MINUTES OF THE meeting

of the

ASSEMBLY Committee on Judiciary

 

Seventy-Second Session

April 2, 2003

 

 

The Committee on Judiciarywas called to order at 7:41 a.m., on Wednesday, April 2, 2003.  Chairman Bernie Anderson presided in Room 3138 of the Legislative Building, Carson City, Nevada, and, via simultaneous videoconference, in Room 4401 of the Grant Sawyer State Office Building, Las Vegas, 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.

 

Note:  These minutes are compiled in the modified verbatim style.  Bracketed material indicates language used to clarify and further describe testimony.  Actions of the Committee are presented in the traditional legislative style.

 

COMMITTEE MEMBERS PRESENT:

 

Mr. Bernie Anderson, Chairman

Mr. John Oceguera, Vice Chairman

Mrs. Sharron Angle

Mr. David Brown

Ms. Barbara Buckley

Mr. John C. Carpenter

Mr. Jerry D. Claborn

Mr. Marcus Conklin

Mr. Jason Geddes

Mr. Don Gustavson

Mr. William Horne

Mr. Garn Mabey

Mr. Harry Mortenson

Ms. Genie Ohrenschall

Mr. Rod Sherer

 

GUEST LEGISLATORS PRESENT:

 

Assemblyman Chad Christensen, District No. 13, Clark County

STAFF MEMBERS PRESENT:

 

Allison Combs, Committee Policy Analyst

Risa B. Lang, Committee Counsel

Sabina Bye, Committee Secretary

 

OTHERS PRESENT:

 

Scott McKenzie, Executive Director, SNEA/AFSCME [State of Nevada Employee’s Association/American Federation of State, County and Municipal Employees] Local 4041

Treva Hearn, Attorney, representing William Hibbs

Larry Spitler, Associate State Director for Advocacy, AARP Nevada [American Association of Retired Persons]

Mark Nichols, Executive Director, National Association of Social Workers, Nevada Chapter

Lynne Henderson, Professor of Law, William S. Boyd School of Law, University of Nevada, Las Vegas

Jim Richardson, representing Nevada Faculty Alliance

Robert Robison, Resident of Fallon

Laura Mijanovich, representing the American Civil Liberties Union of Nevada

Bobbie Gang, representing the Nevada Women’s Lobby

Jeff Parker, Solicitor General, Litigation Division, Office of the Attorney General, State of Nevada

Stan Miller, Claims Manager, Litigation Division, Office of the Attorney General, State of Nevada

Derek Rowley, President, Nevada Resident Agent Association

Steve Oshins, Attorney, Law Office of Oshins and Associates, Las Vegas

Michael Potter, General Counsel of Nevada Corporate Headquarters, Las Vegas

Renee Parker, Chief Deputy, Office of the Secretary of State, State of Nevada

Dan Musgrove, Director, Office of the County Manager, Clark County

Dino Di Cianno, Deputy Executive Director, Nevada Department of Taxation

Scott Anderson, Deputy, Commercial Recordings, Office of the Secretary of State, State of Nevada

Chairman Anderson:

The Assembly Committee on Judiciary will please come to order.  [Roll called.]  All 15 members of the Committee are present; a quorum is present.  [The Chair reminded the Committee members and those present in the audience of the Standing Rules and appropriate meeting etiquette.] 

 

We will begin with Assembly Bill 341.

 

Assembly Bill 341:  Effectuates specific and limited waiver of immunity of State under Eleventh Amendment to the United States Constitution with regard to certain federal laws regulating employment practices. (BDR 3-356)

 

Assemblyman John Oceguera, District No. 16, Clark County:

[Introduced himself.] I appear before you this morning as the primary sponsor of A.B. 341.  This bill is a very important piece of legislation.  In fact, of all the bills I have had the privilege of presenting to this Committee, A.B. 341, is hands down, the most decisive.

 

I don’t mind admitting to the Chair that this bill is, indeed, controversial.  But just because a bill is controversial does not mean it shouldn’t be introduced or isn’t worthy of support.  The reason A.B. 341 is so controversial is that it seeks to include an additional expressed waiver to the state of Nevada’s existing waiver for sovereign immunity.  Let me explain sovereign immunity.

 

Under the Eleventh Amendment to the Constitution of the United States, a state is entitled to sovereign immunity in federal courts and in the state’s own courts against lawsuits by private individuals claiming money damages based on federal causes of action.  The constitutional sovereign immunity applies to the state itself, to the state agencies, to other arms of the state, and to the state officers and employees acting in their official capacities for the state.

 

Perhaps the following example will illustrate the concept of state sovereign immunity and its legal implications.  If an individual employed by the state believed he had been wrongfully denied his entitlement under the Family and Medical Leave Act (FMLA) of 1993, the state would be immune from suit seeking money damages in federal court based upon the state’s alleged violation of FMLA.  The only way the state employee in this example would be able to seek money damages from the state and federal court for any alleged violation of FMLA is if the state had previously voluntarily waived its sovereign immunity in federal court, or if Congress constitutionally abrogated the state’s Eleventh Amendment immunity when it enacted FMLA.

 

[Assemblyman Oceguera continued.]  The example I just provided you is a real-life example—that of William Hibbs.  In fact, it was Mr. Hibbs’ own personal experience that inspired me to sponsor A.B. 341.

 

Mr. Chairman, there are approximately 14,500 people employed by the state of Nevada; when you properly include the number of persons employed in the University System, that number increases to about 18,200.  Mr. Hibbs was one of those thousands of people.  He worked as a social worker with the Nevada Department of Human Resources. 

 

In 1996, Mr. Hibbs’ wife was involved in a motor vehicle accident.  The injuries she sustained in that accident required neck surgery.  In 1997, Mr. Hibbs and his wife were informed by their doctors that a second surgery was needed since the screws and the metal plate in her neck had loosened and were pressing against her esophagus.  This required her to be extremely careful, obviously, in moving her body as to avoid a fatal puncture of her esophagus, and it made it necessary for Mr. Hibbs to care for his wife until the time of the second surgery.

 

Accordingly, Mr. Hibbs sought and obtained approval from his employer, the Nevada Department of Human Resources, for twelve weeks of unpaid FMLA leave.  Mr. Hibbs also requested catastrophic leave, which is paid leave available to every state employee at the discretion of the state.  Although Mr. Hibbs was approved for catastrophic leave, he was informed that the leave would be counted against his annual FMLA entitlement.  In other words, the state took the position that Mr. Hibbs’ approved catastrophic leave would run concurrently and not consecutively to his previously approved FMLA leave. 

 

As you can understand, this position taken by the state gave rise to a dispute between the parties.  That dispute ultimately culminated in Mr. Hibbs’ termination, which in turn prompted Mr. Hibbs to file a suit against the state in federal court.  Mr. Hibbs claimed that the state violated the FMLA by retaliating against him when he opposed their efforts to count his catastrophic leave against his FMLA leave, and by firing him while he was on approved and unexpired FMLA leave.  Mr. Hibbs sought back pay, reinstatement, and monetary damages.  On the state’s motion for summary judgment, the federal district court ruled from the bench that Mr. Hibbs’ FMLA claim was barred by the state’s sovereign immunity.

 

The Ninth Circuit Court of Appeals reversed that decision of the federal district court and found unanimously that Congress in enacting FMLA had properly exercised its authority to abrogate state’s sovereign immunity under Section 5 of the Fourteenth Amendment.

 

[Assemblyman Oceguera continued.]  The state, by and through the Office of the Attorney General, rejected that decision and appealed it to the U.S. Supreme Court.  There is now a case pending before the U.S. Supreme Court—Nevada Department of Human Resources v. William Hibbs.  The Hibbs case was recently argued to the U.S. Supreme Court on January 16, 2003, and legal scholars have speculated that the Court’s decision will be issued by June 2003.  It might interest you to know that amicus briefs were filed on behalf of Mr. Hibbs by the states of New York, Connecticut, Illinois, Minnesota, New Mexico, and Washington by United States Senators Christopher Dodd and Edward Kennedy, by United States Representatives Patricia Schroeder, Marge Roukema, and George Miller, and also by the National Women’s Law Center, by various women’s history scholars, by the Lawyer’s Committee for Civil Rights Under the Law, the National Asian Pacific Legal Consortium, the National Association for the Advancement of Colored People, and most interestingly, by the United States Solicitor General for the Department of Justice.

 

I strongly believe that the persons employed by the state of Nevada should be allowed to enforce certain federal rights—including their FMLA rights—against a state without impediment or restriction.

 

The provisions of A.B. 341 were drafted to effectuate a specific and limited waiver of Nevada’s constitutional sovereign immunity with regard to the following federal laws:

 

·                    The Fair Labor Standard Act

·                    The Age Discrimination [in Employment] Act

·                    The Family Medical Leave Act

·                    Title VII of the Civil Rights Act

·                    The Americans with Disabilities Act

 

Since the state of Nevada enjoys immunity in federal court with regard to claims arising under federal law and claims arising under state law, the provisions of A.B. 341 contain two separate and distinct waivers of Nevada’s sovereign immunity to address these claims.

 

I would like to conclude my presentation of A.B. 341 with what I feel is a fitting quote.  “In the middle of difficulty lies opportunity.”  That was a quote from Albert Einstein. 

I encourage you, Mr. Chairman, and members of this Committee, to seize this opportunity presented by A.B. 341 to ensure that the experience of Mr. Hibbs is not repeated with any other state employee.

 

Assemblywoman Barbara Buckley, District No. 8, Clark County:

[Introduced herself.]  I am pleased to be here to support A.B. 341.  I will take a more informal approach with my testimony.

 

As a member of the Legislature, we frequently encounter federal laws that frustrate us; ones that tell us what to do, ones that tie our hands, but once in a while, the “feds” [federal government] get things right. 

 

The Social Security Act lifted so many seniors out of poverty and changed our nation.  The Unemployment Compensation Act, again another New Deal piece of federal legislation, helped individuals who were laid off work.  The Fair Labor Standards Act, which revolutionized our country, which instead of having the conditions of the time—children working in mines, no paid overtime—it revolutionized the face of our country.  Similarly, the Civil Rights Act—so many lawyers slaved so many years in Brown v. Board of Education, and other cases.  Finally, the feds stepped forward, not without great upheaval at the federal level, to enact strong civil rights legislation.  The Americans with Disabilities Act (ADA)—when George Bush signed the ADA into law, it gave new hope to individuals with disabilities, not to encounter barriers, but to have the ability to live independently, to have the ability to work.  The ADA was seen as the civil rights bill for individuals with disabilities. 

 

Age discrimination and employment—there was a time in our country where older Americans were not hired because of their age.  We have seen so much progress in this area, and that was due to the Age Discrimination in Employment Act of 1967.

 

The Family and Medical Leave Act (FMLA) was the last such bill.  There was testimony at the time of passage of that bill regarding mostly women, although the bill helped many men as well with their parenting responsibilities, responsibilities that all of us face with our parents as they age, by creating unpaid leave for employees to keep families together. 

 

These were all landmark bills.  The question that A.B. 341 presents for us, because this is our job, is, do we think these are good laws?  And if we do, do we think that our state employees should have the benefit of these laws too?  There is no dispute if a person works in any corporation or business in the private sector; these laws apply.  Do we think government should have these laws apply to our employees?  Do we think we are entitled to special treatment, or do we think that these embody the right public policies and should apply to our employees?  I think the answer is yes.

 

Assemblyman Carpenter:

How does the fact that the state can only pay $50,000 on a lawsuit enter into the situation covered by the bill?

 

Assemblywoman Buckley:

Currently, there is a $50,000 cap on lawsuits.  That $50,000, generally, does not apply to actions involving civil rights lawsuits in federal court.  That is because the waiver of sovereign immunity does not apply to that.  I will defer to Assemblyman Oceguera’s research he provided; different states are currently considering the same issue and are, in fact, saying that these laws should apply to their employees. 

 

Each state is approaching the solution somewhat differently.  I think some are saying that there is no cap, because these laws generally provide “back pay.”  In the case of Mr. Hibbs, his case was appealed to the U.S. Supreme Court and it is potentially 6 years before he might get his job back, if he wins.  If his salary was $50,000 per annum, should he be entitled to his 5 years times the $50,000 or should his award be capped at $50,000?  I think that the individual should be entitled to get their money back.  Most of the civil rights laws are not like the “pain and suffering” laws.  They are looking at actual back pay and hard-core damages.

 

Vice Chairman Oceguera:

I think Assemblywoman Buckley has described it well.  There are certainly other options.  On one extreme, we could have waived sovereign immunity completely for all issues, but A.B. 341 has narrowed it down to just the specified federal acts.  We could have allowed the claims in state court and then the $50,000 cap would have applied.  We tried to craft the bill as powerfully as possible.

 

Chairman Anderson:

The reality is that the $50,000 cap would still apply in all other cases except for these narrow cases of federal law.  I recall a major study of the sovereign immunity question was done several years ago.  I believe Assemblyman Carpenter was on that committee, as was I.  We were trying to raise the cap.  We thought it was going to happen, but in light of the new reality, the state was unwilling to do it.  The cities and counties were ready, but the state was not.

Assemblyman Carpenter:

The thing that concerns me in the Hibbs case is that a person lost his job.  Granted, I don’t know any of the details, but it seems rather an onerous act to me.  I am concerned about the matter of fairness.

 

Assemblyman Brown:

Regarding the issue of “back pay” of wages, if the individual has worked in the interim period, is there usually an offset in the judgment of those wages?

 

Assemblywoman Buckley:

I have no idea.  I do not practice in this area of the law.

 

Vice Chairman Oceguera:

I do have some experts present from the law school and also the attorney who represented Mr. Hibbs.

 

Chairman Anderson:

Assemblyman Brown, looking at the guest log (Exhibit B), I think there will be others who will be able to answer that question for you.

 

Assemblyman Brown:

Was there Eleventh Amendment immunity early on in our nation; was that absolute?  What has been carved out of that thus far?

 

Assemblywoman Buckley:

The Eleventh Amendment has been around a long time and the state currently has the ability to waive that.  Just as the state has its own sovereign immunity under the common law principle of “the king can’t be sued,” which is where the term “sovereign” comes from, we have it in our own system as well.  That existing language is set forth in Section 3 of A.B. 341.

 

The king had to consent to be sued, and that same analogy carries forward through our constitutional system at both the federal and state levels.

 

Assemblyman Brown:

It probably didn’t happen very often then.

 

Assemblywoman Buckley:

The state agencies are never going to want to say, “Hey, let us be sued.”  It is a question of whether the Legislature feels that if someone is terminated because of age discrimination, because of their disability, or because they were caring for their spouse, should these strong federal protections apply?

 

Assemblyman Conklin:

This is one of those areas that is just appalling to me.  It is kind of like a parent who says, “Do as I say, not as I do.”  As an employer for the past 10 years, I can assure you that retaliatory discrimination occurs on a fairly frequent basis.  If you are in the private industry as an employee, there are some places to go and you are well protected.  At the state level, the example you shared with us really hits home because using what a person feels is his or her right is very important.

 

Under Section 1 of the bill, paragraph (e), involving Title I of the Americans with Disabilities Act (ADA), are our state facilities currently following these guidelines for both employees and access for the public?  Is that what will be a part of the fiscal note?

 

Vice Chairman Oceguera:

Our legal counsel has advised me that Title I [of the ADA] simply covers employment, not the issues you are discussing.

 

Assemblywoman Buckley:

Title II [of the ADA] concerns accessibility to public places and Title III [of the ADA] is the business ADA reasonable accommodation statute.

 

Assemblyman Conklin:

Would it be fair to assume then, that currently we make no accommodations for people who have the skills and talent to get the job done, but maybe need a small accommodation at the state level?

 

Assemblywoman Buckley:

No, I don’t think that is true.  I think the state does accommodate individuals who have disabilities, but if they feel that they have been discriminated against in their employment and file a lawsuit in federal court, I will guarantee you that there will be a motion to dismiss and they will be kicked out of federal court for trying to enforce anything under the ADA.

 

Assemblywoman Angle:

My questions address lawsuits.  I was reading the fiscal note and it seems like the Office of the Attorney General is anticipating an increase in lawsuits.  I am wondering if other states that have enacted such legislation have experienced an increase in lawsuits.  Have those legal actions extended themselves all the way to the federal level, since we are tampering with the [federal] Constitution now? 

Vice Chairman Oceguera:

I would respectfully disagree with the fiscal note.  As in the Hibbs case, the state took this to the U.S. Supreme Court and that certainly was not cheap.  If the federal acts are being followed as written there should be no problem.

 

Assemblywoman Buckley:

I think the bill also promotes judicial economy because, whenever there is a federal law, there is a body of case law that then interprets that.  The Nevada Revised Statutes (NRS) contain the case annotations with the statute so there begins to become some certainty in the law.  But, if the state does its own in every case, then the state begins to litigate that.

 

We see a similar issue in other bills such as eminent domain, where the state entities don’t want to do certain things so they place such a large fiscal note on the bill, it has a tougher time being passed into law.  As Mr. Oceguera said, there is a built-in weapon to lower the fiscal note.  “Don’t discriminate!”

 

Assemblywoman Angle:

Have other states done this?  It seems that Section 3 of A.B. 341 mandates the waiver of immunity to such lawsuits.  Could you comment on that?

 

Assemblywoman Buckley:

I will answer the second question.  You noted earlier that we are tampering with federal law.  We are not; it is up to us now as to what we want to do.  It is our state right.  We have immunity from lawsuits in federal court under the Eleventh Amendment.  That already exists, but what is our policy decision on these laws?  That is what is before us today and solely within our right to do, depending on the will of the [legislative] body.  And that is as it should be.  It should not be up to parties to litigate to decide state’s rights—that is our right.

 

Vice Chairman Oceguera:

To the first question, our statutes are set up in such a way that I cannot tell you that there is another state that has exactly the same statutes.  However, there are some states that are fairly close.  There are also several states that enacted legislation to the issue in different ways as I discussed in answer to Assemblyman Carpenter’s question.

 

Scott McKenzie, Executive Director, SNEA/AFSCME [State of Nevada Employee’s Association/American Federation of State, County and Municipal Employees] Local 4041:

[Introduced himself.]  I want to thank Mr. Oceguera and Ms. Buckley for bringing this legislation forward.

 

I can tell you from experience in my position over the past one and a half years, the Hibbs case is unique only because it is headed to the Supreme Court of the United States.  It is not unique to have these problems in the state.  The reason is that there is no accountability.  The state has managers who are decent managers and try to abide by these laws, but then you have managers that are not so decent and do not abide by these laws.  And yes, retaliation is also common.  These are the realities that state workers have to deal with.

 

Why should Nevada state employees continue to be treated as second-class citizens?  Government should set the example for private sector employees.  All casino workers in the state have federal laws to protect them, as do all other private sector employees in the state.  Private sector companies are motivated by profits, while providing service to the public motivates state government.  Yet the state of Nevada has not seen fit to follow federal laws as proven by Nevada Department of Human Resources v. William Hibbs.  In my experience, it is difficult to get anything accomplished in the system for resolution of issues because there is no accountability.  Managers can virtually do what they want in this state.  We ask that you seriously consider adopting A.B. 341.

 

I hold before you a copy of NRS [Nevada Revised Statutes] 284.345, which allows for the adoption of Nevada Administrative Code that addresses federal laws.  These are not under law—they are under regulation, which means they can be changed without legislation.

 

I don’t understand why we would want such important rules to affect our employees outside the hands of the Legislature.  The Legislature could create these protections.  California, in many cases, has gone beyond federal laws and Nevada could follow their example, or we could follow federal law and not reinvent the wheel.  Assembly Bill 341 does this.  It allows the standards set by federal law to apply to state workers.  What is the purpose of NRS 284.345 and the corresponding regulations if the state of Nevada does not have to honor this?  Is this something to make state workers believe we have rights that we don’t really have?  Isn’t it time for state workers to be treated fairly and with honesty, integrity, and dignity? 

 

We ask you to do the right thing.  We ask you to pass this legislation.  I was thinking last night that perhaps we should put a warning label on our applications for state employment that says, “Warning—the state of Nevada does not honor federal laws that benefit workers.”

 

Treva Hearn, Attorney, representing William Hibbs:     

[Introduced herself.]  I have been practicing law for over 24 years.  I usually practice in the areas of environmental issues and water rights litigation.  However, when William Hibbs walked into my office and told me what had occurred, I realized I really should do something.  The reason I took this case was that I had hoped I would receive a lot of help that was not forthcoming.

 

I can answer three of the questions I have heard posed this morning.  First, if there were certainty in the law, this case would have settled early.  We offered to settle for $5,000 and a return to employment before Magistrate Quade in federal court.  But, because the state was holding back on the sovereign immunity issue, they were not willing to settle at all.

 

I did need to search for help through Wilmer Cutler, University of Georgetown Law School.  That attorney bill alone will be over $350,000, taxed to the state if it loses.  Certainty would have told you a lot of things.

 

Secondly, attorneys don’t generally take cases that are going to be representing a state employee in state court.  The reason for that is we are facing a judge who receives his paycheck from the state and we know that it is not going to be a very favorable environment for us.  We prefer to go before a federal court if we can on such issues.

 

Thirdly, how much will it cost you?  Attorneys usually don’t take cases for employees that are not “winners.”  This one was a slam-dunk winner on the issues of FMLA in my opinion, and that is why I took it.  It is only the sovereign immunity issue that has hung us up.

 

If there is a case where an employee goes to an attorney and just wants to start litigation to cause problems, most will not take those cases because they are not worthwhile.  It is only in those cases that really have some legal basis that attorneys, for the most part, take seriously.

 

Sovereign immunity is a strange issue, in that there are some instances when it should not apply.  I think the Supreme Court listened to our argument—that this is very definitely a sex discrimination issue because this law was passed in order to make women not unappealing [employees].  In fact, our argument was that it made both women and men unappealing employees because they both have the right to time off.  For so long, we have seen the burden of time off to care for families fall upon women and make them less attractive employees.  If the state loses on that issue, it will cost the state a great deal of money.  That is the reason it went all the way to the Supreme Court.

 

Chairman Anderson:

Your specialty is water law, not labor law.  Were you the first attorney that Mr. Hibbs approached?

 

Treva Hearne:

Yes, and it was only because I had represented three other state employees and because I knew them.

 

Assemblyman Brown:

If you are aware, under these various federal acts, or at least under the FMLA, are there fees and costs provided by the statute for prevailing parties?  Are there punitive or exemplary damages under these statutes?

 

Treva Hearne:

There are no punitive or exemplary damages awarded.  The things that can be recovered are Mr. Hibbs’ back pay and his actual damages.  For example, Mr. Hibbs lost his medical insurance.  His wife had to have three more surgeries so that was a large impact.  Someone else also questioned if he had a salary in other jobs in the interim.  Keep in mind, when a person has been “fired by the state,” it is very hard to get another job because potential employers look at it like, “If they couldn’t work for the state . . .” He is now able to work in some capacity for the federal government, but he had to move to McGill.  The salary he receives from HUD [U.S. Department of Housing and Urban Development] will be subtracted from his back pay because it is mitigating his damages.  He has tried getting jobs.  He tried to get a job with the state of Oregon, but was denied.

 

Assemblyman Brown:

To the issue of fees and costs?

 

Treva Hearne:

Attorney’s fees of course will be allowed if we prevail.  The state could be liable for all of it.

 

Assemblyman Carpenter:

I imagine you argued this before the U.S. Supreme Court?

 

Treva Horne:

I did not.  I was available and I was second-chairing it, but the Solicitor General of the United States, Theodore Olson, was going to argue it and realized he would not be able to give this case the proper amount of time so a gentleman named John Ashcroft, someone I used to work for in the state of Missouri, said that he would have his chief deputy, who used to be the clerk for Sandra Day O’Connor, argue it.  He was brilliant.  We also had someone from the University of Georgetown.

 

Assemblyman Carpenter:

You were there?

 

Treva Hearne:

Absolutely.  And we were quizzed by Harvard and Yale law professors the entire day on Monday to prepare for our 15 minutes before the Court.

 

Assemblyman Carpenter:

Do you have an opinion regarding what kind of a reaction the Justices had?

 

Treva Hearne:

I couldn’t tell, but all the pundits—the press—and we were interviewed by a great many—said they felt Sandra Day O’Connor was on our side.

 

Larry Spitler, Associate State Director for Advocacy, AARP Nevada [American Association of Retired Persons]: 

[Introduced himself and submitted Exhibit C.]  The AARP is a nonprofit, non-partisan membership organization dedicated to making life better for people 50 years old and older.  We are here today to lend our support to A.B. 341.  Over time it has been proven that private civil suits by the victims of employment discrimination are a crucial tool for enforcement of the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the Americans With Disabilities Act, The Family Medical Leave Act, and other related civil rights statutes.

 

When state employees are denied the right to sue their employers for monetary damages, they become, in effect, second class citizens.  Unless a state chooses to waive its sovereign immunity, or the equal Employment Opportunity Commission or the Department of Labor decides to bring a suit on behalf of state workers, they are left with no federal remedy for employment discrimination claims.  In light of the limited resources of the federal government, it is highly unlikely that these agencies will be able to pursue every meritorious claim of discrimination against state workers.

 

Without the ability to bring private actions for monetary relief, state employees who are victims of employment discrimination lack important remedies for vindication of their rights that are available to private sector employees.  This has effects on employee morale, on the reputation of the state as an employer, and potentially on the ability of state government to attract and retain first-rate workers.  Also, when state employees lack the opportunity to sue for damages, state employers have no incentive to comply with the federal anti-discrimination laws.

 

Public employees perform vital services for our citizens and communities.  We should be looking for ways to make public employment more, not less, desirable.  Ensuring that state employees have rights and remedies equal to other employees will help in achieving that goal.  For that reason we are present to support A.B. 341 and encourage its passage.

 

Mark Nichols, Executive Director, National Association of Social Workers, Nevada Chapter:

[Introduced himself.]  I am here to speak in support of A.B. 341.  I would say that the bulk of my testimony has already been presented.  I support Scott McKenzie’s position and also that of Larry Spitler.  Why should state employees be treated as second-class citizens?  Why should the social workers who take care of our children, who take of our elderly, who take of our working poor, waive, or not have the same protections as other workers?

 

I urge the Committee to Do Pass A.B. 341.  I would also like to take a moment to tell you that this is one time that I am particularly proud that Mr. Oceguera is my Assemblyman.

 

Lynne Henderson, Professor of Law, William S. Boyd School of Law, University of Nevada, Las Vegas:  

[Introduced herself.]  I am pleased to be before you today and I will be happy to provide written answers to questions you may have.  Today I will simply speak on the issues of constitutional law and sovereign immunity.  [While] I support A.B. 341 overall, I think there is some language that needs to be changed.  But I have no objection to the state waiving sovereign immunity.

 

The Eleventh Amendment to the Constitution of the United States provides that “the judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by citizens of another state . . .”  It basically denies federal courts diversity jurisdiction—that is, jurisdiction between any state and citizens of another state.  It would have the jurisdiction of Article 3, Section 2, otherwise.  It was adopted solely to reverse Chisholm v. Georgia.  The Eleventh Amendment says nothing about states having sovereign immunity against their own citizens for violations of their rights, or violations of their rights or violations of federal law.

 

The text of the Constitution says nothing about sovereign immunity.  The framers’ intent is, at best, unclear.  It seems that the framers regarded the people as sovereign and that the structure of the Constitution did not make the states sovereign over proper federal laws. 

 

[Lynne Henderson continued.]  The supremacy clause of Article 4 makes it clear that state laws are subordinate.  It was not until 1890 in Hans v. Louisiana, that the Court, using common law, said it would be anomalous to allow citizens of a state to sue their own state and that an unconsenting state could not be sued for violations of state statutes because of sovereign immunity, the notion that “the king can do no wrong,” as Assemblywoman Buckley pointed out.  “The king can do no wrong” seems anomalous in a democratic system, and not much action happened between 1890 and 1996, with the exception of the Ex parte Young 179 and Fitzpatrick v. Bitzer 1976 cases.  1996 was the turning point when the U.S. Supreme Court began to decide that citizens of a state could not sue states under valid federal laws. 

 

The U.S. Supreme Court admitted that these laws were within the power of Congress explicitly, either under Article I or Section V.  This is how we end up in our current situation.  The Court has said that states can waive sovereign immunity, but it has lead to anomalous results. 

 

Mr. Oceguera mentioned the FMLA.  Look at the Fair Labor Standards Act [FLSA], made applicable to the states in 1974 at the instigation of President Nixon.  From 1976 to 1985, some public employees were exempt from the FLSA.  From 1985 to 1996, there is no question that the FLSA applied to all state employees.  However, as of 1999, in Alden v. Maine, the Court revoked protection under the FLSA for state employees.

 

In the Alden case, probation officers were owed overtime pay under the FLSA, but they couldn’t sue in federal court because of Eleventh Amendment immunity, and they couldn’t sue in state court for the same reason.  A federal right was severed from the remedy.

 

Please note that only the state government is immune under the Eleventh Amendment interpretation.  Local governments still may be sued for violations of federal law and private employers, as already pointed out, are also liable.  Thus, the state is free to discriminate against employees, at least until the federal government chooses to sue.  There is a question of individual rights under federal law, under both Article I and Section 5 of the Fourteenth Amendment that must be resolved in balancing against state immunity from suit.

 

Will state employees be denied their federal rights under the [U.S.] Constitution, or will they be allowed to seek remedies?  It is for the Legislature to decide.  One point to remember is that sovereign immunity—“the king can do no wrong”—in a democracy seems anomalous, as Erwin Chemerinsky has pointed out in an article in the Stanford Law Review.  As John Noonan, a Ninth Circuit Judge, a Reagan appointee, has noted in his book, Narrowing the Nation’s Power, and as Tom Paine pointed out, “In America, the rule of law is king.  Sovereign immunity undermines that.” 

 

[Lynne Henderson continued.]  I can answer some questions about federal discrimination law if any of those remain.

 

Chairman Anderson:

I believe we are okay at this point. 

 

Jim Richardson, representing Nevada Faculty Alliance:

[Introduced himself.]  We have chapters at all UCCSN [University and Community College System] institutions.  I would also note for the record that the Nevada Faculty Alliance is the state affiliate for the American Association of University Professors and would further note that the American Association of University Professors has filed amicus briefs before the U.S. Supreme Court in a number of cases, including the Hibbs case.  I can provide a copy of the amicus brief if the Committee wishes.

 

I thought I would at least circulate the list of 30 national organizations that signed onto the brief (Exhibit D) in the Hibbs case.

 

The American Association of University Professors is the premier national organization representing professors nationally and has established rules and procedures for academic freedom and tenure, as you may be aware.  They also spend a great deal of time focusing on the rights and prerogatives of faculty members, the majority of whom in this country, do, in fact, work in public institutions.  Thus, it was with some alarm that we noted in 1996 that the U.S. Supreme Court had done something very unusual and surprising.  Professor Henderson just noted that the U.S. Supreme Court went over 100 years without addressing much in this area of law.  Then suddenly in 1996, there began to be a series of cases that have taken away the rights of public employees to be covered under a number of civil rights acts. 

 

I believe the federal government has passed about 10 acts that we all thought had applied, and actually were applied when necessary.  However, suddenly, all of them seemed to be in jeopardy.  There are some differences at trial court levels and perhaps some protected areas having to do with gender and race that will pass muster with this Court, if that is the case, we may see an example of that with the Hibbs ruling.  We certainly hope the ruling will be in favor of the plaintiff in that matter.

 

People all around the country are attempting to figure out what to do about the problem that has been visited upon public employees by the U.S. Supreme Court in a series of 5 to 4 decisions.  Congress has tried some remedies, thus far unsuccessfully, because, of course, the U.S. Supreme Court has the last word on any law passed by Congress in this area.

 

[Jim Richardson continued.]  A number of states are reviewing this area as well.  Minnesota is perhaps the most inclusive to date that has passed legislation.  Their legislation went into effect in 2001.  Regrettably, I was not able to anticipate Assemblywoman Angle’s question and make a contact to determine if there had been an outburst of litigation.  I would be surprised if that were the case. 

 

There are other states that have chosen one federal act or another, such as the Americans with Disabilities Act, and granted a waiver for that.  We have a number of states, such as New York and Rhode Island, that are currently considering legislation, as you are. 

 

We did not write the amicus brief; it was written by a number of different parties and was actually filed on behalf of the National Women’s Law Center; we became signatory to it and assisted with the brief.  Exhibit D contains a list of approximately 30 organizations that signed onto this particular brief.  A number of other briefs were filed as well.  There is a great deal of concern about this issue around the country.

 

We support A.B. 341.  I would note for the record that the bill represents somewhat of a conservative approach.  I am not sure of the discussions that occurred as the bill was being developed.  There are other acts that interest us such as the Equal Pay Act, Section 504 of the Rehabilitation Act, and another that interests the UCCSN folks is the Patent Remedy Act.  That is a federal law that in another 5 to 4 decision, the U.S. Supreme Court decided did not apply in a case that did involve a public higher education institution in Florida.  Certain intellectual property materials were being used without compensation and the person who brought suit found out that the state was protected by sovereign immunity.

 

This bill could actually be expanded.  I am not urging that today, but am merely noting that this is not a catchall bill.  It was crafted to focus on some particular areas that seemed especially troublesome.  We do support it wholeheartedly.

 

Robert Robison, Resident of Fallon:

[Introduced himself.]  I have lived in Nevada since the early 1960s.  I went to work for the Nevada Department of Prisons, with a disability, with their prior knowledge.  They terminated me because of my having a disability.  I went through federal court in Reno and won, but I have no “go ahead” at all since then because of this rule. 

 

They have ruined my life and I even had to file bankruptcy.  If this law keeps on going you don’t know how many people it is going to hurt.  It is disgusting to see a state treat their employees the way they did me.

 

Chairman Anderson:

Thank you very much for your taking the time to appear for this.

 

I am going to limit further testimony to three minutes for those remaining to appear in support of the bill because we have not yet heard from the opposition.

 

Laura Mijanovich, representing the American Civil Liberties Union of Nevada (ACLU):

[Introduced herself.]  My testimony was covered in previous testimony, particularly that of Scott McKenzie and Mark Nichols.  I am here to represent the ACLU in support of A.B. 341 and the sponsors of the bill. 

 

As Assemblywoman Buckley mentioned, the state has the authority to waive the Eleventh Amendment immunity and it should do so.  Its time has come with respect to its employees.  The state should be a responsible employer and should be held accountable like any other employer.  When the state discriminates, employees should have a right to redress.

 

Bobbie Gang, representing the Nevada Women’s Lobby:     

[Introduced herself.]  The Nevada Women’s Lobby supports A.B. 341.  We ask the Committee to pass the bill and allow citizens who work for the state to have the same protections from discrimination as other citizens in the state, and we urge you to pass this bill.

 

Chairman Anderson:

Ms. [Lynne] Bigley, with the Nevada Disability Advocacy, did you wish to speak or simply to be shown in support of the bill?  [She indicated she did not wish to speak.]

 

Jeff Parker, Solicitor General, Office of the Attorney General, State of Nevada:

[Introduced himself.]  With me is Stan Miller, our tort claims specialist.  We have prepared written testimony (Exhibit E).

 

We are opposed to this bill in practical effect.  With its waiver of Eleventh Amendment immunity, A.B. 341 eliminates a defense otherwise available to the state of Nevada in federal actions, and thus will allow plaintiffs to avoid the Nevada tort damages cap contained in NRS 41.035.  Therefore, the bill will have a substantial effect on the resources, primarily financial, on the state of Nevada, its agencies, and the Office of the Attorney General.  Currently, plaintiffs can seek relief in Nevada state courts, subject, of course, to the tort damages cap contained in NRS 41.035.

 

Civil actions are the most expensive cases brought against the state.  The average cost over the past five fiscal years to settle a civil rights claim against the state of Nevada is $40,964 per claim.  A conservative estimate of the cost of taking a simple case to trial in federal court would exceed $20,000 per case.  That is costs, not attorney’s fees.  It is likely the Office of the Attorney General would need to add at least two additional Deputy Attorneys General, as well as support staff, to handle the anticipated increase in caseload.  It is also likely that in a case in which a state agency is named, as well as an employee of the agency, the state would be required to hire outside counsel to avoid a conflict at an estimated cost of $40,000 per case.

 

Unfortunately, because of federal court rules, the state finds itself in a lose/lose situation.  Generally, if a state loses a case in federal court, the state not only has to pay the judgment, but all the plaintiff’s attorney fees and costs as well.  If the state prevails in federal court, it is at the court’s discretion to award the state its costs and the state is rarely awarded attorney’s fees unless it can prove the case is frivolous.  Therefore, the cost of taking a case to trial is rarely, if ever, recovered by the state.

 

A conservative estimate of the cost to the Tort Claims Fund alone would be $1,500,000 per year, or about a 30 to 50 percent increase.  These costs would be reflected in increased premiums paid by all state agencies.  The majority of these are General Fund agencies.  It is conceivable that, given the expansion of possible causes of action to which the state would be exposed if this bill passes, the total liability of the state of Nevada could more than double.

 

Chairman Anderson:

Mr. Miller, do you wish to speak?  [Mr. Miller indicated he had nothing to add.]

 

The Chair has one question.  If we were to pass A.B. 341, would the state not avoid problems by merely complying with the acts?  Why would the state not be willing to treat its employees fairly?  Isn’t that the basic question?

 

Jeff Parker:

That is correct; however, not everyone plays the game.  What we think this act will do is that otherwise garden variety tort claims will now have appended to them a federally causative action.  By knowing that, the matter can now proceed in federal court without the viable defense that was previously effective in eliminating the cases.

 

Unfortunately, in our office, we have experienced a repeat plaintiff’s bar that frequently files frivolous actions—1983 actions and the like.  So, the question is not whether the state supervisors, managers, and employers will follow the law, I think our experience has been that, to a great extent, they do.

 

Chairman Anderson:

I think of Mr. Robison’s testimony, and Mr. Hibbs apparently had the opportunity.  Had the managers not known without question that they had to comply with these laws, would the state not have taken the $5,000 settlement offer?  I find it difficult to believe that they would not have tried to cut their losses like any other employer. 

 

Jeff Parker:

I think the problem with the Hibbs case, which no one has addressed today, is the underlying law.  The question there was, “Does the Family Medical Leave Act run concurrently with Nevada leave?”  If Nevada’s leave law were clear and dovetailed with the FMLA, the issue would have been resolved.  Employers would have known more clearly what the issues were.

 

Trying to solve this at the end is rather like killing an ant with dynamite.

 

Assemblywoman Buckley:

It is the state that is responsible for that issue never having been heard.  The federal court lawsuit was to decide the merits of that issue.  Did they run concurrently or not?  The state is the one that prevented that question from being answered.  I think Mr. Hibbs was the ant and the state was the dynamite by never letting this issue be heard.

 

Vice Chairman Oceguera:

In your written testimony (Exhibit E) it states what the average cost over the past five fiscal years was to settle civil rights claims in and so forth.  Wouldn’t it be more appropriate, to use figures prior to the 1999 Rehnquist court decision in the Alden v. Maine case?  Prior to that we were doing what I am suggesting what we should do now through this bill.  Wouldn’t that be a better estimate of what the fiscal note on this bill should be?

 

Stan Miller, Claims Manager, Litigation Division, Office of the Attorney General, State of Nevada:

[Introduced himself.]  This figure of $40,964 is an average I took of all civil rights actions against the state over the last five fiscal years.  In those 5 years, 10 percent of the claims presented against the state were civil rights actions, but they comprised 46 percent of what was paid out in claims.  They are very expensive cases.  I don’t know if I have answered your question.

 

Vice Chairman Oceguera:

Not really.  I am asking you that the state was already paying claims according to the precepts of this bill prior to 1999, so that might have been a better figure on which to base your fiscal note.  Those are numbers you should already have.

 

Stan Miller:

You are saying that prior to 1999, the state could be sued under these causative actions?

 

Vice Chairman Oceguera:

Yes, I believe so.

 

Stan Miller:

In federal court?

 

Vice Chairman Oceguera:

I believe so.

 

Stan Miller:

I’m sorry, I don’t have those numbers.

 

Assemblyman Brown:

I see that A.B. 341 would waive the immunity as to these particular federal pieces of legislation.  However, on page 2, subparagraph 3, at line 27 it says, “Any claim under state law.”  Can you explain what the state is subject to?  There was a reference to “garden variety” tort claims.  Are there certain civil rights claims that the state is subject to that are causative actions in state statutes?

 

Jeff Parker:

I believe that paragraph is included in the bill to address federal court supplemental jurisdiction, which is the doctrine that the federal court has jurisdiction over state claims that are supplemental to a federal claim.  The federal court has jurisdiction over federal questions and if there are state claims along with that, the federal court, under supplemental jurisdiction, can address those as well. 

 

The garden-variety tort claims I referenced are state claims such as whistleblower claims, tortuous discharge, and breach of contract, although that one is not a tort claim.  It seems that there are always three or four state causative actions alleged in connection with a wrongful termination.  Those are the types of claims you would see in conjunction with one of the other claims such as ADA.

 

Chairman Anderson:

Let me give the Committee a brief background regarding that issue.  If a state employee is the victim of age discrimination that is prohibited by the federal Age Discrimination Act, we also have a state statute under [NRS] 613.310 through [NRS] 613.315, that because this claim would also be brought under state law, it would thus have the ability to be heard under both court systems.

 

Assemblyman Brown:

Is there nothing currently in state statutes equivalent to these five federal laws?

 

Chairman Anderson:

Some of them are, and under the common law also.

 

Assemblyman Carpenter:

It seems to me that Section 3 fairly well limits such a case to federal law and is then specific to the bill.  Assembly Bill 341 does have protection in it for the state also.

 

Assemblyman William Horne:

I wonder what the number of cases is in the past 5 or 10 years in which the state has waived its immunity in the area of these five federal statutes?

 

Stan Miller:

I do not have numbers on how many cases the state has waived based on Eleventh Amendment immunity.

 

Assemblyman Horne:

Has that ever happened?

 

Stan Miller:

I know it has, but I just don’t have those numbers for you.

 

Assemblyman Horne:

I was just curious.  Also, it seems that the remedy discussed in the first part of Exhibit E alludes to losing a legal defense.  It seems like that legal defense is citing the Eleventh Amendment immunity, so the defense is, “We don’t want to be sued.” 

Jeff Parker:

That is correct.  That is one of the reasons I prefaced my testimony with a statement that we are opposed to this bill in practical effect.  We work at the Office of the Attorney General.  We defend these causes of action so we are here today to simply point out to the Committee the practical effect A.B. 341 will have.  We will see many increases of cases as outlined in the testimony.  As Stan Miller said, we will be dealing with these cases and they will not be eliminated cheaply as they have been in the past with a motion to dismiss based on Eleventh Amendment immunity.

 

As follow-up to Assemblyman Brown’s question, the Chair answered that in part.  Nevada does have its many acts that are analogous to the federal acts.  We do have Nevada’s Equal Employment Opportunity statutes.  I can’t think of exactly what the others are off the top of my head.  We do have two or more “mini acts” analogous to the federal acts delineated in the bill.

 

Assemblyman Horne:

You also allude to the fact that a judgment for the plaintiff in federal court would subject the state to attorney’s costs and fees.  Isn’t that discretionary?

 

Jeff Parker:

Under the federal rules, if the plaintiff prevails, the defendant has to pay all attorney’s fees and costs, even if the judgment is only for $1.

 

Assemblywoman Buckley:

In the testimony it indicated that you would need two additional Deputy Attorneys General as well as support staff to handle the increase in caseload.  My question is that these laws applied to state employees for many years until recently, so did you previously have two deputies assigned to this area with support staff?  If so, do you still have those positions or were they deleted from your budget when you won an argument on Eleventh Amendment immunity in federal court?

 

Jeff Parker:

No, these cases were frequently dismissed early on and so staff was not required to proceed to trial and subsequent appeal on these cases.  To my knowledge, and I have been in my position two months, there was no additional staff or staff lost.

 

To take a case to trial and subsequent appeal requires a lot more work than a motion to dismiss.  That is what that testimony is intended to say.  If plaintiffs now have this “sword,” that there is now no defense for the state based on Eleventh Amendment immunity, these cases will be litigated.  Our thumbnail guesstimate is that it will increase our workload such that two additional deputies will be required.

 

Assemblywoman Buckley:

Mr. Chairman, if you will permit, I would like Mr. Parker to research that question for the Committee, because these cases were covered under the law until Alden v. Maine after 1999.  The state was not protected prior to then.  In addition to Vice Chairman Oceguera’s question of what was actually paid, and also research whether you needed more staff at that time.

 

Jeff Parker:

We will attempt to get the information.

 

Assemblyman Carpenter:

I think in defense of Mr. Parker, he has only held his position for a few months.  He mentioned that perhaps there was an interpretation of Nevada law versus federal law instead of the laws running concurrently instead of separately.  Perhaps that was a mistake and I wonder if that should be changed as well.

 

I think if the U.S. Supreme Court rules in favor of the employee we are here anyway.  If some employee was really a problem and dismissed—not all cases are wrongful dismissals.  We do have sometimes when the state is right.  Each case should be taken on its own merits and hopefully, if the case is reviewed early on, the case can be settled at an earlier stage.  I would hope the state would take a proactive look at the situation.  I don’t mean that the state has to fight every case to the U.S. Supreme Court.

 

Assemblyman Mabey:

On the practical side, if A.B. 341 becomes law, how much could the state lose?  It would lose the back pay the employee should have received, the medical insurance, and the attorney fees?  Are there also penalties involved?  Could we wind up with a huge judgment similar to the case of McDonald’s Restaurants?

 

Jeff Parker:

I haven’t reviewed the substantive provisions of each case, and when this question arose earlier I consulted Mr. Miller.  I don’t know as to each of these federal acts whether there are treble damages or punitive damages allowed, for example.  Usually they deal with costs and attorney’s fees but, if there is not a damage cap that is certainly a possibility.

 

Chairman Anderson:

This bill does not affect the Hibbs case.  It does not reach back in time.

 

Assemblyman Mabey:

I understand that, but I just wondered if down the line the state could be liable for tens of millions of dollars for similar cases.

 

Chairman Anderson:

It would appear that it would depend on whether they brought a lawsuit relative to a state law action in federal court, in which case they would have a $50,000 cap or under federal law, in which case it would not have a cap under Section 3 of A.B. 341.

 

Vice Chairman Oceguera:

I would like to ask our legal counsel to review the issue because I do not believe the information presented is correct.  I don’t believe punitive damages can be awarded in such cases.

 

Risa Lang, Committee Counsel:

That is correct.  At least under FMLA, there are no punitive damages and I do not believe there are punitive damages allowed under the ADA either.  That is probably the case with the others as well.

 

Assemblywoman Buckley:

I have one last observation.  The Clark County School District, in a case I worked on, claimed they were a state agency and entitled to Eleventh Amendment immunity.  I spent my entire Christmas vacation writing a brief to the U.S. Supreme Court and they found that the school district was a county entity and of course not entitled to sovereign immunity.  It is interesting that all the counties are trying to use the same provisions by saying they are more like a state to deny the same rights to county employees.  However, the U.S. Supreme Court did reject it last month.

 

Chairman Anderson:

The hearing on A.B. 341 is hereby closed.  The Chair was going to move the bill, however, we are waiting on a response for Assemblywoman Buckley.  I believe I might still accept a motion on the bill; however, I would ask that the information be provided from the Office of the Attorney General as requested by Assemblywoman Buckley.

 

Assemblywoman Angle:

I was also promised some information from Mr. Richardson and I would like that as well.

Chairman Anderson:

We will ensure you receive that as well.  The way the Floor sessions are going these days, the likelihood that the bill would move directly to the Floor of the Assembly is remote.

 

Assemblyman Gustavson:

I would like to abstain from the vote on A.B. 341 until I have a little more information.

 

[Chairman Anderson entertained a Do Pass motion on A.B. 341 and asked that a roll call vote be taken.]

 

ASSEMBLYMAN CARPENTER MOVED TO DO PASS A.B. 341.

 

ASSEMBLYMAN HORNE SECONDED THE MOTION.

 

THE MOTION CARRIED WITH ASSEMBLYWOMAN ANGLE AND ASSEMBLYMEN BROWN, GEDDES, GUSTAVSON, AND MABEY ABSTAINING.

 

Chairman Anderson:

Mr. Oceguera, it is your bill and we will allow you to defend A.B. 341 on the Floor of the Assembly.

 

Let’s open the hearing on A.B. 439.

 

Assembly Bill 439:  Makes various changes to provisions pertaining to business. (BDR 7-825)

 

Assemblyman Chad Christensen, District No. 13, Clark County:

[Introduced himself.]  I want to call your attention to the fact that A.B. 439 has a sister bill in the Senate, which is S.B. 298.  That bill was heard two weeks ago and passed by a unanimous vote last week through the Senate Committee on Judiciary with some technical changes.

 

I will introduce the bill and then Derek Rowley will address any technical aspects.  Then there are two attorneys present in Las Vegas who wish to speak to the bill.  I also have a copy for the Chair of my letter that was read into the record in the Senate hearing I was unable to attend.

 

Chairman Anderson:

Assemblyman Christensen, I will remind you of the pitfall we sometimes all fall into, that this house is independent of the other house.  That role requires us to think only of this house and its actions.  Therefore, the reference of what happened in another body is inappropriately discussed here.  It’s one of those “separation of powers” kind of questions that keeps us all on the up-and-up.

 

Assemblyman Christensen:

I do understand.  I was not sure how that would apply here.  I will speak to A.B. 439.  I am a small businessman and am about as pro-business as any Nevadan could be.  Nevada has always been a pro-business state and we need to keep that moniker.  In fact, Nevada has worked very hard over the years to attract new businesses to the state.

 

It was during my campaign that I was able to work closely with the Nevada Resident Agent Association, and Derek Rowley is President of that Association.  We discussed the concepts of this bill and I found it to be meritorious.  This bill will make Nevada even more competitive among other states that are considered incorporation centers.

 

When I was incorporating one of my businesses a few years ago, I went online and shopped for cost savings.  I was looking at Delaware, Nevada, Utah, and Wyoming.  As it turned out, Utah in the first year was the cheapest place for me to incorporate my brand-new idea.  For an approximate $100 savings, I decided to incorporate in Utah.  As you know, the first year of a business is when it is most strapped for cash.  Assembly Bill 439 will lower the initial filing fees and raise other fees as time goes on when businesses become more stable.

 

Resident agents know what their day-to-day functions are and what the market can bear.  I do believe that when government tries to become an expert in their industry, we may be setting ourselves up to fail.  This is why Mr. Rowley is here to address some of those points.

 

Over the past several weeks I have learned that resident agents spend of their own members’ funds approximately $10 million annually to promote Nevada as an incorporation center.  Additionally, they generate approximately $80 million in revenues to the state.  That revenue has virtually no demand on local services.  The clients that they service don’t use our schools, Nevada Medicare, our highways, universities, or prisons, and yet they generate $80 million in revenue to the state budget.  The resident agents will generate even more revenue over the next biennium if they win the two components addressed by A.B. 439.

 

As our state faces financial challenges, we should respect an Association like this that comes forward with solutions to the issues and the problems we are facing.  I know there may be some here in opposition to the bill, but I do want everyone to know about the revenue the bill will generate.  Unfortunately, we cannot have one without the other.

 

Mr. Rowley will address the issue of improvement of the no charging order provisions by creating the “triple LP” [limited-liability limited partnership].  The added protection under this provision will make Nevada more competitive with states like Delaware, South Dakota, Wyoming, and many others.  I have heard many times that Nevada is called the “Delaware of the West.”  I feel that A.B. 439 will make Delaware the “Nevada of the East.”

 

Derek Rowley, President, Nevada Resident Agent Association:

[Introduced himself.]  We are very proud to be here with this bill to present for your consideration today.

 

There are many technical aspects to this bill and, rather than attempting to cover each one individually, I thought I would give you an overview and allow time for questions from the Committee.

 

There are two primary aspects to A.B. 439.  The first is one that generates additional revenue for the state of Nevada.  As you know, it has been part of the Governor’s Task Force and the Governor’s personal recommendation to generate some revenue using the Secretary of State filing fees as a mechanism.

 

The Association has spent several months trying to determine the proper methodology to set pricing points within the Office of the Secretary of State to maximize the revenues generated there.

 

Assembly Bill 439 will solve a couple of problems.  We feel we have been successful in maximizing the revenue under existing filings.  We believe the changes we are recommending provide the greatest amount of potential “upside” for incorporation within Nevada to continue growth and generate additional revenue.

 

The pricing theory set by the bill would lower those costs that are elective to those individuals making a decision of where to incorporate, when they are comparing a decision to file an incorporation within Nevada and some of the other incorporation centers with whom we directly compete.  Those states include Delaware, Florida, Colorado, and Wyoming, and average $70 for their basic incorporation costs.  Nevada’s current incorporation fee minimum is $175 and with existing proposals to increase that another 50 percent, we feel that the elective decision has the potential to send many startup corporations, in the position Assemblyman Christensen described, to other states.  Our theory is to drop those elective costs and then to address the mandatory fees once they have chosen Nevada as their jurisdiction.

 

We propose to increase the penalties, the annual report fees, and all the other things that an established corporation must file to remain in good standing and to file amendments, and other items of necessity that cannot be avoided. 

 

The primary change in the fee increase on renewals for corporations is that we are proposing a tiered renewal structure.  Currently when a corporation files with the state of Nevada the filing fee is tiered based on the capital provided for in the articles of incorporation.  As a result, the Office of the Secretary of State has had to maintain that data for the purpose of determining the proper up-front filing fee.  Our proposal is to raise the annual fee from the current $85 per annum for every entity to a tiered structure whereby those corporations with a minimum capital under statute will file an annual report minimum fee at $125 and tiered upward for the large capital-based corporations.  When a corporation reached $20 million in capital, they would hit the cap under the bill at slightly over $11,000.

 

As a result, the average annual renewal the Office of the Secretary of State would receive based on the current tier structure of corporations filed in the state would go up to nearly $150 once the larger corporations were factored in.  Assembly Bill 439, based on the status quo, which has been relatively flat, would generate approximately $46 million over the biennium.  I believe the Office of the Secretary of State calculated approximately $43 million over the biennium.  With the other provisions we hope to add, we feel confident that we can come to the Legislature and tell you that A.B. 439 provides us the ability to generate $50 million with the projected growth we see.  That is a significant amount of revenue in an industry that currently generates about $100 million in the state annually.

 

The other portion of the bill addresses provisions we are requesting that we feel strengthen Nevada’s position and make it easier for our industry to sell Nevada entities to our clientele that reside around the world.

 

One of the provisions we are requesting is the addition of a new entity titled a limited-liability limited partnership.  Six other states already have that designation available, and there have been a number of opinions written and discussed that predict the limited-liability limited partnership will eventually replace the limited partnership as the de facto partnership entity that businesses will be using.  We feel strongly that other states are going to continue to adopt those provisions and either Nevada can get into this early and establish itself as a leader in these filings, or we can wait a few years and pick it up after we have lost a significant market of filings to other states.  Delaware is one of those states that have the limited-liability limited partnership provision, and we want to ensure we are proactive in that area.

 

[Derek Rowley continued.]  The other primary provision covered by the bill is a charging order limitation.  There was an attempt in the Seventy-first Legislative Session to amend the charging order limitation on limited liability companies and limited partnerships that the charging order would be a judgment creditor sole remedy.  There was some mixed opinion in the legal community as to whether or not the language in the current statute actually accomplishes that, and the proposal we have is meant to clarify that language and provide that the charging order is the judgment creditor sole remedy for those flow-through entities.

 

There are a number of other provisions in the bill that we feel will strengthen our position.  Among those, currently the Nevada law allows for the incorporator to file articles of incorporation for someone.  It allows an organizer to file a limited liability company articles of organization.  However, when someone files a limited partnership, the limited partnership is required to have the signature of the general partner, which makes it difficult for our industry to file and promote these on behalf of other individuals.  It is a very inefficient process.  We propose to allow an organizer to file the limited partnership as well.

 

Regarding the “triple LP” issue, the theory we have behind this new entity is that when the state provides greater benefit, it makes sense for the state to charge additional fees for that.  When existing partnerships register as a limited-liability limited partnership and provide additional indemnification and protection for the general partner, they would file a registration and pay an additional fee to do that.  Having once filed that, their annual renewal would be higher every year so there is potential for the state to generate additional revenue as a result. 

 

Other states that have passed limited-liability limited partnerships provisions have reported that approximately 10 percent of the partnerships they have on file within the first couple years register for that additional protection.  Time will tell how that grows in other states.  We expect to see something similar to LCC (limited liability company) statutes when they were first adopted by other states.  Initial growth was slow and once they became well known and commonly used they really exploded.  We expect to see something similar with the “triple LP” provisions as well.

Assemblyman Mortensen:

I really hate to see the raising of the lowest tier of registration fees from $85 to $125.  I think there are probably many people like me who are just holding onto a corporation.  I “mothballed” my corporation, which is 20 years old this year, when I was elected to the Legislature and I have thought every year since, “Should I renew it or not?”  I have continued to renew it thinking that if I no longer serve in the Assembly I may restart some sort of business again.  I may think twice at $125 whether to continue it or not, and there have to be many people in the state in a similar situation.  I hope you would reconsider not raising the lowest tier.

 

Assemblywoman Angle:

My question is to the issue of competition.  When we raise all these fees, how will that set us with Delaware and other states that charge fees?  Will we still be very competitive, or will we be putting ourselves in a place where business will go elsewhere as Assemblyman Christensen noted he had done?

 

Derek Rowley:

We looked very carefully at these fees and we feel it is critical that the fee changes that are ultimately made in the Office of the Secretary of State allow us to remain competitive.  That being said, any time you change a fee there are going to be hidden consequences to be expected as Assemblyman Mortenson noted.

 

There are a number of companies that may have “mothballed” corporations, who may not choose to renew that corporation because of any increase in fees. 

 

The model we looked at the most closely in determination of our proposed fee structure was that of the state of Florida.  Most people don’t realize that the Florida files the most corporations of all the states.  In the state of Florida, they file their articles of incorporation for approximately $75 and their annual report fee is between $125 and $150.  This bill actually puts us in a position to be very competitive with the one state that files more corporations than any other.  There will be some consequences, such as some corporations currently being renewed that may not be at a higher fee.  We feel very confident that the influx of new filings that the state will generate with the lower up-front cost will create more revenue and offset the loss. 

 

The bottom line from our perspective is that, knowing the industry and knowing the forces that drive the industry, and knowing what the competition has available, we feel that the market can sustain the price points we have recommended in this bill.  If it is the desire of the Legislature to address Secretary of State fees as a revenue-generating mechanism, this is our recommendation for the greatest potential positive impact and minimizing the negative impacts.

 

Assemblyman Horne:

Section 3 of A.B. 349 provides for charging $100 for a resident agent who is unwilling to continue as a resident agent.  I don’t know if it seems like sound business to charge someone for his or her right not to be an agent.  Can you give me the rationale for that?

 

Derek Rowley:

Under current statutes the Office of the Secretary of State charges $30 for each entity that a resident agent chooses to resign from.  That has been very troublesome for the industry because we may have a client who does not renew with one of our members and as a result they don’t pay the resident agent fee.  Then the resident agent, having not received income in the coming year, is forced to spend $30 or 30 percent of the standard going rate for resident agency to be removed from the list.  We see that as inequitable.  However, we do feel it is reasonable for there to be a minimum fee. 

 

Delaware has a similar process.  The bill would allow a resident agent to pay $100 to file a list that has all of the corporations they choose to resign from.  They will pay an additional fee of $1 for each corporation on that list.  This would allow resident agents to periodically clean up their lists and thereby clean up the records of the Office of the Secretary of State in a more equitable manner than the current policy.

 

Assemblyman Horne:

Section 4, of A.B. 349 seems to relieve a large segment of resident agents from filing a certificate of change.  I am not real familiar with this area of law, but it seems to me there is a purpose for which we file this certificate of change and if we are eliminating all these people from doing that it seems problematic.

 

Derek Rowley:

This is an item in the amendment language that will be submitted to this Committee and was previously discussed in the other house.  The language you see in Section 4 was designed to deal with this concern.

 

When a resident agent goes through a formal change of name by virtue of sale or merger of their business, currently the Office of the Secretary of State deems that to be a change in the resident agent even though the resident agent has not actually changed.  It is our position that when a name change or the sale of a resident agency, or a merger between two different companies occurs, that legal entity still exists and should not trigger a change in the resident agent. 

 

The certificate of change of a resident agent is required to be filed any time that a corporation changes from one resident agent to another.  However, that is not what the language in Section 4 applies to.  It applies to restricting certain circumstances where the entity remains the same, but the name is different and not applying the change of resident agent to that.

 

Assemblyman Horne:

That seems like any of these changes or mergers or such could be lost track of, even though it may be the same entity, unless this requirement remains.  If it was “X” and now it is “Y,” I don’t know that and it seems like we could lose track of certain of the resident agents and who they are resident agents for.

 

Derek Rowley:

The Secretary of State has some of those same concerns and a part of what was brought up in amended language will resolve those issues.

 

Chairman Anderson:

We have not yet heard from [representatives of] the Office of the Secretary of State but their written material has been distributed (Exhibit F). 

 

Steve Oshins, Attorney, Law Office of Oshins and Associates, Las Vegas:

[Introduced himself.]  I am here today in support of A.B. 439.  There are two particular portions of this bill that I believe to be the most important.

 

The first one I would like to cover, and the one in which I will spend most of my time, is the suggested change to the charging order statutes with respect to both limited liability companies and limited partnerships formed under Nevada law.

 

To understand why this change has been recommended I would like to define what a charging order is and give you the history behind this law.  Under probably every state, one remedy that is allowed for a lawsuit against a member or a partner, whether it is a limited liability company or a limited partnership can be a charging order.  However, in most states the charging order is not the exclusive remedy.  If it is not the exclusive remedy, it is basically language in a statute that has no bearing.  The judge could issue any number of other remedies, including a foreclosure of the assets owned in the entity.  It really doesn’t provide the protection that most people perceive it should allow for.

 

Like most people, I believed the charging order was the exclusive remedy in every state because that is what most attorneys around the country believe.  However, after reading an article in a 1997 issue of “Trust in the States” magazine, I realized that many of the states were allowing additional remedies and that made me take a closer look at Nevada statutes.  Then I realized our statute did not provide the charging order as the exclusive remedy, even though the perception was that it did.  Many litigators were receiving additional remedies meaning we did not really have the protection that was intended.

 

[Steve Oshins continued.] In 1991, I was the one that rewrote the statute with respect to LLCs and limited partnerships and was able to get the new law passed, which created the charging order remedy.  I had come up with the idea a number of months before the session and was told it was too late, but that if I could get something drafted within 48 hours, I could get it heard.  I was a bit rushed and I wound up copying Delaware law, which as it turns out, is the second best way of writing the law.  There are some attorneys around the country who read it differently, although they are in the minority.  There are enough however, that I believe we should make the change in this legislative session and perfect the law.

 

In further research, I found there are four states that have perfected the law.  Those states include Arizona and Oklahoma, as well as two other states.  I was working with another group to craft the legislation when I received a call from Mr. Rowley and worked with him as well.

 

The purpose of this law is to make Nevada competitive with every other state.  Actually, because I know that when I crafted the current law I copied Delaware’s law, which definitely did enhance our law, if we enact this new law we will be better than the “Delaware of the West,” because I know for a fact that Delaware’s law is not as good as the one proposed in A.B. 439.

 

I believe by perfecting this law we will be able to encourage more business and more revenue just as you have heard.  What better way to bring much needed revenue to this state than by perfecting your law so that no other state has one that is better?  We are in line behind four other states that have changed their law to the state of the art.

 

Secondly, I want to quickly touch on one other part of this bill.  I will defer to Michael Potter to go into detail.  As you have already heard, the bill adds [the category of] limited-liability limited partnerships.  By an enacting such a law, it will put Nevada in line with the state of the art and the trend in some of the other states.  To my knowledge, there are seven other states that have enacted such a law.  Rather than being one of the last states to enact this, let’s be frontrunners and at least try to be the eighth state, thereby giving us the competitive advantage.  Enactment of better charging order laws will put Nevada in the forefront.

 

Michael Potter, General Counsel, Nevada Corporate Headquarters, Las Vegas:

[Introduced himself.]  We are a large resident agent company that has thousands upon thousands of clients around the world.  Most of our clients are beyond the borders of Nevada.  We are very proud of the business-friendly reputation Nevada has engendered in the business community.  As Mr. Rowley and others can tell you, we have spent a lot of effort nationwide to build and enhance the reputation of Nevada as a business-friendly state.

 

[This bill would make] Nevada, not only a relatively inexpensive place to incorporate, but, as you are probably very well aware,  it would enhance and enable the use of Nevada as a preferred jurisdiction by business owners throughout the country with respect to corporations, limited partnerships, and limited liability corporations and so on. 

 

The use of the new entity called the limited-liability limited partnership is really an enhancement of the limited partnership that already exists.  A limited-liability limited partnership, or “triple LP,” is really a limited partnership formed under the applicable state limited partnership law, which specifically registers and provides liability protection to all of the partners, not just the limited partners.  This particular entity has already been enacted in the states of Delaware, Florida, Colorado, Georgia, and Texas.  We would actually be the 7th or 8th state to adopt it.  It is certainly not an innovation, but it would help us be more competitive, and we believe the revenues generated from this enhanced form of partnership will make us very attractive to business owners and investors throughout the country who are thinking of trying to protect themselves from liability exposure and at the same time wanting to use a state that is well-known to be a business-friendly state.

 

The positive image it will bring to Nevada I believe will go hand in hand with what we have already done in this state with respect to limited liability companies, corporations, and limited partnerships.  We have a very positive reputation, and resident agents nationwide recognize Nevada as a preferred jurisdiction for a variety of reasons.  This would only enhance an already good reputation.

 

There have been some detractors to the idea of using the “triple LP,” with the idea being that of a fear that one might escape total liability if using a limited-liability limited partnership.  We can only answer that by saying it will certainly not relieve liability for any criminal or fraudulent wrongdoing that rises to the level of criminal activity.  Certainly from a standpoint of personal liability protection, it would extend it to all of the limited partners just as we already have in Nevada with limited liability companies and corporations.  Because of its enhancement of Nevada as a competitive jurisdiction, I urge your adoption.

 

Assemblyman Carpenter:

I do not see an effective date in the bill, but the amendments (Exhibit F) state the effective date is January 1, 2004.  I presume that is to give the Office of the Secretary of State time to prepare?

 

Michael Potter:

The effective date in Exhibit F would give the state enough time to organize itself in terms of the administrative forms necessary, to align all of the price points, and have all the administrative support ready so that on January 1, 2004, we can be ready to take the additional business.

 

Renee Parker, Chief Deputy, Office of the Secretary of State, State of Nevada:   

[Introduced herself.]  With me is Scott Anderson, Deputy for Commercial Recordings.  We are neutral on the bill but do have some concerns and have provided some amendments to address implementation of the provisions of the bill (Exhibit F).  These are technical amendments to implement the provisions in a timely fashion.

 

In response to Assemblyman Carpenter’s question, there are only two provisions we are requesting be made effective on January 1, 2004.  That is because we are currently attached to the mainframe of the Department of Information Technology (DoIT) system.  It will require substantial changes to that system to implement the bill, and also to the new system, which is due to be implemented by the end of 2003.  We think DoIT may not be able to implement some of the necessary changes, and we will need to wait for the new system, which at the earliest will be January 1, 2004.

 

It is my understanding the remainder of the A.B. 439 becomes effective October 1, 2004.

 

I am present to inform the Committee that the bill will have a financial impact on the Office of the Secretary of State.  It does add more sorting procedures, require additional information to be captured and input to the computer system, and additional filing requirements for a new entity, the limited-liability limited partnership. 

 

We are certainly in favor of any changes to the corporate statutes that anticipate filings in our office because we are proud of the millions of dollars we do bring in for the state, but associated with those increases are additional procedures.  We process about 206,000 annual lists a year to fulfill the requirement to process those in a timely fashion and continue to maintain our level of customer service, we will require additional staff.  As you are aware, there was a question earlier about remaining competitive.  We have found that customer service in our office is one of those factors that an entity looks at in deciding what state to incorporate in.  We have heard complaints about some of the other states.  Some states’ filing fees may be slightly less, but they can’t talk to a human being when they make their phone calls.

 

[Renee Parker continued.]  If you would like, we have a few technical amendment recommendations to A.B. 439.  You should have those [page 2, Exhibit F].  The document states “Amendments to S.B. 298,” and I apologize for that.

 

In Section 3, our concern is that the current fee is $30 to make this change in our system because we do not have the ability in our computer system to make a global change, so we cannot make a resident agent change and have it affect all the necessary records.  We would have to go into the records for each entity and make the change; that is the reason we are asking for the January 1, 2004, implementation date.  With the new system we will have the ability to make global changes.  We have no concerns about the $100 fee once we are able to make that change, and then the $1 per entity charge.

 

Assemblyman Horne hit our concern perfectly.  Our records do need to be updated, and if a resident agent does merge with another resident agent and changes the name and our records indicate the previous name, there are a number of people that rely on the records on our Web site for service of process issues.  They may be serving an entity under an incorrect name for the resident agent and we would never have the ability to have clean records.  As you can see in the amendment (Exhibit F), we are requesting the provision of the current name, the new name of the resident agent, and the name and file number of each corporation, and for a minimum $100 fee, effective January 1, 2004, we will have ability to make global changes.   

 

Section 13, subsection 8, provides a fee for submission of the resignation of a director or officer in conjunction with filing an annual or amended list.  Assembly Bill 439 would only place the provision into NRS Chapter 78 for corporations.  We think if we’re going to have a specific fee, it needs to be noted consistently throughout the chapters.  We did speak with Mr. Rowley about all of these changes and it is my understanding that the Resident Agents Association is not opposed to these changes.

Vice Chairman Oceguera:

Did you share these suggestions with the sponsor of the bill, Assemblyman Christensen?

 

Renee Parker:

I believe he is in agreement.

 

The amendment to Section 14 is a suggestion to return to the January 31 date as the deadline for a resident agent to be added to the list on the Secretary of State’s Web site that says he is a resident agent in this state.  We also allow an amendment to that list throughout the year.  Currently, the January 31 deadline cuts off a number of resident agents who may come in during the middle of the year, or, when a resident agent changes their information, there is no ability to make a change on that annual list because of the way current statute reads. 

 

The suggestion is to leave the current language and add language to allow the Office of the Secretary of State to add individuals throughout the year for the same fee.  We also wish to add a provision for amendment of the information and to have the ability to create regulations.  We have had some issues with the content maintenance of that resident agent list.  Complaint information against a resident agent has been requested on the Web site.  We feel it is more appropriate to hold some regulation hearings and get the input of the resident agents and the public as to site content and how that list should be presented and maintained.

 

At Section 23, the provision is for certificates of reinstatements for corporation soles as a $50 fee.  Section 24 provides $100 fee.  With the fiscal issues facing the state the Legislature may want to increase the $50 fee to $100.  We are suggesting you delete the fee in Section 23.

 

Section 80 of A.B. 439, page 48, addresses some of the fees for providing a copy outside of the fees that are currently in Title VII, in other words, NRS Chapters 78 and 80, the business entity filings.  We provide a copy of a document in our office.  Those copy fees are currently in Title VII.  This is our “fallback” for copies of other documents in our office that fall outside of those chapters. 

 

Our office has requested a bill, S.B. 112, which I know I am not supposed to refer to.  I can give you the changes we made to that bill, but our concern is that currently someone may walk into our office and have a one-page document they wish to file, but they want a copy to retain.  We are currently required to charge them $1 for that one-page copy.  By the time we take the copy, get it to the copier, have our staff, because of internal accounting control procedures, write up a receipt and give it to the individual, it would be much more efficient to just make the copy and not charge the $1.  The intention in the bill on the other side would delete these two provisions out of NRS Chapter 225.  It does not affect the copies for business entity filing fees.  It just affects the other copy requests within our office.  We wish to default to NRS Chapter 239, which would allow us to charge the actual cost for making that copy, or waive the fee in those types of circumstances where it doesn’t make sense to do the paperwork to charge the fee.

 

[Renee Parker continued.]  In addition, it is acceptable if the fee goes to $20 for certification of copy.  Passports or other documents signed by the Governor and attested to by the Secretary of State should be left at $20.  I could find no one within the office that even knows what the provision is addressing, but as soon as we allow it to be deleted that is when we will need it. 

 

The amendments I referred in our other bill and to this section regarding instruments returned unpaid are to address circumstances where a resident agent will bring in a $20,000 check covering reinstatements, annual lists, and other filing fees for 20 to 25 corporations and the check bounces.  When that happens after the check has been sent through twice, we are then required to go into each of those business entities and reverse the filings amounting to 20 to 25 hours of staff time at approximately $12 per hour, and it amounts to much more, especially with accounting department costs as well, than the $10 or $20 fee specified in the bill.  That is a practice we have tried to mitigate by sending letters refusing to accept additional filings until they pay the fee, but the problem we are trying to address is that the $20 fee does not make up the costs incurred by the office.

 

In our bill we had asked for a minimum $25 fee in cases where it is a one-time situation.  We would like to have the ability to charge a maximum fee that addresses our cost recovery for reversing these filings.

 

The other problem with that is that some of the funds associated with the filing might be that they asked for a certificate of good standing because they needed it to take to the bank to show they were in good standing.  That means they already got what they wanted out of the bank and we can’t reverse that type of filing.  The fee is more to discourage that type of behavior.

 

In Section 80, subsection 3, it addresses the portion of the Special Services Fund in which we currently receive $50 or half of the expedite fee that is currently $100, whichever is less.  The fee for a 2-hour expedite is $500.  The General Fund gets $450 of that and we get $50.  With the increase in those caps we are asking that the minimum be $62.50, or half, whichever is less.  The intent is for conformity in the changes because the Expedite Fund currently funds 58 full-time equivalent employees and if we do not make this change the fund will be bankrupt at the end of 2004.  The fee increase will keep the Fund healthy and prevent the positions from having to be funded from the General Fund.

 

[Renee Parker continued.]  The rest of the amendment also provides for the approval to hire positions in our office for the additional responsibilities and tasks required by the A.B. 439.  We are hoping with our new system, we have the capitalization for the annual list.  We currently do capture that information for new filings but it does not go into our system.  It does go into the DoIT system and to get that information it was contained in three Xerox copy boxes because even DoIT does not currently have a method to file the information electronically. 

 

Major changes, if they are possible, would be required to calculate the capitalization and the fee that is due.  The annual list mailing is required to be out 60 days in advance notifying the customer of the fee that is due.  Our staff is required to double-check that, and at 206,000 annual lists each year that is a major project.  We are hoping that with our new system the problem will be eliminated to the extent that we may only need to add approximately two staff.  Then, as we have vacancies in our office, they will not be filled.  We are simply requesting the authority to be given for timely filing of the documents. 

 

Vice Chairman Oceguera:

Thank you, Ms. Parker.  Assemblyman Christensen, do you concur with the requested amendments?  [Assemblyman Christensen indicated his agreement.]

 

Assemblyman Anderson:

Do you have any idea of the amount of revenue A.B. 439 could generate for the state?

 

Renee Parker:

We did perform some calculations and we feel that if the filings in our office remain stable and we do not lose any filings due to the increases, we feel it could generate about $43 million.  I believe Mr. Rowley had estimated $46 million to $50 million because they are assuming some growth.  With the new “triple LP” we may see some growth and some additional filings.  That assumes that we don’t lose any entities over the biennium.

 

Dan Musgrove, Director, Office of the County Manager, Clark County:

[Introduced himself.]  We urge support of the bill but we are requesting a slight addition of some language in Section 82 of the bill.  Section 82 has been leaving a false impression to folks who complete the registration form that this constitutes a state business license.  We had an incident in Clark County where the Belz Factory Mall completed the business registration form and assumed that they had complied with business registration fees on a local level.  They were in business about 18 months before it was discovered they had not paid their local fees. 

 

All we are asking is that a new subsection 6 be added to Section 82 of A.B. 439 to say something similar to, “The business registration or license required to be obtained pursuant to this section is in addition to any license to conduct that may be obtained by the jurisdiction in which the business is being conducted.”  We believe this would help all entities, ensuring those individuals understand they still have a responsibility to follow any of the local jurisdictional requirements for businesses new to the jurisdiction.

 

Vice Chairman Oceguera:

Do you have those amendments in writing?

 

Dan Musgrove:

We do (Exhibit G).  However, the document was designed for the bill that was on the other side so I need to make a slight change.  I can make the change and have it to the Committee by the end of today or earlier.

 

Vice Chairman Oceguera:

If you would provide that exhibit to our Legal and Research staff we would appreciate it.  Have you discussed these amendments with the parties involved?

 

Dan Musgrove:

I have, and they have no problems with it.

 

Dino Di Cianno, Deputy Executive Director, Nevada Department of Taxation:

[Introduced himself.]  I am present to speak to Sections 81 and 82 of A.B. 439.  The Department is neutral with respect to the bill, although we do appreciate the additional enforcement tools as provided in Section 81. 

 

Section 82 will raise the business license fee from $25 to $50, and we have no problem with that.  However, I do have an amendment (Exhibit H) to the bill to clarify a situation that has occurred at the Department with respect to whether or not sole proprietors should be paying the business license fee.  The amendment would repeal NRS 364A.160.  “A natural person who does not employ any employees during the calendar quarter is exempt from the provisions of this chapter for that calendar quarter.”

 

The problem was caused because at one point in time the Department thought sole proprietors should not be paying the business license fee.  I would disagree; however, this provision has been in the law since 1981.  It would not be prudent for the Department to go back at this time.  We would rather take a proactive approach and repeal that particular provision and allow sole proprietors to pay the business license.  This would not mean that they would be required to pay the tax portion since they have no employees.

 

Assemblyman Anderson:

Are there any possible unintended consequences that would allow resident agents a loophole?

 

Dino Di Cianno:

No, sir. 

 

Assemblywoman Angle:

Did you speak with the maker of this bill and the resident agents?  How do they feel about your proposed amendment (Exhibit H)?

 

Dino Di Cianno:

I did provide this on the other side and they were in agreement with the amendment.  The amendment will add 60,000 new accounts, which will generate nearly $3 million in revenue, and I believe they are in favor of that.

 

Derek Rowley:

I neglected in my prior testimony to provide the Committee with a couple of minor amendments we have to the bill.

 

In Section 75, subsection 4, the last figure at the end of the subsection is shown as $25,000 and should be amended to $35,000 to make it consistent with changes elsewhere in the bill that were missed in bill drafting.

 

The other amendment is to Section 43, page 27, of A.B. 439.  Item F on lines 7 and 8 needs to be deleted.  That is a requirement that came from the limited partnership laws, which provide for professional services and it is not the intent of the “triple LP” to limit it to professional services.

 

Additionally, we are aware of another amendment to be presented by the Nevada Press Association in Section 84 of the bill (Exhibit I).

 

Chairman Anderson:

When are they planning to do this?

 

Derek Rowley:

I am surprised that they are not here and I think they could have that proposal to the Committee today.

 

Chairman Anderson:

I apologize to the Vice Chair for resuming the gavel, however, I do have another question.  Is this dramatically different than the piece of legislation we had in the last session, or is it substantially similar?

 

Derek Rowley:

Are you referring to the $500 franchise tax proposal of the Seventy-first Legislative Session?

 

Chairman Anderson:

No, I was thinking of another piece of legislation we had in the Assembly.  The franchise tax bill was on the Senate side.

 

Derek Rowley:

The fee bill that was passed last session raised some selected fees in the Office of the Secretary of State but did not address all of the fees.  You may recall that there was a fee change in the initial minimum incorporation fee, which was raised from $125 to $175 by removing one of the capitalization tiers formerly listed in statute.

 

The initial list of officers and directors fee was raised in the last session from $85 to $165 and a few other fees such as the expedite fees were addressed as well.  This bill is dramatically different than that one.

 

What that bill did was to make an attempt to raise additional revenue on primarily new filings.  We are trying to broaden that to raise the revenue on the existing base of entities.

 

Chairman Anderson:

There was another set of issues that resident agents had in the last session and I thought that we had a Judiciary bill that had been introduced.  Are those issues not addressed in this piece of legislation?

 

Derek Rowley:

I was not the president of the Nevada Resident Agent Association during the previous session.  I recall that there was a resident agent bill having to do with industry regulation and that is not addressed in this bill.

Chairman Anderson:

Seeing no one else wishing to testify on A.B. 439, I hereby close the hearing on this bill.  Thank you, Vice Chairman Oceguera, for presiding over the bill. 

 

Let’s open the hearing on A.B. 536.

 

Assembly Bill 536:  Makes various changes to provisions pertaining to business. (BDR 7-454)

 

Renee Parker:

We are appearing in support of A.B. 536, which is the bill from the Office of the Secretary of State.  The purpose of the bill is to standardize numerous filing requirements and allow business entities to file their organizational and related documents in a more efficient manner.  This will allow more efficient processing within our office and facilitate e-commerce to help make Nevada more attractive to new business entities.

 

Scott Anderson submitted some proposed amendments to the bill (Exhibit J), which address the intent of the Department.  The intent of the bill draft request did not come through clearly in bill drafting.  I would like Scott Anderson to take you through the bill.

 

Scott Anderson, Deputy, Commercial Recordings, Office of the Secretary of State, State of Nevada:

Assembly Bill 536 is amended to further standardize the filings processed by our office.  Many of these provisions are housekeeping provisions to clean up many of the procedures that are not standard and may be confusing to our customers or perhaps overlooked in our bill from the 2001 Legislative Session.

 

Many other provisions allow for the streamlining and advancement of our business practices.  I will touch on the major provisions of the bill in some detail and I would be happy to answer questions.  You will find similar or exact changes to a number of chapters of the Nevada Revised Statutes.  Title VII includes numerous chapters that relate to corporations, non-profit corporations, limited liability companies, limited partnerships, limited liability partnerships, and other business entities that make these changes necessary for all of those sections.  When I list several sections in my testimony, it means that changes I am discussing apply to all of those sections.

 

Sections 1, 17, 19, 32, 36, 51, 55, 73, 88, 106, and 124 allow the Secretary of State to prescribe forms for the filings processed in his office.  Documents submitted for filing in the Office of the Secretary of State would be required to be on, or accompanied by, a form prescribed by the Secretary of State.  These forms would contain the minimum requirements for filing.  Entities may attach related documents such as their versions of the articles of incorporation or amendments in their own format.  If there were a disparity between the prescribed form and its attachment, the attachments would rule.

 

That requirement will allow our office to have standardized forms, which would contain the minimum filing requirements for input into our database.  One of the reasons we are doing this is that we may receive articles of incorporation from an entity, a resident agent, or another person wishing to form a corporation that may contain 30 to 50-plus pages and we may only need information from a few of those pages.  Rather than having to sift through all the information, the cover form would contain all the required information, making our process that much more efficient.

 

Also, as we get into our new filing system, which we expect to be online by the end of this year, there will be a number of imaging solutions in place and the potential of using optical character recognition somewhere in the future.  Having standardized forms will allow us to better utilize current technologies.

 

Chairman Anderson:

One of the major concerns that have been raised from time to time in various committees is the reality that, as we move into the computer age, the opportunity to continue to do business at all for those who are not utilizing computer technology may be somewhat limited.  Does this remove or limit the ability to those people who are not computer users to continue their business practices?  Would you continue to have paper forms for those entities to use?

 

Scott Anderson:

That is correct.  We do not intend to eliminate any of the methods of filing in our office.  We are simply enhancing the ability of our customers to utilize technology in their filings.  We will accept filings via the mail or over the counter in paper form.  Those forms would then be scanned into the work flow system and allow us to process them more efficiently.

 

Chairman Anderson:

Will you be charging additional fees for those entities that utilize the paper format rather than the electronic format?

 

Scott Anderson:

That is not our intention at this time.

Renee Parker:

I do not think we anticipate charging extra for people who use a paper format at any time.  The changes are just to facilitate the process for those people who would prefer to use electronic sources.

 

A portion of A.B. 536 would ease the electronic process, but for our customers filing in paper format, there are no changes to our fees in this bill at all.

 

Scott Anderson:

In addition to these provisions, we have asked that the Secretary of State be allowed, through regulation, to provide for the electronic filing of documents in his office.

 

Sections 2, 21, 49, and 98 allow for the Secretary of State to image documents on file in his office.  This will provide more efficient retrieval of these documents for both the staff and the general public as well.  We will continue to transfer these images to microfilm as a means of long-term storage, as directed by the State Library and Archives.  This will just give us another method for our customers and our staff to retrieve these documents from an electronic file rather than taking the time to load a roll of film into a reader to retrieve them.  This will allow for nearly instantaneous retrieval.

 

Sections 3 and 22 allow for corrections of a document by the directors or incorporators of a corporation before stock has been issued or there are no duly elected officers.  Currently, the statutes state that a certificate of correction can only be provided by an officer.  This change will allow those corporations who have incorporated but officers have not been elected and stock options have not yet been issued to file a correction.

 

Sections 5, 9, 45, 46, 81, 84, 96, and 101 add provisions from the Real Estate Division, Department of Business and Industry, instructing the Secretary of State to not accept for filing any organizational documents or amendments from homeowners or unit owner associations without certification from the Real Estate Division that the association has registered and paid the fees pursuant to NRS Chapter 116.  These sections also allow for placing of noncompliant associations in default status until registering and paying such fees.  We have met with the Real Estate Division and have agreed that this would be a method to ensure these associations comply with the provisions of NRS Chapter 116.  These amendments replace the current provisions of NRS 78.150, subsection 8. 

 

These provisions are similar to those requiring certain financial institutions and insurance companies to receive approval from their respective commissioner before organizational documents and amendments may be accepted for filing.  We don’t foresee that this will add a tremendous amount of work to our office.

 

Chairman Anderson:

Could this provision conceivably generate additional administrative revenue for the Real Estate Division and thus for the state?

 

Scott Anderson:

Yes, sir, it would.

 

Renee Parker:

Currently under [NRS] 78.150, subpart 8, we are not supposed to accept the filings unless the associations have paid that fee but we have no way of knowing whether the fee has been paid.  The Real Estate Division has no way of knowing whether a unit owner’s association, if it is not under the same name, or if they cannot search the database of the Secretary of State to discover that certain entities are actually unit owner associations, are under a different name.  In our meetings with them, they asked for the change since we cannot ascertain whether it is appropriate to reject a filing for lack of payment of fees to the Real Estate Division.  The amendment is necessary because they must notify our office before we can place them in default.  They would be unable to collect those fees without this knowledge.

 

Chairman Anderson:

If the name of my homeowner’s association was plain “Black Elk Point,” how would you know that it was a homeowner’s association?

 

Renee Parker:

Currently you would not know that.  The bill would not require anyone to change their name to reflect the association.  It is just that most of them have “homeowner’s association” or “unit owners association” as a part of their names.  There may be a provision in NRS Chapter 116 that does require that, or the Real Estate Division may be amending that statute to include that requirement.

 

Assemblyman Mortenson:

I missed the reason you were going to continue putting images on microfilm.

 

Scott Anderson:

Currently, the State Library and Archives requires that documents be retained on microfilm as the accepted method of long-term storage and retrieval.  It is my understanding that microfilm has a lifespan of up to 100 years or longer and that this has been the standard to maintain records for long-term storage.  I believe there is a bill, sponsored by Assemblyman Bob Beers, that would possibly allow long-term storage of information on electronic medium; however, at this time microfilm is the accepted standard.  We will have the ability with our new system to image the documents and then take those images from our database and transfer them to microfilm for storage at the State Library and Archives.

 

Assemblyman Mortenson:

It is my understanding that optical storage on CD discs also has 100-year storage capability and the cost is a mere fraction of the enormous cost of the microfilm. 

 

Scott Anderson:

Sections 6, 25, 38, 56, 66, 74, 83, 89, 100, 107, and 117 add the declaration that the filer of an annual list acknowledges that it is a Category C felony to knowingly offer any false or forged instrument for filing with the Office of the Secretary of State.  This language was a result of some regulatory hearings and as a result of Senator Ann O’Connell’s bill during the Seventy-first Legislative Session, because there had been some concern about parties coming into the Office of the Secretary of State and changing the list of officers fraudulently.  While we don’t have the ability to verify 206,000 annual lists as correct, we, through these regulatory hearing arrived at this disclaimer language that will be included on the annual list forms where the person filing the list does acknowledge the Category C felony.

 

Sections 10, 29, 42, 53, 60, 69, 78, 84, 93, 102, 111, and 120 provide for written notice, as opposed to a letter, when an entity is in default or its status has been revoked.  This will allow for notifications to be sent in other forms such as postcards, and upon request of the resident agent to which these notices are sent, in electronic form, thus reducing the costs of supplies and postage.  Electronic notifications will be delivered promptly as opposed to the delays associated with mail notifications.  Again, this will not replace written notification as far as the electronic form is concerned.  Rather, it will be an option available to the users of our office.

 

Sections 11, 30, 43, 61, 70, 79, 85, 94, 103, 112, and 121 provide for the issuance of a certificate of reinstatement upon request and payment of proper certificate fees.  Currently, one or more copies of a certificate of reinstatement may be requested at no additional charge to the customer.  Other certificates such as certificates of existence or certificates of good standing require payment before issuance.  This would create a certificate fee and have the potential to increase revenue in our office.  As Rene Parker reminded me, we experience a number of postal returns as “undeliverable” when we send these certificates.  This would require the user to provide us proper information and to pay a fee to receive a certificate of reinstatement.

 

Sections 20, 44, 62, 80, and 95, allow for foreign entities to reinstate under a new name if their name has become unavailable.  This directly follows the current provisions for domestic business entities.  An entity may go into revocation at which time its name becomes available for use by another artificial person organizing in the state.  If that name has been used by another entity, then they need to have a way to reinstate their business under another name.  That new name would become the name of record on the records of the Office of the Secretary of State.

 

Sections 7, 26, 39, 57, 67, 75, 90, 101, 108, and 118 allow for other types of proof of payment other than a cancelled check such as credit card receipt, trust account voucher, or electronic payment verification, as an instrument authorizing it to transact business in this state.  Currently, the cancelled check is the certificate that authorizes the corporation or other business entity to do business in the state.  This change will allow other types of proofs of payment to be used as the certificate.  These sections also remove the formal certificate requirement thus eliminating the additional supply costs associated with this seldom-used certificate.  Over 205,000 lists include this certificate, which are printed annually on legal-sized paper or on an additional letter-sized sheet.  The change will reduce the amount of supplies and printing costs to the Office of the Secretary of State.  There are relatively few people who actually use the certificate.  It is often discarded—either it will not be on the list submitted or thrown away at the time of processing because it is not requested.

 

Chairman Anderson:

Do you have a copy of your testimony for the Committee?

 

Scott Anderson:

Yes, I will supply that for the Committee (Exhibit L).

 

Sections 22, 33, 37, 54, and 86 allow for certificates of correction for all types of business entities.  This standardizes the certificate of correction process.  An entity may file a certificate of correction correcting an inaccurate record of an action described in the document, or if the document was defectively executed, attested, sealed, verified, or acknowledged.  This provision is currently not in all the sections and we feel it is something that would be beneficial to our customers.

 

Sections 38 through 44, 56 through 62, 74 through 80, 89 through 95, and 107 through 113 add filing provisions for foreign non-profit corporations, foreign limited liability companies, foreign limited liability partnerships, foreign limited partnerships, and foreign business trusts.  While these have some of the same filing requirements as their domestic counterparts, there was some confusion amongst our customers as to the foreign filing provisions.  Placing the provisions within the foreign sections of these chapters will alleviate some of this confusion by specifying the filing provisions for foreign entities.  It is merely clarification and does not change the current practices.

 

Assemblyman Brown:

With regard to the correction filing, will that be accompanied with a $150 filing fee as shown on page 14, line 9?

 

Scott Anderson:

That is the current fee being charged in [NRS] Chapter 78 and we are making the fees standard throughout all these chapters.

 

Assemblyman Brown:

That is for a correction in [NRS Chapter] 78?

 

Scott Anderson:

That is correct.  The fee is set similar to a fee for an amendment.  There were discussions in prior legislative sessions because previously these companies were not allowed to make a correction if they had errors and omissions in their filings.  They had to file an amendment, which required, in some cases, a shareholder or officer approval, whereas a correction can be made by an officer of the corporation or another entity.

 

Assemblyman Brown:

So you had better use your spell checker before you file?

 

Scott Anderson:

Absolutely.

 

Chairman Anderson:

We will try to put A.B. 536 on our work session document for next week and get the bill moved out of Committee.

 

Let me add to the record for A.B. 341 the statement from Lynn Bigley of the Nevada Disability and Law Center (Exhibit K) in support, and the amendments for A.B. 439 provided by Dan Musgrove (Exhibit G).

Let me indicate to the members of the Committee that I have not reported to you that we have any minutes ready for this Committee to approve.  We are a little bit behind in terms of getting the minutes in our books.  They are also changing the procedure somewhat.  Those of us who have sets of minutes for review need to help by moving those sets along.

 

We will have a small work session during our meeting on April 3, 2003.

 

Seeing no further business before the Committee, we are adjourned [at 10:51 a.m.].

 

 

RESPECTFULLY SUBMITTED:

 

 

 

                                                           

Cindy Clampitt

Transcribing Secretary

 

 

APPROVED BY:

 

 

 

                                                                                         

Assemblyman Bernie Anderson, Chairman

 

 

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