Honorable Robert Bunda

President of the Senate

Twenty-Second State Legislature

Regular Session of 2004

State of Hawaii

Sir:

Your Committee on Judiciary and Hawaiian Affairs, to which was referred S.B. No. 2443 entitled:

begs leave to report as follows:

The purpose of this measure is to enact an attorneys' lien statute modeled after the provisions in the Oregon statute relied upon in Banaitis v. Commissioner of Internal Revenue, 340 F.3d 1074 (9th Cir. 2003), and to ensure that Hawaii residents who receive non-physical injury settlements or awards are not subject to double federal taxation.

Testimony in support of the measure was presented by two private individuals. Written testimony in support of the measure was submitted by a representative from Rosenberg & Hong and two additional private individuals.

Under the present law, non-personal injury settlements or awards are subject to federal taxes on the full amount, prior to paying attorney's fees. Thus, because attorneys pay taxes for their fees, that portion of the award or settlement is subjected to a double taxation.

Your Committee finds that the Supreme Court of Hawaii has long recognized attorneys' liens for settlement or judgments. Carroll v. Miyashiro, 50 Haw. 413, 441 P.2d 638 (1968). However, this measure will clarify and codify the use of attorneys' liens and prevent the unfair occurrence of double taxation on non-personal injury settlements and awards.

Your Committee has amended this measure by including settlements as a type of lawsuit resolution to which an attorneys' lien may attach.

As affirmed by the record of votes of the members of your Committee on Judiciary and Hawaiian Affairs that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 2443, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 2443, S.D. 1, and be placed on the calendar for Third Reading.