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Southwest Marine v. Alaska State Marine Highway Systems (6/27/97), 941 P 2d 166
NOTICE: This opinion is subject to formal 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) 264-0608, fax (907) 264-0878.
THE SUPREME COURT OF THE STATE OF ALASKA
SOUTHWEST MARINE, INC., )
d/b/a NORTHWEST MARINE, ) Supreme Court No. S-7314
Appellant, ) Superior Court No.
) 1JU-93-1853 CI
) O P I N I O N
STATE OF ALASKA, DEPARTMENT )
OF TRANSPORTATION AND PUBLIC ) [No. 4843 - June 27, 1997]
FACILITIES, DIVISION OF )
ALASKA MARINE HIGHWAY )
Appeal from the Superior Court of the State of
Alaska, First Judicial District, Juneau,
Michael A. Thompson, Judge.
Appearances: Edmond W. Burke, Missoula,
Montana, for Appellant. Deborah Vogt, Special Assistant Attorney
General and Bruce M. Botelho, Attorney General, Juneau, and Stephen
L. Nourse and C. Scott Penner, Carney, Badley, Smith & Spellman,
Seattle, Washington, for Appellees.
Before: Compton, Chief Justice, Rabinowitz,
Matthews, Eastaugh, and Fabe, Justices.
This appeal involves a contract pursuant to which
Southwest Marine, Inc., d/b/a Northwest Marine (Northwest), was to
refurbish the M/V TUSTUMENA (Tustumena), a ferry in the Alaska
Marine Highway System (AMHS). Northwest asserted a number of
claims against the AMHS, and the AMHS brought several counterclaims
of its own. Northwest's claims were rejected in an administrative
proceeding. Northwest appealed to the superior court, which denied
Northwest's motions to supplement the record and for a de novo
review of the record. The superior court also rejected Northwest's
claims that (1) the AMHS breached its "duty to cooperate"and
wrongfully refused to accept certain modular bathroom units that
Northwest had ordered for the Tustumena and (2) the Hearing Officer
in the administrative proceeding required Northwest to pay
excessive liquidated damages. We affirm.
II. FACTS AND PROCEEDINGS
In September 1989 the State invited bids for the
refurbishment of the Tustumena. The bid invitation consisted of
contract terms and detailed specifications for a variety of
additions, repairs, and improvements. Within those terms and
specifications were requirements for rebuilding the vessel's toilet
and shower spaces and for replacing various doors.
In March 1990 the State awarded the contract to
Northwest. The contract required Northwest to perform all work to
the satisfaction of the State and "subject to inspection at all
times and approval by any participating agency of the Government of
the United States of America, and in accordance with the laws of
the State of Alaska and rules and regulations of the federal
agency." The contract also incorporated the specifications and
requirements of the bid invitation, including those relating to the
Tustumena's toilets, showers, and doors. Pursuant to those
incorporated provisions, the State could reject unapproved or
nonconforming work. In addition, one incorporated provision
All steel products which are to be
incorporated into the work shall be produced in the United States
except that minor amounts of products of foreign manufacture may be
used provided the aggregate cost of such materials used does not
exceed one tenth of one percent (0.1 percent) of the total contract
cost, or $2,500.00, whichever is greater. [hereinafter the Buy
Another incorporated provision required Northwest to take delivery
of the Tustumena on October 18, 1990, and to redeliver the
refurbished vessel by May 15, 1991. A third incorporated provision
set forth liquidated damages of $10,000 "[f]or each calendar day
that any work shall remain uncompleted after the completion dates
On May 15, 1990, representatives of Northwest and the
AMHS met so that the AMHS could review the furniture and
furnishings that Northwest proposed to use in the Tustumena. At
that meeting, Northwest proposed using Momek brand doors and
toilet/shower modules known as "E-Mods." The AMHS expressed
concerns about whether the E-Mods would be sufficiently "rugged"to
meet the contract specifications and whether the Momek doors would
employ hardware specified in the contract as "Best Locks."
Northwest stated that "if they did use these modules, they would be
customized to meet the spec which may require a fair amount of
On May 24, 1990, the AMHS Project Manager Fred Ross wrote
to Northwest's Greg Lind that "Momek doors and hardware are
acceptable." However, he also wrote: "This letter is not an
authorization to purchase, furnish or install, merely that the
State agrees to the acceptability of these products. Northwest
should submit a proposal for State's approval of these materials
and list any cost, change or impact." Northwest concedes that it
never submitted the required proposal. Nevertheless, it ordered
Throughout July 1990, Northwest and Northwest's
subcontractor, Maritime Services Corporation (Maritime Services),
responded to the State's concerns about the E-Mods by providing
additional information about them. During these communications,
Maritime Services promised to provide drawings and specifications
for the State's review and approval.
On August 8, 1990, the AMHS's Ross wrote Northwest's
Our inspection of the E-Mod Toilet Modules
brochures and discussions with Mr. George Selfridge of Maritime
Services Corporation indicate that the modules proposed can and
will meet the M/V TUSTUMENA Refurbishment specifications.
Based upon this premise the State of Alaska
offers no objections to the installation of these modules providing
they meet the intent and specifics as outline [sic] in the
Based upon Ross's letter, in August 1990 Northwest issued a
purchase order to Maritime Services for E-Mods.
On September 11, 1990, a few weeks after Northwest had
ordered the E-Mods and Momek doors, Ross wrote Lind with concerns
relating to the contract's Buy America Provision. Ross explained
that a federal regulation, 23 C.F.R. sec. 635.410, applied to the
refurbishment. He also wrote:
Our recent conversation concerning the toilet
modules . . . [and] various doors . . . indicate that these
products, particularly when compiled with other yet unknowns, may
well exceed those limits as set forth in [23 CFR 635.410].
Products that do not meet these requirements, do not meet the
specifications, and therefore, are not in compliance with the
It may be, with proper documentation, the
State can request a waiver on certain products on behalf of the
The next day, Ross sent Lind another letter to "clari[fy] the
statements and requirements as set forth in [23 CFR sec. 635.410]."
He stated that the AMHS had reached the following
"interpretation"of the contract: "All materials made of, or
comprised of steel, which will be incorporated into the vessel as
furnishings, appliances or equipment must be certified as U.S.
manufactured steel." (Emphasis in original.)
On November 6, 1990, Northwest delivered technical
drawings of the E-Mods to the State "for approval." Robert Van
Slyke, an engineer advising the State, reviewed the drawings and
concluded that he had "[n]o objection to installation of E-Modules
based upon [the] premise [that] modules 'can and will meet the M/V
TUSTUMENA Refurbishment specifications.'" However, he noted at
least ten technical discrepancies between the drawings and the
contract specifications. Van Slyke's comments were sent to
Northwest on November 13, 1990.
The E-Mods and the Momek doors were delivered to
Northwest in January 1991. The AMHS inspected the E-Mods near the
end of January 1991, and Ross notified Northwest in a letter dated
February 1, 1991, that the E-Mods did not meet contract
specifications. Specifically, Ross wrote:
As my letter of August 8, 1990 clearly
indicates, the State has never been against the Module concept of
construction for toilet shower units or any other compartment
construction as long as fabrication was in keeping with the
specifications and intent of the contract. After inspection of the
provided E-Module units for the Tustumena it is apparent they could
have been designed and fitted with the required materials and met
the contract specifications.
Ross outlined several technical deficiencies of the E-Mods,
including the absence of stainless steel showers and terrazzo tile,
and he asked Northwest to provide the State with "a written
response detailing the corrective actions that they will take to
bring the modules into compliance."
On February 7, Northwest's William Dunbar responded to
Ross's February 1 letter. Dunbar disagreed with many of Ross's
conclusions, and he asserted that the AMHS had waived the
contract's specifications for stainless steel showers and terrazzo
tile. He informed the State that Northwest would correct the
alleged deficiencies but would not include terrazzo tile or
stainless steel showers. In apparent response to Dunbar's letter,
Ross rejected the E-Mods "for installation or use aboard the M/V Tustumena."
Around this time, according to Ross's testimony, the
State first became aware that the E-Mods were made of foreign
steel. On February 12, 1991, therefore, Ross reminded Northwest of
the Buy America Provision and stated that the "installation of the
E-Modules has not only created a possible breach of contract but
has placed funding for the entire project in jeopardy."
Northwest responded in a letter dated February 26. In
that letter, Northwest noted that "[t]he contract does not provide
a definition of 'steel product'"and that "this term refers to
structural steel members such as those which would be used in
highway and bridge construction, and does not refer to any product
which has steel as a component of the end product." Based upon
this interpretation of "steel product,"Northwest concluded that
the value of the steel used to make the furnishings that it was
installing in the Tustumena did not exceed the 0.1% of contract
value allowance in the Buy America Provision.
In that same letter, Northwest informed the State that
the Momek doors were also made of foreign steel. The next day, the
State informed Northwest that it was rejecting the doors. In the
rejection letter, the State set forth six reasons for rejecting the
doors, including "[u]se of steel of foreign manufacture." The
other five reasons referred to technical discrepancies between the
doors and the contract specifications.
On February 27, 1991, the State also wrote the Federal
Highway Administration (FHWA) requesting clarification of the Buy
America requirements. The FHWA replied that for purposes of the
Buy America Provision, the value of the foreign steel is "the total
cost of the [E-Mods] as delivered to the job site." That
interpretation was confirmed by FHWA's Deputy Regional Counsel.
In a March 4, 1991, letter the State informed Northwest
that it had met with FHWA officials and "continue[d] to believe the
E-Mods are non-conforming because they violate the 'Buy America'
provision of the contract." That same day, Northwest requested
that the State "grant or obtain"a waiver of the Buy America
Provision. In response thereto Ross, on March 6, wrote AMHS
Facilities Supervisor Harold Moeser requesting that AMHS
Contracting Officer John Halterman apply for a waiver. In his
letter, Ross wrote: "Northwest Marine Inc. has assured me, and
documented such assurance, that the E-Modules will comply and meet
the technical issues in dispute. . . . In my opinion it is in the
State's best interest to pursue a waiver."
That same day, AMHS Contracting Officer John Halterman
informed Northwest that the AMHS would seek a waiver. However, the
FHWA denied the request. In its decision, the FHWA relied in part
upon its perception that Northwest had been aware of potential Buy
America Provision problems but had ordered E-Mods manufactured with
foreign steel anyway.
In April the State considered seeking a waiver for the
Momek doors. However, the FHWA informed the State that it would
not approve a waiver for the doors because suitable U.S.-
manufactured doors were available and a waiver for the doors would
not be consistent with the FHWA's decision concerning the E-Mods.
Therefore, the State did not seek a waiver.
Because Northwest did not receive Buy America waivers, it
was forced to remove the E-Mods and the Momek doors. As a result,
the vessel was not refurbished and redelivered until eighty-five
days after the completion date of May 15. Subsequently, Northwest
filed eighteen separate claims, and the State asserted several
counterclaims. All of Northwest's claims were denied, first by the
"project engineer"and then by the "procurement officer"associated
with the Tustumena refurbishment. Northwest appealed to the
Commissioner of the Department of Transportation and Public
Facilities. The department, in turn, appointed Avrum Gross to
conduct a hearing.
During pre-hearing discovery, Northwest uncovered a March
11, 1990, internal letter from Ross to the AMHS's Harold Moeser
that, Northwest alleges, demonstrates the AMHS's "secret efforts to
undermine Northwest's performance." In that letter, Ross sought to
"refute [Northwest's] erroneous statements"in its March 8 letter.
Ross strongly opposed granting a Buy America waiver for the E-Mods
and emphasized: "Not only do these materials violate the contract
provisions, fail to meet the contract specifications, but clearly
do not even come close to meeting the State's most basic
requirements for the toilet shower construction." In addition,
Ross criticized the quality of the E-Mods and stated that the AMHS
specifically had told Northwest that it did not want the E-Mods
during the initial May 15, 1989, meeting between the State and
Based upon this March 11 letter, Northwest argued at the
hearing that the AMHS had breached its "duty to cooperate."
However, in a 370-page opinion, Hearing Officer Avrum Gross
rejected Northwest's claim. The Hearing Officer also determined
that Northwest failed to demonstrate that the State wrongfully
rejected the E-Mods and the Momek doors. The Hearing Officer
awarded the AMHS more than $1.2 million on its counterclaims,
including $850,000 in liquidated damages.
On November 29, 1993, Department of Transportation and
Public Facilities Deputy Commissioner Dick Chitty endorsed the
Hearing Officer's decision, and Northwest appealed to the superior
court. Just after Northwest filed its initial brief, Northwest
acquired a September 1994 letter, purportedly from the AMHS's Ross
to Robert Kilpatrick, an employee of an affiliate of Northwest. In
the letter, Ross wrote that he (1) felt Northwest "was due money on
the E-Mod issue,"(2) believed that "with some fixing in most cases
[the E-Mods] could have been acceptable,"(3) raised the Buy
America Provision issue to obtain leverage so that Northwest would
modify the drains and floors of the E-Mods, and (4) thought the
AMHS "could have picked a more politically opportune time to deal
with FHWA"if it sincerely had been interested in obtaining a
waiver for the E-Mods.
In October 1994 Kilpatrick received a voice mail message
from Ross that, Kilpatrick later stated, indicated that an employee
grievance filed by Ross "would be helpful"to Northwest's appeal.
Subsequently, Northwest obtained a copy of Ross's employee
grievance, and according to Northwest, the grievance "essentially
confirmed Northwest's version of the facts."
In December 1994 Northwest moved the superior court to
issue subpoenas duces tecum to be served on Ross, his attorney, and
the AMHS and to supplement the record to include Ross's 1994 letter
and any relevant information obtained in response to the subpoenas.
Based upon the September letter and Ross's employee grievance,
Northwest also asserted that "Ross gave perjured testimony at the
administrative hearing"and moved for a hearing de novo.
In August 1995 the superior court affirmed the hearing
officer's decision and denied Northwest's motions to supplement the
record and for de novo review. On appeal, Northwest argues that
the superior court erred in denying Northwest's motions to
supplement the record and to review the entire record so
supplemented de novo. Northwest also argues that this court should
reverse the superior court's decision because the AMHS (1)
improperly rejected the E-Mods, (2) breached its duty to cooperate
with Northwest, and (3) was not entitled to $850,000 in liquidated
A. Standard of Review
In reviewing an agency determination, we give no
deference to the superior court's decision because that court acts
as an intermediate court of appeal. Handley v. State, Dep't of
Revenue, 838 P.2d 1231, 1233 (Alaska 1992). We interpret the words
in a contract independently. Zuelsdorf v. University of Alaska,
Fairbanks, 794 P.2d 932, 933-34 (Alaska 1990). However, "where
'interpretation of a written instrument turns on the acceptance of
extrinsic evidence, the process of weighing such evidence should be
for the trier of fact.'"Alyeska Pipeline Serv. Co. v. O'Kelley,
645 P.2d 767, 771 n.2 (Alaska 1982); see also Ranier Fund, Inc. v.
Blomfield Real Estate Co., 717 P.2d 850, 853 (Alaska 1986)
(concluding that whether a party accepted an offer by his conduct
is a question of fact). We review the Hearing Officer's findings
of fact under the substantial evidence standard. Galt v. Stanton,
591 P.2d 960, 962-63 (Alaska 1979).
Northwest's appeal also requires us to examine the
superior court's decision to decline to supplement the record and
review de novo the record so supplemented. When the superior court
acts as an appellate court, it may decide to supplement the record
or order a de novo examination of the record at its discretion.
See Alaska R. App. P. 609(a)-(b)(1). Therefore, we review such a
decision under the abuse of discretion standard.
B. Ross's August 8, 1990, Letter
Northwest contends that the August 8, 1990, letter from
the AMHS's Ross to Northwest constituted an acceptance of the E-
Mods that barred the AMHS from later rejecting those units. In
that letter, Ross stated:
Our inspection of the E-mod Toilet Modules
brochures and discussions with Mr. George Selfridge of Maritime
Services Corporation indicate that the modules proposed can and
will meet the M/V TUSTUMENA Refurbishment specifications.
Based on this premise the State of Alaska
offers no objections to the installation of these modules providing
they meet the intent and specifics as outline [sic] in the
"When interpreting contracts, the goal is to 'give effect
to the reasonable expectations of the parties.'"Stepanov v. Homer
Elec. Ass'n, 814 P.2d 731, 734 (Alaska 1991) (quoting Mitford v. de
Lasala, 666 P.2d 1000, 1005 (Alaska 1983)). To accomplish this
goal, we look to writings that contain the purported agreement as
well as to extrinsic evidence of the parties' intent. Id.
Northwest first contends that the word "indicate"in the
letter demonstrates that the State accepted the E-Mods. It
correctly points out that "indicate"means "show or make known with
a fair degree of certainty." Webster's Third New International
Dictionary 1150 (1969). However, understanding the meaning of that
word sheds little light on whether the letter was an acceptance
because it does not address the critical interpretation issue,
which is reconciling the first paragraph of the letter with the
Regardless of what the State's inspection "indicated,"
the first paragraph of the letter is subject to the proviso in the
second paragraph. Thus, the second paragraph places a condition on
the State's approval of the E-Mods because it essentially reserves
the right to reject the units if they fail to conform to the intent
and specifications of the contract. We have held that for a
contract to be formed, it is "essential that acceptance of [an]
offer be unequivocal and in exact compliance"with the terms of the
offer. Thrift Shop, Inc. v. Alaska Mut. Sav. Bank, 398 P.2d 657,
659 (Alaska 1965). Because the second paragraph of the letter
qualifies the State's approval, the letter does not satisfy the
Thrift Shop standard. See id.; see also Restatement (Second) of
Contracts sec. 59 (1979) ("A reply to an offer which purports to
accept it but is conditional on the offeror's assent to terms
additional to or different from those offered is not an acceptance
but is a counter-offer."). [Fn. 1]
Northwest also argues that, despite the language of the
August 8 letter, extrinsic evidence demonstrates that the State
accepted the E-Mods. Northwest specifically refers to: (1)
evidence of a "significant amount of correspondence between [the
parties] concerning E-Mod details,"(2) testimony by Ross that,
prior to August 8, Northwest's Lind was pressuring him to approve
the toilets, (3) a July 20 memo from Maritime Services' George
Selfridge to Northwest in which Selfridge says that the AMHS's
engineering consultant "now agrees that toilet mods 'are the way to
go,'"(4) a July 24 diary entry by the AMHS's engineering
consultant that says the AMHS told Northwest "to meet intent of
spec,"(5) a July 31 diary entry by the AMHS's engineering
consultant that says Ross "found the toilet modules . . . to be
acceptable,"and (6) an August 20 diary entry by the AMHS's
engineering consultant that says the toilets were "O.K. per [Ross]
. . . must meet intent."
None of this evidence necessarily refutes the language of
the August 8 letter. Evidence that Northwest may have been
pressuring the State for approval does not mean that the State
actually accepted the E-Mods. Similarly, the mere fact that
information was conveyed to the State does not raise an inference
that the State accepted the E-Mods.
We note that some of the information that Northwest
provided the State specifically indicated that the proposed E-Mods
did not have stainless steel shower stalls, as required by the
contract. We do not conclude, however, that these communications
indicate that the State waived its right to require stainless
steel. Section 105-1.02 of the contract provides:
Shop drawings must be submitted for review at
least 30 days in advance of intended date of fabrication.
Prior to the acceptance of these drawings any
work done or materials ordered for the structures involved shall be
at the Contractor's risk. Material ordered or work done which is
not in conformance with the contract plans or accepted shop
drawings will be subject to rejection.[ [Fn. 2]]
Northwest concedes that on November 6, 1990, it sent the
State technical drawings of the E-Mods "for approval, as required
by the contract." The AMHS objected to these drawings by
responding: "Specifications require stainless steel shower
enclosures (proposed is painted steel)." Thus, if Northwest
believed that it no longer had to use stainless steel shower
stalls, Section 105-1.02 provides that it did so at its own risk.
The other portions of the record to which Northwest
refers (the July 20 Maritime Services memo and the diary entries)
indicate, at best, that the record contains conflicting extrinsic
evidence. While the July 20 memo and the diary entries suggest the
AMHS accepted the E-Mods, other portions of the record support a
contrary conclusion. For example, Northwest's own correspondence
log summarized the August 8 letter as "[i]f E-MODS meet specs, then
no objection." In addition, while Northwest cites three diary
entries by the AMHS's engineering consultant, it fails to recognize
a fourth entry dated December 28, 1990, in which the consultant
told Dan Mahler, an engineering consultant for Northwest, that
"modules have not been approved"and Mahler said "he knows -- and
has talked to [Northwest] about [it]."
As indicated above, when extrinsic evidence suggests
conflicting inferences that bear on the interpretation of the words
of a purported contract, we limit our inquiry to determining
whether the trier of fact's choice of inferences is supported by
substantial evidence. Alyeska Pipeline Serv. Co. v. O'Kelley, 645
P.2d 767, 771 n.2 (Alaska 1982); Galt v. Stanton, 591 P.2d 960,
962-63 (Alaska 1979). In this case, the Hearing Officer examined
the record in detail and concluded that Northwest did not accept
the E-Mods. Because this determination is supported by substantial
evidence, we do not agree with Northwest that the Hearing Officer
committed reversible error.
C. The Foreign Steel Content of the E-Mods
Having concluded that the AMHS did not accept the E-Mods
on August 8, we next consider whether the Hearing Officer erred in
concluding that the AMHS properly rejected the E-Mods based upon
those units' foreign steel content. We conclude that the Hearing
Officer did not err.
1. Northwest's obligation to comply with the FHWA's
foreign steel regulation
The parties dispute the applicability of 23 C.F.R. sec.
635.410, a FHWA regulation that limits the amount of foreign steel
in FHWA-funded projects. Northwest argues that it is bound to
comply only with the foreign steel requirements in the contract's
Buy America Provision and not with the FHWA's regulation. We
The refurbishment contract provides that "the entire
construction"would be completed "subject to . . . approval by any
participating agency of the Government of the United States of
America, and in accordance with the laws"of such agency. General
Provision sec. 107-1.05 further states that "[w]hen the United
Government pays all or any portion of the cost of a project, the
Federal laws and rules and regulations made pursuant to such laws
must be observed by the Contractor."[Fn. 4]
Northwest concedes that the contract states "that
federal funds were to be used on the project." Despite the plain
language of the refurbishment contract, however, Northwest asserts
that the contract obligated it neither to obtain the FHWA's
approval of the E-Mods nor to ensure that its work conformed to the
FHWA's foreign steel regulation. Northwest argues that the
contract does not obligate it to comply with the FHWA's regulation
because that regulation applies to the State only. Because the
contract expressly requires Northwest to ensure that it completed
all work in accordance with applicable federal regulations and to
the complete satisfaction of relevant federal agencies, we conclude
that Northwest agreed to fulfill the State's obligation to
refurbish the Tustumena in conformity with state and federal law.
Northwest also asserts that it did not need to comply
with the FHWA's regulation because the contract does not identify
the FHWA as the funding agency. We interpret the language of the
refurbishment contract and General Provision sec. 107-1.05 to place
the burden on Northwest to identify relevant federal agencies and
refurbish the Tustumena to their satisfaction. [Fn. 5] Thus, we
conclude that Northwest had a duty to ensure that its work on the
Tustumena complied with the FHWA's foreign steel regulation. [Fn.
2. The AMHS's duty to cooperate with Northwest
Northwest next asserts that its difficulties relating to
the FHWA's foreign steel limitation arose because the AMHS breached
its "duty to cooperate." Specifically, Northwest contends that the
AMHS breached its duty to cooperate by failing to reject the E-Mods
in a timely manner and by using "clandestine efforts"to undermine
Northwest's efforts to obtain a waiver of the foreign steel
regulation from the FHWA.
a. Untimely rejection
According to Northwest, the AMHS's February 1991
rejection constituted a breach of the AMHS's duty to cooperate
because the AMHS was obliged to accept or reject the E-Mods within
a reasonable time from July 27, 1990. Northwest asserts that by
July 1990, it had provided the AMHS with specific information about
the E-Mods' steel content and Swedish manufacture. Northwest
notes, however, that prior to the AMHS's February 12, 1991,
rejection letter, the AMHS's communications indicated only that the
foreign steel in the E-Mods, together with steel in various
ceilings, doors, joiners, and other "unknowns,""may"exceed the
limits set forth in the FHWA's regulation.
Citing our decision in Wetzler v. Wetzler, 570 P.2d 741
(Alaska 1977), the AMHS asserts that Northwest "did not identify
this as a point on appeal, and the court may not consider it now."
Wetzler holds that "we will not treat issues that were argued in [a
party's] brief but not set forth"in the party's points raised on
appeal from the superior court's decision. Wetzler, 570 P.2d at
742 n.2. In this case, Northwest's points on appeal state:
The Hearing Officer and Superior Court Judge
both erred by failing to consider whether AMHS breached its duty to
cooperate with Northwest Marine by waiting until February 1991--
some . . . months after they were initially proposed--before
rejecting the E-Modules.
Therefore, we will consider Northwest's argument.
Turning to the merits of Northwest's claim, the duty to
which Northwest refers is implied in any contract. Arthur L.
Corbin, 3 Corbin on Contracts sec. 571, at 349 (1960). "[I]f the
right of one party to compensation is conditional upon the
rendition of some service or other performance by him or on his
behalf, it is nearly always a breach of contract for the other
party to act so as to prevent or to hinder and delay or to make
more expensive the performance of the condition." Id.; accord
Walter H. E. Jaeger, 11 Williston on Contracts, sec. 1296 (3d. ed.
1968); see Cahoon v. Cahoon, 641 P.2d 140, 144 (Utah 1982) ("One
party cannot by willful act or omission make it impossible or
difficult for the other to perform and then invoke the other's
nonperformance as a defense.").
The State argues that the AMHS did not breach its duty to
cooperate because "Ross was not aware there was foreign steel
involved until after the E-Mods were actually delivered to the
ship." This assertion appears to be based in part upon the Hearing
Officer's conclusion that Northwest "never notified the State
foreign steel had been used in the modules." However, neither the
Hearing Officer nor the State square their conclusions with the
substance of Ross's September 11, 1990, letter, which provides in
Our recent conversation concerning the toilet
modules, dampa ceilings, various doors, and joiner materials
indicate [sic] that these products, particularly when compiled with
other yet unknowns, may well exceed those limits as set forth in
[the FHWA's foreign steel regulation].
This letter indicates that the AMHS was concerned with whether the
foreign steel content of several products, including the E-Mods,
exceeded the FHWA's foreign steel limits. Thus, it establishes
that as early as September 11, 1990, the AMHS knew that the E-Mods
contained some amount of foreign steel.
However, regardless of when the AMHS knew about the E-
Mods' foreign steel content, the record does not demonstrate that
the AMHS prevented or hindered Northwest's performance by a willful
act or omission. As discussed previously, the refurbishment
contract obligated Northwest to perform all work subject to the
FHWA's approval and in accordance with applicable FHWA regulations.
Rather than taking steps to prevent Northwest's satisfaction of
this obligation, the AMHS specifically brought it to Northwest's
attention in the September 11, 1990, letter, when it warned
Northwest about potential problems with the E-Mods. The AMHS's
September 12, 1990, letter also focused on Northwest's obligation
to comply with the FHWA regulation.
Moreover, it is significant that Northwest ordered the E-
Mods without receiving approval from the AMHS. As mentioned
earlier, the parties' communications leading up to Ross's August 8,
1990, letter were consistent with the contract's specifications in
that they contemplated Northwest submitting drawings to the AMHS
before the E-Mods would be approved. However, Northwest submitted
the required drawings on November 6, 1990, well after it had
already ordered the E-Mods. Shortly thereafter, the AMHS
responded. Rather than approving the drawings, however, it pointed
out several discrepancies between them and the contract's
specifications. The record indicates that Northwest neither
submitted revised drawings nor took any other action to address the
discrepancies. Instead, Northwest allowed production and shipment
of the E-Mods to occur without apparent regard for the contract's
formal approval procedures.
Thus, following the AMHS's response to the drawings, the
onus was on Northwest to continue to pursue approval of the E-Mods
by responding to the problems identified by the AMHS. By not
communicating with the AMHS about the E-Mods between November 6 and
the time the E-Mods were delivered, Northwest does not appear to
have given the AMHS any reason to believe that Northwest had
ordered the E-Mods. Under these circumstances, the superior court
did not err in concluding that the AMHS did not breach its duty to
cooperate with Northwest when it rejected the E-Mods in February
b. Clandestine efforts
Northwest also argues that the AMHS breached its duty to
cooperate with Northwest by employing "clandestine efforts"to
persuade the FHWA to decline to waive the limitations of its
foreign steel regulation. It asserts that a March 11, 1991,
internal draft letter by Fred Ross to his superior contained
misleading and inflammatory statements about Northwest, that Ross
gave the letter to the FHWA, and that the misleading statements in
the letter caused the FHWA to reject the AMHS's request for a
waiver of the FHWA's foreign steel requirements for the E-Mods. We
conclude that Ross's alleged conduct relating to the March 11
letter does not amount to a breach of the AMHS's duty to cooperate.
Northwest presents insufficient evidence that Ross misled
the FHWA into denying the waiver request. The FHWA's memorandum of
its decision explained that "[t]he regulations provide two possible
bases for a waiver": (1) "Steel materials/products are not produced
in the United States in sufficient and reasonably available
quantities which are of a satisfactory quality"and (2) "The
application of Buy America provisions would be inconsistent with
the public interest." The FHWA determined that the first basis did
not apply "because the specifications do not require modular
construction,"and Northwest could build the ship's bathrooms with
sheet stainless steel, which is "readily available in the United
States." Northwest argues that this basis is "specious"because it
"could only have been influenced by Ross's false statements to the
effect that the E-Mods were inferior products." We disagree. The
FHWA's memorandum does not suggest that FHWA officials believed
that the E-Mods were inferior. Moreover, the quality of the E-Mods
appears unrelated to whether other, satisfactory bathrooms could be
manufactured with United States steel. [Fn. 7]
The FHWA also concluded that Northwest's waiver request
did not fit within the public interest exception to the foreign
steel regulation. The FHWA noted that "the regulation calls for
consideration of cost, administrative burden, and delay." It
recognized that "all of these factors exist,"but it concluded that
the "the costs involved . . . are not sufficient to warrant a
public interest finding." Furthermore, the FHWA determined that a
waiver was not appropriate because Northwest "ha[d] proceeded
despite clear and early reminders of the pertinent contract
Northwest offers no arguments to challenge the FHWA's
conclusion relating to "the costs involved." Instead, it focuses
on whether the AMHS misled the FHWA into believing that Northwest
had disregarded warnings about the contract's requirements.
Because the magnitude of "the costs involved"appears to form an
independent basis for the FHWA's decision, the allegedly misleading
statements do not appear to have harmed Northwest. Moreover, the
FHWA's memorandum of decision does not on its face reflect any of
the allegedly misleading information. The FHWA recognized that
Northwest had been warned that it was obligated to comply with the
FHWA's regulations. As we have previously noted, Ross specifically
referred to this obligation in his letter dated September 11, 1990.
Therefore, the Hearing Officer correctly determined that the AMHS
did not breach its duty to cooperate.
Having determined that the refurbishment contract
obligated Northwest to comply with the FHWA foreign steel
regulation and that the AMHS did not breach its duty to cooperate,
we agree with the superior court that the Hearing Officer did not
err in concluding that the AMHS was within its contractual rights
when it rejected the E-Mods and required Northwest to remove them
from the Tustumena. As the Hearing Officer noted, once the FHWA
determined that the E-Mods violated the foreign steel regulation,
the AMHS had no choice but to prohibit Northwest from using those
units aboard the Tustumena. [Fn. 8]
D. The AMHS's Duty to Cooperate and the Momek Doors
Northwest next asserts that "[t]he order to remove the
Momek doors was a direct result of the AMHS's breach of the duty to
cooperate with respect to the E-Mods." We interpret this to mean
that Northwest's argument depends upon our concluding that the AMHS
hindered, interfered with, or made more expensive Northwest's
performance of the contract's requirements relating to the E-Mods.
However, we have already determined that Northwest has not
successfully proven such conduct by the AMHS with respect to the E-
Mods. Therefore, Northwest's argument as to the Momek doors must
E. The Liquidated Damages Award
The refurbishment contract required Northwest to
redeliver the Tustumena to the AMHS by May 15, 1991. However,
Northwest completed the project eighty-five days late and
redelivered the vessel on August 8, 1991. Therefore, pursuant to
the contract's liquidated damages provision, the superior court
awarded the AMHS $850,000, which amounts to $10,000 for each day
that Northwest was late.
Northwest first argues that the language of the contract
bars the AMHS from collecting any liquidated damages. It correctly
points out that the contract expressly states that the May 15
completion date was "tentative"and would be "confirmed"in August
1990. It asserts that "the AMHS failed to confirm this date, no
firm date was ever established,"and consequently Northwest's
performance was not late for purposes of calculating liquidated
The Hearing Officer rejected Northwest's argument by
reasoning that "the words of the contract, its obvious purpose and
the conduct of the parties all demonstrate conclusively that May
15, 1991 was, in fact, established under the contact as the date at
which redelivery of the vessel was required." We agree.
We interpret contracts so as to give effect to the
reasonable expectations of the parties. Neal & Co. v. Association
of Village Council Presidents Regional Hous. Auth., 895 P.2d 497,
502 (Alaska 1995). We have noted that the parties' expectations
may be gleaned from "extrinsic evidence, including the parties'
conduct." Id. In this case, substantial evidence supports the
Hearing Officer's conclusion that the conduct of the parties
demonstrates that they agreed that May 15 was the delivery date.
As the Hearing Officer pointed out, correspondence from Northwest
repeatedly sought extensions from the "May 15"redelivery date.
Similarly, the AMHS consistently referred to May 15 as "the
contract completion date." Because the contract did not specify a
particular form that confirmation of the completion date had to
take, we conclude that the Hearing Officer did not err when he
concluded that the parties' conduct demonstrates that May 15, 1991,
was the mutually acceptable completion date.
Northwest also argues that we should reduce the
liquidated damages by $150,000 because the AMHS agreed to allow
Northwest to delay work while the parties awaited the FHWA's
decision about whether to waive the foreign steel limitation for
the E-Mods. We have held that "a party must raise an issue during
the administrative proceedings to preserve the issue for appeal."
Trustees for Alaska v. State, Dep't of Natural Resources, 865 P.2d
745, 748 (Alaska 1993). During the administrative proceedings,
Northwest sought to reduce the liquidated damages it would have to
pay by arguing that its late performance was attributable to four
"major causes": (1) improper rejection of the E-Mods and Momek
doors; (2) certain "post-contract award modifications to the ship's
galley;"(3) defects in the AMHS's contract plans and contract
guidance drawings; and (4) changes in the procedure for approving
drawings. The Hearing Officer found that Northwest did not
identify any additional sources of the delay, and on appeal,
Northwest does not make any arguments to rebut this finding.
Moreover, our review of the record does not indicate that Northwest
argued at the administrative proceedings that it should pay reduced
liquidated damages because the AMHS agreed to allow it to delay
work while the FHWA reached its decision. Therefore, we conclude
that Northwest did not preserve this argument for appeal.
Finally, Northwest asserts that we should reduce the
liquidated damages because "Ross allowed Northwest to install the
[Momek] doors from January until March 19 without formally
rejecting them." We disagree. In examining Northwest's claim that
the AMHS improperly rejected the Momek doors, the Hearing Officer
[T]here is no way to determine whether the
State unreasonably delayed its rejection after the doors arrived
and began to be installed because there was no evidence of when
precisely those events took place. The evidence on that point were
vague references by Northwest witnesses that the doors arrived at
the shipyard 'in January or February.'
(Emphasis added.) Northwest does not provide record support for a
more specific arrival date. Moreover, Northwest incorrectly
asserts that the AMHS did not reject the Momek doors until March
19, 1991. In fact, the AMHS rejected the doors earlier, on
February 27, 1991. Under these circumstances, we agree with the
Hearing Officer that there is insufficient evidence to conclude
that the AMHS caused a portion of Northwest's late performance of
the contract by unreasonably delaying rejection of the Momek doors.
Therefore, we decline to reduce the liquidated damages award.
F. Northwest's Motions to Supplement the Record and for De
Novo Review of the Supplemented Record
In its final claim, Northwest asserts that the superior
court erred when it refused (1) to supplement the record with a
September 7, 1994, letter from the AMHS's Fred Ross and an
employment grievance filed by Ross against the State and (2) to
review de novo the record so supplemented. Specifically, Northwest
contends that Ross's September 7 letter and employment grievance
contain "numerous written assertions of fact that [are] patently
inconsistent with his hearing testimony and the state's entire
theory of the case for the first time after the hearing."
(Emphasis in original.) After reviewing the substance of the
letter and the grievance, however, the superior court concluded
that the documents "would not change the outcome"because neither
was "relevant." We conclude that the trial court did not abuse its
Alaska Rule of Appellate Procedure 609 provides that
"[i]n an appeal from an administrative agency, the superior court
may in its discretion grant a trial de novo in whole or in part."
Alaska R. App. P. 609(b). That Rule also empowers the superior
court to "make such orders as are necessary and proper to aid its
appellate jurisdiction." Alaska R. App. P. 609(a). In
interpreting Rule 609, we have noted that trials de novo on appeal
are rare. Kott v. City of Fairbanks, 661 P.2d 177, 180 n.1 (Alaska
1983). Nevertheless, we have voiced approval for a trial de novo
on appeal without a supplemented record "where, for example, the
administrative decision maker is tainted . . . but there was a
proper presentation of evidence at the administrative hearing."Id.
In reviewing former Appellate Rule 45, the predecessor to Appellate
Rule 609, [Fn. 9] we have also determined that a superior court
properly could grant a trial de novo with a supplemented record
where faulty procedures at the administrative level may have
compromised a party's right to due process. See State v. Lundgren
Pac. Constr. Co., 603 P.2d at 896 & n.18.
To support its position, Northwest refers to several
pieces of information in Ross's September 1994 letter and employee
grievance. First, it relies upon a portion of the letter in which
Ross wrote, "I don't believe that the E-Mods were ordered to cut
corners or for any other purpose other than [Northwest] sincerely
thought they were the right product for the job." This statement
does not affect our analysis in Section III.B, supra, of the August
8, 1990, letter. Similarly, the FHWA's memorandum of its decision
not to waive its foreign steel regulation does not suggest that the
FHWA thought that the E-Mods were an inferior cost-cutting product.
Therefore, we conclude that the superior court did not abuse its
discretion when it found that this statement would not change the
outcome of this case.
Northwest also relies upon Ross's statement that he had
"always felt [Northwest] was due money on the E-Mod issue."
However, Ross appears to have based his opinion that money was due
solely upon his speculation that the AMHS "could have picked a more
politically opportune time to deal with FHWA." Thus, the superior
court did not abuse its discretion when it concluded that this
statement would not change the outcome. [Fn. 10]
We also reject Northwest's argument that the letter and
the grievance demonstrate that the AMHS accepted the E-Mods. In
the letter, Ross wrote that "with some fixing in most cases [the E-
Mods] could have been acceptable." He did not state that the AMHS
had accepted the E-Mods. The grievance indicates that Ross's
superior "directed Ross to allow [Northwest] to install the [E-
Mods]." However, this statement does not prove that the AMHS
approved the E-Mods. As Northwest concedes, Ross's superior told
Ross to let Northwest proceed because he thought Northwest could
"use whatever means available to do the construction as long as it
met the specifications."(Emphasis added.) Because neither of
these statements contradicts the substance of Ross's August 8,
1990, letter to Northwest, we decline to conclude that they
evidence an abuse of discretion by the superior court.
Next, Northwest asserts that the letter demonstrates that
the AMHS breached its duty to cooperate because the letter
indicates that Ross raised the foreign steel issue without
sincerely believing that the E-Mods exceeded the applicable foreign
steel limitations. We have previously concluded that the contract
obligated Northwest to ensure that the refurbishment complied with
the FHWA's regulation. We also noted that the AMHS notified
Northwest in September 1990 that the proposed E-Mods "may well
exceed"the limitations set forth in the regulation. Ultimately,
the FHWA determined that the E-Mods in fact violated the
regulation, thereby jeopardizing federal funding for the project if
the AMHS did not demand the E-Mods' removal. Under these
circumstances, the AMHS acted within its contractual rights,
regardless of its motives for raising the issue in the first place.
Therefore, we conclude that the superior court did not abuse its
discretion when it determined that this piece of information would
not impact the outcome of this case.
Finally, Northwest contends that Ross's September 1994
letter proves that he lied about his role in the FHWA waiver
process and that, therefore, the superior court should have granted
its motions for a de novo trial with a supplemented record. To
support its position, Northwest advances several arguments that are
essentially identical to those discussed above in connection with
its assertion that the AMHS breached its duty to cooperate by using
clandestine efforts to thwart the FHWA waiver process.
Specifically, Northwest asserts that Ross supplied a copy of his
March 11, 1991, letter to the FHWA, that the letter contained false
and misleading statements, and that the FHWA based its decision
upon those statements. Indeed, the only new element to Northwest's
argument is that Ross's March 11 letter was misleading because Ross
did not temper his criticism of Northwest by including information
similar to that in his September 1994 letter. However, this
information does not change our previous conclusion that Northwest
has failed to demonstrate how any allegedly misleading statements
caused the FHWA to deny the waiver request for the E-Mods.
Therefore, we affirm the superior court.
Northwest has not established that the AMHS either
breached its duty to cooperate or improperly rejected the E-Mods.
Moreover, we conclude that the superior court did not err in
awarding the AMHS $850,000 in liquidated damages and in refusing
Northwest's motions for a de novo trial with a supplemented record.
Therefore, we AFFIRM the superior court's decision.
Northwest also asserts that the August 8 letter is a
"conditional approval." However, a qualified acceptance does not
create a contractual obligation. Restatement (Second) of Contracts
sec. 59 (1979).
The contract requires any modification of its terms to be
approved in writing by the AMHS. The record contains no evidence
that the parties modified Section 105-1.02. Moreover, Northwest
twice acknowledged that approval of the E-Mods would not deviate
from the procedure set forth in this section. [Fn. 11] In a July
19, 1990, memo Maritime Services wrote that "[o]n receipt of a
purchase order we will provide drawings and specifications for
final review by all parties. During this review final changes can
be made prior to production." A July 27 memo reiterated that
Maritime Services would provide the State with engineering drawings
of the E-Mods for comments and modifications "prior to their
construction." Because these memos provide that the State could
"comment on"and modify the "proposed units prior to their
construction,"we disagree with Northwest's assertion that these
two memos suggest that the parties agreed that Northwest would
submit technical drawings only after the E-Mods were approved.
Northwest also asserts that the State waived its right to
require terrazzo flooring. We disagree. A July 19, 1990, memo
from the AMHS's engineering consultant to Maritime Services stated:
"My understanding is Terrazzo floor coverings is no problem."
Maritime Services responded: "Terrazzo . . . are available as an
extra item." Thus, the record suggests that the parties did not
waive Northwest's obligation to provide terrazzo tile.
The State argues that General Provision sec. 107-1.01 requires
Northwest to comply with the FHWA's foreign steel requirement.
However, that provision applies to employment regulations because
it requires Northwest to "keep fully informed of all Federal . . .
regulations . . . of bodies . . . having any jurisdiction or
authority, which in any manner affect those engaged or employed on
the work, or which in any way affect the conduct of the work."
(Emphasis added.) Moreover, seven pages of detailed requirements,
which accompany and explain the general provision, all regulate
conditions of employment. Therefore, we conclude that this
provision is not applicable to the dispute in this case.
Moreover, there is evidence that Northwest knew that the FHWA
was "participating"in the refurbishment. As early as the pre-
bidding conference on November 6, 1989, Northwest knew that the
FHWA exercised authority over the project. In that conference, the
AMHS's engineering consultant informed all bidders, including
Northwest, that the FHWA required any work to meet certain
Northwest also contends that, if the FHWA regulation applies
to it, the E-Mods are not within the prohibition of the regulation.
This argument misses the proper focus of Northwest's appeal because
it is tantamount to arguing that the FHWA misapplied its own
regulation when it determined that the E-Mods violated the
regulatory foreign steel limitations. If Northwest desires to
challenge the FHWA's application of the foreign steel regulation,
it must sue the FHWA.
Northwest also contends that the FHWA misinterpreted the
portion of its regulation that authorizes it to waive the foreign
steel limitation. As we discussed earlier, if Northwest wishes to
challenge the FHWA's application of its regulation, Northwest must
sue the FHWA.
The Hearing Officer's decision suggested that the AMHS "would
have been well within its rights"to reject the E-Mods based upon
noncompliance with the contract's technical specifications. We
agree with Northwest that this portion of the decision is dicta.
Rather than relying on the contract's technical specifications, the
Hearing Officer decided the E-Mod issue in favor of the AMHS based
upon the E-Mods' foreign steel content. Because we affirm the
Hearing Officer's E-Mod decision for this same reason, we need not
consider Northwest's argument that "the E-Mods would have complied
with the contract's technical specifications if Northwest had been
permitted to install them."
Like Appellate Rule 609, former Appellate Rule 45 empowered
the superior court "to make such orders as are necessary and proper
to aid its appellate jurisdiction." Compare State v. Lundgren Pac.
Constr. Co., 603 P.2d 889, 890 n.3 (Alaska 1979) with Alaska R.
App. P. 609(a).
In a related argument, Northwest asserts that the letter
proves "the E-Mods could be modified to comply with contract
technical specifications." As noted earlier, the Hearing Officer
stated in passing that the AMHS could have rejected the E-Mods for
failure to comply with the contract's technical specifications; he
did not, however, base his decision upon these technical
specifications. Because we, like the Hearing Officer, base our
decision upon the E-Mods' foreign steel content (see discussion in
Section III.C.1), we determine that the superior court did not
abuse its discretion by concluding that this portion of the letter
would not affect the outcome of this case.
Indeed, the contract requires any modification of its terms to
be approved in writing by the AMHS. [VI:2304] The record contains
no evidence of such a writing.