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State v. ABC Towing (2/20/98) ap-1574
NOTICE: This opinion is subject to formal
correction before publication in the Pacific Reporter. Readers are
requested to bring typographical or other formal errors to the
attention of the Clerk of the Appellate Courts, 303 K Street,
Anchorage, Alaska 99501, in order that corrections may be made prior
to permanent publication.
IN THE COURT OF APPEALS OF THE STATE OF ALASKA
STATE OF ALASKA, )
) Court of Appeals No. A-6394
Appellant, ) Trial Court No. 3AN-96-1440 Cr
)
v. ) O P I N I O N
)
ABC TOWING, )
)
Appellee. ) [No. 1574 - February 20, 1998]
______________________________)
Appeal from the District Court, Third Judicial
District, Anchorage, Natalie K. Finn, Judge.
Appearances: J. Ron Sutcliffe, Assistant
Attorney General, Office of Special Prosecutions and Appeals,
Anchorage, and Bruce M. Botelho, Attorney General, Juneau, for
Appellant. Brent R. Cole, Marston & Cole, Anchorage, for Appellee.
Before: Mannheimer, Judge, Rabinowitz, Senior
Supreme Court Justice, and Andrews, Superior Court Judge. [Coats,
Chief Judge, not participating.]
MANNHEIMER, Judge.
This case involves the law of "vicarious responsibility"
the law defining when one person can be held criminally
responsible for the conduct of another. More specifically, this
case presents the question of whether a business run by a sole
proprietor is an "organization" under AS 11.16.130(a), a statute
which declares that organizations are criminally responsible for
certain acts of their agents. We hold that a sole proprietorship
is not an "organization" for purposes of AS 11.16.130(a).
Rodney E. Lewis does business as "ABC Towing". When one
of Lewis's employees discharged gasoline on the ground, the State
brought criminal charges against both the employee and ABC Towing;
both defendants were charged with violating an anti-pollution
statute, AS 46.03.710.
Under Alaska law, organizations face broader vicarious
criminal responsibility than do individuals. Generally speaking,
an individual can be held criminally responsible for the conduct of
another only if the individual asks or encourages the other person
to commit the offense or if the individual helps to plan or commit
the offense. See AS 11.16.110(2). [Fn. 1] The State presented no
evidence that Lewis asked his employee to discharge the gasoline,
or that Lewis aided or abetted the employee's act. However, an
organization can be held accountable for criminal conduct that its
owners, members, officers, or directors did not know about until
afterwards. Under AS 11.16.130(a)(1), an organization is criminally
responsible for an offense committed by one of its agents if the
agent was acting in behalf of the organization and within the scope
of the agent's employment, or if the organization subsequently
ratified or adopted the agent's conduct. [Fn. 2] The State charged
ABC Towing with the pollution violation, alleging that Lewis's
employee had been acting within the scope of his employment, and in
behalf of ABC Towing, when he discharged the gasoline on the ground.
The case against ABC Towing was tried to District Court
Judge Natalie K. Finn on stipulated facts. The parties agreed that
ABC Towing's employee had violated the anti-pollution statute and
that the employee had been acting within the scope of his employment
and in behalf of ABC Towing when he committed this violation. There
was only one disputed issue, and that was an issue of law: was ABC
Towing an "organization" for purposes of AS 11.16.130(a), so that
it could be held liable for its employee's discharge of gasoline?
AS 11.81.900(b)(39) defines the term "organization" for
purposes of Title 11. Under that definition, "organization" means:
a legal entity, including a corporation,
company, association, firm, partnership, joint stock company,
foundation, institution, government, society, union, club, church,
or any other group of persons organized for any purpose.
Lewis's attorney contended that ABC Towing was not an "organization"
because it was a sole proprietorship an unincorporated business
owned solely by Lewis. In a well-reasoned opinion, Judge Finn
concluded that this contention was correct that sole
proprietorships are not "organizations" under the statutory
definition. Judge Finn wrote:
[A] sole proprietorship is not a legal entity.
[It] has no legal significance apart from its sole proprietor. It
cannot incur debts, conduct business, sue or be sued, or incur or
pay taxes apart from its sole proprietor. Legally, it makes no
difference whether the business is named ABC Towing or Rodney E.
Lewis. The accountability of ABC Towing is therefore no different
from that of an individual. ... This court finds that ABC Towing,
a sole proprietorship, is not an organization within the meaning of
AS 11.81.900(b)(39) and is therefore not legally accountable [for
acts of its agents under] AS 11.16.130.
Judge Finn therefore dismissed the complaint against ABC Towing, and
the State now appeals Judge Finn's decision.
Under AS 11.81.900(b)(39), "organization" (for purposes
of Title 11) "means a legal entity". The statute does not define
"legal entity" except by example, and the term "legal entity" is not
further defined in Title 11 or, indeed, anywhere else in the Alaska
statutes. However, the term "legal entity" does have a common-law
meaning, and that meaning presumptively governs our interpretation
of AS 11.81.900(b)(39). See AS 1.10.010 (the common law remains the
rule of decision in this state unless it is inconsistent with the
laws passed by the Alaska legislature or inconsistent with the
federal or Alaska constitutions).
The concept of "legal entity" is a useful fiction employed
by the law to distinguish an ongoing human endeavor from the people
who presently own or control that endeavor. As Judge Finn correctly
pointed out in her decision, the defining characteristic of a "legal
entity" is its separate legal existence apart from its owners,
officers, and directors.
At common law, sole proprietorships are not "legal
entities". Neither are partnerships (for most purposes: compare
Pratt v. Kirkpatrick, 718 P.2d 962, 967-68 (Alaska 1986)). Rather,
sole proprietorships and partnerships are deemed to be merely the
alter egos of the proprietor or the partners (as individuals). In
a sole proprietorship, all of the proprietor's assets are completely
at risk, and the sole proprietorship ceases to exist upon the
proprietor's death. Harry J. Haynsworth, Selecting the Form of a
Small Business Entity (1985), sec. 1.02, pp. 2-3; see also Harry G.
Hehn and John R. Alexander, Laws of Corporations and Other Business
Entities (3rd ed. 1985), sec. 18, p. 58. Similarly, a partnership
is
not a separate legal entity (for most purposes). Haynsworth, sec.
1.03
pp. 4, 7; Hehn & Alexander, sec. 19, pp. 63-64.
The common law adopted a strict view [of
partnership] and accorded no recognition to the partnership as an
entity for the purposes of ownership of real property, contract,
suit, etc[,] although many of these disabilities have been abolished
or altered by statute.
Hehn & Alexander, sec. 19, p. 64. [Fn. 3]
Alaska law recognizes the common-law rule. See Williams
v. Mammoth of Alaska, Inc., 890 P.2d 581, 584 (Alaska 1995) ("The
nearly universal rule is that if the employer is a partnership, then
each partner is an employer of the partnership's employees. This
is because a partnership is not a legal entity separate from its
partners."); Berger v. Ohlson, 120 F.2d 60, 10 Alaska 84, 93 (9th
Cir. 1941) ("[T]he Alaska Railroad is not a corporate or any other
legal entity. It is a name only. The sole owner of the railroad
and its terminals ... is the United States.")
With regard to a sole proprietorship, Alaska law deems the
"company" to be simply an alter ego of the proprietor, who is
engaged in commerce under a nom d'affaires an assumed name adopted
for business purposes. See Roeckl v. Federal Deposit Insurance
Corp., 885 P.2d 1067 (Alaska 1994), which contains a lengthy
discussion of an individual's legal ability to conduct business or
business transactions under an assumed name. Roeckl notes that,
unless a person uses a fictitious business name in order to
facilitate a fraud, it has always been legal for a person to
transact business in the name of a fictitious entity that has no
legal existence apart from the individual(s) running the business.
Roeckl, 885 P.2d at 1073 (citations omitted). This practice is, in
fact, normal for sole proprietorships and partnerships. Roeckl, 885
P.2d at 1074, quoting United States v. Dunn, 564 F.2d 348, 354 n.12
(9th Cir. 1977). (Roeckl answers the State's contention that ABC
Towing should be considered a separate legal entity because a
business license has been issued in the name of ABC Towing.)
With this background, we return to our definitional
statute, AS 11.81.900(b)(39), and we find that it contains
troublesome ambiguities. The statute declares that the term
"organization" means a "legal entity". If the legislature had
stopped there, then neither a sole proprietorship nor a partnership
would be considered an "organization", because neither form of
business is a legal entity. However, the statute then adds that the
term "legal entity" includes "partnerships" as well as "associa-
tions", "societies", "clubs", and "any other group of persons
organized for any purpose". This is a marked expansion of what the
common law would recognize as a "legal entity" for other purposes
(suing or being sued, holding title to property, employing workers,
etc.).
The legislature undoubtedly has the authority to enlarge
the definition of "legal entity" beyond its common-law boundaries.
See State v. Erickson, 574 P.2d 1, 15 (Alaska 1978) (in statutes
regulating drugs, the legislature can define "narcotic" differently
from its normal pharmacological meaning). It appears that AS 11.-
81.900(b)(39) was intended to modify the common-law definition of
"legal entity" by broadening it to include partnerships, informal
associations and clubs, and (in general) "any other group of persons
organized for any purpose". However, the statutory roster of "legal
entities" does not specifically include sole proprietorships.
The State argues that a sole proprietorship becomes a
"firm" or an "association" or a "group" under AS 11.81.900(b)(39)
whenever the sole proprietor hires other people to assist in the
conduct of the business. We think that this is a strained
interpretation of the statute.
Under the State's reading of the statute, an ice cream
vendor or a house painter who employed a part-time helper during the
summer would suddenly become a "firm", an "association", or a
"group". In fact, under the State's wide-ranging construction of
the phrase "group of persons organized for any purpose", home owners
would seemingly become "organizations" whenever they hired someone
to clean their house or maintain their lawn. Such a construction
of the statute conflicts with the fact that employees generally do
not direct the conduct of a business. Their contract of employment
does not make them partners of the persons or entities who hire
them, and they do not have the same legal rights and responsi-
bilities as their employers. Based on the wording of AS 11.81.-
900(b)(39) and its legislative history, we doubt that the
legislature intended the results advocated by the State.
Moreover, two rules of statutory construction counsel us
to uphold the trial court's decision in this case. The first rule
is that statutes in derogation of the common law should be construed
strictly. That is, when courts are presented with a question
involving the proper construction of a statute that modifies the
common law, the normal rule of interpretation is that such statutes
are construed so as to preserve the pre-existing common law unless
the legislature has clearly indicated its purpose to change that
law. See Roeckl, 885 P.2d at 1074; University of Alaska v. Shanti,
835 P.2d 1225, 1228 n.5 (Alaska 1992). The second rule is that
statutes imposing criminal liability should be construed narrowly.
When the scope of a criminal statute is unclear, courts should
normally construe the statute against the government that is,
construe it so as to limit the scope of criminal liability. See
Magnuson v. State, 843 P.2d 1251, 1253 (Alaska App. 1992).
The question in this appeal is whether sole
proprietorships are to be treated as legal entities apart from their
proprietors, so that the government can prosecute sole proprietor-
ships for the acts of their agents under the theory of vicarious
responsibility codified in AS 11.16.130(a). Under the common law,
sole proprietorships are not legal entities. The expanded
definition of legal entities in AS 11.81.900(b)(39) does not include
a specific reference to sole proprietorships. The State has
presented some inventive arguments as to why sole proprietorships
should be viewed as "associations" or "firms" for purposes of Title
11, but in the end those arguments are only colorable, not
convincing. On this point, the statute remains, at best, ambiguous.
This being so, we construe AS 11.81.900(b)(39) to preserve
the pre-existing common law rule that sole proprietorships are not
legal entities, and to narrowly construe the scope of vicarious
criminal responsibility imposed by AS 11.16.130(a). We conclude
that sole proprietorships are not "organizations" for purposes of
AS 11.16.130(a). The district court therefore correctly granted the
defendant's motion to dismiss.
The judgement of the district court is AFFIRMED.
FOOTNOTES
Footnote 1:
AS 11.16.110(2) provides that "[a] person is legally
accountable for the conduct of another constituting an offense if[,]
... with intent to promote or facilitate the commission of the
offense, the person (A) solicits the other to commit the offense;
or (B) aids or abets the other in planning or committing the
offense[.]"
Footnote 2:
AS 11.16.130(a)(1) provides that "an organization is legally
accountable for conduct constituting an offense if the conduct ...
is the conduct of its agent and (A) [is] within the scope of the
agent's employment and in behalf of the organization; or (B) is
solicited, subsequently ratified, or subsequently adopted by the
organization[.]"
Footnote 3:
Hehn & Alexander points out (at p. 64, n.11) that early
drafts of the Uniform Partnership Act incorporated an "entity"
theory of partnership, but this approach was rejected by the
Commissioners on Uniform State Laws.
