Legislature(2001 - 2002)
05/05/2001 04:07 PM House L&C
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
May 5, 2001
4:07 p.m.
MEMBERS PRESENT
Representative Lisa Murkowski, Chair
Representative Andrew Halcro, Vice Chair
Representative Kevin Meyer
Representative Pete Kott
Representative Norman Rokeberg
Representative Harry Crawford
Representative Joe Hayes
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE CONCURRENT RESOLUTION NO. 9
Encouraging the Matanuska Electric Association to reverse its
plan to pursue deregulation.
- HEARD AND HELD
CS FOR SENATE BILL NO. 176(L&C) am
"An Act prohibiting certain coercive activity by distributors;
relating to certain required distributor payments and purchases;
prohibiting distributors from requiring certain contract terms
as a condition for certain acts related to distributorship and
ancillary agreements; allowing dealers to bring certain court
actions against distributors for certain relief; and exempting
from the provisions of the Act franchises regulated by the
federal Petroleum Marketing Practices Act, situations regulated
by the Alaska gasoline products leasing act, and distributorship
agreements relating to motor vehicles required to be registered
under AS 28.10."
- MOVED HCS CSSB 176(L&C) OUT OF COMMITTEE
PREVIOUS ACTION
BILL: HCR 9
SHORT TITLE:MATANUSKA ELECTRIC ASSN DEREGULATION
SPONSOR(S): REPRESENTATIVE(S)KOTT
Jrn-Date Jrn-Page Action
03/20/01 0662 (H) READ THE FIRST TIME -
REFERRALS
03/20/01 0662 (H) L&C
03/20/01 0662 (H) REFERRED TO LABOR & COMMERCE
05/05/01 (H) L&C AT 12:00 PM CAPITOL 17
BILL: SB 176
SHORT TITLE:DISTRIBUTORSHIPS
SPONSOR(S): LABOR & COMMERCE BY REQUEST
Jrn-Date Jrn-Page Action
04/05/01 0956 (S) READ THE FIRST TIME -
REFERRALS
04/05/01 0957 (S) L&C, JUD, FIN
04/19/01 (S) L&C AT 1:30 PM BELTZ 211
04/19/01 (S) Heard & Held
MINUTE(L&C)
04/24/01 (S) L&C AT 1:30 PM BELTZ 211
04/24/01 (S) Moved CSSB 176(L&C) Out of
Committee
MINUTE(L&C)
04/25/01 1259 (S) L&C RPT CS 5DP SAME TITLE
04/25/01 1259 (S) DP: PHILLIPS, DAVIS,
AUSTERMAN, LEMAN,
04/25/01 1259 (S) TORGERSON
04/25/01 1259 (S) FN1: ZERO(CED)
04/25/01 (S) JUD AT 1:30 PM BELTZ 211
04/25/01 (S) Moved CS(L&C) Out of
Committee
MINUTE(JUD)
04/26/01 1277 (S) JUD RPT CS(L&C) 4DP
04/26/01 1277 (S) DP: TAYLOR, THERRIAULT,
COWDERY, ELLIS
04/26/01 1277 (S) FN1: ZERO(CED)
04/28/01 1338 (S) FIN REFERRAL WAIVED REFERRED
TO RULES
05/01/01 1400 (S) RULES TO CALENDAR 5/1/01
05/01/01 1405 (S) READ THE SECOND TIME
05/01/01 1405 (S) L&C CS ADOPTED UNAN CONSENT
05/01/01 1405 (S) AM NO 1(TITLE AM) ADOPTED
UNAN CONSENT
05/01/01 1406 (S) ADVANCED TO THIRD READING
UNAN CONSENT
05/01/01 1406 (S) READ THIRD TIME CSSB
176(L&C)(TITLE AM)
05/01/01 1407 (S) PASSED Y19 N1
05/01/01 1407 (S) TAYLOR NOTICE OF
RECONSIDERATION
05/01/01 (S) RLS AT 12:15 PM FAHRENKAMP
203
05/01/01 (S) -- Time Change --
05/01/01 (S) MINUTE(RLS)
05/02/01 1447 (S) RECON TAKEN UP - IN THIRD
READING
05/02/01 1447 (S) RETURN TO SECOND FOR AM 2
UNAN CONSENT
05/02/01 1448 (S) AM NO 2 ADOPTED UNAN CONSENT
05/02/01 1448 (S) AUTOMATICALLY IN THIRD
READING
05/02/01 1448 (S) PASSED ON RECONSIDERATION Y18
N1 A1
05/02/01 1450 (S) TRANSMITTED TO (H)
05/02/01 1450 (S) VERSION: CSSB 176(L&C) AM
05/03/01 1501 (H) READ THE FIRST TIME -
REFERRALS
05/03/01 1501 (H) L&C, JUD
05/05/01 (H) JUD AT 1:00 PM CAPITOL 120
05/05/01 (H) <Bill Postponed>
05/05/01 (H) L&C AT 12:00 PM CAPITOL 17
WITNESS REGISTER
TUCKERMAN BABCOCK, Manager
Government and Strategic Affairs
Matanuska Electric Association
163 East Industrial Way
Palmer, Alaska 99645
POSITION STATEMENT: Testified on HCR 9.
JOHN HAXBY, General Manager
Waukesha Alaska Corporation
1301 Huffman Road
Anchorage, Alaska 99515
POSITION STATEMENT: Testified and answered question on SB 176.
ROGER HAXBY, Founder and President
Waukesha Alaska Corporation
1301 Huffman Road
Anchorage, Alaska 99516
POSITION STATEMENT: Testified in support of SB 176.
CHARLES VAN ORMER
3801 Barbara Drive
Anchorage, Alaska 99517
POSITION STATEMENT: Testified in support of SB 176.
HOWARD YAGER, Sales and Marketing Director
AlasCal, Inc.
4706 Harding Drive
Anchorage, Alaska 99517
POSITION STATEMENT: Testified in support of SB 176.
JANEECE HIGGINS, General Manager
Alaska Rubber & Supply, Inc.
5811 Old Seward
Anchorage, Alaska 99518
POSITION STATEMENT: Testified in support of SB 176.
DEBORAH LUPER
PO Box 771757
Eagle River, Alaska 99577
POSITION STATEMENT: Testified in support of SB 176.
CLYDE "ED" SNIFFEN, JR., Assistant Attorney General
Fair Business Practices Section
Civil Division (Anchorage)
Department of Law
1031 West 4th Avenue
Anchorage, Alaska 99501
POSITION STATEMENT: Testified on SB 176.
GEOFFREY LARSON, Co-Founder
Alaskan Brewing and Bottling Company
5429 Shaune Drive
Juneau, Alaska 99801
POSITION STATEMENT: Testified on SB 176.
ACTION NARRATIVE
TAPE 01-71, SIDE A
Number 0001
CHAIR LISA MURKOWSKI called the House Labor and Commerce
Standing Committee meeting to order at 4:07 p.m. Those present
at the call to order included Representatives Murkowski, Halcro,
Meyer, Kott, Rokeberg, Crawford, and Hayes.
HCR 9-MATANUSKA ELECTRIC ASSN DEREGULATION
CHAIR MURKOWSKI announced that the committee would consider
HOUSE CONCURRENT RESOLUTION NO. 9, Encouraging the Matanuska
Electric Association to reverse its plan to pursue deregulation.
REPRESENTATIVE PETE KOTT, sponsor of HCR 9, presented the
resolution. [Opening statements were inaudible due to tape
failure. However, a written sponsor statement was provided in
committee packets.]
CHAIR MURKOWSKI asked Representative Kott if it is his intention
to enforce the [Matanuska Electric Association] board's intent
to lay this aside.
REPRESENTATIVE KOTT responded that she was correct. He stated
that he wants to reinforce the position that the board is
currently taking, and he believes it should be put aside
indefinitely. He added that this is not supported by the RCA
(Regulatory Commission of Alaska).
Number 0108
CHAIR MURKOWSKI stated that in the "resolved" clause on page 2,
[the Alaska State Legislature] is encouraging MEA (Matanuska
Electric Association) to reverse its deregulation plan. In view
of the actions of the board, she asked Representative Kott if he
feels this language is still appropriate. She remarked that it
doesn't seem that [MEA] has a deregulation plan at this point.
REPRESENTATIVE KOTT stated that it is questionable whether that
plan currently exists. He said he suspects there was a formal
plan that [MEA] was working from, but it has been put [aside] at
the present time.
Number 0190
REPRESENTATIVE ROKEBERG asked if, under the circumstances,
Representative Kott thinks it is wise to go ahead, since [MEA]
has set this issue aside. He stated that he finds a significant
amount of the resolution objectionable in terms of its factual
accuracy, and thinks it might "poison the well" of any future
restructuring efforts the state might want to undertake.
REPRESENTATIVE KOTT responded that he has given that a lot of
thought, and he does not think there is anything that is not
factual.
REPRESENTATIVE ROKEBERG remarked that with issues of
deregulation, it should say "restructuring," since the
conclusions of the commission are premature. He stated that the
fact that there was massive damage to certain economies due to
deregulation is arguable. For example, California's [situation]
was not caused by deregulation; he believes it was caused by
legislative meddling in the market system.
REPRESENTATIVE KOTT responded that he does not think [the
blackouts that occurred in California] were entirely due to
meddling by the California assembly, but that deregulation was
not well thought out.
REPRESENTATIVE ROKEBERG stated that he would suggest that
California didn't have the restructuring or deregulation in the
more traditional sense. It may have been labeled that way, but
it was with price caps, and some very improper economic
assumptions were made; as a result, California's system of
alleged deregulation was doomed to failure from the "get-go."
He stated that he doesn't think it is accurate to use that as an
example, whereas the cases in Pennsylvania and the mid-Atlantic
states have been quite positive. He asked Representative Kott
what the form of deregulation was and if [MEA] was considering
some kind of acquisition or merger.
REPRESENTATIVE KOTT responded that he believes [MEA] was trying
to get out from under control of the RCA.
REPRESENTATIVE ROKEBERG remarked that it is a statutory
provision that the legislature has provided for.
Number 0449
TUCKERMAN BABCOCK, Manager, Government and Strategic Affairs,
Matanuska Electric Association, testified via teleconference.
He stated that it sounds as if there is some misunderstanding of
what MEA has offered to its membership as a choice. He
explained that it was already provided for in state statute,
which is a deregulation with respect to setting rates and
setting service rules. He stated that even if the membership
had voted to approve this form of deregulation, the service
territory and the certificate that allows [MEA] to serve a
particular area would still be regulated by the RCA. He
remarked that had [MEA] pursued it, [MEA] would be doing nothing
different from 65 percent of all the electric utilities in
Alaska, which are already deregulated. These sorts of elections
have been successfully held by Copper Valley, Cordova, and
Kotzebue, all in the last few years. On the other hand, he
said, the MEA board of directors, particularly with the
confusion around the word "deregulation," and with the news
about California back in January, voted unanimously not to
initiate the deregulation election. He stated that if the
legislature has considered the state statute that gives
cooperatives this option and wishes to recommend to the co-ops
not to pursue this option, then it makes no more sense to direct
it at MEA than it would at Chugach, Golden Valley, or Homer at
this point.
Number 0637
CHAIR MURKOWSKI stated that she had asked the sponsor about the
wording in the "resolved" section encouraging MEA to reverse its
deregulation plan, and asked Mr. Babcock if, in his opinion,
that has been accomplished by the recent actions.
MR. BABCOCK responded that in January, MEA's board voted
unanimously not to initiate the election. He stated that there
are no plans to pursue this option or present it to the members.
Even if the board wanted to pursue this limited kind of
deregulation, a majority of the members would have to vote in
favor of it before it would be implemented.
REPRESENTATIVE ROKEBERG asked if the sponsor is going to redraft
this.
REPRESENTATIVE KOTT stated that he would.
[HCR 9 was held over.]
SB 176-DISTRIBUTORSHIPS
CHAIR MURKOWSKI announced that the committee would consider CS
FOR SENATE BILL NO. 176(L&C) am, "An Act prohibiting certain
coercive activity by distributors; relating to certain required
distributor payments and purchases; prohibiting distributors
from requiring certain contract terms as a condition for certain
acts related to distributorship and ancillary agreements;
allowing dealers to bring certain court actions against
distributors for certain relief; and exempting from the
provisions of the Act franchises regulated by the federal
Petroleum Marketing Practices Act, situations regulated by the
Alaska gasoline products leasing act, and distributorship
agreements relating to motor vehicles required to be registered
under AS 28.10."
Number 0827
JOHN HAXBY, General Manager, Waukesha Alaska Corporation, came
forth and stated that [Waukesha Alaska Corporation] will be 30
years old next year; it was started in 1972 by Mr. Haxby's
father. Mr. Haxby said he has been operating the business since
approximately 1984. There are 13 employees, and the main
business involves the sale and distribution of machinery, as
well as services throughout Alaska. He stated:
Over the last 30 years we've been in relationships
with many different manufacturers. ... Relationships
change over ... time, and there are occasions where
distributor agreements are "yanked" or terminated
without warning. In many cases, this can cause
irreparable financial damage to Alaskan businesses,
and the immediate loss of jobs created by the lack of
product to sell. In our specific case, in addition to
loss of business revenues, it has also resulted in
some $300,000 in unusable inventory, which remains on
our shelf even today. Senate Bill 176 is good because
it doubles the playing field in Alaska.
Legal challenges are extraordinarily expensive, and in
most cases, the outside manufacturers have very, very
deep pockets, and have the ability to simply run
Alaskan businesses out of money in the courts. Cases
like this can easily run into the hundreds of
thousands of dollars. ... In one notable instance,
from one company, ... legal bills are in excess of one
million and continue to climb with ongoing legal
challenges. This type of legal expense is simply not
an option for most small businesses in Alaska,
certainly not ours.
This bill also keeps manufacturers from forcing
unwanted or unordered inventory on Alaskan businesses.
It is not uncommon for manufacturers to make us part
of some imaginary quota and just say that [we're]
going to take part in it. When there's resistance on
the part of a local distributor to do so, the
manufacturers typically threaten or say ... "You need
to do this because it's part of our quota, and either
do [it] or we're going to have problems." This bill
also allows that in the event of a death of a
distributor, ... an orderly and equitable return of
inventory can be accomplished quickly.
In many cases when business owners do die, the IRS
[Internal Revenue Service] comes in and values [the]
businesses according to past results and past history.
If distributor agreements are yanked because the
manufacturers believe that ... the person [whom] they
originally struck [the] deal [with] are not the heirs
of that person, the value of the business can go to
zero. ... Even though the IRS would value the business
according to past results and assets [and] a tax based
on past [results], if the distributorship agreements
were yanked, the value of the business could
theoretically go to zero while the tax liability
remains with the estate.
Number 1038
REPRESENTATIVE MEYER stated that he had introduced a House bill
similar to this, and when he first talked about this [with Mr.
Haxby], Mr. Haxby had given him a few examples. He asked Mr.
Haxby if there are other businesses in which this has happened
and has caused some great financial distress.
MR. HAXBY responded that he could; however, he thinks some
people will be testifying to that.
REPRESENTATIVE ROKEBERG asked Mr. Haxby if his business would
benefit from the enactment of this legislation.
MR. HAXBY answered that his business has the potential to be
treated equitably in the future.
REPRESENTATIVE ROKEBERG asked Mr. Haxby if he is "hustling" the
legislature because he sees the "handwriting on the wall" from
his main supply.
MR. HAXBY responded no.
REPRESENTATIVE HALCRO noted that on page 2, line 2, it states
that "[a distributor may not coerce or] attempt to coerce a
dealer to perform certain acts by using duress or by threatening
to terminate the distributorship agreement". He stated that
some franchise or distributor agreements call for the franchisee
to spend money on marketing or to buy tools. He said this is a
broad description of a certain act. If part of a franchise
agreement calls for a [business] to invest in certain products,
this theoretically can be used to say, "The law says you can't
make me do that." He asked Mr. Haxby why that is written the
way it is.
Number 1192
MR. HAXBY responded that typically these types of behaviors
occur after the contract is signed.
REPRESENTATIVE HALCRO asked Mr. Haxby, when he enters into an
agreement under which [the manufacturers] could periodically say
they are going to change the terms and conditions, if he would
have to sign it in order to continue being a supplier, or if he
operates off one original document.
MR. HAXBY answered that it is typical for a manufacturer to come
back and say, "Here's the new document; sign it." And if there
is any term that [the supplier] does not like and attempts to
cross out, the [manufacturer] could say, "Sign it, or you're
terminated."
REPRESENTATIVE HALCRO asked if the [manufacturers] can come [to
the supplier at any time], or if they wait till the end of the
contract period.
MR. HAXBY responded that in some cases there has been some
notice, typically without the benefit of any input from the
[supplier]. There are occasions when there is literally no
notice, and other occasions when distributorship agreements are
yanked with 30 days' notice.
Number 1320
REPRESENTATIVE HALCRO, in reference to the section "Death of
distributor" on page 3, stated that if the agreement is signed
with him, and he passes away but his wife and kids want to keep
the distributorship, it seems that this only addresses the
liquidation of the assets and that the dealer would repurchase
all of the inventory. He stated that if the family wants to
continue on, it seems to him that there ought to be a section
that addresses what the logical next step would be to protect
both parties. He asked if there has been any discussion with
regard to that.
MR. HAXBY replied that the first sentence of that section, [AS
45.45.730, page 3, lines 4-5] states, "Unless the
distributorship agreement is continued by the personal
[representative]". He said in his understanding, in the event
that [the manufacturers] say, they want to continue the
agreement, then they are further bound by the rest of the law.
Therefore, if the manufacturers wanted to terminate, they would
be bound by the other conditions in the bill.
REPRESENTATIVE HALCRO asked, "Even though their agreement was
with you and not necessarily the family member?" He stated that
he thinks there needs to be some kind of a process to come up
with a new agreement that is going to protect both sides.
MR. HAXBY remarked that he thinks, under this particular
section, it would allow [the supplier] to say, "Yes, we want to
continue." He added that there is another section that says
there is the ability to go to court. He stated that he would
think that under subsection (b)(2), on page 4, [the supplier]
may be able to get an injunction.
REPRESENTATIVE HALCRO, in reference to "Required purchase,
reimbursement, and supplies", on page 3, asked Mr. Haxby if he
could explain when a distributor terminates a distributorship
agreement or changes the competitive situation of the
distributors dealer with regard to distribution. For example,
if someone has a signed contract representing a specific
toolmaker and [a representative] asks [someone else] to sell the
same tools, that would affect the competitive balance in the
workplace.
MR. HAXBY responded that that may be one case, but a more
suitable case would be when there are certain discounts from a
list-price that are afforded and all of a sudden the
manufacturer changes the discount.
Number 1564
CHAIR MURKOWSKI stated that she has some concern with this area.
She stated that "changes the competitive situation" is a very
broad terminology. It does not include making a price change;
however, the distributor could make an agreement with one
company to sell the exact same product regarding which another
company has an agreement.
MR. HAXBY stated that typically in the businesses he has been
involved in, when these agreements are signed, many of the
manufacturers do not have markets in Alaska. However, he said,
he supposes Chair Murkowski is right.
REPRESENTATIVE HALCRO stated that the broadness concerns him
because certainly the agreement would vary. For instance, some
dealer-distributorships have specific [geographic] areas, but if
there is an agreement that does not have a geographic area
defined, this leaves the door open to someone to say, "The
competitive situation's changed; I'd like to take advantage of
some of the provisions that are outlined here and make the
dealer buy back my inventory." He stated that he thinks that is
one area that needs to be "tightened down."
Number 1737
ROGER HAXBY, Founder and President, Waukesha Alaska Corporation,
testified via teleconference. He stated:
Until the mid 1980s, our business and that of our
competitors [were] relatively stable. However, since
that time, we and our employees have suffered extra
costs and losses due to the specious nature of
manufacturers from Outside, who typically do the
following: They'll come to Alaska looking for an
introduction to their product; ... join us for the
first early years; ... demand training of our service
personnel as well as customer personnel; insist on the
substantial inventory of parts and machines; do
warranty work immediately, and then decide whether or
not to reimburse us; and continue to expand and
provide modern facilities for appearances as well as
the ability to do additional business.
Then, when the machine volume and population reaches
the threshold, it is not [atypical] to use the
distributor agreement as a threat or as a pawn in
negotiating with outside companies who wish to enter
the Alaska arena. It's happened more than once where
an Outside company is enticed to handle their product
on the basis that they get the contract for Alaska
also.
When cancellation for a simple nonrenewal of a
distributor or contract occurs, we get stuck with the
inventory of parts, machines, (indisc.) units, and
trained servicemen. ... One of the worst [parts] about
being in business is ... [laying] off employees who
have lost their use. The cost runs into hundreds of
thousands, if not millions of dollars. The serious
problem with this is that our local industries will
never grow to the size of their potential, because the
conditions simply do not match with long-term
amortization cost for facilities and personnel
training.
Number 1897
CHARLES VAN ORMER testified via teleconference. He stated:
At this time, I would like to request your support on
this bill. As an employee and a manager with quite a
few companies here in Alaska in the last 27 years, I
have been forced through the change of the lines,
handled by distributorships that I have worked for, to
have to devalue. And [I] have seen the owner's
company I work for pay taxes based on inventory tax of
dead stock before it to be totally devalued as
distributorships have changed. And [I have] also
watched good employees get laid off, ... had to
terminate the people because we didn't have the work,
and see these people leave Alaska with their families.
The question that came up earlier as to change in
market are -- one of things that's happening in Alaska
is we're seeing a large influx of large corporations
from outside the state of Alaska bringing products to
Alaska. While most (indisc.), the corporations coming
into town now bring in the lower end - the consumer
end. These products are able to buy and sell at a
price sometimes lower than Alaska distributors would
buy at.
... I worked last year for a company; we were asked by
one of our major suppliers to handle a product. By
the time I cost it out with freight to Alaska, I could
go to Costco and buy it for $7 cheaper than my landing
cost in Seattle, not including the Seattle-to-Alaska
Freight. Costco had it there ready to sell. Costco's
price was driven by their national buying price and
also reduced shipping rates. ... They're a very good
company, don't get me wrong, but Alaskan distributors
have been forced to either jettison a line, cancel a
line, or readjust their marketing because of wholesale
marketing.
I personally, last year due to reduced sales caused by
this, laid off a young man whose father had opened a
business in Alaska that was driven out because the
major qualities from lines he handled were now being
held by a major wholesaler in town on the lower end.
They had to buy him; he could not compete.
Number 2009
MR. VAN OMER continued, stating:
[There's] another major issue ... I think affects
Alaskan businesses - Mr. Haxby's alluded [to] this -
as the Alaskan distributor would be appointed, develop
a market area, and then in which a corporation would
set up another distributor [and] bring someone to town
or come to town themselves. This happened during the
trans-Alaska oil pipeline construction - major
corporations who've had national agreements with the
pipeline men. [The] pipeline proceeded to bypass
local Alaskan distributorships, [and] bring their own
company's store to town. The people were not Alaskan
residents; they worked up here in and out of the state
at the time after the pipeline, then they closed their
company store and left town.
I see, potentially, the same thing happening with the
opening of ANWR [Arctic National Wildlife Refuge],
hopefully, and the gas line. ... Major corporations
will say, "We're coming to town, we'll open our own
store to support the pipeline, support ANWR, the gas
line," and the local distributors will be left out
again. This type of thing does happen; we're seeing
it in the equipment business, which I am in. A
company came to town last year; this forced the
cancellation of three lines of equipment they have
because of national agreements, because a national
firm [was] handled by other Alaskan small businesses
that now have dropped. Either due to lack of market
or cancellation, [they] have dropped that line and
have [been] forced to find something to fill that
market hole.
Number 2114
HOWARD YAGER, Sales and Marketing Director, AlasCal, Inc.,
testified via teleconference. He stated that [AlasCal, Inc.] is
a petrology laboratory that deals with low-cost to very
expensive instruments used to calibrate the measurements of
things that deal mainly with the pipeline, aviation, and
military. He stated:
Our range of equipment is from a few hundred dollars
to many thousands [of] dollars. Should we lose our
distributorship from our manufacturers, we could be
left with some very "high-tech" inventory that would
be like computers: every year it sits on the shelf,
it becomes less and less valuable and would be out of
date. The inventory dollars would dissipate very
quickly on that. We would urge [that SB 176] be
passed to protect us from this. When we're appointed
by our manufacturers, we assume that we're going to
sell everything that they suggest we carry, and should
that not happen, that's going to stick us with a lot
of inventory that would be worthless and depreciating
very quickly.
CHAIR MURKOWSKI asked Mr. Yager, if he had a product that
essentially becomes technologically obsolete under how things
operate currently, whether the distributor would buy back those
products.
MR. YAGER responded no, that he would be stuck with them in
inventory.
Number 2268
JANEECE HIGGINS, General Manager, Alaska Rubber & Supply, Inc.,
testified via teleconference. She stated:
In 1995 one of our manufacturers terminated a
distributor agreement that we had. We decided to
fight the case. They went after our customers, told
them we were no longer the factory-authorized
distributor, and we were not allowed to return any
inventory. We had close to a million [dollars] in
inventory at that point. We could then no longer sell
it to our main customers, because they were told by
the manufacturer that we would not give them the
technical support that [was] needed. We have gone
through litigations. ... We have prevailed in every
court case. They have appealed it all the way to the
Ninth Circuit, and they have still appealed; we are
still in the appeals process. Our legal fees have
reached over $1.2 million and we're not done yet.
We have moved some of the inventory. ... We still
[have] close to $100,000 worth of inventory that is
very specific to a customer who no longer will
purchase it from us. At $20 a foot, not too many
people want to water their gardens with hoses that
cost that kind of money. Had something like this been
in effect ... we might have been able to withstand ...
[it with] much fewer losses. We could have possibly
returned the inventory, worked out some sort of
agreement, and come out a much better deal. Hindsight
tells us we probably shouldn't have fought, we should
have tried to work something out, but the loss to us
was very significant. One customer that we lost was a
$600,000-per-year customer.
... I would really urge you to pass this into law.
Most small companies could not withstand the expense
that we have. ... When they terminated the agreement,
[the owner] decided that he was going to stick with it
and fight it out, that he had done nothing wrong, that
we had been a good distributor; we had been a top 12
distributor in the nation for over 15 years. [The
manufacturers] were promised oil slope revenue by
another company, and that was one of the reasons the
distributorship was terminated. In one of the counter
suits they have now, [they] even implicated that it is
our fault that they terminated us and had to go with
an inferior distributor, because the sales did not
materialize. ... There needs to be some protection for
the small businesses.
Number 2389
DEBORAH LUPER testified via teleconference. She stated that
essentially the bill prevents coercion of small Alaskan
businesses - Alaskan dealers who are providing the market for
the "big guys" Back East. She said she knows that in one case a
tire manufacturer required the dealers to purchase tire
inventory that they did not want and had not ordered. That was
something that eventually forced that dealers to seek another
line. She said this would require the big businesses Outside to
buy back inventory, should they try to make the agreement. This
also [addresses] a dealer who is deceased, and whose heirs have
inherited the business. In cases where the dealership is yanked
because the dealer has died and the [manufacturer] doesn't want
to deal with the heirs, the inventory will be purchased back.
TAPE 01-71, SIDE B
MS. LUPER continued, stating that typically these "big guys"
come in and want [the dealer] to develop the market. They sign
a distributorship agreement that is fair to both parties, but as
the years go on, these agreements become more and more
restrictive. Eventually, [the dealer] becomes so dependent on
one particularly line that if they decide to yank the
distributorship agreement, [that dealer] has an entire business
that could go under. She pointed out that this bill is not
retroactive; it does not take into account previous activities.
However, from the day it is signed, it would go into effect.
She added that most businesses cannot afford the legal hassles
and the legal expenses that are associated with these
situations. Small businesses in Alaska have "shallow" pockets,
whereas the manufacturers in the Lower 48 have "deep" pockets.
Number 2372
CLYDE "ED" SNIFFEN, JR., Assistant Attorney General, Fair
Business Practices Section, Civil Division (Anchorage),
Department of Law, testified via teleconference. He stated that
the Department of Law generally supports the bill and has
proposed a couple of minor amendments. One [later adopted as
Amendment 1] involves the amount of money that would have to be
paid to the distributor in the event that a distributorship
agreement was canceled. In the original version of the bill,
that amount was 100 percent of the net value of the inventory;
this amendment would change that amount to a fair market value.
He explained that the reason for this is that requiring payment
of 100 percent of the amount paid for the inventory was an
inventory guarantee that perhaps wasn't a sharing of the risk
that was contemplated under the agreement. The other suggested
change [later adopted as Amendment 2] is to include the word
"franchise" in the language that exempts motor vehicle dealers.
CHAIR MURKOWSKI stated that a question was raised earlier by
Representative Halcro concerning the section on "Required
purchase, reimbursement, and supplies" on page 3. She said
there is language on line 16 that allows for the reimbursement
or the purchase if there's a termination of the distributorship
or changes to the competitive situation of the distributor's
dealer. She remarked that her concern is, for example, when
someone has been selling tires in Anchorage for a period of
years and has a nonexclusive agreement, but the community has
grown and there is a need to expand. If somebody else then
comes in and starts selling the same product, that is clearly a
change in the competitive situation. She asked whether the
distributor is then required to repurchase all of the
[inventory], including the good will and assets of the company.
MR. SNIFFEN stated that that is an interesting question. A
couple of issues arise. One might be an antitrust implication.
If the competitive relationship has changed because of the entry
of a new competitor into the market, those things are encouraged
in order to lower prices and provide benefits to consumers.
Under a situation like that, the way the bill is written now, a
repurchase of inventory might be required; however, he said that
might be a factual question for the court to consider. He noted
that under the proposed amendment, if inventory is repurchased
at fair market value, the distributors are protected because
they can resell the merchandise to someone else, and the dealers
are protected because they are receiving something for the
inventory and not left high and dry.
Number 2199
REPRESENTATIVE HALCRO asked whether it would help if [it read]
"substantial changes" [in the competitive relationship], thereby
creating a higher threshold.
MR. SNIFFEN responded that he thinks it would. He added that
one thing that might help would be if the distributor was
responsible for creating other competition.
REPRESENTATIVE ROKEBERG suggested that inserting the words
"makes substantial" after "or" on page 3, line 16, implies that
it is the distributor making the substantial change.
CHAIR MURKOWSKI stated that the Alaska Gasoline Products Leasing
Act addresses what happens on a termination and required
purchase or reimbursement, but good will under that
consideration is only allowed if it's the dealer who doesn't
renew because he or she can't agree to other terms. She said if
there appear to be situations in which good will would be
allowed, but it is an act of the dealer that causes the
termination, then good will should not be allowed as part of the
compensation package. He asked Mr. Sniffen if he would comment
on that.
MR. SNIFFEN responded that he would agree with that completely.
He stated that good will is another one of those nebulous things
that is difficult to put a value on.
Number 2033
REPRESENTATIVE HALCRO added that he thinks the use of assets is
equally as broad. He said assets could be a revenue stream or
loss in the customer's account.
REPRESENTATIVE ROKEBERG suggested using a different word than
"covered" on page 3, line 19. He asked Chair Murkowski if she
was suggesting deleting "good will".
CHAIR MURKOWSKI answered no, that in looking at how similar
statutes have addressed it, it seems to make sense to mirror
that. She stated that in certain instances in which the
termination has not been through the fault of the dealer, good
cause should be allowed. However, she said, there may be
instances in which good will shouldn't be allowed for the
compensation package, if the dealer had somehow acted against
the agreement or there had been some bad faith.
REPRESENTATIVE ROKEBERG remarked the she would have to be clear
on that, because basically there would have to be some type of
appraisal or evaluation made.
CHAIR MURKOWSKI added that anytime there is evaluation of goods,
the courts are involved.
REPRESENTATIVE ROKEBERG stated that that should be avoided.
Number 1938
CHAIR MURKOWSKI remarked, in reference to page 3, subsection
(a)(2), that if the dealer has substantially changed the
competitive situation, the distributorship should reimburse the
dealer for the expenses that were incurred by the dealer during
the 18 months before the termination or the change. She asked
Mr. Sniffen if "expenses" means that the distributor will have
to reimburse the dealer for rent, overhead, and everything that
is associated with the operation of the business.
MR. SNIFFEN responded that he didn't see that "expenses" was
defined in the bill in any specific way. He stated that he
thinks that could be a possibility.
CHAIR MURKOWSKI remarked that "expenses" needs to be defined
more clearly. She asked if this draft [of the bill] is seeking
to reimburse the dealer for those things that the dealer had to
buy from the distributor 18 months prior to the termination or
the change.
MR. SNIFFEN answered that he thinks that is correct. He added
that he would think the main items that a dealer would have are
inventory, equipment, and supplies, as well as transportation
expenses associated with getting those things back to the
distributor.
CHAIR MURKOWSKI stated that in looking at the petroleum Act in
state statutes, it doesn't define "expenses" but it does put a
limitation that the distributor should not have to pay for
personalized materials that don't have a value to the refiner or
distributor.
MR. SNIFFEN commented that he thinks that is a good approach.
Number 1806
REPRESENTATIVE ROKEBERG directed Mr. Sniffen to page 6, lines 2
and 3, which read, "'distributorship agreement' means an
agreement, whether express, implied, oral, or written". He said
he is concerned about having an implied or oral contract raised
to the level of statutory protection.
MR. SNIFFEN responded that he thinks that is a good concern. If
a distributor denied that there was such a relationship and then
refused to comply with the statute, it would be up to the dealer
to prove that there was a relationship. He added that that
would be a question for the courts.
REPRESENTATIVE ROKEBERG asked Mr. Sniffen if he thinks leaving
"implied" and "oral" would be OK under those circumstances.
MR. SNIFFEN stated that it is going to raise some questions down
the road, and he doesn't know if there is an easy way to get
around that. He added that he does think those situations
exist, and this would provide some protection.
REPRESENTATIVE ROKEBERG remarked that those are his concerns.
If [the bill] were to stipulate only a written agreement, then
most of these arrangements would be made more or less as a
handshake deal in order to avoid the enforcement of the statute.
MR. SNIFFEN said that is a good point.
Number 1704
REPRESENTATIVE HALCRO stated that in the inverse of that,
handshake deals might become a norm in order for somebody to
take advantage of the statute. He stated that part of his
concern is with subparagraph (2)(B) on page 3, which reads, "(2)
reimburse the dealer for the expenses that were incurred by the
dealer (B) during the 18 months before the termination or
change"; it is so broad, it gets way beyond "stationery and pens
and pencils." He remarked that if he built a showroom 12 months
earlier to highlight the product line, and he lost the product
line, it might be argued that the distributorship would have to
pay for the showroom.
MR. SNIFFEN responded that that is a good point. He suggested
that one way to limit that is to include language such as
"expenses necessarily incurred to sell the product" or to tie it
to only those expenses that the distributor requires for the
sale of the product, and not expenses the dealer might incur on
his or her own.
REPRESENTATIVE HALCRO suggested tightening the language so it
only relates to inventory or related expenses.
MR. SNIFFEN stated that he thinks that's a good idea.
Number 1602
CHAIR MURKOWSKI, in reference to the section on page 2
concerning disposition of merchandise remaining upon the
contract termination, stated that she understands, the way this
is drafted now, that this applies regardless of whether there is
cause for termination. She asked Mr. Sniffen if that is his
understanding.
MR. SNIFFEN answered yes.
CHAIR MURKOWSKI stated that she understands the language on page
2, subsection (c), as relating only to repair parts. She asked
how obsolete technology would be dealt with. For example, she
asked if she were an Apple computer dealer and had repair parts
in her inventory for several years that are now obsolete,
whether she could receive the original purchase price, because
that would be the highest price. She stated that she is
concerned with technological obsolescence and the fact that in
this day and age things change literally overnight. She asked
Mr. Sniffen if she is too concerned about this.
MR. SNIFFEN responded that he does not think she is [too
concerned]. He stated that he does not understand a whole lot
about dealer-distributor relationships, but assumes that in some
situations there is a requirement that repair parts be
available. Therefore, dealers might be more reluctant to buy a
computer than repair parts, because they may not realize the
value from the repair-part inventory that they would from the
computer itself. He said there has to be a sharing of the risk
here; the dealers are making profits selling these things. On
the repair-part issue alone, he said it would seem that the
distributor is requiring the dealer to carry that inventory at a
certain level, and [the distributor] should bear more of that
risk than the dealer.
Number 1359
REPRESENTATIVE HALCRO remarked that Mr. Sniffen hit on a good
possible solution of tying in the repurchase of the repair parts
to fair market value.
REPRESENTATIVE ROKEBERG said he is concerned about that because
if [the committee] adopts the fair market value suggestion, that
won't necessarily include repair parts. He stated that he is
less concerned about this [than the other members] because there
is going to be a net price list.
CHAIR MURKOWSKI remarked that it will be the higher of the
original purchase price or the latest price published.
REPRESENTATIVE ROKEBERG responded that it is still a wholesale
price, rather than a fair market value price if there is a
listing. He suggested that it be the higher of the fair market
value or the latest price published.
CHAIR MURKOWSKI remarked that that would take care of it.
REPRESENTATIVE ROKEBERG asked Mr. Sniffen if he has looked at
any other states or what has been done elsewhere.
MR. SNIFFEN responded that he hasn't specifically with
distributor bills like this one. He said he has looked at other
states when it comes to automobile franchise relationships.
Number 1184
MS. LUPER stated that in regard to page 2, subsection (c), in
cases where the parts are small and there is a risk of their
going obsolete, the trend seems to be that [a single] request is
faxed in so the dealer is not left with a lot of obsolete
products. In cases where the parts are very heavy and cost a
lot in freight, those tend to be the sort of repair parts for
Caterpillar tractors, for example, and don't become obsolete as
a general rule. She stated that the concern is valid, but she
thinks that in the long term it probably will not be a
formidable situation.
MS. LUPER stated that she believes page 3, paragraph (2) refers
to the special training and infrastructure specific to the
product. For example, Roger Haxby related to her earlier that
to sell a specific product, his company worked out an
arrangement whereby many of Alaskan Natives living in the
villages were brought into town, trained, and sent back to the
villages to earn a living. When that dealership agreement was
gone, not only did all those people lose their jobs, but all the
training, travel, and everything that was specific to the
product was gone as well.
Number 1040
GEOFFREY LARSON, Co-Founder, Alaskan Brewing and Bottling
Company, testified via teleconference. He stated that he thinks
SB 176 is good for protecting small, in-state dealers from
larger, more powerful outside entities. He remarked that the
definition "distributor" also includes manufacturers, and his
company is a manufacturer. He stated that in this particular
interpretation of SB 176, it would not be very good for [the
Alaskan Brewing and Bottling Company]. He explained that his
company sells its beer through a wholesaler that is a fairly
large entity. In this instance, [the Alaskan Brewing and
Bottling company] is the small entity, being a manufacturer,
which creates a paradox.
MR. LARSON stated that he thinks this is good for the protection
of people who build a brand in an environment where they are
smaller by definition, because generally the larger
manufacturers have much of the control over what merchandise is
being sent to the "light." In his case, the rolls are reversed.
[The Alaskan Brewing and Bottling Company] actually gives its
wholesaler exclusive rights for distribution, but in that
instance the company ends up relinquishing a lot of its own
ability to help guide and prosper in that relationship. He
added that the awkward thing for his company, being
manufacturers in Alaska, is that if they had to go through
another market to get their product to market, they would first
have to succeed in [Alaska's] market.
MR. LARSON stated that in the proposed amendment there is
reference to wholesalers under Title 4, which he does not think
would be as appropriate. He stated that even his wholesaler has
larger suppliers from out-of-state.
Number 0827
CHAIR MURKOWSKI stated that [the committee] had received a
proposed amendment from Senator Leman's office that would
specifically exempt breweries, brewpubs, wineries, and
wholesalers under Title 4. She asked if it is Mr. Larson's
recommendation to expand it to those that are manufacturers in a
more general sense.
MR. LARSON responded that the awkwardness is that he understands
his business and the channels of trade for breweries, and is
provincially unaware of what would be a good generalization. He
stated that from his perspective, that amendment would protect
the breweries. He remarked that in his case, his company needs
to wholesale through other entities. In doing that, they will
form a relationship and sign distribution rights whereby they
give their wholesaler total rights to their product; however, in
that exclusivity a lot of power is lost. He added that he would
tend to say that with the amendment as it is proposed, the
manufacturers and the wholesaler should probably be left out.
REPRESENTATIVE HALCRO asked Mr. Larson if he had addressed this
in Senate Labor and Commerce Standing Committee.
MR. LARSON responded that he just became aware of the bill. He
added that the intent of the law in other states is to protect
the in-state distributor from larger outside interests. In the
last 15 years, for his industry, these laws sometimes have been
problematic for the tiny entities.
Number 0470
MR. VAN ORMER stated that as a manufacturer and/or dealer in
Alaska, he handles products that are subdistributed to people
throughout the state. He said he would see [his company] as
being subject to the manufacturer-dealer side of this law. He
added that the importance of keeping the oral agreements piece
in this law is that they become a part of the distributor-
dealership agreement.
CHAIR MURKOWSKI called for an at-ease at 5:40 p.m. The meeting
was called back to order 5:44 p.m.
TAPE 01-72, SIDE A
REPRESENTATIVE HALCRO made a motion to adopt Amendment 1
[language provided by Mr. Sniffen], which would change AS
45.45.710(a)(1), page 2, lines 16 to 22, to read [original
punctuation provided]:
(1) the fair market value for merchandise that is
unused and for which the retailer has paid the
distributor, plus 100 percent of the transportation
charges paid by the dealer to return the merchandise
to the distributor. "Fair market value" as used
herein means the amount the distributor would realize
from the sale of the merchandise to another retailer
using reasonable good faith efforts. "Unused" means
unopened merchandise still in the original factory
packaging or container; ....
This will protect distributors from becoming
"insurers" of old inventory, and from having to pay
for merchandise that cannot be resold.
There being no objection, Amendment 1 was adopted.
Number 0054
REPRESENTATIVE HALCRO made a motion to adopt Amendment 2
[language provided by Mr. Sniffen], which would replace
paragraph (3) on page 5, line 17, to read [original punctuation
provided]:
(3) a distributorship or franchise agreement for
the sale, repair, or servicing of motor vehicles that
are required to be registered under AS 28.10,
including any person required to be licensed under AS
45.45.200.
There being no objection, Amendment 2 was adopted.
REPRESENTATIVE ROKEBERG made a motion to adopt conceptual
Amendment 3, on page 2, lines 27 and 28, to delete "original
purchase price" and add "fair market value". There being no
objection, conceptual Amendment 3 was adopted.
Number 0164
REPRESENTATIVE ROKEBERG made a motion to adopt conceptual
Amendment 4, on page 2, line 8, to add "not contracted for
expenditure for money" after "the".
CHAIR MURKOWSKI objected for purposes of discussion.
REPRESENTATIVE HALCRO explained that this is in reference to
when something is called for in a franchise agreement, such as
tools or training.
CHAIR MURKOWSKI suggested changing the wording to "the
expenditure of money not contracted for".
REPRESENTATIVE ROKEBERG agreed with Chair Murkowski.
CHAIR MURKOWSKI announced that there being no further objection,
conceptual Amendment 4 was adopted.
Number 0269
REPRESENTATIVE ROKEBERG made a motion to adopt conceptual
Amendment 5, on page 3, line 16, to insert the words "makes
substantial" after the word "or".
CHAIR MURKOWSKI asked if the distributor would be making the
substantial changes.
REPRESENTATIVE ROKEBERG stated that she was correct.
REPRESENTATIVE HALCRO suggested that the wording should be
"makes substantial changes in the competitive situation".
CHAIR MURKOWSKI announced that there being no objection,
conceptual Amendment 5 [as worded by Representative Halcro] was
adopted.
Number 0336
REPRESENTATIVE ROKEBERG asked if [the committee] has to adopt
the termination for cause.
CHAIR MURKOWSKI responded that Mr. Sniffen didn't seem to think
that the termination for cause issue was significant until
talking about good will.
REPRESENTATIVE ROKEBERG stated that he doesn't think a person
should buy back the business he or she terminates for cause.
CHAIR MURKOWSKI responded that that was what she was saying.
REPRESENTATIVE ROKEBERG remarked that [the bill] doesn't say
that.
CHAIR MURKOWSKI stated that [the committee] can incorporate
language similar to what is contained in the [Petroleum
Marketing Practices Act]. She stated that if the termination is
without cause, then good will could be worked into the
evaluation of the assets. She said she agrees with
Representative Rokeberg in not wanting to eliminate good will.
REPRESENTATIVE ROKEBERG stated that he doesn't mind making it as
tough as possible if the whole idea of "purchasing the business"
is if there is any cause.
CHAIR MURKOWSKI stated that nowhere in [the Petroleum Marketing
Practices Act] does the termination have to be for cause.
REPRESENTATIVE ROKEBERG asked what would happen if the person is
a bad operator.
Number 0584
MR. HAXBY responded that if the person is a bad operator, good-
will assets of his or her business would go downhill
dramatically. He added, in reference to Chair Murkowski's
comment on termination for cause or if there is no good cause,
that after discussing this with Legislative Legal and Research
Services there was a question as to how to define "cause." He
said it ended up that there were so many terms that had to be
defined; therefore, Legislative Legal and Research Services
suggested leaving it the way it is.
CHAIR MURKOWSKI stated that the good-will aspect is this
intangible concept, and if there has been good cause to
terminate a contract, she said she questions whether or not the
individual should be entitled to any good will.
MR. HAXBY responded that when giving evaluations of businesses,
if there is a growth curve that is negative, the value of that
business is going to be modest compared to the growth of a
company that may have a highly positive, year-after-year growth.
Good will would be taken into account at that time by a business
analyst or an evaluation expert who says the company is growing
at 25 percent year-over-year, and therefore will give them an
"X"-times-earnings multiplier, which includes good will.
Number 0740
REPRESENTATIVE ROKEBERG stated that unless there is the
discretion of causation and contract obligation, he thinks that
should be inserted into this clause.
REPRESENTATIVE HALCRO stated that good will to him reads like
"blue sky." He suggested taking out "good will."
REPRESENTATIVE HALCRO made a motion to adopt conceptual
Amendment 6, on page 3, line 19, to replace "covered" with
"directly affected". There being no objection, conceptual
Amendment 6 was adopted.
REPRESENTATIVE HALCRO made a motion to adopt conceptual
Amendment 7, on page 3, line 20, to delete "good will".
CHAIR MURKOWSKI objected for the purpose of discussion. She
stated that she knows deleting "good will" makes the bill
cleaner, but she said she supposes there is some merit to
keeping it. She stated that she does not like that it is as
broad as it is.
REPRESENTATIVE HALCRO stated that "assets" is a very broad term,
but there are some sideboards that imply commercially reasonable
business evaluations. He added that assets could potentially
cover good will.
CHAIR MURKOWSKI removed her objection. She announced that there
being no further objection, conceptual Amendment 7 was adopted.
Number 0986
REPRESENTATIVE HALCRO made a motion to adopt conceptual
Amendment 8, on page 3, line 26, to insert "those costs directly
related to inventory" after (B).
CHAIR MURKOWSKI asked Representative Halcro if he is referring
to the expenses.
REPRESENTATIVE HALCRO answered yes.
CHAIR MURKOWSKI suggested putting a definition of expenses in
(B).
REPRESENTATIVE HALCRO withdrew his conceptual Amendment 8.
Number 1057
CHAIR MURKOWSKI suggested the wording, "necessarily incurred
with the sale of the inventory".
REPRESENTATIVE ROKEBERG suggested "the records incurred as a
result of the agreement".
CHAIR MURKOWSKI remarked that that is good.
REPRESENTATIVE HALCRO stated that as (B) defines it, not only is
a dealer's business covered by the distributor agreement, but
it's 18 months prior to the termination or change.
REPRESENTATIVE ROKEBERG stated that he thinks that is too long.
Number 1188
CHAIR MURKOWSKI made a motion to adopt conceptual Amendment 8,
on page 3, line 22, to insert "reimburse the dealer for the
expenses that were necessarily incurred by the dealer for that
portion of the business covered by distributorship agreement".
REPRESENTATIVE HALCRO restated that 18 months seems a little
long.
CHAIR MURKOWSKI asked Mr. Haxby what the reasoning was for the
18 months.
MR. HAXBY responded that typically it has to do with advertising
contracted for six months prior to its publication in the Yellow
Pages. Therefore, the company would incur the expense six
months after it's contracted for.
REPRESENTATIVE HALCRO remarked that that would already be
covered regardless of the timeframe, because that would be
necessarily incurred.
Number 1270
CHAIR MURKOWSKI asked if subparagraph (B) is even necessary.
REPRESENTATIVE HALCRO responded that he doesn't believe so,
unless there's some compelling reason other than the Yellow
Pages.
REPRESENTATIVE ROKEBERG stated that there needs to be a defined
time period where there will be expenses.
REPRESENTATIVE HALCRO stated that he agrees. He suggested [that
the time period be] 12 months.
CHAIR MURKOWSKI announced that there being no objection,
conceptual Amendment 8 was adopted.
Number 1351
CHAIR MURKOWSKI made a motion to adopt conceptual Amendment 9,
on page 3, line 26, to delete "18" and insert "12".
REPRESENTATIVE ROKEBERG stated that he is not comfortable with
that. He said he is not going to reward a bad businessperson.
REPRESENTATIVE HALCRO stated that he still has some concerns on
page 6 with "implied, or oral". He said he thinks if there is
going to be a distributorship agreement, it certainly should be
in writing; if [the committee] is putting these terms and
conditions in statute, he thinks [the committee] should make
this apply to a written document because otherwise it will be
impossible for the court to enforce and decipher.
REPRESENTATIVE ROKEBERG stated that it happens all the time.
Number 1477
REPRESENTATIVE MEYER asked Mr. Haxby what he thinks about taking
out "oral" and "implied".
MR. HAXBY stated that he has seen many instances in which people
do not have the money to get an agreement; many times there are
handshake deals that will take place over many years. He said
"oral" does allow some method to review a contract that is not
in writing.
REPRESENTATIVE MEYER remarked that he does not know how an oral
agreement could be proven.
REPRESENTATIVE HALCRO stated that it seems to him if he were a
small distributorship and couldn't afford a lawyer to craft a
distributorship agreement, he would be "looking for trouble."
MR. HAXBY stated that he understands Representative Halcro;
however, this does in fact occur. If all of a sudden a
distributor says, "I want a written contract now," and the guy
says, "I'm sorry, have a nice day," then the business is gone.
If it is taken out, there is no way to have some type of review.
Number 1591
CHAIR MURKOWSKI stated that recognizing that distributors now
will have a distributor protection Act in Alaska, she thinks
with that protection comes an obligation for the businesses to
protect themselves. She remarked that she recognizes that in
the past people have operated in a trusting "hand shake world";
however, [times] are changing and people are suing at the drop
of a hat. Therefore, for [the businesses'] protection, she said
she thinks it ought to be in writing.
MR. HAXBY stated that he would agree with Chair Murkowski
wholeheartedly. However, as the business market in Alaska
matures, there are still people who will be covered by oral
agreements.
CHAIR MURKOWSKI stated that this applies to a distributorship
agreement that is entered into on or after the effective date of
this Act. She said if she has an oral agreement that she
entered into last year and she wants it covered under this, she
could allege that she entered into this oral agreement after the
effective date in order to get the coverage. She added that she
thinks a written agreement gives [businesses] protection.
MR. HAXBY stated that he agrees with Chair Murkowski, and that
most smart businesspeople who have the time and the money to do
that will do so. Everybody who typically is distributing a
product wants some type of a formal written agreement in order
to go to the banks to borrow money; however, that is not the
case all the time. He remarked that he thinks there needs to be
some method to review the contract, which may be an oral
contract.
Number 1728
REPRESENTATIVE HALCRO stated that maybe a businessperson has had
an oral agreement with a particular supplier for years, and once
this bill passes, he or she calls the supplier and [confirms the
agreements], then if anything happens different from the
original oral agreement, he or she could legitimately forward a
claim saying he or she has reinforced the oral agreement. He
remarked that it gets into a "he said she said," and he doesn't
see how anybody comes out ahead with that.
REPRESENTATIVE CRAWFORD suggested adding "verifiable oral
agreement".
MR. HAXBY remarked that that's typically the way these things
happen; there is usually a history that has gone on.
CHAIR MURKOWSKI stated that [the committee] is now talking
prospectively; if someone wants to come under the franchise
protection Act, he or she needs a written agreement.
REPRESENTATIVE CRAWFORD stated that he knows there needs to be a
written contract; however, in the business that he is in, more
often than not, things are done "on the handshake."
Number 1049
REPRESENTATIVE HALCRO restated Chair Murkowski's motion to adopt
conceptual Amendment 9, on page 3, line 26, to delete "18" and
insert "12". There being no objection, conceptual Amendment 9
was adopted.
CHAIR MURKOWSKI made a motion to adopt conceptual Amendment 10,
on page 6, line 3, to delete "implied" and "oral".
REPRESENTATIVE HALCRO suggested deleting on page 6, line 2,
"whether express" as well.
CHAIR MURKOWSKI clarified that conceptual Amendment 10 would be,
"means a written agreement between two or more persons".
Number 1901
REPRESENTATIVE HAYES objected. He stated that he believes
implied and oral contracts are done all the time and are
adjudicated in the courts. Taking that out would hinder some of
the flexibility that some businesses have.
REPRESENTATIVE MEYER indicated he thinks it is a good business
practice, regardless of the size of the business to have it
written, to protect both sides.
REPRESENTATIVE HALCRO stated that he would concur with
Representative Meyer.
REPRESENTATIVE ROKEBERG stated that he is going to vote against
the amendment because he believes that customary practice does
take place.
Number 1995
A roll call vote was taken. Representatives Meyer, Kott,
Halcro, and Murkowski voted for conceptual Amendment 10.
Representatives Hayes, Rokeberg, and Crawford voted against it.
Therefore, conceptual Amendment 10 was adopted by a vote of 4-3.
CHAIR MURKOWSKI referred to page 4, line 2, which states, "a
requirement that the distributor waive a trial by jury". She
asked whether it should say "dealer" instead of "distributor".
MR. HAXBY replied yes.
Number 2050
CHAIR MURKOWSKI made a motion to adopt conceptual Amendment 11,
on page 4, line 2, to change "distributor" to "dealer". There
being no objection, conceptual Amendment 11 was adopted.
REPRESENTATIVE HALCRO made a motion to adopt conceptual
Amendment 12, which read [original punctuation and
capitalization included]:
TITLE WILL HAVE TO BE AMENDED TO INCLUDE THESE
EXCEPTIONS.
Page 5, line [19]:
Following "to be registered under AS 28.10"
Insert
"(4) a person licensed as a
(A) brewer under AS 04.11.130;
(B) brewpub under AS 04.11.135;
(C) winery under AS 04.11.140; or
(D) wholesaler under AS 04.11.160
CHAIR MURKOWSKI objected for the purpose of discussion. She
stated that Mr. Larson thought that this should not be limited
to brewers, but should also deal with manufacturers.
REPRESENTATIVE ROKEBERG stated that he was going to offer
another amendment whereby small manufactures of 100 employees or
less would be exempt. He remarked that he thinks that would
address Mr. Larson's concern. He made a motion to amend
conceptual Amendment 12 by deleting subparagraph (D).
CHAIR MURKOWSKI announced that there was no objection to the
amendment to conceptual Amendment 12; therefore, conceptual
Amendment 12, as amended, would provide an exemption for a
brewery, brewpub, and a winery.
Number 2187
REPRESENTATIVE HALCRO remarked to Mr. Haxby that the wholesale
[aspect], under Title 4 only deals with those involved in the
liquor industry.
MR. HAXBY responded that he was only concerned if it excluded
one area such as an Alaskan [company] versus an Outside
[company].
REPRESENTATIVE ROKEBERG stated that these would be Alaskan
breweries.
MR. HAXBY stated that he doesn't think so, that Representative
Halcro suggested it was excluding all.
REPRESENTATIVE ROKEBERG replied that he has another amendment;
therefore, Mr. Haxby shouldn't worry about it.
CHAIR MURKOWSKI stated that breweries and brewpubs under Title 4
are Alaskan by definition. She announced that there being no
objection, conceptual Amendment 12, as amended, was adopted.
Number 2228
REPRESENTATIVE ROKEBERG made a motion to adopt conceptual
Amendment 13, on page 5, which would be paragraph (5) after the
previously adopted amendment, to exempt small manufacturers of
100 employees or less. He added that it could be in-state, but
there would probably be equal-protection problems.
CHAIR MURKOWSKI objected for discussion purposes. She asked if
this would put [the bill] in conflict with the meaning of
"distributor," which includes a manufacturer with no definition.
REPRESENTATIVE ROKEBERG responded that that is why it is a
conceptual amendment. He said this would exempt only the small
manufacturers. At 100 employees, it would almost be a "micro
manufacturer."
MR. HAXBY pointed out one of the issues that may arise: if
there is subdistribution of five or ten sales agents from the
major manufacturer, this would exclude them.
Number 2296
CHAIR MURKOWSKI asked how "manufacturer" is defined.
REPRESENTATIVE MEYER asked if an oil company would be a
manufacturer.
MR. HAXBY stated that he is at a total loss and is concerned
about that question.
REPRESENTATIVE HALCRO suggested that [the committee] wait to see
a draft.
CHAIR MURKOWSKI asked Representative Rokeberg if he wanted to
withdraw conceptual Amendment 13.
REPRESENTATIVE ROKEBERG answered, no.
REPRESENTATIVE HALCRO objected to the amendment because he did
not know how it would impact the bill.
REPRESENTATIVE ROKEBERG stated that all it would do is exempt
small businesses.
TAPE 01-72, SIDE B
Number 2334
REPRESENTATIVE HAYES stated that he opposes the amendment, and
thinks this would be a great amendment to debate in the House
Judiciary Standing Committee, with an opinion from Legislative
Legal and Research Services.
REPRESENTATIVE ROKEBERG remarked that it is a business decision,
not a legal decision.
REPRESENTATIVE HALCRO commented that he is concerned that there
may be a small manufacturer in the states with 100 or few
employees that produces a tremendous product that might be a
distributor's more profitable line, and it might be the cause of
some "heartburn."
REPRESENTATIVE ROKEBERG asked Mr. Haxby if he represents any
manufacturers that have less than 100 employees.
MR. HAXBY replied that he couldn't think of any.
REPRESENTATIVE HALCRO stated that Mr. Haxby also testified that
this bill was not designed to help his company.
MR. HAXBY added that in the past he has done business with
manufacturers that have less than 100 employees, but not at this
moment.
Number 2275
CHAIR MURKOWSKI stated that she has a friend who owns an
Alaskan-known pipe-manufacturing company that is a "mom and pop"
business. She said she wondered what the ramifications would be
for a company like that.
CHAIR MURKOWSKI made a motion to amend conceptual Amendment 13
from 100 to 50 [employees]. There being no objection, the
amendment to conceptual Amendment 13 was adopted. She announced
that there being no further objection, conceptual Amendment 13,
as amended, was adopted.
REPRESENTATIVE CRAWFORD asked if, on page 3, line 4, where it
states "Death of the distributor", it should be "Death of the
dealer".
CHAIR MURKOWSKI responded that it should be "Death of the
dealer".
Number 2160
REPRESENTATIVE CRAWFORD made a motion to adopt conceptual
Amendment 14, on page 3, line 4, to delete "distributor" and
insert "dealer". There being no objection, conceptual Amendment
14 was adopted.
REPRESENTATIVE HAYES made a motion to adopt conceptual Amendment
15, on page 5, line 8, to delete "merchandise".
CHAIR MURKOWSKI objected for discussion purposes.
REPRESENTATIVE HAYES explained that AS 45.45.740(a)(1) is not
for merchandise, it is only for business value.
CHAIR MURKOWSKI stated that she would agree that it shouldn't
read "repurchase", because the distributor is purchasing a
portion of the business that the dealer has never purchased from
the distributor; therefore, it is just a purchase. She
clarified that conceptual Amendment 15 would state, "(6) failing
to purchase as required by AS 45.45.740(a)(1);". There being no
objection, conceptual Amendment 15 was adopted.
Number 2013
CHAIR MURKOWSKI stated that Representative Halcro had made a
point under the "Death of dealer" section that it is not just
the purchase of the inventory, but that there should be an
opportunity to continue the distributorship agreement. She
asked if that was addressed.
REPRESENTATIVE ROKEBERG stated that unless the agreement is
continued, that would occur.
CHAIR MURKOWSKI responded that he was correct, but oftentimes
there will be a right of first refusal to the spouse.
REPRESENTATIVE HALCRO remarked that Mr. Haxby had brought up the
concern that if the primary person passes away, the business is
valued and the distributor says, "We're going to cancel your
agreement"; then [the dealer] is left with a huge tax bill.
MR. HAXBY commented that he thinks that since it states in this
particular section, "Unless the distributorship agreement is
continued by the personal representative, heirs, [or devisees of
the individual]", there would be the ability for the [dealers]
to say they are going to continue on.
Number 1895
REPRESENTATIVE HALCRO made a motion to move CSSB 176(L&C) am, as
amended, out of committee with individual recommendations and
the attached zero fiscal note. There being no objection, HCS
CSSB 127(L&C) moved from the House Labor and Commerce Standing
Committee.
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
6:45 p.m.
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