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Davis v. Dykman (5/2/97), 938 P 2d 1002
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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, telephone (907) 264-0608, fax (907) 264-
0878.
THE SUPREME COURT OF THE STATE OF ALASKA
STEWART DAVIS, JR., )
) Supreme Court No. S-7523
Appellant, )
) Superior Court No.
v. ) 3AN-94-1991 CI
)
MARK DYKMAN and ALLSTATE ) O P I N I O N
INSURANCE COMPANY, )
)
Appellees. ) [No. 4817 - May 2, 1997]
______________________________)
)
ALLSTATE INSURANCE COMPANY, )
) Supreme Court No. S-7563
Appellant, )
)
v. )
)
MARK DYKMAN, )
)
Appellee. )
______________________________)
Appeal from the Superior Court of the State of
Alaska, Third Judicial District, Anchorage,
Joan M. Woodward, Judge.
Appearances: Colleen J. Moore, Eide & Miller,
P.C., Anchorage, for Stewart Davis, Jr.
Dennis M. Mestas, Law Offices of Dennis M.
Mestas, P.C., Anchorage, and Michael Moody,
Atkinson, Conway & Gagnon, Anchorage, for Mark
Dykman. Mark E. Wilkerson, Wilkerson &
Associates, Anchorage, for Allstate Insurance
Company.
Before: Compton, Chief Justice, Rabinowitz,
Matthews, Eastaugh, and Fabe, Justices.
EASTAUGH, Justice.
I. INTRODUCTION
Appellants Stewart Davis, Jr. and Allstate Insurance
Company argue that there was an enforceable settlement agreement
that resolved personal injury tort claims asserted by Mark Dykman
against Davis, and that the superior court erred in holding otherwise. We affirm.
II. FACTS AND PROCEEDINGS
In April 1993 Stewart Davis, Jr. lost control of the car
he was driving. It left the road and overturned. Mark Dykman, a
passenger in the car, suffered head injuries and a spinal cord
injury that rendered him a quadriplegic.
Allstate Insurance Company had issued a liability
insurance policy to Dykman's father, who owned the car. The policy
covered Davis as a permissive user of the car. It provided
liability coverage in the stated amount of $100,000, plus
supplementary payments for attorney's fees awarded under Alaska
Civil Rule 82 and interest. (EN1) The policy also provided medical payment
coverage in the amount of $50,000.
In September 1993 Allstate offered to settle Dykman's personal injury claim
against Davis for the face amount of the policy ($100,000) plus interest and attorney's fees on
that amount. The offer included Rule 82 attorney's fees based on the contested with trial
schedule. Alaska R. Civ. P. 82(b)(1). (EN2)
On December 14, 1993, in a letter to Allstate's representative, Dykman rejected
Allstate's offer on the ground that the policy's attorney's fees limitation clause was likely
invalid, citing 3 Alaska Administrative Code (AAC) 29.010(d) (repealed July 1, 1996). (EN3)
Dykman also asserted that Allstate probably was liable for "unlimited"attorney's fees because
the supplemental payments clause did not include the disclosure and warning required by 3 AAC
29.010(d). Dykman claimed unlimited attorney's fees based upon a favorable jury damage
verdict, which he projected would be between $15 million and $30 million. Dykman
concluded the letter by stating:
Therefore, we hereby offer to settle this case
for Allstate's policy limits, based on
unlimited Rule 82 on an anticipated jury
verdict. Please inform us promptly whether or
not Allstate is willing to offer its limits
based upon an unlimited Rule 82 evaluation
consistent with Bohna which makes it clear
that Allstate should have offered its Rule 82
based upon an anticipated jury verdict.
On January 13, 1994, the Allstate representative, Bret Follett, and Dykman's
lawyer, Dennis Mestas, discussed the claim by telephone. On January 19 Dykman reiterated
his position in a letter to Follett. Dykman wrote:
We have not received a written response to our recent letter
offering to settle for policy limits including supplemental payments
for interest and unlimited Rule 82. I have received a verbal
response from you but nothing definite was indicated by you as to
Allstate's position.
Please indicate within 15 days whether or not Allstate will
agree to pay its full policy limits including interest and unlimited
Rule 82. If we have no response in that time, our offer shall be
withdrawn. Please indicate the amount Allstate feels is its policy
limits and how much it is offering.
On February 2 Follett responded. Follett wrote:
We are writing to confirm my earlier verbal response that Allstate
accepts your offer to settle this case for Allstate's policy limits,
based on the assumption that our policy limits include Rule 82
attorney's fees based on the value of the case and not based upon
the stated policy limits.
. . . .
. . . We suggest that we provide you with a check for the
face amount, plus pre-judgment interest and Rule 82 on the face
amount, in exchange for two documents:
(1) a release of our policyholder; and
(2) an agreement by Allstate to pay any additional amounts owing
on a projected jury verdict as ordered by a court.
We can then obtain information to evaluate the probable jury
verdict and attempt to resolve it amicably as soon as possible . .
. .
Follett wrote that Allstate would pay $100,000 for the face limits of the policy, an unspecified
amount of pre-judgment interest, and Rule 82 attorney's fees calculated on a probable jury
verdict.
Dykman replied on February 7 and denied that Allstate's February 2 letter was
a valid acceptance of Dykman's December 14 offer. Dykman's letter stated:
On February 2, 1994 we received a letter from you
purporting to be an acceptance of our offer. It is not. It is a
counteroffer containing conditions not acceptable to us. It states
that Allstate will pay $100,000, unknown interest and Rule 82 on
$100,000 right away, in exchange for a release and an agreement
that Allstate will pay Rule 82 as determined by a Court.
This is not acceptable. We wish to avoid litigation, not
agree to it. We will no longer negotiate. We will, however,
make one more effort to resolve this on non-negotiable terms.
We hereby offer to accept a full policy limits offer
including a quantified monetary amount of Rule 82, on a projected
verdict, and quantified interest.
On February 9 Follett, responding to Dykman's letter, stated that Allstate's
February 2 letter had "unconditionally accepted the offer stated in your letter of December 14,
1993." Allstate maintained that an agreement to settle for Allstate's policy limits already had
been reached, requiring the parties to negotiate the projected jury verdict.
In March 1994 Allstate filed suit (the Allstate suit)
seeking specific performance of the settlement agreement formed by
its asserted February 2 acceptance of Dykman's December 14 offer.
Dykman denied in his answer that there was a settlement agreement,
and filed a counterclaim against Allstate and a third-party claim
against Davis. Dykman also filed a separate personal injury action against Davis in
March 1994.
Dykman moved for summary judgment in the Allstate suit on
the issue of whether there was an enforceable settlement contract.
Davis and Allstate opposed, and cross-moved on the same issue. The
superior court granted Dykman's motion for summary judgment, ruling
that there was no enforceable settlement agreement, and dismissed
Allstate's complaint. The superior court later entered a final
judgment on Dykman's third-party complaint against Davis, ruling
that no settlement agreement had been reached. (EN4)
Davis and Allstate appeal the superior court's grant of summary judgment in favor
of Dykman.
III. DISCUSSION
A. Standard of Review
This court reviews a grant of summary judgment de novo.
Nielson v. Benton, 903 P.2d 1049, 1052 (Alaska 1995). We will
affirm a grant of summary judgment if the evidence in the record
presents no genuine issue of material fact and the moving party is
entitled to judgment as a matter of law. Alaska R. Civ. P. 56(c);
French v. Jadon, Inc., 911 P.2d 20, 23 (Alaska 1996). We apply our
independent judgment in interpreting the undisputed words of an
offer to enter into a contract. Cf. Martech Constr. Co., Inc. v.
Ogden Envtl. Servs., Inc., 852 P.2d 1146, 1149 (Alaska 1993) ("This
court will review de novo the trial court's grant of summary
judgment based on the interpretation of a contract.").
B. Did the Parties Create an Enforceable Settlement
Agreement?
The main issue presented is whether the parties formed an
enforceable settlement contract. We conclude that there was no valid offer to settle, because
Dykman did not propose a specific amount or a method of calculating a specific amount. At
most, Dykman simply offered to negotiate. Davis's "acceptance"therefore did not form an
enforceable settlement agreement.
1. A valid offer must encompass all essential terms.
The formation of a valid contract requires an offer encompassing all essential
terms, unequivocal acceptance by the offeree, consideration, and an intent to be bound. E.g.,
Young v. Hobbs, 916 P.2d 485, 488 (Alaska 1996) (citations omitted) (holding that parties to
an alleged settlement agreement did not agree to a material issue); Childs v. Kalgin Island
Lodge, 779 P.2d 310, 314 (Alaska 1989). An agreement is unenforceable if its terms are not
reasonably certain. See Hall v. Add-Ventures, Ltd., 695 P.2d 1081, 1087-89 (Alaska 1985)
(ruling that the agreement was sufficiently definite to be enforceable); see also Restatement
(Second) of Contracts sec. 33 (1981).
Dykman's December 14 letter states:
[W]e hereby offer to settle this case for
Allstate's policy limits, based on unlimited
Rule 82 on an anticipated jury verdict.
Please inform us promptly whether or not
Allstate is willing to offer its limits based
upon an unlimited Rule 82 evaluation
consistent with Bohna . . . .
That letter further states, "[w]e are willing to work with Allstate and negotiate as to the
approximate jury verdict range in this case." Dykman's January 19 letter implies that his letters
are invitations for Allstate to make an offer: "Please indicate the amount Allstate feels is its
policy limits and how much it is offering."
Dykman did not make an offer in the December 14 or January 19 letters
specifying an essential term of a settlement agreement, namely the dollar amount that Dykman
would accept or the method that Dykman would accept to calculate such an amount. Although
Dykman's counsel often used the word "offer"in his letters to opposing counsel, this usage was
insufficient to create a valid offer to settle. Absent an offer encompassing the essential terms
of a settlement agreement, the parties could not have formed a settlement agreement. E.g.,
Young, 916 P.2d at 488. Allstate and Davis argue that implicit in Dykman's offer was
a method for calculating the unlimited Rule 82 attorney's fees on an anticipated jury verdict.
According to Allstate, Bohna v. Hughes, Thorsness, Gantz, Powell & Brundin,
828 P.2d 745 (Alaska 1992), provides a method for calculating an anticipated jury verdict.
Allstate claims that Dykman's December 14 letter, by offering "an unlimited Rule 82 evaluation
consistent with Bohna,"implicitly approved a specific method of
calculating a jury verdict. Thus, according to Allstate, because both
parties understood that Bohna set out a method of verdict calculation, Dykman's offer to settle
is certain.
The Bohna opinion deals mainly with the calculation of Bohna's judgment. Id.
at 752-60. The opinion discusses the settlement negotiations in the underlying tort claim,
including the negotiation of a projected jury verdict required for calculating Rule 82 attorney's
fees. Id. at 748-50. It does not discuss a specific method for arriving at an anticipated jury
verdict. The opinion does suggest that an insurance company may always file a declaratory
action on the issue, id. at 768 n.58, but we disagree with Allstate's claim that there is a tangible
Bohna method for calculating a projected jury verdict. (EN5) Nor are we aware of a specific
method applicable in cases in which the verdict will probably include an award for intangible
damages, such as pain and suffering.
Allstate and Davis also argue that the court should add terms
to the writings according to the reasonable expectations of the
parties. Because contracting parties cannot plan for all contingencies that might arise, a
court may fill gaps in contracts to ensure fairness where the reasonable expectations of the
parties are clear. Rego v. Decker, 482 P.2d 834, 837 (Alaska 1971); see also Yeon St. Partners
v. Environmental Consulting Servs., Inc., 865 P.2d 1325, 1327 (Or. App. 1993) ("When the
conduct or expressions of parties to an agreement indicate a sufficient intent to make a contract,
a court has latitude to fill in the gaps. . . .").
In Rego, we said "the courts should not impose on a party any performance to
which he did not and probably would not have agreed." 482 P.2d at 837. Here, to add a
method of calculating a projected jury verdict or inserting the amount of a projected jury verdict,
a court would first have to determine an essential term to which the parties did not agree. This
term would represent by far the largest part of the total settlement amount because the
"contested, with trial"Rule 82 fees would be more than ten percent of a projected verdict
against Davis. See Alaska R. Civ. P. 82(b)(1). Given the potential for a very large damages
verdict in this case, the Rule 82 fees component could have been very significant, almost
certainly a multiple of the face amount of Allstate's policy. Because a court should not impose
on the parties any performance to which all the parties did not or would not have agreed, we
cannot add any such terms here. See Rego, 482 P.2d at 837.
Davis additionally suggests that both parties did agree on a range of possible
verdicts, allowing a court to find the settlement amount within this range. On August 29, 1994,
Allstate offered to settle Dykman's claim for $1.016 million based on a projected jury verdict
of almost $9 million. Dykman later stated in a letter to Davis's counsel, "[w]e agree that
Allstate's valuation of the claim ($9,000,000) is in the range of possible verdicts." Based on
this, Davis asks the court to enforce an agreement based on a mutually-acceptable projected $9
million verdict.
Davis's argument fails because there is no evidence the parties agreed to accept
a projected $9 million verdict as the basis for the Rule 82 attorney's fees calculation. Dykman's
statement that Allstate's $9 million verdict valuation was in the range of "possible"verdicts did
not accept Allstate's offer of settlement. In addition, Dykman's statement is not contained in
a response to Allstate's offer, but in a letter to Davis's counsel about a collateral matter. We
again look to Rego, 482 P.2d at 837. We cannot find agreement about an anticipated $9 million
verdict where Dykman as the offeree never accepted the offer.
Because Bohna contains no method for calculating a projected jury verdict and this
is not a case in which a court can fill in the gaps, Dykman's December 14 letter is too indefinite
to be a valid offer. Thus, Allstate's "acceptance"did not form a settlement contract. (EN6)
2. A contract to negotiate is unenforceable.
Dykman's offer was not sufficiently detailed to be the basis for an enforceable
settlement acceptance. Nonetheless, Dykman's offer can be construed as an offer to negotiate
with Allstate about the Rule 82 fees component. (EN7)
As a general rule, agreements to negotiate are unenforceable because they do not
provide a basis for determining the existence of a breach or for giving an appropriate remedy.
See Ohio Calculating, Inc. v. CPT Corp., 846 F.2d 497, 501 (8th Cir. 1988); cf. Western
Airlines, Inc. v. Lathrop Co., 499 P.2d 1013, 1019 (Alaska 1972) (ruling that a letter discussing
future lease discussions was not a binding agreement). Further, where parties are expected to
draft and execute a formal agreement, their prior negotiations do not constitute a contract.
Thrift Shop, Inc. v. Alaska Mut. Sav. Bank, 398 P.2d 657, 659 (Alaska 1965) (holding that an
oral contract to lease had never come into existence). (EN8)
Dykman's attorney stated in his December 14 letter that he was willing to
negotiate a policy limits settlement based on unlimited Rule 82 attorney's fees.
We are willing to work with Allstate and negotiate as to the
approximate jury verdict range in this case and arrive at a
settlement based upon unlimited Rule 82 applied against a fair
damages evaluation, provided Allstate agrees its limits include
unlimited Rule 82 based on an anticipated verdict.
Assuming that Allstate accepted this offer in its February 2 letter, (EN9) the parties would have
entered into an agreement to negotiate. The subject of negotiations presumably would have been
the amount of a projected jury verdict for the purpose of calculating the attorney's fees.
Negotiation normally is a process of attempting to reach a point of agreement, or,
in this case, a single settlement figure based on a projected jury verdict. In theory, an
agreement to negotiate is an enforceable contract in the sense that the parties can be made to
participate in negotiations. However, participation in negotiation does not necessarily mean that
the parties will be able to agree to mutually-acceptable terms.
The hallmark of negotiation is bargaining, and the parties ultimately may be
unable to resolve their dispute without outside help, such as by relying on the courts or
alternative dispute resolution. See Schultz v. Travelers Indem. Co., 754 P.2d
265 (Alaska 1988) (in similar settlement negotiations, the parties
agreed to be bound by an independent expert's determination of
economic losses and had stipulated non-economic losses, but
disagreed on whether the insurance policy limits included unlimited
Rule 82 fees on a projected verdict plus pre-judgment interest).
Without agreeing on a more specific way of resolving their differences, any agreement to
negotiate would have been too indefinite to enforce.
More fundamentally, parties who have merely agreed to
negotiate necessarily have retained the ability to say "no"to the
terms proposed by the other party; that means that it is not
inevitable that the parties will be able to agree. Thus, agreement
to negotiate could not have been an enforceable agreement that had
the effect of settling Dykman's personal injury claims against
Davis.
IV. CONCLUSION
There is no enforceable settlement agreement.
AFFIRMED.
ENDNOTES:
1. With respect to attorney's fees Allstate's supplemental
payments clause states:
2. Court Costs for Defense. We will also
pay the prevailing parties [sic] attorney's
fees awarded against you by an Alaskan court.
Our liability for such attorney's fees is
limited to the amount allowed by Alaska Civil
Rule 82(a)(1) for a contested case which
involves a liability coverage payment equal to
our limit of liability. Any payment made for
prevailing parties [sic] attorney's fees will
be in addition to our limit of liability for
this coverage.
3. Interest Accruing on Damages Awarded. We
will pay this interest only until we have paid
offered, or deposited in court the amount for
which we are liable under this policy. We
will only pay interest on damages not
exceeding our limits of liability.
2. Alaska Rule 82(b)(1) states:
The court shall adhere to the following
schedule in fixing the award of attorney's
fees to a party recovering a money judgment in
a case:
Judgment
and, if
awarded,
Prejudg-
ment
InterestContes-
ted
With
TrialContes-
ted
Without
TrialNon-
Contes-
tedFirst$25,00020%18%10%Next$75,00010% 8% 3%Next$400,00010% 6% 2%Over$500,00010% 2% 1%
3. 3 AAC 29.010(d) stated:
An insurer limiting coverage as permitted in (a) of this
section must clearly disclose to its insured the limitation and the
insured's potential liability for attorney's fees where judgment
exceeds the liability limits of the policy.
4. In July 1996 a jury in Dykman's personal injury action found that Dykman suffered
compensable damages of $6.9 million, and that Dykman was twenty-five percent comparatively
negligent. Therefore, Dykman's compensable damages verdict against Davis was $5.18 million.
The jury also awarded $45,000 in punitive damages against Davis.
5. Resolving the question through a declaratory action is not a
method of calculation which the parties can apply absent judicial
intervention. One alternative method is for the parties to agree
to be bound by an independent expert's determination of economic
losses. See Schultz v. Travelers Indem. Co., 754 P.2d 265, 266 n.1
(Alaska 1988). Neither Dykman nor Allstate suggested that the
issue be referred to an independent expert.
6. Davis argues that there is an enforceable settlement agreement
with an open price term. A sale of goods agreement is enforceable
without specifying a price for the goods if the parties so intend
because of the ease of valuing commercial goods. See generally 2
Ronald A. Anderson, Anderson on the Uniform Commercial Code sec. 2-
305 (1982); see also AS 45.02.305. However, unlike goods, the
damages suffered by quadriplegics are not easily valued because of
the large number of variables inherent in such injuries.
7. The interpretation of the words in a contract presents a
question of law for the court, whereas resolution of disputes
regarding surrounding circumstances is for the trier of fact.
Zuelsdorf v. University of Alaska, 794 P.2d 932, 933 (Alaska 1990).
8. The Thrift Shop court also recognized:
It is true that words and acts of the parties
may constitute sufficient manifestations of
assent to make a binding oral contract, even
though the parties also had contemplated that
their agreement would later be reduced to
writing. But such an oral contract would
exist only if the parties had definitely
agreed on the terms that they planned to
incorporate into the writing, and had agreed
that the final writing would contain those
provisions and no others.
398 P.2d at 658-59 (footnote omitted). See also Restatement
(Second) of Contracts sec. 27 (1981) (existence of contract where
written memorial is contemplated).
9. As an alternative ground for affirming, Dykman claims that if
his letters were offers, Allstate's purported acceptance on
February 2 was a counteroffer. We need not discuss this
proposition, given our conclusion that Dykman made no enforceable
offer to settle.
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