Legislature(1999 - 2000)
02/28/2000 01:25 PM House JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 42 - CIVIL LIABILITY FOR IMPROPER LITIGATION CHAIRMAN KOTT announced that the next order of business would be SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 42, "An Act relating to civil liability for certain false or improper allegations in a civil pleading or for certain improper acts relating to a civil action; amending Rule 82(b), Alaska Rules of Civil Procedure; and providing for an effective date." Number 2096 REPRESENTATIVE ELDON MULDER, Alaska State Legislature, sponsor, acknowledged that he had been before the committee four or five times with similar legislation. He suggested that members read the sponsor statement but said he would talk about his reasons for continuing to bring this bill forward. He believes that there is a crisis of confidence among Alaskans regarding the ability to defend oneself in court, and that people are frustrated with the inability to make themselves whole in this process. There is not much opportunity to recover the expense of defending oneself in court, he said, even though the claims being made are incorrect. Most times, these issues are settled out of court for the costs, the deductible, or the limits of the insurance policy, because of the ease of doing so and the savings in time and money. REPRESENTATIVE MULDER told members he is troubled because he believes that lying is an acceptable tool to be utilized in the court system today; he cited a movie about a lying attorney as an example. He restated the desire to have people be able to defend themselves against a factually inaccurate claim and to make themselves whole, which he doesn't believe is possible currently. Therefore, the bill allows two new actions to occur. A person can file for recovery against an attorney who has knowingly put forward a case based upon factual inaccuracies, or if the case has been brought forward without due diligence to research the information to ensure that it is factual. Currently under Rule 11 that ability exists, but it can only be utilized by the judge. REPRESENTATIVE MULDER specified that he isn't trying to pick a fight with the judicial system or judges, then pointed out that judges are attorneys who have come through the legal system; they are forced to sit and make judgments against their own. From a practical standpoint, Representative Mulder said he doesn't believe that Rule 11 can practically be utilized, and hence it isn't properly utilized to its fullest extent. This bill expands the ability of the trier of the case - the judge or jury - to allow that trier to apply those same standards against an attorney or the plaintiff in the case. REPRESENTATIVE MULDER told members that he believes there are precautions built into the bill. If the defendant believes there are inaccuracies in the case, this bill requires that the defendant has to put forward a counterclaim that states the defendant's belief that the case is based upon false information, what the inaccuracies are, and the reasons for the belief; after those are put forward, there are 21 days to respond. A plaintiff who knows the information to be correct would continue forward with the case; however, if the attorney didn't know all the facts, this gives that attorney the opportunity to take appropriate corrective action. REPRESENTATIVE MULDER said this bill doesn't totally tip the balance of the scales toward the defendant, and he believes this counter-step is both reasonable and appropriate. People who tell the truth have nothing to fear from this bill, which is aimed at those who base a case on inaccuracies or the failure to properly pursue the action necessary to discover what the truth is. He noted that Bob Mintz was on teleconference and Michael Lessmeier was available to answer technical questions. Acknowledging that he himself isn't an attorney, he indicated his belief that it would be difficult for an attorney to present the bill because of possible repercussions. Number 2454 REPRESENTATIVE JAMES recalled that she had once believed the judicial system is perfect and attorneys are wonderful. However, as a plaintiff in a case, she had listened to a deposition in which an absolutely false statement was made about a meeting that supposedly occurred. TAPE 00-22, SIDE B Number 0001 REPRESENTATIVE JAMES noted that in the instance discussed above, she had asked her attorney what she could do about it, and the attorney had said she could do an affidavit about it; that would have been one person's word against the other's. She asked whether this [bill] does anything for circumstances such as that. REPRESENTATIVE MULDER replied that he believes it would allow her to try to substantiate that claim. Certainly, there would be an ability to get statements or testimony from others at the meeting, for example, to support her statement that she hadn't attended that meeting, and to support her claim that the statement was factually inaccurate; if that were the basis of the claim, Representative James could then countersue. Number 0057 REPRESENTATIVE MURKOWSKI commented that the discovery process is about finding out things that perhaps the client didn't tell the attorney or about which the client didn't tell the whole story. In discovery, there is a requirement to go ahead and correct the responses to any interrogatories that have come in because of the new information available. If the trial were going on, however, what would happen to the trial? Would it be somewhat derailed by an allegation that a few counts of the claim were perhaps inaccurate and were false representations? She asked whether this would slow the process down because of having a "mini-trial" within a trial. REPRESENTATIVE MULDER suggested either Mr. Lessmeier or Mr. Mintz, who are attorneys, could answer better. Number 0153 ROBERT A. MINTZ, Attorney at Law, testified via teleconference from Anchorage. He responded to Representative Murkowski's question by referring to subsection (a), which requires signed civil pleadings; he said it wouldn't pertain to testimony given at trial. Under subsection (c), he said, there is a codification and liberalization of the "malicious prosecution common law"; he said he thinks that would be an applicable provision and that Mr. Lessmeier would address the applicability of subsection (b). MR. MINTZ continued with "malicious prosecution." He said that someone who takes an active part in a continuation for an improper purpose after learning that there is no probable cause for the civil proceeding would become liable under the Act as if that person had initiated the proceeding. This raises the bar. One expects an ethical person who learns that the basis for an action or defense no longer exists would act on that; in reality, however, that occasionally doesn't happen. This bill, therefore, creates consequences that don't exist today for failure to do the right thing. Mr. Mintz asked Representative Murkowski whether that helps with her question. Number 0248 REPRESENTATIVE MURKOWSKI replied that it does and it doesn't. In a limited procedural sense, she asked, does the case get sidetracked from the main issues of the trial if there is, for instance, one count that has been misrepresented? MR. MINTZ answered no. In the strict procedural sense, it doesn't sidetrack the underlying trial, because the claims under this bill cannot be brought until after final judgment is entered. However, it does create tension in the heart of the person who is prosecuting the claim that the person now knows is not justifiable. In that sense, it may disrupt the procedure because it creates an incentive to come forward. Number 0310 MR. MINTZ turned attention to how the bill differs from current law. He first referred members to his letter in support of SSHB 42, contained in packets, and said he didn't want to repeat what he had written. He then explained that this bill allows people who are injured by misconduct to seek compensation. Currently, the rules and the legal system give the court discretion to redress the wrongs which are addressed by this bill; however, this bill gives that power to the injured party and doesn't rely on the judicial system to be self-correcting. The bill also expands the consequences by allowing punitive damages in those rare cases where it can be proved that somebody knowingly and intentionally lied. MR. MINTZ surmised that attorneys won't like this bill because it will require some of them to do more up-front work before asserting the claim. Furthermore, it exposes their personal pocketbooks if it can be shown that the up-front work wasn't done, or if it can be proven that they acted unreasonably or maliciously. This bill is a measured step that for the most part uses existing standards of conduct or creates a claim where there is knowing and intentional falsification going on. He said he strongly supports it. Number 0380 REPRESENTATIVE MURKOWSKI referred to Civil Rule 82. She then referred to subsection (e) of the bill, which says a court shall award actual reasonable attorney fees and which deviates from the rule. She asked whether the legislature can get away with just an indirect court rule amendment or whether there is a need to amend Civil Rule 82 to provide for "actuals." MR. MINTZ answered that absent the three-quarters' vote, that section probably won't become law. He said the intention of the bill is to try to make people as whole as possible, including the cost of prosecuting these claims. "Even if we can't go the whole mile, the rest of the provisions go a long way towards making people more whole than they can be made today," he added. Number 0450 PAMELA LaBOLLE, President, Alaska State Chamber of Commerce, came forward to testify, noting that her organization has been active over the years in trying to make the judicial system more responsive to business people who are too often held hostage by false litigation or a system that just doesn't work without a great deal of expense. She pointed out that many times an individual has to decide whether to fight a claim or just settle out of court based on the expense. Civil litigation has always been a real problem for business people, especially those in small businesses. MS. LaBOLLE reminded members that defending against false allegations is no less costly than defending against the true ones. This bill says that people who intentionally provide false information that is material to a case will pay if that is found to be the fact; it also applies if people use invalid claims or counterclaims to intentionally cloud a case, which may happen when one's case isn't that strong; furthermore, it applies when someone is hoping to force someone else to settle out of court. She said this isn't about honest errors or ethical people, and she believes most attorneys are ethical people. This is about people who would unethically use the system to their own will and benefit, at significant expense to honest, ethical people. This bill would put a cost on those who try to use the system to their own benefit while harming others. Number 0599 MICHAEL LESSMEIER, Attorney at Law, Lessmeier & Winters, and Lobbyist for State Farm Insurance Company, came forward to testify on behalf of State Farm Insurance Company. He stated: We call this bill "the truth and responsibility bill," because those are the principles that it seeks to recognize. And I think we would hope that while those principles would be recognized by everyone, and in fact the importance of those principles in our civil justice system would be heightened by what's in this bill, our hope is that the actual tools that this bill places in the system would be used rarely, because under this bill there would be definite and certain sanctions for a very narrow kind of conduct that does occur, and the cost of that conduct is high. And the purpose of this bill is to raise the recognition of everyone that there are certain things that you shouldn't be doing in a court of law, and we're not going to allow them anymore. And as an example, Representative Murkowski, you had a question about what happens ... in the middle of a trial. For example, do we get sidetracked on an issue of credibility when we shouldn't be? And that really ... is the purpose of subsection (b). The purpose of subsection (b) is, in a case, to require the jury to be instructed with the principles set forth in subsection (b). In other words, ... if a party comes to court and knowingly makes a false statement of material fact, they lose. And what that should do is that should encourage a very candid discussion between counsel and their client, at the very outset of the case, that if you're trying to take advantage of the judicial system, there will be a definite and certain sanction. This doesn't sidetrack the trial. There's no action the judge has to take. It is simply an instruction that is submitted to the jury, and you continue with the trial and the jury makes its finding. It is self-implementing, and so it won't impose any additional cost on the system. It won't impose any additional cost on the parties. It simply is a recognition that if you come to court and you lie, you're going to lose on that claim. It is not designed to address situations where people make a mistake or people discover information after the fact that they didn't have before, but a knowing false statement of material fact. And so, that's the purpose of subsection (b). The other provisions of this bill are designed to impose some responsibility on people that participate in the system. And we think that is a healthy thing. We think that the goals that this bill seeks to further are really laudable goal, and we would encourage the passage of this legislation. Number 0771 REPRESENTATIVE MURKOWSKI acknowledged that she was perhaps asking for an explanation on the record. She referred to Civil Rule 11, the "attorney sanction rule," and requested that Mr. Lessmeier explain to the committee how Rule 11 would tie in or whether it would still be significant if this legislation were to pass. She further asked why Rule 11 isn't adequate to make the parties whole, as Representative Mulder has indicated. MR. LESSMEIER answered that he has been practicing law in Alaska for a little more than 20 years, and he doesn't know that he has ever seen Rule 11 used. The work he does is civil litigation, almost exclusively. The judicial system is focused on resolving cases, not disputes between lawyers under Rule 11. Whether that is a function of limited judicial resources, he doesn't know. But Rule 11 hasn't been a practical sanction. Mr. Lessmeier added that the responsibility provisions of the bill, as he reads them, are a little broader and are self-implementing; they extend not just to a lawyer but also to a party or a participant in the process who is intentionally misusing the process. Mr. Lessmeier said that if there has been action taken in that kind of situation, he certainly doesn't recall it. REPRESENTATIVE MURKOWSKI followed up by asking whether, in Mr. Lessmeier's opinion, what SSHB 42 does is a far better solution than beefing up Rule 11 and the sanctions within it. MR. LESSMEIER affirmed that, adding that he believes that the idea of beefing up the sanctions in Rule 11 has already been tried once. Number 1058 REPRESENTATIVE ROKEBERG asked whether the legal profession has a name for a "conspiracy of silence" where members of the profession don't want to police themselves regarding incompetency or dishonesty. He also asked whether Mr. Lessmeier could provide an example where this would have come into play in his experience. MR. LESSMEIER elaborated on the example mentioned by Representative James, saying that if she had been able to corroborate that she had been elsewhere and to provide evidence to the satisfaction of a jury, then the person who made the claim would lose that claim and be subject to damages for the consequences of that act. The damage award would be in a separate action, Mr. Lessmeier noted, with the option of pursuing damages assuming the dictates of the bill were followed, which would include writing a letter giving written notice that the statement was false and that it hadn't been corrected. He said the purpose is to prevent this sort of activity from occurring. MR. LESSMEIER returned to Representative Rokeberg's first question and said attorneys are advocates for both sides. Although he believes that the vast majority of attorneys are honest and ethical, some attorneys and parties misuse the system; they are the focus of this bill, which is carefully and narrowly drafted to catch the people who misuse the system. The fact that the stakes go up is the true benefit of this. This requires a contemplation and a discussion that is not necessarily required right now in terms of attorney-client discussions. Furthermore, some clients do try to take advantage of the system without the knowledge of their attorneys. The intent of the bill is to prevent that. Number 1058 REPRESENTATIVE ROKEBERG referred to a consumer protection bill from a couple of years ago, and he asked whether anything in the statutes prohibits frivolous or vexatious lawsuits. MR. LESSMEIER answered: Nothing to this degree. One of the things that we did do, in 1987, is we raised the attorneys fees that would be awarded to a prevailing party if an offer of judgment is entered. But there is nothing that addresses in this fashion the issue of not just a frivolous lawsuit but a frivolous position that is taken by either party, because this bill swings both ways. ... It applies equally to a defendant who engages in this kind of conduct as well as a plaintiff. So it applies to both sides. REPRESENTATIVE ROKEBERG asked whether there is nothing in law, then, except for court rules, that prohibits a frivolous or vexatious lawsuit to occur. MR. LESSMEIER said that is correct. REPRESENTATIVE ROKEBERG remarked that it is most extraordinary, saying they rely entirely on the bar to police itself and its own court rules, with nothing statutorily protecting the public from a dishonest counselor. MR. LESSMEIER restated that the only thing is the offer of judgment provision. Number 1153 REPRESENTATIVE ROKEBERG directed Mr. Lessmeier's attention to the beginning of subsection (c), beginning on page 2, line 9, which read, "(c) A person may not, on the person's own behalf or as a representative of a party ...." He asked what happens if an attorney detrimentally relies on the statements of a client and then finds himself or herself in a trap. He further asked how one makes the separation if there is a cause of action against both the attorney and the party. MR. LESSMEIER answered that he thinks the attorney has a right, within a reasonable limit, to rely on what the client tells him or her, but also has an obligation to investigate it. And when the attorney receives from the other side the "21-day letter" - the prerequisite to any cause of action, which says that something isn't true and the reasons why - at that point, the attorney needs to do the right thing and not propagate the lie. Ethically, an attorney cannot do that anyway, Mr. Lessmeier added. REPRESENTATIVE ROKEBERG asked whether an attorney wouldn't breach a code of ethics by not representing the client otherwise. MR. LESSMEIER responded, "He would breach his code of ethics if he continues to propagate a lie, having known that it is a lie or having discovered that it is a lie." REPRESENTATIVE ROKEBERG asked what the code would call for then. MR. LESSMEIER answered that the code would call for the attorney to withdraw and to counsel the client to correct the [misrepresentation]. REPRESENTATIVE ROKEBERG stated his understanding that that is why the statute has self-enforcement provisions, because it puts people on notice and gives everybody a chance to own up to it. MR. LESSMEIER affirmed that. Number 1284 REPRESENTATIVE MURKOWSKI countered Representative Rokeberg's assertion that there is a secret code of brotherhood that attorneys use to take care of their own. She said there is none. In fact, attorneys and the officers of the court are not afraid to police themselves, and they do have an ethical code of conduct. Furthermore, within the bar there is an ethics review panel and a disciplinary panel. An attorney who goes too far is disbarred and subject to disciplinary actions through the bar. She said she didn't want this insidious rumor to be perpetuated that attorneys won't police themselves; they do, and they do a good job of it. She said perhaps there is a very, very small number that this bill is addressing, but she had wanted to stand up for the profession. REPRESENTATIVE ROKEBERG agreed about the profession in total, but said he would be curious to know whether the bar has had any disciplinary actions as a result of vexatious or frivolous litigation and/or dishonesty in pursuing lawsuits. REPRESENTATIVE MURKOWSKI indicated the committee could probably get that information. REPRESENTATIVE ROKEBERG suggested perhaps the bill sponsor could look into that. He also asked whether the bar association may be breaching its own ethics to divulge that information. REPRESENTATIVE MURKOWSKI indicated that information is published. REPRESENTATIVE CROFT said there are some [attorneys], who have been disbarred or otherwise sanctioned. Number 1420 MR. LESSMEIER added that he believes the intent regards everyone in the civil justice system, not just lawyers. Returning attention to the provision regarding actual attorney fees, he said that addresses a situation where somebody brings an action claiming that there was a violation of this statutory scheme. A person who accuses another of filing a false action and loses will have to pay that other person's actual costs and attorney fees. This is intended to be something that people do not engage in lightly. Number 1507 CHAIRMAN KOTT asked whether anyone else wanted to testify, then specified that the public hearing was still open. He announced that SSHB 42 would be held over until Wednesday, March 1.
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