Legislature(1999 - 2000)
02/16/2000 01:13 PM House JUD
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE JUDICIARY STANDING COMMITTEE
February 16, 2000
1:13 p.m.
MEMBERS PRESENT
Representative Pete Kott, Chairman
Representative Joe Green
Representative Norman Rokeberg
Representative Jeannette James
Representative Lisa Murkowski
Representative Eric Croft
Representative Beth Kerttula
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 296
"An Act relating to partnerships; amending Rule 25(c), Alaska Rules
of Civil Procedure; and providing for an effective date."
- MOVED CSHB 296(L&C) OUT OF COMMITTEE
HOUSE BILL NO. 239
"An Act relating to the Uniform Commercial Code; relating to
secured transactions; amending Rule 79, Alaska Rules of Civil
Procedure; and providing for an effective date."
- MOVED CSHB 239(L&C) OUT OF COMMITTEE
HOUSE BILL NO. 163
"An Act relating to qualifications of voters; relating to the
registration of voters; relating to election districts and
officials; relating to election procedures and ballots; relating to
special procedures for elections; relating to nomination of
candidates; relating to national elections; relating to special
elections and appointments; relating to constitutional amendments;
relating to election offenses and corrupt practices; relating to
election pamphlets; relating to the deferral of jury service for
certain election officials; relating to an exemption from the State
Procurement Code regarding election ballots; relating to the
provision and use of mailing addresses on permanent fund dividend
applications for election purposes; relating to the inclusion of
voter registration forms with permanent fund dividend applications;
making conforming amendments in references to 'election district'
and 'chairman'; and providing for an effective date."
- SCHEDULED BUT NOT HEARD
PREVIOUS ACTION
BILL: HB 296
SHORT TITLE: UNIFORM PARTNERSHIP ACT
Jrn-Date Jrn-Page Action
1/21/00 1961 (H) READ THE FIRST TIME - REFERRALS
1/21/00 1961 (H) L&C, JUD
2/07/00 (H) L&C AT 3:15 PM CAPITOL 17
2/07/00 (H) Moved CSHB 296(L&C) Out of Committee
2/07/00 (H) MINUTE(L&C)
2/09/00 2141 (H) L&C RPT CS(L&C) 3DP 2NR
2/09/00 2141 (H) DP: MURKOWSKI, ROKEBERG, CISSNA;
2/09/00 2141 (H) NR: HARRIS, SANDERS
2/09/00 2142 (H) ZERO FISCAL NOTE (DCED)
2/09/00 2142 (H) REFERRED TO JUDICIARY
2/16/00 (H) JUD AT 1:00 PM CAPITOL 120
BILL: HB 239
SHORT TITLE: UCC SECURED TRANSACTIONS
Jrn-Date Jrn-Page Action
5/14/99 (H) L&C AT 3:15 PM CAPITOL 17
5/14/99 (H) HEARD AND HELD SUBCMTE ASSIGNED
5/14/99 (H) MINUTE(L&C)
5/14/99 1410 (H) READ THE FIRST TIME - REFERRAL(S)
5/14/99 1410 (H) L&C, JUD
5/15/99 (H) L&C AT 10:30 AM CAPITOL 17
5/15/99 (H) MEETING CANCELED
2/09/00 (H) L&C AT 3:15 PM CAPITOL 17
2/09/00 (H) Moved CSHB 239(L&C) Out of Committee
2/09/00 (H) MINUTES(L&C)
2/11/00 2170 (H) L&C RPT CS(L&C) 3DP 1NR
2/11/00 2170 (H) DP: HALCRO, MURKOWSKI, CISSNA;
2/11/00 2170 (H) NR: HARRIS
2/11/00 2171 (H) FISCAL NOTE (DNR)
2/11/00 2171 (H) REFERRED TO JUDICIARY
2/11/00 2186 (H) FIN REFERRAL ADDED
2/16/00 (H) JUD AT 1:00 PM CAPITOL 120
WITNESS REGISTER
ARTHUR H. PETERSON, Uniform Law Commissioner for Alaska
Law Offices of Dillon & Findley
350 North Franklin Street
Juneau, Alaska 99801
POSITION STATEMENT: Testified in support of CSHB 296(L&C);
requested relocation of the general provisions to follow the format
of the national version.
JOHN McCABE, Legislative Director/Legal Counsel
National Conference of Commissioners on Uniform State Laws
211 East Ontario, Suite 1300
Chicago, Illinois 60611
POSITION STATEMENT: Testified in support of CSHB 296(L&C) and
answered questions.
DAWN WILLIAMS, Records and Licensing Supervisor
Corporations Section
Division of Banking, Securities and Corporations
Department of Community and Economic Development
P.O. Box 110807
Juneau, Alaska 99811-0807
POSITION STATEMENT: Answered questions relating to CSHB 296(L&C).
PAMELA FINLEY, Revisor of Statutes
Legislative Legal Services
Division of Legal and Research Services
Legislative Affairs Agency
129 6th Street, Room 329
Juneau, Alaska
POSITION STATEMENT: Answered questions on placement of definitions
sections relating to HB 296, HB 239 and other uniform Acts.
STEVE WEISE, Attorney at Law
Heller Ehrman & Associates
(No address provided)
Los Angeles, California
POSITION STATEMENT: Urged passage of HB 239.
L.S. (JERRY) KURTZ, JR., Attorney at Law
1050 Beech Lane
Anchorage, Alaska 99501
POSITION STATEMENT: Testified in support of HB 239; Alaska's
representative to the NCCUSL.
SHARON YOUNG, State Recorder
State Recorder's Office
Division of Support Services
Department of Natural Resources
3601 C Street, Suite 1180
Anchorage, Alaska 99503-5947
POSITION STATEMENT: Testified in support of filing provisions of
HB 239.
MARY ELLEN BEARDSLEY, Assistant Attorney General
Commercial Section
Civil Division (Anchorage)
Department of Law
1031 West 4th Avenue, Suite 200
Anchorage, Alaska 99501-1994
POSITION STATEMENT: Testified that the Office of the Attorney
General is in favor of uniform bills.
ACTION NARRATIVE
TAPE 00-13, SIDE A
Number 0001
CHAIRMAN PETE KOTT called the House Judiciary Standing Committee
meeting to order at 1:13 p.m. Members present at the call to order
were Representatives Kott, Green, Rokeberg, Murkowski, Croft and
Kerttula. Representative James arrived as the meeting was in
progress.
HB 296 - UNIFORM PARTNERSHIP ACT
[Contains discussion of HB 239 relating to placement of definitions
and general provisions in uniform Acts adopted in Alaska.]
Number 0038
CHAIRMAN KOTT announced the first item of business would be HOUSE
BILL NO. 296, "An Act relating to partnerships; amending Rule
25(c), Alaska Rules of Civil Procedure; and providing for an
effective date." [The bill was sponsored by the House Judiciary
Committee. Before the committee was CSHB 296(L&C).]
CHAIRMAN KOTT briefly explained that the bill, which brings Alaska
up to date from a 1914 version of the Uniform Partnership Act, was
promulgated by the National Conference of Commissioners on Uniform
State Laws (NCCUSL). He called upon Art Peterson, noting that John
McCabe was online to testify as well.
Number 0139
ARTHUR H. PETERSON, Uniform Law Commissioner for Alaska, came
forward, noting that he is also an attorney in private practice in
Juneau. He agreed that HB 296 is basically an update promulgated
by the NCCUSL; it replaces the 1914 version, which Alaska enacted
in 1917. This new version reflects modern business practices and
eight decades of court decisions and scholarly analysis. The
basic change made by this bill, over current partnership law, is
the statutory specification and clarification of the "entity"
concept: treating partnerships as entities rather than aggregates
of individuals. That basic principle is manifested throughout the
Act in a number of provisions regarding suing and being sued in the
partnership's name, for instance, or the way a partnership is
terminated, or how it isn't terminated just because a partner
leaves. Mr. Peterson pointed out that under current law, a
partner's leaving ends the partnership; under the proposed bill and
modern partnership concepts, however, that would not occur. The
bill goes into some detail on all those various points.
Number 0320
MR. PETERSON advised members that at the request of the Department
of Community and Economic Development (DCED), the House Labor and
Commerce (L&C) Standing Committee had changed the annual reporting
to biennial reporting. "We did not oppose that," Mr. Peterson
added. Another change was shortening the transition period after
the effective date of the Act from a five years to three years.
There was general agreement on that, including agreement of the
chair of the [NCCUSL] drafting committee for this Act, Harry
Haynsworth from Minnesota.
MR. PETERSON recommended one change not made by the L&C Committee:
relocation of the general provisions, specifically including the
definitions section, to the beginning of the Act, where it appears
in the national version. Following the latest L&C Committee
hearing, a request was made to Pam Finley, Revisor of Statutes, to
address that point; Chairman Kott had been provided a memorandum
from Ms. Finley dated 2/9/00 [not included in packets], and a
response to the memo from Mr. Peterson dated 2/10/00 [copy provided
at the end of today's hearing].
MR. PETERSON highlighted his and Ms. Finley's basic point: the
ease of use of the Act and of finding provisions in it. With a
uniform Act, his two main concerns are substance and the ability to
find that substance. People nationwide will want to pull up Alaska
law on their screens; when looking for definitions, they will go to
the beginning of the Act, where they are used to looking in all
research and national conference materials. They won't know that
Alaska normally places its definitions at the end. Finding the
definitions shouldn't require diligent research but should be made
as easy as possible. Mr. Peterson repeated his recommendation,
then deferred to John McCabe, who he said knows much more about the
bill and the subject.
Number 0528
JOHN McCABE, Legislative Director/Legal Counsel, National
Conference of Commissioners on Uniform State Laws, testified via
teleconference from Chicago, Illinois, as follows:
The Uniform Partnership Act was originated in 1914, as
Art [Peterson] indicated to you. And we cannot, I think,
be accused of being overly ambitious about amending it or
revising it, because the final revision is dated 1997,
and that is the bill that you have before you. The
Uniform Partnership Act of 1914 and its successor
essentially are the law of partnership in the United
States today. ... And what we are asking you to do here
with this bill is simply to update your existing
partnership law, based upon the 1914 Act, plus to do an
update on your more recent Limited Liability Partnership
Act, which amends your old partnership law, because
limited liability partnerships are part of our 1997 Act
as well. ...
Art [Peterson] indicated to you that the major
substantive change ... in partnership law is the
articulation of entity theory in the Uniform Partnership
Act. A partnership is a business organization. It is
often called the residual business organization because
it organizes, in a sense, in spite of itself. What it
takes ... to have a partnership are two or more people,
aggregated together, coming together to do business; and
they may become a partnership even though there is not a
specific agreement that they are a partnership. They do
not have to register to create a partnership
relationship; that is, they don't have to put a charter
or a statement of any kind on any record to indicate that
they are a partnership. Simply by doing business
together, they become a partnership.
In the law from 1914 - indeed, preceding 1914 - there was
always a question as to whether a partnership was an
aggregate of those individuals who constituted it - and
that's the aggregate theory of partnership - or whether
it was an entity all to itself. And, in fact, the 1914
Act is a kind of interesting amalgamation of the two
theories. The 1914 Act never did clarify whether entity
theory prevailed - whether the partnership is truly an
entity - or whether the partnership is an aggregate of
individuals. And, to some degree, the ambiguities that
exist ... with respect to aggregative-versus-entity are
some of the reasons that we're coming to you with this
revision today, in a much more modern, updated economic
world.
Number 0740
MR. McCABE continued:
This Act clearly provides that a partnership is an
entity. Being an entity, that gives it certain
characteristics, which are ... more useful to doing
business than the ambiguity of the old '14 Act provides.
And let me give you ... three cogent examples of what I
mean. A partnership, as an entity, may be sued in its
own name and may sue in its own name. ... All the
partners don't have to be named in a lawsuit, and if the
partnership itself is suing, it does not have to name all
the partners ... to be an appropriate party to a lawsuit.
The partnership ... may be able to sue and be sued simply
in the partnership name.
Another characteristic, and a very important one: the
partnership may hold property, including real property,
in its own name. No partner need have ... nor, unless
agreed, will have an interest in partnership property
that is an interest either along with the partnership or
along with the other partners.
The third characteristic that is important relates to
actually what is a partner's interest in a partnership,
and that is that under the new Act, a partner's interest
is called the partnership interest, and it's really an
interest in the distributions of the partnership to the
partner. The partner has only that interest; and in
terms of the partner's own creditors, the interest that
the partner's creditors can reach is only that
partnership interest, which is its distribution interest.
And also, a partner, if it assigns its interest or can
... assign its interest, it may only assign - without the
consent of the partnership - only its partnership
interests, which is those interests in distributions. ...
A partner may not assign its position as a partner within
the partnership.
Now, these are all outcomes that are important in terms
of business organization and organization for business
purposes. And they are all outcomes because we ...
clearly state that a partnership is an entity, not an
aggregate of its partners.
Number 0891
MR. McCABE continued:
With respect to the basic partnership, however - and a
major interest here, and a major issue, always is
liability - this Act quite clearly states that in a
general partnership - that is, a partnership that has not
elected limited liability partnership - you have joint
and several liability among the partners, something that
is not clearly articulated in the 1914 Act.
Another thing that this Act does that is different from
the 1914 Act, ... related to the issue of entity, ... is
it articulates the fiduciary obligations of the partners
among themselves. ... And fiduciary obligation issues ...
are a characteristic part of the case law of partnership,
and have been a very important part of the case law, and
a lot of interest in the case law on fiduciary
obligations. In Section 401 of this Act, ... the
partners' fiduciary obligations to each other are
articulated, and articulated in statute. This is, again,
something like what is often done in corporate statutes,
and it's helpful to be able to do this against the entity
character of the partnership.
Another issue that ... the entity concept serves is the
issue of dissolution of the partnership upon
disassociation of a partner. Under the 1914 Act - and
under the old common law rules - when a partner left a
partnership that automatically dissolved the partnership.
One partner could walk away, and the one walking partner
automatically triggered dissolution. What we want to
achieve for business purposes is an entity that is ...
more resistant to dissolution than is the case under the
1914 Act.
And what this Act does, essentially, is it initially
provides that a disassociating partner - a partner who
leaves the partnership - the first thing that must
attempt to be accomplished is essentially a buy-out of
that partner's interest. If there's a buyout of that
interest, then the partnership continues without a hitch;
it remains the entity it always ways, ... and the
remaining ... partners continue to conduct the business
of the partnership.
If the disassociating partner triggers a dissolution
without a buyout, then the partnership has "safe harbor"
provisions which allow the partners, via vote, to
continue the partnership even against ... the
disassociation and the dissolving disassociation of a
walking partner. ... And there is still opportunity there
... for the partnership to remain and to continue ...
with the remaining partners conducting the business of
the partnership. ...
And the dissolution and disassociation rules, I think,
are perhaps if not the most important part of this Act -
because continuity of the partnership is one of those
issues that has plagued partnership law - it is clearly
no further down than number 2 in terms of importance,
with regard ... to the Uniform Partnership Act of 1997.
That is, I think, a sort of description of the
differences between the 1997 Act and the old 1914 Act.
A partnership is basically a business organization. The
legislation, the law, provides for its creation. In this
case, creation is merely a matter of people getting
together to do business. And it provides for its
termination, which are those dissolution rules that I
talked about. And in between, the management and the
conduct of the affairs of the partnership, which engage
things like the fiduciary obligations, and things like
distribution rules and ... how one pays out of the
partnership. And the partnership interest concept ... is
clearly key to how distributions are handled in the
partnership. And all of these new rules clearly meet the
needs of partnerships today in a way that the 1914
partnership Act could not.
Number 1151
MR. McCABE continued:
There also is another thing in here, and that has to do
with what we call statements of authority. And remember,
... a partnership is never registered; it arises as a
result of what people do doing business together,
although there may be a formal agreement. And often, in
complex partnerships, there is a formal agreement. But
... because of the fact that partners are jointly,
severally liable, and in a general partnership each ...
may conduct the business in the partnership, there are
times and places when it is important to have somebody
designated to do certain business of the partnership.
And in particular in real estate transactions ... is it
important sometimes to designate a partner who is the
exclusive partner with respect to those transactions.
And a way that may be accomplished is by filing what are
called statements of authority. This is a filing that
occurs for a partnership that has no prior registration,
because this is not anything to do with liability issues.
But what it does, ... when a statement of authority goes
on the record, it gives notice to third parties dealing
with the partnership who in fact has the authority to
make the transactions that the statement declares may be
made. ... And particularly when it's important to have
notification as to who exclusively conducts real estate
transactions on behalf of the partnership, that's
something very important to those who finance real estate
transactions and who will do business with the
partnership as financing entity - again, something to
make partnership up-to-date, and bring it up to modern
business practices.
That kind of describes ... the general partnership under
the new uniform Act. The new uniform Act also contains
provisions for the creation ... and maintenance of
limited liability partnerships. Alaska law also has
limited liability partnership provisions, which are built
in to, and attached to, ... its original partnership Act.
A limited liability partnership concept is one that's
relatively new in our law. It is linked to other
business entities that are not corporate entities, such
as limited liability companies, ... by the capacity to
provide limitation of liability.
In a limited liability partnership, essentially, partners
become not liable vicariously. And what I mean by
"vicariously" is they become not liable for the actions
of the other partners - personal actions of the other
partners - so that a tort liability accrued in the name
of the partnership by another partner, or business
obligations accrued by another partner, do not, in a
limited liability partnership, obligate a partner not
involved in those transactions or ... in those liability
situations -- does not provide that that partner's assets
are available to the full extent of the partner's assets.
Only the assets in the partnership are available to
satisfy liabilities.
Each partner is responsible for his own actions. Each
partner is responsible, under this concept, for his or
her own liabilities, to the full extent of the partner's
assets. It's just that the other partners do not have
full liability to the extent of all their assets in the
partnership, except for the assets in the partnership.
Number 1361
MR. McCABE continued:
Now, a limited liability partnership is a registered
entity. Like all entities in our law where we provide
for some limitation of liability for the participants in
the business, we require registration. Historically,
we've always done that for corporations. In recent
years, we've done that for limited liability companies.
Limited partnerships have been around in that form for a
long time. A limitation of liability for limited
partners is obtained by registering a limited
partnership; and that's a law that's been around since
... 1916. ...
Alaska is like almost every state in the United States.
I don't think there's a state without the opportunity to
do limited liability partnerships. What we have in the
new uniform Act is updated provisions on limited
liability partnerships. You'd file a statement of
registration, and when you file that statement in the
appropriate office in the State of Alaska, under the
revised Act, the liability shield is in place from the
point of time that the registration takes place.
The liability shield under the uniform Act is what I
would call ... full-shield vicarious liability. ...
Alaska's current statute does not provide for the full-
shield liability. It does not shield partners from liability for
certain kinds of commercial transactions on behalf of the
partnership, and ... this current Alaska law does not shield a
partner from the malpractice liability of another party. The
uniform Act would have full-shield liability, which is the trend in
the United States; and this, I think, is where everybody is going.
Alaska's statute appears to have been derived originally from what
we call TRUPA, the Texas Revised Uniform Partnership Act, which is
actually the state that pioneered ... the notion of limited
liability partnership.
The other major difference ... for LLPs [limited
liability partnerships]: under the current statute in
Alaska, there are no insurance requirements under the
uniform Act.
Number 1469
MR. McCABE continued:
The third thing I think that is fairly different is that
the Alaska Act has a lot more elaborate registration
provisions, including name issues, reservation of names,
and that kind of thing. ... The reason the uniform Act
does not get into that is this: we assume that there is
always - and I think the Alaska statute really does this
too - we assume that there is an existing general
partnership that is operating as a traditional general
partnership and then applies for registration as a
limited liability partnership. We do not have
registration of names for partnerships. In fact, you can
have a partnership without a name; you don't really have
to create a name to create a partnership. And we did not
want, with our limited liability partnership provisions,
to change in any way the stature or status of the
partnership when it applies for a limited liability
partnership.
So, we do not have elaborate name issues in the uniform
limited liability partnership provisions under the 1997
Act. The basic idea is that a partnership remains as it
was. Its organization remains as it was. It simply
achieves, by registering, ... the qualities of limited
liability, as the Act provides. ... And we go no further
with it in the uniform Act, so that we do not change the
face of partnerships or partnership law in any other way
than to deal with ... the narrow issue of limitation of
liability for partners.
Number 1542
MR. McCABE continued:
I guess the only other thing I would say about this Act
generally is - about the new Act is - clearly it's what
we call in the law a "default statute." What I mean by
that is that the first thing you will look to - in
determining what the rights and obligations of partners
in a partnership are - is the partnership agreement, if
there is a partnership agreement. And you will only look
to the statute itself with a fairly narrow range of
exceptions ... for good faith and fiduciary obligations.
You will look to the partnership agreements to determine
what everybody's rights and obligations are; and only
when the agreement itself does not state it, you will
look, then, at the statute. ...
It is true under the uniform Act that even though you
have an LLP, the partners may agree - or some partners
may agree - to forego limitation of liability even, by
agreement. There is very little that you cannot agree
to. In fact, partnerships under our law, under ... parts
of our law, are generally regarded as entities, as
business organizations of agreement. The primary binding
elements in a partnership always are what is agreed
between the partners. And what we're really doing, in
the uniform Act, is recognizing that fact. The 1914 Act
was always thought to be mostly a default Act; we've just
merely stated it expressly in the 1997 Act.
Number 1636
REPRESENTATIVE CROFT brought attention to a memorandum in packets
from Mr. McCabe to Mr. Peterson dated 2/4/00, which listed four
major and minor differences between current Alaska law and the
Revised Uniform Partnership Act (RUPA), as follows:
[1] Alaska's current liability shield is limited to
tortious actions and does not cover ordinary
commercial transactions of the partnership.
[2] Both Alaska's current law and RUPA require
registration to become a limited liability
partnership. Alaska, however, requires a more
detailed filing, requires a distinguishable name,
and requires that the name of the partnership be
registered.
[3] Existing Alaska law requires that a limited
liability partnership carry a set amount of
liability insurance or have qualified assets of a
certain amount.
[4] Both Alaska and RUPA require a periodic filing[;]
however[,] Alaska requires reports be filed
biennially while RUPA provides for annual filing.
MR. McCABE, in response to a query from Representative Croft
regarding point 1, said that under the uniform Act, if adopted,
there would be a full liability shield.
Number 1680
REPRESENTATIVE CROFT said for points 2 and 4, it make sense to him
why they would be changed. He read from point 3, however, and
asked whether the bill gets rid of that requirement.
MR. McCABE affirmed that.
REPRESENTATIVE CROFT asked why that is a good idea.
MR. McCABE said one answer is that it is the trend in the law. He
again mentioned Texas, where LLPs were first proposed; he said in
the beginning it wasn't thought that it would be very saleable to
provide full-shield liability for partners, and that in order to
paint any kind of shield, some requirements for insuring liability
loss were necessary. However, almost all the states now have moved
to full-shield liability and no insurance. Therefore, Alaska
essentially would be following the trend of all the states.
Liability insurance is no longer thought to be absolutely essential
for providing a full-shield liability. A partnership will, when
necessary, protect itself by buying insurance. Mr. McCabe
continued:
I think the other thing here, in some of these
requirements, is that it was essentially thought of in
light of certain kinds of professional partnerships,
where malpractice is an issue - for example, law firms,
accounting firms, those kinds of things.
The fact is that partnership and full-shield liability or
liability shield goes well beyond those kind of
professional partnerships, and that putting requirements
like insuring requirements on other kinds of business
partnerships is probably a burden, and it's a cost
burden, particularly in the small business, and that ...
to impose that kind of ... an obligation upon them, and
to impose it at a time when they're generally capital-
short and getting started in business - and they really don't have
any malpractice issues anyway - is ... sufficient a burden that we
... shouldn't have the insuring requirements in the law.
Number 1808
REPRESENTATIVE CROFT responded that it may be, but that burden has
been in Alaska for a while, and he assumes there was an informed
policy reason to have it in the first place. He said he is
comfortable making a lot of the technical and updating changes.
However, for the significant policy choices between Alaska's old
law and the new law, he wants to know that there are good policy
reasons. He asked Mr. McCabe to explain point 1 of his memorandum.
MR. McCABE answered that it is limited to tortious acts by the
partnership because there is no liability shield for commercial
transactions in which the partnership engages. And, actually, the
shield does not extend the malpractice liability, either.
REPRESENTATIVE CROFT asked why it wouldn't be the other way around,
to have a shield for the ordinary but not for the "extraordinary,
weird tortious stuff."
MR. McCABE replied that the "tortious stuff" isn't extraordinary.
If somebody drives a car that is the property of the partnership,
doing partnership business, and has an accident, that is the kind
of tortious action for which there is a liability shield. That is,
every partner's assets are not subject to the liability in that
accident. He added, "The partnership assets are, and the [partner]
who's involved in the accident, his or her assets are. But the
other [assets] are not subject to that vicariously. And that's the
way the law works, I believe, in Alaska today."
Number 1886
REPRESENTATIVE CROFT posed an example. If he were in a partnership
with Representative Kerttula, who, in the course of the
partnership, was driving the car and got in an accident, he
suggested, he himself would be shielded from that. But if, in the
course of business, she made a bad deal, he wouldn't be shielded
from that. The uniform Act would change it to where he is shielded
from both her bad decision and her bad driving.
MR. McCABE affirmed that.
Number 1906
REPRESENTATIVE CROFT asked whether, to some extent, this isn't
business entities trying to have their tax "cake" and eat it too.
They would have not only the benefits of corporations, in terms of
immunity and not being responsible for the particulars, but also
all of the tax benefits of partnership.
MR. McCABE responded that a lot of the interest in partnerships and
partnership-like entities, such as limited liability companies, is
clearly based upon an interest in avoiding federal corporate income
tax, because they are pass-through entities. The tax is paid only
upon the income of the partner, or the member of the limited
liability company or the limited partnership, or the limited
partner in a limited partnership. He agreed there is a tax
advantage there. However, he doesn't think that is particularly
related to liability issues, except in this way: for many years,
federal tax laws were interpreted to apply corporate
characteristics to entities. This didn't go to the issue of
whether anybody was registered as a corporation, but it determined
corporate status based upon certain characteristics that can be
applied to the entity. One characteristic, clearly, was limitation
of liability, because historically it was the corporate statutes
that provided full limitation of liability for shareholders. So
for many years, one way to judge whether entities had corporate
characteristics was to look at limitation of liability. That was
very complicated.
MR. McCABE, noting that it is very old law, explained that limited
partnerships in which limited partners have limitation of liability
- in the same way that corporate shareholders have limitation of
liability - were judged to be pass-through entities, always,
because there was always a general partner who had full liability,
and because the full partner could run the business and had all the
management responsibilities. Limited partnerships were considered,
for those reasons, not to be corporations. Over time, the notion
of a limited liability company entered into the law ubiquitously.
But limited liability company law, and the structure of limited
liability companies, varied substantially, in order to meet the
burden of the tax rule.
MR. McCABE further explained that in 1996 the Internal Revenue
Service (IRS) decided to forego those kinds of analyses; they put
into place a "check the box" regulation that essentially allows an
entity to make a determination as to whether it is a corporation or
a pass-through entity. That is why there are "full-shield
liability, limited liability companies" in every jurisdiction in
the United States today. And it clearly had an influence on the
development of LLP legislation. Mr. McCabe said that "once you've
gotten over the fact that folks can clearly get pass-through status
with full-shield liability," there seems to be little reason to
avoid giving these entities an option for full-shield liability, as
long as it is clear on the record that there is full-shield
liability, so that every third party dealing with a partnership
recognizes what the entity is all about. That is kind of where the
law has gone, as a result of all of this.
Number 2093
REPRESENTATIVE CROFT responded that the fact that the federal
government is willing to give pass-through tax status in a variety
of circumstances doesn't determine whether Alaska decides to give
full-shield liability. He suggested this is an evolving change
from a long-standing decision that business entities had about
whether to be a separate entity such as a corporation - with its
protections, including the shield from liability - or an aggregate
of people, in which case the people have the tax consequences and
the liability.
MR. McCABE replied that the tax issues aren't that old, going back,
he believes, to the 1955 tax code. He then stated:
I think you have to go back to the question of what's
good for business and what's good for people doing
business, basically. And I think the general consensus
is that it encourages folks to do business .... And I
will say, with regard to partnership, it gives folks who
are ... less organized but perhaps in a startup position
as business people the opportunity to obtain some of the
advantages of a corporation. ... You don't get full
corporate ... limitation of liability, but you can fairly
easily obtain ... a vicarious shield here, and that this
is a relatively cheap and inexpensive way for people who
are ... beginning businesses, who are in less organized
circumstances. It gives them an opportunity to maintain
their partnership status, and to take their partnership
status and use that to obtain limitation of liability.
When I talk to people about the array of business
entities in the United States today, we have
opportunities ... in the business entity world that are
just unprecedented and, I should say, are also probably
the envy of the free world. ... I talk to people who are
concerned about these kinds of entity issues all across
the world today, where they don't have ... the rather
interesting array of entities, and entities available
with liability shields, that exist in the United States
today, and who are seeking to get to a point where they
are somewhat like the United States, because they view
that as good for business and good for economic
development.
Number 2220
REPRESENTATIVE CROFT pointed out that what is good for business is
one relevant question but not the only one. To the extent that
this creates more ways for people to not be responsible for the
conduct of their business enterprises, that may be a bad public
policy choice.
MR. McCABE suggested this is more a limitation on exposure to
liability. He added that the partnership remains fully liable for
its obligations and actions, and the partnership assets are
available. He pointed out that every partnership and entity needs
to think about its insurance requirements, then stated:
What we're essentially saying is that folks who ... are
personally and individually innocent of any kind of ...
obligation here have a way of protecting their personal
assets. That's basically what this is all about. And
that's always been an underlying characteristic that we
have considered to be good for business. What we're
doing ... is encouraging people to aggregate together to
do business, to accumulate capital to do business, and to
give them the liability shield. This is what's been
fundamental in the corporation for many, many years. But
to give them the liability shield is the price that we
pay to allow them to aggregate and to do business. ...
As I say, I think we have an array of business entities
now, ... and we make it easier for them, and much simpler
to do business and ... to aggregate their capital to do
it. At the same time, ... we're not allowing people to
hide things here that we would consider to be matters
that are unfair. ... There is really no reason why ... we
should not allow partnerships, and bearing in mind that
this is an election each partnership has to make, because
they don't get it automatically, that we should ... give
partnerships the same options and opportunities - and
partners the same options and opportunities - to protect
themselves.
Number 2339
REPRESENTATIVE CROFT responded that it is for the very reason of
not being fully responsible for the conduct of the business
enterprise that the shield is there. It may be an appropriate
choice to make. However, when combined with the change that says
one doesn't have to carry insurance, it is a significant public
policy step that is contrary to individual responsibility. He
suggested perhaps one provision or the other should be retained.
He emphasized that regardless of what Texas or other states have
done, the legislature must make its own decision as to whether it
seems fair, appropriate or in the interest of Alaskans generally.
MR. McCABE surmised that possibly Alaska's earlier decision was
made without serious policy considerations. He said the liability
insurance required is essentially a kind of malpractice insurance,
which isn't an issue for someone working with a partner developing
a software business, for example.
Number 2412
REPRESENTATIVE GREEN returned to Mr. McCabe's example regarding a
small entrepreneur with a capital problem. He said he shares with
Representative Croft the concern about that very entity and the
inability to take care of a liability that might be incurred.
Representative Green then asked whether Mr. McCabe agrees that the
definitions section should be in the front of the statutes, rather
than is normally done in Alaska.
MR. McCABE answered that it would be extremely helpful if the
definitions and the general sections were brought up-front.
TAPE 00-13, SIDE B
Number 0001
REPRESENTATIVE ROKEBERG referred to discussions in the L&C
Committee. He said they were basically adopting uniform rules and
Acts, not making any sweeping change in public policy.
Number 0021
REPRESENTATIVE KERTTULA asked whether the insurance requirement was
actually part of the uniform law when it was adopted.
MR. McCABE said no. When they did the LLP portion of this Act in
1996, they didn't put in insurance requirements. However, before
the uniform Act - and in the initial states that did this, of which
Texas is regarded as the pioneer model - they did have insurance
requirements.
REPRESENTATIVE KERTTULA asked, "So malpractice insurance is what we
have now. That's right?"
MR. McCABE answered, "Basically right."
REPRESENTATIVE KERTTULA asked, "But we're not requiring them to
carry insurance currently on anything but malpractice?"
MR. McCABE affirmed that, saying insurance and potential
liabilities are matters for any kind of business.
Number 0093
REPRESENTATIVE KERTTULA asked how difficult it is to incorporate in
Alaska, versus remaining a partnership. She further asked whether
just the tax difference is why people don't incorporate.
MR. McCABE answered that he thinks there is a lot more to it than
that. A partnership is a specific form, a creature of agreement;
the fundamental thing that holds the partnership together is the
partnership agreement. It may be organized simply or complexly.
Mr. McCabe surmised that the real advantage of the LLP provisions
is that one can achieve limitation of liability in this vicarious
form, without having to change the basic entity and, in the case of
a partnership, without having to dissolve it and then start all
over again as a corporation. All it requires is registering.
MR. McCABE, in response to questions from Representative Kerttula,
acknowledged that Alaska has both an LLP law and a limited
liability company (LLC) law. He said the way one becomes an LLP in
Alaska today is not terribly different from the way one would do it
under the revised Act; actually, the revised Act is probably a
little simpler, but it is the same effect. The main thing here is
that LLPs exist to allow partnerships, and partners, to get
liability shield without having to reorganize.
Number 0244
REPRESENTATIVE KERTTULA suggested it may be a matter of semantics,
then, as to whether an entity calls itself a partnership or an LLP.
She asked, "The LLP exists, so why not simply say this is the way
it's going to be for those people who, for some reason, weren't
smart enough to register as an LLP?"
AN UNIDENTIFIED SPEAKER said the requirements are a little
different.
MR. McCABE responded that the uniform Act would simply expand the
shield and eliminate the insurance requirement. That is basically
all it would do.
Number 0283
REPRESENTATIVE KERTTULA asked why people wouldn't want to form an
LLP, then.
MR. McCABE said he doesn't know how professionals organize in
Alaska or what the professional standards are. But, for instance,
in some states law firms cannot organize as LLPs; that is because
of the application of professional standards under the regulation
of law practice in the state. Sometimes people organize as
partnerships and agree to forego any limitation of liability
because that is what the people doing business want. For example,
certain kinds of joint ventures couldn't do business with their
creditors if they had limited liability. Partnerships don't
necessarily arise consciously, and partners may not even recognize
that LLPs are available to them.
Number 0342
REPRESENTATIVE KERTTULA pointed out that she wasn't a contract
attorney but was reminded of some of the reasons for shielding from
liability, in terms of incorporating versus having people joining
together. She said an interesting point is the idea that even if
people haven't taken that responsibility among themselves to put
assets aside, perhaps to be able to protect the public, they still
act like a business. She recalled that perhaps to be one reason
that partnerships didn't get the shield.
MR. McCABE said Representative Kerttula was hitting on some central
points. He stated, "We create partnerships or allow partnerships
to create, and that's really to protect third parties ... that do
business with the partnership." He noted that historically, law
firms and accounting firms, as professional organizations, have
mostly been partnerships in the United States. He has been told
anecdotally that perhaps one-third of those have no written
agreement. They operate informally, under the general rules of
partnership. Even if it is a good idea for them, they aren't
likely to seek LLP status because of their basic informality and
because they operate without consciousness of their partnership
form in many instances.
REPRESENTATIVE KERTTULA pointed out that this would protect that
form of partnership, however.
MR. McCABE affirmed that, adding, "If they seek it."
Number 0453
REPRESENTATIVE JAMES mentioned her own exposure to small business
taxes and accounting, agreeing that many partnerships are very
loosely drawn. The biggest item partners have to fear losing is
their house; recalling ten years as a bankruptcy trustee, she said
it has happened. Representative James pointed out that having a
corporation requires strict discipline in order to not mix up the
corporate business and assets with one's personal business and
assets. "Many times, thinking they had liability protection, they
didn't," she noted, "because they'd pierced the corporate veil in
the whole process." Representative James said these are small
business people, not "high rollers," both of which are encompassed
by this bill; she surmised that the latter would get insurance, for
example. She concluded, "I think there's a lot of rationale for
doing it this way, and I support this document."
Number 0541
REPRESENTATIVE ROKEBERG remarked that he wanted to verify with Mr.
McCabe his understanding of this "bottom-up" approach to business
organization and the importance of how this particular legislation
fits into that. He recalled Mr. McCabe's testimony about so-called
default partnerships. He then suggested that usually a business
organizing today would elect to go into a limited liability
[company](LLC) because of tax treatment and organizational costs.
He indicated his understanding that costs for legal counsel for an
LLC are about equal to those of an LLP.
REPRESENTATIVE ROKEBERG said to him the rationale for even the
existence of an LLP includes the change from a partnership to a
sheltered, shielded organization - an LLP - without having to
dissolve. In contrast, that couldn't be accomplished in going from
a partnership to an LLC. He also voiced curiosity about the
"historic syndication route, where you had a general partner and
the limited partners, with limited liability." He asked whether
the LLP replaces that type of a business formation.
MR. McCABE answered no, it doesn't replace limited partnerships.
REPRESENTATIVE ROKEBERG asked whether that still exists under the
statutes, then.
MR. McCABE affirmed that, saying it is untouched by this. It is
another entity.
REPRESENTATIVE ROKEBERG said the point is why an LLP even exists
when an LLC would seem to provide the same tax [advantages].
MR. McCABE suggested it is a question of where people start.
Clearly, LLPs are the entity of choice for many kinds of startup
businesses where people seek a liability shield. An LLP is easier
to organize and, like a partnership, is an agreement-oriented
organization. The advantage is to existing partnerships, because
all that LLP statutes require to become an LLP is registration.
Therefore, LLPs are basically there for the convenience of people
who organized as partnerships and conceived of themselves as
partners before determining that they want limitation of liability.
MR. McCABE pointed out that, clearly, everybody else probably will
organize as LLCs. An LLP and an LLC have very different
characteristics; the latter are more adaptive to centralized
management, looking more like a limited partnership than general
partnership, because limited partnerships traditionally have been
developed to provide a centralized management regime with the
limited partners as passive investors. That can be done in an LLC
in almost exact mimicry of the old limited partnership, Mr. McCabe
indicated, except that the management entity falls within the
liability shield. He concluded that LLPs are there primarily to
give a convenient way to obtain limitation of liability to existing
partnerships, so they don't have to go through the dissolution.
Number 0819
CHAIRMAN KOTT thanked Mr. McCabe and asked Mr. Peterson if he
wanted to wrap up.
MR. PETERSON said he had nothing to add to Mr. McCune's testimony.
For Representative Croft, who had been absent for a time, he
explained that Alaska's LLP law was enacted in 1996 with a deferred
effective date. Therefore, the current provisions, with the
insurance requirements, the partial shield, and so forth, have only
been there for a couple of years. Derived from the Texas version,
that was further developed by the national group, he noted.
REPRESENTATIVE CROFT asked whether there have been a lot of LLCs
and LLPs formed under it.
MR. PETERSON deferred to the Department of Community and Economic
Development.
Number 0881
DAWN WILLIAMS, Records and Licensing Supervisor, Corporations
Section, Division of Banking, Securities and Corporations,
Department of Community and Economic Development (DCED), came
forward. She answered that right now, there are approximately 32
or 36 active LLPs, and approximately 3,000 LLCs.
REPRESENTATIVE CROFT asked whether there is an insurance
requirement for LLCs.
MS. WILLIAMS said she isn't sure.
CHAIRMAN KOTT commented, "I'm an LLC, and I'm required to carry
insurance."
REPRESENTATIVE MURKOWSKI noted that she'd heard this bill in the
L&C Committee. She requested confirmation that there are
approximately 2,000 regular partnerships as well.
MS. WILLIAMS said that sounds approximately right.
Number 0953
REPRESENTATIVE ROKEBERG indicated he would look up the history of
the 1996 bill. He asked Ms. Williams whether she recalls the
reason that the DCED had brought that forward.
MS. WILLIAMS said she doesn't recall that.
REPRESENTATIVE ROKEBERG asked Chairman Kott what kind of insurance
he was required to have for being an LLC. Asking whether it is
general liability insurance, he said he doesn't think that is what
is being referred to here.
Number 1015
REPRESENTATIVE CROFT stated, "What this says is existing Alaska law
requires that a LLP carry a set amount of liability insurance." He
referred to talk about how this is mainly done in E&O [errors and
omissions] or professional policies, but pointed out that this says
"liability." He asked whether there is a general requirement of
LLPs carrying some set amount of liability insurance now.
MR. PETERSON said he hadn't checked on that question nor had
occasion to look at it, but the statute is easy enough to find. He
noted that it would be in AS 32.05, somewhere after section 405.
[The statutes were then brought to Representative Croft.]
REPRESENTATIVE ROKEBERG announced that he would look up the
legislative history regarding adoption of the LLC statutes.
Number 1125
CHAIRMAN KOTT asked if anyone else wished to testify, then closed
public testimony. He stated his understanding, from Pamela
Finley's memorandum of 2/15/00, that the drafting manual is adopted
by Legislative Council; therefore, the desired change would require
going back to the Legislative Council. He asked Mr. Peterson to
comment.
MR. PETERSON explained that it is merely a chance that when he
himself was Revisor of Statutes 30 years ago, he didn't happen to
put in the drafting manual an exception for the uniform Acts. He
didn't think of it. Had he done so, this issue would not be before
them today. He said with regard to the policy, there are
exceptions. He pointed out that he hadn't seen the memorandum from
Ms. Finley dated 2/15/00. Bringing attention to his own memorandum
dated 2/10/00, however, he suggested that it beautifully sets out
the rationale in favor of the change, responding to Ms. Finley's
earlier points and picking up on the fact that there are
exceptions.
MR. PETERSON, referring to the current bill, called it a beautiful
example where the exception should be applied again, because it is
a long, complicated Act where Alaska ought to follow the national
version. He said it helps Alaskans as well as people elsewhere,
because Alaskans doing research will use various sources, such as
a publication by West Publishing called "Uniform Laws Annotated,"
which will use the national version. Mr. Peterson restated that he
could have changed this 30 years ago, as Revisor of Statutes, but
had failed to. "And now I think we need to correct that," he
concluded.
Number 1321
CHAIRMAN KOTT said he couldn't agree more. He pointed out,
however, that the definitions are in the front for the next bill
scheduled before the committee [HB 239, relating to the Uniform
Commercial Code (UCC)]. He suggested there isn't any uniformity at
all in this regard.
REPRESENTATIVE MURKOWSKI [sponsor of HB 239] pointed out that the
UCC, Article 9, revisions have the definitions at the outset. As
she recalls, when she received the recommended draft from NCCUSL,
the definitions were in the back. However, the drafter chose to
put those in the front. She agreed that there is some
inconsistency.
REPRESENTATIVE ROKEBERG suggested that the current committee pass
a resolution on to the Legislative Council proposing a change in
policy and the need to revise the drafting manual to be more
consistent with national practice. He emphasized the need to look
into it further.
REPRESENTATIVE CROFT asked what the exception is in the drafting
manual that Mr. Peterson believes fits here.
MR. PETERSON specified that the exception is not printed in the
manual. Had he thought of the point 30 years ago, it would be in
there, and it ought to be in there, which footnote 2 of his own
letter of 2/10/00 indicates, in recognition of the complexity and
the interstate use of these uniform Acts. He emphasized the need
to make these as easy to use as possible.
REPRESENTATIVE CROFT requested confirmation that right now the
drafting manual has no exception that would allow the legislature
to do this, and the rules say that they should follow the drafting
manual.
MR. PETERSON replied, "But we tacitly condone exceptions, because
there have been exceptions ... in the Alaska Statutes for several
decades now, the UCC being the prime example, the UPC [Uniform
Probate Code] being the second example."
Number 1469
REPRESENTATIVE JAMES agreed that should probably be in the drafting
manual as an exception for uniform Acts, although she believes that
for statutes drafted by Alaska's legislature, having those sections
in back is good. Therefore, the resolution should only refer to
the exception, not to anything else the legislature does.
MR. PETERSON agreed that the general policy, which he'd enforced
for a number of years as Revisor of Statutes, is good. He also
concurred with Ms. Finley that consistency eases the use of the
statutes. However, when talking about a lengthy uniform Act used
around the country, that complicates rather than eases things, he
said, and it can thwart research.
Number 1574
REPRESENTATIVE KERTTULA declared that she has a problem doing it in
one of the bills [HB 296 and HB 239] but not the other. She
suggested consistency is needed there.
CHAIRMAN KOTT said that is the direction he was pursuing, but he
also understands the rationale for putting the definitions up-
front. He called an at-ease at 2:35 p.m., then called the meeting
back to order at 2:40 p.m.
Number 1660
CHAIRMAN KOTT asked Ms. Finley, who had just arrived, why the
legislature can't put the definitions in the front in HB 296 but
has done so in HB 239 [relating to the UCC].
PAMELA FINLEY, Revisor of Statutes, Legislative Legal Services,
Division of Legal and Research Services, Legislative Affairs
Agency, explained that in the UCC [for Alaska], all of the articles
have definitions up-front, which follows the UCC order. That
decision was made long ago, but she wouldn't quarrel with it now,
even, because the UCC has been adopted in all of the states -
unlike many uniform Acts, which have been adopted in some but not
all states. She suggested perhaps one of her predecessors had just
decided to use the regular order for the UCC in that one case. The
UCC secured transactions bill [HB 239] essentially conforms with
the previous decision to have UCC definitions in the front.
MS. FINLEY pointed out that with perhaps one other exception, these
Acts have put the definitions in the back; in Alaska Statutes, the
definitions go in the back, and they always have, a decision made
long ago. For the Uniform Partnership Act, the definitions are in
the back, where it has been decided to keep them. She emphasized
that what really matters is whether the law is the same. They do
try, with Alaska Statutes, to be consistent in placement of the
definitions, she added, so that people can find them at the end,
where they expect them.
Number 1855
CHAIRMAN KOTT asked whether the legislative drafting manual has an
exception for putting the definitions in the UCC up-front.
MS. FINLEY said no, as far as she knows. She suggested Mr.
Peterson may be able to answer that.
CHAIRMAN KOTT asked whether technically, then, the legislature is
in violation of AS 24.08.
MS. FINLEY answered that technically, in redoing the UCC Article 9,
they may be; however, she isn't too worried about it because the
constitution gives the power to the legislature to make its own
rules; they can deviate from those, which they have in the past.
She said certainly no court is going to say that the bill is
invalid for that reason, if that is the concern.
Number 1965
CHAIRMAN KOTT asked whether it matters to Ms. Finley where the
definitions go.
MS. FINLEY said not personally. However, she tries to keep the
statutes clean. Essentially the choice here is whether to have the
definitions at the end for just about everything except the UCC, or
to have them at the end for most things except uniform Acts, which
can go up-front. She stated, "I guess I don't really object to
that. I think it might be wise for Legislative Council ... to
adopt that policy, if that's going to be the policy. They're the
ones that adopt the drafting manual. I make recommendations, and
anyone can make recommendations too, but they adopt it."
Number 2018
CHAIRMAN KOTT said it seems that there has been other legislation
in the past with the definitions up-front, but perhaps it dealt
with this type of an issue.
MS. FINLEY responded that the probate code spans several chapters,
from AS 13.06 through AS 13.36. Therefore, there is no logical
place to put the definitions section. Putting it at the end of AS
13.36 doesn't make a lot of sense, for example, because people
looking at AS 13.06 would need to use it. Therefore, in the
probate code, they left it where it was in the uniform Act, because
it was such "an odd thing."
Number 2100
REPRESENTATIVE MURKOWSKI asked what would happen if the Legislative
Council looked at this and determined the need to provide for
certain exceptions, where definitions are put up-front, with the
exceptions being for extremely complex or lengthy legislation. She
asked whether that would make Ms. Finley's job that much more
difficult in interpreting what is extremely complex or lengthy.
MS. FINLEY suggested that if they put definitions up-front for
uniform Acts, it should be for all uniform Acts proposed by the
NCCUSL, but not for so-called uniform Acts proposed by other
entities, as occasionally happens. Those Acts proposed by the
NCCUSL are the ones that tend to get adopted by a large body of
states, she noted.
Number 2207
REPRESENTATIVE JAMES pointed out that since she has been a
legislator, uniform Acts have been brought before the legislature
but not acted upon. Other states have that option as well, and
therefore the Acts aren't totally uniform.
MS. FINLEY agreed. In fact, she said, the only uniform Act that
she believes is pretty close to uniform throughout the United
States is the UCC, but that has little changes in every state, and
Louisiana - having the French background - has a "sort of odd
version" of it. To her knowledge, no other uniform Act is adopted
by all of the other states; for example, the last time she'd
looked, Washington hadn't adopted the Uniform Probate Code. In
response to mention of the child custody Act, she said that may
have definitions in the front as well, because of that same
interstate quality. She noted that the partnership Act isn't
adopted everywhere. Many states don't want to adopt these Acts for
one reason or another; they may not necessarily like the approach
of the uniform commissioners, for example. Furthermore, some
things need to be uniform more than others do; partnership don't
tend to be interstate-related the way that sales are, for instance.
Those factors enter into a legislator's decision as to whether to
adopt a uniform Act.
Number 2379
REPRESENTATIVE JAMES asked whether an Act is still considered
uniform if adopted by a majority of states, in which case the
location of the definitions may be important.
MS. FINLEY emphasized her belief that any competent lawyer could
find those definitions in a uniform Act, even if they were at the
end, by looking at the index or table of contents. She said she
can't believe that anyone looking wouldn't find them.
TAPE 00-14, SIDE A
Number 0001
MR. PETERSON provided some history of the adoption of the UCC in
Alaska. When the Alaska Statutes were adopted, as a codification,
he said this "definitions and general provisions at the end" rule
went into effect. It was in a transition period, 1961-62. He said
he believes the UCC was enacted in Alaska in 1962, and it kind of
coincided with that. It was not a "grandfathering" situation. It
was a situation of recognizing the value of the uniform
arrangement.
MR. PETERSON asserted that, indeed, a number of uniform Acts have
been enacted in all states, including the Uniform Child Custody
Jurisdiction Act and the partnership Act. He reported that the
original partnership Act was much simpler; this one is much longer,
more complicated, and more attuned to the year 2000 and modern
business practices. He believes it is appropriate to follow the
national version, and to try to address that kind of complexity
that people face in society now.
Number 0205
REPRESENTATIVE KERTTULA asked how many states have adopted this
Act.
MR. PETERSON said 24 have adopted essentially the 1997 or 1996-97
version of the Revised Uniform Partnership Act. Four more adopted
the 1994 version before these 1996-97 amendments came out, and
whether those are being considered now in those four states he
doesn't know. Therefore, essentially 28 jurisdictions have already
enacted this product of the national conference that was
promulgated just a couple of years ago. He suggested this is seen
as sweeping the country, and he believes eventually all 53
jurisdictions - including all the states plus Guam, Puerto Rico and
the District of Columbia - will enact it, although there may be a
little bit of tinkering with it here and there. He offered a table
showing all the uniform and model Acts produced by the NCCUSL, and
what states have enacted them.
Number 0328
REPRESENTATIVE ROKEBERG moved that the committee send a letter the
Legislative Council recommending 1) that henceforth all UCC Acts,
as an exception to the drafting manual, have the definitions placed
in front; and 2) that the Legislative Council decide whether the
same exception would apply to uniform Acts.
Number 0382
CHAIRMAN KOTT announced that at the direction of the committee, a
memorandum to Legislative Council would be prepared doing just
that. He said it would be two separate issues.
MS. FINLEY commented that if it makes anyone feel better, actually
the revisor has the power to renumber anything if he or she feels
like it; she thinks it is by statute - AS 05.10.031 - that the
revisor can do that. Certainly, if the Legislative Council asks
her to renumber something, she will. However, it doesn't take an
act of the legislature to renumber, as long as she doesn't change
the substance of the law. "And we do that, frequently," she added.
REPRESENTATIVE ROKEBERG suggested it should be part of the manual,
however. Noting that he is on the Legislative Council, he offered
to carry the letter drafted by the committee.
Number 0504
REPRESENTATIVE CROFT made a motion to move CSHB 296(L&C) from the
committee with individual recommendations and the attached zero
fiscal note. There being no objection, CSHB 296(L&C) was moved
from the House Judiciary Standing Committee.
HB 239 - UCC SECURED TRANSACTIONS
Number 0532
CHAIRMAN KOTT announced that the next item of business would be
HOUSE BILL NO. 239, "An Act relating to the Uniform Commercial
Code; relating to secured transactions; amending Rule 79, Alaska
Rules of Civil Procedure; and providing for an effective date."
[Before the committee was CSHB 239(L&C). However, packets
contained work draft Version G, heard in the previous committee
prior to moving out CSHB 239(L&C).] Noting that the bill was
sponsored by Representative Murkowski by request, Chairman Kott
invited her to present the bill.
Number 0583
REPRESENTATIVE MURKOWSKI explained that Alaska, along with all of
the other states, has adopted the UCC. It was adopted in 1962, and
the last major revision to the UCC, Article 9, secured
transactions, was in 1972. The National Conference of
Commissioners on Uniform State Laws (NCCUSL) has essentially spent
the past ten years or so working this over. She said "some truly
brilliant minds, those people who engage in secured transactions
day in and day out, have looked at this and brought it forward with
hearty recommendations."
REPRESENTATIVE MURKOWSKI reported that a subcommittee to the House
Labor and Commerce Standing Committee, of which she is a member,
had appointed a group to review the revised Article 9 to ensure
that it would work in Alaska. They received input from many
independent legal practitioners across the state, as well as
members of the business law section, the corporate law section and
the bankruptcy section of the bar association. They also received
substantial input from the State Recorder's Office, as well as from
banking institutions, credit unions, escrow associations and title
agencies. Representative Murkowski stated:
There have been a lot of "eyes" that have reviewed this
document, and they are eyes that, as I say, deal with
secured transactions all the time. And the
recommendation that we have gotten back from them is that
this, indeed, does bring Alaska into the 21st century in
terms of how we handle ... consumer credit transactions,
and are, I think, enthusiastically looking forward to the
changes.
Some of the comments that we got in Labor and Commerce
when we heard this bill [were] that they were urging
support, and that we pass this legislation now, because
the effective date for all the 50 states on this is ...
July 1, 2001, and they will need that much time to just
educate those within the industries as to how this all
works, in terms of electronic filings and the Recorder's
Office, and are hopeful that this can ... get a speedy
review here and be enacted into law.
REPRESENTATIVE MURKOWSKI acknowledged that the bill is 135 pages
long. She pointed out that there is a ten-page summary in
committee packets, however. She told members that in terms of a
primer for secured transactions, it clearly outlines what the
current UCC, Article 9, is all about now, as well as what these
changes do. She pointed out that Jerry Kurtz, who was Alaska's
[NCCUSL] commissioner on this, was on teleconference to talk about
how it fits in with Alaska. In addition, national experts were
available to answer specific questions. Furthermore, Sharon Young
from the State Recorder's Office was also online to discuss how
these changes will, hopefully, improve efficiency and expediency
within that office. She deferred to testifiers on teleconference.
Number 0867
STEVE WEISE, Attorney at Law, Heller Ehrman & Associates, testified
via teleconference from Los Angeles, California, noting that he is
in private practice and was the American Bar Association's advisor
to the [NCCUSL] drafting committee; he said he'd worked on this for
many years. He urged the State of Alaska to adopt this
legislation, which updates Article 9 for the first time in 25-some
years for modern transactions. He offered to answer questions.
Number 0930
L.S. (JERRY) KURTZ, JR., Attorney at Law, testified via
teleconference from Anchorage. He provided some personal history,
noting that he had first come into contact with the UCC and Article
9 at law school at Stanford University in 1957. He stated his
belief that this is a big improvement. He informed members that
while practicing law full time in Alaska for more than 30 years, he
had worked with Article 9 several times a week. Since retiring
from full-time practice in 1991, he has been involved with Article
9 both through the NCCUSL and in connection with part-time legal
work.
MR. KURTZ agreed that the bill basically gets the state up to
speed. He said very few changes were made in Article 9 between
1959 and now, but computers have changed everything. Whereas the
revised Article 9 has kept up with that, to the fullest extent
possible, Alaska law has not. Mr. Kurtz brought up the question of
how this changes the balance between creditors and debtors. He
said he believes he has attended every floor session concerning the
UCC; there were some battles on the floor where creditors, consumer
interests and debtors tried to gain ground. In his judgment,
however, the balance remains the same or, if it has tilted, it has
tilted just a tiny bit in favor of the business person or the
individual who is borrowing money. The offset is that it has made
it a little easier for financial institutions to get certain types
of collateral such as bank accounts; although they could do that
before, they had to go through more paperwork.
MR. KURTZ told members he doesn't believe there is any substantial
change in law; rather, the bill represents a tremendous step in
improving law. The latest improvement relates to computers. He
said the public and the politicians, by and large, now accept the
idea of central filing in a state, so that a person can go to one
place, in a state, to determine what encumbrances exist to certain
properties. Although it seems obvious now, 15 or 20 years ago it
was a matter of hot dispute in Alaska, which had recording offices
all over the state where records were kept. As time has gone on,
records are pretty well centralized in Anchorage, he noted, while
retaining the ability to look at them from other places.
MR. KURTZ expressed appreciation for having a State Recorder who
has been involved in this effort at both the national and local
levels, and who has been invaluable in working with Representative
Murkowski and the NCCUSL members from Alaska, of which he is one.
He said Ms. Young is probably the most knowledgeable person in
Alaska, by a considerable lead, in terms of what impact this will
have on filing procedures, the state budget and handling the
paperwork in general. He suggested the bill is critical in keeping
open the lanes of commerce and the lines of borrowing money, for
both businesses and consumers. He offered to answer questions,
then noted that Mr. Weise had been at virtually all the committee
meetings held throughout the entire history of the revision of this
article, which Mr. Kurtz said he regards as probably the most
critical article in the Uniform Commercial Code.
Number 1288
SHARON YOUNG, State Recorder, State Recorder's Office, Division of
Support Services, Department of Natural Resources, testified via
teleconference from Anchorage, noting that her office operates the
recording system throughout the state, as well as the UCC central
file system. She told members that one of the biggest complaints
they have heard over the years regards the inconsistency that
secured lenders find wherever they are dealing with the UCC around
the country. They don't know whether they need to do a mandatory
or optional dual filing, for example, or a central filing. It has
been highly confusing for many lenders and filing officers around
the state as well. The filing provisions of this bill will really
help to streamline that, because it basically calls for a central
filing system for all UCC filings, except for "fixture filing,"
which would remain at the local level. Pointing out that there is
a transition period, she said in the long run she feels that this
will increase efficiencies in her office and will promote
uniformity statewide and throughout the country. Furthermore, it
will simplify the filing process, which is very important for
Alaska's users.
Number 1401
MARY ELLEN BEARDSLEY, Assistant Attorney General, Commercial
Section, Civil Division (Anchorage), Department of Law, testified
briefly via teleconference from Anchorage. She offered to answer
questions, then stated that the Office of the Attorney General is
in favor of uniform bills, which promote uniformity throughout the
50 states.
CHAIRMAN KOTT concurred. He asked whether anyone else wished to
testify, then closed public testimony. He asked whether there was
any discussion by committee members; none was offered.
Number 1440
REPRESENTATIVE CROFT made a motion to move HB 239 [CSHB 239(L&C)]
from the committee with individual recommendations and the attached
fiscal note. There being no objection, CSHB 239(L&C) was moved
from the House Judiciary Standing Committee.
ADJOURNMENT
Number 1456
CHAIRMAN KOTT thanked participants. He adjourned the House
Judiciary Standing Committee meeting at 3:15 p.m.
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