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Alaska Marine Pilots v. Hendsch (12/12/97), 950 P 2d 98
<![CDATA[
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, phone (907) 264-0608, fax (907) 264-0878.
THE SUPREME COURT OF THE STATE OF ALASKA
ALASKA MARINE PILOTS, an )
Alaska organization, ) Supreme Court No. S-6729
)
Appellant, ) Superior Court No.
) 3AN-92-824 CI
v. )
)
ROBERT HENDSCH, ) O P I N I O N
)
Appellee. ) [No. 4915 - December 12, 1997]
_________________________________)
)
ROBERT BOYD and BOYD )
ENTERPRISES, d/b/a ALASKA )
MARINE PILOT DISPATCH )
SERVICES, JOHN SCHIBEL, ) Supreme Court Nos. S-6939/6979
individually, RICHARD MURPHY, )
individually, and HARRY )
JACOBSEN, individually, )
)
Appellants and, )
Cross-Appellees, )
)
v. )
)
ROBERT HENDSCH, ALASKA MARINE )
PILOTS, an Alaska organization, )
CAPTAIN THOMAS DUNDAS, )
individually, and CAPTAIN )
STUART MORK, individually, )
)
Appellees and )
Cross-Appellants. )
_________________________________)
Appeal from the Superior Court of the State of
Alaska, Third Judicial District, Anchorage,
John Reese, Judge.
Appearances: Mark E. Ashburn and William S.
Cummings, Ashburn & Mason, Anchorage, for
Alaska Marine Pilots, Captain Thomas Dundas
and Captain Stuart Mork. Cathleen Nelson McLaughlin, Brena &
McLaughlin, P.C., Anchorage, for Robert Hendsch. Robert C. Erwin,
Law Offices of Robert C. Erwin, Anchorage, for Robert Boyd and Boyd
Enterprises, d/b/a Alaska Marine Pilot Dispatch Services, John
Schibel, Richard Murphy and Harry Jacobsen.
Before: Compton, Chief Justice, Rabinowitz,
Matthews, and Eastaugh, Justices, and Carpeneti, Justice pro tem.
CARPENETI, Justice pro tem.
I. INTRODUCTION
These appeals follow from a lawsuit brought by Robert
Hendsch against Boyd Enterprises and Alaska Marine Pilots. All
three parties appeal various trial court decisions and aspects of
the jury verdict.
II. FACTS AND PROCEEDINGS
In 1988, Boyd Enterprises, d/b/a Alaska Marine Pilot
Dispatch Services, and Robert Hendsch made an agreement that
provided that Boyd Enterprises would dispatch Hendsch as a marine
pilot [Fn. 1] in western Alaska. Boyd Enterprises dispatched
licensed pilots in western Alaska, assigning available pilots to
particular ships as needed.
Boyd Enterprises assigned Hendsch to piloting jobs in
1988 and 1989. In September 1989, Boyd Enterprises informed
Hendsch that because of difficulties between Hendsch and other
pilots and customers of Boyd Enterprises, the organization would
not use him as a pilot in 1990. But after discussions with
Hendsch, Boyd Enterprises changed its position and agreed to
dispatch Hendsch. Hendsch and Robert Boyd, on behalf of Boyd
Enterprises, signed a contract that ran from September 1, 1989 to
September 1, 1990.
Hendsch was not scheduled to work in December 1989 or
January 1990. In January 1990, Hendsch contacted James Blackmore,
president of ALAMAR, a major Boyd Enterprises customer, and told
him that Boyd Enterprises had serious financial problems caused by
mismanagement. Hendsch asked Blackmore if ALAMAR would support
someone else running the pilot dispatch operation. ALAMAR was Boyd
Enterprises' best client, accounting for forty to fifty percent of
its business. Blackmore told Robert Boyd of Hendsch's allegations
on February 13.
Robert Boyd testified that he terminated Hendsch
immediately after hearing from Blackmore. The stated basis for the
termination was Boyd Enterprises' projected work requirements and
Hendsch's contact with ALAMAR. The contract between Boyd
Enterprises and Hendsch allowed either party to terminate the
contract on thirty days' notice.
Hendsch testified that he received a fax in Seattle on
February 13 from Boyd telling him to delay his departure to Dutch
Harbor and received a termination letter on February 14.
In 1990, Hendsch worked as a captain with Coastal
Transportation. In 1991, Hendsch worked as a master of a fishing
vessel for Trident Seafoods. In March 1991, Hendsch injured his
foot on the vessel while working for Trident but continued working
until July 1991. In August 1991, Hendsch was injured in a car
crash. In March 1992, Hendsch had surgery on his injured foot.
Hendsch filed lawsuits as a result of both the foot injury and the
car crash. Robert Boyd, Boyd Enterprises (Boyd defendants [Fn.
2]), and Alaska Marine Pilots [Fn. 3] claim that they did not know
of Hendsch's past injuries and lawsuits until "just before trial."
In 1991, the Alaska legislature revised the marine
piloting statutes. The new statutes required the Alaska Board of
Marine Pilots (Board) to establish pilotage regions in the state
and criteria for recognizing regional marine pilot organizations.
See AS 08.62.040(a)(4)(A and C). Licensed marine pilots were
permitted to form regional pilot associations under regulations
established by the Board. See AS 08.62.175. As a result of these
changes, Boyd Enterprises dissolved in December 1991, and the
marine pilots who had contracted with Boyd Enterprises formed a new
regional organization under AS 08.62.175. The new organization was
called Alaska Marine Pilots (AMP). While AMP involved the same
pilots, it had a different structure and governing rules than Boyd
Enterprises.
In January 1992, Hendsch filed a complaint against Robert
Boyd and Boyd Enterprises that alleged a breach of the 1989
employment contract and breach of the covenant of good faith and
fair dealing, and requested a partnership accounting. Hendsch
contended that Boyd breached the contract by firing him
unilaterally and without notice on February 14, 1990. Boyd filed
an answer on February 28, 1992. The case was assigned to the fast
track calendar under Alaska Civil Rule 16.1.
In February 1992, Hendsch applied for membership in AMP.
AMP initially took no action on Hendsch's application, claiming
that the Board was still reviewing AMP's request for recognition as
a regional organization. AMP wrote to Hendsch and explained the
reasons for its lack of attention to his application on March 10,
1992. Two AMP members, Captains Moreno and Garay, reviewed
Hendsch's application on behalf of the organization. Another
unnamed pilot told them there could be a problem with the Coast
Guard piloting endorsements that allowed Hendsch to hold a state
license. The anonymous pilot alleged that the endorsements may
have been based on false information. Hendsch claims that these
anonymous allegations were in regard to trips he made in 1987, and
that in 1988 the Coast Guard investigated and found no merit to
these claims. [Fn. 4]
Captains Moreno and Garay then obtained Hendsch's Coast
Guard file to continue their investigation. Moreno and Garay
concluded that it would have been physically impossible for Hendsch
to have made all the trips he claimed. AMP claims that the trip
requirements ensure that a pilot has the minimum necessary
expertise to pilot a ship safely in a given area. AMP contends
that the discrepancies raised serious doubts about Hendsch's
qualifications to be a pilot.
On April 24, 1992, Hendsch again requested admission to
AMP. In June 1992, Hendsch's then-attorney, R.J. Smith, met with
Captains Moreno and Garay, as well as AMP's attorney David Millen,
to discuss the pending membership application. AMP told Smith of
the problems with Hendsch's application. Smith testified that AMP
representatives told him that if Hendsch withdrew his application
request, they would not report their suspicions about Hendsch's
license to the state. AMP told Smith that if Hendsch continued to
pursue his application, AMP would be forced to deny it and report
its suspicions to state authorities. [Fn. 5] Millen disputed
Smith's version of what occurred at the meeting, characterizing
AMP's position as simply notifying Hendsch that if he continued to
press his application it would be denied, and that if he then
appealed to the Board and the Board asked AMP for justification,
AMP would have no choice but to give its reasons for the denial:
its belief that Hendsch had falsified his records.
Hendsch did not withdraw his application, and AMP
rejected it on July 29, 1992. Hendsch appealed the rejection to
the Board, which began its own investigation. At the Board's
request, AMP reported its suspicions about Hendsch's endorsements.
Hendsch's pilot license expired in December 1992. At the time of
trial it had not been renewed. Also at the time of trial, the
renewal of Hendsch's federal license was delayed while the Coast
Guard investigated Hendsch's endorsements.
In December 1992, Hendsch's lawsuit against Boyd
Enterprises was transferred to the inactive calendar. In February
1993, Hendsch moved to amend his complaint to add AMP and Captains
Dundas and Mork as defendants and alleged additional causes of
action. Leave to file the amendments was granted on March 26,
1993. AMP was served in late April 1993. Hendsch and the original
defendants stipulated to extending discovery until sixty days after
the new defendants were served, and trial was set for September
1993. According to AMP, "due to confusion about the service of
process"it did not enter an appearance until July 21, 1993. In
August 1993, the superior court rescheduled the trial for January
10, 1994 and discovery deadlines were extended. The new
calendaring order stated that no additional continuances would be
granted without a showing of good cause.
Trial was held from January 10 to January 22, 1994. On
January 25, the jury returned a verdict on the original special
verdict form. In the special verdict the jury determined that AMP
was a successor-in-interest to Boyd Enterprises. The jury also
found that Boyd Enterprises owed Hendsch $6,862 for an accounting
for 1988 and 1989. The jury also awarded Hendsch $25,000 on the
breach of contract claim against Boyd Enterprises, despite finding
that Boyd had a legitimate business purpose for firing him. The
parties agreed that the jury should not have awarded damages for
breach of contract under these circumstances. The court had
instructed the jury that AMP had violated AS 08.62.175(c)(4) as a
matter of law, and the jury found that this caused $108,000 in
damages, of which Hendsch could have mitigated all but $1. The
jury also found that AMP intentionally interfered with Hendsch's
ability to make a living, causing $108,000 in damages, of which
Hendsch could have mitigated only $25,600. Finally, the jury
awarded Hendsch $75,000 in punitive damages against AMP.
AMP moved for a new trial. The motion was denied. To
cure various inconsistencies in the verdict form, supplemental
questions were submitted to the jury on January 28, and the jury
returned its final verdict that same day. In the supplemental
verdict, the jury found that Boyd Enterprises breached the covenant
of good faith and fair dealing, causing $12,001 in damages, and
that Hendsch was physically able to work in 1991, 1992, and 1993.
The Boyd defendants filed a motion for judgment
notwithstanding the verdict, which was denied. Final judgment was
entered against Boyd Enterprises, AMP and AMP's individual pilots
on October 19, 1994.
AMP filed appeal S-6729. AMP claims that the court erred
in denying the motion to continue the trial date and to allow
further discovery, determining that Hendsch had a private cause of
action under AS 08.62.175(c)(4), determining that AMP violated that
statute as a matter of law, instructing the jury on the elements of
the tort of intentional interference with prospective economic
advantage, allowing Hendsch to seek punitive damages, and denying
AMP's request to have the jury resolve inconsistencies in the
special verdict.
Boyd Enterprises and the named pilots filed appeal S-
6939. The Boyd defendants claim that the court erred in denying
the motion to continue the trial date, submitting the issue of
accounting to the jury, allowing the award of money against Boyd
Enterprises for breach of the covenant of good faith and fair
dealing after the jury found that Boyd Enterprises had good cause
to terminate Hendsch, allowing individual members of an
unincorporated association to be held individually liable for torts
of other members when they did not participate in or ratify the
torts, and instructing the jury on punitive damages.
Robert Hendsch also filed an appeal, S-6979. Hendsch
contends that the trial court erred in giving an incorrect damage
calculation instruction in the Supplemental Special Verdict Form,
accepting the reduction in contract damages on the Supplemental
Special Verdict Form from $25,000 to $12,001, and accepting the
jury's damage calculations for the 1988 and 1989 accounting.
III. DISCUSSION
A. Whether Denial of the Motion to Continue Constituted an
Abuse of Discretion
A trial court's decision to deny a motion to continue is
reviewed for an abuse of discretion. See Johnson v. Schaub, 867
P.2d 812, 815 (Alaska 1994). A decision "to deny a continuance
will be reviewed in light of the particular facts and circumstances
of each individual case to determine whether the denial was so
unreasonable or so prejudicial as to amount to an abuse of
discretion." Id.
AMP argues that at his October 1993 deposition, Hendsch
claimed he had no physical disability that kept him from working
from mid-1991 to the present. AMP and the Boyd defendants later
received records from Hendsch's litigation with Trident Seafoods
that caused them to question whether Hendsch could have worked as
a pilot during 1991 and 1992. According to AMP and Boyd, those
records indicate that Hendsch had a "severe disability"that
existed until December 1992.
AMP and the Boyd defendants moved for a continuance on
December 12 and 13, 1993, to conduct additional discovery on the
issue of whether Hendsch had made contrary claims in the earlier
litigation or to his treating physicians. The trial court denied
this request. However, the trial court ruled that if the
defendants wished to use medical records and testimony from the
prior actions, they could do so.
This decision was not an abuse of discretion. This was
a fast-track case. The purpose of the fast-track rule was to
reduce delays in civil litigation. See former Alaska R. Civ. P.
16.1(a). [Fn. 6] Under the fast-track rule, a case set for trial
could only be continued for "extraordinary good cause." Alaska R.
Civ. P. 16.1(i). The case had already been continued once.
Although AMP and Boyd hint that perhaps Hendsch was withholding
evidence, they cite no interrogatory or document production request
that would have covered the materials they eventually obtained from
Hendsch's previous lawsuits. The defendants were able to use the
Trident Seafoods materials in the trial of the case, so any
prejudice they suffered was minimal. The judge's ruling was not an
abuse of discretion.
B. Whether a Private Cause of Action Is Implied by
AS 08.62.175(c)(4)
Alaska Statute 08.62.175(c) provides that "a pilot
organization recognized by the board shall . . . be open to
membership by all persons licensed under this chapter to pilot
vessels in the pilotage region in which the organization is
recognized." The trial judge found that this section creates a
private cause of action and instructed the jury accordingly. AMP
argues that AS 08.62.175(c) does not create a private cause of
action.
The trial court's reading of AS 08.62.175(c) involves a
question of law that this court reviews in its independent
judgment. See Borg-Warner Corp. v. AVCO Corp., 850 P.2d 628, 631
n.8 (Alaska 1993).
AMP argues that because the legislature has created a
comprehensive remedial scheme in this area, no private right of
action should be found to be implied. See Walt v. State, 751 P.2d
1345, 1352 (Alaska 1988). Hendsch responds that AMP's violation of
the statute inflicted serious economic injury on Hendsch by denying
him the opportunity to work, and that none of the factors
counselling against recognizing a private right of action is
present in this case.
The Restatement (Second) of Torts lists the factors that
help a court to determine whether or not a statute implies a
private cause of action. The factors include the nature of the
legislative provision, the adequacy of existing remedies, the
extent to which a tort action will interfere with existing
remedies, the importance of the purpose of the provision, how
drastically the new tort will change the law, and the burden the
new tort will place on the court system. See Restatement (Second)
of Torts  874A cmt. h (1977), cited with approval in Walt v.
State, 751 P.2d 1345, 1351 n.12 (Alaska 1988). Analysis of these
factors leads us to conclude that AS 08.62.175(c) implies a private
right of action for its violation.
As to the nature of the legislative provision, AS
08.62.175(c) is easily susceptible to individual enforcement. A
single instance of denying membership to a qualified marine pilot
constitutes a clear violation of the statutory command. The
conduct the statute prohibits is clear and unambiguous. Cf. O.K.
Lumber v. Providence Washington Ins. Co., 759 P.2d 523, 527 (Alaska
1988) (rejecting creation of private cause of action where statute
prohibited acts committed frequently enough to become trade
practice).
In the absence of an implied cause of action, there would
be no truly adequate remedy for a pilot wrongfully denied
membership in a regional organization. The statute provides only
a $5,000 civil fine and possible decertification of the pilot
organization. [Fn. 7] See AS 08.62.155. This provision allows the
state to seek compliance with the statute, but it provides no
recourse for the injured individual. As we note below, it is also
fairly clear that there is no alternative common law cause of
action available. [Fn. 8]
A private cause of action should never be found to be
implied if it would significantly interfere with existing remedies.
As we noted above, there are no other apparent remedies, and
neither party has suggested alternatives. A private right of
action will not interfere with governmental enforcement of AS
08.62.175(c), as the government remains free to impose the
penalties provided by the statute. If anything, private
enforcement will assist the government.
Finally, we do not believe that this new cause of action
will unduly burden the courts, or that it represents a dramatic
change in the law. Additionally, we see no potential for "over-
enforcement"of the law. [Fn. 9] The trial court properly found a
private cause of action to enforce AS 08.62.175(c).
It was also proper for the trial court to instruct the
jury that AMP violated AS 08.62.175(c) as a matter of law. If
Hendsch held the proper state and federal licenses, it was AMP's
obligation to admit him to the organization. See AS 08.62.175(c).
If AMP had serious doubts about the facts underlying Hendsch's
licenses, it should have contacted the appropriate state and
federal authorities. The authorities who issued Hendsch's
credentials were the only ones in a position to question them. [Fn.
10]
C. Whether the Jury Should Have Been Instructed on
Intentional Interference with Prospective Economic Advantage
We have long recognized the tort of intentional
interference with prospective economic advantage. See Ellis v.
City of Valdez, 686 P.2d 700, 706 (Alaska 1984). In Ellis, we
held that "[u]nder this theory, a person who is involved in an
economic relationship with another, or who is pursuing reasonable
and legitimate prospects of entering such a relationship, is
protected from a third person's wrongful conduct which is intended
to disrupt the relationship." Id. at 707 (emphasis added).
The trial judge's decision to instruct the jury on the
tort of intentional interference with prospective economic
advantage is a question of law over which we exercise our
independent judgment. See Beck v. State Dep't of Transp. and Pub.
Facilities, 837 P.2d 105, 114 (Alaska 1992); see also Summers v.
Hagen, 852 P.2d 1165, 1168-69 (Alaska 1993).
AMP argues that the facts of this case do not support a
jury instruction on this tort. Quoting Ellis, AMP notes that this
cause of action "contemplates wrongful interference with a
developing relationship by an outsider to the relationship. A
party who backs away from a developing economic relationship cannot
be held liable for inducing himself to sever the relationship."
Ellis, 686 P.2d at 708 (citations omitted). Hendsch claims that
AMP interfered with his ability to work as a pilot and his
relationship with the Board, and that he was therefore entitled to
present a cause of action for intentional interference to the jury.
Hendsch's cause of action for intentional interference
with prospective economic advantage is clearly precluded by Alaska
law. In Ellis, the plaintiff sued the City of Valdez over a deal
gone bad, in which the City was to have purchased property from
him. Ellis, 686 P.2d at 703-04. When the deal fell through, Ellis
sued the City claiming, among other things, intentional
interference with prospective economic advantage. See id. at 706.
We held:
In his reply brief, Ellis implies that
Valdez improperly interfered with the
relationship developing between Ellis and
Valdez itself. . . . But Valdez' actions do
not constitute intentional interference with
another's prospective economic advantage. The
only act of Valdez' which "interfered"with
Ellis' prospective advantage was the city's
decision not to purchase Ellis' terminal on
Ellis' terms. This "arms-length"dealing is
not the type of conduct prescribed by the
tort. Instead, the cause of action
contemplates wrongful interference with a
developing relationship by an outsider to that
relationship.
Id. at 707-08 (emphasis added).
AMP cannot be held liable for interference with its own
relationship with Hendsch. Hendsch's vague assertions that AMP
interfered with Hendsch's ability to work as a pilot and with
Hendsch's relationship with the Board cannot support a claim for
intentional interference with prospective economic advantage.
AMP's "interference"with Hendsch's relationship with the Board did
not prevent the formation of any economic relationship that would
have resulted in a pecuniary benefit to Hendsch, because Hendsch
never had or expected to have an economic relationship with the
Board.
As to the allegation that AMP interfered with Hendsch's
general ability to work as a pilot, there is no third person with
whom he had a relationship with which AMP interfered. As AMP
points out, there was no evidence that Hendsch was prevented from
forming his own pilot association in western Alaska, and AMP did
not share its concerns over Hendsch's qualifications with
shipowners or their agents. Hendsch no doubt suffered a severe
pecuniary loss from AMP's rejection of his application, but he has
presented no evidence that the loss came from anything but the loss
of the relationship with AMP itself. [Fn. 11]
As a matter of law, Hendsch could not have a claim for
intentional interference with prospective economic advantage on
these facts. The verdict in favor of Hendsch on the intentional
interference with prospective economic advantage claim is reversed.
[Fn. 12]
D. Whether There Is Adequate Support for the Jury's Verdict
on the Accounting Issues
The jury found that Boyd Enterprises owed Hendsch $2,789
for the year 1988, and $4,073 for 1989. Hendsch testified at trial
that he was concerned about the allocation of expenses in Boyd
Enterprises in 1988 and 1989. [Fn. 13] Among these concerns were
$38,000 in expenses for furniture for pilot houses in 1988, and
$27,000 in 1989. Hendsch testified to his belief that personal
expenses were wrongfully intermingled with the expenses of Boyd
Enterprises. These included Captain Boyd's legal expenses, phone
bills, and expenses for taking Boyd's wife on trips. Hendsch
testified that using Boyd Enterprises' financial statements, he had
determined what expenses had been charged to the enterprise. For
1989, according to the financial statement, the expenses were 24%
of income. For 1988, the ratio was approximately 23%. Based on
the records of another company, Hendsch testified that he believed
a 15% ratio was more reasonable. Using 15% as the proper ratio,
Hendsch calculated that he was owed approximately $5,500 for 1988
and $8,000 for 1989.
At trial, Hendsch presented the testimony of Kevin
VanNortwick, a certified public accountant. VanNortwick expressed
the opinion that the allocatable expenses of Boyd Enterprises
showed "some unusual trends." He found what he thought were
unreasonable administrative travel expenses, suspiciously large
payments for two years to a particular vendor, and a large
promotional expense. He also testified that it would not be proper
for expense accounts to be used for personal expenses.
Boyd Enterprises claims that no evidence was presented to
show that the 15% figure was the industry standard. It also
alleges that there was no testimony that "specifically detailed"
what expenses might have been improperly charged. Finally, Boyd
Enterprises contends that for the jury awards to be appropriate,
the jury would have had to have found that there were $92,966 in
improper expenses in 1988 and $40,073 in improper expenses in 1989.
Boyd Enterprises claims there was no evidence to support this
conclusion.
In his appeal, Hendsch also attacks the jury's verdict,
claiming that there is no evidence to support it. But he claims
that this is because the jury award was too low, not because there
was a lack of evidence to support any award at all.
A jury's findings of fact will not be reversed when there
is "room for diversity of opinion among reasonable people."
Municipality of Anchorage v. Baugh Const. & Eng'g Co., 722 P.2d
919, 927 (Alaska 1986). When reviewing a motion for a directed
verdict or for judgment notwithstanding the verdict, the court 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." Bobich v. Stewart, 843 P.2d
1232, 1235 (Alaska 1992).
We find that there is sufficient evidence to support the
jury's verdict on this issue. It appears that the jury divided
what Hendsch argued the total allowable expenses for 1988 and 1989
should have been by the total income for 1988 and 1989. This
yields an income/expense ratio of approximately 16%. That, of
course, is fairly close to the 15% figure that Hendsch advocated.
That the jury awarded this amount suggests that it gave substantial
credit to the testimony of Hendsch and his accountant. The jury's
award is within the range of evidence presented. Remembering that
a jury's findings of fact will not be disturbed when there is "room
for diversity of opinion among reasonable people,"City of Whittier
v. Whittier Fuel & Marine Corp., 577 P.2d 216, 220 (Alaska 1978),
we affirm the trial court's denial of a new trial on these grounds.
E. Whether the Award of $12,001 for Breach of the Covenant
of Good Faith and Fair Dealing Was Proper
The first special verdict form asked the jury if Boyd
Enterprises breached its contract with Hendsch. The jury answered
that it had, so it proceeded to the next question, which asked if
there was a legitimate business purpose for the termination. The
jury found that there was a legitimate purpose. But the
instruction following this question contained an error. It
directed the jury to answer a question which, by virtue of the
jury's earlier answer, was irrelevant. [Fn. 14]
The court submitted a supplemental special verdict to the
jury that included the questions on breach of the covenant of good
faith and fair dealing from the original special verdict that the
jury should have been instructed to answer, but was in fact
instructed not to answer. The jury sent back a note asking if the
damages for breach of the covenant of good faith and fair dealing
would be in addition to the damages awarded for termination of the
contract. The trial court proposed telling the jury to ignore the
prior award of $25,000 when awarding damages for breach of the
covenant. Hendsch's attorney objected on the grounds that the jury
would then believe the money awarded for breach of the covenant
would be in addition to the previous award for breach of contract.
Hendsch argued that the jury should be informed that its $25,000
award was going to be ignored because of a clerical error. He
proposed an instruction. AMP's attorney objected on the grounds
that the proposed instruction could lead the jury into a decision
not based on the merits. Instead, AMP proposed a reference to a
prior jury instruction that told the jury not to worry about making
overlapping awards, because the trial court would resolve such
problems. The court drafted such an instruction, and Hendsch
raised no objection. The jury awarded $12,001 in damages for
breach of the covenant of good faith and fair dealing.
The Boyd defendants appeal because they claim there was
no basis for the jury to make an award. Hendsch claims that the
jury was given an erroneous instruction that caused them to
mistakenly award him too little money.
1. There was sufficient evidence to support the jury's
award.
The Boyd defendants argue that there was no basis for the
jury to award damages for breach of the covenant of good faith and
fair dealing. As we noted above, a jury's findings of fact will
not be reversed when there is "room for diversity of opinion among
reasonable people." Baugh Const., 722 P.2d at 927. Reviewing a
motion for a directed verdict or for 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." Bobich,
843 P.2d at 1235.
In Luedtke v. Nabors Alaska Drilling, Inc., 768 P.2d 1123
(Alaska 1989) (Luedtke I), we upheld an employee's termination for
failing a drug test, but remanded on the issue of the employer's
violation of the covenant of good faith and fair dealing. In
Luedtke I, the employer had suspended the employee prior to
terminating him. In Luedtke v. Nabors Alaska Drilling, Inc., 834
P.2d 1220 (Alaska 1992) (Luedtke II), this court reviewed the trial
court's decision on the breach of covenant issue.
Luedtke II demonstrates that it is possible for an
employer to rightfully terminate an employee but to do so in a way
that violates the covenant of good faith and fair dealing. See
Luedtke II, 834 P.2d at 1223-24. The covenant essentially requires
that employers "treat like employees alike"and "act in a manner
which a reasonable person would regard as fair." Id. at 1224
(citations omitted). Damages in such a case will be limited to
those that flow from the breach of the covenant and cannot include
the damages an employee would be entitled to if the employee had
been wrongfully terminated. See id. at 1226-27.
Based on the evidence presented, the jury could have
reasonably concluded that although it was proper for Boyd to
terminate Hendsch, it was not proper to do so without thirty days'
notice. The jury could have found that terminating the contract
without notice constituted a breach of the covenant of good faith
and fair dealing. In addition, the contract provided procedural
protection for pilots if they were suspended. The jury could have
found that Boyd's failure to consult other pilots violated the
implied covenant that such consultations would occur prior to
termination. The jury could have found these actions to be
unreasonable and unfair. Thus the jury's conclusion is within the
range of reasonable verdicts based on the evidence.
2. The jury instruction on the covenant damages was
not erroneous.
Hendsch objects to the amount of damages awarded by the
jury for this cause of action. Specifically, he states that
because the jury was not told that its award of $25,000 in contract
damages was void, the jury thought it was awarding the $12,001 in
addition to the $25,000. Hendsch claims that the trial court
should have instructed the jury only to decide if the covenant of
good faith and fair dealing was breached, and if it was, the court
should have affirmed the $25,000 in damages on that basis.
Hendsch admits that he did not object to the Supplemental
Special Verdict Form at trial. In most cases, arguments which are
not dependent on new facts and are closely related to and could
have been inferred from the trial pleadings may be presented for
appellate review even when not raised below. See Zeman v.
Lufthansa German Airlines, 699 P.2d 1274, 1280 (Alaska 1985).
However, in Conam Alaska v. Bell Lavalin, Inc., 842 P.2d 148
(Alaska 1992), we refused to extend this exception to jury
instructions. [Fn. 15] Id. at 153-54.
Nonetheless, Hendsch contends that he should be permitted
to object now because the trial court's instructions to the jury
constituted plain error. In Conam Alaska, we held that we would
review an objection to a jury instruction raised for the first time
on appeal only if "the giving of the challenged instruction was
plain error." Id. at 153 (citing Miller v. Sears, 636 P.2d 1183,
1189 (Alaska 1981)). We stated that "[p]lain error will be found
when an obvious mistake exists such that the jury instruction
creates 'a high likelihood that the jury will follow an erroneous
theory resulting in a miscarriage of justice.'" Id. (quoting
Ollice v. Alyeska Pipeline Service Co., 659 P.2d 1182, 1185 (Alaska
1983)). In other words, the query is "whether a correct
instruction would have likely altered the result." Id. at 153.
This standard imposes "a heavy burden on the appellants to prove
that an error was highly likely determinative." Id. We have
emphasized that we will not speculate about whether the error
changed the result. Id. (citing Holiday Inns of America, Inc. v.
Peck, 520 P.2d 87, 92 (Alaska 1974)).
In this instance, Hendsch cannot sustain the burden of
showing a high likelihood that a different instruction would have
created a different result. His argument that the $25,000 breach
of contract award, which both parties agreed was erroneous, was
somehow binding on the jury, is without merit. His argument that
the jury would have awarded more had they known their $25,000 award
was stricken is also not strong enough to meet his burden. The
jury was specifically given an instruction not to consider the
overlap effect of various awards, and the trial court properly
pointed out this instruction to the jury in the court's response to
the jury's questions.
Thus, we need not reach the question of the adequacy of
the Supplemental Special Verdict Form. Its use was not plain
error. The award for breach of the covenant of good faith and fair
dealing is affirmed.
F. Whether the Jury Was Properly Instructed on Punitive
Damages
Hendsch did not claim punitive damages in his complaint,
nor did he move to amend the complaint to do so before trial. He
did not reveal an intent to seek punitive damages during discovery.
His initial instructions, submitted two weeks before trial, did not
include any instructions concerning punitive damages. His first
mention of punitive damages was in the trial memorandum. [Fn. 16]
As of the night before the jury was to be instructed, no proposed
instruction on punitive damages had been presented. Hendsch did
not actually present a punitive damages instruction until the day
the jury was instructed.
The jury instruction on punitive damages read:
Robert Hendsch has made a claim against
AMP for punitive damages. Punitive damages can be awarded if you
find that AMP's actions were done with malice, bad motives, or
reckless indifference to the interests of Robert Hendsch.
If you find that AMP's actions were done
with malice, bad motives, or a reckless indifference to the
interest of Robert Hendsch, you must then place a value on these
damages, a value that can be determined based on the need to deter
AMP, and similarly situated persons and entities, from engaging in
such behavior in the future.
While both AMP and the Boyd defendants objected to any instruction
on punitive damages, neither noted the failure of this instruction
to advise the jury as to the required level of proof for punitive
damages.
Under AS 09.17.020, punitive damages must be proven by
clear and convincing evidence. See State Farm Mut. Auto Ins. Co.
v. Weiford, 831 P.2d 1264, 1266 n.2 (Alaska 1992). The jury
instruction given in this case does not tell the jury to apply the
burden of proof by clear and convincing evidence. We have
previously noted that "[j]ury instructions which set forth an
entirely erroneous standard of liability"normally create a high
likelihood that a plain error has been committed. City of Nome v.
Ailak, 570 P.2d 162, 171 (Alaska 1977). As noted above, Conam
Alaska holds that plain error will be found when the erroneous jury
instruction "would have likely altered the result." 842 P.2d at
153.
The evidence at trial as to AMP's intentions -- upon
which the punitive damages question rested -- was sharply in
dispute and appeared to be closely balanced. Hendsch urged that
AMP acted maliciously out of its own greed and self-interest in
denying his application for membership, and he produced evidence to
support his position. AMP countered that it had a good-faith
concern about Hendsch's piloting credentials and advised Hendsch so
that he might knowledgeably choose which course of action he would
take, and it too produced supporting evidence. Given the closeness
of the evidence and the arguments on this issue, it appears likely
that, had the jury been instructed that it could return a punitive
damages award only if the proof of malice was clear and convincing,
the result would have been different. [Fn. 17]
This conclusion follows from the substantial difference
in the quantum of proof necessary to prove a proposition by a
preponderance of the evidence and that required to prove the
proposition by clear and convincing evidence. The preponderance of
the evidence standard is met if the proponent of a proposition
satisfies the fact-finder that the asserted facts are "probably
true." Saxton v. Harris, 395 P.2d 71, 72 (Alaska 1964). For clear
and convincing evidence, the proponent must "produce[] in the trier
of fact a firm belief or conviction about the existence of a fact
to be proved." Buster v. Gale, 866 P.2d 837, 844 (Alaska 1994)
(quoting Castellano v. Bitkower, 216 Neb. 806, 346 N.W.2d 249, 252
(1984)).
We conclude that the failure to instruct the jury on the
clear and convincing evidence burden of proof was plain error. The
punitive damages award must be reversed. [Fn. 18]
G. Whether Individual Pilots May Be Held Liable for AMP's
Actions
Defendants Boyd, Schibel, Murphy, and Jacobsen claim that
they cannot be held personally liable for any damages owed to
Hendsch by AMP. While Boyd was named in the caption of the
complaint, Schibel, Murphy, and Jacobsen were not. Hendsch did
name "JOHN DOES 1-6"whom he identified as "partners, partners,
[sic] representatives, agents, and/or officers of Alaska Marine
Pilots." Although Boyd's name appeared in the caption, he was not
specifically alleged to have participated in AMP's decision to deny
Hendsch membership.
The first time that Boyd, Schibel, Murphy, and Jacobsen
were specifically named as being individually liable for AMP's
decision was in the Final Judgment. The Alaska Rules of Civil
Procedure allow a plaintiff to amend the complaint to add a new
party, in some circumstances even after the statute of limitations
has run. See Alaska R. Civ. P. 15; Siemion v. Rumfelt, 825 P.2d
896, 900-01 (Alaska 1992). Hendsch never attempted to amend his
complaint to hold these individuals liable for AMP's actions.
Alaska Civil Rule 17(b) provides that an unincorporated
association may be sued. This is a departure from the common law
rule that a suit against an unincorporated association had to be
maintained against the individual members of the association. See
7 Charles A. Wright et al., Federal Practice and Procedure  1861,
at 214 (2d ed. 1986); 6 Am. Jur. 2d Associations and Clubs  51, at
485 (1963). Civil Rule 23.2 allows a plaintiff to sue
representative members of an unincorporated association as a class.
See also 7 C. Wright, supra  1861, at 215. However, these are
merely permissive rules; the plaintiff remains free to sue the
entity, the members, or a class of members. See 7 C. Wright, supra
 1861, at 214-16.
A court may not adjudicate the rights of a person or
entity that is not a party to the action before it. Williams v.
City of Valdez, 603 P.2d 483, 492 (Alaska 1979). Even if we were
to assume that all of the individual members of AMP could be held
liable for AMP's actions, Hendsch's complaint did not name them as
defendants. By way of illustration, an employer can be held liable
for certain torts committed by his or her employees. See, e.g.,
State v. Will, 807 P.2d 467, 471 (Alaska 1991). But a complaint
that fails to name the employer as a party cannot result in a
judgment against anyone but the employee. For a legally
responsible party to be held liable for damages, the plaintiff must
name that party in the lawsuit. See, e.g., Fazzi v. Peters, 440
P.2d 242, 245 (Cal. 1968) (plaintiff could collect on partnership's
assets but not assets of individual partners when only partnership
was named in complaint), cited with approval in Williams, 603 P.2d
at 492 n.29; Fuqua v. Taylor, 683 S.W.2d 735, 738 (Tex. App. 1984)
(in action for constructive trust, only named parties entitled to
judgment); 59A Am. Jur. 2d, Partnership  767, at 616 (1987)
(actions against partnership not enforceable against partners not
served or joined in suit). [Fn. 19] We conclude that a final
judgment may be rendered only against the parties named in the
complaint and for acts alleged in the complaint as to those
parties.
IV. CONCLUSION
The trial court is AFFIRMED in part and REVERSED in part,
and the matter is REMANDED for proceedings consistent with this
opinion:
The trial court's denial of the motion for continuance is
AFFIRMED.
The trial court's determination that AS 08.62.175(c)(4)
implies a private right of action, and that the jury should be
instructed that the statute had been violated in this case, is
AFFIRMED.
The judgment against AMP for intentional interference
with prospective economic advantage is REVERSED with the direction
to dismiss that cause of action.
The verdict concerning allocation of expenses is
AFFIRMED.
The verdict awarding $12,001 for breach of the covenant
of good faith and fair dealing is AFFIRMED.
The award of punitive damages is VACATED, and the matter
REMANDED for retrial with the instruction that punitive damages
must be proved by clear and convincing evidence.
The judgment against Boyd, Schibel, Jacobsen and Murphy
individually for AMP's actions is REVERSED.
FOOTNOTES
Footnote 1:
Marine pilots are state and federally licensed independent
contractors who are hired by ship operators to navigate ships
through inland or coastal waters.
Footnote 2:
The Boyd defendants also include the individually-named Boyd
pilots John Schibel, Richard Murphy, and Harry Jacobsen in their
individual capacities.
Footnote 3:
The jury found Alaska Marine Pilots is Boyd Enterprises'
successor-in-interest.
Footnote 4:
To receive federal pilotage endorsements, which are necessary
to obtain a state pilot's license, marine pilot applicants must
certify that they have completed a minimum number of trips in and
out of various ports, harbors and waterways; they must also pass a
Coast Guard exam.
Footnote 5:
Alaska law requires individual pilots and pilot associations
to report violations of pilotage law, cooperate with the Board, and
protect life and property. See AS 08.62.157, AS 08.62.175(c)(1)
and (c)(6); 12 AAC 56.310.
Footnote 6:
This court rescinded Rule 16.1 in July 1997. See Alaska
Supreme Court Order No. 1266 (July 15, 1997).
Footnote 7:
Karl Luck, Director of Occupational Licensing, testified at
trial that the state might be able to decertify a marine pilot
organization that violated AS 08.62.175(c)(4).
Footnote 8:
In O.K. Lumber, we noted that the statute provided modest
monetary sanctions whereas a successful tort action could result in
significant damages. O.K. Lumber, 759 P.2d at 527. This was one
of the factors that led us to conclude that we could not imply a
private cause of action. Id. In O.K. Lumber, we found that large
tort damage awards could "upset the implicit legislative judgment
that the broad proscriptions of the act are tolerable because of
the limited sanctions imposed." Id. In this case, the behavior
prohibited is not broad, or difficult to define, or inapt for
individual enforcement. In the absence of such concerns, the fact
that an implied cause of action would provide greater remedies than
no cause of action is one of the very reasons to find that the
statute implies it.
Footnote 9:
We also note in passing that we reject AMP's argument that AS
08.62.175(c) is health or safety legislation. While a primary
purpose of regulating marine pilots is preservation of safety,
there is no evidence that this is the purpose of AS 08.62.175(c).
On its face, the provision seems to be directed at ensuring marine
pilots a fair opportunity to pursue their callings, rather than
preserving health or safety. Thus, Reed v. Municipality of
Anchorage, 782 P.2d 1155, 1156-57 (Alaska 1989) which held that a
private cause of action cannot be implied from health or safety
laws, is not controlling.
Footnote 10:
We recognize AMP's perhaps legitimate concerns that it would
be dangerous to allow an unqualified employee to join the
organization. However, if AMP was concerned about Hendsch's
qualifications, its only proper action in that regard was to report
those concerns to the appropriate authority. See AS 08.62.157(b).
AMP's alleged concerns about the safety of the public, although
laudable, were not a legitimate basis to deny Hendsch membership.
The decision about whether Hendsch is a competent and qualified
pilot is for the state and federal governments to make, not AMP.
Moreover, to the extent AMP was motivated by fear of liability
resulting from Hendsch piloting a vessel, Alaska law relieves
regional pilot associations from all liability for claims arising
from piloting a vessel. See AS 08.62.165(c).
Footnote 11:
In the case most closely on point, an Arizona appellate court
ruled that the termination of an employee could not constitute
interference with prospective economic advantage because the tort
"require[s] some contract or business expectancy . . . vis-a-vis a
third party. There was no contractual relation or business
expectancy with a third party, only the contract which may have
existed between the appellant and appellee hospital." Paros v.
Hoemako Hosp., 681 P.2d 918, 921 (Ariz. App. 1984) (citations
omitted).
Footnote 12:
This resolution moots AMP's appeal point concerning differing
amounts in mitigation of Hendsch's damages. Having found that the
intentional interference claim should not have been submitted to
the jury, we need not address any claimed inconsistency concerning
mitigation for damages arising from that claim with mitigation for
damages arising from a claim that was properly submitted.
We need not address inconsistency for a second reason:
Hendsch argued below that the verdicts were not inconsistent in
response to AMP's request that the trial court give supplemental
instructions to the jury in order to resolve the apparent
inconsistency. Because Hendsch prevailed in this argument, and
still does not argue that the verdicts are inconsistent, there is
no occasion for us to consider the issue.
Footnote 13:
In Boyd Enterprises, the expenses of all pilots were pooled,
as was all revenue. The difference between the revenue and the
costs was then distributed to the pilots on a percentage basis
based on the number of pilot days they worked out of the total
number of pilot days worked by all Boyd pilots. Thus, if Hendsch
could show that some expenses were not chargeable to Boyd
Enterprises, he would be entitled to additional monies for 1988 and
1989.
Footnote 14:
The jury was asked to answer Q13, which asked, "What
amount of damages, if any, was caused by the conduct which forms
the basis of your verdict concerning the breach of the promise?"
Question 12 asked if the breach was the legal cause of
any loss to Hendsch. It was left blank, as it should have been,
because the jury found a legitimate business purpose for the
termination of the contract. But the question that the jury was
instructed to answer if it so found was Q13, which asked for the
amount of damages caused by the breach of contract. Had the jury
answered question Q12 affirmatively (that the breach caused any
loss), it was also instructed to answer Q13. Thus, regardless of
whether the jury answered the question about legitimate business
purpose "yes"or "no", it was still asked for the amount of
damages. Further, Q13, which both parties agree the jury should
not have answered, directed the jury not to answer questions Q14-
Q16, which dealt with the breach of the covenant of good faith and
fair dealing. Those questions should have been answered, in any
event.
Footnote 15:
The court based its conclusion on Rule 51(a)'s statement that
"[n]o party may assign as error the giving or failure to give an
instruction unless the party objects thereto before the jury
retires to consider its verdict, stating distinctly the matter to
which the party objects and the grounds for objection." 842 P.2d
at 153 n.8.
Footnote 16:
Even this mention was equivocal: "Hendsch may also be
entitled to recover other damages including punitive damages if the
evidence presented supports such a claim." When the court and
counsel reviewed instructions the night before the jury was to be
instructed, Hendsch's counsel noted that the proposed special
verdict form included a claim for punitive damages and requested
permission to write an accompanying instruction. AMP and the Boyd
defendants objected on the ground that punitive damages had not
been pled. The objections were overruled. As of that point,
neither objecting counsel had had an opportunity to object to the
form of the instruction.
Footnote 17:
It is also of significance to us that the punitive damages
issue was raised at the very last possible moment and AMP did
object to instructing the jury on punitive damages. That AMP
failed to notice that the instruction erroneously lacked the clear
and convincing evidence standard is understandable given the
plaintiff's untimely proffer of the proposed instruction.
Footnote 18:
We note in passing that the trial court did not abuse its
broad discretion in allowing Hendsch to present his punitive
damages claim to the jury. We will not reverse such a decision
unless we have a "definite and firm conviction upon review of the
entire record that the court was mistaken." Vertecs Corp. v.
Reichhold Chems., Inc., 671 P.2d 1273, 1277 (Alaska 1983).
Footnote 19:
We recognize that these authorities deal with
partnerships and joint ventures. Nonetheless, we find them highly
persuasive. We do not express an opinion as to whether AMP is
properly classified as an unincorporated association or a
partnership. If anything, the case for liability of partners for
obligations of the partnership is even stronger than that for
liability of members for obligations of an association. See David
J. Oliveiri, Annotation, Liability of Member of Unincorporated
Association for Tortious Acts of Association's Nonmember Agent or
Employee, 62 A.L.R.3d 1165, 1168 (1975) (noting that many
jurisdictions hold members of unincorporated associations liable
only for torts they participated in or approved of). But even
partners are entitled to notice and an opportunity to argue their
case before being held individually liable for obligations of the
partnership. Thus, regardless of AMP's organizational status,
Boyd, Schibel, Murphy, and Jacobsen cannot be held individually
liable.
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