Legislature(2003 - 2004)
05/15/2003 07:53 AM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
CSHB 257(JUD)am-REAL ESTATE LICENSEES:DUTIES & CLAIMS CHAIR BUNDE announced CSHB 257(JUD)am to be up for consideration and said he had prepared a committee substitute (CS) for it. 2:30 - 2:32 - at ease REPRESENTATIVE NORM ROKEBERG, sponsor of HB 257, said this legislation is a combination of work that has been under way for about eight years. He explained: There is nothing in this bill that changes the duties of a real estate licensee to make a disclosure when they represent either a buyer, a seller or a dual agent, both of which are recognized under current Alaska statute. He noted in 1991, the legislature required disclosure by the licensee about his or her relationship and duties in the transaction to the client. Currently, you can't have preauthorized permission from a house seller, who may have transferred out of state, to show his house, which is what is occurring right now because of a recent court interpretation. The bill encompasses the right to have a preauthorized dual agency relationship, allowing a property to be presented and marketed. CHAIR BUNDE asked if the CS would still provide consumer protection for the dual agency. REPRESENTATIVE ROKEBERG replied absolutely. It only allows preauthorization and limits any remedy if there's a failure or a technical breakdown, like not getting the paperwork signed at the right time. CHAIR BUNDE asked if a person could sue to recover an economic loss. REPRESENTATIVE ROKEBERG replied that is correct. SENATOR GARY STEVENS moved to adopt SCS CSHB 257, version X, as the working document. There were no objections and it was so ordered. CHAIR BUNDE asked if that was the document Representative Rokeberg was speaking to. REPRESENTATIVE ROKEBERG said that is correct. He also said he had to go to anther meeting so his staff, Heather Nobrega, would continue to answer questions. SENATOR RALPH SEEKINS asked about the current penalty for not explaining the preauthorization situation to a client. He asked if there is a timeline for disclosure under the current law. MS. HEATHER NOBREGA, staff to Representative Rokeberg, answered the current law is interpreted to mean the disclosure has to be made before the agent walks in the front door of that house. SENATOR SEEKINS asked if it is acceptable for the clients to sign a paper later saying they understood it. MS. NOBREGA replied that the way the law is interpreted, the agent would be in violation of the law. CHAIR BUNDE said it was explained to him that under current law, not only do you need permission, you need written permission every time you show that property. This bill would allow blanket permission. SENATOR SEEKINS asked if that requirement is in statute or was set by precedent. MS. NOBREGA answered that is how the court recently interpreted the statute so it's a combination of both. SENATOR STEVENS wanted to know more about the court case and what other issues were involved. MR. HOWARD TRICKEY, Prudential Jack White and Prudential Vista, said the problem with the current law is that the statute is vague and ambiguous and allowed the court to make its interpretation in a single case that was just litigated under the statute. The main part of the case had to do with misrepresentation and breach of fiduciary duties under common law. As a sideshow in the case, the ambiguous clause about disclosures that Representative Rokeberg talked about - when a seller or buyer receives specific "assistance from an agent," was interpreted to have to happen at the initial showing of a property. A number of claims in that court case would not be affected by the proposed legislation - for breach of fiduciary duty and tort claims - contentions that the agent had breached her contractual obligation and violated general common law agency principles. That was the focus of the decision by the Superior Court judge in that case. The contention was that the agent had misrepresented the value of the property as she had information that indicated the property was worth less than the asking price. The buyer's contention was that he suffered actual damages because he paid too much for the property. Under the proposed amendment, if a buyer is damaged and suffers actual damages by virtue of a violation of the statute, they can bring claim under the statute as well as bring a claim under the common law of agency law, tort law or contract law. Section 4 of the CS allows for a remedy limited to actual damages for violation of the statute. The House version said there would be no cause of action for a violation of this statute. The reason they want to limit the remedy to actual damages is that industry is facing devastating financial consequences from class action plaintiffs' lawyers who want to bring and are asserting the claim in a pending case over a transaction where no one suffered any actual damages. All they are seeking is a return of the commissions and punitive damages. They feel that is an unfair financial exposure and risk to an industry (a lot of small business people) that cannot cover itself. SENATOR STEVENS asked what actual damages really meant. MR. TRICKEY replied that actual damages would be the cost to a buyer who paid too much or a seller who sold for too little, if the damage was caused by the lack of disclosure that is required by the statute. Another type would be if the property had a defect or needed a repair. The bill says the plaintiff's remedy for violation of the statute would be limited to actual damages, which would be a recovery of the commissions and punitive damages. Because the claim is based on a violation of a statute, the legislature has the constitutional power and authority to limit what remedies ought to be available for a statutory violation. CHAIR BUNDE said he had received 158 e-mails about this issue from around the state and a vast majority of them were in support. MR. STEVE CONN, Alaska Public Interest Research Group (AKPIRG), said he could show members why the legislation would be egregiously damaging to the consumer: You're probably aware of how sacrosanct an agency relationship is and the fiduciary duty that flows there from. Fiduciary duties, of course, were established originally in common law. There is no question that a dual agency or an individual who purports to be an agent with fiduciary duties to both buyer and seller is damnably complicated.... The problems, not in the order of their severity, are it appears that the dual agency concept is expanded to lessors and lessees as well as buyers and sellers. So now there is not only unsophisticated buyers and sellers, but unsophisticated lessors and lessees who have to suffer through the question of can they trust their agent. Language in the CS doesn't clarify; if anything, it muddles the written authorization until the licensee's relationship with the party is completely established. Now, if that is not subject to a thousand different interpretations by the court, by the buyer, by the seller, leading to more complications, I don't know what is. The limitation of simple remedies is particularly bad, not only in future cases, but what is more outrageous than that is that you are being called to intervene in ongoing litigation about which you have heard only one side and not a very clear picture of that one side. Apparently, under the committee substitute you're being asked to take this legislation and apply it to whatever action out there.... in court... to re- determine the whole relationship retroactively.... MR. CONN said that art. 1, sec. 15 of the Alaska Constitution prohibits various kinds of state actions and mentions impairment of contractual relationships. He stated, "This sort of smells like an unconstitutional action." He said further: If the dual agency arrangement is too complicated to handle in terms of parsing out the respective obligation either in writing or in oral representation and is too burdensome, then they shouldn't do it. They should allow some other agency to handle the other side of the transaction or they should consider a breakdown into agents who represent exclusively buyers and exclusively sellers. CHAIR BUNDE noted that the committee just went through a back wages issue, which was retroactive and that was deemed to be constitutional by the legislative legal folks. MS. LINDA GARRISON, real estate broker, Number One Agency, said they had spent a lot of hours on this issue to show that the consumer is the one that should be thought of here. She was not surprised that members received so many e-mails in support of this legislation because a lot of agents have been violating state law and got caught. Now they want to change the law to reflect what they have been doing for a long time. She said the House removed the retroactive clause on this bill because it recognized that was wrong. In conclusion she urged members to not weaken the common law of agencies and to not make the law retroactive. MR. DAVID GARRISON said he is an associate broker and owns several businesses, one of which leases properties. He explained that one of the findings of fact in the lawsuit is that there were offers presented to the agent who did not present them to the seller. The agent stated that the seller would only take a full-price offer. She did not give disclosures. She told the buyer he had to buy the property from her. The acts were egregious and that is why punitive damages were awarded. The case settled a year and a half ago. He noted that no other situations like that had occurred since then. MR. GARRISON said he had a problem with section 4, which limits liability. The law now is strong enough.... The problem is that these companies which have 300 agents don't train their personnel well. It is a matter of education. And that's one of the things that needs to be brought forward - better education. He opposed the dual agency relationship because it only benefits the agent. SENATOR SEEKINS asked if he was a party to this case. MR. GARRISON replied no. He is familiar with it because he sat on the agency task force and read the findings of the court. SENATOR SEEKINS asked him if he is a dual agent. MR. GARRISON replied that AAA Customer Services owns most of the properties it deals with. SENATOR SEEKINS asked if he advocated for single agency. MR. GARRISON replied that he is an advocate for single agency, but also tries to be realistic about the fact that large companies have this problem. He maintained, "The disclosure needs to be there though, and they need to do it." SENATOR SEEKINS asked which part of section 4 he didn't like. MR. GARRISON replied limiting the amount of damages for nondisclosure. SENATOR SEEKINS asked if he thought someone should be allowed to get punitive damages, not just actual damages. MR. GARRISON replied yes. SENATOR SEEKINS asked if he thought a clerical error that could be an error of timing should be cause for punitive damages. MR. GARRISON replied yes. He said also that it's just not possible to be a buyer's agent and a seller's agent at the same time. He stated, "It's like one attorney representing both sides of a divorce." MS. GARRISON said she felt strongly about that section also. She did not think the public right for any remedy should be blocked in this way. She maintained, "We have a very good check and balance system." MR. GARRISON clarified that he is not saying there should be punitive damages for a clerical error. In the court case, the agent told the court that was how she did business and that's how she would continue to do business. That's what was found as a grievous act, which is what punitive damages are all about. 3:15 p.m. TAPE 03-35, SIDE A MR. TRICKEY said he thought this bill protects consumers because it allows them to recover for actual damages; it doesn't in any way change the common law of agency at all. Most of the people who say it will don't understand the legislation. Also, most of the comments about a pending case are about the Bonnie Maynard case and this is not about that case. He indicated, "If that case went to trial today under this statute, there would be the same result, because there were misrepresentations made in that case...." CHAIR BUNDE said that Ms. Maynard still has her real estate license and asked why the State Real Estate Commission had not met to discipline her yet. MR. TRICKEY replied that he didn't know where the case stands in terms of the disciplinary process, but an administrative proceeding [is underway] to address whether discipline should be taken against her as a licensee. SENATOR SEEKINS moved to pass SCS CSHB 257(L&C), version X, from committee with individual recommendations. There were no objections and it was so ordered.