Digests Volume 36
FTCA: Failure to provide sum certain for MVA claim within 2 years jurisdictionally fatal, not satisfied by submission of medical bills… claimant not barred from seeking more in subsequent legal action based on new evidence… US not estopped by claim that agency failed to inform Claimant that claim still incomplete after he provided medical bills… motion for dismissal rather than summary judgment proper vehicle when jurisdictional and substantive issues not intertwined… Molloy.
Donald Nigh alleges that he was injured on Montana 269 — Middle Burnt Fork Road — 7/5/04 when, as he was pulling out of a driveway, he was struck by FS employee Paul Fieldhouse who had crossed the center line. Fieldhouse was driving a self-insured government vehicle. Timothy McKeon wrote to Stevensville Ranger Dist. 12/8/04 requesting payment for an invoice from Bitterroot Valley EMS for transportation to Daly Hospital in Hamilton. The letter did not provide a specific figure. FS Claims Officer Teresa Harshman-Ward replied that Nigh must file a claim under the FTCA within 2 years “in a `sum certain’ amount, which means a final total dollar amount of all claimed costs related to the incident.” She provided an SF-95 claim form and instructions. McKeon wrote again 4/14/05 stating:
My review clearly indicates that this is a case of clear liability and therefore under Montana law you are responsible to begin paying medical bills as well as wage loss. … Also, Mr. Nigh had recently started an auto body repair shop. This accident has greatly affected his income. I will be getting information together relative to lost wages and I will be making a demand to you in the very near future for those amounts.
He enclosed Nigh’s medical bills but did not make a demand for a specific amount, purportedly because it could not yet be ascertained. The next day he wrote directly to Fieldhouse stating that he had put FS on notice of the accident and instructing him to “turn [the] matter over to [his] OWN insurance carrier immediately.” FS Claims Specialist Micki Tourtelotte told McKeon in a letter 5/23/05 to direct any further communication to her rather than Fieldhouse or the Bitterroot National Forest. She also referenced Harshman’s letter informing him that Nigh must file an administrative claim before his request for payment of medicals could be considered. She noted that FS had not yet received a claim and provided McKeon another SF-95 form with instructions. On 8/4/05 McKeon sent another letter to Bitterroot National Forest, along with a copy of Nigh’s most recent medical records from Northern Rockies Rehab and bills and notes from Nu-Care Physical Therapy. It did not contain a demand for a specific amount of money damages. The parties did not exchange further correspondence for more than a year. On 8/24/06 Tourtelotte received a letter from McKeon stating that he had filed a claim 12/8/04 for Nigh’s injuries and that:
Our total claim is for $175,000. This includes $15,064.86 for past medical expenses, estimated future medicals based on a possible surgery and follow up care in the amount of $10,134.50 (amounts received from healthcare providers at today’s rates), property damage of $6,085, and $143,715.64 general damages.
He attached a completed SF-95 dated 12/8/04, documentation of damage to Nigh’s vehicle, medical records, and bills. Although the parties did not exchange any correspondence between 8/05 and 8/06, Nigh claims that McKeon made numerous calls to Tourtelotte and left messages which she did not return. However, she states that her records indicate that she received only one call from anyone on behalf of Nigh at any time — from Paul McCann, McKeon’s brother-in-law, on 6/7/05, stating that he and McKeon represented Nigh and requesting information on how to proceed. She claims she discussed the case with McCann and told him how to proceed. She asserts that she did not refuse or fail to return any calls from McKeon because she did not receive any calls or voice mail from him regarding Nigh’s case. The US requests summary judgment for lack of subject jurisdiction on grounds that Nigh failed to present a tort claim for a sum certain within the 2-year statute.
When jurisdictional issues are so intertwined with the merits that the Court must resolve factual issues going to the merits when determining whether jurisdiction exists, courts employ the standard applicable to summary judgment in assessing jurisdiction. AUTERY (9th Cir. 2005). However, when jurisdictional and substantive issues are not intertwined, the proper avenue for bringing the question of subject jurisdiction to the court is a motion to dismiss. ID.; CATON (9th Cir. 1974). The contention that Nigh failed to file a timely and complete administrative claim is not related to whether he can prove that Fieldhouse was at fault in the accident. GONZALEZ (1st Cir. 2002); CATON. Thus the jurisdictional issue and merits are not intertwined and the US’ motion for summary judgment will be construed as a motion to dismiss.
Because FS did not receive a sum certain damages claim until more than 2 years after the accident, Nigh’s FTCA claim is jurisdictionally barred. Relying on MOLINAR (5th Cir. 1975), Nigh argues that his submission of medical bills prior to expiration of the statute of limitations satisfies the sum certain requirement. However, MOLINARnoted that the FAA did not provide the claimant with an SF-95 until 30 days before the statute expired, and that it did not mention the 2-year statute or that the claimant must claim a sum certain, while Nigh was provided with an SF-95 well before the end of the period and was told that it must specify a sum certain. Additionally,MOLINAR is not particularly persuasive in light of contrary authority from this Circuit. BLAIR (9th Cir. 2002), for example, determined that the provision of medical bills was not sufficient to satisfy the sum certain requirement. Similarly, BAILEY (9th Cir. 1981) determined that wage statements and funeral bills were not sufficient. Because Nigh did not provide FS a definite dollar amount for his claim before expiration of the statutory period, this Court does not have subject jurisdiction.
Nigh asserts that it was not possible to state a sum certain before the end of the statutory period. He notes that his injuries required a future surgery and he was having difficulty operating his shop because of them. He asserts that his lawyer attempted to contact Tourtelotte on several occasions to inquire about providing a sum certain when the amount of damages could not be determined with certainty, and that he did not want to provide an inaccurate sum certain and be prevented from seeking more in future litigation. However, 28 USC 2675 does not limit the amount a claimant can seek in subsequent legal action if the increase is based on “newly discovered evidence not reasonably discoverable at the time of presenting the claim to the federal agency” or “allegation and proof of intervening facts, relating to the amount of the claim.” Moreover, the 9th Circuit has implicitly rejected his argument regarding unascertainable damages. CATON upheld dismissal of an FTCA claim for failure to satisfy the sum certain requirement where the claimant wrote “Unknown at this time” in the space on the SF-95 labeled “Amount of Claim” for “Personal Injury.”
Nigh asserts that the US should be estopped from asserting statute of limitations because Tourtelotte did not return McKeon’s repeated calls or inform him that his claim was still incomplete after he provided medical bills in 8/05. However, FS informed him that it had not yet received a claim after he had provided medical bills with his 12/04 and 4/05 letters. There was no reason for him or his lawyer to believe that his claim was any more complete after he provided even more bills, but no sum certain, in 8/05. More importantly, because the sum certain requirement is jurisdictional, the US cannot be estopped from asserting it. Motion to dismiss granted.
NIGH V. FOREST SERVICE, 36 MFR 001, 2/20/08.
Timothy McKeon (McKeon Law Firm), Butte, for Nigh; AUSA George Darragh.
INSURANCE: UIM barred by insured vehicle exclusion in single vehicle death accident… camper trailer insured under vehicle policy, not “uninsured vehicle” giving rise to UM… exclusion of payment for both liability and UIM not violative of public policy… premium did not pay for actuarial risk for which recovery sought… declaratory judgment for insurer… Cebull.
On 6/5/05 Fred & Mary Boyce were driving their 2002 Ford pickup on I-90 pulling a camper trailer. Driving behind was Mary’s son Robert Flint and his wife and their son. Boyces’ 2 grandchildren were also in the pickup. Mary lost control, causing a single-car accident. Boyces died from their injuries. The grandchildren survived. The pickup and 2 additional vehicles were insured under a Mountain West policy for which separate premiums were paid for UM and UIM. The 3 vehicles had $100,000/occurrence liability and $50,000/$100,000 UM and UIM. Mountain West paid the full limit of liability coverage on the pickup, which was distributed among 9 family members and heirs as well as the survivors. Flint and Fred Boyce Jr., co-PRs of Fred’s Estate, claim that his damages exceed $100,000 and are seeking the stacked UIM and/or UM limits on the non-accident vehicles. Mountain West has denied coverage on those vehicles on the grounds that an underinsured vehicle does not include a vehicle insured under the liability coverage of the policy. Mountain West seeks a declaratory judgment that the policy does not provide the requested UM/UIM. It seeks summary judgment on the grounds that the insured vehicles do not meet the clear definition of “underinsured motor vehicle” in the policy, there was no premium paid for the UIM benefits sought, liability and UIM are not both recoverable under the circumstances, and any portability restriction in the insured vehicle definition under the UIM coverage services an actual difference in actuarial risk. Defendants seek summary judgment on the grounds that they have a right to UM because the trailer was not insured under the policy and the UIM exclusion violates public policy.
The UIM exclusion states: “An underinsured motor vehicle does not include a land motor vehicle insured under the liability coverage of this policy.” Defendants concede that, at least facially, it is unambiguous.
According to Defendants, the pickup was insured for liability but the camper it was pulling was not, and consequently the uninsured trailer gives rise to UIM. Based on this argument, they seek to stack both UM and UIM for an “aggregate amount up to a total of $200,000.” Mountain West, citing OIE (Mont. 1998), contends that since the tortfeasor, Mary, was insured and therefore had liability coverage, she could not collect on her “uninsured motor vehicle” coverage. As noted by Mountain West, “uninsured motorist coverage acts as a substitute for a tortfeasor’s missing liability coverage.” MILLER (9th Cir. 1989). Mary had liability coverage and therefore UM coverage does not apply. Defendants next argue that the trailer was uninsured thus giving rise to UM. Mountain West concedes that it was not a listed vehicle that was separately insured for liability, but contends that since it was attached to the insured pickup it was in fact insured, citing the policy definition of “insured vehicle” which includes “Under Coverage N [Liability] only, any trailer while attached to a vehicle described in the Declarations.” Defendants reply that the “camper” was not a “trailer” per the policy’s definition. They argue that a trailer is a “vehicle designed to carry cargo while being pulled by an insured vehicle,” and that the camper is not designed to carry cargo, nor was it a farm wagon or implement, and thus was not a “trailer” as defined by the policy and is thus uninsured. However, NATIONAL FARMERS UNION V. GEORGE (Mont. 1998) implicitly found a camper trailer, for coverage purposes, to be a “trailer” within the definition of a similar policy. Thus the camper trailer was insured under Coverage N, and Defendants cannot rely on it as an uninsured vehicle to give rise to UM coverage.
The policy limits the amount of coverage a family member can recover from another member’s negligence to $25,000. Defendants contend that because of factors beyond Fred Boyce’s control — the number of claimants and the family member limitation on liability coverage — he could not have obtained more liability coverage for himself. They contend that they should receive UIM in the amount of $75,000 (the difference between the stacked UIM limits on the other 2 vehicles and the $25,000 family member liability coverage restriction). They contend that even had Boyce purchased more liability coverage as STUTZMAN (Mont. 1997) suggests, his Estate would be limited to only $25,000. However, in light of LEIBRAND (Mont. 1995), this provision has already been voided and is no longer applicable. In fact, Mountain West avers that neither in this case nor in any other claims subsequent to LEIBRAND has it enforced this provision. Defendants received the full $100,000 liability limit. Regardless, other than conclusory allegations, they present no evidence that they were denied either UIM or UM on this ground.
Defendants also focus on the number of claimants. Assuming that the Court were to find that public policy would override the policy exclusion, how many claimants would need to make claims before STUTZMAN was no longer valid? 2? 3? 5? To draw a public policy line based on the number of claimants would not only diminishSTUTZMAN, but would create greater uncertainty to both insurer and insured. Under Montana law there is no statutory mandate for UIM. As such, parties may freely contract to produce exclusions or limitations on coverage. ID. Moreover, STUTZMAN concluded that:
… public policy in fact supports the enforcement of the exclusionary clause at issue here. To invalidate an exclusion which prohibits recovery of underinsured motorist benefits where the vehicle in question is “owned by or furnished for the regular use of the named insured or any relative,” would in effect, convert underinsured motorist coverage into liability coverage and “permit policyholders to substitute inexpensive underinsured motorist coverage for more expensive liability coverage.” (citing KIM V. STATE FARM MUTUAL AUTO INS. (9th Cir. 1991).
Generally, the purpose of UIM is to provide indemnification for accident victims when the tortfeasor does not provide adequate indemnification. SORENSEN (Mont. 1996). Optional UIM is intended to protect the insured against losses occasioned by negligence of “other drivers” who are underinsured. MERCURY INDEMNITY V. KIM (Ill. 2005). “Other drivers” necessarily implies the drivers of vehicles other than the vehicle owned & operated by the insured. ID. Further, numerous jurisdictions recognize the insured vehicle exclusion similar to if not identical to that in Mountain West’s policy to prevent stacking of UIM onto liability coverage under a single policy. Thus the provision that an “underinsured motor vehicle does not include a land motor vehicle insured under the liability coverage of the policy” does not violate public policy and is well-supported in Montana and other states.
Mountain West contends that the UIM premium does not contemplate the actuarial risk of Boyce recovering both UIM and liability under the same policy. It contends that the risk underwritten in exchange for the premiums paid for UIM was based on the situation where Fred Boyce is damaged by the tortfeasor who has liability coverage, provided in a separate policy, that is insufficient to fully cover the damages. It contends that the insured vehicle exclusion prevents the Estate from receiving gratis coverage and Mountain West from being forced to underwrite a risk for which no premium was charged or received. Dale Brooks states in his affidavit that the Boyce policy included premiums for UM/UIM that were charged on each of the 3 vehicles, but reduced in recognition of the multiple vehicles insured. Further, the premiums do not contemplate UM/UIM where the vehicle is insured in the same policy for liability coverage, but anticipates coverage where the other party had coverage from another policy (UIM) or should have had coverage from another policy (UM). He avers that premiums charged are based on consideration of past claims, and since no past UM/ UIM losses were incurred when liability coverage was provided under the same policy, they were not considered in the claims projections or premiums. He asserts that if the definition of the claims was broadened by providing portability to insureds to include those claims in vehicles insured under the same policy there would be a significant increase in UIM claims and thus an increase in UIM costs. He states that in 11/04 Mountain West offered liability coverages for $300,000 and higher limits and that Boyces selected a $100,000 liability limit. Accordingly, Mountain West states that its premiums are structured to charge the insureds only for the coverage purchased. Defendants argue that an insurer’s underwriting files, intentions, or desires are irrelevant to whether its policy provides coverage, CRANDALL (Wisc. 2004), and that underwriting information is irrelevant to the policy’s intent, MILLER (9th Cir. 1994). However, regardless of any policy language, it is undisputed that Boyce did not pay a premium for the actuarial risk that Defendants are now seeking recovery on. Moreover, other jurisdictions have enforced restrictions on portability of UIM on grounds that no premium has been paid for it. BURSTEIN (Pa. 2002); MERCURY INDEMNITY V. KIM. GIBSON (Mont. 2007) stated:
Under our cases, public policy requires that an insurer may not enforce a policy provision which permits the insurer to receive valuable consideration for coverage which is not actually provided. Thus, this public policy presumes that the coverage otherwise exists. Here, premiums were paid under each policy for MPC. The coverage, however, was available only under the circumstances specified in the policies. If those circumstances do not exist, coverage does not exist.
The UIM exclusion is not facially ambiguous and is not in violation of Montana’s public policy, and therefore Mountain West is not required to provide UIM in this instance. Further, the UIM premiums paid for do not
provide the type of coverage Defendants are seeking.
It is undisputed that Defendants suffered damages that exceed liability limits of the Boyce policy. Regretfully, given the state of the law, this Court can afford them no remedy. Rather, it is the Legislature that is better suited to develop some type of statutory protections in this arena. Summary judgment for Mountain West.
MOUNTAIN WEST FARM BUREAU MUTUAL INS. V. FLINT & BOYCE, 36 MFR 019, 2/29/08.
Jared Dahle (Nelson & Dahle), Billings, for Mountain West; Robert Savage (Savage Law Firm), Sidney, and James Carey (Lamb & Carey), Helena, for Defendants.
ERISA: Insurance Commissioner’s disapproval of discretionary clauses not preempted… Molloy.
Commissioner Morrison has adopted a policy which disapproves of employee retirement benefit plans that contain a discretionary clause, which grants the administrator authority to interpret the plan and resolve all questions arising under it, such as whether a beneficiary is entitled to benefits. Standard Ins. claims that his action is preempted by ERISA and therefore violates the Supremacy Clause. Morrison contends that MCA 33-1-502 mandates disapproval of discretionary clauses and ERISA’s own terms save from preemption the policy of disapproving such clauses.
Morrison’s action does not violate the Supremacy Clause. In providing for a uniform regulatory & enforcement scheme for employee retirement benefit plans, Congress included the Savings Clause, which recognized the traditional role of states in regulating insurance on behalf of their citizens and in accordance with state public policy objectives. Morrison, in this role, has removed an advantage to ERISA plan providers & administrators doing business in Montana. This is the straightforward regulation of insurance, a matter which ERISA expressly saves from preemption. Summary judgment for Morrison.
STANDARD INS. V. MORRISON, 36 MFR 032, 2/27/08.
Jacqueline Lenmark (Keller, Reynolds, Drake, Johnson & Gillespie), Helena, and Lara Kollios, Shawn Hanson, and Katherine Ritchey (Jones Day), San Francisco, for Standard; James Hunt (Hunt Law Firm), Helena, for Morrison; Mary Signorille (ARRP), DC, and Lawrence Anderson, Great Falls, for Amicus AARP.
RAILROADS/TRO/PRELIMINARY INJUNCTION: No likelihood of success of challenge of shortline interchange agreement’s termination/arbitration clauses, TRO not necessary to prevent irreparable injury… TRO/ preliminary injunction denied… Molloy/Strong.
Under a 1984 settlement agreement, BNSF transferred a railroad between Geraldine and Moccasin, and the State agreed to hire a shortline operator. It contracted with Central Montana Rail as the operator. CMR and BN then entered into an Interchange Agreement in 1986, which establishes a system of payment to CMR per loaded car of a fixed amount, adjusted annually for inflation. In 11/07 BN informed CMR that it believes the IA is terminable upon 30 days notice, and that upon termination the agreed-upon system of payment would be replaced by a default system of interchange, and that unless CMR agreed that the IA was terminable on those terms it would demand arbitration. CMR contends that arbitration is not available under the IA and that termination of the system of payment per loaded car is in violation of the settlement agreement. It seeks a TRO preventing BN from terminating the IA or seeking arbitration.
The 9th Circuit recognizes a TRO/preliminary injunction test which requires plaintiffs to demonstrate either a combination of probability of success on the merits and possibility of irreparable injury, or that serious questions are raised and the balance of hardships tips sharply in its favor. METROSOUND (9th Cir. 1993). The standards are extremes of a single continuum; the required degree of irreparable harm increases as the probability of success decreases. CMR has not satisfied the test on either end of the spectrum.
CMR has failed to show a likelihood of success on the merits because it has not demonstrated that BN’s planned actions are in violation of the IA. ?15 states in unambiguous language that the IA remains effective “until terminated … by thirty (30) days written notice by either party to the other party.” ?14 states the parties’ agreement that any dispute over construction of the IA will be submitted to arbitration, and details a procedure for choosing the arbitrator. BN’s actions appear in compliance with these provisions. CMR contends that the termination clause is void because the settlement agreement incorporates some of the terms of the IA, including the payment term, and the settlement agreement contains no termination provision. 9.2 of the settlement agreement states: “The State agrees that it will require its short line operator to enter into an agreement for the interchange of railroad cars with [BNSF] in the form and substance attached hereto as appendix `B’.” CMR has not included Appendix B so the Court is unaware of its content. If the Court assumes that it is nothing more than an unsigned copy of the IA, then the settlement agreement does not clearly prohibit termination of the IA, because the settlement agreement acknowledges that the required agreement for interchange will take the form & substance of Appendix B. The Court has no basis on which it can conclude that CMR is likely to succeed on the merits of its claim relating to termination of the IA.
CMR’s argument that arbitration is unavailable under the IA offers even less chance for success. It relies entirely on a 1/31/07 order by Magistrate Strong (35 MFR 293, MLW 2/3/07:5). That case deals with an alleged breach of the competitive rate agreement in the settlement agreement. It contains claims for breach of contract, tortious interference, and negligent or intentional misrepresentation, all of which arise out of dealing under the settlement agreement. BN moved to compel arbitration in that case, relying on the arbitration clause of the IA. Strong denied the motion on grounds that the narrow agreement to arbitrate disputes relating to the IA could not be read to cover disputes arising from the broader and previously executed settlement agreement. His denial of BN’s motion to arbitrate disputes arising from the settlement agreement has no bearing on this case, which involves a dispute arising from the IA, the very document which contains the arbitration clause. CMR has not demonstrated that there is anything improper in BN’s invocation of the arbitration clause to settle the parties’ disputes over the meaning of the termination clause in ?15 of the IA.
CMR has failed to demonstrate that a TRO is necessary to prevent an irreparable injury. There is nothing in the record to suggest that BN intends to terminate the agreement or has set a date for such termination. Rather, it appears that it has stated its position on the availability of termination, requested CMR’s agreement with that position, and stated that it will demand arbitration if the parties cannot agree. CMR states that it will be irreparably harmed if the arbitration proceeds and it is forced to defend against the action, and it will be irreparably harmed if the arbitration proceeds without it and an adverse award is entered. However, the mere fact that it may be required to participate in arbitration is not an irreparable injury. It is difficult to see how there is any injury at all considering that CMR agreed to arbitration in ?14 of the IA. TRO denied.
The matter is reassigned to Strong, pending consent of the parties. (The parties having withheld their consent pursuant to 28 USC 636(b)(1)(A) & (B), Judge Cebull referred it to Strong for preliminary injunction proceedings and proposed findings & recommendations.)
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Preliminary injunction, Strong:
At the hearing, CMR was prepared to offer testimony on damages resulting from termination of the Interchange Agreement, but decided against it, nor did it offer evidence related to arbitrability.
CMR argues that a preliminary injunction is warranted because of the interrelationship between the settlement agreement and IA. It argues that Judge Molloy did not consider this when ruling on a TRO. It claims that the interrelated nature of the agreements is such that permitting BN to submit the dispute over the IA to arbitration would cause irreparable injury because it would impact the pricing provisions in the settlement agreement, which it alleges is not subject to arbitration. A reading of the agreements conclusively establishes this interrelationship. When multiple contracts relating to the same matters and between the same parties are made as substantially part of one transaction they are to be “taken together.” MCA 28-3-203; RUMPH (Mont. 1979). 9.2 of the settlement agreement expressly provides that the “State agrees that it will require its short line operator to enter into an agreement for the interchange of railroad cars with [BNSF] in the form and substance attached hereto as APPENDIX `B’,” which is an unexecuted copy of the IA. However, it does not follow that this interrelationship requires that BN be enjoined from attempting to pursue the arbitration the IA authorizes.
CMR argues in essence that the interrelationship of the agreements should cause the Court to read the arbitration and termination clauses out of the IA, but it has not shown that the Court can do so. The IA is a contract “evidencing a transaction involving commerce,” and thus is subject to the FAA. 9 USC 2. Thus the Court’s role is limited to determining whether a valid agreement to arbitrate exists and if so whether it encompasses the dispute at issue. 9 USC 4; CHIRON (9th Cir. 2000).
The unambiguous IA contains both termination and arbitration provisions. It states that any dispute over construction of the IA will be submitted to arbitration, which necessarily sweeps in disagreements over the termination provision. Thus it is clear that a valid agreement to arbitrate exists and that it encompasses the parties’ dispute over the termination provision. The Court’s inquiry must end here. ID. However, in the interests of thoroughness the Court also finds that CMR’s motion fails the standards for a preliminary injunction (which are identical for a TRO). Judge Molloy thoroughly analyzed CMR’s TRO arguments and determined that it had not satisfied the test on “either ends of the spectrum.” CMR is in substance asking the Court to reconsider the prior order denying its request for injunctive relief on identical grounds. While a district court has the “inherent procedural power to reconsider, rescind, or modify an interlocutory order for cause seen by it to be sufficient,” SANTA MONICA BAYKEEPER (9th Cir. 2001), “as a rule courts should be loath to do so in the absence of extraordinary circumstances such as where the initial decision was `clearly erroneous and would work a manifest injustice.’.” CHRISTIANSON (US 1988). LR 7.3 establishes that such rulings will only be disturbed in the event of a material change in the facts or law presented to the Court before its prior order. CMR has not demonstrated such new material facts or change in the law.
Recommended, CMR’s motion for preliminary injunction be denied.
CENTRAL MONTANA RAIL V. BNSF, 36 MFR 056, 12/28/07; 36 MFR 64, 3/3/08.
Clifford Edwards, Roger Frickle & Philip McGrady (Edwards, Frickle, Anner-Hughes & Culver), Billings, for CMR; Randy Cox & Matthew Hayhurst (Boone Karlberg), Missoula, for BN.
ANTITRUST: Sufficient allegations to support claims of intent to harm competition by exclusive radiology contract, actual injury to competition… antitrust injury sufficiently alleged, motion to dismiss denied…. Molloy.
St. Peter’s Hospital controls 90% of radiology services in Helena. Beginning in 1994 Daniel Alzheimer, Dennis Palmer, and Randy Sibbitt practiced as members of Montana Radiology, which provided services to St. Peter’s in its open radiology department, where competing radiologists provided services on a fee-for-service basis. Patients and physicians expressed dissatisfaction with Sibbitt’s and Palmer’s services, and Alzheimer emerged as the preferred radiologist among several physicians. St. Peter’s tried in 2003 to convince Alzheimer to leave Montana Radiology and became an employee of the hospital. Soon after, it allegedly conspired with Sibbitt and Palmer to bring about Alzheimer’s exclusion as a provider in Helena, with Sibbitt and Palmer recruiting another radiologist and fomenting discord among Montana Radiology members. In 11/03 Alzheimer established Capital Radiology. In 2/04 Sibbitt and Palmer dissolved Montana Radiology and formed Montana Interventional and Diagnostic Radiology Specialists. During the first half of 2004 Capital Radiology competed with Montana Radiology and later Radiology Specialists as providers of services to St. Peter’s. The alleged conspiracy between Radiology Specialists and St. Peter’s continued throughout that time, manifested in St. Peter’s use of a referral system, adopted in contravention of its own policies, that denied Capital Radiology its fair share of billing opportunity in relation to on-call hours and work. One aspect was to refuse to honor requests by physicians for a specific radiologist. In 5/04 St. Peter’s limited Capital Radiology to 2 of every 4 weeks at the hospital, which caused Capital Radiology to withdraw from providing services in Helena in 6/04. (That same month it contracted to become exclusive provider for a hospital in Sheridan, Wyo.) It returned and sought to again provide services at St. Peter’s in 10/05. Radiology Specialists was then sole provider in the open radiology department. In 2/06 St. Peter’s and Radiology Specialists entered into an exclusive 3-year contract, terminable by either party without cause upon 120 days notice. There is no allegation that Capital Radiology has ever attempted to make St. Peter’s a more attractive offer. Capital Radiology brought this antitrust action against Radiology Specialists and St. Peter’s alleging that the agreement was entered with the purpose of destroying competition in the Helena market and that it has in fact harmed competition by creating a barrier for radiologists seeking to practice in Helena, and by reducing the quality & quantity of radiology services and empowering Radiology Specialists to control patient choice and pricing. Defendants move to dismiss under Rule 12(b)(6).
Defendants argue that Capital Radiology has failed to allege injury to competition because the exclusive contract is of short duration and is terminable for any reason, and thus other radiologists need only offer St. Peter’s a better deal to steal it. They contend that St. Peter’s economic interests are perfectly aligned with those of consumers because both should seek to obtain radiology services at the lowest cost, and thus it has every incentive to terminate the exclusive contract and hire another provider should Radiology Specialists render low-quality or overpriced services. However, under the “rule of reason” analysis, antitrust liability does not exist unless each element is proved AND the agreement is found unreasonable after weighing the harm to competition against the procompetitive effects of the agreement. BHAN(9th Cir. 1990). “Because the arrangements often serve legitimate business purposes, courts apply a rule of reason in deciding whether particular instances violate the Sherman Act.” INTERFACE (1st Cir. 1987). Thus while not every exclusive dealing contract by a monopolist is illegal, it is also true that not every exclusive dealing contract that causes harm to competition is illegal. A finding that Capital Radiology has alleged facts to support the element of harm to competition has no bearing on the ultimate question of legality of the contract under 1 of the Sherman Act.
Defendants’ emphasis on the short duration and easy terminability of the contract does not strengthen their contention that Capital Radiology has failed to allege harm to competition. The apparent ease with which St. Peter’s can escape the contract is more compelling as support for the argument that Capital Radiology has failed to allege facts tending to show INTENT to harm competition. As in OLTZ V. ST. PETER’S COMMUNITY HOSPITAL (9th Cir. 1988), there are sufficient allegations to support the inference that “the goal was, at least partially,” elimination of Capital Radiology as a competitor of Radiology Specialists. Defendants urge the Court to distinguish OLTZon the ground that the anesthesiologists in OLTZ had threatened to leave the hospital. This asks too much of the complaint at this stage. OLTZ had the benefit of a record developed at trial, while Capital Radiology has not yet had the opportunity to conduct discovery. As Defendants note, OLTZ’S holding on intent appears on the surface to be squarely at odds with other 9th Circuit authority. Intent to hurt a single competitor was enough in OLTZ but insufficient in RUTMAN (9th Cir. 1987). If they can be reconciled, the distinction lies in the fact that in OLTZ the hospital had significant market power, controlling 84% of the market, while the distributer in RUTMANcontrolled only 25%. OLTZ suggests that if the hospital is a monopolist, the intent to eliminate even one provider doubles as intent to cause harm to the provider ANDharm to competition. OLTZ was careful to clarify that it did not declare unlawful all exclusive contracts by rural hospitals, but that “the legality of those arrangements will depend on their individual case merit.”
Defendants’ argument for dismissal based on failure to allege antitrust injury is their least persuasive. According to them, the only harm to competition alleged is a reduction in quality of services offered to patients in Helena. They argue that Capital Radiology can claim no antitrust injury because its inability to practice in Helena does not “flow from” the harm. They maintain that a drop in quality of services would benefit Capital Radiology because it would make it more likely that St. Peter’s would seek other options. However, this ignores other allegations of competitive injury, including that Defendants have created a barrier to entry into the market. Its alleged injury flows directly from that anti-competitive aspect of the alleged conduct.
Because Capital Radiology’s allegations of intent and harm to competition meet the minimal threshold to survive a motion to dismiss, the argument that it has failed to allege antitrust injury fails. Motion to dismiss is denied.
CAPITAL RADIOLOGY V. ST. PETER’S HOSPITAL AND MONTANA INTERVENTIONAL & DIAGNOSTIC RADIOLOGY SPECIALISTS, 36 MFR 71, 3/6/08.
Paul Petit & Timothy Strauch (Petit & Strauch), Missoula, for Capital Radiology; Jonathan Berman & Kevin McDonald (Jones Day), DC, and Patrick Melby (Luxan & Murfitt), Helena, for St. Peter’s; Gregory Murphy (Moulton, Bellingham, Longo & Mather), Billings, for Radiology Specialists.
INSURANCE: Fact issues preclude summary judgment as to whether defendant in suit by injured police officer was prejudiced by insurer’s failure to timely assert defense of uninsured under parents’ homeowners policy, whether insurer was prejudiced by insured’s 8-month delay in giving notice of incident… insurer cannot rely on intentional act exclusion to refuse defense where injuries suffered while trying to subdue Defendant not intentional per se, jury could find that Defendant did not intend to injure… coverage not precluded by illegal act exclusion where jury could find that officer’s injury did not arise from Defendant’s illegal act but by his negligence in failing to consider risk to officer… Molloy.
Missoula Officer Camia Fiscus responded to a call to assist in quieting a crowd that had gathered outside Red’s Bar in the early morning 12/21/02. She stated in her report that she attempted to arrest Bryan Rogers after he repeatedly refused to leave the area and that:
I grabbed onto his left hand and he started to back up. Rogers backed up against the wall and tried to pull away from me. At that time, I had been holding onto my flashlight. I attempted to put it in my ring on my duty belt but apparently missed. Rogers tried to bolt from me and I dropped my flashlight as I grabbed onto Rogers’ coat. Rogers ran into the street with me still holding onto his coat. Rogers then turned and ran back towards the bar. Rogers was able to break free of my grasp. At that time, Officer Keintz and Officer Abendroth arrived to assist. We were able to take Rogers to the ground where he continued to resist our efforts to place him in handcuffs. Rogers was instructed to place his hands behind his back and he refused. Officer Keintz was able to get Rogers’ left hand in a handcuff and I was able to get his right hand behind his back…. Once Rogers was handcuffed, we stood him up and found that he had minor scrapes to his chin and cheek. Rogers was placed in the back of Officer Abendroth’s patrol car. After placing Rogers in the patrol car, I could feel that both of my middle fingers were sore and were swelling.
Rogers pled guilty to resisting arrest. A few days later Fiscus sued him in State Court, alleging that during his arrest he negligently or purposely caused her to sustain physical injuries. She sought damages for past, present, and future medicals, pain & suffering, course of life, lost income, and consequential & punitive damages.
During discovery in the State Court action Rogers was asked to identify “any insurance carriers who may insure you or your parents for negligence or any liability related to the injuries suffered by Officer Fiscus as a result of your resisting arrest.” He indicated that there was none. Discovery closed 11/28/03. On 12/13/03 his lawyer notified Safeco of the suit and requested that it tender a defense based on a homeowners policy issued to his parents which required Safeco to tender a defense and provide personal liability coverage for “suit … brought against any insured for damages because of bodily injury or property damages caused by an occurrence to which this coverage applies.” It also provided for medical payments to others. “Occurrence” was defined as “an accident, including exposure to conditions which results in bodily injury or property damage.” Liability was excluded for “any illegal act committed by or at the direction of any insured;” “bodily injury or property damage which is expected or intended by any insured or which is the foreseeable result of an act or omission intended by any insured;” and punitives. Coverage for medical payments to others was excluded for persons eligible to receive work comp. Safeco rejected the request 3/3/04. It assumed that Rogers was an “insured,” but concluded that his actions did not constitute an “occurrence” because he intentionally resisted arrest, his actions were intentional and Fiscus’s injuries were an intended, expected, or foreseeable result, he failed to comply with his notification duties under the policy because he did not notify Safeco of the suit until 8 months after it was filed, he pled guilty to resisting arrest, Fiscus received work comp, and the policy excluded coverage for punitives.
Fiscus and Rogers entered into a settlement agreement wherein he agreed to entry of judgment for her in the amount of $160,000 and to pay her $5,000 and assign his rights under the policy to her in exchange for her consent not to execute against him. The State Court entered judgment accordingly. Fiscus then filed this suit against Safeco asserting the claims assigned by Rogers.
The policy defines an “insured” to include relatives of a named insured who are residents of the named insured’s household. In his answer to Fiscus’s State Court complaint, Rogers indicated that he was a resident of Montana. This provided Safeco an unequivocal basis for refusing the defense. However, it did not rely on his status as an uninsured in refusing the defense. Therefore it may only rely on this defense if Rogers was not prejudiced by its failure to assert the defense sooner. PORTAL PIPE LINE (Mont. 1993). Because there is a factual dispute as to whether he suffered prejudice, summary judgment is not appropriate on this issue.
The policy requires an insured to notify Safeco “as soon as practicable” after an incident giving rise to coverage. Rogers did not comply with this because he did not notify Safeco of Fiscus’s claims until almost 8 months after she sued him. However, to deny a defense on this basis an insurer must demonstrate that it was prejudiced by the delay. MURNION (9th Cir. 1971). As there is a factual dispute as to whether Safeco was prejudiced as a result of Rogers’s delay, summary judgment is not appropriate on this issue.
The intentional act exclusion applies to “bodily injury or property damage which is expected or intended by any insured or which is the foreseeable result of an act or omission intended by any insured.” Montana courts have interpreted this to require both an intentional act and intended injuries. PHALEN (Mont. 1979). Although the facts surrounding the resisting arrest are disputed, when viewed in favor of coverage they show that Fiscus was injured when she grabbed Rogers’s coat as he fled. Thus a jury could find that he did not intend or expect to injure her. Also, his actions were not intentional per se because, unlike direct assaultive actions such as kicking, hitting, and biting, the act of fleeing from law enforcement is not so certain to cause harm that intent to injure can be presumed. Summary judgment for Fiscus on this issue.
The illegal act exclusion precludes coverage for “liability arising out of any illegal act committed by or at the direction of an insured.” The Montana Supreme Court could declare this invalid because it is susceptible to different meanings, neither of which is reasonable. Even if it is assumed to be valid it does not preclude coverage based on KINNIBURGH (D. Mont. 2001), which declined to apply an illegal act exclusion where an insured set fire to his residence to kill himself and his wife, and a neighbor who attempted to extinguish the fire died in the blaze. The Court observed that the insured took precautions intended to limit the risk to others and concluded that a jury could find that the neighbor’s death arose not out of the insured’s illegal act, but in not taking sufficient precautions with respect to his neighbor. Similarly, a trier of fact could conclude that Fiscus’s injury did not arise from Rogers’s illegal act, but was caused by his negligence in failing to consider the risk to her. Summary judgment for Fiscus on this issue.
Safeco’s motion for summary judgment is denied. Fiscus’s motion for summary judgment is granted as to applicability of the intentional act and illegal act exclusions and denied in all other respects.
FISCUS V. SAFECO INS., 36 MFR 091, 3/6/08.
Steven Carey & David Lighthall (Carey Law Firm), Missoula, for Fiscus; John Bohyer & Paul Tranel (Bohyer, Simpson & Tranel), Missoula, for Safeco.
BENCH JUDGMENT: $622,730, VA hospital malpractice, artery transection during laparoscopy, FTCA, Utah injury/law… gross award of $1,192,730 reduced by $450,000 Utah non-economic damages cap… Molloy.
James Lamb, 69, with a history of histal hernia and gastroesophageal reflux, was referred from the Montana VA Health Care System to the Salt Lake City VA Medical Center for a laparoscopic histal hernia operation by Douglas Hinson in 12/04. Hinson failed to notice a variant of the left hepatic artery and transected it with a harmonic scalpel. 500 cc of blood was rapidly lost. The doctors did not have working suction devices, the area could not be viewed laparoscopically, and the bleeding could not be controlled through laparoscopic procedures. Hinson opened Lamb with a midline laparotomy, evacuated the clot, and ligated the artery. The surface of the spleen was injured, causing additional bleeding which the surgeons were unable to stop, and the spleen was removed. Lamb had significant pulmonary disease which required large doses of steroids which retarded healing. Nevertheless, the surgeons closed the abdomen in 1 layer running stitch without retentions. On 12/10 he was admitted to ICU because of his pulmonary status and blood loss. On 12/16 because of a dehiscence the surgeons performed a fascial closure. There appeared to be a large amount of gas in the colon and distal small bowel. He again dehisced and on 12/20 was taken back to the OR for Vicryl mesh placement. The fascia was debrided but the tissue remained ratty. Because of the steroids the doctors knew or should have known of the foreseeable complications. Continued pulmonary problems and intubation required placement of a tracheostomy tube. His condition worsened and an evaluation 12/24 showed a gastric perforation. The colon was largely distended by air and the surgeons decided to do a needle decompression. They were unable to gain full exposure to the perforation and had to undo the prior fundoplications and return the wrap to its native position. They closed the perforations and tested with dye, finding no extravasation at the repair sites. Lamb subsequently suffered a break through the abdominal wound and stool contents leaked out. On 12/29 he underwent surgery to replace abdominal mesh and repair colonic fistula. There was a small leak in his colon near the decompression site from his previous operation, and the fistula was at the site of the decompression. Lamb was hospitalized 134 days with varying problems and recovery complications including pneumonia and MRSA staph contagen. He was confined to the Montana VA hospital 1/28/05 to 3/15/05 for skin grafting of the large abdominal non-healing wound, Clostridium difficile colitis, and hypercalcemia secondary to immobilization and his slow recovery from the surgeries. He was admitted in 11/07 to the Eastern Colorado VA hospital for a small bowel obstruction and the large incisional hernia. In 1/08 he was informed that surgery was too risky and that the likely recurring bowel obstruction problem could not be fixed. He has permanent injuries including risk of recurrent small bowel obstruction, an inoperable chronic debilitating large ventral incisional hernia, scarring, abdominal pain, and general debility from chronic illness as a result.
Surgeon David Mayer, Syosset, NY, opined that Defendant negligently injured the artery during the original surgery by failing to recognize it before transecting it, negligently tore the spleen, and negligently closed the abdomen without supporting retention sutures in a patient on steroids, and that the last departure from the standard of care was related to the wound dehiscence and need for several repair operations. He opined that the dehiscence of 12/16 was negligently repaired with an ineffective primary closure, which caused the further dehiscence. He opined that Defendant negligently caused 2 stomach perforations during the original surgery, and was negligent in performing the needle colonic decompression. He opined that had the original surgery been performed to the accepted standard of care the subsequent surgeries would not have been necessary, and that Defendant’s negligence caused Lamb’s subsequent weakness, debilitation, immobility, chronic abdominal pain, chronic large incisional hernia that is inoperable, risk of future bowel obstruction, and serious aggravation and increased injury to his preexisting pulmonary condition.
Lamb has permanent injuries that will impair his course of life. Prior to 12/04 he golfed, fly fished, hunted, worked in his greenhouse, mowed the lawn, shoveled snow, did tractor work, tilled the gardens, hauled garbage, picked up groceries, cooked, and ran errands. He is no longer able to do those things to the extent he previously could and is permanently unable to do most of them. He is unable to interact with his grandchildren in the way he could before the surgeries. He takes time-release morphine and Oxycodone which cause side effects such as constipation. Economist Dennis O’Donnell projects the present value of lost household production at $112,731. Lamb is distressed that his family, particularly his wife Clarice, has been forced to care for him and that his retirement plans have been altered. His entire existence was laconically and accurately described by him as “frustrating.” Lambs have incurred $27,800 out-of-pocket costs including medical expenses, transportation, hotels, meals, clothing, wage loss, and other incidentals related to his medical care. Mrs. Lamb has provided care estimated at $49,000. Medicare paid medical bills at the Salt Lake VA hospital and subsequent treatment. Lamb has paid $2,584 in medical bills. He is not expected to have significant future medicals related to Defendant’s negligence because he has been advised that there is no more treatment that can be done for his hernia or likely recurring bowel obstruction and that it would be too risky to try to repair his abdomen. Mrs. Lamb stayed with him the entire time he was in the hospitals. She has been deprived of his care, comfort, companionship, society, advice, services, contributions, and household support that she would have received had he not been injured.
The US is liable for torts in the same manner and extent as a private individual under like circumstances in accordance with the law of the place where the act or omission occurred. 28 USC 2674. Because Lambs’ injuries occurred in Utah, Utah law applies. UCA 78-14-7.1(1) caps non-economic losses to compensate for pain, suffering, and inconvenience. The State Treasurer is required to certify annual adjustments based on inflation. Losses arising after 7/1/04 and before 7/1/05 are capped at $430,000. Consortium damages, when combined with general damages, may not exceed any cap on non-economic damages.
Hinson and the Salt Lake VA are negligent in departures from the standard of care as testified to by Mayer. Defendant’s negligence proximately caused Lamb’s substantial physical, mental, and psychological injuries and Mrs. Lamb’s substantial emotional distress and loss of consortium. They have been damaged in the amount of $1,192,730. Judgment for Lambs of $622,730 ($450,000 capped non-economic damages) plus costs.
LAMB V. US, 36 MFR 100, 4/4/08.
David Paoli & Heather Latino (Paoli, Latino & Kutzman), Missoula, for Lambs; AUSA George Darragh.
SOCIAL SECURITY: Child’s SSI improperly denied… Kilroy/SSA reversed… Ostby.
Tommye Leeper alleges that her minor daughter KJR has been disabled due to mental and eye problems since 10/04. SSA denied her application initially and on reconsideration. ALJ Kilroy found that she did not meet the definition for disabled child and denied her application. The Appeals Council denied review.
Kilroy found, and the parties agree, that KJR was not engaged in substantial gainful activity and has severe impairments. The primary dispute is whether she has severe impairments functionally equal to the listings. Kilroy’s opinion and the transcript are devoid of evidence that he considered the effect of structured settings on her functioning and how she would function without the structured or supportive settings. His summary of law does not reference 416.924a(b)(5). He makes passing references to her use of resource help, but does not reflect consideration, mandated by the regulations, of how it may have improved her functioning and how she may have functioned without that accommodation. He did not ask Dr. Martin about the effects of a structured setting on her functioning, and Martin did not opine on it. Claimant was not represented by counsel at the hearing. Kilroy’s omission is particularly significant because KJR spends much of her school time in structured settings. Her individualized education plan indicates that she would spend 14.5 hours/wk in special ed classes and receive special accommodations on statewide and district-wide testing. In 1/05 her teachers indicated that she spent just 2 hours/day in the regular classroom. There is also evidence that the structured settings may impact her functioning. Kilroy placed significant emphasis on her average to above average grades and general academic progress. However, her 4th-grade teacher indicated that “competitive grades would reflect failing marks in the majority of classes” and “regular accommodations include significant modifications to student’s outcomes,” meaning that “the student is expected to learn less or different educational outcomes.” In short, the transcript indicates that KJR’s above-average grades for 4th grade would actually have largely been failing had she not received special accommodations and been graded under different standards than most children. Where an ALJ does not apply the correct legal standard, remand for further proceedings under the correct standard is appropriate. LANGLEY (10th Cir. 2004). Summary judgment for Leeper. Remanded for further proceedings.
LEEPER V. SSA, 36 MFR 112, 12/4/07.
Robert LaRoche (Legal Services), Billings, for Leeper; Wayne Stanley (SSA), Denver; AUSA Leif Johnson.
VENUE: Interpretation of LR 1.11(a)(1) as to proper Montana division for FTCA med-mal case in face of conflicting rulings reserved for closer to trial… Molloy.
Plaintiffs allege medical malpractice under the FTCA by failure of providers at Blackfeet Community Hospital, Browning, to biopsy and/or remove a polyp from Betty Henderson’s colon. The US moves to transfer venue to the Great Falls Division on the basis that it is the only proper division under LR 1.11(a)(1): “Except as otherwise provided in this Rule, all civil cases are assigned to any Division containing a county in which venue would be proper under the laws of the State of Montana.”
In ALLARD (7/28/03), Magistrate Erickson interpreted 1.11(a)(1) to require transfer to Great Falls. He looked to Montana tort venue law because the case was brought under the FTCA. Under MCA 25-2-122(1), “the proper place of trial for a tort action is: (a) the county in which the defendants or any of them reside at the commencement of the action; or (b) the county in which the tort was committed.” He determined that the US did not reside in any county within Montana and thus the only appropriate county in which to bring the action was the county in which the tort was committed — Glacier Co., which is within the Great Falls Division.
Magistrate Lynch in ROTZLER (2/27/08) determined that LR 1.11(a)(1) did not require transfer of venue because in suits against the US venue is proper in any division in the District of Montana. He determined that 1.11(a)(1) does not specifically discuss assignment of cases involving the US as a defendant and thus FTCA venue is proper in any division of the District of Montana. He noted that FTCA cases against the US do not fall neatly within any of Montana’s venue statutes. He rejected the US’ contention that Montana law as to tort venue applies because it does not contemplate litigation involving the US. He also rejected the US’ claims as to applicability of state venue statutes for public officers or political subdivisions because the only named defendant in ROTZLER was the US. The parties did not cite and thus Lynch did not consider ALLARD.
The issue can be reserved for a later day. The elephant in the room is forum shopping or judge shopping. Resolution of where the case will be tried can be addressed at the final pretrial conference or closer to trial. Who will try the case is dependent on court calendars and availability of any particular judicial officer. For the interim the case will reside in the Missoula Division as venue is not pertinent to discovery or medical proof.
HENDERSON-MATTHEWS V. US, 36 MFR 125, 5/9/08.
Craig Daue & John Fitzpatrick (Buxbaum, Daue & Fitzpatrick), Missoula, for Plaintiffs; AUSA Timothy Cavan.
INSURANCE: Insured which purchased “Executive Safeguard” policy with “past acts” exclusion and falsified application has unclean hands in breach of contract/bad faith suit following $1,352,250 ESOP/ERISA judgment… duty to defend moot because insurer paid fees/costs in underlying litigation… no duty to indemnify since insured maintained control of litigation and insurer agreed to pay defense fees/costs under reservation of rights, and issue moot because insurer defended anyway… Defense Within Limits provision admittedly illegal, but no damages under policy as written or as reformed… no damages as to issue of appeal bond which was procured under arbitrated agreement, not policy… eve-of-trial summary judgment for insurer… Molloy.
Donaldson Bros. Ready Mix formed an ESOP in 1995. It borrowed from lenders and then loaned funds to the ESOP, which used the funds to purchase 51% of Donaldson stock from Stuart & Charles Donaldson. In 6/00 7 employees began requesting documents as to funding & management of the ESOP. In 10/00 their counsel stated that if Donaldson did not produce the documents within 20 days a suit would be filed. A week later it purchased from Philadelphia Ins. Co. an “Executive Safeguard” policy consisting of Director & Officer Liability Insurance, excepting violations of ERISA and excluding claims based on employment practices; Employment Practices Liability Insurance, excepting ERISA violations; Fiduciary Liability Insurance including ERISA plans but excepting alleged failure to fund a benefit plan. It also contained “Prior Acts” and “Defense Within Limits” provisions. The employees sued Donaldson in 2/01. Donaldson tendered the litigation to PIC. PIC denied the claim based on the Past Acts Exclusion. Donaldson filed a claim for arbitration pursuant to the policy. The arbitration produced a settlement agreement whereby PIC agreed to defend Donaldson in the RAINES litigation under reservation of rights. It paid all attorney fees & costs tendered by Donaldson. Donaldson controlled the defense and selected its own attorneys. Following a bench trial in 7/04 this Court found that Charles Donaldson, his wife Cathy, and her father Thomas Simpson, trustees of the Donaldson Bros. retirement trust, failed to obtain an independent appraisal prior to the purchase of Donaldson Bros. shares and that the appraisal that was later obtained contained obvious flaws & errors and overvalued shares, and ordered them to pay the trust $1,352,250 (MLW 7/24/04:5). Donaldson subsequently sued PIC alleging that it breached contractual duties to defend & indemnify, illegally included in the policy an unenforceable “Defense Within Limits” provision, and violated the MUTPA. Donaldson requests a declaratory judgment that the policy provides $1 million coverage under the fiduciary liability part and an additional $1 million for employment practices claims in the RAINES litigation, PIC was obligated to defend the RAINES litigation and indemnify within policy limits against the damage amounts. It also requests fees & costs associated with bringing this suit and with posting a surety bond in the RAINES litigation. The matter is set for jury trial 5/19/08. The parties request summary judgment.
It is unusual to have a case where the merits of the legal issues are not reached because it finds its resolution in equity. The parties present detailed arguments interpreting policy provisions and challenging and defending their legality. However, none of the arguments takes into account the undisputed fact that Donaldson seeks an equitable remedy — declaratory judgment — with unclean hands.
Donaldson argues that the Past Acts Exclusion is void and unenforceable under Montana law as against public policy because it creates illusory coverage and violates reasonable expectations. It argues that a “claims made” policy, as opposed to “occurrence” policies, is inherently retroactive, so that including a “past acts exclusion” renders the offered coverage illusory. It points out that for the policy to provide coverage, the wrongful act, a potential plaintiff’s damages, the potential plaintiff’s claim, and the insured’s presentation of the claim would all have to occur within the 1-year policy period, which is why SPARKS (NJ 1985) concluded that the policy in that case rendered the ostensible coverage illusory. It argues that it paid $18,000 for a 1-year policy that effectively provided no coverage, and therefore it violates Montana public policy. GIBSON (Mont. 2007). It argues that while it is possible to pose remote hypotheticals in which the policy would cover a claim, this does not save it from the conclusion that it is illusory under Montana law. HARDY (Mont. 2003). Donaldson also argues that purchasers of claims-made policies have a reasonable expectation that they are inherently retroactive. However, while its argument may have some appeal at first glance when presented as an abstract proposition, the peculiar facts provide a context in which its argument fails, for “a person may not take advantage of the person’s own wrong.” MCA 1-3-208. The documentary evidence reveals undisputed facts that undermine Donaldson’s argument that it reasonably expected the claims-made policy to cover claims based on acts that occurred prior to executing the policy. They also show that not only was it aware of the RAINES plaintiffs’ claims prior to purchasing the policy, it knew or should have known that it was purchasing a policy that would not cover them. Counsel for the RAINES plaintiffs wrote 2 letters in 6/00 requesting ESOP documents. Regardless of whether they qualify as “notices of a potential claim,” as characterized by PIC, counsel again wrote in 10/00 that if Donaldson did not produce the documents within 20 days they would sue — indisputably “notice of a potential claim,” as Donaldson’s attorney acknowledged in 7/02 to PIC’s counsel. After receiving these letters Donaldson purchased claims-made coverage. 3 insurers initially refused to insure it. Agent James Van Sickle found coverage through PIC, but on condition that it would include a “past acts exclusion.” PIC provided a quote, and Van Sickle told Donaldson that this was the coverage they were looking for. Most troubling are several representations Donaldson made in the application. It answered “no” to whether it had been involved in any administrative proceeding charging violation of any law or regulation. PIC claims that at the time Donaldson had just recently completed an NLRB complaint litigation. It answered “no” to whether within the past 3 years a party in interest had engaged in transactions prohibited by ERISA, including a sale, exchange, or lease of property between a benefit plan and a party, and “yes” to whether its benefit plans were funded in accordance with ERISA. Even more pertinent, it answered “no” to whether within the last 3 years there had been any allegations of ERISA violations, and “no” to whether it had any claim or notice of claim against it. Particularly fatal to Donaldson’s position, it answered “no” to whether it had any knowledge of any fact, circumstance, or situation that might give rise to a claim against it. The application stated in bold just below the final question — which Donaldson answered falsely — that
any claim arising from any claims, facts, circumstances or situations whether or not disclosed in [the applicant’s answers to the last 3 questions above] is excluded from the proposed insurance.
Thus Donaldson could not have reasonably expected the policy to cover the RAINES litigation — litigation based on claims of which it had notice and failed to disclose. In stark contrast to HARDY and GIBSON, Donaldson is a relatively sophisticated consumer of insurance which purchased a policy for the purpose of shielding itself against potential claims it was aware of when it purchased the policy, and did so in part through misrepresentations on the application. It cannot now ask the Court to treat it as though it, like Hardy, was a victim of unfair insurance practices. “One who seeks equity must do equity.” HALL (Mont. 1942). Donaldson has unclean hands. (Donaldson’s conduct in the application process provides PIC an independent basis for denying its claims. MCA 33-15-403(2)(d).)
Whether PIC was obligated under the policy to defend is moot because it paid the fees/costs associated with the RAINES litigation.
PIC had a duty to indemnify Donaldson against actual losses within the policy’s coverage. As Donaldson either knew or should have known that the RAINES litigation did not fall within the policy’s coverage, PIC has no duty to indemnify. Montana law is clear that while an insurer may be liable for non-covered claims, this is only where it assumes complete control of the defense without a reservation of rights. ELLINGHOUSE (Mont. 1986). Donaldson maintained control of the RAINES litigation and PIC agreed to pay defense fees/costs under reservation of rights. Thus it had no duty to defend, and this issue is moot because it did so anyway.
The parties agree that the Defense Within Limits provision is illegal under Montana law, and the remedy is reformation of the contract. MCA 33-15-315. PIC argues that because it did defend Donaldson it has already conceded reformation, and because it has no obligation to defend/indemnify the issue is moot because Donaldson cannot prove any damages under either the policy as written or as reformed. The Court agrees.
PIC funded a bond pending Donaldson’s appeal of the RAINES judgment. Donaldson alleges that PIC was responsible for Donaldson having to expend “several hundred thousand dollars” of its own funds to acquire surety bonds. It claims that PIC, in calculating the amount it was obligated to pay to fund the bond, figured it at the policy limit reduced by defense costs, thus invoking the illegal Defense Within Limits provision. However, PIC incurred the obligation through the agreement it reached in arbitration, pursuant to which it would post an appeal bond and Donaldson would “provide a letter of credit … in an amount to cover the difference between the policy limits … currently estimated to be $850,000 and the amount of the judgment … currently estimated to be $500,000.” The parties agreed that PIC posting the bond would not waive “the reservations and coverage defenses [PIC] set forth in its previous correspondence and agreements.” PIC has raised these reservations and coverage defenses here. Donaldson in the end procured a $500,000 letter of credit, as the agreement contemplated. It shows no facts giving rise to damages connected to the posting of a bond.
Summary judgment for PIC. Trial is vacated.
DONALDSON BROS. READY MIX V. PHILADELPHIA INS. COMPANIES, 36 MFR 130, 5/14/08.
Donald Robinson & Cynthia Walker (Poore, Roth & Robinson), Butte, and Greg Munro, Missoula, for Donaldson; Paul Collins, Denver, and Cathy Goodwin, Missoula, for PIC.
INTERPLEADER: Insurer’s motion to deposit balance of policy limits after settling with some deck collapse claimants and have the Court preside over remaining claims rejected as contrary to interpleader principle… interpleader not “bill of peace,” cannot be used to avoid consequences of allegedly questionable settlement practices… parties to show cause why all counter/cross-claims should not be dismissed without prejudice… Molloy.
Several patrons of the Horseshoe Lounge & Grill were injured when an outdoor deck collapsed in 7/04. Owner Bert Schultz had a policy from Assurance Co. of America. He subsequently died. Assurance filed an interpleader a year ago seeking to deposit $594,522 after it had settled with several claimants in the underlying claims against the Schultz Estate. Aware that the potential value of the unsettled claims exceeds remaining policy limits, it asks to deposit what is left of the limits into the Court’s registry and have the Court preside over the competing claims. The claimants oppose the motion, arguing that Assurance cannot take shelter under the equitable relief of interpleader after having delayed, mishandled, and improperly settled with some claimants. Some claimants assert laches and unclean hands. Assurance settled with several claimants whose claims were barred by the limits in MCA 72-3-803. David Vainio, for example, acknowledges that the statute may likely bar his claim, but insists that (3)(b) allows him to seek damages “to the limits of the insurance protection.” PR McDonald counterclaims for declaratory judgment, breach of contract, bad faith, indemnification, negligence, and breach of the obligation to defend & indemnify. Others counterclaim for unjust enrichment, waiver of policy limits, breach of fiduciary duties, and MUTPA violations.
“Interpleader was never intended to be an all-purpose `bill of peace’;” “it “cannot be used to solve all the vexing problems of multiparty litigation arising out of a mass tort.” STATE FARM (US 1967). The purpose for which Assurance seeks to use interpleader is contrary to this understanding. It asks this Court to allow it to “sweep dozens of lawsuits into a single interpleader,” ID., and control the underlying litigation by “determining to whom, and to what extent, the remaining proceeds of the Assurance policy should be distributed.”
28 USC 1335(a)(2) requires that a party seeking refuge in interpleader has “deposited such money or property or has paid the amount of the loan or other value of such instrument or the amount due under such obligation into the registry of the court.” Assurance wants to deposit funds into the registry, but is not asking to deposit the “value of” the policy or “the amount due under such obligation,” but to deposit what it claims is left of the policy limits, and expects the Court to referee the ensuing competition for these limited funds. This cuts directly against the purpose of an interpleader. Perhaps more compelling, (2) is “conditioned upon the compliance by the plaintiff with the future order or judgment of the court with respect to the subject matter of the controversy.” Cases interpreting this provision make clear that a party seeking refuge in interpleader must deposit funds sufficient to meet this condition. The amount that Assurance asks to deposit meets neither condition. Moreover, LEE(9th Cir. 1956) held that the plaintiff could not “by mere deposit of the principal amount of [the value of the policy] wash its hands of all other claims that may have accumulated.” It is this principle that STATE FARM reinforced and elaborated. Assurance cannot use interpleader to avoid the consequences of apparently questionable settlement practices.
Assurance’s request to deposit what it claims is left of the policy proceeds — an amount every claimant claims is inadequate to meet potential damage awards likely to flow from or already realized in the underlying claims — must be denied. Regardless of whether the policy is worth $2 million or $4 million, Assurance’s pleadings indicate that it is not prepared to deposit the value of the policy or comply “with the future order or judgment of the court with respect to the subject matter of the controversy.” 28 USC 1335(a)(2).
“A District Court generally MAY adjudicate a counterclaim [and/or cross-claim] having an independent basis for federal jurisdiction despite the dismissal of plaintiff’s action for lack of subject-matter jurisdiction.” CRIPPS (9th Cir. 1992). It appears that this Court has jurisdiction over the claimants’ counterclaims and cross-claims pursuant to 28 USC 1332. The amount in controversy exceeds $75,000, Assurance is a citizen of New York and Illinois, and claimants are citizens of Montana, Colorado, and Arizona. However, the Court is inclined to exercise its discretion and dismiss the counterclaims and cross-claims without prejudice, in light of the multiple claims, many already proceeding in state courts. If necessary, the claimants may refile independent complaints against Assurance. Rule 21 may also apply. The Court will afford the parties an opportunity to address this before ordering the claims dismissed.
ASSURANCE CO. OF AMERICA V. MCDONALD ET AL, 36 MFR 150, 5/23/08.
Jonathan Decker & Laurence McHeffey (McElroy, Deutsch & Mulvaney), Denver, and William Mattix (Crowley, Haughey, Hanson, Toole & Dietrich), Billings, for Assurance; Daniel Hileman & Matthew Hutchison (Kaufman, Vidal & Hileman), Kalispell, for McDonald/Estate of Schultz; Douglas Wold (Wold Law Firm) Polson, Joey Jayne (Jayne Law Office), Arlee, Ann Moderie (Manley Law Firm), Polson, Evan Danno (Henning & Keedy), Kalispell, John Fitzpatrick (Buxbaum, Daue & Fitzpatrick), Missoula, Paul Meismer (Meismer & Associates), Missoula, Timothy Fox (Gough, Shanahan, Johnson & Waterman), Helena, John Velk, Missoula, James Towe (Towe Law Offices), Missoula, and Kevin Vainio (Vainio Law Office), Butte, for claimants.
INSURANCE: Insurer had duty to potential 3rd-party claimant to preserve scene of fire and evidence relating to cause of fire… negligent spoliation/UTPA claims to go to jury… 3rd-party claimants not entitled to recover from insurer attorney fees incurred in unsuccessful underlying suit against insured since they could have proceeded with spoliation claim against insurer without expense of litigation against insured or brought spoliation claim in litigation against insured… Lynch.
On 2/11/02 a fire broke out in a mobile home owned by Beverly Kudrna and occupied by Chuck Sundstrom in Huntley. Fred & Kathy Coleman (Coleman Const.) had their 5th-wheel trailer parked in a space leased from Kudrna next to her mobile home. The fire destroyed Kudrna’s mobile home and Colemans’ trailer and personal property. Kudrna notified Diamond State the day of the fire. Adjuster Thomas Britland retained Mike Sollars of Montana Claims Service 2/13 to investigate and adjust. Sollars visited the scene. Kudrna informed him that Sundstrom had been using wood pellets in a coal stove. Sollars contacted a cause & origin expert. Britland directed him not to hire the expert because he believed it was unnecessary for the adjustment of Kudrna’s “first-party” losses. On 2/21/02 Sollars submitted a report to Britland specifying the property losses, and Britland authorized a cleanup. On 2/22 Diamond State received notice of Colemans’ claim for property loss by fax from their insurance agent in Missoula. John Gordon sent a letter 3/1 advising Britland that he represented Colemans. According to Diamond State, if Britland learned of 3rd-party losses while he was handling a 1st-party claim he generally would pass it on to a 3rd-party adjuster. He did not notify a 3rd-party adjuster of the destruction of Colemans’ trailer until after he received the letter from Gordon. Diamond State ultimately assigned Colemans’ claim to adjuster George Utter. On 4/26/02 it denied their claim. Colemans sued Kudrna alleging negligence and violations of the RLTA. A Billings jury found that she was not negligent (MLW 8/14/04:3) and she was awarded $22,866.50 attorney fees under the RLTA. Colemans then filed this suit against Diamond State seeking compensatory and punitive damages including the fees/costs they incurred in prosecuting the underlying case as well as the fees/costs they were required to pay Kudrna under the State Court judgment. Colemans allege that Diamond State failed to conduct a reasonable investigation into the cause & origin of the fire before denying their claim in breach of the UTPA and common law duty of good faith, failed to attempt to settle when liability was reasonably clear, and committed spoliation by authorizing destruction of the fire scene when it knew of their potential claims against Kudrna. Both parties request summary judgment.
Colemans argue that because Diamond State had notice that the fire which originated in its insured’s mobile home caused damage to the property of a 3rd party it was legally obligated to investigate to determine its origin and preserve evidence. Diamond State responds that it was under no legal obligation to investigate the cause of the fire because it was not presented any 3rd-party claim 2/11-2/21/02 when it authorized a cleanup, and that because it had no duty to “anticipate claims” it cannot be held liable under either the common law duty or UTPA for failing to investigate Colemans’ claim or failing to settle, or for spoliation. The overriding issue is whether Diamond State had a duty to preserve evidence of the fire scene so as not to hamper Colemans in maintaining an action against Kudrna. Although the Montana Supreme Court recognized the tort of spoliation in OLIVER (Mont. 1999), it has not addressed it in circumstances such as here, and thus this Court must predict whether it would recognize that Diamond State owed Colemans a duty to preserve the fire scene.
The Court concludes that Montana law imposes a duty on a liability insurer to preserve evidence under these circumstances.
The existence of a duty of care [in a negligence action] depends upon the foreseeability of the risk and upon a weighing of policy considerations for and against the imposition of liability. JACKSON (Mont. 1998).
It was entirely foreseeable to a liability insurer like Diamond State that its insured, Kudrna, could face potential liability for destruction of Colemans’ property. Therefore it had a duty to take reasonable steps to preserve evidence from the scene until the issue of her liability to Colemans could be adequately investigated. Imposing a burden on a liability insurer to preserve a fire scene when it knows that property damage has occurred to a 3rd party is hardly onerous. It pales in comparison to that which would be imposed on the public if such a duty were not recognized. Under the rule advocated by Diamond State, the law would condone an insurer avoiding liability by simply disposing of evidence at the fire scene prior to the 3rd-party claimant ever receiving notice of destruction of his property.
Diamond State also contends that it cannot be held liable for failing to preserve evidence for Colemans because it had a reasonable basis in law or fact for its conduct.PALMER (Mont. 1993); MCA 33-18-242(5) (reasonable basis defense for UTPA claims). It argues that it was reasonable to authorize the cleanup 2/21/02 because by then Colemans had not submitted their claim. However, that argument is premised on its contention that it had no legal duty to Colemans to preserve the fire scene evidence because they had not submitted a claim. The Court’s conclusion that it had a legal duty to preserve the scene defeats its reasonableness defense.
Diamond State also contends that Colemans cannot establish the other spoliation elements recognized in OLIVER, in particular that the loss of evidence did not cause Colemans to lose their liability claim against Kudrna. They cite Chris Rallis’s opinion that even before the scene was cleaned up it was not possible to determine the cause of the fire to a reasonable degree of scientific certainty. Colemans do not present any argument or evidentiary materials in response to Diamond State’s causal connection argument. At most they point out that Kudrna’s defense in the underlying case relied in part on failure of their expert Ron Cummings to inspect the fire scene or any evidence preserved from it. Other than Rallis’s opinion, Diamond State has not presented any evidentiary matters that disprove Colemans’ spoliation claim and its element of causation. While it may have satisfied its initial burden of production through its argument and Rallis’s opinion, it has failed to sustain its ultimate burden of persuasion. Colemans have at least identified sufficient facts to raise a material fact issue on the causal connection element of their spoliation claim. That Kudrna relied on Colemans’ expert’s failure to inspect the scene highlights the fact that he was unable to inspect it because Diamond State had authorized it to be cleaned up. Rallis’s opinion is simply evidence which the jury may weigh in consideration of all other evidence. This aspect of Diamond State’s motion for summary judgment on spoliation, like the duty aspect, is properly denied.
Diamond State’s obligations to Colemans under the UTPA were not triggered until 2/22/02. As of that date it had an obligation to conduct a “reasonable investigation” based on all available information and settle Colemans’ claim if liability was reasonably clear. Whether it satisfied that duty will be assessed by the jury in light of the events which led to and created the circumstances that existed 2/22, including evidence bearing on whether it breached its duty to preserve the fire scene and evidence as to origin of the fire. If it is determined that it did spoliate evidence it may not rely on its own destruction of the scene as a reasonable basis for failing to meet its UPTA duties. Its motion for summary judgment dismissal of Colemans’ UTPA claims is denied.
Colemans request summary judgment that Diamond State had a duty to conduct a reasonable investigation of the fire and preserve evidence. The Court has determined in this order that Diamond State had a duty to preserve evidence from the scene and that its UTPA obligations were triggered as of 2/22/02. Although Colemans’ motion does not seek to establish any of the other elements of Diamond State’s liability under any of their theories, the Court will treat its conclusions as to existence of these duties as the law of the case. BURGE (5th Cir. 1999). Colemans’ motion is granted to that extent.
Diamond State requests summary judgment barring Colemans from recovering fees they incurred as a result of their underlying suit against Kudrna. It accurately recites the American Rule that a party is not entitled to fees absent a contractual or statutory provision. Additionally, a plaintiff cannot recover fees as an element of damages attributable to a UTPA claim. SAMPSON (Mont. 2006). However, Colemans assert that they are entitled to fees as an element of tort damages under their spoliation claim. They argue that but for Diamond State’s spoliation they would have prevailed in their landlord/tenant claim against Kudrna and would have been entitled to recover their fees against Kudrna pursuant to the RLTA. Even if Colemans prevail on their spoliation claim they are precluded from recovering their fees/costs incurred in the underlying action against Kudrna. They had the option of abandoning their claim against her and pursuing only their spoliation claim against Diamond State. Their spoliation claim does not require that they first pursue their liability claim against Kudrna. OLIVER. Nor did the UTPA bar them from pursuing their spoliation claim because the limitation in MCA 33-18-242(6)(b) only prevents a 3rd party from filing a claim “under this section” before the underlying liability claim is resolved. Colemans could have simply proceeded with their spoliation claim against Diamond State without incurring the expense of the litigation against Kudrna. Alternatively, they could have brought their spoliation claim in the Kudrna action pursuant to Rule 20 (permissive joinder). BOYD (Ill. 1995) (joinder of spoliation and liability claims and consolidation of trials promotes fairness and consistency). The peculiar nature of a spoliation claim involves consideration of the merits of the underlying liability claim. USAS (Cal. App. 4th Dist. 1997). Regardless of the procedure followed, a jury considering a spoliation claim would have to decide whether the plaintiff would have obtained a more favorable result in the underlying liability claim had the missing evidence been available. ID. Colemans chose to pursue their liability claim against Kudrna fully aware that they had no physical evidence from the fire scene, at the risk of not succeeding on their claim and incurring fees in the process. Because they chose to prosecute the case against Kudrna without joining their spoliation claim they cannot recover the fees they incurred in that case as an element of damages. This is consistent with the general obligation on a claimant to mitigate damages. HARRINGTON (Mont. 1978). Moreover, a rule allowing recovery of fees in these circumstances would lead to needless duplicative litigation. Summary judgment for Diamond State on attorney fees.
COLEMAN CONST. V. DIAMOND STATE INS., 36 MFR 164, 6/5/08.
Gary Zadick (Ugrin, Alexander, Zadick & Higgins), Great Falls, and John Gordon (Spoon Gordon), Missoula, for Colemans; William Jones & Kathleen DeSoto (Garlington, Lohn & Robinson), Missoula, for Diamond State.
QUALIFIED IMMUNITY: Officers not insulated for plainly incompetent or knowing violations of 1st Amendment rights in 1983 retaliation/harassment case… judgment on pleadings denied… Cebull.
Yellowstone Co. Deputies Chris Romero, Roger Bodine, and Dave Valdez allege a campaign of retaliation and harassment based on their protected speech and political beliefs & associations which began when Romero filed a discrimination/retaliation complaint with the EEOC and State, Bodine and Valdez submitted statements to investigators as to discriminatory acts by the County Defendants and agreed to be witnesses, Bodine and Valdez filed state and EEOC discrimination & retaliation charges, and all 3 Plaintiffs did not support and ultimately opposed reelection of Sheriff Maxwell. They allege repeated acts indicating disparate or inconsistent treatment of Plaintiffs who engaged in protected speech and political opposition to Maxwell, and other employees who did not. Maxwell, Jay Bell, and Rico Brennan request judgment on the pleadings, arguing that they are entitled to qualified immunity as to the 1983 claims.
“Qualified immunity protects government officials performing discretionary functions from civil liability when their conduct does not violate clearly established statutory or constitutional rights of which a reasonable person would have known.” LINDSEY (9th Cir. 1994) (citing HARLOW (US 1982). The employee has the burden as to whether the right is clearly established, and the official must prove that his conduct was reasonable. ORTEGA (9th Cir. 2000). Even if Plaintiffs have alleged violations of a clearly established right, an official may still be entitled to qualified immunity if he or she “could have reasonably but mistakenly believed that his or her conduct did not violate a clearly established constitutional right.” HYDRICK (9th Cir. 2006). “This is a limited exception, however: if the law is clearly established, the immunity defense `ordinarily should fail, since a reasonably competent public official should know the law governing [the official’s] conduct’.” ID. (citing HARLOW). Qualified immunity does not insulate public officials for plainly incompetent or knowing violations of Plaintiffs’ 1st Amendment rights. If Plaintiffs’ version of the facts turns out to be true, Defendants will not be entitled to qualified immunity. Motion for judgment on the pleadings denied.
ROMERO, BODINE, AND VALDEZ V. YELLOWSTONE CO. SHERIFF’S OFFICE, MAXWELL, BELL, BRENNAN, AND O’CONNOR, 36 MFR 190, 6/17/08.
Timothy Kelly (Kelly Law Office), Emigrant, for Romero; Michael San Souci (San Souci Law Firm), Bozeman, for Bodine; Kevin Brown (Paoli & Brown), Livingston, for Valdez; Dep. Yellowstone Co. Attys. Kevin Gillen & Ryan Nordlund; Bill O’Connor, Billings, pro se.
WRONGFUL DISCHARGE/PROCEDURE: Unconditional offer to reinstate employee as resort HR manager at same salary retroactively to discharge bars WDA damages under Title VII rationale… misrepresentation/ breach of covenant of good faith claims intertwined with discharge claim, preempted by WDA… Plaintiff failed to file statement of genuine issues, Defendants failed to authenticate summary judgment materials… Lynch.
The Resort at Paws Up moves for summary judgment and Jeanne Kibbee moves to compel discovery. For purposes of setting forth the factual background the Court is to take the material facts from the record and, when disputed, view them in the light most favorable to the non-moving party. However, Kibbee has not filed a statement of issues as required by LR 56.1(b) or otherwise submitted any affidavits, depositions, or discovery materials in opposition to Paws Up’s motion. Although she cites deposition testimony in her response brief, she has not made those depositions part of the record. Paws Up therefore asks the Court to take its statement of uncontroverted facts as true. However, it has not complied with Rule 56(e) which requires that summary judgment evidentiary materials or exhibits be authenticated. It submitted an excerpt from Kibbee’s deposition, along with a page from its employee handbook, but neglected to provide an authenticating affidavit or certification by the court reporter. Nevertheless, because Kibbee has not objected to its use of these documents and does not dispute their authenticity the Court will consider them. Further, while the Court does not take lightly her failure to file a statement of genuine issues, there is no need to deem Paws Up’s facts admitted. Even viewing the disputed facts in her favor, the Court is satisfied that Paws Up is entitled to judgment as a matter of law.
Kibbee was HR manager for Paws Up 4/05-2/07. She did not have a written agreement. She considered leaving to pursue other opportunities, but stayed when Paws Up offered her a raise. Owner Dave Lipson sent her an e-mail indicating that he was “delighted” that she had decided to stay on. Her employment ended 8 months later. Paws Up contends that she voluntarily terminated; Kibbee claims she was wrongfully discharged by GM John Erickson. At a grievance procedure meeting 3/20/07 Paws Up offered to reinstate her under a new GM. She rejected the offer and subsequent attempts to come to an agreement were unsuccessful and she filed this wrongful discharge action. Paws Up requests summary judgment on the basis that what it characterizes as an unconditional offer of reinstatement precludes recovery under the WDA, and that her remaining state law claims are preempted by the WDA.
FORD (US 1982) held that an employer accused of Title VII discrimination may toll accrual of back pay liability by offering unconditional reinstatement. Many courts, including the 9th Circuit, have applied this rule to wrongful discharge cases governed by state law. Because the Court does not find any decisional law from Montana directly on point it concludes that the FORD rationale serves as an appropriate analytical framework.
Kibbee argues that there is a fact issue as to whether the reinstatement offer was truly unconditional since it was conditioned on her accepting a different job. Lipson explained that it was Paws Up’s intent to split her job and have her “do what she did best and bring someone else in as a number 2 to do the things that she did not do well.” At most, the fact that it had hired someone to assist her indicates that it was offering to reinstate her to a position with better terms than before; it is clear that her job would otherwise have remained the same. While Paws Up is correct that rejection of an unconditional offer of reinstatement typically ends potential back pay liability, FORD recognized a limited exception for “special circumstances,” generally a question of whether the plaintiff reasonably rejected the offer. Where a plaintiff fails to point to sufficient evidence from which a trier of fact could find that it was reasonable to reject an offer of reinstatement, the issue can be resolved as a matter of law. Kibbee points to her deposition testimony that she refused the offer because she “had gone through a month of hell” before her alleged discharge, during which she “just kept coming back to work and wondering which day I was going to be fired.” However, that is not sufficient to raise a material fact issue as to whether a reasonable person would have refused Paws Up’s offer of reinstatement. She does not point to any evidence that it extended other than a good faith offer. It went so far as to assure her that Erickson was no longer at the company and she would be working under a different supervisor with whom she confirmed she had a good relationship. Presumably because they typically are in the context of employment discrimination claims, cases involving fact issues as to reasonableness of a decision to reject a reinstatement offer uniformly involve circumstances far more egregious than alleged here. Kibbee fails to point to sufficient evidence that the circumstances of her employment were so intolerable that voluntary termination was the only reasonable alternative amounting to constructive discharge under MCA 39-2-903(1). She does not claim that she was harassed or discriminated against, and does not dispute that her supervisor had left by the time she received the reinstatement offer or that she had a good relationship with the one who would be her new supervisor. She does not point to any evidence that her worry about being fired was so stressful as to require medical treatment. Her subjective belief that Paws Up would discharge her in the future is not enough to raise a material fact issue as to whether her rejection of its reinstatement offer was objectively reasonable. Under the FORD rule, Paws Up’s liability for back pay ceased to accrue at that time. Because it offered to reinstate her at the same salary retroactive to discharge she has no compensable damages under the WDA, which limits damages to lost wages and fringe benefits for 4 years from date of discharge. Summary judgment for Paws Up on her WDA claim.
As all allegations in Kibbee’s claims for misrepresentation and breach of the covenant of good faith are inextricably intertwined with her alleged wrongful discharge they are preempted by the WDA. She claims that they are distinct from her discharge claim because they are not contingent on her termination and could have been brought regardless of whether she was still employed at Paws Up. However, they arise out of the promise of continued employment which she claims Paws Up made and then broke. The Court fails to see how she could pursue a claim that it broke a promise of continued employment had that employment not ended.
Recommended that Paws Up’s motion for summary judgment be granted. (Judge Molloy adopted Magistrate Lynch’s findings & recommendations in full.)
KIBBEE V. THE RESORT AT PAWS UP, 36 MFR 196/215, 5/30/08.
Charles Tornabene & Justin Starin (Tornabene & McKenna), Missoula, for Kibbee; Jean Faure (Faure Holden Attorneys at Law), Great Falls, for Paws Up.
INSURANCE: BREWER holding as to insurance exception applies to 1st-party UIM claim… insured forced to litigate to obtain full UIM entitled to fees… fees based on lodestar as to UIM paid before suit filed and between filing of suit and filing of answer, on contingency as to UIM paid in settlement… fee request properly made in pre-judgment motion, not required in pleading… Lynch.
William Riordan was injured 10/21/04 when his pickup was rear-ended by Kyle Goettlich. In early 2005 Goettlich’s liability insurer paid $50,000 limits. Riordan then sought UIM from State Farm under 3 policies which each provide $50,000/$100,000 UIM. State Farm paid $30,587 UIM 1/30/06-8/06. Riordan sued in 3/07 claiming the rest of the $150,000 “stacked” limits. Between being served in 4/07 and filing its answer in 6/07 State Farm paid an additional $45,413, bringing the total UIM to $76,000. Trial was set for 2/25/08. On 2/14 the parties settled for the remaining $74,000 UIM. Riordan had a 33% contingency fee agreement. He contends that he is entitled to $51,980 fees — 35% of the entire $150,000 UIM. Alternatively he argues that if the Court determines that fees are properly determined by the lodestar method he should recover $33,025. State Farm argues that Riordan waived any claim by failing to plead for them as an item of special damages under Rule 9(g), he is not entitled to fees under Montana law, and he has failed to establish that he incurred fees in prosecuting this case.
Riordan is not procedurally barred from claiming fees. It is true that some courts, in reliance on 9(g), have recognized that in certain contexts a party waives fees if a specific request is not made in the pleadings. Such cases, which recognize that fees are “special damages,” generally turn on the fact that the substantive law provides for fees as an element of damages as opposed to a recoverable cost. However, Riordan’s claim is based on a judicially created equitable exception to the American Rule, as recognized in Montana. BREWER (Mont. 2003). Consequently, Rule 54(d)(2)(A) governs his request and mandates that the request be by motion. Because no judgment has been entered, his motion for fees, filed 2/29/08, complied with the temporal requirement of 54(d)(2)(B)(i) as well as the substantive requirements of 54(d)(2)(B).
The BREWER holding as to the insurance exception to the American Rule applies to a 1st-party claim for UIM. Riordan contends that as a 1st-party insured, compelled to litigate to obtain the full benefit of his policies, he is entitled to recover his fees pursuant to BREWER. State Farm retorts that BREWER should not be read as having created a broad equitable exception to the American Rule, and argues that it has been limited to where a liability insurer has contested coverage and thereby compels an insured to file or defend a declaratory action. In ultimately holding that the insurance exception did not apply to claims by 3rd-party claimants BREWER found it necessary to discuss development of the insurance exception, and then stated at ?36:
We find the above-cited authority compelling to hold an insurer liable for attorney fees when the insurer breaches its duty to indemnify. We decline to further propagate the arbitrary legal fiction that a substantive distinction exists between a breach of the duty to defend and a breach of the duty to indemnify. It seems inherently inconsistent that courts universally afford attorneys fees incurred to establish a contested duty to defend and yet, simultaneously, reject such an award incurred in coverage disputes brought to preserve or eviscerate the obligatory defense. … This notion appears nothing more than a mere exercise in semantics. Accordingly, we hold that an insured is entitled to recover attorney fees, pursuant to the insurance exception to the American Rule, when the insurer forces the insured to assume the burden of legal action to obtain the full benefit of the insurance contract, regardless of whether the insurer’s duty to defend is at issue.
Riordan argues that the last sentence establishes that the insurance exception applies where an insurer forces its insured to assume the burden of a legal action to obtain the full benefit of the contract. State Farm argues that it must be read in conjunction with the preceding passage which it contends limits the holding, at the very least, to where there is a dispute about coverage v. the value of a covered claim. However, the Court made clear that whenever an insurer forces its insured to assume the burden of litigation to obtain what the insured is entitled to under an insurance contract, the insured is entitled to recover fees. In the prefatory language it forcefully declared that it will not embrace any “arbitrary legal fiction” that would let an insurer evade paying fees when it has forced the insured to assume the burden of litigation. The language of ?36 leaves no room for State Farm to suggest that there is a “substantive distinction” between a 1st-party insured seeking to recover UIM and a 1st-party insured seeking indemnification under a liability policy. Its argument to the contrary is “nothing more than a mere exercise in semantics.” ID. While the Supreme Court has not had the opportunity to apply BREWER to the precise situation presented here, SAMPSON (Mont. 2006), which presented the issue of whether fees are recoverable by a 3rd-party UTPA claimant, did reference BREWER:
We have held that an insured is entitled to recover attorney fees under the “insurance exception” to the American Rule when the insurer forces the insured to commence legal action to obtain the full benefits of the insurance contract between them; however, we have declined to extend this exception to third-party actions, where there is no privity of contract — no “previously bargained for benefit” — that the third party was forced into litigation to vindicate.
It is the privity of the contract, with its fiduciary obligations — not the type of benefit being sought by the insured — which underlies the BREWER holding and distinguishes the 1st-party context from the 3rd-party context.
Riordan is entitled under Montana law to recover his fees, since he was forced to assume the burden of this litigation to obtain the full benefits of his contracts. State Farm argues that even if BREWER allows recovery in a UIM case it should not be compelled to pay Riordan’s fees because there were legitimate questions as to whether his injuries were actually caused by the accident. However, it unequivocally denied in its answer that he was entitled to any additional benefits. Moreover, it presents no evidence that he violated the contracts by failing to cooperate in its assessment of his injuries.
While it is appropriate to utilize the contingency as a reasonable measure of fees, Riordan is not entitled to 35% of the total UIM paid. BREWER is premised on an insured having to institute or defend litigation. Of particular importance are STIMAC (Mont. 1991) factors 2 (time & labor required to perform the legal services) and 4 (result obtained). State Farm paid $30,587 UIM before suit was filed. Riordan may not claim fees for benefits paid prior to filing of suit (even though he obtained counsel shortly after the accident) because they were not obtained as a result of the litigation. Likewise, after the suit was filed and prior to filing an answer State Farm paid an additional $45,413 UIM. Considering the time & labor required to perform the legal services, which apparently motivated State Farm to pay these additional UIM benefits, awarding fees on this amount of benefits based on the contingency would not be reasonable. Instead, a lodestar calculation as to this part of the UIM paid is more reasonable. He shall be compensated at an appropriate market rate for the time reasonably spent preliminarily preparing for litigation and between the time the complaint was filed and the date State Farm advanced the additional UIM. Awarding fees based on the 35% contingency as to the remaining $74,000 paid in settlement of this litigation — $25,900 — appears reasonable in light of the STIMAC factors. However, State Farm will have the opportunity to present evidence relating to each of these factors in a further proceeding, along with reasonableness of the time expended prior to 6/07 as claimed in Riordan’s counsel’s affidavits. Riordan is also entitled to costs pursuant to 28 USC 1920 and LR 54.1.
RIORDAN V. STATE FARM MUTUAL AUTO INS., 36 MFR 218, 6/20/08.
Sydney McKenna & Justin Starin (Tornabene & McKenna), Missoula, for Riordan; Travis Dye & C.J. Johnson (Kalkstein & Johnson), Missoula, for State Farm.
REAL ESTATE SALE/PROCEDURE: Leave granted to file late motion to dismiss untimely disclosure… late-disclosed expert opinions excluded as discovery sanction, resulting in summary judgment exclusion of amounts for diminution of value, lost development profits, and lost construction profits (totaling $2,104,200) from damage calculation in suit over undisclosed covenants limiting planned 10-lot subdivision to 6 lots… lost profits claim also rejected as hopelessly speculative… fact issues preclude summary judgment as to whether buyer’s agent had duty to disclose contents of covenants… Molloy.
VERDICT: $372,000 gross, $37,200 net (10% by Defendants, 10% by Plaintiff, 50% by non-party settled seller, 30% by non-party settled seller’s agent), failure to disclose contents of restrictive covenants limiting proposed 10-lot subdivision to 6 lots.
Northwood Estates, a 4-member California LLC, was created to buy and develop a 12-acre parcel on East Lakeshore Drive, Whitefish. Bruce Wauer of Prudential Whitefish Real Estate represented Northwood. Tom LaChance (LaChance Builders) was seller, represented by Douglas McNicoll. All parties were aware that Northwood intended to create a 10-lot subdivision. The property is subject to 1975 and 1994 covenants. The 1994 covenants limit development to 6 lots. LaChance’s disclosure did not disclose the 1994 covenants. Before Northwood made an offer McNicoll provided Wauer a packet with the 1975 covenants but not the 1994 covenants. Wauer subsequently obtained a title report which he shared with Northwood, which lists 2 sets of covenants but does not provide information on specific terms. At the time of closing neither Wauer nor any member of Northwood had read the 1994 covenants. The purchase price was $1,330,000. Northwood sued Wauer and Prudential alleging that they were negligent in failing to detect the 1994 covenants and advise of the lot restriction. Defendants asserted 3rd-party claims against LaChance and McNicoll. The 3rd-party claims were dismissed pursuant to a settlement between Northwood and LaChance and McNicoll. Wauer and Prudential stipulated to the dismissal with the proviso that they remain free to request apportionment of liability to the released parties and to request disclosure of the settlement amount and a setoff in that amount from any verdict. Defendants ask the Court to declare that Northwood is not entitled to diminution of value, loss of projected land value, or loss of projected profits as part of any damage award. They also seek summary judgment on the duty element of Northwood’s negligence claim.
Northwood seeks $2,210,809 damages: $1,350,000 diminution in value, $653,700 lost development profits, $100,500 lost construction profits, $73,932 interest, $7,393 loss of use of money, $25,284 lost hard costs incurred in attempting to develop 10 lots. Defendants argue that because there was never a possibility that Northwood would be able to develop 10 lots their negligence cannot be considered the cause of any lost profits or diminution, and that any claim for lost profits is speculative and factually insufficient. Northwood’s calculations are based on valuation opinions from Alan Elm and Scot Blair of the Whitefish RE/MAX and 2 1-page “Cost & Profit” analyses of unknown authorship. Defendants argue that their testimony should be excluded due to failure to comply with the scheduling order and rules and the analyses should be excluded as hearsay and because they were not disclosed in discovery. Northwood’s sole argument is that Defendants’ motion was filed after the deadline for motion practice. Their position has no merit. The first indication that Northwood intended to rely on the opinions and analyses came less than a month before the fully briefed motions deadline. Defendants addressed the late disclosures in a timely fashion, and in their reply brief they request leave for the untimely motion. That leave is granted. Northwood’s attempt to rely on the motions deadline to combat Defendants’s motion must fail, because the late-disclosing party controls timing of the dispute. Had Northwood waited until the eve of trial before disclosing its experts and analyses, the motions deadline would have passed entirely. Defendants should not be denied recourse and forced to accept the late disclosures. The motions deadline is intended to provide a framework for presentation of substantive & procedural matters that the parties can anticipate, not to be used as a barrier to resolution of legitimate disputes that the moving party could not see coming. When a party files a motion to address an untimely disclosure, it is appropriate to grant leave to file it after the motions deadline. Northwood makes no substantive defense of its late disclosures and so has failed to carry its burden of convincing the Court that its failure to comply with Rule 26 was justified or harmless such that sanctions are not warranted. YETI BY MOLLY(9th Cir. 2001). The WANDERER (9th Cir. 1990) factors support excluding the undisclosed documents & opinions as a sanction for untimely disclosure. The public’s interest in expeditious resolution of litigation and the Court’s need to manage its docket are both served by adherence to the discovery rules. The late disclosures prejudiced Defendants to the extent that they were not able to provide their own experts with the opinion testimony and cost & profit analyses to obtain a rebuttal. Public policy favoring disposition of cases on the merits has a procedural as well as a substantive component. KEENER (23 MFR 503). Although less drastic sanctions are available, exclusion of the undisclosed evidence is the appropriate result under Rule 37(c)(1) and the facts & circumstances.
Exclusion of the Elm and Blair letters and the cost & profit analyses dictates the outcome of Defendants’ motion for summary judgment as to damages. The motion is granted because Northwood has no admissible evidence as to the disputed damage measures, and because any such damages are speculative. Northwood’s damages claim is premised on the notion that it would not have purchased the property had it been aware of the development restrictions. Having learned of the restrictions prior to closing it would have abandoned the transaction and ceased its efforts to undertake a development in Montana, or it would have backed out of the deal for the purpose of locating and purchasing suitable property elsewhere in the area. Northwood’s position is that it would have adopted the latter course. Due to conflicting testimony from its Rule 30(b)(6) representative Bill Poole there is a fact issue as to whether it would have pursued an alternative development in the area. However, that does not preclude summary judgment on this issue because there is no evidence to support Northwood’s claims for diminution and loss of projected profits, which is based on the excluded Elm/Blair opinions and cost & profit analyses. More fundamentally, a plaintiff may not recover damages that are speculative. STENSVAD (Mont. 1982). Even had Defendants informed Northwood of the 1994 covenants prior to closing it would not have been able to develop 10 lots. The lost profits claim must therefore be based on the loss of profits it could have earned had it canceled the transaction and pursued another investment opportunity in the area. Its inability to identify even a single actual investment opportunity foregone so that it could purchase the subject property renders the claim for lost profits hopelessly speculative. Summary judgment as to the proper measure of damages is granted; the Court will exclude from any damage calculation the amounts for diminution of value, lost development profits, and lost construction profits.
Defendants argue that the 1994 covenants were “known or discoverable by the buyer” because Wauer had provided Northwood the title report that listed the covenants, and therefore Wauer had no duty to disclose them under MCA 37-51-313(c). However, the record shows that Northwood knew of EXISTENCE of the 1994 covenants, but does not show without question that it knew of their CONTENT. Defendants attempt to impute to Northwood constructive knowledge of the content of the 1994 covenants through MCA 70-21-302(1): “Every conveyance of real property acknowledged or proved and certified as prescribed by law, from the time it is filed with the county clerk for record, is constructive notice of the contents thereof to the subsequent purchasers and mortgagees.” However, under Defendants’ reasoning, 70-21-302(1) would make it impossible for any buyer, regardless of the circumstances, to prevail on a claim for failure to disclose existence or content of material information in recorded covenants, rendering 37-51-313(4)(c) a dead letter with respect to the buyer’s agent’s failure to disclose any material information recorded with a county clerk. That runs contrary to the apparent purpose of 37-51-313(4) to ensure minimum standards of care & competence in performance of a buyer’s agent. Defendants’ reading is especially perverse in light of the fact that the harsh rules of imputed knowledge of recorded conveyances are among the considerations that drive the layperson to hire a buyer’s agent. Whether the content of the 1994 covenants was known or discoverable to Northwood is a fact question for the jury, as is the question of whether Wauer breached the separate obligation to exercise reasonable care, skill, and diligence in pursuing the buyer’s objectives. Defendants argue that Northwood must supply authority suggesting that the duty of reasonable care & diligence would require the buyer’s agent to go beyond informing a buyer of the existence of relevant restrictive covenants and impose an affirmative duty to obtain the covenants and explain their substance & effect to a buyer. However, Defendants have the burden on summary judgment. Whether Wauer’s actions were reasonable is for the jury based on the facts. Pre-existing legal authority endorsing Northwood’s specific factually theory of recovery is not necessary. Defendants’ motion for summary judgment on the duty element is denied.
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A Missoula jury found that Wauer and Prudential were negligent and a cause of Northwood’s damages, and that Northwood was negligent and a cause of its damages. It found that Tom LaChance/LaChance Builders and McNicoll, who had previously settled and been dismissed, were not negligent and did not commit deceit. It found that LaChance and McNicoll committed constructive fraud and that their constructive fraud was a cause of Northwood’s damages. It found that $372,000 was reasonable compensation for Northwood’s damages. It allocated responsibility for Northwood’s damages 10% to Wauer/ Prudential, 50% to non-party LaChance, 30% to non-party McNicoll, and 10% to Northwood. Wauer/Prudential were allowed to put non-parties LaChance and McNicoll on the chalkboard and apportion liability. Judge Molloy entered judgment for $37,200.
Plaintiff’s expert: broker Al Litler, Billings.
Defendants’ expert: real estate lawyer Steven Cummings, Kalispell.
Demand, $350,000; offer, $240,000. Jury request, $550,000 (after Molloy previously struck claim for $2,104,200 diminution, lost development profits, lost construction profits), mainly the difference between $1,330,000 purchase price and $900,000 eventual sale price; jury suggestion, 0 or no more than 10-15% liability. Tracy Axelberg, mediator.
Jury deliberated 2? hours 4th day.
NORTHWOOD ESTATES V. WAUER AND PRUDENTIAL WHITEFISH REAL ESTATE, 36 MFR 235, 5/30/08, CV 06-184-M (verdict), 6/26/08.
Chad Wold (Wold Law Firm), Whitefish, for Northwood; Robert Lukes (Garlington, Lohn & Robinson), Missoula, for Wauer/Prudential (Tudor Ins.); Robert Bell (Reep & Bell), Missoula, for LaChance; C.J. Johnson (Kalkstein & Johnson), Missoula, for McNicoll.
INSURANCE: Release executed at time of payment of UIM on 1 of 3 vehicles invalid due to stipulated damages in excess of available liability and stacked coverages… $66,666.67 attorney fees, prejudgment interest recommended… Lynch/Molloy.
Magistrate Lynch’s findings & recommendations: Kenneth Hoffman was seriously injured in 8/04 when the vehicle in which he was a passenger hit a tree near Seeley Lake. The driver, Jonathan Hamper, was killed. Hoffman was an insured under a Geico policy which contained UIM for each of 3 vehicles, with limits for each vehicle of $100,000/$300,000. It contained a provision which purported to preclude “stacking” of UIM limits, even though Geico had charged a separate premium for each vehicle. On 7/5/01 Geico paid Hoffman’s unrepresented mother/guardian Donna the $100,000 UIM limit covering one of the 3 vehicles, requiring her to sign a full release of all claims for UIM benefits. As of that date Kenneth’s medicals were $200,000. In 12/02 Donna settled with Hamper’s liability insurer for $300,000 in exchange for a release of Hamper. She also received $70,000 from Hamper’s business insurer. HARDY (Mont. 2003) subsequently held MCA 23-33-203 unconstitutional to the extent that it allowed an insurer to charge a premium for “illusory coverage.” Correspondingly, it invalidated on public policy grounds the anti-stacking provision of a multiple vehicle policy for which the insured paid a separate premium for UIM with respect to each vehicle. Hoffmans then sued claiming entitlement to the additional $200,000 stacked limits of the UIM. They alleged breach of contract, breach of fiduciary duty, actual fraud, and constructive fraud, and sought to have the release set aside on the alternate grounds of fraud, mistake of fact, undue influence, and lack of consideration. Geico previously moved to dismiss for failure to state a claim, asserting thatHARDY did not apply retroactively to the circumstances of this case, and that the claims of fraud and mistake of fact were time-barred. On 10/5/06 the Court dismissed the claims of fraud and mistake of fact as time-barred but denied Geico’s motion to dismiss in all other respects. It rejected Geico’s argument that HARDY did not apply retroactively to Hoffmans’ breach of contract claim. Based on DEMPSEY (Mont. 2004), the Court held that HARDY applied retroactively to the breach of contract claim for failure to pay the stacked UIM. The validity of that claim turns on validity of Donna’s release, particularly whether it was supported by consideration.
Application of controlling law to the undisputed facts compels the conclusion that the release executed by Donna is unenforceable because it was not supported by consideration essential to formation of a binding contract. Because the parties have stipulated that the damages sustained by Kenneth exceed the available liability coverage and stacked limits of UIM, it follows that Hoffmans are entitled to the additional $200,000 UIM. Recommended that Hoffmans’ motion for summary judgment be granted.
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Judge Molloy’s order adopting Lynch’s findings & recommendation in full: Contrary to Geico’s assertion that Lynch shifted the burden to it to prove that the release was valid, he required Hoffmans, as the party moving for summary judgment, to establish absence of a material fact issue and that they were entitled to judgment as a matter of law. He concluded that they had satisfied this burden by relying on Geico’s judicial admission as to Kenneth’s damages the date the release was signed.
Geico also asserts that the release was valid without consideration because it was in writing, citing MCA 28-1-1601: “An obligation is extinguished by a release therefrom given to the debtor by the creditor upon a new consideration or in writing, with or without new consideration.” Lynch determined that the Montana Supreme Court would reject the notion that the relation between an insurer and insured is that of debtor & creditor and thus that 1601 does not apply here. In light of the fiduciary nature of the relation between an insurer and insured, I agree with his conclusion that it does not apply here.
Geico argues that it did not admit in its answer that Kenneth’s damages exceeded the combined sum of the tortfeasor’s available liability coverage and the $100,000 UIM paid by Geico at the time the release was signed. However, in its answer it admitted that “Kenneth Hoffman’s injuries exceeded the available third party insurance and the amount paid by Defendant to date.” It further admitted in response to Hoffmans’ requests for admission that it paid the $100,000 “as payment of the applicable limit of [UIM] available pursuant to the terms and conditions of [the policy].” These judicial admissions establish the undisputed fact that at the time the release was executed Kenneth’s damages exceeded the combined sum of the tortfeasor’s available liability coverage and the $100,000 UIM paid by Geico. Thus it was legally obligated under the policy to pay UIM, and its payment of such benefits did not constitute consideration for the release and the release is unenforceable.
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Lynch subsequently recommended that Hoffmans be awarded $66,666.67 attorney fees based on their contingency agreement with Christopher Froines and utilizing the lodestar calculation (his usual rate of $165/hr and estimated 450 hours) as a cross-check. He also ruled that they are entitled to prejudgment interest at 10% pursuant to MCA 27-1-211 from 4/18/07 when Geico admitted that Kenneth’s damages exceeded the $300,000 in “stacked” UIM and his right to recover $200,000 UIM became vested in accordance with policy terms. Molloy’s review of these recommendations is pending.
HOFFMAN V. GEICO INS.; Lynch’s recommendation as to the release 36 MFR 251, 10/16/07; Molloy’s adoption of Lynch’s release recommendation 36 MFR 274, 3/31/08; Lynch’s recommendation as to fees/interest 36 MFR 278, 6/25/08.
Christopher Froines (Geiszler & Froines), Missoula, for Hoffmans; John Bohyer & Fred Simpson (Bohyer, Simpson & Tranel), Missoula, for Geico.
JURISDICTION: Personal jurisdiction defense not waived by participating in litigation and complying with ordered procedures pursuant to FRCivP… insufficient prima facie showing that Alabama trucking company or Florida contractor services directed allegedly tortious disability insurance activities at Montana where insured trucker was residing at time of injury… no showing that Defendants purposely availed themselves of doing business in Montana… Defendants dismissed… Lynch.
Alan Farmer Trucking is incorporated in Alabama, its sole place of business. Independent Contractor Services is incorporated in Florida, its sole place of business. In 4/05 Mark Knotts, a representative of Barksdale Bonding & insurance of Alabama, asked ICS to provide one of his clients information concerning Truckers Occupational Accident Insurance. It provided an application for Farmer to complete and enrollment forms for the drivers, which Farmer returned to ICS. On 5/26/05 Farmer hired Mark Germain as an independent trucker contractor. Germain was living in Florida and had a Florida CDL. On 6/23/05 he met with Farmer’s office manager Donna Kornegay in Alabama. She presented a Truckers Occupational Accident Insurance driver enrollment form. He decided to purchase the coverage and completed the form that day. By its terms the form provides “only a brief description of coverage,” advises that “certain exclusions and limitations do apply,” and advises the insured to refer to the policy for complete details. According to Germain, the enrollment form was the only documentation he received when he purchased the policy, which was issued by National Union Fire Ins. He subsequently advised Farmer that he and his wife were planning to move to Montana. Farmer deducted the first premium from his paycheck 9/15/05 and forwarded it to ICS. By then Germains had become residents of Lake Co. On 9/29/05 he injured his back while driving freight in Delaware and has been unable to work as an OTR driver since. He began receiving $500/wk TTD pursuant to the National Union policy, which AIG Claims Services mailed to his Montana residence for 2 years. In 9/07 National Union terminated his benefits because he had not applied and qualified for SSD, which the policy requires as a prerequisite to receiving continuous total disability payments to age 70. Germain claims that no one advised him of such an exclusion. In 11/07 he sued Farmer, ICS, National Union, American International Group, and AIG claiming reformation of contract, breach of contract, breach of the implied covenant, fraud, constructive fraud, negligent misrepresentation, violation of the UTPA, intentional infliction of emotional distress, and estoppel. Farmer and ICS request dismissal for lack of personal jurisdiction. Germain requests summary judgment on his estoppel and reformation claims.
Germain argues that Farmer and ICS waived their defense of personal jurisdiction by their active participation in the litigation. However, they have objected to jurisdiction from the outset, raising it in their initial and amended responsive pleadings and preliminary pretrial statement. Rule 12(h)(1). Citing WAMSLEY (Mont. 2008), Germain argues that their acts of filing a notice of appearance, participating in the Rule 26 conference, filing a Rule 26 conference report, and asking the Court to reschedule the pretrial conference constituted a voluntary appearance under Rule 4(b)(2) by which they waived any objection to jurisdiction. However, unlike the MRCivP, the FRCivP require that the parties confer before a scheduling conference and attempt to agree on a proposed discovery plan, and the Court issued corresponding orders. The Court declines to preclude Defendants from asserting lack of personal jurisdiction by virtue of such court-ordered participation.
As to Germain’s tort claims, the facts as alleged are not sufficient to make a prima facie showing that Farmer or ICS “purposefully directed” their purportedly wrongful activities at Montana. CALDER (US 1984). Accepting his version of events, ICS sent the enrollment form from its Florida office to Farmer in Alabama, and later received one premium in Florida after Farmer had deducted it from his paycheck. Any alleged misrepresentation by Farmer occurred during Kornegay’s meeting with Germain at Farmer’s Alabama office before he had moved from Florida to Montana, and Farmer gave him the enrollment form during this meeting. Germain points to evidence that Farmer maintains a website on which it indicates that its hiring area includes Montana. However, the fact that it might be willing to hire independent contractors from Montana is not sufficient to show that it has actually directed its activities here by doing so.
As to Germain’s contract claims, he has similarly not made a prima facie showing that Farmer and ICS purposely availed themselves of the privilege of doing business in Montana or purposefully directed their activities here. He simply alleges that ICS provided Farmer with the enrollment form, which it did in Alabama, and received a premium from Farmer, which would have occurred at ICS’s Florida office. It is difficult to see how this conduct even relates to Germain’s breach of contract claims. The alleged misrepresentation by Farmer occurred in Alabama. Germain lived in Florida at that time.
Even if Farmer could be said to have purposefully availed itself of the privilege of doing business in Montana by contracting with Germain to haul the load or making a payroll deduction for the premium, due process requires that his claims arise out of or relate to that forum-related conduct to satisfy the 2nd prerequisite to special jurisdiction, while his claims as they relate to Farmer arise not out of the payroll deduction and alleged contract to performing trucking services, but out of its alleged misrepresentation and resulting damages.
Farmer’s and ICS’s motions to dismiss are granted.
GERMAIN V. AIG, NATIONAL UNION FIRE INS. OF PITTSBURGH, ALAN FARMER TRUCKING, AND INDEPENDENT CONTRACTOR SERVICES, 36 MFR 293, 7/31/08.
Mick McKeon & Rick Anderson (McKeon & Anderson), Butte, for Germain; William Mattix (Crowley, Haughey, Hanson, Toole & Dietrich), Billings, for Defendants.
JURISDICTION: Railroad environmental remediation manager could be liable to property owners, not fraudulently joined, remanded to State Court… Molloy.
Plaintiffs sued BNSF, a Delaware corporation, and David Smith, a Montana resident and manager of environmental remediation in Montana, Wyoming, Utah, and Colorado, in Montana State Court claiming contamination of their Helena property. Defendants removed to this Court, arguing that Smith was fraudulently joined to defeat diversity. Plaintiffs request remand.
Defendants’ claim that Smith was fraudulently joined was rejected by Judge Haddon in CAVEN (D.Mont. 2004), which involved a Havre railyard. Haddon recognized that an employee may be liable under Montana law for torts committed within the scope of employment. Defendants offer Smith’s declaration that:
All actions I have taken with respect to my work at the Helena railyard were done in furtherance of my employment at BNSF. I have not engaged in any acts for my personal benefit as opposed to for the benefit of my employer. I also have not acted in a personally malicious manner in the conduct of my job duties.
Smith and his supervisor describe his position as not including direct contact with landowners. Smith also indicates that he has no involvement in the release of toxic or hazardous materials at the Helena railyard. Defendants assert that these declarations provide sufficient evidence to dismiss Smith.
Plaintiffs provide Smith’s deposition testimony in a similar case in which he described his job as investigation and remediation of properties owned by BN, previously owned by BN, or that may have been previously owned including any leased sites, and “providing coverage for hazardous materials release response using contractors and appropriate people.” This indicates that he is part of management decisions at contaminated sites throughout Montana.
The evidence is contradictory, and thus Defendants have not proved that Plaintiffs can prove no facts in support of their claims against Smith. MCNAMARA (9th Cir. 2002). Because he could be liable to them under Montana law he was not fraudulently joined. Remanded to Montana 1st Judicial Dist. Court.
ANDERSON ET AL V. BNSF AND SMITH, 36 MFR 314, 5/21/08.
Tom Lewis, David Slovak, and Mark Kovacich (Lewis, Slovak & Kovacich), Great Falls, for Plaintiffs; James Roberts & Dennis Nettiksimmons (Hedger, Friend & Roberts), Billings, and Paul Lawrence & Carl Gilmore (Kirkpatrick & Lockhart Preston Gates Ellis), Seattle, for BN.
JURISDICTION: Railroad’s invocation of All Writs Act to enjoin Intervenors in 1989 consent decree from pursuing environmental restoration damages in State Court denied as premature… Strong/Molloy.
Judge Lovell entered a partial consent decree in 4/89 committing BNSF and DEQ to study contaminated areas at Livingston and attempt to negotiate a clean up plan. The Court retained jurisdiction to ensure compliance, consider amendments, and adjudicate certain disputes. Intervenors are among the plaintiffs in a suit pending in Montana 6th Judicial Dist., LIVINGSTON V. BNSF, which seeks damages for contamination BN and others allegedly created and allowed to remain and extend beyond BN property. BN moves to enjoin prosecution of “restoration damages” by Intervenors based on SUNBURST (Mont. 2007) and SHAMMEL (Mont. 2007). It seeks to invoke the All Writs Act to enjoin Intervenors from pursuing the restoration damages remedy. Livingston and certain plaintiffs in the State Court action intervened to oppose the injunction. The Court (Magistrate Strong), mindful of its duty to balance the integrity of its jurisdiction against principles of comity in a federal system, recommends that the motion be denied without prejudice as premature.
Despite the age of this suit, the record facts are sparse. No final decree exists, much less a final remedia
tion plan. The State Court litigation has not been resolved and appears to be in the pleadings and discovery stage.
BN argues that the All Writs Act requires an injunction because the State Court litigation poses at least an immediate threat, if not an immediate inroad on this Court’s jurisdiction as exercised through the partial consent decree. It emphasizes that the restoration damages claim in the State Court infringed on DEQ’s exclusive remediation powers responsibility under the partial consent decree and thus upon the decree itself. However, DEQ does not assert that pendency of Intervenors’ State Court restoration damage count presently or inevitably infringed its authority or responsibility under the decree, but counsels a wait & see approach. It notes that Intervenors may seek to recover “restoration” damages but that its mandate extends only to health-based standards, and reminds the Court that continuing jurisdiction is reserved and thus the Court can act should an actual conflict develop or appear imminent.
Intervenors agree with that part of DEQ’s position, and also cite the decree’s provision reserving outside of the decree “claims by any person other than the parties to the [decree].” They note that they were not parties to the decree, and claim to be prosecuting claims that were excluded, and thus the Court must be guided by the Anti-Injunction Act and refrain from enjoining the restoration damages remedy sought in State Court.
BN’s argument seems to be that because a direct conflict is theoretically possible in the future, the Court must enjoin in the present. That argument was rejected byALPINE (9th Cir. 1999), reciting settled law under 28 USC 2283 resolving doubts in favor of allowing state court processes to continue unimpeded. The partial consent decree has the opposite effect of the ALPINE situation; it expressly recognizes individuals’ rights to bring their own actions. Since this Court has continuing jurisdiction it can act should any conflict materialize. Thus BN’s motion for injunction is premature. BN argues that the “protect or effectuate its judgments” exception in 2283 applies. In effect, it asserts that DEQ in its role as Plaintiff here and as a party to the consent decree has usurped, as parens patriae, the right of the individuals to bring a suit for remediation damages. However, the express language of the decree reserves the rights of individuals to sue, and also specifically denies BN any release for matters not covered by it. Further, in SUNBURST, DEQ’s presence on the site did not bar the individual landowners’ suits. MARTINEZ (9th Cir. 2003) and EXXON VALDEZ (9th Cir. 2001) (allowing suits when damages sought are not co-extensive with earlier litigation) control the result here. Again, DEQ does not argue for the exclusive role BN asserts for it.
Judge Molloy adopted Strong’s findings & recommendations in full.
DEQ V. BNSF, 36 MFR 319/328, 4/30/08, 7/8/08.
Tom Lewis, David Slovak, and Mark Kovacich (Lewis, Slovak & Kovacich), Great Falls, and Karl Knuchel & Mark Hartwig, Livingston, for Intervenors (Plaintiffs in State Court case); Leo Berry, Daniel Hoven, Catherine Laughner, and Steven Wade (Browning, Kaleczyc, Berry & Hoven), Helena, John Berghoff & Susan Brice (Mayer Brown), Chicago, and Paul Lawrence & Carl Gilmore (Kirkpatrick & Lockhart Preston Gates Ellis), Seattle, for BN; Katherine Haque-Hausrath (DEQ).
JUDICIAL ESTOPPEL: Suit against appraiser alleging overvaluation of RV park dismissed because of Plaintiff’s switch in long-asserted position from Massachusetts Trust to corporation following ruling against it based on lack of standing as business trust… Haddon.
Joe Seipel appraised an Anaconda RV park at $1.1 million for Olympic Coast Investments, which later disbursed $680,000 funds to David Barr for its purchase. Barr defaulted on his then $780,000 obligation and the property sold for $425,000. Olympic sued Seipel alleging that he overvalued the property. Seipel moved for summary judgment based partly on Olympic’s lack of a certificate of authority to do business in Montana as an express or “Massachusetts” Trust. In 2/05 this Court noted that Olympic had not amended to allege anything other than that it was proceeding as a trustee of an express business trust, suing in its own name on behalf of the trust and its beneficiaries, and dismissed without prejudice. On 11/26/06 the 9th Circuit concluded that “the district court did not err in finding that [Olympic] cannot maintain a suit in its capacity as trustee.” At a status conference on remand this Court was apprised that issues relating to Olympic’s ability to maintain suit in its corporate capacity or as assignee of claims or whether it was judicially estopped from maintaining or asserting such a position were neither raised nor argued before the 9th Circuit, and further briefing was ordered.
Maintenance of the integrity of judicial process lies at the heart of the issue now before the Court. The assessment must be made within the context of the record — a record which permits but one conclusion: Olympic is judicially estopped from now claiming any right to further pursue this case in its corporate capacity or as assignee of claims. Words have meaning, particularly words of counsel spoken or written as officers of the Court in statements or writings to the Court. KAPLAN (9th Cir. 1967);PIERCE (7th Cir. 1997) (courts must be able to rely on the veracity of representations by attorneys who appear before them as officers of the court). Any lesser standard would make a mockery of our system of justice. Olympic, through its counsel, consistently asserted, maintained, and ultimately satisfied this Court that it brought and maintained this suit as trustee of an express business trust. It did so by pleading, statements in briefs, responses in discovery, and repeated direct representations in court.
Judicial estoppel precludes a party from gaining advantage by factually taking inconsistent positions. HAMILTON (9th Cir. 2001). More particularly, it protects the integrity of the judicial process, assures accountability in actions and representations before the Court, and prevents a litigant from “playing fast and loose with the courts.” RUSSELL (9th Cir. 1990). Factors to be considered as to whether to apply judicial estoppel are whether a party’s later position is “clearly inconsistent” with its earlier position, whether it has “succeeded in persuading a court to accept that party’s earlier position so that judicial acceptance of an inconsistent position in a later proceeding would create the perception that either the first or second court was misled, and whether a party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped. NEW HAMPSHIRE (US 2001). All factors are present here. Olympic vigorously & consistently claimed, through appeal, that it was a Massachusetts Trust. Such an entity is historically, factually, and legally separate & distinct from a corporate or other law-created & recognized “person.” Olympic clearly did not pursue the case as a corporation or assignee. It chose to proceed as a Massachusetts Trust before this Court after being afforded multiple opportunities to take a different approach. The Court accepted its position in addressing issues related to Seipel’s motion for summary judgment and in determining that Olympic lacked capacity and standing to sue as a Massachusetts Trust, a position affirmed on appeal. It cannot now be heard to say that it did not succeed in its efforts, notwithstanding that overall its chosen legal & factual positions did not prevail to establish standing. It has acknowledged that a claim based on authority to proceed as a Massachusetts Trust is legally inconsistent with a claim grounded in assignment. It belabors the obvious that a party cannot consistently advance particular positions to the point of success and acceptance by the Court, seek and obtain a ruling from the Court based on that position, and later claim that it gained no advantage and the opponent was not disadvantaged by the chosen course. Such a position is remarkably similar to that of a schoolyard youngster who lost a game played under rules that he insisted on being followed, who now demands a replay under different rules. This Court will not countenance or reward such inconsistencies. Olympic is not entitled to abandon its earlier positions and statements of its representatives, throw them off as if they never existed, and embark on a totally different legal & factually based theory of recovery. Judicial estoppel exists to prevent just such an effort. Fairness, equity, and honesty in fact before the Court dictate its application. Olympic may not attempt to pursue this case as other than a Massachusetts Trust. It cannot go forward on that basis. Seipel is entitled to dismissal of all claims. Although his arguments for attorney fees/costs are persuasive, the Court has determined that none will be allowed.
OLYMPIC COAST INVESTMENTS V. SEIPEL (MARKET RESEARCH GROUP), 36 MFR 330, 8/25/08.
Quentin Rhoades (Sullivan, Tabaracci & Rhoades), Missoula, for Olympic; Scott Fisk (Crowley, Haughey, Hanson, Toole & Dietrich), Helena, for Seipel.
INSURANCE: Not reasonable to expect based solely on enrollment form that insured would automatically receive continuous total disability benefits to age 70 if injured/unable to work as trucker… fact issues preclude summary judgment as to whether insured was prejudiced and insurer should be estopped from relying on SSD “exclusion”/”condition precedent” based on alleged failure to timely provide certificate of insurance… fact issues preclude summary judgment as to Plaintiff’s request to reform policy to reflect terms allegedly represented through agent… discovery of other buyers of policy compelled… Lynch.
In 4/05 Independent Contractor Services provided an application for Truckers Occupational Accident Insurance to Allan Farmer Trucking of Alabama and enrollment forms for the drivers. On 5/26/05 Farmer hired Mark Germain as an independent trucker contractor. On 6/23/05 he met with Farmer’s office manager Donna Kornegay, who presented a Truckers Occupational Accident Insurance enrollment form which he completed that day. By its terms the form provides “only a brief description of coverage,” advises that “certain exclusions and limitations do apply,” and advises the insured to refer to the policy for complete details. According to Germain, the enrollment form was the only documentation he received when he purchased the policy, which was issued by National Union Fire Ins. Farmer deducted the first premium from his paycheck 9/15/05 and forwarded it to ICS. By then he had become a resident of Lake Co., Montana. On 9/29/05 he injured his back while driving in Delaware and has been unable to work as an OTR driver since. He began receiving $500/wk TTD pursuant to the NU policy, which AIG Claims Services mailed to his Montana residence for 2 years. In 9/07 NU terminated his benefits because he had not applied and qualified for SSD, which the policy requires as a prerequisite to continuous total disability payments to age 70. Germain claims that no one advised him of such an exclusion. In 11/07 he sued Farmer, ICS, NU, and AIG claiming reformation of contract, breach of contract, breach of the implied covenant, fraud, constructive fraud, negligent misrepresentation, violation of the UTPA, intentional infliction of emotional distress, and estoppel. The Court previously dismissed Farmer and ICS for lack of personal jurisdiction (MLW 8/9/08:6). Germain now requests summary judgment on his estoppel and reformation claims. He asserts that he is entitled as a matter of law to all retroactive continuous total disability benefits at $500/wk to age 70 or until NU can prove that he is able to return to work as an over-the-road driver. He argues that he is entitled to summary judgment based on reasonable expectations, NU’s failure to timely deliver the policy, and equitable estoppel.
Germain argues that he reasonably expected, based on his reading of the enrollment form, that he would be entitled to continuous total disability benefits to age 70 if he was injured and unable to return to work as a truck driver, and that NU should be estopped from relying on the part of the policy requiring that he first qualify for SSD because it was not set forth on the enrollment form. The Montana Supreme Court has discussed the reasonable expectations doctrine on several occasions since it first recognized it in ROYLE (Mont. 1983), but never under circumstances analogous to those here. Thus Germain relies on authority from other jurisdictions that an insurer may be estopped from relying on exclusionary language in a policy where it contradicts prior representations such as in an application or pamphlet. However, these cases involved actual inconsistencies between terms of the policy and the prior representations. In this case the form contains a “Summary of Benefits Selected” and lists several types of benefits including “Temporary Total Disability” and “Continuous Total Disability.” The chart indicates a 7-day waiting period for TTD, which may then be awarded for no more than 104 weeks. It correspondingly indicates that the waiting period for continuous total disability is 104 weeks and states that the maximum benefit period is “to age 70.” While the form says nothing about what must be done to qualify for continuous total disability after cessation of TTD, it advises that “certain exclusions and limitations do apply” and directs the insured “for complete details please refer to your policy.” The policy in turn conditions continuous total disability on the insured having first secured SSD. Because the enrollment form plainly advises that exclusions & limitations apply and directs the reader to the policy for details, the Court cannot go so far as to say that it was objectively reasonable for Germain to expect, based solely on his review of the form, that he would automatically receive continuous total disability benefits to age 70 if he was injured on the job and unable to return to work as a truck driver.
Germain cites several out-of-jurisdiction cases holding that an insurer may be “estopped from relying upon an exclusion in a policy if the company has failed to deliver the policy or certificate of insurance to the insured or any other document stating the exclusion.” MARTINEZ (Utah 1985). In addition to the common law doctrine of reasonable expectations, many states including Montana have enacted statutes requiring that insurers deliver a copy of a policy to the insured “within a reasonable time after its issuance.” MCA 33-15-412(1). Germain argues that NU violated its statutory duty because he did not receive the certificate of insurance until after his injury, which prejudiced him because he did not learn that he would have to qualify for SSD as a prerequisite to continuous benefits until after he was hurt, when it would have been too late to obtain another policy. Under MCA 33-22-502 a “group disability insurance policy delivered or issued for delivery” in Montana must contain
a provision that the insurer will furnish to the policyholder for delivery to each employee or member of the insured group a statement in summary form of the essential features of the insurance coverage of such employee or member and to whom benefits thereunder are payable.
Coverage for the NU policy was bound on 9/2/05 and Germain paid his first premium by payroll deduction 9/15. An NU “account checklist” indicates that ICS sent a copy of the DOC to Germain 9/27/05, 2 days before he hurt his back. Although it is not clear whether the DOC referenced the disputed SS provision, NU subsequently paid 104 weeks of temporary disability, terminating in 9/07. In 1/06 ICS mailed to Germain the certificate of insurance, which did include the SS provision. Thus it appears that NU provided a description of the coverage 3 weeks after it was bound, and with the certificate of insurance with the SS provision 4? months later. On these facts the Court cannot say as a matter of law that it violated its duty to provide “a statement in summary form of the essential features of the insurance coverage” within a reasonable time. MCA 33-22-502; 33-15-412(1). However, the critical question is whether Germain was prejudiced by not receiving written notice of the SS provision before he was injured. BROWN MACHINE WORKS (M.D. Ala. 1996). Such prejudice typically exists where the insurer fails to provide a copy of the policy before the insured suffers a loss, and then attempts to deny coverage based on a previously undisclosed exclusion. ID. However, if the policy language is simply a condition precedent to coverage or recovery, if the insurer provides a copy of the policy before the insured is called upon to satisfy a condition precedent the insured cannot be said to have suffered any prejudice from an alleged statutory violation. AKPAN (Ala. 2007). Germain calls the SS provision an exclusion and NU refers to it as a condition precedent. Terminology aside, it is undisputed that it required him to qualify for SSD in order to receive continuous disability benefits. Regardless of whether NU technically violated its statutory duty, Germain received the certificate of insurance with the SS provision 8 months before he could have become eligible to receive continuous total disability benefits. He claims that he was prejudiced because by the time he learned of the provision it was too late to obtain another policy without such a provision. However, that is a fact issue. Had he not purchased the policy he may have been in a substantially worse spot than he is now, having paid a single $140 premium and receiving $48,000 in temporary disability plus payment of his medicals. His affidavit is silent as to whether he would have sought other insurance had he known of the SS requirement. NU notes that despite a long employment as an over-the-road driver he had never before obtained a disability policy. He has not established that he is entitled to judgment as a matter of law on his claim that NU should be estopped from relying on the SS provision based on its alleged failure to timely provide the certificate of insurance.
While Germain is not entitled to summary judgment based on NU’s alleged failure to deliver the policy within a reasonable time, the question remains as to whether he has otherwise established the 6 equitable estoppel elements. Even assuming that NU’s enrollment form misrepresented or concealed the SS provision, there are fact issues as to whether NU intended or expected Germain to rely on it, whether he did so, and whether he changed his position for the worse as a result. ARTHUR (Mont. 2004) (failure to establish even 1 of the 6 elements dooms the claim). Nor has he established that NU omitted it with the “intention, or at least with the expectation,” that he would purchase the policy as a result, or did so “under the circumstances that it is both natural and probable that it will be so acted upon.” ANDERSON (Mont. 2007). Nor has he established that he relied on the allegedly misleading enrollment form and as a result was led to act upon it by purchasing the NU policy. Although he states that he believed he was purchasing a disability policy that would pay benefits to age 70 if he was injured on the job and unable to return to work as a trucker, he does not indicate whether he came to believe this based on his reading of the enrollment form or on Kornegay’s alleged statements as to scope of coverage. Whether he acted on NU’s alleged misrepresentation “in such a manner as to change his position for the worse,” ID., also presents a fact question precluding summary judgment. His affidavit states only that he would not have purchased the policy had he known of the SS provision; it says nothing about whether he would have shopped for a different policy, as he now asserts, while NU points to evidence that he had never before purchased a disability policy.
Germain asks the Court to reform the policy on grounds of unilateral mistake, mutual mistake, and constructive fraud. The “mistake of one party” may provide a basis for revising a contract only if the other party “knew or suspected” that the contract did not “truly express the intentions of the party.” MCA 28-2-1611; OFTEDAL (Mont. 2002). Germain points to nothing establishing that NU knew or suspected that he was purchasing the policy under an erroneous assumption as to continuous disability benefits. As to mutual mistake, although he believes NU had a duty to advise him about the SS provision and include it on the face of the enrollment form, he does not explain how its failure to do so constitutes a “mistake” within the meaning of 28-2-1611, since he fails to point to any evidence that the policy failed to express NU’s intent. Having conceded elsewhere in his briefing that there are fact issues precluding summary judgment on his constructive fraud claim, he cannot now argue that he is entitled as a matter of law to have his contract revised based on constructive fraud.
Germain’s motion for partial summary judgment is denied.
– – –
Germain moves to compel NU to disclose identity, address, and phone number of independent owners/operators who purchased “Truckers Occupational Accident Insurance” through a representative of Farmer Trucking 2005-07 and all “related” documents and any documents that identify all of the truckers, on grounds that the information is probative of his claim for fraud & negligent misrepresentation. NU objects that the requests are overly broad, burdensome, and harassing, the information is not reasonably calculated to lead to admissible evidence, and disclosure would infringe on privacy of the non-party truckers.
Scope of the discovery is limited to the following:
? Identity, address, and phone number of independent owners/operators who purchased the insurance through Farmer 2005-07.
? The enrollment form, with “Driver Information” redacted except for name, address, phone number, and date.
The parties shall prepare a protective order to preclude public dissemination beyond this litigation.
GERMAIN V. AIG, NATIONAL UNION FIRE INS. OF PITTSBURGH, ALAN FARMER TRUCKING, AND INDEPENDENT CONTRACTOR SERVICES, 36 MFR 342/372, 9/8/08.
Mick McKeon & Rick Anderson (McKeon & Anderson), Butte, for Germain; William Mattix (Crowley, Haughey, Hanson, Toole & Dietrich), Billings, for Defendants.
INSURANCE/ATTORNEY FEES: $66,668 fees pursuant to BREWER in invalid UIM release case… burden of establishing reasonableness of fees not shifted to insurer, properly fell within reasonable range… prejudgment interest properly awarded under Montana “debtor/ creditor” statute… Lynch’s findings & recommendations adopted in full… Molloy.
Kenneth Hoffman was seriously injured in 8/04 when the vehicle in which he was a passenger hit a tree. The driver, Jonathan Hamper, was killed. Hoffman was an insured under a Geico policy which contained UIM for each of 3 vehicles, with limits for each vehicle of $100,000/$300,000. It purported to preclude “stacking” of UIM limits, even though Geico had charged a separate premium for each vehicle. On 7/5/01 Geico paid Hoffman’s unrepresented mother/guardian Donna the $100,000 UIM limit covering one of the 3 vehicles, requiring her to sign a full release of all claims for UIM benefits. As of that date Hoffman’s medicals were $200,000. In 12/02 Donna settled with Hamper’s liability insurer for $300,000 in exchange for a release of Hamper. She also received $70,000 from Hamper’s business insurer. HARDY (Mont. 2003) subsequently held MCA 23-33-203 unconstitutional to the extent that it allowed an insurer to charge a premium for “illusory coverage.” Correspondingly, it invalidated on public policy grounds the anti-stacking provision of a multiple vehicle policy for which the insured paid a separate premium for UIM with respect to each vehicle. Hoffmans then sued claiming the additional $200,000 stacked limits of the UIM, seeking to have the release set aside on the alternate grounds of fraud, mistake of fact, undue influence, and lack of consideration. The Court granted summary judgment for Hoffmans on the basis that the release was invalid due to stipulated damages in excess of available liability and stacked coverages, and Magistrate Lynch recommended awarding $66,666.67 attorney fees and 10% prejudgment interest pursuant to MCA 27-1-211 from 4/18/07 when Geico admitted that Hoffman’s damages exceeded the $300,000 in “stacked” UIM and his right to recover $200,000 UIM became vested in accordance with policy terms (MLW 8/2/08:7). Geico objects as to attorney fees.
Geico objects to Lynch’s conclusion that Hoffmans are entitled to fees under BREWER (Mont. 2003). It suggests that because BREWER held that the insurance exception to the American Rule did not extend to an injured 3rd-party claimant’s declaratory judgment action seeking a determination of coverage this Court cannot determine whether BREWER applies or does not apply in any factually dissimilar case, and asserts that the reasoning in BREWER was strictly in the context of an insurer’s duty to indemnify an insured. It attempts to bolster this argument by pointing to Lynch’s reliance on his own reasoning in RIORDAN (36 MFR 218) and to the fact that this Court had not adopted any findings & recommendations in RIORDAN (they were subsequently adopted, infra). It argues that because the issue in BREWER was NOT whether a release is valid in a contract action, and this IS the issue here, the principle from BREWER cannot apply, and that RIORDAN is factually distinguishable.
BREWER is not as difficult to understand and apply as Geico imagines. The principle it announced, and as it was emphasized in SAMPSON (Mont. 2006), is that:
An insured is entitled to recover attorney fees under the insurance exception to the American Rule when the insurer forces the insured to commence legal action to obtain the full benefits of the insurance contract between them; however, we have declined to extend this exception to third party actions, where there is no privity of contract — no previously bargained for benefit — that the third party was forced into litigation to vindicate.
Nothing in this explanation of BREWER indicates that the exception to the American Rule which BREWER recognizes is limited to where the underlying action is factually indistinguishable from BREWER or presents a legal issue which BREWER presented. SAMPSON recognized that the insurance exception is limited to 1st-party insureds. The exception applies if the insurer forced its 1st-party insured to commence legal action to obtain the full benefits of the contract. Geico’s objection is not well-taken.
Geico objects that Lynch shifted the burden of establishing reasonableness of fees to it. However, even a cursory reading of his findings & recommendations dispatches this claim. He correctly applied the Rule 54(d)(2) process. After concluding that the estimate of total hours by Hoffmans’ counsel was high and that a range of 350-425 was reasonable (Geico conceded 300-350), he noted that 54(d)(2)(C) requires the Court to allow a party to make adversary submissions. Geico submitted its brief but no additional evidence. Lynch did not improperly shift the burden belonging to Hoffmans. He determined, based on the evidence and his own knowledge, a reasonable total-hour range and hourly rate, and then concluded that the contingency amount fell squarely within this range.
Geico contends that because Lynch concluded that the parties were not in a creditor-debtor relationship for purposes of its argument for summary judgment, MCA 27-2-211 cannot apply because it characterizes the party owing prejudgment interest as “debtor” and the party to whom it is owed as “creditor.” However, identifying this semantic similarity between the statutes is insufficient absent a colorable legal argument. Geico states that Lynch’s findings & recommendations “provide no analysis or authority to explain why the parties are now considered creditor and debtor.” However, the parties in a prejudgment interest dispute are considered “creditor” and “debtor” because that is what the statute calls them.
Lynch’s findings & recommendations are adopted in full.
HOFFMAN V. GEICO INS., 36 MFR 376, 9/29/08.
Christopher Froines (Geiszler & Froines), Missoula, for Hoffmans; John Bohyer & Fred Simpson (Bohyer, Simpson & Tranel), Missoula, for Geico.
INSURANCE/ATTORNEY FEES: Insured did not waive right to request fees via Rule 54 motion rather than in complaint… UIM insured entitled to fees underBREWER even though insurer had accepted liability for some of his injuries but refused to pay policy limits until he sued… questions as to cause of injuries not bar to fees since insurer denied any further liability… $25,900 contingency fees proper based on $74,000 settlement entered shortly before trial, $4,859 hourly fees proper based on $45,413 paid shortly after suit filed… certification of fee questions properly denied in light of substantive Montana law and delay in requesting certification until adverse recommendations… Lynch’s findings & recommendations adopted in full… Molloy.
William Riordan was injured when he was rear-ended by Kyle Goettlich. Goettlich’s insurer paid $50,000 limits. Riordan then sought UIM from State Farm under 3 policies which each provide $50,000/$100,000 UIM. State Farm paid $30,587 UIM 1/30/06-8/06. Riordan sued in 3/07 claiming the rest of the $150,000 “stacked” limits. Between being served in 4/07 and filing its answer in 6/07 State Farm paid an additional $45,413, bringing the total UIM to $76,000. Trial was set for 2/25/08. On 2/14 the parties settled for the remaining $74,000 UIM. Riordan had a 33% contingency fee agreement. He contended that he is entitled to $51,980 fees — 35% of the entire $150,000 UIM. Alternatively he argued that if the Court determined that fees are properly determined by the lodestar method he should recover $33,025. State Farm argued that he waived any claim by failing to plead for them as an item of special damages under Rule 9(g), he is not entitled to fees under Montana law, and he failed to establish that he incurred fees in prosecuting this case. Magistrate Lynch found that the BREWER holding as to the insurance exception applies to a 1st-party UIM claim, since Riordan was forced to litigate to obtain his full UIM he is entitled to fees based on a lodestar as to UIM paid before the suit was filed and between the filing of suit and filing of the answer and on a contingency as to the UIM paid in settlement, and that his fee request properly was made in a pre-judgment motion and was not required in pleading (MLW 6/28/08:5). Following a reasonableness proceeding he recommended that Riordan be awarded $30,759 in fees. He also recommended denying State Farm’s motion to certify fee questions to the Montana Supreme Court. State Farm objects.
Lynch correctly found that Riordan did not waive his right to request attorney fees and that his motion pursuant to Rule 54 was sufficient to raise the claim. State Farm argues that Riordan waived his right to request fees because the claim was not part of his complaint pursuant to Rule 9(g) (parties must plead special damages specifically). However, Rule 54(d)(2)(A) states that “a claim for attorney’s fees and related nontaxable expenses must be by motion unless the substantive law requires those fees to be proved at trial as an element of damages.” The motion must be filed “no later than 14 days after the entry of judgment.” 54(d)(2)(B)(i). The Advisory Committee Notes state that Rule 54 “does not … apply to fees recoverable as an element of damages, as when sought under the terms of a contract; such damages typically are to be claimed in a pleading and may involve issues to be resolved by a jury.” Riordan’s request for fees is not an element of damages. He has not requested fees on the basis of any contractual provision in his insurance contract, but on the basis of the equitable exception to the American Rule. BREWER. The Advisory Committee Note points out that fees requested as part of damages “typically are to be claimed in a pleading” that would be subject to the specific pleading requirements of Rule 9(g). This indicates that fees that are not part of damages and thus may be requested by a Rule 54 motion need not be claimed in a pleading. The motion required by Rule 54 sufficiently raises the issue and gives notice to the other party.
Lynch correctly found that Riordan is entitled to his fees even though State Farm had accepted liability for some of his injuries. State Farm argues that BREWER is inapplicable where there is a dispute over the value of the claim but the insurer has not rejected coverage altogether. BREWER held:
An insured is entitled to recover attorney fees, pursuant to the insurance exception to the American Rule, when the insurer forces the insured to assume the burden of legal action to obtain the full benefit of the insurance contract, regardless of whether the insurer’s duty to defend is at issue.
SAMPSON (Mont. 2006) subsequently emphasized that the Montana Supreme Court limited BREWER’S holding only on the basis of whether the case involves a 1st-party or 3rd-party insured. Riordan, as a 1st-party insured, is entitled under BREWER to his fees because he was forced to “assume the burden of legal action to obtain the full benefit of [his] insurance contract.” While State Farm had accepted liability for some of his injuries it refused to pay policy limits, the “full benefits” he had contracted for, until he engaged in litigation. This falls squarely into the holding of BREWER.
State Farm argues that Riordan failed to address its argument that Riordan is not entitled to fees because of legitimate questions as to the cause of his injuries. However, as Lynch noted, its answer unequivocally denied that it was liable for any further payments and that the accident caused all of his injuries. Based on its denial that it had any further liability it refused to pay the full benefits of his policy until he sued. Under BREWER this entitled him to his fees:
The insurer had contracted to defend the insured, and it failed to do so. It guessed wrong as to its duty, and should be compelled to bear the consequences thereof.
Lynch did not err in recommending that Riordan receive a total of $30,759 in fees. Riordan retained counsel soon after his injury and prior to suit, and his agreement required him to pay 1/3 of any recovery. He then employed different counsel prior to suing and agreed to pay them 35% of any recovery. State Farm reasons that he is only entitled to the $1,234 difference in what he would have paid his 1st attorney for recovering the full amount and the amount he owes the counsel he retained for this action. However, the calculation is not based on what hypothetically could have happened had he continued to be represented by his earlier attorney. The fact is that he was required to “assume the burden of legal action to obtain the full benefit” of his policy. Based on the $74,000 settlement shortly before trial Lynch found that State Farm should pay Riordan 35% of this amount, or $25,900. This is reasonable in light of the experience & skill of the attorneys, the time required, Riordan’s inability to otherwise pay for the services, and the risk that he would not recover without the assistance of counsel. STIMAC (Mont. 1991). State Farm also objects to the award of $4,859 incurred to recover $45,413 which State Farm paid shortly after Riordan sued. It argues that this amounts to a double recovery and that some of the hours used to calculate this amount involved work done before he sued. It does not assert that it would have paid this amount had he not sued. He is thus entitled under BREWER to fees incurred to obtain this part of the recovery, including the investigation counsel necessarily undertook before suing. The affidavits show that $4,859 was based on a reasonable rate for the time expended to recover $45,413, and State Farm does not assert that the rates Lynch used were unreasonable.
Lynch did not err in recommending denial of certification of the following:
1. Does Montana’s insurance exception to the American Rule extend to 1st-party claims where the dispute is over the value of the claim rather than existence of a duty to defend/indemnify?
2. If so, must a court conclude that there could be no genuine dispute over the value of the claim before it can award fees?
As Lynch noted, questions should not be certified if the answer is reasonably clear and adequate state law exists to allow a federal court to reach a principled decision.HILL (US 1987). Lynch correctly found that it is reasonably clear that BREWER controls the outcome here and Riordan is entitled to fees. Because there is already substantive Montana law that is determinative it is not appropriate to certify the questions. Contrary to State Farm’s assertion, WAGNER-ELLSWORTH (Mont. 2008) does not undermine Lynch’s recommendation not to certify. WAGNER-ELLSWORTH denied an insured’s request for fees on appeal. However, the appeal merely reversed a summary judgment against the insured; the case had not yet been decided on its merits. Unlike Riordan, the insured had not yet established entitlement to recovery from the insurer. In addition, as Lynch notes, certification is particularly inappropriate because of State Farm’s delay in requesting it until his adverse recommendation.MCLINN (9th Cir. 1984).
Lynch’s findings & recommendations are adopted in full.
RIORDAN V. STATE FARM MUTUAL AUTO INS., 36 MFR 382, 9/29/08.
Sydney McKenna & Justin Starin (Tornabene & McKenna), Missoula, for Riordan; Travis Dye & C.J. Johnson (Kalkstein & Johnson), Missoula, for State Farm.
ERISA/ESOP: Company and ESOP trustees not entitled to indemnity from ESOP arranger for $1.5 million settlement of $1,352,250 judgment (plus $360,600 fees) for the employees resulting from erroneous appraisal of transaction and breach of fiduciary duties… Molloy.
Charles and Stuart Donaldson each owned 50% of Donaldson Bros. Ready Mix. In 1995 Stuart wished to retire, so the company contracted with Phenneger & Morgan to set up an ESOP which would purchase all of Stuart’s stock and 1% of Charles’s. Donaldson hired Consilium from a list provided by P&M to conduct an independent appraisal of the stock that the ESOP would purchase and provide an opinion as to fairness of the transaction. In 11/95 Donaldson adopted the ESOP. Charles, his wife Catherine, and her father Thomas Simpson were appointed trustees. Charles now asserts that P&M did not advise Donaldson that it was improper for Charles, Catherine, and Thomas to serve as trustees. On 12/8/95 the trustees caused the ESOP to enter into a loan transaction with Donaldson, the proceeds of which were used to purchase Stuart’s 50% and Charles’s 1% ownership. The same day Donaldson received Consilium’s appraisal of the proposed transaction. Neither Catherine nor Thomas reviewed it. Charles also failed to review it, although he reviewed the opinion letter provided with it prior to the ESOP’s purchase. The appraisal contained readily discernible errors which the trustees did not discover before the transaction was completed. In 2001 several employees sued Donaldson and the trustees alleging that the purchase violated ERISA. Following bench trial this Court entered $1,352,250 judgment for the employees, finding that the Consilium appraisal violated a number of business valuation standards and the trustees breached their fiduciary duties because they did not discover any of these errors ( RAINES, MLW 7/24/04:5), and subsequently awarded $360,600 attorney fees (MLW 4/9/05:4). The case settled for $1.5 million during appellate mediation. Donaldson Bros., Charles, Catherine, and Thomas then brought this indemnity action against P&M. P&M asserts that Plaintiffs are not entitled to indemnity from P&M for the settlement in the RAINES litigation because they breached their fiduciary duties as trustees, and also based on ERISA policies and because they should not be able to recover for their own wrongdoing. The first argument is dispositive.
Plaintiffs argue that their request for indemnity is based on their contract with P&M. If a party requests indemnity based on a contractual relationship, its own negligence does not necessarily bar indemnity. DITEMAN (Mont. 1981). However, the party still must not commit negligence subsequent to entering the contract that leads to the harm. ID. The undisputed facts established in the RAINES litigation demonstrate that Plaintiffs committed numerous breaches of their fiduciary duties, including failure to adequately review the Consilium appraisal. Thus they are barred from being indemnified by P&M. Even assuming that P&M is liable to some extent for the losses, Plaintiffs were unquestionably found at fault for the losses in the RAINES litigation. Because their breaches caused the harm to the employees in the former litigation it would be inequitable to now shift that entire loss to P&M. FLETCHER (Mont. 1973). Further, assuming that Plaintiffs were correct that P&M breached its contractual duties to Donaldson, they would still not be entitled to indemnity since Charles did not give complete & accurate information to P&M to allow it to fulfill its obligations, and since Plaintiffs were aware of their fiduciary duties even though P&M did not adequately advise them, and since they failed to uphold their duties throughout the ESOP transaction. These subsequent breaches, despite any alleged negligence by P&M, caused the damages to the Donaldson Bros. employees, and bar Plaintiffs’ request for indemnity. Summary judgment for P&M.
DONALDSON BROS. READY MIX, CHARLES DONALDSON, CATHERINE DONALDSON, AND THOMAS SIMPSON V. PHENNEGER & MORGAN; PHENNEGER & MORGAN V. MCLUCAS & ASSOCIATES; 36 MFR 392, 9/29/08.
Cynthia Walker & Donald Robinson (Poore, Roth & Robinson), Butte, and Marc Schechter & Susan Northup (Butterfield Schechter), San Diego, for Plaintiffs; (Robert Phillips & Jack Jenks (Phillips Law Firm), Missoula, for P&M; Dean Stensland & Natasha Jones (Boone Karlberg), Missoula, for McLucas.
PROCEDURE: Good cause to allow Defendant to amend to assert Montana settled party defense after receiving actual knowledge of settlements (as opposed to mere evidence of negligence)… constitutionality of statute not addressed at this time… Molloy.
The deadline for amending pleadings was 11/5/07. On 8/19/08 the US moved to assert a defense pursuant to MCA 27-1-703(6) (damages were caused in full or part by one with whom claimant has settled or claimant has released) based on actions of former defendants Greg & Rita Hamann and Nels & Cecilia Hansen. Decedent Joseph Newman’s father Patrick Cristler objects that the US did not plead the defense with “reasonable promptness” and that there is no “good cause” because the US had evidence of Hamanns’ negligence as early as 6/04 and of Hansens’ as early as 10/07. The US admits that it has known since 5/08 that Plaintiff settled with Hamanns and Hansens and released them from any liability, but claims it did not know of their negligence until it received a 7/21/08 deposition transcript.
Plaintiff filed an 18-page brief opposing the US’ motion, half of which is dedicated to establishing when it knew (or should have known) of Hamanns’ and Hansens’ negligence. But MCA 27-1-703(6)(f) does not make the defense available to a defendant who knows of facts indicating another party’s negligence:
A defendant who gains actual knowledge of a settled or released person after the filing of that defendant’s answer may plead the defense of settlement or release with reasonable promptness, as determined by the trial court….
It makes the defense available to a defendant “who gains actual knowledge of a settled or released person” after the defendant has filed an answer. The event making the defense available is actual knowledge of a settled or released person, not evidence of the person’s negligence. A defendant asserting the defense has the burden AT TRIAL of proving the person’s negligence, but knowledge of evidence of the person’s negligence is not, as Plaintiff suggests, a prerequisite to asserting the defense, nor is it what defines “reasonable promptness.”
Sitting in diversity, this Court must apply substantive Montana law, which provides for the defense the US seeks to include. The court should freely give leave to amend when justice so requires. Rule 15. There must be at least “likely evidentiary support” for claims. Rule 11(b)(3). Plaintiff has settled with numerous parties who have been dismissed at his request. On 3/19/08, in response to an interrogatory, he identified the parties with whom he had settled, including Hamanns and Hansens. After further discovery the US determined, in 7/08, that there was “likely evidentiary support” for the negligence of these parties. In other words, in 7/08 it had 1) actual knowledge of settled and released parties, and 2) likely evidentiary support for asserting their negligence. It then moved, a month later, to amend its answer. There is good cause to grant the motion to amend, and the US acted with reasonable promptness in seeking leave to amend.
Plaintiff also argues that 27-1-703(6)(f) violates the Montana and US Constitutions. The Court will not pass on its constitutionality here. The Legislature revised it in 1997 to cure defects identified by the Montana Supreme Court. It has been operative in Montana since then with no successful challenge. In any event, the question is whether the US should be granted leave to amend to include the defense. It is not necessary to engage Plaintiff’s constitutional arguments at this time. JONES (9th Cir. 1997) (“abstain from deciding fundamental constitutional questions prematurely, and perhaps unnecessarily”). If the US is found negligent and in turn proves the negligence of settled and released non-parties who fail to intervene and defend themselves, and then asserts the defense to argue for a reduction in the damages assessed against it, Plaintiff may renew his motion.
CRISTLER (PR OF NEWMAN) V. FOREST SERVICE, 36 MFR 401, 11/11/08.
Alan Lerner & Linda Semrow (Lerner Law Firm), Kalispell, for Cristler; AUSA Timothy Cavan.
BENCH JUDGMENT: Defense, age discrimination, USPS probationary clerk… Strong.
Brad Fritz, then 51, became employed by USPS as a probationary part-time flexible mail processing clerk in Missoula in 9/05. Anna Carter and Scott Bourgeau, in their 20s, were hired for the same position at the same time. Fritz was removed 11/29/05 because he failed to meet expectations of the position or follow instructions and was not a good prospect for a career position. He was replaced by Aaron Omlid, 25-26, after 3 months. He claims age discrimination in violation of ADEA.
Fritz did not establish that he was qualified for the position by satisfactorily performing his job, and thus did not establish a prima facie case of age discrimination. He did not prove that any employees were treated more favorably because of age, including as to training requirements. Carter and Bourgeau demonstrated ability to progress in their training and timely complete training requirements. USPS articulated legitimate nondiscriminatory reasons for removing Fritz. The evidence failed to establish acts or omissions amounting to age discrimination. USPS is entitled to judgment dismissing Fritz’s complaint. (Had he proved violation of the ADEA the Court would have ordered reinstatement; there can be no award for liquidated damages to a federal employee under the ADEA.)
FRITZ V. USPS, 36 MFR 408, 11/7/08.
Stacey Weldele-Wade (Antonioli & Wade), Missoula, for Fritz; AUSA George Darragh.
NEGLIGENCE: No breach of duty by landowners to motorcyclist killed by cable gate across Forest Service access road… Molloy.
Joseph Newman died 5/6/04 when his motorcycle collided with a cable gate on FS Road 3635. Kobers own undeveloped land north of the scene and use 3635 to access their property, which they purchased in 1/03. Their primary residence is in Whitefish. The US has not granted them an easement, permit, or license to use the road, and they do not help maintain it. On 9/8/03 Rita Hamann, an owner of nearby property, wrote to owners who use the road asking if they would help buy a gate. Kobers did not receive the letter and the PO returned it to Hamann who never spoke to them about the gate. They first learned of it while visiting their property in 9/03. They considered it unnecessary and demanded that Dennis Woldstad, who had placed the gate, remove it. As they left their property that September they removed it and placed it on the side of the road. The next month they revisited their property and saw no gate. They believed that Woldstad had heeded their request to remove it and that it was gone. They heard nothing more about it and did not revisit their property until after Newman’s accident. They state that they were unaware that motorcyclists traveled on the road. Newman’s father Patrick Cristler sued Kobers, Woldstad, the US, and other landowners. Kobers request summary judgment, contending that the undisputed facts show that they could not foresee the accident, they owed no duty as a property owner, and public policy weighs against imposition of the duty. Cristler contends that fact issues exist as to whether Kobers should have known about the gate after they visited their property in 11/03. He alleges that they owed “a duty to inspect and maintain the easement they utilized for ingress and egress for unreasonably unsafe hazards” and “knew or should have known that the deathwire was an unreasonable and unsafe condition existing on the easement.”
In light of the Montana Supreme Court’s expansive view of foreseeability, Kobers probably owed Newman a duty of reasonable care. FISHER (Mont. 2008). That they told Woldstad to remove the cable and then took it down themselves suggests that they knew it was dangerous. On the other hand, this could merely reflect their opinion that it created an unnecessary inconvenience for people like themselves who used the road. In any event the Court need not rule on the duty element since the undisputed facts show that no reasonable juror could conclude that they breached a duty of reasonable care to Newman.
Kobers present evidence that they did not help install or pay for the gate, they first learned of it when they visited their property in 9/03, they asked Woldstad to remove it, when they left they removed it and left it on the side of the road, when they returned the next month it was no longer there, and they did not return until after the accident. No evidence supports Cristler’s claim that it was in place continuously 9/03-5/6/04. The undisputed facts from Kobers’ affidavits show that it was gone in 11/03. Cristler emphasizes that they contacted no one about it after visiting their property in 9/03, but presents no compelling argument that a reasonable person should have believed that it was in place any time after 11/03. His claims that they “knew the wire was present” and that the gate “was in plain view” in 11/03 are merely conclusory and he provides no factual basis for them. He argues that they should have contacted Woldstad to ensure that he took the gate down. But the evidence shows that they asked him to remove it and then took it down themselves, and they revisited their property a month later and saw no gate. Cristler provides no argument or evidence beyond his conclusory assertion that a reasonable person in their position would have contacted Woldstad about the gate after 11/03. As in BONILLA (Mont. 2005) (chair collapse under overweight concert attendee), Cristler makes conclusory & speculative statements without evidentiary support, while Kobers present undisputed facts demonstrating that they acted as reasonable & prudent people would have. Cristler’s argument suggests that they are responsible for actively & continuously maintaining the safety of any road on which they drive to reach property they own regardless of whether they participated in creation of a hazard or own an easement, permit, or license on it. He suggests that the mere fact that they knew at some point that a dangerous condition existed proves they breached a duty, regardless of facts from which a reasonable person would have concluded that the danger was gone. Summary judgment for Kobers.
CRISTLER (PR OF NEWMAN) V. KOBER ET AL, 36 MFR 422, 11/26/08.
Alan Lerner & Linda Semrow (Lerner Law Firm), Kalispell, for Cristler; Chad Wold, Whitefish, for Kobers.
INSURANCE: Release clauses in prior MVA PI/ UTPA settlements not bar to claims against insurer based on withholding of parts of claims handling study (1st impression in Montana)… “special circumstances” support constructive fraud claim, pecuniary interest supports negligent misrepresentation claim… actual fraud sufficiently pled by assertion that Plaintiffs relied on representation that insurer produced entire report… failure to disclose entire report can amount to abuse of process… claims could support award of punitives… civil contempt claim not recognized in Montana… Molloy.
Tony & Emily Simonsen sued Allstate alleging UTPA violations, partly involving a dispute as to a study conducted by McKinsey & Co. as to its claims handling procedures. In 4/02 they requested “any and all documents in Allstate’s possession known as the McKinsey Documents, the McKinsey Study, the McKinsey report, the McKinsey analysis, the McKinsey Opinion and/or McKinsey papers.” Allstate initially refused and Simonsens moved to compel. The parties eventually entered a stipulated protective order that required Allstate to produce the McKinsey Report and Simonsens to maintain confidentiality, and Simonsens’ counsel would be entitled to the same documents in other cases against Allstate. Allstate’s counsel confirmed that it had produced the entire report. Following Simonsens’ litigation their counsel filed PI and/or bad faith claims against Allstate on behalf of them and others. In all those cases Allstate maintained it had produced the entire McKinsey report. All Plaintiffs eventually settled with Allstate. Plaintiffs’ counsel asserts that in 4/08 he learned that Allstate had concealed part of the McKinsey Report. Plaintiffs then brought this action, asserting that they settled the previous actions based in part on the belief that they had received the entire McKinsey Report. They allege that Allstate abused discovery in the prior litigation by withholding parts of the report. They assert claims for civil contempt, actual & constructive fraud, negligent misrepresentation, abuse of process, and punitives. Allstate moves to dismiss pursuant to Rule 12(b)(6).
Plaintiffs’ claims are not barred by the release clause of the settlement agreements in the prior litigation. Neither party offers any Montana cases directly applicable. Allstate argues that Montana law does not permit subsequent litigation when there is a clear release clause in a settlement agreement, citing RICH (Mont. 2007). However, RICH did not involve a claim of fraudulent activities, but of attorney malpractice in settlement of earlier litigation. MATSUURA (9th Cir. 1999) held that “defrauded tort plaintiffs may stand by their settlement agreements and institute an independent action for fraud,” even when there is a release barring future claims. This follows the rule stated in 66 AMJUR RELEASES 23:
Upon a showing of fraud a release may be avoided or rescinded as releases may not be used as instruments of fraud. This is also the case if a release has been fraudulently induced.
A release clause should not bar future litigation based on a party’s fraudulent actions because “it relieves the defendant of liability for defendant’s own wrongdoing when it is still within defendant’s power to avoid the wrongdoing.” MATSUURA. While there are no directly applicable Montana cases, JENKINS (Mont. 1982) held that a real estate purchaser could bring a fraud action despite a contract clause stating that the purchasers had not relied on the seller’s representations. Similarly, MCA 28-2-905(2) provides that evidence outside a written contract is relevant to establish fraud. Based on JENKINS and the statute, a Montana court would likely follow the majority of courts and conclude that the settlement agreements here do not bar Plaintiffs’ claims. The only case offered by Allstate for its position — KOBATAKE (11th Cir. 1998) — is contrary to the weight of the authority. Its motion to dismiss based on the release is denied.
Allstate argues that Plaintiffs have not and cannot plead that it had the requisite legal duty for their constructive fraud and negligent misrepresentation claims. While the duty in constructive fraud cases is often based on a fiduciary relationship, other “special circumstances” can give rise to a duty, MATTINGLY (Mont. 1997), such as “where a party, by his words or conduct, creates a false impression concerning serious impairments or other important matters and subsequently fails to disclose relevant factors.” DRILCON (Mont. 1988). Plaintiffs sufficiently pled “special circumstances” to show that Allstate owed a duty to them. They allege that it failed to disclose the entirety of the McKinsey Report despite assurances that it had complied with this Court’s order requiring full disclosure. If true, this “created a false impression” as to the report, and Plaintiffs could potentially show that Allstate “subsequently failed to disclose relevant factors” as to it. ID. Allstate argues that Plaintiffs did not make representations “in the course of [its] business, profession or employment.” RESTATEMENT OF TORTS 552. However, it ignores the part of the rule which permits a negligent misrepresentation claim “in any other transaction in which [the defendant] has a pecuniary interest.” Allstate had a pecuniary interest in the earlier litigation. Further, WATTS (Mont. 1995) permitted a claim for negligent misrepresentation in a UTPA case.
Fraud requires proof that the plaintiff had a “right to rely on the representation” that is now asserted to be fraudulent. LEE (Mont. 1990). Allstate asserts that Plaintiffs cannot show they had a right to rely on any representations in the prior litigation. They cite SCHULZ (Mont. 1978), which held that a release clause barred property purchasers from later raising a fraud claim against the sellers. However, the clause specifically stated that the purchasers were relying on their own inspection and not representations by the seller, and they also raised claims as to other alleged misrepresentations which they were permitted to present at trial in support of their fraud allegations. JENKINS (Mont. 1982) concluded that a contract clause which stated that a purchaser had not relied on the seller’s representations did not preclude the purchaser from pursuing a fraud claim, reasoning that “a party who has perpetrated fraud by inducing another to enter into a contract may not then use the contract to immunize himself from the fraud,” and such a provision “does not preclude proof that a prior oral representation was made and relied upon.” It also emphasized that “actual fraud is a question of fact” and, because the purchaser had raised fact issues as to the seller’s representations, summary judgment against the purchaser was inappropriate. Plaintiffs have sufficiently pled facts to support their claim that they had a right to rely on Allstate’s representations in the earlier litigation — that it had produced the entirety of the McKinsey Report. Allstate also cites the release clause in which Plaintiffs warrant that they “are not relying on any advice of [Allstate] as to the legal, income tax or any other consequence of any kind arising from this Release and the settlement of this matter.” However, unlike in SCHULZ, the clause does not state that they have not relied on Allstate’s representations, but merely that they did not rely on its advice in entering the settlement. Further, if they can prove that it made such a representation and that they relied on it, the settlement agreements “do not preclude proof that a prior oral representation was made and relied upon.”JENKINS. Allstate’s motion to dismiss Plaintiff’s actual fraud claim is denied.
Plaintiffs have pled facts that, if true, could support an abuse of process claim. They allege that Allstate’s conduct in allegedly withholding parts of the McKinsey Report was with an ulterior purpose and a willful act in use of this Court’s process. JUDD (Mont. 2008). Allstate cites BRAULT (Mont. 1984) that abuse of process requires proof of an “attempt to use process to coerce [another] to do some collateral thing which he could not be legally and regularly compelled to do.” However, SELTZER (Mont. 2007) clarified that coercing a party to do a collateral act is not an essential element, and also indicated that discovery abuses can constitute abuse of process. Dismissal of the abuse of process claim is denied.
Allstate contends that civil contempt is not recognized as an independent claim under Montana law. Plaintiffs agree to dismiss this claim.
Montana does not recognize an independent cause for punitives, and a party must prove actual damages to receive punitives. GRACE (Mont. 2000). Since Plaintiffs’ claims can survive Allstate’s motion to dismiss, they have presented potential claims that could support an award of punitives.
SIMONSEN ET AL V. ALLSTATE INS., 36 MFR 443, 11/17/08.
Mick McKeon & Rick Anderson (McKeon & Anderson), Butte, and Zander Blewett (Hoyt & Blewett), Great Falls, for Plaintiffs; Donna Welch (Kirkland & Ellis), Chicago, and Stephanie Hollar & James Walsh (Smith, Walsh, Clarke & Gregoire), Great Falls, for Allstate.
INSURANCE: Work-product protection of claims file not “triggered” by retention of lawyer or letter requesting copies of medical report/payments and inquiring why insured had not received certain payments… surveillance documents also discoverable… Lynch.
Farmer Trucking hired Mark Germain as an independent driver in 5/05. He purchased National Union Truckers’ Occupational Accident insurance offered through Farmer. He hurt his back 9/29/05 while hauling freight in Delaware. AIG made disability payments for 2 years, but in 9/07 it terminated benefits because he had not applied for and qualified for SSD as allegedly required by the policy. He sued to recover continuous benefits, asserting claims for reformation of contract, breach of contract and the implied covenant, fraud, constructive fraud, negligent misrepresentation, violation of the UTPA, intentional infliction of emotional distress, and estoppel. He requested that NU produce its entire claims file. NU produced parts but withheld or redacted parts which it contends are work product prepared in anticipation of litigation. It provided a privilege log identifying documents or entries in the file made after 11/20/06 when Germain’s former counsel Chuck Wall requested copies of medical reports and all payments to Germain, and also inquired as to why he had not received his then last 2 disability payments, and stating that he looked forward to resolving these matters. NU and AIG assert that all subsequent documents and entries in NU’s claims file were produced in anticipation of litigation — that the letter put them on notice of Germain’s intent to litigate claims under the UTPA.
Nothing in Wall’s letter in any way threatened or suggested a prospect of litigation. There is no “critical factor,” STOUT (SD Ind. 1994), that would reasonably have caused Defendants to anticipate that litigation would follow, and no indication in the record that they dealt with Germain differently after the letter. To the contrary, at the time of the letter the parties were merely engaged in the ordinary course of administering their obligations as to the ongoing payment of benefits. Nor have they established that retention of Wall gave rise to the prospect of litigation. Absent any specific information indicating why he retained Wall, an insured’s mere retention of an attorney is not sufficient to suggest the requisite “prospect of litigation.” HENDERSON (SD Ind. 1990). HENDERSON also found that a letter from a lawyer merely advising the insurer that he was representing the insured as to the claim was not sufficient to establish that any conduct thereafter was in anticipation of litigation. The documents which are the subject of Germain’s RFP were prepared in the ordinary course of Defendants’ insurance business, not in anticipation of litigation following Wall’s letter. They are ordered to produce them.
Defendants also object to production of materials pertaining to surveillance of Germain, asserting that they have not used it to inform their decisions as to his benefits entitlement. However, any information obtained through the surveillance certainly is relevant to his entitlement to benefits because the policy requires that he be unable to perform his duties as a truck driver. Even if not admissible it could lead to discovery of admissible evidence as to why Defendants delayed or discontinued payments at various times — an issue distinct from the termination issue based on his failure to apply for SSD. Germain’s motion to compel is granted. Whether any of the materials produced will be admissible at trial remains to be resolved in further proceedings.
GERMAIN V. AIG AND NATIONAL UNION FIRE INS. OF PITTSBURGH, 36 MFR 457, 12/31/08.
Mick McKeon & Rick Anderson (McKeon & Anderson), Butte, for Germain; William Mattix (Crowley Fleck), Billings, for Defendants.
DEBT COLLECTION: Collector law firm violated FDCPA by requesting fees to which it was not entitled… firm’s collection activities within scope of UTPA/CPA… fact issues preclude summary judgment for firm as to malicious prosecution, abuse of process claims… requests for admission violated FDCPA… summary judgment that firm violated FDCPA and rejecting bona fide error defense to filing/maintaining time-barred suit… engagement letter not protected by attorney/client privilege… Ostby.
Johnson, Rodenberg & Lauinger, Bismarck, sued Timothy McCollough in State Court 4/17/07 to collect a debt on behalf of CACV seeking $3,817 damages, $5,537 interest, collection costs, and attorney fees, and $120 court costs. CACV provided JRL, via debt collection software, information that McCollough received a Chase credit card in 1994 and CACV purchased his account in 1/01. JRL was initially concerned that the statute had run, and Grace Lauinger e-mailed CACV to this effect 1/4/07. CACV advised JRL by e-mail and without documentation that McCollough had made a payment in 6/04. On 6/13/07 McCollough filed an answer:
Forgive my spelling. I have a head injury and writing dose not come easy.
1. The statute of limitacions is up, I have not had any dealing with any credit card in well over 8? years.
. . .
4. This is the third time they have brought me to court on this account, the first two time with Judge Hernandez, when will it stop. Do I have to sue them so I can live quietly in pain?
On 8/6/07 CACV informed Lauinger that McCollough had not made a payment in 6/04. In 10/07 JRL requested admissions that McCollough has never notified it or any other party in interest of any disputes as to the credit card, there are no facts upon which he relies as a basis for defense, and he paid $75 6/30/04. The requests did not explain that if he did not respond within 30 days they would be deemed admitted. In 11/07 he obtained counsel, who served discovery on CACV. In 12/07 JRL e-mailed CACV:
Please provide me with copies of everything you can get for documentation as soon as possible. We need to request everything available from the original creditor, not just the things that you normally request. Application, statements, cardmember agreement, copies of payments, copies of any correspondence. Please have the request expedited, if possible.
CACV responded: “For this file we are not able to get any more media. The retention rate is seven years from [charge-off], which was 10/2000.” JRL also subpoenaed Chase seeking documents as to McCollough’s account but none was received. On 12/7/07 CACV informed JRL that McCollough’s last payment was in 2000 and the case needed to be dismissed for statute of limitations reasons. The State Court dismissed the action with prejudice 12/18/07 on JRL’s request. McCollough then sued JRL alleging violation of federal and Montana debt collection law by filing & maintaining a time-barred suit, serving requests for admission containing false information (stating that there were no facts that he relied on as a defense and that he made a payment in 6/04), and seeking collection costs and attorney fees not allowed by law, and that JRL knew the statements were false but expected that he would not respond and the statements would be deemed admitted. He requests summary judgment as to FDCPA liability.
JRL argues that there are fact issues as to its bona fide error defense. It states that it maintains procedures designed to avoid discoverable errors: it has 2 separate statute of limitations checks when it opens an account, which revealed a potential problem with McCollough’s account which it brought to CACV’s attention and CACV responded that he had made a payment in 6/04 which meant that the statute would not expire until 6/09. It argues that it has found no case holding that serving requests for admission can be considered an FDCPA violation, but that FDCPA violations as to false or misleading misrepresentations involve affirmative misrepresentations. It argues that the requests were not meant to mislead McCollough, and if it was not accurate he was free to deny it. It argues that the fact that requests are deemed admitted if not answered within 30 days does not make them misleading, since pro se litigants must follow procedural rules just as an attorney must. It argues that it did not seek impermissible fees or collection costs. It states that while McCollough claims it violated the FDCPA by requesting fees in a complaint when it did not have the cardmember agreement in its possession, he does not present facts or argument that the agreement does not allow fees, the 6th Circuit has rejected a similar argument, and some federal courts have held that a request for fees in a prayer for relief does not violate the FDCPA because the prayer is directed at the court. McCollough replies that even if JRL’s initial filing is excused by the bona fide error dispute, it continued to prosecute knowing it was time-barred. He argues that the bona fide error defense does not change the fact that it violated the FDCPA by filing a time-barred suit, and that serving discovery with false information violates the FDCPA. And he argues that JRL has not properly authenticated any document as his credit card contract, and thus has shown no basis for fees, and that under the majority rule, demanding unauthorized fees violates the FDCPA
Based on JRL’s own records it is undisputed that McCollough last made a payment in 2000. The statute under MCA 27-2-202 is 5 years and begins to run the date of the last payment. STORY (Mont. 1993). Thus JRL’s suit, filed in 2007, was time-barred and it is strictly liable for filing it unless it can prevail on its bona fide error defense. The Court will reserve ruling on this until it is fully briefed. (1/8/09 order, infra.) Maintaining a time-barred suit has been held to violate the FDCPA. THOMPSON (MD Ala. 2007). The uncontroverted evidence indicates that Lauinger had actual notice that the suit was time-barred. She does not remember whether she passed this along to Charles Dendy, the attorney of record. Nonetheless, there is no doubt that JRL had knowledge in 8/07 that the action was time-barred. Knowledge of the employee can likely be imputed to the lawyers in the firm. RESTATEMENT OF AGENCY 9. No evidence has been presented as to procedures by JRL to ensure that its employees properly handle such information from a client. The problem is magnified because JRL’s own file reflects that 2 months earlier McCollough had filed an answer stating that he had not had any credit card dealings for 8? years. No evidence has been offered as to JRL’s procedures to investigate this allegation. Nonetheless, the Court will also reserve ruling on this issue until McCollough’s motion on JRL’s bona fide error defense has been fully briefed.
Rule 56(d)(1) provides that “if summary judgment is not rendered on the whole action, the court should, to the extent practicable, determine what material facts are not genuinely at issue.” The primary purpose is to salvage some results from the effort involved in the denial of a summary judgment motion. The Court determines these facts to be established: on 4/17/07 JRL filed a time-barred suit against McCollough, by 8/6/07 it had information demonstrating that the suit was time-barred, and it prosecuted the time-barred suit until 12/7/07.
Although JRL argues that some federal courts have held that a request for fees in a prayer for relief does not violate the FDCPA because the prayer is directed at the court, its complaint states that it “demands judgment against the defendant for … collection costs/attorney fees of $481.68.” From the standpoint of a least sophisticated debtor — or a lawyer — it is plain from whom JRL demands attorney fees. There is no Montana statute entitling JRL to an attorney fee award. STORY. JRL argues that McCollough has not set forth evidence to prove absence of a contractual basis for fees. However, he presented JRL’s own files and testimony from its employees that are evidence that it had no contract allowing fees against him — or even any specific information from its client that there was such a contract. JRL produced an unauthenticated cardmember agreement dated 2002 and represented that it “sets forth the terms of the account.” However, it postdates the last payment on McCollough’s account by 2 years, and postdates the date he received his credit card by 8 years. In any event, the Court cannot rely on unauthenticated evidence. ORR(9th Cir. 2002). The Court must conclude that JRL failed to meet its burden and its defense fails due to lack of evidence. Summary judgment for McCollough that JRL violated 15 USC 1692(e)(2)(B) by requesting in the complaint attorney fees to which it was not entitled.
JRL requests summary judgment that service of discovery does not violate the FDCPA, it has no business-consumer relationship with McCollough for purposes of Montana’s UTPA/CPA, McCollough’s malicious prosecution claim fails, and no abuse of process occurred. McCollough requests summary judgment against JRL’s bona fide error defense and parts of his earlier motion on which the Court reserved decision (11/21/08 order, supra).
JRL’s motion that its debt collection activities were outside the scope of Montana’s UTPA/CPA is denied. 2 recent decisions in this District have held that the UTPA/CPA apply to debt collection. In KUNDA V. CBB COLLECTIONS (CV-08-44-BLG, 8/15/08), Kundas sued CBB over actions it took as assignee of Billings Clinic. Judge Cebull denied CBB’s motion to dismiss, finding that the UTPA/CPA could apply to debt collection. This case differs because JRL is not an assignee of McCollough’s alleged debt. InCOLE V. PORTFOLIO RECOVERY (CV-08-36-GF, 9/12/08), Judge Strong found that Cole’s allegations at the pleading stage that JRL was “in the business of debt collection as part of its legal practice and includes litigation as part of its debt collection business” placed it “well within” the UTPA/CPA. These rulings are persuasive. Contrary to JRL’s argument, the liberal construction given the UTPA/CPA does not require McCollough to have a consumer relationship with JRL. GIBBONS (Mo. 2007).
JRL argues that McCollough has not shown sufficient evidence of lack of probable cause or that it was actuated by malice to defeat summary judgment on his malicious prosecution claim. However, there was a paucity of information supporting JRL’s suit. CACV expressly made “no warranty as to the accuracy or validity of the data provided” and required JRL to determine its “legal and ethical ability to collect” the account. These facts could lead a reasonable person to conclude that JRL lacked probable cause to initiate action against McCollough. Whether probable cause existed is a fact question for the jury. Under PLOUFFE (Mont. 2002) there is sufficient evidence to establish a fact question as to whether JRL knew of facts or intentionally disregarded facts creating a high possibility of injury to him. Whether it was actuated by malice is a fact question for the jury.
JRL’s primary argument as to McCollough’s abuse of process claim is that there is no evidence that it sued to compel him to do some collateral thing which could not be obtained through ordinary proceedings. Although Montana has required this showing, HUGHES (Mont. 2007), SEIPEL (Mont. 2008) squarely rejected this argument in a case where the underlying claim was invalid, and apparently limited the “collateral” coercion requirement to where the underlying suit was valid. It is uncontroverted that JRL filed and prosecuted a time-barred suit, including discovery requests of the pro se defendant after its own file clearly indicated that the suit was time-barred. There is evidence that it knew its claim was invalid, yet continued to prosecute it. It has not shown absence of evidence supporting his abuse of process claim. Its motion for summary judgment on this issue is denied.
JRL is correct that this Court cannot say that serving requests for admission in a debt-collection suit is a per se FDCPA violation. However, serving them under the facts of this case violated the FDCPA as a matter of law. JRL’s argument that requests for admission are not a factual representation focuses only on “representation” in 1692e and ignores “means.” Thus, even if it is correct that a request for admission is not a “representation,” a “representation” is only one prohibited practice. The purpose of the FDCPA is “to eliminate abusive debt collection practices.” 1692(e). It proscribes “unfair or unconscionable means to collect or attempt to collect any debt.” 1692(f). There can be little doubt that JRL’s use of requests for admission falls within the plain meaning of abusive, unfair, or unconscionable. 3 months after its own file indicated that McCollough had not made a payment on the account in 2004 (and thus the claim was time-barred), it asked him to admit that he made a $75 payment. After he filed his pro se answer explaining his defense that the statute had expired, the 10/07 request for admission asked him to admit that there are no facts upon which he relies as a basis for any defense. Dendy admits that he reviewed the answer when it came into JRL’s office. The inescapable conclusion is that he asked a pro se defendant to admit false information. He either did so knowingly or neglected to review his minimal file before signing the requests. He served them with no ostensible reason to believe that McCollough would understand their import. The requests appear to be designed to conclusively establish each element of JRL’s case against McCollough and use the power of the judicial process against a pro se defendant to collect a time-barred debt. This is abusive, unfair, and unconscionable, especially considering that JRL’s behavior is measured by the objective “least sophisticated debtor” standard. Its contention that legitimate discovery will be punished if requests for admission are held to violate the FDCPA is unpersuasive. It does not prevent discovery in a valid suit, or even well-grounded discovery in an invalid one. JRL neither asserts that its suit against McCollough was valid nor that the bona fide error defense applies to its requests for discovery. Its contention that the requests were a legitimate attempt at discovery is unpersuasive. RFAs 1 & 2 refer to “attached” documents, but McCollough states that no documents were attached. Indeed, JRL could not have attached documents concerning the debt because it had none. McCollough could not admit or deny these incomplete requests without seeing the documents referenced. Summary judgment for McCollough that JRL’s requests for admission violated the FDCPA.
JRL is strictly liable under the FDCPA for filing a time-barred suit and for maintaining a time-barred suit unless it can prevail on its bona fide error defense. McCollough has shown absence of facts supporting the defense as to filing a time-barred suit. JRL sets forth the following: It receives from CACV electronic information including charge-off amount, last payment date, credit card number, name of original creditor, debtor’s name, address, and phone number, interest date, and sometimes the amount of the last payment. It does not require CACV to provide any particular documents. The JRL person setting up accounts calculates the statute of limitations based on last payment date. If there is a potential statute of limitations problem the person will diary the file for the account manager’s review. The file then goes to JRL attorney Lisa Lauinger, who checks the information from CACV against information in the file and makes sure the statute of limitations is accurately calculated. Before signing a complaint Dendy checks that a demand letter has been sent and to make sure the case caption and creditor’s name are correct, the complaint is within the statute of limitations, and account number and balance information in the complaint are correct and match information from CACV. It does not maintain documents on protocol to be followed to avoid FDCPA violations. It does not indicate that its attorneys or staff had procedural manuals to follow, or any regularly scheduled training on proper debt collection practices, but only that they “acquire and maintain familiarity with the FDCPA through treatises, case research, continuing legal education seminars, conferences and the practice of law.” It has failed to set out specific facts showing a genuine issue for trial. It sets forth procedures that consist only of ensuring that the information in its files and pleadings is consistent with that supplied electronically by CACV. Its reliance on CACV’s information is entire. It did not seek documentation of McCollough’s debt until he obtained a lawyer, months after it sued, months after he asserted the statute of limitations, weeks after it served discovery on him. Additionally, its procedures are not reasonably adapted to avoid the error in question here. The contrast with the procedures in JENKINS (US 1995) is stark. It took no steps to assure accurate information from its client. It reviewed no documentation of the debt or the payments allegedly made by McCollough. It had no formal written procedures to avoid FDCPA violations. Summary judgment for McCollough as to JRL’s bona fide error defense to filing a time-barred suit. McCollough has also shown absence of evidence to support JRL’s case as to maintaining a time-barred suit, and JRL has failed to prove a bona fide error in maintaining the suit. It did not implement procedures reasonably adapted to avoid maintaining a time-barred suit. Rather, its FDCPA violation resulted from systemic problems. It had numerous warnings: McCollough’s alleged debt was part of a problematic batch, he asserted the statute of limitations in his answer 6/13/07, CACV e-mailed JRL that he had not made a payment in 2004, and this e-mail was saved in McCollough’s file at JRL. Despite these red flags it did not seek to verify the debt through documentation until 12/7/07, shortly after McCollough retained counsel. This indicates strongly that it lacks procedures reasonably adapted to avoid the error. Its procedures consist primarily of rechecking unverified information for consistency; it had no process for verifying that it was accurate. Proofreading could not address or prevent this violation. Summary judgment for McCollough on JRL’s bona fide error defense to maintaining a time-barred suit.
The Court reviewed documents responsive to McCollough’s RFP 31 to determine whether they contain information protected by attorney-client privilege, including an 8-page “Agreement for Collection of Accounts (Local Counsel Agreement),” signed 6/25/02 by Michelle Holderness on behalf of Collect America and by Lisa Lauinger on behalf of JRL. It is an engagement letter between a client and law firm, setting forth procedures for communication in their efforts to service debts and the fee arrangements. Such information does not generally fall under attorney-client privilege. BAUTISTA (Bkrtcy ND Cal) (such information is preparatory or incidental to the attorney-client privilege and not provided “in order to obtain legal advice.”(citing CLARKE (9th Cir. 2002)). McCollough’s motion to compel is granted.
MCCOLLOUGH V. JOHNSON, RODENBERG & LAUINGER, 36 MFR 468, 11/21/08; 36 MFR 484, 1/8/09; 36 MFR 511, 1/6/09.
John Heenan (Heenan Law Firm), Billings, for McCollough; Jon Bohyer & Fred Simpson (Bohyer, Simpson & Tranel), Missoula, for JRL.
JOINDER of MVA tortfeasor as non-diverse party allowed in suit against insurer, remanded… Ostby/Cebull.
Kimberlee Greenough initiated this declaratory action in State Court seeking unpaid & future medicals, lost income, and other damages from Safeco arising from an auto accident in which Bill Hilsendeger rear-ended her. Safeco removed to this Court based on diversity. Greenough moves to join Hilsendeger as a non-diverse party and for remand.
Greenough argues that because her declaratory action against Safeco and proposed complaint against Hilsendeger arise from the same accident they are “inextricably linked,” he has been notified of her claim, he is not a nominal defendant because is the sole tortfeasor, the case is in its infancy and Hilsendeger’s defenses presumably will be identical to those of Safeco’s, and Safeco will suffer no prejudice because it will be defending him in State Court under the same state law. Safeco argues that the 9th Circuit factors weigh against joinder, including that Hilsendeger is not a necessary party under Rule 19(a) because complete relief is available to Greenough even if he is not joined, the statute of limitations will not bar a separate state court action against him, and she delayed filing her motion and her motive was merely to remand. Greenough responds that she filed an action against Hilsendeger in State Court in 12/08 and that denial of her motion would result in duplicative litigation, and her claim against Safeco will not provide complete relief.
It cannot be argued that Hilsendeger is merely tangentially related to Greenough’s claim against Safeco. The Court is not persuaded that she moved for joinder and remand after unexplained delay. She properly filed it within 30 days after removal and before Safeco answered. Her lawyer explains that he filed the declaratory action in State Court based on “what has turned out to be a mistaken belief that proceeding initially against Safeco only would result in a more expeditious resolution of Ms. Greenough’s dire need for advance wages and advance medical payments.” As evident in her recently filed State Court complaint against Hilsendeger, her claims against him appear valid. Safeco has admitted that his negligence caused this accident but contests damages. Duplicative actions would risk inconsistent results and waste judicial resources and cause Greenough unnecessary expenditures. The only factor against granting her motion is that she has not been barred by the 3-year statute from bringing a separate action in State Court, and it does not appear likely that she will be. Recommended, that her motion be granted.
(Judge Cebull adopted Ostby’s findings & recommendations in their entirety.)
GREENOUGH V. SAFECO, 36 MFR 513/524, 12/18/08, 1/22/09.
Todd Shea (Shea Law Office), Bozeman, for Greenough; Carey Matovich (Matovich, Keller & Murphy), Billings, for Safeco.
ERISA: Employees lack standing to bring derivative or double derivative action against Washington-based grocery under Washington law… state law claims against top officers following $575,000 policy-limits ESOP settlement preempted by ERISA… newly constituted company not permitted to be designated plaintiff… Molloy.
Plaintiffs are participants in the ESOP of Spokane-based Tidyman’s with 1,300 employees in 21 stores across Eastern Washington, Idaho, and Montana. The Plan had a value of $30 million in 1998. Plaintiffs alleged that Defendants made numerous misrepresentations as to a proposed merger with Supervalu in 1998, including that their investment advisor had recommended a sale to a 3rd party for $35 million, and that Defendants instead merged with Supervalu in a deal worth $15 million to save their corporate jobs. The merger failed in 2006. Plaintiffs were told that their account balances were 0. The Plan was subsequently terminated. Plaintiffs alleged violation of ERISA and breach of the officers & directors’ duties under state and common law. They settled the ERISA count for policy limits totaling some $575,000. Trial was set for 2/2/09 against former Pres./CEO John Maxwell and COO Michael Davis on Count 2. On 10/7/08 Maxwell and Davis moved for summary judgment. On 10/22 Tidyman’s requested leave to amend to be assigned as named plaintiff since the defendant wrongdoers no longer control Tidyman’s and the new officers & directors determined that this action should be maintained and prosecuted in Tidyman’s own name. Plaintiffs join the motion, contending that Tidyman’s election to maintain & prosecute this action in its own name renders moot Maxwell’s and Davis’s affirmative defenses of lack of demand, standing, and ERISA preemption that are the subject of their motion for summary judgment.
Under Washington law only a shareholder has standing to bring a derivative action. WRC 23B.07.400(1). The ESOP, not Plaintiffs, owns all shares of Tidyman’s, therefore Plaintiffs do not have standing to bring a derivative claim. Washington law also permits a “double derivative” action where a non-shareholder has an interest in a company, but the interested party must first make demand on the proper party before proceeding with the suit. 1064. The ESOP Administrative Committee was the proper entity on which to make such a demand; Plaintiffs did not make a demand on it and they offer no facts to rebut Defendants’ assertion that they have not met the requirements for a derivative or double derivative action. Summary judgment for Defendants that Plaintiffs lack standing as to Count 2.
ERISA preempts any state laws that “relate to” a plan to which ERISA applies. 29 USC 1144(a). A state law relates to an ERISA plan if it has a “connection with” or “reference to” a plan. STANDARD INDUSTRIAL ELECTRIC (9th Cir. 2001). Where a state law claim bears on an ERISA-regulated relationship it is related and thus preempted. RUTLEDGE (9th Cir. 2000). The state law claims in Count 2 are preempted because they are connected to the ESOP, which is governed by ERISA. Both the ERISA claim and the state law claim are based on the Supervalu transaction and alleged misuse of corporate and ESOP funds. Plaintiffs’ ERISA claims, already settled, addressed Defendants’ alleged misdeeds, and Count 2 is “related to” administration of the ESOP. Summary judgment that ERISA preempts Count 2.
Tidyman’s is not entitled to be added as a plaintiff under Rule 17. It argues that it is the real party in interest. Although Plaintiffs do not have standing to pursue Count 2, standing and who is a real party are different inquiries. KENT (9th Cir. 1974). A real party is the person who possesses a right sought to be enforced. FEDERAL PRACTICE & PROCEDURE 1542. Plaintiffs had a right they enforced via their ERISA claim. Even if Plaintiffs were not the real parties, Tidyman’s did not make its motion within a reasonable time after objection. The parties knew when Defendants filed their answers that Defendants did not believe Plaintiffs could proceed with Count 2, and they reiterated their arguments in earlier summary judgment briefing.
Tidyman’s is not entitled to be added as a plaintiff under Rule 15. After the Court enters a scheduling order it may be changed only with “good cause” pursuant to Rule 16(b)(4), the main inquiry being whether the party showed diligence. JOHNSON (9th Cir. 1992). Prejudice to the opposing party may also be a factor. Tidyman’s offers no excuse for waiting until such a late stage in the litigation. Nor have Plaintiffs, who have joined the motion, shown diligence in amending. They made numerous attempts to properly plead their case and if they believed Tidyman’s should have been a plaintiff they could have moved to add them at any time. Defendants would also be unfairly prejudiced by amendment. The motion came just before the motions deadline, leaving Defendants no chance to file additional motions. The Court will not permit the parties to amend where it appears the motion was only to avoid an adverse summary judgment ruling.
The bench trial is vacated.
NAGRONE ET AL V. DAVIS AND MAXWELL AND NOMINAL PLAINTIFF TIDYMAN’S, 36 MFR 526, 1/12/09.
John Amsden (Beck, Amsden & Ruggiero), Bozeman, and Patrick HagEstad & Perry Schneider (Milodragovich, Dale, Steinbrenner & Nygren), Missoula, for Plaintiffs; James King (Evans, Craven & Lackie), Spokane, and Kathleen DeSoto (Garlington, Lohn & Robinson), Missoula, for Davis; James McPhee (Workland & Witherspoon), Spokane, and Dean Hoistad (Axilon Law Group), Missoula, for Maxwell; Kimberly More, Kalispell, and Steven Milch, Billings (Crowley Fleck), and Michael Black (Black Law Office), Missoula, for Tidyman’s.
PROCEDURE: Post-judgment interest on $100,000 FHA judgment payable at federal rate of 3.33%, not Montana rate of 10% pursuant to State Court action to collect judgment… fees awarded in State Court judgment collection action not part of federal judgment, not required for satisfaction of federal judgment… motion for relief from judgment pursuant to satisfaction not barred by COLORADO RIVER abstention or res judicata of State Court order… Lynch/Molloy.
Marsha Steinweden and MFH sued in 7/04 alleging that L&M Const. and Professional Consultants constructed housing without adequate disability accessibility in violation of the FHA and MHRA. Following a relatively brief and uneventful course of litigation Plaintiffs accepted offers of judgment including $100,000 plus costs from L&M, which was entered 4/11/05. On 7/31/06 Plaintiffs filed the Transcript of Judgment in Missoula Co. State Court ( STEINWEDEN II) pursuant to MCA 25-9-303. L&M endeavored to calculate interest pursuant to 28 USC 1961(a) — from entry of judgment
at a rate equal to the weekly average 1-year constant maturity Treasury yield … for the calendar week preceding the date of the judgment.
The rate preceding 4/11/05 is 3.33%. It is computed daily to the date of payment and compounded annually. 1961(b). L&M calculated interest from 4/11/05-8/31/08, and paid $111,257.65 principal and interest. Plaintiffs accepted the payment, but counsel signed a notice stating that it constituted only partial satisfaction because they are entitled to additional interest and additional fees & costs under state law in STEINWEDEN II. On 9/26/08 Plaintiffs filed a petition in STEINWEDEN II requesting $8,700 additional fees incurred 7/05-8/08 in their efforts to collect on the judgment, interest at 10% on “judgments recovered in the courts of this state” pursuant to MCA 25-9-205, amounting to $33,816.66 from the date of the judgment. Due to miscommunications and/or misunderstandings L&M did not file a response in STEINWEDEN II.Finding that L&M had procedurally defaulted, Judge Larson granted Plaintiffs’ petition. He awarded interest at 10% for a total of $33,816.66. Taking into account the $11,257.65 interest L&M had already paid, Plaintiffs contend that the balance of interest due, as imposed by Larson, is $22,559.01. Larson also awarded Plaintiffs $8,698 attorney fees & costs incurred in enforcing & collecting on the judgment. Plaintiffs contend that the total additional due from L&M is $31,257.
28 USC 1961 provides for the mandatory award of post-judgment interest “on any money judgment in a civil case recovered in a district court.” PLANNED PARENTHOOD(9th Cir. 2008). The rate applies to all federal actions irrespective of the basis of the court’s jurisdiction. The judgment in this case is based on Plaintiffs’ FHA claims, over which this Court has federal question jurisdiction under 28 USC 1331, and on claims under the MHRA, over which the Court has supplemental jurisdiction under 28 USC 1367. Nonetheless, 1961 provides the post-judgment interest rate. GREENWAY (2nd Cir. 1998). Even where a federal case is founded only on diversity jurisdiction, “post-judgment interest is determined by federal law” at 1961. NORTHROP (9th Cir. 1988). Plaintiffs’ suggestion that the rate at MCA 25-9-205 should apply merely by virtue of having registered the federal judgment in a state court is contrary to federal law. The $100,000 judgment was subject to post-judgment interest at 3.33% from the date of entry, computed daily and compounded annually. Plaintiffs accepted that payment.
Larson’s award of attorney fees is not an enforceable part of the 4/11/05 judgment, but is collateral to the judgment. Therefore, payment of the fees is not required for satisfaction of the 4/11/05 judgment as entered. Because L&M has satisfied the judgment as entered, it is entitled to relief from the judgment under 60(b)(5).
The Court declines abstention under COLORADO RIVER (US 1976). Plaintiffs elected to commence this case in Federal Court in 2004, and therefore this Court was the first to assume jurisdiction, which is not changed by their subsequent registration of the judgment in State Court. This Court is no less convenient than the State Court which sits only 3 blocks away. 28 USC 1961 provides the applicable rule for decision, and this final resolution and closure will preclude any further piecemeal litigation. It is Plaintiffs, not L&M, that are forum shopping in an effort to gain an advantage under a more favorable post-judgment interest rate.
Nor does Larson’s order bar these proceedings by res judicata. Under Montana law, which determines whether a prior state court action bars a subsequent federal action,
a FINAL JUDGMENT on the merits by a court of competent jurisdiction is conclusive as to causes of action or issues thereby litigated, as to the parties and their privies, in all other actions in the same or any other judicial tribunal of concurrent jurisdiction. DITTON (Mont. 2006).
Plaintiffs have offered only the STEINWEDEN II order in support of res judicata. It is not a final judgment.
Recommended, that L&M be granted relief from the 4/11/05 judgment.
(Plaintiffs did not object, thereby waiving de novo review by Judge Molloy, who found no clear error with Lynch’s findings & recommendations and adopted them in full.)
STEINWEDEN AND MONTANA FAIR HOUSING V. L&M CONST., 36 MFR 532/546, 12/18/08, 2/4/09.
Timothy Kelly (Kelly Law Office), Emigrant, and Karl Rudbach (Kaufman, Vidal, Hileman & Ramlow), Kalispell, for Plaintiffs; Quentin Rhoades (Sullivan, Tabaracci & Rhoades), Missoula, for L&M.
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