BILL ANALYSIS
AB 2426
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 2426 (Bradford)
As Amended June 29, 2010
Majority vote
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|ASSEMBLY: |76-0 |(May 13, 2010) |SENATE: |26-9 |(July 1, 2010) |
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Original Committee Reference: JUD.
SUMMARY : Requires "surrogacy facilitators" (persons who
facilitate agreements between intended parents and surrogates)
to direct clients to deposit all client funds in an escrow
account or attorney trust account. Specifically, this bill :
1)Requires a surrogacy facilitator, as defined, who is not a
licensed attorney in good standing, to direct clients to
deposit all client funds into either of the following: in
either an independent, bonded escrow account, or a trust
account maintained by an attorney. Specifies that the
non-attorney surrogacy facilitator shall not have a financial
interest, as specified, in an escrow company holding client
funds.
2)Provides that client funds, as deposited above, may be
disbursed by the attorney or escrow agent as set forth in the
assisted reproduction agreement and the fund management
agreement entered into by the parties. Defines "fund
management agreement" to mean the agreement between the
intended parents and the surrogacy facilitator relating to the
fee or other valuable consideration for services rendered or
that will be rendered by the surrogacy facilitator.
3)Defines "surrogacy facilitator" to mean a person or
organization that engages in either of the following
activities: a) advertising for the purpose of soliciting
parties to an assisted reproduction agreement or acting as an
intermediary between the parties to an assisted agreement; or,
b) charging a fee or other valuable consideration for services
rendered relating to an assisted reproduction agreement.
4)Specifies that the provisions of this bill shall not apply to
funds that are not provided for in the fund management
agreement and are paid directly to a doctor or psychologist
AB 2426
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for medical or psychological services.
The Senate amendments specify that a non-attorney surrogacy
facilitator shall not have a financial interest in the escrow
company used to deposit client funds.
AS PASSED BY THE ASSEMBLY , this bill was substantially similar
to the version approved by the Senate.
FISCAL EFFECT : None
COMMENTS : With this bill the author intends to bring a measure
of regulation to an expanding business that is currently almost
entirely unregulated: "surrogacy agencies" that facilitate
agreements between hopeful parents-to-be and the surrogates who
assist those parents in realizing their hopes. In the last year
there have been a number of reported incidents in California
(and elsewhere) of so-called "surrogacy scams." The typical
scenario involves a person or agency promising to locate a
surrogate for a couple who desperately want a
genetically-related child. The surrogacy agent also promises to
make all necessary medical and legal arrangements. The usual
charge for this service appears to range from about $40,000 to
$80,000. Clients are usually asked to pay all or some
substantial portion of the money up front in order to allow the
facilitator to pay for and arrange the necessary services.
Unfortunately, there have been cases in which a person puts up
this money and then never sees the surrogacy facilitator again.
Couples and surrogates who are left in the lurch have legal
remedies, such as actions for fraud or breach of contract, but
only assuming they can locate the facilitator.
This bill does not expand, diminish, or alter any existing cause
of action; rather, it would arguably lessen the need for such
actions by requiring that client funds be deposited for
safekeeping in an escrow or attorney's trust account. All of
the reports cited in the author's background material, and
others reviewed by the Committee, indicate that most if not all
of the scams have involved the deposit that would-be parents
paid the surrogacy agency or person claiming to be a surrogacy
facilitator. The author, therefore, quite reasonably believes
that requiring the deposits to be placed in a bonded escrow
account or in a trust account maintained by a licensed attorney
will offer much greater protection to consumers.
AB 2426
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This bill would only apply to surrogacy facilitators who are not
licensed attorneys. Licensed attorneys, of course, are already
required by the Rules of Professional Conduct to deposit client
funds in a trust account for the client's benefit and kept
strictly separate from the attorney's own funds. (California
State Bar Rules of Professional Conduct, Rule 4-100.)
This bill does not provide any penalty, criminal or civil, for
failure to comply with its provisions. However, in cases where
a facilitator receives and absconds with the client's funds, the
client would still have available all existing remedies at law,
such as fraud or breach of contract. This bill, ideally, will
lessen the need for such actions by adequately protecting the
funds and preventing the wrongdoing in the first place.
According to the author, "surrogacy agencies are perhaps the
least regulated multi-billion industry in California. As a
result, southern California is thought to be the center of the
surrogacy industry because the state's laws are favorable to
parents who want to use surrogates." The author additionally
notes that persons practicing in this area are not licensed or
regulated, and the past few years have seen several reports of
abuse - most notably cases of surrogacy agents who take money in
advance from the client, ostensibly to pay for the surrogacy and
related medical expenses, and then either disappear or are
unable to account for client funds. As such, the author
believes, "it is important that agencies place unearned funds
into an independent, bonded escrow account . . . [or] an
attorney trust account to store client funds." The author notes
that both escrow accounts and attorney trust accounts are
regulated in a manner that will ensure that client funds are
adequately protected.
Analysis Prepared by : Thomas Clark / JUD. / (916) 319-2334
FN: 0005133