Legislature(1999 - 2000)
03/21/2000 02:00 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 42
An Act relating to civil liability for certain false or
improper allegations in a civil pleading or for certain
improper acts relating to a civil action; amending Rule
82(b), Alaska Rules of Civil Procedure; and providing
for an effective date.
ROBERT MINTZ, SELF, ANCHORAGE, stated that HB 42 would
prevent frivolous lawsuits by requiring parties to a lawsuit
and their attorneys to be truthful and responsible in their
pleadings. The bill discourages false statements and claims
in litigation and encourages responsibility by all parties
and their attorneys. He added that it would require more
careful and focused preparation of pleadings.
This bill creates an obligation, in statute, for litigants
and attorneys to make reasonable efforts to assure those
claims have a reasonable basis in fact and are valid under
existing law. If the claim is intentionally false, both the
attorney and the party can be assessed damages. Currently,
there is no effective way of holding parties responsible for
frivolous pleadings or claims. Frivolous pleadings and
claims increase the costs of litigation for all the parties
involved in addition to escalating the cost of the judicial
system.
Mr. Mintz commented that HB 42 would require attorneys, as
well as their clients, to research their claims to assure
they are factually supported before filing a lawsuit. The
bill will eliminate "boiler plate" pleadings in lawsuits and
encourages responsible and focused pleadings. "Boiler
plate" pleadings include everything that "anyone could ever
imagine could have happened" rather than focusing on
specific issues that actually did occur. Those extraneous
pleadings are expensive for innocent parties to litigate and
most often are thrown out. They cause one party, and the
court system, to expend significant dollars to pare down to
real issues.
Mr. Mintz continued that many suits are often less expensive
to settle than to litigate, regardless of their merit. The
bill does not affect suits filed in good faith. It would
deter those without merit. A system that allows deceit to
be rewarded must be changed.
Mr. Mintz noted that the bill would assign financial
liability to those whom:
? Intentionally advance a civil pleading containing a false
allegation of material fact;
? File a lawsuit, first determining that it has a
reasonable basis in fact or law;
? Use claims or cross claims to cloud an issue;
? File unsuccessful claims on the hope of finding someone
willing to settle rather than spending the money to
litigate the suit; and
? Sign a civil pleading before making reasonable inquiry to
determine if it is well grounded in fact and warranted by
existing law.
Mr. Mintz concluded that the basic purpose of HB 42 is to
give injured parties effective remedies for bad faith civil
litigation. The bill will only apply to the person lying
and that if the facts find a party has made an intentional,
false statement of material fact.
Co-Chair Mulder asked Mr. Mintz to explain the procedure
established in HB 42. Mr. Mintz first explained that Civil
Rule 11 is the current procedure. These are rules of
procedure that are promulgated by the Supreme Court. The
focus of HB 42 is different from that. It does not impinge
upon the Supreme Court's rule making power. It creates
duties that are owed by people who engage in litigation to
other people who are engaged in litigation. It will create
duties of truthfulness. Civil Rule 11 is discretionary and
allows the judge to fashion a remedy in certain
circumstances.
Co-Chair Mulder asked Mr. Mintz to explain how the process
would function. Mr. Mintz replied that the legislation
would create two remedies. The first, under Section A,
would require the offended party to notify that party that
lied. The bill is designed to self correct the system. He
hoped that it could be corrected during the course of
litigation. If not and person who lied was the successful
party in the litigation, then subsequently, the person that
prevailed could bring a separate action to recover their
full costs.
Mr. Mintz explained that in the context of an affirmative
lie, it would be one of the two ways in which HB 42 could
occur. The other way is during the course of litigation,
and there was a jury instruction, and if it was found that
someone lied and the lie was material to a particular issue
then that person would lose on that issue. There is an
exception to that in cases where public policy is involved.
There, the judge could use monetary damages against the
liar.
Representative J. Davies asked if this discussion was aimed
at Page 2, Subsection (b), Lines 8-12. Mr. Mintz stated
that the reference was to Subsection (c), Lines 15-21, which
applied to Subsection (b). Representative J. Davies
requested clarification that in the case of someone offering
an intentional lie or misstatement of fact, that the
underlining claim would get dismissed. He referenced an
occurrence in a child support case. Co-Chair Mulder stated
that those cases are excluded from these actions. All the
excluded type cases are listed on Page 3, Lines 15-20.
Representative J. Davies countered that the same principle
would apply to other civil cases. A case is decided on
whether or not there is an intentional falsehood. He
understands that there could be a penalty attached, but to
decide the underlining truth of the case on that basis would
be an over-reaction.
Co-Chair Mulder stated that after 8 years of working this
legislation through the House Judiciary Committee,
Subsection (C) had been added to address these concerns.
Mr. Mintz stated that Subsection (C) addresses situations
where more than just liar's interest is at stake. He added
that through Subsection (B), the court is only required to
dismiss the claim or defense to which the false statement
relates and not the entire case. All would not be lost.
Representative J. Davies advised that this legislation is an
"over reaction". He did not understand why the whole
determination would be decided on one issue. He believed
that information would presumably come out in trial.
Co-Chair Mulder responded from the extent that it is
material fact, is the center point from which the case was
determined, and that those persons must be held responsible
for their actions. Representative J. Davies interjected
that Civil Rule 11 does address that point. Co-Chair Mulder
commented that it does not do it effectively. He indicated
that this is a policy statement. Co-Chair Mulder emphasized
that the legislation would elevate the level of conduct
expected when going to court. He questioned if that would
be justified.
Mr. Mintz enumerated his personal experience in a case. He
stated that many of the claims made against him were
frivolous during a time that he was Chairman of Alaska
Housing Finance Corporation (AHFC). The defense case cost
the State over $200 thousand dollars. He emphasized that it
was a grievous waste of money and there was no way there
could be any recourse. HB 42 resulted from that experience.
Co-Chair Mulder made a change to the work draft, 1-LS0246\K,
Ford, 3/21/00,[Copy on File], Page 2, Line 17, after
"another" insert "person or" and make the same change to
Line 18.
Vice Chair Bunde MOVED to adopt the work draft version K
with the above mentioned changes, as the version of the bill
before the Committee. There being NO OBJECTION, it was
adopted.
Vice Chair Bunde asked what would happen if someone lied and
prevailed. He inquired how the statutes on perjury would
interrelate with this legislation. Mr. Mintz replied that
perjury is criminal. The bill only applies to a civil
context. He agreed that a criminal case is held to a higher
standard than a civil case. Mr. Mintz stated that the bill
is a "step in the right direction, but does not fix all the
problems out there".
Representative Williams asked if the legislation applied to
lying under oath. Mr. Mintz explained that the bill
addresses more than lying under oath. It applies to
statements which you know are false. It also applies to
motions and affidavits that are filed in court.
Representative J. Davies asked if the legislation would
apply to cases where a statement had been omitted
intentionally. Mr. Mintz replied that it would apply
equally to denials, which are known to be false, and is
meant to apply to both sides. Representative J. Davies
pointed out that the party would have to lose the case.
Co-Chair Mulder interjected that "this is a two edge sword".
It should focus the discussion more on the points of
difference. Representative J. Davies inquired where that
reference was indicated in the legislation. Mr. Mintz
commented that if what you claim is true and it is denied,
it would be covered in this legislation.
Representative Phillips added that making a false statement
could encompass an omission of fact because not including
all the facts is in of itself, a false statement.
KAREN COWERT, (TESTIFIED VIA TELECONFERENCE), GENERAL
MANAGER, ALASKA SUPPORT INDUSTRY ALLIANCE (THE ALLIANCE),
ANCHORAGE, stated that the Alliance has served as the
statewide non-profit trade organization for businesses which
provide products and services to the oil and gas industry.
Ms. Cowert noted that House Bill 42 would require litigating
parties to research their claims to assure accuracy, or pay
the consequence of suing without just cause. The Alliance
supports such measures.
She commented that Alaska has suffered significant economic
losses as a few individuals successfully circumvent public
processes through litigation. It seems that nearly every
proposal or plan to develop the State's natural resources or
to enhance its infrastructure is met with a lawsuit,
regardless of whether there are reasonable grounds to sue.
She noted that the Alliance believes that many such legal
actions only serve to delay developments that are important
to Alaskans' quality of life and economic well being.
Ms. Cowart pointed out that HB 42 would create an
obligation, in statute, for litigants and attorneys to make
reasonable efforts to ensure their claims have a factual
bearing before filing a lawsuit. The bill would also make
those that filed a frivolous suit responsible for assessed
damages. Furthermore, the bill will assign financial
liability to those who cloud the issue with false or
misleading claims, in hopes of finding a party willing to
settle rather than spend dollars to litigate.
She noted that the Alliance believes that each party in a
lawsuit has a responsibility to present factual and
legitimate information. A system that allows deceit to be
awarded is not right.
PAMELA LABOLLE, PRESIDENT, ALASKA STATE CHAMBER OF COMMERCE,
JUNEAU, testified in support of the proposed legislation.
She stated that the legislation proposes a basic premise
needed to address that intentional lying should not prevail.
She concurred that there needs to be a way to punish people
who base a case on an intentional lie.
Representative Grussendorf observed that in many situations,
the truth is a "fine line". Co-Chair Mulder pointed out
that there is a standard established in the legislation
emphasizing "reasonable" and that it would address that
concern.
MICHAEL LESSMIER, ATTORNEY, STATE FARM INSURANCE, JUNEAU,
stated that State Farm Insurance supports the proposed
legislation as it sets forth a minimal standard that people
need to go through before they undertake a lawsuit. It
clarifies that one makes sure that the case has a reasonable
basis in fact and in law. If it does not, the bill states
that you can not continue. He clarified that those are
protections which have not been present. Additionally, the
bill establishes a "truth provision", which applies only to
a party that intentionally makes a false statement of
material fact. Nothing in the bill is intended to address
the situation where witnesses have a ligitiment difference
of opinion. It is designed to address conduct by a party
which does not meet a reasonable standard of investigation.
He stated that the proposed legislation is "preventative and
curative" in the sense that it will cure a wrong that has
been done.
In response to Co-Chair Mulder, Mr. Lessmier explained that
contained in Section (A), Subsection 2, clarifies that as
long as there is a reasonable inquiry, and you form a
reasonable belief in the existence of facts from which the
claim or defense is made you are protected. You could be
sued only if you don't meet this minimal standard and you
fail to respond to the notice and correct your action in 21
days, and then you lost the case. On the issue in question,
the notice provision is designed to be self-corrective. As
long as there is a reasonable basis in law and fact, the
legislation will not hurt you. The legislation is not
designed to second- guess anything.
Representative J. Davies stated that if it were an obvious
case where someone was lying and it was obvious that it was
done intentionally, then everyone would agree that person
should be punished. He added, however, that he had problems
with the logic. "Life is often messy" and there will always
be "gray" areas where it is difficult to tell the intent of
a person and where the law applies. It is not always easy
to read the statutes to determine if the law applies. That
is why cases go to court so to determine if the law applies.
He believed that the legislation could prevent cases from
forming because of "fear" or "worry" that their view in
relation to how the law applies might be determined to be
incorrect and they then they would be stuck. Representative
J. Davies voiced additional concern with the penalty, which
would dismiss the claim because someone might have
intentionally lied about it.
Mr. Lessmier asked the Committee to consider who are we
really trying to protect. Is it the person who makes a
false statement of fact for purposes of material gain. He
believed that should be discouraged and that the victim
should be protected. He emphasized that was the fundamental
issue of the provision, as it applies only to a party who
intentionally makes false statements of fact. The people
that need to be protected are the ones that are innocent
victims of that conduct. Representative J. Davies stated
that if nine out of ten facts were true, and that the person
was guilty under nine assertions but under the tenth one
they were not guilty, what would happen. He stressed that
it would not be about protecting some innocent victim, but
rather, they were guilty but allowed to "skate" because
someone lied under one assertion.
Mr. Lessmier stated that in a real life situation, the jury
would probably not find that the one fact would be
sufficiently "material" in terms of the context of the
claim. That one fact would probably be viewed as
insignificant. The legislation requires that it be
intentional, false and material. He emphasized that is
important. The message that the legislation is sending is
that people found to fit this conduct are going to be few
because the standard is high.
Mr. Lessmier expressed that nothing in the bill is designed
for a situation where someone takes a position based on
research and thought which is wrong. All that it states is
that you have a "reasonable basis in law". It does not say
you have to win. Representative J. Davies asked that cite.
Mr. Lessmier referenced two provisions, 2(a)(b), which
indicates "reasonable inquiry and forming a reasonable
belief". The next provision that is important stipulates
that nothing is designed from preventing someone from
arguing in good faith that the law should be changed or
extended. This would not apply to someone using the minimal
standard with some research and thought.
Co-Chair Mulder asked who the bill designed to protect. If a
person tells the truth, the bill would protect them. He
stressed that it would be difficult to argue on behalf of
someone that is not telling the truth. Representative J.
Davies reiterated that if the world was black and white, he
would agree with Co-Chair Mulder. However, it is not so.
The proposed legislation could have a "chilling effect" on
those people who do not have a lot of resources and are up
against corporations that do and are sophisticated.
Co-Chair Mulder asserted that the world is black and white
in relationship to truth and fact. The truth is not gray.
If you were the one being taken to court, you would have to
prove why the other person believed that what you said was
untrue. He emphasized that this is a balancing act.
(TAPE CHANGE, HFC 00 - 75, Side 2)
Representative Grussendorf asked how the Department of Law
would operate under the proposed legislation.
SUSAN COX, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW,
stated that the Department recognizes that "things are not
always black and white". While the bill is not directed at
addressing the legitimate differences of opinions between
opponents in civil litigation, it does raise the possibility
that if parties do not agree, in either case, the loser
looses, and that if the winner does not recover their full
compensation, they will then take the next step of pursuing
the second loss against that party for whatever they did not
get the first time around. She pointed out the focus on the
aspect of "intentional lying" addressed in (A)-2 of the
bill. However, (A)-3 provides that a cause of action will
arise if a person participates in a continuation of claim
after a person discovers that the claim or defensive is not
supported by a reasonable basis or valid under applicable
law.
Ms. Cox could foresee situations, in which, after the "dust
settles", the argument is made that the looser has lost.
The law did not apply or the facts did not appear as they
were portrayed to be. They would loose. She foresaw the
provision of (A)-3 to be more of an "open door" than the
intentional lying. Ms. Cox added that is why the Department
has submitted a fiscal note.
Representative Grussendorf voiced concern that the issue
does not get in the way of the defense of the original case.
He looked at the amount of time that the case could consume
and how discouraging that could become. He recommended more
funding for Alaska Legal Services.
Ms. Cox noted that because of the procedure in the bill, in
order to invoke the cases of action, someone would have to
give notice to the opposing party that they should take
corrective action. She noted that corrective action could
cause liability prospects.
Co-Chair Mulder suggested that as a lawyer, it would be
prudent to provide reasonable inquiry to establish whether
your client is telling the truth. Ms. Cox replied that is
true but pointed out to the reference to (A)-3, which states
that if the attorney continues to litigate the case,
maintaining a claim or defense that is not supported by a
reasonable basis applicable by current law, does not mean
that the attorney would not get sued. She stressed that
there would be another layer of intrigue. If it is a
complicated case, it could result in a situation where
competing experts and the reasonableness of facts would be
an issue. She emphasized that this legislation is going to
cost money.
Representative Grussendorf stated that the bill would
protect the attorney who is supposedly telling the truth.
However, the witness would be out of the protection area.
Mr. Lessmier explained that Subsection (B)&(C) do not apply
to the witness. He objected to the comment that the
legislation would create more litigation. He suggested
contrasting what is currently in the system. What exists
now is "nothing". If someone is faced with an allegation
that is frivolous or untrue, there is no protection. The
cost can be high. The proposed legislation provides
something "in between". It requires a notice to correct the
action. If the action is corrected, there will be no
opportunity for a second suite. If the party does not win,
they do not receive a second chance. Actual attorney fees
and cost would have to be paid by the loosing party to any
action created by the bill. Mr. Lessmier stated there are
incentives for this to be "self curing and protective" to
the person that is subject to these claims.
Representative J. Davies asked if the statement that "there
is nothing to defend against" is a true statement. Ms. Cox
responded that could be "called into place". Civil Rule 11
could be used as a possibility for a sanctioning attorney
who is involved in failing to make an inquiry. It is not
frequently invoked.
Ms. Cox noted that Rule 82 provides for partial attorney fee
recovery to prevailing parties and actually includes a
formula for how much the winner gets. There are eight
factors, which allow the Courts to deviate from that
formula. Some of the subsections in Rule 86 allow for
increasing the fee award for certain stipulations including
bad faith conduct.
Civil Rule 56 provides for the standard for granting summary
judgement in the State and has a penalty in 56(G) which
states that if it appears to the satisfaction of the Court,
many of the affidavits presented in support of judgement
motion are presented in bad faith, for the purpose of delay,
the court can then order the party, reasonable expenses and
include reasonable fees. There are civil causes of action
in common law for abusive process and malicious prosecution,
which are more difficult to prove than what currently exists
in legislation.
Co-Chair Mulder asked what was wrong with the current
system. Mr. Lessmier responded that the difficulties with
Civil Rule 11 are remedies that are rarely invoked by a
judge. Remedy under Rule 82 requires a person to litigate
until the end. And then with that, one could only receive a
portion of the costs and attorney fees. There is no
mechanism for self-correction in the current law.
Representative J. Davies asked about the category of
perjury. Additionally, if the case is clearly frivolous,
and not based in law, he asked if the judge had the right to
dismiss the case. Mr. Lessmier commented that even if a
perjury case were aggressively prosecuted, it still would
not protect the people that are victims of this conduct. It
would not apply until after the fact. He did not believe
that the Department of Law often uses their resources to
prosecute these types of cases. Additionally, there is a
standard for judges in ruling on motions for summary and
judgement. The work of the court in those situations is to
look at the facts in the light most favorably to the other
side. The court will not weigh whether one person is telling
the truth or not. The court assumes if person signs an
affidavit, the case will not be dismissed. He emphasized
that it is rare for a court to make a finding that a case if
frivolous.
Ms. Cox disagreed, noting that if there is a dispute of
fact, a summary of judgement will not be granted. If
someone is putting forth-false information, the court will
not weigh the credibility of the respective witnesses.
However, if the case is not founded in the law, it is common
to be able to get dismissal, which does occur frequently.
Mr. Lessmier agreed that if it is not founded or based in
the law, that the courts will dismiss those cases.
Representative G. Davis referenced the number of perjury
cases that have been tried. He asked if there should have
been more. Mr. Lessmier replied that in the 1st Judicial
District, he did not know of a perjury case being tried.
Representative G. Davis asked if the judge could make that
determination and then would it be appealable. Ms. Cox
responded that there are two considerations in that. Rule
82, which is the civil rule that allows the winner to
recover part of their attorney's fees from the looser is the
area which states that "bad faith conduct" on the part of a
looser "enhances the award the winner gets". That would be
the court's call and it is appealable including the award of
fees. Mr. Lessmier clarified that it is appeallable only
under an abuse of discretion standard, which is difficult to
meet.
Representative J. Davies requested that Senator Taylor
testify on the proposed legislation.
SENATOR ROBIN TAYLOR commented that there is "no good side"
to the legislation. He noted that in his own experience as
a judge and attorney, he has seen as much bad faith claims
by people representing insurance carriers. Many more than
those people litigating on behalf of victims. "The
insurance companies are not victims". They end up paying
victims. There is no incentive for a private practitioner
that is handling a case on a contingency fee because "all
that it will do, is to further delay his case". The faster
the case can be gotten to trail is the quicker he will get
his own money back because he is the one paying for the cost
of the case. Senator Taylor reiterated that there would be
no incentive to delay the case. Bringing additional claims
to the ability for settlement or leverage could enhance the
case.
Senator Taylor added that on the defense side, there is no
impediment for defense council to throw everything they can
at case and make motions on each aspect of it. He emphasized
it will happen. On the two sides of litigation, there first
is the attorney that will be paid for all their time. Even
after they loose the motion, they are still going to get
paid. They have no accountability what so ever. On the
other side of that issue, there are people who are paying
their own money to litigate cases on behalf of injured
parties. He questioned how to balance the two. He asked
how to put more backbone into the judiciary system. Senator
Taylor stated that there are all types of remedies, which a
judge has at their disposal to curtain the types of
activities that the bill is trying to touch. He added that
the bill is well motivated, however, with the "huge,
economic disparity" between the benefits flowing from one
side to another, the disparity must be first balanced. He
agreed that one side would be placed at a disadvantage.
Senator Taylor advised that all the testimony in favor of
this bill would come from the insurance industry. Co-Chair
Mulder disagreed, noting the letters of support contained in
member's packets.
Senator Taylor countered that he was referring to
professionals. Co-Chair Mulder interjected that these are
"real people" and he stressed that there is no way that they
can be made "whole". Senator Taylor suggested that is why
Rule 82 needs to be changed. If that rule was changed,
those people could be made whole. When it comes to
professionals within the law, the people that will be seen
are coming from the insurance industry. He emphasized that
private practitioners will not testify in support of this
legislation. He stressed that this bill is a lawyer's
dream. If you have a client big enough that can afford to
litigate on every issue, they not only get to litigate on
that case, but with notice they can litigate on many other
cases which that attorney prevailed on. He provided a
hypothetical situation of going over the speed limit. What
is the truth of `over the speed limit". Each person could
bring in witnesses regarding that fact and your speed. The
jury of twelve people has to determine that information. He
reiterated that fact is determined by the jury and
determined by the preponderance of the evidence. The
evidence could trigger a whole series of additional
litigation.
Senator Taylor agreed that a way to correct the complication
should be attempted. However, he believed that we should do
more to strengthen the methods of remedies within law to
address the vexatious case. The manner that has been
established in the proposed legislation creates an economic
distortion that occurs in real life that can not be
accounted for in the bill.
Co-Chair Mulder disagreed, stating that there is no means
for the common person to adequately defend himself when it
is cheaper to settle out of court. The insurance company
will tell them that. "There is no way to be made whole"
with the cost of attorney fees and everything else. Senator
Taylor interjected that until Rule 82 is changed; nothing
will be made whole. He concluded that the system could use
some adjusting and he supported the effort but warned about
the consequences.
Mr. Mintz responded that the multiplicity of litigation
issue has come up a few times. In truth, it will not be
known without evidence and without trying something new to
see how it works. He believed that HB 42 would work as it
changes the paradigm that we are used to living with in
connection with litigation. He did not think that after HB
42 passes that someone would be as easy or as quick to file
lawsuit to assert a marginal claim. The goal of the
legislation is to raise the bar and make it so that the
marginal claims fall out of the system and only the
substantial claims move forward.
Mr. Mintz stated that when HB 42 action is filed, you would
have to be clear that there is no basis for the suit that
you successfully prevailed in. When filed, you are exposing
yourself to the actual costs and attorneys fees. It would
not be an action that would be taken lightly or done on a
marginal case. He added that the cases where it has cost a
lot of money to defend the claim, those are the cases where
HB 42 action should be allowed.
Co-Chair Mulder asked why not "beef up Rule 82". Mr. Mintz
stated that the real reason is that it would take a two-
thirds vote of the legislature to change a court rule and it
only takes a simple majority to create a new cause of
action.
Representative Grussendorf commented that by the title of
the bill, that would still be required. Mr. Mintz replied
that would occur only for the section that provides for
actual costs and attorneys fees. All the substantive
provisions go into effect for the cause of action. What
would be lost without the two-thirds majority would be the
actual cost and attorney fees.
Vice Chair Bunde MOVED to report CS HB 42 (FIN) out of
Committee with individual recommendations and with the
accompanying fiscal notes. There being NO OBJECTION, it was
so ordered.
CS HB 42 (FIN) was reported out of Committee with a "no
recommendation" and with new fiscal notes by the Department
of Law and the Alaska Court System.
(TAPE CHANGE, HFC 00 - 76, Side 1)
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