BILL ANALYSIS Ó
SB 363
Page 1
Date of Hearing: June 23, 2015
ASSEMBLY COMMITTEE ON JUDICIARY
Mark Stone, Chair
SB
363 (Morrell) - As Introduced February 24, 2015
PROPOSED CONSENT
SENATE VOTE: 38-0
SUBJECT: ATTORNEY'S FEES: BOOK ACCOUNTS
KEY ISSUE: SHOULD THE AMOUNT OF ATTORNEY'S FEES THAT MAY BE
AWARDED IN CERTAIN CONTRACT ACTIONS THAT HAVE NO PROVISIONS FOR
THE AWARD OF ATTORNEY'S FEES BE INCREASED FROM $800 TO $960 (IN
THE CASE OF CONTRACTS INVOLVING CONSUMERS) AND FROM $1,000 TO
$1,200 (IN THE CASE OF CONTRACTS INVOLVING BUSINESSES)?
SYNOPSIS
This bill raises the statutory cap on attorney's fees in
lawsuits regarding breach of contract for "book accounts." Book
accounts are accounts where the amounts owed and payments made
for services performed on credit are kept in a book or a set of
cards. The basic types of book accounts are held by small
tradespeople, who use basic accounting procedures. There are
other types of book accounts that cover accounts where a larger
obligation is incurred at one time, such as for medical services
rendered to a patient, or for business-to-business transactions.
Current law permits reasonable attorney's fees of up to $800 or
SB 363
Page 2
25 percent of the principal obligation owing on a book account,
whichever is less, for a personal, family or household purpose,
or up to $1,000 or 25 percent of the principal obligation owing,
whichever is less, for non-consumer purposes, to be awarded as
costs to a prevailing creditor or to a debt collector in an
action on a book account. This bill would raise the amount of
awardable attorney's fees to the lesser of $960 where the
account is for a personal, family or household purpose, and
$1,200 where the account is for a non-consumer purpose; or 25
percent of the principal obligation that is owed. This bill is
similar to a bill passed by this Committee in 2004, AB 2347
(Maddox) Chap. 328, Stats. 2004. This bill is sponsored by the
California Debt Collectors Association and supported by USCB
America, Inc. There is no known opposition to this bill, which
passed off the Senate Floor by a 38-0 vote.
SUMMARY: Increases attorney's fees awardable in a contract
action based on a book account. Specifically, this bill
provides that in any action on a contract based on a book
account 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
$960 or 25 percent of the principal obligation owing under the
contract where the contract involves a consumer purpose, and
$1200, or 25 percent of the principal obligation owing under the
contract where the contract involves a business-purpose
accounts.
EXISTING LAW:
1)Defines the term "book account" to mean 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 entered in the regular course of business as conducted
by such creditor or fiduciary, kept in a reasonably permanent
form and manner, and maintained in one of the following ways:
(1) in a bound book, or (2) on a sheet or sheets fastened in a
SB 363
Page 3
book or to backing but detachable, (3) on a card or cards of a
permanent character, or (4) in any other reasonably permanent
form and manner. (Code of Civil Procedure Section 337a.)
2)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 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 or 25 percent of the principal obligation owing
under a contract for goods, moneys, or services primarily
provided for personal, family or household purposes, and the
lesser of $1000 or 25 percent of the principal obligation
owing under a contract for all other applicable book accounts.
(Civil Code Section 1717.5.)
3)Provides that these attorney's fees shall be the lesser of
either the maximum amount allowed above, the amount provided
by any default attorney's fees schedule adopted by the court
applicable to the suit, or an amount as otherwise provided by
the court, and that any claim for attorney's fees in excess of
the amounts set forth in the default attorney's fee schedule
shall be reasonable attorney's fees, as proved by the party,
as actual and necessary for the claim. (Civil Code Section
1717.5(b).)
FISCAL EFFECT: As currently in print this bill is keyed
non-fiscal.
COMMENTS: Book accounts are accounts where the amounts owed and
payments made for services performed on credit are kept in a
book or a set of cards. Due to the advancements in technology
over the years, many of these accounts are now maintained in
bookkeeping databases or spreadsheets, but they are still
considered "book accounts." The standard type of book accounts
are held by small tradespeople, who use basic accounting
procedures. There are other types of book accounts that cover
accounts where a larger obligation is incurred at one time, such
as for medical services rendered to a patient, or for
SB 363
Page 4
business-to-business transactions.
According to the author:
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 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 $1000 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 for book accounts that are maintained for personal,
family, or household purposes of a natural person, and
$1200 for book accounts that are maintained for all other
purposes, or 25 percent of the principal obligation owing
on the contract, as applicable.
Increased Attorney's Fees Should not Exceed the Cost of
Inflation. The most recent increase for attorney's fees in an
action for breach of contract for book accounts was in 2005 (AB
2347 (Maddox) ch.328, Stats. 2004). The current cap on
attorney's fees is $800 (for book accounts for personal
purposes) and $1,200 (for book accounts for business purposes),
or 25 percent of the principal obligation owing on the contract,
whichever is less. In the eleven years that have passed since
the prior increase in the upper limit on attorney fees awarded
on open book accounts, the Consumer Price Index has increased
approximately 24 percent according to the federal Bureau of
Labor Statistics. (Bureau of Labor Statistics, Inflation
Calculator, found at http://www.bls.gov/cpi.) This bill
proposes to raise the cap on attorney's fees for breach of
contract actions involving personal and business book accounts
up to $960 for personal purposes and $1,200 for business
purposes, which represents an approximate 20 percent increase
SB 363
Page 5
for both types of book accounts, an amount that is less than the
rate of inflation. The bill also keeps the requirement that the
award must be the lesser of one of those amounts, or 25 percent
of the principal obligation owed on the account.
The Laws Applied to Book Accounts in Other States. Laws
regarding the award of attorney's fees to the prevailing party
in an action for breach of contract involving book accounts vary
from state to state. The lack of uniform laws has allowed many
states to treat book account disputes similar to the way other
contractual disputes are handled in common law, so that if there
is no provision in the contract allowing for attorney fees, none
can be awarded. Other states consider these disputes to be oral
contracts and provide awards according to applicable statutes.
States such as Ohio and New Jersey calculate interest on the
amount owed to a prevailing creditor, but leave the award of
attorney's fees to the court's discretion. California appears
to be one of the few states with a specific statutory limit on
attorney's fee awards for contract disputes involving book
accounts.
ARGUMENTS IN SUPPORT: UCSB America, Inc. writes:
This would simply provide an inflation adjustment to
attorney fees awarded under Civil Code Section 1717.5
regarding open book accounts. It has been more than a
decade since the fees were raised, and this bill proposes a
modest increase to both consumer-related and commercial
related attorney fee provisions.
SB 363 passed out of the Senate without a single "no" vote
and is a common sense, bipartisan measure. During the last
11 years, the CPI has increased approximately 24%. SB 363
proposes to raise both sets of attorney fees by 20%, simply
to keep the fee provisions relatively close to their
SB 363
Page 6
intended amount, when adjusted for inflation.
REGISTERED SUPPORT / OPPOSITION:
Support
California Debt Collectors Association (sponsor)
USCB America, Inc.
Opposition
None on file
Analysis Prepared by:Khadijah Hargett / JUD. / (916)
319-2334