Alaska Bldg., Inc. v. Legislative Affairs Agency & 716 W. Fourth Ave. LLC

• Decision Date: 25 August 2017
• Docket Number: Supreme Court No. S-16371.
• Citation: 403 P.3d 1132
• Parties: ALASKA BUILDING, INC., Appellant, v. LEGISLATIVE AFFAIRS AGENCY and 716 West Fourth Avenue LLC, Appellees.
• Court: Alaska Supreme Court

403 P.3d 1132

ALASKA BUILDING, INC., Appellant,

v.LEGISLATIVE AFFAIRS AGENCY and 716 West Fourth Avenue LLC, Appellees.

Supreme Court No. S-16371.

Supreme Court of Alaska.

August 25, 2017

James B. Gottstein, Law Offices of James B. Gottstein, Anchorage, for Appellant.

No appearance by Appellees Legislative Affairs Agency or 716 West Fourth Avenue LLC.

Before: Stowers, Chief Justice, Winfree, and Maassen, Bolger, and Carney, Justices.

OPINION

MAASSEN, Justice.

I. INTRODUCTION

A building owner sued an agency of the Alaska Legislature and a private developer, alleging that the agency and developer had entered into an illegal lease for the building next door. The complaint sought both declaratory relief invalidating the lease and monetary compensation calculated as a percentage of the savings once the lease was invalidated. The building owner succeeded in invalidating the lease but lost the compensation claim; the superior court concluded that the claim had no basis in Alaska law. The court later found that the compensation claim was frivolous and justified a sanction under Alaska Civil Rule 11. The building owner appeals that decision.

We conclude that the compensation claim was based on a nonfrivolous argument for establishing new law and thus did not violate Rule 11. We therefore reverse.

II. FACTS AND PROCEEDINGS

A. Facts

In September 2013 the Alaska Legislative Affairs Agency executed a lease agreement with 716 West Fourth Avenue LLC (716 West Fourth) for the Legislative Information Office building (LIO building) in downtown Anchorage. The agreement called for significant renovation and expansion. 716 West Fourth agreed to demolish an adjoining building and increase the square footage of the LIO building from 23,645 to 64,048—a 170% increase in space. The Agency agreed to pay up to $7.5 million for certain "tenant improvements," which the superior court later characterized as a "virtual ‘gutting’ and reconstruction of the existing rental space." The agreement also extended the term of the lease and increased the Agency's monthly rent from $56,863.05 to $281,638.00

B. Proceedings

Alaska Building, Inc., the owner of property next door to the LIO building, filed a lawsuit in superior court challenging the lease agreement and renovation. Count one of the complaint sought a declaration that the lease agreement violated AS 36.30.083(a), which permits the Alaska Legislature to extend an existing real property lease—rather than soliciting competitive bids for a new lease pursuant to certain statutory procedures—only if the extension would achieve "a minimum cost savings of at least 10 percent below the market rental value." A second count of the complaint alleged that the expansion and renovation project "was negligently designed, managed, or constructed, ... resulting in damage to the Alaska Building." The complaint's prayer for relief included the claim central to this appeal: that if Alaska Building succeeded in invalidating or reforming the lease agreement, it should receive judgment in an amount equal to 10 percent of the resulting savings to the Agency.

On the Agency's motion, the superior court ordered Alaska Building to sever count two—the property damage claim—from the complaint and file it as a separate action. Alaska Building accordingly filed an amended complaint that omitted count two, while retaining the claim for 10 percent of the Agency's potential savings. The defendants then moved for a ruling on that claim, contending that it had no legal basis. The superior court granted the motion, concluding that Alaska Building had "no legal grounds on which to request 10% of any lease savings."

The parties then litigated the remaining claims. Alaska Building continued to argue that the lease agreement was illegal, while the Agency argued that the lease was a valid "extension" under AS 36.30.083 and that some portions of the dispute were nonjusticiable political questions. 716 West Fourth argued for "summary dismissal" of all remaining claims on justiciability grounds. The court ruled in Alaska Building's favor, deciding that the issue was justiciable and that the lease violated the law because it was "not an agreement to extend a lease but rather a wholly new lease instrument altogether and should have been competitively bid."

This ruling ended the parties' substantive dispute. The court determined that Alaska Building was the prevailing party on the lease validity issue and awarded it attorney's fees of over $26,000 against 716 West Fourth, of which approximately $17,000 was jointly owed by the Agency. The Agency moved for attorney's fees as well, arguing that it had prevailed against Alaska Building on count two—the property damage claim that had been severed—and the percentage-of-savings claim. The Agency also requested sanctions under Alaska Civil Rule 11 because of the percentage-of-savings claim, arguing that Alaska Building "had no good faith basis or legal support for bringing" it. The court granted the Agency's fees motion, concluding that the percentage-of-savings claim was frivolous and awarding the Agency $2,217.80 in attorney's fees under Alaska Civil Rules 82 and 11.

Alaska Building appeals only the Rule 11 decision, arguing that the percentage-of-savings claim, though novel and ultimately unsuccessful, was not frivolous. The Agency and 716 West Fourth did not participate in the appeal.

III. STANDARD OF REVIEW

We review for abuse of discretion a trial court's decision to impose Rule 11 sanctions,¹ and we will find an abuse of discretion only when the trial court's decision is "manifestly unreasonable."² We have held that the deferential abuse of discretion standard is appropriate in the Rule 11 context because the trial court, unlike an appellate court, is "intimate[ly] familiar[ ] with the proceedings below"³ and generally "better situated" than an appellate court "to marshal the pertinent facts and apply the fact-dependent legal standard mandated by Rule 11."⁴

But sanctions under Rule 11(b)(2) —which requires a court to determine whether a party's "claims, defenses, and other legal contentions are warranted by existing law or by a nonfrivolous argument for ... establishing new law"—are unlikely to depend solely on questions of fact. Although a Rule 11 motion may require the court to "consider factual questions regarding the nature of the attorney's prefiling inquiry and the factual basis" of the party's position,⁵ "whether a pleading is ‘warranted by existing law or a good faith argument’ for changing the law" is likely to be a legal issue.⁶ But a trial court's erroneous determination of a legal issue, like its clearly erroneous finding of fact, may persuade us that it was an abuse of discretion to award Rule 11 sanctions.⁷

Rule 11"creates an objective standard of ‘reasonableness under the circumstances.’ "⁸ The rule may therefore require a court to consider a party's legal position within a particular factual context; for example, a court may need to consider the amount of time an attorney had to inquire into the relevant facts and applicable law before meeting a filing deadline. But in this case the superior court's decision did not depend on the circumstances of the case or the adequacy of the attorney's preliminary inquiry. The court did not hear evidence or make findings of fact but determined that Alaska Building's percentage-of-savings claim was frivolous as a matter of law.

The issue before us is thus not fact-dependent and does not require "intimate familiarity" with the superior court proceedings. The primary question is a "purely legal" one, more analogous to "whether the attorney's legal argument was correct" than to "whether an attorney's prefiling inquiry was reasonable."⁹ In determining whether the percentage-of-savings claim was a "a nonfrivolous argument ... for establishing new law,"¹⁰ we apply our independent judgment and "adopt the rule of law most persuasive in light of precedent, reason, and policy."¹¹

IV. DISCUSSION

Alaska Building argues first that the superior court abused its discretion because it "failed to make a clear record concerning the reason [ ]" for imposing Rule 11 sanctions. We have held that trial courts "should, as a matter of sound practice, make a clear record concerning the reason for imposing [a] particular sanction" and cite "the authority relied upon."¹² We have cautioned that "[f]ailure to do so may require a reversal and remand for entry of such findings."¹³ The sanctions order in this case stated "that Plaintiff's request for relief in the form of 10% of the alleged savings to the [Agency] for lease invalidation was frivolous" but did not explain why. The superior court did discuss the claim fully in its earlier order granting the defendants' motion for a ruling of law. The court summarized Alaska Building's asserted rationale—"to make meaningful the right of citizen-taxpayers to seek judicial redress of illegal government action"—but concluded that the claim had "no legal grounds": the court reasoned that "there [was] no statutory authority that would allow th[is] court to create such an incentive" to public interest litigation and that the "argument is one of public policy, which is better left to [the] legislature." But that earlier order did not characterize the claim as frivolous or imply that it had been brought in bad faith. Given the absence of relevant findings, our usual course would be to vacate the sanctions order and remand for further proceedings.¹⁴

In this case, however, a remand is not necessary because we agree with Alaska Building's argument that, as a matter of law, the percentage-of-savings claim was not frivolous.¹⁵ While the claim had little reasonable likelihood of success, we conclude that it was a "nonfrivolous argument ... for establishing new law," something Rule 11 expressly permits.¹⁶

Rule 11 provides:

By presenting to the court a pleading, written motion, or other paper ... an attorney ... certifies that to the best of [his]

...