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L. Pavone v. A. Pavone (10/15/93), 860 P 2d 1228
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NOTICE: This opinion is subject to formal correction
before publication in the Pacific Reporter. Readers
are requested to bring typographical or other formal
errors to the attention of the Clerk of the Appellate
Courts, 303 K Street, Anchorage, Alaska 99501, in order
that corrections may be made prior to permanent
publication.
THE SUPREME COURT OF THE STATE OF ALASKA
LEONARD PAVONE, )
) Supreme Court
Appellant, ) File No. S-5114
)
v. ) Superior Court
) File No. 3AN-90-5558 Civ.
ANTHONY PAVONE, )
) O P I N I O N
Appellee. ) [No. 4013 - October 15, 1993]
________________________________)
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Anchorage, Joan M. Katz, Judge.
Appearances: James F. Vollintine, Anchorage,
for Appellant. Ernest Z. Rehbock, Rehbock &
Rehbock, Anchorage, for Appellee.
Before: Moore, Chief Justice, Rabinowitz,
Burke, Matthews and Compton, Justices.
BURKE, Justice.
Leonard Pavone brought this action to recover a
commercial fishing limited entry permit which he had earlier
transferred to his son, Anthony Pavone. The superior court
refused to order the return of the permit because of the
illegality, under AS 16.43.150(g)(2), of Leonard's oral
retransfer agreement with his son. We affirm.
I. FACTS AND PROCEEDINGS
In 1975, Leonard Pavone applied for a Bristol Bay
limited entry permit. AS 16.43.140. The Alaska Commercial
Fisheries Entry Commission ("CFEC") rejected his application. To
continue fishing, Leonard purchased a permit from Sergio Conte.
In 1980, following the announcement of our decision in
State, CFEC v. Templeton, 598 P.2d 77, 81 (Alaska 1979), Leonard
requested the CFEC reconsider his application. The CFEC refused
to do so, but in Cashen v. CFEC, 686 P.2d 1219, 1220 (Alaska
1984), we ordered the CFEC to reconsider Leonard's application.
Leonard became eligible for an interim-use permit while his
permit application was pending before the CFEC. The interim use
permit was in addition to the permit he had purchased from Sergio
Conte.
Because Leonard could not operate two Bristol Bay gill
net permits at once, see AS 16.43.140(c), Leonard transferred the
Conte permit to his son Anthony in June 1986. Anthony paid
nothing for the Conte permit. In signing the "Request for
Permanent Transfer"Leonard swore, "under penalty of perjury, . .
. that this transfer is not requested as part of, nor in
anticipation of, any retained right of repossession. . . ."1 As
part of the transfer, Leonard and Anthony signed a "Transfer
Survey Affidavit"in which they answered four questions. First,
they responded "yes" to the question, "Is the permit being
transferred as a gift without any conditions?" Next, they
responded "no"to the question, "Is there an agreement for the
proposed transferee to return the permit to the current holder or
to transfer it to someone else at any time?" Third, they
answered "no"to the question, "Is there an agreement by which
the proposed transferee will pay the transferor a portion of the
earnings from fishing the permit?" Finally, when asked to
describe any other conditions or arrangements to which they had
agreed, they responded "none!"
These documents were signed under oath before Marilyn
Russell, who ran the CFEC pilot program for Bristol Bay. Russell
discussed each of the paragraphs "many times"with Leonard and
Anthony. Despite the plain language of the documents, Leonard
made it clear to Russell that he wanted the Conte permit back if
his permit application were denied by the CFEC. According to
Russell, Anthony verbally agreed that at some future date he
would give the permit back. Russell told Leonard and Anthony
that if they referenced their retransfer agreement on the
"Request for Permanent Transfer"the CFEC would not accept it.
She warned both of them that, regardless of what they had agreed
to, Anthony would not have to return the permit under the terms
of the agreement.
Anthony fished the Conte permit during the 1986-88
fishing seasons. After the close of the 1988 fishing season,
Anthony returned to California and notified the CFEC that he
intended to keep the Conte permit.
In February 1989, Leonard filed suit against Anthony in
California seeking the return of the Conte permit. In August
1989, Anthony filed a complaint in Anchorage against three
Bristol Bay fish processors to recover all money paid to Leonard
under the Conte permit during 1986-88. In July 1990, Leonard
filed a complaint against Anthony in Anchorage seeking the return
of the Conte permit and damages for Anthony's use of the permit
subsequent to the 1988 season. Anthony answered and raised
numerous counterclaims to this suit, including malicious
prosecution and intentional infliction of emotional distress. He
also asked for an accounting of the proceeds netted during the
1986-88 seasons. The two Anchorage cases were consolidated in
August 1991. The three fish processors settled with Anthony for
$55,000, leaving Leonard and Anthony as the sole litigants.
The California court refused to grant Leonard the
injunctive relief he sought, reasoning that it would be
inappropriate for an equity court to facilitate that which was
prohibited under Alaskan law. The court instructed Leonard to
pursue his legal remedies in Alaska.
In the Alaska litigation, Anthony moved for summary
judgment on the grounds that the California decision was res
judicata on Leonard's claims and that the parties' illegal
agreement precluded Leonard from recovering the permit. The
superior court granted summary judgment on both grounds. Leonard
filed a petition for review. We reversed, holding that the
California court's decision was not res judicata on Leonard's
Alaska lawsuit. Alaska Supreme Court Order (February 25, 1992).
We directed the superior court to consider the factors enunciated
in Brown v. Baker 688 P.2d 943, 948 (Alaska 1984), to determine
whether the unlawful agreement was enforceable. Id. The
superior court thereafter discussed the Brown v. Baker factors
and again dismissed Leonard's complaint.
The case then proceeded to trial to resolve Anthony's
counterclaims. A jury returned a verdict in Leonard's favor on
Anthony's malicious prosecution and emotional distress
counterclaims. On the accounting claim, the superior court first
determined that for the years 1986-88 there were $82,111.35 in
net proceeds available for distribution. The court then examined
the equities of the case and concluded that Anthony was entitled
to half of the proceeds, or $41,055.68. However, because Anthony
had received $55,000 in his settlement with the three Bristol Bay
fisheries, the court awarded him nothing on his accounting claim.
The parties filed cross-motions for costs and attorney's fees.
The clerk awarded $5,150 in costs to Leonard and $5,854 in costs
to Anthony. The superior court found the case was a "wash"since
Leonard lost his claim for return of the permit and Anthony did
not prevail on his malicious prosecution and emotional distress
counterclaims. The court held that neither party prevailed and,
therefore, each should bear his own costs and attorney's fees.
Leonard appeals the superior court's judgment dismissing his
claim for the return of the permit and the superior court's cost
and attorney's fees order.
II. DISCUSSION
A. The Permit Retransfer Agreement
Leonard is asking this court to enforce an illegal
agreement. Generally, courts leave parties to an illegal bargain
where they find them and will grant no remedy to either party.
See, e.g., Cosmopolitan Fin. Corp. v. Runnels, 625 P.2d 390, 397
(Haw. Ct. App. 1981). We have no power, either in law or in
equity, to enforce an agreement which directly contravenes a
legislative enactment. See, e.g., Hemmen v. State, 710 P.2d
1001, 1003 (Alaska 1985). This rather self-evident principle has
been incorporated into the Restatement (Second) of Contracts
178(1) (1981) which reads:
A promise or other term of an agreement
is unenforceable on grounds of public policy
if legislation provides that it is
unenforceable or the interest in its
enforcement is clearly outweighed in the
circumstances by a public policy against the
enforcement of such terms.
(Emphasis added). Subsection 2 of section 178 describes those
factors which should be considered in weighing the interest for
enforcing a contract. These include the parties' justified
expectations, any forfeiture that would result if the term were
not enforced, and whether there is any special public interest in
enforcing the term. Restatement (Second) of Contracts 178(2)
(1981). Finally, section 178(3) lists the factors which should
be taken into account when weighing a public policy against
enforcement.2 Importantly, the "weighing of interests" in
subsections (2) and (3) only occurs if there is no legislation
specifically prohibiting enforcement of the promise or
contractual term. If there is, then the disputed term will
always be unenforceable. No weighing of interests is necessary.
This last point, illustrated by the Restatement's use
of the disjunctive "or,"is further supported by the commentary
to section 178. Comment a reads:
Occasionally, on grounds of public
policy, legislation provides that specified
kinds of promises or other terms are
unenforceable. Whether such legislation is
valid and applicable to the particular term
in dispute is beyond the scope of this
Restatement. Assuming that it is, the court
is bound to carry out the legislative mandate
with respect to the enforceability of the
term.
Restatement (Second) of Contracts 178, cmt. a (emphasis added).
The Restatement illustrates this rule with an example:
A borrows $10,000 from the B Bank,
promising to repay it with interest at the
rate of twelve per cent. A state statute
that fixes the maximum legal rate of interest
on such loans at ten per cent provides that a
promise to pay a greater sum is "void" as
usurious as to all the promised interest but
not as to the principal. A's promise to pay
the interest is unenforceable on grounds of
public policy. The rule stated in 184(2)
[regarding severability of the illegal
portion of an agreement] does not make A's
promise to pay interest enforceable up to ten
per cent because the legislation provides
otherwise.
Id. Illus. 3. A's promise is unenforceable not because the
"weighing of interests"so dictates, but because a state statute
prohibits such a promise.
This is precisely the kind of fact pattern presented in
the case before us now. The parties' oral agreement to
retransfer the Conte permit directly contravened AS
16.43.150(g)(2). Thus, the promise is unenforceable because
legislation so provides. We need to extend our analysis no
further.
The detailed "weighing of interests"analysis found in
the Restatement is designed for those cases where there is no
legislation directly on point. Comment b to section 178
recognizes this:
Only infrequently does legislation, on
grounds of public policy, provide that a term
is unenforceable. When a court reaches that
conclusion, it usually does so on the basis
of a public policy derived either from its
own perception of the need to protect some
aspect of the public welfare or from
legislation that is relevant to that policy
although it says nothing explicitly about
unenforceability.
Id. cmt. b. When the court is divining public policy and
weighing interests, then it is able to enforce an agreement which
may contravene such public policy if the factors described in
section 178 favor enforcement. As the following Restatement
example illustrates, this rule is usually reserved for cases
where the public policy contravened is tangential to the core of
the parties' agreement.
A and B make an agreement for the sale
of goods for $10,000, in which A promises to
deliver the goods in his own truck at a
designated time and place. A municipal
parking ordinance makes unloading of a truck
at that time and place an offense punishable
by a fine of up to $50. A delivers the goods
to B as provided. Because the public policy
manifested by the ordinance is not
sufficiently substantial to outweigh the
interest in the enforcement of B's promise,
enforcement of his promise is not precluded
on grounds of public policy.
Id. Illus. 4. Our ruling today does not prevent future litigants
from arguing that a contract term should be enforced when the
public policy is ambiguous, or when a statutory violation is
peripheral to the real substance of the parties' agreement. In
such an instance we will apply the factors listed in subsections
2 and 3 of section 178 to determine whether the term should be
enforced. However, when legislation explicitly states that a
particular type of promise is unenforceable, then the party
seeking to enforce the promise will have no judicial recourse.
We will not enforce a promise which the legislature has
explicitly declared unenforceable.3
To the contrary, we think Leonard's and Anthony's
conduct serious enough that we are referring this case to the
District Attorney's Office for investigation, and possible
prosecution, for perjury. We are also referring the case to the
CFEC, to allow it to consider whether the Conte permit, currently
in Anthony's possession, should be revoked under AS 16.43.960(a)
("The commission may revoke, suspend, or transfer all entry or
interim-use permits held by a person who knowingly provides or
assists in providing false information, or fails to correct false
information provided to the commission for the purpose of
obtaining a benefit for self or another, including the issuance,
renewal, duplication, or transfer of an entry or interim-use
permit or vessel license.").
B. Attorney's Fees and Costs
The award of costs under Civil Rule 79 is committed to
the broad discretion of the trial court. Kaps Transport, Inc. v.
Henry, 572 P.2d 72, 77 (Alaska 1977). The superior court is also
given broad discretion when designating the prevailing party for
the purposes of awarding attorney's fees under Civil Rule 82.
Apex Control Systems, Inc. v. Alaska Mechanical Inc., 776 P.2d
310, 314 (Alaska 1989). This discretion is broad enough to
warrant denial of fees altogether. Oaksmith v. Brusich, 774 P.2d
191, 202 (Alaska 1989). We find no abuse of discretion in the
superior court declaring the case a "wash" and ordering each
party to bear his own costs and fees.
AFFIRMED.
_______________________________
1. A retransfer agreement violates AS 16.43.150(g)(2)
("[A]n entry permit may not be . . . transferred with any
retained right of repossession or foreclosure, or on any
condition requiring a subsequent transfer.").
2. Restatement (Second) of Contracts 178(3) (1981) reads:
In weighing a public policy against
enforcement of a term, account is taken of
(a) the strength of that policy as
manifested by legislation or judicial
decisions,
(b) the likelihood that a refusal
to enforce the term will further that policy,
(c) the seriousness of any
misconduct involved and the extent to which
it was deliberate, and
(d) the directness of the
connection between that misconduct and the
term.
3. In Brown v. Baker, we refused to enforce a security
agreement in which purchasers of a vessel agreed to return a
limited entry permit if they defaulted on their note. Brown v.
Baker, 688 P.2d at 948. After noting that the rule against
permit retransfer agreements was designed to prevent the economic
coercion of fishermen, we concluded, "because the security
agreement contravenes and defeats the purpose of the statute
[prohibiting retransfer agreements] and because we see no special
public interest in enforcing the illegal agreement, this portion
of the original sales agreement is unenforceable." Id. Earlier
in Brown, we cited the general rule that promises are
unenforceable if legislation so provides. Id. at 947 (quoting
Jackson Purchase, Etc. v. Local Union 816, 646 F.2d 264, 267 (6th
Cir. 1981)). While we reached the correct result in Brown, we
did so with excess effort. Our cursory application of the
section 178 factors was unnecessary in light of the general rule
prohibiting enforcement of agreements the legislature has
declared unenforceable.
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