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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Alyeska Pipeline Service Co. v. State (11/23/2012) sp-6725

Alyeska Pipeline Service Co. v. State (11/23/2012) sp-6725

        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, email 

        corrections@appellate.courts.state.ak.us. 



                 THE SUPREME COURT OF THE STATE OF ALASKA 



ALYESKA PIPELINE SERVICE                        ) 

COMPANY, Agent for the Owners                   )       Supreme Court No. S-14021 

of the Trans Alaska Pipeline System,            ) 

                                                )       Superior Court No. 3AN-06-12273 CI 

                                                ) 

                Appellant,                      )       O P I N I O N 

        v.                                      ) 

                                                )      No. 6725 - November 23, 2012 

STATE OF ALASKA and MICHAEL  ) 

MENGE, Commissioner of Natural                  ) 

Resources,                                      ) 

                                                )
 

                Appellees.                      )
 

                                                )
 



                Appeal from the Superior Court of the State of Alaska, Third 

                Judicial District, Anchorage, William F. Morse, Judge. 



                Appearances:        Thomas       E.   Meacham,       Anchorage,      for 

                Appellant.  Thomas A . Ballantine, Senior Assistant Attorney 

                General, Anchorage, and John J. Burns, Attorney General, 

                Juneau, for Appellees. 



                Before:      Carpeneti,     Chief   Justice,   Fabe,    Winfree,    and 

                Stowers, Justices. 



                STOWERS, Justice. 



I.       INTRODUCTION 



                Alyeska Pipeline Service Company (Alyeska), the agent for the owners of 



the   Trans   Alaska   Pipeline   System   (TAPS),   leases   the   TAPS   right-of-way   from   the 


----------------------- Page 2-----------------------

Alaska    Department    of  Natural  Resources    (Department).    Alyeska     appealed   the 



Department's     2002   appraisal  of  the  TAPS    lease  price  to  Michael   Menge,    the 



Commissioner of the Department, and then to the superior court.          Both affirmed the 



Department's     appraisal.   Alyeska    appeals  to  us,  arguing:   (1)   the  Department 



misinterpreted AS 38.35.140(a), the statute governing the calculation of the lease price; 



(2) the Department was required to adopt its interpretation of AS 38.35.140(a) as a 



regulation   under   the  Administrative   Procedure   Act  (APA);   and  (3)  the  appraisal 



improperly included submerged lands within the right-of-way when the Department 



failed to establish that the State holds title to those lands. We affirm. 



II.    FACTS AND PROCEEDINGS 

              Under the Right-Of-Way Leasing Act,1        the Department must adjust the 



lease price for the TAPS right-of-way every five years.2   In 2002 the Department and the 



U.S. Bureau of Land Management hired Black-Smith & Richards, Inc. to appraise the 



state and federal lands within the TAPS right-of-way. The Department instructed Black- 



Smith & Richards to appraise the TAPS right-of-way based on the fair market value of 



the land:  "As required by Alaska Statute 38.35.140, market rent will be 'based on the 



appraised fair market value of the land' with no allocation made for rights granted or 



retained."  In December 2002 the Department notified Alyeska that it had approved the 



Black-Smith & Richards appraisal and the annual rent for the state lands within the 



TAPS right-of-way would be $236,000 per year. 



              Alyeska hired Al Olson, a real estate appraiser, to review the Black-Smith 



& Richards appraisal.  Olson's review noted several potential issues with the appraisal, 



       1      AS 38.35.010-.260. 



       2      See AS 38.35.140(a) (providing that rental values of right-of-way leases 



must be appraised every five years and, if necessary, adjusted). 



                                            -2-                                         6725 


----------------------- Page 3-----------------------

two of which are relevant here.          Olson first observed that the appraisal's valuation of 



state lands at 100 percent fee value did not account for the fact that the TAPS lease did 



not grant Alyeska exclusive use of the land.             Olson speculated that if Black-Smith & 



Richards had been allowed to fully consider Alyeska's non-exclusive use of the TAPS 



right-of-way,   it   might   have   valued   the   land   at   75   percent   fee   value   instead. Olson 



referred to this as the "[e]ncumbrance of [r]ights" issue.             Olson also observed that the 



Black-Smith & Richards appraisal included 205.78 acres of submerged lands that were 



"[r]eported   as   disputed   acreage   in   navigable   waterways,"   but   the   appraisal   did   not 



specifically value those lands as such.   He referred to this as the "[s]ubmerged [l]ands" 



issue. 



                In January 2003 Alyeska appealed the Department's appraisal decision to 

the   Commissioner.3       Alyeska   raised   the   encumbrance   of   rights   issue,   arguing   "the 



appraisal values the Owners' TAPS interest in state lands at 100 percent of fee value, 



despite the fact that the Owners' rights are not exclusive."                 Alyeska also   raised   the 



submerged lands issue, arguing the appraisal failed to account for the reduced value of 



submerged lands and failed to address an apparent title dispute between the state and 



federal governments over the submerged lands.   Alyeska requested that the appraisal be 



reexamined and revised on these grounds. 



                In September 2006 the Commissioner affirmed the Department's decision 



regarding the TAPS lease price.  The Commissioner rejected Alyeska's encumbrance of 



rights argument, ruling the Right-Of-Way Leasing Act required the lease price to be 



based on the fair market value of the state land without reduction for rights retained by 



the   State   or  granted    to  third-parties.   The    Commissioner        declined    to  address   the 



        3       Alyeska   sent   the   Department   a   letter   requesting   reconsideration   of   the 



appraisal     decision.    The    Department      treated   the  letter  as   a  timely   appeal   to  the 

Commissioner. 



                                                   -3-                                                6725 


----------------------- Page 4-----------------------

submerged lands issue, stating the issue was "[n]ot addressed in this decision per oral 



agreement with Alyeska." 



                Alyeska appealed to the superior court, arguing the Commissioner had 



incorrectly concluded that the TAPS lease was "required by statute to be assessed at 



100 percent of fee simple value, despite the fact that the Owners' leasehold rights are not 



exclusive."  Alyeska also disputed that there was an "oral agreement" on the submerged 



lands issue and asked the superior court to remand the issue to the Commissioner to 



determine "[w]hether the appraisal properly considered the potential difference in value 



between uplands and submerged lands."            The superior court remanded this issue to the 



Commissioner.       In April 2008 the Commissioner affirmed the appraisal's valuation of 



the submerged lands within the TAPS right-of-way.  In August 2010 the superior court 



affirmed the Commissioner's final ruling. 



                Alyeska      appeals,    maintaining     its  arguments      that  the   Department 



misinterpreted AS 38.35.140(a), the statute governing the calculation of lease prices 



under the Right-Of-Way Leasing Act, and that valuation of the TAPS right-of-way lease 



should include consideration of the non-exclusive nature of Alyeska's leasehold interest. 



Alyeska also argues that even if the Department correctly interpreted the statute, the 



Department   was   required to   adopt its   interpretation   as   a   regulation   under   the   APA. 



Finally, Alyeska argues that the appraisal improperly included submerged lands in the 



TAPS right-of-way when the Department failed to establish that the State holds title to 



those lands. 



                                                 -4-                                            6725
 


----------------------- Page 5-----------------------

III.	   STANDARD OF REVIEW 



                In an administrative appeal, we independently review the merits of the 

agency's decision.4     We apply one of four standards of review: 



                (1) the substantial evidence standard applies to questions of 

                fact; (2) the reasonable basis standard applies to questions of 

                law    involving    agency    expertise;   (3)  the   substitution   of 

                judgment   standard   applies   to   questions   of   law   where   no 

                expertise is involved; and (4) the reasonable and not arbitrary 

                standard applies to review of administrative regulations.[5] 



IV.	    DISCUSSION 



        A.	     The Department's Interpretation Of AS 38.35.140(a) Was Reasonable, 

                And The Department Was Not Required To Adopt It As A Regulation 

                Under The Administrative Procedure Act. 



                Alaska Statute 38.35.140(a) provides:  "The lease price for a right-of-way 



lease shall be the annual fair market rental of the state land included in the right-of-way 



based on the appraised fair market value of the land."           The Right-Of-Way Leasing Act 



broadly defines "state land" as "any interest owned by the state in land if the interest is 

sufficient to permit the state to lease it under the authority of this chapter."6      The Act also 



refers to the definition under the Alaska Land Act, which defines "state land" as "all 



land, including shore, tide, and submerged land, or resources belonging to or acquired 

by the state."7 



        4	      Alyeska Pipeline Serv. Co. v. DeShong , 77 P.3d 1227, 1231 (Alaska 2003). 



        5       Alaskan   Crude   Corp.   v.   State,   Dep't   of   Nat.   Res.,   Div.   of   Oil   &   Gas , 



261 P.3d 412, 419 (Alaska 2011) (quoting Pasternak v. State, Commercial Fisheries 

Entry Comm'n , 166 P.3d 904, 907 (Alaska 2007)). 



        6       AS 38.35.230(9)(C). 



        7       AS 38.05.965(21); see also AS 38.35.230(9)(A) (providing "state land" 



                                                                                      (continued...) 



                                                  -5-	                                          6725
 


----------------------- Page 6-----------------------

                The Commissioner rejected Alyeska's argument that the TAPS appraisal 



incorrectly valued the owners' interest in state lands at 100 percent fee value, despite the 



fact that the owners' leasehold rights were not exclusive.               Instead, the Commissioner 



reasoned that AS 35.38.140(a) required the lease price to be based on the fair market 



value of the state land included in the right-of-way, and state land was defined to include 



"any   interest   owned   by   the   State,   not   just   the   interest   granted   to   Alyeska   via   the 



right-of-way agreement."         The Commissioner concluded that AS 38.35.140(a) did not 



require a reduction in value for rights retained by the State or granted to third-parties 



where, as here, those interests did not reduce the value of the land, explaining: 



                The statutory requirement that rent is the "annual fair market 

                rental value of the state land included in the right-of-way" 

                does not provide for a reduction in value for retained rights. 

                The grant of other minor interests in the right-of-way to third 

                parties does not reduce the value of the land.           In the case of 

                TAPS, the State owns fee simple title subject to easements 

                typical for large parcels.   Those easements typically have no 

                significant or measurable effect on the market value of large 

                parcels. Examples are section line easements, roads, RS 2477 

                trails, and a right-of-way for a fiber optic line. . . .       Because 

                the value of the right-of-way is not reduced by third-party 

                interests,   that   instruction   was   appropriate   for   TAPS,   even 

                though the State retains the right to grant additional interests 

                in the right-of-way. 



The Commissioner also observed that Alyeska's use of the TAPS right-of-way was 



protected from incompatible uses by AS 38.35.120(a)(12), and found that "[a]s of the 



effective    date   of  the  appraisal,   none    of   the  third-party  interests   within   the   TAPS 



right-of-way interfere with the TAPS right-of-way grant." Alyeska challenges this ruling 



on several grounds. 



        7(...continued) 



means " 'state land' as defined in AS 38.05.965"). 



                                                   -6-                                                6725 


----------------------- Page 7-----------------------

                 1.      Statutory interpretation 



                 The parties first dispute whether the plain language of AS 38.35.140(a) 



requires consideration of rights granted and retained under the lease - in other words, 



the leasehold interest - when calculating the lease price.   We must first consider which 



standard of review to apply to the Department's interpretation of AS 38.25.140(a). 



                 When   reviewing   an   agency's   interpretation   of   a   statute,   we   apply   the 



reasonable   basis   standard   when   the   interpretation   implicates   agency   expertise   or   a 



determination       of  fundamental      policies   within   the   scope   of  the   agency's    statutory 

functions.8  We apply the independent judgment standard when "the agency's specialized 



knowledge and experience would not be particularly probative on the meaning of the 

statute."9 



                 In Marathon Oil Company v. State, Department of Natural Resources , we 



recently applied the reasonable basis standard to the Department's interpretation of a 

statute   governing   the   method   for   calculating   royalties   for   oil   and   gas   leases.10 We 



concluded that the Department had special expertise relevant to interpreting the statute 



because it is the Department's job to manage the State's resources and collect royalties 



from gas leases, and the Department has expert knowledge of the State's royalty and 

audit system.11 



        8       Marathon   Oil   Co.   v.   State,   Dep't   of   Nat.   Res. ,   254   P.3d   1078,   1082 



(Alaska 2011) (citing Matanuska-Susitna Borough v. Hammond , 726 P.2d 166, 175 

(Alaska 1986)). 



        9       Id .   (quoting  Matanuska-Susitna          Borough ,    726    P.2d   at  175)   (internal 



quotation marks omitted). 



        10      Id . at 1082-83. 



        11      Id . at 1082.  We have also applied the reasonable basis standard of review 



                                                                                           (continued...) 



                                                    -7-                                              6725
 


----------------------- Page 8-----------------------

                Similarly,   in   this   case   the   Department   has   special   expertise   relevant   to 



interpreting AS 38.35.140(a), the statute governing the method for calculating lease 



prices for oil and gas pipeline rights-of-way, because the Department is charged with 

granting these leases and adjusting and collecting their rent.12               We conclude that the 



reasonable      basis   standard    is  the   applicable    standard     of  review    for   this  issue. 



Accordingly, we consider whether the Department's interpretation of AS 38.35.140(a) 



is reasonable, and conclude that it is. 



                The Department's interpretation of AS 38.35.140(a) is consistent with the 



plain language of the statute and the statutory definitions of "state land."                The statute 



specifies that the lease price must be based on the fair market value of the state land 



included in the right-of-way:         "The lease price for a right-of-way lease   shall be the 



annual fair market rental of the state land included in the right-of-way based on the 

appraised fair market value of the land."13        As the Department argues, the Right-Of-Way 



Leasing Act broadly defines state land as all land and any interest in land owned by the 

State.14  Thus, under the plain language of AS 38.35.140(a), the basis for calculating the 



        11(...continued) 



to a taxing authority's valuation of real property, stating "real property assessments 

encompass questions of fact and law that involve agency expertise."                  Varilek v. Burke, 

254 P.3d 1068, 1070-71 (Alaska 2011). 



        12      See,   e.g.,   AS   38.35.015   (powers   of   the   commissioner);   AS   38.35.020 



(granting right-of-way leases); AS 38.35.140 (determining lease prices, adjusting lease 

prices, and processing payments). 



        13      AS 38.35.140(a). 



        14      See AS 38.35.230(9)(C) (defining "state land" as "any interest owned by 



the state in land."); AS 38.05.965(21) (defining "state land" as "all land, including shore, 

tide, and submerged land, or resources belonging to or acquired by the state"). 



                                                   -8-                                             6725
 


----------------------- Page 9-----------------------

lease price is the fair market rental value of the State's interest in the land included in the 



right-of-way, not the leasehold interest granted to the lessee. 



                 Alyeska argues that the broad definition of "fair market value" encompasses 



consideration of rights granted or retained under the lease, such as the non-exclusive 



nature of the TAPS lease.   "Fair market value" is broadly defined as "the price a willing 

buyer   would   pay   to   purchase   the   asset   on   the   open   market   from   a   willing   seller."15 



Although Alyeska focuses on the fair market value of the leasehold interest,16 the correct 



analysis focuses on the fair market value of the state land.  But we agree that if there are 



third-party interests or uses that affect or reduce the value of the land, as opposed to the 



value of the lease, then the fair market rental value of that land (meaning the price a 



renter would willingly pay on the open market in an arm's-length transaction) would 

necessarily take those third-party interests into account.17 



                 Alyeska argues that because the TAPS lease is non-exclusive, there are 



numerous       third-party    interests   in  the   land   that  "must    actually    or  potentially    be 



        15      Martin v. Martin , 52 P.3d 724, 731 (Alaska 2002); see also BLACK 'S LAW 



DICTIONARY 1691 (9th ed. 2009) (defining "fair market value" as "[t]he price that a seller 

is willing to accept and a buyer is willing to pay on the open market and in an arm's- 

length transaction"). 



        16       On appeal to the Commissioner, Alyeska argued the appraisal improperly 



valued "the Owners' TAPS interest in state lands at 100 percent of fee value, despite the 

fact that the Owners' rights are not exclusive."   On appeal to the superior court, Alyeska 

argued the appraisal and the Commissioner's ruling "erroneously state that the Owners' 

leasehold interest in state lands . . . is required by statute to be assessed at 100 percent 

of fee simple value, despite the fact that the Owners' leasehold rights are not exclusive." 

And on appeal here, Alyeska repeatedly characterizes the issue as the "appraisal of a 

lease," the "lease's fair market rental value," and the "fair market rental value of the 

leasehold interests that Alyeska, as lessee, has in fact acquired." 



        17       See AS 38.35.140(a) (providing lease price must be "based on the appraised 



fair market value of the land"); Martin , 52 P.3d at 731 (defining "fair market value"). 



                                                    -9-                                              6725
 


----------------------- Page 10-----------------------

accommodated within the TAPS right-of-way" and which "depreciate and burden its fair 



market leasehold value to the lessee."            But as the Commissioner explained, the TAPS 



right-of-way        is  protected      from    third-party      interference     by    statute.     Alaska 



Statute 38.35.120(a)(12) provides that 



                 the granting of the right-of-way lease is subject to the express 

                 condition   that   .   .   .   the   lessee   agrees   and   consents   to   the 

                 occupancy and use by the state, its grantees, permittees, or 

                 other   lessees  of   any   part   of   the   right-of-way   not   actually 

                 occupied   or   required   by   the   pipeline   for   the   full   and   safe 

                 utilization of the pipeline, for necessary operations incident 

                 to land management, administration, or disposal. 



(Emphasis added.) Additionally, the Commissioner expressly considered the third-party 



interests affecting the state land included in the TAPS right-of-way, including "section 



line easements, roads, RS 2477 trails, and a right-of-way for a fiber optic line," and 



found "[t]he grant of other minor interests in the right-of-way to third parties does not 



reduce the value of the land" and that none of these third-party interests had interfered 



with the TAPS right-of-way as of the date of the appraisal. 



                 The Department's conclusion that the plain language of the statute requires 



the   lease   price   to  be  based    on   the  fair  market   value    of   the  state  land   within   the 



right-of-way, rather than the fair market value of the leasehold interest, is reasonable. 



And there is no indication that third-party interests have affected the rental value of the 



state    land   within    the   TAPS      right-of-way,     given    the   statutory    protection     under 



AS 38.35.120(a)(12) and the Commissioner's findings on this issue.                       Accordingly, we 



affirm the Department's interpretation of AS 38.35.140(a) and its determination of the 



appropriate lease price. 



                 2.      Administrative Procedure Act 



                 Alyeska   next   argues   that   even   if   the   Department   correctly   interpreted 



AS   38.35.140(a),   the   Department's   interpretation   is   invalid   because   it   has   not   been 



                                                    -10-                                               6725
 


----------------------- Page 11-----------------------

adopted   as   a   regulation   under   the   APA.18    We   apply   our   independent   judgment   to 



determine whether   an agency action is a regulation subject to the notice and public 

comment provisions of the APA.19 



                 Alaska   Statute   38.35.190   provides   that   the   APA   applies   to   regulations 



adopted by the Commissioner under the Right-Of-Way Leasing Act.                         While the APA 



broadly defines "regulation," it does not encompass every interpretation of a statute by 

an  agency.20     "Nearly   every   agency   action   is   based,   implicitly   or   explicitly,   on   an 



        18       AS 44.62.010-.950.  As a threshold matter, Alyeska argues that because it 



raised this argument before the superior court and the Department did not address or 

respond to the issue, the superior court was required to treat the Department's failure to 

respond as a concession and the Department is now precluded from opposing the issue 

on appeal.     We have held that a party abandons or waives an issue by failing to raise it 

in the superior court.      See, e.g., Nenana City Sch. Dist. v. Coghill, 898 P.2d 929, 934 

(Alaska 1995) ("In agency review, an issue may be abandoned on appeal to the superior 

court, either by failing to include it in the points on appeal or by inadequate briefing. . . . 

Furthermore, an argument not raised in a suit before the trial court will not be considered 

on appeal.").     Alyeska cites no authority for the proposition that when a party fails to 

respond to an argument raised by another party in an administrative proceeding, the 

superior   court   must   treat   that   party's   silence   as   a   concession,   or   that   the   party   then 

waives the right to oppose the argument if it is raised again on appeal. Here, the superior 

court implicitly rejected Alyeska's APA   argument by affirming the Commissioner's 

ruling.    Alyeska   then   raised   the   argument   again   in   its   appeal   to   this   court. As   the 

appellee, the Department is entitled to respond to all issues and arguments raised by the 

appellant.  See Alaska R. App. P. 212(c)(1)(I) & (c)(2). 



        19      Marathon   Oil   Co.   v.   State,   Dep't   of   Nat.   Res. ,   254   P.3d   1078,   1086 



(Alaska 2011). 



        20       See AS 44.62.640(a)(3) (defining "regulation" as "every rule, regulation, 



order, or standard of general application or the amendment, supplement, or revision of 

a rule, regulation, order, or standard adopted by a state agency to implement, interpret, 

or make specific the law enforced   or administered by it, or to govern its procedure, 

except one that relates only to the internal management of a state agency."); Alyeska 

                                                                                           (continued...) 



                                                   -11-                                              6725
 


----------------------- Page 12-----------------------

interpretation of a statute or regulation authorizing it to act.             A requirement that each 



such interpretation be preceded by rulemaking would result in complete ossification of 

the   regulatory   state."21    When   an   agency's   interpretation   does   not   add   substantive 



requirements to the statute but simply interprets the statute "according to its own terms," 

the agency is not required to adopt the interpretation as a regulation under the APA.22 



                 For example, in Marathon Oil Company we recently addressed whether the 



Department was required to adopt its interpretation of a statute as a regulation before 

applying that interpretation to calculate royalties for oil and gas leases.23             We stated that 



"[w]e have been hesitant to force agencies to promulgate all statutory interpretations as 



regulations,"       and    "absent     statutory    restrictions    and    due    process     limitations, 



administrative   agencies   have   the   discretion   to   set   policy   by   adjudication   instead   of 

rulemaking."24      We then held:  "DNR made its statutory interpretation in the context of 



adjudicating applications for contract pricing. Because we permit agencies to make new 



statutory interpretations in adjudications and because DNR's interpretation does not 



        20(...continued) 



Pipeline Serv. Co. v. State, Dep't of Envtl. Conservation ,  145 P.3d 561, 573 (Alaska 

2006) ("Although the definition of 'regulation' is broad, it does not encompass every 

routine, predictable interpretation of a statute by an agency."). 



        21      Alyeska Pipeline Serv. Co. , 145 P.3d at 573. 



        22      Id . 



        23      Marathon Oil Co. , 254 P.3d at 1086 (quoting Alaska Ctr. for the Env't v. 



State, 80 P.3d 231, 244 (Alaska 2003)) (internal quotation marks omitted). 



        24      Id . at 1086-87 (quoting Amerada Hess Pipeline Corp. v. Alaska Pub. Utils. 



Comm'n, 711 P.2d 1170, 1178 (Alaska 1986)). 



                                                   -12-                                              6725
 


----------------------- Page 13-----------------------

impose 'any new substantive requirements,'   we   hold   that DNR was not required to 

promulgate its interpretation as a regulation."25 



                 Here,     as  in  Marathon        Oil   Company ,      the   Department       interpreted 



AS 38.35.140(a) in the context of adjudicating the TAPS right-of-way appraisal.  The 



Department's interpretation does not impose new substantive requirements but simply 



interprets and applies the plain language of the statute. Accordingly, the Department was 



not required to adopt its interpretation as a regulation under the APA. 



                 3.      Burden on interstate commerce 



                 Finally,     Alyeska     argues     that   the    Department's       interpretation      of 



AS   38.35.140(a)   unlawfully   burdens   interstate   commerce   in   violation            of   article   I, 



section 8 of the federal constitution because it results in a lease price that exceeds "fair 



compensation" for a non-exclusive lease such as the TAPS lease.   Alyeska did not raise 



this issue in its appeal to the Commissioner or in its points on appeal to the superior 

court, but raised the issue for the first time in its reply brief before the superior court.26 



Alyeska      also  offers   little  argument     or  authority    supporting     its  argument,    relying 



exclusively on a single paragraph quoted from a 1973 trial court brief.   The Department 



        25      Id . at 1087 (quoting Smart v. State, Dep't of Health & Soc. Servs., 237 P.3d 



1010, 1017 (Alaska 2010)). 



        26       Alyeska argues that the Department first introduced the issue before the 



superior court, and therefore Alyeska properly responded to the issue in its reply brief. 

In briefing to the superior court, the Department discussed the legislative history of 

AS   38.35.140   in   support   of   its   statutory   interpretation   argument.     The   Department 

attached excerpts from old trial court briefs showing that in 1972 several oil companies 

challenged      the   original   version    of  the  statute   as  unconstitutional,      prompting     the 

legislature   to   amend   the   statute   to   its   present   version.  In   its   reply   brief,   Alyeska 

submitted an additional excerpt from the old trial court briefs and argued for the first 

time that valuing the state lands included in the TAPS right-of-way at 100 percent fee 

interest would unlawfully burden interstate commerce. 



                                                   -13-                                              6725
 


----------------------- Page 14-----------------------

argues that Alyeska has waived this argument by failing to properly raise it before the 



Commissioner or on appeal to the superior court, or has abandoned the issue by briefing 



it in such a cursory fashion.    We agree. 



               Arguments are waived on appeal if they are inadequately briefed or raised 

for the first time in a reply brief.27 It is especially important to properly raise and brief 



constitutional issues.28   Because Alyeska first raised this Commerce Clause issue in a 



reply brief on appeal to the superior court, and offers very little briefing or legal authority 



in support of its argument, this issue has been waived. 



        B.	    The Department Was Not Required To Prove That The State Held 

               Title To The Submerged Lands Within The TAPS Right-Of-Way. 



               1.	    Waiver 



               Alyeska next argues that the Department failed to prove the State has legal 



title to the submerged lands included in the TAPS right-of-way, and the TAPS owners 



are therefore required to pay rent to both the state and federal governments for the same 



tracts of submerged lands within the TAPS right-of-way.  The Department again argues 



that we should decline to address an issue improperly raised for the first time on appeal. 



But Alyeska properly raised this title issue in its initial appeal to the Commissioner and 



        27     See, e.g., State   v. Pub. Safety Emps. Ass'n, 257 P.3d 151, 165 (Alaska 



2011) ("[A]rguments are waived on appeal if they are inadequately briefed."); Barnett 

v. Barnett, 238 P.3d 594, 603 (Alaska 2010) ("[W]e deem waived any arguments raised 

for the first time in a reply brief . . . ."); Nenana City Sch. Dist. v. Coghill , 898 P.2d 929, 

934 (Alaska 1995) ("In agency review, an issue may be abandoned on appeal to the 

superior court, either by failing to include it in the points on appeal or by inadequate 

briefing."); Fairview Dev., Inc. v. City of Fairbanks , 475 P.2d 35, 36 (Alaska 1970) 

(stating single conclusory paragraph without citation to authority was inadequate to raise 

issue of equal protection before the court on appeal). 



       28      See   United   States   v.  Phillips,  433  F.2d  1364,   1366   (8th  Cir.  1970) 



("[N]aked castings into the constitutional sea are not sufficient to command judicial 

consideration and discussion."). 



                                              -14-	                                         6725
 


----------------------- Page 15-----------------------

in its points on appeal to the superior court.         Therefore, we will consider the issue on 



appeal. 



                2.      Title disputes over submerged lands 



                Alyeska argues that title to submerged lands does not formally pass to the 



State until the United States formally acquiesces or the State acquires title through a quiet 



title   action   in   federal   court,   and   that   the   State   must   provide   documentary   evidence 



demonstrating it has title to these lands before charging rent for them. Because this issue 



                                                                                                  29 

involves a question of law and there is no agency ruling on this issue to review,                    we 

apply our independent judgment.30 



                Under the equal footing doctrine and the Submerged Lands Act, Alaska 



obtained title to the land beneath   all navigable waters within its boundaries upon its 

admission to statehood in 1959.31          The United States retained title to all land beneath 



        29      The Commissioner did not address any of Alyeska's arguments regarding 



submerged lands in its initial ruling.        Alyeska did not ask the superior court to remand 

the title issue, arguing only that the Commissioner had failed to address whether the 

appraisal "properly considered the potential difference in value between uplands and 

submerged lands." The Commissioner affirmed the valuation issue on remand, but never 

explicitly addressed the title issue. 



        30      See Alyeska Crude Corp. v. State, Dep't of Natural Res., Div. of Oil & Gas, 



261 P.3d 412, 419 (Alaska 2011) (quoting Pasternak v. State Commercial Fisheries 

Entry   Comm'n ,   166   P.3d   904,   907   (Alaska   2007))   (When   reviewing   administrative 

decisions, "the substitution of judgment standard applies to questions of law where no 

[agency] expertise is involved."). 



        31      The original thirteen colonies claimed title to the lands under navigable 



waters within their boundaries and, because all subsequently admitted states enter the 

Union on an "equal footing" with the original thirteen, they also hold title to the land 

under navigable waters within their boundaries.             James v. State , 950 P.2d 1130, 1134 

(Alaska 1997) (quoting  Utah Div. of State Lands v. United States, 482 U.S. 193, 196 

(1987)).  The Submerged Lands Act confirmed that "title to and ownership of the lands 

                                                                                        (continued...) 



                                                  -15-                                            6725
 


----------------------- Page 16-----------------------

waters that were not navigable at the time of statehood.32           "Because Alaska is very large, 



much of it is wilderness, and there are innumerable waters, the federal government has 

not had time yet to determine what [title] claims it wishes to make."33                 Therefore, the 



status   of   some   submerged   lands   in   Alaska   remains   unclear.      In   order   to   determine 



whether     a  particular   waterway      was   navigable     at  statehood    and   quiet  title  to  the 

submerged lands, the State must bring an action under the Quiet Title Act.34                But before 



a party may bring a quiet title action, the Act "requires that the United States claim an 

interest and that title be disputed."35 



        31(...continued) 



beneath navigable waters within the boundaries of the respective States" are vested in the 

states.    43   U.S.C.      1311(a)    (2006);  see   also   James,   950    P.2d   at   1134  (quoting 

43 U.S.C.  1311(a) (1994)) ("Under the Submerged Lands Act a state receives title to 

submerged lands unless the United States has 'expressly retained' them."); Alaska v. 

United States, 201 F.3d 1154, 1156 (9th Cir. 2000) ("The Submerged Lands Act gave 

Alaska title to the beds of navigable rivers on January 3, 1959."). 



        32      See PPL Montana, LLC v. Montana, __ U.S. __, 132 S. Ct. 1215, 1227-28 



(2012) ("Upon statehood, the State gains title within its borders to the beds of waters 

then navigable . . . .     The United States retains any title vested in it before statehood to 

any land beneath waters not then navigable . . . ."). 



        33      Alaska , 201 F.3d at 1157. 



        34      Montara       Water     &    Sanitary    Dist.   v.   Cnty.    of   San    Mateo ,    598 



F. Supp. 2d 1071, 1075 (N.D. Cal. 2009) (citing Block v. North Dakota , 461 U.S. 273, 

286 (1983)) ("The Quiet Title Act provides the exclusive means by which a party may 

challenge federal ownership of property."); see also Alaska , 201 F.3d at 1156 ("Alaska 

was admitted to the Union as a state on January 3, 1959.                Navigability as of that date 

determines which government owns the riverbed."). 



        35      Pub.   Lands   Access   Ass'n   v.   Jones ,   176   P.3d   1005,   1008   (Mont.   2008) 



(quoting Leisnoi, Inc. v. United States , 170 F.3d 1188, 1192 (9th Cir. 1999) (Leisnoi)); 

see also  Alaska , 201 F.3d at 1162 ("Once the government has formally asserted a claim 

                                                                                         (continued...) 



                                                  -16-                                             6725
 


----------------------- Page 17-----------------------

                 If, as Alyeska asserts, both the state and federal governments were requiring 



Alyeska to pay rent for the same submerged lands within the TAPS right-of-way, then 



this action could possibly be construed as a formal claim of title sufficient to trigger the 



State's right to quiet title to the property under the Quiet Title Act.                But Alyeska has 



failed to demonstrate it was actually required to pay rent to both the state and federal 



governments for the same submerged lands within the TAPS right-of-way.  Throughout 



the   proceedings   before   the   Commissioner   and   superior   court,   Alyeska   asserted   in 



equivocal   terms,   without   citation   to   supporting   evidence   in   the   record,   that   it   was 



required to pay rent to both the state and federal governments for the submerged lands 

within   the   TAPS   right-of-way.36       On   appeal,   Alyeska   relies   exclusively   on   Olson's 



statement   that   the   Black-Smith   &   Richards   appraisal   included   lands   "[r]eported   as 



disputed acreage in navigable waterways."   Olson's statement is essentially hearsay and 



        35(...continued) 



to an interest in land, a state government is entitled to treat the land as 'real property in 

which the United States claims an interest' " for purposes of obtaining jurisdiction under 

the Quiet Title Act.). 



        36       In   briefing   to   the   superior   court,   Alyeska   asserted   that   "[a]   significant 



(though presently undetermined) submerged land acreage lies within the State's TAPS 

right-of-way lease," and argued the Department could not require Alyeska to pay rent 

for   the   submerged      lands   without   first   presenting    evidence     showing     the  State   had 

conclusively acquired title to the submerged lands. In its response brief, the Department 

argued that Alyeska had waived the issue by failing to identify the lands that it was 

allegedly required to pay double rent for or even assert that it was actually required to 

pay double rent.       In its reply brief, Alyeska argued that the Black-Smith & Richards 

appraisal identified a total of 205.78 acres of submerged lands in the TAPS right-of-way, 

and    Olson     described     these   lands   as  "reported     as  disputed     acreage    in  navigable 

waterways" in his review.  Alyeska asserted these were the lands it was paying "double 

rentals" for, but cited no evidence showing it was actually required to pay rent to the 

federal government for these submerged lands. 



                                                    -17-                                              6725
 


----------------------- Page 18-----------------------

does not establish that Alyeska has been required to pay rent to both the state and federal 



governments for the same submerged lands within the TAPS right-of-way. 



                Absent evidence that the federal government had actually asserted a claim 



of   title   over   the   submerged   lands   within   the   TAPS   right-of-way,   the   State   was   not 



required or allowed to assert a proactive quiet title claim against the federal government. 



Absent evidence of a claim of title by the federal government, the Department was not 



required to prove that the State, rather than the federal government, held title to the 



submerged lands. 



V.      CONCLUSION 



                We     AFFIRM        the   superior    court's    ruling,   which     affirmed     the 



Commissioner's September 2006 and April 2008 rulings upholding the Department's 



2002 appraisal of the TAPS right-of-way lease. 



                                                -18-                                           6725
 

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