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Commercial Recycling Center, Ltd. v. Hobbs Industries, Inc.

Supreme Court of Alaska

April 9, 2010

COMMERCIAL RECYCLING CENTER, LTD., an Alaska Limited Partnership, and Gregory Tiplady, Appellants,
HOBBS INDUSTRIES, INC., an Alaska corporation, Hobbs Industries, a Washington corporation, Slana Energy, Inc., an Alaska corporation, Alaska Steam & Diesel, Inc., a Washington corporation, Castle Mountain Mining Co., Ltd., Austin R. Hobbs, and Lori L. Hobbs, Appellees.

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[Copyrighted Material Omitted]

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Kenneth P. Jacobus, Kenneth P. Jacobus, P.C., Anchorage, for Appellants.

Robert K. Reiman, Law Offices of Robert K. Reiman, Anchorage, for Appellees.

Before: FABE, Chief Justice, EASTAUGH, WINFREE, and CHRISTEN, Justices.

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FABE, Chief Justice.


In 1996 the shareholders of Hobbs Industries, Inc. signed a buyout agreement under which James Cucullu and Gregory Tiplady sold their shares to Austin and Lori Hobbs. The Hobbses experienced difficulty fulfilling the terms of the buyout almost immediately. In 1998 Cucullu and Tiplady sent the Hobbses a letter declaring a rescission of the buyout agreement. Cucullu and Tiplady then sold their reclaimed shares in Hobbs Industries, Inc. to Commercial Recycling Center, Ltd. Commercial Recycling Center, Ltd. sued Austin and Lori Hobbs for an order establishing its ownership in Hobbs Industries, Inc. and for damages, including punitive damages; Tiplady was later added as a plaintiff. The superior court concluded that Cucullu and Tiplady were not entitled to rescission of the buyout agreement. It also found the Hobbses liable to Commercial Recycling Center, Ltd. for the value of Cucullu's and Tiplady's shares provided in the original buyout agreement. Commercial Recycling Center, Ltd. and Tiplady appeal.

We conclude that Cucullu and Tiplady did not legally rescind their agreement with the Hobbses and were not entitled to equitable rescission on a failure of consideration theory. We also conclude that the superior court properly valued the shares of Hobbs Industries, Inc. in determining the damages for the Hobbses' breach of the buyout agreement. We thus affirm these aspects of the superior court's judgment. But we conclude that it was error to dismiss, sua sponte, the breach of fiduciary duty claim for equitable rescission on summary judgment, and we remand for further proceedings relating to this claim.


A. Facts

Hobbs Industries, Inc. (HIAK), an Alaska corporation, was incorporated in 1988 in connection with the pursuit of work related to the federal government's Over the Horizon Backscatter project, which had been awarded to Slana Energy, Inc., a corporation owned in part by Austin Hobbs. HIAK's shareholders were Austin Hobbs, Lori Hobbs, Gregory Tiplady, and James Cucullu. Cucullu and Tiplady worked for HIAK, which was one of the principal subcontractors on the Over the Horizon Backscatter project. But in 1992, the federal government terminated the project before completion. HIAK stopped operating as a construction company and thereafter focused on pursuing " termination expenses" for the project. Cucullu and Tiplady left the employment of HIAK as there was no longer a source of income from which they could be paid. At the time the federal project was terminated, HIAK had invested a significant amount of money to acquire and develop the Knik Arm Power Plant and two coal mines. One of these coal mines was transferred to another business, Nerox, and litigation ensued between HIAK and Nerox on that transfer.

HIAK's close-out of the federal project did not go smoothly, and after several years of escalating conflicts over management and ownership of shares, a special meeting of the board of directors of HIAK took place on September 25, 1996. At the meeting, the Hobbses, Cucullu, and Tiplady came to an agreement concerning their ownership interests in HIAK and the proposed settlement with Nerox. The four shareholders entered into a consent resolution that set out terms and conditions for a buyout by the Hobbses of Cucullu's and Tiplady's ownership shares in HIAK. This buyout agreement contained several terms, including: (1) payment to Cucullu for his shares in HIAK at a price of $40,000 plus interest; (2) payment to Tiplady for his shares in HIAK at a price of $24,000 plus interest; (3) an increase in the buyout price for Cucullu and Tiplady " if by independent appraisal it is demonstrated that their respective share of the liquidated value of the [c]orporation is higher [than the agreed-upon amount]" ; (4) an assurance that the payment obligations would be personally guaranteed by Austin and Lori Hobbs as well as secured by the major assets of HIAK, including the Knik Arm Power Plant and equipment, an Alaska Railroad land lease, and a 1989 Chevrolet pickup; (5) payment to both Tiplady and Cucullu of a portion of the forthcoming

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settlement with Nerox in accordance with respective shareholder interests at the time of the buyout; and (6) a full release of all present and future claims.

The Hobbses began experiencing difficulty fulfilling the payment terms of the buyout almost immediately after the signing of the agreement. In addition, the settlement with Nerox fell through. The Hobbses kept Cucullu and Tiplady informed about HIAK's failure to produce the income needed to fulfill the buyout agreement, but neither Cucullu nor Tiplady indicated dissatisfaction with the delay of the payment schedule required in the 1996 buyout agreement.

In a letter dated June 22, 1998, Cucullu and Tiplady unilaterally declared a rescission of the 1996 buyout agreement. The letter noted that the Hobbses had failed to perform any of the terms and conditions of the agreement and accused the Hobbses of breaching fiduciary duties owed to Cucullu and Tiplady. Cucullu and Tiplady then sold their putative shares in HIAK to Commercial Recycling Center, Ltd. (CRC).

B. Proceedings

In March 1999 CRC filed a complaint against Austin and Lori Hobbs, HIAK, and several other defendants, seeking an order establishing CRC's ownership of sixty-five percent of HIAK, a full accounting of all of HIAK's finances, and various money judgments, including punitive damages against the Hobbses. Tiplady was added as a plaintiff in CRC's second amended complaint. In April 2002 CRC [1] filed a motion for summary judgment, arguing that Cucullu and Tiplady had rescinded the buyout agreement and seeking an order acknowledging the rescission. CRC claimed that it was entitled to rescission of the buyout agreement primarily ...

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