SENATE JUDICIARY COMMITTEE April 10, 2000 2:20 p.m. MEMBERS PRESENT Senator Robin Taylor, Chairman Senator Rick Halford, Vice-Chairman Senator Dave Donley Senator Johnny Ellis MEMBERS ABSENT Senator John Torgerson COMMITTEE CALENDAR SENATE CONCURRENT RESOLUTION NO. 3 Relating to the sovereignty of the State of Alaska and the sovereign right of the State of Alaska to manage the natural resources of Alaska. -MOVED SCR 3 OUT OF COMMITTEE SENATE CS FOR CS FOR HOUSE BILL NO. 37(JUD) "An Act relating to restricting sale of cigarettes, to enforcement of certain laws relating to sales of cigarettes, and to smoking education and cessation programs administered by the Department of Health and Social Services." -MOVED SCS CSHB 37(JUD) OUT OF COMMITTEE CS FOR HOUSE BILL NO. 239(FIN) "An Act relating to the Uniform Commercial Code; relating to secured transactions; amending Rule 79, Alaska Rules of Civil Procedure; and providing for an effective date." -MOVED CSHB 239(FIN) OUT OF COMMITTEE CS FOR HOUSE BILL NO. 435(JUD) "An Act making corrective amendments to the Alaska Statutes as recommended by the revisor of statutes; and providing for an effective date." -MOVED CSHB 435(JUD) OUT OF COMMITTEE PREVIOUS SENATE COMMITTEE ACTION SJR 3 - See State Affairs minutes dated 1/28/99 and Rules minutes dated 3/15/99. HB 37 - No previous action to report. HB 239 - No previous action to report. HB 435 - No previous action to report. WITNESS REGISTER Representative Scott Ogan State Capitol Building Juneau, Alaska 99801 POSITION STATEMENT: Supports SCR 3 Representative Norman Rokeberg State Capitol Building Juneau, Alaska 99801 POSITION STATEMENT: Sponsor of HB 37 Mr. Elmer Lindstrom, Special Assistant Department of Health and Social Services Office of the Commissioner PO Box 110601 Juneau, Alaska 99811-0601 POSITION STATEMENT: Testified on HB 37 Ms. Christie McIntire American Lung Association of Alaska 500 West International Airport Road, Suite A Anchorage, Alaska 99518 POSITION STATEMENT: Testified on HB 37 Ms. Delisa Culpepper Alaska Tobacco Control Alliance 500 West International Airport Road, Suite A Anchorage, Alaska 99518 POSITION STATEMENT: Testified on HB 37 Representative Lisa Murkowski Alaska State Capitol Building Juneau, Alaska 99801 POSITION STATEMENT: Sponsor of HB 239 Mr. Jerry Kurtz National Conference of Commissioners on Uniform State Laws 1050 Beech Lane Anchorage, Alaska 99501 POSITION STATEMENT: Testified on HB 239 Mr. Steve Weise Heller Ehrman White and McAuliffe 601 South Figueroa Street Los Angeles, CA 90017-5758 POSITION STATEMENT: Testified on HB 239 Ms. Sharon Young State Recorder's Office Department of Natural Resources 3601 C Street, Suite 1180 Anchorage, Alaska 99503-5947 POSITION STATEMENT: Testified on HB 239 Ms. Pamela Finley Division of Legal Services Alaska State Legislature Terry Miller Office Building Juneau, Alaska 99801 POSITION STATEMENT: Testified on HB 435 ACTION NARRATIVE TAPE 00-20, SIDE A Number 001 CHAIRMAN ROBIN TAYLOR called the Judiciary Committee meeting to order at 2:20 p.m. Present were SENATOR HALFORD, SENATOR DONLEY, SENATOR ELLIS and CHAIRMAN TAYLOR. The first order of business to come before the committee was SCR 3. SCR 3-SOVEREIGNTY OF THE STATE; RESOURCES CHAIRMAN TAYLOR stated that SCR 3 makes a statement to Congress. SCR 3 cites U. S. Supreme Court cases and puts Congress and federal agencies on notice that Alaska will not put up with the federal mandate and intervention of fish and game management. If Congress chose to ignore Alaska's rights by passing the Alaska National Interest Lands Conservation Act (ANILCA), then Alaska needs to take this issue forward and litigate. The dispute revolves around whether or not the federal government can force a sovereign state to amend its constitution and to amend the equal protection clause of its constitution to provide for discrimination based on residency. REPRESENTATIVE SCOTT OGAN said he strongly supports SCR 3. Sovereignty of Alaska should be defended by the legislature and the governor. This issue is not about subsistence, it is about Alaska's right to manage its resources and whether Alaska will be a first or second class state. The Equal Footing Doctrine states that Alaska was admitted to the Union on equal footing with other states--this was specifically mentioned in the 1953 Submerged Land Act in the Statehood Compact. Representative Ogan said he finds it outrageous that the federal government has stepped in and taken over the management of Alaska's sovereign property. When Alaska became a state it received title to its submerged land and having title is a property right. CHAIRMAN TAYLOR agreed wholeheartedly with a quote in Governor Knowles' appeal of the Katie John case, "No governor should ever barter away the state's sovereign right to manage its lands, its waters, or its natural resources." SENATOR HALFORD moved SCR 3 from committee with individual recommendations. Without objection, the motion carried. Number 377 HB 37-CIGARETTES:SALES/ EDUC & CESSAT'N PROGRAM SENATOR ELLIS moved to adopt a proposed SCS CSHB 37(JUD), labeled version Y. There being no objection, the motion carried. REPRESENTATIVE ROKEBERG, sponsor of HB 37, said that on page 2, line 20, after the word "is" the word "not" was deleted, and "any health warning, including" was added to the sentence. The new wording is: (B) any health warning, including a health warning that is specified in 15 U.S.C. 133 (Federal Cigarette Labeling and Advertising Act). On page 3, line 20, "required to be" was added. The new wording is: (g) A person who is required to hold a business license endorsement under this section, or who is required to be licensed or agrees to be licensed under AS 43.50.010, or an agent or employee of the person, may not...." Page 5 contains the outline of what a tobacco control and cessation program should do and more emphasis on youth was added. REPRESENTATIVE ROKEBERG noted that, in large part, the bill includes a provision prohibiting grey market sales, the sale of export cigarettes for manufacture for export. HB 37 also has a provision prohibiting the sale of loose cigarettes, and a provision that applies to the duty-free shop at the Anchorage airport. HB 37 does have a fiscal note that will be addressed by the Senate Finance Committee. That fiscal note reflects the need for HB 37 to be in compliance with the Master Smoking Agreement. Over the years Alaska should receive around $680 million from that settlement so the fiscal note represents a mere token of that amount. The Center for Disease Control recommends that the State of Alaska spend as much as $8 million to add a comprehensive smoking control program. REPRESENTATIVE ROKEBERG said the primary thrust of HB 37 is the provision on page 5 that dictates the state shall administer the program by grant or contract. He emphasized that he sees no need to create a bureaucracy to do that as DHSS will only be passing money to other agencies. The wording for that provision reads: (15) a comprehensive smoking education, tobacco use prevention, and tobacco control program; to the maximum extent possible, the department shall administer the program required under this paragraph by grant or contract with more than one organization in the state; the department's program must include. Representative Rokeberg explained that his intention is to send a policy statement from the legislature saying there is no need for the bureaucracy to administer these programs, there are existing organizations in the state that have that capability. Number 634 CHAIRMAN TAYLOR asked for the meaning of the phrase "an enforcement component." He wondered if this will enable a review of the grants and programs. REPRESENTATIVE ROKEBERG said an evaluation component is essential to make sure the program is working. The enforcement provision contains broad language intended for follow-up. CHAIRMAN TAYLOR asked what the penalties are for grey market sales. REPRESENTATIVE ROKEBERG said there is no penalty, the department confiscates and destroys the cigarettes. A provision on page 4, line 8, (h) A violation of (g) of this section is an unfair or deceptive act or practice under AS 45.50.471, makes grey market sales a violation. CHAIRMAN TAYLOR said that his only concern with HB 37 is that the crime is not even a class B misdemeanor. He noted that he would like to hold the bill in committee just long enough to get an amendment for the purpose of stiffening the penalty provision. Number 835 SENATOR HALFORD said that on page 2 the bill reads, "the commissioner shall treat as confidential certain information," and he wondered what the information is and why it has to be confidential. REPRESENTATIVE ROKEBERG replied it is marketing information. SENATOR HALFORD noted that on page 3, line 7, the language says "for personal use free of federal tax or duty," and it looks like this only applies to importation for sale. He asked if there is a penalty in existing law for importation of large quantities not for sale. Number 925 REPRESENTATIVE ROKEBERG said he can only answer in part, cigarettes cannot be brought in from a foreign country. SENATOR HALFORD said his real concern is with importation from a state that has a lower tax rate than Alaska. REPRESENTATIVE ROKEBERG said he believes that is prohibited but he is not certain. SENATOR HALFORD asked if HB 37 creates an exemption that does not exist or if a penalty that exists is being reduced. REPRESENTATIVE ROKEBERG said he would get back to the committee with that information. Number 992 CHAIRMAN TAYLOR asked if there was an objection to the adoption of Version Y. There being no objection, Version Y was adopted. MR. ELMER LINDSTROM, Special Assistant for the Department of Health and Social Services (DHSS), said he has been working with Section 3 of HB 37 and recommends two minor changes. First, DHSS suggests deleting the word "tobacco" on page 5, line 7, and inserting the word "nicotine" prior to the word "gum." The new wording will read: (A) a community-based tobacco use prevention and cessation component addressing the needs of youth and adults that includes use of cessation aids such as a nicotine patch or a nicotine gum tobacco substitute;". REPRESENTATIVE ROKEBERG agreed with the amendment. SENATOR DONLEY moved to adopt amendment 1. There being no objection, amendment 1 was adopted. MR. LINDSTROM said the other change DHSS suggests is on page 5, line 12; delete the word "smokers" and insert "tobacco users." The new language will read: (C) anti-tobacco counter-marketing targeting both youth and adult populations designed to communicate messages to help prevent youth initiation of tobacco use, promote cessation among current tobacco users, and educate the public about the lethal effects of exposure to secondhand smoke;. REPRESENTATIVE ROKEBERG agreed with the amendment. SENATOR DONLEY moved to adopt amendment 2. There being no objection, amendment 2 was adopted. Number 1138 MS. CHRISTIE MCINTIRE, Executive Director of the American Lung Association of Alaska (ALA), said she supports CSHB 37. The ALA supports the prohibition of the sale of single cigarettes or "LUCYS", as they are commonly known. LUCYS are easier and cheaper to purchase; requiring cigarettes to be purchased in packs of 20 will limit the number of cigarettes that end up in the hands of children. Laws which limit the supply of tobacco is one strategy for reducing addiction. ALA supports DHSS administering a comprehensive tobacco prevention, cessation, and control program in Alaska. As a leading cause of preventable death in Alaska, tobacco addiction needs to be specifically identified and recognized as the tragic epidemic that it is. Other states have made significant improvements in reducing tobacco use. These improvements are only effective if three conditions are met. They must be comprehensive, sustained over time, and well funded. The cost to Alaska will be about $8 million dollars annually. MS. MCINTIRE noted that during the last legislative session, $1.4 million was allocated to a startup effort aimed at reducing tobacco addiction. There are now several components in place for that program: counter-marketing advertising, media campaigns, theater slides, and bus panels. The theme of this advertising campaign is cessation and environmental tobacco smoke, and currently a program is being developed around youth prevention. There are also four other pilot projects for cessation. ALA is also working with the Alaska Tobacco Control Alliance (ATCA) to develop goals and objectives for future programs, as well as evaluation measures. ALA has received 22 proposals totaling over $1.1 million for cessation needs alone. The current level of funding is inadequate for the job at hand. Number 1367 CHAIRMAN TAYLOR asked Ms. McIntire if she is employed by the Lung Association as part of the $1.1 million grant. MS. MCINTIRE replied that she is the executive director of ALA and the $1.4 million grant is to her organization. CHAIRMAN TAYLOR asked if any other organization has applied for this grant. MS. MCINTIRE replied that last year it was a designated grant to the ALA and they are serving on behalf of the Alaska Tobacco Control Alliance. Many health partners throughout Alaska are working on the goals and objectives that ALA is pursuing in this grant. Last June the ALA met and defined the goals and objectives for this money. Number 1447 MS. DELISA CULPEPPER, Chair of the Alaska Tobacco Control Alliance (ATCA), explained that ATCA is a statewide alliance of non-profit and governmental agencies that work toward reducing tobacco-related disease in Alaska. ATCA is not a non-profit group and, therefore, when the settlement money came through they were not able to accept it. This is why ATCA organizations got together and chose ALA. It was thought that ALA was the best non-profit organization to implement the program. ATCA works with ALA in an advisory capacity on an ongoing basis and is developing a comprehensive tobacco plan for Alaska. That plan will delineate ideas of where ATCA thinks things will need to go in the future and how to measure progress. MS. CULPEPPER said that ATCA supports HB 37 and she urged committee members to move the bill on today. Number 1550 HB 239-UCC SECURED TRANSACTIONS REPRESENTATIVE LISA MURKOWSKI, sponsor of HB 239, explained that national commissioners have been working on a substantial re-write of Article 9 of the Uniform Commercial Code Secure Transaction (UCC) for about eight years. The re-write was done by some of the greatest minds in the country. It has been accepted unanimously by the commissioners, and HB 239 is an excellent document as far as what has been done with the UCC. This version of Article 9 has been distributed all over Alaska to the parties that will be affected. The comments coming back have all been positive, and it is felt that this re-write brings Alaska into the Twenty-First century. HB 239 modernizes and updates the UCC and allows for a centralized filing system without policy changes. Number 1653 MR. JERRY KURTZ, a member of the Alaska delegation to the National Conference of Commissioners on Uniform State Laws, said he has been to every floor session of the national conference concerning HB 239 which covers Article 9. Article 9 is the most important part of the Uniform Commercial Code; it has been adopted in every state in its present form and it is fast being adopted in its proposed revision. The balance has not been changed by the revision but there are improvements that will save money and improve the flow of commerce. Number 1736 SENATOR DONLEY asked for an explanation of the changes in the definition of "good faith." MR. STEVEN WEISE, American Bar Association advisor to the Drafting Committee of the UCC, said that the definition was changed from a subjective definition to a definition that has a more "commercial reasonableness component." The change means that even if a person was acting honestly, if the action was so out-of-bounds of what is fair, the action would not be considered to be done in good faith. This same definition is in other articles of the UCC over the last 10 years. SENATOR DONLEY asked how good faith affects the consumer. MR. WEISE answered that it runs in all directions. All parties to the transaction, consumer, secured party or non-consumer borrower, are required to act in good faith in their performance and enforcement of their rights under a security agreement or in enforcing rights under Article 9. SENATOR DONLEY said, "So you are going to enforce on consumers now, even if they honestly believe their case is right--some commercial standard that they might not know anything about?" MR. WEISE answered that the primary purpose of it is that secured lenders who are enforcing their rights have to act in good faith. Their ability to contest what the lender has done would be unaffected by that. The good faith standard was brought about because of the concern over lenders not acting in good faith. It puts some constraints on their performance of a contract or enforcement of a contract. CHAIRMAN TAYLOR asked Mr. Weise to give the committee a hypothetical situation. MR. WEISE replied if a lender was seeking to enforce its collateral and honestly believed its method of enforcement was fair, but, when viewed objectively from the outside it was way beyond the range - for example the way notice was given to the borrower, the court could say that the secured party had not conducted its activities in a manner that complied with the requirement. SENATOR DONLEY stated he is more concerned about the impact to the borrower. MR. WEISE maintained that this should not have much of an effect on the borrower or consumer side of such transactions. None of the case law comes up in the context of what the borrower has done but the general notion is that the need to act in good faith applies to all parties in the transaction. For example, a borrower should not be able to hide or damage the collateral if the collateral has been fairly obtained. Part of the tradeoff for the lending community in accepting a tougher definition of good faith was that it apply in all directions. CHAIRMAN TAYLOR remarked that some years ago, a borrower had failed to make the payments on a leased piece of logging equipment located on the side of a hill. The lender had rights to retake the equipment for default under the secured transaction, even though it was a lease purchase agreement. The lender, however was denied access to the road system that would allow him to take the piece of equipment. Under the old definition, the borrower's right to deny access could be exercised. He asked Mr. Weise if that right could not be exercised under the new good faith standard. MR. WEISE said that is a good example. It is the expectation that it will be exceedingly rare where good faith will be an issue concerning the borrower. He added that the entire discussion by the UCC committee with regard to this issue revolved around the conduct of the lender. Number 2080 SENATOR DONLEY wondered how HB 239 will impact an ordinary consumer buying ordinary consumer goods, for example, what types of things a consumer will want to know. MR. WEISE said there was extensive consideration given to consumer interest and a number of provisions have been added for their protection. For example, if a consumer were to default in their secured obligation, they are entitled to special notice (more than a commercial borrower will receive) at the time of a foreclosure, a detailed accounting, etc. There are a string of pro-consumer provisions in the revised Article 9 that are designed specifically to give consumers more protection than they have under current law and more protection than a commercial borrower would have under the new law. A consumer task force, made up of representatives of consumers' unions, legal aid groups from various states, banks and automobile creditors, worked out a series of provisions that all sides signed off on. SENATOR DONLEY asked Mr. Weise if he had anything from consumer groups endorsing HB 239. MR. WEISE said he does not have anything in writing but at the very last meeting of the drafting committee, the Chair asked each of the sides to stand up publicly and state that they were in support of the revision. He said he would fax a Law Review article written by the Chair of that committee that reports that activity. Number 2196 CHAIRMAN TAYLOR asked if the rewrite improves the defensive position of consumers if their credit is transferred or sold to a buyer "in due course." MR. WEISE responded yes it has. The Federal Trade Commission (FTC) has a holder in due course rule which requires that when a consumer obligation is transferred, that the obligation contain a statement, required by the FTC, saying that the buyer of the note is subject to all defenses that the consumer would have had against the original seller or lender. There is a provision in the new Article 9 that says if the FTC statement is not on the obligation, it will be treated as if it were there. So, anyone who buys a consumer obligation is subject to those defenses even if the person who sells the obligation did not comply with the FTC rule. Number 2350 MR. KURTZ said there was a concerted effort by car financiers to change the balance of Article 9. There were battles over the early draft of the bill because of the attempt to shift the balance. The net result is that the balance has been shifted in the opposite direction of what the car financiers wanted. Tape 00-20, Side B Number 000 MR. KURTZ continued. The consumer organizations, with whom they had quite a bit of contact at the various annual meetings and through correspondence, are comfortable with the end result. MS. SHARON YOUNG, State Recorder's Office for the Department of Natural Resources, said that HB 239 will make a drastic improvement of the filing system in Alaska. HB 239 will streamline the system and make it easier for the customer to use. SENATOR DONLEY moved HB 259 from committee with individual recommendations. CHAIRMAN TAYLOR noted he would distribute the article from Mr. Weise prior to moving the bill from committee. With no objection, the motion carried. Number 2270 HB 435-REVISOR'S BILL CHAIRMAN TAYLOR asked if HB 435 makes any substantive changes to law. MS. PAMELA FINLEY, Division of Legal Services, Legislative Affairs Agency, said the only change is Section 7 which allows banks to own property in connection with negatively amortizing loans. Several years ago the legislature passed a bill that allowed negatively amortized loans, the problem was that if banks did not own the property they could not amortize the loan. The policy has already been made; Section 7 only cleans up the statutes to allow banks to do what the legislature tried to get them to do. SENATOR DONLEY asked if there is anything in HB 435 that repeals statutes based on court decisions. MS. FINLEY responded no. SENATOR DONLEY moved HB 435 from committee with individual recommendations. There being no objection, the motion carried. There being no further business to come before the committee, CHAIRMAN TAYLOR adjourned the meeting at 3:15 p.m.