CONTRACT/FRAUD/CIVIL CONSPIRACY: Release not obtained by undue influence, release of all claims and payment is valid accord & satisfaction discharging contractual obligations, obviating breach of contract claim… claim of fraudulent misrepresentation of health of principal, value of company, and need to sell time-barred, not tolled by close relationship of parties, constructive fraud claim similarly time-barred… no colorable claim of civil conspiracy, object (sale of company), means (transfer of assets) were lawful, claim also time-barred… 3 other Defendants not party to contract, not liable for breach… Molloy.

Landtech Corp. was an oil & gas service company with principal place of business in Sidney. Elmer Christensen was president 1983-05. John Lence was attorney 1981-8/05 and had a 25-50% equity interest. He was paid a $2,500/mo retainer, later raised to $5,000. He is senior trustee of Lence Family Trust, a Texas trust. Landtech was dissolved by the Montana SOS in 12/06. Landtech Enterprises Ltd, also an oil & gas service company, was incorporated in Montana in 1998 with its principal place of business in Sidney. Christensen and Gary Wygal each had a 50% capital percentage. From 1999-2006 Christensen and his wife were members. It was dissolved by the Montana SOS in 12/07. Landtech Ltd’s assets were sold in 12/04 to Badlands Power Fuels of North Dakota which organized a new entity in 6/05 as a single member LLC, Landtech Enterprises LLC. Assets were transferred between Landtech Ltd and Landtech LLC through 7/05. The sale totaled $3.6 million and resulted in a net profit of $2.5 million+ for Landtech Ltd. Landtech Ltd, Lence Family Trust, and Lence’s attorney James Bartlett agreed in an Acknowledgment & Assignment in 3/04 that if Landtech Ltd or its assets were sold the net would be shared 50% to Christensens and 50% to Lence Family Trust. Over the course of correspondence, Christensen represented to Lence that he was in very poor health and unable to manage the company and it would have to be sold for far less than it was worth. when it sold in 12/04 to Landtech LLC. Lence Family Trust was not notified or given its 50%. On 8/11/05 Gary Jackson, a lawyer representing Landtech Ltd, wrote Lence and Bartlett offering $100,000 in full satisfaction of the Acknowledgment & Assignment. He included a document that would release Christensens and Landtech Ltd of all past & future claims including claims arising out of the Acknowledgment & Assignment. Bartlett asked for copies of the closing documents so Lence could make an informed decision. Jackson said Lence did not own an interest in Landtech Ltd and therefore he would not receive copies of the closing documents. Lence signed the Release that day. On 8/22/05 Bartlett sent Jackson the signed release along with a letter explaining that Lence signed because he was in dire straits and needed the money for his family and attorney. On 8/25/05 Jackson sent Bartlett a check for $100,000.

Lence’s secretary Janet Hagel on 9/9/05 signed a Notice of Rescission which stated that Lence and Lence Family Trust rescind the Release of Claims and that Christensen make a reasonable offer to settle payment of the half share owed to Lence Family Trust if he wanted to avoid being sued for fraud. Accompanying the notice was a handwritten letter from Lence to Christensen: “SHAME ON YOU. I THOUGHT OF YOU LIKE A BROTHER ALL OF THESE YEARS. SHAME ON YOU, ELMER.” Christensen maintained that he “did not owe John any money.” In 2012 Lence tried to look up Christensen to determine if he had died. A dozen Bakken trade journals and the Sidney Herald contained ads for Landtech LLC, all listing Christensen as manager. Lence then concluded he had been defrauded and sued 10/5/12 alleging breach of contract, fraud, civil conspiracy, and constructive fraud. Defendants request summary judgment.

The complaint implies that the breach of contract claim is asserted against all Defendants, but only Christensen and Landtech Ltd were parties to the contract. “The obligation of the contracts is limited to the contracting parties.” Gambles (Mont. 1977). Lence Family Trust has no legal basis for its breach of contract claim against Mrs. Christensen, Landtech Corp., or Landtech LLC.

Defendants contend that a valid accord & satisfaction releases them from any obligations under the original contract. “An accord is an agreement to accept in extinction of an obligation something different from or less than that to which the person agreeing to accept is entitled. Though the parties to an accord are bound to execute it, yet it does not extinguish the obligation until it is fully executed.” MCA 28-1-1401. “Acceptance by the creditor of the consideration of an accord extinguishes the obligation and is called satisfaction.” MCA 28-1-1402. Lence (creditor) agreed to take something less than that to which he was arguably entitled and Defendants fully executed their new obligation: to pay him $100,000. The Release of All Claims is an accord and the $100,000 check Lence took is a satisfaction. “The Montana Supreme Court defines a `release’ as `nothing more than an accord and satisfaction, or, one of several ways in which an obligation, contractually, may be discharged or “settled’` for less than or for something different than what is owed.”’ Greenwald (38 MFR 28) (quoting Watters (Mont. 2000). Lence is prevented by accord & satisfaction from enforcing a breach of contract claim against Christensen and Landtech Ltd. A party to a contract may rescind only if its consent “was given by mistake or obtained through duress, menace, fraud, or undue influence exercised by or with the connivance of the party as to whom the party rescinds.” MCA 28-2-1711(1). Lence claims that his consent to the Release was obtained through undue influence. Undue influence consists of “taking a grossly oppressive and unfair advantage of another person’s necessities or distress.” MCA 28-2-407(3). “For there to be undue influence it is necessary that there be a destruction of free agency.” Baby M (Mont. 1996). Although Christensen knew of Lence’s financial situation, there is no evidence that he used this knowledge in a grossly oppressive manner or to destroy Lence’s free agency and thereby convince him to sign the Release. He cannot meet the standard for undue influence and so cannot rescind the Release on that basis. Summary judgment for Defendants on breach of contract.

Lence Family Trust argues that Christensen’s representations about his health, value of Landtech Ltd, and the need to sell were fraudulent because he knew that what he was saying was false but made the representations anyway, hoping to convince Lence to take $100,000 instead of his half share. Defendants deny the fraud accusations, but claim that in any event the claim is time-barred. The acts that constitute fraud, according to Plaintiff, occurred in 2004 when Christensen made false representations about his health and need to sell, in 12/04 when Landtech Ltd was sold and the Lence Family Trust was not notified or given its 50%, and in 8/05 when Jackson offered Lence $100,000 as consideration for a Release of all Claims but refused access to the closing documents. Lence signed off anyway. The 9/05 Notice of Rescission and accompanying letter shows that he knew or suspected by 9/05 that he had been defrauded by Christensen. Defendants argue that the statute on fraud has run, but do not specify a date on which the claim accrued. This matters little, because at least 7 years passed between the events giving rise to the fraud claim and the filing of the suit in 10/12. Lence argues that he did not learn of the falsity of Christensen’s representations about his health until 2012. Nothing in the record shows why he waited 7 years to investigate. He also argues that the statute should be tolled because “the defendant was in a position of trust or confidence with the plaintiff,” citing Skierka (Mont. 1981) (“there must be some active affirmative concealment of the fraud … in order to postpone the running of the statute … unless there is some relation of trust or confidence between the parties which imposes upon a defendant the duty of making a full disclosure of the facts.” Christensen and Lence were friends and business partners for over 25 years. Whether Christensen had a duty to disclose all the facts to Lence is irrelevant because Lence allegedly learned of the fraud on his own. He rescinded the Release, demanded his half share, and threatened to sue in 9/05, indicating that he knew of facts & circumstances giving rise to Christensen’s fraud before he discovered that Christensen had prevaricated about his health and even though Christensen may have failed to make a full disclosure of the facts surrounding the sale of Landtech Ltd. There is no circumstance that would have tolled the statute. Summary judgment for Defendants on the fraud claim.

Plaintiffs’ civil conspiracy claim is based on the allegation that Defendants “agreed by words and conduct to accomplish the unlawful goal of cheating [Lence Family Trust] of its share of the proceeds of the sale of the companies through the unlawful means of defrauding [Lence Family Trust] with misrepresentations regarding the business and Mr. Christensen’s health.” However, the object of the alleged conspiracy (sale of Landtech Ltd) was lawful, and the means used to attain that object (transfer of company assets to Landtech LLC) were lawful. Duffy (Mont. 1975); CJS Conspiracy. The transfer of assets may have been with a malicious motive, as Plaintiff asserts, but malice is not enough to transform a legal transfer of assets into an unlawful conspiracy. Thus Plaintiff does not have a colorable civil conspiracy claim. It is also barred by the 3-year statute for an action upon a liability not founded upon an instrument in writing, since the misrepresentations and transfer of assets occurred in 2004 & 2005.

Plaintiff’s constructive fraud claim is based on the argument that Christensen and the Landtech companies breached their duty to disclose all material information about the sale by misrepresenting certain material facts. Fraud can be actual or constructive, MCA 28-2-404, but both are subject to a 2-year statute, MCA 27-2-203. The statute that bars Plaintiff’s fraud claim also bars its constructive fraud claim.

Summary judgment for Defendants on all counts.

Lence Family Trust v. Christensen, Landtech Enterprises Ltd et al, 40 MFR 496, 8/20/13.

Terry Wallace, Missoula, for Lence; Doug James (Moulton Bellingham), Billings, and William Crowley & Tracey Johnson (Boone Karlberg), Missoula, for Defendants.

ERISA: Treating cardiologist’s opinion that lawyer disabled because of heart condition, not depression, given greater weight than that of insurer’s consultants, LTD reinstated retroactively… Christensen.

Former Billings trial attorney Michael Tolstedt was diagnosed with and began prescription treatment for depression 9/30/09. He had a heart attack 10/13/09 and underwent 2 surgeries. Cardiologist Scott Sample recommended that he find low-stress work. He has been coaching and substitute teaching since 6/10. Sample wrote Standard Ins. 10/12/09 indicating that Tolstedt had heart disease due to his occupation and recommended low-stress work. He listed, inter alia, depression and hypertension as contributing to his disability. Tolstedt filed a claim for LTD under Standard’s group plan 11/11/09, and Standard approved it 2/5/10, listing 10/14/09 — 1 day after his heart attack — as the date of disability. Its consulting psychiatrist Toenniessen reviewed Tolstedt’s files and cited depression as why he was eligible for disability benefits. He maintained that the depression was disabling, not that it was a causal factor in his heart condition and associated treatment. Consulting cardiologist Richard Axelrod reviewed the cardiology reports and found “no evidence in the medical records” that he “experienced cardiac symptoms in relation to work stress.” Standard argues that in light of his 2 successful heart surgeries and favorable cardiologist reports he was physically capable of returning to work by 2/10, 3 months after his last stent procedure. It maintains that “the medical records do not support a conclusion that avoidance of stress was necessary.” It wrote Tolstedt 6/10/10 that he was “disabled by one or more conditions, including depression” and applied the 24-month mental disorders limitation. It asked him to provide any information that he is disabled by other conditions “not subject to the Limitation.” Neither of Standard’s consulting cardiologists, Garrison or Axelrod, actually examined Tolstedt.

To clarify the basis of the claim, Sample wrote Standard 2/4/11 that “coronary artery disease is the actual physical illness that triggered [Tolstedt’s] heart attack and disabled him from being a trial lawyer.” Standard responded that its cardiologist determined that he was capable of full-time work based on the “excellent results” of his heart treatment and that “LTD benefits were payable on the basis of his depression.” Tolstedt’s attorney wrote Standard 12/1/11 that it “has no legal or medical basis for discontinuing” payments. Standard responded that he had no limitations to work, his mental disorder pay period would expire in 1/12, and he was not eligible for benefits for his heart condition. Standard’s Administrative Review Unit denied Tolstedt’s appeal on the basis that he was “capable of performing his own occupation on the basis of his cardiac condition.”

Tolstedt sued Standard under 29 USC 1132(a)(1)(b) on the basis that it wrongfully refused to pay disability benefits. Magistrate Ostby recommended summary judgment for Standard. Tolstedt objected, citing Sample’s newly submitted affidavit that he is not physically able to serve as an attorney and is at high risk for another, potentially fatal, heart attack if he does not avoid chronic stress. Finding that Sample’s affidavit created a material fact issue, this Court ordered de novo review. Both parties submitted supplemental briefs. The sole issue is which party’s physicians are more credible.

The Court affords greater weight to Tolstedt’s treating physician. Sample treated his coronary artery disease since his heart attack. He is board-certified and Chairman of Cardiovascular Medicine at Billings Clinic. Although Standard argues that he saw Tolstedt only 3 times, he performed coronary interventions after his heart attack, had a follow-up 3 months after his last stent procedure, and has seen him annually since. In Sample’s opinion and based on his observations, Tolstedt would have increased risk of a potentially fatal heart attack if he continued the high-stress, sedentary work of an attorney. Tolstedt’s initial reviews after his coronary procedures which indicate an improved heart condition do not change Sample’s opinion that returning to his prior stressful work would put him at risk for a 2nd heart attack. Unlike Standard’s consultants, he has examined Tolstedt and observed his condition for 3 years. He has written 3 letters maintaining that he is disabled because of his heart condition and recommending strongly that he cease legal practice. Standard’s consultants were paid to review his records but never examined him and Standard never ordered an IME. They never directly challenged Sample’s findings that continuing his work as an attorney would increase his risk of a potentially fatal heart attack, but merely stated that there was no evidence that his heart disease was related to his work stress. The Court rejects this. “The information available to consulting physicians would have been more complete and their opinions commensurately more reliable if they had personally examined plaintiff.” Finazzi (WD Mich. 2004). Finazzi found that the plan administrator arbitrarily & capriciously denied benefits based on opinions of a cardiologist who had never examined the patient, ordered an IME, or challenged the treating physician’s findings. The Court finds Sample’s opinions more credible than those of Standard’s consultants. Tolstedt is entitled to benefits reinstated as of 1/12/12.

Reasonable attorney fees & costs may be awarded to either party under 29 USC 1132(g)(1). Pursuant to LR 54.2, fees will only be awarded by judicial order. Parties seeking fees must file a motion within 14 days specifying the grounds, amount sought, and terms of the fee agreement. Rule 54(d)(2)(B)(i)-(iv). The other party may object. Rule 23(h)(2).

Tolstedt v. Standard Ins., 40 MFR 444, 6/24/13.

Donald Harris (Harris & Warren), Billings, for Tolstedt; Andrew Altschul (Buchanan Angeli Altschul & Sullivan), Portland, and Steven Milch & Eric Peterson (Crowley Fleck), Billings, for Standard.

ESTABLISHMENT: Renewal of FS permit for Big Mountain Jesus on federal land leased to ski resort not violative of Establishment Clause… Christensen.

FS issued a permit in 1953 and a statue of Jesus was constructed by the Knights of Columbus the next year on federal land leased to Whitefish Mountain Resort. Freedom From Religion Foundation of Wisconsin challenges reissuance of the permit.

Unquestionably, Big Mountain Jesus is a religious symbol commonly associated with one form of religion. To some it is offensive, to others it represents only a religious symbol, but the Court suspects that for most it neither offends nor inspires. It appears that some degree of divine inspiration determined the location, as L.J. Reed was quoted in the Whitefish Pilot as stating: “Our Lord himself selected this site, as each member of the committee after looking over all other possibilities returned to this site and were in complete accord that this was it.” In addition to serving as a meeting place for skiers and a site for weddings, it has been observed adorned with ski poles, goggles, ski hats, mardi gras beads, and other secular attire. Frequent repairs have been made to its outstretched hands which have been dislodged by skiers and snowboarders giving it a “high five.” The original permit was issued for an unspecified term by FS. It was renewed in 1990 & 2000 for 10-year terms. FS denied renewal in 8/11, but withdrew the denial in 10/11 and solicited comment. It received some 95,000 comments, and in 1/12 reissued the permit for 10 years, stating that it “has been a long standing object in the community since 1953 and is important to the community for its historical heritage.” In 12/11 the Montana Historic Preservation Office concluded that it was eligible for the National Register of Historic Places. Plaintiff argues that the recent reissuance of the permit, after first being denied on 1st Amendment grounds, and involvement of the Historic Preservation Office, were the result of political pressure, largely due to then Rep. Rehberg, and thus the entire process is suspect. There is no question that political pressure was brought to bear, and undoubtedly many of the letters were the result of this, but none of this bears any significance to the legal analysis.

The discrete act of permitting the statue by FS does not reflect government endorsement of any religious sect or preference for religion over non-religion. The US neither owns the statue nor exercises control over the property on which it is located. Big Mountain Jesus constitutes private speech reflecting the personal views of its private owners and therefore cannot be seen by the reasonable observer as reflecting government promotion of religion. It does not convey any message that individuals visiting Big Mountain might be treated more favorably or less favorably depending on their religious beliefs or affiliation. FS renewed the permit because the statue is steeped in the origins and history of Big Mountain and surrounding community, which constitutes a legitimate secular purpose. Lemon (1971) and Van Orden (2005) support reissuance of the permit because leasing public land within a private ski resort to a private organization which maintains a statue of Jesus does not violate the Establishment Clause. It does not convey to a reasonable informed observer that the Government, rather than a private party, endorses Christianity over any other faith or absence of faith. Summary judgment for FS and KC.

Freedom From Religion Foundation v. FS and Intervenors Knights of Columbus (Kalispell Council), 40 MFR 416, 6/24/13.

Martin King & Reid Perkins (Worden Thane), Missoula, and Richard Bolton (Boardman & Clark), Madison, Wisc., for Plaintiff; David Glazer, Kenneth Rooney, and Marissa Piropato (DOJ); AUSA Mark Smith; Charles Harball, Kalispell, and Eric Baxter & Eric Rassbach (The Becket Fund for Religious Liberty), DC, for KC.

INSURANCE BAD FAITH: Insurers had reasonable basis in law to present intervening causation defense that rollover of bus that hit deer caused by defect of bumper that pressed against tire despite ruling that driver was negligent per se for going into the median… dispute was legal, not factual, for the Court, not a jury… insurers’ motions for summary judgment on affirmative defenses addressed before Plaintiff’s motion, recommended granted to insurers… Ostby.

Trucker Transportation bus driver Robert Kingsbury struck a deer on I-90 11/16/07. The deer hit the left corner of the bumper, which bent and impacted the tire. The bus swerved into the median and rolled. Gerald Penn was injured. Tucker was insured by Cincinnati Ins. and National Interstate Ins. NII retained Marshall Mickelson, who opined 1/14/06, cautioning that a court could reach a different conclusion, that

We do not believe liability in this case is reasonably clear. Based upon what we know at this time, we believe a court would allow the case to proceed to trial because there are issues of fact as to whether our driver was negligent.

He wrote to Penn’s lawyer 3/12/08 replying to the contention that liability was reasonably clear. They disagreed as to case law including Craig (Mont. 1990) andSchuff (Mont. 2002). Penn sued Tucker in State Court in 4/08 alleging negligence and negligence per se. Tucker asserted intervening, superseding cause. CI agreed to share in Tucker’s defense with NII 50/50 and share indemnity pro-rata. Penn moved for summary judgment on negligence per se in 7/08. Tucker filed Harry Townes’s opinion that the “cause of this accident is that the deer collision caused the left front bumper to turn and jam the left front steer tire” and that “had the bumper of the bus not contacted the left front tire, the bus would not have gone out of control.” Judge Dayton granted summary judgment for Penn on negligence per se in 12/08. An NII adjuster wrote 1/8/09: “Now that the court has ruled on the liability, we have outstanding requests to make advance payments pursuant to Montana law.” Another wrote on 11/11: “Believed we had liability/cause arguments until the court ruled as a matter of law we were negligent which turned this into a damages only case.” It is clear, however, that all were aware of issues as to claims that Diamond Coach defectively manufactured and/or designed the bus. Mickelson remained of the opinion that causation had not been established and that Tucker continued to have the intervening, superseding cause defense. Penn’s counsel claimed in 9/09 that Tucker was responsible for all of his damages, but acknowledged that “obviously, there is an issue as to whether the front bumper was defectively manufactured and/or designed.” Tucker filed a 3rd-party complaint against Diamond alleging defective design which caused the accident. Mickelson reported to NII and CI that Don Friedman of Xperts would testify that “the bumper was defectively designed and unreasonably dangerous” and that “it is also obvious that the bumper’s deflection into the tire caused the loss of control.” Penn moved for summary judgment 11/25/09, arguing that superseding cause was not available to Tucker because negligence per se had been established by the Court and Tucker had admitted that its negligence per se was a cause-in-fact of his injuries. Tucker responded that where there is an allegation of intervening cause the plaintiff must establish both cause-in-fact and proximate cause, and that material fact issues as to alleged defective design or manufacture precluded summary judgment. Dayton denied Penn’s motion, finding that “the alleged poor manufacture of the bus, though set in motion prior to the accident, could be an unforeseeable intervening cause of Penn’s injuries for which Tucker Transportation is not responsible.” Penn sought supervisory control. The MSC denied it 4-3. Justice Leaphart, concurring, citing Olson (Mont. 2008), explained that “a finding of negligence per se does not establish causation” and that

Penn’s injuries were not necessarily caused by the fact that the bus illegally entered the median. Rather, he suffered injuries because the bus rolled over — a fact which would have occurred totally irrespective of whether it crossed into the median.

He concluded that intervening, superseding cause was properly left for the trier of fact. Justice Wheat, joined by Justice Cotter, reached a different conclusion:

It makes little sense, in my mind for the law to allow Tucker Transportation to admit certain facts that led the District Court to conclude that Tucker Transportation was negligent per se, and, at the same time, allege that its liability was severed — ultimately shifting the burden to Penn to prove otherwise.

Penn amended to assert claims against Diamond for negligence and strict liability, asserting that he “fully intends to incorporate and rely upon” Tucker’s allegations and expert opinions, testimony and other proof which it develops in its 3rd-party claims against Diamond. Tucker disclosed that Friedman was prepared to testify that the bus was defective and unreasonably dangerous because of the design of the bumper system and that the bumper defect and other defects in design were the sole cause of the rollover. Tucker also disclosed biomechanical engineer Jacqueline Paver to opine that “Penn’s injuries were the direct result of the defective and unreasonably dangerous bus.” Tucker, Diamond, and component manufacturer DAK Plastics settled all claims among them relating to the passengers in 10/11, and Penn and Tucker settled in 12/11. Penn then filed this 3rd-party bad faith action against NII and CI in State Court under MCA 33-18-206(6), 201(4), and common law. Defendants removed to this Court. They assert that they had a reasonable basis in fact or law under MCA 33-18-242 for contesting Penn’s claims.

CI asserts that it was reasonable to defend against Penn’s negligence per se claim by arguing that Kingsbury was not “driving” or “operating” the bus after it hit the deer, he did not “react” to the deer and thus did not bring the case within Craig (Mont. 1999), and the case falls under the limited exception in Craig because the bumper malfunction caused the accident. It also asserts that it was reasonable to argue that an intervening, superseding cause — a manufacturing defect in the bumper — cut off Tucker’s liability. NII maintains a similar position and maintains that throughout the underlying litigation it and Tucker asserted that manufacturing & design defects were the cause of the accident. It argues that the question is not whether the deer was reasonably foreseeable, but whether the negligent & defective nature of the bus was reasonably foreseeable to the driver, and that it was not wholly unreasonable to assert intervening, superseding cause. It asserts that fact issues preclude summary judgment for Penn on negligence per se, also adopting CI’s position that it was reasonable to defend against negligence per se.

Penn seeks a ruling that liability was reasonably clear. He argues that it was unreasonable for Defendants to defend against negligence per se because Craigestablishes that certain objects on the road, such as a deer, are as a matter of law foreseeable to Montana motorists. He argues that the Court should first grant his motion for summary judgment, finding that Tucker was negligent per se and that intervening, superseding cause was unavailable, and that reasonableness of Defendants’ arguments should be resolved by the jury. The Court is unconvinced that it must first determine whether Tucker was negligent per se and whether intervening, superseding cause was unavailable. Even if it were to rule for Penn on these issues, the need to then consider whether Defendants had a reasonable basis in law for disputing liability would remain. Their reasonable basis defense is an affirmative defense and available even if liability is eventually established by a judge or jury. Judge Cebull explained in EOTT (D.Mont. 1999):

If an insurer can establish a reasonable basis for contesting the claim, the insurer has an affirmative defense — even if violations have been proven by the insured, even if actual fraud or malice have been shown. It is a complete defense. (citing Dees (Mont. 1993) (Gray, concurring)).

Accordingly, the court will first address Defendants’ motions on their affirmative defenses.

The Court finds no fact issues raised by Penn. He relied below on legal arguments. Defendants disclosed extensive expert testimony as to the alleged design defects. At no time did Penn disclose any experts to rebut Tucker’s expert opinions that the accident was caused by defects in the bus. After Dayton denied his motions on intervening, superseding cause and bifurcation, and after the MSC denied supervisory control, he amended to add claims against Diamond, indicating an intent to rely on Tucker’s design defect experts. This legal dispute was whether Montana law permitted Tucker to assert its causation defenses, particularly after Dayton found it negligent per se. Penn argues that “as a matter of law, [Tucker’s] negligence per se caused Penn’s injuries,” and that it was a “legal impossibility” for Diamond’s negligence to be an intervening, superseding cause that severed Tucker’s negligence per se, and that “as a matter of law, the insurers never had the defense of intervening, superseding cause because hitting a deer on a Montana highway was, as a matter of law, foreseeable.” Even his counsel’s affidavit makes clear that the dispute was legal, not factual: “At no time did Penn ever agree that Tucker Transportation had the defense of intervening, superseding cause, but only that Tucker Transportation had the right to bring a contribution claim against Diamond Coach.” Thus, the question is whether Tucker had a reasonable basis “in law” for asserting this causation defense. To answer this, one must interpret Montana law, a task for the Court, not a jury. Redies (Mont. 2007).

The determinative question is whether, at the time of the insurer’s proffered defense, the case law has reached a point at which its defense no longer constitutes a reasonable basis in law. Redies. Legal concepts such as “proximate cause” and “foreseeability” are “best left to arguments between attorneys for consideration by judges or justices; they are not terms which are properly submitted to a lay jury.” Busta (Mont. 1996). And:

When the defendant alleges that the chain of causation has been severed by an independent, intervening cause we must undertake a two-tired analysis. First we consider whether the defendant’s negligent act was a cause-in-fact of the plaintiff’s injury. Second, we consider whether the defendant’s act was a proximate cause of the plaintiff’s injury. To establish proximate cause, the plaintiff must show that it was the defendant’s breach which foreseeably and substantially caused his injury.Fisher (Mont. 2008).

Tucker relied on these and related authorities in responding to Penn’s motion for summary judgment on its affirmative defense of intervening, superseding cause. Even before he filed his case against Tucker, counsel for Tucker had written to Penn’s counsel raising this causation defense: “It appears that after the collision, the damage to the bus caused a loss of control which led to the rollover of the bus. We believe there are legitimate good-faith arguments in this case that even if the Tucker driver violated the statutes you cite, the violation was not the cause of the injuries to the passengers.” Tucker alleged throughout that the defective bumper design was an unforeseeable independent intervening cause that severed its liability. Without deciding on the merits of that dispute, and on the facts of the case, the Court concludes that there was a reasonable basis in law for the insurers to contest liability on these causation grounds.

Both a Montana district judge and an MSC justice interpreted Montana law as permitting Tucker to present its causation defense. Other justices concluded that the causation defense should not proceed, one even calling for a change in Montana law that would be largely consistent with Penn’s position. This Court, after reviewing these opinions and cases cited therein, and after reviewing the parties’ briefs here and in the underlying case, concludes that there was a reasonable basis in Montana law for the insurers to present the intervening causation defense. Thus no bad faith may lie. §33-18-242. Recommended, Defendants’ motions be granted.

Penn v. National Interstate Ins. and Cincinnati Ins., 40 MFR 388, 5/8/13.

Zander Blewett & Andrew Blewett (Hoyt & Blewett), Great Falls, for Penn; Robert James & Jordan Crosby (Ugrin, Alexander, Zadick & Higgins), Great Falls, for NII; Todd Hammer & Angela Jacobs (Hammer, Hewitt, Jacobs & Quinn), Kalispell, for CI.

INSURANCE: Dissolved Tennessee “junk health insurance” entity has capacity to be sued on theory of successor liability… fraud, constructive fraud, RICO claims sufficiently pled, punitives may be appropriate… most claims not time-barred… personal jurisdiction exercised over Georgia marketing support entity… alleged relationship among Defendants sufficient to support “affiliation” theory… contract elements sufficiently pled, parol evidence argument is a defense… allegations support unjust enrichment, racketeering claims… claims for fraud, negligent misrepresentation, constructive fraud, vicarious liability sufficiently particularized against each Defendant… claims by one Plaintiff against insurer precluded by settlement agreement absent production of “separate agreement” covering additional medicals or reasoned interpretation of settlement agreement to the contrary… Molloy.

Statement of claims by Carol Croteau, Renee Jones, and Keith Moore. This action concerns Defendants’ deceptive, predatory, concerted scheme to enrich themselves at the expense of financially vulnerable insureds by marketing membership in the National Better Living Association and selling junk health insurance as a “group benefit.” NBLA was authorized to transact business in Montana 11/08 to 2/12 when the authority was revoked. NBLA markets itself as membership association that seeks to improve quality of life through wellness services, including group benefits. It represents that it has 10,000 members nationwide. Defendants target consumers who cannot afford or do not qualify for credible coverage and then utilize “tell them anything” Internet and phone marketing to sell what they are led to believe is comprehensive health insurance when it was mere limited medical coverage. The scheme is orchestrated by NBLA contracting with Allied Health Benefits with significant overlap of officers & directors. AHB contracts with call centers such as Albert Cormier Solutions and Health Lead Systems. After the “sale” is closed and banking information taken for immediate debiting, consumers are transferred to an insurance producer who rattles off an incomprehensible disclaimer about the coverage. Members are then sent a package describing the benefits. They are unaware of the scam until they submit medical bills. Of the 318 claims submitted by the roughly 200 Montana consumers 12/06-12/09 when United States Life Ins. was providing coverage, only 6 were paid any amount. The 3 named Plaintiffs incurred more than $200,000 in denied medicals for which they believed they had coverage. This is statistical evidence of fraud. Plaintiffs bring this action pursuant to RICO in addition to claims for breach of contract, fraud, constructive fraud, negligence, misrepresentation, and unjust enrichment.

ACS moves to dismiss pursuant to Rules 12(b)(6) & 9(b). NBLA, AHB, and individual Defendants move to dismiss pursuant to Rules 12(b)(2), 12(b)(6), 8(a)(2), 8(c)(1), and 9(b). USLI moves to dismiss pursuant to 12(b)(6).

ACS argues that its legal existence was terminated and assets distributed prior to the filing of the complaint 5/21/13 and thus it lacks the capacity to be sued. It was dissolved by the Tennessee SOS in 8/10. A year later it filed articles of termination which stipulate that all assets were distributed to creditors & members. It argues that under Tennessee law, claims against dissolved entities are only enforceable to the extent of the undistributed assets. Plaintiffs respond that they are entitled to discovery as to insurance coverage, circumstances of dissolution, and possible successor liability. Both arguments miss the mark. ACS misinterprets Tennessee law as to notification of claims on dissolution of an LLC. Plaintiffs’ position is vacant of any supporting authority. An investigation of Tennessee corporation law reveals that Plaintiffs’ claims may proceed on a theory of successor liability as they are brought within 3 years of the filing of the articles terminating ACS. If discovery reveals information supporting claims against members or holders of financial rights of the now-dissolved entity, joinder may be required under Rule 19.

Plaintiffs’ fraud, constructive fraud, and RICO claims are sufficiently pled. Moore’s fraud claim against ACS accounts for the who, what, when, where, and how of the alleged fraud in each of the specific elements of the prima facie claim under Montana law. In detailing the parties, Plaintiffs have accounted for the specific role ACS played in the alleged fraudulent scheme. Introduction of allegations common to all counts and common to Moore also contribute the necessary detail. Moore’s constructive fraud claim against ACS details the circumstances surrounding his claim that he would not have purchased the policy but for the alleged misrepresentation that it provided a comprehensive benefit. Plaintiffs’ RICO claims meet the 9th Circuit standard in that they identify the time, place, and manner of each fraud, and the role of each Defendant in the scheme. Moore (9th Cir. 1989). ACS argues that incorporation by reference of introductory allegations common to each Plaintiff and all counts is insufficient, citing Geraldine (Mont. 2008). There, a count alleging constructive fraud only consisted a sentence incorporating previous allegations by reference and a sentence alleging the circumstances. Plaintiffs’ fraud count incorporates earlier statements common to each Plaintiff and common to all counts by reference, but the statements which follow detail how earlier allegations fit with each element of a claim for fraud under Montana law. Moore’s constructive fraud claim proceeds similarly, as does Plaintiffs’ RICO claim. Because Plaintiffs present a viable, sufficiently pled claim for fraud, punitives may be appropriate, and ACS’s motion to dismiss this claim is denied.

Jones agrees that fraud and constructive fraud claims are barred by the 2-year statute. As to her negligence claims, ASC argues that she knew or should have known that she purchased only limited medical benefits as early as 8/09 when she received a packet detailing them. However, the dispute as to when she became aware that her pregnancy claims would not be covered is a fact question. Plaintiffs agree that all of Croteau’s claims except breach of contract and RICO are time-barred. She became an NBLA member in 9/08. Medical claims she made related to an accident in 11/08 were denied in 12/08. Construed in the light most favorable to her, she became aware of the limited benefits in 12/08; this action commenced 4 years later. The parties dispute the statute for unjust enrichment. Construed in the light most favorable to Croteau, this is an action brought upon a contract in writing with an 8-year statute and is timely pled. Dismissal of her RICO claim pursuant to the 4-year statute is not appropriate because ACS has not presented specific facts surrounding denial of her claims. Moore’s fraud and constructive fraud claims as to denial of payment for a major cardiac event in 5/11 are not barred by the 2-year statute. NBLA et al also claim dismissal of some of Plaintiffs’ claims as time-barred. Many of these arguments parallel those by ACS, and are dismissed for the same reasons.

The individual Defendants argue that the Court lacks personal jurisdiction over them. Plaintiffs do not object to dismissal of claims against the individual Defendants.

Plaintiffs have alleged sufficient facts to support personal jurisdiction over AHB. They allege that it assisted in operations and other support services, “including contracting with third parties on behalf of NBLA for sales and marketing of its membership services and benefits.” They also allege significant overlap of officers and directors. They claim AHB contracted with call centers to target consumers seeking affordable health insurance over 5 years, eventually triggering an investigation by the Insurance Commissioner. These allegations are sufficient to establish a continuous & systematic pattern of activity upon which to base personal jurisdiction. They are also sufficient for specific personal jurisdiction as they present a cause for a tort: fraud. MRCivP 4(B)(1)(b). AHB’s CEO’s averment that it never contracted with ACS or HLS to solicit members for the NBLA is not sufficient to divest the Court of personal jurisdiction. Plaintiffs’ complaint implicates AHB in a sustained pattern of activity to market NBLA memberships to Montanans — grounds for the torts alleged. The CEO’s affidavit at most establishes a contested question of fact as to the extent of AHB’s involvement in the scheme.

The relationship alleged among Defendants is pled with sufficient detail to support Plaintiffs’ “affiliation theory.”

Plaintiffs have sufficiently pled elements of a contract to survive dismissal. Construed in a light most favorable to them, the contract dispute concerns an oral agreement for health insurance. Defendants’ argument as to the parol evidence rule is a defense.

Defendants contend that Plaintiffs have not alleged any misconduct, reliance, or cognizable injury to support their unjust enrichment claim. Plaintiffs allege that Defendants took money for memberships in NBLA for which no value was provided, detail allegations of misconduct or fault, and allege that Defendants took advantage of them. These allegations are sufficient for an unjust enrichment claim under Montana law. Pruyn (Mont. 2009).

Plaintiffs sufficiently plead a pattern of predicate acts constituting racketeering to avoid dismissal under Rules 9(b) or 12(b)(6). One example of a racketeering pattern cited in HJ (US 1989) is a scheme by which bogus insurance is marketed and sold to a variety of consumers with repeated collection of premiums month-to-month.

Defendants argue that Plaintiffs have “lumped” them together in articulating claims for fraud, negligent misrepresentation, constructive fraud, and vicarious liability contrary to Rule 9(b). However, they presented particularized allegations against each specific Defendant as to each Plaintiff, detailing their role in the alleged scheme.

USLI argues that terms of the consent agreement it executed with the Insurance Commissioner and the settlement agreement fully resolve all of Croteau’s claims against it. She counters that it violated the settlement agreement and she is no longer bound by it. She claims it agreed to pay her outstanding medicals and that payment of $11,000 to KRMC did not resolve $37,597 owed to other providers. Pursuant to the consent agreement, USLI agreed to pay “some … outstanding medical claims.” An email from an attorney for the Commissioner indicates outstanding medicals with KRMC will be paid pursuant to these agreements. Croteau argues that USLI should have paid other claims pursuant to a “separate agreement.” The consent agreement indicates that it “constitutes the entire agreement between the parties and that no other promises or agreements, either express or implied, have been made.” Even construed in the light most favorable to Croteau, the consent and settlement agreements appear to resolve all of her claims against USLI. Absent production of the “separate agreement” or a reasoned interpretation of the settlement documents that might give rise to a claim for relief, her claims against USLI are dismissed. She will be granted leave to amend her complaint against USLI.

USLI argues that Moore was never insured by USLI. Plaintiffs do not object to dismissal of his claims against USLI.

Croteau, Jones, and Moore v. National Better Living Association et al, 40 MFR 356, 5/30/13.

Amy Eddy & David Sandler (Bottomly, Eddy & Sandler), Kalispell, for Plaintiffs; John Oxendine, Atlanta, Lewis Hassett (Morris, Manning & Martin), Atlanta, Michael Lober (Lober, Dobson & Desai), Roswell, Ga., and Shandor Badaruddin (Moriarity, Badaruddin & Booke), Missoula, for NBLA and AHB; Kevin Feeback (Gough, Shanahan, Johnson & Waterman), Helena, for USLI; Bradley Luck & Jeffrey Roth (Garlington, Lohn & Robinson), for Life Ins. of North America; Kimberly Beatty (Browning, Kaleczyc, Berry & Hoven), Helena, for ACS.