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Northern Fabrication Company, Inc. v. Unocal and Star North Services (5/28/99), 980 P 2d 958
Notice: This opinion is subject to correction before publication in
the Pacific Reporter. 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.
THE SUPREME COURT OF THE STATE OF ALASKA
NORTHERN FABRICATION COMPANY, )
INC., ) Supreme Court No. S-8595
)
Appellant, ) Superior Court No.
) 3AN-95-3864 CI
v. )
) O P I N I O N
UNOCAL and STAR NORTH )
SERVICES, ) [No. 5121 - May 28, 1999]
)
Appellees. )
______________________________)
Appeal from the Superior Court of the State of
Alaska, Third Judicial District, Anchorage,
Peter A. Michalski, Judge.
Appearances: C. R. Kennelly, Stepovich,
Kennelly & Stepovich, P.C., Anchorage, for Appellant. Arden E.
Page and Michael W. Seville, Burr, Pease & Kurtz, Anchorage, for
Appellees.
Before: Matthews, Chief Justice, Eastaugh,
Fabe, Bryner, and Carpeneti, Justices.
PER CURIAM
We agree with the decision entered in this case by
Superior Court Judge Peter A. Michalski. We thus AFFIRM that
decision for the reasons expressed in Judge Michalski's Memorandum
and Order, attached hereto as an Appendix. [Fn. 1]
IN THE SUPERIOR COURT FOR THE STATE OF ALASKA
THIRD JUDICIAL DISTRICT AT ANCHORAGE
NORTHERN FABRICATION CO., )
INC., )
)
Plaintiff, )
)
v. )
)
UNION OIL COMPANY OF )
CALIFORNIA, d/b/a UNOCAL, )
INC., and STAR NORTH )
SERVICES, INC., )
)
Defendants. )
______________________________) Case No. 3AN-95-3864 CI
MEMORANDUM AND ORDER
Defendants Union Oil Company of California and Star North
Services, Inc. (UNOCAL) moved for summary judgment against
plaintiff Northern Fabrication Co., Inc. (NFC) on the grounds that
NFC had previously accepted an offer of compromise and signed a
release of all claims. NFC opposes the motion by asserting that
the release was obtained by economic duress.
I. STANDARD OF REVIEW
This case is before the court on a motion for summary
judgment pursuant to Alaska Rule of Civil Procedure 56. The rule
provides that
[j]udgment shall be rendered forthwith if the
pleadings, depositions, answers to interrogatories, and admissions
on file, together with the affidavits, show that there is no
genuine issue as to any material fact and that any party is
entitled to a judgment as a matter of law.
Alaska R. Civ. P. 56(c). It is the proponent of the motion who
must show that there is no genuine issue of material fact. See
Gudenau & Co. v. Sweeney Ins., Inc., 736 P.2d 763, 765 (Alaska
1987). "A material issue of fact exists where reasonable jurors
could disagree in the resolution of factual issues presented by the
moving papers." Hayes v. Xerox Corp., 718 P.2d 929, 936 (Alaska
1986).
II. STATEMENT OF FACTS
In 1993, NFC successfully bid for UNOCAL's Chakachatna
Quarters Cantilever Structural Upgrade Project. The project called
for the structural modification of three offshore drilling
platforms, the Anna, the Bruce, and the Dillon. UNOCAL was to pay
NFC approximately $90,000 for the specified modifications on each
platform ($276,354 total). The contract called for the project to
be completed by December 15, 1993. NFC had filed a Chapter 11
bankruptcy petition in 1991 but was reinstated to do business with
UNOCAL. UNOCAL knew of NFC's bankruptcy history when NFC's bid was
submitted.
NFC incurred significant cost overruns in its work on the
first platform (the Bruce) and did not complete the work by the
scheduled deadline. NFC attributed the problems that led to the
overruns and delays to UNOCAL. NFC informed UNOCAL that the cost
overrun on the Bruce platform was $110,060.54 and that it expected
a cost overrun of an additional $61,915.61 on the work that was to
be done on the Anna platform. UNOCAL offered to compromise with
NFC by paying half of the $110,060.54 overrun. UNOCAL also
terminated NFC's contract and hired another contractor to finish
the work on the Anna and the Dillon as was its specific right under
the contract.
After considering the offer for approximately six weeks,
NFC accepted UNOCAL's settlement of $55,030.27 for the disputed
cost overrun on the Bruce platform and signed a general release
that purported to be a "complete compromise of matters involving
disputed issues of law and fact." UNOCAL's Mem. at 3. NFC was
represented by counsel during the entire process. Approximately
fourteen months later, NFC filed a complaint seeking actual and
punitive damages for UNOCAL's alleged breaches of contract,
claiming that the release was void because it was signed under
economic duress.
III. DISCUSSION
NFC does not dispute that it signed the release. It
does, however, attack the release's validity by alleging that it
was obtained only by economic coercion and duress. According to
NFC, UNOCAL exploited NFC's shaky financial position by offering
only half of what it owed NFC at a time when it knew NFC could not
afford any further delay in payment.
A. Case Law
The law in Alaska on the invalidation of releases
obtained through economic duress is found primarily in Totem Marine
Tug & Barge, Inc. v. Alyeska Pipeline Service Co., 584 P.2d 15
(Alaska 1978), and Zeilinger v. Sohio Alaska Petroleum Co., 823
P.2d 653 (Alaska 1992). Both parties rely on the two cases.
Duress is said to exist where "(1) one party
involuntarily accepted the terms of another, (2) circumstances
permitted no other alternative, and (3) such circumstances were the
result of coercive acts of the other party." Zeilinger, 823 P.2d
at 657 (quoting Totem, 584 P.2d at 21). The Zeilinger court noted
that the party opposing summary judgment "has to demonstrate a
factual issue concerning each of the three prongs." Id. at 658;
see also Wassink v. Hawkins, 763 P.2d 971, 974 (Alaska 1988)
(failure to show factual dispute on third prong fatal to appeal
from summary judgment on economic duress argument).
B. Application
The first prong of the test appears almost meaningless in
this context since the test of whether a party acted involuntarily
is subjective. See Helstrom v. North Slope Borough, 797 P.2d 1192,
1197 (Alaska 1990). NFC's mere assertion that it acted
involuntarily is sufficient to create the requisite factual
dispute.
Next is the question of whether circumstances permitted
any other alternative to accepting the offered amount and signing
the release. Here, the test is objective. NFC asserts that it had
no other alternative to signing the release and taking the offered
money because further delay would have meant sure bankruptcy for it
and some of its creditors. Although one obvious alternative to
signing the release would have been for NFC to sue for breach of
contract, any remedy available through the courts would probably
have come too late to prevent NFC's bankruptcy. NFC therefore
raises at least a question of fact as to the feasibility of
available alternatives when it asserts that it simply could not
afford to wait.
"The third prong embodies two requirements: (a) coercive
acts on the part of the other party and (b) a causal link between
the coercive acts and the circumstances of economic duress."
Zeilinger, 823 P.2d at 658. In Helstrom, the court noted that the
"coercive acts"prong has been liberally construed, requiring that
the strained circumstances be the result of acts which are
criminal, tortious, or even merely "wrongful in the moral sense."
Helstrom, 797 P.2d at 1198 (quoting Totem, 584 P.2d at 22). There
is simply no evidence of any such coercive act on the part of
UNOCAL.
NFC has not alleged nor brought forth evidence that
UNOCAL threatened it or established any conditions to the
settlement offer other than the legitimate and standard condition
that NFC sign the release. UNOCAL had already terminated the
contract with NFC and found another contractor to finish the work
on the other two drilling platforms as the contract explicitly
allowed. Therefore, UNOCAL could not have threatened NFC to sign
the release or lose their right to continue with the project.
UNOCAL concedes that NFC was in dire economic straits.
However, there is nothing in the record to suggest that UNOCAL
exploited the situation in any way. See Horgan v. Industrial
Design Corp., 657 P.2d 751, 753-54 (Utah 1982) (economic necessity
-- very often the primary motivation for compromise -- is not
enough, by itself, to void an otherwise valid release). Clearly,
the dispute with UNOCAL contributed to NFC's financial instability.
However, without evidence that UNOCAL did anything "criminal,
tortious or even merely 'wrongful in the moral sense,'"there is no
factual dispute on the third prong of the test for economic duress.
NFC argues that in Totem, the supreme court reversed the
superior court's grant of summary judgment under facts very similar
to their own. Although it is true that the facts of Totem are very
similar to those at issue here, there is a very important
difference between the Totem case and the case at bar. In Totem,
the parties signed a contract in which one party (Totem) agreed to
transport pipeline construction materials from Texas to southern
Alaska. "From the start, however, there were numerous problems
which impeded Totem's performance of the contract." Totem, 584
P.2d at 18. Totem was approximately a month late in performing and
the contract was terminated. Totem sought payment, being in urgent
need of cash to avoid bankruptcy. Eventually, Totem settled for
approximately one-third of the amount claimed and signed a release
of all claims. See id. at 18-19.
Despite the release, Totem sued for breach of contract.
The superior court granted summary judgment against Totem based on
the release it had signed despite Totem's arguments that the
release was signed under economic duress. The supreme court
reversed the summary judgment award because, in addition to
satisfying the other elements of the test for economic duress,
Totem alleged that "Alyeska deliberately withheld payment of an
acknowledged debt, knowing that Totem had no choice but to accept
an inadequate sum in settlement of that debt." Id. at 24. Herein
lies the difference between Totem and the case at bar. In Totem,
it was alleged that the other party deliberately withheld payment
of an acknowledged debt. Deliberately withholding payment of an
acknowledged debt constitutes an action "wrongful in the moral
sense"that satisfies the third prong of the test for economic
duress. Here, NFC has not produced evidence that UNOCAL ever
acknowledged its debt to NFC for the full amount of the cost
overruns. All available evidence indicates that UNOCAL never
acknowledged an obligation to pay for more than the amount it paid
as part of the settlement.
Although NFC argues that UNOCAL is the cause of the
overruns and that they should have paid for them, UNOCAL's
consistent position has been that NFC is at least partly to blame.
When it became apparent to NFC that UNOCAL was changing the nature
of the project, NFC presumably could have protected itself by
insisting on a contract modification before it went ahead with work
that was not part of the work it bid for. There is no evidence
that UNOCAL took its position or maintained it to exploit NFC's
financial weakness.
Unfortunately, the contract between NFC and UNOCAL did
not work out as either party expected. NFC was disappointed by
UNOCAL's actions that allegedly made performance more complicated,
expensive, and time consuming. UNOCAL was disappointed by the cost
overruns and delays that eventually led them to terminate the
contract with NFC and incur the expense of finding another
contractor to finish the platform work. The court's obligation
here is not to ascertain who, in fact, should have paid for what
percentage of the cost overruns. That matter was settled when the
release was signed. The court's only task here is to determine
whether UNOCAL did anything improper to coerce NFC to sign the
release. NFC may not re-open the dispute over the cost overruns as
evidence of coercion in signing the release.
In Totem, the improper action was alleged to be the
deliberate withholding of an acknowledged debt. Here, NFC's
allegation is merely that UNOCAL knew of its difficult financial
position and did not accommodate it. Although UNOCAL would not be
permitted to exploit NFC's financial weakness, NFC is not allowed
to use its financial weakness as a sword to negate a properly
executed release. There is nothing in the evidence indicating that
UNOCAL treated NFC any different than it would have treated another
party in sound economic health. The dispute arose, each party took
a position, an offer of compromise was made and accepted, and a
release was signed. NFC may not use the courts to re-examine the
dispute simply because its financial situation limited its options
at the time the release was signed.
The Alaska Supreme Court has noted that "the preservation
of agreements entered into in good faith and the encouragement of
settlement of disputes constitute strong arguments for enforcing
releases." Witt v. Watkins, 579 P.2d 1065, 1068 (Alaska 1978).
Whatever the merits of the dispute between UNOCAL and NFC over the
cost overruns, they settled that dispute. NFC has not presented
evidence of improper behavior by UNOCAL in obtaining the settlement
and the accompanying release. Therefore, the settlement should
remain undisturbed and UNOCAL's summary judgment motion should be
granted.
IV. CONCLUSION
NFC signed a complete release of all claims against
UNOCAL. There is no dispute that when the release was signed NFC
was in a difficult position financially, at least partially as a
result of its contract with UNOCAL. NFC has failed, however, to
plead or produce evidence to show that UNOCAL acted improperly in
obtaining the release. Therefore, UNOCAL's motion for summary
judgment is granted.
SO ORDERED.
DATED at Anchorage, Alaska this 12th day of December,
1997.
/s/ Peter A. Michalski
Superior Court Judge
FOOTNOTES
Footnote 1:
The decision has been edited in conformity with Supreme Court
procedural standards.
