In an expansion of the Golden State’s already comprehensive lobbying compliance framework, California Governor Gavin Newsom recently signed a bill (AB 1783) into law that broadens the jurisdiction’s lobbying rules to include activities aimed at influencing the state Insurance Commissioner and the Department of Managed Health Care. In doing so, Governor Newsom closed a loophole that had recently been exploited by two former state lawmakers in charging success fees for their lobbying efforts before the Insurance Commissioner.
The newly signed bill had been introduced after a Sacramento Bee report on the practices of two former California lawmakers – Rusty Areias and Fabian Nunez – who avoided state disclosure requirements for a $2 million success fee arrangement they negotiated for themselves in conjunction with their efforts to encourage the California Department of Insurance to permit an acquisition deal for their client Applied Underwriters. Under current California law, lobbyists are prohibited from charging success fees for achieving a desired outcome for their clients. The existing definition of lobbying under the state’s Political Reform Act, however, does not require registration for influence efforts of the types conducted by the former state legislators. Instead, registration obligations are limited to efforts to influence administrative actions, including the proposal, drafting, development, consideration, amendment, enactment, or defeat by any state agency of any rule, regulation, or other action in any ratemaking or quasi-legislative proceeding. The changes implemented by AB 1783, however, broaden the scope of the lobbying definition to include efforts to influence the decisions and approvals of the Insurance Commissioner and the Department of Managed Health Care.
For those doing business in California, the quick legislative response to media coverage of the success fee loophole indicate that state lawmakers are serious about enforcing compliance with applicable registration and reporting requirements, and willing to make modifications when people seek to circumvent the state’s regulatory regime. Moreover, the new legislation could very well just be the first step in a larger expansion of California’s lobbying restrictions into areas of political and policy influence previously considered beyond the scope of state law. With increased scrutiny of the government affairs space and lobbying practices in general, it will be important for stakeholders operating in Sacramento and elsewhere across California to stay apprised of this and other future changes to state law.
