Legislature(2003 - 2004)
03/31/2003 03:05 PM House JUD
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 214 - PUNITIVE DAMAGES AGAINST EMPLOYERS Number 1006 CHAIR McGUIRE announced that the final order of business would be HOUSE BILL NO. 214, "An Act relating to the recovery of punitive damages against an employer who is determined to be vicariously liable for the act or omission of an employee; and providing for an effective date." Number 0964 REPRESENTATIVE SAMUELS, speaking as the sponsor, explained that HB 214 adds a section to the punitive damage statutes in order to create new guidelines for damages against the employer under vicarious liability. The legislation stipulates that the employer shall not be responsible for paying damages unless the employer [authorized] the act, knew of the act later and approved of it, or the employer knew that the employee was unfit and employed the individual anyway. He highlighted that the legislation doesn't apply unless the employer has been determined to be vicariously liable anyway. Furthermore, the legislation strictly involves punitive damages. Punitive damages are meant to punish an entity, usually a company, for bad behavior. Under HB 214, if no bad behavior occurred, the company shouldn't be liable for punishment. He clarified that the bill doesn't pertain to compensatory damages; only punitive damages are addressed. REPRESENTATIVE SAMUELS posed an example in which an owner of a construction company with training programs, drug testing programs, and hiring standards informs an employee that he can't drive a truck because the employee hasn't been "checked out in the truck." If the employee gets in the truck and breaks the rules of the company, the company shouldn't be liable for punitive damages because the employee went against the company's policies. CHAIR McGUIRE announced that she didn't intend to report HB 214 from committee today. Number 0785 PAMELA LaBOLLE, President, Alaska State Chamber of Commerce (ASCC), informed the committee that ASCC is in support of HB 214. She said it's unfair to hold employers [liable for punitive damages] when the employers had no control in the situation. She echoed Representative Samuels's point that [the employers] would remain responsible under civil law for compensatory damages. CHAIR McGUIRE pointed out that [with passage of HB 214] businesses would be placed in parity with the State of Alaska, which, as an employer, is immune from punitive damages. Number 0663 MARCIA R. DAVIS, Vice President and General Counsel, ERA Aviation, Inc. ("ERA"), announced strong support HB 214, which it views as a measured, limited correction to an earlier position taken by the Alaska Supreme Court. She relayed the belief that HB 214 impacts a broad range of constituents and, thus, she characterized HB 214 as an employer's bill, adding, however, that the bill isn't anti-employee legislation. She stated that HB 214 will make a difference to ERA. MS. DAVIS noted that ERA is closely regulated by the Federal Aviation Administration (FAA), and performs extensive criminal background checks and pre-employment drug and alcohol tests on all employees. Furthermore, mandatory random drug and alcohol tests are performed on all of the emergency medical technician employees. Moreover, the company has a zero-tolerance policy regarding drugs and alcohol at work, and reserves the right to conduct, for cause, drug and alcohol testing. All of ERA's supervisors undergo annual, mandatory drug-and-alcohol-detection training. Still, several summers ago a seasonal summer-hire, driving the company van between two "air locations," struck a motorcycle. After the investigation it was determined that he had consumed alcohol. MS. DAVIS said she couldn't think of anything else, as a responsible employer, that the company could've done to avoid the situation. The plaintiff's attorney raised the specter of the company facing many punitive damages and there was nothing the company could do. Because the Alaska Supreme Court had taken a strict liability [position] for punitive damages assessed against an employee, the company had no recourse. Ms. Davis concluded by noting that ERA doesn't object to paying compensatory damages. She opined that punitive damages should function as punishment of the wrongdoer, but added that this isn't how the law is currently working. She strongly encouraged the committee to pass HB 214. Number 0451 MICHAEL J. SCHNEIDER, Attorney, Law Offices of Michael J. Schneider, PC, began by saying that in his 28 years in practice he has never obtained a punitive damage recovery by the way of jury trial. He emphasized that punitive damages are rarely awarded by Alaskan jurors. However, when that occurs, the [Alaska Supreme Court] almost universally reverses those awards; there are few exceptions. Under current law, at least half of the benefit of the struggles to obtain those damages goes directly to the State of Alaska. Therefore, he characterized HB 214 as a solution in search of a problem. MR. SCHNEIDER suggested that the goals of the sponsor statement are simply not met by the legislation. He inquired about the employer who gives a wink and a nod to bad conduct - potentially dangerous conduct. Unless the employer knew that the employee was unfit when hired, the employer will be immune from vicarious liability for punitive damages under HB 214. The employer would be immune if the employer did nothing to train or supervise the employee after the point of hiring. Even if the employer turned a blind eye to information suggesting the very risk visited upon the innocent by the employee, the employer would still enjoy the immunity of HB 214. Therefore, HB 214 is entirely too broad, he suggested. Mr. Schneider said that there are no real examples of punitive damage awards sustained by the [Alaska Supreme Court] that would cause anyone to rush to adopt this measure. Furthermore, under the existing tort reform, proof [for] punitive damages, as to the employee, has to be clear and convincing, and, if the employer is vicariously liable, [the employer] has to have a connection to the activity that brings about the harm. Number 0239 CHAIR McGUIRE asked Mr. Schneider how many times he has seen settlements occur in response to the mere threat of a punitive damages award by a jury. MR. SCHNEIDER informed the committee that almost all of his practice focuses on representing injured Alaskans or the families of Alaskans who have been killed. He said he has never obtained monies for punitive damage exposure because juries rarely award those damages and when they do, those awards are reversed. Mr. Schneider relayed that he has asserted punitive damages or the possibility of obtaining punitive damages as part of the settlement process, and specified that he does it every time the conduct seems to support the aforementioned allegation. The practical effect is that those people who have been injured and have "a dime's worth" of compensatory damages have some hope, when the company has legitimate punitive damage exposure, of being fully compensated or getting closer to being fully compensated. CHAIR McGUIRE surmised, then, that while [punitive damages] began as punishment, they have turned out to be more compensatory in an effort to make the innocent victim whole. MR. SCHNEIDER agreed. He emphasized, however, that there has to be outrageous conduct and it has to be proven by clear and convincing evidence. CHAIR McGUIRE acknowledged that, but highlighted that punitive damages were originally created to punish those entities that willfully disregard information that is known - for example, in the area of consumer protection - and proceed to act with full knowledge and "foreseeability" about the potential harm to victims. TAPE 03-27, SIDE A Number 0001 CHAIR McGUIRE highlighted that the legal system has evolved to the point, particularly with regard to settlements, where the philosophical distinction between compensatory damages, which are to make a victim whole, and punitive damages, which are intended to punish the tort feasor who might have known of a foreseeable harm and consciously disregarded it, isn't maintained. MR. SCHNEIDER said that he couldn't agree with Chair McGuire's assessment. He said that he doesn't see entities paying his clients for punitive damages. He noted that occasionally, when the punitive damage exposure is there and when there is talk of a pre-trial settlement, clients may be compensated. However, he pointed out that the clients are never really paid punitive damages and, furthermore, sums that go beyond the actual losses aren't paid. CHAIR McGUIRE opined that monies awarded in a settlement simply aren't being called punitive. She recalled Mr. Schneider saying that he did believe that the mere threat or assertion of punitive damages has led to greater compensation of victims. MR. SCHNEIDER remarked, "I believe it has and I believe it should." REPRESENTATIVE GARA recalled earlier remarks regarding whether the Alaska Supreme Court has indicated a willingness to adopt the new Restatement (Second) of Agency ("Restatement") rule, which is included in HB 214. In reviewing the Alaskan Village, Inc. v. Smalley, 720 P.2d 945, 948-49 (Alaska 1986), he said that he didn't necessarily agree that the Alaska Supreme Court is stating such a willingness. He requested that Mr. Schneider comment on what the Alaska Supreme Court has said about the Restatement (Second) of Agency. Representative Gara inquired as to whether Mr. Schneider had any sense that the rule Alaska currently follows for punitive damages remains a majority rule. MR. SCHNEIDER said that he had no information on the latter. However, he offered that he has a strong impression that the Alaska Supreme Court hasn't abandoned the ruling in the Smalley case, because if such were the case, there have been subsequent opportunities. MS. DAVIS turned to Representative Gara's first question. She informed the committee that the last case in which the Alaska Supreme Court was presented with this issue was with Laidlaw Transit, Inc. v. Crouse, on August 30, 2002. She directed attention to footnote 9 of the Laidlaw decision, which references that the U.S. Supreme Court [is] cutting back on punitive damages under the due process clause, the Alaska State Legislature's narrowing of circumstances under which punitive damages can be awarded, and the [statutory] caps. The footnote ends with the following statement: "In light of these developments, the Alaskan Village rule may be anachronistic. If and when the point is properly preserved and raised, this court may consider adopting the narrower complicity rule." MS. DAVIS said that the "narrower complicity rule" essentially is HB 214. Therefore, she said she understood such to be a clear indication from the [Alaska] Supreme Court that it's uncomfortable with the position that it has taken. The problem in the Laidlaw case was that the issue wasn't raised at the trial level, and therefore when it was raised at the supreme court level, the [Alaska] Supreme Court felt that it hadn't been preserved. REPRESENTATIVE OGG recalled remarks indicating that the language in HB 214 won't cover an employer operating by a wink and nod. He asked what is meant by the phrase, "a wink and nod." Number 0455 RAY R. BROWN, Attorney at Law, Dillon & Findley, PC, informed the committee that he is a trial lawyer. In response to Representative Ogg, Mr. Brown said he read the statute such that an employer can escape vicarious liability for punitive damage by establishing that the employer didn't authorize the act or omission. No one is going to ratify or approve an act once vicarious liability has been established. Therefore, it would be virtually impossible to get around the "wink and nod" defense, which most of these cases are. He said that this [proposed] statute basically encourages people to put their head in the sand. MR. BROWN informed the committee that he'd had a case in which punitive damages were awarded, although the case is going to the supreme court. This case was one in which the employer would've been immunized under HB 214. He explained that the case was one in which a shock-jock radio host in California, who broadcasts nationwide, verbally sexually assaulted a woman in Juneau, Alaska. This radio host gave out this woman's home phone number and fax number and encouraged his listeners, young males under the age of 40, [to contact her]. As a result, this woman was harassed, and consequently experienced a significant amount of stress. MR. BROWN said that if this radio host was held liable for intentional misconduct against the woman, the employer would be immune under [HB 214] because the employer could say that it didn't authorize the act or omission and doesn't ratify or approve of the radio host's actions. The case is before the supreme court because [the employer] was held directly liable on a theory of intentional spoliation of evidence. He added that under the theory of the employer acting in misconduct, that issue is before the supreme court on alleged erroneous jury instructions. Therefore, Mr. Brown said he was concerned that one would never be able to establish vicarious liability and [the employer] merely has to "wink and nod" to escape it. Number 0652 MR. BROWN specified that his main problem with HB 214 is that he didn't know what "unfit" means in Section 1 (k)(2)(A) and (B). Furthermore, requiring the employer to act recklessly in employing the employee is problematic. He proffered an example in which an employer opens a private school and pays lower salaries for teachers and the minimum qualification is a four- year degree. If that [applicant] had a sordid history of sexual harassment and predatory conduct toward women and children and the employer is negligent or grossly negligent in following up on the applicant's employment history, the employer is off the hook. Furthermore, if the employer is deemed not to be reckless in employing the applicant, the employer can turn its back, acting negligent and grossly negligent in supervising and training the employee, and the person can run rampant. The employer would remain off the hook for punitive damages. MR. BROWN said that if the committee is inclined to pass HB 214, he hoped that the committee would review Section 1 (k)(2)(A) and (B) and at least change the language to refer to "negligent", explain the meaning of "unfit", and expand "employing" to include "supervising and training". CHAIR McGUIRE pointed out that the language [in Section 1 (k)(2)(A) and (B)] comes from subsection (b) of the Restatement, which reads "(b) the agent was unfit and the principal or a managerial agent was reckless in employing or retaining him". REPRESENTATIVE OGG inquired as to the language Mr. Brown would recommend to correct the "wink and nod" situation. MR. BROWN said that he would like to submit suggested language to the committee in writing. With regard to Chair McGuire's point that the language comes from subsection (b) of the Restatement, Mr. Brown commented that sometimes taking language directly from the Restatement is often difficult, especially when the terms aren't defined. He offered to provide proposed language that could satisfy the concerns of Ms. Davis. Number 1018 KAREN CASANOVAS, Executive Director, Alaska Air Carrier's Association, informed the committee that the Alaska Air Carrier's Association is a member of several national and statewide organizations, many of which work toward economic growth and occasionally propose recommendations for legislative changes. The association's interest is in regard to the punitive damages discussion. She pointed out that in 1994 the National Conference of Commissioners on Uniform State Law (NCCUSL) established a drafting committee on the subject of punitive damages and developed a model act. Punitive damages were thought to be an appropriate candidate for this model. MS. CASANOVAS said she agreed with Chair McGuire's earlier comment that the direction [of the legal system with regard to punitive damages] has changed over the years. The mounting concern with regard to the role of punitive damage awards in the civil justice system in the U.S. stems from the perceived increase in size and frequency of the awards. Often, it was argued, the size of the awards had no correlation with deterrence, but merely reflected a jury's dissatisfaction with a defendant and a desire to punish the defendant without regard for the actual conduct in the particular situation. She noted that over the years, some of the petitioners have taken cases to the supreme court when some constitutionality limits were in question, for example, in the case of excessive punitive damages under the Eighth Amendment in the 1988 case of Bankers Life & Casualty Company v. Crenshaw, 486 U.S. 71 (1988). She pointed out another example, the 1991 decision of Pacific Mutual Life Insurance Company v. Haslip, which falls under due process of the Fourteenth Amendment. MS. CASANOVAS said that the American Law Institute Restatements regarding vicarious responsibility for punitive awards support that an employer is not liable for punitive damages just because an employee was acting within the course and scope of employment. Since punitive damages serve solely to deter or punish, the law requires that there be some wrongdoing and consideration of whether the party would be deterred or punished by the award. She relayed the Alaska Air Carrier's Association's belief that HB 214 would bar an employer from being held vicariously liable for the punitive damages assessed against the employee, except when there was some degree of culpability on the part of the employer. MS. CASANOVAS said that the association holds the belief that HB 214 won't impact or limit an employer's direct liability for punitive damages due to its own conduct. This legislation would, she said, provide certainty and an appropriate scope of vicarious liability to all employers and industries throughout the state. Based on the [Alaska] Supreme Court's strong suggestion, in the Laidlaw case, that it would change the law in the future, the committee could, with HB 214, solve this problem. Therefore, she added, the Alaska Air Carrier's Association requests the committee's support in this matter. Number 1215 MICHAEL R. WIRSCHEM, Attorney at Law, began by noting that he has been practicing in Anchorage for about eight years. He, too, mentioned that his experience has been that jurors rarely award punitive damages in this jurisdiction; they [do so] only upon clear and convincing evidence against the offender. He understood the question today to be in regard to the future of vicarious liability - holding employers liable for the offender's misdeeds. Mr. Wirschem said that there seems to be some disagreement as to the current status of punitive damage awards. He argued that punitive damage awards seem to be few in Alaska, and that this would seem to be a statement in opposition to meddling with the system. The history under common law is that vicarious liability is the rule for employers being held liable for the misdeeds of their employees. Therefore, without a specific problem, he didn't see the need for change. He acknowledged that employers such as ERA probably feel it would be better if they don't have to pay punitive damage awards. However, as a broad policy decision, Mr. Wirschem requested that the legislature think carefully before making a change in this area of law. CHAIR McGUIRE returned to the notion that jury's never award punitive damage claims, and emphasized that most cases are settled. Therefore, she asked if the potential exposure to punitive damages is a factor in the settlement negotiations. MR. WIRSCHEM said that according to his experience, he didn't believe so. Moreover, other aspects such as changes in tort reform have made even bringing such a claim risky. Number 1409 REPRESENTATIVE GARA asked if someone could review whether the Alaska Judicial Council has produced statistics on average verdicts and on punitive damage verdicts. MS. DAVIS said that she would try to find that information. MR. WIRSCHEM agreed to do so as well. CHAIR McGUIRE announced that public testimony would be left open and that HB 214 would be held over.
| Document Name | Date/Time | Subjects |
|---|