BILL ANALYSIS Ó AB 2878 Page 1 (Without Reference to File) ASSEMBLY THIRD READING AB 2878 (Committee on Judiciary) As Amended June 2, 2016 Majority vote ------------------------------------------------------------------- |Committee |Votes|Ayes |Noes | | | | | | | | | | | | | | | | |----------------+-----+----------------------+---------------------| |Judiciary |10-0 |Mark Stone, Wagner, | | | | |Alejo, Chau, Chiu, | | | | |Gallagher, | | | | | | | | | | | | | | |Cristina Garcia, | | | | |Holden, Maienschein, | | | | |Ting | | | | | | | | | | | | ------------------------------------------------------------------- SUMMARY: Reauthorizes attorney license fees at the same level AB 2878 Page 2 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)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 specified, demonstrated expertise. 6)Increases the number of public members appointed to the State Bar Board of Trustees by changing the Assembly's attorney appointee to a public member appointee at the expiration of the current attorney member's term. 7)Provides that no motion of the Board of Trustees can be approved unless a majority of public members approve the motion. AB 2878 Page 3 8)Provides that the president and vice president of the Board of Trustees be appointed by the Supreme Court instead of elected by the Board. 9)Requires the Chief Justice of the Supreme Court to appoint an enforcement program monitor, through March 31, 2020, to monitor and evaluate the State Bar's disciplinary system to ensure the Bar is successfully and consistently protecting the public. Sets forth the duties of the enforcement monitor, including submitting an initial report to the Supreme Court and the Legislature by October 1, 2019, and a final report by March 31, 2020. 10)Sets forth specific requirements for the handling of unlawful practice of law complaints, including specific timeframes for processing those complaints; specified, acceptable resolutions for those complaints; and requiring that those complaints be forwarded to law enforcement. 11)Creates the California Bar Governance Commission, consisting of appointees of the Governor, the Chief Justice of the Supreme Court, the Assembly and the Senate Committee on Rules. Requires the Commission, by April 30, 2017, to evaluate all issues of governance of the State Bar, including but not limited to possible separation of the State Bar's regulatory and trade association functions, in order to recommend the best governance structure for the State Bar to ensure that the protection of the public is the highest priority in the licensing, regulation, and discipline of attorneys and that the State Bar appropriately functions as a government agency subject to laws that apply to similar regulatory bodies. 12)Requires the State Auditor to conduct the State Bar's existing, annual financial audit through 2020. Requires the State Auditor, for its existing 2017 bi-annual performance AB 2878 Page 4 audit of the State Bar, to review the State Bar's expenses, including executive salaries and benefits, outside contracts and real estate holding, to determine the appropriate and necessary expenses of the State Bar and the appropriate member dues level. 13)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. 14)Provides several exceptions to confidentiality of State Bar admission applications and records, including the names of applicants who passed the Bar examination. 15)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. 16)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. AB 2878 Page 5 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 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.) AB 2878 Page 6 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 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 AB 2878 Page 7 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).) 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. AB 2878 Page 8 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 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 the Assembly 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. This bill, as recently amended, does a bit of both. 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 AB 2878 Page 9 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. 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, switching the board from a majority active members to a majority public members, thus eliminating antitrust concerns and potentially significant state liability, and requiring the president and vice president be appointed by the Supreme Court. The amendments also codify requirements for handling unlawful practice of law complaints to ensure that these complaints, particularly those involving vulnerable immigrant clients, do not sit in a drawer unprocessed for months or years. In addition the amendments create a short-term discipline monitor, to review and improve overall the Bar's discipline system, and the California Bar Governance Commission, to evaluate all issues of governance of the State Bar, including but not limited to possible separation of the State Bar's regulatory and trade association functions, in order to recommend the best governance AB 2878 Page 10 structure for the State Bar to ensure that the protection of the public is the highest priority in the licensing, regulation, and discipline of attorneys and that the State Bar appropriately functions as a government agency subject to laws that apply to similar regulatory bodies. Finally, the recent amendments require the State Auditor to review the State Bar's expenses, including executive salaries and benefits, outside contracts and real estate holding, to determine the appropriate and necessary expenses of the State Bar and the appropriate member dues level. These amendments go a long way to making this state agency, once and for all, an effective regulator of attorneys and a protector of the public. Analysis Prepared by: Leora Gershenzon / JUD. / (916) 319-2334 FN: 0003398