Legislature(2003 - 2004)

04/30/2003 03:10 PM JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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.                                                                                             
                                                                                                                                

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