Minutes of Meeting on October 8, 1999

The committee met at the Radisson SeaTac Hotel on October 8, 1999. The meeting began about 1:10 PM and adjourned about 4:15 PM. 17 of the 27 members were present.

1. UCC article 9 revision - uniform act and Washington variations

Dan Ritter presented the proposal of the UCC Committee, endorsed by the Business Law Section, to adopt Revised Article 9 of the Uniform Commercial Code.

The committee recommended:

1. Uniform Commercial Code Revised Article 9 (Secured Transactions) should be enacted in Washington State in the year 2000, except for proposed variations described in Part D of the report of the committee, and the committee takes no position on certain policy issues incorporating the proposed variations.
2. The Official Comments and Washington Comments to Revised Article 9 should be included in the official legislative history. The Official Comments have been prepared by the drafters of Revised Article 9 and are set forth as Appendix IV to the committee's report. The Washington Comments have been written by the committee and are set forth as Appendix I.
3. A computer system upgrade for the department of licensing UCC division should be funded in the year 2000 and paid for out of increased filing fees. The upgrade is needed to enable the department to accept electronic filings and to respond to information requests within two business days as specified by Revised Article 9.

The UCC Committee considered the revised article in eight half-day meetings beginning in March 1999. Each of the seven parts of the article was assigned to a subcommittee and each subcommittee discussed its part before reporting to the full committee. Difficult and controversial provisions were discussed at more than one meeting of the full committee, as were revisions required by other provisions of Washington law.

Mr. Ritter explained that, despite its length, the revised article represents a simplification of the secured transaction system. It reflects developments in technology and practice since the original version was adopted in 1972, fills in gaps, and simplifies the filing system.

After discussion, a motion was made and seconded to adopt the recommendations (set forth above) and to recommend that the association sponsor the proposed legislation. The motion was adopted by unanimous voice vote.

The Legislative Committee recognized that Revised UCC Article 9 is a major, complicated piece of legislation. Introduction of the proposal in its present form is a means of starting the legislative process. The board should be aware that concerns will be raised and amendments offered during the Legislature's consideration of Revised Article 9. The association's representatives will respond to such matters as they arise.

1. mandatory arbitration - offer of compromise

On behalf of the Consumer Protection Committee, Peter Harris presented a report on ESSB 5659, a measure relating to offers of compromise in appeals of mandatory arbitration decisions.

The bill was introduced last year with the support of the trial lawyers. It was not brought before the Legislative Committee but was presented to the BOG late in the session. At its March 27, 1998, meeting, the BOG voted to support the measure.

In its present form, the bill would:

1. Increase the caps on mandatory arbitration (from $15,000 to $25,000 statewide and from $35,000 to $50,000 in counties where the bench approves the higher limit)
2. Allow the non appealing party to offer a compromise of a mandatory arbitration award and to recover costs and reasonable attorneys' fees if the appealing party does not better the offer on appeal.

The bill defines the phrase "costs and reasonable attorney's fees" to mean costs and fees provided by statute as well as expert witness expenses related to testimony. As written, the bill might be read to limit fees to the minimal statutory attorney fees allowed by RCW 4.84.080 and preclude fees recoverable on other grounds. After discussion, a motion was made and seconded to strike "and reasonable attorney fees" from the definition (ESSB 5659, page 3, lines 5 and 6), and to reaffirm the BOG's position in support of the measure as amended.

The amendment was intended to remove the limitation of attorneys fees to the RCW 4.84.080 statutory fees.

The motion was adopted by unanimous voice vote.

The bill also provides that a party that prevails at both arbitration and on appeal is not precluded from recovering costs and disbursements allowed under chapter 4.84 RCW. A motion was made to strike "under chapter 4.84 RCW." The intent of the motion was to allow recovery of costs and disbursements allowed by other statutes. The motion failed for lack of a second after questions were raised about the effect of such an amendment.

A committee composed of Schmalz, Radosevich, Snyder, and Aylward was appointed to review the bill and to present its conclusions to the next meeting of the Legislative Committee.

1. Gift of Separate Property - Unfair Banking Practice and Rebuttable Presumption

   Robert Taub presented two proposals from the Consumer Protection Committee relating to transfers of separate property to the marital community.

   Some financial institutions require, as a condition of a loan secured by real estate, that separate property given as part of the security be deeded to the marital community. As a result, property that would otherwise be separate is treated in divorce as community property.

   One proposal of the committee was to make such a practice an unfair banking practice. A second proposal was to allow rebuttal of the presumption that the transfer was a gift where it is shown that the transfer was made because of a lender's requirement.

   Mr. Taub presented the views of the Consumer Protection Committee on the proposal.

   Speaking on behalf of Joan Robinson, chair of the Financial Institutions Committee of the Business Law Section, Dan Ritter reported that bank lawyers are not aware of a bank practice of requiring transfer of separate property to the community.

   In a letter on behalf of the Real Property, Probate and Trust Section, John Riley expressed concern that the proposals might conflict with federal law and create uncertainty in real property titles and security interests.

   After committee discussion on both sides of the issue, a motion to table the proposals was made and seconded. The motion passed by unanimous voice vote. A committee composed of Karademos (chair), Lawrence, Brink, Coghlan, Francis, and Schmalz was appointed to examine the proposals and to report to the next meeting of the Legislative Committee.

2. Limited Liability Company, Limited Partnership, and General Partnership Act Amendments

   Bruce Benson and Brian Todd presented the proposal of the Business Law Section to revise the limited liability company and limited partnership acts as a result of changes in IRS tax rules; make explicit current statutory authority for single-member LLCs; and clarify the rules for dissociation of an LLC from a general partnership.

   With an observation that the proposal eliminates traps for the unwary from these acts, a motion was quickly made and seconded to recommend that the association sponsor the proposed legislation. The motion was adopted by a unanimous voice vote.

   Model Format for Proposals

   Following action on the LLC proposal, the committee commended Messrs. Benson and Todd on the document in which the proposals were brought to the committee. The form of the document - that is, proposed legislative language and an explanatory comment following each part of the proposal - made the proposals easy to understand and analyze.

   The sense of the committee was that this document was a model that other sections and committees should be encouraged to adopt for their legislative proposals.

3. electronic Proxies - for-Profit Corporations

   John Steel presented the proposal of the Corporate Act Revision Committee, endorsed by the Business Law Section, to amend the Business Corporation Act to permit proxies to be given by electronic means in connection with actions of for-profit corporations.

   The proposal was characterized as a narrow measure that catches up with changes in technology.

   A motion was made and seconded to recommend that the association sponsor the proposed legislation. The motion was adopted by unanimous voice vote.

4. Electronic Proxies and Notice - Non-Profit corporations

Kyle Lukins presented the proposal of the Non-Profit Corporation Committee, endorsed by the Business Law Section, to amend the non-profit corporation act to authorize electronic notice as well as electronic communication of proxies in connection with meetings of non-profit corporations.

After explanation of the proposal and discussion, a motion was made and seconded to recommend that the association sponsor the proposed legislation. The motion was adopted by unanimous voice vote.

October 26, 1999

John M. Cary
Chair, Legislative Committee