Legislature(2001 - 2002)

04/05/2002 01:11 PM JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 499 - DISPOSITION OF BUSINESS ASSETS                                                                                       
Number 2209                                                                                                                     
CHAIR ROKEBERG  announced that  the last  order of business  would                                                              
be  HOUSE BILL  NO. 499,  "An  Act relating  to  the sale,  lease,                                                              
exchange, or other  disposition of business property  and assets."                                                              
Chair Rokeberg noted  that the committee was awaiting  the arrival                                                              
of the  drafter and  a proposed committee  substitute for  HB 499;                                                              
that  at  the  last  hearing  on   HB  499,  Mr.  Pease  presented                                                              
information  [regarding Savage  Arms Inc.  v. Western Auto  Supply                                                            
Co.];  and, as  requested by  Representative  Berkowitz, that  the                                                            
committee would hear testimony from "opposing counsel."                                                                         
Number 2254                                                                                                                     
JAMES M.  POWELL, Attorney, Hughes  Thorsness Powell  Huddleston &                                                              
Bauman, LLC, relayed  appreciation for the opportunity  to testify                                                              
on  HB  499.   He  explained  that he  represented  [Western  Auto                                                              
Supply  Co.  ("Western  Auto")],  which he  termed  "the  innocent                                                              
retailer,"  in the  Savage Arms  Inc. v. Western  Auto Supply  Co.                                                            
case, which stemmed  from an accident that occurred  in Kenai.  He                                                              
said that he had three points to address:                                                                                       
     The  first is,  I'd like  to give  you a  little bit  of                                                                   
     background  [regarding] who the  players are and  what's                                                                   
     going  on that's  not apparent  on the  surface and  may                                                                   
     not  have  been  shared with  you  previously  by  other                                                                   
     people.   The  second  point  relates to  some  problems                                                                   
     that  I  think  will be  created  by  HB  499 as  it  is                                                                   
     presently  drawn....   And  the third  thing relates  to                                                                   
     the retroactivity  of this  bill and some problems  that                                                                   
     I think that creates.                                                                                                      
MR. POWELL elaborated:                                                                                                          
     First of  all, just so that  it is clear, ... I  want to                                                                   
     address  some  of  the misunderstandings  that  I  think                                                                   
     might  have  been  generated,  ...  so  that  you'll  be                                                                   
     accurately  tuned in to  what is  really going on  here.                                                                   
     This  accident occurred  in  April of  [1989], and  this                                                                   
     change  in "Savage"  occurred in October  of that  year:                                                                   
     On  October   31  [Savage   Industries,  Inc.   ("Savage                                                                   
     Industries")]  signed the agreement  for sale of  assets                                                                   
     and they  ceased to do business,  and on ...  November 1                                                                   
     the new  company [Savage Arms,  Inc. ("Savage  Arms")] -                                                                   
     just recently  formed - started  up and went  forward as                                                                   
     a going concern.                                                                                                           
     We believe  that we  can show  in the  court - and  made                                                                   
     some  representations to  the  supreme court  on that  -                                                                   
     that  essentially the  shareholders  were the  same:   a                                                                   
     group   called   [Cerrito   Partners,   Ltd.   ("Cerrito                                                                   
     Partners")]    were   the    shareholders   in    Savage                                                                   
     [Industries]  and also  -  through some  corporations  -                                                                   
     continued  to control  the  new company  that was  made.                                                                   
     It was  simply a change of  -- some slight  changes that                                                                   
     were  made.   They  were  the  same officers,  the  same                                                                   
     employees,  the same plant,  the same product  that they                                                                   
     were manufacturing;  they had  the same patents  and ...                                                                   
     equipment;  and they  advertised to  the public,  "We've                                                                   
     been in  business for 100 years"  - in effect,  "You can                                                                   
     trust  us [because]  we've  been  around a  long  time."                                                                   
     With  that, we think  that we  can make  out a case  ...                                                                   
     against   them,  at   least   on  the   "continuity   of                                                                   
     enterprise,"  probably on [just  the continuity  of] ...                                                                   
     [Side A of the tape ends mid-sentence.]                                                                                    
TAPE 02-42, SIDE B                                                                                                              
Number 2375                                                                                                                     
MR. POWELL continued:                                                                                                           
     ...   the  business   -   although   [because  of]   the                                                                   
     shareholders,  because  some   corporate  entities  were                                                                   
     involved, [it]  becomes a little more difficult  for us.                                                                   
     What  I think  has  not been  shared  with  you is  that                                                                   
     Cerrito  Partners  is a  group  of Texas  businessmen  -                                                                   
     very  wealthy  businessmen   -  who,  as  part  of  this                                                                   
     transaction  - although not  in October and  November of                                                                   
     1989,  but   not  too  long   after  that  -   signed  a                                                                   
     guarantee,  in  order  to   promote  the  sale  and  the                                                                   
     operation  of  the business,  ...  that they  would  ...                                                                   
     indemnify  Savage Arms  against  any  judgment that  was                                                                   
     made as  the result  of the  Kevin [Taylor] incident  in                                                                   
     Kenai, Alaska.  ...                                                                                                        
MR. POWELL indicated that Savage Sports Corporation ("Savage                                                                    
Sports") was also involved, but added that he wouldn't go into                                                                  
that point right now.  He said:                                                                                                 
     They continue,  this company that Cerrito  Partners has.                                                                   
     It  was [Challenger,  Ltd. ("Challenger")]  and then  it                                                                   
     was [Intelect  Communications, Inc. ("Intelect")]  - [it                                                                   
     was]  actually  Intellect   that  signed  the  indemnity                                                                   
     agreement -  and they have  changed their name  again to                                                                   
     [TerraForce   Technology  Corporation   ("TerraForce")],                                                                   
     which  is a  publicly traded  company  under the  symbol                                                                   
     TERA.   And TerraForce,  in their  SEC [U.S.  Securities                                                                   
     and    Exchange     Commission]    filings,     publicly                                                                   
     acknowledged  that  they  have this  guarantee  on  this                                                                   
     judgment.   So, what  this is all  about is, this  group                                                                   
     of  Texas  businessmen  have this  promise  and  they're                                                                   
     trying  to find a  way out  of their  promise.  And,  as                                                                   
     drawn, [HB  499] arguably  will give them  an out.   ...                                                                   
     And I doubt  that that information has been  shared with                                                                   
     you,  so that  you know  what  is really  going on  with                                                                   
     regard to the  tremendous interest that Savage  Arms has                                                                   
     in helping  us out with Alaska  law:  they're  trying to                                                                   
     get out of an obligation that they have.                                                                                   
MR. POWELL added:                                                                                                               
     Likewise,  in  that  situation,  I  represented  Western                                                                   
     Auto; we were  innocent in the transaction,  but we were                                                                   
     a retailer,  and retailers  have an obligation  to stand                                                                   
     good for any  problems with a product, and  then they're                                                                   
     supposed  to be  able to  [go] back  against the  people                                                                   
     that made the  product.  "Savage" would  not participate                                                                   
     in the trial,  and so we had to defend their  product as                                                                   
     best we could,  and eventually we ended up  settling the                                                                   
     claim for $5.4  million.  So Kevin Taylor is  out of the                                                                   
     picture, and  we are now  trying to recover  that amount                                                                   
     of  money, our  defense  costs  as well,  and  a lot  of                                                                   
     interest that has accumulated over the years.                                                                              
Number 2279                                                                                                                     
CHAIR  ROKEBERG   asked   Mr.  Powell  whom   he  is   [currently]                                                              
MR.  POWELL said  that he  was retained  to  defend Western  Auto.                                                              
Western  Auto,   being  a  responsible  company,   he  added,  had                                                              
insurance;  they  had a  primary  policy with  Allstate  Insurance                                                              
Company ("Allstate")  for $5  million, and  an excess  policy with                                                              
Certain Underwriters  at Lloyd's  of London ("Underwriters").   He                                                              
explained that it  was actually Underwriters that  brought him in,                                                              
30 days  before trial,  to defend the  action, and that  Allstate,                                                              
which  had the major  interest,  paid defense  costs of nearly  $1                                                              
REPRESENTATIVE  JAMES relayed  her  appreciation  that Mr.  Powell                                                              
has filled  in "some gaps."  She  said that in the  beginning, she                                                              
was  concerned  because  she  thought  that  the  whole  case,  as                                                              
initially  presented by Mr.  Pease, revolved  around a  bankruptcy                                                              
sale and the  purchaser of the bankruptcy's assets,  and so "there                                                              
should   have  been   a  separation   of  responsibility   there."                                                              
However,  because it  was a Chapter  11 bankruptcy  rather  than a                                                              
Chapter 7  bankruptcy, it was  not a sale  by the trustee;  it was                                                              
merely "a  sale by the  company to the  same person, which  is not                                                              
an arms-length transaction,"  she noted.  The main  person was the                                                              
same person  in both  [companies]; therefore,  she opined,  "there                                                              
is no severance  of any relationship or any knowledge  or anything                                                              
else in that [transaction]."   She said she is  surprised that the                                                              
bankruptcy judge  agreed to a  sale that didn't specifically  have                                                              
a severance of  liability; however, because [the sale  was to] the                                                              
same person,  she suspected  that [the  judge] assumed  that there                                                              
would be no severance of the liability.                                                                                         
CHAIR ROKEBERG  observed that the  issue of whether it's  the same                                                              
person or  not is  "a matter of  material fact"  and is  a central                                                              
point to the whole case.                                                                                                        
REPRESENTATIVE  JAMES agreed.   She noted,  however, that  another                                                              
point the committee  was not initially aware of  was the existence                                                              
of "this guarantee that was made."  She added:                                                                                  
     For  the life of  me, I  can't figure  out why they  did                                                                   
     that.   There had to be  some reason, and I  don't think                                                                   
     they've  told us  ... why  they did  that, because  that                                                                   
     seems extremely  unusual to  have done that  unless they                                                                   
     knew they were liable.                                                                                                     
Number 2139                                                                                                                     
MR. POWELL responded:                                                                                                           
     We have not  been able to take the testimony  to ask ...                                                                   
     what  was  the  motivation.    It  appears  to  be  that                                                                   
     "Savage"  ...  [was]  transferring the  stock,  and  the                                                                   
     people  who  were  investing   $20-plus  million,  as  I                                                                   
     recall,  wanted to  have  some protection  against  this                                                                   
     judgment that  was out there when they were  selling the                                                                   
     stock a few  years after.  It may have been  in [1990 or                                                                   
     1991] that  this happened,  and Savage Sports  was being                                                                   
     formed about  that time, and  the investors  wanted some                                                                   
     protection  against  this   claim  coming  back.    They                                                                   
     continued to  do business as Savage Arms,  and so that's                                                                   
     why this guarantee was given, as I understand it.                                                                          
CHAIR ROKEBERG asked:  Were "they" aware of a claim at the time?                                                                
MR. POWELL said  that at that time, "they were;  they specifically                                                              
identified this litigation - the Taylor case."                                                                                  
CHAIR  ROKEBERG  relayed  that   after  Mr.  Powell  finishes  his                                                              
presentation, the committee would be focusing on:                                                                               
     The  concepts that  we're dealing  with as  a matter  of                                                                   
     law; that  is to say, ...  whether or not we  should, by                                                                   
     statute,  overturn   the  doctrine  that   the  [Alaska]                                                                   
     Supreme  Court utilized,  number one,  and, number  two,                                                                   
     speak  to  the  issue  on  the  retroactivity  vis-a-vis                                                                   
     "prospectivity".   ... I've concluded that I  agree with                                                                   
     the  [American Law  Institute's  Restatement (Third)  of                                                                 
     the Law  of Torts ("Third  Restatement of Torts")],  and                                                                 
     I   do  not   agree  with   Justice   Eastaugh  on   the                                                                   
     "[continuity]  of  enterprise"  theory.    ...  Just  to                                                                   
     refresh  everybody's memory,  there  was a  case at  the                                                                   
     [Alaska] Superior  Court level - the finding  - and then                                                                   
     the  parties asked the  [Alaska] Supreme  Court to  rule                                                                   
     on the  point of law,  which just  has to be this  whole                                                                   
     idea of successor  liability.  They've issued  that, but                                                                   
     they've   remanded  the  case   back  to  the   [Alaska]                                                                   
     Superior Court.   So this case is still  in progress; so                                                                   
     that's another issue that we have to be sensitive to.                                                                      
Number 2037                                                                                                                     
MR.  POWELL, continuing  with  his  presentation,  opined that  as                                                              
written, HB  499 goes too far,  in effect giving carte  blanche to                                                              
businesses  that might want  to do  "what we  are alleging  and we                                                              
hope  we can  prove  that  'Savage'  has done."    It  is an  open                                                              
invitation for  business owners  that have marginal  businesses to                                                              
"do  a  little  restructuring"  - sell  their  assets  to  another                                                              
corporation that would  be almost identical and would  be owned by                                                              
the  same people.    They could  perhaps do  this  every year,  he                                                              
suggested,  as  a  sort  of prophylactic  move.    Would  this  be                                                              
considered fraud?   He posited  that under  HB 499, it  might just                                                              
become a  precautionary move that  businesses would engage  in per                                                              
their  lawyers'  advice.   Proving  fraud  is very  difficult,  he                                                              
added;  he   has  never  seen   it  successfully  proven   in  the                                                              
courtroom,  even  after 37  years  of practice.    "It  is like  a                                                              
criminal proceeding,  and you have to go to the  intent; 'what did                                                              
the  person know  and what  did they  intend' is  really tough  to                                                              
prove," he  noted.  A business owner  who is getting stiffed  on a                                                              
bill for  $10,000 or $20,000  or $30,000  isn't going to  have the                                                              
resources to  be able to prove fraud.   He reiterated  that HB 499                                                              
goes too far:   to just say  that there is no  successor liability                                                              
would  really change  the climate  of the way  Alaska business  is                                                              
CHAIR ROKEBERG  asked Mr.  Powell, as a  matter of public  policy,                                                              
whether the insertion  of "product liability" would  give him more                                                              
MR. POWELL said that  it would:  it would avoid  a lot of problems                                                              
for  innocent  retailers who  are  at  the mercy  of  unscrupulous                                                              
manufacturers that  take advantage of  "this apparent void  in our                                                              
law"  regarding  successor  liability.   He  observed  that  cases                                                              
involving product liability usually involve substantial claims.                                                                 
CHAIR  ROKEBERG asked  whether there  were any  other areas  of HB                                                              
499 that the committee should focus its attention on.                                                                           
MR. POWELL referred  to the "retroactivity aspect" of  HB 499.  He                                                              
pointed out  that none  of the tort-reform  packages adopted  over                                                              
the years  have retroactive  provisions; none  of them  attempt to                                                              
reach back in time                                                                                                              
CHAIR ROKEBERG asked:  "Why did the court do it, then?                                                                          
Number 1884                                                                                                                     
MR. POWELL  explained  that as a  general rule  when dealing  with                                                              
particular litigants,  the court has to hand  down decisions based                                                              
on  the  past  actions of  those  particular  litigants.    [Some]                                                              
rulings must  have retroactive  application; otherwise,  he noted,                                                              
nobody would ever  bring a case to the courts.   If a court ruling                                                              
could  only be  applied prospectively,  it  would be  the same  as                                                              
going to  court and being  told, "[We] can't  help you out  in the                                                              
particular factual  situation that you  have, [but] thank  you for                                                              
bringing it  to our attention ...;  the next people that  bring it                                                              
up,  they're  going  to  get  a  good  deal."    Therefore,  as  a                                                              
practical matter, on  many occasions the court has  said, "We will                                                              
address  this issue,  and  we will  make  it  applicable to  these                                                              
facts, since it's  not been addressed before and  we're addressing                                                              
it for  the first  time."   He noted  that this  is what  occurred                                                              
when the [Alaska]  Supreme Court made its interlocutory  ruling in                                                              
the Savage Arms Inc. v. Western Auto Supply Co. case.                                                                         
MR. POWELL said  that retroactivity raises questions,  and that he                                                              
could provide  the committee  with case  examples that  illustrate                                                              
that there  are problems with  retroactivity.  Something  that the                                                              
committee may not  have considered, he explained, "has  to do with                                                              
the potential  taking that  occurs if the  state tries to  make it                                                              
retroactive  and  affect  transactions  that  have  already  taken                                                              
place:  there  may be some financial  exposure to the  state."  He                                                              
added, "Nothing would  make me happier than for the  state to step                                                              
in and  pay off  this judgment,  but I don't  think that's  a good                                                              
deal for the [state].  He elaborated:                                                                                           
     I think that  would be backing into a  potential problem                                                                   
     that the  state should not  back into, by the  potential                                                                   
     taking  by  a  retroactivity   that  affects  litigation                                                                   
     that's in  process.  I think  we would have a  good case                                                                   
     for  inverse condemnation  and  a taking  by the  state,                                                                   
     and I  ... don't want  you to be  blindsided by  that; I                                                                   
     think that is  a problem with making it  retroactive, at                                                                   
     least ...  for this case, which  is so far  along, which                                                                   
     occurred  so long  ago, and  we're just  sort of in  the                                                                   
     closing chapters of it here.                                                                                               
Number 1771                                                                                                                     
CHAIR ROKEBERG  mentioned that the  legislature has  the statutory                                                              
authority  to  make  laws  retroactive,  "particularly  if  it  is                                                              
curative legislation."                                                                                                          
MR. POWELL  acknowledged that there  is an exception  for curative                                                              
legislation,  and asked  permission to  submit [written]  comments                                                              
on  [the  issue   of  retroactivity]  to  the   committee  by  the                                                              
following Friday.                                                                                                               
CHAIR ROKEBERG agreed to that.                                                                                                  
REPRESENTATIVE JAMES  alluded to  the possibility that  any action                                                              
taken via  HB 499 might  not necessarily  affect the  current case                                                              
that Mr. Powell and Mr. Pease are involved in.                                                                                  
CHAIR ROKEBERG,  after mentioning that the aforementioned  case is                                                              
merely  the genesis  for HB  499 and  discussion of  it helps  put                                                              
things in  context, pointed  out that the  specifics of  that case                                                              
are not the issue that is before the committee.                                                                                 
REPRESENTATIVE JAMES  posited that the committee needs  to look at                                                              
the decision that  was made in the court:  "It  appears to me that                                                              
there is a conflict and something we should fix."                                                                               
Number 1662                                                                                                                     
THEODORE  M.  PEASE,  JR.;  Attorney; Burr,  Pease  &  Kurtz,  PC;                                                              
testified  via  teleconference,  noting that  he  is  representing                                                              
Savage Arms.   In  response to  comments made  by Mr.  Powell, Mr.                                                              
Pease   explained  that   the  aforementioned   guarantee  was   a                                                              
guarantee given to  Mr. Coburn, the present owner  of Savage Arms,                                                              
who was  seeking protection  [from] a  potential judgment  against                                                              
Savage Arms  in the Savage  Arms Inc. v.  Western Auto  Supply Co.                                                            
case.    Mr.  Pease  noted  that   the  company  which  gave  that                                                              
guarantee, and  from which Mr. Coburn  bought the stock  in 1995 -                                                              
Intelect -  is now, itself, in  a rather precarious  situation and                                                              
is reportedly not  in a "position to respond."   He indicated that                                                              
this  guarantee  was  given  years after  [the  original  sale  of                                                              
assets by Savage Industries] took place.                                                                                        
MR. PEASE, turning  to issues raised by the  legislation, remarked                                                              
that  the latest  version of  HB  499 that  he has  seen makes  it                                                              
clear that  fraud is not  exempted.  With  regard to the  issue of                                                              
retroactivity,  he  said that  clearly  statutes  permit, and  the                                                              
courts  certainly   recognize,  that   the  legislature   has  the                                                              
authority to  make laws retroactive.   To do so, he  remarked, the                                                              
legislation  has to  either be  curative or  be made  specifically                                                              
retroactive, as is the case with HB 499.                                                                                        
MR. PEASE  opined that  the point  raised in  a memorandum  by the                                                              
drafter,  that  the  state risks  financial  exposure  because  of                                                              
"taking," is  absurd.  He posited  that Article I, Section  18, of                                                              
the   Alaska  State   Constitution,   which  is   cited  in   that                                                              
memorandum, "has to  do with instant title," and that  HB 499 does                                                              
not address  private property  or contract  rights.  He  mentioned                                                              
that even Section  15 of Article I does not address  tort law.  He                                                              
opined  that nothing  prohibits  making  HB 499  retroactive,  and                                                              
that  doing  so  is  critically   important  in  ensuring  uniform                                                              
application.   He  mentioned that  at this  time, he  will not  be                                                              
commenting on the insertion of "product liability" language.                                                                    
CHAIR ROKEBERG  noted that insertion  of such language is  his own                                                              
suggestion.  He  reiterated that he tends to agree  with the Third                                                              
Restatement of  Torts with regard  to "what law should  apply here                                                              
in terms  of successor  liability, which  would include  the 'mere                                                              
[continuation]'  doctrine,  but  it  repudiates  specifically  the                                                              
'[continuity]  of enterprise' and  the 'product line'  doctrines."                                                              
"And I think that's  what we want to do," he remarked.   He opined                                                              
that HB 499 rightly  makes contract and corporate  law the primary                                                              
focus, but  that it may not  serve the public interest  because of                                                              
language throughout  the bill that  says, "in tort  or otherwise",                                                              
which is very broad.  He added:                                                                                                 
     So, if they're  contractually set forth -  that there is                                                                   
     a prohibition  on the  responsibility for liabilities  -                                                                   
     and then  we run into  a product liability  situation, I                                                                   
     think I've come  to the conclusion that  the traditional                                                                   
     four-pronged  standards  ... expressed  and  articulated                                                                   
     in  the   "Restatement"  should   prevail  and   be  the                                                                   
     standard in  the state of Alaska,  as they are  in about                                                                   
     47 other states.   And that would require  that we amend                                                                   
     the bill  to at least  include product-liability  cases.                                                                   
     And  then  that  would  leave  the  "mere  continuation"                                                                   
     doctrine, as expressed in our supreme court and other                                                                      
     jurisdictions, available.                                                                                                  
Number 1197                                                                                                                     
CHAIR ROKEBERG asked Mr. Pease to comment.                                                                                      
MR. PEASE asked where such a change would be located.                                                                           
CHAIR  ROKEBERG  referred  to  page  1,  line  14,  and  suggested                                                              
inserting  the   language,  "except   for  product   liability  or                                                              
successor interest product liability," or something similar.                                                                    
MR.  PEASE argued  that such  a  change would  "take all  product-                                                              
liability cases  out of this rule,"  and so "the same  thing could                                                              
happen again.                                                                                                                   
CHAIR ROKEBERG stated  that [via a committee substitute  (CS)] the                                                              
committee  "will be  adopting  specific language  overturning  the                                                              
'continuity  of  enterprise'  -  and  I'd also  like  to  add  the                                                              
'product   line'    doctrines   -   and   excluding    them   from                                                              
MR. PEASE said:   "It's a step  in the right direction,  ... but I                                                              
think the  basic problem  still remains that  we've got  an Alaska                                                              
Supreme  Court that  is a  very  adventuresome court  in the  tort                                                              
CHAIR  ROKEBERG agreed,  adding  that  that is  why  he wanted  to                                                              
"rein them in."                                                                                                                 
MR.  PEASE  said  that  there  is too  much  left  open  in  these                                                              
doctrines, "these  four 'Restatement' exceptions,"  that the court                                                              
could still use  to come up with "successor-liability  areas" that                                                              
are unpredictable  and unfair  to parties  involved in  commercial                                                              
CHAIR  ROKEBERG said  he agreed,  in  the main,  with Mr.  Pease's                                                              
thrust.   He added that he  is concerned, however, with  coming up                                                              
with legislation  that fits the  public's overall  best interests.                                                              
Noting  that the drafter  of HB  499 had  arrived, Chair  Rokeberg                                                              
asked  Mr. Pease  to comment  on inverse  condemnation, which,  it                                                              
had  been suggested,  could  subject the  state  to a  $14-million                                                              
bill if the state  were sued because of the inclusion,  in HB 499,                                                              
of a retroactive provision.                                                                                                     
MR.  PEASE said  that  the eminent-domain  section  of the  Alaska                                                              
State Constitution  deals with personal property  or real property                                                              
that the state  has taken.  He  offered that HB 499  instead deals                                                              
with  an area  of tort  law; thus  the concept  of eminent  domain                                                              
does  not apply.    He  reiterated that  not  even  Section 15  of                                                              
Article I applies  with regard to  HB 499.  He opined  that "this"                                                              
is an effort to intimidate, and that "it" just isn't fair.                                                                      
CHAIR  ROKEBERG   asked   Mr.  Pease  to   provide,  in   writing,                                                              
additional  comments  regarding  the  "retroactivity  and  taking"                                                              
Number 0872                                                                                                                     
TERRY    BANNISTER,   Attorney,    Legislative   Legal    Counsel,                                                              
Legislative  Legal  and  Research  Services,  Legislative  Affairs                                                              
Agency, referring  to her  memorandum of  February 12,  2002, said                                                              
that, basically,  the state is not  allowed to take  property, and                                                              
that in  saying that,  she is  not talking  about eminent  domain;                                                              
rather, she  is talking about a  basic requirement that  the state                                                              
cannot  take  property  without   providing  a  person  with  just                                                              
compensation.   She explained  that once  the property  is vested,                                                              
the person actually owns the property.                                                                                          
CHAIR ROKEBERG said, "But we're talking about a judgment here."                                                                 
MS. BANNISTER,  with regard to  judgments, explained that  "once a                                                              
judgment  has   been  entered   for  someone,  generally   they're                                                              
considered  to have  a vested  right  in what  they've been  given                                                              
under  the  judgment,"  although,  she  acknowledged,  a  judgment                                                              
could be  changed during the  appeal process.   "But once  you get                                                              
to something  [that]  can be called  [a] vested  right like  that,                                                              
you run the  risk of triggering  this clause" in the  Alaska State                                                              
Constitution that  requires a person be compensated  if that right                                                              
is taken,  she said.  She  also mentioned that one  could possibly                                                              
argue  that there could  be an  "impairment of  contract,  too, if                                                              
you were to  change the effect of  contracts, ... if the  big part                                                              
of the  contract ... were  this consideration of  what liabilities                                                              
the person would  be exposed to, and they based it  on the current                                                              
law at  the time."  "So,  if you went  back and changed  all their                                                              
contracts in  the past, and this  was a primary consideration  - a                                                              
make or break consideration  - in the contract, you  would have an                                                              
impairment-of-contracts issue," she added.                                                                                      
CHAIR  ROKEBERG  mentioned  that  Alaska  did not  have  too  many                                                              
MS. BANNISTER  remarked:   "Well, we're talking  here about  a lot                                                              
of  transfers  of  property  between   companies;  there's  a  lot                                                              
involved here."                                                                                                                 
CHAIR  ROKEBERG,  pointing  out   that  the  "subject  case"  that                                                              
prompted   the   legislation  involves   product   liability   and                                                              
successor interests,  conceded that HB  499 covers a  multitude of                                                              
transactions  that may  have happened  in the  past.  He  remarked                                                              
that case law and  common law are the law of the  state, and that,                                                              
presumably,  Alaska statutes  are silent  on this  issue, or  else                                                              
everybody  would have been  aware of  "it."   He surmised  that in                                                              
Alaska,  there would  probably not  be too many  cases similar  to                                                              
that of  Savage Arms  Inc. v.  Western Auto  Supply Co.,  in which                                                            
successor  liability  and  product liability  in  a  manufacturing                                                              
setting  are the main  issues; "we  won't find  ourselves  in that                                                              
situation too many times."                                                                                                      
MS. BANNISTER concurred.                                                                                                        
CHAIR  ROKEBERG  noted  that  testimony  has  indicated  that  the                                                              
insurers  of  Western  Auto  have  paid  a  [settlement]  of  $5.4                                                              
million  and are  now seeking  recovery  from Savage  Arms in  the                                                              
amount  of  $14 million.    He  asked  Ms.  Bannister:   "In  your                                                              
opinion, would we  be taking a risk, were we to  put a retroactive                                                              
applicability section in this bill?"                                                                                            
Number 0503                                                                                                                     
MS. BANNISTER,  in  response, said:   "Anytime  you do that,  when                                                              
you've had a judgment  entered, you're going to be  taking a risk.                                                              
I don't know how it'll eventually turn out, but ...                                                                             
CHAIR  ROKEBERG interjected  to  ask:   "Has the  state ever  been                                                              
sued for inverse condemnation?  Is that what that is?"                                                                          
MS.  BANNISTER  said that  she  would  have  to check  the  cases,                                                              
adding  that she  was not  sure that  it would  be called  inverse                                                              
condemnation.    She  reiterated  that  it  could  be  considered,                                                              
arguably, that  once there  is a judgment,  the right  to whatever                                                              
one  gets out  of  that judgment  "would  be  considered a  vested                                                              
right,  and   the  issue  attaches."     She  indicated   that  [a                                                              
retroactive provision]  would go back  and say that  that judgment                                                              
doesn't apply any more.                                                                                                         
CHAIR ROKEBERG,  referring  to the legal  situation that  prompted                                                              
the creation  of HB 499, said:   "We've got a settlement  that was                                                              
made, we've got a ..."                                                                                                          
MS.  BANNISTER interrupted  to ask  whether there  was a  judgment                                                              
entered.    She  pointed  out  that   "usually  when  you  have  a                                                              
settlement, you enter a judgment based on the settlement."                                                                      
MR. POWELL explained:   "There was a judgment  of dismissal; there                                                              
was  a court  order officially  approving  the minor's  [Taylor's]                                                              
settlement - the amounts, the [attorney] fees, and that."                                                                       
CHAIR  ROKEBERG said:   "And then  there is  the subrogation,  and                                                              
now the  case is  proceeding because  it's been  remanded  back to                                                              
the [Alaska]  Superior Court.  So,  could you say there's  a final                                                              
MR. POWELL  said:  "It's  not strictly  accurate to say  there's a                                                              
final judgment  because there  is no  judgment entered  against us                                                              
except  the judgment  of dismissal  based  upon the  fact that  we                                                              
paid a ton of money to the injured parties."                                                                                    
Number 0411                                                                                                                     
CHAIR ROKEBERG said:                                                                                                            
     Right.   But I guess one of  the concerns I have,  and I                                                                   
     don't  understand  and I  don't  think  the --  is  that                                                                   
     we're kind  of in the middle  of the case, if  you will,                                                                   
     here, because  there was a third party brought  in.  And                                                                   
     then there was  a unique situation where the  case [was]                                                                   
     ruled  on in  part  by the  [Alaska]  Supreme Court  and                                                                   
     then remanded  back to the  [Alaska] Superior  Court for                                                                   
     final  adjudication.     So,  we  don't  have   a  final                                                                   
     judgment or  anything; we're right in the  middle of it.                                                                   
     So,  Ms.   Bannister,  can  the  legislature,   in  your                                                                   
     opinion, act now?                                                                                                          
MS. BANNISTER  replied  that there  are issues  there and  she did                                                              
not know how it would come out.                                                                                                 
CHAIR ROKEBERG said:   "Okay, so it's an issue that  ... you can't                                                              
counsel us, one way or another, how it would.                                                                                   
MS. BANNISTER  added:  "It depends  also -- did they remand  it as                                                              
--  you're  taking  about  the remand  from  the  court  with  the                                                              
instructions on this ...?                                                                                                       
CHAIR ROKEBERG interjected, saying:  "On the theory of law ..."                                                                 
MS. BANNISTER pointed  out:  "Well, they tell  you, basically, how                                                              
to go for it.   ... It's just very complicated  because the remand                                                              
tells you what law to apply."                                                                                                   
CHAIR  ROKEBERG said:   Well,  that's  what happened  there.   The                                                              
[Alaska]  Supreme Court,  by their  ruling, decided  which law  to                                                              
MS. BANNISTER said:  "It's not a clean remand like ..."                                                                         
CHAIR ROKEBERG, interjecting,  said:  "And then  that's what we're                                                              
going to be trying to overturn here, in this [proposed] statute.                                                                
MS. BANNISTER  said:   "I think  it's an issue,  and I  just don't                                                              
know how it'll come out."                                                                                                       
CHAIR ROKEBERG  asked:  "Is there  a potentiality the  state could                                                              
be liable  for $14  million, which  is the  amount in  question at                                                              
this juncture?"                                                                                                                 
Number 0292                                                                                                                     
MS. BANNISTER asked:  "You mean the party received $14 million?                                                                 
CHAIR  ROKEBERG said:    "Well, they're  praying  for it,  because                                                              
that's  --  they got  [$5.4  million]  and  there's the  fees  and                                                              
MS. BANNISTER said:                                                                                                             
     Well,  I  think there's  the  potential,  yeah.   ...  I                                                                   
     can't  say  how  it  would  come  out,  though,  because                                                                   
     whenever  you've gotten  that  far, ...  the issue  goes                                                                   
     right  there -  ... the  issue  is present.   You  can't                                                                   
     just say,  "Well, they haven't  quite reached  the point                                                                   
     where  the right has  vested"; the  right has vested  to                                                                   
     this  extent ...  and  you've gotten  instructions  from                                                                   
     the  court.  And  I think  the issue  is present,  and I                                                                   
     don't know how it would be resolved.                                                                                       
MR. PEASE said:                                                                                                                 
     I  think we're  getting  carried  away.   Semantics  and                                                                   
     other   things  are   getting  involved   here.     This                                                                   
     suggestion  that [you're]  liable, frankly,  I think  is                                                                   
     totally out  of place.   Let's suppose this  thing plays                                                                   
     out:  this  statute is passed - made retroactive.   Then                                                                   
     it  goes  back   down  to  the  court,  and   there  are                                                                   
     proceedings.   And,  say, the lower  court says,  "Well,                                                                   
     in  the light  of this,  what  the state  has done,  I'm                                                                   
     dismissing  the  action."   Then  Mr.  Powell  (indisc.)                                                                   
     this  to  the  [Alaska] Supreme  Court  and  says,  "You                                                                   
     can't do this,  (indisc.) got a vested right  here based                                                                   
     on your  previous (indisc.)."   The court's  then either                                                                   
     going  to say, "Yes,  it is"  [or] "No,  it isn't."   If                                                                   
     they  say, "No,  it isn't,"  the case is  over; if  they                                                                   
     say,  "Yes,  it  is,"  then   it  goes  back  under  the                                                                   
     [Alaska]  Superior Court  again,  by the  law which  the                                                                   
     (indisc.)   originally   laid   out,   which   is   this                                                                   
     'continuity of  enterprise' theory.  (Indisc.)  it's not                                                                   
     (indisc.)  inverse Allstate.   It's just not  realistic.                                                                   
     Things just don't happen that way.                                                                                         
[Committee  staff distributed  the  proposed committee  substitute                                                              
(CS) for HB 499, version 22-LS1490\S, Bannister, 4/5/02.]                                                                       
CHAIR ROKEBERG  asked Ms. Bannister  to research  "this particular                                                              
issue regarding  our position  in [the] course  of the  trial, and                                                              
also this  issue on potential liability  to the legislature  as to                                                              
MS. BANNISTER agreed  to do more research, but  cautioned that "it                                                              
will still  remain an  issue - it  will not go  away."   She noted                                                              
that a long  time ago, she did  research on "this type  of thing,"                                                              
and that  it just comes  down to the fact  that she can't  say for                                                              
sure; it'll just remain an issue.                                                                                               
CHAIR ROKEBERG,  mentioning that  the legislature, within  certain                                                              
parameters, can  create retrospective statutes, asked  whether [HB                                                              
499] could be considered curative legislation.                                                                                  
MS.  BANNISTER offered  that it  could be  considered curative  to                                                              
some extent,  but cautioned  that generally, curative  legislation                                                              
addresses  very  serious,  major  problems.   She  mentioned  that                                                              
during  the Depression,  for  example,  when people's  farms  were                                                              
being  taken, some  retroactivity  was allowed  because  it was  a                                                              
such a major social issue.                                                                                                      
TAPE 02-43, SIDE A                                                                                                              
Number 0001                                                                                                                     
MS.  BANNISTER  mentioned  that  although "the  issues"  would  be                                                              
factors in  the court's forthcoming  decision, none of  them would                                                              
be determinative.   "I can't tell you what would  be determinative                                                              
at this time," she added.                                                                                                       
CHAIR ROKEBERG  asked Ms. Bannister  to "check and see  if there's                                                              
ever been  anything analogous to  this, where the  legislature has                                                              
interceded in court  ... in the middle of a case."   He noted that                                                              
he would  not want  to subject  the state  to a judgment  stemming                                                              
from "a taking."                                                                                                                
MS.  BANNISTER  offered  that  instead of  the  state  being  held                                                              
liable, the  court might simply say,  "You can't do this,  we have                                                              
to  follow  the other  way."    In  that case,  she  noted,  there                                                              
wouldn't  be  any  liability;  the court  would  not  "switch  the                                                              
awards" [if the language] was found to be unconstitutional.                                                                     
CHAIR  ROKEBERG  asked  Ms.  Bannister  to  describe  the  changes                                                              
encompassed in Version S of HB 499.                                                                                             
MS.  BANNISTER said  that according  to her  understanding of  her                                                              
instructions,  essentially she  was to  keep the  language in  the                                                              
original   bill,  but  make   an  exception   for  the   "products                                                              
liability,  in which  case, in  the products-liability  situation,                                                              
you would have  the four exceptions that are  in the 'Restatement'                                                              
apply."   To  this end,  she pointed  out,  these four  exceptions                                                              
have been added, via [subsection] (b), to Sections 2-6 and 8.                                                                   
CHAIR  ROKEBERG asked  whether the  four exceptions  needed to  be                                                              
Number 0272                                                                                                                     
MS. BANNISTER  pointed out  that it  would not be  a good  idea to                                                              
simply refer  in statute  to the  "Restatement"; for clarity,  the                                                              
four   exceptions  should   be  specifically   identified.     She                                                              
concurred that  the "balance  of the  bill" remains, pointing  out                                                              
that the language  in the introductory part of  [subsection (a) of                                                              
Section 2]  has been  changed slightly to  "parrot, more  or less,                                                              
... some  language in the 'Restatement'"  and to include  the term                                                              
"fraudulent transfer," which is used in AS 34.40.                                                                               
CHAIR   ROKEBERG   suggested   that  the   definition   of   "mere                                                              
continuation"  could   be  tightened  up.    He   then  asked  Ms.                                                              
Bannister to  speak to  the "product line"  doctrine.   He relayed                                                              
that in  the Savage  Arms Inc.  v. Western  Auto Supply  Co. case,                                                            
the  court used  the term  "new  doctrines" when  it talked  about                                                              
"continuity  of  enterprise"  and  "product  line,"  but  when  it                                                              
adopted  the "continuity  of enterprise"  [doctrine], it  declined                                                              
to  consider the  "product line"  [doctrine], saying  that it  did                                                              
not fit the facts.   Chair Rokeberg said that he  wanted to reject                                                              
the "product  line" [doctrine],  and asked  Ms. Bannister  whether                                                              
the [Legislative]  Intent section could specify rejection  of that                                                              
[doctrine]  too, even though  it was  not specifically  considered                                                              
in the aforementioned case.                                                                                                     
MS. BANNISTER  pointed out that  intent language is simply  that -                                                              
intent language.                                                                                                                
CHAIR  ROKEBERG  said:   "By  what  you've  done, that  should  be                                                              
pretty clear.  ...  Would it not?"                                                                                              
MS. BANNISTER observed, "you've set the parameters out, here."                                                                  
CHAIR  ROKEBERG,  after  referring  to  specific  wording  in  the                                                              
Savage  Arms Inc.  v.  Western Auto  Supply  Co. case,  reiterated                                                            
that  he wanted  HB 499  to expressly  reject  the "product  line"                                                              
MS. BANNISTER agreed  that language to that effect  could be added                                                              
[to  the Legislative  Intent section],  even  though "you've  laid                                                              
out what they can use ... in the other parts" of the bill.                                                                      
Number 0620                                                                                                                     
RAY R.  BROWN, Attorney; Member,  Alaska Academy of  Trial Lawyers                                                              
(AATL),  testified via  teleconference  in opposition  to HB  499.                                                              
After noting  that he  did not yet  have a copy  of Version  S, he                                                              
said  that he  finds it  troubling  that "litigants  are making  a                                                              
point on a specific  bill involving a specific case  that is still                                                              
active," and are  thereby attempting to influence a  decision on a                                                              
pending case  or influence the ramifications  of the results  of a                                                              
pending case.  He  said that he agrees with Mr.  Powell that fraud                                                              
is very  difficult to  prove.   He explained  that the  problem he                                                              
has  with HB  499 is  that  it reaches  much  further than  simply                                                              
addressing the Savage  Arms Inc. v. Western Auto  Supply Co. case.                                                            
He opined  that the  language, "in tort  or otherwise",  which was                                                              
mentioned earlier,  is extremely  broad and expansive  with regard                                                              
to  a liability  or an  obligation of  the disposing  corporation.                                                              
He posited  that such  language would  have more  of an  impact on                                                              
commercial litigation than it would on tort law.                                                                                
MR.  BROWN  shared  aspects  of   a  case  he  recently  concluded                                                              
involving the  North Slope  Borough as  the plaintiff,  and opined                                                              
that  had HB  499  been in  effect  at that  time,  it would  have                                                              
vitiated   the  liability   of   the  offending   tort-feasor,   a                                                              
substantial  corporation  that had  several  iterations of  itself                                                              
between the  initial activity and  the time of litigation,  before                                                              
finally being  subsumed by a  large, global "filter"  corporation.                                                              
Had  HB 499  been in  place,  he added,  the  North Slope  Borough                                                              
would  have been  out  approximately $7  million  and the  village                                                              
water  purification  projects that  it  had  engaged in  with  the                                                              
offending tort-feasor would not have been completed.                                                                            
Number 0809                                                                                                                     
MR. BROWN offered:                                                                                                              
     In a  day when we have  so many problems right  now with                                                                   
     potential  corporate abuses, and  I think right  offhand                                                                   
     of  [Enron  Corporation] and  [Global  Crossing,  Ltd.],                                                                   
     unless I've  misread this bill  and the breadth  of this                                                                   
     bill to  address a very  simple issue of "continuity  of                                                                   
     enterprise,"  this would  do away  with --  it would  be                                                                   
     better to  sell a corporation  to an Alaska  corporation                                                                   
     than to  declare bankruptcy.   You'd get the  benefit of                                                                   
     your bargain:   you'd get the  money as the  selling CEO                                                                   
     [Chief  Executive Officer]  or  some  of the  directors,                                                                   
     and  you  wouldn't  have  to  worry  about  preferential                                                                   
     transfers  as long  as you  sold the  corporation to  an                                                                   
     Alaska  corporation   that  was  protected   under  this                                                                   
     [proposed] statute.                                                                                                        
     I  think the  issue  regarding inverse  condemnation  is                                                                   
     inapplicable,  and I think that  should be the  least of                                                                   
     the legislature's  concern about  how this would  impact                                                                   
     the  state of  Alaska.   I  doubt  it would  impact  the                                                                   
     state of  Alaska at all;  they are  not a party  to that                                                                   
     underlying  Savage  [Arms]  litigation.    So,  I  can't                                                                 
     imagine  that  it would  have  any  direct impact  -  it                                                                   
     could;  I haven't  analyzed it  to that  extent - but  I                                                                   
     think it  does have a significant  impact on a  lot more                                                                   
     far-reaching  issues  than  what was  addressed  by  the                                                                   
     Savage  Arms case.    And I  would  certainly urge  this                                                                 
     body  to look  at this  very  closely and  to work  very                                                                   
     closely  with the  attorney  general's  office, and  not                                                                   
     just  plaintiffs'  lawyers,  not just  defense  lawyers,                                                                   
     but all  of us that practice  in this field,  because it                                                                   
     will  have  some  far-reaching  effects,  far  beyond  a                                                                   
     products-liability case.                                                                                                   
CHAIR ROKEBERG thanked  Mr. Brown for his testimony  and asked him                                                              
to "follow up on that."                                                                                                         
Number 0915                                                                                                                     
REPRESENTATIVE  JAMES  moved  to   adopt  the  proposed  committee                                                              
substitute  (CS)  for  HB  499,  version  22-LS1490\S,  Bannister,                                                              
4/5/02, as  a work  draft.   There being  no objection,  Version S                                                              
was before the committee.                                                                                                       
CHAIR ROKEBERG  announced that copies  of Version S would  be made                                                              
available  to all interested  parties.   He mentioned  that  he is                                                              
interested in  hearing more from  Mr. Brown regarding some  of the                                                              
issues  that he  raised.   Chair  Rokeberg announced  that HB  499                                                              
[Version S] would be held over.                                                                                                 

Document Name Date/Time Subjects