Court Opinion

ID: 9796102
Source: CourtListenerOpinion
Date Created: 2023-08-31 03:48:48.972224+00
Date Added: 2024-06-11T08:48:59.072485
License: Public Domain

MATTHEWS, Justice,
dissenting.
In reviewing a judgment that is based on the grant of a motion for summary judgment, the appellate court is required to take that view of the facts, including reasonable inferences drawn from the facts, that is most favorable to the losing party.1 In discussing the facts related below I adopt this perspective.
Askinuk Corporation was willing to lease the twenty-acre parcel to the school district for a dollar a year for the first ten years of the lease term in order to ensure that the new school was built. But after the initial ten-year term Askinuk wanted fair compensation for the use of its land. Askinuk's shareholders thought that providing for renegotiation of the rent after ten years would ensure fair compensation. But the shareholders were not alerted to the fall-back clause in the revised lease that provided that if the parties could not agree on the amount of the rent when the time for renegotiation came, the rent would still be one dollar per year.
The fall-back clause is of great importance. Without it, one could assume that if the parties could not agree on an amount for the new rent a court would set the rent for them based on a standard that would recognize Askinuk's desire for fair compensation after the initial ten-year period.2 But with the fall-back clause in place the renegotiation clause means very little The district will always be able to claim in good faith that it is strapped for funds and that it must therefore decline to pay more than nominal rent. This predictable posture will satisfy the district's obligation of good faith and fair dealing. The upshot will be that Askinuk will have made a gift of land for seventy-five years when in actuality it only intended a ten-year gift.
I believe that the lease with the fall-back clause falls readily within the definition of unconscionability quoted in today's opinion.3 No lessor desiring fair compensation after an initial ten-year term would sensibly agree to the fall-back clause and no lessee knowing what the lessor thought it was achieving by the clause could fairly and honestly accept it. Further, no comfort can be taken from the fact that Askinuk was represented by counsel. It is true that Petersen, the attorney for Askinuk, correctly advised Smith that the fall-back clause "has the effect of giving the property away for 75 years, unless the school district volunteers to pay rent." But though Smith, who was both the chairman of the board of Askinuk and the vice-chairman of the school district's board, dismissively 4 forwarded this opinion to the school district, there is no evidence that he communicated it to Askinuk's other board members or to Ask-inuk's shareholders. Thus, the fact that Ask-inuk was represented by counsel, in fact by counsel who gave excellent advice, does nothing to cure the unconscionability in this case *272because counsel's opinion concerning the illusory nature of the renegotiation clause was communicated only to Smith, and through Smith to the school district, but not to the disinterested representatives of Askinuk.
Smith's failure to communicate Petersen's opinion to the board is of critical importance. Petersen had advised the Askinuk board in October of 2008 that the proposed lease was a seventy-five-year give-away. The board took this advice seriously and sought a lease under which the rental rate would be $400 per month for the first five years. At the end of the first five years, the rent would be adjusted for cost-of-living changes, and this process would be repeated at each five-year anniversary. At the March 4, 2004 meeting, the school district representatives told the board that it could not afford more than one dollar per year. At that point, in order to resolve their impasse, the parties discussed the possibility of renegotiating the rent after ten years. They tentatively agreed to this approach. The board members appear to have thought that even though they had not completely eliminated the give-away character of the lease, they had reduced its duration from an unacceptable seventy-five years to an acceptable ten years. Petersen's opinion that the fall-back clause made the renegotiation clause illusory would have disabused them of this belief, but Smith withheld this information from them.
I also do not agree that the transaction is insulated from the need for judicial serutiny on unconscionability grounds by the fact that the shareholders at the annual meeting of April 20, 2004, agreed to a motion "to lease the proposed land site ... for [$]1.00 a year but negotiable after 10 years." A shareholder resolution may remove the taint that would otherwise attach to a transaction where directors have a conflict of interest, but the general rule is that such a cure can occur only when the shareholders are fully informed.5 The Model Business Corporation Act requires a conflicted director to disclose those facts known to him "that a director free of such conflicting interest would reasonably believe to be material in deciding whether to proceed with the transaction." 6 Applying this same standard to disclosures to ratifying shareholders, the standard would not be satisfied in this case. 'There is no evidence that the shareholders were advised either of the existence of the fall-back clause or of their attorney's opinion that it meant that the renegotiation right would be meaningless.
In conclusion, I believe that the lease is unconscionable under the facts of this case when they are considered in the light most favorable to Askinuk. The unconscionability can in no sense be said to have been purged by the approval of the lease by Askinuk's board or by its shareholders. Neither the board nor the shareholders knew of the fallback clause or that it made the renegotiation clause illusory because the dual director, Smith, kept that knowledge from them. I would therefore reverse the judgment of the superior court and remand this case for trial.

. Beegan v. State, Dep't of Transp. & Pub. Facilities, 195 P.3d 134, 138 (Alaska 2008) (explaining that when reviewing a grant of summary judgment, "[alll reasonable inferences are drawn in favor of the nonmovant").

. Cf. City of Kenai v. Ferguson, 732 P.2d 184, 186-88 (Alaska 1987) (lease which called for rent to be renegotiated every five years was enforceable as court could declare the missing rental term in order to effect the reasonable expectation of the parties).

. Op. at 268.

. When Smith emailed Goodwin, the school district's business manager, a copy of Petersen's seventy-five-year give-away memo, Smith stated: "I wouldn't sweat over it unless we can't decide on what font to use on the language." It is also noteworthy that Petersen was not in Scammon Bay during the formation of the lease. Rather his office is in Willow, some 500 miles away, and there is no indication that he communicated with any representative of Askinuk other than Smith during the time in question.

. Epwarp Bropsky & M. Patrica Law or Corporate Orricers amd Directors: Rights, Duties, and § 3.7, at 3-14 (2003) ("For shareholder approval to have any effect, it must be given after full disclosure ...."); id. at 3-16 ([The] entire atmosphere is freshened and a new set of rules invoked where formal approval has been given by a majority of independent, fully informed stockholders." (quoting Gottlieb v. Heyden Chemical Corp., 91 A.2d 57, 59 (Del.1952)) (internal quotation marks omitted)).

. Mopet Business Comp. Act Amn. § 8.60(7) (4th ed.2008); see id. at § 8.61(b), § 8.63(a).