Appellants Stewart Davis, Jr. and Allstate Insurance Company argue that there was an enforceable settlement agreement that resolved personal injury tort claims asserted by Mark Dykman against Davis, and that the superior court erred in holding otherwise. We affirm.
II. FACTS AND PROCEEDINGS
In April 1993 Stewart Davis, Jr. lost control of the car he was driving. It left the road and overturned. Mark Dykman, a passenger in the car, suffered head injuries and a spinal cord injury that rendered him a quadriplegic.
Allstate Insurance Company had issued a liability insurance policy to Dykman's father, who owned the car. The policy covered Davis as a permissive user of the car. It provided liability coverage in the stated amount of $100,000, plus supplementary payments for attorney's fees awarded under Alaska Civil Rule 82 and interest.
In September 1993 Allstate offered to settle Dykman's personal injury claim against Davis for the face amount of the policy ($100,000) plus interest and attorney's fees on that amount. The offer included Rule 82 attorney's fees based on the contested with trial schedule. Alaska R.Civ.P. 82(b)(1).
On December 14, 1993, in a letter to Allstate's representative, Dykman rejected Allstate's offer on the ground that the policy's attorney's fees limitation clause was likely invalid, citing 3 Alaska Administrative Code (AAC) 29.010(d) (repealed July 1, 1996).
On January 13, 1994, the Allstate representative, Bret Follett, and Dykman's lawyer, Dennis Mestas, discussed the claim by telephone. On January 19 Dykman reiterated his position in a letter to Follett. Dykman wrote:
On February 2 Follett responded. Follett wrote:
Follett wrote that Allstate would pay $100,000 for the face limits of the policy, an unspecified amount of pre-judgment interest, and Rule 82 attorney's fees calculated on a probable jury verdict.
Dykman replied on February 7 and denied that Allstate's February 2 letter was a valid acceptance of Dykman's December 14 offer. Dykman's letter stated:
On February 9 Follett, responding to Dykman's letter, stated that Allstate's February 2 letter had "unconditionally accepted the offer stated in your letter of December 14, 1993." Allstate maintained that an agreement to settle for Allstate's policy limits already had been reached, requiring the parties to negotiate the projected jury verdict.
In March 1994 Allstate filed suit (the Allstate suit) seeking specific performance of the settlement agreement formed by its asserted February 2 acceptance of Dykman's December 14 offer. Dykman denied in his answer that there was a settlement agreement, and filed a counterclaim against Allstate and a third-party claim against Davis. Dykman also filed a separate personal injury action against Davis in March 1994.
Davis and Allstate appeal the superior court's grant of summary judgment in favor of Dykman.
A. Standard of Review
This court reviews a grant of summary judgment de novo. Nielson v. Benton, 903 P.2d 1049, 1052 (Alaska 1995). We will affirm a grant of summary judgment if the evidence in the record presents no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Alaska R.Civ.P. 56(c); French v. Jadon, Inc., 911 P.2d 20, 23 (Alaska 1996). We apply our independent judgment in interpreting the undisputed words of an offer to enter into a contract. Cf. Martech Constr. Co., Inc. v. Ogden Envtl. Servs., Inc., 852 P.2d 1146, 1149 (Alaska 1993) ("This court will review de novo the trial court's grant of summary judgment based on the interpretation of a contract.").
B. Did the Parties Create an Enforceable Settlement Agreement?
The main issue presented is whether the parties formed an enforceable settlement contract. We conclude that there was no valid offer to settle, because Dykman did not propose a specific amount or a method of calculating a specific amount. At most, Dykman simply offered to negotiate. Davis's "acceptance" therefore did not form an enforceable settlement agreement.
1. A valid offer must encompass all essential terms.
The formation of a valid contract requires an offer encompassing all essential terms, unequivocal acceptance by the offeree, consideration, and an intent to be bound. E.g., Young v. Hobbs, 916 P.2d 485, 488 (Alaska 1996) (citations omitted) (holding that parties to an alleged settlement agreement did not agree to a material issue); Childs v. Kalgin Island Lodge, 779 P.2d 310, 314 (Alaska 1989). An agreement is unenforceable if its terms are not reasonably certain. See Hall v. Add-Ventures, Ltd., 695 P.2d 1081, 1087-89 (Alaska 1985) (ruling that the agreement was sufficiently definite to be enforceable); see also Restatement (Second) of Contracts § 33 (1981).
Dykman's December 14 letter states:
That letter further states, "[w]e are willing to work with Allstate and negotiate as to the approximate jury verdict range in this case." Dykman's January 19 letter implies that his letters are invitations for Allstate to make an offer: "Please indicate the amount Allstate feels is its policy limits and how much it is offering."
Dykman did not make an offer in the December 14 or January 19 letters specifying an essential term of a settlement agreement, namely the dollar amount that Dykman would accept or the method that Dykman would accept to calculate such an amount. Although Dykman's counsel often used the word "offer" in his letters to opposing counsel, this usage was insufficient to create a valid offer to settle. Absent an offer encompassing the essential terms of a settlement agreement, the parties could not have formed
Allstate and Davis argue that implicit in Dykman's offer was a method for calculating the unlimited Rule 82 attorney's fees on an anticipated jury verdict.
According to Allstate, Bohna v. Hughes, Thorsness, Gantz, Powell & Brundin, 828 P.2d 745 (Alaska 1992), provides a method for calculating an anticipated jury verdict. Allstate claims that Dykman's December 14 letter, by offering "an unlimited Rule 82 evaluation consistent with Bohna," implicitly approved a specific method of calculating a jury verdict. Thus, according to Allstate, because both parties understood that Bohna set out a method of verdict calculation, Dykman's offer to settle is certain.
The Bohna opinion deals mainly with the calculation of Bohna's judgment. Id. at 752-60. The opinion discusses the settlement negotiations in the underlying tort claim, including the negotiation of a projected jury verdict required for calculating Rule 82 attorney's fees. Id. at 748-50. It does not discuss a specific method for arriving at an anticipated jury verdict. The opinion does suggest that an insurance company may always file a declaratory action on the issue, id. at 768 n. 58, but we disagree with Allstate's claim that there is a tangible Bohna method for calculating a projected jury verdict.
Allstate and Davis also argue that the court should add terms to the writings according to the reasonable expectations of the parties. Because contracting parties cannot plan for all contingencies that might arise, a court may fill gaps in contracts to ensure fairness where the reasonable expectations of the parties are clear. Rego v. Decker, 482 P.2d 834, 837 (Alaska 1971); see also Yeon St. Partners v. Environmental Consulting Servs., Inc., 125 Or.App. 501, 865 P.2d 1325, 1327 (1993) ("When the conduct or expressions of parties to an agreement indicate a sufficient intent to make a contract, a court has latitude to fill in the gaps....").
In Rego, we said "the courts should not impose on a party any performance to which he did not and probably would not have agreed." 482 P.2d at 837. Here, to add a method of calculating a projected jury verdict or inserting the amount of a projected jury verdict, a court would first have to determine an essential term to which the parties did not agree. This term would represent by far the largest part of the total settlement amount because the "contested, with trial" Rule 82 fees would be more than ten percent of a projected verdict against Davis. See Alaska R.Civ.P. 82(b)(1). Given the potential for a very large damages verdict in this case, the Rule 82 fees component could have been very significant, almost certainly a multiple of the face amount of Allstate's policy. Because a court should not impose on the parties any performance to which all the parties did not or would not have agreed, we cannot add any such terms here. See Rego, 482 P.2d at 837.
Davis additionally suggests that both parties did agree on a range of possible verdicts, allowing a court to find the settlement amount within this range. On August 29, 1994, Allstate offered to settle Dykman's claim for $1.016 million based on a projected jury verdict of almost $9 million. Dykman later stated in a letter to Davis's counsel, "[w]e agree that Allstate's valuation of the claim ($9,000,000) is in the range of possible verdicts." Based on this, Davis asks the court to enforce an agreement based on a mutually-acceptable projected $9 million verdict.
Davis's argument fails because there is no evidence the parties agreed to accept a projected $9 million verdict as the basis for the Rule 82 attorney's fees calculation. Dykman's statement that Allstate's $9 million verdict valuation was in the range of "possible"
Because Bohna contains no method for calculating a projected jury verdict and this is not a case in which a court can fill in the gaps, Dykman's December 14 letter is too indefinite to be a valid offer. Thus, Allstate's "acceptance" did not form a settlement contract.
2. A contract to negotiate is unenforceable.
Dykman's offer was not sufficiently detailed to be the basis for an enforceable settlement acceptance. Nonetheless, Dykman's offer can be construed as an offer to negotiate with Allstate about the Rule 82 fees component.
As a general rule, agreements to negotiate are unenforceable because they do not provide a basis for determining the existence of a breach or for giving an appropriate remedy. See Ohio Calculating, Inc. v. CPT Corp., 846 F.2d 497, 501 (8th Cir.1988); cf. Western Airlines, Inc. v. Lathrop Co., 499 P.2d 1013, 1019 (Alaska 1972) (ruling that a letter discussing future lease discussions was not a binding agreement). Further, where parties are expected to draft and execute a formal agreement, their prior negotiations do not constitute a contract. Thrift Shop, Inc. v. Alaska Mut. Sav. Bank, 398 P.2d 657, 659 (Alaska 1965) (holding that an oral contract to lease had never come into existence).
Dykman's attorney stated in his December 14 letter that he was willing to negotiate a policy limits settlement based on unlimited Rule 82 attorney's fees.
Assuming that Allstate accepted this offer in its February 2 letter,
Negotiation normally is a process of attempting to reach a point of agreement, or, in this case, a single settlement figure based on a projected jury verdict. In theory, an agreement to negotiate is an enforceable contract in the sense that the parties can be made to participate in negotiations. However, participation in negotiation does not necessarily
The hallmark of negotiation is bargaining, and the parties ultimately may be unable to resolve their dispute without outside help, such as by relying on the courts or alternative dispute resolution. See Schultz v. Travelers Indem. Co., 754 P.2d 265 (Alaska 1988) (in similar settlement negotiations, the parties agreed to be bound by an independent expert's determination of economic losses and had stipulated non-economic losses, but disagreed on whether the insurance policy limits included unlimited Rule 82 fees on a projected verdict plus pre-judgment interest). Without agreeing on a more specific way of resolving their differences, any agreement to negotiate would have been too indefinite to enforce.
More fundamentally, parties who have merely agreed to negotiate necessarily have retained the ability to say "no" to the terms proposed by the other party; that means that it is not inevitable that the parties will be able to agree. Thus, agreement to negotiate could not have been an enforceable agreement that had the effect of settling Dykman's personal injury claims against Davis.
There is no enforceable settlement agreement.
The court shall adhere to the following schedule in fixing the award of attorney's fees to a party recovering a money judgment in a case:
Judgment and, if awarded, Contested Contested Prejudgment Interest With Trial Without Trial Non-Contested First $ 25,000 20% 18% 10% Next $ 75,000 10% 8% 3% Next $400,000 10% 6% 2% Over $500,000 10% 2% 1%
398 P.2d at 658-59 (footnote omitted). See also Restatement (Second) of Contracts § 27 (1981) (existence of contract where written memorial is contemplated).