HOUSE JUDICIARY STANDING COMMITTEE March 16, 1994 1:15 p.m. MEMBERS PRESENT Rep. Brian Porter, Chairman Rep. Jeannette James, Co-Chair Rep. Pete Kott Rep. Joe Green Rep. Gail Phillips Rep. Cliff Davidson Rep. Jim Nordlund MEMBERS ABSENT None COMMITTEE CALENDAR HB 376: "An Act relating to services for and protection of vulnerable adults; and providing for an effective date." HEARD AND HELD IN COMMITTEE *HB 517: "An Act relating to innocent misrepresentations by agents in real property transfers." CS MOVED OUT OF COMMITTEE HB 472: "An Act relating to referrals involving dental services." NOT HEARD *HB 314: "An Act relating to the jurisdiction of the ombudsman; and providing for an effective date." NOT HEARD (* First public hearing.) WITNESS REGISTER CONNIE SIPE, Executive Director Division of Senior Services Department of Administration P.O. Box 110209 Juneau, AK 99811-0209 465-3250 Position Statement: Testified in support of HB 376 PATRICIA DENNY, Executive Director Older Alaskans Commission Department of Administration P.O. Box 110208 Juneau, AK 99811-0208 465-3250 Position Statement: Testified in support of HB 376 JUDY MATHIS, Legislative Assistant Representative Ron Larson Alaska State Legislature State Capitol Juneau, AK 99801-1182 465-3878 Position Statement: Testified in support of HB 517 GORDON SCHADT Attorney at Law 3201 C Street Anchorage, AK 99503 561-2022 Position Statement: Testified in support of HB 517 DAVE FEEKEN 100 Trading Bay Dr., Suite 6 Kenai, AK 99611 283-5888 Position Statement: Supported HB 516 (Spoke via teleconference) CRAIG JOHNSON Kodiak Board of Realtors 218 Center St., Suite 200 Kodiak, AK 99615 486-2000 Position Statement: Testified in support of HB 517 (Spoke via teleconference) FRANK MICHEL 4901 E. Parks Highway Wasilla, AK 99654 376-3842 Position Statement: Testified in support of HB 517 (Spoke via teleconference) GREG ERIKINS address not provided 562-3383 Position Statement: Supported HB 517 (Spoke via offnet) GLEN RYERSON Ryerson Realty 1901 Renshaw Way Juneau, AK 99801 789-6712 Position Statement: Testified in support of HB 517 PREVIOUS ACTION BILL: HB 376 SHORT TITLE: ASSIST & PROTECT VULNERABLE ADULTS SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR JRN-DATE JRN-PG ACTION 01/14/94 2066 (H) READ THE FIRST TIME/REFERRAL(S) 01/14/94 2066 (H) HES, JUDICIARY, FINANCE 01/14/94 2067 (H) -4 FNS (3-DHSS, ADM) 1/14/94 01/14/94 2067 (H) -ZERO FISCAL NOTE (ADM) 1/14/94 01/14/94 2067 (H) GOVERNOR'S TRANSMITTAL LETTER 02/09/94 (H) HES AT 03:00 PM CAPITOL 106 02/09/94 (H) MINUTE(HES) 02/09/94 (H) MINUTE(HES) 02/11/94 2341 (H) HES RPT 4DP 3NR 1AM 02/11/94 2341 (H) DP: BUNDE, TOOHEY, B.DAVIS, NICHOLIA 02/11/94 2341 (H) NR: KOTT, G.DAVIS, OLBERG 02/11/94 2341 (H) AM: VEZEY 02/11/94 2342 (H) -ZERO FISCAL NOTE (DPS) 2/11/94 02/11/94 2342 (H) -4 PREVIOUS FNS (ADM, 3-DHSS) 1/14/94 02/11/94 2342 (H) -PREVIOUS ZERO FISCAL NOTE (ADM) 1/14/94 03/11/94 (H) JUD AT 01:00 PM CAPITOL 120 03/11/94 (H) MINUTE(JUD) 03/14/94 (H) MINUTE(JUD) BILL: HB 517 SHORT TITLE: REAL PROPERTY TRANSFERS SPONSOR(S): FINANCE JRN-DATE JRN-PG ACTION 03/04/94 2608 (H) READ THE FIRST TIME/REFERRAL(S) 03/04/94 2608 (H) JUDICIARY 03/16/94 (H) JUD AT 01:15 PM CAPITOL 120 BILL: HB 472 SHORT TITLE: REFERRALS INVOLVING DENTAL SERVICES SPONSOR(S): REPRESENTATIVE(S) G.DAVIS BY REQUEST JRN-DATE JRN-PG ACTION 02/14/94 2375 (H) READ THE FIRST TIME/REFERRAL(S) 02/14/94 2375 (H) HES, JUDICIARY 03/01/94 (H) HES AT 03:00 PM CAPITOL 106 03/01/94 (H) MINUTE(HES) 03/02/94 2575 (H) HES RPT 3DP 3NR 03/02/94 2576 (H) DP: KOTT, VEZEY, TOOHEY 03/02/94 2576 (H) NR: NICHOLIA, BUNDE, OLBERG 03/02/94 2576 (H) -ZERO FISCAL NOTE (DCED) 3/2/94 03/16/94 (H) JUD AT 01:15 PM CAPITOL 120 BILL: HB 314 SHORT TITLE: OMBUDSMAN'S JURISDICTION: AGENCY ACTIONS SPONSOR(S): REPRESENTATIVE(S) PHILLIPS,BARNES,Sanders JRN-DATE JRN-PG ACTION 01/03/94 2009 (H) PREFILE RELEASED 01/10/94 2009 (H) READ THE FIRST TIME/REFERRAL(S) 01/10/94 2009 (H) JUDICIARY 01/12/94 2042 (H) COSPONSOR(S): SANDERS 03/16/94 (H) JUD AT 01:15 PM CAPITOL 120 ACTION NARRATIVE TAPE 94-43, SIDE A Number 000 The House Judiciary Standing Committee was called to order at 1.25 p.m. on Wednesday, March 16, 1994. A quorum was present. Chairman Porter announced that the committee would be hearing HB 376, HB 472, and HB 517. HB 376 - ASSIST & PROTECT VULNERABLE ADULTS CONNIE SIPE, Executive Director of the Division of Senior Services, Department of Administration, testified that this legislation is a bill that has been worked through inter-agency as part of the Governor's package of reform bills. Currently, we have an elder abuse reporting law and a mandatory reporting requirement for abuse of adults. House Bill 376 essentially combines them into one statutory section as an act protecting vulnerable adults. She further stated that the bill would allow the department to make more of a distinction between those who can take care of themselves and those who need the intervention of the state. It would also streamline abuse reporting and reduce the duplication of state agencies who have had the jurisdiction to investigate abuse, especially in the nursing home, or a facility situation where we would have Family and Youth Services, the Nursing Home Certification Licensing people, and the long-term care ombudsman all having jurisdiction and all investigating the same incident of abuse. Ms. Sipe indicated that 38 percent of the reports of abuse are actually requests for services from someone and this legislation would consolidate those requests. This legislation would allow the department to handle a case to criminal authorities for prosecution despite a request to have the case dropped by a relative or nonvulnerable adult. MS. SIPE stated that amendments to the state's confidentiality law incorporated in the bill would allow agencies to share certain information, on a need to know basis, with the reporter of the abuse. Also, this bill adds a section on surrogate decision makers. This would allow for a circumstance where a person appears to be incapable of making decisions, which would qualify them eventually for a guardianship, or they're temporarily unable to consent, temporarily, to protective services. This would allow a decision to be made for them, especially in an emergency situation. She stated that it was only meant to be used for certain limited situations. MS. SIPE further stated HB 376 incorporated provisions that would spell out how the division could petition the court to carry out adult protective services when the case may arise. She indicated that major changes in HB 376 are in the definition section. The definition of abuse was redefined to focus on intentional or reckless abuse. Next, the definition of neglect was now defined to focus on intentional failure to provide care. It can't be interpreted as just an inability to provide care. Additionally, a new definition of "exploitation" is created which includes exploitation against a person as well as resources. PATRICIA DENNY, Executive Director of the Older Alaskans Commission, Department of Administration, testified in support of HB 376. She further testified that the Older Alaskans Commission has been in support of this type of legislation for several years and she felt this was a new opportunity for services not covered in existing or previous law. REP. GREEN asked to explain the fiscal notes. MS. SIPE responded that the Division of Family and Youth Services was handling the caseload now and the function has never been funded, thus the fiscal notes would address this issue. Further, Ms. Sipe indicated that training would be provided with funds in the fiscal note. What the fiscal note shows is that all the resources in Family and Youth Services for adult protective services are going to be transferred to the Division of Senior Services. So there is no new funding. REP. JAMES responded that the fiscal notes do not reflect that there are no increases or decreases in funding. MS. SIPE responded that what she has in her packet was a fiscal note from the Division of Senior Services which shows a total fiscal note cost in FY 95 of $559,600 and five full-time positions. Then, there should be a zero fiscal note from the Pioneer Homes section which shows they are going to transfer empty positions. There should be a fiscal note from Family and Youth Services showing a deletion of $559,600 from their budget to come over. CHAIRMAN PORTER inquired whether on page 5, line 18, the vulnerable adult who is 60 years of age or older was to be left as is or did she want to cover all of them again? MS. SIPE responded that this was the section they struggled with to reduce the number of state agencies that go in. She elaborated that by federal law and state statute that follows it, a long-term care ombudsman who has jurisdiction to look into any complaints that occur in our out of home care facilities such as a Nursing Home, a Pioneer Home, etc. But his jurisdiction only starts at age 60 by federal and state law. So for people over 60 there are two, a long-term ombudsman and the medical and certification licensing for that nursing home who have authority. For people under 60 they have a licensing authority. CHAIRMAN PORTER inquired on page 6, line 28, the sentence which begins with "the department or its designee shall conduct a face-to-face interview with the subject of the report unless that person is unconscious or the department or its designee has determined that a face-to-face interview could further endanger the vulnerable adult." He asked, do you mean the subject to be the same person as the vulnerable adult in that sentence? MS. SIPE responded yes. CHAIRMAN PORTER referred to page 7, line 20, where it says "upon request a person who has made a report to the department under the reporting requirement regarding a vulnerable shall be notified of the status of the investigation," and asked if we are to presume that this status information is only going to go to these people who are listed who are required to report, or is this any person who happens to file such a report? MS. SIPE responded that if they are the required reporters under AS 47.24.010(a), yes, but under AS 47.24.010(d) allows any other person from reporting cases of abandonment, neglect, abuse, harm, etc. It is going to come to the attention of that person anyway, whether in their professional duty or because they are a neighbor or they are a family member, so this applies to everyone under 010. Required reporters and voluntary reporters can get the status of the investigation or the status of the case. The statute, though, does allow the division discretion to not necessarily give out all the confidential facts of this person's life. Status means telling if the person is now safe. But the term covers any reporter. CHAIRMAN PORTER then asked whether the division was interpreting this to change any existing confidentiality requirements. MS. SIPE responded that this was a slight change because previously it was not mandatory that they be given this information before this status report. It has been the practice of the division to usually do it but it has not been stated in law. CHAIRMAN PORTER inquired as to whether the division would object to changing the language to make sure this is not a requirement to otherwise disclose confidential information. MS. SIPE responded yes. CHAIRMAN PORTER referred to page 9, line 10, where it says "notwithstanding (a) of this section, if the department determines that an emergency situation exists that necessitates provision of the protective services to a vulnerable adult, the department may provide the necessary protective services in a manner determined..." and stated, these would be temporary protective services, would they not? MS. SIPE responded yes. CHAIRMAN PORTER remarked that it may very well be that this would turn out to be sustained protective service, but there would be a commitment order. MS. SIPE responded yes. Or there may consent obtained after the emergency situation passes. CHAIRMAN PORTER asked if the division would object to "temporary protective services" on line 11. MS. SIPE responded that would be fine. CHAIRMAN PORTER inquired if page 11, line 9, "An employer or supervisor who makes a good faith report..." was a standard whistle blower provision and if it was really necessary. MS. SIPE responded that each whistle blower statute is usually tied to something and there was no general whistle blower statute that covers everything. CHAIRMAN PORTER then asked whether there was some case law on defining "good faith report" from other statutes. MS. SIPE responded that there was a body of law out there. CHAIRMAN PORTER referred to page 11, line 13, where it says "the person making the report may bring a civil action for compensatory and punitive damages against an employer or supervisor who violates this subsection." He asked why are we saying so and are we asking them to do that? MS. SIPE responded that you can have different rights under a statute. Usually the statute will define whether you have a right to actually be compensated for a loss. The law will also say whether you have a right to punitive damages, for instance, in a bad faith situation where an employee blows a whistle on a nursing home or something. So unless the law says the level you have, the only alternative would be to ask the courts for an injunction reinstating me to my job and I couldn't get compensation for the lost wages, nor can I get any punitive damages. REP. GREEN stated on page 2 of the fiscal note analysis of the senior services administration it says "purchase protective services, adult/residential" and asked if that was home. MS. SIPE responded that it's not a home that's purchased. Adult protective services now, if it finds a person who can't live safely at home, and they have been the victim of abuse or neglect, and if they don't have the money to buy their own placement, we'll pay for them to be placed in an adult foster home or an adult foster care center. They chip in their own monthly resources or income and then family and youth services makes up the difference, which maxes out now at $43.00 per day. So this is the contract money currently used which is being transferred. CHAIRMAN PORTER tabled discussion on HB 376 for a later date and brought HB 517 before the committee for discussion. HB 517 - REAL PROPERTY TRANSFERS JUDY MATHIS, Legislative Assistant to Representative Ron Larson, Prime Sponsor of HB 517, testified that HB 517 would remove real estate professionals from liability for innocent misrepresentation in real estate property transactions. This bill was introduced as a result of a 1989 Supreme Court decision, in Bivins vs. Ballard, that brokers who make an innocent misrepresentation to a purchaser of real property are liable for the misrepresentation. This ruling puts an unjustified liability on real estate professionals. She further stated that allowing innocent misrepresentation action against a broker in such circumstances is like posing strict liability and there was no reason for making the broker liable for the seller's misrepresentation. She concluded by saving that HB 517 would overturn the Supreme Court's decision by removing real estate brokers' liability for innocent misrepresentations. GORDON SCHADT, Attorney representing the Alaska Association of Realtors, testified that innocent misrepresentation is a situation where an individual does not have a reason to know, or does not know, there is a problem in their house, and they are a conduit. So, if the seller fills out a form which says there are no problems in the basement and you, as a real estate agent, pass that on to the buyer, you have liability even though you had no reason, you were not negligent, you didn't intentionally do anything wrong, by being that conduit. The Bivins case was a narrow decision and the court basically said that they think the broker should have the liability. TAPE 94-43, SIDE B Number 000 MR. SCHADT continued his testimony by further stating that there is a required form that needs to be filled out from the seller to the buyer so that the buyer can then evaluate the situation relating to the property to make an informed decision. The real estate broker, as a conduit, just passes on the information, and as a result, is liable. Mr. Schadt concluded that HB 517 would simply take away the innocent misrepresentation aspect of the real estate transaction. Also, part of the spin-off that he sees as detrimental is that the problem typically is between the seller and the buyer and that is where the problem essentially lies. DAVE FEEKEN testified via teleconference in support of HB 517. He sighted an example of an innocent misrepresentation a buyer, who after closing on a home, sent a letter to him revealing a leak in the shower and that he wanted it repaired. Upon investigation it was discovered that the buyer began a remodeling of the shower and broke a seal, which caused the leak. REP. NORDLUND inquired into how this bill would solve the problem of an unreasonable buyer. MR. FEEKEN responded that if there wasn't a chance of using innocent misrepresentation as a claim, problems of unreasonable buyers wouldn't exist. CRAIG JOHNSON, Member of the Kodiak Board of Realtors, testified via teleconference in support of HB 517 and remarked that there are limited opportunities for obtaining errors and omissions insurance coverage to protect real estate agents against innocent misrepresentations. FRANK MICHEL, past chair of the Alaska Board of Realtors Legislative Committee, testified via teleconference that this legislation was meant to be part of a comprehensive packet which included agency and property disclosure, both of which became law. He further testified on the difficulty of obtaining insurance if you are not part of a national chain. He said AS 34.55.030 contains innocent misrepresentation protection and the passage of HB 517 would extend that testimony to realtors. GREG ERIKINS testified via teleconference in support of HB 517. He felt it was not too much to ask the state of Alaska to protect a licensed real estate practitioner from innocent misrepresentations. GLEN RYERSON, President of Southeast Board of Realtors, testified in support of HB 517. He further testified that he sold a home which, as it turned out, during the transaction the seller disclosed that there were no easements affecting the property and that the septic system was in good working order. The records office substantiated that there were no easements and the septic system was checked out by an engineer and it was passed and received approval by the Department of Environmental Conservation. A year later, the new owner decided to refinance the house and during this process had to have the septic system re-certified. During the inspection, problems were noted and it was revealed that there was no drainage field, as well as other problems. REP. NORDLUND inquired as to what sort of obligations agents have to make sure that the representations they make about a property are correct. MR. SCHADT responded that that fits into the area of negligence and negligence is decided in a standard that has not always been satisfactory and it is what a reasonable agent in this case would have done in that situation. Thus it is not as specific as it should be and that is a problem with that area of the law; i.e., tort liabilities. An example would be if a reasonable agent would have seen something that would put them on notice then they would need to proceed to investigate further. REP. NORDLUND then inquired about a situation in which a seller says the furnace works fine and when winter comes and the buyer turns on the furnace and discovers it is inoperable. He asked, what about a situation like that. MR. SCHADT responded that if there is an inquiry such as a buyer asking "what is the furnace like or does the furnace work?", one of the ways you can have liability is if you are asked a question and you do not undertake initiative to find out the accuracy of your answer. He further remarked that the agent should undertake the responsibility, to avoid negligence, to follow-up on any indication that there might be a problem. CHAIRMAN PORTER inquired if an agent sees that there are water marks on the ceiling and he asked the seller, who responds that yes there was, and I had it fixed, here is a receipt and as far as he was concerned the leak was fixed. Under the current situation, as Chairman Porter understood the law, he asked if that agent was liable. MR. SCHADT responded, yes, that is correct. CHAIRMAN PORTER then asked if HB 517 would rectify that situation. MR. SCHADT responded yes. REP. GREEN inquired how many times, in the number of transactions that are conducted, how many of those would result in a situation where the realtor would be brought in rather than the buyer and seller dealing directly with each other. MR. SCHADT responded that over half innocent misrepresentation litigation involves the realtor. REP. GREEN then restated the question to be of one hundred transactions, how many of those would end up with the seller going after the realtor because of a bad negotiation? MR. SCHADT responded that he didn't know the percentage. He then remarked that this type of litigation is one of the most common forms of real estate litigation that may well account for half or more of the lawsuits that relate to real estate. REP. GREEN then asked for clarification whether he meant seller and broker or buyer and broker because the buyer has been stuck with the property. MR. SCHADT responded that it is typically the buyer coming after the seller and bringing in the agents, often after consulting an attorney. REP. GREEN inquired if the property disclosure statement has less than the number of these things because the seller has to disclose things that might not have otherwise done, because of fraudulent misrepresentation. MR. SCHADT responded that it probably is, but it only officially went into effect last July, so there isn't a great deal of history to go with it. He further remarked that the disclosure statement should reduce the amount of litigation overall. REP. GREEN stated that without HB 517, the real estate sales persons are at more risk than they would be with this bill. He inquired if there are some situations that really do involve negligence or something on the realtor's behalf. Mr. SCHADT responded that there are and if you get into a leaky roof you are looking at ten or twenty thousand dollars. He further responded that there are several other factors which exacerbate the situation and that there are a lot of situations that result in costly litigation. REP. GREEN inquired if there is a perceived conflict because the sales commission comes from the seller to the broker and is there any potential, that by now giving the broker a waiver, what is my recourse, innocent fraud, by going through the broker? MR. SCHADT responded that fraud is one extreme that would be there. Negligence is still there and that's the one that is going to be. There has been for a long time, fraud on the agent's part, in his experience, is fairly well. Negligence does come up in situations, such as, you should have seen those water marks, etc., and that will remain there. He didn't think the passage of the money influences things that much. REP. GREEN stated that perhaps there is an innocent representation because he has less (inaudible) as a broker now than he did yesterday before this thing became law. He has a duty, but there are shades of gray. He asked if this bill would cause the broker to fall into a little darker shade of gray on their duty to look into the water spots, or something maybe a little more subtle than that? MR. SCHADT responded that he didn't think so because we are not doing away with the negligence part of it. REP. GREEN remarked that he was not talking about negligence, he was talking about the innocent part, where he thought was the gray area, and he wanted to know if HB 517 would cause him as a real estate agent to relax my duty. MR. SCHADT responded that the thing that keeps the agents from relaxing their duty is the fact that they have to be diligent in what they do because if they don't they are back into negligence. CHAIRMAN PORTER inquired if he knew of any situation in which the court has caused someone by definition who is innocent to be guilty. MR. SCHADT responded that he was not aware of any. He further added that HB 517 does not change the fact that under state case law a seller is liable for an innocent misrepresentation. TAPE 94-44, SIDE A Number 000 REP. NORDLUND remarked that a buyer could make an innocent misrepresentation, I have had personal experience, and I find it difficult to believe that a real estate agent could not have some knowledge as to the workmanship of a structure. MR. SCHADT commented that as the real estate profession is evolving they are becoming clearer with their buyers as to what their role is. He thought that helps to a certain extent. He agreed that the public comes to a real estate agent with a higher expectation and they should. REP. JAMES commented that she feels that if a person has a problem that somebody is at fault and that is not necessarily true. Even in criminal cases, intent is very important and she agreed that real estate people are expected to know more, but they are not engineers or surveys, they are sales people and they are there to pass on the information from the seller. Therefore, she felt that the law needed to be changed. CHAIRMAN PORTER commented that he was going to support this bill because we have created the requirement to fill out a property disclosure form that is passed on to the buyer. This then increases the vulnerability of the broker because he has to pass the form on. REP. JAMES moved that HB 517 be moved from committee with individual recommendations. REP. NORDLUND objected and stated that he would like to be able to offer a couple of amendments. One along the lines of there should be some protection afforded the potential buyers that real estate agents are not necessarily experts in terms of the structural, mechanical, wood aspects of the house but they are primarily agents for the financial aspects of the transactions. The other amendment would be defining innocent misrepresentation. CHAIRMAN PORTER asked Mr. Schadt whether the court would have difficulty with the term innocent misrepresentation. MR. SCHADT responded no because they specifically adopted that term in the Bivins case and the statute attempts to give some definition where it talks about not having personal knowledge of the error, inaccuracy or omissions. The court would find that their case clearly defined that. REP. GREEN remarked that he was opposed to HB 517, but he would pass it on because he doesn't see any duty in here that says that it's a duty that might be a negligent case. It just says if the agent doesn't know, it's okay. CHAIRMAN PORTER asked the committee for a motion to adopt the CS; and hearing no objection, the CS was adopted. CHAIRMAN PORTER then declared the CS for HB 517 moved from committee with individual recommendations. The House Judiciary Committee was adjourned at 3:07 p.m. HB 472 - NOT HEARD TODAY HB 314 - NOT HEARD TODAY