[atlas:bill]

AN ACT Relating to limiting a nonprofit corporation's right to contract with the state when certain acts of misfeasance, malfeasance, or nonfeasance have occurred; amending RCW 24.03.005; adding new sections to chapter 24.03 RCW; adding a new section to chapter 43.24 RCW; adding a new section to chapter 43.41 RCW; adding new sections to chapter 43.17 RCW; and providing an effective date.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. A new section is added to chapter 24.03 RCW to read as follows:

(1) Any department or agency of the state may apply to the secretary of state for the administrative suspension of a corporation or foreign corporation's certificate of incorporation if the agency establishes that the corporation or foreign corporation meets any of the criteria established under section 7 of this act. The application must state the legal name of the corporation or foreign corporation, a description of the reasons for the request, and the names of other agencies the applicant is aware of which have contracted with, or have a contract with, the corporation or foreign corporation.

(2) Upon receiving an application under subsection (1) of this section, the secretary of state shall issue a certificate of suspension which will be filed in the secretary of state's office, mailed to the corporation or foreign corporation according to subsection (3) of this section, and mailed to any agencies the secretary of state knows the corporation or foreign corporation has contracted with.

(3) If the secretary of state suspends a corporation or foreign corporation's certificate of incorporation under subsection (1) of this section, the secretary shall provide written notice by certified mail addressed to the corporation or foreign corporation's registered agent. If, according to the records of the secretary of state, the corporation or foreign corporation does not have a registered agent, the notice may be given by first class mail addressed to the corporation or foreign corporation's last known address or at the address of any corporation or foreign corporation officer or director. Notice is deemed to have been given five days after the date the notice is deposited in the mail, correctly addressed, and with correct postage affixed. The notice shall inform the corporation or foreign corporation that its certificate is suspended, the reasons for the suspension, the corporation or foreign corporation's right to request an adjudicative proceeding to contest the suspension within twenty days of the date of notice, and the procedures for appealing the suspension under section 2 of this act. Included with the notice shall be the certificate of suspension.

(4) Upon the filing of a certificate of suspension under subsection (2) of this section, the authority of the corporation or foreign corporation to enter into personal service or client service contracts with the state shall cease. The filing of a certificate of suspension shall not otherwise affect the corporation or foreign corporation's authority to conduct affairs in the state, or to defend any action, suit, or proceeding in any court of this state. The filing of a certificate of suspension shall not impair any remedy available to or against such corporation or foreign corporation, its directors, officers, members, or shareholders, for any right or claim, or liability incurred. The filing of a certificate of suspension shall not relieve the corporation or foreign corporation of complying with any applicable requirements, obligations, or fees established under this chapter.

(5) Upon the filing of a certificate of suspension under subsection (2) of this section, the secretary shall notify the department of licensing of the suspension. The notice shall include the corporation or foreign corporation's unified business identifier number.

NEW SECTION. Sec. 2. A new section is added to chapter 24.03 RCW to read as follows:

(1) A corporation or foreign corporation may request an adjudicative proceeding upon service of the notice described in section 1 of this act. The request for an adjudicative proceeding must be received by the secretary within twenty days of service.

(2) The request must be in writing and indicate the current mailing address and daytime phone number, if available, of the corporation or foreign corporation. The proceedings under this subsection shall be conducted in accordance with the requirements of chapter 34.05 RCW. The secretary may enter into an agreement with another public entity to provide the adjudicative proceeding.

(3) If a corporation or foreign corporation timely requests an adjudicative proceeding pursuant to subsection (1) of this section, the secretary may not suspend the certificate of incorporation of the corporation or foreign corporation unless the adjudicative proceeding results in a finding that the corporation or foreign corporation meets any of the criteria developed by the office of financial management pursuant to section 7 of this act.

(4) The decision resulting from the adjudicative proceeding must be in writing and inform the corporation or foreign corporation of its right to review. The corporation or foreign corporation's copy of the decision may be sent by regular mail to the corporation or foreign corporation's most recent address of record.

NEW SECTION. Sec. 3. A new section is added to chapter 24.03 RCW to read as follows:

(1) The secretary of state shall cancel the certificate of suspension and reinstate the articles of incorporation to unrestricted status of a corporation or foreign corporation who has had its certificate of incorporation suspended pursuant to section 1 of this act, if either the secretary of state has determined that the corporation or foreign corporation has remedied the misfeasance, malfeasance, or nonfeasance that led to the suspension and taken sufficient corrective action to prevent a reoccurrence of the misfeasance, malfeasance, or nonfeasance, or a court of competent jurisdiction or an administrative law judge has ordered the secretary to reinstate the certificate of incorporation. The secretary shall make a determination regarding reinstatement after considering recommendations made by the agency that applied to the secretary for suspension of the corporation or foreign corporation's certificate of incorporation.

(2) To reinstate the articles of incorporation of a corporation or foreign corporation, the secretary of state shall cancel the certificate of suspension, prepare and file a certificate of reinstatement, and mail a copy of both certificates to the corporation or foreign corporation. The certificates shall be sent by certified mail addressed to the corporation or foreign corporation's registered agent. If, according to the records of the secretary of state, the corporation or foreign corporation does not have a registered agent, the certificates may be sent by first class mail addressed to the corporation or foreign corporation's last known address or at the address of any corporation or foreign corporation officer or director. Notice is deemed to have been given five days after the date the notice is deposited in the mail, correctly addressed, and with correct postage affixed.

(3) Upon the filing of a certificate of reinstatement, the secretary of state shall notify the department of licensing of the reinstatement. The notice shall include the corporation or foreign corporation's unified business identifier number.

(4) Reinstatement under this section relates back to and takes effect as of the date of suspension. The corporate authority shall be deemed to have continued without interruption from that date.

NEW SECTION. Sec. 4. A new section is added to chapter 24.03 RCW to read as follows:

(1) A corporation or foreign corporation that has had its certificate of incorporation suspended for the purpose of contracting with the state may not enter into any contract for personal services or client services with the state until the secretary of state reinstates the corporation or foreign corporation's articles of incorporation to unrestricted status.

(2) A corporation or foreign corporation whose certificate of incorporation has been suspended by the secretary of state pursuant to section 1 of this act may not maintain any action, suit, or proceeding in any court of this state arising out of a contract entered into with a state agency in violation of subsection (1) of this section until such corporation or foreign corporation shall have obtained a certificate of reinstatement under section 3 of this act.

NEW SECTION. Sec. 5. A new section is added to chapter 24.03 RCW to read as follows:

(1) A corporation or foreign corporation whose certificate of incorporation has been suspended under section 1 of this act may petition the secretary of state for reinstatement after an interval determined by the secretary.

(2) Upon a petition by a corporation or foreign corporation, the secretary of state shall request a recommendation by the applying agency under section 9 of this act. Within five working days of receiving the recommendation, the secretary shall determine whether the corporation or foreign corporation has remedied the misfeasance, malfeasance, or nonfeasance that was the subject of the original application and taken sufficient corrective action to prevent a reoccurrence of the misfeasance, malfeasance, or nonfeasance. If the secretary determines that reinstatement is appropriate, he or she shall reinstate the corporation or foreign corporation's articles of incorporation consistent with section 3 of this act. If the secretary determines that reinstatement is not appropriate, he or she shall notify the corporation or foreign corporation of the decision, the corporation or foreign corporation's right to appeal, and the procedures for filing an appeal. The notice shall be sent by regular mail addressed to the corporation or foreign corporation's registered agent. If, according to the records of the secretary of state, the corporation or foreign corporation does not have a registered agent, the notice may be sent by first class mail addressed to the corporation or foreign corporation's last known address or at the address of any corporation or foreign corporation officer or director. Notice is deemed to have been given five days after the date the notice is deposited in the mail, correctly addressed, and with correct postage affixed.

(3) A corporation or foreign corporation may request an adjudicative proceeding upon service of the notice described in subsection (2) of this section. The request for an adjudicative proceeding must be received by the secretary within twenty days of service. The request must be in writing and indicate the current mailing address and daytime phone number, if available, of the corporation or foreign corporation. The proceedings under this subsection shall be conducted in accordance with the requirements of chapter 34.05 RCW. The secretary may enter into an agreement with another public entity to provide the adjudicative proceeding.

(4) In any hearing under this section, the applying agency shall be represented.

(5) The decision resulting from the adjudicative proceeding must be in writing and inform the corporation or foreign corporation of its right to review. The corporation or foreign corporation's copy of the decision may be sent by regular mail to the corporation or foreign corporation's most recent address of record.

NEW SECTION. Sec. 6. A new section is added to chapter 43.24 RCW to read as follows:

Upon receiving a notice from the secretary of state under section 1 of this act of the suspension of a corporation or foreign corporation's articles of incorporation, or a notice under section 3 of this act of the reinstatement of a corporation or foreign corporation's article of incorporation to unrestricted status, the director shall so indicate on electronic records containing unified business identifiers.

NEW SECTION. Sec. 7. A new section is added to chapter 43.41 RCW to read as follows:

(1) The director shall develop specific criteria to determine whether a corporation or foreign corporation that contracts with the state to provide personal services or client services should be reported to the secretary of state under section 10 of this act. The criteria shall describe misfeasance, malfeasance, or nonfeasance by a corporation or foreign corporation related to performance of a personal service or client service contract with a state agency that warrants the suspension of its authority to contract with the state, and shall include, but is not limited to the following criteria:

(a) Failure to meet reporting requirements;

(b) Fraud;

(d) Failure to comply, timely complete, or repeatedly violate a corrective action plan;

(e) Material breach of contract;

(f) Default on performance of material terms of the contract;

(g) Gross nonperformance;

(h) Significant overpayments; and

(i) Significant double billing.

(2) The director shall develop general guidelines for when a state agency should recommend to the secretary of state that a corporation or foreign corporation's articles of incorporation should be reinstated to unrestricted status. The guidelines shall correspond to the criteria developed in subsection (1) of this section.

NEW SECTION. Sec. 8. A new section is added to chapter 43.17 RCW to read as follows:

(1) A state agency may not contract with a corporation or foreign corporation for personal services or client services for as long as a corporation or foreign corporation's certificate of incorporation is suspended by the secretary of state pursuant to section 1 of this act.

(2) Within three months of being notified of the suspension of a corporation or foreign corporation's certificate of incorporation pursuant to section 1 of this act, a state agency shall terminate any contracts for personal services or client services the agency has entered into with the corporation or foreign corporation.

(3) State agencies shall place in all contracts with corporations or foreign corporations for personal services or client services clauses notifying the corporations or foreign corporations of the provisions of this act.

(4) An agency shall competitively procure any contract for client services when the prior contract was terminated because the corporation or foreign corporation's certificate of incorporation was suspended by the secretary of state under section 1 of this act. The competitive procurement process shall conform to the requirements of chapter 39.29 RCW.

(5) Prior to entering into a contract for personal services or client services with a corporation or foreign corporation, an agency shall check the department of licensing's electronic records of unified business identifiers to determine if the corporation or foreign corporation has had its certificate of incorporation suspended under section 1 of this act.

NEW SECTION. Sec. 9. A new section is added to chapter 43.17 RCW to read as follows:

(1) An agency, which has applied to the secretary of state to suspend the certificate of incorporation of a corporation or foreign corporation under section 1 of this act, shall recommend that the secretary of state reinstate the corporation or foreign corporation's certificate of incorporation if the corporation or foreign corporation has remedied the misfeasance, malfeasance, or nonfeasance that was the subject of the application and the agency determines that the corporation or foreign corporation has taken sufficient corrective action to prevent a reoccurrence of the misfeasance, malfeasance, or nonfeasance. In making this determination, the agency shall use the guidelines developed by the office of financial management under section 7 of this act.

(2) The recommendation will be in writing and shall include a copy of the original application and a description of the reasons for the recommendation.

(3) Upon the request of the secretary of state, an agency shall provide the secretary with a recommendation regarding whether the secretary should reinstate the corporation or foreign corporation's articles of incorporation to unrestricted status. The recommendation shall be in accordance with subsection (1) of this section. The agency shall provide the recommendation to the secretary of state within ten working days of the request.

NEW SECTION. Sec. 10. A new section is added to chapter 43.17 RCW to read as follows:

(1) If a nonprofit corporation or foreign corporation that is a party to a contract for personal services or client services with a state agency meets any of the criteria developed by the office of financial management under section 2 of this act, the state agency shall apply to the secretary of state for suspension of the corporation or foreign corporation's certificate of incorporation pursuant to section 1 of this act.

(2) A state agency that makes an application under subsection (1) of this section shall notify the corporation or foreign corporation of the application. Notice shall be by first class mail to the corporation or foreign corporation's last known address.

Sec. 11. RCW 24.03.005 and 1989 c 291 s 3 are each amended to read as follows:

As used in this chapter, unless the context otherwise requires, the term:

(1) "Corporation" or "domestic corporation" means a corporation not for profit subject to the provisions of this chapter, except a foreign corporation.

(2) "Foreign corporation" means a corporation not for profit organized under laws other than the laws of this state.

(3) "Not for profit corporation" or "nonprofit corporation" means a corporation no part of the income of which is distributable to its members, directors or officers.

(4) "Articles of incorporation" and "articles" mean the original articles of incorporation and all amendments thereto, and includes articles of merger and restated articles.

(5) "Bylaws" means the code or codes of rules adopted for the regulation or management of the affairs of the corporation irrespective of the name or names by which such rules are designated.

(6) "Member" means an individual or entity having membership rights in a corporation in accordance with the provisions of its articles or incorporation or bylaws.

(7) "Board of directors" means the group of persons vested with the management of the affairs of the corporation irrespective of the name by which such group is designated in the articles or bylaws.

(8) "Insolvent" means inability of a corporation to pay debts as they become due in the usual course of its affairs.

(9) "Duplicate originals" means two copies, original or otherwise, each with original signatures, or one original with original signatures and one copy thereof.

(10) "Conforms to law" as used in connection with duties of the secretary of state in reviewing documents for filing under this chapter, means the secretary of state has determined that the document complies as to form with the applicable requirements of this chapter.

(11) "Effective date" means, in connection with a document filing made by the secretary of state, the date which is shown by affixing a "filed" stamp on the documents. When a document is received for filing by the secretary of state in a form which complies with the requirements of this chapter and which would entitle the document to be filed immediately upon receipt, but the secretary of state's approval action occurs subsequent to the date of receipt, the secretary of state's filing date shall relate back to the date on which the secretary of state first received the document in acceptable form. An applicant may request a specific effective date no more than thirty days later than the receipt date which might otherwise be applied as the effective date.

(12) "Executed by an officer of the corporation," or words of similar import, means that any document signed by such person shall be and is signed by that person under penalties of perjury and in an official and authorized capacity on behalf of the corporation or person making the document submission with the secretary of state.

(13) "An officer of the corporation" means, in connection with the execution of documents submitted for filing with the secretary of state, the president, a vice president, the secretary, or the treasurer of the corporation.

(14) "Public benefit not for profit corporation" or "public benefit nonprofit corporation" means a corporation no part of the income of which is distributable to its members, directors, or officers and that holds a current tax exempt status as provided under 26 U.S.C. Sec. 501(c)(3) or is specifically exempted from the requirement to apply for its tax exempt status under 26 U.S.C. Sec. 501(c)(3).

(15) "Personal services and client services" have the meaning given to them under chapter 39.29 RCW.

(16) "Suspended certificate of incorporation" means a certificate of incorporation that is evidence that all conditions precedent required to be performed by the incorporators have been complied with and that the corporation may conduct affairs in this state, except for entering into personal service or client service contracts with the state.

NEW SECTION. Sec. 12. This act takes effect August 1, 1999.