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Baker v. Ryan Air, Inc.

Supreme Court of Alaska

March 27, 2015

BRUCE ANDREW BAKER d/b/a BAKER LEASING, LLC, Appellant,
v.
RYAN AIR, INC., Appellee

Appeal from the Superior Court of the State of Alaska, Third Judicial District, Anchorage, Frank A. Pfiffner, Judge. Superior Court No. 3AN-12-11199 CI.

Christopher D. Cyphers and Michael A. Rose, Frontier Law Group, LLC, Anchorage, for Appellant.

Roy Longacre, Longacre Law Offices, Ltd., Anchorage, for Appellee.

Before: Fabe, Chief Justice, Winfree, Stowers, Maassen, and Bolger, Justices.

OPINION

Page 102

BOLGER, Justice.

I. INTRODUCTION

Ryan Air entered into a contractual agreement to sublease an airport lot in Kotzebue. The agreement gave Ryan Air an option to purchase the leasehold and apply its rent payments to the final purchase price. But when Ryan Air attempted to complete the purchase, Bruce Andrew Baker d/b/a Baker Leasing, LLC, the other party to the contract, disputed the outstanding balance and sent Ryan Air a notice of breach.

Both parties brought their claims to the superior court. After a trial, the court concluded that Ryan Air did not materially breach the contract and ordered the parties to proceed with the transfer. Baker appeals the order, arguing that the court's factual findings regarding his breach claims were clearly erroneous, that the conveyance documents contained warranties beyond those he was contractually obligated to provide, and that Ryan Air's attorney's fees award was unreasonable.

We conclude that the court's findings were not clearly erroneous, that the warranties contained in the conveyance documents did not exceed Baker's contractual requirements, and that Ryan Air's attorney's fees were reasonable. We therefore affirm the superior court's judgment in most respects. However, the parties agree that the superior court double-counted some of Ryan Air's rent payments, and we remand to allow the superior court to address the issue.

II. FACTS

This dispute concerns Lot B, Block 1 of the Kotzebue Airport Lease Lots and the two buildings constructed on it. The lot and the buildings (together, the property) are owned by the State of Alaska, Department of Transportation (DOT).

In 1985 Baker Aviation, Inc.[1] entered into a long-term agreement with DOT to lease the property. In December 2001 Baker Aviation and Ryan Air signed an agreement, entitled Earnest Money Receipt and Agreement to Purchase (Purchase Agreement), whereby Ryan Air would purchase the leasehold from Baker Aviation for $600,000 within 105 days. The Purchase Agreement specified that Baker Aviation would provide an unconventional deed: " At closing, Seller shall furnish a statutory quitclaim deed. .., showing free title, clear of encumbrances, except conditions, restrictions, reservations, and rights-of-way of record as accepted by Buyer." Baker Aviation

Page 103

agreed to provide five specific warranties:

a. Seller. .. has, or will have, full power and authority to execute this agreement and perform Seller's obligations hereunder;
b. The sale of the Property by Seller does not violate any applicable statute, ordinance[,] or regulation, nor any order of any governmental authority or agency, pertaining to the seller;
c. There are no claims of lien on the property and Seller has taken no action which would create any such lien in favor of any person;
d. There are no currently due and payable assessments for public improvements against the property. .. ;
e. There are no easements or encumbrances affecting the property except as disclosed on the plat and in the preliminary title report delivered in connection with this agreement.

The Purchase Agreement specified that these warranties " shall not merge in the deed of conveyance but shall survive closing."

The closing deadline date came and went. Baker Aviation and Ryan Air were unable to complete the sale because of unacceptable liens against the property. In June 2002 they modified the Purchase Agreement to delay the closing date until at least March 2003. This modification, Addendum 2 to the Purchase Agreement, gave Ryan Air the " sole option" to extend the closing date an additional nine years. The parties agreed that during the interim time, Ryan Air would rent the property for $3,000 per month. They also agreed that " all rental payments made subject to this Addendum [would] reduce the sales price of the above described property from [the] amount as outlined in the [Purchase Agreement]." Ryan Air agreed in Addendum 2 that " when the property [was] ready for sale under the terms of the [Purchase] Agreement," it would " proceed to complete[] the purchase in a reasonable amount of time."

In May 2003 Baker Aviation and Ryan Air again modified the Purchase Agreement, extending the closing deadline to July 2019. This modification was Addendum 3.

In September 2003 the parties entered into a new Commercial Sublease Agreement With Purchase Option (Sublease Agreement), which maintained Ryan Air's rent at $3,000 per month and incorporated Ryan Air's purchase option as set forth in the Purchase Agreement and Addenda. The Sublease Agreement also contained a number of additional terms, several of which are of particular importance to this litigation. It required Ryan Air to seek and receive written authorization from both Baker Aviation and DOT before making permanent improvements or alterations to the property. It prohibited Ryan Air from assigning, subleasing, or encumbering the property without Baker Aviation's " express prior written consent." It required Baker Aviation to notify both Ryan Air and DOT in writing of any alleged breach -- and provide Ryan Air an opportunity to cure -- before exercising its legal rights or remedies. It specified that any " amendment, deletion, addition[,] or novation" would be effective only if it were " completely and unambiguously contained in a writing executed by all of the parties." And it provided that " [a]ll legal costs and attorneys fees actually incurred by any party to this Agreement to enforce the duties or obligations of any other party. .. shall be paid to the prevailing party by the other party."

In 2006 the Internal Revenue Service (IRS) placed a levy on the property because Baker Aviation had fallen behind on its tax obligation. From September 2006 to February 2008, Ryan Air sent its monthly rent payments directly to the U.S. Treasury. In April 2008 the IRS released the levy.

Soon after the levy was released, Baker Aviation assigned its interest in the property to the appellant, Bruce Andrew Baker d/b/a Baker Leasing, LLC (Baker). Baker replaced Baker Aviation as Ryan Air's sublessor, but the assignment had no effect on the terms of the Sublease Agreement or Ryan Air's purchase option.

In 2009 Baker approached Ryan Air about increasing its monthly payments from $3,000 to $5,000. Though Ryan Air does not deny that it paid Baker this increased amount

Page 104

from September 2009 to August 2012, the parties disagree about the terms of this " rent increase" and whether it constituted a formal modification of the Sublease Agreement. Baker testified that the parties orally modified the Sublease Agreement to include this rent increase and that Ryan Air agreed that, starting in 2010, rent payments would no longer apply towards the purchase price of the leasehold. In contrast, Ryan Air's President, Wilfred Ryan (Ryan), testified that he had not agreed to modify Ryan Air's contractual rent obligation and that the additional $2,000 per month was merely a prepayment.

At some point between 2008 and 2010, Ryan Air began renovating one of the two buildings on the property. The parties disagree about when the project commenced and whether Ryan Air obtained authorization before proceeding. However, there is no question that Baker emailed DOT in September 2010 to consent to the renovations, and DOT granted a building permit shortly thereafter.

Beginning in July 2011, Ryan Air began subleasing an aircraft tie-down space to DOT. Baker testified that Ryan Air failed to seek or receive prior written authorization for this sublease.

Sometime around July 2012, the parties began to dispute the outstanding balance on the property's purchase price. In late July Ryan Air sent Baker a letter claiming that the balance was $168,000 and asking whether Baker would be willing to move forward with the sale. Baker replied that the correct balance was $278,000,[2] and he threatened to evict Ryan Air from the property for violating the Purchase Agreement.[3]

In October Ryan Air sent Baker another letter, requesting details about the alleged breaches and claiming that the outstanding balance was $138,161.40. Ryan Air also notified Baker that it would stop paying rent until the sale was completed and would instead rely on deductions from its prepayments to satisfy its required monthly rent.

In November Baker's attorney sent Ryan Air a " Notice of Breach of Contract." The letter claimed that Ryan Air had breached the Sublease Agreement by paying only partial rent in September and failing to pay rent in October and November. Further, it alleged that Ryan Air's renovation project constituted a breach of the Sublease Agreement and that the damages exceeded $250,000. The letter demanded that Ryan Air send Baker a check for $282,607.35 by the end of November to avoid a lawsuit.

III. PROCEEDINGS

In November 2012 Ryan Air filed an action for declaratory judgment. Ryan Air asked the superior court to declare that the Purchase and Sublease Agreements remained in full force and effect. Three days later Ryan Air moved for a preliminary injunction to preserve the status quo ante and requested leave to deposit $138,161.40 with the court clerk as security for the injunction.[4] Ryan Air amended its complaint in January 2013; Baker filed his answer later in January and counterclaimed for breach of contract.

Rather than hold a separate hearing on Ryan Air's request for a preliminary injunction, the superior court ordered expedited discovery and a prompt trial, which occurred in early July 2013. On the third and final day of the bench trial, the court read its factual findings and legal conclusions into the record.[5] Noting that the parties had never signed a written amendment to the Sublease Agreement, the court found that there was no 2009 contract modification and that Ryan Air's increased payments reflected prepayments, not an increase in the underlying rent. The court calculated that Ryan Air had paid Baker a total of $473,000 in rent and ordered the parties to " work together" in

Page 105

" good faith. .. to complete the sale of the premises for [the remaining] $127,000 as expeditiously as possible."

Because the superior court ordered that the sale should proceed, it determined that Baker's breach of contract claims were moot. In addition, the court found that Ryan Air had not breached the contract by withholding rent payments from September 2012 onwards because it had made significant prepayments to Baker. The court found that Ryan Air's renovation project did not constitute a breach because Ryan Air had received Baker's permission to proceed. The court found that, even if Ryan Air had breached the contract, Baker had failed to send Ryan Air a valid notice of breach because his notice letter " really d[id]n't detail the defects [and] problems" and was not copied to DOT, as required by the Sublease Agreement. And the court found that the tie-down sublease was not a material breach and was " a non-issue in the case." Finally, the court concluded that Ryan Air was the prevailing party and was therefore entitled to attorney's fees under the Sublease Agreement.

On July 25 Ryan Air moved to compel the execution of the conveyance documents, arguing that Baker was not working in good faith to complete the transfer of the property. In an attached affidavit, Ryan Air's attorney stated that he had personally delivered conveyance documents to Baker's attorney on July 10, sent a follow-up letter on July 19 inquiring about the status of the documents, and followed up again with a voice message on July 24. ...


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