Alaska Supreme Court Opinions made Available by Touch N' Go Systems and Bright Solutions

Touch N' Go, the DeskTop In-and-Out Board makes your office run smoother. Visit Touch N' Go's Website.
  This site is possible because of the following site sponsors. Please support them with your business.
www.gottsteinLaw.com

You can search the entire site. or go to the recent opinions, or the chronological or subject indices. OK Lumber Company v. Alaska Railroad (11/25/2005) sp-5960

OK Lumber Company v. Alaska Railroad (11/25/2005) sp-5960

     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


OK LUMBER COMPANY, INC., )
) Supreme Court No. S- 11430
Appellant, )
) Superior Court No. 4FA-03-0184 CI
v. )
) O P I N I O N
ALASKA RAILROAD )
CORPORATION, ) [No. 5960 - November 25, 2005]
)
Appellee. )
)

          Appeal  from the Superior Court of the  State
          of    Alaska,   Fourth   Judicial   District,
          Fairbanks, Mark I. Wood, Judge.

          Appearances:  Joseph W. Sheehan, Law  Offices
          of   Joseph   W.   Sheehan,  Fairbanks,   for
          Appellant.   James D. DeWitt and Jonathan  A.
          Woodman,  Guess  & Rudd P.C., Fairbanks,  for
          Appellee.

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

          EASTAUGH, Justice.

I.   INTRODUCTION
          OK   Lumber   Company  appeals  the   superior   courts
affirmance of an arbitration decision that established  the  fair
market value of land the Alaska Railroad Corporation leased to OK
Lumber.   Per  the  lease, fair market value affects  the  annual
rent.   OK  Lumber  argues  that  the  arbitrator  exceeded   his
authority  when he interpreted the lease to exclude consideration
of  environmental contamination in determining the propertys fair
market  value.   OK Lumber also contends that the superior  court
erred when it awarded attorneys fees to the railroad.
          The lease states that a matter of disagreement shall be
submitted  to  the  arbitrator.  We therefore conclude  that  the
arbitrator  did not exceed his authority and affirm the  superior
courts  decision  upholding  the arbitrators  decision  regarding
calculation  of fair market value.  We also affirm the  attorneys
fee award because we conclude that a lease provision requiring OK
Lumber to reimburse the railroads costs applies to this dispute.
II.  FACTS AND PROCEEDINGS
          OK  Lumber Company leases land from the Alaska Railroad
Corporation. For the first five years of the lease, the rent  was
set  at  an  agreed-upon amount.  Beginning  in  the  sixth  year
(2002), rent was to be eight percent of the propertys fair market
value,  determined every five years through an appraisal  process
outlined  in  the  lease.  This process was  to  begin  when  the
railroad commissioned an appraisal.  If OK Lumber disagreed  with
the  railroads appraisal, it could arrange for its own.  Finally,
OK  Lumber could refer the matter to an arbitrator if the parties
could not reach agreement after the two appraisals.
          In  late  2001 a railroad appraisal valued the property
at  $876,864.   OK  Lumber  objected to this  appraisal  in  part
because  it  excluded environmental considerations;  the  parties
agree  that  the  property is contaminated by  hydrocarbons.   OK
Lumber  commissioned its own appraisal, instructing the appraiser
to exclude the contamination issue, but to investigate the impact
of  the  stigma from contamination on the propertys  fair  market
value.   OK  Lumbers appraiser concluded that  the  property  was
worth  $730,000  and that contamination stigma would  reduce  the
value  probably  somewhere  [in] the  10%  to  20%  range.   That
adjustment  would  reduce the fair market value  to  some  amount
between $584,000 and $657,000.
          The  matter  proceeded to arbitration.  The  arbitrator
decided that it was not appropriate to consider the impact of the
contamination  because  he believed that the  railroads  Standard
Appraisal Instructions[] instruct[ed] the appraiser to ignore the
impact of contamination.  The arbitrator found additional support
for  his  decision in the fact that the lease itself does contain
indemnification  for the impact of contamination.   He  concluded
that the propertys fair market value was $812,000.  If the impact
of  the  contamination were considered, the arbitrator calculated
that it would have reduced the fair market value to $732,000.
          Arguing that the arbitrator had exceeded his authority,
OK  Lumber  asked  the  superior court to vacate  or  modify  the
arbitration  award.  The superior court denied  the  application,
concluding  that the arbitrator did not exceed his authority  and
that the court had no power to review contract interpretations or
factual  findings.   The  superior court therefore  affirmed  the
arbitrators   decision.   It  also  awarded  the  railroad   full
attorneys fees totaling $8,462.  OK Lumber appeals.
III. DISCUSSION
     A.   Standard of Review
          Whether  a  dispute  was  arbitrable  and  whether  the
arbitral decision violated AS 09.43.120(a) are questions of law.1
We therefore review de novo the superior courts decision on these
          issues.2  But [t]he arbitrators findings of both fact and
law . . . receive great deference.3  When an arbitration proceeds
under  the  terms  of  Alaskas Uniform  Arbitration  Act,[4]  the
arbitrators findings of fact are unreviewable, even in  the  case
of  gross  error.5   Also, an arbitrators  misconstruction  of  a
contract  is not open to judicial review, except on questions  of
arbitrability.6   The  superior  courts  interpretation  of   the
contract  is  a  question of law that we  review  de  novo.7   We
therefore  review  the  dispute over the  leases  attorneys  fees
provision de novo.
     B.   The Arbitrator Did Not Exceed His Authority.
          The  lease authorizes arbitration when the parties fail
to  agree  on  the  fair market value of the property.   It  also
provides  that  [t]he decision of the arbitrator  or  arbitrators
shall  be  final  and unreviewable by any court,  except  to  the
extent authorized by Alaska Statutes 09.43.110, .120 and .130.
          OK  Lumber argues that the arbitration decision  should
be  modified  because the arbitrator exceeded his authority.   It
relies  on  AS 09.43.120(a), which states in part that the  court
shall vacate an award if . . . (3) the arbitrators exceeded their
powers.8   OK  Lumber asserts that the arbitrators authority  was
limited  to  determining value and did not encompass interpreting
the  contract.   It  reasons that paragraph 2.02A  of  the  lease
specified only two exclusions (the value of the lease itself  and
of  the  improvements  owned by OK Lumber)  in  determining  fair
market value and that the arbitrator impermissibly added a  third
exclusion   by   deciding   not  to  consider   the   effect   of
contamination.
          Paragraph  8.01  of  the lease  provides  that  if  the
railroad and OK Lumber fail to agree on the fair market value  of
the property, the matter of disagreement . . . shall be submitted
to  and  determined  by a single arbitrator.   (Emphasis  added.)
This   language  does  not  necessarily  limit  the   arbitrators
authority  to resolving narrow questions about the value  of  the
property.  The record demonstrates that there was a dispute about
whether  contamination should be considered in  determining  fair
market   value.   This  dispute  was  therefore   a   matter   of
disagreement  that was, per paragraph 8.01 of the  lease,  within
the arbitrators authority to determine.  To resolve this dispute,
the  arbitrator had to interpret the contract and decide  whether
contamination can be considered in determining fair market value.9
          Because there is no lack of arbitrability here, we will
not  review  the  arbitrators decision to  exclude  contamination
issues  from the fair market value determination.10  Nor will  we
address the many arguments OK Lumber advances in challenging  the
arbitrators decision.11
          There   is  some  discussion  in  the  superior  courts
decision and in OK Lumbers brief about whether the arbitrator had
access  to the railroads standard appraisal instructions.   There
is   also  discussion  about  whether  the  arbitrator  may  have
committed  a  gross factual error by relying on the testimony  of
the  railroads appraiser to conclude that the standard  appraisal
instructions  excluded contamination.  But  these  questions  are
also   unreviewable:   the  arbitrators  findings  of  fact   are
          unreviewable, even in the case of gross error.12
          Because we affirm the superior court decision upholding
the  arbitrators  decision, there is  no  need  to  consider  the
railroads waiver and estoppel arguments.
     C.   Attorneys Fees

          OK  Lumber also argues that because the lease  requires
each  part[y] to bear its own attorneys fees, the superior  court
erred  by  awarding  attorneys fees to the railroad.   OK  Lumber
refers   us   to  lease  paragraph  8.01,  which  discusses   the
appointment  of  arbitrators and the conduct of arbitration.   It
provides  in part that [l]essor and [l]essee shall share  equally
the  costs  associated  with  the  arbitration.   Paragraph  8.03
addresses  judicial  review of an arbitration  decision,  but  is
conspicuously   silent  about  costs,  and  says  nothing   about
attorneys  fees.  We considered a similar situation  in  Marathon
Oil Co. v. ARCO Alaska, Inc.:
               Marathon  contends that the  arbitration
          agreement required the parties to bear  their
          own   costs   and   fees,  even   for   court
          proceedings following the arbitration. . . .
          
               .   .  .  The  contracts  language  cuts
          against  Marathons  interpretation.  .  .   .
          [T]he  requirement that each party  bear  its
          own  costs  and fees appears in  a  paragraph
          that  also discusses how the arbitrators will
          be   compensated.    The  location   of   the
          requirement  within  the  contract  therefore
          suggests that the parties were referring only
          to the arbitration itself when they agreed to
          each bear their own costs.[13]
          
          In  the  present  case,  the cost-sharing  language  of
paragraph  8.01 appears in the same paragraph as the  description
of the procedures for appointing arbitrators; it is separate from
paragraph  8.03s  discussion of judicial  review.   It  therefore
appears  that OK Lumber and the railroad agreed that  they  would
share  costs incurred during arbitration, but not those  incurred
during  judicial  review  of  an  arbitration  decision.   It  is
unlikely  the  parties  intended costs  as  so  used  to  include
individually incurred attorneys fees, otherwise the  party  whose
attorney  charged  lower fees would have  to  make  up  half  the
difference between its fees and the fees charged by the  opposing
attorney.14
          OK  Lumber  also  argues that even if the  railroad  is
entitled to recover some fees, it was not entitled to a full  fee
award.  Paragraph 4.13 of the lease provides in part:
          Lessee  shall  forthwith pay  to  Lessor  all
          costs   and  expenses,  including  reasonable
          attorneys fees, which are . . . (4)  incurred
          by  Lessor  in connection with any action  in
          any respect related to this Lease, the Leased
          Premises, or Lessees actions or omissions  on
          the    Leased   Premises,   other   than    a
          condemnation  action  filed  by  or   against
          Lessee,  to  and in which Lessor  is  made  a
          party but not adjudicated to be at fault.
          
(Emphasis added.)
          OK Lumber asserts that paragraph 4.13 does not apply to
arbitration or arbitration appeals and that Alaska Civil Rule  82
should govern if the railroad is entitled to any attorneys  fees.
Civil Rule 82 provides that [e]xcept as otherwise provided by law
or agreed to by the parties, the prevailing party in a civil case
shall be awarded attorneys fees calculated under this rule.15  It
also  provides  that  [i]n cases in which  the  prevailing  party
recovers  no  money  judgment, the court . . .  shall  award  the
prevailing  party in a case resolved without trial 20 percent  of
its  actual  attorneys  fees which were  necessarily  incurred.16
Thus, the railroad would be entitled to its full, reasonable fees
if paragraph 4.13 applies, but only twenty percent of its fees if
it does not.
          OK  Lumber  reasons that paragraph 4.13 does not  apply
here because it asserts that
          Article  4s focus is on OKs lease obligations
          and  OKs  obligation to pay  [the  railroads]
          attorneys  fees  in  conjunction   with   OKs
          covenants  .  .  .  .   Article  4  makes  no
          reference    to    fair   market    disputes,
          arbitrations, or appeals associated with rent
          arbitrations . . . .  [Paragraph] 4.13  makes
          sense only in reference to the enforcement of
          Article 4.
          
Although paragraph 4.13 is located within the article that  lists
OK  Lumbers  covenants, OK Lumbers obligation  to  reimburse  the
railroad  for  its costs in certain situations appears  to  be  a
covenant itself and is not linked to the enforcement of the other
covenants.  The parties agreed in paragraph 4.13 that  OK  Lumber
would be responsible for the railroads costs, including attorneys
fees,  incurred  in  connection with any action  in  any  respect
related  to  [the]  [l]ease.  We conclude that,  contrary  to  OK
Lumbers  view, a superior court proceeding brought to  review  an
arbitrators decision is an action.  The superior court  therefore
did not err in awarding full attorneys fees to the railroad.
          OK  Lumber asserts that applying paragraph 4.13 to  the
appeal  of  an  arbitration award is contrary to  public  policy,
unconscionable,  and the product of a contract of  adhesion.   OK
Lumber  points  out  that the railroad could  be  entitled  to  a
comprehensive fee award even if it were not the prevailing party.
This  result,  OK  Lumber contends, would be contrary  to  public
policy.   And because OK Lumber could not recover its costs  even
if it prevailed, it claims that paragraph 4.13, as interpreted by
the  railroad, would be unconscionable.  Finally, it argues  that
the  lease is a contract of adhesion because the railroad had the
bargaining clout to insert any term it wanted into the lease.
          These contentions are unavailing.  The question whether
it  would  contravene  public policy to  award  fees  to  a  non-
          prevailing party is not before us.  Fees were awarded here to the
prevailing party.
          Moreover, although paragraph 4.13 is more favorable  to
the  railroad, we are not persuaded that the superior court erred
in failing to find the provision unconscionable.17  Per paragraph
4.13,  when the railroad is adjudicated to be at fault, OK Lumber
is  not required to reimburse the railroad.  Therefore, OK Lumber
would not be responsible for the railroads costs in many, if  not
all,  of  the  disputes in which OK Lumber might have  prevailed.
Furthermore,  because  the lease is silent regarding  OK  Lumbers
ability  to  seek  an award of costs when it  is  the  prevailing
party,  nothing  appears to preclude OK Lumber from  receiving  a
partial  award  under  Civil Rule 82 when it  is  the  prevailing
party.
          Finally, OK Lumber has not demonstrated that the  lease
is  a  contract of adhesion.  Adhesion contracts arise  when  the
parties  are of such disproportionate bargaining power that  [one
of them] could not have negotiated for variations in the terms of
the standard [contract]. 18  The railroad argues that there is no
evidence  the  lease  is a contract of adhesion.   It  points  to
several    contracting   concessions,    describing    them    as
indemnification  of  OK Lumber for prior contamination,  caps  on
rent  increases in years 6-10 and thereafter for the lease  term,
the  power to assign the [l]essees interest under the [l]ease and
the  right to be released from further obligations upon  such  an
assignment,  and  the  right  to  use  the  leased  premises   as
collateral.  The railroad therefore contends that OK  Lumber  was
able  to  negotiate  effectively to obtain [the]  concessions  it
wanted  in  the  [l]ease.  These arguments  are  persuasive.   We
conclude that the superior court did not err in failing  to  find
that the lease was a contract of adhesion.
          We  are not convinced that the superior court erred  in
granting the railroads request for full attorneys fees despite OK
Lumbers  arguments that the lease was contrary to public  policy,
unconscionable, and a contract of adhesion.
IV.  CONCLUSION
          For   these  reasons,  we  AFFIRM  the  superior  court
decision  upholding the arbitration and the order  awarding  full
attorneys fees to the railroad.
_______________________________
     1    Ahtna, Inc. v. Ebasco Constructors, Inc., 894 P.2d 657,
660 (Alaska 1995).

     2    Id. (citing Guin v. Ha, 591 P.2d 1281, 1284 n.6 (Alaska
1979)).

     3    Id. (emphasis omitted).

     4     AS  09.43.010  et  seq.   The Alaska  Revised  Uniform
Arbitration  Act  took  effect on January  1,  2005  and  governs
arbitration  agreements  entered  into  after  that   date.    AS
09.43.300(a).

     5     Ahtna, 894 P.2d at 660-61 (citing Breeze v. Sims,  778
P.2d 215, 217 (Alaska 1989)).

     6     Id.  at 661 (quoting Alaska State Hous. Auth. v. Riley
Pleas, Inc., 586 P.2d 1244, 1247 (Alaska 1978)).

     7    Allstate Ins. Co. v. Teel, 100 P.3d 2, 4 (Alaska 2004).

     8     See  also  Riley  Pleas, 586  P.2d  at  1247  (If  the
arbitrators  have decided an issue which is not arbitrable  under
the contract to arbitrate, they have exceeded their powers.).

     9     Cf. State Farm Mut. Auto. Ins. Co. v. Dowdy, 111  P.3d
337,  342  (Alaska  2005) ([C]overage matters  not  committed  to
arbitration  by  the terms of the policy should  nevertheless  be
arbitrated  where they are inextricably intertwined with  matters
committed by contract to arbitration.).

     10     This  court has no statutory authority to  reconsider
arbitrators  construction  of contract  provisions  that  do  not
pertain to the issue of arbitrability.  Marathon Oil Co. v.  ARCO
Alaska,  Inc., 972 P.2d 595, 603 (Alaska 1999); see  also  Ahtna,
894  P.2d at 661 ( [A]n arbitrators misconstruction of a contract
is   not  open  to  judicial  review,  except  on  questions   of
arbitrability . . . . ) (quoting Riley Pleas, 586 P.2d at 1247).

     11     OK  Lumber  argues that the lease was  an  integrated
contract  that  could  not  be unilaterally  modified,  that  the
parties  did not intend to exclude consideration of contamination
from  the  determination  of  fair market  value,  and  that  the
standard appraisal instructions do not exclude contamination.  OK
Lumber also contends that the lease would be unenforceable due to
indefiniteness  and lack of mutual assent if the  railroad  could
unilaterally  change what is excluded from the fair market  value
determination   through  the  standard  appraisal   instructions.
Finally,  OK  Lumber  argues that the  lease  is  a  contract  of
adhesion and that any ambiguities should therefore be decided  in
OK Lumbers favor.

          Because   none   of  these  contentions   pertains   to
arbitrability, we do not address them.

     12    Ahtna, 894 P.2d at 661 (citing Breeze v. Sims, 778 P.2d
215, 217 (Alaska 1989)).

     13     Marathon Oil Co. v. ARCO Alaska, Inc., 972 P.2d  595,
604 (Alaska 1999).

     14     Likewise, other provisions in the contract discussing
recovery   of   expenses  mention  attorneys  fees  specifically.
Paragraph  4.13, for example, refers to all costs  and  expenses,
including  reasonable attorneys fees.  These explicit  references
suggest  that  the parties did not intend attorneys  fees  to  be
recoverable unless the contract specifically provided otherwise.

     15    Alaska R. Civ. P. 82(a).

     16    Alaska R. Civ. P. 82(b)(2).

     17    We have stated that [u]nconscionability may exist where
[the] circumstances indicate a vast disparity of bargaining power
coupled with terms unreasonably favorable to the stronger  party.
Municipality  of  Anchorage v. Locker,  723  P.2d  1261,  1265-66
(Alaska  1986) (citing Vochner v. Erickson, 712 P.2d 379,  381-83
(Alaska 1986)); see also Morrow v. New Moon Homes, 548 P.2d  279,
292  n.43  (Alaska  1976)  (quoting with approval  the  following
definition  of  unconscionability from Williams v.  Walker-Thomas
Furniture,  350 F.2d 445, 449 (D.C. Cir. 1965): Unconscionability
has generally been recognized to include an absence of meaningful
choice  on the part of one of the parties together with  contract
terms which are unreasonably favorable to the other party.).

     18     Little Susitna Constr. Co. v. Soil Processing,  Inc.,
944 P.2d 20, 25 n.7 (Alaska 1997) (quoting Graham v. Rockman, 504
P.2d 1351, 1357 (Alaska 1972)).