HOUSE JUDICIARY STANDING COMMITTEE March 24, 1999 1:06 p.m. MEMBERS PRESENT Representative Pete Kott, Chairman Representative Joe Green Representative Norman Rokeberg Representative Jeannette James Representative Lisa Murkowski Representative Eric Croft Representative Beth Kerttula MEMBERS ABSENT All members present COMMITTEE CALENDAR HOUSE JOINT RESOLUTION NO. 29 Relating to the division of the Ninth Circuit Court of Appeals. - MOVED CSHJR 29(JUD) OUT OF COMMITTEE HOUSE BILL NO. 82 "An Act relating to immunity for certain claims arising out of or in connection with the year 2000 date change; and providing for an effective date." - HEARD AND HELD; ASSIGNED TO SUBCOMMITTEE HOUSE JOINT RESOLUTION NO. 18 Proposing an amendment to the Constitution of the State of Alaska relating to an office of administrative hearings. - HEARD AND HELD GOVERNOR'S APPOINTMENTS -SCHEDULED BUT NOT HEARD (* First public hearing) PREVIOUS ACTION BILL: HJR 29 SHORT TITLE: ENDORSE FED. CT. OF APP. FOR 12TH CIRCUIT SPONSOR(S): JUDICIARY Jrn-Date Jrn-Page Action 3/17/99 492 (H) READ THE FIRST TIME - REFERRAL(S) 3/17/99 492 (H) JUDICIARY 3/24/99 (H) JUD AT 1:00 PM CAPITOL 120 BILL: HB 82 SHORT TITLE: IMMUNITY:CLAIMS ARISING FROM Y2K PROBLEMS SPONSOR(S): REPRESENTATIVES(S) ROKEBERG, Dyson, Halcro Jrn-Date Jrn-Page Action 2/05/99 144 (H) READ THE FIRST TIME - REFERRAL(S) 2/05/99 144 (H) L&C, JUDICIARY 2/12/99 (H) L&C AT 3:15 PM CAPITOL 17 2/12/99 (H) HEARD AND HELD 2/12/99 (H) MINUTE(L&C) 2/16/99 228 (H) COSPONSOR(S): DYSON 2/26/99 (H) L&C AT 3:15 PM CAPITOL 17 2/26/99 (H) HEARD AND HELD 2/26/99 (H) MINUTE(L&C) 3/03/99 (H) L&C AT 3:15 PM CAPITOL 17 3/03/99 (H) MOVED CSHB 82(L&C) OUT OF COMMITTEE 3/03/99 (H) MINUTE(L&C) 3/03/99 350 (H) COSPONSOR(S): HALCRO 3/05/99 361 (H) L&C RPT COMMITTEE SUBSTITUTE(L&C) NT 3DP 3NR 3/05/99 361 (H) DP: ROKEBERG, HALCRO, HARRIS; 3/05/99 361 (H) NR: SANDERS, CISSNA, MURKOWSKI 3/05/99 361 (H) 2 ZERO FISCAL NOTES (LAW, COURT) 3/05/99 361 (H) REFERRED TO JUD 3/24/99 (H) JUD AT 1:00 PM CAPITOL 120 BILL: HJR 18 SHORT TITLE: CONST. AM: ADMINISTRATIVE HEARINGS SPONSOR(S): REPRESENTATIVES(S) OGAN, Foster, Dyson, Rokeberg Jrn-Date Jrn-Page Action 2/24/99 300 (H) READ THE FIRST TIME - REFERRAL(S) 2/24/99 300 (H) STA, JUD, FIN 2/26/99 328 (H) COSPONSOR(S): FOSTER 3/04/99 (H) STA AT 8:00 AM CAPITOL 102 3/04/99 (H) HEARD AND HELD 3/04/99 (H) MINUTE(STA) 3/05/99 377 (H) COSPONSOR(S): DYSON, ROKEBERG 3/09/99 (H) STA AT 8:00 AM CAPITOL 102 3/09/99 (H) SCHEDULED BUT NOT HEARD 3/16/99 (H) STA AT 8:00 AM CAPITOL 102 3/16/99 (H) MOVED CSHJR 18(STA) OUT OF COMMITTEE 3/16/99 (H) MINUTE(STA) 3/17/99 489 (H) STA RPT COMMITTEE SUBSTITUTE(STA) NT 4DP 2DNP 3/17/99 489 (H) DP: JAMES, COGHILL, WHITAKER, OGAN; 3/17/99 489 (H) DNP: SMALLEY, KERTTULA 3/17/99 490 (H) FISCAL NOTE (GOV) 3/17/99 490 (H) REFERRED TO JUD 3/24/99 (H) JUD AT 1:00 PM CAPITOL 120 WITNESS REGISTER CORY WINCHELL, Legislative Assistant to Representative Pete Kott Alaska State Legislature Capitol Building, Room 118 Juneau, Alaska 99801 Telephone: (907) 465-3777 POSITION STATEMENT: Provided introduction to HJR 29. JOANNE GRACE, Assistant Attorney General Natural Resources Section Civil Division Department of Law 1031 West 4th Avenue, Suite 200 Anchorage, Alaska 99501-1994 Telephone: (907) 269-5100 POSITION STATEMENT: Testified on HJR 29. JANET SEITZ, Legislative Assistant to Representative Norm Rokeberg Alaska State Legislature Capitol Building, Room 24 Juneau, Alaska 99801 Telephone: (907) 465-4968 POSITION STATEMENT: Presented sponsor statement for HB 82. MIKE FORD, Attorney Legislative Legal Counsel Legislative Legal and Research Services Legislative Affairs Agency 130 Seward Street, Suite 409 Juneau, Alaska 99801-2105 Telephone: (907) 465-2450 POSITION STATEMENT: Testified on HB 82. BOB LOEFFLER, Director Central Office Division of Mining and Water Management Department of Natural Resources 3601 C Street, Suite 800 Anchorage, Alaska 99503-5935 Telephone: (907) 269-8600 POSITION STATEMENT: Testified on behalf of the Department of Natural Resources with concerns about HJR 18. DEBORAH VOGT, Deputy Commissioner Office of the Commissioner Department of Revenue P.O. Box 110400 Juneau, Alaska 99811-0400 Telephone: (907) 465-2300 POSITION STATEMENT: Testified on behalf of the Department of Revenue with concerns about HJR 18. TERESA WILLIAMS, Assistant Attorney General Fair Business Practices Section Civil Division (Anchorage) Department of Law 1031 West Fourth Avenue, Suite 200 Anchorage, Alaska 99501-1994 Telephone: (907) 269-5100 POSITION STATEMENT: Testified on behalf of the Department of Law with concerns about HJR 18. PAUL GROSSI, Director Central Office Division of Worker's Compensation Department of Labor P.O. Box 25512 Juneau, Alaska 99802-5512 Telephone: (907) 465-2790 POSITION STATEMENT: Testified on behalf of the Department of Labor with concerns about HJR 18. CATHERINE REARDON, Director Central Office Division of Occupational Licensing Department of Commerce and Economic Licensing P.O. Box 110806 Juneau, Alaska 99811-0806 Telephone: (907) 465-2534 POSITION STATEMENT: Testified on behalf of the Division of Occupational Licensing, and its 21 licensing boards, in opposition to HJR 18. ACTION NARRATIVE TAPE 99-18, SIDE A Number 0001 CHAIRMAN PETE KOTT called the House Judiciary Standing Committee meeting to order at 1:06 p.m. Members present at the call to order were Representatives Kott, Green, Rokeberg, Croft and Kerttula. Representatives James and Murkowski arrived at 1:17 p.m. and 1:20 p.m., respectively. HJR 29 - ENDORSE FED. CT. OF APP. FOR 12TH CIRCUIT CHAIRMAN KOTT announced the first order of business is HJR 29, Relating to the division of the Ninth Circuit Court of Appeals. CHAIRMAN KOTT called on Cory Winchell to explain the resolution. Number 0140 CORY WINCHELL, Administrative Assistant to Representative Pete Kott, Alaska State Legislature, stated the joint resolution proposes Senator Murkowski's bill, S.253. That bill would split the Ninth Circuit Court of Appeals into three divisions: the Northern Division, the Middle Division and the Southern Division. They would be comprised of the following: Northern Division - Alaska, Idaho, Montana, Oregon, Eastern Washington and Western Washington; Middle Division - Eastern California, Northern California, Guam, Hawaii, Nevada and the Northern Mariana Islands; and Southern Division - Arizona, Central California and Southern California. MR. WINCHELL further noted that district judges would appeal their cases to their respective divisions. The judges would sit in panels, and appeals from the divisions would go to the Circuit Division. The intent is to make it more representative or indicative of some of the other areas in the Ninth Circuit Court of Appeals. There is a powerhouse in Southern California of legal opinions that contradict some of the tenor in other parts of the circuit. In addition, 82 percent of the appeals to the U.S. Supreme Court from the Ninth Circuit Court of Appeals are overturned. That is well known in jurisprudence. Number 0352 CHAIRMAN KOTT asked Mr. Winchell whether the district courts would appeal their cases to their particular division. MR. WINCHELL replied yes. CHAIRMAN KOTT asked Mr. Winchell whether the judges would sit in panels of three within their division, of which two could come from that particular division. MR. WINCHELL replied yes. He read from S.253, "(3) ASSIGNMENT OF JUDGES - Each regional division shall include from 7 to 11 judges of the court of appeals in active status. A majority of the judges assigned to each division shall reside within the judicial districts that are within the division's jurisdiction as specified in paragraph (2)...". Number 0435 CHAIRMAN KOTT asked Mr. Winchell whether the Circuit Division consists of 13 judges - 1 chief judge and 12 circuit judges - of which equal numbers would come from the various divisions. MR. WINCHELL replied yes. Number 0464 REPRESENTATIVE GREEN asked Mr. Winchell whether a favorable ruling that has been appealed to the Northern Division would have to go back to the full Ninth Circuit Court of Appeals. MR. WINCHELL replied yes. The district court in Alaska would appeal to the Northern Division, and from there appeal to the Circuit Division. It would only appeal those issues that are divided between the three divisions and any others that are necessary, such as constitutional issues that need to go to the appeal level quickly. Number 0556 REPRESENTATIVE GREEN asked Mr. Winchell whether there would be more judges in the three divisions than the total judges in the Circuit Division. MR. WINCHELL replied yes. Each regional division would include from 7 to 11 judges of the court of appeals, and there would be a total of 13 judges in the Circuit Division. Number 0602 REPRESENTATIVE GREEN asked what has Alaska gained with an appeal to the Circuit Division other than one more hearing. MR. WINCHELL replied the Circuit Division would be comprised of judges in equal amounts from each division. The decision making power would be fractured. He doesn't know whether they would be all of the same mind, however. There would be friction if the decision of the majority runs counter to the Supreme Court. In addition, there would be a judicial council to overview some of the decisions made. That council would recommend changes to Congress and to some of the committees as time goes on. There would be a close eye on the Ninth Circuit Court of Appeals. Number 0688 CHAIRMAN KOTT asked Mr. Winchell whether or not each decision made within the divisions would be automatically forwarded to the Circuit Division. MR. WINCHELL replied he's not exactly sure. There shouldn't be an appeal to the Circuit Division, if all three divisions are in line, unless it's right to turn the law over again. Number 0744 CHAIRMAN KOTT stated an appeal from a district court to the division wouldn't end up in the Circuit Division, unless there is disparity among the various divisions or other extenuating circumstances. MR. WINCHELL replied ideally yes. It creates a new strata, a new appeals system, within the Ninth Circuit Court of Appeals. Number 0778 REPRESENTATIVE CROFT stated the en banc proceedings do not apply to the court of appeals as a whole, but only to the divisions. The division would, therefore, act as a circuit. If three judges from the Northern Division rule against or for Alaska, the procedure would be to ask for that whole division to hear it, not the whole circuit. He asked where is the part that authorizes the entire circuit to review differences in en banc proceedings. MR. WINCHELL replied the Circuit Division is empowered to answer differences among the three divisions. It oversees contending points of law or extenuating circumstances, such as constitutional issues. Number 0875 REPRESENTATIVE CROFT stated the Northern Division would hear an issue such as ANILCA (Alaska National Interest Lands Conservation Act), and if there is an en banc it would be heard within that division. It is very unlikely that another portion of the circuit would rule on ANILCA since it applies to only Alaska. That is an advantage to Alaska. Only general issues would it go to the next level. It is an efficiency because the Northern Division would almost always be the last word before the U.S. Supreme Court. MR. WINCHELL stated it does regionalize some issues on en ban proceedings. REPRESENTATIVE CROFT said it regionalizes everything, but the broad, constitutional ideas. It is a significant change. Number 0975 CHAIRMAN KOTT stated Representative Croft is right on track. Alaska would take its cases to the Northern Division and unless there were extenuating circumstances the Circuit Division would not even take them up. REPRESENTATIVE CROFT noted the last recourse is the U.S. Supreme Court, not the Ninth Circuit Court of Appeals as a whole. It divides up California which has always been the rub in some of these. MR. WINCHELL explained there were several bills on this issue. Some wanted to split the circuit and start a new one, but that was too contentious. REPRESENTATIVE CROFT asked Mr. Winchell whether the divisions are based on population. MR. WINCHELL replied they are based on districts. He's not entirely sure, however. Number 1072 CHAIRMAN KOTT asked Mr. Winchell, as it presently stands, whether there are 28 judges in the Ninth Circuit Court of Appeals. MR. WINCHELL replied yes. CHAIRMAN KOTT asked Mr. Winchell whether it is true that 18 of those 28 judges come from California and only 1 comes from Alaska. MR. WINCHELL replied yes. There is a disparity. CHAIRMAN KOTT asked Mr. Winchell whether it is true that 82 percent of the Ninth Circuit Court of Appeals' decisions were overturned by the U.S. Supreme Court during the 1994-1995 session. MR. WINCHELL replied yes. It is the most overturned circuit within the United States Court of Appeals. Number 1137 CHAIRMAN KOTT stated it is his understanding that the Ninth Circuit Court of Appeals is overwhelmed compared to the other circuits. It has 2,000 more cases on its docket. MR. WINCHELL said it is very cumbersome to bring an appeal to the Ninth Circuit Court of Appeals. Number 1189 JOANNE GRACE, Assistant Attorney General, Natural Resources Section, Civil Division, Department of Law, testified via teleconference from Anchorage. The Administration strongly supports S.253. At any given time, the Department of Law has several cases pending in the circuit. On average, the Department of Law has been a party or amicus from 5 to 10 cases that the court decides every year. The department believes that the court has grown too large in terms of judges and cases that it handles, and that it should be split into these divisions. The Ninth Circuit Court of Appeals is the largest in the circuit in terms of territory and population. It spans nine states and two territories. It serves a population of 45 million. It covers a land area larger in size than Western Europe. It serves 15 million more people than the next largest circuit and about 20 million more than the average of the other courts of appeal. Since 1973, its annual case load has grown from 2,300 to 8,000. It is too large to efficiently and effortlessly resolve cases in a timely manner. This situation will only grow worse in the future. The population that the court serves is expected to increase to 63 million by the year 2010, and adding judges to serve the increase would only exacerbate the problems already caused by its size. With 28 judges and 3 serving on any given panel, over 3,276 combinations of panels are possible, but in reality since the court uses visiting or senior judges the number of combinations is much higher and will increase with the addition of each new judge. This problem inevitably contributes to conflicting opinions, reduced communication among judges, and inconsistency with court decisions. The problems are magnified for the state who's dwarfed by the heavily populated states within the circuit. Alaskan cases constitute only 2 percent of the court's case load. Only 12 circuit judges were assigned to all of the Alaskan cases published in 1997. Given the relatively few Alaskan cases compared to the whole, Alaskan litigants are far less likely to draw panels of judges who are familiar with the state. This is aggravated by the fact that Alaskan cases involve complex federal statutes that the judges don't encounter in the other 98 percent of the case loads. She cited ANCSA (Alaska Native Claims Settlement Act) and ANILCA as examples. The issues that they have generated have varied tremendously from the interpretation of revenue sharing to the question of Indian country. Regardless of the well intentions of judges, their opinions reveal a lack of understanding of the people and places and can seem offensive to the people affected. The present wait for an oral argument is one year after a briefing is complete. This delay is even longer for Alaska and according to the court clerk some are held longer in order to schedule a hearing during the summer. She has a case pending before the court that was docketed in October of 1996. There was an oral argument in December of 1997, and there still hasn't been a decision rendered. The judges readily admit that they don't read all the decisions that other judges issue because there are too many. In summary, this type of legislation is sorely needed and would greatly benefit Alaska. The Governor has suggested a few changes to Senator Murkowski's bill. The state would prefer that the Circuit Division was eliminated. It is not helpful to Alaska because it would still allow decisions to be made by a majority of judges who are not from the Northern Division. The state would also prefer that all the judges live within the division that they are serving. Number 1680 CHAIRMAN KOTT stated that he could agree with both recommendations. He asked Ms. Grace to forward her comments in writing to the committee. Number 1692 REPRESENTATIVE CROFT asked Ms. Grace whether taking out the Circuit Division would allow the three divisions to operate separately. MS. GRACE replied the state would prefer a separate circuit. The state would prefer that the Northern Division only hears Alaskan cases. The state isn't concerned about the administration of the three divisions as one circuit, however. Number 1737 REPRESENTATIVE CROFT stated legally they could be three separate circuits, but administratively they could keep their offices in one place to keep track of staff, for example. MS. GRACE stated that is the way it is set up now, except for the Circuit Division. She thinks it was a compromise to try to deal with the concerns of those who didn't want to split the circuit and the concerns of the Northern states who felt that the circuit was not serving them. CHAIRMAN KOTT closed the meeting to public testimony. Number 1800 REPRESENTATIVE CROFT stated the two changes mentioned by Ms. Grace are positive. It would make the circuit a harder, separate division. It would also remove that last step. CHAIRMAN KOTT stated that requiring three out of three judges to reside in their particular division would be even better. Number 1980 REPRESENTATIVE CROFT referred to page 2, lines 14-16, "WHEREAS members of the Court of Appeals for the Ninth Circuit have shown a surprising lack of understanding of Alaska's people and geography that has resulted in decisions that have often caused the people of Alaska unnecessary hardship;". It is more of an attack on individual decisions. It is correct the way it is written, but it might get the state into a fight that isn't necessary. He suggested eliminating the phrase, "that has resulted in decisions that have often caused the people of Alaska unnecessary hardship". CHAIRMAN KOTT concurs with the suggestion. It is the harshest "whereas" clause in the joint resolution. He entertained the suggestion as a friendly amendment. There being no objection, it was so adopted. CHAIRMAN KOTT indicated that he would not object to the suggestions made by the attorney general's office. REPRESENTATIVE JAMES said they are good ideas. Number 2039 REPRESENTATIVE MURKOWSKI asked Ms. Grace whether there has been any feedback from Senator Murkowski's office regarding the suggested changes. MS. GRACE replied she doesn't know. If there was, it didn't come down to her. REPRESENTATIVE MURKOWSKI asked Mr. Grace when the suggestions were sent to Senator Murkowski's office. MS. GRACE replied at about the same time that he introduced the bill. Number 2090 REPRESENTATIVE MURKOWSKI said she is wondering whether he had those suggestions when the bill was introduced and whether he chose not to incorporate them for whatever reason. She is curious about the ensuing couple of months and whether there has been anything done with them. MS. GRACE said it is her understanding that Senator Murkowski did not have the suggestions when he introduced the bill, and it was thought that they would be considered in committee. REPRESENTATIVE CROFT suggested placing the suggestions in another "be it resolved" section of the joint resolution. CHAIRMAN KOTT asked whether there is any objection. There being none, it was so adopted. The language will be left up to the bill drafter. At the same time, he will have his staff contact Senator Murkowski's office to determine whether they will jeopardize his bargaining power. If they do, they will be removed at a later date. Number 2206 REPRESENTATIVE CROFT made a motion to move HJR 29, as amended, from the committee with individual recommendations and the attached fiscal note(s). There being no objection, CSHJR 29(JUD) was so moved from the House Judiciary Standing Committee. HB 82 - IMMUNITY: CLAIMS ARISING FROM Y2K PROBLEMS CHAIRMAN KOTT announced the next order of business is HB 82, "An Act relating to immunity for certain claims arising out of or in connection with the year 2000 date change; and providing for an effective date." CHAIRMAN KOTT indicated that CSHB 82(L&C) is before the committee (1-LS0398\I). Number 2265 JANET SEITZ, Legislative Assistant to Representative Norm Rokeberg, Alaska State Legislature, stated HB 82 provides immunity for Alaskan businesses for certain claims arising out of connection with the year 2000 (Y2K) date change. A lot of money will be spent, not only on addressing the problem, but on lawsuits and Alaskan businesses are no exception to this exposure. House Bill 82 says that as-long-as a business goes through certain steps it will maintain an action. This immunity will assist in encouraging small businesses to continue or begin to address the Y2K situation. Number 2310 CHAIRMAN KOTT asked Representative Rokeberg what is a "smart building." REPRESENTATIVE ROKEBERG replied it is a building that is wired and computerized. The fire systems and alarms are integrated into a black box type of computer system. Number 2386 REPRESENTATIVE ROKEBERG noted that in the bill packet is a copy of S.96 and letters of support from a few organizations. He also has a series of amendments. TAPE 99-18, SIDE B Number 0001 REPRESENTATIVE ROKEBERG continued. He explained the bill. It sets up the methodology of asserting a defense by indicating that a business is not liable for damages arising from the millennium bug. Section 1(a)(1)(A) - (F) delineates a list of steps to prepare a plan of due diligence. The way it is drafted indicates that a business would have to do every one of the steps. It is his contention that it should be amendment to show an example rather than a requirement. Section 1(a)(2) provides a more generic defense. Therefore, there are two different patterns of reasonableness of what a business has to do. REPRESENTATIVE ROKEBERG further stated that Section 1(b)(1) indicates a business that develops or manufactures software and hardware cannot assert a defense. A retailer in a chain would not be held to the same standards, however, that a hardware or software developer would be. REPRESENTATIVE ROKEBERG further stated that Section 1 (b)(2) indicates that a defense may not be asserted based on a contract. He has an amendment that removes the word "contract" and inserts the words "express warranty". If somebody has warranted by contract to fix a Y2K problem and they don't, they can't assert this defense. REPRESENTATIVE ROKEBERG further stated that Section 1(c) indicates that a class action suit can only be for damages of economic loss in excess of $50,000. He suggested that the committee members discuss the figure; it was a recommendation by the Alaska State Chamber of Commerce. It may be appropriate to raise it to $100,000, for example. The federal bill has a million dollar threshold. REPRESENTATIVE ROKEBERG further stated that Section 1(d) indicates that if there is a civil action the damages would be limited to economic losses only, unless fraud was committed. In the event of fraud, it would revert to the rules of standard common law and the rules of the court. Section 1(d)(2) provides that before an action can begin there has to be a curative state. In other words, there has to be a cure provision, mediation then remediation before full-blown litigation. Section 1(e)(3) defines the phrase "year 2000 date change". He has an amendment to change that. Number 0260 REPRESENTATIVE KERTTULA asked Representative Rokeberg to address the changes to Section 1(a)(1)(A) - (F) that he briefly mentioned. REPRESENTATIVE ROKEBERG replied he has an amendment to create a substantial efforts standard rather than to require the actual implementation of each element in the bill [(A) - (F)]. The elements then become examples of efforts. CHAIRMAN KOTT said that is nothing more than an either-or situation. The "or" seems to be inclusive of "either" because Section 1(a)(2) talks about due diligence. REPRESENTATIVE ROKEBERG stated there is a choice here because of the language "or". It could be left alone. He has an amendment to change the second standard as well. Number 0344 REPRESENTATIVE MURKOWSKI said the issue of a list was discussed in the House Labor and Commerce Standing Committee. The conventional wisdom of the committee at the time was to try and include some structure while still making it clear that there might be other criteria to look to given a standard within an industry. The language isn't perfect in the committee substitute, but the amendment gets it closer. Number 0445 CHAIRMAN KOTT closed the meeting to public testimony. Number 0568 REPRESENTATIVE ROKEBERG moved Amendment 1. It reads as follows: Page 3: Delete lines 24-27 Insert: (3) "year 2000 date change" includes processing date or time data from, into and between calendar year 1999 and calendar year 2000, and leap year calculations; in this paragraph, "processing" includes calculating, comparing, sequencing, displaying and storing." CHAIRMAN KOTT objected for discussion purposes. REPRESENTATIVE ROKEBERG stated Amendment 1 changes the definition of the phrase "year 2000 date change" to start on or about July 1, 1999 and to extend through the entire year 2000 when these problems are expected to crop up. Since there is controversy about when the next century will start - 2000 or 2001 - it is appropriate to adopt the amendment for clarification. CHAIRMAN KOTT removed his objection. There being no further objection, it was so moved. Number 0627 REPRESENTATIVE ROKEBERG moved Amendment 2 (1-LS0398\I.3, Ford, 3/22/99). It reads as follows: Page 2, line 27: Delete "a contract" Insert "an express warranty" REPRESENTATIVE CROFT objected. REPRESENTATIVE ROKEBERG stated Amendment 2 is quite an important element in the entire bill. According to correspondence with attorneys, if an action can't be asserted based on a contract then it would obviate the entire need for the bill. If there is a contractual obligation to fix a Y2K bug that is not delivered, there should be a proper course of action to take. Number 0712 REPRESENTATIVE KERTTULA asked whether there can be interference with the right to contract. Number 0756 MIKE FORD, Attorney, Legislative Legal Counsel, Legislative Legal and Research Services, Legislative Affairs Agency, stated he doesn't feel that there is a constitutional problem including this provision. As it is written now, it won't allow someone to use this defense if there is a warranty built in. That doesn't necessarily rewrite the contract. It simply provides that in those situations this defense is not available. It reinforces the contract itself. The federal bill is broader. It says that the contract provision has to be relied on. Number 0802 REPRESENTATIVE ROKEBERG said the selection of the word "express warranty" was his idea after consulting with Mr. Ford. Number 0815 REPRESENTATIVE CROFT stated it should say, "if a contract has already been negotiated that deals with this, then it should be left to them to handle it." The word "contract" may be too broad, but the word "express warranty" may be too narrow. He wondered what the federal law says. MR. FORD referred the committee members to SECTION 4, "APPLICATION OF ACT", in the federal bill. It reads as follows: (a) GENERAL RULE.-This Act applies to any Y2K action brought in a State or Federal court after February 22, 1999. (b) NO NEW CAUSE OF ACTION CREATED.-Nothing in this Act creates a new cause of action under Federal or State law. (c) ACTIONS FOR PERSONAL INJURY OR WRONGFUL DEATH EXCLUDED.-This Act does not apply to a claim for personal injury or for wrongful death. (d) WRITTEN CONTRACT CONTROLS.-The provisions of this Act do not supersede a valid, enforceable written contract between a plaintiff and a defendant in a Y2K action. (e) PREEMPTION OF STATE LAW.-This Act supersedes State law to the extent that it establishes a rule of law applicable to a Y2K action that is inconsistent with State law. Number 0916 REPRESENTATIVE CROFT said it comes closer. He asked Representative Rokeberg whether he would object to using the phrase, "The provisions of this Act do not supersede a valid, enforceable written contract between a plaintiff and a defendant in a Y2K action." REPRESENTATIVE ROKEBERG replied he is concerned because is says "in a Y2K action." Are we talking about a contract to deliver a commodity and then asserting a Y2K defense for the failure to deliver, or are we talking about something that relates to a Y2K contractual fix? He doesn't like the language. Number 0979 REPRESENTATIVE CROFT said: "I mean. We're only talking about in (a) a specific Y2K thing so, part (b) says, 'The defense in (a) may not be asserted', and if you said in (2) to supersede the provisions of a valid, enforceable written contract, it sounds broad, but it's only applying to (a). The thing in (a) is pretty well-defined already. So, you just say (a)--(a) doesn't apply and (a) only applies in these certain Y2K areas anyway. It wouldn't apply to supersede a valid, enforceable written...I don't know why particularly written either, but it wouldn't supersede a valid, enforceable contract." REPRESENTATIVE ROKEBERG referred to SECTION 201, "CONTRACTS ENFORCED", of the federal bill. It reads as follows: In any Y2K action, any written term or condition of a valid and enforceable contract between the plaintiff and the defendant, including limitations or exclusions of liability and disclaimer of warranty, is fully enforceable, unless the court determines that the contract as a whole is unenforceable. If the contract is silent with respect to any matter, the interpretation of the contract with respect to that matter shall be determined by applicable law in force at the time the contract was executed. Number 1065 MR. FORD said he has not had time to analyze this version of the federal bill, but there are several provisions that seem to overlap. This section is sort of the same thing as the application section. It could be the federal style. Number 1118 REPRESENTATIVE KERTTULA asked whether the state would be preempted if the federal bill remains broad. Section 4(e) of the federal bills says it supersedes state law. MR. FORD replied the federal law would control because of that provision. It, of course, depends on the final version of the federal bill. REPRESENTATIVE ROKEBERG said there are certain elements that are not preempted that allow for statewide control, such as certain thresholds for class action. They don't completely overlap. The committee members need to discuss whether they want express warranty to relate to a Y2K type of phenomenon, or whether they want it to relate to a universal contract. That's the issue. The federal law says in Y2K actions. Does that have to do with hardware, software, etc., or does that have to do with the chain of transactions based on a contract? In other words, a commodity that is transferred from a vender to a vendee, such as a widget. Number 1252 REPRESENTATIVE MURKOWSKI said the federal bill defines Y2K action as, "To provide civil action commencing in federal or state court in which the plaintiff's alleged harm or injury resulted directly or indirectly from an actual or potential Y2K failure or a claim or defense of a defendant is related directly or indirectly to a natural or potential Y2K failure." Number 1276 REPRESENTATIVE ROKEBERG said the federal bill also allows for a defense of reasonable efforts - SECTION 202, "DEFENSES". That is slightly different than this bill. Number 1291 REPRESENTATIVE CROFT said HB 82 with Amendment 1 defines the state's terms carefully. He suggested modifying the language to say, "The defense in (a) of this section may not be asserted to contradict the provisions of a valid, enforceable contract" [page 2, line 19]. It sounds broad, but it is tied to the defense in Section 1 (a). REPRESENTATIVE ROKEBERG said Representative Croft's suggestion has to do with the widget scenario and not the vender-to-vendee scenario. Does it specifically have to do with hardware/software or a typical contractual relationship? By saying it is a general contractual relationship, it is an enforceable contract. The language in this bill prohibits the use of a defense, while the federal bill allows the use of a defense. Number 1414 REPRESENTATIVE CROFT said the defense only applies to a Y2K date change concerning the failure of an electronic computer device. It can't be used to contradict a contract that says it will fix a Y2K problem. It only applies to Section 1(a) which is narrowly defined. Number 1458 REPRESENTATIVE GREEN asked whether extending an effort to a list of litanies would create a potential problem that could be solved much easier with a simple statement like Representative Croft suggested. A list would inevitably leave something out. Every year the lists in statute get amended. "It seems to me that the less we depend on lists and the more we depend on intent, the better off we're gonna be." Number 1510 REPRESENTATIVE ROKEBERG said the point is being missed. The defense in Section 1(a) can't be used in terms of a contractual action, if Section 1(b)(2) is not modified. The issue is between a Y2K hardware/software thing versus a widget. There is a distinction. Number 1568 REPRESENTATIVE CROFT said the distinction is between saying contract in general and a valid, enforceable contract in a Y2K action. There would be a big loophole if it said, "based on contract none of this applied, and it can't be used to modify the terms of a contract." He agrees it needs to be amendment, but he's not sure of the "express warranty" language. He suggested language that says, "somewhere along the lines that it can't be used to contradict what the parties have agreed to." "You can still get it for an action based on contract, as long as it doesn't modify what they agreed to." Number 1625 REPRESENTATIVE ROKEBERG said he agrees with that, but he is concerned about it becoming too ambiguous. He suggested relying on Mr. Ford to come up with language. Number 1633 REPRESENTATIVE KERTTULA said everything that Representative Rokeberg has said regarding contracts can be turned around and applied to express warranties. "I think what you want is to say that if they got the exact, written contract on this topic, you know, and they've thought about it ahead of time how they're gonna work it out, then you don't want to interfere with that contract. They've already thought about it." REPRESENTATIVE ROKEBERG said he is talking about the terms of a contract that deals with Y2K. REPRESENTATIVE KERTTULA said a contract would be dealt with expressly, but it's not just an express warranty. REPRESENTATIVE ROKEBERG said a defense should be able to be used for a widget, but not if there is an agreement to fix it for a Y2K problem. That's the distinction. He suggest the language, "an express Y2K warranty". This is the crux of the whole bill. Number 1730 MR. FORD said it would be helpful to pull Section 1(b)(2) out of the provision and to put a separate subsection that embodies similar language to the federal bill. It would be clearer and there wouldn't be a hang up on whether it's a defense, claim or counterclaim. REPRESENTATIVE ROKEBERG asked Mr. Ford whether he means warranties of Y2K activities or widgets. MR. FORD replied he's talking about the provisions in a Y2K action. REPRESENTATIVE ROKEBERG asked Mr. Ford whether a Y2K action is a fact-pattern for the defense or is it something that is talked about in a contract. MR. FORD replied, if it isn't contained in a contract, it wouldn't be an action based on a contract. REPRESENTATIVE ROKEBERG said that's like putting in an action based on express Y2K warranty. MR. FORD said it's all fruit, just different kinds. "We started out with a provision that says, if it's a contract--if it's based on a contract, you don't get this defense. If your claim is based on some provision in the contract, you don't get this defense. You have to rely on your contract. The amendment we have before you, actually narrows that a bit to express warranty. Express warranty is something in a contract. Now, what the federal government has done here is simply say, well, we're not going to talk about express warranty, we're going to talk about any provision of the contract that is rendered unenforceable. If it's a valid, enforceable contract, that's what you rely on which again is, I think, the same thing you want to do." REPRESENTATIVE ROKEBERG said, but the defense can't be asserted in the draft of the federal bill. MR. FORD said the contracts have to be relied on. CHAIRMAN KOTT laid aside Amendment 2. Number 1960 REPRESENTATIVE ROKEBERG moved Amendment 3. It reads as follows: Page 1, lines 12-13 Delete "the following efforts to avoid the damages claimed in the civil action:" Insert "substantial efforts to avoid the damages claimed in the civil action, such as" Page 1, line 14: Delete "inventory" Insert "inventorying" Page 2, line 2: Delete "identify" Insert "identifying" Page 2, line 4: Delete "identify" Insert "identifying" Page 2, line 6: Delete "prepare" Insert "preparing" Page 2, line 9: Delete "comply with industry regulations or requirements" Insert "complying with generally accepted practices of a business sector" Page 2, line 12: Delete "develop" Insert "developing" CHAIRMAN KOTT objected. REPRESENTATIVE ROKEBERG said Amendment 3 removes the necessity to require every step in provision (A)-(F) before proving reasonable efforts. It also modifies the industry regulations and/or requirements. There is concern because there really aren't any industry standards in this field. CHAIRMAN KOTT asked Representative Rokeberg whether he said that there are no general accepted standards. REPRESENTATIVE ROKEBERG replied, according to testimony from Scott Thorsson (ph), there may be some in the banking industries and certain other areas, but they are rare. Number 2211 CHAIRMAN KOTT asked Mr. Ford whether there is a substantial difference between "generally accepted practices" and "generally accepted standards." MR. FORD replied some areas do have written standards, but from what he's heard they are just practices in this area. Yes, there could be a difference between a practice and a standard. Number 2256 REPRESENTATIVE CROFT stated the bill sets up two different paths to know whether a business has done the right thing. One is a list and the other is an exercise of general care. There is the word "or" on page 2, line 13. He likes the dichotomy; they are proper options. To generalize both of them does away with some of that balance. Number 2394 REPRESENTATIVE ROKEBERG appreciates Representative Croft's argument. He has been vacillating back and forth between those two things. The language is disjunctive. He suggested taking up Amendment 4 as well because it changes the general standard a little bit. That might help when talking about both of the approaches. TAPE 99-19, SIDE A Number 0001 CHAIRMAN KOTT noted it is unusual to talk about another amendment when there is a motion on the floor, but in light of the high confusion he ruled in favor of the request. REPRESENTATIVE ROKEBERG explained Amendment 4. It reads as follows: Page 2, lines 14-6: Delete ", by following generally accepted standards of care and effort in the business activity in which the business was engaged, exercised due diligence and" Insert "used" REPRESENTATIVE ROKEBERG further stated he has a letter that indicates Section 1 (a)(2) sets up three separate standards: an industry standard of care, a due diligence standard, and a reasonable care standard. There should only be one. It's nice to use the word "due diligence", but the reasonable care standard is the appropriate one. It provides for the general reasonable care efforts in order to assert the defense. It would be up to the courts to decide what is and isn't reasonable when asserting the defense. If Amendment 4 is adopted then Representative Croft's argument is even stronger. Number 0184 REPRESENTATIVE CROFT stated is makes sense to simplify or make Section 1(a)(2) more generic. He wouldn't object to adopting Amendment 4 and tabling Amendment 3. REPRESENTATIVE ROKEBERG asked Mr. Ford whether his analysis is correct. MR. FORD replied he is concerned about getting closer to having standards that are different but substantially closer. "If you left the first amendment out and left (1) the same, then you have a specific laundry list which someone could follow and say, 'hey, I do what you told me to do, I can use the defense.' If they didn't follow that list and you adopted the second amendment which changes paragraph (2) then you still have that which is to say, 'but, I didn't follow your list but I used reasonable care.'" It is the best of both worlds. REPRESENTATIVE ROKEBERG said he prefers that and thinks that is the way to go. Number 0278 REPRESENTATIVE ROKEBERG made a motion to amend Amendment 3 to retain the change to Page 2, line 9 and to delete everything else. There being no objection, it was so moved. It now reads as follows: Page 2, line 9: Delete "comply with industry regulations or requirements" Insert "complying with generally accepted practices of a business sector" REPRESENTATIVE ROKEBERG called the question on Amendment 3, as amended. Number 0435 REPRESENTATIVE KERTTULA referred to Amendment 4 and asked how broad of a change is it. REPRESENTATIVE ROKEBERG replied it is going from three different standards to one. REPRESENTATIVE KERTTULA asked whether reasonable care encompasses the others. MR. FORD said he doesn't see a difference between due diligence and reasonable care. It says the same thing twice which is always confusing because the court would assume that it means something different. REPRESENTATIVE KERTTULA said she feels uncomfortable lessening the standard. REPRESENTATIVE ROKEBERG agrees with Representative Kerttula. It also troubles him, but three different standards would allow the courts to confuse the issue even more. REPRESENTATIVE KERTTULA said she assumes that due diligence is within reasonable care. Number 0612 REPRESENTATIVE MURKOWSKI asked whether there is any merit in defining some parameters within reasonable care. REPRESENTATIVE ROKEBERG replied they are in Section 1(a)(1). He wants to leave Section 1(a)(2) in for a didactic kind of instructional thing. REPRESENTATIVE MURKOWSKI said (A) - (F) is limiting. What happens if there is a (G). REPRESENTATIVE ROKEBERG replied (G) is Section 1(a)(2). REPRESENTATIVE MURKOWSKI replied the bill says reasonable care is (A) - (F). REPRESENTATIVE ROKEBERG said a business could deviate from (A) - (F) and use Section 1(a)(2). That's the reason for having it. REPRESENTATIVE MURKOWSKI said, "I just don't want to get locked into those." Number 0642 CHAIRMAN KOTT asked why would there be a deviation. REPRESENTATIVE ROKEBERG replied a small business doesn't always have a contingency plan. Number 0671 REPRESENTATIVE CROFT said Section 1 (a)(1) is reasonable care, but it's not all that could be reasonable. "I mean, so, it is one avenue that we're gonna sanctify as enough, but I don't think the record should be that you always have to do that or there wouldn't be any need for (2). (1) is enough. Other things may be enough, other lesser...other things. But, it's in the 'or'. If other things were necessary, you could comply with (1) and still get away with..." Number 0722 REPRESENTATIVE ROKEBERG wondered whether defining due diligence in Section 1(a)(2) as those things found in the list, but not necessarily those things or other things, would be tighter than reasonable standard. He's not sure whether that is the direction the committee wants to go. CHAIRMAN KOTT noted there is a motion on the floor to adopt Amendment 3, as amended. There being no objection, it was so moved. Number 0785 REPRESENTATIVE ROKEBERG moved Amendment 4. There being no objection, it was so moved. REPRESENTATIVE CROFT withdrew Amendment 5. Number 0850 REPRESENTATIVE CROFT moved Amendment 6. It reads as follows: Page 3, lines 5 & 6 Delete "(1) damages may be awarded for economic losses only unless the business against whom the action is brought committed fraud;" REPRESENTATIVE ROKEBERG objected. REPRESENTATIVE CROFT explained Amendment 6 deletes the limitation on the categories of damage that can be recovered. A lot of this legislation is tied together with good definitions and holds together a logical relationship to Y2K acts, except for Section 1(d)(1). He doesn't see the reason for a general category of non-economic damages which has already been capped in tort reform laws. It seems like an arbitrary provision for something that has already been capped in a more general way. "Y2K may cause--this is the classic one that will get us trapped in unintended consequences. I don't know all the other consequences of this, in my onion, arbitrary provision. We have caps out there that'll apply to this. But, to say Y2K by its characteristic means no other--none of these other categories of loss. I don't see the relationship. And, I'd let the other caps that we already have in general tort reform law apply." Number 0984 REPRESENTATIVE ROKEBERG said the federal bill takes a different approach. It provides for tort claims with limitations. It takes a broader look and categorizes contract law, tort law and class action. It sets a limit on all of those. He chose not to be as expansive. "I think that the idea here is that the limitation to economic loss is one that the whole circumstance of this situation whether it's a Y2K issue does not merit any advantages. Who are you trying to punish? Unless, you're trying to punish a noncompliant kind of guy that sat on his hands. Why are we just not suing for economic losses but--other than damages? That--that becomes, I think, the real issue here." The reason for the bill is to minimize vexatious type of litigation intended to merely enrich a litigator. The resources need to be put into solving the problem, not litigation. He doesn't want to create a tort claim because of an unusual fact-pattern, but he wants to limit the type of economic losses recovered. It's not his intention to entirely preclude a tort claim because there is probably some scenario were it would be worth it which is why he included the language "fraud". Number 1203 REPRESENTATIVE CROFT said the reason the federal legislation gets through the different caps is because there is no general federal tort reform. "They don't have them if they don't put them in there. We already have them and we don't need them in here, I believe." There are unintended consequences with a blanket description. "If I'm the building manager and Otis Elevator Company sends me a note, we've got this Y2K, here's the embedded chip to replace it with, we're providing it for you for free, if you don't do this they will fall to the ground and kill people. And, they send me five letters with five chips to do this and I don't, you could get punitive damages there when--when somebody dies on the elevator, and you should. If--if--if--if the same situation happens with an embedded chip in a medical devise and I ignore it as a hospital, I mean, the problem is you can create situations where this--it's appropriate to have these. And, you said the whole point was to get rid of vexatious and frivolous litigation, I mean. This doesn't do anything about vexatious or frivolous litigation, in fact, it hits the meritorious claim, the odd, weird, possibly extremely meritorious claim. We have in other areas made these other general caps and--and they aren't in the federal law so if federal law wants 'em they have to put 'em in for a specific thing. We--we don't have to. We have that luxury that we've made that difficult public policy decision on how we should cap punitive and non-economics. And, to just take 'em out here, I don't see the point. It doesn't address frivolous litigation. It does greatly impact--eliminate certain weird, but possible cause of actions in very extreme cases and it's in an area where we've already declared a cap and the feds haven't." Number 1322 REPRESENTATIVE ROKEBERG said TITLE III of the federal bill says, "A party to a Y2K action making a tort claim may not recover damages for economic loss unless--...". There is a very good argument for a limitation, but this doesn't delete tort theory or wrongful deaths and egregious types of harm. He just doesn't want to open the door to unlimited, punitive damages. On the other hand, a case could be made for medical equipment and maybe there needs to be a distinction. Number 1384 REPRESENTATIVE KERTTULA stated there could be willful misconduct, extreme recklessness, or death and there wouldn't be any economic loss. They shouldn't be foreclosed on. She agrees with Representative Croft. The restrictions are already there. Number 1419 CHAIRMAN KOTT asked Representative Croft to remove his motion in order for him to take action on putting the bill in a subcommittee. Number 1438 REPRESENTATIVE CROFT removed Amendment 6. CHAIRMAN KOTT assigned the bill to a subcommittee consisting of Representatives Murkowski, Rokeberg and Croft. He charged the subcommittee with looking at Amendments 2 and 6, and any other ancillary issues that arise. HJR 18 - CONST. AM: ADMINISTRATIVE HEARINGS Number 1558 CHAIRMAN KOTT announced that the next order of business is HJR 18, Proposing an amendment to the Constitution of the State of Alaska relating to an office of administrative hearings. BOB LOEFFLER, Director, Central Office, Division of Mining and Water Management, Department of Natural Resources, testified via teleconference from Anchorage on behalf of the Department of Natural Resources. He stated that the department has a number of concerns about HJR 18. He cited an example of one of the more controversial permitting decisions the department had, and that was a winter road they approved to the Pogo Mine. Approximately 250 people commented on that decision, through two public meetings, and the department needed to balance the private rights of the mine holders against the potential impacts on those who had cabins and used the recreational resources of the area. He pointed out that their standard of review is "the best interest of the public," and this involves a balancing decision rather than a technical decision. He felt that their process was quite inclusive, and an administrative law hearing would disenfranchise those who are unable to participate. For a proper balancing, he noted, the department works hard to include all the citizens of the state, and he was unsure how that would occur in an administrative law hearing. He related that a number of their decisions were reasonably technical, and that technical expertise was also an issue. One of their most recent decisions had to do with fume chemistry, and the project team worked on this issue for two to three months. He felt it would be difficult to educate an administrative law judge (ALJ) on the technical aspects of fume chemistry. He noted that a number of the other, more technical, divisions of the Department of Natural Resources have similar concerns. Number 1780 CHAIRMAN KOTT referred to Mr. Loeffler's comment about the standard of review. He asked, "Would you not agree that that particular standard of review would be somewhat different for every issue, and that an administrative law judge, in his capacity, would be required to know that?" MR. LOEFFLER indicated that he had no doubt the ALJ would know the standard of review. However, the best interest of the public is a typical standard for the Department of Natural Resources. He agreed it would be different for other agencies. Number 1818 DEBORAH VOGT, Deputy Commissioner, Office of the Commissioner, Department of Revenue, testified with concerns about HJR 18. She related that she had a fair amount of experience over the years with state government, and that she was a hearing officer at the Department of Revenue for a few years. She is currently responsible for the formal hearings function at the department, and she has experience working with a number of agencies from the Commercial Fisheries Entry Commission and the Department of Transportation and Public Facilities. She felt this background is part of the reason she was chosen to coordinate the state's response to, and position on, this legislation. She testified that the state had two views on HJR 18: first, that a constitutional amendment requiring administrative adjudications to be performed by a centralized panel would be dangerous. On the other hand, there is some merit to the idea of a centralized panel for some functions. The department envisions some problems with a constitutional approach to this legislation, including a belief that the provision, as it is drafted, would make it mandatory for all adjudicatory decisions to be made outside the agency charged with the primary underlying function. They understand some people argue that the phrase in the proposed amendment "jurisdiction will be prescribed by law" means that the legislature can pick and choose which functions go to the centralized panels and which ones do not. MS. VOGT pointed out that a constitutional amendment is not needed, if the purpose is to simply give the legislature permission to create a centralized panel and assign certain functions to it. The only reason a constitutional amendment would be necessary is if the centralized panel was made mandatory, and she stated that making it mandatory would foreclose the legislature from ever making a specialized solution in any particular area. The courts define "administrative hearing" very broadly, she noted, and an example of that is the litigation surrounding the Constitutional Budget Reserve. For example, in a tax matter, the adjudicatory process starts as soon as a person objects to an assessment that has been issued. In the Department of Revenue, the assessments get issued at a fairly low level; then, at the time of process, it goes into an informal conference. The formal hearing function for tax matters has been transferred out of the department, but the informal procedure still goes on in the department. At that time, they often catch mistakes that were made, and give the taxpayer an opportunity to meet face-to-face with individuals to explain that taxpayer's argument. They read the proposed constitutional amendment to indicate that the early function of the adjudicatory process would also go to a centralized panel, and they would not have the power to make any kind of an adjudicatory decision on a contested matter. MS. VOGT noted that the legislature has spent a lot of time over the years creating different functions in different departments, and HJR 18 would remove a lot of that structure set up for those kinds of decisions. She related that the Department of Revenue handles Permanent Fund Dividend (PFD) appeals, child support enforcement appeals, and appeals in charitable gaming matters, as well as representing the department in front of the Office of Tax Appeals that was created a couple of years ago. Number 2026 MS. VOGT added, "One of the concerns that I have about moving the function out of my agency is management. Four years ago, when I started in this position, and Commissioner Condon started in his position, we had about ... 7000 Permanent Fund Dividend matters pending, between informal conference and formal hearing. Some of those matters were very old." She noted that today there are only about 400 matters pending between the two; almost of them are less than two months old at informal conference, and all are mostly less than six months old. She expressed pride at having achieved that, and she did not believe that could have been done if an outside agency handled all of their appeals. MS. VOGT also had substantive concerns. She pointed out that a lot of individuals win their informal conferences and their formal hearings, and that is because the hearing or appeals officers are properly applying the rules the department has set out. The department has an overall responsibility for making and implementing those rules, she noted, and taking that function away from them would put a hole in the continuity. She related that she learns a lot from those hearings about the way the program is being administered, and about issues that could be clarified, made easier or changed. Ms. Vogt and Representative Green worked very hard to set up the Office of Tax Appeals, at the request of taxpayers, and this is an outside agency that hears the formal hearing level of tax appeals. As the department reads the proposed constitutional amendment, that agency would be subsumed in an administrative law panel. One of the driving forces in the way that program developed several years ago was the universal agreement that the tax cases needed a specialized forum, and tax expertise was important in that forum. That expertise would be lost by sending those cases off to a centralized panel. Number 2150 MS. VOGT summarized by stating, "One size definitely does not fit all in administrative hearings." She felt that it is a mistake to try to fit everything under one approach. Some matters are small and can be handled on a very informal basis, and the concern is that a centralized panel would make matters much more formal and would be intimidating. She did agree that some states have had good experiences with centralized administrative law panels, and she felt it should be explored, but not mandated by a constitutional amendment. Number 2231 CHAIRMAN KOTT asked if there has been any discussion in the years past on reviewing the possibilities to work in this fashion. MS. VOGT recalled that there has been, but just in the last couple of years. It has not, however, been looked at from within the Administration. Number 2254 REPRESENTATIVE MURKOWSKI wondered if the Administration is looking at areas that could be candidates for an administrative law panel as a result of the fact that it has been discussed for the past couple of years. MS. VOGT felt that they are beginning to do so, but that a lot of effort has not gone into that. CHAIRMAN KOTT asked, "In your opinion, could you do that without a statute change?" He wondered if statutory authorization would be required or if this administrative law panel could be set up just through the regulatory process. MS. VOGT said, "I would imagine eventually you'd run into reasons that you needed a statute." She did not think it could be accomplished in its entirety through executive order or that type of route. Number 2333 TERESA WILLIAMS, Assistant Attorney General, Fair Business Practices Section, Civil Division (Anchorage), Department of Law, testified via teleconference from Anchorage. She referred the committee to the March 23, 1999, letter and its attachment, "Analysis of Language of HJR 18," that was sent to Chairman Kott from Attorney General Bruce M. Botelho's office by Ms. Williams. She said she was going to reiterate Ms. Vogt's testimony that a constitutional amendment is not necessary if the intent of this amendment is to provide discretion for the legislature to centralize a hearing officer function, as that is already an authority the legislature has. The problem with a constitutional amendment is that it is a powerful tool that would have superior power to later legislation attempted; therefore, it would limit the legislature's power. She detailed some of the language in HJR 18 that the Department of Law labeled as problematic. MS. WILLIAMS first referred to "The Office of Administrative Hearings is vested with the POWER TO CONDUCT ADMINISTRATIVE LAW HEARINGS," and explained that term is very broadly interpreted in Alaska. The Alaska Supreme Court has said that administrative adjudicative hearing proceedings begin when one party serves another party a document that sets in motion a regulatory or statutory procedure for the resolution of a dispute. She pointed out that testimony given to the House State Affairs [Standing] Committee pointed out that dispute over a term such as "student loan" is the sort of procedure that sets forth a regulatory process for the resolution to dispute. Under this constitutional amendment, it would go to an ALJ. Necessarily, the proceedings would become much more formal, and the agency with the responsibility for the program would lose control over the day-to-day practices of the program. Also, if the Office of Administrative Hearings was established under this language, there would be certain working commissions that would lose their primary function, and those would include the Alaska Workers' Compensation Board, State Board of Parole, all of the licensing boards for occupational licensing, and many others. TAPE 99-19, SIDE B Number 0001 MS. WILLIAMS next referred to the language that stated "The Office of Administrative Hearings is vested with the POWER TO RENDER FINAL AGENCY DECISIONS," which is a misnomer, because the decision would not, in fact, be a decision by the agency, and may be very contrary to the policies of the agency. There would be all sorts of formal disputes within the scope of the proposed amendment, such as tax matters, public assistance entitlement, employee relations, state land allocation, and a number of others. The constitutional mandate would include agencies of the legislature and the judicial branch, as well as the executive branch. Number 0050 MS. WILLIAMS also noted the clause "THE JURISDICTION OF THE OFFICE SHALL BE PRESCRIBED BY LAW." She indicated that this language does not give the legislature the express authority to exempt agencies or certain levels of proceedings from the constitutional mandate. The Alaska courts hold that the identical language for the judiciary does not allow the legislature, by statute, to take away judicial powers vested by the constitution in the courts. MS. WILLIAMS noted that the phrase "THE HEAD OF THE OFFICE IS NAMED 'CHIEF ADMINISTRATIVE LAW JUDGE'" is a new concept for Alaska, as Alaska has always used hearing officers, with the understanding that this term is meant to refer to a hearing that is much less formal than an administrative law judge. Administrative law judges are more likely to use hearing chambers and wear robes, and they are referred to as "judge" and "your honor." Alaska administrative proceedings are intended to be less threatening to the participants. In addition, this language contains no provision for removal of an administrative law judge for cause which would certainly be an issue in cases of misconduct or gross incompetence. Number 0140 CHAIRMAN ROKEBERG observed that it was the third item on the list of concerns that alarmed him the most, "THE JURISDICTION OF THE OFFICE SHALL BE PRESCRIBED BY LAW." He also was concerned that this did not give the express authority to the legislature to exempt agencies or certain levels of proceedings. He asked if there was case law that essentially refers to that particular issue. MS. WILLIAMS confirmed that there was, and she referred to the case Rozkydal v. State. By using identical language in both provisions, in light of the previously-existing case law, the court may find that the voters intended to have identical results. Number 0203 REPRESENTATIVE OGAN commented that other states have done very well with this system; although, he agreed that they did not have to use a constitutional amendment. He asked what a hearing officer should do when they are pressured to find for the agency. MS. WILLIAMS confirmed that no other state has a constitutional amendment that creates an office such as the one proposed in HJR 18; however, the final decision is only made in very few cases. The decision becomes a proposed decision, and is referred back to the agency. As far as pressure being placed on a hearing officer, Ms. Williams pointed out that that would be inappropriate. The hearing officer should advise the parties of the attempt to make that pressure, and they could certainly avail themselves of various protections under state law for employees who are being pressured to do something that is unlawful. REPRESENTATIVE OGAN pointed out that sometimes the pressure might not be overt; however, there is certainly pressure to perform for the commissioner that you work for. He asked, "What if a hearing officer consistently found more often against ... the commissioner he worked for than for him? There is an inherent conflict of interest." MS. WILLIAMS observed that she has been an attorney in Alaska for 20 years now, and she has always worked in the field of administrative law. She related that she has never experienced a hearing officer who felt obligated to rule on behalf of a particular party. The hearing officers that she has known, in various capacities and serving various interests, have issued decisions that they felt to be correct. If there are examples of particular hearing officers who are a problem, Ms. Williams felt that this should be looked into closely; however, she is not aware of any particular person or agency where that has been a problem. REPRESENTATIVE OGAN stated that he sincerely doubts a hearing officer would mention to the attorney general that he/she was feeling pressure to be biased. Number 0350 PAUL GROSSI, Director, Central Office, Division of Workers' Compensation, Department of Labor, expressed concerns regarding HJR 18 on behalf of his division and the Department of Labor. One of their main concerns, he explained, is expertise in deciding these administrative cases. He also referred to the "one size fits all concept" that was previously mentioned. He testified that HJR 18 would take away the balanced approach that has been developed over the years with the Workers' Compensation Board. They are concerned, he added, that this legislation would move away from a "compact" that exists between labor and industry. MR. GROSSI explained that the [Division of] Workers' Compensation is probably one of the earliest quasi-judicial administrative agencies. It was established around the turn-of-the-century to deal with workplace injuries. At that time, work-related injuries were being dealt with in the courts; consequently, they were tying up the courts, causing expense to the employers, and taking a long time for employees to get results. Labor and industry came together and formed an agreement to compact, and legislation was passed to deal with workers' injuries by setting up administrative agencies. Both sides had to give up something, and both sides gained something. The employers gave up the right to defend a case because of fault, as [Division of] Workers' Compensation is a no-fault situation. Employees gave away the right to sue employers in court, and formulas were developed for compensating employees for wage loss, permanent disabilities, and paying for medical losses. On the other hand, industry received an immunity from being sued in court. Both labor and industry received a faster, more predictable way of dealing with these injuries. MR. GROSSI noted that Alaska passed legislation that set up a Workers' Compensation Board for dispute cases to be heard. This board consisted of a labor member, usually someone from a labor union, but always someone from the working side of the formula, and an industry seat, someone from management or an owner of a company. The third member of the panel is the commissioner's designee, and that designee is an expert in workers' compensation law. They feel this a very balanced approach: using private-sector volunteers to decide the cases, along with someone who is an expert in the legal aspects of worker's compensation. He indicated that there is 100 years of case law to refer to, and that volumes have been written about it. In Alaska, there are as many as 10 supreme court cases a year that deal with workers' compensation. The case law is extensive and complicated, Mr. Grossi noted, and it requires a certain amount of expertise, but it also requires some sort of input from the private sector, so that a fair decision can be made. MR. GROSSI disclosed that there are presently approximately 300 to 350 cases a year that are decided by the Workers' Compensation Board. Of that, approximately 70 are appealed to the courts, and the board has a very good rate, over 80 percent, of their decisions being affirmed by the court. The department is concerned that this law will take away from that success rate, will make their law unconstitutional, will take away from the balanced approach, and will eliminate private sector input on their cases. Similar problems could arise in a number of different agencies within the department: Fishermen's Fund [Advisory and Appeals Council]; Alaska Labor Relations Agency; Employment Security Division; and the Department of Occupational Safety and Health Administration. He mentioned that one of the strongest advocates of this system is Edwin Felter (ph), and he believed him to be the head of the National Association of Administrative Law Judges. Mr. Felter (ph) has indicated that there is no state that has not made exceptions for certain types of cases, and not all cases are heard by these agencies. Number 0671 CHAIRMAN KOTT noted that there seems to be some confusion, if HJR 18 were to pass and the voters were to approve it, as to whether or not the legislature would have that opportunity to provide for those exemptions for those certain categories that, perhaps, would not fit the mold very well. He asked Mr. Grossi whether the Department of Labor would support the measure, if the legislature decided to keep them exempt from it in all their capacity. MR. GROSSI admitted that some of the things their department does may fit well with this legislation; however, he would have a difficult time supporting the measure if it had to do with the Workers' Compensation Board. The reason for that, he explained, is because the current system has been developed over a number of years and it works very well. He did express willingness to discuss it, however. Number 0738 REPRESENTATIVE OGAN wondered how long it takes for the Division of Workers' Compensation to adjudicate a workers' compensation case. MR. GROSSI indicated that it would depend upon the individual case. Some cases get heard within 60 days from the date the hearing is requested, and others take longer, depending upon what needs to be done. REPRESENTATIVE OGAN asked what would be determined a long case, and if any have been going on for years. MR. GROSSI replied that these cases are not usually litigated that long, but some cases do go on from the date of injury through when the individual goes off of workers' compensation. It can take some time; it depends upon the extent of the injuries. CHAIRMAN KOTT asked Mr. Grossi, "Would you refresh my memory on the Workers' Comp[ensation] Boards and the time limitations they have to take up a case?" MR. GROSSI answered by stating that the vast majority of injuries are not litigated. There are approximately 26,000 to 30,000 injuries a year; of that, maybe 1200 to 1500 come to the Workers' Compensation Board for resolution. If an injury occurs and a medical report is filed along with the bill, the employer either pays it or controverts the case within 15 days. If the employee disagrees with the controversion, that employee can then take it forward to the Workers' Compensation Board. That employee can file a claim 10 days from that point, and can request a hearing after 20 days. If the opposing party does not oppose the hearing, it will be set up within 60 days. If it is opposed, a pre-hearing is scheduled to deal with why it was opposed in the first place. Number 0858 REPRESENTATIVE CROFT had a question for Teresa Williams, who was still present on-line from Anchorage. He asked, "Would we be able to continue the Workers' Compensation Board with it's one industry, one labor, under this constitutional amendment?" MS. WILLIAMS said no, unless there was authority expressly in the legislature and the amendment to exclude an agency. Number 0883 REPRESENTATIVE OGAN wondered if Ms. Williams was basing that answer on the case law dealing with judicial power vested by the constitution. MS. WILLIAMS explained that she was basing her answer on the language, "THE JURISDICTION OF THE OFFICE SHALL BE PRESCRIBED BY LAW," which she felt was ambiguous as to what it means. She indicated that this language does not expressly give the power to the legislature to exempt an agency or certain level of proceedings. In addition, this is identical language that has already been interpreted by the courts, and it would be presumed that the language was intended to have the same result. REPRESENTATIVE OGAN wondered whether court cases on the judiciary were based on the intent of the constitutional convention. MS. WILLIAMS said no, and pointed out that they go to the first line, which says that the power is vested in the judiciary, just as in this provision, the power is vested in the Office of Administrative Hearings. That language is very powerful and cannot be limited by the legislature. REPRESENTATIVE OGAN said that it was his understanding of the law that a record of legislative intent could be built, indicating that the legislature can decide who is in and out of this provision. MS. WILLIAMS explained Alaska finds that legislative intent is hard to determine and cannot be determined by the statement of a person, because the entire legislature votes on a bill. She pointed out that there is nothing concrete that says what legislative intent is, especially in this case, when a constitutional amendment would need to be voted on by the people. She suggested that it would be preferable if the language were changed to expressly state what is intended, rather than having a side-record in which you attempt to explain what it means. Number 1032 REPRESENTATIVE CROFT observed that the important thing about a constitutional amendment is what the people meant when they voted on it, and that it is not as relevant as what the legislature intended when it put it before the people. He added that the best legislative intent in the world might not be (indisc.), particularly if there is clear language that seems to go the other way. REPRESENTATIVE OGAN felt that was not consistent with supreme court decisions. Number 1080 CATHERINE REARDON, Director, Central Office, Division of Occupational Licensing, Department of Commerce and Economic Development, testified in opposition to HJR 18 on behalf of her division, as well as 21 licensing boards that it represents. Her division also administers 16 licensing programs without boards, so they make the final decisions directly in those cases. She mentioned that the Division of Insurance and the Division of Banking, Securities and Corporations, both under the Department of Commerce, also had concerns, and they use the same hearing officer that the Division of Occupational Licensing does. She acknowledged the sponsor's position that certain agencies or decisions could be exempted through statute; however, the Department of Law has a different view. She stressed that this is a very important issue to the licensing boards, who are created for the express purpose of making decisions like this. She echoed that any attempt to have the legislature exempt different agencies needs to be very clear in any constitutional amendment; otherwise, boards are being asked to support something based on a possibility that the legislature may be willing and able to exempt them. She has based her testimony on the assumption that the Office of Administrative Hearings would be making all the decisions for Department of Commerce, including the licensing boards. MS. REARDON declared that she had testified with concerns about the original comprehensive bill when it was presented by Representative Ogan last year. One reason that it grew into such a large bill, she observed, was because there were references to boards making disciplinary decisions and licensing decisions buried within each occupation's licensing statute. If a constitutional amendment like this passes and certain agencies need to be exempted, the frustrating and difficult work of making those policy decisions in a 100-page bill will still need to be done. Much of what comes up for the hearing officer in occupational licensing involves initial decisions, not appeals. The division gathers evidence and charges a professional with incompetence. Before any action is taken, there is a due process hearing in which the division and the Department of Law present the prosecution case, and the accused professional presents a defense case. The hearing officer then hears the case and makes the proposed decision to the Board of Professionals. The individual has the right to appeal to Superior Court. MS. REARDON informed the committee that the Department of Commerce and its various boards are very concerned that they will be losing expert knowledge by going to an independent administrative law hearing. She gave the example of the medical board, which has five physicians and two representatives of the public on it, being able to actually decide whether the treatment given by a doctor is competent or not. In that case, she stressed the value of having actual doctors involved in making those decisions. Even though a hearing officer can hear expert witnesses, she did not feel sure that would be an adequate replacement for the professional and public input that is present now. MS. REARDON added that another action coming to a hearing officer would be appeals of license denials. Licensing boards are currently deciding if someone is competent for a license, and this often involves very technical decisions about someone's mental health, professional training or problems they have had in other states. She felt that it was valuable having professional peers on the board, and that it is a very significant policy decision to change that system. MS. REARDON related that the director of the Division of Insurance expressed a concern about the cost of training a hearing officer who is knowledgeable about insurance law, which is a fairly arcane subject. The Division of Insurance director does not always use the department hearing officer. In some cases, such as insurance cases that involve tax issues, they have hired a tax accountant from a large firm to preside, as knowledge in a tax law and accounting is crucial to making the right decision. Number 1438 MS. REARDON summarized by stating her belief that this seems to be a switch in philosophy about the definition of administrative appeals. Initially, these hearings have been a chance to ask a department or agency to reconsider, looking carefully at what it is doing one more time, before the case moves to court. By enacting HJR 18, the shift would be towards moving into a more formal court situation right away. She testified that administrative hearings in her department are already very formal from a legal standpoint, using discovery motions, requests to suppress evidence and offer evidence, and other legal motions. She suspected that the original vision, 30 to 40 years ago, was to get the two parties in a room to just discuss what happened and review the situation. She said, "I think we are probably moving into a situation where it ... basically is court, and you better show up with your attorney." She indicated that she was not surprised that there are lot of hearing officers that would like this provision, and that there are number of hearing officers that would like to be judges. She has been requested by hearing officers to provide funding to build a courtroom, complete with flags and a seal, for the Department of Commerce and Economic Development. Number 1568 REPRESENTATIVE OGAN referred to an interoffice memo addressed to Commissioner William Hensley from 1997. He read the following into the record from that memo: Having worked as a part-time administrative hearing officer for the Department of Commerce (since a certain day which I won't disclose ... in the 1980's), there are a number of observations resulting from the tenure which may help the section to continue to function in an efficient and helpful way to the public. ...Before his departure, Frank Flavin and I discussed many of these items. The Hearing Officer section sometimes seems to be an orphaned child, since it belongs to no one, yet serves everyone. It is vitally important that the hearing officer remain a truly neutral and impartial party. To that end, the section should continue to be treated separately, with its own secretary and offices. The officer should not be located within the physical parameters of the Division of Occupational Licensing, since the tendency to engage in casual conversation is too great. In any new space configuration, the department should also consider giving the Division of Occupational Licensing, Boards and Commissions, and the Hearing Officer section, their own separate hearing and meeting room. Since there will now only be one full-time administrative hearing officer, rather than a full-time and part-time position, there will, inevitably, be conflict of interest questions raised. Although there should not be many ... it is my recommendation that the department have one person handle the conflict cases, rather than signing separate contracts to various attorneys. That procedure was tried in [the] early 1980's, resulting in inconsistent results, poorly-written opinions, lost files, missed hearings, and, in general, was unsatisfactory. I would also recommend that any person who is chosen to do the contract have some litigation or judicial background, since it is proven helpful in learning to do hearings... REPRESENTATIVE OGAN summarized the letter by stating that it brings out some interesting points as to how this legislation, HJR 18, came about, addressing general conflicts of interest, neutrality and impartiality. MS. REARDON commented that she had read this letter approximately two years ago, but she does not have perfect memory of it. The decision to go from one full-time and one part-time hearing officer to one hearing officer was based on budget cuts, she explained, and that outgoing hearing officer's suggestions should not be taken to mean that any of her concerns were actually going on. Ms. Reardon testified that she worked in the division at the time the letter was written, and that hearing officer was not housed in the Division of Occupational Licensing; rather, she is reinforcing that it should never happen in the future. The letter was not a request for change, but a request that it does not change. The fact that they feel "orphan-like," she emphasized, is a good sign and means that the system is clean, because they are being left alone without socialization so that they can act impartially. The letter said that they worked for everyone, but were not a specific part of anyone, and Ms. Reardon indicated that is exactly what the goal should be for an impartial hearing officer. MS. REARDON summarized by stating that she did not recall that hearing officer stating, at any time during that letter, that she felt her decisions were influenced, or that there was an attempt to influence any of her decisions, by the commissioner's office or any of the divisions. A new hearing officer has been hired since that time, she explained, and he had to declare a conflict of interest in a couple of cases; however, he simply did not take them and they were assigned to contract hearing officers. There is currently a central hearing officer with a secretary that keeps all of the records of what the contract hearing officers are doing at all times. Ms. Reardon argued that the concern expressed in the letter, regarding having different hearing officers who might not be knowledgeable about the process, is exactly what might happen with a hearing officer office or agency. Number 2011 CHAIRMAN KOTT asked Ms. Reardon how many boards and commissions would fall under this provision, if the legislature had the option of determining whether or not an entity could be replaced. MS. REARDON said there would be 21 statutorily-created licensing boards, or all of them, that would fall under this provision, unless a statute was created to exempt specific agencies. Number 2068 REPRESENTATIVE OGAN said, "That is exactly the point of this bill." He emphasized that the boards would become regulatory rather than adjudicatory. He quoted Winston Churchill as stating "when you have a lack of separation of powers between the judiciary and executive, you have a tyranny." While he was not implying that the boards are tyrannical, he did liken the present situation to "the fox watching the henhouse." Number 2152 CHAIRMAN KOTT expressed that the bill will be held over at which time the committee will take up public testimony again. ADJOURNMENT Number 2210 CHAIRMAN KOTT adjourned the House Judiciary Standing Committee meeting at 4:10 p.m.