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GeoTek Alaska, Inc. v. Jacobs Eng'g Group, Inc.

Supreme Court of Alaska

August 14, 2015


Appeal from the Superior Court of the State of Alaska, Third Judicial District, Anchorage, Erin B. Marston, Judge.

Michael Jungreis and Jason Hartz, Davis Wright Tremaine LLP, Anchorage, for Appellant.

Robert J. Dickson and Christopher J. Slottee, Atkinson, Conway & Gagnon, Anchorage, for Appellees.

Before: Fabe, Chief Justice, Winfree, Stowers, Maassen, and Bolger, Justices.


Page 369

MAASSEN, Justice.


An insolvent subcontractor failed to pay its sub-subcontractor for work performed, and the sub-subcontractor sought payment directly from the general contractor through a demand for arbitration. The general contractor declined to participate. The arbitrator awarded damages to the sub-subcontractor, who filed an action to confirm the award in superior court. The sub-subcontractor also brought a negligence claim, contending that the general contractor knew of its subcontractor's financial instability and negligently failed to ensure that the sub-subcontractor would be paid. The superior court granted summary judgment to the general contractor on both the enforceability of the arbitration award and the viability of the negligence claim. The sub-subcontractor appeals.

We affirm, concluding that whether the general contractor effectively exercised its contractual right to decline arbitration is an issue of arbitrability, correctly decided by the superior court, and that the general contractor had no extra-contractual duty in tort to guarantee its subcontractor's payment obligations.

Page 370


A. Facts

Jacobs Engineering Group, Inc. was awarded a contract by the United States Air Force for environmental remediation. While preparing to bid on the project, Jacobs Engineering Group and its subsidiary Jacobs Field Services North America, Inc. (collectively " Jacobs" ) sent out a request for proposal (RFP) for soil sampling services at a tank farm near Nome and at the Nikolski Radio Station on Umnak Island. Included in the RFP was a requirement that the subcontractor have bonding to cover all its payment and performance obligations. One of the recipients of Jacobs's RFP was Precision Sampling, Inc., doing business as Direct Sensing, Inc. (DSI). Ultimately Jacobs awarded the subcontract to DSI. DSI entered into a second-tier subcontract with GeoTek Alaska, Inc., to provide the required Ultra-Violet Optical Screening Tool (UVOST) equipment.

DSI's parent corporation in Canada was undergoing financial difficulties at the time of the bidding process; the parties dispute what Jacobs knew or should have known about DSI's situation. They also dispute the extent to which Jacobs's award of the subcontract to DSI was because of Jacobs's desire to work with GeoTek. It is undisputed, however, that DSI was unable to obtain the payment and performance bonds required by the RFP and asked Jacobs to waive the requirement. Jacobs agreed to move forward with the DSI subcontract, but it developed a risk management plan requiring that 15 percent of Jacobs's payment to DSI be retained to assure the payment of DSI's second-tier subcontractors and that those second-tier subcontractors submit releases of claims, certifying they had been paid.

Shortly before GeoTek deployed to the Nome project location, it learned that Jacobs had waived its requirement that DSI be bonded. GeoTek nonetheless signed its second-tier subcontract with DSI a few days later. According to its vice president's affidavit, " [a]t that point GeoTek was committed, and had no other work available on short notice; and additionally was reassured by Jacobs's policy of ensuring that its lower tier subcontractors are paid."

DSI and GeoTek satisfactorily completed the Nome project. Jacobs paid DSI and DSI signed a release in September 2009, certifying that it had paid for all services furnished in connection with the contract. Jacobs did not retain any amounts or require a release from GeoTek, as contemplated by the risk management plan. In September 2009, DSI and GeoTek attempted deployment to Nikolski but were delayed in Dutch Harbor because of weather. The project was eventually put off until 2010 but, for reasons not relevant to this appeal, DSI and GeoTek never reached Nikolski and never did any work there.

DSI did not pay GeoTek for its work on the Nome project or for its 2009 mobilization for Nikolski.

B. Proceedings

Jacobs's contract with DSI included an arbitration provision that is central to this appeal. The provision's language will be dissected later in this opinion, but in summary it gives Jacobs the unilateral right to accept or reject arbitration once a demand has been made. Jacobs did not have a contract with GeoTek, but Jacobs's contract with DSI included a provision that required DSI to " 'flow down' all terms and conditions of the subcontract into any sub-subcontract." The Jacobs-DSI contract also had a provision on assignment, which provides:

Neither this Subcontract nor any interest therein including any claim thereunder shall be assigned or transferred by the Subcontractor to another entity, except as expressly authorized in writing by the Subcontract Manager. The Company reserves the exclusive right to assign this Subcontract and all rights and interest therein.

In a demand for arbitration dated April 28, 2010, GeoTek asserted a claim against Jacobs for the amounts DSI had failed to pay it.[1]

Page 371

The demand was apparently forwarded to Jacobs by the American Arbitration Association (AAA). Jacobs responded to GeoTek's demand for arbitration on May 13, asserting in a letter to the AAA that " Jacobs does not have a contract with Geo Tek and therefore, Geo Tek has no bona fide contract claim against Jacobs and it would be inappropriate for Jacobs to engage Geo Tek in an arbitration proceeding." Jacobs stated that it " rejects Geo Tek's demand for arbitration and recommends that GeoTek pursue its contractual rights and claims against its customer, [DSI]."

GeoTek proceeded alone with arbitration under the aegis of the AAA. On January 20, 2011, DSI and GeoTek executed an agreement in which they asserted that " [n]either DSI [nor GeoTek has] been paid in full by Jacobs for the work done on the West Nome or Nicolski [sic] Projects" and DSI assigned its claims against Jacobs to GeoTek, retaining a right to 30 percent of any amounts collected. On GeoTek's motion, the arbitrator then ruled on the arbitrability of these claims, deciding that both GeoTek's original claims against Jacobs and DSI's assigned claims were arbitrable. The arbitrator allowed GeoTek to amend its demand for arbitration to include both sets of claims and gave Jacobs 14 days to respond to the amended demand. The record shows no further written response from Jacobs.

The arbitrator held an evidentiary hearing in August 2011, which was attended only by representatives of GeoTek and DSI; the arbitrator's findings of fact and conclusions of law note that Jacobs was again contacted but declined to participate. The arbitrator awarded GeoTek $257,687.62 " on behalf of work done by GeoTek ...

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