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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Lake & Peninsula Borough v. Norquest Seafoods, Inc. (02/01/2002) sp-5530

Lake & Peninsula Borough v. Norquest Seafoods, Inc. (02/01/2002) sp-5530

     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


LAKE AND PENINSULA            ) 
BOROUGH,                      )    Supreme Court No. S-9679
               Appellant,     )    
                              )    Superior Court No.
     v.                       )    3AN-97-9705 CI 
               Appellees.     )
LAKE AND PENINSULA            )    Superior Court No.
BOROUGH,                      )    3AN-97-9709 CI
                              )    (consolidated)
               Appellant,     )    
     v.                       )    
AGNES HANSEN, JERRY L.        )    [No. 5530 - February 1, 2002]
               Appellees.     )    

          Appeal from the Superior Court of the State of
Alaska, Third Judicial District, Anchorage, Peter A. Michalski,

          Appearances:  William B. Oberly, Law Office of
William B. Oberly, Anchorage, for Appellant.  Patrick B. Gilmore,
Atkinson, Conway & Gagnon, Anchorage, for Appellees Norquest
Seafoods, Inc. and Lafayette Fisheries, Inc.  Phillip Paul Weidner
and Wayne D. Hawn, Weidner & Associates, Inc., Anchorage, for
Appellees Alakayak, Andrews, Chernishoff, Hansen, Hatton and

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

          BRYNER, Justice.

          The Lake and Peninsula Borough appeals a superior court
order reversing the borough's assessment of sales tax on funds paid
by fish processors to settle an antitrust class action by
commercial salmon fishers.  Because the circumstances of the
litigation and settlement do not support the borough's
characterization of the processors' payment as a post-season
adjustment of the contractual price paid for salmon, we affirm the
superior court.
          Louie Alakayak and other Bristol Bay fishers
(collectively "fishers") filed a class action lawsuit against
numerous fish processors in 1995, alleging that the processors
violated Alaska antitrust laws by conspiring to set below-market
prices for sockeye salmon.  The class of plaintiffs numbered more
than 5,500 and encompassed all commercial drift and set gill net
permit holders in the Bristol Bay salmon fishery who participated
in the seasons of 1990-95, including those fishing and selling
salmon in the Lake and Peninsula Borough.
          The borough initially decided to participate in the
lawsuit by signing an agreement with a fishers' attorney, Bruce
Stanford, "advanc[ing] $25,000 dollars towards the costs of [the]
proposed litigation as 'seed money' at the rate of return of 4 to
1." As a part of the agreement, Stanford pledged to "use his best
good faith effort to see to it that the Borough receives its 2%
sales and use taxes on all Bristol Bay salmon harvested within its
jurisdictional boundaries from any settlement and/or judgement that
the fishermen receive by way of the proposed antitrust litigation."
After reconsidering the agreement and determining that it was
probably illegal, the borough rescinded its agreement and demanded
that Stanford return the money.  Stanford agreed to return the
          In 1997 the fishers reached a settlement with two of the
defendants, Norquest Seafoods, Inc., and Lafayette Fisheries, Inc. 
As a part of the settlement, Norquest and Lafayette agreed to pay
the fishers $2,000,000.  Norquest and Lafayette (the processors)
specifically disclaimed any wrongdoing in the settlement and cited
"the burdens, expenses and uncertainties of continuing litigation"
as the motivation for the settlement.
          The borough determined that the settlement proceeds were
subject to its tax on sales of raw fish, and it sent a "Notice of
Tax Lien"to the lead plaintiffs' counsel and the counsel for the
processors.  The fishers and the processors filed written protests
to the tax lien.  Borough Manager Walt Wrede issued a decision in
which he denied the tax protests and upheld the lien.  Wrede wrote
in his ruling that the fishers' antitrust claims were based on the
underpayment for fish sold in the borough, and therefore the
settlement was a post-season adjustment of the original sales
price.  The fishers and processors believed Wrede's ruling wrong
and appealed the decision to superior court.
          Superior Court Judge Peter A. Michalski ruled that the
tax liens were premature.  Judge Michalski subsequently ruled that
the settlement was not a taxable sales event.  The borough appeals.
     A.   Standard of Review
          We use our independent judgment in reviewing the decision
of a superior court sitting as an intermediate court of appeal.
[Fn. 1]  In interpreting municipal ordinances, we use our
independent judgment [Fn. 2] and will "adopt the rule of law that
is most persuasive in light of precedent, reason, and policy."[Fn.
     B.   The Settlement of Antitrust Litigation Was Not a Taxable
          The borough argues that the funds the processors paid to
the fishers to settle the antitrust litigation are a "post-season
adjustment"to the sales price and as such are taxable under the
sales tax ordinances.  The borough urges us to look to the fishers'
underlying antitrust claims to characterize the settlement funds as
an adjustment "in lieu of underpayment for the fish when originally
purchased." (Emphasis omitted.)  Relying on a series of federal
income tax cases that classify settlement proceeds for tax purposes
based on the nature of the underlying claims, the borough argues
that the settlement funds should be taxable. The fishers and
processors dispute the characterization of the settlement as a
post-season adjustment.
          We begin by reviewing the borough's sales tax ordinances. 
The borough taxes all sales of raw fish within the borough. [Fn. 4] 
Its ordinances define a sale as occurring when:
               [A] person within the borough becomes directly
          or indirectly obligated for the payment for the sale of
          property . . . and, if the sale is of raw fish, without
          regard to whether delivery by the seller occurred
          directly or indirectly nor whether delivery of the fish
     	  occurred inside or outside the Borough . . . .[ [Fn. 5]]
	  The sales price is defined as:
               [T]he total consideration, whether money,
          credit, rights or other property, paid, delivered or
          given by the buyer, expressed in terms of money . . . . 
          In the case of raw fish, sale price includes . . . post
     purchase or post season adjustments or bonuses.[ [Fn. 6]]        
The only construction of the tax ordinance that would
support taxing the settlement funds would be to characterize those
funds as a post-season adjustment or bonus.  But we disagree with
the borough's assertion that the settlement proceeds can be
characterized as a taxable adjustment to the sales price.  
          First, the settlement money is not compensating the
fishers for underpayment on specific sales of fish. [Fn. 7] 
Instead the fishers are being compensated for economic losses
incurred because of the alleged conspiracy of the processors to set
artificially low prices.  Any loss to the fishers in such a price-
fixing suit can only be characterized as resulting from market
manipulation, not transactional manipulation.  And the remedy that
the fishers claim is statutorily prescribed compensation in place
of lost revenues, not contractual adjustments for individual sales. 

          In contrast, the inclusion of a post-season adjustment
within the sales tax ordinance's definition of sales price is
transaction specific.  The definition does not, for example, assess
sales tax against the total value of a fisher's season sales based
upon an average price received for sales occurring throughout the
fishing season.  Instead, assessments are based upon each
contractual transaction between a fisher and a processor-buyer. 
Simply because the tax includes post-season adjustments within its
definition of sales price does not change the transaction-specific
nature of the tax.  Because of the contrast between the
transaction-specific sales tax and the nature of the damages
sought, we will not characterize the settlement as a taxable post-
season adjustment.
          Second, it is inaccurate to characterize the processors'
settlement payment as compensation for losses in specific
transactions because the competitive practices statutes do not
premise liability on completed transactions between the injured
party and the offending party. [Fn. 8]  The statutes only require
that the offending party commit anti-competitive conduct to incur
liability to the injured party. [Fn. 9]  Thus, the cause of action
for economic loss under AS 45.50.576 does not correspond to any
particular sales transactions and is considerably broader than one
for simple breach of contract for underpayment.  
          Moreover, the settlement funds at issue here encompass a
broad range of possible commercial conduct and economic effects
occurring wholly outside the borough's borders.  For example, the
class of fishers covered by the settlement may include many who did
not fish within the borough and therefore engaged in no locally
taxable transactions at all during the fishing seasons.  And the
settlement funds will resolve claims accusing the processors of
anti-competitive conduct that could have occurred virtually
anywhere and that allegedly lowered salmon prices not just inside
the borough, but throughout the Bristol Bay area. 
          At bottom, then, because neither the basic allegations of
the antitrust action nor the actual provisions of the disputed
settlement correspond to any particular sale, or set of sales,
within the borough, we find no permissible basis here for
characterizing the settlement money as a post-season adjustment to
taxable sales.  Because the processors' liability stemmed not from
conduct tied to contracting for purchases of fish, but from alleged
economic conduct occurring outside the context of taxable sales
transactions within the borough, we will not characterize the
settlement money as a post-season adjustment of such transactions.
          We are aware of only one published opinion that speaks to
the issue of whether a settlement agreement in litigation modifies
the original sales price of a commodity for purposes of a sales
tax.  In that case, Southern California Edison Co. v. State Board
of Equalization, the court held that there was no such
modification. [Fn. 10]  There, Edison paid sales tax on the
purchase of electrical equipment but later sued the suppliers of
the equipment, alleging a price-fixing conspiracy. [Fn. 11]  After
the suppliers settled the antitrust case by agreeing to "voluntary
price adjustments,"Edison sought a refund on sales tax from the
state. [Fn. 12]  The court rejected Edison's characterization of
the settlement as a downward adjustment of the original sales
               [T]he payments received by the utilities in
          settlement of their antitrust claims, though termed
          "voluntary price adjustments"by the parties to the
          agreement, do not differ in any realistic sense from any
          other damages paid by a seller to a buyer as a result of
          a seller's wrongful actions in the conduct of the sales
          transaction.  Traditionally, the courts have not regarded
          such "damages"as altering the "sales price"of the
          original transaction, and we find nothing in the present
          statutory scheme to suggest that the Legislature intended
          such payments to support a "readjustment"of the initial
          sales or use tax.[ [Fn. 13]]
     The court also noted a general policy for rejecting such a refund:
               [W]e believe that the allowance of a tax
          refund under these circumstances would, in general,
          produce the undesirable and inequitable effect of
          shifting one cost of a price-fixing conspiracy from the
          perpetrators of the conspiracy to the taxpayers of the
          state.[ [Fn. 14]]
     While each party to this case contends that Edison supports its
position, the borough's arguments are less persuasive.  And the
borough's tax ordinances do not seem to support its construction of
the sales tax as applying to the settlement proceeds.  
          We note that our holding does not leave the borough or
other local taxing authorities without a remedy when anti-
competitive behavior deprives them of sales tax revenue as a result
of artificially low prices.  Alaska Statute 45.50.576(b) provides
boroughs, cities, and the state with a cause of action for damages
resulting from violations of Alaska's competitive practices
statutes. [Fn. 15]  In this case, the borough could have joined the
fishers' antitrust lawsuit, or filed its own action against the
processors for sales taxes lost due to the alleged conspiracy to
set artificially low prices.
          For each of these reasons, we hold that the settlement
money is not taxable under the borough's sales tax.
     C.   Estoppel
          The borough argues that the fishers should be estopped
from denying the applicability of the sales tax because one of the
fishers' attorneys agreed to "use his best good faith effort to see
to it the Borough receives its 2% sale[s] and use taxes"in
exchange for $25,000 in "seed money"early in the litigation.  But
the borough misunderstands the defense of promissory estoppel.  It
is entirely unclear how the borough could have reasonably relied on
  or been prejudiced by   "best efforts"promises made by an
individual attorney in the context of an apparently unlawful "seed
money"arrangement that the borough subsequently rescinded.  Yet,
even assuming that the borough could estop the fishers from arguing
that the sales tax was inapplicable, it could hardly estop the
processors from advancing the same argument, for the processors
were not a party to the disputed agreement. [Fn. 16]  Therefore,
the borough's argument is without merit.
          The decision of the superior court is AFFIRMED.


Footnote 1:

See Schikora v. State, Dep't of Revenue, 7 P.3d 938, 941 (Alaska

Footnote 2:

See Balough v. Fairbanks N. Star Borough, 995 P.2d 245, 254 (Alaska

Footnote 3:

Guin v. Ha, 591 P.2d 1281, 1284 n.6 (Alaska 1979).

Footnote 4:

     Lake & Peninsula Borough Code (LPBC) sec. 6.40.020 & .030(D).

Footnote 5:

     LPBC sec. 6.40.010(G).

Footnote 6:

     LPBC sec. 6.40.010(H) (emphasis added).

Footnote 7:

     We assume here, for purposes of this argument, that it is
appropriate to characterize the settlement as compensation instead
of a payment in avoidance of litigation expenses or as partially
punitive in nature, as the fishers and processors argue. 

Footnote 8:

     AS 45.50.562 defines combinations in restraint of trade:
"Every contract, . . . or conspiracy, in restraint of trade or
commerce is unlawful." AS 45.50.576(a) creates the individual
cause of action for violations of AS 45.50.562: "A person who is
injured in business or property by a violation of AS 45.50.562 -
45.50.570, . . . may bring a civil action . . . for damages
sustained by the person."

Footnote 9:

See AS 45.50.562.

Footnote 10:

     498 P.2d 1014 (Cal. 1972).

Footnote 11:

Id. at 1015.

Footnote 12:


Footnote 13:

Id. at 1016.

Footnote 14:


Footnote 15:

See AS 45.50.576(b).

Footnote 16:

See Mortvedt v. State, Dep't of Natural Resources, 858 P.2d 1140,
1143 n.7 (Alaska 1993).