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Askinuk Corp. v. Lower Yukon School Dist.

Supreme Court of Alaska

July 31, 2009

ASKINUK CORPORATION, Appellant,
v.
LOWER YUKON SCHOOL DISTRICT, Appellee.

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[Copyrighted Material Omitted]

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A. Lee Petersen, Petersen Professional Corp., Willow, for Appellant.

Raymond E. Goad, Jr., and Saul R. Friedman, Jermain Dunnagan & Owens, P.C., Anchorage, for Appellee.

Before : MATTHEWS, EASTAUGH, CARPENETI, and WINFREE, Justices.

OPINION

EASTAUGH, Justice.

I. INTRODUCTION

After the Lower Yukon School District leased twenty acres from Askinuk Corporation on which to build a school in Scammon Bay, Askinuk sued the school district to reform or invalidate the lease. The lease specified a lease rate of one dollar per year, subject to renegotiation after ten years. It also provided that if the parties could not reach mutual agreement upon renegotiation, the original payment rate would remain in effect until agreement could be reached. Askinuk claimed that it never assented to the lease's payment and renegotiation provisions; that the lease lacked consideration; and that George Smith, who signed the lease for Askinuk and was chair of Askinuk's board, had a conflict of interest that invalidated the lease. The superior court rejected these contentions and entered summary judgment for the school district. Because we conclude that the lease was valid and enforceable, we affirm.

I. FACTS AND PROCEEDINGS

A. Factual History

The Lower Yukon School District provides public education in the region that includes the village of Scammon Bay. Askinuk Corporation is the Scammon Bay native village corporation created by the Alaska Native Claims Settlement Act. In October 2003 the school district proposed leasing from Askinuk twenty acres on which to build and operate a new public school in Scammon Bay. The school district's proposed lease had a term of fifty-five years, with options for two ten-year renewals. Section III of the proposed lease addressed the duration of the lease; Section IV addressed the payment rate. The proposed lease called for the school district to pay Askinuk one dollar per year.

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Askinuk's attorney reviewed the proposed lease and in October 2003 sent Askinuk's board of directors a letter commenting on the school district's proposal. The letter cautioned the board that approving a payment of one dollar per year could be regarded as breaching the directors' fiduciary duty to the shareholders. The letter added that because " some members of [Askinuk's] Board [were] also members of the school board ... an obvious conflict of interest" existed. George Smith was then the chair of Askinuk's board and the vice-chair of the school district's board. Timothy Kaganak was the school district's treasurer and was also on Askinuk's board. The lawyer's October 2003 letter also stated that the conflict of interest could be avoided if a reasonable rental rate were agreed upon or if the corporation's shareholders approved the lease:

If the school district were offering to pay a fair rental on this property, adjustable to changes of circumstances every five or ten years, there may not be a conflict of interest. But when the school district is asking for a gift of the use [of] some of the corporation's most valuable land for 75 years, the issue becomes very difficult, especially when the corporation is struggling to pay its bills. One appropriate way to deal with a transaction of this sort would be to call a special meeting of the shareholders and let them vote on it. If the shareholders approve, it is their responsibility, not the responsibility of the Directors.

In response, Askinuk's board asked its attorney to draft a lease addressing his concerns. He revised the proposed lease by changing, among other things, the payment rate. He proposed a rate of $400 dollars per month for the first ten years, after which the rate would be adjusted to conform to changes in the cost of living index.

In November 2003 Askinuk's three board members who had no conflict of interest and one member of Askinuk's land committee met to discuss the proposed terms. The attendees decided that, to encourage the school district to build a school in Scammon Bay, the corporation would charge " only" $400 per month.

School district representatives met with Askinuk's board on March 4, 2004 to discuss Askinuk's proposed changes. George Smith, chair of Askinuk's board and vice-chair of the school district's board, did not attend. Smith stated in an email to Askinuk's lawyer that he " completely stayed away from the meeting not wanting to taint the proceedings with a possible conflict of interest." Of the five Askinuk representatives present, three later submitted affidavits giving nearly identical accounts of what happened at the meeting. Their affidavits stated that there was discussion of the school district's proposed one dollar per year payment rate-subject to renegotiation after ten years-after a representative of the school board stated that the school district could not pay more than that. The affidavits stated that nothing was said during the meeting about what would happen if the parties could not agree on a new rental rate after ten years and that, at the end of the meeting, the language of the lease's payment term was still to be revised.

Karen Goodwin, the school district's business manager, also attended the March negotiation meeting and had a different understanding of what had happened. According to her, both sides left the meeting with a revised draft of the lease that not only provided for a dollar per year rate subject to renegotiation in ten years, but also provided that rent would continue at that rate should no contrary agreement be reached during renegotiation.

On the afternoon of March 4, 2004, Smith emailed Goodwin, stating, " I made short work of the lease agreement with the changes." The email indicated that an electronic file entitled " lease.doc" was attached. Later that same day, Smith sent an email to Askinuk's attorney indicating that he was attaching a copy of the lease with a revised payment term for the attorney's review.

In the final draft of the lease agreement, the sections relating to duration and payment stated in relevant part:

Section III

Term

The lease term shall be for fifty-five (55) years, commencing on the first day of October

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2003, and shall terminate on the last day of October 2058, or upon such date as the premises are no longer used for purposes authorized under Section II above. The Lessee is entitled to two (2) ten (10) year renewals of the Lease under the same terms and conditions.

Section IV

Payment

In consideration of the mutual promises contained herein, Lessee shall pay to Lessor the sum of $1.00 a year, for the first ten (10) years of the Lease, after which the Lessor and Lessee shall renegotiate SECTION IV PAYMENT.
However, in the event both parties cannot reach mutual agreement on this section the sum of $1.00 per year payment shall be the amount that will remain in effect until such an agreement can be reached.
If during the term of the Lease taxes are assessed on the leased property, the Lessee may use its exempt status to have the taxes abated, but if abatement of taxes on the leased land is not allowed, the rental will be adjusted to provide adequate additional funds to pay the taxes on the land.

Apparently after reviewing this language, Askinuk's lawyer responded to Smith in a March 4 email and cautioned Smith that its effect would be to " giv[e] the property away for 75 years, unless the school district volunteer[ed] to pay rent." Smith said he would pass on the lawyer's insights to " the members that participated." Smith did forward a copy of the lawyer's email to Goodwin, telling her not to " sweat over it unless we can't decide on what font to use on the language." But there is no evidence Smith sent any of the lawyer's cautionary advice to Askinuk's representatives. In a March 5 email to Smith, ...


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