AMFAC Hotels & Resorts, Inc. v. State, Department of Transportation & Public Facilities

Citations: 659 P.2d 1189; 1983 Alas. LEXIS 378Docket: Nos. 5833, 6124

Court: Alaska Supreme Court; February 17, 1983; Alaska; State Supreme Court

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AMFAC Hotels and Resorts, Inc. appeals a trial court decision regarding the interpretation of a contract for concession rights at Anchorage International Airport, originally established in 1953 between the U.S. government and Northwest Airlines, Inc., AMFAC’s predecessor. The agreement granted Northwest exclusive rights to sell food and beverages in the airport terminal for ten years, later amended in 1961 to include first refusal rights for new operations until June 30, 1984. A 1968 amendment, Supplemental Agreement No. 3, defined these rights geographically, attaching a layout diagram (Exhibit C) of the airport.

In December 1979, the State announced public bidding for new concession rights outside Exhibit C, prompting AMFAC and the State to negotiate an extension of the agreement. AMFAC filed suit, claiming the 1968 agreement intended to grant Northwest rights to all terminal expansions, regardless of Exhibit C boundaries, based on a pre-execution meeting's discussions among State and Northwest officials. Both Harold Strandberg and Roland Chambers testified that the intent was to include rights for terminal expansions.

AMFAC sought reformation of the Supplemental Agreement, arguing it did not clearly express the parties' intentions regarding expansion rights. The State contended that the agreement limited Northwest’s rights to Exhibit C. The trial court sided with the State, denying AMFAC's requests for reformation or broader interpretation. On appeal, AMFAC claims the trial court erred by requiring proof of a prior binding agreement and argues it only needed to demonstrate that the parties had a mutual understanding of the intended rights, advocating for reformation based on the alleged intent for future expansions.

To secure reformation of a written agreement, the requesting party must provide clear and convincing evidence that reformation is appropriate, as established in Kupka v. Morey. Reformation is justified when parties have a mutual understanding of essential terms, but a mutual mistake results in a materially non-conforming written agreement, per Durkee v. Busk. AMFAC's claim that a binding prior agreement is unnecessary for demonstrating 'complete mutual understanding' is accepted, referencing Restatement (Second) of Contracts. However, the trial court did not require proof of such an agreement's existence, as indicated by the judge’s comments at trial, which distinguish between a 'final' agreement and one that is 'enforceable and binding.' The trial court rejected reformation, concluding that there was insufficient evidence of a mutual understanding regarding concession rights' geographical scope prior to Supplemental Agreement No. 3. AMFAC contends evidence supports a prior agreement, but the question remains factual and reversible only if 'clearly erroneous.' The trial court’s finding was not deemed 'clearly erroneous' as it was based on two independent grounds: skepticism regarding Strandberg’s testimony due to inconsistencies and memory lapses, and supporting documentary evidence, including a memorandum from Strandberg, leases with cancellation clauses, and a 1968 site map for the airport. The trial court’s doubts about Strandberg’s reliability were reasonable, and deference is given to trial courts’ determinations based on testimonial evidence.

The trial judge determined that certain documents raised doubts about AMFAC’s claims regarding concession rights. Specifically, a memo indicated that the parties had not finalized the scope of those rights during a May meeting but had only reached a tentative agreement for further negotiation. Additionally, the leases and a map implied that State representatives acknowledged the potential for terminal expansion beyond the area outlined in Exhibit C, contradicting AMFAC's claim that both parties assumed any expansion would be limited to a 1600' diameter circle. Consequently, the trial court concluded that there was no agreement extending concession rights beyond Exhibit C, validating its refusal to reform the written agreement. AMFAC's argument that the Supplemental Agreement entitled them to concession rights for all terminal expansions was rejected, as the court found that the parties intended only what was explicitly stated in the written contract.

In a cross-appeal, the State contested the trial court’s $3,750 attorney’s fee award, arguing it was inadequate given the approximately 600 hours spent on the case. The court noted that attorney's fees in such cases can be fixed by the trial judge at their discretion, guided by the value of legal services rendered. The award would only be altered on appeal if it was manifestly unreasonable. The trial court considered several factors in determining the fee, including a flawed time-keeping method by the State, the case's limited complexity, AMFAC’s good faith in litigation, and the fact that significant time was spent on unsuccessful affirmative defenses. Ultimately, the court concluded that only 250 of the 611.5 hours claimed were reasonably necessary and calculated the fee based on 20% of those hours at an average rate of $75.00 per hour. This calculation was affirmed as within the trial court's discretion. Additionally, AMFAC's motion to join Marriott Corporation as a co-appellant was granted by the court on May 7, 1981.

The State Department of Public Works acquired the U.S. interest in the airport contract in 1959. Article II of Supplemental Agreement No. 3 allowed Northwest Airlines an option to extend the agreement for ten years on renegotiated terms. The 1980 Concession Agreement defined AMFAC’s 'Concession Limits' using a 1600' diameter circle, but Article II acknowledged a disagreement on this definition, with both parties agreeing to pursue a declaratory judgment to resolve the issue. A meeting convened by Strandberg addressed a dispute over the validity of a 1961 amendment after the State moved to open concession rights for a new terminal extension. To avoid litigation delays, the State opted for negotiation. 

The court noted key points from the negotiating session on May 29, 1968, questioning whether a binding agreement was reached, with Strandberg indicating that an agreement in principle existed but required further detail work by lawyers. The judge found insufficient evidence to confirm that a final agreement was made on that date. Additionally, the court considered various factors, including the agreement itself, the lack of objection from Northwest regarding the State's actions, and testimony from aviation officials concerning the expectations around terminal expansions and the definitions involved. 

AMFAC challenged the trial court's admission of leasing exhibits as irrelevant, arguing they did not reflect the parties' mutual intent. However, the trial court deemed the leasing evidence relevant to understanding the intent of the State's representatives during the negotiations for Supplemental Agreement No. 3, particularly regarding the assumption both parties had about terminal expansions occurring within the defined area.