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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Calais Company, Inc. v. Kyzer Ivy (5/31/2013) sp-6784

Calais Company, Inc. v. Kyzer Ivy (5/31/2013) sp-6784

        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, email 

        corrections@appellate.courts.state.ak.us. 



                 THE SUPREME COURT OF THE STATE OF ALASKA 



CALAIS COMPANY, INC.,                          ) 

                                               )        Supreme Court No. S-13884 

                Appellant,                     ) 

                                               )        Superior Court No.      3AN-07-08813 CI 

        v.                                     ) 

                                               )       O P I N I O N 

DEBORAH KYZER IVY,                             ) 

individually and as a Derivative               )       No. 6784 - May 31, 2013 

Plaintiff on behalf of the interests           ) 

of CALAIS COMPANY, INC. and                    ) 

its SHAREHOLDERS,                              ) 

                                               ) 

                Appellee.                      ) 

                                               ) 



                Appeal from the Superior Court of the State of Alaska, Third 

                Judicial District, Anchorage, William F. Morse, Judge. 



                Appearances:       Jeffrey   M.   Feldman     and   Susan   Orlansky, 

                Feldman   Orlansky   &   Sanders,   Anchorage,   for   Appellant. 

                Phillip Paul Weidner, Weidner & Associates, Anchorage, and 

                Charles E. Cole, Law Offices of Charles E. Cole, Fairbanks, 

                for Appellee. 



                Before:    Fabe, Winfree, and Stowers, Justices.          [Carpeneti, 

                Chief Justice, and Christen, Justice, not participating.] 



                STOWERS, Justice. 


----------------------- Page 2-----------------------

I.      INTRODUCTION 



                In   2007,   Deborah   Kyzer   Ivy,   a   shareholder   of   Calais   Company,   Inc. 



(Calais), filed a complaint against Calais seeking involuntary corporate dissolution.  In 



May 2009, Ivy and Calais reached a settlement agreement (Agreement) in which Calais 



agreed to purchase Ivy's shares at "fair value" as determined by a three-member panel 



of   appraisers.   The   appraisers   disagreed   over   the   fair   value   of   Calais. Two   of   the 



appraisers agreed the fair value of Calais was $92.5 million; one appraiser dissented, 



valuing Calais at $43 million. 



                Calais sought to enforce the Agreement in superior court, arguing the two 



majority appraisers had failed to comply with the appraisal procedure mandated by the 



Agreement and the Agreement's definition of "fair value." The superior court ultimately 



declined to rule   on the issue, concluding that interpreting the term "fair value" was 



beyond its scope of authority under the terms of the Agreement. Consequently, the court 



ordered Calais to purchase Ivy's shares based on the majority appraisers' valuation. 



                Calais appeals.  We reverse the superior court's final order and remand for 



the court to remand to the appraisers   with   explicit instructions to calculate the "fair 



value" of Calais as defined by AS 10.06.630(a), as required by the Agreement. 



II.     FACTS & PROCEEDINGS 



                Calais does business in real estate acquisition, development, rental, and 



leasing, and owns "significant tracts of land" in Anchorage.             In 2007, Ivy - one of 30 



individual stockholders and owner of 6.25% of Calais stock - filed a complaint against 



Calais; her complaint seeking involuntary dissolution under AS 10.06.628 included both 

personal     and   derivative   claims.1    In   May    2009   the   parties  reached    a  settlement 



        1       Alaska     Statute   10.06.628(b)     states  that  the   grounds    for  involuntary 



dissolution are: 

                                                                                       (continued...) 



                                                  -2-                                              6784 


----------------------- Page 3-----------------------

agreement. 



        A.       Settlement Agreement 



                Under the Agreement, Ivy agreed to dismiss her claims and Calais agreed 



        1(...continued) 



                 (1) the corporation has abandoned its business for more than 

                one year; 



                 (2) the corporation has an even number of directors who are 

                equally divided and cannot agree as to the management of its 

                affairs, so that its business   can no longer be conducted to 

                advantage   or   so   that   there   is   danger   that   its   property   and 

                business   will   be   impaired   or   lost,   and   the   holders   of   the 

                voting shares of the corporation are so divided into factions 

                that    they   cannot    elect  a  board    consisting    of  an   uneven 

                number; 



                 (3) there is internal dissension and two or more factions of 

                 shareholders   in   the   corporation   are   so   deadlocked   that   its 

                business can no longer be conducted with advantage to its 

                 shareholders,      or   the   shareholders      have    failed    at  two 

                consecutive annual meetings at which all voting power was 

                exercised to elect successors to directors whose terms have 

                expired      or  would     have    expired    upon    election    of  their 

                 successors; 



                 (4) those in control of the corporation have been guilty of or 

                have knowingly countenanced persistent and pervasive fraud, 

                mismanagement or abuse of authority or persistent unfairness 

                toward   shareholders,   or   the   property   of   the   corporation   is 

                being misapplied or wasted by its directors or officers; 



                 (5)   in  the   case   of   any   corporation      with   35   or   fewer 

                 shareholders of record, liquidation is reasonably necessary 

                 for the protection of the rights or interests of the complaining 

                 shareholder or shareholders; or 



                 (6)   the   period   for   which   the   corporation   was   formed   has 

                terminated without extension. 



                                                    -3-                                              6784
 


----------------------- Page 4-----------------------

to purchase all of Ivy's shares of Calais stock.  Paragraph 5 of the Agreement described 



the   procedure   for   valuing   Ivy's   shares.     Calais   and   Ivy   were   to   each   nominate   one 



appraiser,   and   these   two   appraisers   were   to   select   a   third.    The   appraisers   were   to 



"determine the fair value of Calais in accordance with [the] Settlement Agreement and 

AS     10.06.630(a),[2]     as  of  the   date   of  [the]  Settlement"      using    "their  expertise    and 



judgment" and "giving due consideration to all Calais liabilities and to the fair market 



value   of   all   Calais   assets."   In   arriving   at   the   "appraised   fair   value   of   Calais,"   the 



appraisers      were    not   to  apply   any   discount   due     to  the  number      of  shareholders     or 



distribution   of   shares,   nor   consider   the   "impact   or   value   of   any   speculative   future 



development of Calais property or assets, or any speculative projected or assumed profits 



or revenues that might be derived from any future development of Calais property or 



assets."    The appraisers could, however, "consider future opportunities to develop the 



property, subject to all existing leases and commitments, to the extent and only to the 



         2       Alaska Statute 10.06.630(a) states: 



                 Subject       to   a   contrary      provision      in   the    articles    of 

                 incorporation,   in   a   suit   for   involuntary   dissolution   under 

                 AS     10.06.628     the   corporation     or,  if  it  does  not   elect   to 

                 purchase, the   holders of 50 percent or more of the voting 

                 power of the corporation, the "purchasing parties", may avoid 

                 the dissolution of the corporation and the appointment of a 

                 receiver   by   purchasing   for   cash   the   shares   owned   by   the 

                 plaintiffs, the "moving parties", at their fair value.             The fair 

                 value   shall   be   determined   on   the   basis   of   the   liquidation 

                 value, taking into account the possibility of sale of the entire 

                 business as a going concern in a liquidation.  The election of 

                 the corporation to purchase may be made by the approval of 

                 the outstanding shares excluding shares held by the moving 

                 parties. 



(Emphasis added.) 



                                                      -4-                                                6784
 


----------------------- Page 5-----------------------

extent that those future opportunities impact the fair value of the property as of the 



appraisal date." 



                 The appraisers were to prepare "a final report stating the appraised value 



of the fair value of Calais under the[se] criteria."   The value of Ivy's shares were then to 



be determined by calculating 6.25% of the appraised fair value of Calais. Paragraph 5(d) 



of the Agreement states:   "An agreement on the value of Calais need only be reached by 



two of the three appraisers, and that valuation shall be binding on the parties and shall 



not   be   subject   to   any   further   review,   dispute,   or   appeal." But   Paragraph   23   of   the 



Agreement states: 



                 Superior Court Judge William Morse shall retain jurisdiction 

                 over this matter for the purpose of enforcing all terms and 

                 conditions   of   this   Settlement   Agreement   .   .   .   . Should   a 

                 dispute arise concerning any aspect of this Agreement, and 

                 should     any    party    seek    judicial    assistance     to   secure 

                 enforcement of the Agreement, the Court, in its discretion, 

                 may     award     full  reasonable     and    appropriate     costs   and 

                 attorney's    fees   to  the  prevailing    party   in  the  dispute,   in 

                 connection with resolution of the dispute. 



        B.	      Appraisal And Dissent 



                 Ivy   named   Steve   MacSwain   and   Calais   named   Timothy   Lowe   as   their 



respective appraisers; MacSwain and Lowe selected Kenneth Gain as the third appraiser. 



In November 2009 MacSwain and Gain reported that they both agreed on the appraised 



"fair   market     value"    of  Calais   "when     valued    in  accordance      with   the   Settlement 



Agreement."       They appraised the value at $92.5 million; Lowe disagreed, appraising 



Calais's value at $43 million. 



                 Lowe     explained     in  a  dissent   that  he  believed    MacSwain       and   Gain's 



agreed-upon fair market value did not comply with the instructions of the Agreement or 



AS 10.06.630(a) because they omitted: (1) the capital gains tax liability for Calais's 



                                                    -5-	                                             6784
 


----------------------- Page 6-----------------------

appreciated real property; (2) the actual costs that would be incurred in the liquidation 



of the company; and (3) the time value of money during the disposition or liquidation 



period.  Lowe also explained that both MacSwain and Gain were unwilling to consider 



or acknowledge their omission of these costs after Lowe encouraged them to do so, 



explaining that both were "valuing the equity of [Calais] as a direct real property interest 



and not as equity in a corporation [and] only in the context of market value and not in the 



mandated context of liquidation value."             Lowe clarified his belief that the appraisal 



panel's assignment under the Agreement was to determine the fair value of Calais on a 



liquidation basis, as defined by AS 10.06.630(a), not the fair market value of Calais's 



assets.  Lowe concluded that the value agreed upon by MacSwain and Gain should be 



set aside or be subject to further review because it did not provide a reliable estimate of 



the fair value of Calais. 



        C.      First Motion To Enforce 



                In December 2009 Calais filed a motion in the superior court to enforce the 



Agreement.      Calais   asked   the   court   to   find   that   the   appraisers   had   not   followed   the 



procedures set forth in the Agreement and to remand the appraisal to the appraisers with 



directions to comply with the Agreement's instructions to determine Calais's fair value 



by   taking   into   account   liquidation   costs,   including   capital   gains   tax   liabilities. Ivy 



opposed Calais's motion, contending the Agreement did not authorize review by the 



court. 



                Superior Court Judge William F. Morse granted Calais's motion in part, 



setting forth his findings and conclusions on February 2, 2010.  The court distinguished 



between reviewing the appraisers' valuation, which it believed it was prohibited from 



doing under the terms of the Agreement, and reviewing the appraisers' process in making 



the valuation to determine whether the appraisers had complied with the procedures and 



standards outlined in the Agreement. The court concluded that the parties' explicit grant 



                                                  -6-                                             6784
 


----------------------- Page 7-----------------------

of authority to enforce the Agreement authorized the court to review the appraisers' 



procedures   for   compliance   with   the   Agreement.           The   superior   court   reviewed   the 



Agreement and determined that the parties intended the appraisers to determine the "fair 



value of Calais" as defined by AS 10.06.630(a), not the "fair market value" of Calais's 



assets.   The court then issued a limited order directing the parties to "advise the panel 



that   it   should   again   evaluate   the   fair   value   of   Calais"   and   to   convey   to   the   panel 

instructions that the court had drafted,3 which included paragraphs from the Agreement 



        3        The superior court's instructions to the appraisal panel provided: 



                 You are instructed to determine the "fair value of Calais" in 

                 accordance         with     the     Settlement       Agreement         and 

                 AS     10.06.630(a),      as   of   the    date   of   the   Settlement, 

                 May   15,   2009.      This   means   that   you   must   prepare   your 

                 appraisal     in  accordance     with   the   provisions    of   both   the 

                 Settlement Agreement and AS 10.06.630(a). 



                 To be "in accordance with the Settlement Agreement," your 

                 determination must comply with Paragraphs 5(a) and (b) of 

                 the Settlement Agreement, which state, in relevant part: 



                 (a)  . . . [T]he appraisers shall exercise their expertise   and 

                judgment   in   that   determination   [of   fair   value],   giving   due 

                 consideration to all Calais' liabilities, and to the fair market 

                 value of all Calais' assets.       The appraisers shall make their 

                 determination   of   the   fair   value   of   Calais   without   input   or 

                 communication from Calais or the Defendants or Ivy, either 

                 orally or in writing, except as provided by Paragraph 5(e). 



                 (b)     In arriving at the appraised fair values of Calais there 

                 shall be: 1) no discount as to appraising fair value of Calais 

                 due to the number of shareholders or dilution of ownership of 

                 shares; 2) no consideration by the appraisers of the impact or 

                 value    of   any   speculative     future   development       of   Calais 

                 property   or   assets,   but   the   appraisers   may   consider   future 

                 opportunities to develop the property, subject to all existing 

                                                                                           (continued...) 



                                                    -7-                                               6784
 


----------------------- Page 8-----------------------

and AS 10.06.630(a). 



               Following the court's February 2010 order, Lowe made repeated attempts 



to communicate with MacSwain and Gain.  MacSwain and Gain each sent brief e-mails 



to Lowe regarding their continued involvement as appraisers, but those e-mails did not 



respond to any of Lowe's substantive questions or concerns   regarding the appraisal 



process and the superior court's order.      Lowe also asked the parties' counsel and the 



court to assist him in getting the appraisal panel to work together, but the appraisal panel 



never met following the February 2010 order. 



               On April 6, 2010, MacSwain and Gain sent a response to the court in which 



they   concluded    that  "fair  value,"  "fair  market   value,"   and   "market   value"   are 



synonymous.      They also asserted that deductions for tax consequences and transaction 



costs were not appropriate when determining the fair value of Calais because they had 



not been explicitly asked to make such deductions.          They made no reference to the 



definition of "fair value" in AS 10.06.630(a). 



               Lowe prepared a separate response to the court's February 2010 order and 



a report that described MacSwain and Gain's erroneous procedures and analysis, their 



       3(...continued) 



               leases and commitments, to the extent and only to the extent 

               that those future opportunities impact the fair values of the 

               property as of [May 15, 2009]. 



               To    be   "in  accordance     with   AS   10.06.630(a),"     your 

               determination    must   comply   with   AS   10.06.630(a)   which 

               provides, in relevant part: 



               (a) . . . The fair value shall be determined on the basis of the 

               liquidation value, taking into account the possibility of sale 

               of the entire business as a going concern in a liquidation. 



                                              -8-                                         6784
 


----------------------- Page 9-----------------------

refusal to work as a panel, and their general disregard of the Agreement's prescribed 



procedures and directions. 



        D.      Second Motion To Enforce 



                On April 8, 2010, Calais filed a second motion to enforce, asserting that the 



majority appraisers still had not complied with the Agreement's procedures for valuing 



Calais or with the court's February 2010 order.            Specifically, Calais claimed that the 



majority: (1) had not complied with the requirement to use the definition of "fair value" 



in AS 10.06.630(a); and (2) had violated the court's "express directive that the matter be 



decided by 'the panel' - not by the majority members acting on their own."                      Calais 



asked the court to reject the majority appraisers' report and to enforce the Agreement by 



ensuring that fair value was determined in accordance with the terms and procedures of 



the Agreement.      Ivy filed a cross-motion to enforce the Agreement, asking the court to 



order Calais to pay her 6.25% of the valuation determined by the majority appraisers. 



                In June 2010 the superior court denied Calais's motion and granted Ivy's, 



concluding that it had no authority under the Agreement to do anything further.  The 



court concluded that choosing between the majority appraisers' definition of "fair value" 



and the dissent appraiser's definition of "fair value" and declaring that one or the other 



complied with the Agreement would be outside the scope of authority delegated to the 



superior court to enforce the Agreement.           The court made no findings or conclusions 



regarding   the   majority   appraisers'   failure   to   include   Lowe   in   the   appraisal   process 



following the February 2010 order. 



                The superior court issued a final order in July 2010, reaffirming that its 



June 2010 order would be the court's final action.           Calais appeals. 



                                                  -9-                                            6784
 


----------------------- Page 10-----------------------

III.    STANDARD OF REVIEW 

                We interpret settlement agreements as contracts.4             The interpretation of 



contractual terms is a question of law, which we review de novo.5 



IV.     DISCUSSION 



                The   preliminary   issue   in   this   appeal   is   whether   the   superior   court   had 



authority   to   review   the   procedures   and   methodology   employed   by   the   three-person 



appraisal panel under paragraph 23 of the Agreement.  This paragraph explicitly grants 

"jurisdiction"6     to  the  superior   court  to  enforce    "all  terms   and  conditions"     of  the 



Agreement, notwithstanding paragraph 5(d), which states that a valuation agreed upon 



by two of the appraisers would be "binding on the parties" and not "subject to any 



further review, dispute, or appeal." The second issue presented for review is whether the 



majority appraisers' definition of "fair value" and exclusion of Calais's appraiser from 



the appraisal and reappraisal processes violated the express terms of the Agreement. 



                Because paragraph 23 of the Agreement expressly provides the superior 



        4       Chilkoot Lumber Co. v. Rainbow Glacier Seafoods, Inc., 252 P.3d 1011, 



1014 (Alaska 2011). 



        5       See Smith v. Cleary, 24 P.3d 1245, 1247 (Alaska 2001) ("The settlement 



agreement's scope and effect raise questions of contract law that we review de novo."). 



        6       While the Agreement explicitly grants "jurisdiction" to the superior court, 



this is an incorrect characterization because once the parties invoke the jurisdiction of the 

court by filing suit, jurisdiction is always held by the court. See Sea Hawk Seafoods, Inc. 

v. State, 215 P.3d 333, 338 (Alaska 2009) ("[A] court has subject-matter jurisdiction over 

a case when it has 'the legal authority . . . to hear and decide [that] particular type of 

case.' . . . AS 22.10.020(a) provides that the superior court has 'jurisdiction in all civil 

and criminal matters.' ") (internal citations omitted); see  also 21 C.J.S.  Courts   98 

(2012) ("In general, jurisdiction once acquired is not lost or divested by subsequent 

events.").    Instead, we use the word "authority" since a contract may limit a court's 

authority to review it. 



                                                 -10-                                            6784
 


----------------------- Page 11-----------------------

court with continuing authority to enforce "all terms and conditions" of the Agreement 



"[s]hould a dispute arise concerning any aspect of th[e] Agreement," the superior court 



has authority to interpret the Agreement and review whether the appraisers complied 



with the process and terms for determining fair value.   Because the majority appraisers' 



definition of "fair value" violates the express terms of the Agreement, we reverse the 



superior court's order and remand to the superior court to remand to the appraisers with 



instructions to follow the Agreement's instructions regarding both appraisal procedures 



and fair value determination. 



        A.	      The Superior Court Has The Authority To Determine Whether The 

                 Appraisers Complied With The Terms Of The Settlement Agreement. 



                 Although the parties agree that the superior court did not have authority 



under the Agreement to review the majority appraisers' valuation of Calais, the parties 



dispute   whether   the   superior   court   had   authority   to   review   the   majority   appraisers' 



valuation process or methodology. 



                   Ivy argues that under the Agreement neither the superior court nor this 



court has the authority to review the majority appraisers' "exercise of their judgment, 



expertise,   or   methods   employed"   in   reaching   their   determination   of   Calais's   value. 



Specifically, Ivy contends that the majority appraisers' valuation of Calais is binding and 



non-reviewable because both parties "gave up certain rights in exchange for gaining 



other   rights"   when   they   agreed   to   waive   further   review   of   the   majority   appraisers' 



determination   of   the   fair   value   of   Calais,   including   the   judgment   and   methods   the 



majority appraisers used to calculate the fair value.  According to Ivy, this forfeiture of 



rights was "an important element of consideration for [the] entire [Agreement]." 



                 Calais argues that paragraph 5(d) of the Agreement does not foreclose all 



judicial   review   of   the   appraisal   process   because   paragraph   23   expressly   grants   the 



                                                   -11-	                                            6784
 


----------------------- Page 12-----------------------

                                                                                               7 

superior court "jurisdiction" to "enforce," meaning to "carry out effectively,"  all terms 



and conditions of the Agreement. 



                 Whether      an  appraisal    conducted     pursuant    to  a  contractual    settlement 



agreement may be subject to review by the trial court generally presents a question that 



is governed by the language of the settlement agreement.                In this case, paragraph 23 of 



the Agreement expressly granted authority to the superior court to enforce the terms of 



the Agreement, and the Agreement included specific terms setting forth the procedures 



to be used by the appraisal panel in determining the fair value of Calais. 



                 1.	     Paragraph 23 of the Agreement expressly grants the superior 

                         court authority to enforce the terms of the Agreement, including 

                         the terms that expressly govern the appraisal procedure. 



                 Ivy argues that the enforcement clause in paragraph 23 of the Agreement 



"simply      allows   [the]   Trial   Court    to  provide    [the]   Parties   relief  to  enforce    [the 

Agreement's] provisions as to consideration."8            But Ivy does not provide any contractual 



language, extrinsic evidence, or legal authority to support her assertion that paragraph 



23   only   refers   to   consideration   provisions.    And   paragraph   23's   phrase   "[s]hould   a 



dispute   arise   concerning  any   aspect  of   this   Agreement"   directly   contravenes   Ivy's 



interpretation.    (Emphasis added.)        "Any aspect" means "any aspect." 



                 In Salt Lake Tribune Publishing Co. v. Management Planning, Inc. , a party 



argued   that   an   appraisal   of   a   newspaper's   assets   was   not   subject   to   judicial   review 



        7        Calais   cites  WEBSTER 'S  NINTH       NEW     COLLEGIATE       DICTIONARY        at   412 



(1987) for this definition of "enforce." 



        8        The consideration provisions Ivy specifically points to are: "payment of 



money; transfer of stock out of Escrow to Calais; releases; termination of association by 

Ivy with Calais and Calais with Ivy; no further claims; release of Stipulation to Dismiss 

from     Escrow     and   filing   with   and    signing    by   Court;   prohibiting     future   contact 

involvement by Ivy regarding with Calais, etc." 



                                                   -12-	                                             6784
 


----------------------- Page 13-----------------------

because the parties' agreement stated the appraisal was "final, binding, and conclusive."9 



The Tenth Circuit rejected this argument because it ignored other terms in the agreement: 



The agreement expressly allowed the parties to enforce the agreement in any court and 



provided that the appraisal was binding only if it complied with the appraisal provisions 

in the agreement, such as the agreement's definition of "fair market value."10               The Tenth 



Circuit   concluded   that   the   trial   court   had   authority   to   "review   the   appraisal   for   the 

appraiser's compliance with the contractual terms."11 



                Like the contract in Salt Lake Tribune, the Agreement here specifically 



allows the parties to enforce its terms in the superior court and even provides for costs 



and     attorney's    fees   "[s]hould     a  dispute    arise   concerning      any   aspect    of   this 



Agreement . . . ."      And the Agreement includes specific terms regarding the appraisal 



process, requiring the appraisers to determine the "fair value" of Calais "in accordance 



with [the] Agreement and AS 10.06.630(a)."  Judicial review of the appraisers' process 



to determine whether they complied with the express terms of the Agreement is therefore 



proper. 



                2.	     Courts in other jurisdictions have held that appraisal clauses 

                        are generally reviewable for fraud, bad faith, material mistake, 

                        or    a  failure    to  understand       or   complete     the   contractually 

                        assigned task. 



                Courts   in   other   jurisdictions   have   held   that   there   are   key   distinctions 



between an arbitration process, which is generally non-reviewable, and an appraisal 



        9       454 F.3d 1128, 1136-37 (10th Cir. 2006). 



        10      Id . at 1137. 



        11      Id . at 1138 (citing Melton Bros., Inc. v. Philadelphia Fire & Marine Ins. 



Co., 144 A. 726 (N.J. 1929)). 



                                                  -13-	                                            6784
 


----------------------- Page 14-----------------------

process, which is generally reviewable under limited circumstances.12                 The Wisconsin 



Supreme Court recently discussed the unique characteristics of appraisals and described 



what it believed the court's role should be in reviewing appraisal awards: 



                The court's role is not to determine whether the third party 

                [appraisers] accurately valued the item (as if the court itself 

                could do a better job), but whether the third party experts 

                understood and carried out the contractually assigned task. 

                The obvious point of contracting for an appraisal process is 

                to keep a jury or court out of that decision.          Courts have an 

                obligation to enforce this aspect of an agreement between the 

                parties by asserting only limited power to review appraisal 

                awards.[13] 



The   Wisconsin   court   also   noted   that   appraisals   deserve   a   more   deferential   review 

because the appraisal process is a "fair and efficient tool for resolving disputes."14              But 



the court ultimately concluded that, although appraisals are presumptively valid and 



should not be "lightly set aside," an appraisal may be set aside upon a showing of "fraud, 



bad    faith,  a  material   mistake,    or a   lack   of  understanding      or  completion     of  the 



        12      See, e.g., Cas. Indem. Exch. v. Yother . 439 So. 2d 77, 79-80 (Ala. 1983) 



(noting that an appraisal is distinguishable from arbitration and is not subject to the 

various procedural requirements imposed on the arbitration process); Minot Town & 

Country v. Fireman's Fund Ins. Co., 587 N.W.2d 189, 190 (N.D. 1998) (noting that 

while   both   appraisal   and   arbitration   are   proceedings   designed   to   effect   speedy   and 

efficient resolutions in lieu of judicial proceedings, there are key distinctions between the 

two; for example, arbitration is a quasi-judicial proceeding that ordinarily decides the 

entire controversy while appraisal establishes only the amount of a loss and not liability 

for the loss); Miller v. USAA Cas. Ins. Co. , 44 P.3d 663, 673 (Utah 2002) (noting the 

intrinsic differences between appraisal and arbitration). 



        13      Farmers Auto. Ins. Ass'n v. Union Pac. Ry. Co. , 768 N.W.2d 596, 607 



(Wis. 2009). 



        14      Id. 



                                                  -14-                                            6784
 


----------------------- Page 15-----------------------

contractually assigned task."15       Courts in the District of Columbia, Iowa, Massachusetts, 



and Texas have reached similar conclusions and reviewed appraisals for fraud, bad faith, 



mistake, or failure to complete the appraisal according to the contractually prescribed 

appraisal procedures.16 



                As we explain below, the majority appraisers' response to the superior 



court's February 2010 order demonstrates "a lack of understanding or completion of the 

contractually assigned task."17       As courts in other jurisdictions have held, this issue is 



judicially reviewable.       We therefore hold that the superior court has the authority to 



determine whether the appraisers' process complied with the contractual terms of the 



Agreement and, if it did not, enforce the terms of the Agreement. 



        B.	     The Majority Appraisers Failed To Comply With The Agreement's 

                Requirement   That   The   Appraisers   Determine   The   Fair   Value   Of 

                Calais In Accordance With AS 10.06.630(a). 



                As previously discussed, the superior court initially determined that the 



        15	     Id. (emphasis added). 



        16      See Wash. Auto. Co. v. 1828 L St. Assocs., 906 A.2d 869, 875 n.3 (D.C. 



2006) (holding that a court will not set aside an appraiser's valuation unless appraisers 

have "mistaken their authority, departed from the submission, clearly misconceived their 

duties, acted upon some fundamental and apparent mistake, or have been moved by fraud 

or bias"); Cent. Life Ins. Co. v. Aetna Cas. & Sur. Co., 466 N.W.2d 257, 260 (Iowa 1991) 

("The [appraisal] award will not be set aside unless the complaining party shows fraud, 

mistake or misfeasance on the part of the appraiser or umpire."); Nelson v. Maiorana , 

478   N.E.2d   945,   947   (Mass.   1985)   (holding   a   court   is   justified   in   overturning   an 

appraisal determination only when evidence supports a finding of "fraud, corruption, 

dishonesty,   or   bad   faith   in   the   appraisal   process   or   decision"); Wells   v.   Am.   States 

Preferred Ins. Co. , 919 S.W.2d 679, 683 (Tex. App. 1996) (recognizing an appraisal 

award is not binding if "the award was the result of fraud, accident, or mistake" or "was 

not made in substantial compliance with the terms of the contract"). 



        17      Farmers Auto. Ins. Ass'n , 768 N.W.2d at 607. 



                                                  -15-	                                           6784
 


----------------------- Page 16-----------------------

plain language of the Agreement showed the parties "intended that the appraisers utilize 



the statutory definition of 'fair value' " in AS 10.06.630(a) and directed the panel to 



reappraise Calais's fair value "in accordance with the provisions of both the Settlement 

Agreement and AS 10.06.630(a)."18          After MacSwain and Gain responded that they had 



understood and complied with the Agreement's provisions, the superior court concluded 



that   "to  inquire   further   into  the  merits   of  the  panel's   action   or  construction    of 



AS 10.06.630(a) would . . . exceed the authority granted to it by the parties' Settlement 



Agreement." 



                Calais argues that the superior court should have interpreted the meaning 



of "fair value" within the context of the Agreement in order to determine whether the 



appraisers had complied with the court's instructions.            Calais argues the court should 



have concluded that the   Agreement's use of the term "fair value," the Agreement's 



requirement that all liabilities be taken into account, and the Agreement's citation to 



AS 10.06.630(a) "together require[d] deductions for capital gains tax liabilities and other 



costs of liquidation." In response, Ivy argues that neither the superior court nor this court 



has authority to define "fair value" in the context of the Agreement, and she contends 



that the "meaning   and   effect" of the term "fair value" was "committed to [the] sole 



discretion and expertise" of the appraisers using their own experience, expert opinions, 



and principles of the profession. 



                1.	     The court has the authority to interpret the term "fair value" 

                        within the context of the Agreement. 



                We reiterate that under the plain language of the Agreement and persuasive 



case    law  from   other   jurisdictions,   the  court  has   the  authority   to  resolve  disputes 



concerning "any aspect" of the Agreement, enforce "all terms and conditions" of the 



        18      See supra note 3 for the text of the superior court's order. 



                                                 -16-                                             6784 


----------------------- Page 17-----------------------

agreement, and review the appraisers' process to determine whether they complied with 



the Agreement's provisions.          The superior court (and this court) has the authority to 



construe   the   term   "fair   value"   within   the   context   of   the   Agreement.  Interpreting   a 

contractual term is a legal question for the court,19 not for the appraisers. 



                2.	      The plain language of the Agreement shows the parties intended 

                         "fair value" to mean "liquidation value." 



                "The objective of contract interpretation is to determine and enforce the 

reasonable expectations of the parties."20          When interpreting contracts, we "[consider] 



the contract's language as well as relevant extrinsic evidence . . . ."21                 "The parties' 



expectations   are   assessed   by   examining   the   language   used   in   the   contract,   case   law 



interpreting   similar   language,   and   relevant   extrinsic   evidence,   including   subsequent 

conduct of the parties."22 



                The Agreement is unambiguous - it plainly states that the parties intended 



the     appraisers      to    "determine       the    fair   value     of    Calais     in   accordance 



with . . . AS 10.06.630(a)," which provides that "fair value shall be determined on the 



basis of the liquidation value, taking into account the possibility of sale of the entire 



business as a going concern in a liquidation."            The superior court correctly recognized 



this in its first order: 



                The   Agreement's   reference   to   AS   10.06.630(a)   is   telling. 

                That     subsection      describes     a  mechanism        for   majority 

                shareholders to avoid the dissolution of a corporation at the 



        19	     See Smith v. Cleary, 24 P.3d 1245, 1247 (Alaska 2001). 



        20      Norville v. Carr-Gottstein Foods Co. , 84 P.3d 996, 1004 (Alaska 2004). 



        21      Sowinski v. Walker, 198 P.3d 1134, 1143-44 (Alaska 2008). 



        22      Norville , 84 P.3d at 1004 (quoting Municipality of Anchorage v. Gentile , 



922 P.2d 248, 256 (1996)). 



                                                   -17-	                                            6784
 


----------------------- Page 18-----------------------

                 request of a minority shareholder by the purchase for cash of 

                 the   minority's   shares   "at   their   fair   value,"   which   is   to   be 

                 "determined   on   the   basis   of   liquidation   value,   taking   into 

                 account   the   possibility   of   sale   of   the   entire   business   as   a 

                 going concern in a liquidation."[23] 



                 In their response to the superior court, the majority appraisers interpreted 



"fair value" as synonymous with "fair market value."  But the Agreement differentiates 



between   the   two,   stating   the   appraisers   shall   "determine   the fair   value       of   Calais   in 



accordance with . . . AS 10.06.630(a)," while "giving due consideration to all Calais 



liabilities and to the fair market value  of all Calais assets."             (Emphasis added.)        By the 



Agreement's terms, the "fair market value" of Calais's assets is just one factor to be 



considered in determining the ultimate "fair value" of Calais.  To interpret "fair market 



value" as synonymous with "fair value," as the majority appraisers suggest, would render 



the   Agreement's   distinction   meaningless,   which   would   be   contrary   to   our   rules   of 

contract interpretation.24 



         23      It is clear from the appraisers' correspondence and methodology that they 



were     not   appraising    Calais    under    the  going    concern    option,   but   rather   under    the 

liquidation of assets option. 



         24      See Rockstad v. Global Fin. & Inv. Co. , 41 P.3d 583, 592-93 (Alaska 2002) 



("[T]his   definition is excluded . . . by the rule disfavoring interpretations that leave 

contract   terms   meaningless.").   Additionally,   we   note   that   the          majority    appraisers' 

assertion     that   "fair   value,    market    value,    and    fair  market     value"    are   "virtually 

synonymous" is not supported by professional appraisal treatises.                       For example, one 

treatise notes that while "market value" is "essentially synonymous" with                      "fair market 

value,"     the  term    "fair  value"    in  business    valuations     "is  usually    a  legally   created 

standard."      SHANNON       P.  PRATT    &  ALINA     V. NICULITA , VALUING           A BUSINESS : THE 

ANALYSIS AND  APPRAISAL OF  CLOSELY  HELD  COMPANIES 42, 45 (5th ed. 2008).                               "In 

most states, fair value is the statutory standard of value applicable in cases of dissenting 

stockholders' appraisal rights" or in "the dissolution statutes of those states in which 

minority   stockholders   can   trigger   a   corporate   dissolution."        Id .   at   45. "[P]ublished 

                                                                                             (continued...) 



                                                     -18-                                               6784
 


----------------------- Page 19-----------------------

                3.	      Cases construing "fair value" in the context of dissolution buyout 

                         statutes, rather than involuntary dissolution statutes, are not 

                         relevant. 



                 There is no Alaska case law construing "fair value" under AS 10.06.630(a). 



 Ivy cited several cases from other jurisdictions in her briefing to the superior court to 



 support her assertion that capital gains taxes should not be deducted when determining 

 the "fair value" of a corporation.25       These cases discuss "fair value" in the context of 



 dissenter buyout (in contrast to cases discussing "fair value" in the context of statutes 



 governing buyout in lieu of involuntary dissolution) and reject deductions for capital 

 gains tax liabilities and other   costs   of liquidation.26      Calais persuasively argues that 



because Ivy's cases define "fair value" under dissenter buyout statutes, they are not 



 relevant for interpreting how the parties here intended "fair value" to be defined:  The 



         24(...continued) 



precedents established in various state courts have not equated [fair value] directly to 

fair market value "; therefore "[w]hen a situation arises of actual or potential stockholder 

 dissent or dissolution action, it is necessary to carefully research the legal precedents 

 applicable to each case" and to "solicit the view of counsel as to the interpretation of fair 

 value."   Id.   (emphasis   added).    As   this   treatise   explains,   "fair   value"   is   generally   a 

 statutory term that is not synonymous with "market value" and "fair market value."  See 

 also UNIFORM      STANDARDS OF  PROFESSIONAL  APPRAISAL  PRACTICE  at 112-13 (2002) 

 (quoting Appraisal Standards Board, AO-8 (1999)) (distinguishing "market value" from 

 "fair value" in the context of real property appraisals and stating, "Rarely will market 

 value and fair value be exactly the same"). 



         25	    See Swope v. Siegel-Robert, Inc., 243 F.3d 486 (8th Cir. 2001); Bogosian 



 v.  Woloohojian, 158 F.3d 1 (1st Cir. 1998); In re 75,629 Shares of Common Stock of 

 Trapp Family Lodge, Inc., 725 A.2d 927 (Vt. 1999); Matthew G. Norton Co. v. Smyth , 

 51 P.3d 159 (Wash. App. 2002); Brown v. Arp & Hammond Hardware Co. , 141 P.3d 

 673 (Wyo. 2006). 



         26     See   Swope,   243   F.3d   at   491; Bogosian ,   158   F.3d   at   11;  Trapp   Family 



Lodge , 725 A.2d at 931; Matthew G. Norton Co. , 51 P.3d at 163; Brown , 141 P.3d at 

 688. 



                                                  -19-	                                           6784
 


----------------------- Page 20-----------------------

Agreement expressly refers to AS 10.06.630(a), which provides the mechanism for a 



corporation to avoid dissolution by purchasing the plaintiff's shares at fair value, and not 



AS 10.06.574-.580, Alaska's dissenter buyout statutes. 



                 There appears to be minimal precedent discussing how to calculate "fair 



value" in the involuntary dissolution context.              Calais cites an unpublished case from 



California   interpreting   an   involuntary   liquidation   buyout   statute   similar   to   Alaska's 



statute in which the California court affirmed a fair value appraisal that deducted taxes 

and other liquidation expenses.27 



                 We also look to the statutes governing liquidation of a corporation.  Under 



AS 10.06.655(a)(1)-(2), a corporation is ready to dissolve when state taxes have been 



paid or provided for, "the other known debts and liabilities of the corporation have been 



paid   or   adequately   provided   for,"   and   the   remaining   assets   have   been   distributed. 



AS 10.06.665 states that after "all of the known debts and liabilities of a corporation in 



the process of winding up have been paid or adequately provided for," the remaining 



assets   of   the   corporation   shall   be   distributed   to   the   shareholders   according   to   their 



respective rights.      It is hard to imagine how costs of sale and applicable income tax 



liabilities are not a part of this process. 



                 Ivy asserts that because her rights were obtained through a settlement, fair 



value under AS 10.06.630(a) means something different than liquidation value under the 



dissolution      statutes.  However,      Ivy   sued    under    AS   10.06.628      for  an   involuntary 



dissolution; Calais was entitled to avoid the involuntary dissolution under AS 10.06.630 



        27       Khatkar v. Dhillon , No. F053322, 2009 WL 189846, at *11-12 (Cal. App. 



Jan.   28,   2009)   (citing  Abrams   v.   Abrams-Rubaloff   &   Assocs. ,   170   Cal.   Rptr.   656 

(Cal. App. 1980)) (affirming appraisal of fair value of plaintiffs' shares made pursuant 

to   California's   involuntary   dissolution   buyout   statute   that   deducted   taxes   and   other 

liquidation expenses). 



                                                    -20-                                              6784
 


----------------------- Page 21-----------------------

by ultimately paying Ivy an estimated "fair value" of what she would have received had 



the corporation actually been required to liquidate and dissolve. The parties settled the 



lawsuit by specifically referring to fair value under AS 10.06.630(a). The provision in 



the Agreement for valuing the corporate assets at fair market value was the obvious 



bargained   for   difference   in   the   normal   liquidation   process   -   under   AS   10.06.660, 



corporate directors overseeing liquidation have the authority to sell or dispose of all or 



any part of the assets of the corporation as they deem reasonable, i.e., not necessarily at 



fair market value. 



                Though relevant case law is scarce, we conclude that Calais's argument is 



more persuasive.      Because the Agreement specifically references Alaska's involuntary 



dissolution statute for purposes of determining "fair value," and because an appraisal of 



fair value under involuntary dissolution statutes deducts capital gains tax liabilities and 



other liquidation expenses, the appraisal of fair value in this case should also deduct 



these liabilities and expenses. 



                4.       Summary 



                The court has the authority to interpret the Agreement and enforce its terms 



by    determining    whether     the  appraisal   panel   complied     with   the  appraisal   process 



mandated by the Agreement. The plain language of the Agreement demonstrates that the 

parties   intended   "fair   value"   to   mean   "liquidation   value"   under   AS   10.06.630(a).28 



        28      We agree with the superior court's analysis in its February 2, 2010 Order: 



                The parties' decision to refer to the definition of "fair value" 

                in AS 10.06.630(a) must have been meaningful and, in order 

                that the parties' decision and Agreement are enforced, it has 

                to be given effect.    The parties' use of the term "fair value," 

                in their instructions to the appraisers "to determine the fair 

                value of Calais" and the reference to a statutory definition of 

                                                                                       (continued...) 



                                                 -21-                                            6784
 


----------------------- Page 22-----------------------

Because the record shows that the majority appraisers did not take into account capital 



gains   taxes   or   liquidation   costs   when   they   calculated   the   "fair   value"   of   Calais,   we 



remand the appraisal to the superior court to remand to the appraisal panel with explicit 



instructions to calculate "fair value" as defined by AS 10.06.630(a), the other terms of 



the Agreement, and this opinion. 



                5.       The appraisal panel is required to work together as a panel. 



                Because the appraisal panel will need to determine "fair value" on remand, 



we take this opportunity to provide guidance to the superior court should the situation 



recur where one of the appraisers is excluded by the others from the appraisal process. 



Although the Agreement permits the final valuation of Calais to be determined by a 



majority of the three appraisers, the express terms of the Agreement indicate that the 



parties intended the panel of appraisers to be composed of three members at all times. 



The Agreement also refers to the appraisal procedure as a "process" in which all three 



appraisers would participate. The Agreement states that if one of the appraisers selected 



by Ivy or Calais became disabled or was "otherwise unable to complete the appraisal 



process," Ivy or Calais "shall have the right to select a substitute appraiser to begin the 



appraisal   process   anew,"   and   that   if   the   third   appraiser   became   unable   to   serve,   "a 



substitute appraiser shall be appointed by the court . . . ."  The Agreement also states "the 



appraisers as a group may in their discretion communicate as needed with any other 



party,   individual,    or  entity"   for  obtaining    information     necessary    to  complete     "the 



appraisal process."      (Emphasis added.) 



                The record reveals that MacSwain and Gain effectively excluded Lowe 



        28(...continued) 



                "fair value," can only reasonably be construed to mean the 

                parties    intended    that   the  appraisers    utilize  the   statutory 

                definition of "fair value." 



                                                   -22-                                               6784 


----------------------- Page 23-----------------------

from the initial appraisal process and from discussions the two may have had following 



the superior court's February 2010 remand order. An appraisal panel works together like 



an arbitration panel or a panel of judges - the panel members may individually prepare, 



but they meet together as a panel to discuss their case and come to their decision.                Just 



because one panel member dissents from the majority's consensus does not mean the 



majority may exclude the dissenter from meetings and deliberations of the panel.  By the 



Agreement's terms, excluding Lowe violated the parties' intent that all three appraisers 



were to work together in an effort to come to an appraised fair value of Calais.  The three 



were not required to agree, but they were required to work together as a panel in good 



faith. 



                On   remand   the   superior   court   shall   direct   the   appraisal   panel   to   work 



together as a panel pursuant to the terms of the Agreement. 



V.      CONCLUSION 



                We   REVERSE   the   superior   court's   final   order.      Because   the   majority 



appraisers failed to comply with the Agreement and its requirement that their appraisal 



of    Calais's   fair  value    be   determined     in   accordance     with    the  Agreement       and 



AS 10.06.630(a), giving due consideration to all Calais liabilities, we REMAND the 



appraisal to the superior court to remand to the panel with instructions to calculate the 



fair value of Calais as defined by AS10.06.630(a), other terms of the Agreement, and this 



opinion.   The court shall also direct the appraisal panel to work together as a panel in its 



appraisal process. 



                                                  -23-                                            6784
 

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