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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
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 firstname.lastname@example.org. 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||)|
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? [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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