Report Title:

Business Entities; Felony Conviction; 3 Strikes

Description:

Prohibits a business entity from organizing under state law or doing business in the State upon the conviction, within a 10-year period, of 3 felonies that constitute a "strike".

HOUSE OF REPRESENTATIVES

H.B. NO.

1954

TWENTY-SECOND LEGISLATURE, 2004

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO BUSINESS ENTITIES.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"CHAPTER

CORPORATE THREE STRIKES ACT

§ -1 Short title. This chapter shall be known and may be cited as the "Corporate Three Strikes Act".

§ -2 Findings and purpose. The legislature finds and declares the following:

(1) Some corporations and other entities organized and authorized under title 23 and title 23A repeatedly violate the law and, if caught, pay relatively insignificant amounts that they pass on to the public as a cost of doing business. This practice is a gross injustice both to the public and to law-abiding businesses and also undermines a healthy Hawaii economy;

(2) Threats of imprisonment are meaningless when directed at corporations and other entities that under the law are fictional persons, because there is no way to imprison a fictional person;

(3) The courts have long held, however, that corporations and other such fictional persons are mere artificial creatures of law and may be dissolved or denied permission to do business if they violate the law. Although Hawaii law permits these remedies, public authorities rarely use them;

(4) Therefore, to protect the people and economy of the State, the legislature declares that no entity subject to this chapter shall be authorized by the State to do business if it has been convicted of three or more felony crimes as specified in this chapter.

§ -3 Definitions. For purposes of this chapter, the following terms shall have the following meanings:

"Conviction" means a judgment or conviction by a court of competent jurisdiction in the United States, whether entered upon a verdict or a plea, including a plea of nolo contendere.

"Department" means the department of commerce and consumer affairs.

"Director" means the director of commerce and consumer affairs.

"Felony crime" means a crime that would be classified as a felony under the Penal Code if the crime were committed in Hawaii, or a federal crime that is classified as a class A, B, C, D, or E felony, as defined in Section 3559 of Title 18 United States Code.

"Strike" means the conviction of a felony crime arising from any violation of fraud, tax, bribery, extortion, consumer protection, environmental protection, civil rights, labor, employment, antitrust, political campaign, or finance law.

§ -4 Business entities affected. (a) This chapter applies to the following entities:

(1) Domestic and foreign corporations subject to chapter 414;

(2) Domestic and foreign nonprofit corporations subject to chapter 414D;

(3) Professional corporations subject to chapter 415A;

(4) Domestic and foreign partnerships and limited liability partnerships subject to chapter 425;

(5) Domestic and foreign limited partnerships subject to 425D; and

(6) Domestic and foreign limited liability companies subject to chapter 428.

(b) This chapter does not apply to corporations sole for ecclesiastical purposes subject to chapter 419.

§ -5 Repeat offender. (a) An entity subject to this chapter is a repeat offender if it has three or more strikes against it within any ten-year period after the effective date of this chapter. For purposes of this chapter, a strike against a wholly owned subsidiary shall also be considered a strike against the parent entity.

(b) A repeat offender shall not be incorporated, formed, or transact intrastate business in Hawaii if its third or subsequent strike was a conviction by a state or federal court in Hawaii or if the facts giving rise to the third or subsequent strike occurred in Hawaii.

(c) An entity subject to this chapter shall not be incorporated, formed, or transact intrastate business in Hawaii if a majority of its directors or officers were directors or officers of a repeat offender when the repeat offender became subject to subsection (b), as determined by the director after notice to the entity and an opportunity for the entity to respond.

(d) An entity subject to this chapter shall not be incorporated, formed, or transact intrastate business in Hawaii if it is legally controlled by an entity with a majority of directors or officers who were directors or officers of a repeat offender when the repeat offender became subject to subsection (b), as determined by the director after notice to the entity and an opportunity for the entity to respond.

§ -6 Multiple convictions. Multiple convictions arising out of the same facts and circumstances and heard by the same court shall be considered one conviction for purposes of this chapter.

§ -7 Annual statement of criminal convictions. (a) An entity subject to this chapter that is formed under the laws of this State or is qualified to transact intrastate business in this State shall file with the director an annual statement of any criminal convictions against the entity during the previous year. No statement shall be filed if there are no convictions to report.

(b) The director shall prescribe an electronic form for submission of these statements and shall make them available to the public in a timely fashion through the department internet web site. A statement shall be accessible on the internet web site for a minimum of ten years.

(c) If the entity is a wholly owned subsidiary of another entity, the statement shall also indicate the following information:

(1) The parent entity's name;

(2) The parent entity's place of incorporation; and

(3) Whether the parent entity is authorized to transact intrastate business in Hawaii.

§ -8 Action of dissolution. (a) If a repeat offender is a corporation formed under the laws of this State, and its third or subsequent strike was a conviction by a state or federal court in Hawaii or if the facts giving rise to the third or subsequent strike occurred in Hawaii, the attorney general shall bring an action under section 414-411 or, in the case of a nonprofit corporation, under section 414D-252 or section 414D-283, as applicable, to dissolve the corporation and provide for forfeiture of its corporate existence.

(b) If an entity is subject to subsection (a) or (b), the court may appoint a receiver to take over and manage the business and affairs of the entity and to preserve its property, pending its final dissolution and forfeiture. The court shall issue orders, decrees, and injunctions as justice and equity require, consistent with the purposes of this chapter, and shall specifically issue orders necessary to ensure that jobs and wages are not lost, to protect community interests and legitimate investor interests and to maintain the entity's obligations to protect the health, safety, and environment of workers and the public.

§ -9 Forfeiture. (a) If a repeat offender is an entity formed under the laws of a jurisdiction other than this State and is qualified to transact intrastate business in this State, and its third or subsequent strike was a conviction by a state or federal court in Hawaii or if the facts giving rise to the conviction occurred in Hawaii, the director, after a fair hearing and on the basis of substantial evidence that the entity is a repeat offender, shall order forfeiture of the entity's qualification to transact intrastate business.

(b) The date of forfeiture shall be delayed until the director has determined on the record of a hearing that the intrastate business will be replaced in a manner that ensures jobs and wages are not lost, community interests and legitimate investor interests are protected, and the obligation of the entity to protect the health, safety, and environment of workers and the public is maintained.

§ -10 Publication of offense. In addition to all other civil and criminal remedies, an entity subject to this chapter that has committed a first or second strike offense shall publish the details of its offense in a full page statement in a newspaper of general circulation in Hawaii.

§ -11 Enforcement. (a) A person may petition the attorney general or the director to enforce this chapter against a repeat offender or a first or second strike offender.

(b) If the attorney general or the director rejects the petition, or fails to act within one hundred eighty days of the submission of the petition, a person may bring an action for a writ of mandate to compel enforcement of this chapter.

(c) The person bringing the action for writ of mandate shall be entitled to an award of costs and reasonable attorney's fees if the person is the prevailing party.

§ -12 Severability. If any provisions of this chapter or its application to any person or circumstances is held invalid by a court of competent jurisdiction, the invalidity does not affect other provisions or applications of this chapter that can be given effect without the invalid provision or application, and to this end the provisions of this chapter are severable."

SECTION 2. Section 414-411, Hawaii Revised Statutes, is amended to read as follows:

"[[]§414-411[]] Grounds for judicial dissolution. The circuit court may dissolve a corporation:

(1) In a proceeding by the attorney general, if it is established that:

(A) The corporation obtained its articles of incorporation through fraud; [or]

(B) The corporation has continued to exceed or abuse the authority conferred upon it by law; or

(C) The corporation has violated any provision of law by any act or default that under the law is a grounds for forfeiture of corporate existence.

(2) In a proceeding by a shareholder, if it is established that:

(A) The directors are deadlocked in the management of the corporate affairs, the shareholders are unable to break the deadlock, and irreparable injury to the corporation is threatened or being suffered, or the business and affairs of the corporation can no longer be conducted to the advantage of the shareholders generally, because of the deadlock;

(B) The directors or those in control of the corporation have acted, are acting, or will act in a manner that is illegal, oppressive, or fraudulent;

(C) The shareholders are deadlocked in voting power and have failed, for a period that includes at least two consecutive annual meeting dates, to elect successors to directors whose terms have expired; or

(D) The corporate assets are being misapplied or wasted;

(3) In a proceeding by a creditor, if it is established that:

(A) The creditor's claim has been reduced to judgment, the execution on the judgment returned unsatisfied, and the corporation is insolvent; or

(B) The corporation has admitted in writing that the creditor's claim is due and owing and the corporation is insolvent; or

(4) In a proceeding by the corporation to have its voluntary dissolution continued under court supervision."

SECTION 3. Section 414-461, Hawaii Revised Statutes is amended as follows:

"§414-461 Grounds for revocation. The department director may commence a proceeding under section 414-462 to revoke the certificate of authority of a foreign corporation authorized to transact business in this State if:

(1) The corporation fails to:

(A) Pay any fees prescribed by law;

(B) File its annual report for a period of two years;

(C) Appoint and maintain an agent for service of process as required; or

(D) File a statement of a change in the name or business address of the agent as required; or

(2) A misrepresentation has been made of any material matter in any application, report, affidavit, or other record or document submitted by the corporation[.]; or

(3) The corporation has violated any provision of law by any act or default that under the law is a ground for forfeiture of corporate existence."

SECTION 4. Section 414D-252, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) The court may dissolve a corporation in a proceeding by the attorney general if it is established that the corporation [obtained]:

(1) Obtained its articles of incorporation through fraud [or the corporation has]; or

(2) Has continued to exceed or abuse the authority conferred upon it by law[.]; or

(3) Has violated any provision of law by any act or default that under the law is a grounds for forfeiture of corporate existence."

SECTION 5. Section 414D-283, Hawaii Revised Statutes is amended to read as follows:

"§414D-283 Grounds for revocation of certificate of authority. The department director may commence a proceeding under section 414D-284 to revoke the certificate of authority of a foreign corporation authorized to transact business in this State if:

(1) The corporation fails to:

(A) Pay any fees prescribed by law;

(B) File its annual report for a period of two years;

(C) Appoint and maintain an agent for service of process as required; or

(D) File a statement of a change in the name or business address of the agent as required; or

(2) A misrepresentation has been made of any material matter in any application, report, affidavit, or other record or document submitted by the corporation[.] or the corporation has violated any provision of law by any act or default that under the law is a ground for forfeiture of corporate existence."

SECTION 6. Section 425-14, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) The director may commence a proceeding to cancel the registration of a domestic general partnership or the right of a foreign general partnership to engage in business in this State if the partnership fails to:

(1) Pay any fees prescribed by law;

(2) File its annual statement for a period of two years;

(3) Appoint and maintain an agent for service of process as required; or

(4) File a statement of a change in the name or business address of the agent as required under this chapter[.]; or if the partnership has violated any provision of law by any act or default that under the law is a ground for cancellation of the registration of a general partnership or the disqualification of a foreign partnership to transact business in this State.

The cancellation of such registration or certificate shall not relieve the partners of liability for the penalties for the failure to file any statement or certificates required by this part."

SECTION 7. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 8. This Act shall take effect on July 1, 2004.

INTRODUCED BY:

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