My apologies for the stream of consciousness series of posts about the new statute that was signed into law last Friday, regulating the disposition of funds in a surrogacy arrangement. I have received numerous inquiries about the effect and scope of the law and it has provoked a number of questions.

So that my position is unequivocal, I do believe this industry needs to be regulated. The American Bar Association has a model act which goes a long way towards providing a framework to address many of these issues. While more work needs to be done on the ABA Model Act, it should serve as a guide to crafting future legislation. The passage of California AB 2426, while noble in concept, raises more problems than it resolves.

Another issue that occurred to me is that this statute may give attorney-owned surrogate agencies a competitive advantage over their non-attorney owned competitors. An attorney-owned surrogacy facilitator would be able to continue maintaining trust funds at no additional cost to their clients. For those agencies which are not owned by attorneys, they will need to require their clients to either retain the services of an attorney or escrow company at an additional cost (typically $1,500 – $2,000). As a result, those agencies that are not owned by attorneys would be disadvantaged solely due to a legislative presumption that an attorney’s fidelity and integrity are greater than that of a non-lawyer agency owner.

It also bears noting that while under this new law the escrow company must be licensed, bonded and have no conflict of interest with the surrogacy faciliator, the last two requirements do not apply to attorney owned agencies:

For purposes of this section, a nonattorney surrogacy facilitator may not have a financial interest in any escrow company
holding client funds. A nonattorney surrogacy facilitator and any of its directors or employees shall not be an agent of any escrow
company holding client funds.

So to summarize, it is acceptable for an attorney surrogacy faciliator to have a financial interest in the agency and not be bonded (or have any kind of liability coverage), but not for the escrow company. Throw in the additional conflict of interest that exists when the attorney-owned and operated surrogacy agency is also representing the Intended Parents, and the Surrogate in a legal capacity and you have accomplished little to address the overriding concerns in this industry. Parenthetically, under the ABA Model Act, the Gestational Carrier’s compensation has to be placed in escrow with an independent escrow agent prior to the commencement of any medical procedures. Notably, there was no special exception for attorneys or agencies owned by attorneys.

Lastly, given the language of §7960(a)(1), it is unclear whether the law applies to out-of-state surrogacy agencies who solicit California Intended Parents and/or Surrogates. If so, it means all agencies who work with California Intended Parents and/or Surrogates will not be permitted to maintain trust funds but instead would have to require their clients to retain the services of an escrow company or a California attorney. While a boon for California based, attorney-owned surrogacy agencies, it will have an anti-competition impact nationwide while potentially limiting the ability of out-of-state agencies (and their Intended Parents) to work with California Surrogates.

Again, I cannot help but to cynically think that there was an ulterior agenda behind this legislation and we have lost out on an important opportunity to pass serious and meaningful legislation that would protect the infertility community. I also have to wonder if this statute is so infirmed that it would not survive a judicial challenge.