BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 2426|
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THIRD READING
Bill No: AB 2426
Author: Bradford (D)
Amended: 6/29/10 in Senate
Vote: 21
SENATE JUDICIARY COMMITTEE : 3-1, 6/22/10
AYES: Corbett, Hancock, Leno
NOES: Harman
NO VOTE RECORDED: Walters
ASSEMBLY FLOOR : 76-0, 5/13/10 (Consent) - See last page
for vote
SUBJECT : Surrogacy facilitators
SOURCE : Author
DIGEST : This bill regulates nonattorney surrogacy
facilitators by requiring them to direct a client to
deposit all client funds into either an independent, bonded
escrow account, as specified, or a trust account maintained
by an attorney. This bill provides that those funds could
only be disbursed by the attorney or escrow agent as
provide in the agreements between the parties.
ANALYSIS : 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
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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. (Family Code Section 7606.)
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 requires a nonattorney surrogacy facilitator to
direct a client to deposit all client funds into either an
independent, bonded escrow deposition maintained by a
licensed independent bonded escrow company or a trust
account maintained by an attorney.
This bill provides 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 does 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 defines 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 specifies that for purposes of this bills
provisions, 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.
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This bill provides that a "nonattorney surrogacy
facilitator" is a surrogacy facilitator who is not licensed
to practice law in California.
This bill specifies 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.
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
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,
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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.
Comments
The author writes, "Over the past few years, there have
been many incidences in 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
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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."
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Anderson, Arambula, Bass, Beall, Bill
Berryhill, Tom Berryhill, Blakeslee, Block, Blumenfield,
Bradford, Brownley, Buchanan, Charles Calderon, Carter,
Chesbro, Conway, Cook, Coto, Davis, De La Torre, De Leon,
DeVore, Emmerson, Eng, Evans, Feuer, Fletcher, Fong,
Fuentes, Fuller, Furutani, Gaines, Galgiani, Garrick,
Gilmore, Hagman, Hall, Harkey, Hayashi, Hernandez, Hill,
Huber, Huffman, Jeffries, Jones, Knight, Lieu, Logue,
Bonnie Lowenthal, Ma, Mendoza, Miller, Monning, Nava,
Nestande, Niello, Nielsen, V. Manuel Perez, Portantino,
Ruskin, Salas, Saldana, Silva, Smyth, Solorio, Audra
Strickland, Swanson, Torlakson, Torres, Torrico, Tran,
Villines, Yamada, John A. Perez
NO VOTE RECORDED: Caballero, Norby, Skinner, Vacancy
RJG:do 6/30/10 Senate Floor Analyses
SUPPORT/OPPOSITION: NONE RECEIVED
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