Alaska Tae Woong Venture, Inc. v. Westward Seafoods, Inc.

Citations: 963 P.2d 1055; 1998 Alas. LEXIS 144; 1998 WL 544934Docket: S-7692/7711

Court: Alaska Supreme Court; August 28, 1998; Alaska; State Supreme Court

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In the case of Alaska Tae Woong Venture, Inc. v. Westward Seafoods, Inc., the Supreme Court of Alaska addressed a dispute arising from a 1990 agreement between Alaska Joint Venture Seafoods, Inc. (AJVS) and Westward Seafoods, Inc. regarding the delivery of crab and pollock to a processing plant under construction by Westward on Unalaska Island. AJVS anticipated beginning deliveries on January 15, 1991; however, delays in the plant's completion, which extended until mid-March, resulted in financial losses for AJVS. Subsequently, Alaska Tae Woong Venture (ATWV), as AJVS's assignee, sued Westward for misrepresentation and breach of contract. The trial court dismissed the misrepresentation claim as time-barred but ruled in favor of AJVS on the breach of contract claim, leading to a reduced jury verdict. ATWV appealed the reduction and the dismissal of the fraud claim, while Westward cross-appealed, arguing insufficient evidence of a contract and errors in admitting misrepresentation evidence. The Supreme Court partially upheld ATWV's appeal concerning the verdict reduction but affirmed the dismissal of the misrepresentation claim. Westward's arguments on cross-appeal were rejected, with the court finding sufficient evidence of a contract and determining any errors regarding the admission of misrepresentation evidence were harmless. The background revealed that AJVS, initially functioning primarily as a management company, was focused on securing a market for opilio crab and pollock, while Westward sought commitments for king crab.

Westward announced plans for a new plant to open around January 15, 1991, capable of processing crab from the Duffy Sea. The initial agreement involved AJVS supplying crab and pollock from two vessels, the Optimus Prime and Duffy Sea, confirmed in a letter from Westward's president, Hugh Reilly, to AJVS's chairman, Thorne Tasker, on June 11, 1990. Over the summer, the agreement changed to focus solely on the Duffy Sea after AJVS indicated the Optimus Prime's conversion was not economically viable. AJVS assured Westward it would find a replacement vessel and was prepared to fulfill delivery schedules.

By mid-September, AJVS concentrated on converting the Duffy Sea for both crab and pollock fisheries. AJVS sought confirmation from Westward about securing a market for pollock deliveries starting June 1, 1991, contingent on committing all of the Duffy Sea's crab to Westward's new plant. AJVS indicated it could commit crab and pollock production to Westward beginning January 15, 1991, although the 1990 king crab had been allocated to another processor. They planned to fish opilio crab initially, then convert the vessel for pollock fishing. Westward responded positively on September 25, acknowledging AJVS's commitments and expressing readiness to receive opilio deliveries starting January 15, 1991.

AJVS viewed a series of communications as a binding commitment from Westward to accept opilio crab starting January 15, 1991. As this date approached, Westward reaffirmed its readiness via a fax on November 23, 1990. However, Westward unexpectedly failed to open the Captains Bay plant on schedule, delaying crab acceptance until approximately March 20, 1991. This disruption forced AJVS to seek alternative markets, severely impacting its ability to catch and sell crab efficiently, ultimately leading to a significant cash deficit and asset sales, including the Duffy Sea, later renamed the Allegiance. The Allegiance was sold to AJVS Chairman Thorne Tasker, who assumed its mortgage and related liabilities, including a cause of action against Westward. In 1993, ATWV, acting on AJVS's assignment, sued Westward for breach of contract, seeking lost profits and damages from the sale of the Allegiance. During discovery, ATWV uncovered evidence suggesting Westward had knowingly misled AJVS about the plant's opening date, leading to an amended complaint alleging intentional misrepresentation and seeking punitive damages. Westward moved for summary judgment, claiming the misrepresentation claim was barred by the statute of limitations, which the court partially granted, dismissing the misrepresentation claim and limiting lost profits to those up to trial. At trial, the jury determined there was a contract, that Westward breached it, and awarded AJVS $568,964 in lost profits for 1991 and $1,794,356 for subsequent seasons up to the trial date.

AJVS suffered no loss from selling the Allegiance to Tasker, according to the jury's findings. Westward sought judgment notwithstanding the verdict (JNOV) or a new trial; the trial court denied the new trial but granted JNOV, eliminating the lost profits damages from 1992 to the trial date and reducing the 1991 damages award to $315,934.38 from $568,964. ATWV appealed this remittitur, claiming the trial court erred. Dr. Paul Taylor testified that the Allegiance had a net annualized average cash flow of $568,964, which the jury mistakenly used for lost profits. Taylor estimated AJVS's revenue loss at $221,532 in 1991, with variable costs at 54.3%, leading to a calculated profit loss of $101,240. The jury's award matched Taylor's cash flow figure, prompting Westward's objection that the jury misunderstood his testimony. The trial court agreed, stating there was insufficient evidence for the original award. In determining the remittitur, the court accepted Taylor's highest revenue loss estimate of $691,322.50 and deducted variable costs, arriving at the reduced figure. ATWV contended this remittitur was an abuse of discretion, arguing that evidence presented at trial supported a higher award, including testimonies indicating potential revenues of $600,000 to $700,000 if not for Westward's breach. Witnesses explained that contract scheduling increased fishing efficiency, which directly impacted profits, and ATWV maintained this theory throughout the trial.

ATWV argues that the jury could reasonably conclude that AJVS incurred lost profits due to Westward's breach of contract, asserting that the expenses AJVS would have incurred were already accounted for, thus no further deductions from lost income were necessary. Testimony indicated that nearly all lost income would have been profit. Westward counters that there was insufficient evidence to justify awarding full lost revenues without considering additional costs. Citing case law, Westward emphasizes that plaintiffs must present adequate evidence to calculate lost profits. However, the court finds Westward's argument unpersuasive, noting that once damages are established with reasonable probability, the exact amount can be determined based on reasonable estimates. The jury could have concluded that Westward's breach resulted in AJVS losing as much as $700,000 in revenue, with at least $568,964 likely being profits. Thus, the jury's award should not have been modified. 

Regarding the lost profits from 1992 onward, the jury awarded nearly $1.8 million, attributing losses to the sale of AJVS's vessel, Allegiance, due to Westward's breach. The jury was instructed to calculate damages based on revenues minus costs for the period AJVS could not fish because of the breach. The trial court later granted Westward's motion for judgment notwithstanding the verdict (JNOV), which ATWV appeals. The appellate court will assess whether there was sufficient evidence, viewed favorably to ATWV, to support the jury's findings without weighing conflicting evidence or evaluating witness credibility.

The trial court's ruling was reviewed de novo due to its choice among competing legal theories. The court's judgment for JNOV was based on its finding that AJVS did not sell the Allegiance after a breach by Westward, but rather divided corporate assets between its owners, Tasker and Phillips, with each holding 50% of the properties after dissolution. The court concluded there were no loss-of-use damages since there was no actual loss of the Allegiance.

ATWV contested this, asserting that AJVS indeed sold the Allegiance to Tasker for shares and cash, and argued that the court incorrectly classified the transaction as a division of partnership assets, noting that AJVS was a corporation. Evidence presented indicated that the sale was necessary due to Westward's breach, and no claims of fraud or collusion were made regarding the sale. The trial court's conclusion that AJVS did not sell the Allegiance was deemed erroneous, as ample evidence supported the notion of a legitimate sale, thereby invalidating the basis for striking the jury's lost future profits award.

Additionally, the trial court found that Westward could not have foreseen the restructuring of business arrangements between Tasker and Phillips as a result of its breach. However, this conclusion was contingent on the mistaken finding that no true sale occurred. Foreseeability is a factual issue for the jury, and evidence showed that Westward was aware of AJVS's financial challenges, which could lead to the sale of the Allegiance. The court's decision to discard post-1991 lost profits was therefore not justifiable based on foreseeability grounds.

The trial court limited ATWV's lost profits claim to damages incurred through June 30, 1993, asserting that the foreseeability of AJVS's losses extending beyond this period was not reasonable at the time of the contract. The court noted that neither Westward nor AJVS could have anticipated the prolonged impact of AJVS's losses on their fishing operations. ATWV argued that the trial court's limitation was unjustified, citing that evidence supported a jury award for lost profits beyond June 1993. However, the court referenced section 351 of the Restatement (Second) of Contracts, which allows trial courts to limit damages for foreseeable losses when disproportionate compensation would result. 

The court found that AJVS's decision to cease business operations was voluntary and not a direct result of Westward's breach, as AJVS was not insolvent at the time. This decision meant AJVS effectively chose not to pursue potential profits, undermining its claim for extended damages. The court emphasized that simply not replacing the Allegiance did not justify ongoing profit claims, and noted that ATWV failed to establish a clear causal link between Westward's breach and AJVS's future earnings loss. The court concluded that it was unreasonable to expect Westward to anticipate indefinite liability for lost profits from AJVS's operations.

An extended award of lost profits for ATWV due to Westward's breach is deemed disproportionate and unnecessary by the court, which affirms the trial court's decision to limit lost profits claims to losses incurred up to June 30, 1993. This ruling negates ATWV's argument regarding the admissibility of evidence for lost profits beyond the trial date. The court also rejects Westward's assertion that a jury finding of AJVS receiving fair market value for the Allegiance precludes ATWV from claiming future lost profits, clarifying that such a finding does not contradict ATWV's position that AJVS could not secure a replacement vessel, leading to lost profits.

Regarding the misrepresentation claim, ATWV amended its complaint in August 1995, over four years post-breach, to include a tort claim for intentional misrepresentation. Westward successfully moved for summary judgment based on the two-year statute of limitations for tort claims, which the trial court accepted. ATWV contends that the six-year statute for contract actions should apply, referencing precedents where economic harm claims related to contracts were governed by the longer period. However, the court determines that the misrepresentation claim is a tort, thus affirming the two-year statute's applicability, consistent with previous rulings that classify such claims as torts subject to shorter limitations.

ATWV contends that its misrepresentation claim should be tolled under the discovery rule until 1995, when it allegedly uncovered proof that Westward knowingly misrepresented the opening date of the Captains Bay plant. It is assumed that AJVS was unaware of any such misrepresentation until pretrial discovery began. The discovery rule dictates that the statute of limitations does not commence until a reasonable person, in similar circumstances, has sufficient information to suggest a potential cause of action. In this case, the trial court found that AJVS was on inquiry notice when the plant failed to open as scheduled, despite Westward’s assurances. The court referenced a precedent indicating that while actual notice of a defendant's fraudulent intent is necessary to trigger the statute of limitations, such notice can be based on circumstantial evidence that the defendant knew its statements were false. The continued failure of the plant to open as promised provided substantial circumstantial evidence of Westward's knowledge of its misrepresentations, justifying the trial court's dismissal of ATWV's claim.

In Westward's cross-appeal regarding the sufficiency of evidence for a contract to accept deliveries starting January 15, 1991, the superior court denied Westward's motion for a directed verdict. Westward argues that the trial court erred by allowing the jury to deliberate on this issue, claiming insufficient evidence existed. The appellate court's review emphasizes that it does not weigh evidence or assess witness credibility but rather determines if reasonable individuals could differ in their judgment based on the evidence, viewing it in favor of the non-moving party.

Westward argues that the testimony of Thorne Tasker, former chairman of AJVS, regarding his understanding of an agreement with Westward to begin crab deliveries on January 15, 1991, was inadmissible. They claim that without this testimony, there is insufficient evidence to prove a contract existed regarding the delivery start date. During the trial, Tasker confirmed that he believed the delivery was a crucial part of the agreement and explained that January 15 was significant as it marked the opilio season's opening day. Westward objected to the questioning surrounding Tasker's understanding, but the trial court overruled the objection, allowing Tasker to elaborate on his interpretation.

Westward cites Alaska case law, asserting that subjective testimony of a party's intentions does not constitute probative evidence of a contract's existence. They reference *Mullen v. Christiansen* and *Peterson v. Wirum* to support their claim that Tasker's testimony should have been excluded. In contrast, ATWV argues that such testimony is relevant in contract disputes and is necessary to interpret the parties' agreements, referencing *Municipality of Anchorage v. Gentile*, which permits extrinsic evidence on the parties’ intent.

ATWV contends that despite Tasker’s subjective language, his testimony provided objective details that allowed the jury to assess the reasonableness of his interpretation and whether Westward shared that understanding. They argue that it is acceptable for a party to clarify the meaning of contractual terms based on mutual understanding. Lastly, Westward maintains that no rational juror could conclude that Westward made a binding commitment to accept deliveries starting on January 15, asserting that the correspondence between the parties was merely predictive and did not indicate a binding promise.

Westward asserted it would be ready to receive deliveries by January 15, but this claim was deemed insufficient as the court considered the entirety of evidence, including conversations, conduct, and negotiation circumstances. The evidence supported a reasonable jury's conclusion that Westward promised to accept deliveries on that date, leading to the trial court's decision to deny Westward's motion for a directed verdict.

Regarding misrepresentations about the processing plant's opening date, the superior court initially ruled ATWV's claim was time-barred, yet allowed evidence for punitive damages related to the breach of contract. Eventually, the court retracted permission for punitive damages but permitted the jury to consider misrepresentation evidence for assessing witness credibility and the existence of a contract. Westward contended this evidence was inadmissible under Alaska Rule of Evidence 608(b), arguing it was irrelevant and prejudicial. However, the court found the misrepresentation testimony relevant to witness credibility, as it directly refuted specific factual claims rather than attacking character for truthfulness. The jury was authorized to assess the parties' actions and communications to determine if a valid contract existed for crab deliveries commencing January 15, 1991.

The admission of the challenged evidence, although potentially more prejudicial than probative under Alaska Rule of Evidence 403, had a minimal impact in a lengthy trial and was not considered inflammatory. Westward did not request a mistrial, and the trial court appropriately limited the jury's use of this evidence, with no indication that the jury disregarded these instructions. Consequently, any error related to the evidence's admission was deemed harmless and did not affect the verdict. The court vacated the judgment and remanded the case for an amended judgment consistent with its opinion. Additionally, notes provided context on variable costs, expert testimony regarding efficiency losses, judicial discretion in limiting damages, and the standards for reviewing summary judgment. Alaska Rule of Evidence 608(b) was mentioned concerning witness credibility and the admissibility of specific conduct evidence.