Legislature(1997 - 1998)

02/10/1998 01:32 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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                
     - 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                
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                   
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              
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            
             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             
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                    
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             
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                     
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            
CHAIRMAN LEMAN thanked everyone for their testimony and adjourned              
the meeting at 2:47 p.m.                                                       

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