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Reeves v. Alyeska Pipeline Service Co. (7/19/2002) sp-5596
Reeves v. Alyeska Pipeline Service Co. (7/19/2002) sp-5596
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,
e-mail corrections@appellate.courts.state.ak.us.
THE SUPREME COURT OF THE STATE OF ALASKA
JOHN REEVES, )
) Supreme Court No. S-9168 /9267
Appellant/Cross-Appellee, )
) Superior Court No.
v. ) 4FA-93-956 CI
)
ALYESKA PIPELINE SERVICE CO., ) O P I N I O N
)
Appellee/Cross-Appellant. ) [No. 5596 - July 19,
2002]
________________________________)
Appeal from the Superior Court of the State
of Alaska, Fourth Judicial District, Charles
R. Pengilly, Judge.
Appearances: Thomas V. Van Flein, Marcus R.
Clapp, Clapp, Peterson & Stowers, LLC,
Anchorage, and David H. Call, Fairbanks, for
Appellant/Cross-Appellee. David A. Devine,
Groh Eggers, LLC, Anchorage, for
Appellee/Cross-Appellant.
Before: Fabe, Chief Justice, Matthews,
Bryner, and Carpeneti, Justices. [Eastaugh,
Justice, not participating.]
BRYNER, Justice.
FABE, Chief Justice, with whom MATTHEWS,
Justice, joins, dissenting.
I. INTRODUCTION
John Reeves developed an idea to build a visitor center
at a turnout overlooking the Trans-Alaska Pipeline near
Fairbanks. He described his idea to Alyeskas Fairbanks manager,
Keith Burke, in return for Burkes promise not to use the idea
without allowing Reeves to participate in its implementation.
Yet Alyeska subsequently ceased dealing with Reeves and proceeded
to build the visitor center on its own. Reeves sued Alyeska, and
a jury awarded him damages under various alternative contract and
tort theories. The questions presented here center on the
validity of the special verdict finding Alyeska liable for
breaching its disclosure agreement with Reeves and on the measure
of damages for that breach. We hold that the special verdict
correctly established Alyeskas liability for breach. We also
hold that the special verdict on Reevess implied contract claim
correctly determined the issue of damages. But because the
superior court awarded damages on a different claim addressed in
the special verdict, we remand for entry of a modified judgment.1
II. FACTS AND PROCEEDINGS
We described the salient historical facts in Reeves v.
Alyeska Pipeline Service Co. (Reeves I):
In 1985 Alyeska created a visitor
turnout at Mile 9 of the Steese Highway
between Fox and Fairbanks. The turnout had
informational signs and provided visitors a
view of the Trans-Alaska Pipeline. Before
Alyeska constructed the turnout, visitors
gained access to the pipeline by a nearby
road and trespassed on the Trans-Alaska
Pipeline right-of-way.
John Reeves, owner of Gold Dredge No. 8,
a tourist attraction outside Fairbanks and
near the turnout, contacted Alyeska in
January 1991 to discuss a tourism idea he
had. He spoke with Keith Burke, Alyeskas
Fairbanks Manager. After receiving Burkes
assurance that the tourism idea was between
us, Reeves orally disclosed his idea to build
a visitor center at the turnout. He proposed
that Alyeska lease him the land and he build
the center, sell Alyeska merchandise, and
display a pig and a cross-section of pipe.
Burke told him the idea look[ed] good
and asked Reeves to submit a written
proposal, which Reeves did two days later.
The proposal explained Reeves[s] idea of
operating a visitor center on land leased to
him by Alyeska. The proposal included plans
to provide small tours, display a pig, pipe
valve, and section of pipe, sell refreshments
and pipeline memorabilia, and plant corn and
cabbage.
After submitting the proposal, Reeves
met with Burke once again. At this meeting
Burke told Reeves the proposal looked good
and was exactly what he wanted. In Reeves[s]
words, Burke told him, Were going to do this
deal, and Im going to have my Anchorage
lawyers draw it. Reeves claimed he and Burke
envisioned that the visitor center would be
operating by the 1991 summer tourist season.
Reeves alleges that Alyeska agreed
during this meeting (1) to grant access to
the turnout for twenty years; (2) to allow
Reeves to construct and operate an
information center; and (3) to allow Reeves
to sell merchandise and charge a $2.00
admission fee. Reeves stated that, in
exchange, he agreed to pay Alyeska ten
percent of gross receipts.
Over the next several months, Burke
allegedly told Reeves that the deal was
looking good and not to worry because it
takes time for a large corporation to move.
However, in spring 1991, Burke told Reeves
that the visitor center was such a good idea
that Alyeska was going to implement it
without Reeves. By August 1991 Alyeska had
installed a portable building at the turnout
to serve as a visitor center; it built a
permanent log cabin structure in 1992.
The members of the Alyeska Pipeline Club
North (APCN) operated the visitor center and
sold T-shirts, hats, and other items. APCN
does not charge admission. A section of
pipeline and a pig are on display. APCN
employees provide information and answer
visitors questions. Members of APCN had
suggested in 1987 that Alyeska create a
visitor center at the turnout. However,
Alyeska had rejected the idea at that time.
Before meeting with Reeves, Burke did not
know that APCNs visitor center idea had been
raised and rejected by Alyeska in 1987.
Approximately 100,000 people visited the
visitor center each summer in 1992 and 1993.
It grossed over $50,000 in sales each year.
The net profit for 1993 was calculated to be
$5,000-$15,000. APCN received all the
profit.[2]
In response to Alyeskas decision to use his idea for
the visitor center without allowing him to participate in the
venture, Reeves filed suit against Alyeska in May 1993.3 He
alleged breach of oral contract, promissory estoppel, breach of
implied contract, quasi-contract (unjust enrichment and quantum
meruit), breach of the covenant of good faith and fair dealing,
breach of license or lease agreement, and various torts related
to the alleged contractual relationships.4 In pressing these
claims, Reeves basically asserted two distinct theories: (1) that
Alyeska had verbally given him a lease to develop the visitor
center or at least had entered into a binding contract to
memorialize the terms of a lease; and (2) that, in return for
disclosing his idea to Burke, Alyeska had promised not to
implement or further disclose Reevess idea without allowing him
to participate in the implementation.5
Superior Court Judge Charles R. Pengilly granted
Alyeskas motion for summary judgment on all claims as to both
theories; Reeves appealed.6 In Reeves I, we affirmed the summary
judgment order as to all claims asserted under Reevess first
theory, holding that the statute of frauds barred enforcement of
any oral lease agreement or any agreement to memorialize in
writing the alleged contract to implement Reevess participation
in the visitor center.7 But we reversed and remanded as to
claims under Reevess theory that Alyeska breached an alleged
disclosure agreement that is, Alyeskas alleged promise that if
Reeves disclosed his idea, Alyeska would not use it without
including Reeves in the venture.8 In support of this theory on
remand, Reeves asserted claims for breach of express contract,
breach of implied contract, promissory estoppel, quasi-
contract/unjust enrichment, and various related torts.9
After a two-week trial, the superior court submitted
five alternative claims to the jury: (1) express contract, (2)
implied-in-fact contract, (3) promissory estoppel, (4) quasi-
contract/unjust enrichment, and (5) misrepresentation. Judge
Pengilly gave the jury special verdict questions on each of the
claims for relief. The jury returned a verdict finding on the
issue of liability that
Alyeska promised not to use Reevess idea without
allowing him to participate in its implementation;
Alyeska broke this promise;
Alyeska used Reevess idea; and
Alyeska derived actual benefit from Reevess
disclosure of his idea.
The special verdict then separately addressed Reevess
alternative claims for breach of express and implied contract,
promissory estoppel, quasi-contract/unjust enrichment, and
misrepresentation. The courts instructions on damages as to each
of the alternative claims, and the jurys respective awards on
those claims, are as follows:
On the express contract claim, the trial court
instructed the jury to base its compensatory
damages award on the amount necessary to place
Reeves in the same position that he would have
been in had Alyeska kept its promise to allow him
to participate in implementing the visitor center.
The jury returned an award of $2,989,000.
As to the implied contract claim, the court asked
the jury to determine damages in the amount of the
value of the idea to Alyeska. The jury returned a
verdict of $1,820,000.
On Reevess promissory estoppel claim, the court
gave an instruction similar to its implied
contract instruction, directing the jury to
measure damages in the amount of the value of any
benefit [Reeves] conferred upon Alyeska. The jury
returned a verdict identical to its implied
contract verdict: $1,820,000.
On Reevess quasi-contract/unjust enrichment claim,
the court instructed the jury to determine the
amount of the value of the benefit which Alyeska
has unjustly retained. The jury returned a
verdict for $4,809,000.
Last, the court instructed the jury on Reevess
claim for misrepresentation. The instructions
required the jury to find that Alyeska had engaged
in intentional misrepresentation, asking the jury
to decide, did [Burke] intend to break that
promise at the time he made it? The verdict form
provided for both compensatory and punitive
damages. To determine compensatory damages for
misrepresentation, the court used a standard
similar to the one it employed for Reevess express
contract claim, instructing the jury, as nearly as
possible, [to] place [Reeves] in the position he
would have occupied had it not been for [Alyeskas]
misrepresentation. The jury declined to award
compensatory damages, finding that Reeves had
failed to prove intentional misrepresentation.
But the jury nevertheless awarded Reeves
$7,500,000 in punitive damages.
After the jury returned these verdicts, Reeves moved
for entry of judgment reflecting the compensatory awards on both
his express contract claim $2,989,000 and his unjust enrichment
claim $4,809,000 as well as the award of punitive damages for
misrepresentation $7,500,000. The superior court only awarded
compensatory damages on Reevess express contract claim
$2,989,000 and struck the punitive damages award.
Reeves appeals; Alyeska cross-appeals.
III. DISCUSSION
A. The Disclosure Agreement Was Enforceable.
On appeal, Reeves challenges the courts denial of
punitive damages and its limited award of compensatory damages.
But on cross-appeal Alyeska asserts that we need not decide these
damages issues, because the disclosure agreement was
unenforceable. Pointing to Reevess admission at trial that
Alyeska never promised to pay him any specified amount for
disclosure of his idea or even an unspecified reasonable value
Alyeska argues that the disclosure agreement lacked essential
terms, was unenforceably vague, and so was merely an agreement to
agree. But we rejected a similar argument in Reeves I.
We held there that contract and contract-like theories
may protect individuals who spend their time and energy
developing unoriginal or non-novel ideas that others find useful,
because [i]t would be inequitable to prevent these individuals
from obtaining legally enforceable compensation from those who
voluntarily choose to benefit from the services of the idea-
person. 10 We further explained that [i]f parties voluntarily
choose to bargain for an individuals services in disclosing or
developing a non-novel or unoriginal idea, they have the power to
do so.11 As Reeves I implicitly recognizes, then, a disclosure
contract is not a typical agreement for the sale of goods or
services at an agreed-upon price; rather, it is an agreement for
disclosure of an idea in exchange for a promise not to use the
idea without including the disclosing party in its
implementation.
Other courts agree with this view. The Ninth Circuit
Court of Appeals addressed an analogous situation in Landsberg v.
Scrabble Crossword Game Players, Inc., and squarely rejected the
same argument that Alyeska advances here.12 In that case,
Landsberg authored a strategy book for winning at the game of
Scrabble; he then approached S & R, the makers of the Scrabble
game, to obtain permission to use the Scrabble trademark in his
manuscript. After negotiations regarding S & Rs possible
publication of the manuscript were halted, S & R published its
own strategy book, which S & R based upon Landsbergs idea.13
Landsberg sued. While finding that Landsbergs idea was not novel
or original and that S & Rs use of the idea in its book was not
sufficiently similar to Landsbergs manuscript to establish a
copyright violation, the trial court nonetheless concluded that
Landsbergs initial disclosure of his manuscript was confidential
and for the limited purpose of obtaining approval for the use of
the Scrabble mark, and . . . given his expressed intention to
exploit his manuscript commercially, defendants use of any
portion of it was conditioned on payment.14 On review of the
district courts ruling, the Ninth Circuit, applying California
law, confirmed that a valid implied-in-fact disclosure contract
arose in this context.15 The court further found that a breach
of the contract could be proved by evidence sufficient to
establish that S & R disclosed or used Landsbergs idea without
compensation.16
Here, as in Landsberg, the record contains sufficient
evidence to support a finding that, in return for Reevess
agreement to disclose his idea, Alyeska promised him either
confidentiality or participation in implementing the visitor
center project.17 This promise is sufficiently definite as a
matter of law to establish an enforceable disclosure agreement.
Similarly, there can be no question that Reeves produced
sufficient evidence to support the jurys finding that Alyeska
breached this agreement by unilaterally exploiting Reevess idea.
We thus reject Alyeskas assertion that the agreements terms were
too vague to establish Alyeskas liability for breach of its
promise not to use Reevess idea without including him in the
venture.
B. The Special Verdict for Breach of Implied Contract
Correctly Measured Reevess Damages.
We must next determine the appropriate measure of
damages for Alyeskas breach. Reeves insists that his
compensatory damages should have included the jurys $4,809,000
award for unjust enrichment. Alyeska counters that a non-
original idea has no intrinsic value and that Reeves I therefore
limits Reevess damages to the fair market value of [his]
services. But Reeves I touched only briefly on the proper
measure of damages for breach of the disclosure agreement.
Neither Reeves I nor other case law supports Alyeskas assertion.
Again, we find appropriate guidance in Landsberg.
After concluding that the evidence supported the trial courts
finding that S & R had formed and breached an enforceable
disclosure agreement with Landsberg, the Ninth Circuit expressly
rejected S & Rs suggestion that compensation for breach of that
contract should be limited to the fair market value of Landsbergs
work; the court instead accepted Landsbergs contention that the
proper measure of damages was the value of Landsbergs idea to S &
R that is, the profits that S & R (and its publishing partner,
Crown Books) actually realized:
Landsberg argues that the contract was not
for the use of his manuscript, but for S & Rs
refraining from using it without his
permission . . . . Landsberg was therefore
entitled under the terms of the implied
contract to more than the fair value of S &
Rs use. He was entitled to . . . the profits
from S & Rs exploitation of [his work]. [18]
Because of the strong similarities between these two
cases, we adopt Landsbergs holding as the proper measure for
calculating damages here. As in Landsberg, the parties here
reached a disclosure agreement without establishing the precise
value of Reevess proposal. But after agreeing not to use the
proposal without including Reeves in its implementation, Alyeska
breached its agreement and profited from its breach by
unilaterally developing the visitor center.19 Under Landsberg,
then, the proper measure of Reevess compensatory damages is the
profit that Alyeska actually realized by exploiting Reevess idea.
We thus conclude that the trial court properly rejected Alyeskas
attempt to limit Reevess damages to the fair value of his
services.
But this conclusion next requires us to consider which,
if any, of the special verdicts alternative awards reflected a
correct measure of Reevess compensatory damages. The trial court
entered judgment on the $2,989,000 verdict for breach of an
express contract, which under the courts instructions, placed
Reeves in the same position that he would have been in had
Alyeska kept its promise to allow him to participate in
implementing the visitor center. But by focusing on Reevess
potential lost revenues instead of Alyeskas actual profits, this
measure of damages necessarily assumed that Reeves had the
express contractual right that Reeves I directly precluded the
right to participate in and directly profit from the proposed
venture with Alyeska, rather than merely a right to insist that
Alyeska not exploit his proposal without his involvement.20 By
including lost profits that Reeves had no right to realize, then,
the express contract verdict conflicted with Reeves I,
impermissibly opening the door to a verdict based on the terms of
a verbal lease that was legally barred and never existed.21
Entry of judgment on this verdict was therefore improper.
We similarly conclude that the special verdict based on
Reevess unjust enrichment claim used an inappropriate measure of
compensatory damages. In requiring the jury to determine
damages in the amount of the value of the benefit which Alyeska
has unjustly retained, the unjust enrichment instruction
essentially focused on the maximum potential profit that Alyeska
might have realized, rather than on Alyeskas actual profits. The
difference in focus is reflected in the jurys enhanced award of
$4,809,000 for unjust enrichment. As already mentioned, however,
the disclosure agreement only protected Reeves from unauthorized
use by Alyeska; it gave him no vested right to maximized profits
in the event Alyeska breached the disclosure agreement by
exploiting his proposal. Moreover, as with the express contract
claim, by inviting consideration of Alyeskas potential profits,
this measure of damages conflicted with Reeves I by effectively
inviting a verdict based on evidence concerning the legally
barred lease agreement. In addition, because unjust enrichment
is a judicially created quasi-contract remedy meant to prevent
injustice where gaps in the law preclude recovery at law on a
contract theory, it would be incongruous to award a greater
recovery under this theory than the jury actually awarded for
breach of implied contract.22 And finally, to award unjust
enrichment damages in addition to breach of contract damages as
Reeves suggests we should would, under the trial courts
instructions, permit Reeves to receive a double recovery.
We last consider Reevess implied contract claim. Under
the trial courts instructions, the special verdict on this claim
reflected the profits that Alyeska actually derived from its
breach of the disclosure agreement: the amount of the value of
the idea to Alyeska. The jury returned an award of $1,820,000
using this measure.23 As we explained in Reeves I, a reasonable
fact-finder could determine that Burkes actions implied a promise
to pay for disclosure of Reeves[s] idea.24 The jury found an
implied contract based on the theory that Alyeska solicited
disclosure by promising not to use the idea unless it first
reached an agreement with Reeves that would allow him to share in
the profits. The verdict thus comports with Reeves I. It
similarly comports with Landsberg, which would entitle the jury
to base its damages calculation on evidence of the profit or
benefit that Alyeska realized from the visitor center, as opposed
to the theoretical value of Reevess services in developing and
disclosing his idea or the potential but unrealized profits of
either Reeves or Alyeska. Assuming that the implied contract
verdict finds support in the evidence and was not the product of
procedural error, then, we conclude that it relied on an
appropriate measure of damages and would support a valid final
judgment. Accordingly, we must next consider whether the implied
contract verdict was supported by sufficient evidence or was
flawed by any legal error occurring at trial.
C. Substantial Evidence Supports the Implied Contract
Verdict.
Alyeska insists that the trial court should have
granted its motion for remittitur or a new trial because the
jurys awards were excessive under any reasonable measure.25
Remittitur is only proper when a jury returns an
otherwise proper verdict awarding an amount of damages that the
evidence cannot reasonably support.26 We may not use remittitur
to reduce an award below the maximum possible award sustainable
by the evidence,27 and we review the denial of a judgment
notwithstanding the verdict only to determine whether the
evidence, when viewed in the light most favorable to the non-
moving party, is such that reasonable persons could not differ in
their judgment of the facts.28 Moreover, [t]he grant or refusal
of a motion for a new trial rests in the sound discretion of the
trial court, and we will not disturb a trial courts decision on
such a motion except in exceptional circumstances to prevent a
miscarriage of justice.29 We will uphold a refusal to grant a
new trial if there is an evidentiary basis for the jurys
decision.30
Alyeskas argument thus requires us to inquire narrowly
whether any record evidence, viewed favorably to Reeves, might
reasonably support the jurys implied contract award.31 We find
ample evidence in the record. Reevess tourism expert, Dr. Lorin
Toepper, testified that the visitor center generates both revenue-
producing activities and non-revenue-producing activities, such
as improving public relations and fostering goodwill. He
estimated the centers overall actual value to Alyeska as falling
within the range of $2.8 to $26 million, depending on the number
of visitors.
Moreover, although Reevess other expert, economist
Francis Gallela, primarily addressed a different measure of
damages Alyeskas unjust enrichment from the center between 1991
and 1998 his testimony, when viewed in the light most favorable
to Reeves, provided additional corroboration to Dr. Toeppers
estimate of Alyeskas profits.32 Given this testimony, we find
substantial evidence to sustain the jurys finding of $1,820,000
in damages on the implied contract claim. And finally, we note
that other courts faced with the task of determining the maximum
amount of damages supportable by the record in analogous
contractual settings have upheld reasonable approximation[s] of
damages, especially where the difficulties in determining damages
arise in large part from [the defendants] own [breach].33
D. Any Evidentiary Error Did Not Affect the Implied
Contract Verdict.
It remains to be seen whether the verdict is the
product of procedural error. Over Alyeskas objection, the trial
court admitted extensive evidence concerning the proposed terms
of the lease agreement between Reeves and Alyeska, Reevess plans
for developing and operating the visitor center, the actual value
of the center that Alyeska developed, and its potential value to
both Reeves and Alyeska. Alyeska argues that this evidence
should have been excluded because it was irrelevant to the
matters properly at issue after our remand in Reeves I: the
existence, terms, and breach of the disclosure agreement, as well
as Reevess resulting damages. We agree in part.
Under the Alaska Rules of Evidence, irrelevant evidence
is inadmissible,34 but the test of relevance is lenient: evidence
is relevant if it has any tendency to make the existence of any
fact that is of consequence to the determination of the action
more or less probable than it would be without the evidence.35
Even so, much of the disputed evidence seems irrelevant: under
the scope of the disclosure agreement we described in Reeves I
and under our holding today concerning the measure of damages for
the agreements breach, evidence of Reevess personal plans for the
visitor center, the proposed terms of the lease, and the centers
potential but unrealized value to both Reeves and Alyeska had
little or no tendency to make any fact of consequence to the
determination of the action more or less probable; to this
extent, the evidence should not have been admitted. Yet
regardless of any potential to prejudice this evidence posed with
respect to Reevess other claims, it had no obvious effect on the
implied contract claim: as previously noted, the trial courts
instructions on this claim limited the jurys award of damages to
the value that Alyeska actually realized from its exploitation of
Reevess idea, not on the ideas potential value to either Reeves
or Alyeska. Because the disputed evidence had no logical bearing
on the jurys determination of the existence, scope, or breach of
the disclosure agreement or on the jurys determination of profits
Alyeska actually realized from the disclosure agreements breach,
any error in admitting the evidence was harmless as to the
implied contract claim.
E. The Superior Court Properly Struck the Punitive Damages
Verdict.
We last consider the issue of punitive damages. The
jury returned a verdict for punitive damages of $7,500,000 in
connection with Reevess misrepresentation claim, despite finding
that Reeves had failed to prove all necessary elements of
misrepresentation. The superior court struck the award. Reeves
nonetheless argues that the court erred by striking the award in
its entirety without the option of a remittitur or new trial.
Claiming that this ruling violated his state and federal
constitutional right to a trial by jury, Reeves seeks
reinstatement of the verdict.
1. The jury verdict does not reflect a finding of
negligent misrepresentation.
The trial court instructed the jury to award punitive
damages only if it found all of the elements of intentional
misrepresentation. Unless the jury found each element in Reevess
favor, the verdict form precluded it from awarding any form of
damages including punitive damages on Reevess claim of
misrepresentation. The jury found that Burke did not intend to
break his promise at the time that he made it; the jury thus
awarded Reeves no compensatory damages for misrepresentation.
Yet the jury awarded Reeves $7,500,000 in punitive damages on the
same claim.
Reeves seeks to explain this seemingly inexplicable
verdict by arguing that the jury made sufficient findings of
negligent misrepresentation to sustain an award of punitive
damages; and he further insists that punitive damages are
available for an intentional breach of contract if the conduct
giving rise to the breach is also a tort even a tort based in
ordinary negligence. These arguments are unpersuasive.
Although Reeves listed negligent misrepresentation as a
cause of action in his second amended complaint, filed after the
Reeves I remand to the trial court for further proceedings, the
jury instructions and special verdict form omitted reference to
negligent misrepresentation and focused on the elements of
intentional misrepresentation. Specifically, the jury verdict
form asked: Did [Burke] intend to break that promise [not to use
Reevess idea without allowing him to participate in its
implementation] at the time he made it? The jury responded, No.
Based on this answer, the jury declined to award compensatory
damages for misrepresentation, finding that Alyeskas acts did not
satisfy the required elements of misrepresentation.
Reeves nonetheless argues that the jurys findings
suffice to establish that Alyeska committed negligent
misrepresentation. Reeves cites as support the jury forepersons
explanation, upon questioning by the trial judge concerning the
basis for the punitive damages award, that the jury believed that
Burke developed an intent to deceive soon after he entered into
the disclosure agreement with Reeves.36 Reeves suggests that a
judgment for negligent misrepresentation should automatically be
entered on a lesser-included-tort theory whenever a plaintiff
fails to prove the necessary elements of intentional
misrepresentation but establishes the elements of a negligent
misrepresentation claim that was not properly submitted. But the
law provides no support for this novel proposal.
Moreover, even accepting Reevess proposal for arguments
sake, his claim must fail because the jurys verdict did not
amount to a finding of negligent misrepresentation. The following
elements are required to establish negligent misrepresentation:
(1) the party accused of the misrepresentation must have made the
statement in the course of his business, profession or
employment, or in any other transaction in which he has a
pecuniary interest, (2) the representation must supply false
information, (3) there must be justifiable reliance on the false
information supplied, and (4) the accused party must have failed
to exercise reasonable care or competence in obtaining or
communicating the information. 37
Although Reeves failed to object to the absence of a
jury instruction on negligent misrepresentation, he did object to
the element of intentional misrepresentation that focused on
whether Burkes promise not to exploit Reevess idea was false when
made: I dont see why misrepresentation . . . [or] fraud would be
dependent upon occurrence in time. But our case law provides a
reason that applies equally to both intentional and negligent
misrepresentation:
to establish liability under [a negligent
misrepresentation] theory it is not enough to
demonstrate that subsequent occurrences made
an originally-accurate representation
ultimately false. For a representation to be
actionable, both under the Alaska cases . . .
and under the Restatement, the representation
must be false when made.[38]
Thus, for Burkes promise to be actionable as a misrepresentation
whether intentional or negligent the promise must have been
false when it was made. The instruction on intentional
misrepresentation was accurate in this regard, and Reeves failed
to request any instruction at all on negligent misrepresentation.
Because the jury found against Reeves on his misrepresentation
claim, the trial court did not err in striking the punitive
damages claim.
2. Punitive damages may not be awarded for breach of
contract involving an unproved tort.
Reeves also suggests that even if the jury did not find
all elements of misrepresentation in his favor, the evidence
presented at trial supports entering judgment for punitive
damages on his contract claims.39 But we follow the Restatements
position that [p]unitive damages are not recoverable for a breach
of contract unless the conduct constituting the breach is also a
tort for which punitive damages are recoverable.40 In this case
the jury failed to find for Reeves on all elements of his single
tort claim, misrepresentation.
Reeves nevertheless refers to evidence presented at
trial that he alleges established destruction of evidence,
intentional misconduct directed at lawful operations, false
testimony, and defamation. But these claims were not presented
to the jury as separate tort theories that could have supported
his claim for punitive damages, and it would be improper to
speculate that the jury found that these torts were established,
much less that they warranted an award of punitive damages. An
award of punitive damages requires an express jury finding that a
tort involving outrageous conduct was committed. The jury did
not make such a finding here.
3. Denial of punitive damages did not violate Reevess
right to a jury trial.
Finally, Reeves argues that the trial courts failure to
enter judgment on the jurys award of punitive damages violated
his right to trial by jury. But this argument hinges on the
incorrect assumption that the court struck a punitive damages
award that was lawfully and appropriately found by the jury.
Reeves fails to recognize that the jury returned its award after
misconstruing or disregarding the instructions on the special
verdict form. Hence, the jury did not lawfully award punitive
damages. The trial court thus had appropriate legal grounds to
strike the award for punitive damages; it did not reweigh the
evidence or otherwise interfere with the jurys verdict.
IV. CONCLUSION
We AFFIRM the superior courts order striking punitive
damages. Because the special verdict on the express contract
claim incorporates an improper measure of damages and because the
judgment entered by the superior court based its award of
compensatory damages on the express contract verdict, we VACATE
the judgment. The proper measure of damages for breach of the
disclosure agreement in this case is the value of the benefit
that Alyeska enjoyed as a result of its breach. The jurys
alternative special verdict on the implied contract claim
establishes compensatory damages under this measure, is supported
by the evidence, and is not affected by any procedural error.
Accordingly, we REMAND for entry of a modified judgment on the
implied contract claim.
FABE, Chief Justice, with whom MATTHEWS, Justice, joins,
dissenting.
Todays decision departs significantly from our analysis
in Reeves v. Alyeska Pipeline Service Co. (Reeves I)1 of the
remedy for breach of an implied-in-fact contract. I disagree
with todays plurality opinion because I believe that the trial
court erred by failing to limit the jurys consideration of
damages to the value of the services Reeves provided in
developing and disclosing his unoriginal idea to Alyeska. In my
view, the trial court should have instructed the jury that in the
absence of an express agreement regarding compensation, the jury
could only consider the value of the services provided by Reeves,
not the potential commercial value of the non-novel idea. For
this reason, I respectfully dissent.
In our decision in Reeves I, we touched on the question
of the proper measure of damages for development and disclosure
of an unoriginal or non-novel idea. At the trial on remand,
Alyeska proposed a jury instruction that was consistent with the
guidance that we provided in Reeves I and that would have limited
damages for breach of the disclosure agreement of Reevess
unoriginal idea to the value of Reevess services:
[Y]ou may not compensate Mr. Reeves for the
value, if any, of the idea itself. . . .
[I]f you decide that Alyeska breached the
disclosure agreement by developing the
pipeline viewing area by using Mr. Reeves
idea, then you should consider how much
money, if any, Mr. Reeves should be paid for
his services in disclosing his idea.
(Emphasis added.)
The trial court rejected Alyeskas proposed instruction
and instead gave the jury five separate jury instructions on the
measure of damages that corresponded to Reevess various theories
of recovery for breach of the disclosure contract. For breach of
the express contract, the trial court instructed the jury to
determine the amount necessary to place Reeves in the same
position that he would have been in had Alyeska kept its promise
to allow him to participate in implementing the visitor center.
For breach of an implied-in-fact contract, the trial court
instructed the jury to determine damages in the amount of the
value of the idea to Alyeska. The trial court instructed the
jury to determine damages based on the promissory estoppel theory
in the amount of the value of any benefit [Reeves] conferred upon
Alyeska. The unjust enrichment jury instruction directed the
jury to determine damages in the amount of the value of the
benefit which Alyeska unjustly retained. On the final theory of
recovery for misrepresentation, the trial court directed the jury
to determine the amount of damages that will, as nearly as
possible, place [Reeves] in the position he would have occupied
had it not been for [Alyeskas] misrepresentation.
We recognized in Reeves I that contract and contract-
like theories may protect individuals who spend their time and
energy developing unoriginal or non-novel ideas that may benefit
others because [i]t would be inequitable to prevent these
individuals from obtaining legally enforceable compensation from
those who voluntarily choose to benefit from the services of the
idea-person. 2 We noted in our discussion of the implied-in-fact
contract claim that when parties bargain for an individuals
services in disclosing a non-novel or unoriginal idea, the
services provided are like those of a writer, a doctor, or a
lawyer: each may provide a product that is not novel or
original.3 Thus, although Reeves is not a writer, his ideas are
entitled to no less protection than those of writers, doctors, or
lawyers.4
So, in the context of our discussion of Reevess
contract theories, we intimated that, as with those of a doctor
or lawyer, the value of Reevess services in developing and
disclosing an unoriginal idea would be the correct measure of
damages, absent an express contract with a price term defined.
We also noted in the context of our discussion of Reevess quasi-
contract claim that [i]f Reeves services unjustly enriched
Alyeska, he should be compensated for the value of those
services.5
As we explained in Reeves I, [i]f parties voluntarily
choose to bargain for an individuals services in disclosing or
developing a non-novel or unoriginal idea, they have the power to
do so.6 If the parties reach an express agreement for monetary
compensation in return for disclosure, then that agreed-upon
amount would comprise the damages to be awarded upon a finding of
breach of the express contract. Here, however, there was no
evidence of an agreed-upon price for disclosure of Reevess idea.
I agree with the court that the jurys finding of an
implied-in-fact contract should be upheld. Reeves argued that
Alyeska solicited his idea and that its manager asked him to
reveal the substance of the idea. In addition, Reeves contended
that Alyeskas later use of the idea created an implied contract
for payment. This theory was consistent with our decision in
Reeves I that a reasonable fact-finder could determine that [the
managers] actions implied a promise to pay for the disclosure of
Reeves idea.7
But although the lack of a specific term for payment
for disclosure of an unoriginal idea does not render such an
agreement invalid, it does limit the damages to the value of
Reevess service in developing and disclosing the idea. And in
this case, the measure of damages is the same, whether the jury
used theories of implied-in-fact contract, promissory estoppel,
or quasi-contract to reach its conclusion that the disclosure
agreement had been breached. In proposing its instruction,
Alyeska correctly recognized that where there is no contract
establishing the price term for the development and disclosure of
an idea, a court must base its equitable remedy on the value of
the performance of one party, here Reeves, unjustly retained by
the other, here Alyeska.8
As we suggested in Reeves I, if Reevess experience or
the written plan benefitted Alyeska, either in its timing or how
it was presented, Reeves should be compensated for the value of
his services in developing and disclosing his idea.9 An injured
party usually seeks, through protection of either his expectation
or his reliance interest, to enforce the other partys broken
promise. However, he may, as an alternative, seek, through
protection of his restitution interest, to prevent the unjust
enrichment of the other party.10 Moreover, [o]ccasionally a
party chooses the restitution interest even though the contract
is enforceable because it will give a larger recovery than will
enforcement based on either the expectation or reliance
interest.11
As we noted in Reeves I, by disclosing his idea to
Alyeska, Reeves substantially changed his position he had
significantly reduced his ability to bargain for the terms of the
disclosure.12 Under a theory of promissory estoppel, the court
can remedy the breach of promise by enforcing that promise.13
The amount of damages for the remedy, however, would equal the
restitutionary remedy, the same remedy for unjust enrichment
under a quasi-contract theory.
In summary, the appropriate measure of damages in this
case, in light of the absence of express agreement establishing
the amount of compensation for Reeves for the disclosure, is the
fair market value of Reevess services in disclosing the idea.
Yet, the trial court directed the jury that, if it found in
Reevess favor on the implied contract claim, it should award the
amount of the value of the idea to Alyeska. The jury awarded
Reeves $1,820,000 using this measure. Because the jury based its
award on the revenues produced by the visitor center as well as
the value of improving public relations and fostering goodwill
for Alyeska, rather than evidence of the value of Reevess
services in developing and disclosing the idea, I believe that
the jurys award should be vacated and the case remanded for a new
trial on damages. I therefore dissent.
_______________________________
1 The court unanimously agrees that the jury correctly
established Alyeskas liability for breaching the disclosure
agreement. The court also unanimously agrees that the superior
court properly declined to allow punitive damages. But we are
evenly divided on the measure of compensatory damages: two
justices conclude that one of the special verdicts alternative
awards correctly determined compensatory damages and would
therefore remand for entry of a modified judgment reflecting that
award; two justices conclude that none of the special verdicts
alternative theories decided the damages issue correctly.
Our case law establishes that [a] decision by an evenly
divided court results in an affirmance. Ward v. Lutheran Hosps.
& Homes Socy of Am., Inc., 963 P.2d 1031, 1037 n.11 (Alaska 1998)
(quoting Thoma v. Hickel, 947 P.2d 816, 824 (Alaska 1997)).
Additionally, we have recognized that an affirmance by an evenly
divided court is not precedent. Kenai v. Burnett, 860 P.2d 1233,
1246 (Alaska 1993) (Compton, J., concurring). In the present
case, no member of the court favors outright affirmance. But two
justices would affirm the jurys special verdict on both liability
and an alternative theory of compensatory damages, whereas two
would require a retrial on damages. In these circumstances, our
case law indicates that the votes favoring the greatest degree of
affirmance will determine the outcome of this case but that the
decision on compensatory damages will have no precedential
effect.
2 926 P.2d 1130, 1133-34 (Alaska 1996) (footnotes
omitted). Because we addressed the case on summary judgment, our
decision in Reeves I stated the facts in the light most favorable
to Reeves. Id. at 1133 n.1. As used in Reeves I pig describes
a device which passes through the pipeline to clean interior pipe
walls, survey interior pipe shape and detect corrosion. Id. at
1134 n.2.
3 Id. at 1134.
4 Id.
5 Id. at 1136.
6 Id. at 1134.
7 Id. at 1138-40.
8 Id. at 1145.
9 Id.
10 Id. at 1135.
11 Id. at 1142.
12 802 F.2d 1193, 1196 (9th Cir. 1986).
13 Id.
14 Id.
15 Id. at 1196-97.
16 Id. at 1196.
17 Reeves I, 926 P.2d at 1137.
18 802 F.2d at 1198; see also Donahue v. United Artists
Corp., 83 Cal. Rptr. 131, 135-36 (Cal. App. 1970) (in situation
of non-novel idea, recovery need not be limited to the value of
the services provided; various measures of damages, including
lost profits, may properly be considered).
19 Reeves I, 926 P.2d at 1133-34.
20 Id. at 1137-39.
21 Id. As already mentioned, the compensatory damages
instruction on Reevess claim for misrepresentation relied on a
similar measure, asking the jury to restore Reeves to the
position that he would have enjoyed had Alyeska not
misrepresented its intent to exploit Reevess proposal. Because
the jury found that Reeves had failed to prove an intentional
misrepresentation, however, it awarded no compensatory damages,
thereby rendering this claim moot.
22 Reeves also argues that the unjust enrichment claim is
separate from the express contract theory and that recovery is
therefore possible under both; Reeves argues that this is so
because the unjust enrichment theory applies to the lease
agreement and not the disclosure agreement. But we have
concluded that evidence of the lease agreement was inadmissible;
the unjust enrichment claim therefore cannot survive on this
argument.
23 The jury also awarded the same amount on the promissory
estoppel claim. Because the implied contract and promissory
estoppel awards were based on similar factual theories, were
covered by identical damages instructions, and resulted in
identical verdicts, we need not separately consider the estoppel
verdict.
24 Reeves I, 926 P.2d at 1141.
25 Alyeska separately argues for remittitur on the ground
that the verdict bears no relationship to the value of Reevess
services in developing and disclosing his idea. Because we have
concluded that the value of those services is not the appropriate
measure of damages, we need not consider this argument.
26 Exxon Corp. v. Alvey, 690 P.2d 733, 741-42 (Alaska
1984).
27 Id. at 742.
28 Richey v. Oen, 824 P.2d 1371, 1374 (Alaska 1992).
29 Buoy v. ERA Helicopters, Inc., 771 P.2d 439, 442
(Alaska 1989).
30 State v. Will, 807 P.2d 467, 469 (Alaska 1991).
31 Alaska Tae Woong Venture, Inc. v. Westward Seafoods,
Inc., 963 P.2d 1055, 1061 (Alaska 1998).
32 By Gallelas estimate, the center earned Alyeska between
$2.8 million and $4.2 million in public relations benefits
(depending on whether Dr. Toeppers or Alyeskas data were used);
these figures fall within Dr. Toeppers estimation of the centers
actual value.
33 See, e.g., Air Tech. Corp. v. Gen. Elec. Co., 199
N.E.2d 538, 548 (Mass. 1964).
34 Alaska R. Evid. 402.
35 Alaska R. Evid. 401.
36 The trial court asked the jury foreperson if the jury
was aware that the award of punitive damages after answering no
to one of the questions about misrepresentation was, at least on
its face, inconsistent. The jury foreperson answered: We felt
that the only reason we answered no to that question is because
it said at that time. . . . The assumption we had was the initial
meeting with [Burke and Reeves]. And we didnt feel that [Burke]
walked into this with misrepresentation in his heart. It might
have happened a second and a half later, after [Reeves] left the
room, when he talked to somebody else, or thought about it or
whatever, but we felt . . . that Alyeska was at serious fault for
the rest of it, . . . all the rest of it happened after the fact,
it was the misrepresentation after that.
37 Bubbel v. Wien Air Alaska, 682 P.2d 374, 380 (Alaska
1984) (quoting Restatement (Second) of Torts 552(1) (1977)).
38 Id. at 381. On remand, Reeves was permitted to present
only claims related to the disclosure agreement, not the alleged
lease agreement or memorialization agreement. See Reeves I, 926
P.2d at 1145. Yet even accepting at face value the forepersons
explanation for the punitive damages award, the
misrepresentations the jury relied upon for the punitive damages
claim relate to the later alleged agreements, which this court
had eliminated in Reeves I. As the foreperson stated, [i]t might
have happened a second and a half later, after [Reeves] left the
room, when he talked to somebody else, or thought about it or
whatever . . . . But we still felt that Alyeska was at serious
fault for the rest of it . . . . And I still feel that Alyeska
was misrepresented along the line . . . . I . . . think it was
just compounded after the fact [of the initial moment when they
sat down at that initial meeting]. (Emphasis added.)
39 Reeves argues that the jurys punitive damages award was
not the result of passion, prejudice, or sympathy. Presumably,
he raises this argument to bolster his claim that this court
should reinstate the verdict entered by the jury. We need not
consider this argument because, as a matter of law, punitive
damages are not available.
40 Restatement (Second) of Contracts 355 (1979); see also
Wien Air Alaska v. Bubbel, 723 P.2d 627, 631 (Alaska 1986).
1 926 P.2d 1130 (Alaska 1996).
2 Id. at 1135 (citing 3 David Nimmer, Nimmer on
Copywright 16.01, at 16-3 (1994)).
3 Reeves I, 926 P.2d at 1142.
4 Id.
5 Id. at 1144 (emphasis added).
6 Id. at 1142.
7 Id. at 1141.
8 Id. at 1144.
9 Id.
10 Restatement (Second) of Contracts 373 cmt. a (1981).
11 Restatement (Second) of Contracts 344 cmt. d (1981).
12 Reeves I, 926 P.2d at 1142.
13 Restatement (Second) of Contracts 90 (1981).
