BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                     SB 270


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          Date of Hearing:   June 28, 2016


                           ASSEMBLY COMMITTEE ON JUDICIARY


                                  Mark Stone, Chair


          SB  
          270 (Mendoza) - As Amended June 22, 2016


                              As Proposed to be Amended


          SENATE VOTE:  29-9


          SUBJECT:  COURT REPORTERS BOARD OF CALIFORNIA: CORPORATIONS 


          KEY ISSUE:  IN ORDER TO ENSURE A LEVEL PLAYING FIELD, SHOULD THE  
          COURT REPORTERS BOARD HAVE BROAD REGULATORY POWERS OVER  
          CORPORATIONS OR OTHER ENTITIES THAT OFFER, RENDER, OR PROVIDE  
          SHORTHAND COURT REPORTING SERVICES IN THE STATE?


                                      SYNOPSIS


          According to the author, foreign corporations operating in  
          California employ or contract with California-licensed court  
          reporters to render professional court reporting services.   
          These corporations and their owners are not licensed or  
          certified under California law, creating a situation where  
          licensees must adhere to California laws regulating court  
          reporting services while the corporate owners or operators  
          seemingly (and unfairly) are not required to do so.  The  








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          certified court reporters who support and sponsor this bill  
          contend that as a result of this discrepancy, some foreign  
          corporations engage in unfair business practices, such as  
          illegal gift giving or so-called "penny invoicing" (in which a  
          shorthand reporting firm will charge a penny per invoice to  
          assist a law firm with its litigation costs while charging full  
          price to that law firm's opposition).  The proponents of this  
          bill note that when the Court Reporters Board (CRB or Board) has  
          tried to issue citations and fines against these foreign  
          corporations that purportedly do not adhere to California  
          statutes and regulations regarding professional conduct, the  
          courts have found that CRB does not have the authority to impose  
          citations and fines over unlicensed corporations. 


          According to the sponsor, the California Court Reporters  
          Association, this bill is needed to strengthen the authority of  
          the CRB to impose penalties and fines on entities rendering  
          court reporting services in California in violation of the  
          Board's professional and ethical rules for certified shorthand  
          reporters.  As approved by the Business & Professions Committee  
          approximately one week ago, this bill would have expressly  
          required foreign and domestic corporations that arrange for  
          shorthand reporting services to comply with certain ethical and  
          professional rules, including gift-giving restrictions, that  
          would have been codified from existing Board regulations, and  
          given the board "jurisdiction to enforce" these requirements.   
          As proposed to be amended, this bill no longer codifies those  
          regulations to require compliance, but instead seeks to  
          establish more specific parameters of the Board's enforcement  
          powers.  The proposed amendments seek to expand the Board's  
          enforcement to enforce virtually all applicable existing  
          statutes and regulations governing court reporters, and,  
          consistent with the author's longstanding intent, seek to create  
          a level playing field where corporations or other entities that  
          offer or arrange for the provision of shorthand court reporting  
          services are required to follow the same rules that certified  
          shorthand reporters themselves already are required to follow.









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          A coalition of national deposition service companies remains  
          strongly opposed to the bill, even as proposed to be amended.   
          These companies contend that the bill effectively creates a new  
          quasi- licensing program for companies "offering" court  
          reporting services, regulating activities which courts have  
          expressly concluded do not constitute the practice of court  
          reporting.  Among other things, these opponents also contend  
          that the bill would give the CRB unfettered authority to issue  
          citations and penalties against companies that do not even enjoy  
          the protections of a property interest in a license, and the  
          effect would be to drive business out of the state.  


          SUMMARY:  Provides the Court Reporters Board (CRB) with broad  
          powers of enforcement, as specified, over foreign or domestic  
          corporations that offer or arrange for court reporter services  
          in California.  Specifically, this bill:   


          1)Authorizes the Court Reporters Board, the Director of Consumer  
            Affairs, and the Attorney General to seek injunctive relief or  
            issue citations, fines, and other penalties against  
            corporations, persons or entities, whether foreign or  
            domestic, that for a fee or other financial consideration,  
            offer, offer to arrange for, render, or provide the services  
            of a certified shorthand reporter, for violations of the  
            following:
             a)   Chapter 9 of Title 4 of Part 4 (commencing with Section  
               2025.010) of the Code of Civil Procedure;
             b)   Part 4 of Division 3 of Title 1 (commencing with Section  
               13400) of the Corporations Code;


             c)   Chapter 12 of Division 3 (commencing with Section 8000)  
               of the Business and Professions Code; and


             d)   Section 2475 of Title 16 of the California Code of  








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               Regulations.



          2)Provides that nothing in this bill shall be construed to  
            authorize the provision of shorthand reporting services by a  
            foreign corporation in violation of Section 13401(c) of the  
            Corporations Code or to authorize violations of Section 8044  
            of the Business & Professions Code.


          EXISTING LAW:   

          1)Provides for the regulation and certification of shorthand  
            reporters by the CRB within the Department of Consumer Affairs  
            (DCA).  (Business and Professions Code (BPC) Section 8000 et  
            seq.  All further references are to this code unless otherwise  
            stated.)


          2)Prohibits a person from engaging in the practice of shorthand  
            reporting, as specified, unless that person is the holder of a  
            certificate in full force and effect issued by the CRB unless  
            he or she is a salaried, full-time employee of any department  
            or agency of the state who is employed as a hearing reporter.   
            (Section 8016.)


          3)Defines the "practice of shorthand reporting" as the 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.   
            (Section 8017.)


          4)Defines a "shorthand reporting corporation" as a corporation  
            which is authorized to render professional services, as  








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            specified in the Corporations Code Section 13401, 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  
            specified requirements in the Corporations Code.  (Section  
            8040.)


          5)Requires, except as specified, that each director,  
            shareholder, and officer of a shorthand reporting corporation  
            shall be a licensed professional.  (Section 8044.)


          6)Prohibits a shorthand reporting corporation from doing or  
            failing to do any act which would constitute unprofessional  
            conduct under any statute, rule, or regulation which pertains  
            to shorthand reporters or shorthand reporting.  Requires a  
            shorthand reporting corporation in conducting its practice to  
            observe and be bound by statutes, rules, and regulations to  
            the same extent as a person holding a license.  (Section  
            8046.)


          7)Defines "foreign professional corporation" to mean a  
            corporation organized under the laws of a state of the United  
            States other than this state that is engaged in a profession  
            of a type for which there is authorization in the BPC for the  
            performance of professional services by a foreign professional  
            corporation.  (Corporations Code Section 13401 (c).)


          8)Provides that a professional corporation or a foreign  
            professional corporation qualified to render professional  
            services in this state shall be subject to the applicable  
            rules and regulations adopted by, and all the disciplinary  
            provisions of the Business and Professions Code expressly  
            governing the practice of the profession in this state, and to  
            the powers of, the governmental agency regulating the  
            profession in which such corporation is engaged.   








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            (Corporations Code Section 13410 (a).)



          9)Requires every person under the jurisdiction of the CRB 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  
            Corporations Code Section 13401, to comply with professional  
            standards of practice, as specified.  (California Code of  
            Regulations Title 16 (16 CCR) Section 2475.)

          FISCAL EFFECT:  As currently in print this bill is keyed fiscal.


          COMMENTS:  This bill, sponsored by the California Court  
          Reporters Association (CCRA), seeks to strengthen the authority  
          of the Court Reporters Board (CRB) to impose penalties and fines  
          on entities rendering court reporting services in California in  
          violation of the Board's professional and ethical rules for  
          certified shorthand reporters.  As proposed to be amended, this  
          bill now seeks to expand the Board's enforcement to enforce  
          virtually all applicable existing statutes and regulations  
          governing court reporters, and, consistent with the author's  
          longstanding intent, seeks to create a level playing field where  
          corporations or other entities that offer or arrange for the  
          provision of shorthand court reporting services are required to  
          follow the same laws and obligations that certified shorthand  
          reporters themselves already must follow.


          Need for the bill.  According to the author:


            SB 270 addresses a complex problem that pits California  
            Court Reporting firms and licensed court reporters against  
            out-of-state corporations. These corporations not only  
            arrange for shorthand reporting services, they also  
            determine the fees charged to parties and set timelines  








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            for the delivery of transcripts, among other things.  All  
            of these activities are strictly regulated to ensure  
            impartiality in the handling of transcripts, legal  
            documents, that are essentially an extension of a court  
            proceeding.


            Corporations, either foreign or domestic, that are not  
            headed by a licensed court reporter believe they can  
            ignore and violate ethical rules, and laws of impartiality  
            and objectivity when they are arranging for court  
            reporting services. These corporations have interpreted  
            current law to mean they are not subject to the  
            jurisdiction of the board because they are not licensees.  
            This has created an un-fair playing field within the  
            industry. Most disturbing is that under current law,  
            licensed court reporters find themselves liable for the  
            ethical violations of these companies; even if the  
            reporter has no knowledge of or involvement in the  
            violation.


            Any entity, whether foreign or domestic, that is arranging  
            for these services should be required to follow the same  
            laws in California.  These are ethical laws to ensure no  
            one involved in a lawsuit is disadvantaged by the  
            impartiality of anyone handling the transcript.  This bill  
            will bring out-of-state corporations, which arrange for  
            court reporting services within California, under the  
            jurisdiction of the court reporters board when it comes to  
            gift giving and discriminatory practices, ensuring that  
            California business are not placed at an unfair  
            disadvantage and encouraging healthy competition in this  
            industry.


          According to the California Court Reporters Association:










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            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, or to impose 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.


          Background on the Court Reporters Board.  The Court Reporters  
          Board (CRB) is responsible for licensing and disciplining  
          certified shorthand reporters, currently numbering approximately  
          7,000 in California.  Currently, in California, certified  
          shorthand reporters work in two separate capacities: 1) as an  
          "official reporter" who works as a court reporter employed by a  
          state court, or 2) as a "freelance reporter" who is hired  
          privately by court reporting businesses, firms, or attorneys to  
          report depositions.  Both official and freelance reporters are  
          required to meet the same educational and examination  
          qualifications, which are established by the CRB.  In order to  
          qualify for licensure as a certified shorthand reporter, an  
          individual must have a high school education, twelve months (or  
          1,400 hours) of full-time work experience related to making  
          records of hearings, a passing score on the California State  
          Hearing Reporters Examination, and completion of a course from  
          an approved court-reporting school.  


          In addition to the licensing and discipline functions, the CRB  
          specifies the professional standards of practice (16 CCR Section  
          2475) for professionals, which include acting without bias  
          toward, or prejudice against, any parties and/or their  
          attorneys; not entering into, arranging, or participating in a  
          relationship that compromises the impartiality of the certified  
          shorthand reporter, including but not limited to a relationship  








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          in which compensation for reporting services is based upon the  
          outcome of the proceeding; and maintaining confidentiality of  
          information, among others. 


          This bill is a response to an issue highlighted by recent case  
          law.  According to the author, the need for this bill stems from  
          the inability of the CRB to take appropriate disciplinary action  
          against a foreign (out-of-state) corporation that was accused of  
          operating in violation of the CRB's professional standards of  
          practice-a problem identified by a Santa Clara Superior Court  
          decision in Court Reporters Board of California v. U.S. Legal  
          Support, Inc. (2012), Santa Clara Superior Court, Case No.  
          1-11-CV 197817.  In that case, the Board issued a citation to  
          defendant U.S. Legal, assessing a fine of $2,500 for violation  
          of professional standards, specifically the prohibition on  
          gift-giving.  U.S. Legal refused to pay the fine, and challenged  
          in court the Board's jurisdiction to issue the citation under  
          California law.  (Id., p. 3.)  The Board argued that the  
          defendant was a foreign corporation as defined under the  
          Moscone-Knox Professional Corporations Act (Corporations Code  
          Section 13401 (c)), and therefore a "shorthand reporting  
          corporation" as otherwise defined under the Business and  
          Professions Code which is subject to the regulation.  The court  
          noted, however, that "The problem with this argument is  
          foundational.  [The Moscone-Knox 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.'"  


          In holding for the defendant, the court found that neither the  
          Moscone-Knox Act nor the Business and Professions Code extended  
          authority to the CRB to issue citations to foreign corporations  
          like U.S. Legal that do not meet the statutory definition of  
          "foreign professional corporation," by virtue of the fact that  








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          they do not actually hold a license or certificate in this  
          state.


          As proposed to be amended, this bill would specifically  
          authorize the Board to issue citations and take other action to  
          enforce existing laws against foreign corporations that offer or  
          arrange for court reporter services.  According to proponents,  
          foreign corporations operating in California employ or contract  
          with California-licensed court reporters to render professional  
          court reporting services.  These corporations and their owners  
          are not themselves licensed or certified under California law,  
          creating a situation where licensees must adhere to California  
          laws regulating court reporting services while the corporate  
          owners or operators seemingly do not.  Proponents contend that,  
          as a result of this discrepancy, some foreign corporations  
          engage in unfair practices, such as illegal gift giving or  
          so-called "penny invoicing" (in which a shorthand reporting firm  
          will charge a penny per invoice to assist a law firm with its  
          litigation costs while charging full price to that law firm's  
          opposition).  Proponents further contend that when the CRB has  
          sought to issue citations and fines against these foreign  
          corporations that purportedly 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),  
          the courts have found that CRB does not have the authority to  
          impose citations and fines over unlicensed corporations. (See  
          Court Reporters Board of California v. U.S. Legal Support, Inc.  
          (2012), discussed above.)  Accordingly, this bill would provide  
          such enforcement authority to the CRB.


          Specifically, as proposed to be amended, this bill provides that  
          the Court Reporters Board, the Director of Consumer Affairs, and  
          the Attorney General may seek injunctive relief or issue  
          citations, fines, and other penalties against corporations,  
          persons or entities, whether foreign or domestic, that for a fee  
          or other financial consideration, offer, offer to arrange for,  








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          render, or provide the services of a certified shorthand  
          reporter, for violations of specified areas of law.  


          Enforcement of specified laws and regulations relating to court  
          reporting.  The Committee notes that the authority granted by  
          the bill is quite broad.  First, it allows the CRB to take  
          enforcement actions for violations of the following areas of  
          law, which comprise virtually all of the applicable statutes and  
          regulations governing court reporters:


            (1) Chapter 9 of Title 4 of Part 4 (commencing with  
            Section 2025.010) of the Code of Civil Procedure  
            [governing the taking of oral depositions within the Civil  
            Discovery Act.]


            (2) Part 4 of Division 3 of Title 1 (commencing with  
            Section 13400) of the Corporations Code [the Moscone-Knox  
            Professional Corporations Act, governing the rendering of  
            shorthand reporting services by professional  
            corporations.]


            (3) Chapter 12 of Division 3 (commencing with Section  
            8000) of the Business and Professions Code [the licensing  
            law for shorthand reporters]; and


            (4) Section 2475 of Title 16 of the California Code of  
            Regulations [Professional Standards of Practice for  
            shorthand reporters]


          Enforcement against corporations and entities, foreign or  
          domestic.  Second, the bill authorizes enforcement action  
          against "corporations, persons or entities, whether foreign or  
          domestic."  According to the author, this is intended not only  








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          to capture foreign (out-of-state) corporations who employ or  
          contract with licensed court-reporters in California to render  
          services, as has been documented in previous litigation, but  
          also less well-known domestic (in-state) corporations who are  
          similarly unlicensed and follow the same business model.  In  
          addition to not distinguishing between foreign and domestic  
          corporations, the bill makes no distinction between professional  
          corporations or other non-professional corporations, who would  
          not be required to comply with the Moscone-Knox Act.  The bill  
          also captures "persons or entities", which would continue to  
          allow enforcement against an entity that, for example,  
          reorganized as an LLP instead of a corporation.


          Enforcement against corporations that "offer", "render", or  
          "provide" court reporter services.  Third, the bill applies to  
          corporations, persons or entities that "offer, offer to arrange  
          for, render, or provide" the services of a certified shorthand  
          reporter.  Whether an entity "offers" or "arranges" or "renders"  
          services of a court reporter is a key issue because these terms  
          carry specific meaning under different statutes.  For example,  
          professional corporations are said to "render" professional  
          services, not provide them. (See, e.g. Corporations Code Section  
          13401 (b) stating "'Professional corporation' means a  
            corporation organized under the General Corporation Law . . .  
          that is engaged in  rendering  professional services in a single  
          profession.")  Thus this bill would apply to professional  
          corporations who render the services of a certified shorthand  
          reporter.  


          Code of Civil Procedure Section 2025.320, for example, provides  
          that "no service or product may be offered or provided by the  
          deposition officer or by the entity providing the services of  
          the deposition officer to any party or any party's attorney or  
          third party who is financing all or part of the action unless  
          the service or product is offered or provided to all parties or  
          their attorneys attending the deposition."  The bill applies to  
          entities offering or providing court reporting services subject  








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          to similarly worded provisions in the Code of Civil Procedure,  
          and could be used by the board to enforce violation of these  
          obligations.


          In addition, as proposed to be amended, the bill provides that  
          the board may seek injunctive relief or penalties against an  
          entity that for a fee or other financial consideration, offers,  
          offers to arrange for, renders, or provides services, as  
          specified. (italics added.)  According to the author, this  
          proposed amendment is intended to clarify that the bill is not  
          intended to authorize the board, Attorney General, or Director  
          to seek relief or penalties against a law firm or any of its  
          employees.  When a law firm offers or offers to arrange for  
          shorthand reporting services, the author contends, it is not  
          doing so for a separate fee or financial consideration, but  
          simply through its representation of the client and the client's  
          interest.  The author may wish to further clarify this concept  
          in a separate sentence in order to be more transparent about his  
          intent to not subject lawyers and law firms to possible  
          penalties under this bill.


          The bill is opposed by a group of national firms that contract  
          with California certified shorthand reporters to provide court  
          reporters services for depositions in California.  These  
          opponents charge that the bill "effectively creates a new quasi-  
          licensing program for companies 'offering' court reporting  
          services, regulating activities which courts have expressly  
          concluded do not constitute the practice of court reporting."   
          Although not cited by the opponents, the Committee notes that in  
          a May 2016 decision, the Santa Clara Superior Court found that  
          defendant U.S. Legal Support, Inc. was not engaged in the  
          practice of shorthand reporting when performing activities such  
          as copying, binding, delivering deposition transcripts and  
          billing, because these tasks, in the words of the court, are  
          "administrative and business practices incident to shorthand  
          reporting" and "do not change or influence the recording or  
          transcription of the words spoken at a deposition or court  








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          proceeding."  (Moose v. U.S. Legal Support, Inc. (2016) Santa  
          Clara Superior Court, Case No. 1-14-CV 28886, p.5.)


          Range of enforcement tools available.  As proposed to be  
          amended, the bill provides that the Board may seek injunctive  
          relief or issue citations, fines, and other penalties in its  
          enforcement efforts against entities committing violations of  
          specified laws.  With respect to injunctive relief, the bill is  
          not intended to change, limit, or alter any existing authority  
          of the Board to seek injunctive relief.  It should also be noted  
          that existing regulations, 16 CCR § 2480, specify current rules  
          for the CRB to issue administrative citations and fines and  
          orders of abatement.  In order to issue citations or fines  
          pursuant to this bill not already covered by existing  
          regulations, the Board would have to promulgate new regulations  
          because the bill does not on its face specify what the fines and  
          penalties are.  In other words, the expansion of enforcement and  
          corresponding penalties sought by this bill remains subject to  
          the promulgation of new regulations by the Board, which would  
          trigger the due process protections of the Administrative  
          Procedures Act.


          Although the bill also grants authority to the Attorney General  
          and the Director of Consumer Affairs, it should be noted that  
          the latter is authorized by extension of the fact that the CRB  
          lies within the Department of Consumer Affairs, under the  
          leadership of the Director, and that the Attorney General is  
          inherently authorized to enforce any and all laws of this state.  
           Accordingly, the central focus of discussion is the authority  
          placed with the CRB.


          Author's amendment clarifies that this bill does not authorize  
          foreign corporations to offer or provide reporting services in  
          this state.  The author notes that even though the superior  
          court in Court Reporters Board of California v. U.S. Legal  
          Support, Inc. (2012) held that the CRB lacked jurisdiction to  








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          issue a citation against U.S. Legal, the court also noted that,  
          despite the undisputed fact that U.S. Legal was organized under  
          Texas law, "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.  (Santa Clara Superior Court, Case No.  
          1-11-CV 197817, at 4-5.)  Thus, as proposed to be amended, this  
          bill clarifies that nothing in its provisions should be  
          construed to authorize foreign professional corporations to  
          provide court reporting services in California, which the author  
          contends would violate Section 13401 (c) of the Corporations  
          Code.  


          ARGUMENTS IN OPPOSITION:  A coalition of deposition service  
          companies remains strongly opposed to the bill, even as proposed  
          to be amended.  These companies are Esquire Deposition Services,  
          LLC; Magna Legal Services; U.S. Legal Support, Inc. and Veritext  
          Corp.  They state:


               As proposed for amendment, the bill effectively creates  
               a new quasi- licensing program for companies "offering"  
               court reporting services, regulating activities which  
               courts have expressly concluded do not constitute the  
               practice of court reporting.  The bill illogically and  
               inappropriately attempts to apply regulations  
               applicable to the practice of court reporting to the  
               business of deposition services companies, thereby  
               disrupting perfectly legitimate business relationships,  
               and leaving companies completely unsure of which  
               activities are permitted and which are not.  Further,  
               the bill would give the Court Reporters Board  
               unfettered authority to issue citations and penalties  
               against companies which will not even enjoy the  
               protections of a property interest in a license.  The  
               effect will be to drive business out of the state and  
               make litigation more costly and less efficient.









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          REGISTERED SUPPORT / OPPOSITION:




          Support


          California Court Reporters Association (CCRA) (sponsor)


          San Diego Superior Court Reporters Association 


          Los Angeles County Reporters Association


          Orange County Superior Court Reporters Association


          American Reporting Services, LLC


          Alvarado Court Reporters


          Northern California Court Reporters Association


          Kelty & Scott, Certified Shorthand Reporters




          Opposition (as proposed to be amended)


          Esquire Deposition Services, LLC 








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          Magna Legal Services 
          U.S. Legal Support, Inc. 
          Veritext Corp.


          Analysis Prepared by:Anthony Lew / JUD. / (916)  
          319-2334