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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. (6/9/2006) sp-6017
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 Ren‚ 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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