Caseflicks

Alaska Supreme Court • 1978

Totem Marine Tug & Barge, Inc. v. Alyeska Pipeline Service Co.

584 P.2d 15 | 9 A.L.R. 4th 928 | 1978 Alas. LEXIS 719

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Takeaway

In short, this case recognizes that a settlement release may be voidable for economic duress when a party allegedly exploits a debtor's immediate financial crisis by wrongfully withholding payment, leaving no practical alternative but an unfair settlement.

Background

Totem Marine, a newly formed and closely held Alaska corporation, contracted with Alyeska to transport pipeline materials from Houston to southern Alaska. Totem financed its first major job by chartering a tug and barge with loans and guarantees from its vice president, Richard Stair, and Pacific, Inc., a company Stair controlled.

Totem alleged that Alyeska's inaccurate cargo representations, delays, demands for faster performance, and conduct surrounding the addition of a second tug substantially increased Totem's costs. Alyeska later ordered the barge into Long Beach and began unloading it without Totem's consent. Alyeska terminated the contract in September 1975.

Totem then submitted termination invoices totaling roughly $260,000 to $300,000. According to Totem, Alyeska knew Totem was facing imminent bankruptcy and nevertheless withheld payment of an amount it acknowledged was due. Totem, represented by counsel, accepted $97,500 and signed a release of all claims against Alyeska. Totem, Stair, and Pacific later sued to rescind the release for economic duress and to recover on the underlying contract.

The superior court granted Alyeska summary judgment, reasoning that Totem had not shown that the settlement and release were involuntary. Totem appealed. The parties had relied heavily on Stair's deposition in their summary-judgment filings, but the superior court had declined to treat the deposition as part of the record because it had not been formally published.

Issues

Issue #1

Whether the superior court could disregard the portions of Richard Stair's deposition that the parties had repeatedly cited in their summary-judgment submissions.

Holding

No. The superior court should have considered at least the portions of the deposition specifically brought to its attention, and the Alaska Supreme Court treated those portions as part of the appellate record.

Reasoning

A court deciding summary judgment must look beyond the pleadings to the materials properly brought to its attention, including depositions. Although the Stair deposition had not been formally published during the proceedings below, both sides quoted from it and relied on it extensively in their memoranda.

Under Jennings v. State, a trial court must consider the relevant evidentiary setting to the extent the parties have directed the court to it. Because the parties expressly relied on Stair's testimony, the superior court erred in refusing to consider it altogether.

Rather than remanding solely for the superior court to reconsider the motion with the deposition in view, the supreme court reviewed the pertinent cited portions itself to avoid further delay.

Issue #2

Whether Totem's allegations and evidentiary showing created a genuine issue of material fact that the settlement release was procured through economic duress.

Holding

Yes. If proved, Totem's allegations could establish economic duress, and disputed facts required a trial rather than summary judgment.

Reasoning

Economic duress may make a contract or release voidable when one party involuntarily accepts another's terms, has no reasonable alternative, and is placed in that position by the other party's coercive conduct. The doctrine does not require physical threats; economic pressure can suffice when it overcomes the victim's practical ability to bargain freely.

The coercive conduct must be wrongful. A threat to breach a contract or to withhold payment of an acknowledged debt can be wrongful, particularly when undertaken in bad faith. Wrongfulness need not be limited to conduct that is independently criminal or tortious; conduct may also be wrongful in the moral sense under the circumstances.

A claimant must also show that no reasonable alternative existed. Although a lawsuit or another legal remedy can sometimes be an adequate alternative, its adequacy must be assessed practically. A remedy that comes too late to prevent immediate and irreparable business loss is not necessarily adequate.

Totem alleged that Alyeska deliberately withheld payment of an acknowledged obligation while knowing that Totem faced pressing debts and impending bankruptcy; that Totem could not obtain the immediate funds it needed elsewhere; and that it therefore accepted a grossly inadequate settlement and signed the release. If those facts were established, they would support findings of both wrongful pressure by Alyeska and the absence of a reasonable alternative for Totem.

Alyeska presented evidence favoring enforcement of the release, including that Totem had counsel during negotiations and that Stair understood the release's consequences. That evidence could support Alyeska at trial, but it did not eliminate the factual disputes over Alyeska's knowledge, its alleged withholding of payment, the amount it acknowledged owing, Totem's financial condition, and whether the settlement was compelled.

The superior court applied the wrong summary-judgment standard by effectively requiring Totem to prove it would prevail at trial. At this stage, Totem needed only to identify specific facts and admissible evidence from which a factfinder could find economic duress. Viewing reasonable inferences in Totem's favor, the court concluded that Totem met that burden.

Issue #3

Whether Richard Stair and Pacific, Inc. retained independent contractual claims against Alyeska because they did not sign Totem's release.

Holding

No. Stair and Pacific were not parties to the Alyeska-Totem contract or its amendment and therefore possessed no independent contractual claims against Alyeska.

Reasoning

The original contract and its amendment were between Alyeska and Totem alone. Stair and Pacific financed or guaranteed Totem's operations, but neither was a contracting party, and neither asserted third-party-beneficiary status.

Because Stair and Pacific had no independent contract claims against Alyeska, their failure to sign Totem's release did not give them claims that Totem itself could not pursue. Their position in the litigation depended entirely on whether Totem could succeed on its contractual claims after challenging the release.