BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2009-2010 Regular Session
AB 2426 (Bradford)
As Amended May 10, 2010
Hearing Date: June 22, 2010
Fiscal: No
Urgency: No
SK:jd
SUBJECT
Surrogacy Facilitators
DESCRIPTION
This bill would regulate nonattorney surrogacy facilitators by
requiring them to direct a client to deposit all client funds
into either an independent, bonded escrow account or a trust
account maintained by an attorney. Under the bill, those funds
could only be disbursed by the attorney or escrow agent as
provided in the agreements between the parties.
BACKGROUND
Under existing law, surrogacy facilitators are not licensed or
regulated. Although there are very few statistics on surrogacy,
the U.S. Centers for Disease Control and Prevention tracks
births by gestational surrogates (where the surrogate is not
biologically related to the child). From 2001 to 2006, the
number of gestational surrogates doubled to 1,042, nationwide.
Couples unable to have children on their own are increasingly
turning to surrogate mothers. This increase in the use of
surrogates has led to a growth in surrogate brokers who promise
to match a couple with a surrogate mother. Prospective parents
often pay large fees to surrogacy facilitators to help them in
their desire to have a baby. These fees, which appear to range
from $40,000 to more than $100,000, are intended to cover the
facilitator's services in matching families and surrogates, as
well as the surrogate's medical bills, prescriptions, and legal
arrangements.
Recent reports indicate that, unfortunately, some surrogacy
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facilitators are engaged in surrogacy scams in which they
collect funds from a client, but never pass along those payments
to the surrogate, as promised. In one case, a company called
SurroGenesis, based in Modesto, stopped making payments to
surrogates and closed operations. The president of the company
is alleged to have stolen as much as $2 million from clients.
Some couples lost nearly $90,000 that they had put in an escrow
account with an escrow company that was supposed to be
safeguarding the clients' money. Instead, the president of
SurroGenesis was listed as the registered agent for the escrow
company, which was supposed to be independent and bonded. As a
result, several pregnant surrogates did not receive payments to
cover expenses or, in the case of one surrogate who was confined
to bed rest, lost wages. That surrogate apparently received an
eviction notice because of the financial situation. In another
case, a Sacramento-area woman was charged with 19 counts of
grand theft for stealing tens of thousands of dollars from
hopeful parents.
Under existing law, would-be parents and surrogates may be able
to bring an action against a surrogacy facilitator engaged in a
scam for fraud, breach of contract, misrepresentation, or
similar causes of action. These actions may be limited,
however, if the facilitator cannot be located or is
judgment-proof. As a result, this bill focuses on the front end
of the process, attempting to address this growing industry and
guard against abuses by requiring nonattorney surrogacy
facilitators to direct a client to deposit all client funds into
either an independent, bonded escrow account or a trust account
maintained by an attorney. Those funds cannot be accessed
directly by a surrogacy facilitator, and instead may only be
disbursed by the attorney or escrow agent as provided in the
agreements between the parties.
CHANGES TO EXISTING LAW
Existing law does not license or regulate the practice of
surrogacy facilitators.
Existing law defines "assisted reproduction" as conception by
any means other than sexual intercourse and "assisted
reproduction agreement" as a written contract that includes a
person who intends to be the legal parent of a child or children
born through assisted reproduction and that defines the terms of
the relationship between the parties to the contract. (Fam.
Code Sec. 7606.)
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Existing Rules of Professional Conduct require attorneys to
deposit client funds in a trust account for the client's benefit
and keep the funds separate from the attorney's own funds.
(California Rules of Professional Conduct, Rule 4-100.)
This bill would require a nonattorney surrogacy facilitator to
direct a client to deposit all client funds into either an
independent, bonded escrow account or a trust account maintained
by an attorney.
This bill would provide that the funds deposited in the escrow
or trust account may only be disbursed by the attorney or escrow
agent as provided in the assisted reproduction agreement and
fund management agreement.
This bill would not apply to funds that are both: (1) paid
directly to a medical doctor for medical services or a
psychologist for psychological services; and (2) are not
provided for in the fund management agreement.
This bill would define a "surrogacy facilitator" as a person or
organization that engages in advertising for the purpose of
soliciting parties to an assisted reproduction agreement or
acting as an intermediary between those parties. Surrogacy
facilitator would also include a person or organization that
charges a fee or other valuable consideration for services
rendered regarding an assisted reproduction agreement.
This bill would provide that a "nonattorney surrogacy
facilitator" is a surrogacy facilitator who is not licensed to
practice law in California.
This bill would specify that "assisted reproduction agreement"
has the same meaning as defined in Family Code Section 7606(b)
and would define "fund management agreement" as the agreement
between the intended parents and the surrogacy facilitator
relating to the fee or other valuable consideration for services
rendered by the surrogacy facilitator.
COMMENT
1. Stated need for the bill
The author writes:
Over the past few years, there have been many incidences in
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which a surrogacy agency suddenly closes its doors and
embezzles millions of dollars from their clients. Just last
year, the Los Angeles Times reported that a Modesto-based
surrogacy practitioner who suddenly and unexpectedly closed
its doors, failed to account for more than $2 million in its
customers' funds. When this type of embezzlement occurs,
surrogates are left mid-pregnancy and some clients who have
handed over their life's savings in pursuit of a genetically
related child are left without recourse.
It is important that agencies place unearned funds into an
independent, bonded escrow account because in order for a
company to be licensed as an escrow company in California,
they have to prove they have five years of actual escrow
experience, demonstrate a minimum level of financial strength
(CA requires that the company have $50,000 in liquid assets),
submit to a background check by the state, purchase one or
more Bonds (to cover such things a misappropriation of trust
funds), and go through an application process.
Non-attorney facilitators should be allowed to use an attorney
trust account to store client funds. . . . The accounts are
regulated by the State, and the attorney is accountable to the
State Bar for every penny held in trust. The attorney can be
disciplined for the slightest oversight, including the
suspension or loss of the attorney's license to practice law.
The interest earned on the account goes to the State Bar in
which they practice, so they are not gaining interest on the
funds they hold, and there is no financial advantage to
holding your funds for longer than necessary. The State Bar
also mandates the type of bank in which the funds can be held,
and the amount of insurance that must be provided by the bank.
2. Bill would restrict nonattorney surrogacy facilitators' access
to client funds
This bill would require a nonattorney surrogacy facilitator, as
defined, to direct his or her client to deposit all client funds
into a trust account maintained by an attorney or an independent
bonded escrow account. The surrogacy facilitator would not be
able to access the funds directly. Instead, client funds could
be disbursed by the attorney or the escrow agent pursuant to the
assisted reproduction agreement and the fund management
agreement.
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This provision is intended to provide a measure of safekeeping
by directing that client funds be deposited into either a bonded
escrow account or a trust account maintained by an attorney and
strictly restricting the use and disbursement of those funds.
Because surrogacy facilitators would not be able to access the
funds until they had been disbursed by the attorney or escrow
agent as agreed upon, the author is hopeful that this bill will
help to reduce incidences like those described above in which
surrogates and intended parents were harmed.
The SurroGenesis case, in particular, is especially troubling
because the president of that company was also listed as the
registered agent for the escrow company that held the funds of
many of SurroGenesis' clients who were apparently referred to
the escrow company by SurroGenesis. While the escrow company
was supposed to be independent and bonded, it clearly was not
truly "independent" from the surrogacy agency. In order to
ensure that the escrow companies used by clients of surrogacy
facilitators are truly separate from the facilitator, the author
has agreed to amend the bill as follows:
Suggested amendments :
On page 2, line 26 after "depository" insert "maintained by a
licensed, independent, bonded escrow company"
On page 2, between lines 27 and 28, insert "(b) For purposes
of this section, a nonattorney surrogacy facilitator may not
have a financial interest in any escrow company holding client
funds. A nonattorney surrogacy facilitator and any of its
directors or employees shall not be an agent of any escrow
company holding client funds. "
On page 2, line 28, after "may" add "only"
3. Bill applies only to surrogacy facilitators who are not
licensed attorneys
This bill's requirement that a nonattorney surrogacy facilitator
direct his or her client to deposit all client funds into a
trust account maintained by an attorney or an independent bonded
escrow account would not be imposed on licensed attorneys who
are acting as surrogacy facilitators. Those attorneys must
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already comply with the strict requirements imposed under the
Rules of Professional Conduct which require attorneys to deposit
client funds in a trust account for the client's benefit and
keep the funds separate from the attorney's own funds.
Attorneys must also maintain complete records of all client
funds and retain those records for at least five years after the
distribution of the funds.
Support : None Known
Opposition : None Known
HISTORY
Source : Author
Related Pending Legislation : None Known
Prior Legislation : None Known
Prior Vote :
Assembly Judiciary Committee (Ayes 10, Noes 0)
Assembly Floor (Ayes 76, Noes 0)
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