FABE, Chief Justice.
A mining company contracted with a consultant to help the company obtain new capital investments. The company later brought suit against the consultant, seeking declaratory judgment that the contract violated Alaska securities law, as well as equitable rescission of the contract and cancellation of shares of stock and royalty interests granted under the contract. The superior court granted summary judgment to the consultant on two grounds: (1) the company's suit was barred as a matter of law by AS 45.55.930(g), which provides that "[a] person who makes or engages in the performance of a contract in violation of [Alaska's securities law] ... may not base a suit on the contract"; and (2) the company's suit was barred as a matter of law by res judicata in light of a prior suit instituted by the consultant against the company in which the company did not raise its present claims defensively. We reverse the superior court's grant of summary judgment on both grounds.
Girdwood Mining Company and Comsult LLC, a consulting company, entered into two agreements in August 2003: a Management Agreement and a Fundraising Agreement. Under the Management Agreement, Comsult would provide management services for Girdwood Mining and in return would receive a retainer in the form of a grant of stock plus regular cash payments. Under the Fundraising Agreement, Comsult would bring new capital investment to Girdwood Mining and in return would receive royalty interests and stock. For purposes of argument on the summary judgment motion practice in the superior court and in this appeal, the parties have assumed that the Fundraising Agreement violated Alaska securities law in order to reach the other legal issues presented in this case. Comsult has reserved the ability to argue in any further proceedings that the Fundraising Agreement did not violate Alaska securities law. We therefore do not address that substantive issue in this appeal.
After the business relationship between Girdwood Mining and Comsult soured, the parties executed a Memorandum of Understanding in July 2004 terminating both prior agreements. Under the Memorandum, Girdwood Mining was to compensate Comsult for its performance under the Management Agreement by issuing a promissory note, and Girdwood Mining was to compensate Comsult for its performance under the Fundraising Agreement by awarding Comsult 60,000 shares of stock and a one-percent precious-metals royalty. In October 2007 Comsult sued Girdwood Mining, seeking payment on the unpaid promissory note, and Girdwood Mining confessed judgment in February 2008. Girdwood Mining did not argue as a defense to that suit that any of the agreements between Girdwood Mining and Comsult were illegal and unenforceable.
The current case began in November 2009 when Girdwood Mining sued Comsult
The superior court granted summary judgment to Comsult on two grounds. Ths superior court held that AS 45.55.930(g), which provides that "[a] person who makes or engages in the performance of a contract in violation of [Alaska's securities law] ... may not base a suit on the contract," barred suit by Girdwood Mining in this case. The superior court also held that Girdwood Mining's claims in this case were barred by res judicata
"We review rulings on motions for summary judgment de novo, `reading the record in the light most favorable to the non-moving party and making all reasonable inferences in its favor.' A party is entitled to summary judgment only if there is no genuine issue of material fact and if the party is entitled to judgment as a matter of law."
Whether Comsult was entitled to judgment as a matter of law in this case depends on our legal interpretation of a statute, AS 45.55.930(g), and on our legal determination whether Girdwood Mining's claims in this case were barred by res judicata in light of Comsult's 2007 lawsuit. We review de novo a superior court's interpretation of a statute
"When applying the de novo standard of review, we apply our independent judgment to questions of law, adopting the rule of law most persuasive in light of precedent, reason, and policy."
Alaska Statute 45.55.930(g) provides that "[a] person who makes or engages in the performance of a contract in violation of a provision of [the state securities laws] ... or who acquires a purported right under the contract with knowledge of the facts by reason of which its making or performance is in violation, may not base a suit on the contract."
Girdwood Mining, an issuer of securities, sued its former consultant, Comsult, seeking a declaratory judgment that the consulting contract was illegal under Alaska securities law and seeking equitable rescission and cancellation of compensation under that contract on those grounds. The superior court granted summary judgment to Comsult, holding that "the plain language" of AS 45.55.930(g) requires the conclusion that Girdwood Mining is barred from bringing this claim because the claim "is based on the contention that the [contract] violates Alaska's securities laws" and "is, therefore[,] `base[d] ... on the contract[s].'"
We conclude that it was error for the superior court to rule that Girdwood Mining's suit was barred under AS 45.55.930(g) as a suit "base[d]" on an illegal contract. As a matter of textual interpretation, to "base" a suit on a contract is to seek to vindicate legal rights established by the contract. In other words, to base a suit on a contract is to seek relief on the basis of the contract's validity.
To be sure, a suit to invalidate an illegal contract requires the court to interpret the contract in order to determine its illegality before applying the extra-contractual principles governing the validity of illegal contracts and the availability of remedies. Comsult would have us hold that any suit that involves interpreting a contract is "base[d]" on the contract. But that rule would sweep too far. It would make virtually any cross-reference in a claim the "basis" of the lawsuit. We conclude that the basis of a lawsuit is the source of law establishing the right one seeks to vindicate by instituting the suit.
Our holding is consistent with cases from the very few jurisdictions that have previously addressed this question. Most cases interpreting a base-no-suit provision of a securities statute involve a party suing to enforce the terms of the illegal contract against another party to the contract; because suits to enforce rights created by contract are "base[d]" on the contract, courts uniformly hold such suits to be barred by the base-no-suit provisions of the securities statutes.
But some courts have held that such suits are not barred by the securities statute. For example, in Novelos Therapeutics, Inc. v. Kenmare Capital Partners, Ltd.,
No case identified by us or by the parties from any sister jurisdiction interprets a similar base-no-suit provision of a state or federal securities statute to bar suit when an issuer of securities sues its own consultant to invalidate an illegal contract.
Our holding is also consistent with the legislative intent behind the Alaska securities statute.
And our holding interprets the base-no-suit provision so that the statute enacts a reasonable policy:
Finally, Comsult argues that Girdwood Mining cannot possibly "recover" compensation already "paid" under the contract. But Comsult conflates this issue — whether Girdwood Mining will ultimately prevail in its claims under the law of remedies and equitable considerations — with the preliminary issue before us today: whether this suit is barred for being "base[d]" on an illegal contract. Because it is unnecessary for us to do so at this stage in litigation, we decline to address the merits of Girdwood Mining's claims.
The doctrine of res judicata, or claim preclusion, "prevents a party from suing on a claim which has been previously litigated to a final judgment by that party... and precludes the assertion by such parties of any legal theory, cause of action, or defense which could have been asserted in that action."
In its most common configuration, res judicata is invoked to bar claims by a plaintiff who has already litigated those same claims as a plaintiff in a prior case.
To determine whether two claims are "the same cause of action," we use a transactional analysis, looking at similarities in underlying facts rather than similarities in the legal claims.
The two parties in the current case have faced each other in court before. Girdwood Mining and Comsult entered into two agreements: a Management Agreement and a
The superior court granted summary judgment to Comsult, concluding that Girdwood Mining's claim in this case is barred by res judicata in light of the 2007 lawsuit in which Girdwood Mining never raised its claim of illegality defensively when it confessed judgment in 2008. The superior court concluded that the confession of judgment was a final judgment from a court of competent jurisdiction and involved the same parties as the parties to the present litigation; the only remaining issue was "whether the prior litigation and the instant case arose out of the same transaction or series of connected transactions." The superior court concluded that both cases "were based on Comsult attempting to collect or protect what it was owed under the [Memorandum of Understanding]," which "was a complete settlement of both the Fundraising and Management Agreements," and that Girdwood Mining "could have challenged the validity of the [Memorandum of Understanding] and the underlying Fundraising Agreement during the prior litigation."
Comsult defends the superior court's grant of summary judgment and argues that Girdwood Mining's claims in this case are "inextricably linked" to the 2007 lawsuit because both arose out of the Memorandum of Understanding. It further argues that allowing Girdwood Mining to proceed with its claims in this case would impair its rights established in the 2008 confession of judgment. Girdwood Mining argues that its current suit and the 2008 confession of judgment are "at best" only slightly related insofar as one of the promissory notes at issue in 2008 was referenced in the Memorandum of Understanding and that its current claim seeks to cancel another part of the Memorandum of Understanding.
We conclude that it was error for the superior court to conclude that Girdwood Mining's claims in this case are barred by res judicata. The facts underlying Girdwood Mining's claims in this case are not so closely related to the facts underlying its foregone defenses or counterclaims in the 2007 case as to constitute the "same cause of action" under our transactional test. The two suits involve almost entirely separate facts relating to separate deals. The promissory note at issue in 2007 was for compensation due for Comsult's performance under the Management Agreement, whereby Comsult agreed to provide certain management services for Girdwood Mining. Those management services did not involve fundraising, and neither party has suggested that the Management Agreement was illegal under Alaska securities law.
The stock and royalty interests at issue in the present case were compensation due for Comsult's performance under the Fundraising Agreement, in which Comsult agreed to raise money for Girdwood Mining. It is those services that are assumed for the purposes of argument in this appeal to have been illegal. The key underlying facts in the two cases are different and involve disputes about different consideration for different services. Comsult has never argued that the promissory note (consideration for termination of the Management Agreement) and the stock and royalty interests (consideration for termination of the Fundraising Agreement) were linked and that settlement of both agreements was a precondition to termination of any individual agreement. Because the transactional facts are so distinct between
Moreover, the specific contracts at issue in the present case and the 2007 case are independent instruments. Comsult's claim in 2007 was not that Girdwood Mining had breached the Memorandum of Understanding but rather that Girdwood Mining owed Comsult money under the individual promissory notes. According to the Restatement (Second) of Judgments, "judgment can be obtained on any one or a number of [independent instruments] without affecting the right to maintain an action on the others."
The only shared fact between the two cases is that both the Management Agreement and the Fundraising Agreement were terminated by the Memorandum of Understanding, which prescribed independent forms of compensation for performance under the separate prior agreements. We conclude that this lone shared fact is not sufficient to trigger the doctrine of claim preclusion in this case, when the other transactional facts underlying the two cases are otherwise so distinct. Finality and judicial efficiency are the primary objectives of the doctrine of res judicata.
For these reasons, we REVERSE the superior court's grant of summary judgment to Comsult and REMAND for further proceedings consistent with this opinion.