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Attorneys fight over lease 'extension' as oral arguments heard in LIO lawsuit

  • Author: Alex DeMarban
  • Updated: September 28, 2016
  • Published March 22, 2016

A state Superior Court judge on Tuesday heard oral arguments in a citizen lawsuit attempting to void the Legislature's lease for its renovated office space in Anchorage, with attorneys jousting over whether the $40 million deal qualifies as a simple lease extension eligible for a no-bid preference.

Anchorage Superior Court Judge Patrick McKay said he hoped to issue a decision early next week, or even earlier.

The arguments were made for and against a motion filed last summer by Anchorage attorney Jim Gottstein, owner of the Alaska Building that adjoins the newly renovated and expanded Legislative Information Office at 716 W. Fourth Ave.

In an effort to stop the lease, Gottstein filed a citizen lawsuit against the Legislative Affairs Agency and the building owner, 716 W. Fourth Ave. LLC, owned by Mark Pfeffer and Bob Acree.

Gottstein, representing himself, argued that the 10-year deal should be tossed because, in effect, it is not a property lease extension of the previous contract and shouldn't have gotten a no-bid preference. The original building that had been leased, he said, was completely overhauled with a construction effort in 2014 that included stripping down the building to its steel frame and the demolition of an adjoining building, the Anchor Pub. Also, the work was so extensive the Legislature moved to a nearby building for more than a year.

"Demolishing the building, throwing the tenant out for 13 months, demolishing the building next to it, and building a whole new building is not an extension, it's that simple," said Gottstein, arguing his case before McKay.

Attorneys representing Legislative Affairs, the Legislature's executive agency and the landlord argued that the Legislative Council took proper steps to approve the deal, and that the size of the modifications were permissible. The Legislative Council is a joint committee that handles the Legislature's business affairs.

The contract is an "extension" by definition, including one in Webster's Dictionary that says an extension increases the duration of something, said Kevin Cuddy, arguing for Legislative Affairs.

The building's "purpose doesn't change, the location doesn't change, the landlord doesn't change, the tenant doesn't change," Cuddy said.

He added: "The building can change."

Gottstein's other motion in the case, one that has received more public attention, challenges the view that the lease provides the Legislature with savings at least 10 percent below the market rental value. Such savings are required under the state law allowing no-bid lease extensions. Gottstein argues that standard has not been met.

The judge is expected to take up that question later. But it could also be rendered moot if he decides in the coming days that the previous lease was not properly extended.

Part of Tuesday's arguments centered on the legislative history surrounding the statute allowing no-bid lease extensions.

Cuddy said the history of the law showed the Legislature understood that modifications to buildings are necessary, such as for more parking, more office space, or compliance with federal requirements like the Americans with Disability Act.

That led to a series of pointed questions from McKay about how much of a modification is permissible.

"With a straight face can you argue that if you rented parking space and decided to modify that to build a parking garage with several hundred parking spaces, then that would be a modification of that lease?" McKay asked.

"Absolutely not," said Cuddy. "The same essential need is being served by both buildings of roughly comparable sizes."

"Roughly comparable?" McKay shot back, adding that the square footage in the new building is more than 2 1/2 times larger than the initial 23,000 square feet.

Cuddy said later that the change was "modest."

"We are not moving from one address to Eagle River," Cuddy said. "We are expanding the footprint, modestly, and it is (modest) in the grand scheme of things in terms of what this building was and what it is now."

Jeffrey Robinson, an attorney with Ashburn and Mason representing the landlord, said the Legislative Council and its then-chair, Rep. Mike Hakwer, R-Anchorage, did a thorough job in 2013 of legally approving the lease extension.

The council had previously made several unsuccessful attempts to find appropriate office space, including with competitive processes such as one in 2013 that yielded two companies offering facilities that didn't meet the Legislature's unique needs, such as public access, proximity to court space downtown, growth in legislative staff and the need for updates to failing water and heating systems.

However "unpopular or dislikeable" the lease is, the Legislative Council's process needs to be respected, Robinson said.

"We could play Monday morning quarterback now, and say, 'Come on, do we really need 64,000 square feet of space? Do we really need dedicated parking? Do we really need X number of meeting rooms? Do we need a bigger elevator?'

"The point is that the Legislative Council, as they were constitutionally authorized to do, decided what the needs of the Legislature were at the time," Robinson said.

Gottstein said the Legislative Council didn't have constitutional authority to "purchase space on whatever terms it decides."

He also said the defending attorneys are wrong to call the lease an extension because that's what the contract says.

"Just by calling it an extension does not make it one," Gottstein said.

Correction: An earlier version of this story mistakenly said the next-door bar demolished to make way for legislative offices was the Anchorage Pub. It was the Anchor Pub.