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Usibelli Coal Mine v. Department of Natural Resources (8/16/96), 921 P 2d 1134
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Notice: This opinion is subject to correction before publication in
the Pacific Reporter. Readers are requested to bring errors to the
attention of the Clerk of the Appellate Courts, 303 K Street,
Anchorage, Alaska, 99501, telephone (907) 264-0607, fax (907) 264-
0878.
THE SUPREME COURT OF THE STATE OF ALASKA
USIBELLI COAL MINE, INC., )
) Supreme Court No. S-6650
Appellant, )
) Superior Court No.
v. ) 3AN-93-5470 CI
)
STATE OF ALASKA, DEPARTMENT )
OF NATURAL RESOURCES, ) O P I N I O N
)
Appellee. ) [No. 4391 - August 16, 1996]
______________________________)
Appeal from the Superior Court of the State of
Alaska, Third Judicial District, Anchorage,
Peter A. Michalski, Judge.
Appearances: Richard M. Johannsen and James
N. Leik, Perkins Coie, Anchorage, for
Appellant. Lawrence Z. Ostrovsky, Assistant
Attorney General, Anchorage, and Bruce M.
Botelho, Attorney General, Juneau, for
Appellee.
Before: Compton, Chief Justice, Rabinowitz,
Matthews, Eastaugh, Justices and Carpeneti,
Justice, pro tem.
EASTAUGH, Justice.
I. INTRODUCTION
We consider here whether Usibelli Coal Mine, Inc. (UCM)
owes back royalties to the State of Alaska under three state coal
leases for coal mined between 1989 and March 1993. The Alaska
Department of Natural Resources (DNR) ruled administratively that
it does. On appeal by UCM, the superior court affirmed. We affirm
the superior court's decision.
II. FACTS AND PROCEEDINGS
DNR claims back royalties, plus interest, of $346,550.35
due on three noncompetitive coal leases held by UCM. (EN1) DNR
entered into the three leases in accordance with the provisions for
coal land in the Alaska Land Act (AS 38.05.005-.990). Each of
these three leases has an indeterminate term, and requires the
payment of both annual rentals and production royalties. (EN2) DNR
issued the first lease, ADL 20633, on May 1, 1967, with an initial
royalty of $0.10/ton. DNR issued the second lease, ADL 21545, on
November 1, 1967, with an initial royalty of $0.05/ton. DNR
originally issued these two leases to James A. Carroll, who
assigned his interest in both leases to UCM in 1971. The leases
are located on land patented to the State pursuant to the Alaska
Mental Health Enabling Act of 1956. DNR issued the third lease,
ADL 56505, on April 13, 1972, with an initial royalty of $0.15/ton.
(EN3)
The leases do not contain an expiration date for the
initial royalties. However, in accordance with AS 38.05.150(d),
the royalty terms cannot exceed a term of twenty years. Thus, the
initial royalties on these leases expired on the twentieth
anniversary of the date each lease was issued: May 1, 1987,
November 1, 1987, and April 13, 1992, respectively.
In 1982, before the initial royalty term on any of these
leases expired, DNR promulgated regulations setting a standard
royalty rate of five percent of adjusted gross value (AGV) for
noncompetitive state coal leases. 11 Alaska Administrative Code
(AAC) 85.220 (1996). This rate was to be applied to existing
leases at the time of royalty adjustment. Id. (EN4)
Royalty adjustment for ADLs 20633 and 21545 was to occur
in 1987. In March 1987, facing the prospect of royalties of five
percent of AGV on these leases, UCM asked DNR to grant it royalty
relief pursuant to AS 38.05.140(d). (EN5) UCM requested that
royalties for the two leases be set at the equivalent of two
percent of AGV. While this request was pending, UCM began paying
royalties at the rate of five percent of AGV on each lease when its
initial royalty term expired.
In April 1988 DNR denied the reduction requested by UCM,
but agreed to phase in the full five percent royalty rate pursuant
to AS 38.05.140(d), so that the full rate would not be applied to
UCM's leases until May 1, 1990. (EN6) UCM requested
reconsideration, arguing among other things that the coal royalty
and royalty relief regulations were invalid.
On reconsideration, DNR granted UCM further royalty
relief, to facilitate UCM's negotiations on its existing export
contract with Suneel Alaska Corporation (Suneel). In its October
11, 1988 decision, DNR decided that the April decision would
continue to control UCM's royalty payment obligations until
December 31, 1988. Effective January 1, 1989, UCM was to pay a
royalty of five percent of AGV on any production up to 800,000 tons
of coal from the two leases collectively per year. All production
in excess of 800,000 tons would carry a reduced royalty rate of
$0.29/ton. At the beginning of each year, UCM was to submit a
calculation of its estimated weighted average five percent AGV for
the calendar year, and was to submit an adjusted royalty return
after the end of the year to reflect actual volumes and proceeds.
The royalty reduction was to be effective "for the same term as any
contract extension negotiated with Suneel before January 1, 1989,"
but "in no event shall this decision be effective past December 31,
1990." Beginning January 1, 1991, the royalty rate on all
production from the two leases was to be five percent of AGV.
In January 1989 UCM submitted its estimate of royalty for
calendar year 1989. In its supporting calculations, UCM applied
the five percent royalty to the adjusted gross value of UCM's coal
at the mine face. (EN7) UCM based its calculation of AGV on the
estimated average sales price "Net of State Royalty,"less
statutory deductions for transportation and beneficiation costs,
and deductions for the federal reclamation royalty (AML reclamation
fee) and the federal black lung excise tax. (EN8) UCM also used
this method for calculating AGV in its estimate of royalties for
calendar years 1990 and 1991.
DNR first informed UCM that its royalty payments
calculated under this method were incorrect in a March 1991 letter
in which DNR rejected UCM's royalty calculation for calendar year
1990. DNR informed UCM that the calculation submitted was in
error, as "[t]he regulations only grant a deduction for
transportation and beneficiation costs and rental,"and do not
allow deductions such as those taken by UCM for the federal
reclamation royalty and federal black lung excise tax. UCM did not
respond.
In May 1991 DNR again contacted UCM concerning the
deficiency in UCM's royalty calculation for calendar year 1990.
DNR also informed UCM that its royalty calculation for calendar
year 1989 and its subsequent payment were deficient for the same
reasons. DNR notified UCM that it owed back royalty payments for
calendar years 1989 and 1990, and for the first quarter of 1991.
DNR requested that payment be made with UCM's next royalty payment;
if not, the state's legal rate of interest would be imposed on the
back payments owed. Again, UCM did not respond.
In March 1992 UCM submitted its adjusted royalty return
to reflect actual volumes and proceeds for calendar year 1991. UCM
used the same method of calculating AGV that it had used for the
previous two years, with the addition of a deduction for the
severance tax imposed by the new Denali Borough. Two weeks later,
DNR notified UCM that the royalty calculations were again in error,
and demanded payment for back royalties due for calendar years
1989, 1990, and 1991. Once again UCM did not respond.
DNR scheduled several meetings with UCM representatives
to discuss the royalties and the issue of back payments. At a
meeting in November 1992, then-Commissioner Olds suggested that it
might be possible to settle the dispute by forgiving the 1989 back
royalty, if all other amounts due were paid in full. However, DNR
was later advised by the Attorney General that such a settlement
was not acceptable, and that UCM would have to pay the full amount
of any back royalty owed. The Attorney General advised DNR that
pursuant to the state's fiduciary responsibility under the Mental
Health Settlement, all back royalties owed must be paid.
On December 9, 1992, the Director of the Division of
Mining issued a decision requiring that UCM pay all back royalties
owed. The Commissioner concurred in the decision. The Director
expressly stated that forgiveness of the 1989 royalties was denied,
and ordered UCM to "[p]lease recalculate the royalties owed from
1989 to present without the deductions for the Black Lung Tax, AML
Fee, State Royalty, and Denali Borough Severance Tax."
UCM requested reconsideration of the December 9 decision.
In a final decision of May 14, 1993, the Commissioner affirmed the
Director's determination that UCM owed all back royalties from 1989
to "the present." UCM appealed DNR's decision to the superior
court. The superior court affirmed the decision, and remanded to
DNR with instructions to correct the amount due to reflect an error
made in calculating the interest. UCM appeals.
III. DISCUSSION
A. Standard of Review
When the superior court acts as an intermediate court of
appeal, we give no deference to the lower court's decision. Tesoro
Alaska Petroleum Co. v. Kenai Pipe Line Co., 746 P.2d 896, 903
(Alaska 1987). Instead, we independently review the merits of the
underlying administrative decision. Id. We have articulated four
principal standards of review for administrative decisions.
The "substantial evidence"test is used for
questions of fact. The "reasonable basis"
test is used for questions of law involving
agency expertise. The "substitution of
judgment"test is used for questions of law
where no expertise is involved. The
"reasonable and not arbitrary"test is used
for review of administrative regulations.
Handley v. State, Dep't of Revenue, 838 P.2d 1231, 1233 (Alaska
1992) (citing Jager v. State, 537 P.2d 1100, 1107 n.23 (Alaska
1975)).
B. Administrative Res Judicata
The threshold question is whether administrative res
judicata bars UCM's challenge. The State argues that UCM is barred
from challenging DNR's royalty regulations, because it questioned
the validity of those regulations in its Application for
Reconsideration of DNR's April 1988 decision denying UCM's request
for full royalty relief. The State argues that UCM "expressly
accepted"application of the royalty regulations by failing to
appeal DNR's October 11, 1988 decision that granted it partial
royalty relief. The State argues further that UCM "accepted and
acknowledged the [royalty regulations] long ago"by submitting
royalty calculation statements and paying royalties based on the
1988 decision.
UCM responds that res judicata is not appropriate in this
case. (EN9) It contends that it had no reason to appeal the April
1988 decision, which granted UCM a royalty rate reduction.
Although UCM's legal counsel did argue at the time that the royalty
regulations might be invalid, DNR never addressed the argument or
decided the issue. UCM argues that "[b]ecause this purely legal
issue has never been addressed, resolved, or actually determined or
decided within the meaning of DNR's own regulation, there is no bar
to raising it now."(EN10)
We have held that "[t]he rule of res judicata applies to
administrative agencies as well as courts." Colville Envtl.
Servs., Inc. v. North Slope Borough, 831 P.2d 341, 345 n.4 (Alaska
1992). "Thus if a claim could have been raised before an agency in
a prior administrative hearing, res judicata precludes subsequent
litigation of the same claim." Calhoun v. State, Dep't of Transp.
and Pub. Facilities, 857 P.2d 1191, 1195 (Alaska 1993). However,
"[r]es judicata cannot apply in the absence of 'a judgment to which
res judicata could attach.'" Municipality of Anchorage v. Franck
Coluccio Constr. Co., 826 P.2d 316, 324 n.7 (Alaska 1992) (quoting
C.J.M. Constr., Inc. v. Chandler Plumbing & Heating, Inc., 708 P.2d
60, 61 n.1 (Alaska 1985)). For purposes of res judicata, a final
judgment "includes 'any prior adjudication of an issue in another
action that is determined to be sufficiently firm to be accorded
conclusive effect.'" Briggs v. State, Dep't of Pub. Safety, 732
P.2d 1078, 1082 (Alaska 1987) (quoting Restatement (Second) of
Judgments sec. 13 (1982)). Factors considered in determining
finality are "'that the parties were fully heard, that the court
supported its decision with a reasoned opinion, that the decision
was subject to appeal or was in fact reviewed on appeal.'" Id.
(quoting Restatement (Second) of Judgments sec. 13 cmt. g (1982)).
In this case, UCM raised an objection to the validity of
the regulations in 1988, when it requested reconsideration of DNR's
denial of its request for royalty relief pursuant to AS
38.05.140(d). However, the Commissioner did not address this
argument in his final decision, and appears to have given it no
consideration. Therefore, there was no prior adjudication of this
issue by DNR. Consequently, it is not appropriate to apply res
judicata in this case.
C. Validity of the Regulations
1. Was there a valid delegation of rule-making
authority to DNR to adjust royalty rates for coal
leases?
In 1982, DNR promulgated regulations setting a standard
royalty rate on noncompetitive coal leases. 11 AAC 85.220 (1996);
11 AAC 85.225 (1996). UCM argues that the legislature neither
expressly nor impliedly granted DNR authority to adjust royalty
rates on existing leases, but rather reserved that power to itself.
(EN11) The State counters that the regulations were validly
promulgated by DNR within its rule-making authority.
This question is one of statutory interpretation. In
addressing questions of statutory interpretation, the court
substitutes its independent judgment for that of the agency.
Fairbanks N. Star Borough Sch. Dist. v. NEA-Alaska, Inc., 817 P.2d
923, 925 (Alaska 1991). "Even under the independent judgment
standard, however, the court gives some weight to what the agency
has done, especially where the agency interpretation is
longstanding." Id. (citation omitted).
The Alaska Land Act (AS 38.05.005-.990) was enacted in
1959. The Act contains no express delegation of authority to DNR
to fix or adjust coal lease royalty rates. (EN12) However, a grant
of rulemaking authority can be either express or implied. AS
44.62.030. Therefore, we must determine whether a delegation of
authority is implied in this case. See Chevron U.S.A. Inc. v.
LeResche, 663 P.2d 923, 928 (Alaska 1983) (holding that a section
of a statute implied agency authority to adopt regulations); Boehl
v. Sabre Jet Room, Inc., 349 P.2d 585, 587-88 (Alaska 1960)
(holding that a grant of generalized power to "effectuate and carry
out the purpose"of an act was an implied delegation of authority
to adopt the regulations in question). (EN13)
In Chevron, we considered a challenge to the validity of
DNR regulations which required that a miscellaneous land use permit
be obtained from DNR for all oil and gas exploration on state
lands. 663 P.2d at 924. In exchange for the permit, explorers had
to agree to submit to the Department certain geological and
geophysical data and information derived from exploration. Id.
In determining whether the legislature delegated rule-
making authority to the Department, we considered two sections of
the Alaska Land Act. Id. at 928. Alaska Statute 38.05.020(b)(1)
authorizes DNR to "establish reasonable procedures and adopt
reasonable rules and regulations necessary to carry out"the Alaska
Land Act. Id. Alaska Statute 38.05.180(a), (b), (c), (e), and (f)
imposes on DNR "the responsibility to maximize State return from
State owned oil and gas resources through careful planning,
including presale analysis of tracts proposed for lease." Id.
We held that these two statutes, considered together,
implied the authority to adopt the challenged regulations. Id. We
explained that the planning and pre-sale analysis with which DNR
was charged required that it "have access to the most reliable
geological and geophysical data available." Id. Thus, the
regulations were "reasonably necessary to insure that the planning
process is carried out responsibly." Id.
In this case, we consider AS 38.05.020(b)(1), AS
38.05.145(a), and AS 38.05.150(d) in determining whether the
challenged regulations are impliedly authorized.
Alaska Statute 38.05.020(b)(1) gives DNR the power to
adopt regulations necessary to carry out the Alaska Land Act. It
provides that the commissioner may
establish reasonable procedures and adopt
reasonable regulations necessary to carry out
this chapter and, whenever necessary, issue
directives or orders to the director to carry
out specific functions and duties; regulations
adopted by the commissioner shall be adopted
under the Administrative Procedure Act (AS
44.62) . . . .
This is a broad grant of rulemaking authority. See Warner v.
State, 819 P.2d 28, 32 n.3 (Alaska 1991) (noting cases in which the
court evaluated the scope of an agency's implied authority under
statutes conferring broad grant of rulemaking authority).
Alaska Statute 38.05.145(a) gives DNR the authority to
promulgate regulations for the disposition of coal deposits under
the leasing procedure. (EN14) It provides in relevant part:
Deposits of coal, phosphates, oil shale,
sodium, potassium, oil, gas, geothermal
resources and state land containing these
deposits are subject to disposition under
regulations, recommended by the director and
adopted by the commissioner, and the
provisions of AS 38.05.145 - 38.05.181.
The disposition of these deposits is limited by the application of
AS 38.05.150(d), which specifies maximum terms and minimum rents
and royalties for coal leases.
When considered together, these statutes impliedly
authorize DNR to promulgate regulations regarding coal royalty
rates and adjustments to those rates. The authority to adjust
royalty rates is "reasonably necessary"to DNR's discharge of its
statutory mandate to lease coal deposits on state lands. Fixing
and adjusting royalties is an integral part of this disposition,
and is essential to effective administration of coal leasing on
state lands. Consequently, we find that the regulations
promulgated to effectuate the purpose of these statutes are valid.
2. Are the regulations unconstitutional and void as
applied because of a lack of sufficient standards
and procedures?
UCM argues that even if the delegation of authority can
be implied, it is not attended by the statutory standards and
procedural safeguards necessary for the valid exercise of agency
authority. DNR responds that statutory standards and procedural
safeguards do not need to be explicitly listed in the authorizing
statute, and that sufficient standards and procedures are present.
We have adopted a sliding-scale approach in analyzing the
validity of a delegation of authority to an administrative agency.
State v. Fairbanks N. Star Borough, 736 P.2d 1140, 1143 (Alaska
1987) (per curiam opinion expressly adopting superior court's
opinion and sliding scale approach). "[T]he constitutionality of
a delegation is determined on the basis of the scope of the power
delegated and the specificity of the standards to govern its
exercise. 'When the scope increases to immense proportions . . .
the standards must be correspondingly more precise.'" Id. (quoting
Synar v. United States, 626 F. Supp. 1374, 1387 (D.D.C.), aff'd on
other grounds, 478 U.S. 714 (1986)). These standards may be either
explicit, or implicit. (EN15) Municipality of Anchorage v.
Anchorage Police Dep't Employees Ass'n, 839 P.2d 1080, 1086 (Alaska
1992).
In Fairbanks North Star Borough, a delegation doctrine
challenge was brought against a statute endowing the Governor with
the power to reduce appropriations when anticipated revenues
appeared inadequate to meet appropriation levels. 736 P.2d at
1142. This court upheld the superior court's finding that the
"legislature ha[d] articulated no principles, intelligible or
otherwise, to guide the executive." Id. at 1143. Because "it
authorize[d] the exercise of sweeping power over the entire budget
with no guidance or limitation,"we held that the statute was an
unconstitutional delegation of legislative power. (EN16) Id. at
1142-43.
In Municipality of Anchorage, we applied a sliding-scale
analysis to the Anchorage Municipal Assembly's delegation of power
to a private arbitrator to make final and binding determinations in
certain labor contract disputes. 839 P.2d at 1080. This is "a
fairly narrow area, albeit an important one,"and because a panoply
of implied standards created "an elaborate and detailed structure
which guides the arbitrator's decisions and guards against
arbitrary action,"we upheld the delegation as a valid delegation
of authority. Id. at 1086-89.
In this case, the legislature has delegated authority to
DNR to regulate in the field of coal leases on state land. Because
coal leasing on state lands is a narrow area or field, this is a
delegation of "broad authority to an agency with expertise to
regulate a narrowly defined field." Fairbanks N. Star Borough, 736
P.2d at 1143 (citing Boehl, 349 P.2d at 588). Consequently, there
is less need for explicit, detailed standards to guide agency
action. See Walker v. Alaska State Mortgage Ass'n, 416 P.2d 245,
254 (Alaska 1966) (holding that a statute which stated its purposes
and specified its powers and limitations permissibly delegated
power to a public corporation); DeArmond v. Alaska State Dev.
Corp., 376 P.2d 717, 723 (Alaska 1962) (holding that the statement
of purpose and the general limitations on loans provided sufficient
standards to guide the corporation in adopting regulations and
procedures for loan policy); Boehl, 349 P.2d at 590 (holding that
it is "not essential . . . that the legislature circumscribe
administrative discretion by express standards of action"in order
to sustain a delegation of broad, generalized power when "[t]he
exercise of [administrative] powers is hedged about by substantial
safeguards").
There are also a number of standards and safeguards
pertaining to DNR's adjustment of royalty rates, both express and
implied. Alaska Statute 38.05.150(d) requires that royalty terms
not exceed twenty years, thus setting an outer time limit in which
royalties must be adjusted. It also requires a five cent per ton
minimum royalty. This requirement sets a floor for regulations
adjusting royalties. Further standards include the constitutional
mandate to encourage development consistent with the public
interest (EN17) and to provide for the utilization, conservation,
and development of the state's natural resources for the maximum
benefit of the people. (EN18) These broad constitutional mandates
guide DNR's promulgation of regulations pursuant to AS 38.05.020,
.145(a), and .150(d). (EN19) See Kenai Peninsula Fisherman's Coop.
Ass'n v. State, 628 P.2d 897, 907 (Alaska 1981) ("The extent of the
Commissioner's power . . . should . . . be interpreted in light of
the overall purpose of the constitutional and legislative scheme of
management of state resources prescribed by other provisions of the
law."). These standards "sufficiently mark[] the field within
which the administrator is to act so that it may be known whether
he has kept within it in compliance with the legislative will."
(EN20) Fairbanks N. Star Borough, 736 P.2d at 1143 (quoting Synar,
626 F. Supp. at 1387). Consequently, we hold that there are
sufficient standards and procedural safeguards to ensure the valid
exercise of agency authority in this case.
3. Are the regulations consistent with AS
38.05.150(d)?
UCM argues that 11 AAC 85.220 and 11 AAC 85.225 are
invalid because they are inconsistent with the plain meaning of AS
38.05.150(d), and are beyond the scope of DNR's authority to issue
regulations. UCM argues that AS 38.05.150(d) must be construed
together with the other mineral leasing sections of the Alaska Land
Act because they are in pari materia -- enacted at the same time
and dealing with the same subject matter. UCM reasons that because
sections of the Alaska Land Act relating to minerals expressly
provide for percentage-based royalties, and AS 38.05.150(d) does
not contain any such provision, the legislature did not intend
percentage-based royalties to be applied to coal leases.
DNR counters that a percentage-based royalty is
consistent with AS 38.05.150(d); it also asserts that the mineral
leasing sections of the Alaska Land Act are not in pari materia
with AS 38.05.150(d), because they "do not conflict; they do not
affect one another; they simply do not interact." Therefore, 11
AAC 85.220 and 11 AAC 85.225 are not inconsistent with the plain
meaning of AS 38.05.150(d).
We construe statutes that are in pari materia together.
Underwater Constr., Inc. v. Shirley, 884 P.2d 150, 155 (Alaska
1994). "Statutes are deemed to be in pari materia when they relate
to the same purpose or thing or have the same purpose or object."
State v. Eluska, 724 P.2d 514, 517 (Alaska 1986) (Compton, J.,
dissenting). While coal leasing and other mineral leasing sections
share the same general purpose of providing for the disposition of
minerals on state lands, this is not sufficient to render them in
pari materia, as they do not deal sufficiently with the same
subject matter.
Consequently, we find that the percentage-based royalty
contained in 11 AAC 85.220 does not conflict with the plain terms
of AS 38.05.150(d). As the superior court noted, the statute does
no more than set a minimum royalty, so that "the establishment of
a royalty of 5% of adjusted gross value is consistent with the
statute as long as it exceeds 5 [cents] a ton." Finally, as the
superior court also observed, if the legislature had desired to
restrict the royalties to either a flat fee or a percentage rate,
we assume that it would have incorporated that requirement into the
statute. Consequently, we hold that 11 AAC 85.225 and 11 AAC
85.220 do not conflict with the plain meaning of AS 38.05.150(d).
D. Contract
UCM argues that if the royalty can be changed to a
percentage rate, the royalty amounts are "open terms"of the
contract, and that the implied covenant of good faith and fair
dealing requires that DNR negotiate appropriate adjustments rather
than impose them unilaterally. The State responds that the leases
expressly recognize that they are subject to the laws and
regulations of the State, and that royalty adjustments need not be
negotiated.
This is a question of law that involves the expertise and
specialized knowledge of DNR. Consequently, the reasonable basis
standard of review applies. State, Dep't of Revenue v. Atlantic
Richfield Co., 858 P.2d 307, 308 (Alaska 1993).
Given AS 38.05.150(d), UCM was aware that the initial
royalty term could not exceed a period of twenty years. UCM is
presumed to know the applicable law. Messerli v. Dep't of Natural
Resources, 768 P.2d 1112, 1121 (Alaska 1989). The leases are
silent about the issue of royalty adjustment, (EN21) but do
expressly recognize that they are entered into "subject to the
terms and provisions of the Alaska Land Act . . . [and] to all
reasonable regulations of the Commissioner of Natural Resources
promulgated under the [Alaska Land] Act." Lease Nos. ADL 20633,
21545.
The absence of a lease provision for the negotiation of
royalty adjustments cannot be reasonably interpreted as requiring
that royalty adjustments be negotiated. Consequently, we hold that
DNR's determination that its regulation providing for the
adjustment of royalties when initial royalty terms expire applies
to UCM's leases without negotiation is reasonable.
E. Back Royalties
1. Is DNR equitably estopped from collecting back
royalties from January 1, 1989 to March 14, 1991?
UCM argues that DNR is equitably estopped from collecting
the royalties DNR claims to be due on coal mined from January 1,
1989 to March 14, 1991 because (1) by not objecting to the
royalties paid by UCM during this period, DNR thereby represented
that the royalty calculation being used by UCM was correct; (2) UCM
reasonably relied on this representation; and (3) UCM was
prejudiced by this reliance because it cannot pass on the costs of
the claimed royalties to its customers. The State responds that
DNR did not take the "positive act"necessary to assert a position;
that any reliance by UCM was unreasonable because delay is not
itself sufficient to justify reliance; and that UCM did not suffer
prejudice because DNR's October 1988 decision told UCM that any
reimbursement UCM might receive from its customers was purely a
matter between UCM and its customers.
Whether the elements of equitable estoppel are satisfied
is a question of law calling for the application of the court's
independent judgment. "The general elements of equitable estoppel
are (1) assertion of a position by conduct or word, (2) reasonable
reliance thereon, and (3) resulting prejudice." Mortvedt v. State,
858 P.2d 1140, 1142 (Alaska 1993) (quoting Municipality of
Anchorage v. Schneider, 685 P.2d 94, 97 (Alaska 1984)). A fourth
element required by this court is that "the estoppel will be
enforced only to the extent that justice so requires." Id. at
1142.
In State, Department of Revenue v. Northern TV, Inc., 670
P.2d 367, 369 (Alaska 1983), the court held that the Department of
Revenue was not estopped from assessing taxes based on a 1978 audit
of 1971-1977 tax returns. Northern TV claimed that the agency was
estopped because in a 1967 decision it had held that, due to
uncertainties in the state of the law, it would for the time being
forego collecting taxes on the receipts in question. Id. In
holding that the agency was not estopped, the court concluded that
the provisional nature of the agency's 1967 decision made Northern
TV's reliance on the decision unreasonable. Id.
In the present case, UCM's royalty payments under the
leases were subject to audit not only by virtue of regulation, but
also by the express terms of the leases themselves. 11 AAC
85.225(d); Lease Nos. ADL 20633, 21545. The State correctly
points out that "UCM was on notice that its royalty calculations
were subject to review and audit under 11 AAC 85.225(d)." The
lease expressly required UCM "to make copies of and extracts from
such records pertaining to operations as may be required to verify
compliance with the terms and conditions of this lease." Lease
Nos. ADL 20633, 21545, Section 2(h)(2).
We find that it is not reasonable to conclude that
payments had been audited and deemed correct by DNR in the
approximately two years (1989 and 1990) in which DNR received
incorrectly calculated royalty payments from UCM before notifying
UCM of its error. Therefore, DNR is not equitably estopped from
collecting the back royalties due for coal mined from January 1989
to March 1991. Because we conclude that UCM's reliance on DNR's
failure to object to its method of calculation of royalties was not
reasonable, we do not consider whether the other elements necessary
for the application of equitable estoppel are present.
F. UCM's Interpretation of "Adjusted Gross Value"
UCM argues that DNR erred in deciding that payments
received by UCM from its customers for federal black lung taxes,
federal AML reclamation fees, state royalties, and Denali Borough
severance taxes are part of the adjusted gross value of UCM's coal
within the meaning of 11 AAC 85.220. The State counters that DNR's
interpretation of "adjusted gross value"as used in 11 AAC 85.220
is reasonable and should be upheld.
DNR's interpretation of 11 AAC 82.225 is reviewed under
the reasonable basis standard. Handley v. State, Dep't of Revenue,
838 P.2d 1231, 1233 (Alaska 1992). "[W]here an agency interprets
its own regulation . . . a deferential standard of review properly
recognizes that the agency is best able to discern its intent in
promulgating the regulation at issue." Id. (quoting Rose v.
Commercial Fisheries Entry Comm'n, 647 P.2d 154, 161 (Alaska
1982)).
The regulation provides:
(a) If the coal is sold in a bona fide arm's-
length transaction between independent
parties, adjusted gross value is the full
consideration received by the lessee minus the
following costs if those costs were borne by
the lessee:
(1) reasonable beneficiation costs as defined
in (e)(1) of this section; and
(2) reasonable transportation costs from the
mine mouth to the point of sale, as defined in
(e)(2) of this section.
11 AAC 85.225 (1996). (EN22) DNR interprets "full consideration
received"as the total payment and benefit received by UCM for the
sale of the coal. This amount does not allow deductions for
initial royalty, tax, and fee obligations which are later
reimbursed by UCM's customers. The only deductions allowed are
those for reasonable beneficiation costs and reasonable
transportation costs specifically provided in the regulation. 11
AAC 85.225(a)(1)-(2) (1996).
This is a reasonable interpretation of "adjusted gross
value." As the State correctly points out, "UCM is not required to
collect the royalty, taxes or fees from its purchasers." If UCM
was not reimbursed for these expenses, they would presumably be
reflected in the sale price of the coal. Because DNR's
interpretation of its regulation defining "gross value"is
reasonable, it did not err in denying UCM's deductions for federal
black lung taxes, federal AML reclamation fees, state royalties,
and Denali Borough severance taxes, in calculating "adjusted gross
value."
G. The Decisional Document
1. Was DNR's decision a "regulation"?
UCM asserts that DNR's decision was a "regulation,"as
defined by AS 44.62.640(a)(3), (EN23) and consequently had to be
issued in compliance with the rulemaking provisions of the Alaska
Administrative Procedures Act (APA) to be valid. AS
38.05.020(b)(1). Because it was not issued in compliance with the
APA, UCM argues that DNR's decision is invalid. The State counters
that DNR's decision was not a regulation, but was a decision
involving the implementation of its own regulations.
In State v. Northern Bus Co., 693 P.2d 319, 320 (Alaska
1984), the Department of Education issued a directive that a school
bus contract be awarded to the lowest responsive bidder. We held
that this directive reflected the agency's interpretation of its
applicable regulation. Id. at 323. We concluded that "DOE's
interpretation of its own regulation does not fall within the APA's
definition of 'regulation,' and therefore DOE was not required to
follow APA-mandated procedures in issuing its directive to the
Board." Id.
In this case, DNR issued a decision that UCM had
erroneously calculated its "adjusted gross value,"based on the
definition of that term contained in 11 AAC 85.225 (1996). This
decision reflects the agency's interpretation of its own validly
promulgated regulation. Based on our holding in Northern Bus, we
find that DNR's decision regarding UCM's calculation of "adjusted
gross value"was not a regulation within the meaning of the APA,
and that DNR was not required to follow the procedures of the APA
in issuing its decision. (EN24)
2. Did DNR adequately document its decision?
UCM asserts that DNR's decision was invalid because it
was not supported by a decisional document. The State counters
that a formal decisional document is not required as DNR's decision
is adequately documented in the record.
We have long held that "agency decisions, in exercise of
their adjudicative powers, must be accompanied by written findings
and a decisional document.'" Messerli, 768 P.2d at 1118 (quoting
Johns v. Commercial Fisheries Entry Comm'n, 758 P.2d 1256, 1260
(Alaska 1988)). We have also strongly suggested that "non-
adjudicative decisions of an agency must also be supported by an
adequate decisional document." Id. (citing Southeast Alaska
Conservation Council v. State, 665 P.2d 544, 549 (Alaska 1983)).
However, this documentation need not occur in a formal, unified
decisional document, as long as the record clearly reflects the
reasoning underlying the agency's decisions. Id.
In this case, DNR did not issue a formal decisional
document in determining that UCM had miscalculated its "adjusted
gross value." However, the communications between DNR and UCM
"clearly reflect"the reasoning underlying DNR's decision. UCM was
repeatedly informed that its calculations of adjusted gross value
were erroneous, as they contained deductions not authorized under
11 AAC 85.225 (1996). We also find that the record reveals a
"careful and reasoned administrative deliberation"by DNR in
determining the meaning of "gross value"as provided in 11 AAC
82.225. (EN25) Messerli, 768 P.2d at 1118. Consequently, we hold
that DNR's decision was adequately documented, and that UCM's
argument regarding the lack of a decisional document is meritless.
H. DNR's Decision Not to Forgive Back Royalties for 1989
Finally, UCM argues that the Commissioner should have
granted it the settlement initially proposed, and that DNR failed
to give UCM an unbiased determination of whether it was equitable
to require UCM to pay all of the claimed back royalties. (EN26)
The State counters that the Commissioner's decision whether to
settle a dispute is discretionary, and is not reviewable.
All final administrative actions are presumptively
reviewable. Johns v. Commercial Fisheries Entry Comm'n, 699 P.2d
334, 339 (Alaska 1985). However, "[w]hen a matter falls within an
area traditionally recognized as within an agency's discretionary
power, courts are less inclined to intrude than when the agency has
acted in a novel or questionable fashion." Vick v. Board of Elec.
Examiners, 626 P.2d 90, 93 (Alaska 1981).
Alaska Statute 38.05.140(d) provides that the
Commissioner "may [grant royalty relief] . . . whenever the
commissioner determines that it is necessary to do so in order to
promote development, or that the lease cannot be successfully
operated under its terms." We hold that DNR's decision not to
grant royalty relief by forgiving the royalties due for 1989 is
wholly within the Commissioner's discretion, and consequently we
decline to review this decision.
IV. CONCLUSION
We find that DNR's royalty regulations at issue are
valid, and that DNR's interpretation of those regulations is
reasonable. We also find that UCM does not have a contractual
right to have the adjusted royalty rates on its leases established
by negotiation, and that DNR is not equitably estopped from
collecting back royalties owed by UCM. Finally, we decline to
review DNR's decision not to forgive royalties owed by UCM.
Accordingly, we AFFIRM the decision of the superior court.
ENDNOTES:
1. DNR originally calculated the amount of back royalties owed at
$455,615.16, including interest. After receiving further
information and an objection from UCM, DNR recalculated this amount
as $352,560.95. DNR again corrected this amount in its superior
court brief, after conceding that the prior interest calculation
was in error. The final amount claimed by DNR is $346,550.35.
2. AS 38.05.150(d) dictates the maximum term, minimum rental, and
minimum royalties for coal leases of state land. This section
provides:
For the privilege of mining or extracting the
coal in the land covered by the lease, the
lessee shall pay to the state the royalties
specified in the lease. The royalties shall
be fixed before offering the lease, and shall
be effective for a period of not more than 20
years. The royalties shall be not less than
five cents a ton of 2,000 pounds. The lessee
shall also pay an annual rental, payable at
the date of the lease and annually thereafter,
on the land or coal deposits covered by the
lease, at a rate fixed by the commissioner
before offering the lease. The annual rental
shall be effective for a period of not more
than 20 years. The annual rental shall be not
less than 25 cents an acre for the first year
of the lease, not less than 50 cents an acre
for the second year, third year, fourth year
and fifth year, and not less than $1 an acre
for each year thereafter during the
continuance of the lease. The rental for each
year shall be credited against the royalties
as they accrue for that year. Each lease
shall provide that the annual rental payment
is subject to adjustment at intervals of no
more than 20 years and adjustments shall be
based on the current rates for properties
similarly situated.
AS 38.05.150(d) (amended 1995).
3. Virtually all of the disputed royalty is attributable to two
of the leases, ADL 21545 and ADL 20633. The appellate record does
not contain a copy of ADL 56505.
4. 11 AAC 85.220 provides in relevant part:
(a) The royalty rate must be set as follows,
based on the adjusted gross value of coal from
the leased area that is sold, disposed of, or
consumed by the lessee:
(1) five percent for noncompetitive leases;
. . . .
(b) For leases in existence on June 18, 1982,
the royalty rate will be changed, at the next
time of royalty adjustment, to five percent of
the adjusted gross value.
. . . .
(d) For leases issued after June 18, 1982, the
royalty rate is subject to adjustment by the
commissioner not more frequently than every 10
years. The royalty adjustment must take into
account the current royalty rates and other
consideration being paid for coal of similar
quality in the same general area or other
relevant areas and all other relevant factors
including changes in market conditions,
transportation costs, the composition and
special characteristics of the deposit, and
the Btu content of the coal. A lease in
existence on June 18, 1982, will be adjusted
in accordance with the terms of the lease.
(e) In this section and in 11 AAC 85.255,
"adjusted gross value"means gross value less
any deductions authorized under 11 AAC 85.225.
11 AAC 85.220 (1996).
5. AS 38.05.140(d) provides in relevant part:
The commissioner, for the purpose of
encouraging the greatest ultimate recovery of
coal . . . and in the interest of conservation
of natural resources, after public hearing,
. . . may waive, suspend, refund, or reduce
the rental, or minimum royalty, or reduce the
royalty on an entire leasehold, or on any
tract or portion of a leasehold segregated for
royalty purposes, whenever the commissioner
determines that it is necessary to do so in
order to promote development, or that the
lease cannot be successfully operated under
its terms.
6. The Commissioner also granted UCM partial royalty credit for
those payments it had made based on the five percent of AGV rate,
in order to be consistent with the phased payment schedule.
7. The five percent rate was applied to the first 800,000 tons of
coal pursuant to the royalty negotiations.
8. UCM's contracts provide that its customers will reimburse them
for these taxes, fees, and royalties.
9. We find unpersuasive UCM's argument that res judicata is not
appropriate here because the validity of DNR's regulations is a
purely legal, not factual, issue. We have held that administrative
adjudications are given the same preclusive effect as judicial
adjudications. Johnson v. Alaska State Dep't of Fish & Game, 836
P.2d 896, 908-09 (Alaska 1991).
10. UCM cites DNR's regulation that a "decision"requires a
"written determination by the department specifying the details of
the action taken." 11 AAC 02.080(3) (1996).
11. UCM argues that the legislature intended to retain the
authority to adjust royalty rates in part because "the twenty-year
period extends so far into the future." This argument is
unpersuasive. There is nothing in the Alaska Land Act which
suggests that the legislature intended to retain this revisory
capacity; nor has it ever expressed disapproval of DNR's royalty
regulations. See Boehl v. Sabre Jet Room, Inc., 349 P.2d 585, 590
(Alaska 1960) (noting in upholding agency action that the
"legislature, which meets annually, may revise the statute and thus
restrict the bounds of administrative action").
12. The legislative history is silent as to whether the
legislature intended to delegate this authority to DNR.
13. In assessing the validity of an administrative regulation, we
determine "whether the legislature delegated rule-making authority
to the Department, whether the Department followed the
Administrative Procedure Act in promulgating the regulation, and
whether the regulation is consistent with and reasonably necessary
to implement the statutes authorizing its implementation." Chevron
U.S.A. Inc. v. LeResche, 663 P.2d 923, 927 (Alaska 1983) (citing
Kelly v. Zamarello, 486 P.2d 906, 911 (Alaska 1971)). UCM does not
contend that DNR failed to follow the Administrative Procedure Act
(APA) in promulgating these regulations. Consequently, we only
review the delegation of rule-making authority to DNR and the
consistency with and reasonable need for the regulations in order
to implement the statute authorizing them.
14. UCM argues that AS 38.05.145(a) is not implicated here,
because the "disposition"of the coal that is the subject of UCM's
existing leases has already occurred. We find this argument
unpersuasive.
15. In Municipality of Anchorage, we suggested that the delegation
doctrine should be animated more by due process concerns than by
separation of powers principles. 839 P.2d at 1086 n.12. "The key
should no longer be statutory words; it should be the protections
the administrators in fact provide, irrespective of what the
statutes say or fail to say." Id. (quoting 1 Kenneth C. Davis,
Administrative Law Treatise sec. 3:15, at 206-07 (2d ed. 1978)).
16. The legislature subsequently enacted curative legislation
ratifying and approving the governor's restrictions. Ch. 9, SLA
1987. We subsequently upheld these restrictions in Fairbanks N.
Star Borough v. State, 753 P.2d 1158 (Alaska 1988).
17. Article VIII, section 1 of the Alaska Constitution provides:
Statement of Policy. It is the policy of the
State to encourage the settlement of its lands
and the development of its resources by making
them available for maximum use consistent with
the public interest.
18. Article VIII, section 2 of the Alaska Constitution provides:
General Authority. The legislature shall
provide for the utilization, development, and
conservation of all natural resources
belonging to the State, including land and
waters, for the maximum benefit of its people.
19. DNR's responsibilities in adopting regulations for the state's
coal leasing program are confirmed by the authority conferred on
DNR by AS 38.05.140(d) to reduce royalties "in order to promote
development"and to order or agree to the suspension of production
under a lease "in the interest of conservation."
20. The State also notes that royalty regulations were promulgated
according to procedures specified by the Alaska APA (AS 44.62.010-
.320). These procedures provided "substantial safeguards"for
those who are subject to the regulations. Boehl, 349 P.2d at 590.
21. When a regulation promulgated after a lease has been issued
conflicts with that lease, the provisions of the lease control. 11
AAC 82.100 (1996).
22. "Reasonable beneficiation costs"are "the reasonable costs of
any processing performed before the sale that adds value to the
coal as compared to its run-of-mine value,"including activities
such as washing and drying coal. 11 AAC 85.225(e)(1) (1996).
"Reasonable transportation costs"are "the actual costs of
transportation occurring after the coal leaves the mine mouth,"
including the use of tankers, trucks, and rail transportation. 11
AAC 85.225(e)(2) (1996).
23. AS 44.62.640(a)(3) defines "regulation"as
every rule, regulation, order, or standard of
general application or the amendment,
supplement, or revision of a rule, regulation,
order, or standard adopted by a state agency
to implement, interpret, or make specific the
law enforced or administered by it, or to
govern its procedure, except one that relates
only to the internal management of a state
agency; "regulation"does not include a form
prescribed by a state agency or instructions
relating to the use of the form, but this
provision is not a limitation upon a
requirement that a regulation be adopted under
this chapter when one is needed to implement
the law under which the form is issued;
"regulation"includes "manuals,""policies,"
"instructions,""guides to enforcement,"
"interpretative bulletins,""interpretations,"
and the like, that have the effect of rules,
orders, regulations, or standards of general
application, and this and similar phraseology
may not be used to avoid or circumvent this
chapter; whether a regulation, regardless of
name, is covered by this chapter depends in
part on whether it affects the public or is
used by the agency in dealing with the public.
24. UCM asserts that DNR's decision was an order or standard of
general application and supplements existing regulations, and is
therefore a regulation as defined by AS 44.62.640(a)(3). UCM cites
Kenai Peninsula Fisherman's Cooperative Ass'n, Inc. v. State, 628
P.2d 897 (Alaska 1981), in support of this argument. In that case,
we held that a comprehensive management policy for the Upper Cook
Inlet and a related specific policy option, adopted by the Board of
Fisheries, were regulations that had to be adopted in compliance
with the requirements of the APA. Id. at 906. We found that
because both "[t]he policy and the option ma[de] specific the
management policies of the Board,"and "served as a basis for
decisions affecting commercial and recreational fishermen and were
used by the Board in dealing with those groups,"the policy and the
option "have the effect of regulations or standards of general
application . . . . As such, they are regulations, and should have
been adopted according to APA procedures." Id. at 905-06.
However, as we have discussed above, this case does not involve the
making of policy decisions, but the implementation of policy
decisions. Consequently, we find that Kenai Peninsula Fisherman's
Ass'n is distinguishable from the case at hand.
Furthermore, DNR's decision is not, as UCM argues, a
"supplement"to 11 AAC 85.225. UCM cites State v. Tanana Valley
Sportsmen's Ass'n, Inc., 583 P.2d 854 (Alaska 1978), in support of
its argument. In that case, we held that the Alaska Board of
Game's verbal instructions to agents modifying the criteria for
issuing hunting permits were "additions to regulations involving
requirements of substance,"and were, therefore, regulations that
had to be issued in compliance with the requirements of the APA.
Id. at 858-59. In this case, DNR's decision was not an addition to
a regulation involving requirements of substance. Instead, it was
the interpretation of the regulation according to its own terms.
As the State correctly points out, this decision would have been
transformed into a regulation only if DNR had adopted UCM's
interpretation of 11 AAC 85.225, and permitted deductions other
than those for beneficiation and transportation, thus revising the
definition of adjusted gross value provided by the regulation.
25. The record shows that DNR's decision was given serious
consideration. DNR contacted the Minerals Management Service of
the Department of the Interior to inform itself of that agency's
rationale for not allowing federal coal lessees to deduct or
exclude the costs of the federal black lung tax, AML fees, and
state land local severance taxes, from the value of coal for
royalty calculation purposes. The record also shows that DNR
consulted with the Department of Law to determine whether there was
any legal authority for the deductions UCM took. That Department
advised DNR that those deductions were not authorized by 11 AAC
85.225. Finally, DNR also considered UCM's own sales contracts in
its analysis of whether the deductions were permissible.
26. Specifically, UCM argues that DNR's decision was based on the
advice of the Department of Law that UCM was required to pay all of
the royalties owed as a result of the State's fiduciary
responsibility under the Mental Health Settlement. UCM asserts
"DNR should have made its decision on the forgiveness issue based
on the facts and the tests for equitable estoppel. When an agency
gives the wrong reason for a decision, the reviewing court must
send the case back for a new determination, even if the agency
could have used correct reasoning to reach the same result."
(Citing 1 Kenneth C. Davis & Richard J. Pierce, Jr., Administrative
Law Treatise sec. 8.5, at 392-94 (3d ed. 1994).)
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