BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2015 - 2016 Regular Session
SB 363 (Morrell)
Version: February 24, 2015
Hearing Date: May 12, 2015
Fiscal: No
Urgency: No
BCP:rm
SUBJECT
Attorney's fees: book accounts
DESCRIPTION
Under existing law, in any action on a contract based on a book
account, as defined, that does not provide for attorney's fees
and costs, the prevailing party on the contract is entitled to
reasonable attorney's fees and costs, and the court is required
to fix the attorney's fees in an amount that does not exceed the
lesser of $800 for book accounts that are maintained for
personal, family, or household purposes of a natural person, and
$1,000 for book accounts that are maintained for all other
purposes, or 25 percent of the principal obligation owing on the
contract, as applicable.
This bill would increase these maximum attorney's fees to an
amount not to exceed the lesser of $960 and $1,200,
respectively.
BACKGROUND
Originally enacted in 1986 by SB 1934 (Deddeh, Chapter 884,
Statutes of 1986), Civil Code Section 1717.5 provides for an
award of attorney's fees in contract actions based on a "book
account" in which the underlying contract did not provide for an
award of attorney's fees. Typically, "book accounts" include
such consumer billings as doctors' fees, lawyers' fees, and
grocery or restaurant charges that are not handled under formal
credit terms. Book accounts do not include retail installment
or credit card sales.
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SB 1934 was sponsored by the California Association of
Collectors (CAC). CAC argued that the bill was needed because
the cost of collection actions to recover a delinquent debt was
prohibitive, particularly in small cases, in the absence of an
attorney's fee provision. SB 1934 provided a statutory
attorney's fee award of up to $500 or 25 percent of the
delinquent debt, whichever is less, to the prevailing creditor.
The law applied equally to allow a prevailing debtor to recover
up to $500 in attorney's fees.
In 1991, the $500 cap was increased to $660 by SB 182 (Lockyer,
Chapter 406, Statutes of 1991) primarily to reflect inflation.
The increase also served to allow collection agencies to recover
more of their collection costs. Similarly, in 2004, AB 2347
(Maddox, Chapter 328, Statutes of 2004) increased the maximum
awardable fee to a prevailing creditor or debtor in a collection
action to $800 for open book accounts that are maintained by a
natural person for personal, family, or household purposes, and
to a maximum of $1,000 for all other open book accounts. This
bill seeks to similarly increase the cap to reflect inflation,
thus, increasing the amounts to $960, and, $1,200, respectively.
CHANGES TO EXISTING LAW
Existing law defines the term "book account" as a detailed
statement which constitutes the principal record of one or more
transactions between a debtor and a creditor arising out of a
contract or some fiduciary relation, and shows the debits and
credits in connection therewith, and against whom and in favor
of whom entries are made, is entered in the regular course of
business as conducted by such creditor or fiduciary, and is kept
in a reasonably permanent form and manner and is (1) in a bound
book, or (2) on a sheet or sheets fastened in a book or to
backing but detachable therefrom, or (3) on a card or cards of a
permanent character, or is kept in any other reasonably
permanent form and manner. (Code Civ. Proc. Sec. 337a.)
Existing law provides that in any action on a contract based on
a book account which does not provide for attorney's fees and
costs, the prevailing party is entitled to reasonable attorney's
fees, in addition to other costs. The prevailing party on the
contract is the party who recovered a greater relief in the
action on the contract. (Civ. Code. Sec. 1717.5).)
Existing law provides that reasonable attorney's fees awarded to
the prevailing party, as specified, shall be fixed by the court
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in an amount that shall not exceed the lesser of: (1) $800 for
book accounts based on an obligation owed by a natural person
for goods, moneys, or services which were primarily for
personal, family, or household purposes; and $1,000 for all
other book accounts; or (2) 25 percent of the principal
obligation owing under the contract. (Civ. Code Sec. 1717.5.)
Existing law states that if there is a written agreement between
the parties signed by the person to be charged, the above fees
may not be imposed unless that agreement contains a statement
that the prevailing party in any action between the parties is
entitled to the above fees. (Civ. Code Sec. 1717.5.)
This bill would increase the amounts of the above reasonable
attorney's fees for a prevailing party from $800 to $960 (for
book accounts based on an obligation owed by a natural person
for goods, moneys, or services which were primarily for
personal, family, or household purposes), and, from $1,000 to
$1,200 (for all other book accounts).
COMMENT
1. Stated need for the bill
According to the author, "[t]here have been substantial
increases in the cost of filing civil cases in California,
including attorney's fees and filing fees. This bill simply
provides a modest increase in statutorily set attorney's fees."
The California Association of Collectors (CAC), sponsor, further
notes that "[t]he last cost of living increase on attorney fees
was in 2004, and since then the attorney's fees and costs
associated with filing a civil action has increased
dramatically."
2. Increasing statutory attorney's fees award in book account
collection actions
Under existing law, in any action on a contract based on a book
account which does not provide for attorney's fees and costs,
the prevailing party is entitled to reasonable attorney's fees
and costs, and, the court must fix the attorney's fees in an
amount not to exceed the lesser of: (1) $800 for book accounts
maintained for personal, family, or household purposes of a
natural person, and, $1,000 for all other book accounts; or (2)
25 percent of the principal obligation owing on the contract.
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Similar to prior increases, this bill seeks to increase the
maximum allowable amount of attorney's fees from $800 to $960,
and, $1,000 to $1,200, respectively. The author notes these
amounts have not been increased for 10 years, that there have
been substantial increases in the cost of filing cases in
California, and, that the proposed increased amounts are
slightly less than would be justified by inflation.
a. History of recent increase; consumer price index figures
Since January 1, 1987, the effective date of the statute in
question, a $160 increase (32 percent) to $660 in the maximum
award was authorized by SB 182 (Lockyer, Chapter 406, Statutes
of 1991) in 1991 to provide a past and prospective
inflationary adjustment for creditors. (An increase to $1,250
was originally sought in that bill.)
Inflation between January 1, 1992, the effective date of the
increase to $660, through the end of 2003, was approximately
31.1 percent, according to the Bureau of Labor Statistics
Consumer Price Index (CPI). Based upon the increase in the
CPI, AB 2347 (Maddox, Chapter 328, Statutes of 2004) raised
the permissible maximum attorney's fee award to $800,
beginning on January 1, 2005, in a collection action for a
consumer debt, which was an increase of about 21.2 percent.
For all other non-consumer actions, such as business debts, AB
2347 increased the possible fee award to $1,000, which was a
51.5 percent increase from the 1992 cap.
Similarly, in the present case, according to the Bureau of
Labor Statistics' CPI Inflation calculator, $800 in 2005 is
equivalent to $961.48 in 2015, and, $1,000 is equivalent to
$1,201.85 today. Thus, the proposed increases to $960 and
$1,200 are just barely below what inflation would support.
Despite those recent calculations, the author contends that
"[f]rom 2004 through 2014, the cumulative rate of inflation
has been 25.3 [percent, and the] increase in attorney's fees
in this bill represents a 20 percent increase." While the
measure of inflation may vary depending on various factors, it
would appear that the amount of the increases sought by this
bill is supported by the change in CPI since January 1, 2005.
b. Reasons for proposed increase; split system
As noted above, the caps increased by this bill only apply if
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the underlying contract does not provide for attorney's fees
and costs. A seller can always insert a specific attorney's
fees clause into a sales agreement to collect full attorney's
fees in a collection action, thereby giving the customer
notice and the opportunity to accept or reject the sales
terms. Further, as the amount of attorney's fees recoverable
by statute gets higher, sellers may find it to their advantage
to not insert a specific attorney's fee clause in their
contracts, thereby taking the choice away from consumers. To
address concerns from Consumers Union regarding the impact of
the increases proposed by AB 2347 on consumer debtors, this
Committee's analysis noted that the bill proposed a split
system of providing a less than inflationary adjustment for
consumer debt cases. This bill would retain that split
system, and, as discussed above, increase the amount of
attorneys' fees from $800 to $960 (for consumer debt) and from
$1,000 to $1,200 for all other book accounts (business
debtors).
Regarding the need for the increase in attorney's fees, CAC
notes that "[t]he last cost of living increase on attorney
fees was in 2004, and since then the attorney's fees and costs
associated with filing a civil action has increased
dramatically."
Support : USCB, America, Inc.
Opposition : None Known
HISTORY
Source : California Association of Collectors
Related Pending Legislation : None Known
Prior Legislation :
AB 2347 (Maddox, Chapter 328, Statutes of 2004) See Background;
Comment 2a, b.
SB 182 (Lockyer, Chapter 406, Statutes of 1991) See Background;
Comment 2a.
SB 1934 (Deddeh, Chapter 884, Statutes of 1986) See Background.
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