ARBITRATION: “Zombie clause” lives following termination of underlying agreement for claims that “arise under” it, not for others, as determined by Complaint factual allegations rather than legal causes… Molloy.

Aviation Alliance contracted in 2009 with Polaris Enterprise Group under a Master Service Agreement for administrative, underwriting, and support services. AA sued Polaris in 3/17 alleging 9 causes relating to and following termination of their relationship in 10/16, claiming that it used confidential and trade secret information to make misrepresentations to shareholders and sell AA policy holders policies provided by other carriers, unlawfully replacing at least 49 policies with insurance issued by other companies with a resulting loss in excess of $758,000 of premium. Polaris, which has not yet filed an answer, seeks to compel arbitration pursuant to a clause in the Master Service Agreement requiring arbitration of “any dispute, claim or controversy arising out of or relating to this Agreement.” The question is whether this clause died with the Agreement or whether it, like a zombie, continues to come to life ever after the death of the Agreement. AA — drafter of the Agreement — argues that it died with the contract; Polaris insists that it survived. Both parties are partially correct. To the extent that AA’s claims arise under the 2009 Agreement, they remain subject to the zombie arbitration provision post-expiration. Litton (US 1991) (an “extensive obligation to arbitrate” would not be consistent “with an interpretation that would eliminate all duty to arbitrate as of the date of [the contract’s] expiration.”). The duty to arbitrate under the 2009 Agreement did not terminate with the Agreement. Id. (“We presume as a matter of contract interpretation that the parties did not intend a pivotal dispute resolution provision to terminate for all purposes upon the expiration of the agreement.”). The zombie clause is therefore alive, but for what?

Although “the phrase `arising under’ in an arbitration agreement is interpreted narrowly,” “when parties intend to include a broad arbitration provision, they provide for arbitration `arising out of or relating to’ the agreement.” Cape Flattery (9th Cir. 2011). The language of the clause here is broad as it includes claims both “arising out of” and “relating to” the Agreement. Polaris insists that because of the broad language, arbitration is required for all claims. However, while termination of the 2009 Agreement in 10/16 did not terminate the duty to arbitrate, it limited the scope of post-expiration arbitration. The presumption in favor of post-expiration enforcement of arbitration agreements “is limited to disputes arising under the contract.” Litton. In determining whether a claim falls within the scope of the arbitration agreement, courts focus on the factual allegations in the complaint rather than the legal causes asserted. Mitsubishi (US 1985). AA brings 9 common law and statutory claims against Polaris based on the same central factual allegations, but the zombie clause itself does not have 9 lives. The dispute is arbitrable if it involves facts or occurrences that pre-date termination, infringes on rights vested or accrued under the agreement, or survives under normal contract principles. Litton. The parties did not assess arbitrability in the context of the independent causes. Doing so, arbitration is required for Counts II, III, IV, V, and XI.

Count I (tortious interference). This is based on interference with 3rd-party contracts, not the AA/Polaris Agreement. It alleges activity that occurred after contract termination in 10/16 and raises issues that “are predominantly unrelated to the central conflict over the interpretation and performance of the Agreement.” Mediterranean (9th Cir. 1983). The alleged interference could have been “accomplished even if the Agreement did not exist.” Id.Count I is not subject to arbitration.

Counts II & III (trade secrets) and Count IV (conversion). Both the propriety of acquisition and the duties related to the trade secrets and confidential information arise from the 2009 Agreement. Although AA’s claims are based on statutory causes for misappropriation that occurred primarily after contract termination, they require interpretation or application of the Agreement. Similarly, Polaris’s possession and use of the information was governed by the 2009 Agreement and a claim for conversion requires “unauthorized dominion.” Eatinger (Mont. 1984). Keeping in mind that “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration,” Moses (US 1983), Counts II, III, and IV are subject to arbitration.

Count V (breach of fiduciary duty and duty of loyalty. Because these duties were created by the 2009 Agreement and have no independent basis, they fall within the scope of the arbitration clause. AA’s conclusory argument to the contrary is not persuasive.

Count VI (unfair competition) and Count VII (defamation). AA alleges that Polaris, “in soliciting and replacing [AA] policies used, in commerce, false or misleading descriptions of fact or false or misleading misrepresentations of fact which misrepresented the nature of qualities of [AA]’s goods, services or commercial activities constituting unfair competition” and defamation. Much like its claims for tortious interference, these causes do not concern rights that vested or accrued under the 2009 Agreement or during the Agreement. Because they do not “arise under” the Agreement, they are not subject to arbitration.

Count VIII (unjust enrichment). AA alleges that by retaining and continuing to use confidential information following termination of their relationship, Polaris was unjustly enriched. Inherent in unjust enrichment is absence of an express contract. Pruyn (Mont. 2009). Because AA’s allegations involve conduct that post-dates the Agreement’s termination and equitable relief distinct from that provided by the Agreement, Count VIII is not subject to arbitration.

Count IX (punitives). Absent contractual language limiting an arbitrator’s power based on state law, punitives may be subject to arbitration under federal law. Mastrobuono (US 1995). A plaintiff must show “actual fraud or actual malice.” MCA 27-1-221(1). AA pleads only actual malice. A finding of actual malice related to arbitrable conduct is not foreclosed by the pleadings. Thus Count IX is subject to arbitration to the extent that the conduct arose under the Agreement.

Resolution of AA’s non-arbitrable claims is stayed pending arbitration of the arbitrable issues.

Polaris seeks fees pursuant to the arbitration provision that “the party seeking enforcement shall be entitled to an award of all costs, fees, and expenses, including attorneys’ fees, to be paid by the party against whom enforcement is ordered.” While such recovery is complicated by expiration of the Agreement, the fee provision remains enforceable consistent with the general federal policy in favor of arbitration. Ajida (Cal. App. 2001). To the extent that it prevailed, Polaris is entitled to fees & costs associated with bringing the present motion. Of the 9 claims, arbitration is required for 5 (including punitives, which are limited to arbitrable conduct). Accordingly, it shall recover half its fees, costs, and expenses associated with the present motion.

Aviation Alliance Insurance Risk Retention Group v. Polaris Enterprise Group, 44 MFR 90, 6/27/17.

Martin Rogers & Ronald Bender (Worden Thane), Missoula, for AA; Andrew White (O’Brien Law Office), St. Helena, Calif., and Randy Cox & John Newman (Boone Karlberg), Missoula, for Polaris.

VENUE: Transfer of organic wheat contract dispute from Montana to Oregon under first-to-file rule denied where “red flags” exist as to anticipatory suit in Oregon in apparent attempt to forum shop… Morris.

Dave’s Killer Bread produces organic bread products at its main facility in Milwaukie, Ore. DKB asked Montana Merchandising to procure organic wheat and provide milling. DKB reps Ron Milio and John Tucker traveled to Great Falls 10/25/13 to meet with 30 wheat growers and solicit them to provide wheat. Hinebaugh Grain and OCC-O’Connor Crops attended. Milio spoke at the Montana Organic Association conference in Kalispell in 12/13 discussing DKB’s need for Montana wheat. MM began working with suppliers to build a new mill to serve DKB. DKB and MM entered into a contract 1/5/14 whereby MM agreed to procure, and DKB agreed to purchase, millions of pounds of organic wheat. MM separately entered into 94 agreements with Montana growers on DKB’s behalf, and DKB and MM entered into a contract 1/17/14 whereby MM agreed to mill most of the wheat in Montana. Milio traveled to Montana twice in 2014 where MM asserts that he reaffirmed his promise to purchase millions of pounds of wheat and represented that DKB would need increasing amounts and all of MM’s milling capacity. Milio and other DKB reps flew to Great Falls in 6/15 to film 4 farming operations and an MOA farm tour to promote DKB’s use of Montana organic wheat. MM asserts that Milio again represented that DKB would need Montana wheat well beyond the 3-year term of the contracts. In 9/15, Flowers Foods, a Georgia corporation, acquired DKB, which emerged as a wholly owned subsidiary. MM asserts that shortly thereafter, DKB/Flowers refused to honor its commitments to MM and the Montana growers. DKB/Flowers claims that disagreements arose as to information about and volume of wheat DKB was bound to accept, the length of time for which it was bound, and shipping conditions. Milio and Flowers’s rep Miles Dennis flew to Great Falls in 11/15 to meet with MM. They attended the MOA conference in Bozeman in 12/15 where Dennis was the dinner speaker. MM Pres/CEO Greg Thayer and employee Sam Schmidt traveled to Oregon in 2/16 to meet with Milio. Milio, Dennis, and another Flowers employee, Craig Parr, met with MM in Great Falls in 5/16. Thayer sent an email to Dennis and Parr 10/25/16 informing them that MM would seek legal assistance in recovering damages for DKB/Flowers’s failure to perform if the parties could not agree. They failed to settle at mediation in Great Falls 1/24/17. Counsel for DKB/Flowers traveled to Great Falls 2/10/17 to review MM’s agreements with the growers and discuss a possible resolution. MM’s counsel informed DKB/Flowers’s counsel that MM would immediately sue if it did not agree to pay for the wheat it was refusing to take. MM asserts that DKB/ Flowers’s counsel never contended that MM had breached the agreements, and that counsel for DKB/Flowers never threatened litigation. MM alleges that DKB/Flowers’s counsel advised that she would check again with her clients and inform MM if the matter could be resolved. The next day, 2/11/17, counsel for DKB/Flowers filed an action against MM in the District of Oregon. DKB/ Flowers’s counsel contends that she “never deceived” Plaintiffs and did not file the Oregon case “surreptitiously” or state that her clients would wait to file a suit. 10 days after DKB/Flowers filed in Oregon, MM, Hinebauch, and OCC filed this suit in Great Falls. DKB/Flowers moves to transfer this case to Oregon based on the first-to-file rule or to stay this case pending resolution of the Oregon case.

DKB/Flowers argues that Oregon provides a proper venue, transfer would serve the interests of justice, and Oregon proves more convenient for the parties and witnesses. A court may “transfer, stay, or dismiss” the 2nd-filed action to advance the interests of justice where there exists a similar and 1st-filed complaint in another district court. 28 USC 1404(a). DKB negotiated the agreements from its Oregon headquarters and transacted with MM under those agreements from Oregon for multiple years. DKB argues that this litigation will impact its 250 employees in Oregon, many of whom may be witnesses in this case. However, the events giving rise to the claims occurred in Montana and weigh in favor of resolving the dispute in Montana.Jones (9th Cir. 2000).

DKB/Flowers argues that it filed the Oregon case 10 days before Plaintiffs filed this case and that the similarity of the parties and issues support transfer. Alltrade (9th Cir. 1991). Plaintiffs suggest that DKB/ Flowers filed an anticipatory suit in Oregon in a bad faith attempt to forum shop. Id. The Court exercises its discretion to decline to apply the first-to-file rule based on the notion that it is “not a rigid or inflexible rule to be mechanically applied.” Pacesetter (9th Cir. 1982). The cases sufficiently differ. This case includes additional plaintiffs, defendants, and claims. The Court has not yet determined if it can exercise jurisdiction over the Dahl/ Goode Defendants, but they be important additions beyond the Oregon case. The Oregon case fails to include Hinebauch and OCC, which seems to assert important interests to be addressed through this litigation. The Oregon case would not completely settle all disputes. Although DKB/Flowers moves to dismiss a number of claims, a number of claims are not contested at this time that extend beyond the scope of Oregon case. Further, it appears that DKB/Flowers filed an anticipatory suit in Oregon as an apparent attempt to forum shop. A dispute exists as to whether it misled Plaintiffs into believing that settlement efforts would continue. The Court declines to rely exclusively on DKB/Flowers’s counsel’s assertion that she did not promise Plaintiffs that she would not file suit. However, it stands undisputed that the parties — all represented — contemplated litigation. The “red flags” noted in Boatmen’s FNB (8th Cir. 1995) appear where DKB/Flowers filed the 1st suit after MMI had given notice of intent to sue and the 1st action seeks a declaratory judgment as to interpretation of the contracts. The case should be tried here. DKB appears to have initiated numerous significant, purposeful contacts with Montana leading to execution of the contracts and after.

The Court further declines to stay this action pending resolution of the Oregon case. DKB/Flowers has failed to make “a clear case of hardship or inequity in being required to go forward.” Landis (US 1936). The McCullough factors (a stay is favored where it would not be indefinite, plaintiff seeks only money damages, resolution in other action would assist in resolving the stayed action, a stay would promote docket efficiency and fairness to parties) do not outweigh the Court’s determination that this case would be better resolved in Montana.

Montana Merchandising, Hinebauch Grain, and OCC-O’Connor Crops v. Dave’s Killer Bread/Flowers Foods and Dahl/Goode, 44 MFR 75, 6/9/17.

Zander Blewett & Anders Blewett (Hoyt & Blewett), Great Falls, for Plaintiffs; Ian McIntosh, Peter Habein, and Bradford Brown (Crowley Fleck), Bozeman, and Kristin Zinsmaster, Annamarie Daley, and Gregory Hanthorn (Jones Day), Minneapolis, for DKB/Flowers; Matthew Hayhurst & Thomas Leonard (Boone Karlberg), and Daniel Brooks (Scarola Malone & Zubatov), NY, for Dahl/Goode.

DISABILITY DISCRIMINATION claims by hospital Instrument Tech with speech/learning disabilities survive summary judgment except as to untimely retaliation claim under Montana law… Watters.

Roxanna Jackson has had life-long speech & learning disabilities. She graduated high school in the mid-70s and applied to St. Vincent Healthcare for a job in Central Processing. Her cousin knew the Director and explained her situation. She was hired as a CP Aide delivering sterile trays, linens, and machines and washing & sterilizing instruments. Other aides were trained to do more, but she was limited to these duties because of her disability. 6 years later she asked to become a CP Tech with numerous additional duties. She was open with co-workers about her disability and accommodations. Her manager did not typically have her work with instruments and the evening head tech would switch her out of instruments to another task if the instrument area was busy or she did not have a helper. She worked successfully as a tech and was never subjected to discipline. In 2013 David Dobson became OR director. Jackson told him she had special needs. He said he had worked with people with special needs. He promoted her co-worker Heather Franzel to be CP manager. Franzel told Jackson that she was “going too slow on the instruments.” Time trials were implemented for completion of instrument trays. Jackson received a “correction action form” in 10/13. She provided a letter from her doctor William Phillips that she required additional time “to learn and perform certain tasks” and that she was a diabetic with a heart condition which should be considered in evaluations. In 5/14 she began receiving write-ups every few weeks and in 8/14 she was terminated. Her termination letter cited write-ups for mislabeling instruments and not listening to her supervisor and additional issues including entering a sterile area in street clothes, failing to put an indicator in an instrument bag to show that it had been sterilized, failing to place her card in the tray indicating who completed it, and failing to include a sterilized instrument on the correct tray. She submitted a grievance, which was denied, then filed EEOC and MHRB complaints in 10/14 alleging age and/or disability discrimination. Her counsel advised MHRB investigator Meg Bennett in 4/15 that she planned to pursue a retaliation claim. When Bennett pointed out that Jackson’s charge did not include retaliation, her counsel urged Bennett to “update her records if necessary.” Bennett explained that when a party amended a charge late in the investigation, MHRB did not generally consider the new allegations. MHRB issued its decision in 5/15 and HRC upheld it in 9/15. Neither opinion addressed retaliation. Jackson sued in State Court in 10/15. St. Vincent removed to this Court and requests summary judgment.

St. Vincent argues that Jackson failed to exhaust administrative remedies as to her retaliation claim. Jackson argues that she amended her discrimination charge to include retaliation. The MHRA requires an employment discrimination or retaliation claim to be filed “within 180 days after the alleged unlawful discriminatory practice occurred or was discovered.” MCA 49-2-501(4)(a). An ADA plaintiff generally must also file a charge with EEOC within 180 days of the last act of discrimination. 42 USC 2000e-5(e)(1). The period is extended to 300 days if the plaintiff first institutes proceedings with a “State or local agency with authority to grant or seek relief from such practice.” Id. Jackson’s attempt to include retaliation was too late under Montana law but within the time allowed under federal law. However, subject jurisdiction extends not only to claims that fall within the scope of the agencies’ actual investigation, but also to claims that could reasonably be expected to grow out of the charge. Vasquez (9th Cir. 2003); Mallory (Mont. 2008) (whether a claim is subject to MHRA exclusivity depends on the nature of the conduct, not the technical format of the complaint). Jackson’s charge alleged that she was subject to age and/or disability discrimination 8/27/14 because she was terminated for “poor performance” and being “too slow.” She asserts that her retaliation claims are consistent with her “original theory of the case” as they are “based on the same or similar factual scenario and disability as the originally-pled disability theory.” It is difficult to know exactly what her retaliation claim is, considering that it was not addressed in her MHRB submissions or fleshed out in her complaint or pretrial statement. Nevertheless, she argues that St. Vincent would suffer no prejudice if she is permitted to proceed with an untimely claim. The Court is not persuaded that St. Vincent would suffer no prejudice if she is permitted to proceed with her untimely claim under Montana law. Accordingly, her retaliation claim under Montana law is time-barred. However, she timely attempted to amend her ADA retaliation claim, so it survives. Casavantes (9th Cir. 1984) (discrimination laws to be liberally construed).

St. Vincent argues that because Jackson cannot prove that she is a “qualified individual” she cannot establish a prima facia case of disability discrimination including failure to accommodate. It does not dispute that she had the skills, training, and experience to be an Instrument Tech, but argues that she could not assemble instrument trays, an essential function of her position. 29 CFR 1630.2(n)(3). It asserts that she made “quality mistakes on the instrument trays and continued to have performance issues that resulted in discipline” even after it provided retraining. Jackson argues that her historical performance demonstrates that she could complete essential functions with reasonable accommodation. The evidence leads the Court to conclude that an essential function of the Instrument Tech job includes assembling instrument trays. Thus she has the burden to show that she could carry out this essential function, with or without a reasonable accommodation. Dark (9th Cir. 2006). St. Vincent argues that her poor performance after the accommodations demonstrates that she could not complete the essential functions even with accommodations. The Court disagrees. A jury could find that she was qualified for her job on the day St. Vincent terminated her, but needed a reasonable accommodation — to be allowed more time to complete instrument trays. She was an Instrument Tech for 7 years and successfully performed essential functions with no disciplinary or performance issues. She began receiving write-ups in 2013 after new management began requiring her to work faster with the trays. Jackson, her doctor, and St. Vincent’s psychologist David Gumm suggested allowing more time to complete the trays or allowing her to complete other tasks in which she had more confidence, both accommodations she had received before 2013. Instead, St. Vincent provided retraining and a mediator to help her communicate with her managers. Notably, neither Jackson nor anyone on her behalf requested retraining as an accommodation. St. Vincent did not provide or even consider Phillips’s or Gumm’s suggested accommodations, but instructed her to work faster, even though she had advised Hoffman that she made mistakes when she was required to go fast. Her pre-2013 employment history as an Instrument Tech demonstrates that she was capable of performing all essential functions with a reasonable accommodation. What changed in 2013 was the speed with which she was required to complete instrument trays. The Court will assume for purposes of this query that providing additional time to complete the trays was a reasonable accommodation, particularly as she had been similarly accommodated for many years. Certainly in light of her 7-year discipline-free performance, disputed material fact issues exist as to whether rapidly assembling trays is an essential or marginal function, and is best left for the jury. Assuming that she had such an accommodation, however, there is no dispute that she was otherwise qualified and was thus a “qualified individual with a disability” as of 8/27/14. St. Vincent’s motion for summary judgment on this claim is denied.

There is substantial evidence to persuade the Court that a jury could find that St. Vincent’s explanation for terminating Jackson is unworthy of credence. Rasmussen (Mont. 1993); Stegall (9th Cir. 2003). It argues that her repeated mistakes on the trays created patient safety issues because all Instrument Techs need to be able to complete all tasks. This seems to be contradicted by what it accepted in the past. Her job description had not changed in 6 years prior to her 1st write-up under Dobson and Franzel in 2013. During those years she was required to be on-call and capable of all individual tasks alone, and did so successfully. A jury could find that the accommodations St. Vincent provided were not reasonable and were outright discriminatory. Jackson and Phillips both asked that she be allowed more time to complete the trays, as she had for years, yet none of her new managers ever discussed allowing more time. She also requested placement in another division as a potential accommodation, but it is disputed whether St. Vincent provided her that opportunity. A reasonable jury could conclude that its stated reasons for terminating her were pretextual and that her termination was purely discriminatory. Summary judgment denied as to this claim.

Jackson v. St. Vincent Healthcare, 44 MFR 1, 2/24/17.

Eric Holm & Ben Sather (Sather & Holm), Billings, for Jackson; Emma Savory & Mary Stuart (Husch Blackwell), Denver, and Eric Nord (Crist, Krogh & Nord), Billings, for St. Vincent.

JURISDICTION declined over “reactive” request that environmental restoration plan proposed by landowners in pending State Court action be declared prohibited by CERCLA… Lynch/Morris.

ARCO filed this action seeking a determination that an environmental restoration plan proposed by Landowners in a pending State Court action is prohibited by CERCLA §113(h). Magistrate Lynch recommended that Landowners’ motion to dismiss be granted. ARCO filed objections and Landowners filed a response.

ARCO and its predecessors processed copper ore at the Anaconda Smelter for decades. The arsenic & lead emissions settled on the surrounding landscape. The smelter closed in 1980 and the surrounding area was declared a CERCLA Superfund site in 1983. Landowners in Opportunity and Crackerville sued ARCO in State Court 4/17/08 seeking compensation for property damage based on negligence, nuisance, trespass, constructive fraud, unjust enrichment, and wrongful occupation of property, seeking to recover costs required to restore their soil and groundwater. They have submitted a restoration plan which includes work not contemplated by EPA, which they estimate will cost $38-101 million.

ARCO has challenged Landowners’ claims for restoration damages in the State Court action via affirmative defenses and a motion for summary judgment, arguing that their proposed plan constitutes an impermissible challenge to EPA’s cleanup plan. It filed this action 7½ years after Landowners filed their State Court action. It seeks the very same relief that it requests in State Court. Landowners have moved to dismiss for lack of subject jurisdiction, for Brillhart abstention, as time-barred, and for failure to state a claim. The parties request summary judgment as to whether §113(h) bars the restoration plan proposed by Landowners in State Court.

Application of the Brillhart factors confirms that this Court should decline jurisdiction. Given that diversity provides the sole basis for subject jurisdiction in this declaratory action, the 1st factor would be neutral. When the “sole basis of jurisdiction is diversity of citizenship, the federal interest is at its nadir.” Robsac (9th Cir. 1991). The 2nd factor seeks to discourage the declaratory judgment procedure as a means to forum shop. Dizol (9th Cir. 1998). This factor primarily addresses “reactive” declaratory suits. Robsac (9th Cir. 1991). The timing of this action proves suspect. ARCO filed it when the underlying State action had been pending for over 7 years. The 2nd factor weighs in favor of declining jurisdiction. The 3rd factor seeks to avoid duplicative litigation. The issue here is whether §113(h) bars Landowners’ claims for restoration damages. The identical issue is pending in State Court on ARCO’s motion for summary judgment. ARCO presented the issue to the State Court more than 2 years before this action was filed. The State Court is equally capable of deciding the issue. 2 other factors identified by the 9th Circuit weigh in favor of declining jurisdiction. Further prosecution of this action will lead to an entanglement between the federal and state systems. This Court and the State Court could reach disparate conclusions, and further prosecution of this action will not settle all aspects of the underlying action. The declaratory relief sought by ARCO in this case relates only to Landowners’ claims for restoration damages. Landowners have asserted damage claims in the State Court action that would remain viable even if ARCO were to prevail here.

The Court finds no compelling reason to exercise jurisdiction. Dismissed without prejudice.

Atlantic Richfield v. Christian et al, 44 MFR 26, 2/15/17.

Jonathan Rauchway, Shannon Stevenson, and Mark Champoux (Davis, Graham & Stubbs), Denver, and John Davis (Poore, Roth & Robinson), Butte, for ARCO; Justin Stalpes & Monte Beck (Beck, Amsden & Stalpes), Bozeman, and David Slovak, Mark Kovacich, and Ross Johnson (Lewis, Slovak, Kovacich & Snipes), Great Falls, for Landowners.

INDEMNITY provisions of engineering agreement apply to engineering work on fuel unloading dock at Whitefish from which railroad employee fell, redress for injury shifted from engineering firm to railroad… judicial estoppel/admissions as to which year agreement applies, choice of law, definition of “renewal,” indemnity v. exculpatory vis-à-vis willful/negligent conduct, MCA 28-2-702 and 28-2-2111… Christensen.

TKDA contracted in 8/01 to provide engineering services for BNSF. It was to indemnify and hold BN harmless for “any claims arising from the performance of the Agreement.” The choice-of-law provision provided for “the State in which the work is performed.” It was renewed in 2003, 2004, 2005, 2006, 2008, and 1/09. TKDA agreed in 2002 to engineer a fuel unloading facility at BN’s Whitefish yard with an elevated walkway for top-unloading cars with retractable gangways and new unloading arms. It purchased equipment from Safe Harbor Access Systems. BNSF and TKDA entered into another contract for services 10/6/09 which stated that TKDA was to “release Railroad from any claims arising from the performance of the Agreement” and “the Indemnification obligation assumed by consultant shall include any claims, suits or judgments brought against Railroad under [FELA].” The choice-of-law provision provided for Texas law. It also explained that “Railroad and Consultant agree that all existing or prior or contemporaneous written or oral agreements between the two firms that cover the same general service work in the same location(s) as this Agreement shall be superseded and canceled by this Agreement.”

On 7/19/13, BN employee Terry Fox fell off a tank car while attempting to remove fuel. He sued BN in State Court claiming that the gangway retracted and knocked him off and that BN had a non-delegable duty to provide a safe work place and his injuries were caused by BN’s negligence. BN demanded that TKDA indemnify and defend. TKDA did not respond. BN filed this complaint against TKDA in 2/16 alleging breach of contract and seeking a declaration that it violated Montana’s statutory right for indemnification. TKDA responded with 16 defenses including that BN’s claims are barred by Montana and Minnesota law regarding indemnity and claims handling procedures, counterclaimed against BN seeking a declaration regarding the indemnity and release of claim provisions in the contract, and filed a 3rd-party complaint against Safe Harbour.

TKDA alleges that BN is estopped from arguing that the work was performed in a state other than Montana or that another state’s law applies because BN alleged in its pretrial statement that Montana law should apply. It also argues that BN admitted in its pretrial statement to the place where the work was performed which the Court should consider a judicial admission. BN contends that because TKDA selectively quoted BN’s representations in its pretrial statement, judicial estoppel does not apply, and alleges that TKDA is itself judicially estopped from taking the position that the 2009 Agreement was not a renewal of the 2001 Agreement because TKDA admitted that it was a renewal in its pretrial statement. The significance of the parties’ admissions turns on which agreement governs. In its brief for partial summary judgment, TKDA omitted BN’s language that it preserved its ability to argue that Texas law applies if the 2009 Agreement was found to be a renewal of the 2001 Agreement. BN was not unequivocally stating that Montana law applied; it applied only if the 2001 Agreement was the contract interpreting the conduct at issue. Therefore, BN is not precluded from arguing that Texas law applies if the Court determines that the 2009 Agreement is the correct contract to interpret the conduct at issue.

TKDA further contends that because BN made the admission in its pretrial statement that the work was performed in Montana and that the contract requires Montana law to govern interpretation of the 2001 Agreement, the Court should take notice of this statement. Factual assertions in pleadings and pretrial orders, unless amended, constitute judicial admissions. The Court agrees that BN admitted that the work was performed by TKDA in Montana, and thus under the 2001 Agreement Montana law would apply. BN is bound by this judicial admission. BN agrees that the claims should be decided under Montana law if the Court finds that the 2001 Agreement applies, but argues that they should be decided under Texas law if the 2009 Agreement governs.

Since TKDA’s installment of the unloading dock in 2002 falls under the 2001 Agreement, the issue is whether the 2009 Agreement was a new contract or a renewal of the 2001 Agreement. The confusion in the briefing is the difference between the 1/09 renewal agreement and the 10/09 contract. TKDA cleared this up by explaining that the “2009” to which it referred was the 1/09 renewal. It maintains — and BN concedes — that the 2009 Agreement is not in any way a renewal of the 2001 Agreement. The Court agrees with TKDA that it was not taking inconsistent positions, and that the “2009” it referred to when it stated “between 2003 to 2009” was in reference to the renewal agreements and not the 2009 Agreement executed 10/6/09. Because there is no dispute that the 2009 Agreement was a separate & distinct contract, the Court concludes that the 2001 Agreement applies to the conduct at issue.

Montana courts do not engage in choice-of-law analysis unless there is an actual conflict between the states. TKDA contends that performance occurred in both Montana and Minnesota, but, as it explains, there is no conflict between Montana and Minnesota law as to enforceability of the indemnity provision. Because BN is bound by its judicial admission that the work was performed in Montana, the choice-of-law analysis is straightforward. The work was done pursuant to the 2001 Agreement, the majority of work was performed in Whitefish, and therefore Montana law applies.

The Court must now determine if TKDA can assert a defense under MCA 28-2-2111. BN argues that 28-2-2111 is not applicable if the 2001 Agreement was not renewed after 2003, because it is only applicable to contracts entered into or renewed on or after 7/1/03, the effective date of the law. Both parties agree that it applies to construction contracts only if they are entered into or renewed on or after 7/1/03. “The word `renewed’ or `renewal,’ as applied to promissory notes in commercial and legal parlance, means something more than the substitution of another obligation for the old one. It means to re-establish a particular contract for another period of time, to restore to its former condition an obligation on which the time of payment has been extended.” Parchen (Mont. 1917). The plain language of the 2001 Agreement’s “PAYMENT PROVISIONS” states that each year the contract could be renewed subject to a new rates & compensation schedule. TKDA asserts that these provisions contemplate renewals of the 2001 Agreement subject to new payment rates. BN contends that “renewal” has no impact on whether the 2001 Agreement was extended or terminated. However, when examined in its ordinary sense, “renewed” means that each year the parties could renegotiate rates & compensation. This clearly anticipates the mutual agreement to renew the contract every year, subject to slight modifications. The supplemental agreements all reference and reincorporate the 2001 Agreement as the “Original Contract.” The supplements in 2003, 2004, 2005, 2006, 2008, and 1/21/09 consisted of cover pages titled “Supplement Original,” and included language as “revisions” to the 2001 Agreement consisting of updated payment provisions. The last paragraph of each supplemental agreement states that “the `Original Contract’ shall continue in full force and effect.” Thus the 2003, 2004, 2005, 2006, 2008, and 1/21/09 agreements were renewals of the 2001 Agreement. Consequently, TKDA’s defenses under MCA 28-2-2111 will not be stricken. However, as explained below, this is an “empty victory” in that the statute cannot be applied retroactively to work performed before the statute’s effective date.

TKDA contends that the 2001 indemnity provisions are invalid because under MCA 28-2-702, any provision that exempts a party from responsibility for their own willful or negligent conduct is void as a matter of public policy. The Court agrees with BN that there is a difference between exculpatory clauses and indemnification agreements under 28-2-702. An exculpatory clause effectively denies recovery to an injured party by “cancelling liability altogether.” Haynes (Mont. 1973). This complete lack of redress underlies the public policy behind 28-2-702. However, an indemnity clause simply shifts financial responsibility for a 3rd party’s loss from one entity to another. Hence, an indemnity provision of this nature is nothing more than a private insurance contract. As in Haynes and Ryan Mercantile (9th Cir. 1961), the indemnity provisions do not cancel liability and preclude Fox from recovering for his injuries. BN and TKDA are sophisticated entities with equal bargaining power with the contractual right to limit their remedies & liabilities. They are free to allocate the risk of economic loss associated with TKDA’s performance under the 2001 Agreement. Fox is able to obtain redress under the 2001 Agreement, but that redress is shifted from BN to TKDA. This is not contrary to Montana public policy. TKDA’s motion for summary judgment that 28-2-702 invalidates the 2001 indemnity provisions is denied.

Alternatively, TKDA argues that under MCA 28-2-2111 (2003), a construction contract provision which requires one party to indemnify the other for damages or losses caused by “the negligence, recklessness, or intentional misconduct of the other party” violates public policy. However, TKDA performed its work on the Whitefish dock in 2002. 28-2-211 does not indicate that it should retroactively impact a contractual indemnification agreement for work completed prior to 2003, and the Fiscal Note implies that completed work does not fall under the statute. Since the work at issue was performed prior to its enactment, it is not triggered. TKDA’s motion for summary judgment that 28-2-2111 invalidates the 2001 indemnity provisions is denied.

TKDA’s motion for summary judgment as to application of Montana law is granted. BN’s motion to strike TKDA’s defense under MCA 28-2-2111 is denied. TKDA’s motion (and Safe Harbor’s joinder in that motion) for summary judgment as to invalidity of indemnity & release claims provisions is denied.

BNSF v. Toltz, King, Duvall, Anderson, 44 MFR 49, 4/5/17.

Anthony Nicastro & Brian Taylor (Hall & Evans), Billings, for BN; Stephanie Oblander (Smith Oblander), Great Falls, for TKDA; Sarah Simkins (Johnson Berg & Saxby), Kalispell, and Marcel Quinn & Todd Hammer (Hammer, Hewitt, Jacobs & Quinn), Kalispell, for Safe Harbor.