BILL ANALYSIS Ó
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Date of Hearing: August 24, 2016
ASSEMBLY COMMITTEE ON JUDICIARY
Mark Stone, Chair
SB
846 (Anderson) - As Amended August 19, 2016
SENATE VOTE: Not Applicable
SUBJECT: STATE BAR DUES: PUBLIC PROTECTION, LEGISLATIVE
OVERSIGHT AND ANNUAL AUTHORIZATION OF MEMBER DUES
KEY ISSUES:
1)SHOULD THE LEGISLATURE AUTHORIZE THE STATE BAR TO assess
MEMBERSHIP dues for active bar members in 2017 AT $390, THE
SAME RATE AS THIS YEAR?
2)as part of THE LEGISLATURE'S annual oversight OF THE BAR AND
IN LIGHT OF systemic, longstANding and ongoing FINANCIAL,
ADMINISTRATIVE and public protection CONCERNS, should the
legislature consider SUBSTANTIAL CHANGES TO bar GOVERNANCE AND
accountability IN ORDER TO IMPROVE THE BAR'S PARAMOUNT DUTY TO
PROTECT THE PUBLIC FROM HARM, BY AMONG OTHER THINGS:
a) IN ORDER TO PREVENT HARM TO THE PUBLIC FROM BAD LAWYERS,
BETTER DEFINING PUBLIC PROTECTION TO MORE CLEARLY DELINEATE
and prioritize THE BAR'S CORE REGULATORY FUNCTIONS, WHICH
ARE SEPARATE AND DISTINCT FROM ITS TRADE ASSOCIATION
FUNCTIONS;
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b) ELIMINATING BOARD MEMBERS ELECTED BY ATTORNEYS AND
REDUCING THE BOARD FROM A SUPERMAJORITY OF PRACTICING
ATTORNEYS TO A SIMPLE MAJORITY OF PRACTICING ATTORNEYS;
c) ESTABLISHING A DISCIPLINE MONITOR TO IMPROVE THE BAR'S
DISCIPLINE PROCESS AND SETTING FORTH A DETAILED PROTOCOL
FOR HANDLING UNLAWFUL PRACTICE OF LAW COMPLAINTS; AND
d) SETTING FORTH MORE DETAILED OVERSIGHT AND REVIEW BY THE
STATE AUDITOR TO ENSURE THAT THE BAR'S EXPENSES AND MEMBER
DUES ARE REASONABLE AND REFLECT THE BAR'S PRIORITIES?
SYNOPSIS
This is the second time this year that our Committee has
considered the annual State Bar dues reauthorization
legislation. When this Committee first heard the bill - AB 2878
(Judiciary) - virtually every Committee member spoke of the
decades of significant and sustained problems at the Bar and the
need for meaningful structural and governance reform in order to
better protect the public. That bill, which reauthorized the
Bar to collect dues next year, contained minimal reforms and
failed on the Assembly Floor, garnering only 10 votes, after
members of this Committee and others strongly advocated for the
critical need for more meaningful reforms. That bill was then
amended to include many more significant reforms of the State
Bar, including many of the reforms contained in this bill, and
passed off the Assembly Floor by a vote of 79-0. However, that
bill was never heard in the Senate Judiciary Committee after
that Committee insisted that three key reforms be stripped from
the bill and this Committee understandably refused.
The current language of today's bill, which is co-authored by
this entire Committee, represents a compromise between the
version that passed the Assembly Floor (which Committee members
referred to as the "bare minimum" needed to overhaul the Bar)
and the version, stripped of a number of key reforms, demanded
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by the Senate Judiciary Committee. This compromise bill
continues the decades-long tradition of Judiciary Committee
oversight of the Bar via review of the annual dues authorization
bill, as part of general legislative oversight of agencies
within the executive and judicial branches of government.
This past year, there has continued to be extensive and
publically reported turmoil involving the Bar, some of the
information likely coming to light by way of new transparency
laws applied to the Bar last year. First, the media reported
that the Bar had failed to investigate over 300 complaints about
the unauthorized practice of law, some awaiting assignment to an
investigator for years before any action was taken. According
to the Bar, many of those complaints were filed by immigrants
seeking legal assistance with, among other things, their legal
status in this country. It goes without saying that failure to
immediately investigate and, when appropriate, take action to
stop the unauthorized practice of law puts the public at
substantial risk and the longer the delays in investigating
them, the more the public is put at risk. The Bar now asserts
that these cases are being assigned to an attorney immediately
upon receipt and that the backlog has finally been addressed,
but when this matter was first made public, over 300 cases were
still awaiting intake. Had this issue not been made public, it
is unclear when, if ever, such corrective action would have been
taken. Second, the Bar, without input from or approval by the
Legislature, and apparently without fully following its own
newly established procedures recommended by the State Auditor,
took out a $10 million loan for upgrades and tenant improvements
for its San Francisco building and attempted to secure the loan
with a pledge of future member Bar dues, which could have tied
the hands of future Legislatures in the setting of dues based on
a 1950's era statute. This apparently only came to light as a
result of the State Auditor's most recent audit of the Bar,
which was only required by last year's Bar dues legislation.
Most recently, it was reported that the Bar, which the Auditor
found pays over a dozen of its top executives more than the
Governor, hired a PR executive who reportedly makes more than
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the White House Press Secretary and remodeled its executive
suite at a cost of $125,000.
While not reforming all of the governance and operational
problems that plague the Bar, this bill, among other things:
(1) Defines public protection to include the Bar's key
regulatory functions -- admissions, regulation of attorneys,
discipline of attorneys and sanctions for unlawful practice of
law - which should help the Bar focus on its key purpose -
protecting the public from harm - and appropriately reduce board
focus on its trade association activities; (2) continues reform
of the Bar's board by eliminating board members elected by
licensed attorneys themselves and reducing the board from a
supermajority of practicing attorneys to a majority of
practicing attorneys; (3) requires the board to exercise greater
oversight of Bar staff; (4) requires the Supreme Court to review
any anticompetitive decisions made by the board's attorney
majority to avoid costly antitrust liability; and (5) directs
the Attorney General to appoint a monitor to help improve the
Bar's long-standing problems disciplining attorneys and properly
protecting the public from the unlicensed practice of law. This
bill also maintains member bar dues for 2017 at their same level
as this year.
While the bill's reform proposals go too far for those seeking
to maintain the status quo, with the Bar board focused much of
the time on trade association functions, rather than its
critical public protections functions, or for those who see the
Bar's longstanding and well-documented problems as operational
only and not fundamentally structural, the bill is opposed by
the Center for Public Interest Law which argues that the bill
fails to adequately reform the bar by leaving in place the Bar
board's majority of practicing attorneys and does not eliminate
the "problem of an intrinsically distracted regulator that, at
every meeting, allows the interests of lawyers to compete with
the interests of consumers."
SUMMARY: Reauthorize the State Bar to collect up to $390 for
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active membership dues for 2017 and implements changes to the
governance of the State Bar to maximize the Bar's prioritization
of public protection in all of its activities and makes other
reforms to the Bar's governance structure. Specifically, this
bill:
1)Reauthorizes the State Bar to collect up to $390 for active
membership dues for 2017.
2)Defines public protection -- the highest priority of the State
Bar -- as the core regulatory functions of the State Bar, in
the following order of priority:
a) Attorneys must be competent and ethical and comply with
all laws and standards of professional conduct;
b) Appropriate discipline or legal sanction must be imposed
upon attorneys who fail to comply with those standards and
non-attorneys who practice law without a license;
c) Competent and professional legal services must be
equally provided without regard to income; and
d) The legal profession must represent the broad diversity
of California.
3)Eliminates the six elected State Bar Board of Trustees (Board)
members, and reduces the membership of the Board from 19
members to 13 members. States the intent of the Legislature
that this reduction of membership number occur through the
expiration of the terms of the elected members who are serving
as of December 31, 2016.
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4)Extends terms of members of the Board from three to four
years.
5)Requires those making appointments to the Board after December
31, 2016 to consider appointing members with specified
expertise.
6)Provides that the chair and vice chair (previously, the
president and vice president) of the Board must be appointed
by the Supreme Court instead of elected by the Board.
Provides that the term of the chair is two years. Provides
that the Board annually selects the treasurer, who is not
required to be a board member.
7)Requires that any decision of the Board that the California
Supreme Court determines may raise antitrust concerns be
reviewed by the Court and is subject to modification, veto, or
other appropriate action by the Court.
8)Eliminates the ability of the State Bar to prevent future
Legislatures from reducing future membership dues by securing
all or any portion of an obligation of the State Bar on future
dues.
9)Eliminates the State Bar's ability to create foundations or
non-profit corporations as a means to raise additional
revenue.
10) Requires Board's approval for contracts for goods or
services over $50,000 or IT contracts above $100,000.
Requires the Board to adopt policies to require its approval
for contracts that could impact the State Bar's ability to
protect the public.
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11) Requires the Attorney General to appoint an
enforcement program monitor, through March 31, 2020, to
monitor and evaluate the State Bar's disciplinary system to
ensure the Bar is successfully and consistently protecting the
public. Sets forth the duties of the enforcement monitor,
including developing recommendations and submitting an initial
report to the Supreme Court and the Legislature by October 1,
2019, and a final report by March 31, 2020.
12) Sets forth specific requirements for the handling of
unlawful practice of law complaints, including specific
timeframes for processing those complaints; specified,
acceptable resolutions for those complaints; and requiring
that those complaints be forwarded to law enforcement.
13) Eliminates certain State Bar exceptions to the
Bagley-Keene Open Meeting Act, and adds an exception from both
the Bagley-Keene Open Meeting Act and the California Public
Records Act for the State Bar Court. Provides that access to
records of the State Bar Court shall be governed by the laws
applicable to the records of the judiciary.
14) Provides several exceptions to confidentiality of
State Bar admission applications and records, including the
names of applicants who passed the Bar examination, and makes
those exceptions retroactive to January 1, 2016.
15) Requires the State Bar to conduct an analysis of the
funds necessary to timely satisfy claims against the Client
Security Fund (CSF), including possible additional efforts to
increase collection from responsible attorneys, a review of
other non-public protection expenditures, including executive
salaries and benefits, that can be redirected to better fund
the CSF, and after exhausting all other options, whether a
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dues increase is necessary to ensure timely payment of claims
against the CSF. The report is due to the Legislature by
March 15, 2017.
16) Requires that the 2017 performance audit of the State
Bar by the State Auditor includes a review of the State Bar's
expenses, including executive salaries and benefits, outside
contracts and real estate holdings, to determine the
appropriate and necessary expenses of the State Bar to protect
the public and what an appropriate member dues level should
be. Requires that the audit also include a recommendation for
determining Section costs, including a notice and opportunity
to challenge process for the Sections. Requires the State
Auditor to conduct a performance audit, due by June 15, 2018,
on changes in the State Bar's expenses and ways for the State
Bar to increase operational effectiveness and efficiency.
EXISTING LAW:
1)Requires all attorneys who practice law in California to be
members of the State Bar and establishes the State Bar for the
purpose of regulating the legal profession. Pursuant to the
State Bar Act, requires the annual mandatory membership fee
set by the Board to pay for discipline and other functions to
be ratified by the Legislature. (Business and Professions
Code Section 6000 et seq. Unless stated otherwise, all
further statutory references refer to that code.)
2)Authorizes the State Bar to collect $315 in annual membership
fees from active members for a total annual dues bill of $390
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for the year 2016. Provides that the other $75 is pursuant to
statutory authorization to assess annually the following fees:
$40 for the Client Security Fund; $25 for the disciplinary
system; and $10 for the Lawyer Assistance Program. (Sections
6140, 6140.55, 6140.6, 6140.9.)
3)Authorizes the State Bar to collect $75 in annual membership
fees from inactive members for a total annual dues bill of
$115. Provides that the other $40 is pursuant to statutory
authorization to assess annually the following fees: $10 for
the Client Security Fund; $25 for the disciplinary system; and
$5 for the Lawyer Assistance Program. (Sections 6141,
6140.55, 6140.6, 6140.9.)
4)Directs $40 of membership dues to legal services purposes
unless a member elects not to support those activities.
(Section 6140.03.)
5)Provides that protection of the public is the highest priority
of the State Bar and its Board in exercising their licensing,
regulatory and disciplinary functions. Whenever the
protection of the public is inconsistent with other interests
sought to be promoted, provides that the protection of the
public shall be paramount. (Section 6001.1.)
6)Creates the Governance in the Public Interest Task Force,
effective February 1, 2013, and requires that the task force
report to the Supreme Court, the Governor and the Assembly and
Senate Judiciary Committees by May 15, 2014, and every three
years thereafter, its recommendations for enhancing public
protection and ensuring that public protection is the State
Bar's highest priority. (Section 6001.2.)
7)Permits the State Bar, for purpose of carrying into effect and
promoting its objectives (of which public protection is its
highest priority), to sell, lease, exchange, convey, transfer,
assign, encumber, pledge, dispose of any of its real or
personal property or any interest therein, including without
limitation all or any portion of its income or revenues from
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membership fees paid or payable by members. (Section 6001.)
8)Provides, pursuant to a 1950's statute, that whenever the
Board secures an obligation of the State Bar on all or any
portion of the fees from membership dues the Legislature may
not, until the obligation is repaid in full, reduce membership
dues below the maximum amount in effect when the obligation
was created and provides that this constitutes a covenant to
the holder of the obligation. (Section 6008.5.)
9)Requires the State Bar to annually report on the performance
and condition of its discipline system, including the backlog
of discipline cases that are six months old, and case
processing times, as provided. (Section 6086.15.)
10)Requires the State Bar to develop and implement a workforce
plan for its discipline system and conduct a public sector
compensation and benefits study, including a recommendation
for an appropriate backlog goal and an assessment of staffing
needed to achieve that goal. Requires the State Bar to
conduct a thorough analysis of its operating costs and develop
a spending plan to determine a reasonable amount for its
annual dues. Requires that the workforce plan and the
spending plan be submitted to the Legislature by May 15, 2016,
and be implemented by December 31, 2016. (Section 6140.16.)
11)Requires the State Bar's Board to contract with the
California State Auditor to conduct a biannual performance
audit of the State Bar. (Section 6145(b).)
12)Subjects the State Bar to the Public Records Act, with
specified exceptions. Provides that identifying information
submitted by applicants to the State Bar for admission to
practice law and State Bar admissions records, as specified,
are confidential and may not be disclosed pursuant to any
state law including the Public Records Act. (Sections 6001,
6026.11.)
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13)Effective April 1, 2016, subjects the State Bar to the
Bagley-Keene Open Meeting Act, as provided, with exemptions
for the Judicial Nominees Evaluation Commission and the
Committee of Bar Examiners. (Sections 6001 6026.7; Government
Code Section 11121.)
FISCAL EFFECT: As currently in print this bill is keyed fiscal.
COMMENTS: This bill, the second State Bar dues reauthorization
and oversight bill considered by this Committee this year,
continues the decades-long tradition of oversight of the Bar by
the Judiciary Committee via review of the annual dues
authorization bill, as part of the general oversight role of the
Legislature over the agencies in the executive and judicial
branches of government. This bill comes before this Committee
after yet another year of extensive and publically reported
turmoil involving the Bar, and after the Senate's Judiciary
Committee's unwillingness to adequately address the longstanding
governance shortfalls of the Bar, or even, at a bare minimum, to
effectively prioritize the true public protection functions of
the Bar over its lawyer trade association functions.
Background on the Bar. Attorneys who wish to practice law in
California generally must be admitted and licensed in this State
and must be members 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 March 2016, the State Bar had 186,152
active members and 56,929 inactive members. Total State Bar
membership is listed at 257,788, which includes 2,162 judge
members and 12,544 members who are "not eligible to practice
law."
The Bar is currently governed by a 19-member board of trustees,
which is made up of 13 active lawyer members (6 attorneys
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elected by other licensed attorneys in the state; 5 lawyers
appointed by the Supreme Court; and 2 attorneys appointed by the
Legislature) and 6 public (non- attorneys) members (4 public
members appointed by the Governor and 2 public members appointed
by the Legislature). Currently, two public member positions are
vacant, awaiting appointment by the Governor. California has a
unified bar, which means that the State Bar is both the
regulatory arm of the state, as well as a mandatory attorney
trade association. By statute, the Bar's highest priority, as
necessary and appropriate, is protection of the public, although
public protection is not defined and apparently that has allowed
the Bar to focus undue attention on its trade association
functions to the detriment of its fundamental and critically
important regulatory functions. (Section 6001.1.)
Bar Report on its Progress This Past Year: When the Committee
heard AB 2878, the State Bar provided a list of its
accomplishments over the past year, including hiring its new
management team last Fall: executive director Elizabeth Parker,
chief operating officer Leah Wilson, and general counsel Vanessa
Holton. The Bar also stated that it is "well on its way to
completing" all of the recommendations from the State Auditor in
the 2015 audit, discussed in more detail below, including
revising its discipline report to the Legislature, to ensure
that it is consistent, clear and reliable; improving the quality
of the discipline process; requiring a cost-benefit analysis for
all contracts above $2 million; streamlining its organizational
structure to more efficiently use existing staff resources; and
beginning the development of a new case management system.
In an effort to address questionable management and budget
practices, the Bar has reduced its overall budget for 2016 by
6.2 percent and reduced budgets for temporary help, travel and
catering even more. The Bar states that it has eliminated all
business expense accounts and the president's once secret
$30,000 discretionary expense account, something that has for
years been of substantial concern to this Committee. It has
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also cancelled numerous contracts with outside counsel, seeking
to bring more of that work in-house. The Bar also states that
it is beginning an effort to use zero-based operational costs
for assessment of fees charged by its Admissions division, as
well as a review of other fees charged. After media reports
that the Bar has not properly addressed unauthorized practice of
law complaints, discussed more fully below, the Bar states that
it has developed a protocol for handling these cases and has
adopted a referral policy to allow Bar investigators and
criminal prosecutors to simultaneously investigate cases.
However, Well Reported, Disconcerting and Longstanding Problems
at The Bar Continue to Raise Very Troubling Questions About
Public Protection, Discipline, Governance, Expenditures and
Oversight. The State Bar has been in the news throughout much
of the past year primarily due to troubling management,
oversight and governance problems, as well as questions about
whether the Bar has focused sufficiently on its primary duty --
public protection.
Bar Admitted Ignoring Unlawful Practice of Law Complaints, Many
of Which are From Immigrants, Thus Allowing the Unlawful
Practice of Law to Endanger the Public: The Bar operates an
investigatory and discipline process to protect the public from
unscrupulous attorneys, with possible disciplinary actions
ranging from letters of warning and private reproval, to
disbarment. The Bar's investigatory and regulatory duties
include protecting the public from the unauthorized practice of
law by non-attorneys and attorneys not licensed in this State.
Although public protection is the Bar's highest statutory
priority, the Bar reportedly allowed hundreds of complaints
alleging the unauthorized practice of law to sit idle for months
or even years without taking action. Many of the complaints are
against "notaries," who offer to assist immigrants in securing
legal status or performing other legal work, but whose efforts
can result in denial of protective status or even deportation.
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According to media reports, the Bar initially identified 59
complaints of unauthorized practice of law that were
uninvestigated for years, with some complaints dating as far
back as 2007. (Lyle Moran, State Bar admits ignoring dozens of
complaints against people practicing law without a license,
Daily Journal (Jan. 29, 2016).) At the time, the Bar called its
failure to investigate complaints "unacceptable," and blamed a
fired investigator. (Ibid.) The Daily Journal later learned
that the Bar actually had more than 270 additional complaints
alleging unauthorized practice of law that were allowed to sit
idle, awaiting assignment to an investigator. These additional
complaints were reportedly left in a drawer for more than two
months or, in some cases, six months and more. (Lyle Moran,
State Bar let hundreds of complaints against non-attorneys sit
idle, Daily Journal (March 4, 2016).) These cases were
reportedly assigned to an attorney, addressing the backlog, but
when this matter was first made public, over 300 cases were
still awaiting intake. Had this matter not been made public,
likely as the result of a public records request, it is unclear
if and when corrective action would have been taken.
It goes without saying that failure to immediately investigate
and, when appropriate, take action to stop the unauthorized
practice of law leaves the public at serious risk. If legal
action is not taken, the unauthorized practice will likely
continue, unnecessarily jeopardizing vulnerable individuals who
are seeking legal assistance. When the failure to investigate
lasts months or even years, the risk increases significantly.
The failure to investigate in a timely manner is even more
disturbing when many of the victims are immigrants, for whom
negative consequences may include deportation. Those harmed,
particularly those who have been deported, may not have the
opportunity for a second chance to obtain actual legal
assistance.
The Bar has acknowledged its mishandling of these complaints,
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stated that it has worked through the backlog, and has developed
protocols to improve the Bar's handling of these critically
important complaints. These protocols are codified in this
bill.
Last Year's State Audit Substantially Faulted 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
2015 audit reviewed the Bar's discipline process, in particular
its backlog of discipline cases, and the Bar's 2012 $75 million
purchase and renovation of a building in Los Angeles. The audit
uncovered significant, troubling 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).)
Discipline: To operate its discipline system effectively and
maximize public protection, the Bar must minimize its backlog
(cases not processed within six months) in order to prevent
wayward attorneys and non-attorneys from continuing to practice
law in a manner that endangers the public. The Bar is required
to report annually to the Legislature, the Governor, and the
Chief Justice on the discipline process and any backlog.
Unfortunately, the State Auditor discovered that the Bar did not
fully and consistently report its backlog or its case processing
times to the Legislature or the Governor, and, when taking steps
to reduce the backlog, did not adequately protect the public.
Of particular importance, according to the Auditor, was the
manner in which the Bar reduced its backlog of discipline cases,
which may have caused "significant risk to the public":
[A]s 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
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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 . . . that insufficient quality control was a key
factor that enabled the State Bar to decrease its backlog.
(Id. at 1 (emphasis added).)
As a result of the audit findings, the Legislature, in last
year's dues bill, SB 387 (Jackson), Chap. 537, Stats. 2015,
directed the Bar to develop and implement a workforce plan for
its discipline system and to 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, both of which are now completed and
discussed below.
Building Purchase: The State Auditor also determined that, when
purchasing a building in Los Angeles in 2012, the Bar did not
perform any cost-benefit analysis to determine if the purchase
was appropriate and warranted before receiving approval from its
Board to purchase the building. The Bar, according to the
Auditor, did not fully inform the Legislature of its plans,
thereby potentially risking public safety by 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
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
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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 other financial
priorities. (Id. at 43.)
The Auditor thereby 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., emphasis
added)
Even more troubling was the fact that the Bar chose to secure
the additional funding for the Los Angeles building, in part,
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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, was 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. 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 negated the purpose of the fund: public protection.
If the Bar Board had determined that the Public Protection Fund
were actually not necessary, 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 have
been used for other purposes, such as improving the discipline
system, reducing the legal services "justice gap" or refunding
unnecessary dues to members. It did not. Moreover, given the
uncertainty this year of having a successful dues bill, those
funds could - and should - have been used to protect jobs and
the important public protection functions carried out by Bar
employees. Unfortunately, the Bar's actions have reduced both
public protection and job security.
S.F. Building Loan and Restructuring of L.A. Building Loan: In
spite of last year's audit that questioned the cost of the Los
Angeles building and its impact on public protection, and
without waiting for the results of the legislatively-required
discipline workplan (which showed that the Bar requires
significant additional spending to meet its public protection
mandate), the State Bar decided, without input or approval from
the Legislature, to take out a new $10 million loan for upgrades
and tenant improvements to its San Francisco building.
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In order to use some of the loan as security for repayment, the
Bar, again without consultation with the Legislature, chose to
secure the loan and refinance the original $25 million loan on
the Los Angeles building, discussed above, through a security
interest in future member dues. The loan, secured on future Bar
dues, was entered on March 1, 2016 for a term of ten years.
Before receiving approval from the Board, the Bar requested an
opinion from its staff on the legality of the revenue pledge.
While finding the loan legally permissible, legal staff
appropriately warned the Bar of the following:
Such a pledge, which has the potential to impact the Bar's
regulatory functions, could additionally be deemed
inconsistent with the later adoption of Business & Professions
Code, section 6001.1, which provides that the Bar must place
public protection as its highest priority and additionally
states, "[w]henever the protection of the public is
inconsistent with other interest sought to be promoted, the
protection of the public shall be paramount." . . . [S]uch a
pledge could subject the Bar to criticism on the basis that it
could place funds that govern its core regulatory activities
at what may be deemed to be unnecessary risk.
These risks were not mentioned in the materials presented by the
Bar to its Board when it requested approval for the loan. Nor
was the Board apparently provided with a cost-benefit analysis
that included both a recommended course of action and
alternatives, as the Bar's list of accomplishments states is
required for all expenditures reasonably expected to exceed $2
million. Clearly, this loan met that $2 million threshold.
Moreover, the decision to proceed with the loan came less than
one year after the State Auditor questioned the Bar's decision
to purchase the Los Angeles building on the basis that the Bar
had not considered whether the resources to repay the loan might
be better spent on improving the Bar's discipline system.
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Even more troubling, Business & Professions Code Section 6008.5
provides that whenever the Board secures a Bar obligation with
all or any portion of the fees from membership dues, the
Legislature may not, until the obligation is repaid in full,
reduce membership dues below the maximum amount in effect when
the obligation was created, providing a covenant to the holder
of the obligation. Thus, at least on its face, this statute,
which has been on the books since 1957, appears to provide that,
as a result of the loan, the Legislature cannot lower Bar dues
by even a single penny. The annual legislative setting of the
amount of the Bar's dues is the Legislature's chief mechanism
for oversight of the Bar. Without the ability to annually
establish Bar fees, including the ability to lower fees, the
Legislature would lose a key oversight tool to ensure that the
Bar is properly carrying out its mission and protecting the
public. It appears that this issue was never presented to the
Board when it approved of the loan. Nor was there apparently
any consultation with the Legislature before restricting future
legislative authority.
It is highly unlikely that this statute, the policy merits of
which are questionable, was ever constitutional. A legislature
cannot restrict the powers of a subsequent legislature by
enacting a statute that appears to be nonrepealable. (County
Mobilehome Positive Action Committee v. County of San Diego
(1998) 62 Cal. App. 4th 727, 734.) "An act of one legislature
is not binding upon, and does not tie the hands of future
legislatures [citations omitted]." (Ibid.) This provision may
also run afoul of the constitutional prohibition against
delegation of legislative power, which prevents the Legislature
from, among other things, delegating rate setting ability to
members of the industry that is regulated. (See State Bd. of
Dry Cleaners v. Thrift-D-Lux Cleaners (1953) 40 C.2d 436, 447.)
This statute appears to delegate to the Bar, should it choose to
secure a loan with future dues, the ability to fix the minimum
price of future dues for as long of a loan period as the Bar
chooses.
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At the request of the chairs of this Committee and the Senate
Judiciary Committee, the Bar and the lender restructured the
loan so that it is no longer secured by future member dues.
However, until the loan is repaid in full, the obligation still
exists and still reduces the amount of Bar's resources available
to protect the public. This bill, quite appropriately,
therefore eliminates this anachronistic statute and, with it,
the Bar's ability to lock in a dues rate for years, even if the
Bar has no need for the funding generated by those dues.
2016 State Audit Again Raised Troubling Public Protection
Concerns: In response to the significant and disturbing audit
findings from 2015, the Legislature last year required the State
Auditor to perform an in-depth financial audit of the Bar. That
audit, The State Bar of California: Its Lack of Transparency Has
Undermined its Communications with Decision Makers and
Stakeholders (May 2016), found that the State Bar's financial
reports "contained errors and lacked transparency, and these
weaknesses have limited stakeholders' ability to understand the
State Bar's operations and the Legislature's ability to ensure
the appropriateness of the State Bar's fees." (Ibid. at 1.)
The State Auditor also found that in the absence of oversight,
the State Bar has made "questionable or inappropriate financial
decisions," including its decision to create a nonprofit
organization that failed to support its stated beneficiaries -
legal services and the Bar Sections - and instead used most of
its funds for dinners and hotel expenses that occurred before
the nonprofit was even created and for an unrelated State Fair
exhibit. The Bar's general fund eventually was used to bail out
the failed nonprofit.
The audit also exposed the Bar's failure to take steps to
minimize a years' long backlog in compensating victims of
dishonest lawyers. According to the State Auditor, although the
Bar realized its shortfall in the Client Security Fund - used to
compensate victims of dishonest attorneys - the Bar not only
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failed to "take steps to address the problem or to communicate
the fund's true financial situation, it did the opposite: In
2012 the State Bar eliminated from its financial statements any
disclosure of future amounts it expected to pay related to the
Client Security Fund, reporting instead that the fund's balance
had improved. Further, because the State Bar lacked the funds
necessary to pay claims, it slowed its claims processing from
about 18 months to about 36 months, potentially harming victims
who needed these resources." (Id.)
Additionally, the audit discovered that the State Bar provides
executives with "significantly more generous salaries and
benefits than other executives in comparable positions in state
government," with the top salaries for more than a dozen
executives exceeding the Governor's salary. (Id. at 3) The
State Auditor determined that the Bar could save nearly $1
million annually if its executive salaries and benefits were
more consistent with other state agencies.
Even more troubling than what was in the report was what was not
fully included in the report. As discussed above, the State Bar
revised the loan for upgrading its San Francisco building,
originally secured by future bar dues, only after the State
Auditor raised troubling questions about that loan during this
most recent audit. Additionally, the Bar decided to compare its
salaries with the Attorney General's office, as part of its
compensation study discussed below, only after the State Auditor
noticed that the Bar was only comparing its salaries to highly
paid local and judicial branch agencies and specifically
excluding other regulatory and executive branch agencies that
have substantial operational similarities to the State Bar. If
the Auditor had not been there, it is likely that the loan
attempting to tie the Legislature's hands would have been much
harder to undo and the compensation study would have lacked even
minimal comparisons with relevant state agencies, rendering its
results less relevant than even the existing report. Finally,
after the State Auditor raised questions about the
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securitization of the loan to the Bar, but before its audit was
completed and therefore still confidential, the Bar's current
executive director, who is herself an attorney, reported the
issue to the Legislature, which is apparently a misdemeanor.
The State Auditor sent the executive director a letter, warning
that if such "an unlawful disclosure ever recur, we will have no
option but to promptly refer the matter to the appropriate law
enforcement entity for prosecution."
Improper Transfer of Funds: The use of the Public Protection
Fund to secure the loan on the L.A. building, described above,
is part of a larger pattern in which the Bar transfers money
between its various funds and uses the money on unrelated items,
according to the State Auditor. The Auditor found that, from
2009 through 2012, the Bar made approximately 50 transfers
between funds involving over $64 million. (Id. at 13.)
In order to help shore up the Client Security Fund, the Bar
transferred funds from the Attorney Diversion and Assistance
Program (also known as the Lawyer Assistance Program or LAP)
this year to the Client Security Fund. While that may have
seemed like a reasonable decision given that the Client Security
Fund is severely underfunded and the Bar believes that the LAP
is overfunded, it appears that the transfer may have violated
the law. Attorneys are statutorily required to pay specific
dues to support the LAP: $10 per active member and $5 per
inactive member. (Section 6140.9.) The statute is clear --
those dues specifically cannot be moved to the Bar's general
fund unless funds are obtained from alternative sources to
support LAP and at least the minimum required dues ($10 or $5
per member) each year are used to support the LAP. Legislative
Counsel confirms the clear reading of the statute. (Legislative
Counsel, State Bar of California: Membership Fees: Attorney
Diversion and Assistance Program #1610845 (June 1, 2016).)
Thus, the Bar's moving of funds from the LAP could well have
violated the law. If the LAP is overfunded, it may well be more
appropriate to reduce the dues that fund the LAP.
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Firing of Executive Director and Ensuing Litigation/Arbitration:
In November 2014, the State Bar terminated its then-executive
director, Joe Dunn. In response to that termination, the
executive director filed suit against the State Bar, alleging
whistleblower status and charging the bar with engaging in
"egregious" fiscal improprieties. Bar officials reportedly
responded with accusations against him, including criticism of
his lavish expense accounts.
After spending months litigating the matter, the court ordered
the parties to arbitrate their dispute, as required in the
executive director's employment contract. The arbitration,
which has apparently been open to the public, included release
of the $359,000 internal investigation of the former executive
director in 2014, which concluded that although "certain other
deficiencies in Dunn's performance would warrant counseling or
reprimand only (such as his inattention to proper allocation of
expenses between mandatory and voluntary fees), Dunn's repeated
failure to provide adequate or truthful information to the Board
plainly provides an adequate basis to terminate his at will
employment." (Mark Helm and Bart Williams, Independent
Investigation for the State Bar of California: Summary of
Findings and Recommendations, p. 27-28 (Munger Tolles Report).)
That arbitration is proceeding.
Additional Firings and Ensuing Litigation: In and around the
time of the firing of the executive director, the Bar also fired
its general counsel, who was hired by the executive director, as
well as the Bar's chief financial officer, and an administrative
specialist, who brought a $15 million wrongful termination suit
against the Bar this past February. At roughly the same time,
the Bar laid off its public information officer. On February
25, 2016, the Public Employment Relations Board issued a
complaint against the Bar for that termination, alleging the Bar
fired the public information officer as retaliation for his
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filing a grievance against the organization. This past winter,
the Bar fired its managing director of investigations after he
filed a whistleblower complaint against the Chief Trial Counsel.
While it is difficult to determine what precisely occurred in
each of these cases and whether any of the firings were
justified, the number and frequency of these incidents raises
concern about management at the State Bar. And according to
media reports as of six months ago, the State Bar had spent over
$530,000 on attorney's fees for the wrongful termination
litigation of its former executive director and the others, of
which less than $400,000 was covered by insurance. (Lyle Moran,
State Bar spent $413K investigating Dunn, leak of report, Daily
Journal (Feb. 24, 2016).) It is reasonable to assume that those
figures have risen substantially since then.
Former Chief Trial Counsel Recently Resigned While Awaiting
Senate Confirmation: The Bar's former chief trial counsel,
Jayne Kim, has also been the subject of controversy. She filed
an internal complaint against the former-executive director,
which ultimately led to his firing. Last October, her
subordinate employees in the Office of Chief Trial Counsel,
members of SEIU, issued a 76 percent "no confidence" vote in her
leadership, alleging that she misled the Board, grossly
mismanaged her office, and failed to protect the public.
Despite that vote, the Board on December 21, 2016, at the
recommendation of current executive director Elizabeth Parker,
voted 14-1 to seek another term for the chief trial counsel,
although Ms. Parker did promise to address concerns regarding
her management style. She resigned in late April, while
awaiting a Senate confirmation hearing. Since then, the Bar has
hired, for $60,000, then let go, then re-hired a search firm,
the Hawkins Co., to engage in a search for a new chief trial
counsel.
Troubling Expenses Cause Bar to Finally Cut its Travel and
Catering Budget: This Committee has long raised concerns with
the Bar's expenses for travel, business expenses and other
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special allowances, when limited dues funds are required by law
to first and foremost support public protection and the
discipline system; non-dues funds could go to support woefully
underfunded legal services programs or potentially to reduce
mandatory bar dues. According to a media report from earlier
this year, likely based on a public records request, the Bar had
a number of questionable expenses and exercised limited
oversight of how Bar members' funds were spent:
In late January 2014, a group of six executives and trustees
from the State Bar of California embarked on a mission to
protect the public from unscrupulous lawyers-by traveling to
El Salvador.
While there, the bar president, the executive director and a
bar employee classified as a public information officer signed
an "accord" with the nation's foreign affairs minister
pledging to work together to educate Salvadorans living in
California about available legal resources. The two-page
agreement carried no legal weight; it's unclear if the
American signatories had any authority to sign an
international pact anyway.
Outside the signing ceremony, the trip was unremarkable-except
for the costs. Expenses for hotel rooms, airfare, meals, a
driver's services and cellphone bills submitted to the bar by
just four of the travelers-the only ones readily accessed
through the bar's convoluted accounting system-totaled more
than $6,600.
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This international trip was not an isolated occurrence.
Between 2013 and 2014, bar executives led by then-CEO Joe Dunn
and, occasionally, trustees submitted thousands of dollars in
expenses associated with trips to El Salvador, Mexico,
Guatemala, Nicaragua, Peru and Mongolia, according to
documents compiled by The Recorder.
The trips were paid out of bar funds. Just how much the costs
for these trips added up to is difficult to say. The bar does
not code expense reports by foreign trips, so determining who
went where when and for how much requires some guesswork and
manual calculations. For years, the bar refused to make
public such records, arguing that the quasi-judicial agency
was not subject to state sunshine-in-government laws. . . .
Hundreds of pages of bar records reveal numerous expenses and
activities that appear to have a tenuous connection to the
agency's mission of pursuing bad lawyers and protecting the
public-the California public, at least. (Cheryl Miller, Joe
Dunn, Bar Officials Spent Freely on Foreign Travel, The
Recorder (Jan. 25, 2016).)
More recently, the Bar asserts that it has begun to reduce
unnecessary spending. The 2016 budget reduces spending on
travel by 29 percent, from $3.4 million to $2.4 million, and on
catering by 24 percent, from $2.1 million to $1.6 million.
These line items were reduced because, according to chief
operating officer Leah Wilson, these "were areas of
'extraordinary costs' for the bar." (Lyle Moran, State bar cuts
annual budget by 6 percent, Daily Journal (Feb. 2, 2016).) It
is worth noting that, prior to seeking a financial audit by the
State Auditor last year, Committee staff had asked the Bar for,
among other things, information on Bar travel outside the
country and was informed (incorrectly, as is now clear) that the
only such trip was to Mongolia.
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Mistake on First Year Bar Exam. First year law students at
unaccredited law schools are required to pass a test - sometimes
referred to as the Baby Bar - in order to be able to apply to
take the regular Bar examination. Unfortunately, the most
recent first year exam, for which nearly 500 sat, contained an
essay (one of only four in the exam) that covered material not
generally taught in the first year of law school. It is unclear
how this mistake was made given an approval process for the test
that should have been very thorough. It appears that the
problem was rectified by eliminating that question from the
test, begging the question whether the Bar is spending
sufficient time and attention on it key regulatory functions
that include testing and licensing of prospective attorneys to
ensure their basic competence.
Clear Oversight Role for the Legislature: While the above
events and reported claims and allegations may not be fully
understood, enough is known about them to trigger legislative
and public concern about how the Bar is governed and overseen,
particularly given that public protection is required to be the
Bar's paramount duty. Nevertheless, at least one member of the
Board has remarkably and ironically questioned whether the
Legislature should have oversight over the Bar. According to
media reports, the Governance in the Public Interest Task Force
had asked to be provided with "any cases in other states
touching on the propriety of a Legislature setting licensing
fees for lawyers or reviewing the appointment of a chief trial
counsel." (Lyle Moran, State Bar panel may review legislative
oversight of agency, Daily Journal (Feb. 29, 2016).)
Even some in the Legislature have questioned what amount of
oversight is appropriate for the Legislature to exercise over
the State Bar. The analysis of this Committee's original Bar
dues bill, AB 2878, by the Senate Judiciary Committee seems to
suggest that the Legislature should defer its role of oversight
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to the Chief Justice.
Given that the Supreme Court has the authority over the
admission and practice of law in the State of California, it
is arguably appropriate that the Supreme Court take the
leading role in assessing how the State Bar, as its
administrative arm, is best structured and governed to support
adequate regulation of the legal profession, protection of the
public, and the effective administration of justice. In
recognition of the Supreme Court's primary authority over the
admission and practice of law and in deference to the Chief
Justice, the following amendment is suggested to remove the
Commission that would study governance and replace it with the
Chief Justice's language whereby the Special Master would
review issues of governance of the State Bar.
Despite the opinion of some that the Legislature should defer
its oversight authority to the Supreme Court, the Court itself
has long understood the Legislature's joint role in overseeing
and regulating the Bar, even though the Bar is located in the
judicial branch and under the direct oversight of the Supreme
Court. The Court has described the shared oversight role as
follows:
We long have recognized the Legislature's authority to adopt
measures regarding the practice of law. "[T]he power of the
legislature to impose reasonable regulations upon the practice
of the law has been recognized in this state almost from the
inception of statehood." "[T]his court has respected the
exercise by the Legislature, under the police power, of 'a
reasonable degree of regulation and control over the
profession and practice of law . . .' in this state. This
pragmatic approach is grounded in this court's recognition
that the separation of powers principle does not command 'a
hermetic sealing off of the three branches of Government from
one another.'" ("In the field of attorney-client conduct, we
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recognize that the judiciary and the Legislature are in some
sense partners in regulation.") (In re Attorney Discipline
System (1998) 19 Cal.4th 582, 602 (citation omitted).)
The Legislature has, for years, given the Bar the opportunity to
correct its longstanding and ongoing management and operational
difficulties itself; and the Supreme Court has been able to
provide the Bar with the needed guidance and direction
(including by appointing a special master) to ensure that
protection of the public is paramount in the licensing and
regulation of the state's attorneys. However, the failure of
both entities to reform the Bar leaves the Legislature little
option but to step in and make reforms necessary to ensure that
the Bar can fulfill its paramount duty to protect the public.
Bar Reports Submitted to the Legislature, Including the Two-Year
Overdue Governance in the Public Interest Task Force Report. As
required by last year's dues reauthorization legislation, SB 387
(Jackson), Chap. 537, Stats. 2015, the Bar completed four
operational reports this year. The Bar's Classification Study,
prepared for the Bar by CPS HR Consulting, reviewed all
positions in the State Bar, as well as the compensation for
those positions, and compared them to other state and local
agencies. The study found that the salaries for attorneys were
below market range, while non-attorney positions were above
market range. However, this study looked at only a limited
number of "comparable agencies," most very well-paying local
agencies and only added the Attorney General's office, which has
a pay scale well below the Bar's, on the strong recommendation
of the State Auditor. No similar professional regulatory
agencies were compared. The report looked at all staff, rather
than focusing on discipline staff, as the Legislature had
directed, but did not compare executive staff salaries and
benefits, which the State Auditor just found to be excessive.
The Workforce Planning Report, prepared for the Bar by the
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National Center for State Courts, looked at the Bar's discipline
system and overall operations. This report made some thoughtful
and helpful recommendations concerning operations and
reorganization, including recommending that the Bar should
operate as one organization rather than multiple departments;
expand overall communication to, from, and among staff; and
eliminate some of its senior management positions. It also set
forth a number of specific recommendations for each part of the
Bar's discipline system. However, while these may well be valid
recommendations, they fail to address the underlying governance
problems impacting the State Bar, including the Bar's ongoing
ability to adequately focus on discipline and public protection.
Even if all the recommendations were implemented, the Bar would
likely still not adequately prioritize and focus on public
protection.
The State Bar Backlog Report was a point in time review of the
Bar's handling of complaints and concluded that the Bar cannot
meet the legislative statutory goal for investigating all cases
within 6 months (although the legislative goal provides for an
additional 6 months for "complicated cases"). The report
determined that with current resources, the Bar could only meet
a 238- to 259-day investigation goal. An enhanced goal would
reduce that timeframe to 193- to 209-days, but would require
additional resources. The report failed to take into account
how changes in the Bar's investigation protocols could impact
the State Bar Court or other parts of the Bar and, while the
report considered possible factors for determining complex
cases, the report did not recommend such a definition, nor
discuss how developing such a definition might impact timeframes
and, more importantly, public protection. Moreover, while a
complex case may take more time, the report did not address the
need to prioritize cases based on public protection; obviously,
risk of harm to the public must be a key factor in prioritizing
cases.
The Spending Plan Report considered existing goals and spending
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and compared California dues to average of other states' dues
and concluded that dues need to be raised to provide timely and
adequate discipline. However, the report failed to assess
existing expenditures; rather it just assumed that the existing
costs were reasonable. The report failed to determine what
necessary operating costs are, and what programs are operating
effectively and efficiently today. Finally, the report failed
to analyze priorities, as legislatively required, or to
prioritize the Bar's functions that are necessary to protect the
public and failed to suggest any redirection of current funding
to ensure that the public protection mandate is met.
These four reports appear to address, in however a limited
fashion, the results of the Bar's governance problems. They do
not appear to address the root cause of the problems. Even if
all of the reports' recommendations were implemented, the
underlying cause of the problems - the Bar's structural
inadequacies and their impact on public protection - would not
be adequately addressed to ensure that the Bar is fully able to
protect the public from incapable or unscrupulous attorneys -
truly its paramount function.
Finally, just this month the Bar delivered its legislatively
required Governance in the Public Interest Task Force Report,
which was actually due to the Legislature in 2014. That report,
which contains both a majority and a minority report, began by
stating: "It is universally acknowledged that significant
changes are needed at the State Bar of California, an
institution now approaching its ninth decade. As both Majority
and Minority Task Force Reports emphasize, the problems at the
State Bar are not recent in origin: indeed, decades of studies,
reports and statutory provisions reflect efforts to reform the
State Bar, most with only modest impact." (State Bar Governance
Task Force, p. 1 (footnote omitted).) The majority Task Force
report goes so far as to list "nine fundamental operational
problems, . . . each with important implications for the
governance and structural issues" for the Bar:
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1. The Perception and Reality of An Ineffectively Managed
Discipline System
2. Inadequate Definitions of the Bar's "Public Protection"
Mission
3. Proliferation of Activities: Lack of Organizational
Coherence leading to "Mission Creep"
4. A Conflicting Hybrid Governance Structure
5. Confused Reporting Relationships Hindering
Accountability
6. Proliferation of Committees, Boards and Commissions and
Over Reliance on Volunteers
7. Restricted Separate Funding Sources, Creating Cultural
and Procedural Obstacles to Financial and Organizational
Management
8. Inadequate Development and Support for Human Resources
9. Inadequate Resources to Satisfy Statutory Backlog
Definitions (Ibid. at 3.)
The majority report raises - but does not address - a critical
and obvious question: "has the State Bar become unmanageable
because of structural conflicts, diversity of mission and
overreliance on a large number of independently operating
volunteers?" (Id.) The majority goes on to conclude the same
way it began, by recognizing its long-standing and fundamental
problems: "Since the mid 1970's . . ., the State Bar has also
been the subject of continuing criticism. Oft-repeated refrains
raise understandable concerns about past problems in a poorly
managed discipline system, lax financial management, and an
improper diversion of both human and monetary resources from the
State Bar's regulatory to its associational functions. These
issues appear in audits and reports dating back many years."
(Ibid. at 32.) However, while there is universal agreement on
the problems at the Bar, there is no universal agreement on the
solutions.
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The Task Force's majority members do recommend some governance
reforms, including some included in the bill, but left it for
others to determine what fundamental reforms are necessary. The
minority report appropriately complains that "while ably
describing [the Bar's] dysfunction and its causes, the
majority's desire to protect the structural status quo it so
effectively indicts makes its report nearly useless.
Accordingly, the minority is left with no recourse but to urge
the Legislature and the Supreme Court to stop the endless cycle
of Task Forces, studies, audits, crisis and critical media
coverage by gradually and deliberatively de-coupling the Bar's
regulatory and advocacy roles over several years, as well as
changing the Board governance structure." (Minority Report at
3.)
Can the Bar's Board of Trustees Continue to Oversee Attorneys
When the Vast Majority of Board Members Are Practicing
Attorneys? Under earlier governance reforms enacted by the
Legislature in 2011 in an effort to begin to address significant
concerns about the Bar's governance (SB 163 (Evans), Chap. 417,
Stats. 2011), the State Bar is governed by a Board, made up of
19 members, down from 23 in 2011 (though the Board President may
remain on the Board for one year after his or her term is
completed and be the 20th member, as is the case today), with a
substantial component of attorney members selected by the
Supreme Court. (Section 6010 et seq.) Under that legislation,
due to Bar insistence, the Legislature agreed to allow the Bar
to retain a supermajority majority of lawyer-members, or active
market participants, following assurances from the Bar that the
increased percentage of public members would completely address
prior Board governance problems. Thus, of the current 20
possible members, 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 two vacant public member seats,
both of which are gubernatorial appointees, so the Board is
currently composed of 18 members, 14 of whom are active members
of the State Bar and 4 of whom are public members.
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A recent U.S. Supreme Court case, which found that if a state
licensing board has a majority of members who are active market
participants then the board can only invoke antitrust immunity
if it is subject to active state supervision, has raised serious
questions about the Bar's immunity from federal antitrust laws.
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 the dental board
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
78 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.
To better understand if the Bar (and hence the State) might be
subject to antitrust liability in its current configuration,
this Committee asked Legislative Counsel for its opinion as to
the risk of liability after the North Carolina State Board of
Dental Examiners decision. Legislative Counsel opined that the
Bar is indeed controlled by active market participants and, if
the Bar is found to be in violation of antitrust laws by not
being actively supervised by state officials, the State would
generally be responsible for defending the Bar and paying any
judgments against the Bar or its employees (including not only
fines and treble damages, but also imprisonment for up to 10
years for individual board members). (Ops. Cal. Legis. Counsel,
No. 1602135, State Bar of California: State-Action Immunity, pp.
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5, 13 (April 18, 2016).) What is less clear is what is required
for "active state supervision." Legislative Counsel opines
"that a court would analyze the presence of active supervision
on a case-by-case basis . . . [I]t is our opinion that an
anticompetitive action of the State Bar would be actively
supervised by the state for purposes of state-action immunity if
the California Supreme Court retains strict supervisory powers
and ultimate full authority over the State Bar's actions by
laying out specific rules and serving as the ultimate decision
maker." (Id. at 9 (citations omitted).) Thus, as long as the
Bar's Board is controlled by active market participants, as it
is today, and not subject to active state supervision there will
be a significant risk that the State could be subject to
liability for the Board's actions.
It is important to note that the Bar's Office of General Counsel
has opined that the Bar is likely not subject to antitrust
liability because the Supreme Court has ultimate authority over
the Bar. While it is possible that a court will agree with the
Bar's interpretation of the North Carolina State Board of Dental
Examiners decision, it is also quite possible that a court will
determine that such "ultimate" authority is not the same as the
required active state supervision.
The Center for Public Interest Law (CPIL), which opposes this
bill, believes that the best course of action is for the Board
to be restructured in order to eliminate active market
participant control: "The simplest way to avoid antitrust
liability (and ensure the interest of the public is properly
considered)," wrote CPIL in an oppose unless amended letter to
AB 2878, "in light of North Carolina is to convert the Board of
Trustees' composition to a supermajority of public members, with
the added provision that no vote may be taken where those voting
are not public members in the majority." However, if the Board
is not restructured to eliminate the Board's active market
participant supermajority, CPIL writes that the Legislature must
establish true active state supervision, which does not exist
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today:
The term "active" is critical. It cannot be simply the
presence of a supervening entity. The fact there is a state
Supreme Court at the zenith of the organizational chart does
not provide compliance. . . .
At present, neither the California Supreme Court, nor any
other entity, provides the requisite independent and "active"
supervision for anticompetitive effect as required by North
Carolina. This Legislature should add to this bill the clear
authority of the California Supreme Court to engage in "active
state supervision" of the Bar, and any part of it controlled
by "active market participants" in the profession, as
commanded by the U.S. Supreme Court. That authority should
include the power and resources to fashion, in its own manner,
a system for filtering decisions to focus on those with
anticompetitive effect; and, for those, to examine their
substantive anticompetitive effect and alternatives, using
relevant economic, antitrust, and other expertise separate
from practicing attorneys.
This Bill Makes Significant Structural Reforms of the State Bar,
Continues and Adds Additional Needed Oversight and Maintains
Dues to the Current Level. This bill authorizes the State Bar
to collect active membership dues of up to $390 for 2017, the
same rate as this year. In addition, the bill makes significant
governance and operational reform of the Bar, including:
1) Defining the term "public protection" (something the
State Bar has been unable or unwilling to do in the last
five years) to be the core regulatory functions of the
State Bar - primarily, licensing and discipline of the
state's attorneys, but also supporting legal services for
low income Californians and diversity - thus ensuring that
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the Bar focuses its resources on those activities which are
the most important to provide the public with protection
from bad lawyers and access to justice.
2) Requiring greater oversight by the Board of Trustees to
ensure that the State Bar operates more like a state
regulatory agency and less like a law firm, including the
following:
a) Requiring Board approval for contracts of
goods or services over $50,000 or IT contracts above
$100,000;
b) Requiring the Board to adopt policies to
require its approval of contracts that could impact
the State Bar's ability to protect the public;
c) Eliminating the ability of the Bar to prevent
future Legislatures from reducing future membership
dues by securing all or any portion of an obligation
of the Bar on future dues;
d) Eliminating the Bar's ability to create
foundations or non-profit corporations as a means to
raise additional revenue.
3) Implementing Board reforms, including elimination of the
election of Board members by attorneys; elimination of the
supermajority of attorney members on the Board; extending
the length of Board member and officer terms to ensure more
experienced leadership and consistent oversight of staff;
encouraging the appointment of Board members with expertise
in issues of governance; and having the Chief Justice
appoint the Chair and Vice Chair to reduce law firm-like
"good old boy" politics.
4) Addressing the antitrust concerns raised in last year's
U.S. Supreme Court's decision in North Carolina State Board
of Dental Examiners v. Federal Trade Commission by
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requiring that the Supreme Court review any decision of the
State Bar that the Court determines to be anticompetitive
and specifically providing the Supreme Court the power to
veto or modify any such decision.
5) Requiring the Attorney General to appoint an enforcement
program monitor to monitor and evaluate the State Bar's
disciplinary system and help the State Bar prioritize
matters that most impact public protection.
6) Setting forth specific requirements for the handling of
unlawful practice of law complaints, including specific
timeframes for processing those complaints and requiring
those complaints to be forwarded to law enforcement to
ensure that these cases are never again left in a desk
drawer.
7) Requiring the State Bar to develop a plan for how to pay
claims of victims of attorney misconduct--specifically
fraud, embezzlement, and theft--from the Client Security
Fund, which is vastly underfunded and leaves victims
uncompensated for years.
8) Requiring the State Auditor to review the State Bar's
expenses, including executive salaries and benefits,
outside contracts and real estate holding, to determine the
appropriate and necessary expenses of the State Bar to
protect the public, appropriate amount of member dues, and
fair Section costs.
Given all of the oversight, governance and management concerns
that continue to be raised about the State Bar, as well as the
possibility of antitrust liability, can the Bar, even with the
significant reforms in this bill, effectively continue to be
both a government regulatory agency and a trade association?
Since its inception, the Bar has worn two hats -- regulatory
agency and professional trade association. California, like 31
other states, including Florida, Idaho, Louisiana, Michigan,
Mississippi and Texas, has a unified bar, which means that the
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State Bar is both the regulatory arm of the state, as well as a
mandatory 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. This
arrangement is unique among professions licensed by the State of
California. For all other professions, the government entity
regulates the profession and disciplines wayward practitioners,
while a private trade association provides education and
advocacy for members of the profession. (See for example,
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, generally including larger states such as
Colorado, Illinois, Massachusetts, Minnesota, New Jersey, New
York, Ohio and Pennsylvania, have non-unified bars. In those
states, attorneys are only required to join the regulatory arm
of the bar and not the trade association. These states have
private trade associations, but those associations are not
regulated by the state. Private bar associations are free to
govern themselves as they see fit and are not subject to
government oversight or transparency laws. Dues payments
required by unified bars are, typically, considerably higher
that dues payments required by non-unified bars. According to
data from the State Bar, approximately 52 percent of active,
resident attorneys are members of voluntary trade associations,
although there is a range (Colorado - 84%; Illinois - 47%;
Massachusetts - 25%; Minnesota - 61%; New Jersey - 44%; New York
- 43%; Ohio - 58%; and Pennsylvania - 57%). If California were
to have a voluntary bar and follow the average of the large
states listed above, nearly 100,000 California active members
would potentially join a voluntary bar association.
Several Bar Trustees, Most Notably two Legislative Appointees
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Are Publically Calling for De-Unification or De-Coupling as a
Solution to Long-Term, Structural Problems with the Bar: Three
current and one former Bar Board trustees wrote, in a support
letter for AB 2878, to request "substantial amendments to
address systemic weaknesses in bar governance." These trustees
(two of whom are legislative appointees to the Board) first note
that the Bar's current controversies are part of a "long history
of cyclical crisis, reform, neglect, and renewed crisis":
Nearly every Executive Director of the State Bar over the past
few decades has ended his or her service in controversy. Each
is replaced by a new leader, charged to be "a new sheriff in
town." A show of effort at change is made; the attention of
the press, bar and public turn elsewhere; and the Bar slides
back into mismanagement, failure to protect Californians, and
general dysfunction until a new controversy soon restarts the
cycle. This systemic dysfunction derives from the dual
mission of the Bar and its short-term, diffuse, volunteer
leadership.
The trustees go on to note that unlike "every other profession
in our State and unlike an apparent trend in sister states of
comparable size and diversity toward decoupling legal regulatory
and professional organizations, California attorneys have been
granted the privilege of self-regulation." That self-regulation
has resulted in allegations, according to the trustees, that
"the Bar more vigorously prosecutes attorneys with less money
and influence" which have "never been seriously addressed.
These tend to be solo practitioners, small-town lawyers, and
lawyers of color. The Bar can and should assure Californians
that the justice it dispenses is even-handed as well as
efficient."
These trustees state that their years of service reveal the
Board to be "a distracted regulator. It spends much of its
energy on professional association matters such as appointments
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of attorneys to positions of prestige, providing continuing
legal education in competition with voluntary bars and
for-profit providers while also regulating those providers,
conducting an annual conference that draws fewer attendees and
requires greater subsidy each year, publishing legal content,
selling insurance, etc. . . . Over the past two years, the
Board has spent far more time in closed session addressing
personnel, litigation and real estate issues than it has devoted
in open session to regulation."
The trustees argue that based on antitrust concerns after the
North Carolina case, California should follow several of the
largest states that have separate judicial branch regulation of
attorneys and "thriving voluntary State Bar Associations." They
argue that this will allow a statewide professional association
to advocate more effectively for a well-funded judiciary and for
legal services than "a state agency hemmed in by the most
conservative perspective on what and how it can advocate." They
further argue that Proposition 209's "prohibition on
state-funded affirmative action has hampered the Bar's ability
to advocate for diversity in the profession and for full and
fair access to justice for communities of color."
Their proposal involves a three-year process, led by the Bar,
with input from the Supreme Court and the Governor, to first
study the issue and determine which Bar functions "belong in
government and which can be more effectively performed by a
private entity" and then make recommendations to the Legislature
at the end of 2017 for 2018 restructuring legislation. These
proponents of restructure see the end result as creating "a more
effective regulator of legal services to Californians and a more
potent and less costly professional association for lawyers."
The trustee group's proposal is also supported by the Executive
Committee of the Business Law Section of the State Bar.
Other Bar sections vehemently disagree with separating the Bar
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and have voted overwhelmingly in support of the Bar remaining
unified. These sections argue that the geographic and practice
diversities of their statewide organizations provide for the
broadest and most objective possible representation that could
well be lost if the sections become part of a private trade
organization, particularly if over time membership drops. They
are concerned that the well-respected educational materials they
prepare and disperse would end up becoming glossy trade
magazines used more for marketing than educating other
professionals and the public on matters of significant. They
believe that remaining part of the regulatory agency allows them
to stay within their purview and be perceived by the Legislature
as unbiased and objective experts in their respective fields. A
trade association, they argue, would not have the clout that the
State Bar has today.
Does More Need to be Done in Order to Protect the Public? This
bill, as currently drafted, does not address all of the
significant and ongoing governance issues raised by the Bar's
dual functions as both a regulator of attorneys and a trade
association for the same group. There are some who argue that
larger reforms should be undertaken now to address - once and
for all - the governance failures of the Bar. One approach is
to add in the commission that was included in AB 2878 when it
successfully passed the floor to study the Bar's governance
issues and various restructuring options. Alternatively, the
commission could be turned into a special master panel that
would be very similar to the commission, except there would be
fewer members and they would all be required to be judges or
lawyers. Another option is to leave the Bar intact as a unified
Bar, but separate the board into two: one that focuses on the
Bar's primary regulatory public protection responsibilities and
one that focuses on the trade association functions that concern
the legal profession but do not involve government public
protection functions. Additionally, the board could be further
reformed so that practicing attorneys do not hold a majority of
the board positions, as was included in AB 2878 when it
successfully passed the Assembly floor. Alternatively, instead
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of non-attorneys having a majority, the board could be evenly
split with an additional seat being provided to a non-attorney
labor representative. These are but some of the options, short
of deunifying the State Bar, that might be considered to best
reform the Bar and protect the public from harm.
This Bill Does Not Increase the Bar's 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. 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 provides service are nevertheless turned away,
simply for lack of staff.
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. For example, interest on lawyer
trust accounts (IOLTA) has been the primary mechanism on which
the State has relied to fund legal aid programs, but with the
drop of bank interest rates to virtually zero since in the past
decade, legal aid programs can no longer rely on IOLTA funding
to help maintain their essential mission. Absent a substantial
increase in interest rates, which may be 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.
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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 sunsetted 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 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
Bar bill, does not provide any new funding for legal services
programs. However, this bill very appropriately and importantly
makes clear that providing access to legal services for poor
Californians is one of the key public protection functions of
the Bar.
It is hoped that going forward, and in addition to the very
significant $5 million increase in the Equal Access Fund that
the Legislature passed as part of this year's budget, 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 may be used for discretionary
expenses, including travel, catering, the annual meeting fund
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.
ARGUMENTS IN OPPOSITION: CPIL opposes this bill, arguing that
the bill, as now in print, fails to adequately reform the bar by
leaving in place the Bar board's majority of practicing
attorneys and does not eliminate the "problem of an
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intrinsically distracted regulator that, at every meeting,
allows the interests of lawyers to compete with the interests of
consumers."
REGISTERED SUPPORT / OPPOSITION:
Support
None on file
Opposition
Center for Public Interest Law
Analysis Prepared by:Leora Gershenzon / JUD. / (916)
319-2334