The Senate Committee on Judiciary was called to order by Chairman Mark A. James, at 8:40 a.m., on Wednesday, February 3, 1999, in Room 2149 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Senator Mark A. James, Chairman

Senator Jon C. Porter, Vice Chairman

Senator Mike McGinness

Senator Valerie Wiener

Senator Terry Care

COMMITTEE MEMBERS ABSENT:

Senator Maurice Washington (Excused)

Senator Dina Titus (Excused)

STAFF MEMBERS PRESENT:

Janice McClure, Committee Secretary

OTHERS PRESENT:

OTHERS PRESENT: (Cont.)

Chairman James opened the hearing on Senate Bill (S.B.) 17.

Nick Niarchos, former Senior Vice President, General Counsel, Howard Hughes Properties, stated that Howard Hughes Properties asked him to represent them in support of S.B. 17. Mr. Niarchos explained that in all cases the developer, under close supervision of the applicable local government, builds public improvements and then dedicates them to the local government. Such improvements are built pursuant to government specifications. Construction of such improvements is closely monitored and inspected by the local government. Mr. Niarchos continued upon completion of improvements, dedication of such improvements is accepted by the local government only after the local government confirms that the improvements have been built pursuant to the approved plans and the approved codes. He said even after the local government has accepted dedication of the improvements the developer remains liable for a year to the local government to correct any defects which may be uncovered. Upon completion of the improvements, dedication of the improvements, and acceptance by the local government, the improvements are operated and maintained by the local government. He pointed out this represents a unique private partnership whereby the public infrastructure cost is absorbed by the private sector, but the local government maintains control of the design and construction.

Mr. Niarchos explained that because the local governments have a $50,000 limitation of liability, personal injury claims have resulted in lawsuits against the developer as much as a decade after construction of a public improvement. Senate Bill 17 will shorten to 3 years the applicable time period in which an action for personal injury related to the design or construction of a public improvement can be brought. After 3 years no action could be brought against any entity, whether it is a private developer or local government, for the design and construction of the public improvement. If an injury were to occur in the third year the claimant would have up to 3 years to bring the lawsuit. After 3 years both the developer and the community can close the book and move on. He pointed out the bill does not eliminate or even cap the developer’s liability as a government’s liability is capped. If a lawsuit is brought within that 3-year window there is no limit on the developer’s liability. The 3-year limitation is not effective if the developer intentionally wrongly conceals a defect or other problem with the improvement. If some kind of fraud is conducted the 3-year limitation does not apply. The bill does not eliminate any cause of actions, which may or may not exist under Nevada law and does not affect or modify the statute of limitations for any other area of construction defects such as private community improvements. The bill only applies to public improvements which are required by local government and which will be accepted by the local government. Senate Bill 17 only provides for a much more reasonable limitation period in which actions must be commenced.

Senator Care asked Mr. Niarchos if he could give the committee an idea of how many such lawsuits were filed in Clark County last year as opposed to 5 years ago.

Mr. Niarchos responded that he did not have those numbers, but had met with the Southern Nevada Homebuilders Association recently and at least three or four of the developers at that meeting described lawsuits in which they were involved. One had to do with an accident on a sidewalk and the driver had no insurance, so they went against the developer. The lawsuits are numerous enough to be a problem. He indicated the remedy that would be provided by the adoption of S.B. 17 is a fair compromise for the situation.

Senator Care questioned if the 3-year limitation is the period of time the developers feel is equitable. Mr. Niarchos responded yes, with the level of activity on a public improvement; i.e., a road or sidewalk, a problem will be known within 3 years.

Senator Wiener asked Mr. Niarchos to define "substantial completion" as stated in S.B. 17. She also asked for further interpretation of the 3-year limitation provision. She queried if an injury occurs in the third year, would the liability then be expanded to 5 years, 364 days?

Mr. Niarchos responded that only for an alleged injury that actually occurs in the third year, the liability would be expanded to 5 years, 364 days. If for some reason an accident occurred that was related to the design or construction in the third year, that individual would have an additional 3-year period to bring a claim.

Mr. Niarchos believes the term "substantial completion" is a construction term that is somewhat ambiguous. He suggested that perhaps it could be tied into the local government accepting dedication of the improvements, or otherwise puts them into operation for public use.

Senator McGinness questioned if the 3-year limitation to file a claim is a standard time frame for the type of accident being discussed here.

Mr. Niarchos responded that if someone were to be hurt within the third year or have an alleged claim that arose within that time period, they would not be barred by the lapsing of the original 3 years. As far as that single claim goes they would have another 3 years to actually bring a lawsuit.

Chairman James asked if a risk was being taken in order to cut off liability at some point.

Mr. Niarchos responded that the private community is entitled to the same protection as government in connection with the act of doing governmental activities.

James L. Wadhams, Lobbyist, Southern Nevada Homebuilders Association, and American Insurance Association, stated there are many circumstances where there may be homeowner associations that are required to be responsible for the maintenance of a variety of areas in a development that would be considered public. Those homeowner associations are made up of individual homeowners which brings the liability to them as well. He stressed this is not just a suggestion to insulate developers, but to find the striking point for bringing such actions and for the protection of anybody who might be in the position of being a builder. The other issue raised here is who should pay when the benefit of few comes at such a high cost to many. This is one of the areas requiring legislative attention.

Senator Care questioned Mr. Wadhams regarding Mr. Niarchos’ expression "developer pre-dedication liability." Mr. Wadhams responded that he does not know that there is a particular cause of action identified beyond Mr. Niarchos’ description of developer pre-dedication liability.

Senator Care questioned if the current statute of limitation is beyond 10 years. Mr. Wadhams responded that it depends on whether the deficiency is latent, patent or fraudulently concealed. He stated that Mr. Niarchos is merely modifying the statutes in that regard.

Chairman James understood that Mr. Niarchos was saying once the improvements are dedicated to the governmental entity they are responsible for the improvements and any lawsuit would have to be against that governmental entity. If there is liability of the developer that theory would have to be asserted within the 3-year period.

Mr. Wadhams replied it is his understanding that Mr. Niarchos is saying there should be a period of time after which such suits cannot be brought. The entire statutory scheme, statute of limitations and statutes of repose are designed to strike a balance so that the developers know when they are done being at risk.

Chairman James stated that S.B. 17 does not deal with whether or not there is a proper theory of liability against a developer who dedicates public improvements. Senate Bill 17 also does not get at the issue of whether or not there ought to be greater responsibility of government.

Mr. Wadhams stated that he believes Mr. Niarchos just wants to have a period of time after which the developers do not have to engage in the debate of responsibility.

Robert C. Maddox, Lobbyist, Nevada Trial Lawyers’ Association, stated that S.B. 17 goes far beyond what Mr. Niarchos and Mr. Wadhams have described. He said there is no valid public purpose for this bill. If this bill is enacted it would encourage developers and the subcontractors who work for them to engage in sloppy work in building streets, sewers, sidewalks, curbs, gutters and other public improvements. He furthered S.B. 17 puts the burden of the risk of loss on the homeowners and taxpayers of the State of Nevada; persons injured when streets collapse and sinkholes form; and persons who suffer ill health effects because of sewage seeping into ground water or sewage backing up into homes. Senate Bill 17 protects the developers who create the conditions that cause harm. The language of the bill is broad enough to include the streets and the sewers within a homeowners association. He maintained after 3 years from construction the homeowners and the homeowner associations are going to have to bear all the costs associated with defective construction. He asserted that most problems do not manifest until long after 3 years from the time subdivisions are built. Mr. Maddox referred to a specific situation wherein 6 or 7 years after a subdivision had been built the homeowner discovered that the sewer line was never connected to the sewer main.

Chairman James inquired of Mr. Maddox what the existing statute of repose is for a latent defect on a sewage back-up case.

Mr. Maddox responded the existing statute of repose is in Nevada Revised Statutes (NRS) 11.204 and it would be 8 years for a latent defect except if an injury occurs in the eighth year, it is extended an additional 2 years.

Chairman James stated that S.B. 17 is reducing that 8-year period by 5 years.

Mr. Maddox stated that ordinarily a person has 2 years from the date of an injury to bring a lawsuit which is also within the 8-year period. There is no need to shorten the time frame any further. He hopes that some of the governmental entities in Nevada will speak up against this bill because it cuts off the right of the governmental entity to go back against the developer when these problems happen with publicly owned streets, sewers, sidewalks, and the like. The 1-year warranty exists only if it is spelled out in a written contract. Otherwise, the city has a 4-year period from the time of discovery of the problem which should not be shortened. If the developers and governmental entities want to shorten it by contract, then let that happen by contract, but not by statute. The taxpayers should not have to bear the burden simply because the developer does a terrible job of creating these improvements that have been turned over to a governmental entity.

Mr. Maddox stated he further believes that it is completely wrong for S.B. 17 to have retroactive application. The consumer attorneys of California had to deal with situations like this in the 1996 California Legislature. They did a study of statute of repose across the entire United States which indicates that nowhere in the United States is the statute of repose anywhere close to being as short as is being proposed here, a mere 3 years. California has a 10-year statute for latent defects. He justified many states have 10-year or 12-year statutes. In some states the local supreme courts have stricken the statute of repose as unconstitutional. Mr. Maddox pointed out it is clear to him that this is a bill being presented only to protect wealthy developers throughout the State of Nevada and has no valid public purpose. Mr. Maddox urged the Legislature to dump this bill in the trash heap of other unjustified special interest proposed legislation.

Senator Care inquired if Mr. Maddox would have a problem with bringing the current statute of the 8-year limitation down to 6 years.

Mr. Maddox responded yes, he would have a problem with 6 years because he does not even like the 8-year limitation. He does not want to see the limitation shortened at all.

Bill Bradley, Lobbyist, Nevada Trial Lawyers’ Association, stated that the most important question is who is going to benefit and who is going to receive the burden. He remarked if S.B. 17 is approved, the developers will get a break on their insurance premiums because the exposure is not as long and if that is the case, premiums are going to get cheaper. Mr. Bradley stated he does not believe that the homeowners or the taxpayers are going to benefit at all from S.B. 17. The homeowners and the taxpayers are ultimately going to be the victims of negligent building. Government liability in the State of Nevada is by no means absolute.

Chairman James stated that if a developer does a public improvement as part of the development project and there is a defect, the developer is liable for the full extent. He suggested if the government takes over the public improvement and does a shoddy job on the maintenance, the government’s liability is capped at $50,000. Chairman James inquired if there was fairness in such a situation.

Mr. Bradley gave an example of a development where there is a decision to place a stop sign at an intersection. The decision to place a stop sign is discretionary, but once the stop sign is there it is a governmental duty to maintain the stop sign.

Chairman James then stated if the government fails to clip back the tree at the stop sign, eventually the tree covers the stop sign and, if that is the cause of an accident, it would be an absolute duty of the government and they would be liable, but only for $50,000.

Mr. Bradley pointed out that this matter has far reaching ramifications other than personal injury claim. At the end of the 3-year period, if there are defects, the government is going to pay for the repair. The burden is shifted to the government entity without any responsibility on the person who caused it which is the problem with the 3-year, 4-year, or 6-year period.

Mr. Maddox further pointed out that S.B. 17 would not reduce the statute of repose for claims against a governmental entity related to the defect itself. He stressed the mandatory-duty situation that Mr. Bradley was talking about is a different area. As far as responsibility for the construction defect, the statute of repose would not be reduced as to that claim because that claim has to be based on the theory that the government entity knew of the defect. This bill would not provide the same benefit to the governmental entity that it would provide to the developer.

Chairman James responded that the governmental entity is included in this part of S.B. 17.

Mr. Maddox further stated that the governmental entity is mentioned because the theory for the construction defect has to be because the government knew of it. In that type of claim the statute of repose would not be reduced. If it is this committee’s decision to place the burden on municipalities, Mr. Maddox hopes there will be the funding to create a lot more inspectors and a lot more training to keep up with all of the growth.

There being no further testimony on the bill, Chairman James closed the hearing on S.B. 17 and opened the hearing on Senate Bill (S.B.) 18.

Chairman James stated that S.B. 18 is a bill he requested on behalf of the Senate Committee on Judiciary during the interim. Senate Bill 18 would make the trafficking in biological weapons to be used for purposes of violence, or a weapon, a crime in Nevada. He pointed out there was a case in Las Vegas where there was a scare about some individuals who had possession of what was thought to be biological weapons which greatly concerned the federal government and federal agents. The people involved with the alleged weapons were arrested, but it turned out as either a hoax or they had some other purpose for having the biological agents. In that context, Chairman James then requested research of Nevada law to determine whether or not Nevada had an appropriate statutory mechanism to prosecute those who traffic in biological weapons for violence or other terrorist purposes. He was surprised to learn Nevada had no such law. Chairman James stated he believes this is an oversight in Nevada statutes as these sorts of biological weapons have developed and it has become possible to have them in society. He stressed it is time to examine this issue and pass a law in Nevada to give our local and state authorities the ability to prosecute someone who traffics in biological weapons for purposes of violence.

Chairman James emphasized this bill would make anyone who knowingly develops, produces, stockpiles, transfers, acquires, retains, or possesses a biological agent, toxin, or delivery system for use as a weapon, or knowingly assists someone to do so, guilty of a Category A felony. The penalty here is life with the 10-year minimum, or an indefinite term of 25 years with the 10-year minimum, which would be true 10-year minimums under Nevada’s "truth-in-sentencing bill" passed two sessions ago. He pointed out the term "for use as a weapon" writes in some exceptions, such as the possession of these kinds of agents for prophylactic, protective or other peaceful purposes. So S.B. 18 protects those who might have a justification for having these things in their possession, which apparently would apply to the individuals who were apprehended with the anthrax in Las Vegas. This bill fills a hole in our statutes with the increasing concern throughout the world and throughout our country about terrorism. Chairman James expressed although the federal government has the primary responsibility to protect us from international terrorism, it is very important that Nevada have a law that applies to this kind of terrorism. This bill will bring Nevada consistent with the federal laws with regard to this particular type of terrorist mechanism.

Senator Wiener questioned with regard to the fiscal note, what the procedure of enforcement would be if the federal government has primary jurisdiction and Nevada has state law.

Chairman James replied he does not believe there is any fiscal note. He said it is similar to a lot of these crime bills that deal with crimes that rarely occur. In a lot of these situations the state jurisdiction will have a case pending against somebody which can be prosecuted in both courts. He pointed out double criminal liability is sometimes effective and is used in the process of trying to plea bargain with the individual or coming up with an ultimate sanction. Anything having to do with an interstate crime is within federal jurisdiction and there is a huge federal mechanism in place for prosecuting drug offenses. He surmised that just because the federal government is very active and prosecutes drug traffickers, that Nevada should not repeal its trafficking statutes.

Chairman James stated he does not believe a fiscal impact on this issue can be determined. If you have one or two cases and someone is ultimately going to serve time in a prison system, then there would be some fiscal impact down the road, but there is no way to assess it.

Senator Care said he appreciated the Chairman’s concern and favors this legislation. He inquired if Ben Graham, Lobbyist, Clark County District Attorney, has any idea whether a criminal complaint or a grand jury indictment might ever be returned on the local level for crimes such as this one of biological weapons use.

Mr. Graham responded that the Clark County District Attorney’s Office gets referrals from the federal jurisdiction frequently to prosecute counterfeiting cases and frequently find that the federal government has some very high levels of evidence, amounts very necessary in significant cases. The federal government will frequently defer prosecution and then ask the state to take over the case. Since our international society has developed where terrorism is a real threat, prosecutors need to have a specific statute, such as that provided for in S.B. 18, which deals with this type of offense.

Chairman James asked Mr. Graham if there are not times when state and federal authorities work in tandem and for some reason federal prosecution following an investigation would not go forward.

Mr. Graham responded that from a law enforcement standpoint there is no downside to having dual restraints and penalties which could encourage resolving a case if a person faced state and federal prosecution. Generally, they would not face both, but it would be useful.

Donald S. Kwalick, M.D., M.P.H., Director, Health District, Clark County, stated he is in support of S.B. 18 which prohibits certain acts related to biological weapons with some of his additions relating to chemical agents. He suggested inserting "chemical and or" before the word "biological" in the summary, preamble and on line 4 of page 1 and on line 1 of page 2. He also suggested inserting "or claims to do so" on line 5 of page 1 after ". . . for use as a weapon, or who knowingly assists an organization to do so," and add the following definitions: "delivery system" in subsection 2, paragraph (b), "vector" in paragraph (d) and "chemical agent" in paragraph (e). Dr. Kwalick submitted a copy of his testimony (Exhibit C) setting forth in detail his recommended additions to S.B. 18. Dr. Kwalick said he believes the threat of chemical and/or biological terrorist acts is real and believes the Las Vegas Valley is very vulnerable.

Senator Porter asked Dr. Kwalick if the Las Vegas Valley is prepared to handle these chemical products.

Dr. Kwalick responded there needs to be continuing education on the various things that could happen whether it is a chemical or biological agent. "How do you identify it? How do you get to the scene? How the does the hazardous materials team respond and assure that they are protected as well as others that may come upon the scene?" He said there is a lot of work that has to be done in the sense of a plan, but there is a plan in development.

Senator Porter inquired if Dr. Kwalick is a part of the organizational plan for these types of incidents through the health district. Dr. Kwalick responded the health district is brought into emergency management.

Senator Porter inquired if Dr. Kwalick is saying there are additional plans in place, or saying plans are always being upgraded. Dr. Kwalick responded plans are always being upgraded as with different agents that might become available, the various individuals who are first responders have to increase their knowledge about certain agents.

Senator Porter said he assumes a lesson has been learned from the situation in Henderson and additional steps are being taken. Dr. Kwalick stressed he believes additional steps are being taken; however the Federal Bureau of Investigation (FBI) handled the situation in Henderson entirely.

Senator Porter asked if the FBI communicates with the health district when there is a situation in its jurisdiction. Dr. Kwalick responded that in the recent case in Henderson the FBI did not. The Clark County Health District learned about the Henderson incident secondhand and then the health district got involved peripherally.

Senator Porter inquired if the Las Vegas Metropolitan Police Department (Metro) was involved in the initial incident. Dr. Kwalick responded he does not believe so.

L. Keith Carter, Lobbyist, Las Vegas Metropolitan Police Department, stated there are many laws that mirror federal laws. However, the most important point made is that local law enforcement generally is the first to come across knowledge of a crime. There are situations where the federal government and local law enforcement work together, especially in the area of narcotics where Mr. Carter stated he has spent the last 4 years and can testify somewhat as an expert in that area. He said generally speaking, the local law enforcement officers assigned to a particular type of task force are the individuals who bring forth an investigation. He pointed out this bill is an important law to give Metro some sort of tool to investigate and to bring forth an investigation should a local law enforcement officer discover information regarding use of biological weapons. The only concern Mr. Carter said he has is the proposed definition of "chemical agent." He thinks that needs to be explained in detail so that any chemical agents that are now legal are not disallowed, such as pepper spray and those sorts of things.

Chairman James informed Mr. Carter that Dr. Kwalick has defined "chemical agent" as a substance composed of one or more elements that causes or is capable of causing human casualties by irritation, burning, asphyxiation, or poisoning. He also said chemical agent includes, but is not limited to, all forms of toxic or irritating gases, nerve gases, smoke inducing agents, flammable gels and incendiary materials. Chairman James stressed he shares Mr. Carter’s concern about adding "chemical agent" to S.B. 18 because the bill was designed to address the biological agents. Chairman James stated he is going to ask Legislative Counsel to do a detailed research and analysis of that definition. He does not want to broaden the scope of the legislation beyond the biological agent into something that might come into more common things that are transported in commerce and unreasonably broaden the scope of the statute.

There being no further testimony on the bill, Chairman James closed the hearing on S.B. 18.

Chairman James opened the hearing on Senate Bill (S.B.) 61.

Chairman James stated that at just about every legislative session a couple of major pieces of legislation are brought before the Senate Committee on Judiciary by the Business Law Section of the State Bar of Nevada in order to bring the business statutes up to date.

John P. Fowler, Chairman, Business Law Section, State Bar of Nevada, stated that the Board of Governors of the State Bar of Nevada has endorsed S.B. 61. Mr. Fowler stated that a similar bill is in preparation for the Office of the Secretary of State. He said he wanted the State Bar of Nevada to have the opportunity to work with the Office of the Secretary of State to assure that if the bills are not combined in some way, they are at least on parallel tracks. Mr. Fowler handed out a memorandum addressed to the "Senate Judiciary Committee" (Exhibit D) which describes the salient portions of the bill. He also handed out a document entitled "Requested Changes to Senate Bill 61" (Exhibit E).

Mr. Fowler proceeded by referring first to the New Nevada Business Trust chapter outlined in Exhibit D. He stated this is the major portion of the bill as far as impact. The business trust idea is relatively new as it was passed in Delaware only 11 years ago. He said the business trust completes the offering of entities that Nevada law has available to those who would form Nevada entities to do business both within and outside Nevada. He declared the business trust is very important in terms of economic impact. He also pointed out the statute proposed is substantially rewritten from the Delaware Act, first by the State Bar of Nevada, Business Law Section, and second by the Legislative Counsel Bureau. Mr. Fowler said he believes it is possible to actually read and understand the statutory wording in this business trust chapter unlike the Delaware Act. The sections in the bill that cover business trusts are sections 2 through 47, which is a complete statutory chapter starting with definitions of the prominent terms and continues on to provide for filing the certificate of trust for the Office of the Secretary of State. He maintained the bill contains provisions requiring that the entity name must have the words "business trust" or the abbreviation "BT", either with our without periods, so people will know they are dealing with a business trust. He also stressed the statutes require there be a resident agent in the State of Nevada. The statutory wording on "resident agents" is the same as it appears in chapter 78 of NRS on Private Corporations and Chapter 86 of NRS on Limited-Liability Companies. He said there are extensive provisions specifically permitting the business trust to have certain powers with provisions that protect the trustee.

Senator Wiener questioned if there is any provision for fraud or other criminal activity that would require the revocation or the termination of the trust. She wanted to know if the trust is protected so that something else criminally might not affect its existence.

Mr. Fowler responded that if a business trust cheated its investors, the anti-fraud provisions and securities laws would still cover it even if it is not required to register as a publicly held entity. He said if trustees commit fraud, they would be subject to the sanctions contained therein, both criminal and civil, with the civil more often invoked. He mentioned the trustees would also be subject to a fraud cause of action filed against them under the common law in state or federal courts. He stressed the State of Nevada also has anti-fraud provisions.

Senator Wiener inquired if there would be anything in the nature of the trust that could be criminal or fraudulent in some way that would require revocation or termination of the trust itself.

Mr. Fowler responded there are no criminal provisions in chapter 78 of NRS governing corporations. There is nothing in the corporate law that states specifically a corporation’s charter can be revoked if the corporation engages in criminal activity. He clarified there is common law with respect to corporations that would allow the attorney general to prosecute and revoke a corporate charter if that were the case. He said very seldom do you see an attorney general seeking to revoke a corporate charter because of some bad act the corporation has committed. Although they do have that power, Mr. Fowler said he has never seen an attorney general try to revoke a chartered corporation for criminal acts. He offered to answer Senator Wiener’s question by writing her a letter on how that issue is determined.

Chairman James stated that the existence of a corporation or a business trust does not insulate the actors from criminal liability, and it is not necessary to revoke anybody’s charter in order to prosecute them. He said he believed Senator Wiener’s concern is if somebody is utilizing one of these corporations to conduct criminal activity through it, that they not be insulated from liability.

Mr. Fowler stated the trustees would not be insulated from liability because there are plenty of statutes and common law causes governing these people committing criminal or fraudulent activities. These statutes do not affect their liability for that at all and in that sense the trustees would be just like a corporate officer who goes out in the public market and sells a stock with blatantly fraudulent representations. Nothing here prevents the applicability of those statutes to the trustees or any other officer or employee of a business trust.

Chairman James inquired how closely Mr. Fowler has followed Delaware law in bringing Nevada a business trust.

Mr. Fowler responded that he very closely followed the order of Delaware law, but changed as needed to make sure the statutes were in the same basic order that they are in the Nevada Revised Statutes, especially with respect to resident agents. He tried to employ all of the substantive content of the Delaware statute in these statutes within this bill.

Chairman James referred to section 47 with regard to provisions being altered or repealed. He questioned if this is the same language that appears in Nevada’s other corporate statutes.

Mr. Fowler replied that the wording is not exactly the same, but there is a provision in chapter 78 of NRS that is very close. He pointed out those statutes came about because there was some dated case law, in some cases dating from the last century, stating that a legislature could not change the law affecting how the internal governance of the corporation is conducted once it had been set up. He surmised all the states’ statutes in one place or another have this reservation of right to change the statutes and thereby change the way corporations operate.

Senator Wiener inquired if Mr. Fowler had already reviewed S.B. 19 with regard to address of resident agents to see if the changes in that legislation have already been incorporated into section 21 of S.B. 61.

SENATE BILL 19: Clarifies meaning of "street address" of resident agent.

Mr. Fowler replied that he has not. He said he was discussing the problem with Scott Anderson of the Office of the Secretary of State just this morning. Mr. Fowler stated he has no objection to having the definition of street address placed into this chapter as well and wants to be uniform throughout Title 7 of NRS.

Chairman James indicated that if S.B. 19 passes first, a conflict amendment would have to be made to S.B. 61. He reassured that if this bill is passed into law, an appropriate amendment will be provided by Legislative Counsel.

Mr. Fowler maintained he has no objection to such an amendment.

Mr. Fowler stated there are two noncorporate, non-Title 7 statutes that fix a couple of glitches the Business Law Section of the State Bar of Nevada determined in the area of real property. The first statute is NRS 278.590, in section 107 of S.B. 61, with reference to permitting the sale of real property with closing contingent on the recording of a subdivision map. The other statute is NRS 113.070, in section 106 of S.B. 61, regarding consolidating real estate disclosure documents. He pointed out both of these changes are outlined in detail in Exhibit D.

Mr. Fowler stated that the rest of the bill contains cleanup changes throughout Title 7 of NRS, mostly of a minor nature. He indicated item 3, on page 2 of Exhibit D describes two changes to Chapter 14 of NRS regarding service on a corporation. He also said changes were made to the Chapter 14 statutes that mirror Chapter 80 on foreign corporations. He stressed if all you own in this state is real property, you do not have to have a resident agent in this state.

Senator Wiener inquired if that would mean at any point of filing to do development, would there be something that would kick in that would require corporations to get a resident agent.

Mr. Fowler replied that is correct, if a corporation actually starts doing business in the state, then it would be required to qualify to do business in the state, make a filing with the secretary of state, pay a filing fee and obtain a resident agent. He again stressed if all you do is own real property, you do not need to get a resident agent and you do not need to qualify to do business in the state. If a corporation starts developing the property or has an active business, then there is a need to qualify and get a resident agent.

Senator Wiener questioned if as a passive owner of real property with development being done all around, would that particular owner be considered a player even though passive.

Mr. Fowler replied that questions whether you are doing business under the statute. The statute does not define "doing business" with any more precision than simply the two words "doing business." He indicated he would have to look at many cases to determine the answer to Senator Wiener’s question. However, Mr. Fowler said he believes that if all you are doing is commenting on subdivision maps you probably are not "doing business," but if you make your application you are "doing business."

Mr. Fowler went on to discuss a substantive change amending NRS 78.138 that deals with the decision in Hilton Hotels Corp. v. ITT regarding a take-over situation. This case is set forth in detail in Exhibit D on pages 3 through 5. He emphasized the Legislative Counsel Bureau divided NRS 78.138 into two separate sections in this bill so that it appears in two places. Portions were broken off and made a new statute in section 48 of the bill. The remainder of the statute is described in section 54 of the bill. Specifically, the statute would impose an entire level of scrutiny of directors’ actions if their actions in take-over situations impede stockholder voting. The business judgment rule gives the directors the benefit of most doubts when taking actions. Before they can get the benefit of the business judgment rule, they have to prove they have reasonable grounds to believe that a threat to their corporate policy exists and that their actions are reasonable in the circumstances. Both standards are established under Delaware law. Mr. Fowler stated they wanted to make sure that the directors did not have this higher duty in a take-over situation unless they take an action that might impede the right of stockholders to vote for or against their staying in office as directors. He said he thought the directors should have the benefit of the business judgment rule until they do something that might impede the right of stockholders to vote for directors. Thus, if the directors have done something wrong under the standards, the action would be nullified. The court could enjoin the taking of the action which does not pertain to monetary liability.

Mr. Fowler stated that in addition to the clean-up changes set forth in Exhibit E, the secretary of state brought to the State Bar of Nevada, Business Law Section’s attention a glitch from the last legislative session. When a corporation fails to file its annual list on time, there is a 9-month period of time when the corporation is no longer in good standing but the charter has not been revoked yet. Some wording in the statute implied that situation meant the corporation could lose its name in the 9-month period before its charter was revoked, which does not make sense. The Business Law Section has tried to fix the statutory glitch in S.B. 61 that causes that problem.

Chairman James stated that he is going to reschedule S.B. 61 for a subsequent hearing and a work session. He said in the interim, Mr. Fowler can address the issue he raised about considering the secretary of state’s separate bill in conjunction with S.B. 61. Chairman James indicated he believes it is reasonable to have a couple of hearings on S.B. 61 because it is a substantial bill and covers diverse areas.

The meeting was adjourned at 11:00 a.m.

RESPECTFULLY SUBMITTED:

Janice McClure,

Committee Secretary

APPROVED BY:

Senator Mark A. James, Chairman

DATE: