Legislature(2003 - 2004)
04/30/2003 03:10 PM JUD
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 225 - MONOPOLY AND RESTRAINT OF TRADE ACTIONS Number 0335 CHAIR McGUIRE announced that the next order of business would be HOUSE BILL NO. 225, "An Act relating to certain civil actions brought by the attorney general under monopoly and restraint of trade statutes; relating to the award of damages in actions brought under those statutes; and providing for an effective date." Number 0359 CLYDE (ED) SNIFFEN, JR., Assistant Attorney General, Fair Business Practices Section, Civil Division (Anchorage), Department of Law (DOL), said that HB 225 is actually a very simple bill that asks for a change in Alaska's antitrust law to allow the attorney general to bring actions for indirect damages on behalf of consumers. He referred to a chart, which was provided to members, and said that under current state and federal antitrust law, if there is an "illegal antitrust conspiracy" or other antitrust conduct occurring between a couple of suppliers of a product that results in the price of that product staying artificially inflated, those prices are generally passed on down through "the chain" - shown in the chart - to the consumer, who is an indirect purchaser. He noted that this is what is meant by the term indirect purchaser. MR. SNIFFEN explained that under current law, in "this" scenario, the only person who could actually bring an antitrust claim would be the importer, because the importer actually purchased the product directly from "the bad people" - the people who engaged in the wrongful conduct; the importer is the direct purchaser. Referring again to the chart, he noted that as a practical matter, not all of the people outlined in the chain shown in the chart may be participating in a given situation. For example, there may a conspiracy between a couple of distributors, and consumers would still be without a remedy to sue those people for antitrust damages. MR. SNIFFEN said that the reason [the attorney general] can't represent consumers against people upstream "in this kind of scenario" is because of a 1977 U.S. Supreme Court case called Illinois Brick Co. v. Illinois. Since that decision, he noted, many states have adopted their own antitrust statutes that "fix this" and allow state antitrust law to reach upstream antitrust violators by representing consumers who are indirect purchasers. Specifically, 30 states have adopted such a law, although Alaska is not yet one of them. He remarked that "it's" made a fairly big impact, recently, in some cases the state has been dealing with. He elaborated: Two years ago, we were involved in a multistate case with a bunch of other states that sued a bunch of vitamin manufactures for conspiring to keep the price of vitamins high. You might have heard of that case. And that case actually resolved itself, and states that had "Illinois Brick repealer statutes" like this recovered $1 million [each] in penalties and other damages because they had claims for consumers who buy these vitamins. States that did not have this kind of a law got zero, so Alaska was cut out of that settlement for a little while. We argued tooth and nail with the settlement committee that our law actually allowed us to recover at least some of these damages, and we ended up getting $100,000. But as a direct result of not having an amendment to our antitrust statute, we lost out on about $900,000. Number 0550 MR. SNIFFEN noted that there have been other cases as well in which this lack has come back to haunt the state. The "Nine West" case in which shoe manufactures conspired to keep the prices of shoes high; the state was unable to recover as much as it might have, had it had this type of legislation in place. There was also a case that recently settled, involving "CD music," in which several record companies conspired to keep the prices of CDs high; Alaska was unable to make "these claims" in that case. Another case, that the state decided not to join, involved "sorbates," which are chemicals used as preservatives in things like yogurts and cheeses; the U.S. Department of Justice fined a couple of international companies "hundreds of millions of dollars" for engaging in illegal antitrust behavior, and states with "this kind of a law" were able to bring state claims for damages on behalf of consumers who pay an extra "half a cent" on every container of yogurt they buy. Currently, Alaska can not bring such claims because it lacks the appropriate laws. MR. SNIFFEN remarked that the lack of legislation such as HB 225 has had a serious impact on the state's ability to represent consumers and recover damages and penalties. He stated that the DOL is not aware of any opposition to HB 225, and he urged the committee's support. REPRESENTATIVE HOLM asked whether any monies recovered from such a suit would simply go into the general fund (GF). MR. SNIFFEN explained that there is a provision in HB 225 that requires a court-approved process in order to distribute money recovered from an action. This will ensure that the consumers are made whole; those actually harmed would get their money back, though if the amount recovered per person was de minimis, the monies would go into a cy-pres fund so that it could be distributed to organizations that represent the affected consumers. For example, in the vitamin case the monies were distributed to Food Bank of Alaska and some other "food groups." Thus, depending on how the settlement is structured and how the damages are actually awarded, monies earmarked for consumer restitution would be gotten back to the consumer some way; damages in the form of penalties, however, would go into the general fund or be earmarked for further antitrust enforcement or consumer protection endeavors. Number 0783 REPRESENTATIVE HOLM asked, "Does that tie in with ... the tobacco settlement?" MR. SNIFFEN said that the state has become more active in multistate cases because of the tobacco litigation. "That was sort of a case that woke up a lot of states, that collectively there's a lot of power among the states' attorneys general to stop this kind of conduct," he added. In that case, there was a master settlement agreement that required money to be set aside for educational purposes, advertising purposes, and other purposes. He noted that in future cases, were the state to receive settlements of that nature, similar things could be accomplished. REPRESENTATIVE OGG asked how HB 225 relates to "the processors' suit - or fishermen's suit," which he mentioned he'd heard about through the news. MR. SNIFFEN surmised that HB 225 would not affect "that case" at all because the fishermen have direct claims against the processors - "they actually suffered harm from the people engaging in the allegedly illegal conduct." In addition, he noted that HB 225 is not retroactive. In response to a question, he said: This kind of law ... is aimed at trying to recover damages for ordinary consumers, like all of us, who might have very small out-of-pocket losses that you would never hire a lawyer to go recover on your own but, collectively, it's a lot of money for the state, and it gives the attorney general the authority to actually bring those kinds of claims. These bigger claims where fishermen were out ... hundreds of thousands or millions of dollars for alleged price fixing, those kinds of things would not really be the target of this kind of legislation. REPRESENTATIVE SAMUELS remarked that there seems to be the assumption that all of the excess costs [generated by the antitrust conduct] just get passed through [to the consumer]; the importer, the distributor, the wholesaler, and the retailer are "out of the picture" completely and the consumer is the true victim. MR. SNIFFEN said that in most cases, the overcharges are passed on [to the consumer] in one form or another. In cases where the direct purchaser actually files a suit against "the antitrust people" and money is recovered, those recoveries, not surprisingly, are rarely passed on to the consumer in the form of savings; thus consumers really are without a remedy even if they try to rely on the legal actions of those "upstream." He noted that any costs passed down to the consumer would be considered by the courts when they determine what the damages really are. Number 0965 REPRESENTATIVE GRUENBERG, after mentioning that he'd considered introducing this type of legislation, turned attention to page 3, subsection (i), which read: "Only the attorney general, in a suit brought under this section, may seek monetary relief for injury indirectly sustained for a violation of AS 45.50.562 - 45.50.570". He asked whether this provision would preclude a private party from bringing suit, either as an individual or in a class action or "under a little attorney general theory." MR. SNIFFEN said that HB 225 would allow only the attorney general to bring "these kinds of claims" on behalf of consumers; it would preclude consumers from participating in a private class action suit for the same damages. The bill does not take away consumers' ability to bring claims for direct damages, however, or any other claims "that they would currently have." REPRESENTATIVE GRUENBERG remarked upon the possibility of, for one reason or another, the attorney general not doing its job. He asked whether the administration would be amenable to striking subsection (i). He indicated he would prefer not to leave [the ability to bring suit] solely in the hand of the attorney general. MR. SNIFFEN replied: It's our position that by only allowing the attorney general to bring these kinds of claims, you accomplish a lot of things. One is, you don't have a multiplicity of suits out there against these wrongdoers, for the same damages, over a long period of time. If we were to allow either individual consumers or class action suits to proceed along with the attorney general in pursuing bad actors for these kinds of damages, it would create a judicial quagmire that might be difficult to reconcile because you might have different judges hearing the same claims against the same people. REPRESENTATIVE GRUENBERG asked, "Couldn't you, just under the normal civil rules, either move for consolidation or abatement?" He opined that there is no difference between "this kind of a class action and any other." Number 1103 MR. SNIFFEN acknowledged that the aforementioned would be possible if "they" were brought at a time when consolidation might be appropriate. Consolidation would be left to the discretion of the people bringing the suits, however. He added, "You'd have to know that all the suits were out there, and, again, this may happen over a period of years, where consolidation may not be possible." He offered that one of reasons the Illinois Brick case was decided as it was, was to address "this exact issue"; it was to avoid [the multiple number] of suits that could possibly arise when allowing everybody to bring actions against upstream antitrust violators. MR. SNIFFEN surmised that calculating the damages and trying to figure out who was owed what and where the loses were actually sustained could get very unmanageable, adding, "if you keep that authority with one person, like in this case the attorney general, it makes it much cleaner and much easier." He said that according to the DOL's experience, "we just do not have an active class-action bar in Alaska, and our population up here is such that those types of actions just aren't very common." REPRESENTATIVE GRUENBERG mentioned that he is somewhat mollified by Mr. Sniffen's comments. However, he indicated that he would like to have some kind of a safeguard built in, so that in case an attorney general fails or refuses to act, somebody could apply to the court for permission to bring suit. He asked whether any other states have raised this issue. MR. SNIFFEN said, "I think that has come up, and our [proposed] statute is patterned after Idaho's statute, which was one that was fairly recently enacted, and theirs actually was a culmination of about 20 other states' statutes, and that issue, I believe, did come up when Idaho was testifying on [its] law." Idaho statute has "this exact provision" for some of the reasons currently under discussion, to keep that authority within the attorney general's purview. In response to a question, he said that he is not aware of any other [jurisdiction's] adopting an exemption in statute that would allow either an individual or a group to bring suit under certain circumstances. REPRESENTATIVE GRUENBERG said he would like the attorney general to consider such an exemption - a safeguard that would prevent stonewalling by an attorney general - an exemption that would perhaps require court approval or require a clear showing of an abuse of discretion. He remarked that in territorial days, Alaska had terrific antitrust problems. Number 1335 MR. SNIFFEN said he understands Representative Gruenberg's concern. He went on to say that under the provisions of HB 225, the attorney general is required to publish notice of potential actions, thereby giving consumers the choice to "opt out" of those lawsuits so they won't be bound by the result of the attorney general. So, to the extent that any individual currently has any rights to bring any of those types of actions, HB 225 affects none of those rights. REPRESENTATIVE GRUENBERG asked, "Would you be willing to have something similar for the opposite?" MR. SNIFFEN said that [the DOL] hasn't really given that issue much thought because "this has been the prevailing view in most of the statutes that we've looked at, for the reasons I've suggested." He said that it is the DOL's hope that all cases will be pursued, and remarked that he did not know that it would advance the intent of HB 255 to have an exemption such as Representative Gruenberg is suggesting. REPRESENTATIVE GARA, after mentioning that he, too, had considered introducing similar legislation, opined that [in addition] to the consumer protection aspect, HB 225 will provide a way for the state to be included in recoveries. He then turned attention to subsection (i) on page 3, and pondered whether the bill provides an exemption to the indirect purchaser of "big-ticket" items to bring suit for antitrust conduct. He mentioned that other states have statutory provisions requiring someone seeking to bring such a suit to first give notice to the attorney general, in order to determine whether the attorney general intends to pursue the action instead. MR. SNIFFEN said that in the multistate suits that the attorney general has been involved in, big-ticket purchases are not the subject. He remarked that the intent of HB 225 is to "get to the $5-$10 losses by the mass of consumers," rather than the "$100,000 fishing boat by the single purchaser" even if he/she is an indirect purchaser. He surmised that there are other remedies - contract remedies, tort remedies, or warranty remedies - that would protect the indirect purchaser of big- ticket items more than the antitrust law. In response to a question, he said that when the attorney general brings an antitrust claim, nothing in HB 225 precludes individuals from bringing some other type of claim. Number 1594 MR. SNIFFEN remarked that under current law, no one can bring suit for antitrust violations; under subsection (i), if the attorney general brings suit for an antitrust violation, individuals may opt out of that suit in order to preserve other actions of theirs. This provision allowing only the attorney general to bring an antitrust suit will streamline procedures, he opined. REPRESENTATIVE GARA asked what would be the harm in rewriting the bill to allow indirect purchasers of big-ticket items to bring antitrust suits if either they opt out of the attorney general's action or the attorney general decides not to pursue any action. Perhaps a one-line change that says consumers do have the right to bring antitrust suits but in order to exercise it, they have to opt out if the attorney general brings an antitrust suit, he suggested. MR. SNIFFEN said that the department did not want to "open up the floodgate" by allowing a thousand consumers to bring a thousand individual suits, should the attorney general not bring suit. In the interest of judicial economy and efficiency, it might not be the wisest decision to allow a lot of "these suits" to proceed, he surmised. REPRESENTATIVE GRUENBERG noted that if a particular attorney general did not pursue an antitrust claim and consumers were to try to wait for a new attorney general that would be more inclined to pursue a claim, there might be statute of limitation problems. He then turned to subsection (g) on page 3, and asked what "notice ... by publication" would entail. MR. SNIFFEN said that the intent is for "notice ... by publication" to be very broad and include notice, not only in newspapers, but also via direct mail and publication in national magazines. He mentioned that the language in the bill conforms with language in federal law that allows direct notice by publication to be provided to consumers who might be identified as being directly affected, for example, giving notice through the Internet, through the "Parade" section in the Sunday edition of major newspapers, and through a variety of different ways. In response to a question, he said that this language is what is seen in the majority of similar statutes from other states. REPRESENTATIVE GRUENBERG said he would like HB 225 to be held over so that he would have time to fashion language that would provide some sort of safety net addressing his concern regarding subsection (i). Number 1945 CHAIR McGUIRE pointed out, however, that from her interpretation of Mr. Sniffen's testimony, any such change in language would not be in keeping with the bill's intent and, thus, would not be acceptable to the administration. She remarked, "We have to have some trust in the attorney general's office, ... and ... [we] have to let them do their job and hope they do it the best [they can]." House Bill 225 will be giving consumers an efficient, orderly remedy, via the attorney general, that they don't currently have. She indicated that it is her intention to report HB 225 from committee today, and suggested that members could work with the DOL on changes to the bill before it reaches the House floor. REPRESENTATIVE GARA agreed to do so. He said he is concerned that due to budget constraints, the attorney general's office will find itself too short of staff to be able to pursue all the claims that ought to be pursued and yet individuals will be precluded from doing it themselves. Currently, he pointed out, the attorney general's office is understaffed, and has been understaffed in every administration in recent history. He then relayed that Legislative Legal and Research Services is of the opinion that HB 225, as currently written, does involve a court- rule change. He suggested that since the bill does not yet include language to accommodate such a change, the DOL should consider altering the bill so that it does. MR. SNIFFEN said he would look into that issue. Number 2221 REPRESENTATIVE SAMUELS moved to report HB 225 out of committee with individual recommendations and the accompanying fiscal note. There being no objection, HB 225 was reported from the House Judiciary Standing Committee.