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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Commercial Recycling Center, LTD v. Hobbs Industries, Inc. (4/9/2010) sp-6468

Commercial Recycling Center, LTD v. Hobbs Industries, Inc. (4/9/2010) sp-6468, 228 P3d 93

     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


COMMERCIAL RECYCLING )
CENTER, LTD., an Alaska Limited ) Supreme Court No. S-12616
Partnership, and GREGORY )
TIPLADY, ) Superior Court No. 3AN-99-5406 CI
)
Appellants, ) O P I N I O N
)
v. ) No. 6468 April 9, 2010
)
HOBBS INDUSTRIES, INC., an )
Alaska corporation, HOBBS )
INDUSTRIES, a Washington )
corporation, SLANA ENERGY, INC., )
an Alaska corporation, ALASKA )
STEAM & DIESEL, INC., a )
Washington corporation, CASTLE )
MOUNTAIN MINING CO., LTD., )
AUSTIN R. HOBBS, and LORI L. )
HOBBS, )
)
Appellees. )
)
Appeal    from     the
          Superior Court of the State of Alaska,  Third
          Judicial  District, Anchorage, John E.  Reese
          and Craig Stowers, Judges.

          Appearances: Kenneth P. Jacobus,  Kenneth  P.
          Jacobus,  P.C.,  Anchorage,  for  Appellants.
          Robert  K.  Reiman, Law Offices of Robert  K.
          Reiman, Anchorage, for Appellees.


          Before:   Fabe,   Chief  Justice,   Eastaugh,
          Winfree,  and Christen, Justices. [Carpeneti,
          Justice, not participating.]

          FABE, Chief Justice.

I.   INTRODUCTION
          In  1996  the  shareholders of Hobbs  Industries,  Inc.
signed  a buyout agreement under which James Cucullu and  Gregory
Tiplady  sold their shares to Austin and Lori Hobbs.  The Hobbses
experienced difficulty fulfilling the terms of the buyout  almost
immediately.   In  1998 Cucullu and Tiplady sent  the  Hobbses  a
letter  declaring a rescission of the buyout agreement.   Cucullu
and Tiplady then sold their reclaimed shares in Hobbs Industries,
Inc.  to  Commercial Recycling Center, Ltd.  Commercial Recycling
Center, Ltd. sued Austin and Lori Hobbs for an order establishing
its   ownership  in  Hobbs  Industries,  Inc.  and  for  damages,
including  punitive  damages;  Tiplady  was  later  added  as   a
plaintiff.  The superior court concluded that Cucullu and Tiplady
were not entitled to rescission of the buyout agreement.  It also
found the Hobbses liable to Commercial Recycling Center, Ltd. for
the  value  of  Cucullus  and Tipladys  shares  provided  in  the
original buyout agreement. Commercial Recycling Center, Ltd.  and
Tiplady appeal.
          We  conclude  that Cucullu and Tiplady did not  legally
rescind their agreement with the Hobbses and were not entitled to
equitable  rescission on a failure of consideration  theory.   We
also  conclude that the superior court properly valued the shares
of  Hobbs  Industries, Inc. in determining the  damages  for  the
Hobbses  breach  of the buyout agreement.  We thus  affirm  these
aspects of the superior courts judgment.  But we conclude that it
was  error  to dismiss, sua sponte, the breach of fiduciary  duty
claim for equitable rescission on summary judgment, and we remand
for further proceedings relating to this claim.

II.  FACTS AND PROCEEDINGS
     A.   Facts
          Hobbs  Industries, Inc. (HIAK), an Alaska  corporation,
was  incorporated in 1988 in connection with the pursuit of  work
related  to  the federal governments Over the Horizon Backscatter
project,  which  had  been  awarded  to  Slana  Energy,  Inc.,  a
corporation  owned  in part by Austin Hobbs.  HIAKs  shareholders
were  Austin  Hobbs,  Lori  Hobbs,  Gregory  Tiplady,  and  James
Cucullu.  Cucullu and Tiplady worked for HIAK, which was  one  of
the  principal subcontractors on the Over the Horizon Backscatter
project.   But  in  1992, the federal government  terminated  the
project   before  completion.   HIAK  stopped  operating   as   a
construction   company  and  thereafter   focused   on   pursuing
termination  expenses for the project.  Cucullu and Tiplady  left
the  employment of HIAK as there was no longer a source of income
from  which they could be paid.  At the time the federal  project
was  terminated, HIAK had invested a significant amount of  money
to  acquire  and develop the Knik Arm Power Plant  and  two  coal
mines.  One  of  these  coal  mines was  transferred  to  another
business, Nerox, and litigation ensued between HIAK and Nerox  on
that transfer.
          HIAKs  close-out  of  the federal project  did  not  go
smoothly,  and  after several years of escalating conflicts  over
management  and  ownership of shares, a special  meeting  of  the
board of directors of HIAK took place on September 25, 1996.   At
the  meeting,  the  Hobbses, Cucullu,  and  Tiplady  came  to  an
agreement  concerning their ownership interests in HIAK  and  the
proposed  settlement  with Nerox.  The four shareholders  entered
into a consent resolution that set out terms and conditions for a
buyout  by the Hobbses of Cucullus and Tipladys ownership  shares
in   HIAK.   This  buyout  agreement  contained  several   terms,
including:  (1) payment to Cucullu for his shares in  HIAK  at  a
price  of $40,000 plus interest; (2) payment to Tiplady  for  his
shares  in  HIAK  at  a price of $24,000 plus  interest;  (3)  an
increase  in  the  buyout price for Cucullu  and  Tiplady  if  by
independent  appraisal it is demonstrated that  their  respective
share  of  the  liquidated value of the [c]orporation  is  higher
[than  the agreed-upon amount]; (4) an assurance that the payment
obligations  would be personally guaranteed by  Austin  and  Lori
Hobbs  as  well as secured by the major assets of HIAK, including
the  Knik Arm Power Plant and equipment, an Alaska Railroad  land
lease,  and a 1989 Chevrolet pickup; (5) payment to both  Tiplady
and Cucullu of a portion of the forthcoming settlement with Nerox
in  accordance with respective shareholder interests at the  time
of  the  buyout; and (6) a full release of all present and future
claims.
          The  Hobbses  began experiencing difficulty  fulfilling
the  payment  terms  of the buyout almost immediately  after  the
signing of the agreement.  In addition, the settlement with Nerox
fell  through.   The  Hobbses kept Cucullu and  Tiplady  informed
about  HIAKs failure to produce the income needed to fulfill  the
buyout  agreement,  but  neither Cucullu  nor  Tiplady  indicated
dissatisfaction  with the delay of the payment schedule  required
in the 1996 buyout agreement.
          In  a  letter dated June 22, 1998, Cucullu and  Tiplady
unilaterally declared a rescission of the 1996 buyout  agreement.
The  letter noted that the Hobbses had failed to perform  any  of
the terms and conditions of the agreement and accused the Hobbses
of   breaching  fiduciary  duties owed to  Cucullu  and  Tiplady.
Cucullu  and Tiplady then sold their putative shares in  HIAK  to
Commercial Recycling Center, Ltd. (CRC).
     B.   Proceedings
          In  March 1999 CRC filed a complaint against Austin and
Lori  Hobbs, HIAK, and several other defendants, seeking an order
establishing CRCs ownership of sixty-five percent of HIAK, a full
accounting of all of HIAKs finances, and various money judgments,
including  punitive  damages against the  Hobbses.   Tiplady  was
added  as a plaintiff in CRCs second amended complaint.  In April
2002  CRC1  filed  a  motion for summary judgment,  arguing  that
Cucullu  and  Tiplady  had  rescinded the  buyout  agreement  and
seeking an order acknowledging the rescission.  CRC claimed  that
it  was  entitled to rescission of the buyout agreement primarily
because  the  Hobbses had failed to perform and also because  the
Hobbses had breached their fiduciary duty to Cucullu and Tiplady.
The Hobbses opposed the motion.
          In  May  2002 Superior Court Judge John E. Reese agreed
          with the Hobbses and denied CRCs motion for summary judgment,
ruling  that Cucullu and Tipladys 1998 letter claiming rescission
of  the  buyout agreement was ineffective.  Judge Reese then  sua
sponte  granted summary judgment in favor of the Hobbses  on  the
question  whether  rescission  could  be  an  appropriate  remedy
without  addressing the breach of fiduciary duty  claims.   Judge
Reese concluded that the only remaining claims were Cucullus  and
Tipladys claims for breach of the buyout agreement.  CRC filed  a
motion for reconsideration, which was denied.
          Superior  Court Judge Craig Stowers took over the  case
after  Judge  Reese  retired.  In early April 2006,  a  three-day
bench trial was held on the remaining issues surrounding the 1996
buyout agreement.  In December 2006, after concluding that  Judge
Reeses  ruling denying CRCs claim for rescission was the  law  of
the  case,  Judge  Stowers issued a decision  that  made  several
findings.
          First,  the  superior  court  found  that  the  Hobbses
knowingly  breached  the  1996 buyout  agreement  and  failed  to
properly  secure [CRCs] interests in the assets  owned  by  HIAK.
Second, the superior court rejected CRCs argument that it  should
shift  the burden of proof to the Hobbses on the question of  the
liquidation  value  of HIAK on the date of the  buyout  agreement
based  on  a  finding  of  spoliation of  evidence.   Third,  the
superior  court rejected CRCs argument that it should  treat  the
business  valuation  of  CRCs expert as an independent  appraisal
requiring  an  increase  in  the buyout  price  of  Cucullus  and
Tipladys shares.
          In  January  2007 the superior court issued  a  written
order finding that HIAK and Austin and Lori Hobbs were liable  to
CRC for $64,000.00, the amount described in the buyout agreement,
plus  $33,060.82  in  prejudgment interest.   CRC  appeals  Judge
Reeses  order  granting summary judgment to the  Hobbses  on  the
question whether the remedy of rescission is available to CRC and
Judge Stowerss order valuing HIAK based upon figures provided  in
the buyout agreement.
III. STANDARD OF REVIEW
          We  review  a  grant of summary judgment  de  novo  and
affirm  if the evidence in the record fails to disclose a genuine
issue  of  material  fact, and the moving party  is  entitled  to
judgment  as  a matter of law.2  We view the facts in  the  light
most favorable to the non-moving party, and apply our independent
judgment  to any questions of law, adopting the rule of law  that
is most persuasive in light of precedent, reason, and policy.3
          Issues  of  corporate valuation  .  .  .  present  fact
questions.4   We  will  set  aside  a  superior  courts   factual
determination  only upon a finding of clear  error.5   A  factual
determination  is clearly erroneous if it is unsupported  by  the
record, or we are left with a definite and firm conviction . .  .
that a mistake has been made.6
IV.  DISCUSSION
     A.   CRCs Claims for Rescission of the Buyout Agreement
          In  a  letter dated June 22, 1998, Cucullu and  Tiplady
unilaterally declared a rescission of the 1996 buyout  agreement,
then  sold their putatively reclaimed shares of HIAK to CRC.   In
April  2002  CRC  filed a motion for summary judgment,  primarily
arguing  that  because  the  Hobbses had  failed  to  perform  as
required  under  the buyout agreement, Cucullu  and  Tiplady  had
effectively  rescinded that agreement.  The Hobbses opposed  this
motion.  In a single order, the superior court denied CRCs motion
for summary judgment and, sua sponte, granted summary judgment to
the Hobbses on the question of rescission.  Judge Reese concluded
that  the  1998  rescission  declaration  was  ineffective,  that
rescission was an inappropriate remedy in the case, and that  the
only  remaining claim in the case was a damages claim for  breach
of   the   1996  buyout  agreement.   CRC  filed  a  motion   for
reconsideration,  arguing,  among  other  things,  that   because
questions  of  fact remained on its claim of breach of  fiduciary
duty   including  whether the Hobbses acted  in  good  faith  and
whether  the  buyout agreement was based on a full disclosure  of
relevant information  the defendants were not entitled to summary
judgment  on  the issue of whether rescission was an  appropriate
remedy.  Judge Reese denied reconsideration.
          We   first  address  CRCs  argument  that  Cucullu  and
Tipladys  1998  rescission declaration  legally  rescinded  their
agreement  with  the  Hobbses.  Because of  the  Hobbses  alleged
failure of consideration, CRC claims that Cucullu and Tiplady had
the  right  to  rescind  the  buyout  agreement  and  that  [t]he
rescission declaration should have been deemed by the trial court
to be effective . . . .
          As  we  have explained, [r]escission at law is  a  suit
based  upon rescission already accomplished . . . [in which]  the
court  has nothing to do with the rescission itself.7  Rescission
at  law  occurs where at least one of the parties to  a  contract
rescinds  the contract and then turns to a court for  enforcement
of that rescission and an award of damages.8  We have never held,
however, that one party to a contract has a right to unilaterally
rescind that contract.
          One  maxim of contract law is the notion that competent
parties are free to make contracts and that they should be  bound
by their agreement.9  Thus, [a]s a  matter of judicial policy, we
seek  to  maintain  and  enforce contracts,  rather  than  enable
parties to escape from the obligations they have chosen to incur.10
One  partys failure to perform under a contract gives an  injured
party who has not already performed a right of non-performance,11
and  it gives an injured party who has already performed a  right
to  sue  for a breach of contract remedy.  It does not  give  the
injured  party  a  right  to unilaterally nullify  the  contract.
Unless contracting parties themselves agree that either party may
unilaterally  rescind  the  contract,  they  have  no  right   to
unilateral legal rescission.  Because Cucullu and Tiplady had  no
right  to  unilaterally rescind their buyout agreement  with  the
Hobbses,  their 1998 rescission declaration did not effect  legal
rescission of that agreement.
          We next turn to CRCs claims for equitable rescission of
the  buyout  agreement.  Unlike rescission at law, rescission  in
          equity occurs only upon a courts decree.12  In those cases, the
court  must intervene both to rescind the agreement and to  award
damages.13
          1.   The superior court did not err in granting summary
               judgment on the issue of failure of consideration.
          CRCs  first claim for equitable rescission is based  on
the   Hobbses  failure  to  meet  their  obligations  under   the
agreement.  CRC maintains that not even one of the terms  of  the
[buyout]  agreement  had  been complied with  by  [the  Hobbses],
resulting  in  a complete failure of consideration.   CRC  argues
that  rescission  is  the only adequate remedy  for  the  Hobbses
failure  of  consideration and therefore that the superior  court
was required to equitably rescind the buyout agreement.
          Distinct  from  lack  of  consideration,14  failure  of
consideration occurs when, after an agreement is properly formed,
one  or  both parties fail to deliver the essence of the promised
performance.15   In  other words, [f]ailure of  consideration  is
essentially identical to lack of substantial performance.16   The
superior  court acknowledged the Hobbses failure to perform  when
it  found  that  [i]t is undisputed that [the  Hobbses]  had  not
fulfilled [their] obligations to Cucullu or Tiplady in 1998.17
          As  we  have held before, in cases of total failure  of
consideration,  an  injured party may be  entitled  to  equitable
rescission of the contract and restitution of benefits  conferred
on the breaching party.18  The Restatement of Contracts indicates,
however,  that  this  principle of contract  law  has  one  major
exception:  where  the  injured party has performed  all  of  his
contractual duties and the only performance due by the  breaching
party  is  a  definite money payment, the injured  party  is  not
entitled to rescission and restitution.19  This rule is consistent
with  the  general  tenet that, although  a  court  often  orders
equitable rescission as a remedy where it must unmake a  contract
induced  by  mistake,  fraud,  or duress,20  it  usually  prefers
monetary compensation as a remedy for breach of contract.21   CRC
is   not  entitled  to  equitable  rescission  on  a  failure  of
consideration theory as a matter of law and, for this reason, the
superior court correctly denied CRCs motion for summary judgment.
          2.   It  was  error  to grant summary judgment  on  the
               issue of breach of fiduciary duty.
          At the time it denied CRCs motion for summary judgment,
the  superior  court sua sponte granted summary judgment  to  the
Hobbses  on  the  broader question whether  equitable  rescission
could be an appropriate remedy in the case under any theory.   In
doing  so,  the  superior court decided  CRCs  second  claim  for
equitable  rescission, which was based on a theory of  breach  of
fiduciary   duty.    CRCs  second  amended   complaint   included
allegations that Cucullu and Tiplady under duress were offered  .
. . to have their interest in HIAK purchased and that the Hobbses
breached  their fiduciary duties.  The complaint further  alleged
that  the  buyout agreement was unenforceable because of coercion
in  the  inducement and concealment of pertinent facts as to  the
company assets and the dealings of the company.
          After  the  superior court granted summary judgment  to
the  Hobbses, CRC filed a motion for reconsideration arguing that
          factual questions remained as to whether the buyout agreement was
based on full disclosure of relevant information and executed  in
good  faith.22   CRC pointed to evidence and documents  filed  in
support of its motion, including testimony from both Cucullu  and
Tiplady  that significant relevant information was withheld  from
their use throughout their stock ownership in HIAK, including  at
the  time of the buyout agreement.  CRC noted that the court  has
received  the  transcribed testimony of Randy Hobbs admitting  to
bad  faith conduct involving the sale of assets offered to secure
the  buyout  agreement without returning any of the  monies  from
such  sale to the minority shareholders.  For these reasons,  CRC
argued  that  the  superior courts sua sponte decision  to  grant
summary  judgment  in  favor of the Hobbses  was  improper.   The
superior  court denied CRCs motion with a brief explanation  that
did not address the breach of fiduciary duty claim itself.23
          On  appeal, CRC renews its complaint that the  superior
court  erred by granting summary judgment to the Hobbses  without
ever  addressing  the  breach  of  fiduciary  duty  claim.    CRC
maintains  that  the evidence it presented to the superior  court
raises a question of fact concerning whether the Hobbs Industries
defendants  have  acted in good faith [or]  in  breach  of  their
fiduciary  duty.   The Hobbses respond that any  claims  of  non-
disclosure  . . . were released in the 1996 settlement  agreement
and  cannot  be  a basis for rescission of that  agreement.   The
Hobbses  also  argue that CRCs sale of assets claim  is  not  for
breach  of fiduciary duty because after the buyout agreement  was
signed,  the Hobbs[es] were no longer in a fiduciary relationship
with Cucullu and Tiplady.
          CRCs  initial motion for summary judgment, the  Hobbses
opposition,  and  CRCs  reply did not focus  on  CRCs  breach  of
fiduciary duty claim.  Instead, the parties primarily briefed and
argued the question of failure of consideration.  But CRCs motion
for  summary judgment also based its claim for rescission of  the
agreement  on  a breach of fiduciary duty, specifically  alleging
that  the  Hobbses  never had any intent to  fulfill  the  buyout
agreement and that [t]heir sole aim was to obtain the outstanding
shares  to  control  the  corporation as  they  saw  fit  without
providing  any remuneration to Cucullu or Tiplady.  The  superior
court  failed  to  address the merits of either partys  arguments
regarding the breach of fiduciary duty claim.24  We have held that
shareholders in a closely held corporation are fiduciaries to one
another.25   Where  a  fiduciary induces  a  contract  by  unfair
persuasion,  he  or she breaches this fiduciary duty,  and  under
some  circumstances, that contract is voidable by the  victim  of
the  breach.26  Because the superior court failed to consider the
question  whether CRC was entitled to equitable rescission  based
on  its  claim  of  breach  of  fiduciary  duty,  we  remand  for
consideration of that issue.
     B.   The  Superior  Court Did Not Err in Using  the  Figures
          Provided  in the Buyout Agreement for the Valuation  of
          HIAK.
          The  1996  buyout  agreement required  the  Hobbses  to
automatically  increase the cash buy back price to [Cucullu]  and
[Tiplady]  if  by  independent appraisal it is demonstrated  that
          their  respective share of the liquidated value of  the
[c]orporation  is  higher  .  . .  .   At  trial,  CRC  presented
testimony  from  Stephen  Sheaffer, a CPA  hired  by  CRC  during
litigation  to  conduct an appraisal of HIAK as of September  25,
1996, the date of the buyout agreement.
          The  superior court found that there was no term in the
agreement regarding who had the obligation or the duty to perform
the  independent appraisal and that any of the parties could have
demanded  that an independent appraisal be done but  that  nobody
did   on  a  timely  basis.   While  acknowledging  the  business
valuation  later performed by Sheaffer, the superior court  found
that  because  the  valuation was  not  timely  and  was  not  an
independent appraisal of liquidation value as contemplated by the
buyout  agreement, the Hobbses were liable to CRC for the  amount
specified in the buyout agreement: $40,000 to Cucullu and $24,000
to Tiplady, plus prejudgment interest.
          1.   The  superior  court did not err in  declining  to
               shift  the  burden of proof for the  valuation  of
               HIAK to the Hobbses.
          Some  records relevant to the liquidation value of HIAK
were  available in the mid-1990s when HIAKs books,  records,  and
finances  were  examined as part of a bankruptcy  proceeding  but
were  not available when, late in the case, CRC sought to  compel
discovery  of  them.  As the superior court found, those  records
were  destroyed sometime between the dismissal of the  bankruptcy
and 1997.  Austin Hobbs testified that he ordered the destruction
of  the records after HIAK had finished its bankruptcy proceeding
and  the  parties had signed their buyout agreement  because  the
federal  government refused to pay for continued storage  of  the
documents and Hobbs didnt think thered be any reason to keep  all
that old stuff.
          At  trial,  CRC  requested  that  the  court  apply   a
spoliation of evidence theory to shift to the Hobbses the  burden
of proof on the question of the liquidation value of the business
as  of September 25, 1996, the date of the buyout agreement.  CRC
argues  that  regardless  of the reason  that  the  records  were
destroyed and whether it was reasonable to do so[,] . .  .  as  a
matter  of public policy, the burden of proof needs to be on  the
party  who  destroyed the records, because  the  other  party  is
totally  innocent  and is the one harmed.  For that  reason,  and
because  the  records  at issue in this case  were  destroyed  at
Austin  Hobbss  direction, CRC argues that the  burden  of  proof
should have been shifted to [the Hobbses].
          The   superior  court  found  that,  under  the  buyout
agreement, either of the parties or any of the parties could have
demanded  that  an independent appraisal be done.   The  superior
court also found, however, that none of the parties requested  an
independent  appraisal on a timely basis.   Cucullu  and  Tiplady
both  testified  they  did not request or demand  an  independent
appraisal.   CRC  did not even request discovery of  the  records
relevant  to an independent appraisal of HIAKs liquidation  value
until  years  after  purchasing Cucullus  and  Tipladys  putative
shares.
          Because  the  1996 buyout agreement did not  provide  a
deadline by which any party desiring an independent appraisal had
to  request  such  an  appraisal, what constitutes  a  reasonable
length  of time for performance of that contract provision  is  a
question  of  fact for the superior court.27  The superior  court
found that no party timely requested an independent appraisal  or
the  corporate  records  needed for such an  appraisal,  and  the
evidence supports that finding.
          The   superior  court  properly  found  that  no  party
requested   an   independent  appraisal   of   the   corporations
liquidation value within a reasonable length of time and that  no
party   timely  signaled  any  need  to  view  corporate  records
pertinent  to an appraisal of its liquidation value.   Therefore,
we  conclude  that the superior court also properly  declined  to
shift  the burden of proof to the Hobbses on the question of  the
liquidation value of the corporation.


          2.   The  superior  court did not err in  declining  to
               treat  CRCs  business valuation as an  independent
               appraisal.
          The buyout agreement provided an increase in the buyout
price  for Cucullu and Tiplady if by independent appraisal it  is
demonstrated that their respective share of the liquidated  value
of  the [c]orporation is higher than the agreed-upon amount.  CRC
presented  the testimony of Stephen Sheaffer  a CPA  who,  during
the  course of litigation, conducted a business valuation of HIAK
as  of the September 1996 buyout agreement  and claimed that  his
expert  valuation  for  trial  fulfilled  the  buyout  agreements
contemplated  independent appraisal.   Sheaffer  valued  HIAK  at
$2,286,000,  an amount that included $2.8 million allegedly  owed
HIAK  by  Slana  Energy,  contractor for  the  Over  the  Horizon
Backscatter project.
          The superior court did not adopt Sheaffers valuation of
HIAK.   It found that under the buyout agreement, any party could
have  demanded that an independent appraisal be done, but  nobody
did  it  on  a timely basis.  The court determined that Sheaffers
valuation  did not qualify as an independent appraisal under  the
buyout  agreement:  [W]ith  great  respect  [for  Sheaffer],  the
[c]ourt  is  not  persuaded that a litigation expert[s]  business
valuation preliminary estimate, as his report was titled,  is  an
independent  appraisal  as contemplated  by  the  September  1996
resolution. Furthermore, the superior court found that  HIAK  had
no  additional  assets that would have changed the  valuation  of
HIAK  so  as  to affect the buyout agreement amounts.28   As  the
superior  court concluded, because no independent  appraisal  was
timely  done, [CRCs] right and remedies under the September  1996
agreement is that their $400-a-share buyout at 5 percent interest
is what theyre entitled to.
          CRC  maintains that the per share values  described  in
the  buyout  agreement should not have been applied automatically
and  argues that since Sheaffers valuation was the only  business
valuation   available,  and  because  it  was  independent,   the
[superior]  court  should have recognized it as  the  independent
appraisal contemplated by the buyout agreement.
          We review the superior courts factual findings under  a
clearly erroneous standard, and the evidence supports the  courts
findings.  It does not appear from the record before us  that  an
independent appraisal of HIAK was ever performed or that HIAK had
additional assets that would have altered its valuation  and  the
amounts  due under the buyout agreement.  For these reasons,  the
superior  court  did not clearly err in relying on  the  specific
monetary values provided in the 1996 buyout agreement.
V.   CONCLUSION
          For  the  reasons explained above, we AFFIRM  in  part,
REVERSE  in  part, and REMAND to the superior court  for  further
proceedings on CRCs claim for equitable rescission on a breach of
fiduciary duty theory.
_______________________________
     1     When  discussing the proceedings in this case, we  use
CRC to refer to both plaintiffs, CRC and Tiplady.

     2     McCormick  v.  Reliance Ins. Co., 46 P.3d  1009,  1011
(Alaska 2002) (internal citation omitted).

     3    Id. at 1011-12 (internal citation omitted).

     4     Carver v. Quality Inspection & Testing, Inc., 946 P.2d
450, 454 n.3 (Alaska 1997).

     5    Moffitt v. Moffitt, 813 P.2d 674, 676 (Alaska 1991).

     6    Money v. Money, 852 P.2d 1158, 1161 (Alaska 1993).

     7    Knaebel v. Heiner, 663 P.2d 551, 554 (Alaska 1983).

     8    12A C.J.S. Cancellation of Instruments  5 (2009).

     9     Inman  v. Clyde Hall Drilling Co., 369 P.2d  498,  500
(Alaska  1962) (In the absence of a constitutional  provision  or
statute  which  makes certain contracts illegal or unenforceable,
we  believe it is the function of the judiciary to allow [people]
to manage their own affairs in their own way.).

     10    Id.

     11      Restatement  (Second)  of  Contracts    237   (1981)
(providing   that  a  partys  duty  to  render   performance   is
conditioned  on  there being no uncured material failure  by  the
other party to render performance due earlier).

     12     Knaebel, 663 P.2d at 554 (citing Lightner v. Karnatz,
241 N.W. 841, 842 (Mich. 1932)).

     13    12A C.J.S. Cancellation of Instruments  5 (2009).

     14    See 3 Samuel Williston & Richard A. Lord, A Treatise on
the Law of Contracts  7:11 (4th ed. 2008) (distinguishing failure
of  consideration from lack of consideration as follows: Where no
consideration  exists, and is required, the lack of consideration
results  in  no contract being formed . . . .  By contrast,  when
there  is  a  failure  of consideration, there  is  originally  a
contract  when  the  agreement  is  made,  but  because  of  some
supervening cause, the promised performance fails.).

     15     See  Estate of Lampert Through Thurston v. Estate  of
Lampert Through Stauffer, 896 P.2d 214, 219 (Alaska 1995) (citing
Restatement (Second) of Contracts  372, 373 (1981); 5  Arthur  L.
Corbin, Corbin on Contracts  1104, at 562 (1964)).

     16    Alaska Prot. Servs., Inc. v. Frontier Colorcable, Inc.,
680 P.2d 1119, 1123 n.6 (Alaska 1984) (citing 1 Arthur L. Corbin,
Corbin on Contracts  133, at 572 (1963)).

     17     In contradiction, the superior court also found  that
none  of  the  actions taken by HIAK, Austin  Hobbs,  Cucullu  or
Tiplady  constituted  original  invalidity,  fraud,  failure   of
consideration, material breach or default.  We rely, however,  on
the  superior courts more specific findings contained in the same
order.   In addition to the finding quoted in the main text,  the
superior  courts order detailed the reasons for HIAKs  difficulty
fulfilling  the  terms  of  the  buyout  and  HIAKs  failures  at
producing the finances needed to fulfill the buyout agreement.

     18     See Am. Computer Inst., Inc. v. State, 995 P.2d  647,
653  (Alaska 2000) (holding that the computer institutes  failure
to  provide  students with particular coursework, as required  by
the institutes enrollment contract, entitled students to a refund
of their tuition) (citing Restatement (Second) of Contracts  372,
373 (1981) and 5 Corbin, supra note 15,  1104, at 562); Estate of
Lampert  Through Thurston, 896 P.2d at 219-20 (holding  that  the
wifes  failure to provide the husband with a life estate  in  the
couples  residence through her will, as required by  the  couples
estate-planning agreement, entitled the husband to  a  rescission
of the agreement).

     19    Restatement (Second) of Contracts  373 (1981).

     20     Kazan  v.  Dough Boys, Inc., 201 P.3d 508,  515  n.21
(Alaska  2009); see also McKeown v. Kinney Shoe Corp.,  820  P.2d
1068, 1071 (Alaska 1991).

     21     Restatement (Second) of Contracts ch. 16 note  (1981)
(The  traditional  goal of the law of contract remedies  has  not
been  compulsion  of  the  promisor to perform  his  promise  but
compensation  of  the  promisee  for  the  loss  resulting   from
breach.);  see also Knaebel v. Heiner, 663 P.2d 551, 553  (Alaska
1983) (stating that a party who seeks the interposition of equity
must  generally show that he either has no remedy at law or  that
no legal remedy is adequate).

     22    CRC further argued that if the Hobbses owed a fiduciary
duty to Cucullu and Tiplady, they bear the burden of proving that
they acted in good faith, that the transaction was fair, and that
the   transaction  was  based  on  full  disclosure  of  relevant
information.

     23    The superior court stated only that [t]he dispute does
not   involve   the   burden  of  proof  issues   raised   in   a
minority/majority stockholder conflict.  It is a sales  contract.
The remedy of damages is adequate.

     24     Although  the superior court did mention the  Hobbses
sale  of  secured  assets in its order, it did not  address  CRCs
argument that the sale of secured assets was evidence of a breach
of fiduciary duty in the formation of the agreement.

     25     Collins  v.  Blair, 68 P.3d 1222, 1230 (Alaska  2002)
(citing  Alaska  Plastics, Inc. v. Coppock,  621  P.2d  270,  276
(Alaska 1980)).

     26    See Restatement (Second) of Contracts  177 (1981).

     27     See  Hall v. Add-Ventures, Ltd., 695 P.2d 1081,  1089
(Alaska 1985):

          Where  no [contract] provision is made as  to
          time  of  performance, a reasonable  time  is
          implied,  to be determined upon consideration
          of  the subject matter of the contract,  what
          was  contemplated at the time the  cont[r]act
          was     made,     and    other    surrounding
          circumstances.  Ordinarily, what  constitutes
          a  reasonable time is a question of fact  for
          the trial court.
          
     28     Specifically, the superior court did not accept  CRCs
valuation  of  HIAK  that included $2.8 million  receivable  from
Slana  Energy,  a  figure that the court found was  unreasonable,
uncollectible, and tied to an account that, by the time of trial,
was fourteen years overdue.

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