Totem Marine Tug & Barge, Inc. v. Alyeska Pipeline Service Co.
584 P.2d 15 (1978)
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Rule of Law:
A settlement and release agreement may be voided on the grounds of economic duress if it was executed as a result of a wrongful act or threat by one party that overcame the will of the other party and left that party with no reasonable alternative.
Facts:
- In June 1975, Totem Marine Tug & Barge, Inc. (Totem) contracted with Alyeska Pipeline Services (Alyeska) to transport pipeline construction materials from Texas to Alaska.
- Totem encountered significant performance issues, which it attributed to Alyeska's misrepresentations about the cargo size and type, leading to major delays and increased costs.
- On or about September 14, 1975, after the cargo was unloaded in California at Alyeska's direction, Alyeska terminated the contract.
- Totem submitted invoices for approximately $260,000 to $300,000, but Alyeska officials indicated that payment might not be made for six to eight months.
- Totem, a new company, was in urgent need of cash to pay its creditors and was facing imminent bankruptcy.
- Aware of Totem's financial distress, Alyeska offered a settlement of only $97,500.
- On November 6, 1975, believing it had no other choice to avoid bankruptcy, Totem's president signed a settlement and release agreement for $97,500, relinquishing all further claims against Alyeska.
Procedural Posture:
- Totem, Richard Stair, and Pacific, Inc. filed a complaint against Alyeska in the Alaska superior court (a trial court).
- The complaint sought to rescind the settlement and release on the ground of economic duress and recover damages on the original contract.
- Before filing an answer, Alyeska moved for summary judgment, arguing that the signed release was a binding bar to all of Totem's claims.
- The superior court granted Alyeska's motion for summary judgment.
- Totem, as appellant, appealed the grant of summary judgment to the Supreme Court of Alaska.
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Issue:
Does a party raise a genuine issue of material fact for economic duress, sufficient to survive summary judgment, by alleging that it was forced to accept an inadequate settlement and sign a release because the other party, knowing of the first party's impending bankruptcy, deliberately withheld payment of an acknowledged debt?
Opinions:
Majority - Burke, Justice.
Yes. A party raises a genuine issue of material fact for economic duress by alleging it was compelled to accept an inadequate settlement due to the other party's wrongful acts, leaving it with no reasonable alternative. The court establishes a three-part test for economic duress: (1) one party involuntarily accepted the terms of another, (2) circumstances permitted no other alternative, and (3) such circumstances were the result of coercive acts of the other party. Wrongful or coercive acts can include the bad-faith withholding of payment on an acknowledged debt. A 'reasonable alternative,' such as a lawsuit, is not adequate if the delay would cause immediate and irreparable economic loss, such as bankruptcy. Totem's allegations that Alyeska deliberately withheld a large, acknowledged debt while knowing Totem faced bankruptcy created a factual dispute over whether the release was signed under duress, making summary judgment inappropriate.
Analysis:
This decision adopts a modern and expansive view of the economic duress doctrine, moving beyond the traditional requirement of an illegal act. By recognizing that a 'wrongful' act can be morally wrongful, such as leveraging a party's known financial distress, the court provides greater protection for parties with unequal bargaining power. This precedent makes it harder for a debtor to force a creditor facing financial ruin into an inequitable settlement by withholding funds. The decision's practical approach to evaluating 'reasonable alternatives' emphasizes that the viability of a legal remedy depends on the victim's actual circumstances, not just its theoretical availability.
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