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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Nautilus Marine Enterprises, Inc. v. Exxon Mobil Corporation (7/19/2013) sp-6801

Nautilus Marine Enterprises, Inc. v. Exxon Mobil Corporation (7/19/2013) sp-6801

        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  


NAUTILUS MARINE                                  )      Supreme Court No. S-14458 

ENTERPRISES, INC.,                               ) 

                                                 )       Superior Court Nos. 3AN-07-10901 CI 

              Appellant,                         )       and 3AN-09-07869 CI (Consolidated) 


        v.                                       )       O P I N I O N 


EXXON MOBIL CORPORATION                          )      No. 6801 - July 19, 2013 

and EXXON SHIPPING COMPANY,                       )


            Appellees.                           )


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

                Judicial District, Anchorage, Sen K. Tan, Judge. 

                Appearances:      Charles W. Coe, Law Offices of Charles W. 

                Coe, Anchorage, for Appellant.          John Clough III, Clough & 

                Associates,     P.C.,   Auke    Bay,   for  Appellee     Exxon    Mobil 

                Corporation.      Douglas J. Serdahely  and Barat M. LaPorte, 

                Patton Boggs LLP, Anchorage, for Appellee Exxon Shipping 

                Company.         Carla    J.  Christofferson     and    Dawn     Sestito, 

                O'Melveny        &   Myers    LLP,    Los   Angeles,    California,   for 


                Before: Fabe, Chief Justice, Carpeneti and Stowers, Justices. 

                [Winfree, Justice, not participating.] 

                STOWERS, Justice. 

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


                  In  September    2006   Exxon    Mobil   Corporation    and   Exxon    Shipping 

Company (collectively "Exxon") entered into a Settlement Agreement with two seafood 

processors, Nautilus Marine Enterprises (Nautilus) and Cook Inlet Processing (Cook 

Inlet).  The   agreement contained   the   following   language:      "Exxon   and   the   Seafood 

Processors agree that the issue of the correct rate of prejudgment interest in this case 

shall be submitted to the [United States] District Court for resolution and entry of an 

appropriate judgment . . . ."    It also noted that the "Final Judgment shall be in the same 

form as Exhibit A to this Settlement Agreement." 

               The parties disputed whether the Settlement Agreement required interest 

to be compounded annually, or whether the federal District Court was free to award 

simple or compound interest at its discretion. 

               Exxon filed an action in the Alaska Superior Court seeking a declaratory 

judgment construing the Settlement Agreement. The superior court found that the parties 

did not intend that prejudgment interest had to be compounded annually, but rather that 

they intended to reserve this issue for the District Court to decide.  Because the superior 

court's interpretation of the Settlement Agreement was not clearly erroneous, we affirm. 


        A.     Facts And Proceedings Concerning The Settlement Agreement 

               The   September   2006   Settlement   Agreement   was   intended   to   resolve   a 

lawsuit by Nautilus and Cook Inlet against Exxon in the United States District Court for 

the District of Alaska. The underlying lawsuit related to the 1989 Exxon Valdez oil spill. 

An important issue in dispute between the parties was how to calculate prejudgment 

interest that would be payable on damages that Nautilus and Cook Inlet suffered as a 

result of the spill.   In two similar cases, the District Court had previously ruled that 

federal     law   would     govern     the   calculation    of   prejudgment      interest   under 

                                                -2-                                          6801

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

28 U.S.C.  1961.1      That statute sets the Treasury bill rate ("T-bill rate") as the default 

rate for prejudgment interest, although the court has the power to vary the rate if the 

equities of a particular case demand it.   The statute expressly provides that interest shall 

be "compounded annually."2 

                In June 2006 Nautilus and Cook Inlet filed a motion in the District Court 

prepared     by   their  attorney,   Phillip  Paul   Weidner,     arguing    that  the  Alaska    state 

prejudgment interest rate of 10.5% should apply to their case, rather than the federal T- 

bill  rate  that  the  District   Court   had   applied   in  the  previous    cases.    The   Alaska 

prejudgment interest statute in effect at the time of Nautilus's and Cook Inlet's damages 

in   1992   and   1993   provided   that   prejudgment   interest   was   10.5%   per   annum   unless 

otherwise   provided   for   in   a   contract   or   agreement.3 Decisions   applying   former   AS 

09.30.070(a) had held that in the absence of an agreement to the contrary, the method of 

computing interest under the statute was "simple interest."4              The motion argued that 

Alaska's prejudgment interest statute should apply because Nautilus's and Cook Inlet's 

underlying claims were based on state law.  In the alternative, the motion argued that the 

District Court should apply a federal rate "compounded annually." 

                Meanwhile, Weidner initiated settlement negotiations with John Daum, 

negotiator and outside counsel for Exxon.           In a letter to Daum in July 2006, Weidner 

discussed the applicable prejudgment interest rate, noting that it would be necessary to 

        1       Order   No.   369, In   re   Exxon   Valdez , A89-0095-CV   (HRH), 2005   WL 

936934 (D. Alaska Apr. 12, 2005), rev'd and remanded, 484 F.3d 1098 (9th Cir. 2007); 

Order No. 299, In re Exxon Valdez , A89-0095-CV (HRH) (D. Alaska Sept. 21, 1995). 

        2       28 U.S.C.  1961(b) (2006). 

        3       Former AS 09.30.070(a) (1996) (amended 1997). 

        4       State v. Doyle, 735 P.2d 733, 741-42 (Alaska 1987);Alyeska Pipeline Serv. 

Co. v. Anderson, 669 P.2d 956-57 (Alaska 1983). 

                                                 -3-                                            6801

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

conduct "an analysis of whether the treasury T-bill rate will be used and compounded, 

whether the Alaska 10.5% simple rate will be used, or whether the federal lending rate 

will   be  used    and  compounded."        Weidner      also  provided     Daum    a  list  of  interest 

calculations he had formulated using compound interest when applying federal rates and 

simple interest when applying the Alaska rate of 10.5%. 

                In a September 2006 letter, Weidner proposed to Daum that the parties 

settle the principal amount of damages and allow District Court Judge Russel Holland 

to resolve the issue of the "computation and assessment of prejudgment interest," subject 

to appeal to the United States Court of Appeals for the Ninth Circuit.  Daum responded 

by drafting a Letter Agreement that was intended to set forth the basic terms of the 

settlement consistent with the substance of Weidner's letter.                The Letter Agreement 

stated that Exxon would pay prejudgment interest "as provided by law" and explained 

that "Exxon contends that the correct rate of pre-judgment interest in this case is 4.11% 

on damages accrued in 1992 and 3.54% on damages accrued in 1993," consistent with 

the   Treasury   bill   rates   for   those   years,   while   Cook   Inlet   and   Nautilus   contend   that 

"higher rates of  pre-judgment interest apply."  The Letter Agreement provided that the 

District Court would determine the "correct rate of prejudgment interest," and that both 

parties    preserved    their  rights  to  appeal   to  the  Ninth    Circuit.   Finally,    the  Letter 

Agreement provided that the parties would execute a formal settlement agreement to 

implement the provisions of the Letter Agreement.              On September 14, 2006, Weidner 

countersigned   the   Letter   Agreement,   indicating        that   "a   settlement   on   this   basis   is 

agreeable to [his] clients."  In testimony, Daum and Weidner agreed that at the time they 

signed the Letter Agreement, Daum had made no "specific representation" that Exxon 

would pay compound interest in all circumstances. 

                   From     the  signing    of  the  Letter  Agreement      on   September     14   until 

September 18, 2006, when Daum transmitted a first draft of the Settlement Agreement 

                                                  -4-                                             6801

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

to   Weidner,     the  parties   did  not   have   any   substantive    discussions.     After    minor 

modifications to Daum's initial Settlement Agreement draft, the parties executed the final 

Settlement Agreement. 

                Closely following the wording of the Letter Agreement, the language of the 

Settlement Agreement regarding prejudgment interest read as follows: 

                Exxon contends that the correct rate of pre-judgment interest 

                in   this   case   is   4.11%  compounded   annually   on   damages 

                accrued     in   1992    and   3.54%    compounded        annually    on 

                damages accrued in 1993. The Seafood Processors contend 

                that higher rates of prejudgment interest apply. Exxon and the 

                Seafood Processors agree that the issue of the correct rate of 

                prejudgment interest in this case shall be submitted to the 

                District   Court   for   resolution   and   entry   of   an   appropriate 

                judgment, with all parties preserving rights of appeal to the 

                Ninth Circuit from any adverse decision. 

Paragraph 3.5 of the Settlement Agreement provided for the "entry in the Action of a 

Final Judgment," which "shall include the following provisions": 

                3.5.1 A dismissal with prejudice of all Claims of the Seafood 


                3.5.2 A full and final release and discharge of Exxon from all 

                Claims by each of the Seafood Processors . . . ; 

                3.5.3   An    order   forever   barring    the  parties   identified   in 

                paragraph      3.5.2   from   asserting,   instituting,   maintaining, 

                prosecuting or enforcing any Claim against Exxon . . . ; 

                3.5.4   A   reservation   of   jurisdiction   over   the   Claims   of   the 

                Seafood Processors against Exxon to enforce this Settlement 

                Agreement and the Final Judgment. 

The Settlement Agreement further stated that the Final Judgment "shall be in the same 

form" as an attached "(Proposed) Final Judgment" form marked as "Exhibit A" in the 

document.      The first paragraph, or first recital, of Exhibit A   included the following 

language, which is at the center of the current controversy: 

                                                  -5-                                             6801

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

                 WHEREAS,   in   Order   No.   __,   the   Court   determined   that 

                plaintiffs . . . were entitled to recover prejudgment interest 

                 from defendants . . . on 1992 damages at the rate of __%, 

                 compounded          annually,      and   were    entitled    to  recover 

                prejudgment interest on 1993 damages at the rate of __%, 

                 compounded annually . . . . (Emphasis added.) 

The   "compounded   annually"   language   was   present   in   all   drafts   of   Exhibit   A   to   the 

Settlement Agreement exchanged by the parties, from Daum's first draft to the final 

version.    Both Daum and Weidner agreed that during the drafting of the document the 

parties did not discuss the "compounding annually" language with each other. 

                 Finally, the Settlement Agreement included an integration clause, which 

read as follows:     "This Settlement Agreement, including the attached exhibit [A], is an 

integrated   instrument   that   constitutes   and   contains   the   entire   agreement   among   the 

Parties with regard to the subject matter hereof, and supersedes and replaces all prior 

negotiations and proposed agreements."  The Agreement also provided that it "may not 

be altered, amended or modified in any respect" except by a writing signed by all parties. 

The Agreement stated that the parties entered into the Agreement "based upon equal 

bargaining power, with all Parties participating in its preparation" and that "the attorneys 

for   each   Party   have   had   an   equal   opportunity   to   participate   in   the   negotiation   and 

preparation of this Settlement Agreement, and that its terms . . . shall not be interpreted 

in   favor   of   or   against   any   Party   .   .   .   ." The   Agreement   provided   that   it   shall   be 

interpreted "solely for the purpose of fairly effectuating the intent of the Parties." 

        B.       Post-Agreement Facts And Proceedings 

                 On February 20, 2007, Nautilus and Cook Inlet filed separate motions in 

the   District   Court    arguing    that  Judge    Holland    should    award    a  higher    amount     of 

prejudgment interest than the Treasury bill figures that Exxon believed should apply. 

                                                    -6-                                              6801

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

Cook Inlet's motion was signed by Weidner; Nautilus's motion was signed by other 


                Nautilus's motion argued that the court should award prejudgment interest 

at a compounding rate of 10.5% based on "the average prime rate during the 1990's, the 

Alaska statutory rate, and also [Nautilus's] cost of interest and the rates charged to it." 

In the alternative, Nautilus argued that a rate of 8.5% compounding interest should apply, 

"commensurate with the average prime rate in the 1990s." 

                Cook Inlet's motion, signed by Weidner, argued that the Alaska state rate 

of 10.5% simple interest should apply or, in the alternative, a compound rate between 

9.78% and 12.15% should apply.            Weidner emphasized this distinction between state 

simple interest and federal compound interest in a reply brief that Cook Inlet submitted 

in April 2007. Using bolded lettering, Weidner wrote that "[Cook Inlet's] motion clearly 

states that '. . . the Court should rule that the interest rates (other than Alaska statutory) 

are compounded.' "   Cook Inlet's reply brief also observed that "the Alaska Legislature 

has indicated that [the applicable] rate is 10.5% per year simple interest" and argued that 

in the instant case "[t]he Court should award simple prejudgment interest at 10.5% per 


                In a supplemental declaration filed in the District Court on April 20, 2007, 

Nautilus president M. Thomas Waterer stated his preference for 10.5% compounding 

interest but also proposed several alternatives to this rate.          These alternatives included 

having Judge Holland award simple interest and interest compounding monthly. 

                On April 16, 2007, the Ninth Circuit held in a related case involving Sea 

Hawk      Seafoods,   Inc.,   that   Alaska   law  -  not   federal   law  -   supplies   the   rate   of 

                                                 -7-                                            6801

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

prejudgment interest.5       Because this decision reversed Judge Holland's earlier rulings 

that federal law applied, he requested that the parties (Exxon, Nautilus, and Cook Inlet) 

file supplemental briefing addressing the Sea Hawk  decision.                  In their supplemental 

briefs, all parties agreed that the  Sea Hawk decision dictated that the proper rate of 

prejudgment   interest   was   the   Alaska   rate   of   10.5%.     However,   Exxon   argued   that 

prejudgment   interest   should   be   simple,   while   Nautilus   and   Cook   Inlet   argued   that, 

pursuant to the language of Exhibit A of the   Settlement Agreement, the parties had 

agreed that interest would be compound in all circumstances. 

                In July 2007 Judge Holland entered final judgment, ruling that Nautilus and 

Cook Inlet were to recover prejudgment interest at the 10.5% Alaska statutory rate, 

compounded annually. In making this ruling, Judge Holland "did not receive or consider 

extrinsic    evidence."     He    found    that  because    "[t]hat   settlement    agreement     was   an 

integrated   instrument"   he   could   not   rely   on   the   parties'   pre-settlement   dealings   in 

interpreting the document.         Looking at the language of the document, Judge Holland 

found   that   the   "proposed   final   judgment   was   expressly   made   part   of   the   integrated 

settlement   agreement"   and   that   the   proposed   judgment   "plainly   states   that   interest, 

regardless of the rate the court puts in the blank, will be compounded."                     Thus, "the 

parties agreed that any prejudgment interest should be compounded." 

                Exxon appealed this decision to the Ninth Circuit. In March 2009 the Ninth 

Circuit ruled that Judge Holland "erred in failing to consider extrinsic evidence regarding 

whether the parties agreed to compound interest," and it remanded the case back to the 

District Court.6 

        5       In re Exxon Valdez (Sea Hawk Seafoods, Inc. v. Exxon Corp.) , 484 F.3d 

1098, 1099 (9th Cir. 2007). 

        6       In   re   Exxon    Valdez    (Polar   Equipment,      Inc.  v.  Exxon    Mobil    Corp.) , 


                                                   -8-                                                6801 

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

                In June 2009 Exxon filed a complaint in Alaska Superior Court seeking  to 

reform the Settlement Agreement and, in particular, "to delete the phrase 'compounded 

annually' in the two places where it appears in the First Recital of Exhibit A to the 

Settlement Agreement."  In the alternative, Exxon sought a declaratory judgment to the 

effect that the Settlement Agreement "did not involve any agreement to pay compound 

interest   if   state   law   governed   or   to   pay   compound   interest   regardless   of   what   law 


                On   remand   from   the   Ninth   Circuit,   in   September   2009   Judge   Holland 

issued a stay of proceedings in the District Court in favor of the litigation in state court 

of both Exxon's contract reformation and contract interpretation claims.                 The District 

Court expressly retained jurisdiction of the parties' Settlement Agreement for purposes 

of entering a final judgment after state court proceedings had concluded. 

                Cook Inlet and Exxon settled before trial commenced in the superior court. 

Exxon's claims for declaratory relief and reformation with respect to the agreement with 

Nautilus came before the court in a non-jury trial on November 1-3, 2010.  The superior 

court issued Findings of Fact and Conclusions of Law and entered a Final Judgment. 

The court found that the Settlement Agreement did not require Exxon to pay compound 

interest.   Rather, the court found that the parties intended that Judge Holland would 

determine both the correct rate of interest and the method of computing interest under 

federal or state law.   In light of these findings, the court concluded that reformation was 

not necessary.     Finally, the court found that Exxon was the prevailing party. 

                Nautilus appeals. 


318 F. App'x 545, 547 (9th Cir. 2009). 

                                                  -9-                                               6801 

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


                When interpreting a contract, the goal "is to give effect to the reasonable 

expectations of the parties."7       "We review the interpretation of a contract de novo."8 

"Where the superior court considers extrinsic evidence in interpreting contract terms, 

however, we will review the superior court's factual determinations for clear error and 

inferences drawn from that extrinsic evidence for support by substantial evidence."9                 A 

clearly erroneous finding is one which leaves us with "a definite and firm conviction on 

the entire record that a mistake has been made."10 

                "We   review   a   trial   court's   prevailing   party   determination   for   abuse   of 

discretion.    We   will   reverse   a   prevailing   party   determination   only   if   it   is   arbitrary, 

capricious, manifestly unreasonable, or improperly motivated."11 

        7       Villars v. Villars, 277 P.3d 763, 768 (Alaska 2012) (quoting Knutson v. 

Knutson , 973 P.2d 596, 600 (Alaska 1999)) (internal quotation marks omitted). 

        8       Id. (citing Burns v. Burns , 157 P.3d 1037, 1039 (Alaska 2007)). 

        9       Id. (quoting Cook v. Cook, 249 P.3d 1070, 1077-78 (Alaska 2011)) (internal 

quotation marks omitted); see also Vokacek v. Vokacek , 933 P.2d 544, 547 (Alaska 1997) 

(stating that when extrinsic evidence is presented at trial regarding interpretation of the 

parties' agreement "we are confined to determining whether the facts support the trial 

court's interpretation" (quoting Fairbanks N. Star Borough v. Tundra Tours , 719 P.2d 

1020, 1025 (Alaska 1986))) (internal quotation marks omitted). 

        10      Municipality of Anchorage v. Gentile , 922 P.2d 248, 256 (Alaska 1996) 

(internal quotation marks omitted). 

        11      Taylor v. Moutrie-Pelham, 246 P.3d 927, 928-29 (Alaska 2011) (internal 

footnotes omitted). 

                                                 -10-                                            6801

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


        A.	     The Superior Court's Interpretation Of The Settlement Agreement 

                Was Not Clearly Erroneous. 

                 Nautilus argues that the parol evidence rule should have prevented the 

superior   court   from   considering   extrinsic   evidence   to   determine   the   meaning   of   the 

Settlement Agreement.          The superior court concluded that although the parol evidence 

rule "generally precludes the parties from using evidence of prior agreements . . . to 

contradict     the   written   terms,"    the   court   may    consider    extrinsic    evidence    when 

determining   whether   the   contract   is   integrated   and   what   the   contract   means.       The 

superior court is correct.       Extrinsic evidence is generally admissible to   interpret the 

meaning of the language of a contract.12         Once the meaning of a written contract has been 

determined,   the   parol   evidence   rule   prohibits   the   enforcement   of   prior   inconsistent 



                 1.	     The superior court properly considered extrinsic evidence. 

                Nautilus contends that a court may bring extrinsic evidence to bear on the 

interpretation of a contract only after the court first finds an ambiguity in the contract. 

But we have long held that when reviewing contract disputes, 

                 [i]n  order   to  give   legal  effect   to  the  parties'   reasonable 

                expectations,       the  court    must    look   first  to  the   written 

                agreement itself and also to extrinsic evidence regarding the 

                parties' intent at the time the contract was made.  The parties' 

                reasonable   expectations   are   assessed   through   resort   to   the 

                language of the disputed provision and other provisions of 

        12       Casey v. Semco Energy, Inc., 92 P.3d 379, 383 (Alaska 2004) (internal 

citations omitted). 

        13      See     AS    45.02.202;    Alaska     Diversified     Contractors,     Inc.   v.  Lower 

Kuskokwim Sch. Dist. , 778 P.2d 581, 584 (Alaska 1989) (internal citations omitted). 

                                                   -11-	                                              6801 

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

                the   contract,  relevant    extrinsic    evidence,    and   case   law 

                interpreting similar provisions.[14] 

                 Extrinsic evidence is evidence "other than the language of the contract that 

bears   on   the   parties'   intentions."15 The   extrinsic   evidence   that   may   be   considered 

includes "the language and conduct of the parties, the objects sought to be accomplished 

and the surrounding circumstances at the time the contract was negotiated," as well as 

the conduct of the parties after the contract was entered into.16         Trial courts "have broad 

latitude in looking at extrinsic evidence."17 

                Extrinsic evidence "is always admissible on the question of the meaning of 

the words of the contract itself."18       Accordingly, "[i]t is not necessary to find that an 

agreement is ambiguous before looking to extrinsic evidence as an aid in determining 

what it means."19     We have expressly rejected the "artificial and unduly cumbersome" 

two-step process used in other jurisdictions in which "resort to extrinsic evidence can 

        14      Fairbanks N. Star Borough , 719 P.2d at 1024 (emphasis added) (internal 

citations omitted). 

        15      Wright v. Vickaryous, 598 P.2d 490, 497 n.22 (Alaska 1979). 

        16      Peterson v. Wirum , 625 P.2d 866, 870 n.7 (Alaska 1981) (citations and 

quotation marks omitted). 

        17      Municipality of Anchorage v. Gentile , 922 P.2d 248, 257 (Alaska 1996). 

        18      Casey v. Semco Energy, Inc., 92 P.3d 379, 383 (Alaska 2004); see also Beal 

v. McGuire , 216 P.3d 1154, 1166 (Alaska 2009) (observing that "in determining the 

meaning of an agreement courts should consider, in addition to its text, relevant extrinsic 

evidence, including the subsequent conduct of the parties"). 

        19      Estate of Polushkin ex rel. Polushkin v. Maw , 170 P.3d 162, 167 (Alaska 

2007); see also Beal, 216 P.3d at 1166 (observing that "[c]ourts may consult extrinsic 

evidence without first finding that an agreement's words are ambiguous"). 

                                                 -12-                                            6801

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

take place only  after a preliminary finding of ambiguity."20           In this two-step process, "a 

court would examine extrinsic evidence to make a preliminary finding of ambiguity, and 

only after such a finding, would the court consider extrinsic evidence in construing the 

contract."21   By contrast, under Alaska law "a court in this jurisdiction may initially turn 

to extrinsic evidence in construing a contract" for "such light as it may shed on the 

reasonable expectations of the parties."22          Such an approach has at least two benefits. 

First, an approach in which the courts "may hear all relevant circumstances bearing on 

the interpretation of a disputed term . . . should better enable them to attain the ultimate 

goal of interpreting the language in accordance with the reasonable expectations of the 

parties."23  Second, this approach "eliminate[s] the lengthy and repetitious arguments as 

to whether a provision is ambiguous."24           In sum, the trial court's duty "to consider the 

totality of the evidence, including extrinsic evidence," in resolving issues of contractual 

meaning "extends to all cases and requires no preliminary indication of ambiguity in the 

written agreement."25 

                Here, the superior court relied on several sources of extrinsic evidence to 

construe   the   meaning   of   the   contract,   including   the   exchange   of   letters   and   drafts 

        20      Alyeska Pipeline Serv. Co. v. O'Kelley , 645 P.2d 767, 771 n.1 (Alaska 


        21      Wright v. Vickaryous, 598 P.2d 490, 497 n.22 (Alaska 1979). 

        22      Alyeska Pipeline Serv. Co. , 645 P.2d at 771 n.1. 

        23      Wessells v. State, Dep't of Highways, 562 P.2d 1042, 1052 n.39 (Alaska 


        24      Id. 

        25      Froines v. Valdez Fisheries Dev. Ass'n, Inc. , 75 P.3d 83, 87-88 (Alaska 


                                                  -13-                                               6801 

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

between Daum and Weidner, internal documents generated by Nautilus, and various 

motions and declarations submitted by Exxon, Cook Inlet, Nautilus, and Waterer.                      All 

of this evidence was admissible to construe the meaning of the Settlement Agreement. 

In addition to written extrinsic evidence, the court also relied on testimony by Daum, 

Weidner, and Waterer, among others.             Nautilus takes issue with the court's reliance on 

Daum's   testimony   in   particular,   pointing       out   that   we   have   held   that   "self-serving 

litigation-related expressions of prior subjective intent or understanding are generally not 

considered   probative   of   parties'   reasonable   expectations   when   they   entered   into   a 

contract;    the   court   instead   must    look   to  express    manifestations     of  each    party's 

understanding."26      This statement, however, "does not preclude a party from testifying 

about its understanding in objective terms . . . sufficiently detailed to enable [the] trier 

of fact to form its own judgment as to the reasonableness of the party's understanding 

and the likelihood that the other party would have the same understanding."27                   Indeed, 

"[t]here is nothing improper in such testimony."28            Accordingly, the superior court did 

not err in relying on Daum's testimony in combination with other extrinsic evidence in 

seeking to understand the reasonable intent of the parties. 

        26      In re Estate of Fields , 219 P.3d 995, 1012 n.57 (Alaska 2009); see also 

Norville    v.  Carr-Gottstein      Foods ,   84  P.3d   996,   1003    (Alaska   2004)    (stating   that 

"[t]estimony   of   a   party   as   to   his   subjective   intentions   concerning   the   meaning   of   a 

particular clause in a contract is not probative unless the party in some way expressed 

or manifested his understanding at the time of contract formation"). 

        27      In re Estate of Fields , 219 P.3d at 1012 n.57 (quoting Alaska Tae Woong 

Venture, Inc. v. Westward Seafoods, Inc., 963 P.2d 1055, 1067 (Alaska 1998)) (internal 

quotation marks and brackets omitted). 

        28      Alaska Tae Woong Venture, Inc. , 963 P.2d at 1067. 

                                                  -14-                                             6801

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

                2.      The superior court did not violate the parol evidence rule. 

                Nautilus also argues that the superior court "disregarded" or "violate[d]" 

the   parol   evidence   rule   by   relying   on   extrinsic   evidence   to   construe   the   Settlement 

Agreement.  As previously explained, Nautilus's argument reflects a  misunderstanding 

of   the   parol   evidence   rule   and   its   relationship   to   this   court's   principles   of   contract 


                The parol evidence rule is codified in AS 45.02.202, which reads: 

                Terms with respect to which the confirmatory memoranda of 

                the parties agree, or that are otherwise set out in a writing 

                intended      by   the  parties   as  a   final  expression     of  their 

                agreement with respect to the terms included in the writing, 

                may not be contradicted by evidence of a prior agreement or 

                of a contemporaneous oral agreement, but may be explained 

                or supplemented 

                        (1)   by    course    of   performance,      course    of 

                        dealing, or usage of trade (AS 45.01.303); and 

                        (2) by evidence of consistent additional terms 

                        unless the court finds the writing was intended 

                        also as a complete and exclusive statement of 

                        the terms of the agreement. 

                Alaska case law provides additional guidance regarding this rule. In Alaska 

Diversified Contractors, Inc. v. Lower Kuskokwim School District , we explained that 

"[b]efore the parol evidence rule can be applied, three preliminary determinations must 

be made:     (1) whether the contract is integrated, (2) what the contract means, and (3) 

whether the prior agreement conflicts with the integrated agreement."29  This three-part 

process makes clear that before applying the parol evidence rule, "the court's first duty 

is to determine the meaning of the contract, and extrinsic evidence is admissible for this 

        29      778 P.2d 581, 583 (Alaska 1989) (internal citations omitted). 

                                                  -15-                                               6801 

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purpose."30   This initial determination, as such, "does not involve the parol evidence rule 

at all, since the question is what the contract means."31           Rather, it is only "[o]nce the 

meaning of the written contract [has been] determined" that the parol evidence rule 

operates to "preclude[] the enforcement of prior inconsistent agreements."32 

                Here,    the  superior   court   followed    the  procedure    set  forth  by  Alaska 

Diversified Contractors and initially determined - with the aid of extrinsic evidence - 

"what the contract means," namely, that the Settlement Agreement did not include an 

agreement to pay compound interest.           Interpreted thus, there was no prior inconsistent 

agreement present and no conflict between the extrinsic evidence and the Settlement 

Agreement.      There was therefore no occasion for the court to apply, much less violate, 

the parol evidence rule. 

                3.	     The   court's   interpretation   of   the   Settlement   Agreement   was 

                        not clearly erroneous. 

                Relying on both the language of the Settlement Agreement and extrinsic 

evidence, the superior court found that the Settlement Agreement did not include an 

agreement to use compound interest regardless of whether state or federal law applied, 

but rather reserved the prejudgment interest issue for Judge Holland to decide.                   This 

finding was not clearly erroneous. 

                With respect to the language of the Settlement Agreement, the court found 

that nothing in the document's language limited Judge Holland's discretion to decide not 

only the numerical percentage of the interest, but also whether the interest would be 

simple or compound.        On the contrary, the court found that the Settlement Agreement 

        30      Prichard v. Clay , 780 P.2d 359, 362 (Alaska 1989). 

        31      Id. 

        32      Alaska Diversified Contractors , 778 P.2d at 584. 

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simply does not address the issue of simple or compound interest. In particular, the court 

observed that paragraph 3.5 of the Settlement Agreement, which states that the Final 

Judgment must contain certain provisions, does not mention an agreement to provide 

compound interest in all circumstances. Similarly, paragraphs 3.1, 3.2, and 3.3 carefully 

address the issue of prejudgment interest, but say nothing about an agreement to provide 

compound interest in all circumstances. 

                The   court   also   considered   the   significance   of   Exhibit   A,   the   Proposed 

Judgment form. The court concluded that "[t]he extrinsic evidence . . . demonstrates that 

the   proposed     judgment      [Exhibit   A]   (including    the   first  recital  and  [the]   words 

'compounded annually') was intended to provide a form of judgment that Judge Holland 

could use to implement the parties' agreement. The proposed judgment was not intended 

to include or be an agreement to pay compound interest."                  In other words, the court 

found that the Proposed Judgment form was "just that, a proposal for Judge Holland to 

use at his discretion." 

                The   court   acknowledged,   however,   that   despite   its   own   reading   of   the 

document, there "may be an 'ambiguity' " in the language of the Settlement Agreement 

regarding the use of compound interest only, particularly with respect to the language of 

Exhibit A and its recital of the phrase "compounded annually."  Nevertheless, the court 

found that even if the document was ambiguous, the extrinsic evidence removed any 

ambiguity by confirming there was no agreement to pay compound interest.                        Again, 

extrinsic evidence is admissible to construe the Settlement Agreement whether or not 

there is an ambiguity.   With respect to such extrinsic evidence, the court found that "[a]ll 

of the extrinsic evidence demonstrates that the parties never agreed that interest would 

be compounded."        In making this finding, the court relied on the following sources of 

extrinsic evidence. 

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                First, the superior court noted that in light of Judge Holland's previous 

rulings    that  federal   law   governed     the  award    of  prejudgment      interest,  the  parties 

reasonably might have assumed that in their case Judge Holland would similarly award 

interest under the federal standard, which requires interest to be compounded.  Thus the 

use of the phrase "compounded annually" in Exhibit A served as a prediction of what the 

court would do. 

                Second, the court considered the exchange of letters and drafts between 

Daum   and   Weidner,   as   well   as   their   testimony   regarding   the   negotiations.   Having 

reviewed these, the court found there was "no evidence that the parties discussed and 

reached agreement that only compound interest would apply regardless of whether state 

or federal law controlled."       Of particular importance here is the drafting and execution 

of the Letter Agreement, which is a binding memorialization of the parties' settlement. 

The Letter Agreement provided that Exxon will pay prejudgment interest "as provided 

by   law"   and   contains   no   agreement   that   Exxon   will   pay   compound   interest   in   all 

circumstances.       Accordingly,   the   Settlement   Agreement   that   followed,   which   was 

intended     to  "implement   the     provisions"    of  the  Letter   Agreement,   could     not   have 

implemented an agreement that did not exist. 

                Third,     the   court    found     that   Nautilus's     and    Weidner's      internal 

communications during the negotiation period confirmed their own understanding that 

prejudgment interest would be compound if federal law applied and simple if state law 

applied.     In   particular,  the   court  found    that  the  parties'   internal  communications 

consistently referred to simple interest under the Alaska statute and compound interest 

when     applying     federal  rates,   and  never    once   calculated    the  10.5%     state  rate  as 

compounded.        Further,   even   after   Waterer   saw   the   proposed   judgment   in   the   draft 

Settlement Agreement, he continued to direct his accountant to perform calculations of 

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Nautilus's potential recovery using simple interest under Alaska state law and compound 

interest under federal law. 

                At trial, Waterer testified to his understanding that any interest awarded 

would be compound because the award was intended to compensate Nautilus for the 

expenses it incurred after the oil spill, and Nautilus had to take out loans at very high 

rates.   However,   the   superior   court   found   "Mr.   Waterer's   credibility   to   be   severely 

compromised and his testimony not believable. This court's impression of Mr. Waterer's 

testimony is that he was very careful in answering questions, approaching perjury but 

never committing it." 

                At his deposition before trial, Waterer produced a telephone log book with 

notes that purported to reflect conversations between Weidner and Waterer supporting 

the existence of an agreement by Exxon to pay compound interest.                    At trial, however, 

Waterer   admitted   that   he   added   some   of   those   notes   after   this   dispute   arose.   As 

summarized by the superior court, "Mr. Waterer also admitted that it was possible that 

all the additions were related to compound interest and that the additions were made to 

assist [Nautilus's] litigation position in this case."  The superior court also relied on the 

testimony   of   Exxon's   expert   witness,   who   testified   to   his   belief   that   Waterer   had 

removed pages from his personal notebooks.   The court concluded that "Mr. Waterer's 

intentional destruction of pages from September 26 and/or 27, 2006 creates the inference 

that Mr. Waterer removed pages containing information harmful to [Nautilus's] legal 


                Finally, the court relied on evidence of the parties' post-settlement conduct. 

The court observed that in Weidner's post-settlement briefing on behalf of Cook Inlet, 

he was emphatic that, to the extent the Alaska statute governed, Cook Inlet was only 

seeking simple interest.  This is significant because Weidner was the sole negotiator on 

behalf of Nautilus and Cook Inlet during the formulation and execution of the Settlement 

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Agreement.       The   fact   that   he   acknowledged   in   post-settlement   briefing   that   interest 

would not be compounded under the Alaska statute indicates that he did not believe the 

Settlement       Agreement       included     an   agreement      to  compound        the   interest   in  all 

circumstances.       The court also observed that Nautilus "[n]otably" did not argue in its 

initial post-settlement briefing in February 2007 that the parties had agreed to compound 

interest in all circumstances.  This indicates that Nautilus did not believe there was such 

an agreement at that time.  Rather, as the superior court concluded, Nautilus first began 

to   claim   there   was   such   an   agreement   in   June   2007,   long   after   the   signing   of   the 

Settlement Agreement.  Finally, the court found that the alternative proposals regarding 

prejudgment   interest   that   Waterer   submitted   to   the   District   Court   in   his   April   2007 

declaration   "are   all   inconsistent   with   [Nautilus's]   current   position   that   there   was   an 

agreement to compound interest regardless, and [Nautilus's] position that the [proposed 

judgment form] constitutes the agreement."   This confirms that both parties understood 

that   the   proposed     judgment   form      allowed    Judge   Holland      full   discretion   to  assess 

prejudgment interest as provided by law. 

                 Indeed, Nautilus concedes that its post-settlement conduct contradicts what 

it now claims was always its understanding of the agreement.                    Specifically, Nautilus's 

brief asserts that "[i]n this instance, the court is obligated to enforce the settlement even 

though the parties had left terms open and even when they mutually disregarded them 

after the time of settlement." But Nautilus does not explain why it would "disregard" the 

terms of the Settlement Agreement when -   under the interpretation now   urged   by 

Nautilus - those terms clearly worked in its favor. 

                 In   sum,   the   superior   court   closely   read   the   language   of   the   Settlement 

Agreement and carefully considered a wide array of written and testimonial extrinsic 

evidence, including the parties' words and conduct before, during, and after the drafting 

of the Settlement Agreement.  Having done so, the court found that "[a]ll of the extrinsic 

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evidence demonstrates that the parties never agreed that interest would be compounded." 

The   court   further   concluded   that   the   "extrinsic   evidence   also   demonstrates   that   the 

proposed judgment   (including   the   .   .   .   words   'compounded   annually')   .   .   .   was   not 

intended to include or be an agreement to pay compound interest."                  Rather, the parties 

intended to reserve the prejudgment interest issue for Judge Holland to decide, and the 

parties understood that interest would be paid, in the words of the Letter Agreement, "as 

provided by law" - simple interest if Alaska law governed, compound interest if federal 

law governed.  Having reviewed the entire record, we conclude that the superior court's 

interpretation     of  the  agreement     in light   of  the  extrinsic   evidence    was   not   clearly 


        B.       The   Superior   Court   Did   Not   Abuse   Its   Discretion   When   It   Found 

                Exxon To Be The Prevailing Party. 

                The  superior court  found that  "Exxon is the prevailing  party"   and   that 

attorney's fees should be calculated accordingly.  Nautilus disputes this determination, 

arguing that because the superior court's underlying decision was in error, so too was its 

award of prevailing party status to Exxon.            Because we hold that the superior court's 

underlying decision concerning the interpretation of the Settlement Agreement was not 

in error, Exxon is the prevailing party.33 


                We AFFIRM the decision of the superior court in all respects. 

        33      See Hillman v. Nationwide Mut. Fire Ins. Co., 855 P.2d 1321, 1327 (Alaska 

1993) (stating that the prevailing party is the one "who has successfully prosecuted or 

defended against the action, the one who is successful on the main issue of the action and 

in whose favor the decision or verdict is rendered and the judgment entered") (internal 

quotation marks omitted). 

                                                  -21-                                               6801 

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