Joint Corporations Minutes

Committee Meeting Information

September 2 & 3, 2008

Platte Valley Community Center

Saratoga, Wyoming

Committee Members Present

Senator Cale Case, Co-Chairman

Representative Pete Illoway, Co-Chairman

Senator Ken Decaria

Senator Stan Cooper

Senator Grant Larson

Representative Kermit Brown

Representative Mary Gilmore

Representative Marty Martin

Representative Saundra Meyer

Representative Tim Stubson

Representative Dan Zwonitzer (Sept. 3)

committee Members Absent

Senator Charles Scott

Representative David Miller

Representative Lorraine Quarberg

Representative Dan Zwonitzer (Sept. 2)

Legislative Service Office Staff

Lynda Cook, Staff Attorney

Alex Kean, Research Associate

Others Present at Meeting

Please refer to Appendix 1 to review the Committee Sign-in Sheet
for a list of other individuals who attended the meeting.

Joint Corporations Interim Committee Meeting Summary (September 2 & 3, 2008)

The Joint Corporations, Elections and Political Subdivisions Interim Committee met in Saratoga to consider legislation revising the state corporations statutes, legislation providing for cluster developments in place of subdivisions, legislation to allow for unification of city and county governments, legislation to ensure accreditation of the insurance department and to regulate viatical settlements, legislation amending the coroner's statutes and legislation providing for mobility across state lines for certified public accountants.

Call To Order

Co-Chairman Cale Case called the meeting to order at 8:00 am. The following sections summarize the Committee proceedings by topic. Please see the Agenda for details. (Appendix 2).

approval of minutes

The committee approved the minutes of the June, 2008 meeting.

Representative Kermit Brown introduced Joe Glode to speak about the facility the meeting was held in. The Platte Valley Community Center was built with private funds, local tax dollars and legislatively approved funds. Mr. Glode stated that the purpose of the center is a long term project to provide entertainment and meeting facilities for the community. The community identified specific needs several years ago and they included: comprehensive zoning, child care, recreation, overall quality of life in a small town community, economic development and education. The facility is designed to handle the last four issues. The local committee did a comprehensive business plan. The facility includes a theater, weddings are held there every weekend, special events seating 300 are available and a computer lab is included that allows for online outreach classes for the community. Mr. Glode noted that the facility is currently meeting its business plan. He noted that there is a push in the state to save old schools, but this project tore down an old school in order to replace it with a state of the art facility. The project saved the old gymnasium facility from the school but it is separated from the new facility in order to meet fire code requirements.

Unification of city and county governments

Bob McLaurin, Jackson Town Administrator, Joe Evans, County Commissioners Association and Mark Harris, Wyoming Association of Municipalities, testified regarding a bill to allow for an election to authorize a study commission to decide how unification would proceed. The committee was provided with a copy of a 1995 bill and a copy of an attorney general opinion discussing the mill levies that can be collected. It was noted that a governmental entity that would be created would still be limited constitutionally on how many mills could be collected.

Representative Brown stated that the statutes allowing for joint powers boards allow for a vast array of facilities for coordination of public services. He asked what the Town of Jackson would like to accomplish above and beyond that list of services. Rep. Brown noted that the two entities could enter into a comprehensive joint powers agreement that would handle all the areas of unification. Senator Grant noted that the problem is representation – people in the county cannot vote in the city election but are affected by decisions of the city. He noted that a joint powers board could be created without a vote of the people affected. Senator Case noted that problems occur between home rule of a city and the specified authorities of the county. The committee asked the LSO to provide further research about what constitutional amendment would be necessary to give the legislature broad authority to allow the unification process to start. It was also noted that while a joint powers board could be created to share services, it is unclear what ordinances or resolutions would be enforced. The committee discussed a constitutional amendment that would allow the legislature to establish a process to enable cities, towns and counties to combine in a process of unification on a permissive basis which would be approved by the local voters.

Mark Harris testified in agreement with the concept of looking at a constitutional amendment. He noted that a joint powers board is often appointed rather than elected. In addition, a joint powers board still requires the existence of both of the separate governments. He expressed interest in the process described in the 1995 bill of having an election to create a study commission.

Joe Evans, Wyoming County Commissioners Association, brought up the question of whether a unified government would be a county or a city for purposes of authority. There was discussion about the 1 mile and 5 mile extraterritorial jurisdiction of a city. There was also discussion about the historic context of the constitutional requirements for clerk of district court to be elected.

The committee asked staff to research the constitutional issues and provide a draft of a constitutional amendment to address the issue. The bill should also address the clerk of district court provisions. Moved by Larson seconded by Brown. The committee will take it up at the next one day meeting on November 18.

Corporations Act

The committee heard testimony from the corporations act working group concerning requested changes to the corporations act. The working group has reviewed and compared each article in the act with the American Bar Association's Model Business Corporations Act.

Bob Berger began the testimony by discussing Article 7 – Shareholders. The recommended changes allow for shareholder meetings called by the board of directors. Section 704 allows for unanimous written consent for shareholder actions that used to require a meeting. The model act language provides important details of how that would occur. The new model language sets forth specific notice requirements and process requirements. The changes are substantive in that notice is required to nonvoting shareholders after the action rather than before. New provisions in the act also allow for changing the unanimous consent requirement to a lower standard if it is set forth in the articles of incorporation. Senator Larson expressed concern that an average shareholder may not be properly informed of these provisions even though the provisions are required to be in the articles of incorporation. Rep. Brown suggested that there should be a requirement of printing a notice on the stock certificates. The working group recommended changes to sections 725 and 727 that were left out of the revisions in 1989. Specifically, section 727 allows articles of incorporation to allow for greater quorum or voting requirements. Mr. Berger described substantive changes to the sub article dealing with derivative actions. In section 744 the act provides details about how a derivative action can be dismissed by a court. The model act provides for interim steps where the corporation can determine if a derivative case is not in the best interests of the corporation through a determination made by a committee of qualified directors. Finally, section 748 is a new recommended provision which would allow a court to appoint a custodian or receiver where there is a deadlock in the corporation and the corporation's interests would be harmed if the deadlock is not resolved. Dale Cottam noted that this section is a significant improvement to current law because it finally gives guidance to judges in the state on how to handle this situation. The committee voted to adopt the proposed amendments to article 7 with additional proposed changes to page 59.

Walter Eggers presented a new change to article 1, which had been reviewed by the committee at the June meeting. A new section 143 is recommended that would provide a definition of qualified directors. This section identifies those special directors that are eligible to make certain decisions in article 7 and 8. The key is that they are uninterested and independent. He also described a provision in the model act that allows for householding, which is sending one notice to a single household with several shareholders. The working group does not recommend including that section.

Bill Bagley, Walter Eggers and Dale Cottam presented recommended changes to article 8 dealing with duties of directors and officers. Section 803 gives a corporation flexibility to increase or decrease the number of directors by amendment to the articles of incorporation. Section 805(b) allows for staggering of terms of directors. Section 807 gives more guidance about when a resignation is effective. Section 821 deals with action of directors without a meeting. The recommended changes clarify how consent to action without a meeting may be withdrawn. The changes to section 825 facilitate the use of committees of boards of directors. Some changes are recommended to reflect IRS opinions on the use of subcommittees. Section 830 provides for standards of duty for directors. The working group noted that the Wyoming statutes provide for a director acting "at least not opposed to the interests of the corporation" that is not included in the model act and the working group recommends keeping the Wyoming language in that respect. Section 831 provides specific guidance to determine the standards of liability for a director. The committee voted to include a clear statement about the safe harbor for abstaining from voting after full disclosure. Section 842 sets forth the standards of conduct for officers. The working group recommends similar changes as with directors. The group also recommends keeping the provision dealing with the action being "at least not opposed to the corporation". Section 843 dealing with resignation and removal of officers provides more detail of who has authority to remove an officer. The sub article dealing with indemnification reflects a change in a key term from disinterested directors to qualified directors to reflect the new definition of qualified directors. A new sub article is recommended dealing with director’s conflicting interest transactions. The new language provides specific guidance and clarification that was not in statute before. Finally, new Section 870 provides guidance about what business opportunities would be available to directors. It essentially provides a safe harbor for certain decision making. The committee voted to adopt the recommendations of the working group.

Dale Cottam explained the working group’s recommendations for changes to article 12 dealing with disposition of assets. The substantive changes in this article change the process for the sale wherein the board of directors passes a resolution and that resolution is voted on by the shareholders. The working group included some non-model language dealing with the sale of investments when the corporation is in the business of managing investments. The working group also suggested non-model act language dealing with the valuation of assets of subsidiaries. The committee voted to adopt the working group’s recommended changes to this article.

Dale Cottam explained the working group’s recommendations to article 14 – dissolution. The substantive changes provide for dissolution of a company by a majority of a quorum of shareholders. The changes also relax the requirements of reciting vote counts similarly to changes in the articles dealing with mergers and share exchanges. The model act provides a process for court proceedings against a dissolved corporation including a process to protect the interests of unknown claimants. An additional change recommended by the working group is to provide for administrative dissolution of a corporation that applied for temporary use of a substantially similar name but has not resolved the similarity in 120 days. The working group, on request of the secretary of state’s office, recommended changes to section 1422 to prohibit persons without corporate authority to reinstate a corporation after an administrative dissolution.

There was discussion about the protections for claimants against a corporation that is being dissolved. The committee voted to adopt the changes recommended by the working group to article 14.

Tom Long and Scott Meier presented the committee’s recommendations to article 13- dissenter’s rights. Mr. Long stated that there are substantive changes to this article starting with changing the name "dissenter's rights" to "appraisal rights". The changes deal with the valuation of assets where there is dissention among the shareholders. The key change is a codification of case law stating that fair value is a nondiscounted value. A major change is that appraisal rights will not be available to any shareholder who has affirmatively voted in favor of the action they are now complaining of. The changes provide more specific guidance on the process by which a dissenter may ask for appraisal rights and what notice must be given by a corporation regarding an action that may or may not be subject to appraisal rights. Shareholders who do not follow the process lose their appraisal rights. The committee voted to extend the amount of time a payment must be made under section 1325 in order to allow the corporation time to obtain financing. The committee voted to adopt the changes recommended by the working group to article 13.

Tom Long explained the proposed changes to article 10 –amendment of articles of incorporation and bylaws. The changes allow the board of directors to authorize an increase in the number of shares authorized to the extent necessary to permit the issuance of shares as a dividend. The new language provides for a board of directors to submit a recommendation about a proposition to make specified changes. Under the changes a shareholder approval may be made by a majority of a quorum of the shareholders. The committee voted to adopt the changes recommended by the working group to article 10.

Tom Long explained proposed changes to article 17 dealing with the transfer of a Wyoming corporation to other jurisdictions. He explained that this provision was created by Wyoming in the 1980’s to accommodate Canadian companies trying to transfer into the U.S. Mr. Long noted that times have changed . When we were the only doorway in or out of the U.S. we could charge a great deal more for this privilege. The Secretary of state has collected more than $20,000 in fees last year under this section. Mr. Long suggests changing the statute to provide for the collection of a single exit fee that is equivalent to a one year annual fee. The committee voted to accept the changes recommended by the working group.

The committee directed LSO staff to incorporate the recommended changes to the entire corporations act into a bill for final consideration at the November 18 meeting.

Public Service Commission

Cindy Lewis and Mary Byrnes, Public Service Commissioners, provided an update regarding a residential rate comparability schedule that was not timely filed. They stated that the impact was a potential loss of $3 million to 5 carriers in the state. The PSC asked for a waiver to solve the problem and the waiver was granted.

Another issue related to the Universal Service Fund and dealt with factors used in calculating the USF. An internal audit determined that new computations show the program is working correctly. Although the audit found minor discrepancies the overall effect was minimal. Ms. Lewis testified that in order to avoid problems in the future the PSC issued an RFP for an outside audit firm to handle the auditing of the program. In addition, the state is supporting a statewide conference on how the fund is being managed.

The commission is now reviewing their docketing and scheduling of cases to ensure timelier processing of cases. The commission has reassigned cases amongst its 5 attorneys and the number of open cases has decreased dramatically.

Confidentiality issues have arisen with respect to the office of consumer advocate. The commission has now set out specific steps the office of consumer advocate must take to obtain sensitive information.

Ms. Lewis updated the committee on a 911 outage investigation earlier in the year. Qwest appealed the commission’s determination that the outage was in part due to Qwest's failure to meet commitments made in their merger request. The decision is currently under appeal in district court. One aspect of the commission’s decision was to require Qwest to create a task force to work with first responders to look at 911 capabilities throughout the state. The task force has issued a report and recommendations will be coming out in October.

Ms. Lewis updated the committee on a statewide telecom quality assurance investigation. The PSC opened an investigation on a complaint with respect to quality of service on the Wind River Indian Reservation. As a result of that investigation Qwest agreed to upgrade certain facilities. Construction should be completed by the end of November. Based on further complaints statewide, the commission closed the Wind River investigation and opened a separate investigation statewide. Results of statewide hearings have expanded the investigation to several other carriers throughout the state and it appears solving the problems is going to take contested case hearing.

Ms. Lewis updated the committee on other ongoing cases. (Appendix 3)

Senator Case discussed how the commission got smaller when the office of consumer advocate staff got larger. He expressed concern that the commission has to rely on the office of consumer advocate too much. Cindy Lewis testified that prior to the creation of the OCA there was a separate independent division within the PSC that handled those issues. With respect to stipulations, she indicated that the PSC always maintains jurisdiction to ultimately decide those issues despite what the OCA may stipulate to with the company. Ms. Byrnes noted that the commission is tapped out in terms of how much they can collect in revenues.

Senator Case expressed concerns about potential future problems with the state universal service fund.

The meeting adjourned for the day.

Chairman Illoway call the meeting back to order at 8:00 a.m. September 3, 2008.

09 LSO 0046.W3 – Certified public accountants-revisions . (Appendix 4)

Rick Ryman, Wyoming Society of CPA’s, Pat McGuire, Peggy Morgando, Ken Dugas and Renee Brauer testified. Mr. Ryman explained the bill as a tool to allow mobility to CPA’s. Mobility is the ability to practice accountancy outside an accountant's state of licensure without requiring a license in the second state if the licensing state is substantially equivalent in terms of education, experience and examination. The bill also changes the experience, examination and education requirements in order for the state to maintain substantial equivalency. Under the bill an accountant may have the privilege to practice in Wyoming but in turn agrees to jurisdiction within this state.

Mr. Ryman proposed some amendments to the bill. (Appendix 5).

The bill was moved and seconded. The committee discussed the concept of allowing persons who qualify in another state to practice in Wyoming without any notification to the state that they are here. Rep. Brown expressed concern that the state does not do this with any other professions. Ms. Morgando explained that what this does is to allow the board to rely on the certification of another state based on the same information that would have to be supplied to the board.

The committee passed the bill as amended unanimously.

Insurance Department Issues

09 LSO 0039.W3 – Insurance-financial reporting requirements. (Appendix 6)

Ken Vines, Jim Mitchell and Linda Johnson, Insurance Department, explained the bill. The bill is generally called the model audit law. It requires independence of CPAs completing audits, it provides for oversight by an audit committee and requires management reports of internal control. Mr. Vines provided a synopsis of the bill. (Appendix 7). The bill will provide consistency across the country and assist in maintaining the department’s accreditation.

The bill was moved and seconded.

Senator Larson expressed continued concern about the high dollar amounts necessary to subject a company to regulation under this legislation. He suggested a lower amount should be considered. Mr. Vines explained that the smaller companies have close contact with the department and have better control of their internal auditing than the bigger companies spread out across the country do.

The bill was amended.

The committee passed the bill unanimously.

09 LSO 0096.W1 – Insurance-viatical settlements.

Mr. Vines introduced Jim Mitchell who explained the bill. (Appendix 8). Viatical settlements are the sale of life insurance policies to a third party for more than its cash value but less than its death benefit. The bill comes from the NAIC model but includes a portion of the NCOIL model dealing with stranger originated life insurance. Mr. Mitchell provided a handout with an overview of the bill. (Appendix 9). The bill would require licensure of persons who negotiate the transfer of a life insurance policy from the owner to a buyer. The bill sets out specific notice requirements to protect both the owner and the buyer. The bill also provides protection for the seller by setting out recision rights. Brokers, who assist in the negotiation and transfer of the policy from a seller to a provider, would be required to obtain a license and would be subject to notice requirements. Providers, who buy a policy and resell it, would be subject to licensure. Providers may use investment agents, who look for ultimate purchasers, who would have to be licensed in the state where the purchaser resides.

The committee discussed whether the state’s current statutes disallowing the sale of life insurance to someone who does not have an insurable interest prohibits this practice. Mr. Mitchell stated that current statutes do not apply to the resale of life insurance policies in the secondary market. Mr. Vines noted that the bill is not designed to outlaw third party purchase of life insurance policies, but to regulate it in order to protect consumers and policy holders.

Mr. Mitchell described all the notices the bill requires to both policy holders and buyers. Those notices explain the rights and risks to those parties. Mr. Mitchell explained how the bill allows the department to refuse or revoke a license for multiple reasons, including the release of private health or financial information. He noted that the bill targets transfers of insurance policies that have been issued in the last five years only.

Senator Larson questioned whether the bill should regulate these products as an investment product through the secretary of state’s office. Rep. Brown questioned whether these products should not be allowed at all except in limited circumstances. The committee discussed how a life insurance product is a property interest.

Dave Uchner, representing American Council of Life Insurers and Brenda Nation, Regional Vice President of the Council testified that the council represents legitimate life insurance providers throughout 50 states. Ms. Nation testified in support of the bill. They testified that they have met with several other entities that are in support of the legislation.

Ms. Nation provided written testimony describing the regulation of viatical settlements through out the country. (Appendix 10). She described the national trade associations working on promoting this regulation. Ms. Nation testified that abuses with these products started to be seen in the 1990’s evolving out of the need for AIDs patients in need of immediate funds. Cases started to be seen since 2005 dealing with these abuses so the NAIC took up the topic to create a model to address the abuses. NCOIL followed suit in 2007 with a competing model.

Chris Chandler, Prudential Life Insurance, testified about the history of the regulation of these products. He noted that first life insurance policies developed accelerated death benefits to comply with the need for money prior to death. He testified that the life settlement business evolved from legitimately buying up life insurance policies to manufacturing the policies for speculation purposes. He argued a scheme to avoid the issue of having an insurable interest by paying people upfront to obtain life insurance on themselves then buying the policy from them. He expressed concern about the undisclosed consequences to the person who sells their life insurance. He described the market as analogous to the subprime insurance market.

Daniel Harrison, Life Insurance Settlement Agency and Michael Freedman, Coventry, testified in opposition to the bill. Mr. Freedman testified that the model act has been highly criticized across the country. He noted that most states that considered the NAIC model decided instead to go with the NCOIL model. He explained the business of buying life insurance policies. In Wyoming his company has purchased only 15 policies with a total amount of the policies worth 12.5 million dollars. Rather than losing those policies for failure to make the premiums, they have helped people by paying those people more than they would have received for the cash value. He testified that they believe the market is in response to consumers because the insurance companies would not offer acceptable cash values. They support the regulation of life settlements and the regulation of stranger oriented life insurance. However, they believe the regulation should look at the point of inception of the policy rather than the point when the policy is transferred. He noted that it should not be focused on the knowledge of the policy holder but rather on whether there is a third party present and involved at the time of the issuance of the policy. He testified in support of developing legislation based on the NCOIL model.

Mr. Freedman provided written testimony. (Appendix 11). He discussed the investment aspect of life insurance where companies take out life insurance on their employees. He testified about concerns about the NAIC model expressed by consumer advocates. Finally, he testified that a five year period is not tied to any reasonable basis. The two year term in the NCOIL model act is tied to the contestable period for insurance policies.

The committee discussed the property value aspect of insurance and the basis for the valuation of cash value of policies.

Daniel Harris testified that the life settlement industry has brought consumer choice and increased value to consumers. He testified in opposition to the bill and supported the testimony of Mr. Freedman. He offered to provide a side-by-side comparison of the two model acts. His agency supports legislation based on the NCOIL model.

The committee tabled the bill until the November meeting.

Subdivisions

09 LSO 0042.W2 – Subdivisions-cluster developments.

The committee discussed the bill (Appendix 12) and the concept of setting the fees versus delegating the authority to set fees to the county.

Lori Urbigkit, Wyoming Association of Realtors, testified in support of the bill but asked that the fees be set in relation to costs.

Jim Magagna, Wyoming Stockgrowers Association, testified in support of the bill with amendments.

The following amendments were adopted:

Page 3-line 15 through 17: Delete and insert: “An area within the county equal to not less than two thirds of the total area of the parcel or parcels being divided is reserved for the preservation of open space in furtherance of one or more the objectives of subsection (a)(i) of this section.”

Page 4-line 20: Delete and insert: “the furtherance of one or more of the objective of (a)(i)(A) through (C) of this section”.

Page 6-line 4: After "by" insert "conservation easements,".

The committee discussed the value of tying the land in open space for any period after the 99 year period as well as the benefits to both the developer and the adjacent landowners.

Jim Whalen, Partnership for Wyoming’s Future, provided testimony regarding the history of cluster development. He testified that he supports the concept of allowing the development to be non-contiguous. He also testified in support of removing the extension of the 99 year period.

Joe Evans testified that the county boards would have ultimate authority to decide if the unconnected property is appropriate to the development.

The committee moved the bill.

The committee passed the bill as amended unanimously.

09 LSO 0043.W2-Subdivisions-requirements.

Rep. Brown explained the bill. (Appendix 13). The bill clarifies when a person can pre-sell lots and provides a requirement that subdivisions enact a homeowners association or similar entity that would be responsible for the maintenance and infrastructure. When there is no provision for infrastructure and maintenance, the purchasers often come to the county commissioners asking for help. This bill gives the county a tool for making those persons responsible for their own infrastructure development.

Lori Urbigkit, Wyoming Association of Realtors, testified in support of the bill with an amendment to set the fees according to the costs.

Joe Evans, Wyoming Association of County Commissioners, expressed concern about the change in the definition of “sell”.

There was discussion about the need for including stock water wells in the subdivision application.

The bill was amended and passed unanimously.

Coroners

09 LSO 0041.W2-Coroners-archeological burials.

Ed McAusland, Wyoming Coroner’s association, and Mark Miller, State Archeologist, testified in support of the bill. (Appendix 14). Mark Miller, state archaeologist testified that the agency anticipated the fiscal impact of the bill is $30,000. The committee amended the bill to include an appropriation of $30,000.00.

The committee passed the bill unanimously.

Meeting Adjournment

There being no further business, Co-Chairman Pete Illoway adjourned the meeting at 5:00 pm.

Respectfully submitted,

Representative Pete Illoway, Co-Chairman Senator Cale Case, Co-Chairman

Appendix	Appendix Topic	Appendix Description	Appendix Provider
1	Committee Sign-In Sheet	Lists meeting attendees	Legislative Service Office
2	Committee Meeting Agenda	Provides an outline of the topics the Committee planned to address at meeting	Legislative Service Office
3	Public Service Commission	Written testimony	Cindy Lewis
4	Certified Public Accountants	09 LSO 0046.W3 – Certified public accountants-revisions.	Legislative Service Office
5	Certified Public Accountatns	Proposed amendments	Rick Ryman
6	Insurance	09 LSO 0039.W3 – Insurance-financial reporting requirements.	Legislative Service Office
7	Insurance	Bill summary	Jim Mitchell
8	Insurance	09 LSO 0096.W1 – Insurance-viatical settlements.	Legislative Service Office
9	Insurance	Bill summary	Jim Mitchell
10	Insurance	Viatical settlements summary	Brenda Nation
11	Insurance	Written testimony	Michael Freedman
12	Subdivisions	09 LSO 0042.W2 – Subdivisions-cluster developments.	Legislative Service Office
13	Subdivisions	09 LSO 0043.W2 – Subdivisions-requirements.	Legislative Service Office
14	Coroners	09 LSO 0041.W2 – Coroners-archaeological burials.	Legislative Service Office