Alaska’s Supreme Court Holds That Executing a Settlement Agreement Releases Parties from Contractual Obligation to Arbitrate Disputes

SMJ Gen. Constr., Inc. v. Jet Commer. Constr., LLC, No. S-16785/16985, 2019 BL 131640 (Alaska Apr. 12, 2019)

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Ryan R. Deroo

In 2016, Jet Commercial Construction, LLC (“Jet”) entered into a subcontract with SMJ General Construction, Inc. (“SMJ”) to supply materials and labor for the construction of a restaurant in Hawaii.  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.  It 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 Agreement’s enforcement.

During the project a number of disputes arose.  The parties attended mediation, and in January 2017, reached an agreement.  This agreement required Jet to pay SMJ $150,000 if SMJ delivered a fully executed release of all claims and lien waivers.  It also contained the following provision: “Each party hereby absolutely releases the other of and from any and all claims, demands and obligations of any kind arising from contract[.]”

Two weeks later SMJ filed a complaint against Jet in Alaska’s superior court, alleging that further breaches by Jet nullified the settlement agreement.  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.  SMJ countered that the subcontract was superseded by the settlement agreement.  The trial court granted Jet’s motion to dismiss, and SMJ appealed.

On appeal, Alaska’s Supreme Court held that the settlement agreement released the parties from their contractual obligations to arbitrate disputes.  (reversing the lower court’s judgment and remanding for further proceedings).

The Court began its discussion by highlighting the well settled principle of law: a later contract supersedes the former contract as to inconsistent provisions.  It then notes that “Jet’s demand for arbitration and SMJ’s obligation to participate have no other source than the dispute resolution provision in the subcontract.”  And because the parties expressly released each other from “any and all … obligations” under the subcontract, the court held that SMJ is not required to submit this dispute to arbitration.

In support of its conclusion the Court analogized to prior decisions from New Jersey and Oklahoma, where parties executed settlement agreements that superseded contractual arbitration provisions.[1]  As with those cases, the court found that the language Jet and SMJ used was direct and unambiguous, and that each party absolutely released the other from any obligations arising the subcontract.  Consequently, it determined that the parties were no longer bound by the subcontract’s choice of law and venue provisions.

After deciding to remand the case, it noted that the lower court may consider extrinsic evidence if it contradicts the plain meaning of the settlement agreement.  That said, the court chose not to address what happens if SMJ succeeds in having the settlement agreement set aside, i.e., whether the parties rights and obligations revert to what they were under the subcontract.

[1] Citing Borough of Atlantic Highlands v. Eagle Enterprises, Inc., 312 N.J. Super. 188, 711 A.2d 407, 410 (N.J. Super. App. Div. 1998); Shawnee Hospital Authority v. Dow Construction, Inc., 1990 OK 137, 812 P.2d 1351 (Okla. 1990).

To view the full text of the court’s decision, courtesy of Bloomberg Law, click here.

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