Libby v. City of Dillingham

• Decision Date: 23 May 1980
• Docket Number: No. 3861,3861
• Citation: 612 P.2d 33
• Parties: John LIBBY, Mark Johnson, and Steven Nicholson, Appellants, v. CITY OF DILLINGHAM, a Municipal Corporation, and Engstrom Brothers Company, Inc., Appellees.
• Court: Alaska Supreme Court

Page 33

612 P.2d 33

John LIBBY, Mark Johnson, and Steven Nicholson, Appellants, v. CITY OF DILLINGHAM, a Municipal Corporation, and Engstrom

Brothers Company, Inc., Appellees.

No. 3861.

Supreme Court of Alaska.

May 23, 1980.

R. Eldridge Hicks, Ruskin, Baker & Hicks, Anchorage, for appellants.

Gary Thurlow, Croft, Thurlow, Loutral & Duggan, Anchorage, for Dillingham.

Allan A. Engstrom, Juneau, for Engstrom Bros.

Before BOOCHEVER, C. J., and RABINOWITZ, CONNOR, BURKE and MATTHEWS, JJ.

OPINION

BURKE, Justice.

This case originated as an action by three taxpayers of the City of Dillingham seeking to enjoin the City of Dillingham and Engstrom Brothers Company from acting in accordance with an agreement to lease a cold storage facility on the grounds that the lease did not comply with the competitive bid requirements of Alaska Statutes and Dillingham Ordinances. All parties moved for summary judgment. The superior court granted the City's motion and entered final judgment in favor of defendants. Plaintiffs have appealed that judgment. We conclude that the lease in question was subject to competitive bid requirements, and we therefore reverse the decision of the superior court.

I. Statement of the Facts ¹

From 1969 through 1971, the Economic Development Administration (EDA) financed the construction of a cold storage plant for the City of Dillingham (City). Following its completion, the facility was leased to the Nushagak Fishermen's Cooperative, Inc. (Nushagak). The Nushagak operation was unsuccessful and did not operate after the 1972 season. On July 15, 1974, the City served Nushagak with a Notice of Default.

In February 1974 Elton Engstrom, President of the seafood processing company, Engstrom Brothers Company, visited the Dillingham cold storage plant and later wrote a letter to Sam Coxson, Dillingham City Manager, expressing an interest in leasing the plant for the 1975 season. During the summer of 1974, Kemp and Paulucci Seafood, Inc., also expressed interest in operating the cold storage facility. On September 16, 1974, Louis Kemp presented a detailed lease proposal to the Dillingham City Council and shortly thereafter sent a letter to Mayor Roberts, further elaborating the proposal. On September 19, 1974, Engstrom Brothers Company submitted a proposal to Sam Coxson. On September 21, 1974, Coxson submitted a counterproposal to Kemp and Paulucci which Louis Kemp signed and returned to the City with minor modifications.

When Kemp received information that details of his proposal had been revealed to Engstrom Brothers Company, he contacted Alaska counsel, and upon being informed of competitive bid requirements, Kemp authorized his attorney to notify the City that he was demanding that the City comply with those requirements. On October 17, 1974, the attorney sent the City a telegram, citing the specific requirements of AS 29.48.260. ² On October 18, 1974, Coxson, in apparent response to the Kemp telegram, wrote a memorandum to the City Council, indicating that "the state requires sealed bid proposals versus the executive session negotiation method which the city used" and informed the Council that he was going to prepare bid specifications. This memorandum implies that a decision had already been made to award the lease to Engstrom Brothers Company: "Unfortunately, it does (affect) Mr. Engstrom in that he must come back in and bid by sealed bid for something that he already had."

The City subsequently issued invitations for bids on three occasions, announcing scheduled bid openings on December 6, 1974, January 16, 1975, and January 29, 1976, ³ respectively. During the period between the second and third bid invitations, EDA advanced more money to the City to cover the expenses of the vacant cold storage plant. EDA strongly urged the City to locate a lessee for the plant; and in a letter of November 12, 1975, EDA finally indicated that funds for the renovation of the plant would be made contingent on the execution of a lease.

During this period between the last two bid invitations, Kemp and Paulucci continued to express an interest in leasing the facility. In September, 1975, Kemp visited Joe McGill, the new city manager, in Dillingham and inquired about the status of the plans for the facility. In response to a notice from the City, Kemp sent his engineer, Walter Butler, to a design meeting with EDA officials in Anchorage on January 5, 1976. During this period, the City attempted several times to contact Kemp or Butler by telephone but was unable to locate them. There were, however, numerous contacts between the City and Engstrom Brothers Company during this period, including at least three telephone calls and six letters.

No bids were submitted in response to any of the three bid invitations apparently because the City's terms were unduly restrictive. ⁴ Following the third bid opening date, in a telephone conversation and by letter, Kemp and Paulucci proposed to the City that interested operators be invited to submit proposals to the City rather than having the City set up specifications, but Kemp and Paulucci received no response to this suggestion. During this period, however, McGill met with Elton Engstrom in Seattle and with Elton Engstrom's attorney in Anchorage, and during these meetings the terms of a lease for the 1977 season were negotiated. The Engstrom lease was subsequently approved and accepted by the Dillingham City Council on February 16, 1976. The record reveals no negotiations with Kemp and Paulucci or any other processor during this period.

Three Dillingham taxpayers subsequently brought suit against the City and Engstrom Brothers Company, alleging that the lease agreement had been entered into in violation of the bid requirements of the Alaska Statutes and Dillingham Ordinances. In response to the parties' motions for summary judgment, the superior court ruled (1) that the Dillingham cold storage facility was a "beneficial new industry" within the meaning of AS 29.48.260(E) AND (2)⁵ that such new industries are exempt from the competitive bid requirements of Dillingham Ordinance No. 22, section III, ⁶ and AS 29.48.260(c). ⁷

II. Is the Dillingham Cold Storage Plant a Beneficial New Industry?

AS 28.48.260(e) authorizes a municipality to lease real property to persons who agree to operate a "beneficial new industry." ⁸ Such a lease may be "upon the terms and conditions the assembly or council considers advantageous to the community." AS 29.48.260(e). The City contends that this section exempts leases to beneficial new industries from competitive bid requirements. The City further contends that the Dillingham cold storage plant is such a "beneficial new industry" and is therefore exempt from the competitive bid requirements.

The statute itself does not define "beneficial new industry," ⁹ and there are no Alaska cases construing the term. ¹⁰ We therefore turn for guidance to cases from other jurisdictions which have construed similar terms. Most of these cases involve tax advantages that are available only to new industries. ¹¹ A few involve statutes establishing eligibility for discount railroad rates or exemptions from restrictions on importation of foreign labor. ¹² We have been unable to discover any cases discussing the term "new industry" in the context of a municipality's authority to acquire or dispose of property, and none of the cases we have examined ¹³ has involved facts precisely analogous to those of the case at bar.

The cases are nevertheless helpful. The tax exemption cases, ¹⁴ for example, consistently refuse to find that a "new industry" exists where the business in question is merely an expansion or a continuation of an existing business, even if it has a new name or a new corporate form. See, e. g., Chronicle Publishers, Inc. v. South Carolina Tax Commission, 244 S.C. 192, 136 S.E.2d 261, 262 (1964) (special tax treatment not available to "a new corporation which has acquired and improved established businesses"). On the other hand, where an old corporation establishes a separate operation, entirely independent of its existing operation, the cases find that the new operation is a "new industry." See, e. g., Arkwright Mills v. Murph, 219 S.C. 438, 65 S.E.2d 665, 668-69 (1951) (new textile plant constructed five miles from existing plant, which continued in operation, not a "mere addition" and therefore entitled to special tax treatment). The distinction was stated succinctly in City of Louisville v. Louisville Tin & Stove Co., 170 Ky. 557, 186 S.W. 124 (1916):

(I)f defendant's plant . . . was, as a matter of fact, an entirely new manufactory which had not theretofore existed in the city, and it was induced to locate its plant in the city by the offered exemption, the property in question is exempt. On the other hand, if the new plant was a mere expansion of a manufacturing business theretofore conducted, the property is not exempt.

We find that the term "new industry," as used in AS 29.48.260(e), refers to any newly organized business that is not a mere expansion or continuation of a business that has previously operated in the municipality. Since Engstrom Brothers Company was totally independent of the Nushagak Fishermen's Cooperative, Inc., its operation of the cold storage plant was not a continuation of that business. It was a separate and therefore new business in Dillingham. It was also a new type of business, for although its type of business was one that had previously been conducted by Nushagak, there was apparently no other cold storage plant actually in operation in Dillingham at the time. ¹⁵

We conclude that the term "new industry" contemplates a newly organized enterprise, which may or may not be a new type of business. We do not believe, however, that every new enterprise comes within the statute, for the statute specifies "beneficial new industry." Thus, for example, if several cold storage plants were already doing business in...