Opinion ID: 1239050
Heading Depth: 4
Heading Rank: 4

Heading: The mismanagement claim

Text: Weiss argues that even if the trial court correctly found that the set-off would exceed any cash recovery for lands removed from the trust, it erred by not adequately assessing the plaintiffs' claim against the State for damages from the State's alleged mismanagement of the trust. Weiss argues that, according to Restatement (Third) of Trusts, Prudent Investor Rule § 205 (1990), a trustee who commits a breach of trust is chargeable with the amount required to restore the values of the trust estate and trust distributions to what they would have been if the trust had been properly administered. Weiss concludes that the superior court erred by finding significant risks that damages from this mismanagement or lost opportunity claim would not exceed the set-off. He also argues that the superior court abused its discretion by refusing to allow his expert to testify on the likely amount of mismanagement damages. The superior court agreed with Weiss that it is very likely that the plaintiffs could prove that the State mismanaged the trust. It found, however, that the plaintiffs would face significant risks both in proving damages in excess of the set-off and in overcoming potential legal defenses. This conclusion is well supported by both the relevant law and facts of this case. In this regard, the trial court stated: Lost opportunity damages are difficult to prove in any case unless there is an existing history of business activity or earnings. They would be extremely difficult to prove in this case. The most difficult area of proof concerns the mineral lands. Almost nothing is actually known about the mineral producing capacities of these lands. The lands were open for mineral development and staking for free from the time they were in state control until after the Supreme Court's decision in Weiss. Accordingly, the proof would center on what would have happened with proactive promotion of the lands. However, there is no appropriate comparative standard. Throughout this period no group in this state actively promoted mineral lands. Thus, it is hard to predict how the mineral industry would have reacted to active management. Even if the plaintiffs overcome this hurdle, they would have to prove how much money they would have earned from producing mines. Alaska has not had a very active metallic mineral industry, other than for the production of gold. There is a substantial risk that the plaintiffs would be left with speculative damages for which they could be awarded nothing. The easiest area to prove, lost opportunity damages concerning the surface lands, still poses litigation risks. There are proof problems there as well. The years from 1966 (when selections were largely completed) to 1978 were growth years for the state, but most of the growth occurred in the latter part of that period with the building of the Transalaska pipeline. The plaintiffs could have difficulty showing a market for lands before 1975. The superior court also found that portions of the mismanagement claim were subject to several legal defenses putting some if not all of the potential damages from the lost opportunity claim at risk. It noted that the plaintiffs either approved or did not object to many of the transactions between 1986 and 1990 approved by the Interim Mental Health Trust Commission. In addition, the preliminary injunction sought by plaintiffs has precluded the State from permitting any activity on trust lands without court approval. Thus the trial court concluded that the State could probably defeat most claims after 1986 based on waiver. The superior court also found that the mismanagement claim might be barred by limitations placed by the court on the intervention by AMHA. The mismanagement claim was added to this litigation by the complaint in intervention filed by AMHA after we issued our decision in Weiss. This court's order permitting AMHA's intervention stated that counsel for AMHA declared its general satisfaction with the decision in Weiss, and its present desire only to participate in future proceedings in Weiss on the previously ordered remand thereof. Under this order, the trial court granted AMHA's request to file its complaint only insofar as the Additional Claims relate directly to the reconstitution of the trust ordered by the Alaska Supreme Court in Weiss. Referring to these orders permitting AMHA's intervention, the superior court stated that an independent claim for damages may exceed that limitation. In light of this analysis, we hold that the superior court did not err in its evaluation of the plaintiffs' mismanagement claim. Weiss also argues that the trial court abused its discretion by refusing to allow Weiss's expert to testify on the likely amount of mismanagement damages. Our review of the transcript, however, reveals that the excluded testimony arose after a new attorney took over examination of the expert during direct testimony. As a condition for allowing the switch in attorneys, the court required the witness's further testimony to be within the scope of the prior testimony. The trial court did not abuse its discretion in ruling that the scope of the prior testimony did not include the calculation of damages due to the State's alleged mismanagement of the trust.