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State, DNR, and AK Oil & Gas Cons. Comm. v. Arctic Slope Reg. Corp., & Standard AK Prod. (11/22/91), 821 P 2d 1366
<![CDATA[
Notice: This 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.
THE SUPREME COURT OF THE STATE OF ALASKA
STATE OF ALASKA, DEPARTMENT OF )
NATURAL RESOURCES; and ALASKA OIL ) Supreme Court File Nos.
AND GAS CONSERVATION COMMISSION, ) S-3400/3416/3437
) Superior Court 3AN-88-4357
Appellants, )
)
v. )
)
ARCTIC SLOPE REGIONAL CORPORATION, )
an Alaska corporation, ) O P I N I O N
)
Appellee/Cross-Appellant, ) [No. 3776 - November 22,
1991]
)
and )
)
STANDARD ALASKA PRODUCTION )
COMPANY, a Delaware corporation; )
and CHEVRON U.S.A. INC., a )
Pennsylvania corporation, )
)
Appellees/Cross-Appellants. )
___________________________________)
Appeal from the Superior Court of the
State of Alaska, Third Judicial District,
Anchorage,
Douglas J. Serdahely, Judge.
Brian C. Shortell, Judge.
Appearances: Robert E. Mintz, Assistant
Attorney General, Anchorage, and Douglas B.
Baily, Attorney General, Juneau, for
Appellants State of Alaska, Department of
Natural Resources and Alaska Oil and Gas
Conservation Commission. Stephen M. Ellis
and Marc D. Bond, Delaney, Wiles, Hayes,
Reitman & Brubaker, Inc., Anchorage, for
Cross-Appellants Chevron U.S.A. Inc. and
Standard Alaska Production Company. David C.
Crosby, Council & Crosby, Juneau, and Steven
T. Seward and James Wickwire, Wickwire,
Greene & Seward, Seattle, Washington, for
Appellee Arctic Slope Regional Corporation.
Before: Matthews, Chief Justice,
Rabinowitz, Burke and Compton, Justices.
[Moore, Justice, not participating].
COMPTON, Justice.
In this appeal we are asked to decide whether the
statutory requirement that oil drillers submit well data to the
Department of Natural Resources constitutes an unconstitutional
taking of property. We conclude that it does not; therefore, we
reverse.
I. FACTUAL AND PROCEDURAL BACKGROUND
A. State Regulation of Oil and Gas Activities
The drilling for and production of oil and gas in
Alaska was first regulated under the Alaska Oil and Gas
Conservation Act of 1955 (Act). 47-7-1 to 47-7-15 Alaska
Compiled Laws Annotated (ACLA) (Supp. 1958). This statute
created an Alaska Oil and Gas Conservation Commission to
implement the provisions of the Act. 47-7-3 ACLA (Supp. 1958).
The commission had the authority to: (1) regulate, for
conservation purposes, the drilling, producing and plugging of
wells, the spacing of wells, and the disposal of oil field
wastes; and (2) require the filing of well data. 47-7-4 ACLA
(Supp. 1958). The commission would keep the logs of exploratory
or "wildcat"wells confidential for six months unless the owner
had given written permission to release the data at an earlier
date. Id. Section 47-7-4 of the territorial statutes contained
no provision for an extended period of confidentiality.
When Alaska became a state in 1959, the territorial
conservation act continued in force as state law pursuant to
article XV, section 1 of the Alaska Constitution, and was later
codified at AS 31.05. The regulations previously promulgated by
the commission were placed in the Alaska Administrative Code
(AAC) and are currently codified at 20 AAC 25.005-.570. A new
Department of Natural Resources (DNR) replaced the Oil and Gas
Conservation Commission. Ch. 64, 16, 27, SLA 1959. The State
Organization Act vested DNR "with the duties, powers, and
responsibilities involved in the administration of the entire
state program for the conservation and development of the State's
natural resources including . . . petroleum and natural gas . . .
." Ch. 64, 16, SLA 1959. DNR has undergone several internal
reorganizations since statehood; its oil and gas related
functions are currently concentrated in its Division of Oil and
Gas.
In addition to inheriting the regulatory functions
previously performed by the commission, DNR became the proprietor
of the lands to be transferred to the new state. DNR's Division
of Oil and Gas continues to lease the state's land for
exploration and development and to ensure that the financial, as
well as the environmental, terms of the leases are met. In 1978,
however, responsibility for administering AS 31.05 was
transferred from DNR to a new Alaska Oil and Gas Conservation
Commission (AOGCC). Ch. 158, 1, SLA 1978. In proceedings
before AOGCC, DNR has the same standing as granted by law to any
other proprietary interest. AS 31.05.026(e).
DNR nonetheless maintains a role under the Act's
provision governing oil and gas well data filed by operators.
Alaska Statute 31.05.035(a) provides:
For all wells for which a permit to
drill has been issued by the commission since
January 3, 1959, the commission may require:
(1) the making and filing of reports,
well logs, drilling logs, electric logs,
lithologic logs, directional surveys, and all
other subsurface information on a well
drilled for oil or gas, or for the discovery
of oil or gas, or for geologic information;
and
(2) the filing of flow test information
and all logs, except experimental logs and
velocity surveys run on a well and not
required by (1) of this subsection;
(3) the operator to make available for
copying the digitized log information, if it
is available, on any log required to be filed
under (1) or (2) of this subsection.
Alaska Statute 31.05.035(c) requires private oil explorers to
disclose to DNR the results of oil well tests in order to avoid
public release of the information by the AOGCC following a
statutory 24-month confidentiality period.1 This provision for
an extended period of confidentiality was adopted in 1978. Ch.
160, 5, SLA 1978.
B. The "KIC"Well
On April 24, 1986, Chevron U.S.A., Inc. (Chevron)
completed an exploratory drilling operation known as the "KIC"
well on land owned by the Arctic Slope Regional Corporation
(ASRC) adjacent to the Arctic National Wildlife Refuge (ANWR).2
The well was drilled to a depth of 15,193 feet and cost in excess
of $40 million. The drilling generated substantial information
about the subsurface geology in the ANWR area. The well is of
particular value because it is the only onshore well ever drilled
east of the Canning River on Alaska's North Slope, and three-
fourths of the land located within three miles of the well is
unleased.
Pursuant to AS 31.05.035 and 20 AAC 25.071, Chevron
filed confidential reports and information concerning the KIC
well with AOGCC. The data was due to be released to the public
when the 24-month confidentiality period expired on May 24, 1988,
unless the period was extended pursuant to AS 31.05.035(c).
Although most of the land in the vicinity of the KIC well is
unleased, Chevron and Standard did not request DNR to extend
confidentiality for the data. Instead, on April 21, 1988,
Chevron, Standard, and ASRC (collectively "the companies") filed
a lawsuit against DNR and AOGCC in superior court, seeking a
declaration that the disclosure provisions of AS 31.05.035(c)
were unconstitutional and an injunction barring AOGCC from
releasing the KIC well data either to DNR or to the public.
C. The Superior Court Proceedings
The superior court granted the companies' motion for a
preliminary injunction. They then filed a motion for summary
judgment. Although the other parties did not move for summary
judgment, all agreed that it was appropriate for the court to
decide the case based on the evidentiary record without need for
trial. In a lengthy memorandum, the superior court invalidated
AS 31.05.035(c) and issued a permanent injunction barring the
AOGCC from disclosing the KIC well data to either DNR or the
public. The court held first that challenges to that
portion of AS 31.05.035(c) which would entail disclosure to the
public were not ripe for adjudication. The court saw only two
circumstances under which a public release would occur. If DNR
determined that extended confidentiality was called for, then the
well data could not be made public until all unleased land within
a three-mile radius was leased. Since the KIC well lies within
an inholding in ANWR, the court reasoned that such an occurrence
"may take years to pass or . . . may never pass at all,"since an
act of the United States Congress would be required for oil and
gas production to occur in ANWR. Alternatively, public release
could occur if DNR determined that the well data contained no
"significant information relating to the valuation of unleased
land in the same vicinity." However, DNR stipulated that it
would provide the drillers with "advance notice and an
opportunity to challenge any adverse significance determination."
The court found next that the required release of the
well data to DNR would constitute a regulatory "taking." The
court framed the question as
whether the release of the KIC well data
from [AOGCC] to DNR, for DNR's own internal,
proprietary use, would constitute a
governmental "taking"of private property for
public purposes, thereby requiring just
compensation therefor, or whether such action
would qualify as the lawful exercise of
governmental police powers which, in turn,
would have some unintended, adverse economic
impact on plaintiffs, for which no
compensation would be required.
The court noted that it had not been disputed that the drillers
possessed a property right in the well data and that "if given
access to the KIC well data, DNR would use the information for
numerous internal, proprietary and land-management related
purposes." It also found that disclosure would adversely affect
the economic value of the well data.
The superior court concluded that such diminution in
value could not be justified as an exercise of the state's police
powers since "DNR is not essentially engaged in the regulation of
health, safety and environmental matters." According to the
court, DNR is "predominantly involved in the management and
development of lands"and stands on the same footing as plaintiff
ASRC for "[b]oth wish to promote the leasing and development of
their land and valuable subsurface resources." The court
rejected DNR's argument that promotion of the state's economic
well-being is a noncompensable exercise of government police
powers. In the words of the superior court, "The enhancement of
the government's own financial interests, occasioned by the
acquisition and use of plaintiff's confidential drilling
information, to plaintiff's economic disadvantage, is not, in
this Court's view, a legitimate state interest."
In creating a remedy, the court found that the taking
had not yet occurred since DNR had not yet seen the well data.
The court also found that the state did not contemplate paying
any compensation (or indeed any cost at all, given the zero
fiscal note) in connection with implementation of AS
31.05.035(c). Relying on State v. University of Alaska, 624 P.2d
807, 815-16 & n.13 (Alaska 1981), the court held that the proper
remedy was to declare the statute invalid and enjoin the AOGCC
from releasing the data to DNR or to the public.
The state filed a motion for reconsideration which took
issue with the superior court's evaluation of the damage to the
oil companies and ASRC from disclosure of the KIC well data to
DNR and the court's conclusion that DNR served no health and
safety functions. Along with the motion, DNR submitted the
affidavit of Catherine Ariey, a DNR geologist. The oil companies
moved to strike the affidavit on the grounds that it violated
Alaska Civil Rule 77(m). The superior court denied both the
motion to strike and the motion to reconsider. A permanent
injunction order and final judgment were entered on April 27,
1989.
The state has appealed, challenging the superior
court's takings analysis and its factual findings concerning the
loss of economic value to the oil companies and ASRC from
disclosure of the KIC well data to DNR and concerning the scope
of DNR's regulatory authority. The oil companies have filed a
cross-appeal, alleging that the superior court erred in failing
to strike Ariey's affidavit. ASRC joined the oil companies'
cross-appeal and has also appealed the superior court's decision
that the issue of public disclosure of well data was not ripe for
adjudication.
II. DISCUSSION
A. Is the Use of the KIC Well Data by DNR
without Compensation an Unconstitutional
Taking?
Article I, section 18 of the Alaska Constitution
provides that "[p]rivate property shall not be taken or damaged
for public use without just compensation." The Fifth Amendment
to the United States Constitution similarly provides: "nor shall
private property be taken for public use, without just
compensation." In deciding this case we follow the approach
taken by the United States Supreme Court in Ruckelshaus v.
Monsanto Co., 467 U.S. 986, 1000 (1984) (absent explicit
confidentiality provision in statute, use by Environmental
Protection Agency and disclosure to public of data submitted by
pesticide manufacturer to receive registration is not compensable
taking). We have previously held that "the term `damages'
affords the property owner broader protection than that conferred
by the Fifth Amendment . . . ." DeLisio v. Alaska Superior
Court, 740 P.2d 437, 439 n.3 (Alaska 1987). However, the
difference between Alaska's takings clause and the federal clause
is irrelevant to this case.
We address two issues: (1) Does Alaska law
characterize the results of exploratory oil well drillings as
property? (2) If so, does DNR's use of the data effect a taking
of that property interest?3
1. Property Interest
The companies contend that their oil well data
constitute trade secrets protected under both the Alaska and the
United States Constitutions. We agree.
"Confidential business information has long been
recognized as property." Carpenter v. United States, 484 U.S.
19, 26 (1987); see also Monsanto, 467 U.S. at 1002-04 (holding
that a trade secret is property protected by the Fifth Amendment
Taking Clause); Chamber of Commerce v. Hughey, 600 F. Supp. 606,
626-27 (D.N.J. 1985) ("It is well established in New Jersey law,
as in the law of most jurisdictions, that trade secrets are
property rights."), aff'd in relevant part, 774 F.2d 587, 598
(3rd Cir. 1985); Captain and Co. v. Towne, 404 N.E.2d 1159, 1162
(Ind. App. 1980); General Chemical Corp. v. Dep't of
Environmental Quality Engineering, 474 N.E.2d 183, 185-86 (Mass.
App. Ct. 1985) (Hazardous waste facilities, which submit reports
to state agency in accordance with agency's hazardous waste
regulations, have a property interest in whatever trade secrets
may be contained in their reports.); Mountain States Tel. & Tel.
Co. v. Dep't of Public Service Regulation, 634 P.2d 181, 185-86
(Mont. 1981). As the United States Supreme Court stated in
Monsanto,
[the] general perception of trade
secrets as property is consonant with a
notion of "property"that extends beyond land
and tangible goods and includes the products
of an individual's "labour and invention." 2
W. Blackstone, Commentaries *405; see
generally J. Locke, The Second Treatise of
Civil Government, ch 5 (J. Gough ed 1947).
467 U.S. at 1002-03. By protecting all persons' "enjoyment of
the rewards of their own industry,"the Alaska Constitution
adopts this Blackstone/Locke theory of property. Alaska Const.
art. I, 1.
The Alaska Uniform Trade Secrets Act, which gives
statutory protection to trade secrets, defines "trade secrets"as
information that
(A) derives independent economic value,
actual or potential, from not being generally
known to, and not being readily ascertainable
by proper means by, other persons who can
obtain economic value from its disclosure or
use, and
(B) is the subject of efforts that are
reasonable under the circumstances to
maintain secrecy.
AS 45.50.940(3).4 The superior court found that "the KIC well
data allow the [companies] to evaluate the potential for oil and
gas development of the land surrounding the well and provide
[them] with a competitive advantage as to the valuation of these
lands." The state does not argue that such finding is clearly
erroneous. Since the value of the data depends on its secrecy
and the companies obviously have attempted to keep it secret we
have no difficulty characterizing the data obtained by the oil
companies from the KIC well as trade secrets.5 We conclude that
the information generated by the KIC well is the property of the
drillers.6
The state, in fact, stipulated during the superior
court proceedings that "[p]laintiffs possess property rights in
the KIC well data, specifically including the right to exclude
the public from the enjoyment of such data by preventing its
unauthorized use by the public and prohibiting its disclosure."
The state contends on appeal that since statehood, Alaska law has
limited the property rights of oil well drillers to exclude the
public but not DNR from the well data. We agree with the state's
emphasis on the distinction between disclosure to the public and
disclosure to DNR. However, we do not adopt the state's approach
that the companies never possessed the right to prevent DNR's use
of the data. Instead, as discussed below, we conclude that the
companies had no "reasonable investment-backed expectation" that
DNR would not use the well data for internal departmental
purposes.
2. Government Action
The United States Supreme Court has identified three
factors that should be taken into account when determining
whether government action effects a taking: "the character of
the governmental action, its economic impact, and its
interference with reasonable investment-backed expectations."
Monsanto, 467 U.S. at 1005 (quoting PruneYard Shopping Center v.
Robins, 447 U.S. 74, 83 (1980)). As in Monsanto, we conclude
that the determinative factor in this case is the drillers'
reasonable investment-backed expectations.
Monsanto challenged the use by EPA and the public
disclosure of data it submitted to EPA in accordance with the
requirements of the Federal Insecticide, Fungicide, and
Rodenticide Act (FIFRA). The court distinguished pesticide data
submitted during three different time periods, defined by
different amendments to the federal pesticide statute. As to
amendments effective October 1, 1978, which established the data
disclosure mechanisms under attack, the court held that their
enactment put Monsanto "on notice of the manner in which EPA was
authorized to use and disclose any data turned over to it by an
applicant for registration." 467 U.S. at 1006. Consequently,
with respect to data submitted since October 1, 1978, Monsanto
"could not have had a reasonable, investment-backed expectation
that EPA would keep the data confidential beyond the limits
prescribed in the amended statute itself." Id.
On the other hand, during the time that earlier
amendments were in effect, between October 22, 1972 and September
30, 1978, the statute "had explicitly guaranteed to Monsanto . .
. an extensive measure of confidentiality and exclusive use.
This explicit governmental guarantee formed the basis of a
reasonable investment-backed expectation." Id. at 1011. EPA's
disclosure of protected data contrary to that guarantee could,
under some circumstances, constitute a taking. Id. at 1013.
During the period prior to the 1972 amendments, the
statute "was silent"on the subject of EPA's use and disclosure
of pesticide data. Id. at 1008. In particular, the statute gave
EPA no authority to disclose the data. Moreover, another general
statute, the Trade Secrets Act, 18 U.S.C. 1905, provided for
criminal penalties against federal employees who disclose trade
secrets in a manner not authorized by law. Notwithstanding these
factors, the court held that Monsanto "had no reasonable,
investment-backed expectation that its information would remain
inviolate in the hands of EPA"in the absence of "an express
promise," and the Trade Secrets Act did not constitute such a
promise. 467 U.S. at 1008-09.
In this case, the trial court did not expressly inquire
into the factor of "reasonable investment-backed expectations"in
its takings analysis. It did consider this factor, however, when
it held that the companies' knowledge of the disclosure
requirements of AS 31.05.035(c) before they drilled the KIC well
did not "estop"them from challenging the statute. The trial
court found that the companies had reasonable expectations that,
in reviewing the KIC well data to determine whether to extend
confidentiality under AS 31.05.035(c), DNR would not use the data
"for its own internal, proprietary purposes." It based its
conclusion on two things: (1) an affidavit by a Chevron
exploration manager stating that "Chevron has always"so assumed;
and (2) a 1984 opinion letter of an assistant attorney general
which approved DNR's review of well data under AS 31.05.035(c)
but which also contained a single sentence stating "that this
review . . . must be for the only purpose of determining whether
confidentiality will be extended beyond the initial period."
Whatever the standard of reasonableness might be for
purposes of estoppel, we conclude that the companies'7 assumption
was not a "reasonable investment-backed expectation"for takings
purposes.8 "A `reasonable investment-backed expectation' must be
more than a `unilateral expectation or an abstract need.'"
Monsanto, 467 U.S. at 1005. Alaska's oil conservation act and
regulations contain no "guarantee"or "express promise"that DNR
would not, upon review of the KIC well data under
AS 31.05.035(c), use the data for internal departmental purposes.
Moreover, the companies were "on notice"that DNR in
fact used confidential data filed under AS 31.05.035(c) in its
decision making on state oil and gas leasing. See Hammond v.
North Slope Borough, 645 P.2d 750, 764 (Alaska 1982). This
practice was in accordance with a 1978 attorney general's
opinion. The opinion advised that the Division of Minerals and
Energy Management -- which then exercised what the companies term
DNR's "proprietary" functions regarding oil and gas -- was
entitled to use "for its own legitimate purposes,"while keeping
confidential the reports and information filed with the Division
of Oil and Gas Conservation (AOGCC's predecessor within DNR).
The companies contend that DNR no longer utilized
reports filed under AS 31.05.035 and 20 AAC 25.070-.071 for
leasing purposes after the creation of AOGCC in 1978. We are not
persuaded by Chevron's suggestion that the legislature intended
to prohibit such use of well data by DNR. Chevron offers nothing
in the legislative history of the 1978 amendments to AS 31.05 in
support of this position. In fact, in testimony before the
Senate Resources Committee on May 22, 1978, O.K. Gilbreth, Jr.,
Director of DNR's Division of Oil and Gas Conservation, implied
that the provision for extended confidentiality was intended to
benefit the state as well as the driller who supplied the data.
He stated, "[M]y understanding is that if the Commissioner finds
that this information, if the well logs and so forth contains
significant information, he can in effect put a moratorium on the
two years until such time as he decides that it's no longer
valuable to the state to keep it confidential and then release it
after the two years is up." (Emphasis added). Furthermore, the
act requiring the reporting of well data expressly provides that
such data must be shared with the state "for [its] beneficial
use." Ch. 75, 1, SLA 1960.
The state acknowledges that DNR does not review the
reports until a request for extended confidentiality is made.
According to DNR, however, once it receives the data it is
impractical to ignore the information when making leasing
decisions. As the companies themselves have pointed out, "DNR
personnel cannot forget what they have seen." DNR has not sought
access to the KIC well data during the initial 24-month
confidentiality period. In light of AS 31.05.035(c)'s explicit
language providing for review by the "commissioner of natural
resources,"9 we find the companies' expectation that DNR would
not utilize the data following the initial period of
confidentiality unreasonable.
We attach little significance to the attorney general's
letter of July 3, 1984. First, the focus of the letter was
whether DNR could have access to the confidential material filed
with AOGCC rather than requiring oil companies to supply separate
data when they made a request for extended confidentiality. The
attorney general concluded that DNR had a right to direct access
to AOGCC's files. The sentence relied on by the companies is
found on the final page of the letter. The language in question
says DNR's "review"of well data at AOGCC "must be for the only
purpose of determining"whether to extend confidentiality; it
does not say that DNR's "use"of the data following that review
must be so limited. As discussed above, no party contends that
DNR can limit its use of the data once it has access to it. We
believe that the attorney general, having approved DNR's access
to AOGCC's information, simply intended to insure that DNR did
not seek such access until reviewing a request for extended
confidentiality as authorized by AS 31.05.035(c).
Second, the companies offer no evidence of their
reliance on this letter. The letter was addressed to DNR's
Division of Oil and Gas, and nothing in the record establishes
that Chevron, Standard, or ASRC knew of it prior to the drilling
of the KIC well. In fact, the affidavit of E. K. Espenscied,
Chevron's Alaska manager, makes no mention of the letter. He
simply attests that "Chevron has always assumed DNR's review of
data filed in connection with any request for extended
confidentiality is a narrow one and conducted for the exclusive
purpose of confirming the data `contains significant information
relating to the valuation of unleased land in the same vicinity'
of the well."The issue is not simply whether Chevron expected
that DNR would not use the KIC well data for internal purposes,
but whether such expectation was reasonable and investment-
backed.
No matter how reasonable or unreasonable the companies'
expectations may have been, we are not persuaded that they were
"investment-backed." The trial court did not consider this
issue. Although Chevron says it assumed that DNR would make no
use of the KIC well data for purposes other than the
AS 31.05.035(c) determination, none of the companies claim that
their decision to invest in the KIC well depended in any way on
that assumption. Rather, it depended, according to Chevron
official Tom Cook, on the assumption that "extended
confidentiality" under AS 31.05.035(c) -- i.e., confidentiality
from the public until after the disposal of nearby unleased lands
-- was "reasonably assured."
This lack of reliance is not surprising, for it is
unlikely that a company would have been deterred from leasing or
drilling simply because of DNR's confidential use of the well
data. The values motivating such investment -- the hope of
discovering commercial deposits of oil and gas, the utility of
the well data to the companies for numerous purposes, and the
competitive advantage the data provide vis-a-vis other bidders in
future lease sales -- outweigh any interest in keeping the data
from DNR. We note that DNR's access as lessor to confidential
data from wells drilled on state oil and gas leases, see AS
38.05.180(x), has not kept oil companies from making enormous
investments in acquiring and drilling on state leases.
The companies argue that Monsanto, 467 U.S. 986, is
inapplicable to this case. According to the companies, EPA's use
of the information submitted by Monsanto to acquire pesticide
registration is significantly different from DNR's use of the
well data at issue here. The companies contend that DNR's
"proprietary" use of the KIC well data constitutes a "physical
invasion" and therefore the regulatory takings approach of
Monsanto is inapplicable. The importance the companies attach to
the nature of the governmental action at issue is well-founded.
"It is well settled that a `taking' may more readily be found
when the interference with property can be characterized as a
physical invasion by government, than when interference arises
from some public program adjusting the benefits and burdens of
economic life to promote the common good." Keystone Bituminous
Coal Ass'n, 480 U.S. at 488 n.18 (quoting Penn Central Transp.
Co. v. New York City, 438 U.S. 104, 124 (1978)) (citation
omitted).
We disagree, however, with the companies'
characterization of DNR's use of the well data. This case does
not involve the kind of physical interference10 with real property
at issue in the cases in which the United States Supreme Court
has found a per se taking. See, e.g., Nollan v. California
Coastal Comm'n, 483 U.S. 825, 831-32 (1987) (easement for public
access over private beach property); Loretto v. Teleprompter
Manhattan CATV Corp., 458 U.S. 419, 441 (1982) (mandated
installation of CATV cable and fixtures); Kaiser Aetna v. United
States, 444 U.S. 164, 180 (1979) (imposition of navigable
servitude on marina which was unnavigable prior to significant
private investment in dredging); United States v. Causby, 328
U.S. 256, 264-65 (1946) (military appropriation of airspace above
private property); United States v. Lynah, 188 U.S. 445, 470-71
(1903) (permanent flooding from construction of dam).
The category of per se takings is a narrow one. In
Loretto, the court articulated the following justifications for
the per se category: (1) tradition, 458 U.S. at 430 n.7, ("early
commentators viewed a physical occupation of real property as the
quintessential deprivation of property"); (2) the "serious form
of [the] invasion of an owner's property interests,"which inter
alia destroys the owner's "right to possess the occupied space
himself," id. at 435; (3) the avoidance of "otherwise difficult
line-drawing problems"involving the size of the area occupied,
id. at 436-37; and (4) the minimization of problems of proof, id.
at 437, ("the placement of a fixed structure on land or real
property is an obvious fact that will rarely be subject to
dispute"). None of these reasons apply here.
We are also not persuaded by the companies' argument
that a permit to drill is significantly different from
registration of a pesticide. Like the manufacture of pesticides,
drilling for oil and gas is a heavily regulated industry. Both
industrial activities are distinguishable from the residential
development involved in Nollan, 483 U.S. 825. While the
California Coastal Commission simply denies or approves a
development permit, AOGCC and DNR continuously monitor drilling
operations.
The companies do not dispute AOGCC's authority to
require well data and to use the data to prevent waste and
protect health and safety. According to the companies, DNR
exercises only proprietary functions and therefore its use of the
well data is not justified by the police power. We find the line
the companies draw between "regulatory" and "proprietary"
functions more clear in theory than in practice.
DNR is responsible in large part for implementing the
constitutional mandate that the legislature "provide for the
utilization, development, and conservation of all natural
resources belonging to the State . . . for the maximum benefit of
its people." Alaska Const. art. VIII, 2. See AS 44.37.020(a).
In the area of oil and gas leasing, the agency's function is not
to run an enterprise but to make decisions that "best serve the
interests of the state." AS 38.05.035(e). The legislature has
found that "it is in the best interests of the state," for
example,
to encourage an assessment of its oil
and gas resources and to allow the maximum
flexibility in the methods of issuing leases
to
(A) recognize the many
varied geographical regions of the
state and the different costs of
exploring for oil and gas in these
regions;
(B) minimize the adverse
impact of exploration, development,
production, and transportation
activity.
AS 38.05.180(a)(2).
The assessment of the state's oil and gas resources
serves at least two legitimate government objectives. First,
knowledge of the production potential of state land in various
areas is critical to DNR's determination of where development
should occur and where preservation is appropriate. Such land
management decisions by DNR involve "complex subject matter" and
"fundamental policy formulations." Trustees for Alaska v. State,
795 P.2d 805, 809 (Alaska 1990). Unlike a private enterprise,
DNR is not exclusively driven by the profit motive. The agency
must also concern itself with the social, cultural and
environmental impacts on the state from oil production. Id. at
809-11.
Second, knowledge of the oil and gas production
potential of the state's lands promotes the state's economic
welfare by maximizing the amount it receives for the lease of its
lands. Other jurisdictions have recognized the legitimacy of
using the police power to protect the government's financial
stability. See, e.g., Zeigler v. People, 124 P.2d 593, 598
(Colo. 1942) ("The police power relates not merely to the public
health and to public physical safety, but also to public
financial safety."); People v. Kohrig, 498 N.E.2d 1158, 1165-66
(Ill. 1986) ("It cannot be seriously questioned that the police
power may be used to promote the economic welfare of the State,
its communities and its citizens."), appeal dismissed, 479 U.S.
1073 (1987); Sherman-Reynolds, Inc. v. Mahin, 265 N.E.2d 640, 642
(Ill. 1970) ("[I]n the interest of general welfare, the police
power may be exercised . . . to protect the government itself
against potential financial loss and the possible disruption of
governmental functions."); Washington Educ. Ass'n v. State, 652
P.2d 1347, 1351-52 (Wash. 1982) (state as employer may lay off
teachers in response to a financial crisis). In light of the
state government's dependence on petroleum-related income, we
conclude that DNR's purpose to maximize the income from leasing
state land is within the police power.
The cases cited by Chevron, Standard and ASRC do not
conflict with this conclusion. None of the cases exclude
protection of the government's financial stability from the scope
of the police power. Instead, the government action was
invalidated in each case because it had no reasonable
relationship to any legitimate government purpose. See, e.g.,
American Consumer Indus. v. City of New York, 281 N.Y.S.2d 467,
474 (App. Div. 1967) (franchise for ice monopoly not reasonable
exercise of the police power); Texas Power & Light Co. v. City of
Garland, 431 S.W.2d 511, 518 (Tex. 1968) (purpose of ordinance
solely to eliminate competitor of city's electrical service);
City of Tukwila v. City of Seattle, 414 P.2d 597, 600-01 (Wash.
1966) (nothing in ordinance justified impairment of franchise to
provide electrical service); Wisconsin Telephone Co. v. City of
Milwaukee, 270 N.W. 336, 339-40 (Wis. 1936) (fee exacted for
opening pavement to install underground communication lines bore
no reasonable relationship to the damage incurred by the city).
Contrary to these cases, requiring the disclosure of exploratory
well data to DNR clearly aids the agency in determining the
optimum balance between development and preservation and in
maximizing the revenue from leasing state lands.
Finally, this case is distinguishable from Noranda, 335
N.W.2d 596, in which the Wisconsin Supreme Court held that
compelled disclosure of well data is a compensable taking. The
court held that public disclosure of data filed with the state
geologist bore no reasonable relationship to the purpose of
informing agency decisions. Id. at 604. Such public disclosure
is not at issue here.11 The Noranda decision implicitly
recognizes the validity of the statutory requirement that oil
drillers report well data to the state. Id. at 604 n.8. See
also Hartman, 529 P.2d at 146 (upheld against takings challenge
regulation requiring drillers to file drilling information and
samples with geological survey).12
B. Did the Superior Court Err in Allowing
DNR to Submit New Information in Conjunction
with its Motion to Reconsider under Former
Civil Rule 77(m)?
In their cross-appeal, the companies contend that
former Civil Rule 77(m) does not and ought not authorize the
submission of new evidence in conjunction with a motion for
reconsideration.13 The companies appeal the denial of their
motion to strike the affidavit of Catherine Ariey which DNR
submitted with its motion for reconsideration. They request that
this court consider neither the affidavit nor ASRC's 1987 Annual
Report, submitted by the state with its opposition to the
companies' motion to strike.
We conclude that any error the superior court may have
committed in denying the companies' motion to strike is harmless.
Since the superior court denied the state's motion for
reconsideration, the companies received all the relief to which
they were entitled. The addition of the Ariey affidavit and
ASRC's annual report to the record did not prejudice the
companies on appeal. Our decision is based on neither document.
III. CONCLUSION
For the reasons discussed herein, we conclude that
disclosure of well data to DNR following an initial
confidentiality period as provided in AS 31.05.035(c) does not
constitute an unconstitutional taking. We REVERSE the superior
court's decision and VACATE the injunction prohibiting AOGCC from
releasing the KIC well data to DNR. DNR shall determine whether
an extended period of confidentiality is appropriate. If DNR
decides extended confidentiality is unnecessary, the agency
shall, in accordance with its stipulation in superior court,
provide Chevron, Standard and ASRC "advance notice and an
opportunity to challenge any adverse significance determination."
_______________________________
1. AS 31.05.035(c) provides:
The reports and information required in
(a) of this section shall be kept
confidential for 24 months following the 30-
day filing period unless the owner of the
well gives written permission to release the
reports and information at an earlier date.
If the commissioner of natural resources
finds that the required reports and
information contain significant information
relating to the valuation of unleased land in
the same vicinity, the commissioner shall
keep the reports and information confidential
for a reasonable time after the disposition
of all affected unleased land, unless the
owner of the well gives written permission to
release the reports and information at an
earlier date.
2. ASRC owns only the subsurface estate which it has
leased to Chevron and Standard Alaska Production Company
(Standard). The surface estate of the lands on which the well is
located is owned by Kaktovik Inupiat Corporation -- hence the
acronym "KIC."
3. The remaining two questions discussed by the United
States Supreme Court in Monsanto -- whether the taking is for a
public use and whether the statute provides adequate compensation
-- are not at issue in this case.
4. The Restatement of Torts provides a similar definition:
A trade secret may consist of any
formula, pattern, device or compilation of
information which is used in one's business,
and which gives him an opportunity to obtain
an advantage over competitors who do not know
or use it.
Restatement (First) of Torts 757 comment b (1939) (This
section, together with most discussion of trade practices and
labor disputes, is omitted from the Second Restatement because
these subjects have become extensively governed by legislation
and largely divorced from their initial grounding in the
principles of tort.). The United States Supreme Court adopted
this definition for constitutional purposes in Monsanto, 467 U.S.
at 1001-02.
5. This conclusion is consistent with decisions of other
jurisdictions which have addressed the issue. See, e.g., United
States v. Geophysical Corp., 732 F.2d 693, 701-02 (9th Cir.
1984); Hunter v. Shell Oil Co., 198 F.2d 485, 487-89 (5th Cir.
1952); Geophysical Corp. of Alaska v. Andrus, 453 F. Supp. 361,
370 (D. Alaska 1978); Hartman v. State Corp. Comm'n, 529 P.2d
134, 146-47 (Kan. 1974); Noranda Exploration, Inc. v. Ostrom, 335
N.W.2d 596, 603 (Wis. 1983); see generally 2 H. Williams and C.
Meyers, Oil and Gas Law 442.2 (1990).
6. ASRC's entitlement to the data is based on its contract
with the oil companies. The companies agreed to provide ASRC any
information generated as a result of drilling wells on the KIC
property at the expiration of the lease between ASRC and the
companies.
7. The state correctly notes in its brief that only
Chevron and Standard, not ASRC, claim to have had any such
expectation, and the only evidence submitted by them concerned
Chevron, not Standard.
8. Defining what constitutes a "reasonable investment-
backed expectation" is a question of law and therefore we
exercise de novo review. See Langdon v. Champion, 745 P.2d 1371,
1372 n.2 (Alaska 1987). We will not reverse the trial court's
findings concerning the underlying facts unless "clearly
erroneous." Donnybrook Bldg. Supply v. Interior City, 798 P.2d
1263, 1266 (Alaska 1990); Alaska R. Civ. P. 52(a). However, we
independently review whether the trial court attached the
appropriate legal effect to the facts. See Armco Steel Corp. v.
Isaacson Structural Steel Co., 611 P.2d 507, 516 n.22 (Alaska
1980).
9. The words "of natural resources"were added by a 1984
amendment. Ch. 6, 86, SLA 1984. The amendment clarified
rather than changed the existing law. 1984 House Journal 2290.
10. We are unable to comprehend how one can "physically"
occupy or invade intangible property. The United States Supreme
Court recently rejected a theory similar to that of the companies
in this case. United States v. Sperry Corp., 110 S.Ct. 387, 393
(1989) (upheld user fee required to be paid to the United States
from amount recovered by American claimants before the Iran-
United States Claims Tribunal).
11. The superior court held that the companies' challenge
to the public disclosure provisions of AS 31.05.035(c) were not
ripe for adjudication. We agree with the superior court's
analysis.
12. In light of our conclusion that no taking has occurred,
we need not address the issue of whether an injunction against
disclosure is the appropriate remedy.
13. Former Civil Rule 77(m) provided in part:
(1) A party may move the court to
reconsider a ruling previously decided if, in
reaching its decision:
(i) The court has overlooked,
misapplied, or failed to consider a statute,
decision or principle directly controlling;
or
(ii) The court has overlooked or
misconceived some material fact or
proposition of law; or
(iii)The court has overlooked or
misconceived a material question in the case;
or
(iv) The law applied in the ruling has
been subsequently changed by court decision
or statute.
(2) The motion for reconsideration
shall specifically state which of the grounds
for reconsideration specified in the prior
subparagraph exists, and shall specifically
designate that portion of the ruling, the
memorandum, or the record, or that particular
authority, which the movant wishes the court
to consider. The motion for reconsideration
and supporting memorandum shall not exceed
five pages.
(3) No response shall be made to a
motion for reconsideration unless requested
by the court, but a motion for
reconsideration will ordinarily not be
granted in the absence of such a request.
Alaska R. Civ. P. 77(m) (1990). This rule currently appears as
Civil Rule 77(k).
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