author: JUSTICE HUNT

text:
    In the MATTER OF THE ESTATE OF EDITH S. HAGGERTY, a/k/a Edith Haggerty, a/k/a Edith S. Sagunsky, a/k/a Edith Sagunsky, Deceased.
    No. 90-058.
    Submitted June 7, 1990.
    Decided Nov. 20, 1990.
    246 Mont. 351.
    805 P.2d 1338.

      John S. Warren, Schulz, Davis & Warren, Dillon, for appellant.
    W. Cecil Jones, Jones & Erb, Dillon, James J. Serenar, Nash, Guenther, Zimmer & Serenar, Bozeman, for respondent.
   JUSTICE HUNT

delivered the Opinion of the Court.

Appellant, a legatee to the estate of Edith S. Haggerty, appeals from two orders, one granting a motion to invalidate a successor’s agreement between himself and his brother, and, another denying a motion to offset his brother’s inheritance by an indebtedness of his brother to the estate. We affirm.

The issue before us is whether the District Court of the Eighteenth Judicial District, Judge Larry Moran presiding, abused its discretion in denying appellant’s motion on the ground that the issue of the offset had been decided in an earlier motion before the court, Judge Gary presiding. The parties present the following issues or arguments relating to the disallowance of an offset by the court as follows:

1. Is the estate’s right to offset Paul Sagunsky’s inheritance against his indebtedness to the estate superior to Judy Sagunsky’s claims as Paul’s judgment creditor?

2. Should the District Court have disregarded the corporate entity of Tipp, Inc. and offset Paul Sagunsky’s inheritance against Tipp’s debt owed to the estate?

3. What is the value of Paul Sagunsky’s debt to the estate for offset purposes?

Paul and Judith Sagunsky were married in 1978. During the marriage, Mrs. Sagunsky lent her husband money for his business, Halse Motors, Inc., which later became Tipp, Inc. The money came from a trust set up for the benefit of Mrs. Sagunsky and her two children after her first husband’s death in an airplane accident.

When the Sagunskys were divorced in 1982, the court determined that Paul owed Mrs. Sagunsky over $50,000. Mrs. Sagunsky obtained a judgment against Paul for that amount in 1986.

Edith Haggerty died testate December 18,1987, leaving her entire estate to her two sons, Paul and Byron Sagunsky. Mrs. Haggerty’s will had been executed April 15,1977, before her marriage to Thomas H. Haggerty in 1979 and before any of the transfers of property in question had been made to Paul in 1983 through 1986. Haggerty served as her personal representative and is not a legatee. The value of the estate was approximately $150,000. In May 1988, Mrs. Sagunsky attempted to levy against Paul’s half interest in the estate, but the levy was not paid.

On September 2, 1988, Paul and Byron entered into a successors’ agreement. According to the terms of the agreement, Byron would receive Paul’s share of the estate since Paul had received money from his mother totaling approximately $75,000 plus a $175,000 secured loan to Paul’s business, Tipp, Inc. At the time of his mother’s death, Paul’s business was insolvent, and Paul testified that the corporation was a “non-operating entity.”

Mrs. Sagunsky moved to set aside the successors’ agreement, and on March 16, 1989, a hearing was held. The court invalidated the agreement and ordered that one-half of the net estate be distributed to each of the brothers. The court also held that Mrs. Sagunsky had a valid claim against Paul’s half-interest. The court stated that if Byron wished to farther contest the issue, he could request an additional hearing under the provisions of § 72-3-912, MCA, regarding the offset of the debt against the estate.

Byron requested a second hearing. Judge Moran ruled that the issue had been previously determined in ruling on Mrs. Sagunsky’s motion and denied Byron’s motion. From this judgment Byron appeals.

I.

Issue one is whether the District Court abused its discretion in dismissing Byron Sagunsk/s motion.

We must first examine whether the District Court decided the issue of the offset of Paul Sagunsky’s indebtedness to the estate when it heard the motion brought by Mrs. Sagunsky. On November 1,1988, Mrs. Sagunsky moved to invalidate the successors’ agreement between Paul and Byron Sagunsky. The brothers had agreed that Byron would receive Paul’s share of the estate because the decedent had loaned to Paul and his business, Tipp, Inc., amounts in excess of $250,000.

The court stated that “[i]t would appear” that the debts “are not an offset against Paul’s distributive share.” In addition, the court stated that the offset issue “could be declared moot based upon the findings of the Court hereinafter set forth.” We agree that the conclusions of the court regarding the successors’ agreement were also dispositive of the offset issue.

In reaching its decision regarding the successors’ agreement the court considered several factors: 1) the successors’ agreement was entered into on September 2, 1988, after Mrs. Sagunsky had filed a claim against the estate on May 27, 1988; 2) the successors’ agreement had the effect of defeating a legitimate debt owed to Mrs. Sagunsky; 3) the will contained no provision regarding the amounts advanced to Paul; 4) no contemporaneous writings with the advances stated that the amounts should be deducted from Paul’s share of the estate; 5) the personal representative filed an amended inventory declaring the loans to Paul to be valueless; and 6) Byron and his family received gifts from his mother, including money for schooling and $16,000 as successor to a trust fund. The court thereby gave effect to § 72-2-515, MCA, which states:

“Property which a testator gave in his lifetime to a person is treated as a satisfaction of a devise to that person, in whole or in part, only if the will provides for deduction of the lifetime gift or the testator declares in a contemporaneous writing that the gift is to be deducted from the devise or is in satisfaction of the devise or the devisee acknowledges in writing that the gift is in satisfaction. For purpose of partial satisfaction, property given during lifetime is valued as of the time the devisee came into possession or enjoyment of the property or as of the time of death of the testator, whichever occurs first.”

The court invalidated the successors’ agreement, treating the amounts the decedent advanced to Paul as gifts, rather than advances or loans.

Byron claims that the Uniform Probate Code requires the estate to offset Paul Sagunsky’s inheritance against his indebtedness to the estate:

“The amount of a noncontingent indebtedness of a successor to the estate if due, or its present value if not due, shall be offset against the successor’s interest; but the successor has the benefit of any defense which would be available to him in a direct proceeding for recovery of the debt.”

Section 72-3-912, MCA. This section of the Uniform Probate Code, now adopted in Montana, is the codification of the common law “right of retainer.” See Matter of Will of Cargill (Minn. App. 1988), 420 N.W.2d 268. The earliest reported case involving this equitable doctrine was Jeffs v. Wood (1723), 2 P.Wms. 128, 24 Eng.Rep. 668. At that time, the rationale of the right of retainer was to avoid multiple lawsuits. Later the courts emphasized the moral and legal obligation of the debtor to pay his debt to the estate before participating in its distribution. Johnson v. Huntley (1951), 39 Wash.2d 499, 236 P.2d 776, 777.

The Uniform Probate Code does not address the priority of repayment when the successor owes both the estate and another creditor, as here. When the Code does not afford guidelines, “the principles of law and equity supplement its provisions.” Section 72-1-104, MCA. Most courts have ruled that the right of the estate to repayment is superior, even though the creditor’s claim is reduced to judgment. Hustad v. Reed (1958), 133 Mont. 211, 219, 321 P.2d 1083, 1088; In re Bergmann’s Estate (Fla. App. 1974), 305 So.2d 273; In re Eaton’s Estate (3 Dept. 1953), 282 A.D. 32, 121 N.Y.S.2d 836, 839; Smith v. Citizens National Bank in Okmulgee (Okla. 1957), 313 P.2d 505, 509.

Mrs. Sagunsky claims that the right of retainer statute does not apply because the sums in question were gifts, rather than loans. No doubt exists that the $117,690 transfer to Tipp, Inc., evidenced by a promissory note and mortgage, was a loan. However, the statute specifies that “the amount of noncontingent indebtedness of a successor to the estate” shall be offset. Section 72-3-912, MCA. (Emphasis added.)

The corporation is a separate and distinct entity and is not a successor to the estate. See In re Russell’s Estate (1936), 102 Mont. 301, 308, 59 P.2d 777, 780 (creditors of corporation cannot ordinarily assert claims against estate of controlling shareholder). Tipp, Inc., rather than Paul, owed $117,690 to the decedent. Since a corporation is not a successor to the estate, corporate indebtedness is not subject to the right of retainer.

At issue, then, are the other approximately $80,000 in bank drafts made out to Paul during the period from 1983 to 1986. As noted above, the court treated these amounts as gifts, although Paul and Mr. Haggerty testified that they were loans. The test is whether the parties considered these transfers to be binding obligations. See In re Tarbell’s Estate (N.Y. Sur. 1950), 99 N.Y.S.2d 902. In the Tarbell case the widow of the decedent claimed that a promissory note, executed by her son to her, which she later endorsed to her husband, should be offset against the son’s legacy. The transfer from the widow to the decedent of the note, which was void because of the statute of limitations, was made for business or tax reasons. The court found that no binding obligation existed between the decedent and the son where the only evidence of the debt was an entry made in the decedent’s account book. The court stated that “[t]he entry made in his book of account is not a written agreement, signed by him [the decedent].” Tarbell, 99 N.Y.S.2d at 907.

In this case, while the $80,000 in bank drafts were noted as loans in records kept by the decedent, Mr. Haggerty and Paul testified that no demand had ever been made for the sums. No promissory notes or agreements were signed, and Paul did not attempt to repay the sums. In his testimony, Mr. Haggerty agreed that the decedent knew the likelihood of repayment was not very great and did not seriously expect repayment from Paul.

An obligation arises either from the contract of the parties or by operation of law. Section 28-1-102, MCA. In Montana, all contracts may be oral except as prohibited by statute. Section 28-2-901, MCA; Keil v. Glacier Park, Inc. (1980), 188 Mont. 455, 460, 614 P.2d 502, 505. However, a contract cannot be created when performance is entirely optional with the promissor. Gray v. American Express Co. (D.C. Cir. 1984), 743 F.2d 10, 19; Restatement (Second) of Contracts § 77 comment a (1979). Thus, Paul did not have a binding obligation to repay the loans.

Further, a close relationship between the parties, such as a husband-wife or parent-child relationship, gives rise to a presumption that the transfer is a gift. Detra v. Bartoletti (1967), 150 Mont. 210, 217, 433 P.2d 485, 488. Here the parent-child relationship and the absence of evidence of a binding obligation, as well as inter vivos gifts to the other devisee, Byron, and his family, support a finding that the transfers to Paul were gifts. In addition, Byron received $16,000 as successor to a trust fund after his mother’s death. The evidence supports the District Court and we will not overturn the court’s orders regarding probate of an estate absent clear abuse of discretion. In re Estate of Nelson (Mont. 1990), [243 Mont. 276,] 794 P.2d 677, 679, 47 St.Rep. 1218, 1221.

Since the court in ruling on Mrs. Sagunsky’s motion found the transfers to be gifts, rather than advances or loans, the decision is also dispositive of the issue concerning the offset of Paul’s “indebtedness” to the estate pursuant to the right of retainer statute, § 72-3-912, MCA. We affirm the District Court’s dismissal of Bryon Sagunsky’s motion on the ground that the issue had been previously decided in the ruling on Mrs. Sagunsky’s motion.

II

The second issue is whether the District Court should have disregarded the corporate entity of Tipp, Inc. and offset Paul Sagunsky’s inheritance against Tipp’s debt owed to the estate.

We need not discuss this issue because of our holdings above.

III

The third issue is the value of Paul Sagunsky’s debt to the estate for offset purposes.

Mrs. Sagunsky argues that the value of Paul’s personal debt to the estate for offset purposes should be the same as the value of the debt for inventory purposes. Since we have affirmed the District Court’s decision that the inter vivos transfers to Paul should not be offset, we need not consider this argument.

However, we note that the value the personal representative must use for estate inventory purposes is the “fair market value as of the date of the decedent’s death.” Section 72-3-607(2), MCA.

The right of retainer statute, § 72-3-912, MCA, on the other hand, does not call for the fair market value of the debt to be deducted, but instead mandates that the “amount” of the successor’s indebtedness be deducted from his share or, if the indebtedness is not due, its “present value.” To hold that a past due uncollectible debt is to be valued at fair market value for purposes of offset against the indebted successor’s share of the estate would render the offset provision, § 72-3-912, MCA, meaningless.

In many cases, the debt of the successor to the estate will be uncollectible and thus valueless. That a debt cannot be collected does not mean, if a binding obligation between the decedent and the successor exists, that the amount of the debt should not be offset as the statute demands. Therefore, a situation may arise where a debt is given different values for the estate inventory and the offset provisions of § 72-3-912, MCA.

The judgment of the District Court is affirmed.

CHIEF JUSTICE TURNAGE and JUSTICES SHEEHY, HARRISON and BARZ concur.


source: Caselaw Access Project

author: JUSTICE HARRISON

license: Public Domain

text:
    GENERAL MOTORS ACCEPTANCE CORP., a New York Corporation, Plaintiff and Respondent, v. DONNA J. FINCH, Defendant and Appellant. DONNA J. FINCH, Third Party Plaintiff and Appellant, v. FRONTIER CHEVROLET COMPANY, a Montana Corporation, and GLOBE LIFE INSURANCE COMPANY, jointly and severally, Defendants and Respondents.
    No. 90-395.
    Submitted on briefs, Oct. 26, 1990.
    Decided Nov. 20, 1990.
    246 Mont. 359.
    805 P.2d 1331.

      Jerrold L. Nye, Nye & Meyer, Billings, for appellant.
    Renee L. Moomey, Crowley, Haughey, Hanson, Toole & Dietrich, W. Anderson Forsythe, Moulton, Bellingham, Longo & Mather, Peter Stanley, McNamer & Thompson, Billings, for respondents.
   JUSTICE HARRISON

delivered the Opinion of the Court.

This is an appeal from summary judgment entered against Donna J. Finch, third party plaintiff, in favor of all other parties by the District Court of the Thirteenth Judicial District, Yellowstone County. We affirm.

The sole issue on appeal is whether the District Court erred granting summary judgment in favor of General Motors Acceptance Corporation, Frontier Chevrolet Company and Globe Life Insurance Company.

This suit arises from a claim for payments due on a contract for an automobile. Plaintiff General Motors Acceptance Corporation (GMAC) was the assignee of a contract for the purchase of an automobile from Frontier Chevrolet (Frontier) in Billings, Montana. Appellant Donna J. Finch was the purchaser of the automobile. Globe Life Insurance Company (Globe) provided appellant a policy of disability insurance on the sale of the automobile.

Appellant purchased the car on August 11,1987 from Frontier. At the time of the sale, appellant also purchased through Frontier a disability insurance policy from Globe. The disability insurance policy provided, subject to certain limitations, that Globe would make appellant’s car payments if sickness or injury prevented her from doing so. However, the disability insurance policy, under exclusion (e), did not cover disability claims for injury or sickness treated within the six months before the effective date of the policy which resulted in disability within six months thereafter.

In December 1986, appellant suffered a head injury from a slip and fall while she was at work as a school bus driver. She was knocked ■unconscious in the accident. Later, in July 1987, appellant was injured when she fell off her horse. She was taken to a hospital where she was diagnosed as having a broken pelvis. While she was in the hospital, she suffered a grand mal seizure. On August 11, 1987, approximately three weeks after the seizure, appellant purchased her new car and credit disability policy. In January 1988, less than six months after purchasing the new car and credit disability policy, appellant suffered another seizure while driving a school bus. As a result, appellant became unable to continue work since Montana law forbids individuals who are prone to seizures from operating school buses without certification from an attending physician. See § 61-5-105, MCA (1988) and § 20-10- 103, MCA (1988). Appellant was, therefore, unable to make payments to GMAC under the purchase contract and so, on January 21, 1988, appellant filed a claim for disability benefits under the policy. Appellant listed on her credit disability form “seizures” as the type of sickness or injury that caused her disability. Globe denied appellant’s claim under exclusion (e) of the credit disability policy. Appellant thereafter defaulted on the purchase contract assigned to GMAC by failing to make the monthly payments for January, February March and April.

On April 14, 1988, after demanding payment due or possession of the automobile, GMAC filed this suit against appellant for claim and delivery and replevin of the automobile. On April 29,1988, appellant answered the complaint and included a third party complaint against Frontier and Globe which claimed breach of contract, fraud and emotional and mental distress. Thereafter, appellant filed an amended counterclaim on August 8, 1988 in which she also claimed against GMAC based on an alleged agency relationship between GMAC and Frontier. The District Court, in an order and memorandum dated July 25, 1989, granted summary judgment to GMAC on all counts and to Globe and Frontier on all counts but the claim for emotional and mental distress. The case proceeded in state court on this sole remaining issue.

Prior to filing the above-described third party action, appellant asserted the same claims against Globe in a separate court action entitled Finch v. Globe Life filed on April 18,1988. On May 17,1988, Globe removed that complaint to the United States District Court, Billings Division, and the case proceeded in federal court under diversity jurisdiction. After motions and briefs, the United States District Court issued a memorandum opinion and order and entered final judgment on May 10, 1990, granting summary judgment to Globe on all counts in the complaint. Appellant did not appeal this final judgment.

Thereafter, Globe renewed its summary judgment motion in state district court on the ground that the issues presented by the state court case, being identical to the issues presented in the parallel federal case, had become res judicata. On May 30, 1990, the District Court recognized that the remaining emotional and mental distress issue had now been decided, by final judgment, and therefore dismissed the case. Appellant now appeals. We affirm.

The sole issue on appeal is whether the District Court erred granting summary judgment in favor of GMAC, Frontier and Globe.

Appellant argues that GMAC was not entitled to summary judgment since genuine issues of material fact existed regarding an agency relationship between GMAC and the other defendants. Appellant contends that the alleged wrongdoing of Globe and Frontier would impute to GMAC pursuant to the agency relationship. In addition, appellant argues that GMAC was liable for appellant’s injury as a result of GMAC’s own independent acts which were separate from any acts of Frontier or Globe, but since appellant does not support this argument with facts of the record, we will not consider them in disposing of this appeal.

First, we shall consider whether summary judgment was properly granted in favor of Globe and Frontier.

The case against Globe was fully litigated in federal court, and final judgment entered in favor of Globe. Res judicata bars the same parties from relitigating the same cause of action. Smith v. Schweigert (Mont. 1990), [241 Mont. 54,] 785 P.2d 195, 197, 47 St.Rep. 77, 80. The same facts and issues formed the basis of both the federal court case and the state court case. Thus, the doctrine of res judicata would apply to bar further action by appellant against Globe in the state district comb.

As for Frontier, Globe’s agent, the doctrine of collateral estoppel would work to bar action by appellant against Frontier based on the facts and issues already litigated in federal court. In simple terms, collateral estoppel bars the same parties, or their privies, from re-litigating issues which have been decided with respect to a different cause of action. Brault v. Smith (1984), 209 Mont. 21, 679 P.2d 236.

We hold that the District Court properly granted summary judgment on all issues in favor of Globe and Frontier based on the doctrines of res judicata and collateral estoppel. Therefore, with no cause of action remaining against Globe or Frontier which might impute to GMAC even if an agency relationship were shown to exist, we also hold that summary judgment was properly granted in favor of GMAC.

Finally, GMAC requests attorney’s fees incurred as a result of this appeal. If an award of attorney’s fees is based on contract, then the award also includes attorney’s fees incurred on appeal. Lauderdale v. Grauman (1986), 223 Mont. 357, 359, 725 P.2d 1199, 1200. Although GMAC prayed for attorney’s fees in the court below, the court did not address that issue. GMAC’s contract with appellant provides that GMAC has the right to recover attorney’s fees, not to exceed 15% of that amount owed, for collection actions. Furthermore, GMAC’s complaint was filed as the result of appellant’s failure to make payments when due. We agree GMAC is entitled to attorney’s fees generated on appeal only if, in fact, the District Court awards GMAC attorney’s fees in the first place, and remand this cause to the District Court for its determination. OnallotherissuesthejudgmentoftheDistrictCourt isaffirmed.

JUSTICES BARZ, WEBER, HUNT and McDONOUGH concur.


author: JUSTICE SHEEHY

text:
    JAMES P. MONROY (Deceased), Claimant-Respondent, v. CENEX, Employer, and NATIONAL FARMERS UNION PROPERTY AND CASUALTY INSURANCE, Defendant-Appellant.
    No. 90-388.
    Submitted on briefs Nov. 29, 1990.
    Decided Dec. 19, 1990.
    246 Mont. 365.
    805 P.2d 1343.
    Donald R. Herndon, Herndon, Hartman, Sweeney & Halverson, Billings, for appellant.

      Thomas J. Lynaugh, Lynaugh, Fitzgerald, Eiselein & Eakin, Billings, for respondent.
   JUSTICE SHEEHY

delivered the Opinion of the Court.

Accrual of the liability of a Workers’ Compensation insurer for permanent partial disability benefits to an injured worker is the nub of this lawsuit. Defendant insurer, National Farmers Union Property and Casualty Insurance contends that if the death of the worker from a cause unrelated to his injuries intervenes before the permanent partial disability benefits are fully paid, its liability for the unpaid benefits terminates on the date of death under § 39-71-726, MCA. In the Workers’ Compensation Court (Billings area), it was determined that the right to receive such benefits did not end with the death of the worker, James P. Monroy. On an agreed statement of facts, the Workers’ Compensation Court awarded the estate of Monroy his impairment rating benefits less certain advances. Sustaining our holdings in two earlier cases that a workers’ impairment rating is a medical component of a permanent partial disability rating, and the minimum level of such benefits which are due to the worker immediately, we affirm.

An account of the facts surrounding Monroy’s injury while in the employ of the insured Cenex is not given to us. Montana workers who sustain injuries resulting in permanent partial disability become entitled to a “Holton award.” In Holton v. F.H. Stoltze Land & Lumber Co. (1981), 195 Mont. 263, 269, 637 P.2d 10, 14 (Harrison, J.), this Court held that the insurer “was at least responsible for payment of a 10% disability claim” based on the insurer’s physician’s estimate of impairment of the worker’s whole body. Grimshaw v. L. Peter Larson Co. (1984), 213 Mont. 291, 300, 691 P.2d 805, 809 (Gulbrandson, J.) followed Holton declaring that the physical impairment rating “must be paid regardless.” On the authority of those two cases, the Workers’ Compensation Court awarded Monroy’s estate his permanent partial disability benefits based on his physical impairment rating. Scrutiny of those cases and others, and of the applicable statutes, leads us to sustain the Workers’ Compensation Court.

The uncontested (agreed) facts are easily summarized. Monroy suffered an industrial injury on April 13, 1985, in the course of his employment as a laborer with Cenex in Laurel, Montana. Defendant insurer accepted liability for the claimant’s injury and paid weekly temporary total disability benefits in accordance with § 39-71-701, MCA through July 21, 1988. Monroy also received partial lump-sum advances of $2,862. On April 5, 1988, Dr. Jeffrey Hansen rendered Monroy a 37% whole man impairment rating. Monroy died on July 21, 1988. On September 28, 1988, Janie Espinoza, the common-law wife of Monroy, was appointed the personal representative of his estate, received her letters, and made claim for the permanent partial disability benefits due Monroy. The death of Monroy was from causes unrelated to his industrial accident.

The “Holton award” of 37% entitled Monroy to 185 weeks at $143 per week, or a total of $26,455. The insurer was held entitled to offset against that amount the lump-sum advances and any overpayments. The Workers’ Compensation Court found the estate of Monroy entitled to the balance of the “Holton award.”

In Montana, statutes in effect on the date of injury are controlling for all aspects of a Workers’ Compensation claim. Buckman v. Montana Deaconess Hospital (1986), 224 Mont. 318, 321, 730 P.2d 380, 382. The statutes in effect on April 5, 1988, relating to the determination of permanent partial disability were §§ 39-71-703 and 39-71-706, MCA (both since amended). They provided:

“39-71-703. Compensation or injuries causing partial disability.
“(1) Weekly compensation benefits for injury producing partial disability shall be 66%% of the actual diminution in the worker’s earning capacity measured in dollars, subject to a maximum weekly compensation of one-half the state’s average weekly wage.
“(2) The compensation shall be paid during the period of disability, not exceeding, however, 500 weeks in cases of partial disability.
“39-71-706. Compensation for a permanent injury to a member less than loss.
“(1) [Here a provision for permanent injury to a member less than loss of a member] ... In all other cases of permanent injury less than total not included in the schedule provided for in 39-71-705, the compensation for partial disability shall bear such relation to the periods stated in the schedule provided for in 39-71-705 as the disabilities bear to those produced by the injuries named in the schedule or to partial disability (500 weeks).
“(4) No payment under this section shall be in lieu of the separate benefits of medical or hospital services and of any benefits paid under 39-71-701 for temporary total disability.”

Those same statutes were in effect when this Court decided Holton. In that case Holton injured his back while pulling on a green chain at the employer’s saw mill, which injury eventually required a laminectomy and disc removal. His injuries resulted in permanent partial impairment. Insurer’s physician estimated a 10% impairment of his whole body, and the Workers’ Compensation Court, considering other factors, found that the claimant had suffered a 40% disability of the whole man. In determining whether the injured worker was entitled to 20% penalty against the insurer for unreasonable delay in making payments, this Court stated:

“The triggering event for the purpose of awarding penalties for unreasonable delay or refusal to pay compensation is the insurer’s receipt of medical verification of a compensable injury. Unless such verification contradicts other evidence sufficient to make a verification inherently incredible, the insurer’s duty to pay commences and failure to pay (or deny a claim) will expose the carrier the possibility of penalties after 30 days. (Citing authority.)
“The language of the statute makes it clear that the insurer has no absolute right to delay the payment of compensation until a formal hearing. (Citing authority.) Although the total amount of compensation may be in dispute, the insurer has a duty to promptly pay any undisputed compensation. (Citing authority.) Thus, the insurer in the instant case was at least responsible for payment of a 10% disability claim prior to the formal hearing. The balance of the claim shall be paid when the disability issue is finally resolved.”

Holton, 637 P.2d at 13-14.

The foregoing is the basis for the term “Holton award” which has grown in use in Workers’ Compensation cases.

In Grimshaw, this Court tackled the problem of partial disability benefits from a different direction. Grimshaw injured his back when the logging tractor he was operating fell into a hole on September 11,1980. He received temporary total disability benefits. In September of 1982, Dr. Carl Albertson concluded that Grimshaw had an 18% impairment of the whole man as a result of his injury. The doctor also concluded that Grimshaw was unable to return to his former occupation as a manual laborer, and that he must be trained for a less strenuous j ob. Accordingly, Grimshaw developed a rehabilitation plan which was accepted by the Rehabilitation Services Division, and he enrolled in a mechanical engineering program at Montana State University. He continued to receive benefits, reimbursement for his tuition costs, and a monthly expense payment of $75. The Workers’ Compensation Court ruled that Grimshaw was entitled to receive benefits based on his undisputed impairment rating while concurrently receiving temporary total disability benefits during his retraining. The Worker’s Compensation Court also required the employer to pay a portion of the partial disability in a lump sum. The essence of the holding on appeal in this Court in Grimshaw, was that Part 10 of the Workers’ Compensation Act covers the rehabilitation program, and that the worker can receive benefits under Part 10 and at the same time receive disability benefits under Part 7 of the Act. However, the Court held that he could not receive at the same time both temporary total disability benefits and permanent partial disability benefits. The Court decided:

“In the case of Matthew Grimshaw, he is, and will be entitled to total disability benefits during the reasonable duration of his rehabilitation program. At the same time, he will also be entitled to any rehabilitation benefits awarded under Part 10 of the Act, and those benefits are totally separate from, and not counted against his Part 7 benefits. When he has completed his rehabilitation program, he will, at that time, be entitled to his partial disability benefits. Under Holton, his 18% disability payments will be due immediately. It may be that the effects of his injury leave him disabled in the workplace to an extent greater than his physical impairment level, in which case, the Workers’ Compensation Court will then set his final partial disability rating. It is the employer’s hope that due to his rehabilitation program, Matthew will suffer no greater legal disability than the 18% physical impairment level. If that is the case, an employer is not obliged to pay any more than that, but the 18% amount must be paid regardless.” (Emphasis supplied.) Grimshaw, 691 P.2d at 809.

The Workers’ Compensation Court, in deciding this case for the Monroy estate, first determined there was no dispute that as of April 5, 1988, the claimant had reached maximum healing from his injuries, based on the report from Dr. Hansen. That report also established Monroy’s 37% whole person physical impairment. The insurer continued to pay temporary total disability payments to the claimant until his death on July 21, 1988. The Workers’ Compensation Court found no conflict in § 39-71-737, MCA, which provides that compensation shall run consecutively and not concurrently, and that payments shall not be paid for two classes of disability over the same period. However, considering Holton and Grimshaw, the Workers’ Compensation Court determined:

“Thus, it seems clear that once the disability status of a claimant is changed, subsequent to the rendering of an employment award, the minimum entitlement guaranteed by the impairment rating is immediately due. Certainly, had claimant lived, his entitlement to the 37% rating would have been realized. Indeed, it would appear that as early as April 19,1988, (14 days after the letter of Dr. Hansen) the defendant could have properly converted claimant’s disability payments from temporary total disability to partial disability benefits.”

The fly in the ointment in this case, however, is § 39-71-726, MCA, which the defendant insurer claims is controlling in this case and has the effect of terminating permanent partial disability benefits for Monro/s estate:

“39-71-726. No Compensation after death where death not the result of injury. If employee shall die from some cause other than the injury, there shall be no liability for compensation after his death.”

The Workers’ Compensation Court held that the statute was not applicable to permanent partial disability benefits under Holton and Grimshaw, because the minimum entitlement for the impairment rating was an absolute obligation on the part of the insurer and became an obligation of “liability” of the insurer on the date of maximum healing, regardless of whether or when it would be paid.

This Court said in Grimshaw, with respect to the impairment rating:

“The impairment rating is the medical component of a claimant’s disability rating, which is a medical-legal concept (Citing authority.) This Court in Holton implicitly held that the impairment rating is the lowest level the disability rating may reach, and when the legal consequences of the impairment are ultimately known, the disability rating may be greater. (Citing authority.)” (Emphasis in the original.) 691 P.2d at 807.

However, the defendant insurer points to two other Montana cases which construed § 39-71-726, MCA. In both of the cases, this Court applied the statute literally to deny Workers’ Compensation benefits after the death of the claimant from causes other than the industrial accident.

In Breen v. Industrial Accident Board (1968), 150 Mont. 463, 436 P.2d 701, this Court had the problem of the injured worker’s excessive consumption of alcohol. The Court found that his death was a result of alcoholism, and because the injured worker’s death resulted from that and not from his industrial accident, this Court held that the Workers’ Compensation benefits were terminated under the statute, except for compensation accrued prior to the death, but unpaid at the time of the death.

In Hendricks v. Anaconda Co. (1977), 173 Mont. 59, 566 P.2d 70, the claimant died from causes other than his industrial accident. He was paid his temporary total benefits to the day of his death. The claimant’s widow argued that the claimant had a right to a lump sum indemnity payment which accrued when the physicians made their estimate of the percentage of impairment. In his lifetime, however, Hendricks had not elected between “disability” benefits under the permanent partial disability statute or the indemnity statute, and there had never been a determination made that the healing period had ended. This Court concluded that no lump sum benefit had accrued to the claimant as of the date of his death and none was due and payable by reason of the predecessor of § 39-71-703, MCA

We here distinguish Breen and Hendricks, on the grounds that neither case shows that the liability of the insurer for permanent partial disability benefits had accrued prior to the date of death, and because in any event they preceded the holding of this Court in Holton. It appears clear that the Workers’ Compensation Court, the Workers’ Compensation insurance industry, and the legislature have accepted the implication in Holton, that an award of permanent partial disability benefits based on the doctor’s medical impairment rating establishes minimum liability, which is irreducible, except for present value of lump-sum advances under the present statute § 39-71-703(l)(a)(iii), MCA, when applicable.

The legislature, even at the time of Monroy’s accident, seemed to regard permanent partial disability ratings as an asset belonging to the worker. In § 39-71-710, MCA, then in effect, the legislature provided that if a worker was receiving disability compensation benefits, and at the same time received retirement Social Security benefits or disability Social Security benefits, the claimant was considered to be retired and no longer in the labor market, and the liability of the insurer for the payment of compensation benefits terminated. The legislature specifically exempted from this statute permanent partial disability benefits. The legislature’s intent was that even though the worker was receiving Social Security benefits by reason of age or disability, he still was entitled to receive as an irreducible minimum, his permanent partial disability benefits, because they were exempted from the operation of § 39-71-710, MCA.

When, in 1987, the legislature amended § 39-71-703, MCA (Section 23, Ch. 464, Laws of Montana (1987)), the legislature incorporated in that amendment the implicit holdings in Holton and Grimshaw. Section 39-71-703(1)(a)(iii), MCA, now provides:

“An impairment award may be paid biweekly or in a lump sum, at the discretion of the worker. Lump sums paid for impairments are not subject to the requirements set forth in 39-71-741, except that a lump sum conversion for benefits not accrued may be reduced to present value at the rate set forth by the Division in 39-71-741(5).”

Finally, this Court in Phelan v. Lee Blaine Enterprises (1986), 220 Mont. 296, 300, 716 P.2d 601, 603, stated:

“In November 1981, this Court decided Holton v. F. H. Stoltze Land and Lumber Company (1981), 195 Mont. 263, 637 P.2d 10. In Holton, this Court ruled that a carrier had a duty to pay without delay undisputed benefits. This undisputed amount was to be paid without requiring a claimant to enter into a settlement. Holton, 637 P.2d at 13, 14.

We therefore hold that the Workers’ Compensation Court was correct in determining that Monroy’s right to permanent partial disability benefits based upon his physical impairment rating was an irreducible minimum of payments to which he was entitled and which accrued at the time of his maximum healing. Since the date of the accrual was before Monroy’s death, his right to the unpaid benefits are an asset in his estate.

As the Workers’ Compensation Court pointed out, this holding does not neuter § 39-71-726, MCA. The statute continues to be effective where no settlement has been reached, the impairment has been fully paid, when total or partial disability benefits continue because maximum healing has not occurred, or when death from an unrelated cause would terminate such benefits.

This cause was bifurcated in the Workers’ Compensation Court, so as to remove the issue regarding the entitlement of the estate to receive the Holton award in a lump sum. Therefore we affirm the holding of the Workers’ Compensation Court as to its decision that the estate of the decedentMonroyis entitled to the “Holton award” ofhis permanent partial disability benefits, and remand the cause for further proceedings not inconsistent with this Opinion.

CHIEF JUSTICE TURNAGE and JUSTICES BARZ, HUNT and WEBER concur.


text:
    THOMAS C. UMBS, Plaintiff and Appellant, v. SHERRODD, INC., a Montana corporation, and MONTANA TRANSPORT COMPANY, Defendants and Respondents.
    No. 90-384.
    Submitted on briefs Jan. 3, 1991.
    Decided Jan. 22, 1991.
    246 Mont. 373.
    805 P.2d 519.

      Thomas M. Malee, Billings, for plaintiff and appellant.
    John Dyre, Crowley Law Firm, Billings, Gary L. Graham, Garlington, Lohn & Robinson, Missoula, Loren H. Torkelson, Richter & Torkelson, Billings, for defendants and respondents.
   HONORABLE HENRY LOBLE, Retired District Judge,

delivered the Opinion of the Court.

Thomas C. Umbs appeals from the order of the District Court of the Thirteenth Judicial District, Yellowstone County, granting defendant Montana Transport Company summary judgment in this matter. We reverse and remand.

The dispositive issue is whether Umbs raised material issues of fact which precluded summary judgment.

Montana Transport Company (Montana Transport) is a motor carrier authorized by the Interstate Commerce Commission to carry freight in interstate commerce. Pursuant to a written lease, Montana Transport leased a truck owned by Sherrodd, Inc., and driven by Sherrodd’s employee, Umbs.

The following facts are taken from Umbs’s affidavit:

On May 6,1985, the truck Umbs was driving went through a motor vehicle inspection in Illinois. A leak was found in a diaphragm in the truck’s air brake system and the inspector prohibited further movement of the truck until the leaky diaphragm was repaired. Umbs nevertheless brought the truck back to Montana, -under instructions from Sherrodd, Inc. When he reached Montana, Umbs stopped at Sherrodd, Inc.’s yard in Pompe/s Pillar. Umbs left the load at Pompey’s Pillar and went on to Billings, Montana, in his own car.

Two days later, on the morning of May 10,1985, Umbs received a phone call from Oliver Ewen, the president of Montana Transport. Umbs told Ewen that he “did not want to drive the truck any further ■until it was repaired.” Ewen told Umbs that he should “either deliver that load today or [Ewen] would find someone else who would.” Bob Sherrodd, Umbs’s boss at Sherrodd, Inc., then called Umbs and told him to do as Ewen wanted.

Umbs attempted to deliver the load for Montana Transport, believing he would be fired if he did not do so. He was injured when a train hit the truck after the brakes on the truck failed on a downhill grade approaching a railroad crossing.

A Montana Highway Patrol sergeant issued a citation to the truck owners for allowing a defective truck to be operated on the highways. Bond was forfeited.

The train engineer, in his affidavit, said that he observed the truck approaching the crossing and

“It was clear to me that the brakes were not holding, and that the driver was unable to stop because of insufficient brakes ... I believe that the driver of the truck did everything he possibly could to stop the truck. I have seen many other semis come down that hill, and this driver began braking earlier than most other drivers. In other words, this driver was being much more careful than other semi drivers coming down the hill toward the crossing.”

Umbs filed suit against both Sherrodd, Inc., and Montana Transport. Summary judgment was granted to Sherrodd, Inc., on the grounds that it had provided workers’ compensation insurance for Umbs and was protected from further liability under the exclusivity provisions of the Workers’ Compensation Act. That decision was not appealed.

Montana Transport and Umbs both moved for summary judgment. The motions were briefed and orally argued. The District Court granted Montana Transport summary judgment, ruling that Montana Transport owed no duty to Umbs and that there is no genuine issue of material fact.

Summary judgment is proper when, based upon all the documents before the district court, no genuine issue of material fact is present and one party is entitled to judgment as a matter of law. Rule 56(c), M.R.Civ.P. In deciding a motion for summary judgment, all factual disputes must be resolved in favor of the nonmoving party. Harland v. Anderson (1976), 169 Mont. 447, 450, 548 P.2d 613, 615.

Montana Transport argues that, as a matter of law, it owed no duty to Umbs and that therefore summary judgment was proper. The District Court agreed. It determined that federal law did not create a duty on the part of Montana Transport toward Umbs. It also concluded that the lease agreement between Montana Transport and Sherrodd, Inc., did not create any duties on the part of Montana Transport toward Umbs.

Unless a general contractor exerts some form of control over the subcontractor’s method of operation, the general contractor is not liable for injuries to the subcontractor’s employees. Shannon v. Howard S. Wright Const. Co. (1979), 181 Mont. 269, 275, 593 P.2d 438, 441. There are three exceptions to this general rule of nonliability: 1) where there is a nondelegable duty based on a contract; 2) where the activity is “inherently or intrinsically dangerous;” and 3) where the general contractor negligently exercises control reserved over a subcontractor’s work. Micheletto v. State (Mont. 1990), [244 Mont. 483,] 798 P.2d 989, 991, 47 St.Rep. 1740, 1742. Montana Transport argues that under this Court’s recent decisions in Micheletto and Kemp v. Big Horn County Elec. Co-op. (Mont. 1990), [244 Mont. 437] 798 P.2d 999, 47 St.Rep. 1768, it is not liable under any of the three exceptions.

In Micheletto, a trench being dug for buried utility cables caved in on the plaintiff, who was working in the trench. Plaintiff brought suit against the State of Montana, the general contractor on the job, whose inspector had been at the construction site that morning looking at the trench. The trial court granted summary judgment for the State. After reviewing the general principles set forth in Shannon, this Court agreed that there was no duty based on any contract provision and that the activity was not inherently or intrinsically dangerous. This Court further stated that

“before liability is found on the basis of control by the general contractor, there must be a contractual provision which establishes that the general contractor has assumed the responsibility for initiating, maintaining and supervising safety precautions as was present in the Stepanek contract.”

Micheletto, 798P2dat995. Determining that there was no contract provision by which the State assumed responsibility for safety precautions on the job, this Court affirmed the summary judgment for the State.

In Kemp, the plaintiff was injured when cables broke in a bucket lift in which he was riding. The plaintiff sued the general contractor, alleging failure to furnish a safe place of employment. This Court denied liability under the contract exception because the contract between the general contractor and plaintiff’s employer did not provide that the general contractor would be responsible in any way for safety programs. It concluded that the District Court was correct in ruling that the activity was not inherently or intrinsically dangerous. It further held that the issue of actual control was determined by Mieheletto and that because there were no contract provisions obligating the general contractor to be responsible for safety programs, there was no negligent exercise of control. Kemp, 798 P.2d at 1003.

Umbs argues that Montana Transport owed a duty to him because it was negligent in exercising retained control over his working conditions. As he points out, the difference between Mieheletto and Kemp and this case is the extent of control demonstrated by the general contractor. Regardless of whether Montana Transport had a duty to Umbs under federal law, we conclude there is a factual question as to whether it had a duty under state law. Umbs’s testimony, viewed in the light most favorable to him, establishes that Montana Transport President Ewen, knowing that the truck’s brakes were failing, ordered Umbs to deliver the load. According to Umbs’s affidavit, after the call from Ewen, Umbs’s boss, Sherrodd, called and told him to do what Ewen said to do. When the facts set forth in Umbs’s affidavit are viewed in their most favorable fight, and notwithstanding any written contractual provisions, Ewen, with Sherrodd’s consent and for Ewen’s own benefit, took control of Umbs and the truck and negligently ordered Umbs to drive the truck and deliver the load thereon. These portions of Umbs’s affidavit are uncontroverted. There was no such exercise of direct control by the general contractors with the consent of the subcontractors in Mieheletto or in Kemp.

The lower court, in its order, quoted Umbs’s deposition. The affidavits do not contradict the deposition testimony. They do make a stronger statement in support of Umbs’s case. Viewing the evidence in the light most favorable to Umbs, as we must, we may only conclude that Umbs has presented a disputed issue of material fact and that summary judgment for Montana Transport was improper.

This is a unique case and therefore the ruling of this Court is confined to the singular facts which appear in this record.

Reversed and remanded for further action consistent with this opinion.

CHIEF JUSTICE TURNAGE and JUSTICES HARRISON, HUNT, SHEEHY and McDONOUGH concur.

JUSTICE BARZ did not participate.


author: JUSTICE BARZ JUSTICE WEBER,

text:
    EDSALL CONSTRUCTION COMPANY, INC., Plaintiff and Respondent, v. LARRY D. ROBINSON and KRISTEN ROBINSON doing business as IMPERIAL TILE, Defendants and Appellants.
    No. 90-321.
    Submitted on briefs Oct. 11, 1990.
    Decided Jan. 24, 1991.
    246 Mont. 378.
    804 P.2d 1039.

      Michael J. Lilly, Berg, Lilly, Stokes, Andriolo, Tollefsen & Schraudner, Bozeman, for defendants and appellants.
    Gary L. Walton, Poore, Roth & Robinson, Butte, for plaintiff and respondent.
   JUSTICE BARZ

delivered the Opinion of the Court.

Plaintiff, Edsall Construction Co., brought this action in the District Court of the Eighteenth Judicial District, Gallatin County, against defendants, Larry and Kristen Robinson, for damages arising out of an oral sub-bid contract. The District Court denied defendants’ motions to dismiss for lack of personal jurisdiction, and after hearing testimony, awarded plaintiff damages in the amount of $15,114. From that judgment, the defendants appeal. We reverse.

Edsall is a Montana corporation with its principal place of business in Bozeman, Montana. Edsall is a general contractor primarily engaged in the construction or rehabilitation of buildings.

Larry and Kristen Robinson are husband and wife, and reside in Parowan, Utah. Larry is the sole proprietor of Imperial Tile and operates the tile laying business out of his own home.

In July, 1988, Edsall, in preparing a bid on a federal construction project known as the Rehabilitation of Bryce Canyon Lodge, had its representatives contact various subcontractors to solicit bids for the project. The project was located in Bryce Canyon National Park, Utah and Edsall determined it best to solicit bids from Utah contractors because of the savings involved in terms of travel and proximity to the job site.

On July 26, 1988, a representative of Edsall called the listing for Imperial Tile in Parowan, Utah to inquire whether Imperial Tile was planning to submit a bid for the tile work on the project. Kristen answered the call and informed the representative neither she nor Larry had any prior knowledge of the project. Kristen was advised as to where she could receive a copy of the plans and specifications for the project, and acquired the documents later that day. When Larry arrived home that evening, Kristen conveyed the information to him. Larry spent the remainder of the evening preparing a bid for the tile work and concluded his preparations after his wife had gone to bed. He left for a job site early the next morning, July 27, 1988, and left Kristen a note requesting her to call in a bid of $24,500. Kristen called in the bid to Edsall as the note instructed on July 27. Wayne Edsall, president of Edsall Construction, called Kristen back later that day to find out whether the bid included certain proposed additions. Subsequent to the conversation with Kristen, Edsall used Imperial Tile’s bid in determining their proposed bid. The bid opening was held the afternoon of July 27,1988, in Bryce Canyon National Park, Utah.

On August 3, 1988, Edsall called Kristen and informed her that Imperial Tile had been awarded the tile bid for the project. The following morning, August 4, 1988, Larry called Edsall and spoke with Edsall’s estimator. The estimator advised Larry that there were two other tile bids, both considerably higher (one for $39,614 and the other for $47,800). Upon learning the amounts of the other tile bids, Larry felt he must have made a mistake and recalculated his bid. He testified that his bid should have been closer to $42,000. Later that morning, Kristen called Edsall to inform Edsall that Imperial Tile’s bid was a mistake, and that Imperial Tile could not do the job.

On August 11, 1988, the Bryce Canyon Lodge Rehabilitation Project was awarded to Edsall as low bidder and Edsall subsequently entered into a contract with the government on August 16, 1988.

On September 1,1988, Edsall received a letter from Imperial Tile confirming Larry’s calculation error and refusal to perform.

Edsall eventually subcontracted with the next lowest bidder ($39,614) to perform the tile work on the project. Edsall brought an action in the above District Court, seeking damages for the difference between $24,500 and $39,614, or the sum of $15,114. Trial was held on January 17, 1990 without a jury. The District Court entered its Findings of Fact and Conclusions of Law on January 31, 1990, and ordered the Robinsons to pay to Edsall the sum of $15,114.

The dispositive issue presented on appeal is whether the District Court erred in exercising personal jurisdiction over the appellants.

Montana’s long arm personal jurisdiction statute is found in Ride 4B of the Montana Rules of Civil Procedure and provides the essential criteria to determine whether Montana jurisdiction exists under these circumstances. Under Rule 4B, M.R.Civ.P., personal jurisdiction can be acquired in two ways, by general jurisdiction or long arm jurisdiction. When a party is physically present within Montana or its contacts are so pervasive that it is “found within the state of Montana,” Montana has general jurisdiction. Long arm jurisdiction exists when a party exercises any of the long arm statutes enumerated in Rule 4B(1), M.R.Civ.P.

This Court has consistently utilized a two step process in analyzing a question of whether personal jurisdiction can be exercised by Montana courts. May v. Figgins (1980), 186 Mont. 383, 607 P.2d 1132; Simmons v. State (1983), 206 Mont. 264, 670 P.2d 1372; Nelson v. San Joaquin Helicopters (1987), 228 Mont. 267, 742 P.2d 447. The first step is to determine whether there exists any personal jurisdiction, either by way of being “found” in Montana or by way of the long arm statutes. If it is determined that such jurisdiction does not exist, any further analysis becomes unnecessary. On the other hand, if it is determined that personal jurisdiction exists by way of the long arm statutes then the second step requires a determination of whether exercising such jurisdiction would be commensurate with the defendant’s due process rights. See Nelson at 271, 742 P.2d at 449.

Using the first step to analyze the circumstances presented at bar, we begin with Rule 4B(1), M.R.Civ.P, which provides:

“Rule 4B. Jurisdiction of persons. (1) Subject to jurisdiction. All persons found within the state of Montana are subject to the jurisdiction of the courts of this state. In addition, any person is subject to the jurisdiction of the courts of this state as to any claim for relief arising from the doing personally, through an employee, or through an agent, of any of the following acts:
“(a) the transaction of any business within this state;
“(b) the commission of any act which results in accrual within this state of a tort action;
“(c) the ownership, use or possession of any property, or of any interest therein, situated within this state;
“(d) contracting to insure any person, property or risk located within this state at the time of contracting;
“(e) entering into a contract for services to be rendered or for materials to be furnished in this state by such person; or
“(f) acting as a director, manager, trustee, or other officer of any corporation organized under the laws of, or having its principal place of business within this state, or as personal representative of any estate within this state.”

To be “found” within Montana it is necessary that the defendants’ activities are “substantial” or “systematic and continuous.” International Shoe Co. u. Washington (1945), 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95; In Matter of the Estate of Ducey (1990), 241 Mont. 419, 787 P.2d 749. Imperial Tile’s activities in submitting a bid with Edsall are clearly not sufficient to satisfy this criteria and invoke general jurisdiction over the Robinsons.

We then turn to the question of whether long arm jurisdiction exists. The District Court concluded that Rule 4B(l)(a), M.R.Civ.P., confers upon Montana courts such jurisdiction. That section of the statute subjects persons transacting “any business within this state” (emphasis added) to Montana long arm jurisdiction.

This Court stated in Simmons that a nonresident does not subject himself to the jurisdiction of Montana by merely entering into a contract with a resident of Montana. Simmons, 206 at 279, 670 P.2d at 1380. The only association Imperial Tile has with Montana is that it entered into a contract with Edsall, a resident of Montana. In Simmons we also stated that

“[interstate communication is an almost inevitable accompaniment to doing business in the modern world, and cannot by itself be considered a ‘contact’ for justifying the exercise of personal jurisdiction.”

Simmons, at 280, 670 P.2d at 1380. Imperial Tile’s “interstate communication” in the form of a telephone call to submit a bid on a contract to be entirely performed in another state, does not by itself constitute the “transaction of business within this state” under Rule 4B(l)(a), M.R.Civ.P., particularly in light of the fact that Imperial Tile was sought out by Edsall. It was representatives of Edsall who initiated the contact with Imperial Tile, and although Imperial Tile was under no obligation to submit a bid, initial contact had been made and business relations had commenced at that point.

The contract was to be performed in Utah, the bidding took place in Utah, and the initial contact was made by Edsall, soliciting a bid from Imperial Tile, a business located in Utah. The only tie this suit has to Montana is that it is Edsall’s home state, and that alone does not justify a determination that Montana is the proper forum for this dispute.

Respondent cites McGee v. Riekhof (D. Mont. 1978), 442 F.Supp. 1276, in support of its argument that Imperial Tile has subjected itself to Montana jurisdiction. In McGee, a Utah physician received a telephone call from his Montana patient’s wife and, during the course of the conversation provided medical advice to the Montana patient, which eventually led to a medical malpractice claim against the Utah physician. Personal jurisdiction over the doctor was found to exist in Montana. The long arm jurisdiction in that case arose out of Rule 4B(1)(b), M.R.Civ.P., which addresses tort actions. We are not dealing with a tort action in the case at bar.

We also distinguish this Court’s earlier decision in Nelson, as future guidance for the district courts in personal jurisdiction matters. In Nelson, the respondent, San Joaquin Helicopters, was a California corporation not licensed to do business in Montana. However, this Court found San Joaquin Helicopters subject to the in personam jurisdiction of Montana. Unlike the case at bar, the California corporation had on-going business dealings with two different Montana residents. The incident which gave rise to the lawsuit involved a promissory note that had been passed from the California corporation to the Montana plaintiff, via a third party Montana business. All three parties had been involved in continuing business relations prior to the action being brought. As we stated in Nelson, the record there indicated the California corporation’s activity was more than “a few phone calls back and forth between the parties.” Nelson, 228 Mont, at 272, 742 P.2d at 450. The situation here is simply that, “a few phone calls.” Although the phone calls may have amounted to a contract, the contract was to be performed in Utah and it did not have any nexus with this state except for the fact that one party was a Montana resident. The State of Utah is clearly a more appropriate forum for the litigation of this matter.

We hold that the first step is not satisfied and Montana does not have either general jurisdiction or long arm jurisdiction over the Robinsons. Such being the case, our consideration of step two and the defendants’ due process rights becomes unnecessary. The judgment of the District Court is reversed and the cause is remanded to the District Court for dismissal of the case.

JUSTICES SHEEHY, HUNT and McDONOUGH concur.

JUSTICE WEBER,

dissenting:

While I agree with the majority as to the applicable rules, I disagree with the application to the facts of this case.

The critical fact which appears to tilt the majority to deny jurisdiction is that the contract here was “to be entirely performed in another state.” The majority also emphasizes that the bidding by the plaintiff took place in Utah. That element did not involve the defendants. I conclude both of these factors are irrelevant under the present facts.

We are not dealing with a contract between the plaintiff and defendant which was performed in Utah. It is essential to note that the contract between the plaintiff and defendant was never performed. The contacts between the parties are essentially the following: 1) entry into a contract over the telephone, with the plaintiff in Montana and the defendant in Utah; 2) telephone advice by the defendant from Utah to the plaintiff in Montana that the defendant would not fulfill his contract.

The contacts between these two parties are basically the same in both Montana and Utah. The facts demonstrate an uncompleted contract with the only issues being whether there was in fact a contract, and a breach by the defendant’s failure to perform that contract. Even in proof at trial, it appears there will be substantially similar questions whether the case is tried in Montana or Utah. The plaintiff’s witnesses are in Montana and the defendant’s witnesses are in Utah.

The majority opinion distinguishes the present case from Nelson v. San Joaquin Helicopters (1987), 228 Mont. 267, 742 P.2d 447. The majority indicates that in Nelson the court found in personam jurisdiction. The majority emphasizes that the California corporation had ongoing business dealings with two different residents. As I read Nelson I am unable to make the same distinction. Without intending to do so, I believe the Court has created a real dilemma as to whether either Montana or Utah has jurisdiction in the present case. If the contacts in Montana are not sufficient for the Montana court to claim jurisdiction, I fail to understand how there will be additional contact in Utah to assist that court in reaching a conclusion that it should take jurisdiction. Under the facts of this case, it seems far more appropriate to conclude that either Montana or Utah can take jurisdiction because the contacts in each state are substantially identical.

The procedure used by the majority has caused unnecessary significant expenses to the parties. The case has been tried and judgment entered here in Montana. The majority has nullified that and required the plaintiff to go to Utah and try the same case over again. Where a case has been tried to judgment, we should not be so casual in our reversal.

I would affirm the District Court.


author: JUSTICE McDONOUGH

text:
    THE ASSOCIATED PRESS, Billings Gazette, Helena Independent Record, Missoula Missoulian, Great Falls Tribune, Kalispell Daily Interlake, Bozeman Daily Chronicle, Havre Daily News, Livingston Enterprise, Miles City Star, Butte Montana Standard, Hamilton Ravalli Republic, Montana Newspaper Association, Montana Chapter of the Society of Professional Journalists, Plaintiffs and Respondents, v. THE BOARD OF PUBLIC EDUCATION, Defendant and Appellant.
    No. 89-589.
    Submitted Nov. 27, 1990.
    Decided Jan. 4, 1991.
    246 Mont. 386.
    804 P.2d 376.

      Marc Racicot, Atty. Gen., Kimberly Kradolfer, Agency Legal Services Bureau, Helena, argued for defendant and appellant.
    James P. Reynolds, Reynolds, Motl & Sherwood argued, Peter Michael Meloy, Meloy Law Firm, Helena, for plaintiffs and respondents.
    Bruce Moerer, Montana School Boards Assoc., Stephen F. Garrison, Dept, of Highways, Dal Smilie, Dept, of Admin., Martin Jacobsen, Public Service Com., Timothy J. Meloy, Dept, of Agriculture, Helena, David J. Patterson, Montana Assoc, of Counties, Missoula, Annie M. Bartos, Dept, of Commerce, James R. Beck, Dept, of Highways, David A. Scott, Dept, of Labor & Industry, John F. North, Dept, of State Lands, Donald D. MacIntyre, Dept, of Natural Resources and Conservation, Helena, Jeffrey T. Renz, American Civil Liberties Union of Montana, Billings, Jim Madden, Reserved Water Rights Compact Comm., Helena, amicus curiae.
    Brad Belke, Butte, for common cause.
    G. Steven Brown, Helena, for Mt. School Boards Ass’n.
    John P. Poston, Helena, for Reporters Committee for Freedom of the Press.
   JUSTICE McDONOUGH

delivered the Opinion of the Court.

Defendant, the Board of Public Education, appeals from an order granting summary judgment in favor of plaintiffs, the Associated Press and its member organizations. The District Court of the First Judicial District, Lewis and Clark County, held that the litigation exception contained in § 2-3-203(4), MCA, which allows public agencies to close meetings when discussing litigation strategy, is unconstitutional because it violates Article II, Section 9 of the Montana Constitution. We affirm.

We frame the issues as follows:

1. Whether the Board of Public Education can, under the authority of § 2-3-203(4), MCA, validly close a meeting and exclude members of the public, in order to hold a private discussion concerning litigation strategy in a lawsuit to be asserted against the Governor;

2. Whether the District Court erred in awarding attorney fees to plaintiffs, Associated Press, et al.

Because the District Court decided this case on cross motions for summary judgment, the facts are not in controversy.

The Board of Public Education (Board) is created by Article X, Section 9(3) of the Montana Constitution. Its primary purpose is to exercise general supervision over the public school system and other public educational institutions. The plaintiffs in this case, include the Associated Press and its member news organizations, the Montana Newspaper Association and the Montana Chapter of the Society of Professional Journalists. On February 8, 1989, the Board convened a meeting to consider a court challenge to an Executive Order, which required that the Board’s administrative rules be submitted to the Governor for review and approval. The meeting took place in Claudette Morton’s office, who is the Board’s executive secretary. Attending in person were Morton, Board Chairperson Alan Nicholson, Morton’s administrative assistant Patricia Admire and attorney W. William Leaphart. Six other Board members participated by speaker phone. Associated Press reporter Faith Conroy and Marilyn Miller, an employee of the Governor’s Office of Budget and Program Planning were also present in Morton’s office.

Following roll call, the Board voted to close the meeting to discuss strategy to be followed with respect to potential litigation regarding the Governor’s order. As a result of this vote, Faith Conroy was required, over her protest, to leave the room while this discussion took place. Marilyn Miller and Patricia Admire were also excluded from the closed portion of the meeting. The meeting was closed for approximately one-half hour.

When the meeting was reopened Conroy, Miller and Admire were allowed to reenter the room. At this point, the Board unanimously passed a motion calling for a court challenge to the Governor’s order.

The next day the plaintiffs filed a complaint in District Court alleging that the Board met by telephone conference call and had closed its meeting to discuss litigation strategy. They maintained that the Montana Constitution does not authorize any public body or agency to close its meetings, even when the meeting is called for the sole purpose of discussing litigation strategy. They therefore asked the District Court to declare § 2-3-203(4), MCA, unconstitutionally over broad and in conflict with Article II, Section 9 of the Montana Constitution. They further requested that the actions taken in the meeting be declared void and for it to award them attorney fees and costs.

The parties stipulated to a statement of facts for purposes of cross motions for summary judgment. The matter was briefed and argued, and on August 4,1989 the District Court entered summary judgment in favor of the plaintiffs, declaring § 2-3-203(4), MCA, unconstitutional. This appeal followed.

I.

We hold that the issue presented by this case is narrow. Simply put, this case requires us to determine whether the citizens of the State of Montana have an absolute constitutional right to attend and observe a meeting held by a public body or state agency which is held to discuss litigation strategy to be used in potential litigation against another state governmental entity. The two legal provisions which are pertinent to our decision are:

Article II, Section 9 of the Montana Constitution which states:

“Section 9. Right to know. No person shall be deprived of the right to examine documents or to observe the deliberations of all public bodies or agencies of state government and its subdivisions, except in cases in which the demand of individual privacy clearly exceeds the merits of public disclosure.”

and § 2-3-203, MCA, which states in pertinent part:

“2-3-203. Meetings of public agencies and certain associates of public agencies to be open to public — exceptions. (1) all meetings of public or governmental bodies, boards, bureaus, commissions, agencies of the state, or any political subdivision of the state or organizations or agencies supported in whole or in part by public funds or expending public funds must be open to the public.
* *
“(4) However, a meeting may be closed to discuss a strategy to be followed with respect to collective bargaining or litigation when an open meeting would have a detrimental effect on the bargaining or litigating position of the public agency.”

The Associated Press maintains that Article II, Section 9 is clear on its face. Its wording succinctly mandates that all meetings of public bodies and state agencies must be open to the public unless “the demand of individual privacy clearly exceeds the merits of public disclosure.” Therefore, the Associated Press argues § 2-3-203(4), MCA, which purportedly allows a public agency to privately discuss litigation strategy, is violative of this constitutional mandate and must be struck down as unconstitutional.

The Board, on the other hand, argues that this Court should balance other constitutional principles against the public’s right to know. It maintains that the public, who is the true party in interest, has a right to due process which exceeds its right to know. The Board further argues that inherent in the right to due process is the right to confidentially confer with counsel. If state government is forced to open its meetings and publicly discuss litigation strategy, the right to speak to its attorneys in confidence will necessarily be lost. If this right is lost, state agencies, and consequently the public, will no longer retain their right to due process.

The premise underlying the Board’s argument is unsound. State agencies have never been included under the umbrella of the right to due process. The protections guaranteed by the constitutional right to due process were designed to protect people from governmental abuses. They were not designed to protect the government from the people. See State v. Katzenbach (1966), 383 U.S. 301, 86 S.Ct. 803, 15 L.Ed.2d 769. This Court has generally followed this line of reasoning and has held that due process does not embrace the state or its political subdivisions. See Fitzpatrick v. State Board of Examiners (1937), 105 Mont. 234, 70 P.2d 285. Because the Board’s underlying premise fails, its argument based upon due process also fails.

As further rationale, the Board argues that under Article VII, Section 2(3), this Court retains sole constitutional authority to make rules governing the conduct of members of the bar. Under this grant of authority, this Court has adopted rule 1.6 of the Rules of Professional Conduct which provides:

“A lawyer shall not reveal information relating to representation of a client unless the client consents after consultation.”

Taking this argument further, the Board correctly maintains that this rule applies to all attorneys, including those employed by state agencies. Therefore, the argument goes, Rule 1.6 prevents them from discussing matters in public with their public agency clients.

This argument fails for at least two reasons. First and foremost, is the realization that the Constitution is the supreme law of this State. Its mandate must be followed by each of the three branches of government. Therefore, while this Court is authorized to adopt rules governing the practice of law, it may not enact any rule which violates express guarantees contained in the Constitution. The interpretation of such rules is limited by the confines of the Constitution.

Second, we note that while an attorney must protect the confidences of his client, he is also directed to act within the law. As such this provision supersedes Rule 1.6, relative to public boards or agencies.

Next, the Board argues that both the constitutional history of Article II, Section 9 and applicable law from other states provide compelling reasoning which mandates reversal of the District Court’s order. However, we have noted that this provision is unique, clear and ■unequivocal. Therefore as in the past we refuse to resort to law from other forums in interpreting our own Constitution. See e.g. Yellowstone Pipeline Co. v. State Board of Equalization (1960), 138 Mont. 603, 358 P.2d 55.

The language of Article II, Section 9 is clear as applied to this case. We are precluded, by general principles of constitutional construction, from resorting to extrinsic methods of interpretation. As we stated in a prior case:

“The language of [Article II, Section 9] speaks for itself. It applies to all persons and all public bodies of the state and its subdivisions without exception. Under such circumstances, it is our duty to interpret the intent of the framers from the language of the provision alone and not to resort to extrinsic aids or rules of construction in determining the intent of the delegates to the Constitutional Convention.” Great Falls Tribune v. District Court (1980), 186 Mont. 433, 437-38, 608 P.2d 116, 119.

Applying the language of the provision to the agreed facts of this case we conclude that the Board wrongfully closed its meeting, which was held to discuss potential litigation between two governmental entities, in violation of the State Constitution.

The Board argues however, that public policy considerations mandate closure of meetings convened for the sole purpose of discussing litigation strategy. It maintains that if the State is required to open its meetings it will be severely disadvantaged in litigation against private parties because it will be forced to reveal all strategy to the opposing party. The opposition on the other hand will not be under such constraints and therefore litigation involving the State will not be played on a level field.

However, this argument really doesn’t apply to the facts of this case. The potential litigation in this case involved a dispute over rule making authority between the Governor and the Board of Public Education. The Board’s reasoning for filing the lawsuit may have been well taken. However, this fact does not overcome the realization that the dispute between the Board and the Governor was essentially a turf battle which should be given public scrutiny in all its particulars. In short, it is the public’s business.

II

Having upheld the District Court’s order voiding the Board’s actions, we must now determine whether it correctly awarded plaintiffs their attorney fees. The Board maintains the award of attorney fees was inappropriate in this case, because the Board acted in good faith and under the presumption that their actions were constitutional under § 2-3-203(4), MCA.

The District Court awarded fees under § 2-3-221, MCA, which states:

“A plaintiff who prevails in an action brought in district court to enforce his rights under Article II, section 9, of the Montana constitution may be awarded his costs and reasonable attorney fees.”

The award of attorney fees in cases brought under Article II, Section 9 are discretionary with the court. The Board argues that the court incorrectly exercised this discretion because the action was not taken frivolously or in bad faith.

We disagree. By awarding plaintiffs their fees, the District Court obviously recognized the import of its decision and spread the cost of the litigation among its beneficiaries. Due to the particular advantage of enforcement of the right in this case, as well as the resultant public benefits gained by plaintiffs’ efforts it was not an abuse of discretion to reimburse them from the public coffers. That is the intent of the statute.

The award of attorney fees is affirmed and pursuant to the plaintiffs’ request fees incurred on appeal are also granted and this case is remanded for determination of attorney fees.

CHIEF JUSTICE TURNAGE and JUSTICES SHEEHY, BARZ, HUNT, HARRISON and WEBER concur.


text:
    IN RE THE MARRIAGE OF BARBARA BURNER, Petitioner and Respondent,and MAX D. BURNER, Respondent and Appellant.
    No. 90-360.
    Submitted on briefs Nov. 29, 1990.
    Decided Jan. 4, 1991.
    246 Mont. 394.
    803 P.2d 1099.
    Thomas F. Dowling, Dowling Law Firm, Helena, for respondent and appellant.
    Ann L. Smoyer, Helena, for petitioner and respondent.
   JUSTICE McDONOUGH

delivered the Opinion of the Court.

Appellant Max. D. Burner, respondent below, appeals the order of the Montana First Judicial District Court, Lewis and Clark County, denying his motion to set aside a property settlement stipulation and denying his motion for new trial. We affirm.

The husband frames a sole issue on appeal:

Did the District Court err in not granting a motion for a new trial and in not setting aside a Stipulated Disposition of the Burner’s marital estate?

The Burner’s marriage was dissolved on May 16, 1990. Prior to the entry of the decree, the parties had difficulty resolving how to divide the marital estate. The court held a hearing for the purpose of resolving the dispute. During a recess the parties negotiated a settlement. Back in court they advised the court of the resolution and entered into a stipulation disposing of the property. The stipulation provided that the husband would receive the couple’s business and be solely responsible for all tax liabilities on the property.

Prior to the open-court property stipulation, the wife allegedly discovered certain facts about the earnings and value of the business. These facts greatly enhanced the value of the business, and consequently the wife’s share of the marital estate, as well as the business’s potential tax liability. She informed her attorney of this discovery as well as the parties’ accountant, and these three met with the husband’s counsel to discuss the situation.

In addition, the wife turned over these business records to the Internal Revenue Service (IRS), generating an investigation. The husband alleges that she did not inform him that she turned this information over to the IRS, and that because of her actions he now has discovered that he is facing an enormous tax liability under the property stipulation, and that this amounts to newly discovered evidence warranting a setting aside of the property disposition and a new trial.

We agree with the District Court’s conclusion that the husband has failed to meet the criteria for setting aside a decree and granting a new trial. See Rule 59(a), M.R.Civ.R, § 25-11-102, MCA, Rule 60(b)(2), M.R.Civ.R The criteria granting a new trial on the grounds of “newly discovered” evidence are:

1. The substantial rights of the party moving for new trial must be materially affected.

2. The “newly discovered” evidence sought to be introduced must be material to the issue involved in the trial.

3. The “newly discovered” evidence must be such as could not have been discovered and produced at trial with the exercise of reasonable (or “due”, per Rule 60, M.R.Civ.R) diligence, or could not have been discovered by reasonable diligence in time to move for a new trial under Rule 59, M.R.Civ.R

Kartes v. Kartes (1977), 175 Mont. 210, 214, 573 P.2d 191, 193. In Kartes, we also noted that the burden was on the moving party to demonstrate that:

1. The alleged “newly discovered” evidence came to his knowledge after the trial;

2. It was not a want of diligence which precluded its earlier discovery;

3. The materiality of the evidence is so great it would probably produce a different result on retrial; and,

4. The alleged “new evidence” is not merely cumulative, not tending only to impeach or discredit witnesses in the case.

Kartes, 573 P.2d at 194, citing Kerrigan v. Kerrigan (1943), 115 Mont. 136, 144, 139 P.2d 533, 535. Furthermore, “[wjhere the moving party in a motion for new trial on the ground of ‘newly discovered’ evidence has had the books and documents in his possession, from which he later ‘discovers’ the ‘new evidence’, the motion will be denied, even though the evidence itself may be material.” Kartes, 573 P.2d at 194, citing Rand v. Kipp (1902), 27 Mont. 138, 142, 69 P. 714, 715.

Here, the record indicates that the husband not only had the necessary business records in his possession but that he also had full knowledge of the couple’s potential tax liability pursuant to his attorney meeting with the wife, her attorney, and the accountant four days prior to entering the stipulation. He knew at the time of the hearing that there was unreported income and that if they were audited, there would be substantial tax consequences. The only “new” information the husband “discovered” after the entry of the decree was that the wife had informed the IRS of the couple’s potential tax liability, which arose from the couple’s alleged failure to report income earned in the operation of the business and for which both parties could be liable to the IRS regardless of assignment of such liability in the divorce decree.

The husband essentially contends that such failure by the wife to disclose her actions prevented the District Court from equitably apportioning the property in the marital estate, and therefore the decree should be set aside and the property equitably apportioned pursuant to further proceedings. See § 40-4-202, MCA. However, it is a long established maxim of jurisprudence that “[p]arties must not expect relief in equity, unless they come into court with clean hands.” Mitchell v. Leland Co. (9th Cir. 1917), 246 F. 103, 107; see also Fey v. A.A. Oil Co. (1955), 129 Mont. 300, 318, 285 P.2d 578, 587; Tomsheck v. Doran (1953), 126 Mont. 598, 607, 256 P.2d 538, 543; Perry v. Ludig (1950), 123 Mont. 579, 591, 217 P2d 207, 218. Here, the husband had full knowledge of the unreported tax liability. The order denying the motion to set aside the decree is

Affirmed.

CHIEF JUSTICE TURNAGE and JUSTICES SHEEHY, HARRISON and WEBER concur.