Legislature(1997 - 1998)
02/10/1998 01:32 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SENATE LABOR AND COMMERCE COMMITTEE February 10, 1998 1:32 p.m. MEMBERS PRESENT Senator Loren Leman, Chairman Senator Jerry Mackie, Vice Chairman Senator Tim Kelly Senator Mike Miller Senator Lyman Hoffman MEMBERS ABSENT All members present COMMITTEE CALENDAR SENATE BILL NO. 235 "An Act extending the termination date of the Board of Certified Real Estate Appraisers." - MOVED SB 235 OUT OF COMMITTEE SENATE BILL NO. 198 "An Act relating to partnerships; amending Rules 25(c), 79, and 82, Alaska Rules of Civil Procedure; and providing for an effective date." - HEARD AND HELD SENATE BILL NO. 254 "An Act relating to levy, execution, garnishment, attachment, or other remedy for the collection of debt as applied to a permanent fund dividend." - MOVED CSSB 254 (L&C) OUT OF COMMITTEE PREVIOUS SENATE COMMITTEE ACTION SB 235 - See Labor and Commerce Committee minutes dated 1/27/98. SB 198 - No previous action to consider. SB 254 - See Labor and Commerce minutes dated 1/29/98 and 2/5/98. WITNESS REGISTER Mr. Art Peterson, Commissioner Uniform Law Commission 350 North Franklin Juneau, AK 99801 POSITION STATEMENT: Supported SB 198. Mr. John McCabe, Legal Counsel National Conference of Commissioners and Uniform State Laws Chicago, IL (312) 915-0195 POSITION STATEMENT: Commented on SB 198. Mr. Willis Kirkpatrick, Director Division of Banking, Securities and Corporations Department of Commerce and Economic Development P.O. Box 110807 Juneau, AK 99811-0907 POSITION STATEMENT: Supported SB 198 with changes. Mr. Mike Monagle, Supervisor Records and Licensing Division of Banking, Securities and Corporations Department of Commerce and Economic Development P.O. Box 110807 Juneau, AK 99811-0907 POSITION STATEMENT: Supported SB 198 with changes. Ms. Nanci Jones, Director Permanent Fund Division P.O. Box 110460 Juneau, AK 99811-0460 POSITION STATEMENT: Supported SB 254. Mr. Vince Usera, Assistant Attorney General Department of Law P.O. Box 110300 Juneau, AK 99811-0300 POSITION STATEMENT: Commented on SB 254. ACTION NARRATIVE TAPE 98-7, SIDE A Number 001 SB 235 - BOARD OF CERTIFIED REAL ESTATE APPRAISERS CHAIRMAN LEMAN called the Senate Labor and Commerce Committee meeting to order at 1:35 p.m. and announced SB 235 to be up for consideration. SENATOR MILLER moved SB 235 with individual recommendations and, without objection the bill moved from committee. SB 198 - UNIFORM PARTNERSHIP ACT CHAIRMAN LEMAN announced SB 198 as the next order of business and Art Peterson, Uniform Law Commissioner, to explain the bill. MR. ART PETERSON, Uniform Law Commissioner, supported SB 198 and said that Alaska is currently operating on the 1914 version of the Uniform Partnership Act. MR. PETERSON said the major portion of the bill deals with the 1994 revision by the Uniform Laws Conference. He described the limited liability portion of the bill, saying it was incorporated into the Uniform Partnership Act in 1996. Eighteen states have already enacted this revision; thirteen included the limited liability provisions. He said Alaska has already enacted some provisions relating to limited liability that would be superseded by this bill. MR. PETERSON said the bill contains 36 (of 42) pages devoted to this 80-year-old Act. He said the other six pages cover the limited liability issue. He cited one of the key elements of the bulk of this revision as changing the concept of a partnership. The old version stressed collective individuals, while the new version focuses on partnership as an entity, which has numerous ramifications. MR. PETERSON assured the committee this bill will not interfere with other concepts of partnership that currently exist in statute. MR. PETERSON concluded the committee could be comfortable in the knowledge that this is dealing strictly with partnerships and limited liability partnerships. This bill does not deal with any other variety of business entity. He said if we do not update our laws, Alaska will be severely disadvantaged in business. He explained there were a few "polishing" changes that might need to be dealt with before the bill moves from committee. He said these changes are minor and include numbering differently, which would be done to maintain consistency within the Alaska Statutes and simplicity for interstate use. He said we would achieve a double benefit by having both the substance and format uniform in style with other states. He offered his help with any further work on this piece of legislation. MR. JOHN MCCABE, legal counsel for the National Conference of Commissioners and Uniform State Laws, testified via teleconference from Chicago. CHAIRMAN LEMAN asked if case law should be addressed when adopting an entirely new title. MR. MCCABE replied that states have been acting under de facto uniformity of law for the past 50 years and case law is virtually interchangeable from state to state. He said this Act is a distillation of the experience of other states dealing with partnership. MR. PETERSON said The Act will be easily adaptable to Alaska case law. He concluded the Uniform Act revision is both conservative and evolutionary, maintaining the same concept of a partnership organization yet enhancing it's utility. He stated this would not jeopardize case law in Alaska. Number 302 CHAIRMAN LEMAN asked if the apportionment of fault previously established in tort law would be inconsistent with this Act. MR. PETERSON responded that it may be necessary to amend one portion of the bill to recognize the existing statute. MR. MCCABE said he thought this was an apples and oranges situation. The real question is how damages are determined in a personal injury action. He does not believe this Act would change nor conflict with any law regarding apportionment of fault or liability of a partnership. He illustrated this with an example showing how liability might be apportioned in a personal injury lawsuit against a partnership. He concluded that they are dealing with something different. MR. PETERSON asked how the revised Act's emphasis on partnership as an entity would affect how the partners' liability interacts. MR. MCCABE said the Act requires the assets of the partnership be first in line to satisfy a judgement. These assets must be exhausted before other assets could be sought. He said this is the basic difference between the 1914 and 1996 Acts. MR. MCCABE said a partner who pays a judgement in larger proportion than his contribution to the partnership has the ability to seek contribution from other partners. MR. PETERSON asked if it would be necessary to amend section 306 (a) and MR. MCCABE replied it would not be necessary and might only confuse the issue. MR. MCCABE said 306 (a) is a very important part of the legislation and could have critical impact on the nature of partnerships in general and he cautioned that great care be taken in any change. CHAIRMAN LEMAN thanked MR. MCCABE for his input and said that details would be worked out while the bill is held in committee. MR. MCCABE concluded that most of the changes proposed in this bill stem from a change in the status of partners from an aggregate of individuals to an entity and how that affects the nature of the organization, the relationships between members, liabilities to third persons, distribution of profits and losses, and the termination of the entity. One of the relationships between partners is fiduciary obligations in section 404. Others are information rights (403) and (303) statement of authority. There have always been things like fiduciary obligations within partnerships and they have largely been common law in character. The default rule in this act is that every partner is an agent for the partnership, but there is the ability to limit the agency authority of partners. That is done by filing a statement of authority. This can be done more consistently when you have entities than when you have an aggregate. This is very important for things like real estate transactions. One of the problems with the former aggregate notion is that every partner not only has partnership interests, but also specific interests in partnership property and because of that characteristic, it was very hard to finance real estate transactions. Because of the new entity status a partner only has his partnership interest; he does not have a specific interest in any specific property and has a right to distributions under the partnership. A personal property interest becomes subject to a partner's own specific creditors for his specific interest. This act provides for a kind of attachment procedure called the charging order which allow a partner's creditors to be able to get access to his share of the interest without upsetting the partnership as an entity. MR. MCCABE said he hoped to give the Committee an overview of the advances in this legislation which are very important in terms of doing business in the current business environment. There are things this bill does that were not done under the old 1914 act like the conversion and merger provisions. There is an integrated limited liability partnership consistent with RUPA. The most important part about that is that it's a full liability shield. The partnership entity has the liability and all of the vicarious liability is essentially gone. MR. WILLIS KIRKPATRICK, Director, Division of Banking, Securities and Corporations, introduced Mr. Mike Monagle, Corporation Supervisor, who would offer suggestions, not on the substance of the bill, but on consistencies and efficiencies with their Division's operation. MR. MONAGLE, Records and Licensing Supervisor, said he was focusing on the filing provisions. In 1996 the Legislature added Article 6 to the Partnership Act which created limited liability partnerships. Article 9 (in particular starting on page 31) and the uniform provisions, are not consistent with the original Article 6 of the Liability Partnership Act. It lacks provisions for what to do if a name is filed that's the same as one on file already. He believed most of the filing provisions could be taken from the existing LLP Section, Article 6, and be incorporated in this bill. It would not change the substance of the bill at all, but would make it more consistent with current filing practices. Fiscal impacts of statements of authority, denial, disassociation, dissolution for general partnerships to the agency are unknown. According to business license records right now there are over 9,500 general partnerships with business licenses. Since the partnership provision was added a year ago they have had less than 100 LLPs filed, so they didn't feel it appropriate to put in a fiscal note with any impact. With 9,500 entities out there it's hard to predict the impact the bill might have, if the entities all decide on the same day to file. There would obviously have to be some data base to track the statements and a record capture and retention system to store and retrieve documents as they are filed. CHAIRMAN LEMAN asked if they could all work together and resolve the details. MR. PETERSON said he thought the changes suggested by Mr. Monagle should work very well. SENATOR KELLY said that they had been trusting Mr. Peterson for years on these types of bills dealing with Uniform Laws and he had never had any of them bounce back. CHAIRMAN LEMAN closed the public hearing and said he intended to bring this back up on Tuesday after some further work and report it then. SB 254 - LEVY ON PERMANENT FUND DIVIDEND CHAIRMAN LEMAN announced SB 254 to be up for consideration. He said the Committee amended it last time over his objection to reduce the amounts available to go to creditors from 100 percent down to 70 percent and approved a conceptual amendment that dealt with the garnishment fee. TAPE 98-5, SIDE B He said attorneys had drafted a memo explaining the problems of equal protection if the fee is applied only to some claimants and not to others. The committee substitute had been drafted to be consistent with equal protection which might not be consistent with Senator Kelly's intent when he made the motion. SENATOR MACKIE moved to adopt the CSSB 254 71-b-Cooke 2/7/98. There were no objections and it was so ordered. SENATOR MACKIE asked if there was just a flat five percent fee across the board. CHAIRMAN LEMAN nodded yes. SENATOR KELLY said as he understands it when a dividend check is attached they have to send a certified letter to the person with a return receipt to the person who made the application. MS. NANCI JONES, Director, Permanent Fund Division, said they sent letters. SENATOR KELLY said he thought the $2 fee was outrageously low and that the State was not covering the cost of postage on the 20 percent of Permanent Fund checks that are being garnished. MS. JONES explained that not all letters are certified, just in certain circumstances. If they are sending batch letters, they use electronic tape. Sometimes they use certified postage when sending correspondence to remote areas to make sure the person actually gets it. For the most part they use the cheapest mail rate possible which is the bulk rate. SENATOR KELLY asked if they have to notify the applicant that the check is being garnished. MS. USERA said they do notify individuals in a separate letter. SENATOR KELLY asked her to explain existing language that says, "Upon receipt of a writ by certified mail, return receipt requested, the Commissioner shall deliver that portion of a dividend executed upon to the court along with the case and number." MR. VINCE USERA, Assistant Attorney General, answered that his impression is that the requirement for certified mail is on a request coming into the Commissioner for garnishment of the PFD. The requirement for notification of the individual whose check is being garnished is not necessarily by that same means. SENATOR MACKIE said his concern with the five percent across the board is that amount of money is not very much to any one individual, but is a lot collectively. He appreciated the amendment that was made to try and recover some of the costs. He questioned Ms. Jones about her department's ability to investigate fraudulent applications. MS. JONES answered that they have an investigative unit which investigates all reported fraud tips. They don't have the means to do any statistical analysis. Number 500 SENATOR MACKIE asked if they were able to handle investigating all their tips. MS. JONES said they were so far able to handle all of them. Administratively they go after the fraud and assess the person and start collection procedures. As far as criminal activity, they don't have priority because of the small amounts of money involved. Probably 95 percent of their cases are from tips; the others are from inside computer edits. SENATOR MACKIE asked if they were not getting cooperation from the courts in actually prosecuting people who have illegally received PFD checks. MS. JONES replied that was right because the dollar amount involved is usually not big enough. There is the occasional case for $20,000 or some sophisticated fraud. SENATOR MACKIE said to him it's theft from the people and the State. He said they prosecute people for a lot less than stealing $1,300. MS. JONES said the district attorney's dockets are full and other crimes like homicide take precedent. SENATOR MACKIE asked her to send him a letter detailing her frustrations in this area. CHAIRMAN LEMAN said he would like to see a few high profile cases advertised (in the news media) as a deterrent. SENATOR MACKIE said he also thought it was incumbent upon the legislature to provide them the resources to do that, too. SENATOR LEMAN asked if there was a reward for the tipsters. MS. JONES replied that there was no reward, just anonymity. SENATOR MACKIE asked if she would include in her letter other ways they could add to their information on fraudulent activities. MS. JONES said they have been working with the Social Security Administration to try and track valid social security numbers. They started out with 10,000 incorrect social security numbers. That number is now down to 1,200 which they are scrutinizing very carefully. In a great number of cases it was a mistake and the IRS had given them incorrect information, also. MS. JONES asked if it was possible in section 3 to mention that the five percent would actually be deposited to the Dividend Fund, because now any unused money that is collected as the fee is put in the pot and makes all of our dividends larger. This proposal siphons it off into the general fund. So they actually lose money with this bill even though what they currently get doesn't cover their costs. SENATOR MAKCIE asked what existing statute said about the $2. MS. JONES explained that it is a program receipt and it's nonexistant until it is collected. Now she has to estimate how much in fees she will collect and that amount is appropriated to them. If she doesn't pick up that amount, she doesn't get to use that money. Number 355 SENATOR KELLY said he was looking for a way to cover all agencies costs, not just the Permanent Fund. He didn't mind them continuing to receive the $2 fee per claim. SENATOR KELLY asked if their operating money came from the general fund or was it special Permanent Fund money. MS. JONES replied that it's Permanent Fund money. Everything goes back to the Fund and is recalculated. She asked how they wanted to deposit the fee. SENATOR MACKIE said he thought it would be through program receipts. SENATOR KELLY asked if the Division supported the bill. MS. JONES said yes. SENATOR MACKIE moved to pass CSSB 254 L&C from Committee with individual recommendations. There were no objections and it was so ordered. CHAIRMAN LEMAN thanked everyone for their testimony and adjourned the meeting at 2:47 p.m.