STATE of Alaska, DEPARTMENT OF NATURAL RESOURCES, Appellant and Cross-Appellee,
ALASKA RIVERWAYS, INC., and Tanana River Properties, L.L.C., Appellees and Cross-Appellants.
[Copyrighted Material Omitted]
Cameron M. Leonard and Mary Ann Lundquist, Senior Assistant Attorneys General, Fairbanks, and Talis J. Colberg, Attorney General, Juneau, for Appellant/Cross-Appellees.
Susan E. Reeves and Brian J. Stibitz, Reeves Amodio, LLC, Anchorage, and Alexander O. Bryner, Feldman Orlansky & Sanders, Anchorage, for Appellees/Cross-Appellants.
Before: FABE, CHRISTEN, Justices, and MATTHEWS, Senior Justice, Pro Tem.[*]
We are called upon today to decide whether the State of Alaska has the authority to require private parties who construct wharves into adjacent navigable waters to enter into leases. The answer to this question depends on whether the common law right to construct a wharf in front of one's property, which was recognized in territorial days, has given way to the right of the state to require a lease on behalf of all Alaskans for the exclusive use of state-owned land.
We conclude that the Alaska Constitution and the Alaska Land Act have modified the common-law right to wharf out by granting authority to the state to enter into leases with landowners who build wharves over state-owned land adjacent to their property. We therefore uphold the exercise of authority by the Alaska Department of Natural Resources (DNR) to require Alaska Riverways,
Inc., a longtime paddlewheel tour boat operator on the Chena River, to enter into a lease. But DNR's leasing decision, issued in 2006, required Alaska Riverways to pay the greater of $1,000 per year or $0.25 per paying passenger for its use of approximately one acre of state riverbed. Because the per-passenger fee violates federal law, we vacate that portion of the leasing decision.
II. FACTS AND PROCEEDINGS
The basic facts of this case are undisputed. Alaska Riverways, Inc. and Tanana River Properties, LLC (collectively " Alaska Riverways" ) operate paddlewheel tour boats on the Chena River in Fairbanks. Alaska Riverways was incorporated in 1953 and has owned the riverside property that is the subject of the current dispute since 1972. In about 1980, Alaska Riverways built a system of floating docks and bulwarks secured to this riverside property for mooring boats and loading passengers. Alaska Riverways' docks and moored boats together occupy about one-third of the width of the Chena River.
Because the Chena River is navigable, the State of Alaska owns the riverbed below the ordinary high water mark. This riverbed land is referred to as " shoreland,"  and one whose property borders on a stream or river is known as a " riparian landowner."  Alaska Riverways' docks and moored boats float above state shoreland, but Alaska Riverways has never held a lease or permit from DNR.
In 1979 Alaska Riverways filed an application seeking to obtain a lease for use of state shoreland. DNR did not immediately process Alaska Riverways' 1979 lease application due to an " insufficient description" of the subject property. In 1989 DNR began sending letters to Alaska Riverways requesting further information regarding Alaska Riverways' 1979 lease application and seeking to require Alaska Riverways to enter into a lease. Alaska Riverways submitted a new lease application in 1990, and DNR issued a preliminary decision approving it. In 1991 DNR issued a final decision offering Alaska Riverways a ten-year lease. DNR instructed Alaska Riverways to have the lease area surveyed and appraised to determine the lease fee, but Alaska Riverways did not do so and no lease was issued.
Another fifteen years of fruitless lease discussions went by, during which DNR periodically renewed its efforts to require Alaska Riverways to enter into a lease and Alaska Riverways questioned the authority behind and fairness of DNR's shoreland leasing program. Subjects of negotiation included whether Alaska Riverways should be charged back rent and whether the lease fee should be a fixed amount based on appraised value or a variable amount based on Alaska Riverways' passenger count. Further details of the nearly three decades of leasing discussions between Alaska Riverways and DNR are not relevant to the legal issues now before us.
In April 2006 DNR issued a preliminary decision proposing a twenty-five year lease of approximately one acre of shoreland to Alaska Riverways for " $1000 per year or $.25 per paying passenger, whichever is greater. " (Emphasis in original.) Because Alaska Riverways owned the adjoining riparian land, the proposed lease was a " preference right" lease under AS 38.05.075(c), which provides that " [t]he owner or lessee of land that fronts
on shoreland, tideland, or submerged land  of the state may be granted a preference right to a lease for the shoreland, tideland, or submerged land without competitive bidding."
DNR gave public notice of its preliminary leasing decision and received public comment. Alaska Riverways objected to the proposed leasing arrangement, opposing " the imposition of a tax on its gross business revenues" and questioning " the authority of the state to impose a permit or lease fee in the first instance." Alaska Riverways also objected to DNR's policy of only requiring leases from commercial users of shoreland. Despite its doubts regarding DNR's authority to require a lease, Alaska Riverways indicated that it had " no objection to a fixed lease amount" as opposed to one based on its passenger count.
In August 2006 DNR issued a final finding and decision approving the leasing arrangement proposed in its preliminary decision and responding to comments from Alaska Riverways and others. Countering Alaska Riverways' various objections, DNR asserted that " [a] riparian owner does not have the right to occupy state shoreland to support commercial uses without any authorization or fee" and that " [r]egardless of whether any part of [the docks] physically touches state shorelands, the [Alaska Riverways] docks have removed a portion of the state-owned bed of the Chena River from public use." DNR also maintained that commercial and non-commercial riparian landowners are not " similarly situated" such that DNR must treat them the same and that 33 U.S.C. § 5(b), which prohibits the state from levying a tax for the use of navigable waters, is inapplicable because " DNR is not charging Alaska Riverways to navigate vessels on the Chena River." Alaska Riverways appealed the August 2006 final finding and decision to the commissioner of DNR, who affirmed it.
Alaska Riverways then appealed the commissioner's final decision to the superior court. In August 2008 Superior Court Judge Douglas Blankenship issued an opinion reversing DNR's leasing decision, concluding that " DNR does not have the authority to require [Alaska Riverways] to enter a lease in order to exercise its riparian right to wharf out." Although it reversed DNR's leasing decision, " [f]or the sake of completeness" the superior court went on to hold that if DNR could require a lease, the proposed lease would not violate Alaska Riverways' right to equal protection and the proposed fee structure would not violate federal law or otherwise be inappropriate.
DNR appeals from the superior court's reversal of its leasing decision, and Alaska Riverways cross-appeals from the superior court's conclusion that if DNR could require a lease, DNR's proposed leasing arrangement would be consistent with federal and state law.
III. STANDARDS OF REVIEW
Where the superior court acts as an appellate court reviewing a decision by an administrative agency, we independently review the underlying administrative decision and " give no deference to the superior court's decision."  We apply one of four standards in performing this review: (1) the " substantial evidence" test applies to questions of fact; (2) the " reasonable basis" test applies to questions of law that involve agency expertise; (3) the " substitution of judgment" test applies to questions of law that do not involve expertise; and (4) the " reasonable and not arbitrary" test applies to questions about agency regulations and the agency's interpretation of those regulations. The questions posed in this appeal regarding
whether the state may require Alaska Riverways to enter into a lease and the legality of the lease terms are questions of law not involving agency expertise. In considering these questions, we will therefore substitute our judgment for that of DNR, " adopting the rule of law that is most persuasive in light of precedent, reason, and policy." 
A. Decision of the Superior Court
In reaching its decision in favor of Alaska Riverways, the superior court held that under the common law in Alaska, Alaska Riverways had a riparian right of access that included " the right to construct a wharf or dock when ... necessary to enjoy access with boats or ships to navigable water." The superior court determined that in Alaska Riverways' case, " [p]ractical access to the point of navigability would include the area of deep water necessary to moor Alaska Riverways' riverboats to its docks as well as the dock space necessary to load passengers." Therefore, the superior court reasoned, " if riparian common law rights of access still exist, the State's decision to require a lease would be equivalent to charging [Alaska Riverways] rent for what [Alaska Riverways] already had a right to use."
The superior court then went on to examine whether " riparian common law rights of access still exist" in light of various sections of the Alaska Land Act  that delineate DNR's power to lease state shoreland. The superior court focused on AS 38.05.075(c), which was enacted in 1984  and amended in 1997  and which grants a non-competitive preference right to landowners who wish to lease the state-owned shoreland, tideland, or submerged land adjoining their property. The superior court noted that AS 38.05.075(c) is inconsistent with a common-law wharfage privilege because a riparian landowner possessing a common-law right to wharf out would have no use for a shoreland lease from the state at all, let alone a preference right in obtaining such a lease. The superior court thus reasoned that AS 38.05.075(c) " could be interpreted to abolish riparian owners' common law right to wharf out over state-owned riverbed." But the superior court held that AS 38.05.075(c) could not be applied " retroactively" to abolish Alaska Riverways' right to wharf out because Alaska Riverways built its floating docks in 1980, prior to the enactment of that subsection.
DNR now appeals the superior court's decision in favor of Alaska Riverways, arguing that " under Alaska law, there is no common law wharfage privilege that would permit Alaska Riverways to construct and maintain its dock over state land free from state regulation," and that " [t]he Alaska Legislature has authorized DNR ... to undertake regulation of wharves over shoreland through leases."
B. Under Common Law, Alaskan Riparian Owners Have a Qualified Right to Wharf Out.
The existence, nature, and extent of the riparian right to wharf out is a matter of state law. We therefore begin with an examination of the nature of the common-law right to wharf out in Alaska.
1. Pre-statehood judicial decisions
The right to wharf out in Alaska was addressed by courts prior to statehood in the
context of actions by littoral  owners against private parties preventing their access to adjacent tidelands and submerged lands. While we are not " bound by federal judicial rulings entered prior to the date of statehood,"  these decisions help to define the context in which our constitutional framers and the first Alaska state legislature acted.
In Dalton v. Hazelet, decided in 1910, the Ninth Circuit held: " while in a territory a grant of land bordering on or bounded by navigable waters conveys to the grantee no right or title to the shore or soil below high-water mark, nevertheless such a grantee has the right to a free and unobstructed access to such waters."  This right to access includes the right to erect structures over waters " too shoal [i.e. shallow] to be navigable," but only up to the " point of navigability where the necessity for such erections ordinarily ceases."  The court noted, however, that a riparian owner's " right of access by means of a wharf or other structure" is subject to " ‘ the right of [a future state] to regulate the use’ " of " ‘ tide lands and beds of any of its navigable waters.’ " 
The district court for the Territory of Alaska considered the right to wharf out in detail several years later. In Alaska Juneau Gold Mining Co. v. Northern Lumber Mills, the court ...