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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. SMJ General Construction, Inc., v. Jet Commercial Construction, LLC (4/12/2019) sp-7351
Notice: This op inion is subj ect to correction bef ore p ublication in the PA CIFI C REPORTER.
Readers are requested to bring errors to the attention of the Clerk of the App ellate Courts,
303 K Street, Anchorage, Alaska 99501, p hone (907) 264-0608, f ax (907) 264-0878, email
corrections@akcourts.us.
THE SUPREME COURT OF THE STATE OF ALASKA
SMJ GENERAL CONSTRUCTION, )
INC., ) Supreme Court Nos. S-16785/ 16985
)
Appellant, ) Superior Court No. 3AN-17-04294 CI
)
v. ) O P I N I O N
)
JET COMMERCIAL ) No. 7351 - April 12, 2019
CONSTRUCTION, LLC, )
)
Appellee. )
)
Appeal from the Superior Court of the State of Alaska, Third
Judicial District, Anchorage, Frank A. Pfiffner, Judge.
Appearances: John C. Pharr, Law Offices of John C. Pharr,
P.C., Anchorage, for Appellant. Michael C. Geraghty, Oles
Morrison Rinker & Baker LLP, Anchorage, for Appellee.
Before: Bolger, Chief Justice, Winfree, Stowers, Maassen,
and Carney, Justices.
MAASSEN, Justice.
I. INTRODUCTION
The parties entered into a construction subcontract that contained a broad
dispute resolution provision. When disputes arose, the parties engaged in mediation as
their subcontract required, reaching a settlement agreement by which they each
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"absolutely release[d] the other of and from any and all claims, demands and obligations
of any kind arising from [the subcontract]." The settlement agreement, unlike the
subcontract, contained no dispute resolution provision.
Two weeks after settlement the subcontractor filed suit against the
contractor in superior court, seeking damages and an order setting aside the settlement
agreement on grounds that the contractor had concealed facts that made it difficult for
the subcontractor to obtain releases essential to the settlement. The contractor moved to
dismiss, arguing that the subcontractor's claims were subj ect to the subcontract's dispute
resolution provision. The superior court granted the contractor's motion and awarded
it attorney's fees. The subcontractor appealed.
We conclude that the case should not have been dismissed because the
parties, by the express language of their settlement agreement, released each other from
"any and all" obligation to engage in dispute resolution as required by the subcontract.
We therefore reverse the superior court's judgment and remand for further proceedings.
II. FACTS AND PROCEEDINGS
A. Facts
The parties assumed the following facts to be true for purposes of the
motion to dismiss giving rise to this appeal.
In early 2016 Jet Commercial Construction, LLC (Jet), an Oklahoma
corporation, entered into a contract with Kona Grill, Inc., for the construction of a
restaurant in Honolulu, Hawaii. In May Jet entered into a subcontract with SMJ General
Construction, Inc. (SMJ), an Alaska corporation, "to supply the materials and labor for
the construction of the building and other improvements." The subcontract contained
a dispute resolution provision that required the parties to first mediate any dispute and
then submit it to arbitration if mediation was unsuccessful. The subcontract also
included a choice-of-law and venue provision designating Oklahoma law and the courts
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of Cleveland County, Oklahoma for any lawsuits "pertaining to the enforcement of the
provisions of this Agreement."
The parties had a number of disputes during construction. SMJ alleged,
among other things, that after it bid on the basis of one set of building plans Jet switched
them for another; that Jet failed to give SMJ the money necessary to pay its sub-
subcontractors and suppliers and paid some of them directly, without SMJ's knowledge
and with money Jet owed to SMJ; and that Jet constantly revised the building plans and
ignored the change-order process set out in the subcontract.
The parties mediated their disputes as required by the subcontract's dispute
resolution provision. On January 5, 2017, with the assistance of a professional mediator,
they reached the following three-paragraph, handwritten settlement agreement:
Parties agree as follows:
(1) Each party hereby absolutely releases the other of and
from any and all claims, demands and obligations of
any kind arising from contract of May 2016 regarding
Kona Grill, Honolulu proj ect. SMJ will execute and
deliver Release of all claims and waiver of liens.
Mr. Chang will sign same individually. Counsel for
Jet to prepare release.
(2) Jet will pay to SMJ the sum of $150,000.00 if SMJ
will deliver to Jet within 30 days of today's date a
fully executed release of all claims and lien waiver
from Dong Hwan Kim individually and Hyan [sic]
Yang Construction, said release & waiver to be
notarized and on the form prepared by Jet's counsel.
(3) This yellow memorandum reflects the essential &
material terms of the parties' agreement and will be
followed by a more formal memorialization of same,
to be prepared by Jet's counsel.
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Tyson Chang was SMJ's president, and Han Yang Construction, owned by Don Hwan
Kim, was one of SMJ's sub-subcontractors on the proj ect. Neither Jet nor SMJ asserts
that "a more formal memorialization of" the handwritten agreement, as contemplated by
paragraph 3, was ever prepared.
Soon after the agreement was reached, SMJ learned of conduct by Jet,
preceding the mediation, that impaired SMJ's ability to obtain the release from its sub-
subcontractor, Han Yang Construction, as required by paragraph 2 of the settlement
agreement. According to SMJ, Jet falsely informed a city inspector that Han Yang
Construction had contracted directly with Kona Grill. SMJ alleged that Jet created a
fictitious agreement to show this contractual relationship, signed the fictitious agreement
on behalf of Kona Grill as the "Owner's rep" when it lacked the authority to do so, and
filed the fictitious agreement with the City of Honolulu. SMJ asserts that Jet "concealed
material facts from SMJ [during the mediation], namely that its fraudulent actions
rendered the condition precedent to the settlement impossible for SMJ to comply with."
B. Proceedings
Two weeks after the mediation, SMJ filed a complaint in superior court.
The complaint alleged three causes of action: fraud and misrepresentation, breach of the
covenant of good faith and fair dealing, and negligence. It sought a ruling that the
settlement agreement was void and "[a] money judgment against [Jet] in the principal
amount of $782,061.48."
SMJ had unusual difficulty effecting service of process on Jet in its home
state of Oklahoma. But Jet, through counsel, eventually filed a motion to dismiss
pursuant to Alaska Civil Rule 12(b)(3) (improper venue) and (6) (failure to state a
claim), while asserting a right to contest personal jurisdiction later. Jet argued that SMJ's
claims were not properly before the court because of the subcontract's dispute resolution
provision and the requirement that suits be filed in Oklahoma. In opposition, SMJ
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argued that the parties could no longer rely on the subcontract's dispute resolution and
forum selection provisions because the subcontract was entirely superseded by the
settlement agreement.
The superior court granted Jet's motion to dismiss in a perfunctory order
stating only that it had considered Jet's motion "and the arguments and briefs of the
parties." The court entered final judgment in Jet's favor and awarded it attorney's fees
as the prevailing party. SMJ appealed both the order of dismissal and the attorney's fees
award.
While the appeal was pending, SMJ filed a request for mediation with the
American Arbitration Association (AAA). In October 2017 the AAA forwarded the
mediation request to Jet and asked that the parties agree on a mediator. SMJ suggested
several names to Jet and, alternatively, that the parties "re-convene telephonically with
the mediator who did the first one in January." But the AAA received no response from
Jet and later "put the matter on hold at SMJ's request."
SMJ then moved in superior court for relief from final judgment pursuant
to Alaska Civil Rule 60(b), alleging that Jet's refusal to engage in mediation - after
insisting on it as grounds for dismissing SMJ's lawsuit - constituted both newly
discovered evidence and a change in circumstances that justified relief. Jet opposed the
motion. It conceded that it had "not leaped at the chance to conduct another mediation
with [SMJ]" but disputed that its failure to mediate constituted "new evidence" for
purposes of Rule 60(b). It contended that SMJ could still demand arbitration and have
the arbitrator determine whether mediation was mandatory, or, alternatively, that it could
ask a judge in Oklahoma to decide whether Jet was required to mediate.
The superior court denied SMJ's Rule 60(b) motion, again without
explanation, and SMJ filed a second appeal. We combined the two appeals. SMJ
challenges the court's grant of Jet's motion to dismiss, its award of attorney's fees, and
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----------------------- Page 6-----------------------
its denial of the Rule 60(b) motion. Because of our disposition of the first issue, we do
not address the others.
III. STANDARD OF REVIEW
"We review grants of motions to dismiss under Civil Rule 12(b)(6) de novo,
1
'construing the complaint liberally and accepting as true all factual allegations.' " "In
reviewing motions to dismiss, we view the facts in the light most favorable to the
nonmoving party and draw all reasonable inferences in favor of that party."2
"Whether [a] claim is arbitrable is a question of law subj ect to de novo
3 4
review." "We review the interpretation of a contract de novo." "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.' "5
IV. DISCUSSION
The superior court granted Jet's motion to dismiss SMJ's complaint without
6
explaining its reasoning; we assume the court adopted Jet's arguments for dismissal.
1 Cornelison v. TI G Ins., 376 P.3d 1255, 1267 (Alaska 2016) (quoting Kanuk
ex rel. Kanuk v. State, Dep 't of Nat. Res., 335 P.3d 1088, 1092 (Alaska 2014)).
2 Id.
3 Geotek Alaska, Inc. v. Jacobs Eng 'g Grp ., Inc., 354 P.3d 368, 371 (Alaska
2015) (alteration in original) (quoting Lexington Mktg. Grp ., Inc. v. Goldbelt Eagle, LLC,
157 P.3d 470, 472 (Alaska 2007)).
4 Mahan v. Mahan, 347 P.3d 91, 94 (Alaska 2015) (quoting Villars v. Villars,
277 P.3d 763, 768 (Alaska 2012)).
5 Alaska Fur Gallery, Inc. v. Tok Hwang, 394 P.3d 511, 514 (Alaska 2017)
(quoting ConocoPhillip s Alaska, Inc. v. Williams Alaska Petroleum, Inc., 322 P.3d 114,
122 (Alaska 2014)).
6 See Alaska Wildlif e Alliance v. State, 74 P.3d 201, 206 (Alaska 2003)
(continued...)
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----------------------- Page 7-----------------------
Jet's primary argument was that SMJ was required to raise its claims in arbitration
pursuant to the subcontract's dispute resolution provision. Jet also relied on the
subcontract's venue clause, requiring suits on the subcontract to be brought in
Oklahoma. But because we conclude that the subcontract no longer governed the
parties' rights and obligations once they entered into a subsequent agreement by which
they "absolutely release[d] [each] other of and from any and all claims, demands, and
obligations of any kind arising from" the subcontract, we find neither of Jet's arguments
persuasive.
A. Arbitrability Is A Question For The Courts.
It is the task of the courts to decide whether the parties' two successive
contracts - the subcontract and the settlement agreement - require SMJ to arbitrate its
claims.7 As codified in Alaska, the Revised Uniform Arbitration Act provides that "[t]he
court shall decide whether an agreement to arbitrate exists or a controversy is subj ect to
6 (...continued)
(observing that although an appellate court will sometimes remand for an explanation if
a trial court grants summary judgment without identifying which of multiple theories it
found persuasive, "[i]n most cases involving dismissal or summary judgment, the
grounds for the superior court's ruling can be discerned from the parties' motion
papers"); Hoekzema v. State, 193 P.3d 765, 771 (Alaska App. 2008) (noting that because
the judge "offered no explanation for his ruling" in favor of the State on a sentencing
issue, the reviewing court "presume[s] that the judge adopted the prosecutor's
argument").
7 Neither party argues that we should apply any law other than Alaska's to
the questions of arbitrability and contract interpretation raised on this appeal.
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8 9
an agreement to arbitrate." This is consistent with federal law. Federal courts presume
that parties intend the courts to decide "arbitrability" issues, such as "whether the parties
are bound by a given arbitration clause" and "whether an arbitration clause in a
concededly binding contract applies to a particular type of controversy."10 "The
presumption that arbitrability is a question for the courts can only be rebutted if the
parties have 'clearly and unmistakably provide[d] otherwise.' "11
The subcontract, though requiring a specific dispute resolution procedure,
does not mention arbitrability. However, the subcontract's dispute resolution provision
does provide that disputes "shall be submitted to mediation . . . pursuant to the
Construction Industry Arbitration Rules and Mediation Procedures of the American
Arbitration Association" and that the next step, arbitration, "shall be conducted pursuant
to" the same AAA rules and procedures. The AAA rules allow the arbitrator to
determine arbitrability.12 The subcontract's reference to those rules could therefore be
8 AS 09.43.330(c); see also Classif ied Emp s. Ass 'n v. Matanuska-Susitna
Borough Sch. Dist., 204 P.3d 347, 353 (Alaska 2009) ("[A]rbitrability is a threshold
question for the court, not the arbitrator.").
9 Geotek Alaska, Inc. v. Jacobs Eng 'g Grp ., Inc., 354 P.3d 368, 372 (Alaska
2015) (citing BG Grp ., PLC v. Rep ublic of Argentina, 572 U.S. 25, 34 (2014)).
10 Id. (footnotes omitted) (quoting BG Grp ., 572 U.S. at 34).
11 Id. at 376 (alteration in original) (quoting State v. Pub. Saf ety Emp s. Ass 'n,
798 P.2d 1281, 1285 (Alaska 1990)); see also Classif ied Emp s., 204 P.3d at 353 n.14
("An exception to [the rule that courts determine arbitrability] applies when the contract
clearly provides that the determination of arbitrability is for the arbitrator.").
12 AM. ARBITRATION ASS'N, CONSTRUCTION INDUSTRY ARBITRATION RULES
A N D M E D I A T I O N P R O C E D U R E S R - 9 ( a ) ( 2 0 1 5 ) ,
https://www.adr.org/sites/default/files/Construction_Arbitration_Rules_7May2018.pdf
("The arbitrator shall have the power to rule on his or her own jurisdiction, including any
(continued...)
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----------------------- Page 9-----------------------
read as intending that questions of arbitrability are for the arbitrator, not the courts.13 But
we need not decide whether to imply such an intent here, because whatever obligations
the parties had under the subcontract have been explicitly released.
B. The Settlement Agreement Released The Parties From Their
Contractual Obligation To Arbitrate Disputes.
When parties have successive contracts addressing the same subj ect matter,
"it is a well settled principle of law that the later contract supersedes the former contract
as to inconsistent provisions."14 A contract's arbitration provision may thus survive the
parties' later settlement of claims arising under the contract - but only if it is consistent
with the terms of settlement.15
12 (...continued)
obj ections with respect to the existence, scope, or validity of the arbitration agreement.").
13 See Oracle Am., Inc. v. Myriad Grp . A.G., 724 F.3d 1069, 1074 (9th Cir.
2013) ("Virtually every circuit to have considered the issue has determined that
incorporation of the [AAA] arbitration rules constitutes clear and unmistakable evidence
that the parties agreed to arbitrate arbitrability."); Contec Corp . v. Remote Sol. Co., 398
F.3d 205, 208 (2d Cir. 2005) ("[W]hen, as here, parties explicitly incorporate rules that
empower an arbitrator to decide issues of arbitrability, the incorporation serves as clear
and unmistakable evidence of the parties' intent to delegate such issues to an
arbitrator.").
14 Juneau Educ. Ass 'n v. City & Borough of Juneau, 539 P.2d 704, 706
(Alaska 1975) (quoting NLRB v. Op erating Eng 'rs Local 12, 323 F.2d 545, 548 (9th Cir.
1963)).
15 Cf . Primex Int 'l Corp . v. Wal-Mart Stores, Inc., 679 N.E.2d 624, 628 (N.Y.
1997) ("[A]bsent a more specific indication of intent to abandon contractual rights to an
arbitration forum, a general release terminating the substantive rights of the parties to the
contract will not nullify their obligation to submit to an arbitrator all of the disputes
relating to that contract and its termination."); Schlaif er v. Sedlow, 4 12 N.E.2d 1294,
1296 (N.Y. 1980) ("[I]n the absence of express provision to the contrary, where the
differences between the parties relate only to the substantive terms of their agreement,
(continued...)
-9- 7351
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Unlike the subcontract, the parties' settlement agreement makes no mention
of dispute resolution. The first paragraph of the settlement agreement reads: "Each party
hereby absolutely releases the other of and from any and all claims, demands and
obligations of any kind arising from contract of May 2016 regarding Kona Grill,
Honolulu proj ect." We interpret a settlement agreement the way we would any other
contract,16 giving the words "their ordinary, contemporary, common meaning" unless
they are "otherwise defined."17 The phrase "any and all claims, demands and obligations
of any kind arising from [the subcontract]" could hardly be broader. Jet's demand for
arbitration and SMJ's obligation to participate have no source other than the dispute
resolution provision of the subcontract. And the parties expressly released each other
from "any and all . . . obligations" under that provision by the settlement agreement's
plain language.
In Borough of Atlantic Highlands v. Eagle Enterp rises, Inc.,18 a New Jersey
court addressed a similar situation in language we find helpful. A contract for
construction of a new borough building contained a mandatory arbitration clause.19 A
15 (...continued)
they will be held in releasing claims to have dealt only with such substantive rights and
obligations, not with the separate and distinct subj ect of choice of the arbitration forum
for the resolution of disputes.").
16 Gaston v. Gaston, 954 P.2d 572, 574 (Alaska 1998) ("Settlement
agreements should be interpreted as contracts provided that they meet minimal
contractual requirements.").
17 Norville v. Carr-Gottstein Foods Co., 84 P.3d 996, 1001 n.3 (Alaska 2004)
(quoting State v. Niedermey er, 14 P.3d 264, 272 n.38 (Alaska 2000)).
18 711 A.2d 407, 4 10 (N.J. Super. App. Div. 1998).
19 Id. at 408.
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number of disputes arose between the borough and the contractor over delays and
payments; they eventually settled by entering into an agreement that said, among other
things, that their "Contract [was] completed and this Agreement constitutes full and final
satisfaction of all claims for compensation and neither party has any further claims for
compensation or damages against the other."20 Two months later, the contractor made
a claim for additional costs under the original construction contract, asserting in a letter
to the borough that the settlement had been procured by duress.21 Then the contractor,
"assum[ing] the continued existence of the arbitration clause in the original construction
agreement," demanded that its claim be arbitrated pursuant to the AAA rules.22
The trial court held that the parties' settlement agreement did not abrogate
the construction contract's arbitration clause, but the appellate court reversed.23 It held
that the construction contract, "which included the arbitration clause in issue, appears to
have been knowingly canceled and settled-out by virtue of the" settlement agreement,
particularly by its stipulation "that [the] Contract is completed" and neither party retains
"any further claims for compensation or damages against the other."24 The court
concluded: "We are at a loss as to how we might interpret this unambiguous language
to mean anything other than that the original construction contract was to be regarded as
history."25
20 Id. at 408-09.
21 Id. at 409.
22 Id.
23 Id. at 408.
24 Id. at 409-10.
25 Id. at 4 10.
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The Oklahoma Supreme Court considered a similar situation in Shawnee
Hosp ital Authority v. Dow Construction, Inc.26 The hospital entered into a construction
contract with the contractor for hospital additions.27 Disputes arose and the parties
reached a settlement agreement that resolved all issues except "after-arising claims from
latent construction defects," with the trial court "retain[ing] cognizance of controversies
that would arise under [the settlement agreement's] provisions."28 When the hospital
later brought latent-defect claims in court, the contractor argued that the claims were
subj ect to the construction contract's arbitration provision.29 The supreme court affirmed
the trial court's holding that the arbitration provision was waived by the settlement
agreement, pointing to specific language in the settlement agreement that the
construction contract was "hereby terminated with respect to any further performance
obligations on the part of" the contractor except "with respect to" latent-defect claims
and that the "court shall retain jurisdiction to reopen the case, if necessary, to conclude
this litigation . . . or to enforce the terms of this Settlement Agreement."30 The court held
that the contractor's "rights and liabilities under the construction contract were
discharged and stood superseded by the settlement agreement."31
The language Jet and SMJ used to settle their differences was as direct and
unambiguous as that in Borough of Atlantic Highlands and Shawnee Hosp ital
26 812 P.2d 1351 (Okla. 1990).
27 Id. at 1352.
28 Id.
29 Id.
30 Id. at 1354-55 & n.16 (emphasis omitted).
31 Id. at 1355 (emphasis omitted).
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Association: each party "absolutely release[d] the other of and from any and all claims,
demands and obligations of any kind arising from" the subcontract. Like the New Jersey
court in Borough of Atlantic Highlands, we cannot "interpret this unambiguous language
to mean anything other than that the original construction contract was to be regarded as
history."32 And absent that original contract, the parties had no obligation to arbitrate
their claims.
The foregoing rationale also disposes of Jet's claim that the parties remain
bound by the subcontract's choice-of-law and venue provisions. We note, however, that
our decision today is based on the limited record presented on a motion to dismiss. We
do not preclude the superior court's consideration on remand of extrinsic evidence that
33
contradicts the plain meaning of the parties' settlement agreement, if any exists. We
also do not address what happens if SMJ succeeds in having the settlement agreement
set aside - specifically whether the parties' rights and obligations, including those
34
pertaining to dispute resolution, revert to what they were under the subcontract.
32 711 A.2d 407, 4 10 (N.J. Super. App. Div. 1998).
33 See Mahan v. Mahan, 347 P.3d 91, 94 (Alaska 2015) ("We examine 'both
the language of [a settlement agreement] and extrinsic evidence to determine if the
wording of the [agreement] is ambiguous.' " (quoting Villars v. Villars, 277 P.3d 763,
768 (Alaska 2012))); Alaska Diversif ied Contractors, Inc. v. Lower Kuskokwim Sch.
Dist., 778 P.2d 581, 584 (Alaska 1989) ("Extrinsic evidence may always be received on
the question of meaning.").
34 See Borough of Atl. Highlands, 711 A.2d at 4 10 (holding that suit to vitiate
settlement agreement "which does not contain an arbitration clause[] must first be
addressed in [court]," and "[i]f it is found that the [settlement agreement] was induced
by fraud or economic duress, then defendant may arbitrate its claim for additional monies
in accordance with its demand for arbitration").
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V. CONCLUSION
We REVERSE the judgment of the superior court and REMAND for
further proceedings consistent with this opinion. The award of attorney's fees to Jet is
VACATED.
-14- 7351
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