BILL ANALYSIS �
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|Hearing Date:June 18, 2012 |Bill No:AB |
| |2570 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Curren D. Price, Jr., Chair
Bill No: AB 2570Author:Hill
As Introduced: February 24, 2012Fiscal: Yes
SUBJECT: Licensees: settlement agreements.
SUMMARY: Prohibits licensees of any board, bureau or program under
the Department of Consumer Affairs from including any "regulatory gag
clause" in civil settlement agreements.
Existing law:
1) Establishes the Department of Consumer Affairs (DCA), which
oversees more than
36 boards, bureaus, committees, and a commission, and other programs
that regulate more than 100 businesses and 240 professional
categories, including doctors, nurses, dentists, engineers,
architects, contractors, cosmetologists and automotive repair
facilities, and other diverse industries. These regulatory
entities license, register, or certify more than 2.5 million
professionals and health care practitioners, investigate
complaints, and discipline violators. They also establish the
minimum qualifications and levels of competency for licensure.
2) Establishes the Medical Board of California (MBC) within DCA to
regulate and license physicians and surgeons and certain allied
health care professionals, as specified.
3) Prohibits a physician and surgeon from including, or permitting to
include the following in a civil dispute settlement agreement: (a)
a provision that prohibits another party to the dispute from
contacting or cooperating with the MBC; (b) a provision that
prohibits another party to the dispute from filing a complaint with
the MBC; and, (c) a provision that requires another party to the
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dispute to withdraw a complaint he or she has filed with the MBC.
Specifies that such provisions are void as against public policy
and that their violation is subject to disciplinary action by the
MBC. (Business and Professions Code (BPC) � 2220.7)
4) Creates the State Bar Act and establishes the State Bar of
California (State Bar) which regulates the professional conduct and
education of the state's attorneys, over 170,000 state bar members,
and provides for the investigation of complaints where formal
allegation of misconduct are pursued, and to discipline or
recommend suspension or disbarment to the California Supreme Court
of attorneys found to have committed acts of professional
misconduct or who have been convicted of serious crimes. For
lesser offenses, public or private reprovals may be issued.
5) 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 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. (BPC � 6090.5)
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) Specifies 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
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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" includes certificate,
registration, or other means to engage in a business or profession.
FISCAL EFFECT: According to the Assembly Appropriations Committee
analysis dated May 16 2012, minor and absorbable enforcement costs for
the various DCA boards and bureaus to enforce the provisions of this
legislation.
COMMENTS:
1. Purpose. The Author is the Sponsor of this measure. 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."
2. 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
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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 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
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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 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."
These precedent setting cases suggest 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 36 boards, bureaus,
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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 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.
3. Related Legislation This Session. AB 2149 (Butler) prohibits a
settlement agreement in a civil action alleging elder or dependent
adult abuse, as defined, from containing any provision that
prevents any party from reporting to, cooperating with, or
otherwise contacting specified persons or government agencies.
This bill is currently awaiting a hearing in Senate Judiciary
Committee.
4. Previous Related Legislation. SB 544 (Price of 2011) would have
enacted the Consumer Health Protection Enforcement Act that
included various provisions affecting the investigation and
enforcement of disciplinary actions against licensees of healing
arts boards. One of the provisions included prohibited 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) was similar to SB 544 and would have
enacted the Consumer Health Protection Enforcement Act that
included various provisions affecting the investigation and
enforcement of disciplinary actions against licensees of healing
arts boards. One of the provisions included prohibited licensees
of DCA healing arts boards from including gag clauses in civil
settlement agreements. This bill failed passage in Senate
Business, Professions and Economic Development Committee.
AB 249 (Eng of 2007) prohibited 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
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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) prohibited
physicians and surgeons licensed by MBC from including a regulatory
gag clause in a civil settlement agreement.
AB 446 (Negrete McLeod of 2005) prohibited all DCA licensed
professionals from including a regulatory gag clause in a civil
settlement. This bill was vetoed with a veto message nearly
identical to the one issued for AB 249 (Eng of 2007).
AB 320 (Correa of 2004) prohibited 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..."
5. Arguments in Support. The Center for Public Interest Law is in
support of this measure and states the following: "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.
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"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."
NOTE : Double-referral to Senate Judiciary Committee, second.
SUPPORT AND OPPOSITION:
Support:
Board of Behavioral Sciences
Center for Public Interest Law
Opposition:
None on file as of June 13, 2012.
Consultant:Bill Gage