Litwin v. O.T. Mining ( 2020 )

03/25/2020
DA 19-0329
Case Number: DA 19-0329
IN THE SUPREME COURT OF THE STATE OF MONTANA
2020 MT 63N
MICHAEL LITWIN, COLUMBIA-BUFFREY INVESTMENTS, INC.,
and CHODOS INVESTMENTS, LTD,
Plaintiffs, Appellees,
and Cross-Appellants,
v.
THE O.T. MINING CORPORATION, a Montana Corporation,
ROSEMARY L. CHRISTENSEN, ARTHUR SELIGMAN,
THOMAS H. FITZGERALD, JR., PIERE YVES LE DILICOCQ
and JOHN DOES NOS. 1-20,
Defendants and Appellants.
APPEAL FROM: District Court of the Fifth Judicial District,
In and For the County of Jefferson, Cause No. DV-2015-50
Honorable Luke Berger, Presiding Judge
COUNSEL OF RECORD:
For Appellants:
John C. Doubek, Doubek, Pyfer & Storrar, PC, Helena, Montana
For Appellees:
Frederick F. Sherwood, Morrison, Sherwood, Wilson & Deola, PLLP,
Helena, Montana
Submitted on Briefs: February 5, 2020
Decided: March 24, 2020
Filed:
cir-641.—if
__________________________________________
Clerk
Chief Justice Mike McGrath delivered the Opinion of the Court.
¶1 Pursuant to Section I, Paragraph 3(c), Montana Supreme Court Internal Operating
Rules, this case is decided by memorandum opinion and shall not be cited and does not
serve as precedent. Its case title, cause number, and disposition shall be included in this
Court’s quarterly list of noncitable cases published in the Pacific Reporter and Montana
Reports.
¶2 The O.T. Mining Corporation (“OTMC”) appeals a September 26, 2018 Default
Judgment entered in Montana’s Fifth Judicial District Court in favor of Michael Litwin,
et al. (“Litwin Group”). OTMC also appeals the District Court’s January 9, 2019 order
denying its motion to vacate default judgment. The Litwin Group cross-appeals a May 7,
2019 Amended Judgment removing prejudgment interest from the judgment. We affirm.
¶3 In February 2014, the Litwin Group, whose members are residents of Quebec,
Canada, signed voting and investment agreements for the purchase of $375,000 in stock
shares in OTMC1 stock, subject to a one-year trading restriction. At the time of the
purchase, OTMC had in its possession a letter from the Autorite des Marches Financiers
(“AMF”),2 received in December 2013, notifying OTMC that a Cease Trade Order was
pending. OTMC did not disclose the letter to the Litwin Group prior to the investment or
that the Cease Trade Order would be issued to all shares of Quebec residents. In July
1
OTMC is a junior mining company operating in Canada and Montana. OTMC’s only
equity in Montana is patented and unpatented mining claims located in Jefferson County. Junior
mining companies generally do not mine ore, but instead, acquire undeveloped prospects and
expend sums to acquire scientific data to advance the property to audited reserves, then sell these
reserves to a major company with sufficient capital to undertake commercial mining operations.
2
AMF is equivalent to the Securities and Exchange Commission in Quebec, Canada.
2
2014, the Cease Trade Order became permanent, preventing Quebec residents from
trading shares of the company, thus rendering Litwin’s OTMC shares arguably valueless
and illiquid.
¶4 In June 2015, the Litwin Group filed a Complaint and Application for
Appointment of a Receiver in District Court, alleging: (1) fraud and fraudulent
inducement; (2) negligent misrepresentation; (3) rescission; (4) breach of contract; and
(5) breach of fiduciary duty. In July 2015, OTMC retained Robert Cummins, a Montana
attorney, as counsel. In March 2017, the Litwin Group filed a motion for summary
judgment on all counts of the complaint. In August 2017, the District Court granted the
Litwin Group’s motion against OTMC for breach of contract and granted requests for
sanctions against OTMC for discovery abuses for failure to comply with scheduled
depositions.
¶5 On February 21, 2018, the District Court issued a scheduling order setting a final
pretrial conference for August 15, 2018, and a trial date of September 26, 2018. On July
27, 2018, Cummins sought to withdraw from representing OTMC because OTMC had
not paid Cummins since May 2017.3 The court ordered OTMC or its new counsel to
appear at the final pretrial conference on August 15.
3
In July 2017, OTMC signed a consent form stating that Cummins could withdraw from
representing OTMC if he were not paid in full by September 2017. Cummins’s July 27, 2018
motion to withdraw indicated that he had not been paid since May 2017. OTMC never alerted to
the court or the Litwin Group Cummins’s potential withdrawal. In August 2018, the Litwin
Group discovered that in May 2018, Cummins sued OTMC for unpaid fees in Lewis and Clark
County District Court. On June 28, 2018, Cummins obtained a default judgment against OTMC
for $55,405 in unpaid fees. For whatever reason, Cummins continued to represent OTMC in the
present action until July 27, 2018. Cummins subsequently filed his default judgment in Jefferson
County, where it became a judgment lien on the real property owned by OTMC.
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¶6 On August 2, 2018, Dillon Erickson filed a notice of limited appearance and
request to continue the trial on behalf of OTMC for the exclusive purpose of filing the
motion to continue at the pretrial conference. At the August 15 conference, Erickson was
given until August 17, later extended to August 21, 2018, to inform the court if he
intended to be fully retained by OTMC. The court order stated, “If Mr. Erickson is not
obtained to represent Defendants, a show cause hearing will be held on Wednesday,
August 22, 2018 at 3:00. Defendants will be required to appear telephonically . . . or
shall be held in contempt of court.” On August 21, 2018, Erickson informed the court he
would not be representing OTMC. At the status conference the following day, OTMC
did not appear in person or through counsel. The District Court held OTMC in contempt
for failure to appear and set another status conference for September 20, 2018. The
District Court required OTMC “to appear in person or be represented by counsel who
shall appear in person. Failure to comply could result in Defendants being held in
contempt of court.”
¶7 On August 30, 2018, the Litwin Group moved for sanctions against OTMC in the
form of judgment for $375,000, plus prejudgment interest, attorney’s fees, and costs. On
September 19, 2018, the day before the status conference, Rosemary Christensen of
OTMC emailed the Clerk of Court and requested the following email be submitted to the
court:
Further to the Order of August 22, 2018, we have attempted to comply with
said Order and obtain suitable representation. We have spoken to several
attorneys who would be suitable but are unavailable at this time. We have
spoken to two attorneys who seem most suitable but who require rather
large fees that we cannot face at this time because our funds that were to be
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wired from Hong Kong this Monday have not been transmitted due to the
disastrous typhoon. Should the Court require it, I am prepared to file a
Notice to proceed Pro-Se. I apologize for this inconvenience and pray that
the Honorable Judge will exercise forbearance and understanding.
The following day at the September 20 hearing, OTMC was not represented in any
capacity.
¶8 On September 24, 2018, the court granted the Litwin Group’s request for
sanctions, signing an Order and Entry of Default pursuant to M. R. Civ. P. 16(f) and
37(b)(2)(A).4 On September 26, 2018, the court entered judgment for $375,000, plus
prejudgment interest of $128,758.57, in addition to costs and attorney’s fees to be later
determined.
¶9 On October 24, 2018, OTMC’s new attorney, Philip Chiaviello, appeared on
OTMC’s behalf and filed a Motion to Vacate Default Judgment, requesting relief
pursuant to M. R. Civ. P. 55(c), 59(e), and 60(b)(6).5 On January 9, 2019, the District
Court denied OTMC’s motion in part, declining to set aside default judgment, including
the award of damages and attorney’s fees, but invited further briefing on the applicability,
amount, and timing of the prejudgment interest awarded. On April 10, 2019, the court
removed prejudgment interest from its award and issued an Amended Judgment on May
7, 2019. OTMC appeals the September 2018 entry of default judgment and the January
4
In the September 24, 2018 order, the court noted that the Litwin Group’s motion for
sanctions brought to the court’s attention, for the first time, that Cummins sued OTMC in May of
2018 and obtained a default judgment. The court further noted that it was not informed that
Cummins was withdrawing as OTMC’s counsel until his July 27, 2018 motion. The court
explained that “Defendants’ tactics required the Court to vacate the [September 26, 2018] trial
date.”
Only in OTMC’s reply brief on the motion to set aside default judgment did they argue that
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the default judgment should be set aside pursuant to M. R. Civ. P. 60(b)(1).
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9, 2019 order declining to vacate default judgment. The Litwin Group cross-appeals the
May 2019 order to set aside the inclusion of prejudgment interest in the award.
¶10 We review a district court’s decision to impose sanctions for failure to comply
with an M. R. Civ. P. 16(b) order for an abuse of discretion and the sanction imposed for
an abuse of discretion, noting that the district court is in a better position to consider the
circumstances of each case and determine which sanction is the most appropriate.
Watson v. West, 2009 MT 342, ¶ 17, 353 Mont. 120, 218 P.3d 1227; Xin Xu v.
McLaughlin Research Inst. for Biomedical Sci., Inc., 2005 MT 209, ¶ 17, 328 Mont. 232,
119 P.3d 100. We review a district court’s decision to deny a motion to set aside a
default judgment for only a slight abuse of discretion. Whitefish Credit Union v.
Sherman, 2012 MT 267, ¶ 7, 367 Mont. 103, 289 P.3d 174. An award of prejudgment
interest is a question of law which we review for correctness. Am. Music Co. v. Higbee,
2004 MT 349, ¶ 13, 324 Mont. 348, 103 P.3d 518.
¶11 OTMC argues that the District Court erred in entering the default judgment
because the abandonment by its attorney prior to trial created significant hardship for
OTMC regarding travel arrangements to Montana and its ability to secure substitute
counsel. We disagree.
¶12 M. R. Civ. P. 16(f), authorizes a district court to award sanctions, on motion or on
its own accord, including those authorized by M. R. Civ. P. 37, if a party or its attorney
fails to appear at a scheduling or other pretrial conference or fails to obey a scheduling or
other pretrial order. Stafford v. Fockaert, 2016 MT 28, ¶ 18, 382 Mont. 178, 366 P.3d
673. Further, “instead of or in addition to any other sanction, the court must order the
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party, its attorney, or both to pay reasonable expenses – including attorney fees – incurred
because of any noncompliance with the rule, unless the noncompliance was substantially
justified or other circumstances make an award of expenses unjust.” Mont. R. Civ. P.
16(f)(2); Serrania v. LPH, Inc., 2015 MT 113, ¶ 31, 379 Mont. 17, 347 P.3d 1237.
M. R. Civ. P. 37 expressly provides a court with the authority to render a default
judgment against the disobedient party. Stafford, ¶ 18.
¶13 In a case involving entry of a default judgment as a sanction, sanctions are
appropriate where counsel or a party has acted willfully or in bad faith in failing to
comply with the rules of discovery, with court orders enforcing the rules, or in flagrant
disregard of those rules. Stokes v. Ford Motor Co., 2013 MT 29, ¶ 18, 368 Mont. 365,
300 P.3d 648. The party requesting a default judgment must show prejudice. Stokes,
¶ 18.
¶14 Here, undermining its theory that default judgment stemmed solely from its
counsel’s unexpected abandonment prior to trial, OTMC had affirmative knowledge of
Cummins’s potential withdrawal from representation long before July 2018. OTMC
signed a consent form for Cummins to withdraw if he was not paid in full back in May
2017. Nonetheless, Cummins continued to actively represent OTMC in the litigation
until July 27, 2018, even after suing OTMC in May 2018. Throughout this, OTMC and
Cummins did not disclose to the court or the Litwin Group of Cummins’s potential
withdrawal before the February 2018 status conference when the case was set for trial, or
at any time thereafter. OTMC’s attempt to castigate the District Court for unnecessarily
punishing OTMC based on Cummins’s “unexpected” withdrawal is without merit.
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¶15 OTMC’s argument that they could not travel to the September 2018 hearing
because of the limited time to obtain a passport or make travel arrangements also rings
hollow. The court originally set a trial date for September 2018 over six months earlier
in February 2018. OTMC was already on notice that they would need to travel to
Montana during that time; any steps to obtain a passport should have already occurred.
By the time of the August 15, 2018 status conference, OTMC was fully aware that the
court intended to have its trial in September. Even so, OTMC still did not attempt to
secure travel arrangements.
¶16 OTMC further exhibited a pattern of behavior throughout the litigation reflecting a
willing disregard to adhere to deadlines and requirements imposed by the District Court.
Indeed, as the court noted in its September 24, 2018 order, OTMC made a habit of being
an “empty chair” in the litigation. OTMC incurred monetary sanctions for failing to
comply with scheduled depositions. OTMC also failed to appear independently or
through counsel at either the August 22, 2018 status conference or the September 20,
2018 show cause hearing. OTMC received notice of both dates, with the understanding
that it would be held in contempt of court if it failed to appear. Collectively, OTMC
displayed persistent indifference to orders of the trial court. The sanction entering the
default judgment and awarding attorney’s fees to the Litwin Group was proportional to
OTMC’s repeated absences and failure to comply with court orders. Without the default
judgment, the Litwin Group would be subject to prejudice stemming from protracted
litigation such that OTMC could continue to avoid accountability for damages owed to
8
the Litwin Group for breach of contract. The court did not abuse its discretion in issuing
a default sanction against OTMC.
¶17 OTMC also argues that the District Court abused its discretion when it did not
vacate the default judgment because OTMC met its M. R. Civ. P. 60(b)(1) and 60(b)(6)
burdens. M. R. Civ. P. 60(b) provides that a “court may relieve a party . . . from a final
judgment, order, or proceeding for . . . (1) mistake, inadvertence, surprise, or excusable
neglect . . . or (6) any other reason justifying relief from the operation of judgment.” Hoff
v. Lake Cnty. Abstract & Title Co., 2011 MT 118, ¶ 32, 360 Mont. 461, 255 P.3d 137. In
order for a default judgment to be set aside under M. R. Civ. P. 60(b)(1), a movant has
the burden to demonstrate that (1) they proceeded with diligence; (2) excusable neglect;
(3) that the judgment would affect the defendant injuriously; and (4) a meritorious
defense. Bartell v. Zabawa, 2009 MT 204, ¶ 14, 351 Mont. 211, 214 P.3d 735. In order
to prevail on a motion to set aside a default judgment under M. R. Civ. P. 60(b)(6), the
moving party must first show that none of the other five reasons provided in Rule
60(b)(1)-(5) apply and must also demonstrate extraordinary circumstances justifying
relief. Wittich Law Firm, P.C. v. O’Connell, 2013 MT 122, ¶ 20, 370 Mont. 103, 304
P.3d 375.
¶18 The general rule in Montana is that neglect of an attorney is attributable to the
client and insufficient by itself to set aside a default judgment. Lords v. Newman, 212
Mont. 359, 367, 688 P.2d 290, 295 (1984). Only when a party can show “total
abandonment” by its attorney, as opposed to mere carelessness or ignorance of the law on
9
the part of the litigant or his attorney, will a moving party meet its burden to establish
excusable neglect. See Whitefish Credit Union, ¶ 20.
¶19 OTMC only passively asserts that it met its Rule 60(b)(1) burden to set aside
default judgment while failing to develop its argument that excusable neglect was
present. OTMC cannot demonstrate that Cummins’s withdrawal constituted excusable
neglect given that OTMC knew of Cummins’s concerns regarding fees and knew that he
intended to resign as counsel if he was not paid. Further, because OTMC argues that
Rule 60(b)(1) applies, Rule 60(b)(6) is not available for application. The District Court
did not abuse its discretion in denying OTMC’s motion to vacate default judgment.
¶20 The Litwin Group cross-appeals the District Court’s decision to vacate its original
award of prejudgment interest. When a prevailing plaintiff’s amount of recovery is
capable of being made certain by calculation, that plaintiff is statutorily entitled to
prejudgment interest under § 27-1-211, MCA. Kalispell Aircraft Co., LLC v. Patterson,
2019 MT 142, ¶ 32, 396 Mont. 182, 443 P.3d 1100 (citations omitted). Three
requirements must be met under § 27-1-211, MCA: (1) an underlying monetary
obligation must exist; (2) the amount of recovery must be capable of being made certain;
and (3) the right to recover must vest on a particular day. Mont. Petroleum Tank Release
Comp. Bd. v. Crumleys, Inc., 2008 MT 2, ¶ 99, 341 Mont. 33, 174 P.3d 948. An award of
prejudgment interest is inappropriate when the damages at issue are uncertain or
disputed. Kalispell Aircraft Co., ¶ 32; see also Northern Mont. Hosp. v. Knight, 248
Mont. 310, 321, 811 P.2d 1276, 1282 (1991) (holding that prejudgment interest is
10
inappropriate when the amount is not conclusively determinative until the date the jury
returns a verdict).
¶21 In its April 10, 2019 Order on Award of Prejudgment Interest, the District Court
held that the second element requiring the amount of recovery is certain was not met
because damages were not ascertainable. We agree.
¶22 The Litwin Group relies on Stafford in arguing that prejudgment interest in this
case is capable of being made certain. In Stafford, we held that Stafford’s damages were
readily ascertainable prior to entry of default judgment because there was no factual
dispute regarding the amount Stafford initially paid Fockaert to invest on her behalf.
Stafford, ¶ 27. Like the District Court, we find that Stafford is distinguishable from the
facts here. At the time the Litwin Group purchased the stock shares from OTMC, they
received what they paid for. Only later did the Litwin Group raise issues as to the
transaction. Assuming the case went to trial, a factual dispute would exist as to whether
the stocks were truly worthless at the time of purchase given the Cease Trade Agreement
or whether they retained some value. See Northern Montana Hosp. 248 Mont. at 321,
811 P.2d at 1282. The District Court did not err when it declined to award the Litwin
Group prejudgment interest.
¶23 We have determined to decide this case pursuant to Section I, Paragraph 3(c) of
our Internal Operating Rules, which provides for memorandum opinions. In the opinion
of the Court, the case presents a question controlled by settled law or by the clear
application of applicable standards of review.
¶24 Affirmed.
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/S/ MIKE McGRATH
We Concur:
/S/ JIM RICE
/S/ JAMES JEREMIAH SHEA
/S/ INGRID GUSTAFSON
/S/ DIRK M. SANDEFUR
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