BILL ANALYSIS Ó SENATE JUDICIARY COMMITTEE Senator Hannah-Beth Jackson, Chair 2015 - 2016 Regular Session SB 270 (Mendoza) Version: April 14, 2015 Hearing Date: April 28, 2015 Fiscal: Yes Urgency: No RD SUBJECT Court Reporters Board of California: civil actions: corporations DESCRIPTION This bill would authorize the Court Reporters Board of California (CRB) to bring a civil action (or ask the Attorney General to bring an action) to enjoin any unlicensed person, corporation, or foreign corporation from rendering court reporter services in this state. This bill would authorize the CRB to seek certain penalties, including fines and restitution, and would require the courts to award reasonable investigation and enforcement costs to the CRB or Attorney General responsible for filing an action pursuant to this bill. The bill would also authorize courts to designate that any transcript prepared by any person or corporation subject to an action brought under this bill does not qualify as a certified transcript. The bill would also make it a misdemeanor for any person or corporation to knowingly render court reporter services in this state without ever being issued a license or authorized to render those services. BACKGROUND The Court Reporters Board of California (CRB) is charged with certifying and regulating shorthand reporters who perform a vital function for the courts and litigants in providing SB 270 (Mendoza) Page 2 of ? official, verbatim records of a variety of proceedings. (See Bus. & Prof. Code Sec. 8017.) The importance of this transcription function, by such licensed individuals, is reflected in California law, which requires that an official reporter or official reporter pro tempore of the superior court take down in shorthand all testimony, objections made, rulings of the court, exceptions taken, arraignments, pleas, sentences, arguments of the attorneys to the jury, and statements and remarks made and oral instructions given by the judge or other judicial officer, in specified cases. (See Code Civ. Proc. Sec. 269.) Existing law also provides that the report of the official reporter, or the official reporter pro tempore, of any court, duly appointed and sworn, when transcribed and certified as being a correct transcript of the testimony and proceedings in the case, is prima facie evidence of the testimony and proceedings. (Code Civ. Proc. Sec. 273(a).) Given the critical function of the record, the importance of not just the accuracy of the skills, but the impartiality of the shorthand reporter, cannot be overstated. Indeed, a certificate may be suspended, revoked, denied, or other disciplinary action may be imposed for certain causes, including, among others: fraud, dishonesty, corruption, willful violation of duty, gross negligence or incompetence in practice, or unprofessional conduct in or directly related to the practice of shorthand reporting. For these purposes, existing law defines "unprofessional conduct" to include, but not be limited to, acts contrary to professional standards concerning confidentiality; impartiality; filing and retention of notes; notifications, availability, delivery, execution and certification of transcripts; and any provision of law substantially related to the duties of a certified shorthand reporter. (Bus. & Prof. Code 8025(d).) As such, existing law is expressly designed to establish and maintain a standard of competency for those engaged in the practice of shorthand reporting, for the protection of the public, in general, and for the protection of all litigants whose rights to personal freedom and property are affected by the competency of shorthand reporters, in particular. (Bus. & Prof. Code Sec. 8015.) This bill seeks to respond to a recent case where the court held that CRB lacked jurisdiction over an out-of-state corporation rendering court reporting services that had violated SB 270 (Mendoza) Page 3 of ? professional rules. Accordingly, this bill, sponsored by the California Court Reporters Association, would authorize CRB to bring an action or request the Attorney General to bring an action to enjoin any unlicensed person, corporation, or foreign corporation from rendering court reporter services in this state and, in doing so, to seek certain penalties, including fines and restitution, as specified. This bill would provide for reasonable investigation and enforcement costs to be recovered by the CRB or Attorney General bringing the act, and would also make it a misdemeanor for any person or corporation to knowingly render court reporter services in this state without ever being issued a license or authorized to render those services. CHANGES TO EXISTING LAW Existing law establishes the California Court Reporters Board (CRB) with, among other things, the authority and responsibility to determine the qualifications of persons applying for certification as a shorthand reporter; make rules for the examination of applicants and the issuing of certificates of qualification in professional shorthand reporting; investigate the actions of any licensee, upon receipt of a verified complaint in writing from any person, for alleged acts or omissions constituting grounds for disciplinary action, as specified; and charge and collect authorized fees. (Bus. & Prof. Code Sec. 8000 et seq.; see Bus. & Prof. Code Secs. 8007(a), (c)), 8008(c), 8000(f), 8031.) Existing law provides that the protection of the public shall be the highest priority for the CRB in exercising its licensing, regulatory, and disciplinary functions. (Bus. & Prof. Code Sec. 8005.1.) Existing law prohibits any person from engaging in the practice of shorthand reporting, as defined, unless that person is the holder of a certificate in full force and effect issued by the CRB. This provision does not apply to a salaried, full-time employee of any department or agency of the state who is employed as a hearing reporter. This applies to all persons who are appointed, on and after January 1, 1983, to the position of official reporter or pro tempore official reporter of any court, as defined in the Government Code. (Bus. & Prof. Code Sec. 8016.) Existing law defines the practice of shorthand reporting as the SB 270 (Mendoza) Page 4 of ? making, by means of written symbols or abbreviations in shorthand or machine shorthand writing, of a verbatim record of any oral court proceeding, deposition, court ordered hearing or arbitration, or proceeding before any grand jury, referee, or court commissioner and the accurate transcription thereof. Nothing in this section shall require the use of a certified shorthand reporter when not otherwise required by law. (Bus. & Prof. Code Sec. 8017.) Existing law provides that in order to qualify for licensure as a certified shorthand reporter, a person must be over the age of 18 years, not have committed any acts or crimes constituting grounds for the denial of licensure under specified law, have a high school education or its equivalent as determined by the CRB, and have satisfactorily passed an examination under any regulations that the CRB may prescribe. Existing law further provides, in order to be admitted to the examination that is required prior to the issuance of the certificate, the person must also present satisfactory evidence to the CRB that the applicant has obtained certain experience or other certification. (Bus. & Prof. Code Sec. 8020.) Existing law provides that in addition to the authority to conduct disciplinary proceedings under the chapter on shorthand reporters, the CRB, through its duly authorized representatives, shall have authority to issue administrative citations or assess fines for the violation of any rules and regulations adopted by the CRB under the provisions of the chapter. (Bus & Prof. Code Sec. 8027.5.) Existing law provides that a violation of any provision of the chapter on shorthand reporters is a misdemeanor and also makes any person who directly or indirectly assists in or abets the violation of, or conspires to aid or abet in the violation of, any provision of this chapter, guilty of a misdemeanor. (Bus. & Prof. Code Sec. 8019.) Existing law , the Moscone-Knox Professional Corporation Act, defines a professional corporation as a corporation that is engaged in rendering professional services (defined as any type of professional services that may be lawfully rendered only pursuant to a license, certification or registration authorized by the Business and Professions Code, the Chiropractic Act, or the Osteopathic Act) in a single profession, pursuant to a certificate of registration issued by the governmental agency SB 270 (Mendoza) Page 5 of ? regulating the profession. However, a professional corporation or foreign professional corporation, as defined, rendering professional services by persons duly licensed by the boards in charge of those services, including the CRB, shall not be required to obtain a certificate of registration in order to use those professional services. (Corp. Code Sec. 13401(a),(b); see also Bus. & Prof. Code Sec. 8040.) Existing law defines a "foreign corporation" as a corporation organized under the laws of another state that is engaged in a profession of a type for which there is authorization in the Business and Professions Code for the professional services by a foreign professional corporation. Existing law defines a "licensed person" as any natural person who is duly licensed under the provisions of the Business and Professions Code, the Chiropractic Act, or the Osteopathic Act, to render the same professional services as are or will be performed by the professional corporation or foreign professional corporation of which he or she is or intends to become an officer, director, shareholder, or employee. (Corp. Code Sec. 13401(c), (d).) Existing law prohibits any foreign professional corporation from rendering professional services in this state without a currently effective certificate of registration issued by the governmental agency regulating the profession in which that corporation proposes to be engaged, pursuant to the applicable provisions of the Business and Professions Code expressly authorizing those professional services to be rendered by a foreign professional corporation. (Corp. Code Sec. 13404.5(b).) Existing law provides that a shorthand reporting corporation is a corporation which is authorized to render professional services, as specified, as long as that corporation and all of its shareholders, officers, directors, and employees rendering professional services who are certified shorthand reporters are in compliance with the Moscone-Knox Professional Corporation Act, the Business and Professions Code's article on shorthand reporting corporations, and all other statutes and regulations now or hereafter enacted or adopted pertaining to that corporation and the conduct of its officers. Existing law provides that with respect to a shorthand reporting corporation, the governmental agency referred to in the Moscone-Knox Professional Corporation Act is the Court Reporters Board of California. (Bus. & Prof. Code Sec. 8040.) SB 270 (Mendoza) Page 6 of ? Existing law generally requires each director, shareholder, and officer of a shorthand reporting corporation to be a licensed person as defined under the provision of the Moscone-Knox Professional Corporation Act above. (Bus. & Prof. Code Sec. 8044.) Existing law prohibits a shorthand reporting corporation from doing or failing to do any act the doing of which or the failure to do which would constitute unprofessional conduct under any statute, rule or regulation now or hereafter in effect which pertains to shorthand reporters or shorthand reporting. Existing law provides that in conducting its practice it shall observe and be bound by such statutes, rules and regulations to the same extent as a person holding a license under this chapter. (Bus. & Prof. Code Sec. 8046.) Existing law provides that it shall constitute unprofessional conduct and a violation of this chapter for any person licensed under this chapter to violate, attempt to violate, directly or indirectly, or assist in or abet the violation of, or conspire to violate any provision or term of this article, the Moscone-Knox Professional Corporation Act, or any regulations duly adopted under those laws. (Bus. & Prof. Code Sec. 8042.) Existing regulations provide that every person under the jurisdiction of the Board who holds a license or certificate, or temporary license or certificate, or business that renders professional services, namely shorthand reporting services, within the meaning of the Moscone-Knox Professional Corporation Act, shall comply with the following professional standards of practice, among others: act without bias toward, or prejudice against, any parties and/or their attorneys; not enter into, arrange, or participate in a relationship that compromises the impartiality of the certified shorthand reporter, including, but not limited to, a relationship in which compensation for reporting services is based upon the outcome of the proceeding; and other than the receipt of compensation for reporting services, neither directly or indirectly give nor receive any gift, incentive, reward, or anything of value to or from any person or entity associated with a proceeding being reported. Such persons or entities shall include, but are not limited to, attorneys or an attorney's family members, employees of attorneys or an employee's family members, law firms as single SB 270 (Mendoza) Page 7 of ? entities, clients, witnesses, insurers, underwriters, or any agents or representatives thereof. Exceptions to the foregoing restriction shall be as follows: (A) giving or receiving items that do not exceed $100 (in the aggregate for any combination of items given and/or received) per calendar year to or from those aforementioned persons; or (B) providing services without charge for which the certified shorthand reporter reasonably expects to be reimbursed from the Transcript Reimbursement Fund, or otherwise for an "indigent person" as specified. (16 C.C.R. Sec. 2475(b)(6)-(8).) This bill would provide that in addition to any other authority or remedy, the CRB may bring a civil action (or ask the Attorney General to bring an action) to enjoin any person, corporation, or foreign corporation from rendering court reporter services in this state without ever being issued a license by the board or without authorization to render court reporter services in this state by satisfying the requirements of the article on shorthand reporting corporations. This bill would provide, in an action brought as authorized above, against a person or corporation rendering services without a license or authorization: the court must, in addition to any other remedy authorized by law, impose a penalty of not less than $1,000 and no more than $2,500 against the unlicensed or unauthorized person or corporation; and the court may order restitution and the return of any payments made to the person or corporation. This bill would provide, in an action brought as authorized above: the court may enjoin a person or corporation from taking any action that would constitute a violation of any statute or CRB regulation pertaining to impartiality, as specified; and the court may impose a penalty of up to $2,500 (taking into consideration the frequency of the violations and the impact of those violations in determining the amount of the penalty), and restitution for any acts undertaken by any person or corporation rendering court reporter services in this state (hereinafter, "discretionary penalties"). This bill would also allow the court to award a portion of any unallocated discretionary penalties collected to be used for future investigation and enforcement of this section by the CRB and the Attorney General. Any such award of penalties to the SB 270 (Mendoza) Page 8 of ? CRB would then have to be deposited in the Court Reporters' Fund and the penalties must be subject to appropriation by the Legislature. This bill would specify that it is a misdemeanor for any person or corporation to knowingly render court reporter services in this state without ever being issued a license by the board or being authorized to render court reporter services in this state pursuant to this article. COMMENT 1. Stated need for the bill According to the author, "[e]ntities who are incorporated under the law of another state, and who are not licensed in California, have stated, in the past, that they are outside of the board's jurisdiction because they are not licensed by the board in this state. The board has found that these entities have also violated gift giving rules, jeopardizing the impartiality of the court reporting profession." However, as explained by the author, problems have arisen when the CRB has attempted to take action against these corporations: Under current law, the CRB has authority to impose penalties on any certified court reporter or court reporting corporation, as defined by [Bus. & Prof.] Code [Sec.] 8040, that renders court reporting services in California in violation of the existing rules and regulations or without a court reporting license. However, when the CRB has tried to regulate entities that are incorporated under the laws of a state other than California, the courts have found current law to be unclear on whether the board may impose fines on a corporation that has never been licensed in the state and does not meet the existing definition under the board's authority. SB 270 clarifies the boards existing authority over entities rendering court reporting services in the state by explicitly providing remedies for those entities that are in violation of California's professional standards. This clear authority will ensure that all entities rendering court reporting services in California are following the professional standards required in our state. SB 270 (Mendoza) Page 9 of ? The sponsor of this bill, the California Court Reporters Association, adds: SB 270 strengthens the CRB's efforts to prohibit unlawful court reporting in California. For example, in 2010, it was discovered that a Texas based corporation was providing court reporting services in California in violation of our state's ethical rules on gift giving. The board had found that this corporation was offering incentives and gifts in exchange for being hired to provide court reporters in depositions, a violation of California's ethical standards that can jeopardize the impartiality of the court reporter. In this finding, the corporation argued that the board lacked jurisdiction over their services because they were not licensed in California and therefore not subject to the board's authority. In 2012, the court ruled that U.S[.] Legal was indeed rendering court reporter services in California without being in compliance with California's statutory requirements. SB 270 provides specific authority for the board to seek injunctive relief to stop individuals and corporations that are providing services in California without having ever been licensed in our state, and imposes penalties if they are also in violation of California's professional standards. Court reporters ensure the integrity of judicial records and are unmatched in their ability to produce a real-time transcript of court proceedings. The board should have undisputed authority to ensure that any entity rendering court reporting services in California is upholding the state's professional and ethical standards. 2. Bill authorizes limited actions by either the board or the Attorney General Under the Moscone-Knox Professional Corporations Act, if a foreign corporation (i.e. out of state corporations) provides professional services for which there is authority in the Business and Professions Code to perform these professional services, the foreign corporation can engage in rendering those professional services pursuant to a certificate of registration. If, however, the foreign corporation is rendering those services by persons duly licensed by the Court Reporters Board SB 270 (Mendoza) Page 10 of ? of California (CRB), no certificate of registration is required to render those professional services. Under the Business and Professions Code, CRB currently has express authority over California licensees (including California licensees used by foreign professional corporations), as well as over shorthand reporting corporations incorporated in California. (Bus. & Prof. Code Secs. 8044, 8046.) This bill seeks to provide the CRB express authority to bring certain actions against foreign corporations, in addition to natural persons and corporations, providing court reporter services in California without a certificate from the CRB. This bill would further authorize actions against those persons or entities for violating statutes or regulations pertaining to impartiality. According to the proponents, there are foreign corporations that have been operating in California and rendering professional court reporting services by employing or contracting with California-licensed court reporters. In other words, the corporation and its owners are not themselves licensed or certified under California law, thus, creating a situation where the licensee must adhere to California laws regulating court reporting services while the corporate owners or operators seemingly do not. However, when the CRB has sought to issue citations and fines against such foreign corporations that do not adhere to California statutes and regulations regarding professional conduct (such as rules requiring the impartiality of court reporters and thereby prohibiting gift giving or incentives in exchange for business), they have been told by the courts that they do not have authority to impose citations and fines over unlicensed corporations. The author and sponsor provide the recent example of a California Superior Court decision in Court Reporters Board of California v. U.S. Legal Support, Inc. from 2012, involving a suit brought by the CRB against the U.S. Legal (USL) for violating Business and Professions Code Section 8046 (which: (1) prohibits a shorthand reporting corporation from doing or failing to do any act the doing of which or the failure to do would constitute unprofessional conduct under any statute, rule or regulation now or hereafter in effect which pertains to shorthand reporters or shorthand reporting; and (2) requires that in conducting its practice it shall observe and be bound by such statutes, rules and regulations to the same extent as a person holding a license under the chapter on shorthand reporting) in conjunction with a California Code of Regulations SB 270 (Mendoza) Page 11 of ? professional standard of practice provision that generally prohibits (other than the receipt of compensation for reporting services) giving or receiving any gift, incentive, reward, or anything of value to or from any person or entity associated with a proceeding being reported. (Santa Clara Superior Court, Case No. 1-11-CV 197817, May 25. 2012, p.3) There, CRB issued a citation to the defendant assessing a fine of $2,500 on the defendant, which the defendant then refused to pay based on an argument that CRB lacked jurisdiction to issue the citation to USL. (Id.) In its suit, CRB argued that the defendant was a foreign corporation as defined under the Moscone-Knox Professional Corporations Act and hence a "shorthand reporting corporation" as otherwise defined under the Business and Professions Code and subject to the anti-gift-giving regulation. The court wrote that: The problem with this argument is foundational. [The Moscone-Knox Professional Corporations Act provision, Section 13401(c)] defines a foreign professional corporation as a corporation "organized under the laws of a state . . . other than this State that is engaged in a profession of a type for which there is authorization in the Business and Professions Code for the performance of professional services by a foreign professional corporation." It is undisputed that Defendant is organized under the laws of the State of Texas, but it is also clear that there is no express authorization in the Business and Professions Code for the performance of court reporting services by a foreign professional corporation. (Id. at 4-5.) Finding that the CRB "is a creature of statute, limited in its reach to certain enumerated powers and duties" and "[n]o plausible reading of the Corporations Code and the Business and Professions Code gives the Board authority to issue citations to foreign corporations like Defendant (that do not meet the statutory definition of "foreign professional corporation" [because they do not actually hold a license or certificate]) for violating the Board's anti-gift-giving regulation, the court ruled in favor of the defendant. (Id. at 5-6.) This bill would not expressly authorize foreign professional corporations to render court reporting services in California by way of certification, but to the extent those corporations are SB 270 (Mendoza) Page 12 of ? able to do so anyway by way of employing or contracting with a California-licensed court reporter, the bill would give the CRB authority to bring an action (or request the Attorney General to bring an action) against the corporation to enjoin any person, corporation, or foreign corporation from rendering court reporter services in this state without ever being issued a license by the board or without authorization to render court reporter services in this state by satisfying the requirements of the article on shorthand reporting corporations. In an action brought as authorized above, against a person or corporation rendering services without a license or authorization, the bill would require the court to impose specified monetary penalties (between $1000-2500 per day) against the unlicensed or unauthorized person or corporation and would allow the courts to order restitution and the return of any payments made to the person or corporation. These specific remedies would be available in addition to any other authority or remedy available to the CRB. Additionally, the bill would permit the court to also enjoin a person or corporation from taking any action that would constitute a violation of any statute or CRB regulation pertaining to impartiality, as specified, and would authorize the court to impose a penalty of up to $2,500 (taking into consideration the frequency of the violations and the impact of those violations in determining the amount of the penalty), and order restitution for any acts undertaken by any person or corporation rendering court reporter services in this state. The bill would require courts to award reasonable investigation and enforcement costs for filing an action pursuant to this bill. 3. Suggested technical and clarifying amendments The following amendments would clarify that the award of reasonable investigation and enforcement costs would only be made where the CRB or Attorney General prevails in the action and would correct a drafting error relating to the order of restitution by the courts. Suggested technical and clarifying amendments : On page 3, line 17, before "restitution" insert "order" On page 3, starting on line 33, strike "(f) The court shall SB 270 (Mendoza) Page 13 of ? award reasonable investigation and enforcement costs to the board or Attorney General responsible for filing an action pursuant to subdivision (a)" and insert "(f) If the board or Attorney General is granted an injunction pursuant to subdivision (a), the court shall award reasonable investigation and enforcement costs" Support : Orange County Superior Court Reporters Association Opposition : None Known HISTORY Source : California Court Reporters Association Related Pending Legislation : None Known Prior Legislation : AB 1461 (Ruskin, 2009) would have prohibited a firm, partnership, sole proprietorship, or other business entity providing or arranging for shorthand reporting services, from doing or failing to do any act that constitutes unprofessional conduct under any statute, rule, or regulation pertaining to shorthand reporters or shorthand reporting. Such entities would also have been required to observe and be bound by the same statutes, rules, and regulations that bind a person holding a shorthand reporting license. That bill died in the Assembly Appropriations Committee. SB 687 (Boatwright, Ch. 910 , Stats. 1993) was enacted to allow foreign professional corporations to qualify as foreign corporations to transact intrastate business in California and defined foreign professional corporations as corporations organized under the laws of another state that engage in rendering services that if rendered in this state, would be deemed professional services. Prior Vote : Senate Business, Professions and Economic Development Committee (Ayes 9, Noes 0) ************** SB 270 (Mendoza) Page 14 of ?