INJUNCTION: TRO/preliminary injunction denied in challenge of Disadvantaged Business Enterprise requirement for highway contract… Lovell.

MDT advertised 6/27/13 for bids on the Arrow Creek Slide Project to correct 2 large slides on Hwy 80 20 miles north of Stanford. The slides are moving at 1-2/mo and if the project is not undertaken soon a redesign at significant cost to MDT may be required. Delay through winter and spring will diminish safety and may disrupt the highway for public use. DOT’s Disadvantaged Business Enterprise Program requires states receiving federal highway funding to set goals for use of disadvantaged enterprises. MDT established a goal of 5.83% DBE participation, which DOT approved in 4/11. It set a goal of 2% on the Arrow Creek project. A bidder must demonstrate that 2% of the contract amount will be performed by DBE subcontractors. Weeden Const. was low bidder at $14,770,163.01. It concedes that it relied on only 1.87% DBE subcontractors; MDT notes that its bid actually identified only .81% DBE subcontractors. The other 5 bidders ranged from 2.19% to 6.98%. Weeden attempted to utilize the good faith exception to the DBE requirement. MDT’s DBE Participation Review Committee found that it failed to demonstrate a good faith effort to solicit DBE subcontractors. The DBE Review Board affirmed the Review Board. It found that Weeden had received a DBE bid for traffic control but decided to do that work itself to lower its bid, and that its mass emailing to 158 DBE subcontractors was a pro forma effort not credited by the Review Board or federal guidance as an active & aggressive effort. Proposed intervenor DeAtley Const. contends that it submitted the lowest bid of $15,552,004.46 and that its DBE utilization was 3.3%. Weeden seeks an injunction to prevent MDT from letting the contract to another bidder (presumably but not necessarily, DeAtley). It claims that the DBE program violates equal protection and there is no evidence of discrimination in Montana highway construction and therefore no government interest that would justify favoring DBE entities. It claims that its right to due process has been violated by MDT not providing reasonable notice of the good faith requirements and that it was not given notice of DeAtley’s letter challenging Weeden’s bid based on the 2% requirement. It asserts that it has a constitutionally protected property interest in award of the contract.

The injunctive relief criteria favor Defendants. It is not a certainty that Weeden will suffer irreparable harm absent preliminary relief. It has obtained 6 state highway contracts valued at $26 million in the past 4 years. MDT has $50 million more in projects to be let during the rest of 2013 alone. Weeden has demonstrated capacity to obtain other contracts that might allow it to put its employees and equipment work. Although it asserts that the good faith effort rules are “confusing, non-specific, and contradictory, the other bidders were able to exceed the 2% requirement without any difficulty. The balance of equities do not tilt in favor of the one bidder who did not meet the requirements, especially when numerous others ably demonstrated ability to meet them. It is also questionable whether Weeden raises serious questions on the merits of its equal protection claim. It is “the inability to compete on equal footing in the bidding process, not the loss of a contract,” that defines injury in fact. NFCAGCA (US 1993). Weeden was not deprived of the ability to compete on equal footing with the other bidders, so it suffered no equal protection injury and lacks standing to assert an equal protection claim as if it were a non-DBE subcontractor. In any event, MDT presents significant evidence of under-utilization of disadvantaged businesses generally, which supports a narrowly tailored race & gender preference program. Weeden points out that some business categories in Montana’s highway industry do not have a history of discrimination (construction businesses in contrast to professional). AGC (9th Cir. 2013) rejected a similar argument requiring evidence of discrimination in every segment of the highway industry before a preference program can be implemented. It held that Caltrans’ DBE program need not isolate construction from engineering contracts or prime from subcontracts to determine if the evidence in each category gives rise to an inference of discrimination. Instead, California — and, by extension, Montana — is entitled to look at the evidence “in its entirety” to determine if there are “substantial disparities in utilization of minority firms” practiced by some elements of the construction industry. There is no allegation that MDT has exceeded any federal requirement or done other than comply with DOT regulations. Given the similarities between Weeden’s claim and AGC’s equal protection claim against Caltrans, it does not appear likely that Weeden will succeed on its equal protection claim. The Court rejects its bald assertion that it has a protected property right in a contract that has not been awarded to it where the agency retains discretion to determine responsiveness. When an official has discretion to award or withhold the contract, Montana does not recognize a legitimate claim of entitlement to the contract in a disappointed bidder. ISC (Mont. 1995). Montana requires that a public contract for construction, repair, or public works go to the lowest responsible bidder. MCA 18-1-102(1)(a). “`Lowest responsible bidder” does not merely mean the lowest bidder whose pecuniary ability to perform the contract is deemed the best, but the bidder who is `most likely in regard to skill, ability and integrity to do faithful, conscientious work, and promptly fulfill the contract according to its letter and spirit.”’ Debcon (Mont. 2001); Koich (Mont. 1941). This statute confers broad discretion in the award of a public works contract, which cannot be set aside absent evidence of bad faith, fraud, or corruption. Id. Thus a low bidder such as Weeden acquires no vested property right in a contract until it has been awarded, which has not yet occurred. Further, it was granted notice, hearing, and appeal from MDT’s decision denying the good faith exception. Thus it does not appear likely that it will succeed on its due process claim. Finally, the public interest favors immediate correction of the slides. Potential damage to Weeden can be remedied by money damages and is outweighed by the need for public safety.

DeAtley’s motion to intervene is granted. Weeden’s application for TRO and preliminary injunction is denied.

Weeden Const. v. MDT, 41 MFR 56, 9/4/13.

Gregory Gould & Mark Lancaster (Luxan & Murfitt), Helena, and Ronald Schmidt (Schmidt, Schroyer, Moreno, Lee & Bachand), Rapid City, for Weeden; David Ohler & Valerie Wilson (MDT); Sarah Simkins (Johnson, Berg & Saxby), Kalispell, for DeAtley.

DISABILITY DISCRIMINATION: Airline passenger’s complaint of being wrongly hassled about his ventilator preempted by FAA, reconsideration of preliminary injunction against MHRB proceeding denied, permanent injunction granted… Lovell.

Dustin Hankinson was scheduled to fly from Missoula on Compass Airlines to receive an award in DC for disability advocacy. He was arriving after all other passengers had boarded. He has Duchenne Muscular Dystrophy and uses a ventilator and power wheelchair. A flight attendant, who believed he had to present a medical certificate before he could bring a portable oxygen concentrator on board, directed the gate agent to tell him he could not board. The door was shut and the gate agent denied Hankinson permission to board. He was only bringing a ventilator, not a POC, and he had cleared it with Delta. The Conflict Resolution Officer recommended letting Hankinson board and the pilot agreed to do so. Hankinson chose not to board allegedly due to what he perceived as a hostile environment. He and his companion received refunds. He then filed a complaint with DOT, which referred to Delta. Both flight attendants were suspended and then fired. The captain was suspended for 7 days without pay for lack of leadership and he and the first officer were given additional training as to passengers with disabilities. The CRO admitted that a violation of the Air Carrier Access Act had occurred and Delta apologized for its and Compass’s errors. DOT informed Hankinson that it does not necessarily take a formal enforcement action unless a violation is particularly egregious or numerous complaints indicate a pattern, and that it would take his complaint into account if any future complaints were filed. Compass had a training video on passengers with disabilities created for presentation to its remaining 417 flight attendants and all Compass pilots. After receiving DOT’s disposition and warnings to Delta and Compass, Hankinson filed a charge against Compass with the MHRB, which set a hearing. Compass sought a declaration in this Court that the ACAA and regulations preempt all of his claims and requested a TRO, which the Court granted, followed by a preliminary injunction. Hankinson filed a Younger motion to dismiss, a summary judgment motion, and a motion for reconsideration of the preliminary injunction. Compass also requests summary judgment.

LR 7.3(b) permits reconsideration of “any interlocutory order” if the facts or law are materially different from those presented before entry of the order and the party did not know such fact or law or new material facts emerged or a change of law occurred. Hankinson requests reconsideration based on Gilstrap (9th Cir. 2013), which is recent case law that is binding precedent. Relying on Elassad (3rd Cir. 2010) (bodily injury/aircraft stairway case where no federal regulation was directly implicated) and Abdulla (3rd Cir. 1999) (bodily injury due to lack of warning of turbulence), Gilstrap concluded that a state law remedy may be available for violation of FAA regulations. However, Hankinson does not claim bodily injury and therefore the Insurance Clause (requiring carriers to carry insurance for bodily injury, death, and property) does not justify that exception to complete field preemption. Further, DOT has provided detailed advice to carriers to interpret Part 382 to safeguard the dignity of disabled passengers and guide interactions with them. Unlike Gilstrap, any state claims of infliction of emotional distress are intertwined with the preempted claims and would require a trial of the alleged violations of ACAA regulations. Thus there is an implied preemption, the Insurance Clause does not provide the exception to preemption, and the state claims are factually predicated upon federal regulatory violations. To the extent that ACAA regulations ought to be viewed as economic as opposed to safety, the explicit preemption by the Airline Deregulation Act is implicated. A state action alleging wrongful denial of air transportation (whether by outright denial of boarding or by hostile environment) is an enforcement of a general law affecting a carrier’s services. Allowing state claims to regulate airlines indirectly by allowing non-bodily injury tort claims based on regulatory violations could result in a state-by-state patchwork, inconsistent with Congress’ major effort to leave such decisions, where federally unregulated, to the marketplace. Rowe (US) Hankinson’s motion for reconsideration of the preliminary injunction is denied.

The Younger test is not met because, unlike the attorney discipline in Hirsch, aviation is not a significant state interest. The Montana Legislature has stated that its aviation policy is to cooperate with federal authorities in “effecting a uniformity of the laws,” accomplish “the purposes of federal legislation,” and eliminate “costly and unnecessary duplication of functions.” §67-1-102.

Hankinson’s hostile environment claim is derivative of and would require trial of ACAA violations. The only reason there is no DOT ruling on an ACAA violation related to his “hostile environment” claim is that he never presented it to Compass or DOT. It is inextricably intertwined with the ACAA regulations that werepresented, but the Court has found that such claims are FAA field-preempted. Whether or not Congress intended an exclusive administrative remedy or one coupled with the Insurance Clause exception, it seems highly unlikely that it intended a hybrid whereby a passenger could submit some of his claims for administrative enforcement by DOT while reserving his factually related claims for adjudication by a state agency. That is the case presented here, which the Court finds distinguishable from Gilstrap.

Summary judgment for Compass. HRB is enjoined from jurisdiction over Hankinson’s complaint.

Compass Airlines v. MHRB and Hankinson, 41 MFR 1, 8/12/13.

Christopher Mangen & Daniela Pavuk (Crowley Fleck), Billings, Jeffrey Ellis (Quirk & Bakalor), NYC, and David Hayes (Trans States Holding), Bridgeton, Mo., for Compass; Linda Deola & Brian Miller (Morrison, Sherwood, Wilson & Deola), Helena, for Hankinson.

VEHICLE DEALERSHIP: Limitation of Remedies not procedurally or substantively unconscionable under Texas law, prohibits dealer from asserting claim for lost profits due to breach of contract involving trucks with non-compliant air brakes… fraud claim subject to Montana law, barred by 2-year statute that ran from time Japanese employee deposition revealed that compliance certificates were false… punitives, pled as separate cause, are not stand-alone cause, claim fails because substantive claims fail… repurchase claim subject to Montana law, barred by 2-year statute for claims arising out of statutory liability… constructive fraud claim not ripe for decision, but also subject to 2-year fraud statute… Molloy.

Montana Trucks and UD Trucks North America (formerly Nissan Diesel) entered into a dealer sales & service agreement in 2003 which specified that Montana Trucks was an authorized seller of UD trucks and UD would provide vehicles that complied with Federal Motor Vehicle Safety Standards. MT purchased 8 UD3300 trucks 12/06-12/07. Although UD represented that they were certified for the US, they were noncompliant with FMVSS §121 air brake rules. UD recalled the 3300s in 2007 because they did not satisfy air brake regulations.

Also in 2006, Pioneer Drive entered into a similar sales agreement with UD. Randy Botsford was president of PD and a majority owner of MT. Randy’s brother Terry Botsford was attorney for PD and had an ownership interest in MT. Mark Byington was PD’s CFO and had an ownership interest in MT. UD made the same representations to PD as to UD3300 compliance with §121. PD sued Nissan Diesel (now UD Trucks) in 7/08 for, inter alia, breach of contract for failing to supply compliant trucks. ND removed to this Court in 8/08. Terry Botsford received reports from Link-Radinski that found noncompliant brakes. ND denied the noncompliance. ND Japan employee Kazuaki Sasame was deposed in 2/10. Randy Botsford and Byington attended. Sasame testified that the compliance certificates that accompanied the trucks were false. ND settled with PD in 4/10 for a confidential amount and Sasame’s deposition was sealed.

UD terminated the dealer agreement with MT in 1/09. MT demanded that UD repurchase 2 trucks pursuant to MCA 30-11-702. UD refused, ostensibly because they had been modified. MT sued UD in 2/12 for breach of contract, fraud, and punitives. The date of the MT suit is 2 years, 2 weeks after the Sasame depositions. UD requests summary judgment.

The Limitation of Remedies provision prevents MT from asserting its claim for consequential damages for breach of contract. Since only 2 of the 3 parts ofRestatement of Conflict of Laws §187(2)(b), which Montana relies on, are met, the choice-of-law provision will be enforced and Texas law is applied to the breach of contract claim. Both parties eventually agreed that Texas law applies to the contract claim. MT claimed in its 2nd amended complaint that lost profits are the damages it suffered. Not until its response to UD’s summary judgment motion did it assert that it suffered additional damages from continuing to acquire operating loans based on UD’s representations that the trucks were compliant. UD requested summary judgment on “contract damages,” so the analysis is limited to lost profits because they are the only damages claimed in the complaint. Lost profits are consequential damages. Tex. Bus. & Com. Code 2.715. The Limitations of Remedies provision precludes consequential damages including lost profits. MT argues that the limitation is unconscionable under TBCC 2.719. Texas law requires a showing of substantive and procedural unconscionability. Blount (Tex. App.-Dallas 1968) declared that unconscionability results when “no man in his senses and not under a delusion would enter into and no honest and fair person would accept” a contract on such terms. MT notes that it was not allowed to revise the contract despite its requests. However, there is no showing that it was oppressed or unfairly surprised by the limitation. Lindemann (5th Cir. 1987), in which the plaintiff was unable to negotiate exclusion of consequential damages, found no procedural unconscionability even though one party had superior bargaining power. The same result rings true here. MT also insists that the contract was substantively unconscionable because it limited its direct & consequential damages while only limiting UD’s consequential damages. Since MT only pled consequential damages, the briefs addressed the limitation of consequential damages, which is not unconscionable because it applies equally to both parties. Construing the facts favorably to MT, no reasonable jury could find that the agreement is procedurally or substantively unconscionable. The Limitations of Remedies prohibits MT from asserting lost profits due to a breach of contract. Summary judgment for UD on breach of contract.

UT is also entitled to summary judgment on fraud. The fraud claim is not subject to the choice-of-law provision. “Claims arising in tort are not ordinarily controlled by a contractual choice of law provision. Rather, they are decided according to the law of the forum state.” Sutter (9th Cir. 1992). The exception arises when the provision is sufficiently broad that it encompasses all possible claims. In that case, the choice-of-law provision references only the “agreement” and likely would be read narrowly by the 9th Circuit to exclude noncontractual claims. Narayan (9th Cir. 2010). The fraud claim is governed by Montana law. It is barred by the 2-year limit at MCA 27-2-203 since 2/1/10, the date of the Sasame deposition, is the latest possible date that MT became aware of its claimed cause and yet it did not file its complaint until 2/15/12. MT argues that the statute was tolled by fraudulent concealment because Randy Botsford (the agent) was subject to a confidential protective order in the PD litigation and could not share the information with MT (the principal). UT counters that Botsford was a majority member of MT, holding a 75% share, and could have committed it to action on his own vote, and since he was present at the deposition and was a majority owner of MT, the principal-agent analogy falls short. That depends on the assumption that the principal and agent are different, which is not the case. MT moved 1/23/13 to stay the protective order in the PD litigation to give MT access to documents filed under seal. It argued that the protective order covered “the confidential settlement agreement and the discovery materials and depositions in the Pioneer litigation relating to the braking system and when Defendant knew or should have known about the brake issue” and that “Montana Trucks’ access to this information is paramount to pursuing this action.” I denied the motion to stay but made MT a party to the protective order so it could access the documents. The knowledge that Botsford acquired at the Sasame deposition can be imputed to the same Botsford who is a majority member of MT because he did in fact use that knowledge to the advantage of MT in this litigation by requesting access to the PD documents. MT only has access to the Sasame deposition and other key documents because it knew to ask for them. Randy Botsford had actual knowledge of UT’s fraud 2/1/10, and because he held a majority interest in MT, UT’s fraud was presumptively within MT’s knowledge the same day. Summary judgment for UT on actual fraud.

Punitives are not a stand-alone cause, although MT pled them as a separate cause, but are a type of damages available to one who has been awarded compensatory damages. MCA 27-1-220. MT’s claim for punitives thus fails because the underlying substantive claims fail.

The statutory right of repurchase is supplemental to any agreement between the retailer and manufacturer, MCA 30-11-713(1)(a), and the retailer may elect to pursue contract remedies or the statutory remedy, 713(2). The parties agree that MT has no contractual basis for its repurchase claim because the agreement allows but does not require UD to repurchase the 3300 trucks and parts. MT’s repurchase claim is therefore not subject to the choice-of-law provision, but to Montana law, which provides a 2-year statute for claims arising out of statutory liability. The statute began running 4/17/09 when UD refused to repurchase 2 trucks, and MT did not file its complaint until 2/15/12 and is thus barred from asserting its statutory repurchase claim.

MT asserted a new claim for constructive fraud pursuant to MCA 28-2-406 in its 2nd amended complaint while UD’s motion for summary judgment was pending. Because UD did not address this claim in its motion, it is not ripe for decision. However, both fraud and constructive fraud are subject to a 2-year statute. If the statute bars MT’s fraud claim, it also bars its constructive fraud claim. It must distinguish applicability of the statute to its constructive fraud claim as a matter of law or present a unique fact issue, or summary judgment will be granted on that claim sua sponte under Rule 56(f)(3).

Montana Trucks v. UD Trucks North America, 40 MFR 456, 8/12/13.

Patrick HagEstad, Philip Condra, and Lon Dale (Milodragovich, Dale & Steinbrenner), Missoula, for MT; Billy Donley, David Jarrett, and Richard Mandelson (Baker & Hostetler), Houston & Denver, and Kathleen DeSoto (Garlington, Lohn & Robinson), Missoula, for UD.

 

INSURANCE: “Conduct of business” in “Business Squire” policy triggers coverage of wildfire that resulted from felling dead tree in yard of home-based business to protect business equipment and ,personal property from falling tree and then burning the branches for personal aesthetic reasons (“dual-purpose” conduct)… Strong.

Robert Fitte operates a home remodeling and siding business as sole proprietor in Helena. He uses a room of his home as an office, maintains a separate business phone, and deducts part of his business insurance and utility expenses from his taxes. He lists his home address in his Yellow Pages ad. He keeps work equipment and vehicles at his home and has no other business address. In 2012 he decided to remove a dead 70 tree from his yard, primarily to prevent it from falling on work equipment and to protect non-business personal property. He felled it 6/21/12, then stripped the branches and burned them in his yard. On 6/23, after he thought the fire had gone out, it ignited an adjacent wooded area. The flames spread to neighboring properties, allegedly causing damage that prompted claims against him including a State Court action by Kevin DeTienne. He had a $300,000 personal lines policy and a $1 million business policy from Mountain West. Mountain West has defended under the personal policy and committed to paying its limit. It is defending under the business policy subject to reservation of rights, but denies any obligation to provide coverage. The business policy states that Fitte is an insured “only with respect to the conduct of a business.” It limits coverage to his operations, listed as “siding installation” and “contractors-subcont work in connect w/BLDG const.”

Mountain West argues that the definition of “insured” limits coverage to damages arising only from business activity, and that “business conduct” must have been part of “a continuous or regular activity for the purpose of earning a profit or making a living.” Lambert (WV 1995). It also cites Eyler (Ky. 1992) and Miller(Mo. App. 1994) (business conduct involves a “continuity of activity with a profit motive.” It acknowledges that Fitte felled the tree “arguably” for both business and personal reasons, but argues that the claims arise from the separate act of burning the branches, which served an exclusively personal purpose — improving aesthetics of his property. It argues that even if the claims are attributed to the more general act of hazard removal they are still not covered because the conduct was only partly for business purposes. It argues that the phrase “only with respect to the conduct of a business” necessarily excludes conduct that serves both business and personal benefits. Heinz (Ida. 2001).

DeTienne and Fitte argue that the claims arise from Fitte’s tree removal operation, of which disposing of the branches was a part, and that he removed the tree at least in part to protect business equipment and therefore burning the tree was covered business conduct. DeTienne cites cases for his contention that the “conduct of business” includes activity that does not directly garner profit: Carpenter (Alaska 2003) (felling tree for firewood in home from which insured ran floor covering business was covered); United Pacific (ED NY 2006) (removal of ice from sidewalk at construction site construed as business activity); Lineham (Wis. 2000) (keeping dog at bar as guard & mascot is business activity). Fitte and DeTienne contend that the conduct should be covered even if Fitte acted for personal as well as business benefit — that “dual-purpose conduct” should be covered by both policies. They cite Cope (ND Indiana 1991) (vacation covered if sufficiently related to business purposes even if also partly recreational).

Carpenter is instructive as to whether the fire arose from business conduct: “Businesses necessarily engage in much conduct that is incidental to and supportive of revenue-earning operations. Businesses must, for example, acquire supplies, equipment and fuel, pay bills, bank, repair what they use, and send their employees on countless errands in support of operations.” Business operations also include keeping equipment safe, including disposal of a large dead tree that threatens assets. Disposal only began with felling the tree. Fitte continued disposal when he burned the branches. The fire resulted from the tree disposal that he undertook in part for business purposes. This is not a “cosmic, zen-like argument that all things are connected from the beginning of time” as Mountain West asserts. The connection between felling and disposal by burning is clear & concrete. Burning the tree was in part the “conduct of business” which, for a sole proprietor like Fitte, includes many tasks in support of the work for which he is actually paid. At the very least, “conduct of business” is ambiguous and must be construed in favor of the insured.

The business policy covers damages arising out of conduct of business, even if the conduct is also motivated by non-business interests. Mountain West’s argument that it limits coverage to conduct that is only for business relies on a strained interpretation of “only with respect to the conduct of a business.” A more reasonable reading is that it limits coverage to only conduct that served a business purpose — conduct must be business related, not purely personal. This would include business conduct that might also serve some personal benefit. If Mountain West intended to say that only conduct exclusively for business purposes was covered it certainly could have. Its interpretation would make coverage illusory or nearly so, allowing it to deny coverage even for conduct 99% motivated by business interests. Cope held that the identical “only with respect to the conduct of business” was ambiguous because “reasonable persons might well differ on the question of whether they exclude coverage for activities furthering dual purposes of recreation and profit.” It denied summary judgment, holding that coverage existed if the insured could prove at trial that the trip was sufficiently related to business. Mountain West contends that Cope turned on the “highly nebulous matter of whether a trip was for business or pleasure.” It is unclear why it believes the distinction between a trip and other activity is significant, but in any event, nothing in this case is highly nebulous. It is undisputed that Fitte was removing the tree for both business and personal benefits. Mountain West urges the Court to follow Heinz, which held that either a personal policy or a business policy, but not both, could apply. The policy in Heinz completely excluded business conduct, so the parties agreed that only one policy or the other would apply. Those critical circumstances do not exist here. In light of the plain language of the contract and the case law, Fitte’s “conduct of business” triggers coverage under the policy, notwithstanding the personal benefit he also derived from the conduct. Claims arising out of the fire must be covered by the business policy. Summary judgment for Fitte and DeTienne.

Mountain West Farm Bureau Mutual Ins. v. Fitte and DeTienne, 40 MFR 516, 8/19/13.

Randall Nelson (Nelson & Dahle), Billings, for Mountain West; Joe Seifert (Keller, Reynolds, Drake, Johnson & Gillespie), Helena, for Fitte; Thomas Budewitz, Helena, for De Tienne.

JURY WAIVER: Defendant failed to overcome presumption against waiver, failed to prove knowing waiver by buried unilateral provision, motion to strike jury demand denied… Molloy.

Impact Mechanical sued to collect $900,000 for work on Rainbow Dam. Walsh Const. counterclaimed against Impact and its associated company IMI Technology. Walsh, PPL Montana, and Travelers Casualty & Surety (“Walsh”) move to strike Impact’s jury demand. They seek to enforce a provision in the subcontractor agreement providing that Impact — and only Impact — “waives its right to a trial by jury in any and all disputes or claims arising out of or in relation to this Agreement.” Impact argues that it did not knowingly & voluntarily agree to the waiver buried in Walsh’s form contract. Walsh project manager Lucas Lowney and Impact VP Jeff Kueffner testified at the evidentiary hearing to their negotiations.

The 7th Amendment guarantees the right to a jury “in Suits at common law, where the value in controversy shall exceed twenty dollars.” That portends a fundamental right guarded by a presumption against waiver. A waiver of a jury in a civil case must be made knowingly & voluntarily. Palmer (9th Cir. 2009). There is a strong federal policy favoring juries in civil actions and the right to a jury in federal courts is a matter of federal law. Simler (US 1963). Even so, since jurisdiction here is based on diversity, the contract is interpreted under state law. Albert (9th Cir. 1959). The paragraph at issue also provides that the contract is to be governed by Montana law — where Rainbow Dam is situated. While Montana law recognizes that a contract may provide jury waiver when it has an arbitration clause, a contractual provision restricting enforcement of contractual rights “by the usual proceedings in the ordinary tribunals” is void. MCA 28-2-708. The parties and Court were unable to find any cases applying 28-2-708 to unilateral contractual jury waivers. Walsh makes the point that if it rendered contractual jury waivers void it would conflict with Montana Art. II §26 which authorizes trial without a jury upon lawful consent of the parties. However, the waiver here was a unilateral condition imposed by “corporate” that was not amenable to negotiation absence corporate counsel’s input. In any event, it is unnecessary to decide whether the unilateral waiver here is void under Montana law because the facts at the hearing show that Impact did not knowingly & voluntarily waive a jury.

4 factors are weighed in determining whether there was a knowing & voluntary waiver: negotiability of contract terms, conspicuousness of the waiver, relative bargaining power, and business acumen of the party opposing the waiver. Cannon (N.D.Cal. 2013). The ultimate question is whether the waiver is “unconscionable, contrary to public policy, or simply unfair.” Id. The facts show that all 4 favor Impact, compelling the conclusion that the unilaterally imposed waiver is unfair.

Negotiations on the subcontract were conducted in several meetings, phone calls, and emails. The only proof about the waiver was that Kueffner read the contract. Walsh contends that nothing was off the table, as evidenced by modification of scope of the work at Impact’s request and a rider containing clarifications to the subcontract. But Kueffner testified that Walsh refused his attempts to negotiate minor changes to how the work was to be performed. Most importantly, it is undisputed that the waiver was never discussed during negotiations. Although Lowney averred that he reviewed all contract documents with Kueffner “page by page,” he admitted he did not review Exh. A and that is the boilerplate language that he said he had no authority to alter absent specific approval by counsel. It was also established that Exh. A was part of Walsh’s form in use since at least 2008. Lowney actually referred to it as “boilerplate” and admitted that in his 6 years of negotiating contracts he had made fewer than 10 changes to it and most of them involved the indemnification clause and he never made changes to the waiver. While he was responsible for negotiating numerous million dollar contracts, he had no authority to make changes to Exh. A. Kueffner testified that the focus of negotiations was on the bond, timing of payments, scope & timing of the work, and safety. He testified that he told Lowney that he was not used to reading large contracts. Lowney replied that it was a standard form contract that all subcontractors were required to sign if they wanted to do business with Walsh. Kueffner admits that he read most of the contract, but focused on provisions describing the work he had to do and he did not really consider the significance of the jury waiver. The hurried reading of a jury waiver, without more, does not overcome the presumption against waiver or prove a knowing & intelligent waiver of a constitutional right.

The only thing that could make the waiver less conspicuous is if it was in fine print in a footnote. It is buried in the 5th sentence of a 6-sentence paragraph, in the 11th article of a 12-article, 8-page exhibit, that is one of 8 exhibits which total over 30 pages. It is not pronounced in any way, it is not set off by bold type, large type, or capitals, and Impact was not asked to initial it or sign the page. This does not rise to the level of proof required to show a knowing & intelligent waiver of a fundamental right.

Lowney’s testimony that he felt Impact’s bargaining power was similar to Walsh’s is belied by the fact that Walsh was a general contractor in charge of 20 subcontractors on a $245 million project, of which Impact’s portion was $1.3 million. It is a bit disingenuous to argue that the bargaining power of a nationwide sophisticated corporation is on the same level as a mom & pop operation committed to finding piece work. Moreover, Kueffner testified that there are half a dozen other companies in Montana that do the same type of work and that performing well would mean more work for PPL. Walsh’s proof on this factor is not persuasive.

Walsh invokes representations on Impact’s website that it has “a combined 57 years of experience in the energy industry” and claims Signal Peak Mine, Conoco Phillips, CHS, Stillwater Mining, and MillerCoors as clients as proof that it is a sophisticated energy player. Walsh also elicited testimony that Kueffner had an attorney review parts of the subcontract, but that he did not ask him to review the unilateral jury waiver. On the other hand, Impact is a relatively small company that Kueffner and his wife started 3 or 4 years before the events giving rise to this suit. Kueffner also testified that Impact had never been involved with a project that descended into litigation. The proof shows that Impact lacks the sophistication & acumen of Walsh when it comes to business practices or contract negotiations.

The essence of Walsh’s argument is that Kueffner read the contract and signed it so he must be bound by it. While that may be enough to bind Impact to an ordinary provision, the unilateral waiver of the 7th Amendment right to a jury is no ordinary provision. Because the first 3 considerations strongly favor Impact and the 4th is neutral or slightly in its favor, the compelling conclusion based on the proof is that Walsh has not met its burden. Unfairness of the waiver is particularly accentuated by the fact that Walsh retained its right to a jury. Walsh’s motion to strike jury demand is denied.

Impact Mechanical v. Walsh Const. et al, 40 MFR 484, 8/8/13.

James Ragain (Ragain Law Firm), Billings and Shane Colton & Joseph Cook (Edmiston & Shermerhorn), Billings, for Impact; Dennis Clarke (Smith, Walsh, Clarke & Gregoire), Great Falls, for IMI; Eric Nord (Crist, Krogh & Nord), Billings, for Walsh, PPL, and Travelers.