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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Nautilus Marine Enterprises, Inc. v. Exxon Mobil Corporation (7/19/2013) sp-6801

Nautilus Marine Enterprises, Inc. v. Exxon Mobil Corporation (7/19/2013) sp-6801

        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, email 

        corrections@appellate.courts.state.ak.us. 



                 THE SUPREME COURT OF THE STATE OF ALASKA 



NAUTILUS MARINE                                  )      Supreme Court No. S-14458 

ENTERPRISES, INC.,                               ) 

                                                 )       Superior Court Nos. 3AN-07-10901 CI 

              Appellant,                         )       and 3AN-09-07869 CI (Consolidated) 

                                                 ) 

        v.                                       )       O P I N I O N 

                                                 ) 

EXXON MOBIL CORPORATION                          )      No. 6801 - July 19, 2013 

and EXXON SHIPPING COMPANY,                       )
 

                                                 )
 

            Appellees.                           )
 

                                                 )
 



                Appeal from the Superior Court of the State of Alaska, Third 

                Judicial District, Anchorage, Sen K. Tan, Judge. 



                Appearances:      Charles W. Coe, Law Offices of Charles W. 

                Coe, Anchorage, for Appellant.          John Clough III, Clough & 

                Associates,     P.C.,   Auke    Bay,   for  Appellee     Exxon    Mobil 

                Corporation.      Douglas J. Serdahely  and Barat M. LaPorte, 

                Patton Boggs LLP, Anchorage, for Appellee Exxon Shipping 

                Company.         Carla    J.  Christofferson     and    Dawn     Sestito, 

                O'Melveny        &   Myers    LLP,    Los   Angeles,    California,   for 

                Appellees. 



                Before: Fabe, Chief Justice, Carpeneti and Stowers, Justices. 

                [Winfree, Justice, not participating.] 



                STOWERS, Justice. 


----------------------- Page 2-----------------------

I.      INTRODUCTION 



                  In  September    2006   Exxon    Mobil   Corporation    and   Exxon    Shipping 



Company (collectively "Exxon") entered into a Settlement Agreement with two seafood 



processors, Nautilus Marine Enterprises (Nautilus) and Cook Inlet Processing (Cook 



Inlet).  The   agreement contained   the   following   language:      "Exxon   and   the   Seafood 



Processors agree that the issue of the correct rate of prejudgment interest in this case 



shall be submitted to the [United States] District Court for resolution and entry of an 



appropriate judgment . . . ."    It also noted that the "Final Judgment shall be in the same 



form as Exhibit A to this Settlement Agreement." 



               The parties disputed whether the Settlement Agreement required interest 



to be compounded annually, or whether the federal District Court was free to award 



simple or compound interest at its discretion. 



               Exxon filed an action in the Alaska Superior Court seeking a declaratory 



judgment construing the Settlement Agreement. The superior court found that the parties 



did not intend that prejudgment interest had to be compounded annually, but rather that 



they intended to reserve this issue for the District Court to decide.  Because the superior 



court's interpretation of the Settlement Agreement was not clearly erroneous, we affirm. 



II.     FACTS AND PROCEEDINGS 



        A.     Facts And Proceedings Concerning The Settlement Agreement 



               The   September   2006   Settlement   Agreement   was   intended   to   resolve   a 



lawsuit by Nautilus and Cook Inlet against Exxon in the United States District Court for 



the District of Alaska. The underlying lawsuit related to the 1989 Exxon Valdez oil spill. 



An important issue in dispute between the parties was how to calculate prejudgment 



interest that would be payable on damages that Nautilus and Cook Inlet suffered as a 



result of the spill.   In two similar cases, the District Court had previously ruled that 



federal     law   would     govern     the   calculation    of   prejudgment      interest   under 



                                                -2-                                          6801
 


----------------------- Page 3-----------------------

28 U.S.C.  1961.1      That statute sets the Treasury bill rate ("T-bill rate") as the default 



rate for prejudgment interest, although the court has the power to vary the rate if the 



equities of a particular case demand it.   The statute expressly provides that interest shall 

be "compounded annually."2 



                In June 2006 Nautilus and Cook Inlet filed a motion in the District Court 



prepared     by   their  attorney,   Phillip  Paul   Weidner,     arguing    that  the  Alaska    state 



prejudgment interest rate of 10.5% should apply to their case, rather than the federal T- 



bill  rate  that  the  District   Court   had   applied   in  the  previous    cases.    The   Alaska 



prejudgment interest statute in effect at the time of Nautilus's and Cook Inlet's damages 



in   1992   and   1993   provided   that   prejudgment   interest   was   10.5%   per   annum   unless 

otherwise   provided   for   in   a   contract   or   agreement.3 Decisions   applying   former   AS 



09.30.070(a) had held that in the absence of an agreement to the contrary, the method of 

computing interest under the statute was "simple interest."4              The motion argued that 



Alaska's prejudgment interest statute should apply because Nautilus's and Cook Inlet's 



underlying claims were based on state law.  In the alternative, the motion argued that the 



District Court should apply a federal rate "compounded annually." 



                Meanwhile, Weidner initiated settlement negotiations with John Daum, 



negotiator and outside counsel for Exxon.           In a letter to Daum in July 2006, Weidner 



discussed the applicable prejudgment interest rate, noting that it would be necessary to 



        1       Order   No.   369, In   re   Exxon   Valdez , A89-0095-CV   (HRH), 2005   WL 



936934 (D. Alaska Apr. 12, 2005), rev'd and remanded, 484 F.3d 1098 (9th Cir. 2007); 

Order No. 299, In re Exxon Valdez , A89-0095-CV (HRH) (D. Alaska Sept. 21, 1995). 



        2       28 U.S.C.  1961(b) (2006). 



        3       Former AS 09.30.070(a) (1996) (amended 1997). 



        4       State v. Doyle, 735 P.2d 733, 741-42 (Alaska 1987);Alyeska Pipeline Serv. 



Co. v. Anderson, 669 P.2d 956-57 (Alaska 1983). 



                                                 -3-                                            6801
 


----------------------- Page 4-----------------------

conduct "an analysis of whether the treasury T-bill rate will be used and compounded, 



whether the Alaska 10.5% simple rate will be used, or whether the federal lending rate 



will   be  used    and  compounded."        Weidner      also  provided     Daum    a  list  of  interest 



calculations he had formulated using compound interest when applying federal rates and 



simple interest when applying the Alaska rate of 10.5%. 



                In a September 2006 letter, Weidner proposed to Daum that the parties 



settle the principal amount of damages and allow District Court Judge Russel Holland 



to resolve the issue of the "computation and assessment of prejudgment interest," subject 



to appeal to the United States Court of Appeals for the Ninth Circuit.  Daum responded 



by drafting a Letter Agreement that was intended to set forth the basic terms of the 



settlement consistent with the substance of Weidner's letter.                The Letter Agreement 



stated that Exxon would pay prejudgment interest "as provided by law" and explained 



that "Exxon contends that the correct rate of pre-judgment interest in this case is 4.11% 



on damages accrued in 1992 and 3.54% on damages accrued in 1993," consistent with 



the   Treasury   bill   rates   for   those   years,   while   Cook   Inlet   and   Nautilus   contend   that 



"higher rates of  pre-judgment interest apply."  The Letter Agreement provided that the 



District Court would determine the "correct rate of prejudgment interest," and that both 



parties    preserved    their  rights  to  appeal   to  the  Ninth    Circuit.   Finally,    the  Letter 



Agreement provided that the parties would execute a formal settlement agreement to 



implement the provisions of the Letter Agreement.              On September 14, 2006, Weidner 



countersigned   the   Letter   Agreement,   indicating        that   "a   settlement   on   this   basis   is 



agreeable to [his] clients."  In testimony, Daum and Weidner agreed that at the time they 



signed the Letter Agreement, Daum had made no "specific representation" that Exxon 



would pay compound interest in all circumstances. 



                   From     the  signing    of  the  Letter  Agreement      on   September     14   until 



September 18, 2006, when Daum transmitted a first draft of the Settlement Agreement 



                                                  -4-                                             6801
 


----------------------- Page 5-----------------------

to   Weidner,     the  parties   did  not   have   any   substantive    discussions.     After    minor 



modifications to Daum's initial Settlement Agreement draft, the parties executed the final 



Settlement Agreement. 



                Closely following the wording of the Letter Agreement, the language of the 



Settlement Agreement regarding prejudgment interest read as follows: 



                Exxon contends that the correct rate of pre-judgment interest 

                in   this   case   is   4.11%  compounded   annually   on   damages 

                accrued     in   1992    and   3.54%    compounded        annually    on 

                damages accrued in 1993. The Seafood Processors contend 

                that higher rates of prejudgment interest apply. Exxon and the 

                Seafood Processors agree that the issue of the correct rate of 

                prejudgment interest in this case shall be submitted to the 

                District   Court   for   resolution   and   entry   of   an   appropriate 

                judgment, with all parties preserving rights of appeal to the 

                Ninth Circuit from any adverse decision. 



Paragraph 3.5 of the Settlement Agreement provided for the "entry in the Action of a 



Final Judgment," which "shall include the following provisions": 



                3.5.1 A dismissal with prejudice of all Claims of the Seafood 

                Processors; 



                3.5.2 A full and final release and discharge of Exxon from all 

                Claims by each of the Seafood Processors . . . ; 



                3.5.3   An    order   forever   barring    the  parties   identified   in 

                paragraph      3.5.2   from   asserting,   instituting,   maintaining, 

                prosecuting or enforcing any Claim against Exxon . . . ; 



                3.5.4   A   reservation   of   jurisdiction   over   the   Claims   of   the 

                Seafood Processors against Exxon to enforce this Settlement 

                Agreement and the Final Judgment. 



The Settlement Agreement further stated that the Final Judgment "shall be in the same 



form" as an attached "(Proposed) Final Judgment" form marked as "Exhibit A" in the 



document.      The first paragraph, or first recital, of Exhibit A   included the following 



language, which is at the center of the current controversy: 



                                                  -5-                                             6801
 


----------------------- Page 6-----------------------

                 WHEREAS,   in   Order   No.   __,   the   Court   determined   that 

                plaintiffs . . . were entitled to recover prejudgment interest 

                 from defendants . . . on 1992 damages at the rate of __%, 

                 compounded          annually,      and   were    entitled    to  recover 

                prejudgment interest on 1993 damages at the rate of __%, 

                 compounded annually . . . . (Emphasis added.) 



The   "compounded   annually"   language   was   present   in   all   drafts   of   Exhibit   A   to   the 



Settlement Agreement exchanged by the parties, from Daum's first draft to the final 



version.    Both Daum and Weidner agreed that during the drafting of the document the 



parties did not discuss the "compounding annually" language with each other. 



                 Finally, the Settlement Agreement included an integration clause, which 



read as follows:     "This Settlement Agreement, including the attached exhibit [A], is an 



integrated   instrument   that   constitutes   and   contains   the   entire   agreement   among   the 



Parties with regard to the subject matter hereof, and supersedes and replaces all prior 



negotiations and proposed agreements."  The Agreement also provided that it "may not 



be altered, amended or modified in any respect" except by a writing signed by all parties. 



The Agreement stated that the parties entered into the Agreement "based upon equal 



bargaining power, with all Parties participating in its preparation" and that "the attorneys 



for   each   Party   have   had   an   equal   opportunity   to   participate   in   the   negotiation   and 



preparation of this Settlement Agreement, and that its terms . . . shall not be interpreted 



in   favor   of   or   against   any   Party   .   .   .   ." The   Agreement   provided   that   it   shall   be 



interpreted "solely for the purpose of fairly effectuating the intent of the Parties." 



        B.       Post-Agreement Facts And Proceedings 



                 On February 20, 2007, Nautilus and Cook Inlet filed separate motions in 



the   District   Court    arguing    that  Judge    Holland    should    award    a  higher    amount     of 



prejudgment interest than the Treasury bill figures that Exxon believed should apply. 



                                                    -6-                                              6801
 


----------------------- Page 7-----------------------

Cook Inlet's motion was signed by Weidner; Nautilus's motion was signed by other 



counsel. 



                Nautilus's motion argued that the court should award prejudgment interest 



at a compounding rate of 10.5% based on "the average prime rate during the 1990's, the 



Alaska statutory rate, and also [Nautilus's] cost of interest and the rates charged to it." 



In the alternative, Nautilus argued that a rate of 8.5% compounding interest should apply, 



"commensurate with the average prime rate in the 1990s." 



                Cook Inlet's motion, signed by Weidner, argued that the Alaska state rate 



of 10.5% simple interest should apply or, in the alternative, a compound rate between 



9.78% and 12.15% should apply.            Weidner emphasized this distinction between state 



simple interest and federal compound interest in a reply brief that Cook Inlet submitted 



in April 2007. Using bolded lettering, Weidner wrote that "[Cook Inlet's] motion clearly 



states that '. . . the Court should rule that the interest rates (other than Alaska statutory) 



are compounded.' "   Cook Inlet's reply brief also observed that "the Alaska Legislature 



has indicated that [the applicable] rate is 10.5% per year simple interest" and argued that 



in the instant case "[t]he Court should award simple prejudgment interest at 10.5% per 



year." 



                In a supplemental declaration filed in the District Court on April 20, 2007, 



Nautilus president M. Thomas Waterer stated his preference for 10.5% compounding 



interest but also proposed several alternatives to this rate.          These alternatives included 



having Judge Holland award simple interest and interest compounding monthly. 



                On April 16, 2007, the Ninth Circuit held in a related case involving Sea 



Hawk      Seafoods,   Inc.,   that   Alaska   law  -  not   federal   law  -   supplies   the   rate   of 



                                                 -7-                                            6801
 


----------------------- Page 8-----------------------

prejudgment interest.5       Because this decision reversed Judge Holland's earlier rulings 



that federal law applied, he requested that the parties (Exxon, Nautilus, and Cook Inlet) 



file supplemental briefing addressing the Sea Hawk  decision.                  In their supplemental 



briefs, all parties agreed that the  Sea Hawk decision dictated that the proper rate of 



prejudgment   interest   was   the   Alaska   rate   of   10.5%.     However,   Exxon   argued   that 



prejudgment   interest   should   be   simple,   while   Nautilus   and   Cook   Inlet   argued   that, 



pursuant to the language of Exhibit A of the   Settlement Agreement, the parties had 



agreed that interest would be compound in all circumstances. 



                In July 2007 Judge Holland entered final judgment, ruling that Nautilus and 



Cook Inlet were to recover prejudgment interest at the 10.5% Alaska statutory rate, 



compounded annually. In making this ruling, Judge Holland "did not receive or consider 



extrinsic    evidence."     He    found    that  because    "[t]hat   settlement    agreement     was   an 



integrated   instrument"   he   could   not   rely   on   the   parties'   pre-settlement   dealings   in 



interpreting the document.         Looking at the language of the document, Judge Holland 



found   that   the   "proposed   final   judgment   was   expressly   made   part   of   the   integrated 



settlement   agreement"   and   that   the   proposed   judgment   "plainly   states   that   interest, 



regardless of the rate the court puts in the blank, will be compounded."                     Thus, "the 



parties agreed that any prejudgment interest should be compounded." 



                Exxon appealed this decision to the Ninth Circuit. In March 2009 the Ninth 



Circuit ruled that Judge Holland "erred in failing to consider extrinsic evidence regarding 



whether the parties agreed to compound interest," and it remanded the case back to the 

District Court.6 



        5       In re Exxon Valdez (Sea Hawk Seafoods, Inc. v. Exxon Corp.) , 484 F.3d 



1098, 1099 (9th Cir. 2007). 



        6       In   re   Exxon    Valdez    (Polar   Equipment,      Inc.  v.  Exxon    Mobil    Corp.) , 



                                                                                          (continued...) 



                                                   -8-                                                6801 


----------------------- Page 9-----------------------

                In June 2009 Exxon filed a complaint in Alaska Superior Court seeking  to 



reform the Settlement Agreement and, in particular, "to delete the phrase 'compounded 



annually' in the two places where it appears in the First Recital of Exhibit A to the 



Settlement Agreement."  In the alternative, Exxon sought a declaratory judgment to the 



effect that the Settlement Agreement "did not involve any agreement to pay compound 



interest   if   state   law   governed   or   to   pay   compound   interest   regardless   of   what   law 



governed." 



                On   remand   from   the   Ninth   Circuit,   in   September   2009   Judge   Holland 



issued a stay of proceedings in the District Court in favor of the litigation in state court 



of both Exxon's contract reformation and contract interpretation claims.                 The District 



Court expressly retained jurisdiction of the parties' Settlement Agreement for purposes 



of entering a final judgment after state court proceedings had concluded. 



                Cook Inlet and Exxon settled before trial commenced in the superior court. 



Exxon's claims for declaratory relief and reformation with respect to the agreement with 



Nautilus came before the court in a non-jury trial on November 1-3, 2010.  The superior 



court issued Findings of Fact and Conclusions of Law and entered a Final Judgment. 



The court found that the Settlement Agreement did not require Exxon to pay compound 



interest.   Rather, the court found that the parties intended that Judge Holland would 



determine both the correct rate of interest and the method of computing interest under 



federal or state law.   In light of these findings, the court concluded that reformation was 



not necessary.     Finally, the court found that Exxon was the prevailing party. 



                Nautilus appeals. 



        6(...continued) 



318 F. App'x 545, 547 (9th Cir. 2009). 



                                                  -9-                                               6801 


----------------------- Page 10-----------------------

III.    STANDARD OF REVIEW
 



                When interpreting a contract, the goal "is to give effect to the reasonable 

expectations of the parties."7       "We review the interpretation of a contract de novo."8 



"Where the superior court considers extrinsic evidence in interpreting contract terms, 



however, we will review the superior court's factual determinations for clear error and 

inferences drawn from that extrinsic evidence for support by substantial evidence."9                 A 



clearly erroneous finding is one which leaves us with "a definite and firm conviction on 

the entire record that a mistake has been made."10 



                "We   review   a   trial   court's   prevailing   party   determination   for   abuse   of 



discretion.    We   will   reverse   a   prevailing   party   determination   only   if   it   is   arbitrary, 

capricious, manifestly unreasonable, or improperly motivated."11 



        7       Villars v. Villars, 277 P.3d 763, 768 (Alaska 2012) (quoting Knutson v. 



Knutson , 973 P.2d 596, 600 (Alaska 1999)) (internal quotation marks omitted). 



        8       Id. (citing Burns v. Burns , 157 P.3d 1037, 1039 (Alaska 2007)). 



        9       Id. (quoting Cook v. Cook, 249 P.3d 1070, 1077-78 (Alaska 2011)) (internal 



quotation marks omitted); see also Vokacek v. Vokacek , 933 P.2d 544, 547 (Alaska 1997) 

(stating that when extrinsic evidence is presented at trial regarding interpretation of the 

parties' agreement "we are confined to determining whether the facts support the trial 

court's interpretation" (quoting Fairbanks N. Star Borough v. Tundra Tours , 719 P.2d 

1020, 1025 (Alaska 1986))) (internal quotation marks omitted). 



        10      Municipality of Anchorage v. Gentile , 922 P.2d 248, 256 (Alaska 1996) 



(internal quotation marks omitted). 



        11      Taylor v. Moutrie-Pelham, 246 P.3d 927, 928-29 (Alaska 2011) (internal 



footnotes omitted). 



                                                 -10-                                            6801
 


----------------------- Page 11-----------------------

IV.	    DISCUSSION 



        A.	     The Superior Court's Interpretation Of The Settlement Agreement 

                Was Not Clearly Erroneous. 



                 Nautilus argues that the parol evidence rule should have prevented the 



superior   court   from   considering   extrinsic   evidence   to   determine   the   meaning   of   the 



Settlement Agreement.          The superior court concluded that although the parol evidence 



rule "generally precludes the parties from using evidence of prior agreements . . . to 



contradict     the   written   terms,"    the   court   may    consider    extrinsic    evidence    when 



determining   whether   the   contract   is   integrated   and   what   the   contract   means.       The 



superior court is correct.       Extrinsic evidence is generally admissible to   interpret the 

meaning of the language of a contract.12         Once the meaning of a written contract has been 



determined,   the   parol   evidence   rule   prohibits   the   enforcement   of   prior   inconsistent 



               13 

agreements. 



                 1.	     The superior court properly considered extrinsic evidence. 



                Nautilus contends that a court may bring extrinsic evidence to bear on the 



interpretation of a contract only after the court first finds an ambiguity in the contract. 



But we have long held that when reviewing contract disputes, 



                 [i]n  order   to  give   legal  effect   to  the  parties'   reasonable 

                expectations,       the  court    must    look   first  to  the   written 

                agreement itself and also to extrinsic evidence regarding the 

                parties' intent at the time the contract was made.  The parties' 

                reasonable   expectations   are   assessed   through   resort   to   the 

                language of the disputed provision and other provisions of 



        12       Casey v. Semco Energy, Inc., 92 P.3d 379, 383 (Alaska 2004) (internal 



citations omitted). 



        13      See     AS    45.02.202;    Alaska     Diversified     Contractors,     Inc.   v.  Lower 



Kuskokwim Sch. Dist. , 778 P.2d 581, 584 (Alaska 1989) (internal citations omitted). 



                                                   -11-	                                              6801 


----------------------- Page 12-----------------------

                the   contract,  relevant    extrinsic    evidence,    and   case   law 

                interpreting similar provisions.[14] 



                 Extrinsic evidence is evidence "other than the language of the contract that 

bears   on   the   parties'   intentions."15 The   extrinsic   evidence   that   may   be   considered 



includes "the language and conduct of the parties, the objects sought to be accomplished 



and the surrounding circumstances at the time the contract was negotiated," as well as 

the conduct of the parties after the contract was entered into.16         Trial courts "have broad 



latitude in looking at extrinsic evidence."17 



                Extrinsic evidence "is always admissible on the question of the meaning of 

the words of the contract itself."18       Accordingly, "[i]t is not necessary to find that an 



agreement is ambiguous before looking to extrinsic evidence as an aid in determining 

what it means."19     We have expressly rejected the "artificial and unduly cumbersome" 



two-step process used in other jurisdictions in which "resort to extrinsic evidence can 



        14      Fairbanks N. Star Borough , 719 P.2d at 1024 (emphasis added) (internal 



citations omitted). 



        15      Wright v. Vickaryous, 598 P.2d 490, 497 n.22 (Alaska 1979). 



        16      Peterson v. Wirum , 625 P.2d 866, 870 n.7 (Alaska 1981) (citations and 



quotation marks omitted). 



        17      Municipality of Anchorage v. Gentile , 922 P.2d 248, 257 (Alaska 1996). 



        18      Casey v. Semco Energy, Inc., 92 P.3d 379, 383 (Alaska 2004); see also Beal 



v. McGuire , 216 P.3d 1154, 1166 (Alaska 2009) (observing that "in determining the 

meaning of an agreement courts should consider, in addition to its text, relevant extrinsic 

evidence, including the subsequent conduct of the parties"). 



        19      Estate of Polushkin ex rel. Polushkin v. Maw , 170 P.3d 162, 167 (Alaska 



2007); see also Beal, 216 P.3d at 1166 (observing that "[c]ourts may consult extrinsic 

evidence without first finding that an agreement's words are ambiguous"). 



                                                 -12-                                            6801
 


----------------------- Page 13-----------------------

take place only  after a preliminary finding of ambiguity."20           In this two-step process, "a 



court would examine extrinsic evidence to make a preliminary finding of ambiguity, and 



only after such a finding, would the court consider extrinsic evidence in construing the 

contract."21   By contrast, under Alaska law "a court in this jurisdiction may initially turn 



to extrinsic evidence in construing a contract" for "such light as it may shed on the 

reasonable expectations of the parties."22          Such an approach has at least two benefits. 



First, an approach in which the courts "may hear all relevant circumstances bearing on 



the interpretation of a disputed term . . . should better enable them to attain the ultimate 



goal of interpreting the language in accordance with the reasonable expectations of the 

parties."23  Second, this approach "eliminate[s] the lengthy and repetitious arguments as 



to whether a provision is ambiguous."24           In sum, the trial court's duty "to consider the 



totality of the evidence, including extrinsic evidence," in resolving issues of contractual 



meaning "extends to all cases and requires no preliminary indication of ambiguity in the 

written agreement."25 



                Here, the superior court relied on several sources of extrinsic evidence to 



construe   the   meaning   of   the   contract,   including   the   exchange   of   letters   and   drafts 



        20      Alyeska Pipeline Serv. Co. v. O'Kelley , 645 P.2d 767, 771 n.1 (Alaska 



1982). 



        21      Wright v. Vickaryous, 598 P.2d 490, 497 n.22 (Alaska 1979). 



        22      Alyeska Pipeline Serv. Co. , 645 P.2d at 771 n.1. 



        23      Wessells v. State, Dep't of Highways, 562 P.2d 1042, 1052 n.39 (Alaska 



1977). 



        24      Id. 



        25      Froines v. Valdez Fisheries Dev. Ass'n, Inc. , 75 P.3d 83, 87-88 (Alaska 



2003). 



                                                  -13-                                               6801 


----------------------- Page 14-----------------------

between Daum and Weidner, internal documents generated by Nautilus, and various 



motions and declarations submitted by Exxon, Cook Inlet, Nautilus, and Waterer.                      All 



of this evidence was admissible to construe the meaning of the Settlement Agreement. 



In addition to written extrinsic evidence, the court also relied on testimony by Daum, 



Weidner, and Waterer, among others.             Nautilus takes issue with the court's reliance on 



Daum's   testimony   in   particular,   pointing       out   that   we   have   held   that   "self-serving 



litigation-related expressions of prior subjective intent or understanding are generally not 



considered   probative   of   parties'   reasonable   expectations   when   they   entered   into   a 



contract;    the   court   instead   must    look   to  express    manifestations     of  each    party's 

understanding."26      This statement, however, "does not preclude a party from testifying 



about its understanding in objective terms . . . sufficiently detailed to enable [the] trier 



of fact to form its own judgment as to the reasonableness of the party's understanding 

and the likelihood that the other party would have the same understanding."27                   Indeed, 



"[t]here is nothing improper in such testimony."28            Accordingly, the superior court did 



not err in relying on Daum's testimony in combination with other extrinsic evidence in 



seeking to understand the reasonable intent of the parties. 



        26      In re Estate of Fields , 219 P.3d 995, 1012 n.57 (Alaska 2009); see also 



Norville    v.  Carr-Gottstein      Foods ,   84  P.3d   996,   1003    (Alaska   2004)    (stating   that 

"[t]estimony   of   a   party   as   to   his   subjective   intentions   concerning   the   meaning   of   a 

particular clause in a contract is not probative unless the party in some way expressed 

or manifested his understanding at the time of contract formation"). 



        27      In re Estate of Fields , 219 P.3d at 1012 n.57 (quoting Alaska Tae Woong 



Venture, Inc. v. Westward Seafoods, Inc., 963 P.2d 1055, 1067 (Alaska 1998)) (internal 

quotation marks and brackets omitted). 



        28      Alaska Tae Woong Venture, Inc. , 963 P.2d at 1067. 



                                                  -14-                                             6801
 


----------------------- Page 15-----------------------

                2.      The superior court did not violate the parol evidence rule. 



                Nautilus also argues that the superior court "disregarded" or "violate[d]" 



the   parol   evidence   rule   by   relying   on   extrinsic   evidence   to   construe   the   Settlement 



Agreement.  As previously explained, Nautilus's argument reflects a  misunderstanding 



of   the   parol   evidence   rule   and   its   relationship   to   this   court's   principles   of   contract 



interpretation. 



                The parol evidence rule is codified in AS 45.02.202, which reads: 



                Terms with respect to which the confirmatory memoranda of 

                the parties agree, or that are otherwise set out in a writing 

                intended      by   the  parties   as  a   final  expression     of  their 

                agreement with respect to the terms included in the writing, 

                may not be contradicted by evidence of a prior agreement or 

                of a contemporaneous oral agreement, but may be explained 

                or supplemented 



                        (1)   by    course    of   performance,      course    of 

                        dealing, or usage of trade (AS 45.01.303); and 



                        (2) by evidence of consistent additional terms 

                        unless the court finds the writing was intended 

                        also as a complete and exclusive statement of 

                        the terms of the agreement. 



                Alaska case law provides additional guidance regarding this rule. In Alaska 



Diversified Contractors, Inc. v. Lower Kuskokwim School District , we explained that 



"[b]efore the parol evidence rule can be applied, three preliminary determinations must 



be made:     (1) whether the contract is integrated, (2) what the contract means, and (3) 

whether the prior agreement conflicts with the integrated agreement."29  This three-part 



process makes clear that before applying the parol evidence rule, "the court's first duty 



is to determine the meaning of the contract, and extrinsic evidence is admissible for this 



        29      778 P.2d 581, 583 (Alaska 1989) (internal citations omitted). 



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----------------------- Page 16-----------------------

purpose."30   This initial determination, as such, "does not involve the parol evidence rule 



at all, since the question is what the contract means."31           Rather, it is only "[o]nce the 



meaning of the written contract [has been] determined" that the parol evidence rule 

operates to "preclude[] the enforcement of prior inconsistent agreements."32 



                Here,    the  superior   court   followed    the  procedure    set  forth  by  Alaska 



Diversified Contractors and initially determined - with the aid of extrinsic evidence - 



"what the contract means," namely, that the Settlement Agreement did not include an 



agreement to pay compound interest.           Interpreted thus, there was no prior inconsistent 



agreement present and no conflict between the extrinsic evidence and the Settlement 



Agreement.      There was therefore no occasion for the court to apply, much less violate, 



the parol evidence rule. 



                3.	     The   court's   interpretation   of   the   Settlement   Agreement   was 

                        not clearly erroneous. 



                Relying on both the language of the Settlement Agreement and extrinsic 



evidence, the superior court found that the Settlement Agreement did not include an 



agreement to use compound interest regardless of whether state or federal law applied, 



but rather reserved the prejudgment interest issue for Judge Holland to decide.                   This 



finding was not clearly erroneous. 



                With respect to the language of the Settlement Agreement, the court found 



that nothing in the document's language limited Judge Holland's discretion to decide not 



only the numerical percentage of the interest, but also whether the interest would be 



simple or compound.        On the contrary, the court found that the Settlement Agreement 



        30      Prichard v. Clay , 780 P.2d 359, 362 (Alaska 1989). 



        31      Id. 



        32      Alaska Diversified Contractors , 778 P.2d at 584. 



                                                 -16-                                              6801 


----------------------- Page 17-----------------------

simply does not address the issue of simple or compound interest. In particular, the court 



observed that paragraph 3.5 of the Settlement Agreement, which states that the Final 



Judgment must contain certain provisions, does not mention an agreement to provide 



compound interest in all circumstances. Similarly, paragraphs 3.1, 3.2, and 3.3 carefully 



address the issue of prejudgment interest, but say nothing about an agreement to provide 



compound interest in all circumstances. 



                The   court   also   considered   the   significance   of   Exhibit   A,   the   Proposed 



Judgment form. The court concluded that "[t]he extrinsic evidence . . . demonstrates that 



the   proposed     judgment      [Exhibit   A]   (including    the   first  recital  and  [the]   words 



'compounded annually') was intended to provide a form of judgment that Judge Holland 



could use to implement the parties' agreement. The proposed judgment was not intended 



to include or be an agreement to pay compound interest."                  In other words, the court 



found that the Proposed Judgment form was "just that, a proposal for Judge Holland to 



use at his discretion." 



                The   court   acknowledged,   however,   that   despite   its   own   reading   of   the 



document, there "may be an 'ambiguity' " in the language of the Settlement Agreement 



regarding the use of compound interest only, particularly with respect to the language of 



Exhibit A and its recital of the phrase "compounded annually."  Nevertheless, the court 



found that even if the document was ambiguous, the extrinsic evidence removed any 



ambiguity by confirming there was no agreement to pay compound interest.                        Again, 



extrinsic evidence is admissible to construe the Settlement Agreement whether or not 



there is an ambiguity.   With respect to such extrinsic evidence, the court found that "[a]ll 



of the extrinsic evidence demonstrates that the parties never agreed that interest would 



be compounded."        In making this finding, the court relied on the following sources of 



extrinsic evidence. 



                                                  -17-                                            6801
 


----------------------- Page 18-----------------------

                First, the superior court noted that in light of Judge Holland's previous 



rulings    that  federal   law   governed     the  award    of  prejudgment      interest,  the  parties 



reasonably might have assumed that in their case Judge Holland would similarly award 



interest under the federal standard, which requires interest to be compounded.  Thus the 



use of the phrase "compounded annually" in Exhibit A served as a prediction of what the 



court would do. 



                Second, the court considered the exchange of letters and drafts between 



Daum   and   Weidner,   as   well   as   their   testimony   regarding   the   negotiations.   Having 



reviewed these, the court found there was "no evidence that the parties discussed and 



reached agreement that only compound interest would apply regardless of whether state 



or federal law controlled."       Of particular importance here is the drafting and execution 



of the Letter Agreement, which is a binding memorialization of the parties' settlement. 



The Letter Agreement provided that Exxon will pay prejudgment interest "as provided 



by   law"   and   contains   no   agreement   that   Exxon   will   pay   compound   interest   in   all 



circumstances.       Accordingly,   the   Settlement   Agreement   that   followed,   which   was 



intended     to  "implement   the     provisions"    of  the  Letter   Agreement,   could     not   have 



implemented an agreement that did not exist. 



                Third,     the   court    found     that   Nautilus's     and    Weidner's      internal 



communications during the negotiation period confirmed their own understanding that 



prejudgment interest would be compound if federal law applied and simple if state law 



applied.     In   particular,  the   court  found    that  the  parties'   internal  communications 



consistently referred to simple interest under the Alaska statute and compound interest 



when     applying     federal  rates,   and  never    once   calculated    the  10.5%     state  rate  as 



compounded.        Further,   even   after   Waterer   saw   the   proposed   judgment   in   the   draft 



Settlement Agreement, he continued to direct his accountant to perform calculations of 



                                                  -18-                                            6801
 


----------------------- Page 19-----------------------

Nautilus's potential recovery using simple interest under Alaska state law and compound 



interest under federal law. 



                At trial, Waterer testified to his understanding that any interest awarded 



would be compound because the award was intended to compensate Nautilus for the 



expenses it incurred after the oil spill, and Nautilus had to take out loans at very high 



rates.   However,   the   superior   court   found   "Mr.   Waterer's   credibility   to   be   severely 



compromised and his testimony not believable. This court's impression of Mr. Waterer's 



testimony is that he was very careful in answering questions, approaching perjury but 



never committing it." 



                At his deposition before trial, Waterer produced a telephone log book with 



notes that purported to reflect conversations between Weidner and Waterer supporting 



the existence of an agreement by Exxon to pay compound interest.                    At trial, however, 



Waterer   admitted   that   he   added   some   of   those   notes   after   this   dispute   arose.   As 



summarized by the superior court, "Mr. Waterer also admitted that it was possible that 



all the additions were related to compound interest and that the additions were made to 



assist [Nautilus's] litigation position in this case."  The superior court also relied on the 



testimony   of   Exxon's   expert   witness,   who   testified   to   his   belief   that   Waterer   had 



removed pages from his personal notebooks.   The court concluded that "Mr. Waterer's 



intentional destruction of pages from September 26 and/or 27, 2006 creates the inference 



that Mr. Waterer removed pages containing information harmful to [Nautilus's] legal 



position." 



                Finally, the court relied on evidence of the parties' post-settlement conduct. 



The court observed that in Weidner's post-settlement briefing on behalf of Cook Inlet, 



he was emphatic that, to the extent the Alaska statute governed, Cook Inlet was only 



seeking simple interest.  This is significant because Weidner was the sole negotiator on 



behalf of Nautilus and Cook Inlet during the formulation and execution of the Settlement 



                                                  -19-                                             6801
 


----------------------- Page 20-----------------------

Agreement.       The   fact   that   he   acknowledged   in   post-settlement   briefing   that   interest 



would not be compounded under the Alaska statute indicates that he did not believe the 



Settlement       Agreement       included     an   agreement      to  compound        the   interest   in  all 



circumstances.       The court also observed that Nautilus "[n]otably" did not argue in its 



initial post-settlement briefing in February 2007 that the parties had agreed to compound 



interest in all circumstances.  This indicates that Nautilus did not believe there was such 



an agreement at that time.  Rather, as the superior court concluded, Nautilus first began 



to   claim   there   was   such   an   agreement   in   June   2007,   long   after   the   signing   of   the 



Settlement Agreement.  Finally, the court found that the alternative proposals regarding 



prejudgment   interest   that   Waterer   submitted   to   the   District   Court   in   his   April   2007 



declaration   "are   all   inconsistent   with   [Nautilus's]   current   position   that   there   was   an 



agreement to compound interest regardless, and [Nautilus's] position that the [proposed 



judgment form] constitutes the agreement."   This confirms that both parties understood 



that   the   proposed     judgment   form      allowed    Judge   Holland      full   discretion   to  assess 



prejudgment interest as provided by law. 



                 Indeed, Nautilus concedes that its post-settlement conduct contradicts what 



it now claims was always its understanding of the agreement.                    Specifically, Nautilus's 



brief asserts that "[i]n this instance, the court is obligated to enforce the settlement even 



though the parties had left terms open and even when they mutually disregarded them 



after the time of settlement." But Nautilus does not explain why it would "disregard" the 



terms of the Settlement Agreement when -   under the interpretation now   urged   by 



Nautilus - those terms clearly worked in its favor. 



                 In   sum,   the   superior   court   closely   read   the   language   of   the   Settlement 



Agreement and carefully considered a wide array of written and testimonial extrinsic 



evidence, including the parties' words and conduct before, during, and after the drafting 



of the Settlement Agreement.  Having done so, the court found that "[a]ll of the extrinsic 



                                                    -20-                                               6801
 


----------------------- Page 21-----------------------

evidence demonstrates that the parties never agreed that interest would be compounded." 



The   court   further   concluded   that   the   "extrinsic   evidence   also   demonstrates   that   the 



proposed judgment   (including   the   .   .   .   words   'compounded   annually')   .   .   .   was   not 



intended to include or be an agreement to pay compound interest."                  Rather, the parties 



intended to reserve the prejudgment interest issue for Judge Holland to decide, and the 



parties understood that interest would be paid, in the words of the Letter Agreement, "as 



provided by law" - simple interest if Alaska law governed, compound interest if federal 



law governed.  Having reviewed the entire record, we conclude that the superior court's 



interpretation     of  the  agreement     in light   of  the  extrinsic   evidence    was   not   clearly 



erroneous. 



        B.       The   Superior   Court   Did   Not   Abuse   Its   Discretion   When   It   Found 

                Exxon To Be The Prevailing Party. 



                The  superior court  found that  "Exxon is the prevailing  party"   and   that 



attorney's fees should be calculated accordingly.  Nautilus disputes this determination, 



arguing that because the superior court's underlying decision was in error, so too was its 



award of prevailing party status to Exxon.            Because we hold that the superior court's 



underlying decision concerning the interpretation of the Settlement Agreement was not 

in error, Exxon is the prevailing party.33 



V.       CONCLUSION 



                We AFFIRM the decision of the superior court in all respects. 



        33      See Hillman v. Nationwide Mut. Fire Ins. Co., 855 P.2d 1321, 1327 (Alaska 



1993) (stating that the prevailing party is the one "who has successfully prosecuted or 

defended against the action, the one who is successful on the main issue of the action and 

in whose favor the decision or verdict is rendered and the judgment entered") (internal 

quotation marks omitted). 



                                                  -21-                                               6801 

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