Court Opinion

ID: 9795281
Source: CourtListenerOpinion
Date Created: 2023-08-31 03:24:23.672587+00
Date Added: 2024-06-11T08:28:54.067432
License: Public Domain

CARPENETI, Justice,
with whom EASTAUGH, Justice, joins, dissenting.

Introduction

Michael Adams offered to sell his property to Don Adams either directly or through a lease with an option to purchase. The parties, who are unrelated, subsequently signed a lease with an option to purchase, although Michael Adams, who did not read the final document, believed it contained a right of first refusal. Near the end of the lease period, Don Adams gave notice of his intent to exercise the lease’s option to purchase. Michael Adams insisted that the lease contained a right of first refusal, not an option to purchase. Told that it contained an option to purchase, he said that he would read the document. He subsequently extended the lease with an option to purchase by drafting and signing an extension and sending it to Don Adams.
Don Adams later notified Michael Adams again that he intended to exercise his option to purchase. When Michael Adams again refused to sell, insisting that the lease contained only a right of first refusal, Don Adams brought a complaint for specific performance. The superior court granted specific performance.
The superior court correctly decided the case based on the court’s factual findings. Because those findings are not clearly erroneous, I respectfully dissent.

Facts

In October 1995 Michael Adams, who owned the property next to a lot owned by Aaska Rubber, wrote to Don Adams, the owner of Aaska Rubber, to offer his property for lease or sale. Michael Adams wrote, “I am writing to ask you if you are interested in leasing the premises or purchasing it. I am ready to go either way.” He stated, “If you would be interested in purchasing the building I would like to have until July or sooner to move off the property.” He referred to an earlier conversation between the two, mentioned that Don Adams had offered $300,000 for the property but stated that his price was $320,000, and closed with these admonitions as to his seriousness in offering the property for sale: “I am ready to dispose of the property.... The property is for sale and I will seriously consider an offer.”
By August 1996 the parties had not reached an agreement. That month Michael Adams sent another letter to Don Adams. Noting that he sought a tax free trade, Michael Adams wrote, “[i]t appears a short term lease with you with a purchase option would be the way that will benefit me. Perhaps a two year lease with an option would be suitable.” In the same letter Michael Adams stated, “Let’s try for a three year lease at $3,000 per month and an opportunity to purchase the property during the lease period.” Michael Adams then sent a lease form to Don Adams, but it did not contain an option to purchase. Instead, it contained a right of first refusal. Under the latter provision, Don Adams would be able to purchase the property only if Michael Adams decided to sell.
Don Adams sent the proposed agreement to his attorney, who changed only one section by adding a provision apportioning the costs of an environmental investigation (which would be necessary only in the event of a sale). The draft was sent to Michael Adams, who approved it and returned it to Don Adams for his signature. At this point, Don Adams noticed that the draft did not contain the option to purchase — which he believed the parties had earlier agreed upon — and he instructed his attorney to delete the right of first refusal and to insert the option to purchase. The attorney did so but, as the superior court found, “for reasons that were not established at trial [the attorney] failed to change the heading.” Neither Don Adams nor anyone else on his behalf brought this change to the attention of Michael Adams, *754who signed the agreement without reading it, believing it to be the same as the document he had previously sent to Don Adams. The superior court, after hearing all of the evidence, concluded that “this was not a deliberate attempt to mislead Michael Adams.-’ The court based this conclusion on the testimony of Don Adams, who the court specifically found to be credible.
Almost three years later, as the lease was about to expire, the office manager for Alaska Rubber, Janeece Higgins, spoke with Michael Adams at the company picnic. She notified him that Don Adams was interested in exercising his option to purchase and therefore needed to initiate the environmental investigation before winter set in. Michael Adams indicated that he would get back to her. When he did not do so, she called him and again stated that Don Adams had decided to exercise the option to purchase. At this point, as the superior court found:
Michael Adams indicated to her that he did not think he had to sell the property and Mrs. Higgins told him she disagreed. She told Michael Adams that while she did not have the lease in front of her she was pretty sure there was wording in the lease that gave Alaska Rubber & Supply an option to purchase. According to Mrs. Higgins, Michael Adams indicated that he would look into it and would get back to her.
Thereafter, [Alaska Rubber] received a faxed lease extension from Michael Adams. The lease extension agreement was drafted and signed by Michael Adams and subsequently executed by Don Adams.... The lease extension agreement further indicated that “all conditions of the original lease shall apply without changes and shall remain in full force and effect.”
The superior court made several findings that today’s Opinion effectively ignores. The court found that Don Adams’s testimony was “entirely credible.”' The court found that Don Adams’s testimony was consistent with the initial correspondence between the parties regarding the sale of the property, and that it was consistent with the testimony of Janeece Higgins. The court also found Higgins to be “fully credible.” In addition, the superior court found the testimony of Michael Adams not to be credible, pointing to a number of factors, including that Michael Adams’s letters uniformly referred to a sale and that negotiation of a purchase price in the letters is consistent with an option to purchase and inconsistent with a right of first refusal. In contrast to these strong findings, the Opinion merely notes that the superior court found that Don Adams “was justified in believing that an option to purchase was consistent with the prior negotiations between the parties,” that the trial court “accepted Higgins’s description of the events leading up to the lease extension,” and that both Don Adams and Janeece Higgins were “justified in assuming that Michael Adams would read the final version of the lease before signing it.”
Next, the superior court unambiguously found that “there was no longer a misunderstanding between the parties when the lease extension was executed.” While today’s Opinion mentions this finding in a long quotation of the superior court’s decision, the Opinion ignores the finding in its discussion of whether Michael Adams affirmed the lease when he sent the lease extension to Don Adams.
But the most critical findings of the superi- or court, effectively ignored by today’s Opinion in reaching its conclusion to remand, are the following:
Michael Adams does not recall [the follow-up telephone conversation in which he and Higgins “discussed their differing views concerning whether or not the contract contained an option to purchase”] and indicates that he sent the lease extension to Alaska Rubber & Supply merely because the contract was to expire in another month. He denies reading the lease agreement before sending the lease extension to Mrs. Higgins. I find Mrs. Higgins[’s] testimony on the events leading to the execution of the lease extension to be fully credible. Conversely, I do not find Michael Adams[’s] testimony on this issue to be credible.
(Emphasis added.) In other words, the superior court found (1) that two conversations *755took place between Higgins and Michael Adams in which Higgins stated that the lease contained an option to purchase (which Michael Adams denied)1 and (2) that Michael Adams’s testimony that he did not read the lease before signing the lease extension was not credible.
Today’s result can be upheld only if Michael Adams had no obligation to read the lease on two occasions before signing,1 first when he signed the original lease under the mistaken belief that it contained a right of first refusal, and second when he signed the lease extension after being told twice that it contained an option to purchase. Because there is no reason to conclude that the superior court was clearly erroneous in any of its findings — indeed, I would go so far as to suggest that they are clearly correct, although that is not the standard of review to uphold factual findings — and because I cannot agree that a party may indefinitely refuse to read a document and be saved from his folly, I dissent from today’s Opinion.

Law

I have no quarrel with the proposition that it may constitute constructive fraud to change a final version of a lease without informing the other party of the change while leaving a misleading heading in place. But it is impossible to accept the propositions that there was not a “knowing affirmance” of the option to purchase by Michael Adams or that the superior court did not find a knowing affirmance. A careful review of the legal standard adopted by the court and the findings made by Judge Rindner show that there was a knowing affirmance and that Judge Rindner so found.
The court today adopts the Restatement standard. The Restatement provides: “The power of a party to avoid a contract for ... misrepresentation is lost if after [the party] ... knows of the misrepresentation if it is fraudulent, he ... acts with respect to anything he has received in a manner inconsistent with disaffirmance.”2 Accordingly, if Michael Adams extended the lease knowing that it contained an option to purchase, he lost the power to avoid the lease.
Generally a party acts “knowingly” not only when he or she possessed actual knowledge of a fact, but also when any failure to possess actual knowledge was due to the party’s deliberate ignorance or willful blindness in the face of the information presented to him or her.3 In Louis Vuitton S.A. v. Lee,4, a trademark case requiring that the defendant’s trademark violation be “knowing,” the Seventh Circuit held that “willful blindness is knowledge enough.”5 The court found that the defendant did not know that he was selling counterfeit designer goods because the defendant “failed to inquire further because he was afraid of what the inquiry would yield.”6 Thus, the court found that Louis Vuitton had proved that the defendant had acted knowingly.7
The equation of willful blindness with actual knowledge has been found most frequently in criminal prosecutions, an area where the law has historically been extremely solicitous of the rights of the defendant. Interpreting the statutory definition of “knowingly,” Alaska courts have held that “one who remains deliberately ignorant of an illegal activity” is necessarily “aware of a substantial probability of its existence,” and so, acts “knowingly.”8
Federal law is to the same effect. In U.S. v. Picciandra9 the court held that a jury was properly instructed to consider the willful *756blindness of a defendant who claimed a lack of knowledge as part of his defense, where the facts suggested that he engaged in a conscious course of deliberate ignorance.10 The Ninth Circuit has similarly held that a defendant’s deliberate ignorance of a fact cannot serve as a shield against prosecution under statutes requiring actual knowledge. In U.S. v. Jewell11 the court agreed that “ ‘[t]he rule that willful blindness is equivalent to knowledge is essential.’ ”12 The court cautioned that this rule did not adopt a negligence standard, whereby knowledge is imputed to a defendant if a reasonable person would have known of the fact in that situation. Rather, willful blindness is limited to circumstances where the party’s studied ignorance is a result of not wanting to confirm his or her suspicion of a fact he or she knows is highly likely to be true.13 The Ninth Circuit rule is that willful blindness may be equated to actual knowledge in cases where the facts point to the defendant’s deliberate ignorance, where it can be shown that the defendant was aware of a high probability of the existence of the fact in question, and the defendant cannot show that he actually believed that the fact did not exist.14 The Fifth and Eleventh Circuits have adopted similar reasoning.15
Examination of the testimony at trial in the present case and Judge Rindner’s findings concerning the evidence leads inescapably to the conclusion that Michael Adams either actually knew that the lease contained an option to purchase or was willfully blind as to the lease’s contents.
As to actual knowledge, at trial Michael Adams denied that he had spoken with Jan-eece Higgins about Don Adams wanting to exercise the option to purchase, denied that he had spoken to her about the environmental investigation, denied that he had spoken with her about a lease extension, and even denied that he had read the lease before sending the lease extension. He was asked, “Prior to sending Don Adams and Janeece Higgins the lease extension ... you read the lease agreement, didn’t you?” He responded, “I did not.” Judge Rindner found Michael Adams’s testimony concerning the events leading to the lease extension to be not credible. Although much of Michael’s testimony focused on his conversation with Janeece Higgins, the scope of the finding that Michael Adams was not credible specifically includes his testimony at trial that he did not read the lease agreement before sending out the extension. Judge Rindner’s disbelief of Michael Adams’s statement that he did not read the lease before sending the extension, in conjunction with his acceptance of Higgins’s testimony that she had discussed the matter twice with Michael Adams,16 is the equivalent of a finding that Michael Adams had actual knowledge of the lease’s terms. Indeed, Judge Rindner specifically found that “there was no longer a misunderstanding between the parties when the lease extension was executed.”
As to willful blindness, the superior court had abundant evidence to support its conclusion that, at the least, Michael Adams kept himself willfully blind of the contents of the lease. That evidence included that:
• The lease does contain an option to purchase. No party disputes that.
• Janeece Higgins testified that she told Michael Adams in person that the lease contained an option to purchase. The superior court found her to be credible on this point.
• Michael Adams testified that he did not remember being told that the lease con*757tained an option to purchase. The superior court found him not to be credible on this point.
• Janeece Higgins testified that she called and reiterated that the lease contained an option to purchase. The superior court found this testimony to be credible.
• Michael Adams testified that he did not recall the telephone call. The superior court found this testimony not to be credible.
• Michael Adams prepared, signed, and sent to Don Adams an extension of the lease that provided that “[a]ll conditions of the original lease shall apply -without changes.”
These facts, found by the superior court and not rejected by today’s Opinion as clearly erroneous — nor could they be — firmly establish that Michael Adams at the least kept himself deliberately ignorant of the contents of the lease and was willfully blind to the fact that it contained an option to purchase.

Conclusion

Michael Adams proposed to sell his property under a lease with an option to purchase. He twice signed documents to that effect. Yet the court today remands for a determination, in effect, of whether he ever read the documents he signed, even after he promised to check the lease when a dispute arose as to what it contained. (Indeed, this is not the first time that Michael Adams has been before this court arguing that he was not required to do what he had previously agreed to do: sell property that he had leased with an option to purchase.17) Judge Rindner properly found that Michael Adams knowingly affirmed the contract. Judge Rindner was correct, and I would affirm his decision. Michael Adams should not escape the obligation that he had originally suggested and twice agreed to. For these reasons, I respectfully dissent.

. See infra n. 16.

. Restatement (Second) of Contracts § 380(2).

. See Tal S. Benschar et al., Proving Willfulness in Trademark Counterfeiting Cases, 27 Colum.-VLA J.L. & Arts 121, 123-25 (2003); Ira P. Robbins, The Ostrich instruction: Deliberate Ignorance as a Criminal Mens Rea, 81 J.Crim. L. & Criminology 191, 192 (1990).

. 875 F.2d 584 (7th Cir.1989).

. Id. at 590.

. Id.

. Id.

. Dawson v. State, 894 P.2d 672, 678 (Alaska App.1995).

. 788 F.2d 39 (1st Cir.1986).

. Id. at 46.

. 532 F.2d 697 (9th Cir.1976).

. Id. at 700 (quoting G. Williams, Criminal Law: The General Part, § 57 at 157 (2d ed.1961)).

. Id. at 700 n. 7.

. See U.S. v. Alvarado, 838 F.2d 311, 314 (9th Cir.1987); U.S. v. Murrieta-Bejarano, 552 F.2d 1323, 1325 (9th Cir.1977).

. U.S. v. Batencort, 592 F.2d 916, 918 (5th Cir.1979); U.S. v. Aleman, 728 F.2d 492, 494 (11th Cir.1984).

. Higgins testified that she twice had conversations in which she stated that the lease contained an option to purchase which Don Adams wished to exercise, and that Michael Adams expressed disbelief that the lease contained such an option.

. Adams v. Waddell, 543 P.2d 215 (Alaska 1975).