Western Alaska Building & Construction Trades Council v. Inn-Vestment Associates of Alaska

909 P.2d 330, 3 Wage & Hour Cas.2d (BNA) 75, 1996 Alas. LEXIS 5

• Court: Alaska Supreme Court
• Decided: January 12, 1996
• Docket: S-5887, S-5968
• Status: Published

Opinions

OPINION

COMPTON, Justice.

I. INTRODUCTION

The Alaska Railroad Corporation (ARRC) entered into a general partnership with private investors, Inn-Vestment Associates of Alaska (IAA). The purpose of IAA was to finance, construct, and maintain the Comfort Inn (Inn) on ARRC land in the Ship Creek area of Anchorage. IAA contracted with A & A Construction and Development, Inc. (A & A) for construction of the Inn.

The primary question presented in this ease is whether ARRC’s involvement in IAA implicated the provisions of Alaska’s Little Davis-Baeon Act, AS 86.05, which requires that workers on public construction projects receive at least the current prevailing wage. AS 36.05.010. Both the Alaska Department of Labor (DOL) and the State Attorney General indicated that the project was subject to Alaska’s Little Davis-Bacon Act, and thus workers should be compensated in accordance with the statutorily mandated prevailing wage. In response, IAA and A & A sought declaratory relief in the superior court, asking that the project be deemed outside the purview of the statute. IAA, A & A, and the State each moved for summary judgment. After permitting the Western Alaska Building and Trades Council (Trades Council) to intervene, the superior court entered summary judgment in favor of IAA and A & A.¹ DOL and Trades Council appeal. We reverse.

II. FACTS AND PROCEEDINGS

In August 1991 ARRC received a 40% equity share in IAA, in exchange for contributing the land upon which to build the Inn. This partnership was formed for the purpose of financing, constructing, and maintaining the Inn. The remaining 60% of the partnership was owned by four groups of husband/wife investors who had previously participated together in other hotel development projects. ARRC is the largest individual shareholder.²

Initially ARRC had desired merely to lease its land to the investors and achieve a return based upon the market lease-value of the land. However, the investors urged ARRC to join them, become an equity partner, and execute all IAA loan obligations as a co-obligor. The investors’ stated rationale for this arrangement, which they had utilized numerous times before, was to encourage cooperation between the landowner and the other investors. ARRC agreed to the arrangement, believing that it could realize a greater return on its land if it participated in development of the land. By virtue of owning a forty percent partnership interest, ARRC is the only partner whose approval must be obtained for significant partnership decisions; such matters require a sixty-one percent majority approval vote.³ However, day-to-day operational authority is vested in IAA’s managing partner and a management company ⁴ that has been hired to operate the Inn.

ARRC undertook substantial obligations as a result of its partnership interest in IAA. ARRC leased the land, valued at $845,000, to IAA for $1.00 annually for a term of 35 years. A renewal term of an additional 35 years is available at IAA’s option. If ARRC divests itself of its partnership interest at any time, the lease reverts to market lease rates. In addition to contributing use of the land, ARRC and the other investors executed as co-borrowers and separate obligors a $3.9 million construction loan agreement. This is an obligation on which ARRC and the other investors are individually 100% liable.

ARRC does not “use, occupy, or directly control any part of the ... Inn project.” Instead, in announcing its participation in the project, ARRC enumerated three purposes for its involvement: (1) augmenting its passenger business, (2) creating a source of real estate income and (3) supporting its redevelopment of the Ship Creek area. Additionally, ARRC noted that it had a history of investing in hotels, and planned similar future investments since such enterprises benefit and support ARRC’s passenger business.

IAA contracted with A & A⁵ for construction of the Inn. The total costs of improvements to the land eventually amounted to approximately $3.8 million, including architectural, engineering, and general contractor fees.

In April 1992 the Attorney General issued an opinion, and DOL stated, that the project constituted “public construction” that was subject to the provisions of Alaska’s Little Davis-Bacon Act. IAA and A & A responded by seeking declaratory relief in the superior court and a ruling that the Act did not apply to the project.⁶ Motions for summary judgment were filed. Before the court ruled on the motions, the Trades Council and several of its individual members were permitted to intervene. The superior court granted IAA and A & A’s motion, holding that the Act did not apply. The court, however, provided no corresponding analysis, findings of fact, or conclusions of law. Additionally, the court awarded attorney’s fees to IAA and A & A in the amount of fifty percent of their actual fees, stating that the actual fees were reasonable and, that while efforts were “not ‘labor intensive’ in the sense of extensive discovery, motion practice or trial,” the lawyers had conducted extensive analysis of novel and complex issues. DOL and the Trades Council appeal both the superior court’s holding and its award of attorney’s fees.

III. DISCUSSION

A. Standard of Review

The issue in this case is whether the work performed in constructing the Inn constituted “public construction” subject to Alaska’s Little Davis-Bacon Act’s wage protection provisions. AS 36.05.010, 36.95.010. We are reviewing the superior court’s summary judgment holding that the Act does not apply. In City and Borough of Sitka v. Construction and General Laborers Local 942 644 P.2d 227 (Alaska 1982), we addressed the identical issue on appeal from a summary judgment holding. Id. at 230. We apply the same standard of review that was appropriate in Sitka: ‘We employ de novo review to the question of law raised by the summary judgment motion.” Id. at 230 n. 7 (citing Amnco Steel Corp. v. Isaacson Structural Steel Co., 611 P.2d 507, 516 n. 22 (Alaska 1980)).

B. Statutory Provisions

The dispute centers on the language of AS 36.05.010 and AS 36.95.010. Alaska Statute 36.05.010 provides:

A contractor or subcontractor who performs work on public construction in the state, as defined by AS 36.95.010, shall pay not less than the current prevailing rate of wages for work of a similar nature in the region in which the work is done. The current prevailing rate of wages for each pay period is that contained in the latest determination of prevailing rate of wages issued by the Department of Labor before the end of the pay period.

AS 36.05.010 (emphasis added). It is the phrase “public construction,” and whether it encompasses the Inn project, that is the basis for the dispute between the parties. Alaska Statute 36.95.010(3), which provides definitions applicable to AS 36.05.010, supplies some assistance in interpreting the phrase:

“[Pjublic construction” or “public works” means the on-site field surveying, erection, rehabilitation, alteration, extension or repair, including painting or redecorating of buildings, highways, or other improvements to real property under contract for the state, a political subdivision of the state,[⁷] or a regional school board.

AS 36.95.010 (emphasis added). Because this legislation “is a remedial act for the benefit of construction workers, [it] is therefore liberally construed to effectuate its beneficent purpose.” Drivers, Salesmen, Warehousemen, Milk Processors, Cannery, Dairy Employees and Helpers, Local Union No. 695 v. NLRB, 361 F.2d 547, 553 n. 23 (D.C.Cir.1966).⁸

C. Case Law

This court has interpreted the applicable statutory language in two prior cases: City and Borough of Sitka v. Construction and General Laborers Local 942, 644 P.2d 227 (Alaska 1982), and Alaska State Federation of Labor v. State, Department of Labor, 713 P.2d 1208 (Alaska 1986).

1. City and Borough of Sitka v. Construction and General Laborers Local 9Jf2

In Sitka, we concluded that a timber harvesting contract, which was a necessary precursor to a dam construction project, fell within the ambit of Alaska’s Little Davis-Bacon Act. We held that the legislation applied even though the timber agreement was separate from the dam construction contract. Clearing the land was an integral, preliminary part of dam construction. Sitka, 644 P.2d at 232. If the severance of the two contracts were permitted to defeat the application of the Act, this would have “impermis-sibly enable[d] a public agency to profit at the expense of workers engaged in activities instrumental to a public construction project.” Id. at 233.

2. Alaska State Federation of Labor v. State, Department of Labor

Our decision in Federation provides more specific guidance. The State Department of Community and Regional Affairs granted $1 million to the Central Council of Tlingit and Haida Indian Tribes of Alaska for the construction of a community hall. The question presented was whether the transfer of funds via the grant invoked the provisions of AS 36.05.010. Federation, 713 P.2d at 1210. As in the instant case, interpretation of AS 36.95.010(3)’s language, “under contract for the state,” was the central issue in the dispute. See id. at 1210. In analyzing the situation in Federation, we considered all circumstances surrounding the transaction, rather than focusing on one factor as determinative. In utilizing this approach, we stated: “The Act clearly envisions contracts between the state or a political subdivision, and a contractor for the construction of a specified public project.” Id. The contract involved a grant, i.e. the provision of funds and not construction itself. Id. While the structure would be used for a public purpose, the fact that the State would not retain control over or continue to fund the hall after construction belied the existence of a construction contract for the State. Id. Furthermore, the State supplied funds that constituted only twenty-five percent of the construction costs. Id. at 1211. In holding that this project fell outside the provisions of the Act, we explained:

[T]he state never owned or controlled, nor intended to control or own the [structure]. The project was not public construction. The Act defines public construction as construction ‘under contract for the state.’ This requires significant state involvement. The evidence, however, shows that the project was intended primarily for private purposes and private control. State involvement was indirect — funding through a grant — and relatively small — only about twenty-five percent of the total cost.

Id. at 1211 (emphasis added). Thus, Federation yields a list of factors for us to consider in determining whether the Inn project constitutes “public construction”: (1) the nature of the contract (whether the contract was for the provision of funds or for the construction itself); (2) whether the structure will be used for a public purpose; (3) whether the State will control the structure after construction; (4) whether the State will continue to fund the project after construction; and (5) the relative portion of project financing that the State supplied.⁹ Implicit in Federation is the notion that these facets of State involvement are not intended to be considered individually. Rather, they are to be weighed in total to determine whether there is “significant state involvement” in the project.¹⁰ See id.

3. Analysis of factors implicating “significant state involvement” in the construction project

a. Nature of the contract

This factor is less germane to the instant case than it was in Federation. In that case, the State was providing funds in the form of a grant. 713 P.2d at 1209. Here, there is a construction contract in which ARRC is a participant through its involvement with IAA.

Nevertheless, IAA argues that the existence of a contract between a State entity and a contractor is the “single most important factor” in determining if a project is “public construction.” IAA attempts to disguise State involvement in the building contract. IAA argues that it was the partnership that made the agreement, and that ARRC was not a party to the contract.

IAA’s characterization is accurate, but ARRC has the ability to significantly influence the actions of IAA. ARRC could have vetoed the construction contract, via the provision of the partnership agreement that requires a sixty-one percent majority approval of major decisions such as construction and financing of the project. Its participation in securing the funds, and the security it provided to the lenders, may be viewed as a significant factor in obtaining the loan. Additionally, ARRC’s involvement in the project resulted in substantial liability for ARRC. Each of these considerations indicates “significant state involvement.” Permitting IAA to avoid application of the Act based upon the State’s role being masked behind the partnership veil would defeat the “fundamental purpose” of the Little Davis-Bacon legislation: “to assure that employees engaged in public construction receive at least the prevailing wage.” City and Borough of Sitka v. Construction and Gen. Laborers Local 942, 644 P.2d 227, 232 (Alaska 1982). Furthermore, such a result would encourage similar arrangements in the future, arrangements that could be designed to circumvent the Act’s application. This would permit the situation this court warned against in Sitka and “impermissibly enable[] a public agency to profit at the expense of workers engaged in activities instrumental to a public construction project.” Id. at 233.

b. Public purpose of the project

The day after deciding to participate as a partner in IAA and its development of the Inn project, ARRC’s President and CEO issued the following statement to the Railroad’s employees:

I have some interesting news for you today: the Alaska Railroad Corporation plans on getting back into the hotel busi-ness_ The long-term benefits of this project are what make it most attractive: we augment our passenger business, create a source of real estate income and support our redevelopment of the Ship Creek area. We have a long history of owning hotels such as those that operated at Curry and at Healy. We foresee other hotels being built upon ARRC property, especially near Denali Park or at Fairbanks. I believe hotels are natural enterprises in which the Railroad should invest because they can benefit and support our passenger business. We’re convinced we’ll be able to provide better customer service and attract more customers by having convenient, affordable accommodations to market with rail trips.

As DOL asserts, this statement indicates that a public corporation was pursuing the Inn opportunity not only because it was a beneficial financial investment, but also because it would enhance the passenger portion of this public corporation’s business. Additionally, ARRC’s participation in the “hotel business” was an activity that was ongoing.

IAA’s position is that this view “confuse[s] the concept of public benefit with those of public purpose and use,” as the Inn is a private facility that is not open to public use. In support of this assertion, IAA, while recognizing the benefits of increased employment and downtown development, cites four cases for the proposition that “incidental” public benefits can be distinguished from public purposes. See Daniels v. City of Fort Smith, 268 Ark. 157, 594 S.W.2d 288, 240-41 (1980); Zickuhr v. Bowling, 97 Ill.App.3d 534, 53 Ill.Dec. 65, 69, 423 N.E.2d 257, 261 (1981); Gregory v. City of Lewisport, 369 S.W.2d 133, 135 (Ky.1963); Erie County Indus. Dev. v. Roberts, 26 Wage & Hour Cases (BNA) 627, 632, 94 A.D.2d 532, 540-41, 465 N.Y.S.2d 301, 306-07 (1983), aff'd, 63 N.Y.2d 810, 482 N.Y.S.2d 267, 472 N.E.2d 43 (1984). The cases that IAA cites for the “incidental” public benefits rationale all involved government-sponsored bond financing. Therefore, these courts, just as this court in Federation, were reviewing situations where the government was merely involved in the financing of a project. Three of these courts specifically mentioned that the governmental entity would retain little control of the project in the long term. Daniels, 594 S.W.2d at 240; Zickuhr, 53 Ill.Dec. at 69, 423 N.E.2d at 261; Erie County, 26 Wage & Hour Cases (BNA) at 631, -, 94 A.D.2d at 538-40, 465 N.Y.S.2d at 305-06.¹¹ These situations are distinguishable from the instant ease, since ARRC will continue to share in the financial future and management of the Inn.¹² Therefore, these cases are not persuasive.

Furthermore, IAA does not fully address DOL’s argument that the motivation for ARRC’s involvement is the enhancement of its passenger business, and not merely an investment opportunity. Trades Council cites Harris v. City of Cincinnati, 79 Ohio App.3d 163, 607 N.E.2d 15 (1992), for, among other things, that court’s recognition that where government involvement in a project is significantly motivated by enhancement of the downtown community (e.g., reconstructs ing/rehabilitating the slum, improving the area’s appearance, attracting businesses and consumers to the downtown), this is a factor in favor of finding that the construction is subject to prevailing-wage laws. Id. 607 N.E.2d at 20. Similarly, ARRC was attracted to the Inn project because of its effect on the Ship Creek area re-development project. While IAA’s brief does address Harris, it does not respond persuasively to Trades Council’s reliance on the case. Rather, IAA distinguishes Harris, based on the presence of some differing facts and a varying statutory scheme. While these distinguishing factors do exist, they do not nullify Harris’ implications regarding ARRC’s motivation for participating in the project, which in large measure is derived from ARRC’s desire to participate in the hotel industry, as compared to other projects, as a complement to its passenger business. This factor weighs in favor of finding that ARRC’s participation was in furtherance of a public purpose.

c.State control of the structure after completion

As discussed, by virtue of its forty percent share of IAA, ARRC enjoys the ability to veto any major partnership decisions. In minimizing the importance of this factor, IAA cites National Railroad Passenger Corp. v. Hartnett, 30 Wage & Hour Cases 977 (BNA), 169 A.D.2d 127, 572 N.Y.S.2d 386 (1991), for the proposition that the ability to veto certain project decisions is insufficient to constitute the requisite public control. Again, however, this was only one factor in that court’s analysis, and it is important to recognize that the veto authority there had a much more limited scope than in the instant case. See id. at 979, 169 A.D.2d at 130-32, 572 N.Y.S.2d at 388-89. Furthermore, the court also noted that it was the private corporation that bore the risk of project loss in the future. Id. In the case of IAA, it is ARRC that will absorb its proportionate share of any Inn deficit.

Additionally, ARRC can terminate the lease on one year’s notice at any time during the renewal term (i.e., after the first thirty-five years of the lease). Even though this would mean compensating IAA for the fair market value of improvements, this ability still represents a further degree of control for ARRC in the continuing operations of the Inn. If a private individual enjoyed this position in such a venture, his or her involvement would be considered “significant.” ARRC should receive a similar evaluation. This is the case even though authority for day-to-day operations is vested in a management company and the general partner. Considering ARRC’s posture in the partnership and the power ARRC wields, other IAA partners simply cannot ignore its desires.

d.State funding after construction

The State would be obligated to provide funds on a continuing basis only if the Inn ran a deficit, or the debts and obligations of the partnership required further contributions from partners.¹³ Therefore, analysis of this factor militates against finding “significant state involvement,” as it does not appear that ARRC would have continuing obligations. However, the existence of some ARRC responsibility for partnership losses and obligations makes this factor less persuasive.

e.Relative portion of financing supplied by the State

This factor weighs in favor of IAA’s position. IAA argues that even assuming that ARRC essentially provided the fair market value of the land in exchange for its partnership share, this contribution constitutes no more than 18.3%¹⁴ of the total project costs, an assertion that DOL and Trades Council do not refute. This is significantly less than the twenty-five percent of project costs — and, expressed in other terms, also less than the $1 million — that this court deemed “relatively small” in Federation. 713 P.2d at 1211. In this case, most of the funds needed for construction are being obtained from a commercial lender. However, ARRC’s participation in the lending process as a co-obligor with 100% liability for the loan amount, a fact that IAA concedes, cannot be overlooked. This pledge was undoubtedly a benefit to IAA in obtaining the loan. Furthermore, it is again important to remember the context of Federation: a grant contract, with indirect State funding, and no State obligation to retain control or fund the project upon completion. The percentage of State funding factor alone is not determinative. It is the total mixture of circumstances which must be reviewed in determining if there is “significant state involvement.”

IV. CONCLUSION

The totality of circumstances indicates that the State’s role provides the significant involvement that this court has deemed necessary in order to conclude that a project is “public construction” subject to Alaska’s Little Davis-Bacon Act. See id. at 1211. ARRC was a party to a construction contract via its significant participation in IAA. ARRC undertook a significant liability that was of benefit to IAA in obtaining a construction loan for millions of dollars. ARRC’s involvement in the project was due not only to an investment incentive, but also due to ARRC’s desire to augment its passenger business and further the development of the Ship Creek area. Additionally, ARRC has pursued investment in hotels in a continuing course of action. Consistent with this role, ARRC will continue to participate in the financial future of the Inn. In view of its ability to veto significant, non-routine partnership transactions, ARRC wields substantial power in the functioning of IAA. Even though ARRC’s portion of the total project financing was small, the other enumerated considerations indicate that State involvement in the Inn project was “significant.” Therefore, the provisions of Alaska’s Little Davis-Bacon Act that mandate payment of prevailing wages apply. This fulfills the legislation’s fundamental purpose: “to assure that employees engaged in public construction receive at least the prevailing wage.” City and Borough of Sitka v. Construction and Gen. Laborers Local 942, 644 P.2d 227, 232 (Alaska 1982).

The judgment of the superior court is REVERSED and the case REMANDED to the superior court with directions to enter summary judgment in favor of the appellants.¹⁵

1 . IAA and A & A filed a single appellees’ brief in this court. Therefore, references to the appel-lees’ arguments will be addressed as those of IAA, but represent A & A's also.

2 . The four husband/wife investment teams owned 23%, 12%, 18% and 7%, respectively, of IAA.

3 . IAA maintains that all partners enjoy the ability to veto fundamental partnership decisions. However, IAA’s citation to the record does not confirm this assertion.

4 . The husband/wife investor groups that comprise the 60% of IAA not owned by ARRC also own the management company.

5 . A & A is owned by a husband and wife team who are also partners in IAA.

6 . In their briefs, the parties did not specify, or provide a citation to the record for, the incremental wage costs that IAA would have incurred if it had complied with the Act. During oral argument, the Trades Council's attorney maintained that in an affidavit that ARRC had submitted to the superior court, the incremental cost of compliance was estimated at $500,000 to $600,-000.

7 . Alaska Statute 36.95.010(6) additionally provides that “ ‘state or political subdivision of the state' means any state department, state agency, state university, borough, city, village, school district or other state subdivision.”

8 . "The fundamental purpose of [Alaska's] Little Davis-Bacon is to assure that employees engaged in public construction receive at least the prevailing wage,” the same purpose as under the federal legislation. City and Borough of Sitka v. Construction and Gen. Laborers Local 942, 644 P.2d 227, 232 & n. 11 (Alaska 1982). This court has held that because the Federal Davis-Bacon Act is the model for Alaska’s legislation, federal precedent is persuasive in the absence of decisions from Alaska’s courts. Id. at 231.

9 . This list of factors is not comprehensive. Situations may demand consideration of additional factors. Furthermore, these illustrative factors need not necessarily be given equal weight. We recognize that the two factors relied on by the dissent (nature of ownership of building or work, and nature of use of the building or work) will often be particularly important or even disposi-tive in many, but not all, cases.

10 . Cases from other jurisdictions are of only limited assistance in resolving this dispute. Varying combinations of aspects of state involvement and differing statutory schemes mean that no one case is likely to be persuasive. See Pen-field. Mechanical Contractors v. Roberts, 119 Misc.2d 105, 462 N.Y.S.2d 393, 395 n. 1 (N.Y.Sup.Ct.1983) (“Authority from other jurisdictions is of limited value due to differing statutory schemes.") aff'd, 98 A.D.2d 992, 470 N.Y.S.2d 1021 (1983) aff'd, 63 N.Y.2d 784, 481 N.Y.S.2d 72, 470 N.E.2d 870 (1984).

11 . The dissent relies on National Railroad Passenger Corp. v. Hartnett, 30 Wage & Hour Cases 977, 169 A.D.2d 127, 572 N.Y.S.2d 386 (BNA) (1991). Like the cases cited by IAA, the National Railroad court also found it important that future financial loss risk, physical destruction, and operational profits all resided with private interests and not the State. Id. at 979, 169 A.D.2d at ISO-32, 572 N.Y.S.2d at 388-89. "These are the factors that have repeatedly been held sufficient to preclude any determination that a given project constitutes a public works_" Id. In the instant case, these factors are not present, as ARRC shares in these aspects of the operation via its partnership interest.

12 . This factor is especially persuasive. Where a State entity shares in operational profits and losses as a result of its participation in a project, this weighs heavily in deeming a project “public construction”; the benefits or costs of such participation will accrue to the State.

13 . In fact, ARRC already provided $485,000, pursuant to a capital call, to fund interim construction costs before the approval of the construction loan. These funds were to be returned once the construction loan closed.

14 . $845,000 fair market value of land — ($3,764,732 construction costs + $845,000) = 18.3%.

15 . Because of our disposition of this case, the award of attorney's fees is vacated and this matter remanded for an appropriate award of attorney’s fee to the appellants.