SB 76-REAL ESTATE BROKERS; LIABILITY  2:32:19 PM CHAIR COSTELLO reconvened the meeting and announced the consideration of SB 76. "An Act relating to private actions and remedies against real estate licensees for licensee relationships, disclosures, and activity before January 1, 2005; and providing for an effective date." 2:32:45 PM GENEVIEVE WOJTUSIK, Staff, Senator Lesil McGuire, introduced SB 76 speaking to the following sponsor statement: [Original punctuation provided.] Under AS 08.88.396, a real estate licensee acting before January 1, 2005 was authorized to act as both a buyer's and a seller's representative, but only after the licensee informed both the buyer and the seller of his or her dual agency and obtained written consent from both. The statute, as originally enacted, did not specify remedies if a real estate licensee (or agent) violated its provisions. In 2003, the Alaska Legislature acted to correct the remedies-omission. The Legislature was concerned that without specifying its intent with respect to appropriate remedies in the case of a violation, a court might feel compelled to impose the potentially business-ending remedy of forfeiture of real-estate sales commissions. The Legislature was particularly concerned that this could occur in cases even where the plaintiffs had suffered no actual damages. In order to address this concern, the Legislature enacted House Bill 257, legislation that fixed this ambiguity by retroactively limiting the remedy for violations of AS 08.88.396 to actual damages. [House Bill] 257 passed the Legislature, was signed into law and has been found constitutional by the Alaska Supreme Court. Despite the enactment of House Bill 257, and despite the Alaska Supreme Court's determination that the law is constitutional, questions have arisen regarding the Legislature's intent in amending AS 08.88.396. Senate Bill 76 is intended to make clear the Legislature's intent when it amended AS 08.88.396 in 2003 by specifying and clarifying that the "actual damages" limitation of the 2003 amendment applies to all claims that are based upon or arise out of allegations of violations of AS 08.88.396. The clarification is necessarily retroactive because the Legislature enacted House Bill 29 in 2004 which, among other things, specified that AS 08.88.396 ceased to apply to real estate transactions as of January 1, 2005; and the Legislature desires to ensure that any claims pre-dating the 2005 effective date of House Bill 29 are appropriately subject to the intent of its 2003 enactment of House Bill 257. The retroactivity of the bill is constitutional, as provided in both U.S. Supreme Court and Alaska Supreme Court decisions.1 This bill preserves the right of purchasers of real estate to seek redress for actual damages under AS 08.88.396 while ensuring that the Legislature's intent that only actual damages be awarded is recognized by courts hearing cases arising within the relevant time periods. 2:35:45 PM JEFFREY PICKETT, Staff Counsel to the Senate Judiciary Committee, Anchorage, Alaska, proved the following sectional analysis: Section 1 amends the wording of AS 08.88.396(e) which, for real estate transactions that occurred before January 1, 2005, limits civil litigation and other remedies for the failure of a real estate licensee to comply with certain requirements concerning relationships with and disclosures to buyers and sellers. Section 2 provides that the bill applies to a real estate transaction that occurred on or before the bill's effective date, and to a court action related to such a transaction pending on the effective date of bill. Section 3 makes sec. 1 of the bill retroactive to January 1, 1991. Section 4 makes the bill effective immediately. 2:37:20 PM SENATOR MEYER joined the committee. SENATOR GIESSEL asked if it's possible to make a law retroactive if there's an ongoing case. MR. PICKETT explained that there is case law that says a law may be retroactive in a pending case so long as there is not a final judgment. The U.S. Supreme Court has found that this does not violate the separation of powers, and that type of action has been found constitutional. SENATOR GIESSEL asked if there have been any cases that this bill would impact. MR. PICKETT answered yes; there's a case from 2002. In 2003 the legislature amended the statute to limit any remedy to actual damages. The litigants continued their motion practice and in 2005 Judge Hensley ruled that the amendment to AS 08.88.396 was a constitutional amendment and it limited remedies only to actual damages. In 2007 another judge affirmed Judge Hensley's 2005 finding. In 2010 another judge followed the theory that says there is a common law duty among real estate licensees to disclose if they're acting in a dual role. Because it is common law duty and not statutory duty, the remedy of forfeiture is available. SB 76 clarifies that the remedy of forfeiture is not available to any action arising out of a failure to disclose dual agency. 2:41:23 PM CHAIR COSTELLO asked what is at stake and what the bill seeks to resolve. MR. PICKETT explained that the issue is what penalties might be imposed on a real estate licensee who did not disclose that he/she was acting in a dual capacity. His understanding is that prior to 2002, real estate licensees didn't comply with the requirement to disclose because there wasn't a penalty for not doing so. He surmised that there were a lot of back-dated disclosures following the lawsuit. The purpose was to provide the required notice and, in situations where nobody was harmed by the failure to disclose, to remove the threat of forfeiture of commissions. CHAIR COSTELLO asked if part of the vagary is that the law neglected to say when the disclosure had to occur. MR. PICKETT said he didn't know what the timing requirements were in 2002. 2:44:08 PM CHAIR COSTELLO asked what significance it has to change the language on page 1, line 6, striking the term "for" and replacing it with "arising out of." MR. PICKETT replied the term "arising out of" has a much broader meaning so any claim arising out of a failure to disclose dual agency now would come within the remedy restriction of actual damages. CHAIR COSTELLO questioned how this legislation clarifies the intent of the legislature when the courts have been unable to do so. MR. PICKETT opined that the "arising out of" language is broad enough to encompass common law claims. He acknowledged that it would ultimately be decided by a judge. CHAIR COSTELLO commented on the court reviewing the public record to determine the intent of the legislature. SENATOR ELLIS suggested the committee hear from Mr. Howard Trickey who could provide the history of the matter in layman's terms. CHAIR COSTELLO opened public testimony. 2:48:09 PM HOWARD S. TRICKEY, Attorney, related that he testified in 2003 about why it was necessary for the real estate industry to limit damages for the statutory violation to actual damages. At the time the industry was potentially exposed to $70 million for forfeiture and disgorgement of all commissions that may have been earned over a three-year period by people in the industry who were involved in dual-agency transactions. The law permitted dual agency transactions once there was a disclosure and written consent was obtained. The industry practice at the time was to make the written and oral disclosures at the time the properties were being showed to a potential buyer. There were written disclosure forms that disclosed "I'm an agent for the seller" or "I'm an agent for this buyer" and then written consents were obtained both from the buyer and the seller. It was a buyer's market so when someone showed up at a residence that was being shown by a listing agent, offers were often made on the spot. He said he's always characterized the violation that's asserted in the lawsuit as a technical timing violation. The industry made the disclosures and obtained the written consents, but there was confusion because the statute did not specify the timing for making those disclosures. That technical timing violation was exploited in the lawsuit and the threat to the industry was forfeiture of all commissions earned. It was a no harm no foul situation but aggregating claims through a class action creates a bet the farm type of case that puts the entire business at risk. The claim that's being asserted is for $30 million, which is what led the legislature in 2003 to limit the remedy to actual damages. MR. TRICKEY said this matter is before this committee again because a judge who didn't like the statute came up with a creative decision that allows the use of the statutory violations to support the remedy of a breach of a common law duty. The proof is based on identifying the problems that the legislature originally addressed in House Bill 257, which simply had to do with the timing of the written disclosures and the timing of obtaining the written consent. SB 76 seeks to bring the needed clarification. He explained that the reason for using the term "arising out of" is that it's broader than the original statute but it's broad only in limiting remedies for the violation of the statute to actual damages. It doesn't take away any other existing claim. This remedy for violating the statue is actual damages. Addressing Senator Giessel's question, he explained that it's constitutional because there is no contractual right to the remedy of punitive damages or to the remedy of forfeiture. There isn't any vested right because there is no final judgment in the case. When the legislature first passed tort reform and capped punitive damages, there were pending lawsuits that applied. The Alaska Supreme Court ruled that it was not an improper and unconstitutional retroactive application because no one had a judgement entitling them to damages. It's a matter of public policy for the legislature not the courts because it's a penalty, not a remedy for actual damages that someone has suffered. The industry supports the legislation. 2:56:26 PM CHAIR COSTELLO asked if he's testifying as a representative of the defendants or as a member of the public. MR. TRICKEY confirmed he is being paid to address the issues as part of the representation he undertook years ago. 2:57:02 PM ERROL CHAMPION, Chair, Legislative Issues Committee, Alaska Association of Realtors (AAR), stated support for SB 76 and noted that he submitted a letter stating the reasons. CHAIR COSTELLO announced that she would hold SB 76 in committee and public testimony would remain open.