence of a supervening entity.  The fact there is a state  
            Supreme Court at the zenith of the organizational chart does  
            not provide compliance.  . . .  


            At present, neither the California Supreme Court, nor any  
            other entity, provides the requisite independent and "active"  
            supervision for anticompetitive effect as required by North  
            Carolina.  This Legislature should add to this bill the clear  
            authority of the California Supreme Court to engage in "active  
            state supervision" of the Bar, and any part of it controlled  
            by "active market participants" in the profession, as  








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            commanded by the U.S. Supreme Court.  That authority should  
            include the power and resources to fashion, in its own manner,  
            a system for filtering decisions to focus on those with  
            anticompetitive effect; and, for those, to examine their  
            substantive anticompetitive effect and alternatives, using  
            relevant economic, antitrust, and other expertise separate  
            from practicing attorneys.


          Given all of the oversight, governance and management concerns  
          that continue to be raised about the State Bar, as well as the  
          possibility of antitrust liability, can the Bar effectively  
          continue to be both a government regulatory agency and a trade  
          association?  Since its inception, the Bar has worn two hats --  
          regulatory agency and professional trade association.   
          California, like 31 other states, including Florida, Idaho,  
          Louisiana, Michigan, Mississippi and Texas, has a unified bar,  
          which means that the State Bar is both the regulatory arm of the  
          state, as well as a mandatory attorney trade association.   
          Attorneys who wish to practice law in this State must join the  
          Bar and their dues cover both the regulatory arm and the trade  
          association.  This arrangement is unique among professions  
          licensed by the State of California.  For all other professions,  
          the government entity regulates the profession and disciplines  
          wayward practitioners, while a private trade association  
          provides education and advocacy for members of the profession.    
          (See for example, physicians, who are licensed and regulated by  
          the Medical Board of California within the Department of  
          Consumer Affairs, but who may voluntarily join the California  
          Medical Association, their trade group, which provides  
          "legislative, legal, regulatory, economic and social advocacy."   
          (http://www.cmanet.org/about/).)  


          Eighteen states, generally including larger states such as  
          Colorado, Illinois, Massachusetts, Minnesota, New Jersey, New  
          York, Ohio and Pennsylvania, have non-unified bars.  In those  
          states, attorneys are only required to join the regulatory arm  
          of the bar and not the trade association.  These states have  








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          private trade associations, but those associations are not  
          regulated by the state.  Private bar associations are free to  
          govern themselves as they see fit and are not subject to  
          government oversight or transparency laws.  Dues payments  
          required by unified bars are, typically, considerably higher  
          that dues payments required by non-unified bars.  According to  
          data from the State Bar, approximately 52 percent of active,  
          resident attorneys are members of voluntary trade associations,  
          although there is a range (Colorado - 84%; Illinois - 47%;  
          Massachusetts - 25%; Minnesota - 61%; New Jersey - 44%; New York  
          - 43%; Ohio - 58%; and Pennsylvania - 57%).  If California were  
          to have a voluntary bar and follow the average of the large  
          states listed above, nearly 100,000 California active members  
          would potentially join a voluntary bar association.


          Governance in the Public Interest Task Force to Consider  
          De-Coupling:  The Bar's Governance in the Public Interest Task  
          Force, created as part of the legislative reforms of SB 163 in  
          2011, is required to report to the Supreme Court, the Governor  
          and the Assembly and Senate Judiciary Committees by May 15,  
          2014, and every three years thereafter, its recommendations for  
          enhancing public protection and ensuring that public protection  
          is the State Bar's highest priority.  (Section 6001.2.)  The  
          task force has yet to submit its first report, but is now  
          reported to be doing so and expected to complete by July of this  
          year.  Among other issues, the task force is considering whether  
          the Bar should separate into a government entity charged with  
          regulating attorneys and a private trade association.  


          Several Bar Trustees, Most Notably two Legislative Appointees,  
          and at Least One Bar Section Are Publically Calling for  
          De-Unification or De-Coupling as a Solution to Long-Term,  
          Structural Problems with the Bar:  Three current and one former  
          Bar Board trustee write to support the annual dues assessment,  
          but to request "substantial amendments to address systemic  
          weaknesses in bar governance."  These trustees (two of whom are  
          legislative appointees to the Board) first note that the Bar's  








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          current controversies are part of a "long history of cyclical  
          crisis, reform, neglect, and renewed crisis":


            Nearly every Executive Director of the State Bar over the past  
            few decades has ended his or her service in controversy.  Each  
            is replaced by a new leader, charged to be "a new sheriff in  
            town."  A show of effort at change is made; the attention of  
            the press, bar and public turn elsewhere; and the Bar slides  
            back into mismanagement, failure to protect Californians, and  
            general dysfunction until a new controversy soon restarts the  
            cycle.  This systemic dysfunction derives from the dual  
            mission of the Bar and its short-term, diffuse, volunteer  
            leadership.


          The trustees go on to note that unlike "every other profession  
          in our State and unlike an apparent trend in sister states of  
          comparable size and diversity toward decoupling legal regulatory  
          and professional organizations, California attorneys have been  
          granted the privilege of self-regulation."  That self-regulation  
          has resulted in allegations, according to the trustees, that  
          "the Bar more vigorously prosecutes attorneys with less money  
          and influence" which have "never been seriously addressed.   
          These tend to be solo practitioners, small-town lawyers, and  
          lawyers of color.  The Bar can and should assure Californians  
          that the justice it dispenses is even-handed as well as  
          efficient." 


          These trustees state that their years of service reveal the  
          Board to be "a distracted regulator. It spends much of its  
          energy on professional association matters such as appointments  
          of attorneys to positions of prestige, providing continuing  
          legal education in competition with voluntary bars and  
          for-profit providers while also regulating those providers,  
          conducting an annual conference that draws fewer attendees and  
          requires greater subsidy each year, publishing legal content,  
          selling insurance, etc.  . . . Over the past two years, the  








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          Board has spent far more time in closed session addressing  
          personnel, litigation and real estate issues than it has devoted  
          in open session to regulation."


          The trustees argue that based on antitrust concerns after the  
          North Carolina case, California should follow several of the  
          largest states that have separate judicial branch regulation of  
          attorneys and "thriving voluntary State Bar Associations."  They  
          argue that this will allow a statewide professional association  
          to advocate more effectively for a well-funded judiciary and for  
          legal services than "a state agency hemmed in by the most  
          conservative perspective on what and how it can advocate."  They  
          further argue that Proposition 209's "prohibition on  
          state-funded affirmative action has hampered the Bar's ability  
          to advocate for diversity in the profession and for full and  
          fair access to justice for communities of color."


          Their proposal involves a three-year process, led by the Bar,  
          with input from the Supreme Court and the Governor, to first  
          study the issue and determine which Bar functions "belong in  
          government and which can be more effectively performed by a  
          private entity" and then make recommendations to the Legislature  
          at the end of 2017 for 2018 restructuring legislation.  The  
          Legislature should explicitly mandate, state the trustees, that  
          there be no job losses from the separation, especially since the  
          regulatory functions are currently understaffed, and that there  
          be a larger role for the Supreme Court.  These proponents of  
          restructure see the end result as creating "a more effective  
          regulator of legal services to Californians and a more potent  
          and less costly professional association for lawyers."  The  
          trustee group's proposal is also supported by the Executive  
          Committee of the Business Law Section of the State Bar. 


          The California Lawyers Guild, a statewide voluntary bar  
          association, newly formed by former leaders of the Business Law  
          Section of the State Bar, also support de-unification:








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            We believe that the attention currently focused on the State  
            Bar offers all relevant constituencies - and particularly the  
            Legislature - an opportunity to reflect on and revisit the  
            manner in which the State Bar and its Sections are organized,  
            and specifically to conclude that each organization would be  
            stronger and more focused were they to be separated.  . .  
            .[W]e believe that the continued operation of the Sections  
            under the umbrella of the State Bar is neither sustainable nor  
            advisable.  The strictures placed on lawyers (who are not  
            compensated at all) for providing hundreds, often thousands,  
            of hours giving back to the practice of law are wholly  
            inappropriate, especially given that the work of these  
            volunteers has nothing to do with why the State Bar is in  
            crisis. . . . Given the problems that have festered and grown  
            over time, we can no longer envision a paradigm in which the  
            Sections and their Standing Committees are forced to have  
            their functions degraded by strictures appropriate only for a  
            governmental agency. 


          The Center for Public Interest Law likewise supports  
          de-unification, arguing that the "State Bar must - once and for  
          all - sever off its trade association functions and engage only  
          in regulatory agency activities which may be funded with  
          compulsory Bar dues."  CPIL even sets out its recommendations as  
          to how the Bar's current functions should be divided:


            CPIL believes that the following regulatory agency functions  
            may properly stay with the State Bar (which can continue to be  
            housed in the judicial branch of state government) and may be  
            lawfully funded with compulsory licensing fees: (1) licensing  
            of attorneys; its legal specialization program; (3) adoption  
            of ethical standards for the legal profession; (4) attorney  
            discipline; (5) administration of the Client Security Fund;  
            and (6) access to justice activities, including IOLTA funding  
            of legal services for the poor and the Commission on Access to  








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            Justice.  The following "trade association" activities should  
            be severed off: (1) the sections; (2) lobbying and legislative  
            activity on issues unrelated to the regulation of the legal  
            profession and/or improving access to the justice system; (3)  
            the annual meeting; (4) insurance programs and services; (5)  
            the regulation of legal referral services; and (6) continuing  
            legal education.  (To the extent continuing legal education  
            assures competence, particularly if subject to testing in  
            areas of actual practice, it may also serve a regulatory  
            function.)


          Other Individuals, Sections Disagree:  Other individuals and Bar  
          sections vehemently disagree with separating the Bar.  The  
          Executive Committees of the Family Law and Trusts & Estates  
          Sections of the State Bar have voted overwhelmingly in support  
          of the Bar remaining unified.  These sections argue that the  
          geographic and practice diversities of their statewide  
          organizations provide for the broadest and most objective  
          possible representation that could well be lost if the sections  
          become part of a private trade organization, particularly if  
          over time membership drops.  They are concerned that the  
          well-respected educational materials they prepare and disperse  
          would end up becoming glossy trade magazines used more for  
          marketing than educating other professionals and the public on  
          matters of significant.  They believe that remaining part of the  
          regulatory agency allows them to stay within their purview and  
          be perceived by the Legislature as unbiased and objective  
          experts in their respective fields.  A trade association, they  
          argue, would not have the clout that the State Bar has today.


          The Executive Director of UC Berkeley School of Law's California  
          Constitution Center, along with two associates, also oppose any  
          rush to de-unify the Bar.  In an op-ed published in the Daily  
          Journal these experts first note that the Governance in the  
          Public Interest Task Force is now looking at this issue and  
          should be given a chance to complete its study.  Second, they  
                                                                                argue that the motivation for quicker action -- the Bar's  








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          ongoing crises -- has been negated by the Bar's new leadership  
          team and an arbitrator's demurrer to all the former's executive  
          director's claims against the Bar.  They are concerned that the  
          trustees' proposal discussed above, which leaves the regulatory  
          system in the judicial branch, but suggests that the Governor  
          and the Legislature appoint more Board trustees than the Supreme  
          Court, could raise separation of powers issues and could be  
          unconstitutional.  They write that because "the admission and  
          discipline of attorneys is a core judicial branch power, the  
          judiciary is the ultimate authority over regulating the practice  
          of law in California.  The core judicial power over officers of  
          the court is subject to only reasonable legislative regulation.   
          At some point 'regulation' becomes 'destruction' and  
          unconstitutionally invades the judiciary's power."  (David  
          Carrillo et al, Why the rush to dissolve the bar?, Daily Journal  
          (April 13, 2016).)  They go on to argue that, rather than  
          enhancing public protection, de-unification will actually harm  
          the public:


            Returning to the question of motivation, consider this: who  
            benefits?  It is clear who will not benefit: the public.   
            Proponents of the proposal have justified it by comparing it  
            favorably to regulatory schemes for other professions and the  
            bar[s] in other states.  There are some superficial  
            similarities between this profession and others - medicine,  
            for example.  But the law is unique, and the bar's work is  
            crucial to our government and to society itself.  Although  
            doctors perform an important public service (saving lives),  
            that is substantively distinct from the public role the bar  
            plays: maintaining the integrity of the legal system and  
            ensuring access to justice.  For example, the bar has a major  
            role in vetting judicial candidates.  Will the new entity have  
            the resources to continue operating the Judicial Nominees  
            Evaluation Commission?  And if some other states regulate  
            their bars differently, so what?  California should take pride  
            in doing things differently - and better.  (Id.)










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          While the issue of de-unification has been debated for years, it  
          is clear that there is a renewed and growing interest in it as a  
          possible solution to some of the most troubling issues impacting  
          the Bar today and it warrants further consideration by all  
          stakeholders.


          This Bill Does Not Increase Modest Assistance to Legal Aid  
          Organizations, Although Much More is Needed to Begin to Close  
          the "Justice Gap."  As this Committee has highlighted for many  
          years, there has long been a dire need for civil legal services  
          for poor Californians - especially underserved groups, such as  
          elderly, disabled, children and people needing assistance with  
          English.  By many measures, California suffers from an  
          overwhelming "justice gap" between the legal needs of low-income  
          people and the legal help they receive.  It has been estimated  
          that the cost of closing the gap would amount to $400 million.   
          Even in the best of times, legal aid providers have been able to  
          address only a fraction of the demand for help.  Because of  
          insufficient resources, legal services programs can offer  
          assistance in only a few types of cases; many poor and  
          moderate-income Californians do not qualify for services; and  
          most of those who meet the strict eligibility limits and seek  
          assistance regarding problems for which a legal services office  
          provides service are nevertheless turned away, simply for lack  
          of staff.  Even those who receive services are frequently  
          under-served with brief advice and consultation, rather than  
          full and fair representation.


          As this Committee knows well, for over 30 years, interest on  
          lawyer trust accounts (IOLTA) has been the primary mechanism on  
          which the State has relied to fund legal aid programs.  It seems  
          likely that when the IOLTA program was instituted in 1981, no  
          one anticipated that bank interest rates would be virtually  
          zero, as the federal funds rate has been since the 2009-10 IOLTA  
          grant cycle.  The historic plunge in interest rates continues to  
          pose an unprecedented challenge to the premise that legal aid  
          programs can rely on IOLTA funding to help maintain their  








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          essential mission.  Absent a substantial increase in interest  
          rates, which may be undesirable in macro-economic terms, it has  
          become painfully clear that IOLTA alone will never adequately  
          address the needs of those less fortunate who require legal  
          assistance. 


          As this Committee has frequently discussed and sought to  
          ameliorate, funding for legal aid organizations that provide  
          essential legal help for extremely impoverished individuals has  
          been decimated in recent years.  The Legislature has for years  
          worked with the Bar to come up with alternative funding sources,  
          in the past using non-mandatory dues, but that sunsetted several  
          years ago diminishing state funding for legal aid even further,  
          despite significantly greater needs for legal services by those  
          who cannot afford them, and dramatically lower funding from  
          other sources.  Current law provides an optional legal aid fee  
          by which members who choose to do so can help defray the cost of  
          ensuring that legal services are available without regard to  
          ability to pay market rates, consistently with each lawyer's  
          professional responsibility, at the rate of $40.  These  
          voluntary contributions make up for some, but by no means all,  
          of those lost non-mandatory contributions.  Unfortunately, this  
          year's bill does not provide any new funding for legal services  
          programs.


          The Bar's leadership has, in the past, stated its commitment to  
          this Committee to find other non-mandatory sources of funds as  
          soon as possible to not just bridge this continuing crisis but  
          to try finally to overcome it.  A resolution adopted by the  
          State Bar last May details the funding crisis in legal services  
          and finds that "due to inadequate funding legal services must  
          turn away eligible clients who are left to navigate complex  
          legal situations on their own - and risk losing their families,  
          homes and livelihoods in the process."  The resolution ends with  
          the Bar and its Board supporting "increased stable funding for  
          legal services through an increased Equal Access Fund [limited  
          state General Fund support of legal services] and otherwise to  








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          provide critically needed legal help to low-income and  
          vulnerable residents of California."  It is hoped that going  
          forward, and in addition to a vitally needed increase in the  
          Equal Access Fund itself, the Bar and its Board will be able to  
          find additional, ongoing funding for legal services from the  
          Bar's unrestricted sources of funding, funding that today may be  
          used for discretionary expenses, including travel, catering, the  
          annual meeting fund and other nonessential and non-public  
          protection funds, that might be better invested in helping  
          California's most vulnerable residents who seek legal assistance  
          to avoid, among other things, domestic violence, unemployment  
          and homelessness.


          ARGUMENTS IN OPPOSITION:  CPIL opposes this bill, unless it is  
          amended to make the changes discussed above regarding  
          restructuring the Bar.  In addition, CPIL proposes the following  
          changes:


                 Eliminate the attorney elections that today select six  
               of the Board trustees, so the trustees are "selected by  
               public officials, not by professional colleagues." 
                 Subject the Bar to an independent monitor:  "It is in  
               the best interest of the Bar - and the public - to hire an  
               independent expert (outside of the politics, lawsuits,  
               union votes, and finger pointing) who can study the  
               disciplinary system as it exists today, and make  
               recommendations to strengthen it, make it more efficient,  
               ensure public protection, and ensure accurate reporting to  
               the Legislature."


                 Improve access to justice by implementing or seeking  
               approval to implement recommendations in the Bar's Civil  
               Justice Strategies Task Force and develop a statewide law  
               school loan repayment program for lawyers who serve  
               underrepresented communities.









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                 Fine-tune application of the California Public Records  
               Act so that law schools can receive notification whether  
               their students passed or failed the Bar exam.


          REGISTERED SUPPORT / OPPOSITION:




          Support


          Bar Trustee Dennis Mangers (if amended)


          Bar Trustee Joanna Mendoza (if amended)


          Bar Trustee Glenda Corcoran (if amended)


          California Lawyer Guild


          Former Bar Trustee Heather Linn Rosing (if amended)




          Opposition


          Center for Public Interest Law (unless amended)












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          Analysis Prepared by:Leora Gershenzon / JUD. / (916) 319-2334