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SMJ General Construction, Inc. v. JET Commercial Construction, LLC

Supreme Court of Alaska

April 12, 2019


          Appeal from the Superior Court No. 3AN-17-04294 CI of the State of Alaska, Third Judicial District, Anchorage, Frank A. Pfiffner, Judge.

          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.


         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 "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 subject 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.


         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 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 project. 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.

         Tyson Chang was SMJ's president, and Han Yang Construction, owned by Don Hwan Kim, was one of SMJ's sub-subcontractors on the project. 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 argued that the parties could no longer ...

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