author: CARNEY, Justice.

text:
    Gerald MARKHAM, Appellant, v. KODIAK ISLAND BOROUGH BOARD OF EQUALIZATION, Appellee.
    Supreme Court Nos. S-15853/16663
    Supreme Court of Alaska.
    May 24, 2019
    Gerald W. Markham, Kodiak, Appellant.
    Joseph N. Levesque and Shane E. Levesque, Levesque Law Group, LLC, Anchorage, for Appellee.
    Before: Winfree, Maassen, Stowers, and Carney, Justices. [Bolger, Chief Justice, not participating.]
   CARNEY, Justice.

I. INTRODUCTION

In 2013 and 2014 attorney Gerald Markham applied for a senior citizen tax exemption on his residential property in Kodiak. The Borough assessor denied the applications due to Markham's prolonged absences from Alaska. When given the opportunity to prove his absences were allowed under the applicable ordinance, Markham refused to provide corroborating documentation. He appealed the denials to the Borough Board of Equalization, which affirmed the denials. He appealed the Board's decisions to the superior court. The superior court dismissed the 2013 appeal for failure to prosecute, denied the 2014 appeal on the merits, and awarded attorney's fees to the Borough. Markham appeals. We affirm the superior court's 2013 dismissal and the Board's 2014 denial on the merits, but vacate the superior court's award of attorney's fees and remand for further findings.

II. FACTS AND PROCEEDINGS

A. Kodiak Island Borough's Property Tax Exemption For Senior Citizens

The Alaska legislature has enacted a mandatory property tax exemption for residents who are older than 65. This exemption provides that "real property owned and occupied as the primary residence and permanent place of abode by a resident who is ... 65 years of age or older ... is exempt from taxation on the first $ 150,000 of the assessed value of the real property." The statute allows a municipality to determine eligibility for the exemption by requiring that an individual meet the eligibility requirements of the Permanent Fund Dividend (PFD) program. The Kodiak Island Borough passed an ordinance incorporating the PFD eligibility criteria into its eligibility criteria for the property tax exemption.

An individual applying for a PFD who is not physically present in Alaska during the qualifying year must prove that the absence was allowed by statute. Alaska Statute 43.23.008(a) lists the allowable absences, including: providing medical care to certain family members "with a critical life-threatening illness" who must travel out of state to receive doctor-recommended treatment; "accompanying another eligible resident who is absent for a reason permitted [by the statute];" and "for any reason consistent with the individual's intent to remain a state resident, provided the absence or cumulative absences do not exceed ... 45 days in addition to any absence or cumulative absences" claimed under the statute.

Gerald Markham has been an attorney since 1972. In 2013 and 2014, Markham - then over the age of 65 - applied for a property tax exemption from the Kodiak Island Borough for a home he owns in the Borough. Markham also owns a home in Anchorage, two homes in Washington - one of which has been Markham's contact address throughout this litigation - and a home in Arizona.

On his 2013 application Markham noted that the last time he received a PFD was in 2004. On his 2014 application he noted that he did not qualify for the PFD and did not intend to apply for it. The Borough assessor denied the 2013 application because Markham had not provided "persuasive evidence" that, even though he had not applied for a PFD, he still met its eligibility criteria and would therefore qualify for the tax exemption. The denial letter invited him to provide additional documentation if he wished to have the decision reconsidered. In 2014 the assessor again offered him the opportunity to provide additional documentation to prove his eligibility. The 2014 letter did not explicitly deny Markham's application, but reminded him of the need to satisfy the PFD's eligibility requirements. Each letter enclosed a "PFD Eligibility Supplemental Questionnaire" and instructions that if he completed it and satisfied the criteria, the assessor's office would reconsider the denial.

Markham returned the 2013 supplemental questionnaire, noting he had been absent from Alaska for approximately ten months in 2012: August 2011 through June 2012; August 2012 through December 9, 2012; and December 21, 2012 through "present" (February 25, 2013). He claimed that all three time periods were allowable absences because he "[a]ccompanied an eligible Alaska [r]esident as the resident's spouse," "[v]acationed," "[c]ared for a parent, spouse, sibling, child, or stepchild with a critical life-threatening illness that required the ill individual to leave Alaska for treatment," and left the state for "[o]ther reasons, including business." Markham also included a 12-page letter outlining why he believed he was an Alaska resident, but he did not include any documentation of the reasons for his absences. The assessor again denied his application, and he appealed to the Borough's Board of Equalization.

Markham asked to attend his appeal hearing before the Board by telephone. The Board denied his request because the Borough Code did not permit it. Markham therefore appointed another Kodiak resident to appear as his representative. After hearing from the representative, considering Markham's written materials, and noting Markham's failure to provide supporting documentation for his absences, the Board affirmed the assessor's denial.

Markham also returned the 2014 supplemental questionnaire, listing absences totaling approximately 279 days between February and June 2013 and from August 2013 through mid-February 2014. He again claimed his absences were allowable because they were for "continuous medical treatment," "[v]acation[ ]," "car[ing] for a parent, spouse, sibling, child, or stepchild with critical life-threatening illness that required the ill individual to leave Alaska for treatment," and "[o]ther reasons, including business." He emailed the assessor declining to provide documentation, asserting that it was confidential and he was concerned it would be subject to public disclosure. The assessor again denied the application; Markham again appealed to the Board.

Markham requested to appear at the Board hearing by telephone and was again denied based on the Borough Code. Markham then sent another representative to appear on his behalf to the hearing. The Board affirmed the assessor's denial.

B. 2013 Superior Court Proceedings

In June 2013 Markham appealed the Board's denial of his 2013 application in the Anchorage superior court. His statement of points on appeal claimed that the Board abused its discretion by applying the PFD eligibility criteria to him when he alleged that the Borough failed to adopt procedures for applying the PFD eligibility criteria as required by AS 29.45.030(f) ; that the Board therefore did not have authority to hear his appeal or require him to satisfy the PFD eligibility criteria; that the Board violated his due process rights; that AS 29.45.030(f) violated his constitutional right to equal protection; and that AS 29.45.030(f) violated his constitutional right to travel.

The Board moved to change venue, arguing that Kodiak was the proper venue. Markham opposed the motion, but the court granted the motion in November 2013, changing venue to Kodiak.

On July 11, 2014, the Kodiak superior court gave Markham an August 11 deadline to file his opening brief. Prior to and shortly after the change in venue, Markham filed a series of documents - each opposed by the Board - seeking to supplement the record and opposing the Board's motion for change of venue and motion to stay. Among the documents Markham filed was a "Petition for Reconsideration of February 10 and 18, 2014 Orders In Light of Intervening Alaska Supreme Court Decision." In the conclusion of his petition Markham sought "a stay of this court's briefing order" until he could review the Board's records and move to supplement the record on appeal. The Board opposed the petition, noting that it did not comply with appellate rules, but did not address the request for stay. The superior court denied the petition in late September, but likewise did not address Markham's request for stay.

The Board moved to dismiss Markham's appeal on October 23. It cited Appellate Rules 612, 503, and 511.5, and pointed out that Markham's brief was more than 60 days delinquent. Markham opposed the motion, claiming that he had requested a stay and that the court's September 29 order denying his petition "[had] not come to his immediate attention" because it was mailed to his Kodiak address, not his Washington address where he was residing and which he had listed with the court as his contact address. The court denied the motion to dismiss, explaining that before the court could dismiss an appeal for failure to comply with the briefing schedule, the court must inform the appellant of the pending dismissal and allow an additional 14 days to file the brief.

The court gave Markham an additional 14 days from November 17 to file his brief. Markham mailed his brief on December 1. On December 8, 2014, the court dismissed the appeal because it had not received Markham's brief within the allotted 14 days.

Markham moved for reconsideration, arguing that his brief was timely because Appellate Rule 502(d) recognizes the date of mailing as the date of filing. The Board responded that Markham's brief was due on December 1, and that Appellate Rule 602(j)"unambiguously" required him to file the brief at the Kodiak superior court on or before the due date. Markham replied that he had relied on an " 'older' set of Alaska Court Rules," which predated the amendment of Appellate Rule 602(j). He also argued that he acted reasonably, that there was no prejudice to the Board in accepting his late-filed brief, and that he had shown just cause. The superior court denied the motion to reconsider. The court's order stated that the case was clearly governed by Appellate Rule 602(j) and Markham's brief was therefore untimely. It rejected Markham's argument that the Board had suffered no prejudice, found that there was no justification for his late filing, and found that he "continuously flouted the Rules of Procedure during his appeal." The court then invited the Board to file a proposed bill of costs.

The Board requested monetary sanctions or attorney's fees totaling $ 32,551.65. Markham opposed the motion, arguing that he was a "public interest constitutional litigant." In March 2015 the court awarded the Board $ 7,438.93 in attorney's fees and costs.

Markham appealed the dismissal and attorney's fees and costs award.

C. 2014 Superior Court Proceedings

In December 2014 Markham appealed the Board's denial of his 2014 application to the Kodiak superior court. He listed the same grounds as his 2013 appeal, adding that the assessor should have been disqualified due to bias and that the Borough ordinances were void because they exceeded the authority granted by AS 29.45.030. He moved to supplement the record to include the entire record from the 2013 proceedings and an affidavit from his representative at the hearing. The court allowed only a few documents to which the Board did not object.

The superior court heard oral argument in August 2016 and denied the appeal in February 2017. The court found that the exemption was constitutional both on its face and as applied to Markham and that the Board had not violated his due process rights. In July the court amended its order to clarify the standards of review and make explicit findings of the substantial evidence that supported the Board's decision. The Board requested additional time to file a motion for attorney's fees and costs, but the superior court stayed the issue of attorney's fees and costs pending the resolution of Markham's 2013 appeal.

Markham appealed.

III. STANDARD OF REVIEW

"When the superior court is acting as an intermediate appellate court, we independently review the merits of the underlying administrative decision." "A constitutional issue presents a question of law which we review de novo, and to which we apply our independent judgment." In using our independent judgment, "[w]e adopt the rule of law that is most persuasive in light of precedent, reason, and policy." We review a superior court's dismissal of an administrative appeal for failure to prosecute under the abuse of discretion standard. We will find a superior court's decision to dismiss an appeal under Appellate Rule 511.5 was an abuse of discretion if the decision is "arbitrary, capricious, manifestly unreasonable, or ... stem[s] from an improper motive." "[W]e review de novo whether the superior court correctly applied the law in awarding attorney's fees."

IV. DISCUSSION

A. The Superior Court Did Not Abuse Its Discretion By Dismissing The 2013 Appeal.

Markham suggests that the superior court abused its discretion by dismissing his 2013 appeal because it "had both the duty to advise [him] of his specific error" in filing his brief late and to allow him to correct it because he was a pro se litigant. This argument has no merit. Markham is an attorney who, as the superior court observed, "by his own account has been practicing law for decades in Alaska." His decision to pursue his own case does not entitle him to the leniency we give pro se litigants in their attempts to conform with procedural requirements. Furthermore, despite being given more notice and procedure than the rules require, Markham failed to familiarize himself with relevant court procedures, failed to comply with the court's deadline, failed to file a brief for over a year and a half after filing the notice of appeal, and, as the superior court found, "continuously flouted the Rules of Procedure." The court was well within its discretion to dismiss his 2013 appeal.

B. There Is No Violation of Markham's Right To Equal Protection.

Markham does not dispute that he spent significantly more time outside of Alaska in 2013 and 2014 than the PFD program permits to qualify as an eligible PFD recipient. As a result, the Borough assessor determined that he also did not qualify for the tax exemption pursuant to former Kodiak Island Borough Code (KIBC) 3.35.080(D). He argues, however, that the eligibility requirements incorporated into former KIBC 3.35.080(D) are unconstitutional because they violate his right to equal protection. He claims that because he owns his home, does not rent it out, and is a resident for other purposes such as voting and obtaining a driver's license, he should be eligible for the tax exemption. This argument mirrors those we have already addressed in the PFD context, which is not surprising because the Borough based eligibility for the tax exemption on the same criteria as the PFD.

Like the PFD, the tax exemption is an economic benefit conferred by the State. We have previously held that restricting the PFD to bona fide residents does not violate an individual's right to equal protection. We held that strict residency and physical presence requirements furthered a legitimate state interest because the PFD is a portable cash benefit and is "particularly susceptible to passers-through establishing minimal ties to Alaska while intending to reside elsewhere." The tax exemption is similarly portable: it provides a cash benefit for those individuals who receive it. It therefore follows that although the precise economic benefit conferred here is different - a tax exemption rather than a PFD - the analysis is the same.

Markham appears to base his equal protection argument on a comparison between a class of senior citizens who do not remain in Alaska for 185 days each year due to their travel and senior citizens who do remain in Alaska for 185 days each year. But the appropriate classes that we must consider are: individuals 65 years of age or older who own and occupy a primary residence and permanent place of abode in Kodiak and meet the eligibility requirements as strictly defined by the PFD statutes; and individuals 65 years of age or older who own and occupy a primary residence and permanent place of abode in Kodiak and do not meet the eligibility requirements as strictly defined by the PFD statutes.

We first recognize that the Borough's tax exemption is merely an economic interest similar to the PFD and therefore is entitled only to minimum scrutiny. "Under the minimal level of scrutiny, the state ... needs to show [only] that the 'challenged enactment was designed to achieve a legitimate governmental objective and that the means bear a "fair and substantial" relationship to the accomplishment of that objective.' " The issue is thus whether the Borough had a legitimate reason to treat those who meet the eligibility requirements under the PFD statutes differently than those who do not.

The State and its municipalities have a legitimate, if not substantial, interest in assuring that only those with sufficiently close connections with Alaska receive an economic benefit conferred by the State. In Heller v. State, Department of Revenue we recognized that the PFD is a portable cash benefit intended only for Alaska residents. And we recognized the danger that those who were not bona fide residents might obtain that cash from Alaska, but then reside and spend it elsewhere. We found that the PFD's residency requirement, specifically requiring six months of physical presence in the State before one could claim an allowable absence under AS 43.23.008(a), was not excessively long; rather, it was designed to ensure that PFDs went only to Alaska residents to reduce the likelihood that this portable cash benefit would be obtained and spent in other states by individuals who were only briefly in Alaska. We upheld the PFD's physical residency requirement as constitutional because "the statute directly advances a state interest that is undoubtedly 'legitimate.' "

The physical presence requirement here accomplishes the same goal. In Heller we noted that the physical presence requirement of the PFD statutes is used as a way to distinguish between residents and nonresidents for the purpose of PFD eligibility. Indeed, "the legislature defined 'state resident' as an individual who meets the requirements set out in AS 01.10.055 and is either physically present in the state or temporarily absent under the allowable absence provision .... This shows that the allowable absence provision was intended to distinguish between residents and nonresidents."

Like the PFD, the Borough's tax exemption is portable and intended to benefit only those who remain in Alaska; it directly translates to cash-in-hand for property owners who receive it, as they pay nearly $ 2,000 less in taxes. The exemption reduces taxes only for an individual's primary residence as a way of encouraging senior citizens to remain in Alaska; it is not intended to be a discount on second homes or vacation homes. By maintaining stringent eligibility requirements, the Borough has elected not to subsidize second homes or vacation homes and instead has ensured that the tax exemption benefits only those who remain in Alaska. This is a legitimate state interest.

Moreover, the option for municipalities to incorporate the PFD eligibility requirements was adopted by the legislature to make the process easier on both the municipality administering the applications and those applying for the tax exemption. Additionally, the tax exemption is meant to encourage senior citizens to remain in Alaska, not a particular locality within Alaska. Thus, although the tax exemption is administered at a local level, it is a state-mandated exemption meant to benefit those who wish to remain in Alaska. Allowing adoption of the PFD eligibility criteria was rationally related to the State's legitimate interest. The tax exemption therefore withstands minimal scrutiny and does not violate Markham's constitutional right to equal protection.

C. The Eligibility Requirements For The Borough's Tax Exemption Do Not Violate The Privileges And Immunities Clause Or The Right To Travel.

Markham next argues that the Borough's eligibility requirements for its tax exemption violate his right to travel guaranteed by both the Alaska Constitution and the United States Constitution. This argument has no merit. As it was authorized to do by statute, the Borough imported the PFD program's eligibility requirements. We "squarely" and expressly rejected the same arguments Markham makes in a direct challenge to the PFD eligibility requirements.

"When examining [a statute's] impact on the right of interstate migration, the relevant questions are whether [the benefit conferred by the statute] operates in such a way that the reasonable recipient would be deterred from exercising the right to travel, and the degree of that deterrence." We held in Church v. State, Department of Revenue that the PFD eligibility requirements' "infringement on [an individual's] right to travel is relatively small and would not be likely to deter a person from traveling. An applicant has no vested property right in a permanent fund dividend and should not expect to receive a dividend if he doesn't meet the qualifications." The purpose in awarding the tax exemption only to those who wish to remain in Alaska "outweighs the minor infringement" on an individual's right to travel. The Borough's tax exemption therefore does not violate his fundamental right to travel.

D. The Borough Did Not Violate Markham's Right To Privacy.

Markham claims that the Borough violated his right to privacy by requiring him to provide documentation that his absences were allowable. This argument also lacks merit. "The burden of proving eligibility for an exemption is on the taxpayer." Markham applied for a benefit and in response to his application was asked to provide minimal corroboration of his claimed allowable absences. His refusal to do so simply means he could not receive the benefit for which he applied. Markham was not required to apply for this benefit or disclose medical information; he was free to decline the request for supporting information (and he did so). By asking for the benefit of a tax exemption, Markham invited the Borough assessor to determine his eligibility to receive it. By accepting his invitation, the Borough did not violate Markham's right to privacy.

E. The Board Did Not Violate Markham's Right To Due Process.

Markham asserts that the Board violated his due process rights because: (1) under KIBC 3.35.050(A)(3) the Board only has authority to hear valuation appeals; (2) the Board did not allow him to appear at the hearing by telephone; and (3) the Board declined to consider his late-filed supplemental documents. These arguments are neither clearly briefed nor do they persuade us that the Board violated Markham's rights to due process. "The crux of due process is an opportunity to be heard and the right to adequately represent one's interests."

Markham first argues that the Board only has authority to hear valuation appeals. But the Alaska Administrative Code expressly allows an applicant to appeal "any determination of [a] local assessor" to the local Board of Equalization. Markham was given that opportunity.

He next argues that he should have been allowed to appear by telephone at the Board's hearings and that the Board violated his due process rights by prohibiting him from doing so. KIBC 3.35.050(C) provides the opportunity to appear in person or to send a personal representative and allows the Board to proceed if neither the appellant nor a representative appears. Due process requires only a reasonable opportunity to be heard based on "the nature of the case." Markham was given such opportunity. He chose not to appear in person because it would have been an inconvenience. And he chose to send a representative on his behalf to advocate his interests. The Board did not violate his rights to due process by prohibiting him from appearing by telephone.

Similarly, Markham argues that the Board should have considered his late-filed supplemental documents. But he was given the opportunity to present such documentary evidence in support of his claims in a timely manner. The Board even gave him an extended deadline to submit any documents he wanted considered on appeal. And although he suggests that his late-filed documents did not cause any prejudice, the Board had discretion to choose whether to consider them.

The Board did not violate Markham's rights to due process by electing not to do so.

To the extent that Markham argues his rights to due process were violated because the Board lacked authority to rule on the constitutionality of former KIBC 3.35.080(D), this argument is waived for inadequate briefing.

Accordingly, the Board did not violate Markham's rights to due process.

F. All Other Arguments Are Abandoned By Inadequate Briefing.

To the extent that Markham alleges that the Borough assessor was biased, that the superior court abused its discretion by failing to supplement the record with an affidavit from a representative he sent to the Board hearing, that the Board wrongly prohibited Markham's representative from advocating on his behalf at the Board hearing, and that the Borough attorney's communications with the Borough clerk violated due process, these arguments are abandoned by inadequate briefing. Markham did not argue or provide support for these issues in his briefing.

G. The Superior Court Did Not Address AS 09.60.010 Or Make The Requisite Factual Findings To Determine Attorney's Fees.

After the superior court dismissed Markham's 2013 appeal, the Board requested full fees and costs as a sanction for Markham's extensive filings and delays. The superior court did not award full fees nor did it suggest that its award of partial fees and costs was a sanction, but rather awarded 20% of fees and costs under Appellate Rule 508(e). However, the superior court did not address Markham's claim that he was a constitutional litigant exempt from attorney's fees under AS 09.60.010(c). While the case was dismissed for failure to prosecute, the underlying claims were constitutional claims of equal protection, travel, privacy, and due process. Because he raised constitutional claims, Markham may have been shielded by AS 09.60.010(c) unless the court determined he had a sufficient economic incentive to bring his claims. We therefore vacate the superior court's award of attorney's fees and remand for the superior court to address the issue pursuant to AS 09.60.010.

V. CONCLUSION

We AFFIRM the superior court's dismissal of the 2013 appeal and denial of the 2014 appeal on the merits, but VACATE the superior court's award of attorney's fees and REMAND for further proceedings on this issue.

      AS 29.45.030(e).

      Id.

      AS 29.45.030(f).

      See former Kodiak Island Borough Code (KIBC) 3.35.080(D).

      AS 43.23.005(a)(6).

      AS 43.23.008(a)(6).

      AS 43.23.008(a)(13).

      AS 43.23.008(a)(17)(C). This provision does not apply to military absences, which receive different treatment. See AS 43.23.008(a)(3), (a)(17)(A).

      See KIBC 03.35.050(A)(3) (discussing Board of Equalization's role), (C) (governing appeals to Board of Equalization).

      See KIBC 3.35.050(C)(4) (requiring parties or their representatives to appear at hearing in person).

      See KIBC 3.35.050(C)(1) (allowing authorized representatives to appear on behalf of appellants).

      KIBC 3.35.050(C)(4).

      See AS 29.45.030(f) ("Each municipality shall, by ordinance, establish procedures and deadlines for filing the application.").

      Alaska R. App. P. 606(a), 511.5(a). We note that Alaska Rules of Appellate Procedure 511.5(a) and 511.5(c) appear to be at odds. Rule 511.5(a) entitles an appellant to an additional 14-day "grace period," while Rule 511.5(c) allows the court to dismiss an appeal for failure to comply with the rules (i.e., failure to timely file a brief), regardless of whether prior notice has been given. In Cowitz v. Alaska Workers' Compensation Board , we noted that "[t]here is no logical way to reconcile these two subsections," but that if Rule 511.5(a) granted each appellant a 14-day grace period, then the 30-day brief filing deadline would be meaningless. 721 P.2d 635, 637 (Alaska 1986). Accordingly the court was not required to grant the 14-day extension but did so in its discretion.

      See Alaska R. App. P. 602(j) ("Documents mailed to the superior court will be deemed filed on the date of receipt by the clerk.").

      Heller v. State , 314 P.3d 69, 72 (Alaska 2013) ; see also Griswold v. Homer City Council , 310 P.3d 938, 940 (Alaska 2013).

      Patterson v. Walker , 429 P.3d 829, 831 (Alaska 2018) (quoting Debra P. v. Laurence S. , 309 P.3d 1258, 1260 (Alaska 2013) ).

      Heller , 314 P.3d at 72-73.

      Collins v. Arctic Builders , 957 P.2d 980, 981 (Alaska 1998).

      Id. (alterations in original) (quoting Sheehan v. University of Alaska , 700 P.2d 1295, 1297 (Alaska 1985) ).

      City of Kodiak v. Kodiak Public Broadcasting Corp. , 426 P.3d 1089, 1093 (Alaska 2018) (quoting Brandner v. Pease , 361 P.3d 915, 920 (Alaska 2015) ).

      See Collins , 957 P.2d at 982 (concluding that judges must inform pro se litigants of specific procedural defects in notices of appeal or grant the opportunity to correct them).

      Markham had notice that his appeal was going to be dismissed, was given the opportunity to remedy his failure to file before the dismissal, and was given a 14-day extension after his brief was already 90 days late. As previously discussed, the court was not required to provide the additional 14-day extension but did so despite Markham's repeated failure to abide by procedural requirements. See Cowitz v. Alaska Workers' Comp. Bd. , 721 P.2d 635, 637 (Alaska 1986) ; Alaska R. App. P. 511.5(c).

      See Cowitz , 721 P.2d at 638 ("It is an appellant's responsibility to file an opening brief, and counsel cannot expect court supervision of this procedural rule.").

      See AS 01.10.055 (setting out general residency requirements).

      See Heller v. State, Dep't of Revenue , 314 P.3d 69, 73-81 (Alaska 2013) ; Church v. State, Dep't of Revenue , 973 P.2d 1125, 1129 (Alaska 1999) ; Brodigan v. Alaska Dep't of Revenue , 900 P.2d 728, 733 n.12 (Alaska 1995).

      See former KIBC 3.35.080(D).

      See Heller , 314 P.3d at 83 ; Church , 973 P.2d at 1130 ; Brodigan , 900 P.2d at 734 n.13.

      Heller , 314 P.3d at 82-84.

      Id. at 79-82.

      See State v. Schmidt , 323 P.3d 647, 663 (Alaska 2014) ("Government action that burdens only economic interests generally receives only minimum scrutiny."); Heller , 314 P.3d at 83 ; Church , 973 P.2d at 1130 ; Brodigan , 900 P.2d at 734 n.13.

      Church , 973 P.2d at 1130 (quoting Underwood v. State , 881 P.2d 322, 325 (Alaska 1994) ).

      See Attorney Gen. of N.Y. v. Soto-Lopez , 476 U.S. 898, 904 n.3, 106 S.Ct. 2317, 90 L.Ed.2d 899 (1986) ("A bona fide residence requirement, appropriately defined and uniformly applied, furthers the substantial state interest in assuring that services provided for its residents are enjoyed only by residents."); Heller , 314 P.3d at 82, 82 n.72 (discussing the State's "undoubtedly legitimate" interest in assuring its economic benefits go to only bona fide residents); Stanek v. Kenai Peninsula Borough , 81 P.3d 268, 272 (Alaska 2003) (discussing the "unquestionably legitimate goals" in promoting home ownership through tax exemption residency requirements because it is beneficial to the community).

      Heller , 314 P.3d at 79.

      Id.

      Id. at 79, 80-81.

      Id. at 82.

      Id. at 81-82.

      Id. at 79 (emphasis in original).

      Minutes, Sen. Finance Comm., Hearing on S.B. 337, 22nd Leg., 2d Sess. (Feb. 28, 2002) (testimony of Sen. Dave Donley).

      Id.

      AS 29.45.030(e) (requiring exempt real property to be "the primary residence and permanent place of abode"). If an individual cannot meet the eligibility requirements then the real property is not his or her primary residence for purposes of the tax exemption. See Stanek v. Kenai Peninsula Borough , 81 P.3d 268, 271 (Alaska 2003) (discussing a property tax exemption that differentiates between "owners of owner-occupied primary residences in the borough and owners of second homes or other types of real property in the borough").

      See Stanek , 81 P.3d at 272.

      AS 29.45.030(f).

      Minutes, Sen. Finance Comm., Hearing on S.B. 337, 22nd Leg., 2d Sess. (Feb. 28, 2002) (testimony of Sen. Dave Donley). The tax exemption is a state-wide mandated tax exemption, meaning if an individual qualifies for the tax exemption, the municipality must grant it. However, this is an unfunded mandate by the State upon local governments. The legislature adopted this provision in part to save local governments time and money during the application process. Id. Additionally, approximately 95% of those who apply for the tax exemption throughout the State also apply for the PFD. Minutes, Sen. Finance Comm., Hearing on S.B. 337, 22nd Leg., 2d Sess. (Mar. 28, 2002) (testimony of Tim Rogers, Legislative Program Coordinator for the Municipality of Anchorage). Thus, allowing those individuals to simply transfer that information makes the application process easier. Id.

      See Minutes, Sen. Finance Comm., Hearing on S.B. 337, 22nd Leg., 2d Sess. (Feb. 28, 2002) (testimony of Sen. Dave Donley).

      U.S. Const. amend. XIV, § 1 ; Alaska Pac. Assurance Co. v. Brown , 687 P.2d 264, 271 (Alaska 1984) ("The right of interstate migration is a part of the Alaska Constitution.").

      AS 29.45.030(f).

      Schikora v. State, Dep't of Revenue , 7 P.3d 938, 944 (Alaska 2000).

      Alaska Pac. Assurance Co. , 687 P.2d at 273.

      973 P.2d 1125, 1131 (Alaska 1999) (internal citations omitted).

      Id. (quoting Brodigan v. Alaska Dep't of Revenue , 900 P.2d 728, 734 n.13 (Alaska 1995) ).

      Fairbanks N. Star Borough v. Dená Nená Henash , 88 P.3d 124, 129 (Alaska 2004).

      See AS 29.45.030(f) ("The assessor shall require proof in the form the assessor considers necessary of the right to and the amount of an exemption claimed under (e) of this section ....").

      Cf. Falcon v. Alaska Pub. Offices Comm'n , 570 P.2d 469, 475-76 (Alaska 1977) (discussing a regulation that required a doctor to disclose his patient's names).

      If Markham had provided such documentation, there are sufficient safeguards in place to ensure protection of his privacy interest. AS 40.25.120(a)(3) (exempting "medical and related public health records" from public disclosure); KIBC 2.40.100(A)(7) (exempting "[r]ecords required to be kept confidential ... by state law or by borough law" from disclosure).

      We note that the Borough assessor explained that a letter from a doctor would have sufficed and that it did not need to "go into any kind of medical detail."

      We analyze procedural due process claims under the test articulated in Mathews v. Eldridge :
      First, the private interest that will be affected by the official action; second, the risk of an erroneous deprivation of such interest through the procedures used, and the probable value, if any, of additional or substitute procedural safeguards; and finally, the Government's interest, including the function involved and the fiscal and administrative burdens that the additional or substitute procedural requirement would entail.
      424 U.S. 319, 335, 96 S.Ct. 893, 47 L.Ed.2d 18 (1976).

      Church v. State, Dep't of Revenue , 973 P.2d 1125, 1130 (Alaska 1999) (quoting Keyes v. Humana Hosp. Alaska, Inc. , 750 P.2d 343, 353 (Alaska 1988) ).

      3 Alaska Administrative Code (AAC) 135.110(a).

      KIBC 3.35.050(C)(1), (4).

      See Griswold v. Homer Bd. of Adjustment , 426 P.3d 1044, 1045 (Alaska 2018) ("[P]rocedural due process under the Alaska Constitution requires notice and opportunity for hearing appropriate to the nature of the case." (alteration in original) (quoting Price v. Eastham , 75 P.3d 1051, 1056 (Alaska 2003) )); see also Church , 973 P.2d at 1130 (holding summary adjudication satisfied procedural due process in appeal of PFD denial).

      KIBC 3.35.050(E)(5) provides:
      The appellant must submit to the assessor's office by April 15th all documentary evidence in their possession which they wish to be considered and which is relevant to the resolution of the appeal.... The board of equalization may in its discretion decline to accept documents offered at the hearing which should have been provided by April 15th.... Prior to the board meeting, the appellant and assessor may agree to an extension of time for the production of evidence.

      See Windel v. Carnahan , 379 P.3d 971, 980 (Alaska 2016).

      This rule has been modified since the superior court's decision in 2015.

      AS 09.60.010(c)(2) states:
      In a civil action or appeal concerning the establishment, protection, or enforcement of a right under the United States Constitution or the Constitution of the State of Alaska, the court ... may not order a claimant to pay the attorney fees of the opposing party devoted to claims concerning constitutional rights if the claimant ... did not prevail in asserting the right, the action or appeal asserting the right was not frivolous, and the claimant did not have sufficient economic incentive to bring the action or appeal regardless of the constitutional claims involved.


source: Caselaw Access Project

author: MAASSEN, Justice.

license: Public Domain

text:
    KENAI LANDING, INC., Appellant, v. COOK INLET NATURAL GAS STORAGE ALASKA, LLC ; Kirkpatrick-Walkowski-Watkins Trust; and Chere D. Kaas, Appellees.
    Supreme Court No. S-16737
    Supreme Court of Alaska.
    May 24, 2019
    Bruce E. Falconer, Boyd, Chandler & Falconer, LLP, Anchorage, for Appellant.
    Donald W. McClintock, Eva R. Gardner, and Matthew T. Findley, Ashburn & Mason, P.C., Anchorage, for Appellee Cook Inlet Natural Gas Storage Alaska, LLC.
    No appearance by Appellees Kirkpatrick-Walkowski-Watkins Trust and Chere D. Kaas.
    Before: Bolger, Chief Justice, Winfree, Stowers, Maassen, and Carney, Justices.
   MAASSEN, Justice.

I. INTRODUCTION

A public utility filed a condemnation action seeking the land use rights necessary to construct a natural gas storage facility in an underground formation of porous rock. The utility held some rights already by assignment from an oil and gas lessee. The superior court held that because of the oil and gas lease, the utility owned the rights to whatever producible gas remained in the underground formation and did not have to compensate the landowner for its use of the gas to help pressurize the storage facility.

The court held a bench trial to determine the value of the storage space. The landowner appeals the resulting compensation award. It argues that it retained ownership of the producible gas in place because the oil and gas lease authorized only production, not storage. It also argues that it had the right to compensation for gas that was discovered after the date of taking. But we conclude that the superior court did not err in ruling that the landowner's only rights in the gas were reversionary rights that were unaffected by the utility's non-consumptive use of the gas during the pendency of the lease.

The landowner also challenges several findings related to the court's valuation of the storage rights: that the proper basis of valuation was the storage facility's maximum physical capacity rather than the capacity allowed by its permits; that the valuation should not have included buffer area at the same rate as area used for storage; and that an expert's valuation methodology, which the superior court accepted, was flawed. We conclude that the superior court did not clearly err, and we therefore affirm its judgment.

II. FACTS AND PROCEEDINGS

A. Facts

Cook Inlet Natural Gas Storage Alaska, LLC ("CINGSA"), is a private company building a natural gas storage facility on the Kenai Peninsula. The facility stores natural gas collected from other sites by injecting it into a mostly depleted rock formation nearly a mile underground - the Sterling C Reservoir - so that it can be withdrawn in wintertime when the demand for natural gas exceeds what local production can immediately supply.

To ensure the efficient extraction of gas, the facility must maintain a minimum amount of pressurization, which in turn requires that it retain a minimum amount of gas in storage. This is called "base gas" (or "cushion gas"). In the Sterling C Reservoir, part of the need for base gas was satisfied by gas left in the reservoir at the time CINGSA acquired it; such gas left in the ground is known as "native gas." Any gas in the reservoir in addition to the base gas is called "working gas," since that gas moves in and out of storage according to demand.

The storage facility's "safety, pressure limitations, and other operational matters" were subject to regulation by the Alaska Oil and Gas Conservation Commission (AOGCC), and its "financial and economic matters and relationships with its customers" were regulated by the Regulatory Commission of Alaska (RCA). The RCA granted CINGSA a certificate of public convenience and necessity in 2011, and CINGSA, as a regulated public utility, proceeded to use the power of eminent domain to acquire the property rights necessary for the storage facility's operation.

Kenai Landing, Inc. owns a parcel of land overlying the Sterling C Reservoir. Kenai Landing acquired the property subject to an existing oil and gas lease - the "Wards Cove Lease" - entered into in 1978 by C.W.C. Fisheries and Union Oil Company. The Wards Cove Lease, committed to the Cannery Loop Unit, provides that it will not terminate as long as gas is being produced anywhere in the unit. When CINGSA filed its condemnation action, the royalty rights under the Wards Cove Lease were held by Wards Cove and the production rights were held by Marathon Alaska Production Company. CINGSA negotiated separate agreements with both Wards Cove and Marathon, acquiring their rights as lessor and lessee, respectively, under the lease. The Department of Natural Resources (DNR) then agreed to sever the Sterling C Reservoir from the Cannery Loop Unit so that it could be used for storage purposes.

Sometime after CINGSA commenced its condemnation action, it discovered "a pocket of gas" referred to as the "isolated reservoir." CINGSA's drilling brought this "new gas" into contact with the gas already known to be in the reservoir; the new gas, thus, increased the volume of native gas overall, including that underlying Kenai Landing's property.

B. Proceedings

In March 2011 CINGSA filed a complaint against Kenai Landing and others to condemn the rights to the Sterling C Reservoir that it had not been able to acquire through negotiation. It sought to condemn (1) an easement for gas storage, to include the underground formations in the Sterling C Reservoir plus an adjoining geological zone for use as a "buffer"; and (2) an easement in the mineral interests, which would allow CINGSA the use of "all gas, oil, or other minerals ... located within the Sterling C Pool and the correlative buffer geological formation," including the use of native gas as "base gas for the storage facility."

CINGSA moved for partial summary judgment, asking for a ruling that Kenai Landing had no right to compensation for any of the native gas in the Sterling C Reservoir because CINGSA owned this gas as assignee of the Wards Cove Lease. Kenai Landing countered that the lease had been terminated, either by the condemnation itself or by DNR's severance of the Sterling C Reservoir from the Cannery Loop Unit, and that ownership of the minerals had therefore reverted to Kenai Landing. The superior court decided that the Wards Cove Lease was still in effect and granted summary judgment on this issue in CINGSA's favor.

The parties agreed that Kenai Landing had a right to compensation for the use of its property for underground gas storage. A hearing to value these storage rights was held in June 2013 before a master, who determined that Kenai Landing was entitled to $ 125,000 in compensation. Kenai Landing requested a trial de novo, and the superior court held a bench trial over seven days in May 2016. Each side presented expert testimony by appraisers and petroleum engineers. Finding CINGSA's expert testimony more credible, and declining to defer to the master's determination of value, the superior court concluded that Kenai Landing was entitled to $ 65,000 for the gas storage rights. Adding $ 23,677 for the stipulated value of the non-producible minerals under Kenai Landing's land, the total compensation award to Kenai Landing was $ 88,677. Kenai Landing now appeals.

III. STANDARD OF REVIEW

We review a decision on summary judgment de novo. "We will affirm a grant of summary judgment if there are no genuine issues of material fact and if the movant is entitled to judgment as a matter of law." Whether the superior court applied the correct legal standard in an eminent domain proceeding is a question of law which we also review de novo.

The proper amount of compensation to be paid for a taking is a factual question. "We review the factual findings of a trial court for clear error, 'a standard that is met if, after a thorough review of the record, we come to a definite and firm conviction that a mistake has been made.' "

IV. DISCUSSION

Kenai Landing raises five issues on appeal. First, it argues that the superior court erred by failing to compensate it for CINGSA's use of the native gas remaining in the Sterling C Reservoir as base gas. Second, it argues that it was also entitled to compensation for its proportionate share of the new gas CINGSA discovered after the taking.

Kenai Landing's other three claims relate to the superior court's valuation of the gas storage space. It argues that the court erred by failing to consider the "highest and best use" of the land and the "fullest extent" rule; that the court erred by giving equal value to the storage space and the surrounding buffer zone; and, finally, that the court erred by relying on the valuation testimony of one of CINGSA's expert witnesses, who Kenai Landing contends applied the valuation methodology improperly.

We conclude that none of these issues involves legal error or a clearly erroneous finding of fact, and we therefore affirm the superior court's judgment.

A. The Superior Court Did Not Err In Deciding That Kenai Landing Was Not Entitled To Compensation For CINGSA's Easement In The Native Gas.

Kenai Landing argues that the superior court erred when it concluded that Kenai Landing owned at most "a reversionary interest in the native gas in place." Kenai Landing argues that the only interest in native gas that its predecessor-in-interest transferred to Marathon under the Wards Cove Lease was the right to extract it. Kenai Landing argues that the rights transferred under the lease "relate exclusively to production and do not include the right to make use of the native gas as Base Gas," a right which "is instead part of the rights the lessor retained and belong to the property's fee simple owner, [Kenai Landing]." Kenai Landing argues that its perspective is supported by the language of the lease, "which the superior court utterly failed to analyze."

We do not find the lease language to be as "straightforward" as Kenai Landing characterizes it. The granting clause is broad: "[The] lessor ... has ... leased ... exclusively unto the lessee the hereinafter described land ... for the purpose of the drilling, mining, and operating for, producing, and saving all of the oil [and] gas ...." A later paragraph provides that "[t]he lessee shall have the right to use, free of cost, gas ... found on said land for its operations thereon ...." The lease specifically contemplates that it will remain in effect even if not producing, as long as it is part of a unit on which some production is occurring and the lessor is being paid royalties on the unit's production.

Citing cases, Kenai Landing argues that "it would be unusual to interpret a production lease like the Wards Cove Lease to include the right to store non-native gas absent specific language conferring that right upon the lessee." That may be true, but "the right to store non-native gas" is a separate issue; Kenai Landing is being compensated for CINGSA's storage of gas in Kenai Landing's pore space, though it disputes the amount. What concerns us here is the use of the native gas, not the storage of non-native gas. Kenai Landing concedes that both Marathon and CINGSA, as the assignee of Marathon's production rights, had the right to produce all the native gas if they chose to do so. The lease contains no clear stipulations as to ownership and use rights if the native gas is not produced but is kept in the ground instead.

Relying on general principles of oil and gas law (applied by some but not all jurisdictions), CINGSA contends that when it "acquired the native gas under [Kenai Landing's] property by virtue of acquiring the Wards Cove Lease, it acquired ownership of this gas for any and all purposes." Kenai Landing argues, on the other hand, that "[a]bsent specific language in the lease conveying the minerals in place to the lessee, the lessor retains title to same, so long as they remain under the land." Whether a landowner owns the minerals in place under its land - or only the right to own the minerals once they are brought to the surface and "captured" - is a longstanding question of natural resource law that we do not need to answer here. Our decision is governed instead by the principles we use to determine "just compensation" in condemnation cases.

"In Alaska, the fundamental goal of 'just compensation' is to make the property owner whole." "[T]he property owner should be placed as fully as possible in the same position as he [or she] was in prior to the taking of his [or her] property." These principles determine the measure of "just compensation": "[J]ust compensation is determined by what the owner has lost and not by what the condemnor has gained." The court's task, therefore, is to determine what the condemnee has lost by virtue of the condemnation. Here, assuming for discussion purposes that Kenai Landing has title to the native gas in place subject to the Wards Cove Lease, what has Kenai Landing lost by virtue of CINGSA's condemnation of an easement in that gas for the duration of the lease?

We must conclude that the answer is "nothing." The Wards Cove Lease gave the lessee production rights - which CINGSA had by assignment - and gave the lessor a royalty interest - which CINGSA also had by assignment. As the superior court explained, "[Kenai Landing] does not have the current right to produce or receive royalties on any portion of the native gas in place ... as long as its ownership is subject to the Wards Cove Lease because the production rights belong to the lessee ...." And "[Kenai Landing] had no ability to stop gas production in the Sterling [C], which could have continued until economically depleted." Marathon could have extracted the native gas and sold it as its own, and CINGSA, as Marathon's assignee, had the same right, as Kenai Landing recognizes. It is only if the Cannery Loop Unit as a whole ceases production that there will occur "the collateral effect of terminating the Wards Cove Lease, and the full [Kenai Landing] fee interests will thereupon be held by [Kenai Landing], including its reversionary interests in the oil and gas aspects of the mineral estate."

Until that time, and however Kenai Landing's current interest is characterized, its right to the gas may fairly be called reversionary: it has no current right to extract native gas, to block its production, or to use the native gas in place for any purpose. CINGSA's non-consumptive use of the gas in place for the duration of the Wards Cove Lease does no damage to Kenai Landing's property rights, which remain undiminished.

Notably, Kenai Landing focuses its argument on appeal not on what it lost by the condemnation but rather on what CINGSA gained: the use of the native gas as base gas. Kenai Landing writes, "Using native gas as Base Gas saved CINGSA the cost of acquiring, transporting and injecting gas into the Sterling C Pool for this purpose from another source." Kenai Landing argues that "there is nothing novel or untoward about requiring payment of compensation for such use." But "just compensation" is payment for what the condemnee lost. CINGSA, by condemning the easement, gained the use of the native gas as base gas, but Kenai Landing did not lose anything it already had. There is no evidence that the fair market value of its reversionary rights was affected in any way by CINGSA's use of the gas for a non-consumptive purpose. We therefore affirm the superior court's holding on summary judgment that Kenai Landing was owed no compensation for the producible native gas remaining in the Sterling C Reservoir at the time of the taking.

B. The Superior Court Did Not Err By Deciding That Kenai Landing Was Not Entitled To Compensation For The Newly Discovered Gas.

Kenai Landing's second claim involves what is termed the "isolated reservoir" of native gas, discovered after the date of taking. As the superior court described it, the isolated reservoir is "a geologic strata/formation" which is "not directly underneath [Kenai Landing's] property" but which, as "the direct result of CINGSA's work on the larger gas storage project," came into "pressure communication" with Kenai Landing's pore space, meaning that the newly discovered gas can circulate through the entire reservoir, including the strata underlying Kenai Landing's property. Kenai Landing argues first that the superior court's ruling - denying compensation for the newly discovered gas for the same reasons it denied compensation for the native gas already known to be in place - was erroneous because "use of native gas as Base Gas is not related to production and thus not something the Wards Cove Lease granted to the lessee; it is instead a right retained by [Kenai Landing] as fee simple owner ...." Like the superior court, we conclude that our decision of Kenai Landing's claim for compensation for the native gas in place disposes of Kenai Landing's claim regarding the new gas as well.

Kenai Landing separately argues against the superior court's reliance on the "scope of the project" rule, which holds that enhancements to the condemned property's value, arising after "it becomes likely that the property will be condemned," do not benefit the condemnee. Generally, a landowner is only entitled to the value of the land as it exists on the date of the taking. Kenai Landing relies on an exception to this general rule: A landowner should be compensated for features of the property (such as minerals) that were unknown on the date of taking but discovered before valuation proceedings.

But the exception is inapplicable here. Gas from the isolated reservoir was not just undiscovered as of the date of the taking, it was not present under Kenai Landing's property at all. The superior court found, and Kenai Landing does not dispute, that the gas came into pressure communication with the gas underlying Kenai Landing's property only after CINGSA accidentally tapped into the isolated reservoir while working on the project. Even if Kenai Landing were otherwise entitled to compensation for CINGSA's use of the native gas as base gas, the scope of the project rule would preclude recovery based on the additional gas released from the isolated reservoir, as it was not a part of Kenai Landing's property when condemnation proceedings began.

C. The Superior Court Did Not Clearly Err In Finding That The "Highest And Best Use" Of The Property Was An 11 Bcf Facility And Properly Refused To Apply The "Fullest Extent" Rule.

Kenai Landing's remaining arguments concern the value of the pore space rights, the subject of the seven-day bench trial. Kenai Landing first argues that the superior court undervalued these rights by failing to consider the "highest and best use" of the pore space.

Kenai Landing's expert appraisal witness, Kenneth Gain, "based his analysis on the assumption that the CINGSA facility would operate at a working gas capacity of 19.54 Bcf, and would cycle 100% of the stored gas each year for 60 years." But the court credited the testimony of CINGSA's expert, Richard Gentges, that there were "technical problems, engineering problems, and market demand problems" that would have to be overcome before such a working gas capacity could be realized. It found Gain's value analysis - "based on assumed revenues on a hypothetical gas storage facility" - to be unreliable and "not grounded in fact," finding instead that the reservoir's capacity was 11 Bcf - the limit set by CINGSA's "current regulatory approvals."

Kenai Landing argues that this finding of fact leads to an unfair result, because the reservoir could conceivably hold 19.54 Bcf, and CINGSA, regardless of its current intentions and regulatory approvals, "now has the right to make use of the pore space's maximum capacity. That is what it obtained, and that is what it should pay for." Kenai Landing relies on the "fullest extent rule," which presumes that "the appropriator will exercise [the rights acquired] and use and enjoy the property taken to the full extent." Kenai Landing faults the superior court for ruling that the fullest extent rule applies only when determining the effect of a taking on the property retained by the landowner following condemnation, a circumstance not present here.

We need not address that argument, because the superior court reached an alternative holding as well: "Even if the fullest extent rule were not limited to the realm of severance damages," applying it in this case would conflict with Alaska law on just compensation. The court explained that while Kenai Landing "seeks to value its storage rights based on the maximum possible working gas capacity CINGSA could theoretically create, assuming extensive expensive investments in infrastructure," the correct standard was "what price a market buyer would have paid for the pore space as it existed on the date of taking."

In Martens v. State we examined how a change in zoning laws, and consequently a possible change in the property's "highest and best use," might affect its value. We recognized that when there is "a 'reasonable probability' of a change 'in the near future' in the zoning ordinance or other restriction, then the effect of such probability upon the minds of purchasers generally may be taken into consideration in fixing present market value." If it was "reasonably probable" that zoning laws would change to allow a more valuable use of the property, a finder of fact could consider the change when determining just compensation.

Regulatory approvals limited CINGSA's use of the Sterling C Reservoir to the storage of 11 Bcf of gas. Assuming that the reservoir could hold 19.54 Bcf of gas, CINGSA, like the builders in Martens , could not use the property in that way without first getting permission of the regulators. The superior court recited testimony by Gentges, CINGSA's expert witness - whom the court specifically found to be credible - minimizing the likelihood that CINGSA would ever have reason to seek that regulatory approval:

For [a capacity of 19.54 Bcf] to be realized, an operator would have to overcome technical problems, engineering problems, and market demand problems. Gentges testified about those problems, which include the fact that the feasibility of expansion had not yet been studied by or for CINGSA; the need to invest in infrastructure to increase both storage and deliverability; well-pad limitations; and the complexity of drilling in an area already riddled with existing wells.
....
Gentges testified that he was unaware of any evidence of demand for a working gas capacity beyond 11 Bcf, and that an expansion to that level may not be physically or technologically possible or feasible. The actual storage activity under the comparable leases after the date of taking gave no evidence of unmet demand.

The evidence recited by the superior court supported its finding that a change in the approved storage capacity was not reasonably probable in the near future, as required in Martens for that change to affect value. Kenai Landing cites no evidence to the contrary; indeed, its expert witnesses at trial simply assumed the possibility of expanded use and did not explore its likelihood.

Because the superior court did not clearly err when it found that a change in the property's current storage capacity was not reasonably probable in the near future, it properly declined to apply the fullest extent rule as urged by Kenai Landing.

D. The Superior Court Did Not Clearly Err By Including The Buffer Area When Valuing The Condemned Property.

Kenai Landing also argues that the superior court erred when it calculated Kenai Landing's percentage of the condemned area - and thus its percentage of the area's value - based not only on the area of the Sterling C Reservoir itself but also including 722 acres of buffer zone. Kenai Landing argues that by "assign[ing] equal value to land not used to store gas (i.e., the Buffer Zone) as though it were so used," the court's analysis "dilutes the value assigned to the actual pore space" and "punishes [Kenai Landing] based on CINGSA's arbitrary determination as to how much non-pore buffer area to include within its proposed 'storage boundary.' "

The court included the buffer zone for valuation purposes based on the testimony of CINGSA's expert witnesses, whom the court specifically found credible on this issue as on others. The court cited expert testimony that the only commercial value of Kenai Landing's pore space was for gas storage, and "in reality, it had no use until someone put all of the necessary elements for a gas storage project together." Those necessary elements included a buffer zone. Three of CINGSA's experts testified consistently that a buffer zone is "required for prudent operation" of a gas storage field, that it is "important to the integrity of a gas field," and that "in the industry no difference is made in the leasing rates applicable to surface land over the reservoir area versus land located over the buffer area." As the superior court recognized, the fact-finder in eminent domain proceedings has flexibility in determining the appropriate valuation method under the circumstances. We cannot say that the court acted unreasonably in relying in large part on industry practice as described by witnesses it deemed credible.

Kenai Landing contends that industry practice cannot "dictate a rule that assigns the same value to [a] non-productive buffer zone as to the land that creates the value - the productive pore space." In support of this proposition, Kenai Landing cites one case, Consumers Power Co. v. Allegan State Bank , in which it contends "the acquiring entity offered landowners much more (in excess of two and a half times as much) to acquire rights 'in the productive zone' than in the 'buffer' zone." But Consumers Power did not purport to apply a rule requiring different values for "productive" and "buffer" zones; the relevant portion of the decision only describes what the utility company offered. And even that does not support Kenai Landing's position. The condemning authority valued storage rights equally in the buffer land and the storage land; the difference in values depended on whether the land also included minerals that were being acquired at the same time.

We see no clear error in the superior court's finding that, consistent with industry practice, its valuation should include the buffer area at the same rate as the land including the useable pore space.

E. The Superior Court Did Not Commit Clear Error When It Chose To Credit An Expert's Valuation Methods.

Kenai Landing's final argument is that one of CINGSA's valuation experts, Louis Petho, did not properly carry out the "income" approach to valuation he claimed to be using. Petho looked at comparable leased properties, determined the revenue they generated for the lessors, and divided the revenue by the number of leased acres to determine an annual per-acre lease rate, which he then applied to Kenai Landing's property to reach a total value of $ 47,500. Kenai Landing faults this method because "[t]he leased properties in question[ ] were not leased on an annual-per-acre lease rate; they generally included only a very nominal per acre payment, and generated the bulk of their revenues from storage and injection fees paid." Kenai Landing argues that these revenue histories "tell us nothing about the probable revenue the Sterling C Pool, and [Kenai Landing's] interest in same, can generate from gas storage."

The superior court found Petho's testimony "credible and reliable" and that he was "the most experienced in the valuation of gas storage rights" of the three expert appraisers who testified at trial. But the superior court did not rely entirely on Petho's testimony. CINGSA called a second appraiser, Bernie Shaner, who identified what he considered to be problems with Kenai Landing's estimate of value. Shaner "approved Petho's methodology, testifying that it is the one he uses and has seen used throughout his career, [but] he did not approve Petho's analysis wholesale." Rather, Shaner "conducted his own appraisal of [Kenai Landing's] interests, using all the comparable data relied on by both of the other appraisers" - Petho and Kenai Landing's expert, Gain. After making some adjustments to Petho's numbers, Shaner came up with "a total value of $ 64,754 for [Kenai Landing's] three parcels, which he rounded up to $ 65,000."

The superior court observed that "Petho, Gentges, and Shaner all testified that Petho's method is the one actually used by the market throughout the natural gas storage industry," whereas the method proposed by Gain - a "discounted cash flow analysis" that assumed certain hypothetical injection and withdrawal rates for CINGSA's stored gas - "is a novel approach that is not in use in the storage industry." The court found "that Petho's method is the appropriate method to value the subject property and further accept[ed] Shaner's review adjustment of his opinion to find $ 65,000 as just compensation for the gas storage easement ...."

Again, we note the fact-finder's flexibility in determining the appropriate valuation methodology under the circumstances of the case, the relevance of industry custom, and the deference we give to the superior court's credibility determinations. We conclude that the superior court did not clearly err when it relied in part on Petho's methodology in crafting its valuation.

V. CONCLUSION

We AFFIRM the judgment of the superior court.

      We recently described CINGSA's storage of natural gas in underground porous rock formations in City of Kenai v. Cook Inlet Natural Gas Storage Alaska, LLC , 373 P.3d 473, 475 (Alaska 2016).

      See AS 42.05.631.

      Unitization allows the joint operation of a producing reservoir by different interest holders. See White v. State, Dep't of Nat. Res. , 984 P.2d 1122, 1125 n.5 (Alaska 1999) ("A 'unit agreement' is '[a]n agreement or plan of development and operation for the recovery of oil and gas made subject thereto as a single consolidated unit without regard to separate ownerships and for the allocation of costs and benefits on a basis as defined in the agreement or plan.' " (quoting Howard R. Williams & Charles V. Meyers, 8 Oil and Gas Law 1315 (1992))).

      The parties also stipulated that CINGSA's storage easement did not include any rights to use the surface of Kenai Landing's property.

      The "non-producible minerals" are those that will remain in the subsurface after the lease expires, including some gas that will never be removed from the Sterling C Reservoir because it is not technologically or economically feasible to produce it. CINGSA compensated Kenai Landing for these minerals by stipulation on the theory that it is "industry custom" to compensate the landowner for the nominal value of the easement over the non-producible minerals.

      Alakayak v. B.C. Packers, Ltd. , 48 P.3d 432, 447 (Alaska 2002).

      Id.

      State v. Alaska Laser Wash, Inc. , 382 P.3d 1143, 1150 (Alaska 2016).

      See Triangle, Inc. v. State , 632 P.2d 965, 968 (Alaska 1981) ("It is only when a trial court concludes that the landowner has presented a valid claim that the case is submitted to the jury for a determination of the extent of the taking and the amount of compensation that must be paid.")

      Beeson v. City of Palmer , 370 P.3d 1084, 1088 (Alaska 2016) (quoting Rausch v. Devine , 80 P.3d 733, 737 (Alaska 2003) ).

      See Mason v. Range Res.-Appalachia LLC , 120 F. Supp. 3d 425, 440 (W.D. Pa. 2015) ("[The] granting clause [of a typical oil and gas lease] generally conveys to the lessee the right to use the property to drill for and produce oil and gas, and in the case of a 'dual purpose' lease also conveys the right to use the property for the storage of gas."); Ellis v. Ark. La. Gas Co. , 450 F. Supp. 412, 420-21 (E.D. Okla. 1978) (concluding that, in absence of express language, production lease does not convey "injection, storage or occupation rights").

      Kenai Landing concedes that "[w]ere CINGSA at some future date to abandon its storage operation, and then seek to produce the remaining native gas, it would have that right ...."

      See Comm'r v. P.G. Lake, Inc. , 356 U.S. 260, 261 n.1, 78 S.Ct. 691, 2 L.Ed.2d 743 (1958) ("An oil and gas lease ordinarily conveys the entire mineral interest less any royalty interest retained by the lessor."); Nat. Gas Pipeline Co. of Am. v. Pool , 124 S.W.3d 188, 192 (Tex. 2003) ("When an oil and gas lease reserves only a royalty interest, the lessee acquires title to all of the oil and gas in place, and the lessor owns only a possibility of reverter and has the right to receive royalties.").

      See Miller v. Ridgley , 2 Ill.2d 223, 117 N.E.2d 759, 761 (1954); Rist v. Toole Cty. , 117 Mont. 426, 159 P.2d 340, 343 (1945).

      The majority rule is that the landowner owns the minerals in place (in the ground). See, e.g. , McDonald v. Unirex, Inc. , 221 Mont. 156, 718 P.2d 316, 317 (1986) ; U.S. Steel Corp. v. Hoge , 503 Pa. 140, 468 A.2d 1380, 1383 (1983) ; Stephens Cty. v. Mid-Kan. Oil & Gas Co. , 113 Tex. 160, 254 S.W. 290, 292 (1923). A minority holds that minerals in place are not capable of ownership; they are not owned until extracted, i.e., "captured." See, e.g. , Halbert v. Hendrix , 121 Ind.App. 43, 95 N.E.2d 221, 223 (1950) ; Sunray Oil Co. v. Cortez Oil Co. , 188 Okla. 690, 112 P.2d 792, 793 (1941).

      City of Kenai v. Burnett , 860 P.2d 1233, 1242 (Alaska 1993).

      Ketchikan Cold Storage Co. v. State , 491 P.2d 143, 150 (Alaska 1971).

      Gackstetter v. State , 618 P.2d 564, 566 (Alaska 1980) ; see also State v. Teller Native Corp. , 904 P.2d 847, 849 (Alaska 1995).

      Teller Native Corp. , 904 P.2d at 849.

      See Collins v. Chappell , 333 P.2d 578, 583 (Okla. 1958) (lessor with a reversionary interest "can only hope that the present lease will terminate before the minerals in the land are exhausted" (quoting 3A Summers, Oil and Gas 311 (Perm. ed. 1954))).

      Teller Native Corp. , 904 P.2d at 849.

      See City of Kenai v. Burnett , 860 P.2d 1233, 1241 (Alaska 1993) (explaining that proper measure of damages for taking of easement is difference in property's fair market value before and after taking).

      The parties stipulated to March 11, 2011, as the date of taking. The superior court referred to the interior reservoir as a "post-taking discovery" and quoted the RCA as stating that "CINGSA was not aware of the existence of the 14.5 Bcf [billion cubic feet] when it acquired the reservoir." The relevant facts thus appear to be undisputed.

      See City of Valdez v. 18.99 Acres , 686 P.2d 682, 689 (Alaska 1984) (" 'If the condemned land was probably within the scope of the governmental project for which it is being condemned at the time the Government became committed to that project, then the owner is not entitled to any increment in value occasioned by the Government's undertaking the project.' ... The rule thus prevents property owners from receiving many unjustified windfalls, as when, for example, formal condemnation of property which everyone knows will be taken is delayed." (quoting United States v. 320.0 Acres of Land , 605 F.2d 762, 781-82 (5th Cir. 1979) )).

      AS 09.55.330 ("For the purpose of assessing compensation and damages, the right to them accrues at the date of issuance of the summons, and its actual value at that date is the measure of compensation of the property to be actually taken ...."); State v. Hammer , 550 P.2d 820, 828 (Alaska 1976) ("The measure of value of property taken is the fair market value as of the date of taking, not the value of the property to the state at any time, nor the value at a time after condemnation." (footnotes omitted)).

      See, e.g. , City of Little Rock v. Moreland , 231 Ark. 996, 334 S.W.2d 229, 230 (1960) ("It would be a harsh rule to say that the State ... could take private property containing a deposit of diamonds and pay therefor the price of land having very little value because at the very moment of the taking it was not known that the diamonds were there."); see generally 4 Julius L. Sackman, Nichols on Eminent Domain § 12A.07[2] (3d ed. 2018) ("[I]f appropriated land contains a valuable deposit, which is unknown at the time of the taking, but discovered prior to the time when just compensation is determined, the owner (to be indemnified for the thing taken), must have the value of the deposit included in a reckoning of his or her award.").

      Coos Bay Logging Co. v. Barclay , 159 Or. 272, 79 P.2d 672, 677 (1938).

      See Sackman , supra note 26, § 14A.02[3] ("In considering the effect of the taking on the remainder, the after value must take into account the proposed use of the project and the effect of that use on the remainder. The landowner is entitled to assume ... that the taking authority will make the full use 'physically possible of any easement or land described in the taking certificate.' " (internal citation omitted) (quoting 2,953.15 Acres of Land v. United States , 350 F.2d 356, 360 (5th Cir. 1965) )).

      554 P.2d 407, 409 (Alaska 1976).

      Id. (quoting Long Beach City High Sch. Dist. v. Stewart , 30 Cal.2d 763, 185 P.2d 585, 588 (1947) (en banc)).

      Id.

      We grant "[p]articular deference ... to the superior court's credibility determinations." Gold Dust Mines, Inc. v. Little Squaw Gold Mining Co. , 299 P.3d 148, 166 (Alaska 2012) ; see also AAA Valley Gravel, Inc. v. Totaro , 325 P.3d 529, 531 (Alaska 2014) ("[T]he trial court makes the credibility findings and weighs the evidence, not this court ....").

      See Babinec v. State , 512 P.2d 563, 570 (Alaska 1973) ("[I]n partial taking cases, no rigid rules can be prescribed. The facts and circumstances of each case must be considered to determine the applicable formula." (quoting with approval Territory of Hawaii v. Adelmeyer , 45 Haw. 144, 363 P.2d 979, 985 (1961) )).

      See United States v. Silver Queen Mining Co. , 285 F.2d 506, 510 (10th Cir. 1960) ("Some speculation is inherent in the ascertainment of value of all resource property, be it mineral, oil, gas or otherwise, and if the quality of proof of value follows the custom of the industry, is the best available, and is sufficient to allow the jury or court to make an informed estimate as to the fact of value, such proof is sufficient to meet the burden.").

      20 Mich.App. 720, 174 N.W.2d 578 (1969).

      Id. at 585-86 (excerpting testimony that utility witness calculated $ 200 per acre offered for land in productive area based on $ 7.50 per acre for storage rights and $ 192.50 per acre for producible gas, while $ 25 per acre offer in nonproductive area was likewise based on $ 7.50 for storage rights but only $ 17.50 for any minerals; and that even when value for nonproductive area was negotiated to higher rate of $ 75 per acre, change came from value of minerals rather than storage rights).

      The superior court also credited testimony that seismic data made available to CINGSA after the condemnation showed that in fact there was "little usable pore space below [Kenai Landing's] property," and "part or all of [Kenai Landing's] property more likely than not lies outside the zero gas line" demarcating the boundary between productive and buffer areas. Because we affirm the superior court's choice of a valuation method, we need not address the issue of whether Kenai Landing's interest inside the productive zone was in fact negligible, as one of CINGSA's experts characterized it.

      See Babinec , 512 P.2d at 570.

      See Silver Queen Mining Co. , 285 F.2d at 510.

      Gold Dust Mines, Inc. v. Little Squaw Gold Mining Co. , 299 P.3d 148, 166 (Alaska 2012).