Merrell et al v. Ketchikan Gateway Borough
Order, Order Dismissing Case
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ALASKA
JOERGEN SCHADE and ROBERT
Case No. 1:05-cv-0017 RRB
KETCHIKAN GATEWAY BOROUGH and
ORDER DENYING TEMPORARY
RESTRAINING ORDER AND
PRELIMINARY INJUNCTION AND
GRANTING MOTION TO DISMISS OR,
IN THE ALTERNATIVE, FOR
Before the Court are Plaintiffs Joergen Schade (“Schade”)
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
Ketchikan Gateway Borough (“Borough”) opposes and argues that
Clerk’s Docket No. 2
ORDER DENYING INJUNCTION AND GRANTING DISMISSAL - 1
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
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
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
Clerk’s Docket No. 25 at 26.
Complaint at ¶ 8.
Clerk’s Docket No. 25 at Ex. 1.
Id. at Ex. 4.
Complaint at ¶ 9.
Id. at ¶ 11.
ORDER DENYING INJUNCTION AND GRANTING DISMISSAL - 2
The minimum bid for
parcel B-17 and three other parcels was not met.10
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
On August 10, 2005, Merrell submitted an unsolicited
offer of $934, 830 for parcel B-17 along with a deposit check of
considered the parcels of property that did not sell at the
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
Id. at ¶ 12.
Id. at ¶ 13.
Clerk’s Docket No. 25 at Ex. 7 at 40-42.
ORDER DENYING INJUNCTION AND GRANTING DISMISSAL - 3
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
submitted a bid of $600,000.19
Pool later exercised his right of
first refusal and agreed to match the high offer submitted by
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
Id. at Ex. 8.
Clerk’s Docket No. 2 at Ex. D.
Clerk’s Docket No. 19 at ¶ 16.
Clerk’s Docket No. 25 at Ex. 12.
Clerk’s Docket No. 25 at Ex. 13.
ORDER DENYING INJUNCTION AND GRANTING DISMISSAL - 4
second bidding period distinguished between local and out-of-state
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
Mattel, Inc. v. Greiner and Hausser GMBH, 354 F.3d 857, 869
(9th Cir. 2003).
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).
Id. at 1300.
ORDER DENYING INJUNCTION AND GRANTING DISMISSAL - 5
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
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
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
Cabana v. Kenai Peninsula Borough, 50, P.3d 798, 803 (Alaska
2002)(citing AS 29.35.400).
Clerk’s Docket No. 22 at 4.
ORDER DENYING INJUNCTION AND GRANTING DISMISSAL - 6
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
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
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
Complaint at ¶¶ 32-34.
Clerk’s Docket No. 25 at Ex. 8.
Id. at Ex. 7 at 28.
Id. at 29-31.
Id. at 29.
ORDER DENYING INJUNCTION AND GRANTING DISMISSAL - 7
It is not for the courts to determine whether a
decision is a wise one.
Moreover, the Court does not have to agree
requirement that the Borough conduct the second round of bidding in
the same manner as it had conducted the first auction.
requirement is that the manner of sale be in the Borough’s best
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
However, the Bid Packet stated that, “It is further
supersede any and all advertising or printed material previously
There is no evidence that the Borough could not
alter the way in which the auction was conducted.
Plaintiffs argue that § 40.18.010(a) requires that all Borough
actions be done by resolution.
While the ordinance could be read
Norene v. Municipality of Anchorage, 704 P.2d 199, 202
Clerk’s Docket No. 25 at Ex. 7 at 19-20.
Clerk’s Docket No. 27 at Ex. C. at 2
ORDER DENYING INJUNCTION AND GRANTING DISMISSAL - 8
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
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
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
Plaintiffs argue that they will suffer irreparable
harm without the injunction because of the unique nature of real
However, Plaintiffs do not actually have property rights
to parcel B-17. Should the sale to Pool be invalidated, Plaintiffs
Clerk’s Docket No. 22 at 3.
ORDER DENYING INJUNCTION AND GRANTING DISMISSAL - 9
have no more rights to that land than any other citizen.
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
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
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
This argument should be given little weight because it
was raised initially in the reply brief.
Nevertheless, the facts
Clerk’s Docket No. 28 at 11.
Big Country Foods, Inc. v. Board of Educ. of the Anchorage
School Dist., 868 F.2d 1085, 1088 (9th Cir. 1989).
Clerk’s Docket No. 22 at 3.
ORDER DENYING INJUNCTION AND GRANTING DISMISSAL - 10
do not support Plaintiff’s argument that the bidding process was
unfair or non-competitive or otherwise legally flawed.
Plaintiff’s allegation of irreparable harm on this theory is weak.
Defendants should the injunction be granted.
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
There are other intangible harms caused by the cloud
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.
given the above, the likelihood of Plaintiffs succeeding on the
merits is not high.
municipality are: (1) assertion of a position by conduct or word;
Clerk’s Docket No. 25 at 10-11.
Id. at 11-12.
Clerk’s Docket No. 26 at ¶¶ 17-19.
ORDER DENYING INJUNCTION AND GRANTING DISMISSAL - 11
(2) reasonable reliance thereon; (3) resulting prejudice; and (4)
that such estoppel will be enforced only to the extent that justice
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
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
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.
It was Plaintiffs’ decision not to bid higher
subsequently lost the right of first refusal, which the Borough
Municipality of Anchorage v. Schneider, 685 P.2d 94, 97
Id. (quoting Fields v. Kodiak City Council, 628 P.2d 927,
931 (Alaska 1981)).
ORDER DENYING INJUNCTION AND GRANTING DISMISSAL - 12
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.
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
suspect class is involved, the rational basis test applies.
this test, the question is whether the classification is rationally
related to a legitimate government purpose.50
legislators are presumed to have acted within their constitutional
power despite the fact that, in practice, their laws result in some
Here, Plaintiffs cannot overcome their burden.
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
Clerk’s Docket No. 22 at 12.
City of New Orleans v. Dukes, 427 U.S. 297, 303 (1976).
McGowan v. Maryland, 366 U.S. 420, 425-26 (1961).
ORDER DENYING INJUNCTION AND GRANTING DISMISSAL - 13
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
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.
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
The Motion for a Temporary Restraining and Preliminary
Injunction at Docket 2 is therefore DENIED.
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
Alternative, for Summary Judgment must be granted as a matter of
ORDER DENYING INJUNCTION AND GRANTING DISMISSAL - 14
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,
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
Defendants’ Motion to Dismiss is therefore GRANTED.
ENTERED this 13th day of February, 2006.
RALPH R. BEISTLINE
UNITED STATES DISTRICT JUDGE
ORDER DENYING INJUNCTION AND GRANTING DISMISSAL - 15
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