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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Sourdough Development Services, Inc. v. Riley (02/20/2004) sp-5781

Sourdough Development Services, Inc. v. Riley (02/20/2004) sp-5781

     Notice:   This opinion is subject to correction  before
     publication  in  the  Pacific  Reporter.   Readers  are
     requested to bring errors to the attention of the Clerk
     of  the  Appellate  Courts, 303  K  Street,  Anchorage,
     Alaska 99501, phone (907) 264-0608, fax (907) 264-0878,
     e-mail corrections@appellate.courts.state.ak.us.


            THE SUPREME COURT OF THE STATE OF ALASKA


SOURDOUGH DEVELOPMENT    )
SERVICES, INC., d/b/a BIG GAME     )    Supreme Court No. S-10801
ALASKA, G. MICHAEL MILLER,    )
and DOUG DRUM,           )    Superior Court No. 3AN-98-3556 CI
                              )
             Appellants,      )    O P I N I O N
                              )
     v.                       )    [No. 5781 - February 20, 2004]
                              )
JAMES W. RILEY, MICHAEL J.    )
SCHACHLE, and J. MICHAEL      )
SCHACHLE,                )
                              )
             Appellees.            )
________________________________)


          Appeal  from the Superior Court of the  State
          of    Alaska,   Third   Judicial    District,
          Anchorage, Sen K. Tan, Judge.

          Appearances:   Barton  M.  Tiernan,  The  Law
          Offices of Barton M. Tiernan, Anchorage,  for
          Appellants.  Michael A. Grisham, Patton Boggs
          LLP, Anchorage, for Appellees.

          Before:   Bryner,  Chief  Justice,  Matthews,
          Eastaugh, Fabe, and Carpeneti, Justices.

          EASTAUGH, Justice.

I.   INTRODUCTION

          Parties to a lawsuit disputed control of a closely held

corporation.   When  parties alleged corporate mismanagement  and

requested  dissolution, the trial court appointed a  receiver  to

manage the corporation.  After the court conducted a bench  trial

and  resolved  one  issue, the shareholders and  the  corporation

entered  into a settlement agreement.  The parties who  prevailed

at trial argue here that the superior court erred by declining to

assess  the  receivership expenses against the other shareholders

as  a  litigation cost under Alaska Civil Rule 79.   We  conclude

that  this dispute is resolved by the settlement agreement.   The

controlling passage of the agreement is section 9, which required

the  corporation  to pay these expenses, rather than  section  8,

which  generally permitted parties to seek litigation costs under

Rule 79.  We therefore affirm.

II.  FACTS AND PROCEEDINGS

          This  case  arises out of a series of disputes  between

two  groups  of  shareholders of Sourdough Development  Services,

Inc.,   d/b/a  Big  Game  Alaska  (Sourdough),  a  closely   held

corporation operating a wildlife park in Portage.  The underlying

substantive issues material to the deterioration of the  business

relationship are disputed by the parties but are not relevant  to

the issues in this appeal.

          The underlying legal dispute involved the effect of two

agreements.   A 1992 agreement between family shareholders  James

W.  Riley,  J.  Michael Schachle, Michael  J.  Schachle,  and  G.

Michael  Miller established the number of shares issued  to  each

shareholder,  and  designated each of  the  four  shareholders  a

director of the corporation.

          In   1993  G.  Michael  Miller  and  James  W.   Riley,

respectively president and secretary of Sourdough, on  behalf  of

Sourdough  entered into a partnership agreement with  Doug  Drum.

Per the 1993 partnership agreement, Drum sold $50,000 in personal

property  to Sourdough in return for ten percent stock  ownership

in Sourdough.

          Disputes   arose  between  the  shareholders  regarding

Sourdough's management.  Sourdough, acting through Miller in  his

capacity  as president, filed a complaint in 1998 against  Riley,

alleging breach of fiduciary duty, misappropriation of funds, and

conversion.  Riley, Michael J. Schachle, and J. Michael Schachle,

acting  individually  and derivatively on  behalf  of  Sourdough,

asserted  claims against third-party defendants Miller and  Drum.

The Riley-Schachle answer and third-party complaint requested the

dismissal of Sourdough's complaint against Riley, sought an order

rescinding  the  1993  partnership  agreement  with   Drum,   and

requested  a  declaration  that Sourdough's  board  of  directors

consist  only  of Riley, Miller, and the Schachles.   The  third-

party  complaint alternatively requested that the corporation  be

involuntarily  dissolved, and that the court appoint  a  receiver

for  the  corporation  pending  resolution  of  the  request  for

involuntary dissolution.

          Hoping  to avoid a formal receivership, Miller,  acting

for  Sourdough,  entered  into a limited  financial  receivership

agreement with CPA Eileen Zaiser in July 1998.  In September 1998

Superior  Court  Judge  Sen  K.  Tan  formally  appointed  Zaiser

receiver,  granting her authority "to . . . manage  the  business

and  affairs"  of Sourdough pending the hearing and determination

of the dissolution complaint.  The court observed that "unless  a

receiver . . . is appointed, the interests of the corporation and

its shareholders will suffer."

          After  conducting a two-day bench trial addressing  one

of  the  claims, the superior court ruled in favor of  Sourdough,

Miller,  and  Drum;  the court found that  the  1992  shareholder

agreement was unenforceable because there was no mutual assent by

all shareholders.  The court reserved the remaining claims in the

lawsuit.   The  remaining claims were to be  tried  in  September

1999.

          In  June  1999  Sourdough (acting  through  the  court-

appointed  receiver),  Riley, Miller,  Drum,  and  the  Schachles

agreed  to  settle the remaining claims.  The parties  agreed  to

dismiss  all pending claims and to release each party  from  "any

and  all claims . . . that arise out of or relate to any  of  the

matters  asserted  in  .  . . any actual  or  proposed  pleadings

submitted  in  the Lawsuit, or any matters that could  have  been

asserted in the Lawsuit, or any actions taken pursuant to and  in

furtherance  of  [the] Agreement."  Section 8 of  the  settlement

agreement  allowed  the  parties to seek  attorney's  fees  under

Alaska Civil Rule 82 and costs under Alaska Civil Rule 79.1

          The  settlement agreement also gave Miller and Drum the

option of having Sourdough buy the shares owned by Riley and  the

Schachles, following a valuation of the business.  If Miller  and

Drum did not timely exercise their buy-out option, the settlement

agreement  gave  Riley  and the Schachles the  option  of  having

Sourdough  purchase  the shares owned by  Miller  and  Drum.   If

neither  group  of  shareholders  timely  exercised  its  buy-out

option,  the settlement agreement required the superior court  to

involuntarily dissolve the corporation.

          The   settlement  agreement  also  provided  that   the

receiver  would  continue  to  manage  Sourdough's  business  and

affairs  until  a  buy-out  or dissolution.   Section  9  of  the

settlement  agreement  provided that the receiver  "shall  retain

sufficient  funds of the corporation to pay all expenses  of  the

receivership  and  the  Receiver shall then  transfer  all  other

assets,  books and records of the corporation to the persons  who

are  assuming responsibility for the corporation."  The  superior

court approved the settlement agreement in September 1999.

          Per  the settlement agreement, Miller and Drum tendered

money to purchase the shares of Riley and the Schachles.  In  May

2001, after the receiver conducted a final accounting, Judge  Tan

approved  the  final  accounting,  authorized  payment   of   the

receiver's  final fees from corporate funds, and  discharged  the

receiver.

          In  December  2000 plaintiff Sourdough and  third-party

          defendants Miller and Drum filed a motion asking the court to

enter  a final judgment in their favor on their theory that  they

prevailed on the only issue the superior court had ruled on - the

unenforceability of the 1992 shareholder agreement.  Arguing that

they were the prevailing parties, they also moved for an award of

attorney's fees and costs.

          The  superior court issued an "Order of Final Judgment"

in  2002;  the  order  ended  the  litigation  per  the  parties'

settlement  agreement, dismissed all claims with  prejudice,  and

stated  that  Miller,  Drum, and Sourdough  were  the  prevailing

parties in the first part of the dispute.  The order also  stated

that  "[a]lthough it is not possible to infer at this  stage  who

would  have  prevailed on what issues at the second  trial,  this

court  finds that whether there was an enforceable agreement  was

clearly one primary issue in the case.  On that issue, plaintiffs

prevailed."

             After  hearing  oral argument,  the  superior  court

issued  an  order addressing attorney's fees and costs;  it  held

that  although  Miller and Drum had prevailed  on  one  issue  at

trial, the court could not find that only one party prevailed  in

the  ensuing settlement.  The court therefore awarded Miller  and

Drum attorney's fees of $9,504, fifteen percent of the attorney's

fees  they had incurred through the end of trial, and awarded  no

attorney's fees to Miller and Drum for "phase two" of  the  case,

after trial.

          Miller  and Drum's attorney submitted a cost  bill  for

Rule  79 costs totaling $163,553.57.  Citing Rule 79(f)(15),  the

cost  bill  included the receiver's fees and the fees charged  by

her attorney as "other costs allowed by statute."  Those fees and

expenses  apparently totaled more than $120,000  as  of  February

2002.   The  superior  court held that all receivership  expenses

were to be paid by Sourdough, and should not be taxable to either

party.   The court found that Miller and Drum were only  entitled

to  Rule  79 costs incurred through the end of the trial.   After

referring the cost bill to the clerk of court for a cost hearing,

the  superior court awarded Miller and Drum $5,524.59  in  costs.

The  attorney's  fees  and  cost awards  were  reduced  to  final

judgment, and have been satisfied.

          Miller, Drum, and Sourdough appeal the superior court's

order  regarding attorney's fees and costs.  For the purposes  of

this   appeal,  we  refer  to  the  appellants  collectively   as

"Sourdough."   Although  the order from which  Sourdough  appeals

also  includes  a  ruling  on attorney's  fees,   Sourdough  only

challenges the superior court's failure to require Riley and  the

Schachles   to  bear  the  receivership  fees  and  expenses   as

litigation costs taxable under Rule 79.

III. DISCUSSION

     1.   Standard of Review

          1.   Normally we review a trial court's Rule 79 award of

litigation  costs  for an abuse of discretion;  demonstrating  an

abuse  of  discretion  requires a showing  that  the  award  "was

arbitrary,  capricious,  manifestly unreasonable,  or  improperly

motivated."2  The dispositive issue here, however, is whether the

settlement agreement permits receivership expenses to be  awarded

as  Rule  79 costs.  This issue turns on contract interpretation.

We   apply  our  independent  judgment  to  matters  of  contract

interpretation.3

     2.   The  Settlement Agreement Bars Sourdough's  Claim  that
          Receivership Expenses Should Be Paid by Riley and the Schachles
          as Litigation Costs Taxable Under Rule 79.
          
            Sourdough  advances multiple reasons to  support  its

contention  that  the superior court erred by  failing  to  order

Riley  and  the  Schachles to bear the receivership  expenses  as

litigation costs under Rule 79.  Most, if not all, of its reasons

implicate  the merits of the parties' disputes and the  propriety

of  ordering a receivership.  Thus, Sourdough argues  that  Riley

and the Schachles should pay the receivership expenses as Rule 79

litigation  costs  because  they  were  the  proponents  of   the

receivership  and the receivership was improper and  improvident.

          It likewise argues that the receivership was compelled by Riley

and  the Schachles' claim that the 1992 shareholder agreement was

enforceable.  It argues that because that claim was based on what

it  calls  "unsubstantiated  [and] embellished  allegations"  and

because  the superior court ruled in Sourdough's favor by holding

that  the  1992  shareholder  agreement  was  unenforceable,  the

receivership was improper.

          Sourdough  similarly claims that the  receivership  was

intended  to  sequester Sourdough's assets, that the receivership

conferred no benefit on Sourdough, and that the receivership  was

improperly  continued.  Sourdough further argues that  Riley  and

the   Schachles  acted  with  improper  motives,  and  that  they

"wrongfully necessitated" the receivership.

          In support of its claim of error, Sourdough cites cases

from  other  jurisdictions in which courts taxed  the  receiver's

expenses  to the party responsible for the receivership when  the

appointment of the receiver was held to be erroneous, or when the

party compelled the receivership based on unsubstantiated claims.

Sourdough  also  argues that Rule 79 allows  parties  to  recover

receivership expenses as litigation costs.

          As  Riley  and  the Schachles correctly  assert,  these

potential  grounds  for relief are precluded  by  the  settlement

agreement.   That agreement ended the litigation and disposed  of

all claims arising from the lawsuit, "any matters that could have

been asserted in the Lawsuit," and "any actions taken pursuant to

and  in  furtherance of [the] Agreement."  The grounds  Sourdough

raises  for awarding these costs would have required the superior

court to dive back into the merits of the parties' disputes, some

of  which  raised  potentially complex and  vigorously  contested

factual  issues.  That course would have forced  the  parties  to

litigate  the merits of many of the substantive issues that  they

were  attempting  to  resolve  by entering  into  the  settlement

agreement.    When  the  parties  entered  into  the   settlement

agreement  they intended to end the litigation, not  prolong  it.

The  timing  of  the agreement, on the eve of the  second  trial,

suggests that the parties intended a universal settlement of  all

remaining  disputes,  many of which revolved  around  Sourdough's

attempts  to terminate or modify the receivership.  Consequently,

the  principal arguments Sourdough advances for finding error are

completely unavailing and are barred by the settlement agreement.

If  Sourdough wanted to litigate these issues, it should not have

entered into the settlement agreement.

          Although  its appellate briefs are largely  devoted  to

elaborating  on  the  arguments  discussed  and  rejected  above,

Sourdough's  opening brief also seems to argue that the  superior

court should have awarded the receivership expenses against Riley

and  the  Schachles  simply because they  were  litigation  costs

recoverable under Rule 79.  Sourdough's opening brief  completely

fails  to address the real question inherent in such an argument:

whether  section 9 of the settlement agreement has the effect  of

precluding  a Rule 79 award of the receivership expenses  against

Riley  and  the Schachles.  Riley and the Schachles discuss  that

question  in  their appellees' brief and Sourdough's reply  brief

contains  a  short  response.  Sourdough there  argues  that  the

parties did not truly "agree" that the corporation would bear the

costs of the receivership because section 9 came from a provision

included  in the superior court's order appointing the  receiver.

That  order  provided  that the receiver  should  provide  notice

before  "transferring  corporate funds .  .  .  to  pay  for  her

receivership  fees."  Sourdough therefore asserts  in  its  reply

brief  that  the  settlement agreement only  specifies  that  the

receiver  would  be paid by the corporation because  the  parties

could not, and did not, modify the court order.  It also contends

that  "there is no probative evidence of any agreements that  the

Corporation  pay any litigation costs and in fact  the  same  was

specifically  reserved for a post-litigation cost application  in

the Settlement Agreement Stipulation filed with the [c]ourt."

          Section 8 of the settlement agreement provides in part:

               Attorneys' Fees and Costs. Any party may
          file with the Superior Court a motion seeking
          an award of attorneys' fees under Rule 82 and
          an  award of costs under Rule 79.  Nothing in
          this  Agreement is intended to  foreclose  an
          award  of Rule 82 attorneys' fees or Rule  79
          costs.   In deciding any motion for  Rule  82
          attorneys'  fees and any motion for  Rule  79
          costs, the Superior Court may consider, as it
          deems   appropriate,  the  results   achieved
          through  the  Lawsuit as well as the  outcome
          provided for in this Agreement.
          
          Section 9 of the settlement agreement provides:

               Receivership.   If  Sourdough  buys  the
          shares  Riley, Schachle Sr. and Schachle  Jr.
          own as is provided in Section 2 above, or  if
          Sourdough buys the shares Miller and Drum own
          as  is  provided  in  Section  3  above,  the
          receivership  shall  automatically  terminate
          without  further order of the Superior  Court
          upon the closing of the purchase transaction.
          The Receiver shall retain sufficient funds of
          the  corporation to pay all expenses  of  the
          receivership  and  the  Receiver  shall  then
          transfer all other assets, books and  records
          of  the  corporation to the persons  who  are
          assuming  responsibility for the corporation.
          The  Receiver shall file a final  report  and
          accounting with the Superior Court, and  upon
          the   approval  of  the  final   report   and
          accounting, the Superior Court shall enter an
          appropriate  final judgment  terminating  the
          Lawsuit.  If  neither of the stock  purchases
          contemplated  by  Section 2  [or]  Section  3
          occur[s],  the  receivership  shall  continue
          until  it  is  terminated  by  order  of  the
          Superior Court.
          
(Emphasis added.)

          The controlling question is which section controls.  Is

it section 9 - which deals with the receivership expenses - or is

it  section  8 - which reserves to the parties an opportunity  to

seek Rule 82 attorney's fees and Rule 79 litigation costs?

            A  settlement agreement that fulfills basic  contract

principles   is  binding  on  the  parties  to  the   agreement.4

Sourdough claims that it only agreed to include section 9 because

of  the  presence of a similar provision in a court  order.   But

          this is not a valid reason for either misinterpreting the section

or   excusing  Sourdough  from  the  effect  of  the   provision.

Sourdough   does  not  attack  the  validity  of  the  settlement

agreement  or  section 9; it does not claim that  the  settlement

agreement  is  unenforceable  or  is  invalid  or  that   duress,

coercion,  or fraud caused Sourdough to enter into the agreement.

The  settlement  agreement's inclusion of a provision  consistent

with  a  provision in the superior court's order  appointing  the

receiver  does  not nullify Sourdough's (and Miller  and  Drum's)

assent to the settlement agreement.  Nor does it excuse Sourdough

from abiding by the terms of a valid settlement agreement.

          When  interpreting a contract, such as  the  settlement

agreement  in  this case, it is our duty to give  effect  to  the

intentions  of  the parties.5  To determine their intentions,  we

look  to  the  words  of the contract and any extrinsic  evidence

regarding  the  parties' intentions when they  entered  into  the

contract.6

          We  read  section  9 to be the more specific  provision

with  regard to receivership expenses.7  Section 9 specifies that

upon termination, the receiver "shall retain sufficient funds  of

the  corporation to pay all expenses of the receivership and  the

Receiver shall then transfer all other assets, books and  records

of the corporation to the persons who are assuming responsibility

for  the  corporation."  Section 8 provides that the parties  may

seek  litigation  costs  under Rule 79, but  says  nothing  about

receivership expenses.  We therefore read the general reservation

in  section  8 to be the less specific provision with respect  to

receivership expenses.  Section 9 clearly enough allocates  those

expenses  to the corporation, one of the parties in the  lawsuit,

and one of the signatories to the settlement agreement.

          Sourdough  has not convinced us that section 8,  rather

than section 9, governs the receivership expenses.  Sourdough has

not  referred us to any extrinsic evidence that would  compel  or

support  a  different interpretation of sections 8  and  9.   The

          settlement agreement stipulation, contrary to Sourdough's

contention on appeal, provides no assistance in interpreting  the

terms  of  the agreement.8  That an earlier order is  similar  to

section  9 does not convince us, as Sourdough contends, that  the

parties  intended  to  allow  the superior  court  to  award  the

receivership expenses against some of the parties as a litigation

cost.   To  the  contrary, it would be remarkable to  think  that

parties entering into a settlement agreement on the eve of  trial

would  mutually agree that the court could award the  very  large

receivership expenses against individual shareholders.  Given the

buy-out   scheme   underlying  the  settlement   agreement,   the

presumption that the receivership benefitted the corporation, and

the parties' knowledge of the expense of the receivership, we see

no  basis  for thinking that the parties intended to treat  these

expenses as an awardable Rule 79 cost.  That is especially so  if

resolution  of  the  cost  application would  have  required  the

superior court to resolve the merits of claims which the  parties

thought they were settling on the eve of trial.

          We  therefore  hold that the settlement agreement  bars

Sourdough's  claim  of error.  Our holding precludes  Sourdough's

argument   that  because  the  receivership  was   improper   and

improvident, Riley and the Schachles should bear the receivership

expenses.   This holding makes it unnecessary for  us  to  decide

generally  whether  receivership  expenses  are  recoverable   as

allowable costs under Rule 79.9

IV.  CONCLUSION

          We   therefore   AFFIRM  the  superior  court's   order

declining  to tax the receivership expenses as Rule 79 litigation

costs.

_______________________________
     1     Rule  79(a) entitles "the prevailing party" to recover
certain  litigation costs "necessarily incurred in  the  action."
Rule  82 generally allows the prevailing party to recover partial
attorney's fees.

     2     Fernandes  v. Portwine, 56 P.3d 1, 4-5 (Alaska  2002);
Kellis v. Crites, 20 P.3d 1112, 1113 (Alaska 2001).

     3    Holderness v. State Farm Fire & Cas. Co., 24 P.3d 1235,
1237-38 (Alaska 2001).

     4    Dickerson v. Williams, 956 P.2d 458, 463 (Alaska 1998).

     5    Exxon Corp. v. State, 40 P.3d 786, 793 (Alaska 2001).

     6     Sprucewood Inv. Corp. v. Alaska Hous. Fin.  Corp.,  33
P.3d 1156, 1162 (Alaska 2001).

     7     As  a matter of contract construction, "specific terms
and  exact terms are given greater weight than general language."
5  Margaret N. Kniffin, Corbin on Contracts  24.23, at 253 (1998)
(quoting  Restatement (Second) of Contracts  203(c) (1981));  see
also McGary v. Westlake Investors, 661 P.2d 971, 974 (Wash. 1983)
(en  banc) (stating that specific language of lease addendum must
prevail over general terms of lease provision).

     8    The relevant words of the stipulation ("the parties may
move  for  costs")  are no more specific than section  8  of  the
settlement agreement.

     9     Our reliance on the settlement agreement also makes it
unnecessary to decide what effect AS 10.06.643(c) might  have  on
this  appeal.  That statute provides that the compensation  of  a
receiver  appointed  to  manage  the  affairs  of  a  corporation
undergoing  dissolution "shall be paid out of the assets  of  the
corporation  and unless otherwise agreed shall be  fixed  by  the
court."