Legislature(2003 - 2004)
02/20/2004 08:05 AM Senate JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 300-ATTORNEY'S LIEN
SENATOR BERT STEDMAN, sponsor, recapped the discussion about SB
300 during the first Senate Judiciary hearing. The measure
changes the way taxation is handled on litigation awards and
relates primarily to non-physical personal injury cases.
Currently, gross proceeds from a settlement are awarded to the
plaintiff, who must pay taxes on the full amount. The plaintiff
must then pay attorney fees and the attorney pays taxes on those
fees. Therefore, under certain circumstances, the plaintiff
could have a net outflow if the taxes owed exceed the gross
award minus the attorney fees.
SENATOR STEDMAN referred to an article in The Wall Street
Journal dated February 12, 2004, which he said is a good
synopsis of the issue. He said even though both Alaska and
Oregon are under the jurisdiction of the Ninth Circuit Court,
they are treated differently regarding taxation because their
laws differ. If Alaska were to adopt a statute similar to
Oregon's law, Alaska would avoid the double taxation of its
citizens. He said this issue has been raised at the national
level but Congress has not yet dealt with it so Alaska is
getting ahead of the curve. He pointed out the IRS National
Taxpayer Advocate Report has reported this double taxation
problem several times. He brought members' attention to a letter
from Kevin Walsh, a CPA from Fairbanks, which goes into great
detail about the taxation issue.
SENATOR THERRIAULT asked if the Department of Law or the general
public have expressed any concerns since the last meeting.
SENATOR STEDMAN said he has not heard any. He believes the
double taxation issue is widely recognized as unfair.
SENATOR OGAN asked which state law would apply if an Alaskan
filed a case in another state.
SENATOR STEDMAN said his guess, as a layman, is that the law of
the state in which the case was filed would apply.
SENATOR FRENCH informed members that choice of law is one of the
great contested areas of the profession. If an Alaskan were in a
traffic accident in Montana, Montana law would apply. However,
law professors love to argue about cases in which an Alaskan and
a Montanan were involved in a traffic accident in Washington,
and a lawsuit was filed in Washington. He thought SB 300 was
designed to apply to Alaskan cases tried in Alaska.
SENATOR STEDMAN thought it certainly would be advantageous for
an Alaska resident to have the issue addressed in Alaska if SB
300 passes.
CHAIR SEEKINS opined that SB 300 would apply to cases tried in
the Alaska Court System. The only time he envisions a venue
problem is with cases involving contract law. He pointed out
that many of his contracts with the Ford Motor Company are
subject to the laws of Michigan. He said he sees the intent of
the bill as applying to cases that are tried in the Alaska Court
System.
SENATOR STEDMAN clarified that if a business is involved, the
tax situation is different so the double taxation problem does
not apply.
SENATOR FRENCH referred to a summary of committee action in the
Washington State Legislature in members' packets. That bill
summary reads:
An attorney has a lien upon the action and its
proceeds to the extent of the value of the services
performed by the attorney in that action.... Proceeds
are limited to monetary sums perceived in the action
so the lien is not enforceable against real or
personal property. The attorney's lien is superior
although it [indisc.] upon the judgment. The
legislature expresses its purpose of making attorneys
fees taxable solely to the attorney and its intention
that the court will apply the statute retroactively.
He noted his main interest is the sentence that says a lien is
not enforceable against real or personal property. He looked at
Alaska statute and did not see any similar protection for the
plaintiff. He asked Senator Stedman if it is his intention that
this lien not be enforceable against real or personal property.
He said after long, contentious lawsuits, plaintiffs and their
attorneys sometimes get sideways and fees become an issue. He
would hate to see someone "lose the farm" after having won a
lawsuit.
SENATOR STEDMAN agreed with Senator French and said the intent
behind SB 300 is to clean up the tax inequity and not to allow a
broader reach to other assets.
SENATOR THERRIAULT asked:
Wouldn't they have a lien already for fees that are
owed? We're talking about a specific lien on the award
but, absent that, if I'm an attorney and do work and
then my client never pays the bill - I mean you can't
walk out on the fees they owe their attorney. I'm not
sure if a lien is automatically placed on property and
what-not but an attorney can protect themselves by
getting a lien. I know what Senator French is getting
at but this talks specifically about the lien it gives
the award and I don't know how that would necessarily
slop over onto any other assets.
CHAIR SEEKINS said he reads it to refer to a lien against the
cause of action that would not extend to any assets outside of
the cause of action.
SENATOR FRENCH said that is how he reads the attorney's lien
statute. He clarified that he is not saying that a lawyer can't
turn around and sue a client; he was saying that a lawyer does
not automatically get a lien on his client's property as the
result of a fee dispute. The lawyer would have to go through the
normal steps that everyone else goes through to satisfy a debt.
CHAIR SEEKINS said he believes the committee's intent is that SB
300 only deals with a lien against the cause of action.
SENATOR STEDMAN agreed that is his intent also.
CHAIR SEEKINS noted that no one else wished to testify so he
closed public testimony.
SENATOR OGAN asked what part of a settlement, for example
punitive damages, would be taxable.
SENATOR FRENCH said he did not know about punitive damages but
he thought the main injustices occur in claims where people sue
for wrongful termination or other workplace matters. He pointed
out if a person has to go up against Wal-Mart for wrongful
termination, it could cost that person $900,000 while the
monetary damage award might be $30,000. That person would then
get taxed on $930,000 and the attorney would also pay taxes on
the $900,000.
CHAIR SEEKINS said regardless of the type of award, SB 300 would
allow the recipient of the award to deduct the attorney fees
before paying taxes.
SENATOR OGAN moved SB 300 and its zero fiscal notes from
committee with individual recommendations.
CHAIR SEEKINS announced that without objection, SB 300 would
move to the Senate Finance Committee. He then announced a brief
at-ease.
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