Legislature(2003 - 2004)

05/15/2003 07:53 AM L&C

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

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