John G. Young, Young deNormandie, and Michael T. Schein and Kevin P. Sullivan, Sullivan & Thoreson, Seattle, Washington, for Appellant.
Mary Ellen Beardsley, Assistant Attorney General, Anchorage, and Talis J. Colberg, Attorney General, Juneau, for Appellee.
Before : FABE, Chief Justice, EASTAUGH, and CARPENETI, Justices.
FABE, Chief Justice.
This appeal raises the question whether the State can waive its sovereign immunity through litigation conduct. After Sea Hawk Seafoods, Inc. obtained a final judgment against Valdez Fisheries Development Association, it alleged that Valdez Fisheries fraudulently conveyed millions of dollars to the State. The State litigated the case for almost ten years Before it raised the defense of sovereign immunity. Although Sea Hawk maintained that the defense had been waived, the superior court dismissed Sea Hawk's fraudulent conveyance and conspiracy claims against the State, concluding that the State cannot waive its claim of sovereign immunity by failing to raise the issue in a
timely manner because only the Alaska Legislature can waive the State's immunity from suit. Because we conclude that the State can waive the affirmative defense of sovereign immunity through its litigation conduct and because the proper test for determining whether the State waived this defense has not been applied to the facts of this case, we reverse and remand for the superior court to apply the correct test for waiver.
II. FACTS AND PROCEEDINGS
In July 1997 a jury awarded Sea Hawk Seafoods, Inc. just over $1.5 million against Valdez Fisheries. The superior court entered final judgment against Valdez Fisheries for more than $2.1 million in compensatory damages, costs, and attorney's fees in August 1997. Apparently the State was concerned that the jury verdict would jeopardize Valdez Fisheries' ability to make its loan payments to the State, and the State demanded in August 1997 that Valdez Fisheries pay approximately $7.7 million in principal, which it owed to the State. Two months later, the State approved a new loan to Valdez Fisheries for just over $1 million in operating expenses.
Sea Hawk filed a post-judgment " petition for avoidance of fraudulent conveyance" in October 1997, claiming that the loan transactions between the State and Valdez Fisheries constituted a fraudulent conveyance and seeking that the State return all of the money it had received from Valdez Fisheries. The State filed its answer to Sea Hawk's petition in October 1997. In addition to " reserv[ing] the right to assert additional defenses as they may become known," the State asserted that Sea Hawk failed to state a claim upon which relief can be granted and maintained that the State is not liable for punitive damages under AS 09.50.280. In late October the State filed a motion to dismiss the petition under Alaska Civil Rule 12(c), which was converted by the trial court to a motion for summary judgment.
Sea Hawk filed a cross-motion for summary judgment on its fraudulent conveyance petition in November 1997. Later that month Sea Hawk filed a motion to amend the petition to add the tort claim of conspiracy against the State for participating in the alleged fraudulent conveyance and it attached the proposed amended petition to its motion. The State and Valdez Fisheries opposed the motion. According to the State, the superior court never issued a ruling on Sea Hawk's motion to amend the petition.
In March 1998 Valdez Fisheries filed for chapter 11 bankruptcy protection in federal bankruptcy court, resulting in a notice of automatic stay in the superior court. After the bankruptcy court approved the settlement agreement executed by Sea Hawk and Valdez Fisheries, it dismissed the bankruptcy proceedings in April 1999. That month Sea Hawk filed a motion in the superior court that renewed its requests for rulings on its claims against the State and sought about $1 million in damages to cover the shortfall that it had failed to obtain in its settlement with Valdez Fisheries. The superior court ruled in February 2000 that the bankruptcy court retained jurisdiction to interpret whether any of Sea Hawk's claims against the State were eliminated by its settlement with Valdez Fisheries, and the court directed the parties to submit the issue to the bankruptcy court. Following ...