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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Comsult LLC v. Girdwood Mining Company (6/23/2017) sp-7182

Comsult LLC v. Girdwood Mining Company (6/23/2017) sp-7182, 397 P3d 318

           Notice:   This opinion is subject to correction before publication in the P                    ACIFIC  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@akcourts.us.  



                       THE SUPREME COURT OF THE STATE OF ALASKA                                       



COMSULT  LLC  and                                                )  

ROGER  DAVIS,                                                    )          Supreme  Court  No.  S-16113  

                                                                 )  

                      Appellants,                                                                                                          

                                                                 )          Superior Court No. 3AN-10-11956 CI  

                                                                 )  

           v.                                                    )         O P I N I O N  

                                                                 )  

                                                                                   

                                                                           No. 7182 - June 23, 2017  

GIRDWOOD MINING COMPANY,                                         )  

                                                                 )  

                      Appellee.                                  )  

                                                                 

_______________________________ )  



                                                                                                               

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

                                                                                                    

                      Judicial District, Anchorage, Patrick J. McKay, Judge.  



                                                                                                                  

                      Appearances:               Michael  A.   Grisham  and  Katherine  E.  

                                                                                                                

                      Demarest,          Dorsey         &   Whitney             LLP,       Anchorage,             for  

                                                                                                   

                      Appellants.  William D. Artus, Anchorage, for Appellee.  



                                                                                                                

                      Before:         Stowers,  Chief  Justice,  Winfree,  Maassen,  and  

                                                                                     

                      Carney, Justices.  [Bolger, Justice, not participating.]  



                                                     

                      STOWERS, Chief Justice.  



I.         INTRODUCTION  



                                                                                                                                

                      Girdwood Mining Company transferred stock and mineral royalty interests  



                                                                                                                                     

to Comsult LLC pursuant to a  contract between the parties.   Girdwood Mining later  



                                                                                                                                

refused to perform its obligations with respect to the stock and royalty interests, arguing  



                                                                                                                               

that the contract transferring the stock and royalty interests was illegal.  The superior  



                                                                                                                                              

court ruled that because the contract was illegal, it would not grant relief to either party.  


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

                                                                                                                           

Comsult appeals seeking enforcement of its stock and royalty interests.  We hold that  



                                                                                                                             

Comsult's stock and royalty interests and its rights to enforce them remain valid, and we  



                                          

reverse the superior court's decision.  



                                 

II.       FACTS AND PROCEEDINGS  



                                                                                                                     

                    This is the second time this case has come before us.  In our prior opinion  



                                            

we described the underlying facts:  



                                                                                                           

                              Girdwood  Mining  Company  and  Comsult  LLC,  a  

                                                                                                   

                    consulting company, entered into two agreements in August  

                                                                                          

                    2003:        a   Management   Agreement   and   a   Fundraising  

                                                                                                

                    Agreement.   Under the Management Agreement, Comsult  

                                                                                                  

                    would provide management services for Girdwood Mining  

                                                                                       

                    and in return would receive a retainer in the form of a grant  

                                                                                           

                    of stock plus regular cash payments.  Under the Fundraising  

                                                                                                          

                    Agreement, Comsult would bring new capital investment to  

                                                                                                  

                    Girdwood  Mining  and  in  return  would  receive  royalty  

                                                      

                    interests and stock. . . .  



                                                                                             

                              After  the  business  relationship  between  Girdwood  

                                                                                                          

                    Mining   and   Comsult   soured,   the   parties   executed   a  

                                                                                            

                    Memorandum of Understanding in  July  2004 terminating  

                                                                                              

                    both prior agreements.  Under the Memorandum, Girdwood  

                                                                                                     

                    Mining was to compensateComsult for itsperformanceunder  

                                                                                                      

                    the Management Agreement by issuing a promissory note,  

                                                                                                         

                    and Girdwood Mining was to compensate Comsult for its  

                                                                                               

                    performance under the Fundraising Agreement by awarding  

                                                                                          

                    Comsult        60,000        shares      of    stock      and     a    one-percent  

                                                                                                      

                    precious-metals  royalty.              In  October  2007  Comsult  sued  

                                                                                                 

                    Girdwood          Mining,        seeking        payment         on    the     unpaid  

                                                                                               

                    promissory note, and Girdwood Mining confessed judgment  

                                                                                                           

                    in  February  2008.            Girdwood  Mining  did  not  argue  as  a  

                                                                                                

                    defense  to  that  suit  that  any  of  the  agreements  between  

                                                                                        

                    Girdwood           Mining        and      Comsult          were       illegal      and  

                    unenforceable.  



                                                                                                    

                              The  current  case  began  in  November  2009  when  

                                                                                              

                    Girdwood Mining sued Comsult seeking to cancel Comsult's  



                                                              -2-                                                        7182
  


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

                             stock and royalty interests that compensated Comsult for the                                                              

                             termination    of    the    Fundraising    Agreement   under    the  

                             Memorandum.   Girdwood Mining argued that the relevant                                                         

                             portions of the agreements are illegal under Alaska securities                                               

                             law and that they are therefore void and the interests granted                                                   

                             thereunder are subject to rescission on equitable grounds.                                                                 [1]  



                             The superior court granted summary judgment in favor of Comsult on the  

                                                                                                                                                                                    



grounds that Girdwood Mining's suit was barred by the base-no-suit provision in Alaska  

                                                                                                                                                                            

securities law2  and by res judicata.3                                         We reversed on both grounds.4  

                                                                                                                             



                             Roughly a month prior to oral argument in the first appeal to this court,  

                                                                                                                                                                             



Girdwood Mining sent a letter to Comsult announcing that it would not honor Comsult's  

                                                                                                                                                                     



60,000 shares of stock or one-percent royalty interest, effectively granting itself the relief  

                                                                                                                                                                               



that  it  sought  in  court.                              On  remand  Comsult  counterclaimed  for  declaratory  and  

                                                                                                                                                                                 



injunctive relief and damages. The superior court ruled that the Fundraising Agreement  

                                                                                                                                                                   



violated Alaska securities law. Girdwood Mining then filed a motion to establish law of  

                                                                                                                                                                                      



              1              Girdwood Mining Co. v. Comsult LLC                                                 , 329 P.3d 194, 196 (Alaska 2014)                             



(footnote   omitted).     Roger   Davis   is   the   primary   owner   and  managing   member   of  

Comsult.   Girdwood Mining also listed Davis as a defendant.                                                                            As we did in our prior                  

opinion, we refer to the defendants together as Comsult.                                                                   Id.  at 196 n.1.       



              2              Under the base-no-suit provision of the Alaska Securities Act  

                                                                                                                                                          



                             [a] person who makes or engages in the performance of a  

                                                                                                                                                           

                             contract  in  violation  of  a  provision  of  this  chapter  or  

                                                                                                                                                       

                             regulation  or  order  under  this chapter, or who  acquires a  

                                                                                                                                                           

                             purported right under the contract with knowledge of the  

                                                                                                                                                      

                             facts by reason of which its making or performance is in  

                                                                                                                                                         

                             violation, may not base a suit on the contract.  

                                                                                                            



AS 45.55.930(g).  

         



              3              Girdwood Mining, 329 P.3d at 196-97.  

                                                                                                



              4             Id. at 197-202.  

                                          



                                                                                          -3-                                                                                  7182
  


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

 the case, and Comsult filed a cross-motion for summary judgment and rule of law.                                                                                                                                                                              The  



 court partially granted Girdwood Mining's motion to establish law of the case and                                                                                                                                                                              



 Comsult's cross-motion for rule of law and denied Comsult's cross-motion for summary                                                                                                                                                           



judgment.   The court denied any relief to either party applying the principle that it                                                                                                                                                                                 



 "should not lend [its] good offices to mediating disputes among wrongdoers."                                                                                                                                                                       



 III.                 STANDARD OF REVIEW                                       



                                          Comsult appeals the denial of its cross-motion for summary judgment, the                                                                                                                                                 



 partial denial of its cross-motion for rule of law, and the partial grant of Girdwood                                                                                                                                                      



 Mining's motion to establish law of the case.                                                                                                          "We review rulings on motions for                                                                         



 summary judgment de novo, 'reading the record in the light most favorable to the non-                                                                                                                                                                        



 moving party and making all reasonable inferences in its favor.'  A party is entitled to   



 summary judgment only if there is no genuine issue of material fact and if the party is                                                                                                                                                  



                                                                                                                                        5  

 entitled   to   judgment  as   a   matter  of   law."                                                                                                                                                                                                   

                                                                                                                                                 We  review  questions  of  law  de  novo,  



                                                                                                                                                                                                                                                                     6  

                                                                                                                                                                                                                                            

 "adopting the rule of law most persuasive in light of precedent, reason, and policy." 



 IV.                 DISCUSSION  



                                                                                                                                                                                                                                             

                      Stock And Royalty Interests Are Enforceable Even If They Were Obtained  

                                                                 

                     In An Illegal Contract.  



                                                                                                                                                                                                                                                      

                                          Alaska  Statute  45.55.930(g)  bars  suits  based  on  contracts  that  violate  



                                                                                                                                                                                                                                                             

 Alaska securities law.  Girdwood Mining argues that this provision bars Comsult from  



                                                                                                                                                                                                                                       

 suing to enforce the stock and royalty interests that stem from the illegal Fundraising  

                                     7     We disagree.  

 Agreement.                                             



                     5                    Id.   at   197   (quoting   ConocoPhillips   Alaska,   Inc.   v.   Williams   Alaska  



Petroleum, Inc.                                  , 322 P.3d 114, 122 (Alaska 2014)).                                                      



                     6                    Id. (quoting ConocoPhillips, 322 P.3d at 122).  

                                                                                                                                                                          



                     7                    Comsult  appeals  the  superior  court's  decision  that  the  Fundraising  

                                                                                                                                                                                                                                     

                                                                                                                                                                                                                                   (continued...)  



                                                                                                                                  -4-                                                                                                                        7182
  


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

                           We interpreted the base-no-suit provision of AS 45.55.930(g) in our prior                                                                     



opinion in this case.                      We explained that "[a]s a matter of textual interpretation, to 'base'                                                      



a suit on a contract is to seek to vindicate legal rights established by the contract.                                                                                       In  



other words, to base a suit on a contract is to seek relief on the basis of the contract's                                                                    

                   8   "[T]he basis of any lawsuit," we continued, "is the source of law that creates  

validity."                                                                                                                                                          



the plaintiff's cause of action by establishing legal rights that might be vindicated in  

                                                                                                                                                                              

court if abridged."9                      We held that a "lawsuit[] that [sought] relief on the premise that a  

                                                                                                                                       



contract is illegal, and therefore unenforceable, under Alaska's securities law" was not  

                                                                                                                                                                            



"base[d]"  on  the  contract  but  rather  on  "extra-contractual  principles  governing  the  

                                                                                                                                                                           

validity of illegal contracts and the availability of remedies."10  

                                                                                                       



                           Both stocks and mineral royalty interests are property.  And, on the facts  

                                                                                                                                              



of this case, both are protected by sources of law outside of contract law.  A suit to  

                                                                                                                                                                              



enforce property rights under the circumstances of this case is not a suit under the  

                                                                                                                                                                            

                                                                                          11    In this case Comsult does not rely on its  

contract that transferred the property rights.                                                                                                                                

                                                                             



              7(...continued)  



                                                                                                                                                                        

Agreement was illegal.  Comsult also argues that the stock and royalty interests were  

                                                                                                                                                                            

actually transferred under the superseding Memorandum of Understanding and not the  

                                                                                                                                                                        

Fundraising Agreement.  Because Comsult prevails regardless of the answers to these  

                                                                                                                                                                           

questions, we assume without deciding that the Fundraising Agreement was illegal and  

                                                                                                                                 

that the stock and royalty interests were transferred under that agreement.  



              8             Girdwood Mining,329 P.3d at 197 (citing InsightAssets, Inc. v. Farias, 321  

                                                                                                                                                                           

P.3d 1021, 1027 (Utah 2013)).  

                                                 



              9            Id. at 198.  

                                        



              10           Id. (emphasis omitted).  

                                                         



              11           See,  e.g., AS  10.06.305(b) ("All  shares  of  a  class  shall have  the  same  

                                                                                                                                                                       

voting, conversion, and redemption rights and other rights, preferences, privileges, and  

                                                                                                                                                                           

                                                                                                                                                       (continued...)  



                                                                                      -5-                                                                               7182
  


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

contract   with   Girdwood   Mining   but   on   the   rights   that   stem from its                                         ownership   of  



property.   Thus AS 45.55.930(g) does not bar Comsult's suit from going forward.                                               



                       Girdwood Miningconcedes                         that Comsult owns theproperty                        inquestion but      



argues that any court order enforcing these property rights would order the execution of                                                          

                                  12    It  argues  that  the  Fundraising  Agreement  remains  executory  

an   illegal   contract.                                                                                                            



because Girdwood Mining still has obligations to Comsult by reason of Comsult's  

                                                                                                                                   



ownership of its stock and royalty interests.  

                                                             



                       Anexecutory contract is a contract that "has not as yet beenfullycompleted  

                                                                                                                                    

or  performed."13                 Comsult  has  already  provided  Girdwood  Mining  with  all  the  

                                                                                                                                               



contracted-for services, and Girdwood Mining has already issued all the contracted-for  

                                                                                                                             



stock and royalty interests.  There is nothing more for either party to perform under the  

                                                                                                                                                



Fundraising Agreement or the parties' settlement of their disputes under the Fundraising  

                                                                                                                                 



            11(...continued)  



                                                                                                                                                 

restrictions . . . ."); AS 10.06.542(a) ("[A]ll shares of the same class or series shall be  

                                                                                                                                      

treated equally with respect to a distribution of shares, cash, property, rights, or securities  

                                                                                                                                                  

in any plan of merger, consolidation, or share exchange."); K & K Recycling, Inc. v.  

                                                                                                                                               

Alaska Gold  Co. ,  80 P.3d 702,  717  (Alaska 2003)  ("The tort of conversion is 'an  

                                                                                                                                     

intentional exercise of dominion and control over a chattel which so seriously interferes  

                                                                                                                                             

with the right of another to control it that the actor may justly be required to pay the other  

                                                                                                                                               

the full value of the chattel.' " (quoting Carver v. Quality Inspection &Testing, Inc., 946  

                                         

P.2d 450, 456 (Alaska 1997))).  



            12         See  Epps  v.  4  Quarters  Restoration  LLC,  872  N.W.2d  412,  425  

                                                                                                                                             

(Mich. 2015) ("It is . . . well settled that, if a contract be void as against public policy,  

the court will neither enforce it while executory, nor relieve a party from loss by having  

                                                                                                                                          

performed it in part." (quoting Turner v. Schmidt Brewing Co., 270 N.W. 750, 752-53  

                                                                                                      

(Mich. 1936))); Bernhard v. Taylor, 31 P. 968, 969 (Or. 1893) ("While the contract is  

                                                                           

executory,  the  law  will  neither  enforce  it  nor  award  damages;  but,  if  it  is  already  

                                                                                                                                        

executed, nothing paid or delivered can be recovered back.").  

                                                                                             



            13         Knaebel v. Heiner, 673 P.2d 885, 887 n.5 (Alaska 1983) (citing Executory  

                                                                                                                                    

 Contract, BLACK 'S  LAW  DICTIONARY  (5th ed. 1979)).                           

                   



                                                                        -6-                                                                 7182
  


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

Agreement. Comsult's                                counterclaimtherefore                               does not askthecourt                           to executean                  illegal  



contract:   it asks the court to order Girdwood Mining to recognize its stock and royalty                                                                                          



interests.   Just because Girdwood Mining may have an obligation to pay dividends or                                                                                                          



money in the future by virtue of Comsult's ownership of stock and royalty interests does                                                                                                 



not make the contract itself executory.                        



                              Girdwood Mining's analogy to cases in which courts have declined to                                                                                             

                                                                                                                                      14       Promissory  notes  and  

enforce   promissory   notes  and  mortgages   similarly   fails.                                                                                                                        



mortgages are part and parcel of the contractual bargain.  Indeed a promise to pay in the  

                                                                                                                                                                                             



future can be included in a contract or as a separate promissory note that accompanies  

                                                                                                                                                                      

a contract.15                 Stocks and mineral royalty interests differ significantly from promissory  

                                                                                                                                                                         



notes and mortgages. They are devices that exist outside of the contract and are defined  

                                                                                                                                                                                   



by wholly different areas of law.  

                                                                 



                              A suit to enforce stock and royalty interests - both of which are species  



of  property  that  carry  independent  rights  -  is  a  suit  on  the  stock  and  royalties  

                                                                                                                                                                              



themselves and not on the contract (even if illegal) that transferred them.  Thus we are  

                                                                                                                                                                                            



not called on to enforce a contract.  Comsult owns the stock and royalties, and its rights  

                                                                                                                                                                                      



to enforce them remain valid.  

                                                      



V.             CONCLUSION  



                              We REVERSE the order of the superior court and REMAND for further  

                                                                                                                                                                                    



proceedings consistent with this opinion.  

                                                                          



               14             See,   e.g.,   Derico   v.   Duncan,   410  So.  2d   27   (Ala.   1982)   (mortgage);  



Solomon v.                  Gilmore, 731 A.2d 280 (Conn. 1999) (mortgage);                                                                         Conn. Nat'l Bank v.                         

Giacomi, 699 A.2d 101 (Conn. 1997) (promissory notes).                                                              



               15             See, e.g., Conn. Nat'l Bank, 699 A.2d at 128-29 (unenforceable promissory  

                                                                                                                                                                          

note);  Arcidi  v.  Nat'l  Ass'n  of  Gov't  Emps. ,  856  N.E.2d  167,  171  (Mass.  2006)  

                                                                                                                                                                                     

(unenforceable promise to pay contained in contract).  

                                                                                                    



                                                                                              -7-                                                                                       7182
  

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