A suggested draft by
Health Administration Responsibility Project, Inc.

A Bill to:

amend Corporation Code Section 13406(b)(2)(A)
repeal Corporation Code Sections 13406(b)(2)(C) and 13406(b)(2)(D)
add Corporation Code Sections 13406(b)(2)(C), (D), and (E)


SECTION 1. The Legislature finds and declares as follows:

(a) It is in the public interest, and a cornerstone of democracy, that persons with valid claims, especially those affecting life and health, have the means to pursue them legally.

(b) Laws conferring rights on consumers are futile if consumers are systematically deprived of the legal means to enforce those rights.

(1) The current laws' prohibition of contingency fees for those very consumers unable to pay hourly fees severely limits access of low-income consumers to effective non-profit legal assistance, at a time when government legal-aid funding has been cut back. If not inadvertent, such a result would be unjust and contrary to the principles of fairness upon which our jurisprudence is founded.

(2) It is and should be public policy to encourage low-cost or no-cost legal assistance to needy consumers, and not place artificial barriers in the way, nor require non-profit law corporations to be dependent on charitable or government funding. It is difficult to justify a policy which makes it harder for attorneys to practice as non-profits than for-profit.

(3) However, non-profit organizations should not be used a means to facilitate private profit.

(4) In order to attract community volunteer efforts to consumer service organizations, it must be clear that no one is profiting from those volunteer services but the intended recipients.

(c) Non-Profit Public Benefit Law Corporations (NPPBLCs) should not be required to limit their services to the certifiably indigent, but should be allowed to serve the working poor.

(1) The costs of litigation have become so high that even families initially well above the poverty level are unable to afford hourly legal fees, especially when they face the prospect of serious medical expenses or lack of insurance coverage.

(2) Many of the decisions affecting consumers' rights are now made in administrative hearings and appeals, where no funds are available to pay attorneys, even though complicated legal issues are involved, and may determine the course of subsequent litigation.

(3) Even when they come to court, many of these consumers seek only specific performance or other injunctive relief, so that monetary recoveries from which contingency fees might be paid will only rarely be available.

(4) Current laws require Non-Profit Public Benefit Law Corporations to provide services primarily to persons below some arbitrary level of income. This leaves a large part of the population, including the working poor, with no means of obtaining legal services.

(d) Non-Profit Public Benefit Law Corporations should be as self-supporting as possible, and therefore should not be prohibited from charging contingency fees where appropriate.

(1) As noted above, many deserving prospective plaintiffs cannot afford to pay hourly attorneys' fees, especially if they have had large medical or other expenses.

(2) Government support of legal aid societies has been seriously eroded in recent years.

(3) Charitable organizations supported by large businesses which may be the targets of consumer suits, may be loath to encourage such suits, regardless of merit.

(4) An occasional case may result in sufficient monetary recovery, that a large enough contingency fee might be available to help support many of those cases where no fee is to be expected.

(5) Current laws prohibit NPPBLCs from charging contingency fees. This deprives them of the means to become sufficiently self-supporting to handle the many deserving non-paying cases.

(6) Such contingency fees should accrue to the NPPBLCs to support their non-paying cases, not to the individual attorneys they employ or contract with.


(a) Corporation Code Section 13406(b)(2)(A) is amended to read:

13406(b)(2)(A). The corporation shall have no members or shareholders, and shall make no distributions. Fees and other funds received may be used to pay business and litigation expenses, and reasonable salaries or hourly fees to attorneys and other employees. Any funds remaining upon termination of the corporation shall be paid to the IOLTA fund or to another NPPBLC.

(b) Corporation Code Sections 13406(b)(2)(C) and 13406(b)(2)(D) are hereby repealed.
[referring to indigency requirement and contingency fee prohibition, respectively.]

(c) Corporation Code Section 13406(b)(2)(C) is added to read:

13406(b)(2)(C). A NPPBLC may offer its services only to natural persons or non-profit organizations.

(d) Corporation Code Section 13406(b)(2)(D) is added to read:

13406(b)(2)(D). Attorneys employed by the corporation may not be paid a contingency fee or bonus, but their salary or hourly fee for a given case may, by prior agreement, be delayed, decreased, or foregone if there is no recovery in that case.

(e) Corporation Code Section 13406(b)(2)(E) is added to read:

13406(b)(2)(E). NPPBLCs established under this section will not be required to set up IOLTA trust accounts as described in Business and Professions Code section 6211.

Harvey S. Frey MD PhD Esq.