Alaska Bar Assoc. — Bankruptcy Section

We just spoke at the Alaska Bar Association — Bankruptcy Section on the issue of the Alaska usury statute.  We had less than two hour notice to prepare for the presentation.  The materials are available at the Bar Office.

The attendees seemed surprised to learn that the Cox v. Cooper decision actually doesn’t have very wide sweeping effect.  There are seven state statutes that exempt whole classes of creditors and transactions from the decision.  Two Federal acts also limit the decisions scope:  The Banking Act of 1864 and the Depository Institutions and Deregulation and Monetary Control Act of 1980.  These two acts exempt all federal banks and state banks that compete against federal banks from state regulation.  Add to that the Marquette National Bank v. First of Omaha Service Corp. and Smiley v. Citibank decisions and all interest and fees for banks are exempt from state regulation.

The Cox v. Cooper decision only concerns local Alaska credit between private parties.  The sky is not falling.  Even though the creditors bar insists that it is.  I wonder how much money the local and national banks will pay in fees for amicus briefs on a local issue with no bearing on their operations?  Indeed, regulating hard money lenders could actually send more business to the banks.

Thank you for the invite, Michelle Boutin, Chair of the Alaska Bar Association — Bankruptcy Law Section.

 

Standard for Review of Trial Court Action

A superior court abuses its discretion by making a decision that is arbitrary, capricious, manifestly unreasonable, or . . . stem[s] from an improper motive.  The court uses the clearly erroneous standard when reviewing factual findings, including findings regarding a party’s income, imputation of income, and voluntary underemployment.   Factual findings are clearly erroneous when, after reviewing the record as a whole,  the court is  left with a definite and firm conviction that a mistake has been made.    The court reviews a superior court’s interpretation of the civil rules and the Alaska Constitution de novo.

Based upon this standard the Supreme court reversed a superior court ruling ordering the state to certify a ballot initiative on Set netting.

Alaska Fisheries Conservation Alliance.  sp-7073 Set Netters Ballot Initiative

 

Alaska School Funding Formula Approved.

sp-7075 School Funding Formula

The State’s local school funding formula requires a local government to

make a contribution to fund its local school district. The superior court held that this

required local contribution is an unconstitutional dedication of a “state tax or license.”

But the minutes of the constitutional convention and the historical context of those

proceedings suggest that the delegates intended that local communities and the State

would share responsibility for their local schools. And those proceedings also indicate

that the delegates did not intend for state-local cooperative programs like the school

funding formula to be included in the term “state tax or license.” These factors

distinguish this case from previous cases.

 

Resolving Cross Motions for Summary Judgment

Katchemak Bay Oysters
Katchemak Bay Oysters

The Alaska Supreme Court overruled a Superior Court’s resolution of Cross Motions for Summary Judgment.  Stavenjord v. Schmidt.  The case started back in 2001.  The matter had been fully briefed by both parties, first on the motion for preliminary injunction and then again in cross motions for summary judgment.  The Superior Court denied Stavenjord’s motion and granted the State’s motion.  On appeal the Supreme court overturned the matter and sent it back to the trial court for further development.

Summary judgment motions are granted or denied based upon viewing the facts in the light most favorable to the nonmoving party.  Accordingly, in cross motions for summary judgment the court doesn’t evaluate the merits of the evidence offered by the parties and make a ruling.  Instead the court must look at each motion in a vacuum and view the facts against the movant.  A typical result will be both sides simply lose their motions and the matter proceeds to trial on the factual issues.  Where, as here, the court grants someone judgment, the appellate court reviews the opinion without deference to the trial court’s decision.

There is an alternative to ruling on motions in this fashion.  The parties could stipulate to the facts in the written record and allow the court to pass judgment on the merits..  The court itself could invite the parties to stipulate to the facts in the record and allow judgment on the evidence on one or all of the issues presented.  See, TRIAL ON THE PAPERS:   AN ALTERNATIVE TO CROSS-MOTIONS  FOR SUMMARY JUDGMENT, by  MORTON DENLOW (1998). 

While Denlow discusses federal court procedures they are as applicable to Alaska courts.  Alaska Rules 52 and 58 allow the court to resolve a matter based on the record prepared.  Such a procedure in this case could have saved years of legal procedure in this case.  The cost to the parties and the community for all of the legal time spent considering these issues has been and will continue to be considerable.

Stavenjord is serving time for a double homicide and was previously a bank robber.  He’s litigating with the state over his desire for religious privilege in prison.  The courts have interpreted a prisoner’s religious beliefs to only require the prisoner’s sincere yet personal belief.  They have not required the belief to have been adopted by any formal or recognized religious group.  When you expand the personal religious privilege to include food selection, public costs can escalate quickly.  The cost for special meals in at least one example was four times more expensive.  The prison population’s response to a prisoner’s win was mass adoption of the new religious diet.   There is nothing to stop a prison from experiencing a mass adoption of individualized religious diet requirements.

Strategic use of court procedure can reduce the cost and time to resolution.

 

 

 

Alaska Overtime — Professional Employee Exemption Doesn’t Cover Pilots

Alaska Overtime law requires covered employers to pay overtime to covered employees.  One exemption to the overtime law is the Professional Employee Exemption.  The old Alaska exemption was not the same as the Federal Exemption and was particularly vague.  The Alaska Supreme Court provided guidance on interpreting the old statute in Dayhoff v. Temsco Helicopters, Inc.,  848 P.2d 1367, 1371 (Alaska 1993).  In Dayhoff the court provided a four-part test to define whether an employee was an exempt professional.  Under Dayoff, an employee was an exempt professional if:

  1. the employee’s primary duty is to perform work requiring knowledge of advanced type,
  2. the work requires consistent exercise of discretion,
  3. the work [is] predominantly intellectual and varied, and
  4. the work [is] compensated on a fee basis.”

Under this test commercial pilots were exempt employees.  This position was previously affirmed in  Era Aviation, Inc. v. Lindfors,17 P.3d 40 (Alaska 2000). It was also the opinion other states had reached. Paul v. Petroleum Equip. Tools Co., 708 F.2d 168 (5th Cir. 1983); Kitty Hawk Air Cargo, Inc. v. Chao, 304 F. Supp. 2d 897 (N.D. Tex. 2004).  But these cases preceded the amendment to 29 C.F.R. § 541.301 in 2004.

The Alaska legislature amended the Alaska Overtime law (Alaska Wage and Hour Act) in 2005.  The legislature adopt the federal definition of this exemption.  However, the federal code of federal regulation implementing the federal definition was itself amended in 2004.  The new federal regulation restricted the exemption to employees in “professions where specialized academic training is a standard prerequisite.”   29 C.F.R. § 541.301(d) (2014).

Since the 2004 amendment of 29 C.F.R. § 541.301(d), every federal court considering whether pilots fall within the professional exemption has concluded that they do not, because commercial piloting does not require specialized academic training as a standard prerequisite. In Pignataro v. Port Authority, the Third Circuit Court of Appeals upheld a trial court’s determination that helicopter pilots did not qualify for the professional exemption under the Fair Labor Standards Act. The appellate court acknowledged the significant credentials required to become a Port Authority helicopter pilot: 2,000 hours of flying time, a commercial helicopter pilot certificate, a second class medical certificate, knowledge of the FAA’s rules and regulations, and a high school diploma or GED. But critically, none of those credentials involved the attainment of an advanced academic degree — the “pilots’ knowledge and skills were acquired through experience and supervised training as opposed to intellectual, academic instruction.” For this reason, the court concluded that the pilots were “not ‘learned professionals’ and . . . not exempt from the provisions of the [Fair Labor Standards Act].

Alaska Pilots are not exempt employees from the Overtime laws.  Accordingly, they are entitled to time and a half for any hours over 8 in a day or 40 in a week.  How many other professions don’t require specialized academic training as a standard perquisite?

Alaska Pilots Earn Overtime
Jerome Hoffman 2015.

No. 6966 S-14864/14883 Moody v. Royal Wolf Lodge

 

 

 

 

 

 

 

Alaska won’t Defend Employees in 1981 Claims

Sheldon Slade filed an action against an Alaska State Employee alleging a 42 U.S.C. 1981 claim.  That claim asserts that the employee discriminated against him. That claim cannot be asserted against a State. The Alaska Attorney General certified that the employee was acting within his scope of employment when Slade’s claim arose.  So, the State of Alaska agreed to defend the employee.

Alaska then moved to substitute the State for the employee using Alaska Statute the procedure in AS 09.50.253(c).  Once the State was substituted for the employee the State moved to dismiss the 1981 claim.  The Superior Court dismissed Slade’s 1981 claim.  Slade appealed.  The Alaska Supreme Court accepted the appeal on the issue of whether dismissal of the § 1981 claim violated the Supremacy Clause of the United States Constitution and Slade’s constitutional right to a jury trial.

Alaska statute AS 09.50.253(f) specifically precludes the use of the .253(c) procedure in the face of Constitutional claims.   Apparently this fact was pointed out in Slade’s opening brief or the Amicus Brief filed the U.S. Department of Justice.  Based on the opening briefs the Alaska Attorney General conceded defeat and sought dismissal of the appeal due to the concession.

The question remains, will Alaska not defend its employee’s acting in the scope of their employment?  Or, will Alaska defend them on the merits and simply not seek to dismiss the 1981 action after using the .253(f) procedure?

If you’ve been sued for a 1981 discrimination claim in your employment, you should seek independent counsel and not rely solely on your employer.

 

 

 

In the Supreme Court of the State of Alaska SHELDON E. SLADE, ) ) Petitioner, ) v. ) ) STATE OF ALASKA, DEPARTMENT ) OF TRANSPORTATION & PUBLIC ) FACILITIES, ) ) ) Respondent. ) ) Supreme Court No. S-15352 Order Order No. 87 – September 26, 2014 Trial Court Case # 3AN-11-08466 CI

 

Unsuccessful Public Contract Bid Process

Unsuccessful Public Contract Bid Process

The Alaska Supreme Court issued an opinion addressing a litigants complaints about an unsuccessful public contract bid process.  The full opinion can be found here.  There are a number of interesting issues addressed in the matter that have application outside the construction field. However, some factual background always makes the matter more memorable.

Factual Background

Back in 2002, Bachner Company, Inc. and  Bowers Investment  Company bid for the Alaska Department of Transportation office Building in Fairbanks.  They were not awarded the project.  So, Bachner filed bid protests alleging bid scoring irregularities in the scoring process.  Bachner lost the appeal, found here. Undeterred, Bachner mounted an attack on four of the committee members that voted in awarding the contract to a competitor.   Bachner’s claims were dismissed in part based on absolute immunity.  Bachner appealed that decision. The supreme court remanded the matter back to the state court, holding that the committee members were only entitled to qualified immunity and Bachner’s allegations of bad faith, if proven, would fall outside of qualified immunity. Decision found here.

Board Member Qualified Immunity

“Under a rule of qualified immunity, a public official is shielded from liability . . . when discretionary acts within the scope of the official’s authority are done in good faith and are not malicious or corrupt.”  Thus, “ ‘malice, bad faith or corrupt motive transforms an otherwise immune act into one from which liability may ensue.’ ” Qualified immunity “ ‘protect[s] the honest officer who tries to do his duty,’ ” but it does not protect “malicious, corrupt, and otherwise outrageous conduct.”  When committee members raise qualified immunity as a defense and testify that they acted in good faith, the committee members are entitled to judgment as a matter of law unless the plaintiffs can present some admissible evidence that creates an issue of fact as to whether the committee members acted in bad faith or with an evil motive.  The supreme court then analyzed Bachner’s evidence offered to support the claims and found that even in the light most favorable to Bachner that it did not have a case.

Public Service Litigant Attorney Fee Shield Denied

Having concluded that Bachner did not present a genuine issue for trial and that the statutory exclusive remedy rule barred the claim, the court awarded defendants their attorney fees.   defendants, who had been defended by the State attorneys didn’t actually incur any fees but was awarded $93,871.85.    In Alaska attorney fee awards are within the very broad discretion of the trial court.  They are seen as a powerful tool to discourage litigants from filing frivolous suits against the state and its employees.  An exception to the attorney fee award is available for public servant litigants.  The court denied Bachner public service litigant status “due to its significant financial interest in this case.”

Interstate Income Tax Allocation for Corporations involved in Interstate Commerce

Uniform Division of Income Tax Purposes Act

In 1959 Alaska adopted the Uniform Division of Income for Tax Purposes Act (UDITPA).  The  National Conference of Commissioners on Uniform State Laws drafted UDITPA in 1957 to bring unify state tax codes with respect to the interstate income tax allocations for corporations involved in interstate commerce.

The Multistate Tax Compact

In 1970 Alaska adopted the Multistate Tax Compact (MTC). The MTC restated the UDITPA with some minor changes. Alaska codified the MTC  at AS 43.19.010. Per AS 43.19.010, article IV, section 9, the portion of a business’s total income apportioned to Alaska is determined by “multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus the sales factor, and the denominator of which is three.” The property factor is the fraction of the taxpayer’s total property and the property attributable to the taxpayer’s business in Alaska; similarly, the sales and payroll factors are fractions of the taxpayer’s respective total sales and payroll attributable to the taxpayer’s business in Alaska.

Allocation Formula for Interstate Income Tax Allocation

Alaska Statute 43.19.010, article IV, section 18 permits DOR to adjust a taxpayer’s tax burden if the statutorily mandated apportionment does not “fairly represent the extent of the taxpayer’s business activity in this state.” Subsection 18(a) allows DOR to apportion the taxpayer’s income based on separate accounting, while subsection 18(c) allows DOR to add “one or more additional factors” to the apportionment formula. The statute effectively requires that any remedy DOR enforces under section 18 be “reasonable.”

Alaska Statute 43.20.144 modifies AS 43.19.010’s apportionment scheme for all taxpayers “engaged in the production of oil or gas . . . in this state or engaged in the transportation of oil or gas by pipeline in this state.”10 Alaska Statute 43.20.144(c) provides three different apportionment formulas for such taxpayers, depending on the nature of the taxpayer’s oil or natural gas business in Alaska. Under AS 43.20.144(c)(1), a taxpayer that only transports oil or gas in Alaska is subject to a two-factor formula based on property and sales. Under AS 43.20.144(c)(2), a taxpayer that only produces oil or gas in Alaska is instead subject to a two-factor formula based on property and extraction. Finally, under AS 43.20.144(c)(3), a taxpayer that both transports and produces oil or gas in Alaska is subject to a three-factor formula based on property, sales, and extraction.

Constitutional Challenges to Interstate Income Tax Allocation

Under the Due Process and Interstate Commerce Clauses of the United States Constitution, a state “may not tax value earned outside its borders.” The central inquiry is “whether the state has given anything for which it can ask return.” But the United States Supreme Court has long recognized that taxing multi-state companies using strict geographic accounting fails to account for “the many subtle and largely unquantifiable transfers of value that take place among the components of a single enterprise.” The unitary business/formula apportionment method of taxation is meant to remedy this problem. Under this method, a taxing state first identifies the unitary business of which the taxpayer’s in-state activities are a part and then apportions the income of this unitary business to the taxing state according to a set formula.

In order for a business to be unitary, and thus amenable to formula apportionment, there must be flows of value between the parent and subsidiary. The United States Supreme Court has distinguished these flows of value from the mere passive flow of funds that arises from any parent- subsidiary relationship. Three “factors of profitability” indicate a unitary business:

  1. functional integration,
  2. centralization of management, and
  3. economies of scale.

Unitary Business Activities Supports Interstate Income Tax Allocation

  1. In Container Corp. of America v. Franchise Tax Board, the United States Supreme Court held a paperboard company to be unitary with its subsidiaries where the parent provided the subsidiaries with loans and loan guarantees, occasional assistance in obtaining equipment and fulfilling personnel needs, and general oversight and guidance. I
  2. In Alaska Gold Co. v. State, Department of Revenue, the Alaska Supreme upheld a finding of functional integration where the parent approved capital expenditures greater than $100,000, handled salaries and payroll for executives, and guaranteed the subsidiaries’ lease obligations.  
  3. In Earth Resources Co. of Alaska v. State, Department of Revenue, the Alaska Supreme Court upheld a unitary business finding where the parent provided the subsidiary with loans and loan guarantees, a uniform pay scale, salary guidelines, and a uniform retirement plan. In each of these cases the courts examined the same sorts of administrative and financial services.
  4. And in Tesoro Corporations and Subs v. State, Department of Revenue, The Alaska Supreme Court upheld a unitary business finding where the parent exercised almost complete control over the credit facilities, budgeting, cash management, project selection, personnel, uniform services in the fields of environmental compliance and safety, information services and technology, internal auditing, legal affairs, insurance, risk management, purchasing, and accounting.

 

 Selection of Taxation Regime Requires More Planning than Identifing a lower Rate

Just because the accountants can identify a better tax scheme in the code doesn’t mean that you can take advantage of the code.  In Tesoro’s case the company wanted both the economies of scale in management and it wanted to reduce the taxes by more favorable allocations.  Unfortunately the presence of unitary business activities precluded the independent activity allocations.  Accordingly, they now face penalties and interest from taxes outstanding for more than a decade.

IRA Beneficiary Designation Mistakes

August 17, 2013

IRA Beneficiary Designation Mistakes

Americans held over $18 Trillion in IRA and other retirement assets. Retirement assets are protected from judgment execution in most states and grow tax deferred or tax free.  Putting money in has been a very wise decision. You still need to address your beneficiary designation issues to keep from losing all that value. Continue reading “IRA Beneficiary Designation Mistakes”

Alaska Wrestles with Veil Piercing

In an Alaska Supreme Court opinion issued on Friday, August 17th, the court wrestled with corporate veil piercing issues and their interplay with bankruptcy law.  Only corporations are normally liable for their debts.  The officers, shareholders and directors aren’t liable for corporate debts.  This concept of limited corporate liability is referred to as a veil.  Veil piercing refers to a court’s decision to disregard the veil and hold people behind the veil liable.   In a split decision the court ruled that the jury award for damages against the officer, shareholder and directors would stand.

The Claim

An employee sued a  corporation and its president for back wages in superior court. The corporation filed for Chapter 11 bankruptcy the very next day. The bankruptcy court discharged the corporation’s debts.  The superior court dismissed the corporation, but  allowed the employee to proceed to trial  against the president on a veil-piercing theory. A jury found that the corporation was a mere instrumentality of the president, and that the president owed the former employee wages under a bonus agreement. Continue reading “Alaska Wrestles with Veil Piercing”