Legislature(2017 - 2018)HOUSE FINANCE 519

04/26/2017 01:30 PM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed to a Call of the Chair --
Moved HB 131 Out of Committee
Moved HB 128 Out of Committee
Heard & Held
Moved CSHB 76(FSH) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
HOUSE BILL NO. 124                                                                                                            
     "An Act relating to corporations, including benefit                                                                        
     corporations, and other entities; and providing for an                                                                     
     effective date."                                                                                                           
2:15:57 PM                                                                                                                    
Co-Chair Foster  indicated there  was one amendment  that he                                                                    
would be offering. He asked  the bill sponsor to provide the                                                                    
committee with a recap of the bill.                                                                                             
REPRESENTATIVE  SAM KITO,  SPONSOR,  reviewed  the bill.  He                                                                    
explained  that  the  bill established  a  charter  type  of                                                                    
corporation that would  allow a company to  have, within its                                                                    
bi-laws, operations  plan, and  activities more than  just a                                                                    
fiduciary responsibility to its  shareholders. They would be                                                                    
allowed,  under the  "B" corporation  statute, to  provide a                                                                    
public benefit. The  public benefit would be  defined in the                                                                    
organizing  documents of  the  corporation.  He had  covered                                                                    
several questions.  He would defer  to his staff  to present                                                                    
his position on the amendment.                                                                                                  
Co-Chair Foster  reviewed the  list of  available testifiers                                                                    
Co-Chair Foster MOVED to ADOPT Amendment 1 (copy on file):                                                                      
Page 15, following line 2:                                                                                                      
     Insert a new section to read:                                                                                              
          "Sec. 10.60.725. Reliance by  third parties. (a) A                                                                    
          person  who,   in  good  faith,  centers   into  a                                                                    
          transaction with a benefit corporation may                                                                            
               (1)   assume   without   inquiry   that   the                                                                    
               transaction, and  each action or  inaction by                                                                    
               any  director  or   officer  of  the  benefit                                                                    
               corporation    giving     effect    to    the                                                                    
               transaction,   is  in   furtherance  of   the                                                                    
               benefit corporation's  general public benefit                                                                    
               purpose or  specific public  benefit purpose;                                                                    
               (2)  enforce  the   transaction  against  the                                                                    
               benefit corporation as  if the transaction is                                                                    
               in furtherance  of the  benefit corporation's                                                                    
               general  public benefit  purpose or  specific                                                                    
               public benefit purpose.                                                                                          
          (b)  Nothing in  this  section  exempts a  covered                                                                    
          financial   institution   from   identifying   and                                                                    
          verifying the  beneficial owner of a  legal entity                                                                    
          that is a customer as  required under a federal or                                                                    
          state  law  or  regulation.  In  this  subsection,                                                                    
          "covered  financial institution"  has the  meaning                                                                    
          given in 31 C.F.R. 1010.605."                                                                                         
Representative Wilson OBJECTED for discussion.                                                                                  
2:18:24 PM                                                                                                                    
BIANCA CARPENETI, STAFF,  REPRESENTATIVE SAM KITO, indicated                                                                    
that  the amendment  was a  friendly  safe harbor  amendment                                                                    
proposed  by the  Alaska Bankers  Association. The  proposed                                                                    
language  was  intended  to   function  much  like  Alaska's                                                                    
certificate of trust statute.  In particular, the subsection                                                                    
of the trust statute  was AS 13.36.079(f)(g). The provisions                                                                    
provided third  parties transacting  business with  a trust.                                                                    
They could  rely on a  trust statement that  the transaction                                                                    
was  permitted  by  the trust,  and,  as  such,  enforceable                                                                    
against  the  trust. The  intent  of  the amendment  was  to                                                                    
provide  the same  contractual  certainty  to third  parties                                                                    
that  contracted  businesses  with proposed  public  benefit                                                                    
Ms.  Carpeneti  turned to  Article  5,  Actions and  Claims,                                                                    
Sections 10,  60, 300, and  320 of the  proposed legislation                                                                    
found on pages  9 and 10. The section  provided that parties                                                                    
might bring action against a  public benefit corporation for                                                                    
failing  to  pursue  or  create   a  public  benefit.  Since                                                                    
monetary  damages  were  not permitted  under  the  proposed                                                                    
legislation,  the  likely  relief  would  be  injunctive  in                                                                    
nature.  The relief  could  theoretically  include a  court,                                                                    
setting aside  a contract under  the theory that it  did not                                                                    
satisfy  or further  a public  benefit. Absent  the proposed                                                                    
language,  third parties  might  feel compelled  to make  an                                                                    
independent assessment of  whether the transaction satisfied                                                                    
or furthered a  public benefit. She relayed  that there were                                                                    
some  concerns  that sort  of  analysis  might increase  the                                                                    
costs  of  completing  transactions   and  might  make  some                                                                    
transactions more difficult to complete.                                                                                        
Ms. Carpeneti  reported that the bill  sponsor's position on                                                                    
the amendment was neutral. He  consulted with William Clark,                                                                    
the lawyer that  testified in front of the  committee at the                                                                    
prior  bill  hearing,  who  understood  the  intent  of  the                                                                    
amendment but thought it might  go too far. Specifically, he                                                                    
had  concerns with  subsection 2  regarding the  non-benefit                                                                    
corporation  part of  the contract.  He  disagreed that  the                                                                    
non-benefit corporation  should not  have a duty  to inquire                                                                    
about the  purpose of the  contract, but it might  have said                                                                    
too much to  allow the other party to enforce  a contract in                                                                    
all cases.  If a court  declined to enforce a  contract, the                                                                    
other party  would still  be protected  because it  would be                                                                    
entitled  to any  damages it  could prove.  She relayed  Mr.                                                                    
Clark's suggestion  was to strike subsection  2. Although he                                                                    
noted  that   his  concerns  were  not   extremely  serious.                                                                    
Representative Kito's office also  contacted DCCED to see if                                                                    
there  were  any  concerns  about  the  proposed  amendment.                                                                    
Responses  were  received  from  Janey  Hovenden,  Director,                                                                    
Division   of   Corporations,  Business   and   Professional                                                                    
Licensing. She noted that the  division did not see an issue                                                                    
with  the  proposed  changes. Representative  Kito's  office                                                                    
also heard from  Kevin Anselm from the  Division of Banking.                                                                    
The  division requested  the addition  of  subsection 3,  as                                                                    
provided in the amendment before the committee.                                                                                 
PETER PINNOW, SENIOR COUNCIL,  WELLS FARGO, MINNEAPOLIS, MN,                                                                    
referred to section 2 and  indicated the intent was to track                                                                    
the same rights and the  same protections afforded under the                                                                    
trust certificate statute that was referenced.                                                                                  
2:22:33 PM                                                                                                                    
Co-Chair  Seaton commented  that either  the general  public                                                                    
benefit or  the specific  public benefit  were not  the sole                                                                    
reason  for  the  company's  existence.  He  read  from  the                                                                    
amendment (see above).  He understood that in  a trust there                                                                    
was   an  obligation   to  only   act  on   behalf  of   the                                                                    
beneficiaries  of the  trust. The  amendment encompassed  an                                                                    
additional  benefit that  was offered  by a  corporation but                                                                    
was  not its  sole benefit.  He thought  the language  would                                                                    
interfere with  a company's  right to make  a profit  by not                                                                    
furthering  the  specific  or  benefit  purpose.  He  wanted                                                                    
someone  to  address the  issue  of  mixing trusts  with  an                                                                    
auxiliary purpose, which could become problematic.                                                                              
Mr.  Pinnow  understood  the  representative's  comment.  He                                                                    
explained  that   whenever  there   was  a   public  benefit                                                                    
requirement imposed by a statute  Wells Fargo wanted to make                                                                    
sure it  had contractual certainty.  It did not want  to run                                                                    
the risk of  having its contracts set aside  with 20/20 hind                                                                    
sight.  The proposal  was intended  to  ensure that  parties                                                                    
transacting business with a  public benefit corporation felt                                                                    
safe and  secure that the  contract they entered  into would                                                                    
not be  set aside in  the future  under the theory  that the                                                                    
contract did  not further the public  benefit. He reiterated                                                                    
that  the intent  was  to make  sure  there was  contractual                                                                    
certainty. He explained that the  reason he analogized it to                                                                    
the trust  certificate was because,  much like  parties that                                                                    
transacted  business with  trusts,  they needed  contractual                                                                    
certainty  that  the  transaction   was  authorized  and  in                                                                    
furtherance  of the  trust  purpose. As  a  third party  who                                                                    
would  be  interacting  and  lending   money  to  a  benefit                                                                    
corporation,  Wells Fargo  would want  to make  sure it  had                                                                    
certainty  just  as  a  third   party  relying  on  a  trust                                                                    
certificate would.                                                                                                              
2:27:09 PM                                                                                                                    
Co-Chair Seaton remarked that  general benefits and specific                                                                    
benefits  were additional  values  to the  operation of  the                                                                    
corporation.   Neither  were   the  sole   purpose  of   the                                                                    
corporation.  He thought  that,  the way  the amendment  was                                                                    
written, the entirety of the  contract had to accomplish the                                                                    
accessory  benefit,  rather  than  the  sole  purpose  of  a                                                                    
corporation. A trust  had a sole purpose.  He suggested that                                                                    
the  amendment   was  converting  the  general   benefit  or                                                                    
specific benefit  into the sole  purpose of the  company and                                                                    
that everything  in the  contract would  have to  comply. He                                                                    
asked Mr. Pinnow to comment  on the potential interpretation                                                                    
of the language contained in the amendment.                                                                                     
Mr.  Pinnow did  not  believe the  purpose  of the  language                                                                    
would require that a public  benefit corporation only engage                                                                    
in  transactions  that would  serve  a  public benefit.  The                                                                    
purpose of  the language was  intended to make it  clear and                                                                    
provide  third parties  with  the  protection against  their                                                                    
contract right being  set aside because of  the contract not                                                                    
furthering  a public  benefit objective.  He suggested  that                                                                    
the  language should  not  be  interpreted as  fundamentally                                                                    
changing the  requirements of a public  benefit corporation.                                                                    
It  was  intended  solely to  provide  protection  to  third                                                                    
parties transacting with a public benefit corporation.                                                                          
2:29:42 PM                                                                                                                    
Co-Chair Seaton highlighted  line 5 and asked  if Mr. Pinnow                                                                    
was  saying that  it was  assumed without  inquiry that  the                                                                    
transaction and each  action or inaction by  any director or                                                                    
officer was to further the public benefit.                                                                                      
Mr.  Pinnow responded  that he  could see  Co-Chair Seaton's                                                                    
point  that the  contract might  be for  the benefit  of the                                                                    
corporation  but that  the contract  might  not further  the                                                                    
public  benefit purpose.  He was  concerned that  a contract                                                                    
might be  set aside because  someone argued that  a contract                                                                    
did not serve a public benefit.                                                                                                 
Co-Chair Seaton  did not have  a problem with the  intent of                                                                    
the bill, but  argued that the amendment  did not accomplish                                                                    
that goal. He indicated he  objected to adopting the offered                                                                    
specific language. He proposed  having the Legislative Legal                                                                    
Services redraft  the amendment.  He recommended  taking out                                                                    
the trust language as well.                                                                                                     
Co-Chair  Foster asked  the bill  sponsor how  he wanted  to                                                                    
proceed.   Representative   Kito    was   comfortable   with                                                                    
revisiting  the  bill later  and  changing  the language  to                                                                    
better satisfy the chair.                                                                                                       
Representative  Guttenberg  thought  the amendment  was,  at                                                                    
best,  neutral and  potentially cloudy.  He referred  to the                                                                    
section  of  the  amendment   that  contained  the  language                                                                    
causing  confusion.  He  was concerned  that  someone  would                                                                    
enter  a contract  with a  benefit corporation  and have  it                                                                    
overridden. He asked Mr. Pinnow to comment.                                                                                     
Mr. Pinnow  replied that  the language  spoke to  the public                                                                    
benefit purpose or the specific  public benefit purpose. The                                                                    
language  was  intended  to  deal   solely  with  whether  a                                                                    
transaction  furthered   the  public  benefit   purpose.  He                                                                    
suggested that if there were  concerns about a contract that                                                                    
would  otherwise  apply  under general  corporate  law,  the                                                                    
language  should not  be interpreted  to  address that.  The                                                                    
language was intended  to deal with the  specific and unique                                                                    
characteristics of the public  benefit corporations and that                                                                    
they had a public benefit  purpose requirement that could be                                                                    
enforced by shareholders.                                                                                                       
2:35:58 PM                                                                                                                    
Co-Chair  Seaton  asked Mr.  Pinnow  about  the concern  the                                                                    
amendment was trying  to address. He wondered  if the intent                                                                    
was to ensure  that when a party entered  a transaction with                                                                    
a benefit corporation  that the transaction did  not have to                                                                    
further the  general public benefit or  the specific benefit                                                                    
purpose  to be  valid. Co-Chair  Seaton provided  an example                                                                    
regarding maintaining  trails around Juneau. He  asked if he                                                                    
was correct in his assumption about Mr. Pinnow's intent.                                                                        
Mr. Pinnow responded in the  affirmative. Wells Fargo wanted                                                                    
certainty. He  provided the example  of Wells  Fargo lending                                                                    
money  to a  public benefit  corporation to  do an  addition                                                                    
such  as   building  a  parking  ramp   that  someone  later                                                                    
questioned the  public benefit. Wells  Fargo would  not want                                                                    
to have a  transaction or contract set aside  or called into                                                                    
question as being outside of  the corporate authority simply                                                                    
because with hind  sight it did not  accomplish, achieve, or                                                                    
further a public benefit.                                                                                                       
Co-Chair  Seaton understood  what Mr.  Pinnow was  hoping to                                                                    
achieve. He  thought that the  intent could  be accomplished                                                                    
by having Legislative Legal  Services redraft the amendment.                                                                    
He  thought the  issue could  be  resolved with  the use  of                                                                    
different language.                                                                                                             
Representative  Wilson  asked  if  the  amendment  could  be                                                                    
provided in  time for her to  speak with bankers at  home to                                                                    
make sure it worked for them.                                                                                                   
Co-Chair Foster WITHDREW Amendment 1.                                                                                           
HB  124  was  HEARD  and   HELD  in  committee  for  further                                                                    
Co-Chair Foster  reviewed the agenda for  the following day.                                                                    
He recessed  the meeting to a  call of the chair  [Note: the                                                                    
meeting never reconvened].                                                                                                      

Document Name Date/Time Subjects
HB 177 Supporting Document-Letter Kenai Borough 4.15.17.pdf HFIN 4/26/2017 1:30:00 PM
HB 177
HB177 Supporting Document-Article News Miner 4.15.17.PDF HFIN 4/26/2017 1:30:00 PM
HB 177
HB177 Sponsor Statement 4.15.17.pdf HFIN 4/26/2017 1:30:00 PM
HB 177
HB177 Supporting Document-Article NOAA 4.15.17.PDF HFIN 4/26/2017 1:30:00 PM
HB 177
HB177 Supporting Document-Article Peninsula Clarion 4.15.17 (2).PDF HFIN 4/26/2017 1:30:00 PM
HB 177
HB177 Supporting Document-Article Peninsula Clarion 4.15.17.PDF HFIN 4/26/2017 1:30:00 PM
HB 177
HB177 Supporting Document-News KTUU 4.15.17.PDF HFIN 4/26/2017 1:30:00 PM
HB 177
HB177 Supporting Documents - Example AIS and Pamphlets 4.15.17.PDF HFIN 4/26/2017 1:30:00 PM
HB 177
HB177 Supporting Documents - Letter NIPM 4.15.17.PDF HFIN 4/26/2017 1:30:00 PM
HB 177
HB177 Supporting Document-Support Letter-CIAA 4.15.17.pdf HFIN 4/26/2017 1:30:00 PM
HB 177
HB177Supporting Document-Letter RCAC 4.15.17.PDF HFIN 4/26/2017 1:30:00 PM
HB 177
HB 124 Amendment 1 Foster v.D.1.pdf HFIN 4/26/2017 1:30:00 PM
HB 124