Legislature(1997 - 1998)
02/09/1998 01:08 PM House JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 203 - ACTIONS FOR UNLAWFUL TRADE PRACTICES Number 0061 CHAIRMAN GREEN announced the first item of business would be HB 203, "An Act relating to actions for unlawful trade practices." REPRESENTATIVE FRED DYSON, sponsor, noted that HB 203 had been introduced the previous year; he confirmed that members had copies of CSHB 203(L&C). He then provided highlights from the sponsor statement. He said at least for the last hundred years, Alaska has had more than its fair share of bunco artists, "who have come here to rip off our intelligent and sometimes naive citizens of their wealth." The state, in its wisdom, has evolved a fairly elaborate process for dealing with consumer fraud. Representative Dyson informed members that in the last eight or nine years, however, the part of the Office of the Attorney General that had dealt with consumer fraud had largely been defunded, with staff reduced to one and a half attorney positions. He asked whether Daveed Schwartz from that office was on-line. Number 0211 JULIA COSTER, Assistant Attorney General, Commercial Section, Civil Division (Anchorage), Department of Law, answered via teleconference that Daveed Schwartz was not available but that she also handles consumer protection. REPRESENTATIVE DYSON informed members that HB 203 empowers citizens to perform many functions previously reserved for the Office of the Attorney General. They are trying to eliminate two problems. In the past, only the Office of the Attorney General could get injunctive relief to stop a fraudulent practice. This bill gives the citizen a chance to go after bunco artists and get the court to stop them. First, the citizen must write to whoever is allegedly doing the fraudulent behavior, requesting that the person cease and desist. Following that, if the person willfully continues to do the activity, the citizen can go to court and appeal for an injunction to stop the activity. Number 0322 REPRESENTATIVE DYSON explained that without HB 203, citizens cannot seek injunctive relief to stop the activity until after they have been harmed. Just recognizing the scheme without falling for it would not be sufficient. Second, if the fraud is against a neighbor or an incapacitated person, a citizen couldn't go to court to seek injunctive relief on that other person's behalf, without this legislation. REPRESENTATIVE DYSON said he sees this as an opportunity to at least go after the harm before it spreads. His interest in this began after his mother died following a brief illness; he had found "really screwy health insurance and burial policies" in her dresser, and he'd realized that in his mother's anxiety, she was trying to protect the family by buying those. Representative Dyson informed members they would hear from senior citizens who feel that as a segment of our society they are disproportionately targeted. He noted that much of the problem in Alaska, as he understands it, is from telemarketing organizations from elsewhere. Number 0467 REPRESENTATIVE DYSON explained that it has been difficult for the victim of a small fraud to get relief. For a claim too large for small claims court, there was no way to recover attorney fees if the claimant needed help. This bill allows a claimant who prevails against a fraudulent enterprise to recover the cost of going after the perpetrator. It also allows for treble damages if the claimant prevails, as part of the penalty. Representative Dyson expressed hope that it will not facilitate frivolous lawsuits; a person who files a lawsuit and loses will pay not only his or her own costs, but also court costs and attorney fees. Number 0577 REPRESENTATIVE DYSON noted that in the House Labor and Commerce Standing Committee, Representative Rokeberg had expressed concern about people using this as a means of going after a business competitor through injunctions or other actions. Representative Dyson indicated he believes that CSHB 203(L&C) minimizes the possibility of that happening. REPRESENTATIVE DYSON said it had been pointed out to him that this legislation follows a practice learned during the civil rights era, when most people realized that state attorney general's offices didn't have the resources, or perhaps the inclination, to file the necessary civil rights actions to end discrimination in the United States. He stated, "So, they allowed for, if you were successful in an action, that you could recover your attorneys fees and, therefore, the cost of bringing the action." Representative Dyson advised members that he would defer to Ms. Coster to answer technical questions. Number 0681 REPRESENTATIVE CON BUNDE informed members that he had heard recently from the American Association of Retired Persons (AARP) a concern about telemarketing and telephone soliciting fraud. One of their suggestions was requiring a company that would be involved in such activity in Alaska to post a bond to address fraudulent claims. Representative Bunde asked whether that would fall under the purview of this bill and whether Representative Dyson had any interest in looking at that. REPRESENTATIVE DYSON replied that he is certainly interested in anything that will help, but it had not been specifically addressed. He suggested the bill may be broad enough to bring that in, and that he would want to think about it. REPRESENTATIVE BUNDE said he would talk with the sponsor later. Number 0763 CHAIRMAN GREEN stated his understanding that for small claims court, the upper limit is $5,000 and it doesn't require an attorney. He asked how this makes it better for someone who had been defrauded. REPRESENTATIVE DYSON said he would defer to others on this. However, the problem has been with "the small guy going after Goliath," that large firms with lots of attorneys on retainer are prepared to fight it, get delays, and keep it out of court for extended periods of time, draining the consumer's resources and time until after the fraud has run its course or has ceased to be a valuable marketing tool. Number 0847 CHAIRMAN GREEN suggested that a transaction for a $2,000 car, for example, could quickly go beyond $5,000 just in time, motions, and that sort of thing. REPRESENTATIVE DYSON asked Ms. Coster to comment. Number 0871 MS. COSTER explained that Section 3 addresses an area not currently addressed: private injunctive relief. Currently, there is a private right of action to recover damages; for example, a person who has been defrauded and has paid $200 could go to small claims court and get that money refunded under AS 45.50.531. However, a private person cannot go to court, whether small claims court or otherwise, to enforce a law by getting a court order prohibiting the business or person from engaging in the fraudulent conduct. Currently, only the Office of the Attorney General has that power. Under Section 3, however, a citizen could obtain a court order; if the person then violated that injunction, there would be an opportunity for follow-up enforcement. Number 0984 REPRESENTATIVE JEANNETTE JAMES stated her understanding that the injunctive relief wouldn't come from small claims court but from the regular court. She said it seems that small claims courts are for cut-and-dried matters, that if there is any dispute, it cannot be settled in small claims court. She asked whether that is correct. MS. COSTER replied that there is a jurisdictional limit for small claims of a certain amount of money. She said she'd have to check to see whether there are other limitations. She agreed that small claims court is generally used for fairly simple, straightforward cases. Number 1026 CHAIRMAN GREEN said he'd just been advised by their attorney that it requires that both parties agree to the action in small claims court. He posed a hypothetical situation and asked how he would get a hold of someone from another state. MS. COSTER inquired whether he was asking as a consumer or a business person. CHAIRMAN GREEN said both, then noted that as a business person, he would probably have the address in order to place an order. He asked whether as a consumer, he would have to go back to the person that sold something to him. MS. COSTER replied that he would probably have to find out who the party is who actually committed the fraud. If the person who sold it didn't know there was a problem, that might not be the party that committed the fraud. Number 1137 REPRESENTATIVE ERIC CROFT commented that it brings out a lot of the difficulties with the current system and applying it to small claims court, in addition to finding the person and bringing the person in from out of state. He pointed out that fraud itself is a complicated concept, saying the law requires it to be pled with particularity. He stated, "It's very different from your standard small claims: 'You didn't pay me my rent.' 'You didn't pay me the third installment on my couch.' Or, 'You did a fender-bender and never paid up.'" Representative Croft noted that it is an area of statutory law that can be complicated factually and in discovery. "And even if it didn't have those complications, you would want to, in that case, not just get your money - get your $200 without charging you $3,000 in attorneys fees - but also tell them to stop," he concluded. Number 1199 STEPHEN CONN, Executive Director, Alaska Public Interest Research Group (AKPIRG), testified via teleconference from Anchorage, saying they have 3,500 to 4,000 members at any given time. He explained that the main reason people join AKPIRG is because of the absence of state enforcement of the consumer protection laws. MR. CONN said this is a great bill. It is bipartisan, it is very practical, and it speaks to the needs of Alaskans at this moment in time. He agreed that the feature of injunctive relief is a fine attribute. He reminded people that the previous year, Dr. Helen Beirne had testified about her experience in support of this legislation. He concluded by saying he hopes and prays for the day when the state of Alaska returns to the business of enforcing its consumer protection laws. But in the meantime, he certainly applauds this bipartisan effort to empower private citizens to fight for consumer protection. Number 1311 RON HAMMETT, American Association of Retired Persons (AARP), testified via teleconference from Anchorage, specifying that currently he is the director of the new information center and that formerly he was with the state legislative committee. He noted that the AARP has more than 40,000 members in Alaska. He said he wouldn't get into the intricacies of the bill; however, he had discussed this with the chairman of the state legislative committee of AARP, who had told him they are officially endorsing the bill. Mr. Hammett specified that this is an endorsement of CSHB 203(L&C). Number 1363 PEGGY MULLIGAN, Capital City Task Force (CCTF) of American Association of Retired Persons (AARP), came forward to testify. She said they had testified last year when this bill was before the House Labor and Commerce Standing Committee, and she had listened with great interest to Representative Dyson about the committee substitute today. She said the CCTF fully agrees with and supports this bill. She then provided the committee with a position paper from the Alaska AARP in support of legislation relating to telemarketing fraud. MS. MULLIGAN explained that they had held a consumer fraud forum last fall, which she believes was quite successful. She expressed the belief that through that, they got a lot of information to the public to help them understand consumer fraud and to deal with telemarketers who are trying to defraud them. She stated, "We went to a state conference in November, and we reported to them on ... the success of our fraud forum and gave out quite a bit of the information that we had, because other cities are interested in this: Anchorage and Ketchikan and Sitka. So, we certainly appreciate seeing this bill come before you, and we're very hopeful that it'll become law. We like the idea that it levels the playing field for Alaskans and, you might say, brings up to the standard of most of the other states in protecting their citizens." Number 1475 MARIE DARLIN, Legislative Chair, Alaska Federation, National Association of Federal Employees (NARFE), came forward to testify. She provided a copy of what she said was handed to the legislature the previous year citing their concerns about consumer fraud. At their convention in May 1997, they had passed a resolution regarding the need for more action relating to consumer fraud; she noted that long-term care was included in that, as well. She pointed out that attached to the document she'd provided was an outline of the consumer fraud forum held in Juneau on October 25, 1997. Also provided was a letter from Muriel Baker regarding a suspicious telephone call she had received. Ms. Darlin pointed out that such activities are not always targeted at seniors but at those who are retired or who have money somewhere to be had. She specified that her organization backs this bill as one more step towards what they need to fight consumer fraud in Alaska. Number 1573 VERA A. GAZAWAY, Older Persons Action Group (OPAG), came forward to testify, saying she has studied and been a careful watcher of HB 203. She emphasized that they are working both for the younger and the older who have little or no protection from frauds and cheats who will pick up the telephone and call them. This bill provides a way for citizens who have been defrauded to act on their own behalf and at least find some help. She described the bill as an opening door, saying she sees no way that it is anything other than beneficial. She concluded by indicating OPAG is a statewide organization. Number 1659 REPRESENTATIVE BRIAN PORTER asked Ms. Gazaway whether she is familiar with the program proposal from OPAG in Anchorage. MS. GAZAWAY said yes, specifying that she remains on the board at OPAG. "And there is no conflict between the two," she said. REPRESENTATIVE PORTER asked whether she sees some redundancy. MS. GAZAWAY replied, "No, not necessarily, because the approach that Older Persons Action Group is taking now is a different approach. ... Surely they're working for the same kind of goal, but there are a lot of different facets. And what Older Persons Action Group's requesting is sort of an attempt to get this going and to meet with those people and give them a telephone to call through ...." She indicated that although they could very well be companion pieces, they are not because OPAG's proposal is for a grant. REPRESENTATIVE CROFT said, "On the OPAG proposal, they weren't talking about hiring any attorneys or prosecuting these things." MS. GAZAWAY said no. REPRESENTATIVE CROFT asked what they were talking about doing. Number 1720 MS. GAZAWAY replied that they were talking about a couple of things, including having a telephone that someone would answer. She explained, "There is nothing more devastating than to need help and want help desperately, have a telephone, but there's no one at the other end of the line. So, that is one big piece." She said the other big piece is that volunteers would put this plan into effect. She indicated that compassion is one of the things most needed when someone has just been ripped off, losing their home or assets. Number 1754 REPRESENTATIVE PORTER said he believed one other adjunct to the program is that they are proposing to take it a step further and actually do mediation between the parties involved. MS. GAZAWAY agreed, saying that in addition to one position, people are serving as volunteers. She said they work together and would support both efforts. Number 1790 REPRESENTATIVE BUNDE asked whether, since this breaks some legal ground in giving private citizens injunctive relief, they would hear from the Department of Law on that perspective, including any "global legal complications." CHAIRMAN GREEN suggested that is what this is intended to circumvent, because private individuals could take action too. Number 1829 REPRESENTATIVE ETHAN BERKOWITZ commented that the right of a private attorney general is emerging. He said it is also historic and used to be called "qui tan actions," where people could sue on behalf of a king who wasn't interested in pursuing legal action. Representative Berkowitz stated, "Essentially, you have to have a law that's not being enforced and someone interested in enforcing it." REPRESENTATIVE BUNDE asked whether there is a constitutional problem here; there was no audible response. CHAIRMAN GREEN asked whether anyone else wished to testify, then closed public testimony. Number 1870 REPRESENTATIVE DYSON said Representative Porter brings up an excellent question and that he himself had met with the OPAG group, which wants to be a clearinghouse and phone center, and which wants to do counseling. This would give them the tools to do something. Representative Dyson said as he understands it, they envision themselves helping to counsel victims to apply the remedies here. In addition, being a clearinghouse, they could tell whether reports of a particular kind of fraud were coming into one place. Number 1921 REPRESENTATIVE CROFT informed members he had sat in on a couple of meetings of the Better Business Bureau (BBB), which now operates as somewhat of a clearinghouse for Alaska, given that no one in the Office of the Attorney General answers direct complaints. He noted that the Office of the Attorney General has one and a half attorney positions to do enforcement. Noting that Daveed Schwartz is the one attorney, he asked Ms. Coster whether she is the "half." MS. COSTER said yes. REPRESENTATIVE CROFT explained that the BBB takes those calls, does preliminary investigation, weeds out people who are disgruntled but haven't been defrauded, and then refers cases to the Office of the Attorney General. It is that step that has become the funnel. He stated, "Either we pour a bunch of money into the AG's office, for them to do the enforcement, or we have somebody else with the ability to do the enforcement. But whether we do it through the BBB or OPAG or some other formula for the clearinghouse, that function needs to be there and is a problem that we've solved different ways. But the enforcement is a funnel as well, a problem as well." Number 1975 REPRESENTATIVE PORTER said he had talked to the sponsor and several others interested in the bill. He announced that at the risk of sounding like Simon Legree, he must speak against the bill; he thinks it is a great idea, but the implementation has some problems. REPRESENTATIVE PORTER recalled a telemarketing bill in a previous legislature. He said most problems that he has been exposed to which impact seniors result from telemarketing, some fraudulent and some devious at best, and most of those problems are generated outside of Alaska. Representative Porter stated, "This bill doesn't get you closer to those folks at all. You can sue in this court all you want, but unless you can get somebody in Detroit that's doing this into this jurisdiction, that's not going to be too helpful." REPRESENTATIVE PORTER said he wonders why there isn't a court fiscal note and advised against moving this from committee without one. He discussed provisions of the bill relating to attorney fees and said the courts now have difficulty determining what "frivolous" means and have seldom imposed sanctions for these kinds of reasons. He said he believes Alaska is the only state with Rule 82, which provides the prevailing party with a portion of attorneys fees. He also said that to sue someone and not be held responsible for that suit unless someone determines that it was frivolous is quite a standard to overcome, and not a great incentive for evaluating the merits of a case before it is filed. REPRESENTATIVE PORTER added, "Most particularly, if that person hires an attorney, there certainly isn't any motivation to not pursue it to the bitter end, and as long as you might want to draw that out, because you get guaranteed attorneys fees unless someone determines that it's frivolous. Now, why would you want to set up a situation where somebody could take ... an otherwise reasonable business into court, go through an extended procedure, find that it was without merit but didn't reach the level of 'frivolous,' and still, this person has to pay attorneys fees? I don't think that's a standard that you'd want to look at." Number 2135 REPRESENTATIVE PORTER referred to the fact that a person doesn't need standing to bring one of these suits. He said he knows of no other situation where someone who is an unaffected party can go into court in this manner. He indicated that a vengeful person could get a business into court, with immunity, if they could find something that didn't sound frivolous. "It's just too wide-open for me," he commented. REPRESENTATIVE PORTER suggested that OPAG's proposal will greatly assist with the problem, and that OPAG would also cooperate with the Office of the Attorney General and work with them like the BBB does in putting cases together. "But I think more importantly, for the misunderstanding kinds of cases, which some of these are, they would be involved in mediation with local businesses, so that the customer can be satisfied and the business won't be continuing this kind of practice," he stated. Number 2207 REPRESENTATIVE PORTER said the telecommunications aspect of it is real, and the answer to that is a telecommunications bill that would provide for bonding requirements, registration requirements, and the ability of consumers to say no. Referring to prior legislation, he commented, "That was one aspect of that bill that I really liked. I would like to have the ability to tell my phone company that I don't want anybody calling me. And if that's the law, then anyone who wants to engage in telemarketing has to check with the local exchange and find out if this person is or isn't one of those that has said no. And if it's no, then it's against the law to call me. And quite frankly, most folks that I've talked to - or at least a lot of folks that testified on that bill - said, 'Boy, that's an opportunity I'd like to have, because I'd just as soon make my own calls.' So, anyway, for all of those reasons, I just have quite a problem with the bill and would be interested in the court's view on what they think their impact would be." Number 2251 CHAIRMAN GREEN stated his understanding that under Rule 82, there is less than full recovery of fees. REPRESENTATIVE PORTER explained that Rule 82 basically says that prevailing parties should recover their attorney fees; it is a sliding-scale percentage, based on the amount of damages. He said he believes Alaska is the only state with a provision where the prevailing party gets a considerable amount of attorney fees paid for. In contrast, this bill provides that attorney fees are paid for unless it can be established that the case was frivolous. "And I don't see a definition for frivolous," he added. Number 2293 CHAIRMAN GREEN asked if it is Representative Porter's understanding that the process that OPAG is pursuing falls somewhere between those two. REPRESENTATIVE PORTER replied that as he understands it, with the OPAG program, they wouldn't "bother the court system" unless they had the wherewithal to get into court on a fraud case, through the Office of the Attorney General. He added that there is a lot of mediation capability between those. Number 2335 REPRESENTATIVE ROKEBERG noted that HB 203 had been in the House Labor and Commerce Standing Committee, which he chairs, the previous year. They had worked with the sponsors to improve the commerce aspects of the bill by providing additional ability to claim legal fees if the defendant prevailed in the action and if there was a competitive business aspect to it. Representative Rokeberg said, "We also took the 'or otherwise aggrieved' section out, which I think provides that there would be standing, because there would have to be proof ... of financial loss." He said he thinks the issue regarding standing is taken care of. Number 2366 REPRESENTATIVE PORTER read from page 2, lines 15 and 16, which says, "It is not necessary that a person suffer damages or otherwise be injured by the unlawful act or practice in order to bring an action under (a) of this section." REPRESENTATIVE ROKEBERG said that was under equity, not under Section 2, where there must be a monetary loss. He stated, "Up here there is standing, in Section 2. But that's in their injunctive relief, so that would be in equity rather than at law." He then told members the House Labor and Commerce Standing Committee had worked on this at two hearings, looking at the policy and commercial aspects. It had been his intention to pass it on to the current committee for full review, particularly regarding Rule 82. REPRESENTATIVE ROKEBERG said minutes from a previous hearing indicate that Mr. Schwartz felt there was a definition of vexatious litigation or frivolous lawsuits under Rule 82 of the court rules now; that had given him greater comfort, but there is nothing statutorily in this state that speaks to that type of vexatious litigation or frivolous lawsuits by definition, which he said he would dearly love to see. He suggested that the current committee focus on the issues raised by Representative Porter. Number 2423 REPRESENTATIVE CROFT indicated he would answer as many of the objections as he'd been able to write down. He stated, "But under the general heading of, 'If not this, what?', I have a bill that is still happily sitting in Labor and Commerce that provides for adequate resources for the attorney general to do this, for the attorney general to resume its state enforcement of consumer protection laws. That has about a $300,000 fiscal note and is not a complete solution." He indicated that when there were fewer people in Alaska and more resources, it was closer to a million dollars, which may be an appropriate level if it weren't for the current fiscal situation. TAPE 98-13, SIDE B Number 0006 REPRESENTATIVE CROFT said going over some of the issues in reverse order, there have been a couple of different telecommunications bills. For one, a person who doesn't want to be called by telephone solicitors can get a red dot on the phone listing, and solicitors are not supposed to call. But what if they do? There are no damages because there is no ascertainable loss of money or property, even though the calls are irritating. It can be referred to the Office of the Attorney General, where there are one and a half attorneys who will get to it as time permits. But an individual cannot currently get an injunction on his or her own. REPRESENTATIVE CROFT pointed out that Rule 82 provides for approximately 20 percent of attorney fees in the typical case. He then said this bill solves it in two respects. First, it allows an individual to get an injunction. And second, it says that as long as the plaintiff wins, the plaintiff gets attorney fees. He pointed out that the bill says, "If you win, you get your fees; if you lose, they're not assessed against you." He emphasized that a person doesn't get fees for a losing effort but that the 20 percent is not assessed. REPRESENTATIVE CROFT suggested this strengthens the reverse strike of the business owner, in that under current Alaska law, if a lawsuit is found to be frivolous, that can be a factor in awarding full attorneys fees against the plaintiff; it is discretionary with the judge. Here, it requires it. REPRESENTATIVE CROFT told members that there is an enormous amount of case law on what frivolous means. He stated, "And we could attempt in this to summarize those in the various factual situations. I just thought it was better to use a term of art that in at least federal law - if not in state law - is defined. And if we need to say, 'We mean it how the federal Rule 11 means it,' I think we'd consider that. That would be fine, too. I didn't want to clog it up ... with a definition that would fit all purposes, but referring to that one would be fine." Number 0145 REPRESENTATIVE CROFT said the OPAG proposal is a good one for a number of reasons. An energetic group, a volunteer organization, will probably save substantial money. But it will mainly do what the Better Business Bureau does now. The BBB monitors calls, weeds them out and does mediation, very active mediation when they have their own BBB members because they want to see those resolved, but they refer others as well. REPRESENTATIVE CROFT told members, "The BBB has been doing, I think, a good job. The concern there has been they're a business themselves, who have some members and some non. And there's some worry about them being responsible for consumer protection, when they're basically a self-promoting business organization. There's an inherent possibility for conflict, though I think they've managed it so well that the conflict has not arisen; but there is that potential." REPRESENTATIVE CROFT stated, "Representative Porter said that we couldn't get out-of-state defendants. I think we can. I mean, I think under this, it's like any other lawsuit. If they have enough contacts to this case, in particular, if they do business in the state of Alaska, you can reach long-arm jurisdiction and bring them into court. So, it fills the gaps that are left after we pass good laws like the telecommunications law, the obvious question being, 'Who enforces them?' And to come back to the summary, if not this - if not private individuals enforcing it - then who?" Number 0210 REPRESENTATIVE BERKOWITZ advised members that he is supportive of this legislation, although having gone through protracted discussion of tort reform the previous year, he said he is somewhat amazed they are contemplating the possibility that frivolous suits could continue to exist here. He said it seems, however, that this legislation is a responsible follow-through with budget cuts. He stated, "If we're going to cut budgets to the Department of Law, and we're going to disable them, prevent them from having sufficient manpower to do the consumer protection that they had been doing, then we have to have some kind of complement in place. And the complement that this bill suggests is that private citizens, as individuals and as businesses, can come forward and enforce the law that otherwise would go unenforced." REPRESENTATIVE BERKOWITZ continued, "Now, hypothetically, we have to look at who's going to use this law, because the Department of Law, through the AG's office, isn't pursuing very many of these cases. They've got one and a half attorneys. These are somewhat factually intensive, time-consuming pursuits. They're going to go after the big-ticket items. You know, if there's something small and irritating that affects a consumer, an individual consumer, they're going to be able to raise it in the courts. I think that's a good thing, when an individual feels that he has access to government that way, and has access to redress." Number 0271 REPRESENTATIVE BERKOWITZ pointed out that this legislation will also benefit business, because a business that is somehow subjected to unfair practices by a competitor could utilize this Act, even if the Office of the Attorney General didn't pursue it. Representative Berkowitz stated, "And I think what that does is give businesses that are pursuing fair practices the opportunity to level the playing field and bring down those that are using the laws or evading responsibility. And to me, this is a pro-business kind of bill. And it allows businesses and individuals to use the law as it was written, when the attorney general isn't able to do so." Number 0297 REPRESENTATIVE BUNDE asked that Representative Dyson respond to the concern about bringing into court in Alaska defendants from out of state, particularly for a relatively small claim that the Office of the Attorney General would not be likely to pursue. REPRESENTATIVE DYSON deferred to Ms. Coster. MS. COSTER expressed her belief that this private injunctive relief is going to be really helpful. She said that usually, it is not just one person who is being defrauded. If someone is conducting business in Alaska, even if the business is located out of state, that person is usually defrauding a number of consumers. She stated, "And when you have an organization such as AARP or the Better Business Bureau or AKPIRG or our office, when we did receive complaints, that you're going to get a number of these complaints. And so, while one person may have been harmed to the tune of $200 and it doesn't seem like ... it's all that important, when you have 10 or 20 or 100 or thousands that are being harmed, then going after the person who is out of state becomes much more realistic, much more something that a group or person will want to do, because the damages there ... are a lot higher." MS. COSTER continued, "And I agree with Representative Croft. ... In telemarketing or any other businesses where they are located out of state, there's a long line of case law that talks about the jurisdiction, what's necessary in order to bring someone within the state's jurisdiction. And basically, ... if you are conducting business in Alaska, then we're going to have jurisdiction over you, 'we' meaning someone in Alaska will ... be able to file a suit against that person, and a court can claim jurisdiction over them to address the grievance or whatever the problem is that they're filing the suit over. So, on an individual basis, it becomes harder. If you have a number of them, ... it makes it a lot more reasonable to pursue the claims." Number 0431 REPRESENTATIVE BUNDE referred to earlier discussion about bonding people who want to do business in Alaska. He asked, "Would the current legislation remove the necessity for that? Or would the current legislation application be improved by the application of that bonding requirement?" MS. COSTER replied that right now, telemarketers are required to register in the state. She asked whether he was proposing that at the time that they register, they also must post a bond. REPRESENTATIVE BUNDE responded, "There's been that discussion, yes." MS. COSTER replied, "So, I guess what could happen is, if you post a bond and it's in favor of persons who have been defrauded, you would have a ready source, I suppose. A person who has been defrauded by the telemarketer would file suit and they would claim damages, to be taken out of the bond. Then they would have ... a ready access to payment, if they could prove their claim. And so, a bond would actually be helpful ... in that way. In other words, you can get a judgment against someone in a private cause of action, but then it's another thing to collect on the judgment. And having a bond available ... would be helpful, if I'm reading what the intent would be for the bond." REPRESENTATIVE BUNDE said he wasn't speaking to the specifics but more on a philosophical level. Number 0511 CHAIRMAN GREEN mentioned frivolous lawsuits between two business people and the ability to get an injunction in such a situation. He also referred to Representative Porter's suggestion that there may be a significant fiscal note from the court. He asked whether Ms. Coster could comment on that. MS. COSTER answered that she is not qualified to speak on a fiscal note from the Alaska Court System. However, the court system is set up to handle lawsuits, from small claims all the way through complex litigation. While she cannot say whether this would increase it, that seems unlikely. She pointed out that a deterrent is written into the statute that if the lawsuit is found to have been filed purely to gain a competitive edge, the plaintiff would pay the attorney fees. Number 0583 REPRESENTATIVE PORTER said he understands that there are mechanisms to bring someone into court who is not a resident of the state. He asked, "But if they don't choose to show up, is that not just a case that's, in effect, tried in absentia?" MS. COSTER replied, "Sure, you can get defaults, absolutely. If you are able to serve the person with the complaint for injunctive relief and they fail to answer, then you can get an injunction by default." REPRESENTATIVE PORTER asked how to serve an injunction in Detroit. MS. COSTER explained that if the person ever attempted to engage in the sort of conduct that was the basis for the injunction in the first place, in Alaska, it would be in violation of the injunction. So, that person would have to actually engage in business in Alaska again. If the fraudulent person didn't come back to Alaska to engage in the fraudulent conduct, the plaintiff would have actually accomplished what was intended. Number 0645 REPRESENTATIVE PORTER said he was referring more to telemarketing operations, where no one is physically in Alaska. He asked what the incentive would be to stop fraudulent telemarketing. MS. COSTER replied that if a person received an injunction and then violated it, the court could enter an order enforcing the injunction; it would be a contempt of court, and the court could order fines. Those fines could be reduced to judgments that can be executed on property out of state. She said there are various means of enforcing injunctions if a person ignores them. She noted that the courts can order jail time for some contempts, but she wasn't anticipating that here. Number 0693 REPRESENTATIVE PORTER said he doesn't disagree with that arduous process, but most of the people they are trying to reach with this are judgment-proof, especially to the extent that what they might have would not be worth going through the process to get, going to Detroit to try to find out whether they own a car, for example. REPRESENTATIVE PORTER suggested that if they had the telemarketing bill in place, as was mentioned, they could get the offenders through this bond. That way, there would be something to attach, right here. He said making the requirement for the bond would cull a lot of "flaky folks" in the first place. "And then those that decide to get flaky do so at the risk of that bond, and they know it," he stated. "It's a heck of an incentive, and a lot better than trying to go through this process, whether it's by a citizen or a private attorney or the AG's process, of getting a judgment and then ... having the cost of going to Detroit to find out if this person is, one, locatable, two, has any assets, and then trying to go through the procedure of seizing them out there." Number 0758 REPRESENTATIVE PORTER said the BBB does limited mediation, but only with its own members, and they don't even have someone to answer the phone all the time, let alone the ability to do much with nonmembers. The OPAG program expands that to everybody. He agreed that the wherewithal of the Office of the Attorney General has been reduced, but he doesn't think the answer to that is to adopt something that he believes has great potential of increasing costs to businesses and to the court system. Number 0817 REPRESENTATIVE PORTER referred to mention of tort reform and stated, "One thing that we tried to put into the tort bill was a whole lot of incentives to settle these things early, and to settle them reasonably. I don't see those incentives in here. I see some incentives that are ... just the opposite." Number 0845 REPRESENTATIVE JAMES said she really supports the purpose of the bill. However, it is broad and addresses all of the various kinds of fraud that could be out there. She said she doesn't know the numbers on the various kinds of fraud, including in-state, out-of-state, telema they are trying to address telemarketers, telemarketing legislation would provide better protection. REPRESENTATIVE JAMES explained that her biggest concern about consumer fraud is for people who are vulnerable, including senior citizens or disabled people. She suggested making this more specific either to particular kinds of fraud or to particular vulnerable consumers whose lives are interfered with, rather than leaving it open. She commented that as she listened to earlier testimony, she visualized a sign in front of an attorney's office that says, "If you have a consumer complaint, come here; I'm ready to sue." She sees that potential as the bill is written. She restated that she really likes this idea of not having to depend on the Office of the Attorney General for doing these kinds of things. REPRESENTATIVE JAMES told members that when her own mother experienced consumer fraud in Oregon, she herself had checked with the consumer protection office in Oregon. She would have had to provide almost all the information in double copies, et cetera, just like putting together a whole lawsuit, and send it to the attorney general's office in Oregon, after which they might - Representative James emphasized that word - do something about it. She never followed up with that, she said. She called the people herself and talked to them once, but then they would never return her phone calls. This occurred because her mother was a senior citizen, and they were calling senior citizens and trying to sell them a security system that Representative James said had no effect at all. Number 1019 REPRESENTATIVE JAMES concluded by saying it seems that the whole broad spectrum of consumer fraud is too big to address in such a simple fashion. She again suggested being more specific about the kind of fraud being addressed and/or about the particular consumers that they are wanting to protect. She said if anyone could respond in a way that makes her feel more comfortable with those issues, she'd be happy to hear it. Number 1048 REPRESENTATIVE BERKOWITZ mentioned a bumper sticker he'd seen that says, "An armed society is a polite society." He said it seems that this bill arms businesses, so that they don't have to wind up in court all the time. This is a tool they can use to ensure that their competition is behaving properly. He then referred to fishing over the line at Egegik; fishermen had told him they want enforcement there, because the honest fishermen are being hurt by the dishonest practices of others. Representative Berkowitz said that sort of lesson is as true in the consumer arena. REPRESENTATIVE BERKOWITZ said he believes that in Title 11, the criminal code, there are strong definitions in AS 11.46 that talk about fraud and deceptive business practices, which might alleviate some of Representative James's concerns about the breadth of this bill. He said just by the nature of the terms here, the $500, this allows small businesses and individuals access. He pointed out that in spite of all the concern about lawyers reaching out and trying to make a case out of anything, lawyers must pay rent, insurance and overhead; they can't afford to take small cases, regardless of the merits of the case, and so a lot of smaller cases wind up being dropped by attorneys. But that doesn't mean that justice is still being served. REPRESENTATIVE BERKOWITZ stated, "And I think when we allow people to get their own justice in the legal setting, then we've given them another reason to be confident in government. And this is an opportunity for us here in Alaska to set a standard that says, 'We're doing things in a way that's most responsive to our people.' Because if you're being harmed out in the Bush, ... there's not even an attorney there. And this is a way for you to get access to a court and get access to some kind of fairness. So, I understand the concerns about frivolous lawsuits. I trust the businesses of Alaska not to engage in frivolous lawsuits, ... just as I trust most Alaskans not to be frivolous. This is a serious thing, going into court. And those that are not respective of that, well, they're going to get punished. They're going to have to pay attorneys fees. And if you go up against a corporation that has deep pockets enough to keep an attorney, even a small bit of attorneys fees ought to be a big disincentive for an individual." Number 1183 REPRESENTATIVE CROFT referred to the scope of the bill and noted that on page 1 it says an act declared unlawful by AS 45.50.471. He said it specifically refers to the unlawful trade practices, as defined in the statute. He explained that they had considered making it for older Alaskans. He stated, "The older Alaskans themselves were very adamant that this wasn't just their issue, that it was an issue for everybody. They were maybe targeted more specifically, but that it was a general law enforcement/good business practices issue." REPRESENTATIVE CROFT referred to mention of settlement incentives. He stated, "The business protection section that we added in Labor and Commerce [page 2, beginning at line 27], it says, 'if the court finds that the action was brought by the plaintiff to obtain a competitive business advantage and the plaintiff is not the prevailing party' - in other words, they didn't win; you don't need to sanction them if they won, but if they didn't win - 'the court shall' - not may - 'award the defendants ... full reasonable attorneys fees.'" REPRESENTATIVE CROFT said that is as strong a hammer as they can get in this area, noting that "shall award full" is 100 percent. He stated, "And in addition, as we discussed, when they find it's frivolous - and I'd be glad to discuss how we might clarify that term with reference to federal Rule 11 or whatever - 'shall award full' for the frivolous. That's stronger than any other provision of Alaska law in frivolous suits. So, we think we've put some very strong incentives not to have frivolous or competitive suits out there." Number 1281 REPRESENTATIVE CROFT stated, "It is true that if you're going to not have the public attorney general, you've got to give some incentive for a private attorney general. And there are some there, but we've tried to draw them very narrowly. Those were on Representative James's points." REPRESENTATIVE CROFT said on the bonding requirement, he thinks it is a good idea, and they'd considered it a couple of different times. He said the problem they kept running into is that it would increase costs for legitimate continuing telemarketers, and the bad ones might not obtain a bond anyway. They would then be running around trying to get people not only for their fraudulent activity but for their failure to bond. Representative Croft noted that failure to bond is easier to prove and to that extent, it might be worthwhile. However, it still requires a judgment and a process before taking someone's money that they've put up. REPRESENTATIVE PORTER commented, "But it's here." Number 1358 REPRESENTATIVE CROFT responded, "Well, it's here, but you still have all those hoops of, 'Can I, for a $200 toaster or bad ad or a zero loss, right? ... Your failure to stop when I have the red dot.' Representative Porter's absolutely right: There are going to be some people that are judgment-proof, and some of them are operating telemarketing scams that will close up shop and move the next day. I don't have a magic solution to that continuing problem. ... This puts more teeth into it, so that you can - when you find them - get them easier; you can get more teeth in an injunction. But ... it's not absolute." REPRESENTATIVE CROFT referred to the issue of court costs. He stated, "Because we put some sideboards on it, because we put some countervailing incentives not to file frivolous or purely competitive suits, I think it was difficult for the court system to see whether this would lead to a tremendous amount more of litigation, a little, a shift in who was filing the litigation. And they just didn't feel comfortable estimating a little more, a lot more, no more costs on that." REPRESENTATIVE CROFT concluded by saying, "Standing is a constitutional requirement; you have to have a case in controversy. But you can define those in statute. I mean, you can say, 'We give you the right to do this.' And as Representative Berkowitz said, there's a sort of history to do it. So, it's not a constitutional bar; it's just saying, 'All things being equal, you have to have been injured unless the law gives you some other reason to do it.'" Number 1433 REPRESENTATIVE ROKEBERG said to Ms. Coster that he had recently been taking a short course in bonding relating to business activities. There are generally fidelity bonds and insurance bonds, to be done in the realm of employee dishonesty and so forth, as well as other performance-type bonds that can be posted by the insurance industry. Representative Rokeberg expressed concern, however, about whether anyone even underwrites a bond against a breach of injunctive relief, or whether that exists. He also expressed concern that a bonding requirement may be a constraint on interstate commerce, resulting in the claim of a constitutional issue. He asked, "Is there anything in existing statute that'd require a business entity doing business in the state of Alaska to do some type of bond against their potential future dishonesty?" Number 1501 MS. COSTER replied, "I know for construction contractors, they are required to post a bond, and it is payable to persons who file wage claims, who, if they have failed to pay their employment taxes, and I don't know what else there is, what other entities. I know there are a couple other bases for filing against that bond. So, I don't know that that addresses your question directly as to whether it's for dishonesty, but it is for specific purposes, and ... basically what the person has to do in order to claim under it is to file a lawsuit and name the bond, name the company, they have to prove ... that they meet the requirements, in other words, that they're a wage claimant and they haven't been paid. And then, once they get the judgment, then they're paid out of the proceeds of the bond until ... the proceeds are all gone. ... I'm sure there are a number of entities that are required to post bonds. That's the one that I'm the most familiar with." Number 1579 REPRESENTATIVE ROKEBERG acknowledged that a bond may solve some problems, but he said they need to know whether it is available or whether it would run afoul of the federal constitution. CHAIRMAN GREEN commented that they might be able to stretch it to specific performance, "saying that you're going to operate a legitimate business." REPRESENTATIVE ROKEBERG emphasized that he is wondering whether they could find an underwriter willing to write that. Number 1619 REPRESENTATIVE DYSON directed members' attention to the major thing that changes here: injunctive relief. There is no monetary gain for that, only public service. He cited an example and said without a problem rising to the level where the Office of the Attorney General steps in, there is no way to stop some activities. A person not yet hurt by a defective product, for example, couldn't seek injunctive relief. This bill gives such a person a chance to stop the activity. REPRESENTATIVE DYSON said Representative Porter had brought up something that intrigues him, which he hadn't thought about: Is there a way for this particular legislation to be misused if someone wants to make money off of it? Representative Dyson indicated the only thing he sees that could be misused is the treble damages provision on page 1, line 11. He offered to work with Representative Porter and his office to do what was done with tort reform, to let the punitive damages go to the state. Number 1758 REPRESENTATIVE DYSON pointed out that this does nothing to stop the mediation process; he said in some ways, it encourages that, because it requires written notice to the offender asking that they stop the activity before going to court. He said they had referred this to the Chamber of Commerce in Anchorage, to see whether they had problems; nothing had come back. REPRESENTATIVE DYSON commented that he would be glad to see any improvements that the collective "we" can come up with, adding that nothing here precludes bonding, which intrigues him a little bit. He also restated that this legislation works very well with what OPAG wants to do. REPRESENTATIVE DYSON told members that after the election, he had gone to senior citizens and others, asking what he could help with, and this is what came out of it. While Representative Croft has acted as a consultant, putting a lot of work into it and providing a lot of valuable insight, Representative Dyson emphasized that the idea behind this is his own. Number 1861 CHAIRMAN GREEN asked about the possibility of bonding being a two-way street, t people but that there would be a penalty for seeking an improper injunction, for example. He asked whether that had come up in the House Labor and Commerce Standing Committee. REPRESENTATIVE ROKEBERG said that is why they'd added the provision about competitive business advantage. He suggested there is enough interest by the majority of the committee members to do something with this bill. He said he'd hate to see it die, although it still needed to be massaged a little more. Number 1976 REPRESENTATIVE JAMES said she doesn't feel comfortable making business people pay anything more than they already do. A bond is there for protection, but if someone even challenges a bond, that is a black mark. She said she doesn't know that having a bond is any better than having an insurance policy, which would provide protection to the business person because the insurance company would go to bat for the business. She said she'd rather see it without that requirement in there. Number 2066 REPRESENTATIVE PORTER commented that the bonding he was familiar with in previous proposed legislation only addressed telemarketing from out of state. REPRESENTATIVE JAMES said that makes sense. REPRESENTATIVE PORTER suggested that mainly that is what they are talking about, especially for seniors. Number 2104 REPRESENTATIVE BERKOWITZ characterized the bonding issue as a huge kettle of fish. He said it is the sort of proposal that needs a lot of close scrutiny because of the consequences to business. While bonds provide security to the consumer, they also constitute a barrier to entry for small businesses, in particular. He said that philosophically, he has a hard time with them, because they impede the free flow of commerce and aren't really consistent with how he believes a capitalistic market should work. They also tend to penalize the law-abiding business, which must put forth security without any showing that they've done something wrong or intend to do anything wrong. He said he agrees with Representative James. REPRESENTATIVE ROKEBERG restated that he doesn't think they're available. Number 2188 CHAIRMAN GREEN agreed with Representative Rokeberg that there are some things in the bill that perhaps need modified. He asked whether Representative Dyson had picked up the concerns and would like to readdress this. REPRESENTATIVE DYSON indicated he would come back with a sponsor substitute or committee substitute. Number 2239 REPRESENTATIVE PORTER added that the court fiscal note would be relevant. REPRESENTATIVE ROKEBERG suggested they also need more testimony about the court rule. REPRESENTATIVE PORTER acknowledged it does affect Rule 82 and would require a court rule change. KEVIN JARDELL, Legislative Administrative Assistant to Representative Joe Green, Alaska State Legislature, speaking as committee aide and attorney, advised members that a provision in Rule 82 says, "except as provided by law." REPRESENTATIVE CROFT responded, "That's where we went around, and that was that testimony in Labor and Commerce. They gave us a loophole in that for just this kind of thing." REPRESENTATIVE ROKEBERG added, "And they said there was discretion on the part of the courts to define -- was it discretion or is it defining Rule 82 by vexatious litigation?" Number 2302 REPRESENTATIVE CROFT stated, "In effect, it gives us the power to do some things with attorneys fees that is not true of court rules generally, except as provided by ...." REPRESENTATIVE JAMES referred to the fiscal note issue and said she doesn't understand where this is going to be costing the court. She stated, "I thought the court fees were supposedly to be paid." REPRESENTATIVE PORTER said this provision, if it were law, would provide an opportunity for a lot more lawsuits. He stated, "And I think the court would like to evaluate that and ... see what the impact on their workload would be." Number 2384 REPRESENTATIVE BUNDE stated that he likes the bill. CHAIRMAN GREEN said, "I think we all do." REPRESENTATIVE JAMES concurred. REPRESENTATIVE BUNDE encouraged the sponsor to not take serious, determined discussion as being adversarial or negative. REPRESENTATIVE DYSON thanked the committee. [HB 203 was held over.]
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