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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Fairbanks North Star Borough v. Interior Cabaret, Hotel, Restaurant & Retailers Assoc. (06/09/2006) sp-6017

Fairbanks North Star Borough v. Interior Cabaret, Hotel, Restaurant & Retailers Assoc. (06/09/2006) sp-6017, 137 P3d 289

     Notice:   This opinion is subject to correction  before
     publication  in  the  Pacific  Reporter.   Readers  are
     requested to bring errors to the attention of the Clerk
     of  the  Appellate  Courts, 303  K  Street,  Anchorage,
     Alaska 99501, phone (907) 264-0608, fax (907) 264-0878,
     e-mail corrections@appellate.courts.state.ak.us.


            THE SUPREME COURT OF THE STATE OF ALASKA


FAIRBANKS NORTH STAR )
BOROUGH, ) Supreme Court No. S- 11612
)
Appellant, ) Superior Court No. 4FA-03-1791 CI
)
v. ) O P I N I O N
)
INTERIOR CABARET, HOTEL, ) No. 6017 - June 9, 2006
RESTAURANT & RETAILERS )
ASSOCIATION, )
)
Appellee. )
)

          Appeal  from the Superior Court of the  State
          of    Alaska,   Fourth   Judicial   District,
          Fairbanks, Randy M. Olsen, Judge.

          Appearances:   Joseph  W.  Miller,  Assistant
          Borough  Attorney, and René  Broker,  Borough
          Attorney, Fairbanks, for Appellant.  Peter J.
          Aschenbrenner,  Aschenbrenner  Law   Offices,
          Inc., Fairbanks, for Appellee.

          Before:    Bryner,  Chief Justice,  Matthews,
          Eastaugh, Fabe, and Carpeneti, Justices.

          EASTAUGH, Justice.

I.   INTRODUCTION
          We  consider  here whether a nonprofit  industry  trade
association that unsuccessfully challenged a proposed  sales  tax
qualifies as a public interest litigant for purposes of  avoiding
an  Alaska Civil Rule 82 award of attorneys fees.  Because all of
the  associations members have some commercial  interest  in  the
sale  of alcoholic beverages, and because they had some financial
interest  in  defeating  a proposed tax  on  sales  of  alcoholic
beverages in the Fairbanks North Star Borough, it was an abuse of
discretion to conclude that the association was a public interest
litigant,  even though the extent of the negative impact  of  the
proposal  on  the  members  was not  established.   We  therefore
reverse  and  remand  for consideration of Fairbanks  North  Star
Boroughs motion for attorneys fees.
II.  FACTS AND PROCEEDINGS
          The  Fairbanks North Star Borough assembly in July 2003
enacted  Ordinance 2003-46, which proposed a referendum approving
a  five  percent  retail sales tax on alcoholic  beverages.   The
ordinance   contained  a  ballot  question  and  an  implementing
ordinance that would become effective if voters approved the tax.
          Interior   Cabaret,  Hotel,  Restaurant   &   Retailers
Association  (ICHRRA)  is  a  nonprofit  organization  that   was
incorporated  in  1997 to support the alcohol beverage  industry.
Members  of  ICHRRA  are businesses licensed  to  sell  alcoholic
beverages.  Although ICHRRA has not explicitly admitted that  all
of  its  members are for-profit businesses, the boroughs  opening
brief  describes ICHRRAs members as composed entirely of  profit-
oriented businesses and ICHRRAs appellees brief does not  dispute
this  description.   ICHRRA has acknowledged on  appeal  that  it
brought  the  suit  because its members  would  be  directly  and
adversely affected by adoption of the tax ordinance.
          ICHRRA  filed  suit on August 8, 2003  to  prevent  the
proposed  question  from  being placed on  the  October  7,  2003
election  ballot.   ICHRRA alleged that the ballot  question  was
misleading  and that Ordinance 2003-46 proposed an  invalid  tax,
and  sought  a  preliminary injunction to prevent the  sales  tax
question from appearing on the ballot.  On August 22 the superior
court  denied  ICHRRAs motion for a preliminary injunction.   The
borough  assembly then enacted Ordinance 2003-52,  which  amended
the   ballot  language  of  Ordinance  2003-46.   Borough  voters
approved the amended tax proposal in the October election.
          ICHRRA  then amended its complaint to allege  that  the
tax  was  invalid  because  it  violated  AS  29.35.150  and   AS
04.21.010(c).   The borough moved for summary  judgment  and  the
superior  court  granted the boroughs motion.  When  the  borough
moved  for attorneys fees under Civil Rule 82, the superior court
found  that ICHRRA was a public interest litigant and denied  the
boroughs attorneys fees motion.
          The  borough  here  appeals only  the  superior  courts
ruling that ICHRRA is a public interest litigant.
III. DISCUSSION
     A.   Standard of Review
          We  review  for  abuse of discretion a superior  courts
determination of a partys public interest litigant status made in
the context of an Alaska Civil Rule 82 claim for prevailing-party
attorneys fees.1
     B.   ICHRRA Is Not a Public Interest Litigant.
          A  prevailing  party  in civil litigation  is  normally
entitled  to  recover partial attorneys fees under  Alaska  Civil
Rule 82.  But the prevailing party is not entitled to an award of
attorneys fees if the other party is a public interest litigant.2
          We  have specified four criteria for determining public
interest litigant status:

          (1)   Is  the  case  designed  to  effectuate
          strong public policies?
          
          (2)   If the plaintiff succeeds will numerous
          people receive benefits from the lawsuit?
          
          (3)   Can  only  a  private party  have  been
          expected to bring the suit?
          
          (4)   Would  the  purported  public  interest
          litigant  have sufficient economic  incentive
          to file suit even if the action involved only
          narrow issues lacking general importance?[3]
          
[A] litigant must satisfy all four criteria to be deemed a public
interest  litigant.4   The borough does not dispute  that  ICHRRA
satisfies  the  first  three  criteria.   Our  inquiry  therefore
focuses  on  whether  ICHRRA would have had  sufficient  economic
incentive  to  file  suit even if the action had  lacked  general
importance.   As  the  party  claiming public  interest  litigant
status,  ICHRRA bore the burden of showing that it did  not  have
sufficient economic interest to file suit.5
          [P]ossessing an economic interest does not  necessarily
destroy  a  partys  capacity to be a public  interest  litigant.6
[T]he  court  should  also  look to the  facts  of  the  case  to
determine the litigants primary motivation for filing the  suit.7
In  making this assessment, the court must review specific  facts
about the character of the professed public interest litigant and
the nature of that litigants real financial stake in the lawsuit.8
          The superior court, in finding that ICHRRA did not have
sufficient  economic incentive to file suit, relied on  the  fact
that  ICHRRA  did  not seek monetary damages.  But  the  lack  of
potential  for  a  monetary recovery,  while  relevant,9  is  not
conclusive.10   Economic  interest need  not  take  the  form  of
damages.11
          ICHRRA argues that Citizens for the Preservation of the
Kenai  River,  Inc. v. Sheffield indicates that it  is  a  public
interest litigant.12  In Kenai River we upheld the superior courts
determination that a nonprofit corporation formed  to  bring  the
lawsuit was a public interest litigant because the superior court
could  have  concluded that, of the alleged one hundred  or  more
individuals  represented by CPKR, all  but  a  few  had  economic
incentives  that were insubstantial or diffuse enough to  satisfy
the  fourth element of the public interest test.13  We noted that
an  organizations economic incentive to bring suit must depend on
the interests of typical members and we speculate[d] that members
that   did  not  submit  affidavits  had  even  smaller  economic
incentives than the few who did.14  The court concluded,  over  a
forceful dissent,15 that it was not an abuse of discretion for the
superior  court  to  find  that the  organization  was  a  public
interest litigant.16
          ICHRRAs reliance on Kenai River is misplaced.  All  but
a  few members of the organization in that case had insubstantial
          or diffuse economic incentives.17  Here it is undisputed that all
of ICHRRAs members have some sort of direct financial interest.18
          In  Kachemak  Bay  Watch, Inc. v. Noah  we  upheld  the
superior  courts denial of public interest litigant status  to  a
nonprofit  corporation  that  had unsuccessfully  challenged  the
approval  of  various  aquatic farming  permits  without  seeking
monetary damages.19  We noted that the corporation did not provide
the superior court with detailed information about its membership
and  their  interests.20   We  also  observed  that  two  of  the
corporations  directors  were concerned that  the  permits  would
adversely affect their property values, and a third was concerned
that  aquatic  farming  in  the area  could  interfere  with  his
business.21   We therefore held that the superior court  had  not
erred  in  finding that the corporations members  had  sufficient
economic interest to file suit for equitable relief.22
          ICHRRA  bears  the burden of showing that  it  was  not
economically  motivated to file this suit.23  The borough  argues
that  in  the  absence  of evidence to the  contrary,  for-profit
businesses are expected to be motivated by economic concerns, and
ICHRRA was acting in its members economic interest in filing this
suit.
          ICHRRA  is  correct that the economic interest  of  its
members  does not automatically preclude it from being  a  public
interest litigant.  In Kodiak Seafood Processors Assn v. State we
noted  that the associations members have a significant stake  in
the  crab  and bottom fish fisheries around Kodiak but  concluded
that  [t]he  potential economic benefit to [the  association]  is
indirect.24  Association members would only benefit if the  areas
are  eventually  reopened  to  crab  fishing.25   There  was   no
indication  the  closed area affected by the experimental  permit
would ever be reopened.
          Here  the  superior court described the total  economic
effect  of  the tax on ICHRRAs members as nebulous and uncertain.
The  record does not establish the extent to which the tax  would
reduce  sales  or  revenues, and the extent of additional  effort
required  of  retailers collecting the tax  was  uncertain.   But
these  uncertainties were matters of degree.  There was no  doubt
that  the  tax  would have a direct, negative impact  on  ICHRRAs
members.   ICHRRAs  memorandum  in  support  of  the  motion  for
preliminary injunction argued that the members would be  directly
and adversely affected by the voter adoption of the tax.  Because
the  effect  on the members of the association in Kodiak  Seafood
Processors   was   indirect   and  contingent,   that   case   is
distinguishable  from  the  one before  us.   In  Kodiak  Seafood
Processors  the indirect nature of the potential economic  effect
turned on the uncertainty of whether certain waters would ever be
reopened for fishing.26
          ICHRRA  argues  that  because  consumers  rather   than
retailers  pay  the  tax,  the tax  does  not  cost  its  members
anything.   But  the  record establishes that  at  least  one  of
ICHRRAs members has contemplated absorb[ing] the tax so that  the
total  price,  including the tax, would remain at pretax  levels.
This  implies that some members believe higher prices would  hurt
sales.  Basic economic theory recognizes that the distribution of
          a tax burden depends on the elasticity of supply and demand, not
on whether it is the retailer or consumer who writes the check to
the government.  Furthermore, assuming ICHHRA is correct that the
tax  burden will ultimately fall on consumers, the higher  market
price  will reduce the market quantity demanded.  This  reduction
will reduce overall sales, to the detriment of members.
          Moreover, every tax has compliance costs over and above
simple monetary costs.  ICHRRA has noted that these would include
whether  and  how  to  file or register, how  to  coordinate  the
Borough  tax  with the City of North Pole tax, whether  [members]
would be subject to audits, whether [members] would be subject to
interest, penalties and liens.  Perhaps these additional  burdens
can  also  be  passed on to the consumer in the  form  of  higher
prices.   The  full  cost  to members of  the  tax  includes  the
opportunity cost for time spent for compliance.  Members may pass
this   cost  on  to  consumers  but,  as  explained  above,  will
ultimately suffer reduced sales as the price increase reduces the
quantity  demanded.   ICHRRA seems to suggest that because  there
may  have  been significant non-financial burdens on its  members
this   non-financial  burden  somehow  proves  that  the  primary
interest   was  not  economic.   Yet  regulations  that   require
compliance as a condition of doing business tend to increase  the
cost  of  doing  business,  even if the  cost  is  not  primarily
monetary.  Based on ICHRRAs contentions below, we can assume that
avoiding  additional regulations and borough mandates to  collect
the  proposed  tax  provided an economic  incentive  for  ICHRRAs
members.   The  fact that some of the burden on  ICHRRAs  members
might  be  non-monetary does not prove that they had no  economic
incentive to file suit.
           For  the same reasons, the fact that the relief ICHRRA
sought  was  non-monetary is not important.  Preventing  the  tax
from taking effect would likely prevent reductions in profits and
sales  and  avoid compliance costs; this benefit potentially  had
greater  economic  impact than a monetary award.   Injunctive  or
declaratory   relief  can  have  economic  benefit.27    We   are
unpersuaded that these potential benefits to ICHRRAs members were
insubstantial or diffuse, as ICHRRA argues.
          The superior court did not clearly err in thinking that
the  extent of the taxs effect on sales was uncertain  to  ICHRRA
when  it  filed suit.  But ICHRRA did not need to know the  exact
extent  of  the  taxs  economic effect in  order  to  have  ample
economic incentive to file suit.
          In  Kachemak  Bay Watch, two members of  the  plaintiff
organization  were concerned that aquatic farming  permits  might
lower  their  property  values, and another  was  concerned  that
aquatic farms might interfere with its business.28  We held  that
the  association was not a public interest litigant, even  though
there  was  no  indication the parties knew  the  extent  of  the
economic  harm the aquatic farms might inflict on their  property
and   business.   Similarly,  ICHRRAs  members  had  an  economic
incentive  to prevent a sales tax on their product even  if  they
were  unsure  of  the  extent to which the tax  would  negatively
affect their businesses.
          ICHRRA  argued  in  its memorandum in  support  of  its
          motion for a preliminary injunction that its members would be
directly  and adversely affected by the tax and that it qualified
as a public interest litigant based upon the economic interest of
its  members.   These statements undermine ICHRRAs  later  claims
that it was not motivated by its members economic interests.
          Because  ICHRRA did not satisfy its burden  of  showing
that  it  was  not motivated primarily by economic  concerns,  we
conclude  that it was an abuse of discretion to find that  ICHRRA
was a public interest litigant.
          At  oral argument on appeal the borough suggested  that
it  was  hampered  in  being  denied a discovery  opportunity  to
determine  the exact membership of ICHRRA.  Because we hold  that
ICHRRA  did not meet its burden of demonstrating that it was  not
motivated primarily by economic concerns, this discovery issue is
moot.
IV.  CONCLUSION
          We therefore REVERSE the ruling that ICHRRA is a public
interest litigant and REMAND for further proceedings.
_______________________________
     1     Cabana  v. Kenai Peninsula Borough, 21 P.3d  833,  835
(Alaska 2001) (citing Kachemak Bay Watch, Inc. v. Noah, 935  P.2d
816, 821 (Alaska 1997)).

     2     See Koyukuk River Tribal Task Force on Moose Mgmt.  v.
Rue,  63  P.3d  1019, 1020 (Alaska 2003) ( [I]t is  an  abuse  of
discretion to award attorneys fees against a losing party who has
in good faith raised a question of genuine public interest before
the  courts.  )  (quoting Gilbert v. State, 526 P.2d  1131,  1136
(Alaska 1974)).

          In  2003  the  legislature amended AS  09.60.010(b)  to
prevent discriminat[ion] in the award of attorney fees and  costs
to  or  against a party in a civil action or appeal based on  the
factors  we  have  used  to  determine public  interest  litigant
status.   Ch. 86,  2, SLA 2003.  Because we conclude that  ICHRRA
is  not  a public interest litigant, it is unnecessary to  decide
whether the 2003 amendment affects this case.

     3    Cabana, 21 P.3d at 836 (quoting Citizens Coal. for Tort
Reform,  Inc.  v.  McAlpine, 810 P.2d  162,  171  (Alaska  1991))
(internal quotation marks omitted).

     4    Citizens Coal. for Tort Reform, 810 P.2d at 171 (citing
Anchorage Daily News v. Anchorage Sch. Dist., 803 P.2d  402,  404
(Alaska  1990);  Murphy v. City of Wrangell, 763  P.2d  229,  233
(Alaska 1988)).

     5    Cabana, 21 P.3d at 837.

     6    Kodiak Seafood Processors Assn v. State, 900 P.2d 1191,
1198  (Alaska  1995)  (affirming  superior  courts  finding  that
association of seafood company managers seeking to enjoin scallop
fishing in closed waters was public interest litigant).

     7    Eyak Traditional Elders Council v. Sherstone, Inc., 904
P.2d  420,  426  (Alaska 1995) (citing Abbott  v.  Kodiak  Island
Borough  Assembly, 899 P.2d 922, 924-25 (Alaska 1995))  (emphasis
added).

     8    Id. at 425-26 (internal quotation marks omitted).

     9     See  Kodiak  Seafood  Processors,  900  P.2d  at  1199
(reasoning that because corporation sought only equitable relief,
not  damages, economic motivation was not significant  motivation
in bringing case).

     10     Eyak  Traditional Elders Council,  904  P.2d  at  426
(noting  that the fact that a litigant seeks monetary  relief  is
not  conclusive,  rather the court must determine  the  litigants
primary motivation for filing the suit based on all the facts  of
the case).

     11    Matanuska-Susitna Borough Sch. Dist. v. State, 931 P.2d
391, 403 (Alaska 1997).

     12     Citizens for the Preservation of the Kenai River, Inc.
v. Sheffield, 758 P.2d 624 (Alaska 1988).

     13    Id. at 627.

     14    Id.

     15    Id. at 627-28 (Rabinowitz, J., dissenting).

     16    Id. at 627.

     17    Id.

     18    ICHRRAs original complaint asserted that ICHRRA members
are licensed to do business in the State of Alaska under Title 4,
Alaska  Statutes.  ICHRRAs August 11, 2003 memorandum in  support
of  its  motion  for preliminary injunction stated that  [ICHRRAs
president] is, as are ICHRRA members, licensed to do business  in
the State of Alaska as a licensee under Title 4, Alaska Statutes.
Similarly   ICHRRAs  brief  of  appellee  declares  that   ICHRRA
originally  brought  the underlying lawsuit because  its  members
would  be  directly  and  adversely affected  .  .  .  .    These
statements  imply that all members are licensees.   The  boroughs
brief  of  appellant explicitly asserts that ICHRRAs members  are
all business licensees, all licensed to sell alcoholic beverages.
ICHRRA has not disputed this description on appeal.

     19     Kachemak Bay Watch, Inc. v. Noah,  935 P.2d 816, 820-
21, 828 (Alaska 1997).

     20    Id. at 828.

     21    Id.

     22    Id.

     23    Cabana, 21 P.3d at 837.

     24    Kodiak Seafood Processors Assn v. State, 900 P.2d 1191,
1198-99  (Alaska  1995).  Because the case involved  conservation
and  preservation of natural resources, see id. at  1193-94,  the
issues went beyond simple economic concerns.

     25    Id. at 1199.

     26    Id.

     27     See  Jackson v. American Bar Assn, 538 F.2d 829,  831
(9th  Cir.  1976)  (Where  the  complaint  seeks  injunctive   or
declaratory  relief  and  not monetary  damages,  the  amount  in
controversy is not what might have been recovered in  money,  but
rather  the value of the right to be protected or the  extent  of
the injury to be prevented.).

     28    Kachemak Bay Watch, 935 P.2d at 828.

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