MINUTES OF THE

SENATE Committee on Judiciary

 

Seventy-First Session

April 3, 2001

 

 

The Senate Committee on Judiciarywas called to order by Vice Chairman Jon C. Porter at 8:30 a.m. on Tuesday, April 3, 2001, 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 Jon C. Porter, Vice Chairman

Senator Mike McGinness

Senator Maurice Washington

Senator Dina Titus

Senator Valerie Wiener

Senator Terry Care

 

COMMITTEE MEMBERS ABSENT:

 

Senator Mark A. James, Chairman (Excused)

 

STAFF MEMBERS PRESENT:

 

Bradley A. Wilkinson, Committee Counsel

Allison Combs, Committee Policy Analyst

Heather Dion, Committee Secretary

 

OTHERS PRESENT:

 

John P. Sande III, Lobbyist, Nevada Bankers Association

Frank Daykin, Attorney

Alan B. Rabkin, Concerned Citizen

C. Joseph Guild III, Lobbyist, President, Nevada Cattlemen’s Association

 

Vice Chairman Porter opened the hearing on Senate Bill (S.B.) 474.

 

SENATE BILL 474:  Revises provisions of Uniform Commercial Code governing secured transactions. (BDR 8-453)

 

John P. Sande III, Lobbyist, Nevada Bankers Association, stated he supported S.B. 474, and introduced Alan Rabkin and Frank Daykin.  Mr. Sande indicated he was leaving the description of the bill to Mr. Rabkin and Mr. Daykin. 

 

Frank Daykin, Attorney, stated he supported S.B. 474.  Mr. Daykin said the bill includes a group of amendments to Article 9 of the Uniform Commercial Code (UCC), which was enacted in the 1999 Legislative Session and became effective July 1, 1999. 

 

Mr. Daykin drew attention to an amendment that dealt with the scope of Article 9 (Exhibit C).  The amendment entirely excluded from Article 9 a transfer by a government or governmental subdivision or agency, he said.  Mr. Daykin claimed the amendment means “municipal securities.”  Mr. Daykin stated it was the present law, as the article was enacted 2 years ago, and would have narrower exclusions than when the statute was effective. 

 

Mr. Daykin pointed out the amendment [section 6, subsection 4, paragraph (n)] restored the existing state of the law, from precluded to being changed July 1, 1999, from Article 9 of the Uniform Commercial Code. 

 

Alan Rabkin, Concerned Citizen, stated he was in support of S.B. 474.  Mr. Rabkin stated he originated some of the provisions.  Also, he had been monitoring the bill since the 1999 Legislative Session.  The changes in the bill were mainly technical changes, which had been addressed by the uniform laws commissioners.  Mr. Rabkin noted he was also responsible for drafting the 1999 changes and had authored amendments to other sections over the years. 

 

Mr. Rabkin testified there were three primary technical changes under S.B. 474.  The first change was to make clear what happens to financing statements under the soon to be “former rules,” Mr. Rabkin stated.  The “former rules” are now called “pre-effective financing statements.”  Mr. Rabkin indicated there was some uncertainty as to what would happen if an individual had a financing statement on record under the old rules.  Generally, the new rules allow the old financing statement to continue for a period time, he said.  However, if an individual wants to amend the old financing statement, the new rules provide the way to do it. 

 

Mr. Rabkin stated the second change involved credit card companies.  The credit card companies wanted to ensure credit card records showing payment are not thrown into the definition of chattel paper. 

 

The third change, Mr. Rabkin said, is the credit card companies wanted to ensure the new rules cover assignments and transfers.  The Uniform Laws Commission, through Article 9, recommended all of the changes. 

 

Senator Care commented the Senate Committee on Judiciary “entertained a bill, S.B. 88, which is an agricultural lien bill.”  Senator Care said he noted S.B. 474 includes agricultural liens in section 2, and agricultural liens already exist under current law.  Senator Care questioned how S.B. 88 interplays with S.B. 474 or other existing law.

 

SENATE BILL 88:  Provides for creation and foreclosure of liens for farm products.  (BDR 9-643)

 

Mr. Rabkin replied he could give information on what the current law was, the future law was, and the July 1, 1999, date of agricultural liens of S.B. 474.  Mr. Rabkin said the current law kept agricultural liens as a county matter, but there were some statewide securities interest possibilities.  Under the new law, a great majority of the agricultural products were being brought into the state filing system.  Mr. Rabkin described the new provision as expansive because, not only could interests in agricultural products statewide be protected, but an interest in other states could also be protected as long as the producer was located in Nevada.  For instance, he said, “If it was a Nevada farm corporation in Fallon and the security interest was filed in Nevada, it might be able to cover Nevada security in other states.”  

 

Mr. Rabkin stated S.B. 88 covered other areas dealing with the producer and processor.  Mr. Rabkin asserted the producers grow their product, which is commingled with other material.  Mr. Rabkin used the example of cotton farms.  “The cotton is severed from the ground and becomes part of bales of cotton.”  Mr. Rabkin questioned who should be favored in such instances, the producer or the handler.  Mr. Rabkin thought S.B. 88 created a bias for the producers, as they were seen as the weakest link in the chain.  Mr. Rabkin mentioned his interpretation of S.B. 88:  “It says that unless security is posted, the producer has an overriding lien over all others in the process.”  Effectively, those downstream would get the producer to sign a waiver before they would lend to the processor, he added. 

 

However, Mr. Rabkin said, some of the weaker producers who are unaware of S.B. 88 might lend to a processor, not realizing they had a clear right to the inventory.  Therefore, there needed to be a level playing field.  

 

Senator Care said it was his understanding S.B. 88, in its original form, was modeled after a California farmers’ lien statute.  He said he has been told other western states have a vehicle that did no “violence” to the Uniform Commercial Code. 

 

Mr. Rabkin responded, “I suspect you can devise a process where the UCC deals with lender-farmer relationships, and then you create a lien right to give a super priority to processor-producer relationship.”  However, Mr. Rabkin said, the device would put lenders on guard under the UCC system to not quickly lend to a processor when they know the separate lien law is giving super priority to the producer. 

 

Senator Care remarked other jurisdictions had discovered how to handle such issues.  He stated, “The additional language for agricultural liens would not have any affect on what we are discussing in S.B. 88.”

 

Mr. Rabkin replied he did not think the two issues would affect each other.  He said Chapter 104 of the Nevada Revised Statutes (NRS) covered agricultural liens, but contemplated more of a relationship between a traditional lender and farm borrower.  Mr. Rabkin noted Chapter 104 of NRS did not anticipate the situation between co-equals who are in a sales relationship as much.  Mr. Rabkin said Chapter 104 of the NRS was in the nature of purchase money security interests, where when something was sold there was an automatic lien.  However, the problem with seed or cotton was it became commingled with other products.

 

Senator Care requested Mr. Rabkin help with the language for the subcommittee on S.B. 88.  Senator Care stated, regarding S.B. 474, “In section 7, subsection 4, the existing language states, ‘inventory held for sale or lease by a person,’ and I am wondering, what is the effect of the language?” 

 

Mr. Rabkin responded it was his understanding the language, “or leasing goods,” was taken out because it was covered by another Uniform Commercial Code section.  He added the leasing of goods was now covered by UCC Article 4A.  There were concepts of “dirty leases,” or financing leases, where UCC Article 9 would cover the lease.  However, Article 9 did not cover a pure leasing relationship, and that was why the other UCC articles were instituted. 

 

Senator Porter questioned whether Mr. Rabkin had a chance to review Mr. Daykin’s amendments.  Mr. Rabkin replied in the negative.

 

Senator Care questioned Mr. Rabkin about the language, “indicates the debtor is a transmitting utility,” in section 19, on page 23, line 29, of S.B. 474.  Senator Care asked for further explanation.

 

Mr. Rabkin stated transmitting utilities are certain types of security interests in items not traditional products one would think of; they are the products of generating electricity and other types of utilities, such as telephones.  Security interests are created in items of such type.  They are covered by the public utility commission-type regulations.  Section 19 was further clarification that the utilities commission, not the Secretary of State, must clear the change when such items are taken off a UCC financing statement. 

 

Senator Care asked whether the language contemplated any power crunch peculiar to the western United States, or whether it was language all of the states would adopt.

 

Mr. Rabkin said the language was common to all the states.  A balance was trying to be established between certain things that could be secured under the Secretary of State’s Article 9 filing system, and certain things requiring public utilities commission approval before security interests could be created.

 

C. Joseph Guild III, Lobbyist, President, Nevada Cattlemen’s Association, said he wished to remind the committee of the situation giving rise to S.B. 88:  the processor was out of state and went into bankruptcy.  Mr. Guild stated the producers in Nevada could not “come to the table” because there was no lien or perfected interest to participate in the processor’s bankruptcy.  He said he does not look at the problem as a “super priority” type lien, but instead as a protection device for Nevada ranching businesses. 

 

Mr. Guild said, in his review of the changes to the UCC, he approved of the changes relative to agricultural liens.  Mr. Guild noted the protections afforded by filing UCC 1s (Series 1 forms) and the references to liens.  However, he said he did not believe it contemplates the same situation S.B. 88 does.

 

Senator Porter closed the hearing on S.B. 474.  

 

There being no further business to come before the committee, the hearing was adjourned at 9:01 a.m.

 

 

                                                                                        RESPECTFULLY SUBMITTED:

 

 

 

Heather Dion,

Committee Secretary

 

 

APPROVED BY:

 

 

 

                       

Senator Jon C. Porter, Vice Chairman

 

 

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