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.

MALICIOUS PROSECUTION claim against carbon fiber rifle barrel manufacturer for filing ultimately voluntarily dismissed trade dress mark infringement proceeding rejected on summary judgment on the basis of probable cause… inadvertently disclosed draft document in email from attorney protected by attorney-client privilege and as opinion work product, not considered on summary judgment… claims of false or fraudulent registration of a trademark and tortious interference with business relations/prospective economic advantage previously dismissed under Rule 12(b)(6)… DeSoto.

Proof Research began making helically wound and ground carbon fiber rifle barrels through its predecessor Advanced Barrel Systems in 2003. It makes barrels pursuant to a patented process that replaces some of the steel with carbon fiber in a way that does not overly compromise the barrel’s stiffness or heat-handling abilities while substantially reducing weight and decreasing amplitude of vibrations during firing. The process begins with a hollow steel rod bored to the desired size for the bullet. Outer parts of the rod are machined away to make a “barrel liner.” After coating black carbon fiber tows with a clear resin and winding them around the machined-out part of the liner the barrel is cured at high temperature. Proof maintains that after curing the barrel is rough and slightly over-sized but otherwise functional although not marketable.

Significant to this dispute, ABS and later Proof “finish” their barrels by grinding the rough surface to a smooth finish in a lathe using progressively finer wheels. This exposes the outer layers of carbon fiber in “a mottled pattern of irregularly-sized rippled patches.” The barrels are then wiped with a solvent but not coated with a finish. Proof’s founder K.K. Jense testified that ABS barrels had “a unique pattern and a look I liked,” contributing to his decision to begin purchasing them from ABS in 2008 and to purchase the company and its patent in 2011.

Ronald Duplessis is sole owner of McGowen Precision Barrels formed in 2006 and its sister Carbon Six Barrels. Carbon Six purchases barrel liners from McGowen and wraps them with a continuous-filament carbon fiber & epoxy resin. Although Proof and Carbon Six differ in the technical way they engineer the materials around the liners, their finished barrels look “quite similar.”

In 5/12 Proof applied to register its trade dress (“Mark”) with the Patent & Trademark Office. The Office initially refused to register the Mark, noting that it “consisted of nondistinctive features of a product design that is not registrable on the Principal Register without sufficient proof of acquired distinctiveness” and it “includes elements that are functional.” Proof’s then-attorney Bradley Smith emailed then-CEO Pat Rainey that if the finish was a natural consequence of the manufacturing process, Proof could not get a trademark. 3 days later Proof responded to the PTO that “nothing in the patent or the underlying technology dictates the appearance of the Mark on gun barrels incorporating the patented technology, namely, the unique irregular, mottled, rippled patches on the finished barrel.”

Along with a declaration from Rainey, Proof’s response included a list of “other simpler, cheaper, and commercially viable finishing techniques” that it claimed could be used to finish the barrels and not display the Mark, as well as photos of carbon fiber rifles displaying a regular geometric pattern distinct from the Mark and Proof’s marketing & advertising initiatives to evidence the extent to which the Mark had become distinctive over its 10 years of “extensive and continuous use.” The response argued that “when considering the above evidence in total, it becomes apparent that the Mark, as a whole, is distinctive and has acquired secondary meaning identifying only the Applicant as the source of the identified services in the minds of the consuming public.” On 8/17/13 the PTO registered the Mark. On 6/3/14 Proof also registered “PROOF” consisting of “standard characters without claim to any particular font, style, size, or color.”

In 11/13 Proof acquired Performance Polymer Solutions co-founded by Drs. David Curliss and Jason Lincoln who began work on a new patent application on Proof’s behalf for a “composite projectile barrel comprising a continuous fiber composite outer shell whose average effective coefficient of thermal expansion in the longitudinal direction approximately matches that of an inner liner, exhibits light weight, superior axial stiffness and strength, durability, and is reliably accurate.” Proof was awarded Patent 10,168,117 in 1/19.

On 12/15/17 Proof sued McGowen alleging trademark infringement, unfair competition, and trademark dilution under the Lanham Act. On 12/22/17 McGowen filed a Petition for Cancellation of the Mark with the Trademark Trial & Appeal Board asserting that the Mark comprised matter that is functional and it represented multiple marks, the trade dress was generic and aesthetically functional, and Proof committed fraud in procurement of its registration. On 1/16/18 the parties agreed to stay the Infringement Proceeding pending the outcome of the Cancellation Proceeding.

The parties proceeded to litigate the Mark’s validity in front of TTAB, conducting extensive discovery, disclosure of expert opinions, and depositions. Proof maintained that its Mark was not necessary to functionality of its barrels but during a deposition 8/21/18 Curliss, who was GM of Proof’s Advanced Composites Division, admitted that although the ‘117 Patent did not disclose any particular finish, if one were to follow the instructions in the patent application, “with no further coatings applied to the external surface of a ground barrel, it will exhibit the trade dress.”

On 8/30/18 Proof applied to renew the Mark’s registration. On 9/13/18 the PTO issued a notice that the registration would remain in force. In 11/18 McGowen moved TTAB for summary judgment, arguing that the Mark should be canceled due to functionality. TTAB denied the motion:

With respect to the claim that the involved mark is “wholly functional,” at a minimum there is a genuine dispute of material fact as to whether the exclusive use of rifle barrels formed with a mottled pattern of irregularly-sized, rippled patches created by the carbon fiber filament winding process would put competitors at a significant non-reputation-related disadvantage and whether finishing a carbon fiber rifle barrel by using any method other than that which results in the registered mark significantly affects cost or quality. The fact-intensive nature of whether the trade dress as a whole is functional makes it particularly unsuited to summary judgment.

In 1/21 the parties submitted briefs for a decision on the merits, incorporating extensive evidence, exhibits, and over 3,300 pages of testimony. On 5/20/21 TTAB canceled Proof’s registration on the grounds of functionality, finding “the trade dress comprising the mark in the Registration is, as a whole, functional under Section 2(e)(5) of the Lanham Trademark Act,” and declined to rule on McGowen’s remaining claims.

On 8/3/21 Proof filed a notice of voluntary dismissal of the Infringement Proceeding under Rule 41(a)(1)(A)(i). McGowen moved to deny the dismissal, requesting 21 days to answer and counterclaim. Judge Christensen denied its motion, finding that the stay did not extinguish Proof’s absolute right to dismiss the action prior to service by the Defendant of an answer or motion for summary judgment.

McGowen filed this action 2/10/22 alleging false or fraudulent registration of a trademark under the Lanham Act, tortious interference with business relations/prospective economic advantage, and malicious prosecution. This Court on 10/28/22 dismissed the Lanham and interference claims as time-barred and found the malicious prosecution allegations sufficient to state a claim. Proof now moves for summary judgment as to McGowen’s sole remaining claim of malicious prosecution.

“A malicious prosecution begins in malice, without probable cause to believe the action can succeed, and finally ends in failure.” Plouffe (Mont. 2002). A central issue is “whether the individual responsible for advancing or pursuing the underlying court action lacked probable cause for doing so.” Edwards (D.Mont. 2016); Spoja (Mont. 2014).

Probable cause to initiate a civil action requires the party to have a “reasonable belief in the existence of facts upon which the claim is based, and reasonably believe that those facts give rise to a valid claim.” Spoja; Hughes (Mont. 2007); Plouffe. Probable cause is based on a totality of circumstances under an objective standard from the perspective of the initiating party at the time the suit was filed. McAtee (Mont. 2021); Plouffe. If the undisputed evidence establishes that Proof reasonably believed that facts existed to support its claim when it filed the Infringement Proceeding, then it had probable cause to do so and McGowen’s allegations of malicious prosecution must fail.

Proof sued McGowen under Lanham alleging that McGowen, doing business as Carbon Six, was advertising and selling carbon fiber composite firearm barrels “that infringe and dilute Proof’s registered trademarks, including adopting its trade dress and gratuitous embedding of Proof’s word mark PROOF on its website.” To prevail, Proof would have to prove that it had a valid, protectable mark and that Carbon Six’s use of it was likely to cause customer confusion. OTR Wheel (9th Cir. 2018).

“Trade dress” may be protected when the “design or packaging of a product acquires a distinctiveness that serves to identify the product with its manufacturer or source” and other uses are “likely to cause confusion as to the origin, sponsorship, or approval of the goods.” TrafFix Devices (US 2001). But trade dress protection extends only to product features that are nonfunctional. Disc Golf (9th Cir. 1998); 15 USC 1115(b)(8) (an affirmative defense to an infringement claim is that the mark is functional). This makes sense because “the Lanham Act does not exist to reward manufacturers for their innovation in creating a particular device; that is the purpose of the patent law and its period of exclusivity.” TraFix. “One who seeks to establish trade dress protection must carry the heavy burden of showing that the feature is not functional.” Id.

“A product feature is functional ‘if it is essential to the use or purpose of the article or if it affects the cost or quality of the article, that is, if exclusive use of the feature would put competitors at a significant non-reputation-related disadvantage.’” Disc Golf. Functionality is assessed under the Morton-Norwich factors: existence of a utility patent disclosing the utilitarian advantages of the design, advertising materials in which the originator of the design touts its utilitarian advantages, availability to competitors of functionally equivalent designs, and facts indicating that the design results in a comparatively simple or cheap method of manufacturing the product. Becton (Fed.Cir. 2012). Registered marks are entitled to the rebuttable presumption that they are distinctive and nonfunctional. 15 USC 1115(a).

McGowen argues that because Proof possessed all the information needed to determine that its Mark was invalid due to functionality at the time it filed the Infringement Proceeding, its continued denial of functionality is not reasonable. McGowen relies on 3 pieces of evidence to argue that Proof did not have probable cause to file the Infringement Proceeding because it knew its Mark was functional. Because the parties dispute admissibility of one of the documents the Court will begin by addressing why the unredacted draft document which was attached to an email that Proof inadvertently produced is not properly considered on summary judgment.

In its response brief McGowen relies on a document called “CarbonSix Petition to Cancel — BLS comments.pdf” which was attached to a redacted 4/19/17 email from Bradley Smith to Dr. Curliss and Larry Murphy, Proof’s then CEO/GM. The document contains Smith’s comments and draft responses to allegations in McGowen’s draft petition to cancel the Mark, which its counsel sent to Smith 4/14/17. Among the draft responses is Smith’s proposed admission to the following fact: “Registrant claims the mottled appearance resulting from the manufacture of its carbon fiber composite barrel as trade dress.” McGowen argues that this proves that Proof knew its trade dress was functional as of 4/19/17.

Proof asserts that this document is privileged attorney-client and work product that was inadvertently produced during discovery. It maintains that it first learned that the document had been inadvertently produced after reviewing McGowen’s response brief 6/13/23. That same day Proof sent McGowen a Rule 26(b)(5)(B) clawback notice, noting the self-evident nature of the privileged material and requesting that McGowen “promptly return, sequester, or destroy” it. McGowen replied that it disagreed that the inadvertent disclosure was self-evident and declined to remove it from its briefing, but assured Proof that it had been sequestered and would not be disseminated until the Court resolved the dispute. Currently filed under seal, Proof requests that the Court strike the inadmissible parts of McGowen’s response brief and statement of disputed facts and order a return of the privileged material.

Montana law governs attorney-client privilege in this case but the work-product doctrine is governed by federal law. Moe (D.Mont. 2010); Rule 501.

McGowen contends that Proof waived attorney-client privilege by asserting that it “had probable cause based on Smith’s legal advice,” it has a “substantial need” for the work product because it is the best evidence that its Mark was functional, and Proof waived both attorney-client and work product by failing to take reasonable steps to rectify the disclosure. None of these arguments has merit.

The draft document is protected by both attorney-client privilege and as opinion work product. McGowen does not contest that it was initially protected by attorney-client privilege as it is undisputedly communication between Proof and its attorney, made in confidence, regarding advice in Smith’s capacity as Proof’s legal advisor. Despite McGowen’s attempts to obfuscate the issue, the document is well beyond the scope of Proof’s waiver of attorney-client privilege “as it pertains to obtaining Registration No. 4,390,533, which was issued to Proof on August 27, 2013.”

Proof has repeatedly made clear to McGowen and the Court that its waiver is “limited to the subject matter of obtaining the registration of the Mark, not the analysis of individuals infringing on the Mark, patent matters, litigation concerning the Mark, or other legal matters.” Proof affirmed the scope of this waiver in its response to McGowen’s 56(d) motion and again in the joint motion for a 2nd discovery status conference 4/21/23. Following the discovery conference Proof stated:

Proof hereby withdraws its advice of counsel defense as it pertains to filing the infringement action. Proof continues to assert the advice of counsel defense only as it pertains to obtaining Registration No. 4,390,533 (the Mark), which was issued to Proof on August 27, 2013.

Thus McGowen’s argument that Proof waived attorney-client privilege by contending that it had probable cause for the Infringement Proceeding based on Smith’s legal advice fails.

McGowen’s attempt to classify this document as “ordinary, non-opinion work product” is disingenuous. Smith’s “comments” to McGowen’s draft petition to cancel the Mark plainly qualify as his “mental impressions, conclusions, opinions, or legal theories” regarding the petition allegations. The FRCP explicitly bar production of this type of work product except when there is a “compelling” need and the attorney’s mental impressions are “directly at issue in the case.” Dion (D.Mont. 1998). The Court need not determine whether McGowen has presented a compelling need because Smith’s mental impressions are not directly at issue. Because Proof is only asserting an advice of counsel defense regarding the Mark’s registration — and not its decision to file the Infringement Proceeding — Smith’s mental impressions, conclusions, opinions, or legal theories concerning the allegations in McGowen’s draft petition to cancel the Mark in 2017 are not directly at issue and work product protection is not waived.

There is no genuine dispute that the document was inadvertently produced. Under Rule 502(b) an inadvertent disclosure does not waive attorney-client privilege or work product protections if the holder of the privilege or protected document took reasonable steps to prevent disclosure and rectify the error “including (if applicable) following Rule 26(b)(5)(B)”:

If information produced in discovery is subject to a claim of privilege or of protection as trial-preparation material, the party making the claim may notify any party that received the information of the claim and the basis for it. After being notified, a party must promptly return, sequester, or destroy the specified information and any copies it has; must not use or disclose the information until the claim is resolved; must take reasonable steps to retrieve the information if the party disclosed it before being notified; and may promptly present the information to the court under seal for a determination of the claim. The producing party must preserve the information until the claim is resolved.

Proof produced the disputed document in 2/23 in a batch of discovery that contained over 5,400 pages of documents and communications with numerous redacted privileged materials. On 3/17/23 Proof supplemented its responses and produced another round of documents which included a subsequent email in the same chain with Smith’s notes. In that version Proof had redacted the email and Smith’s attached comments. Based on the breadth of discovery, the redacted and marked as privileged email chain to which the unredacted disputed document was attached, and the existence of the completely redacted version of the same document, Proof took reasonable steps to prevent its disclosure.

Proof claims it learned of the inadvertent disclosure when it reviewed McGowen’s summary judgment response 6/13/23. McGowen argues that it put Proof on notice that the document had been inadvertently produced months earlier when it referenced the duplicate production in a draft motion to compel that was attached as an exhibit to a proposed joint discovery motion which Proof refused to join. Proof maintains that it did not see the buried reference and McGowen presents no evidence to the contrary. McGowen’s claimed “notice,” made in an exhibit to an exhibit in a draft motion to compel that was never agreed to or submitted by the parties, was clearly insufficient to alert Proof to its mistake. Once the inadvertent disclosure was actually discovered 6/13/23, Proof timely notified McGowen. (Although McGowen argues that Proof waited an additional month after demanding the document be clawed back to request an informal discovery conference with the Court, it was McGowen’s burden to “present the information to the court under seal for a determination of the claim.” Rule 26(b)(5)(B); Coleman (S.D.Cal. 2011).

The Court will neither consider the document nor McGowen’s argument to the extent that it relies on the document.

Returning to Proof’s motion for summary judgment, it maintains that it reasonably believed that Carbon Six was infringing on its Mark when it filed the Infringement Proceeding. Starting with the premise that its Mark was entitled to a presumption of validity at the time it filed the proceeding, it points to the lengthy and highly technical Cancelation Proceeding itself as evidence that the parties had a legitimate and technically complicated dispute about the Mark’s functionality, establishing probable cause to initiate the Infringement Proceeding and precluding McGowen’s “follow-on” malicious prosecution action.

McGowen argues that “if Proof was ever entitled to a ‘strong presumption’ of validity, it was only because it registered an invalid trademark.” Its statement misses the point.

It is undisputed that Proof’s Mark was registered on the Principal Register in the Patent & Trademark Office when it filed the Infringement Proceeding. Under the plain language of the Lanham Act, Proof is therefore entitled to a presumption that its Mark was valid. §1115(a) (“a mark registered and owned by a party to an action shall be admissible in evidence and shall be prima facie evidence of the validity of the registered mark and of the registrant’s exclusive right to use the registered mark in commerce”); Aromatique (8th Cir. 1994) (registered marks are entitled to the rebuttable presumption that they are distinctive and nonfunctionable).

Although the presumption of validity may be overcome, for purposes of finding probable cause to initiate an infringement action in a malicious prosecution case the mark’s registration is “prima facie evidence of the validity of the registered mark.” Applied Info. (9th Cir. 2007) (“Registration discharges the plaintiff’s original common law burden of proving validity in an infringement action.”). Under Montana law, probable cause in the context of a malicious prosecution claim is determined based on the facts known to the initiating party at the time the suit was filed. Spoja. In seeking the Mark’s initial registration Proof had convinced the PTO that its Mark was not functional. Upon registration its Mark was presumptively valid until proven otherwise.

Proof presents additional evidence to support its probable cause argument. First, by filing the Cancelation Proceeding rather than litigate the Infringement Proceeding in Federal Court McGowen asked TTAB to render a decision on the merits of its position — that McGowen could not be infringing on Proof’s trade dress because the Mark was never valid. As it did throughout the trademark application process and the TTAB proceedings, Proof maintains that the ‘117 Patent, like the earlier ABS patent, does not specify any particular finish to the barrel and that its process of grinding the barrels to the finished look is not necessary to the functionality of the barrels. The PTO examiner found Proof’s argument and evidence compelling enough to award the Mark in 2013. But years later TTAB disagreed with Proof, finding its arguments “wholly artificial” and “a red herring” to the merits of the functionality debate because “Proof applies no finish” to its barrels and its “trade dress is the result of a manufacturing process that follows Claim 22 in the ‘117 Patent.”

McGowen urges this Court to consider TTAB’s strongly worded language as evidence that Proof lacked probable cause to initiate the Infringement Proceeding. But there is ample authority that makes clear that TTAB’s merits decision does not control this Court’s probable inquiry; the narrow question of probable cause does not depend on whether the initiating party’s claims ultimately have merit. Hughes.

As Proof maintains, the Cancelation Proceeding was vigorously litigated and the issue of the Mark’s functionality was at the heart of that debate. Contrary to McGowen’s argument that Proof knew all along that its Mark was invalid because its validity was initially contested by the PTO examiner, the fact that Proof successfully convinced the initially skeptical examiner that its trade dress should be protected is undisputed evidence that Proof’s decision to file the Infringement Proceeding was not entirely unreasonable, even though the same arguments were ultimately rejected by TTAB.

Further demonstrating the depth & complexity of the functionality dispute, Proof points out that TTAB denied McGowen’s motion for summary judgment in the Cancelation Proceeding, concluding that the “fact-intensive nature of whether the trade dress as a whole is functional makes it particularly unsuited to summary judgment.” It is undisputed that TTAB determined that the Mark was functional only after careful examination of a “voluminous” evidentiary record “comprising more than 3,300 pages of testimony, exhibits, and other documentary evidence.” If, as McGowen claims, the Mark was so obviously functional that Proof should never have applied for it and never sought to protect it, TTAB would have had little trouble deciding the case on summary judgment.

Additionally, when Proof filed the Infringement Proceeding in 12/17 it had recently discovered that Carbon Six was using Proof’s name in its website text and metadata to try to direct online searches for Proof’s carbon fiber barrels to Carbon Six’s website. Duplessis testified that as soon as he was notified about these “meta tags” he had them removed, but McGowen’s argument that this somehow makes the action irrelevant unconvincingly attempts to minimize its impact on this narrow probable cause inquiry. When it filed the Infringement Proceeding in 2017, Proof’s concerns that Carbon Six’s barrels could cause market confusion that would infringe or dilute its Mark seem far more understandable when there is undisputed evidence that Carbon Six indeed sought to capitalize on the apparent similarities between the look of its barrels and Proof’s registered trade dress. (McGowen attempts to deflect Proof’s allegations as to Carbon Six’s website content because Carbon Six initially operated as a dba of Hunters Run Gun Club and McGowen was a separate company with a separate website and Facebook page. This is immaterial to the issue of probable cause as it is clear from Proof’s complaint that when it filed the Infringement Proceeding it believed that McGowen was doing business as Carbon Six. When asked during the Cancelation Proceeding, “Does Carbon Six, that is McGowen, own and operate the website at carbonsixllc.com?” Duplessis answered in the affirmative.)

To support its argument against summary judgment, McGowen relies on evidence in a 2013 email between Bradley Smith and Pat Rainey and deposition testimony from Dr. Curliss, which McGowen claims proves that Proof knew all along that its finish was a natural consequence of winding carbon fiber tows around a sleeve to produce a gun barrel, meaning Proof’s arguments that the Mark was not functional were never reasonable.

For context, the email from Smith to Rainey states: “An especially critical question is whether the patented process naturally (or necessarily) leads to the barrel’s appearance. The examiner is concerned that by granting trade dress protection, it could effectively give you a permanent monopoly over the patented process (as opposed to your 20-year patent term).” Rainey responded to the examiner’s concern: “The irregular, mottled finish of Proof’s guns is not a necessary consequence of producing barrels under Proof’s patented process. There are many different ways to produce an attractive and fully functional barrel using the patented method that would not result in the distinctive mottled appearance claimed.” Seeking to show the contradiction in Proof’s position, McGowen points to later deposition testimony from Dr. Curliss, who admitted to TTAB that “with no further coatings applied to the external surface of a ground barrel, it will exhibit the trade dress.”

The Court disagrees with McGowen that these statements are evidence that Proof “knew” its Mark was functional. Considering the emails, the statements in Rainey’s declaration, and Dr. Curliss’s testimony in full, none of it concedes functionality. Rather, Rainey’s response, although eventually found “wholly artificial” by TTAB, supports Proof’s claim that it viewed its unique trade dress as one of many possible aesthetic finishing options. And as Dr. Curliss also testified, “the objective of the ‘117 patent is structural. There is nothing in there to do with the surface finish.” Although this statement may have been largely disregarded by TTAB, given the numerous factors that influence the legal analysis for determining functionality as a matter law, the fact that TTAB ultimately disagreed with Proof’s understanding of the facts or its application of the facts to the law does not mean that its interpretation was unreasonable.

At most, the evidence offered by McGowen shows that when it filed the Infringement Proceeding, Proof understood that its trade dress was potentially functional, as evidenced by the fact that the issue had required special scrutiny from PTO. But in approving Proof’s application after it submitted additional evidence and argument, the PTO examiner had agreed with its position that on balance the Mark was not functional. The fact that Proof’s application presented a close call for the examiner is not convincing evidence that it knew with legal certainty that its Mark comprised matter that as a whole was functional.

Viewing the evidence in the light most favorable to McGowen and drawing all justifiable inferences in its favor, the undisputed evidence established that Proof had a reasonable belief that Carbon Six was diluting or infringing on its Mark when it filed the Infringement Proceeding. Because it had probable cause to file the Infringement Proceeding, McGowen’s claim for malicious prosecution fails. Proof’s motion for summary judgment is granted.

McGowen Precision Barrels v. Proof Research, 44 MFR 302, 8/24/23.

Timothy Strauch (Strauch Law Firm), Missoula, and Kyle Keegan & Amber Robichaux (Keegan, Juban, Lowe & Robichaux), Baton Rouge, for McGowen; Natasha Prinzing Jones, Matthew Hayhurst, and Tyler Stockton (Boone Karlberg), Missoula, for Proof.

CONSTRUCTION CONTRACT: Exterior building subcontractor’s claims for compensation for additional work resulting from Project’s defective designs dismissed without prejudice under Rule 12(b)(7) for failure to join general contractor, relief may be pursued in arbitration… bond foreclosure stayed pending arbitration… Christensen.

This action arises out of the development & construction of Spanish Peaks Lodge Montage Big Sky Resort in Big Sky. Plaintiff Magleby Construction alleges that SP Hotel is the owner of the real property that is the Resort, Lone Mountain Land is SP Hotel’s agent in charge of “planning, entitlement, building, marketing, and sale” of SP Hotel’s real estate in Montana, Hart Howerton is the architect for the Project, and Does 1-50 are unknown “design professional hired by, or who performed work by, through, or under, one or more of the Defendants.” Magleby was subcontracted by Suffolk Construction to perform “exterior building scope work” such as “fabrication and installation of exterior timber wraps and timber solids” for the Project.

Magleby claims that it has not been compensated for its additional work & costs that resulted from the Project’s defective designs. It recorded a construction lien against the Resort property and provided notice to SP Hotel, which obtained from Fidelity & Deposit, Federal Ins., and Liberty Mutual Ins. a bond in the amount of $20,736,736.50 to release the lien. 18th Judicial District Court entered an order substituting the bond as security for Magleby’s lien and releasing the Resort property from the lien.

Magleby’s first cause alleges that SP Hotel “breached its duty in commencing construction work on the Project with inaccurate, unreliable, and uncoordinated Construction Drawings.” Its next cause alleges that SP Hotel was unjustly enriched as a result of Magleby’s uncompensated work that extended beyond the original scope. Its 3rd cause is against the bond that Magleby obtained. Its 4th cause alleges that Howerton and the Does “breached their duty in providing inaccurate, unreliable and uncoordinated Construction Drawings at the time of bid and commencing construction work on the Project with such drawings.”

Under its Subcontract Suffolk agreed to pay Magleby for “all work, labor, materials, equipment, taxes, fees and all other matters or amounts arising out of or to be performed or furnished by Magleby” (the “Work”).

Article 1 recognizes that the Project’s plans “may be amended from time-to-time (as defined in the Subcontract),” and Article 2 recognizes that adjustments to the work schedule may be authorized. Article 8 §8.6.1 outlines Suffolk’s right to make changes including:

(i) changes in the scope of the Work; (ii) changes in the Work (including deletions of portions of the Work) ordered by Suffolk; or (iii) changes in the Work which occur as a result of Magleby’s default in the performance of its obligations under this Subcontract.

Article 8 §8.13 further provides:

all changes to this Subcontract and all changes in the scope of the Work, except those resulting from Magleby’s default in the performance of its obligations under this Subcontract, shall be confirmed in a writing signed by Suffolk and Magleby after the ordering of such change. Should Magleby proceed with any additional work without written direction from Suffolk in accordance with the terms and conditions of this Subcontract, Magleby does so at its own risk and expense. If Suffolk and Magleby are unable to agree on Magleby’s entitlement to a time extension or an adjustment to the Subcontract Amount due to a scope change, Magleby shall nonetheless proceed immediately with performance of the scope change as provided.

Magleby may make claims for additional payment or extensions of time if provided to Suffolk “in writing within ten days after the occurrence of the event giving rise to such claim.” Art. 8 §8.12.

The Subcontract also contains an arbitration clause:

Any claims arising out of this Subcontract, including, without limitation, claims for an adjustment to the Subcontract Amount or Time of performance, which cannot be resolved by negotiation and exceed $50,000 or where injunctive relief is sought, shall be submitted to a panel of three arbitrators in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association, upon Suffolk’s election. The results of any arbitration shall be binding on the parties thereto, and shall be enforceable by court order at the request of either party. (emphasis added).

Defendants argue that the Complaint should be dismissed pursuant to Rules 12(b)(6) & (7) because Magleby failed to join a necessary party — Suffolk — and the Complaint fails to allege facts upon which relief can be granted. Defendants also move to stay the bond foreclosure pending arbitration.

The only distinguishing factor between this case and Yellowstone Electric, supra, is the additional bond claim. Thus the Court will employ the same analysis as in Yellowstone.

Suffolk is a necessary party under Rule 19(a).

In Yellowstone this Court found that Suffolk was a necessary party under Rule 19(a)(1)(B)(i) because it had a substantial interest in the litigation which would be impaired if not joined. Magleby attempts to distinguish this case on the ground that Defendants would adequately represent Suffolk’s interest here. The Court rejected a similar argument in Yellowstone:

Suffolk and Defendants do not have identical interests and therefore Defendants do not serve as an adequate proxy. Even assuming that both Defendants and Suffolk are aligned in thinking that Yellowstone is not entitled to additional compensation, this is not sufficient. The claims arise out of the Subcontract between Suffolk and Yellowstone, to which Defendants are not a party; and as a non-signatory, Defendants cannot be said to have the same interest as the parties who bargained for and agreed upon terms of the contract.

Magleby has introduced additional evidence and argument relating to the relationship between Defendants and Suffolk that was not before the Court in Yellowstone — a settlement agreement between SP Hotel and Suffolk relating to claims that Suffolk brought against SP Hotel for work on the Project. Magleby points to the provision in the agreement regarding a contingency fund for resolution of claims and suits by subcontractors against Defendants: “Suffolk may access the Contingency Fund for defense and/or resolution of the Magleby Claims or Magleby Lawsuit.” Magleby also points to the provision stating that Suffolk agrees to defend, indemnify, and hold harmless various entities from and against all claims arising from or in any way related to the Project, the Magleby suit, or the Yellowstone suit and assume the defense of the Magleby and Yellowstone suits. Based on this and the fact that Defendants’ counsel also represents Suffolk, Magleby argues that Suffolk essentially controls the defense and therefore its interest is adequately represented.

Magleby’s argument fails to distinguish this case from the holding in Yellowstone: “Suffolk’s interest is substantial and would be impaired if not joined as a party because resolution of this case would (1) determine Plaintiff’s right to payment under the Subcontract without involving a signatory to the Subcontract and (2) obviate the arbitration clause that was a bargained for element of the contract.” While under the settlement agreement Suffolk must indemnify and defend Defendants in this matter, they have no obligation to defend Suffolk’s interest. Nor does anything in the settlement agreement strip Suffolk of its rights to enforce the arbitration clause in the Subcontract with Magleby. Therefore, for the same reasons discussed in Yellowstone, Suffolk is a necessary party under Rule 19(a).

It is not feasible to join Suffolk.

The Court concluded in Yellowstone that it was not feasible to join Suffolk due to the arbitration clause. Rule 19(a) requires the Court to “forecast the future course of this litigation” and respond accordingly. Hanna (4th Cir. 2014). Moreover the FAA “mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed.” Mortensen (9th Cir. 2013). It is not feasible to join Suffolk to this action due to the arbitration clause in the Subcontract.

Suffolk is an indispensable party.

In Yellowstone the Court held that because arbitration was available as an alternative forum for Yellowstone to seek relief there was no prejudice to Yellowstone if the matter was dismissed. It also concluded that relief “cannot be shaped to lessen prejudice nor can an adequate remedy be awarded without Suffolk because the relief sought is directly tied to the amount that Yellowstone claims it is entitled under the Subcontract. Any recovery from Defendants would be derivative of the amount that Yellowstone may pursue from Suffolk in arbitration.” The same reasoning applies here.

Magleby’s claims for negligence and unjust enrichment are dismissed without prejudice pursuant to Rule 12(b)(7). Dismissal under 12(b)(6) need not be addressed.

Motion to stay the bond action.

Defendants have made an explicit request for a stay on “Magleby’s claim to foreclose on the bond substituted for its construction lien until the arbitration process yields a decision on Magleby’s damage claim.” Magleby opposes the request on the ground that the bond claim is not subject to the arbitration clause and therefore should be allowed to proceed separately from the other claims if they are dismissed.

The bond claim is inextricably tied to Magleby’s claims for compensation. For Magleby to recover in the bond foreclosure there must be a determination that it is entitled to more compensation. Such a determination must be made through arbitration. The requested stay is granted.

Magleby Construction Sun Valley v. SP Hotel Owner, Lone Mountain Land, Hart Howerton Planning, Architecture & Landscape Architecture, Fidelity & Deposit of Maryland, Federal Ins., Liberty Mutual Ins., 44 MFR 301, 8/25/23.

Sean Morris (Worden Thane), Missoula, and Stevan Baxter & Stephen Bigham (Skoubye Nielson & Johansen), SLC, for Magleby; John Kauffman (Kasting, Kauffman & Mersen), Bozeman, for Defendants.

CONSTRUCTION CONTRACT: Electric subcontractor’s complaint dismissed without prejudice under Rule 12(b)(7) for failure to join general contractor in attempt to avoid arbitration… Christensen.

This action arises out of the development and construction of the Spanish Peaks Lodge Montage Big Sky Resort (the “Resort” or the “Project”) in Big Sky. Yellowstone Electric was subcontracted by Suffolk Construction to provide “electrical construction services, labor, and materials” on the Project. Yellowstone claims that CrossHarbor manages “the investment and development of the Resort,” Lone Mountain Land manages “the planning, entitlement, building, marketing, and sale of the Resort” and SP Hotel “is one of the owners of the real property on which the Resort is located.”

Yellowstone asserts claims for “unjust enrichment, negligence, and negligent misrepresentation.” It alleges that Defendants failed to pay for services, labor, and materials provided by Yellowstone, their “defective plans adversely impacted Yellowstone’s labor productivity” causing it “it to incur additional costs, and it incurred damages “as a result of its reliance on the Defendants’ representation that the construction plans were accurate and adequate.”

Pursuant to the subcontract, Suffolk agreed to pay Yellowstone for “all work, labor, materials, equipment, taxes, fees and all other matters or amounts arising out of or to be performed or furnished by Yellowstone” (the “Work”).

Article 1 recognizes that the Project’s plans “may be amended from time-to-time (as defined in the Subcontract),” and Article 2 recognizes that adjustments to the work schedule may be authorized. Article 8 §8.6.1 outlines Suffolk’s right to make changes including:

(i) changes in the scope of the Work; (ii) changes in the Work (including deletions of portions of the Work) ordered by Suffolk; or (iii) changes in the Work which occur as a result of Yellowstone’s default in the performance of its obligations under this Subcontract.

Article 8 §8.13 further provides:

All changes to this Subcontract and all changes in the scope of the Work, except those resulting from Yellowstone’s default in the performance of its obligations under this Subcontract, shall be confirmed in a writing signed by Suffolk and Yellowstone after the ordering of such change. Should Yellowstone proceed with any additional work without written direction from Suffolk in accordance with the terms and conditions of this Subcontract, Yellowstone does so at its own risk and expense. If Suffolk and Yellowstone are unable to agree on Yellowstone’s entitlement to a time extension or an adjustment to the Subcontract Amount due to a scope change, Yellowstone shall nonetheless proceed immediately with performance of the scope change as provided.

Yellowstone may make claims for additional payment or extensions of time if provided to Suffolk “in writing within ten days (unless a shorter period is specified in the Contract Documents” after the occurrence of the event giving rise to such claim.” Art. 8 §8.12). The Subcontract provides Yellowstone a right to money damages for “delay, hindrance, disruption, re-sequencing or inefficiency not caused in whole or in part by the acts or omissions of Yellowstone or anyone for whom Yellowstone is responsible.” (Art. 6 Rider A §6). Such damages are limited to any “verified direct costs actually incurred by Yellowstone resulting from such a delay to the extent that Suffolk recovers such costs from Owner or other subcontractor on Yellowstone’s behalf.”

The Subcontract also contains an arbitration clause:

Any claims arising out of this Subcontract, including, without limitation, claims for an adjustment to the Subcontract Amount or Time of performance, which cannot be resolved by negotiation and exceed $50,000 or where injunctive relief is sought, shall be submitted to a panel of three arbitrators in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association, upon Suffolk’s election. The results of any arbitration shall be binding on the parties thereto, and shall be enforceable by court order at the request of either party. (emphasis added).

Defendants argue that the Complaint should be dismissed pursuant to Rules 12(b)(6 & (7) because Yellowstone failed to join a necessary party and the Complaint fails to allege facts upon which relief can be granted. First, they argue that Suffolk is a necessary party whom Yellowstone “strategically chose to omit” due to the arbitration clause in the Subcontract. Second, they argue that Yellowstone “never had any relationship with any of the Defendants that could give rise to the relief it has requested.” A hearing was held 2/3/23.

Suffolk is a necessary party under Rule 19(a)(1)(B)(i).

It has a substantial interest in the litigation and its interest would as a practical matter be impaired if not joined. Yellowstone’s claims ultimately arose out of the Subcontract and Suffolk has a significant legally protected interest in the contractual obligations. Its interest is substantial and would be impaired if not joined because resolution of this case would (1) determine Plaintiff’s right to payment under the Subcontract without involving a signatory to the Subcontract and (2) obviate the arbitration clause that was a bargained-for element of the contract. Kescoli (9th Cir. 1996) (a nonparty’s interest in a “bargained-for” contractual exchange was substantial under Rule 19(a)); Jacobsen (D.Or. 1961) (“Where rights sued upon arise out of contract, all parties thereto are deemed indispensable and should be joined.”); Household Int’l (D.Conn. 1991) (“precedent supports the proposition that a contracting party is the paradigm of an indispensable party”); Burger King (N.D.Ill. 1988) (“if the absent party has a legally protected interest in the subject matter of the action — i.e., he is a party to a contract at issue — he falls squarely within the terms of Rule 19(a)(1)(B).”).

Yellowstone contends that its claims do not “arise out of” the Subcontract and therefore Suffolk does not have a legally sufficient interest under Rule 19(a). While it is true that Yellowstone’s claims are premised in tort, the Court can look beyond the labels to determine the true nature of the complaint. Corsi (DDC 2008) (looking beyond the “legal labels” to the “gravamen” of the complaint). Yellowstone seeks monetary damages for costs incurred due to the scheduling and sequencing of work, changes to the scope of work, and delays. Its rights related to these issues are found only in the Subcontract with Suffolk. Therefore these claims arise out of the Subcontract and are inseparable from claims that Yellowstone is required to raise in an arbitration proceeding.

Yellowstone also points to the Spearin (US 1918) doctrine as a basis under which it may recover from Defendants as opposed to recovering under the Subcontract. In Spearin a contractor sought to recover payments for work performed under a contract with the US and damages for the US’ annulment of it. The US had hired the contractor to build a dry dock which required relocation of a sewer. The sewer broke and flooded the excavation and the contractor refused to continue until the US assumed responsibility for the damage. The US had been aware of the fault which caused the sewer to fail but had not communicated it to the contractor. The Supreme Court found that “if a contractor is bound to build according to plans and specifications prepared by an owner, the contractor will not be responsible for the consequences of defects in the plans and specifications.” The Court held that the contractor was relieved of its obligation to perform because the US had breached the “implied warranty that, if the specifications were complied with, the sewer would be adequate.” Therefore, “when the Government annulled the contract without justification, it became liable for all damages resulting from its breach.”

This implied warranty also exists between contractors and subcontractors where “contractors impliedly warrant the adequacy of the plans and specifications which they supply and require subcontractors to follow.” Comstock (9th Cir. 1989). In Comstock, a subcontractor raised the Spearin doctrine as a defense to alleged breaches of subcontract with the general contractor after the general contractor canceled the subcontract, “claiming that the subcontractor had failed to use its ‘Best Efforts’ to complete the work in time to meet the project completion date.” The District Court dismissed the Spearin defense because it “did not find that the delays resulting in termination of the contract by the general contractor were caused by faulty plans or specifications” and the 9th Circuit affirmed.

Montana courts have also recognized an implied warranty for plans and specifications in construction contracts. In Sornsin (Mont. 1978) a contractor sued for breach of contract after the owner refused to pay for additional costs which were the result of site conditions not as described. The Court stated that “it has long been recognized that the owner warrants and is responsible for the accuracy of the descriptions in the plans and specifications of the contract that are issued,” citing Haggart (Mont. 1967). It held that despite the general rules of contract law and terms of the contract, the owner’s implied warranty of plan specifications relieved the contractor of liability for the additional costs.

In Lutey (Mont. 1993) a contractor brought a claim against an owner for “breach of the implied warranty of suitability and accuracy in the contract.” Citing Sornsin, the Court acknowledged that “the law in Montana establishes ‘that a contractor can rely on the plans and specifications and need not verify them. The owner warrants and is responsible for the accuracy of the descriptions in the plans and specifications.” It concluded that “the contract impliedly warrants that the plans and specification are suitable and accurate” and therefore “the implied warranty action arises out of the contract and is treated as part of the contract.” (emphasis added).

From these cases it is clear that Yellowstone’s reliance on Spearin and its progeny is misplaced. First and foremost, the Spearin doctrine provides either a defense to liability or a basis for a breach of contract claim, not a right to recover in tort. Second, it is inapplicable where the party being sued is not in privity of contract with the party bringing suit. Yellowstone has not cited cases where a subcontractor has brought a tort claim against an owner with whom they were not in privity based on the Spearin doctrine and the Court is aware of none.

Yellowstone also contends that Defendants can adequately protect Suffolk’s interest because Suffolk’s and Defendants’ interests are aligned and each is represented by the same counsel. However, Suffolk and Defendants do not have identical interests and therefore Defendants do not serve as adequate proxy. Even assuming that they are aligned in thinking that Yellowstone is not entitled to additional compensation, this is not sufficient. The claims arise out of the Subcontract between Suffolk and Yellowstone, to which Defendants are not a party. And as a non-signatory, Defendants cannot be said to have the same interest as the parties who bargained for and agreed upon terms of the contract.

It is not feasible to join Suffolk.

Each of Yellowstone’s claims, regardless of their label, involve rights and obligations arising out of the Subcontract and all of these claims are required to be raised in arbitration. Suffolk has not waived its right to arbitration and although it is not certain that it would choose to compel arbitration if joined, Rule 19(a) requires the Court to “forecast the future course of this litigation” and respond accordingly. Hanna (4th Cir. 2014). Moreover, the FAA “mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed.” Mortensen (9th Cir. 2013).

Other courts have also held that an arbitration clause makes joinder of a necessary nonparty who could enforce that clause infeasible.

Suffolk is an indispensable party.

A nonparty is indispensable if “in equity and good conscience” the action could not proceed among the existing parties alone.” Rule 19(b). The Court balances 4 factors: “(1) the prejudice to any party or to the absent party; (2) whether relief can be shaped to lessen prejudice; (3) whether an adequate remedy, even if not complete, can be awarded without the absent party; and (4) whether there exists an alternative forum.” Kescoli (9th Cir. 1996).

Arbitration is available as an alternative forum for Yellowstone to seek relief and therefore there is no prejudice to it if this matter is dismissed. Although it argues that arbitration is an illusory remedy, the Court should not address whether its claims can actually be brought successfully through arbitration. Such determination is left to the arbiter per terms of the arbitration agreement. Yellowstone also argues that it “has not agreed or consented to arbitrate its tort claims against Defendants, and should not be coerced or forced into arbitration.” This argument is unavailing for the reasons already discussed. Its claims for additional payment for its unexpected costs are the exact type of claims covered by the Subcontract’s arbitration clause. Thus it did consent to have such claims resolved through arbitration.

Relief cannot be shaped to lessen prejudice nor can an adequate remedy be awarded without Suffolk because the relief sought is directly tied to the amount that Yellowstone claims it is entitled under the Subcontract. Any recovery from Defendants would be derivative of the amount that Yellowstone may pursue from Suffolk in arbitration.

Defendants note that “some district courts have opted to stay the federal proceedings, rather than dismiss them, pending resolution of arbitration.” However, they would have had to specifically request to stay the proceedings through a motion to stay and/or a motion to compel arbitration. 9 USC §3 (court may stay a proceeding pending arbitration “upon application of one of the parties”); Hilton (6th Cir. 2017) (“Vague references to a stay do not constitute a request for a stay.”).

Dismissed without prejudice pursuant to Rule 12(b)(7). Dismissal under 12(b)(6) need not be addressed.

Yellowstone Electric v. CrossHarbor Capital Partners, Lone Mountain Land, SP Hotel Owner, 44 MFR 300, 3/9/23.

Cherche Prezeau & Colin Phelps (Christensen & Prezeau), Helena, and John Mastin Jr. & Parker Lewton (Smith, Currie & Hancock), Atlanta, for Yellowstone; John Kauffman (Kasting, Kauffman & Mersen), Bozeman, for Defendants.