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OK Lumber Company v. Alaska Railroad (11/25/2005) sp-5960
OK Lumber Company v. Alaska Railroad (11/25/2005) sp-5960
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
| OK LUMBER COMPANY, INC.,
| ) |
|
| ) Supreme Court No. S-
11430 |
|
Appellant, | ) |
|
| ) Superior Court No.
4FA-03-0184 CI |
|
v. | ) |
|
| ) O P I N I O
N |
|
ALASKA RAILROAD | ) |
|
CORPORATION, | ) [No. 5960 - November
25, 2005] |
|
| ) |
|
Appellee. | ) |
|
| ) |
|
|
|
|
Appeal from the Superior Court of the State
of Alaska, Fourth Judicial District,
Fairbanks, Mark I. Wood, Judge.
Appearances: Joseph W. Sheehan, Law Offices
of Joseph W. Sheehan, Fairbanks, for
Appellant. James D. DeWitt and Jonathan A.
Woodman, Guess & Rudd P.C., Fairbanks, for
Appellee.
Before: Bryner, Chief Justice, Matthews,
Eastaugh, Fabe, and Carpeneti, Justices.
EASTAUGH, Justice.
I. INTRODUCTION
OK Lumber Company appeals the superior courts
affirmance of an arbitration decision that established the fair
market value of land the Alaska Railroad Corporation leased to OK
Lumber. Per the lease, fair market value affects the annual
rent. OK Lumber argues that the arbitrator exceeded his
authority when he interpreted the lease to exclude consideration
of environmental contamination in determining the propertys fair
market value. OK Lumber also contends that the superior court
erred when it awarded attorneys fees to the railroad.
The lease states that a matter of disagreement shall be
submitted to the arbitrator. We therefore conclude that the
arbitrator did not exceed his authority and affirm the superior
courts decision upholding the arbitrators decision regarding
calculation of fair market value. We also affirm the attorneys
fee award because we conclude that a lease provision requiring OK
Lumber to reimburse the railroads costs applies to this dispute.
II. FACTS AND PROCEEDINGS
OK Lumber Company leases land from the Alaska Railroad
Corporation. For the first five years of the lease, the rent was
set at an agreed-upon amount. Beginning in the sixth year
(2002), rent was to be eight percent of the propertys fair market
value, determined every five years through an appraisal process
outlined in the lease. This process was to begin when the
railroad commissioned an appraisal. If OK Lumber disagreed with
the railroads appraisal, it could arrange for its own. Finally,
OK Lumber could refer the matter to an arbitrator if the parties
could not reach agreement after the two appraisals.
In late 2001 a railroad appraisal valued the property
at $876,864. OK Lumber objected to this appraisal in part
because it excluded environmental considerations; the parties
agree that the property is contaminated by hydrocarbons. OK
Lumber commissioned its own appraisal, instructing the appraiser
to exclude the contamination issue, but to investigate the impact
of the stigma from contamination on the propertys fair market
value. OK Lumbers appraiser concluded that the property was
worth $730,000 and that contamination stigma would reduce the
value probably somewhere [in] the 10% to 20% range. That
adjustment would reduce the fair market value to some amount
between $584,000 and $657,000.
The matter proceeded to arbitration. The arbitrator
decided that it was not appropriate to consider the impact of the
contamination because he believed that the railroads Standard
Appraisal Instructions[] instruct[ed] the appraiser to ignore the
impact of contamination. The arbitrator found additional support
for his decision in the fact that the lease itself does contain
indemnification for the impact of contamination. He concluded
that the propertys fair market value was $812,000. If the impact
of the contamination were considered, the arbitrator calculated
that it would have reduced the fair market value to $732,000.
Arguing that the arbitrator had exceeded his authority,
OK Lumber asked the superior court to vacate or modify the
arbitration award. The superior court denied the application,
concluding that the arbitrator did not exceed his authority and
that the court had no power to review contract interpretations or
factual findings. The superior court therefore affirmed the
arbitrators decision. It also awarded the railroad full
attorneys fees totaling $8,462. OK Lumber appeals.
III. DISCUSSION
A. Standard of Review
Whether a dispute was arbitrable and whether the
arbitral decision violated AS 09.43.120(a) are questions of law.1
We therefore review de novo the superior courts decision on these
issues.2 But [t]he arbitrators findings of both fact and
law . . . receive great deference.3 When an arbitration proceeds
under the terms of Alaskas Uniform Arbitration Act,[4] the
arbitrators findings of fact are unreviewable, even in the case
of gross error.5 Also, an arbitrators misconstruction of a
contract is not open to judicial review, except on questions of
arbitrability.6 The superior courts interpretation of the
contract is a question of law that we review de novo.7 We
therefore review the dispute over the leases attorneys fees
provision de novo.
B. The Arbitrator Did Not Exceed His Authority.
The lease authorizes arbitration when the parties fail
to agree on the fair market value of the property. It also
provides that [t]he decision of the arbitrator or arbitrators
shall be final and unreviewable by any court, except to the
extent authorized by Alaska Statutes 09.43.110, .120 and .130.
OK Lumber argues that the arbitration decision should
be modified because the arbitrator exceeded his authority. It
relies on AS 09.43.120(a), which states in part that the court
shall vacate an award if . . . (3) the arbitrators exceeded their
powers.8 OK Lumber asserts that the arbitrators authority was
limited to determining value and did not encompass interpreting
the contract. It reasons that paragraph 2.02A of the lease
specified only two exclusions (the value of the lease itself and
of the improvements owned by OK Lumber) in determining fair
market value and that the arbitrator impermissibly added a third
exclusion by deciding not to consider the effect of
contamination.
Paragraph 8.01 of the lease provides that if the
railroad and OK Lumber fail to agree on the fair market value of
the property, the matter of disagreement . . . shall be submitted
to and determined by a single arbitrator. (Emphasis added.)
This language does not necessarily limit the arbitrators
authority to resolving narrow questions about the value of the
property. The record demonstrates that there was a dispute about
whether contamination should be considered in determining fair
market value. This dispute was therefore a matter of
disagreement that was, per paragraph 8.01 of the lease, within
the arbitrators authority to determine. To resolve this dispute,
the arbitrator had to interpret the contract and decide whether
contamination can be considered in determining fair market value.9
Because there is no lack of arbitrability here, we will
not review the arbitrators decision to exclude contamination
issues from the fair market value determination.10 Nor will we
address the many arguments OK Lumber advances in challenging the
arbitrators decision.11
There is some discussion in the superior courts
decision and in OK Lumbers brief about whether the arbitrator had
access to the railroads standard appraisal instructions. There
is also discussion about whether the arbitrator may have
committed a gross factual error by relying on the testimony of
the railroads appraiser to conclude that the standard appraisal
instructions excluded contamination. But these questions are
also unreviewable: the arbitrators findings of fact are
unreviewable, even in the case of gross error.12
Because we affirm the superior court decision upholding
the arbitrators decision, there is no need to consider the
railroads waiver and estoppel arguments.
C. Attorneys Fees
OK Lumber also argues that because the lease requires
each part[y] to bear its own attorneys fees, the superior court
erred by awarding attorneys fees to the railroad. OK Lumber
refers us to lease paragraph 8.01, which discusses the
appointment of arbitrators and the conduct of arbitration. It
provides in part that [l]essor and [l]essee shall share equally
the costs associated with the arbitration. Paragraph 8.03
addresses judicial review of an arbitration decision, but is
conspicuously silent about costs, and says nothing about
attorneys fees. We considered a similar situation in Marathon
Oil Co. v. ARCO Alaska, Inc.:
Marathon contends that the arbitration
agreement required the parties to bear their
own costs and fees, even for court
proceedings following the arbitration. . . .
. . . The contracts language cuts
against Marathons interpretation. . . .
[T]he requirement that each party bear its
own costs and fees appears in a paragraph
that also discusses how the arbitrators will
be compensated. The location of the
requirement within the contract therefore
suggests that the parties were referring only
to the arbitration itself when they agreed to
each bear their own costs.[13]
In the present case, the cost-sharing language of
paragraph 8.01 appears in the same paragraph as the description
of the procedures for appointing arbitrators; it is separate from
paragraph 8.03s discussion of judicial review. It therefore
appears that OK Lumber and the railroad agreed that they would
share costs incurred during arbitration, but not those incurred
during judicial review of an arbitration decision. It is
unlikely the parties intended costs as so used to include
individually incurred attorneys fees, otherwise the party whose
attorney charged lower fees would have to make up half the
difference between its fees and the fees charged by the opposing
attorney.14
OK Lumber also argues that even if the railroad is
entitled to recover some fees, it was not entitled to a full fee
award. Paragraph 4.13 of the lease provides in part:
Lessee shall forthwith pay to Lessor all
costs and expenses, including reasonable
attorneys fees, which are . . . (4) incurred
by Lessor in connection with any action in
any respect related to this Lease, the Leased
Premises, or Lessees actions or omissions on
the Leased Premises, other than a
condemnation action filed by or against
Lessee, to and in which Lessor is made a
party but not adjudicated to be at fault.
(Emphasis added.)
OK Lumber asserts that paragraph 4.13 does not apply to
arbitration or arbitration appeals and that Alaska Civil Rule 82
should govern if the railroad is entitled to any attorneys fees.
Civil Rule 82 provides that [e]xcept as otherwise provided by law
or agreed to by the parties, the prevailing party in a civil case
shall be awarded attorneys fees calculated under this rule.15 It
also provides that [i]n cases in which the prevailing party
recovers no money judgment, the court . . . shall award the
prevailing party in a case resolved without trial 20 percent of
its actual attorneys fees which were necessarily incurred.16
Thus, the railroad would be entitled to its full, reasonable fees
if paragraph 4.13 applies, but only twenty percent of its fees if
it does not.
OK Lumber reasons that paragraph 4.13 does not apply
here because it asserts that
Article 4s focus is on OKs lease obligations
and OKs obligation to pay [the railroads]
attorneys fees in conjunction with OKs
covenants . . . . Article 4 makes no
reference to fair market disputes,
arbitrations, or appeals associated with rent
arbitrations . . . . [Paragraph] 4.13 makes
sense only in reference to the enforcement of
Article 4.
Although paragraph 4.13 is located within the article that lists
OK Lumbers covenants, OK Lumbers obligation to reimburse the
railroad for its costs in certain situations appears to be a
covenant itself and is not linked to the enforcement of the other
covenants. The parties agreed in paragraph 4.13 that OK Lumber
would be responsible for the railroads costs, including attorneys
fees, incurred in connection with any action in any respect
related to [the] [l]ease. We conclude that, contrary to OK
Lumbers view, a superior court proceeding brought to review an
arbitrators decision is an action. The superior court therefore
did not err in awarding full attorneys fees to the railroad.
OK Lumber asserts that applying paragraph 4.13 to the
appeal of an arbitration award is contrary to public policy,
unconscionable, and the product of a contract of adhesion. OK
Lumber points out that the railroad could be entitled to a
comprehensive fee award even if it were not the prevailing party.
This result, OK Lumber contends, would be contrary to public
policy. And because OK Lumber could not recover its costs even
if it prevailed, it claims that paragraph 4.13, as interpreted by
the railroad, would be unconscionable. Finally, it argues that
the lease is a contract of adhesion because the railroad had the
bargaining clout to insert any term it wanted into the lease.
These contentions are unavailing. The question whether
it would contravene public policy to award fees to a non-
prevailing party is not before us. Fees were awarded here to the
prevailing party.
Moreover, although paragraph 4.13 is more favorable to
the railroad, we are not persuaded that the superior court erred
in failing to find the provision unconscionable.17 Per paragraph
4.13, when the railroad is adjudicated to be at fault, OK Lumber
is not required to reimburse the railroad. Therefore, OK Lumber
would not be responsible for the railroads costs in many, if not
all, of the disputes in which OK Lumber might have prevailed.
Furthermore, because the lease is silent regarding OK Lumbers
ability to seek an award of costs when it is the prevailing
party, nothing appears to preclude OK Lumber from receiving a
partial award under Civil Rule 82 when it is the prevailing
party.
Finally, OK Lumber has not demonstrated that the lease
is a contract of adhesion. Adhesion contracts arise when the
parties are of such disproportionate bargaining power that [one
of them] could not have negotiated for variations in the terms of
the standard [contract]. 18 The railroad argues that there is no
evidence the lease is a contract of adhesion. It points to
several contracting concessions, describing them as
indemnification of OK Lumber for prior contamination, caps on
rent increases in years 6-10 and thereafter for the lease term,
the power to assign the [l]essees interest under the [l]ease and
the right to be released from further obligations upon such an
assignment, and the right to use the leased premises as
collateral. The railroad therefore contends that OK Lumber was
able to negotiate effectively to obtain [the] concessions it
wanted in the [l]ease. These arguments are persuasive. We
conclude that the superior court did not err in failing to find
that the lease was a contract of adhesion.
We are not convinced that the superior court erred in
granting the railroads request for full attorneys fees despite OK
Lumbers arguments that the lease was contrary to public policy,
unconscionable, and a contract of adhesion.
IV. CONCLUSION
For these reasons, we AFFIRM the superior court
decision upholding the arbitration and the order awarding full
attorneys fees to the railroad.
_______________________________
1 Ahtna, Inc. v. Ebasco Constructors, Inc., 894 P.2d 657,
660 (Alaska 1995).
2 Id. (citing Guin v. Ha, 591 P.2d 1281, 1284 n.6 (Alaska
1979)).
3 Id. (emphasis omitted).
4 AS 09.43.010 et seq. The Alaska Revised Uniform
Arbitration Act took effect on January 1, 2005 and governs
arbitration agreements entered into after that date. AS
09.43.300(a).
5 Ahtna, 894 P.2d at 660-61 (citing Breeze v. Sims, 778
P.2d 215, 217 (Alaska 1989)).
6 Id. at 661 (quoting Alaska State Hous. Auth. v. Riley
Pleas, Inc., 586 P.2d 1244, 1247 (Alaska 1978)).
7 Allstate Ins. Co. v. Teel, 100 P.3d 2, 4 (Alaska 2004).
8 See also Riley Pleas, 586 P.2d at 1247 (If the
arbitrators have decided an issue which is not arbitrable under
the contract to arbitrate, they have exceeded their powers.).
9 Cf. State Farm Mut. Auto. Ins. Co. v. Dowdy, 111 P.3d
337, 342 (Alaska 2005) ([C]overage matters not committed to
arbitration by the terms of the policy should nevertheless be
arbitrated where they are inextricably intertwined with matters
committed by contract to arbitration.).
10 This court has no statutory authority to reconsider
arbitrators construction of contract provisions that do not
pertain to the issue of arbitrability. Marathon Oil Co. v. ARCO
Alaska, Inc., 972 P.2d 595, 603 (Alaska 1999); see also Ahtna,
894 P.2d at 661 ( [A]n arbitrators misconstruction of a contract
is not open to judicial review, except on questions of
arbitrability . . . . ) (quoting Riley Pleas, 586 P.2d at 1247).
11 OK Lumber argues that the lease was an integrated
contract that could not be unilaterally modified, that the
parties did not intend to exclude consideration of contamination
from the determination of fair market value, and that the
standard appraisal instructions do not exclude contamination. OK
Lumber also contends that the lease would be unenforceable due to
indefiniteness and lack of mutual assent if the railroad could
unilaterally change what is excluded from the fair market value
determination through the standard appraisal instructions.
Finally, OK Lumber argues that the lease is a contract of
adhesion and that any ambiguities should therefore be decided in
OK Lumbers favor.
Because none of these contentions pertains to
arbitrability, we do not address them.
12 Ahtna, 894 P.2d at 661 (citing Breeze v. Sims, 778 P.2d
215, 217 (Alaska 1989)).
13 Marathon Oil Co. v. ARCO Alaska, Inc., 972 P.2d 595,
604 (Alaska 1999).
14 Likewise, other provisions in the contract discussing
recovery of expenses mention attorneys fees specifically.
Paragraph 4.13, for example, refers to all costs and expenses,
including reasonable attorneys fees. These explicit references
suggest that the parties did not intend attorneys fees to be
recoverable unless the contract specifically provided otherwise.
15 Alaska R. Civ. P. 82(a).
16 Alaska R. Civ. P. 82(b)(2).
17 We have stated that [u]nconscionability may exist where
[the] circumstances indicate a vast disparity of bargaining power
coupled with terms unreasonably favorable to the stronger party.
Municipality of Anchorage v. Locker, 723 P.2d 1261, 1265-66
(Alaska 1986) (citing Vochner v. Erickson, 712 P.2d 379, 381-83
(Alaska 1986)); see also Morrow v. New Moon Homes, 548 P.2d 279,
292 n.43 (Alaska 1976) (quoting with approval the following
definition of unconscionability from Williams v. Walker-Thomas
Furniture, 350 F.2d 445, 449 (D.C. Cir. 1965): Unconscionability
has generally been recognized to include an absence of meaningful
choice on the part of one of the parties together with contract
terms which are unreasonably favorable to the other party.).
18 Little Susitna Constr. Co. v. Soil Processing, Inc.,
944 P.2d 20, 25 n.7 (Alaska 1997) (quoting Graham v. Rockman, 504
P.2d 1351, 1357 (Alaska 1972)).
