SB 300-ATTORNEY'S LIEN  SENATOR BERT STEDMAN, sponsor, recapped the discussion about SB 300 during the first Senate Judiciary hearing. The measure changes the way taxation is handled on litigation awards and relates primarily to non-physical personal injury cases. Currently, gross proceeds from a settlement are awarded to the plaintiff, who must pay taxes on the full amount. The plaintiff must then pay attorney fees and the attorney pays taxes on those fees. Therefore, under certain circumstances, the plaintiff could have a net outflow if the taxes owed exceed the gross award minus the attorney fees. SENATOR STEDMAN referred to an article in The Wall Street Journal dated February 12, 2004, which he said is a good synopsis of the issue. He said even though both Alaska and Oregon are under the jurisdiction of the Ninth Circuit Court, they are treated differently regarding taxation because their laws differ. If Alaska were to adopt a statute similar to Oregon's law, Alaska would avoid the double taxation of its citizens. He said this issue has been raised at the national level but Congress has not yet dealt with it so Alaska is getting ahead of the curve. He pointed out the IRS National Taxpayer Advocate Report has reported this double taxation problem several times. He brought members' attention to a letter from Kevin Walsh, a CPA from Fairbanks, which goes into great detail about the taxation issue. SENATOR THERRIAULT asked if the Department of Law or the general public have expressed any concerns since the last meeting. SENATOR STEDMAN said he has not heard any. He believes the double taxation issue is widely recognized as unfair. SENATOR OGAN asked which state law would apply if an Alaskan filed a case in another state. SENATOR STEDMAN said his guess, as a layman, is that the law of the state in which the case was filed would apply. SENATOR FRENCH informed members that choice of law is one of the great contested areas of the profession. If an Alaskan were in a traffic accident in Montana, Montana law would apply. However, law professors love to argue about cases in which an Alaskan and a Montanan were involved in a traffic accident in Washington, and a lawsuit was filed in Washington. He thought SB 300 was designed to apply to Alaskan cases tried in Alaska. SENATOR STEDMAN thought it certainly would be advantageous for an Alaska resident to have the issue addressed in Alaska if SB 300 passes. CHAIR SEEKINS opined that SB 300 would apply to cases tried in the Alaska Court System. The only time he envisions a venue problem is with cases involving contract law. He pointed out that many of his contracts with the Ford Motor Company are subject to the laws of Michigan. He said he sees the intent of the bill as applying to cases that are tried in the Alaska Court System. SENATOR STEDMAN clarified that if a business is involved, the tax situation is different so the double taxation problem does not apply. SENATOR FRENCH referred to a summary of committee action in the Washington State Legislature in members' packets. That bill summary reads: An attorney has a lien upon the action and its proceeds to the extent of the value of the services performed by the attorney in that action.... Proceeds are limited to monetary sums perceived in the action so the lien is not enforceable against real or personal property. The attorney's lien is superior although it [indisc.] upon the judgment. The legislature expresses its purpose of making attorneys fees taxable solely to the attorney and its intention that the court will apply the statute retroactively. He noted his main interest is the sentence that says a lien is not enforceable against real or personal property. He looked at Alaska statute and did not see any similar protection for the plaintiff. He asked Senator Stedman if it is his intention that this lien not be enforceable against real or personal property. He said after long, contentious lawsuits, plaintiffs and their attorneys sometimes get sideways and fees become an issue. He would hate to see someone "lose the farm" after having won a lawsuit. SENATOR STEDMAN agreed with Senator French and said the intent behind SB 300 is to clean up the tax inequity and not to allow a broader reach to other assets. SENATOR THERRIAULT asked: Wouldn't they have a lien already for fees that are owed? We're talking about a specific lien on the award but, absent that, if I'm an attorney and do work and then my client never pays the bill - I mean you can't walk out on the fees they owe their attorney. I'm not sure if a lien is automatically placed on property and what-not but an attorney can protect themselves by getting a lien. I know what Senator French is getting at but this talks specifically about the lien it gives the award and I don't know how that would necessarily slop over onto any other assets. CHAIR SEEKINS said he reads it to refer to a lien against the cause of action that would not extend to any assets outside of the cause of action. SENATOR FRENCH said that is how he reads the attorney's lien statute. He clarified that he is not saying that a lawyer can't turn around and sue a client; he was saying that a lawyer does not automatically get a lien on his client's property as the result of a fee dispute. The lawyer would have to go through the normal steps that everyone else goes through to satisfy a debt. CHAIR SEEKINS said he believes the committee's intent is that SB 300 only deals with a lien against the cause of action. SENATOR STEDMAN agreed that is his intent also. CHAIR SEEKINS noted that no one else wished to testify so he closed public testimony. SENATOR OGAN asked what part of a settlement, for example punitive damages, would be taxable. SENATOR FRENCH said he did not know about punitive damages but he thought the main injustices occur in claims where people sue for wrongful termination or other workplace matters. He pointed out if a person has to go up against Wal-Mart for wrongful termination, it could cost that person $900,000 while the monetary damage award might be $30,000. That person would then get taxed on $930,000 and the attorney would also pay taxes on the $900,000. CHAIR SEEKINS said regardless of the type of award, SB 300 would allow the recipient of the award to deduct the attorney fees before paying taxes. SENATOR OGAN moved SB 300 and its zero fiscal notes from committee with individual recommendations. CHAIR SEEKINS announced that without objection, SB 300 would move to the Senate Finance Committee. He then announced a brief at-ease.