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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Alaska Construction Equipment, Inc. v. Star Trucking, Inc. (01/27/2006) sp-5980
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
| ALASKA CONSTRUCTION | ) |
| EQUIPMENT, INC., | ) |
| ) Supreme Court No. S- 11555 | |
| Appellant, | ) |
| ) Superior Court No. | |
| v. | ) 4FA-03-2189 CI |
| ) | |
| STAR TRUCKING, INC., f/k/a | ) |
| NORTHSTAR TRUCKING, INC., | ) O P I N I O N |
| ) | |
| Appellee. | ) [No. 5980 - January 27, 2006] |
| ) | |
Appeal from the Superior Court of the State
of Alaska, Fourth Judicial District,
Fairbanks, Richard D. Savell, Judge.
Appearances: Brent Edwards and Bruce E.
Falconer, Boyd, Chandler & Falconer, LLP,
Anchorage, for Appellant. James D. DeWitt,
Aisha Tinker Bray, and Matthew Cooper, Guess
& Rudd P.C., Fairbanks, for Appellee.
Before: Bryner, Chief Justice, Matthews,
Eastaugh, and Carpeneti, Justices. [Fabe,
Justice, not participating.]
CARPENETI, Justice.
I. INTRODUCTION
We have permitted an owner of property to obtain loss
of use damages for the reasonable period of time required to make
repairs to the property damaged by a lessee or bailee.1 We are
now asked whether a lessor may obtain loss of use damages even
where the lessee caused the property to be totally destroyed and
not repairable. We hold that such damages are recoverable during
the period of time that is reasonably necessary for the owner to
secure a suitable replacement of the property.
II. FACTS2 AND PROCEEDINGS
On August 19, 2002 Alaska Construction Equipment, Inc.
(ACE) leased a Volvo A-35 rock dump truck3 to Star Trucking, Inc.
The lease agreement stated that the trucks value was $140,000 and
set the rental rate at $17,500 per month. The lease document was
a one-page standardized form with a few listed terms and
conditions, including the following:
Equipment maintenance, repairs and care are
the sole responsibility of the Lessee. After
inspection, Lessee assumes all repairs and
maintenance necessary to return the unit in
the same condition as it was received,
reasonable wear and tear excepted.
Star Trucking took possession of the truck in Glennallen and
hauled it to the Fort Knox mine outside Fairbanks. On October
14, 2002, less than two months after the start of the lease, a
Star Trucking employee hooked the bed [of the truck] on an
overhead conveyor belt at the Fort Knox mine, and rolled the A-35
onto its side. The incident report noted that the accident
damag[ed] right side of cab, and also caus[ed] right & left
cylinders to be torn loose from box; also possible engine damage
to be assessed at a later time.
On October 29 Star Trucking moved the damaged vehicle
to its yard in Fairbanks. According to Star Trucking, it
considered the truck repairable, and at its shop it immediately
disassembled the vehicle, assessed the damage to the vehicle, and
ordered parts to repair the vehicle in an effort to . . . get it
back out on the road as soon as possible. On November 1 the
general manager of ACE, Roy Rank, inspected the vehicle in Star
Truckings yard. After only ten minutes it was clear to [Mr.
Rank] that the truck was totaled, especially but not limited to
the noticeably bent frame.
On November 4 Rank told Star Trucking that the truck
had to be inspected and repaired by a Volvo-certified repair
facility, and recommended Construction Machinery Industries, LLC
(CMI). Rank later testified to his rationale for requiring
inspection and repair by a Volvo-certified facility:
Because of liability and resale concerns we
only have a Volvo certified repair facility
do our major repairs. We know a Volvo
certified repair facility is going to do it
right. We certainly do not want a bad repair
job getting someone hurt or something damaged
when the truck goes back out on lease.
Having major repairs done by a Volvo
certified repair facility also assures a well
documented heavy maintenance history and
preserves the resale value of the truck. . .
. ACE does do routine maintenance and minor
repairs on its equipment, and ACE allows its
lessees to do the same.
Star Trucking admitted that it was not a Volvo-certified repair
facility and that none of its mechanics were Volvo trained and
certified to make repairs to the A-35.
After numerous requests by ACE and some scheduling
difficulties, Star Trucking delivered the damaged truck to CMI in
Anchorage on November 19. About one week later Rank met with a
CMI mechanic, who explained that the truck suffered major damage,
e.g., bent frame and blued (burnt) bearings. On December 9 CMI
faxed an estimate for repairs totaling $99,931.69, not including
the cost of a new cab. (CMI, acting on Volvos advice, concluded
that the cab needed to be replaced rather than repaired.)
According to Rank, after reviewing this estimate with Paul Miller
of Star Trucking, [w]e both felt the truck was totaled. Star
Trucking directed its insurer, Firemans Fund of Seattle, to
handle the claim.
Firemans Fund made numerous offers to ACE, but ACE
rejected these offers and demanded nothing less than $140,000,
the stated value of the truck in the lease agreement. On May 2,
2003 Firemans Fund offered to pay $100,000 with ACE keeping the
salvage, which had an estimated value of around $45,000. ACE
agreed to this offer on May 7, but on May 9 Firemans Fund stated
its belief that this payment would also settle any claim for
attorneys fees or for loss of use damages. After receiving the
$100,000 check from Firemans Fund, Star Trucking refused to hand
the check over to ACE until ACE signed a release of all claims.
On May 20 ACE reiterated its belief that the $100,000 settlement
only covered property damage, and on May 23 it filed a complaint
against Star Trucking for the $100,000 check and for loss of use
damages. On July 8 Star Trucking delivered the check to ACE.
Star Trucking later moved for summary judgment on ACEs
loss of use damages claim. ACE opposed this motion and cross-
moved for summary judgment in its favor on this issue. ACE
sought a total of $154,000 in loss of use damages, based on
$17,500 per month from the date of the accident, October 15,
2002, to the date it received the $100,000 Firemans Fund
settlement check from Star Trucking on July 8, 2003.4 On June 1
Superior Court Judge Richard D. Savell granted summary judgment
in Star Truckings favor without comment, and denied ACEs cross-
motion for summary judgment. ACE appeals.
III. STANDARD OF REVIEW
We review a grant of summary judgment de novo, drawing
all factual inferences in favor of, and viewing the facts in the
light most favorable to the non-prevailing party (generally the
non-movant).5 A grant of summary judgment will be affirmed when
there are no genuine issues of material fact and the prevailing
party is entitled to judgment as a matter of law.6 Whether an
owner of property may obtain loss of use damages against a lessee
or bailee who caused the total destruction of the leased chattel
is a question of law, which we review using our independent
judgment.7 We will adopt the rule of law that is most persuasive
in light of precedent, reason, and policy.8
IV. DISCUSSION
The Superior Court Erred in Granting Summary Judgment to
Star Trucking on ACEs Loss of Use Damages Claim.
A. ACE has a claim for damages for loss of use.
ACE seeks loss of use damages for a period of time
after the accident, even though the truck was destroyed and
essentially not repairable. We have not had occasion to
determine whether loss of use damages are permissible in these
circumstances, so the legal issue is one of first impression in
Alaska.
Generally, loss of use damages are available as a form
of special or consequential damages for harm to or destruction of
personal property.9 Recoverable special damages are those that
are within the proximate cause limits, that can be proven with a
reasonable degree of certainty, and that do not duplicate
elements of damage awarded under the general damages headings.10
The ordinary measure of damages in contract law is the
expectation interest, which strives to give the benefit of the
bargain to the non-breaching party.11 For example, where a lessee
returns leased property to the owner in damaged condition, the
award of damages often includes an award of special loss of use
damages to satisfy the owners expectation interest. If the
lessor were merely awarded the decline in market value for its
damaged equipment, then the lessor would not be compensated for
the economic harm resulting from the lessors impaired ability to
continue leasing out the equipment to other customers during any
period needed for repair.
Following this line of reasoning, we have specifically
recognized the remedy of loss of use damages in a contract for
lease or bailment. In Burgess Construction Co. v. Hancock,12 a
lessee-bailee returned equipment to the lessor-bailor in damaged
condition.13 We stated that it is well established that an owner
of equipment may recover for loss of that use of the equipment
during the period required for making repairs which could have
been made with ordinary diligence.14 We also stated that the
rental value of a damaged vehicle is one permissible standard for
measuring damages for loss of use.15 We calculated loss of use
damages by multiplying the time necessary for repair by the
rental value of the equipment, and we rejected the rule that the
plaintiff, to recover, must first establish that in fact he hired
a replacement for his damaged vehicle.16
While we have not previously decided the precise issue
presented in this case whether to allow loss of use damages
where the chattel is completely destroyed rather than merely
damaged we have commented on it in past cases. In State v.
Stanley,17 we noted that there is a dispute [among jurisdictions]
as to allowance of damages for loss of use in case of total
destruction, but under the circumstances of that case it was
unnecessary to take a position on the matter.18 Stanley involved
a constructive total loss of a bailors property. The superior
court had awarded damages for loss of use for a reasonable time
to accomplish a replacement of the article which it deemed to be
eighteen months in addition to general damages compensating for
the propertys reasonable market value.19 We affirmed the figure
of eighteen months, but we did not comment on the superior courts
underlying adoption of the reasonable time to accomplish a
replacement of the article standard because it had not been
raised as an issue on . . . appeal.20 In a later case we noted,
again without resolving it, that [t]here is a current dispute
among courts as to the propriety of allowing loss of use damages
in a case involving total destruction of property.21
What should be the rule for loss of use damages in
cases involving the total destruction of a chattel? We begin by
noting that the general trend in other jurisdictions has been to
allow loss of use damages in these cases.22 Similarly, it has
been noted that traditional limitations on this kind of recovery
were based on a questionable analogy between total destruction
loss of use claims and historical trover or conversion claims.
Earlier decisions assumed that the owner of the property would be
fully compensated for its injury by receiving the market value of
the destroyed chattel, making additional loss of use recovery
excessive.23 Jurisdictions permitting loss of use damages in
cases of total destruction have rejected this analogy, and its
market-value ceiling on recovery, as a fallacy.24 As explained by
one court:
When an automobile is damaged through the
negligence of another, temporary loss of the
use of such vehicle pending repair or
replacement is a reasonably foreseeable
consequence of the defendants tortious
conduct. Compensation for the temporary loss
of use is directed at plaintiffs economic
loss, the amount of money plaintiff had to
pay for rental of a car. This is an injury
different in kind from property damage, the
amount of money necessary to repair or
replace the damaged vehicle. A plaintiff in
a total destruction case deprived of his
reasonable loss-of-use expenses has simply
not been made whole.[25]
Our case law is in accord with these jurisdictions
rejecting the market-value ceiling of recovery for loss of use
damages. Indeed, we have indicated that a plaintiff is permitted
to recover loss of use damages above and beyond the total market
value of the damaged chattel.26 We therefore see no compelling
reason to treat loss of use claims differently where the chattel
is totally destroyed as opposed to only partially damaged. We
believe that making loss of use compensation available in cases
of total destruction will enable damage awards to fully reflect
the expectation interest of the owner seeking damages. This
expectation interest includes both the expectation that the owner
would obtain the benefit of the bargain (loss of use) and that it
would have a useful piece of property at the end of the contract
(replacement).
In cases of total destruction, loss of use damages
should be permitted for the period of time that is reasonably
required to obtain a suitable replacement for the property.27
Because the act of seeking a replacement is predicated on the
property being destroyed, this period includes a reasonable
period of time, if any, following the accident that is needed to
determine whether the property has in fact been totally destroyed
or whether it remains repairable, so long as any delay in
reaching this determination is not the fault of the party seeking
damages. To obtain loss of use damages, the owner need not
necessarily establish as part of its proof that there was an
actual attempt or ability to obtain a replacement for the
destroyed property.28 Rather, we adopt the replacement standard
because it is a sensible measurement to capture the expectation
interest; the damages suffered by the owner of the property are
not necessarily affected by whether a replacement was ultimately
obtained.29
We reiterate our rule regarding the relationship
between an award of loss of use damages and an award of
prejudgment interest, as discussed in State v. Stanley:30
[T]he court awarded interest on the value of
the vessel from the date of its loss. Such
an award is to compensate for the loss of the
use of the funds representing the value of
the vessel. . . . To grant such an award plus
a separate one for damages attributable to
loss of use of the vessel constitutes a
double recovery. In order to make a wronged
plaintiff whole, under certain circumstances,
it may be more appropriate to award the
actual, provable damages attributable to loss
of use of property than to award interest
from the date of loss. Both interest and an
award for loss of use of the property,
however, are not permissible.[31]
Thus, we have made clear that loss of use damages are not
available where the party seeking them has already been awarded
prejudgment interest on the value of the destroyed property.
Prejudgment interest adequately compensates the owner of damaged
property for economic loss for the period of time between the
accident and the later award of the propertys value. As a
corollary, loss of use damages may no longer accrue for an owner
once the owner has received actual payment for the value of its
property, as, for example, where the owner obtains a cash amount
pursuant to a settlement agreement.
Because we adopt the rule that loss of use damages are
available in cases of total destruction, we conclude that the
superior court erred in granting summary judgment to Star
Trucking on this issue. Viewing the facts in the light most
favorable to ACE, (1) there was a valid lease for the truck, (2)
the accident was the fault of the lessee, Star Trucking, (3) the
accident caused total destruction of the truck, and (4) ACE no
longer received rental payments or other economic benefits that
it otherwise likely would have received from the truck after the
truck was destroyed. These facts, if indeed true, would be
sufficient to support some award of loss of use damages to ACE.
It was therefore error to find that there were no genuine issues
of material fact and that Star Trucking was entitled to judgment
as a matter of law. Upon remand, the superior court should
determine whether the facts support an award of loss of use
damages to ACE under the legal standard announced today. If so,
the court must calculate a damages award to fully compensate ACE
for its expectation interest. This calculation will require
findings regarding the proper measure of loss of use damages for
ACE32 and the relevant time period for which such damages should
be made available, i.e., what amount of time was reasonably
required for ACE to obtain a suitable replacement for its truck.
B. None of Star Truckings defenses entitled it to
summary judgment.
Consideration of Star Truckings numerous defenses to
loss of use damages does not change our conclusion that summary
judgment was improper. We consider each briefly.
1. Repudiation by ACE
Star Trucking argues that ACE repudiated the lease
contract by insisting that a certified facility, and not Star
Trucking, repair the damaged truck, thereby preventing Star
Truckings performance of the contract. Star Truckings
repudiation argument is based on language in the lease that
required the lessee to perform all repairs and maintenance
necessary to return the unit in the same condition as it was
received, reasonable wear and tear excepted. However, contrary
to Star Truckings argument that ACEs demand for competent repair
prevented Star Trucking from performing its contractual duties,
the only performance actually demanded of Star Trucking under the
contract was the payment of rents for the truck. The repair
clause placed the responsibility on Star Trucking to repair, but
it did not give Star Trucking an absolute right to repair such
that Star Trucking could control all aspects of a repair job and
exclude ACEs participation. In other words, the repair clause
was one of Star Truckings burdens of the contract, not one of its
benefits. Therefore, we cannot accept Star Truckings argument
that ACEs requirement for competent repair, in itself, was a
repudiation of the contract.
2. Termination by ACE
Star Trucking next argues that ACE terminated the at-
will lease by re-taking possession of the truck. But even if ACE
were found to have terminated the lease contract, it would not
follow that ACE could not recover any loss of use damages. Such
termination, after all, was occasioned by Star Truckings
destruction of the truck. Thus, the termination might end the
time period in which ACE could collect loss of use damages, but
it would not change the facts that ACE was harmed by the damage
Star Trucking caused to the vehicle, including the economic loss
of use of that vehicle, and that it is entitled to some form of
relief.
3. Failure to mitigate and modification of the
contract by ACE
Star Trucking argues that ACE had a duty to mitigate
damages that it failed to meet, and that by allowing credits for
earlier downtime periods ACE had modified the contract. We have
examined these arguments and are satisfied that neither entitled
it to summary judgment. Both at the least raise disputed issues
of material fact.
V. CONCLUSION
Loss of use damages are available to an owner of
damaged property even where the property has been totally
destroyed and is not repairable. Because genuine issues of
material fact remain as to whether ACE is entitled to recover
loss of use damages for the destruction of its leased truck, we
REVERSE the superior courts grant of summary judgment to the
lessee, Star Trucking, and REMAND for proceedings consistent with
this opinion.
_______________________________
1 Burgess Constr. Co. v. Hancock, 514 P.2d 236 (Alaska
1973).
2 We set out the facts in the light most favorable to
ACE, because Star Trucking moved for and prevailed on summary
judgment below. Martinez v. Ha, 12 P.3d 1159, 1162 (Alaska
2000).
3 This six-wheeled vehicle weighs 56,660 pounds when
empty, stands over eleven feet high, and is thirty-five feet
long.
4 The lease agreement set monthly payments at $17,500 per
month, as mentioned above. The first invoice (for the period
8/20/02 to 9/19/02) was paid, although ACE credited Star Trucking
almost $4,700 for downtime due to vehicle problems. The second
invoice (for the period 9/20/02 to 10/19/02) was also paid. But
Star Trucking paid nothing on the invoices it received after it
rolled the rock truck.
5 Rockstad v. Erikson, 113 P.3d 1215, 1219 (Alaska 2005).
6 Id.
7 Cent. Bering Sea Fishermens Assn v. Anderson, 54 P.3d
271, 277 (Alaska 2002) (The determination of what law to apply is
a legal question for which we use our independent judgment.).
8 Guin v. Ha, 591 P.2d 1281, 1284 n.6 (Alaska 1979).
9 1 Dan B. Dobbs, Law of Remedies 5.15(1) (2d ed. 1993).
10 Id.
11 See Restatement (Second) of Contracts 347 & cmt. a
(1981) (Contract damages are ordinarily based on the injured
partys expectation interest and are intended to give him the
benefit of his bargain by awarding him a sum of money that will,
to the extent possible, put him in as good a position as he would
have been in had the contract been performed.).
12 514 P.2d 236 (Alaska 1973).
13 Id. at 237. Even though the parties had created a
rental contract for the equipment, we disregarded the contract
and treated the transfer of property as a bailment. Id. at 239-
40. (A bailment is a delivery of personal property by one person
to another in trust for a specific purpose, with an express or
implied contract that the property will be returned or accounted
for when the specific purpose has been accomplished or when the
bailor reclaims the property. United Truck Rental Equip.
Leasing, Inc. v. Kleenco Corp., 929 P.2d 99, 103 (Haw. App.
1996), quoting Davis v. MLG Corp., 712 P.2d 985, 987-88 (Colo.
1986).) This distinction is not analytically important for our
purposes today, for [a]t common law, the rental of a motor
vehicle creates a bailment for the mutual benefit of the parties.
United Truck Rental, 929 P.2d at 103. Thus, loss of use damages
would be available to the same extent in a lease contract and a
bailment.
14 Burgess, 514 P.2d at 238 (citing Annot., 18 A.L.R.3d
497 at 6 (1972)).
15 Id. (citing 18 A.L.R.3d 497 at 14).
16 Id. at 238 (emphasis added).
17 506 P.2d 1284 (Alaska 1973).
18 Id. at 1292-93 & n.17 (collecting cases on both sides).
19 Id. at 1292 (internal quotation omitted).
20 Id. at 1293.
21 ERA Helicopters, Inc. v. Digicon Alaska, Inc., 518 P.2d
1057, 1060 n.5 (Alaska 1974).
22 See, e.g., Reynolds v. Bank of America, 345 P.2d 926,
927-28 (Cal. 1959) (There appears to be no logical or practical
reason why a distinction should be drawn between cases in which
the property is totally destroyed and those in which it has been
injured but is repairable. . . .); Long v. McAllister, 319 N.W.2d
256, 259-61 (Iowa 1982); Chlopek v. Schmall, 396 N.W.2d 103, 108-
10 (Neb. 1986). See also Dobbs, supra note 9, 5.15(2) at 891-92
(courts today appear to have very generally allowed rental value
claims even in cases of complete destruction of the chattel).
This view is also reflected in the Restatement. Restatement
(Second) of Torts 927 (1979).
23 Long, 319 N.W.2d at 259 (Damages for destruction of
chattels were based on analogy to conversion. The reasonable
market value of the chattel was viewed as adequate compensation
under this concept in the common law action of trover.);
Reynolds, 345 P.2d at 928 (original rule appears to be the result
of historical limitations upon the action of trover at common
law).
24 Long, 319 N.W.2d at 260.
25 Bartlett v. Garrett, 325 A.2d 866, 867 (N.J. Dist.
1974) (emphases in original).
26 See Ben Lomond, Inc. v. Campbell, 691 P.2d 1042, 1047
(Alaska 1984) (holding that award not limited to value of
property but may include loss of use); ERA Helicopters, 518 P.2d
at 1059-60 (award not limited to repair costs, may include loss
of use).
27 Long, 319 N.W.2d at 261; Reynolds, 345 P.2d at 927.
See also Recovery for Loss of Use of Motor Vehicle Damaged or
Destroyed, 18 A.L.R.3d 497 at 9 (1968).
28 Cf. Burgess Constr. Co. v. Hancock, 514 P.2d 236, 238
(Alaska 1973) (rejecting rule that to obtain loss of use
compensation for repairable damage plaintiff must first establish
that in fact he hired a replacement for his damaged vehicle).
Accord United Truck Rental Equip. Leasing, Inc. v. Kleenco Corp.,
929 P.2d 99, 110 (Haw. App. 1996) (a plaintiffs recovery should
not be premised on his or her actual ability to purchase a
replacement).
29 See United Truck, 929 P.2d at 110 (regardless of
whether the plaintiff furnishes the funds to hire a substitute
vehicle, he or she still suffers an injury while deprived of the
vehicle and should be awarded damages for the inconvenience).
30 506 P.2d 1284 (Alaska 1973).
31 Id. at 1295 (citation omitted) (emphases added).
32 We note that it is commonly said that there are four
measures for loss of use damages: (1) lost profit, (2) cost of
renting a substitute chattel, (3) rental value of the plaintiffs
own chattel, or (4) interest. Dobbs, supra note 9, 5.15(1) at
875. If the court determines that ACE is entitled to loss of use
damages, it may calculate the damages according to whatever
measure most accurately compensates ACE for its expectation
interest.
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