HB 168 - INJUNCTION SECURITY: INDUSTRIAL OPERATION 1:08:06 PM CHAIR GATTO announced that the first order of business would be HOUSE BILL NO. 168, "An Act requiring the amount of the security given by a party seeking an injunction or order vacating or staying the operation of a permit affecting an industrial operation to include an amount for the payment of wages and benefits for employees and payments to contractors and subcontractors that may be lost if the industrial operation is wrongfully enjoined." 1:08:31 PM REPRESENTATIVE ERIC FEIGE, Alaska State Legislature, sponsor, offered his understanding that there have been several cases over the years that were later dismissed in which the courts [initially] issued an injunction against an entity engaged in resource extraction or construction, with the result being [an unnecessary] delay in that entity's project. House Bill 168 would ensure that a party take some risk in bringing suit against such a project. He offered his belief that under current law, there is no risk to bringing a frivolous lawsuit. Referring to the sectional analysis included in members' packets, he noted that it says in part that HB 168 won't prohibit a party that is wrongly enjoined from other relief, or otherwise limit the amount that a party may recover in the action. House Bill 168 is accompanied by zero fiscal notes, and members' packets include an article from High Country News titled "'Firebrand ways'" indicating that injunctions are being used to stop projects, as well as a 2011 report by the Alaska Minerals Commission highlighting the need for litigation reform - including requiring security bonds of those initiating legal actions - and information regarding a similar Montana law. He added that research thus far indicates that that law, enacted in 1995, has yet to be used, surmising that this means that it is having its intended effect of limiting frivolous lawsuits. REPRESENTATIVE KELLER mentioned that he is a co-sponsor of HB 168. REPRESENTATIVE FEIGE, in response to a question, indicated that the bill would only apply [in situations where a party seeks a restraining order, preliminary injunction, or order vacating or staying the operation of a permit that affects an industrial operation]. 1:14:32 PM SCOTT THORSON, expressing approval with the legislature for addressing this issue, offered his belief that it's far too easy for someone to bring a lawsuit to stop a resource development project that has already been issued a permit by the state or the federal government, resulting in extra costs - in terms of time and money - being incurred by contractors, employees, and vendors. In conclusion, he relayed that he is in full support of HB 168. REPRESENTATIVE FEIGE, in response to questions, explained that the concept of HB 168 was something that he'd come up with on his own, and that the bill was drafted before he'd become aware of the aforementioned similar Montana law and was therefore not modeled on it, and that he is unaware of any court interpretations or legal opinions pertaining to the construction or constitutionality of that Montana law. He confirmed that in addition to [costs and damages that may be suffered by an industrial operation, the security bond authorized by HB 168 could also include payments to contractors and subcontractors, and employee wages and benefits]. In response to further questions, he explained that the reach of the bill, and determinations regarding which costs to include in the security bond, would be made by the courts, adding that "the objective with [HB 168] is ... not to change a court rule," and that he doesn't believe that a court rule change would be necessitated by adoption of the bill's proposed statute. REPRESENTATIVE GRUENBERG noted that the bill drafter had relayed to him his understanding that [Rule 65(c) of the Alaska Rules of Civil Procedure] applies to temporary restraining orders and preliminary injunctions, but not additionally to permanent injunctions regarding orders vacating or staying the operation of a permit that affects an industrial operation. REPRESENTATIVE FEIGE, in response to further comments, mentioned that research he's conducted indicates that HB 168 neither conflicts with [Rule 65(c)] nor constitutes a court rule change. 1:25:54 PM TINA KOBAYASHI, Chief Assistant Attorney General - Statewide Section Supervisor, Oil, Gas & Mining Section, Civil Division (Juneau), Department of Law (DOL), offered her understanding that under the wording of [the bill], when setting the amount of the security bond, the court may take into account the potential damages that might be suffered by the industrial operation if it is wrongfully enjoined or restrained, and that the intent of bill is to not change the court's discretion in determining the appropriate amount of the security bond. REPRESENTATIVE GRUENBERG noted that Rule 65(c) says in part: (c) Security. No restraining order or preliminary injunction shall issue except upon the giving of security by the applicant, in such sum as the court deems proper, for the payment of such costs and damages as may be incurred or suffered by any party who is found to have been wrongfully enjoined or restrained. REPRESENTATIVE GRUENBERG asked whether there have been any court cases wherein a security bond required under Rule 65(c) has included an amount for the payment of wages and benefits for employees and payment to contractors and subcontractors. MS. KOBAYASHI said she is not aware of any such cases or any cases wherein that issue was even raised. REPRESENTATIVE GRUENBERG questioned whether HB 168 could be construed to be affecting the public interest such that application of Rule 24(c) of the Alaska Rules of Civil Procedure would be necessitated should the bill be challenged on constitutional grounds. Rule 24(c) says in part: When the constitutionality of a state statute affecting the public interest is drawn in question in any action to which the state or an officer, agency, or employee thereof is not a party, the court shall notify the Attorney General of Alaska of such fact, and the state shall be permitted to intervene in the action. MS. KOBAYASHI indicated that in such a situation, application of that court rule would be necessitated. REPRESENTATIVE HOLMES asked whether the bill would apply in situations involving the operation of a federal permit. MS. KOBAYASHI offered her belief that in such situations, federal law would apply instead of HB 168. REPRESENTATIVE HOLMES asked whether the bill would apply in situations involving the operation of a permit issued by a local government. MS. KOBAYASHI offered her belief that it would. REPRESENTATIVE GRUENBERG raised the questions of whether the bill is intended to also address industrial operations owned by a governmental agency, and of whether, if so, the proposed security bond could then include the payment of wages and benefits for government employees. 1:37:18 PM TOM CRAFFORD, Director, Office of Project Management & Permitting, Department of Natural Resources (DNR), expressed concern that the bill might impact the various regulatory programs that the state either has obtained or is obtaining primacy for from the federal government, such as [the Surface Mining Control and Reclamation Act of 1977 (SMCRA) programs, the National Pollutant Discharge Elimination System (NPDES) permit program, and the Congestion Mitigation and Air Quality Improvement (CMAQ) Program]. Generally, when such programs are assumed from their associated federal agencies, it's with the understanding that the state's laws are at least as protective as the federal laws, and so the concern centers on the fact that those federal agencies could perhaps find that HB 168 results in state laws that are not as stringent as required. Therefore, he opined, consideration should be given to how the bill might affect the state's assumption of the aforementioned federal regulatory programs. 1:42:27 PM LYNN TOMICH KENT, Director, Division of Water, Department of Environmental Conservation (DEC), in response to a question, explained that if a permit is stayed, then the industrial operation's activity that would purportedly cause damage to an area wouldn't actually occur during the extent of that stay. REPRESENTATIVE FEIGE additionally offered his belief that HB 168 won't prevent a party from seeking a restraining order, preliminary injunction, or order vacating or staying the operation of a permit that affects an industrial operation, but would instead simply increase the party's risk in bringing an action by requiring a security bond, a bond which could at least partially mitigate a wrongfully-enjoined industrial operation's losses. He added that should the party bringing the action prevail, it is his intention that that security bond would be returned. CHAIR GATTO noted, though, that even a prevailing party would be out the cost of obtaining the bond. REPRESENTATIVE GRUENBERG asked whether there were any mechanisms that would allow a party bringing a successful action to recoup that cost or any other costs. REPRESENTATIVE FEIGE ventured that it would be the court which would be in the best position to ensure that the financial interests of all the parties are protected, and to address frivolous claims. And, again, it would be up to the court to determine the appropriate amount of the security bond; this judicial discretion should ensure that even a small party with a potentially-legitimate claim isn't precluded from bringing an action. In response to another question, Representative Feige reiterated that the bill would only apply [in situations where a party seeks a restraining order, preliminary injunction, or order vacating or staying the operation of a permit that affects an industrial operation]. 1:50:01 PM REPRESENTATIVE HOLMES noted that the term, "industrial operation" is defined in the bill as including a construction, energy, or timber activity, and oil, gas, and mineral exploration, development, and production. She characterized the term, "construction" as perhaps being overly broad, appearing to allow the bill to apply to any construction activity, including a neighbor's home-renovation project, for example. REPRESENTATIVE FEIGE said he is not expecting the bill to be used by individuals to stop the activities of other individuals - other private property owners - but acknowledged that perhaps an amendment excluding residential construction activities might be in order. REPRESENTATIVE HOLMES observed that the potential costs and damages of some industrial operations could potentially be so high as to preclude a party from obtaining a security bond in that amount. REPRESENTATIVE FEIGE acknowledged that point, but noted that industrial operations, whether large or small, if wrongfully enjoined, could incur substantial costs and suffer substantial damages as a result of a stay based on a frivolous claim. Again, it would be up to the court to determine what the amount of the proposed security bond should be, and the court wouldn't have to set the bond so high that it results in the party being unable to obtain it. There should be some kind of risk placed on the plaintiff in order to "weed out" frivolous lawsuits, he opined, since even when frivolous, they are still lawsuits and can still result in costs and damages being incurred and suffered as the result of a stay, with serious implications for the state's economy. In response to comments, he surmised that the court, too, has a role in determining which claims have potential merit. CHAIR GATTO reiterated Representative Holmes's point regarding large security bonds. REPRESENTATIVE THOMPSON, too, observed that as currently written, the bill could apply in situations involving residential construction projects. CHAIR GATTO questioned how a forfeited security bond would be distributed to an industrial operation and its contractors, subcontractors, and employees when it is found to have been wrongfully enjoined or restrained. REPRESENTATIVE FEIGE indicated his belief that it would be up to the court to handle that distribution. 1:58:18 PM REPRESENTATIVE GRUENBERG pointed out that the phrase, "wrongfully enjoined or restrained" as used in both the bill and Rule 65(c) signifies only that the party bringing the action hasn't prevailed, and not necessarily that its assertions were frivolous. He questioned whether the sponsor is intending for the bill to only be applied in situations where the party's assertions are found to be frivolous. REPRESENTATIVE FEIGE indicated a preference for the proposed security bond to be forfeited in any situation wherein the party bringing the action doesn't prevail regardless that its assertions weren't frivolous. In response to comments and a question regarding the definition of the term, "industrial operation", he suggested that the bill be amended to exclude certain types of residential construction activities, though exactly which types to exclude would be up to the committee to determine. REPRESENTATIVE KELLER pointed out that as currently written, the bill would apply to any construction activity that requires a permit. REPRESENTATIVE LYNN suggested limiting the bill to just activities involving the development of the state's natural resources, offering his understanding that the bill is only meant to address frivolous lawsuits filed with the intention of stopping resource development. REPRESENTATIVE FEIGE indicated that he doesn't intend for the bill to apply to "some of the smaller level of activities," but rather only to projects requiring a permit, even residential construction projects. In response to further comments and questions, he acknowledged that the committee could choose to somewhat limit the scope of the bill as it relates to residential construction activities. CHAIR GATTO relayed that HB 168 would be held over.