Opinion ID: 1119416
Heading Depth: 4
Heading Rank: 1

Heading: Is DNR equitably estopped from collecting back royalties from January 1, 1989 to March 14, 1991?

Text: UCM argues that DNR is equitably estopped from collecting the royalties DNR claims to be due on coal mined from January 1, 1989 to March 14, 1991 because (1) by not objecting to the royalties paid by UCM during this period, DNR thereby represented that the royalty calculation being used by UCM was correct; (2) UCM reasonably relied on this representation; and (3) UCM was prejudiced by this reliance because it cannot pass on the costs of the claimed royalties to its customers. The State responds that DNR did not take the positive act necessary to assert a position; that any reliance by UCM was unreasonable because delay is not itself sufficient to justify reliance; and that UCM did not suffer prejudice because DNR's October 1988 decision told UCM that any reimbursement UCM might receive from its customers was purely a matter between UCM and its customers. Whether the elements of equitable estoppel are satisfied is a question of law calling for the application of the court's independent judgment. The general elements of equitable estoppel are (1) assertion of a position by conduct or word, (2) reasonable reliance thereon, and (3) resulting prejudice. Mortvedt v. State, 858 P.2d 1140, 1142 (Alaska 1993) (quoting Municipality of Anchorage v. Schneider, 685 P.2d 94, 97 (Alaska 1984)). A fourth element required by this court is that the estoppel will be enforced only to the extent that justice so requires. Id. at 1142. In State, Department of Revenue v. Northern TV, Inc., 670 P.2d 367, 369 (Alaska 1983), the court held that the Department of Revenue was not estopped from assessing taxes based on a 1978 audit of 1971-1977 tax returns. Northern TV claimed that the agency was estopped because in a 1967 decision it had held that, due to uncertainties in the state of the law, it would for the time being forego collecting taxes on the receipts in question. Id. In holding that the agency was not estopped, the court concluded that the provisional nature of the agency's 1967 decision made Northern TV's reliance on the decision unreasonable. Id. In the present case, UCM's royalty payments under the leases were subject to audit not only by virtue of regulation, but also by the express terms of the leases themselves. 11 AAC 85.225(d); Lease Nos. ADL 20633, 21545. The State correctly points out that UCM was on notice that its royalty calculations were subject to review and audit under 11 AAC 85.225(d). The lease expressly required UCM to make copies of and extracts from such records pertaining to operations as may be required to verify compliance with the terms and conditions of this lease. Lease Nos. ADL 20633, 21545, Section 2(h)(2). We find that it is not reasonable to conclude that payments had been audited and deemed correct by DNR in the approximately two years (1989 and 1990) in which DNR received incorrectly calculated royalty payments from UCM before notifying UCM of its error. Therefore, DNR is not equitably estopped from collecting the back royalties due for coal mined from January 1989 to March 1991. Because we conclude that UCM's reliance on DNR's failure to object to its method of calculation of royalties was not reasonable, we do not consider whether the other elements necessary for the application of equitable estoppel are present.