Sea Lion Corp. v. Air Logistics of Alaska, Inc.

Decision Date09 February 1990
Docket NumberNo. S-2967,S-2967
Citation787 P.2d 109
PartiesSEA LION CORPORATION, Appellant, v. AIR LOGISTICS OF ALASKA, INC., et al., Appellees.
CourtAlaska Supreme Court

David E. Kohfield, Ronald E. Cummings and William K. Walker, Anchorage, for appellant.

Kevin G. Clarkson and Clark R. Nichols, Perkins Coie, Anchorage, for appellees.

Before MATTHEWS, C.J., and RABINOWITZ, BURKE, COMPTON and MOORE, JJ.

COMPTON, Justice.

This appeal is from a grant of summary judgment in favor of Air Logistics of Alaska, Inc. (Air Log). The principal question presented is whether Sea Lion Corporation (Sea Lion) should be held liable on a contract executed between Air Log and an entity referred to in the contract as "Bush Transport Systems" (BTS). We conclude that Sea Lion ratified the contract and therefore affirm.

I. FACTUAL AND PROCEDURAL BACKGROUND

The facts, resolving disputes in the evidence in favor of Sea Lion, are as follows. Myron Naneng (Naneng) was at all relevant times the president and chairman of the board of directors of Sea Lion. Between 1982 and October 1984, Larry D. Gillespie (Gillespie) was employed by Sea Lion as a consultant in connection with Sea Lion's operation of an air taxi service. Gillespie also owned and operated his own air cargo service, Air Valley. Sea Lion had financed Gillespie's formation of Air Valley by means of a loan.

In the summer of 1984, Gillespie and Sea Lion began discussions with a view toward merging their operations in the air transport business. Contemplated was the eventual formation of a limited partnership with Gillespie as the general partner and Sea Lion, inter alia, as a limited partner. The limited partnership was to take the name of BTS, then being used by Gillespie as a d/b/a of his own flight service. Around the same time, Air Log, which owned cargo aircraft, decided to shut down a portion of its Alaska operations and send surplus aircraft to the "lower 48."

Gillespie, hoping to use Air Log's planes in connection with BTS operations, approached Air Log and asked what it would take for Air Log not to shut down its Alaska operations. Air Log replied that BTS would need to pay all expenses which would result from maintaining the operation. Gillespie then represented to Air Log that "Sea Lion had the financial depth to make this agreement work."

A second meeting was held between representatives of Air Log, Gillespie, and two officers of Sea Lion, Naneng and James Joseph (Joseph). Joseph was at all relevant times the secretary/treasurer of Sea Lion, its general manager and a member of its board. Air Log made clear to both Naneng and Joseph that there would be no deal between itself and BTS unless "Sea Lion signed the contract and agreed to back up" the obligations of BTS.

On October 1, 1984, Gillespie and Naneng met with Air Log in order to execute a flight service agreement (FSA) whereby BTS would obtain aircraft and services from Air Log. The 1984 FSA consisted of a five page Agreement for Flight Service (Agreement) containing the bulk of the substantive elements of the contract, and two "Side Letters." All three items were presented to Gillespie and Naneng as a single document. The FSA expired by its terms on December 31, 1984. The Agreement was signed under the name of BTS "by" Gillespie and Naneng, without reference to Sea Lion. The accompanying Side Letters contained supplementary and clean up terms to the Agreement.

The signature block of the first Side Letter is identical to that of the Agreement. The second Side Letter notes that its purpose "is to explain, clarify, define or expand the intent" of the FSA. It contains arbitration, choice of law, and force majeur clauses. Furthermore, it contains an "identification" clause, which states "... given the prudent requirement to maintain non-disclosure of the identities of the principals, let it now be revealed that the participants of Bush Transport System are: Sea Lion Corporation, P.O. Box 44, Hooper Bay, AK 99604," inter alia. The second Side Letter was signed BTS "by" Gillespie and "by" "Myron Naneng, Sea Lion Corporation." There is no evidence to suggest that Naneng signed in any capacity other than as a purported Sea Lion representative, and both Joseph, testifying as the designated representative of Sea Lion and Naneng admit that he acted in this capacity. Naneng signed the 1984 FSA on the heels of a repeated insistence by Air Log that Sea Lion sign the FSA or there would be no deal and the planes would be removed from Alaska.

Following the execution of the 1984 FSA, both Joseph and Ronald Cummings, counsel for Sea Lion, learned what Naneng had done. Cummings told Joseph that Naneng had signed a document that "put us in a bad position later on." When Joseph saw the 1984 FSA for himself, he told Naneng "Oh, ____, please don't sign it," but by then Naneng already had. (Expletive deleted). The reason for Joseph's concern was his realization that the 1984 FSA obligated Sea Lion "to deliver services that ... we're not supposed to deliver." Cummings then drafted a "Memorandum of Understanding." In the memo, Naneng, on behalf of Sea Lion, and Gillespie agreed inter se that Naneng's signature was not intended to obligate Sea Lion on the 1984 FSA, but was merely for "security purposes only." Air Log never saw this memo nor learned of its terms or its existence.

On October 28 Sea Lion's board met. The result of the meeting was inconclusive. The major question was "whether Sea Lion would participate in the BTS venture with Air Valley." A $75,000 "advance" was made to Gillespie. The advance was "considered a loan with interest unless the board of Sea Lion decides to enter into a partnership." The loan was evidenced by a promissory note. Gillespie, who was present at the meeting, told the board "an additional $75,000 would be required for November, thus requiring an up front $150,000 to buy into the partnership."

On November 9 the Sea Lion board met again. The full board "voted in favor of becoming a member of BTS as a limited partner." The board authorized another $81,000 advance to Gillespie, also evidenced by a promissory note. Sea Lion's audited 1984 financial statement stated that in January 1985 Sea Lion Corporation "entered into a limited partnership" with Gillespie. A March 1985 entry in BTS' books ascribes $156,000 of "partner's equity" to Sea Lion as of date. Joseph testified, however, that the Sea Lion board never authorized participation as a general partner in BTS.

On December 31, 1984, the 1984 FSA expired. Gerald Skipton (Skipton), a CPA employed by Sea Lion, met with Gillespie and representatives of Air Log to discuss the execution of a new FSA for 1985. Gillespie told Air Log at this meeting that Sea Lion "wasn't going to be a general partner; they were going to be a limited partner." Air Log repeated its position that there would be no dealings with BTS unless Sea Lion signed a FSA and was financially liable. Skipton laughed and told Air Log to try and "talk them (Sea Lion) into it and get the board to vote that way."

In April Gillespie and Naneng met with Air Log to execute the 1985 FSA. The 1985 FSA is virtually identical to the 1984 FSA. It consists of a nine-page Agreement for Flight Service, and two 2-page "Side Letters." All documents were again presented in a single package and executed seriatim. The second Side Letter of the 1985 FSA is indistinguishable from the second Side Letter of the 1984 FSA. It notes that its purpose "is to explain, clarify, define or expand the intent" of the main body. It contains arbitration, choice of law, and force majeur clauses. Furthermore, it contains an "identification" clause, which states "... given the prudent requirement to maintain non-disclosure of the identities of the principals, let it now be revealed that the participants of Bush Transport System are: Sea Lion Corporation, P.O. Box 44, Hooper Bay, AK 99604," inter alios.

When confronted with the second Side Letter, Gillespie objected on the grounds that there was no valid reason for Naneng to sign the FSA, because Sea Lion was not going to be a general partner in BTS. Air Log was unmoved and repeated its position that if Sea Lion did not sign the FSA, there would be no deal. Naneng then signed the FSA. He did so to keep the planes in the state and avoid having Air Log withdraw from the deal, "the same [reason] we (Sea Lion) signed ... the first one."

As with the 1984 FSA, the Agreement and the first Side Letter were signed BTS "by" Gillespie and "by" Naneng, without reference to Sea Lion. The second Side Letter was signed BTS "by" Gillespie and "by" "Myron Naneng, Sea Lion Corporation."

As with the 1984 FSA, Naneng showed Joseph the 1985 FSA, bearing Naneng's signature, shortly after its execution. Joseph again realized that Naneng's signature exposed Sea Lion to the risk of liability and told Naneng "Myron, come on, you shouldn't have signed this." Testifying as the designated representative of Sea Lion, Joseph also admitted that the corporation knew of Naneng's act and its repercussions. This admission was repeated at oral argument. 1

On May 26, 1985, a formal limited partnership agreement was finally executed between Gillespie and Sea Lion. Sea Lion concedes that it and Gillespie were not limited partners until this agreement was executed, contending they were merely creditor and debtor. This limited partnership agreement was never shown nor its terms made known to Air Log until litigation. No statutory certificate of limited partnership was filed until July 26, 1985.

BTS eventually fell substantially behind on payments due for services rendered under the 1985 FSA. Along with Sea Lion individually, BTS and Gillespie were sued for moneys owing and other claims by Air Log.

The superior court granted summary judgment in favor of Air Log on the issue of liability. Sea Lion was found liable as a matter of law on five grounds: 1) being a direct signatory to the contract, 2) defective...

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