Senate Bill No. 79
Introduced By christiaens
By Request of the State Auditor
A Bill for an Act entitled: An Act creating a Montana living trust act; providing for the regulation of living trusts by the state auditor; providing criminal and civil penalties and remedies for violations of the act; PROVIDING FOR A REPORT TO THE 1999 REGULAR SESSION OF THE LEGISLATURE; AND PROVIDING A TERMINATION DATE.
STATEMENT OF INTENT
A statement of intent is required for this bill because [section 5] requires the state auditor to adopt forms and rules to implement [sections 1 through 15]. A form or rule may not be adopted unless there is a determination that it is in the public interest or necessary and appropriate for the protection of consumers and consistent with the purpose of [sections 1 through 15].
Be it enacted by the Legislature of the State of Montana:
Section 1. Short title. [Sections 1 through 15] may be cited as the "Montana Living Trust Act".
Section 2. Purpose. The purpose of [sections 1 through 15] is to regulate the marketing and sale of living trusts in Montana and to provide civil remedies for fraudulent and deceptive sales practices.
Section 3. Definitions. As used in [sections 1 through 15], unless the context requires otherwise, the following definitions apply:
(1) (a) "Living trust" means either an irrevocable or a revocable inter vivos trust.
(b) The term does not include an account with a POD designation, as defined in 72-6-201.
(2) "Offer" or "offer to sell" includes an attempt or offer to dispose of a living trust for value or a solicitation of an offer to buy a living trust for value.
(3) "Person" means an individual, corporation, partnership, association, joint-stock company, or unincorporated organization.
(4) "Sale" includes each contract of sale, contract to sell, or disposition of a living trust for value.
Section 4. Licensure -- exemption. (1) A person may not offer or sell a living trust in this state unless the person:
(a) is registered as an investment adviser or investment adviser representative under 30-10-201; and
(b) has applied for and been granted a license under this section.
(2) Subsection (1) does not apply to the preparation, acceptance, or discussion of a living trust for an individual client, when the preparation of the living trust is based upon the client's particular financial circumstance, by:
(a) an attorney licensed to practice law in this state;
(b) an employee of a state or national bank with trust powers or a trust corporation; or
(c) a person on behalf of an educational, charitable, or religious institution, when done in conjunction with an attorney licensed to practice law in this state.
(3) In any proceeding under [sections 1 through 15], the burden of proving that a person preparing a living trust is excluded from the license requirement is on the person claiming the exclusion.
(4) A person may apply for a license to offer and sell living trusts by filing an application in the form that the state auditor prescribes and paying the fee required in subsection (5).
(5) The state auditor shall issue a license to offer or sell a living trust to a person who:
(a) is registered as an investment adviser or investment adviser representative under 30-10-201;
(b) correctly files an application for the license with the state auditor; and
(c) pays an application fee in the same amount as the amount paid by the person for original registration as an investment adviser or investment adviser representative.
(6) The state auditor may issue an order denying, suspending, or revoking the effectiveness of any pending application or approved license if any provision of [sections 1 through 15] or any rule, order, or condition imposed by [sections 1 through 15] has been willfully violated in connection with the offer or sale of a living trust by a person involved in the assembling, drafting, executing, offering, or selling of the living trust.
(7) The license is effective until December 31 following issuance of the license or until another date that the state auditor establishes by rule unless the license is suspended or revoked.
(8) A person may renew a license annually, prior to the termination date of the license, if the person:
(a) is registered as an investment adviser or investment adviser representative under 30-10-201; and
(b) pays a renewal fee in the same amount as the amount paid by the person for annual renewal as an investment adviser or investment adviser representative.
Section 5. Administration. (1) The administration of the provisions of [sections 1 through 15] is under the general supervision and control of the state auditor. The state auditor shall adopt forms and rules necessary to implement [sections 1 through 15].
(2) A document is filed when it is received by the state auditor. The state auditor shall keep a register of all applications for licenses to offer and sell living trusts in this state. The register must be open for public inspection. The information contained in or filed with an application must be made available to the public.
(3) Upon request and at a reasonable charge, the state auditor shall furnish to any person photostatic or other copies, certified under the seal of office if requested, of any entry in the register or any document filed with the state auditor that is a matter of public record. In any proceeding or prosecution under [sections 1 through 15], a certified copy is prima facie evidence of the contents of the entry or document certified.
(4) A person who has received a license to offer and sell living trusts in this state shall make and keep accounts and other records as required by the state auditor. The records are subject at any time to reasonable periodic, special, or other examination, within or outside this state, by representatives of the state auditor if necessary to protect the public interest or for the protection of consumers.
Section 6. Scope. [Sections 1 through 15] apply to any person who sells or offers to sell a living trust in this state or when an offer to buy a living trust is made and accepted in this state. An offer to sell or buy is made in this state, whether or not either party is then present in this state, if the offer either originates in this state or is directed by the offeror to this state and is received at the place to which it is directed or at any post office in this state in the case of a mailed offer.
Section 7. Fines and fees -- deposit to general fund. All fines and fees received by the state auditor pursuant to [sections 1 through 15] must be deposited in the general fund. If, in any year, the fines and fees do not cover the cost of administering [sections 1 through 15], the state auditor may increase the fees by rule to the extent necessary to cover the expected costs of administering [sections 1 through 15] for the following year.
Section 8. Consent to service of process -- manner of service. (1) An applicant under [sections 1 through 15] shall file with the state auditor, in the form the state auditor prescribes, an irrevocable consent appointing the state auditor as the applicant's agent for the purpose of receiving service of any lawful process in any noncriminal suit, action, or proceeding against the applicant or the applicant's successor, executor, or administrator that arises under [sections 1 through 15] or any rule or order adopted or issued pursuant to [sections 1 through 15]. Service on the state auditor has the same force and validity as if served personally on the applicant or the applicant's successor, executor, or administrator.
(2) Service may be made by leaving a copy of the process in the office of the state auditor, but service is not effective unless:
(a) the plaintiff sends notice of the service and a copy of the process by certified mail to the defendant or respondent at the defendant's or respondent's last address on file with the state auditor; and
(b) the plaintiff's affidavit of compliance with this section is filed in the case on or before the return day of the process, if any, or at a later date as the court allows.
Section 9. Fraudulent and other prohibited practices. (1) It is unlawful for a person, in connection with the offer or sale of any living trust, directly or indirectly, in, into, or from this state, to:
(a) employ any device, scheme, or artifice to defraud;
(b) make any untrue statement of a material fact;
(c) fail to state a material fact necessary to render any statement made not misleading; or
(d) engage in any other act, practice, or course of business that operates or would operate as a fraud or deceit upon any person.
(2) It is unlawful for a person to sell a living trust to a person for whom a living trust is not suitable.
Section 10. Misleading filings. It is unlawful for a person to knowingly make or cause to be made a materially false or misleading statement in any document filed with the state auditor or in any proceeding under [sections 1 through 15].
Section 11. Unlawful representation concerning approval of application. The fact that an application for a license to offer or sell living trusts has been filed or approved in this state does not constitute a finding by the state auditor that any document filed under [sections 1 through 15] is true, complete, and not misleading. The state auditor's approval of an application for a license to offer or sell a living trust may not be construed as a determination of the merits of any transaction or a recommendation of any person or transaction. It is unlawful to make or cause to be made to any prospective purchaser, customer, or client any representation inconsistent with this section.
Section 12. Investigations and subpoenas. (1) The state auditor may:
(a) issue subpoenas, compel testimony, and conduct hearings as provided in Title 2, chapter 4, parts 1 and 6;
(b) make public or private investigations or examinations within or outside this state that the state auditor considers necessary to:
(i) determine whether a license to sell or offer to sell living trusts should be granted, denied, or revoked;
(ii) determine whether a person has violated or is about to violate a provision of [sections 1 through 15] or any rule or order adopted or issued pursuant to [sections 1 through 15]; or
(iii) aid in the enforcement of [sections 1 through 15] or in the prescribing of rules and forms under [sections 1 through 15];
(c) require or permit a person to file a statement in writing, under oath or otherwise as the state auditor may determine, relating to the facts and circumstances concerning a matter to be investigated; and
(d) publish information concerning a violation of [sections 1 through 15] or any rule or order adopted or issued pursuant to [sections 1 through 15].
(2) A person is not excused from attending a hearing or from producing a document or record before the state auditor or in obedience to a subpoena of the state auditor or any officer designated by the state auditor or pursuant to any proceeding instituted by the state auditor on the ground that the testimony or evidence, documentary or otherwise, required of the person may tend to incriminate or subject the person to a penalty or forfeiture. This section does not prohibit the state auditor from granting immunity from prosecution for any transaction, matter, or thing concerning which a witness is compelled to testify if the state auditor determines, in the state auditor's discretion, that justice would be served. Immunity may not extend to prosecution or punishment for false statements given pursuant to the subpoena.
Section 13. Injunctions and other remedies -- limitations on actions -- criminal sanctions. (1) If it appears to the state auditor that a person has engaged or is about to engage in an act or practice constituting a violation of any provision of [sections 1 through 15], the state auditor may:
(a) issue an order directing the person to cease and desist from committing or continuing the act or practice until a hearing can be held pursuant to Title 2, chapter 4, part 6; or
(b) without issuing an order to cease and desist, bring an action in any court of competent jurisdiction to enjoin any acts or practices and to enforce compliance with [sections 1 through 15] or any rule or order adopted or issued pursuant to [sections 1 through 15]. Upon a proper showing, a permanent or temporary injunction, restraining order, or writ of mandamus must be granted and a receiver or conservator may be appointed for the defendant or the defendant's assets. The state auditor may not be required to post a bond.
(2) A final judgment or decree under subsection (1)(b) determining that a person has violated [sections 1 through 15] in an action brought by the state auditor for the violation, other than a consent judgment or decree entered before trial, is prima facie evidence against that person in any action maintained pursuant to [section 15].
(3) The state auditor may, after giving reasonable notice and an opportunity for a hearing pursuant to Title 2, chapter 4, part 6, impose a fine not to exceed $10,000 for each violation upon a person found to have engaged in an act or practice constituting a violation of any provision of [sections 1 through 15] or any rule or order adopted or issued pursuant to [sections 1 through 15]. The fine is in addition to all other penalties imposed by the laws of this state and must be collected by the state auditor in the name of the state of Montana and deposited in the general fund. Imposition of any fine under this subsection is an order from which an appeal may be taken pursuant to Title 2, chapter 4, part 6. If a person fails to pay a fine referred to in this subsection, the amount of the fine is a lien upon all of the assets and property of the person in this state and may be recovered by suit by the state auditor and deposited in the general fund. Failure of the person to pay a fine also constitutes a forfeiture of the right to do business in this state under [sections 1 through 15].
(4) An administrative or civil action may not be maintained by the state auditor under this section to enforce a liability founded on a violation of [sections 1 through 15] or any rule or order adopted or issued pursuant to [sections 1 through 15] unless it is brought within 2 years after discovery by the state auditor of the facts constituting the violation.
(5) Any person who purposely or knowingly violates any provision of [sections 1 through 15] or who purposely or knowingly violates any rule or order adopted or issued pursuant to [sections 1 through 15] shall upon conviction be fined not more than $10,000 or imprisoned for a term of not more than 10 years, or both. An indictment or information may not be returned under [sections 1 through 15] more than 8 years after the alleged violation. However, the time limitation period may be extended to allow commencement of a prosecution within 1 year after the date the state auditor or other prosecuting officer becomes aware of the violation on which the action is based.
(6) The state auditor may refer evidence concerning violations of [sections 1 through 15] or of any rule or order adopted or issued pursuant to [sections 1 through 15] to the attorney general or proper county attorney, who may, with or without the referral, institute the appropriate criminal proceedings under [sections 1 through 15].
(7) Nothing in [sections 1 through 15] limits the power of the state to punish a person for any conduct that constitutes a crime.
Section 14. Judicial review of orders. A person aggrieved by a final order of the state auditor may obtain judicial review of the order as provided in Title 2, chapter 4, part 7.
Section 15. Civil liabilities -- limitations on actions. (1) A person who offers or sells a living trust in violation of [section 4] or offers or sells a living trust by means of fraud or misrepresentation is liable to the person buying the living trust, who may sue either at law or in equity to recover the consideration paid for the living trust, together with interest, at 10% a year from the date of payment, costs, and reasonable attorney fees.
(2) A person who directly or indirectly controls an offeror or seller who is liable under subsection (1) or a partner, officer, director, associate, or employee of the offeror or seller who participates or materially aids in the offer or sale is liable jointly and severally with the offeror or seller if the nonseller knew or in the exercise of reasonable care should have known of the violation. Contribution may be required among liable persons.
(3) A person who has made or engaged in the performance of a contract in violation of any provision of [sections 1 through 15] or any rule or order adopted or issued pursuant to [sections 1 through 15] or who has acquired any purported right under the contract with knowledge of the violation may not base any suit on the contract. Any condition, stipulation, or provision binding a person acquiring a living trust to waive compliance with any provision of [sections 1 through 15] or any rule or order adopted pursuant to [sections 1 through 15] is void as against public policy and the public interest.
(4) (a) Except as provided in subsection (4)(b), an action may not be maintained under this section to enforce any liability founded on a violation of [section 4], fraud, or misrepresentation unless it is brought within 2 years after discovery of the violation or after the time the discovery should have been made by the exercise of reasonable diligence.
(b) An action may not be maintained under this section to enforce any liability unless it is brought within 5 years after the transaction on which the action is based.
Section 16. Report to legislature. The state auditor shall, as provided in 5-11-210, report to the 1999 regular session of the legislature on the implementation of [sections 1 through 15]. The report must include a detailed record of the types of complaints received, a summary of any fines imposed and received, and any other actions taken to enforce compliance with [sections 1 through 15].
Section 17. Codification instruction. [Sections 1 through 15] are intended to be codified as an integral part of Title 30, and the provisions of Title 30 apply to [sections 1 through 15].
Section 18. Termination. [This act] terminates October 1, 1999.