Alaska Interstate Construction, LLC v. Pacific Diversified Investments, Inc.

In 1995, Alaska Interstate Construction's assets were sold to a joint venture but it continued to be operated by its founder, John Ellsworth, through a company he owned called Pacific Diversified Investments, Inc. In 1998, Alaska Interstate conveyed a 20% ownership interest to Ellsworth and entered into an operating agreement that provided for Ellsworth's continued management of its operations through Pacific Diversified Investments. Alaska Interstate filed suit against Pacific and Ellsworth in 2005, principally alleging fraud, breach of the covenant of good faith and fair dealing, violation of the Unfair Trade Practices Act, breach of the parties' operating agreement, and conversion. The jury returned a verdict of $7.3 million in favor of Alaska Interstate on its Unfair Trade Practices Act claims and $7.3 million on its claims for common law fraud and breach of fiduciary duty. The parties filed many post-trial motions. Though the jury decided that Pacific Diversified Investments and Ellsworth engaged in conduct that was fraudulent, it decided that they did not materially breach the parties' operating agreement. Alaska Interstate filed a post-verdict motion for judgment notwithstanding the verdict arguing the jury's finding of fraud required the finding that the operating agreement was materially breached. That motion was denied. But the superior court did enter judgment notwithstanding the verdict nullifying the $7.3 million award for violations of the Unfair Trade Practices Act. Alaska Interstate Construction appealed; Pacific cross-appealed. Upon review, the Supreme Court affirmed the superior court's denial of the motion for judgment notwithstanding the verdict which found that the Unfair Trade Practices Act did not apply to intra-corporate disputes. The Court reversed the superior court's judgment notwithstanding the verdict on Pacific's argument that Alaska Interstate's claims were exempt from the Unfair Trade Practices Act. The Court reversed the superior court's ruling on material breach and held that the jury's findings of fraud and wilful misconduct, under the circumstances of this case, required the finding that Pacific materially breached the operating agreement as a matter of law. The Court reversed the superior court's order denying the motion for judgment notwithstanding the verdict on Pacific's fraud in the inducement claim, and we vacated the superior court's determination of prevailing party, award of attorney's fees, and award of prejudgment interest. View "Alaska Interstate Construction, LLC v. Pacific Diversified Investments, Inc." on Justia Law