BILL NUMBER: SB 1058 AMENDED
BILL TEXT
AMENDED IN SENATE APRIL 16, 2012
AMENDED IN SENATE MARCH 26, 2012
INTRODUCED BY Senator Lieu
FEBRUARY 13, 2012
An act to amend Sections 1502 and 2117 of, to add Chapter 22.5
(commencing with Section 2280) to Division 1 of Title 1 of, and to
repeal Section 1502.5 of, the Corporations Code, relating to the
Victims of Corporate Fraud Compensation Fund.
LEGISLATIVE COUNSEL'S DIGEST
SB 1058, as amended, Lieu. Victims of Corporate Fraud Compensation
Fund.
Existing law establishes the Victims of Corporate Fraud
Compensation Fund, a continuously appropriated fund, within the State
Treasury administered by the Secretary of State, the sole purpose of
which is to provide restitution to victims of corporate fraud.
Existing law requires the Secretary of State to adopt
regulations regarding the administration of the fund and the
eligibility of those victims to receive that restitution.
This bill would revise and recast those provisions, including
eliminating the requirement that the Secretary of State adopt those
regulations. The bill would provide that an aggrieved person who
obtains a final judgment, as specified, against a corporation based
upon the corporation's fraud, misrepresentation, or deceit, made with
intent to defraud, may file an application with the Secretary of
State for payment from the fund for the amount unpaid on the judgment
that represents an actual and direct loss to the claimant in the
transaction. The bill would limit the amount to be paid from the fund
for any one action by a corporation to $20,000, with respect to
applications filed before January 1, 2013, and $50,000, with respect
to applications filed on or after January 1, 2013.
This bill would require a claimant to apply for restitution on a
form prescribed by the Secretary of State including specified
information and representations. The bill would establish procedures
for the Secretary of State in determining whether a claim shall be
paid, including giving written notice to the claimant and the
corporation, as specified. The bill would prescribe procedures
for judicial review of a denied claim. The bill would make it a
crime to file a document under these provisions that is false or
contains willful, material misstatements. The bill would make
conforming changes.
Because this bill would create new crimes, the bill would create a
state-mandated local program.
The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: yes.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 1502 of the Corporations Code is amended to
read:
1502. (a) Every corporation shall file, within 90 days after the
filing of its original articles and annually thereafter during the
applicable filing period, on a form prescribed by the Secretary of
State, a statement containing all of the following:
(1) The name of the corporation and the Secretary of State's file
number.
(2) The names and complete business or residence addresses of its
incumbent directors.
(3) The number of vacancies on the board, if any.
(4) The names and complete business or residence addresses of its
chief executive officer, secretary, and chief financial officer.
(5) The street address of its principal executive office.
(6) The mailing address of the corporation, if different from the
street address of its principal executive office.
(7) If the address of its principal executive office is not in
this state, the street address of its principal business office in
this state, if any.
(8) If the corporation chooses to receive renewal notices and any
other notifications from the Secretary of State by electronic mail
instead of by United States mail, the corporation shall include a
valid electronic mail address for the corporation or for the
corporation's designee to receive those notices.
(9) A statement of the general type of business that constitutes
the principal business activity of the corporation (for example,
manufacturer of aircraft; wholesale liquor distributor; or retail
department store).
(b) The statement required by subdivision (a) shall also
designate, as the agent of the corporation for the purpose of service
of process, a natural person residing in this state or a corporation
that has complied with Section 1505 and whose capacity to act as an
agent has not terminated. If a natural person is designated, the
statement shall set forth that person's complete business or
residence street address. If a corporate agent is designated, no
address for it shall be set forth.
(c) If there has been no change in the information in the last
filed statement of the corporation on file in the Secretary of State'
s office, the corporation may, in lieu of filing the statement
required by subdivisions (a) and (b), advise the Secretary of State,
on a form prescribed by the Secretary of State, that no changes in
the required information have occurred during the applicable filing
period.
(d) For the purposes of this section, the applicable filing period
for a corporation shall be the calendar month during which its
original articles were filed and the immediately preceding five
calendar months. The Secretary of State shall provide a notice to
each corporation to comply with this section approximately three
months prior to the close of the applicable filing period. The notice
shall state the due date for compliance and shall be sent to the
last address of the corporation according to the records of the
Secretary of State or to the last electronic mail address according
to the records of the Secretary of the State if
the corporation has elected to receive notices from the Secretary of
State by electronic mail. The failure of the corporation to receive
the notice is not an excuse for failure to comply with this section.
(e) Whenever any of the information required by subdivision (a) is
changed, the corporation may file a current statement containing all
the information required by subdivisions (a) and (b). In order to
change its agent for service of process or the address of the agent,
the corporation must file a current statement containing all the
information required by subdivisions (a) and (b). Whenever any
statement is filed pursuant to this section, it supersedes any
previously filed statement and the statement in the articles as to
the agent for service of process and the address of the agent.
(f) The Secretary of State may destroy or otherwise dispose of any
statement filed pursuant to this section after it has been
superseded by the filing of a new statement.
(g) This section shall not be construed to place any person
dealing with the corporation on notice of, or under any duty to
inquire about, the existence or content of a statement filed pursuant
to this section.
(h) The statement required by subdivision (a) shall be available
and open to the public for inspection. The Secretary of State shall
provide access to all information contained in this statement by
means of an online database.
(i) In addition to any other fees required, a corporation shall
pay a five-dollar ($5) disclosure fee when filing the statement
required by subdivision (a). One-half of the fee shall be utilized to
further the provisions of this section, including the development
and maintenance of the online database required by subdivision (h),
and one-half shall be deposited into the Victims of Corporate Fraud
Compensation Fund established in Section 2280.
(j) A corporation shall certify that the information it provides
pursuant to subdivisions (a) and (b) is true and correct. No claim
may be made against the state for inaccurate information contained in
the statements.
SEC. 2. Section 1502.5 of the Corporations Code is repealed.
SEC. 3. Section 2117 of the Corporations Code is amended to read:
2117. (a) Every foreign corporation (other than a foreign
association) qualified to transact intrastate business shall file,
within 90 days after the filing of its original statement and
designation of foreign corporation and annually thereafter during the
applicable filing period, on a form prescribed by the Secretary of
State, a statement containing the following:
(1) The name of the corporation as registered in California and
the California Secretary of State's file number.
(2) The names and complete business or residence addresses of its
chief executive officer, secretary, and chief financial officer.
(3) The street address of its principal executive office.
(4) The mailing address of the corporation, if different from the
street address of its principal executive office.
(5) The street address of its principal business office in this
state, if any.
(6) If the corporation chooses to receive renewal notices and any
other notifications from the Secretary of State by electronic mail
instead of by United States mail, the corporation shall include a
valid electronic mail address for the corporation or for the
corporation's designee to receive those notices.
(7) A statement of the general type of business that constitutes
the principal business activity of the corporation (for example,
manufacturer of aircraft; wholesale liquor distributor; or retail
department store).
(b) The statement required by subdivision (a) shall also
designate, as the agent of the corporation for the purpose of service
of process, a natural person residing in this state or a corporation
that has complied with Section 1505 and whose capacity to act as the
agent has not terminated. If a natural person is designated, the
statement shall set forth the person's complete business or residence
street address. If a corporate agent is designated, no address for
it shall be set forth.
(c) The statement required by subdivision (a) shall be available
and open to the public for inspection. The Secretary of State shall
provide access to all information contained in the statement by means
of an online database.
(d) In addition to any other fees required, a foreign corporation
shall pay a five-dollar ($5) disclosure fee upon filing the statement
required by subdivision (a). One-half of the fee shall be utilized
to further the provisions of this section, including the development
and maintenance of the online database required by subdivision (d),
and one-half shall be deposited into the Victims of Corporate Fraud
Compensation Fund established in Section 2280.
(e) Whenever any of the information required by subdivision (a) is
changed, the corporation may file a current statement containing all
the information required by subdivisions (a) and (b). In order to
change its agent for service of process or the address of the agent,
the corporation shall file a current statement containing all the
information required by subdivisions (a) and (b). Whenever any
statement is filed pursuant to this section, it supersedes any
previously filed statement and the statement in the filing pursuant
to Section 2105.
(f) Subdivisions (c), (d), (f), and (g) of Section 1502 apply to
statements filed pursuant to this section, except that "articles"
shall mean the filing pursuant to Section 2105, and "corporation"
shall mean a foreign corporation.
SEC. 4. Chapter 22.5 (commencing with Section 2280) is added to
Division 1 of Title 1 of the Corporations Code, to read:
CHAPTER 22.5. VICTIMS OF CORPORATE FRAUD COMPENSATION FUND
2280. The Victims of Corporate Fraud Compensation Fund is hereby
established in the State Treasury. The fund shall be administered by
the Secretary of State for the sole purpose of providing restitution
to the victims of a corporate fraud. The Secretary of State
shall adopt regulations in furtherance of the administration of this
chapter. Notwithstanding Section 13340 of the Government Code,
the money in the fund is continuously appropriated to the Secretary
of State for the purposes authorized by this chapter.
2281. As used in this chapter:
(a) "Application" means a request for payment from the fund
submitted to the Secretary of State pursuant to this chapter.
(b) "Claimant" means an aggrieved person who resides in the state
at the time of the fraud and who submits an application pursuant to
this chapter.
(c) "Complaint," for the purpose of an application based on a
criminal restitution order, means the facts of the underlying
transaction upon which the criminal restitution order is based.
(d) "Corporation" includes means a
domestic corporations and corporation as
defined by Section 162 or 2509 or a foreign
corporations corporation that is qualified to transact
business in California pursuant to Section 2105 .
(e) "Court of competent jurisdiction" means a small claims,
municipal, or superior court of any state, or a United States
district court or United States bankruptcy court.
(f) "Final judgment" means a judgment, arbitration award, or
criminal restitution order for which the period for appeal has
expired, enforcement of which is not barred by the order of any court
or by any statutory provision, and which has not been nullified or
rendered void by any court order or statutory provision. Final
judgments shall include , but are not limited to,
each of the following:
(1) Any findings of fact, conclusions of law, jury verdicts, jury
special verdicts, statements of decision, memorandum decisions, or
any other indication by a court or jury, as the case may be, of its
decision and the reasons for the decision.
(2) If the matter was submitted to arbitration, a copy of the
arbitration decision and any other documentation supporting the
arbitration award. An arbitration award that includes findings of
fact and conclusions of law rendered in accordance with the rules
established by the American Arbitration Association or another
recognized arbitration body, and in accordance with Sections 1280 to
1294.2, inclusive, of the Code of Civil Procedure where applicable,
and where the arbitration award has been confirmed and reduced to
judgment pursuant to Section 1287.4 of the Code of Civil Procedure.
(3) A criminal restitution order issued pursuant to subdivision
(f) of Section 1202.4 of the Penal Code or Section 3663 of Title 18
of the United States Code. An application for payment from the fund
that is based on a criminal restitution order shall comply with all
of the requirements of this chapter.
(g) "Fund" means the Victims of Corporate Fraud Compensation Fund
created by Section 2280.
(h) "Judgment," for purposes of an application based on a criminal
restitution order, means the criminal restitution order.
2282. (a) When an aggrieved person obtains a final judgment in a
court of competent jurisdiction against a corporation based upon the
corporation's fraud, misrepresentation, or deceit, made with intent
to defraud, the aggrieved person may, upon the judgment becoming
final, file an application with the Secretary of State for payment
from the fund, within the limitations specified in Section 2289, for
the amount unpaid on the judgment that represents an actual and
direct loss and any compensatory damages awarded to the
claimant in the transaction , excluding punitiv e
damages .
(b) The application shall be delivered in person or by certified
mail to the Secretary of State not later than 18 months after the
judgment has become final.
(c) The application shall be made on a form prescribed by the
Secretary of State, shall contain a statement that the information
provided is true and accurate to the best of the claimant's belief,
and shall include each of the following:
(1) The name and address of the claimant.
(1)
(2) If the claimant is represented by an attorney
for the application , the name, business address, and telephone
number of the attorney. If the claimant is not being
represented by an attorney in the filing of
for the application, a telephone number where
the claimant can be reached during regular business hours shall be
included.
(3) The name and address of the corporation.
(2)
(4) The identification of the final judgment, the
amount of the claim, and an explanation of the claim's computation.
(3)
(5) A detailed narrative statement of the facts in
explanation of the allegations of the complaint upon which the
underlying judgment is based. A copy of a judgment that specifies the
facts of the allegations of the complaint shall be deemed to satisfy
compliance with the requirements prescribed in this paragraph.
(4)
(6) Each of the following representations by ,
and information pertaining to , the claimant:
(A) That he or she is not a spouse of an employee of the
corporation nor a personal representative of the spouse.
(B) That he or she has complied with all of the requirements of
this chapter.
(C) That the judgment underlying the claim meets the requirements
of Section 2282.
(D) A description of searches and inquiries conducted by or on
behalf of the claimant with respect to the corporation's assets
liable to be sold or applied to satisfaction of the judgment. A court'
s determination or finding of the corporation's insolvency or lack of
assets to pay the claimant shall be deemed to satisfy the
requirements prescribed in this subparagraph.
(E) That the underlying judgment and debt have not been discharged
in bankruptcy, or the underlying judgment is statutorily
nondischargeable, or, in the case of a bankruptcy proceeding that is
open at or after the time of the filing of the application, that the
judgment and debt have been declared to be nondischargeable.
(F) A copy of the final judgment and a copy of the civil complaint
upon which the judgment for intentional fraud was issued. If one or
more amendments or amended complaints were filed, a copy of all
amendments and all prior versions of the complaint shall be submitted
by the claimant.
(F)
(G) That the application was mailed or delivered to the
Secretary of State no later than 18 months after the underlying
judgment became final.
(d) The (1)
Notwithstanding paragraph (2), the Secretary of State shall not
condition an award of payment from the fund upon a claimant
providing any additional information or documents other than those
prescribed in this section.
(2) If the final judgment in favor of the claimant was by default,
stipulated, a consent judgment, or pursuant to Section 594 of the
Code of Civil Procedure or if the action against the corporation was
defended by a trustee in bankruptcy, the Secretary of State may
request additional documents and information from the claimant to
determine whether the claim is valid.
(e) The Secretary of State shall include with the application form
detailed instructions with respect to documentary evidence,
pleadings, court rulings, the products of discovery in the
underlying litigation, and a notice to the
applicant claimant of his or her obligation to
protect the underlying judgment from discharge in bankruptcy, to be
appended to the application.
2283. (a) If the Secretary of State determines that the
application, as submitted by the claimant, fails to comply
substantially with the requirements of Section 2282, the
Secretary of State shall, within 15 days after receipt of the
application, mail an itemized list of deficiencies to the claimant.
(b) The time within which the Secretary of State is required to
act under Section 2284 shall be measured from the date of receipt by
the Secretary of State of an application. In the event of an
irreconcilable dispute between the claimant and the Secretary of
State on the question of whether the application is complete, the
claimant may immediately file the claim with the court pursuant to
Section 2287.
2284. (a) The Secretary of State shall render a final written
decision on the application within 90 days after a completed
application has been received unless the claimant agrees in writing
to extend the time within which the Secretary of State may render a
decision.
(b) The Secretary of State may deny or grant the application or
may enter into a compromise with the claimant to pay less in
settlement than the full amount of the claim. If the claimant refuses
to accept a settlement of the claim offered by the Secretary of
State, the written decision of the Secretary of State shall be to
deny the claim. Evidence of settlement offers and discussions between
the Secretary of State and the claimant shall not be competent
evidence in judicial proceedings undertaken by the claimant pursuant
to Section 2287.
2285. (a) The Secretary of State shall give written notice of a
decision rendered with respect to the application to the claimant.
(b) If the application is denied, the notice to the claimant shall
include the following statement:
"Claimant's application has been denied. If the claimant wishes
to pursue the application in court, the claimant shall file the
application petition as follows in a
superior court of this state not later than six months after receipt
of this notice. If the underlying judgment is a California state
court judgment, the application petition
shall be filed in the court in which the underlying judgment
was entered. If the underlying judgment is not a California state
court judgment or is a federal court judgment, the
application petition shall be filed in any
superior court of any county within California that would have been a
proper venue if the underlying lawsuit had been filed in a
California state court, or in the Superior Court of the County of
Sacramento."
2286. (a) The Secretary of State shall give notice, as prescribed
in subdivision (b), to the corporation that the Secretary of State
has made a decision to award funds to the claimant and shall provide
a copy of the decision to the corporation.
(b) The notice served upon the corporation shall include the
following statement:
"NOTICE: Based upon a judgment entered against (Name of
Corporation) in favor of (Name of Claimant), an application for
payment from the Victims of Corporate Fraud Compensation Fund has
been made to the Secretary of State.
The decision of the Secretary of State on the application of (Name
of Claimant) is to pay $ (Dollar Amount) from the Victims of
Corporate Fraud Compensation Fund. A copy of that decision is
enclosed.
Pursuant to Section 2280 2293 of the
Corporations Code, the Secretary of State has assumed the claimant's
interest in the judgment against the corporation and has the
authority to pursue damages against the corporation's officers ,
directors, and shareholders for the judgment amount paid to
the claimant."
2287. (a) A claimant against whom the Secretary of State has
rendered a decision denying an application may, within six months
after the mailing of the notice of the denial, file a verified
application petition in superior court
for an Order Directing Payment Out of the Victims of Corporate Fraud
Compensation Fund based upon the grounds set forth in the application
to the Secretary of State. If the underlying judgment is a
California state court judgment, the application
petition shall be filed in the court in which the
underlying judgment was entered. If the underlying judgment is not a
California state court judgment or is a federal court judgment, the
application petition shall be filed in
the superior court of any county within California that would have
been a proper venue if the underlying lawsuit had been filed in a
California state court, or in the Superior Court of the County of
Sacramento.
(b) A copy of the application petition
shall be served upon the Secretary of State by the claimant. A
certificate or affidavit of service shall be filed by the claimant
with the court. Service on the Secretary of State may be made by
certified mail addressed to the Secretary of State'
s office.
(c) The Secretary of State shall have 30 days after being served
with the application petition in which
to file a written response. The court shall thereafter set the matter
for hearing upon the petition of the claimant. The court shall grant
a request of the Secretary of State for a continuance of as much as
30 days and may, upon a showing of good cause by any party, continue
the hearing as the court deems appropriate.
(d) The claimant shall have the burden of proving compliance with
the requirements of Section 2282 by competent evidence at an
evidentiary hearing. The claimant shall be entitled to a de novo
review of the merits of the application as contained in the
administrative record.
(e) At any time during the court proceedings, the
application petition may be compromised or
settled by the Secretary of State and the court shall, upon joint
petition of the claimant and the Secretary of State, issue an order
directing payment out of the fund.
2288. (a) Whenever the court proceeds upon an
application a petition under Section 2287, it
shall order payment out of the fund only upon a determination that
the aggrieved party has a valid cause of action within the purview of
Section 2282, and has complied with Section 2287.
(b) The Secretary of State may defend any action on behalf of the
fund and shall have recourse to all appropriate means of defense and
review, including examination of witnesses and the right to
relitigate any issues that are material and relevant in the
proceeding against the fund and that were determined in the
underlying action on which the judgment in favor of the
applicant claimant was based. The claimant's
judgment shall create a rebuttable presumption of the fraud,
misrepresentation, or deceit by the corporation, which presumption
shall affect the burden of producing evidence.
(c) The Secretary of State may move the court at any time to
dismiss the application petition when
it appears there are no triable issues and the petition is without
merit. The motion may be supported by affidavit of any person or
persons having knowledge of the facts, and may be made on the basis
that the petition, and the judgment referred to therein, does not
form the basis for a meritorious recovery claim within the purview of
Section 2282; provided, however, the Secretary of State shall give
written notice at least 10 days before the motion to the claimant.
2289. Notwithstanding any other provision of this chapter and
regardless of the number of persons aggrieved involved in a
transaction in an instance of corporate fraud, or
misrepresentation or deceit resulting in a judgment meeting the
requirements of Section 2282, or the number of judgments
against a corporation, the liability of the fund shall not exceed the
following amounts:
(a) For applications for payment from the fund filed before
January 1, 2013, twenty thousand dollars ($20,000) for any one action
by a corporation.
(b) For applications for payment from the fund filed on or after
January 1, 2013, fifty thousand dollars ($50,000) for any one action
by a corporation.
(c) When multiple corporations are involved in a
transaction the same event or series of events that
are the basis of the claimant's final judgment and the conduct
of two or more of the corporations results in a judgment meeting the
requirements of Section 2282, the claimant may seek recovery from the
fund based on the judgment against any of the corporations, subject
to the limitations of subdivisions (a) and (b).
(d) When multiple claimants are involved in a corporate fraud, or
in misrepresentation or deceit by a corporation, resulting in a
judgment meeting the requirements of Section 2282, each claimant may
seek recovery from the fund individually, subject to the limitations
of subdivisions (a) and (b).
(e) Claimants who are spouses, registered domestic partners, or
persons other than natural persons, that have obtained an eligible
final judgment shall be considered one claimant.
2290. If, at any time, the money deposited in the fund is
insufficient to satisfy any duly authorized claim
award or portion thereof, the Secretary of State shall,
when sufficient money has been deposited in the fund, satisfy the
unpaid claims awards or portions
thereof, in the order that the claims awards
or portions thereof were originally filed, plus accumulated
interest at the rate of 4 percent per year.
2291. Any sums received by the Secretary of State pursuant to any
provisions of this section chapter
shall be deposited in the State Treasury and credited to the fund.
2292. It shall be unlawful for any person or the agent of any
person to file with the Secretary of State any notice, statement, or
other document required under the provisions of this chapter
which that is false or untrue or contains any
willful, material misstatement of fact. That conduct shall constitute
a public offense punishable by imprisonment in a county jail for a
period of not more than one year or a fine of not more than one
thousand dollars ($1,000), or
both.
2293. When the Secretary of State has paid from the fund any sum
to the claimant, the Secretary of State shall be subrogated to all of
the rights of the claimant and the claimant shall assign all of his
or her right, title, and interest in the judgment to the Secretary of
State and any amount and interest so recovered by the Secretary of
State on the judgment shall be deposited in the fund.
2294. The Secretary of State shall not make any award to a
claimant from the fund if the claimant has received payment from any
of the state's other restitution funds.
2294. 2295. The failure of an
aggrieved person to comply with all of the provisions of this chapter
shall constitute a waiver of any rights hereunder.
SEC. 5. No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of the
Government Code, or changes the definition of a crime within the
meaning of Section 6 of Article XIII B of the California
Constitution.