text:
    TRI-COUNTY PLUMBING & HEATING, INC., a Montana corp., and Atlas Electric, Inc., a Montana corp., & Ingram-Clevenger, Inc., a Montana corp., Intervening Plaintiff, Plaintiffs and Respondents, v. LEVEE RESTORATIONS, INC., a Montana corp., and Deer Lodge Bank & Trust Co., a corp., Defendants and Appellants.
    No. 85-367.
    Submitted April 22, 1986.
    Decided June 5, 1986.
    Rehearing Denied July 15, 1986.
    720 P.2d 247.

      Swanberg, Koby, Swanberg & Matteucci, Gorham Swanberg, Great Falls, for Levee Restorations, Inc.
    Jardine, Stephenson, Blewett & Weaver, Greg Luinstra argued, Great Falls, for Deer Lodge Bank & Trust Co.
    Hooks & Budewitz, Tom Budewitz argued, Townsend, Ronald F. Waterman argued, Helena, for plaintiffs and respondents.
   MR. JUSTICE HARRISON

delivered the Opinion of the Court.

Plaintiff Tri-County Plumbing and Heating, Inc./Atlas Electric, Inc. (hereinafter “Tri-County”) brought this action in Chouteau County District Court to foreclose a mechanics’ lien filed by them against certain real property located in Fort Benton, Montana, owned by defendant Levee Restorations, Inc. (hereinafter “Levee”). The Deer Lodge Bank and Trust Company (hereinafter “Bank”) was also named as a defendant by virtue of its mortgage on the same real property. Ingram-Clevenger, Inc. (hereinafter “Ingram-Clevenger”) filed a motion to intervene as a plaintiff in order to foreclose its own mechanics’ lien on the same property. The Bank then cross-claimed against Levee to foreclose its mortgage on the subject property.

The matter was heard by the District Court, sitting without a jury, in March of 1985. In June of 1985, the trial court issued its findings of fact, conclusions of law, and decree granting judgment against Levee in favor of Tri-County and Ingram-Clevenger for the amounts requested in their respective mechanics’ liens plus interest, attorneys fees and costs. The trial court also awarded judgment against Levee in favor of the Bank for the amount of their mortgage plus interest, attorneys fees, and costs. The trial court further accorded the liens of Tri-County and Ingram-Clevenger equal status and declared them to be superior in priority to the mortgage of the Bank. In addition, the trial court granted lien status to certain items furnished by Tri-County and Ingram-Clevenger which followed the date on which their mechanics’ liens were filed. These additional items were supplied by the two plaintiffs for the preservation and protection of the subject property and were awarded a first priority by the trial court over payment of all other liens and encumbrances. Only the bank, and not Levee, appeals from this judgment of the trial court. We affirm.

On November 4, 1983, Ingram-Clevenger (a general contractor with its principal place of business in Helena, Montana) entered into several contracts with Levee for the interior restoration, remodeling and renovation of the Grand Union Hotel (“Hotel”) located in Fort Benton, Montana. The total contract price for the work to be performed under these contracts was $862,260. Ingram-Clevenger then subcontracted a major portion of the work to Tri-County (a plumbing, heating and electrical contractor with his principal place of business in Helena, Montana) for the performance of the plumbing, heating and electrical work on the Hotel.

On February 6, 1984, Levee obtained a loan from the Bank in the amount of $210,000. The majority of this loan ($179,500) was applied by Levee to the Hotel renovation project. This loan was secured by two mortgages given by Levee to the Bank, one of which included a mortgage on the Hotel. The other mortgage given by Levee to the Bank was not at issue in this lawsuit. The mortgage on the Hotel was recorded in the Chouteau County Clerk and Recorder’s office on February 10, 1984.

Ingram-Clevenger started work on the Hotel project on or about November 4, 1983. From time to time, as required under the construction contracts, Ingram-Clevenger submitted applications for payment to Levee’s architect for the project, Richard Shope. Ingram-Clevenger submitted a total of nine applications for payment to Shope, of which only the first four were approved and paid covering the period from November, 1983 through February, 1984. The last five applications for payment (covering March through May, 1984) were not approved or paid by Shope because Levee had not secured future financing for the Hotel project. After the last payment was made by Levee to Ingram-Clevenger in February of 1984, Ingram-Clevenger continued to work on the project apparently in anticipation of Levee securing future financing. During the late spring of 1984, it became apparent that future financing for the project could not be found and Ingram-Clevenger halted work at the end of May. It appears that the only financing obtained by Levee for the Hotel project was the above mentioned loan from the Bank. To date, Levee has only paid the sum of $145,440 to Ingram-Clevenger under the Hotel project contracts, despite a total of over $600,000 worth of work having been performed by the plaintiffs.

On June 7, 1984, Tri-County filed a mechanics’ lien against the Hotel in the amount of $149,829. This sum represented the amount it was owed by Ingram-Clevenger for its unpaid subcontracting work. On July 7, 1984, Ingram-Clevenger filed its own mechanic’s lien against the Hotel for the sum of $441,344. This sum was the unpaid portion of the Hotel project contracts at the time the lien was filed, and it was based on the unpaid applications for payment presented to Levee. Both of these liens were properly recorded with the Clerk and Recorder of Chouteau County.

It should be noted that Tri-County’s mechanics’ lien claim was included in its entirety in Ingram-Clevenger’s lien except for the sum of $2,369. This amount represented items which were negotiated directly between Tri-County and Levee, and this sum was included in Tri-County’s lien of $149,829.

Following the filing of the mechanic’s liens by Tri-County and Ingram-Clevenger, both Ingram-Clevenger and Tri-County continued to incur expenses relating to the protection and preservation of the Hotel project. These expenses included $10,000 for the installation of a water line, $3,671.99 for insurance premiums, $5,303.91 for gas and electricity, and $629 for repairs due to freezing.

Once it became apparent that no more funds were forthcoming from Levee for the Hotel project, Tri-County filed suit on its mechanics’ lien on June 8, 1984, and the above-described proceedings ensued. The District Court granted judgment against Levee in favor of Tri-County and Ingram-Clevenger for the respective amounts of their mechanics’ liens, $149,829 and $312,491 (which included a $20,976 mathematical error discovered during trial). Ingram-Clevenger’s judgment was later reduced by the trial court to the sum of $300,076 due to the sale of certain construction supplies from the Hotel project. The trial court also accorded equal lien status to the liens of Ingram-Clevenger and Tri-County, and declared the mortgage of the Bank ($210,000) to be second in priority. The trial court further decreed that the “preservation” expenses incurred by Ingram-Clevenger and Tri-County should be accorded a first priority of payment over all other liens and encumbrances.

The Bank now presents the following pertinent issues for review by this Court:

1. Did the District Court err in not granting a continuance of the trial in order that discovery could be initiated and completed?

2. Was there substantial evidence to support the finding of the District Court as to the amount of Ingram-Clevenger’s lien and that the lien was not in fact overstated?

3. Did the District Court err in awarding lien status to certain “preservation expenses” incurred subsequent to the filing of IngramClevenger’s and Tri-County’s mechanics’ liens and granting a priority to these expenses superior to that accorded either the mechanics’ liens or the Bank’s mortgage?

4. Did the District Court err in awarding Ingram-Clevenger an amount in excess of the stated amount of its lien as actually filed with the Clerk and Recorder where no additional or supplemental lien was filed?

5. Did the District Court err in awarding the liens a priority status over that of the Bank’s mortgage?

I.

Did the District Court err in not granting a continuance of the trial in order that discovery could be initiated and completed?

The Bank basically argues the District Court erred in not granting its request for a continuance on the day of trial. The Bank argues it needed the continuance because it was not prepared to adequately cross-examine the lien claimant’s witnesses due to an insufficient amount of time to conduct discovery. The Bank points out this case had originally been set for trial in November, 1984. At that time, the parties stipulated to a vacation of that trial date due to pending settlement negotiations. Thereafter, on January 24, 1985, the original counsel for the Bank withdrew from the case and present counsel was substituted. The District Court then set the case for trial on February 26, 1985, which was just over one month after the present counsel for the Bank came into the case. The Bank argues its present counsel immediately filed a motion for a continuance, which was granted, but the trial date was only set back some three weeks to March 12,1985. The Bank points out its present counsel had only been appointed for seven weeks when the trial began.

The Bank contends due to the quick trial date of this case after its substitution of new counsel, adequate discovery was not conducted by any of the parties involved. In fact, the Bank argues, no discovery had been initiated by any of the parties until the Bank’s present counsel came into the case. Therefore, the Bank argues, it was prevented at trial from properly cross-examining the claimants’ witnesses (especially with regard to the amounts of the mechanics” liens), and this Court should grant it a new trial. We disagree.

First, it must be pointed out that any motion for a continuance of trial is within the sound discretion of the District Court. This Court has said it will not overrule a District Court’s decision to deny a motion for a continuance of trial unless there is “an affirmative showing that the complaining party has suffered prejudice.” State v. Bailey (1935), 99 Mont. 484, 488, 44 P.2d 740, 742. In the present case, there is no showing that the Bank suffered prejudice by proceeding to trial on the scheduled date.

As the claimants point out, the Bank had nine months to do whatever discovery it deemed necessary from the date the suit was filed (June 8, 1984) until the date of trial (March 12, 1985). Admittedly, new counsel was substituted for the Bank on January 24, 1985, but one continuance of the trial was granted for this reason (February 26 to March 12, 1985). Furthermore, once new counsel was substituted for the Bank, they made no effort to do any discovery on their own. The record indicates they made no effort to schedule any depositions or request the production of documents.

Therefore, the District Court did not abuse its discretion in denying the Bank’s motion for a continuance made on the day of trial.

II

Was there substantial evidence to support the finding of the District Court as to the amount of Ingram-Clevenger’s lien and that the lien was not in fact overstated?

The Bank correctly points out that under Montana law a mechanics’ lien claimant does not have a right to a lien until he can show or prove his lien.

“The burden is upon the plaintiff to establish his lien (citation omitted), and, to support this burden, he must show, not only that he furnished the materials, but also that they were used for the enhancement of the property to which he claims he has a right to resort as security for the debt thus created. In the absence of this showing, his equity does not arise. (Citations omitted.)”

Rogers - Templeton Lumber Co. v. Welch (1919), 56 Mont. 321, 328, 184 P. 838, 841.

The Bank further points out it is clear in Montana that a lien holder is entitled to the reasonable value of its labor and materials furnished.

“The abandonment of an improvement before the completion thereof, by the owner of the premises, without fault on the part of the contractor, does not abrogate the right of the contractor, laborers, and material men to mechanics’ liens for the value of the work done and the material furnished.” (Citations omitted.)

Williams Brothers Construction v. Vaughn (Mont. 1981), 631 P.2d 688, 690, 38 St.Rep. 1070, 1073.

In light of these standards, the Bank argues that Ingram-Clevenger, and therefore Tri-County, have not established the amounts of their liens. The Bank asserts the measure of damages to which the lien claimants are entitled is determined by the value of the materials and labor furnished which, of course, is a matter of proof. The Bank argues the claimants cannot base the amounts of their liens solely on estimates of the labor and materials they put into the Hotel project. Yet, the Bank argues, that is exactly what the lien claimants have done and that is the basis upon which the District Court awarded them the amounts of their liens.

The Bank contends in the present case the amount of IngramClevenger’s lien, which includes Tri-County’s lien, was established mainly through the testimony of Joe Petrini, the secretary/treasurer for Ingram-Clevenger. The Bank claims that Petrini testified at trial that he was the person who prepared and submitted the applications for payment to Levee’s architect for the Hotel project, Richard Shope. The Bank further claims that Petrini testified that these applications for payment submitted to Levee were not based on the actual amount of materials and labor put into the project, but rather he testified that these applications for payment were based solely on estimates of the labor and materials furnished. The Bank strongly relies on the following testimony from Petrini to establish that Ingram-Clevenger’s applications for payment were solely based on estimates:

“Q. (By Ronald Waterman, Ingram-Clevenger’s counsel) Mr. Petrini, in the application forms, as an example, the application dated through the period of December 3rd, 1983, would you tell the court, are these commonly prepared by you?
“A. (By Petrini) In the course of our business, yes.
“Q. And how are these prepared?
“A. At the request of an architect, owner. And to eliminate confusion, to try to allow the architect and the owner to reasonably review percentage of completion, we prepared a breakdown. In this case, at the request of the architect prior to submittal, this was acceptable to him. And we proceeded on that basis.
“Q. Did you actually develop this application, you, yourself?
“A. Yes. I did.
“Q. And were these figures drawn from other books and records which are regularly kept within, with Ingram-Clevenger?
“A. Okay. These figures are developed using our estimated, estimating procedure. This I funnel all of those estimated costs into a category. Just to allow everyone to be able to better understand the billing process.” (Emphasis added.)

The Bank claims the above testimony, together with other testimony by Petrini, establishes that the figures used on the applications for payment submitted to Levee were based only on estimates of the work completed and were not developed from an actual tally of hours spent on the job or from materials invoiced and installed. The Bank argues there was no proof presented at trial whatsoever which established a certain dollar figure of the labor and materials actually put into the Hotel project, consequently, the Bank argues, because these estimated applications for payment were the basis for the amounts of the claimants’ liens, the liens themselves are only estimates and must be disregarded.

Furthermore, the Bank argues, there was also strong evidence presented at trial that Ingram-Clevenger’s lien, which includes TriCounty’s lien, was in fact overstated. The Bank points to the testimony of Richard Shope (Levee’s architect for the project) and Larry Truchot (an architect and independent contractor who testified on behalf of Levee and the Bank) to establish that Ingram-Clevenger’s lien was excessive. The Bank argues both of these men separately evaluated the amount of materials and labor which actually went into the project and compared this amount to the figures on IngramClevenger’s filed lien, and both men concluded that Ingram-Clevenger’s lien was excessive. In fact, the Bank asserts, Shope and Truchot testified that Ingram-Clevenger’s filed lien should be reduced somewhere between 15 percent and 22 percent. Therefore, the Bank argues, because Ingram-Clevenger’s lien appears to be intentionally overstated based on a faulty “estimating procedure,” the lien itself should be vitiated (voided). See, Duval v. Fuchs (1962), 141 Mont. 123, 375 P.2d 541. At the very least, the Bank seems to argue, this case should be remanded for a new trial for an accounting of the actual amounts of the claimants’ liens. We disagree.

We hold there is substantial evidence in the record to support the award as to the amount of an Ingram-Clevenger’s mechanics’ lien and that this lien was not in fact overstated. First, the amount of Ingram-Clevenger’s lien was not based on estimates as the Bank suggests. Joe Petrini (Ingram-Clevenger’s secretary/treasurer), testified thoroughly and completely during trial about the work which had been performed by the claimants on the Hotel project but which remained unpaid. Petrini’s testimony was not based on estimates, but rather it was based upon the actual records of labor performed, materials supplied, and subcontract work done. The District Court had before it the summaries of the labor and materials supplied by the claimants (plaintiffs’ exhibits A-l through A-10) and also the primary documents from which these summaries were taken (plaintiffs’ exhibits B and C). As Petrini testified with regard to exhibit C:

“Q. (By Mr. Waterman) Handing you what has been marked proposed exhibit C, what is exhibit C?
“A. (By Petrini) Exhibit C is a computer prepared job cost information.
“THE COURT: What?
“A. Job cost information for all of our projects.
“Q. This is all of your projects that are ongoing?
“A. That’s correct.
“Q. Does part of these records contain the job cost information relative to the Grand Union Hotel?
“A. That’s correct.
“Q. And is that designated in exhibit C with this white mark?
“A. That’s correct.
“Q. And where are those records drawn from?
“A. From actual costs, labor, actual invoices. Subcontract expenses. (Emphasis added).
“Q. Do these job costs, were these job costs then used in making the calculations to come up with the exhibits A and A-l through A-10?
“A. That’s correct.”

As evidenced from the above testimony, we hold Ingram-Clevenger’s lien was not based on estimates, but rather it was based upon actual job cost figures. Therefore, there is substantial evidence in the record to support the amounts of the claimants’ liens.

We further find that Ingram-Clevenger’s lien was not overstated. The testimony of Richard Shope and Larry Truchot, who both testified that Ingram-Clevenger’s lien should be reduced by 15 percent to 22 percent, was obviously disregarded by the District Court. We see no reason to disturb that finding by the lower court, especially in light of the overwhelming evidence in the record, as discussed above, that supports the amount of Ingram-Clevenger’s filed lien. Therefore, we find the amount of Ingram-Clevenger’s lien was not overstated and the award as to the amount of the lien shall stand.

III.

Did the District Court error in awarding lien status to certain “preservation expenses” incurred subsequent to the filing of IngramClevenger’s and Tri-County’s mechanics’ liens and in granting a priority to these expenses superior to that accorded either the mechanics’ liens or the Bank’s mortgage?

As noted in the facts section of this opinion, following the filing of the mechanics’ liens by Tri-County and Ingram-Clevenger, both of these claimants continued to incur expenses relating to the protection and preservation of the Hotel project. These expenses included $10,000 for the installation of a waterline, $3,671.99 for insurance premiums, $5,303.91 for gas and electricity, and $629 for repairs due to freezing. The District Court concluded that these preservation expenses incurred by the claimants should be accorded a first priority of payment over all other liens and encumbrances involving the Hotel project.

Apparently the Bank does not take issue with the District Court’s characterization of these expenses as “preservation and protection expenses.” Rather, the Bank argues these items should not be accorded lien priority status ahead of the claimants’ mechanics’ liens or its mortgage. The Bank essentially argues there is no authority in Montana which entitles a mechanics’ lien claimant to tack onto its lien, after it is filed, expenditures for the “preservation and protection” of the encumbered property. The Bank argues this does not mean the preservation expenses are not due and the claimants are not entitled to recover these sums from Levee, it simply means these expenses are only a general judgment lien on the Hotel property with a priority behind that of both the mechanics’ liens and the Bank’s mortgage. We disagree.

We hold there is sufficient statutory authority to allow the claimants to add on to their liens, after they are filed, expenditures for the preservation and protection of the Hotel property. Section 71-3-112, MCA, provides:

“Holder of lien not entitled to compensation. Except as otherwise provided by the Uniform Commercial Code, one who holds property by virtue of a lien thereon is not entitled to compensation from the owner thereof for any trouble or expense which he incurs respecting it, except to the same extent as a borrower under 70-7-110 and 70-7-111.”

Of the two statutes mentioned in Section 71-3-112, MCA, Section 70-7-110 is the statute which is pertinent to the instant case and reads as follows:

“Who to bear expenses. The borrower of a thing for use must bear all its expenses during the loan, except such as are necessarily incurred by him to preserve it from unexpected and unusual injury. For such expenses he is entitled to compensation from the lender, who may, however, exonerate himself by surrendering the thing to the borrower.” (Emphasis added.)

Although these statutes do not specifically address the situation of the instant case, they make one obvious point — a lien claimant is entitled to reimbursement from the owner for any expenses necessary to preserve his security from unexpected and unusual injury. Section 71-3-112 is contained under the general provisions regarding lien statutes (Title 71, Chapter 3, Part 1, MCA), therefore its meaning applies to all types of liens involving both real and personal property.

We agree with the claimants that installation of the water line, premiums for fire insurance, the costs of gas and electricity, and repairs due to freezing were necessary to “preserve it [the Hotel property] from unexpected and unusual injury.” It is clear that the absence of any of these items would have adversely affected the Hotel property and the improvements made by the claimants. Further, these are expenses that Levee would benefit from if it were to redeem its interest in the Hotel property at some future date. Therefore, the protection of the claimants’ mechanics’ liens should extend to these items.

Finally, after finding the preservation expenses may be added to the claimants’ mechanics’ liens, we agree with the District Court that these items should be accorded a first priority of payment. If a lien priority status is not awarded to these items, a mechanics’ lien claimant would be forced with a choice of either permitting damage or destruction to its security, or spending money without hope of reimbursement. Furthermore, as mentioned above, the owner of the property (i.e. Levee) also indirectly benefits from any necessary preservation expenses. Consequently, the District Court’s ruling regarding the preservation expenses shall stand.

IV.

Did the District Court err in awarding Ingram-Clevenger an amount ($20,976) in excess of the stated amount of its lien as actually filed with the Clerk and Recorder where no additional or supplemental lien was filed?

Simply stated, the Bank argues that Ingram-Clevenger is not entitled to the amount of a mathematical error discovered during the course of trial. During trial, Petrini (Ingram-Clevenger’s secretary/ treasurer) testified there was a $20,976 mathematical error in Ingram-Clevenger’s filed mechanics’ lien and that the lien should be increased by this amount. The District Court ultimately awarded Ingram-Clevenger this math error and tacked it onto the amount of their filed lien. The Bank argues there is no authority in Montana which permits a lien claimant (such as Ingram-Clevenger) to increase (amend) its lien over that which has officially been filed. The Bank goes on further to argue that Ingram-Clevenger’s only remedy would have been to file a new lien, which was not done. Just as with regard to issue 3, the Bank argues this does not mean the mathematical error is not due and Ingram-Clevenger cannot recover this sum from Levee, it simply means the mathematical error is only a general judgment lien on the Hotel property with a priority behind that of both the mechanics’ liens and the Bank’s mortgage. Once again, we disagree with the Bank.

The Bank correctly points out that under Montana’s mechanics’ lien statutes, certain procedures must be followed in order to establish a valid lien. Further, these statutory procedures by which a lien is perfected and enforced must be strictly followed or the lien is void. See, Crane and Ordway Co. v. Baatz (1917), 53 Mont. 438, 164 P. 533; Varco-Pruden v. Nelson (1979), 181 Mont. 252, 593 P.2d 48; General Electric Supply Co. etc. v. Bennett (Mont. 1981), 626 P.2d 844, 38 St.Rep. 553. However, this Court has also repeatedly said that this state’s mechanics’ lien laws are to be “liberally construed”:

“[It is a] well-known rule that mechanics’ lien laws are remedial, and therefore to be liberally construed and applied ... It is that, the necessary steps having once been taken to secure the lien, the law is subject to the most liberal construction, for it is remedial in character, and rests upon broad principles of natural equity and commercial necessity.”

Crane, 164 P. at 534.

Also, along this same line, this Court recently stated:

“This Court has uniformly held that the requirements of the mechanics’ lien statutes as to procedure will be strictly enforced. Once the procedure has been fulfilled, the statutes will be liberally construed so as to give .effect to their remedial character.” (Citations omitted.)

General Electric, 626 P.2d at 846.

We hold the above principles are applicable to the instant case. Ingram-Clevenger, as the record indicates, precisely followed Montana’s statutory procedure (Section 71-3-511(1), MCA) in perfecting and securing its mechanics’ lien — the only problem being it made a good faith mathematical error in the amount of the lien. As the General Electric case indicates, once the procedure to establish a lien has been fulfilled, the statutes will be liberally construed so as to give effect to their remedial character. We hold Ingram-Clevenger should not be prejudiced by its good faith mistake. The company made every effort to comply with the steps necessary to acquire its lien, and equity demands it receive the entire value of its labor and materials put into the Hotel project. Therefore, the District Court was correct in awarding Ingram-Clevenger the amount of its mathematical error.

V.

Did the District Court err in awarding the mechanics’ liens a priority status over that of the Bank’s mortgage?

The Bank begins its argument by stating that assuming arguendo the mechanics’ liens filed by Ingram-Clevenger and Tri-County are valid and enforceable for their stated amounts (which we have held they are), they are still not entitled to a priority over the Bank’s mortgage.

The Bank asserts that Section 71-3-502(4), MCA, is the section that controls with regard to the priorities of the instant case. This statute provides:

“Section 71-3-502. Priorities.
“(4) The liens attach to the buildings, structures, or improvements for which they were furnished or the work was done in preference to any prior lien, encumbrance, or mortgage upon the land upon which said buildings, structures, or improvements were erected; and any person enforcing such lien may sell the same under execution, and the purchaser may remove the property sold within a reasonable time thereafter. (Emphasis added.)”

The Bank essentially argues that although this statute specifically says that a mechanics’ lien has priority over a prior recorded mortgage, by the words “mortgage upon the land” and “were erected” the priorities of this statute' apply only where a mechanics’ lien arises out of the construction of a new structure on previously unimproved land. The Bank adopts this interpretation from two early cases by this Court: Interstate Lumber Company v. Rider (1933), 93 Mont. 489, 19 P.2d 644 and Dewey Lumber Company v. McQuirk (1934), 96 Mont. 294, 30 P.2d 475.

With regard to the instant case, the Bank argues that although its mortgage on the Hotel property was recorded prior to the claimants’ mechanics’ liens, their mechanics’ liens do not have priority under Section 71-3-502(4) because their liens arose out of an existing structure on previously improved land. The Bank asserts that because the claimants were remodeling and renovating an existing structure (i.e. the Hotel), the priorities of Section 71-3-502(4) do not apply and the claimants’ liens must yield to the Bank’s mortgage.

To reach the above result, the Bank admits this Court must overrule one of its recent decisions. In Home Interiors, Inc. v. Hendrickson (Mont. 1984), [214 Mont. 194,] 692 P.2d 1229, 41 St.Rep. 2408, this Court directly interpreted the meaning of Section 71-3-502(4) and stated under the facts of the case that mechanics’ liens are superior to prior recorded mortgages or trust indentures regardless of the nature of the work done by the lien claimants. The Court in Home Interiors refused to strictly interpret the words “upon the land” as the Bank now suggests, and stated such an interpretation would defeat the purpose of Section 71-3-502(4) which is that a mechanics’ lien has priority over a prior recorded mortgage.

The claimants, on the other hand, argue their mechanics’ liens have priority over the Bank’s mortgage by virtue of a simple statute which the Bank has overlooked. Section 71-3-502(3), MCA, provides:

“71-3-502. Priorities.
“(3) The liens for work or labor done or material furnished, as specified in this part, shall be prior to and have precedence over any mortgage, encumbrance, or other lien made subsequent to the commencement of work on any contract for the erection of such building, structure, or other improvement.”

The claimants point out they contracted with Levee to restore and remodel the Hotel on November 4,1983, and commenced work on or about the same day. The Bank advanced its loan to Levee on February 6, 1984, and filed its mortgage on February 10, 1984. The claimants note that under the clear wording of subsection (3) of Section 71-3-502 their mechanics’ liens are superior to the Bank’s mortgage. Therefore, the statute and cases relied upon by the Bank are not relevant to the present case. Section 71-3-502(3), MCA, is the only pertinent law which needs to be applied to this case. We agree.

We further find no merit in the Bank’s argument that Section 71-3-502(3) should be strictly construed to pivot on the phrase “for the erection of such building, structure, or other improvement.” Under subsection (3), the priority of a mechanics’ lien over a subsequent mortgage is not limited to a situation where a new structure is built (erected) on previously unimproved land. Such an interpretation would defeat the obvious purpose of the statute.

Finally, the claimants argue, and we agree, even if Section 71-3-502(3) was not applicable to the present case (which it is), this Court has recently held under the facts in Home Interiors that a mechanics’ lien is superior to a prior recorded mortgage. In Home Interiors we stated that mechanics’ liens held by material suppliers had priority over a prior recorded trust indenture under Section 71-3-502(4) because the holder of the trust indenture was the party with the greatest ability to protect its interest by either withholding funds to the extent of the contemplated improvements or by requiring the landowner to obtain lien waivers. We went on to say this result does not spell imminent disaster for the holder of a prior recorded trust indenture; it merely requires the holder of a trust indenture to exercise ordinary business prudence where construction is contemplated. As we stated:

“We therefore hold the party having the greatest ability to protect its interests has the burden of exercising due care to prevent overreaching by an interested party. In this case respondent [a mortgage corporation] was in the best position to protect against non-payment by the landowner by either withholding funds to the extent of the contemplated improvements or by requiring the landowner to obtain lien waivers from the mechanics.”

Home Interiors, 692 P.2d at 1232.

We see no reason to distinguish the Home Interiors case from the instant case. The Bank in the present case had the same opportunity and responsibility as the respondent in Home Interiors if it wanted to protect its mortgage from the lien claimants rights. We hold our decision in Home Interiors is still sound law, and we reject the Bank’s analysis of Section 71-3-502(4) as set forth above. Therefore, even under this Court’s ruling in Home Interiors, the claimants’ liens take priority over the Bank’s mortgage.

The judgment of the District Court is affirmed.

MR. CHIEF JUSTICE TURNAGE and MR. JUSTICES MORRISON, WEBER, SHEEHY, GULBRANDSON and HUNT concur.


source: Caselaw Access Project

author: MR. JUSTICE MORRISON MR. JUSTICE WEBER,

license: Public Domain

text:
    MILDRED FLANIGAN, Plaintiff and Respondent, v. PRUDENTIAL FEDERAL SAVINGS AND LOAN ASSOC., a federally chartered banking corporation, and Fred Ogolin, Defendants and Appellants.
    No. 85-380.
    Submitted April 24, 1986.
    Decided June 5, 1986.
    Rehearing Denied July 11, 1986.
    720 P.2d 257.

      David J. Wing argued, Butte, for defendants and appellants.
    Poore, Roth & Robinson, Donald C. Robinson argued, Butte, for plaintiff and respondent.
   MR. JUSTICE MORRISON

delivered the Opinion of the Court.

Plaintiff brought this action in the First Judicial District Court to recover damages based upon wrongful termination from employment. The jury returned a verdict in favor of plaintiff, awarding her $94,170 in economic damages, $100,000 for emotional distress and exemplary damages in the amount of $1,300,000. Defendants appeal. We affirm.

Mildred Flanigan (respondent) was hired as a teller on January 28, 1952, by Prudential Federal Savings and Loan Association. She worked in various capacities until April 15,1980, at which time Fred Ogolin, Vice President and Manager of Prudential Federal Savings and Loan, Butte Branch, fired her. Hereafter, the two defendants will be referred to jointly as the appellants unless it is necessary to distinguish them by specific reference.

The issues presented for review involve substantial credible evidence questions. We therefore will detail the facts and, as we must, in a light favorable to respondent. First National Bank in Libby v. Twombly (Mont. 1984), [213 Mont. 66,] 689 P.2d 1226, 1230, 41 St.Rep. 1948, 1952; Jacques v. Montana National Guard (Mont. 1982), 199 Mont. 493, 503, 649 P.2d 1319, 1325.

Following commencement of her employment, respondent worked as a teller for approximately 14 years, performing in a satisfactory fashion. In 1966 she became branch office bookkeeper. That position was eliminated because of a change in technology and in 1973, the respondent moved into the mortgage loan department where she became branch general clerk. She maintained this position until 1976, when she became assistant loan counselor. Respondent performed satisfactorily in all positions.

On December 7, 1979, prior to respondent’s termination, the president of Prudential prepared an interoffice memorandum entitled “Personnel Information and Policy Change”. This memorandum was distributed to all employees formally advising them of economic turndowns and the resulting need of Prudential to reduce its work force. The memorandum was discussed at the staff meeting in Butte, Montana, on December 13, 1979. Respondent was present. In the latter part of January, 1980, respondent was advised by Fred Ogolin that her position as assistant loan counselor was to be terminated as of June 1, 1980. After discussion, Ogolin advised respondent of a teller training program in Salt Lake City, Utah, and asked her if she desired to broaden her job skills. Respondent accepted the offer and on March 2, 1980, she attended the week-long program. On March 18, 1980, after her return to Butte, respondent began working as a teller. Less than one month later, respondent was terminated without notice and without hearing. She was given six months pay as a severance benefit and paid her accumulated profit sharing benefits of $48,428.02. After respondent was terminated, she was offered, by letter dated June 9, 1981, a part-time position as teller. After consultation with counsel, the offer was rejected.

Within two weeks following her termination, respondent filed an age discrimination complaint with the Human Rights Commission. She received a “right to sue” letter and filed this complaint on April 13, 1983.

After consolidating several of appellants’ issues, we find the following questions govern the outcome of this appeal:

1. Was there substantial credible evidence to support submission of respondent’s case to the jury based upon breach of the implied covenant of good faith and fair dealing?

2. Did the District Court err in its treatment of the negligence issue? As sub-issues we determine whether it was error for the trial court to allow amendment of the pleadings; whether the negligence count was barred by the statute of limitations; whether comparative negligence was applicable; and whether workers’ compensation was the exclusive remedy?

3. Did the District Court err in allowing opinion testimony from expert witnesses about the covenant of good faith and fair dealing?

4. Was it error to refuse admission of defendant’s Exhibit U.U.?

5. Did the District Court err in failing to reduce damages by $26,290.53, the amount the plaintiff would have received had she not refused to accept the position as a part-time teller following her termination?

6. Was there substantial credible evidence to submit punitive damages to the jury? We include within this issue the question of whether punitive damages were excessive as a matter of law.

ISSUE ONE

Was there substantial credible evidence to support submission of respondent’s case to the jury based upon breach of the implied covenant of good faith and fair dealing?

The principal argument advanced by appellants is that Prudential was experiencing severe economic conditions and terminated the respondent in a legitimate reduction-in-force move designed to curb costs. Appellants argue that a Montana jury should not be a silent partner in every decision made to terminate employees. Reliance is placed upon the language of Professor Gary Murg and Clifford Scharman, in an article titled “Employment at Will: Do the Exceptions Overwhelm the Rule?” 23 Boston College L.R. 329, 372 (1982), wherein it was said:

“. . . A jury should not be entitled to second guess an employer’s policy or practices to determine that they are insufficient justifications for a discharge. Such an approach would leave virtually all personnel practices open to communal comment. A personnel practice that is justifiable to one jury may be found pernicious to another. The likely result would then be to subject employers to the threat of suit in every instance of a discharge as the employee attempts to find a jury sympathetic to his cause. Thus, the only issue that should be posed to the jury is whether the personnel practice was applied equally to all employees. It is submitted that if an employer’s promise of continued employment is to be given contractual force courts must limit the discretion of the jury in determining what constitutes good cause.”

Respondent disputes that she was terminated as part of a reduction-in-force program. She points to the testimony of Ogolin, who fired her. Ogolin testified at trial that, but for the respondent’s alleged poor performance as a teller, she would have remained employed by Prudential. In earlier testimony Ogolin had said that under no circumstances would the respondent have remained with the company.

Respondent argues that the dual and contradictory reasons for termination advanced at trial by the appellants reveal an arbitrary, capricious and bad faith firing. Respondent notes the following Ogolin testimony which is supportive of a reduction in force:

“Q. (By Mr. Robinson) . . . Would Mildred have been let go if in the three weeks she worked as a teller she had appeared to be performing as well as any other average teller in your operation?
“A. (By Mr. Ogolin) Yes. I had already made the decision that Mildred’s job was going to be, or position was going to be eliminated
“Q. So, how well she performed in that three-week period had nothing to do with your decision to terminate her on April 15,1980, is that truel
“A. That’s correct. That decision was made before she performed as a teller trainee in the Butte office.
* *
“Q So, you wouldn’t have considered her for staying no matter how she had performed as a teller, good or bad, is that truel
“A. That’s right, yes.
“Q. That would be true even if she had performed as well as Connie Selon who had worked as a teller for 4 years?
“A. Yes, that’s true.”
(Tr. pp. 437-438) (Emphasis supplied.)

Several days later Ogolin, testifying in his own defense, gave this contradictory testimony:

“Q. You put in a lot of testimony today about the fact that she didn’t perform well according to your opinion but it’s true, is it not, as you testified last week that it wouldn’t have made any difference how she had performed, she still would have lost her job, isn’t that true?
<<* Jfc ifc
“A. Yes, I testified to that ....
<<* * *
“Q. Are you changing your testimony from last Wednesday?
“A. I’m saying that the facts were not that.
“Q. My question again one last time, if she had performed as well as another teller, could she have kept her jobl
“A. Yes.
“Q. Oh. So, you have changed your testimony from last Wednesday, is that correct?
“Yes.”

(Tr. pp. 1058-1059) (Emphasis supplied.)

Additionally, respondent argues that the employer violated its own written policies regarding job. security and job rights by terminating the respondent without notice and without hearing. Further, respondent maintains that she was entitled to be recalled to fill vacant positions but that she was not recalled except insofar as she was offered a part-time teller position.

Respondent offered evidence that her discharge was motivated by vindictiveness on the part of Ogolin. Because of seniority, respondent had a superior right to vacation time, even before Ogolin. She testified that when she asked the reason for her termination, Ogolin stated that she was “not making it as a teller” and that she was “vindictive” because she had used her seniority to select her four weeks of vacation during the month of August.

The reason for discharge was disputed by Prudential. Several months later, Prudential’s president informed respondent, for the first time, that she was discharged as part of a company wide reduction in force. The president stated that “seniority or past performance was not considered” in the decision to discharge.

Implicit throughout the respondent’s case is the allegation that she was terminated because of her age and because of a desire on the part of the employer to cut costs associated with respondent’s pension. Younger and less experienced employees, who had lower composite performance evaluations and who occupied positions respondent previously held, remained working after respondent’s firing. Ogolin admitted that any errors respondent made as a teller were not sufficient to warrant discharge. Ogolin further admitted that respondent was never warned, reprimanded or counseled about her performance as a teller, all prerequisites to termination according to Prudential’s own policies. Prudential supervisors admitted that 60 days to six months were normally required before one could become proficient as a teller. The decision to discharge respondent, however, was made after respondent worked less than three weeks in the teller position.

A long-term employee has an expectation of continued employment provided that the employee’s work performance is satisfactory. Dare v. Montana Petroleum Marketing Co. (Mont. 1984), [212 Mont. 274,] 687 P.2d 1015, 1020, 41 St.Rep. 1735, 1740. Of course, this does not foreclose an employer from engaging in legitimate reductions in force necessary to maintain the economic vitality of the company. However, there is evidence in this record, from the lips of Ogolin himself, that respondent was fired for poor work performance. The jury could have relied upon this latter testimony and therefore concluded there was no reduction in force.

The standard for ascertaining whether factual issues exist in a wrongful discharge case were articulated by the majority opinion in Dare, supra. We there said:

“The record discloses remaining genuine issues of material fact regarding Dare’s wrongful discharge claim. The parties relate widely divergent versions of Dare's work performance and reasons for her termination. It therefore remains for the trier of fact to resolve these issues, including the reason for Dare’s termination and whether she was fired for cause. (Emphasis supplied.)”

687 P.2d at 1019, 41 St.Rep. at 1739.

The cause referred to in Dare is different from the “good cause” applicable in determining the propriety of an employee’s termination under a contract for a specified term. In Pugh v. See’s Candies, Inc. (Cal.App. 1981), 116 Cal.App.3d 311, 171 Cal.Rptr. 917, the California Appeals Court for the First District, Division 1, noted the distinction as follows:

“By what standard that burden is to be measured will depend, in part, upon what conclusions the jury draws as to the nature of the contract between the parties. The terms ‘just cause’ and ‘good cause,’ ‘as used in a variety of contexts . . . have been found to be difficult to define with precision and to be largely relative in their connotation, depending upon the particular circumstances of each case.’ (R.J. Cardinal Co. v. Ritchie (1963) 218 Cal.App.2d 124, 144, 32 Cal.Rptr. 545.) Essentially they connote ‘a fair and honest cause or reason, regulated by good faith on the part of the party exercising the power.’ (Id., at p.145, 32 Cal.Rptr. 545.) Care must be taken, however, not to interfere with the legitimate exercise of managerial discretion. ‘Good cause’ in this context is quite different from the standard applicable in determining the propriety of an employee’s termination under a contract for a specified term. (Footnote omitted.)”

116 Cal.App.3d at 330, 171 Cal.Rptr. at 927-928.

In Dare, supra, the heightened expectations resulting from long-term employment were the primary basis for reversing summary judgment in favor of the employer. Justice Weber, writing for the majority, said:

“The presence of such facts [long-term employment] indicates that the term of employment has gone beyond the indefinite period contemplated in the at will employment statute, Section 39-2-503, MCA, and is founded upon some more secure and objective basis. In such cases, the implied covenant protects the investment of the employee who in good faith accepts and maintains employment reasonably believing their job is secure so long as they perform their duties satisfactorily.”

687 P.2d at 1020, 41 St.Rep. at 1740.

Closely allied with Justice Weber’s reasoning in Dare is the California case of Cleary v. American Airlines, Inc. (Cal.App. 1980), 111 Cal.App.3d 443, 168 Cal.Rptr. 722, wherein the Second District Court of Appeal, Division 1, stated:

“Two factors are of paramount importance in reaching our result that plaintiff has pleaded a viable cause of action. One is the longevity of service by plaintiff — 18 years of apparently satisfactory performance. Termination of employment without legal cause after such a period of time offends the implied-in-law covenant of good faith and fair dealing contained in all contracts, including employment contracts. As a result of this covenant, a duty arose on the part of the employer, American Airlines, to do nothing which would deprive plaintiff, the employee, of the benefits of the employment bargain - benefits described in the complaint as having accrued during plaintiff’s 18 years of employment.”

111 Cal.App.3d at 455, 168 Cal.Rptr. at 729.

The covenant, in a long-term employment situation, only requires the employer to have a fair and honest reason for termination. An employee’s incompetence or lack of loyalty certainly constitute sufficient reasons under this standard. However, as in this case, an employer may recognize by company policy an obligation to provide warnings and an opportunity for change. Respondent’s evidence, if believed, proves that appellants failed to give respondent any opportunity to correct mistakes or otherwise conform her conduct.

Appellants’ motivation for the termination was rendered suspect by Ogolin’s inconsistent testimony on the witness stand. The jury may well have chosen not to believe appellants’ whole case, in light of Ogolin’s lack of credibility.

Respondent’s 28 years of employment by Prudential gave her a secure and objective basis for believing that, if her work was satisfactorily performed, her employment would continue. From the evidence presented, the jury could have found that appellants had no fair and honest cause for discharge and, in fact, had ulterior motives. A case for jury deliberation was presented on the issue of wrongful termination.

ISSUE TWO

Did the District Court err in its treatment of the negligence issue? As sub-issues we determine whether it was error for the trial court to allow amendment of the pleadings; whether the negligence count was barred by the statute of limitations; whether comparative negligence was applicable; and whether workers’ compensation was the exclusive remedy?

Appellants argue that the negligence count was added five years after termination and was thus barred by the three year statute of limitations. This argument was recently disposed of in Sooy v. Petrolane Steel Gas, Inc. (Mont. 1985), [218 Mont. 418,] 708 P.2d 1014, 1017, 42 St.Rep. 1702, 1705-1706. A complaint can be amended to include a new theory of recovery where the basis for the new claims is the same occurrence involved in the old claims. In this case, respondent argues that the negligence claim and the claim for breach of implied covenant of good faith and fair dealing arise out of the same occurrence, include the same facts and only involve different legal theories. We agree. The amendment was proper.

Negligence has been recognized by this Court to be a proper basis for recovery in wrongful termination cases. Negligence was approved by this Court in Crenshaw v. Bozeman Deaconess Hospital (Mont. 1984), [213 Mont. 480,] 693 P.2d 487, 493, 41 St.Rep. 2251, 2259, wherein we said:

“The allegation of negligence was clearly established in respondent’s complaint. We hold the trial court committed no error in issuing the instruction to the jury.”

In Crenshaw, this Court relied upon the fact that plaintiffs expert on personnel management testified that the discharge was made without a proper investigation by the hospital administrator. Likewise, in this case, expert testimony revealed that appellants committed 13 different violations of Prudential firing policies. We find the precedent of Crenshaw compelling and hold the negligence theory was proper.

Appellants argue that workers’ compensation is the exclusive remedy for negligence. However, appellants cite no authority for the argument that there is a workers’ compensation remedy available for wrongful termination in employment. In fact, the tort of wrongful termination does not occur until the employment is terminated. The plaintiff could hardly be injured in the course and scope of employment by a tort that occurred subsequent to the existence of the employment itself.

Finally, appellants contend that they were entitled to an instruction on comparative negligence. Again, no authority is cited to support this proposition. Ordinarily, comparative negligence must relate to the same occurrences which are the subject of the negligence alleged against defendant. Blair v. Eblen (Ky.1970), 461 S.W.2d 370; Ferrara v. Leventhal (N.Y.App.Div. 1977), 56 A.D.2d 490, 392 N.Y.S.2d 920. The negligence relied upon in the case before us involves negligent failure to review prior performance and work history. Appellants do not contend that respondent violated any duty in this regard. Any negligence of respondent during the course of employment, such as work mistakes, would go to the question of whether there was a reasonable basis for the firing. That question was submitted to the jury.

In awarding punitive damages the jury found appellants’ conduct to be “willful”. Even if the trial court should have submitted respondent’s negligence to the jury, any error in that regard would be harmless. Negligence is not a defense to willful conduct. Simonson v. White (Mont. 1986), [220 Mont. 14,] 713 P.2d 983, 987-988, 43 St.Rep. 133, 139.

ISSUE THREE

Did the District Court err in allowing opinion testimony from expert witnesses about the covenant of good faith and fair dealing?

Appellants claim error in the District Court’s admission of opinion testimony from expert witnesses about the covenant of good faith and fair dealing. Again, this issue was resolved in Crenshaw v. Bozeman Deaconess Hospital supra. The rationale for our holding in Crenshaw was stated by Justice Harrison:

“The instant case is not a scenario of simple facts. Fault arising from breach of implied covenant of good faith and fair dealing is not easily comprehensible to the average person. [The expert’s] testimony was based on professional expertise and experience which the individual jury members were unlikely to possess. Her testimony assisted the trier of fact by providing the jury with information and a prospective (sic) beyond the common experience of a lay juror. (Citations omitted.)”

693 P.2d at 494, 41 St.Rep. at 2260.

As noted previously, the experts who testified on behalf of respondent found 13 different violations of Prudential policies and personnel practices. Appellants complain that one expert was permitted to evaluate whether Prudential followed its policy as established in one of Prudential’s own memoranda. However, appellants failed to object at time of trial. It is fundamental that a party may not raise, for the first time on appeal, alleged errors pertaining to the introduction of evidence or testimony that was not objected to at the time of trial. Scofield v. Estate of Wood (Mont. 1984), [211 Mont. 59,] 683 P.2d 1300, 1302, 41 St.Rep. 1212, 1214-1215.

In Crenshaw, supra, this Court approved expert testimony interpreting written employment policies. We said:

“The trier of fact’s experience does not extend to Hospital disciplinary guidelines, much less the ability to evaluate the propriety of such guidelines . . . The trial court in its broad discretion admitted the expert testimony. The trial court’s order will not be disturbed on appeal in the absence of a clear showing of a manifest abuse of discretion. (Citations omitted.)”

693 P.2d at 495, 41 St.Rep. at 2261-2262.

Pursuant to the precedent established by Crenshaw, supra, respondent was justified in utilizing expert testimony. In permitting the expert witnesses to interpret employment policies, the trial court acted within its discretion.

ISSUE FOUR

Was it error to refuse admission of defendant’s Exhibit U.U.?

Appellants contend that the trial court erred in refusing to admit a summary of teller transactions performed by various tellers during the few days that respondent worked as a teller prior to her termination. The exhibit was objected to and the objection was sustained on the grounds that it was a compilation of after-acquired evidence regarding respondent’s performance; that the information was not known to appellants at the time of termination; and that Ogolin had not examined the compilations for the purpose of making a decision about firing respondent. Therefore, the after acquired-evidence could not be used to support termination at time of trial. See Swanson v. St. John’s Lutheran Hospital (1979), 182 Mont. 414, 422, 597 P.2d 702, 706-707. The trial court ruling was correct. In any event, Ogolin was allowed to testify as to the essence of the information contained in the exhibit. Any error on the part of the trial court in refusing the exhibit was harmless in light of Ogolin’s testimony.

ISSUE FIVE

Did the District Court err in failing to reduce damages by $26,290.53, the amount the plaintiff would have received had she not refused to accept the position as a part-time teller following her termination?

Appellants contend that respondent’s award for loss of wages, that sum being $94,170, should have been reduced by the trial court in the amount of $26,290.53, based on respondent’s alleged failure to mitigate damages by accepting Prudential’s offer of part-time employment.

There was abundant evidence that the respondent sought to mitigate her damages by seeking other employment. However, the law does not require respondent to mitigate damages by accepting inferior employment from her former employer. The rule was stated by the California Supreme Court in Parker v. Twentieth Century-Fox Film Corp. (1970), 3 Cal.3d 176, 89 Cal.Rptr. 737, 474 P.2d 689, wherein the court said:

“[B]efore projected earnings from other employment opportunities not sought or accepted by the discharged employee can be applied in mitigation, the employer must show that the other employment was comparable, or substantially similar, to that of which the employee has been deprived; the employee’s rejection of or failure to seek other available employment of a different or inferior kind may not be resorted to in order to mitigate damages. (Emphasis supplied.) (Citations omitted.)”

89 Cal.Rptr. at 740, 474 P.2d at 692.

Appellants requested, and were given, a complete and accurate mitigation instruction. The instruction reflected the case law, above cited, stating that a wrongfully terminated person has a duty to reasonably seek and maintain other employment, but no duty to accept inferior employment. We find the trial court did not err in its handling of this issue.

ISSUE SIX

Was there substantial credible evidence to submit punitive damages to the jury? We include within this issue the question of whether punitive damages were excessive as a matter of law.

We have detailed the evidence presented by respondent in support of her claim for breach of implied covenant of good faith and fair dealing. That evidence need not be restated here. In addition to the evidence previously set forth, testimony from appellants’ president revealed a calloused attitude toward older employees. Prudential’s Donovan referred to older employees as “dead wood”, “old dead wood”, and “ballast”. He reiterated at time of trial that he considered Mildred Flanigan to be “ballast”.

The jury could have inferred malice from the lack of candor on the part of appellants. Appellants’ position at time of trial was that respondent was terminated for inadequate performance yet, 14 months later, appellants offered respondent a part-time job. Further, Ogolin first testified that respondent was terminated because of a reduction in force and then later testified that she was terminated because of inadequate work performance. The jury may have chosen to believe she was terminated because of Ogolin’s resentment stemming from respondent depriving him of the choicest vacation times.

Appellants argue that they had no notice that their conduct would be subject to punitive damages. However, the punitive damage statute, Section 27-1-221, MCA, was in effect at the time appellants committed the subject acts. Appellants were fully apprised that malicious or oppressive conduct on their part could lead to the imposition of punitive damages. Our decisions in First National Bank in Libby v. Twombly (Mont. 1984), [213 Mont. 66,] 689 P.2d 1226, 41 St.Rep. 1948, and Tribby v. Northwestern Bank of Great Falls (Mont. 1985), [217 Mont. 196,] 704 P.2d 409, 42 St.Rep. 1133, support this result.

Appellants complain that the punitive damages are excessive and based upon passion or prejudice. Section 25-11-102(5), MCA, provides that a verdict or a decision may be vacated and a new trial granted “on the application of the party aggrieved for . . . excessive damages appearing to have been given under the influence of passion or prejudice.”

Appellants failed to raise the issue of excessiveness in post-trial motions. This Court need not now consider that contention on appeal. In Mitchell v. Thomas (1932), 91 Mont. 370, 8 P.2d 639, defendant claimed damages were excessive, showing passion and prejudice on the part of the jury. The Supreme Court stated:

“A motion for a new trial was not made, and the trial judge was not given an opportunity to pass upon this feature of the case. If he had been asked to reduce the amount of the verdict, he might have done so. We have no substantial basis for changing it.”

91 Mont, at 383, 8 P.2d at 643.

This Court has long adhered to the principle that “[t]he amount to be awarded as damages is properly left to the jury and this Court will not substitute its judgment for that of the jury . . .” Salvail v. Great Northern Railway Co. (1970), 156 Mont. 12, 31, 473 P.2d 549, 560. While the punitive damages in this case are large, they are within the discretion of the jury and were not raised as error in post-trial motions.

Judgment for the plaintiff is affirmed in all respects.

MR. CHIEF JUSTICE TURNAGE and MR. JUSTICES SHEEHY and HUNT concur.

MR. JUSTICE WEBER,

dissenting:

I dissent from that portion of Issue Six of the majority opinion which concludes that the punitive damages awarded in this case were not excessive. The jury returned the verdict for the plaintiff giving her economic damages of $94,170, emotional distress damages of $100,000 and punitive damages of $1,300,000. I conclude that under the factors hereafter described, the award of punitive damages in the amount of $1,300,000 was excessive.

Section 27-1-221, MCA, contains the statutory provisions with regard to punitive damages. Until the 1985 amendment which is not pertinent in this case, that statute provided for the award of punitive damages where the defendant has been guilty of oppression, fraud, or malice, actual or presumed, and allowed the award of damages for the sake of example and by way of punishment. No additional factors were set forth. In 1927 this Court described what a jury should consider in setting the amount of a punitive damage award:

“ ‘The jury should take into consideration the attendant circumstances, such as the malice or wantonness of the act, the injury intended, the motive for the act, the manner in which it was committed and the deterrent effect upon others . . . According to the general rule, it is proper for the jury to consider defendant’s wealth and pecuniary ability in fixing the amount of damages.’ 17 C.J. 994, 995 .... ‘The public good in the restraint of others from wrongdoing, as well as the punishment of the offender, is to be considered in estimating exemplary damages.’ Ward v. Ward, 41 Iowa, 686. Based on those determinative factors and general principles, in this state the rule is that the amount of exemplary damages must be reasonable.” (Emphasis supplied.)

Ramsbacher v. Hohman (1927), 80 Mont. 480, 489, 261 P. 273, 277.

In the case of Butcher v. Petranek (1979), 181 Mont. 358, 361, 593 P.2d 743, 744, this Court restated the rule in Montana that a jury award of punitive damages would not be disturbed unless the amount, considered in connection with the facts, indicates the jury was influenced by passion, prejudice, or corruption. My research indicates that there is a great difference of opinion in the various states on the manner and extent of review of punitive damages, both by the trial court and the appellate court. However, I do note that many courts have concluded that it was appropriate to set aside punitive damage awards on the basis of passion and prejudice, or similar rationales.

I approve the factors to be considered in reviewing punitive damages as set forth in Mallor and Roberts, Punitive Damages: Toward a Principled Approach, 31 Hastings L.J. 639 (1980). These factors are essentially as follows:

1. the severity of the harm likely to occur from defendant’s conduct;

2. the degree of reprehensibility of defendant’s conduct;

3. the profitability of the conduct;

4. the financial position of the defendant;

5. the amount of compensatory damages;

6. the costs of litigation;

7. potential criminal sanctions; and

8. other civil actions against the defendant based on the same conduct.

Because this is a dissent, I will not extensively analyze the facts as they apply to each of these factors. I do suggest that a clear contradiction is shown if we apply factor (5) to the present case. The amount of the compensatory damages totals $194,170. This factor alone raises a significant question as to the punitive damages award of $1,300,000. As I seek to apply the above factors in my review of the facts of this case including the outrageous conduct on the part of the defendant, I conclude that an award of $1,300,000 as punitive damages is excessive.

This case tends to suggest the very real interplay which is possible on the jury’s part with regard to the various categories of damages. We speak of economic damages and emotional distress damages as being compensatory in nature and different in character from punitive or exemplary damages. I’m not certain that the jury made that distinction. As an example, had the jury not been allowed to award punitive damages in excess of one million dollars as was done in this case, the facts would seem to warrant an award for emotional distress in excess of $100,000.

I would therefore reverse the judgment and remand for new trial so the plaintiff would have an adequate opportunity to recover all types of damages which she may prove.

MR. JUSTICES GULBRANDSON and HARRISON, join in dissent MR. JUSTICE WEBER.


author: MR. JUSTICE HARRISON

text:
    GERALD G. FERDINAND, Claimant and Appellant, v. LODGE #456, B.P.O.E., LEWISTOWN, Montana, Employer, and Intermountain Insurance Company, Defendant and Respondent.
    No. 85-433.
    Submitted on Briefs March 13, 1986.
    Decided June 5, 1986.
    719 P.2d 775.
    Robert L. Johnson, Lewistown, for claimant and appellant.
    K. Dale Schwanke, Great Falls, for defendant and respondent.
   MR. JUSTICE HARRISON

delivered the Opinion of the Court.

This is an appeal from an order of the Workers’ Compensation Court of the State of Montana. The order of judgment adopted findings of fact and conclusions of law of Workers’ Compensation hearing examiner Larry W. Jones. We affirm.

Gerald Ferdinand, claimant and appellant, was employed as the salaried manager of the Lewistown Elk’s Club. Ferdinand’s age, sex, weight, blood pressure, personality, and cigarette smoking habit made him a classic candidate for heart trouble. During the week immediately before he suffered a myocardial infarction (heart attack) at his home in the early evening, he had worked longer hours than usual at the Club. He also had been under more than the usual amount of stress. The day of Ferdinand’s heart attack, he went to the Elk’s Club only until shortly after noon because the Club was closed that day. After eating lunch at home, he did some yard work for two hours or so. Late in the afternoon a partial truck-load of cement was delivered and dumped into an 8-foot square form Ferdinand had prepared some weeks earlier. He was not expecting the cement that day and was not prepared to smooth it out. A neighbor stopped to help him and Sandy Ebel, with whom he lived, smooth it out. It was an unusually warm day, and after the job was finished, Ferdinand and the neighbor drank a soda. The neighbor left. Soon thereafter Ferdinand told Sandy he did not feel well. He said he felt like someone was gripping him and he was a chalky color. Sandy called a doctor in Lewistown and took Ferdinand to the hospital, where he was admitted and diagnosed as having suffered a myocardial infarction. During his ten-day hospitalization he was terminated from his job at the Elk’s Club.

Ferdinand filed a petition with the Workers’ Compensation Court to secure benefits for the non-fatal heart attack, which he argues to be job-related. Judgment was entered denying benefits to Ferdinand and he appeals.

The issue on appeal is whether the Workers’ Compensation Court erred in ruling Ferdinand’s heart attack was not a compensable injury under the Workers’ Compensation Act.

An injury for Workers’ Compensation purposes is defined as:

“. . . a tangible happening of a traumatic nature from an unexpected cause or unusual strain resulting in either external or internal physical harm and such physical condition as result therefrom

Section 39-71-119, MCA.

A compensable injury under the Workers’ Compensation Act must meet the definitional requirements of the statute. Hurlbut v. Vollstedt Kerr Co. (1975), 167 Mont. 303, 306, 538 P.2d 344, 346. This burden has two prongs: (1) there must be a tangible happening of a traumatic nature, and (2) the tangible happening must be shown to be the cause of the physical harm. A claimant must be able to meet both prongs in order to claim a compensable injury. This burden is most difficult in cases such as this, which do not involve physical trauma. Conflicting evidence is necessarily offered. In reviewing the findings of the Workers’ Compensation Court,

“[W]e have firmly adhered to the view that where the findings are based on conflicting evidence, this Court’s function on review is confined to determining whether there is substantial evidence to support contrary findings. [Citing cases.]”

Davis v. Mountain West Farm Bureau Mutual Insurance Company (Mont. 1985), [216 Mont. 300,] 701 P.2d 351, 353, 42 St. Rep. 840, 843.

Thus the Court will not reverse the Workers’ Compensation Court unless its findings of fact or conclusions of law are clearly erroneous:

“This Court’s function ... is not to substitute its judgment in place of the trier of fact but rather is ‘confined to determining whether there is substantial credible evidence to support’ the findings of fact and conclusions of law. Although conflicts may exist in the evidence presented, it is the duty and function of the trial judge to resolve such conflicts. His findings will not be disturbed on appeal where they are based on substantial though conflicting evidence.” Tenderholt v. Royal Ins. Co. of Amer. (Mont. 1985), [218 Mont. 523,] 709 P.2d 1011, 1013, 42 St.Rep. 1792, 1794-5.

Ferdinand first must show a tangible happening of a traumatic nature.

“A tangible happening must be a perceptible happening. Webster’s Third New International Dictionary. Some action or incident, or chain of actions or incidents, must be shown which may be perceived as a contributing cause of the resulting injury ... [A] tangible, real happening must be a cause of the condition. [Citations omitted.]”

Erhart v. Great Western Sugar Co. (1976), 169 Mont. 375, 381, 546 P.2d 1055, 1058.

He argues the kinds of stress he worked under are in fact tangible happenings of a traumatic nature. He cites instances of having to try to please members and their wives, of being under fire for not paying certain bills when the funds were unavailable, of being particularly castigated by a Lodge officer for failure to pay the Lodge’s bills at a time when that officer’s IOUs were in the till unpaid, of not having enough help at the bar on occasion, and recently the fear he was about to be terminated. Ferdinand is unable, however, to show that a tangible, real happening, which is related to his employment, caused his heart attack.

“Not only must a claimant prove her case by a preponderance of the evidence, she must do so by a preponderance of the probative credible evidence .... [A] possibility is not probative credible testimony and will not, without more, supply evidence.”

Dumont v. Wickens Bros. Construction Co. (1979), 183 Mont. 190, 201, 598 P.2d 1099, 1105-1106.

There is expert medical testimony in the record regarding possible causal relationships between the claimant’s work and his heart attack. But the claimant has claimed compensation benefits on the theory that his work more probably than not caused his heart attack. Therefore, he can prevail on his claim only if the expert medical testimony establishes his work more probably than not caused his heart attack. Schieno v. City of Billings (Mont. 1984), [210 Mont. 457,] 683 P.2d 953, 955, 41 St. Rep. 1157, 1159. The medical experts never were pressed to state what in their opinions more probably than not caused Ferdinand’s heart attack. Medical testimony shows more probably than not, Ferdinand had coronary artery disease prior to his heart attack. Medical testimony also shows more probaby than not, the emotional and physical stress resulting from Ferdinand’s job did not cause his heart attack. Nor did it aggravate his pre-existing coronary artery disease and thereby cause his heart attack.

In Erhart, supra, we said either a claimant or medical witness must be “able to point to one or more tangible, real, perceptible happenings as the sole or contributory cause of claimant’s . . . condition.” Erhart, 169 at 381, 546 P.2d 1058. Because Ferdinand cannot show that a tangible, real happening which is related to his employment caused his heart attack, he has not carried his burden of proof and cannot qualify for benefits under the statute.

After careful scrutiny of the record, we find substantial credible evidence to support the Workers’ Compensation Court’s conclusion Ferdinand did not sustain a compensable injury. There simply is not a preponderance of affirmative evidence establishing that the claimant’s working conditions and his alleged anxiety caused his heart attack.

The Workers’ Compensation Court properly concluded as a matter of law the myocardial infarction Ferdinand suffered is not an injury that arose out of and in the course of his employment. The judgment is affirmed.

MR. CHIEF JUSTICE TURNAGE and MR. JUSTICES SHEEHY, HUNT and GULBRANDSON concur.


author: MR. CHIEF JUSTICE FRANK HASWELL, MR. JUSTICE SHEEHY,

text:
    NORTHWEST AIRLINES, INC., a corporation, Plaintiff, Respondent and Cross-Appellant, v. STATE TAX APPEAL BOARD, et al., Defendants, and Department of Revenue of the State of Montana, Defendant, Appellant and Cross-Respondent.
    No. 85-435.
    Submitted April 3, 1986.
    Decided June 5, 1986.
    Rehearing Denied July 17, 1986.
    720 P.2d 676.

      David W. Woodgerd argued, Dept, of Revenue, Helena, for defendant, appellant and cross-respondent.
    Loble & Pauly, Lester H. Loble, II, Tom K. Hopgood argued, Helena, for plaintiff, respondent and cross-appellant.
   MR. CHIEF JUSTICE FRANK HASWELL,

delivered the Opinion of the Court.

The District Court of Lewis and Clark County granted summary judgment to Northwest Airlines in its action to recover back a deficiency assessment on its Montana corporation license tax paid under protest. We affirm.

The background of this controversy indicates that Northwest is an interstate air carrier of passengers and freight. Some of its flights land and take-off from Montana airports while others simply fly over the state. Northwest Airlines has filed Montana corporation license tax returns each year since 1963.

As the result of an audit, the Montana Department of Revenue (DOR) levied a deficiency assessment against Northwest of $496,562.00 for the years 1973 through 1978. Northwest paid the deficiency assessment plus interest under protest and filed an action in the District Court to secure a declaratory judgment that the deficiency assessment was illegal and to recover it back. At about the same time, Northwest filed an appeal of the deficiency assessment with the State Tax Appeal Board (STAB) which was stayed pending the outcome of the District Court action.

In September 1984, Northwest and DOR filed simultaneous motions for summary judgment. Following briefs and oral argument, the District Court granted summary judgment to Northwest, holding in substance that DOR had no authority by statute or under the Montana Administrative Procedures Act (MAPA) to use an apportionment formula which includes nonstop flyover miles in computing the Montana corporation license tax owed, and that this violates constitutional requirements of due process, equal protection and the Commerce Clause. Thereafter, the District Court denied DOR’s motion to alter or amend the judgment after striking the affidavits of three DOR agents and employees which were filed by DOR to support its motion.

DOR’s appeal followed. A cross-appeal by Northwest concerning the interest rate has been settled by agreement of the parties.

Although the parties define the issues on appeal in diverse and varying manner and language, the basic controversy is whether the apportionment formula used by DOR in computing the corporation license tax owed by Northwest is authorized under Montana statutes, MAPA, and state and federal constitutional requirements. The remaining issues neither control nor affect this basic controversy and need not be discussed nor determined herein.

The Montana corporation license tax is imposed “for the privilege of carrying on business in this state” (emphasis added) and, in the case of a unitary business such as Northwest having income from business activity both within and without Montana, is “measured by the net income derived from or attributable to Montana sources. . . (Emphasis added.) Section 15-31-101(3), MCA.

The statutory formula for this measurement is the multiplication of total business income of the company by a fraction, “the numerator of which is the property factor plus the payroll factor plus the sales factor and the denominator of which is 3.” Section 15-31-305, MCA. The property, payroll and sales factors are expressed as the proportion of Montana property, payroll and sales to the total property, payroll and sales of the company. Thus the greater the Montana shares of Northwest’s property, payroll and sales, the higher its taxable Montana income will be.

DOR is empowered to alter this income apportionment method where the formula outlined above does “not fairly represent the extent of the taxpayer’s business activity in this state . . .” (Emphasis added.) Section 15-31-312, MCA. DOR administratively determined that the general rules made to carry out the statutory apportionment scheme did not “fairly represent the extent of the taxpayer’s business activity in this state” as far as certain industries, such as freight and passenger carriers, were concerned. Therefore, it created special procedures for those industries. A.R.M. 42.26.264 applied to freight and passenger carriers and states:

“(1) A portion of the net income of taxpayers engaged in the transportation of freight or passengers within and without Montana may be attributed to the movement of revenue-producing equipment, drivers, train crews, or other operating personnel across the state.
“(2) The percentage of miles traveled within Montana to total miles traveled everywhere shall be the percentage used in determining the amount of income attributable to this state. The apportionment formula for such transportation companies shall be computed as follows:
“(a) . . . The value of equipment used in interstate transportation shall be assigned to this state on the mileage basis.
“(b) . . . The wages of personnel operating transportation equipment within and without this state shall be assigned to this state upon the basis of miles. The wages of such personnel shall be assigned to Montana in proportion that miles traveled everywhere.
“(c) Revenues will be assigned to this state in the proportion that the miles traveled within the state bear to the total miles traveled everywhere . . .”

Under this rule, mileage is the basis for allocating income to Montana for corporate license tax purposes. The value of equipment used in interstate commerce (property factor), the wages paid to personnel involved in interstate commerce (payroll factor) and the revenue generated in interstate commerce (sales factor) are assigned to Montana in the proportion that miles traveled within Montana compare to miles traveled everywhere. By fiat of its auditor, DOR included miles attributed to nonstop flyovers, i.e. to airplanes which fly over Montana but which do not land or take off from Montana airports, as miles traveled within Montana in computing the tax owed by Northwest.

The District Court concluded that the language of Section 15-31-312, MCA, and A.R.M. Section 42.26.264 do not encompass the use of nonstop flyover miles in the numerator of the apportionment formula. DOR contends that a formula which has all of the miles Northwest flies in the denominator but ignores 80% of the miles Northwest flies in the numerator does not fairly represent the extent of Northwest’s business activity in Montana. Each of the statutes explaining the factors to be used in the apportionment formula refer to use, payment, sale or performance “in this state.” The relief provision of Section 15-31-312, MCA , refers to activity in this state.” DOR’s administrative rule for freight and passenger carriers refers to “miles traveled within Montana” for the formula’s numerator. The flyover flights of Northwest have no contact with Montana. They do not land or take off here. DOR concedes these flights do not even have radio contact with Montana. The language of the statutes expresses no intent to consider activity other than that in Montana. Construing this language in favor of the taxpayer, as we must, Nice v. Montana (1973), 161 Mont. 448, 452, 507 P.2d 527, 530, we find that DOR had no statutory authority to include nonstop flyover miles in the numerator of the apportionment formula.

The administrative decision of DOR’s auditor to include nonstop flyover miles in the numerator of the apportionment formula was not an inconsequential matter. It increased Northwest’s tax 490% in 1973, 414% in 1974, 404% in 1976, 383% in 1977 and 505% in 1978 (there was no profit to tax in 1975). The inclusion of overflight mileage in the statutory apportionment formula “implements, interprets or prescribes law or policy” and thus qualifies as a rule by statutory definition. Section 2-4-102(10), MCA. A rule to be valid must be adopted after notice and hearing in conformity with Section 2-4-302, MCA. Here, there was no compliance with MAPA’s rulemaking requirements and the auditor’s unilateral decision to include overflight mileage in the numerator of the apportionment formula fails for noncompliance with MAPA requirements.

Accordingly, we hold that using nonstop flyover miles in the numerator of the apportionment formula did not comply with statutes or administrative rules and did not fairly represent Northwest’s business activity within Montana as contemplated by statute. Lest we be misunderstood, we caution that nothing herein contained is intended to bar the use of nonstop flyover miles in both the numerator and denominator of the apportionment formula under appropriate statutory language and duly enacted administrative rule.

We neither reach nor decide the state or federal constitutional objections to the deficiency assessment imposed against Northwest in this case. Under the time honored rule that a court will decide an appeal on nonconstitutional grounds if possible and decide constitutional issues only if necessary to the decision, we leave such issues for another day.

Finally, DOR contends that the District Court should have considered a proposed alternative formula. The issues presented to the District Court concerned the particular formula and tax used by DOR against Northwest. The District Court’s function was to decide whether the same was unlawful. It did so in granting Northwest’s motion for summary judgment. To rule on DOR’s proposed alternate formula which would not be used by them in computing the tax owed by Northwest would exceed its jurisdiction, and this Court’s as well.

Affirmed.

MR. CHIEF JUSTICE TURNAGE and MR. JUSTICES HARRISON, MORRISON, HUNT and WEBER concur.

MR. JUSTICE SHEEHY,

concurring and specially concurring:

I concur in the above opinion.

After oral argument was had in this case, a few editors in the State had some querulous comments to make concerning the State’s argument that airline overflights, not touching in the State, should nevertheless be included in the numerator of the mileage factor to determine a fair income tax for the airline.

It will doubtless astound those editors to learn that the State’s proposal is not unique; that a number of states use such overflight mileage in determining an airline’s income taxes; that this airline particularly suggested such a method in lieu of another to the State of Minnesota; that the method is neither illegal nor unfair; and that the legislature and the department of revenue may well consider such a factor as they revamp their laws and regulations to cover the hole in the income tax law pointed out in this Court’s opinion.

The use of overflight mileage in the factor stems from allocation of labor costs as one of the criteria to determine a fair tax. When airplanes are flying over the State, the labor force that put the plane there, and operates it, is generating income for the airline, income that would otherwise escape income taxation by the state overflown or by any other state.

The establishment of a good business climate in this state should not be clouded by poor income tax planning, especially when the taxpayer has suggested the method as a fair one.