Legislature(2003 - 2004)
02/20/2004 08:05 AM Senate JUD
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* first hearing in first committee of referral
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ALASKA STATE LEGISLATURE
SENATE JUDICIARY STANDING COMMITTEE
February 20, 2004
8:05 a.m.
TAPE(S) 04-7
MEMBERS PRESENT
Senator Ralph Seekins, Chair
Senator Scott Ogan, Vice Chair
Senator Gene Therriault
Senator Johnny Ellis
Senator Hollis French
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
SENATE BILL NO. 300
"An Act relating to an attorney's lien, to court actions, and to
other proceedings where attorneys are employed."
MOVED SB 300 OUT OF COMMITTEE
SENATE BILL NO. 307
"An Act relating to the amount of the bond required to stay
execution of a judgment in civil litigation involving a
signatory, a successor of a signatory, or an affiliate of a
signatory to the tobacco product Master Settlement Agreement
during an appeal; amending Rules 204 and 205, Alaska Rules of
Appellate Procedure; and providing for an effective date."
HEARD AND HELD
HOUSE BILL NO. 31
"An Act relating to initiative and referendum petitions; and
providing for an effective date."
SCHEDULED BUT NOT HEARD
PREVIOUS COMMITTEE ACTION
BILL: SB 300
SHORT TITLE: ATTORNEY'S LIEN
SPONSOR: SENATOR STEDMAN
02/06/04 (S) READ THE FIRST TIME - REFERRALS
02/06/04 (S) JUD, FIN
02/09/04 (S) JUD AT 8:00 AM BUTROVICH 205
02/09/04 (S) Heard & Held
02/09/04 (S) MINUTES (JUD)
02/20/04 (S) JUD AT 8:00 AM BUTROVICH 205
BILL: SB 307
SHORT TITLE: APPEAL BONDS: TOBACCO SETTLEMENT PARTIES
SPONSOR(s): JUDICIARY
02/09/04 (S) READ THE FIRST TIME - REFERRALS
02/09/04 (S) JUD, FIN
02/20/04 (S) JUD AT 8:00 AM BUTROVICH 205
WITNESS REGISTER
Senator Bert Stedman
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Sponsor of SB 300
Mr. Brian Hove
Staff to Senator Seekins
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Presented SB 307 for the sponsor
Mr. Keith Teel
Covington and Burlington
Washington, D.C.
POSITION STATEMENT: Supports SB 307
Ms. Emily Nenon
American Cancer Society
Anchorage, AK
POSITION STATEMENT: Opposed to SB 307
Ms. Jennifer App
American Heart Association
Anchorage, AK
POSITION STATEMENT: Opposed to SB 307
Mr. Bob Evans, Lobbyist
Phillip Morris USA
PO Box 100384
Anchorage, AK 99510
POSITION STATEMENT: Supports SB 307
ACTION NARRATIVE
TAPE 04-7, SIDE A
CHAIR RALPH SEEKINS called the Senate Judiciary Standing
Committee meeting to order at 8:05 a.m. Senators Therriault,
Ellis, French and Chair Seekins were present. The first order of
business to come before the committee was SB 300.
SB 300-ATTORNEY'S LIEN
SENATOR BERT STEDMAN, sponsor, recapped the discussion about SB
300 during the first Senate Judiciary hearing. The measure
changes the way taxation is handled on litigation awards and
relates primarily to non-physical personal injury cases.
Currently, gross proceeds from a settlement are awarded to the
plaintiff, who must pay taxes on the full amount. The plaintiff
must then pay attorney fees and the attorney pays taxes on those
fees. Therefore, under certain circumstances, the plaintiff
could have a net outflow if the taxes owed exceed the gross
award minus the attorney fees.
SENATOR STEDMAN referred to an article in The Wall Street
Journal dated February 12, 2004, which he said is a good
synopsis of the issue. He said even though both Alaska and
Oregon are under the jurisdiction of the Ninth Circuit Court,
they are treated differently regarding taxation because their
laws differ. If Alaska were to adopt a statute similar to
Oregon's law, Alaska would avoid the double taxation of its
citizens. He said this issue has been raised at the national
level but Congress has not yet dealt with it so Alaska is
getting ahead of the curve. He pointed out the IRS National
Taxpayer Advocate Report has reported this double taxation
problem several times. He brought members' attention to a letter
from Kevin Walsh, a CPA from Fairbanks, which goes into great
detail about the taxation issue.
SENATOR THERRIAULT asked if the Department of Law or the general
public have expressed any concerns since the last meeting.
SENATOR STEDMAN said he has not heard any. He believes the
double taxation issue is widely recognized as unfair.
SENATOR OGAN asked which state law would apply if an Alaskan
filed a case in another state.
SENATOR STEDMAN said his guess, as a layman, is that the law of
the state in which the case was filed would apply.
SENATOR FRENCH informed members that choice of law is one of the
great contested areas of the profession. If an Alaskan were in a
traffic accident in Montana, Montana law would apply. However,
law professors love to argue about cases in which an Alaskan and
a Montanan were involved in a traffic accident in Washington,
and a lawsuit was filed in Washington. He thought SB 300 was
designed to apply to Alaskan cases tried in Alaska.
SENATOR STEDMAN thought it certainly would be advantageous for
an Alaska resident to have the issue addressed in Alaska if SB
300 passes.
CHAIR SEEKINS opined that SB 300 would apply to cases tried in
the Alaska Court System. The only time he envisions a venue
problem is with cases involving contract law. He pointed out
that many of his contracts with the Ford Motor Company are
subject to the laws of Michigan. He said he sees the intent of
the bill as applying to cases that are tried in the Alaska Court
System.
SENATOR STEDMAN clarified that if a business is involved, the
tax situation is different so the double taxation problem does
not apply.
SENATOR FRENCH referred to a summary of committee action in the
Washington State Legislature in members' packets. That bill
summary reads:
An attorney has a lien upon the action and its
proceeds to the extent of the value of the services
performed by the attorney in that action.... Proceeds
are limited to monetary sums perceived in the action
so the lien is not enforceable against real or
personal property. The attorney's lien is superior
although it [indisc.] upon the judgment. The
legislature expresses its purpose of making attorneys
fees taxable solely to the attorney and its intention
that the court will apply the statute retroactively.
He noted his main interest is the sentence that says a lien is
not enforceable against real or personal property. He looked at
Alaska statute and did not see any similar protection for the
plaintiff. He asked Senator Stedman if it is his intention that
this lien not be enforceable against real or personal property.
He said after long, contentious lawsuits, plaintiffs and their
attorneys sometimes get sideways and fees become an issue. He
would hate to see someone "lose the farm" after having won a
lawsuit.
SENATOR STEDMAN agreed with Senator French and said the intent
behind SB 300 is to clean up the tax inequity and not to allow a
broader reach to other assets.
SENATOR THERRIAULT asked:
Wouldn't they have a lien already for fees that are
owed? We're talking about a specific lien on the award
but, absent that, if I'm an attorney and do work and
then my client never pays the bill - I mean you can't
walk out on the fees they owe their attorney. I'm not
sure if a lien is automatically placed on property and
what-not but an attorney can protect themselves by
getting a lien. I know what Senator French is getting
at but this talks specifically about the lien it gives
the award and I don't know how that would necessarily
slop over onto any other assets.
CHAIR SEEKINS said he reads it to refer to a lien against the
cause of action that would not extend to any assets outside of
the cause of action.
SENATOR FRENCH said that is how he reads the attorney's lien
statute. He clarified that he is not saying that a lawyer can't
turn around and sue a client; he was saying that a lawyer does
not automatically get a lien on his client's property as the
result of a fee dispute. The lawyer would have to go through the
normal steps that everyone else goes through to satisfy a debt.
CHAIR SEEKINS said he believes the committee's intent is that SB
300 only deals with a lien against the cause of action.
SENATOR STEDMAN agreed that is his intent also.
CHAIR SEEKINS noted that no one else wished to testify so he
closed public testimony.
SENATOR OGAN asked what part of a settlement, for example
punitive damages, would be taxable.
SENATOR FRENCH said he did not know about punitive damages but
he thought the main injustices occur in claims where people sue
for wrongful termination or other workplace matters. He pointed
out if a person has to go up against Wal-Mart for wrongful
termination, it could cost that person $900,000 while the
monetary damage award might be $30,000. That person would then
get taxed on $930,000 and the attorney would also pay taxes on
the $900,000.
CHAIR SEEKINS said regardless of the type of award, SB 300 would
allow the recipient of the award to deduct the attorney fees
before paying taxes.
SENATOR OGAN moved SB 300 and its zero fiscal notes from
committee with individual recommendations.
CHAIR SEEKINS announced that without objection, SB 300 would
move to the Senate Finance Committee. He then announced a brief
at-ease.
8:25 a.m.
SB 307-APPEAL BONDS: TOBACCO SETTLEMENT PARTIES
MR. BRIAN HOVE, staff to Senator Seekins, explained to members:
SB 307 is an act relating to the amount of bond
required to stay execution of judgment involving a
signatory to the tobacco product master settlement
agreement. He said the tobacco Master Settlement
Agreement [MSA] delivers millions of dollars in
revenues annually to Alaska and 45 other participatory
states. However, the continued receipt of these funds
is threatened by the huge judgments that have been
awarded against the tobacco companies that are funding
the settlement. Defendants facing large judgments
almost always have a right to appeal them and, in many
cases, their appeals are successful, either in terms
of obtaining a reduced judgment or in overturning the
judgment entirely. But in order to stay the execution
of a pecuniary judgment on appeal, a defendant must
post an appeal bond, which in the diminishing number
of states that do not have limits on appeal bonds
usually equals the amount of the judgment. In Alaska
the bond required is ordinarily the amount of the
judgment remaining unsatisfied plus appeal costs and
interest.
SB 307 would place a $25 million limit on the appeal
bond that MSA signatories must post to stay the
execution of a judgment. This bond limit would not
change any other aspect of the law. It does not change
the rules by which the trial is conducted. It does not
affect who ultimately wins or loses the lawsuit and it
does not affect the rights of plaintiffs to recover
fully the damages to which they are entitled if the
judgment is upheld on appeal. Plaintiffs are also
protected by the provision in the proposed legislation
that allows the court to require a bond amount up to
the value of the judgment if the appellant is
dissipating its assets to avoid paying a judgment.
SB 307 thus would not injure plaintiffs in any way and
would protect the state by ensuring that it will
continue to receive its MSA payments while the tobacco
companies fully appeal an adverse judgment. In this
instance, Alaska will join 26 other states, which have
passed legislation or amended court rules to limit the
size of the required appeal bond in cases involving
large judgments. By joining these states we promote
our collective interest with respect to preserving the
revenue stream mandated by the master settlement
agreement.
MR. HOVE said the driving force behind this legislation is that
Alaska, according to the MSA schedule of payments, will be
receiving from $22 million per year to $27 million per year in
the later years of this agreement. SB 307 will insure that
Alaska continues to receive those payments in the later years.
CHAIR SEEKINS asked if the maximum amount that Alaska is
scheduled to receive in one year is $27.3 million.
MR. HOVE said that is correct and that will begin in 2018 and
continue to 2025. The total amount that will accrue to the state
is nearly $670 million.
CHAIR SEEKINS asked if requiring tobacco companies to put up the
entire bond amounts to appeal cases could cause them to go
bankrupt, and the state would not receive any money at all.
MR. HOVE said that is correct. He noted that although many
people are unsympathetic to the tobacco companies, this money is
important to Alaska and 26 other states.
SENATOR THERRIAULT asked for a description of the differences
between the original bill and Version H.
MR. HOVE said the original bill erroneously cites AS 43 instead
of AS 45.
SENATOR THERRIAULT moved to adopt version H as the working
document of the committee.
CHAIR SEEKINS announced that without objection, version H was
before the committee.
SENATOR FRENCH asked who the signatories of the MSA are.
MR. KEITH TEEL, Covington and Burlington, Washington, D.C., told
members he represents four of the signatories to the MSA:
Phillip Morris USA, Lorillard Tobacco Company, R. J. Reynolds,
and Brown and Williams. He pointed out those were the only four
original signatories, however, a number of other companies have
signed on to the settlement agreement since then. He said this
legislation would apply to every company that has signed on but
the four original signatories are the companies who would get
sued.
SENATOR FRENCH asked if the bill would limit the amount of the
appeal bond that those companies would have to post if they were
successfully sued in an Alaska court and decided to appeal.
MR. HOVE replied, "Regardless of how you feel about tobacco
companies, every defendant has a right to appeal. As I
understand it, this $25 million would be the limit on these
four."
SENATOR FRENCH commented if Exxon, Conoco Phillips, British
Petroleum, or Pepsi were sued for $1 billion and the plaintiff
won, those companies would have to post the full bond amount to
file an appeal.
MR. HOVE said the tobacco company situation needs to be
considered as extraordinary in light of the [MSA] revenue
streams the state is trying to protect. He stated in this
instance, it is in Alaska's best interest to assist those
companies to make sure the MSA funds are available by limiting
the amount of the bond required.
CHAIR SEEKINS said as he reads SB 307, it only applies to those
monies received as the result of the master settlement
agreement. It does not extend to future judgments and other
types of cases.
SENATOR FRENCH disagreed and referred to Section 1 of the bill,
which he interprets to mean if a tobacco truck is in an accident
with a school bus and the state sues the tobacco company and
gets a $1 billion judgment, the tobacco company would only have
to post $25 million for an appeal bond.
CHAIR SEEKINS said he does not understand how SB 307 would apply
to that scenario unless the state entered into a master
settlement agreement with the tobacco company on the accident.
SENATOR THERRIAULT agreed with Senator French's interpretation
that Section 1 limits the protection of the legislation to those
companies who are signatories to the MSA but it offers
protection under any legal theory, meaning any civil litigation.
He pointed out an exception in subsection (b) allows the judge
to ignore this limit, if convinced by a preponderance of the
evidence that the company is trying to dissipate its assets.
SENATOR FRENCH said he does not disagree with the motive behind
the act, that being to keep these companies healthy long enough
to pay the settlement. The tobacco companies are seeing courts
across the nation award billion dollar settlements and want to
keep the lid on the amount of money tied up in [bonds] while
fighting those cases. He pointed out, however, that some other
states have limited the bond amount to $100 million.
CHAIR SEEKINS maintained that is because their [MSA] judgments
are larger.
SENATOR FRENCH said SB 307 tells any plaintiff in Alaska that if
he gets a big award from a lawsuit against a tobacco company,
the most that company has to post on appeal is $25 million.
CHAIR SEEKINS said that is correct. He repeated the intent is to
protect the money stream coming to Alaska on an annual basis
from the MSA.
MR. TEEL told members SB 307 would apply to any case involving
any signatory to the MSA. He explained:
The reason we set out to look at this really arose
about four years ago. I was asked by the companies to
look at - to kind of be on the watch for things that
could hurt their ability to continue to make their
payments under the Master Settlement Agreement to all
of the states who they owe a lot of money to.
[Indisc.], the truth is, they'd rather live under this
settlement agreement than go back to the days when
they were litigating against all of the states, so
they'd like to be able to honor that commitment to the
states. We ran into some litigation four years ago in
the state of Florida that resulted in a verdict
against the four companies I represent in the amount
of $145 billion - that's billion with a b. In order,
under Florida's laws, to post the appeal bond, we
would have had to come up with $181 billion...if you
take the biggest companies you can think of, I don't
think its strange credulity to say no one can make
that kind of payment. There's just not that kind of
money out there. You can't go out in the commercial
marketplace and buy a bond of that kind. There's just
limits on what you can do and these companies would
have all been bankrupted by that judgment. And that
really would have meant, for reasons I'll explain,
that the states would not have gotten their Master
Settlement Agreement.
Fortunately, we persuaded the Florida Legislature,
probably about two weeks before the verdict in that
case, to pass a bill that in Florida limited the bond
to $100 million.... Probably the largest block of
states that have done this has a $25 million number,
about a nearly equal amount has 50, one has 75, about
five or six have 100, and two states have 150 for
their limit...bigger states in terms of population
have tended to go with bigger numbers. Smaller
population states tended to go with smaller numbers.
At any rate, Florida passed that and the companies
were able to post that reduced appeal and ... last
May, May 2003, the Florida Court of Appeals completely
reversed that judgment and tossed it out in entirety.
Had the companies not been able to get to an appeal
because they could not have posted an appeal bond,
every state would have lost its MSA revenues and
thousands, if not hundreds of thousands, of people
would have been tossed out of jobs, all for a decision
that ultimately, once you got or exercised your right
to appeal, the decision was reversed.
More recently there was a similar case. By the way,
these all tend to be class actions with mega-
judgments. They are class actions and often cases that
result in punitive damages. I'm not aware of a single
case against this industry in any of the four
companies I represent where anybody has ever sought
damages against them for personal injuries where the
compensatory side of the judgment as opposed to the
punitive side exceeded the $25 million limit we now
have before you in this bill. So we think the limit
here is fully covered in virtually every case you can
imagine the compensatory side of things. What really
happens here is the punitive side of things is what
drives these bond amounts up.
At any rate, the only thing I'll tell you about...is
much more recently in the State of Illinois a class
action resulted in a judgment - and this was not a
jury trial, this was a bench trial - a judgment of
$10.1 billion. Under the law of Illinois, the judge
ordered a bond to be posted of $12 billion and Phillip
Morris gave notice to all of the states that it was
facing a difficult situation. It could try to somehow
take its assets and come up with a way to bond that or
it could make its debt-scheduled payment under the
Master Settlement Agreement but it probably didn't
have the assets to do both. And Phillip Morris, by the
way, is the strongest of the four. If Phillip Morris
couldn't do it, the other three certainly couldn't do
it.
What unfolded is really quite extraordinary.
Ultimately, I will tell you, that the state supreme
court entered a special order allowing a somewhat
reduced bond. It's still a huge bond but it reduced
it. But, in the meantime, as they were getting there,
37 state attorneys general filed a brief with the
court saying you really ought to let a lower bond be
posted in this situation. And one of those AGs was the
attorney general of Alaska and I think that brief
[indisc.] a lot for us because it said for Heaven's
sakes, we're talking here about continued receipt of
public money while an appeal goes on. As a result,
ultimately the bond was lowered.
Anyway, what you see here is I think the other states
responding to this. There are now 26 states that have
fully passed legislation allowing a reduced appeal
bond. Some of those have been limited to MSA
signatories, probably about half of them. The other
half are more general in nature and cover everybody.
And you've got another state - just last night Iowa
passed this bill and it's on its way to the Governor's
desk. You've got five additional states that don't
even require an appeal bond but you file notice of
appeal and [indisc.] automatically stayed. So,
ultimately when you look at the picture, you've got 31
states that already allow either no or a limited
appeal bond. This bill would bring Alaska into line
with other states and would do so in a limited way
just to cover, I think, the one group of companies who
has a regular obligation under this settlement
agreement to make payments to the state.
SENATOR THERRIAULT asked if Mr. Teel said this exemption would
apply to the signatories of the MSA in any civil litigation
case.
MR. TEEL said that is correct.
SENATOR THERRIAULT asked if there is any connection between the
$25 million Alaska is receiving from the MSA each year and the
$25 million bond limit in SB 307.
MR. TEEL said the same amount is nothing but coincidence. The
$25 million referred to in SB 307 is the size of a judgment that
a litigant might get against the signatories.
SENATOR THERRIAULT said, "Okay. So what we're really looking out
for here is setting a level that protects the financial
viability of the companies - continued financial viability."
MR. TEEL agreed and said nothing in SB 307 or in any of the
bills passed in other states does anything to change the
substantive law. The legislation protects the signatories in the
sense that it lets them get through their right to appeal but it
does nothing to protect what occurs during the appeals stage.
CHAIR SEEKINS commented this bill does not limit the judgment;
it merely sets the ceiling for the amount of the appeal bond.
MR. TEEL agreed.
8:55 a.m.
CHAIR SEEKINS took public testimony.
MS. EMILY NENON, the Alaska Advocacy Manager for the American
Cancer Society (ACS), told members that the ACS has taken a very
strong position on this issue, which it has repeated around the
country. The ACS believes tobacco companies should be held to
the same standards as other industries and should not receive
special protection from state legislatures. She reminded members
that ultimately the tobacco settlement is a tobacco industry
repayment to the states for damage inflicted. The settlement was
not a windfall for state budgets. The ACS believes it is not the
State of Alaska's job to protect the economic health of an
industry that cost the state over $200 million each year in
health care costs and lost productivity.
MS. NENON gave members the following background on the Illinois
case:
The court in Illinois found tobacco giant Phillip
Morris guilty of defrauding millions of people through
defective marketing practices on light and low-tar
cigarettes. In a very strongly worded opinion, the
court ruled that 'Phillip Morris's practices of
[indisc.] public policy are immoral, unethical,
oppressive and unscrupulous.' Now this is the court
speaking, not the American Cancer Society - I want to
make that clear. The court ruling went even further,
calling Phillip Morris's conduct 'outrageous, both
because Phillip Morris's motive was evil and the act
showed a reckless disregard for the consumer's right.'
Phillip Morris was ordered to pay $10.1 billion in
damages. Phillip Morris decided to appeal the ruling
and according to Illinois law was asked to post a $12
billion bond in order to move forward with the appeal.
But Phillip Morris decided to change the rules in the
middle of the court proceeding by lobbying the
Illinois State Legislature to let them off the hook
and lower the bond amount required for an appeal.
Phillip Morris threatened to file for bankruptcy as a
result of the ruling, claiming they couldn't afford to
post a $12 billion bond as well as make the required
payments to state governments based on the Master
Settlement Agreement.
Now here's where Alaska comes in. As you've already
heard this morning, legislators across the country are
nervous about this threat because many states will be
facing, like us, budget deficits this year and fear
that without tobacco settlement payments they may have
to make tough decisions about large budget cuts.
Now, going back to Illinois for a minute. The Illinois
Legislature, for the record, stood up to Phillip
Morris and declined to rewrite the law on appeals
bonds.
MS. NENON said the ACS believes tobacco companies should be
held to the same standard as every other industry and
should not receive special protection from state
legislatures.
SENATOR OGAN said if the tobacco companies have to post a
series of multi-million dollar cash bonds, they may not be
solvent enough to pay the MSA and other deserving people
who may litigate. In addition, multi-billion dollar
settlements and bonds could hamstring their cash flow. He
asked Ms. Nenon if the ACS feels a different bond limit
amount would be more appropriate.
MS. NENON said absolutely not. The ACS believes those
decisions should be left to the court; the Illinois Court
reduced the appeal bond by half.
TAPE 04-7, SIDE B
SENATOR OGAN asked Ms. Nenon how much personal
responsibility people should take as it is well known that
cigarette smoking is hazardous to one's health.
MS. NENON said that is an entirely different issue.
SENATOR THERRIAULT said across the nation these large
hundred billion dollar judgments have not fared well on
appeal. He said one of the policy calls the legislature is
confronted with is whether the bond requirement is so high
that it truncates the companies' appeal rights. He said the
limit could be set fairly high so that the normal judgments
would be covered, and the court could set the limit aside
if the company is attempting to reorganize to get out from
under the anticipated judgment. He noted while the
committee might want to reconsider the $25 million amount,
the rest of the suggested system seems reasonable to him.
He said everyone should have access to the court.
CHAIR SEEKINS asked Ms. Nenon to describe the final outcome
of the Illinois case.
MS. NENON deferred to Ms. App.
MS. JENNIFER APP, Advocacy Director, American Heart
Association (AHA), Anchorage, said the outcome of the
Illinois case last year was that the bond was reduced from
$12 billion to $6 billion. Phillip Morris was able to post
that bond. She said that case is important in that it shows
that the existing system works. She pointed out that in any
billion-dollar case against any company, the option to
appeal the amount of the bond exists. It is in the
judiciary's area of expertise to set that bond. She
reminded members that bonds exist to make sure that the
defendant who was held liable in the lower court can
actually pay the judgment if engaging in an appeal of that
judgment. That is done to protect the victors in the lower
court and make sure they receive the award the court
decided they are legally entitled to.
CHAIR SEEKINS asked her the final outcome of the case.
MS. APP said she believes the case has not yet been
decided.
MR. TEEL affirmed that is correct. He added the Illinois
Supreme Court reached down and took the case away from the
Illinois Court of Appeals because everyone recognized the
Supreme Court would have to deal with it on the merits. He
believed the briefing schedule would continue for a few
more months.
CHAIR SEEKINS asked Ms. App to continue with her testimony.
MS. APP said the AHA wants to see the remaining 20 percent
of the MSA be used for tobacco education and cessation.
Health organizations have a big interest in the MSA but
despite that interest, the AHA disagrees with SB 307. This
effort was generated by the tobacco industry to protect
itself, not to protect the MSA.
MS. APP told members that according to a Phillips Morris
financial statement, it spends $4.5 billion each year
marketing cigarettes. She suggested Phillip Morris could
cut back its marketing budget and cut political
contributions to accept responsibility for the damage its
product has caused instead of trying to shirk the laws that
govern other businesses. Phillip Morris USA and its parent
company, Altria, are among the wealthiest companies in the
world. Altria has operating income of $16.6 billion while
the income of Phillip Morris is over $5 billion per year.
She said when one looks at the awards that have been
assessed against those companies for decades of deceit, the
numbers are not unreasonable. She said the only thing that
strikes her about this bill is that $25 million is a very
low number when one considers the purpose of the bond to
cover the potential injuries. The Illinois judge found
Phillip Morris's actions so egregious, it ordered the
company to pay $10 billion in class action litigation. She
repeated that a bond of $25 million would not begin to
cover the kind of risk the victor in a lower court would
have to bear during an appeal.
MS. APP said her point is that the courts have unique
expertise and the power within existing court rules to
reduce bonds when necessary. She also questioned why this
issue has arisen in Alaska at this time since she has heard
no rumblings of class action lawsuits. She referred to
subsection (b) on page 2, line 5, and said "dissipating
assets outside the ordinary course of business" is fairly
difficult to prove because the tobacco companies have
fairly complex corporate structures in which they are
always dissipating assets.
9:05 a.m.
MS. PAM LABOLLE, Alaska Chamber of Commerce (ACC), stated
support for SB 307 because the ACC feels it is important
that everyone have the right to an appeal in the judicial
process. She said that $25 million is a lot of money to
most of the businesses she is aware of and is a reasonable
amount.
SENATOR THERRIAULT pointed out that although $25 million is
a significant amount to the businesses associated with the
Chamber, SB 307 only applies to the large multi-national
corporations. He believes it is reasonable to consider an
amount other than $25 million. He stated:
The thing that should shape the multi-nationals'
actions as far as how much they put into
marketing should be the judgments that they
actually pay, not the bonds that they have to
post just to get access to the judicial system,
so that's what's troubling to me here on the
argument that we should do nothing. I agree, as
they suffer the impact of actual judgments that
should shape their business practices, not what
they have to pay to get through the courthouse
doors.
MS. LABOLLE said her main point was that they should not
have to pay extraordinary amounts to get access to the
judicial process.
SENATOR OGAN maintained that one corporate strategy is the
time-value of money and, although he believes the size of
the judgments are outrageous, the corporate attorneys will
wait the plaintiffs out. He noted that many participants in
the Exxon Valdez case have died while the case has been
held up. He cautioned if the bar is set too low, the
defendant will play the time-value of money game. He said
he wants to be able to represent the "little guy" but
doesn't want to bankrupt these companies so that no one
gets paid.
MS. LABOLLE agreed that is the policy call the legislature
must make. She said it is not unheard of that wealthy
corporations end up bankrupt. She noted the income stream
from the MSA for the next 20 years is significant for many
states and needs to be considered.
SENATOR SEEKINS asked what county in Illinois the lawsuit
was brought in.
MR. TEEL said it was brought in Madison County, Illinois,
which is the county that is giving the entire Illinois
judiciary a black eye. It has more class action lawsuits
filed on a per capita basis than any other county in the
United States, the reason being the judges frequently try
the cases themselves and the [settlements] are large. He
said a lot of organizations are very concerned about that
particular county.
CHAIR SEEKINS said it is his understanding that Madison
County is a haven for class action lawsuits in the United
States.
MR. TEEL said a large enough number of class action
lawsuits get filed there so that one has to scratch his
head and wonder what the particular nexus is to that
county.
SENATOR FRENCH asked Mr. Teel to provide the committee with
a list of all of the legitimate affiliates of the
signatories so that committee members can see whom this
bill will affect.
MR. TEEL agreed to do so.
SENATOR ELLIS asked Ms. LaBolle if she polled her members
and they support a change to Alaska statute to give the
signatories to the MSA a benefit that Alaskan companies
would not enjoy.
MS. LABOLLE said she did not say that. She explained that
the Chamber has a policy committee that works on issues and
the Chamber's general guiding principles of business and
the fairness of the judicial process determine which pieces
of legislation fit.
SENATOR ELLIS said he is interested in what the Chamber's
membership thinks of this legislation because he cannot
believe its members would support giving a benefit to
outside companies that they do not enjoy. He asked her to
consider posing that question to her members.
MS. LABOLLE said to require a business to pay an
extraordinary amount of money to be able to have access to
an appeal is something she believes her membership would
find unacceptable.
CHAIR SEEKINS said he would accept that Ms. LaBolle can
testify to the position of the Alaska Chamber of Commerce
without having to present the committee with the results of
a poll of her membership. He noted as a member of the
Chamber, Ms. LaBolle has taken positions that he has not
agreed with but that is within her purview, given her
understanding of the Chamber.
MS. LABOLLE thanked the chair and said bringing the poll
results would be as difficult as expecting legislators to
poll their constituents on every decision before them.
SENATOR THERRIAULT clarified that the benefit that springs
from SB 307 is access to the judicial system. It does not
limit the liability of the companies.
CHAIR SEEKINS agreed. He said he personally has no sympathy
for the tobacco industry and he finds it hard to understand
why people use tobacco products. However, he believes the
legislature has the responsibility of providing guidance to
the courts regarding access. He agreed with Ms. App that no
case is pending in Alaska that would affect this limitation
and he agrees with Senator Therriault that the committee
should discuss the amount of the bond limit if such a case
should arise.
9:20 a.m.
SENATOR OGAN noted a benefit to the tobacco companies is
that SB 307 will make it easier to appeal a case and it
will be to their advantage to do so. He said in some cases,
a tobacco company might not appeal if the settlement is not
egregious and the bond amount is high. However, he does not
want to prevent people and the states from getting the
money they deserve so he will be wrestling with this issue.
MR. BOB EVANS, lobbyist for Altria, the parent company of
Phillip Morris USA, asked to respond to some of the
previous comments made. First, regarding the statement that
SB 307 treats the four tobacco companies differently, he
maintained the [MSA] was an extraordinary event in the
American judicial system that involves a $200 billion plus
[settlement] that involves 45 states. Different treatment
is necessary to ensure the flow of the settlement income to
those states. There is no other example of such a large
judgment in American history. Regarding an earlier question
about whether SB 307 would affect a case involving a
Phillip Morris truck and a school bus, he said none of the
participating companies have one employee in Alaska; they
use independent distributors.
SENATOR THERRIAULT said his family is a big consumer of
Kraft macaroni and cheese and asked if those products are
sold using independent distributors.
MR. EVANS said he believes they are.
CHAIR SEEKINS said with no further testimony, he would hold
the bill in committee. He said although he believes a
healthy business climate benefits everyone, he is not sure
the tobacco industry is part of that but he is willing to
listen to their testimony. He then adjourned the meeting at
9:26 a.m.
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