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Alyeska Pipeline Service Co. v. Shook (4/16/99), 978 P 2d 86
<![CDATA[
Notice: This opinion is subject to correction before publication in
the Pacific Reporter. Readers are requested to bring errors to the attention of
the Clerk of the Appellate Courts, 303 K Street, Anchorage, Alaska 99501, phone
(907) 264-0608, fax (907) 264-0878.
THE SUPREME COURT OF THE STATE OF ALASKA
ALYESKA PIPELINE SERVICE )
COMPANY, an Alaska corporation,) Supreme Court No. S-8015
)
Petitioner, ) Superior Court No.
) 3AN-95-3874 CI
v. )
)
THOMAS SHOOK, and all other ) O P I N I O N
similarly situated employees, )
) [No. 5106 - April 16, 1999]
Respondents. )
_______________________________)
Petition for Review from the Superior Court of
the State of Alaska, Third Judicial District, Anchorage,
Peter A. Michalski, Judge.
Appearances: Charles P. Flynn, Burr, Pease &
Kurtz, Anchorage, and Mark H. Epstein, Munger, Tolles & Olson, Los
Angeles, California, for Petitioner. Walter H. Garretson, Walter
H. Garretson, P.C., Anchorage, and Stephen L. Nourse and C. Scott
Penner, Carney Badley Smith & Spellman, Seattle, Washington, for
Respondents.
Before: Matthews, Chief Justice, Compton,
Eastaugh, Fabe, and Bryner, Justices.
EASTAUGH, Justice.
BRYNER, Justice, with whom FABE, Justice,
joins, dissenting.
I. INTRODUCTION
Under Alaska law, an employee may not privately settle a
wage and hour claim for a sum less than the damages required by the
Alaska Wage and Hour Act (AWHA). In exchange for a large
employment severance payment, Thomas Shook released his former
employer, Alyeska Pipeline Service Company, "from any and all
claims . . . arising from his employment or as a result of this
separation of employment." When Shook later sued Alyeska claiming
AWHA violations, Alyeska moved for summary judgment on the theory
the severance payment fully offset, and thus extinguished, Shook's
AWHA claim. The superior court denied Alyeska's motion. We
reverse. We conclude that the release encompassed Shook's claims,
and that, because it substantially exceeded the maximum he could
have recovered under the AWHA, the severance payment fully
satisfied any potential AWHA award. It therefore required
dismissal of his AWHA claim. We remand for entry of judgment for
Alyeska.
II. FACTS AND PROCEEDINGS
Alyeska employed Shook from August 1982 until March 1995.
From 1987 to 1995, Shook was a Senior Business System Analyst,
classified by Alyeska as an exempt employee not eligible for
overtime pay under the AWHA. The AWHA does not apply to "an
individual employed in a bona fide executive, administrative, or
professional capacity or in the capacity of an outside salesman or
a salesman who is employed on a straight commission basis."[Fn. 1]
Alyeska terminated his employment in March 1995 as part
of a company-wide reduction in force. Shook signed a document
entitled "Separation Agreement and General Release,"and received
a lump sum severance payment of $141,496.73 from Alyeska as part of
his involuntary severance package.
In May 1995 Shook brought a class action complaint on
behalf of himself and other current and former Alyeska employees,
alleging that Alyeska had violated the overtime provisions of the
AWHA. He contended that he and all of Alyeska's present and former
employees employed in an "executive, administrative, or
professional capacity"had been improperly classified as exempt,
and that they were entitled to back overtime pay, plus liquidated
damages, penalties representing ninety days' lost wages, and
attorney's fees.
The superior court granted class certification "only on
the question of whether Alyeska employees subject to suspension
without pay were properly classified as exempt." Alyeska moved for
summary judgment against Shook individually, assuming for purposes
of its motion that Shook was correct on the merits of his AWHA
claim. Alyeska introduced evidence of the general release Shook
signed when he separated. Alyeska asserted that it was entitled to
set off its lump sum severance payment against any recovery that
Shook might obtain. Alyeska calculated that Shook's maximum
potential recovery from a successful AWHA case was about $71,000,
including statutory liquidated damages and prejudgment interest.
Alyeska's calculation made no allowance for an award of attorney's
fees. Reasoning that its severance payment of $141,496.73 exceeded
Shook's maximum potential AWHA recovery, Alyeska urged the court to
dismiss Shook's claim, and to give plaintiffs' counsel thirty days
to name a new class representative.
Shook did not argue that he could potentially recover
more than $71,000 under the AWHA or that there was any genuine
dispute about his maximum potential AWHA recovery. He instead
argued that there were genuine fact disputes about the scope of the
release and what part of the severance payment was intended to
discharge AWHA claims.
The superior court denied Alyeska's motion. It found
that the release did not necessarily cover Shook's AWHA claim, and
that Alyeska was not clearly entitled to a setoff. It also found
"no indication that either Shook or Alyeska contemplated that Shook
had a potential claim for unpaid overtime wages." We granted
Alyeska's petition for review of the denial of its summary judgment
motion.
III. DISCUSSION
A. The Purpose of the Payment
The separation agreement Shook signed contains language
that "releases and discharges Alyeska . . . from any and all claims
. . . arising from [Shook's] employment."[Fn. 2] Alyeska argues
that the release covers Shook's AWHA claim, because it is a claim
arising from Shook's employment. [Fn. 3] According to Alyeska, the
release language is unambiguous; it argues that "Alyeska paid
Plaintiff over $140,000 in return for his promise not to sue
Alyeska over anything relating in any way to his employment."
Shook maintains that, in construing the release, the
court should consider extrinsic evidence of the parties' intentions
regarding the AWHA claim. In his superior court affidavit, Shook
affied that he had not previously asserted any AWHA claims and had
not discussed with Alyeska the waiver of such claims before he
signed the agreement. He argues that a question of fact remains
about whether he expected or intended to relinquish his AWHA
claims. He also asserts that, because he and Alyeska could not
have settled their AWHA claims without court approval, he would not
have expected the release to cover them.
The question whether the release encompassed Shook's AWHA
claims is relevant to deciding whether Alyeska is entitled to
offset any part of the severance payment against Shook's AWHA
claims. Alyeska does not argue that the release is an absolute bar
to Shook's claims.
The superior court found no indication that the parties
contemplated Shook's possible AWHA claims, and found no reasonable
relationship between the severance payment and Alyeska's potential
liability under the AWHA. The court concluded that the severance
payment "was not paid to settle a specific overtime claim."[Fn. 4]
We interpret contracts so as to "give effect to the
reasonable expectations of the parties."[Fn. 5] We give effect to
a broad release even if the parties did not specifically list all
of their possible claims. For example, in Martech Construction Co.
v. Ogden Environmental Services, Inc., [Fn. 6] we noted the broad
language of a release executed by an equipment supplier and
subcontractor. [Fn. 7] The parties there purported to release each
other "fully, finally, and completely from all liability for
whatever damage, known or unknown, arising from or relating to the
subject contract."[Fn. 8] We characterized the agreement as "a
complete washing of the hands between the parties using as soap
blatantly broad language to cover all possible causes of action."
[Fn. 9] We therefore found it irrelevant that, at the settlement
negotiations, the parties had never discussed the equipment that
became the subject of the dispute: "The broad language used implies
that claims not specifically contemplated are settled."[Fn. 10]
Similarly, we give effect to the broad language of
indemnity agreements, even as against the indemnitee's own
negligence. [Fn. 11] We have, however, refused to enforce
indemnification agreements that would tend to promote a breach of
duty to the public safety. [Fn. 12]
The agreement Shook signed purports to release Alyeska
"from any and all claims (other than claims for the payments
provided for under this AGREEMENT), liabilities, demands and causes
of action, known or unknown, . . . arising from [Shook's]
employment or as a result of this separation of employment." The
parties' broad language reveals an intention to resolve all
possible claims arising from Shook's employment; any claims not
specifically reserved must be considered settled by the agreement.
[Fn. 13]
Shook does not argue that settlement of employment-
related claims falls into the public duty exception articulated in
State v. Korean Air Lines. [Fn. 14] We read that exception to be
limited to public safety, an interest of little or no pertinence
here given the primary legislative purposes of the AWHA. [Fn. 15]
In any event, the question for us is not whether to give effect to
the release, but whether the release language reveals why Alyeska
paid Shook over $140,000. The agreement recites receipt of
consideration for the release. Shook's affidavit does not assert
that he understood that the release would not encompass AWHA
claims; it asserts only that he never "had any discussion with
anyone from Alyeska"that he was waiving AWHA claims by signing the
agreement. Absent any evidence of a reservation of Shook's AWHA
claim, we must conclude that he accepted the severance payment in
consideration for his release of all of his employment-related
claims, including any potential AWHA claim. It is significant that
Shook has not claimed that he has any employment-related claim
other than his AWHA claim, or that he was aware of any other claim
when he accepted the payment.
We therefore conclude that the payment was intended to
encompass any AWHA claim Shook had.
B. Private Settlement of AWHA Claims
The parties dispute whether an employer and employee can
privately settle an AWHA claim. Their arguments focus on the
effect of McKeown v. Kinney Shoe Corp. [Fn. 16]
That opinion concerned a class action for alleged AWHA
violations. Kinney offered monetary settlements to the potential
class members in exchange for waivers of "any rights [the
employees] might have against Kinney . . . for all of the claims
which were or could have been asserted in the class action lawsuit
[including] . . . unpaid overtime, bonuses and certain deductions
from paychecks."[Fn. 17] We held that "permitting private
settlement of liquidated damages claims under the AWHA is contrary
to the strong policy behind the AWHA and its liquidated damages
provisions,"and declared void the settlements purporting to
compromise AWHA claims for unpaid overtime. [Fn. 18] We also
stated, "[o]f course, Kinney may offset damages ultimately awarded
to particular employees by any amount that it has already paid to
those employees in its attempt to settle their claims."[Fn. 19]
Alyeska argues that McKeown permits Alyeska to set off
the separation payment against any recovery Shook could obtain.
Alyeska reasons that, because the separation payment greatly
exceeds Shook's maximum possible recovery, including interest and
liquidated damages, it "completely extinguishes"his claim.
Shook responds that "the offset in McKeown was for the
money the settling employees had received for the very claims that
were in dispute in that lawsuit." He argues that McKeown is
distinguishable from his case because "there is no indication that
Alyeska or the separated employees considered potential claims
based on AWHA violations when they entered into the severance
agreements."
The superior court distinguished McKeown from Shook's
case for the reasons Shook suggested. The court found that Alyeska
made its severance payment "for a number of reasons, including
maintaining good will with [Alyeska's] employees generally." The
superior court therefore concluded that Alyeska was not clearly
entitled to a setoff.
When Shook and Alyeska signed the agreement, the AWHA
contained no provision that would have expressly rendered
unenforceable a settlement agreement not approved by the Department
of Labor or the court. The AWHA now has such a provision, AS
23.10.110(j). It applies to written settlements entered into after
August 21, 1995. Shook and Alyeska entered into their agreement on
April 18, 1995. Alaska Statute 23.10.110(j) therefore does not
apply to the Shook-Alyeska agreement. [Fn. 20]
Our resolution of the public policy question turns on the
rationale that controlled McKeown. McKeown contemplated a
settlement in which the employee received less than the full amount
due. We there explained:
If the liquidated damages available under the
AWHA were meant mainly to compensate the wronged employee, one
might reasonably argue that compromise or settlement by the wronged
employee might be appropriate. Because the liquidated damages are
not compensatory, an employee's capacity to compromise or settle
for a lesser amount should be extremely restricted.[ [Fn. 21]]
By contrast, the case at bar did not arise out of a
settlement for less than the amount prescribed by the AWHA. Shook
received about twice his maximum possible AWHA recovery, including
compensatory and liquidated damages and interest. Assuming Shook
also was entitled to recover costs and reasonable attorney's fees,
[Fn. 22] we can safely say that the amount he received
substantially exceeded his total potential AWHA recovery. Although
Shook suggests that a factual issue remains regarding the value of
his AWHA claim, he does not explain what the issue is or challenge
Alyeska's calculations. He was not asked to accept, and did not
accept, less than the full amount he might have recovered under the
AWHA. Assuming that the Fair Labor Standards Act (FLSA) is a
model, [Fn. 23] we have not found any case that declined to enforce
a settlement for an amount that substantially exceeded the full
amount recoverable under the FLSA. We hold that the public policy
reflected in the AWHA and McKeown is not offended when an employee
unquestionably receives the full amount the AWHA requires. We also
note that, at oral argument before us, Shook's attorney
forthrightly conceded that Shook's wage and hour claim was his only
employment-related claim. Shook does not argue that when his
employment terminated Alyeska had any duty to pay him anything in
addition to all amounts due under the AWHA. Because Shook had no
other potential employment-related claims against Alyeska, we must
conclude that the entire severance payment can be attributed to his
wage and hour claim and, thus, that it fully satisfies the AWHA's
damages requirements. We consequently agree with Alyeska that the
resulting setoff extinguishes Shook's AWHA claim.
IV. CONCLUSION
We REVERSE the order denying summary judgment to Alyeska
and REMAND for entry of judgment for Alyeska on Shook's individual
claim. This result does not require dismissal of the class action.
The class should have opportunity to substitute a new class
representative.
BRYNER, Justice, with whom FABE, Justice, joins, dissenting.
Although I agree that Alyeska may be entitled to offset
some, or conceivably even all, of Shook's severance payment, I do
not agree that the entire amount of his severance should be
automatically available for offset. In my view, the question of
any potential offset contains unresolved factual issues.
The severance agreement required Shook to release Alyeska
"from any and all claims, . . . liabilities, and demands and causes
of action, known or unknown, . . . arising from [Shook's]
employment or as a result of this separation of employment." As
the court recognizes, McKeown v. Kinney Shoe Corp. [Fn. 1] makes it
clear that the agreement's inclusion of one type of potential claim
-- an AWHA claim -- is impermissible. The narrow question
presented is what portion of Alyeska's severance payment can be
ascribed to this impermissible purpose.
Absent proof that Shook had any other potentially viable
claims against Alyeska, the court holds that his entire severance
payment may be presumed to cover his AWHA claim. But this holding
takes an unrealistic view of what Alyeska paid for. The court
fails to recognize that Alyeska's severance plan did not prepay
future damages to its employees for their existing valid claims.
Rather, the plan bought Alyeska protection against uncertainty --
insurance against the risk of many different kinds of future claims
that were "known or unknown"to its employees at the time of
severance.
That only one of these claims eventually materialized in
Shook's case, and that this claim is no longer within the terms
covered by the severance package, hardly justify Alyeska in
recharacterizing its entire severance payment as an advance deposit
on Shook's AWHA claim. With respect to other "known or unknown"
potential claims against which Alyeska sought protection, it got
precisely what it paid for when it made the payment -- security
against the possibility of a claim by Shook. That these other
risks have not actually materialized and may no longer be of
concern to Alyeska cannot justify the company's claim that its
payment to insure against these risks was, in retrospect,
unnecessary and should therefore now be credited against Shook's
potential AWHA recovery.
In my view, a more realistic approach in circumstances
like these -- where one narrow aspect of a global settlement and
release is found invalid as against public policy -- would be to
hold that a right of offset arises as to the prorated amount of the
total settlement payment that is attributable to the specific
provision that is declared invalid and unenforceable. Applying
this approach to Shook's case would determine the portion of the
total severance payment for which Alyeska could fairly be said to
have received nothing, and for which it accordingly should be
entitled to reimbursement or offset.
Shook's right to pursue his AWHA claim should not depend
on his ability to prove the non-existence of an offset. Rather,
because Alyeska has the burden of proving both the existence of an
offset right and the value of the offset, it should have to
establish the portion of Shook's overall settlement that was, at
the time of payment, fairly allocable to the risk of a potential
AWHA claim. If the manner in which Alyeska calculated the amount
to be offered in its severance package precludes the company from
prorating specific portions of the total settlement payments to
particular categories of potential claims, then, in my view, the
result would be a failure of proof, and Alyeska would be entitled
to no offset at all. Only if Alyeska established that its
severance package was actually designed to protect against nothing
but the risk of AWHA claims should the entire settlement payment
become available to offset a future AWHA claim.
Because the record in this case does not establish what
portion, if any, of Shook's total settlement should be available to
offset any future AWHA recovery, I would hold that summary judgment
based on a potential offset is not justified.
In any event, even accepting the court's holding that the
entire settlement is available to offset any AWHA recovery, I do
not agree with the conclusion that Shook's right to sue should be
commensurate with his ability to prove the potential for a net
overtime damage award. It is undisputed that Shook's agreement
with Alyeska is unenforceable to the extent that it includes an
unapproved settlement of potential AWHA claims. The strong public
interest in vindicating AWHA's policy against unapproved
settlements, [Fn. 2] coupled with the corresponding risk that a
strict rule of dismissal might discourage actions by potential
claimants, strongly favors allowing Shook to prosecute his cause of
action, even without proof of a potential net recovery.
Particularly in the context of a class action that will
continue regardless of Shook's participation, the trial court could
reasonably conclude that Shook's dismissal as a class
representative was unjustified. Alaska Civil Rule 23(c) gives
trial courts broad discretion to define the membership of classes
and subclasses, to segregate particular factual and legal issues
for case-by-case determination, and to establish the order in which
various questions should be considered and determined. Shook's
forced dismissal on summary judgment will do little more than
complicate this class action procedurally and cause remaining class
members to sustain added expenses. It may also encourage the
assertion of additional case-by-case offset motions as a tactical
strategy to delay or defeat progress in the class action. Since
the trial court can address offset issues in individual cases after
the merits of the AWHA class action are determined, I would find no
error.
Accordingly, I dissent.
FOOTNOTES
Footnote 1:
AS 23.10.055(9).
Footnote 2:
The Separation Agreement and General Release states, in part:
EMPLOYEE accepts the benefits specified herein
in full payment and satisfaction of all his rights and interests
relating to his employment with ALYESKA and, in consideration
therefore, EMPLOYEE hereby irrevocably releases and discharges
ALYESKA . . . from any and all claims . . ., liabilities, demands
and causes of action, known or unknown, fixed or contingent, which
EMPLOYEE may have or claim to have arising from his employment or
as a result of this separation of employment.
Footnote 3:
AWHA claims are derived from Alaska statutes. AS 23.10.060
provides, in part:
Payment for overtime. (a) An employer who
employs employees engaged in commerce or other business, or in the
production of goods or materials in the state may not employ an
employee for a workweek longer than 40 hours or for more than eight
hours a day. This section does not apply to the employment of a
person acting in a supervisory capacity.
(b) if an employer finds it necessary to
employ an employee in excess of 40 hours a week or eight hours a
day, compensation for the overtime at the rate of one and one-half
times the regular rate of pay shall be paid.
(c) This section is considered included
in all contracts of employment.
AS 23.10.110(a) provides, in part: "An employer who
violates . . . AS 23.10.060 is liable to an employee affected in
the amount of . . . unpaid overtime compensation . . . and, except
as provided in (d) of this section, in an additional equal amount
as liquidated damages."
AS 23.05.140(d) provides:
If an employer violates (b) of this section by
failing to pay within three working days of termination, the
employer may be required to pay the employee a penalty in the
amount of the employee's regular wage, salary, or other
compensation from the time of demand to the time of payment, or for
90 working days, whichever is the lesser amount.
Footnote 4:
We review a superior court's grant of summary judgment de
novo. See Nielson v. Benton, 903 P.2d 1049, 1052 (Alaska 1995).
Summary judgment is proper when the materials submitted show that
"there is no genuine issue as to any material fact and that any
party is entitled to a judgment as a matter of law." Alaska R.
Civ. P. 56(c). We interpret a release in the same manner as any
other contract. See Schmidt v. Lashley, 627 P.2d 201, 204 n.7
(Alaska 1981). We review de novo "a trial court's interpretation
of a contract in which the underlying facts are undisputed."
Oaksmith v. Brusich, 774 P.2d 191, 195 (Alaska 1989).
Footnote 5:
Wright v. Vickaryous, 598 P.2d 490, 497 (Alaska 1979).
Footnote 6:
852 P.2d 1146 (Alaska 1993).
Footnote 7:
See id. at 1151-52.
Footnote 8:
Id. at 1148.
Footnote 9:
Id. at 1152.
Footnote 10:
Id.
Footnote 11:
See, e.g., Manson-Osberg Co. v. State, 552 P.2d 654, 659
(Alaska 1976) ("The better rule in modern cases is that the
unambiguous language of an indemnity clause as 'reasonably
construed' should be given effect, even if it does not contain
words specifying indemnity for the indemnitee's own negligence.")
(citations omitted).
Footnote 12:
See, e.g., State v. Korean Air Lines Co., 776 P.2d 315, 319
(Alaska 1989) (concluding "that to require indemnification for the
State's own negligence on the [airport] runways and taxiways would
run afoul of the State's other obligations to the public").
Footnote 13:
See Martech Constr. Co. v. Ogden Envtl. Servs. Inc., 852 P.2d
1146, 1152 (Alaska 1993).
Footnote 14:
776 P.2d at 317-19.
Footnote 15:
The purposes of the AWHA are to "compensate those who labored
in excess of the statutory maximum number of hours for the wear and
tear of extra work and to spread employment through inducing
employers to shorten hours because of the pressure of extra cost."
Jones v. Otis Eng'g Corp., 757 P.2d 50, 53 (Alaska 1988) (citations
omitted).
Footnote 16:
820 P.2d 1068 (Alaska 1991).
Footnote 17:
Id. at 1069.
Footnote 18:
Id. at 1071.
Footnote 19:
Id. at 1068 n.4.
Footnote 20:
See Stephan & Sons, Inc. v. Municipality of Anchorage, 629
P.2d 71, 78 & n.19 (Alaska 1981) ("An agreement valid when made
generally cannot be rendered invalid by a subsequent act of the
legislature.").
Footnote 21:
McKeown, 820 P.2d at 1070 (emphasis added).
Footnote 22:
See Grimes v. Kinney Shoe Corp., 938 P.2d 997, 998 (Alaska
1997); see also AS 23.10.110(c), (e).
Footnote 23:
The AWHA has similar purposes to the FLSA and is based upon
it. See Webster v. Bechtel, Inc., 621 P.2d 890, 895 (Alaska 1980).
FOOTNOTES (Dissent)
Footnote 1:
820 P.2d 1068, 1069 (Alaska 1991) (holding that "employer and
employee may [not] privately settle claims for liquidated damages
arising under the Alaska Wage and Hour Act").
Footnote 2:
See id. at 1070 ("If the employer entices the private actor --
the unpaid employee -- to settle a legitimate claim, a violating
employer may then escape without an adjudication of liability and
without punitive sanction. An interpretation of the AWHA that
would permit such escape countermands the very purpose of the
liquidated damages provision.").
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