BILL ANALYSIS �
AB 2570
Page 1
Date of Hearing: April 24, 2012
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Mary Hayashi, Chair
AB 2570 (Hill) - As Introduced: February 24, 2012
SUBJECT : Licensees: settlement agreements.
SUMMARY : Prohibits licensees of any board, bureau or program
under the Department of Consumer Affairs (DCA) from including
any "regulatory gag clause" in civil settlement agreements.
Specifically, this bill :
1)Provides that no licensee who is regulated by a board, bureau,
or program within DCA, nor an entity or person acting as an
authorized agent of a licensee, shall include or permit to be
included a provision in an agreement to settle a civil
dispute, whether the agreement is made before or after the
commencement of a civil action, that prohibits the other party
in that dispute from contacting, filing a complaint with, or
cooperating with the DCA, board, bureau, or program or that
requires the other party to withdraw a complaint from the DCA,
board, bureau, or program.
2)Provides that a provision of the nature as described above is
void as against public policy, and any licensee who includes
or permits to be included a provision of that nature in a
settlement agreement is subject to disciplinary action by the
board, bureau, or program.
3)Provides that any board, bureau, or program within the DCA
that takes disciplinary action against a licensee or licensees
based on a complaint or report that has also been the subject
of a civil action and that has been settled for monetary
damages providing for full and final satisfaction of the
parties may not require its licensee or licensees to pay any
additional sums to the benefit of any plaintiff in the civil
action.
4)Specifies that the term "board" means the board in which the
administration of the above provisions are vested, and unless
otherwise expressly provided, shall include bureau,
commission, committee, department, division, examining
committee, program, and agency, and specifies that "license"
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means license, certificate, registration, or other means to
engage in a business or profession.
EXISTING LAW
1)Establishes DCA, which oversees more than 40 boards, bureaus,
committees, commissions and other programs that regulate more
than 100 businesses and 200 professional categories, including
doctors, nurses, dentists, engineers, architects, contractors,
cosmetologists and automotive repair facilities, and other
diverse industries. These regulatory entities establish
minimum qualifications and levels of competency for licensure.
They also license, register, or certify practitioners,
investigate complaints, and discipline violators.
2)Establishes the Office of the Attorney General (AG) for the
prosecution of cases against licensees of DCA's regulatory
boards and bureaus.
3)Establishes the Office of Administrative Hearings, charged
with hearing administrative law cases pursuant to the
Administrative Procedures Act, brought by the AG's Office on
behalf of DCA's regulatory boards and bureaus.
4)Establishes the Medical Board of California (MBC) within DCA
to regulate and license physicians and surgeons and certain
allied health care professionals, as specified.
5)Prohibits a physician and surgeon from including, or
permitting to include the following in a civil dispute
settlement agreement: a provision that prohibits another party
to the dispute from contacting or cooperating with the MBC; a
provision that prohibits another party to the dispute from
filing a complaint with the MBC; and, a provision that
requires another party to the dispute to withdraw a complaint
he or she has filed with the MBC. States that such provisions
are void as against public policy and that their violation is
subject to disciplinary action by the MBC.
6)Provides that it is a cause for suspension, disbarment, or
other discipline for an attorney to agree or seek agreement
that the professional misconduct or the terms of a settlement
of a claim for professional misconduct is not to be reported
to the State Bar, or to agree or seek agreement that the
plaintiff shall withdraw a disciplinary complaint or not
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cooperate with an investigation or prosecution conducted by
the State Bar. These provisions apply to an attorney who is a
party or who is acting as an attorney for a party.
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of this bill . According to the author, "Regulatory gag
clauses inhibit the ability of regulatory agencies to
comprehensively and conscientiously perform their oversight
function. The regulatory boards of the DCA cannot adequately
'protect consumers from unscrupulous and unqualified
individuals' (quote from the DCA website) if they are unable to
communicate with individuals filing complaints or who have been
victimized. Furthermore, pressuring aggrieved consumers and
injured parties into agreeing to such clauses enables
potentially dangerous licensees to continue operating.
"Settlement agreements are an important and valuable mechanism
for parties to willingly resolve differences. However, the
inclusion of gag clauses into settlement agreements allows a
perilous veil of secrecy to envelop licensees. Denying
regulators the ability to exercise their disciplinary discretion
not only allows the conduct to continue, but potentially
endangers future consumers."
Background . A regulatory gag clause requires a plaintiff to
agree, as a condition of a malpractice or misconduct settlement
with the licensee, to the inclusion of a provision prohibiting
the plaintiff from contacting or cooperating with the
defendant's regulator (or requiring the plaintiff to withdraw a
pending complaint before that regulator).
Statutory precedents exist for banning gag clauses. Existing
law bans the use of regulatory gag clauses by attorneys.
Lawyers licensed by the State Bar may be disciplined if they
attempt to stop the reporting of misconduct or a related
settlement, force withdrawal of a complaint, force withdrawal of
cooperation with the State Bar, or seal the record of a civil
action to preclude regulatory review.
Existing law also prohibits a physician or surgeon from
including, or permitting to be included, a provision within a
civil settlement that prohibits another party to the dispute
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from contacting, cooperating, filing a complaint, or requiring
the withdrawal of a complaint, with MBC.
Legal precedents also exist for banning gag clauses. At least
three court cases demonstrate a compelling public interest in
voiding regulatory gag clauses so that the regulator can best
protect the public from harm. The most important of these is
the Cariveau v. Halferty decision from August of 2000. In it,
the Appeals Court held that a securities broker cannot prohibit
customers from reporting misconduct to regulatory authorities by
including a "confidentiality clause" prohibiting the plaintiff
from contacting the defendant's regulator in a civil settlement
agreement. The Court wrote:
"The only interest appellant identifies in support of the
contract term is the general public policy in favor of
promoting the settlement of disputes. Refusing to enforce
the confidentiality clause does not affect the settlement
of the dispute, but merely declines assistance to �the
agent's] concealment of her wrongdoing. The inclusion of a
restrictive confidentiality clause in the Forbearance
Agreement is not only directly connected to �the agent's]
misconduct, but is an instance of misconduct in itself. To
countenance this agreement would encourage future violators
to hide their misdeeds in a secret agreement free from the
light of regulatory scrutiny."
The second case is a 1998 Superior Court case: Medical Board of
California v. Dr. Udani. In this case, a physician who had
entered into a confidential malpractice settlement with a
patient tried to forbid MBC from accessing information on the
case. The court voided the confidentiality agreement, writing:
"First, it runs counter to the public policy of openness of
judicial proceedings. Second, and perhaps more important,
the Medical Board has a high responsibility to protect the
public against errant physicians, to keep the public
informed when there are problems with physicians, and to
investigate and discipline physicians when appropriate.
This secret settlement runs counter to this overriding
public policy."
The third case is known as the Mary R. decision (Mary R. v. B&R
Corporation) from November 1983. In it, the Appeals Court
struck down a gag clause and sealed court records in a case
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where a physician had molested a minor. The Court wrote:
"The stipulated order of confidentiality is contrary to
public policy, contrary to the ideal that full and
impartial justice shall be secured in every matter and
designed to secrete the evidence in the case from the very
public agency charged with the responsibility of policing
the medical profession. We believe it clearly improper to
subvert public policy by shielding the doctor from
governmental investigation designed to protect the public
from misconduct within the medical profession similar to an
agreement to conceal judicial proceedings and to obstruct
justice."
This case law precedence suggests that regulatory gag clauses
are already illegal even though not explicitly prohibited by
statute. However, it appears gag clauses can be voided only
through legal action, costing investigators additional time and
expense even if a victim agrees to cooperate. Furthermore, that
action could be taken only if the regulator finds out about the
case through a third party.
This bill extends prohibitions against regulatory gag clauses to
all DCA licensees. This bill also authorizes the appropriate
board or bureau to discipline a licensee who was a party to such
an agreement. The form and degree of discipline would be
determined by the individual regulatory agency.
This bill also provides that a professional licensee who is
subject to a disciplinary action by their regulatory entity
based on a complaint or report that has also been the subject of
a civil action, which has been settled for monetary damages
providing for full and final satisfaction of the parties, will
not be required by their regulatory entity to pay any additional
sums to the benefit of any plaintiff in the civil action.
This bill applies to all of the licensed professions and
vocations under the DCA, which contains more than 40 boards,
bureaus, commissions and divisions, most of which oversee
licensed professions such as physicians, accountants,
contractors, professional engineers, nurses, and counselors.
A regulatory gag clause is not to be confused with secret
settlements, which are agreements that make certain types of
information in a settlement agreement confidential and preclude
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that information from being introduced as evidence in a court
action. Prohibiting regulatory gag clauses does not prohibit,
or affect, the ability of parties to a civil action to agree to
a secret settlement, regardless of whether or not either party
is required to hold a professional license issued by DCA.
Prohibiting regulatory gag clauses merely prohibits
professionals licensed by DCA from hiding activities related to
their license from DCA. They will still enjoy whatever benefits
and privileges are available to them through the use of secret
settlements
Support . The Center for Public Interest Law writes, "Regulatory
agencies cannot protect the public from licensees who are repeat
offenders if the agencies are deprived of information about the
misconduct of those licensees. However, agencies are routinely
deprived of that information through the use of so-called
"regulatory gag clauses" in civil settlement
agreements?Regulatory gag clauses cause many serious problems -
both for the agency that is being deprived of information about
its own licensees?and for the unsuspecting consumer who
continues to be exposed to unscrupulous and/or incompetent state
licensees because their regulators cannot take appropriate
disciplinary action against them - the very antithesis of the
purpose of regulatory agencies.
"AB 2570 replicates a 26-year-old statutory precedent applicable
to attorneys and a six-year-old statutory precedent applicable
to physicians. It also codifies strong judicial precedents
already applicable to teachers, physicians, and investment
advisors. Regrettably, these existing precedents have done
nothing to deter other regulated professionals from demanding
agreement to gag clauses - thus requiring piecemeal and
duplicative litigation to invalidate them. The ability of
regulated professionals to insist upon clauses secreting
information about their own misconduct from their own regulators
actually promotes an irresponsible business model and encourages
serial wrongdoing by repeat offenders who can: (1) cheat or
injure consumers, (2) settle with the few who are willing and
able to sue, (3) silence them through a gag clause, and (4)
repeat the misconduct again and again and again - with the
regulator never the wiser."
Opposition . The California Board of Accountancy (CBA) states,
"The CBA is opposed to the limitation on its disciplinary
discretion. The CBA considers all available information when
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imposing discipline on a licensee including any civil suit
settlement. In addition, the CBA opposes the gag clause as it
may deter settlements that would benefit consumers and cost them
money in litigation expenses."
Related legislation . AB 2149 (Butler) prohibits gag clauses in
civil settlement agreements involving elder or dependent adult
abuse that prevent contact with a county adult protective
services agency, the local law enforcement agency, the long-term
care ombudsman, the California Department of Aging, the
Department of Justice, or the Licensing and Certification
Division of the State Department of Public Health. This bill
was held in Assembly Judiciary Committee.
Previous legislation .
SB 544 (Price) of 2011 prohibits, among other provisions,
licensees of DCA healing arts boards from including gag clauses
in civil settlement agreements. This bill was held in Senate
Business, Professions and Economic Development Committee.
SB 1111 (Negrete McLeod) of 2010 prohibits, among other
provisions, licensees of DCA healing arts boards from including
gag clauses in civil settlement agreements. This bill was held
in Senate Business, Professions and Economic Development
Committee.
AB 249 (Eng) of 2007 prohibits licensees of DCA healing arts
boards from including gag clauses in civil settlement
agreements. This bill was vetoed with the following message (in
part): "I have previously vetoed similar legislation because of
the negative effect it would have had on the California economy.
This bill erodes the ability to do business in California by
creating more uncertainty regarding litigation?When parties who
are in dispute agree to settle, there should be some assurances
that the dispute has been resolved in a satisfactory and final
manner for both parties."
AB 2260 (Negrete McLeod), Chapter 565, Statutes of 2006,
prohibits physicians and surgeons licensed by MBC from including
a regulatory gag clause in a civil settlement agreement.
AB 446 (Negrete McLeod) of 2005 prohibits all DCA licensed
professionals from including a regulatory gag clause in a civil
settlement. This bill was vetoed with a veto message nearly
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identical to the one issued for AB 249 (Eng) of 2007.
AB 320 (Correa) of 2004 prohibits all DCA licensed professionals
from including a regulatory gag clause in a civil settlement.
This bill was vetoed with the following message (in part): "When
parties who are in dispute agree to settle, there should be some
assurances that the dispute has been resolved in a satisfactory
and final manner for both parties. Often settlements are
reached when the cost of settlement is less than the cost of
defense even if a party believes they have not erred, it often
makes economic sense to settle. Under this bill a party who
agrees to a civil settlement, could still file a complaint with
a regulatory agency subjecting the licensee to double jeopardy.
Even after the resolution of a civil suit, this bill could still
require a licensee to a second adjudication before a regulatory
body. The policy implications of this bill does (sic) not
further the goal of making California more business friendly..."
REGISTERED SUPPORT / OPPOSITION :
Support
Center for Public Interest Law
Opposition
California Chamber of Commerce
Civil Justice Association of California
American Council of Engineering Companies, California
California Board of Accountancy
Analysis Prepared by : Angela Mapp / B.,P. & C.P. / (916)
319-3301