MINUTES OF THE
SENATE COMMITTEE ON JUDICIARY
Sixty-seventh Session
June 15, 1993
The Senate Committee on Judiciary was called to order by Chairman Mark A. James, at 4:50 p.m., on Tuesday, June 15, 1993, in Room 224 of the Legislative Building, Carson City, Nevada. Exhibit A is the Meeting Agenda. Exhibit B is the Attendance Roster.
COMMITTEE MEMBERS PRESENT:
Senator Mark A. James, Chairman
Senator R. Hal Smith, Vice Chairman
Senator Lawrence E. Jacobsen
Senator Mike McGinness
Senator Dina Titus
Senator Ernest E. Adler
COMMITTEE MEMBERS ABSENT:
Senator Raymond C. Shaffer (Excused)
GUEST LEGISLATORS PRESENT:
Assemblyman John Bonaventura, Clark County Assembly District No. 3
Assemblyman John C. Carpenter, Assembly District No. 33
STAFF MEMBERS PRESENT:
Dennis Neilander, Senior Research Analyst
Marilyn Hofmann, Committee Secretary
OTHERS PRESENT:
Dale A. Erquiaga, Chief Deputy Secretary of State, State of Nevada, Office of the Secretary of State
Ande Engleman, Nevada State Press Association
Robert A. Cavakis, Director, Youth Corrections, State of Nevada, Department of Human Resources
Harvey Whittemore, Lionel Sawyer & Collins
Bill Bible, Chairman, State of Nevada, Gaming Control Board
Nancy Price, Private Citizen
Bob Barengo, representing Leroy's Horse & Sports Palace, Las Vegas, Nevada
Fred Hillerby, Nevada Society of Certified Public Accountants
William P. (Pat) Cashill, Nevada Trial Lawyers Association
John Fowler, Attorney, Vargas and Bartlett, Reno, Nevada
Senator James opened the hearing on Assembly Bill (A.B.) 494.
ASSEMBLY BILL 494: Provides for registration of securities exchanges located in Nevada.
The first to speak was Assemblyman John Bonaventura, Clark County District No. 3. Mr. Bonaventura spoke from a prepared statement, which is attached hereto as Exhibit C. He also provided the committee with a letter from Secretary of State Cheryl Lau which was presented during the hearing on the bill in the assembly committee. A copy of that letter is attached as Exhibit D. Mr. Bonaventura indicated there was no fiscal note attached to the bill, and he provided the committee with a copy of the assembly minutes of April 22, 1993, which address that issue. A portion of those minutes are included as Exhibit E.
Senator James pointed out section 4 of the bill limited the types of companies which could have securities traded on the exchange to those which have created five full-time jobs in the State of Nevada. He asked Mr. Bonaventura to explain the reasoning behind that provision. Mr. Bonaventura answered this was designed to eliminate fraud. He said he would not like to see persons registering securities by establishing only a post office box in the state. Mr. Bonaventura added he believed only stable, existing companies should be covered by this legislation. Senator James asked if it was the intent of the legislation to limit the exchange to Nevada companies trading Nevada securities. Mr. Bonaventura answered the trading would have to be limited to Nevada companies in order to be legal under federal guidelines set forth by the Securities Exchange Commission (SEC).
Mr. Bonaventura said it was not against federal regulations for a state to have a state securities exchange, so long as the companies which are based in the state register with the SEC.
Senator James asked if a representative of the secretary of state's office could comment on whether there was something in the law which would prevent Nevada from having a securities exchange which could trade securities of other companies. Dale A. Erquiaga, Chief Deputy Secretary of State, State of Nevada, Office of the Secretary of State, responded. Mr. Erquiaga said it was his understanding there was nothing in the federal law which would prohibit it, but it would have to be enabled by Nevada law in order to operate within Nevada's borders. Senator James said he did not know why the exchange should be restricted to only companies with five full-time jobs in Nevada. Mr. Bonaventura reiterated his comments regarding possible fraud.
Senator James said the more companies which were registered in the exchange the more credibility the exchange would have. He added if the exchange was restricted to only Nevada companies, "...you foreclose anybody else who might want to register on this exchange."
Mr. Erquiaga stated the bill was presented to the secretary of state's office as an "economic tool" which would explain why the language was designed to be tied directly to jobs in Nevada. He added this was not done intentionally to keep out-of-state companies from registering. Mr. Bonaventura said he understood the federal law prohibited out-of-state companies from registering unless that company was based in Nevada. Senator Jacobsen questioned whether the secretary of state's office should be promoting or endorsing this type of operation. Mr. Bonaventura stated the secretary of state did not propose the bill but did support the legislation. He said the bill called for the secretary of state to regulate its provisions.
Senator James stated:
I want to have a chance to see what the federal law is which would prevent you from having non-Nevada companies in the securities exchange...if you are going to set up a Nevada securities exchange, it would have to be something that could compete with other capital markets, to try to have a viable securities exchange in Nevada that can attract investors...it seems to me that it goes against the intent of the bill that you would limit that to just companies that had jobs in Nevada. The more capital you are raising in that market the better....
There was no further testimony on A.B. 494 and the hearing was opened on Assembly Bill (A.B.) 581.
ASSEMBLY BILL 581: Requires superintendents of Nevada youth training center and Caliente youth center to notify public upon escape or apprehension of inmate.
The first to speak to the committee was Assemblyman John C. Carpenter, Assembly District No. 33. Mr. Carpenter stated the bill was good for public safety since there have been some incidents in Elko where inmates have escaped which have led to hostage situations and car thefts. He said if the public is notified when an inmate escapes, they can be on the lookout for those persons.
The next to testify was Ande Engleman, Nevada State Press Association. Ms. Engleman said the law as it presently stands requires that information on juveniles be kept confidential. She added the attorney general's office has interpreted the law to say no descriptions of escapees can be released. Ms. Engleman said there was a higher "trust factor" in the urban communities and people are more likely to pick up a hitchhiker or let a young person into their homes. She said passage of S.B. 494 would allow the public to be warned by radio broadcasts if there is an escapee in the area. Ms. Engleman pointed out only the description of an escaped youth is released, not the name of the escapee.
Senator Jacobsen expressed some reservation about the bill and asked how many escapes there have been from the Elko youth training center and the Caliente center. He also asked if youthful offenders are classified as "inmates." Responding to Senator Jacobsen was Robert A. Cavakis, Director, Youth Corrections, State of Nevada, Department of Human Resources. Mr. Cavakis said those offenders are described as inmates. He said in 1989 there were 18 escapes, but in the past year there were only 6 from the Elko facility and 4 from Caliente. He said there was a problem in that there was no definition of "escape" in the statutes with respect to juveniles. Mr. Cavakis indicated he wanted to make sure the new law would include "walking away from a field trip" as an escape.
Ms. Engleman said in Reno and Las Vegas, reporters are assigned to the "police beat," so when law enforcement was notified, "...you would essentially be notifying the media." Mr. Cavakis stated law enforcement should also be notified upon apprehension.
Senator Jacobsen said he was also concerned about the publicity surrounding an escape from a youth center, since "...not enough good stories are told about those places...and we enhance the bad stories." Mr. Carpenter responded by saying the Elko community "is very responsive to the students that are out there." He added those inmates competed with the local children in sporting events and the community attempted to include them in community activities. However, he added, when one escapes, "...it puts him into a different category than when they are playing ball...."
Ms. Engleman said an escapee "...is in a desperate situation and may resort to desperate measures, and the public needs to be warned."
Senator Adler reiterated he did not believe "escape" was a violation of the juvenile code as it is now written and should be clarified. Senator James asked if the crime of "escape" needed to be created in order to pass the bill. Senator Adler responded that definition was in the code of the Department of Prisons, but it did not include juveniles. Mr. Carpenter said the point of the bill was not to make an escape a crime but rather to provide for notification to the public. Mr. Cavakis said an escape was handled by the department administratively and the youth was not charged with a crime.
There was no further testimony on A.B. 481, and the chairman indicated he would accept a motion on the bill.
SENATOR SMITH MOVED TO DO PASS A.B. 481.
SENATOR JACOBSEN SECONDED THE MOTION.
THE MOTION CARRIED. (SENATOR SHAFFER WAS ABSENT FOR THE VOTE.)
* * * * *
The next bill before the committee was Assembly Bill (A.B.) 611.
ASSEMBLY BILL 611: Makes various changes to statutes governing pari-mutuel wagering.
The first to testify was Harvey Whittemore, Lionel Sawyer and Collins, appearing in support of A.B. 611. Mr. Whittemore said the bill revises the definition of off-track pari-mutuel systems to include systems used to allow wagers to be accepted on sporting events inside the State of Nevada. He said under existing law there was a prohibition on accepting such bets and the new law would allow wagers to be placed on all sporting events with the exception of jai alai. Mr. Whittemore stated in 1991 the legislature amended Nevada Revised Statutes (NRS) 464.040 to provide that all off-track pari-mutuel sports wagering would be subject to a gross revenue fee. He said A.B. 611 continues that policy statement. Mr. Whittemore added the bill was "a continuation of a policy statement which has reflected the fact that gaming should continue to prosper in this state."
Senator Titus asked why jai alai was not included in the bill. Mr. Whittemore answered jai alai has a specialized betting system and is covered by a separate regulation. He added there are no jai alai games in Nevada.
The next person to speak was Bill Bible, Chairman, State of Nevada, Gaming Control Board. He agreed with the testimony provided by Mr. Whittemore. Mr. Bible referred to the question regarding jai alai and said that game was covered by Nevada Gaming Regulation 26.
The next to testify was Nancy Price, private citizen. She spoke in opposition to A.B. 611 and provided a statement, set forth as Exhibit F.
Senator James stated he appreciated Ms. Price's concerns but indicated legal betting is a small percentage of all betting which is done in Nevada and added, "We don't do much to address the problem, if there is one, by outlawing legal betting from occurring." He also pointed out her statement addressed illegal betting, not covered by this legislation.
The last person to appear before the committee was Bob Barengo, representing Leroy's Horse & Sports Palace in Las Vegas, Nevada. Mr. Barengo testified in favor of A.B. 611, but against the position taken by Ms. Price in her statement.
There was no further testimony and the chairman closed the hearing on the bill.
SENATOR SMITH MOVED TO AMEND AND DO PASS A.B. 611.
SENATOR TITUS SECONDED THE MOTION.
THE MOTION CARRIED. (SENATOR SHAFFER WAS ABSENT FOR THE VOTE.)
* * * * *
The chairman opened the work session on Senate Bill (S.B.) 513, Assembly Bill (A.B.) 387 and Senate Bill (S.B.) 352.
SENATE BILL 513: Makes various changes regarding professional corporations and limited-liability companies.
Senator James stated although there was conflicting understanding in the previous hearing on the bill, the legislation would allow someone outside the state, not licensed to render professional services within the state, to own a piece of a Nevada professional corporation. He said the issue now was "whether or not, as a policy matter, that was a good idea." The chairman indicated the committee had received letters from William P. Cashill, Nevada Trial Lawyers Association, and John Fowler, Attorney, Vargas and Bartlett, Reno, Nevada, both of whom would testify during this work session.
Senator James asked Fred Hillerby, Nevada Society of Certified Public Accountants, if he had information on how other states handled the issue addressed in S.B. 513. Mr. Hillerby answered he knows approximately 17 states have limited-liability company acts, but indicated he has not been able to obtain additional information. Senator James stated passage of the bill would change the law, not just with respect to limited-liability companies but to professional corporations in general. He said two things would be done: (1) Allow professional corporations to set up tax-advantaged limited-liability companies; and (2) Allow national firms to own companies in Nevada, wherein the owner may not be a natural person but rather a corporation organized in another state. Senator James continued to say the law states "only people who are rendering services in Nevada need be licensed in Nevada." He said he believed that was "good, sound policy for Nevada."
Senator James stated an issue was raised as to whether or not S.B. 513 changes the liability of professional corporations regarding malpractice and indicated it did not. The chairman was advised by Mr. Fowler that it was not a requirement in the state that a professional corporation carry malpractice insurance.
Mr. Cashill provided the committee with an article which appeared in the Reno Gazette Journal, which is set forth as Exhibit G. He discussed that article, which involved a travel agency which obtained money from students for a trip to Europe, then canceled the trip without returning the funds. Mr. Cashill said the regulatory scheme in the state covering all professions "attempts to ferret out those who are qualified and those who are not qualified." He said the people of Nevada "hope the professionals into whose hands they place their affairs...are competent and are able to respond to them in the event something goes wrong." Mr. Cashill stated S.B. 513 "will run roughshod over the regulatory scheme and multiboard agencies we have in the state which see to it that professionals are accountable to somebody here when they practice their professions here." He suggested because of the magnitude of the change S.B. 513 makes in existing statutory framework, "...it is best not dealt with at this late stage of the session."
Senator James stated the statute as it now exists requires all stockholders, directors and officers who render professional services in the state to be authorized by law to render those services. Mr. Cashill agreed that was existing state law but added:
There are other aspects of the bill which go far afield of that...and allow unlicensed professionals and unlicensed professional corporations to not only practice but to become involved in the management of limited-liability professional corporations.
Senator James asked where in the bill it allowed "those corporations to practice." Mr. Fowler stated the bill does not permit unlicensed professionals to practice in the State of Nevada, but does say "professionals, professional corporations and professional limited liability companies from other states can own ownership interests...." He said he did not see why professional corporations and professional limited-liability corporations should be treated differently than any other business in this respect. Mr. Fowler stated he believed the public would be well protected. He added any person or company which participates in an act of malpractice in the state or which causes damage to a Nevada transaction or entity, "...is subject to the jurisdiction of these courts and can be sued here...whether they have a license in New York or Nevada." Mr. Fowler stated the control of various boards over professionals is preserved "...because anyone who practices here has to be licensed here."
Mr. Cashill stated: "This bill is internally inconsistent...it is going to be a nightmare for the state to administer." He referred to section 8 of the bill which states, "Professional corporations shall certify that all members...all managers and all employees rendering services in the state, are licensed or otherwise legally authorized to render those services...." Mr. Cashill then referenced section 6(a) and section 7(2) both of which eliminate the requirement that managers or employees be licensed as professionals in the state. He said this creates a "morass of misunderstanding."
Mr. Cashill continued:
This bill would allow a natural person who happens to be a citizen of New York or a professional corporation based in New York, to purchase Edward M. Bernstein & Associates lock, stock and barrel, and operate it from Manhattan, without being subject to the regulatory requirements of the Nevada State Bar...I think that is wrong...If one cannot see the puppet master's lips move when the marionette speaks here, then perhaps the marionette will get by, but I am not sure that is what we want.
Senator James asked if that situation did not occur throughout the country. He said he could not imagine Nevada was the only state that would not allow a professional corporation to have an ownership interest in the state. Mr. Fowler said there was no restriction on partnerships, such as national accounting firms. Senator James asked Mr. Cashill how professional corporations would differ from partnerships in that regard. Mr. Cashill answered, "In a partnership, the liability of a general partnership extends to each of the general partners." He said if a general partner out of the state participates in a decision that results in an act here which harms a person, that person can go up the chain of command to the general partnership. Mr. Cashill said the assets of the partnership as well as the general partners could be subject to being utilized to compensate the person who was harmed. He then stated, "The very purpose of this limited- liability legislation is to restrict the reach of a person who has been harmed."
Mr. Fowler stated:
If malpractice is committed, the people who commit it are answerable...the assets of those persons' employers are answerable...that is the same with any other kind of corporation or enterprise. That principle continues. The issue of whether we should require people doing business together as professionals be partnerships...that issue was decided 25 years ago when this statute was first put in place.
Senator James asked:
What if you had a lawyer in another state, who wasn't authorized to practice in Nevada...who is a shareholder of a professional corporation in another state...and he makes a decision which hurts a person in Nevada...you would want to go after him for negligence. Could you do that under this legislation? Would you be subject to his limited liability in another state?
Mr. Fowler answered the Nevada party would not be subject to that lawyer's limited liability because he participated in the act and said that lawyer could be sued under the general principles of tort liability. Senator James asked Mr. Cashill if he agreed with Mr. Fowler's statement. Mr. Cashill replied:
If the decision were made [in another state]...which resulted in harm to a person in Nevada, I don't know if that person would ever be accountable in Nevada for the wrongs, unless that person were licensed here under existing laws.
There were no further questions from the committee and no further testimony on S.B. 513. Senator James indicated he would further study the concerns set forth by Mr. Cashill and Mr. Fowler. He said the intent of the bill was not to change the status of liability or protection of the public with respect to the rendering of professional services.
ASSEMBLY BILL 387: Makes various changes concerning corporations and similar entities.
The committee members reviewed the amendments to the bill.
SENATOR MCGINNESS MOVED TO AMEND AND DO PASS A.B. 387.
SENATOR JACOBSEN SECONDED THE MOTION.
THE MOTION CARRIED. (SENATOR SHAFFER WAS ABSENT FOR THE VOTE.)
* * * * *
SENATE BILL 352: Creates lien upon earnings and property of offender for costs of incarceration.
An amendment to the bill, prepared by Senator Adler and set forth as Exhibit H was discussed by the committee. Senator Adler explained the amendment which would provide many exemptions to the provisions of the bill.
SENATOR TITUS MOVED TO INDEFINITELY POSTPONE S.B. 352.
SENATOR SMITH SECONDED THE MOTION.
THE MOTION CARRIED. (SENATOR ADLER AND SENATOR JACOBSEN VOTED NO. SENATOR SHAFFER WAS ABSENT FOR THE VOTE.
* * * * *
There was no further business to come before the committee and the meeting was adjourned.
RESPECTFULLY SUBMITTED:
Marilyn Hofmann,
Committee Secretary
APPROVED BY:
Senator Mark A. James, Chairman
DATE:
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Senate Committee on Judiciary
June 15, 1993
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