Legislature(1999 - 2000)
03/21/2000 02:00 PM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE March 21, 2000 2:00 P.M. TAPE HFC 00 - 75, Side 1. TAPE HFC 00 - 75, Side 2. TAPE HFC 00 - 76, Side 1. TAPE HFC 00 - 76, Side 2. TAPE HFC 00 - 77, Side 1. CALL TO ORDER Co-Chair Therriault called the House Finance Committee meeting to order at 2:00 P.M. PRESENT Co-Chair Therriault Representative Foster Co-Chair Mulder Representative Grussendorf Representative Austerman Representative Moses Representative Bunde Representative Phillips Representative J. Davies Representative Williams Representative G. Davis ALSO PRESENT Mike Tibbles, Staff, Representative Gene Therriault; Bob Mintz, Self, Anchorage; Pamela LaBolle, President, Alaska State Chamber of Commerce, Juneau; Senator Robin Taylor; Jim Pound, Staff, Senator Robin Taylor; Carol Carroll, Director, Division of Administrative Services, Department of Natural Resources; Steven Daugherty, Assistant Attorney General, Department of Law; Susan Cox, Assistant Attorney General, Department of Law; Ken Freeman, Executive Director, Resource Development Council (RDC), Anchorage; Michael Lessmier, Attorney, State Farm Insurance, Juneau; Jon Tillinghast, Attorney, SEALASKA Corporation, Counsel to Resource Development Council, Juneau; Wendy Redman, Vice President, Statewide Programs, University of Alaska, Fairbanks. TESTIFIED VIA TELECONFERENCE Janice Adair, Director, Division of Environmental Health, Department of Environmental Conservation; Karen Cowert, General Manager, Alaska Support Industry Alliance, Anchorage; Dick Myllius, Resource Assessment Development Section of Land, Mine and Water, Department of Natural Resources. SUMMARY HB 42 An Act relating to civil liability for certain false or improper allegations in a civil pleading or for certain improper acts relating to a civil action; amending Rule 82(b), Alaska Rules of Civil Procedure; and providing for an effective date. CS HB 42 (FIN) was reported out of Committee with a "no recommendation" and with new fiscal notes by the Department of Law and the Alaska Court System. HB 239 An Act relating to the Uniform Commercial Code; relating to secured transactions; amending Rule 79, Alaska Rules of Civil Procedure; and providing for an effective date. HB 239 was POSTPONED for hearing until 3/22/00. HB 361 An Act relating to charges for state services; requiring that fees levied by resource agencies for designated regulatory services be based on the actual and reasonable direct cost of providing the services, except in the case of certain negotiated or fixed fees; relating to negotiated or fixed fees of resource agencies; relating to invoices for designated regulatory services; establishing a petition process regarding fees charged by resource agencies for regulatory services; and providing for an effective date. HB 361 was HEARD and HELD in Committee for further consideration. HB 428 An Act relating to interest on child support overpayments that are disbursed to the obligor. HB 428 was POSTPONED for hearing until 3/23/00. SB 7 An Act relating to the University of Alaska and university land, and authorizing the University of Alaska to select additional state land. HCS CS SB 7 (FIIN) was reported out of Committee with a "do pass" recommendation and with new fiscal notes by the Department of Natural Resources, Department of Fish and Game and the University of Alaska. HOUSE BILL NO. 42 An Act relating to civil liability for certain false or improper allegations in a civil pleading or for certain improper acts relating to a civil action; amending Rule 82(b), Alaska Rules of Civil Procedure; and providing for an effective date. ROBERT MINTZ, SELF, ANCHORAGE, stated that HB 42 would prevent frivolous lawsuits by requiring parties to a lawsuit and their attorneys to be truthful and responsible in their pleadings. The bill discourages false statements and claims in litigation and encourages responsibility by all parties and their attorneys. He added that it would require more careful and focused preparation of pleadings. This bill creates an obligation, in statute, for litigants and attorneys to make reasonable efforts to assure those claims have a reasonable basis in fact and are valid under existing law. If the claim is intentionally false, both the attorney and the party can be assessed damages. Currently, there is no effective way of holding parties responsible for frivolous pleadings or claims. Frivolous pleadings and claims increase the costs of litigation for all the parties involved in addition to escalating the cost of the judicial system. Mr. Mintz commented that HB 42 would require attorneys, as well as their clients, to research their claims to assure they are factually supported before filing a lawsuit. The bill will eliminate "boiler plate" pleadings in lawsuits and encourages responsible and focused pleadings. "Boiler plate" pleadings include everything that "anyone could ever imagine could have happened" rather than focusing on specific issues that actually did occur. Those extraneous pleadings are expensive for innocent parties to litigate and most often are thrown out. They cause one party, and the court system, to expend significant dollars to pare down to real issues. Mr. Mintz continued that many suits are often less expensive to settle than to litigate, regardless of their merit. The bill does not affect suits filed in good faith. It would deter those without merit. A system that allows deceit to be rewarded must be changed. Mr. Mintz noted that the bill would assign financial liability to those whom: ? Intentionally advance a civil pleading containing a false allegation of material fact; ? File a lawsuit, first determining that it has a reasonable basis in fact or law; ? Use claims or cross claims to cloud an issue; ? File unsuccessful claims on the hope of finding someone willing to settle rather than spending the money to litigate the suit; and ? Sign a civil pleading before making reasonable inquiry to determine if it is well grounded in fact and warranted by existing law. Mr. Mintz concluded that the basic purpose of HB 42 is to give injured parties effective remedies for bad faith civil litigation. The bill will only apply to the person lying and that if the facts find a party has made an intentional, false statement of material fact. Co-Chair Mulder asked Mr. Mintz to explain the procedure established in HB 42. Mr. Mintz first explained that Civil Rule 11 is the current procedure. These are rules of procedure that are promulgated by the Supreme Court. The focus of HB 42 is different from that. It does not impinge upon the Supreme Court's rule making power. It creates duties that are owed by people who engage in litigation to other people who are engaged in litigation. It will create duties of truthfulness. Civil Rule 11 is discretionary and allows the judge to fashion a remedy in certain circumstances. Co-Chair Mulder asked Mr. Mintz to explain how the process would function. Mr. Mintz replied that the legislation would create two remedies. The first, under Section A, would require the offended party to notify that party that lied. The bill is designed to self correct the system. He hoped that it could be corrected during the course of litigation. If not and person who lied was the successful party in the litigation, then subsequently, the person that prevailed could bring a separate action to recover their full costs. Mr. Mintz explained that in the context of an affirmative lie, it would be one of the two ways in which HB 42 could occur. The other way is during the course of litigation, and there was a jury instruction, and if it was found that someone lied and the lie was material to a particular issue then that person would lose on that issue. There is an exception to that in cases where public policy is involved. There, the judge could use monetary damages against the liar. Representative J. Davies asked if this discussion was aimed at Page 2, Subsection (b), Lines 8-12. Mr. Mintz stated that the reference was to Subsection (c), Lines 15-21, which applied to Subsection (b). Representative J. Davies requested clarification that in the case of someone offering an intentional lie or misstatement of fact, that the underlining claim would get dismissed. He referenced an occurrence in a child support case. Co-Chair Mulder stated that those cases are excluded from these actions. All the excluded type cases are listed on Page 3, Lines 15-20. Representative J. Davies countered that the same principle would apply to other civil cases. A case is decided on whether or not there is an intentional falsehood. He understands that there could be a penalty attached, but to decide the underlining truth of the case on that basis would be an over-reaction. Co-Chair Mulder stated that after 8 years of working this legislation through the House Judiciary Committee, Subsection (C) had been added to address these concerns. Mr. Mintz stated that Subsection (C) addresses situations where more than just liar's interest is at stake. He added that through Subsection (B), the court is only required to dismiss the claim or defense to which the false statement relates and not the entire case. All would not be lost. Representative J. Davies advised that this legislation is an "over reaction". He did not understand why the whole determination would be decided on one issue. He believed that information would presumably come out in trial. Co-Chair Mulder responded from the extent that it is material fact, is the center point from which the case was determined, and that those persons must be held responsible for their actions. Representative J. Davies interjected that Civil Rule 11 does address that point. Co-Chair Mulder commented that it does not do it effectively. He indicated that this is a policy statement. Co-Chair Mulder emphasized that the legislation would elevate the level of conduct expected when going to court. He questioned if that would be justified. Mr. Mintz enumerated his personal experience in a case. He stated that many of the claims made against him were frivolous during a time that he was Chairman of Alaska Housing Finance Corporation (AHFC). The defense case cost the State over $200 thousand dollars. He emphasized that it was a grievous waste of money and there was no way there could be any recourse. HB 42 resulted from that experience. Co-Chair Mulder made a change to the work draft, 1-LS0246\K, Ford, 3/21/00,[Copy on File], Page 2, Line 17, after "another" insert "person or" and make the same change to Line 18. Vice Chair Bunde MOVED to adopt the work draft version K with the above mentioned changes, as the version of the bill before the Committee. There being NO OBJECTION, it was adopted. Vice Chair Bunde asked what would happen if someone lied and prevailed. He inquired how the statutes on perjury would interrelate with this legislation. Mr. Mintz replied that perjury is criminal. The bill only applies to a civil context. He agreed that a criminal case is held to a higher standard than a civil case. Mr. Mintz stated that the bill is a "step in the right direction, but does not fix all the problems out there". Representative Williams asked if the legislation applied to lying under oath. Mr. Mintz explained that the bill addresses more than lying under oath. It applies to statements which you know are false. It also applies to motions and affidavits that are filed in court. Representative J. Davies asked if the legislation would apply to cases where a statement had been omitted intentionally. Mr. Mintz replied that it would apply equally to denials, which are known to be false, and is meant to apply to both sides. Representative J. Davies pointed out that the party would have to lose the case. Co-Chair Mulder interjected that "this is a two edge sword". It should focus the discussion more on the points of difference. Representative J. Davies inquired where that reference was indicated in the legislation. Mr. Mintz commented that if what you claim is true and it is denied, it would be covered in this legislation. Representative Phillips added that making a false statement could encompass an omission of fact because not including all the facts is in of itself, a false statement. KAREN COWERT, (TESTIFIED VIA TELECONFERENCE), GENERAL MANAGER, ALASKA SUPPORT INDUSTRY ALLIANCE (THE ALLIANCE), ANCHORAGE, stated that the Alliance has served as the statewide non-profit trade organization for businesses which provide products and services to the oil and gas industry. Ms. Cowert noted that House Bill 42 would require litigating parties to research their claims to assure accuracy, or pay the consequence of suing without just cause. The Alliance supports such measures. She commented that Alaska has suffered significant economic losses as a few individuals successfully circumvent public processes through litigation. It seems that nearly every proposal or plan to develop the State's natural resources or to enhance its infrastructure is met with a lawsuit, regardless of whether there are reasonable grounds to sue. She noted that the Alliance believes that many such legal actions only serve to delay developments that are important to Alaskans' quality of life and economic well being. Ms. Cowart pointed out that HB 42 would create an obligation, in statute, for litigants and attorneys to make reasonable efforts to ensure their claims have a factual bearing before filing a lawsuit. The bill would also make those that filed a frivolous suit responsible for assessed damages. Furthermore, the bill will assign financial liability to those who cloud the issue with false or misleading claims, in hopes of finding a party willing to settle rather than spend dollars to litigate. She noted that the Alliance believes that each party in a lawsuit has a responsibility to present factual and legitimate information. A system that allows deceit to be awarded is not right. PAMELA LABOLLE, PRESIDENT, ALASKA STATE CHAMBER OF COMMERCE, JUNEAU, testified in support of the proposed legislation. She stated that the legislation proposes a basic premise needed to address that intentional lying should not prevail. She concurred that there needs to be a way to punish people who base a case on an intentional lie. Representative Grussendorf observed that in many situations, the truth is a "fine line". Co-Chair Mulder pointed out that there is a standard established in the legislation emphasizing "reasonable" and that it would address that concern. MICHAEL LESSMIER, ATTORNEY, STATE FARM INSURANCE, JUNEAU, stated that State Farm Insurance supports the proposed legislation as it sets forth a minimal standard that people need to go through before they undertake a lawsuit. It clarifies that one makes sure that the case has a reasonable basis in fact and in law. If it does not, the bill states that you can not continue. He clarified that those are protections which have not been present. Additionally, the bill establishes a "truth provision", which applies only to a party that intentionally makes a false statement of material fact. Nothing in the bill is intended to address the situation where witnesses have a ligitiment difference of opinion. It is designed to address conduct by a party which does not meet a reasonable standard of investigation. He stated that the proposed legislation is "preventative and curative" in the sense that it will cure a wrong that has been done. In response to Co-Chair Mulder, Mr. Lessmier explained that contained in Section (A), Subsection 2, clarifies that as long as there is a reasonable inquiry, and you form a reasonable belief in the existence of facts from which the claim or defense is made you are protected. You could be sued only if you don't meet this minimal standard and you fail to respond to the notice and correct your action in 21 days, and then you lost the case. On the issue in question, the notice provision is designed to be self-corrective. As long as there is a reasonable basis in law and fact, the legislation will not hurt you. The legislation is not designed to second- guess anything. Representative J. Davies stated that if it were an obvious case where someone was lying and it was obvious that it was done intentionally, then everyone would agree that person should be punished. He added, however, that he had problems with the logic. "Life is often messy" and there will always be "gray" areas where it is difficult to tell the intent of a person and where the law applies. It is not always easy to read the statutes to determine if the law applies. That is why cases go to court so to determine if the law applies. He believed that the legislation could prevent cases from forming because of "fear" or "worry" that their view in relation to how the law applies might be determined to be incorrect and they then they would be stuck. Representative J. Davies voiced additional concern with the penalty, which would dismiss the claim because someone might have intentionally lied about it. Mr. Lessmier asked the Committee to consider who are we really trying to protect. Is it the person who makes a false statement of fact for purposes of material gain. He believed that should be discouraged and that the victim should be protected. He emphasized that was the fundamental issue of the provision, as it applies only to a party who intentionally makes false statements of fact. The people that need to be protected are the ones that are innocent victims of that conduct. Representative J. Davies stated that if nine out of ten facts were true, and that the person was guilty under nine assertions but under the tenth one they were not guilty, what would happen. He stressed that it would not be about protecting some innocent victim, but rather, they were guilty but allowed to "skate" because someone lied under one assertion. Mr. Lessmier stated that in a real life situation, the jury would probably not find that the one fact would be sufficiently "material" in terms of the context of the claim. That one fact would probably be viewed as insignificant. The legislation requires that it be intentional, false and material. He emphasized that is important. The message that the legislation is sending is that people found to fit this conduct are going to be few because the standard is high. Mr. Lessmier expressed that nothing in the bill is designed for a situation where someone takes a position based on research and thought which is wrong. All that it states is that you have a "reasonable basis in law". It does not say you have to win. Representative J. Davies asked that cite. Mr. Lessmier referenced two provisions, 2(a)(b), which indicates "reasonable inquiry and forming a reasonable belief". The next provision that is important stipulates that nothing is designed from preventing someone from arguing in good faith that the law should be changed or extended. This would not apply to someone using the minimal standard with some research and thought. Co-Chair Mulder asked who the bill designed to protect. If a person tells the truth, the bill would protect them. He stressed that it would be difficult to argue on behalf of someone that is not telling the truth. Representative J. Davies reiterated that if the world was black and white, he would agree with Co-Chair Mulder. However, it is not so. The proposed legislation could have a "chilling effect" on those people who do not have a lot of resources and are up against corporations that do and are sophisticated. Co-Chair Mulder asserted that the world is black and white in relationship to truth and fact. The truth is not gray. If you were the one being taken to court, you would have to prove why the other person believed that what you said was untrue. He emphasized that this is a balancing act. (TAPE CHANGE, HFC 00 - 75, Side 2) Representative Grussendorf asked how the Department of Law would operate under the proposed legislation. SUSAN COX, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW, stated that the Department recognizes that "things are not always black and white". While the bill is not directed at addressing the legitimate differences of opinions between opponents in civil litigation, it does raise the possibility that if parties do not agree, in either case, the loser looses, and that if the winner does not recover their full compensation, they will then take the next step of pursuing the second loss against that party for whatever they did not get the first time around. She pointed out the focus on the aspect of "intentional lying" addressed in (A)-2 of the bill. However, (A)-3 provides that a cause of action will arise if a person participates in a continuation of claim after a person discovers that the claim or defensive is not supported by a reasonable basis or valid under applicable law. Ms. Cox could foresee situations, in which, after the "dust settles", the argument is made that the looser has lost. The law did not apply or the facts did not appear as they were portrayed to be. They would loose. She foresaw the provision of (A)-3 to be more of an "open door" than the intentional lying. Ms. Cox added that is why the Department has submitted a fiscal note. Representative Grussendorf voiced concern that the issue does not get in the way of the defense of the original case. He looked at the amount of time that the case could consume and how discouraging that could become. He recommended more funding for Alaska Legal Services. Ms. Cox noted that because of the procedure in the bill, in order to invoke the cases of action, someone would have to give notice to the opposing party that they should take corrective action. She noted that corrective action could cause liability prospects. Co-Chair Mulder suggested that as a lawyer, it would be prudent to provide reasonable inquiry to establish whether your client is telling the truth. Ms. Cox replied that is true but pointed out to the reference to (A)-3, which states that if the attorney continues to litigate the case, maintaining a claim or defense that is not supported by a reasonable basis applicable by current law, does not mean that the attorney would not get sued. She stressed that there would be another layer of intrigue. If it is a complicated case, it could result in a situation where competing experts and the reasonableness of facts would be an issue. She emphasized that this legislation is going to cost money. Representative Grussendorf stated that the bill would protect the attorney who is supposedly telling the truth. However, the witness would be out of the protection area. Mr. Lessmier explained that Subsection (B)&(C) do not apply to the witness. He objected to the comment that the legislation would create more litigation. He suggested contrasting what is currently in the system. What exists now is "nothing". If someone is faced with an allegation that is frivolous or untrue, there is no protection. The cost can be high. The proposed legislation provides something "in between". It requires a notice to correct the action. If the action is corrected, there will be no opportunity for a second suite. If the party does not win, they do not receive a second chance. Actual attorney fees and cost would have to be paid by the loosing party to any action created by the bill. Mr. Lessmier stated there are incentives for this to be "self curing and protective" to the person that is subject to these claims. Representative J. Davies asked if the statement that "there is nothing to defend against" is a true statement. Ms. Cox responded that could be "called into place". Civil Rule 11 could be used as a possibility for a sanctioning attorney who is involved in failing to make an inquiry. It is not frequently invoked. Ms. Cox noted that Rule 82 provides for partial attorney fee recovery to prevailing parties and actually includes a formula for how much the winner gets. There are eight factors, which allow the Courts to deviate from that formula. Some of the subsections in Rule 86 allow for increasing the fee award for certain stipulations including bad faith conduct. Civil Rule 56 provides for the standard for granting summary judgement in the State and has a penalty in 56(G) which states that if it appears to the satisfaction of the Court, many of the affidavits presented in support of judgement motion are presented in bad faith, for the purpose of delay, the court can then order the party, reasonable expenses and include reasonable fees. There are civil causes of action in common law for abusive process and malicious prosecution, which are more difficult to prove than what currently exists in legislation. Co-Chair Mulder asked what was wrong with the current system. Mr. Lessmier responded that the difficulties with Civil Rule 11 are remedies that are rarely invoked by a judge. Remedy under Rule 82 requires a person to litigate until the end. And then with that, one could only receive a portion of the costs and attorney fees. There is no mechanism for self-correction in the current law. Representative J. Davies asked about the category of perjury. Additionally, if the case is clearly frivolous, and not based in law, he asked if the judge had the right to dismiss the case. Mr. Lessmier commented that even if a perjury case were aggressively prosecuted, it still would not protect the people that are victims of this conduct. It would not apply until after the fact. He did not believe that the Department of Law often uses their resources to prosecute these types of cases. Additionally, there is a standard for judges in ruling on motions for summary and judgement. The work of the court in those situations is to look at the facts in the light most favorably to the other side. The court will not weigh whether one person is telling the truth or not. The court assumes if person signs an affidavit, the case will not be dismissed. He emphasized that it is rare for a court to make a finding that a case if frivolous. Ms. Cox disagreed, noting that if there is a dispute of fact, a summary of judgement will not be granted. If someone is putting forth-false information, the court will not weigh the credibility of the respective witnesses. However, if the case is not founded in the law, it is common to be able to get dismissal, which does occur frequently. Mr. Lessmier agreed that if it is not founded or based in the law, that the courts will dismiss those cases. Representative G. Davis referenced the number of perjury cases that have been tried. He asked if there should have been more. Mr. Lessmier replied that in the 1st Judicial District, he did not know of a perjury case being tried. Representative G. Davis asked if the judge could make that determination and then would it be appealable. Ms. Cox responded that there are two considerations in that. Rule 82, which is the civil rule that allows the winner to recover part of their attorney's fees from the looser is the area which states that "bad faith conduct" on the part of a looser "enhances the award the winner gets". That would be the court's call and it is appealable including the award of fees. Mr. Lessmier clarified that it is appeallable only under an abuse of discretion standard, which is difficult to meet. Representative J. Davies requested that Senator Taylor testify on the proposed legislation. SENATOR ROBIN TAYLOR commented that there is "no good side" to the legislation. He noted that in his own experience as a judge and attorney, he has seen as much bad faith claims by people representing insurance carriers. Many more than those people litigating on behalf of victims. "The insurance companies are not victims". They end up paying victims. There is no incentive for a private practitioner that is handling a case on a contingency fee because "all that it will do, is to further delay his case". The faster the case can be gotten to trail is the quicker he will get his own money back because he is the one paying for the cost of the case. Senator Taylor reiterated that there would be no incentive to delay the case. Bringing additional claims to the ability for settlement or leverage could enhance the case. Senator Taylor added that on the defense side, there is no impediment for defense council to throw everything they can at case and make motions on each aspect of it. He emphasized it will happen. On the two sides of litigation, there first is the attorney that will be paid for all their time. Even after they loose the motion, they are still going to get paid. They have no accountability what so ever. On the other side of that issue, there are people who are paying their own money to litigate cases on behalf of injured parties. He questioned how to balance the two. He asked how to put more backbone into the judiciary system. Senator Taylor stated that there are all types of remedies, which a judge has at their disposal to curtain the types of activities that the bill is trying to touch. He added that the bill is well motivated, however, with the "huge, economic disparity" between the benefits flowing from one side to another, the disparity must be first balanced. He agreed that one side would be placed at a disadvantage. Senator Taylor advised that all the testimony in favor of this bill would come from the insurance industry. Co-Chair Mulder disagreed, noting the letters of support contained in member's packets. Senator Taylor countered that he was referring to professionals. Co-Chair Mulder interjected that these are "real people" and he stressed that there is no way that they can be made "whole". Senator Taylor suggested that is why Rule 82 needs to be changed. If that rule was changed, those people could be made whole. When it comes to professionals within the law, the people that will be seen are coming from the insurance industry. He emphasized that private practitioners will not testify in support of this legislation. He stressed that this bill is a lawyer's dream. If you have a client big enough that can afford to litigate on every issue, they not only get to litigate on that case, but with notice they can litigate on many other cases which that attorney prevailed on. He provided a hypothetical situation of going over the speed limit. What is the truth of `over the speed limit". Each person could bring in witnesses regarding that fact and your speed. The jury of twelve people has to determine that information. He reiterated that fact is determined by the jury and determined by the preponderance of the evidence. The evidence could trigger a whole series of additional litigation. Senator Taylor agreed that a way to correct the complication should be attempted. However, he believed that we should do more to strengthen the methods of remedies within law to address the vexatious case. The manner that has been established in the proposed legislation creates an economic distortion that occurs in real life that can not be accounted for in the bill. Co-Chair Mulder disagreed, stating that there is no means for the common person to adequately defend himself when it is cheaper to settle out of court. The insurance company will tell them that. "There is no way to be made whole" with the cost of attorney fees and everything else. Senator Taylor interjected that until Rule 82 is changed; nothing will be made whole. He concluded that the system could use some adjusting and he supported the effort but warned about the consequences. Mr. Mintz responded that the multiplicity of litigation issue has come up a few times. In truth, it will not be known without evidence and without trying something new to see how it works. He believed that HB 42 would work as it changes the paradigm that we are used to living with in connection with litigation. He did not think that after HB 42 passes that someone would be as easy or as quick to file lawsuit to assert a marginal claim. The goal of the legislation is to raise the bar and make it so that the marginal claims fall out of the system and only the substantial claims move forward. Mr. Mintz stated that when HB 42 action is filed, you would have to be clear that there is no basis for the suit that you successfully prevailed in. When filed, you are exposing yourself to the actual costs and attorneys fees. It would not be an action that would be taken lightly or done on a marginal case. He added that the cases where it has cost a lot of money to defend the claim, those are the cases where HB 42 action should be allowed. Co-Chair Mulder asked why not "beef up Rule 82". Mr. Mintz stated that the real reason is that it would take a two- thirds vote of the legislature to change a court rule and it only takes a simple majority to create a new cause of action. Representative Grussendorf commented that by the title of the bill, that would still be required. Mr. Mintz replied that would occur only for the section that provides for actual costs and attorneys fees. All the substantive provisions go into effect for the cause of action. What would be lost without the two-thirds majority would be the actual cost and attorney fees. Vice Chair Bunde MOVED to report CS HB 42 (FIN) out of Committee with individual recommendations and with the accompanying fiscal notes. There being NO OBJECTION, it was so ordered. CS HB 42 (FIN) was reported out of Committee with a "no recommendation" and with new fiscal notes by the Department of Law and the Alaska Court System. (TAPE CHANGE, HFC 00 - 76, Side 1) SENATE BILL NO. 7 An Act relating to the University of Alaska and university land, and authorizing the University of Alaska to select additional state land. Co-Chair Therriault MOVED to ADOPT Amendment #1, 1- LS0072\W.1, Luckhaupt, 3/21/00. [Copy on File]. Representative J. Davies OBJECTED for the purpose of discussion. MIKE TIBBLES, STAFF, REPRESENTATIVE GENE THERRIAULT, distributed language that would help clarify the amendment. [Copy on File]. He noted that there had been a question regarding when the land could be selected and explained it could be chosen if it was not being used. The additional language speaks to the role of the municipality. Co-Chair Therriault clarified that the University and the municipality would be on the same "footing". Representative J. Davies questioned the clause in the addendum that "the University may not select the land". WENDY REDMAN, VICE PRESIDENT, STATEWIDE PROGRAMS, UNIVERSITY OF ALASKA, FAIRBANKS, recommended that a comma replace the semicolon. Representative J. Davies WITHDREW his OBJECTION to the amendment. There being NO further OBJECTION, Amendment #1 was adopted. Co-Chair Therriault WITHDREW Amendment #2, 1-LS0072\W.2, Luckhaupt, 3/21/00. [Copy on File]. Co-Chair Therriault MOVED to adopt Amendment #3, 1- LS0072\W.3, Luckhaupt, 3/21/00. [Copy on File]. There being NO OBJECTION, Amendment #3 was adopted. Representative J. Davies stated that Amendment #2 would "fix" the logic of Subsection M. He suggested that the language in that section does not make sense without the amendment. Co-Chair Therriault requested Ms. Redman to explain that language. Ms. Redman replied that the language that exists in the draft bill W.2, all conveyances of land come to the University with the existing easement rights-of-way. Ms. Redman noted that the University is interested in receiving reasonable protection. Vice Chair Bunde speculated that if the amendment were offered, it would put pressure on the Commissioner of the Department of Natural Resources to speed up easements on the right-of-ways. Representative J. Davies requested to modify Amendment #2 by placing it in the positive. On Line 3, delete "may not conveying" and insert "when conveying"; Line 4, delete "reserves" and insert "shall reserve". JIM POUND, STAFF, SENATOR ROBIN TAYLOR, noted that language would work well. Representative J. Davies MOVED to adopt the amended Amendment #2. There being NO OBJECTION, it was adopted. Representative J. Davies MOVED to adopt an amendment on Page 12, Line 19, deleting "may" and inserting "shall". Co-Chair Therriault OBJECTED. Representative J. Davies explained that the change would illustrate the concept of the University "demonstration forest". He thought that using "may" would leave a possibility that nothing would happen. If "shall" is used, it is guaranteed that there will be action. Co-Chair Mulder asked if Representative J. Davies believed that the demonstration forest would make money for the University. Representative J. Davies stated it would. Ms. Redman argued that she did not know. She believed that the primary purpose of a demonstration forest would not be to maximize income but to act as laboratory for forestry practices. Co-Chair Mulder understood that the purpose of the bill was to attempt to make the University "whole" from possible income generated. He voiced concern that it could become a "money looser" rather than a "money maker". Representative J. Davies argued that there has been resistance to developing the forestlands. He commented that Alaska has not moved into the modern age of how to manage forests. He stressed the language change would allow more economic development. Vice Chair Bunde complained that "shall" would make for micro-management. Co-Chair Therriault agreed. Inclusion of "shall" indicates that the Legislature would like to see something happen on the land but are not mandating it. Representative G. Davis pointed out that there are many "shalls" included in the same section of the bill. He asked if there would be an opportunity for grants if the University had established the demonstration project. A roll call vote was taken on the motion. IN FAVOR: Grussendorf, Moses, Phillips, J. Davies OPPOSED: Austerman, Bunde, G. Davis, Foster, Mulder, Therriault Representative Moses was not present for the vote. The MOTION FAILED (4-6). Ms. Redman noted that the University's fiscal note should be in sink with Department of Natural Resources. The University would be spending all non-general funds. CAROL CARROLL, DIRECTOR, DIVISION OF ADMINISTRATIVE SERVICES, DEPARTMENT OF NATURAL RESOURCES, interjected that the Department of Natural Resources will provide a revised fiscal note indicating interagency receipts. Representative J. Davies asked the assumption in making the additional increment of $600 thousand dollars. Ms. Carroll replied that on bigger sections of land, the cost is less to survey. She emphasized that the Department will only be paid for the work that they do. Representative J. Davies inquired if the legislation was approved, could an RPL be developed if there was a need. Co-Chair Therriault agreed, noting that it is important that the Legislature take a "guess" as to what it is going to be. Co-Chair Therriault asked if the legislation were to come into law, how quickly would the University be incurring some of these costs. Ms. Redman responded that the University would be able to be back the first year with some small sections of lands. There has been discussion with some municipalities of undertaking some shared development. She anticipated needing the full ten years for the amount of land. Co-Chair Therriault recommended that the amount should be estimated. He questioned if there needed to be a change to the note. Ms. Redman did not anticipate that, however asked to check with the University's financial division. Co-Chair Therriault questioned why the dollar amount did not match with the Department. Ms. Carroll noted that the note from the Department should reflect the "House Resources Committee" version of the bill. Ms. Redman added that the corrected fiscal notes would be available tomorrow. Ms. Redman commented that there was nothing in the bill that would require them to give money to the Department of Fish and Game. Ms. Redman stated that the Commissioner of Department of Natural Resources in collaboration with the Commissioner of Department of Fish and Game would make that determination. Ms. Carroll asked for clarification whether it was anticipated that Department of Natural Resources would be collecting for the Department of Fish and Game. DICK MYLIUS, (TESTIFIED VIA TELECONFERENCE), RESOURCE ASSESSEMENT DEVELOPMENT SECTION of LAND, MINE AND WATER, DEPARTMENT OF NATURAL RESOUCRS, stated that the Department's fiscal note did not include Department of Fish and Game costs. That Department would be reviewing selections from a wildlife point of view, which was not factored into the costs for the Department of Natural Resources. Co-Chair Therriault noted that the fiscal notes would be adjusted so that the dollar amount was in sink. Representative Austerman asked to change the Department of Fish and Game fiscal note to reflect interagency receipt money coming from the University. Ms. Redman stated that the University would not be purchasing services from Department of Fish and Game. Representative Austerman asked if the Department of Fish and Game fiscal note was erroneous. Co-Chair Therriault stated that the Department of Fish and Game would be offering an opinion with dispositions of State lands. Ms. Carroll believed that Department of Fish and Game's note was written in reference to Page 6, Lines 22-25. She believed that it would create a lot of work. Representative Phillips suggested that the fiscal note be changed to interagency receipts to Department of Natural Resources rather than to the University. Representative Austerman stated that he did not want to see more work for the Department without funding. Somewhere along the way, the Department will need to be paid. Ms. Redman supported the idea presented by Representative Phillips. She noted that she did not anticipate the Department of Fish and Game being impacted, however, the University would compensate that Department for the seal of approval on the lands. She recommended that be incorporated through interagency receipts. Ms. Redman noted that the Department of Natural Resources fiscal note would be handled separately. Representative J. Davies MOVED to report HCS CS SB 7 (FIN) out of Committee with individual recommendations and with the attached fiscal notes. There being NO OBJECTION, it was so ordered. HCS CS SB 7 (FIN) was reported out of Committee with a "do pass" recommendation and with new fiscal notes by the Department of Fish and Game, the University of Alaska and Department of Natural Resources. HOUSE BILL NO. 361 An Act relating to charges for state services; requiring that fees levied by resource agencies for designated regulatory services be based on the actual and reasonable direct cost of providing the services, except in the case of certain negotiated or fixed fees; relating to negotiated or fixed fees of resource agencies; relating to invoices for designated regulatory services; establishing a petition process regarding fees charged by resource agencies for regulatory services; and providing for an effective date. Representative Bunde MOVED to ADOPT the work draft for HB 361, #1-LS1299\I, Kurtz, 3/21/00. There being NO OBJECTION, it was adopted. MIKE TIBBLES, STAFF, REPRESENTATIVE THERRIAULT, provided an overview of the work draft. He noted that there were a few items which did not make it into the draft. The first change would be to Page 2, Line 15, the language "Except as provided in AS 37.10.052(a)" was added. He noted that the language would provide for an annual review to the Legislature about statutory changes. Representative J. Davies questioned if it should be required annually. Mr. Tibbles stated that this is existing law and is an annual review required for all agencies. Mr. Tibbles continued, Page 3, provides a provision to limit the amount of the fix fee to $250. There was an exception to the $250 dollar limit if it could be justified as an actual direct cost. The deletion was requested by the Department of Environmental Conservation. Language was added on the ends of Lines 3-7, which require a review of all fixed fees. On Page 3, Line 9, there was a deletion of the word "standard" for negotiated agreements. Language was modified on Lines 11 & 12 regarding negotiated agreements. Page 3, Subsection c is new. It is replacement of the petition process established in the statutes. (TAPE CHANGE, HFC 00 - 76, Side 2) Co-Chair Therriault explained that the provision had been submitted by the Department of Environmental Conservation. Representative J. Davies asked about Page 4, Line 3. Mr. Tibbles explained that the language was "held over" language from a procedure that required the regulatory process. The intent was that it be demonstrated why the Department would need to justify when they denied the act. Representative J. Davies questioned if there was distinction between "served upon" and "provides to". Co-Chair Therriault pointed out that was a language change. Mr. Tibbles addressed Page 4, Line 24, the "invoicing section", noting that the original bill required the Department to establish a uniform accounting system. That would have been very expensive and that language was removed. The goal was to create an invoice that one could look at to determine if they were being billed for the actual service that they received. In that section, there is a new provision which establishes that these requirements apply to negotiated agreements as well. The language would give Department of Environmental Conservation and the permittee the option to negotiate different requirements for the invoicing. Mr. Tibbles noted that on Page 5, Lines 6 & 7, language was added "request that the resource agency review the invoice". That language was recommended by the Department of Environmental Conservation. The first "stop review" would be with Department of Environmental Conservation. If a person was not happy with that review, then they could go to the Office of Management and Budget (OMB). On Page 5, Line 17, the petition was removed for a single project fee. All that remains in that section is a petition for a modification of a new fixed fee. Mr. Tibbles referenced Page 6, Line 3, language "under the following" was added by a request from Department of Natural Resources. The technical change modified the definition of direct costs in Subsection (3). Page 3, Line 28, removes "notice" which will now allow the Department of Environmental Conservation to charge the permittee for the cost of public notices. Mr. Tibbles commented that on Page 7, Lines 15 - 17, another modification was made at the request of the Department of Natural Resources to the definition of "fee". There was a concern that the Joint Pipeline Office would not be able to charge the full amount negotiated under their leases. That was never the intent of the bill. Additionally, Subsection (g) was removed at the request of the Department of Law and Department of Environmental Conservation. Page 7, Line 20 increases the multiplier for salary and benefits at the request of the Department of Environmental Conservation. Mr. Tibbles explained that on Page 8, Subsection (10), the definition of "standard designated regulatory service" removed the inclusion list for small-scale mining. The agency wanted to be able to determine which activities were more complex. Representative Grussendorf observed that the Office of Management and Budget was included in the legislation. He commented that the Office of Management and Budget does not have the authority to develop regulations on the appeal process. He questioned why no fiscal note had been included from that agency. Co-Chair Therriault noted that the proposed legislation has "greatly" lessened OMB's participation. Mr. Tibbles added that there was a $176 thousand dollar fiscal note submitted at the last hearing from OMB. He reiterated that the proposed legislation has reduced their involvement. Co-Chair Therriault added that the bill would be held in Committee until the new fiscal notes were received. Mr. Tibbles reviewed Amendment 1. [Copy on File]. He noted that the amendment suggests striking the language "this determination upon request" and inserting "the fixed fees". On Page 3, Line 22, after "services" new language was added, "at least one of which is a designated regulatory service". Representative J. Davies observed that if there was more than one agency involved then the Office of Management and Budget would become involved. He believed those would be more complex issues. Co-Chair Therriault pointed out that within the Governor's budget there is both OMB and the Division of Governmental Coordination (DGC). DGC would act as the coordinator of multi agency functions. He believed that DGC would handle these issues given their coordination function. Representative Grussendorf questioned who would be responsible to collect the program receipts. Co-Chair Therriault explained that the unified fee would be a tabulation of the separate fee amounts. The parts could then be tracked. Mr. Tibbles explained that in Amendment #1, Page 4, Line 10, Subsection c(3) would be deleted and the following sections would be renumbered. Page 4, Line 25, would insert "AS 37.10.052(b) or (c)" and delete "AS 37.10.052(b)". This language indicates the new petition for a single fee. Page 5, Line 14, would add language "and AS 37.10.052(d)". Mr. Tibbles explained that language would move some of the standards to a different section. Mr. Tibbles referenced Amendment #1, Page 7, Lines 22 & 26, stating that section was requested by the Department of Environmental Conservation. He pointed out that language would address charges for plan approval. The Department currently is charging for this service and did not want it excluded. Mr. Tibbles referenced Page 8, Line 7, of Amendment #1. That section of the bill addresses Department of Environmental Conservation's general fee authority for more than just the designated regulatory services. Concern exists with the definition of direct costs used in, AS 37.10.058, which did not apply to other items outside those services. The amendment would insert "AS 37.10.056". JANICE ADAIR, (TESTIFIED VIA TELECONFERENCE), DIRECTOR, DIVISION OF ENVIRONMENTAL HEALTH, DEPARTMENT OF ENVIRONMENTAL CONSERVATION, recommended that approval be added. She noted that they were referring to "plan approval" as that is the issue for water and wastewater. Representative J. Davies asked if there were other kinds of approval. Ms. Adair responded that they are all "plan approval" of one sort or another. She believed that it would be safer to use the broader term. Representative J. Davies asked if the Department was satisfied with the last change proposed in the amendment. Ms. Adair responded that if it does the effect indicated by Mr. Tibbles, the Department would support it. Representative J. Davies asked if Ms. Adair could recommend any additional changes to Amendment #1. Ms. Adair responded that the Department intends to provide an amendment to address their remaining concerns. Co-Chair Therriault MOVED to ADOPT Amendment #1. There being NO OBJECTION, Amendment #1 was adopted. KEN FREEMAN, EXECUTIVE DIRECTOR, RESOURCE DEVELOPMENT CENTER (RDC), ANCHORAGE, commented that RDC is a statewide, member- funded, non-profit trade association. The organization's mission is to grow Alaska's economy through the responsible development of the state's natural resources. The membership includes individuals and leading companies from all of Alaska's basic industries, mining, oil and gas, fisheries, timber and tourism. Mr. Freeman noted that in January 1999, RDC was tasked with building industry-wide consensus on legislation designed to deal with State agency permit fees. Sealaska Corporation had taken an earlier lead on the issue with a draft bill known as the "Permittee Bill of Rights." The concepts articulated in the "Permittee Bill of Rights" served as the starting point subsequent discussions. Mr. Freeman commented that while industry recognizes its responsibility to pay for the services it receives, the issue of allocating program costs between the public and the regulated community remains unresolved. He noted that RDC applauds the Legislature for its past involvement in the issue, and appreciates having had the time to design a well crafted product. Mr. Freeman advised that HB 361 would accomplish several important objectives: ? First, it requires the resource agencies to establish a schedule of fixed fees for relatively simple and repetitive regulatory activities. These fees must he based on the actual and reasonable direct cost of providing the service and cannot include additional charges such as program overhead. That change is important for two reasons. It will provide the regulated community with more predictability in determining the costs to permit an activity. Also, it would ensure the person requiring a designated regulatory service will only pay for the costs associated directly with providing that service. ? Secondly, recognizing that not all services provided by the resource agencies lend themselves to fixed fees, the bill directs the resource agencies to enter into negotiations with any person requiring a service to determine the costs of complex or controversial permitting activities. In the event that negotiations are unsuccessful, the bill requires the agency to bill on a strict time and expenses basis for the work. That system will act as an incentive to both the agency and the permittee to conduct good-faith negotiations. ? Third, the bill will provide the regulated community with flexibility through a petition process. Petitions may be used to request that the agency supplement its schedule of fixed fees, they may be used to create a fixed fee for an activity specific to a distinct economic sector, and they may be used to request a single project fee for an activity requiring multiple permits. This type of flexibility will make doing business in Alaska easier. ? Fourth, the bill requires that any resource agency providing a designated regulatory service establish a uniform accounting system capable of producing an audible invoice. Services billed on a time and expenses basis will require monthly invoices. Some negotiated fees will also incorporate the use of invoices. This requirement makes the costs of providing regulatory services more transparent. ? Lastly, in the interest of clarification, Mr. Freeman pointed out two additional details. First, the bill is written to encompass all of the resource agencies, Department of Natural Resources, Department of Fish and Game and Department of Environmental Conservation, on a program by program basis. Currently, the only programs included in the bill fall under Department of Environmental Conservation. Mr. Freeman concluded noting that the legislation is an appropriate step toward fulfilling Alaska's promise or being open and ready for business. CAROL CARROLL, DIRECTOR, DIVISION OF ADMINISTRATIIVE SERVICES, DEPARTMENT OF NATURAL RESOURCES, commented on Amendment #1, the change to Page 6, which would sufficiently addresses the concerns of the Department over large mine activities. Co-Chair Therriault asked about the fiscal note. Ms. Carroll clarified that the note would be lowered to zero. STEVEN DAUGHERTY, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW, commented on some of the legal issues which exist in the bill. He voiced concern with the issue of OMB's authority. He commented that authority to adopt regulations or an explicit exemption from the Administrative Procedure Act (APA) is still needed for fee agreements and the appeal process. Under Alaska law, if something effects more than one person, it must be adopted by regulation. The fee agreement, under the State's Administrative Procedure Act will be required to be in regulation. Mr. Daugherty added that in the same section, it is not clear whether those same fee agreements would be treated as a binding contract. If they were, there would need to be a review provided by the Department of Law. He emphasized that section needs to be clarified. A change would need to be made on Page 3, and inserted on Page 4, Line 4, "a fee negotiated under this section is not subject to the Administrative Procedures Act". Mr. Daugherty stated that there is a potential problem on Page 2, where a change was made to the definition of fees. He noted that Page 7, Line 13, defines fee. He thought the language insinuated that other than pipeline right of way leases, other leases would be included. He did not know the impact of that language and did not believe it was the intent of the provision. Mr. Daugherty thought that concern could be addressed on Page 2, Line 10, inserting "fees associated with the sale of property". Mr. Daugherty noted another issue of concern was the interagency charges. That section does not address the Department of Law's need to be able to charge for services. Under the new version, interagency charges are only recoverable as listed on Page 6, Line 25. The Department of Law charges would not meet those requirements. (TAPE CHANGE, HFC 00 - 77, Side 1). Mr. Daugherty recognized that the proposed bill was greatly improved over the previous version. Ms. Adair voiced her appreciation to Mr. Tibbles for all his work. She noted that Mr. Daughtery had indicated a concern of the Department of Environmental Conservation in clarifying that the provision regarding negotiations for fees are not subject to the APA. She believed that a specific provision included could make that clear. Ms. Adair indicated concern on Page 3, Line 5, in that the fee could be based on an estimated reasonable direct cost. At the end of the four years when the Department has to make the review, they will need to make changes based on the average actual costs. The Department will still be required to do cost accounting for every person involved in the project. The Department proposes that the flat fee continue to be based on the estimated average reasonable direct cost. Co-Chair Therriault interjected that if the first 4 years were based on the estimated, the information would already be available. Ms. Adair explained that this would be a matter of detail. Actual costs are much more detail oriented than the estimated average cost. Representative J. Davies asked Ms. Adair for suggested language to address that concern. Ms. Adair would prefer to see Line 4, include "estimated average reasonable direct costs". (Page number inaudible). She added that would have a significant impact on the fiscal note. JON TILLINGHAST, ATTORNEY, SEALASKA CORPORATION, LEGAL COUNCIL TO RESOURCE DEVELOPMENT COUNCIL (RDC), JUNEAU, provided response to suggestions made by the Department of Law and Ms. Adair, Department of Environmental Conservation. He thought that most of the concerns could be addressed easily. With respect to OMB and writing regulations, he stated that there would be two things for OMB to do. One would be to hear appeals on specific invoices. OMB's other authority would be to set a multi agency fixed fee that will have some longevity to it. He suggested language to Page 4, between Lines 16 & 17, "no action by resource agency of the Office of Management and Budget under this subsection is subject to the Administrative Procedures Act". He stated that would provide a "blanket" exemption for anything, anybody does under that subsection. Mr. Daughtery agreed that would be sufficient. Mr. Tillinghast stated that the actual coordinating role would be done by DGC, which is a subdivision of OMB. In response to Mr. Daugherty's second concern, Mr. Tillinghast advised on Page 2, Line 10, it would be appropriate to state that it would not apply to sales on leased property. Mr. Tillinghast advised that the remaining concerns would be more difficult to address as they enter into policy such as the Department of Law's concerns that their charges to the Department of Environmental Conservation would not be paid by the applicant because they include overhead. The bill establishes one important public policy and that is that those expenses should not be charged to the applicant but instead spread to the entire public. The purpose of the bill is to change if an agency is charging their overhead. In response to concerns voiced by Ms. Adair, Mr. Tillinghast argued that if your estimates, after four years, differ from your actualized costs, then there is something wrong with the way you compute your estimates. Representative J. Davies countered that the point is not doing the actuals. That data would not be available as it was billed and was based on the estimates. Representative Phillips pointed out that if there were dispute in what was being billed, those would be the accepted fees. Co-Chair Therriault agreed with Representative J. Davies that the first four years of billings are based on estimates. The hours agreed to were based on estimates. Mr. Tillinghast observed that even though the fee charged to the applicant will be based on an estimate, he thought that the Department would be doing a "reality check" of the actual records to guarantee that the charge was correct. It is safe to assume that the acutal numbers will be available whether or not they are billed to the applicant. Representative J. Davies disagreed. He stated that it would not be cost effective to keep track of all the actuals. Mr. Tillinghast noted that on Page 5, Line 14, that subsection is the OMB review portion. An invoice would be scrutinized under a standard and that standard appears in AS 052, which is on Page 4, Lines 17-21. The reason that Section D is referenced and not Section C, is because Section c is the multi agency OMB fee and Section (B) is the agreements. The way that the bill is structured, OMB does not have any review authority in either instance. By referencing an additional subsection, it would expand OMB's review authority. Mr. Tillinghast and was surprised that OMB would advocate an expansion of authority. Co-Chair Therriault noted that final action on the bill would be HELD for further consideration and receipt of the final fiscal notes. Representative G. Davis noted that the Department of Law had recommended a change to Page 7, Line 17, which would affect the Department of Natural Resources. Ms. Carroll recommended waiting to make that change until the fiscal note had moved through the Division. HB 361 was HELD in Committee for further consideration. ADJOURNMENT The meeting adjourned at 5:30 P.M. H.F.C. 28 3/21/00 p.m.