INSURANCE: Insurer failed to unequivocally demonstrate that UTV was not designed for operation principally on public roads and could never be a Covered Auto, now liable for $1.6 million consent judgment plus interest and attorney fees for failure to defend rollover injury claim rather than only $25,000 policy limit it would have risked had it filed declaratory action… Watters.

Sully Weinreis bought a 2017 Can-Am Maverick X3 UTV 4/2/21. The next day he was driving it with Benjamin Fettkether in the passenger seat when he took a turn too fast and rolled. Fettkether’s right hand was crushed and degloved. He is now 38.

Weinreis had a Progressive policy that provided up to $25,000 for any accident involving a “Covered Auto” including any “Auto” listed on the declarations page and any “Additional Auto.” The declarations page lists a Silverado and a Mustang.

“Additional Auto” is defined as “an auto the insured becomes the owner of during the policy period that does not permanently replace an auto shown on the declarations page if: a. Progressive insures all the other autos the insured owns; b. the additional auto is not covered by any other insurance policy; c. the insured notifies Progressive within 30 days of becoming the owner of the additional auto; and d. the insured pays any additional premium due.”

An “Auto” is a “land motor vehicle: a. of the private passenger, pickup body, or cargo van type; b. designed for operation principally upon public roads; c. with at least four wheels; and d. with a gross vehicle weight rating of 12,000 pounds or less, according to the manufacturer’s specifications.” If a vehicle meets the definition of an additional auto it is a Covered Auto.

Fettkether sued Weinreis for negligence in 13th Judicial District Court and demanded the $25,000 bodily injury limit. Progressive rejected the demand 12/9/21 and refused to provide Weinreis a defense on grounds that the X3 was not an Auto because, according to the owner’s manual, it is not designed for operation principally on public roads. It noted that the manual described it as an “Off-Road” vehicle that is not designed for use on paved roads, warns against operation on paved roads, and even warns of operation on dirt or gravel roads. It also stated that the X3 lacked “safety equipment required for vehicles designed for use principally on public roads such as rear safety bumper, horn, mirrors.” Progressive did not file a declaratory action to determine coverage.

(Progressive also denied Weinreis’s claim under a motorcycle policy that he purchased 3 days after the accident. Fettkether concedes that it did not apply because it was purchased after the accident. However, the parties also argue that purchase of the motorcycle policy implies some relevant mental state. According to Progressive, it indicated that he knew the X3 was not covered by the auto policy. Fettkether asserts that the purchase was pursuant to the requirement in the auto policy that Weinreis notify Progressive within 30 days of a newly acquired vehicle for it to constitute a covered auto. Neither provides evidence of these assertions so the Court finds both arguments speculative and irrelevant.)

Weinreis and Fettkether agreed that Weinreis would confess judgment for $1.6 million and assign his policy rights to Fettkether and Fettkether agreed not to execute judgment against Weinreis’s assets. Judge Moses found the settlement reasonable following a hearing which Progressive did not attend.

Fettkether sued Progressive in this Court 3/1/23. He seeks a declaration that it had a duty to defend Weinreis and breached its duty by failing to defend against Fettkether’s negligence action on Weinreis’s behalf. He seeks $1.6 million in contract damages, interest on the judgment, and attorney fees & costs. The parties request summary judgment.

Progressive argues that the X3 does not meet the definition of Auto and thus a Covered Auto for which the policy would provide injury coverage because it is an “off-road vehicle” and not designed for operation principally on public roads. It analogizes to Rodgers (WD Wash. 2019) which held that an ATV was not a Covered Auto.

Fettkether responds that Progressive cannot meet the “high bar” of the unequivocal demonstration standard for duty to defend because it cannot be said that the X3 could never have been an “Auto” as defined in the policy. Rather, it is at minimum ambiguous and at best unequivocal that a UTV like the X3 could be designed to operate on public roads. He cites Montana caselaw about the wide range of “public roads” which generally speak to whether the road is publicly or privately owned/accessible. He further argues that even if the Court accepts Progressive’s definition of a public road as only paved streets, Montana law permits UTVs to be driven on public highways and thus they can primarily be used for city driving.

On supplemental briefing Progressive attached the owner’s manual and quoted parts that stated that the X3 was a “high-performance off-road” vehicle that a user should “never operate on any public street.” Fettkether declined to address the X3’s specific features because “Progressive cannot now introduce — nor can the Court consider — any evidence that may negate coverage acquired after its denial of a defense.” Instead, Fettkether argued, quoting Tidyman’s (Mont. 2014), that the Court should focus on whether Progressive unequivocally demonstrated that there was no “potential for coverage,” not whether coverage in fact existed.”

The linchpin issue is whether Progressive unequivocally demonstrated that no coverage could exist because the X3 was not “designed for operation principally upon public roads.” Importantly, the policy does not define “public roads” or specify what design features would make a vehicle considered designed for operation principally on public roads.

Next, looking to the Complaint, Fettkether claims that his injuries stemmed from the operation of a Covered Auto. Thus if proven, his claims would fall under the policy. He does not comment on the X3’s design or suitability for operation principally on public roads; the Complaint only details the accident, his injury, his request that Progressive tender the $25,000 limit, and the litigation. The Complaint is insufficient on its face to conclude that a duty to defend existed. See Geraldine (Mont. 2008) (“We have repeatedly held that it is the acts giving rise to the complaint which form the basis for coverage, not the complaint’s legal theories or conclusory language.”)

The Court last looks to the facts considered by Progressive in refusing to defend, which are outlined in its denial letter. The letter states that it reviewed the owner’s manual and the requirements of the vehicle to operate on public roads. It summarized that the manual describes the X3 “as an ‘Off-Road’ vehicle which is not designed for use on paved roads. The owner’s manual also warns against operation on paved roads and even warns of operation on dirt or gravel roads.” It notes that the X3 “lacks the safety equipment required for vehicles designed for use principally on public roads such as a rear safety bumper, horn, mirrors.”

Since Progressive considered the owner’s manual in its investigation, the Court also will look to the manual. It explains that the X3 is a “high-performance off-road vehicle,” as Progressive’s denial letter stated. It also cautions, “Never operate this vehicle on any public street, road or highway, even dirt or gravel ones. Riding your vehicle on roads or highways could result in a collision with another vehicle. This vehicle is not designed for operation on roads. In many jurisdictions it is not legal to operate this vehicle on public roads.”

Based on the Court’s reading of the policy, complaint, denial letter, and owner’s manual, Progressive failed to make an unequivocal demonstration that the X3 was not designed for operation principally on public roads and could never be a Covered Auto. Its denial letter repeatedly references unsuitability for operation on paved, dirt, or gravel roads but does not state that such unsuitability also means that it is unsuitable for operation on a public road. Nor is “public road” defined as a paved, dirt, or gravel road in the policy. (Fettkether’s suggestion that “public road” could be referring to a public road versus a private road is not a reasonable interpretation. Whether a road is accessible to the public has no bearing on the type of vehicle that can operate on it, only the type of persons that can go down it.) The ambiguity of “public road” in the policy, the inconsistencies between the language evoked in the policy and the denial letter, and the obligation that the Court narrowly construe any exceptions to coverage preclude concluding that Progressive met the unequivocal demonstration standard.

The owner’s manual bolsters the Court’s conclusion. Progressive could have used the exact language regarding public roads from the manual in its denial letter so that its word choice was consistent with the policy and manual. Instead, it toggled between paved, dirt, and gravel roads. Parsing out whether a paved, dirt, or gravel road equates to a public road when such ambiguity exists in the Policy is too “nuanced” in a breach of duty to defend case and “makes it impossible to conclude that there was ‘an unequivocal demonstration’” that Fettkether’s claims fell outside the policy. In contrast, it is unequivocal that the motorcycle policy does not provide coverage because the accident occurred before the beginning of the coverage period.

(The Court did not seek the owner’s manual so it could analyze whether there was coverage, as it would in a declaratory action and as Fettkether seems to imply. It sought the manual so it could see first-hand what facts Progressive stated it had considered, how those facts translated into a denial letter, and how the language compared to the policy.)

While the denial letter states that the X3 lacks safety features that a vehicle designed for use principally on public roads must have, safety features are only 1 component of a design and, alone, cannot unequivocally demonstrate that the X3 was not a Covered Auto, particularly in light of the ambiguous statements regarding suitability of the X3 for certain types of roads.

Progressive’s reliance on Rodgers is misplaced because it concerns a declaratory judgment claim under the plaintiff’s UIM endorsement, not a breach of duty claim.

This case, like many presented to Montana state and federal courts, highlights the prudence that an insurer must undertake to not only uphold its duties under the policies it underwrites but also avoid liabilities in excess of the policy limits. Instead of filing a declaratory action to determine coverage and only facing a potential judgment for, if anything, the policy’s $25,000 limit, Progressive is now bound to pay the $1.6 million confession of judgment plus interest and attorney fees & costs. The Court hopes this serves as another reminder to Progressive and similarly situated parties that the prudent course is always to proceed under the reservation of rights clause and file a declaratory action.

Fettkether’s motion for summary judgment is granted.

Fettkether v. Progressive Northwestern Ins., 44 MFR 306, 1/10/24.

Colin Gerstner & Paul Adam (Gerstner Adam Law), Billings, and John Heenan (Heenan & Cook), Billings, for Fettkether; Randall Nelson (Nelson Law Firm), Billings, for Progressive.

ENVIRONMENT: CWA claim alleging pollution of West Fork of Gallatin River by use of sprinklers and snowmakers around ski runs and flushing of golf course irrigation system to discharge treated wastewater barred by consent decree in prior litigation… Morris.

Spanish Peaks Mountain Club and Lone Mountain Land Co. moved for summary judgment 10/20/23. Cottonwood Environmental Law Center opposes the motion. It filed a motion for a preliminary injunction 12/1/23. Defendants oppose this motion. A hearing was held 12/7/23.

Cottonwood asserts that Spanish Peaks discharges nitrogen pollution into the West Fork of the Gallatin River and its tributaries, contributing to algae blooms. It claims that Defendants use sprinklers and snowmakers on or around ski runs to discharge treated wastewater and that they flush the Spanish Peaks golf course irrigation system once per year using pipes on the golf course, spraying treated sewage into a stream of the West Fork without an NPDES permit in violation of the CWA.

Cottonwood asserts violation of the CWA, 33 USC 1311(1); violation of Montana public nuisance law, MCA 27-30-101(1); and violation of Montana criminal nuisance law, MCA 45-8-111. The Court previously granted Defendants’ motion to stay discovery and request for an expedited ruling.

Defendants raise 4 arguments in support of summary judgment: Cottonwood released its CWA claims when it settled Cottonwood Environmental Law Center et al v. Yellowstone Mountain Club (D.Mont.) (Cottonwood I); Cottonwood’s claims are barred by res judicata; Cottonwood’s CWA claim is barred because it involves only wholly past violations; Cottonwood lacks standing to assert its public nuisance claims. The Court need not reach all of these arguments because the Cottonwood I consent decree bars Cottonwood’s CWA claim.

(The consent decree, entered 11/16/22, required Spanish Peaks to install a new liner at Hole 10 of its golf course and limit irrigation with reclaimed wastewater to a maximum of 150 pounds of total nitrogen per acre per year and 33.6 million gallons per year for 5 years, pay $34,000 to the Bureau of Mines & Geology to study nutrient reduction and water conservation in the Big Sky area, and hire a consultant to develop a surface monitoring plan along the Middle Fork.)

The Cottonwood I consent order “effectuates a full and complete settlement and release of all the claims against Defendant in Plaintiffs’ amended Complaint and sixty-day notice letter.” The settlement also covered “all other claims known and unknown that could be asserted under the Clean Water Act based on the factual allegations made in the Amended Complaint and sixty-day notice letter (the “Claims”).” The parties agreed that “enforcement of this Order represents the Parties’ exclusive remedy for any violation of its terms and conditions.” The consent decree resolved the claims in the amended complaint in Cottonwood I. The Court looks next to the amended complaint.

The Cottonwood I amended complaint alleged that Spanish Peaks was “adding Nitrates + Nitrites as Nitrogen and Total Nitrogen into the West Fork of the Gallatin River.” It alleged that Spanish Peaks added these pollutants “by overirrigating its golf course with treated effluent, by spraying treated wastewater into drains on the golf course, by irrigating when the grass is frozen, and by failing to maintain its treated sewage pond and related equipment.” The amended complaint identified as point sources the “golf course and related equipment, including but not limited to sprinklers and drains, in addition to the wastewater holding pond and related equipment.”

The Court finally reviews the 60-day notice letter of alleged CWA violations provided by Cottonwood to Spanish Peaks. It broadly identified the CWA violations as emanating from “a stream entering the Middle Fork that appears to originate on the Spanish Peaks golf course.” Cottonwood informed that “the stream appears to begin at the Spanish Peaks Mountain Club.” It alleged that Spanish Peaks “is discharging pollutants to navigable waters without an NPDES permit in violation of the CWA.” It further identified the effluent holding ponds and infrastructure at Spanish Peaks as “contributing to the issue.”

Cottonwood now seeks to assert a CWA claim that could have been brought in Cottonwood I. This action and Cottonwood I both concern discharge of treated wastewater as “reclaimed water” or “treated sewage.” The Court must agree with Defendants that the treated wastewater here and the treated wastewater in Cottonwood I originate from the same source: The Hole 10 pond. The same treated wastewater, stored in the Hole 10 pond, traveled through the same pipe infrastructure on the Spanish Peaks Golf Course in Cottonwood I and in this action. It allegedly enters a tributary of the Gallatin River in violation of the CWA in both Cottonwood I and this action.

Cottonwood contends that its new CWA claim exceeds the scope of the Cottonwood I consent order. It argues that its current CWA claim concerns snowmakers and golf course pipe infrastructure as the point sources for the treated wastewater and that these point sources differ from the ones alleged in Cottonwood I. The Court disagrees.

The 2021 DEQ Nutrient Management Plan authorizes Spanish Peaks to irrigate using treated wastewater in Forest Areas, Par 3 Golf Course, and Hotel & Cabins. DEQ approved the NMP 7/20/21. It authored a separate letter 9/15/21 approving the irrigation plan for Spanish Peaks. Its approval included expansion of irrigation operations into “naturally forested areas adjacent to existing golf course irrigation sites.”

Cottonwood sent its 60-day notice letter to Spanish Peaks in Cottonwood I 11/5/21. Both the 2021 NMP and the 2021 DEQ approval predate Cottonwood I‘s 60-day notice letter. DEQ approved the NMP 7/20/21 and the irrigation plan for Spanish Peaks 9/15/21. Cottonwood knew or could have known of these activities at the time it entered the Consent Decree 11/5/21. Its CWA claim in this action represents a claim that similarly could have been known during Cottonwood I based on the 2021 NMP and 2021 DEQ approval.

Cottonwood now attempts to challenge Spanish Peaks’ irrigation practices and use of treated wastewater in a piecemeal manner that proves inconsistent with the express terms of the Cottonwood I consent order. The consent order served as a negotiated settlement that released “all the claims against Defendant in Plaintiffs’ Amended Complaint and sixty-day notice letter and all other claims known and unknown that could be asserted under the CWA based on the factual allegations made in the Amended Complaint and sixty-day notice letter.”

Both Cottonwood and Spanish Peaks are sophisticated parties, represented by counsel, who engaged in good faith negotiations that culminated in the consent order. The consent order appears to contain no reservation of right for Cottonwood to bring suit for an alleged CWA violation arising from the same facts. It instead provides Cottonwood the opportunity to enforce the consent order if Cottonwood first files a complaint with DEQ and DEQ fails to act on that complaint for 6 months.

The Court declines to extend the consent order to cover all potential claims raised by any party arising from alleged pollution of the West Fork by Spanish Peaks due to its use of treated wastewater for irrigation. The Court’s determination that the consent order bars Cottonwood from bringing its CWA claim in this action rests on the conclusion that it knew or could have known about alleged discharge of treated wastewater from snowmakers and sprinklers by Spanish Peaks and the alleged flushing of the golf course pipe infrastructure before and during the Cottonwood I action.

The consent order would not bar litigation by other groups or persons who were not parties to the consent decree. Other groups or persons remain free to allege CWA violations against Spanish Peaks. In fact, Cottonwood also remains free to allege CWA violations distinguishable from the facts alleged in Cottonwood I even if they related to the alleged pollution of the same West Fork and its tributaries. Cottonwood elected to forego only those allegations related to the facts in Cottonwood I when it entered the consent order.

The Court need not address Defendants’ res judicata claims in light of the broad language of the consent order that bars Cottonwood’s CWA complaint. Cottonwood conceded its public nuisance claims in response to Defendant’s summary judgment motion.

Defendant’s summary judgment motion is granted. Cottonwood’s motion for preliminary injunction is denied as moot.

Cottonwood Environmental Law Center v. Spanish Peaks Mountain Club and Lone Mountain Land Co., 44 MFR 305, 12/20/23.

John Meyer (Cottonwood Environmental Law Center), Bozeman, and Aaron Rains, Butte, for Plaintiff; Ian McIntosh (Crowley Fleck), Bozeman, and Jon Rauchway, Andrea Bronson, and Michael Golz (Davis Graham), Denver, for Defendants

CLASS ACTION: Preliminary injunction granted prohibiting Boyne from terminating Rental Management Agreements with named Plaintiff condo owners as alleged tactic to intimidate others into opting out… Morris.

Boyne USA owns & operates Big Sky Resort and 3 condo-hotels at the base of Big Sky known as the Summit, Shoshone, and Village Center. Plaintiffs own units in the Condos. Unit owners may not lease their units except through Boyne. Plaintiffs hold title to the Condos subject to certain Declarations. Boyne drafted the Declarations and does not allow amendments without its consent. Boyne prepared the Rental Management Agreements that unit owners must sign if they are not using their unit for personal use. They allege that the RMAs violate state and federal law.

Plaintiffs moved 2/3/23 to maintain the status quo, seeking to enjoin Boyne from terminating RMAs during the class certification process. The Court’s 2/23/23 Order prohibited Boyne from terminating the RMAs for 60 days. It orally granted a 60-day extension 4/12/23. It failed to put this order in writing or include it in the minute entry. Boyne appealed the injunction. The 9th Circuit remanded for clarification as to whether the order prohibiting termination of the RMAs remained in effect. The Court clarified that it had granted the injunction solely to protect the integrity of the class certification process and that its certification of the class in 6/23 “extinguished these concerns” and thus the injunction had expired. Plaintiffs seek another injunction to prevent Boyne from terminating the RMAs on 12/16/23.

Plaintiffs argue that Rule 23(d) and the Court’s inherent power to manage its cases provide authority to issue the injunction. They contend that Boyne’s tactics constitute a form of retaliation meant to influence class members to opt out of the class action. Boyne responds that it has sought to terminate the RMAs of only the named Plaintiffs, not all class members. It contends that its actions prove non-coercive as to the whole class because its actions relate only to the named Plaintiffs and no evidence exists that any other class members would learn of the termination of the named Plaintiffs’ RMAs.

Rule 23(d)

Any orders issued under Rule 23(d) must “be based on a clear record and specific findings that reflect a weighing of the need for a limitation and the potential interference with the rights of the parties.” Gulf Oil (US 1981). Courts look to the potentially coercive nature of the conduct toward class members and evaluate whether the conduct “is so misleading or coercive that it threatens the fair and efficient administration of a class action lawsuit.” O’Connor v. Uber Techs (ND Cal. 2013) (O’Connor I). For example, the defendant in Lake v. Unilever (ND Ill. 2013) sent releases and a settlement offer to consumers of the product for which they were sued. The court noted that “none of the class members are dependent on Unilever for their financial livelihood and thus it cannot be said that the business relationship between Unilever and the potential class members is inherently coercive.” The court found no evidence of coercion and denied the request to limit Unilever’s communications with potential class members or vacate the releases obtained by Unilever.

The court found evidence of coercive conduct against class members in O’Connor I. Uber restructured its licensing agreement to include an arbitration provision after it had been sued by drivers in a class action. Continued access to the Uber app and thus the ability to continue driving for Uber depended on acceptance of the new terms of service. The court noted that “the arbitration provision at issue includes a class action waiver, purporting to contractually bar Uber drivers from participating and benefitting from any class actions.” The court recognized the potential coercive effect of Uber’s tactics: “the promulgation of the Licensing Agreement and its arbitration provision runs a substantial risk of interfering with the rights of Uber drivers under Rule 23.” It refused to enforce the arbitration provision unless Uber gave drivers “clear notice of the arbitration provision, the effect of assenting to arbitration on their participation in the lawsuit, and reasonable means of opting out of the arbitration provision.”

Wang v. Chinese Daily News (9th Cir. 2010) upheld a district court’s decision to invalidate opt outs from potential class members. A class of employees had sued for violations of the FLSA. The employer terminated several named class members and the lead representative during the opt-out period. The 9th Circuit agreed with the district court’s determination that “the opt out period was rife with instances of coercive conduct, including threats to employees’ jobs, termination of an employee supporting the litigation, the posting of signs urging individuals not to tear the company apart, and the abnormally high rate of opt outs.”

IHOP Franchise Litigation (WD Mo. 1972) similarly recognized the coercive pressure that termination of a franchise agreement could have on a class action. The franchise holders instituted a class action against their franchisor. The franchisor threatened to terminate franchise agreements with some of the plaintiffs after institution of the suit. The court recognized that this conduct was “designed to use economic power, which the franchisor possesses, to drive these plaintiffs out of business as a lesson to other members of the class not to participate in the class action.” The court enjoined the franchisor from terminating franchise agreements held by the plaintiffs for any reason besides non-payment.

Boyne’s conduct raises similar concerns to those in IHOP and Wang. It has provided notice that it intends to terminate the RMAs with the named Plaintiffs. Importantly, the declarations for the unit owners’ condos prohibit leasing their units through anyone other than Boyne. Thus by terminating the named Plaintiffs’ RMAs, Boyne effectively would prevent them from being able to rent their units and earn rental income.

Boyne contends that this is non-coercive. It argues that it has sought to terminate only the named Plaintiffs’ RMAs and that none of the other class members would know of the terminated agreements. Plaintiffs noted at the hearing that the Big Sky community is small and it proves unlikely that other class members or potential class members would not learn of the terminations. Boyne further argues that the named Plaintiffs “are hardly destitute or financially reliant on rental income from their vacation properties.” It noted that many of them purchased their units for nearly $1 million cash and retain them as 2nd or 3rd homes. Plaintiffs counter that they rely on the rental income to offset the expensive HOA dues of some $30,000 per unit in addition to special assessments, which totaled $180,000 for Erharts’ 2 units.

Boyne ignores that the prominent inquiry under Rule 23(d) involves coerciveness. Threatened conduct may have a greater effect when a plaintiff or class member proves wholly financially dependent on the defendant as in IHOP and Wang. Conduct may still prove coercive and abusive where the plaintiff has other income. A heightened concern for coercive conduct exists where, as here, the class members and class opponents remain in an ongoing business relationship.

Plaintiffs rely on rental income to offset hefty HOA fees. They will be unable to earn rental income if Boyne terminates their RMAs. An example proves illustrative of the coercive nature of Boyne’s tactics. It assessed Plaintiff Anderson $24,067 in rental expenses in 2021, of which $21,413 represented condo association fees. Anderson offset this by renting out his condo and earning $21,480. Being forced to pay $20,000-$30,000/yr represents a substantial economic threat. Boyne’s conduct incentivizes Plaintiffs to abandon their suit to avoid termination of their RMAs.

Boyne’s letter indicating intent to terminate the RMAs directly ties the decision to terminate to Plaintiffs’ suit. Its other conduct throughout litigation, including threatening to terminate the RMAs in the class certification stage and implementing a ban on skiing or staying at Big Sky for all attorneys and staff working for Plaintiffs, supports Plaintiffs’ argument that its conduct serves to intimidate others from participating in the litigation.

Boyne argues that it seeks to terminate the RMAs to limit any damages for which it may be held liable. It contends that Plaintiffs have claimed that the RMAs prove illegal and that the rental management scheme exposes Boyne to liability. It argues that the damages for which it could be held liable will continue to accrue if forced to continue the RMAs with Plaintiffs. Plaintiffs indicated at oral argument that the named Plaintiffs would forego damages from this point forward if the RMAs stay in place.

The need for a limitation on Boyne’s conduct proves clear. Termination of the RMAs threatens to take away the income on which the named Plaintiffs rely to offset the hefty condo association fees. Termination of the RMAs in light of the class members’ ongoing business relation with Boyne presents substantial concern for an improperly coercive impact on class members’ choice to participate in the litigation. The potential interference with Boyne’s rights proves minimal if damages from continued operation of the RMAs are disallowed from this point forward. An order prohibiting Boyne from terminating the named Plaintiffs’ RMAs proves necessary to “protect the integrity of the class and the administration of justice.” O’Connor II (ND Cal. 2014); Gulf Oil. Disallowing damages that arise after this Order adequately balances and protects Boyne’s interests in limiting its damages.

The Court’s inherent authority

Strong precedent exists “‘establishing the inherent power of federal courts to regulate the activities of abusive litigants by imposing carefully tailored restrictions under the appropriate circumstances.’” De Long (9th Cir. 1990); Tripati (10th Cir. 1989). Boyne argues that Rule 65 controls issuance of injunctions. The Court recognizes the 9th Circuit’s guidance that “it is preferable that courts utilize the range of federal rules and statutes dealing with misconduct and abuse of the judicial system.” Hanshaw (9th Cir. 2001). However, it has also recognized that “courts may rely upon their inherent powers even where such statutes and rules are in place.” Id. The Court finds that a preliminary injunction under Rule 65 proves warranted, but also determines that it could issue an injunction enjoining Boyne from terminating the named Plaintiffs’ RMAs pursuant to its inherent powers.

Boyne has threatened to terminate the named Plaintiffs’ RMAs specifically because of their suit against it. It threatened to do so before class certification and has renewed the threat following certification but before the opt-out process. The Court has recognized the improper risk of coercion that such threat poses for class members deciding whether to participate in the class action. The Court possesses no doubt that its inherent authority empowers it to issue an injunction prohibiting termination of the RMAs where its conduct “is calculated to frustrate litigation.” Bergen Drug (3rd Cir. 1962). The limitation on the named Plaintiffs’ ability to claim damages going forward reflects a balancing of the parties’ interests consistent with the restraint and discretion required when exercising inherent powers.

Rule 65 and Winter

A plaintiff seeking a preliminary injunction must establish (1) a likelihood to succeed on the merits, (2) a likelihood of suffering irreparable harm absent preliminary relief, (3) a balance of equities favoring the movant, and (4) that an injunction supports public interest. Winter (US 2008). A party seeking a mandatory injunction must meet a heightened standard — it must “establish that the law and facts clearly favor its position, not simply that it is likely to succeed.” Garcia (9th Cir. 2015).

Boyne argues that the heightened standard for mandatory injunctive relief applies to Plaintiffs’ request. It argues that the relief requested constitutes a mandatory injunction because it changes the status quo. It contends that it remained free to cancel RMAs with any condo owners before Plaintiffs filed this action. It characterizes the relief that they seek as requiring “Boyne be forced to continue providing Plaintiffs with rental management services against its will.” The Court disagrees.

The status quo constitutes “the last, uncontested status which preceded the pending controversy.” Marlyn Nutraceuticals (9th Cir. 2009). Plaintiffs participated in the rental management program well before they sued Boyne. An injunction to prohibit Boyne from terminating the RMAs would not result in any affirmative change but would allow Boyne and the named Plaintiffs to continue renting Plaintiffs’ units in accordance with the RMAs as since before filing of the suit. The injunction would maintain the status quo; thus the ordinary Winter standard proves appropriate.

a. Likely to suffer irreparable harm

Boyne asserts that Plaintiffs have failed to demonstrate that they are likely to suffer irreparable harm — that they have primarily shown that they will suffer monetary harm. Plaintiffs allege that Boyne’s planned termination of the RMAs “threatens to influence the litigation.” The Court agrees with Plaintiffs. A great likelihood exists that potential class members will weigh the cost of potentially losing their RMAs when choosing whether to participate in the litigation. This implicit economic pressure is not only improper but also threatens fairness of the litigation and potential class members’ right to participate.

b. Balance of the equities

Boyne argues that Plaintiffs are very wealthy and do not rely on their rental income for their livelihood and thus denying their request for injunctive relief would minimally impact their income while exposing Boyne to increased liability and damages. It ignores Plaintiffs’ willingness to forego damages that may arise from this point from continuation of the RMAs.

Boyne indicated at the hearing that it will continue renting out other owners’ units pursuant to RMAs identical to those entered with Plaintiffs. It indicated no hardship in renting out the named Plaintiffs’ units besides the potential increase in damages that Plaintiffs could claim.

Boyne faces no prejudice by continuing the named Plaintiffs’ RMAs if the Court prohibits them from recovering damages that arise after this order from continuation of the RMAs. In fact, Boyne benefits from an injunction. It can continue renting out Plaintiffs’ units and earning income from those rentals without facing any related increase in the damages claimed. Plaintiffs would suffer loss of rental income on which they rely to offset the hefty condo association fees and also a great risk that class members would feel pressured not to join the class action to keep Boyne from terminating their RMAs. The balance of the equities tips sharply in favor of Plaintiffs.

c. Public interest

Boyne argues that denying injunctive relief would serve the public interest because the public has an interest in the freedom to contract and public interest disfavors specific performance of contracts. However, the right of potential class members to make a free and informed choice about participation also constitutes a public interest. Enjoining Boyne’s proposed conduct would prevent undue influence on potential class members in deciding whether to participate and protect the integrity & fairness of the class action.

d. Likely to succeed on the merits

Plaintiffs have raised claims regarding, inter alia, breach of fiduciary duty, constructive fraud, breach of contract, and unfair trade practices, and seek a declaration that the condo Declarations’ requirement that unit owners use Boyne as their rental manager proves illegal and unenforceable. They have raised serious questions as to the merits of several of these claims.

For example, with Plaintiffs’ unfair trade practices claim, they allege that “Boyne illegally and unfairly ‘tied’ its rental management services to ownership of units in the Condo-Hotels and other condominiums through the declarations.” A tying arrangement exists where a seller exploits its control over the tying product to force the buyer into the purchase of a tied product “that the buyer either did not want at all, or might have preferred to purchase elsewhere on different terms.” Hyde (US 2006). Boyne correctly notes that the Declarations do not require condo owners to rent their properties such that they can avoid RMAs by not renting. It ignores that the Declarations force unit owners who might have sought to purchase rental management services elsewhere on different terms to enter an RMA with Boyne. The Declarations “reduce competition in the market for the tied product,” which is the rental management services. Rick-Mik (9th cir. 2008).

Plaintiffs have also raised serious questions as to the merits of their breach of fiduciary duty claim. A fiduciary relationship likely exists due to sale of the condo likely constituting a security as defined by the SEC:

Condominium units may be offered with a contract or agreement that places restrictions, such as required use of an exclusive rental agent, on the purchaser’s occupancy or rental of the property purchased. Such restrictions suggest that the purchaser is in fact investing in a business enterprise, the return from which will be substantially dependent on the success of the managerial efforts of other persons. In such cases, registration of the resulting investment contract would be required.

Regardless, Boyne agreed to act as Plaintiffs’ agent for the purpose of renting, managing, and operating the units. An agency constitutes a fiduciary relationship that imposes certain duties on the agent, including to “act with the utmost good faith and loyalty for the furtherance and advancement of the interests of his principal” and to “not, without the knowledge of his principal, engage in transactions which tend to bring his personal interest into conflict with his obligations to his principal or place himself in a position where his interests may become antagonistic to those of his principal.” Sant (Mont. 1973).

Plaintiffs have alleged that Boyne inflated fees associated with rental stays including resort and breakfast fees to reduce the room rate available to unit owners. They contend that Boyne inflated these fees to increase their profit since it must split only the room rate with unit owners and does not split these other fees. They have raised serious questions as to whether it placed its interests in conflict with them in this profit-sharing scheme. Plaintiffs have also raised serious questions as to whether it complied with the duties for trust accounting placed on property managers by the Administrative Rules of Montana.

Serious questions have been raised as to the merits, Plaintiffs are likely to suffer irreparable harm, injunctive relief serves the public interest, and the balance of equities tips sharply in favor of Plaintiffs. Plaintiffs’ motion for injunctive relief is granted. Boyne is prohibited from terminating its RMAs with the named Plaintiffs. Plaintiffs are prohibited from recovering any damages that may arise from continued operation of the RMAs. The Court waives the requirement that Plaintiffs provide a security bond as the prohibition against damages from this point forward from operation of the RMAs ensures that Boyne will not suffer any harm from the injunction.

 

 

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In a separate proceeding, the 9th Circuit on 11/21/23 denied Boyne’s Rule 23(f) petition for permission to immediately appeal Judge Morris’s 6/28/23 class certification order, citing Chamberlan (9th Cir. 2005) (describing factors the Court considers in analyzing a 23(f) petition).

Anderson, Erhart, and Claggett v. Boyne USA, Boyne Properties, and Summit Hotel, 44 MFR 304, 12/13/23.

Benjamin Alke & John Crist (Crist, Krogh, Alke & Nord), Bozeman, and Devlan Geddes, Jeffrey Tierney, and Henry Tesar (Goetz, Geddes & Gardner), Bozeman, for Plaintiffs; Ian McIntosh, Kelsey Bunkers, Mac Morris, and Joe Norena (Crowley Fleck), Bozeman, for Boyne.

CLASS ACTION: Preliminary injunction granted prohibiting Boyne from terminating Rental Management Agreements with named Plaintiff condo owners as alleged tactic to intimidate others into opting out… Morris.

Boyne USA owns & operates Big Sky Resort and 3 condo-hotels at the base of Big Sky known as the Summit, Shoshone, and Village Center. Plaintiffs own units in the Condos. Unit owners may not lease their units except through Boyne. Plaintiffs hold title to the Condos subject to certain Declarations. Boyne drafted the Declarations and does not allow amendments without its consent. Boyne prepared the Rental Management Agreements that unit owners must sign if they are not using their unit for personal use. They allege that the RMAs violate state and federal law.

Plaintiffs moved 2/3/23 to maintain the status quo, seeking to enjoin Boyne from terminating RMAs during the class certification process. The Court’s 2/23/23 Order prohibited Boyne from terminating the RMAs for 60 days. It orally granted a 60-day extension 4/12/23. It failed to put this order in writing or include it in the minute entry. Boyne appealed the injunction. The 9th Circuit remanded for clarification as to whether the order prohibiting termination of the RMAs remained in effect. The Court clarified that it had granted the injunction solely to protect the integrity of the class certification process and that its certification of the class in 6/23 “extinguished these concerns” and thus the injunction had expired. Plaintiffs seek another injunction to prevent Boyne from terminating the RMAs on 12/16/23.

Plaintiffs argue that Rule 23(d) and the Court’s inherent power to manage its cases provide authority to issue the injunction. They contend that Boyne’s tactics constitute a form of retaliation meant to influence class members to opt out of the class action. Boyne responds that it has sought to terminate the RMAs of only the named Plaintiffs, not all class members. It contends that its actions prove non-coercive as to the whole class because its actions relate only to the named Plaintiffs and no evidence exists that any other class members would learn of the termination of the named Plaintiffs’ RMAs.

Rule 23(d)

Any orders issued under Rule 23(d) must “be based on a clear record and specific findings that reflect a weighing of the need for a limitation and the potential interference with the rights of the parties.” Gulf Oil (US 1981). Courts look to the potentially coercive nature of the conduct toward class members and evaluate whether the conduct “is so misleading or coercive that it threatens the fair and efficient administration of a class action lawsuit.” O’Connor v. Uber Techs (ND Cal. 2013) (O’Connor I). For example, the defendant in Lake v. Unilever (ND Ill. 2013) sent releases and a settlement offer to consumers of the product for which they were sued. The court noted that “none of the class members are dependent on Unilever for their financial livelihood and thus it cannot be said that the business relationship between Unilever and the potential class members is inherently coercive.” The court found no evidence of coercion and denied the request to limit Unilever’s communications with potential class members or vacate the releases obtained by Unilever.

The court found evidence of coercive conduct against class members in O’Connor I. Uber restructured its licensing agreement to include an arbitration provision after it had been sued by drivers in a class action. Continued access to the Uber app and thus the ability to continue driving for Uber depended on acceptance of the new terms of service. The court noted that “the arbitration provision at issue includes a class action waiver, purporting to contractually bar Uber drivers from participating and benefitting from any class actions.” The court recognized the potential coercive effect of Uber’s tactics: “the promulgation of the Licensing Agreement and its arbitration provision runs a substantial risk of interfering with the rights of Uber drivers under Rule 23.” It refused to enforce the arbitration provision unless Uber gave drivers “clear notice of the arbitration provision, the effect of assenting to arbitration on their participation in the lawsuit, and reasonable means of opting out of the arbitration provision.”

Wang v. Chinese Daily News (9th Cir. 2010) upheld a district court’s decision to invalidate opt outs from potential class members. A class of employees had sued for violations of the FLSA. The employer terminated several named class members and the lead representative during the opt-out period. The 9th Circuit agreed with the district court’s determination that “the opt out period was rife with instances of coercive conduct, including threats to employees’ jobs, termination of an employee supporting the litigation, the posting of signs urging individuals not to tear the company apart, and the abnormally high rate of opt outs.”

IHOP Franchise Litigation (WD Mo. 1972) similarly recognized the coercive pressure that termination of a franchise agreement could have on a class action. The franchise holders instituted a class action against their franchisor. The franchisor threatened to terminate franchise agreements with some of the plaintiffs after institution of the suit. The court recognized that this conduct was “designed to use economic power, which the franchisor possesses, to drive these plaintiffs out of business as a lesson to other members of the class not to participate in the class action.” The court enjoined the franchisor from terminating franchise agreements held by the plaintiffs for any reason besides non-payment.

Boyne’s conduct raises similar concerns to those in IHOP and Wang. It has provided notice that it intends to terminate the RMAs with the named Plaintiffs. Importantly, the declarations for the unit owners’ condos prohibit leasing their units through anyone other than Boyne. Thus by terminating the named Plaintiffs’ RMAs, Boyne effectively would prevent them from being able to rent their units and earn rental income.

Boyne contends that this is non-coercive. It argues that it has sought to terminate only the named Plaintiffs’ RMAs and that none of the other class members would know of the terminated agreements. Plaintiffs noted at the hearing that the Big Sky community is small and it proves unlikely that other class members or potential class members would not learn of the terminations. Boyne further argues that the named Plaintiffs “are hardly destitute or financially reliant on rental income from their vacation properties.” It noted that many of them purchased their units for nearly $1 million cash and retain them as 2nd or 3rd homes. Plaintiffs counter that they rely on the rental income to offset the expensive HOA dues of some $30,000 per unit in addition to special assessments, which totaled $180,000 for Erharts’ 2 units.

Boyne ignores that the prominent inquiry under Rule 23(d) involves coerciveness. Threatened conduct may have a greater effect when a plaintiff or class member proves wholly financially dependent on the defendant as in IHOP and Wang. Conduct may still prove coercive and abusive where the plaintiff has other income. A heightened concern for coercive conduct exists where, as here, the class members and class opponents remain in an ongoing business relationship.

Plaintiffs rely on rental income to offset hefty HOA fees. They will be unable to earn rental income if Boyne terminates their RMAs. An example proves illustrative of the coercive nature of Boyne’s tactics. It assessed Plaintiff Anderson $24,067 in rental expenses in 2021, of which $21,413 represented condo association fees. Anderson offset this by renting out his condo and earning $21,480. Being forced to pay $20,000-$30,000/yr represents a substantial economic threat. Boyne’s conduct incentivizes Plaintiffs to abandon their suit to avoid termination of their RMAs.

Boyne’s letter indicating intent to terminate the RMAs directly ties the decision to terminate to Plaintiffs’ suit. Its other conduct throughout litigation, including threatening to terminate the RMAs in the class certification stage and implementing a ban on skiing or staying at Big Sky for all attorneys and staff working for Plaintiffs, supports Plaintiffs’ argument that its conduct serves to intimidate others from participating in the litigation.

Boyne argues that it seeks to terminate the RMAs to limit any damages for which it may be held liable. It contends that Plaintiffs have claimed that the RMAs prove illegal and that the rental management scheme exposes Boyne to liability. It argues that the damages for which it could be held liable will continue to accrue if forced to continue the RMAs with Plaintiffs. Plaintiffs indicated at oral argument that the named Plaintiffs would forego damages from this point forward if the RMAs stay in place.

The need for a limitation on Boyne’s conduct proves clear. Termination of the RMAs threatens to take away the income on which the named Plaintiffs rely to offset the hefty condo association fees. Termination of the RMAs in light of the class members’ ongoing business relation with Boyne presents substantial concern for an improperly coercive impact on class members’ choice to participate in the litigation. The potential interference with Boyne’s rights proves minimal if damages from continued operation of the RMAs are disallowed from this point forward. An order prohibiting Boyne from terminating the named Plaintiffs’ RMAs proves necessary to “protect the integrity of the class and the administration of justice.” O’Connor II (ND Cal. 2014); Gulf Oil. Disallowing damages that arise after this Order adequately balances and protects Boyne’s interests in limiting its damages.

The Court’s inherent authority

Strong precedent exists “‘establishing the inherent power of federal courts to regulate the activities of abusive litigants by imposing carefully tailored restrictions under the appropriate circumstances.’” De Long (9th Cir. 1990); Tripati (10th Cir. 1989). Boyne argues that Rule 65 controls issuance of injunctions. The Court recognizes the 9th Circuit’s guidance that “it is preferable that courts utilize the range of federal rules and statutes dealing with misconduct and abuse of the judicial system.” Hanshaw (9th Cir. 2001). However, it has also recognized that “courts may rely upon their inherent powers even where such statutes and rules are in place.” Id. The Court finds that a preliminary injunction under Rule 65 proves warranted, but also determines that it could issue an injunction enjoining Boyne from terminating the named Plaintiffs’ RMAs pursuant to its inherent powers.

Boyne has threatened to terminate the named Plaintiffs’ RMAs specifically because of their suit against it. It threatened to do so before class certification and has renewed the threat following certification but before the opt-out process. The Court has recognized the improper risk of coercion that such threat poses for class members deciding whether to participate in the class action. The Court possesses no doubt that its inherent authority empowers it to issue an injunction prohibiting termination of the RMAs where its conduct “is calculated to frustrate litigation.” Bergen Drug (3rd Cir. 1962). The limitation on the named Plaintiffs’ ability to claim damages going forward reflects a balancing of the parties’ interests consistent with the restraint and discretion required when exercising inherent powers.

Rule 65 and Winter

A plaintiff seeking a preliminary injunction must establish (1) a likelihood to succeed on the merits, (2) a likelihood of suffering irreparable harm absent preliminary relief, (3) a balance of equities favoring the movant, and (4) that an injunction supports public interest. Winter (US 2008). A party seeking a mandatory injunction must meet a heightened standard — it must “establish that the law and facts clearly favor its position, not simply that it is likely to succeed.” Garcia (9th Cir. 2015).

Boyne argues that the heightened standard for mandatory injunctive relief applies to Plaintiffs’ request. It argues that the relief requested constitutes a mandatory injunction because it changes the status quo. It contends that it remained free to cancel RMAs with any condo owners before Plaintiffs filed this action. It characterizes the relief that they seek as requiring “Boyne be forced to continue providing Plaintiffs with rental management services against its will.” The Court disagrees.

The status quo constitutes “the last, uncontested status which preceded the pending controversy.” Marlyn Nutraceuticals (9th Cir. 2009). Plaintiffs participated in the rental management program well before they sued Boyne. An injunction to prohibit Boyne from terminating the RMAs would not result in any affirmative change but would allow Boyne and the named Plaintiffs to continue renting Plaintiffs’ units in accordance with the RMAs as since before filing of the suit. The injunction would maintain the status quo; thus the ordinary Winter standard proves appropriate.

a. Likely to suffer irreparable harm

Boyne asserts that Plaintiffs have failed to demonstrate that they are likely to suffer irreparable harm — that they have primarily shown that they will suffer monetary harm. Plaintiffs allege that Boyne’s planned termination of the RMAs “threatens to influence the litigation.” The Court agrees with Plaintiffs. A great likelihood exists that potential class members will weigh the cost of potentially losing their RMAs when choosing whether to participate in the litigation. This implicit economic pressure is not only improper but also threatens fairness of the litigation and potential class members’ right to participate.

b. Balance of the equities

Boyne argues that Plaintiffs are very wealthy and do not rely on their rental income for their livelihood and thus denying their request for injunctive relief would minimally impact their income while exposing Boyne to increased liability and damages. It ignores Plaintiffs’ willingness to forego damages that may arise from this point from continuation of the RMAs.

Boyne indicated at the hearing that it will continue renting out other owners’ units pursuant to RMAs identical to those entered with Plaintiffs. It indicated no hardship in renting out the named Plaintiffs’ units besides the potential increase in damages that Plaintiffs could claim.

Boyne faces no prejudice by continuing the named Plaintiffs’ RMAs if the Court prohibits them from recovering damages that arise after this order from continuation of the RMAs. In fact, Boyne benefits from an injunction. It can continue renting out Plaintiffs’ units and earning income from those rentals without facing any related increase in the damages claimed. Plaintiffs would suffer loss of rental income on which they rely to offset the hefty condo association fees and also a great risk that class members would feel pressured not to join the class action to keep Boyne from terminating their RMAs. The balance of the equities tips sharply in favor of Plaintiffs.

c. Public interest

Boyne argues that denying injunctive relief would serve the public interest because the public has an interest in the freedom to contract and public interest disfavors specific performance of contracts. However, the right of potential class members to make a free and informed choice about participation also constitutes a public interest. Enjoining Boyne’s proposed conduct would prevent undue influence on potential class members in deciding whether to participate and protect the integrity & fairness of the class action.

d. Likely to succeed on the merits

Plaintiffs have raised claims regarding, inter alia, breach of fiduciary duty, constructive fraud, breach of contract, and unfair trade practices, and seek a declaration that the condo Declarations’ requirement that unit owners use Boyne as their rental manager proves illegal and unenforceable. They have raised serious questions as to the merits of several of these claims.

For example, with Plaintiffs’ unfair trade practices claim, they allege that “Boyne illegally and unfairly ‘tied’ its rental management services to ownership of units in the Condo-Hotels and other condominiums through the declarations.” A tying arrangement exists where a seller exploits its control over the tying product to force the buyer into the purchase of a tied product “that the buyer either did not want at all, or might have preferred to purchase elsewhere on different terms.” Hyde (US 2006). Boyne correctly notes that the Declarations do not require condo owners to rent their properties such that they can avoid RMAs by not renting. It ignores that the Declarations force unit owners who might have sought to purchase rental management services elsewhere on different terms to enter an RMA with Boyne. The Declarations “reduce competition in the market for the tied product,” which is the rental management services. Rick-Mik (9th cir. 2008).

Plaintiffs have also raised serious questions as to the merits of their breach of fiduciary duty claim. A fiduciary relationship likely exists due to sale of the condo likely constituting a security as defined by the SEC:

Condominium units may be offered with a contract or agreement that places restrictions, such as required use of an exclusive rental agent, on the purchaser’s occupancy or rental of the property purchased. Such restrictions suggest that the purchaser is in fact investing in a business enterprise, the return from which will be substantially dependent on the success of the managerial efforts of other persons. In such cases, registration of the resulting investment contract would be required.

Regardless, Boyne agreed to act as Plaintiffs’ agent for the purpose of renting, managing, and operating the units. An agency constitutes a fiduciary relationship that imposes certain duties on the agent, including to “act with the utmost good faith and loyalty for the furtherance and advancement of the interests of his principal” and to “not, without the knowledge of his principal, engage in transactions which tend to bring his personal interest into conflict with his obligations to his principal or place himself in a position where his interests may become antagonistic to those of his principal.” Sant (Mont. 1973).

Plaintiffs have alleged that Boyne inflated fees associated with rental stays including resort and breakfast fees to reduce the room rate available to unit owners. They contend that Boyne inflated these fees to increase their profit since it must split only the room rate with unit owners and does not split these other fees. They have raised serious questions as to whether it placed its interests in conflict with them in this profit-sharing scheme. Plaintiffs have also raised serious questions as to whether it complied with the duties for trust accounting placed on property managers by the Administrative Rules of Montana.

Serious questions have been raised as to the merits, Plaintiffs are likely to suffer irreparable harm, injunctive relief serves the public interest, and the balance of equities tips sharply in favor of Plaintiffs. Plaintiffs’ motion for injunctive relief is granted. Boyne is prohibited from terminating its RMAs with the named Plaintiffs. Plaintiffs are prohibited from recovering any damages that may arise from continued operation of the RMAs. The Court waives the requirement that Plaintiffs provide a security bond as the prohibition against damages from this point forward from operation of the RMAs ensures that Boyne will not suffer any harm from the injunction.

 

 

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In a separate proceeding, the 9th Circuit on 11/21/23 denied Boyne’s Rule 23(f) petition for permission to immediately appeal Judge Morris’s 6/28/23 class certification order, citing Chamberlan (9th Cir. 2005) (describing factors the Court considers in analyzing a 23(f) petition).

Anderson, Erhart, and Claggett v. Boyne USA, Boyne Properties, and Summit Hotel, 44 MFR 304, 12/13/23.

Benjamin Alke & John Crist (Crist, Krogh, Alke & Nord), Bozeman, and Devlan Geddes, Jeffrey Tierney, and Henry Tesar (Goetz, Geddes & Gardner), Bozeman, for Plaintiffs; Ian McIntosh, Kelsey Bunkers, Mac Morris, and Joe Norena (Crowley Fleck), Bozeman, for Boyne.

SEX DISCRIMINATION: Title VII claim by non-renewed Lady Griz head basketball coach rejected on summary judgment… Christensen.

Shannon Schweyen began as a student assistant to the University of Montana’s women’s basketball team in 1992 and became an assistant coach in 1993, a position she held for 24 years.

In 7/16, Robin Selvig, head coach of the Lady Griz for 38 years, announced his retirement. Under Selvig, the Lady Griz had developed into a nationally renowned mid-major program, posting a win-loss record of 865-286, winning the Big Sky regular season a record 23 times, winning the Big Sky Conference tournament 24 times, and making the NCAA tournament 21 times.

In 8/16 UM hired Schweyen as head coach 9/16 to 6/19 at a base of $130,000. Around this same time Travis DeCuire was offered a 3-year contract as head coach of the men’s basketball team at a base of $155,000.

In Schweyen’s first year as head coach (2016-17 season) the team’s record was 7-23 overall and 4-14 in the Big Sky Conference. During this year a starting player left the team. Her parent sent letters to Schweyen and Director of Athletics Kent Haslam complaining about Schweyen’s conduct including that she caused emotional & psychological damage by bullying his daughter, made suggestive comments about a player’s brother, and drank on road trips. He alleged that his daughter left the team because of the culture that Schweyen had created and not because of playing time.

In Schweyen’s 2nd year as head coach the record was 14-17 overall and 9-9 in the Big Sky Conference. In 3/18 another player’s parent wrote Haslam raising concerns about Schweyen including that she alienated and injured players, used negative and vulgar sarcasm, and failed to communicate with or develop certain players. A 3rd parent contacted Haslam in March and alleged verbal abuse, harassment, bullying, intimidation, manipulation, inappropriate sexual behavior, and alcohol abuse by Schweyen. He received a complaint from one Lady Griz regarding Schweyen’s constant negativity, failure to communicate with players, and favoritism.

In the spring of 2018 Haslam informed Schweyen that he was going to investigate or inquire into the allegations. Haslam and Senior Associate AD Jean Gee interviewed all but one of the Lady Griz, the team’s strength & conditioning coach, and a student athlete academic advisor. Haslam produced a memo summarizing the results and they met with Schweyen and her assistant coach. His memo noted that “student-athletes want to be pushed to get better and corrected, however often times it felt the corrective language became personal and often became about more than their basketball ability.” He concluded that allegations regarding Schweyen and staff consuming alcohol with student athletes were unsubstantiated and made recommendations for improvement.

In Schweyen’s 3rd year as head coach (2018-19) the record was 14-16 overall and 9-11 in the Big Sky Conference. In 2/19 a parent reached out to Haslam to express concerns about Schweyen and the “health and future” of the Lady Griz program. At the end of the season a player who had started 8 games and averaged 24 minutes per game transferred to another school; her parents complained directly to Schweyen about how she had treated their daughter.

At the end of Schweyen’s 3-year contract Haslam offered to renew for 1 year through 6/30/20 at $134,589. DeCuire was offered another 3-year contract.

In Schweyen’s 4th year (2019-20) the record was 17-13 overall and 12-8 in the Big Sky Conference and the team won a single game at the Big Sky Conference Tournament. During the 2019-20 season 1 player transferred from the team.

Schweyen and Haslam met in 3/20 and discussed her return as head coach for the next 2 years as well as returning and departing players. He also asked about the team environment and if it had improved and she said it was really good. She also said she believed only 1 player would be transferring out of the program Haslam indicated that her contract would be “ironed out” after she returned from her family vacation. There is no dispute that as of 3/12 he intended to offer her a contract.

In subsequent weeks 2 Lady Griz entered the transfer portal and several others contacted Haslam to express their desire to transfer and concerns about Schweyen’s return. The 2 in the transfer portal met with Haslam in late March and shared complaints about Schweyen and indicated that she was the reason they were transferring. A 3rd player contacted him to explain that she would likely transfer if Schweyen returned. A 4th informed him that she was on the fence and she knew of 2 others who were considering leaving. A 5th player and her parents met with Haslam at the end of March to express concerns about Schweyen returning and their opinion that there were ongoing issues with the team culture.

In 3/30 Haslam told Schweyen that she needed to meet with her assistants and “figure out why all these girls are leaving.” On 4/1 he informed her that he was not offering her a new contract, referencing player retention and student athletes entering the transfer portal. Her contract expired in 6/20.

UM appointed Mike Petrino interim head coach and announced that it would conduct a national search for a head coach after the 2020-21 season. He was then the most senior assistant coach for the Lady Griz. After learning that Schweyen would not be returning, 3 of the players who had reached out to Haslam decided not to transfer, including one who had already entered the transfer portal. In 4/21 UM named Brian Holsinger head coach.

Schweyen filed a claim with EEOC in 9/20 alleging discrimination in violation of Title VII of the Civil Rights Act of 1964. EEOC issued a right to sue notice in 8/16. Schweyen filed this action alleging that UM discriminated by evaluating her performance more harshly than that of her male counterparts because of her gender, targeting her for criticism because of her sex, and not renewing her contract because of her gender. UM requests summary judgment. It has also moved to strike parts of Schweyen’s Statement of Disputed Facts and affidavits and exhibit filed in support of her opposition to summary judgment.

UM seeks to strike the declarations of former Athletic Director James O’Day, former Lady Griz Assistant Coach Sonya Stokken, and former players Abby Anderson and Carmen Gfeller pursuant to Rule 36(c) because they were not disclosed as potential witnesses. Schweyen responds that Anderson and Gfeller were identified in her initial disclosures through the general category of “student athletes on the women’s basketball team during Plaintiff’s tenure as head coach” and that O’Day and Stokken were named in her interrogatory answers as “individuals with knowledge of relevant facts.” She also responds that any failure to disclose is substantially justified or harmless.

The 4 witnesses were not disclosed in Schweyen’s initial Rule 26 disclosures 8/4/22, nor in supplemental disclosures. The Court is not convinced that Anderson and Gfeller were sufficiently disclosed under the broad category of “student athletes on the women’s basketball team during Plaintiff’s tenure as head coach” — a category that includes some 30 players. Nor were O’Day and Stokken properly disclosed. Rule 26’s requirements are clear: the name of individuals known to have discoverable information along with the subjects of that information must be provided. See, e.g., Watts (SD Ill. 2016) (vague and boilerplate identification of categories of potential witnesses inconsistent with the spirit & purpose of Rule 26). Schweyen also failed to demonstrate that her failure to disclose was substantially justifiable or harmless. UM suffered actual prejudice because it was denied an opportunity to depose or cross-examine these witnesses. The next question is whether this harm can be cured and the answer is no. Although as Schweyen points out there is still time for UM to depose them before trial, that does not cure the prejudice to UM as it relates to the present motion for summary judgment that is fully briefed and before the Court. Nor is the Court persuaded by Schweyen’s justification for failing to timely disclose these witnesses. She argues that the declarations were necessary to rebut UM’s “tardily disclosed affidavits and the allegations it presented to the Court in its summary judgment motion.” However, all of the affidavits relied on in UM’s motion had been produced in advance of the discovery deadline except for Haslam’s. Although 4 affidavits were provided the day before close of discovery, UM represents that it requested an extension of the deadline as recently as 3/2/23 and Schweyen refused. She does not claim that her failure to disclose was the result of lack of knowledge of the witnesses and nature of their testimony or to some honest mistake. In fact, following Schweyen’s own argument on disclosure it is clear that she knew these witnesses had relevant information and nonetheless failed to disclose their names or the subject of that information. Accordingly, Rule 37 sanctions are appropriate and the declarations at issue are stricken. Further sanctions are not necessary or appropriate.

UM seeks to strike numerous paragraphs and parts of Schweyen’s Statement of Disputed Facts for failing to comply with LR 56.1 including statements lacking citation to the record, statements adding additional facts, statements adding legal argument, assertions that facts are disputed because Schweyen lacks personal knowledge, and statements disputing stipulated facts.

The factual record is extensive as demonstrated by the 273 paragraphs in UM’s 75-page Statement of Undisputed Facts, exhibits in support of its summary judgment motion, and Schweyen’s 61 exhibits filed in conjunction with her opposition to summary judgment. Where a party has “created (perhaps intentionally) a factual morass by failing to adhere to” LR 56.1 “the Court will not do the parties’ work for them by searching the record for factual disputes.” Lechowski-Mercado (D.Mont. 2022). LR 56.1 “does not allow for tangential flourishes to be tacked on to a response when a fact is undisputed. If additional facts are relied on to oppose a motion for summary judgment, those may be added separately, as provided in LR 56.1(b)(2).” Jewell (D.Mont. 2015). Also, “legal theories and arguments are not facts.” Id.

Although not in strict compliance with LR 56.1, the Court will not strike paragraphs where Schweyen clearly relies on the same citations used by UM. Similarly, the Court finds that she inappropriately raised legal arguments in some paragraphs but not others, and in some instances properly challenged UM’s characterization of particular facts. The Court strikes [30 paragraphs] for failing to comply with LR 56.1 and treats these statements of fact as undisputed for summary judgment purposes.

The Court also strikes all factual statements that are not properly set forth as described in LR 56.1(b)(2) (“set forth in serial form each additional fact on which the party relies to oppose the motion” with pinpoint citations). The Court considers any statements of stipulated fact to be undisputed even if Schweyen’s Statement of Disputed Facts indicates otherwise. Finally, Schweyen failed to respond to [30 paragraphs] which are therefore deemed undisputed.

UM also moves to strike Dr. Donna Lopiano’s expert report on grounds that it was untimely disclosed under LR 7.1(d)(1)(D). UM’s liability expert Cheryl Levick opined that Haslam’s employment actions were prudent, reasonable, and based on legitimate, non-discriminatory reasons. Lopiano addressed the bases for Levick’s opinions and concluded that Haslam’s actions were not consistent with best practices and that Levick’s opinions were unfounded.

The Court disagrees with UM’s argument that Lopiano’s report is not a rebuttal expert report and therefore was not timely disclosed. Each opinion offered by Lopiano rebuts and/or contradicts an opinion offered by Levick. To the extent that parts of Lopiano’s report may exceed the scope of rebuttal evidence, this is more appropriately addressed through a motion in limine.

UM also seeks to strike Lopiano’s report on the grounds that it was filed without leave of Court. LR 7.1(d)(1)(D). Despite Schweyen’s improper approach to supplementing the record it would be inequitable to prohibit her from relying on Lopiano’s report to oppose summary judgment. Although it was filed after the time permitted by LR 7.1, it was disclosed before the deadline to disclose rebuttal experts. The conflict between the deadlines for filing a fully briefed motion for summary judgment and for disclosing rebuttal experts, while unfortunate, is a result of the stipulation between the parties to adjust the deadline for disclosure of liability experts.

Summary judgment

UM maintains that Haslam did not renew Schweyen’s contract because of the “poor performance of the women’s basketball team, the numerous and serious complaints regarding the unacceptable environment fostered by Schweyen for the student-athletes on her team, and the intent of many of those student-athletes to leave the program if Schweyen remained as head coach.” These are legitimate, non-discriminatory reasons to non-renew her contract.

UM benefits from a “strong inference” of nondiscrimination under the “same-actor doctrine” because Haslam was responsible for her initial hiring, rehiring, and termination and these actions occurred within a short period. Coghlan (9th Cir. 2005). Schweyen argues that this inference would not apply if a jury were to believe her “corroborated testimony that Haslam did not want to hire her but felt forced to by boosters and because of her prominence in the women’s basketball community.” While there may have been multiple motives behind his decision to hire her, this can be said of many hiring situations and does not necessarily undermine the rationale behind the same-actor doctrine. “The question is simply whether the nature of the employment action is such that it would have been unlikely if the decisionmaker were truly biased against the employee’s class.” Coghlan. Here, the answer to that question is yes.

Schweyen offers no direct evidence of discrimination; therefore she must provide “specific and substantial circumstantial evidence challenging the credibility of the employer’s motives.” Vasquez (9th Cir. 2003). Because the same-actor inference applies, Schweyen must make an “extraordinarily strong showing of discrimination.” Coghlan.

Schweyen offers evidence that she was similarly situated to but treated less favorably than male coaches of the men’s basketball and football teams who had several athletes enter the transfer portal and leave UM over the past 5 years but were not fired. She ignores that UM was not just concerned about players leaving generally, but that they were transferring or considering transferring because of her behavior. UM also had broader concerns about the team culture and her treatment of players — an issue that arose early in her time as head coach and continued through her last year — and the team’s overall performance under her leadership. She has not offered evidence that football coach Hauck or basketball coach DeCuire received similar complaints or that players were leaving their teams due to concerns about team culture or that those coaches underperformed.

Since his appointment as Athletic Director in 2012, Haslam has only terminated 5 head coaches: 4 males (Jerry Wagner, Brian Doyon, Mark Plakorus, Bob Stitt) and one female (Schweyen). Wagner and Doyon, former head coaches of the women’s volleyball team, and Plakorus, former head coach of the women’s soccer team, were terminated at least in part due to complaints from student athletes, and Stitt, former head coach of the football team was relieved due to underperformance despite the team having a better overall record than Schweyen.

Schweyen argues that UM “did not contemporaneously — and still has not — verified in any way any allegations against her.” Although she may disagree with the concerns raised by student athletes and parents, the veracity of those concerns is not at issue. There is no genuine dispute that both athletes and parents complained to Haslam and others about her conduct and no evidence that he did not give credence to the complaints. He had received complaints beginning the first year of her term. Further complaints led to an investigation which led him to conclude there were legitimate issues which he communicated to her along with steps she could take to improve. He still continued receiving complaints, and he received several complaints from members of the team regarding her tentative return in the weeks preceding the non-renewal decision. These facts are not in genuine dispute and they support UM’s explanation for not renewing her contract.

Schweyen offers other instances of alleged discriminatory or disparate treatment as evidence that UM’s basis for terminating her was pretextual. While other discriminatory actions may be used as evidence of pretext, she does not offer specific or substantial evidence sufficient for a reasonable juror to conclude that UM’s reasoning is pretextual.

The fact that UM hired Petrino — a male — as interim head coach does not demonstrate pretext. He was the most senior assistant coach and his temporary role as interim head coach does not constitute a “replacement” under Title VII. And there is no genuine dispute that Holsinger, whom UM hired as head coach after a national search, is qualified to be a head coach.

The fact that DeCuire was paid an initial base salary higher than Schweyen’s does not demonstrate pretext. It was below the conference average for men’s basketball, while hers was above the conference average for women’s basketball. Even ignoring the relative compensation of each coach to the conference averages, other factors support the difference in salary, including that DeCuire had head coaching experience and 2 years as an assistant head coach and had other offers that UM had to compete against while Schweyen had none.

Schweyen also argues that her team was treated worse than the men’s teams such as in practice time, quality of locker rooms, and degree of Haslam’s involvement with her team. Courts have rejected the argument that disparate treatment between men’s and women’s sports teams create an inference of discriminatory animus under Title VII. And Schweyen’s complaints regarding practice time for men’s and women’s teams largely center around DeCuire’s conduct and therefore do not tend to show discriminatory animus by Haslam.

Schweyen references comments by Haslam that she argues demonstrate a discriminatory motive such as she should not hire an agent during contract negotiations because he would not be giving her more money and he didn’t want to hire her but was “made” to by others. None of these statements is direct evidence of discriminatory intent.

Finally, Schweyen argues that evidence of altered or missing documents supports her claim. These allegations are neither persuasive nor material, but even if taken as true the evidence would not be sufficient to overcome the strong presumption that UM acted without discriminatory intent.

UM’s motion for summary judgment is granted.

Schweyen v. UM-Missoula, 44 MFR 303, 10/31/23.

Devlan Geddes, Katherine DeLong, and Hannah Willstein (Goetz, Geddes & Gardner), Bozeman, and Linda Correia & Lauren Khouri (Correia & Puth), DC, for Schweyen; Elizabeth Kaleva, Kevin Twidwell, and Elizabeth O’Halloran (Kaleva Law Office), Missoula, and Paul Lannon, Andrew Silvia, and Ashley Hart (Holland & Knight), Boston, for UM.