author: JUSTICE GRAY

text:
    STATE OF MONTANA, Plaintiff and Respondent, v. TROY MICHAEL JONES, Defendant and Appellant.
    No. 95-262.
    Argued April 19, 1996.
    Submitted April 30, 1996.
    Decided September 11, 1996.
    53 St.Rep. 864.
    278 Mont. 121.
    923 P.2d 560.

      For Appellant: William F. Hooks, Appellate Defender (argued), Helena.
    For Respondent: Hon. Joseph P. Mazurek, Attorney General, Cregg Coughlin, Ass’t Attorney General (argued), Helena; Mike Weber, Richland County Attorney, Sidney.
    For Amicus Curiae: Keith A. Maristuen, Chair, and Michael G. Alterowitz, Attorneys at Law (for Ethics Committee, State Bar of Montana), Helena; Michael Donahoe, Attorney at Law (for Criminal Defense Section, State Bar of Montana), Helena.
   JUSTICE GRAY

delivered the Opinion of the Court.

Troy Michael Jones (Jones) appeals from the judgment and sentence entered by the Seventh Judicial District Court, Richland County, on a jury verdict finding him guilty of the offense of felony assault. We reverse and remand.

The dispositive issue on appeal is whether the District Court abused its discretion in denying Jones’ counsel’s motion to withdraw.

The State of Montana (State) charged Jones with felony assault, in violation of § 45-5-202, MCA, alleging that Jones purposely or knowingly caused bodily injury to Kirby Sowers (Sowers) by striking Sowers “about the head and face with a beer bottle....” T. R. Halvorson (Halvorson) was appointed to represent Jones and, thereafter, Jones pled not guilty to the charged offense. Trial was set for November 3, 1994. Two days prior to trial, Halvorson moved to withdraw as Jones’ counsel. The State opposed the motion and requested an evidentiary hearing on the grounds for withdrawal.

The hearing on Halvorson’s motion to withdraw as Jones’ counsel was not, strictly speaking, an evidentiary hearing; no sworn testimony was presented. The District Court merely invited Halvorson to establish a factual basis for his motion and Halvorson did so through narrative statements and various arguments.

Halvorson based his motion, in part, on Rules 1.16(a)(1) and (b)(1), Montana Railes of Professional Conduct (MRPC). In this regard, Halvorson told the District Court that Jones had stated an intent to testify falsely.

Halvorson also based his motion on Rule 1.16(b)(3), MRPC. The bulk of Halvorson’s statements, disclosures and arguments in support of his motion to withdraw were based on his belief that Jones’ decision to reject the plea agreement Halvorson had negotiated with the State and proceed to trial was repugnant or imprudent. Halvorson detailed the offense and Jones’ role in it, and disclosed Jones’ admission that he “punched [Sowers] with a bottle of beer in [Jones’] right hand.” Halvorson indicated that a felony assault had occurred and that Jones admitted having committed it. In addition, Halvorson stated that he did not have a defense to present to a jury on Jones’ behalf. He opined that it was repugnant to deny criminal culpability to a jury where on an “open and shut basis... there is guilt.” Halvorson also indicated that Jones’ decision to go to trial rather than accept a plea agreement “when [Jones] stands virtually no chance of an acquittal” was repugnant to him and constituted good cause for his withdrawal as counsel.

Jones denied that he had communicated an intent to testify falsely to Halvorson and stated that, in fact, he did not intend to testify at his trial. He asserted that Halvorson had “lied about a few things” and that “[he] disagreed] with everything [Halvorson] said, and that’s fine if [Halvorson] drops out of [the] case.” The District Court indicated that it was accepting Jones’ statements as “argument and testimony.”

Based on Jones’ statement that he did not intend to testify, the District Court denied Halvorson’s motion to withdraw. Several months later, a jury convicted Jones of felony assault and the District Court sentenced him and entered judgment. Jones appeals.

Did the District Court abuse its discretion in denying Halvorson’s motion to withdraw as Jones’ counsel?

Jones argues on appeal that the District Court abused its discretion in denying Halvorson’s motion to withdraw. While advancing alternative bases for his argument, Jones’ primary contention is that Halvorson had a conflict of interest which resulted in a denial of Jones’ constitutional rights to a fair trial and to the effective assistance of counsel. The State disagrees, arguing that no conflict of interest existed in this case.

The grant or denial of a lawyer’s motion to withdraw is within the discretion of the district court. See United States v. Keys (9th Cir. 1995), 67 F.3d 801, 807; Petition of Jones (1963), 143 Mont. 309, 309-10, 387 P.2d 712, 712. We review such discretionary matters to determine whether the court abused its discretion. See State v. Craig (1995), 274 Mont. 140, 149, 906 P.2d 683, 688 (citations omitted).

GENERAL DUTIES OF ATTORNEY TO CLIENT

The Sixth Amendment to the United States Constitution and Article II, Section 24 of the Montana Constitution guarantee a criminal defendant the right to the assistance of counsel. Mere representation by counsel is not sufficient, however; the assistance must be effective to give true meaning to that right and to the right to a fair trial. State v. Enright (1988), 233 Mont. 225, 228, 758 P.2d 779, 781. Moreover, a criminal defendant’s constitutional right to the effective assistance of counsel is comprised of two correlative rights: the right to counsel of reasonable competence and the right to counsel’s undivided loyalty. State v. Christenson (1991), 250 Mont. 351, 355, 820 P.2d 1303, 1306 (citations omitted). In the latter regard, the Sixth Amendment right to counsel contemplates the assistance of an attorney devoted “solely to the interests of his client.” Frazer v. United States (9th Cir. 1994), 18 F.3d 778, 784 (quoting Von Moltke v. Gillies (1948), 332 U.S. 708, 725-26, 68 S.Ct. 316, 324, 92 L.Ed. 309, 322). The duty of loyalty is “perhaps the most basic of counsel’s duties.” Strickland v. Washington (1984), 466 U.S. 668, 692, 104 S.Ct. 2052, 2067, 80 L.Ed.2d 674, 696.

An attorney owes a duty of confidentiality to his or her clients. Rule 1.6, MRPC. The duty of confidentiality is correlative to an attorney's duty of loyalty. See, e.g., Damron v. Herzog (9th Cir. 1995), 67 F.3d 211, 215. Thus, a defense attorney’s disclosure of confidential information in violation of Rule 1.6, MRPC, necessarily implicates the attorney’s duty of loyalty as well as the defendant’s constitutional right to the effective assistance of counsel.

DISCLOSURE OF PERJURY

Rule 1.16, MRPC, provides in pertinent part:

(a)... a lawyer... shall withdraw from the representation of a client if:
(1) the representation will result in violation of the rules of professional conduct or other law;
(b)... a lawyer may withdraw from representing a client... if:
(1) the client persists in a course of action involving the lawyer’s services that the lawyer reasonably believes is criminal or fraudulent. ...

Halvorson contended that his continued representation of Jones would result in a violation of a rule of professional conduct or other law because Jones intended to commit perjury.

Rule 1.16(a)(1), MRPC, requires an attorney to withdraw where continued representation will result in a violation of the rules of professional conduct or other law. Halvorson stated that he had a conversation with Jones in which Jones communicated an intent to testify falsely and, in response, he informed Jones of the consequences of pexjury and that he could take no part in presenting perjured testimony to the District Corut. He further stated that he gave Jones a weekend over which to further consider Jones’ intent to commit peijury and his advice in this regard. The record does not reflect that Halvorson checked back with Jones after the weekend passed, to ascertain whether Jones had reconsidered based on his advice, before filing his motion to withdraw.

Halvorson conceded at the hearing on his motion to withdraw that Jones may have reconsidered and decided not to testify falsely. Thus, the record before us contains only an alleged possible intent to commit perjury. It does not support Halvorson’s contention that his continued representation of Jones would result in a violation of the rules of professional conduct or other law and, as a result, it also does not support his motion to withdraw under Rule 1.16(a)(1), MRPC.

Rule 1.16(b)(1), MRPC, on which Halvorson also based his motion, permits an attorney to withdraw if the client persists in a course of conduct the lawyer reasonably believes is criminal or fraudulent. Webster’s Ninth New College Dictionary (1988) defines “persist” as “to go on resolutely or stubbornly in spite of opposition, importunity, or warning.” Here, nothing of record indicates that Jones was “persisting” in his alleged intent to testify falsely after considering Halvorson’s advice and warning. The record before us does not support withdrawal based on Rule 1.16(b)(1), MRPC.

In this regard, Jones and the amici curiae urge our adoption of a variety of standards of knowledge which an attorney should be required to possess prior to moving to withdraw based on a criminal defendant client’s intent to commit peijury. Jones contends that a “firm factual basis” must exist. The Criminal Defense Section of the State Bar of Montana asserts that counsel must be “absolutely convinced in his own mind, and in fact beyond a reasonable doubt” that the client will commit perjury before moving to withdraw. The State Bar of Montana Ethics Committee recommends that counsel must “know” that the defendant intends to perjure himself or herself and that a maintained and reiterated statement of intent to do so should be sufficient.

We decline to adopt a particular knowledge standard in this case where no findings of fact have been made by the trial court. Moreover, it is unnecessary to do so in this case because it is clear that Halvorson did not meet any standard of knowledge prior to moving to withdraw. Because the record does not support any persistence by Jones in the alleged intent to commit perjury it follows that Halvorson could not, in the language of Rule 1.16(b)(1), MRPC, reasonably believe that Jones was persisting in a course of action involving Halvorson’s services which was criminal or fraudulent.

Halvorson also relied on Nix v. Whiteside (1986), 475 U.S. 157, 106 S.Ct. 988, 89 L.Ed.2d 123, in support of his motion to withdraw as Jones’ counsel because of Jones’ alleged intent to commit perjury. In Nix, the defendant was charged with murder, but claimed that he had stabbed the victim in self-defense. Nix, 475 U.S. at 160, 106 S.Ct. at 990-91. He told his attorney that the victim “ ‘was pulling a pistol from underneath the pillow on the bed[,]’ ” but admitted that he had not actually seen a gun. Nix, 475 U.S. at 160, 106 S.Ct. at 990-91. During trial preparation, however, the defendant told his attorney for the first time that he had seen something “metallic” in the victim’s hand; his explanation for the change was that “[i]f I don’t say I saw a gun, I’m dead.” The attorney explained that it was not necessary to prove the victim actually had a gun to succeed on a claim of self-defense, but the defendant continued to insist on testifying falsely. Nix, 475 U.S. at 161, 106 S.Ct. at 991. The attorney advised that he would not allow the defendant to testify falsely and that, if the defendant did so, he would be required to advise the court that the defendant was committing perjury and would move to withdraw as counsel. Nix, 475 U.S. at 161, 106 S.Ct. at 991.

The defendant testified at trial that he “knew” the victim had a gun, but conceded on cross-examination that he did not actually see a gun in the victim’s hand. Nix, 475 U.S. at 161-62, 106 S.Ct. at 991-92. He was convicted of second-degree murder and subsequently moved for a new trial, claiming that he had been deprived of a fair trial due to his attorney’s admonitions not to testify that he saw something metallic in the victim’s hand. Nix, 475 U.S. at 162, 106 S.Ct. at 991-92. The trial court denied the motion and the Iowa Supreme Court affirmed, holding that neither the right to counsel nor the attorney’s duty to his client extended to assisting the client in committing peijury. Nix, 475 U.S. at 162, 106 S.Ct. at 991-92.

The defendant filed a federal habeas corpus petition alleging, among other things, that he had been denied effective assistance of counsel by his attorney's refusing to allow him to give perjured testimony. Nix, 475 U.S. at 162, 106 S.Ct. at 991-92. The issue before the United States Supreme Court was whether the Sixth Amendment right to counsel is violated when an attorney refuses to cooperate with a criminal defendant in presenting perjured testimony. Nix, 475 U.S. at 159, 106 S.Ct. at 990.

The Supreme Court observed that the first part of the Strickland test requires a defendant to establish “constitutionally deficient” performance by counsel. Nix, 475 U.S. at 164-65, 106 S.Ct. at 992-93. Having recognized counsel’s duty of loyalty in Strickland, the Nix Court determined “that duty is limited to legitimate, lawful conduct compatible with the very nature of a trial as a search for truth.” Nix, 475 U.S. at 166, 106 S.Ct. at 993-94. While an attorney’s duty of confidentiality and loyalty extends to a client’s admission of guilt, it does not require the attorney to assist the client in presenting false evidence. Nix, 475 U.S. at 166, 174, 106 S.Ct. at 993-94, 997-98. Thus, whether the attorney’s conduct in Nix was seen as a successful attempt to persuade the defendant not to commit peijury, or as a threat to withdraw and disclose the defendant’s peijury if and when it occurred, the Supreme Court held that the attorney’s representation of the defendant fell “well within accepted standards of professional conduct and the range of reasonable professional conduct acceptable under Strickland.” Nix, 475 U.S. at 171, 106 S.Ct. at 996.

In reaching its conclusion in Nix, the Supreme Court surveyed and set forth various rules of professional conduct and interpretations of such rules. For example, the Supreme Court stated that it is “universally agreed” that an attorney's first duty when confronted with a client’s stated intention to testify falsely is to attempt to dissuade the client from the unlawful course of conduct. Nix, 475 U.S. at 169, 106 S.Ct. at 995. Moreover, where the client actually gives perjured testimony, an attorney may reveal the perjury to the trial court. Nix, 475 U.S. at 170, 106 S.Ct. at 995-96. In addition, withdrawal may be appropriate where a client states an intent to testify falsely. Nix, 475 U.S. at 170, 106 S.Ct. at 995-96. The Supreme Court was carefiil to note, however, that it was not intruding into the proper authority of the states to define and apply standards of professional conduct applicable to those admitted to practice in state courts. Nix, 475 U.S. at 165, 106 S.Ct. at 993. Indeed, as pointed out by Justice Brennan in his concurring opinion, “the Court’s essay regarding what constitutes the correct response to a criminal client’s suggestion that he will perjure himself is pure discourse without force of law.” Nix, 475 U.S. at 177, 106 S.Ct. at 999 (Brennan, J., concurring).

Neither the facts nor the holding in Nix support Halvorson’s motion to withdraw based on Jones’ alleged intent to testify falsely in this case. The only pertinent facts in Nix were the attorney’s advice, in response to the client’s stated intent to commit perjury, that he would not allow the client to testify falsely and, if the client did so, he would disclose the perjury to the trial court and move to withdraw; the client did not commit perjury. Here, in response to Jones’ alleged intent to testify falsely, Halvorson advised of the potential consequences. To this extent, Halvorson’s actions mirrored those of counsel in Nix. Halvorson, however, followed his advice by moving to withdraw and making disclosures to the District Court of client confidences. These significant facts were not present in Nix.

Moreover, the holding in Nix on the Sixth Amendment issue presented by the facts referenced above is that counsel's advice to his client about the potential consequences of the client’s intent to commit perjury did not fall outside the range of reasonable professional conduct required by Strickland. See Nix, 475 U.S. at 171, 106 S.Ct. at 996. The case now before us does not involve the propriety or constitutionality of Halvorson’s advice to Jones; rather, it involves, initially, the propriety of Halvorson’s actions thereafter in moving to withdraw from further representation of Jones. In this regard and based on the record before us in this case, we concluded above that neither subsection (a)(1) nor subsection (b)(1) of Rule 1.16, MRPC, authorized Halvorson’s motion to withdraw.

Furthermore, while we agree with the Supreme Court that an attorney's “universally accepted” initial duty when faced with a client stating an intent to commit perjury is to attempt to dissuade the client from doing so (see Nix, 475 U.S. at 169, 106 S.Ct. at 995), we also agree with Justice Brennan that the Supreme Court’s extensive survey and discussion regarding standards of professional conduct under various rules and commentaries is, for the most part, dicta and without force of law. See Nix, 475 U.S. at 177, 106 S.Ct. at 999-1000 (Brennan, J., concurring). In the Nix context, that survey and discussion is background material which bears little relationship to the facts and actual issue in that case. It is neither binding, nor necessarily persuasive, authority to this Court regarding the Montana Rules of Professional Conduct and our interpretation of those Rules vis-a-vis regulating the conduct of attorneys in the courts of Montana.

As a final argument relating to Halvorson’s motion to withdraw based on Jones’ alleged intent to commit perjury, the State contends that the disclosures Halvorson made to the. District Court in this regard were required by Rule 3.3(a)(2), MRPC. Rule 3.3, MRPC, provides, in pertinent part:

(a) A lawyer shall not knowingly:
(2) fail to disclose a material fact to a tribunal when disclosure is necessary to avoid assisting a criminal or fraudulent act by the client. ...

The State asserts that Halvorson knew Jones intended to commit perjury and, as a result, that Rule 3.3(a)(2) imposed an obligation to disclose Jones’ intent to testify falsely to the District Court in order to avoid assisting Jones in the criminal or fraudulent act of perjury. However, as discussed above, Halvorson did not know Jones’ intent in this regard. Therefore, Rule 3.3 does not support Halvorson’s disclosure of Jones’ alleged possible intent to commit pexjury.

We conclude, on the record before us, that Halvorson’s motion to withdraw was improper under Rules 1.16(a)(1) and (b)(1), MRPC, and was not supported by Nix.

CONFLICT OF INTEREST

An attorney who abandons his or her duty of loyalty may create a conflict of interest. Frazer, 18 F.3d at 782. A defense attorney who essentially joins the prosecution’s efforts in obtaining a conviction and acts on a belief that the defendant should be convicted “suffers from an obvious conflict of interest.” Frazer, 18 F.3d at 782 (citation omitted). Such an attorney “ ‘fail[s] to function in any meaningful sense as the Government’s adversary.’ ” Frazer, 18 F.3d at 782 (quoting United States v. Swanson (9th Cir. 1991), 943 F.2d 1070, 1074).

While defense counsel in a criminal case assumes a dual role as a “zealous advocate” and as an “officer of the court,” neither role would countenance disclosure to the Court of counsel’s private conjectures about the guilt or innocence of his client. It is the role of the judge or jury to determine the facts, not that of the attorney.

United States ex rel. Wilcox v. Johnson (3rd Cir. 1977), 555 F.2d 115, 122. Where an attorney wilfully discloses confidential information communicated by his client, he inhibits mutual trust necessary for effective representation. Wilcox, 555 F.2d at 122.

Here, the record clearly establishes that Halvorson put his personal interest in not wanting to take Jones’ case to trial ahead of Jones’ constitutional right to an attorney devoted solely to Jones’ interest in exercising his right to a trial by jury. Halvorson informed the District Court that he had negotiated a favorable plea agreement for Jones and indicated that he considered Jones’ decision to decline the agreement and exercise his right to trial repugnant. In the coruse of further explaining Jones’ “repugnant” decision, Halvorson reminded the court of the pending felony assault charge, premised on the State’s allegation that Jones committed the assault by striking Sowers “with either a beer bottle, or a glass, or some glass object[,]” and disclosed a confidential admission Jones made to him that Jones “punched [Sowers] with a bottle of beer in [Jones’] right hand.”

This disclosure was improper. As discussed above, Rule 1.6, MRPC, expressly prohibits the disclosure of information relating to the representation without the client’s consent except in specified circumstances where the duty to disclose necessarily overrides the duty of confidentiability and loyalty. Rule 3.3(a)(2), MRPC, provides an additional duty to disclose under carefully limited circumstances, even when compliance would reveal information otherwise protected by Rule 1.6, MRPC. The circumstances contained in Rule 3.3(a)(2), MRPC, relate to disclosure necessary to avoid assisting in a client’s criminal or fraudulent act, however, and bear no relationship to Halvorson’s extensive disclosure in this case regarding his “repugnance” to taking Jones’ case to trial.

Moreover, Halvorson’s contention that Jones’ “repugnant” decision to exercise his right to a jury trial, rather than accept a plea agreement, constitutes good cause for withdrawal rims directly afoul of Rule 1.2(a), MRPC, which provides in relevant part:

In a criminal case, the lawyer shall abide by the client’s decision, after consultation with the lawyer, as to a plea to be entered, whether to waive jury trial and whether the client will testify.

The obligations imposed by this Rule are paramount, and unqualified. Thus, while Halvorson may not have agreed with Jones’ decision to decline a plea agreement and exercise his right to a jury trial, that decision did not — and cannot — constitute cause for withdrawal.

Halvorson also indicated that, in his opinion, on an “open and shut basis ... there is guilt and is the plea [sic] that probably should be entered.” To illustrate his point, Halvorson detailed for the District Court and the prosecution why he believed Jones was so clearly guilty. He laid out the facts leading up to the alleged assault, which involved Sowers physically removing Jones from a bar and, immediately thereafter, walking into the bar covered with blood. He then stated:

Now, on probabilities, who else would have done it? [Jones] just had this physical disagreement with [Sowers].
There is no other person that the State has ever suspected, and there’s no other person that [Jones] has indicated should be a suspect, and there’s no other person that any witness I know of has indicated should be a suspect. So, you know, the range of possible explanations ... is narrow. It would be like threading a needle to come up with any other explanation.
In my mind, under the study of Montana law, there’s no doubt but what that [sic] beer bottle is a weapon, and, even if it weren’t, there’s no doubt in my mind that the degree of injury ... is serious bodily injury.
It’s a felony assault, and my client has admitted to me, essentially, that he did it.

Halvorson’s narrative detailed for the District Court and the prosecution why he believed Jones was guilty of felony assault and should not go to trial. The State cites to no authority, and we have found none, supporting disclosure by a defense attorney of a client’s confidential admission of guilt and detailing for the court and the prosecution the reasons his client is guilty in support of a motion to withdraw from further representation.

The record before us establishes that, at the hearing on Halvorson’s motion to withdraw, Halvorson totally abandoned his adversarial role on Jones’ behalf against the State, essentially joining the prosecution’s efforts in obtaining a conviction. In acting on his own belief that Jones should be convicted and in essentially joining the State’s efforts in obtaining a conviction, we conclude that Halvorson created “an obvious conflict of interest” and abandoned his duty of loyalty to Jones. See Frazer, 18 F.3d at 782.

Ordinarily, a criminal defendant’s constitutional right to the effective assistance of counsel is violated only when counsel’s performance was deficient and the deficient performance prejudiced the defendant’s right to a fair trial, and the defendant must establish both elements. Strickland, 466 U.S. at 687, 104 S.Ct. at 2064. The Strickland Court noted the availability of “presumed prejudice,” however, in situations where counsel is “burdened by an actual conflict of interest. In those circumstances, counsel breaches the duty of loyalty, perhaps the most basic of counsel’s duties.” Strickland, 466 U.S. at 692, 104 S.Ct. at 2067. Similarly, the Ninth Circuit Court of Appeals has recognized an exceptional situation regarding the prejudice requirement where an egregious actual conflict of interest exists of record between the client’s interests and the attorney’s sympathies. See Frazer, 18 F.3d at 782-83.

In Frazer, the Ninth Circuit addressed a defendant’s allegations that his appointed counsel had called him a “stupid nigger son of a bitch and said he hopes I get life [;] ” the conversation allegedly was overheard by others and the defendant attempted without success to have a different lawyer appointed. Frazer, 18 F.3d at 780. He subsequently filed a pro se motion for relief from the sentence imposed, alleging that the treatment he received from counsel was so fatally defective as to constitute an abandonment of the attorney’s duty of loyalty. Without holding an evidentiary hearing, the magistrate judge dismissed Frazer’s assertions as mere conclusory allegations and, in any event, determined that Frazer was not prejudiced because counsel’s actual performance was not demonstrably erroneous. Frazer, 18 F.3d at 780.

The issue on appeal in Frazer was whether the trial court abused its discretion in failing to hold an evidentiary hearing on whether the defendant’s Sixth Amendment right to counsel was violated. The Ninth Circuit held that

the facts as alleged in this case, if proved, would render so defective the relationship inherent in the right to trial counsel guaranteed by the Sixth Amendment that Mr. Frazer would be entitled to a new trial with a different attorney.

Frazer, 18 F.3d at 784. According to the Ninth Circuit, the defect, if proved, would be so egregious that a presumption of prejudice would be appropriate without review of the attorney’s actual conduct at the trial. Frazer, 18 F.3d at 785 (citing United States v. Cronic (1984), 466 U.S. 648, 660, 104 S.Ct. 2039, 2047, 80 L.Ed.2d 657, 668).

Notwithstanding the differences in procedural context and bases for abandonment of the duty of loyalty between Frazer and the case before us, we adopt and apply the Frazer rationale here. Our duty as judges is “to ensure that the right to counsel, as a jurisdictional prerequisite to depriving a person of his or her liberty, is fully honored.” Frazer, 18 F.3d at 784. The record before us in this case is clear. Halvorson totally abandoned his duties of loyalty and confidentiality to Jones by putting his personal interest in not wanting to take Jones’ case to trial ahead of Jones’ interest in representation by an attorney devoted solely to his interest in exercising his right to trial. The conflict between Halvorson’s sympathies and Jones’ rights and interests is unmistakable and egregious and, under such circumstances, Halvorson can be said to have represented Jones only “ ‘through a tenuous and unacceptable legal fiction.’ ” See Frazer, 18 F.3d at 782-83 (citation omitted). We conclude that this case constitutes the very rare instance in which a presumption of prejudice is warranted.

We will continue to require strict compliance with the prejudice prong of Strickland in ordinary ineffective assistance cases involving allegations of deficient performance by counsel. In that regard, our deference to counsel’s tactical and strategic decisions will continue unabated. Given this record, however, we refuse to indulge in nice calculations regarding the amount of prejudice attributable to the clear and unequivocal conflict of interest Halvorson created.

We hold that, faced with Halvorson’s clear conflict of interest and abandonment of his duty of loyalty to Jones, the District Court abused its discretion in denying Halvorson’s motion to withdraw as Jones’ counsel. We vacate Jones’ conviction and sentence and remand this case to the District Court for a new trial.

CHIEF JUSTICE TURNAGE, JUSTICES NELSON, TRIEWEILER, ERDMANN, LEAPHART and HUNT concur.


source: Caselaw Access Project

author: JUSTICE HUNT JUSTICE NELSON JUSTICE ERDMANN

license: Public Domain

text:
    MARK N. ROBERTS, Plaintiff and Appellant, v. EMPIRE FIRE AND MARINE INSURANCE CO., Defendant and Respondent.
    No. 96-127.
    Submitted on Briefs June 24, 1996.
    Decided September 11, 1996.
    53 St.Rep. 871.
    278 Mont. 135.
    923 P.2d 550.

      For Appellant: L. Randall Bishop, Jarussi & Bishop, Billings; Stephen D. Roberts, Bozeman.
    For Respondent: Steve Reida, Landoe, Brown, Planalp & Braaksma, Bozeman.
   JUSTICE HUNT

delivered the Opinion of the Court.

Mark Roberts appeals the order from the Eighteenth Judicial District Court, Gallatin County, setting aside the entry of a default judgment on the issue of liability and the subsequent final judgment on damages against respondent, Empire Fire and Marine Insurance Company.

We reverse.

The issue in this case is:

Did the District Court manifestly abuse its discretion when it issued its order setting aside the default judgments of liability and damages entered against Empire Fire and Marine Insurance Company?

FACTS

In November 1992, Dirk Hinkle and the appellant, Mark Roberts (Roberts) were involved in an accident at an uncontrolled intersection in Bozeman, Montana. Following the accident, Hinkle’s insurer, Empire Fire and Marine Insurance Company (Empire), offered to pay 75% of Roberts’ property damage based upon its opinion that Roberts was contributorily negligent. Roberts rejected Empire’s offer and filed suit against Empire for vehicle damage as well as damages for the inconvenience caused by the loss of use of his vehicle. After Roberts filed suit, Empire filed an offer of judgment which Roberts then later accepted.

On March 3,1995, Roberts again filed suit against Empire alleging unfair claims settlement practices. Service of process was made upon the Montana Commissioner of Insurance (MCI) on March 9, 1995. MCI forwarded a cover letter, the Summons, the Complaint and First Discovery Requests to Empire’s corporate office in Nebraska.

Empire’s receptionist received these documents on March 13, 1995. Empire’s mail room log-in sheets reflect that the documents were then routed to Ms. Amy Bones, corporate counsel for Empire. Ms. Bones is designated as receiver for service of process from the State of Montana. Although Ms. Bones contends that she never saw the documents, the record shows that it was normal procedure for Ms. Bones to hand-deliver papers from her office to the claims department.

In any event, the documents did reach Empire’s claims department and from there were hand-delivered to Mr. David Sedlacek. Mr. Sedlacek is responsible for supervising Empire’s claims unit and for assigning new claims. Mr. Sedlacek wrote notes on the documents indicating his awareness of their contents, and intended that they be forwarded to Dennis Magnuson, one of Empire’s “file handlers” and also an attorney.

In Mr. Sedlacek’s affidavit, he stated that in all likelihood he handed the documents to Ms. Heidee Dorr, a claims clerk who at that time had been employed by Empire for only a few days. Ms. Dorr stated in her affidavit that if she was in the claims department at all on March 13, 1995, it would have been her first day there and she would not yet have received any training. Mr. Sedlacek speculated that Ms. Dorr, rather than pulling the 1992 file that had been prepared in the Roberts v. Hinkle case and delivering the file and the documents to Mr. Magnuson, filed the documents in that closed Roberts v. Hinkle file.

Aware of the contents of the documents, Mr. Sedlacek did not “flag” them as important, as was his duty; did not confirm that Mr. Magnuson received the documents; and did not inquire as to the progress being made on the matter. Mr. Sedlacek and Mr. Magnuson work across the hall from one another and often see each other several times daily.

On April 25,1995, the clerk of court entered a default judgment on liability against Empire in Montana’s Eighteenth Judicial District Court. Pursuant to Rule 55(b), M.R.Civ.P., the determination of damages was set for a later date. On October 2, 1995, the District Court held an evidentiary hearing. Following this hearing, the court entered a $615,000.00 final judgment against Empire, including $15,000.00 in compensatory damages and $600,000.00 in punitive damages. Roberts then filed this judgment with the District Court in Douglas County, Nebraska, on November 27, 1995.

After learning of the default judgment on December 1, 1995, Empire found Roberts’ complaint inside the closed Roberts v. Hinkle file. Empire then filed a Motion for Relief, citing to Rules 60(b)(1) and 60(b)(6), M.R.Civ.P. This motion was later amended to include Rule 55(c), M.R.Civ.P. Affidavits and depositions were filed with the District Court, and a hearing was held on January 30, 1996. By order dated February 2, 1996, the District Court granted Empire’s Motion to Set Aside the Default Judgment.

On February 5, 1996, Roberts filed an appeal with this Court. On March 28, 1996, Empire filed a motion to dismiss Roberts’ appeal for lack of jurisdiction, claiming that an order granting a motion to vacate a default is nonappealable. Based on the language of Rule 1(b)(2), M.R.App.P., this Court determined that it had jurisdiction over the matter and therefore, Empire’s motion to dismiss was denied. Roberts v. Empire Fire and Marine Insurance Co. (1996), [276 Mont. 519], 915 P.2d 872. This appeal followed.

DISCUSSION

Did the District Court manifestly abuse its discretion when it issued its order setting aside the default judgments of liability and • damages entered against Empire Fire and Marine Insurance Company?

In this matter, the District Court granted Empire’s motion based on Rule 60(b)(1), M.R.Civ.P. This rule provides:

On motion and upon such terms as are just, the court may relieve a party or a party’s legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect;....

The standard of review used by this Court when reviewing a district court’s decision to grant a motion to set aside a default judgment is whether the court has manifestly abused its discretion. Siewing v. Pearson Co. (1987), 226 Mont. 458, 461, 736 P.2d 120, 122 (citing Lords v. Newman (1984), 212 Mont. 359, 365-66, 688 P.2d 290, 293-94). Therefore, our discussion will center on whether Roberts has shown a manifest abuse of discretion by the District Court which would require reversal. First National Bank of Cut Bank v. Springs (1987), 225 Mont. 62, 65, 731 P.2d 332, 334.

It is Roberts’ position on appeal that, although the extent of poor judgment necessary to reflect a “manifest abuse of discretion” has not been clearly defined by this Court, there are previous decisions that have established the standard for setting aside a default. See, e.g., In re Marriage of McDonald (1993), 261 Mont. 466, 468, 863 P.2d 401, 402. And, although no Montana case law clearly establishes the parameters of “manifest abuse of discretion,” Roberts argues that the Ninth Circuit Court of Appeals has recognized that a court may abuse its discretion if it does not apply the law correctly or if it erroneously assesses the facts. United States v. Rahm (9th Cir. 1993), 993 F.2d. 1405, 1410; Northern Alaska Environmental Center v. Lujan (9th Cir. 1992), 961 F.2d 886, 889. Extending this argument to the instant case, Roberts contends that the District Court did not apply the law correctly, and therefore the court manifestly abused its discretion in setting aside the default judgment.

Roberts urges this Court to consider several cases involving instances of neglect or inattentiveness in an office setting in which this Court has affirmed a district court’s refusal to set aside a default. See Siewing, 736 P.2d 120; Myers v. All West Transport (1988), 235 Mont. 233, 766 P.2d 864; Paxson v. Rice (1985), 217 Mont. 521, 706 P.2d 123; Griffin v. Scott (1985), 218 Mont. 410, 710 P.2d 1337.

In Siewing, a company vice-president received a summons and complaint. Shortly thereafter, the vice-president resigned his position with the company and the documents remained undiscovered until a month later. This Court affirmed the district court and held that none of the evidence provided at trial established excusable neglect. Siewing, 736 P.2d at 122. In Myers, this Court affirmed the district court’s conclusion that the defendant’s inattention to mail did not establish excusable neglect. Myers, 766 P.2d at 867 (citing Siewing, 736 P.2d at 122).

In Paxson, an attorney intended to file an answer but postponed its preparation. This Court stated that this was not a factual situation where “reasonable minds might conclude” that the conduct of the attorney was excusable. Paxson, 706 P.2d at 126. Following Paxson, this Court affirmed the district court in Griffin. There, the district court determined that the failure of counsel to read his mail did not establish excusable neglect. Griffin, 710 P.2d at 1338.

Roberts contends it is clear that this Court has consistently held that a party’s inattention or failure to respond to mail does not establish excusable neglect. Therefore, Roberts asserts that Empire’s inattention to Roberts’ complaint cannot be excused by setting aside the default judgment. We agree.

This Court is aware of the importance of putting an end to litigation and establishing the respective rights of the parties once and for all, if necessary, through a default judgment. Karlen v. Evans (1996), [276 Mont. 181], 915 P.2d 232, 235. However, Rule 60(b) presents an exception to this doctrine of finality. The policy behind the rule is the preference for cases to be tried on their merits. Judgments by default are not favored. Maulding v. Hardman (1993), 257 Mont. 18, 23, 847 P.2d 292, 296.

In this case, the District Court was presented with an abundance of cases from both sides that discussed “specific reasons why relief should or should not be granted.” The District Court noted that there had been little if any discussion regarding the fundamental purpose of Rule 60(b)(1), M.R.Civ.P. The District Court then stated that in its view:

Rule 60(b)(1) provides a basic correction system for protecting the legal process from errors caused by neglect, inadvertence, and mistake — clearly, improper foundations upon which to base legal judgments.

In its conclusion, the District Court concurred with a statement from a 1978 case in which this Court held:

Each case must be determined upon its own facts; and when the motion is made promptly and is supported by a showing which leaves the court in doubt or upon which reasonable minds might reach different conclusions, the doubt should be resolved in favor of the motion.

Clute v. Concrete (1978), 179 Mont. 475, 479, 587 P.2d 392, 395 (citing Nash v. Treat (1912), 45 Mont. 250, 122 P. 745). The District Court determined that “on the facts of this case,” Empire’s failure to respond to Roberts’ summons and complaint stemmed from the type of “mistake” contemplated by Rule 60(b)(1), M.R.Civ.P.

This Court is aware that default judgments are not favored, but is equally aware of the limited set of factual circumstances in which we have consistently upheld a district court’s order of default. Collectively, the cases embodying these factual circumstances show, as appellant argues, that evidence of office mismanagement, neglect, and inattentiveness on the part of high-level employees can support a default judgment. Individually, each of these cases in which we upheld a default order contain facts establishing careless conduct bordering on willful ignorance. In addition, in McDonald, supra, we stated that pursuant to Rule 55(c), M.R.Civ.P, a default judgment may be overturned according to Rule 60(b), M.R.Civ.P, only if certain “good cause” criteria are met by the moving party. McDonald, 863 P.2d at 402 (citing Blume v. Metropolitan Life Insurance Co. (1990), 242 Mont. 465, 791 P.2d 784). In that case, we concluded that the appellant “failed to satisfy the threshold requirement of excusable neglect which would justify setting aside the default decree.” McDonald, 863 P.2d at 403. Citing In re Marriage of Castor (1991), 249 Mont. 495, 817 P.2d 665, we declared that “ ‘mistake’, ‘inadvertence,’ and ‘excusable neglect’ generally require some justification for an error beyond mere carelessness ....” McDonald, 863 P.2d at 403.

Clearly, the facts here establish careless conduct amounting to inexcusable neglect, the type of conduct we have consistently held to support a default. The District Court determined that the facts showed the kind of excusable mistake contemplated by Rule 60(b)(1), M.R.Civ.P, apparently focusing on Ms. Dorr’s misfiling of the documents. While we agree that a low-level employee who misfiled documents on her first day of work committed an excusable mistake, we fail to understand how this mistake could extend to excuse the neglectful and inattentive conduct of management-level employees aware of the importance of the documents from the moment they were received.

Because the law and facts so clearly support a default judgment, we hold that the District Court manifestly abused its discretion in setting the default judgment aside.

We reverse.

JUSTICES NELSON, TRIEWEILER and LEAPHART concur.

JUSTICE NELSON

specially concurs.

I concur in our opinion. I write separately only to set forth what I believe is further support and grounds for our decision that the District Court manifestly abused its discretion in setting aside the default judgment entered in favor of Roberts.

At the outset it is important to note that the District Court entered the default judgment against Empire following a hearing and the receipt of testimony and evidence. Even acknowledging the obvious— i.e. that Empire was not in court to present countervailing evidence or to rebut Roberts’ evidence — the tenor and detail of the trial court’s findings of fact and conclusions of law and of the court’s comments regarding Empire’s treatment of Roberts and the handling of his claim (covering some 19 pages) are telling.

One cannot get the true flavor of the court’s complete exasperation and frustration at Empire’s conduct without reading the court’s entire October 19, 1995 decision. Some examples serve to make the point, however.

Among other things, the court found and concluded on the basis of the evidence, testimony, discovery and record, fully referenced and cited in detail in its opinion, that the liability of Empire’s insured was at all times reasonably clear; that Empire refused to pay Roberts’ claim without conducting a reasonable investigation based upon all available information; that the insurer’s claim that Roberts was contributorily negligent was entirely without basis in fact or in law; that Empire neglected to attempt in good faith to effectuate a prompt, fair and equitable settlement of Roberts’ claim; that Empire’s conduct proximately caused Roberts to suffer prolonged anxiety, worry, frustration and anger; and that Empire intentionally disregarded facts that created a certainty of injury to Roberts and deliberately proceeded to act with total indifference to the fact that such injury would be suffered.

Conclusions of Law numbers 6 and 15, perhaps, best epitomize the court’s outrage. In Conclusion of Law number 6, the court stated:

Montana has provided its citizens a remedy for insurance bad faith because the claims settlement process is filled with potential for abuse. See Holmgren v. State Farm Mutual Automobile Insurance Company, 976 F.2d 573, 578 (9th Cir. 1992). This case is an extreme example of just such abuse. As this Court stated in its ruling following the evidentiary hearing on damages:
I can tell you quite plainly, Counsel, that I have not seen a clearer case of insurer misconduct in the years that I have been on the bench.
There is no question in the Court’s mind that the misconduct was based upon an intent to abuse the citizens of the state of Montana, including this plaintiff, and that it also was the effort of the insurer to completely negate the requirements of the Montana Claims Practices regulations.
They failed to discharge the duties of a legitimate insurer.
Their effort, quite plainly in the eyes of the Court, was to rip off an innocent victim so that it could profit by not discharging the obligations that it had under its contract, and it fully and completely failed to investigate and settle this claim as a reasonable insurer ought to.
I think the evidence indicates that the defendant has misconstrued the morality and the ethics and the law that govern the activities of insurance companies, and in essence, what it did in this case was to practice extortion, a direct and unequivocal act of extortion.
In a similar vein is the court’s Conclusion of Law number 15:
Empire Fire attempted to use delay and leverage to extort a discount of 25% off the admitted value of Mark Roberts’ claim. By comparison to the total amount of his property damage claim, the 25% discount which Empire Fire tried to extract from Mark Roberts amounted to slightly more than $600.00. This is a comparatively small sum of money when viewed in isolation, but a potentially huge source of profit when applied to the many thousands of claims resolved each year throughout the far-flung operations of this insurer.

Given the references to the record in the court’s findings of fact and conclusions of law, it appears that the court based its findings on substantial supporting evidence and that it did not come to its conclusions of law idly or without justification.

What is truly remarkable, however, is that in granting Empire’s motion to set aside the default judgment for excusable neglect, the court did not in the least discuss its previous findings of fact and conclusions of law or offer any hint that its prior decision might have been open to question because of argument or evidence placed before the court in support of Empire’s Rule 60(b)(1) motion. In fact, with the exception of an indirect reference to neglect, inadvertence and mistake, the court’s February 20, 1996 memorandum and order granting Empire’s motion did not actually address or conclude that Empire had met any of the four elements of its burden to show good cause, as hereinafter discussed.

Rather, the court simply went from concluding in its findings of fact and conclusions of law that Empire was guilty of the most egregious claims handling practices in the court’s experience on the bench — in fact, misconduct amounting to “extortion” — to setting aside that same decision because “each case must be determined upon its own facts.”

The point is that if each case must be determined on its own facts (Clute v. Concrete (1978), 179 Mont. 475, 479, 587 P.2d 392, 395) and if the facts were as the court found them to be in its initial decision— and there is nothing in the court’s subsequent decision calling those findings into question — then default or no default, the court’s judgment against Empire for compensatory and punitive damages was fully justified and should not, as a matter of law, have been set aside under any circumstances.

A default judgment may only be set aside “for good cause shown.” In order to establish good cause for purposes of Rule 60(b)(1), M.R.Civ.P., among the various burdens imposed upon a defaulted party, (establishing excusable neglect being simply one of four) is the requirement that the defaulted party also make a prima facie demonstration that it has a meritorious defense to the claim — here Roberts’ bad faith claim. In Re Marriage of McDonald (1993), 261 Mont. 466, 468, 863 P.2d 401, 402 (citing Blume v. Metropolitan Life Ins. Co. (1990), 242 Mont. 465, 467, 791 P.2d 784, 786).

in support of its Rule 60(b)(1) motion, Empire strenuously argued it had various defenses to Roberts’ bad faith claim — i.e. Empire advanced matters with respect to Roberts’ property damage claim that, in Empire’s view, justified the way it handled that claim, thus establishing a reasonable basis pursuant to § 33-18-242(5), MCA, for contesting the claim. The dissent makes reference to these defenses.

In opposition to Empire’s motion, Roberts, with equal intensity argued that on the basis of the record and discovery in his property damage claim, Empire’s defenses were not meritorious. Moreover, Roberts contended that, as a matter of law, Empire could not demonstrate a meritorious defense because, in the underlying case, pursuant to Rule 68, M.R.Civ.P, Empire had made an unconditional offer of judgment for $3,000, an amount in excess of Roberts’ liquidated property damage claim, which offer was accepted by Roberts. As a result, Roberts contends that Empire admitted liability thus precluding any present argument that liability was not clear in the underlying case.

While this argument is not directly raised as an issue on appeal, I do note that in interpreting Rule 68, M.R.Civ.P., we have stated that:

It would be inconsistent to allow a procedure designed to facilitate settlement and avoid litigation costs to be used to challenge liability and, thereby, extend litigation.
Rule 68 specifies that an offer of judgment made after a finding of liability but before determination of damages shall have the same effect as an offer made before trial. That effect, if the offer is accepted, is to render the issue of liability moot.

Weston v. Kuntz (1981), 194 Mont. 52, 57-58, 635 P.2d 269, 272-73 (emphasis added). See also, Matter of Certain Justice Court Expenses (1994), 264 Mont. 510, 513, 872 P.2d 795, 797.

My only point in raising this is that in the context of this case, given that liability and damage issues are rendered moot by an accepted offer of judgment; given the vigorous record-based arguments on both sides of this aspect of Empire’s motion; and given the trial court’s scathing findings of fact and conclusions of law, as referred to above, the court’s failure to even address this aspect of Empire’s burden of proof, let alone conclude that it had established, prima facie, a meritorious defense to Roberts’ bad faith action, leaves a void in the court’s decision that cannot be simply ignored.

The District Court, having failed to rule that Empire had met this aspect of its burden to show good cause for setting Roberts’ default judgment aside, we are left to conclude that the court was not satisfied that Empire had made a prima facie showing of a meritorious defense. Again, in the context of the trial court’s findings of fact and conclusions of law and the accepted offer of judgment, that conclusion is more consistent than any assumption to the contrary.

More importantly, the court’s failure to conclude that Empire had shown prima facie a meritorious defense begs the question that, in the face of the court’s findings of fact and conclusions of law, none of which were in any way called into question by the court, how, as a matter of law, could Empire possibly have defended Roberts’ bad faith claim? An insurer cannot at once be guilty of “a direct and unequivocal act of extortion” in its settlement of a legitimate claim and at the same time prevail in a defense that its conduct was reasonable under the unfair claim settlement practices provisions of Title 33, Chapter 18 of the Montana Code.

Under such circumstances and the unique facts of this case, if the trial court determined that it was appropriate to set aside Roberts’ default judgment for excusable neglect, then it also had the obligation to conclude that its initial decision was at least questionable and that Empire had met its burden to establish a prima facie meritorious defense to Roberts’ bad faith claim.

In failing to do that, I can come to no other conclusion than that the court was not satisfied that Empire had demonstrated all four of the elements of good cause to set aside Roberts’ default judgment and that, as a consequence, it manifestly abused its discretion in granting Empire’s Rule 60(b)(1) motion.

JUSTICES TRIEWEILER and LEAPHART join in the foregoing special concurrence.

JUSTICE ERDMANN

dissenting.

I respectfully dissent from the Court’s opinion.

This Court has stated that an underlying concern to any review of default is that every litigated case should be tried on the merits and that judgments by default are not favored. Lords v. Newman (1984), 212 Mont. 359, 363, 688 P.2d 290, 293. This principle is the cornerstone of appellate review of default. Lords, 688 P.2d at 293. A second principle that constantly appears in our case law is that trial courts are vested with a certain amount of discretion when they consider a motion to set aside a default. Lords, 688 P.2d at 293.

Two standards of review have emerged from our attempt to observe these guiding principles of review on motions to set aside a default. Lords, 688 P.2d at 293. One standard applies when the trial court has denied a motion to set aside the default. In these instances the resulting standard of review is that “no great abuse” or only “slight abuse” is sufficient to reverse an order refusing to set aside a default. Lords, 688 P.2d at 293.

The second standard arises in situations like the present case when the trial court has granted the motion to set aside the default judgment. In these circumstances, a stricter standard of review emerges due to the combined policy considerations of letting the parties have their day in court and our respect for the trial court’s sound discretion. The action of the trial court will only be set aside upon a showing of “manifest abuse” and an order setting aside a default judgment will be reversed only in exceptional cases. Lords, 688 P.2d at 293 (citing McClurg v. Flathead Cty. Comm’rs (1980), 188 Mont. 20, 610 P.2d 1153; Kootenai Corp. v. Dayton (1979), 184 Mont. 19, 601 P.2d 47; Holen v. Phelps (1957), 131 Mont. 146, 308 P.2d 624).

The record in the present case indicates that the summons, complaint, and first discovery requests were received at Empire’s corporate office in Nebraska on March 13, 1995. The documents were routed to Empire’s claims department and were hand delivered to David Sedlacek, who is responsible for supervising and assigning claims. Sedlacek’s handwriting appears on the documents and he testified that his notes on the documents reflect that he looked up the claim on the computer, found the date of loss, claim number, and identity of the claim handler. The computer claim information also indicated that the claim wasclosed. Sedlacek stated that his normal procedure, at that point, would have been to hand the summons and complaint to the claims clerk and instruct him or her to pull the closed file from basement storage and deliver it to the claims handler. Heidee Dorr was Sedlacek’s newly hired claims clerk at the time. Apparently, Dorr improperly filed the documents in the closed file and Sedlacek indicated it was his belief that Dorr’s actions were the result of miscommunication.

Empire did not respond to the complaint and on April 25,1995, the clerk of court ordered a default judgment on liability against Empire. A hearing on damages was held on October 2,1995, for which Empire was not provided notice and in which Empire obviously did not participate. Following the hearing, the court entered a final judgment against Empire for $15,000 in compensatory damages and $600,000 in punitive damages for its liability for bad faith in defending a slow-speed, noninjury intersection accident which was settled for $3,000.

Roberts filed the final judgment in Nebraska on November 27, 1995. On December 4, 1995, Empire filed a motion for relief from judgment citing Rule 60(b)(1) and (6), M.R.Civ.P., and the following day filed an amended motion citing the additional authority of Rule 55(c), M.R.Civ.P.

Rule 60(b), M.R.Civ.P., provides in pertinent part:

On motion and upon such terms as are just, the court may relieve a party or a party’s legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect... or (6) any other reason justifying relief from the operation of the judgment.

Empire argued to the District Court that Roberts’ complaint was misfiled through mistake, inadvertence, or excusable neglect and therefore relief was appropriate under Rule 60(b)(1), M.R.Civ.P. In the alternative, Empire argued that Rule 60(b)(6), M.R.Civ.P., should be applied to grant relief due to the extraordinary circumstances of the case, including the substantial amount of money awarded. In granting Empire’s motion, the District Court stated that:

There is very little, if any, discussion of the fundamental purpose of Rule 60(b)(1) and why such a Rule is absolutely necessary to the law and to the administration of justice. As the Court views the matter, Rule 60(b)(1) provides a basic correction system for protecting the legal process from errors caused by neglect, inadvertence, and mistake — clearly, improper foundations upon which to base legal judgments.

In its conclusion, the District Court concurred with this Court’s holding in Clute v. Concrete (1978), 179 Mont. 475, 587 P.2d 392:

Each case must be determined upon its own facts; and when the motion is made promptly and is supported by a showing which leaves the court in doubt or upon which reasonable minds might reach different conclusions, the doubt should be resolved in favor of the motion.

Clute, 587 P.2d at 395.

The majority correctly notes that no Montana case clearly establishes the parameters of “manifest abuse of discretion.” The majority adopts Roberts’ argument that the District Court manifestly abused its discretion by not applying the law correctly. However, the test for abuse of discretion is whether the trial court acted arbitrarily without employment of conscientious judgment or exceeded the bounds of reason resulting in substantial injustice. Gaustad v. City of Columbus (1995), 272 Mont. 486, 488, 901 P.2d 565, 567. “Manifest” is defined as: “obvious to the understanding, evident to the mind, not obscure or hidden and is synonymous with open, clear, visible, unmistakable ... and self-evident.” Black’s Law Dictionary 962 (6th ed. 1991). Thus, under a “manifest abuse of discretion” standard of review, this Court may only reverse a lower court if it is obvious that the court abused its discretion.

This Court has defined “mistake” as some unintentional act, omission or error arising from ignorance, surprise, imposition or misplaced confidence. In re Marriage of Broere (1994), 263 Mont. 207, 209, 867 P.2d 1092, 1094. The present case involves a mistake in Empire’s office procedures — a mistake that should not be fatal to its defense of the bad faith tort claim. Dorr was supposed to pull the closed Roberts v. Hinkle file and transfer the suit papers to a claims handler. Instead, the complaint mistakenly ended up in the closed file. Dorr misunderstood her instructions, or the instructions were not clearly given, and the “mistake” that resulted was due to an omission or error arising from misplaced confidence between members of the organization. The record before the District Court clearly established a breakdown in office procedures resulting in a misfiled complaint. The court did not manifestly abuse its discretion when it determined that the facts of the case fell within the meaning of “mistake” under Rule 60(b)(1), M.R.Civ.P.

Rule 55(c), M.R.Civ.P., states that a court may set aside an entry of default for “good cause shown” and this Court has set forth four elements to determine when such good cause exists. The defendant is required to show (a) excusable neglect; (b) that he or she proceeded with diligence; (c) that the judgment, if permitted to stand, will affect him or her injuriously; and (d) that there is a defense to the plaintiff’s cause of action upon the merits. Blume v. Metropolitan Life Ins. Co. (1990), 242 Mont. 465, 467, 791 P.2d 784, 786 (citing Kootenai, 601 P.2d at 51).

The majority states that “[c]learly, the facts here establish careless conduct amounting to inexcusable neglect.” I disagree. Under the facts of this case, including the fact that the initial claim had been settled, paid, and closed out, Empire’s conduct demonstrates excusable neglect. Prior to receiving the complaint, Empire had not received any notice of Roberts’ intention to file an unfair claims settlement practices action. Dorr was in her second week of work on March 13,1995. She was trained by Empire and recognized to be competent at performing her. duties at the end of her first week on the job. Even though the complaint apparently was not “flagged” as is standard procedure in this type of case, there is no evidence that this was anything more than an oversight — a mistake — which was compounded by the misfiling of the complaint. In this regard, this case is similar to Keller v. Hanson (1971), 157 Mont. 307, 485 P.2d 705, where a default judgment was initially entered but later set aside pursuant to Rule 60(b)(1), M.R.Civ.P. On appeal, this Court affirmed the district court and noted that:

[D]efendants’ attorney after receiving plaintiff’s complaint had somehow misfiled it under defendant Ben Hanson’s name in another file as there were 3 other active files in the office pending at that time in Ben Hanson’s name.

Hanson, 485 P.2d at 706.

Empire also acted with due diligence upon learning of the default judgment. Empire learned of its default on Friday afternoon, December 1, 1995, and on Monday, December 4, 1995, Empire filed its motion for relief from judgment. Furthermore, it is difficult to argue that a $615,000 judgment will not have an adverse affect on Empire.

The record indicates that Empire was not without meritorious defenses to Roberts’ claim. Throughout the underlying case, Hinkle asserted contributory negligence by Roberts and contested clear liability in his answer, interrogatory answers, and deposition. In addition to contesting total liability, Empire stated in its brief in support of its motion for relief from judgment that, contrary to Roberts’ allegations, it did not misrepresent pertinent facts, fail to conduct a reasonable investigation, or fail to effectuate a fair and equitable settlement.

Empire disputed Roberts’ allegation that he could not obtain repair of his vehicle due to Empire’s unfair claims settlement practices and that Empire intentionally deprived Roberts of property and legal rights entitling him to punitive damages. Empire also denied Roberts’ claim for emotional distress damages relying on this Court’s holding in Sacco v. High County Independent Press (1995), 271 Mont. 209, 896 P.2d 411, where we stated that such claims require a showing that the plaintiff’s distress is so severe that no reasonable person could be expected to endure it.

Section 33-18-242(5), MCA, states that an insurer may not be held liable for unfair trade practices if it had a reasonable basis in law or in fact for contesting the claim or the amount of the claim. The record indicates that Empire had asserted a reasonable basis for contesting both its liability for the bad faith claim, as well as the damages assessed, and therefore had raised a meritorious defense to Roberts’ cause of action. I would therefore conclude that Empire satisfied the four elements of the Blume test and demonstrated good cause for setting aside the default judgment pursuant to Rule 55(c), M.R.Civ.P.

In his special concurrence, Justice Nelson emphasizes the incongruity between the scathing nature of the District Court’s findings of fact and conclusions of law from the evidentiary hearing on damages and its order granting Empire’s motion to set aside the default judgment. However, it must be remembered that Empire did not appear at either the hearing on liability or the hearing on damages to present its defense to the bad faith tort claim. Furthermore, the District Court’s failure to reconcile the two rulings does not rise to the level of manifest abuse of discretion. Perhaps the court itself was troubled by the fact that its earlier ruling was based on only one side of the story.

I am no less concerned about abuse of Montana citizens by out-of-state insurers than anyone else. However, the bigger issue here is that Empire did not have its deserved day in court, just as we all would hope courts in other states would allow Montana litigants to be heard. Moreover, here the District Court determined, after reviewing Empire’s motion and supporting brief, that the case should proceed toward trial. Such a determination lies within the sound discretion of the District Court and under the facts of the present case I cannot conclude that the District Court manifestly abused its discretion in granting Empire’s motion to set aside the default judgment.

I would therefore affirm the District Court.

      . This case began on November 30, 1992, with an accident at an uncontrolled intersection in Bozeman. That accident resulted in a lawsuit captioned “Mark Roberts v. Dirk Hinkle,” Gallatin County Cause No. DV 93-174. In that cause of action, Roberts accepted an offer of judgment of $3000 on September 12, 1994. The District Court also awarded Roberts attorney fees, and on February 21,1995, Hinkle’s insurer (Empire) paid Roberts the fee award. The present claim, alleging unfair claims settlement practices by Empire, was filed on March 3,1995.


author: JUSTICE LEAPHART

text:
    MARLEN G. SAVIK, an individual and JACK W. PIIPO, an individual, Plaintiffs and Appellants, v. ENTECH, INC., a Montana Corporation; MICHAEL J. MELDAHL, an individual; and DOES 1-100, inclusive, Defendants and Respondents.
    No. 96-072.
    Submitted on Briefs August 8, 1996.
    Rehearing Denied October 10, 1996.
    Decided September 12, 1996.
    53 St.Rep. 894.
    278 Mont. 152.
    923 P.2d 1091.

      For Appellants: Donald V. Snavely; Snavely Law Firm, Missoula; Cynthia K. Smith; Cederberg, Shott & Smith, Missoula.
    For Respondents: Terry J. MacDonald; Garlington, Lohn & Robinson, Missoula; Patrick T. Fleming, Attorney at Law, Butte.
   JUSTICE LEAPHART

delivered the Opinion of the Court.

Marlen G. Savik and Jack Piippo (Savik and Piippo) appeal from the jury verdict of the Fourth Judicial District Court, Missoula County, denying their request for damages for breach of contract. We affirm in part, reverse in part and remand.

For purposes of this decision, this Court will discuss only the following dispositive issues:

1) Did the District Court err in dismissing Savik and Piippo’s breach of contract claim?
2) Did the District Court err in instructing the jury on parol evidence when Savik and Piippo sought recovery under a theory of fraudulent inducement?

BACKGROUND

In 1983, Savik and Piippo organized Touch America, Inc., a long distance telephone company with services in Montana. In May of 1990, Savik and Piippo were the sole stockholders and principal officers of Touch America and were in control of all of its operations. Entech is a Montana corporation that has owned and operated various non-utility businesses including businesses involved in communications technology. On May 15, 1990, Savik and Piippo entered into a written contract with Entech for the sale of all of the assets of Touch America. During negotiations and following the negotiation period, Entech’s Vice President, Michael J. Meldahl (Meldahl) was the chief negotiator for Entech. Following negotiations, Entech purchased all of Touch America’s assets pursuant to a written sale agreement.

The Sale Agreement (Agreement) set forth a variable sale price consisting of a $1.15 million down payment, plus a distribution to Savik and Piippo of twenty percent of the net profits of the business generated during the first five years after the sale. The net profits distribution had a maximum payment of $783,545.

The Agreement also required that Savik and Piippo be permitted to work for Entech for three years after the sale of Touch America. The Agreement stated that Savik and Piippo would “be entitled to those benefits that are afforded to other employees under Entech’s employment policies.” In accordance with the Agreement, Savik and Piippo worked for Entech for three years prior to their termination.

In 1993, Savik and Piippo brought an action in District Court claiming damages based on two theories. First, Savik and Piippo claimed that Entech breached the Agreement by terminating their employment after three years. Second, Savik and Piippo claimed that they were fraudulently induced into entering the Agreement. The District Court granted summary judgment dismissing Savik and Piippo’s claims of breach of contract finding that the express terms set forth in the contract were clear and the parol evidence rule barred consideration of the oral communication between Meldahl and Savik and Piippo. Therefore, the only remaining issue before the District Court was whether Entech fraudulently induced Savik and Piippo into entering the Agreement.

At trial, Savik and Piippo argued that the employment clause, along with various representations by Meldahl, created the impression that they would become permanent Entech employees. Meldahl’s alleged representations are the basis of the fraudulent inducement claims made by Savik and Piippo. Following a jury verdict in favor of Entech, Savik and Piippo brought this appeal challenging, among other things, the District Court’s decision to dismiss their breach of contract claim as well as jury instructions regarding parol evidence.

DISCUSSION

1) Did the District Court err in dismissing Savik and Piippo’s breach of contract claim?

Our standard of review in appeals from summary judgment rulings is de novo. Mead v. M.S.B., Inc. (1994), 264 Mont. 465, 470, 872 P.2d 782, 785. When we review a district court’s grant of summary judgment, we apply the same evaluations as the district court based on Rule 56, M.R.Civ.P. Bruner v. Yellowstone County (1995), 272 Mont. 261, 264, 900 P.2d 901, 903.

Savik and Piippo’s claims of breach of contract stem from their interpretation of the intent of paragraph 4.13 of the Agreement. That paragraph provided in relevant part:

Subject to satisfying Entech’s hiring policies, Entech shall retain Messrs. Savik and Piippo for terms of three (3) years each at annual initial salaries of $60,000 each. Messrs. Savik and Piippo will be entitled to those benefits that are afforded to other employees under Entech’s employment policies [.]

Savik and Piippo maintain that the “benefits” available to them as Entech employees included not only vacation, health insurance, and pension, but also permanent employment terminable only for good cause. Savik and Piippo based their interpretation of the contract on oral representations that they claim were made to them by Meldahl. They also claim that the term “benefits,” as used in the contract, was ambiguous and thus parol evidence was needed to explain what the parties intended in using that term.

The parol evidence rule in Montana has been codified under §§ 28-2-904, and 28-2-905, MCA. Section 28-2-904, MCA, explains, “[t]he execution of a contract in writing, whether the law requires it to be written or not, supersedes all the oral negotiations or stipulations concerning its matter which preceded or accompanied the execution of the instrument.” Section 28-2-905, MCA, further provides that when an agreement has been reduced to writing by the parties, there can be no evidence of the terms of the agreement other than the contents of the writing except when a mistake or imperfection of the writing is claimed or when the validity of the agreement is the fact in dispute. In their claim for breach of contract, Savik and Piippo contend that the term “benefits” was ambiguous and thus the court should have allowed parol evidence as to statements made to them by Meldahl which led them to believe that “benefits” included permanent employment.

This Court has held that where the terms of the contract are ambiguous and uncertain, evidence of attending circumstances is admissible. Molerway Freight Lines v. Rite-Line Transp. (1995), 273 Mont. 95, 100, 902 P.2d 9, 12. In Monte Vista Co. v. Anaconda Co. (1988), 231 Mont. 522, 528-29, 755 P.2d 1358, 1362, this Court explained:

An ambiguity exists when a contract is subject to two interpretations and parol testimony can be used to determine what the parties intended. [Citations omitted.] However, intent of the parties is only looked to when the agreement in issue is not clear on its face. [Citation omitted.]

In the present case, the District Court gave the following rationale for granting summary judgment:

The express language of that provision [4.13] clearly establishes a three year term of employment. Plaintiffs contend that the intent of the provision was to bind the individual Plaintiffs to a minimum of three years, and that the language in the provision entitling Plaintiffs to “those benefits that are afforded to other employees under Entech’s employment policies” include the “benefit” of permanent employment absent good cause for firing Plaintiffs. This Court does not find that the provision language is ambiguous and therefore, there is no need to look to the parties’intent, and in any event, such interpretation would require adding language to the agreement which would contradict the express three year term in violation of the parol evidence rule.

After reviewing the record and the Agreement, we agree with the District Court that the provision regarding “benefits” and three years of employment was clear and unambiguous and did not include permanent employment. Our decision in Sherrodd, Inc. v. Morrison-Knudsen Co. (1991), 249 Mont. 282, 815 P.2d 1135, is on point. In that case, Sherrodd had contracted to perform certain earth work for Morrison-Knudsen. The terms of the written contract provided that all of the earthwork would be performed for a lump sum of $97,500. Sherrodd, 815 P.2d at 1136. After completion of the work, Sherrodd claimed that it was owed more money than the $97,500 because it had been pressured to execute the contract and that it had been told that a deal would be worked out wherein Sherrodd would be paid more than the sum provided for in the contract. Sherrodd, 815 P.2d at 1136. The district court granted summary judgment to Morrison-Knudsen, holding that the parol evidence rule precluded Sherrodd from relying upon oral representations which were not incorporated into the written contract. This Court affirmed and held that Sherrodd’s contention that the $97,500 did not cover the entire job contradicted the terms of the written agreement. Sherrodd, 815 P.2d at 1137. In applying the parol evidence rule, we concluded:

the compensation of Sherrodd is governed exclusively by the written contract and that Sherrodd’s claims are barred under the parol evidence rule. We hold that the District Court did not err in granting summary judgment for defendants.

Sherrodd, 815 P.2d at 1137. As with Sherrodd’s attempt to vary the amount of compensation specified, Savik and Piippo’s reliance on oral representations that would vary the expressed term of employment was barred by the parol evidence rule. Accordingly, the District Court was correct in granting summary judgment and dismissing the breach of contract claim.

2) Did the District Court err in instructing the jury on parol evidence when Savik and Piippo sought recovery under a theory of fraudulent inducement?

The standard of review of a district court’s conclusions of law is whether the court’s interpretation of the law is correct. Carbon County v. Union Reserve Coal Co. (1995), 271 Mont. 459, 469, 898 P.2d 680, 686. A district court has broad discretion in instructing the jury and we will not reverse the court on the basis of alleged instructional errors absent an abuse of discretion. Werre v. David (1996), 275 Mont.

376, 391-93, 913 P.2d 625, 635. Further, when we examine whether jury instructions were properly given or refused, we consider the challenged instructions in their entirety, the evidence at trial and other instructions given by the court. Cechovic v. Hardin & Associates, Inc. (1995), 273 Mont. 104, 116, 902 P.2d 520, 527.

When a party alleges fraud in the inducement, it is incumbent upon the district court to admit parol evidence on the question. Dew v. Dower (1993), 258 Mont. 114, 120, 852 P.2d 549, 552; Dodds v. Gibson Products Company of Western Montana (1979), 181 Mont. 373, 377, 593 P.2d 1022, 1024. For a jury to adequately consider a party’s claim of fraudulent inducement, it is critical that it consider evidence outside of the written agreement as such evidence goes to the heart of the claim.

In the instant case, the District Court gave the following jury instructions over Savik and Piippo’s objection:

[No. 8] The execution of a contract in writing, whether the law requires it to be or not, supersedes all the oral negotiations or stipulations concerning its matter which preceded or accompanied the execution of the instrument.
[No. 10] A contract is to be construed according to the intention of the parties at the time of contracting. If the contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone, if possible.

These instructions were given to the jury despite the fact that Savik and Piippo’s contract claim had been dismissed and, thereafter, they were advancing only a claim of fraud in the inducement. In effect, these instructions kept the jury from considering the evidence Savik and Piippo brought forward in support of their claim of fraudulent inducement.

When fraud is alleged, parol evidence may be considered by the jury. Section 28-2-905(2) MCA. See also Flemmer v. Ming (1980), 190 Mont. 403, 621 P.2d 1038. Limiting a jury’s consideration of evidence to a written agreement creates an illogical requirement that an alleged fraud leading to the creation of the contract be demonstrated by a writing. Webcor Electronics v. Home Electronics (1988), 231 Mont. 377, 382, 754 P.2d 491, 494. This Court has previously held that, notwithstanding the parol evidence rule, fraud in the inducement is provable by parol evidence. Dew, 852 P.2d at 552; Dodds, Mersy v. Gibson Products Co. (1979), 181 Mont. 373, 377, 593 P.2d 1022, 1024; Goggans v. Winkley (1970), 154 Mont. 451, 459, 465 P.2d 326, 330.

In the instant case, the District Court’s instructions regarding parol evidence effectively precluded the jury from considering precontract conversations between Meldahl and Savik and Piippo. Since Savik and Piippo’s claim of fraud in the inducement was based on pre-contract representations by Meldahl, the communications between Savik and Piippo and Meldahl were crucial to the jury’s consideration.

Having reviewed the jury instructions in their entirety, we hold that the challenged instructions effectively precluded the jury from considering communications between the parties outside of the written agreement. Evidence of communication between the parties was crucial to Savik and Piippo’s claims of fraudulent inducement. We hold that the District Court abused its discretion by instructing the jury not to consider parol evidence in a claim of fraudulent inducement.

Accordingly, we affirm in part, reverse in part and remand for a new trial on the issue of fraudulent inducement.

JUSTICES HUNT, NELSON, TRIEWEILER and ERDMANN concur.


author: JUSTICE HUNT

text:
    IN THE MATTER OF J.B., Youth, in Need of Care.
    No. 95-492.
    Submitted on Briefs May 9, 1996.
    Decided September 19, 1996.
    53 St.Rep. 901.
    278 Mont. 160.
    923 P.2d 1096.
    For Appellant: Chris J. Nelson, Billings.

      For Respondent: Joseph P. Mazurek, Attorney General, Cregg W. Coughlin, Assistant Attorney General, Helena; Dennis Paxinos, Yellowstone County Attorney, Marcia Good Sept, Deputy Yellowstone County Attorney; Damon L. Gannett, Gannett Law Firm, Billings (guardian ad litem).
   JUSTICE HUNT

delivered the Opinion of the Court.

This is an appeal from the judgment of the Thirteenth Judicial District Court, Yellowstone County, declaring J.B. a youth in need of care and granting continued temporary custody of J.B. to the Montana Department of Family Services through May 1996.

We reverse and remand.

We address the following issue as dispositive:

Did the District Court err in granting continued temporary custody of J.B. to the Montana Department of Family Services?

FACTS

In September 1993, the Yellowstone County Attorney's Office, on behalf of the Montana Department of Family Services (DFS), petitioned for temporary investigative authority and protective services for five children of T.B. In a report to the court attached to the petition, a social worker described the problems T.B. and her children were having individually and as a family. The court granted the petition.

On January 20,1994, the District Court issued an order declaring all five children to be youths in need of care. The order granted DFS temporary custody of the children. The court’s order was based on a social worker’s report which, like the September 1993 report, described the difficulties T.B. was having raising her children. This report mentioned that appellant, the natural father of one of the children, J.B., had indicated his desire to obtain custody of J.B. Appellant, who resides in Boulder, Colorado, was present at this hearing and stipulated to DFS’s request for temporary custody. On March 29,1994, the District Court approved a treatment plan for the appellant which required that he submit to psychological and chemical dependency evaluations.

On June 30,1994, DFS petitioned for permanent legal custody and termination of parental rights and the right to consent to adoption. In the petition, both J.B’s mother and the appellant were listed as parents, although the petition requested only the termination of the mother’s parental rights. DFS asked the court for an order granting temporary custody of J.B. to DFS for an additional six months. On September 30,1994, appellant filed his response to DFS’s request and also petitioned the court for custody of J.B.

Ahearing was held on DFS’s petition in November 1994. Appellant again stipulated that DFS could retain temporary custody for an additional six months. On December 12, 1994, the District Court issued an order to that effect. This order also terminated the parental rights of J.B’s mother, T.B.

On April 7, 1995, the District Court approved a second treatment plan for appellant. The treatment plan required appellant to submit to four random urinalyses per month and to begin counseling to learn how to meet the emotional needs of his child. After the approval of the second treatment plan, appellant again petitioned the court for permanent custody of J.B. DFS responded by seeking to extend its temporary custody of J.B. for an additional year.

A hearing on both appellant’s petition and DFS’s motion for an extension of custody was scheduled for July 12, 1995. After the hearing, the District Court determined that DFS should retain temporary custody of J.B. until May 18, 1996. Appellant filed a notice of appeal on September 20, 1995.

DISCUSSION

Did the District Court err in granting continued temporary custody of J.B. to the Montana Department of Family Services?

In their respective briefs, in the context of the grant of custody to DFS, the parties have raised issues related to but differently phrased from the issue we pose here. Based on the record, we conclude that our formulation of this issue is correct and effectively disposes of those issues raised by the parties.

This Court has held that a non-parent may be entitled to commence a child custody proceeding. In re Marriage of K.E.V. (1994), 267 Mont. 323, 883 P.2d 1246; In re Custody of R.R.K (1993), 260 Mont. 191, 859 P.2d 998 (provided that the non-parent can establish standing). Conversely, we have also recognized the need to uphold the constitutionally protected rights of a natural parent to his or her child. Babcock v. Wonnacott (1994), 268 Mont. 149, 152, 885 P.2d 522, 524; In re Matter of Roney (1977), 174 Mont. 282, 570 P.2d 575.

In the present action, there are two parties petitioning for custody of the child: J.B.’s natural father and the State of Montana (through DFS). For a court to have jurisdictional authority to grant custody to a non-parent, certain steps must be followed. When the State is a party to a custody proceeding, it initially must file a petition in a district court alleging the nature of the legal custodian’s abuse or neglect. Section 41-3-401, MCA. After the submission of the petition, a court mil then hold an adjudicatory hearing to determine if the child is a “youth in need of care.” Section 41-3-404, MCA. If the child is determined to be a youth in need of care, the court will then set a date for a dispositional hearing. At the dispositional hearing, the court has the authority to transfer legal custody of the child. Section 41-3-406, MCA.

In this matter, such a petition was submitted. All five children were declared youths in need of care. However, the allegations of abuse and neglect were made in the context of the termination of parental rights of the then custodial parent, J.B’s mother T.B. In addition to the rights parents may have as a couple, they also have individual rights with respect to their children. In re Matter of T.E.R. (1979), 180 Mont. 340, 346, 590 P.2d 1117, 1121.

The State did not petition for the termination of appellant’s parental rights. Indeed, upon the termination of the mother’s parental and custodial rights, appellant was entitled to custody of J.B. Babcock, 885 P.2d at 524.

In Babcock, the mother was unable to provide care for the child due to incarceration. The district court in that case awarded custody to the child’s great aunt. This Court reversed, holding that since the mother was unable to care for the child, the father was entitled to the custody of the child. Babcock, 885 P.2d at 524. This Court based its decision in part on the constitutionally protected rights parents have to a child. Stanley v. Illinois (1972), 405 U.S. 645, 92 S.Ct. 1208, 31 L.Ed.2d 551. The Court further relied on § 40-6-221, MCA, which provides in part that:

The father and mother of an unmarried minor child are equally entitled to the custody, services, and earnings of the child. If either parent be dead or unable or refuses to take the custody or has abandoned his or her family, the other is entitled to the custody, services, and earnings of the child, unless custody is determined otherwise pursuant to 40-4-221. (Emphasis added.)

We conclude that when the court terminated T.B.’s parental rights, she was unable to take custody of J.B. Therefore, appellant, the other parent, was entitled to custody. This entitlement is not immune from contest, but the contesting party, here DFS, must follow the proper procedure outlined above in order to obtain custody. A parent’s right to custody in this situation is not so fleeting that it can hinge on a court’s disposition of a related yet distinct matter. The District Court determined J.B. to be a youth in need of care and granted temporary custody to DFS based on its consideration of T.B.’s conduct toward the child; to relieve appellant of custody, the court was required to consider his conduct as well.

In other words, in order to have the jurisdictional authority to award DFS temporary custody, the court must determine that J.B. is a youth in need of care. The court must make this determination on the basis of evidence of appellant’s abuse or neglect. Section 41-3-102(17), MCA, defines a youth in need of care as a “youth who is abused or neglected.” Section 41-3-102(5)(a), MCA, defines “child abuse or neglect” as:

(i) harm to a child’s health or welfare; or
(ii) threatened harm to a child’s health or welfare.
(b) The term includes harm or threatened harm to a child’s health or welfare by the acts or omissions of a person responsible for the child’s welfare.

DFS’s original petition does not allege abuse or neglect on the part of appellant. However, both DFS and the court raised concerns about appellant’s prior chemical dependency problems. Appellant stated and various examinations confirmed that he had not used alcohol or drugs for years. The concerns of DFS and the court were based largely on the results of a urinalysis in which appellant tested positive, but the record shows that the test results were incomplete and should properly have been considered inconclusive. In any event, these concerns clearly do not amount to a consideration of allegations of child abuse or neglect on the part of appellant, and do not provide a sufficient basis on which to conclude that J.B. would be in danger of harm or threatened harm. See In re Matter of M.G.M. (1982), 201 Mont. 400, 408, 654 P.2d 994, 998.

The court failed to address any evidence of appellant’s abuse or neglect of the child. “[A] finding of abuse, neglect, or dependency is the ‘jurisdictional prerequisite for any court ordered transfer of custody.’ ” M.G.M., 201 Mont, at 409, 654 P.2d at 998 (citations omitted). We hold that the District Court erred in concluding that J.B. was a youth in need of care, and therefore the court erred in granting DFS temporary custody.

Our holding effectively disposes of the other issues raised by the parties. We reverse and remand for proceedings consistent with this opinion.

CHIEF JUSTICE TURNAGE, JUSTICES NELSON, TRIEWEILER, GRAY, LEAPHART and ERDMANN concur.