Merrell et al v. Ketchikan Gateway Borough

Filing 47

Order, Order Dismissing Case

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ALASKA
JOERGEN SCHADE and ROBERT
MERRELL,

Case No. 1:05-cv-0017 RRB

Plaintiffs,
vs.
KETCHIKAN GATEWAY BOROUGH and
CHARLES POOL,
Defendants.
I.

ORDER DENYING TEMPORARY
RESTRAINING ORDER AND
PRELIMINARY INJUNCTION AND
GRANTING MOTION TO DISMISS OR,
IN THE ALTERNATIVE, FOR
SUMMARY JUDGMENT

INTRODUCTION
Before the Court are Plaintiffs Joergen Schade (“Schade”)

and

Robert

Merrell

(“Merrell”)

with

a

Motion

for

Temporary

Restraining Order and Preliminary Injunction against Defendants to
prevent the transfer of land between Defendants “from taking place
until an evidentiary hearing can be held and preliminary injunctive
relief can be considered pending trial on the merits.”1

Defendant

Ketchikan Gateway Borough (“Borough”) opposes and argues that

1

Clerk’s Docket No. 2

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1:05-CV-0017 RRB

Plaintiffs have not met their burden.2
dismiss Plaintiffs’ Complaint.3

The Borough also moves to

Defendant Charles Pool (“Pool”)

opposes Plaintiffs’ motion and supports the Borough’s Motion to
Dismiss.
II.

FACTS
This is an action brought by Plaintiffs seeking to

prevent the transfer of property from the Borough to Pool.4
In March of 2005, the Borough Assembly adopted Resolution
No. 1881 to sell certain properties owned by the Borough, including
parcel B-17, at a public outcry auction.5

The minimum bids for the

parcels were set at the Borough’s tax assessed value.6

Notice of

the auction was published on the internet and in publications in
multiple cities, including cities in the State of Washington.7
On August 4, 2005, the Borough held the auction.8
attended this auction, but Merrell did not.9

2

Clerk’s Docket No. 25 at 26.

3

Id.

4

Complaint at ¶ 8.

5

Clerk’s Docket No. 25 at Ex. 1.

6

Id.

7

Id. at Ex. 4.

8

Complaint at ¶ 9.

9

Id. at ¶ 11.

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1:05-CV-0017 RRB

Schade

The minimum bid for

parcel B-17 and three other parcels was not met.10

The Borough

officials in charge of the auction then decided and announced that
the auctioneer would solicit bids on each of the remaining parcels,
the highest of which would be presented to the Borough Assembly as
an offer to purchase that parcel.11
high bid of $600,000.12

For parcel B-17, Pool made a

Neither Schade nor Merrell bid on this

parcel.
On August 10, 2005, Merrell submitted an unsolicited
offer of $934, 830 for parcel B-17 along with a deposit check of
$50,000.
On

August

15,

2005,

the

Borough

Assembly

met

and

considered the parcels of property that did not sell at the
auction.

The Borough Assembly decided to offer the unsold parcels

for sale by open bid for a period of 30 days.13

The minimum bid for

each parcel was set at the amount of the high offer for that parcel
made at the auction.14

Further, the persons who made the high

offers at the auction were given a right of first refusal to

10

Id. at ¶ 12.

11

Id.

12

Id. at ¶ 13.

13

Clerk’s Docket No. 25 at Ex. 7 at 40-42.

14

Id.

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1:05-CV-0017 RRB

purchase the property.15

This plan was adopted by the Borough

Assembly in Resolution 1906 on September 6, 2005.16
The Borough Assembly accepted bids on these parcels until
September 20, 2005. Merrell submitted a bid of $810,000 for parcel
B-17, effectively withdrawing his earlier offer of $934,830.17
Schade

submitted

a

bid

of

$815,000

submitted a bid of $600,000.19

for

parcel

B-17.18

Pool

Pool later exercised his right of

first refusal and agreed to match the high offer submitted by
Schade.20

The Borough agreed to sell the property to Pool.21
Schade and Merrell now bring suit, alleging (1) that the

Borough abused its discretion by acting in an arbitrary and
capricious manner with respect to the sale; (2) that the Borough
should be estopped from proceeding with the sale to Pool; and (3)
that Schade and Merrell were denied equal protection because the

15

Id.

16

Id. at Ex. 8.

17

Clerk’s Docket No. 2 at Ex. D.

18

Clerk’s Docket No. 19 at ¶ 16.

19

Clerk’s Docket No. 25 at Ex. 12.

20

Clerk’s Docket No. 25 at Ex. 13.

21

Id.

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second bidding period distinguished between local and out-of-state
bidders.22
III. DISCUSSION
The burden is on the moving party to demonstrate that
they are entitled to a temporary restraining order.23 Such an order
is appropriate if “the plaintiff demonstrates either a combination
of probable success on the merits and the possibility of injury or
that serious questions are raised and the balance of hardships tips
sharply in his favor.”24

These tests are points on a sliding scale

in which the required degree of irreparable harm increases as the
probability of success decreases.25

22

Complaint.

23

Mattel, Inc. v. Greiner and Hausser GMBH, 354 F.3d 857, 869
(9th Cir. 2003).
24

Earth Island Inst. v. United States Forest Service, 351 F.3d
1291, 1298 (9th Cir. 2003)(citation and internal quotations
omitted). This phrasing of the test is the “alternative test.”
Under the “traditional criteria,” “a plaintiff must show (1) a
strong likelihood of success on the merits, (2) the possibility of
irreparable injury to plaintiff if preliminary relief is not
granted, (3) a balance of hardships favoring the plaintiff, and (4)
advancement of the public interest (in certain cases).” Id. at
1298. (citation and internal quotations omitted).
25

Id. at 1300.

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A.

Abuse of Discretion Claim
In Alaska, the Borough’s power to manage and dispose of

borough land is to be liberally construed.26 There is a presumption
“that proceedings of the governing body of a municipality have been
conducted in accordance with the law.”27 Plaintiffs cannot overcome
this presumption merely by pointing out anomalies in the actions by
the Borough.28
Here, a Borough ordinance provides that the Borough may
sell real property “when and upon such terms and conditions as the
assembly, in its sole discretion, determines by resolution to be in
the best interest of the borough.”29 The Plaintiffs argue that this
language does not shield the Borough when it makes arbitrary and
capricious decisions and that the Borough made no best interest
determination.30

The alleged arbitrary and capricious decisions

appear to be (1) receiving bids at the auction below the set
minimum; (2) adopting these bids as the minimum bids for the second

26

Cabana v. Kenai Peninsula Borough, 50, P.3d 798, 803 (Alaska
2002)(citing AS 29.35.400).
27

Id.

28

Id.

29

Section 40.18.010(a).

30

Clerk’s Docket No. 22 at 4.

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round of bidding; and (3) granting the high bidder at the first
auction the right of first refusal in the second round of bidding.31
After the first auction, the Borough made findings that
reopening the bidding for those parcels that did not sell in the
initial auction was in the Borough’s best interests.32

While

debating Resolution 1906, there was discussion that using the high
bid from the first auction as the new minimum bid was necessary so
as “to never take points off the scoreboard.”33

In addition, the

Borough Assembly discussed providing the original high bidders with
a right of first refusal since they had made the high bids
originally.34

There was little discussion of why a right of first

refusal was given, except that it had been in a previous auction
involving “Alaska Housing.”35

Nevertheless, it was clearly the

Borough’s intent to proceed in this fashion.
While Plaintiffs may argue that there were other options
available to the Assembly, including Merrell’s bid submitted after
the auction, that does not make the Borough’s decision concerning
how

to

conduct

the

second

round

of

31

Complaint at ¶¶ 32-34.

32

Clerk’s Docket No. 25 at Ex. 8.

33

Id. at Ex. 7 at 28.

34

Id. at 29-31.

35

bidding

Id. at 29.

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arbitrary

and

capricious.

It is not for the courts to determine whether a

decision is a wise one.
with

the

decision

Moreover, the Court does not have to agree

made

by

the

Borough.

And,

there

is

no

requirement that the Borough conduct the second round of bidding in
the same manner as it had conducted the first auction.

The only

requirement is that the manner of sale be in the Borough’s best
interest,

as

determined

by

the

Borough.36

Here

there

is

no

indication that the Borough’s decision regarding how to proceed
with the sale was adverse to the Borough’s interest at the time the
decision was made.
Plaintiffs also argue that while the change during the
auction to accept bids lower than the assessed value was announced,
no notice was provided to those people who did not attend the
auction.37

However, the Bid Packet stated that, “It is further

understood

that

any

announcements

made

the

day

of

the

sale

supersede any and all advertising or printed material previously
distributed.”38

There is no evidence that the Borough could not

alter the way in which the auction was conducted.

However,

Plaintiffs argue that § 40.18.010(a) requires that all Borough
actions be done by resolution.

While the ordinance could be read

36

Norene v. Municipality of Anchorage, 704 P.2d 199, 202
(Alaska 1985).
37

Clerk’s Docket No. 25 at Ex. 7 at 19-20.

38

Clerk’s Docket No. 27 at Ex. C. at 2

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that way, it also could mean that the decision to act must be by
resolution, but not the actual process of selling the land.
Regardless, it was Merrell’s choice not to attend the auction and
Schade’s choice not to submit a bid after the auction rules were
changed.

Their failed gamble to acquire the property outside of

the auction process does not invalidate the Borough’s actions.
Plaintiffs make much of the fact that there is no
evidence that the Borough Assembly considered the offer made by
Merrell outside of either official bidding process. However, there
is no requirement that the Borough Assembly consider an offer
submitted outside of the formal processes.

While this may have

been the highest bid, Merrell himself never matched it during
either

official

bidding

process.

Given

Merrell’s

lack

of

participation in the first auction, and the fact that Schade outbid him in the second bidding process, he also appears to lack
standing to complain about the award to Pool, for Merrell has no
legitimate claim to the property.
Second, the Court considers the probability of harm to
both parties.

Plaintiffs argue that they will suffer irreparable

harm without the injunction because of the unique nature of real
estate.39

However, Plaintiffs do not actually have property rights

to parcel B-17. Should the sale to Pool be invalidated, Plaintiffs

39

Clerk’s Docket No. 22 at 3.

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have no more rights to that land than any other citizen.

If the

sale process in Resolution 1906 is found invalid, discretion
remains with the Borough to determine whether or not to offer the
property for sale again and to determine the procedure for that
sale.
In their reply brief, Plaintiffs also argue that the
denial of their right to participate in a fair bidding process
establishes irreparable harm.40

This is a right that has been

recognized in some out-of-circuit district courts, but Plaintiffs
do not cite to any Ninth Circuit opinion recognizing such a right.
In fact, the Ninth Circuit refused to consider such an argument
because it was raised for the first time in a reply brief.41

Here,

Plaintiffs initial motion asserted that Plaintiffs would suffer
irreparable harm because of the unique nature of real estate.42
Plaintiffs also alleged that the public would benefit from a free
and fair competitive bidding process, but Plaintiffs did not allege
that they personally would be irreparably harmed without such a
process.43

This argument should be given little weight because it

was raised initially in the reply brief.

40

Nevertheless, the facts

Clerk’s Docket No. 28 at 11.

41

Big Country Foods, Inc. v. Board of Educ. of the Anchorage
School Dist., 868 F.2d 1085, 1088 (9th Cir. 1989).
42

Clerk’s Docket No. 22 at 3.

43

Id.

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do not support Plaintiff’s argument that the bidding process was
unfair or non-competitive or otherwise legally flawed.

Therefore,

Plaintiff’s allegation of irreparable harm on this theory is weak.
In

contrast,

there

are

specific

Defendants should the injunction be granted.

harms

facing

the

First, the Borough

would lose Pool’s purchase price, lose revenue it could have earned
on those funds, and is faced with the costs of maintaining the
property.44
on

the

There are other intangible harms caused by the cloud

transaction,

insurance.45

including

problems

with

obtaining

title

Second, Pool’s negotiations with potential lessees is

impeded, an impediment that will only increase if the sale does not
close within the near future because of necessary applications to
the Army Corps of Engineers to improve the property.46
Thus, as to the first cause of action, the balance of
hardships tips sharply in favor of the Defendants.

Furthermore,

given the above, the likelihood of Plaintiffs succeeding on the
merits is not high.
B.

Estoppel Claim
In

Alaska,

the

requirements

for

estoppel

against

a

municipality are: (1) assertion of a position by conduct or word;

44

Clerk’s Docket No. 25 at 10-11.

45

Id. at 11-12.

46

Clerk’s Docket No. 26 at ¶¶ 17-19.

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(2) reasonable reliance thereon; (3) resulting prejudice; and (4)
that such estoppel will be enforced only to the extent that justice
so requires.47

Ordinarily, estoppel is a defense that “applies

where a property owner receives a permit that was beyond the power
of an administrative officer to grant, the owner detrimentally
relies on the validity of the permit, and the local government
attempts to revoke the permit and then enforce the ordinance.”48
Plaintiffs do not provide any support for using it as an offensive
weapon.
Even if allowed, it is not clear whether Plaintiffs
actually were prejudiced by the use of the high bids in the first
auction as minimum bids with rights of first refusal in the second
bidding round.

At the first auction, it was not only Plaintiffs

who did not know of this plan, Pool also was unaware.

There was no

notice at the first auction concerning the second bidding process
because that process was not determined until after the close of
the first auction.
than

Pool

at

this

It was Plaintiffs’ decision not to bid higher
initial

auction.

As

low

bidders,

they

subsequently lost the right of first refusal, which the Borough

47

Municipality of Anchorage v. Schneider, 685 P.2d 94, 97
(Alaska 1994).
48

Id. (quoting Fields v. Kodiak City Council, 628 P.2d 927,
931 (Alaska 1981)).
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determined should go to the high bidder.

While this development

was unforseen, it cannot be categorically considered to be unfair.
Therefore, the claim of estoppel has an even lower chance
of success than the first claim.

Given that the balance of

hardships remains the same, Plaintiffs have not met their burden
for a temporary injunction on this claim either.
C.

Equal Protection Claim
Plaintiffs argue that Resolution 1906 “denied Schade and

Merrell, as out-of-state bidders, equal protection of the law in
comparison with local bidders, like Pool, who had submitted the
high, yet below minimum, bids in an earlier auction.”49

Because no

suspect class is involved, the rational basis test applies.

Under

this test, the question is whether the classification is rationally
related to a legitimate government purpose.50

Further, “State

legislators are presumed to have acted within their constitutional
power despite the fact that, in practice, their laws result in some
inequality.”51
Here, Plaintiffs cannot overcome their burden.

While it

appears that only a local resident had the right of first refusal
in the second bidding period, this was due to his status as high

49

Clerk’s Docket No. 22 at 12.

50

City of New Orleans v. Dukes, 427 U.S. 297, 303 (1976).

51

McGowan v. Maryland, 366 U.S. 420, 425-26 (1961).

ORDER DENYING INJUNCTION AND GRANTING DISMISSAL - 13
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bidder in the first auction, not to his place of residence.
Further, the attendance at the first auction was not limited to
local residents only, as evidenced by Schade’s attendance and the
Borough’s advertisements of the auction in publications outside
Alaska.

In passing Resolution 1906, there was no mention made of

the residency of any of the bidders.
The Borough had a rational basis for treating the high
bid at the first auction as the minimum bid in the second round and
allowing those bidders the right of first refusal - it guaranteed
the Borough a minimum sale while at the same time working to
increase their profits.
IV.

CONCLUSION
Considering all the factors set forth above, the Court

concludes that Plaintiffs have failed to meet their burden or
establish facts that would justify a temporary injunction in this
matter.

The Motion for a Temporary Restraining and Preliminary

Injunction at Docket 2 is therefore DENIED.
Moreover,

a

thorough

review

of

the

documents

filed

herein, including the various attachments, and viewing the facts in
a light most favorable to Plaintiffs, leads the Court to conclude
that Plaintiffs have failed to state a claim upon which relief can
be

granted.

Therefore,

the

Motion

to

Dismiss

or,

in

the

Alternative, for Summary Judgment must be granted as a matter of

ORDER DENYING INJUNCTION AND GRANTING DISMISSAL - 14
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law.

The result would be the same whether treated as a Motion to

Dismiss or a Motion for Summary Judgment. Defendant is entitled to
utilize any legal method it desires to sell its property.
present case, although, in hindsight,

In the

the path followed from the

initial decision to sell the property to the ultimate sale was not
a smooth one, and may have even been clumsy, the Court concludes,
for the reasons stated above, that it did not involve arbitrary or
capricious conduct and did not violate the equal protection clause
of

the

Constitution.

The

sale

must

therefore

be

upheld.

Defendants’ Motion to Dismiss is therefore GRANTED.
ENTERED this 13th day of February, 2006.

//s//
_____________________________
RALPH R. BEISTLINE
UNITED STATES DISTRICT JUDGE

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