Ilwu v. Port of Portland ( 2016 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
INTERNATIONAL LONGSHORE AND No. 14-35376
WAREHOUSE UNION,
Plaintiff-Appellant, D.C. No.
3:12-cv-01494-SI
v.
PORT OF PORTLAND; CERTIFICATION
COMMISSIONERS OF THE PORT OF ORDER
PORTLAND, in their individual and
official capacities; BILL WYATT, in
his individual and official capacity;
BRUCE A. HOLTE,
Defendants-Appellees.
Filed December 27, 2016
Before: Richard R. Clifton, Mary H. Murguia,
and Jacqueline H. Nguyen, Circuit Judges.
2 ILWU V. PORT OF PORTLAND
SUMMARY *
Civil Rights
The panel certified to the Oregon Supreme Court the
following question:
Does a municipal corporation that holds its
tax and non-tax revenues in the same bank
account but that segregates the revenues
through financial management and
accounting techniques violate article XI,
section 9, of the Oregon Constitution when
the municipal corporation uses its funds to
finance programs that benefit private
enterprise if the programs contain neither,
one, or both of the following two contractual
provisions: (1) the municipal corporation
certifies that it will not use tax revenue to
fund the programs; (2) the program
beneficiaries waive any right to make a claim
against the municipal corporation’s tax
revenue to satisfy the municipal
corporation’s program obligations?
*
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
ILWU V. PORT OF PORTLAND 3
COUNSEL
Andrew J. Ziaja (argued), Emily M. Maglio, and Robert S.
Remar, Leonard Carder LLP, San Francisco, California, for
Plaintiff-Appellant.
Randolph C. Foster (argued) and Jeremy D. Sacks, Stoel
Rives LLP, Portland, Oregon, for Defendants-Appellants.
ORDER
MURGUIA, Circuit Judge:
The Oregon Constitution bars a state public entity, such
as a municipal corporation, from “rais[ing] money for, or
loan[ing] its credit to, or in aid of, any [] company,
corporation or association.” OR. CONST. art. XI, § 9
(“Section 9”). It is well-settled law in Oregon that a
municipal corporation’s sale of revenue bonds does not
violate Section 9’s prohibition against raising money for or
lending credit to a private enterprise. See, e.g., Miles v. City
of Eugene, 451 P.2d 59, 62 (Or. 1969) (“Money coming from
revenue bonds and not from tax money does not fall within
the prohibition.”). But what about non-revenue bond
programs? Can an Oregon municipal corporation
adequately protect tax revenue as Section 9 requires by
employing accounting and financial management methods?
Or are the structural protections of revenue bonds necessary
to avoid running afoul of Section 9?
In this case, the Port of Portland (“Port”), an Oregon
municipal corporation, developed, funded, and implemented
four programs (collectively the “Programs”) to mitigate
financial losses at the Port’s Terminal 6. The Port funded
4 ILWU V. PORT OF PORTLAND
the Programs out of a bank account that contained tax and
non-tax revenue. The Port has demonstrated that, as a
factual matter, its accounting and financial management
systems adequately tracked, managed, and segregated the
tax and non-tax revenues. But this court has been unable to
find, and the parties have not identified, any Oregon case law
that discusses whether such accounting methods may allow
the Programs to survive Section 9 scrutiny. The financial
management systems and contractual arrangements
employed by the Port to fund the Programs are qualitatively
different than the systems and arrangements used by
municipal corporations to fund programs through the sale of
revenue bonds. We are hesitant to expand Oregon law in a
manner that may be contrary to Oregon’s wishes 1 and in an
important subject matter in Oregon’s history. 2
1
This case comes to us after the district court dismissed the single
federal claim and maintained supplemental jurisdiction over the
remaining state law claim. Once the district court dismissed the federal
claim, the court could have declined to exercise supplemental
jurisdiction over the remaining Section 9 state law claim. Sanford v.
MemberWorks, Inc., 625 F.3d 550, 561 (9th Cir. 2010) (“A district court
‘may decline to exercise supplemental jurisdiction’ if it ‘has dismissed
all claims over which it has original jurisdiction.’” (quoting 28 U.S.C.
§ 1367(c)(3))). This court has advised that when all federal law claims
are eliminated before trial, the district court is “duty-bound to take
seriously” the responsibility to decline or retain jurisdiction over any
remaining state law claims. Acri v. Varian Assocs., Inc., 114 F.3d 999,
1001 (9th Cir. 1997) (en banc). However, the district court is not
required to sua sponte analyze whether it should decline to exercise
supplemental jurisdiction, id., and there is no evidence that either party
raised the issue.
2
Constitutional provisions like Section 9 were added to state
constitutions after local government efforts to attract private enterprise,
mostly railroad companies, by providing tax benefits and subsidies to
ILWU V. PORT OF PORTLAND 5
For these reasons, pursuant to Oregon’s Uniform
Certification of Questions of Law Act, OR. REV. STAT.
§§ 28.200–.255, we respectfully certify to the Oregon
Supreme Court the question of law set forth in Part III of this
order. The answer to this question of law may be
determinative of the case pending before this court and there
is no clearly controlling precedent in the decisions of the
Oregon Supreme Court or Oregon Court of Appeals.
I. Background
This case arises from a labor dispute between plaintiff-
appellant International Longshore and Warehouse Union
(“ILWU”) and defendant-appellee the Port over whether
ILWU or another labor organization should have been
assigned work related to refrigerated shipping containers at
Terminal 6 of the Port. The dispute caused financial losses
to the Port and to ICTSI Oregon, Inc. (“ICTSI”), which
manages and operates Terminal 6 pursuant to a lease
agreement with the Port. Concerned with the economic
impact of the work slowdown, the Port approved, funded,
and implemented four incentive and subsidy programs to
keep Terminal 6 operating at financially sustainable levels.
Under the 2012 Carrier Program, the Port offered to
make fixed “Program Payments” to certain carriers if they
made a call at Terminal 6 during a four-week period. The
Port made three payments under the 2012 Carrier Program
totaling $175,000. The 2012 Carrier Program did not
contain any agreement between the Port and the carriers that
participated in the Program regarding whether or not tax
revenue would be used to fund the Program or whether the
them went awry and required general taxpayers to cover the defaulted
loans. See Carruthers v. Port of Astoria, 438 P.2d 725, 727 (Or. 1968).
6 ILWU V. PORT OF PORTLAND
carriers could make claims against the Port’s tax revenue to
satisfy the Port’s obligations under the Program.
The Port adopted the 2012 Rent Program on August 8,
2012. Under the 2012 Rent Program, the Port agreed to
reimburse ICTSI fifty percent of certain costs related to the
labor dispute incurred by ICTSI between June 1, 2012, and
the earliest of several possible dates or events. The amount
was capped at $4,664,356, which was the amount of rent
otherwise due from ICTSI. The Port and ICTSI entered into
a supplemental agreement on October 26, 2012, under which
ICTSI agreed that the Port had not pledged tax revenue to
finance the 2012 Rent Program and ICTSI waived any right
to make claims against the Port’s tax revenue to satisfy the
Port’s obligations under the Program. The Port paid
$2,688,672 to ICTSI under the 2012 Rent Program.
The labor dispute continued through 2012 and into 2013,
so the Port adopted two new programs: the 2013 Carrier
Program and the 2013 Rent Program. The 2013 Carrier
Program was authorized by the Port Commissioners on
January 9, 2013. The 2013 Carrier Program authorized $10
per-container incentive payments to carriers who called on
Terminal 6. The Program was capped at $1,000,000 and
terminated at the end of 2013. The payments were to be
made with non-tax revenues, specifically the rent received
from ICTSI between 2012 and 2013. Each carrier
participant was required to acknowledge that no tax revenue
was used to fund the 2013 Carrier Program and to waive any
right to make a claim against the Port’s tax revenue to satisfy
any of the Port’s obligations under the Program. The 2013
Carrier Program payments totaled $631,620.
Finally, the Port adopted the 2013 Rent Program on
February 13, 2013, under which the Port agreed to make rent
rebate payments to ICTSI in the amount of $308,333 per
ILWU V. PORT OF PORTLAND 7
month during 2013. The agreement stated that the sole
source of funding for the 2013 Rent Program would be the
annual rent payments paid to the Port by ICTSI. ICTSI
disclaimed any right to the Port’s tax revenues to satisfy the
Port’s rebate obligations. The 2013 Rent Program was
capped at $3,700,000.
ILWU’s initial federal complaint alleged violations of
42 U.S.C. § 1983 and Section 9. The district court dismissed
the federal claim with prejudice, and proceeded on to the
cross-motions for summary judgment with respect to the
Section 9 claim. The district court granted summary
judgment in favor of the Port, and ILWU filed a timely
notice of appeal. We have jurisdiction pursuant to 28 U.S.C.
§ 1291 and review the district court’s ruling on cross-
motions for summary judgment de novo. Guatay Christian
Fellowship v. Cnty. of San Diego, 670 F.3d 957, 970 (9th
Cir. 2011).
II. Discussion
The most relevant case here is Carruthers v. Port of
Astoria, 438 P.2d 725 (Or. 1968). Carruthers involved a
Section 9 challenge to the Port of Astoria’s sale of municipal
revenue bonds to finance the construction of facilities that
would be used to reduce aluminum ore to aluminum.
Carruthers, 438 P.2d at 726. The facilities were to be used
by a private entity, the Northwest Aluminum Company, Inc.
(“Northwest Aluminum”). Id. The Oregon Supreme Court
ultimately ruled that the sale of revenue bonds by the Port of
Astoria did not violate Section 9, concluding that “[t]here
seems no way, under this proposal, . . . by which the
taxpayers or other property of the Port may be held generally
accountable in taxes or otherwise in the event of default.”
Id. at 729. The court reached this conclusion for several
reasons. First, the sale of bonds by an Oregon port to
8 ILWU V. PORT OF PORTLAND
construct a plant “suitable for use by any industry” was
specifically authorized by then-applicable Oregon statutes.
Id. at 726 (quoting OR. REV. STAT. § 777.130). The then-
applicable statute stated that bonds sold under this provision
“shall not in any manner or to any extent be a general
obligation of the port issuing the bonds nor a charge upon
the tax revenues of such port, nor a charge upon any other
revenues or property not specifically pledged thereto.” Id.
(quoting OR. REV. STAT. § 777.560). The statutory bar was
expressly included in Northwest Aluminum’s agreement.
Id. at 729. Additionally, Northwest Aluminum’s agreement
stated that its obligation to pay rent was “unconditional until
the bonds are paid in full or adequate provision has been
made for such payment.” Id. The bonds were to be paid
solely from the money derived from Northwest Aluminum’s
lease of the project. Id. The agreement also created a special
fund to receive rental and other payments by Northwest
Aluminum and from which the Port of Astoria would pay the
interest and principal on the bonds. Id. Lastly, Northwest
Aluminum was required to insure the project against loss.
Id.
The Carruthers court considered the argument that there
may be some way to recover from the taxpayers in the event
of a default by the Port of Astoria. Id. at 729–30.
Specifically, Oregon law at the time permitted a creditor to
recover against a municipal corporation if the municipal
corporation’s officers acted negligently or the city breached
the contract. Id. (citing Public Market Co. of Portland v.
City of Portland, 138 P.2d 916 (Or. 1943) and Morris v. City
of Sheridan, 167 P. 593 (Or. 1917)). But the court dismissed
this possibility, finding that prospective bond purchasers
would be on notice when they purchased the bonds that their
only recourse in the event of default was against Northwest
Aluminum. Id. at 730.
 ILWU V. PORT OF PORTLAND 9
In another important Section 9 case, the City of Eugene
was permitted to raise funds through revenue bonds to
jointly acquire and operate a nuclear power plant with a
private utility. Miles v. City of Eugene, 451 P.2d 59, 64 (Or.
1969). Just as in Carruthers, the Oregon legislature had
authorized by statute municipal corporations to sell revenue
bonds to raise money to fund joint power facilities. Id. at 60
(citing OR. REV. STAT. § 225.450 et seq.). And, as in any
sale of revenue bonds, the city’s general tax obligations were
not exposed. Id. at 61.
Carruthers and Miles contrast with Hunter v. City of
Roseburg, 156 P. 267 (Or. 1916). In Hunter, the Oregon
Supreme Court invalidated the City of Roseburg’s attempts
to issue bonds to fund the construction of a railroad that
would be used by private railroad and lumber companies. Id.
at 272. The city had proposed an annual tax to pay the
interest on the bonds and a further levy to pay for the bonds
at maturity. Id. at 268, 271. Though the court recognized
that the project aimed to accelerate the general business of
the community, the court concluded that the agreement was
“inimical to article 11, [Section 9]” because it expended
general tax revenues in support of private enterprise. Id. at
272.
Thus, it appears to be well-settled law in Oregon that a
municipal corporation’s sale of revenue bonds does not
violate Section 9’s prohibition on raising money for or
lending credit to a private enterprise, whereas a municipal
corporation’s sale of general obligation bonds may violate
Section 9. See Miles, 451 P.2d at 64 (concluding that Section
9 does not prohibit a city from using funds derived from
selling revenue bonds and distinguishing Miles and
Carruthers from Hunter because the city in Hunter “was
10 ILWU V. PORT OF PORTLAND
proposing to finance the construction of a railroad with
general obligation bonds payable from general tax levies”).
The programs in Miles and Carruthers survived Section
9 challenges in part because the funding was derived from
revenue bonds, which do not expose tax revenues, and
because the programs were authorized by statute. Here, the
Port did not sell revenue bonds to fund the Programs, and the
Programs were not specifically authorized by statute.
Additionally, in Carruthers, there were provisions in the
statute and in the agreement with Northwest Aluminum that
made clear that the bonds sold would not extend to a general
obligation, thereby potentially exposing the Port of Astoria’s
tax revenue. Carruthers, 438 P.2d. at 726, 729. There is no
evidence that the 2012 Carrier Program contained a similar
waiver, and the 2012 Rent Program added one in a
supplemental agreement with ICTSI approximately two
months after the 2012 Rent Program was authorized. The
2013 Programs contained such waivers. At oral argument,
counsel for the Port argued that the Port imposed these
additional requirements on the later programs in an
abundance of caution. But the distinctions between the
programs in Miles and Carruthers and the Programs in this
case may be significant enough for a court to conclude that
the Port failed to implement adequate tax revenue
protections in some or all of the Programs.
On the other hand, the Port employed various accounting
and budgetary measures to segregate tax revenue from non-
tax revenue. Such accounting measures were not considered
in Carruthers or Miles, and as far as we can tell, have never
been considered in Oregon case law. Neither Carruthers nor
Miles specify exactly what procedures are necessary to
adequately protect tax revenues. It would not be
unreasonable for a court to conclude that the financial and
ILWU V. PORT OF PORTLAND 11
accounting mechanisms in place—in combination with the
tax revenue disclosures and waivers in place for the 2013
Programs and for part of the 2012 Rent Program 3—are
enough to survive Section 9 scrutiny. But given that the
structure of the Programs is categorically different than the
structure of the revenue bond programs that have been the
focus of previous Section 9 rulings by the Oregon courts, we
conclude it is best to ask the Oregon courts to resolve
whether the Port’s Programs adequately protected tax
revenue as required by Section 9.
III. Question Certified to the Oregon Supreme
Court
For the reasons stated above, we respectfully certify the
following question to the Oregon Supreme Court:
Does a municipal corporation that holds its
tax and non-tax revenues in the same bank
account but that segregates the revenues
through financial management and
accounting techniques violate article XI,
section 9, of the Oregon Constitution when
the municipal corporation uses its funds to
finance programs that benefit private
enterprise if the programs contain neither,
one, or both of the following two contractual
provisions: (1) the municipal corporation
certifies that it will not use tax revenue to
fund the programs; (2) the program
beneficiaries waive any right to make a claim
against the municipal corporation’s tax
3
Again, we note that there was no disclosure and waiver in the 2012
Carrier Program and for the first two months of the 2012 Rent Program.
12 ILWU V. PORT OF PORTLAND
revenue to satisfy the municipal
corporation’s program obligations?
We respectfully ask the Oregon Supreme Court to
exercise its discretionary authority to accept and decide this
question. Our phrasing of the question should not restrict the
Oregon Supreme Court’s consideration of the issues
involved, and “we recognize that [the Oregon Supreme
Court] may reformulate the question.” Queen Anne Park
Homeowners Ass’n v. State Farm Fire & Cas. Co., 763 F.3d
1232, 1235 (9th Cir. 2014). If the Oregon Supreme Court
declines certification, we will resolve the question according
to our best understanding of Oregon law.
Further proceedings in this court are stayed pending
receipt of the answer to the certified question. The clerk of
this court shall forward a copy of this order, under official
seal, to the Oregon Supreme Court, along with copies of all
briefs and excerpts of record that have been filed with this
court. The parties shall notify the clerk of this court within
one week of any decision by the Oregon Supreme Court to
accept or decline certification. If the Oregon Supreme Court
accepts certification, the parties shall then notify the clerk of
this court within one week of the issuance of that court’s
opinion.
IT IS SO ORDERED
______________________________
Mary H. Murgia
United States Circuit Judge, Presiding