BILL ANALYSIS Ó SB 387 Page 1 Date of Hearing: July 14, 2015 ASSEMBLY COMMITTEE ON JUDICIARY Mark Stone, Chair SB 387 (Jackson) - As Introduced February 24, 2015 As Proposed to be Amended SENATE VOTE: 38-0 SUBJECT: STATE BAR DUES: ANNUAL AUTHORIZATION OF MEMBER DUES AND AUDIT RESPONSE KEY ISSUES: 1)SHOULD THE LEGISLATURE AUTHORIZE THE STATE BAR TO assess MEMBERSHIP dues for active bar members in 2016 AT $390, THE SAME RATE AS LAST YEAR? 2)as part of ITS annual oversight process, AND IN LIGHT OF THE MOST RECENT FINDINGS OF CONCERN IN THE LATEST AUDIT OF THE BAR by the state auditor, should the legislature AND THE BAR consider additional measures to further strengthen bar SB 387 Page 2 procedures, accountability openness, AND GOVERNANCE CONSISTENT WITH THE BAR'S PARAMOUNT DUTY TO PROTECT THE PUBLIC? SYNOPSIS This bill, sponsored by the State Bar of California, continues the long tradition of Judiciary Committee oversight of the Bar via review of the annual dues authorization bill. The bill comes to this Committee after yet another year of turmoil involving the Bar where many troubling issues have arisen in the press and in an audit released just last month by the State Auditor. First, in November 2014, the State Bar terminated its executive director. In response to that termination, the executive director filed suit against the State Bar, alleging whistleblower status and charging the bar with "egregious" fiscal improprieties. The two sides are now in arbitration. Then, just last month, the State Auditor released her biannual performance audit of the Bar, reviewing the Bar's discipline process, specifically its backlog of discipline cases, and the Bar's recent $75 million purchase and renovation of a building in Los Angeles, which the Legislature had been told would cost just one-third of that price: $26 million. The audit uncovered significant, questionable decisions made by the Bar in the handling of both matters, the most egregious of which appears to be the Bar's decision to secure the additional funding for the building, in part, through a loan that required the Bar to use $4.6 million of its Public Protection Fund -constituting most of that fund - as collateral for the loan. The sole purpose of the Public Protection Fund, according to the Bar, which established the fund, is to protect the public in the event of a financial emergency. However, because of the collateralization of those funds, they will not be available in case of financial emergency for the next 15 years. SB 387 Page 3 This bill maintains the bar dues at the same level that is now in place for 2015. As proposed to be amended, the bill also implements many of the recommendations from the most recent audit by the State Auditor, including better defining the backlog of discipline cases, requiring the Bar to complete a workforce plan for its discipline system, and requiring the Bar to develop a reasonable spending plan based on its necessary operations. As a result of the fiscal concerns discussed above, the bill, as proposed to be amended, also requires the State Auditor to complete an in-depth financial review of the Bar, including its internal controls and relevant practices, as well as its revenues, expenditures, reserves and fund transfers. This audit, together with the Bar's discipline workforce plan and spending plan, is intended to help answer many of the questions that today remain unanswered and help the Legislature properly oversee the operations of the Bar in the future. The bill is opposed by the Center for Public Interest Law, unless amended to address not only the issues raised by the latest audit, but also to require the Bar to follow the law, including compliance with a recent U.S. Supreme Court case regarding governance structures of state licensing entities whose governing boards include a majority of active members licensed by the entity, and implementation of basic transparency and accountability measures "so that its various stakeholders - including the Legislature and the public, which the Bar is mandated to protect as its "paramount" priority - may meaningfully monitor its regulation of the legal profession." (Footnote omitted.) SUMMARY: Reauthorizes attorney license fees at the same level as the current year and improves transparency and accountability SB 387 Page 4 of the State Bar. Specifically, this bill: 1)Reauthorizes the State Bar to collect up to $390 for active membership dues for the year 2016. 2)Clarifies that information contained in the State Bar's Annual Discipline Report must include all matters affecting public protection, including specified discipline cases and both average and median case processing times. 3)Requires the State Bar to develop and implement a workplace 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. 4)Requires the Bar's Board of Trustees (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, 2015. Requires the audit to examine revenues, expenditures, reserves and fund transfers. EXISTING LAW: 1)Requires all attorneys who practice law in California to be SB 387 Page 5 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 to pay for discipline and other functions to be ratified by the Legislature. (Business & 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 2015. 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)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.) SB 387 Page 6 6)Requires the State Bar to contract with an independent national or regional public accounting firm to conduct an annual financial audit of the State Bar, as provided, and requires that a copy of the audit and the financial statement be submitted, with 120 days of the close of the fiscal year, to the Board, the Chief Justice of the California Supreme Court and the Assembly and Senate Judiciary Committees. (Section 6145(a).) 7)Requires the State Auditor to conduct a performance audit of the operations of the State Bar on a biannual basis and requires a copy of the audit be submitted, with 120 days of the close of the fiscal year, to the Board, the Chief Justice of the California Supreme Court and the Assembly and Senate Judiciary Committees. (Section 6145(b).) FISCAL EFFECT: As currently in print this bill is keyed non-fiscal. COMMENTS: This bill continues the long tradition of Judiciary Committee oversight of the California State Bar via review of the annual dues authorization bill. The bill comes to this Committee after yet another year of turmoil involving the Bar at a time when many issues that have arisen in the press and in other documents remain unanswered. Background on the Bar. Attorneys who wish to practice law in California generally must be admitted and licensed in this state and must be a member of the State Bar. (Cal. Const., Art. VI, Sec. 9.) The State Bar of California is the largest state bar in the country. As of July 2015, the State Bar had 185,510 active members and 55,074 inactive members, which represents a SB 387 Page 7 slight annual increase in both active members and inactive members. Total State Bar membership is listed at 254,511, which includes 2,142 judge members and 11,784 members who are "not eligible to practice law." By statute, the Bar's highest priority is protection of the public. (Section 6001.1.) California, like 30 other states including Florida, Texas and Washington, has a unified bar, which means that the State Bar is both the regulatory arm of the state, as well as an attorney trade association. Attorneys who wish to practice law in this state must join the Bar and their dues cover both the regulatory arm and the trade association. (Compare physicians, who are licensed and regulated by the Medical Board of California within the Department of Consumer Affairs, but who may voluntarily join the California Medical Association, their trade group, which provides "legislative, legal, regulatory, economic and social advocacy." (http://www.cmanet.org/about/).) Eighteen states, including Illinois, New York, Pennsylvania and Massachusetts, have non-unified bars, where attorneys must only join the regulatory arm and not the trade association. Dues payments required by unified bars are, typically, considerably higher that dues payments required by non-unified bars. The Bill in Print Largely Confines Measure to Maintaining Bar Dues at Current Rates. This bill authorizes the State Bar to collect active membership dues of up to $390 for the year 2016. The mandatory fee of $390 holds mandatory fees constant at the same rate as this year. The Bar's programs are financed almost exclusively by annual membership dues paid by attorneys, as well as other fees paid by applicants seeking to practice law. The Bar also uses its name and membership lists to help sell items SB 387 Page 8 such as malpractice insurance and car rentals, and receives payment for those activities. The Bar has complete discretion over how funds from this latter activity, which amount to approximately $2 million per year, are used. Well Reported and Very Disconcerting Problems at The Bar in This Past Year Have Left the Bar Without Permanent Leadership and Have Raised Questions, Yet Unanswered, About Bar Expenditures, Oversight and Transparency. In November 2014, the State Bar terminated its executive director. According to published reports, the executive director's annual salary at the time of termination was $259,000. In response to that termination, the executive director reportedly filed suit against the State Bar, alleging whistleblower status and charging the bar with "egregious" fiscal improprieties. Bar officials reportedly responded with accusations against him, including criticism of his lavish expense accounts, a trip to Mongolia by him and a former business partner of his, a reported $5,600 restaurant bill paid by the State Bar, and a $30,000 secret expense account gifted to Bar presidents. The Bar also fired its general counsel, who had recently been hired by the executive director, as well as the Bar's chief financial officer. Since then, the court has ordered that the parties arbitrate their dispute, as required in the executive director's employment contract. It can only be presumed that the Bar and its former executive director are doing just that. It is hoped, in the interest of transparency, that the State Bar adopts policies to ensure accountability and good government, and that whatever settlement reached between the parties, including the amount of any Bar funds used in any possible settlement - whether discretionary or mandatory - is made public. It is also hoped that the Bar can resolve all these matters quickly and focus its core function to SB 387 Page 9 protect the public from errant attorneys. Regardless of any resolution with the former executive director, these matters leave a host of unanswered questions about potential Bar misspending and other possible improprieties. While many of these reported claims may never be fully brought into the public light due to ongoing litigation involving the Bar and its former executive officer and other bar staff, enough is known already to trigger special legislative and public concern about how this public agency is being governed and overseen. Reflecting public concern, the Center for Public Interest Law (CPIL), the only public interest organization with a history of overseeing board governance, strongly opposes this bill in its current form. CPIL asserts that other substantial reforms are necessary to address a host of stated governance and process concerns, including either reorganizing the Board to have a public member supermajority, or creating a state entity to review, revise, amend or reject any of the Bar's or the Board's decisions that have a restraint impact; and requiring the Bar to fully comply with both Bagley-Keene and the Public Records Act. Very Recent State Audit Faults the Bar for Not Consistently Protecting the Public and For Lacking Accountability. As required by statute, the State Auditor completes a performance audit of the Bar every two years. (The Bar is also required to contract with an accounting firm to perform an annual financial audit, discussed in more detail below, although that audit, to date, is much more limited.) This year, the State Auditor chose to review the Bar's discipline process, in particular its backlog of discipline cases, and the Bar's recent $75 million SB 387 Page 10 purchase and renovation of a building in Los Angeles. The audit, released last month, uncovered significant, questionable decisions made by the Bar in the handling of both matters. (California State Auditor, State Bar of California: It Has Not Consistently Protected the Public Through its Attorney Discipline Process and Lacks Accountability (June 2015).) Auditor Finds That the Bar Underreported its Backlog and, When Seeking to Eliminate the Backlog, Made Choices That Did Not Put Public Protection First. The Bar operates a discipline process to protect the public from unscrupulous attorneys, with possible disciplinary actions ranging from letters of warning and private reprovals to disbarment. To operate effectively and maximize public protection, the Bar must minimize its backlog (cases not processed within six months), which otherwise might allow wayward attorneys to continue to practice law, without review, for too long. Understanding of the importance of the disciplinary function and the need to reduce its backlog, the Bar is required to report annually to the Legislature, the Governor and the Chief Justice on the discipline process and any backlog. (Section 6086.15.) Unfortunately, the State Auditor discovered that the Bar did not fully and consistently report the backlog or its case processing times, and, when taking steps to reduce the backlog, did not protect the public sufficiently. First, the audit uncovered that the Bar did not fully or consistently report its backlog or its case processing times. While getting more accurate in recent years, the Auditor found that the Bar underreported it backlog significantly in 2009 (the Bar reported 348 cases, while the backlog was actually 4,276 cases) and, though less so, in 2010 (the Bar reported 4,193 SB 387 Page 11 cases, while the backlog was actually 5,174 cases). (Id. at 27.) The Bar is still underreporting its backlog today, but the difference is significantly smaller. Additionally, the Bar changed its metrics for reporting case processing times, without making that clear, changing from reporting average case processing times to reporting mean case processing times for 90 percent of its discipline cases. This change resulted in the Bar underreporting actual case processing times by over 70 percent (the Bar reported case processing time was 263 days last year, while actual average case processing time discovered by the Auditor was 450 days). (Id. at 31.) More importantly, the Auditor determined that in order to reduce its backlog of discipline cases, the Bar made questionable choices, causing "significant risk to the public": However, we found that as the State Bar reduced its excessive backlog of disciplinary cases, the severity of the discipline it imposed on attorneys who failed to fulfill their professional responsibilities decreased. In other words, to reduce its backlog, the State Bar allowed some attorneys whom it otherwise might have disciplined more severely-or even disbarred-to continue practicing law, at significant risk to the public. . . . The chief trial counsel confirmed that she believes the volume and speed in processing the backlog in 2011 caused the State Bar to lower the quality of its case settlements, and believed that insufficient quality control was a key factor that enabled the State Bar to decrease its backlog. (Id. at 1.) SB 387 Page 12 To address these concerns, the Auditor made a number of recommendations to the Bar and the Legislature, and this bill, as proposed to be amended, implements those recommendations which require legislative action. In particular, the amendments require the Bar to fully reports its backlog and list all case types that need to be reported to help eliminate underreporting. Second, the amendments also require that the Bar to report both its average and its median case processing times. This dual report will ensure that the Legislature is fully informed about the size and processing times of any backlog. Finally, the amendments require the Bar to engage in workforce planning for its discipline system and to conduct a public sector compensation and benefits study to reassess the staff required to oversee its discipline program. This should help ensure that the Bar has the right quality and quantity of staff conducting its most important mission -- protecting the public from unscrupulous attorneys. Purchase of Building in Los Angeles Disclosed Problems with Transparency, Accountability and Public Protection. In 2012, the Bar purchased a building in Los Angeles; however, according to the State Auditor, the Bar did not perform a cost-benefit analysis to determine if the purchase was appropriate and warranted before receiving approval from its Board to purchase the building, did not fully inform the Legislature of its plans, and potentially risked public safety by doing so and not prioritizing other areas, such as attorney discipline: The State Bar of California's ? primary mission is the protection of the public through its attorney discipline system. However, the State Bar's financial priorities over SB 387 Page 13 the past six years did not consistently reflect that mission: Rather than using its financial resources to improve its attorney discipline system, the State Bar dedicated a significant portion of its funds to purchase and renovate a building in Los Angeles in 2012. Although the Legislature approved $10.3 million for this building, the State Bar ultimately spent approximately $76.6 million on it. Facilitating this purchase required the State Bar to transfer $12 million between its various funds, some of which its Board of Trustees (board) had set aside for other purposes. The ultimate responsibility for ensuring that the State Bar spends funds prudently rests with the board, which should have ensured that the State Bar's decision to purchase the Los Angeles building was justified and financially beneficial. However, the State Bar did not fully communicate its questionable financial decisions regarding this new building to the board because it never presented its board with comprehensive cost estimates of purchasing versus leasing a building. Moreover, only four months before it purchased the Los Angeles building, the State Bar informed the Legislature in an annual report that a building would cost $26 million-a third of the $76.6 million the State Bar ultimately paid. In addition, the State Bar could offer no evidence that it informed the Legislature of its final decision to purchase the Los Angeles building even though state law required it to do so. As a result, key decision makers and stakeholders lacked the information necessary to make informed financial decisions related to the purchase of the Los Angeles building or to understand its impact on the State Bar's SB 387 Page 14 other financial priorities. (Id. at 43.) The Auditor found that the decision to purchase the Los Angles building jeopardized the State Bar's core function to protect public safety: "Rather than using its financial resources to improve its attorney discipline system, the State Bar dedicated a significant portion of its funds to purchase and renovate a building in Los Angeles in 2012." (Id.) Even more troubling, the Bar chose to secure the additional funding for the Los Angeles building, in part, through a loan that required the Bar to use $4.6 million of its Public Protection Fund as collateral for the loan. The sole purpose of the Public Protection Fund, which the Bar itself established in 2001, is to protect the public in the event of a financial emergency - and that emergency is generally regarded as a veto of the Bar's annual dues bill, which has happened twice in the last 20 years: once in 1997 and most recently in 2009. (SB 1145 (Burton), 1997; SB 641 (Corbett), 2009.) However, without any notification to its members or the Legislature, the Bar decided, unilaterally, to tie up over 70 percent of its Public Protection Fund - $4.6 million of the $6.5 million fund - for the 15-year life of the loan. The Bar may not access those Public Protection funds for any reason during that time, or it will default on the loan for the Los Angeles building. This completely negates the purpose of the fund - public protection. It appears the Bar, without notice or consultation with the Legislature, made an unwarranted and unsupported choice by tying up the bulk of that fund for the next 15 years that jeopardized its ability to protect the public. Alternatively, the Board may have determined that the Public Protection Fund is not SB 387 Page 15 necessary. If that is the case, the Board, in consultation with the Legislature, could have decided that the remaining unsecured funds, as well as the $4.5 million that is securing the Los Angeles building loan after the loan is paid off, could be used for other purposes, such as reducing the "justice gap" or refunding unnecessary dues to members. The use of the Public Protection Fund to secure the loan on the L.A. building is, according to the State Auditor, part of a larger pattern in which the Bar has been transferring money between its various funds and using the money on unrelated items. The Auditor found that, from 2009 through 2012, the Bar made 50 transfers between funds involving a total of $64.2 million. (Id. at 13.) While many of these may have been justified and appropriate, the Legislature may want more oversight, at least in the foreseeable future, to ensure that the Bar and its Board are making decisions that are truly in the public's best interest. Given the concerns raised by the Auditor about the Bar's lack of transparency and accountability, and the given the resulting potential risk to public protection, this bill rightly proposes to have the Auditor do an in-depth financial audit of the Bar, including a review of the Bar's internal controls and relevant practices. The in-depth audit is limited in time - just one year -in the hope that during that time, the Bar's Board can improve its own oversight of the Bar and ensure that, once again, public protection is the Bar's paramount priority. The Bar has welcomed all of the Auditor's recommendations, and it is hoped that the Bar will welcome all steps needed to improve transparency, accountability and public protection. SB 387 Page 16 Should the Bar, Despite its Historical Judicial Branch Location, be Subject to Some Additional, but Nonetheless, Important Consumer Protection, Transparency and Openness Laws? Unlike other state licensing agencies that operate under the executive branch of government, the Bar is located within the judicial branch. ("The State Bar of California is a public corporation." (Cal. Const. Art IV, Sec. 9).) Even though an important part of the Bar functions as an administrative arm of the court for purposes of admission and discipline of attorneys, the Bar has many other non-court related functions. Thus, the Bar has long been subject to legislative oversight and direction. For example, the Business & Professions Code already addresses such topics as the requirements for attorney admission (Sections 6060-69), the composition and duties of the Committee of Bar Examiners (Sections 6064.6, 64.7), and the duties and composition of the State Bar Board of Trustees itself (Sections 6010-33). Because the Bar is housed within the judicial branch, it has not yet been subject to some of the state's important consumer protection and openness laws which seek to ensure the integrity, transparency, and accountability of state government operations, such as the Public Records Act and the Public Contract rules. However there has been a trend towards consistency with key consumer protection laws; for example, in 2011, SB 163 (Evans), Chap. 417, Stats. 2011, made the Bar essentially subject to the terms of the Bagley-Keene Opening Meeting Law (B-K Act) by the Legislature, see discussion below. SB 387 Page 17 Whether continuing to exclude the Bar's non-court related functions from the benefits of such important public protection and transparency laws make sense today, in light of the government's increasingly vigorous commitment to transparency and accountability to the public it serves and troubling information about the Bar's financial controls and decision making, as well as the Bar's express public protection duty and its acknowledgment of the importance of providing maximum transparency to the public, warrants beneficial review and consideration by the Bar and the Legislature. In 2011, the Legislature Directed the Bar to Conform to the Bagley-Keene Open Meeting Requirements, But the Bar Apparently Has Not Yet Fully Conformed On Some Key Secrecy Issues: All licensing boards in the executive branch governing such professions as physicians and accountants have long been subject to the B-K Act. 2011's SB 163 (Evans) included significant reforms of the State Bar's governance. One of those reforms specifically provided that the board "shall ensure that its open meeting requirements, as described in [Business & Professions Code] Section 6026.5, are consistent with, and conform to," the B-K Act. (Section 6026.7.) Thus, the plain language of current law requires the Bar board to act to ensure that its open meetings requirements are "consistent with, and conform to" the B-K open meetings law. Since then, CPIL has raised numerous and ongoing concerns to this Committee about the Bar's asserted failure to comply with the requirements of the B-K Act in some key respects. CPIL states emphatically that the clear language of Section 6026.7 contains no exceptions to the B-K Act, and thus on its face SB 387 Page 18 requires the Bar to comply with all of the B-K Act, not just those parts of the Act that meet with the Board's approval. In response to concerns raised by this Committee in 2012 and ongoing by CPIL about its lack of compliance with B-K, the Bar engaged in rulemaking, but, according to CPIL's letter of opposition unless amended to this bill, "three of the four proposed changes were not only not consistent with Bagley-Keene; they directly contradict it and are inconsistent with it." CPIL contends that the Bar ignored their concerns and adopted the three changes that, in fact, contradict B-K. While the Bar acknowledges the importance of providing maximum transparency to the public, CPIL contends that the Bar erroneously believes that the language and intent of SB 163 allows it broad discretion to depart from the B-K Act in non-trivial ways -- notwithstanding the statute's use of the words "shall," "consistent with," and "conform to." CPIL points to the Board's unsuccessful legislative efforts to eliminate the B-K Act requirement from SB 163 as further evidence that the Legislature meant what it expressly stated in SB 163, namely, that the Bar's open meetings requirements must be "consistent with, and conform to" the B-K Act. Moreover, CPIL argues that the Board's prior, unsuccessful effort to secure a letter in the Senate Journal to limit its obligation under the B-K Act is additional evidence reinforcing that the plain language of Section 6026.7 means what it says. To address this, CPIL requests, among other amendments, that the Bar be required to comply with B-K, with specific exemptions for the Commission on Judicial Nominations and the Review Committee of the Commission on Judicial Nominees. SB 387 Page 19 Should Bar Administrative Records Be More Accessible To the Public? The Legislature has broadly supported transparency and stated, in the California Public Records Act (PRA), that "access to information concerning the conduct of the people's business is a fundamental and necessary right of every person in this state." (Gov't Code Section 6250.) The PRA, however, explicitly exempts agencies under Article IV of the State Constitution, thus apparently, although not explicitly, exempting the Bar. While courts are not subject to the PRA, judicial records are public records (with exceptions) and the Legislature has directed the judicial branch to open up its administrative records as well. (See Gov't Code Section 68106.2, directing the Judicial Council to develop a rule of court - now Rule 10.500 - to provide public access to the administrative records of the courts.) However, because of the Bar's status as a judicial branch entity that is also not a court, it does not appear to have been included in the broad statutory public protection mandate for public access to records. The California Supreme Court recently determined that the Bar is subject to the common law right of access to public records, which allows access to public records "in which there is a legitimate public interest, if that interest is not outweighed by other interests." (Sander v. State Bar (2013) 58 Cal.4th 300, 323 [Court found that the Bar must provide access to its admissions database as long as applicants' privacy can be protected].) However, the common law right of access is much more limited than the PRA and thus the Bar has much less public oversight today than other regulatory and licensing agencies located in the Executive Branch. SB 387 Page 20 CPIL states emphatically that the Bar should be made subject to the PRA, arguing that it has thus far failed to comply with a request for information that is specifically required today by statute - Section 6001.4 specifically requires the State Bar make available, "upon request of a member of the public, the classification and total annual compensation paid to each of its employees by name, as well as any and all rules, policies, and agreements pertaining to the compensation and benefits of any employees of the State Bar." However, writes CPIL, for "eight months, a journalist with a California legal newspaper has been requesting the exact information that section 6001.4 requires the Bar to disclose. The Bar has entirely failed to respond to her request at all, much less provide the information she has requested." It appears that the public's right of access to public information maintained by the Bar and the Bar's general transparency and accountability could be improved. Thus, clarifying the PRA's effect on the State Bar appears to be an additional and timely issue for possible consideration as part of the Legislature's oversight process. Should The Bar Follow Applicable Contracting Rules Under the Public Contract Code for Greater Public Protection and Transparency of Operations? The Public Contract Code requires that contracts for services entered into by state agencies for $5,000 or more are generally subject to significant control requirements, including competitive bidding, and review and approval by the Department of General Services. However, courts and agencies within the judicial branch are currently specifically exempt from these requirements. (Public Contract Code Section 10335.7.) Instead, the Bar has only been required by the Legislature to use competitive bidding for contracts that SB 387 Page 21 are over $50,000 in the aggregate or, in the case of information technology, over $100,000. (Section 6008.6.) There is also apparently no agency similar to the Department of General Services, which oversees state contracting, to provide oversight of the Bar's contracting processes. While there is certainly no suggestion that the Bar may be inappropriately awarding contracts or otherwise misusing its resources, this apparent lack of traditional oversight mechanisms may inadvertently leave open the risk of potential misuse of member dues. Recent difficulties in the development of various state automation systems underscore the need and benefit for all state agencies to have independent oversight mechanisms and competitive bidding requirements when it comes to outside contracting, so this may be an issue for consideration by the Bar and the Legislature. This Bill Does Not Increase Modest Assistance to Legal Aid Organizations, Although Much More is Needed to Begin to Close the "Justice Gap." As this Committee has highlighted for many years, there has long been a dire need for civil legal services for poor Californians - especially underserved groups, such as elderly, disabled, children and people needing assistance with English. By many measures, California suffers from an overwhelming "justice gap" between the legal needs of low-income people and the legal help they receive. It has been estimated that the cost of closing the gap would amount to $400 million. Even in the best of times, legal aid providers have been able to address only a fraction of the demand for help. Because of insufficient resources, legal services programs can offer assistance in only a few types of cases; many poor and moderate-income Californians do not qualify for services; and most of those who meet the strict eligibility limits and seek assistance regarding problems for which a legal services office SB 387 Page 22 provides service are nevertheless turned away, simply for lack of staff. Even those who receive services are frequently under-served with brief advice and consultation, rather than full and fair representation. As this Committee knows well, for over 30 years, interest on lawyer trust accounts (IOLTA) has been the primary mechanism on which the state has relied to fund legal aid programs. It seems likely that when the IOLTA program was instituted in 1981, no one anticipated that bank interest rates would be virtually zero, as the federal funds rate has been since the 2009-10 IOLTA grant cycle. The historic plunge in interest rates continues to pose an unprecedented challenge to the premise that legal aid programs can rely on IOLTA funding to help maintain their essential mission. Absent a substantial increase in interest rates, which is certainly undesirable in macro-economic terms, it has become painfully clear that IOLTA alone will never adequately address the needs of those less fortunate who require legal assistance. As this Committee has frequently discussed and sought to ameliorate, funding for legal aid organizations that provide essential legal help for extremely impoverished individuals has been decimated in recent years. The Legislature has for years worked with the Bar to come up with alternative funding sources, in the past using non-mandatory dues, but that was allowed to sunset several years ago diminishing state funding for legal aid even further, despite significantly greater needs for legal services by those who cannot afford them, and dramatically lower funding from other sources. Current law provides an optional legal aid fee by which members who choose to do so can help SB 387 Page 23 defray the cost of ensuring that legal services are available without regard to ability to pay market rates, consistently with each lawyer's professional responsibility, at the rate of $40. These voluntary contributions make up for some, but by no means all, of those lost non-mandatory contributions. Unfortunately, this year's bill does not provide any new funding for legal services programs. The Bar's leadership has, in the past, stated its commitment to this Committee to find other non-mandatory sources of funds as soon as possible to not just bridge this continuing crisis but to try finally to overcome it. A recent resolution adopted by the State Bar on May 9, 2015 details the funding crisis in legal services and finds that "due to inadequate funding legal services must turn away eligible clients who are left to navigate complex legal situations on their own - and risk losing their families, homes and livelihoods in the process." The resolution ends with the Bar and its Board supporting "increased stable funding for legal services through an increased Equal Access Fund [limited state General Fund support of legal services] and otherwise to provide critically needed legal help to low-income and vulnerable residents of California." It is hoped that going forward the Bar and its Board will be able to find additional, ongoing funding for legal services from the Bar's unrestricted sources of funding, funding that today is used for discretionary expenses, including executive travel and dining and other nonessential and non-public protection funds, that might be better invested in helping California's most vulnerable residents who seek legal assistance to avoid, among other things, domestic violence, unemployment and homelessness. SB 387 Page 24 Should the Bar's Board of Trustees Continue to Oversee Attorneys When the Vast Majority of Members Are Practicing Attorneys? Under recent reforms enacted by the Legislature in an effort to address earlier and significant concerns about the Bar's governance (SB 163 (Evans), Chap. 417, Stats. 2011), the State Bar is governed by its Board of Trustees, which is now made up of 19 members (though the Board President may remain on the Board for one year after his or her term is completed and be the 20th member, which current Board President Craig Holden has elected to do). (Section 6010 et seq.) Among other reforms, SB 163 revised the composition and reduced the size of the Board from 23 to 19 members over a three-year period, adding for the first time a substantial component of attorney members selected by the Supreme Court. That bill also, consistent with other professional statutes, specified for the first time that the protection of the public is the highest priority for the Bar and its Board. Under the Legislature's 2011 governance reforms, the Board was still permitted to have a supermajority majority of lawyer-members following assurances from the Bar that the increased percentage of public members would address Board governance problems. Thus, of the current 19 (or 20) board members, 13 (or 14) are lawyer members -- 6 of whom are elected by bar members in districts across the state -- and 6 are public members. Currently, there are three vacant public member seats, all of them gubernatorial appointees, so the Board is currently composed of 17 members, 14 of whom are active members of the State Bar and 3 of whom are public members. Notwithstanding these prior reforms, CPIL still questions SB 387 Page 25 whether the Board can adequately govern the Bar and the legal profession and, most importantly protect the public, given that the vast majority of the Board (currently 82 percent) are also active Bar members. In support of this concern, CPIL cites a very recent U.S. Supreme Court case which found that if a state licensing board has a majority of members who are active market participants, the board can only invoke antitrust immunity if it is subject to active state supervision. In that case, North Carolina State Board of Dental Examiners v. Federal Trade Commission (2015) 135 S. Ct. 1101, the Supreme Court held, in a 6-3 decision, that the North Carolina Dental Board, (composed of eight members, six of whom were practicing dentists) did not have state immunity to an antitrust action brought by the Federal Trade Commission to stop them from preventing non-dentists from offering teeth whitening services. The Court held that the dental board, since it was controlled by "market participants" who pose a risk of self-dealing, could only invoke state immunity to an antitrust action if the board is "actively supervised" by state officials. It is important to note that 75 percent of the North Carolina dental board members were active dentists, while currently fully 82 percent of the State Bar Board is composed of active Bar members. Even when all public members are appointed, the Bar's Board will still be composed of a supermajority of active Bar members - 68 to 70 percent (depending on whether the Board has 19 or 20 members) active Bar members. CPIL argues that the only way that the Bar can satisfy the holding in North Carolina State Board of Dental Examiners, supra, is to "(1) restructure the Board of Trustees to a supermajority of public members, with the added provision that no vote may be taken where those voting are not public members SB 387 Page 26 in the majority, or (2) create clear state supervision of all Bar acts and decisions for anticompetitive effect." ARGUMENTS IN OPPOSITION: CPIL strongly opposes this bill, unless it is amended to make the changes discussed above, including either reorganizing the Board to have a public member supermajority, or creating a state entity to review, revise, amend or reject any of the Bar's or the Board's decisions that have a restraint impact; and requiring the Bar to fully comply with both Bagley-Keene Act and the Public Records Act. In addition, CPIL seeks a number of other changes to make the Bar operate in a more transparent and effective, including: Transfer the Bar's discipline function (the Office of Chief Trail Counsel, the Office of Investigations, and the Audit and Review Unit) to the Attorney General's office to avoid any anti-competitive challenge to the discipline function; Increase Bar dues to better support the discipline function and for audits of the discipline unit; Subject the Bar to the rulemaking provisions of the Administrative Procedure Act (which would also provide more state oversight over the Bar); Create a Chief Operating Officer to oversee all expenditures and have that person report directly to the executive director; SB 387 Page 27 Require that the executive director's expenses be reviewed directly by the Board; Better define the discipline backlog, more accurately reporting on the backlog and on case processing times, and complying with existing law regarding complex cases; Require the Bar to webcast all Board and Board standing committee meetings and to post minutes of those meetings online. CPIL believes that all of these changes are necessary to end the Bar's "practice of secrecy, nontransparency, deliberate evasion and ignorance of clearly applicable law, and dereliction of regulatory duties." CPIL adds that such conduct by the Bar "is not acceptable for any government agency, much less one charged with regulation of the legal profession and protection of the public as its 'paramount' priority." REGISTERED SUPPORT / OPPOSITION: Support State Bar of California (sponsor) SB 387 Page 28 Opposition Center for Public Interest Law (unless amended) One individual Analysis Prepared by:Alison Merrilees and Leora Gershenzon / JUD. / (916) 319-2334