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BP Pipelines (Alaska) Inc. v. State, Department of Revenue

Supreme Court of Alaska

May 9, 2014


Appeal from the Superior Court of the State of Alaska, Third Judicial District, Anchorage, Sharon Gleason and Andrew Guidi, Judges. Superior Court No. 3AN-06-08446 CI.

James M. Seedorf, Hughes Gorski Seedorf Odsen & Tervooren, LLC, Anchorage, for Appellants and Cross-Appellees.

Mauri Long, Jessica Dillon, and Andalyn Pace, Dillon & Findley, P.C., Anchorage, for Appellee North Slope Borough.

Robin O. Brena, Laura S. Gould, and Anthony S. Guerriero, Brena, Bell & Clarkson, P.C., Anchorage, and William M. Walker and Craig Richards, Walker & Richards, LLC, Anchorage, for Appellees and Cross-Appellants Fairbanks North Star Borough and City of Valdez.

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


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MAASSEN, Justice.


These appeals concern the attorney's fees and costs awarded in the 2006 Trans-Alaska Pipeline System tax assessment case.[1] The superior court decided that the Fairbanks

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North Star Borough, the City of Valdez, and the North Slope Borough were prevailing parties for purposes of attorney's fees and costs because they had prevailed on the main issues of the case. The court awarded costs pursuant to Alaska Civil Rule 79 and attorney's fees pursuant to Alaska Civil Rule 82(b)(2), which governs fee awards " [i]n cases in which the prevailing party recovers no money judgment." The superior court also applied the enhancement factors of Rule 82(b)(3)(A), (B), and (H) to raise the presumptive award from 30 percent to 45 percent of the prevailing parties' reasonable attorney's fees.

The owners of the Trans-Alaska Pipeline System appeal. They argue that the superior court should have applied Alaska Appellate Rule 508 instead of Civil Rules 79 and 82. In the alternative, they contend that the three municipalities did not prevail as against the owners; that fees should have been allocated between separate appeals; that none of the prevailing parties were entitled to enhanced attorney's fees; and that the Fairbanks North Star Borough's award should have been reduced as recommended by a special master. The Fairbanks North Star Borough and the City of Valdez cross-appeal, arguing that the superior court should have viewed this case as one involving a money judgment for purposes of an attorney's fees award under Rule 82(b)(1) and, in the alternative, that they were entitled to a greater enhancement of their fees.

We affirm.


A. Facts

Alaska Statute 43.56.060 directs the Department of Revenue to annually assess the " full and true value" of oil and gas properties for purposes of determining the property taxes due the State of Alaska and certain affected municipalities. Covered properties include those used for the pipeline transportation of gas or unrefined oil.[2] After the Department conducts its initial assessment, an owner of taxable property or an affected municipality may informally appeal the valuation to the Department.[3] The Department's decision may be further appealed to the State Assessment Review Board.[4] Thereafter, taxpayers and taxing authorities are entitled to appeal the Board's action to the superior court for a trial de novo.[5]

The Trans-Alaska Pipeline System (TAPS) stretches 800 miles from the oil fields of the North Slope to a terminal in the City of Valdez. En route it crosses property within the North Slope Borough (North Slope), the Fairbanks North Star Borough (Fairbanks), and the City of Valdez (Valdez) (called collectively " the Municipalities" ).[6] TAPS is jointly owned by BP Pipelines (Alaska) Inc. (46.9%); ConocoPhillips Transportation Alaska, Inc. (28.3%); ExxonMobil Pipeline Company (20.3%); Koch Alaska Pipeline Company, LLC (3.1%); and Unocal Pipeline Company (1.4%), and is managed by their agent Alyeska Pipeline Service Company (called collectively " the Owners" ). The valuation of TAPS for the 2006 tax year led to a five-week trial de novo in the superior court, a superior court valuation that more than doubled that of the Board, and eventual affirmance on appeal by this court.[7] This related appeal and cross-appeal concern the costs and attorney's fees awarded by the superior court.

B. The Underlying Case

The proceedings leading up to these appeals began on March 20, 2006, when the Municipalities and Owners appealed within the Department its initial assessment of TAPS at $3.344 billion. The Department's decision adjusted the original assessment (to $3.641 billion), and the Municipalities and

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Owners appealed to the Board on April 19, 2006. Following the Board's decision, which again adjusted the assessment upward (to $4.306 billion), the Owners and Municipalities appealed to the superior court.

The first superior court appeal was filed in Anchorage on May 25, 2006, by BP, ExxonMobil, Unocal, and Alyeska, requesting a trial de novo of the TAPS valuation. North Slope entered an appearance in the appeal and Fairbanks/Valdez filed a cross-appeal. The remaining TAPS owners, ConocoPhillips and Koch, together with Alyeska filed a second superior court appeal in Anchorage on June 21, 2006. Again, North Slope entered an appearance and Fairbanks/Valdez filed a cross-appeal in which they listed the same points on appeal as they had in the first appeal. A week later a third superior court appeal was filed by Fairbanks/Valdez in Fairbanks. In July 2006 the three superior court appeals were consolidated for purposes of a single trial de novo before Judge Sharon Gleason in Anchorage.

The trial de novo began on August 10, 2009, and lasted for over five weeks. The main dispute was over the method to be used to calculate " the full and true value" of TAPS. The Municipalities proposed a valuation of $11.570 billion, employing a cost approach that analyzed the replacement cost of TAPS while taking into consideration its enhanced value because of the profitability of the entire oil enterprise as an integrated entity. In contrast, the Owners contended that TAPS should be valued at $850 million, arguing for a tariff/income approach that considered only the income stream that TAPS generated. In the agency proceedings, both the Department and the Board had opted for the cost approach; the superior court ultimately agreed. It found the cost approach to be the best indicator of value and applied it using a " replacement cost new less depreciation" (RCNLD) method, which determines the current replacement cost of the property and then deducts for depreciation.

A second major point of contention was which cost study should be applied to accurately calculate RCNLD: the Owners' study, which estimated the replacement cost at about $8.545 billion, or the study advanced by the Municipalities, which estimated the replacement cost at $18.712 billion. The superior court concluded that the Municipalities' study was more in accord with the statutory standards and accepted its estimate of value. The superior court next decided complex issues regarding the amount of depreciation to be deducted, then concluded that TAPS should be valued at " approximately $9.977 billion -- or just over 50% of its estimated replacement cost."

C. Award Of Attorney's Fees

The Department and the Municipalities asserted prevailing party status and moved for attorney's fees and costs. Each based its request on Civil Rule 82(b)[8] and sought an increase of the award under the enhancement factors of Rule 82(b)(3). The Owners opposed, arguing in part that Fairbanks/Valdez and North Slope had not prevailed against the Owners, but rather had prevailed against the Department and the Board. The Owners also contested portions of the Municipalities' fee requests and claimed that any attorney's fees, if awarded, should be apportioned between the Owners' appeal and the Fairbanks/Valdez appeal and not subject to enhancement under Rule 82(b)(3).

On July 25, 2011, the superior court entered its first order on attorney's fees and costs. The court found that the Department and the Municipalities were the prevailing parties against the Owners, and it analyzed costs and attorney's fees under Civil Rules 79 and 82. The court awarded fees pursuant to Rule 82(b)(2), applicable to non-money judgments, instead of Rule 82(b)(1), applicable to money judgments. Consequently, the court began with a presumptive award of 30 percent of reasonable actual fees. It then determined that enhancement to 45 percent was appropriate under Rule 82(b)(3)(A) because of " the complexity of the litigation," under

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(B) because of " the length of trial," and under (H) because of " the relationship between the amount of work performed and the significance of the matters at stake." The court declined to increase fees based on any of the other Rule 82(b)(3) factors, including (F) (" the reasonableness of the claims and defenses pursued by each side" ) and (G) (" vexatious or bad faith conduct" ), which the prevailing parties had urged the court to apply. The court also refused to allocate fees between the appeals as the Owners had requested. Finally, to address more specific objections to the fee requests, the superior court appointed a special master to help determine the amount of fees that could be considered fair and reasonable.

The special master determined that a 15 percent reduction in Fairbanks's claimed fees would be fair " [b]ecause of a pattern of unnecessary duplication of effort." Fairbanks opposed the recommended decision, arguing that the master failed to recognize that Fairbanks had to put extra time and effort into the case as the leading litigant. On de novo review of the special master's recommendation, the superior court agreed with Fairbanks and declined to reduce its fees. The court awarded the Municipalities their costs, totaling $514,551.14, and 45 percent of their requested attorney's fees, with Fairbanks, Valdez, and North Slope receiving $837,649.84, $478,519.47, and $628,586.55 respectively.

The Owners present the following points on this appeal: (1) as an appellate court in an administrative appeal, the superior court should have applied Appellate Rule 508 instead of Civil Rules 79 and 82 to its awards of costs and attorney's fees; (2) the Municipalities were not prevailing parties as against the Owners; (3) alternatively, the superior court abused its discretion when it failed to allocate fees and costs between the Municipalities' appeals and the Owners' appeals; (4) the superior court abused its discretion when it enhanced the awards of attorney's fees; and (5) the superior court abused its discretion when it rejected the special master's recommendation to reduce Fairbanks's fee request by 15 percent. Fairbanks/Valdez cross-appeal, arguing that: (1) this case involves a money judgment, and the superior court therefore erred by awarding fees pursuant to Rule 82(b)(2) instead of Rule 82(b)(1); and (2) the superior court abused its discretion by failing to grant a greater ...

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