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Cummings v. Sea Lion Corporation (10/17/96), 924 P 2d 1011
<![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; (907) 264-0607, fax (907) 276-0878.
THE SUPREME COURT OF THE STATE OF ALASKA
RONALD E. CUMMINGS, )
) Supreme Court No. S-6191/6192
Appellant and )
Cross-Appellee, ) Superior Court No.
) 3AN-90-3422 CI
v. )
) O P I N I O N
SEA LION CORPORATION, )
) [No. 4416 - October 17, 1996]
Appellee and )
Cross-Appellant.)
_______________________________)
Appeal from the Superior Court of the State of
Alaska, Third Judicial District, Anchorage,
Dana Fabe, Judge.
Appearances: A. Lee Petersen, Anchorage, for
Appellant/Cross-Appellee. Kevin G. Clarkson,
Brena & McLaughlin, Anchorage, for
Appellee/Cross-Appellant.
Before: Compton, Chief Justice, Rabinowitz,
Matthews, and Eastaugh, Justices, and
Carpeneti, Justice pro tem.
RABINOWITZ, Justice.
I. INTRODUCTION
Sea Lion, a Native corporation, sued Ronald Cummings, its
former attorney, for professional negligence and fiduciary fraud.
A jury awarded Sea Lion both compensatory and punitive damages.
Cummings appeals, and Sea Lion cross appeals. We affirm. (EN1)
II. FACTS AND PROCEEDINGS
Sea Lion Corporation is an Alaska Native corporation
organized pursuant to the Alaska Native Claims Settlement Act.
Myron Naneng has served as a board member of Sea Lion since 1979
and as president since 1983. James Joseph has served as
secretary/treasurer of Sea Lion since 1979. Cummings served as Sea
Lion's general legal counsel from 1980 to 1990. (EN2) The scope of
his responsibilities is subject to debate. In a May 31, 1985
letter to Sea Lion, Cummings described himself as Sea Lion's
general counsel and stated that he personally provided legal advice
and service "on all strategic, high-level, long-range planning and
in the areas of fundamental analysis and decision making."
However, at trial Cummings testified that he and his firm only
rendered legal service which Sea Lion specifically requested from
them.
Cummings also began representing Larry Gillespie in 1980.
Gillespie hired Cummings to assist him with the legal aspects of
forming and eventually running an aviation business in Alaska,
known as Air Valley. Cummings and Gillespie orally agreed that
Cummings would perform legal work relating to Air Valley's
formation on a contingent fee basis. Specifically, Cummings and
Gillespie agreed that Cummings and his firm would be paid for legal
services only if Air Valley was able make a profit in the aviation
business. From 1980 through 1983, Cummings and his associates
performed over $27,000 worth of legal work for Gillespie. However,
in 1983 the Air Valley project was abandoned when it became clear
that Gillespie was unable to obtain financing to purchase aircraft.
In early 1983, Sea Lion became interested in acquiring an
air taxi certificate to provide air transportation to Hooper Bay.
Cummings introduced Gillespie to Sea Lion. Cummings told Sea Lion
that Gillespie was a knowledgeable aviation consultant who could
assist Sea Lion in acquiring an air taxi certificate. Cummings and
Gillespie then assisted Sea Lion in forming an air taxi service to
be known as Uniaq Air Service. Cummings and Gillespie assisted Sea
Lion in acquiring an air taxi certificate in the name of Uniaq,
Gillespie assisted Sea Lion in locating an airplane and hiring a
pilot, and Cummings assisted Sea Lion in forming Uniaq as a
subsidiary corporation for the purpose of limiting Sea Lion's
liability. (EN3)
Thereafter, Gillespie approached Sea Lion with a proposal
for another air service business. Gillespie told Sea Lion that if
he had access to large transport aircraft, he could obtain
contracts with the Alaska National Guard to haul personnel and
equipment to and from Nome. Gillespie wanted to contract with Air
Logistics of Alaska, Inc. (Air Log) to fly its large "CASA"
transport aircraft. Gillespie requested Sea Lion to finance flight
services from Air Log through loans which he would repay out of
profits he would make on the National Guard contracts. (EN4)
Sea Lion made two loans to Gillespie totaling $78,500
which financed his performance on two separate National Guard
contracts. Sea Lion asked Cummings to draft promissory notes in
which Gillespie promised to repay the loan with interest.
Gillespie repaid Sea Lion's loans in full, with interest.
Gillespie then asked Sea Lion for a loan to start an air
transport company to be called Bush Transport Systems (BTS).
Gillespie wanted to utilize Air Log's "CASA"aircraft to perform
additional contracts with the National Guard and other customers
for air transport services in Alaska. Sea Lion agreed to loan
Gillespie $75,000. Gillespie scheduled a meeting for October 1,
1984 between Naneng and Air Log's Division Manager, Mike Rizk. At
this meeting, Naneng was presented with a flight service agreement
(1984 FSA) between BTS and Air Log whereby Air Log agreed to
provide aircraft and services to BTS through December 31, 1984 and
BTS agreed to compensate Air Log. Gillespie and Rizk informed
Naneng that if he did not sign the agreement Air Log would remove
the "CASA"aircraft from Alaska. Naneng signed the 1984 FSA.
Soon thereafter Cummings learned that Naneng had signed
the 1984 FSA, and realized that Naneng's signature could obligate
Sea Lion to Air Log for payments on the contract. (EN5) Cummings
drafted a promissory note for the $75,000 loan from Sea Lion to
Gillespie. In addition, Cummings advised Sea Lion that it could
limit its liability in BTS to that of a creditor. Cummings' office
drafted a "Memorandum of Understanding"(MOU) to be signed by
Gillespie and Sea Lion. In the MOU, Naneng and Gillespie agreed
that Naneng's signature was not intended to obligate Sea Lion on
the 1984 FSA, but was "for security purposes only." Cummings
advised Sea Lion that the MOU would relieve Sea Lion of contractual
responsibility to Air Log on the 1984 FSA. Air Log never saw the
MOU nor learned of its terms or its existence.
On October 27, 1984, Cummings and Gillespie attended a
Sea Lion board meeting. Gillespie made a presentation regarding
his plans for BTS, and Cummings discussed Sea Lion's involvement in
BTS. Specifically, he advised Sea Lion that it could limit its
liability in BTS. Cummings also informed Sea Lion that he had
represented Gillespie on legal matters in the past. However,
Cummings did not mention that Gillespie owed him over $27,000 in
unpaid legal fees, or that Cummings' payment was contingent upon
Gillespie's making a profit in the aviation business.
On November 9, 1984, Sea Lion's board voted to become a
limited partner in BTS. Sea Lion then authorized another $81,000
advance to Gillespie. Thereafter, Cummings and an associate, John
Sivertsen, commenced drafting BTS limited partnership documents
including a limited partnership agreement, a limited partnership
prospectus, and a certificate of limited partnership. Throughout
the drafting process, Cummings and Sivertsen frequently conferred
with Gillespie and incorporated his concerns and suggestions into
the limited partnership documents. Cummings billed Sea Lion for
the time that he and Sivertsen spent conferring with Gillespie.
On April 11, 1985, Gillespie and Naneng attended another
meeting with Rizk in Anchorage. At this meeting, Gillespie and
Rizk presented Naneng with a flight services agreement for the
calendar year of 1985 that was similar to the 1984 FSA, but
involved two "CASA"aircraft. Naneng was again told that if he did
not sign the agreement, Air Log would remove the aircraft from
Alaska. Naneng signed the agreement. (EN6)
On April 30, 1985, Cummings and Gillespie memorialized
their contingent fee agreement in writing. Cummings agreed with
"Larry D. Gillespie, d/b/a Air Valley"that the legal fees which
Gillespie owed to Cummings would be paid if and when Gillespie or
Air Valley realized profits in the aviation business.
On May 16, 1985, Cummings conducted a final review of the
limited partnership documents and, after obtaining Gillespie's
signature thereon, forwarded final copies of the documents to
Naneng. The documents referenced and incorporated the 1985 FSA as
Exhibit A. On May 18, the Sea Lion board voted to become a limited
partner in BTS and the limited partnership documents were signed.
BTS fell behind on payments for services rendered by Air
Log under the 1985 FSA. Air Log sued Sea Lion, BTS and Gillespie
to collect a debt of over $250,000. Cummings advised Sea Lion that
Air Log was "jumping to conclusions,"that Sea Lion was only a
secured creditor of BTS until the limited partnership was formed,
and that after the partnership was formed Sea Lion was simply a
limited partner with limited liability. Cummings asked Joseph to
send him the MOU, advising him it was "the all important document"
that would "conclusively close the subject"on Air Log's claims.
Air Log made several offers to settle its claims with Sea
Lion for the amounts of $250,000 in January 1988, $350,000 in May
1988, and $363,814 in July 1988. Air Log's offer of $363,814 was
in the form of an offer of judgment. Naneng testified that
Cummings never communicated these offers to Sea Lion. While there
is no documentary evidence which reflects that Cummings ever
communicated these offers, Cummings testified that he verbally
communicated these offers to Sea Lion. In late 1989, Cummings
advised Sea Lion to make a series of settlement offers to Air Log
in the amounts of $100,000, $200,000 and $250,000. These offers
were not accepted by Air Log.
The superior court granted summary judgment in favor of
Air Log on the issue of liability, concluding among other things
that Sea Lion was directly liable to Air Log as a signatory on the
1984 and 1985 FSAs. The superior court then entered final judgment
against Sea Lion in the amount of $276,474.02. The total final
judgment entered against Sea Lion was $411,127.63.
Cummings advised Sea Lion that it had a seventy percent
chance of winning on appeal, and that an appeal would cost about
$10,000. Sea Lion appealed, and we affirmed the superior court's
judgment on the ground that Sea Lion was a direct signatory to the
contract. Sea Lion I, 787 P.2d at 116. Sea Lion then paid Air Log
$480,179.32.
Thereafter, Sea Lion filed an action against Cummings
alleging professional negligence and fiduciary fraud. Sea Lion
requested compensatory damages representing Sea Lion's investment
in BTS, the judgment Sea Lion paid to Air Log, the attorney's fees
Sea Lion paid to Cummings in the Air Log litigation, and the costs
that Sea Lion incurred in appealing the judgment in favor of Air
Log. Sea Lion also sought an award of punitive damages.
The jury found that Cummings was professionally
negligent, that he had committed fiduciary fraud, and that his
negligence and fraud were legal causes of Sea Lion's damages. The
jury awarded the following damages to Sea Lion: $480,000 for the
judgment paid to Air Log; $100,000 for legal fees paid to Cummings;
and $70,000 for the costs of the Air Log appeal. The jury also
found that Sea Lion was thirty-four percent comparatively
negligent. Based on Sea Lion's comparative negligence, the award
of $650,000 was reduced to $429,000. The jury also found that
Cummings' fiduciary fraud warranted an award of $106,000 in
punitive damages.
Cummings filed a motion for judgment notwithstanding the
verdict or, in the alternative, for a new trial, and also moved for
remittitur or for a new trial. The superior court denied these
motions, and entered final judgment in favor of Sea Lion in the
amount of $818,942.38.
Cummings now appeals, and Sea Lion cross-appeals.
III. DISCUSSION
A. The Superior Court Did Not Err With Regard to
Certain Evidentiary Rulings. (EN7)
Cummings asserts that the superior court erred in
admitting certain evidence. Specifically, Cummings argues that the
superior court erred in admitting evidence relating to conflicts of
interest, formation of the limited partnership, malpractice
insurance, and testimony by Sea Lion's expert, Professor John
Strait.
1. Conflicts of Interest and Formation of Limited
Partnership
Sea Lion argued to the jury that Cummings breached his
duty of professional care by failing to reasonably advise Sea Lion
of his conflicts of interest stemming from his relationship with
Gillespie and by failing to reasonably advise Sea Lion of its
liability on the 1985 FSA. Cummings contends that any evidence
relating to conflicts of interest and to formation of the limited
partnership should have been excluded. Specifically, Cummings
contends that such evidence is irrelevant to any damages suffered
by Sea Lion because this court decided Sea Lion I based on
contractual liability rather than partnership liability. In
response, Sea Lion argues that such evidence is relevant because
Sea Lion's compensatory damages, Cummings'
breach of the standard of professional care,
and Cummings' breach of fiduciary duty all
arose out of the history of Cummings'
relationship with Gillespie, the BTS limited
partnership formation, and the execution,
referencing, and incorporation of the 1985 FSA
into the BTS limited partnership documents
(not to mention the MOU's drafting and
execution).
Relevant evidence is "evidence having any tendency to
make the existence of any fact of consequence to the determination
of the action more probable or less probable than it would be
without the evidence." Alaska R. Evid. 401. With certain
exceptions, "[a]ll relevant evidence is admissible." Alaska R.
Evid. 402.
Here evidence pertaining to the conflicts of interest is
relevant, since Sea Lion seeks to prove that it would not have
suffered any damages if it had known about Cummings' conflicts.
Evidence of the limited partnership is also relevant, primarily
because of the complicated history of dealings between Gillespie,
Cummings, Sea Lion and the various corporations. More
particularly, evidence pertaining to the limited partnership is
relevant for the purpose of establishing the context of the advice
which Cummings gave to Sea Lion throughout their attorney-client
relationship.
Cummings also argues that the evidence relating to
Cummings' conflicts of interest and the limited partnership
evidence "confused the issues and misled the jury, to the unfair
prejudice of Cummings."(EN8) However, Cummings' argument is
actually a restatement of the claim that the questioned evidence is
irrelevant. In our view, the probative value of this evidence is
not outweighed by the danger of confusing the issues before the
jury or misleading the jury. We hold that the superior court did
not abuse its discretion by admitting evidence relating to
Cummings' conflicts of interest and the formation of the limited
partnership.
2. Strait's Expert Testimony
Cummings argues that the superior court abused its
discretion by allowing Professor Strait to testify. Specifically,
Cummings claims that Strait testified too early in the trial, that
Strait's opinions were not based on evidence presented at trial,
that the testimony was irrelevant because it did not "pertain to
anything related to Sea Lion's losses,"and that under Evidence
Rule 403 analysis the testimony's probative value, if any, was
outweighed by its prejudicial value.
First, Cummings cites no authority for the proposition
that Strait's testimony was presented too early during the course
of the trial. Therefore, we consider that argument to be without
merit.
Regarding Cummings' second claim, that Strait based his
testimony on evidence not presented at trial, Alaska Rule of
Evidence 703 is instructive. That rule provides:
The facts or data in the particular case upon
which an expert bases an opinion or inference
may be those perceived by or made known to the
expert at or before the hearing. Facts or
data need not be admissible in evidence, but
must be of a type reasonably relied upon by
experts in the particular field in forming
opinions or inferences upon the subject.
In formulating his opinion, Strait reviewed the
depositions of all the major witnesses, all relevant documents
including the limited partnership documents, correspondence between
Cummings and Sea Lion, Joseph's and Naneng's notes of their phone
conversations with Cummings, and all the pleadings filed in the Sea
Lion I case. Cummings does not assert that such evidence is
different from the sort that reasonable experts in the field would
normally rely upon. Therefore, Professor Strait's testimony does
not violate Rule 703 on that ground.
We hold that the superior court did not abuse its
discretion by admitting Strait's testimony.
3. Malpractice Insurance
Cummings argues that the superior court abused its
discretion by admitting evidence which potentially suggested that
Cummings had malpractice insurance when, in fact, he did not.
Specifically, Cummings objects to instances where the
superior court allowed the jury to hear testimony and to consider
evidence regarding malpractice insurance and liability. Alaska
Evidence Rule 411, which speaks to this issue, provides:
Evidence that a person was or was not insured
against liability is not admissible upon the
issue whether the person acted negligently or
otherwise wrongfully. This rule does not
require the exclusion of evidence of insurance
against liability when offered for another
purpose, such as proof of agency, ownership,
or control, or bias or prejudice of a witness.
In a few of the instances where the superior court
admitted the evidence regarding malpractice insurance and
liability, it was for the purpose of showing that Cummings was
guilty of malpractice in failing to advise Sea Lion that he had
accused an associate of committing malpractice in the Air Logistics
litigation. The superior court later granted Cummings' motion for
a directed verdict on the issue of whether he failed to inform Sea
Lion of his colleague's previous malpractice. However, the
superior court also instructed the jury that it could consider
evidence introduced in support of that claim when considering the
other claims that Sea Lion was still pursuing. Assuming this
instruction embodied an incorrect statement of law, we hold that
any error in admitting this evidence was rendered harmless in light
of the fact that the superior court further instructed the jury
that it should not infer from any of the references to insurance
that any of the parties did or did not have malpractice insurance.
(EN9) Additionally, our review of the record persuades us that the
admission of this evidence did not appreciably affect the jury's
verdict. (EN10)
B. The Superior Court Did Not Err in Failing to Give
Cummings' Proposed Jury Instructions on the Scope of the
Attorney-Client Relationship. (EN11)
The superior court gave the following instruction
regarding the scope of the attorney-client relationship:
I will now explain the professional
negligence of an attorney for you. An
attorney is negligent in the representation of
a client if, within the scope of that
attorney-client relationship, the attorney
fails to use such skill, prudence, and
diligence as other reputable attorneys in good
standing commonly possess and would exercise
under similar circumstances.[ (EN12]
On appeal, Cummings argues that the superior court erred
in giving this instruction without also giving the instructions
that Cummings had proposed. These proposed jury instructions would
have defined the scope of the attorney-client relationship.
However, the Alaska case that Cummings cites in support of his
proposed instructions, Jones v. Wadsworth, 791 P.2d 1013 (Alaska
1990), does not mandate that such instructions should be given. We
reject Cummings' argument. The superior court's instructions
advised the jury that an attorney is negligent in the
representation of a client only for actions "within the scope of
that attorney-client relationship . . . ." One of the issues in
the case involved which services Cummings had an obligation to
provide to Sea Lion. The superior court did allow Cummings to
argue to the jury his method of evaluating and defining the scope
of the attorney-client relationship. Therefore, even if the
superior court had given the proposed instructions, they would not
have given the jury any more guidance than it already had. We hold
that the superior court's refusal to give Cummings' proposed
instructions was not error.
C. The Superior Court Correctly Refused to Grant Cummings'
Motions for a Directed Verdict, Judgment Notwithstanding
the Verdict, and a New Trial. (EN13)
In its special verdict, the jury found that Cummings had
committed professional malpractice (EN14) and fiduciary fraud
(EN15) and that these breaches were legal causes of injury to Sea
Lion. Cummings moved for a directed verdict, judgment notwith-
standing the verdict, and a new trial. The superior court denied
these motions. On appeal, Cummings argues that there is no
evidentiary support for the jury's verdicts, and that the superior
court erred in failing to grant Cummings' motions for a directed
verdict, judgment notwithstanding the verdict, and a new trial.
(EN16) For the reasons we discuss below, we hold that the superior
court correctly refused to grant Cummings' motion for a directed
verdict, for a new trial, and for a judgment notwithstanding the
verdict.
1. Negligence Claim
The superior court instructed the jury that there were
five ways in which it could find that Cummings was professionally
negligent. The jury did not specify which of the five grounds was
the basis for its decision, but it found in special verdicts that
Cummings was professionally negligent, that his negligence was a
legal cause of injury to Sea Lion, and that as a result of this
negligence Sea Lion suffered $650,000 in damages.
The first ground that Sea Lion asserted as a basis for
holding Cummings liable is that he failed to "reasonably advise
[Sea Lion] of his conflicts of interest and to fully disclose all
facts that could materially affect Sea Lion's rights and
interests." At the time that the relevant events in this case
occurred, Alaska Disciplinary Rule 5-101(A) stated:
Except with the consent of his client after
full disclosure, a lawyer shall not accept
employment if the exercise of his professional
judgment on behalf of his client will be or
reasonably may be affected by his own
financial, business, property, or personal
interests.
While rules of professional conduct do not constitute a basis for
malpractice liability in and of themselves, they are relevant to
the issue of what duty an attorney owes to a client.
In the case at hand, Disciplinary Rule 5-101(A) indicates
that Cummings had a duty to Sea Lion to disclose the fact that he
stood to profit from the success of BTS in that the attorney's fees
owed to him by Gillespie were dependent on BTS's profitability.
Cummings never informed Sea Lion of the fee arrangement he had with
Gillespie, or divulged that he stood to profit from the success of
the BTS partnership. Therefore, we conclude that there was
sufficient evidence from which a reasonable jury could conclude
that Cummings had a professional duty to Sea Lion and that he
breached that duty.
However, that alone is not enough to impose liability for
professional malpractice. There must be a causal connection
between the breach and the harm suffered. Hughes, Thorsness,
Gantz, Powell & Brundin, 838 P.2d at 806. The superior court
correctly instructed the jury that Cummings could only be found
liable if his professional negligence was the "legal cause"of the
injury.
There was sufficient evidence in the record for a
reasonable jury to conclude that Cummings' failure to fully inform
Sea Lion concerning his relationship with Gillespie caused Sea
Lion's harm. Specifically, in response to a question inquiring
what he would have done if he "knew that Mr. Cummings was going to
have some continuing relationship with Mr. Gillespie,"James
Joseph, Sea Lion's secretary and treasurer, testified that "I would
have voted against joining [Sea Lion] into BTS." It is reasonable
to infer that if Joseph had voted against the partnership interest
in BTS other Sea Lion directors would have followed his lead, and
that Sea Lion would not have agreed to the BTS proposal. If that
had happened, Naneng would not have had the opportunity to sign the
1985 FSA that formed the basis for Sea Lion's liability to Air Log.
A finding of liability on the ground of Cummings' failure
to advise of his conflict of interest and of other material facts
is sufficient standing alone to support the jury's award of
compensatory damages against Cummings. Consequently, it is not
necessary for us to address whether there was sufficient evidence
to support a finding of negligence based on the other grounds that
Sea Lion asserted. We hold that the superior court did not err in
refusing to grant Cummings' motions for a directed verdict, a
judgment notwithstanding the verdict, or a new trial.
2. Fiduciary Fraud Claim
Cummings also argues that the superior court should have
granted his motions for a directed verdict, a judgment notwith-
standing the verdict, or a new trial regarding Sea Lion's claim of
fiduciary fraud.
An attorney has a fiduciary relationship with his or her
client. See Greater Area, 657 P.2d at 830. The superior court
instructed the jury as follows regarding the fiduciary fraud claim:
A fiduciary is a person in whom another has
placed special confidence and trust. As a
fiduciary to Sea Lion, Cummings was obligated
to render a full and fair disclosure to Sea
Lion of all facts that materially affected Sea
Lion's rights and interests. Any material
concealment or misrepresentation by a
fiduciary amounts to fraud.
In order for Sea Lion to win on this
claim, you must decide whether Sea Lion has
established that it is more likely true than
not true that:
1. Cummings concealed or failed to disclose
information to Sea Lion.
2. The information concealed or not
disclosed was susceptible of knowledge at the
time Cummings represented Sea Lion; and
3. The information concealed or not
disclosed was material. Material information
is information which, if disclosed, would be
reasonably expected to influence a person's
judgment or conduct concerning the transaction
in question; and
4. Sea Lion actually formed and relied upon
a false and misleading understanding created
by Cummings' concealment or non-disclosure;
and
5. Sea Lion's reliance on its false or
misleading understanding was justifiable. Sea
Lion's reliance on a false or misleading
understanding created by a nondisclosure is
justifiable even if imprudent or exhibiting
poor judgment for a person of Sea Lion's
background and experience unless Sea Lion's
conduct in failing to discover the non-
disclosure was wholly irrational, preposterous
or in bad faith; and
6. As a result of Sea Lion's reliance, Sea
Lion suffered some damage or injury; and
7. That when Cummings concealed or failed to
disclose the material information he was aware
of the information not disclosed.
There was sufficient evidence for a reasonable jury to conclude
that each of these elements was satisfied. Cummings failed to
fully and fairly disclose to Sea Lion that he would only be paid by
Gillespie if the BTS venture was successful. This information was
susceptible of ascertainment at the time Cummings represented Sea
Lion. Furthermore, the concealed information was material since it
is reasonable to expect that Sea Lion would have been influenced by
the knowledge that its own attorney actually had a vested interest
in the outcome of the BTS venture. That is, Sea Lion might have
been more skeptical of Cummings' recommendation of Gillespie as a
business partner. Sea Lion in fact relied on Cummings'
nondisclosure, since it only transacted business with Gillespie
following the introduction of Gillespie to Sea Lion and Cummings'
recommendation of Gillespie. This reliance on the part of Sea Lion
was justifiable, since Sea Lion had no reason to suspect Cummings'
recommendations. Finally, this reliance stemming from Cummings'
nondisclosure caused harm to Sea Lion, since there is evidence
that, absent Sea Lion's reliance on the misleading circumstances
created by Cummings' nondisclosure, Sea Lion would not have
proceeded with the BTS partnership agreement, which in turn led to
Sea Lion's liability to Air Log. Therefore, the superior court did
not err in denying Cummings' motions regarding the fiduciary fraud
claim.
D. The Superior Court Did Not Err in Failing to Grant
Cummings' Motion for a Directed Verdict on the Issue of
Punitive Damages. (EN17)
Sea Lion presented to the jury two independent claims
against Cummings: one for professional negligence and one for
fiduciary fraud. Sea Lion requested the jury to return an award of
compensatory damages based on either one or both of these legal
theories. Additionally, Sea Lion sought punitive damages against
Cummings based on its claim for fiduciary fraud.
Cummings argues that the superior court erred in failing
to grant his motion for a directed verdict on the issue of punitive
damages.
To recover punitive damages,
the plaintiff must prove that the wrongdoer's
conduct was outrageous, such as acts done with
malice or bad motives or a reckless
indifference to the interests of another.
Actual malice need not be proved. Rather,
[r]eckless indifference to the rights of
others, and conscious action in deliberate
disregard of them . . . may provide the
necessary state of mind to justify punitive
damages. Punitive damages require proof by
clear and convincing evidence.
Barber v. National Bank, 815 P.2d 857, 864 (Alaska 1991) (citations
omitted) (alteration and omission in original). Cummings' primary
argument on appeal to this court is that, because there was not
sufficient evidence to support a finding that Cummings committed
fiduciary fraud, punitive damages should not have been awarded.
However, we have held that there was sufficient evidence to support
the underlying cause of action. Cummings offers no other arguments
that lead us to question the jury's finding by clear and convincing
evidence that his conduct was outrageous. The superior court did
not err in refusing to grant Cummings' motions regarding punitive
damages.
 E. The Superior Court Did Not Err in Applying Comparative
Negligence to Reduce Sea Lion's Compensatory Damages.
(EN18)
On December 24, 1992, Sea Lion served a Civil Rule 68
offer of judgment on Cummings. Sea Lion offered to allow entry of
judgment in its favor and against Cummings for "$599,999 plus pre-
judgment interest as allowed by law, plus costs as allowed by law,
plus attorneys' fees as allowed by law." Cummings did not accept
the offer.
The jury awarded Sea Lion $480,000 for the judgment paid
to Air Log, $100,000 for legal fees paid to Cummings, and $70,000
for expenses in the Air Log appeal, for a total compensatory damage
award of $650,000, all based on the negligence claim. The jury
also awarded Sea Lion an additional $106,000 in punitive damages
for a total damage award of $756,000.
The superior court offset Sea Lion's compensatory damage
award by the thirty-four percent comparative fault special verdict
finding which the jury had made against Sea Lion with respect to
the professional negligence claim. Thereafter, the superior court
awarded Sea Lion prejudgment interest at the rate of 10.5 percent
and Civil Rule 82 attorney's fees based upon the lower compensatory
damage and prejudgment interest figures.
On cross-appeal, Sea Lion argues that the superior court
erred in applying comparative negligence to reduce Sea Lion's
compensatory damages, and in awarding interest and attorney's fees
based on the reduced damages. Sea Lion claims that the jury found
"that Cummings committed intentional and outrageous fiduciary fraud
which was a legal cause of Sea Lion's damage." In Alaska, an award
based upon intentional misconduct is not reduced by a showing of
comparative negligence on the part of the plaintiff. AS 09.17.900;
(EN19) see also Borg-Warner Corp. v. Avco Corp., 850 P.2d 628, 633
n.14 (Alaska 1993). Sea Lion argues that the compensatory damage
award should not have been reduced, the prejudgment interest rate
should have been calculated at 15.5 percent, and attorney's fees
should have been calculated based on Sea Lion's full compensatory
damages and prejudgment interest at the rate of 15.5 percent.
In this case, the jury was not instructed to determine
whether Cummings' professional negligence was based on intentional
conduct. The court's comparative negligence instructions and
special verdict forms demonstrate that Sea Lion's comparative
negligence reduced the damages which Cummings' nonintentional
professional negligence caused Sea Lion. Given the structure of
the superior court's special verdict form, it is apparent that
Cummings' intentional breach of his fiduciary duties to Sea Lion
provided the foundation for only the jury's award of punitive
damages. Therefore, there is no reason to modify the superior
court's order that reduced the jury's awards based on Sea Lion's
comparative negligence.
IV. CONCLUSION
For the above reasons, we AFFIRM the judgment of the
superior court.
ENDNOTES:
1. This court previously considered facts related to this case in
Sea Lion Corp. v. Air Logistics, 787 P.2d 109 (Alaska 1990) (Sea
Lion I).
2. During his representation of Sea Lion, Cummings practiced law
as a sole practitioner, then as a partner in Cummings & Routh, then
as a partner in Cummings, Clark & Tugman, then as a sole
practitioner in the Law Offices of Ronald E. Cummings.
3. Cummings testified that he never recommended that Sea Lion
have any other dealings with Gillespie. Cummings further testified
that he made his previous relationship with Gillespie very clear to
Sea Lion and informed Sea Lion that he would not recommend
Gillespie for any other purpose.
4. Cummings testified that he subsequently became aware of some
arrangement between Sea Lion and Gillespie, but that this
information was conveyed to him on an informal basis and he was not
involved professionally.
5. Cummings testified as follows:
I told [Naneng] I thought we had long
since progressed past the point of having
binding contracts with -- being signed by him
with no board approval, no attorney's advice,
no CPA's advice. That even though it is a
strange document and some strange signatures,
that this kind of thing can be dangerous and
it could make Sea Lion personally liable. In
other words, I -- I would characterize it I
read him the riot act.
Cummings also testified that he did not become aware of Sea Lion's
involvement in BTS until mid-October.
6. In Sea Lion I, we noted that when Naneng showed Joseph the
1985 FSA bearing Naneng's signature, Joseph realized that Naneng's
signature exposed Sea Lion to the risk of liability and told
Naneng, "Myron, come on, you shouldn't have signed this." 787 P.2d
at 113. Cummings points out in his brief that Naneng had been
repeatedly advised that he should not sign anything that made Sea
Lion directly liable. In addition, Cummings notes that Naneng did
not consult with Cummings before signing the FSA.
7. We review a trial court's decision regarding the admissibility
of evidence for an abuse of discretion. Agostinho v. Fairbanks
Clinic, 821 P.2d 714, 716 n.2 (Alaska 1991). "We will find that a
trial court abused its discretion only 'when we are left with a
definite and firm conviction, after reviewing the whole record,
that the trial court erred in its ruling.'" Dura Corp. v. Harned,
703 P.2d 396, 402 (Alaska 1985) (quoting Peter Pan Seafoods v.
Stepanoff, 650 P.2d 375, 378-79 (Alaska 1982)).
8. Alaska Rule of Evidence 403 provides:
Although relevant, evidence may be excluded if
its probative value is outweighed by the
danger of unfair prejudice, confusion of the
issues, or misleading the jury, or by
considerations of undue delay, waste of time,
or needless presentation of cumulative
evidence.
9. Cummings also cites as error testimony given by Strait, where,
after the superior court instructed him not to discuss "malpractice
insurance,"Strait then referred to "coverage to protect against
the malpractice claim." However, Cummings did not object to this
during trial, and therefore that instance is not properly before
us.
10. Love v. State, 457 P.2d 622 (Alaska 1969).
11. Jury instructions involve questions of law, which we review
under the independent judgment standard. Aviation Associates v.
TEMSCO Helicopters, 881 P.2d 1127, 1130 (Alaska 1994). The
superior court's denial of a proposed jury instruction will be
upheld if the instructions given, when read as a whole, adequately
inform the jury of the relevant law. See Searfus v. Northern Gas
Co., 472 P.2d 966, 970 (Alaska 1970).
12. The remainder of the superior court's instruction on
professional negligence reads as follows:
An attorney is not necessarily negligent
because he makes errors in judgment or because
his efforts are unsuccessful. However, an
attorney is negligent if his error in judgment
or lack of success is due to his failure to
possess or use such skill, prudence and
diligence as other reputable attorneys in good
standing commonly possess and would use under
similar circumstances.
After determining from the evidence what
level of knowledge, skill and care other
reputable attorneys in good standing would
more likely than not have used, you must then
determine whether Cummings possessed and used
that level of knowledge, skill and care in his
representation of Sea Lion, or whether he
failed to do so and, therefore, was negligent.
If you find that Cummings was not
negligent, then you must return a verdict for
him with respect to the claim of professional
negligence. If you find that Cummings was
negligent, then you must also decide whether
Cummings' negligence was a legal cause of Sea
Lion's harm. I will define legal cause for
you in a moment.
13. This court's role in reviewing a denial of a motion for a
directed verdict and judgment notwithstanding the verdict is "to
determine 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." Geolar, Inc.
v. Gilbert/Commonwealth, Inc., 874 P.2d 937, 941 n.8 (Alaska 1994)
(quoting Mullen v. Christiansen, 642 P.2d 1345, 1348 (Alaska
1982)).
"The grant or refusal of a motion for a new trial rests in the
sound discretion of the superior court, and we will not disturb a
trial court's decision on such a motion except in exceptional
circumstances to prevent a miscarriage of justice." Buoy v. ERA
Helicopters, 771 P.2d 439, 442 (Alaska 1989).
14. Professional malpractice consists of four elements:
(1) the duty of the professional to use
such skill, prudence, and diligence as other
members of the profession commonly possess and
exercise; (2) a breach of that duty; (3) a
proximate causal connection between the
negligent conduct and the resulting injury;
and (4) actual loss or damage resulting from
the professional's negligence.
Doe v. Hughes, Thorsness, Gantz, Powell & Brundin, 838 P.2d 804,
806 (Alaska 1992) (citation omitted).
15. In Greater Area, Inc. v. Bookman, 657 P.2d 828, 830 (Alaska
1982), we described fiduciary fraud as follows:
The duty of a fiduciary embraces the
obligation to render a full and fair
disclosure to the beneficiary of all facts
which materially affect his rights and
interests. "Where there is a duty to
disclose, the disclosure must be full and
complete, and any material concealment or
misrepresentation will amount to fraud."
(Citation omitted.)
16. Cummings also argues that the superior court erred in failing
to grant the motions for partial summary judgment which he filed
prior to trial. However, the arguments contained in Cummings'
brief to this effect are cursory and Cummings fails to inform this
court of what evidence was before the superior court at the time it
considered these motions. Cummings' briefing on this issue is
inadequate, and we therefore decline to consider it.
17. In reviewing a denial of a motion for a directed verdict and
judgment notwithstanding the verdict we "determine 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." Geolar, 874 P.2d at 941 n.8 (quoting
Mullen, 642 P.2d at 1348).
18. Sea Lion's cross-appeal, which challenges the superior court's
application of comparative negligence to reduce Sea Lion's
compensatory damages, raises a question of law. When reviewing a
question of law we are not bound by the lower court's holding but
instead apply our independent judgment. Summers v. Hagen, 852 P.2d
1165, 1169 (Alaska 1993). When reviewing questions of law our duty
is to adopt the rule of law which is most persuasive in light of
precedent, policy, and reason. Id.
19. Alaska Statute 09.17.900 provides as follows:
In this chapter "fault"includes acts or
omissions that are in any measure negligent or
reckless toward the person or property of the
actor or others, or that subject a person to
strict tort liability. The term also includes
breach of warranty, unreasonable assumption of
risk not constituting an enforceable express
consent, misuse of a product for which the
defendant otherwise would be liable, and
unreasonable failure to avoid an injury or to
mitigate damages. Legal requirements of
causal relation apply both to fault as the
basis for liability and to contributory fault.
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