Abbey Land v. Interstate Mechanical , 378 Mont. 372 ( 2015 )

March 10 2015
DA 14-0199
Case Number: DA 14-0199
IN THE SUPREME COURT OF THE STATE OF MONTANA
2015 MT 77ABBEY/LAND LLC, a Montana limited liability
company,
Plaintiff and Appellee,
v.
INTERSTATE MECHANICAL, INC., et al.,
Defendants.
APPEAL FROM: District Court of the Eleventh Judicial District,
In and For the County of Flathead, Cause No. DV-09-1198A
Honorable David M. Ortley, Presiding Judge
COUNSEL OF RECORD:
For Proposed Intervenor James River Insurance Company:
Robert K. Baldwin, Benjamin J. Alke, Goetz, Baldwin & Geddes, P.C.,
Bozeman, Montana
For Appellee Abbey/Land, LLC:
George B. Best, Best & Westover Law Office, Kalispell, Montana
Jon E. Cushman, Cushman Law Offices, P.C., Olympia, Washington
For Glacier Construction Partner, LLC:
William K. VanCanagan, Trent N. Walker, J.R. Casillas, Datsopoulos,
McDonald & Lind, P.C., Missoula, Montana
Submitted on Briefs: February 4, 2015
Decided: March 10, 2015
Filed:
__________________________________________
Clerk
Chief Justice Mike McGrath delivered the Opinion of the Court.
¶1 James River Insurance Company, proposed intervenor in this action, appeals from
the District Court’s entry of final judgment on March 17, 2014. We reverse and remand
for further proceedings.
BACKGROUND
¶2 This action is one of several involving disputes arising from the construction of a
large house on Shelter Island, located in Flathead Lake, Montana.1 There are no
stipulated facts, no factual findings by the District Court, and the parties do not agree on
several factual issues. Therefore, nothing in this Opinion should be taken as a finding or
a determination of disputed fact.
¶3 An individual named Donald Abbey formed Abbey/Land LLC, as its sole
member, to purchase Shelter Island in 2001. When Abbey/Land fell into disputes with
contractors who were working to build a large house on the island, Donald Abbey formed
Glacier Construction Partners LLC to handle the contracting for construction of the
house. Again Donald Abbey was the sole member of the Glacier LLC, and he signed the
Abbey/Land-Glacier construction contract on behalf of each entity. Glacier entered a
$1.4 million contract with Interstate Mechanical, Inc. for the design and installation of the
plumbing and heating-cooling system for the house. Subsequent change orders increased
the value of that contract by approximately $1 million.
1
The briefing and attached exhibits in this appeal identified Montana District Court cases in
Flathead and Lake Counties; an action in the United States District Court for the District of
Oregon; and an arbitration.
2
¶4 In 2009, disputes arose between Interstate and Glacier. In July 2009 Interstate
initiated an arbitration action to recover payments that it claimed as a result of its work on
the house project. In September 2009 Abbey/Land and Glacier, as plaintiffs, filed the
current action for damages in Montana District Court in Flathead County against
Interstate and other entities involved in the house project.
¶5 Subsequently Glacier asserted counterclaims in the Interstate arbitration
proceeding, and in January 2011, Glacier obtained a positive arbitration award against
Interstate of slightly over $400,000. In September 2011, Abbey/Land filed an amended
complaint in the Flathead County action, dismissing its sister entity Glacier as a plaintiff
and naming it as a defendant. Glacier then tendered the Abbey/Land claims to its
comprehensive general liability insurer, James River. James River refused to provide
defense or indemnity, asserting that the claims-made policy it issued to Glacier did not
provide coverage.
¶6 In May 2013, Glacier and Abbey/Land settled the Flathead County action as
between themselves.2 The settlement required Glacier to confess to a $12 million
judgment in favor of Abbey/Land and to assign to Abbey/Land all its rights against
various insurers, including James River.
¶7 In August 2013, James River moved to intervene in the Flathead County action for
the limited purpose of challenging the reasonableness of the $12 million confessed
judgment against Glacier and in favor of Abbey/Land. James River requested that it be
2
Donald Abbey, the principal of both Abbey/Land and Glacier, executed the confession of
judgment on behalf of Glacier.
3
allowed “to contest the reasonableness of the confession as it is the result of
impermissible collusion between Plaintiff Abbey/Land LLC and Defendant Glacier, who
are both owned and controlled by Mr. Donald G. Abbey.” The parties and James River
briefed their positions on the motion to intervene, and in the meanwhile Abbey/Land or
Glacier or both entered settlements with all other parties, including several other insurers
who had moved to intervene to challenge the confessed judgment. The District Court
never ruled on James River’s motion to intervene and never ruled upon the issues that
James River raised concerning the reasonableness of the confessed judgment.
¶8 On March 17, 2014, the District Court entered final judgment against Glacier and
in favor of Abbey/Land for $12 million plus interest at the annual rate of 12%. The
judgment recited that it was supported “on oath” and by “exhibits and other evidence”
demonstrating that the judgment was “reasonable in amount, was entered in good faith
and on a more likely than not basis, is less than the amount [Abbey/Land] would have
recovered at trial.” It is not clear what oaths, exhibits or other evidence the District Court
referred to, but there is no indication that the District Court considered James River’s
position that the confessed judgment was not reasonable.
¶9 James River appeals, arguing that the District Court should not have entered this
judgment without considering either its motion to intervene or the reasonableness of the
confessed judgment.
4
STANDARD OF REVIEW
¶10 This Court reviews a district court’s action on a motion to intervene for abuse of
discretion. Aspen Trails Ranch v. Simmons, 2010 MT 79, ¶ 29, 356 Mont. 41, 230 P.3d
808.
DISCUSSION
¶11 The issue is whether the District Court properly entered final judgment based upon
Glacier’s confession of judgment, without considering the merits of James River’s
motion to intervene. We determine that James River should have been allowed to
intervene in order to present its arguments and evidence concerning the reasonableness of
the confession of judgment agreed to by Glacier.
¶12 It is well established that an insurer who unjustifiably refuses to provide defense
or indemnification to its insured can be liable to the insured for the resulting defense
costs and for judgments or settlements. Farmers Union Mutual Ins. Co. v. Staples, 2004
MT 108, ¶ 20, 321 Mont. 99, 90 P.3d 381; Independent Milk & Cream v. Aetna, 68 Mont.
152, 158-59, 216 P. 1109, 1111 (1923). In Tidyman’s Management Services v. Davis,
2014 MT 205, 376 Mont. 80, 330 P.3d 1139, this Court recognized that an insured’s
settlement in such a situation must be reasonable. Tidyman’s, ¶ 40; § 27-1-302, MCA;
Watson v. West, 2011 MT 57, ¶ 11, 360 Mont. 9, 250 P.3d 845 (district court’s award of
damages after defendant’s default must be reasonable). The insurer, even when in breach
of its obligations to its insured, is entitled to have the district court make a determination
of the reasonableness of a settlement entered by the insured. Tidyman’s, ¶ 41.
5
¶13 The insurer bears the burden to establish that the insured’s settlement was
unreasonable. Tidyman’s, ¶ 41. The district court may set the parameters of the
reasonableness hearing, and may determine whether there should be discovery and to
what extent. Tidyman’s ¶ 44. The district court must engage in a meaningful analysis of
the reasonableness of the insured’s settlement. Tidyman’s, ¶ 43. In this case, Abby/Land
contends that James River is liable to it for Glacier’s $12 million confessed judgment, but
James River was denied any opportunity to challenge the reasonableness of that amount.
¶14 James River’s right under Tidyman’s to challenge the reasonableness of Glacier’s
confessed judgment provided adequate grounds to allow James River to intervene in the
underlying action. Rule 24(a), M. R. Civ. P., allows intervention as a matter of right if
the applicant is timely; if the applicant has an interest in the subject matter of the action;
if the applicant’s interest may be impaired by the disposition of the action; and if the
applicant’s interest is not adequately represented by an existing party. Estate of
Schwenke v. Becktold, 252 Mont. 127, 131, 827 P.2d 808, 811 (1992). Here, James River
filed a timely application to intervene prior to entry of judgment. JAS, Inc. v. Eisele,
2014 MT 77, ¶ 27, 374 Mont. 312, 321 P.3d 113 (intervention application can be timely
even if filed after entry of judgment).
¶15 It is clear that James River has an interest in the subject matter of the litigation, in
which Abbey/Land and its sister entity Glacier agreed to a judgment that Abbey/Land
intends to enforce against James River. It is equally clear that the disposition of the
action—entry of judgment on Glacier’s confession and without affording James River the
opportunity to be heard—impairs James River’s interests. Last, while other insurers were
6
seeking to intervene and challenge the reasonableness of the confession, by the time the
case concluded they had all withdrawn. There was no other person or entity in the case
representing James River’s interest. Abbey/Land contends that James River has no need
to intervene, but may make its reasonableness arguments in the separate pending lawsuit
in Lake County which involves, at least in part, the coverage obligations of various
insurers, including James River. However, James River is entitled to make its
reasonableness showing in the present action. Nielsen v. TIG Ins. Co., 442 F. Supp.2d
972, 981 (D. Mont. 2006) (an insurer should raise reasonableness issues in the underlying
lawsuit, and not in a separate declaratory judgment action concerning coverage). The
issue of coverage is not involved in this case.
¶16 James River was entitled to intervene in this action to contest the reasonableness
of the confessed judgment. Aspen Trails, ¶ 35. While the District Court’s judgment
recited that the confessed judgment was entered in good faith and that the amount was
reasonable, those pro-forma recitations are insufficient to satisfy James River’s right to
meaningfully contest the reasonableness of the settlement amount. The District Court
erred by entering final judgment without considering James River’s application.
¶17 We reverse the District Court’s judgment dated March 17, 2014, in favor of
Abbey/Land LLC and against Glacier Construction Partners, LLC, in the amount of $12
million. We remand and direct the District Court to enter an order allowing James River
Insurance Company to intervene in order to raise the issue of the reasonableness of the
confessed judgment and whether it was the product of collusion. The District Court may
7
set the reasonable parameters of the proceeding to determine these issues, and may
determine whether there should be discovery and to what extent.
¶18 Reversed and remanded for further proceedings consistent with this Opinion.
/S/ MIKE McGRATH
We Concur:
/S/ JAMES JEREMIAH SHEA
/S/ BETH BAKER
/S/ MICHAEL E WHEAT
/S/ JIM RICE
8