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Alaska Tae Woong Venture, Inc. v. Westward Seafoods (8/28/98), 963 P 2d 1055
<![CDATA[
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.
THE SUPREME COURT OF THE STATE OF ALASKA
ALASKA TAE WOONG VENTURE, )
INC., d/b/a ALLEGIANCE TRUST ) Supreme Court Nos. S-7692/7711
CORP., )
) Superior Court No.
Appellant and ) 3AN-93-4315 CI
Cross-Appellee, )
)
v. )
)
WESTWARD SEAFOODS, INC., ) O P I N I O N
)
Appellee and ) [No. 5029 - August 28, 1998]
Cross-Appellant. )
)
Appeal from the Superior Court of the State of
Alaska, Third Judicial District, Anchorage,
Joan M. Woodward, Judge.
Appearances: Richard H. Friedman, Friedman,
Rubin & White, Anchorage, and Jeffrey M. Feldman and Susan
Orlansky, Young & Feldman, Anchorage, for Appellant/Cross-Appellee.
Jon S. Dawson, Davis Wright Tremaine LLP, Anchorage, for
Appellee/Cross-Appellant.
Before: Eastaugh, Fabe, and Bryner, Justices.
[Matthews, Chief Justice, and Compton, Justice, not participating.]
BRYNER, Justice.
I. INTRODUCTION
In 1990, Alaska Joint Venture Seafoods, Inc. (AJVS), a
commercial fishing company, and Westward Seafoods, Inc. (Westward),
a seafood processor, agreed that, beginning in 1991, AJVS would
deliver its catch of crab and pollock to a new processing plant
that Westward was building on Unalaska Island. AJVS expected to
deliver crab beginning on January 15, 1991, but Westward's new
plant was not completed until mid-March. The unexpected delay
caused AJVS to sustain financial losses. Alaska Tae Woong Venture
(ATWV), as assignee of AJVS's cause of action against Westward,
sued Westward for AJVS's losses, claiming misrepresentation and
breach of contract. The trial court found the misrepresentation
claim time-barred and dismissed it. A jury returned a verdict in
favor of AJVS on the breach of contract claim. After reducing the
verdict, the trial court entered judgment for ATWV.
ATWV appeals, asserting that the court erred in reducing
its verdict and in striking its fraud claim. Westward cross-
appeals, claiming that there was insufficient evidence to prove a
contract and that the court committed prejudicial error in
admitting evidence of Westward's misrepresentations.
We find ATWV's challenge to the reduction of its verdict
meritorious in part but hold that its misrepresentation claim was
properly dismissed. We reject Westward's arguments on cross-
appeal, finding that the jury heard sufficient evidence to find
that a contract existed and that any error in admitting evidence of
Westward's misrepresentations was harmless.
II. FACTS AND PROCEEDINGS
Alaska Joint Venture Seafoods, Inc., was formed in 1987
by William Phillips and Thorne Tasker. Phillips, an attorney,
handled the business end of the enterprise. Tasker, an experienced
fisherman, handled "the fishing side of the thing." Initially, the
company functioned primarily as a management company for fishing
vessels, and provided a link between Alaska fishers and foreign
processors. It also owned fishing vessels of its own. In 1989,
AJVS acquired the fishing vessel Duffy Sea, which it later renamed
the Allegiance. AJVS put the boat to use in the Bering Sea as a
crabber in January 1990. It planned to convert the boat to allow
it to bottom fish as well.
Westward Seafoods, Inc., a seafood processor, entered
into an agreement with AJVS for the Duffy Sea's king crab catch; in
exchange, Westward was to provide the Duffy Sea with a market for
its pollock catch. Evidence at trial suggested that Westward was
primarily interested in securing the Duffy Sea's catch of king
crab, whereas AJVS wanted a secure market for opilio crab and
pollock, as well. In the Bering Sea fisheries, king crab is a
valuable species and processing plants have enough capacity to
process all of the king crab that can be caught during a given
season. As a consequence of this capacity/supply situation,
processors desire commitments from fishing vessels to deliver all
the king crab they catch. By contrast, fishers are able to supply
more opilio crab and pollock (a bottom fish) than the processors
can handle; they therefore desire commitments from processors to
purchase these crab and fish.
The Westward plant to which the Duffy Sea was to take its
catch was located in Captains Bay on Unalaska Island and was still
under construction during negotiations between AJVS and Westward.
Westward represented that the plant was scheduled to open and would
be able to take crab from the Duffy Sea beginning on or about
January 15, 1991.
The January start-up date for Westward's new plant was
mentioned several times in the correspondence confirming the
parties' agreement. The parties initially negotiated for AJVS to
supply Westward with crab and pollock from two vessels, the Optimus
Prime and the Duffy Sea. On June 11, 1990, Westward's president,
Hugh Reilly, wrote to AJVS's chairman, Thorne Tasker, confirming
this agreement:
Pursuant to our recent conversations in Tokyo
and Seattle, we are writing to confirm our agreement that your
F/V's OPTIMUS PRIME and DUFFY SEA will join the fleet of vessels
dedicated to the supply of Pollock and crab to the new plant which
we are currently constructing at Captains Bay on Unalaska Island,
Alaska.
Based upon our agreement, Westward will rely
upon your two vessels to commence deliveries to the plant
coincident with the plant's start-up for commercial operations --
currently scheduled for January 1991.
Over the course of the summer, this two-vessel agreement
evolved into an agreement involving only the Duffy Sea. In August
1990, AJVS informed Westward that its original plan to convert the
Optimus Prime for use in the pollock fishing venture did not appear
economically feasible. AJVS nonetheless assured Westward that,
under the agreement memorialized in Westward's June 11 letter, "it
would be our responsibility to find a suitable replacement"and
that "AJVS is ready to go ahead with its delivery schedule for
Westward Seafoods' new plant." AJVS asked Westward to "confirm
that our market is secure."
By mid-September, AJVS had evidently abandoned the idea
of a replacement vessel and had focused on the Duffy Sea to supply
Westward. AJVS informed Westward that it planned to convert the
vessel to make it suitable for use in both the crab and pollock
fisheries. On September 17, AJVS asked Westward to "reserve a
[pollock] market for us at the 500 ton per delivery level"
beginning June 1, 1991.
On September 19, Westward replied that it was "pleased to
confirm that we can provide a market for the [Duffy Sea] to deliver
pollock to our Captains Bay plant from June 1, 1991." But Westward
made it clear that its willingness to guarantee AJVS a market for
its pollock depended on AJVS's willingness to commit all of the
Duffy Sea's crab to Westward's new plant:
As we have discussed, Westward's interest in
providing this market opportunity to the DUFFY SEA is stimulated by
the prospect of receiving dedicated deliveries of King and Tanner
crab caught by the vessel, commencing with the 1990/91 crab season
and continuing to include future crab seasons occuring [sic] when
the pollock fishery is closed. This pollock market for the DUFFY
SEA is contingent upon Westward Seafoods receiving such deliveries.
The next day, AJVS advised Westward that, although AJVS
had already committed its 1990 king crab to another processor, it
was prepared to commit all of the Duffy Sea's crab and pollock
production to Westward beginning January 15, 1991:
We are prepared to commit the crab
production from the DUFFY SEA to Westard [sic] Seafoods as well [as
pollock], although it was our understanding that you would not be
processing king crab this year at the plant. We have made
commitments for the king and boridi [sic, bairdi] crab production
from the DUFFY SEA for 1990, but can commit all crab to your plant
beginning with opilio crab on January 15, 1991. Given the present
configuration of seasons, we would fish opilio crab for the first
few months of 1991, then take the vessel into the shipyard for
conversion work returning for pollock fishing on June 1, 1991. At
the conclusion of pollock in the Fall, we would return to crab
through the end of the year. In 1992, we would open with pollock
until the roe fishery closes and fish crab until pollock re-opens
in June.
Westward replied on September 25:
Thank you for your fax of the 21st regarding
the DUFFY SEA's Pollock and Crab market at Westward Seafoods. Your
enthusiasm for this employment is most welcome.
. . . .
Your commitment[s] for the 1990 King Crab
season are noted; commencement of Opelio [sic] deliveries from Jan.
15, 1991 should fit well with our readiness to receive product; we
will have to keep in touch as this date approaches.
AJVS regarded this series of correspondence as forming
a binding commitment by Westward to begin accepting opilio crab
from the Duffy Sea on January 15, 1991. As the January 15 start-up
date approached, Westward continued to advise AJVS that this date
remained viable. On November 23, 1990, for example, Westward sent
AJVS a fax stating, "[t]entively [sic], we will be ready for crab
on Jan 15, '90 [sic] and could use the vessel at that time."
Without warning to AJVS, Westward failed to open the
Captains Bay plant on schedule. In fact, it did not take crab
until approximately March 20, 1991. As a result, AJVS was forced
to try to locate alternative markets for the Duffy Sea's opilio
crab. The lack of a committed market made it difficult to catch
and sell crab efficiently. According to Tasker, the Duffy Sea
caught and sold less crab that season than it would have with a
steady processor.
Because of this disruption, AJVS faced the latter half of
1991 with a severe cash deficit. The company sought financing and
began to sell assets. Ultimately, the company sold the Duffy Sea
-- by then renamed the Allegiance -- because it could not afford to
keep it. The buyer of the boat was AJVS Chairman Thorne Tasker.
He placed the Allegiance in Alaska Tae Woong Ventures, Inc.,
another Tasker corporation. Tasker also assumed the vessel's
mortgage and purchased all assets and liabilities relating to the
boat, including its cause of action against Westward. Tasker paid
AJVS $10,000 cash and his shares of stock in the company. William
Phillips thus became the sole owner of AJVS.
Acting on its assignment of AJVS's cause of action, ATWV
filed suit against Westward in 1993. The complaint alleged that
Westward had breached its contract to accept crab from AJVS
beginning January 15, 1991. ATWV sought lost profits for the 1991
crab season and subsequent seasons on the theory that Westward
caused AJVS to lose the Allegiance and its attendant profit-making
ability. It also sought recompense for an alleged loss on the sale
of the Allegiance.
During pretrial depositions and document discovery in
1995, ATWV discovered what it considered to be evidence showing
that Westward had intentionally misinformed AJVS concerning the
opening date of its Captains Bay plant. Specifically, ATWV found
correspondence between Westward and its contractors indicating that
Westward knew as early as August 1990 that construction on the
plant was substantially behind schedule and that the plant would
not open by January 15, 1991.
Upon discovering this correspondence, ATWV amended its
complaint to include a claim of intentional misrepresentation:
Between September 19, 1990 and January 18,
1991, plaintiff received repeated assurances from Westward that its
Plant's [sic, Captains] Bay Plant would be open in time for the
January, 1991 crab season. In fact, when it made those promises
and assurances to plaintiff, Westward knew that its Plant's [sic]
Bay Plant would not be open in time for the start of the January
crab season.
AJVS sought to recover punitive damages on this claim.
Westward moved for summary judgment as to the
misrepresentation claim, asserting that it was barred by the
statute of limitations. Prior to trial, the court granted partial
summary judgment, dismissing the claim. The court also ruled that
ATWV's claim for lost profits should be limited, as a matter of
law, to profits lost up to the date of trial.
At trial, the central issues were whether Westward
actually contracted to begin accepting AJVS's deliveries on January
15, 1991; if so, whether Westward breached this contract; and, if
it did, what damages it owed for its breach. The jury returned a
verdict finding that there was a contract, that Westward breached
the contract, that AJVS's lost profits for the 1991 season were
$568,964, and that AJVS's lost profits from 1992 to the date of
trial were $1,794,356. The jury also found that AJVS suffered no
loss in selling the Allegiance to Tasker.
Westward moved in the alternative for judgment
notwithstanding the verdict or a new trial. The trial court denied
the motion for a new trial, but granted a JNOV on the award of lost
profits from 1992 to the date of trial, striking those damages
entirely. The court also ordered a remittitur of the award of
damages for the 1991 season to $315,934.38.
ATWV appeals; Westward cross-appeals.
III. DISCUSSION
A. ATWV's Appeal
1. Did the trial court err in ordering a remittitur?
One of ATWV's damages witnesses, Dr. Paul Taylor,
testified that, for the years 1990 and 1991, the Allegiance
generated a net annualized average cash flow from crab fishing of
$568,964. This figure did not represent an estimate of lost
revenues or lost profits. Dr. Taylor estimated that AJVS lost
$221,532 in revenues because of the fishing trips that Westward's
breach caused the Allegiance to miss in 1991. Dr. Taylor also
estimated the Allegiance's "variable costs"[Fn. 1] to be 54.3% of
its lost revenues; deducting this percentage from the Allegiance's
1991 lost revenues yields a lost profits estimate for the 1991
season of $101,240.
The jury awarded $568,964 for AJVS's 1991 lost profits;
this is the precise figure Dr. Taylor attributed to net annualized
average cash flow.
Westward objected to the award, arguing that it reflected
the jury's misunderstanding of Dr. Taylor's testimony. In response
to this objection, the trial court ordered a remittitur to
$315,934.38, finding that "[t]he record does not contain evidence
to support the $568,964 award." The court agreed with Westward's
assertion that the jury had confused cash flow with lost profits.
In calculating the amount of the remittitur, the court
began by noting that Dr. Taylor, in his testimony, estimated that
the Allegiance had lost a total of $691,322.50 in revenues during
the 1991 crab season. The court accepted this figure as the
highest estimate of lost revenue supported by the evidence. Using
Dr. Taylor's variable cost figure, the court deducted 54.3% of the
lost revenue estimate, thereby arriving at $315,934.38 ($691,322.50
x 45.7%) as the maximum amount of lost profits supported by the
evidence.
ATWV contends on appeal that the trial judge erred in
ordering a remittitur on the 1991 lost profits award.
We review an order of remittitur for abuse of discretion.
See Exxon Corp. v. Alvey, 690 P.2d 733, 743 (Alaska 1984).
However, a remittitur may not reduce an award below the maximum
possible award supported by the evidence. See id. at 742. Because
of this limitation on the scope of a remittitur, we must inquire
whether any evidence in the record could support a jury award of
$568,964.
ATWV relies on testimony by William Phillips and other
witnesses indicating that, but for Westward's breach of contract,
the Allegiance could have generated as much as $600,000 or $700,000
in additional revenues during the 1991 season. ATWV argues that
almost all of this revenue would have become profit.
This argument is consistent with evidence ATWV presented
at trial. William Phillips testified, for example,
[I]f you have a contract, the scheduling of
the boats is set up in such a way to where you can go out and fish
for 30 hours . . . fill your boat, and come in and you have a
scheduled time when you can make a delivery. . . . [A]nd
turnaround time is where you make your money. If you don't have a
contract, what you end up having to do is sit at the dock . . .
with fish in your hold.
He also testified, "[Y]ou have a certain fixed cost in this
business and that extra production [that was lost] is where you
make your profit." Thorne Tasker further testified that the
Allegiance could not fish "full speed, without knowing when you
were going to deliver."[Fn. 2] ATWV presented this theory of lost
efficiency in both its opening statement and its closing argument.
Relying on the foregoing evidence, ATWV concludes:
Because evidence allowed the jury to
infer that AJVS had incurred all the expenses it would have
incurred had Westward not breached the contract, the jury
consequently could find it was not necessary to deduct any
additional expenses from the lost income in order to determine
AJVS' lost profits for the season. From the testimony of Phillips
and the other witnesses, the jury reasonably could infer that
virtually all of the income lost would have been profit to AJVS.
Westward counters that "[t]here was no evidence
suggesting that AJVS could have made . . . additional trips without
incurring additional costs." In Westward's view, "[w]ithout such
evidence, it would have been purest speculation . . . for the jury
to award the full amount of lost revenues without subtracting
costs." Westward cites City of Palmer v. Anderson, 603 P.2d 495,
500 (Alaska 1979), which holds:
In order to recover lost profits in a breach
of contract action, the plaintiff must present to the jury evidence
sufficient to calculate the amount of the loss caused by the
breach. The plaintiff need not prove the amount of damages with
exact detail, but the evidence must be sufficient to provide a
reasonable basis for the jury's determination.
Westward's argument is unpersuasive. Given ATWV's strong
showing that Westward's breach caused AJVS substantial actual harm,
the lack of certainty as to AJVS's margin of profit on its revenues
has relatively minor importance:
Once the fact of damages has been proven to a
reasonable probability, the amount of such damages, on the other
hand, need only be proven to such a degree as to allow the finder
of fact to "reasonably estimate the amount to be allowed for [the]
item [of damages]."
Pluid v. B.K., 948 P.2d 981, 984 (Alaska 1997) (quoting Blumenshine
v. Baptiste, 869 P.2d 470, 473 (Alaska 1994)); see also Power
Constructors, Inc. v. Taylor & Hintze, ___ P.2d ___, 1998 WL 321750
at *21-22, Op. No. 5001 at 52 (Alaska, June 19, 1998).
Here, jurors viewing the evidence in the light most
favorable to ATWV could reasonably have concluded that Westward's
breach caused AJVS as much as $700,000 in lost revenue during the
1991 crab season and that a large proportion of this loss consisted
of profits. Because there was sufficient evidence to allow
reasonable jurors to find that AJVS probably lost at least $568,964
in profits during 1991, the jury's actual award in this amount
should not have been disturbed. See Zerbetz v. Municipality of
Anchorage, 856 P.2d 777, 784 (Alaska 1993). We therefore conclude
that the trial court erred in ordering a remittitur.
2. Did the trial court err in granting a JNOV for the
lost profits from 1992 to the time of trial?
a. AJVS's transfer of the Allegiance
The jury awarded ATWV almost $1.8 million in lost profits
from January 1992 to the time of trial. This award covered the
period after AJVS sold the Allegiance to Tasker. ATWV's theory of
damages as to this period was that Westward had destroyed AJVS's
cash flow through its breach of contract, forcing it to sell the
Allegiance; as AJVS was in no position to obtain financing to
replace the Allegiance, the company suffered losses through its
inability to fish in subsequent seasons.
The jury was instructed to award foreseeable damages of
this type by figuring "revenues minus costs that AJVS would have
received for the specified period of loss of use, if the Allegiance
had been available to it for fishing." The jury was further
instructed that it could award lost-profits damages "for the period
of time up until AJVS reasonably should have been able to replace
the Allegiance. In ascertaining how long this period of time is,
you may consider . . . AJVS' financial ability to obtain a
replacement." After trial, the court granted Westward's motion for
a JNOV regarding these damages.
ATWV appeals the court's decision to grant a JNOV. In
reviewing a directed verdict or JNOV, this court does not "weigh
conflicting evidence or judge the credibility of witnesses." Ben
Lomond, Inc. v. Schwartz, 915 P.2d 632, 635 (Alaska 1996). Rather,
it "determine[s] whether the evidence, when viewed in the light
most favorable to the non-moving party, is such that reasonable
persons could not differ in their judgment as to the facts." Id.
But when, as here, the trial court chooses among competing legal
theories in making its ruling, we review its choice of theory de
novo. See Cummings v. Sea Lion Corp., 924 P.2d 1011, 1022-23 n.18
(Alaska 1996).
The trial court based its JNOV on the nature of the
"sale"that occurred after Westward's breach. Specifically, the
court found that
AJVS did not sell the Allegiance . . . to pay
off its loan or otherwise obtain cash to continue operations. Mr.
Tasker and Mr. Phillips, the owners of AJVS, simply divided up the
assets and liabilities of the corporation. The parties together
possessed 100% of the properties owned by AJVS. After dissolution
of their partnership, each owned 50% of the these [sic] properties
(or their net values). There was no net loss merely a division.
The court also referred to Jury Instruction 23, which
told the jury to consider the "market availability of a
replacement"for the Allegiance when determining lost profits. The
court found that "[t]his 'replacement' standard logically applies
to situations in which a third party has destroyed a chattel needed
to generate profits. But it makes no sense in the context of a
plaintiff corporation which has voluntarily spun off another
business entity and allocated the 'lost' property to that new
operation." Thus, the court concluded that there could be no loss-
of-use damages when there was no loss of the Allegiance.
ATWV argues that the "trial court erred when it found
that AJVS did not sell the Allegiance . . . . The undisputed
testimony was that AJVS sold the Allegiance to Tasker in exchange
for his shares in AJVS, plus his shares in other corporations, and
$10,000 cash." ATWV further notes that "Phillips and Tasker were
not partners; they were co-shareholders in AJVS."
ATWV's argument has merit. The trial court's ruling
rests on an implicit finding that the evidence at trial was
insufficient to establish that AJVS's transfer of the Allegiance to
Tasker was a true sale. This finding would be justified only if no
reasonable juror could find that the transfer was an arm's length
transaction foreseeably caused by Westward's breach of contract.
See Ben Lomond, 915 P.2d at 635. Although the trial court
described Phillips and Tasker's transaction as a division of
partnership assets, it is undisputed that AJVS was a corporation,
not a partnership. Ample evidence was presented at trial to
support a finding that the transaction was a sale. Further, there
was testimony that AJVS was forced to sell the vessel to Tasker
because of Westward's breach of contract. Finally, Westward did
not claim or show that the sale involved collusion or fraud.
Given this evidence, the trial court erred in ruling as
a matter of law that AJVS did not sell the Allegiance to Tasker.
It follows that the court also erred in relying on this finding as
a basis for striking the jury award for lost future profits.
b. Foreseeability of selling the Allegiance
The trial court further found that, although Westward
arguably could have foreseen that its breach of contract might have
resulted in forcing AJVS to sell the Allegiance, it could not have
foreseen the "restructuring of the business arrangements between
the two partners"that actually occurred. Westward advances the
court's finding of unforeseeability as an alternative basis for
affirming the court's decision granting Westward a JNOV on ATWV's
claim for post-1991 lost profits.
But the court premised its finding of unforeseeability on
its conclusion that the transfer was not a true sale. We have
already held that this conclusion was erroneous. Moreover,
foreseeability is a fact question for the jury. See Native Alaskan
Reclamation & Pest Control, Inc. v. United Bank Alaska, 685 P.2d
1211, 1218 (Alaska 1984). The evidence at trial showed that
Westward knew of AJVS's financial situation when it entered into
the contract. This evidence could support a finding that Westward
knew or should have known that AJVS's loss of its market for opilio
crab might result in financial difficulties causing the company to
transfer the Allegiance. Foreknowledge of the exact form the
transfer might take was immaterial. The trial court's decision to
strike all post-1991 lost profits cannot be sustained on the ground
of insufficient evidence of foreseeability.
c. Limitation on ATWV's lost profits
The trial court, "by way of dictum,"reached an alterna-
tive conclusion. The jury awarded ATWV lost profits for the 1991
season and for eight subsequent six-month fishing periods,
beginning in January 1992. The court, positing that ATWV might be
entitled to an award of some post-1991 lost profits if the transfer
of the Allegiance were truly a foreseeable loss, concluded that
ATWV's lost profits should be limited as a matter of law to profits
lost through June 1993. The court found:
At the time of contracting, neither Westward
nor AJVS could have foreseen the probability that AJVS' losses
would be perpetuated through numerous seasons. Westward could not
have anticipated, on a more likely than not basis, what position
AJVS would be in vis-a-vis the fishing industry three seasons
later. . . . Accordingly, lost profits damages would have to be
limited to damages incurred through 6/30/93.
For this conclusion, the court cited State v. Stanley, 506 P.2d
1284 (Alaska 1973).
ATWV correctly points out that in State v. Stanley, we
found as a matter of fact, not as a matter of law, that an
eighteen-month limit on loss-of-use damages was justified. See
id. at 1293. ATWV argues that Stanley does not hold that loss-of-
use damages may be limited as a matter of law; ATWV further argues
that, because the evidence at trial supported the jury's award of
lost profits beyond June 1993, limiting loss-of-use damages in the
present case cannot be justified as a matter of fact.
But these distinctions are not determinative. We have
previously adopted section 351 of the Restatement (Second) of
Contracts. See Native Alaskan Reclamation, 685 P.2d at 1219, 1222.
The Restatement empowers trial courts to limit damages for
foreseeable loss when "justice so requires in order to avoid
disproportionate compensation." Restatement (Second) of Contracts
sec. 351(3) (1981). [Fn. 3] The comment to section 351 notes that
"[t]ypical examples of limitations imposed on damages under this
discretionary power involve the denial of recovery for loss of
profits." Id. at cmt. f; see also Stanley, 506 P.2d at 1293.
Our review of the record convinces us that section 351
authorized the trial court to impose a reasonable legal limit on
ATWV's claim of lost future profits. ATWV did not assert that
Westward's breach of contract destroyed AJVS; selling the
Allegiance did not put AJVS out of business. Soon after the sale,
Phillips wound down the company's business. But his action appears
to have been voluntary, not dictated by AJVS's economic failure;
the company evidently was not insolvent at the time. And, to the
extent that Phillips acted for financial reasons, the record
indicates that his actions stemmed in part from problems unrelated
to Westward's breach.
By electing to stop actively engaging in business, AJVS
effectively chose to make no further effort to earn any profits --
including profits it might have earned through reinvestment of the
consideration it received for selling the Allegiance. Had the
company continued in business and reinvested the proceeds from the
Allegiance's sale, its profits on that investment would presumably
have reduced losses it suffered as a result of the vessel's
absence. In light of this election, it seems anomalous for ATWV
now to claim entitlement to seemingly endless years of profits that
AJVS might have earned.
ATWV does not explain how such compensation would be
just. AJVS's inability to replace the Allegiance cannot alone
support a finding of long-term losses. See Persinger v. Lucas, 512
N.E.2d 865, 868-69 (Ind. App. 1987) (holding that financial
difficulties standing alone do not warrant an indefinite extension
of damages). Moreover, because ATWV does not claim that Westward
caused AJVS's destruction, the causal nexus between Westward's
breach and AJVS's loss of future earnings is necessarily uncertain.
Cf. City of Whittier v. Whittier Fuel & Marine Corp., 577 P.2d 216,
223 (Alaska 1978) (stating that proof of future profits entails two
aspects of certainty: certainty as to amount and certainty as to
causation). Finally, no matter how predictable it was that
Westward's breach would cause AJVS to lose the Allegiance, it
strains credulity to think that Westward could reasonably have
anticipated perpetual liability for profits AJVS might lose in
future years.
Given these circumstances, we conclude that an extended
award of lost profits would be disproportionate to Westward's
breach; justice does not require such compensation. See Restate-
ment sec. 351(3). Accordingly, we hold that the trial court did
not
err in its alternative decision to preclude ATWV from claiming lost
profits beyond June 30, 1993. Our conclusion that the trial court
did not err in so limiting lost profits necessarily disposes of
ATWV's claim that the court erred in precluding evidence of lost
profits beyond the time of trial. We likewise reject Westward's
claim that the jury's finding that AJVS received fair market value
for the sale of the Allegiance barred ATWV from any claim for
future lost profits. Even assuming that the jury verdict can be
construed as a finding that AJVS received fair market value for the
Allegiance, this finding would not be factually or legally
inconsistent with ATWV's contention that AJVS was unable to secure
a replacement vessel and thus suffered lost profits.
3. Did the trial court err in granting partial summary
judgment to Westward on ATWV's misrepresentation claim?
a. The statute of limitations
During discovery, it came to light that Westward may
have intentionally misrepresented to AJVS the opening date of its
plant. As a result, in August 1995 -- more than four years after
the alleged breach of contract -- ATWV amended its complaint to
include a tort claim for intentional misrepresentation. Westward
moved for summary judgment on statute of limitations grounds.
Apparently agreeing with Westward that the two-year tort statute of
limitations -- rather than the six-year contract statute --
applied, the trial court granted the motion. ATWV argues that the
court erred. [Fn. 4]
Alaska Statute 09.10.050 is the statute of limitations
applicable to contract actions. It states in pertinent part that
"[u]nless the action is commenced within six years, a person may
not bring an action (1) upon a contract or liability, express or
implied." By contrast, the tort statute of limitations,
AS 09.10.070(a)(1), provides:
A person may not bring an action . . . for any
injury to the person or rights of another not arising on contract
and not specifically provided otherwise . . . unless the action is
commenced within two years.
ATWV contends that its misrepresentation action arises
out of a contract and that, therefore, the six-year statute
applies. In support of this argument, it refers to our opinions in
Lee Houston & Associates, Ltd. v. Racine, 806 P.2d 848 (Alaska
1991), and Breck v. Moore, 910 P.2d 599 (Alaska 1996).
In Lee Houston, we held that the six-year statute of
limitations governed a suit arising out of a breach of duty imposed
by a professional services contract both because "the duty
allegedly breached does in part arise from the contract,"and
because a longer limitations period for actions involving economic
harm rather than "personal, reputational or dignitary injuries"is
consistent with the purpose of statutes of limitations. 806 P.2d
at 854-55. ATWV urges us to apply the reasoning of Lee Houston to
this case; ATWV contends that Westward's alleged misrepresentation
both caused AJVS economic loss and arose in connection with the
contract between AJVS and Westward.
A footnote from Lee Houston answers this contention:
An example of a claim not involving a
personal, reputational or dignitary injury (i.e., involving
economic loss), and not arising on contract, would be a claim of
fraud or misrepresentation not based on fiduciary duties owed by a
contracting party.
Id. at 854 n.13; see also Bauman v. Day, 892 P.2d 817, 825 (Alaska
1995) (holding that claims for fraud and misrepresentation are tort
claims, and thus are subject to the two-year statute of
limitations).
Accordingly, we conclude that the trial court did not err
in finding the two-year statute applicable.
b. The discovery rule
ATWV argues, however, that even if its misrepresentation
claim is subject to the two-year statute, the discovery rule tolled
the statute until 1995, when ATWV found affirmative proof that
Westward had knowingly misrepresented the opening date of its
Captains Bay plant.
We may assume that AJVS had not been aware of a knowing
misrepresentation by Westward and that ATWV first recognized the
possibility of a knowing misrepresentation when it began pretrial
discovery on its contract claim. We have, however, held that the
discovery rule does not require actual notice of misrepresentation:
Where the plaintiff does not actually know of
the existence of elements essential to her cause of action, under
the "discovery rule,"the limitations period does not begin to run
until "a reasonable person [in like circumstances would have]
enough information to alert that person that he or she has a
potential cause of action or should begin an inquiry to protect his
or her rights."
Lee Houston, 806 P.2d at 851 (quoting Mine Safety Appliances Co. v.
Stiles, 756 P.2d 288, 291 (Alaska 1988)).
In the present case, the evidence fully supports the
trial court's conclusion that AJVS was placed on inquiry notice
when, despite Westward's repeated assurances to the contrary, the
Captains Bay plant failed to open on schedule. In City of
Fairbanks v. Amoco Chemical Co., 952 P.2d 1173, 1179-80 (Alaska
1998), we held that, under AS 09.10.120's special provision for
actions involving fraud against the state and its political
subdivisions, actual notice of scienter is required to trigger the
running of the statute of limitations. We nevertheless emphasized
that "[e]vidence of scienter is usually circumstantial"; that
"[n]otice of the scienter element could not require knowledge of
conclusive evidence"; and that the required knowledge "is simply
the discovery of facts that are evidence of the defendant's state
of mind, i.e., evidence the defendant knew the representation was
false when made." Id. at 1179-80.
Even assuming that this same scienter requirement applies
under the discovery rule governing the ordinary tort statute of
limitations, we conclude that a finding of actual notice would be
justified here. As Westward argues, not only did its plant fail to
open on January 15, "[t]he plant did not open [on] February 1,
either. Indeed, despite alleged assurances that the opening of the
plant was imminent . . . the plant did not open until March. . . .
By this time, the plaintiff had suffered serious losses as a result
of Westward's alleged misrepresentations." The plant's continuing
failure to open despite Westward's repeated assurances to the
contrary amounts to strong circumstantial evidence that Westward
knew its representations were false when it made them.
We find no error in the trial court's dismissal of ATWV's
misrepresentation claim.
B. Westward's Cross-Appeal
1. Sufficiency of the evidence
At trial, Westward, arguing that there was insufficient
evidence to establish the existence of a contract to accept
deliveries beginning January 15, 1991, moved for a directed verdict
on this issue. The superior court denied the motion. Westward now
argues that the trial court erred in allowing the jury to consider
whether it had promised to accept deliveries starting on January
15, 1991. Westward contends that the evidence on this issue was
insufficient.
"This court's role in reviewing a grant [or denial] of a
motion for a directed verdict or JNOV is not to weigh conflicting
evidence or judge the credibility of witnesses, but rather to
determine whether evidence, when viewed in [the] light most
favorable to the non-moving party, is such that reasonable persons
could not differ in their judgment." Korean Air Lines Co. v.
State, 779 P.2d 333, 338 (Alaska 1989) (citing Knight v. American
Guard & Alert, Inc., 714 P.2d 788, 793 (Alaska 1986); Dura Corp. v.
Harned, 703 P.2d 396, 402 (Alaska 1985); Kavorkian v. Tommy's Elbow
Room, Inc., 694 P.2d 160, 163 (Alaska 1985)).
Westward initially contends that the testimony of former
AJVS chairman Thorne Tasker concerning his subjective understanding
that AJVS and Westward had an agreement to start delivery on
January 15, 1991, was inadmissible. According to Westward, without
Tasker's inadmissible testimony, there was no evidence to establish
that a contract had been formed as to the start-up date for
delivery.
At trial, ATWV asked Tasker, without objection, if he
"understood, as a part of the agreement, that [AJVS] would deliver
[crab to Westward] as soon as they were open." Tasker replied,
"That was the number one part of the component of the agreement."
ATWV then asked Tasker, "As to the January 15 dates that are
mentioned in these letters, going back and forth, what role did
they play in the agreement, as you understood it?" Westward
objected to this question. After the trial court overruled the
objection, ATWV rephrased the question, and Tasker answered, as
follows:
Q. In your mind, what was the significance of
these repeated references to January 15?
A. That was because it would be a disaster for
us to go to that point and not have them open for the opilio
market. So they agreed that they would be open; we agreed that we
would be there with the vessel, ready to fish. That's the reason
why January 15 -- because that's the opening day of opilio season.
In support of its position that admission of this
testimony was error, Westward cites Mullen v. Christiansen, 642
P.2d 1345 (Alaska 1982), and Peterson v. Wirum, 625 P.2d 866
(Alaska 1981). In Mullen, we held that "self-serving testimony of
the parties as to their subjective intentions or understandings is
not probative evidence of whether the parties entered into a
contract." 642 P.2d at 1350. In Peterson, we observed that
"looking to [parties'] testimony as to their subjective intentions
or understandings will normally accomplish no more than a
restatement of their conflicting positions." 625 P.2d at 870 n.6
(quoting Day v. A & G Constr. Co., 528 P.2d 440, 444 (Alaska
1974)). Relying on the quoted passages, Westward concludes that
the trial court's failure to exclude Tasker's subjective
impressions amounted to an abuse of discretion.
ATWV responds that these cases do not "raise[] any issue
about the admissibility of one party's testimony concerning his
understanding of what the other party agreed to do. Indeed, it is
hard to imagine a contract case proceeding through trial where the
parties are not asked what they understood the terms of the
contract to be." ATWV cites Municipality of Anchorage v. Gentile,
922 P.2d 248 (Alaska 1996), where, in approving the trial court's
reliance on the testimony of various parties concerning their
understanding of a contract, we said, "Alaska courts may use
extrinsic evidence regarding the intent of the parties 'to
interpret a contract regardless of whether the contract appears to
be ambiguous on its face or not.'" Id. at 258-59 (quoting
Peterson, 625 P.2d at 871; citing Wright v. Vickaryous, 598 P.2d
490, 497 n.22 (Alaska 1979)).
ATWV's position is persuasive. Although Tasker, prompted
by his lawyer, couched his answer to the disputed question in
subjective language -- stating what he understood the agreement to
mean "[i]n [his] mind"-- he explained his understanding in
objective terms that were sufficiently detailed to enable the jury
to form its own judgment as to the reasonableness of Tasker's
interpretation and the likelihood that Westward would have the same
understanding. There is nothing improper in such testimony:
[A] party should be permitted to determine the
operative meaning of the words of agreement by proving that both
parties so understood them, or that he so understood them and the
other party knew that he did, or that he so understood them and the
other party had reason to know that he did.
3 Arthur Corbin, Corbin on Contracts sec. 538, at 59-61 (1960).
Westward further argues that no rational juror could have
found, based on the communications between AJVS and Westward in
1990, that Westward made a binding promise to begin accepting
delivery of crab from AJVS on January 15, 1991. According to
Westward, the parties' correspondence does nothing more than show
that Westward "predict[ed]"that it would be ready to receive
deliveries on January 15. In support of its argument, Westward
cites cases holding that "a projection or expression of expectation
is not a promise."
Westward's argument misses the mark. It is not only the
written correspondence that must be taken into account, but the
entire body of evidence regarding reported conversations between
the parties, the parties' conduct, and all circumstances
surrounding the negotiation. See Gentile, 922 P.2d at 256. As
noted above, this court does not reweigh the evidence; rather, we
must draw all inferences against the moving party. See Korean Air
Lines Co., 779 P.2d at 338. Viewed in the light most favorable to
ATWV, the totality of the evidence suffices to allow reasonable
jurors to find that Westward did in fact promise to begin accepting
AJVS's deliveries on January 15, 1991. The trial court did not err
in denying Westward a directed verdict on this point.
2. Evidence of Westward's misrepresentations
Westward argues that the superior court erred in allowing
ATWV to introduce evidence of Westward's misrepresentations
concerning the opening date of its processing plant.
Although the court ruled prior to trial that ATWV's
misrepresentation claim was time-barred, it expressly reserved
ruling on the issue of whether Westward's alleged misrepresen-
tations might support an award of punitive damages on ATWV's breach
of contract claim. At trial, ATWV was initially allowed to
introduce evidence of Westward's misrepresentations in order to
support its request for punitive damages. After hearing ATWV's
case, however, the trial court decided that this evidence could not
support an award of punitive damages. It thus struck ATWV's
punitive damages claim.
In light of this ruling, Westward asked the court to
instruct the jury to disregard all previously admitted evidence
relating to its alleged misrepresentations. In response, ATWV
argued that the evidence remained relevant to the credibility of
Westward's witnesses. The court agreed; it instructed the jury
that, although ATWV's misrepresentation allegations were no longer
at issue, the jury could consider the evidence of
misrepresentations as it related to witness credibility and the
existence of a contract between the parties.
Westward argues that this evidence was inadmissible to
impeach witness credibility. Westward cites Alaska Rule of
Evidence 608(b), which generally prohibits the use of specific
instances of conduct to support or attack witness credibility
except on cross-examination of a character witness. [Fn. 5]
Westward also argues that the disputed evidence was irrelevant and,
even if relevant on issues other than credibility, had a
prejudicial impact clearly outweighing any probative value.
Westward's reliance on Rule 608(b) is largely misplaced.
The disputed misrepresentation testimony tended to shed light on
the credibility of Westward's witnesses not by reflecting
negatively on their character for truthfulness -- the use
prohibited by Rule 608(b) -- but by refuting specific factual
assertions in their testimony, a use that has nothing to do with
proof of character for untruthfulness.
Moreover, the central issue in this case was whether the
parties had formed a contract for delivery of crab beginning
January 15, 1991. The parties' course of dealings after entering
into the alleged contract was potentially vital evidence of whether
they in fact believed that they had entered a binding contract.
"The jury could properly consider the language and conduct of the
parties, the objects sought to be accomplished, and the
circumstances surrounding the negotiation of the contract to
determine whether [a contract existed]." Mullen, 642 P.2d at 1349.
Finally, assuming that admission of the challenged
evidence was more prejudicial than probative, see Alaska R. Evid.
403, this evidence played a small role in a lengthy trial and was
not inherently inflammatory. Westward did not move for a mistrial,
and the trial court gave an appropriate instruction limiting the
jury's use of the evidence. We find nothing to suggest that the
jury disregarded the instruction. Any error in admitting the
disputed evidence had no appreciable effect on the jury's verdict
and was therefore harmless.
IV. CONCLUSION
We VACATE the judgment and REMAND this case for entry of
an amended judgment conforming with this opinion.
FOOTNOTES
Footnote 1:
A "variable cost"is a cost that varies with the level of
operations, as opposed to costs that are fixed and do not vary, no
matter what the level of operations is.
Footnote 2:
Even Dr. Taylor, who supplied the 54.3% variable cost figure,
agreed that the Allegiance had suffered a loss of efficiency in
1991. Dr. Taylor felt that he could not directly calculate how
that loss affected the variable cost, but appeared to acknowledge
that his lost revenue figure would rise if the lost efficiency
could be calculated.
Footnote 3:
This subsection provides:
A court may limit damages for foreseeable loss
by excluding recovery for loss of profits, by allowing recovery
only for loss incurred in reliance, or otherwise if it concludes
that in the circumstances justice so requires in order to avoid
disproportionate compensation.
Footnote 4:
We review the superior court's grant of summary judgment de
novo. This court determines whether any issues of material fact
exist and whether the moving party is entitled to judgment as a
matter of law. See Bauman v. Day, 892 P.2d 817, 824-25 (Alaska
1995).
Footnote 5:
Alaska Rule of Evidence 608(b) reads:
If a witness testifies concerning the character for
truthfulness or untruthfulness of a previous witness, the specific
instances of conduct probative of the truthfulness or
untruthfulness of the previous witness, may be inquired into on
cross-examination. Evidence of other specific instances of the
conduct of a witness offered for the purpose of attacking or
supporting that witness' credibility is inadmissible unless such
evidence is explicitly made admissible by these rules, by other
rules promulgated by the Alaska Supreme Court or by enactment of
the Alaska Legislature.
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