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Marathon Oil Company v. ARCO Alaska, Inc. (1/22/99), 972 P 2d 595
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Notice: This opinion is subject to correction before publication in
the Pacific Reporter. Readers are requested to bring errors to the attention of
the Clerk of the Appellate Courts, 303 K Street, Anchorage, Alaska 99501, phone
(907) 264-0608, fax (907) 264-0878.
THE SUPREME COURT OF THE STATE OF ALASKA
MARATHON OIL COMPANY, )
) Supreme Court No. S-7837
Appellant, )
) Superior Court No.
v. ) 3AN-95-10715 CI
)
ARCO ALASKA, INC., ) O P I N I O N
)
Appellee. ) [No. 5068 - January 22, 1999]
______________________________)
Appeal from the Superior Court of the State of
Alaska, Third Judicial District, Anchorage,
Peter A. Michalski, Judge.
Appearances: Maureen J. Bright, Bright &
Brown, Glendale, California, and Daniel T. Quinn, Richmond & Quinn,
Anchorage, for Appellant. Phillip J. Eide, Eide & Miller, P.C.,
Anchorage, for Appellee.
Before: Matthews, Chief Justice, Compton,
Eastaugh, Fabe, and Bryner, Justices.
FABE, Justice.
I. INTRODUCTION
Marathon Oil Company appeals the superior court's
decision upholding an arbitration award and granting ARCO Alaska,
Inc. eighty percent of the attorney's fees it incurred in defending
the award. Marathon argues that we should correct or vacate the
award pursuant to AS 09.43.120(a) because (i) the arbitrators
exceeded their powers by reversing a portion of the liability
decision; (ii) the arbitrators conducted the proceedings in a
prejudicial manner by failing to hold a hearing examining their
power to reverse; (iii) the arbitrators were estopped from changing
the liability decision; and (iv) ARCO is estopped from contesting
the relief Marathon seeks. Marathon also contends that the
arbitration agreement did not permit an award of attorney's fees,
and that even if some fees were allowed, enhanced fees were
inappropriate.
We affirm the superior court's decision to uphold the
arbitration award and its ruling that the arbitration agreement
permitted recovery of attorney's fees in an action seeking to
vacate or correct the award. But because the court abused its
discretion in awarding enhanced fees based in part on the
"unreasonableness"of Marathon's arguments, we remand for a
redetermination of attorney's fees under Alaska Civil Rule 82.
II. FACTS AND PROCEEDINGS
In 1966 Marathon entered into a Gas Rental Agreement to
supply natural gas to the Swanson River Field, an oil field on the
Kenai Peninsula. Marathon's gas was "rented"because the agreement
provided that the operator of the field would return the gas at the
end of the field's life. The rental agreement referred to the
event of returning the gas as "blow down."
Although Chevron initially operated the field, ARCO had
become the field operator by 1983. In the late 1980s, Marathon
began to oppose further delivery of rental gas to the Swanson River
Field. It claimed that, because the market value of rental gas had
increased since 1966, it was unprofitable for it to continue to
provide the gas at the price negotiated in the rental agreement.
ARCO objected to Marathon's attempts to cease delivery.
The rental agreement contained a clause permitting
Marathon to terminate gas delivery if the lessee did not take a
daily average quantity of 10 MCF (million cubic feet) of gas in any
twelve-month period. In November 1991 Marathon sent ARCO a letter
stating that it was exercising its right to terminate based on
ARCO's failure to take the minimum quantity of gas from August 1,
1990 to July 31, 1991. ARCO objected to the threatened
termination, claiming that it had taken the required daily average
of gas and that even if it had not, it was Marathon's fault for
delivering insufficient quantities. Under protest, Marathon
continued to supply gas to ARCO but claimed that it was entitled to
the fair market value of the gas delivered. Marathon stopped
delivering gas to the oil field in December 1992, when UNOCAL
became the field operator.
Marathon and ARCO could not resolve their dispute over
the proper price for the gas and decided to submit the dispute to
arbitration. The parties executed an arbitration agreement that
described the dispute as "[t]he price and/or other consideration
due to Marathon for rental gas delivered for the period 12/18/91 to
12/15/92 (including the related issue of whether or not the gas
delivered during this period was actually required to be delivered
pursuant to the Natural Gas Rental Agreement)." The agreement
required the arbitrators to apply Alaska law and stated that the
"decision of a majority of the arbitrators shall be binding upon
the parties with respect to all decisions to be made under this
arbitration agreement."
Although the parties had initially agreed to resolve
issues of liability and damages in a single hearing, the
arbitrators bifurcated the proceedings in order to accommodate
Marathon's request for a continuance to prepare its damages
experts. At the liability hearing, the first phase of the
proceedings, the arbitrators ruled in Marathon's favor. They found
that Marathon had the right to terminate the rental gas deliveries
based on ARCO's failure to take sufficient amounts of gas. The
panel then proceeded to give the parties guidance on the measure of
damages. It ruled: "ARCO is required (i) to pay Marathon the [fair
market rental value] of all Rental Gas delivered by Marathon to
ARCO at the [Swanson River Field] commencing on December 19, 1991,
less the amount actually paid to date by ARCO to Marathon for such
Rental Gas . . . and (ii) to return all such returnable Rental Gas
to Marathon as if it had been delivered pursuant to the terms and
conditions of the Agreement."
During the damages hearing, the parties presented
evidence regarding the fair market rental value of the gas, which
totaled 1 BCF (billion cubic feet). Despite the arbitrators'
ruling on summary judgment that the gas must be considered rented
rather than sold, Marathon argued that the measure of damages
should be the sale price of the gas, approximately $1.4 million.
Marathon justified its damages request by claiming that the rental
value was equivalent to the sales value in this case because ARCO
could not return the gas now that UNOCAL had become the field
operator. To support its position, Marathon introduced two
documents that were unavailable to the panel during the liability
phase: the ARCO/UNOCAL exchange agreement, effective December 15,
1992; and the Marathon/UNOCAL exchange agreement, effective
December 1, 1994. Pursuant to the first of these agreements,
UNOCAL replaced ARCO as the operator of the Swanson River Field.
In the second agreement, Marathon conveyed to UNOCAL all of its
interest in the returnable gas that it had delivered to the field,
except for 73 BCF of such gas.
The arbitrators rejected Marathon's arguments that the
measure of damages should be the sale price and awarded it the fair
market rental value of the gas, $407,026. In light of the
ARCO/UNOCAL exchange agreement, they concluded that UNOCAL had the
legal responsibility to return the 1 BCF of gas as the field
operator. As a result, the arbitrators ruled that although the
liability decision identified ARCO as the party responsible for
returning the gas, that responsibility had shifted to UNOCAL when
it became field operator. The panel concluded, as a matter of
fact, that the field contained sufficient gas to ensure that
Marathon would receive all the rental gas due. Further, the
arbitrators found that no evidence had been presented to suggest
that UNOCAL would shirk its obligations as field operator and thus
fail to return the gas to Marathon during blow down. In fact, they
noted that UNOCAL had commenced blow down in late 1993. The
arbitrators also stated that whether or not Marathon had contracted
away its right to receive the 1 BCF of gas from UNOCAL in its
exchange agreement was irrelevant to the outcome of the
arbitration.
After the arbitrators issued the damages decision,
Marathon requested that the ruling be corrected to provide that
ARCO, not UNOCAL, would be responsible for returning the rental
gas. As well as asking the arbitrators to reconsider their
interpretations of relevant agreements, Marathon argued that the
law of the case required them to conform the damages decision to
the liability decision, which specified that ARCO was to return the
gas.
The arbitrators refused to correct the damages decision.
They noted first that, pursuant to AS 09.43.090, they had no power
to reconsider the merits of a final decision and could only clarify
their prior ruling. The panel explained that the reference in the
liability decision to ARCO's obligation to return the gas was based
on a limited record that did not include the agreements Marathon
and ARCO had entered into with UNOCAL. The arbitrators clarified
that the liability ruling was intended only to acknowledge that the
field operator at the time of blow down would have the
responsibility of returning the rental gas. The arbitrators also
ruled that, because they had ordered bifurcation merely to
accommodate the parties, the liability decision was interlocutory,
and therefore, they had a right to revise it upon hearing further
evidence at the damages phase. The dissenting arbitrator disagreed
with the majority's characterization of the liability decision as
interlocutory and argued that the arbitrators were bound by their
initial ruling that ARCO was responsible for returning the gas.
After the arbitrators issued the final award, Marathon
filed a motion in the superior court pursuant to AS 09.43.120(a)
requesting the court either to correct the damages decision to
provide that ARCO was responsible for returning the gas or vacate
the award altogether. The superior court denied Marathon's motion
without explanation. It then granted ARCO's motion for attorney's
fees and awarded ARCO eighty percent of the fees it incurred in
defending the arbitrators' decision. Marathon appeals, arguing
that the superior court erred both in denying its motion to correct
or vacate the damages award and in awarding enhanced attorney's
fees to ARCO.
III. DISCUSSION
A. Standard of Review
Whether the arbitrators' actions violated AS
09.43.120(a) [Fn. 1] is a question of law. See Ahtna, Inc. v.
Ebasco Constructors, Inc., 894 P.2d 657, 660 (Alaska 1995). We
therefore review the superior court's decision to affirm the
arbitration award de novo. See id. The court's ruling that the
arbitration agreement permitted an attorney's fees award is also
reviewed under the de novo standard because it involves contract
interpretation. See State v. Arbuckle, 941 P.2d 181, 184 (Alaska
1997). We review the decision to award enhanced fees, however,
under the abuse of discretion standard. See Sweet v. Sisters of
Providence, 895 P.2d 484, 497 n.15 (Alaska 1995).
B. Did the Arbitrators Exceed Their Powers under the
Arbitration Agreement?
1. Standard of review
Determining whether the arbitrators exceeded their powers
by revising a portion of the liability decision, thus violating AS
09.43.120(a)(3), requires us to review their interpretation of the
arbitration agreement. See University of Alaska v. Modern Constr.,
Inc., 522 P.2d 1132, 1137 (Alaska 1974) ("The powers of arbitrators
are confined to those conferred upon them by the arbitration
agreement, subject, of course, to further limitations imposed by
the law of the jurisdiction.") (footnote omitted). We have
considered arbitrators' interpretations of arbitration agreements
only in the context of reviewing their decisions on arbitrability.
See, e.g., Public Safety Emp. Ass'n Local 92 v. State, 895 P.2d
980, 984 (Alaska 1995). "When arbitrability is the issue, the
standard of review concerning questions of law is whether the
arbitrator's conclusion is reasonably possible." Id. Recognizing
that the issue posed in this case is not one of arbitrability,
Marathon argues that we should apply a de novo standard, rather
than the reasonably possible standard, in reviewing the
arbitrators' interpretation of their powers.
Marathon first argues that a de novo standard is
appropriate because the arbitrators never in fact interpreted the
agreement. We disagree. Although the arbitrators may not have
used the words "we interpret the agreement,"their analysis of why
they could revise the first decision was based on their
understanding of the agreement, the parties' intent, and extrinsic
evidence. The arbitrators stated that they viewed the first
decision as interlocutory because the bifurcation occurred only to
accommodate Marathon's request for a continuance. They reasoned
that in such circumstances, in contrast to a situation in which the
parties had a right to bifurcated proceedings, the liability
decision was not final. Thus, the arbitrators implicitly concluded
that the liability decision did not qualify as "binding"within the
meaning of the arbitration agreement.
Marathon next claims that we should apply a de novo
standard because the arbitrators did not have the power to
interpret the agreement. It argues that the arbitrators lacked
this power because only one issue was submitted to them for
resolution. The fact that the parties submitted a single dispute
to the arbitrators, however, has no logical connection to whether
or not the arbitrators had the power to interpret the arbitration
agreement. Absent the ability to construe arbitration agreements,
arbitrators would be precluded from acting during hearings because
the agreements are the source of their powers.
Marathon also contends that a de novo standard of review
is appropriate because the arbitration agreement contained a
choice-of-law clause. However, Marathon's reliance on our decision
in Public Safety to support its position is misplaced. In Public
Safety, we reviewed the arbitrators' interpretation of applicable
law because the award at issue was the result of compulsory
arbitration. See Public Safety, 895 P.2d at 984; see also Butler
v. Dunlap, 931 P.2d 1036, 1039 (Alaska 1997). Awards stemming from
compulsory arbitration are reviewed under the arbitrary and
capricious standard, which we ruled was violated in Public Safety
because the arbitrator had ignored the law. See Public Safety, 895
P.2d at 984-85. The opinion does not stand for the proposition
that Alaska courts can review arbitrators' legal conclusions de
novo whenever an arbitration agreement contains a choice-of-law
clause.
We conclude that Marathon's arguments in favor of a de
novo standard of review are unpersuasive. Instead, because
determining arbitrability requires interpretation of an arbitration
agreement, it is logical to review arbitrators' interpretations of
other aspects of the agreement under the same standard that we use
to review their decisions on arbitrability. We therefore review
the arbitrators' decision that the agreement permitted them to
revise the liability ruling under the reasonably possible standard.
2. Did the arbitrators interpret the agreement
reasonably when they decided that they could revise the liability
decision?
Relying on the agreement's provision stating that all
decisions would be binding, Marathon argues that the arbitrators
did not have the power to reverse the liability decision and
absolve ARCO of the personal responsibility for returning the gas.
Marathon therefore urges this court to vacate or correct the
damages award under AS 09.43.120(a)(3).
In arguing that the arbitrators exceeded their power by
revising the liability ruling, Marathon assumes that the ruling
conclusively determined how the gas was to be returned. In fact,
as the arbitrators stated in their decision denying Marathon's
motion to correct the damages ruling, the liability hearing did not
address this issue. Instead, the hearing focused on determining
whether Marathon had a right to terminate gas delivery under the
1966 agreement based on ARCO's failure to take the minimum daily
average of gas. To make this determination, the panel considered
issues such as whether Marathon had delivered sufficient quantities
of gas and whether ARCO was legally excused from taking the minimum
required under the contract.
In contrast, determining whether ARCO or the field
operator was personally responsible for returning the gas required
the arbitrators to interpret the ARCO/UNOCAL exchange agreement in
relation to the 1966 gas rental agreement. The effect of these
agreements on gas re-delivery was not at issue during the liability
hearing; instead, the arbitrators addressed this issue only during
the damages phase. Although Marathon interpreted the exchange
agreement as placing the burden of gas return on ARCO's shoulders,
ARCO argued that the burden belonged to the current field operator,
UNOCAL. The arbitrators adopted ARCO's interpretation of the
agreements rather than Marathon's and therefore ruled that ARCO was
not personally responsible for returning the rental gas.
Because the liability hearing did not consider how the
gas would be delivered, the decision could not have represented a
conclusive determination that ARCO was personally obligated to
deliver it. We therefore disagree with Marathon's premise that the
arbitrators reversed a final decision when they stated in the
damages phase that ARCO was not personally responsible for
returning the gas.
But even if the liability decision had determined who was
to return the gas, we reject Marathon's claim that the arbitrators
acted unreasonably in interpreting the agreement to permit them to
revise this decision. It is true that if parties agree that a
partial decision, such as a liability decision in a bifurcated
proceeding, will be final, then the arbitrators have no authority
to change that "partial final"decision once it is issued. Trade
& Transp. v. Natural Petro. Charterers, 931 F.2d 191, 195 (2d Cir.
1991); see also International Bhd. of Elec. Workers, Local Union
1547 v. City of Ketchikan, 805 P.2d 340, 343 n.7 (Alaska 1991) ("It
is a fundamental common law principle that once an arbitrator has
made and published a final award, the arbitrator's authority is
exhausted and he or she can proceed no further."). Additionally,
one court has held that even if the parties have not explicitly
agreed to the finality of a liability decision, the decision should
be considered final if the record suggests that the parties and
panel believed that it would be final, and the arbitrators resolved
all issues presented to them. See McGregor Van de Moere, Inc. v.
Paychex, Inc., 927 F. Supp. 616, 618 (W.D.N.Y. 1996).
The record in this case, however, provides no substantial
evidence showing that the parties believed that the liability
decision would be final. Importantly, neither of the parties in
this case requested bifurcation. Instead, Marathon filed a motion
requesting the arbitrators to postpone the single hearing
scheduled. ARCO objected to this motion, stressing the need for
speedy resolution of the dispute. In an attempt to accommodate
both parties and to give Marathon more time to prepare its damages
experts, the arbitrators postponed the damages portion of the
hearing. Thus, the arbitrators divided the single hearing into two
phases merely as a scheduling convenience; the division was not a
response to the merits of the case.
In the damages decision, the arbitrators clarified that
the current field operator, rather than ARCO, would be liable for
returning the gas because they concluded that "justice so
require[d]." Contrary to Marathon's assertions, they interpreted
the relevant contracts to place the duty of gas return on the field
operator's shoulders rather than ARCO's. Although recognizing that
the liability decision stated that ARCO would have to return the
gas, they concluded that it would be unfair to hold ARCO personally
responsible for return based on this statement, because the
liability phase did not concern this issue. Given these
circumstances, we rule that the arbitrators interpreted the
arbitration agreement reasonably when they concluded that they
could revise the liability decision in the interest of justice.
C. Did the Arbitrators Conduct the Arbitration in a Way That
Prejudiced Marathon?
1. Standard of review
Marathon contends that we should vacate or correct the
damages award under AS 09.43.120(a)(4) because the arbitrators did
not grant it the opportunity to be heard on the issue of revising
the liability decision. Alaska Statute 09.43.120(a)(4) provides
that an arbitration award may be vacated when "the arbitrators
refused to postpone the hearing upon sufficient cause being shown
for postponement or . . . so conducted the hearing . . . as to
prejudice substantially the rights of a party[.]" (Emphasis
added.) This court has held that in order to vacate a damages
award based on the arbitrators' refusal to continue the arbitration
hearing, a litigant must show that the "arbitrators committed gross
error"in determining that a "litigant did not show 'sufficient
cause' for postponement." Ebasco Constructors, Inc. v. Ahtna,
Inc., 932 P.2d 1312, 1316 (Alaska 1997).
Because AS 09.43.120(a)(4) deals generally with issues
concerning the management of the arbitration, it is logical to
adopt the same standard of review for all alleged violations of
this provision. Therefore, we must decide whether the arbitrators'
failure to grant Marathon a hearing constituted gross error.
2. Did the arbitrators commit gross error by failing
to hold a hearing examining their powers to revise the liability
decision?
Marathon claims that it was unfair for the arbitrators to
revise the liability decision without first giving the parties
notice of the impending revision and an opportunity to be heard.
The arbitration agreement, however, granted the panel leeway in
matters of procedure, permitting it to conduct the arbitration
hearing "in such manner as it deem[ed] appropriate." In the
circumstances of this case, we conclude that the arbitrators could
have appropriately decided that notice and a hearing were
unnecessary because the liability phase had not addressed the issue
of gas delivery. There would have been little reason for the
arbitrators to give notice that they were revising their views on
an issue that the parties knew or reasonably should have known had
not been conclusively litigated.
Marathon's claim that it was prejudiced by the
arbitrators' revision of the liability decision assumes that it
acted reasonably in relying on the decision as conclusively
determining issues of gas delivery. Such reliance would have been
unjustifiable, however, given that the liability phase did not
address these issues.
D. Were the Arbitrators Estopped from Ruling in the Damages
Phase That UNOCAL Was Responsible for Returning the Gas?
Marathon also argues that the doctrine of estoppel
invalidates the arbitrators' decision in the damages phase that
UNOCAL, rather than ARCO, was responsible for returning the gas.
This argument is without merit.
The doctrine of estoppel is not the correct framework for
analyzing the arbitrators' actions. Even if the arbitrators'
decision in the damages phase constituted a reversal of a portion
of their liability decision, the question of whether or not the
reversal was appropriate can be answered only by interpreting the
arbitration agreement. It is the power of the arbitrators pursuant
to the agreement that is the issue; the doctrine of estoppel is
irrelevant.
Moreover, the cases cited by Marathon do not support its
claim that arbitrators can be estopped. The cases it relies upon
state that a municipality can be estopped, not a judicial body.
See, e.g., Municipality of Anchorage v. Schneider, 685 P.2d 94, 97
(Alaska 1984). As ARCO argues, any contention that a judicial
body, such as a court, can be estopped from reversing its decisions
is meritless.
E. Is ARCO Estopped from Contesting the Relief Marathon
Seeks Here?
Marathon next argues that ARCO should be estopped from
opposing Marathon's motion to vacate or correct the damages award.
Marathon's estoppel argument boils down to two claims: (i) in its
negotiations with UNOCAL, ARCO agreed that it would retain the
liability for returning the gas and thus should be estopped from
now arguing that UNOCAL had the responsibility of return; and (ii)
because ARCO did not contest the liability decision and agreed that
all decisions would be binding in the arbitration agreement, it
should be estopped from challenging the finality of the liability
decision.
ARCO is correct that an estoppel analysis is
inappropriate under the circumstances. The real issue raised by
this appeal is whether the arbitrators exceeded their powers by
refusing to hold ARCO personally liable for returning the gas. The
positions adopted by ARCO before and during the arbitration are
irrelevant.
Furthermore, even if an estoppel analysis were
appropriate, we would still reject Marathon's contentions.
Marathon's first argument must fail because it asks this court to
retry the dispute resolved by the arbitrators. The arbitrators
decided in the damages phase that the agreement between UNOCAL and
ARCO did not place the obligation of returning the gas upon ARCO.
Marathon was given the chance to present its interpretation of the
UNOCAL/ARCO exchange agreement at the damages hearing; the
arbitrators simply rejected its interpretation. This court has no
statutory authority to reconsider arbitrators' construction of
contract provisions that do not pertain to the issue of
arbitrability. See Ahtna, Inc. v. Ebasco Constructors, Inc., 894
P.2d 657, 661 (Alaska 1995).
Marathon's second argument, that it detrimentally relied
on ARCO's conduct during the arbitration, is also unpersuasive.
Marathon asserts that, shortly after the damages trial, it entered
into an agreement waiving any claims against UNOCAL to receive the
BCF of gas. But ARCO argued at the damages trial that the
ARCO/UNOCAL exchange agreement placed the delivery obligation on
UNOCAL's shoulders, not its own. Thus, Marathon should have been
on notice prior to entering into its contract with UNOCAL that ARCO
disputed its personal obligation to deliver the gas. Marathon
therefore has not shown reasonable reliance on ARCO's conduct. [Fn.
2]
F. Did the Superior Court Err in Awarding Attorney's Fees
and Costs?
Marathon argues that the superior court's award of
attorney's fees was improper for two reasons: (i) attorney's fees
should not have been awarded at all because the arbitration
agreement provided that Rule 82 did not apply to this matter; and
(ii) even if Rule 82 applied, an enhanced award was unjustified
because Marathon's claims were not frivolous.
1. Did the arbitration agreement prohibit an award of
attorney's fees in an action to vacate or correct the arbitration
award?
Marathon contends that the arbitration agreement required
the parties to bear their own costs and fees, even for court
proceedings following the arbitration. The agreement provides:
"Each party shall bear its own costs and attorney's fees. Alaska
Rule of Civil Procedure 82 shall not apply to this matter."
Marathon urges this court to interpret the term "matter"to include
post-arbitration court proceedings and claims that its
interpretation is supported by the fact that the agreement
contemplates enforcement proceedings under the Uniform Arbitration
Act.
Because the parties have not pointed to any extrinsic
evidence explaining their intent in drafting the agreement, our
analysis of this issue must rely on the language of the contract.
See Fairbanks N. Star Borough v. Tundra Tours, 719 P.2d 1020, 1024
(Alaska 1986). The contract's language cuts against Marathon's
interpretation. First, as ARCO argues, the requirement that each
party bear its own costs and fees appears in a paragraph that also
discusses how the arbitrators will be compensated. The location of
the requirement within the contract therefore suggests that the
parties were referring only to the arbitration itself when they
agreed to each bear their own costs. Second, Marathon is mistaken
that the agreement's reference to enforcement proceedings under the
Uniform Arbitration Act supports its position. The Act authorizes
superior courts to award attorney's fees and costs to the
prevailing party in an action to affirm or modify an arbitration
award. See AS 09.43.140; Anchorage Med. & Surgical Clinic v.
James, 555 P.2d 1320, 1324 (Alaska 1976) (interpreting AS
09.43.140), overruled on other grounds by Ahtna v. Ebasco
Constructors, Inc., 894 P.2d 657 (Alaska 1995). By anticipating
enforcement proceedings pursuant to the Act, the parties
incorporated the Act's provisions into their arbitration agreement,
including AS 09.43.140. Therefore, the superior court correctly
interpreted the arbitration agreement when it decided that it could
award fees and costs to ARCO.
2. Did the superior court abuse its discretion in
deviating from the twenty percent standard of Rule 82?
Rule 82 provides that "[i]n cases in which the prevailing
party recovers no money judgment, the court shall award the
prevailing party . . . in a case resolved without trial 20 percent
of its actual attorney's fees which were necessarily incurred."
The superior court deviated from this standard and awarded ARCO
$18,060, or eighty percent of its actual attorney's fees. Marathon
argues that the superior court abused its discretion by awarding
enhanced fees.
The superior court explained the rationale for its award
as follows:
In light of the reasonableness and necessity
of the fees charged . . . and the policy supporting the finality of
arbitration decisions, and the amount of money at stake and effect
of Rule 82 if Marathon had prevailed in this action, and the
fundamental unreasonableness of Marathon's position it is
appropriate to enhance the attorney's fees awarded.
(Emphasis added.) Although Rule 82(b)(3) permits the trial court
to enhance an award of attorney's fees for a variety of reasons,
[Fn. 3] the court abused its discretion in relying on the
"unreasonableness of Marathon's position"as a factor justifying
enhancement. Marathon's challenge to the arbitration award raised
a legitimate issue about the arbitrators' power under the agreement
and the standard under which their interpretations of the agreement
should be reviewed. Moreover, an award of substantially "full
attorney's fees is manifestly unreasonable in the absence of bad
faith or vexatious conduct by the non-prevailing party." Alaska R.
Civ. P. 82, note to Supreme Court Order 1118am. No such conduct
occurred here. We therefore remand to the superior court for a
reconsideration of the attorney's fees award, in light of its other
findings under Rule 82(b)(3).
IV. CONCLUSION
We AFFIRM the decision of the superior court declining to
vacate or correct the arbitration award but REMAND for a
redetermination of appropriate attorney's fees under Rule 82.
FOOTNOTES
Footnote 1:
AS 09.43.120(a) provides:
(a) On application of a party, the court
shall vacate an award if
(1) the award was procured by fraud or
other undue means;
(2) there was evident partiality by an
arbitrator appointed as a neutral or corruption in any of the
arbitrators or misconduct prejudicing the rights of a party;
(3) the arbitrators exceeded their
powers;
(4) the arbitrators refused to postpone
the hearing upon sufficient cause being shown for postponement or
refused to hear evidence material to the controversy or otherwise
so conducted the hearing, contrary to the provisions of AS
09.43.050, as to prejudice substantially the rights of a party; or
(5) there was no arbitration agreement
and the issue was not adversely determined in proceedings under AS
09.43.020 and the party did not participate in the arbitration
hearing without raising the objection.
Footnote 2:
See K.E. v. J.W., 899 P.2d 133, 134 (Alaska 1995) (setting out
the elements of equitable estoppel as "(1) representation of a
position by conduct or word, (2) reasonable reliance thereon by
another party, and (3) resulting prejudice").
Footnote 3:
Rule 82(b)(3) provides in relevant part:
The court may vary an attorney's fee award
calculated under subparagraph (b)(1) or (2) of this rule if, upon
consideration of the factors listed below, the court determines a
variation is warranted:
(A) the complexity of the litigation;
. . . .
(C) the reasonableness of the attorneys'
hourly rates and the number of hours expended;
. . . .
(F) the reasonableness of the claims and
defenses pursued by each side;
(G) vexatious or bad faith conduct;
. . . .
(K) other equitable factors deemed relevant.
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