ASSEMBLY COMMITTEE ON JUDICIARY

MINUTES OF THE meeting

of the

ASSEMBLY Committee on Judiciary

Seventy-First Session

April 24, 2001

The Committee on Judiciarywas called to order at 8:44 a.m. on Tuesday, April 24, 2001. Chairman Bernie Anderson presided in Room 3138 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Mr. Bernie Anderson, Chairman

Mr. Mark Manendo, Vice Chairman

Mrs. Sharron Angle

Mr. Greg Brower

Ms. Barbara Buckley

Mr. John Carpenter

Mr. Jerry Claborn

Mr. Tom Collins

Mr. Don Gustavson

Mrs. Ellen Koivisto

Ms. Kathy McClain

Mr. Dennis Nolan

Mr. John Oceguera

COMMITTEE MEMBERS ABSENT:

Ms. Genie Ohrenschall, (excused)

GUEST LEGISLATORS PRESENT:

Senator Joseph M. Neal, Jr., Clark Senatorial District 4

Assemblyman Douglas A. Bache, Assembly District 11

STAFF MEMBERS PRESENT:

Nicolas Anthony, Committee Policy Analyst

Risa B. Lang, Committee Counsel

Sandra Albrecht-Johnson, Committee Secretary

OTHERS PRESENT:

Dennis Neilander, Chairman, State Gaming Control Board

Harvey Whittemore, Lionel Sawyer and Collins, Nevada Resort Association

Frank W. Daykin, National Conference of Commissioners on Uniform State Laws (NCCUSL)

Frank Cassas, Attorney, Marshall Hill Cassas and de Lipkau, Member, Construction Industry Panel of Arbitrators of the American Arbitration Association

Bill Bradley, Nevada Trial Lawyers Association

Matt Sharp, Nevada Trial Lawyers Association

Chairman Anderson declared that a quorum was present. He encouraged testimony to be brought before the committee.

Senate Bill 100: Authorizes State Gaming Control Board to order removal of gaming device from establishment under certain circumstances. (BDR 41-201)

Chairman Anderson opened the hearing on S.B. 100, and called forth its sponsor to introduce the bill. Senator Joseph M. Neal, Jr., Senatorial District 4, introduced S.B. 100. He explained the bill was originally sought because of slot machine malfunctions. The bill would allow the State Gaming Control Board to remove the slot machines to evaluate them after repeated malfunctions, which they did not yet have the statutory authority to do.

Chairman Anderson thanked the Senator for the brief introduction of S.B. 100, and called upon Mr. Dennis Neilander, Chairman, State Gaming Control Board, to testify in support of S.B. 100. Mr. Neilander stated his strong support of S.B. 100. Chairman Anderson inquired if the symbols on the slot machines lined up, but upon evaluation of the machine it was determined to be a malfunction, was it common practice that the establishment did not have to pay for the win. Mr. Neilander explained the common law of Nevada allowed the establishments to not pay the wins for malfunctioned machines. He referred the committee to the case Cengriz Sengal vs. International Game Technologies, which upheld the legal principle that malfunctions voided all plays. He also noted that it was included in the law as contract theory.

Mr. Neilander explained the problems of the machines lining up in a winning formation as a malfunction were mostly with older machines, which had been phased out. He described that more recent machines were programmed to go into free-spins when they malfunctioned to alleviate the confusion and hassle of explaining the malfunction to players who believed they won. He further described the sensors inside the slot machines that detected malfunctions, which would in turn set the wheels into a free-spin until the malfunction was fixed.

Chairman Anderson inquired about what occurred when the slot machine was supposed to pay off, but did not. Mr. Neilander responded that in the instances when the random number generator indicated there should have been a winning combination on the machine, the patron would be entitled to be paid. Chairman Anderson inquired how would the patron know if they were entitled to the pay. Mr. Neilander explained when the machine malfunctioned, it would go into a free-spin, the patron would call for a service attendant, and the establishment would probably call for an agent from the State Gaming Control Board. He informed the committee that most machines were equipped with a “game recall” function, which would indicate whether there was supposed to be a win or not.

Mr. Brower inquired if the bill only addressed malfunctioning machines. He mentioned that he had heard some controversy over certain themed games. He inquired if S.B. 100 would allow the State Gaming Control Board to remove the theme games after they approved them, without going through the proper steps to remove and discontinue those games. Mr. Neilander responded that their Regulation 14 already addressed theme games. He explained that S.B. 100 would only allow the State Gaming Control Board to remove machines in accordance with regulations that were already in place. He noted the State Gaming Control Board could raise the argument that they already had the authority to remove the malfunctioning machines through administrative regulations, but that S.B. 100 would give them the expressed statutory authority to do so. Mr. Brower clarified the State Gaming Control Board would use S.B. 100 for just malfunctioning machines. Mr. Neilander agreed.

Chairman Anderson thanked the witness and called Mr. Harvey Whittemore, Lionel Sawyer and Collins, Nevada Resort Association, to testify in support of S.B. 100. Mr. Whittemore indicated their support of S.B. 100. He stated the bill was limited to apply only to malfunctioning machines. He referred the committee to subsection 4 of the bill, which indicated the types of games the bill would govern. The bill upheld the legal notion that malfunctions voided all plays, and was therefore consistent with a strong regulatory system. He urged the committee to pass S.B. 100.

Chairman Anderson called for further testimony either in support, against, or neutral to S.B. 100. There being none, he closed the hearing on S.B. 100, and called for a motion.

assemblyman manendo moved to do pass s.b. 100.

assemblyman collins seconded the motion.

the motion carried unanimously. assemblyman gustavson was not present for the vote.

Chairman Anderson assigned the bill to Mr. Collins, to present on the Floor of the Assembly.

Senate Bill 336: Adopts revised Uniform Arbitration Act. (BDR 3-1343)

Chairman Anderson opened the hearing on S.B. 336. He called upon Mr. Frank W. Daykin, Nevada delegate to the National Conference of Commissioners on Uniform State Laws (NCCUSL), to introduce the bill, and recognized that he was the former Legislative Counsel for the Legislative Counsel Bureau. He requested Mr. Daykin to explain what the NCCUSL was.

Mr. Daykin explained the NCCUSL was formed in 1892 by a group of the states, which eventually included all the states that sent commissioners as their representatives. The purpose of the NCCUSL was to prepare and recommend uniform acts to the states on subjects where it would be beneficial for the laws of all the states to be uniform. He mentioned the usefulness of uniform laws throughout the states for persons who traveled through the states and performed business throughout the states. He stated that arbitration might involve parties that were linked to several states. He pointed out there had already been a Uniform Arbitration Act, but that the Uniform Arbitration Act included in S.B. 336 was a complete revision to bring the act up-to-date.

Chairman Anderson thanked Mr. Daykin for the explanation of the NCCUSL, and verified the names of some of the commissioners for the state of Nevada. Some of the commissioners were Mr. Daykin, Mr. Bob Barengo, Senator Mark A. James, Assemblyman David Humke, and Senator Terry Care. Mr. Daykin pointed out that Assemblywoman Barbara Buckley had also previously been a commissioner to the NCCUSL.

Chairman Anderson then called upon Mr. Frank Cassas, Attorney, Marshall Hill Cassas and de Lipkau, and member of the Construction Industry Panel of Arbitrators of the American Arbitration Association, to continue the introduction of S.B. 336. Mr. Cassas explained that Nevada had previously adopted the original Uniform Arbitration Act (UAA) in the early 1960s. He pointed out the original UAA was patterned after the Federal Arbitration Act (FAA), which was drafted in the 1930s. He stated that most of the UAAs in place throughout the states were “based on very old concepts of arbitration procedure.” He emphasized the need to bring the uniform act up-to-date.

Mr. Cassas referred the committee to a letter he had sent to each committee member, dated April 16, 2001 (Exhibit C), which summarized the Revised Uniform Arbitration Act (RUAA). He described how the RUAA was developed by the NCCUSL. They assembled a group of leading legal scholars in the field of arbitration, leading professors and deans of various law schools that were active in alternative dispute resolution, and delegates from the American Bar Association from industries that were most involved with arbitration, which included the securities industry, consumer affairs, construction industry, and labor management. He pointed out the broad spectrum of participants in the process of forming the RUAA, and that several drafts were made which eventually developed into the RUAA over a period of two years. To demonstrate the broad acceptance of the RUAA in the legal community, he stated the RUAA had been adopted by the American Bar Association (ABA) and by all the leading organizations that provided arbitration services. He opined the RUAA would be one of the most popular uniform acts to be adopted by the state.

Mr. Cassas summarized the original UAA that was in the Nevada Revised Statutes (NRS) was outdated and had several loopholes. He pointed out the neutrality and disclosure statements by arbitrators were not covered by the original UAA. He described a situation he had come across when he represented a public agency in a dispute about a failed asphalt roadway. He noted the arbitration clause allowed each party to select one arbitrator and the two arbitrators would then select the third arbitrator. He explained all the arbitrators were asphalt and asphalt pavement experts from outside the state of Nevada, and the majority of witnesses for both sides were also from out of state. He was leery about the proceedings because there was no requirement for any of the witnesses and arbitrators to disclose any professional relationships. When he proposed a procedure to ask arbitrators about relationships with witnesses and lawyers, the other party objected. Despite the objections, he said they distributed questionnaires to the arbitrators asking about their relationships with the lawyers and witnesses involved in the case. He explained that after the process was finished, they were then comfortable that the arbitrators were neutral and would be fair.

Mr. Cassas explained California had such a procedure for disclosure in arbitration proceedings, which was included in the RUAA. He pointed out that the full and complete disclosure of arbitrators was very controversial in the legal community. He described the debate about the expansion of grounds for judicial review of arbitrated disputes. He stated the Nevada Supreme Court had previously decided that the only grounds for judicial review of an arbitrator’s award was manifest disregard of the law, and that the decision would not be overturned by the adoption of the RUAA. He summarized the RUAA was a very carefully put together uniform act that had been thoroughly reviewed.

Chairman Anderson stated his familiarity with the arbitration process in union contract negotiations and disputes. He stated there were some difficulties with S.B. 336 that needed to be dealt with.

Ms. Buckley expressed her concern about arbitration clauses being inserted into contracts of adhesion, and the waiver of a person’s right in the state of Nevada to a jury of Nevada peers by an agreement to arbitrate in another state. She offered the example of opening a bank account with Bank of America, where on one of the pages of the booklet given to the customer, who never read it, there was a clause that waived their right to any trial in the state of Nevada, and an agreement to arbitrate in North Carolina. Then, four years later, the bank wrongfully released the person’s money to a creditor, or otherwise misplaced it, and was unwilling to settle the dispute. The person then would go to a lawyer who would point out that the person agreed to arbitrate with an arbitrator from the state of North Carolina. In that situation, the person never voluntarily agreed to arbitrate and was stunned by the turn of events. Ms. Buckley inquired how like situations would be covered by S.B. 366.

Mr. Daykin explained that the clauses in contracts of adhesion would not be covered at all by the bill. He pointed out the bill primarily addressed procedural issues. He stated there was no reason the state could not regulate the use of adhesion contracts in substantive law. He cautioned the committee that national banks, such as Bank of America, would be subject to federal banking laws, and stockbrokers who used adhesion contracts with arbitration clauses as well, were subject to the Securities Exchange Act, et cetera. Mr. Daykin stated that substantive law with regard to the subject of adhesion contracts would have to be carefully crafted to ensure that it would not conflict with federal laws. He clarified that such legislation would not conflict with the RUAA in any way. Mr. Cassas explained that nothing in the RUAA was intended to deal with adhesion contracts; it was strictly procedural in nature.

Ms. Buckley explained she liked arbitration as an alternative dispute resolution, and appreciated the procedural clarifications in S.B. 336, but she stated that she wanted both parties to knowingly agree to it, without unwittingly waiving their rights.

Mr. Brower clarified the bill only pertained to situations in which the parties agreed to enter arbitration pursuant to contracts, and sets forth the procedural framework to accomplish that goal. He also clarified if there was a dispute to the validity of the agreement, whichever party sought to challenge the agreement would not lose anything by adopting the RUAA. Mr. Cassas agreed. He stated the bill clarified that a court of law would settle disputes about whether a disagreement could be arbitrated, such as contracts of adhesion, which would not be decided by an arbitrator.

Ms. Buckley inquired which court and which state would decide the ability to arbitrate. Mr. Cassas responded it would be the District Court. Mr. Daykin added the court that would decide the ability to arbitrate would be in the state where the arbitration would take place. However, he noted that one of the parties, such as a resident of Nevada who would be in dispute with Bank of America and would arbitrate in North Carolina, could establish jurisdiction in Nevada because the bank would have a branch in the state and do business in the state. He stated that that particular procedure was not set forth in the RUAA, but he pointed out the situation would arise before the arbitration and would go to court without an arbitrator’s decision.

Chairman Anderson requested clarification as to who would have the jurisdiction in the situation described by Ms. Buckley. He inquired if it would be necessary for the Nevada resident to ask a district court for standing to appear before a Nevada arbitrator. Mr. Cassas responded the person would have to establish to the court that the dispute was not arbitrable. He explained many arbitrators attempted to decide whether a dispute was arbitrable. He stated the Supreme Court clarified the determination about whether a dispute could be arbitrated was to be made by courts, not arbitrators.

Chairman Anderson inquired what the jurisdiction would be if the resident still wanted to arbitrate, but in Nevada, not North Carolina, for example. Mr. Daykin responded it would be dependent upon the agreement to arbitrate. Chairman Anderson reiterated the situation whereby the resident might not have known about the agreement to arbitrate, but still wanted to arbitrate, but in Nevada, not another state. Mr. Daykin opined that a resident of Nevada, who wanted to challenge the validity of the agreement, would be able to bring their action in Nevada because the bank had a branch in Nevada. He pointed out it would be easier for the resident to establish jurisdiction in Nevada with a bank than it would be to establish jurisdiction in Nevada with brokerage houses.

Mr. Brower inquired how, according to S.B. 336, an arbitrator would be selected in Nevada in a situation where a contract vaguely stated that if a dispute arose from the contract, the parties agreed to arbitrate in accordance with the RUAA as codified in Nevada law. He inquired if the bill provided for the guidelines by which the parties would select an arbitrator. Mr. Cassas responded that 99 percent of the time the contracts would provide that the arbitrators would be selected in accordance with the rules of the American Arbitration Association, et cetera. He stated if the parties did not have a mechanism for an agreement, the district court would need to appoint an arbitrator. Mr. Brower inquired if the provision for the court to appoint the arbitrator was included in S.B. 336. Mr. Daykin and Mr. Cassas responded that it was. Mr. Brower clarified there was no set procedure to pick the arbitrator when not specified by the contract. Mr. Cassas answered the bill only had the provision for if the parties did not agree, or if the provision was ineffective for some reason, that the parties would then have the district court appoint an arbitrator.

Mr. Carpenter inquired what the procedure would be in the situation described by Ms. Buckley, if the resident wanted to argue the dispute in court and not arbitrate. He inquired if the first step would be to acquire the services of a lawyer. Mr. Daykin responded the first step would be to get a lawyer. He disclosed he was not familiar with the National Banking Act to know if the contracts of adhesion as described by Ms. Buckley were regulated in any way. However, he stated that to the extent a cause of action existed, the resident could go into court and initiate the action against the bank. Mr. Cassas stated that the RUAA clarified that the issues discussed about whether a dispute was arbitrable or under their jurisdiction were to be determined by courts, not arbitrators. He said the RUAA did not address all the jurisdictional questions as discussed. He believed a resident of Nevada would be able to go to the district court to test the validity of the contract in question. He mentioned that arbitration clauses were in every consumer contract, such as on Federal Express packages, and credit card account contracts. He stated the RUAA clarified that the decision would be a judicial one, and should be in the forum of which the person contesting the arbitration clause was located.

Ms. Buckley stated for the record she never had a problem with Bank of America, and she was merely using them as an example. She also referred the committee to the Consumer’s Union Web site, which demonstrated the danger to consumers of adhesion contracts that contained hidden arbitration clauses (Exhibit D). Chairman Anderson recognized the importance of the legislation, but disclosed there were problems he wanted resolved before any action would be taken on the bill.

Mr. Gustavson inquired why arbitration would require all the same expenses as one would spend to go to court. He explained that arbitration was a place to go as an alternative to court, to save the court’s time and money, as well as to save money for the parties involved. He requested clarification of what the benefits would be for the average individual to enter into arbitration as opposed to court, and if the bill would actually create a lower court system. Mr. Cassas opined that arbitration appeared to be gradually becoming more like litigation. He described that some cases in arbitration were presented as they would be in a court. He noted the RUAA would give the arbitrator more authority and clarified the procedures to help streamline the arbitration process. He noted the discovery process as contained in the court procedures, was automatically incorporated into the original UAA, which was previously adopted by Nevada. As a result, lawyers in arbitration demanded depositions and documents, et cetera, as they would in a court case. He stated the RUAA revised that procedure, and placed the discovery process under the control of the arbitrator, giving the arbitrator the authority to prevent the abuse of the process. He summarized that arbitration was designed to be a cost-effective method of dispute resolution. Mr. Daykin agreed with Mr. Cassas, and added that his earlier statement, “the first thing you want to do is get a good lawyer,” was aimed only to the situation of the contracts of adhesion. He explained that it would not always be necessary to have a lawyer in ordinary arbitration disputes.

Mr. Brower agreed with Mr. Gustavson’s comments that arbitration was generally to resolve a dispute quickly and cheaply. He pointed out that in arbitration, although a party would want the process to be quick and cheap, they would also want to be able to call as many witnesses as they wanted to. He explained the tension that would be involved since the party’s goals would be to have the process be fair, which would typically make it longer and more expensive, but they still would want the process to be quick, and he concluded that both goals would not always be achieved. He opined that
S.B. 336 seemed to be the best way to attempt to achieve both of those goals.

Chairman Anderson then called upon Mr. Bill Bradley and Mr. Matt Sharp, who both represented the Nevada Trial Lawyers Association (NTLA), to testify in support of S.B. 336. Mr. Bradley stated their support of S.B. 336, and added they had similar concerns about the adhesion contracts as per the earlier discussion. He offered a proposed amendment to the bill to address the concerns about adhesion contracts (Exhibit E). He observed the issue of adhesion contracts had been brought before the committee on several occasions. He noted the issue was heavily debated in the formation of the RUAA, and by persons concerned about consumer rights. He described that the proposed amendment was derived from a North Carolina law, which dealt with adhesion contracts. He pointed out the proposed amendment to S.B. 336 would not be a part of the RUAA, but rather, would become a part of the substantive law that dealt with contracts in the state of Nevada.

Chairman Anderson recalled some personal discussions with Mr. Bradley in regard to the issues of adhesion contracts. Mr. Bradley explained the proposed amendment (Exhibit E) was submitted to further the discussions with regard to adhesion contracts. He opined that adhesion contracts would be better described as “unfair contracts.” He noted the adhesion contracts were included in almost every transaction with consumers. He pointed out that the adhesion contracts were typically drafted by persons with superior knowledge, skills, and resources about the law, and presented to the consumer in a “take it or leave it” fashion. He described the proposed amendment attempted to void disabling civil dispute clauses. He explained “disabling civil dispute clauses” were any form of a clause that would remove a person’s right to hold their dispute in a court of law. He continued to read the definition of the “disabling civil dispute clauses” as defined in his proposed amendment, which also listed some of the provisions that would be considered as disabling civil dispute clauses (Exhibit E). He opined the inclusion of such disabling civil dispute clauses in standard form contracts threatened the rights of ordinary consumers to have a legitimate forum and jury trial to determine their disputes.

Mr. Bradley recognized that when federal laws conflicted with the provisions of the proposed amendments to S.B. 336 (Exhibit E), the federal laws would take precedence. He indicated that Mr. Daykin had not yet had the opportunity to review the proposed amendments, and that Mr. Daykin might have better suggestions for how the issue of the federal laws that would take precedence over state laws could be handled. He mentioned that Section 2 of the proposed amendment stated, “A disabling civil dispute clause is unconscionable and is voidable by the consumer.” He noted the section would provide the voice necessary for a person to take a dispute to court, as was extensively discussed earlier by the committee during the testimony of Mr. Daykin and Mr. Cassas. He continued that Section 4 of the proposed amendment precluded parties from voiding arbitration clauses they knowingly, intelligently, and voluntarily accepted. He pointed out the proposed amendment also would not prevent arbitration of certain contracts as described in Section 3 of the proposed amendment. He stated the intent of the proposed amendment was to address the unfair use of adhesion contracts.

Chairman Anderson inquired if Mr. Sharp had anything to add to the testimony from Mr. Bradley. Mr. Sharp responded the disabling civil dispute clauses were often used in all kinds of contracts. He stated the purpose of inclusion of such clauses was to make it cost-prohibitive to bring forth legitimate claims that involved small sums.

Chairman Anderson called for questions from the committee. He inquired if the addition of the proposed amendment was made to the bill, and an affirmative statement was made on behalf of the citizens of Nevada to provide persons with statutory framework against the use of adhesion contracts, would it be beneficial although such a statement might not comply with federal laws. Mr. Bradley opined that the actions would not necessarily go against federal laws, but would be preempted by federal laws.

Mr. Oceguera requested clarification of whether the entire contract would be void if the disabling civil dispute clause was voided. Mr. Bradley responded it would not. He explained that any mandated disabling civil dispute clause would be voided, but the remainder of the contract would still be valid, and disputable in court.

Chairman Anderson indicated he intended to form a subcommittee for the bill, which would include Ms. Buckley and other interested parties, to evaluate if the proposed amendments (Exhibit E) derived from the North Carolina law could be incorporated into the bill without harming it. Mr. Brower offered to participate in the subcommittee if it was the wish of the Chair. Chairman Anderson called for further questions from the committee before the bill would be assigned to a subcommittee. Mr. Brower pointed out that Section 2 of the proposed amendment that automatically voided arbitration clauses did not allow for the possibility that the consumer had voluntarily, intelligently, and knowingly agreed to arbitration when they signed the contract. He stated the issue needed further attention before the proposed amendment to the bill would be accepted.

Chairman Anderson stated he intended to have the bill assigned to the work session on Friday, May 4, 2001. He inquired if the primary sponsors of the bill would be able to attend should more questions arise. Mr. Daykin indicated he would be available to the committee. Mr. Cassas explained he had prior engagements for that date. Chairman Anderson explained it would not be necessary for Mr. Cassas to appear as long as his input would be submitted to Mr. Anthony no later than May 2, 2001. He indicated if an agreement could not be reached by that date, the bill would be assigned to a later work session.

Chairman Anderson called for any further testimony with regard to S.B. 336. There being none, he closed the hearing on S.B. 336.

Chairman Anderson briefed the committee about the status of certain legislation, and what to expect over the next couple of weeks. There being no further discussion, the meeting was adjourned at 10:06 a.m.

RESPECTFULLY SUBMITTED:

Sandra Albrecht-Johnson

Committee Secretary

APPROVED BY:

Assemblyman Bernie Anderson, Chairman

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