Legislature(2011 - 2012)BELTZ 105 (TSBldg)

04/01/2011 01:30 PM JUDICIARY


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01:31:44 PM Start
01:32:22 PM Confirmation Hearing|| Alaska Judicial Council
01:42:29 PM SB82
01:47:00 PM SB78
02:39:08 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Board Confirmations: Alaska Judicial Council TELECONFERENCED
+ SB 78 LIQUOR LICENSE HOLDER LIABILITY TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
= SB 82 FOSTER CARE LICENSING/STATE CUSTODY
Moved CSSSSB 82(JUD) Out of Committee
             SB  78-LIQUOR LICENSE HOLDER LIABILITY                                                                         
                                                                                                                                
1:47:00 PM                                                                                                                    
CHAIR FRENCH  announced the consideration  of SB 78 and  asked for                                                              
a motion to adopt the proposed committee substitute (CS).                                                                       
                                                                                                                                
SENATOR WIELECHOWSKI  moved to adopt the work draft  CS for SB 78,                                                              
labeled 17-LS0282\B, as the working document.                                                                                   
                                                                                                                                
CHAIR FRENCH objected for discussion purposes.                                                                                  
                                                                                                                                
ESTER TEMPEL,  staff to Senator  Lesil McGuire, sponsor of  SB 78,                                                              
said the  intent of the  version B is  twofold. The  first section                                                              
of  the  bill   seeks  to  provide  equal  treatment   to  limited                                                              
liability  companies and  foreign limited  liability companies  in                                                              
the liquor liability  context as they are treated  in the business                                                              
world generally.  Sections 2 and 3  of the bill seek to  provide a                                                              
limitation  of liability  for a  taxicab or  limousine driver  who                                                              
gets in  an accident while  driving another person's  vehicle from                                                              
a licensed premise.                                                                                                             
                                                                                                                                
Currently,  persons  engaged  in   businesses  commonly  use  LLCs                                                              
instead  of   corporations  while   leaving  intact   the  limited                                                              
liability of the  LLC members for all other business  purposes. As                                                              
currently   written,  AS   04.21.035  is   an  exception   to  the                                                              
protections against  the individual liability offered  to partners                                                              
of  properly registered  and  maintained LLPs  and  to members  of                                                              
properly  registered   and  maintained   LLCs.  This   means  that                                                              
partners  of LLPs  and members  of LLCs  are not  relieved of  the                                                              
obligation  or liability  otherwise  imposed on  the  holder of  a                                                              
liquor license.                                                                                                                 
                                                                                                                                
1:49:15 PM                                                                                                                    
CHAIR  FRENCH  asked if  that  means  that  LLP partners  and  LLC                                                              
members  are personally  liable for  the liabilities  that may  be                                                              
incurred by their business.                                                                                                     
                                                                                                                                
MS.  TEMPEL replied  that's her  understanding and  to avoid  that                                                              
liability  the  business or  license  holder  would operate  as  a                                                              
corporate entity  rather than  as an LLC.  She continued  that the                                                              
first part of the  CS amends the existing statute  saying that the                                                              
liability  will   be  imposed  only  on  partners   of  a  limited                                                              
liability   partnership    or   a   foreign    limited   liability                                                              
partnership,  but will  no  longer apply  to  a limited  liability                                                              
company or  a foreign  limited liability  company. The  balance of                                                              
the CS is  a Good Samaritan  bill for taxicab operators  who drive                                                              
an intoxicated  person's  motor vehicle home  or another  location                                                              
as directed by the intoxicated person.                                                                                          
                                                                                                                                
This  Good Samaritan  legislation  was originally  passed in  2004                                                              
with  a 2007  sunset, which  has been  overlooked until  recently.                                                              
The bill  has helped  to create  a deterrent  for those  who might                                                              
otherwise drive  impaired if  unable to  find an alternate  method                                                              
of transportation.  It recognizes that while some  people may have                                                              
made  arrangements  to get  home  after drinking,  the  designated                                                              
driver may  not always  be available  or unimpaired. This  service                                                              
is free and confidential.                                                                                                       
                                                                                                                                
In 2008,  Anchorage had  2,777 DUI arrests  of which  453 resulted                                                              
in accidents  and 16 fatalities  of which 8 were  alcohol related.                                                              
In Alaska  in general, 17 of  62 fatalities were  alcohol related.                                                              
In 2009,  Anchorage had  2,604 DUI arrests  of which  324 resulted                                                              
in  accidents.  According  to  the   Anchorage  Police  Department                                                              
(APD), 7 of 17 fatal accidents were alcohol related.                                                                            
                                                                                                                                
Sixty   three   establishments   participate  in   this   program,                                                              
primarily  in Anchorage.  Since the  program began  in 2005,  over                                                              
821  individual rides  have  been given  and  over 2,379  vouchers                                                              
have been sold.                                                                                                                 
                                                                                                                                
1:53:00 PM                                                                                                                    
CHAIR  FRENCH asked  if  the idea  is to  enhance  and extend  the                                                              
limited liability provisions  of an LLC to the  owners and holders                                                              
of liquor licenses.                                                                                                             
                                                                                                                                
MS. TEMPEL said yes.                                                                                                            
                                                                                                                                
SENATOR MCGUIRE  explained that this provision was  drafted before                                                              
LLCs  and LLPs  were a  matter of  Alaska  law so  this is  really                                                              
cleanup language  to allow business entities that  have taken that                                                              
form to function without artificial limitation.                                                                                 
                                                                                                                                
CHAIR FRENCH summarized  that this is structured so  that LLPs and                                                              
foreign  LLPs  remain on  the  hook  for  liability but  LLCs  and                                                              
foreign LLCs are treated the way a corporation is treated.                                                                      
                                                                                                                                
SENATOR MCGUIRE agreed.                                                                                                         
                                                                                                                                
DICK  ROSSTON, Attorney,  Dorsey and  Whitney LLP,  stated that  a                                                              
number  of his  clients  hold liquor  licenses  in  Alaska in  the                                                              
corporate  form,  but  would  prefer  to  use  the  LLC  form.  He                                                              
informed  the committee  that LLCs  are commonly  used instead  of                                                              
corporations,  and  except  in the  liquor  license  context  they                                                              
provide the  limited liability protection  that the  name implies.                                                              
He offered  the opinion  that the  lack of  protection for  liquor                                                              
license holders  probably came  about because  LLCs were  not well                                                              
understood  when  Sec.  04.21.035   was  enacted.  He  noted  that                                                              
neither domestic  nor foreign LLPs were included  in this proposed                                                              
fix.                                                                                                                            
                                                                                                                                
MR. ROSSTON referenced  a chart in the bill packet  that shows the                                                              
key  points   of  corporations,   general  partnerships,   limited                                                              
liability  companies,  and  limited   liability  partnerships.  He                                                              
offered to review the chart.                                                                                                    
                                                                                                                                
1:58:45 PM                                                                                                                    
CHAIR   FRENCH   said  the   members   didn't  need   a   detailed                                                              
explanation.                                                                                                                    
                                                                                                                                
MR.  ROSSTON  said the  gist  is  that limited  liability  company                                                              
means   limited  liability   protection  and   that  wasn't   well                                                              
understood  when the legislation  was enacted.  There's no  reason                                                              
to  treat  the owners  of  LLCs  differently  than the  owners  of                                                              
corporations, he said.                                                                                                          
                                                                                                                                
CHAIR FRENCH asked when Sec. 04.21.035 was enacted.                                                                             
                                                                                                                                
MR. ROSSTON  replied it  was originally drafted  in 1999  and LLCs                                                              
were  brought into  existence  in  Alaska in  1994.  At that  time                                                              
there  was a  misunderstanding that  LLCs were  more like  general                                                              
partnerships,  which have pass-through  liability for  all general                                                              
partners, but they're  actually treated more like  corporations in                                                              
the business  world. He  added that a  distinction between  an LLC                                                              
and an LLP  is that to become  an LLP under Alaska  statutes there                                                              
must  first be  a partnership  agreement. That  agreement is  then                                                              
amended to form an LLP.                                                                                                         
                                                                                                                                
2:02:13 PM                                                                                                                    
RANDALL  CALL,  General  Counsel, Alyeska  Resort  and  President,                                                              
Alyeska  Resort Development  Company, said  when this  legislation                                                              
was introduced  he did  some research  and found that  California,                                                              
Utah,  Idaho,  Nevada,  Washington,  and  Oregon  provide  limited                                                              
liability to  members of LLCs. Alaska  is out of sync  which makes                                                              
it less  likely that  investment will  occur here. Most  investors                                                              
don't invest through  publicly held corporations  for developments                                                              
purposes.  When the  new owners  acquired Alyeska  Resort, it  was                                                              
done through  LLCs. The investors  in those LLCs are  investors in                                                              
several states  including  several eastern  states and they  would                                                              
not  invest  if they  didn't  have  limited liability  for  liquor                                                              
issues.  In order  to preserve  their  limited liability,  Alyeska                                                              
Resort created  a corporation  to hold  the liquor licenses.  This                                                              
legislation will make  it easier for owners of  liquor licenses to                                                              
do business  in Alaska,  but it  doesn't change  the liability  of                                                              
the LLC. It simply gives limited liability to the members.                                                                      
                                                                                                                                
2:05:38 PM                                                                                                                    
SENATOR PASKVAN asked  if LLCs and LLPs are treated  the same as a                                                              
corporation   under   Alaska   law  with   respect   to   adequate                                                              
capitalization.                                                                                                                 
                                                                                                                                
MR. CALL  replied LLCs  are used  far more  frequently than  LLPs.                                                              
LLPs  are typically  used for  medical practices,  law firms,  and                                                              
other professional  practices. They're generally a  method whereby                                                              
the  state  confines  liability   to  the  professional  and  that                                                              
individual  remains  liable  for   his  or  her  malpractice.  The                                                              
liability  of  his  or  her  partners   is  limited.  LLPs  aren't                                                              
generally  used as mechanisms  for investment,  owning or  holding                                                              
real property, or making developments.                                                                                          
                                                                                                                                
CHAIR FRENCH asked  what sort of liability insurance  one needs to                                                              
operate a liquor license.                                                                                                       
                                                                                                                                
MR. CALL  said he didn't know  if there's a threshold  requirement                                                              
but  the entity  that  holds  the  Alyeska Resort  liquor  license                                                              
carries  dram  shop insurance.  He  added  that this  is  probably                                                              
common practice for owners of liquor licenses.                                                                                  
                                                                                                                                
2:08:40 PM                                                                                                                    
BOB KLEIN,  Chair, Alcoholic Beverage  Control (ABC)  Board; board                                                              
member,   Alaska   Cabaret,   Hotel,   Restaurant   &   Retailer's                                                              
Association (CHARR);  and Director  of Sales and  Marketing, Brown                                                              
Jug, stated  that he  was on the  ABC Board in  1999 when  Title 4                                                              
was amended  to describe  certain  LLCs and he  believes that  Mr.                                                              
Rosston's characterization  of "not  understanding" it  is gentle.                                                              
LLCs were relatively  unknown at the time and  the general thought                                                              
was  that the  drafters  had done  the right  thing.  But as  LLCs                                                              
developed and as  the use became apparent, it  became increasingly                                                              
clear  that  Title  4  should  be  brought  in  sync  with  what's                                                              
happening in the business community.                                                                                            
                                                                                                                                
CHAIR  FRENCH asked  if some  liquor licenses  holders might  hold                                                              
their licenses as  an LLC without knowledge that  there are issues                                                              
with respect to liability because of the statute.                                                                               
                                                                                                                                
MR.  KLEIN said  the  Brown  Jug owner  uses  LLCs  but chose  the                                                              
corporate format because  of the language in Title  4. He surmised                                                              
that anyone  who is  paying attention would  avoid using  LLCs for                                                              
the reasons that Mr. Rosston outlined.                                                                                          
                                                                                                                                
CHAIR  FRENCH  asked if  the  ABC  board  looks for  an  insurance                                                              
policy  or a  certain  level of  assets when  it  awards a  liquor                                                              
license.                                                                                                                        
                                                                                                                                
MR.  KLEIN  replied the  Board  look  at  the backgrounds  of  the                                                              
people  who  will  be  listed  on   the  license,  not  at  fiscal                                                              
liability.                                                                                                                      
                                                                                                                                
2:11:53 PM                                                                                                                    
SENATOR  WIELECHOWSKI   asked  about  the  potential   to  require                                                              
liability insurance.                                                                                                            
                                                                                                                                
MR. KLEIN responded  that it would be an  administrative nightmare                                                              
for the ABC Board  to review and verify that  every license holder                                                              
had adequate insurance.                                                                                                         
                                                                                                                                
CHAIR  FRENCH asked  how many liquor  licenses  are active  in the                                                              
state.                                                                                                                          
                                                                                                                                
MR. KLEIN estimated that it's close to 600.                                                                                     
                                                                                                                                
2:13:35 PM                                                                                                                    
MR. CALL pointed  out that corporations don't currently  have that                                                              
requirement in  order to hold a  liquor license. He added  that it                                                              
would be  overwhelming to  require this  of both corporations  and                                                              
LLCs.                                                                                                                           
                                                                                                                                
CHAIR  FRENCH asked  if the  physical assets  of a  bar or  liquor                                                              
store are  included when a corporation  or LLC is formed  around a                                                              
liquor license.                                                                                                                 
                                                                                                                                
MR. CALL  responded that  the assets  of an LLC  would be  open to                                                              
potential  claims if  it held  a  liquor license.  Because of  the                                                              
legislation passed  in 1999, corporations  were created  simply to                                                              
hold liquor licenses and essentially no assets.                                                                                 
                                                                                                                                
2:16:08 PM                                                                                                                    
SENATOR  PASKVAN again  asked  if  LLCs are  subject  to the  same                                                              
rules  as corporations  with respect  to adequate  capitalization.                                                              
If there  is an event,  there is something  more than  the license                                                              
itself to respond.                                                                                                              
                                                                                                                                
MR.  CALL  asked  if  he's  speaking  specifically  of  alter  ego                                                              
liability and undercapitalization legal theories.                                                                               
                                                                                                                                
SENATOR PASKVAN said yes.                                                                                                       
                                                                                                                                
MR. CALL responded that the answer to the question is yes.                                                                      
                                                                                                                                
SENATOR PASKVAN asked  if he's saying that if  a front corporation                                                              
held just  the license  and no  insurance, it  would increase  the                                                              
probability that  the liquor license  holders would be  subject to                                                              
personal  liability   because  of  that  stripped   out  corporate                                                              
structure.                                                                                                                      
                                                                                                                                
MR. CALL said yes;  he believes LLCs have to meet  requirements of                                                              
alter ego and capitalization similar to corporations.                                                                           
                                                                                                                                
2:17:46 PM                                                                                                                    
DALE  FOX,   President,  Alaska   Cabaret,  Hotel,   Restaurant  &                                                              
Retailer's Association  (CHARR), stated that the  CHARR government                                                              
affairs committee  unanimously voted  to support both  sections of                                                              
SB  78   -  the   extension  of   LLC  rights   as  well   as  the                                                              
taxicab/limousine  liability. The  taxicab  program, which  passed                                                              
in  2004 with  overwhelming support,  provides a  good service  to                                                              
patrons  and  makes  the  streets safer.  The  bill  corrects  the                                                              
sunset provision that was overlooked until recently.                                                                            
                                                                                                                                
CHAIR  FRENCH  observed that  Section  2  addresses a  person  who                                                              
makes the responsible  decision to take a taxicab home  from a bar                                                              
and  wants their  car to  be driven  home  too. Taxicab  companies                                                              
will  drive an  individual's  car home,  but  the company  doesn't                                                              
want to be  on the hook if  an accident takes place  that's caused                                                              
by negligence.  He asked  Ms. Tempel  if that's her  understanding                                                              
as well.                                                                                                                        
                                                                                                                                
MS. TEMPEL said yes.                                                                                                            
                                                                                                                                
2:19:59 PM                                                                                                                    
SENATOR MCGUIRE added  that she doesn't recall why  the sunset was                                                              
inserted, but  the bill was a  creative approach to crack  down on                                                              
drunk driving.  Testimony indicated that  part of the  reason that                                                              
people drive  drunk is that  they don't want  to wake up  the next                                                              
day and not have  their car. Alaska CHARR sponsored  the idea that                                                              
taxicab  companies would  volunteer  to drive  the individual  and                                                              
their vehicle  home. When  the cab  companies asked for  liability                                                              
relief  in  the event  of  an  accident,  the committee  struck  a                                                              
balance and  said if  an accident was  caused by gross  negligence                                                              
or reckless or  intentional misconduct, the cab  company isn't off                                                              
the hook. The bill  also did not limit the ability  of a person to                                                              
recover  damages under  any applicable  uninsured or  underinsured                                                              
motor  vehicle  insurance  coverage.  Finally, the  bill  did  not                                                              
limit  the  ability of  a  person  to recover  damages  under  any                                                              
applicable  liability  insurance   coverage  purchased  by  or  on                                                              
behalf of  the person being  transported. The motor  vehicle owner                                                              
is considered  to have  given consent.  Without these  provisions,                                                              
the taxicab companies won't participate, she stated.                                                                            
                                                                                                                                
2:24:04 PM                                                                                                                    
SENATOR  PASKVAN  asked  why  the   taxicab  companies'  liability                                                              
insurance wouldn't  cover their professional drivers  in the event                                                              
they did something wrong.                                                                                                       
                                                                                                                                
SENATOR MCGUIRE  compared the taxicab  companies' concern  to that                                                              
of  a  physician  who renders  assistance  in  an  emergency.  The                                                              
physician is  accommodated under  the Good  Samaritan Law  and the                                                              
taxicab  companies  want  an  accommodation  that  is  similar  in                                                              
nature, she  said. The taxicab  companies' professional  liability                                                              
insurance  doesn't come  into play;  this is  a voluntary  program                                                              
and the professional company isn't getting a fee.                                                                               
                                                                                                                                
SENATOR  PASKVAN   pointed  out   that  if  a  taxicab   company's                                                              
professional  driver drives  an individual's  vehicle that  has no                                                              
coverage,  an  accident  victim   would  have  no  opportunity  to                                                              
recover from  the professional  driver whose  bad conduct  hurt or                                                              
killed them.                                                                                                                    
                                                                                                                                
SENATOR  MCGUIRE said  the  coverage that  runs  with the  vehicle                                                              
would be  granted to an accident  victim. The bill  clarifies that                                                              
uninsured  and  under  insured  motor  vehicle  coverage  will  be                                                              
there,  but the  section  doesn't  apply if  the  accident is  the                                                              
result   of   gross  negligence   or   reckless   or   intentional                                                              
misconduct.                                                                                                                     
                                                                                                                                
2:28:59 PM                                                                                                                    
CHAIR FRENCH  said he wants to  make sure he understands  when and                                                              
to whom subsection (c)(2) would apply.                                                                                          
                                                                                                                                
SENATOR  MCGUIRE  said  it's basically  when  someone  is  driving                                                              
another person's vehicle.                                                                                                       
                                                                                                                                
CHAIR  FRENCH  asked   if  it  would  be  the   accident  victim's                                                              
uninsured  or   underinsured  motor  vehicle  policy   that  would                                                              
provide coverage under Senator Paskvan's hypothetical.                                                                          
                                                                                                                                
SENATOR MCGUIRE said yes.                                                                                                       
                                                                                                                                
SENATOR  PASKVAN said  his point  is that this  insulates  the at-                                                              
fault driver who is a professional.                                                                                             
                                                                                                                                
CHAIR FRENCH asked if that's negligence or gross negligence.                                                                    
                                                                                                                                
SENATOR  PASKVAN  said the  point  is  that subsection  (c)(2)  is                                                              
meaningless  coverage  because the  UM  or  UIM coverage  under  a                                                              
motor  vehicle   liability  policy  is  contractual   between  the                                                              
vehicle owner  and the insurer and  that can't be taken  away. The                                                              
person whose  bad conduct resulted  in death or injury  avoids all                                                              
consequences for that conduct.                                                                                                  
                                                                                                                                
CHAIR FRENCH  speculated that is  why the sunset was  inserted. He                                                              
asked if  there has been  a problem in any  of the 821  rides that                                                              
have been given.                                                                                                                
                                                                                                                                
SENATOR  MCGUIRE reiterated  that  the committee  was looking  for                                                              
creative alternatives  to get  more people  to stop driving  drunk                                                              
and decided  that this was worth  trying. Due to a  combination of                                                              
things, drunk  driving rates have  decreased in Alaska  in general                                                              
and in Anchorage in particular, she said.                                                                                       
                                                                                                                                
2:33:40 PM                                                                                                                    
CHAIR FRENCH  asked if  it's reasonable to  assume that  a taxicab                                                              
driver  would   check  a  vehicle's  liability   insurance  before                                                              
driving it home for the owner.                                                                                                  
                                                                                                                                
MR. FOX  said the  participating bars  check the insurance  policy                                                              
before calling the taxicab company.                                                                                             
                                                                                                                                
CHAIR FRENCH said that's smart.                                                                                                 
                                                                                                                                
SENATOR  PASKVAN said  he understands  the policy  call not  to go                                                              
after a  taxicab company's assets  beyond its liability  coverage.                                                              
However,  these   companies  have   purchased  coverage   for  the                                                              
potential  bad conduct  of  their  professional drivers  and  that                                                              
coverage should  be available to  victims of a professional's  bad                                                              
conduct.                                                                                                                        
                                                                                                                                
2:35:49 PM                                                                                                                    
CHAIR  FRENCH  questioned   why  a  taxicab  company   would  risk                                                              
increasing  its insurance  costs by even  a cent  when it  is just                                                              
trying to help.                                                                                                                 
                                                                                                                                
SENATOR WIELECHOWSKI  said he'd  like to know  if there  have been                                                              
any accidents in the 821 rides that have been given.                                                                            
                                                                                                                                
MR.  FOX said  he hasn't  heard  of any  accidents,  but he  would                                                              
inquire.                                                                                                                        
                                                                                                                                
SENATOR  PASKVAN said  he  suspects that  the  accident rates  for                                                              
these professional  drivers would be  so low that any  increase in                                                              
insurance  would be  de minimis.  He added that  he's thinking  of                                                              
the victim  who through no  fault of his or  her own is hurt  by a                                                              
professional  driver   and  potentially  gets  nothing   from  the                                                              
vehicle owner or the professional driver.                                                                                       
                                                                                                                                
2:37:52 PM                                                                                                                    
At ease from 2:37 p.m. to 2:38 p.m.                                                                                             
                                                                                                                                
2:38:50 PM                                                                                                                    
CHAIR FRENCH  reconvened the meeting  and announced he  would hold                                                              
SB 78 in committee.                                                                                                             

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