BILL ANALYSIS �
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|SENATE RULES COMMITTEE | AB 2570|
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THIRD READING
Bill No: AB 2570
Author: Hill (D), et al.
Amended: 8/6/12 in Senate
Vote: 21
SENATE BUSINESS, PROF. & ECON. DEV. COMM. : 6-1, 6/18/12
AYES: Price, Corbett, Correa, Hernandez, Negrete McLeod,
Vargas
NOES: Strickland
NO VOTE RECORDED: Emmerson, Wyland
SENATE JUDICIARY COMMITTEE : 4-0, 7/3/12
AYES: Evans, Blakeslee, Corbett, Leno
NO VOTE RECORDED: Harman
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 42-24, 5/25/12 - See last page for vote
SUBJECT : Licensees: settlement agreements
SOURCE : Author
DIGEST : This bill 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.
ANALYSIS :
CONTINUED
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Existing law:
1. Establishes the 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 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) Section 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.
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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 Section
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
within the DCA that regulates the licensee, or that
requires the other party to withdraw a complaint from
the DCA, board, bureau, or program within the DCA that
regulates the licensee.
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 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
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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.
5. Allows, upon granting a petition filed by a licensee or
authorized agent of a licensee, a board, bureau, or
program within the DCA, based upon evidence and legal
authorities cited in the petition, adopt a regulation
that does both of the following:
A. Identifies a code section or jury instruction in a
civil cause of action that has no relevance to the
board's, bureau's, or program's enforcement
responsibilities such that an agreement to settle
such a cause of action based on that code section or
jury instruction otherwise prohibited by this bill
will not impair the board's, bureau's, or program's
duty to protect the public.
B. Exempts agreements to settle such a cause of
action from the requirements of this bill.
6. Specifies this bill does not apply to a physician or
surgeon. Physicians and surgeons are currently
prohibited from including regulatory gag orders in civil
settlements. (See existing law #3 above)
7. Clarifies that nothing in this bill shall be construed
as limiting the discretion of a board, bureau, or
program within the DCA to decline to grant a petition or
adopt a regulation, nor shall it be construed as
prohibiting a licensee from including in an agreement to
settle a civil dispute any provision that is otherwise
not prohibited.
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
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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 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
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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 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.
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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, 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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 8/9/12)
Board of Behavioral Sciences
California Public Interest Research Group
Center for Public Interest Law
Consumer Federation of California
Consumers for Auto Reliability and Safety
Medical Board of California
Physical Therapy Board of California
OPPOSITION : (Verified 8/8/12)
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American Council of Engineering Companies
Board of Pharmacy
California Board of Accountancy
ARGUMENTS IN SUPPORT : According to the Center for Public
Interest Law:
Regulatory gag clauses cause many serious problems -
both for the agency that is being deprived of
information about its own licensees (which is
particularly critical problem in this era of hiring
freezes, position losses, and budget cuts) 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. Three sound public policies
underlie the concept in AB 2570:
Regulated licensees should not be able to
unilaterally deprive their own regulators of
information about their own misconduct committed in
the course and scope of the regulated business.
Concealment from the regulator should not be "on
the table" during civil settlement negotiations. The
civil tort system and the administrative process have
very different purposes. An outcome in one system
(civil) should not necessarily dictate the outcome in
the other (regulatory). Agencies should not be
deprived of the discretion to investigate complaints.
An injured consumer should not be put in the
position of having to decide between two competing
incentives: "I should take the money and run" vs.
"I'd really like to help prevent what happened to me
from happening to others."
ARGUMENTS IN OPPOSITION : The Board of Pharmacy states:
Assembly Bill 2570 would accomplish two objectives.
First, the measure would prohibit a licensee, as
specified, from including or permitting to be included
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in an agreement to settle a civil dispute, a provision
that would prohibit the other party from filing a
complaint with, or cooperating with the board (i.e.. gag
clause), or from requiring the other party to withdraw a
complaint from the board - and that such a provision
would subject the licensee to disciplinary action. The
board supports this provision.
Subdivision (b), however, would prohibit the Board from
requiring a licensee to pay restitution if a civil
settlement included a monetary settlement. Such a
prohibition could interfere with the board's discretion
to order restitution, and it is unclear how far such a
prohibition would extend. The board opposes this
provision.
ASSEMBLY FLOOR : 42-24, 5/25/12
AYES: Alejo, Allen, Ammiano, Beall, Block, Blumenfield,
Bonilla, Bradford, Brownley, Butler, Campos, Carter,
Chesbro, Davis, Dickinson, Eng, Feuer, Fong, Fuentes,
Furutani, Gatto, Gordon, Hayashi, Roger Hern�ndez, Hill,
Hueso, Huffman, Lara, Bonnie Lowenthal, Mitchell,
Monning, Pan, V. Manuel P�rez, Portantino, Skinner,
Solorio, Swanson, Torres, Wieckowski, Williams, Yamada,
John A. P�rez
NOES: Achadjian, Conway, Cook, Donnelly, Beth Gaines,
Garrick, Gorell, Hagman, Halderman, Harkey, Huber,
Jeffries, Jones, Logue, Mansoor, Miller, Morrell,
Nestande, Nielsen, Norby, Olsen, Smyth, Valadao, Wagner
NO VOTE RECORDED: Atkins, Bill Berryhill, Buchanan,
Charles Calderon, Cedillo, Fletcher, Galgiani, Grove,
Hall, Knight, Ma, Mendoza, Perea, Silva
JJA:k 8/9/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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