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Hikita v. Nichiro Gyogyo Kaisha Ltd. (11/17/00) sp-5330
Hikita v. Nichiro Gyogyo Kaisha Ltd. (11/17/00) sp-5330
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
TAKEHIRO HIKITA and ALASKA )
FOODS, INC., )
) Supreme Court No. S-8121
Appellants, )
) Superior Court No.
v. ) 3AN-75-2340 CI / 3AN-77-7492 CI
) (Consolidated)
)
NICHIRO GYOGYO KAISHA, LTD., ) O P I N I O N
NICHIRO PACIFIC, LTD., )
)
Appellees. ) [No. 5330 - November 17, 2000]
)
Appeal from the Superior Court of the State of
Alaska, Third Judicial District, Anchorage,
Peter A. Michalski, Judge.
Appearances: Douglas C. Perkins, Hartig,
Rhodes, Norman, Mahoney & Edwards, P.C., Anchorage, for Appellants.
John S. Hedland, Hedland, Brennan, Heideman & Cooke, Anchorage, for
Appellees.
Before: Matthews, Chief Justice, Eastaugh,
Fabe, and Bryner, Justices. [Compton, Justice,
not participating.]
PER CURIAM.
I. INTRODUCTION
This is the third time this case has come before us, [Fn.
1] and the sixth time we have addressed aspects of the underlying
dispute. [Fn. 2] The case involves two Japanese/American corporate
fishing families, Alaska Foods, Inc. (Alaska Foods) and Nichiro
Gyogyo Kaisha, Ltd. (Nichiro). In 1975 Nichiro physically and
financially abandoned Adak Aleutian Processors, Inc. (Adak), a crab
processing plant in Adak that Nichiro and Alaska Foods had created
as a joint venture and of which each owned a thirty-percent share.
Alaska Foods claims that Nichiro breached its contractual duties
under their shareholders agreement. Nichiro denies this, and
contends that a 1976 judgment in Nichiro's favor against Adak
precludes Alaska Foods from relitigating the issue of Nichiro's
alleged breach.
The last time this case was before us, in our 1989
decision in Alaska Foods v. Nichiro Gyogyo Kaisha, Ltd., we
remanded and instructed the superior court to determine whether the
1976 judgment precluded Alaska Foods's suit. [Fn. 3] In 1990 the
superior court summarily dismissed the suit on three grounds: as a
sanction for discovery violations on remand, on the ground of issue
preclusion, and on the merits. Alaska Foods appeals.
Because litigation-ending discovery sanctions are only
permitted after the trial court explores alternative lesser
sanctions and because the superior court did not explicitly discuss
such alternatives, we conclude that dismissal as a discovery
sanction was inappropriate. We further conclude dismissal on the
ground of issue preclusion is not justified, because Alaska Foods
lacked adequate incentive during the 1976 suit to litigate
Nichiro's breach of the shareholders agreement. And on the merits,
we find that Alaska Foods raised a genuine issue of material fact
as to whether Nichiro breached the shareholders agreement by
failing to use its best efforts to support the joint venture.
Accordingly, we reverse the dismissal and remand for further
proceedings.
II. FACTS AND PROCEEDINGS
In Alaska Foods, we set out the facts and proceedings:
In 1972 Isaac Norman entered into a
five-year, $1000 per year lease with the U.S. Navy for some
property on Finger Bay at Adak, Alaska. Norman intended to
establish a land-based fish processing facility. To carry out his
intentions, he formed Adak Aleutian Processors, Inc. [Adak], an
Alaskan corporation, and transferred to it the Finger Bay lease.
Norman sold 30% of the [Adak] stock to
Alaska Foods, 30% to [Nichiro], and 10% to Market Place. Alaska
Foods, a Washington corporation, was controlled by Alaska Shokai,
a Japanese corporation. Appellant Takehiro Hikita and his family
owned more than 90% of Alaska Shokai. [Nichiro] is a Japanese
corporation and Market Place is a Hawaiian corporation. The three
corporations, all of [which] were engaged in various aspects of the
fishing industry, agreed to pay Norman $200,000 jointly and
severally for the stock purchased.
At the time of the stock purchase the
parties also entered into a "shareholders agreement" which set out
the general plan of operation and administration of [Adak]. The
shareholders collectively agreed to "exert their best efforts to
achieve the corporate and business purposes of [Adak]." In
addition, each of the shareholders, with the exception of Norman,
incurred various specific obligations pursuant to the agreement.
[Nichiro] agreed to furnish to [Adak] sufficient funds for the
construction and installation of new improvements, equipment and
facilities for the Adak operations, upon terms and conditions to be
agreed upon between [Nichiro] and [Adak]; to provide to [Adak] up
to $2 million in working capital; and to provide technical
assistance for the construction and operation of the processing
facilities.
Alaska Foods also agreed to furnish funds
sufficient for the construction of the necessary facilities, upon
terms to be agreed upon between Alaska Foods and [Adak]. It
further agreed to provide the necessary personnel to undertake the
general affairs and business operations of [Adak]. In accordance
with the first obligation, Alaska Foods advanced approximately $1.6
million to [Adak].
Under [Nichiro]'s supervision, the plant
was completed in 1973 at a cost of $3.2 million, which was $2.5
million above the original estimate. Operations began during the
1973-74 fishing season. The plant was not productive for long,
however, as several days into the 1974-75 season [Nichiro] suddenly
and without notice withdrew from the venture. The facility never
reopened.
[Nichiro]'s abandonment of the Adak
Aleutian venture spawned at least five lawsuits. Three of them
involved Adak Aleutian as a party, and two of them -- the instant
case and Norman -- were brought by Adak Aleutian shareholders.
Norman is not directly relevant to the instant case, but each of
the Adak Aleutian cases is important and is therefore summarized
below.
On August 15, 1975, the Bank of
California filed a complaint in federal district court against Adak
Aleutian and Nichiro Pacific[ [Fn. 4]] to foreclose on loans it had
made to Adak Aleutian. Bank of California v. Adak Aleutian
Processors, Inc., No. A75-182 Civ. (D. Alaska). Adak Aleutian
cross-claimed against Nichiro Pacific, alleging that Nichiro
Pacific had breached a fiduciary duty, converted assets, and
breached an obligation to contribute working capital to Adak
Aleutian. Adak Aleutian defaulted on the cross-claim on August 5,
1976, and the parties stipulated to a judgment of foreclosure the
next day. The court entered a default judgment and decree of
foreclosure on November 1, 1976. The cause of the default was Adak
Aleutian's failure to provide adequate answers to interrogatories.
On June 4, 1975, Nichiro Pacific filed a
complaint in superior court against Adak Aleutian for amounts owed
on various promissory notes. Nichiro Pacific, Ltd. v. Adak
Aleutian Processors, Inc., No. 75-4074 Ci. (Alaska Super., 3d
Dist., Anchorage). Adak Aleutian filed a third-party complaint
against Nichiro Gyogyo and a counterclaim against Nichiro Pacific.
The third-party complaint and the counterclaim made similar
allegations of mismanagement, abuse, and refusal to advance funds.
The superior court entered summary judgment in favor of Nichiro
Pacific on its complaint in July 1976. Adak Aleutian's
counterclaim and third-party complaint languished until December
1979, when the superior court granted summary judgment in favor of
Nichiro Gyogyo and Nichiro Pacific. Invoking res judicata, the
court implicitly ruled that the judgment in Bank of California v.
Adak Aleutian barred Adak Aleutian's claims.
On July 9, 1975, Adak Aleutian filed a
complaint in federal district court against Nichiro Gyogyo and
Nichiro Pacific. Adak Aleutian Processors, Inc. v. Nichiro Gyogyo
Kaisha, Ltd., No. A75-153 Civ. (D. Alaska). This complaint
alleged mismanagement and various breaches of obligations, similar
to the allegations Adak Aleutian had made in the two previous
suits. This case saw little activity, and the parties stipulated
to a dismissal on May 3, 1976. Although the record does not
explicitly reveal the reason for the stipulation, the timing and
context strongly suggest that Adak Aleutian simply intended to
pursue its claims in the other two cases.
Finally, Hikita and Alaska Foods
initiated the instant litigation in superior court on October 21,
1977. In Hikita, we summarized the actions of the superior court
as follows:
Alaska Foods asserted both contract and
tort claims. Alaska Foods'[s] contract claims were dismissed for
two reasons: First, the superior court held that Norman v. Nichiro
Gyogyo Kaisha, Ltd., 645 P.2d 191 (Alaska 1982) barred the contract
action. Second, the superior court held that prior litigation
between related parties barred the contract action under
Restatement (Second) of Judgments sec. 56 (1980). Alaska Foods
also asserted tort claims which were dismissed because of the bar
of the two year statute of limitations.
Hikita, individually, asserted both
contract and tort claims. Hikita's contract claims were dismissed
because he was neither a party to, nor an intended beneficiary of,
the shareholders agreement. Relying upon the Norman decision, the
superior court dismissed some of Hikita's tort claims. As to
others, involving personal injuries, the superior court held that
they were not barred by either Norman or the Restatement (Second)
of Judgments sec. 56.
We affirmed in part, reversed in part,
and remanded.[ [Fn. 5]] To summarize, we held that Alaska Foods was
a proper party to maintain the action; that [sec.] 56 of the
Restatement did not bar Alaska Foods'[s] action; and that the tort
claims of both Hikita and Alaska Foods were properly dismissed.
Thus, the only issue Hikita left open to further proceedings was
Alaska Foods'[s] claim for breach of the shareholders agreement.
Hikita specifically allowed Nichiro to reargue the issues of res
judicata and collateral estoppel.
On remand, Nichiro renewed its motion for
summary judgment on grounds of res judicata. The superior court
granted the motion, concluding that this case raised the same
issues that were raised in Bank of California v. Adak Aleutian and
that Alaska Foods, through Hikita, had controlled that litigation.
Final judgment was entered on this basis . . . .[ [Fn. 6]]
In appealing that final judgment, Alaska Foods argued
that the Bank of California suit did not preclude it from
litigating Nichiro's breach of the shareholders agreement. [Fn. 7]
Addressing this argument, we held in Alaska Foods that the superior
court erred in applying Restatement (Second) of Judgment sec. 39 as
a
basis for deciding that Alaska Foods was precluded from bringing
its contract claims against Nichiro. [Fn. 8] We concluded that the
court instead should have relied on sec. 59, governing
corporations,
since sec. 59 applies "whenever preclusion between a corporation
and a stockholder, director, or officer is involved." [Fn. 9]
We pointed out that, under sec. 59, judgments in actions
involving corporations generally have no preclusive effects on
officers, directors, or stockholders. [Fn. 10] Section 59(3)(a),
however, establishes an exception for closely held corporations,
like Adak. A judgment in an action by such a corporation is
conclusive upon a "holder of its ownership" if that owner "actively
participated in the action on behalf of the corporation, unless
[the owner's] interests and those of the corporation are so
different that [the owner] should have opportunity to relitigate
the issue." [Fn. 11]
Accordingly, we remanded with directions for the court to
determine whether Alaska Foods actively participated in the 1975
litigation on behalf of Adak and whether Alaska Foods had adequate
incentive to pursue Adak's claims against Nichiro. [Fn. 12] We
noted that there was support in the record for the view that Alaska
Foods lacked adequate incentive, particularly because Adak was
insolvent and had more than $3.5 million in outstanding judgments
against it. [Fn. 13] But because the lack-of-incentive issue had
not been considered by the superior court, we remanded to give
Nichiro the opportunity to dispute the facts that we believed
established Alaska Foods's right to bring its own case. [Fn. 14]
We issued our decision in January 1989. On remand, the
superior court set a November 1990 trial date. Nichiro served
discovery requests on Alaska Foods in November 1989, December 1989,
and March 1990.
Alaska Foods did not respond to Nichiro's discovery
requests, and on April 12, 1990, Nichiro moved to dismiss Alaska
Foods's suit for failure to make discovery. Alaska Foods hastily
filed "responses" to the December and March discovery requests,
stating that it was "attempting to ascertain the answers" to the
requests for production and interrogatories and promising to submit
answers or objections by May 31.
On May 11 Nichiro moved for summary judgment both on
issue preclusion and on the merits. Alaska Foods responded by
moving for a stay, a Rule 16 conference, or an extended period of
time to reply, and told Nichiro on May 31 that it would not produce
the promised discovery until the court ruled on its stay request.
The court scheduled an August hearing on Nichiro's discovery-
sanction and summary judgment motions. On August 23 the court
denied Alaska Foods's stay-or-conference request and required it to
oppose Nichiro's motions by August 31.
Alaska Foods opposed summary judgment, attaching a recent
twelve-page affidavit from Takehiro Hikita, as well as a short
affidavit executed by Hikita in 1986. It also opposed dismissal
for discovery violations. The court heard oral argument in
October; two weeks later, it issued brief orders granting summary
judgment and dismissal for failure to make discovery. In response
to Alaska Foods's motion to reconsider or "[a]t a minimum . . . to
specify the grounds upon which its decision is based," the court
ordered Nichiro to submit proposed findings of fact and conclusions
of law. Nichiro did, and in January 1991 the court entered
findings and conclusions supporting the summary judgment and
discovery dismissals.
Meanwhile, in January 1990 Alaska Foods's suit against
Nichiro had been consolidated with Isaac Norman's case against the
company. Since the superior court's order dismissing Alaska
Foods's suit did not dispose of the entire action, Alaska Foods did
not have an immediate right to appeal. Nichiro and Norman finally
settled Norman's claims in 1995. Nichiro moved the court in
February 1997 to enter a final judgment in the consolidated
Norman/Alaska Foods/Hikita litigation; the court did so in March.
This appeal followed.
III. DISCUSSION
A. Dismissal as Discovery Sanction
The superior court generally has broad discretion in
sanctioning discovery violations, "subject only to review for abuse
of discretion." [Fn. 15] But "the trial court's discretion is
limited when the effect of the sanction it selects is to impose
liability on the offending party, establish the outcome of or
preclude evidence on a central issue, or end the litigation
entirely." [Fn. 16]
Alaska Foods appeals the superior court's dismissal for
failure to make discovery. It argues, first, that it had responded
to Nichiro's discovery requests. We find no merit in Alaska
Foods's claim that it responded to Nichiro's discovery requests.
Alaska Foods's response stated that "Plaintiff is currently
attempting to ascertain the answers to this interrogatory and will
submit its answer and/or objections by May 31, 1990." On May 31
Alaska Foods informed Nichiro that it would not make discovery
until the court ruled on its motion for a stay. But even after the
court denied this motion, Alaska Foods failed to answer Nichiro's
discovery requests. A party cannot satisfy a discovery request by
claiming that it is "attempting to ascertain the answers," and
putting off its obligation to a later date. Accordingly, Alaska
Foods is in no position to claim that it satisfied its discovery
obligations by serving discovery responses. [Fn. 17]
Alaska Foods next argues that the court could not impose
discovery sanctions because Nichiro never filed a motion to compel.
But under Alaska Civil Rule 37(d), if a party fails to provide
answers to properly served interrogatories, the superior court may
punish the disobedience with "such orders in regard to the failure
as are just," including any of the actions authorized under
subparagraphs (A), (B), and (C) of Rule 37(b)(2). Rule 37(b)(2)(C)
provides that the trial court may issue an order "dismissing the
action or proceeding or any part thereof, or rendering judgment by
default against the disobedient party." Thus, Civil Rule 37(d)
allows the court to impose the sanctions provided in subsection (b)
-- including dismissal -- on the motion of a party seeking
discovery, without first issuing an order compelling compliance.
Because failure to respond to a discovery request "strikes at the
very heart of the discovery system, and threatens the fundamental
assumption on which the whole apparatus of discovery was designed,"
Rule 37(b) contemplates
that in the vast majority of instances, the
discovery system will be self-executing. [Such a failure] provides
the propounding party with no evidence at all, no basis to begin to
understand the grounds for objection, and thus no basis for a
dialogue that might refine and move the discovery process forward.
It is precisely because outright failures to respond to discovery
halt the case development process dead in its tracks, and threaten
the underpinnings of the discovery system, that subdivision (d) of
Rule 37 authorizes . . . courts, in responding to this kind of
misconduct, . . . to impose in the first instance any of a wide
range of sanctions [, including dismissal].[ [Fn. 18]]
Accordingly, the superior court was not required to compel
discovery before it sanctioned Alaska Foods's disobedience.
Our prior cases, however, make clear that a trial court
may not issue litigation-ending sanctions without first exploring
"possible and meaningful alternatives to dismissal." [Fn. 19] "If
meaningful alternative sanctions are available, the trial court
must ordinarily impose these lesser sanctions rather than a
dismissal with prejudice." [Fn. 20] In this case, the superior
court did not make any findings regarding alternatives. The
court's findings discuss Alaska Foods's repeated failure to make
discovery, note that the company failed to demonstrate its lack of
willfulness, hold that Nichiro suffered prejudice, and conclude
that dismissal was therefore warranted. But the findings are
silent on the subject of lesser alternatives, and in the absence of
proper findings rejecting such alternatives, we must vacate the
sanction and remand for reconsideration. [Fn. 21]
B. Summary Judgment on Issue Preclusion
Our opinion in Alaska Foods directed the superior court
to determine on remand "whether Alaska Foods'[s] involvement in the
two [1975 Adak] cases constituted active participation for purposes
of [Restatement] section 59(3)(a)" and "whether Alaska Foods'[s]
interests and those of [Adak] [were] so different that Alaska Foods
lacked adequate incentive to pursue [Adak]'s claims and thus should
have the opportunity to relitigate the issues." [Fn. 22]
The superior court concluded on remand that Alaska Foods
had actively participated in the prior Adak litigation by
developing a list of claims against Nichiro, monitoring the
litigation, and eventually agreeing with the other Adak
shareholders to abandon Adak's claims against Nichiro. The court
also found that, assuming Adak had a meritorious claim against
Nichiro, Alaska Foods, as an Adak shareholder, had adequate
incentive to pursue Adak's breach-of-contract claim against
Nichiro.
Hikita insists that Alaska Foods's involvement in the
Adak litigation was limited to "writ[ing] telegrams and letters and
giv[ing] words of encouragement . . . because we were interested in
trying to see if we could not perhaps shame [Nichiro] into doing
what was right." But Nichiro established that Hikita actively
participated in initially planning and deciding to file Adak's
suit. Also, Hikita asked Adak's attorney to keep him informed as
the litigation progressed. Most significantly, Hikita testified in
a deposition that he reached an agreement with the other
stakeholders to abandon Adak's claims and allow the default
judgment to be entered against it. These facts all tend to show
that Hikita played an active role in the Adak litigation. [Fn. 23]
Yet Nichiro offered no evidence indicating that Hikita
participated in the fall 1975 decisions to file counter- and cross-
claims against Nichiro. Such evidence might have demonstrated
Alaska Foods's affirmative interest in pursuing the claims that
ultimately led to the default judgment upon which preclusion in the
present case depends. [Fn. 24] But in our view, without evidence
that Alaska Foods joined in Adak's decision to file these claims,
the record fails to establish that Alaska Foods's incentive to
pursue Adak's claims was sufficient to trigger preclusion under
Restatement sec. 59.
In defending the superior court's order on preclusion,
Nichiro contends that "[t]he crux of [Alaska Foods's] argument is
that [it] was entitled to recover items of damage that would not
have been recoverable by [Adak]," and notes that Alaska Foods's
ability "to recover damages that it would not have realized through
a recovery by [Adak] is the sine qua non of [its] argument."
Having attributed this argument to Alaska Foods, Nichiro goes to
great lengths to defeat it by demonstrating that the contractual
claims Alaska Foods asserts in the present case could yield no
award of damages that Adak might not have obtained on behalf of its
shareholders in its 1975 counter- and cross-claims. Thus,
asserting that "the focus of the incentive inquiry must be on the
recoverability by [Alaska Foods] of damages that would not be
redressed through a corporate recovery by [Adak]," Nichiro insists
that such damages are illusory.
But Nichiro's argument begs the crucial question. If
Alaska Foods could recover nothing in the current litigation that
Adak could not have recovered in its 1976 corporate claims against
Nichiro, then what more could it have recovered vicariously through
Adak's claims? In other words, what incentive did Alaska Foods
have to press an action in Adak's name that it could pursue
directly? The record provides no convincing answer. In fact,
uncontradicted evidence of Adak's insolvency and of its $3.5
million in amassed debt [Fn. 25] establishes that Alaska Foods had
every reason not to press Adak's corporate claim against Nichiro.
Nichiro nevertheless offers the theory that Alaska Foods
should have been motivated by the incentive of avoiding issue
preclusion:
[S]uccessful pursuit by [Adak] of its
litigation against Nichiro would have inured directly to the
benefit of [Alaska Foods] . . . since, by operation of [collateral
estoppel], it would have conclusively established Nichiro's
liability with respect to [Alaska Foods's] . . . damages arising
out of [its] mismanagement and contractual breach claims. Alaska
Foods, 768 P.2d at 120[,] 123[] n.6.
But Nichiro's reasoning is circular and would nullify the second
requirement of Restatement sec. 59(3)(a). As we explained in
Alaska
Foods, issue preclusion will apply under Restatement sec. 59(3)(a)
if: (1) a stockholder was an active participant in the
corporation's
litigation; and (2) if the stockholder had adequate incentive to
pursue the corporation's claims. [Fn. 26] If the risk of
preclusion were itself a sufficient incentive to bind a close
corporation's shareholders to actions they participated in on their
corporation's behalf, then their active participation would always
trigger issue preclusion. Thus, Nichiro's approach is inherently
inconsistent with sec. 59(3)(a)'s requirement that a stockholder be
an
active participant and have adequate incentive.
Indeed, we suggested as much in our prior decision:
Due to [the $3.5 million in] unsatisfied
judgments, Alaska Foods'[s] stock in [Adak] probably had little
value. In the instant litigation, however, Alaska Foods may seek
damages not only for the lost value of the stock, but also for "all
proximate damages that can be proved with reasonable certainty."
Alaska Foods alleges that Nichiro's actions caused Bank of
California to foreclose on property pledged by Alaska Foods, which,
"in turn led to the closing and virtual destruction of [Alaska
Foods]." If this is true, Alaska Foods may have suffered damages
substantially exceeding the lost value of its stock in [Adak].[[Fn. 27]]
We thus concluded that if Alaska Foods's assertions held true, "a
case of inadequate incentive to litigate would be made out." [Fn.
28] On remand, Nichiro did not refute these assertions. Instead,
it merely insisted that Alaska Foods had an adequate incentive to
litigate because its interests aligned perfectly with Adak's. But
in our prior decision we found that the record demonstrated that
Alaska Foods's interests did not align with Adak's; Alaska Foods's
claim as a party to the shareholders agreement was much stronger
than any claim it could bring vicariously through Adak. [Fn. 29]
This situation contrasts with the usual scenario where the
interests of a closely held corporation and its stockholders are so
similar that the corporation's actions effectively represent the
interests of the stockholder. [Fn. 30] Because Alaska Foods's
interests did not align with Adak's in this sense, we conclude that
it is not barred from bringing its own claim against Nichiro.
C. Summary Judgment on the Merits
Alaska Foods argues that Nichiro violated the express
terms of the shareholders agreement by failing to use its "best
efforts" to achieve the corporate and business purposes of Adak.
In opposing Nichiro's motion for summary judgment, Alaska Foods
submitted an affidavit by Hikita in which he asserted that Nichiro
had grossly mismanaged Adak and created enormous cost overruns.
Alaska Foods posits that it was Nichiro's mismanagement of Adak
that led to Adak's, and hence Alaska Foods's, economic ruin.
Nichiro offered nothing to rebut these assertions.
Instead, it framed Alaska Foods's claim narrowly, stating that
"[t]he gravamen of [Alaska Foods's] claim for breach of contract is
that defendants were obligated under the Shareholders Agreement to
make further loans to [Adak], but failed and refused to do so in
early 1975." Nichiro explained that the shareholder's agreement
provided that Nichiro would loan working capital to Adak under
terms set forth in a separate agreement between Nichiro and Adak.
That document, the May 13, 1974 working capital loan agreement,
defined the conditions and limitations on Nichiro's obligation to
loan up to $2 million in working capital to Adak. It provided that
Nichiro was obligated to supply working capital to Adak for a
period of ninety days beyond May 13, 1974. The loan agreement
further provided that Nichiro's obligation would terminate in the
"Event of Default." Nichiro established that it made payments
beyond the ninety days required by the agreement and that Adak
defaulted by failing to pay interest on its working capital loans.
Accordingly, Nichiro accurately observed that it had not breached
the loan agreement. The superior court did not err in granting
summary judgment to Nichiro on this aspect of Alaska Foods's claim.
The court erred, however, in dismissing Alaska Foods's
entire breach of contract claims based solely on the evidence that
Nichiro had not breached the loan agreement. Alaska Foods's claims
rest not only on Nichiro's failure to loan, but also on its alleged
mismanagement of the plant's construction and operation, which,
according to Alaska Foods, precipitated Adak's and Alaska Foods's
troubles. Alaska Foods recognizes Nichiro's contention that it
was "excused from its many contractual obligations because [Adak]
was in default for failing to make interest payments under the loan
agreement." But Alaska Foods deems this "nothing more than a
'chicken or egg' analysis; or which came first?" Explaining that
Adak "had no monies to make interest payments because Nichiro's
mismanagement of construction delayed production and its
mismanagement of operations ensured that revenues from production
would not be sufficient," Alaska Foods asserts that Nichiro's loan
and impracticability defenses are rebutted by the fact that
Nichiro's mismanagement triggered all of Adak's problems.
For its part, Nichiro did not try to explain why Adak was
in financial trouble or whether Nichiro had competently managed
Adak before Alaska Foods's default and the bank's intervention.
Indeed, Nichiro's fifty-four-page memorandum in support of its
motion for summary judgment never asserted that it fulfilled its
duty to exert "best efforts" in managing the venture. And in
responding to Alaska Foods's opposition, Nichiro merely said:
Equally unsupported is [Alaska Foods's]
general assertion that Nichiro is to blame for the "frustration of
purpose" of the contract. Plaintiff has offered no evidence to
show that Nichiro caused the financial difficulties of [Alaska
Foods] which preceded the bank's seizure and acceleration of the
[Adak] notes, and which preceded, by several months, Nichiro's
alleged "abandonment" of [Adak].
But as Alaska Foods correctly asserts, to obtain summary
judgment against Alaska Foods on the best efforts claim, it was
"Nichiro's obligation on summary judgment to explain to the trial
court WHY [Adak] was in financial problems." A party moving for
summary judgment will prevail if there is no genuine issue of
material fact and the record establishes that the party is entitled
to summary judgment as a matter of law. [Fn. 31] The moving party
bears the burden on both issues --
the initial burden of establishing the absence
of a genuine issue as to any material fact and [establishing] that,
based on such undisputed fact, it [is] entitled to a judgment as a
matter of law.[ [Fn. 32]]
We have repeatedly emphasized the moving party's affirmative
burden:
Because a premature grant of summary judgment
forecloses a litigant's right to trial . . . we must be mindful
that both on appeal and at the trial level, it is the moving party
that bears the initial burden of proving, through admissible
evidence, the absence of genuine factual disputes and its
entitlement to judgment. "[T]he party seeking summary judgment 'has
the entire burden of proving that his opponent's case has no
merit.'" . . . [A]lthough prudent counsel for the non-moving party
will always attempt to demonstrate a genuine issue for trial, it is
not obligated to do so until the moving party makes a prima facie
showing of its entitlement to judgment on established facts.[ [Fn.
33]]
Thus, it was not enough for Nichiro to point out that Hikita's
affidavit would not be admissible at trial. To prevail on summary
judgment, it carried the burden of producing evidence to establish
that Alaska Foods's best-efforts claim had no merit. [Fn. 34]
Nichiro could not meet this burden without some affirmative showing
that it had not mismanaged the plant.
Nichiro's burden was heightened by the fact that it was
undisputed that Nichiro owed a contractual duty to use "best
efforts." The primary issue on summary judgment was whether
Nichiro had satisfied this duty. Nichiro's duty to use "best
efforts" entails a standard analogous to the "reasonable care"
standard in a tort case where a defendant undisputedly owes a
duty:
In cases where no one disputes the existence
of a duty running from one party to another, we have disfavored
summary adjudication of the precise scope of that duty, or of
whether particular conduct did or did not breach it (i.e.,
constitute negligence). This is particularly so when the scope of
the duty poses a fact-specific question, involving policy and
"circumstantial judgments" that our legal system reserves for the
jury.
On the other hand, summary judgment is
proper where the only reasonable inference from the undisputed
facts is that one party owed another no duty whatsoever -- or owed
a duty clearly and vastly narrower in scope than the one that the
other party asserts in opposing summary judgment.[ [Fn. 35]]
This distinction reflects the principle that, "as a
practical matter, it is much harder to show that there are no
genuinely disputed material facts when the existence of a duty is
clear and the question is of its precise scope, or whether given
conduct fulfilled it." [Fn. 36] Even though Alaska Foods's claim
alleges a breach of contract, rather than a tort, the "best
efforts" duty that Nichiro undeniably contracted to undertake makes
Nichiro's position analogous to that of a tort defendant who
admittedly owes a duty of "reasonable care" and seeks summary
judgment on the ground that the duty was not breached.
Accordingly, because Nichiro did not make a sufficient
prima facie showing to rebut Alaska Foods's assertions that
Nichiro's mismanagement caused Adak's demise, this case was not
properly in summary judgment posture, regardless of whether Alaska
Foods's assertions were based on an offer of admissible evidence.
We have upheld summary judgments dismissing cases where the
plaintiff's claims were based only on vague, unsupported, and
inadmissible assertions. [Fn. 37] But here, Hikita's affidavit
contains more than vague assertions. He explains with some
specificity that Nichiro's plant manager, Mr. Makino, was
inexperienced and incompetent in his management, causing problems
with personnel and cost overruns, and that he was unable "to deal
with Alaska fishermen." Nichiro insisted on exclusive control of
the plant, and, according to Hikita, steadfastly refused input from
others, including suggestions that Makino needed to be replaced.
[Fn. 38] We therefore reverse the superior court's order granting
summary judgment and remand for further proceedings on Alaska
Foods's claim that Nichiro failed to use its "best efforts." [Fn.
39]
IV. CONCLUSION
It was error to impose litigation-ending sanctions
without first exploring lesser alternatives. It was also error to
conclude that Alaska Foods had adequate incentive to litigate
Adak's claims in the prior litigation. Finally, it was error to
grant summary judgment on the merits of the best-efforts claim
because Nichiro failed to offer affirmative evidence establishing
that it used its "best efforts to achieve the corporate and
business purposes of [Adak]." We therefore VACATE the order of
dismissal and REMAND for further proceedings consistent with this
opinion.
FOOTNOTES
Footnote 1:
See Alaska Foods, Inc. v. Nichiro Gyogyo Kaisha, Ltd., 768
P.2d 117 (Alaska 1989); Hikita v. Nichiro Gyogyo Kaisha, Ltd., 713
P.2d 1197 (Alaska 1986).
Footnote 2:
See Norman v. Nichiro Gyogyo Kaisha, Ltd., 761 P.2d 713
(Alaska 1988); Norman v. Nichiro Gyogyo Kaisha, Ltd., 645 P.2d 191
(Alaska 1982); Nichiro Gyogyo Kaisha, Ltd. v. Norman, 606 P.2d 401
(Alaska 1980).
Footnote 3:
See Alaska Foods, 768 P.2d at 119, 123-24.
Footnote 4:
Nichiro Pacific was an American corporation and a subsidiary
of Nichiro Gyogyo. See Alaska Foods, 768 P.2d at 118 n.1. For
purposes of this litigation, the parties treat Nichiro Pacific as
an alter ego of Nichiro Gyogyo. Accordingly, we refer to them
collectively as "Nichiro."
Footnote 5:
See Hikita, 713 P.2d at 1199-1203.
Footnote 6:
See Alaska Foods, 768 P.2d at 118-20 (footnotes and some
internal citations and quotations omitted).
Footnote 7:
See id. at 120.
Footnote 8:
See id. at 121-22.
Footnote 9:
Id. at 122.
Footnote 10:
See id.
Footnote 11:
Restatement (Second) of Judgments sec. 59(3)(a) (1980)
[hereinafter Restatement].
Footnote 12:
See Alaska Foods, 768 P.2d at 123-24.
Footnote 13:
See id. at 124 n.7.
Footnote 14:
See id.
Footnote 15:
Sykes v. Melba Creek Mining, Inc., 952 P.2d 1164, 1169 (Alaska
1998).
Footnote 16:
Id.
Footnote 17:
See Minnesota Mining & Mfg. Co. v. Eco Chem, Inc., 757 F.2d
1256, 1260 (Fed. Cir. 1985).
Footnote 18:
7 James Wm. Moore et al., Moore's Federal Practice 37.90, at
37-141 (3d ed. 1997); see Aziz v. Wright, 34 F.3d 587, 589 (8th
Cir. 1994) (holding that no motion to compel was required before
dismissal pursuant to Federal Rule of Civil Procedure 37(d)).
Footnote 19:
Underwriters at Lloyd's London v. The Narrows, 846 P.2d 118,
119 (Alaska 1993).
Footnote 20:
Arbelovsky v. Ebasco Servs., Inc., 922 P.2d 225, 227 (Alaska
1996).
Footnote 21:
Our decision does not preclude the court from reinstating the
original sanctions order if a careful consideration of lesser
alternative sanctions convinces it that no sanction short of
dismissal was appropriate and if the court fully explains its
reasons for reaching this conclusion.
Footnote 22:
Alaska Foods v. Nichiro Gyogyo Kaisha, 768 P.2d 117, 124
(Alaska 1989).
Footnote 23:
See, e.g., Alman v. Danin, 801 F.2d 1, 5 (1st Cir. 1986); In
re Teltronics Servs., Inc., 762 F.2d 185, 190 91 (2d Cir. 1985);
Drier v. Tarpon Oil Co., 522 F.2d 199, 200 (5th Cir. 1975) (all
finding active participation where owner or stockholder played a
decision-making role in litigation).
Footnote 24:
Bank of California v. Adak Aleutian Processors, Inc., No. A75-
182 Civ. (D. Alaska).
Footnote 25:
See Alaska Foods, 768 P.2d at 124 n.7.
Footnote 26:
See id. at 124.
Footnote 27:
Id. at 124 n.7 (internal citation omitted).
Footnote 28:
Id.
Footnote 29:
See id.
Footnote 30:
See NEC Elecs., Inc. v. Hurt, 256 Cal. Rptr. 441, 445 (Cal.
App. 1989) (finding that the interests of a sole shareholder of a
corporation did not align with the corporation because the
corporation was on the verge of bankruptcy and therefore had no
incentive to litigate).
Footnote 31:
See Andrews v. Wade & De Young, Inc., 950 P.2d 574, 575
(Alaska 1997).
Footnote 32:
Howarth v. First Nat'l Bank of Anchorage, 540 P.2d 486, 489
(Alaska 1975).
Footnote 33:
Shade v. Co & Anglo Alaska Serv. Corp., 901 P.2d 434, 437
(Alaska 1995) (quoting Williams v. Municipality of Anchorage, 633
P.2d 248, 250 (Alaska 1981)).
Footnote 34:
See Nizinski v. Golden Valley Elec. Ass'n, 509 P.2d 280, 283
(Alaska 1973).
Footnote 35:
Arctic Tug & Barge, Inc. v. Raleigh, Schwarz & Powell, 956
P.2d 1199, 1203 (Alaska 1998) (internal citations omitted).
Footnote 36:
Id. at 1204.
Footnote 37:
See West v. City of St. Paul, 936 P.2d 136, 140-41 (Alaska
1997); Fomby v. Whisenhunt, 680 P.2d 787, 792 (Alaska 1984).
Footnote 38:
Hikita's affidavit also alleged that Nichiro wrongfully
abandoned the Adak facility. Nichiro did attempt to rebut this
claim. Since Alaska Foods's wrongful abandonment claim appears to
be subsumed within its broader claim of mismanagement, our
conclusion that Nichiro failed to make an adequate prima facie
showing to rebut other aspects of the allegation of mismanagement
makes it unnecessary for us to consider whether summary judgment
would have been warranted had Alaska Foods asserted abandonment as
a separate claim.
Footnote 39:
Alaska Foods also appeals a 1991 court order holding Hikita in
contempt for failing to attend a judgment-debtor exam. In a
conclusory fashion, Alaska Foods asserts that the court abused its
discretion. Because Alaska Foods offers no support for this
assertion, we find the issue waived for failure to brief the issue
adequately. See Martinson v. Arco Alaska, Inc., 989 P.2d 733, 738
(Alaska 1999).
