BILL ANALYSIS Ó
SB 270
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Date of Hearing: June 28, 2016
ASSEMBLY COMMITTEE ON JUDICIARY
Mark Stone, Chair
SB
270 (Mendoza) - As Amended June 22, 2016
As Proposed to be Amended
SENATE VOTE: 29-9
SUBJECT: COURT REPORTERS BOARD OF CALIFORNIA: CORPORATIONS
KEY ISSUE: IN ORDER TO ENSURE A LEVEL PLAYING FIELD, SHOULD THE
COURT REPORTERS BOARD HAVE BROAD REGULATORY POWERS OVER
CORPORATIONS OR OTHER ENTITIES THAT OFFER, RENDER, OR PROVIDE
SHORTHAND COURT REPORTING SERVICES IN THE STATE?
SYNOPSIS
According to the author, foreign corporations operating in
California employ or contract with California-licensed court
reporters to render professional court reporting services.
These corporations and their owners are not licensed or
certified under California law, creating a situation where
licensees must adhere to California laws regulating court
reporting services while the corporate owners or operators
seemingly (and unfairly) are not required to do so. The
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certified court reporters who support and sponsor this bill
contend that as a result of this discrepancy, some foreign
corporations engage in unfair business practices, such as
illegal gift giving or so-called "penny invoicing" (in which a
shorthand reporting firm will charge a penny per invoice to
assist a law firm with its litigation costs while charging full
price to that law firm's opposition). The proponents of this
bill note that when the Court Reporters Board (CRB or Board) has
tried to issue citations and fines against these foreign
corporations that purportedly do not adhere to California
statutes and regulations regarding professional conduct, the
courts have found that CRB does not have the authority to impose
citations and fines over unlicensed corporations.
According to the sponsor, the California Court Reporters
Association, this bill is needed to strengthen the authority of
the CRB to impose penalties and fines on entities rendering
court reporting services in California in violation of the
Board's professional and ethical rules for certified shorthand
reporters. As approved by the Business & Professions Committee
approximately one week ago, this bill would have expressly
required foreign and domestic corporations that arrange for
shorthand reporting services to comply with certain ethical and
professional rules, including gift-giving restrictions, that
would have been codified from existing Board regulations, and
given the board "jurisdiction to enforce" these requirements.
As proposed to be amended, this bill no longer codifies those
regulations to require compliance, but instead seeks to
establish more specific parameters of the Board's enforcement
powers. The proposed amendments seek to expand the Board's
enforcement to enforce virtually all applicable existing
statutes and regulations governing court reporters, and,
consistent with the author's longstanding intent, seek to create
a level playing field where corporations or other entities that
offer or arrange for the provision of shorthand court reporting
services are required to follow the same rules that certified
shorthand reporters themselves already are required to follow.
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A coalition of national deposition service companies remains
strongly opposed to the bill, even as proposed to be amended.
These companies contend that the bill effectively creates a new
quasi- licensing program for companies "offering" court
reporting services, regulating activities which courts have
expressly concluded do not constitute the practice of court
reporting. Among other things, these opponents also contend
that the bill would give the CRB unfettered authority to issue
citations and penalties against companies that do not even enjoy
the protections of a property interest in a license, and the
effect would be to drive business out of the state.
SUMMARY: Provides the Court Reporters Board (CRB) with broad
powers of enforcement, as specified, over foreign or domestic
corporations that offer or arrange for court reporter services
in California. Specifically, this bill:
1)Authorizes the Court Reporters Board, the Director of Consumer
Affairs, and the Attorney General to seek injunctive relief or
issue citations, fines, and other penalties against
corporations, persons or entities, whether foreign or
domestic, that for a fee or other financial consideration,
offer, offer to arrange for, render, or provide the services
of a certified shorthand reporter, for violations of the
following:
a) Chapter 9 of Title 4 of Part 4 (commencing with Section
2025.010) of the Code of Civil Procedure;
b) Part 4 of Division 3 of Title 1 (commencing with Section
13400) of the Corporations Code;
c) Chapter 12 of Division 3 (commencing with Section 8000)
of the Business and Professions Code; and
d) Section 2475 of Title 16 of the California Code of
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Regulations.
2)Provides that nothing in this bill shall be construed to
authorize the provision of shorthand reporting services by a
foreign corporation in violation of Section 13401(c) of the
Corporations Code or to authorize violations of Section 8044
of the Business & Professions Code.
EXISTING LAW:
1)Provides for the regulation and certification of shorthand
reporters by the CRB within the Department of Consumer Affairs
(DCA). (Business and Professions Code (BPC) Section 8000 et
seq. All further references are to this code unless otherwise
stated.)
2)Prohibits a person from engaging in the practice of shorthand
reporting, as specified, unless that person is the holder of a
certificate in full force and effect issued by the CRB unless
he or she is a salaried, full-time employee of any department
or agency of the state who is employed as a hearing reporter.
(Section 8016.)
3)Defines the "practice of shorthand reporting" as the making,
by means of written symbols or abbreviations in shorthand or
machine shorthand writing, of a verbatim record of any oral
court proceeding, deposition, court ordered hearing or
arbitration or proceeding before any grand jury, referee, or
court commissioner and the accurate transcription, thereof.
(Section 8017.)
4)Defines a "shorthand reporting corporation" as a corporation
which is authorized to render professional services, as
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specified in the Corporations Code Section 13401, as long as
that corporation and all of its shareholders, officers,
directors, and employees rendering professional services who
are certified shorthand reporters are in compliance with
specified requirements in the Corporations Code. (Section
8040.)
5)Requires, except as specified, that each director,
shareholder, and officer of a shorthand reporting corporation
shall be a licensed professional. (Section 8044.)
6)Prohibits a shorthand reporting corporation from doing or
failing to do any act which would constitute unprofessional
conduct under any statute, rule, or regulation which pertains
to shorthand reporters or shorthand reporting. Requires a
shorthand reporting corporation in conducting its practice to
observe and be bound by statutes, rules, and regulations to
the same extent as a person holding a license. (Section
8046.)
7)Defines "foreign professional corporation" to mean a
corporation organized under the laws of a state of the United
States other than this state that is engaged in a profession
of a type for which there is authorization in the BPC for the
performance of professional services by a foreign professional
corporation. (Corporations Code Section 13401 (c).)
8)Provides that a professional corporation or a foreign
professional corporation qualified to render professional
services in this state shall be subject to the applicable
rules and regulations adopted by, and all the disciplinary
provisions of the Business and Professions Code expressly
governing the practice of the profession in this state, and to
the powers of, the governmental agency regulating the
profession in which such corporation is engaged.
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(Corporations Code Section 13410 (a).)
9)Requires every person under the jurisdiction of the CRB who
holds a license or certificate, or temporary license or
certificate, or business that renders professional services,
namely shorthand reporting services, within the meaning of
Corporations Code Section 13401, to comply with professional
standards of practice, as specified. (California Code of
Regulations Title 16 (16 CCR) Section 2475.)
FISCAL EFFECT: As currently in print this bill is keyed fiscal.
COMMENTS: This bill, sponsored by the California Court
Reporters Association (CCRA), seeks to strengthen the authority
of the Court Reporters Board (CRB) to impose penalties and fines
on entities rendering court reporting services in California in
violation of the Board's professional and ethical rules for
certified shorthand reporters. As proposed to be amended, this
bill now seeks to expand the Board's enforcement to enforce
virtually all applicable existing statutes and regulations
governing court reporters, and, consistent with the author's
longstanding intent, seeks to create a level playing field where
corporations or other entities that offer or arrange for the
provision of shorthand court reporting services are required to
follow the same laws and obligations that certified shorthand
reporters themselves already must follow.
Need for the bill. According to the author:
SB 270 addresses a complex problem that pits California
Court Reporting firms and licensed court reporters against
out-of-state corporations. These corporations not only
arrange for shorthand reporting services, they also
determine the fees charged to parties and set timelines
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for the delivery of transcripts, among other things. All
of these activities are strictly regulated to ensure
impartiality in the handling of transcripts, legal
documents, that are essentially an extension of a court
proceeding.
Corporations, either foreign or domestic, that are not
headed by a licensed court reporter believe they can
ignore and violate ethical rules, and laws of impartiality
and objectivity when they are arranging for court
reporting services. These corporations have interpreted
current law to mean they are not subject to the
jurisdiction of the board because they are not licensees.
This has created an un-fair playing field within the
industry. Most disturbing is that under current law,
licensed court reporters find themselves liable for the
ethical violations of these companies; even if the
reporter has no knowledge of or involvement in the
violation.
Any entity, whether foreign or domestic, that is arranging
for these services should be required to follow the same
laws in California. These are ethical laws to ensure no
one involved in a lawsuit is disadvantaged by the
impartiality of anyone handling the transcript. This bill
will bring out-of-state corporations, which arrange for
court reporting services within California, under the
jurisdiction of the court reporters board when it comes to
gift giving and discriminatory practices, ensuring that
California business are not placed at an unfair
disadvantage and encouraging healthy competition in this
industry.
According to the California Court Reporters Association:
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SB 270 provides specific authority for the board to seek
injunctive relief to stop individuals and corporations
that are providing services in California without having
ever been licensed in our state, or to impose penalties if
they are also in violation of California's professional
standards. Court reporters ensure the integrity of
judicial records and are unmatched in their ability to
produce a real-time transcript of court proceedings. The
board should have undisputed authority to ensure that any
entity rendering court reporting services in California is
upholding the state's professional and ethical standards.
Background on the Court Reporters Board. The Court Reporters
Board (CRB) is responsible for licensing and disciplining
certified shorthand reporters, currently numbering approximately
7,000 in California. Currently, in California, certified
shorthand reporters work in two separate capacities: 1) as an
"official reporter" who works as a court reporter employed by a
state court, or 2) as a "freelance reporter" who is hired
privately by court reporting businesses, firms, or attorneys to
report depositions. Both official and freelance reporters are
required to meet the same educational and examination
qualifications, which are established by the CRB. In order to
qualify for licensure as a certified shorthand reporter, an
individual must have a high school education, twelve months (or
1,400 hours) of full-time work experience related to making
records of hearings, a passing score on the California State
Hearing Reporters Examination, and completion of a course from
an approved court-reporting school.
In addition to the licensing and discipline functions, the CRB
specifies the professional standards of practice (16 CCR Section
2475) for professionals, which include acting without bias
toward, or prejudice against, any parties and/or their
attorneys; not entering into, arranging, or participating in a
relationship that compromises the impartiality of the certified
shorthand reporter, including but not limited to a relationship
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in which compensation for reporting services is based upon the
outcome of the proceeding; and maintaining confidentiality of
information, among others.
This bill is a response to an issue highlighted by recent case
law. According to the author, the need for this bill stems from
the inability of the CRB to take appropriate disciplinary action
against a foreign (out-of-state) corporation that was accused of
operating in violation of the CRB's professional standards of
practice-a problem identified by a Santa Clara Superior Court
decision in Court Reporters Board of California v. U.S. Legal
Support, Inc. (2012), Santa Clara Superior Court, Case No.
1-11-CV 197817. In that case, the Board issued a citation to
defendant U.S. Legal, assessing a fine of $2,500 for violation
of professional standards, specifically the prohibition on
gift-giving. U.S. Legal refused to pay the fine, and challenged
in court the Board's jurisdiction to issue the citation under
California law. (Id., p. 3.) The Board argued that the
defendant was a foreign corporation as defined under the
Moscone-Knox Professional Corporations Act (Corporations Code
Section 13401 (c)), and therefore a "shorthand reporting
corporation" as otherwise defined under the Business and
Professions Code which is subject to the regulation. The court
noted, however, that "The problem with this argument is
foundational. [The Moscone-Knox Act provision, Section
13401(c)] defines a foreign professional corporation as a
corporation 'organized under the laws of a state . . . other
than this State that is engaged in a profession of a type for
which there is authorization in the Business and Professions
Code for the performance of professional services by a foreign
professional corporation.'"
In holding for the defendant, the court found that neither the
Moscone-Knox Act nor the Business and Professions Code extended
authority to the CRB to issue citations to foreign corporations
like U.S. Legal that do not meet the statutory definition of
"foreign professional corporation," by virtue of the fact that
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they do not actually hold a license or certificate in this
state.
As proposed to be amended, this bill would specifically
authorize the Board to issue citations and take other action to
enforce existing laws against foreign corporations that offer or
arrange for court reporter services. According to proponents,
foreign corporations operating in California employ or contract
with California-licensed court reporters to render professional
court reporting services. These corporations and their owners
are not themselves licensed or certified under California law,
creating a situation where licensees must adhere to California
laws regulating court reporting services while the corporate
owners or operators seemingly do not. Proponents contend that,
as a result of this discrepancy, some foreign corporations
engage in unfair practices, such as illegal gift giving or
so-called "penny invoicing" (in which a shorthand reporting firm
will charge a penny per invoice to assist a law firm with its
litigation costs while charging full price to that law firm's
opposition). Proponents further contend that when the CRB has
sought to issue citations and fines against these foreign
corporations that purportedly do not adhere to California
statutes and regulations regarding professional conduct (such as
rules requiring the impartiality of court reporters and thereby
prohibiting gift giving or incentives in exchange for business),
the courts have found that CRB does not have the authority to
impose citations and fines over unlicensed corporations. (See
Court Reporters Board of California v. U.S. Legal Support, Inc.
(2012), discussed above.) Accordingly, this bill would provide
such enforcement authority to the CRB.
Specifically, as proposed to be amended, this bill provides that
the Court Reporters Board, the Director of Consumer Affairs, and
the Attorney General may seek injunctive relief or issue
citations, fines, and other penalties against corporations,
persons or entities, whether foreign or domestic, that for a fee
or other financial consideration, offer, offer to arrange for,
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render, or provide the services of a certified shorthand
reporter, for violations of specified areas of law.
Enforcement of specified laws and regulations relating to court
reporting. The Committee notes that the authority granted by
the bill is quite broad. First, it allows the CRB to take
enforcement actions for violations of the following areas of
law, which comprise virtually all of the applicable statutes and
regulations governing court reporters:
(1) Chapter 9 of Title 4 of Part 4 (commencing with
Section 2025.010) of the Code of Civil Procedure
[governing the taking of oral depositions within the Civil
Discovery Act.]
(2) Part 4 of Division 3 of Title 1 (commencing with
Section 13400) of the Corporations Code [the Moscone-Knox
Professional Corporations Act, governing the rendering of
shorthand reporting services by professional
corporations.]
(3) Chapter 12 of Division 3 (commencing with Section
8000) of the Business and Professions Code [the licensing
law for shorthand reporters]; and
(4) Section 2475 of Title 16 of the California Code of
Regulations [Professional Standards of Practice for
shorthand reporters]
Enforcement against corporations and entities, foreign or
domestic. Second, the bill authorizes enforcement action
against "corporations, persons or entities, whether foreign or
domestic." According to the author, this is intended not only
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to capture foreign (out-of-state) corporations who employ or
contract with licensed court-reporters in California to render
services, as has been documented in previous litigation, but
also less well-known domestic (in-state) corporations who are
similarly unlicensed and follow the same business model. In
addition to not distinguishing between foreign and domestic
corporations, the bill makes no distinction between professional
corporations or other non-professional corporations, who would
not be required to comply with the Moscone-Knox Act. The bill
also captures "persons or entities", which would continue to
allow enforcement against an entity that, for example,
reorganized as an LLP instead of a corporation.
Enforcement against corporations that "offer", "render", or
"provide" court reporter services. Third, the bill applies to
corporations, persons or entities that "offer, offer to arrange
for, render, or provide" the services of a certified shorthand
reporter. Whether an entity "offers" or "arranges" or "renders"
services of a court reporter is a key issue because these terms
carry specific meaning under different statutes. For example,
professional corporations are said to "render" professional
services, not provide them. (See, e.g. Corporations Code Section
13401 (b) stating "'Professional corporation' means a
corporation organized under the General Corporation Law . . .
that is engaged in rendering professional services in a single
profession.") Thus this bill would apply to professional
corporations who render the services of a certified shorthand
reporter.
Code of Civil Procedure Section 2025.320, for example, provides
that "no service or product may be offered or provided by the
deposition officer or by the entity providing the services of
the deposition officer to any party or any party's attorney or
third party who is financing all or part of the action unless
the service or product is offered or provided to all parties or
their attorneys attending the deposition." The bill applies to
entities offering or providing court reporting services subject
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to similarly worded provisions in the Code of Civil Procedure,
and could be used by the board to enforce violation of these
obligations.
In addition, as proposed to be amended, the bill provides that
the board may seek injunctive relief or penalties against an
entity that for a fee or other financial consideration, offers,
offers to arrange for, renders, or provides services, as
specified. (italics added.) According to the author, this
proposed amendment is intended to clarify that the bill is not
intended to authorize the board, Attorney General, or Director
to seek relief or penalties against a law firm or any of its
employees. When a law firm offers or offers to arrange for
shorthand reporting services, the author contends, it is not
doing so for a separate fee or financial consideration, but
simply through its representation of the client and the client's
interest. The author may wish to further clarify this concept
in a separate sentence in order to be more transparent about his
intent to not subject lawyers and law firms to possible
penalties under this bill.
The bill is opposed by a group of national firms that contract
with California certified shorthand reporters to provide court
reporters services for depositions in California. These
opponents charge that the bill "effectively creates a new quasi-
licensing program for companies 'offering' court reporting
services, regulating activities which courts have expressly
concluded do not constitute the practice of court reporting."
Although not cited by the opponents, the Committee notes that in
a May 2016 decision, the Santa Clara Superior Court found that
defendant U.S. Legal Support, Inc. was not engaged in the
practice of shorthand reporting when performing activities such
as copying, binding, delivering deposition transcripts and
billing, because these tasks, in the words of the court, are
"administrative and business practices incident to shorthand
reporting" and "do not change or influence the recording or
transcription of the words spoken at a deposition or court
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proceeding." (Moose v. U.S. Legal Support, Inc. (2016) Santa
Clara Superior Court, Case No. 1-14-CV 28886, p.5.)
Range of enforcement tools available. As proposed to be
amended, the bill provides that the Board may seek injunctive
relief or issue citations, fines, and other penalties in its
enforcement efforts against entities committing violations of
specified laws. With respect to injunctive relief, the bill is
not intended to change, limit, or alter any existing authority
of the Board to seek injunctive relief. It should also be noted
that existing regulations, 16 CCR § 2480, specify current rules
for the CRB to issue administrative citations and fines and
orders of abatement. In order to issue citations or fines
pursuant to this bill not already covered by existing
regulations, the Board would have to promulgate new regulations
because the bill does not on its face specify what the fines and
penalties are. In other words, the expansion of enforcement and
corresponding penalties sought by this bill remains subject to
the promulgation of new regulations by the Board, which would
trigger the due process protections of the Administrative
Procedures Act.
Although the bill also grants authority to the Attorney General
and the Director of Consumer Affairs, it should be noted that
the latter is authorized by extension of the fact that the CRB
lies within the Department of Consumer Affairs, under the
leadership of the Director, and that the Attorney General is
inherently authorized to enforce any and all laws of this state.
Accordingly, the central focus of discussion is the authority
placed with the CRB.
Author's amendment clarifies that this bill does not authorize
foreign corporations to offer or provide reporting services in
this state. The author notes that even though the superior
court in Court Reporters Board of California v. U.S. Legal
Support, Inc. (2012) held that the CRB lacked jurisdiction to
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issue a citation against U.S. Legal, the court also noted that,
despite the undisputed fact that U.S. Legal was organized under
Texas law, "it is also clear that there is no express
authorization in the Business and Professions Code for the
performance of court reporting services by a foreign
professional corporation. (Santa Clara Superior Court, Case No.
1-11-CV 197817, at 4-5.) Thus, as proposed to be amended, this
bill clarifies that nothing in its provisions should be
construed to authorize foreign professional corporations to
provide court reporting services in California, which the author
contends would violate Section 13401 (c) of the Corporations
Code.
ARGUMENTS IN OPPOSITION: A coalition of deposition service
companies remains strongly opposed to the bill, even as proposed
to be amended. These companies are Esquire Deposition Services,
LLC; Magna Legal Services; U.S. Legal Support, Inc. and Veritext
Corp. They state:
As proposed for amendment, the bill effectively creates
a new quasi- licensing program for companies "offering"
court reporting services, regulating activities which
courts have expressly concluded do not constitute the
practice of court reporting. The bill illogically and
inappropriately attempts to apply regulations
applicable to the practice of court reporting to the
business of deposition services companies, thereby
disrupting perfectly legitimate business relationships,
and leaving companies completely unsure of which
activities are permitted and which are not. Further,
the bill would give the Court Reporters Board
unfettered authority to issue citations and penalties
against companies which will not even enjoy the
protections of a property interest in a license. The
effect will be to drive business out of the state and
make litigation more costly and less efficient.
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REGISTERED SUPPORT / OPPOSITION:
Support
California Court Reporters Association (CCRA) (sponsor)
San Diego Superior Court Reporters Association
Los Angeles County Reporters Association
Orange County Superior Court Reporters Association
American Reporting Services, LLC
Alvarado Court Reporters
Northern California Court Reporters Association
Kelty & Scott, Certified Shorthand Reporters
Opposition (as proposed to be amended)
Esquire Deposition Services, LLC
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Magna Legal Services
U.S. Legal Support, Inc.
Veritext Corp.
Analysis Prepared by:Anthony Lew / JUD. / (916)
319-2334