     Notice: This opinion is subject to correction before publication in the P ACIFIC R EPORTER .
     Readers are requested to bring errors to the attention of the Clerk of the Appellate Courts,
     303 K Street, Anchorage, Alaska 99501, phone (907) 264-0608, fax (907) 264-0878, email
     corrections@appellate.courts.state.ak.us.



              THE SUPREME COURT OF THE STATE OF ALASKA


NAUTILUS MARINE              )                        Supreme Court No. S-14458
ENTERPRISES, INC.,           )
                             )                         Superior Court Nos. 3AN-07-10901 CI
          Appellant,         )                         and 3AN-09-07869 CI (Consolidated)
                             )
      v.                     )                         OPINION
                             )
EXXON MOBIL CORPORATION      )                         No. 6801 – July 19, 2013
and EXXON SHIPPING COMPANY , )

                             )

         Appellees.          )

                             )


             Appeal from the Superior Court of the State of Alaska, Third
             Judicial District, Anchorage, Sen K. Tan, Judge.

             Appearances: Charles W. Coe, Law Offices of Charles W.
             Coe, Anchorage, for Appellant. John Clough III, Clough &
             Associates, P.C., Auke Bay, for Appellee Exxon Mobil
             Corporation. Douglas J. Serdahely and Barat M. LaPorte,
             Patton Boggs LLP, Anchorage, for Appellee Exxon Shipping
             Company. Carla J. Christofferson and Dawn Sestito,
             O’Melveny & Myers LLP, Los Angeles, California, for
             Appellees.

             Before: Fabe, Chief Justice, Carpeneti and Stowers, Justices.
             [Winfree, Justice, not participating.]

             STOWERS, Justice.
I.    INTRODUCTION
               In September 2006 Exxon Mobil Corporation and Exxon Shipping
Company (collectively “Exxon”) entered into a Settlement Agreement with two seafood
processors, Nautilus Marine Enterprises (Nautilus) and Cook Inlet Processing (Cook
Inlet). The agreement contained the following language: “Exxon and the Seafood
Processors agree that the issue of the correct rate of prejudgment interest in this case
shall be submitted to the [United States] District Court for resolution and entry of an
appropriate judgment . . . .” It also noted that the “Final Judgment shall be in the same
form as Exhibit A to this Settlement Agreement.”
             The parties disputed whether the Settlement Agreement required interest
to be compounded annually, or whether the federal District Court was free to award
simple or compound interest at its discretion.
             Exxon filed an action in the Alaska Superior Court seeking a declaratory
judgment construing the Settlement Agreement. The superior court found that the parties
did not intend that prejudgment interest had to be compounded annually, but rather that
they intended to reserve this issue for the District Court to decide. Because the superior
court’s interpretation of the Settlement Agreement was not clearly erroneous, we affirm.
II.   FACTS AND PROCEEDINGS
      A.     Facts And Proceedings Concerning The Settlement Agreement
             The September 2006 Settlement Agreement was intended to resolve a
lawsuit by Nautilus and Cook Inlet against Exxon in the United States District Court for
the District of Alaska. The underlying lawsuit related to the 1989 Exxon Valdez oil spill.
An important issue in dispute between the parties was how to calculate prejudgment
interest that would be payable on damages that Nautilus and Cook Inlet suffered as a
result of the spill. In two similar cases, the District Court had previously ruled that
federal law would govern the calculation of prejudgment interest under

                                           -2-                                      6801

28 U.S.C. § 1961.1 That statute sets the Treasury bill rate (“T-bill rate”) as the default
rate for prejudgment interest, although the court has the power to vary the rate if the
equities of a particular case demand it. The statute expressly provides that interest shall
be “compounded annually.”2
              In June 2006 Nautilus and Cook Inlet filed a motion in the District Court
prepared by their attorney, Phillip Paul Weidner, arguing that the Alaska state
prejudgment interest rate of 10.5% should apply to their case, rather than the federal T-
bill rate that the District Court had applied in the previous cases.          The Alaska
prejudgment interest statute in effect at the time of Nautilus’s and Cook Inlet’s damages
in 1992 and 1993 provided that prejudgment interest was 10.5% per annum unless
otherwise provided for in a contract or agreement.3 Decisions applying former AS
09.30.070(a) had held that in the absence of an agreement to the contrary, the method of
computing interest under the statute was “simple interest.”4 The motion argued that
Alaska’s prejudgment interest statute should apply because Nautilus’s and Cook Inlet’s
underlying claims were based on state law. In the alternative, the motion argued that the
District Court should apply a federal rate “compounded annually.”
              Meanwhile, Weidner initiated settlement negotiations with John Daum,
negotiator and outside counsel for Exxon. In a letter to Daum in July 2006, Weidner
discussed the applicable prejudgment interest rate, noting that it would be necessary to

       1
            Order No. 369, In re Exxon Valdez, A89-0095-CV (HRH), 2005 WL
936934 (D. Alaska Apr. 12, 2005), rev’d and remanded, 484 F.3d 1098 (9th Cir. 2007);
Order No. 299, In re Exxon Valdez, A89-0095-CV (HRH) (D. Alaska Sept. 21, 1995).
       2
              28 U.S.C. § 1961(b) (2006).
       3
              Former AS 09.30.070(a) (1996) (amended 1997).
       4
             State v. Doyle, 735 P.2d 733, 741-42 (Alaska 1987); Alyeska Pipeline Serv.
Co. v. Anderson, 669 P.2d 956-57 (Alaska 1983).

                                            -3-                                      6801

conduct “an analysis of whether the treasury T-bill rate will be used and compounded,
whether the Alaska 10.5% simple rate will be used, or whether the federal lending rate
will be used and compounded.”        Weidner also provided Daum a list of interest
calculations he had formulated using compound interest when applying federal rates and
simple interest when applying the Alaska rate of 10.5%.
             In a September 2006 letter, Weidner proposed to Daum that the parties
settle the principal amount of damages and allow District Court Judge Russel Holland
to resolve the issue of the “computation and assessment of prejudgment interest,” subject
to appeal to the United States Court of Appeals for the Ninth Circuit. Daum responded
by drafting a Letter Agreement that was intended to set forth the basic terms of the
settlement consistent with the substance of Weidner’s letter. The Letter Agreement
stated that Exxon would pay prejudgment interest “as provided by law” and explained
that “Exxon contends that the correct rate of pre-judgment interest in this case is 4.11%
on damages accrued in 1992 and 3.54% on damages accrued in 1993,” consistent with
the Treasury bill rates for those years, while Cook Inlet and Nautilus contend that
“higher rates of pre-judgment interest apply.” The Letter Agreement provided that the
District Court would determine the “correct rate of prejudgment interest,” and that both
parties preserved their rights to appeal to the Ninth Circuit.       Finally, the Letter
Agreement provided that the parties would execute a formal settlement agreement to
implement the provisions of the Letter Agreement. On September 14, 2006, Weidner
countersigned the Letter Agreement, indicating that “a settlement on this basis is
agreeable to [his] clients.” In testimony, Daum and Weidner agreed that at the time they
signed the Letter Agreement, Daum had made no “specific representation” that Exxon
would pay compound interest in all circumstances.
                From the signing of the Letter Agreement on September 14 until
September 18, 2006, when Daum transmitted a first draft of the Settlement Agreement

                                           -4-                                     6801

to Weidner, the parties did not have any substantive discussions.             After minor
modifications to Daum’s initial Settlement Agreement draft, the parties executed the final
Settlement Agreement.
             Closely following the wording of the Letter Agreement, the language of the
Settlement Agreement regarding prejudgment interest read as follows:
             Exxon contends that the correct rate of pre-judgment interest
             in this case is 4.11% compounded annually on damages
             accrued in 1992 and 3.54% compounded annually on
             damages accrued in 1993. The Seafood Processors contend
             that higher rates of prejudgment interest apply. Exxon and the
             Seafood Processors agree that the issue of the correct rate of
             prejudgment interest in this case shall be submitted to the
             District Court for resolution and entry of an appropriate
             judgment, with all parties preserving rights of appeal to the
             Ninth Circuit from any adverse decision.
Paragraph 3.5 of the Settlement Agreement provided for the “entry in the Action of a
Final Judgment,” which “shall include the following provisions”:
             3.5.1 A dismissal with prejudice of all Claims of the Seafood
             Processors;
             3.5.2 A full and final release and discharge of Exxon from all
             Claims by each of the Seafood Processors . . . ;
             3.5.3 An order forever barring the parties identified in
             paragraph 3.5.2 from asserting, instituting, maintaining,
             prosecuting or enforcing any Claim against Exxon . . . ;
             3.5.4 A reservation of jurisdiction over the Claims of the
             Seafood Processors against Exxon to enforce this Settlement
             Agreement and the Final Judgment.
The Settlement Agreement further stated that the Final Judgment “shall be in the same
form” as an attached “(Proposed) Final Judgment” form marked as “Exhibit A” in the
document. The first paragraph, or first recital, of Exhibit A included the following
language, which is at the center of the current controversy:

                                           -5-                                      6801

              WHEREAS, in Order No. __, the Court determined that
              plaintiffs . . . were entitled to recover prejudgment interest
              from defendants . . . on 1992 damages at the rate of __%,
              compounded annually, and were entitled to recover
              prejudgment interest on 1993 damages at the rate of __%,
              compounded annually . . . . (Emphasis added.)
The “compounded annually” language was present in all drafts of Exhibit A to the
Settlement Agreement exchanged by the parties, from Daum’s first draft to the final
version. Both Daum and Weidner agreed that during the drafting of the document the
parties did not discuss the “compounding annually” language with each other.
              Finally, the Settlement Agreement included an integration clause, which
read as follows: “This Settlement Agreement, including the attached exhibit [A], is an
integrated instrument that constitutes and contains the entire agreement among the
Parties with regard to the subject matter hereof, and supersedes and replaces all prior
negotiations and proposed agreements.” The Agreement also provided that it “may not
be altered, amended or modified in any respect” except by a writing signed by all parties.
The Agreement stated that the parties entered into the Agreement “based upon equal
bargaining power, with all Parties participating in its preparation” and that “the attorneys
for each Party have had an equal opportunity to participate in the negotiation and
preparation of this Settlement Agreement, and that its terms . . . shall not be interpreted
in favor of or against any Party . . . .” The Agreement provided that it shall be
interpreted “solely for the purpose of fairly effectuating the intent of the Parties.”
       B.     Post-Agreement Facts And Proceedings
              On February 20, 2007, Nautilus and Cook Inlet filed separate motions in
the District Court arguing that Judge Holland should award a higher amount of
prejudgment interest than the Treasury bill figures that Exxon believed should apply.




                                            -6-                                          6801

Cook Inlet’s motion was signed by Weidner; Nautilus’s motion was signed by other
counsel.
              Nautilus’s motion argued that the court should award prejudgment interest
at a compounding rate of 10.5% based on “the average prime rate during the 1990’s, the
Alaska statutory rate, and also [Nautilus’s] cost of interest and the rates charged to it.”
In the alternative, Nautilus argued that a rate of 8.5% compounding interest should apply,
“commensurate with the average prime rate in the 1990s.”
              Cook Inlet’s motion, signed by Weidner, argued that the Alaska state rate
of 10.5% simple interest should apply or, in the alternative, a compound rate between
9.78% and 12.15% should apply. Weidner emphasized this distinction between state
simple interest and federal compound interest in a reply brief that Cook Inlet submitted
in April 2007. Using bolded lettering, Weidner wrote that “[Cook Inlet’s] motion clearly
states that ‘. . . the Court should rule that the interest rates (other than Alaska statutory)
are compounded.’ ” Cook Inlet’s reply brief also observed that “the Alaska Legislature
has indicated that [the applicable] rate is 10.5% per year simple interest” and argued that
in the instant case “[t]he Court should award simple prejudgment interest at 10.5% per
year.”
              In a supplemental declaration filed in the District Court on April 20, 2007,
Nautilus president M. Thomas Waterer stated his preference for 10.5% compounding
interest but also proposed several alternatives to this rate. These alternatives included
having Judge Holland award simple interest and interest compounding monthly.
              On April 16, 2007, the Ninth Circuit held in a related case involving Sea
Hawk Seafoods, Inc., that Alaska law — not federal law — supplies the rate of




                                             -7-                                        6801

prejudgment interest.5 Because this decision reversed Judge Holland’s earlier rulings
that federal law applied, he requested that the parties (Exxon, Nautilus, and Cook Inlet)
file supplemental briefing addressing the Sea Hawk decision. In their supplemental
briefs, all parties agreed that the Sea Hawk decision dictated that the proper rate of
prejudgment interest was the Alaska rate of 10.5%. However, Exxon argued that
prejudgment interest should be simple, while Nautilus and Cook Inlet argued that,
pursuant to the language of Exhibit A of the Settlement Agreement, the parties had
agreed that interest would be compound in all circumstances.
              In July 2007 Judge Holland entered final judgment, ruling that Nautilus and
Cook Inlet were to recover prejudgment interest at the 10.5% Alaska statutory rate,
compounded annually. In making this ruling, Judge Holland “did not receive or consider
extrinsic evidence.”    He found that because “[t]hat settlement agreement was an
integrated instrument” he could not rely on the parties’ pre-settlement dealings in
interpreting the document. Looking at the language of the document, Judge Holland
found that the “proposed final judgment was expressly made part of the integrated
settlement agreement” and that the proposed judgment “plainly states that interest,
regardless of the rate the court puts in the blank, will be compounded.” Thus, “the
parties agreed that any prejudgment interest should be compounded.”
              Exxon appealed this decision to the Ninth Circuit. In March 2009 the Ninth
Circuit ruled that Judge Holland “erred in failing to consider extrinsic evidence regarding
whether the parties agreed to compound interest,” and it remanded the case back to the
District Court.6

      5
            In re Exxon Valdez (Sea Hawk Seafoods, Inc. v. Exxon Corp.), 484 F.3d
1098, 1099 (9th Cir. 2007).
       6
              In re Exxon Valdez (Polar Equipment, Inc. v. Exxon Mobil Corp.),
                                                                  (continued...)

                                            -8-                                      6801
              In June 2009 Exxon filed a complaint in Alaska Superior Court seeking to
reform the Settlement Agreement and, in particular, “to delete the phrase ‘compounded
annually’ in the two places where it appears in the First Recital of Exhibit A to the
Settlement Agreement.” In the alternative, Exxon sought a declaratory judgment to the
effect that the Settlement Agreement “did not involve any agreement to pay compound
interest if state law governed or to pay compound interest regardless of what law
governed.”
              On remand from the Ninth Circuit, in September 2009 Judge Holland
issued a stay of proceedings in the District Court in favor of the litigation in state court
of both Exxon’s contract reformation and contract interpretation claims. The District
Court expressly retained jurisdiction of the parties’ Settlement Agreement for purposes
of entering a final judgment after state court proceedings had concluded.
              Cook Inlet and Exxon settled before trial commenced in the superior court.
Exxon’s claims for declaratory relief and reformation with respect to the agreement with
Nautilus came before the court in a non-jury trial on November 1-3, 2010. The superior
court issued Findings of Fact and Conclusions of Law and entered a Final Judgment.
The court found that the Settlement Agreement did not require Exxon to pay compound
interest. Rather, the court found that the parties intended that Judge Holland would
determine both the correct rate of interest and the method of computing interest under
federal or state law. In light of these findings, the court concluded that reformation was
not necessary. Finally, the court found that Exxon was the prevailing party.
              Nautilus appeals.




       6
       (...continued)
318 F. App’x 545, 547 (9th Cir. 2009).

                                            -9-                                       6801
III.   STANDARD OF REVIEW

              When interpreting a contract, the goal “is to give effect to the reasonable
expectations of the parties.”7 “We review the interpretation of a contract de novo.”8
“Where the superior court considers extrinsic evidence in interpreting contract terms,
however, we will review the superior court’s factual determinations for clear error and
inferences drawn from that extrinsic evidence for support by substantial evidence.”9 A
clearly erroneous finding is one which leaves us with “a definite and firm conviction on
the entire record that a mistake has been made.”10
              “We review a trial court’s prevailing party determination for abuse of
discretion. We will reverse a prevailing party determination only if it is arbitrary,
capricious, manifestly unreasonable, or improperly motivated.”11




       7
            Villars v. Villars, 277 P.3d 763, 768 (Alaska 2012) (quoting Knutson v.
Knutson, 973 P.2d 596, 600 (Alaska 1999)) (internal quotation marks omitted).
       8
              Id. (citing Burns v. Burns, 157 P.3d 1037, 1039 (Alaska 2007)).
       9
               Id. (quoting Cook v. Cook, 249 P.3d 1070, 1077-78 (Alaska 2011)) (internal
quotation marks omitted); see also Vokacek v. Vokacek, 933 P.2d 544, 547 (Alaska 1997)
(stating that when extrinsic evidence is presented at trial regarding interpretation of the
parties’ agreement “we are confined to determining whether the facts support the trial
court’s interpretation” (quoting Fairbanks N. Star Borough v. Tundra Tours, 719 P.2d
1020, 1025 (Alaska 1986))) (internal quotation marks omitted).
       10
              Municipality of Anchorage v. Gentile, 922 P.2d 248, 256 (Alaska 1996)
(internal quotation marks omitted).
       11
            Taylor v. Moutrie-Pelham, 246 P.3d 927, 928-29 (Alaska 2011) (internal
footnotes omitted).

                                           -10-                                      6801

IV.	   DISCUSSION
       A.	    The Superior Court’s Interpretation Of The Settlement Agreement
              Was Not Clearly Erroneous.
                Nautilus argues that the parol evidence rule should have prevented the
superior court from considering extrinsic evidence to determine the meaning of the
Settlement Agreement. The superior court concluded that although the parol evidence
rule “generally precludes the parties from using evidence of prior agreements . . . to
contradict the written terms,” the court may consider extrinsic evidence when
determining whether the contract is integrated and what the contract means. The
superior court is correct. Extrinsic evidence is generally admissible to interpret the
meaning of the language of a contract.12 Once the meaning of a written contract has been
determined, the parol evidence rule prohibits the enforcement of prior inconsistent
agreements.13
              1.	    The superior court properly considered extrinsic evidence.
              Nautilus contends that a court may bring extrinsic evidence to bear on the
interpretation of a contract only after the court first finds an ambiguity in the contract.
But we have long held that when reviewing contract disputes,
              [i]n order to give legal effect to the parties’ reasonable
              expectations, the court must look first to the written
              agreement itself and also to extrinsic evidence regarding the
              parties’ intent at the time the contract was made. The parties’
              reasonable expectations are assessed through resort to the
              language of the disputed provision and other provisions of



       12
             Casey v. Semco Energy, Inc., 92 P.3d 379, 383 (Alaska 2004) (internal
citations omitted).
       13
           See AS 45.02.202; Alaska Diversified Contractors, Inc. v. Lower
Kuskokwim Sch. Dist., 778 P.2d 581, 584 (Alaska 1989) (internal citations omitted).

                                           -11-	                                     6801
              the contract, relevant extrinsic evidence, and case law
              interpreting similar provisions.[14]
              Extrinsic evidence is evidence “other than the language of the contract that
bears on the parties’ intentions.”15 The extrinsic evidence that may be considered
includes “the language and conduct of the parties, the objects sought to be accomplished
and the surrounding circumstances at the time the contract was negotiated,” as well as
the conduct of the parties after the contract was entered into.16 Trial courts “have broad
latitude in looking at extrinsic evidence.”17
              Extrinsic evidence “is always admissible on the question of the meaning of
the words of the contract itself.”18 Accordingly, “[i]t is not necessary to find that an
agreement is ambiguous before looking to extrinsic evidence as an aid in determining
what it means.”19 We have expressly rejected the “artificial and unduly cumbersome”
two-step process used in other jurisdictions in which “resort to extrinsic evidence can




       14
             Fairbanks N. Star Borough, 719 P.2d at 1024 (emphasis added) (internal
citations omitted).
       15
              Wright v. Vickaryous, 598 P.2d 490, 497 n.22 (Alaska 1979).
       16
            Peterson v. Wirum, 625 P.2d 866, 870 n.7 (Alaska 1981) (citations and
quotation marks omitted).
       17
              Municipality of Anchorage v. Gentile, 922 P.2d 248, 257 (Alaska 1996).
       18
             Casey v. Semco Energy, Inc., 92 P.3d 379, 383 (Alaska 2004); see also Beal
v. McGuire, 216 P.3d 1154, 1166 (Alaska 2009) (observing that “in determining the
meaning of an agreement courts should consider, in addition to its text, relevant extrinsic
evidence, including the subsequent conduct of the parties”).
       19
             Estate of Polushkin ex rel. Polushkin v. Maw, 170 P.3d 162, 167 (Alaska
2007); see also Beal, 216 P.3d at 1166 (observing that “[c]ourts may consult extrinsic
evidence without first finding that an agreement’s words are ambiguous”).

                                           -12-                                      6801

take place only after a preliminary finding of ambiguity.”20 In this two-step process, “a
court would examine extrinsic evidence to make a preliminary finding of ambiguity, and
only after such a finding, would the court consider extrinsic evidence in construing the
contract.”21 By contrast, under Alaska law “a court in this jurisdiction may initially turn
to extrinsic evidence in construing a contract” for “such light as it may shed on the
reasonable expectations of the parties.”22 Such an approach has at least two benefits.
First, an approach in which the courts “may hear all relevant circumstances bearing on
the interpretation of a disputed term . . . should better enable them to attain the ultimate
goal of interpreting the language in accordance with the reasonable expectations of the
parties.”23 Second, this approach “eliminate[s] the lengthy and repetitious arguments as
to whether a provision is ambiguous.”24 In sum, the trial court’s duty “to consider the
totality of the evidence, including extrinsic evidence,” in resolving issues of contractual
meaning “extends to all cases and requires no preliminary indication of ambiguity in the
written agreement.”25
              Here, the superior court relied on several sources of extrinsic evidence to
construe the meaning of the contract, including the exchange of letters and drafts


         20
              Alyeska Pipeline Serv. Co. v. O’Kelley, 645 P.2d 767, 771 n.1 (Alaska
1982).
         21
              Wright v. Vickaryous, 598 P.2d 490, 497 n.22 (Alaska 1979).
         22
              Alyeska Pipeline Serv. Co., 645 P.2d at 771 n.1.
         23
              Wessells v. State, Dep’t of Highways, 562 P.2d 1042, 1052 n.39 (Alaska
1977).
         24
              Id.
         25
              Froines v. Valdez Fisheries Dev. Ass’n, Inc., 75 P.3d 83, 87-88 (Alaska
2003).

                                           -13­                                       6801
between Daum and Weidner, internal documents generated by Nautilus, and various
motions and declarations submitted by Exxon, Cook Inlet, Nautilus, and Waterer. All
of this evidence was admissible to construe the meaning of the Settlement Agreement.
In addition to written extrinsic evidence, the court also relied on testimony by Daum,
Weidner, and Waterer, among others. Nautilus takes issue with the court’s reliance on
Daum’s testimony in particular, pointing out that we have held that “self-serving
litigation-related expressions of prior subjective intent or understanding are generally not
considered probative of parties’ reasonable expectations when they entered into a
contract; the court instead must look to express manifestations of each party’s
understanding.”26 This statement, however, “does not preclude a party from testifying
about its understanding in objective terms . . . sufficiently detailed to enable [the] trier
of fact to form its own judgment as to the reasonableness of the party’s understanding
and the likelihood that the other party would have the same understanding.”27 Indeed,
“[t]here is nothing improper in such testimony.”28 Accordingly, the superior court did
not err in relying on Daum’s testimony in combination with other extrinsic evidence in
seeking to understand the reasonable intent of the parties.




       26
              In re Estate of Fields, 219 P.3d 995, 1012 n.57 (Alaska 2009); see also
Norville v. Carr-Gottstein Foods, 84 P.3d 996, 1003 (Alaska 2004) (stating that
“[t]estimony of a party as to his subjective intentions concerning the meaning of a
particular clause in a contract is not probative unless the party in some way expressed
or manifested his understanding at the time of contract formation”).
       27
              In re Estate of Fields, 219 P.3d at 1012 n.57 (quoting Alaska Tae Woong
Venture, Inc. v. Westward Seafoods, Inc., 963 P.2d 1055, 1067 (Alaska 1998)) (internal
quotation marks and brackets omitted).
       28
              Alaska Tae Woong Venture, Inc., 963 P.2d at 1067.

                                           -14-                                       6801

              2.    The superior court did not violate the parol evidence rule.
              Nautilus also argues that the superior court “disregarded” or “violate[d]”
the parol evidence rule by relying on extrinsic evidence to construe the Settlement
Agreement. As previously explained, Nautilus’s argument reflects a misunderstanding
of the parol evidence rule and its relationship to this court’s principles of contract
interpretation.
              The parol evidence rule is codified in AS 45.02.202, which reads:
              Terms with respect to which the confirmatory memoranda of
              the parties agree, or that are otherwise set out in a writing
              intended by the parties as a final expression of their
              agreement with respect to the terms included in the writing,
              may not be contradicted by evidence of a prior agreement or
              of a contemporaneous oral agreement, but may be explained
              or supplemented
                    (1) by course of performance, course of
                    dealing, or usage of trade (AS 45.01.303); and
                    (2) by evidence of consistent additional terms
                    unless the court finds the writing was intended
                    also as a complete and exclusive statement of
                    the terms of the agreement.
              Alaska case law provides additional guidance regarding this rule. In Alaska
Diversified Contractors, Inc. v. Lower Kuskokwim School District, we explained that
“[b]efore the parol evidence rule can be applied, three preliminary determinations must
be made: (1) whether the contract is integrated, (2) what the contract means, and (3)
whether the prior agreement conflicts with the integrated agreement.”29 This three-part
process makes clear that before applying the parol evidence rule, “the court’s first duty
is to determine the meaning of the contract, and extrinsic evidence is admissible for this



       29
              778 P.2d 581, 583 (Alaska 1989) (internal citations omitted).

                                          -15-                                      6801
purpose.”30 This initial determination, as such, “does not involve the parol evidence rule
at all, since the question is what the contract means.”31 Rather, it is only “[o]nce the
meaning of the written contract [has been] determined” that the parol evidence rule
operates to “preclude[] the enforcement of prior inconsistent agreements.”32
             Here, the superior court followed the procedure set forth by Alaska
Diversified Contractors and initially determined — with the aid of extrinsic evidence —
“what the contract means,” namely, that the Settlement Agreement did not include an
agreement to pay compound interest. Interpreted thus, there was no prior inconsistent
agreement present and no conflict between the extrinsic evidence and the Settlement
Agreement. There was therefore no occasion for the court to apply, much less violate,
the parol evidence rule.
             3.	    The court’s interpretation of the Settlement Agreement was
                    not clearly erroneous.
             Relying on both the language of the Settlement Agreement and extrinsic
evidence, the superior court found that the Settlement Agreement did not include an
agreement to use compound interest regardless of whether state or federal law applied,
but rather reserved the prejudgment interest issue for Judge Holland to decide. This
finding was not clearly erroneous.
             With respect to the language of the Settlement Agreement, the court found
that nothing in the document’s language limited Judge Holland’s discretion to decide not
only the numerical percentage of the interest, but also whether the interest would be
simple or compound. On the contrary, the court found that the Settlement Agreement


      30
             Prichard v. Clay, 780 P.2d 359, 362 (Alaska 1989).
      31
             Id.
      32
             Alaska Diversified Contractors, 778 P.2d at 584.

                                          -16­                                      6801
simply does not address the issue of simple or compound interest. In particular, the court
observed that paragraph 3.5 of the Settlement Agreement, which states that the Final
Judgment must contain certain provisions, does not mention an agreement to provide
compound interest in all circumstances. Similarly, paragraphs 3.1, 3.2, and 3.3 carefully
address the issue of prejudgment interest, but say nothing about an agreement to provide
compound interest in all circumstances.
              The court also considered the significance of Exhibit A, the Proposed
Judgment form. The court concluded that “[t]he extrinsic evidence . . . demonstrates that
the proposed judgment [Exhibit A] (including the first recital and [the] words
‘compounded annually’) was intended to provide a form of judgment that Judge Holland
could use to implement the parties’ agreement. The proposed judgment was not intended
to include or be an agreement to pay compound interest.” In other words, the court
found that the Proposed Judgment form was “just that, a proposal for Judge Holland to
use at his discretion.”
              The court acknowledged, however, that despite its own reading of the
document, there “may be an ‘ambiguity’ ” in the language of the Settlement Agreement
regarding the use of compound interest only, particularly with respect to the language of
Exhibit A and its recital of the phrase “compounded annually.” Nevertheless, the court
found that even if the document was ambiguous, the extrinsic evidence removed any
ambiguity by confirming there was no agreement to pay compound interest. Again,
extrinsic evidence is admissible to construe the Settlement Agreement whether or not
there is an ambiguity. With respect to such extrinsic evidence, the court found that “[a]ll
of the extrinsic evidence demonstrates that the parties never agreed that interest would
be compounded.” In making this finding, the court relied on the following sources of
extrinsic evidence.



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             First, the superior court noted that in light of Judge Holland’s previous
rulings that federal law governed the award of prejudgment interest, the parties
reasonably might have assumed that in their case Judge Holland would similarly award
interest under the federal standard, which requires interest to be compounded. Thus the
use of the phrase “compounded annually” in Exhibit A served as a prediction of what the
court would do.
             Second, the court considered the exchange of letters and drafts between
Daum and Weidner, as well as their testimony regarding the negotiations. Having
reviewed these, the court found there was “no evidence that the parties discussed and
reached agreement that only compound interest would apply regardless of whether state
or federal law controlled.” Of particular importance here is the drafting and execution
of the Letter Agreement, which is a binding memorialization of the parties’ settlement.
The Letter Agreement provided that Exxon will pay prejudgment interest “as provided
by law” and contains no agreement that Exxon will pay compound interest in all
circumstances. Accordingly, the Settlement Agreement that followed, which was
intended to “implement the provisions” of the Letter Agreement, could not have
implemented an agreement that did not exist.
             Third, the court found that Nautilus’s and Weidner’s internal
communications during the negotiation period confirmed their own understanding that
prejudgment interest would be compound if federal law applied and simple if state law
applied.   In particular, the court found that the parties’ internal communications
consistently referred to simple interest under the Alaska statute and compound interest
when applying federal rates, and never once calculated the 10.5% state rate as
compounded. Further, even after Waterer saw the proposed judgment in the draft
Settlement Agreement, he continued to direct his accountant to perform calculations of



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Nautilus’s potential recovery using simple interest under Alaska state law and compound
interest under federal law.
              At trial, Waterer testified to his understanding that any interest awarded
would be compound because the award was intended to compensate Nautilus for the
expenses it incurred after the oil spill, and Nautilus had to take out loans at very high
rates. However, the superior court found “Mr. Waterer’s credibility to be severely
compromised and his testimony not believable. This court’s impression of Mr. Waterer’s
testimony is that he was very careful in answering questions, approaching perjury but
never committing it.”
              At his deposition before trial, Waterer produced a telephone log book with
notes that purported to reflect conversations between Weidner and Waterer supporting
the existence of an agreement by Exxon to pay compound interest. At trial, however,
Waterer admitted that he added some of those notes after this dispute arose. As
summarized by the superior court, “Mr. Waterer also admitted that it was possible that
all the additions were related to compound interest and that the additions were made to
assist [Nautilus’s] litigation position in this case.” The superior court also relied on the
testimony of Exxon’s expert witness, who testified to his belief that Waterer had
removed pages from his personal notebooks. The court concluded that “Mr. Waterer’s
intentional destruction of pages from September 26 and/or 27, 2006 creates the inference
that Mr. Waterer removed pages containing information harmful to [Nautilus’s] legal
position.”
              Finally, the court relied on evidence of the parties’ post-settlement conduct.
The court observed that in Weidner’s post-settlement briefing on behalf of Cook Inlet,
he was emphatic that, to the extent the Alaska statute governed, Cook Inlet was only
seeking simple interest. This is significant because Weidner was the sole negotiator on
behalf of Nautilus and Cook Inlet during the formulation and execution of the Settlement

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Agreement. The fact that he acknowledged in post-settlement briefing that interest
would not be compounded under the Alaska statute indicates that he did not believe the
Settlement Agreement included an agreement to compound the interest in all
circumstances. The court also observed that Nautilus “[n]otably” did not argue in its
initial post-settlement briefing in February 2007 that the parties had agreed to compound
interest in all circumstances. This indicates that Nautilus did not believe there was such
an agreement at that time. Rather, as the superior court concluded, Nautilus first began
to claim there was such an agreement in June 2007, long after the signing of the
Settlement Agreement. Finally, the court found that the alternative proposals regarding
prejudgment interest that Waterer submitted to the District Court in his April 2007
declaration “are all inconsistent with [Nautilus’s] current position that there was an
agreement to compound interest regardless, and [Nautilus’s] position that the [proposed
judgment form] constitutes the agreement.” This confirms that both parties understood
that the proposed judgment form allowed Judge Holland full discretion to assess
prejudgment interest as provided by law.
              Indeed, Nautilus concedes that its post-settlement conduct contradicts what
it now claims was always its understanding of the agreement. Specifically, Nautilus’s
brief asserts that “[i]n this instance, the court is obligated to enforce the settlement even
though the parties had left terms open and even when they mutually disregarded them
after the time of settlement.” But Nautilus does not explain why it would “disregard” the
terms of the Settlement Agreement when — under the interpretation now urged by
Nautilus — those terms clearly worked in its favor.
              In sum, the superior court closely read the language of the Settlement
Agreement and carefully considered a wide array of written and testimonial extrinsic
evidence, including the parties’ words and conduct before, during, and after the drafting
of the Settlement Agreement. Having done so, the court found that “[a]ll of the extrinsic

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evidence demonstrates that the parties never agreed that interest would be compounded.”
The court further concluded that the “extrinsic evidence also demonstrates that the
proposed judgment (including the . . . words ‘compounded annually’) . . . was not
intended to include or be an agreement to pay compound interest.” Rather, the parties
intended to reserve the prejudgment interest issue for Judge Holland to decide, and the
parties understood that interest would be paid, in the words of the Letter Agreement, “as
provided by law” — simple interest if Alaska law governed, compound interest if federal
law governed. Having reviewed the entire record, we conclude that the superior court’s
interpretation of the agreement in light of the extrinsic evidence was not clearly
erroneous.
      B.     The Superior Court Did Not Abuse Its Discretion When It Found
             Exxon To Be The Prevailing Party.
             The superior court found that “Exxon is the prevailing party” and that
attorney’s fees should be calculated accordingly. Nautilus disputes this determination,
arguing that because the superior court’s underlying decision was in error, so too was its
award of prevailing party status to Exxon. Because we hold that the superior court’s
underlying decision concerning the interpretation of the Settlement Agreement was not
in error, Exxon is the prevailing party.33
V.    CONCLUSION
             We AFFIRM the decision of the superior court in all respects.




      33
             See Hillman v. Nationwide Mut. Fire Ins. Co., 855 P.2d 1321, 1327 (Alaska
1993) (stating that the prevailing party is the one “who has successfully prosecuted or
defended against the action, the one who is successful on the main issue of the action and
in whose favor the decision or verdict is rendered and the judgment entered”) (internal
quotation marks omitted).

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