MINUTES OF THE SENATE COMMITTEE ON JUDICIARY Sixty-eighth Session February 28, 1995 The Senate Committee on Judiciary was called to order by Chairman Mark A. James, at 9:00 a.m., on Tuesday, February 28, 1995, in Room 224 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: Senator Mark A. James, Chairman Senator Jon C. Porter, Vice Chairman Senator Maurice Washington Senator Mike McGinness Senator Ernest E. Adler Senator Dina Titus Senator O. C. Lee STAFF MEMBERS PRESENT: Allison Combs, Senior Research Analyst Lori M. Story, Committee Secretary Maddie Fischer, Primary Secretary OTHERS PRESENT: Dale A.R. Erquiaga, Chief Deputy, Office of the Secretary of State Donald J. Reis, Deputy, Office of the Secretary of State Robert Barengo, Lobbyist, Former Representative, Securities Industry Association Donald J. Mello, Director, Court Administration, Judicial Council of the State of Nevada Joni A. Kaiser, Executive Director, Committee to Aid Abused Women (CAAW) Susan Meuschke, Executive Director, Nevada Network Against Domestic Violence Frances Doherty, Deputy Attorney General Ben Graham, Chief Deputy District Attorney, Clark County, Representative, Nevada State District Attorneys Association SENATE BILL (S.B.) 154: Makes various changes to provisions governing securities. The hearing began on S.B. 154 with Dale A.R. Erquiaga, Chief Deputy, Office of the Secretary of State and Donald J. Reis, Deputy, Office of the Secretary of State addressing the committee. Mr. Erquiaga stated he was representing Secretary of State Dean Heller, who was testifying on another piece of legislation before another committee. The bill was requested by the secretary of state's Securities Division which deals with the Securities Act, he continued. An overview of the intent of the legislation was offered by Mr. Erquiaga. He noted the first part of the bill is intended to integrate the regulation of investment advisor representative into the statute, which is not a new licensing requirement, but more simply a completion of the regulation codification process. Secondly, the bill is intended to include the interests of limited liability companies in the definition of a security in the state; it prohibits persons from "splitting" commissions with unlicensed persons who happen to work in the same firm, or be working with them on a deal. The bill specifies that licensing fees are nonrefundable, he told, and finally, amends the Nevada Revised Statutes (NRS) 90.380 to make "the expiration of licenses for nonpayment of fees automatic." Senator James asked if there is any notice given by the division that a license is coming due for renewal. Mr. Erquiaga confirmed there is. Senator Adler asked if it is possible to get an extension to renew. Mr. Reis replied there is no provision for such an extension. The licensing fee is $55 and it comes due at the same time as federal licensing. Senator Adler confirmed there is no penalty for letting the license lapse, it simply requires the payment of the $55. Currently, Mr. Reis noted, 3 months after the license lapses, the division is required to send another notice and allow 30 days more for the licensee to renew. This is burdensome and requires tracking these licenses for 4 months when they are probably allowed to lapse intentionally. Mr. Erquiaga completed his overview, noting the last portion of the bill clarifies the duties of the division, allowing them to conduct hearings and issue findings of fact; and finally, it establishes a 15-day period to request a hearing after a summary order is issued by the division. These procedures are currently in place, but the bill will put these procedures into law. The chairman asked about the fee splitting provision. Mr. Reis noted the difficulty that arises is "that conceptually, we have unlicensed people, or people whose licenses may have been revoked, who will work through a licensed person, and split the compensation." He pointed out that a person being paid to be a securities salesman should be subject to the Securities Act. Senator James asked how this would impact persons employed by securities sales offices who are not actually doing the selling. Mr. Reis responded that salaried individuals will not be impacted by the bill, but if they are sharing commissions, they should be licensed, in the view of the secretary of state. There was discussion which tried to clarify who would be covered by this provision. It was questioned whether a person, who does not offer securities for sale, but in some other manner assists the salesperson, should really be licensed. The representatives of the secretary of state expressed the view that if an individual is involved in a sale, through direct contact with the public, they should be licensed. The chairman stated he feels the bill as drafted is making too broad a swipe, even encompassing individuals who have nothing to do with the public, but who might be compensated by the salesperson through his or her commission. Mr. Erquiaga asked the committee if adding wording to the end of the provision that delineated more clearly what activities are prohibited, such as "as compensation for soliciting or obtaining a customer," would make the bill more acceptable. The chairman spoke his agreement. Senator Washington pointed out that he has a problem with the entire provision, because in his experience in sales, working under a salesman in such a fashion is part of an internship or training for an individual who might become a salesman at some time in the future. He said he sees nothing wrong with splitting compensations, in whatever area of sales you might discuss. He asked the witnesses if the bill would exclude a salesman from paying someone else to generate leads. Mr. Reis answered affirmatively, if the person generating the leads is not licensed. The problem that is unique to investment sales is the sale is usually made within the first few minutes of contact and when an individual who is outside the jurisdiction of the Securities Act (i.e., an unlicensed person) goes out and makes representations that are untrue, a "gaping hole" is created in the regulatory system, explained Mr. Reis. In securities sales, the reputation of the institution is the main selling point or lead generator, another means, though, is by contacting many people, he said. The proposed restriction, the witness continued, is similar to one held in the insurance industry, where they do not allow anyone but a licensed insurance representative to sell insurance. This is compounded in securities, where there is no tangible product, he added. Senator Adler voiced his agreement with the provision, noting the state bar association ethics prohibits runners from going to the scene of accidents to solicit business for attorneys. He also said he had clients at his law office who had been bilked out of their life savings by just such an unlicensed representative. Senator Adler opined there might possibly be a way to provide a flat fee for each potential customer brought to the securities salesman. Mr. Reis agreed it could be argued that a fee could be paid for each potential customer, but not tie the fee to the completed sale. As the bill is written, splitting fees ties the payment directly to successful sales, Mr. Reis stated. Senator James said he feels the bill does not clearly outline the prohibition as targeted directly to sales participation, and he asked the representatives to tailor the bill as suggested by Mr. Erquiaga, to clarify the tie-in to unlicensed sales. Mr. Erquiaga said he would be happy to make the change. Robert Barengo, Lobbyist, Former Representative, Securities Industry Association, stated he had forwarded the bill to the association, but has not yet heard back from them. He stated it is his opinion there is already a licensed individual who can be held responsible for the sale. Senator James asked him if he supports Senator Washington's view of internship. Mr. Barengo replied he could see the division's problem with controlling what representations are made to the customer by an unlicensed person, but the licensed person could be held responsible for confirming or disconfirming any representations made by the assistant. Senator Adler stated he feels it is not clearly outlined in the statutes who is responsible for misrepresentations made by an unlicensed person. Mr. Barengo opined that such responsibility should be clearly defined by law. Senator Porter added in the insurance industry this is also a real concern. If it is not clear that the person who is making representation and writing policies is licensed to do so, there is a real liability to the consumer. He expressed his support for the wording of the bill as it is written, because of the exposure a customer suffers if not carefully protected. There was no further testimony and the hearing was closed. SENATE BILL 228: Revises provisions regarding enforcement of temporary and extended orders for protection against domestic violence. The chairman next opened the hearing on S.B. 228 and called the first witness. Donald J. Mello, Director, Court Administration, Judicial Council of the State of Nevada, addressed the committee. Before beginning his presentation, Mr. Mello asked the bill be amended with two simple language changes. On page 2, line 7, he asked to strike "as appropriate;" then moving to line 9, insert "appropriate" following the phrase "extended order to the..., at the point where "local" has been removed. Secondly, at line 10 of page 2, replace the added word "or" with "and," he suggested. The reasoning behind the bill, Mr. Mello told, is the failure of law enforcement agencies to enforce temporary orders, especially those coming out of "bedroom communities." This results when an individual who lives in one community (e.g., Reno) and works in another (e.g., Carson City) gets a temporary order in the community where he or she lives, he said. The order is not enforced in the community where the applicant works, despite the fact that justice court orders are enforceable statewide, the witness explained, and it is the intent of this bill to make that clear to the law enforcement agencies throughout the state. Secondly, Mr. Mello stated, the provision for notification requirements included in the bill was overwhelmingly approved by the judges in the state. This requirement holds that law enforcement agencies in the communities where the applicant works, lives, has child care, or children in school must be notified of the order. He offered to answer questions. Senator Adler noted there are some rural communities that do enforce these orders. Mr. Mello agreed that is the case in some areas, but the problem usually lies in the larger communities, where the applicant is advised by law enforcement to go to the local court and obtain an order there. He said he understands how the law enforcement agency might be reluctant to enforce an order when they are only presented with a copy by the applicant themselves. This results in some questions about the validity of such orders, the witness explained, but the requirement to provide notice to all concerned jurisdictions would alleviate these questions. The chairman expressed his agreement the issue is worthwhile, and wondered at the lack of enforcement. Mr. Mello clarified the problem as only occurring in cases of orders issued by the justice courts. Senator Adler noted there might be a case where one applicant goes to the justice court and gets an order, and then the other party will go to the district court for an opposite order. In such cases, the law enforcement agency will enforce the order of the district court, as it has precedence. Referring to other witnesses that would appear and testify on the matter before the committee, Mr. Mello said he has been working to find a way to get these orders entered into the criminal history repository system. A survey conducted within the last year, showed that most judges in the state feel such orders are a priority for entry into the repository, he told. This kind of information would allow judges to see patterns of behavior or need based upon the recording of these orders. Unfortunately, the witness explained, he is told this storage is 3 to 5 years in the future. It is his understanding, he noted, there are grant monies available which might facilitate an earlier time line. The chairman asked if the repository needs the Legislature's assistance in getting or providing money. Mr. Mello replied he thinks the money is available through the Violence Against Women Act; it simply must be applied for, although there may be a statutory glitch which prohibits the state from obtaining the money. Additionally, Mr. Mello noted, he does not believe the repository is required to "capture" that information, but while he thinks there is a bill in the works that would expand their scope, he does not believe temporary orders are included in the expansion. The chairman suggested the statutory expansion of the repository's scope might be the way to assist the judiciary. There was some discussion regarding the exact wording of the bill. It was concluded that a minor shifting of the word `appropriate' made the bill more concise and provided clear indication of who is to be notified of the orders' existence. Senator McGinness asked if there has been any consideration of the number of orders which will be disseminated by this bill, and the possible burdensomeness of it. Mr. Mello noted the judges do not feel "it would be that big of a task, that there are not ...that many orders affected by it." The witness was excused. Next to take the floor was Joni A. Kaiser, Executive Director, Committee to Aid Abused Women (CAAW). She provided the committee members with a copy of her prepared statement (Exhibit C). In her statement, Ms. Kaiser suggested the orders should also be provided to the jurisdiction where child care is provided. She offered to answer questions. There was some small discussion of exact wording to be inserted. Susan Meuschke, Executive Director, Nevada Network Against Domestic Violence, addressed the committee. She also provided a copy of her prepared statement (Exhibit D). Additionally, she spoke to the subject of the statewide registry, noting it is limited access to information that causes reluctance among law enforcement agencies. If they cannot confirm the existence of orders they are not likely to enforce them. At this point, the chairman asked Ms. Meuschke to hold her testimony on the repository issue to a time when a bill dealing with that issue was before the committee. Senator Adler asked to point out that law enforcement agencies can easily confirm an order's existence, simply by using the telephone. While not arguing that point, the witness noted that many of the courts in smaller jurisdictions are part-time courts, which are not always available to answer the phone to confirm an order. Frances Doherty, Deputy Attorney General, asked to reinforce the request to delete `as appropriate' from line 7 of the bill, "as it really changes the mandate under that line." She added that she is the individual working on the state plan to access federal funds under the Violence Against Women Act. She told the committee she is likely to be back at a later time to request their assistance in accessing those funds. There was no further testimony. The chairman called for a motion. SENATOR ADLER MOVED TO AMEND AND DO PASS SENATE BILL 228. SENATOR TITUS SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY. ***** The committee moved into a work session to discuss and take action on two bills. SENATE BILL 157: Revises provisions governing use of affidavit or declaration in lieu of testimony of expert witness as to existence of alcohol or controlled substance. Ben Graham, Chief Deputy District Attorney, Clark County, Representative, Nevada State District Attorneys Association, provided the committee with an amendment to S.B. 157 (Exhibit E). The chairman noted the amendment "tightened up the notice provisions on the use of the affidavit" along with the addition of language which clarifies the provision does not prohibit either party from bringing the witness at trial. Mr. Graham, seeking to further clarify the intent of the bill, noted that language was also added which states the party who seeks to use the affidavit will provide the other party with copies of the affidavit which will include the name, address, and phone number of the `expert.' This way, the party could easily contact the witness. The chairman called for a motion. SENATOR LEE MOVED TO AMEND AND DO PASS SENATE BILL 157. SENATOR ADLER SECONDED THE MOTION. THE MOTION CARRIED. (SENATOR WASHINGTON AND SENATOR PORTER WERE ABSENT FOR THE VOTE.) ***** Senator James asked Senator Lee to handle the bill on the Senate floor. SENATE BILL 167: Revises provisions governing admissibility of certain evidence relating to children. This bill does three things: makes admissible prior adjudicatory proceedings regarding the commission of a felony by a juvenile; makes certain hearsay statements admissible in child protective proceedings; and limits the use of prior sexual conduct of a child, unless the child has made it an issue in the proceeding, the chairman summarized. An amendment was proposed to the effect that "the use of the adjudication shall be limited for impeachment purposes only, during the immediate proceeding." Also, the state shall provide a copy of the adjudication of the witness of the state, on a proper motion of the defendant, he added. Mr. Graham explained the defense bar feels that the ability of the prosecution to use adjudication to impeach a witness should be balanced with a like ability of the defense to impeach a prosecution witness through proof of adjudications against them. This change would allow this ability to work both ways, he said. The limitation of use in the immediate proceeding is designed to contain the information within the judicial juvenile process, and not for any other purpose, Mr. Graham added. Senator James noted the language used in the bill is exactly the same as is currently used in the similar criminal statute. He asked for a motion. SENATOR ADLER MOVED TO AMEND AND DO PASS SENATE BILL 167. SENATOR McGINNESS SECONDED THE MOTION. THE MOTION CARRIED. (SENATOR WASHINGTON AND SENATOR PORTER WERE ABSENT FOR THE VOTE.) ***** The chairman noted he would carry the bill to the Senate floor. On another order of business, Senator Adler told the committee a bill passed in a previous session which allows an exemption for property in private retirement plans up to $100,000. In cases of bankruptcy, he explained, people who know they are headed that way will dump large amount of money into their private retirement plan. When they declare bankruptcy that amount becomes exempt, then after the bankruptcy is done they pay the federal penalties and withdraw the money, he continued. This results in the creditors being stiffed, and appears to be "a glitch" in the law, the senator said. He asked the committee to consider a bill to remedy this situation. SENATOR ADLER MOVED FOR A BILL DRAFT REQUEST. SENATOR TITUS SECONDED THE MOTION. MOTION CARRIED UNANIMOUSLY. ***** There being no further business, the hearing was adjourned at 10:10 a.m. RESPECTFULLY SUBMITTED: Lori M. Story, Committee Secretary APPROVED BY: Senator Mark A. James, Chairman DATE: Senate Committee on Judiciary February 28, 1995 Page