INSURANCE: Bad faith “fishing expedition that yielded no catch”… insurer delivered $4 million policy limits to Plaintiff’s attorney and 6 others to settle prior case against CPA firm… Plaintiff not informed that others would share in settlement, now sues insurer for bad faith failure to timely settle, leverage her into global settlement… Plaintiff’s counsel disqualified so she could testify as necessary witness to facts in prior case, co-counsel took over case, moved to disqualify insurer’s counsel… discovery violations and other bad faith by Plaintiff’s counsel… Judge recusal based on alleged bias against Plaintiff’s counsel and reliance on “extrajudicial source” (private practice experience) and outdated understanding of the law denied… summary judgment for insurer on bad faith claims… insurer awarded $107,868 fees/costs payable by Plaintiff’s counsel for retaliatory motion to disqualify Defendants’ counsel and expenses incurred by Defendants in compelling additional discovery… 104-page order… Lovell.

Underlying tort litigation. Billie Redding, 76, sold her ranch for $3.3 million in 2004. Seeking to avoid tax liability and provide income for herself and her son, she sought advice from Timothy Janiak, who had been her accountant for 20 years at Anderson ZurMuehlen. He steered her to AZ subsidiary Acquiron, formed with real estate broker Rick Ahmann, for a possible 1031 exchange. Acquiron advised tenancy-in-common shares of commercial properties sold by DBSI. With the advice of her personal attorney she decided to participate. DBSI declared bankruptcy 4 years later and her monthly payments became irregular and stopped. Acquiron recommended the same or a similar transaction for at least 6 other ranch clients, who likewise suffered loss of the rental payments. On 11/11/08, the day after DBSI declared bankruptcy, AZ reported to New York Marine Ins. that there was a potential for multiple claims. Redding sued AZ, Acquiron, her AZ accountant, and 2 Acquiron employees in 2009. Redding alleged that her TICs were unregistered securities and that AZ and Acquiron violated the Montana Securities Act and committed fraud and misrepresentation. The policy excluded claims arising from brokerage of unregistered securities. In 1/11 discovery was ongoing in Redding’s case, and AZ’s lawyers were preparing summary judgment motions on statute of limitations and whether the TICs were securities. They also believed that her $4.6 million in claimed damages were inflated by the fact that she had not reported all previous rental income from her TICs and that she claimed over $2 million from non-recourse mortgage debt acquired in the transaction but allegedly would never be required to repay. On 2/17/11 she made demand for the $2 million policy limit. Defendants requested that the 30-day response period be extended a few days to accommodate a mediation set for 3/23 and because they had not received an expert’s report as to damages. Redding rejected the request for an extension and the 30-day demand period expired. The mediation conference was held with Stuart Kellner. Defendants opened with an offer of $250,000, hoping to arrive at a settlement of $750,000-$900,000. Redding countered at $6.5 million and Kellner terminated the mediation. In 8/11 Judge McCarter ruled that Redding’s TICs were not securities.Redding (Mont. 2012) held 7/5/12 that they were. However, in 6/12 Redding and the 6 other claimants settled with AZ in a global settlement for $4.65 million. NYM contributed $4 million and AZ contributed $650,000 (representing its commission or fees). Redding’s share after fees & costs was $450,844.87. AZ was represented in the underlying litigation by Patrick HagEstad and Bradley Condra. Redding was represented by Richard Layne and Linda Deola. After filing Redding’s complaint, Deola acquired 5 other clients as sole counsel and served their complaints in 2011 & 12. The 7th claimant, Garrison Ranches, was represented by John Bloomquist. Redding testified that she did not find out that the other claimants existed until the insurance was divided. It is not clear even now that she understands that Deola was retained by the other claimants for the purpose of sharing the same limited proceeds that she was hoping would be hers alone. She believes that she is now suing NYM because it has not yet paid her “bill” in full. MRPC 1.7 requires a lawyer to refrain from taking on a new representation when “there is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibilities to another client” unless each affected client gives informed consent in writing. The record does not demonstrate that this condition was met.

Underlying coverage litigation. NYM agreed to defend AZ under reservation of right to deny coverage based on exclusions. The 2008 policy had a $2 million limit (per claim and aggregate). It excluded criminal, dishonest, or fraudulent acts or omissions, deliberate misrepresentations, or intentional or knowing violations of the law, and claims arising from AZ’s or Acquiron’s capacity as a securities broker or dealer. Because the underlying facts were still being discovered and issues were being defined by motion practice in Redding’s State Court case, NYM took no further action as to coverage. It was particularly significant to the coverage case that McCarter decided that the TICs were not securities. 4 months after her ruling, AZ’s attorney Curt Drake filed a declaratory action against NYM and Redding, Chevalier Ranch, and Thieltges Farms as “stakeholders.” This action was removed to this Court. Because AZ settled with all claimants shortly after removal, this coverage case was never adjudicated. 5 months after settlement, in 11/12, the parties stipulated to dismissal of the coverage case. That declaratory action had sought a ruling that NYM owed a duty to indemnify AZ (it was already defending). There were serious factual & legal questions, adjudication of which would have determined whether there was $4 million coverage available on 2 policies, $2 million on 1 policy, no coverage on either policy, or only part coverage for some claims and not others on 1 or more policies. Both policies explicitly provided that before NYM could settle a claim AZ had to consent. Both were also “claims made and reported” policies: after the 1st claim was made, subsequent related claims were to be deemed submitted under the original policy year. While there would only be 1 deductible for all related claims, all related claims would be limited by the $2 million aggregate under the original policy year. NYM retained Robert Guite, San Francisco, who was sole attorney until that case was dismissed in 12/12. Deola represented Redding, Chevalier, and Thieltges. When it came time to settle in 5/12, AZ and Redding were concerned about what they would do if NYM refused to provide coverage for Redding’s claim and the other 5 claims. Drake and Deola discussed a proposal whereby Redding would settle separately with AZ, which would then assign to her its 1st-party bad faith and breach of contract claims against NYM (for failure to settle), allowing Redding to sue NYM for both her 3rd-party bad faith claim and AZ’s 1st-party bad faith and contract claims. There is nothing inherently wrong with such a Damron agreement. It must be reasonable in amount and not otherwise fraudulent, collusive, or against public policy. Tidyman’s (Mont. 2014). However, it must be preceded by some breach of the contract by the insurer such as would justify the insured’s breach of the standard cooperation clause. The key feature of the Damron proposal here would have been that Redding would release any claim she might have as to AZ’s assets, thereby releasing AZ from its excess liability. Drake circulated a settlement document to AZ and Redding, without NYM’s knowledge, that called for Redding to agree not to execute on AZ’s assets in return for a confession of judgment by AZ and a $10,000 payment to Redding. In 12/11, just before filing the coverage suit, Drake requested Deola’s permission to name Redding and several other of her clients as nominal defendants on the theory that they were “stakeholders” in the policies, and Deola consented. Because Drake was in charge of AZ’s coverage dispute with NYM, he was clearly adversarial to NYM throughout the underlying litigation, but it appears that he may have at certain points led the negotiations for settlement of the underlying action. He also gave Deola his opinions (adopted by her) as to availability of coverage through NYM and any other carriers relevant to NYM’s co-defendants Petersen and Ahmann. Sometime between 5/21 and 6/5/12 Drake told Deola that there would be $4 million in NYM coverage available to settle all claims. During early 2012, AZ was facing $10-$30 million in damage claims by 7 former clients, but it had only $4 million coverage at most (perhaps only $2 million or even 0). Drake apparently put out the suggestion of having AZ confess judgment and assign to Redding any right it had to a 1st-party bad faith claim against NYM in case NYM did not provide coverage and also to manage the problem of AZ’s excess liability. That AZ’s coverage was itself precarious only exacerbated the total risk. AZ believed that if it were made responsible for all damages alleged it would be forced into bankruptcy. The plan was to require the 7 claimants to give up their excess claims against AZ. When AZ’s officers & directors decided in 5/12 that they wished to settle all claims quickly, Drake contacted Deola to find out what she would demand for a global settlement. In early 6/12 while HagEstad was in Texas on vacation, Drake was leading the negotiations for AZ, and all 7 Plaintiffs agreed with AZ to settle for $4.65 million — $2 million from each of the 2 policies and $250,000 cash and $400,000 in 4 annual installments from AZ. On 6/5, upon learning from Deola that the claimants agreed to accept $4.65 million, HagEstad informed her and Drake that NYM had not agreed to pay any policy limits, much less 2 limits totaling $4 million. NYM ultimately agreed to contribute $4 million. AZ understood that its coverage dispute would remain. Condra transferred $4 million by hand delivery to Deola 7/27/12. She then distributed funds to Redding, her other clients, herself, and the other 2 Plaintiffs’ counsel. Before that payment occurred, a serious glitch arose in 7/12 when NYM received a draft of the settlement agreement. It was prepared by Drake, revised by Deola, and signed by all claimants, perhaps even before NYM had a chance to suggest any revisions. It did not provide a release of NYM. Of even greater concern to NYM, it specified that NYM was not released as to any violations of Montana insurance law. By this time all attorneys knew that Deola was threatening to sue NYM for bad faith after the tort claims settled, and that intention was clearly telegraphed in the settlement agreement. This apparently caused NYM consternation in the 2 weeks before it cut two $2 million checks. Nevertheless, it was undeterred from its previous agreement to fund the settlement. It did not require any release for itself. It informed AZ that it would make the $4 million payment but under reservation of rights to recoup it from AZ after the coverage adjudication. Alternatively, it proposed that AZ agree to indemnify it as to any future claims arising out of the coverage action or the underlying action. Deola testified that her percentage as to Redding was only 14% because she split her fee with Mike Layne, who received 19%. Her fee was 33% each as to 3 of her other clients and 30% as to her 2 other clients, for which she was sole counsel. She received $96,564.08 fees from Redding and $1.1 million from her other 5 clients.

Bad faith. Redding, represented solely by Deola, alleges, inter alia, that NYM acted in bad faith in settlement of her claim. Deola apparently believed that NYM prevented AZ from settling much earlier than it did. She testified in her deposition that “AZ had been telling me all along, we want to settle this case, it’s New York Marine that’s not putting up the money, they are the problem, not AZ.” The record clearly establishes that AZ did not decide to settle with Redding until days or weeks before it did. Indeed, before 6/15/12 there was no written consent from AZ to NYM that notified or requested it to settle. However, AZ did decide in 5/12 that it wanted all the claims settled because it felt (correctly as it turned out) that it had more exposure after the Montana Supreme Court oral argument 4/25/12, which did not go well for AZ. AZ CEO Gary Carlson summarized its position in a 5/25/12 email to its defense counsel and Pres. Don Laine:

From our point — the settlement negotiations with Deola must include the Garrison case, the Schinder case that is about to be served, as well as the “other” party she has contacted, as well her [Deola] ceasing to use the “list” she has of Acquiron transactions to obtain further cases against AZ or Acquiron.

Redding’s allegations now are that NYM failed to settle with Redding when she made a $2 million limit demand in 2/11, that NYM required the 6 other claimants to settle in a global settlement before it would settle with Redding (thereby leveraging Redding’s desire to settle in order to obtain a settlement with the other 6), and that NYM did not timely pay the proceeds after a global settlement was reached between the 7 claimants and AZ. As this bad faith case ground on, communications between opposing counsel became increasingly strained, particularly after NYM moved to disqualify Deola on the ground that she would be a necessary fact witness as to the settlement negotiations and her allocation of the proceeds. Deola responded by threatening to move to disqualify NYM counsel. The Court ultimately conducted a hearing and granted NYM’s motion. Brian Miller, one of her partners, then appeared, for Redding. The Court also refused to quash NYM’s deposition of Deola, which was not entirely successful since her memory of the underlying action was not good and she failed to bring documents such as the spreadsheet that detailed her distribution of the settlement funds. She had emailed opposing counsel that she was “likely to answer very few questions and [was] prepared to be held in contempt if necessary.” Further complicating the matter, 3 days before the deposition she disclosed additional documents that were redacted but with no privilege log. Miller filed a retaliatory motion for disqualification of NYM’s counsel Mark Goodman, which the Court viewed as “patently frivolous.”

In the months after Deola’s deposition, late discovery from AZ showed that she had failed to disclose certain relevant non-privileged documents including emails between her and AZ’s lawyers and Drake. The Court granted NYM’s motion for additional discovery, and also found that Redding, Deola, and her firm should be assessed fees & costs attributable to the motion. The Court declined to find her in contempt, but did find that she committed the alleged discovery abuses. NYM presented a bill to Redding’s counsel for $48,000. Miller responded by moving for recusal of the undersigned.

In spite of the Court’s efforts to keep this litigation moving toward resolution, Plaintiff’s counsel now claims to believe that the decisions that have gone against Plaintiff have been so unfair that — after 2 years of litigation and after NYM’s motion for summary judgment — it has become necessary for Miller to move for my recusal. His motion accuses me of being biased against Plaintiff’s counsel and having an outdated understanding of the law which constitutes an extrajudicial influence on the Court. In classic straw man argumentation, he misrepresents the Court’s statements and then proves them to be wrong. For example, he claims that the Court thinks that Redding should have released her future bad faith claims against NYM in exchange for insurance proceeds in the underlying case. Nothing could be further from the truth. The Court merely queried whether it was bad faith for Redding to refuse to release the insurer from her underlying claim in exchange for her receipt of insurance proceeds. The purpose of this questioning related to a then-pending question of whether another suit should be consolidated with this suit. It was Miller’s choice to misconstrue the Court’s question and leap to a judgment of the Court, which he has now fully developed in his recusal motion. Miller asserts that during the 6/10 hearing the Court inappropriately consulted an extrajudicial source: itself. He argues that it was inappropriate for the undersigned to consult recollections of 26 years of private practice, as mentioned at the hearing, and to rely on “deeply-held beliefs” about the law developed during those years, and therefore a judge’s recollection of private practice and knowledge of or beliefs about the law derived during decades of practice are an extrajudicial source of information that must be studiously ignored when judging cases. He cites no authority for this novel theory; it is a frivolous argument. Plainly, the Court has not relied on any extrajudicial source which would justify recusal. Plaintiff’s motion for recusal, NYM’s motion for summary judgment, and NYM’s motions for fees & costs were heard 9/19/14. Without the interference caused by a true extrajudicial source, Plaintiff cannot rely on Court orders to justify a motion for recusal. There is no extrajudicial source in this case. Absent that element, Plaintiff must point to evidence of the Judge’s deep-seated antagonism or favoritism, without resort to rulings. It appears that Plaintiff’s brief focuses primarily on the Court’s discovery rules. This is not sufficient, as a matter of law. Plaintiff can point to no statements or conduct by the Court that are intemperate or otherwise betray deep-seated antagonism or favoritism. The motion for recusal is denied.

NYM conducted a reasonable investigation of Redding’s claim. It had a reasonable basis in law and fact for contesting the claim and the amount. It did not leverage an undisputed claim to obtain the settlement of disputed claims. It did not delay its approval of the settlement or its payment of policy limits. Because under Montana law insurers are not found in bad faith if they have a reasonable basis for contesting a claim, NYM did not commit bad faith by declining to settle with Redding in 2 & 3/11. It conducted a reasonable investigation into her claim and had a reasonable basis in law for declining to settle at that time. Her leveraging claim that NYM unreasonably refused to settle with her in order to force a global settlement is not supported by the record, which shows that it was the insured who wanted a global settlement, and Redding and all the claimants cooperated in achieving that goal. NYM did pay $4 million to Deola, and there is no evidence to support Redding’s claim that it delayed paying policy limits ($4 million). This case turned out to be a fishing expedition that yielded no catch. NYM is entitled to summary judgment on Redding’s common law and statutory bad faith claims.

NYM requests attorney fees & costs pertaining to Redding’s motion to disqualify Goodman, which was deemed filed for a retaliatory purpose and to harass opposing counsel. The Court found the motion to disqualify Goodman “patently frivolous” primarily because Goodman appeared as secondary coverage counsel and only after a final settlement was reached between the claimants and AZ. He only wrote 2 emails to AZ as to post-settlement matters. As with so many of Plaintiff’s arguments, Deola sets up a straw man by misrepresenting NYM’s defense and then uses that misrepresentation to justify Miller’s frivolous motion to disqualify Goodman. NYM also requests fees/costs pertaining to its motion to compel discovery. The Court will grant fees in both instances. Plaintiff’s counsel, who never offered to settle the fee award, asks the Court to set the lodestar at the Montana rate exemplified by NYM’s local counsel Gary Zadick which is $250/hr. NYM objects to applying that rate to their San Francisco counsel and point out that even under Montana law the going rates for counsel in communities outside Montana can be considered when it is reasonable to do so. Ihler (Mont. 2000). NYM believes that their out-of-forum attorneys were reasonable because counsel were familiar with them and their case. It was reasonable for NYM to have engaged these counsel, especially since they are excellent attorneys and have proven their capability in this case. While the lodestar is generally applicable, an exception is made for sanctions imposed on contumacious & contentious counsel acting in bad faith. The out-of-forum rate (or more precisely, the differential between the local rate and the out-of-forum rate) is both sanction against attorney misconduct and partial restitution to NYM for fees that it must pay. Goodman’s established rate is $525/hr; Michelle Alborzfar’s rate is $450/hr. NYM requests $213,705.21 including $1,792.32 costs. The Court will order reimbursement for its principal counsel (Goodman, Alborzfar, Zadick) as to the motion to disqualify Goodman, motion to quash subpoena of Goodman, and hearing of the motion, but will order that only principal counsel’s fees & costs be paid as requested, in the total amount of $73,934.82. The itemization indicates possible overstaffing and inordinate time in research; time expended by the contract attorney (40.3 hours) and paralegal (95.1 hours) exceeded what was necessary to respond to Plaintiff’s motions. $73,934.82 represents a reasonable reimbursement for NYM for lost opportunities for employment of the defense team for the fixed nature of counsel’s reimbursement, for the high importance of the motion to NYM given Goodman’s position as lead counsel and the late stage of the proceedings, and for undesirability of the work itself (responding to a frivolous & retaliatory motion). NYM requests $66,095 fees and $1,810.22 costs for its motion to compel additional discovery and for contempt and monetary sanctions. The Court previously found that “Plaintiff did do all these things and did delay and obstruct the progress of discovery.” It found that Deola failed to produce documents responsive to the Court’s 2/3/14 order, failed to adequately search for documents in response to NYM’s requests (important emails between Deola and Drake), failed to prepare adequately to testify at her 1st deposition, prevented NYM from questioning her at her 1st deposition about her handling of the settlement funds when she was directed to do so by the Court, and prevented NYM from questioning her at her deposition about her communications with opposing counsel as to the settlement. The Court gave the parties 10 days to agree on NYM’s fees & costs attributable to the motion to compel, the hearing thereon, and Deola’s 2nd deposition, to be paid “by Plaintiff and her counsel.” Because they could not arrive at a stipulated amount, NYM moved for fees & costs, supported by a declaration, totaling $67,905.22. It also states that its counsel incurred $34,411.50 for preparing & filing the motion for fees & costs (not inclusive of future time preparing the reply brief), citing Clark (9th Cir. 1986) (argument that no fees recoverable for preparation of fee petition is frivolous). Thus the total fees & costs attributable to Plaintiff’s multiple discovery violations is $102,316.72. I will award $32,122.50 fees and $1,810.22 for the 3 lead/local defense counsel, for a total of $33,932.72. The reimbursement request for a junior associate (41.5 hours), a contract attorney (8.6 hours), and a paralegal (35.5 hours) are unnecessary hours devoted to researching the motion to compel discovery. Nor was NYM successful as to every item sought to be compelled. After further consideration I have determined that Redding should not be held responsible for this attorney misconduct.

The Court may refer the question of attorney misconduct for further consideration by the judges of the District of Montana.

Redding v. New York Marine Ins., 42 MFR 282, 2/27/15.

Linda Deola & Brian Miller (Morrison, Sherwood, Wilson & Deola), Helena, and Richard Layne (Layne Law Office), Portland, for Redding; Mark Goodman & Michelle Alborzfar (Hogan Lovells), San Francisco, and Gary Zadick (Ugrin, Alexander, Zadick & Higgins), Great Falls, for NYM.

CONTAMINATION: Nuisance, trespass, tortious interference claims by subdivision developers against adjacent oil drilling company as to contamination from predecessor’s reserve pit rejected… Watters.

While drilling oil wells in eastern Montana in the early 80s, Aminoil reclaimed a reserve pit. The parties’ predecessors settled claims with Aminoil for surface damage including oil contamination in 1981. Phillips purchased Aminoil in 1984. Conoco purchased the wells in 1988. Cowry Enterprises assuming ownership in 1993. Richland Partners was formed in 2012 and purchased property which included Aminoil’s reserve pit to develop an RV and commercial park next to 2 active wells owned by Cowry. Richland hired Territorial Landworks to conduct due diligence and assist with the subdivision approval. At some point after Richland purchased the property, Territorial discovered oil waste from Aminoil’s reclaimed reserve pit next to where Cowry operates an active well. Cowry did not drill any of the wells on the property and never owned or controlled the area where the oil waste was found. The parties agree that Cowry’s operation did not result in oil seeping onto or contaminating the property. After Richland purchased the property, Territorial instructed a realtor to contact Cowry to inquire about its intent to drill on its oil pads next to the property. The realtor told Cowry that his potential client was looking at purchasing land, but did not mention a subdivision. Cowry officer Dzifa Glymin told the realtor: “The wells were drilled back in the 80s. There are no lease/rental fees paid for the surface land as the owner receives royalties on production [and] as far as new drilling, there is none expected near or around [the wells] anytime soon.” Richland thereafter applied to Richland Co. for approval of a major industrial and residential subdivision. At the request of the planning officer, Territorial “made a great deal of effort” to get Cowry to submit comments about the park. Cowry Pres. Derick Glymin conveyed to Territorial that he was “pro-development” and did not oppose the project, but wanted to ensure that it was safe for any children coming near the wells. He also submitted comments orally and in writing to the Planning Board expressing concern about the potential hazard of people, particularly children, living so close to producing wells. Some of Cowry’s concern stemmed from the fact that its wells were drilled through formations containing sour gas zones. Cowry had re-worked the wells so that neither well produces from a sour zone, but one still produces from a formation with a zone of sour gas. There is some risk that an H2S release could occur from either well. Cowry has H2S monitors around the well that produces from the sour gas formation. It anticipates that the wells will likely have to be re-drilled and a higher potential for an H2S release exists when drilling. As a result of these concerns, Cowry’s operations manager Ted Burkle expressed concerns at a county meeting about building the park next to its active wells, and also wrote the County Planner opining that numerous mitigation measures would be required including evacuation plans, minimum fence construction, ongoing maintenance, and additional security. The Commission imposed numerous conditions on the park including a 300 clear zone around the wells and a qualified evacuation plan, as a result of which Richland’s ability to develop the property has been limited and is more expensive. Richland sued Cowry alleging property damage/negligence, strict liability, trespass, and private nuisance based on its alleged contamination of Richland’s property, and negligent misrepresentation, constructive fraud, and tortious interference for its alleged interference with Richland’s attempts to subdivide. Cowry requests summary judgment on all claims. Richland acquiesced in summary judgment on property damage/nuisance, negligence, strict liability, negligent misrepresentation, and constructive fraud.

Private nuisance. Cowry argues there is no evidence that oil from its operations seeped onto or contaminated Richland’s property. Richland responds that Aminoil’s oil did, and that because Cowry now stands in Aminoil’s shoes, it is “liable in the same manner as the entity that created the nuisance.” However, in light of Richland’s admission that Cowry’s oil did not contaminate the property, its nuisance claim only survives if Cowry is liable as a successive owner. MCA 27-30-105 (successive owner who neglects to abate a continuing nuisance). It is undisputed that Cowry never owned Richland’s property. Although it eventually purchased Aminoil’s wells, there is no evidence that it possessed an ownership interest in the property, contamination of which is the subject of this action, and therefore it had no duty to abate the oil pit nuisance on it.

Trespass. Cowry argues that Richland cannot prove that it intruded on the property. Richland argues that because the nuisance statute requires Cowry to remove the oil reserve pit from the property, its presence is itself evidence of trespass, presenting a fact issue for the jury as to whether trespass occurred. However, there is no evidence that Cowry entered or caused anything else to enter Richland’s land. Burley (Mont. 2012). The undisputed facts show that it never drilled a well on Richland’s property and never caused oil to migrate onto it. Instead, the parties agree that Aminoil caused the contamination when it dug a pit while drilling a well in the 80s. Also in light of the fact that Cowry never owned the property, this Court rejected Richland’s argument that it had any duty to remove the oil contamination under its nuisance analysis. Even assuming that Cowry inherited responsibility for the oil pit, Richland cannot prove the intent element of trespass. Branstetter (Mont. 1986).

Tortious interference. Cowry argues that its statements about the park were justified and in good faith and protected by Noerr-Pennington. Richland argues that the statements were made solely to interfere with Richland and cause them damage. There is no evidence of a contract between any of the parties so no tortious interference with a contract claim exists. Intentional interference with prospective economic advantage “requires proof of malice in the legal sense — that the defendant acted wrongfully, unlawfully, or without justification or excuse.”Signal Peak (D.Mont. 2013). Richland argues that Cowry used the “illusion” of H2S to scare the County into imposing untenable conditions when in fact its motivation was to avoid financial strain from the park. Regardless of its motives, there is nothing illegal about commenting on a potential subdivision. In fact, Richland asked Cowry to comment. Simply because Richland was not happy with Cowry’s comments does not make them illegal, nor does voicing concern for public safety and opining on measures needed to ensure safety demonstrate malicious conduct. For the same reasons, Cowry’s conduct was likewise justified. Richland’s argument that Cowry complained that the park would cost it significant sums is not persuasive. A company is justified in setting out issues that may affect it when supporting or objecting to a proposed subdivision. Moreover, Cowry did not own the property that Richland purchased to subdivide, and thus derived no benefit from duping Richland into purchasing it with promises to not drill and holding itself out as “pro-development” as Richland contends. Its argument that H2S was a mere “scare tactic” is unsupported. Cowry produced studies as to H2S with data to provide insight into where gas exposure zones could exist, which the Planning Board apparently found reliable. Cowry is also protected for its comments & actions by Noerr-Pennington immunity from liability for petitioning for redress of grievances. Richland’s reliance on the “sham exception” is misplaced, as the evidence is undisputed that Cowry was seeking official action from the Planning Board. Franchise Realty (9th Circuit 1976).

Summary judgment for Cowry on all claims.

Richland Partners v. Cowry Enterprises, 42 MFR 260, 2/27/15.

Ben Sather & Eric Holm (Sather & Holm), Billings, for Richland; Dave Dalthorp (Gough, Shanahan, Johnson & Waterman), Helena, for Cowry.

CONTRACT: Claims that sculptor was deceived into accepting flat fees rather than royalties for horse figurine masters time-barred, not tolled by discovery, fraudulent concealment doctrines… bailment claim dismissed for failure to state claim… Christensen.

Phyllis Driscoll began sculpting figurines in 1996 for Kris & Ray Basta’s Singing Tree Farms. Singing Tree and Big Sky Carvers LLP merged in 1/00 to form Big Sky Carvers Inc. In early 2000, Kris Basta approached Driscoll about a new project that BSCI had with Montana Silversmiths. Driscoll agreed to create a horse sculpture for a flat fee. Basta told her that MSS did not pay a royalty. She said, “Montana Silversmiths will never pay a royalty on the horse sculptures. Don’t even ask because they will never pay a royalty.” Driscoll was accustomed to a royalty arrangement and said she would prefer a royalty rather than a flat fee. She asked Basta why MSS would not pay a royalty. Basta replied, “That’s just the kind of company Montana Silversmiths is.” In 4/00 Driscoll again asked if she could earn a royalty for the horse sculpt and Basta said, “No, this company will never pay a royalty, they just won’t, it’s Montana Silversmiths, they just will not pay a royalty.” Basta and other BSCI reps later repeated to Driscoll and her husband that “MSS does not pay royalties” and similar statements. Basta did not inform Driscoll that BSCI had entered into an agreement with MSS as of 1/00 in which BSCI agreed to provide services to develop a cowboy giftware line in exchange for an 8.5% royalty. This resulted in BSCI earning 8.5% on the sale of each of Driscoll’s horse sculpts. Each time Driscoll presented a horse sculpture to BSCI she was paid a flat fee and entered into a “Perpetual Grant of Reproduction Rights.” She understood that the rights she transferred to BSCI would be assigned to MSS as reflected in the bottom of each PGRR. Each PGRR provided: “Artists have been compensated in full for the Artist’s involvement in the Master and such Master shall not be, now or ever, subject to any royalty payments.”

In 5/11 Driscoll learned that MSS paid royalties to artists. She sued Defendants in 4/13 for fraud, constructive fraud, deceit, breach of the implied covenant, unjust enrichment, breach of contract/license, voidable title, bailment, copyright infringement, Lanham Act claims, and declaratory judgment. Defendants request summary judgment based on statute of limitations. Driscoll’s Statement of Disputed Facts, stretching over 53 pages, gives the erroneous impression that the material facts are hotly disputed. In reality, the relevant material facts for this motion are not in dispute and Driscoll’s Statement of Disputed Facts frequently exaggerates and unnecessarily complicates a straightforward set of undisputed facts.

It is undisputed that all of Driscoll’s claims are subject at most to an 8-year statute (2 years for fraud and other claims to 8 years for breach of contract or license). It is also undisputed that all alleged misrepresentations as to MSS’s royalty policy were between 2000 and 2004. Thus for Driscoll’s claims to be within any applicable period, tolling must be applicable.

Driscoll contends that the discovery rule should toll the periods on all of her claims until 2011 when she learned that MSS paid a royalty to artists for sculpts. “The discovery rule provides that a limitations period does not begin until the party discovers, or in the exercise of reasonable diligence, would have discovered, the facts constituting the claim.” Draggin Y (Mont. 2013). “However, this rule only applies when the facts constituting the claim are concealed, self concealing, or when the defendant has acted to prevent the injured party from discovering the injury or cause.” Id. The facts constituting Driscoll’s claims are not by their nature concealed or self-concealing. Basta represented that MSS did not pay a royalty, but Driscoll concedes that she never asked MSS whether it did or whether BSCI would receive a royalty for services it provided to MSS. (She provides no evidence that she would have been legally entitled to this information about the terms of the contractual relationship to which she was not a party.) Nor is there evidence that MSS would have concealed its royalty policy had she asked. In the end, Driscoll did not learn that MSS paid a royalty by uncovering some secret; she learned it through conversations with another artist and an MSS representative. It cannot be said that the truth about Basta’s representations was by its nature concealed or self-concealing. All she had to do was make a phone call to MSS and ask a simple question; “Does MSS ever pay a royalty?” It is not as if MSS was some shadowy company to which she had no access. She admits that she had its contact information all along. Nor did Defendants act to prevent her from discovering the facts underlying her claim. The best evidence she offers is that Basta told her, “Don’t even ask because they will never pay a royalty.” This is insufficient to toll the limitations period. She could still determine whether MSS paid a royalty simply by asking MSS. Basta did not tell her that MSS could not be contacted or attempt to obscure how it could be contacted. She had all the information necessary to discover the facts underlying her claim and the discovery rule does not apply. Nor does it matter that Basta repeated these misrepresentations. Driscoll had a duty to pursue discovery of the facts through reasonable diligence. Draggin Y; Osterman (Mont. 2003). Reasonable diligence in this arm’s-length business deal required Driscoll to go to the source and ask MSS whether it paid a royalty. Thus the statute was not tolled.

Driscoll also argues that the period is tolled by fraudulent concealment. “Fraudulent concealment consists of `the employment of artifice planned to prevent inquiry or escape investigation, and mislead or hinder acquisition of information disclosing a cause of action.” Cartwright (Mont. 1996); EW(Mont. 1988). But unlike Cartwright and other fraudulent concealment cases, there is no professional-client or similar relationship by which Driscoll was entitled to rely on the information about MSS’s royalty policy given to her by Basta. This was an arm’s-length transaction and Basta’s representations pertained to the royalty policy of some other entity. Driscoll was not entitled to rely on it in the same way an insured may rely on assurances from his agent about a confusing insurance policy, Cartwright, or a client is entitled to rely on assurances from his accountant about a complicated tax arrangement, Draggin Y. Driscoll knew from the beginning that she was dissatisfied with the arrangement. Consistent with most of her prior arrangements, she wanted a royalty and was not getting one. These circumstances were ample to trigger inquiry notice about Basta’s representations. Thus fraudulent concealment is inapplicable. Driscoll also contends that Defendants’ mere silence as to their royalty arrangement is sufficient to toll the statute. This theory is based on her unsupported allegation that a fiduciary relationship arose as a result of the “bailment relationship between Driscoll, as the bailor, and BSCI and MSS as the bailees.” She offers no evidence of any bailment relationship. In fact, the evidence is entirely to the contrary. She executed 25 nearly identical PGRR’s each time she presented a new sculpture to BSCI. The PGRRs assigned to BSCI “a perpetual exclusive right to … reproduce, manufacture, distribute, market, sub-license, reassign or otherwise use in any form thereof, the original piece of art,” and Driscoll was “compensated in full for [her] involvement in the Master and such Master shall not be, now or ever, subject to any royalty payments.” The contract also required her to “disclaim all rights of ownership to the Master, including ownership of copyrights, trademarks or other intellectual property associated with the Master.” Accordingly, Defendants owed no fiduciary duty such that mere silence could constitute fraudulent concealment.

Driscoll’s claim for bailment is also dismissed for failure to state a claim. Bailment generally requires one to return in proper condition the personal property that was “deposited” with them, or pay for any damages from wrongful use. MCA 70-6-201-214. The depositary must, “on demand,” return the property to the person who deposited it. There is no duty to deliver the property without a demand. §212;Gates (Mont. 1926); Viers (Mont. 1926). Driscoll’s complaint fails to allege that a demand was made by her or a refusal by any of the Defendants. Citing dicta fromViers, she contends that this omission is excused because she has alleged that the property was wrongfully acquired. However, the dicta is contrary to the requirement established by statute. Further, the PGRRs belie her complaint allegation that “her parting was temporary.” They granted a “perpetual exclusive” right of reproduction to BSCI, and Driscoll and her heirs “disclaim all rights of ownership to the Master.”

All claims dismissed with prejudice; the case is closed.

Driscoll v. Singing Tree Farms et al, 42 MFR 246, 2/11/15.

Julie McGarry (McGarry Law Firm), Bozeman, for Driscoll; Robert Lukes (Garlington, Lohn & Robinson), Missoula, for BSCI, Pierce, and Basta; Jean Faure (Faure Holden), Great Falls, and (formerly) Shane Coleman (Holland & Hart), Billings, for MSS and Group Montana.

SKIER RESPONSIBILITY: Skier who hit obscured rock in low snow conditions required to accept responsibility for injuries resulting from inherent dangers & risks… summary judgment for resort after previous denial of motion to dismiss… Christensen.

Californian Brian Kopeikin, MD, sued Moonlight Basin Management alleging premises liability negligence and negligent hiring, training, supervision, and management in connection with a skiing accident. The Court previously denied Moonlight’s motion to dismiss based on “the inherent dangers and risks of skiing” as defined in MCA 23-2-702, finding that it presented no facts to contradict Kopeikin’s allegations that its failure to warn and negligence in constructing and maintaining a cat track and boulder field caused his injuries. (MLW 11/9/13, 41 MFR 146). Moonlight now requests summary judgment. (Moonlight moved for summary judgment 6/23/14. Kopeikin responded 7/25 and, pursuant to LR 56.1(b), simultaneously filed a statement of disputed facts with his brief. Then on the afternoon of 1/28/15, less than 24 hours prior to a hearing on the motion, he filed a “Supplement to Statement of Disputed Facts.” It is untimely by at least 6 months, he did not seek leave, and it is not contemplated by the LR. Indeed, it is contrary to the LR requirement that a statement of disputed facts be filed “simultaneously with” the brief in opposition. Accordingly, it is not considered in deciding this motion.)

Kopeikin and Sven Rose purchased lift tickets at Moonlight Basin 2/5/12. Near the ticket booth is a sign warning of unmarked hazards. Kopeikin is a very experienced skier, having skied at several resorts throughout the Rocky Mountain West over the past 36 years, and he had seen similar signs at other resorts warning of unmarked hazards. He knew that rocks are common at ski areas in the Rocky Mountains, and he did not expect that all hazards at Moonlight would be marked. Conditions were generally good, with clear skies, calm winds, and temperatures near 32. However, it was a low snow coverage year, and Kopeikin acknowledges that he saw uncovered rocks on the sides of the runs. Rocks are prevalent at Moonlight. After several easier warm-up runs he and Rose decided to take the Six Shooter lift to access more challenging, expert terrain known as Headwaters. Upon learning that hiking was required to access the terrain, and due to their concern about lack of sufficient snow coverage, they decided to ski “Elkhorn.” At the unloading area for Six Shooter there is a sign identifying Elkhorn as a black diamond — “most difficult” — run. To access Elkhorn they began by skiing on the intermediate “Fast Lane,” which had plainly visible rocks above the snow that Kopeikin admits he likely saw. They then approached the entrance to Elkhorn. Immediately before the entrance is a sign indicating that it is a black diamond. They skied past this sign and onto Elkhorn. The terrain steepened and narrowed and the run was occupied by obstacles such as moguls and drifts. As he began skiing down Elkhorn, plainly visible grass and rocks could be seen poking through the snow on the side of the run. Some 200 yards below the entrance of Elkhorn a cat track or its remains crosses Elkhorn. In 2007, after determining that the cat track was not being used regularly, Moonlight had removed the edges of the track where it crossed Elkhorn in an attempt to return the slope to its natural condition. The cat track, or what remains of it, partly obscures the terrain immediately below it. Rose skied in front of Kopeikin and successfully navigated the cat track and terrain immediately below it. Kopeikin, skiing at 10-15 mph, “came over the cat track and absorbed it and when my skis touched down both hit rocks” and he was ejected from his skis. He fell forward and landed in other rocks that were either visible or buried under the snow. He suffered disabling injuries that necessitated extensive medical care and treatment.

Kopeikin testified that he “would not have fallen because of the cat track,” but fell because his “skis hit rocks.” The particular rock that caused him to be ejected was one that he could not see because it was under the snow and was “something you had to penetrate and hit with a little force.” From 2003 when Moonlight opened through the 2012 season, Moonlight had some 700,000 skier visits. There have been no other reported accidents due to rocks in the location of Kopeikin’s accident. (Kopeikin disputes this but presents no contrary evidence. In an effort to show that the fact is disputed, he cites 3 incident reports involving skiing or snowboarding accidents on the Elkhorn run generally, none of which appears to have occurred at the location of his accident, and all are of such dissimilar nature as to be immaterial to the Court’s analysis.)

Under §23-2-736(4), “a skier shall accept all legal responsibility for injury or damage of any kind to the extent that the injury or damage results from inherent dangers and risks of skiing. The “inherent dangers and risks of skiing” are “those dangers or conditions that are part of the sport of skiing” including, per §702(2):

(b) snow conditions as they exist or as they may change,…

(d) collisions with natural surface or subsurface conditions, such as bare spots, forest growth, rocks, stumps … and other natural objects;

(f) variations in steepness or terrain, whether natural or the result of slope design, snowmaking, or snow grooming operations, including but not limited to roads, freestyle terrain, ski jumps, catwalks, and other terrain modifications.

(Consistent with the Court’s 11/7/13 order, it interprets “catwalk” to be synonymous with “cat track.”)

“A skier has the duty to ski at all times in a manner that avoids injury to the skier and others and to be aware of the inherent dangers and risks of skiing.” §736(1) Also, a skier must “know the range of the skier’s ability and safely ski within the limits of that ability … so as to negotiate any section of terrain or ski slope and trail safely and without injury or damage.” §736(2)(a). A skier is also required to “know that the skier’s ability may vary because of ski slope and trail changes caused by weather, grooming change, or skier use.” Id.

A ski area operator must act “consistent with the duty of reasonable care owed by a ski area operator to a skier.” §733. Montana’s skier responsibility statutes cannot be read to immunize resorts from their own negligent or intentional acts, as that would violate Montana’s Constitution. Mead (Mont. 1994). However, the stated purpose of the skier responsibility statutes is to “discourage claims based on damages resulting from the inherent risks of skiing.” §731.

In ruling on Moonlight’s motion to dismiss, the Court articulated an interpretation of the statutes that harmonizes the definition of the inherent dangers & risks with the requirement that an operator act consistent with its duty of reasonable care. The Court rejected the notion that a court’s only role in ski area liability cases is to inquire whether the plaintiff’s injuries resulted from a collision with a particular object appearing on the list of inherent risks because that would produce absurd results and render the statute unconstitutional. At the same time, not every case involving hazards on a ski mountain presents a genuine factual dispute appropriate for trial. Ultimately, Montana’s skier responsibility statutes make clear that the duty of reasonable care owed by an operator “must be viewed in the unique context of skiing.” Skiing is a sport in which thrill-seekers embrace its inherent dangers & risks. It is a sport that occurs on “a mighty mountain, with fluctuations in weather and snow conditions that constantly change.” Wright (D.Vt. 1951). “A ski area operator cannot be expected to expend all of its resources making every hazard or potential hazard safe, assuming such an end is even possible,” or desirable.Kopeikin. “Ski areas encompass vast and unwieldy terrain and mother nature is always at play.” Id. The act of skiing in such terrain presents an obvious array of dangers to a skier, many of which the operator has no duty to protect against under Montana law. Fundamentally, a skier bears much of the responsibility for avoiding injury — a principal that is consistent with Montana law.

In snow conditions as they existed 2/4/12, Kopeikin skied over a variation in terrain and collided with a subsurface rock that caused him to fall and collide with other surface or subsurface rocks. Thus the accident falls clearly within the definition of inherent dangers & risks that are part of the sport of skiing. §23-2-701(2)(b), (d), (f). Notwithstanding his years of experience and expertise, he failed to ski in a manner that avoided injury and to be aware of the inherent dangers & risks. §23-2-736. So long as Moonlight acted consistent with its duty of reasonable care, he must accept all legal responsibility for his injuries. §736(4). It is clear that Moonlight acted consistent with its duty of reasonable care. It warned generally of unmarked hazards. It posted multiple signs designating the run a black diamond. It had taken efforts to remove the cat track and return the slope to its natural condition. Kopeikin did not suddenly & blindly encounter an unmarked cat track. He admits that what remained of the track could be clearly seen from above. The rocks he collided with, like all rocks on the Elkhorn run, were naturally occurring. Without citation to any record evidence, he asks the Court to infer that some of the rocks unnaturally accumulated through removal of the cat track in 2007. The record establishes the opposite: the process of removing the cat track reduced rocks because many were covered during the removal process. Further, with over 700,000 skier visits there had never been another reported accident at that location caused by a collision with rocks. According to Kopeikin, the rock that he hit which caused him to fall was buried under the snow and was “something you had to penetrate and hit with a little force and then it was there.” Thus his theory that Moonlight had a duty to warn of these specific rocks is undermined by the specific accident’s unforeseeability, despite that accidents of this general nature were foreseeable to skiers in low snow conditions. To impose a duty on Moonlight to mark or remove all submerged rocks, which are not readily visible, would be to require it to undertake an impossibility. Kopeikin recognized that it was a low snow year. He had seen rocks on other runs prior to skiing Elkhorn. He elected not to ski Headwaters partly because there was “no snow.” He rightly did not expect that all hazards on the mountain would be marked. Rocks & grass were plainly visible on Elkhorn. When he approached the area of Elkhorn where the remains of the cat track obscured the terrain immediately below, he did not stop and assess what was below.

As Judge Gibson eloquently stated in Wright in directing verdict against a claim by a skier who was injured when her skis hit a stump under the snow:

Skiing is a sport; a sport that entices thousands of people; a sport that requires an ability on the part of the skier to handle himself or herself under various circumstances of grade, boundary, mid-trail obstructions, corners and varied conditions of the snow. Secondly, it requires good judgment on the part of the skier and recognition of the existing circumstances and conditions. Only the skier knows his own ability to cope with a certain piece of trail. Snow, ranging from powder to ice, can be of indefinite kinds. Breakable crust may be encountered where soft snow is expected. Roots and rocks may be hidden under a thin cover.A single thin stubble of cut brush can trip a skier in the middle of a turn. Sticky snow may follow a fast running surface without warning. Skiing conditions may change quickly. What was, a short time before, a perfect surface with a soft cover on all bumps may fairly rapidly become filled with ruts, worn spots and other manner of skier created hazards.

The Montana Legislature has recognized these truths about skiing and codified them, so that a skier has a duty to ski safely and within his abilities, and accept all responsibility for injuries resulting from the inherent dangers & risks of skiing. Because Kopeikin’s injuries resulted only from the inherent dangers & risks of skiing and because Moonlight did not breach its duty of reasonable care, Moonlight is entitled to judgment as a matter of law. The case is closed.

Kopeikin v. Moonlight Basin Resort, 42 MFR 233, 2/9/15.

Shandor Badaruddin & Edward Moriarity (Moriarity, Badaruddin & Booke), Missoula, for Kopeikin; Ian McIntosh & Whitney Kolivas (Crowley Fleck), Bozeman, for Moonlight Basin.

BENCH JUDGMENT: $400,000 stipulated damages awarded to gas producer for breach of common law duty of common carrier inherent in grant of BLM easement by failing to accept gas for transport, operate gathering system on non-discriminatory basis, increase line pressures in adjacent field, and by establishing conditions that reduced production and flow of gas, injunctive relief denied, in case in which facts as to common law duty are sui generis… Strong.

Omimex Canada, a Delaware corporation based in Forth Worth, is engaged in production & sale of oil, gas, and gas liquids from domestic and international properties, including the Bowdoin Field of Montana.

WBI Energy Midstream (WBI), a Colorado LLC based in Bismarck, has been engaged in receiving, gathering, and transporting gas from wells in Bowdoin Field to interconnections in Montana. It is an affiliate of WBI Energy Transmission (fka Williston Basin Interstate Pipeline) and a subsidiary of MDU Resources Group. WBI Energy Transmission is a regulated interstate pipeline that stores, transports, and delivers natural gas. As a gas gatherer, WBI’s business is not regulated by FERC.

Bowdoin Field was discovered in the 20s in Phillips and Valley Counties. Prior to 2000, KN Gas Gathering owned the gathering facilities in the “West Field” and Williston Basin Interstate owned the facilities in the “East Field.” KN sold the West Field facilities to WBI in 2000. WBI maintains 1,100 receipt points on this system where gas from wells can be received and metered. There are more than 1,100 wells connected to the West System, dispersed over 382 square miles, most of which during times relevant here were operated by Noble Energy. The West System consists of smaller pipelines that collect gas from wells for delivery to larger laterals leading to compressor stations along a trunkline. There are 12 subsystems (A-K and M). Omimex’s wells are served by A-K. The West System receives, gathers, and transports gas for shippers from connected wells for redelivery to Omimex’s Whitewater Compression Station for transportation along the Omimex gathering system to an interconnection with Northern Border Pipeline, regional pipelines that transport the gas to Montana municipalities including Malta and Saco, and Williston Basin’s pipeline near Saco. The West System has had adequate capacity to transmit as much gas as Omimex nominated. Omimex must contract with WBI to transport gas; there is no alternative gathering and transmission system.

The West Gathering System originated in the 70s when Kansas-Nebraska Natural Gas installed gathering facilities that an affiliate was developing in Bowdoin West. It or its successor affiliates owned & operated the system until its sale to WBI in 2000. KN entered into contracts for gathering & purchasing gas from wells on the West System, at least some of which were “life of field.” Some required the purchaser/gather to limit operating pressure according to a formula. One contract from 1973 requires Noble to conduct shut-in pressure measurements and SourceGas to adjust pressures accordingly. Noble operates 860 wells in Bowdoin West and owns interests in wells operated by Omimex. Noble sells to SourceGas from some of its West System wells pursuant to the historic contract terms. MPC owned gas properties in Bowdoin by the 70s, and assigned them in the 80s to subsidiary North America Resources Co. (NARCo). MPC and NARCo succeeded to a gathering agreement with KN that dated back to 1976. In the early 90s, NARCo began developing additional producing assets and positions in Bowdoin. It terminated its 1976 gathering agreement and replaced it with the 1996 agreement at issue here. Because of the compression, NARCo and later Omimex transported significantly more gas without higher gathering rates or demand charges. The new agreement was also part of NARCo’s project to build a compressor station and pipeline connection to the Northern Border Pipeline to increase production and flow. NARCo’s Whitewater Compressor Station became operational in 1996. WBI acquired the West Gathering System from KN and an affiliate in 6/00. It did not assume KN’s purchase agreements with producers in the Field, such as the historic contract between Noble and SourceGas (then KN). As a condition to this purchase, WBI contracted to transport gas for KN on the West Gathering System. WBI also entered into a “Bowdoin Pressure Reduction Project Plan” which required WBI to install additional compression to help KN/SourceGas meet pre-existing commitments to its suppliers such as Noble. KN continued to acquire gas from various producers at Bowdoin Field, particularly Samedan Oil and its successor Noble, and arranged for gathering and transport on the West System. SourceGas later succeeded KN to the gathering contract.

Omimex acquired NARCo’s production and other assets in Bowdoin as part of a purchase from Encana in 2003. Encana had acquired the NARCo assets in 2000. As part of its acquisition, Omimex assumed the 1996 Gas Gathering Agreement with WBI. Omimex now owns interests in 560 gas wells in Bowdoin, most connected to the West Gathering System. It owns leases on federal land and produces gas from federal lands. It operates 150 of the wells; the others are operated by Noble. Omimex’s wells and production are interspersed with Noble’s and served by the common subsystems and laterals of the West Gathering System. Omimex also owns the Whitewater Compressor Station and a high pressure gathering line extending 19 miles to its interconnection with Northern Border Pipeline.

The 1996 agreement addressed system pressures, compression, and capacity, and the obligations of WBI to receive gas. Art. 7.01 stated: “Shipper shall tender Gas at the Receipt Point(s) at a pressure sufficient to enter Gatherer’s system against the then existing operating pressures.” Art. 4.03 stated: “Shipper shall be obligated to install and operate all the facilities necessary to deliver, or cause the delivery of, Shipper’s Gas … at the Receipt Point(s).” Art. 4.01 stated that WBI “shall be under no obligation to provide compression … or other services or associated facilities in order to receive Gas at an existing or new Receipt Point(s).” Despite this provision, it had provided compression increasing Omimex’s production. WBI stopped providing the same level of compression solely to reduce production throughout the West Field. Art. 7.01 provides that “Gatherer shall not be obligated to provide compression to effect the receipt or delivery of Shipper’s Gas hereunder.” It included no exception to the Shipper’s disclaimer and waiver of any obligation to provide compression. 7.01 also provides that if Omimex wanted compression for delivery of gas that WBI did not provide, it had the right to install it. This right is illusory because it is not economically feasible for Omimex to install its own compression for individual wells. WBI had been providing downstream compression before 3/09. Beginning in 3/09 it intentionally reduced the overall compression for gas receipt & gathering on the West System, intending to reduce production throughout the West Field. It did not reduce compression for its own wells in the East Field. Omimex noticed a decrease of its ability to free-flow gas from many of its wells into the West System. WBI reduced compression only because SourceGas claimed that WBI had contracted to reduce production throughout the West Field. In 7/1, Omimex sued WBI In State Court, complaining that its compression reductions breached the 1996 gathering agreement and WBI’s common law duties and had damaged Omimex by reducing its gas production. The suit was removed to this Court. Late in the fall of 2010, WBI gave notice of intent to terminate the 1986 agreement effective 12/31/10 pursuant to its termination provision. Omimex does not dispute WBI’s right to terminate.

The Bowdoin West Gathering System crosses federal land. WBI has right-of-way grants from BLM, including ROW 99253 (collectively “ROW Grant”). Although the grants are “nonexclusive,” no other pipeline serves the West Field; the ROW Grant functionally grants a monopoly. By the ROW Grant, WBI “receives a right to install, operate, maintain and terminate” underground pipelines and associated structures on specified public lands. It includes a stipulation that WBI will “operate the pipeline in accordance with the provisions of the Mineral Leasing Act.” Omimex is not a party to the ROW Grant. It is an intended beneficiary of it as a producer of gas in the area and as a producer of gas from federal lands.

WBI currently sets pressures for the West System in response to certain shut-in pressure testing by Noble on wells connected to the system. Gas well production typically declines as subsurface pressures decline with continued production. Water can then migrate into the well and interfere with production. There are techniques for removing the water and promoting gas flow. Omimex’s loss of production was caused at least in significant and temporary part by WBI’s decision to decrease compression. From the time WBI purchased the Bowdoin West system in 6/00 through early 2009, SourceGas and Noble did not conduct shut-in pressure tests to calculate the gathering system pressure. Noble resumed the tests in 4/09 and provided the results to WBI. WBI now limits the lateral’s pressure at the greater of 50 psig or 50% of the average shut-in pressure measured by Noble. This creates a differential for gas to flow from the subsurface reservoir to WBI’s gathering lines. WBI has received, gathered, and transported significant volumes of gas on the West System from 4/09, but less than Omimex would like to ship. All producers have been credited with their pro-rata shares of actual production.

Omimex has lost production from line pressure adjustments. Whether it will do so in the future is difficult to determine. Any gas not produced because of a decreased production rate remains in the reservoir for future production. There was no persuasive evidence that WBI’s compression reduction has permanently damaged any of Omimex’s wells. There was substantial evidence that wellhead pressures rebound after production ceases so that future production may be possible even against the current increased wellhead pressures. Bowdoin wells are low producers that decline fairly rapidly in the first several years. New wells need to be added to maintain production volumes. Omimex has not performed new drilling at Bowdoin because of, inter alia, poor performance of the wells it drilled in 2006-07, the declining price of gas, and WBI’s compression reduction. As a result, it has not added new production, also explaining its declining production in recent years. It has undoubtedly experienced an immediate decline in its production as a direct result of the adjustment in line pressures implemented by WBI to reduce production throughout the West Field. The parties have quantified Omimex’s loss through trial in their damages stipulation. Omimex has not lost any leases at Bowdoin on account of WBI’s line pressure increases.

From 2009 to present, Omimex had a nondiscriminatory gathering rate for use of the West Gathering System. All producers & shippers along a particular lateral were subject to the same amount of compression. Omimex and SourceGas had diametrically opposed interests in the extent of compression. WBI discriminated between producers & shippers in the West Field and those in the East Field through its pressure manipulation. This discrimination in a substantial term is solely due to WBI’s decision to favor SourceGas, which wanted reduced production. WBI has provided the same gathering system facilities to Omimex as to any other producer or shipper on the West Gathering System for the receipt of gas. It has manipulated the pressure in those facilities to benefit one producer or decrease production to the detriment of Omimex and royalty interest owners in the West Field. WBI has received and gathered less gas produced for Omimex from both federal and nonfederal lands by its discrimination within the West Field reducing the amount of gas that Omimex may ship solely to benefit SourceGas’s economic interests.

Omimex and WBI stipulated that if Omimex prevailed on any claim for compensatory damages based on the alleged breach by WBI of any common law common carrier duties, the amount of damages would be $400,000, including any amounts claimed or awarded as damages, costs, expenses, interest, or attorney fees.

As recipient of the ROW Grant from BLM to construct, maintain, and operate gathering facilities on federal land in Bowdoin, WBI must operate the gathering facilities as a common carrier to accept & transport gas from the field to the public. The purpose of the ROW is to facilitate extraction of gas and its transfer to market and to provide royalty revenue to the US. “Under common law, common carriers of a particular kind of goods have the duty to receive and transport all such goods tendered to the limit of their capacity and at reasonable rates.” (citing legislative history of Mineral Leasing Act);Chapman (DC Cir. 1953). Under common law, a common carrier is prohibited from discriminatory & preferential treatment. AT&SFR (US 1884). Under the common law, WBI had a duty to accept & transport all gas on non-discriminatory terms. “Under the common law an action may be brought against a common carrier to recover damages for injuries resulting from its discriminatory practices.” AmJur Carriers. A shipper also has a private cause against a common carrier for refusal to accept and transport goods duly tendered for carriage. McLean (US 1906). WBI breached the fundamental duty of a common carrier of gas, inherent in the grant of easement, to accept gas for transport. Omimex’s purpose is to extract as much gas as possible from Bowdoin. However, all of its production must be submitted into the WBI gathering system, and gas can be produced only to the extent it can overcome the pressure in the gathering system lines. WBI holds a monopoly on gas gathering service in Bowdoin. It has exercised that monopoly by restricting Omimex’s shipment of gas for no legitimate business purpose. WBI breached the common law duty of a common carrier by failing to operate the gathering system on a non-discriminatory basis. It favored SourceGas at the expense of Omimex by setting conditions in the system that it knew were contrary to Omimex’s interests to benefit SourceGas. WBI also breached its common law duties to operate as a common carrier when it did not increase line pressures in the East Field, providing preferential treatment to WBI affiliates Fidelity and Prairielands and discriminating against Omimex. WBI also breached its common law duty to receive & transport gas to the limit of its capacity when it restricted the receipt of gas into the gathering system by reducing compression applied to the gathering lines, shutting down compressors, and pinching gathering lines. It inhibited all gas production in the West Field by establishing conditions that caused production and flow of gas through the system in violation of its common carrier duties.

WBI has thoroughly and persuasively briefed the question of whether a fundamental common law duty exists. However, no decision cited to or found by the Court has involved a common carrier exploiting its status to reduce productivity of an entire field with no other justification than its decision to contract to do so. No other decision has the common carrier doing so to the economic harm of the entity which granted the right of way. No other decision has the common carrier increasing production to its own benefit on a coequal part of the same field.

A common carrier’s breach of its common law duty to receive & transport all goods tendered to the limit of its capacity and at reasonable rates can be redressed by an action for damages or injunctive relief. (Senate report); MPRC(US 1909). But the mere fact that economic damages may be available does not always mean that a remedy at law is “adequate.” Janvey (5th Cir. 2011). Omimex has failed to establish that it will suffer ongoing irreparable harm absent injunctive relief. Hynix (ND Cal 2009). It has not shown that its damages remedy is inadequate. The fact of immediate injury in 2009 is clear and has been compensated, but Omimex has not shown irreparable future harm and should do so by action for damages, not injunctive relief.

Judgment for Omimex for the stipulated damages amount of $400,000 it project management. Its request for injunctive relief is denied.

Plaintiff’s experts: petroleum engineers H.C. Ouzts, Orem, Utah, and Thomas Hohn, Billings.

Defendant’s experts: petroleum engineers John Seidle, Denver, and Dale Cantwell, Denver.

Claims for breach of contract settled prior to 5-day trial.

Omimex Canada v. WBI Energy Midstream, 42 MFR 211, 12/9/14.

Richard Orizotti & Patrick Sullivan (Poore, Roth & Robinson), Butte, for Omimex; Mark Higgins (Ugrin, Alexander, Zadick & Higgins), Great Falls, Bruce Featherstone & John DeSisto (Featherstone Law), Denver, and Craig Carver (Carver, Schwarz, McNab, Kamper & Forbes), Denver, for WBI.