Legislature(1997 - 1998)
04/23/1997 03:27 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 203 - ACTIONS FOR UNLAWFUL TRADE PRACTICES CHAIRMAN ROKEBERG announced the next item of business, House Bill No. 203, "An Act relating to actions for unlawful trade practices." Number 1513 REPRESENTATIVE FRED DYSON, sponsor, advised members that Representative Croft and the person on line from the Office of the Attorney General would address technical questions about Alaska's consumer protection law. He stated, "Since the mid-80s, we have continued to defund the Attorney General's consumer fraud department. And it's been reduced to the level where only the most extreme cases are they able to handle. And ... the response for dealing with consumer fraud has largely fallen to the BBB, the Better Business Bureau, who has no legal standing in enforcement." REPRESENTATIVE DYSON said this bill purports to equip private citizens with most of the power of the Attorney General in terms of seeking relief from fraud and injunctive power to stop it while it is occurring. It appeals to him because it gives private citizens the power to do the enforcement and to seek relief. REPRESENTATIVE DYSON explained that part of the problem previously was, as he remembered it, a $200 limit for punitive damages. This made it virtually impossible to find an attorney willing to take the case. As he understood it, it was also impossible to get an injunction to stop a fraudulent act until going to court and obtaining a verdict of guilty. This bill provides the means to cure all of those problems. Number 1674 REPRESENTATIVE DYSON noted that a fair amount of fraud occurs in Alaska, He cited examples related to telemarketing, used cars in Anchorage, "bait-and-switch" deals involving meat, mail-order and pyramid schemes, and airline discount ticket deals. Nationwide, Alaska is the state least prepared, in terms of available staff or resources, to deal with consumer fraud. The Better Business Bureau in Alaska has been receiving 100 to 300 calls a day. In 1995, the last year for which figures are available, there were 20,562 calls relating to concerns about consumer fraud. Since January of this year, Representative Dyson indicated he and Representative Croft had been working a good deal with the Administration, and he believes the Administration is wholeheartedly in favor of this. Number 1804 REPRESENTATIVE COWDERY asked Representative Dyson to comment about the amount of "actual damages or $500" in Section 2. He said it seems to be a very small figure. REPRESENTATIVE DYSON stated, "Remember, it was $200 before," then indicated the punitive damages are triple the actual damages award. He deferred to Mr. Schwartz for technical answers. CHAIRMAN ROKEBERG invited Representative Dyson to join the committee at the table. Number 1889 DAVEED SCHWARTZ, Assistant Attorney General, Commercial Section, Civil Division (Anchorage), Department of Law, testified via teleconference from Anchorage, saying he is in charge of consumer protection enforcement for the department. He stated, "The Department of Law's official position on this bill is that we enthusiastically support it. We see it as a way of enhancing a private litigant's ability to sue under the consumer protection act and to exercise their private right of action ... to obtain redress for a consumer protection violation, and this being especially important in our era of dwindling public resources devoted to consumer protection enforcement." MR. SCHWARTZ pointed out that the department hasn't taken individual complaints from the public in the area of consumer protection for about ten years; that function had been eliminated. Whereas they once had about 16 people in a separate consumer protection section, they now have a very small staff to litigate the most egregious violations, some of which Representative Dyson had mentioned. They try to litigate cases involving large numbers of consumers and try to get refunds. Although fairly successful with what they do, they are only a shadow of the staff that existed in the 1980s. Number 2002 MR. SCHWARTZ agreed this bill will enhance a consumer's ability and incentive to sue under the consumer protection act. Referring to Representative Cowdery's question about Section 2, Mr. Schwartz stated, "Section 2, as amended, would expand the types of actions available. Currently, under the private right of action section of the consumer protection statute, a person must suffer an ascertainable loss of money or property in order to bring a private action under the consumer protection act. Last year, the legislature amended the consumer protection act to make unwanted telephone solicitation a violation of the consumer protection act." MR. SCHWARTZ pointed out that the new Anchorage telephone directory and "some other books" contain black dots next to a few customers' names. He explained, "If a telemarketer calls a person with a black dot next to their name, that's a violation of the consumer protection act. Those consumers may not suffer any ascertainable loss of money or property, but they are `otherwise aggrieved' under the consumer protection act, and they would have a cause of action under the consumer protection act with this wording on lines 9 and 10, `or who is otherwise aggrieved.'" MR. SCHWARTZ continued, "Additionally, under the current private right of action section, a person may obtain their actual damages or $200 for their entire case, whichever is greater, and they may only get three times their actual damages if they can prove a willful or intentional violation. The amendment would automatically triple the actual damages that would be awarded to a consumer and would also give a consumer the greater of three times their actual damages or $500 per violation. So, even though it looks like a small step up from $200 to $500, right now a consumer who doesn't get his actual damages but gets $200 statutory damages instead would get $200 for their entire case. Under the amendment, they would get $500 per violation." MR. SCHWARTZ continued, "For example, someone with a black dot next to their name gets ten calls from a telemarketer, each call being a violation. Under the current statute, they've suffered no actual damages; so, they'd get only $200. Under this amended statute, since they've suffered no actual damages, they could get $500 per telephone call, or $5,000. So, that's how that might work." Number 2219 MR. SCHWARTZ reported that Sections 1 and 3 are housekeeping provisions to recognize other changes in the bill. Section 4 allows a person to bring an action for injunctive relief, which is significant because of the state's inability, due to lack of resources, to obtain an injunction in every instance of a consumer protection violation. This would also encourage a private litigant or a consumer group to engage in private enforcement of the statute. MR. SCHWARTZ stated, "The section of the bill dealing with attorneys fees and costs, that's also part of Section 4, is very significant because a prevailing plaintiff would be able to get an award of full attorneys fees and costs and would only be subjected to the payment of attorneys fees to a prevailing defendant if it were shown that the plaintiff's suit was frivolous. This amendment would bring Alaska in line with the vast majority of states and ... would, I believe, take us out of the same league as Mississippi." MR. SCHWARTZ said his general comment about the bill is that it would indeed encourage more private litigants to enforce their rights under the consumer protection act, and it would generally be a good thing for consumers. Number 2380 REPRESENTATIVE RYAN asked whether anything in this consumer protection law talks about due diligence on the part of the consumer. He noted that a Persian saying found in the Old Testament says, "A buyer needs 100 eyes; a seller needs but one." He asked, "Where is it that you are completely held harmless for anything anybody hoodwinks you into, and the other person is the only one that has any guilt? Do you not have a responsibility to be aware how you spend your money and to what agreements you make?" MR. SCHWARTZ replied that most certainly, consumers should be aware that there are a variety of business practices. However, just about every state has a consumer protection act. TAPE 97-48, SIDE A Number 0006 REPRESENTATIVE COWDERY commented that there are many things Alaska has that other states don't, including Prudhoe Bay and the permanent fund. Referring to "pyramid clubs," he said he receives a letter at least once a year from somebody who is totally convinced it is workable, usually someone he knows. He asked, "Following up on Representative Ryan's comment, how do you handle a situation like that?" He also asked how this is different from small claims court. Number 0125 MR. SCHWARTZ explained, "A consumer can sue under the consumer protection act in small claims court. Of course, the dollar recovery limit in small claims court is $5,000. And in many instances, the consumer's actual damages will be much greater than $5,000. And so, that would bring the consumer into the area of district or superior court. So, small claims court is actually an avenue of redress for consumers who have small claims, claims under $5,000." MR. SCHWARTZ pointed out that pyramid schemes are illegal. A pyramid scheme of the worst variety is one where "spots on a chart" are being sold, with no product involved at all. In contrast, there are multi-level marketing companies such as Amway that are legal. However, these companies may not work sometimes, and it may depend on the motivation of the person who gets involved. Number 0262 CHAIRMAN ROKEBERG referred to new text in Section 2, beginning on page 1, line 15, which says, "Nothing in this subsection prevents a person who brings an action under this subsection from pursuing other remedies available under the law, including common law." Chairman Rokeberg said this is a rather unusual statement. His reading of it would be that a person could bring a cause of action for anything allowable under statute; in addition, if there is any other concept in common law, he could bring a cause of action on that, whether or not it was codified in Alaska statute. He asked whether that is a correct interpretation. MR. SCHWARTZ replied that he believes this last sentence in Section 2 is consistent with something in the consumer protection statute at AS 45.50.471(c), which says, "The unlawful acts and practices listed in (b) of this section are in addition to and do not limit the types of unlawful acts and practices actionable at common law or under other state statutes." MR. SCHWARTZ said, "So, I guess the answer to the question is that right now, a private litigant and the state, exercising the Attorney General's common law authority, may bring an action simultaneously under the state consumer protection act and under the common law and pursue statutory and common law remedies. So, this sentence that you're focusing on here is consistent with, and may be just an added clarification of, the ability of a litigant to sue ... simultaneously under state law and common law." Number 0421 CHAIRMAN ROKEBERG asked whether that is under the consumer protection title or for any cause of action. MR. SCHWARTZ said these amendments refer only to Alaska's own unfair trade practices and consumer protection act. Number 0449 CHAIRMAN ROKEBERG referred to page 2, lines 9 and 10. He mentioned Mr. Schwartz's reference to the "telephone situation" and the distinction that presently there must be an ascertainable loss or property loss. Section 3 deletes "the loss resulted" and inserts "the cause of action arose." Chairman Rokeberg asked whether that is because if there is fraudulent activity but no actual loss, then a cause of action would arise out of that activity. MR. SCHWARTZ affirmed that. That change of language in Section 3 recognizes that persons who haven't suffered an ascertainable loss of money or property, but who are otherwise aggrieved, could also bring a cause of action. Number 0533 CHAIRMAN ROKEBERG referred to page 2, lines 27 and 28, which says, "unless the court determines that the cause of action brought by the plaintiff is frivolous." He stated his understanding that Alaska has no vexatious litigation statute or frivolous lawsuit statute, except perhaps the recent tort reform bill. He asked whether that is correct. MR. SCHWARTZ said he isn't aware of such a statute, although in other states this is a common provision. It would have the effect of encouraging private enforcement of the consumer protection statute. Number 0627 HELEN BEIRNE testified via teleconference from Anchorage as an aggrieved private citizen. She recounted how a car was sold to her fraudulently in 1994. It had been listed in the paper as a 1993 model with 12,000 miles and a three-year warranty with one year remaining. Someone with her knew more about cars than she did, and the car appeared to be in mint condition. However, within four days, it had significant mechanical problems, and she discovered under the warranty that it had been in a major accident and was unsafe. DR. BEIRNE stated, "They agreed that many of the repairs that had been made on the car by a local body shop here would have made it not very discernible to someone, unless they put it up on a rack and did a major inspection. So, on advice of an attorney, I did take it back to the gentleman and ask him if he would just take his car back and return my money. Of course, he would not and again indicated that all he'd told me was true, that it was really a family car and he couldn't afford to keep it, et cetera, et cetera. This is a common story, I think, that all of you have heard." DR. BEIRNE continued, "When this failed, I did then start tracking the car down and found that he had indeed purchased it from a salvage yard, at a very reduced price, and in conjunction with his body shop had brought this up into what appeared to be absolutely mint condition. Other things that came to light was that he was doing this frequently. ... It'd be difficult to say, but he had as many as a hundred ads in the paper over the year and had many cars listed under his name. He was unlicensed." DR. BEIRNE continued, "And in all cases, as I started contacting these people, in most cases - there were people who were professional individuals - most of them didn't have the finances, nor did they have the time, to actually pursue it. There were two or three who had sued him, and they dropped it because they realized after, I think, counsel from attorneys and others that even if they won, they would indeed lose." DR. BEIRNE continued, "And later on, ... I did choose to carry this to a jury trial, which he requested, and I realized that these individuals who work in these systems know all of the delay tactics. They will take it to the very `nth' degree, and then eventually people drop it. They can't afford to spend the time, the energy and the money to pursue it. It appeared that after he realized I was not going to do that -- and the reason I didn't is it was in my first year of retirement as director of the Municipality of Anchorage's health department, and it wasn't the way I would choose to spend my first year of retirement, but I thought I would pursue it." Dr. Beirne said a young woman attorney contributed a great deal of time, and she also had the moral support of Mr. Gilmore. In addition, she'd contacted the Office of the Attorney General. Number 0853 DR. BEIRNE reported that she'd won that case, being awarded $25,000 by the jury, to repay her for what she'd put into the car, plus attorneys fees and fixing up other cars for transportation, and so forth. Her interest in this bill arises from the fact that even after judgment, it took two years to work it through the system. As soon as this individual had realized he wouldn't win, he'd divested himself of all his earnings, funds and accounts. DR. BEIRNE said the jury, in its wisdom, had asked the judge whether this man could resell the car if he got it back, since Dr. Beirne hadn't wanted it; the judge had said yes, he could resell it. "So, they gave the car to me, for what it's worth, because they didn't want him to have it," she noted. DR. BEIRNE indicated the chance of collecting anything once a case is settled is almost nil if the defendant has been working the system for a long time. "Also, you can't stop them, under the present law, from going out and doing it, even without a business license," Dr. Beirne said. She noted that some of these issues are addressed in the bill, including the increase to $500 and the ability of a person to obtain an injunction prohibiting a seller or leaser to continue to engage in the unlawful act; she believes these will be of value. Number 0983 DR. BEIRNE said, however, she believes AS 45.50.537 will probably be of the greatest assistance to some who chooses to pursue it. It appears that there will be some financial assistance, as long as it is not a frivolous case. DR. BEIRNE advised members that in the process, she'd learned a great deal. It appears that many people pick up salvaged vehicles; some had testified on behalf of the man who sold her the car. As for "owner beware," she believes it is difficult for even fairly astute average citizens to determine when they are being fraudulently involved. Dr. Beirne would like to see the bill pass, as she believes some of the relief would be helpful. Number 1050 STEPHEN CONN, Executive Director, Alaska Public Interest Research Group (AKPIRG), testified via teleconference from Anchorage. He stated, "I think Representative Dyson is doing us all a major service by this bill. As you may know, we have tracked the state of consumer protection for at least a decade at AKPIRG. We just completed a research report, and there is no question that the current state of affairs is that the private citizen must be armed with the legal resources to go forward, if they do have the guts and the stamina, as Dr. Beirne had, not only on her own behalf but to deal with a person who, as she indicated, has been selling hundreds of these vehicles to unsuspecting consumers, "unbonded, unlicensed, cheating the honest car dealer as much as the honest consumer." Had Dr. Beirne had private injunctive relief, as set forth in the bill, she could have stopped this guy cold. MR. CONN indicated that while the state was once the chief consumer protector, with vast resources, now people like Dr. Beirne carry the torch for all consumers. He applauded the sponsor for coming up with a simple, easy bill that is carefully crafted to allow people like Dr. Beirne to go forward and get some justice for herself and others in the marketplace. Number 1172 CHAIRMAN ROKEBERG welcomed Representative Croft to the table. He called on Les Gara and Jim Forbes to testify via teleconference, but he was informed that they'd had to leave. He noted that Dr. Beirne was a former member of this body. Number 1225 RICK GILMORE testified via teleconference from Anchorage as a private citizen. He had formerly been president of the Better Business Bureau of Alaska, for four years, during which time they saw numerous egregious cases. He indicated he'd like to throw his full support behind this bill. He commended Daveed Schwartz and his staff for their work despite inadequate funding. He believes this common sense bill can return some power to consumers. MR. GILMORE referred to comments about due diligence and mentioned the billions of dollars in telemarketing fraud yearly. He stated, "These guys are very, very well educated in what they do and how to take advantage of people." While he agrees education is needed, these perpetrators will prosper and bilk Alaskans out of millions of dollars a year without legislation such as this. Number 1283 REPRESENTATIVE RYAN restated his beliefs about due diligence and personal responsibility. MR. GILMORE replied that he wasn't denying that at all. However, having dealt with many of these "bad guys" over the years, he'd found they are very, very sophisticated in what they do; in some cases, even the most prudent people could fall into their pattern of fraud. Number 1323 REPRESENTATIVE COWDERY asked Mr. Gilmore to comment on senior citizens in Anchorage being vulnerable to this type of thing. MR. GILMORE indicated that happens nationwide. For example, he'd dealt with an 83-year-old Ketchikan woman who'd been bilked out of her entire life savings, more than $87,000, by a Las Vegas telemarketing company over a three-year period. Unfortunately, she'd passed away; her daughter discovered the fraud and reported it to the Better Business Bureau. Mr. Schwartz and Mr. Gilmore had worked with the attorney general's office in Nevada, which was going after this guy. "But unfortunately, they told us up-front that because the woman was deceased and the fact that they could find no assets for this guy, there wasn't much recourse," he said. Number 1374 CHAIRMAN ROKEBERG requested Mr. Gilmore's opinion about the need for this law and the ability of the Better Business Bureau to adequately protect consumers in Alaska. MR. GILMORE said he wasn't trying to toot his own horn, but much of that has been lost since he is no longer there. He doesn't know what direction the organization is now taking. He suggested that Mr. Schwartz might be able to answer that. Number 1407 MR. SCHWARTZ pointed out that the Better Business Bureau, for all of its fine efforts, is not an enforcement agency. It can try to persuade businesses to resolve consumer complaints, but if the businesses don't want to resolve them, nothing short of enforcement will cause a violation of the law to be corrected. He cited a recent case in which he'd obtained a permanent injunction; consumers had been totally fooled by a local Anchorage tire and auto parts retailer who sold, as new tires, hundreds of used tires covered with new rubber on the treads and sidewalls. Although the consumers carefully shopped around to different locations for the best price and quality, no amount of care on their part would have clued them in. "So, we had to step in and enforce the law, and we actually did; and we're getting refunds for over 150 people and over $50,000 in refunds," he stated. That is an example where the Better Business Bureau wouldn't have been able to get that kind of comprehensive relief for consumers. Number 1499 MR. GILMORE reported that in addition to working with the Office of the Attorney General and helping to identify some of these egregious things, they'd tried to educate people. But because they only had offices in certain parts of the state, the scope was very limited. He believes that should be taken into consideration. Number 1549 PEGGY MULLIGAN, Capital City Task Force Member, American Association of Retired Persons (AARP), came forward to testify, advising members that she would provide her written testimony and an AARP model bill. Referring to Representative Ryan's "100 eyes" comment, she said they'd received $20,000 from the national AARP and money from the western region, which they planned to use for educational purposes, their top priority activity for the summer. MS. MULLIGAN stated, "We do support House Bill 203. Since the Department of Law's Consumer Protection Section was eliminated in the late 1980s, Alaskan consumers have grown increasingly vulnerable, costing an estimated $10 million a year. We feel that this bill empowers Alaskans to fight back fraud, and it also empowers citizens to be able to attract attorneys. We intend to spend the summer educating seniors and other Alaskans of current fraud practices in the state, collect evidence of fraud attempts in the state. We'll work with other groups to help Alaskans become aware of telemarketing and consumer fraud and such other activities, as may seem appropriate." MS. MULLIGAN continued, "I know that Representative Ryan thinks that it's strange that people can be conned into a telemarketing fraud. However, they are very sophisticated, and it is not always that easy to identify. One of the things they suggest is that in the first minute of a call, you insist that the caller give his name, the company he represents, what he is selling, what the item costs, the telephone number, the fax number, the location and the identity of this company. And I think that if you did that, if we can educate people to do that, in many times, you will see that who you have on the line is not ... an honest person." She concluded by saying the AARP certainly supports this bill, as well as Representative Croft's sponsor substitute for HB 49. Number 1682 CHAIRMAN ROKEBERG commented that he is a member of the AARP. He asked whether anyone else wished to testify, then announced he wasn't closing the public hearing. He stated his belief that it is an excellent bill in its intent; however, he is uncomfortable with some provisions. His biggest concern is that although this gives the right to citizens to protect themselves, he sees a glaring potential for abuse. He asked Mr. Schwartz and Representative Croft to address that. Referring to Representative Ryan's comments, he said it is sometimes difficult to draw the line between a bad decision and what is fraudulent. He noted the previous requirement of having a demonstrable loss and suggested they were lowering the proof of damage or potential damage. He believes there is a need for that but it still concerns him. Number 1788 MR. SCHWARTZ responded that he doesn't anticipate any abuse of the consumer protection enforcement based upon this bill. Some of these provisions are not unlike provisions available in other states, and he hasn't seen the kind of abuse that one might fear. It would still take a lot of effort to sue under the consumer protection act, and any attorney who would seek to sue under the consumer protection act is going to have to meet the burden of proof established by the Alaska Supreme Court in State vs. O'Neill Investigations and its "progeny." MR. SCHWARTZ said he believes Alaska case law has set some standards. In addition, the consumer protection statute itself says the courts are to be guided by the decisions of the federal trade commission. There is a huge body of well-settled law under the federal trade commission act concerning what constitutes an unfair and deceptive act or practice. Therefore, attorneys suing under this particular statute will be held to that burden of proof and still be put to the test, and it will not be a "slam-dunk" case or a lowering of standards of burdens of proof in order to make that a violation. "What it does do is it encourages more private citizens to enforce their rights through the consumer protection act in an area in which, indeed, the state's resources are not what they once were," he concluded. Number 1881 CHAIRMAN ROKEBERG asked Representative Croft to respond to the concerns he himself had raised about potential abuse of the powers given to an individual to bring a cause of action without any loss. For example, would it be up to the courts to determine first whether the activity was unfair? Was there a statutory burden to ensure the activity was in fact unfair or deceptive? REPRESENTATIVE CROFT asked whether that was the main concern. CHAIRMAN ROKEBERG indicated it was that for starters. Number 1926 REPRESENTATIVE CROFT explained that there is a rather heavy burden to show fraud. He asked Mr. Schwartz to correct any misstatements, then indicated one must show that the person knew, or should have known, that something wasn't as it was represented. Fraud is usually one of the most difficult things to show in civil actions. The provision for a minimum amount of damage and removing the ascertainable loss is to protect when there have been all the elements of fraud, but without a physical loss. Representative Croft mentioned Dr. Beirne's case. He said even if there is no physical loss, one should be able to stop the action and, in some cases, punish it. Number 2000 MR. SCHWARTZ said when he'd mentioned the unwanted telephone solicitation section of the consumer protection act and how it had been amended, Representative Croft was out of the room. He restated that that section of our statute allows a person who has a black dot next to his or her name in a residential telephone directory to have a cause of action under the consumer protection act if hounded by a telemarketer. Even if that consumer makes no purchase, he or she is aggrieved under the consumer protection act, despite having suffered no ascertainable loss of money or property. Under this bill, that consumer would be allowed to recover statutory damages of $500 per violation, because there were no actual damages. MR. SCHWARTZ pointed out that a person seeking an injunction under Section 4 would still have to meet the burden of proof for obtaining injunctive relief, showing irreparable harm and a probability of success on the merits. That person would be held to the standards of proof established under Alaska case law, which are not always easy to meet, as a judge will look at the evidence very closely before enjoining what looks to be unlawful conduct. Number 2078 CHAIRMAN ROKEBERG asked what statutory protections a business person has from a frivolous action, either for injunctive relief or as a further cause of action for damages. MR. SCHWARTZ said currently, a business person who is on the wrong end of a lawsuit but who prevails can obtain reasonable attorneys fees and costs. Under this bill, even, a business that is the victim of a frivolous lawsuit could still obtain reasonable attorneys fees and costs under the court rules and case law. That is one significant protection that our system has provided. MR. SCHWARTZ stated, "I think there's a real disincentive on the part of consumers to bring an action that is going to appear to be, to an attorney, frivolous. I think there's even a disincentive right now to bring meritorious actions, because of the way in which the law is worded, which doesn't provide a lot of incentive for private litigation." Number 2138 CHAIRMAN ROKEBERG referred to the added section for attorneys fees and costs. He asked whether Mr. Schwartz was suggesting that if they added "defendant" along with "plaintiff," that is the existing case. He asked, "Or would that be necessary to give both parties equal footing as far as whoever prevailed should get the award?" MR. SCHWARTZ indicated the law is currently worded so that the prevailing party can obtain reasonable attorneys fees and costs. Number 2146 CHAIRMAN ROKEBERG asked why this is in the bill, then. MR. SCHWARTZ explained that this bill would change the existing state of affairs so that a prevailing plaintiff could get not only reasonable Rule 82 fees, which amount to about 20 percent of the attorneys fees; rather, the plaintiff could get full reasonable attorneys fees and costs when prevailing over a defendant. However, the plaintiff would only be subjected to paying the defendant's attorneys fees if the plaintiff lost and the suit was shown to be frivolous. MR. SCHWARTZ noted that this amendment to the attorneys fees and costs section of the consumer protection statute would bring Alaska in line with the vast majority of states' consumer protection acts now. According to the national consumer law center, Mississippi is the only other state with an attorney fee statute similar to Alaska's, in which a plaintiff losing a consumer protection case would have to pay reasonable attorneys fees and costs to a defendant. Number 2205 CHAIRMAN ROKEBERG said he finds it disturbing. He asked, "But you're suggesting this language is consistent with the norm nationally?" MR. SCHWARTZ said that is correct. He stated, "Not only did I survey the other statutes, but I did check with the national consumer law center, and that is indeed the case." Number 2223 REPRESENTATIVE CROFT referred to earlier discussion of vexatious litigation and said, "Right now, for a frivolous lawsuit, there are substantial penalties. You're right: There's more coming." CHAIRMAN ROKEBERG said, "For attorneys, not plaintiffs or defendants." Number 2244 REPRESENTATIVE CROFT replied that under Civil Rule 11, the party is responsible for them as well; it is anyone who signs the pleading. This norm is appropriate because these are, by definition, injured people with a claim that they've been defrauded. They are often at battle with organizations that are difficult to find or difficult to isolate. While he appreciated the concern for the legitimate business that could be on the wrong end of this, he emphasized that the burden of proving fraud is extremely difficult. It is not like a normal negligence suit. It requires an intentional act to defraud someone. Therefore, all the hurdles are there in the standard for the injunction or the standard for criminal fraud. Number 2308 CHAIRMAN ROKEBERG responded that it is the charge of this committee to make sure that the commerce and labor activities of the state are carried out in due course, without anything infringing upon them. He said some of his questions may more properly belong in a judiciary committee. However, his primary concern is the level playing field, "and the ability and the effect on business activity without some countervailing force." CHAIRMAN ROKEBERG asked Mr. Schwartz: If a suit was found to be frivolous and the defendant prevailed, would the award of fees be based on Rule 82 or be for full fees? Number 2363 MR. SCHWARTZ replied that if the defendant were able to show that the suit was frivolous, then according to Section 4 of the bill, which amends the consumer protection statute, Rule 82 attorneys fees and costs would probably be awarded. CHAIRMAN ROKEBERG suggested there wasn't a level playing field. MR. SCHWARTZ pointed out that consumers generally don't have a level playing field when it comes to dealing with businesses that are out to deceive them. CHAIRMAN ROKEBERG said he was talking about a finding of "frivolousness," looking at the language of the bill. MR. SCHWARTZ replied that he wasn't sure what else to add, other than that he believed Rule 82 attorneys fees would result if the defendant could show that the plaintiff's suit was frivolous. Number 2419 CHAIRMAN ROKEBERG stated his understanding that a plaintiff who prevailed would receive full attorneys fees. However, if there was a finding of a frivolous lawsuit, the defendant would only be awarded Rule 82 legal fees. He asked whether that is correct. MR. SCHWARTZ said yes and added that the rationale is to encourage more private litigation under the consumer protection act. There has not been a lot of private litigation under the consumer protection act thus far. CHAIRMAN ROKEBERG submitted that they were giving a tool to consumers to bring their private cause of action, an enormous expansion of the ability of the consumers to protect themselves and the rest of the public. "And I agree with the premise of the bill in that regard," he said. TAPE 97-48, SIDE B Number 0006 CHAIRMAN ROKEBERG continued, stating his belief that they are granting a significantly greater power to the plaintiff than to the defendant. He specified that he wasn't looking at the legal aspects but at "the basis of the bill before us right now." He said his concern was directed more to the sponsor. MR. SCHWARTZ commented that the defendant could also bring a lawsuit for abuse of process if the plaintiff was found to have brought a frivolous lawsuit, which may be another protection for a defendant. He next referred to the concept of one competitor trying to gain an unfair advantage over another. He said businesses have not often invoked the consumer protection act as a tool to fight other businesses; he didn't know whether this would encourage that or not. However, he suspects that the vast majority of litigation under this statute would continue to be on the part of end-use consumers who are purchasing products from retailers, rather than a lawsuit by one business against another. CHAIRMAN ROKEBERG suggested in the dog-eat-dog business world, additional tools without "sideboards" on them could be misused for business purposes, not just consumer protection purposes. Number 0079 REPRESENTATIVE GENE KUBINA noted that Chairman Rokeberg is on the House Judiciary Standing Committee. He asked whether perhaps that issue could be addressed there. CHAIRMAN ROKEBERG suggested there are other things they could address there. He said if the sponsor looked at this and could overcome his concerns, he'd be happy to bring it back up. He agrees with the concept of the bill. But while he could support giving a tool to the public, he wants to ensure that it is drafted so it has no deleterious effect on business. "We want to get the rascals; we don't want to interrupt commerce," he said. CHAIRMAN ROKEBERG stated his understanding that Alaska has no vexatious litigation statute. He said, "If Representative Croft wants to bring to this committee some examples of frivolous activities being in the courts, this committee would be real happy to see it actually happen. If you ... cite me some examples, then I'm going to be a lot more comfortable." He suggested the bill should speak to that more specifically and give a little more balance, at the very least an amendment to provide reasonable fees for both parties if the lawsuit was found to be frivolous or perhaps intended to infringe upon commerce, which would be even beyond frivolous. He noted that many times cases are brought with the hope of settlement, which he characterized as a form of legal extortion. (HB 203 was held over.)
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