Legislature(1995 - 1996)
03/08/1996 08:05 AM House FIN
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
March 8, 1996
8:05 A.M.
TAPE HFC 96-69, Side 1, #000 - end.
TAPE HFC 96-69, Side 2, #000 - #368.
CALL TO ORDER
Co-Chair Mark Hanley called the House Finance Committee
meeting to order at 8:05 a.m.
PRESENT
Co-Chair Foster Representative Mulder
Representative Brown Representative Navarre
Representative Grussendorf Representative Parnell
Representative Kelly Representative Therriault
Representative Kohring Representative Martin
Co-Chair Hanley was absent from the meeting.
ALSO PRESENT
Bob Mintz, Attorney, Anchorage; Michael Leesmeier, Attorney,
State Farm Insurance; Chris Christensen, Staff Counsel,
Alaska Court System.
SUMMARY
HB 316 An Act relating to civil liability for false
claims and improper allegations or defenses in
civil practice; and providing for an effective
date.
CSHB 316 (FIN) was reported out of Committee with
a "do pass" recommendation and with a fiscal
impact note by the Alaska Court System.
HB 405 An Act extending the termination date of the Board
of Examiners in Optometry; and providing for an
effective date.
CSHB 405 (STA) was reported out of Committee with
a "do pass" recommendation and with a fiscal
impact note by the Department of Commerce and
Economic Development, 1/16/96.
HOUSE BILL NO. 405
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"An Act extending the termination date of the Board of
Examiners in Optometry; and providing for an effective
date."
Representative Mulder MOVED to report CSHB 405 (STA) out of
Committee with individual recommendations and with the
accompanying fiscal note. Representative Brown OBJECTED for
purpose of discussion. She clarified that the Board of
Examiners in Optometry is extended to June 30, 2002. She
established that this is consistent with the recommendations
of the Legislative Budget and Audit Committee.
Representative Brown WITHDREW her objection. There being NO
OBJECTION, CSHB 405 (STA) was reported out of Committee.
CSHB 405 (STA) was reported out of Committee with a "do
pass" recommendation and with a fiscal impact note by the
Department of Commerce and Economic Development, 1/16/96.
HOUSE BILL NO. 316
"An Act relating to civil liability for false claims
and improper allegations or defenses in civil practice;
and providing for an effective date."
Representative Mulder, Sponsor HB 316, spoke in support of
the legislation. House Bill 316 requires parties to
lawsuits to be truthful and responsible in their pleadings.
He maintained that the bill discourages false statements in
litigation and encourages responsibility by all parties and
their attorneys. He stressed that the legislation would
require more careful and focused preparations and
presentations of pleadings.
Representative Mulder observed that the bill creates an
obligation for litigants and attorneys to make reasonable
efforts to insure that claims have a probability of
succeeding. If the claim is knowingly or recklessly false,
both the attorney and the party can be assessed damages. He
stressed that HB 316 requires attorneys and their clients to
research their claims to assure they are factually supported
before filing a suit. He maintained that the legislation
will help eliminate "boiler plate" pleadings in lawsuits and
encourage responsible and focused pleadings. He stated that
"boiler plate" pleadings include everything anyone could
ever imagine could have happened rather than focusing on
those specific issues that actually happened. He maintained
that these extraneous pleadings are expensive to work
through and are most often thrown out. They simply cause
one party to expend significant dollars to pare the filing
down to the real issues.
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Representative Mulder noted that some lawsuits are cheaper
to settle than litigate, regardless of their merit. He
stressed that the bill does not affect suits filed in good
faith. He asserted that the legislation will have a
significant deterrent effect on claims without merit.
Representative Mulder pointed out that the bill assigns
financial responsibility to those who file lawsuits without
probable cause, those who provide false information, and
those who want to use claims and cross claims to cloud the
issues.
Representative Mulder observed that the jury will make the
determination whether the information presented was
intentional and material.
Representative Parnell provided members with a Committee
Substitute for HB 316 (FIN), #9-LS103\R, dated 3/7/96 (copy
on file).
BOB MINTZ, ATTORNEY, ANCHORAGE testified via the
teleconference network. He testified in support of HB 316.
He maintained that the intent of the legislation is to give
injured parties effective remedy for being subjected to bad
faith civil legislation. The people that suffer harm from
the abuse of the civil justice system will be able to be
compensated for their injuries. Those that cause the harm
by abusing the civil justice system will be forced to pay
compensation. He observed that intentionally lying or
asserting claims and allegations without first making an
effort to determine if the claims and allegations have a
reasonable basis constitutes abuse. The standard of conduct
required by HB 316 is similar to conduct in Civil Rule 11.
He observed that HB 316 departs from the existing system of
self regulation of the legal profession.
Mr. Mintz reviewed the proposed House Finance Committee
Substitute for HB 316. He noted that Section 1(a)(1)
provides that a person (a party or attorney) should not
knowingly or recklessly file a pleading that contains a
false allegation or misstatement of fact. He observed that
this standard is higher than the standard for negligence.
The false allegation or misstatement of fact would have to
be intentional.
Mr. Mintz noted that subsections 1(a)(2) and (3) are similar
to Civil Rule 11. Subsection 1(a)(2) requires that each
claim should be well rounded in fact and supported by
existing law. Subsection 1(a)(3) prohibits intentionally
interposing claims to harass, create unnecessary delay or
increase cost.
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Mr. Mintz observed that subsections 1(d), (e) and (f)
comprise a variation of the existing malicious prosection
common law action. Under common law a person who is the
victim of a malicious lawsuit has to prove that the lawsuit
was brought maliciously and that the conduct of the party
bringing the lawsuit was unreasonable. He observed that the
difference between proposed CSHB 316 (FIN) and existing law
is that, under the proposed committee substitute, a client
and attorney will be held personally liable for damages
caused by their conduct. He acknowledged that if the bill
is enacted most attorneys will experience a minor
inconvenience due to the potential for liability. He
maintained that if someone is going to knowingly lie to drag
a party into court they will pay. An attorney that issues
claims before they have been checked for reasonable basis
would be liable. If someone files a case maliciously to
extort money, because it is cheaper for a defendant to
settle than to fight, they would be liable. He asserted
that there are currently insufficient adverse economic
consequences associated with such abuses of the legal
system.
In response to a question by Co-Chair Foster, Mr. Mintz
explained that the legislation does not affect criminal
cases.
MICHAEL LESSMEIER, ATTORNEY, STATE FARM INSURANCE
INCORPORATED testified in support of HB 316. In response to
a question by Representative Kelly, Mr. Lessmeier clarified
that an attorney signs the pleadings.
Representative Parnell questioned if HB 316 would also stop
the laundry list of affirmative defenses that get thrown
into pleadings. Mr. Lessmeier responded that the
legislation would stop such abuses.
Mr. Leesmeier stated that the legislation would make
attorneys responsible and bring truth into the system. He
referred to subsection (b) on page 2, lines 5 - 11. He
noted that subsection (b) provides that if a person comes
into court and lies that they automatically lose the claim.
There is no such provision in current law. He maintained
that this provision would result in attorneys informing
their clients regarding the consequences of lying in court.
The only current sanction is the loss of credibility. He
maintained that court system resources are used litigating
such issues. He noted that the jury would make the call. A
judge would not be required to decide the truth of a
pleading. He maintained that court system time should not
be wasted to false claims.
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Mr. Leesmeier asserted that HB 316 will place greater
responsibility on attorneys to talk to their clients and
assure that pleadings have substance and are correct.
Representative Parnell stated that in 8 years of practice he
has not experienced the type of abuses that the legislation
is designed to protect. He observed that the court system
does not generally sanction Civil Rule 11 grounds. He
referred to subsection (c), page 2. line 13 and subsection
(d), page 2, line 21. He noted that subsection (c) does not
include punitive sanctions and that subsection (d) does
include punitive sanctions. Mr. Mintz stated that "punitive
damages" was removed from subsection (c) by the House
Judiciary Committee.
In response to a question by Representative Parnell, Mr.
Mintz stated that probable cause requires that there be a
reasonable basis for the claim. There has to be a basis in
fact and in law, or in an extension of existing law.
In response to a question by Representative Parnell, Mr.
Mintz clarified that subsection (d) does not mandate
punitive damages. Punitive damages would be available. He
gave an example in which punitive damages might be awarded.
He stated that if an insurance company had an express policy
of knowingly denying valid claims of less than $1.0 thousand
dollars based on the fact that claimants would not have the
resources to fight and would settle for less the company
might receive punitive damages. He noted that attorney fees
alone would not be a sufficient deterrent in such cases.
Representative Parnell compared the proposed House Finance
Committee Substitute for HB 316 to CSHB 316 (JUD). He noted
that provisions regarding misleading allegations were
removed. He stressed that it would be difficult to craft a
standard for "misleading".
Representative Parnell asserted that Civil Rule 11 has been
used as a harassment tool. He expressed concern that HB 316
not become a tool of harassment. He explained that
subsection 1(g) was added to prevent abuse of the provisions
of HB 316. He maintained that if a party faces the
potential of actual reasonable attorney fees that they will
think twice about asserting false claims. He suggested that
subsection 1(g) be amended to clarify that claims can be
awarded to either the plaintiff or defendant. He suggested
that subsection 1(g) read: If a person brings an action
under (c) or (d) of this section, the court shall also award
actual reasonable attorney fees to the prevailing party,
regardless of whether the prevailing party is the plaintiff
or defendant."
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In response to a question by Representative Kelly,
Representative Parnell noted that page 1, line 13 forbids a
person from signing a civil pleading before making
reasonable inquiry that the information is grounded in fact.
He discussed affirmative defenses that can be asserted
against each claim. Failure to assert a claim upon which
relief can be granted is an automatic defense. He restated
his intention that the potential of sanctions apply to both
the plaintiff and the defendant. If a person files a claim
that is disproved the defendant would collect fees paid to
defend against the claim.
Representative Brown pointed out that "also" is not needed
in (g). Representative Parnell agreed.
Representative Brown asked for further clarification
regarding differences in the proposed committee substitute.
Mr. Leesmeier explained that the "trier of fact" was
substituted for "court" to clarify that the jury would make
the decision. Representative Parnell noted that the court
could be the trier of fact in certain circumstances. The
language would encompass the judge or jury depending on who
is the trier of fact.
Representative Parnell explained that subsection (e)
clarifies that if a false claim is brought against an
attorney, the attorney can receive attorney fees for their
defense against a false claim even if the underlying action
is lost. Mr. Mintz explained that a person would not have
to be the prevailing party in order to receive attorney
fees. A person can collect on frivolous claims even if they
did not win on all the claims. He added that subsection (f)
is the same concept.
Representative Mulder MOVED to adopt Committee Substitute
for HB 316 (FIN), #9-LS103\R, dated 3/7/96 amended on page
3, lines 4 - 5, subsection 1(g) read: If a person brings an
action under (c) or (d) of this section, the court shall
also award actual reasonable attorney fees to the prevailing
party, regardless of whether the prevailing party is the
plaintiff or defendant."
Representative Brown questioned if the legislation will
result in additional costs to the Alaska Court System. Mr.
Leesmeier disagreed that there will be additional cost to
the Court System. He estimated that cases with a
significant issue of credibility will be taken out of the
courts. He stressed that cases will not be litigated that
are not reasonably based in fact. Attorneys will be forced
to look seriously at and investigate claims before they are
introduced. He noted that no sanctions are provided under
Civil Rule 11. He felt that the risk of financial sanctions
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would have a significant deterrent affect.
Representative Brown asked how the legislation will affect
state attorneys. Mr. Leesmeier noted that state attorneys
are already responsible to comply with the provisions of
Civil Rule 11. He did not think there would be sovereign
problems as result of the legislation. He added that the
legislation would apply to state attorneys.
In response to a question by Representative Brown, Mr.
Leesmeier asserted that false claims commonly occur. He
stressed that innocent parties that win still lose due to
the high cost of defense. He acknowledged that there are
abuses by both sides. He maintained that it is important
that the legislation apply to both sides.
Representative Navarre expressed support for the
legislation. He observed that insurance companies sometimes
settle over the objections of the insured.
(Tape Change, HFC 96-69, Side 2)
Representative Navarre noted the disadvantage of persons
defending themselves against false claims by insurance
companies. Mr. Leesmeier emphasized that the legislation
should be neutral. He maintained that the intent of the
legislation is to prevent abuses on both sides.
Representative Navarre stated that the legislation has the
potential to stop frivolous lawsuits and reduce the number
of lawsuits.
Representative Parnell referred to the disparity of
sanctions in (c) and (d). He noted that the legislation
addresses intentional conduct. He pointed out that if there
is a claim against someone for intentional misrepresentation
they are exposed to punitive damages. He questioned the
disparity. Mr. Leesmeier noted that the threshold for
instituting a claim is lower under (d). He added that
punitive damages would not be mandatory under (d).
Mr. Mintz asserted that the Court should have discretion to
award punitive damages where appropriate in cases of
outrageous conduct. He noted that punitive damages requires
intentional conduct. He maintained that in some instances
punitive damages are the only future deterrent.
Representative Parnell MOVED to insert "and punitive" on
page 2, line 13. There being NO OBJECTION, it was so
ordered.
Representative Parnell referred to page 2, line 21. He
emphasized that (d) is not a mandate for punitive damages.
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He maintained that punitive damages are only a potential
remedy. Representative Brown interpreted the language to
provide that punitive damages are not necessarily going to
apply.
Representative Grussendorf referred to the fiscal note by
the Alaska Court System.
CHRIS CHRISTENSEN, STAFF COUNSEL, ALASKA COURT SYSTEM
clarified that the Alaska Supreme Court is neutral in
regards to the legislation. He discussed Civil Rule 11. He
noted that the Alaska Supreme Court has left the rule
unchanged. He observed that the federal government found
that the mandatory sanctions on frivolous lawsuits increased
the number of claims. The federal mandate for sanction was
repealed. He stated that the Court feels that the
legislation will result in a slight increase in cases. He
acknowledged that the legislation will benefit some
plaintiffs and defendants. He observed that the legislation
requires that sanctions be applied in a more labor intensive
manner. He estimated that changes to CSHB 316 (FIN) will
result in a slight increase to the Alaska Court System's
fiscal note due to the change in subsection (e).
Representative Brown asked which portions of the legislation
would be mandatory. Mr. Christensen stated that subsections
(a) and (c) require that the judge grant sanctions.
Mr. Leesmeier noted that the federal Court is moving in the
direction of adopting mandatory sanctions to get people to
do the right thing. He maintained that the legislation only
provides a remedy if someone abuses their responsibility.
The remedy is not without responsibility. If a claim is
entered and lost the defendant's attorney fees would be
reimbursed. He added that the Alaska Court System may have
underestimated the deterrent factor of the legislation. He
noted the difficulty of defending against frivolous
lawsuits.
In response to a question by Representative Therriault, Mr.
Leesmeier pointed out that the Federal Rule 11 did not have
the responsibility that is provided in HB 316. Absolute
sanctions were not applied to the opposites side's attorney
fees if a claim was entered and lost.
Representative Mulder spoke in support of the legislation.
He noted that the intent of the legislation is to create a
more level playing field for both sides.
Representative Parnell asserted that attorneys will make
sure that they show claims to their clients before they are
introduced. He noted that attorneys may add a disclaimer
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stating that they have read the complaint and that they
believe the facts contained in it are true and correct to
the best of their belief and knowledged. He expressed
support for the legislation.
Representative Kelly MOVED to report CSHB 316 (FIN) out of
Committee with individual recommendations and with the
accompanying fiscal note.
CSHB 316 (FIN) was reported out of Committee with a "do
pass" recommendation and with a fiscal impact note by the
Alaska Court System.
ADJOURNMENT
The meeting adjourned at 9:05 p.m.
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