Alaska Supreme Court reinstates fraud verdict against Ellsworth

The Alaska Supreme Court ruled in favor of Alaska Interstate Construction (AIC) and subsidiaries of CIRI and Nabors Drilling on Feb. 10, in a lawsuit filed in 2005 against John Ellsworth and an Ellsworth-owned entity, Pacific Diversified Investments Inc. (PDI).

In 1998, CIRI and Nabors restructured AIC so that each company was a 40-percent owner, and John Ellsworth became a 20-percent owner who was responsible for managing the day-to-day operations of the company. CIRI and Nabors removed him as manager, and exercised a contractual option to purchase Ellsworth’s interests on May 1, 2005. Later, CIRI and Nabors discovered that Ellsworth had committed fraud and other misconduct while operating AIC. In Ellsworth’s final days at AIC, he shredded more than 6,000 pounds of AIC-related documents in an attempt to destroy evidence of his misdeeds.

AIC, CIRI and Nabors filed suit against Ellsworth on May 16, 2005. The lawsuit asserted that Ellsworth stole millions of dollars from AIC, primarily through fraudulent billing for aircraft services.

An Alaska superior court jury agreed with plaintiffs AIC, CIRI and Nabors, and on Oct. 8, 2007, returned a verdict of almost $8 million against Ellsworth and PDI. The jury also determined the purchase price CIRI and Nabors owed Ellsworth for his 20-percent ownership interest in AIC. However, after the trial, the judge vacated a portion of the jury’s verdict under the Unfair Trade Practices Act, which would have entitled CIRI, AIC and Nabors to an additional $15 million award.

AIC, CIRI and Nabors appealed that decision and other issues, including the correct purchase price of Ellsworth’s interest to the Alaska Supreme Court. Ellsworth and PDI cross-appealed, challenging other rulings of the trial court. The jury’s fraud verdict against Ellsworth was not appealed.

On Friday, Feb. 10, the Alaska Supreme Court issued its decision on the appeals. The opinion was highly favorable to AIC, CIRI and Nabors. The decision affirmed earlier jury findings that Ellsworth committed “multiple acts of fraudulent conduct” against AIC, CIRI and Nabors, including “fraud by non-disclosure, fraud by affirmative misrepresentation, conversion, breach of fiduciary duty and breach of the covenant of good faith and fair dealing…” The Supreme Court reinstated the unfair trade practices verdict, which assuming no further appeal, eventually will entitle plaintiffs AIC, CIRI and Nabors to collect more than $21 million from Ellsworth and his companies.

“This decision vindicates AIC’s, CIRI’s and Nabors’ long-standing reputations as principled business partners and honest corporate citizens that deal in good faith with customers, owners and the public,” said Steve Percy, AIC president.

It will take months, possibly more than a year, for AIC, CIRI and Nabors to collect on their shares of the award. The Supreme Court remanded the case back to superior court to determine and rule on prejudgment interest. That process will involve the parties taking several months to file relevant motions, followed several months later by oral arguments. The court may then take up to six months to rule. After the final judgment is entered, it will take additional time and process to achieve collection. The amount actually collected will be split among AIC, CIRI and Nabors.

CIRI’s portion of the final judgment will be treated like other CIRI income. It will be accounted for at the end of the year and included in CIRI shareholders’ equity. CIRI’s Board policy is to pay an annual CIRI dividend to shareholders that is equal to 3.50 percent of the total shareholders’ equity, calculated on Dec. 31 of the prior year. This policy anticipates that the total annual dividend will be paid out in four quarterly installments, distributed at the end of March, June, September and in mid-December.

CIRI and AIC thank the Alaska Court system for its service in this lengthy and complex litigation, and commends members of the original trial jury for their careful consideration of the evidence and the Supreme Court for its careful consideration of the legal issues. The public can view the opinion by visiting and opening Supreme Court case No. S13478/23667.