Legislature(2003 - 2004)
04/28/2003 02:10 PM JUD
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 257 - DISCLOSURES BY REAL ESTATE LICENSEES Number 0058 CHAIR McGUIRE announced that the first order of business would be HOUSE BILL NO. 257, "An Act relating to the disclosure requirements for real estate licensees, to disciplinary action against real estate licensees, to private actions against real estate licensees, and to real estate licensee agency relationships, fiduciary duties, and other duties; and providing for an effective date." Number 0063 REPRESENTATIVE SAMUELS moved to adopt the proposed committee substitute (CS) for [HB 257], Version 23-LS0893\Q, Bannister, 4/28/03, as the work draft. There being no objection, Version Q was before the committee. Number 0093 REPRESENTATIVE NORMAN ROKEBERG, Alaska State Legislature, sponsor, said that HB 257 was engendered by what he termed "the disquieting nature of the commerce in the real estate business in this state," two lawsuits, and a statute which he said he considered to be broken. He said he calls HB 257 an interim bill intended to clarify the current situation so that the commerce of the state can continue. He mentioned that 25 percent of the "state domestic product" is made up of the "chain of real estate transactions and all activity revolving around the real estate industry." Thus, he added, "it exceeds everything but petroleum." The real estate component of Alaska's economy is paramount in importance, he remarked. REPRESENTATIVE ROKEBERG said: I rewrote the entire real estate title ... a few years back, and I left one section open - this issue that's about dual agency. I asked at that time that a task force undertake that; there was a task force working on it then, but I've been waiting seven years. I worked this last year with [an] Alaska state board of realtors' task force on rewriting a bill, and we're still working on that. But we reached a deadline and ... told folks that unless we could get something - a comprehensive bill - passed this year, I'd introduce a stopgap measure to try to make sure that business and commerce (indisc.) continue. And that's what this measure is; ... this is a stopgap measure. It speaks to two issues. One is the exemption of commercial real estate activity from the problems revolving around disclosure under dual agency in the statute, which is [AS] 08.88.396, and the definition [of] what a commercial real estate transaction is. Then it goes on to indicate ... in Section 7 of the bill ... - page 5, ... [subsections] (f) and (g) - ... what ... needs to be done. Number 0300 REPRESENTATIVE ROKEBERG turned attention to subsection (g), which read: (g) The failure of the licensee to make a written disclosure as required by this section or to obtain a written acknowledgment or consent as required by this section does not give a person a cause of action against the licensee for the failure. However, this subsection does not limit a person's ability to take any other action or pursue any other remedy to which the person may be entitled under other law. REPRESENTATIVE ROKEBERG said that basically, if the legislature adopts this language, it means that the "paperwork ... revolving around the current statutory requirements of acknowledgement of disclosure" - whether by seller's agent, buyer's agent, or dual agent - doesn't, in and of itself, give rise to a cause of action. Instead, it gives rise to a "license action." So, if there is an error, there are sanctions that can be applied by the Real Estate Commission. He relayed that "this" is consistent with the current [statute pertaining to] conflict of interest in that if there is an apparent conflict between a licensee and his/her client and a failure to disclose, any sanctions or remedies are limited to a license action. In addition, specific language in subsection (g) permits a person to take any other action or pursue any other remedy allowed by law. REPRESENTATIVE ROKEBERG assured the committee that HB 257 does not diminish consumers' rights because it only addresses clerical errors and timing errors regarding [dual-agency] disclosures pertaining to [commercial] real estate transactions. He opined that current statute is so unclear about when disclosure is supposed to occur, that it creates a stultifying atmosphere. He reiterated that HB 257 is merely an interim step, and its goal is to ensure that what he termed an administrative problem does not rise to a major cause of action. He noted that Section 9 does apply to one of the aforementioned lawsuits, which is still "at bar" and which speaks to "the very issue contained in this bill." Number 0510 REPRESENTATIVE ROKEBERG turned attention to page 4, lines 26-31. He said: What we had to do, if we're going to exempt commercial real estate transactions, we had to define it, because, formerly, under the title now, a commercial real estate transaction is defined as a fourplex and above. So it's not inclusive as to leasing activities. Let me just say, for the record, on [lines 24-25], page 4, the [term] "commercial real estate transaction" is there. So, as relates to [paragraph] (3), about leasing, it's my intention - I think the language is clear - that this does not include residential leasing transactions. REPRESENTATIVE ROKEBERG then touched on the details of proposed AS 08.88.396(e), which read: (e) The provisions of (a) - (c) of this section do not apply to a commercial real estate transaction that involves (1) the sale or lease of real estate that contains a building having eight or more separate living units; (2) the sale of real estate that has a purchase price of $250,000 or more in value for nonresidential use; or (3) the sale or lease of real estate having a gross lease revenue that exceeds $12,000 a year. REPRESENTATIVE ROKEBERG, with regard to a potential conflict of interest, noted that he is a licensed real estate broker and has had his license for 30 years, though currently he is not active and has not received a real estate commission for eight years. He offered that he can speak from experience on the activities of a commercial broker, and detailed some of his accomplishments during the time he was active in the industry, which included dual-agency situations. REPRESENTATIVE ROKEBERG then turned to the issue of dual agency and said: Number 0753 We'll talk ... about the application of the "principles of agency" to this subject. ... There's been a court interpretation that those licensees and brokers that act under their client relationships are acting under the "common law of agency," whereas the principal and agent does directly link between the client and that particular licensee. I submit that that's a wrongheaded and legally faulty provision. ... And even the current common language of a real estate agent related to the agency principal relationship between the broker, as the principal, and the agent as the agent of the principal are (indisc). So there's been a corruption; there's been a corruption in the case law and everything else. REPRESENTATIVE ROKEBERG went on to say: And one of the worst things, [which is] what I think the committee should take notice of, is that if the continuation of "common law agency" is to relate to the licensee and client relationship, then that gives rise to enormous vicarious liability on the part of that client. So the average citizen is going to be exposed. If we continue down this path, legally, and the fiction of [an] agency principal relationship that arises between the client and the agent, then the significant vicarious liability ... could arise and be directed towards the average citizen. And I think that's not a good public policy. REPRESENTATIVE ROKEBERG offered that HB 257 is designed to clarify this issue. He then mentioned a couple of his past clients and a leasing situation in which he'd served as dual agent, to illustrate the problems facing those who serve in that capacity. He said, "When you're in an agency principal relationship, fiduciary duties arise, and that's the crux of this matter: How much can you speak?" Once a dual-agency situation is established and [a broker] has two masters, under "agency law" he/she cannot discuss price terms or certain conditions that would divulge or disadvantage one side of the transaction or the other. He submitted that it is impossible to perform one's duties as a dual agent "without being able to do that," and offered a further personal example pertaining to leasing to illustrate the difficulties that could arise if one is prohibited from discussing certain things with one's clients simply because one is a dual agent. Number 1210 CHRIS STEPHENS, Associate Broker; Bond, Stephens & Johnson, Inc., noted that his company is a commercial real estate firm in Anchorage, that there are others at the location from which he is testifying that share his sentiments, and that he has submitted a letter to the committee. He said that there is no way on earth a commercial broker can do his/her job under dual agency as defined under current Alaska law. He elaborated: We absolutely have to have the ability to put these transactions together and to work with both parties effectively, and [we] can't do that under the law because the law says we have to be silent when there's dual agency. And it's an absolutely ... impossible position. We have dual agency in roughly half the transactions that we do. So, it's not for the benefit of the public or the state or the commerce to have this restriction, which is an essential part of us being able to do our job. The second point is, is on the form of the disclosure. ... The reality is that the disclosure forms that are required end up being so darned burdensome. In many cases we're dealing with companies from outside this state ..., having to run these forms back and forth, some of the corporations won't even look at them because they've got to send them to their real estate law department; it just becomes a nightmare almost. We're not selling houses, we're not selling people homes, we're not in business. We're doing business transactions with people involved in commerce. So it's a totally different situation. MR. STEPHENS concluded by saying that he and others at his location are concerned about [the current situation] and urge the bill's passage. Number 1351 JOE LoMONACO, Associate Broker; Bond, Stephens & Johnson, Inc., noted that he has been in the real estate industry in Anchorage for 27 years. He opined that confusion pertaining to the current statute and its various interpretations has increased. He said that his fears and concerns surround the risk of being held civilly or criminally liable because of this confusion. He noted that some of the more sophisticated clients refuse to sign the required disclosure forms. He urged passage of HB 257. Number 1412 CLAYTON HALVERSON, Associate Broker; Bond, Stephens & Johnson, Inc., remarked that there is a distinct difference between residential [transactions] and commercial [transactions]. Those involved in commercial transactions are generally businesspeople who are very knowledgeable about the pending transaction, sometimes more so than the transaction brokers. He opined that under the current law, such transaction brokers are not able to provide the kind of service that they are obligated to provide their clients. Number 1471 ROBERT ARMS, Associate Broker; Bond, Stephens & Johnson, Inc., said that the difference between residential and commercial transactions is dramatic. In many cases, a commercial agent will represent a customer and find a user for a property, and the whole transaction will happen without it reaching the multiple listing service (MLS) system. It's all done privately, it's all done confidentially, and it's a completely different situation than what occurs for a residential transaction. He said that he supported everyone else's comments. MR. STEPHENS again urged passage of HB 257. In response to a question, he said that [his firm] has spent over $12,000 having disclosure forms developed that would meet current law. He relayed that he's had clients who've simply handed the forms, without first reading them, to their attorneys, and has had some clients who've refused to accept or review the forms altogether. He opined that [the current disclosure requirements] do not serve any purpose and make an already difficult process more so. In response to further questions, he acknowledged that some clients could simply go find brokers that are willing to participate in a transaction without abiding by the current disclosure requirements. He also relayed that his firm has provided the committee with copies of the various disclosure forms required by current law. REPRESENTATIVE GARA noted that there is a provision in HB 257 which says that "the law of agency" won't apply, anymore, to real estate agents "in this context." He asked for examples of how "the law of agency" has proven to be unfair to real estate agents. He also noted that there is a retroactive provision in HB 257 which would allow it to reverse a jury verdict. He asked for comments on that provision. MR. STEPHENS offered the following as example of the problem encountered with dual agency: If you're an agent, and let's say you have a listing and you're out soliciting buyers, and let's assume that you get three offers - one from an agent within your company, which that (indisc.) now a dual agent, and two other offers from agents, let's say, [of] other companies - and you're in your conference room reviewing these offers to decide which one you're going to move forward with or perhaps counter and why, and (indisc.) a very detailed process. So you go through the offers from one other company; you go through it in detail. You go through the next offer, from another company, in detail. Now, you get to the offer brought in from an agent in your own company. Currently, you have to tell that seller, "I'm sorry, I cannot comment on this offer." Now that doesn't do that seller any good at all, or anyone any good at all. That's a perfect example of the kinds of things that we run into all the time. Number 1750 REPRESENTATIVE GARA said, however, that there is "a law of agency" that defines the duties between people who are agents and the people who they represent. And HB 257 seems to exempt real estate agents from "the law of agency," he remarked. He said that he understands that sometimes there might be requirements of "the law of agency" that don't seem to help people in a particular circumstance, but he is wondering whether "the law of agency is a burden to Mr. Stephens in some way and, if so, what that burden is. MR. STEPHENS acknowledged that he is not that familiar with "the law of agency." He added, however, that "in trying to do our job, when we are dealing with people wanting to buy and sell and lease commercial real estate, we have to be able to talk to them, and in dual agency, we can't - but we've been hired for our expertise." That's where the problem is. The types of transactions at issue require someone with a lot of expertise in the field of commercial real estate to make them go together. That's why such brokers are hired; yet current law inhibits them from providing that expertise, he opined. With regard to the retroactivity provision of HB 257, he suggested that others could better testify to that issue. REPRESENTATIVE ROKEBERG noted that Section 8, found on page 5, line 15, repeals Section 7 on June 30, 2005. He said that the reason this sunset provision is included is because Section 7, the exemption for commercial real estate transactions, is intended to be a stopgap measure until more comprehensive legislation can be put in place. REPRESENTATIVE GARA remarked that of the two changes HB 257 purports to make, he understands one very well, that of exempting commercial realtors from some rules governing dual agency in revealing details to the various parties involved in a transaction. The change he said he seeks clarification on pertains to the current law that some people have said prohibits a realtor from representing both a buyer and a seller. He remarked, however, that the current law does not prohibit this, as long as the realtor discloses that he/she is representing both buyer and seller. "So what am I missing there?" he asked. Number 1952 REPRESENTATIVE ROKEBERG agreed that under current law, an agent can represent the buyer; the seller; or both, as a dual agent. The difficulties arise because of interpretations which say that when two licensees from the same brokerage company represent the buyer and the seller, it becomes a dual-agency situation and, therefore, both parties must agree to having both licensees continue with the transaction. That can work, he remarked, but the problem then becomes one of what can a licensee do to advise his/her client. He said that the problem is particularly acute in the commercial arena, and he called it the "duct tape rule," likening it to slapping duct tape over the mouths of the licensees whose goal is to merely put a deal together. REPRESENTATIVE GARA said he still doesn't understand why a realtor, right now, can't give advice to a client, as long as he/she discloses that there might be a potential conflict. "Am I right that if they do disclose, then they can say whatever they want," he asked, adding, "That's the issue I'd like addressed." CHAIR McGUIRE surmised that the problem revolves around the fact that once an agent has signed a person on as his/her client, under the principles of "agency law," he/she then has fiduciary responsibilities to that client as the principal. She suggested that even disclosing to both clients that he/she is acting on behalf of both of them does not discharge the agent's fiduciary duties to both clients or make it easier for communication to occur in a commercial setting. REPRESENTATIVE ROKEBERG said that the issue becomes how to determine whether one is breaching one's fiduciary duties with regard to what information is being discussed. He said that these same dual-agency problems are true for residential transactions as well, but HB 257 does not addressed residential transactions at all. He indicated that the comprehensive legislation still to be developed will address all the problems currently faced by clients and agents. Number 2092 DAVE FEEKEN, Legislative Chair, Alaska Association of Realtors (AAR), turned attention to page 5, lines 10-14, subsection (g) of Version Q, and said that this language clarifies that it pertains only to the written disclosure required by AS 08.88.396, rather than to the whole concept of disclosure. He said that the AAR is very much in support of this clarifying language. He mentioned that the board of directors [of the AAR] has had lengthy debate regarding the definition of "sophisticated and knowledgeable commercial real estate transactions," and has provided the sponsor with suggested language to redefine "the limit." He also mentioned that the AAR now has a "no opposition as amended" position on HB 257. He noted that there are a number of states that exempt "commercial, single agency only, transactions from disclosure." He added, "The dual-agency situation ... still requires a disclosure in all states in this country, right along with conflict of interest." REPRESENTATIVE GRUENBERG opined that subsection (g) immunizes a licensee even from a deliberate concealment of a disclosure. Why is that good public policy? he asked. MR. FEEKEN said that the AAR does not interpret subsection (g) as immunizing an agent for concealment. "We're saying that the rest of the statute still stands," he added; under AS 08.88.396, the agent still has the duty to disclose. However, if either a buyer or seller doesn't sign "at the time of specific assistance," then that is considered a clerical or technical violation; it does not remove the licensee's obligation to disclose. REPRESENTATIVE GRUENBERG said that a right without a remedy is pretty specious. The only way something can be enforced is to provide a remedy in the law; one remedy, traditionally, is a civil remedy, which is often the most effective because it provides an immediate private remedy without having to go through a governmental bureaucracy. According to his interpretation of subsection (g), he said, it's an immunization of licensee for the failure to make a written disclosure. So again, why is that good public policy? Number 2281 MR. FEEKEN pointed out that the second sentence of subsection (g) says: However, this subsection does not limit a person's ability to take any other action or pursue any other remedy to which the person may be entitled under other law. MR. FEEKEN said that proposed AS 08.88.396 says that an agent shall disclose at the point of specific assistance, which most people interpret to mean when the agent first starts helping to locate a property or when he/she first becomes aware of confidential information. The obligation to disclose has not been removed, he opined. Instead, he also opined, the language in subsection (g) means that if one doesn't get that written disclosure within a particular timeframe, it is just considered a clerical mistake. CHAIR McGUIRE remarked that one of the things that has come out of the aforementioned litigation and some of the resulting discussions is that people have become aware that there are alternatives to dual agency. She referenced her own neighborhood in which the sole real estate agent represented both the homebuilder and potential buyers, many of whom were first-time homebuyers and didn't realize that dual agency is only one alternative. What has begun to happen, she remarked, is that now a form is being offered, first thing, to potential buyers regarding dual agency. TAPE 03-44, SIDE B Number 2385 CHAIR McGUIRE indicated that she is unsure whether mere sanctions on an agent's license are going to be enough to encourage an agent to do all he/she can to inform consumers of their rights. MR. FEEKEN said he understood Chair McGuire's concern. He offered, however, that "the specific assistance issue is something that's debated in an open-house environment and in [a] new-construction environment as to when that happens." He posited that most agents comply with AS 08.88.396, but acknowledged that perhaps such is not the practice in a hot market. He remarked that there have been a lot of changes made in the industry in the last 15 months due to the aforementioned lawsuit. CHAIR McGUIRE opined that those changes have been positive for consumers, particularly that of forcing agents to give consumers a form explaining their relationship right at the outset. Subsection (g) is taking away consumers' remedy, she remarked, and so agents would no longer have the force of law behind them ensuring that they did the right thing for consumers. MR. FEEKEN argued that the consumer would still have the right to bring a cause of action if the agent failed to disclose verbally. Subsection (g) only pertains to circumstances in which the agent does not make the disclosure in writing or obtain written verification of disclosure. He opined that it would be in the agent's best interest to obtain written verification of disclosure. He remarked that undisclosed dual agency constitutes a fraudulent act and as such would still entitle the consumer to bring a cause of action, adding that subsection (g) only pertains to the "written technicality of the disclosure." REPRESENTATIVE GRUENBERG pointed out, however, that for many years, the "statute of frauds" has required real estate transactions - contracts - to be in writing because they are so important to the people involved in those transactions. In fact, having things in writing is important to the legal system, as well, in reducing problems of proof, he said, because if a consumer bringing a suit claims that he/she never received verbal disclosure, the defendant - the agent - can then show the court the written acknowledgement of disclosure. Once the forms are created, it is easy to provide them to consumers, and they make it easy to prove in court that proper disclosure did occur. Number 2146 REPRESENTATIVE ROKEBERG pointed out, however, that one of the problems revolves around when to make such a disclosure. The timing of the disclosure has become an issue: Should disclosure happen when a person attends an open house? After a person asks an agent a couple of questions? When a person responds to an add in the paper? He opined that a potential buyer should not have to sign a form at those points in time, and remarked that agents in small communities have no choice but to act as dual agents. He suggested that the aforementioned lawsuit and current statute have created artificial barriers that are ludicrous to abide by. He again reiterated that HB 257 is merely a "Band-Aid bill" that will be replaced by a later, more comprehensive bill. Current law is badly drafted, he remarked, in that it doesn't give clear direction regarding when disclosure should occur. CHAIR McGUIRE argued, however, that in order for something - a contract, a transaction, a warranty - to really be meaningful for a consumer, it should be in writing. Relying on a claim that disclosure occurred orally is not sufficient, and is likely to engender more litigation. REPRESENTATIVE ROKEBERG offered that disclosure would still have to occur in writing; subsection (g) merely addresses instances when such does not occur at the exact moment the relationship started. REPRESENTATIVE GARA said he agrees that the disclosure forms should be in writing, but does not agree that proof of verbal disclosure should be sufficient to preclude a cause of action. Regardless, he observed, subsection (g) is really poorly written in that it makes it very vague as to whether someone has a cause of action for a failure to disclose. He stated that if all the sponsor wants to do is exempt technical violations, then subsection (g) needs to be rewritten because, as currently written, it appears to exempt much more than just technical violations. REPRESENTATIVE GARA noted that contrary to Mr. Feeken's statement that the AAR now has no position regarding HB 257, Carole Winton, president of the AAR, sent a letter via e-mail that says the AAR does not support HB 257. In particular, the letter states about the applicability and retrospectivity provision: "This is a real slap in the face to the law abiding majority of real estate practitioners in Alaska." He asked Mr. Feeken to explain why the AAR no longer has a problem with that provision. Number 1898 MR. FEEKEN offered his understanding that the applicability and retrospectivity provision - Section 9 - only applies to subsection (g), which, he opined, only deals with technical or clerical disclosure, rather than the actual process of disclosure. He added: One of the issues that's came up out of the "Mehner lawsuit" was, the common practice in the industry was, in a dual-agency residential transaction, that the seller of the property, during the process of listing a property, would allow for dual agency, in other words, that that agent or someone within that company to sell that property; "preauthorizing" it was the terms used. Within that lawsuit, the definition that came back out said, "No, that practice can't happen because the principals have to know who each other is," which was never the intent of the original [AS 08.88.396]. So, it would put the burden upon the agent who has the listing; if a buyer comes along and says, "I want to see that property," if you're to go by what the judge and the attorneys were saying out of that lawsuit, that agent has to run back out and get that seller to sign a form saying it's okay for him to show his house. That is the written technical difficulty we're trying to put the Band-Aid on ... until this larger bill can be introduced, which totally revamps this process of agency disclosure. REPRESENTATIVE GARA referred again to Ms. Winton's letter, and read from the third paragraph from the bottom which says in part: "Fiduciary Duty - This provision is simply embarrassing to professionals that endorse the National Association of Realtors code of ethics." He asked: What about the removal of the "law of agency's" fiduciary duty? Is that no longer the position of [the AAR]? MR. FEEKEN replied that the AAR is not dealing with those issues. He relayed that he'd been involved in the creation of AS 08.88.396, which had been enacted at a time when "subagency" was common within the industry. The current language was intended to let the seller know that the agent working with the buyer was the buyer's agent, and to disclose the possibility of dual agency on an in-house [situation] or the same agent working with both the buyer and seller. The industry has changed a lot, he added, and subagency is not even available in most states in the country. "The concept of abrogating the common law by simply putting a line in like that has been attempted in 13 states and it's failed in 13 states; [you've] got to replace it with something," he stated. With regard to Ms. Winton's statement, he said that he did not understand how one could be honest, be fair, act in good faith, and still not have fiduciary duty. It's just not practical, he added. Number 1762 REPRESENTATIVE GARA remarked that Ms. Winton's letter seems to state that AAR has a problem with abrogating "the common law of agency," in that it says in part: "The National Association of Realtors does not recommend abrogation of the common law." Representative Gara asked: "What is it about this new version of the bill that resolves that concern?" MR. FEEKEN replied: "It doesn't address that, and I guess my point is ... that that line is not enforceable (indisc. - someone else talking] it hasn't been replaced with anything. If you abrogate the common law, what law are you going to use?" He remarked that when Colorado attempted to abrogate common law with regard to disclosure, "it took 65 pages to replace it, of the duties of the agent." He surmised that if an issue came before a judge, even though the proposed legislation might state that the common law of agency does not apply, without anything in its place, the judge will "go right back to common law." REPRESENTATIVE ROKEBERG pointed out that HB 257 only repeals the "common law principles of agency," not all common law. REPRESENTATIVE GARA said that's the problem: "we're abrogating the law that provides the duties." That's not just a little technical thing that's being abrogated; if the "common law of agency" imposes the fiduciary duties, and it is abrogated, then so too are the duties. Why is that a good thing? he asked. Why are not Ms. Winton's comment right on point? REPRESENTATIVE ROKEBERG argued that it would only affect commercial transactions, and then only for two years until more comprehensive legislation can be introduced and enacted. REPRESENTATIVE GARA said he understood those points. REPRESENTATIVE ROKEBERG opined that doing as HB 257 proposes is acceptable because the parties involved in commercial transactions are sophisticated and understand the rules of engagement. Number 1647 REPRESENTATIVE GARA asked Representative Rokeberg whether he is claiming that everyone who purchases a commercial piece of property is so sophisticated that he/she does not need to made aware of his/her agent's potential conflict of interest. REPRESENTATIVE ROKEBERG replied that although nothing is absolute, by and large, people who engage in commercial transactions should have their own agents, advisors, and accountants, and should be and are protected under commercial law. REPRESENTATIVE GARA said that the concept that one cannot rely on the agent and should instead arm one's self with a battery of other agents and an attorney is shocking to him. REPRESENTATIVE ROKEBERG said that as a matter of course, he'd advised all of his clients to have their own attorneys and accountants. He indicated that current law is an insult to him and his own personal ethics because it implies that an agent can't act in an ethical manner when serving as a dual agent. He remarked that every other state in the country is also struggling with this issue. He said that for a number of years, he and his staff have been working with people in the industry to try to find a solution. REPRESENTATIVE OGG asked why the burden to inform - to disclose dual agency - in writing is considered onerous. MR. FEEKEN said that problems arise in instances where the person to whom the disclosure must be made is not standing right there where the agent can hand him/her the disclosure notice. Sometimes portions of the transaction, with regard to information that must be disclosed, occur over the telephone; however, according to the specific requirements currently in AS 08.88.396, information must be disclosed in writing. Therefore, it's not that written disclosure doesn't happen, it's just that it doesn't happen at the exact same time as the verbal disclosure; this is the technical issue that subsection (g) is intended to address. He confirmed that subsection (g) is also intended to address the issue of the seller approving, via written acknowledgement, of a dual-agency situation. REPRESENTATIVE OGG asked whether delivering written disclosure or acknowledgement could be done via fax, e-mail, or courier. Number 1390 MR. FEEKEN pointed out that current law says the written disclosure or acknowledgement must occur at the same time as the verbal disclosure or acknowledgement. Such is not always possible, he remarked, adding that sometimes the person to whom the written disclosure is presented or from whom the written acknowledgement is asked either does not have the authority or must get the documents reviewed first. REPRESENTATIVE OGG remarked that subsection (g) does not mention the technical violation that the sponsor has indicated he wants to address. He suggested that perhaps a reference to and a definition of what constitutes the technical violation should be included in the bill. MR. FEEKEN said that is a good suggestion. REPRESENTATIVE GRUENBERG, on that point, referred to page 4, line 6, and suggested that the language "at the time of the initial contact" should be amended by adding something along the lines of, "or as close as possible thereto". He opined that currently, subsection (g) is overbroad. He said he agreed with Representative Gara with regard to the issue of throwing out the "common law principles of agency." That's a complete body of law, and it will have a lot of unintended consequences if this legislation exempts even commercial real estate transactions from the entire "restatement of agency"; "I couldn't support that," he added. He then asked Mr. Feeken whether he'd yet read Judge Christen's decision on the Mehner case. MR. FEEKEN said he had not. REPRESENTATIVE GRUENBERG mentioned that one of the decisions arrived at from the issues surrounding that case was that not all intentional torts give rise to damages, because even when the tort is intentional, the conduct must still satisfy either the "outrageous" or "reckless indifference" requirements of AS 09.17.020(b). Thus, he surmised, one could get punitive damages only if one is able to prove by clear and convincing evidence that the action was either outrageous, including acts done with malice or bad motives, or recklessly indifferent to the interest of another person. He opined that the judge's finding that she could not give punitive damages to a particular defendant in that case - McAlpine - is either a serious misreading of the statute or there is a problem with the statute. Number 0958 REPRESENTATIVE GRUENBERG asked Mr. Feeken if he sees a problem with that interpretation of the punitive damages statute, "where it's one broker suing another for stealing a commission." MR. FEEKEN said no. REPRESENTATIVE HOLM said that giving up the "common law principles of agency" bothers him because his understanding is that once he hires someone to do something for him, then that person will act as his principal agent in his best interest. He noted that he has never read a law that says someone must treat another honestly, fairly, and in good faith. Although such is good sentiment, it doesn't really mean anything because it's all based on "some level of association" that is not in law. He questioned whether an agent could really represent both the buyer and seller and still be "evenhanded." REPRESENTATIVE HOLM surmised that the only way an agent could really do so would be if that agent was really just looking out for his/her own best interest. He asked: "Is that what we're saying here, [that] this is done for the purpose of the real estate agent? ... Where do the purchasers and the renters, the lessors and the lessee, where do they fit into [it]? ... Do they give up their rights to having ... some kind of agency law at all?" Because if they do that, then no one acts in their best interest, necessarily. REPRESENTATIVE HOLM said: If you hire someone, usually you're paying them to do business in your best interest. But the way this is written, to me, business will be done in the real estate broker's best interest, regardless of whether or not it's [in] my best interest ..., whether I'm the lessor or lessee. ... If I hire a real estate agent, I would want them to be working for me. Number 0665 REPRESENTATIVE HOLM said that although he may not understand all of the principles of agency, he knows how they affect him as a businessman. If he purchases property, he explained, he wants to truly feel comfortable that the agent he hires, that he pays, is working in his best interest. Notwithstanding the claim that this bill is a "Band-Aid" approach, to write law which stipulates that the "common law principles of agency" will no longer apply leaves him wondering what will happen in the meantime, he remarked. REPRESENTATIVE ROKEBERG opined that strict interpretation of the current law hinders commerce, in that transactions cannot be concluded properly. He remarked that HB 257 has narrow application, affecting commercial real estate transactions; with regard to residential transactions, the bill only pertains to the timeframe in which written documentation is received. He again reiterated that HB 257 is merely an interim bill, and that a more permanent solution is being drafted. "All we're trying to do here is reduce the liability ... for unnecessary litigation, and to move forward so we can make progress here," he added. CHAIR McGUIRE suggested that they simply wait for that permanent solution, rather than taking this interim step. REPRESENTATIVE ROKEBERG pointed out, however, that the firm of Bond, Stephens & Johnson, Inc., alone does between $300 million and $400 million in business a year, approximately half of which is under dual agency. Waiting for the more comprehensive legislation, he opined, will shut down such firms and have a negative impact on business. Agents are fearful of the potential liability resulting from the aforementioned case and are in need of legislation that will keep the balance until a more permanent solution is in place, he added. Number 0392 HOWARD S. TRICKEY, Attorney at Law; Jermain, Dunnagan & Owens, PC, indicated that he would be speaking to proposed AS 08.88.396(g) and its retrospective application [on behalf of Prudential Vista Real Estate and Prudential Jack White Real Estate]. He said that the purpose of the legislation, as drafted, is to address the following problem. Currently, there is a perception that every dual-agency transaction done in Alaska in recent years was not properly documented. This contention is based upon the requirement that there be a signed acknowledgement, from both buyer and seller, every time a prospective buyer wants to see a house listed with the same broker. For example, if the broker has a house and a "house showing," which is common in many areas, each time a new buyer even walks into that house, the current statutory requirement is that the broker obtain a written consent from both seller and buyer in order to show the house. MR. TRICKEY offered that current law is ambiguous in that it requires the disclosure when there's a specific assistance. He opined that subsection (g) is intended to merely and solely protect agents and brokers from liability for a technical statutory violation involving the timing of when they document the written disclosure. It really is to protect them from a recordkeeping requirement, he added. Subsection (g) does not abrogate the responsibility to make a written disclosure; it does not abrogate agents' liability in the event that there is actual harm or loss because someone was engaged in fraud, intentional misconduct, negligence, or negligent misrepresentation. He said that the second sentence of subsection (g) was drafted to preserve any cause of action or claim that a buyer, who has suffered injury or harm or damage, may have under the common law of either tort principles or contract principles. MR. TRICKEY attempted to assure members that subsection (g) is not intended to protect agents or brokers when someone has actually suffered harm or loss. Under the second [sentence of subsection (g)], any buyer would still have the right to bring a claim based on a tort or contract theory. The intent of the legislation is very narrow and limited, he opined, in that it is intended to protect from liability a failure to timely document the written disclosure still required of a residential agent when acting in a dual-agency capacity. MR. TRICKEY said of the retroactivity provision that it is not intended to set aside a jury verdict. He said he is unaware of any jury verdict involving any action that has resulted in a trial and a verdict that's been rendered. He attempted to assure members that HB 257 will not change and would not have changed the result of the Mehner case, wherein, he offered, the judge found that the defendant committed intentional misconduct and made misrepresentations in a transaction. He opined that the retroactivity provision is necessary to protect those in the industry when there is a technical violation of the statute involving the documenting of the written-disclosure requirement, which, he also opined, causes no harm to a buyer and seeks only the forfeiture of the commission that the agent earned in the transaction. TAPE 03-45, SIDE A Number 0001 MR. TRICKEY, in response to a question, mentioned that he is speaking on behalf of Prudential Vista Real Estate and Prudential Jack White Real Estate, and is involved with co- counsel in defending those firms in a class-action lawsuit, which, he proffered, seeks to disgorge all commissions earned by those firms over the past six years. REPRESENTATIVE GARA surmised that what is intended via subsection (g) is that if agents fail to disclose, to a client, dual agency or a conflict, then they would be liable, but if the agents do disclose but just don't do a written disclosure in time, that fact doesn't make the agents liable. He asked if that was a fair summary, if he had 90 percent of it right. MR. TRICKEY told Representative Gara that he did have 90 percent of it right, because statute requires disclosure of dual agency and defines conflict of interest. Therefore, if there is a conflict as defined by that statute, there is a different remedy for an undisclosed conflict. In other words, "conflict" is a technical term under the statute. REPRESENTATIVE GARA opined that if the aforementioned is the intent of subsection (g), then it needs to be rewritten because, currently, it seems to imply, though unintentionally, that if an agent fails to disclose, then there is no [cause of] action. MR. TRICKEY noted that failure to make a written disclosure, at all, would result in a licensure action. He reiterated that the purpose of subsection (g) is to prevent someone from being liable for the technical failure to document the disclosure. REPRESENTATIVE GARA said that the language, as written, does not make him feel comfortable that that is all they are doing. [Following was some discussion about Mr. Trickey's aforementioned class-action lawsuit and whether the court will hold that actual harm must occur before damages are awarded.] Number 0401 CHAIR McGUIRE opined that subsection (g) is written so vaguely that it gives the impression that failure to make any disclosure at all does not give a person a cause of action. At a minimum, she suggested, it should be rewritten to clarify that the duty itself still exists and it is only the [timing of] the written disclosure that is addressed in subsection (g). She also pondered whether the committee should consider the issue of actual harm. For example, perhaps the language should stipulate that the failure to provide written disclosure within a certain timeframe must cause actual harm. MR. TRICKEY confirmed that he'd assisted in the drafting of the current language in subsection (g), and said he thought that the language is clear in its intent when read in the context of the entire statute, because proposed AS 08.88.396(a) and (b) require the disclosure to be in writing. "Subsection (g) does not abrogate that requirement; it simply, we thought, made it clear that it just does not give rise to a cause of action against the licensee for failure to do that," he added, mentioning that the second sentence in subsection (g) was written as it was because they did not want it to interfere with any legal claim by a person who suffers actual harm. REPRESENTATIVE ROKEBERG, making reference to the aforementioned class-action lawsuit, said, "The focus of the legislation is to cut off a fishing expedition by counsel, and the scope of the commissions he's asking for disgorgement and the discovery alone could run into hundreds of thousands of dollars." That's why the issue warrants interim legislation, he opined, because the scope of the aforementioned class-action lawsuit is quite substantial. CHAIR McGUIRE indicated that regardless of whether HB 257 is warranted, the language in subsection (g) does not seem to address the specific problem, as purported. REPRESENTATIVE GRUENBERG turned attention to Section 9, subsection (b), and asked whether its effect will be to dismiss the aforementioned class-action lawsuit. MR. TRICKEY replied, "That's correct ...; it would be correct as to the claim in the suit for the violation of the statute." [Following was some discussion on the issue of legislation specifically designed to influence pending court cases, and on the issue of prior legislatures' intentions.] Number 1029 LINDA S. GARRISON, Broker, AAR #1 Buyer's Agency, said that [HB 257] is a bad law, adding that its creation was very rushed. Why the hurry, she asked, why the sunset? She noted that Mr. Trickey has said that HB 257 is necessary to protect the industry so that commissions are not disgorged. She spoke against abrogating common law, and remarked that she has heard no one explain how these proposed changes will help the public - the consumer. She noted that her firm has chosen to be a single-agency office: it exclusively represents buyers. MS. GARRISON opined that state law is not difficult to understand. It's very simple: an agent can represent the seller, or the buyer, or, in certain case, can [undertake] dual agency. She explained that the term "specific assistance" is defined by some people in the industry as the writing of the contract, but countered that that is way too late. Instead, an agent should explain to the consumer right up front what his/her agency relationship is and what types of situations could arise because of that relationship. MS. GARRISON said that HB 257 could be called a "real estate protection Act." It is the flexibility to comply with statutory requirements without driving away the client; in other words, she opined, it is like saying, "We don't want to tell buyers ... [and] sellers the whole story because, if we do, they won't let us be a dual agent." [House Bill 257] is designed to preserve dual agency, it is designed to take liability away from the professional in the field, and it is an attempt to weaken Alaskan statutes. She suggested that it is as if proponents of HB 257 are saying, "Rather than comply with the law, we're going to work to dilute the law until it serves our purpose." MS. GARRISON stated that written disclosure should be immediately upon first contact, and listed ways in which a record of that disclosure could be made and kept, that that disclosure was indeed made on first contact. On the issue of what constitutes a commercial real estate transaction, she said that the definition in the bill is not accurate: $250,000 is about the average price of a home, and an annual gross lease revenue of $12,000 is [easily achieved in many residential leases]. She remarked that any time she hears that something is going to block the public - block the consumer - from legal recourse, it gives her concern. She opined that the reason HB 257 is before the committee is because the industry got caught doing something it wasn't supposed to do and is now seeking legislative relief. Current statute works just fine - it's not broken - she said in conclusion, adding that she does not support HB 257 at all and strongly urges the committee to table it. Number 1265 DAVID A. GARRISON, Associate Broker, AAR #1 Buyer's Agency, referred to page 3, line 16, in which "agency" is changed to "real estate licensee relationships". He said, "We need to discuss agency, not the relationship of a real estate licensee. Referring then to page 3, line 23, in which "an agent" is being changed to "a real estate licensee", he opined that the purpose of that change is to allow agents to say that their relationship is with brokers rather than buyers or sellers, and thus they could be governed more by regulation rather than statute. He remarked that this should be stopped, and that an agent should stay an agent - for either the buyer or the seller. MR. GARRISON stated that the judge was very clear in the Mehner case regarding dual agency. It is very difficult to be a dual agent and, thus, there should be a higher standard of awareness for the person entering into such deal, that both the buyer and the seller - or the lessee and lessor - have a really strong understanding of what it means to be entering into that type of a relationship. Turning to the bill's definition of what would constitutes a commercial real estate transaction, he noted that a duplex would fall outside of that definition but probably couldn't rent for under $12,000 a year. MR. GARRISON said that nothing in current law prevents an agent from representing the seller, and opined that there are very few people who broker commercial transactions for the very wealthy - who some consider to be "sophisticated" in the matter of such transactions - and are perhaps encumbered by the current law regarding dual-agency disclosure. There are many people, he noted, that for one reason or another are entering into commercial real estate transactions for the first time, and these folks are not knowledgeable about the real estate market and everything there is to know about such transactions. Such people aren't sophisticated buyers or sellers; they need to be protected, and the agents need to disclose whom they're working for. MR. GARRISON stated that HB 257 goes totally against the general public. He relayed that recently he'd taken a client of his - a buyer - to an open house, and the agent holding the open house insisted that she was there to represent the buyer. Members of the general public just walking into such a situation without any prior knowledge would have relied upon her to assist them and deal with them fairly, and might never realize that she was actually representing the seller. Mr. Garrison remarked that the current law needs to be enforced and that agents need to be educated on that law; if it takes lawsuits to get agents to realize that they need to abide by the law, then that remedy should remain intact. Number 1532 REPRESENTATIVE ROKEBERG explained that the changes from "agent" to "real estate licensee" and from "agency" to "real estate licensee relationships" are simply conforming amendments, ones that he'd anticipated would have been done some time ago, but since those changes had yet to occur, he'd included them in HB 257. CHAIR McGUIRE surmised, then, that those changes simply reflect current terms of art, and indicated that the substantive changes in the bill pertain to dual agency and disclosure. CHAIR McGUIRE, after determining that there was no one further to testify, closed public testimony and indicated that HB 257 would be held over.