Legislature(1997 - 1998)
02/03/1997 03:17 PM House L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 31 - CIVIL LIABILITY FOR IMPROPER LITIGATION Number 0120 CHAIRMAN ROKEBERG said the committee would conduct a public hearing on HB 31, "An Act relating to civil liability for certain false allegations or material misstatements of fact in a civil pleading or proceeding, for certain improper acts relating to signing a civil pleading, for certain improper acts relating to civil pleadings or proceedings, for making an intentional false statement of a material fact, for acting on a civil claim or defense without probable cause, or for acting for a purpose other than proper adjudication of a civil claim; amending Rules 13(e) and 82(b), Alaska Rules of Civil Procedure; and providing for an effective date." Number 0146 REPRESENTATIVE ELDON MULDER, sponsor of HB 31, said the bill which is subtitled the "Frivolous Lawsuit Prevention Act," has the intention to prevent frivolous lawsuits by requiring that parties to lawsuits be truthful and responsible in their pleadings. This bill discourages false statements, and litigation and encourages responsibility by all parties and their attorneys. It requires more careful and focused preparation in the presentation of pleadings. This bill creates an obligation for litigants and attorneys to make responsible efforts to assure that claims have a probability of succeeding. If the claim is knowingly and recklessly false, then both the attorney and the party can be assessed damages. REPRESENTATIVE MULDER said, currently, there is no effective way of holding parties responsible for frivolous pleadings. Frivolous pleadings increase the litigation costs for the involved parties. They also increase the cost of our judicial system. Number 0252 REPRESENTATIVE MULDER said there would be people who will testify against HB 31, who would say there are already effective mechanisms in place including a $1,000 potential assessment, levied by the judge against an attorney or party for such actions. He said he would present to the committee that he does not feel that this piece of legal action is utilized today, so it is not effective. He said last summer when the tort reform group worked with Representative Porter to come up with a tort reform bill, they recommended increasing the potential fine to $10,000. He said his position is if this mechanism is not being utilized at $1,000, why would they use it at $10,000. A deterrent is only a deterrent if it is utilized. Number 0327 REPRESENTATIVE MULDER said HB 31 requires attorneys as well as their clients to research their claims to assure that they are factually supported before filing a suit. This bill will help eliminate "boiler plate pleadings and lawsuits" and encourages responsible and focused pleadings. He said boiler plate pleadings include everything anyone could ever imagine could ever happen, rather than focusing on the specific issues that actually did happen. Boiler plate pleadings increase the time and the cost of litigation. These extraneous pleadings are expensive to work through and are most often thrown out. They simply cause one party and the court system to spend significant dollars to pare filings down to the real issues. He said many suits are often less expensive to settle than litigate, regardless of their merit. He added that this is another important point of HB 31. REPRESENTATIVE MULDER said that oftentimes litigation is thrown at a claimant or a defendant and it is in his or her interest to settle, rather than to debate the merits of the issue. He said the case should be argued on its merits. The case should be factually based on the merits rather than the fact that he could probably get $25,000 out of you because it is in your interest to settle and you have the deep pockets. Number 0420 REPRESENTATIVE MULDER said HB 31 does not effect suits filed in good faith, but it will have a significant deterrent effect on those cases without merit. A system that allows deceit to be rewarded must be changed. He said this is our current system. He indicated that this type of system is not why we have and support a judicial system. In a nutshell, HB 31 assigns financial ability to those who file lawsuits without probable cause, to those who provide false information, to those who use claims and cross claims to cloud the issues and also for those who file unsuccessful claims on the hope of finding someone, somewhere willing to settle rather than spending dollars to fight the suit. He said the trier of fact, usually the jury, will make the determination whether the untrue information presented was intentional and material. If honest errors are made, then there are no sanctions. A jury can make those decisions. The deterrent effect of HB 31 will reduce those cases that are inappropriate without inhibiting the filings of cases believed to have merit. Number 0506 REPRESENTATIVE MULDER said he introduced the bill last session in the form of HB 316 which passed the House 39 to 0 before being rolled into the tort reform bill which was ultimately vetoed by the Governor. He said HB 316 did have support through the last process. He said not unexpectedly, HB 31 will be opposed by the Trial Attorney's Association. He said, "I think, Mr. Chairman - members of the committee, that anything we can do to help expedite the legal system, to base it upon merit and fact, and to limit the amount of time that people have to be exposed to court, and to base those decisions upon merit and fact and substance and get away from boiler plate proceedings, get away from intimidation and from stalling tactics, that we're going to be doing the public a service. I think that's what the public expects in the end." Number 0583 REPRESENTATIVE MULDER said Mr. Lessmeier and Mr. Mintz, attorneys who are in support of HB 31, are both on teleconference. He referred to the fiscal note from the Department of Law. He said the fiscal note says that if the Department of Law is forced to live under these same rules, there will be some litigation or costs in relation to federal cases. He said he had a proposed amendment which exempts the state from this statute, which would eliminate a fiscal note from the Department of Law. Number 0649 CHAIRMAN ROKEBERG said Mr. Kennedy was on teleconference in Anchorage if there were any questions about the fiscal note. Number 0665 REPRESENTATIVE MULDER said Mr. Christensen represents the Alaska Court System. He said their fiscal note is approximately $37,000. He added he isn't concerned with their fiscal note, he is concerned about the fiscal note from the Department of Law. CHAIRMAN ROKEBERG said Mr. Kennedy from the Department of Law was in Anchorage to testify. Number 0749 REPRESENTATIVE BILL HUDSON asked that the committee address the proposed amendment so that the committee can adequately address the fiscal note. CHRIS KENNEDY, Assistant Attorney General, Environmental Section, Civil Division, Department of Law, was next to testify via teleconference from Anchorage. He said he didn't intend to testify on HB 31. He said he was at the Legislative Information Office to testify at another hearing. He said he was familiar with the HB 316 from last year. He indicated he had not seen the current fiscal note. Number 0830 REPRESENTATIVE JOE RYAN referred to the last page of HB 31, Section 3, and said Rule 82 was being modified. He said his understanding was that rule was modified some years ago and the court went and changed it instead of paying the fees, they paid a percentage of the fee. He asked what is to stop the court from doing the same thing over again. He asked if HB 31 would require that two-thirds of the actual rule change to make the court obey the change. Number 0871 REPRESENTATIVE MULDER said the intention of HB 31 is for an actual rule change, so they are trying to get a two-thirds vote. Number 0889 REPRESENTATIVE COWDERY clarified that HB 31 is basically about truthful testimony and asked him if he believes the fiscal note from the Administration is a truthful response. Number 0908 REPRESENTATIVE MULDER said the fiscal note received from the court system is accurate. He said he has worked with the court system to come up with what is believed to be an actual number. He referred to the fiscal note from the Department of Law and said, "It has been my experience, Mr. Chairman, if the Administration doesn't like the bill it has a strange correlation with getting an inflated fiscal note. If they like the bill it is amazing how the number comes down. I'm not really conjecturing, all I can say is I believe that the amendment we have prepared will address that concern and virtually, what I think, eliminate their fiscal note. So, I'm happy to work with them to do that." Number 0967 REPRESENTATIVE MULDER said once HB 316 was rolled into HB 158, the tort reform bill, the proposed amendment to HB 31 was adopted into HB 158. He said HB 31 is not rolled into the tort reform bill this year as tort reform is a separate issue. Number 1027 MICHAEL LESSMEIER, Attorney, Lessmeier and Winters, testified via teleconference on behalf of State Farm. He noted he has been in practice in Alaska since 1979. He explained most of his practice involves litigation work on behalf of insurance companies. He said he believes HB 31 has two important concepts. One is a concept emphasizing truth. The second concept emphasizes the responsibility of those who use the litigation system. Number 1077 MR. LESSMEIER said if we look at the concept of truth, HB 31 has a specific provision in subsection (b) that basically says if a party, it doesn't matter which party, comes to court and makes a statement that is intentional, false and material that they automatically loose. He said this is a good idea because there is no disincentive to lie in the system today. Most of the time the only sanction that a person would face would be the damage done to his or her credibility. He said the benefit of HB 31 is that it would make the consequences of exaggeration or lying certain and apparent to everyone that comes to the court system. He said the civil justice system ought to encourage the telling of truth and there isn't much of an argument to the contrary on this particular provision. This provision, to his knowledge, was not controversial last year. The only argument raised against it was that there are presently things that judges can do to discourage people who come to court and lie. In his experience, he has seldom ever seen judges, particularly after a case has been resolved, spend the time to get involved in issues like that. He has very rarely, if ever, seen attorneys sanctioned. He has hardly ever seen parties sanctioned for making false statements. MR. LESSMEIER said the difficulty is that many of these cases that involve false statements impose a huge cost on the system to discover them. He said the system would be much better off if every lawyer, who brought a case to court, had an obligation to sit down with their client and explain the consequences of making a false statement of material fact intentionally. He said most of the good lawyers have such a discussion with their clients, but the sanction is not certain and HB 31 makes it certain. He said it is a sanction that could be placed in the system without any significant cost because the only thing that it would take would be a jury instruction. He said probably the most significant benefit from this provision is the deterrent effect and the claims it would weed out ahead of time. He said he felt this was a good provision and encouraged the committee to pass HB 31. MR. LESSMEIER referred to the attorney's responsibility provision, and said there is a lot of litigation which is expensive in terms of time and emotional cost. He said HB 31 is designed to address some of that litigation and noted Mr. Mintz can speak to that. Number 1259 MR. LESSMEIER said last year a fear was expressed that if HB 316 was passed it would lead to a lot of secondary litigation because the winning side would always sue the losing side saying that their position didn't have a reasonable basis. He said he did not think that would happen because of the sanction that is set forth in the later part of HB 31. He said HB 31 basically provides that if you file one of these actions and you lose, you will pay actual costs and attorney's fees to the other side. He said not many people are going to run that risk. Mr. Lessmeier said he felt we would see fewer claims, rather than more claims. Number 1307 CHAIRMAN ROKEBERG referred to Mr. Lessmeier's written testimony and said it states that as much as a 17 percent to 20 percent on increase in total claims based on the potentiality of fraud or "padding" or build-up claims. Number 1328 MR. LESSMEIER said that information came from a study that was done by the Insurance Research Council. Number 1337 CHAIRMAN ROKEBERG asked Mr. Lessmeier if HB 31 were enacted, would the potentiality for that type of suit decrease in the state of Alaska with a potential savings to consumers. Number 1348 MR. LESSMEIER said he could not put a number on it, but HB 31 would have a positive effect. He said many of the cases that ultimately go to trial are cases where damages are hard to quantify. For example, soft tissue claims and things of that nature. He questioned the difficulty of the situation if any of those cases would have an element of either having untruthful statements or exaggerating statements. He said the benefit of HB 31 goes far beyond cases that involve insurance claims. He thought every single claim and every single person who is forced to either defend a claim or bring a claim would benefit from this bill. If their goal was to decide cases on their merit and to encourage truth, then HB 31 will fundamentally change a lot of what happens in our justice system because there is no present certain deterrent if a jury finds that someone is lying. The only damage that they suffer is to their creditability and in many cases they still have to go on to decide the merits of the claim. He said HB 31 would have a benefit, certainly, in the kinds of claims that he is typically is involved with, in literally every plaintiff. MR. LESSMEIER stated he believes that HB 31 would benefit both sides, it doesn't favor one side or the other. Number 1432 REPRESENTATIVE RYAN asked if a majority of these cases civil actions are filed by what is known as personal injury attorneys, people who are looking at contingencies to make some fees for their work. Number 1454 MR. LESSMEIER said he wouldn't say the majority, but some of them might. He wanted to make it clear that in his testimony that the plaintiff's attorneys as well as the defense attorneys for the most part are trying to do their job. He said HB 31 would get at the attorneys that are not trying to live to that level of responsibility. Number 1477 REPRESENTATIVE RYAN asked if it would be a normal practice to instruct the client what their testimony should be under oath. Number 1486 MR. LESSMEIER said a lot of attorneys talk about and discuss the testimony of their client. He hoped that not many or few would instruct the client what to say under oath. Number 1504 REPRESENTATIVE RYAN said he is trying to establish what the actuality is and what causes a bill like this to be necessary. Number 1510 MR. LESSMEIER said the actuality is that, whether conscious or not, there are a lot of claims where it is hard to get at what the truth really is. He said there are a lot of claims where there is a great deal of money spent trying to determine what the truth is. Some of those claims involve fraud, some involve a false statement of material fact, they involve lying. He said those are the claims that he thought HB 31 was designed to address. He said we are never going to eliminate those claims totally, but we can reduce them. Mr. Lessmeier stated HB 31 does that for both plaintiffs and defendants. He said the less that we spend on litigating claims, the better off everybody is. If we can get to the truth quicker, everybody is better off. Number 1572 REPRESENTATIVE HUDSON referred to page 2, lines 18 through 20, and said it talks about a person injured by a violation of this new provision who might bring an action for compensatory and punitive damages. He asked if there were any limits on the punitive damages. Number 1598 MR. LESSMEIER indicated that currently there is no specific limit in the law. Presently, he said he thought that our supreme court has said that the punitive damages should have some reasonable relationship to compensatory damages, but indicated that there is no formal system. Number 1611 REPRESENTATIVE HUDSON asked if this same action would apply to government as well as to the individuals who are filing a claim. Number 1621 MR. LESSMEIER said this question would be addressed by Representative Mulder's proposed amendment. He said the proposed amendment will say that this action does not apply against the state of Alaska. In other words, you couldn't bring an action for violation of this section against the state of Alaska. His view is that depending on what that proposed amendment says, the state would probably be exempt. He said it is interesting that at least one of these concepts already exists with respect to certain litigation against the state; in part the concepts set forth in subsection (b). Number 1661 REPRESENTATIVE SANDERS referred to page 2, line 25, (d), which reads, "a person who...as a representative of a party," and asked if the person was the attorney. Number 1678 MR. LESSMEIER said Mr. Mintz might be able to answer the question better than he is able to. He said in his opinion, it would be the attorney. Number 1686 REPRESENTATIVE SANDERS said the purpose of HB 31 is to create consequences for people who lie in these situations. He indicated he likes HB 31. He said he has an amendment before him that says that the state's attorneys would be exempt so they can lie. Number 1714 REPRESENTATIVE MULDER said he would let the Department of Law address this concern. Number 1731 REPRESENTATIVE SANDERS said that sounds like what we are trying to fight in the trials. They are making it so expensive that you can't afford to do the right thing, you have to roll over and do what they want. He said he would have a lot of trouble voting for this amendment. Number 1745 REPRESENTATIVE MULDER said the Department of Law has a logical argument about why they feel the state should be exempted. Number 1773 CHARLES E. COLE, Attorney, came before the committee to give his testimony. He informed the committee he was admitted the Alaska State Bar in 1955, and has practiced law in Alaska continuously since that time. He noted he is speaking on his own behalf. He is not a member of the Trial Lawyers Association. He stated he does not generally view himself as a trial lawyer although he has practiced in the courts over the years. He stated he opposes HB 31. Number 1813 MR. COLE said in 1938, the federal rules of civil procedure were adopted, applicable to the federal courts. They made a momentous change in the procedural rules in the federal courts. One of the things that they did, among others, was to adopt discovery proceedings which we know of today as depositions, the production of documents, written interrogatories and things of that nature. He said among the other provisions which were adopted at that time was what is known as Federal Civil Rule 11. MR. COLE said, in general, that rule provided for the provisions that are in Section 1, subsections 2 and 3, which include lines 3 through 10 on page 2. He said that rule remained in the federal rules civil procedure as Rule 11 until approximately 1982. He said there had been prior concern about frivolous lawsuits and a lawyer's obligation in signing a pleading which led to amending Rule 11. He said they tightened Rule 11 (indisc.--paper shuffling) greater burdens of investigation, research before filing a complaint or signing their name to any pleading. This was hailed as the savior to these lousy lawyers who were abusing the system much as what Mr. Lessmeier stated in his testimony. MR. COLE said it was about three years before Rule 11 started wreaking havoc with litigation in the federal courts. Beginning in about 1986, articles were written in various law reviews, federal rules decisions and in other literature commenting upon this rule because it wasn't working, it was a disaster. He said the amendment to Civil Rule 11 in 1982, was a small tightening of the obligations of rules compared to what happens in HB 31. He said federal district court judges started complaining in literature about Rule 11. Courts of appeal judges, including those on the court of appeals who (indisc.) friends in the Ninth Circuit, started having huge problems with this rule. MR. COLE said that one of the things they found was that lawyers started suing lawyers right off the bat. Every time a motion would be filed, the opposition would file another motion seeking sanction against the lawyer who filed the motion. Then the lawyer who was the recipient of that motion would file a motion back for sanctions under this amended and tightened Rule 11 against the lawyer who made the sanctions motion against them. He said pretty soon this squabbling between lawyers who kept seeking sanctions against the other started consuming the path of the litigation. MR. COLE said, "The number of appeals which went not only required decisions on these issues by the United States district judges, but then the litigation in the courts of appeal over this issue started proliferating." He noted he has the statistics that he could provide to the committee. Rule 11 became such a disaster that they convened in 1990, at a conference in Washington, D.C., dealing with all the lawyers, judges and people who worked with the federal rule and said the rule is a disaster and it needs to be done away with it. He said they did do away with the rule. MR. COLE said if you think that this rule is going to reduce the cost of litigation to the consumer, to put it softly, he doubted it. He said there is nothing worse than litigation when lawyers start fighting lawyers. They start writing the time slip, file opposition to motion and then send those bills to the client. He said clients are receiving these huge bills from lawyers who are fighting each other, who can't communicate over the phone and are mad at each other for filing these motion against them. He said the clients are paying staggering bills and nothing is happening to their lawsuit. He said in 1993, they changed the rule to relax it. Number 2134 MR. COLE said he represented a prominent Anchorage attorney who had a motion filed against him for a $2 million sanction. He said it took him a better part of a year to defend that motion. He wrote a 525 page analysis of the case including the tracing of all the decisions on this subject in the Ninth Circuit and throughout the country. He said when he finished, the bill was sent to the insurance company for about $150,000. He said it took a massive amount of work to defend against it. The motion was denied and the $8,000 sanction previously imposed was vacated. MR. COLE said, if HB 31 comes to law, it will ruin the civil practice in the courts because there will be attorneys fighting and fighting. He referred to lines 18 through 22 and said then this claim for compensatory and punitive damages shall be asserted in the same action in which the injury arose. He asked the committee to think how that is going to work. He presented a scenario where a client comes to you and says he has this claim. There are the pleadings and finally someone is going to say that they have to sue the other lawyer and send this case to the jury. The jury is going to have decide between the lawyers and then decide on the claims against the client. It will be a terrible mess and this will happen. He said he respects Representative Mulder and Mr. Lessmeier, but HB 31 is going to ruin the system. MR. COLE said he went to the law library in Fairbanks and looked through the periodicals starting with 1986, copying a hundred pages of articles telling what a disaster the 1982 amendments to the Federal Civil Rule 11 was. He said with all due respect, bear in mind the experience of the federal courts to this rule. It did not work there and it would be a disaster here. He said HB 31 would not affect him, but we have to preserve the system. Number 2278 REPRESENTATIVE HUDSON clarified that the old Rule 11 is essentially what we have in HB 31, but not as extensive. Number 2286 MR. COLE said that the old Rule 11 is by light years not as extensive. He said there is a similar rule in the Alaska Rules of Civil Procedure which was adopted by our supreme court which does not go nearly this far, but it is there and available for use by the judges when they want to use it if they feel some lawyer is not doing what he or she is not doing what they should be doing. He said there are plenty of hours such as striking pleadings and things like that which deal with this. Number 2308 REPRESENTATIVE HUDSON asked what spurs this concern over frivolous losses. He asked if there was anything in the existing law that could be applied or enlarged which would reduce or eliminate some of the knowingly false claims. Number 2327 MR. COLE said he speaks with superior court judges and said the tort reform group heard from them in their proceedings. He said Judge Shortell said he did not see these frivolous lawsuits. He urged the committee to speak with these judges and repeated that he would provide information to the committee. Number 2372 REPRESENTATIVE RYAN said the period from 1795 to 1815, when Napoleon was emperor of the French, there was a British perception that a great tyranny was being done to the European continent. He said there was a toast in the British army which was called the confusions of the French. He said the confusion that Mr. Cole brings forth to the passage of HB 31 is intriguing. MR. COLE said Justice Rabinowitz, who has been on the trial bench for years, is retiring. He said the committee should ask what his views are and not just listen to the trial lawyers. He said they all have economic interests. The committee should ask people who are not economically involved and get their views. Number 2429 REPRESENTATIVE COWDERY recited personal examples where witnesses in a lawsuit lied, but the insurance company settled the lawsuit. It had nothing to do with justice. He said a lot of public people are not lawyers and many of them have experiences similar to what his was and that is perhaps why HB 31 is before the committee. TAPE 97-7, SIDE B Number 0000 REPRESENTATIVE COWDERY said the public has concerns about the existing situation. Number 0013 MR. COLE said, "That I recognize. The remedy for that is trial judges, if they are convinced perjury has been committed, they should summarily refer that case to the district attorney for investigation and possible prosecution. And furthermore, district attorneys should prosecute people who commit perjury and people who are prosecuted for perjury should not only be the people who lie while testifying for the defense in a criminal case, but they should prosecute people who lie in civil cases. I mean that's the way you clean up people who lie in this system. And, you know, lawyers they don't have a lot of control over people who lie. And let me just say, technically, what is a material misstatement of facts, I mean, if you don't think that in the, the last line in page one of this is going to cause litigation, that will (indisc.) the court system for, in litigation for the next hundred years. I mean, that is just an invitation to litigation and big expenses." Number 0056 REPRESENTATIVE MULDER asked what could be wrong with the public's expectation that lawsuits be based upon truth and fact. Number 0070 MR. COLE said lawsuits should be based on truth and fact. He said he thinks the existing procedures are adequate to do that. If what we are really looking for in our civil judicial system, as well as our criminal judicial system, is the prompt, expeditious and fair resolutions of disputes between litigants, whom we should concentrate our function toward resolving disputes in that fashion and not create satellite litigation which will exist. He said this litigation will cause more expense and confusion to the resolution of civil disputes then you can ever imagine and certainly, far more than HB 31 would solve. Number 0111 BOB MINTZ was next to testify, via teleconference from Anchorage, on his own behalf. He indicated he has practiced law, primarily commercial litigation, but for the past 15 years he has been working for Carr Gottstein Properties, primarily in real estate. He said currently, nothing bad happens to attorneys and clients who violate the standards that are set forth in HB 31. He said HB 31 does two things: It establishes standards which are not novel for the most part and it provides for a more efficient enforcement of the standards of conduct. He agreed with Mr. Cole that perjury should be punished and prosecuted which would result in a cleaning up of the system, but said this does not happen now. He said right now, for a violation of Civil Rule 11, Standards of Conduct, the judge has discretion to impose the fine or not. He said the judge is in the best place to be offended by a violation of that standard. He said HB 31 puts the hammer of enforcement of these Standards of Conduct into the hands of people who are actually injured. He said the other thing that HB 31 does is that it makes the person, who is violating the standard of conduct, responsible for paying any of the damages that they caused, not a discretionary slap-on-the-wrist fine. Standards are whether you can knowingly or recklessly file false or material misstatements of fact. It is whether or not you are responsible for making a reasonable inquiry before you file a claim for defense and allegation and determining that it is well grounded. MR. MINTZ said it requires that you have probable cause and a valid motive for filing a claim or defense. He said most people would take it for granted that this happens and usually it does, but sometimes it doesn't. He cited a personal experience where he was personally sued by two people with 22 claims in each complaint. He said of the 22 claims, 2 or 3 of them were good fair shots and the rest of them were not valid. He said it took two years to adjudicate the cases with the state paying for the defense which cost $250,000 in attorney's fees. He said in one case they received summary judgement and in the other case it was dismissed while the final motion for summary judgement was pending. He said it comes back that nothing bad happens to attorneys and clients who take a shot like the one he cited. He felt there should be a substantial disincentive for people who flagrantly abuse the system. MR. MINTZ said that HB 31 is designed to be a substantial disincentive. He encouraged the committee to not just talk to judges, but to people who have been sued and which of the claims were fair shots and which were not. He said the intent of HB 31 is to pare litigation down to save the time and energy of people who sue, are being sued and of the court system. Number 0309 CHAIRMAN ROKEBERG asked if there was factitious litigation statute in the state of Alaska. Number 0340 MR. MINTZ said there is none that he was aware and he has spent a generous amount of time and energy looking for one. He said the people of the state have no protection at all, it is completely discretionary with the court and is rarely, if ever, enforced. Number 0362 REPRESENTATIVE TOM BRICE referred to Mr. Cole's testimony regarding the federal changes causing lawyers to sue each other and asked him to comment on how HB 31 might affect our judicial system. Number 0410 MR. MINTZ said the fear that HB 31 will be used as a vehicle for increasing frivolous claims are predicated on the existing system in which frivolous claims are rampant and there are no severe consequences for bringing frivolous claims. He said if you impose consequences for bringing frivolous claims, then iterative suing, counter-suing will be much less of a problem. He said the federal rule change in 1983 is the subject of a law review article in 43 Kansas Law Review, page 207. He said this article does a nice job of tracing the history of the original Federal Rule 11, the 1983 change and then the subsequent 1993 change. He said the reason we use the standard that is embodied in HB 31 is because it was listed right out of the Alaska Civil Rule 11. He said this rule is based on the old 1983 Federal Civil Rule, which was supposedly such a big problem. It apparently has not been such a big problem in Alaska because if you look at the Alaska Rules of Court and the adaptations of the cases under Civil Rule 11 there hasn't been a whole lot of litigation regarding the same 1983 Federal Rule of Civil Procedure that Mr. Cole referred to. Number 0477 REPRESENTATIVE HUDSON referred to page 2, "false allegations and material misstatements of fact," and said Mr. Cole had said these are the buzz words that would lead to lawyers suing lawyers and asked him to comment on that. Number 0495 MR. MINTZ said they tried to use words in HB 31 that have been interpreted by case law so that it would be defined standards of conduct. As far as he was concerned if you wanted to put the word, "lies" in there instead it would be fine its just that it would generate litigation over what the word, "lie," means. He said there has been a lot of case law interpreting what a material misstatement or a false allegation is. Number 0538 PAM LaBOLLE, President, Alaska State Chamber of Commerce, was next to testify. She referred to the legislative history on HB 31. She suggested that perhaps if lawyers had to sue each other on the own time, it would be a different story as to whether or not they would sue each other. She thought the argument that judges don't feel there is a lot of frivolous lawsuits is because often times these cases don't get to court. There in an inherent blackmail in having to use your life savings to defend your business against a lawsuit. She said with the lack of sanctions against those who lie what are the chances for fairness, honesty or justice. MS. LaBOLLE said last January, the Alaska State Chamber of Commerce conducted a survey of Alaska voters asking them about the civil justice system. She said two out of three Alaskans said that we have too many frivolous lawsuits, the justice system needs to be tightened up, there ought to be truth and honest in the system. She said 83 percent of them said that if the legislature passed a bill on this subject it ought to be passed into law. Number 0683 MS. LaBOLLE said HB 31 is such an important element for addressing the concerns of those Alaskans that we strongly urge support of this legislation. Number 0714 STEPHEN CONN, Executive Director, Alaska Public Interest Research Group (AKPIRG), was next to testify via teleconference from Anchorage. He said the mandate of AKPIRG is to look out for the consumers. He reviewed the bill, stating that he attended the Commission on Civil Liability and heard the sponsor's hopes for HB 31 and said he sees this bill as fodder for retaliatory lawsuits. He said there are words in this bill that are totally undefined and referred to the word, "nonparty," on page 2, line 23. He said it does not say witness, it does not indicate whether this person is even involved and maybe this person induced litigation, but HB 31 makes them responsible for it in its entirety. A fisherman, a villager who desires a lawsuit to be brought against a cooperation might find himself on the receiving side of a retaliatory lawsuit. Number 0801 MR. CONN referred to page 2, line 30, and said the notion that someone who promotes litigation for a purpose other than securing the proper adjudication of the claim raised another specter for him. He said many groups engage in what is known as public interest litigation which promotes and encourages litigation other than the precise claim. He referred to the way HB 31 is written and said even if a litigant loses they can still come back and slap at entities that may or may not have been involved in the immediate litigation but encouraged it to occur. He encouraged the committee to separate his concerns about HB 31 and how it will spawn litigation from their concern over frivolous litigation and greedy attorneys. Number 0933 CHAIRMAN ROKEBERG asked if AKPIRG would be in harm's way if this bill were to pass. Number 0941 MR. CONN referred to a lawsuit that AKPIRG is currently encouraging the state to pursue and said if HB 31 passes, his organization might be accused of material misstatements. Number 1010 CHAIRMAN ROKEBERG said if AKPIRG makes a misstatement, they would have a cause of action against his organization. Number 1018 MR. CONN referred to Section 1 (a) of HB 31, "knowingly or recklessly file, or cause to be filed, a civil complaint, answer, or other civil pleading that contains false allegations or material misstatements of fact;" and suggested that he is not talking about lawyers suing lawyers, but public spirited citizens who would like to see a matter brought to court. Their reasons have to do with their belief that if that matter goes through the court process their concern over a public policy matter will be effectuated. He said these citizens might find themselves on the sidelines and this is the danger that he sees in HB 31. Number 1119 CHAIRMAN ROKEBERG said he is concerned with people litigating something just because they don't like something. He said the courts are not the proper forum for that problem. Number 1148 JEFF BUSH, Deputy Commissioner, Office of the Commissioner, Department of Commerce and Economic Development, stated that he served on the Governor's tort reform or civil justice reform task force and what the results of the task force meeting were. He said although the task force, the Administration and he, after working on a subcommittee dealing with this specific issue, are all sympathetic with the purpose behind HB 31 the Administration and the task force came out opposed to HB 31 for many of the reasons heard today. He said the Administration supports the concept of getting rid of frivolous litigation and anything that can effectively do that without, at the same time, increasing the litigation burden on the system is a good thing. He said we don't want to get rid this particular problem by in fact increasing litigation which he believed to be the point of the tort reform movement. MR. BUSH mentioned Mr. Cole's testimony that Judge Shortell, and added Justice Fabe's testimony, that frivolous is really in the mind of the beholder. He referred to Mr. Mintz's personal experiences and said those experiences may in fact be somewhat outrageous, but it doesn't in fact make them frivolous. He said just because a particular party loses does not mean that the case was frivolous. He said one party will win and the other will lose if the case goes to a jury system. He said the judges say it is extremely rare where you have cases that they can, on their face, see as frivolous. Number 1270 MR. BUSH said HB 31 proposes to set up a system which increases litigation costs. He referred to the proposed amendment to decrease some of those costs outlined by the Department of Law, and said that these same types of costs outlined by the Department of Law are reflective of the same kinds of costs that private litigants are going to have. He said the court system fiscal note talks at length about HB 31 will increase litigation, not decrease it. He said we can all sit here and say that this "Party X" should not be allowed to file a frivolous lawsuit against this particular defendant "Party Y" and that we ought to have a system that allows us to go back after "Party X" for doing so. MR. BUSH said a problem arises when "Party X" is essentially judgement proof. He said this is where you have your so called frivolous litigation to begin with. There is nothing in HB 31 which is designed to protect against those type of situations. If you have pro se litigants or judgement proof litigants, they have no reason to be afraid of the sanctions imposed by this piece of legislation. It is in their interest to file motions or separate pleadings against the defendant's attorneys for so called frivolous motion and then the attorney would counter files something back saying that motion was frivolous. He said the risk on the initial party that caused this escalation of litigation is nil, because they are judgement proof. This is the problem that HB 31 is going to cause and it is why the costs for both the Department of Law and the private sector would go up. He said he was surprised by Mr. Lessmeier's testimony because it is defendants in insurance companies that face the highest risk with HB 31. MR. BUSH said the subcommittee looked at this proposal, based on HB 158 from last year, and rejected it. He said the subcommittee consisted more of defense oriented people, tort reform supporters. He said there was a defense lawyer, a lawyer who splits his time about 50/50, a doctor, an engineer and himself on this subcommittee. He said these people looked at this thing and said the risk for this type of legislation is on the defendants because we are the ones that the abuser is going to use this type of proposal and abuse the system with it. He said this is why the subcommittee unanimously rejected this proposal and came up with the alternative of increasing the fines that the court, at its discretion, can levy against attorneys from $1,000 to $10,000. Number 1438 MR. BUSH said Mr. Lessmeier testified that there would be a reduction in overall litigation as a result of HB 31 and added that he is the first and only person he has ever heard said that. He said he has talked with people in the court system, witnesses at the task force, read the fiscal note, all of whom say that HB 31 will increase litigation, not decrease it. He said some so called frivolous litigation may not be filed, but you will find more likely and more often that this will be used as a strategic measure by lawyers engaged in complex litigation as another way of attacking the opposing lawyer, causing additional costs to the litigants. Number 1509 MR. BUSH referred to the proposed amendment and said the task force had the same concerns that Representative Sanders voiced which is why should the state have special privileges. He said the task force did not deal with this issue specifically to HB 31, but dealt with the issue in terms of several proposals that were on the table relating to the state. The general feeling of the task force was that the state should not have any special privileges. He said, if HB 31 were to pass, the state would support the proposed amendment because of fiscal implications. Number 1568 MR. BUSH referred to Mr. Mintz's testimony that there are no options available to him and pointed out that in Alaska there is a cause of action which is called abusive process. He felt this is what the committee is talking about in some ways. He said there is a right to file a legal lawsuit against somebody who is abusing the legal system improperly, called an abusive process action. He suspected that when Mr. Mintz said he could not find an avenue to solve his wrongs it was because he may not have been able to meet the standard necessary. He said this is because, as the judges all said, it is difficult for anyone to prove that something was done maliciously or improperly and is frivolous or false despite spending a lot of time and money to do. He said by putting a cause of action that encourages people to make that claim, it is very easy to claim that something the other guy did is frivolous and you can spend a lot of time and money litigating that question. He said even if you lose you can use it as a strategic ploy against the opposing lawyer. Number 1636 REPRESENTATIVE COWDERY asked him if he felt the system was okay the way it currently is. Number 1647 MR. BUSH said he was probably the strongest supporter of the increase in the fines available for the courts to access. He said $1,000 is really a slap on the wrist. If a lawyer is abusing the system and is encouraging frivolous litigation, then the court ought to be able to impose something stronger than a $1,000 fine. Number 1678 REPRESENTATIVE COWDERY referred to his testimony and asked how many private citizens he talked to who had been involved in cases that were settled outside of court at great expense. Number 1731 MR. BUSH said there is no question that this was a major concern that the task force had. He said it is not just with the function of frivolous cases. If he gets sued and he does not believe that the lawsuit is valid, he is going to believe that it is a frivolous lawsuit which is a common feeling among litigants. He said a contrary feeling among plaintiffs when the litigant slaps him with some sort of affirmative defense to the claim and hires a big, expensive lawyer, then they are not being fair and their defense is frivolous. He said the task force spent a lot of time trying to figure out how to deal with the problem of people who are essentially differing on their opinions. MR. BUSH said the solution they came up with was to set up a system which will resolve cases in a quick and less expensive manner. He said if you get sued it will cost you a lot of money to try to defend that case. He said they tried to set up, through the task force report and the Governor's bill, a system that allowed for the resolution of cases more quickly and, therefore, more cheaply. Number 1810 REPRESENTATIVE COWDERY asked him if he didn't think people would sue if they didn't think there was a deep pocket to get to. Number 1826 MR. BUSH said there is no question there is a deep pocket, but lawyers do not bring up cases unless they feel there is a reasonable chance of success. He said judges do have the authority to throw out a case that has absolutely no merit whatsoever. Lawyers have to think that they are going to get it to the jury. Number 1867 REPRESENTATIVE COWDERY felt that lawyers believe in a success that will happen before it ever gets to a judge or jury. Number 1883 REPRESENTATIVE MULDER conceded the fact that in the short term litigation will increase, but felt in the long term that there will be a decrease as the lawyers and the litigants learn the consequence of protracted litigation. He said a case has to be based on merit and fact and not on a personal disagreement with the court deciding on the new policy. Number 1938 MR. BUSH said his understanding, at least the understanding of the judges, that there is nothing in the word frivolous which would prevent someone from bringing a case with the intention of changing the law. He said they may reasonably believe that the way the law has been interpreted in the past they will lose, but that is not grounds for calling it frivolous. He said it is not frivolous to bring up a case in an effort to try to change the law. He said we heard from the court system that they do not see frivolous cases. He said if they are not seeing them now, the only time that you are going to see them is when frivolous motions are filed as a result of HB 31. Number 1999 REPRESENTATIVE COWDERY clarified that he believed many of these cases are settled outside of the courts. Number 2015 REPRESENTATIVE RYAN referred to his earlier question of Representative Mulder about recovering reasonable attorney fees as modified by the supreme court's thirty percent, instead of all the fees. He believed that in 1990, we voted to do away with joint civil liability which the supreme court has chosen to ignore. He said the Alaska Supreme Court has approximately a 75 percent reversal rate which makes a lot of people wonder why we have the inferior court system. He said HB 31 is designed out of frustration to try to send a strong message to the court to give us justice, not excess amounts of litigation. Number 2103 REPRESENTATIVE HUDSON made a motion to adopt proposed Amendment 1, Ford, dated 2/3/97, O-LSO193\A.1 to HB 31. Number 2130 REPRESENTATIVE BRICE objected to the motion. He said the state, if involved in litigation that is considered frivolous, should be as liable as a private citizen. Number 2313 A roll call vote was taken regarding the adoption of Amendment 1. Representatives Hudson and Cowdery were in favor of adopting the amendment. Representatives Sanders, Ryan and Brice voted against the amendment. So Amendment 1 failed to be adopted. Number 2333 REPRESENTATIVE HUDSON made a motion to move HB 31 out the House Labor and Commerce Standing Committee with accompanying fiscal notes and individual recommendations. Hearing none, HB 31 moved out of committee.
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