Bill Text: CA SB1151 | 2009-2010 | Regular Session | Introduced
Bill Title: Discount buying services.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Introduced - Dead) 2010-04-21 - Set, first hearing. Hearing canceled at the request of author. [SB1151 Detail]
Download: California-2009-SB1151-Introduced.html
BILL NUMBER: SB 1151 INTRODUCED
BILL TEXT
INTRODUCED BY Senator Oropeza
FEBRUARY 18, 2010
An act to amend Section 1812.117 of the Civil Code, relating to
discount buying services.
LEGISLATIVE COUNSEL'S DIGEST
SB 1151, as introduced, Oropeza. Discount buying services.
Existing law provides that a discount buying organization is
required to establish a trust account at a federally insured bank or
savings and loan association for the deposit of contract payments, as
specified. Existing law places certain restrictions on the ability
of a discount buying organization to withdraw funds from this trust
account. Existing law exempts an affiliate discount buying
organization that meets certain requirements from these provisions,
and specifies alternate trust account and trust funds withdrawal
provisions for these affiliates.
This bill would completely exempt an affiliate discount buying
organization that operates under a parent in good standing, as
defined, from all the requirements related to the establishment of or
withdrawal of funds from a trust account.
Vote: majority. Appropriation: no. Fiscal committee: no.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 1812.117 of the Civil Code is amended to read:
1812.117. (a) An affiliate discount buying organization not
exempt pursuant to subdivision (h) from the trust account and
withdrawal of trust funds provisions set forth in subdivision (b) of
Section 1812.116 may, at its option, and with the express
written consent of its parent, comply with the trust account
withdrawal provisions set forth in subdivision (b), in lieu of those
contained in subdivision (b) of Section 1812.116.
(b) The affiliate shall comply with the trust account provisions
of subdivision (b) of Section 1812.116, except that:
(1) As to each buyer, during the first one-fourth or first six
months of the buyer's membership period, whichever is shorter, funds
representing no more than one-half of the contract price may be
withdrawn from the trust account.
(2) During the subsequent one-fourth or six-month period of the
buyer's membership period, whichever is shorter, the remaining
balance of the contract price may be withdrawn from the trust
account.
(c) To qualify for the provisions set forth in subdivision (b)
or the exemption set forth in subdivision (h) , (1) the
affiliate shall maintain a surety bond of two hundred fifty thousand
dollars ($250,000), and (2) the parent shall maintain an aggregate
surety bond of two million five hundred thousand dollars ($2,500,000)
and a letter of credit, as set forth in subdivision (d), for all of
its affiliates that qualify for the withdrawal provisions of
subdivision (b). The bonds shall be issued by a surety company
admitted to do business in this state. A copy of each bond shall be
filed with the Secretary of State, with a copy provided to the
Attorney General. The affiliate's bond shall be in lieu of the bond
required by subdivision (a) of Section 1812.103. The surety bonds
shall comply with the requirements of this section and shall be in
favor of the State of California for the benefit of consumers harmed
by any violation of this title by the affiliate, the failure of the
affiliate to comply with the terms of its membership contracts with
consumers, and the failure of the affiliate to comply with the terms
of any agreement with consumers for the purchase of goods or
services, provided the bonds shall cover only pecuniary loss and not
exemplary damages or treble damages permitted under subdivision (a)
of Section 1812.123, and provided further the parent's bond shall not
be drawn on until the affiliate's bond is exhausted.
(d) The parent shall continuously maintain and provide to the
Attorney General as beneficiary an irrevocable letter of credit
issued by a California state chartered bank or a national bank with
its principal place of business in the State of California, in the
amount of one million dollars ($1,000,000), in a form satisfactory to
the Attorney General. After the bonds described in subdivision (c)
have been exhausted, only the Attorney General, by and through the
Attorney General's deputy or assistant, may draw on the letter of
credit for the satisfaction of any final judgments based on any
violation of this title by the affiliate, the failure of the
affiliate to comply with the terms of its membership contracts with
consumers, or the failure of an affiliate to comply with the terms of
any agreement with consumers for the purchase of goods or services,
provided the liability is established by final judgment of a court of
competent jurisdiction and the time for appeal has expired or, if an
appeal is taken, the appeal is finally determined and the judgment
is affirmed, and provided further the letter of credit shall cover
only pecuniary loss and not exemplary damages or treble damages
permitted under subdivision (a) of Section 1812.123. The letter of
credit shall provide that payment shall be made to the Attorney
General upon presentation to the issuer of a sight draft stating only
the amount drawn and signed by the Attorney General or by an
Assistant or Deputy Attorney General. Any amount received by the
Attorney General under the letter of credit shall be used exclusively
to satisfy final judgments as described in this subdivision. The
Attorney General may apply to the court for orders as desired or
needed to carry out the provisions of this subdivision.
(e) In addition to other lawful means for the enforcement of the
surety's liability on the bonds required by this section, the surety'
s liability may be enforced by motion after a final judgment has been
obtained against an affiliate based on any violation of this title
by the affiliate, the failure of the affiliate to comply with the
terms of its membership contracts with consumers, or the failure of
the affiliate to comply with the terms of any agreement with
consumers for the purchase of goods or services. The bond of the
parent shall not be drawn on until the bond of the affiliate has been
exhausted, as provided in subdivisions (c) and (d). The motion may
be filed by the Attorney General, a public prosecutor, or any person
who obtained the judgment without first attempting to enforce the
judgment against any party liable under the judgment. The notice of
motion, motion, and a copy of the judgment shall be served on the
surety as provided in Chapter 5 (commencing with Section 1010) of
Title 14 of Part 2 of the Code of Civil Procedure. The notice shall
set forth the amount of the claim, a brief statement indicating that
the claim is covered by the bond, and, if the motion is to enforce
liability under the bond provided by the parent, a statement that the
bond provided by the affiliate has been exhausted or will be
exhausted if the motion is granted. Service shall also be made on the
Attorney General directed to the Consumer Law section. The court
shall grant the motion unless the surety establishes that the claim
is not covered by the bond or unless the court sustains an objection
made by the Attorney General that the grant of the motion might
impair the rights of actual or potential claimants or is not in the
public interest. The court may, in the interest of justice, order a
pro rata or other equitable distribution of the bond proceeds.
(f) (1) The bond required by subdivision (c) for an affiliate
shall be continuously maintained by the affiliate until the date the
affiliate ceases to make the election under subdivision (a) or ceases
to engage in the business of a discount buying organization. The
bond required by subdivision (c) for the parent shall be continuously
maintained by the parent until the date all affiliates cease to make
the election under subdivision (a) or all affiliates cease to engage
in the business of a discount buying organization.
(2) Notwithstanding the expiration or termination of any bond
required under this section, the bond remains in full force and
effect for all liabilities incurred before, and for acts, omissions,
and causes existing or which arose before, the expiration or
termination of the bond. Legal proceedings may be had therefor in all
respects as though the bond were in effect.
(3) The letter of credit required under subdivisions (c) and (d)
shall be continuously maintained for a period of four years after all
affiliates cease to make the election under subdivision (a) or cease
to engage in the business of a discount buying organization,
provided the period shall be extended until there is a final
judgment, as described in subdivision (d), entered in each action
seeking relief that may be covered by the letter of credit if the
action was filed before the expiration of the four-year period.
(g) Subdivision (a) of Section 1812.121 does not apply to a
discount buying organization that offers substantially equivalent
alternative at-home ordering service through other generally
available channels of communications, such as the Internet, for the
same categories of goods and services, provided the ordered goods are
shipped either to the home or to a freight receiver within 20 miles
of the buyer's residence at the time the buyer entered into the
contract for discount buying services.
(h) The trust account and trust funds withdrawal requirements set
forth in subdivision (b) and in subdivision (b) of Section 1812.116,
shall not apply to an affiliate of a parent in good standing.
(h)
(i) For purposes of this section, the following terms
apply:
(1) "Affiliate" or "affiliate discount buying organization" means
a discount buying organization that is a subsidiary of a parent
or parent in good standing , as defined in paragraph (4), or
operates under a franchise, as defined in paragraph (3), granted by a
parent or parent in good standing .
(2) "Consumer" or "buyer" means and includes a client or member
of an affiliate discount buying organization.
(3) "Franchise" has the same meaning as in Section 31005 of the
Corporations Code.
(4) "Parent" means a business entity that directly or indirectly
has franchised or operated 25 or more discount buying organizations
for 10 years or more.
(5) "Parent in good standing" means a parent, as defined in
paragraph (4), that meets all of the following requirements:
(i) It has franchised or operated a discount buying organization
for at least five years that has facilities in this state of not less
than 8,000 square feet in size.
(ii) It has continually maintained surety bonds in the amount of
two million five hundred thousand dollars ($2,500,000) and an
irrevocable letter of credit in the amount of one million dollars
($1,000,000) in favor of the State of California for the protection
of consumers for at least five years.
(iii) In its first five years of operations in this state, no
claim has been made in this state against its surety bonds.
(iv) In its first five years of operations in this state, the
Attorney General has not drawn on its letter of credit.
(v) In its first five years of operations in this state, no claim
has been made in this state against the surety bonds of its
affiliates that operate in this state.
