MEDICAL LICENSING: Challenge of license restriction for overprescribing narcotics rejected pursuant to Younger, 11th Amendment immunity… Molloy.

A former employee made a complaint against physician Mark Ibsen to the Board of Medical Examiners accusing him of overprescribing narcotics. Following a protracted administrative process, the Board found him guilty of not providing proper medical documentation to two patients and restricted his license to a probationary license. On 1/6/21 he sued Board Pres. Ana Diaz, former Gov. Bullock, and the Dept. of Labor. He alleges procedural due process violations under §1983, a privacy claim under the Montana Constitution, and a state law claim for tortious interference with contractual & business relationships, and seeks declaratory & injunctive relief and $8 million monetary relief plus “monetary damages for corrective advertising” and attorney fees. Defendants seek to dismiss his complaint. In response, he indicates that he would like to file an amended complaint and seeks 60 days to pursue discovery to do so.

Ibsen’s claims of procedural due process violations of the 4th and 14th Amendments are barred by the Younger (US 1971) abstention doctrine. There is a strong policy against federal intervention in state judicial processes absent great & immediate irreparable injury to the federal plaintiff. Id.; Gooding (9th Cir. 1968). Younger directs federal courts to abstain from injunctive or declaratory relief that would interfere with state judicial proceedings. “Abstention in civil cases ‘is appropriate only when the state proceedings: (1) are ongoing, (2) are quasi-criminal enforcement actions or involve a state’s interest in enforcing the orders and judgments of its courts, (3) implicate an important state interest, and (4) allow litigants to raise federal challenges.’” Cook (9th cir. 2018). If these “threshold elements” are met, the Court must “consider whether the federal action would have the practical effect of enjoining the state proceedings and whether an exception to Younger applies.” ReadyLink (9th cir. 2014).

The “threshold elements” are met here. Ibsen is seeking judicial review of the Board’s decision in State Court as indicated by his filing a “Petition for Judicial Review, Motion to Stay Board’s Order pending Review, and Motion for Sanctions” before the 1st Judicial District Court dated 1/28/21. This is a noncriminal judicial proceeding where the State is a party and important state interests are implicated. And Ibsen has adequate opportunity in the State Court to raise federal questions and concerns that affect his federal rights. MCA 2-4-704(2)(a)(i) (permitting consideration of whether “the administrative findings, inferences, conclusions, or decisions are in violation of constitutional provisions”). It also appears that he has done so.

Younger principles apply and a stay is appropriate when a federal ruling on a §1983 claim would “determine whether the federal plaintiff’s constitutional rights were violated.” Gilbertson (9th Cir. 2004). But “Younger abstention is proper only when the federal relief sought would interfere in some manner in the state court litigation.” Meredith (9th Cir. 2003). A determination regarding whether Ibsen’s constitutional rights were violated would have the effect of interfering with the “state courts’ ability to enforce constitutional principles, and put the federal court in the position of making a premature ruling on a matter of constitutional law.” Gilbertson. To rule on the constitutional issues raised here would impermissibly risk interfering with Montana’s administration of its judicial system.

Because all 4 Younger prongs are satisfied the Court must abstain from adjudicating Ibsen’s claims unless exceptional circumstances exist. Middlesex (US 1982). The recognized exceptional circumstances are a “showing of bad faith, harassment, or some other extraordinary circumstance that would make abstention inappropriate.” Id. Ibsen has not alleged an exceptional circumstance sufficient to avoid abstention.

If abstention is appropriate under Younger and the federal plaintiff seeks monetary damages, the proper procedural remedy is to stay the federal proceedings pending the outcome of the state proceedings. If the federal plaintiff seeks only injunctive or declaratory relief, the proper procedural remedy is dismissal of the federal action. Roden (9th Cir. 2007). Accordingly, Ibsen’s claims for injunctive relief are dismissed, leaving only his claims for monetary relief.

The 11th Amendment bars claims for monetary damages against states and state officials acting in their official capacity. Will (US 1988); Hafer (US 1991) (“Suits against state officials in their official capacity should be treated as suits against the State.”). Ibsen has sued a state agency and 2 state officials in their official capacities. Because these claims are barred, they are also dismissed.

Ibsen could potentially sue the individual Defendants for monetary damages in their “individual capacities.” Hafer. But to do so he would need to adequately plead a connection between the constitutional violations and the specific behavior of each defendant. Suever (9th Cir. 2009). Even construing his complaint liberally and broadly, he fails to implicate the personal actions of either the Governor or Diaz insofar as his procedural due process rights are concerned. Nor can he state a viable claim against either. Ashcroft (US 2009). The Governor is not involved in the Board’s disciplinary process. And even if Diaz was involved, the nature of Ibsen’s claims regard potential actions during the disciplinary process, which would fall within the Board members’ absolute immunity. Olsen (9th Cir. 2004); Mishler (9th Cir. 1999) (“Holding hearings, taking evidence, and adjudicating are functions that are inherently judicial in nature.”). Accordingly, granting Ibsen leave to amend his complaint would be futile.

Defendants’ motions to dismiss as to Ibsen’s federal claims are granted. Absent any remaining claims over which this Court has original jurisdiction, it declines to exercise supplemental jurisdiction over his state law claims.

Ibsen v. Diaz et al, 44 MFR 424, 4/7/21.

Mark Ibsen, Helena, pro se; Michael King (Tort Defense Division).

INSURANCE: Injured driver of mail delivery truck was employee of insured entity under control test in complicated business relationships, coverage barred by employee exclusion… Morris.

Triple L maintains contracts with USPS to deliver mail to rural areas near East Glacier. The exact arrangement by which it satisfies its obligations proves complicated. It owns no trucks and claims to employ no drivers, but claims that it instead obtains trucks and drivers from 3rd parties.

Triple L leases its trucks from Penske. Triple L maintains a commercial auto policy with State Farm to insure the trucks. The policy states that State Farm will pay damages for which Triple L has become obligated to pay because of injuries to others caused by an accident involving a Penske truck. An employee exclusion bars coverage of damages for injury to Triple L’s employees that arise out of that employee’s employment. The work comp exclusion bars coverage of damages for injury that would otherwise be covered by a comp policy.

Triple L obtains its drivers from Phoenix RCM. Not surprisingly, the exact arrangement proves complicated. Jeffrey & Milka Love are married. Jeffrey is president of Triple L. Milka is president of Phoenix and also secretary/treasurer of Triple L. Both Triple L and Phoenix are registered and operated out of Loves’ personal residence and are registered with the Montana SOS under the same email address. Historically, Triple L employed directly the drivers it needed to perform its USPS contracts. Milka formed Phoenix in 2004 and shortly after Triple L transferred its drivers to Phoenix in part as a means of avoiding higher work comp rates that resulted from Jeffrey being injured while working for Triple L.

On 12/7/16 John Oeleis allegedly was injured while operating a tailgate lift on one of Triple L’s leased Penske trucks. He submitted a claim under Phoenix’s comp policy and sued Triple L and Penske in Gallatin Co. State Court alleging negligence against Triple L for violating Montana’s OSHA. State Farm issued a reservation of rights letter to Triple L and filed this declaratory action to determine coverage. It argues that Triple L employs Oeleis and therefore his injuries are excluded under the employee and work comp exclusions. Triple L argues that Phoenix employs Oeleis and therefore his injuries are covered under the policy.

Applicability of the employee exclusion hinges on whether Oeleis constitutes an employee of Triple L. The test in Montana asks whether the employer possessed the right to control details of one’s work. Carlson (Mont. 1983). The control test adopted in Sharp (Mont. 1978) sets out as factors direct evidence of a right to control, method of payment, furnishing of equipment, and right to fire. Employment status can be determined upon satisfaction of any one of these factors. Schrock (Mont. 1987).

There is strong evidence that Triple L maintained the right to control details of Oeleis’s work. Its contracts with USPS required it to control the details by which its drivers perform their deliveries including enforcing the schedule on which they were to make their deliveries including which days certain routes were to be taken and at what time they were to arrive at and depart each stop. Drivers were instructed to call Triple L if they had any questions about the schedule, route, or equipment. The contracts required that Triple L ensure that the drivers conducted and presented themselves in a manner consistent with standards in the contracts.

The record proves foggy regarding the precise method by which Oeleis received payment. It indicates that Phoenix issued paychecks to him. If the analysis focused solely on which entity wrote a paycheck, this factor would suggest that Oeleis does not qualify as an employee of Triple L. The Court must examine the broader method by which he receives payment. Triple L contends that Phoenix pays its drivers’ salaries and then bills Triple L for the use of its drivers and for a consulting and accounting fee. USPS then reimburses Triple L for certain employee charges related to performance of the USPS contracts. The record fails to identify precisely the services included in these consulting and accounting fees.

The nature of the business arrangement between Phoenix and Triple L makes analysis of this factor more difficult. Phoenix maintains no clients other than Triple L. Triple L obtains all of its drivers from Phoenix. On paper they constitute separate entities. The reality tells a different story. Loves serve as presidents of their companies. Milka also serves as secretary/treasurer of Triple l. Triple L and Phoenix are registered with the SOS to the same email address and same physical address — Loves’ personal residence. The record shows that they do not implement any measures to separate the business files, personnel records, or payroll information. It fails to explain whether they even maintain separate financial accounts. For purposes of analyzing the method by which Oeleis received payment, the Court will presume that they maintain separate financial accounts and will consider them as entirely separate entities despite the commingling. The Court must therefore conclude that the record does not sufficiently demonstrate that the method by which Oeleis received payment indicates an employment relationship with Triple L.

The Court would have more pause regarding the method of payment analysis if the record were to indicate that Phoenix charged Triple L exactly the amount that Phoenix pays its drivers, but existence of consulting and accounting fees suggests that Phoenix provides some other service then merely serving as a shell company by which Triple L pays its drivers. An entity should not escape the conclusion that the method of payment suggests an employment relationship simply by first funneling the money through a 3rd party.

An entity furnishing valuable equipment strongly suggests an employment relationship. Schrock. Triple L furnishes its drivers with all the equipment necessary to perform the USPS contracts including a delivery truck, a tailgate lift, and miscellaneous tools. Conversely, the record suggests that the only equipment provided to the drivers by Phoenix are cell phones. Schrock noted the lack of cases in which an entity provides an individual with a vehicle and the court determines that he was not an employee. “Any owner who furnishes equipment as valuable as a tractor and trailer naturally maintains an interest in its care and typically will retain a right to supervise its use.” Id. Triple L maintained some control of the equipment even after assigning it to the drivers. If they experienced any problems with the trucks, they were to report them to Triple L which would report them to the leasing company. Triple L trained its drivers to properly use this equipment. That Triple L furnished Oeleis with all the valuable equipment necessary to perform his job strongly indicates that he qualifies as an employee of Triple L. Id.

Triple L contends that Phoenix retained the sole authority to fire Oeleis. This ignores that Triple L remained solely responsible for ensuring that its drivers abided by the requirements and standards of the USPS contracts. Triple L must possess the authority to bar Oeleis from driving for Triple L if Oeleis were to make deliveries or conduct himself in a manner inconsistent with the requirements and standards of the USPS contracts. This authority exists even if Triple L could not technically terminate his employment with Phoenix. The end result remains that Triple L must maintain the authority under the USPS contracts to bar Oeleis from making deliveries under the contracts.

The business arrangement between Triple L and Phoenix again complicates this analysis. The Court wonders what the ultimate effect would be if Triple L barred Oeleis from making deliveries for Triple L under the USPS contracts given that Phoenix has no other clients. The Court cannot imagine that Phoenix would retain Oeleis as a driver after he had been barred from driving for the only company to whom Phoenix provides drivers.

The record also shows that Triple L participated in Oeleis’s initial hiring process. It had the USPS conduct a background check and review of his driving record. Triple L and Phoenix jointly interviewed him. Triple L’s investment in the hiring of the drivers indicates that it maintained some degree of authority regarding employment decisions. Triple L’s contractual authority and investment in the employment process indicate that it maintained the right to fire Oeleis. Sharp.

The control test applied to the record demonstrates that Oeleis qualifies as an employee of Triple L. It maintained the right to exercise significant control over details of his work. This control went as far as dictating the dates and times at which he must make specific deliveries to specific stops and the manner in which he would conduct himself at those stops. Triple L also provided all the equipment necessary to perform his job including a valuable delivery truck and tailgate lift. It maintained the authority effectively to terminate his employment. The uncertainty involving the method by which he received payment does not alter the Court’s determination because each Sharp factor on its own can prove sufficient to demonstrate that he qualifies as an employee of Triple L.

The determination that Oeleis qualifies as an employee of Triple L triggers the policy’s employee exclusion. The Court need not address State Farm’s argument that the work comp exclusion also applies. Summary judgment for State Farm.

State Farm Mutual Auto Ins. v. Triple L et al, 44 MFR 243, 4/27/21.

Bradley Luck & Leah Handelman (Garlington, Lohn & Robinson), Missoula, for State Farm; Matthew Haus (Tarlow, Stonecipher, Weamer & Kelly), Bozeman, for Triple L; Mark Kovacich, Ben Snipes, and Paul Collins (Odegaard Kovacich Snipes), Great Falls, for Oeleis.

PERSONAL JURISDICTION not exercised over Pennsylvania/Tennessee LLC that manufactured heater that allegedly caused fire in National Guard shelter assembled by Montana corporation using HVACs created by Florida corporation… Christensen.

A National Guard “Unified Command Suite B2 Custom Made Shelter” ignited in Ohio 12/19/17. It was assembled in Montana by Nomad Global Communication Solutions, a Montana corporation, using HVAC units created by Hoseline, a Florida corporation. Nomad furnished Hoseline expense reports for its incurred and expected damages related to the fire remediation and filed this action against Hoseline claiming product liability, breach of contract, and breach of warranty for delivering faulty HVAC components. Hoseline answered Nomad’s complaint and impleaded Tutco, a Pennsylvania LLC with its principal place of business in Tennessee, which manufactured the open coil heater component that was incorporated into the Hoseline HVAC. Nomad asserts claims against Tutco for product liability, negligence, breach of warranty, and contribution & indemnity. Tutco moves to dismiss Hoseline’s 3rd-party complaint for lack of personal jurisdiction.

Tutco sold the heater to Hoseline, and Hoseline sold the HVAC unit to Nomad. Tutco advertises its products nationally through its website, sells its products in Montana directly and indirectly, and derives part of its revenue from Montana. It filed the declaration of former National Sales Manager Richard Farrell that while “Tutco has customers that may have locations in Montana,” it does not “design any products specifically for use in Montana, does not market any product specifically to [or for use in] Montana, and does not direct any advertising specifically into Montana.” He states that in 2018-19 its sales to Montana businesses only accounted for .002% of its annual sales and as of 12/11/20 it had not made any sales to Montana businesses during the year. Otherwise, according to Farrell, Tutco has little to no contacts with Montana and no knowledge that Hoseline was selling its products to “Nomad in Montana or elsewhere.” Neither Hoseline nor Nomad filed affidavits or declarations opposing Tutco’s motion to dismiss.

General jurisdiction over Tutco is absent. It is undisputed that it is a Pennsylvania LLC headquartered in Tennessee. In other words, it is not incorporated in Montana nor does it have its principal place of business here. Accordingly, only under exceptional circumstances, not present here, would Tutco be considered “at home” in Montana.

Hoseline and Nomad contend that this standard is met because of Tutco’s substantial dealings in Montana: it advertises nationally through its website, directly sells some of its products in Montana, indirectly sells through the stream of commerce its products to Montana buyers, derives some part of its revenue from Montana, and its sales to Montana accounted for .002% of its 2018-19 sales. But even under these facts, its business dealings with Montana are not “so constant and pervasive” as to render this the “exceptional case” where exercise of general jurisdiction would be proper. Indeed, the out-of-state corporation in Martinez (9th Cir. 2014) arguably had a greater presence in the forum state, yet the Court held that those contacts were not sufficient to satisfy the “exceptional circumstances” standard of Daimler (US 2014).

Although Hoseline’s arguments regarding the potentially misleading character of Tutco’s .002% figure are valid, it cites no cases suggesting that an out-of-state corporation’s annual revenue of “many millions of dollars” from a forum state is sufficient to subject it to general jurisdiction.

The Court agrees with Tutco that specific jurisdiction is not proper under Montana’s long-arm statute because the tort did not “accrue” in Montana. To the extent that Ford (US 2021) affects this Court’s analysis, it only pertains to the relatedness element of the constitutionality of specific jurisdiction. Clarke (D.Nev. 2021) (the impact of Ford on personal jurisdiction jurisprudence is invalidation of the 9th Circuit’s but-for test for determining relatedness). However, since the long-arm statute fails here, this Court need not address the relatedness element of the constitutionality prong. Tackett (Mont. 2014).

Montana’s long-arm statute permits exertion of personal jurisdiction over any person subject to a “claim for relief arising from the commission of any act resulting in accrual within Montana of a tort action.” MRCivP 4(b)(1)(B). Tutco asserts that the tort did not accrue in Montana because the “injury causing event” — the fire — occurred in Ohio. Hoseline and Nomad contend that it accrued in Montana because the injury to Hoseline — its damages related to the repair and remediation — occurred in Montana. The Court agrees with Tutco; the tort accrual provision does not establish personal jurisdiction over Tutco.

A tort accrues “where the events giving rise to the tort claims occurred, rather than where the plaintiffs allegedly experienced or learned of their injuries. Tackett. The plaintiff in Tackett alleged that the out-of-state defendants procured a wire transfer from plaintiff’s Montana bank account under false pretenses and with the intent to defraud him. However, the alleged conspiracy was formulated and executed outside of Montana, the defendants’ actions all occurred outside of Montana, and the only “link” to Montana was the plaintiff. The plaintiff’s “single act of authorizing his local bank in Montana to wire funds to the defendants is insufficient to establish that his tort action accrued in Montana.” Id. Nomad may have experienced or discovered its injury in Montana, but the events giving rise to the tort claim, at least those involving Tutco, did not occur in Montana. The only contacts with Montana occurred when Hoseline sold the HVACs containing Tutco’s heaters to Nomad and when Nomad suffered its damages related to the Ohio fire.

Hoseline also argues that a different rule governs product liability cases, citing Ford (Mont. 2019) and several decisions from this Court for the proposition that a tort action accrues in the state where the injury is suffered. Its assertion is mistaken. In Ford, the Montana Supreme Court confined its long-arm analysis to one short paragraph wherein it held that the tort accrued in Montana because the plaintiff was “driving in Montana when the accident occurred.” Contrary to Hoseline’s assertion, it did not suggest that a product liability tort accrues where “the injury was suffered.” The remainder of the opinion concerned the constitutionality prong of specific jurisdiction, not the tort accrual provision, and the US Supreme Court’s affirming opinion did not address Montana’s long-arm statute. Additionally, this Court’s decisions in the context of product liability are inconsistent with Hoseline’s argument. In Meeks (D.Mont. 2019), Rodoni (D.Mont. 2019), and Bullard (D.Mont. 1967), individual consumers were physically injured through use of out-of-state defendants’ products in Montana, while the “injury causing event” here is the fire in Ohio — not physical injuries to consumers in Ohio, but economic damages that Nomad suffered in Montana due to the fact that Nomad is a Montana corporation. Thus this case is more in line with Tackett than any of the product liability cases illustrated above. But even under the logic of these cases — that a tort accrues where the injury causing event occurred — Hoseline does not prevail because the injury causing event was the fire which occurred in Ohio. Therefore Montana’s long-arm statute does not permit exercise of specific jurisdiction over Tutco because it did not commit any act resulting in accrual of a tort in Montana.

Hoseline and Nomad argue in the alternative that the Court should grant jurisdictional discovery to determine whether Tutco has more contacts with Montana that might subject it to either general or specific jurisdiction. It asserts that it expects to discover how long Tutco has been providing products to Montana, what products it provides to Montana, whether its business in Montana has been continuous or intermittent, its monetary sales in Montana, its share of the open coil heater market in Montana, whether it sends sales reps to Montana, whether it has a subsidiary or parent in Montana, and the identity of the manufacturers that incorporate Tutco products. However, discovery in those areas is unlikely to reveal facts that would support exercise of general jurisdiction, nor do Hoseline or Nomad assert specifically how jurisdictional discovery will yield more facts to support specific jurisdiction.

Tutco’s motion to dismiss is granted.

Nomad Global Communication Solutions v. Hoseline; Hoseline v. Tutco; 44 MFR 242, 4/14/21.

Dominic Cossi (Western Justice Associates), Bozeman, for Nomad; Brad Condra (Milodragovich, Dale, & Steinbrenner), Missoula, for Hoseline; Ryan Heuwinkel (Bohyer, Erickson, Beaudette & Tranel), Missoula, for Tutco.

INSURANCE: Coverage under homeowners or umbrella policies for damages claimed by buyers of house whose trusses had been modified to expand living area precluded by “real estate sale,” “owned property” exclusions… insurer that defended under reservation entitled to recoup defense costs… Cavan.

Matthew Grieshop built a house in Red Lodge in 2011-12 and added some rooms in 2015-16. He entered into a buy-sell with Joshua & Kate Delavan 4/27/19. They had it inspected and advised Grieshop of needed repairs. After the repairs were complete, they closed in 6/19. On 9/12/19 Delavans sued Grieshop in State Court alleging that Grieshop had caused damages to the trusses when he modified the home to accommodate additional living space and failed to disclose the modifications and/or damages. He tendered the suit to Safeco under his homeowners and umbrella policies. Safeco explained that it would provide a defense under reservation with the possibility of withdrawal and/or pursue a declaratory action as well as seek reimbursement for defense costs. It followed up 1/2/20 stating its reasons why it believed there was no coverage and urging Grieshop to consult an attorney. It again cautioned that he may be required to pay defense costs. The parties further disputed their coverage positions in a series of communications in which Safeco gave notice of intent to file this declaratory action, which it did 3/16/20. Grieshop and Delavans counterclaimed against Safeco for unfair settlement practices, breach of the implied covenant, and breach of fiduciary duty. Delavans seek a declaration that the policies provide coverage for their underlying claims. Delavans amended in 7/20, supplanting claims for negligent misrepresentation and fraud with claims for negligence-failure to disclose and continuing nuisance. Safeco sent Grieshop its updated coverage position addressing Delavans’ amended complaint and additional allegations. It informed him that it would continue to defend him subject to its reservation but cautioned that it would maintain this declaratory action. The parties request summary judgment.

Safeco argues that the “real estate sale” exclusion clearly & unambiguously bars Personal Liability Coverage because the underlying suit stems from Delavans’ purchase of Grieshop’s property. It relies on Huckins (Mont. 2017) where a similar sale exclusion was found to bar coverage for failure to disclose information in a real estate transaction.

Grieshop counters that Safeco has a duty to defend under the umbrella policy because a claim for Defense Coverage does not involve a claim for “bodily injury, personal injury, or property damage” to which the real estate sale exclusion applies. He further argues that the real estate sale exclusion’s use of “arising out of” is inherently ambiguous under Montana law, citing Newman (D.Mont. 2014). He further asserts that under the merger doctrine set forth in Urquhart (Mont. 1998), the buy-sell was legally extinguished and precludes using the real estate sale transaction to deny indemnification under the policy.

Delavans contend that it is premature to adjudicate coverage because whether there are “defects” from Grieshop’s renovations is disputed in the underlying suit, “arising out of” in the real estate sale exclusion is ambiguous and should be construed against Safeco, and the facts giving rise to Delavans’ claims against Grieshop occurred prior to their purchase of his home and continue to occur and thus their damages do not necessarily arise out of the buy-sell.

The homeowners policy’s exclusions include:

Coverage E – Personal Liability does not apply to:

(3) liability arising out of any written or oral agreement for the sale or transfer of real property, including but not limited to liability for:

(a) known or unknown property or structural defects … [or] …

(d) concealment or misrepresentation of any known defects.

The umbrella policy contains a similar “real estate sale” exclusion:

This policy does not apply to any:

…

5. bodily injury, personal injury, or property damage:

f. arising out of a written or oral agreement for the sale or transfer of real property, including but not limited to liability for:

(1) known or unknown property or structural defects … [or] …

(4) concealment or misrepresentation of any known defects, including but not limited to fungi, wet or dry rot, or bacteria.

The plain language of the policies unambiguously excludes coverage for claims that arise out of written or oral agreements for the sale or transfer of real property, including liability for known or unknown property or structural defects and concealment or misrepresentation of known defects.

Delavans’ claims are premised on Grieshop’s modification of the trusses and his failure to advise them of the alleged damages to the trusses prior to the sale. They state 9 causes:

I. negligence-property damage;

II. negligence-failure to disclose;

III. continuing nuisance;

IV. constructive fraud;

V. negligent infliction of emotional distress;

VI. breach of contract;

VII. breach of the implied covenant;

VIII. attorney fees;

IX. recision.

The underlying factual basis for all of them is the same: his modification of the trusses and sale of the property. While all claims arguably fall within the real estate sale exclusion, the claims in Counts II, IV, VI, VII, VIII, and IX unequivocally fall within the exclusion. For each of them, the allegations relate directly to sale of Grieshop’s property to Delavans. Count II alleges that Grieshop owed them “a duty to disclose all material adverse facts with respect to the home that they had listed for sale.” Thus Grieshop’s alleged duty and breach relate directly to the sale of the home. Count IV is expressly based on Grieshop’s alleged duty to disclose the damage to the trusses “so that [Delavans] could make an educated decision as to whether or not to purchase the home.” Count VI alleges breach of the purchase agreement for failing to disclose material adverse facts and defects. Count VII alleges breach of the implied covenant for lack of honesty by taking advantage of Delavans “as unsophisticated homebuyers and failing to disclose adverse material facts and defects with respect to the home.” Count VIII seeks attorney fees pursuant to the buy-sell. Count IX seeks rescission of the buy-sell because Delavans allege that they gave consent based on Grieshop’s fraud, mistake of facts, and misrepresentations. Since all of these claims are clearly based on the sale of the property, they are unequivocally excluded by the real estate sale exclusion.

Both Grieshop and Delavans argue that “arising out of” in the real estate sale exclusion is ambiguous but offer no alternative reasonable interpretation or authority demonstrating that it is ambiguous in the context of a similar real estate sale exclusion. Accordingly, the Court does not find that the real estate sale exclusion is ambiguous.

Urquhart applied the merger doctrine to a dispute over whether covenants in a contract for deed merged into a warranty deed. Even assuming that Urquhart has some relevance to the underlying suit, it has nothing to do with application of an insurance policy’s real estate exclusion.

Delavans argue that there is a disputed fact issue in the underlying suit as to whether the truss alterations are “defects” that trigger the real estate sale exclusion and thus the coverage issue is not justiciable at this stage. However, the exclusion does not require a “defect” to exclude liability arising from a real estate transaction. It provides that there is no coverage for liability arising out of any “written or oral agreement for the sale or transfer of real property, including but not limited to liability for known or unknown property or structural defects.” “Including but not limited to” plainly shows that a “defect” is not a prerequisite to trigger the exclusion. Thus, regardless of whether a “defect” is found in the underlying suit, Delavans’ claims are excluded if they arise out of an agreement for the sale of a residence.

Counts I, III, and V are also likely excluded by the real estate sale exclusion. In Count I Delavans allege that Grieshop owed them a duty “as prospective purchasers of the residential premises at issue in this case, to avoid causing damaging to the property” and he breached that duty when he altered the trusses. His alleged duty is therefore based on their status as prospective purchasers. Additionally, if no sale occurred, he would owe no general duty of care to them in relation to the residence. In Count II they allege that the damage to the trusses interferes with enjoyment of their property. They argue that their nuisance claim does not solely arise out of the real estate transaction — that Grieshop is liable for damaging the trusses before they bought the home and the negligent remodel is a continuing nuisance. Yet, without the agreement for sale of the property they would have no claim against him. They did not suffer any property damage or injury at the time the trusses were damaged since they had no ownership interest in the property. In Count V they allege that Grieshop’s conduct caused emotional distress which was “a reasonably foreseeable consequence” of his negligent acts. But they did not suffer emotional distress when the trusses were altered, nor was their emotional distress foreseeable at that time. If not for the sale of the home they would not have suffered emotional distress, and their emotional distress would not have been a foreseeable consequence of Grieshop’s actions.

Nevertheless the Court must construe the allegations of a complaint in favor of finding the obligation to defend. But to the extent that those counts can be construed to relate to Grieshop’s actions in conducting the remodel, as opposed to the subsequent sale of the property, Delavans’ claims are also excluded by the “owned property” exclusion:

2. Coverage E — Personal Liability does not apply to:

b. property damage to property owned by an insured;

c. property damage to property rented to, occupied or used by or in the care of any insured.

Safeco argues that it has no obligation to defend or indemnity Delavans’ claims that Grieshop “damaged his own home before selling it to the Delavans.” Delavans assert that the exclusion is ambiguous and also does not apply to them as subsequent owners and 3rd-party beneficiaries under the policy. Grieshop argues that it does not apply because he “no longer owns the house and did not own the house when Delavans initially made their claim.”

Safeco plainly has the better argument, which is supported by several closely analogous cases. For example, in Panico (10th Cir. 2011), the underlying action involved sale of a home built by Panicos. After the sale, they were sued by the purchaser for serious design and construction defects. The district court determined that the claims were not covered by the policy and the 10th Circuit agreed, relying in part on an exclusion for “property damage to property rented to, occupied or used by or in the care of any insured.” It collected cases from other jurisdictions which “have held that an owned property exclusion bars coverage of a home purchaser’s negligence claims against the insured.” Then it concluded that the exclusion applied because “Panicos owned the property at all relevant times, i.e., when the Panicos made the alleged misrepresentations to the buyers, when the Panicos negligently constructed the property, and when the Panicos maintained the property.” The same straightforward conclusion applies here. Grieshop owned the property when he altered the trusses and allegedly caused the damage which is the subject of Delavans’ claims. The owned property exclusion unequivocally bars coverage of Delavans’ claims against him.

Grieshop’s argument that it does not apply because he no longer owns the house and did not own it when Delavans made their claim is unavailing. The policies provide personal liability coverage for suits against an insured for property damages caused by an occurrence. Occurrence is defined as “an accident, including exposure to conditions which results in … property damage.” “‘Property damage’ means physical damage to or destruction of tangible property, including loss of use of this property.” Thus property damage occurs at the time of physical damage. Therefore if personal liability coverage existed it would trigger when property damage occurred, not when the claim was asserted. Delavans plainly allege that the damage to the property occurred when Grieshop altered the trusses. It matters not that they did not discover the problem until after transfer of the home.

Delavans’ remaining arguments against application of the owned property exclusion are similarly unpersuasive. It is not ambiguous because “property,” “property owned,” and “property used” are not defined by the policy. Oxford defines “property as “a (usually material) thing belonging to a person, group of persons, etc.; a possession; (as a mass noun) that which one owns; possessions collectively; a person’s goods, wealth, etc.” Black’s defines it as “any external thing over which the rights of possession, use, and enjoyment are exercised.” In accordance with these commonly understood definitions, a reasonable consumer of insurance products would have no difficulty understanding what would be included within “property,” “property owned,” and “property used.” Moreover, Panico and the numerous cases cited therein applied the exclusion without difficulty. None of the cases suggests that the exclusion is ambiguous for failing to define “property.”

Nor is there merit to Delavans’ argument that they are 3rd-party beneficiaries of the policies. Under Montana law, one cannot assume that they are a 3rd-party beneficiary under an insurance contract merely because they benefit from it. Diaz (Mont. 2011) (“There is a plain distinction between a promise, the performance of which may benefit a third party, and a promise made expressly for the benefit of a third party.”). To be a 3rd-party beneficiary, one “must be able to ‘show from the face of the contract that it was intended to benefit him or her.’” Id. Delavans are not the named insureds under the policies, which do not mention or identify them, and there is no indication from the face of the policies that they were intended to benefit them in any way.

Delavans alternatively contend that there is coverage for the damage to the trusses under the 1st-party Coverage A of the homeowners policy. They assert that the policy was in effect when Grieshop caused the damages and the fact that he has since transferred the property to them is of no consequence, and there are no exclusions which would bar coverage under Coverage A. However, they do not cite any authority for the proposition that 1st-party property coverages can benefit a subsequent purchaser or create a duty to indemnify the insured for claims that he negligently damaged his property. Moreover, they do not qualify as “insureds” under Coverage A which lists “Matt Grieshop” as the named insured and defines “Insured” as:

(1) you; and

(2) so long as you remain a resident of the resident premises, the following residents of the residence premises:

(a) your relatives;

(b) any other person under the age of 24 who is in the care of any person described in (1) or (2)(a) above.

Anyone described above who is a student temporarily residing away from your residence premises while attending school shall be considered a resident of your residence premises.

The policy further provides that “you” and “your” refer to the named insured shown on the Policy Declarations, which is Grieshop. Delavans do not fall under any of these definitions. There is no indication that the policy was intended to benefit Delavans or any subsequent purchaser in any way.

Grieshop also contends that he is entitled to a defense under the Defense Coverage provision of the umbrella policy regardless of coverage under the homeowners policy because its language only requires that his claim is not covered by his underlying insurance and that this prerequisite is met because Safeco has disclaimed coverage. The Court agrees with Safeco that Grieshop ignores the provision’s opening clause requiring that a claim be covered by the umbrella policy first and foremost and that since there is no coverage for Personal Liability, there can be no Defense Coverage.

Grieshop further argues that coverage should be provided under the umbrella policy because he reasonably expected that Safeco would provide a defense if a claim was not covered under the homeowners policy. However, “the reasonable expectations doctrine is inapplicable where the terms of the policy at issue clearly demonstrate an intent to exclude coverage.” Fisher (Mont. 2013).

Delavans request a stay pending resolution of the underlying suit, relying on Cameron (D.Mont. 2020), which stayed the indemnity part of the claim pending disposition of the underlying action or resolution of the duty to defend. The Court having determined that Safeco has no duty to defend, it likewise finds that it has no duty to indemnify. “A conclusion that there is no duty to defend compels the conclusion that there is no duty to indemnify.” Wessel (Mont. 2020). The Court therefore declines Delavan’s motion to stay pending disposition of the underlying suit.

Safeco is entitled to recoup defense costs paid on Grieshop’s behalf in the underlying suit pursuant to Ribi (Mont. 2005) (An insurer must timely and explicitly reserve the right to seek reimbursement and provide the insured with specific and adequate notice of the possibility of reimbursement.) Safeco wrote Grieshop 11/20/19 agreeing to defend him in the underlying suit but reserving its right to seek reimbursement of defense costs. Thus within 6 weeks of tendering the claim to Safeco he was given explicit notice of the right to seek reimbursement, which was reiterated in 4 subsequent letters. Grieshop’s reliance on Horace Mann (Mont. 2013) and Banjosa (D.Mont. 2019) and other cases for the proposition that equity does not favor reimbursement of attorney fees is unavailing since Safeco does not seek to recover fees expended in connection with prosecution of this action. Safeco is required to comply with Rule 54(d) to recoup its expenses but need not relitigate whether fees & costs are recoverable.

Because the Court has found that there is no coverage for Grieshop under the policies, his UTPA and bad faith claims necessarily fail. TIE (Mont. 2015). His claim for breach of fiduciary duty, based on Safeco’s request to recoup defense costs, likewise fails in light of the Court’s determination that Safeco is entitled to recover these costs.

Safeco Ins. v. Grieshop and Delavan, 44 MFR 241, 3/31/21.

Ryan Heuwinkel (Bohyer, Erickson, Beaudette & Tranel), Missoula, for Safeco; Joel Todd, Red Lodge, for Grieshop; Cory Gangle (Gangle Law Firm), Missoula, for Delavans.

INSURANCE: Personal jurisdiction found over non-contracting GEICO entities in 2nd amended complaint challenging subrogation practices… Molloy.

James Lee Const. and James & Tracy Lee represent a putative class challenging subrogation practices of GEICO and related entities. There are 4 motions pending. This order addresses only the personal jurisdiction component of GEICO’s motion to dismiss.

The Court previously granted GEICO’s motion to dismiss the non-contracting GEICO entities for lack of personal jurisdiction based in part on rejection of boilerplate allegations of personal jurisdiction based on a conspiracy theory. (MLW 8/15/20). GEICO again seeks to dismiss the GEICO entities with which Lees do not hold an insurance policy for lack of jurisdiction under Rule 12(b)(2), arguing that the 2nd amended complaint fails to comply with Rule 8(a)(2), the law of the case doctrine forecloses Plaintiffs’ attempt to reintroduce these previously dismissed entities, and Plaintiffs’ claims are not based on GEICO Indemnity’s and GEICO Casualty’s forum-related conduct.

Although a bit unusual in the personal jurisdiction context, GEICO first relies on Rule 8(a)’s demand for “a short and plain statement of the claim” to argue that Plaintiffs’ 2nd amended complaint presents a befuddling picture of how the non-contracting GEICO entities relate to this case that is insufficient to establish personal jurisdiction. This argument is better addressed in the context of analyzing their forum-related conduct.

GEICO further argues that this Court’s order dismissing the non-contracting GEICO entities mandates dismissal. But law of the case does not apply in the context of amended pleadings following a dismissal without prejudice. Askins (9th Cir. 2018). While a defendant is free to argue that the amended pleading does not cure the deficiencies identified in the original complaint and “the district court may decide the second motion to dismiss in the same way it decided the first,” the “court is not bound by any law of the case.” Id. The Court must therefore consider personal jurisdiction over the non-contracting GEICO entities anew.

Montana courts apply a 2-step test to determine whether they have personal jurisdiction over a non-resident. Milky Whey (Mont. 2015). First, they consider whether it exists under MRCivP 4(b)(1), which subjects parties to general jurisdiction if they are “found within the state of Montana” and to specific jurisdiction “as to any claim for relief arising from the doing personally, or through an employee or agent, of any” of the enumerated acts in Rule 4(b)(1)(A)-(G). Second, courts consider whether the exercise of personal jurisdiction comports with due process.

GEICO concedes that “GEICO Indemnity and GEICO Casualty conduct insurance operations, including subrogation activities in Montana.” Thus the GEICO entities, including the non-contracting entities “transact business within Montana” MRCivP 4(b)(1)(A). Step 1 of the specific jurisdiction inquiry is therefore satisfied.

The more complicated question is whether the exercise of jurisdiction is constitutional. The Due Process Clause requires that a defendant “have certain minimum contacts with [the forum state] that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.” Int’l Shoe (US 1945). “Due process requires that a defendant be haled into court in a forum State based on his own affiliation with the State, not based on the random, fortuitous, or attenuated contacts he makes by interacting with other persons affiliated with the State.” Walden (US 2014). The “minimum contact” requirements must be met as to each individual defendant. Bristol-Myers (US 2017).

Plaintiffs argue that personal jurisdiction exists because they were harmed by the in-state conduct of the GEICO Payment Recovery Unit which “the participating GEICO affiliates jointly utilize, direct and support” for all their subrogation activities, including activities in Montana. GEICO responds that “Plaintiffs’ allegation that GEICO Indemnity and GEICO Casualty utilized the Payment Recovery Unit for subrogation activities on other claims with respect to other insureds is insufficient” to confer specific jurisdiction. It maintains that “Plaintiffs’ claims simply do not arise from any of GEICO Indemnity or GEICO Casualty’s forum-related conduct.” Its argument is unpersuasive in light of Ford Motor (Mont. 2019).

GEICO premises its due process argument on the ground that Plaintiffs fail to causally connect the non-contracting entities’ forum-related conduct to Lees’ specific claims, relying on the Shute (9th Cir. 1990) test which asks whether “in the absence of” the defendant’s forum activity, the plaintiff’s “injury would not have occurred.” But as Ford Motor just made clear, such a “causation-only approach” improperly narrows the inquiry: “We have never framed the specific jurisdiction inquiry as always requiring proof of causation — i.e., proof that the plaintiff’s claim came about because of the defendant’s in-state conduct.” Rather, specific jurisdiction may also exist where a claim “relates to the defendant’s contacts with the forum.”

Plaintiffs have alleged that all the named GEICO entities utilize the Property Recovery Unit and jointly developed its subrogation procedures. They have also alleged that it operates within Montana and specifically worked on Lees’ claim. GEICO concedes that both GEICO Casualty and GEICO Indemnity utilize the Unit “for subrogation recoveries of their insureds under the insurance policies.” Plaintiffs’ wrongful subrogation claims therefore at minimum “relate to” the non-contracting GEICO entities’ use of the Unit and its subrogation of insurance claims in Montana. Moreover, these claims can only be brought in Montana in light of Montana’s unique subrogation laws and the fact that Lees are Montana citizens. Given the “strong relationship among the defendant, the forum, and the litigation,” specific jurisdiction exists. Id.

GEICO’s motion to dismiss is denied insofar as it seeks to dismiss GEICO Indemnity and GEICO Casualty for lack of personal jurisdiction. Its other arguments will be addressed by separate order.

James Lee Const. and Lee v. GEICO, 44 MFR 240, 3/25/21.

Alan Lerner (Lerner Law Firm), Kalispell, Allan McGarvey & Jinnifer Mariman (McGarvey Law), Kalispell, Brian Joos & Judah Gersh (Viscomi, Gersh, Simpson & Joos), Whitefish, and Evan Danno (Danno Law Firm), Kalispell, for Plaintiffs; Courtney Henson (Snell & Wilmer – Tucson), Sheila Carmody (Snell & Wilmer – Phoenix), and Ian McIntosh & William Morris (Crowley Fleck), Bozeman, for GEICO.