Gordon v. Hedman

No. 95-432
IN THE SUPREME COURT OF THE STATE OF MONTANA
1996
KENNETH GORDON,
Plaintiff and Appellant,
v.
DONALD E. "GENE" HEDMAN and
HEDMAN, HILEMAN & LACOSTA,
Defendants and Respondents
APPEAL FROM: District Court of the Eleventh Judicial District,
In and for the County of Flathead,
The Honorable Ted 0. Lympus, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Sara R. Sexe, Jason G. Dykstra, Marra, Wenz, Johnson
& Hopkins, Great Falls, Montana
For Respondent:
Tracy Axelberg, Axelberg & Kalkstein, Missoula,
Montana
Submitted on Briefs: March 2, 1996
Decided: June 25, 1996
Filed:
Justice William E. Hunt, Sr. delivered the Opinion of the Court.
Appellant, Kenneth Gordon, filed a complaint in the Eleventh
Judicial District Court, Flathead County, alleging professional
malpractice by respondent and his law firm. Respondent filed a
motion to dismiss which the District Court granted. Appellant
appeals that decision.
We reverse and remand.
We restate the dispositive issues as follows:
1. Did the District Court err in ruling that absent a
relationship of subrogation, Home Insurance Company was unable to
substitute itself as the real party in interest pursuant to Rule
17(a), M.R.Civ.P.?
2. Did the District Court err in dismissing the action for
failure to state a claim upon which relief could be granted?
FACTS
The facts and allegations as set forth in appellant's
complaint are as follows: All parties to this action are residents
of Flathead County, Montana. Appellant and respondent began their
attorney-client relationship in the fall of 1990 when respondent
agreed to represent appellant in an action arising from the
termination of appellant's disability benefits from the Anaconda
Aluminum/ARC0 Long-Term Disability Plan.
Appellant's complaint alleges that respondent failed to timely
or properly pursue an action for breach of fiduciary duty by Thomas
L. Jacobs, the administrator of the disability plan. The complaint
asserts that, although respondent did file an action on behalf of
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appellant, it was filed after the time allowed by the applicable
statute of limitations. Moreover, the complaint alleges that
respondent improperly filed in State District Court, rather than in
Federal District Court, and that respondent failed to invoke the
appropriate sections of the Employees Retirement Income Security
Act (ERISA), 29 U.S.C. 5 1001, et seq. Appellant asserts that this
claim, if successful, would have provided certain equitable,
remedial, and legal remedies.
The complaint further alleges that, because of the attorney-
client relationship, respondent had a duty to represent appellant
with the reasonable care, skill and diligence possessed and
exercised by an ordinary attorney under similar circumstances.
Appellant asserts that respondent breached his professional duty by
failing to adequately represent appellant's interests and that,
consequently, appellant suffered damages.
In May 1995, respondent filed a motion to dismiss appellant's
complaint. In his brief in support of the motion, respondent
alleges that appellant had made similar claims in an earlier
proceeding against another attorney who had represented appellant.
Respondent attached a copy of the compliant. According to
respondent, that action was ultimately settled and dismissed with
prejudice. Respondent contends that as part of the settlement,
appellant signed a release by which he unconditionally assigned any
and all claims he had against respondent and the respondent law
firm to the Home Insurance Company, the first attorney's
malpractice carrier. The issue of whether a professional
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negligence claim can be assigned is not raised by the parties or
addressed by this Court.
Respondent alleges the proper plaintiff is Home Insurance
Company as the purported assignee of any rights held by appellant
and that, accordingly, appellant does not have standing to pursue
this claim and the complaint should be dismissed.
Moreover, respondent argues that, even if appellant could
proceed, he had signed an unequivocal release of any and all
damages. Therefore, appellant had nothing to assign to the Home
Insurance Company for the purpose of future action and,
accordingly, the complaint- failed to state a claim upon which
relief could be granted.
Following the submission of the motion to dismiss, appellant
filed two ratifications of the present action pursuant to Rule
17(a), M.R.Civ.P. The law firm that first represented appellant
and the Home Insurance Company filed documents reflecting
ratification of the action brought by appellant. Both parties
agreed to be bound by the result.
Following submission of the ratifications, the District Court
granted respondent's motion to dismiss. In the order, the court
found that the release appellant signed in conjunction with the
settlement of the earlier- lawsuit did not create a right of
subrogation in Home Insurance Company. Absent subrogation, the
court concluded that "the substitution/ratification provision of
Rule 17(a)" did not apply. Moreover, the District Court concluded
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that appellant could not state a claim upon which relief could have
been granted.
Appellant appeals.
ISSUE ONE
Did the District court err in ruling that absent a
relationship of subrogation that Home Insurance Company was unable
to substitute itself as the real party in interest pursuant to Rule
17 (a) , M.R.Civ.P.?
An action must be prosecuted by the real party in interest.
Rule 17(a), M.R.Civ.P. Rule 17 also provides that no action will
be dismissed until a reasonable time has been allowed for
ratification, substitution or joinder of the real party. The rule
reads, in part, as follows:
Rule 17(a). Real party in interest. Every action shall
be prosecuted in the name of the real party in interest.
A personal representative, guardian, bailee, trustee of
an express trust, a party with whom or in whose name a
contract has been made-for the benefit of another, or a
party authorized by statute may sue in that person's own
name without joining the party for whose benefit the
action is brought; . . . No action shall be dismissed on
the ground that it is not prosecuted in the name of the
real party in interest until a reasonable time has been
allowed after objection for ratification of commencement
of the action by, or joinder, or substitution of, the
real party in interest; and such ratification, joinder,
or substitution, shall have the same effect as if the
action had been commenced in the name of the real party
in interest.
The rule was intended to protect individuals from harassment and
multiple suits by persons not bound by the claim. See 6 Wright,
Miller and Kane, Federal Practice and Procedure 51543 (1990).
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Here, respondent correctly objected to appellant's role as
plaintiff. Following respondent's objection, Bothe & Lauridsen and
the Home Insurance Company both executed ratifications of Gordon's
action. These documents were submitted prior to the court's ruling
on respondent's motion to dismiss. In the order dismissing the
complaint, the court concluded that neither substitution or
ratification of this action was possible under Rule 17 (a) ,
M.R.Civ.P., because of the nature of the relationship between
appellant and the insurance company.
Appellant argues that the District Court erred in this
conclusion. In support of his argument, appellant refers to the
last sentence of Rule 17(a), M.R.Civ.P.: 'I No action shall be
dismissed . until a reasonable time has been allowed after
objection for ratification . . . " Appellant contends that Rule
17 (a) , M.R.Civ.P., was satisfied because the purported real party
in interest, Home Insurance Company, ratified the action.
Furthermore, appellant argues that a decision regarding the method
of compliance with Rule 17(a), M.R.Civ.P., rests solely with the
real party. In support of this argument, appellant cites State ex.
rel. Nawd's T.V. v. District Court (1975), 168 Mont. 456, 543 P.Zd
1336.
In Nawd's, the plaintiff sought a writ of supervisory control
after the district court had issued an order requiring
"substitution and joinder" of the plaintiff's insurer in the
action. We held that Rule 17(a), M.R.Civ.P., "plainly provides
that a reasonable time will be given to allow the real party in
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interest to bind himself to the suit by ratification, joinder, or
substitution." Nawd's, 543 P.2d at 1339 (emphasis omitted).
This Court reviewed the question of whether a district court
had the discretion to decide which method a real party had to use
in order to bind itself to litigation under Rule 17(a), M.R.Civ.P.
In that decision, the parties included fully and partially
subrogated insurance carriers, and this Court held that partially
subrogated insurance carriers had the option of choosing the method
of ratification. Nawd's, 543 P.2d at 1339.
In this case, the District Court concluded that despite
appellant's efforts to create a right of subrogation through
assignment, appellant and the Home Insurance Company were not in
the position of subrogor to subrogee, and, therefore, the action
was not amenable to substitution or ratification pursuant to Rule
17(a), M.R.Civ.P., citing to State ex. Rel. Slovak v. District
Court (1975), 166 Mont. 485, 534 P.2d 850. Consequently, the court
granted respondent's motion, and dismissed appellant's complaint.
According to the release document, appellant assigned all of
his interest in the present action to Home Insurance Company,
Bothe, and Bothe and Lauridsen as part of the settlement in the
earlier lawsuit. Since appellant had assigned his entire claim to
the Home Insurance Company, this Court agrees with the District
Court that appellant had no claim to file. Absent a claim to file,
Home Insurance does not have a claim to ratify.
However, just because Home Insurance Company may not be able
to ratify the current action does not mean it cannot substitute
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itself as the real party in interest pursuant to Rule 17(a),
M.R.Civ.P. The rule provides that no action shall be dismissed on
the ground that it is not prosecuted in the name of the real party
in interest until a reasonable time has been allowed after
objection for ratification of commencement of the action by, or
joinder, or substitution of, the real party in interest. Rule
17 (a) , M.R.Civ.P., does not distinguish between the party who has
obtained an interest in an action through subrogation and the party
who has obtained an interest through assignment by contract.
The plain language of Rule 17(a), M.R.Civ.P., gives the real
party in interest the option of binding itself to litigation by
"ratification, joinder, or substitution." State ex. rel. Bohrer v.
District Court (1976), 171 Mont. 116, 118, 556 P.2d 899, 900.
Although the real party in interest did not have the option of
ratification as the assignee of plaintiff's claim, the role of the
district court is to make sure that one of these methods has been
adhered to after an objection has been made under Rule 17. Bohrer,
556 P.2d at 900. Once the objection to appellant as plaintiff was
made, the real party had the option of binding itself to the suit
through substitution. Bohrer, 556 P.2d at 900.
Following Home Insurance Company's attempt at ratification,
the court simply granted respondent's motion to dismiss. Home
Insurance Company was not given an opportunity to substitute itself
as the real party in interest. Accordingly, we reverse the
District Court in order to allow the real party in interest a
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reasonable time in which to substitute itself as the real party in
the present action.
ISSUE TWO
Did the District Court err in dismissing this action for
failure to state a claim upon which relief could be granted?
In the present action, the court looked to documents outside
of the original pleadings. By doing so, the court constructively
converted respondent's motion to dismiss into a motion for summary
judgment without notice. See Rule 12(b) (6), M.R.Civ.P. This Court
has consistently held that it is incumbent upon a district court to
give parties formal notice of a conversion to summary judgment.
Gebhardt v. D.A. Davidson & Co. (198X), 203 Mont. 384, 661 P.2d
855. After a party has been notified of the court's intentions,
the parties then have a reasonable opportunity to present all
material made pertinent to such a motion. State ex rel. Dept. of
H. & E. S. v. City of Livingston (19761, 169 Mont. 431, 435, 548
P.2d 155, 157.
However, since we are reversing in order to allow the real
party in interest the opportunity for substitution, the court's
error in failing to notify the parties of its intent to convert the
Rule 12(b) (61, M.R.C~V.P. motion to one for summary judgment is
harmless error.
We Concur:
Chief Justice
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