Code Section Group

Financial Code - FIN

DIVISION 6. ESCROW AGENTS [17000 - 17703]

  ( Division 6 enacted by Stats. 1951, Ch. 364. )

CHAPTER 2.5. Escrow Agents’ Fidelity Corporation [17300 - 17350]

  ( Heading of Chapter 2.5 amended by Stats. 1988, Ch. 1458, Sec. 1. )

ARTICLE 4. General Provisions [17330 - 17350]
  ( Article 4 added by Stats. 1982, Ch. 1106, Sec. 1. )

17330.
  

Any member or successor in interest who suffers a loss may file a claim with Fidelity Corporation for the amount of the loss.

(Amended by Stats. 1988, Ch. 1458, Sec. 21. Effective September 28, 1988.)

17331.
  

(a) An applicant applying for licensure as an escrow agent under this division is required to apply for a Fidelity Corporation Certificate, prepared and issued by Fidelity Corporation, for each proposed shareholder, officer, director, trustee, manager, or employee who is to be directly or indirectly compensated by the escrow agent, prior to licensure of the escrow agent by the commissioner.

(b) A shareholder, officer, director, trustee, manager, or employee of an escrow agent, directly or indirectly compensated by an escrow agent within this state, is required to complete and execute a Fidelity Corporation Certificate application, prepared and issued by Fidelity Corporation, as a condition of his or her employment or entitlement to compensation, before the person may continue the regular discharge of his or her duties, or have access to moneys or negotiable securities belonging to or in the possession of the escrow agent, or draw checks upon the escrow agent or the trust funds of the escrow agent.

(c) Fidelity Corporation Certificates may also be known as Escrow Agent’s Fidelity Corporation Certificates or EAFC Certificates. The certificate at all times remains the property of Fidelity Corporation, and is not transferable by either a member or employee. The certificate is not a warranty or guarantee by Fidelity Corporation of the integrity, veracity, or competence of the person.

(d) An application for a Fidelity Corporation Certificate shall be in writing and in the form prescribed by Fidelity Corporation. The application may include (1) a fee not to exceed fifty dollars ($50), (2) two passport-size photographs, and (3) a set of fingerprint images and related information using the process established by the Department of Justice for requesting state summary criminal history information, plus the fee charged by the Department of Justice for processing noncriminal applicant fingerprint images and related information, in a manner established by the Department of Justice pursuant to subdivision (l). The Department of Justice shall honor the Fidelity Corporation report request form and issue a report to Fidelity Corporation, notwithstanding any other provision of law or regulation to the contrary. Fidelity Corporation is also entitled to submit a set of fingerprint images and related information in the Department of Justice specified noncriminal applicant fingerprint format for the purpose of requesting and obtaining a report from the Department of Justice, for the officers and employees of Fidelity Corporation. A member shall cause the filing of applications for all existing employees as required by this section within 30 days of written notice by Fidelity Corporation to the member.

(e) The application form shall include a provision for binding arbitration to allow for arbitration of any appeal or dispute as to a decision by Fidelity Corporation concerning the certificate, as follows:

A DISPUTE AS TO WHETHER THE DENIAL OF THIS CERTIFICATE APPLICATION OR ANY SUBSEQUENT SUSPENSION OR REVOCATION OF THE CERTIFICATE IS UNNECESSARY OR UNAUTHORIZED OR WAS IMPROPERLY, NEGLIGENTLY, OR UNLAWFULLY RENDERED, MAY BE DETERMINED BY SUBMISSION TO ARBITRATION AS PROVIDED BY CALIFORNIA LAW, AND NOT BY A LAWSUIT OR RESORT TO COURT PROCESS EXCEPT AS CALIFORNIA LAW PROVIDES FOR JUDICIAL REVIEW OF ARBITRATION PROCEEDINGS OR EXCEPT AS PROVIDED BY SECTION 17331.3 OF THE FINANCIAL CODE.   THE APPLICANT MAY, SUBJECT TO AGREEMENT, SUBMIT ANY ISSUE ARISING FROM A DECISION BY FIDELITY CORPORATION TO DENY THIS CERTIFICATE APPLICATION OR TO SUSPEND OR REVOKE THE CERTIFICATE TO BE DECIDED BY BINDING NEUTRAL ARBITRATION.   UPON AN AGREEMENT TO SUBMIT TO BINDING NEUTRAL ARBITRATION, THE APPLICANT HAS NO RIGHT TO HAVE ANY DISPUTE CONCERNING THIS CERTIFICATE APPLICATION LITIGATED IN A COURT OR JURY TRIAL NOR ANY JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, EXCEPT AS SPECIFICALLY PROVIDED IN THE ESCROW LAW.   ARBITRATION MAY BE COMPELLED AS PROVIDED BY LAW.

(f) There is no liability on the part of and no cause of action of any nature may arise against Fidelity Corporation or its members, directors, officers, employees, or agents, the State of California, the Department of Business Oversight, or any officer, agent, or employee of the state or the Department of Business Oversight for statements made by Fidelity Corporation in reports or recommendations made pursuant to this division, or for reports or recommendations made pursuant to this division to Fidelity Corporation by its members, directors, officers, employees, or agents, the State of California, the Department of Business Oversight, or any officer, agent, or employee of the state or the Department of Business Oversight, unless the information provided is false and the party making the statement or providing the false information does so with knowledge and malice. Reports or recommendations made pursuant to this section, or Section 17331.1, 17331.2, or 17331.3, are not public documents.

(g) There is no liability on the part of and no cause of action of any nature may arise against Fidelity Corporation or its members, directors, officers, employees, or agents, the State of California, the Department of Business Oversight, or an officer, agent, or employee of the state or the Department of Business Oversight for the release of any information furnished to Fidelity Corporation pursuant to this section unless the information released is false and the party, including Fidelity Corporation, its members, directors, officers, employees, or agents, the state, the Department of Business Oversight, or any officer, agent, or employee of the state or the Department of Business Oversight, who releases the false information does so with knowledge and malice.

(h) There is no liability on the part of and no cause of action of any nature may arise against Fidelity Corporation or its directors, officers, employees, or agents, for any decision to deny an application for a certificate or to suspend or revoke the certificate of any person or for the timing of any decision or the timing of any notice to persons or members thereof, or for any failure to deny an application under subdivision (a) of Section 17331.2. This subdivision does not apply to acts performed in bad faith or with malice.

(i) Fidelity Corporation, any member of Fidelity Corporation, an agent of Fidelity Corporation or of its members, or any person who uses any information obtained under this section for any purpose not authorized by this chapter is guilty of a misdemeanor.

(j) Section 17331, 17331.1, or 17331.2 does not constitute a restriction or limitation upon the obligation of Fidelity Corporation to indemnify members against loss, as provided in Sections 17310 and 17314. The failure to obtain a certificate, the denial of an application for a certificate, or the suspension, cancellation, or revocation of a certificate does not limit the obligation of Fidelity Corporation to indemnify a member against loss.

(k) Notwithstanding Section 11105 of the Penal Code, Fidelity Corporation is entitled to receive state summary criminal history information and subsequent arrest notification from the Department of Justice as a result of fingerprint images and related information submitted to the Department of Justice by the Department of Business Oversight, pursuant to subdivision (g) of Section 17209, Section 17212.1, and subdivision (d) of Section 17414.1, by or on behalf of escrow agents, shareholders, officers, directors, trustees, managers, or employees of an escrow agent, directly or indirectly compensated by an escrow agent. The Department of Justice and Fidelity Corporation shall enter into an agreement to implement this subdivision. The Department of Business Oversight shall forward to Fidelity Corporation, weekly, a list of names of individual fingerprints submitted to the Department of Justice.

(l) (1) The fingerprint images and related information required pursuant to subdivision (d) shall be submitted by the Department of Business Oversight to the Department of Justice, in a manner established by the Department of Justice, for the purposes of obtaining information as to the existence and content of a record of state or federal convictions, state or federal arrests, and information as to the existence of and content of a record of state or federal arrests for which the Department of Justice establishes that the person is free on bail or on his or her own recognizance pending trial or appeal.

(2) Upon receipt, the Department of Justice shall forward to the Federal Bureau of Investigation requests for federal summary criminal history information received pursuant to this section. The Department of Justice shall review the information returned from the Federal Bureau of Investigation and compile and disseminate a response to the Department of Business Oversight and a fitness determination to Fidelity Corporation pursuant to subdivision (p) of Section 11105 of the Penal Code.

(3) The Department of Justice shall charge a fee sufficient to cover the costs of processing the requests pursuant to this subdivision.

(Amended by Stats. 2015, Ch. 190, Sec. 41. Effective January 1, 2016.)

17331.1.
  

(a) Any person not previously issued a certificate must, upon employment with an escrow agent within this state, apply to Fidelity Corporation for a certificate. The member shall submit all applications for certificates to Fidelity Corporation within 10 business days of the date of employment. The person may continue employment until or unless denied a certificate by Fidelity Corporation.

(b) Upon written notice by Fidelity Corporation to any or all members that any person has been denied a certificate, or has had a certificate suspended, canceled, or revoked, no member or person acting on behalf of a member shall authorize that person to have access to money or negotiable securities belonging to or in the possession of the escrow agent, or to draw checks upon the escrow agent or the trust accounts of the escrow agent. Any member or person who commits or who causes a violation of this section, which violation was either known or should have been known by the member or the person committing or causing the violation, may be subject to action by the commissioner and Fidelity Corporation as provided for in this division.

(c) Each member and each person required to have a certificate shall comply with the Fidelity Corporation rules, to be approved by the commissioner, concerning the manner and timing within which Fidelity Corporation shall receive notice of employment, change of the person’s name, mailing address, or employment status, the certificate form, and the procedures for the administration thereof. Fidelity Corporation may collect a fee to cover the cost of processing the notices but no fee shall exceed twenty-five dollars ($25).

(d) Fidelity Corporation shall assess the member a penalty at the rate of twenty-five dollars ($25) for every day that the member has not fully complied with this section, Section 17331, or Section 17331.2.

(e) Any member that suffers a loss of trust obligations caused by any person who is required to have a certificate but has (1) failed to apply for a certificate, (2) has had the application for a certificate denied, (3) has a suspended certificate, or (4) whose certificate has been revoked shall be obligated to pay a deductible in the amount of 100 percent of the amount of the loss, notwithstanding the amount of the statutory deductible as prescribed by Section 17314.3. The failure to obtain a certificate, the denial of an application for a certificate, or the suspension, cancellation, or revocation of a certificate shall not limit the obligation of Fidelity Corporation to indemnify a member against loss of trust obligations as defined in this division.

(Amended by Stats. 2004, Ch. 180, Sec. 5. Effective January 1, 2005.)

17331.2.
  

(a) Fidelity Corporation shall deny the application for a certificate or revoke the certificate of any person, upon any of the following grounds:

(1) The application contains a material misrepresentation of fact or fails to disclose a material fact so as to render the application false or misleading, or if any fact or condition exists which, if it had existed at the time of the original application for a certificate, reasonably would have warranted Fidelity Corporation to refuse originally to issue that certificate.

(2) That the person has been convicted of a crime or offense, whether a felony, an offense punishable as a felony, or a misdemeanor, that involved dishonesty, fraud, deceit, embezzlement, fraudulent conversion, misappropriation of property, or any other crime reasonably related to the qualifications, functions, or duties of a person engaged in business in accordance with this division. A conviction within the meaning of this section is a plea or verdict of guilty or a conviction following a plea of nolo contendere. A conviction also includes an order granting probation and suspending the imposition of sentence, notwithstanding a subsequent order pursuant to Section 1203.4 or 1203.4a of the Penal Code permitting the person to withdraw his or her plea of guilty and to enter a plea of not guilty, or setting aside the verdict of guilty, or dismissing the accusation, information, or indictment. If, however, the conviction is more than 10 years old, or the conviction has been expunged, or the person has obtained a certificate of rehabilitation or relief under Section 1203.4 or 1203.4a of the Penal Code, or if the conviction was an infraction, then the person may have a Fidelity Corporation certificate upon showing by clear and convincing proof to a reasonable certainty that the conviction is no longer reasonably related to the qualifications, functions, or duties of a person engaged in business in accordance with this division or that person’s employment with a member.

(3) That the person has been held liable in a civil action by final judgment of any court if the judgment involved dishonesty, fraud, deceit, embezzlement, fraudulent conversion, or misappropriation of property or the person has been ordered to make restitution to a victim in any criminal case involving a crime or offense set forth in paragraph (2). The person may have a Fidelity Corporation certificate upon showing by clear and convincing proof to a reasonable certainty that the judgment or restitution order is no longer reasonably related to the qualifications, functions, or duties of a person engaged in business in accordance with this division or that person’s employment with a member.

(4) That the person has (A) committed or caused to be committed an act which caused any member to suffer a loss; (B) committed or caused to be committed or colluded with any other person committing any act which caused a loss, for which Fidelity Corporation or the insurer on any insurance policy or fidelity bond purchased by Fidelity Corporation, or both, to become liable to indemnify any member; or (C) committed or caused to be committed an act of dishonesty, fraud, deceit, embezzlement, fraudulent conversion, or misappropriation of property, to the material damage of a member or for which the member has been held liable to any third party, by final judgment.

(5) That the person has been barred from employment by final order of the commissioner pursuant to Section 17423.

(6) That the person has been deemed not qualified to serve in any capacity as a director or officer or in any other position involving management duties with a financial institution, pursuant to Division 1.8 (commencing with Section 4990).

(7) That the person has been denied coverage or reinstatement by any insurer under any fidelity bond or crime policy, unless a decision of reinstatement of coverage has been made after that denial. A person who obtained a decision of reinstatement of coverage prior to the effective date of this section may have a Fidelity Corporation certificate notwithstanding paragraphs (2) and (3), unless any other ground for denial or revocation applies to that person.

(b) Fidelity Corporation shall suspend the certificate of any person upon either of the following grounds:

(1) That the person has been censured or suspended from any position of employment by final order of the commissioner. The certificate suspension shall be for a term concurrent with the final order of the commissioner.

(2) That the person has been barred from any position of employment or management or control of any escrow agent, for a term of less than permanent, by final order of the commissioner. The certificate suspension shall be for a term concurrent with the final order of the commissioner.

(c) Fidelity Corporation may suspend the certificate of any person under either of the following grounds:

(1) That there is an action commenced by the commissioner to either suspend or bar that person, under Section 17423.

(2) That any member with whom the person was employed has given a proof of loss or a notice of an occurrence which may give rise to a claim for a loss of trust obligations either of which identifies the person as the person responsible for the loss or as a person acting in collusion with the person causing the loss.

(d) Upon denial of an application for, or upon suspension or revocation of the certificate of any person, Fidelity Corporation shall provide written notice to the member with whom that person is employed of the decision, pending any appeal therefrom which might be made. Thereafter, the member shall not allow that person to have access to money or negotiable instruments or securities belonging to or in the possession of the escrow agent, or to draw checks upon the escrow agent or the trust accounts of the escrow agent, but that person may otherwise continue in the performance and discharge of other duties of an employee. Fidelity Corporation shall notify the person in writing of the decision to deny, suspend, or revoke the certificate and of the person’s right of appeal, together with the notice of appeal. The grounds and basis for the decision shall be stated in the notice thereof. All notices may be served either personally or by mail, properly addressed to the address of record for the member and the person.

(e) Any person whose application for a certificate has been denied, or whose certificate has been suspended or revoked, may appeal the decision, as provided in Section 17331.3. While that appeal is pending, the person may not have access to money or negotiable instruments or securities belonging to or in the possession of the escrow agent, or to draw checks upon the escrow agent or the trust accounts of the escrow agent, but that person may otherwise continue in the performance and discharge of other duties of an employee pending final decision of that person’s appeal. Failure to remove the person whose application has been denied, or whose certificate has been suspended or revoked, as a signer on the trust accounts may be subject to action by the commissioner as provided for in this division and shall be subject to penalties as set forth in Section 17331.1.

(f) Upon expiration of the time for an appeal, or upon conclusion of the appeal, the decision to deny an application for or to suspend or revoke the certificate of any person shall become final. Fidelity Corporation shall give written notice to the member and to the person of the final decision within 10 days. Thereafter, Fidelity Corporation shall disclose in writing to all members the identity of persons whose application has been denied or whose certificate has been revoked. The person whose certificate has been denied or revoked may file a certificate reapplication after the period of time specified in Section 11522 of the Government Code, dating from the Fidelity Corporation final decision, provided that the person has satisfied all obligations to Fidelity Corporation under any prior arbitration award or judgment.

(Amended by Stats. 2008, Ch. 285, Sec. 2. Effective January 1, 2009.)

17331.3.
  

(a) Notice to the person, and to the member with whom the person is employed, of the decision to deny an application for or to revoke or suspend a Fidelity Corporation Certificate, shall be effective immediately upon personal delivery, or by facsimile if written acknowledgment of receipt by the member and the person is returned by facsimile, or within five days of the date of mailing, and shall become final upon expiration of the time for filing a notice of appeal or upon the conclusion of the appeal, as provided for in this section.

(b) The person whose application for a certificate has been denied, or whose certificate has been suspended or revoked may, within 15 days after notice of the decision, file with Fidelity Corporation a notice of appeal and request for a hearing, by binding arbitration or judicial action, as provided herein. Neither the notice of appeal nor the request for a hearing shall stay the decision of Fidelity Corporation under Section 17331.2. A late notice of appeal and request for a hearing may be accepted upon a showing of good cause.

(c) The hearing for the appeal may be resolved by arbitration in accordance with Chapter 1 (commencing with Section 1280) of Title 9 of Part 3 of the Code of Civil Procedure. The notice of the person’s right to appeal and notice of appeal provided by Fidelity Corporation shall contain a schedule of proposed arbitrators or of a proposed arbitration forum which provides a panel of arbitrators and method for appointing an arbitrator. The person filing the notice of arbitration may agree to submit the decision and matter to binding arbitration and accept an arbitrator whose name appears on the notice or may propose, in writing, an alternative arbitrator, but if Fidelity Corporation does not notify the person of acceptance of the proposed alternative arbitrator within 10 days, then either party may within 30 days petition the court to appoint an arbitrator, as provided by law.

(d) If the person does not agree to submit the decision and matter to binding arbitration, then the person may, within 30 days after the notice of the decision, file an action in superior court concerning the decision to deny an application for, or to suspend or revoke the certificate. The court may, on its own motion, or shall, upon the filing of an election by any or either party, order that the action be submitted to arbitration pursuant to Chapter 2.5 (commencing with Section 1141.10) of Title 3 of Part 3 of the Code of Civil Procedure, in which case the action shall be accorded that priority for hearing as circumstances permit, unless the plaintiff may otherwise request.

(e) Either Fidelity Corporation or the person whose application for a certificate has been denied, or whose certificate has been suspended or revoked, may apply to the superior court for relief to compel compliance with this section in accordance with Chapter 2 (commencing with Section 1084) of Title 1 of Part 3 of the Code of Civil Procedure.

(f) Upon the conclusion of the hearing on appeal, either the arbitrator or the court may in its discretion award to the prevailing party as an item of costs, reasonable attorneys’ fees, and costs. All other expenses and fees for the arbitration incurred prior to the decision of the arbitrator or confirmation of the decision by the court shall be shared equally by the parties except for attorneys’ fees, witness fees or other expenses incurred by either party for his or her own benefit.

(g) Upon the filing of any action in the superior court by the person whose application for a certificate has been denied, or whose certificate has been suspended or revoked, Fidelity Corporation at any time within 30 days after service of the summons may upon notice and hearing, move the court for an order requiring the plaintiff to furnish an undertaking to secure an award of costs and attorneys’ fees which may be awarded in the action. The motion shall be supported by affidavit showing that the action filed is frivolous and that there is no reasonable possibility that the prosecution of the action will benefit the plaintiff and that the moving party fully complied with this section and Section 17331.2.

At the hearing upon the motion, the court shall consider any written or oral evidence, by witnesses or affidavit, as may be material (1) to the ground or grounds upon which the motion is based, or (2) to a determination of the probable reasonable expenses, including attorneys’ fees, of the defendant and the moving party, which will be incurred in the defense of the action.

If the court determines, after hearing the evidence adduced by the parties, that the moving party has established a probability in support of any of the grounds upon which the motion is based, the court shall fix the amount of the undertaking, not to exceed twenty-five thousand dollars ($25,000), to be furnished by the plaintiff for reasonable expenses, including attorneys’ fees, which may be incurred by the moving party in connection with the action.

A ruling by the court on the motion shall not be a determination of any issue in the action or of the merits thereof. If the court, upon the motion, makes a determination that a bond shall be furnished by the plaintiff, the action shall be dismissed as to the defendant, unless the bond required by the court has been furnished within a reasonable time as may be fixed by the court. Upon the filing of a motion pursuant to this subdivision, no other pleadings need be filed by the defendant and the prosecution of the action shall be stayed until 10 days after the motion has been disposed of. The motion shall be considered pursuant to this subdivision and in accordance with Chapter 2 (commencing with Section 995.010) of Title 14 of Part 2 of the Code of Civil Procedure.

(Added by Stats. 1991, Ch. 1217, Sec. 4.)

17332.
  

When either Fidelity Corporation or the insurer providing the fidelity bond or insurance policy, if any, under Section 17310, or both, pay an obligation on behalf of a member, Fidelity Corporation and the insurer shall be subrogated to the rights, claims, and remedies of the member up to the amount paid by Fidelity Corporation and the insurer on behalf of the member. Independent of any duty or obligation of Fidelity Corporation, the member shall do nothing to prejudice those rights. In any subrogation action filed by Fidelity Corporation, the provider of the fidelity bond or insurance policy if payment was made thereunder, or both, Fidelity Corporation shall have the first right to the proceeds of any judgment or settlement obtained against the principal obligors and any other party who is held liable jointly or severally, in whole or in part, with the principal obligors, up to the amount actually paid on the claim by Fidelity Corporation. Fidelity Corporation and the insurer, as subrogees, shall also recover in the subrogation action reasonable costs and attorney’s fees which may be awarded either as part of any judgment or as an item of costs, as provided for in paragraph (10) of subdivision (a) and paragraph (5) of subdivision (c) of Section 1033.5 of the Code of Civil Procedure. No member engaged in business pursuant to Section 17200 shall be required to pay those costs and attorney’s fees awarded pursuant to this section. Amounts recouped by Fidelity Corporation through subrogation, minus all costs, attorney’s fees, and other administrative expenses incurred in obtaining that recovery, shall be credited to the fidelity fund.

(Amended by Stats. 2004, Ch. 180, Sec. 7. Effective January 1, 2005.)

17333.
  

The commissioner may forthwith upon written notice and order take possession of the property and business of Fidelity Corporation and retain possession until Fidelity Corporation satisfies the commissioner that it will operate in conformity with this chapter whenever it appears to the commissioner that Fidelity Corporation has done any of the following:

(a) Violated its articles of incorporation or any law of this state.

(b) Invested its funds in violation of Section 17337.

(c) Not levied assessments as required by Sections 17320, 17321 and 17321.1.

(d) Has not diligently prosecuted an action pursuant to Section 17323.

(e) Violated any section of this chapter.

(f) Neglected or refused to submit its books, papers, and affairs to the inspection of the commissioner.

During the time the commissioner has possession the commissioner shall perform the duties and carry out the obligations of Fidelity Corporation.

(Amended by Stats. 1990, Ch. 1431, Sec. 4.)

17334.
  

Whenever the commissioner has taken possession of the property and business of Fidelity Corporation, Fidelity Corporation within 10 business days after the taking, if it deems itself aggrieved thereby, may apply to the superior court in the county in which the head office of Fidelity Corporation is located to enjoin further proceedings. The court, after citing the commissioner to show cause why further proceedings should not be enjoined, and after a hearing and a determination of the facts upon the merits, may dismiss the application or enjoin the commissioner from further proceedings and direct the commissioner to surrender the property and business to Fidelity Corporation, or make a further order as may be just.

(Amended by Stats. 1985, Ch. 1560, Sec. 22. Effective October 2, 1985.)

17335.
  

An appeal may be taken from the judgment of the court by the commissioner or by Fidelity Corporation in the manner provided by law for appeals from the judgment of a superior court to the court of appeal. An appeal from the judgment of the court does not operate as a stay of the judgment unless the court, on good cause, so orders. No bond need be given if the appeal is taken by the commissioner, but if the appeal is taken by Fidelity Corporation a bond shall be given as required by Sections 917.2 and 917.5 of the Code of Civil Procedure as a condition to any stay.

(Amended by Stats. 1998, Ch. 931, Sec. 148. Effective September 28, 1998.)

17336.
  

(a) Fidelity Corporation shall have independent authority to investigate claims filed by members pursuant to Section 17330.

(b) Fidelity Corporation, upon submitting written notice to the commissioner, may conduct an examination or investigation of the business practices of a member’s handling and processing of trust obligations or the failure to pay an assessment under Section 17320, 17321, or 17321.1. The result of every investigation or examination shall be reported to the commissioner together with the recommendations of the Board of Directors of Fidelity Corporation. The investigation or examination reports prepared by the duly designated representatives of the board of the Escrow Agents’ Fidelity Corporation shall not be public records.

(c) Fidelity Corporation may submit reports and make recommendations to a member on its findings as a result of an examination or investigation conducted pursuant to this section. These reports and recommendations shall not be public documents. A copy of all reports and recommendations shall be furnished to the commissioner by Fidelity Corporation. There shall be no liability on the part of, and no cause of action of any nature shall arise against, Fidelity Corporation or its members, directors, officers, employees, stockholders, or agents or the commissioner or commissioner’s authorized representatives for any statements made by them in any reports or recommendations made hereunder.

(d) Fidelity Corporation, upon the request of the commissioner, may participate in an examination or investigation of the books and records of a member. There shall be no liability on the part of, and no cause of action of any nature shall arise against, the State of California, the commissioner, or members of the commissioner’s staff or the commissioner’s authorized representative for the release of any information furnished to Fidelity Corporation pursuant to this subdivision.

(e) With the written consent of a majority of its directors, Fidelity Corporation, in order to fulfill its obligations under this section, may appoint an independent certified public accountant or public accountant or hire or appoint a specialized committee or employees to conduct an examination or investigation authorized by this section. Any reports as a result thereof shall be furnished to the commissioner pursuant to the provisions of subdivision (c).

(f) For the purposes of conducting an examination or investigation, Fidelity Corporation or its appointee shall have free access to the offices and places of business, books, accounts, bank account records and statements, papers, records, files, safes and vaults of the member.

(g) Fidelity Corporation may cause an examination or audit of the places of business, books, accounts, bank account records, papers, records, files, safes and vaults of a member to be conducted in accordance with Fidelity Corporation’s bylaws and rules.

(h) Costs and expenses for the examination or investigation conducted pursuant to subdivision (b) shall be paid to the Fidelity Corporation by the licensee, its shareholders, directors, and officers, or person examined, each of whom shall be jointly and severally liable therefor. The Fidelity Corporation may maintain an action for recovery of these costs in any court of competent jurisdiction, and shall recover its reasonable costs and attorney’s fees as an item of costs as provided for in paragraph (10) of subdivision (a) and paragraph (5) of subdivision (c) of Section 1033.5 of the Code of Civil Procedure, provided that the payment of the costs and attorney’s fees will not cause the member to be in violation of Section 17202, 17202.1, or 17210.

(i) Fidelity Corporation, any member of Fidelity Corporation, an agent of Fidelity Corporation or of its members, or any person who uses any information obtained under this section for any purpose not authorized herein is guilty of a misdemeanor.

(j) Fidelity Corporation may cause an examination or audit of a member, to be conducted in accordance with Fidelity Corporation’s Bylaws and Rules, whenever:

(1) The member has failed to pay an assessment as provided for under Section 17320, 17321, or 17321.1.

(2) Fidelity Corporation has received any information of irregular or improper handling of the trust obligations of the member or of an occurrence which may give rise to a claim for loss of trust obligations.

(3) Fidelity Corporation so elects, either with or without notice.

(k) Costs and expenses for any examination under this section shall be paid for by the member. Fidelity Corporation shall also be entitled to recover costs and expenses for any examination under this section from those persons, if any, who are discovered to be responsible for, or to have caused, any irregular or improper handling of trust obligations of the member or any occurrence which may give rise to a claim for loss of trust obligations, or otherwise by failure to cooperate, unnecessarily increase the cost of the examination. Fidelity Corporation may maintain an action for recovery of these examination costs and expenses in any court of competent jurisdiction, and shall recover its reasonable costs and attorney’s fees as an item of costs, as provided for in paragraph (10) of subdivision (a) and paragraph (5) of subdivision (c) of Section 1033.5 of the Code of Civil Procedure, provided that the payment of the costs and attorney’s fees will not cause the member to be in violation of Section 17202, 17202.1, or 17210.

(Amended by Stats. 1993, Ch. 492, Sec. 4. Effective January 1, 1994.)

17337.
  

Fidelity Corporation may invest its funds only as provided by rules of the commissioner adopted with a view to preserving reasonable liquidity.

Upon request of the commissioner, Fidelity Corporation shall furnish an authorization for disclosure to the commissioner of financial records of funds pursuant to Section 7473 of the Government Code.

(Amended by Stats. 1985, Ch. 1560, Sec. 25. Effective October 2, 1985.)

17339.
  

Prior to incurring any extraordinary or nonrecurring expense, Fidelity Corporation shall first obtain the written consent of the commissioner.

(Amended by Stats. 1988, Ch. 1458, Sec. 26. Effective September 28, 1988.)

17340.
  

In the event the board of directors of Fidelity Corporation deem it necessary and prudent to raise additional moneys for payment of claims or expenses of administration, it may, with the commissioner’s written consent, borrow money against its assets, including future assessments.

(Repealed and added by Stats. 1988, Ch. 1458, Sec. 28. Effective September 28, 1988.)

17341.
  

The commissioner shall give prompt notice to Fidelity Corporation when the commissioner takes possession of the property and business of a member and shall give further prompt notice when the commissioner determines to liquidate the property and business of a member.

(Amended by Stats. 1985, Ch. 1560, Sec. 29. Effective October 2, 1985.)

17342.
  

Memberships issued by Fidelity Corporation shall be nontransferable and shall be exempt from the provisions of the Corporate Securities Law of 1968.

(Amended by Stats. 1985, Ch. 1560, Sec. 30. Effective October 2, 1985.)

17343.
  

No provision of the Insurance Code shall apply to Fidelity Corporation.

(Amended by Stats. 1985, Ch. 1560, Sec. 31. Effective October 2, 1985.)

17344.
  

The operation of Fidelity Corporation shall at all times be subject to the regulation of the commissioner and the commissioner’s duly designated representatives. The commissioner and the commissioner’s duly designated representatives may at any time investigate the affairs and examine the books, accounts, records, and files used by Fidelity Corporation. The commissioner and the commissioner’s duly designated representatives shall have free access to the offices, books, accounts, papers, records, files, safes, and vaults of Fidelity Corporation.

(Amended by Stats. 1985, Ch. 1560, Sec. 32. Effective October 2, 1985.)

17345.
  

Any member aggrieved by any action or decision of Fidelity Corporation may appeal to the commissioner within 30 days from the action or decision, except that all matters relating to claims for loss of trust obligations shall be decided under Section 17345.1. The commissioner’s decision on appeal shall be made within 60 days from the date of the appeal and shall be considered final.

(Repealed and added by Stats. 1997, Ch. 370, Sec. 3. Effective January 1, 1998.)

17345.1.
  

(a) A member or successor in interest aggrieved by any action or decision of Fidelity Corporation may file a written request for a hearing with the commissioner within 30 days from the action or decision.

(b) (1) Except as provided in subdivision (c), the hearing shall be conducted by an administrative law judge on the staff of the Office of Administrative Hearings and the administrative law judge’s proposed decision shall be made within 120 days from the date of the request for hearing. This time limit does not constitute a jurisdictional deadline and may be extended by stipulation of the parties or by order of the administrative law judge for good cause.

(2) The hearing shall be conducted in accordance with the administrative adjudication provisions of Chapters 4.5 (commencing with Section 11400) and Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, except as specified in this subdivision.

(3) The following sections of the Government Code shall not apply to a hearing under this subdivision: Section 11503 (relating to accusations), Section 11504 (relating to statements of issues), Section 11505 (relating to contents of the statement to respondent), Section 11506 (relating to the notice of defense), Section 11507 (relating to amended or supplemental accusations), and Section 11516 (relating to amendment of accusations after submission of case).

(4) The sole parties to the hearing shall be the member or successor in interest (complainant) and Fidelity Corporation (respondent). Third-party intervention shall not be permitted. The disputes, claims, and interests of third parties shall not be within the jurisdiction of the proceedings. However, nothing in this paragraph prohibits any interested party from submitting an amicus brief upon approval by the administrative law judge, after a duly noticed motion demonstrating good cause.

(5) Within 10 days of receipt of the request for a hearing, the commissioner shall schedule the hearing with the Office of Administrative Hearings and shall serve each party by personal service or mail with notice of the hearing, which is to include the date, time, and place of the hearing.

(A) Within 10 days of service of the notice of hearing, the complainant shall file with the Office of Administrative Hearings, and serve upon the respondent by personal service or mail, a written statement setting forth the matters to be considered at the hearing in sufficient detail to permit the respondent to prepare and present its response. The statement shall contain the following:

(i) A brief statement of the facts that give rise to the hearing.

(ii) A statement of the issues to be considered at the hearing including relevant statutes and rules. If the statement includes issues not raised in the proof of loss claim or considered by respondent in its decision, respondent may move for abatement of the proceedings for consideration of those issues by respondent. The administrative law judge may abate the proceedings for a period not to exceed 60 days from the issuance of the order to abate. The administrative law judge may extend the time period for good cause upon motion by respondent or by stipulation of the parties. If respondent has not issued a revised decision within the period of abatement, the administrative law judge shall reset the matter for hearing.

(B) Within 20 days of service of the statement, respondent may file with the Office of Administrative Hearings, and serve upon the complainant by personal service or mail a written response to the statement.

(C) The statement of issues and response may be amended upon completion of discovery, except that notice of the amendment shall be no later than 30 days before the date set for hearing.

(6) Where the statement of issues includes a claim for a loss of trust obligations that has been denied by respondent, complainant shall bear the burden of establishing by a preponderance of the evidence that a loss as defined in Section 17304 has occurred and that respondent is required to pay the claim in accordance with this chapter. Each legal issue shall be adjudicated in the proposed decision and the commissioner’s decision, except for any issue either withdrawn or waived by complainant or respondent, upon the submission of the case after hearing.

(7) Any party may move for a judgment on the pleadings or summary judgment, as a dispositive motion, pursuant to the Rules of Procedure of the Office of Administrative Hearings. The evidence in support of and standards for deciding the motions shall be as set forth in the Code of Civil Procedure. If the administrative law judge denies the motion, the matter shall be heard on the merits by the administrative law judge. If the administrative law judge grants the motion, the order shall be in the form of a proposed decision to the commissioner pursuant to subdivision (b) of Section 11517 of the Government Code.

(8) Nothing in this section shall be construed to require the losing party to pay the other party’s costs and expenses, including attorney’s fees.

(9) If the statement of issues is abated and respondent issues a revised decision, the parties may amend their pleadings within a reasonable period of time, as ordered by the administrative law judge.

(c) (1) If a request for hearing includes a claim for loss of trust obligations that has been denied by Fidelity Corporation and the claim involves the factors described in paragraph (3), the commissioner, upon the request of Fidelity Corporation and as provided herein, shall abstain from proceeding with a hearing. The matter may be adjudicated in a court of competent jurisdiction upon the filing of an action by the member or successor in interest. Fidelity Corporation shall notify the commissioner, in writing, of the grounds for abstention of jurisdiction within five days of the filing of the request for a hearing by the member or successor in interest. The commissioner shall rule on the abstention of jurisdiction request within 10 days of the notice and the ruling shall be considered final. In making a determination on the request for abstention, the commissioner may examine and investigate all facts connected with the request for abstention and may request information from any person as deemed necessary.

(2) If the commissioner denies the request for abstention of jurisdiction, the hearing shall be conducted in accordance with subdivision (b), except that compliance by the commissioner with paragraph (5) of subdivision (b) shall be within five days of the ruling denying the abstention request.

(3) The factors requiring abstention of jurisdiction by the commissioner are as follows:

(A) The claim for a loss is based upon an alleged escrow transaction in which an officer, director, trustee, stockholder, manager, or employee of the member was a principal to the transaction.

(B) The claim involves (i) the need to determine conflicting claims or disputes to real property and (ii) there is a potential for double recovery by any principal to an escrow.

(4) The commissioner shall abstain if determination of the claim will cause some escrows to have preferable or favorable treatment over the other escrows held by the member or successor in interest.

(Amended by Stats. 2011, Ch. 296, Sec. 97. Effective January 1, 2012.)

17346.
  

(a) Fidelity Corporation and its members shall not advertise, print, display, publish, distribute, or broadcast, or cause or permit to be advertised, printed, displayed, published, distributed, or broadcast, in any manner any statement or representation with regard to a guarantee of trust obligations in their advertisements that is false or misleading or calculated to deceive or misinform the public. Any statement or representation with regard to a guarantee of trust obligations, except the statement set forth in subdivision (b), shall be reviewed and approved by the commissioner prior to its use.

(b) Any advertising referring to Fidelity Corporation shall state in a clear and conspicuous manner, the following statement:

“MEMBER OF ESCROW AGENTS’ FIDELITY CORPORATION (EAFC). EAFC PROVIDES FIDELITY COVERAGE TO ITS MEMBERS.  EAFC IS NOT A GOVERNMENT AGENCY, AND THERE IS NO GUARANTEE OF A PAYMENT OF ANY CLAIM BY THE STATE OF CALIFORNIA.”

(c) Neither Fidelity Corporation nor its members shall advertise that trust obligations of escrow agents are “protected,” “guaranteed,” “insured,” or use words to that effect.

(Amended by Stats. 2007, Ch. 237, Sec. 2. Effective January 1, 2008.)

17347.
  

(a) The Secretary of State shall not file articles for the incorporation of Fidelity Corporation or an amendment to the articles unless the commissioner has issued a written approval of the articles or amendment.

(b) Fidelity Corporation shall not adopt any bylaws or amendments thereto without the written consent of the commissioner. Within 60 calendar days from the receipt of any bylaws or amendments thereto, submitted to the commissioner, the commissioner shall inform Fidelity Corporation, in writing, that the bylaws or amendments are not disapproved, or that those bylaws or amendments are disapproved and specify the information needed to complete the submittal. Within 60 calendar days from the receipt of a complete submittal, the commissioner shall reach a decision on the submittal.

(Amended by Stats. 1992, Ch. 476, Sec. 6. Effective January 1, 1993.)

17348.
  

In order to permit Fidelity Corporation to fulfill its obligation under this chapter, the commissioner shall furnish a list of all persons licensed under this division as of December 31 of each year and a copy of an escrow liability schedule filed with the commissioner. Each member on or before February 15 shall furnish to the commissioner and Fidelity Corporation the schedule of its escrow liability for each of its licensed locations as of the last day of each month for the preceding 12 months which ended December 31. A list of officers, directors, stockholders, trustees, agents, managers, and employees as of that date shall also be submitted to Fidelity Corporation, with the schedule. The schedule shall be in the form and contain such information as the commissioner may require.

(Amended by Stats. 1993, Ch. 492, Sec. 5. Effective January 1, 1994.)

17349.
  

If Fidelity Corporation is dissolved, subject to the approval of the commissioner, the net assets after settling all liabilities shall be distributed to the members on the basis of the number of each member’s licensed locations compared to the total number of all members’ licensed locations.

(Amended by Stats. 1985, Ch. 1560, Sec. 36. Effective October 2, 1985.)

17350.
  

All costs and expenses incurred by the commissioner in the administration of this chapter shall be paid to the commissioner by Fidelity Corporation. The limitation on the total assessment for each year set forth in paragraph (1) of subdivision (e) of Section 17207 shall not apply to Fidelity Corporation’s payment of costs and expenses incurred by the commissioner in the administration of this chapter. The commissioner may institute an action for the recovery of costs and expenses incurred in the administration of this chapter in any court of competent jurisdiction.

(Amended by Stats. 1985, Ch. 1560, Sec. 37. Effective October 2, 1985.)

FINFinancial Code - FIN4.