Draft language introduced in California
Last updated April, 2003
SECTION 1. Title 6 (commencing with Section 4000) is added to the Corporations Code, to read:
TITLE 6. CORPORATE THREE STRIKES ACT
40000. This title shall be known and may be cited as the Corporate Three Strikes Act.
40001. The People of the State of California find and declare all of the following:
(a) Statistics reveal that corporate crime and other corporate violations are more costly to the public than crime by individuals, yet individual crime is punished more severely than corporate crime.
(b) Some corporations repeatedly violate the law and, if caught, pay relatively insignificant amounts that they pass on to the public as a cost of doing business. This practice is a gross injustice both to the public and to law-abiding corporations, and also undermines a healthy California economy.
(c) Threats of imprisonment are meaningless when directed at corporations as distinct entities. While the law has created the fiction that corporations are persons, there is no way to imprison a fictional person.
(d) The courts have also long held, however, that corporations are mere artificial creatures of law and may be dissolved or denied permission to do business if they violate the law. The statutes of California provide these remedies, but public authorities rarely use them. It is the purpose of this title to protect the people of California by requiring enforcement of these existing remedies against corporate repeat offenders, and by preventing evasion of these remedies by directors and officers of corporate repeat offenders.
40002. (a) This title applies to all general corporations, nonprofit public benefit corporations, and nonprofit mutual benefit corporations that are subject to Division 1 (commencing with Section 100) of, or Part 2 (commencing with Section 5110) or Part 3 (commencing with Section 7110) of Division 2 of, Title 1.
(b) This title does not apply to nonprofit religious corporations, corporations sole, partnerships or limited liability companies subject to Part 4 (commencing with Section 9110) or Part 6 (commencing with Section 10000) of Division 2 of Title 1, Title 2 (commencing with Section 15501), or Title 2.5 (commencing with Section 17000).
40003. (a) A corporation that commits three or more major violations of law within a ten-year period, commencing after the effective date of this title, is declared to be a corporate repeat offender.
(b) A corporate repeat offender shall not be permitted to be incorporated or to transact intrastate business in California .
(c) A corporation shall not be permitted to be incorporated or to transact intrastate business in California if a majority of its directors or officers have ever been directors or officers of a corporate repeat offender as determined by the Secretary of State after notice to the corporation and an opportunity for the corporation to respond.
(d) A corporation shall not be permitted to be incorporated or to transact intrastate business in California if it is legally controlled by a corporation a majority of whose directors or officers have ever been directors or officers of a corporate repeat offender, as determined by the Secretary of State after notice to the corporation and an opportunity for the corporation to respond.
40004. For purposes of this title,”major violation of law” means the intentional or grossly negligent violation of any federal, state or local law in the United States that results in the imposition against the corporation of a fine, civil penalty, restitution, damages, or other monetary payment of at least one million dollars ($1,000,000) or results in the death of a person. Fines, civil penalties, restitution, damages or other monetary payments for separate violations arising out of the same facts and circumstances shall be aggregated, and shall constitute one major violation of law if the aggregated amount totals at least one million dollars ($1,000,000). Multiple major violations arising out of the same facts and circumstances shall be considered as only one major violation of law.
40005. a) For purposes of this title, any of the following shall be conclusive evidence that a corporation has committed a major violation of law.
(1) A settlement, consent decree, plea-bargain or similar arrangement in a criminal, civil or administrative case in which the corporation has been charged with intentional or grossly negligent violation of law in which the corporation is required to make a payment that meets or exceeds the monetary threshold in Section 40004. irrespective of whether the corporation admits or denies liability.
(2) A final criminal or civil judgment against the corporation by a court, or a final adjudication against the corporation by a public agency, if the judgment or adjudication finds an intentional or grossly negligent violation of law and pursuant to which the corporation is required to make a payment that meets or exceeds the monetary threshold in Section 40004.
(3) A final criminal or civil judgment against a corporation by a court, or a final adjudication against the corporation by a public agency, if the judgment or adjudication finds an intentional or grossly negligent violation of law that caused a person’s death.
(b) Every corporation formed under the laws of California or qualified to transact intrastate business in California shall file annually with the Secretary of State a statement of those items specified in subdivision (a) that were applicable to the corporation during the previous year. The Secretary of State shall prescribe an electronic form for submission of these items and shall make the statement available to the public in a timely fashion through its Internet web site.
40006. If a corporate repeat offender is a corporation formed under the the laws of California , the Attorney General shall bring an action under Section 1801, 6511, or 8511, as applicable, to dissolve the corporation and provide for forfeiture of its corporate existence. The court shall follow the provisions established in this code for those involuntary dissolutions, including the provisions permitting the court to appoint a receiver to take over and manage the business and affairs of the corporation and to preserve its property. The court shall issue orders, decrees and injunctions as justice and equity require, and shall specifically issue orders necessary to ensure that jobs and wages are not lost, to protect community as well as legitimate shareholder interests, and to maintain corporate obligations to protect the health, safety and environment of workers and the public.
40007. If a corporate repeat offender is a corporation formed under the laws of a jurisdiction other than California that is subject to Section 2105, the Secretary of State shall, after a fair hearing and on the basis of substantial evidence, revoke the right of the corporation to transact business in California by withdrawing the certification of qualification required by section 2105.
40008. Neither the Attorney General nor the Secretary of State shall have discretion to refuse to enforce this title with respect to their respective duties under this title. Any person may petition the Attorney General or the Secretary of State to enforce this title against a corporate repeat offender. If the Attorney General or the Secretary of State rejects the petition, or fails to act within 180 days of the submission of the petition, a person may bring an action for a writ of mandate to compel enforcement of this title. That person shall be entitled to an award of costs and reasonable attorneys’ fees if the person is the prevailing party in that action.
40009. The provisions of this title shall not be amended by the Legislature except by statute passed in each house by roll call vote entered in the journal, two-thirds of the membership concurring, or by a statute that becomes effective only when approved by the electors.
Language drafted by Robert Benson, revised by the Legislative Counsel of the State of California. Language first drafted by ReclaimDemocracy.org for use in Colorado was incorporated into the CA bill.
More features on Corporate Accountability