BILL ANALYSIS                                                                                                                                                                                                    



                                                                    AB 2878


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          ASSEMBLY THIRD READING


          AB  
          2878 (Committee on Judiciary)


          As Amended  May 27, 2016


          Majority vote


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          |Committee       |Votes|Ayes                  |Noes                 |
          |                |     |                      |                     |
          |                |     |                      |                     |
          |                |     |                      |                     |
          |----------------+-----+----------------------+---------------------|
          |Judiciary       |10-0 |Mark Stone, Wagner,   |                     |
          |                |     |Alejo, Chau, Chiu,    |                     |
          |                |     |Gallagher,            |                     |
          |                |     |                      |                     |
          |                |     |                      |                     |
          |                |     |Cristina Garcia,      |                     |
          |                |     |Holden, Maienschein,  |                     |
          |                |     |Ting                  |                     |
          |                |     |                      |                     |
          |                |     |                      |                     |
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          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.









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          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)Eliminates the State Bar's ability to create foundations or  
            non-profit corporations as a means to raise additional  
            revenue.


          4)Eliminates the six elected State Bar Board of Trustees  
            members, and reduces the membership of the State Bar Board of  
            Trustees from 19 members to 13 members.  States the intent of  
            the Legislature that this reduction of members occur through  
            the expiration of the terms of the elected members who are  
            serving as of December 31, 2016.


          5)Requires that each Board of Trustees member appointed after  
            December 31, 2016 have demonstrated expertise in at least one  
            of the following:


             a)   Public finance;


             b)   Public administration;


             c)   Business or financial management;


             d)   State government, particularly prior regulatory  
               experience; and


             e)   Legal ethics.










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          6)Eliminates certain State Bar exceptions to the Bagley-Keene  
            Open Meeting Act, and adds an exception from both the  
            Bagley-Keene Open Meeting Act and the California Public  
            Records Act for the State Bar Court.  Provides that access to  
            records of the State Bar Court shall be governed by the laws  
            applicable to the records of the judiciary.


          7)Provides several exceptions to confidentiality of State Bar  
            admission applications and records, including the names of  
            applicants who passed the Bar examination.


          8)Requires the State Bar to conduct an analysis of the funds  
            necessary to timely satisfy claims against the Client Security  
            Fund (CSF), including possible additional efforts to increase  
            collection from responsible attorneys, a review of other  
            non-public protection expenditures, including executive  
            salaries and benefits, that can be redirected to better fund  
            the CSF, and after exhausting all other options, whether a  
            dues increase is necessary to ensure timely payment of claims  
            against the CSF.  The report is due to the Legislature by  
            March 15, 2017.


          9)Makes various findings concerning events at the State Bar and  
            states the intent of the Legislature that this bill serves 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  








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            set by the State Bar's Board of Trustees (Board) to pay for  
            discipline and other functions to be ratified by the  
            Legislature.  (Business and 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  
            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  








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            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  
            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,  








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            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).)


          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:  None


          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's bar dues bill required the State 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), Chapter 537, Statutes of 2015.)  
           Also 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.  That  








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          audit, The State Bar of California:  Its Lack of Transparency  
          Has Undermined its Communications with Decision Makers and  
          Stakeholders (May 2016), found that the State Bar's financial  
          reports "contained errors and lacked transparency;" in the  
          absence of oversight, the State Bar has made "questionable or  
          inappropriate financial decisions;" it has failed to take steps  
          to minimize a years' long backlog in compensating victims of  
          dishonest lawyers; and it provides executives with  
          "significantly more generous salaries and benefits than other  
          executives in comparable positions in state government."  (Id.  
          at 1-3.)

          This bill comes to this Committee after yet another year of  
          extensive and publically reported turmoil involving the State  
          Bar, some of which has come to light because of new open  
          government laws.  Given the ongoing turmoil at the State Bar and  
          the Legislature's very strong desire to make this state agency,  
          once and for all, an effective regulator of attorneys and  
          protector of the public, the Legislature has two options:   
          Continue to attempt to micromanage the State Bar through ongoing  
          studies, reports and ever tightening legislative oversight, or  
          fundamentally reform the structure of the State Bar so that it  
          runs much more effectively and efficiently with protection of  
          the public as its one clear directive.

          At this point, this bill authorizes the State Bar to collect  
          active membership dues of up to $390 for 2017, the same rate as  
          this year.  The State 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 State 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 State Bar currently  
          has complete discretion over how funds from this latter  
          activity, which amount to approximately $2 million per year, are  
          used.  The State 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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          The bill also eliminates an anachronistic 1950's era statute  
          that prohibits future Legislatures, if the State 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 State 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 State Bar  
          which is needed to ensure that public protection is and remains  
          the paramount concern of the State Bar.  Therefore, this bill  
          rightly deletes that provision.

          As recently amended, this bill seeks to improve governance of  
          the State Bar by eliminating the six Board of Trustee elected  
          member position, reducing the Board from 19 members to 13  
          members as the terms of existing elected members expire.  This  
          bill also requires that new Board members, appointed after  
          December 31, 2016, demonstrate oversight in public  
          administration, financial management or regulatory oversight.   
          The latest amendments also implement some of the recommendations  
          of the State Auditor from the most recent audit and make some  
          minor changes in the transparency laws passed last year.

          However, even as recently amended, this bill, does not fully  
          address critical governance or oversight issues, including  
          whether the Board of Trustees, which is comprised of a  
          supermajority of active market participants, can legally  
          regulate attorneys and still avoid antitrust liability.  Nor  
          does it address whether the State Bar's primary regulatory and  
          public protection functions should be de-coupled from its  
          professional association functions, as some, including current  
          State Bar trustees, have suggested.  These additional issues  
          should be considered along with the State Bar's Governance in  
          the Public Interest Task Force report, which was due May 15,  
          2014, and which is supposed to offer its recommendations for  
          enhancing public protection and ensuring that public protection  
          is the State Bar's highest priority.  It is anticipated that  
          further, significant amendments are necessary to overcome the  








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          State Bar's ongoing and long-standing governance and oversight  
          shortfalls.



          Analysis Prepared by:                                             
                          Leora Gershenzon / JUD. / (916) 319-2334  FN:  
          0003074