author: JUSTICE TRIEWEILER

text:
    LESLIE LEIBRAND and LOIS LEIBRAND, individually, and as the parents and next friends of GORDON LEIBRAND, a minor, Plaintiffs, v. NATIONAL FARMERS UNION PROPERTY AND CASUALTY CO., a corporation, Defendant. EUGENE COLE and MARY JO COLE, individually and as next friends of LINDSEY COLE, a minor, Plaintiffs, v. TRUCK INSURANCE EXCHANGE, Defendant.
    Nos. 94-416 and 94-503.
    Submitted April 25, 1995.
    Decided July 6, 1995.
    52 St.Rep. 557.
    272 Mont. 1.
    898 P.2d 1220.

      For Plaintiffs: Ira D. Eakin, Lynaugh, Fitzgerald, Eiselein & Eakin, Billings (for Plaintiffs Leibrands); Steven J. Harman, Brown, Gerbase, Cebull, Fulton, Harman & Ross, Billings (for Plaintiffs Coles).
    For Defendants: Don M. Hayes, Herndon, Hartman, Sweeney & Halverson, Billings (for Defendant National Farmers Union); Shelton C. Williams and Richard Ranney, Williams & Ranney, Missoula (for Defendant Truck Insurance Exchange).
   JUSTICE TRIEWEILER

delivered the Opinion of the Court.

These combined claims were either filed in or removed to the United States District Court for the District of Montana by the plaintiffs to recover the limits of liability coverage provided by the defendants pursuant to contracts of automobile liability insurance. The defendants denied that policy limits were recoverable, based on exclusions within each of the respective policies which limited recovery by a household member to the “limits of liability required by law.” Pursuant to Rule 44, M.R.Civ.R, the United States District Court, in each case, certified the following question to this Court:

Is the amendatory endorsement at issue here and set forth in the agreed facts below, valid and enforceable?

We accepted certification of this issue and ordered that the certified cases be consolidated. After considering the issue presented, we conclude that the amendatory endorsements at issue are not valid and enforceable.

FACTUAL BACKGROUND

Leibrand v. National Farmers Union Property and Casualty Company

The following facts have been agreed upon by the parties:

Leslie Leibrand and Lois Leibrand are husband and wife and are the parents of Gordon Leibrand. At all times relevant, they resided together as a family unit at their home in Scobey, Montana.

The Leibrands have been continuously insured pursuant to an automobile liability insurance policy issued by the defendant, National Farmers Union Property and Casualty Company, since 1975. The “liability coverage” portion of that policy provided as follows:

We will pay damages for which any insured person is legally liable because of bodily injury and property damage arising out of the ownership, maintenance or use of a car or a utility trailer.

“Insured person” was defined to include the named insureds (Leslie and Lois) or a relative. The limit of liability coverage available per occurrence for each individual injured was specified to be $100,000. The record does not indicate that there was any change in these general liability provisions during the term of the Leibrands’ policy.

The Leibrands’ policy originally included the following exclusion: “This coverage does not apply to ... (10) bodily injury to any insured person.”

In 1983, we decided Transamerica Ins. v. Royle (1983), 202 Mont. 173, 656 P.2d 820. In that case, we held that household exclusion clauses, like the one included in the Leibrand policy, were void and unenforceable, based on § 61-6-301(1), MCA, which requires that motorists carry insurance against loss resulting from liability suffered by any person. In 1991, when the Leibrands renewed their automobile insurance policy, they were provided with an “amendatory endorsement” which provided that:

1. Exclusion (10) under part 1, Liability, is replaced by the following:
(10) bodily injury to you or any relative to the extent the limits of liability of this policy exceed the limits of liability required by law.

At the time of subsequent policy renewals, the Leibrands were provided with a declarations page which stated that “[l]iability payments to household members are limited to the Financial Responsibility limits of the policy state.”

On November 22,1992, Gordon Leibrand was injured while riding in an insured vehicle being driven by his mother, Lois. He suffered injuries, which are alleged to be serious, and has sustained substantial damages. He has alleged that his damages resulted from Lois Leibrand’s negligence. The Leibrands have made demand for payment to Gordon pursuant to their liability policy for the full $100,000 of coverage provided pursuant to the policy’s general liability provisions. National Farmers Union has paid the sum of $25,000, but pursuant to its amendatory endorsement, has refused to pay any additional amount.

Cole v. Truck Insurance Exchange

In this case, the parties have stipulated to the following facts:

The plaintiffs, Eugene Cole and Mary Jo Cole, are husband and wife and are the parents of Lindsey Cole. At all times relevant to their claim, the Coles have lived together as a family at their residence in Manhattan, Montana.

Prior to 1991, the Coles were insured by an automobile liability insurance policy issued by Truck Insurance Exchange. In 1991, they were issued a new policy by the same company which included the following language:

We shall pay damages for which any insured is legally liable because of bodily injury or property damage caused by an occurrence arising out of the ownership, maintenance or use of any automobile.

Insureds were defined to include the policy holder, any family member, or any person under the age of 21 who was a resident of the policy holders’ household.

The following exclusion was included in the 1991 policy:

We do not cover Bodily Injury:
2. Arising out of the liability of any insured for bodily injury to you or a family member unless the law of the state where the insured resides specifically prohibits this exclusion.

Included with the 1991 policy was a document entitled “Endorsement S 7016, Montana First Edition.” That endorsement provided that:

Under Section II — Liability and Medical Coverage — Exclusions — Coverage D1 — Automobile Liability, Item 2 under “we do not cover bodily injury” is deleted and replaced as follows:
2. Arising out of the liability of any insured for bodily injury to you or a family member to the extent the limits of liability of this policy exceed the limits of liability required by law.

During each subsequent year, at the time of policy renewal, the Coles were provided with a “declarations page” which provided for bodily injury and property damage liability coverage in the amount of $500,000 for each occurrence.

On November 20, 1993, while the aforementioned policy was in effect, Lindsey Cole drove an insured vehicle into her mother and caused bodily injury which has resulted in medical expense in excess of $43,000. The Coles, on behalf of Mary Jo, have demanded that Truck Insurance Exchange pay her damages in the amount of the policy limits of $500,000. Truck Insurance Exchange has paid $25,000 to Mary Jo, but has denied farther coverage based on the language in its endorsement S 7016.

Is the amendatory endorsement at issue here and set forth in the agreed facts valid and enforceable?

SUMMARY OF POSITIONS

When discussed collectively, the Leibrands and the Coles will hereafter be referred to as “insureds.” National Farmers Union Property and Casualty and Truck Insurance Exchange will be referred to as “insurers.”

The insureds contend that the language in both policies which limits coverage for claims made by household members to the “limits of liability required by law,” rather than the liability limits provided for on their declaration pages, is void and unenforceable because (1) the language is unclear and ambiguous; (2) given the effect claimed by the insurers, the provisions would violate their reasonable expectations; and (3) limiting coverage for claims by household members, as opposed to other persons injured by an insured, violates the public policy of this state.

The insurers contend that (1) the language of the policy is not unclear because all Montana drivers are charged with the responsibility of knowing the limits of liability coverage they are required to carry by law; (2) any expectations contrary to the plain language of the policy were not reasonable; and (3) the public policy of this state is as set forth in Montana’s mandatory liability protection statutes which only require that insurance policies provide coverage to household claimants in the minimum amount provided by statute.

Since we conclude that the provisions in question are unclear and ambiguous, we decline to reach the issues of whether the provisions would violate the insureds’ reasonable expectations, or are void because contrary to the public policy of this state.

DISCUSSION

We have held that “the interpretation of an insurance contract is a question of law.” Truck Ins. Exchange v. Nelson (1987), 228 Mont. 233, 236, 743 P.2d 572, 574.

Ambiguities in an insurance policy are construed against the insurer and exclusions or words of limitation in a policy must be strictly construed against the insurer. Bauer Ranch, Inc. v. Mountain West Farm Bureau (1985), 215 Mont. 153, 156, 695 P.2d 1307, 1309.

An insurance policy clause is ambiguous when different persons looking at the clause in light of its purpose cannot agree upon its meaning. Bauer Ranch, 695 P.2d at 1309 (citing Walker v. Fireman’s Fund Ins. Co. (D. Mont. 1967), 268 F. Supp. 899).

The insureds contend that the amendments to their policies which attempted to limit the amount of recovery by household members were unclear and ambiguous because no purchaser or consumer of insurance could determine from the four comers of the policy the extent of coverage being provided. They contend that in contrast to the specific dollar amounts of liability coverage provided for on the declaration pages of their policies, the average consumer would not know what “financial responsibility limits” or “limits of liability required by law” refer to. The Coles further argue that there is a structural ambiguity in their policy based on inconsistent coverage provisions on the declarations page, the exclusions page, and the 1991 endorsement to their policy. They note that the general provisions in their policy provide coverage for injury to “any person”; that the household exclusion purports to apply except where invalid; and that the endorsement limits claims by household members to the amount provided by law. They contend that to determine the amount provided by law would require a trip to a lawyer or a law library, but that the policy does not even provide any reference to a statute from which the “amount provided for by law” could be ascertained.

The insurers respond that Montana’s financial responsibility laws require that licensed drivers be familiar with the minimum amount of liability coverage required by law; the policy language in question is not subject to more than one interpretation; and that in Sagan v. Prudential Ins. (1993), 259 Mont. 506, 857 P.2d 719, this Court interpreted an insurance policy to include a statutory requirement.

We initially note that Sagan is not on point factually and does not raise a comparable legal issue.

We have never previously addressed the specific issue presented by certification from the United States District Court — nor have most other jurisdictions. However, in both Shook v. State Farm Mutual Ins. Co. (D. Mont. 1994), 872 F. Supp. 768, and Worldwide Underwriters Ins. Co. v. Brady (3d Cir. 1992), 973 F.2d 192, nearly identical exclusions in other policies have been found void because those courts concluded that they were either unclear or ambiguous.

In Shook, the insured couple was involved in a motor vehicle collision. The husband was driving and his wife was a passenger. They were insured at the time by an automobile liability policy issued by State Farm with bodily injury liability limits of $100,000 per individual. However, that policy, like the ones at issue, had a “household exclusion” which limited State Farm’s liability for claims by a family member to “the limits of liability required by law.” The wife filed a claim against her husband, claiming he was responsible for the accident. However, State Farm took the position, as the insurers do in this case, that the limit of their responsibility was $25,000 pursuant to the exclusion in the policy.

The Shooks filed a declaratory judgment action to resolve the issue, and State Farm moved to dismiss. The district court denied State Farm’s motion and concluded that based on the ambiguity of the exclusionary language, the effect of the policy did not fulfill the insureds’ reasonable expectation. First, however, the district court repeated the following relevant consideration in determining whether an ambiguity in the policy existed:

[T]he determination of whether an ambiguity exists in an insurance policy requires an examination of the language utilized from the viewpoint of a consumer of average intelligence, not trained in the law or in the insurance business. See, e.g., Whispering Creek Condominium Owner Assoc. v. Alaska National Co., 774 P.2d 176 (Ala. 1989); Sparks v. Republic National Life Ins. Co., 132 Ariz. 529, 647 P.2d 1127 (1982), cert. denied, 459 U.S. 1070, 103 S.Ct. 490, 74 L.Ed.2d 632 (1982). Second, “exclusions and words of limitation in a policy must be strictly construed against the insurer regardless of whether or not they are ambiguous.” Aetna Ins. Co. v. Cameron, 194 Mont. 219, 633 P.2d 1212, 124 (1981); see also, Farmers Union Mutual Ins. Co. v. Oakland, 251 Mont. 352, 825 P.2d 554 (1992).

Shook, 872 F. Supp at 773-74.

Based on these rules of construction, and taking into consideration the policy’s provisions regarding general liability coverage, the court arrived at the following conclusion:

Read from the perspective of the Shooks, the language employed in the liability provisions of the subject policy establishes that the coverage was purchased for the purpose of providing a source of indemnification for damages that either of the Shooks would become legally liable to pay because of bodily injury to others and property damage “caused by accident resulting from the ownership ...” of their car. Based upon this language, standing alone, it would be objectively reasonable for the Shooks to have expected each of them would be indemnified, to the stated limits, for any liability that would accrue to, or be imposed upon them for damages emanating from bodily injury to any person that was caused by either of the Shooks’ operation of the insured vehicle.
While the court is not persuaded by the argument of structural ambiguity presented by Shook, it does agree that the positioning of the exclusion, in relation to the general coverage provision, lends itself to the creation of the ambiguity in the exclusion.

Shook, 872 F. Supp. at 775 (footnote omitted). Based on this observation, State Farm’s motion to dismiss was denied. The Shook decision appears to reverse the same district court’s prior conclusion in the unreported case of Yardley v. State Farm Mutual Automobile Ins. Co. (D. Mont. Aug. 29, 1988), CV-87-194-GF.

In Worldwide, 973 F.2d at 192, the Third Circuit Court of Appeals concluded that nearly identical language was “so unclear that an insured could not understand the liability limitations imposed upon its family members.”

In Worldwide, Robert Brady, the insured, was sued by the cousin with whom he lived for damages arising from Brady’s negligent operation of a motor vehicle in which his cousin was a passenger. At the time of his motor vehicle collision, Brady’s vehicle was insured by Worldwide Underwriters Insurance Company. It provided for bodily injury liability limits of $100,000 per person in language similar to the liability provisions of these policies, but also included the following amendatory endorsement:

We do not provide Liability Coverage for any person for bodily injury to you or any family member to the extent that the limits of liability for this coverage exceed the limits of liability required by the Pennsylvania Motor Vehicle Financial Responsibility Law of 1984.

Worldwide, 973 F.2d at 193.

On the basis of the quoted exclusionary language, Worldwide advised Brady that coverage for his cousin’s claim was limited to $15,000, which was the minimum amount of coverage required by Pennsylvania’s Motor Vehicle Financial Responsibility Law. Worldwide then brought an action in Federal District Court in Pennsylvania for a declaratory judgment confirming its interpretation of the policy. The Court of Appeals first noted that, under Pennsylvania law, an insurance policy provision had to be clear in order to be enforced. It also pointed out that while the terms “clear” and “unambiguous” are sometimes used interchangeably in the decisions of various courts, there is “a distinction, however subtle,” between the two terms. Worldwide, 973 F.2d at 195. It pointed out that:

While ambiguity has been described as “the condition of admitting to two or more meanings,” see Mellon [N.A.] Bank v. Aetna [Business Credit, Inc.,] 619 F.2d [1001], at 1011, [(3rd Cir. 1980)], the question of clarity is slightly more simplistic, i.e., is the wording “easily understood?”

Worldwide, 973 F.2d at 195.

Based on that distinction, the Court of Appeals did not reach the issue of ambiguity. However, it concluded that the policy exclusion was unenforceable based on its lack of clarity for the following reasons:

The imprecise wording of the clause renders it undiscernible by the insured. Considering, as we should, the document as a whole, see Smith v. Cassida, 403 Pa., 404, 169 A.2d 539, 541 (1961) (“policy ... must be read in entirety and the intent gathered from a consideration of the entire instrument”), we find that the exclusion does not inform the insured that full coverage for his family members was compromised. In order to be informed of the limitation imposed by this clause as the insurer intended, Brady would be compelled to travel beyond the four corners of the policy, presumably to the nearest law library or lawyer, to realize that the language of the policy, citing to the Motor Vehicle Financial Responsibility Law, imposed a $15,000 recovery of benefits cap on injuries received by family members. Pennsylvania does not place such an affirmative burden on purchasers of insurance — rather the insurer has the duty to write its policies in a clear and intelligible fashion. Because the Worldwide policy failed to explicitly inform Brady of the elements of its limited coverage, Brady is entitled to full policy benefits for the injuries incurred by his family member, Morros.

Worldwide, 973 F.2d at 196.

While the Shook decision is based upon the insureds’ reasonable expectations, arid the Worldwide decision is based on the policy’s lack of clarity, we find the reasoning in Worldwide persuasive and applicable to our consideration of whether the provision at issue in the cases before us is ambiguous.

As pointed out in Shook, the question of ambiguity is examined from the viewpoint of a consumer with average intelligence but not trained in the law or insurance business. Based upon the general liability provisions in each of the insurers’ policies, and based on the figures provided on the declaration pages for each policy, we conclude that the policies in question are subject to more than one interpretation regarding the extent of coverage for damage to a household member, and that a person of average intelligence could not determine from the four corners of the insurance policy the dollar amount of coverage provided. The endorsements and declaration page limit coverage to family members to either “limits of liability required by law,” or to “the financial responsibility limits of the policy state.” There is no dollar amount set forth. There is no identification of the “policy state,” nor is there any citation to the state law on which the liability limit is based. No lay person could determine from the face of the policy whether claims by family members were the same or less than the limits of coverage provided under the general liability provision of each policy.

Furthermore, the language “limits of liability required by law” could be interpreted to mean the limit of liability imposed by a court of law pursuant to the law of damages.

For these reasons, in answer to the question certified to us, we conclude that the amendatory endorsements at issue are ambiguous, and therefore, unenforceable. Based on this conclusion, the Leibrands and the Coles are entitled to recover the full amount of general liability coverage provided for in their policies if damages in at least those amounts can be proven.

Citing our decision in Horace Mann Ins. v. Hampton (1989), 235 Mont. 354, 767 P.2d 343, and numerous decisions from other jurisdictions, the insurers argue that if the endorsements at issue are invalid, the result is the same because both policies otherwise contain a total exclusion of coverage for claims by household members, and those provisions are only invalid to the extent that coverage is required under Montana’s mandatory liability protection laws. Those laws only require coverage in the amount of $25,000 per individual. Section 61-6-301, MCA. However, Horace Mann is distinguishable, as are the cases relied on by the insurers from other jurisdictions. In Horace Mann, 767 P.2d at 345, we simply held that:

When an insurer fails to provide a policy in compliance with the requirements of a statute mandating insurance protection, the courts are forced to reform the policy so that it is in compliance. 12A Couch on Insurance 2d (Rev. ed.) § 45:692.

The decisions relied on from other jurisdictions are based on similar principles. However, in this case we have not rejected the endorsement language based on statutory requirements. We have held that the language is unenforceable because it is ambiguous. In this Court’s decision, which held that blanket household exclusions are unenforceable based on statutory law (Transamerica v. Royle (1983), 202 Mont. 173, 656 P.2d 820), we did not hold that coverage is then limited to the statutory amount required. Furthermore, we find that line of cases more persuasive which hold that when insurance policy exclusions are unenforceable, the policy should be enforced according to the remainder of its terms. For example, in Meyer v. State Farm Mutual Auto Ins. Co. (Colo. 1984), 689 P.2d 585, the Colorado Supreme Court, after invalidating household exclusions in insurance policies based on the terms of its financial responsibility act, rejected a similar insurer’s argument regarding the extent of coverage available. That court held that:

[W]e are more persuaded by the insured’s argument. The Act specifically provides that insurance policies may provide greater coverage than the minimum specified in the Act. § 10-4-710, 4 C.R.S. (1973). This provision is consistent with the legislative intent to avoid inadequate compensation to victims of automobile accidents. § 10-4-702,4 C.R.S. (1973). Here, the insured purchased more coverage than required by the Act. We hold that where the household exclusion clause has been held invalid because it violates the Act, the limits of the carrier’s liability are those provided by the policy and not the lesser limits required by the statutory standard. Kish v. Motor Club of America Insurance Co., 108 N.J.Super. 406, 261 A.2d 662 (1970). ... In our view, the second approach is more consistent with the legislative intent and policy which is to maximize rather than minimize insurance coverage. Moreover, our choice of rules is supported by the well-established principle of contract law that where a provision in a contract is void because it is contrary to public policy, the remaining portions of the agreement are enforceable to the extent the illegal provision can be separated from the valid promises. See, e.g., Reilly v. Korholz, 137 Colo. 20, 320 P.2d 756 (1958)... Restatement (Second) of Contracts §§ 178, 184 (1979). See generally J. Calamari & J. Perillo, The Law of Contracts § 22-4(d) (2d ed. 1977).

Meyer, 689 P.2d at 592-93.

In accord with Meyer are State Farm Mutual Auto Ins. Co. v. Wagamon (Del. 1988), 541 A.2d 557, Kish v. Motor Club of America Ins. Co. (N.J. Super. 1970), 261 A.2d 662, and Hughes v. State Farm Mutual Auto Ins. Co. (N.D. 1975), 236 N.W.2d 870. Courts have arrived at the contrary conclusion in Arceneaux v. State Farm Mutual Auto Ins. Co. (Ariz. 1976), 550 P.2d 87, DeWitt v. Young (Kan. 1981), 625 P.2d 478, State Farm Mutual Automobile Ins. Co. v. Nationwide Mutual Ins. Co. (Md. 1986), 516 A.2d 586, and State Farm Mutual Automobile Ins. Co. v. Mastbaum (Utah 1987), 748 P.2d 1042.

While we decide this case on the basis of the ambiguity in the policy language, we are not unmindful of the insureds’ arguments that these contracts are contracts of adhesion; that full coverage for damages suffered by family members is not available on the open insurance market, and that to arbitrarily preclude full coverage for family members, as opposed to all other persons, is unconscionable and void as a matter of public policy, and therefore, unenforceable, regardless of the future clarity of such an exclusion. We acknowledge that conscionability may be a factor in any future consideration of that issue, however, conclude that based on the record before us, we have an insufficient factual basis for addressing that issue. A similar issue was raised in the Worldwide case. That court declined to address the issue for similar reasons. The Third Circuit Court of Appeals stated that:

Unconscionability in a contract is a concept introduced under the Uniform Commercial Code and it has been applied to insurance contracts. See Bishop v. Washington, 331 Pa.Super. 387, 480 A.2d 1088 (1984); Ferguson v. Lakeland Mutual Insurance Co., 408 Pa.Super. 332, 596 A.2d 883 (1991). Unconscionability requires a two-fold determination: that the contractual terms are unreasonably favorable to the drafter and that there is no meaningful choice on the part of the other party regarding acceptance of the provisions. Koval v. Liberty Mutual Insurance Co., 366 Pa.Super. 415, 531 A.2d 487, 491 (1987). Here, although the record suggests that this contract was one of adhesion, i.e., Brady’s ability to procure a policy without a family member exclusion is doubtful, we are not confident that the undisputed facts, sparsely assembled here, would require such a determination. We will, therefore, not rest our decision today based upon the unconscionable result exception to the Standard Venetian [Blind Co. v. American Empire Insurance Co., 503 Pa. 300, 469 A.2d 563 (1983)] rule.

Worldwide, 973 F.2d at 196.

For the reasons set forth in this opinion, we answer the certified question as follows: No. The amendatory endorsements in both policies at issue in these cases are not valid and enforceable. For that reason, the insureds are provided with coverage under each policy in the full amount provided for under the general liability provision of their respective policies.

CHIEF JUSTICE TURNAGE, JUSTICES GRAY, HUNT, NELSON, WEBER and LEAPHART concur.


source: Caselaw Access Project

author: JUSTICE NELSON

license: Public Domain

text:
    ROBERT CORWIN, FRED BISCHOFF, DEBORAH MILLION, ERNIE BATEMAN, DENNIS SLONAKER, SUSAN SWARTZ, MADALINE GEMAR, BARBARA GILLIS, HELENA GREENLEE, DORIS WISE, DIANNA WYATT, GAYLE BERNINGHAUS, Plaintiffs and Respondents, v. BOARD OF PUBLIC EDUCATION, STATE OF MONTANA, Defendant and Appellant.
    No. 94-529.
    Submitted on Briefs June 8, 1995.
    Decided July 13, 1995.
    52 St.Rep. 589.
    272 Mont. 14.
    898 P.2d 1227.

      For Appellant: Kimberly A. Kradolfer, Assistant Attorney General, Agency Legal Services Bureau, Helena.
    For Respondents: Lawrence A. Anderson, Great Falls.
   JUSTICE NELSON

delivered the Opinion of the Court.

The Board of Public Education, State of Montana (Board) appeals from the June 17,1993 Memorandum and Order of the District Court of the Eighth Judicial District, Cascade County, granting the motion for summary judgment of the plaintiff-employees of the Montana School for the Deaf and Blind (Employees) and denying the Board’s motion for summary judgment. We affirm.

Background

The Montana School for the Deaf and Blind (MSDB) is managed by the Board and provides both residential and day-school facilities for handicapped children along with resources for parents and public schools throughout the State. See §§ 20-8-101, MCA, and 20-8-102, MCA. Employees are or were employed at the MSDB for many years in non-teaching positions. Four employees are live-in houseparents, who provide direct supervision and care for the residential students; three employees are itinerant resource consultants, who travel throughout the State serving handicapped children living at home and attending public schools and who also provide resources for parents, teachers and school districts; and the remaining five employees are MSDB administrators — one employee coordinates the Interpreter-Tutor Program, one coordinates the Parent-Infant Program, one is the Athletic/Recreation Director, one is the Director of Health and Food Services, and one is the Director of the Instructional Materials Center.

The Employees are all hired under written, year-to-year, form contracts which contain virtually the same language. At issue here are the contract provisions which grant each employee “all holidays and annual leave to which [the employee] is entitled under state law,” and language which grants “all employee benefits to which [the employee] is entitled under the laws of the State of Montana.” Additionally, the contracts grant each employee the right to contract renewal, the right to notice and opportunity to be heard in the event of discharge, and the right to appeal the decision to the Board.

The personnel records of the Employees maintained by the State are extensive and show that each Employee is given an annual performance appraisal in which he or she is evaluated on numerous grounds including neatness, thoroughness, use of time, ability to meet schedules, training and direction of subordinates, and ability to plan and organize work. The District Court concluded that these evaluations are based on the basic criteria that employers regularly use to evaluate their employees’job performance. In their Stipulated Facts, the parties agree that Employees are not independent contractors.

MSDB also maintains records of changes in payroll status of each Employee using steps and grades and which show promotions and withholdings by the State as their employer. Employee affidavits submitted in support of their motion for summary judgment indicate they generally do not work typical eight-hour days or 40-hour weeks. Many are on call much of the time or work evenings. Nevertheless, MSDB requires that the Employees fill out time cards showing eight hours’ of work per day regardless of actual hours worked.

This litigation began with a letter Employees sent to the Board on February 20, 1990, requesting compensation under Title 2, Chapter 18, part 6, MCA, for annual leave and holiday pay accrued over previous school years but not paid. Each Employee’s claim was separately computed based on his or her individual pay rate. The Board denied the Employees’ claim stating that the Employees were hired under “personal services contracts” and that the Employees were, therefore, exempt from the definition of “employee” under the provision of § 2-18-601(f), MCA (1991). Employees thereafter filed suit, and following discovery and the submission of stipulated facts and affidavits, the parties filed cross motions for summary judgment. The District Court granted the Employees’ motion for summary judgment and denied the Board’s. This appeal followed.

Issue

Did the District Court err in granting the Employees’ motion for summary judgment and in denying the Board’s motion? Underlying that question is the issue of whether the Employees here are “employees” of the State for purposes of annual leave and holiday pay and whether the court properly interpreted § 2-18-601(4), MCA (1991).

Standard of Review

Summary judgment is proper only when no genuine issues of material fact exist and the moving party is entitled to judgment as a matter of law. Rule 56(c), M.R.Civ.P. In determining the propriety of summary judgment, we will utilize the same criteria as a district court; our review is de novo. Minnie v. City of Roundup (1993), 257 Mont. 429, 431, 849 P.2d 212, 214. Our review of a district court’s conclusions of law is plenary. We simply determine whether the court’s interpretation of the law is correct. Steer, Inc., v. Department of Revenue (1990), 245 Mont. 470, 474-75, 803 P.2d 601, 603.

Discussion

Under Title 2, Chapter 18, part 6, MCA, State employees are entitled to various leave and holiday benefits. For these purposes, the code defines who is and who is not a State employee. Section 2-18-601(4), MCA (1991), provides:

“Employee” means any person employed by an agency except elected state, county, and city officials, schoolteachers, and persons contracted as independent contractors or hired under personal services contracts.

As regards this statutory definition, it is undisputed that none of the exceptions are at issue here, save only the last — persons “hired under personal services contracts.” There is no legislative history with respect to this phrase, and each side proposes a different definition.

Summarizing the parties’ arguments, the Board contends that the phrase refers to the “traditional master and servant relationship in which the contract is not delegable and which may not be specifically enforced.” As authority for its interpretation, the Board relies on various broad definitions of “personal services contracts,” “master,” “servant,” and “independent contractor” from a number of authorities, including secondary authorities and decisional authorities. Additionally, the Board argues definitions of “personal services” from the Montana Operations Manual as referred to in Teamsters Local 45 v. Montana Liquor Control Board (1970), 155 Mont. 300, 471 P.2d 541. The Board contends also that the Employees here, hired under written contracts, differ from the usual State employee who is hired “at will.” The Board criticizes the District Court’s rationale that typical “personal services contracts” are exempt from State bidding requirements and, citing to a 1962 Attorney General Opinion analogizing the work of cooks with art, 29 Op.Atty’ Gen. No. 49 (1962), disagrees with the trial court’s conclusion that such contracts usually pertain to consultants with special skills or to professionals such as lawyers, architects and engineers. The Board also argues various other Attorney General opinions largely dealing with schoolteachers — which these Employees are clearly not. Finally, the Board contends that it is reasonable to deny the Employees payment for statutory leave and holidays because they receive summer vacation and certain holidays on account of the school calendar.

To the contrary, and, again without going into detail, the Employees maintain that the statutory term “personal services contracts” refers to persons hired on an unusual, ad hoc basis for unique or extraordinary skills. Contrary to the Board’s broad view of this phrase, the Employees argue, that the term “personal services contracts” must be given a narrow meaning related to the unique personal quality of the services at issue. The Employees contend that it is clear that the legislature did intend that sort of construction, citing the statutes by which the State can hire private consultants, Title 18, Chapter 8, part 1, MCA. The Employees also maintain that the phrase “personal services contracts” in the statute must be understood as related to the parallel statutory category of “independent contractors,” and that such contracts must be exceptional and distinct from the statute’s primary category of “employees” — ordinary State payroll labor. The Employees maintain that they were not hired because of any unique personal credentials; that, while their work requires training, they do not possess professional skills or extraordinary, remarkable talents; and that they were not hired for the short-term, ad hoc sort of work for which independent contractors or special consultants are typically retained under personal services contracts or independent contractor agreements. The Employees contend that they are simply ordinary State payroll labor employees with the same benefits as and indistinguishable from other State employees. The Employees also reference their form contracts which include as part of the “term” provisions “all holidays and annual leave” to which the employee “is entitled under state law,” and conclude by noting that §§ 2-18-103(9), MCA, and 2-18-701(8), MCA, respectively, exclude the Employees from the State pay-matrix system, but include them in the State’s group health plan.

For the most part, the District Court adopted the Employees’ narrow interpretation of the phrase “personal services contracts” and rejected the broad construction proposed by the Board. Having carefully considered the arguments and authorities raised and cited by the parties, we conclude that the District Court properly interpreted the statute. We agree with its rationale.

In § 2-18-601(4), MCA (1991), an “employee” is broadly defined by reference to certain persons who are specifically excluded from that definition by job (state, county and city elected officials and schoolteachers) and by status (independent contractors and persons hired under personal services contracts). In other words, if a person does not fit into one of the excepted categories, then the person is, by definition, a State employee. Here the only possible excepted category into which the Employees might arguably fall is that which refers to those persons who are hired under “personal services contracts.”

In interpreting that phrase the District Court took a common sense approach. The Employees here are typical in the sense of the word— they are people who trade their labor to earn a living and they have done so on a regular and continuing basis as opposed to on an ad hoc or one-time/job-specific basis. While specifically excluded from the State pay-matrix system (§ 2-18-103(9), MCA), the Employees are, nevertheless, specifically included as civil servants in the State group health plans (§ 2-18-701(8), MCA). Each Employee is an “employee” for purposes of State unemployment compensation, workers’ compensation, and retirement benefits. Each is closely evaluated annually, and each is given “promotions,” “merit increases,” “step increases,” and changes in grade on State payroll accounting forms.

The Employees’ form contracts include, as part of the term provisions, “all holidays and annual leave” to which the employee is entitled under State law. To accept the Board’s contention that the Employees are not entitled by law to leave or holidays, necessitates reading out of the contracts (contracts which the State drafted) that provision as being mere surplusage. Clearly, such an interpretation is incorrect, as the whole of a contract is to be taken together so as to give effect to every part if reasonably practicable, § 28-3-202, MCA, and courts are without authority to erase components from unambiguous contract provisions. Hennen v. Omega Enterprises, Inc. (1994), 264 Mont. 505, 509, 872 P.2d 797, 800, (citing In re Marriage of McKeon (1992), 252 Mont. 15, 826 P.2d 537.)

Without demeaning the nature or importance of the work of the Employees, there is no evidence that any of the Employees were hired for any particular professional qualifications, skills or credentials. While each is trained in his or her particular j ob, none of those require remarkable skills of the type that, for example, a lawyer, doctor, health-care provider, engineer, architect, surveyor, expert or specialized consultant might possess.

That the legislature contemplated that agencies would, on occasion, need to hire consultants, professional persons and experts on an ad hoc basis is evident in the statutes governing the procurement of such services codified in Title 18, Chapter 8, MCA. The need for such services and the statutory procedures for retaining such persons provide an obvious explanation for the “independent contractor” and “personal services contracts” exceptions in § 2-18-601(4), MCA (1991). Professionals hired under short-term, ad hoc contracts are appropriately excluded from leave and holiday benefits granted to payroll employees. As the District Court observed:

[T]he term “personal service [sic] contract [sic]” was inserted into § 2-18-601(2), M.C.A., to cover professional person [sic] in that situation, not regular employees such as the Plaintiff’s [sic].

We agree. Moreover, accepting the Board’s arguments would, as the District Court also observed, include within its broad definition of personal services contracts, virtually every civil service employee within the State. No civil servant would be entitled to annual leave and holiday pay. The personal services contracts exception would effectively swallow the definition of employee and render that definition meaningless. Such an interpretation is unreasonable and cannot stand. Sections 1-3-232, MCA and 1-3-233, MCA. See American Linen Supply v. Department of Revenue (1980), 189 Mont. 542, 545, 617 P.2d 131, 133.

We hold that the Employees here are “employees” as defined in § 2-18-601(4), MCA (1991); that the Employees here were not hired under “personal services contracts;” and that the District Court’s legal conclusions to that effect were correct. Inasmuch as the District Court’s decision granting the Employees penalties under § 39-3-206, MCA, was not appealed, the court’s ruling to that effect also stands.

Accordingly, having determined that there are no genuine issues of material fact in dispute and that the Employees are entitled to judgment as a matter of law, the District Court’s June 17, 1993 Memorandum and Order is, in all respects, AFFIRMED.

CHIEF JUSTICE TURNAGE, JUSTICES GRAY, HUNT and TRIEWEILER concur.


author: CHIEF JUSTICE TURNAGE JUSTICE TRIEWEILER

text:
    IN RE THE MARRIAGE OF THOMAS R. GLANVILLE, Petitioner and Appellant, and PATRICIA DIANE GLANVILLE, Respondent and Respondent.
    No. 94-587.
    Submitted on Briefs March 30, 1995.
    Rehearing Denied August 10, 1995.
    Decided July 6, 1995.
    52 St.Rep. 563.
    272 Mont. 22.
    899 P.2d 527.
    For Appellant: Paula Johnson, Attorney at Law Whitefish.
    For Respondent: H. James Oleson; Oleson Law Firm, Kalispell.
   CHIEF JUSTICE TURNAGE

delivered the Opinion of the Court.

Thomas R. Glanville appeals from an order of the District Court for the Eleventh Judicial District, Flathead County, modifying child custody and support. We affirm.

The issue is whether the District Court erred in requiring Thomas R. Glanville to pay back child support from July 1991 through August 1992.

The marriage of Thomas R. Glanville (the father) and Patricia Diane Glanville (the mother) was dissolved in April 1988 in San Luis Obispo County, Superior Court of California. They agreed to joint legal custody of their two school-age children. Under a modified order entered in November 1990 (apparently after the father moved to Montana), the mother would have physical custody of the children until June of 1991. The father would then assume physical custody until the summer of 1992, when the court would review the matter. Under the modified decree, the father was to pay the mother child support of $400 per month.

In June of 1991, the children came to Whitefish, Montana, to live with their father. The planned review by the California court in the summer of 1992 did not occur. Instead, at the children’s request, they remained in Whitefish with their father except for Christmas holiday and summer visitation with their mother.

In November 1992, the father filed in the Eleventh Judicial District Court, Flathead County, an affidavit and petition for modification of custody, visitation, and support. He asked the court to grant him primary residential custody of the children, subject to reasonable visitation with the mother. He also asked that the mother be ordered to pay him child support retroactive to January 1992.

A hearing was held before a special master on June 10, 1993. Adopting the special master’s recommendations in their entirety, the court accepted jurisdiction and modified the order of the California court to provide that the children shall reside with their father and have reasonable visitation with their mother. It ordered the mother to pay child support of $ 150 per child per month retroactive to August 1992. The court ruled that the father’s obligation to pay child support under the California decree continued until August 1992. The father had paid no child support to the mother since October of 1990. Calculating the resulting support liability of each party, the court ordered the father to pay the mother $4,820.38 in back child support.

Did the District Court err in requiring the father to pay back child support from July 1991 through August 1992?

The father argues that he should not be required to pay the mother child support for time during which the children lived with him. Rather, he argues that he is entitled to child support payments from the mother for that period. His view as to the effective date for this has varied. On appeal, he contends the mother should be required to pay him child support from July 1991 forward. As stated above, his petition for modification asked that she be required to pay child support retroactive to January 1992. At the hearing, he testified that she should be required to pay support retroactive to May 1992.

Section 40-4-208(1), MCA, provides:

Except as otherwise provided in 40-4-201(6), MCA, [concerning the terms of a separation agreement] a decree may be modified by a court as to maintenance or support only as to installments accruing subsequent to actual notice to the parties of the motion for modification.

Under the above statute, the earliest date to which the District Court could have retroactively modified the California decree would be November 1992, when the father filed his motion for modification. The father argues, however, that the mother is equitably estopped from seeking back child support from him.

A series of Montana cases has established that, upon compelling evidence, the doctrine of equitable estoppel may override the provisions of § 40-4-208, MCA. See In re Marriage of Sabo (1986), 224 Mont. 252, 256, 730 P.2d 1112, 1114. “[T]he equitable principle arises when the [party against whom it is applied] has expressly or impliedly consented to an arrangement other than the payment of the judgment.” In re Marriage of Cook (1986), 223 Mont. 293, 299, 725 P.2d 562, 566.

[I]n Montana a decree for support may be modified on equitable grounds by a court where there is clear and compelling evidence of the terms of an oral agreement of modification. ... [S]uch modification may be applied only to maintenance and support payments to be made subsequent to the oral agreement for modification.

In re Marriage of Jensen (1986), 223 Mont. 434, 439, 727 P.2d 512, 515-16.

This Court’s standard of review of an equitable decision is as provided by § 3-2-204(5), MCA. This Court has interpreted that standard as follows:

[W]e are guided by a number of principles established by this Court. The credibility of witnesses and the weight to be given their testimony are matters for the District Court’s determination in a nonjury case. Thus, in examining the sufficiency of the evidence, we must view the same in a light most favorable to the prevailing party, and we will presume the findings and judgment by the District Court are correct. We will not overturn the findings and conclusions of the District Court unless there is a decided preponderance of the evidence against them, and when the evidence furnishes reasonable grounds for different conclusions, the findings of the District Court will not be disturbed. The burden of proof is on the appellant.

Lumby v. Doetch (1979), 183 Mont. 427, 431, 600 P.2d 200, 202 (citations omitted throughout).

Contrary to the suggestion of the dissent, the facts of this case are not indistinguishable from those in Sabo. In Sabo, the decree of dissolution gave the mother sole custody of the children, but, by later agreement of the parties, two of the children lived with the father. Sabo, 730 P.2d 1112-13. Here, the dissolution decree provided for joint legal and shared physical child custody. The distinction is important to a determination of whether the parties have agreed to vary the terms of the dissolution decree so that equitable estoppel may apply.

During the time for which the father now seeks to be relieved from an obligation of support, July 1991 to August 1992, the children lived with him. For most of that period, however, this physical custody arrangement did not differ from that specified in the California court’s November 1990 order. Under that order, the children were to spend the 1991-92 school year with their father and the father’s obligation for child support was to continue. Because the father has not demonstrated an agreement for an arrangement which differed from the California court’s order concerning the 1991-92 school year, we conclude that equitable estoppel is not applicable for that period.

At the hearing before the special master, the father introduced into evidence a letter he received from the mother in May 1992. She wrote:

Since they’ve both expressed the wish to go to school there, I guess I’ll have to live with it.

The father testified that he felt the mother owed him child support from May 1992 forward. However, the mother testified that it was not until August of 1992, after she had spent the summer with her children, that she finally agreed that they could remain in Montana with their father.

In sum, the evidence of an agreement prior to August of 1992 to modify the California decree is conflicting and can hardly be termed “clear and compelling.” The special master found that an agreement to modify the California decree occurred in August of 1992. That finding is supported in the record. The District Court relieved the father of his child support obligation from August 1992 forward.

Absent circumstances justifying the application of equitable estoppel prior to August 1992, and without other statutory authority to retroactively modify the California court’s decree, we conclude that the District Court did not err in requiring the father to pay back child support due between July 1991 and August 1992.

Affirmed.

JUSTICES GRAY, HUNT and WEBER concur.

JUSTICE TRIEWEILER

dissenting.

I dissent from the majority opinion. The facts in this case are indistinguishable from those in In re Marriage of Sabo (1987), 224 Mont. 252, 730 P.2d 1112, and our decision in that case compels reversal of the District Court’s order.

In the November 13, 1990, order from the Superior Court of the State of California, Thomas was given custody of this couple’s two children beginning in the summer of 1991 and through the 1991-92 school year. In what was anything but a thorough or comprehensive order, the following was the only reference to child support:

Child support in the amount of $400.00 is ordered for both children, payable from Respondent to Petitioner, one-half on the first and one-half on the 15th of each month, commencing October 1, 1990 and continuin[g] until further court order or legal cause.

(Emphasis added.)

There was no further review of the California order because toward the conclusion of the 1991-92 school year, Diane wrote to Thomas and agreed that the children could remain with him during the next school year. In that regard, she stated that:

Since they’re [sic] both expressed the wish to go to school there (Whitefish) I guess I’ll have to live with it, but we (the kids and I) need to be together as much as we can.

In effect, Thomas has had the responsibility for raising and supporting his children since June 21,1991. Diane neither claimed child support during that time, nor for that period of time at the hearing which was held in Montana pursuant to Thomas’s motion to modify. She claimed support for only the period from October 1, 1990, until June 21, 1991, when the two children moved to Montana to live with Thomas. She gave the following testimony in response to questions from her own attorney:

Q. So its your position, then that Mr. Glanville owes you that $3200?
A. Yeah, but it’s more than that.
Q. Because of the 21 days in June?
A. Right. Yeah.
Q. And that’s what you’re asking that the court find is the $3200 plus for the 21 days?
A. Yes.
Q. How much is that per day?
A. I think it was $13.33 a day.
Q. So if my calculator is right, that’s an additional $279.93?
A. Uh-huh. Yes.
Q. So it’s your position then that he owes $3479.93?
A. (Witness nodded.)

Clearly then, by her “assent and conduct” Diane consented to modification of the couple’s custody arrangement and child support obligation long before Thomas’s motion to modify was filed in November 1992. Whether or not it is equitable to require a parent to pay his or her former spouse child support during periods of time when the couple’s children are already living with and being supported by the parent from whom the obligation is claimed, was previously decided by this Court in Marriage of Sabo. In that case, we decided the following issue:

Is a non-custodial father, who assumes permanent custody and support of the children with the consent of the custodial mother, relieved of the obligation to pay child support accruing after and during the consensual assumption of custody?

Marriage of Sabo, 730 P.2d at 1113.

We answered our own question in the affirmative. Because the facts in that case were so remarkably similar to those in this case, citation to substantial portions of our opinion is warranted:

Thomas Sabo accepted the children into his home and raised the children without any support from Stephanie, even though she was employed as a real estate agent after her return to Bozeman. Stephanie never asserted that her current request was founded upon any actual need of her children. Furthermore, she never suggested any implied need which had not been satisfied over the years, or which had now arisen and could possibly serve to validate her action at this belated point. See [State of Washington ex rel.] Blakeslee [v. Horton], [222 Mont. 351], 722 P.2d [1148] at 1151 [1986],
Although Thomas took no action to change the terms of the divorce decree, he accepted sole responsibility for the children’s health, welfare and support. During the period of Thomas’ care, Stephanie’s major contribution was sharing her Mexican vacation with Erin. Such inequity cannot validate her claim. “Although legally the mother may have been correct in her claim for child support, equity demands that the claim must fail. This Court has long adhered to such principles of equity.” Blakeslee, 722 P.2d at 1151.
The Sabo children voluntarily moved in with Thomas. During the entire period the children lived with Thomas, Stephanie neither pursued support payments in arrears nor objected to the shift in custody. By her assent and conduct, Stephanie consented to the arrangement. As we recently held, “[T]he equitable principle arises when the mother has expressly or impliedly consented to an arrangement other than the payment of the judgment.” In Re Marriage of Cook (1986), [223 Mont. 293], 725 P.2d 562, 566, 43 St. Rep. 1732, 1737. This principle acknowledges that the real beneficiaries of the judgment are the children, not the person named in the judgment. ...
Never, during the entire period that the Sabo children were being raised by Thomas, did Stephanie offer any financial assistance to Thomas. In Cook, we noted that circumstances may not allow the mother to collect child support in arrears, “where the husband has made expenditures which constitute substantial compliance with the spirit and intent of the decree.” Cook, 725 P.2d at 566. Thomas has met both the spirit and the purpose of child support obligations. Thomas did not abrogate his duties and obligations under the decree of dissolution. On the contrary, he assumed the duties of the custodial parent by default, after Stephanie relinquished them.
Under the equitable principles of Blakeslee, Cook and Jensen, we hold that Thomas substantially complied with the decree obligations. By her assent and conduct, Stephanie consented to the shift in custody and support. We cannot equitably allow Stephanie to reap a windfall of support payments, if she never made the support expenditures. “A party to an agreement which has been performed for some length of time is estopped to deny its validity.” Jensen, 727 P.2d at 516, 43 St.Rep. at 1895. Thomas is therefore relieved of the obligation to pay any child support accruing after and during his consensual assumption of custody.

Marriage of Sabo, 730 P.2d at 1113-14 (emphasis added). All that was said in Sabo applies to this case. The majority suggests that Sabo is somehow distinguishable from this case because in Sabo the mother had been given sole custody, while in this case the parents had joint custody. However, that distinction is irrelevant and misses the whole point of the Sabo decision. That case simply stands for the principle that one parent should not be forced to pay support to the other parent when, in reality, he or she is raising and supporting the very children who are the subject of the support obligation. The basis for our Sabo decision was that “where the husband has made expenditures which constitute substantial compliance with the spirit and intent of the decree,” the mother may not collect child support in arrears. Sabo, 730 P.2d at 1114. That decision had nothing to do with the fact that the mother had been given sole custody, as opposed to joint custody. The majority observes a distinction that truly makes no difference.

This couple’s children lived with Thomas, at his expense, from June 21, 1991, to the present time. During that time, Diane contributed nothing to their support. By paying for their support directly, Thomas substantially complied with his obligations established in the California order. To hold that Diane can come back and collect further support from Thomas for a substantial period of time during which she expended nothing for support of her children not only ignores reality, it ignores our prior decisions on this subject and our obligation to accomplish equity in dissolution and support proceedings. For these reasons, I dissent from the majority opinion. It is this kind of blind adherence to technicality that breeds disrespect for the law. I would reverse the order of the District Court and conclude that Thomas owed no support to Diane from June 21, 1991 — the date on which he assumed custody of, and the responsibility for the actual support of, his children.


text:
    CHARLES R. TAYLOR, Petitioner and Appellant, and MARILYN J. TAYLOR, Respondent and Respondent.
    No. 94-583.
    Submitted on Briefs April 6, 1995.
    Decided July 6, 1995.
    52 St.Rep. 567.
    272 Mont. 30.
    899 P.2d 523.

      For Appellant: Karl Knuchel, Attorney at Law, Livingston.
    For Respondent: K. Amy Pfeifer, Special Assistant Attorney General, Department of Social and Rehabilitation Services, Child Support Enforcement Division, Helena.
   JUSTICE TRIEWEILER

delivered the Opinion of the Court.

The State of Montana Department of Social and Rehabilitation Services, Child Support Enforcement Division (CSED), initiated an income withholding proceeding against Charles R. Taylor pursuant to §§ 40-5-202, -401 through -443, MCA, for past child support which it alleged had not been paid. Charles requested an “in-person” administrative hearing pursuant to § 40-5-414, MCA, to contest the accuracy of the child support amount claimed. The request for an “in-person” hearing was denied; a telephonic hearing was held; and the Administrative Law Judge found that Charles owed $22,900 for past child support and ordered that the CSED could proceed with delinquency income withholding pursuant to § 40-5-415, MCA. Charles petitioned for judicial review in the District Court for the Sixth Judicial District in Park County. The District Court reduced the amount owed to $20,900, but otherwise affirmed the procedure, findings, and conclusions of the Administrative Law Jtxdge. Charles appeals from the order of the District Court. We reverse the District Court, vacate the income withholding decision and order, and remand for further proceedings.

The dispositive issue on appeal is whether the District Court erred when it affirmed the Administrative Law Judge’s denial of Charles’ request for an “in-person” hearing?

FACTUAL BACKGROUND

In 1981, the Sixth Judicial District Court entered a decree dissolving the marriage of Charles and Marilyn Taylor. Marilyn was awarded custody of the couple’s three children and Charles was ordered to pay child support in the amount of $125 per month per child. In 1982, after the dissolution, Marilyn and the three children moved from the family home in Livingston to Texas.

In January 1984, the couple’s son, Randy, moved back to Montana to live with his father, and continued to live with him until he reached the age of majority. The couple’s oldest daughter, Amy, moved back and forth between Texas and Montana periodically. However, she lived primarily with her maternal grandparents in Livingston from May 1985 until she reached the age of majority on December 30,1990. The couple’s youngest daughter, Jennifer, resided with her mother, except for periodic visits with Charles, until September 1992, when she moved back to Montana to permanently reside with Charles.

In 1992, the Texas Attorney General’s Office requested the CSED to pursue an income withholding proceeding against Charles pursuant to §§ 40-5-202, -412, MCA, to collect child support payments which Marilyn alleged were past due and remained unpaid. Charles was sent notice of the CSED’s intent to withhold money from his earnings; however, he disputed the amount claimed and requested a hearing pursuant to § 40-5-414, MCA. At the time of his request for a hearing, he also requested that it be “in-person.” In reliance on 46.30.607(1), ARM, the Administrative Law Judge denied Charles’ request for an “in-person” hearing, but granted him leave to resubmit his motion following a telephonic hearing if he could establish substantial prejudice.

The administrative hearing was held on October 18, 1993, by telephone. The Administrative Law Judge presided from Helena; Charles testified from his attorney’s office in Livingston; Marilyn testified from Garland, Texas; and Karen Trettin, an investigator for the CSED, testified from her office in Helena. Jennifer and Amy testified from other locations which were not specifically identified. The quality of the telephonic connection was apparently poor. Amy complained of being unable to hear the others. They in turn complained of difficulty understanding her; and at one time while Marilyn was talking, everyone had difficulty identifying the speaker.

During the hearing, Marilyn and Charles basically agreed on the whereabouts of their children since their dissolution, and there was no apparent dispute regarding the amount that Charles did or did not pay for child support since the dissolution.

The disputed issue between the parties was whether Charles’ child support obligation had been modified by an oral agreement in 1986. Charles testified that when Amy began living with her grandparents, Randy was living with him, and Jennifer still resided with her mother, the couple agreed not to exchange child support payments since each parent had one child and the third child was living elsewhere. He claimed that pursuant to the oral agreement, and our decision in In re Marriage of Sabo (1986), 224 Mont. 252, 730 P.2d 1112, Marilyn is estopped from claiming any further child support obligation after that point in time.

Marilyn testified that she did agree to waive Charles’ obligation to pay support for Randy, but adamantly denied any other agreement.

Amy and Jennifer both testified that there had been an agreement similar to the one described by Charles, but that their mother repudiated the agreement during an angry confrontation with Charles at Randy’s graduation.

The Administrative Law Judge found that Charles had not proven by sufficient evidence the necessary basis for estoppel, but concluded that Charles did not owe child support for Randy and Jennifer during those periods of time when they lived with him. He concluded that Charles owed $22,900 for past due support and authorized the CSED to proceed with delinquency income withholding pursuant to § 40-5-415, MCA.

Charles did not renew his request for an “in-person” hearing at the conclusion of his telephonic hearing, nor following issuance of the Administrative Law Judge’s decision. He did, however, raise the denial of his original request on appeal to the District Court as one basis for reversal of the administrative decision.

DISCUSSION

Did the District Court err when it affirmed the Administrative Law Judge’s denial of Charles’ request for an “in-person” hearing?

Since this case involves the application of Montana law to undisputed facts, we will review the District Court’s application of the law to determine if it was correct. In re Marriage of Barnard (1994), 264 Mont. 103, 106, 870 P.2d 91, 93 (citing In re Marriage of Burris (1993), 258 Mont. 265, 269, 852 P.2d 616, 619).

Charles contends that denial of his request for an “in-person” hearing in favor of a telephonic conference call violated his right to confront witnesses, which is guaranteed by Rule 611(e), M.R.Evid., and our recent decision in In re Marriage of Bonamarte (1994), 263 Mont. 170, 866 P.2d 1132. He contends that he was adversely affected by the denial of this right because the issues of whether he owed past due support, and if so, how much, depended on whether his child support obligation had been orally modified, and that that determination depended upon the credibility of two witnesses who directly contradicted each other.

Rule 611(e) is made applicable to administrative proceedings pursuant to § 2-4-612(2), MCA, which provides as follows: “Except as otherwise provided by statute relating directly to an agency, agencies shall be bound by common law and statutory rules of evidence.”

Rule 611(e), M.R.Evid., provides that:

Except as otherwise provided by constitution, statute, these rules, or other rules applicable to the courts of this state, at the trial of an action, a witness can be heard only in the presence and subject to the examination of all the parties to the action, if they choose to attend and examine.

(Emphasis added.)

In Bonamarte, we recently held that telephonic testimony was inconsistent with this right to confront witnesses. We held that:

If the phrase “a witness can be heard only in the presence and subject to the examination of all the parties ...” is to have any meaning, then, in the absence of a specific rule or statutory exception to the contrary, the witness must be physically present in the courtroom to testify personally at trial unless all parties and the court agree to a different method of examination which protects the parties’ rights of confrontation and cross-examination and, at the same time, allows the fact finder to assess the witnesses] credibility, testimony and the evidence presented.
Here, it was impossible for the court to make a determination as to the relative credibility of the party-witnesses because it did not have an opportunity to observe the testimony of both Mark and Judith. The parties in a dissolution action often deliver conflicting evidence, and it is the court’s role to determine who is the more credible witness. This can be accomplished most effectively by observing each party’s demeanor during testimony.

Bonamarte, 866 P.2d at 1135.

Furthermore, in Bonamarte, 866 P.2d at 1137, we followed State ex rel. Juvenile Dept. v. Gates (Or. 1987), 740 P.2d 217, 218, for the conclusion that “ ‘[t]he opportunity to observe a witness is so critical to judicial control and effective cross-examination that its denial is manifestly prejudicial.’ ” We held that:

[T]he District Court abused its discretion in allowing Judith to testify by telephone over objection at the hearing on the merits. We reverse and remand for a new trial in order to allow Mark a meaningful opportunity to “confront” the witness and to effectively cross-examine and in order to afford the opportunity for the trial court to observe the witness and make its determination as to her credibility.

Bonamarte, 866 P.2d at 1137.

The CSED first argues that Charles was barred from raising the denial of an “in-person” hearing in District Court because he failed to exhaust his administrative remedies, as required by § 2-4-702, MCA, when he did not renew his request for that type of hearing at the conclusion of his telephonic hearing. However, we conclude that if Charles had a right to an “in-person” hearing in the first place, it was no remedy to require that he first incur the substantial expense of participating in an adversarial proceeding which was procedurally and statutorily defective before he could assert that right. Based on the cost of modern litigation, it is little consolation to a litigant that he or she will be afforded procedural rights only after being forced to participate in a proceeding during which they are denied.

The CSED next contends that there is an exception to the confrontation requirement of Rule 611(e), M.R.Evid., where provided by statute, and that this exception was recognized in Bonamarte. The CSED points out that § 40-5-414(3), MCA, authorizes “teleconferencing” in child support enforcement proceedings, and that 46.30.607(1), ARM, gives the Administrative Law Judge the discretion to deny an “in-person” hearing unless substantial prejudice can be shown at the conclusion of the telephonic hearing.

Section 40-5-414(3), MCA, provides that: “The administrative hearing must be held by teleconferencing methods unless the obligor or the department expressly requests an in-person hearing before the hearing examiner.” (Emphasis added.)

Section 46.30.607(1), ARM, provides that:

Administrative hearings, unless the hearing officer expressly orders to the contrary, shall initially be conducted by telephone conferencing methods. At the request of a party and upon a showing that the party’s case was substantially prejudiced by the lack of an in-person hearing, the hearing officer may, at the close of a telephone hearing, grant a de novo in-person hearing.

We conclude that § 40-5-414(3), MCA, provides no support for the CSED’s position. It provides that “in-person” hearings shall be allowed where either party requests one. In this case, Charles made such a request.

Furthermore, rules adopted by administrative agencies which conflict with statutory requirements or exceed the authority provided by statute, are invalid. Section 2-4-305(6), MCA; Board of Barbers v. Big Sky College (1981), 192 Mont. 159, 161, 626 P.2d 1269, 1270-71. Finally, 46.30.607(1), ARM, is not a rule “applicable to the courts of this state,” and therefore, could not justify the proceeding in this case, even if it was validly enacted.

Section 40-5-414(3), MCA, provides, without qualification, that an obligor is entitled to an “in-person” hearing when he or she requests one. To accept the CSED’s premise would require that we ignore the plain language of that statute.

Based upon the right to confrontation provided in Rule 611(e), M.R.Evid., our decision in Bonamarte, and § 40-5-414(3), MCA, we conclude that when Charles requested an “in-person” hearing to challenge the accuracy of the CSED’s income withholding proceeding he was entitled to an “in-person” hearing, and the District Court erred when it affirmed the Administrative Law Judge’s denial of that request. We further conclude that because the amount of Charles’ past child support obligation depended on the existence or absence of an oral modification agreement, pursuant to our decision in Sabo, and since the determination of whether such an agreement existed depended on the credibility of Charles and Marilyn — the two principal witnesses — Charles’ substantial rights were prejudiced by the Administrative Law Judge’s denial of his request for an “in-person” hearing.

For these reasons, we reverse the order of the District Court; we vacate the decision of the Administrative Law Judge; and we remand this case to the District Court, and ultimately to the administrative agency, for further proceedings consistent with this opinion.

JUSTICES NELSON, GRAY, WEBER and LEAPHART concur.


author: JUSTICE GRAY JUSTICE WEBER

text:
    HOBBLE-DIAMOND CATTLE, CO., Plaintiff and Appellant, v. TRIANGLE IRRIGATION CO., Defendant and Respondent.
    No. 94-507.
    Submitted on Briefs May 19, 1995.
    Decided July 14, 1995.
    52 St.Rep. 596.
    272 Mont. 37.
    899 P.2d 531.

      For Appellant: Jock B. West; West, Patten, Bekkedahl & Green, Billings.
    For Respondent: Steven T. Potts; Jardine, Stephenson, Blewett & Weaver, Great Falls.
   JUSTICE GRAY

delivered the Opinion of the Court.

Hobble-Diamond Cattle Company appeals from the judgment of dismissal entered by the Sixth Judicial District Court, Sweet Grass County, which was premised on the court’s grant of Triangle Irrigation Company’s motion to dismiss for failure to prosecute. We reverse.

Hobble-Diamond Cattle Company (Hobble-Diamond) filed this action against Triangle Irrigation Company (Triangle) in 1986, alleging that certain pivots in the irrigation system it purchased from Triangle in 1983 were defective or improperly installed. Shortly before the scheduled trial in 1989, Hobble-Diamond sought leave to amend its complaint to add a claim based on alleged problems with another pivot; the District Court refused to authorize the amendment.

A bench trial in July 1989 resulted in a judgment in Triangle’s favor. Hobble-Diamond appealed, raising only the issue of the court’s denial of its motion for leave to amend the complaint. We reversed, holding that the court had abused its discretion, and remanded for further proceedings. Hobble-Diamond Cattle v. Triangle Irrigation (1991), 249 Mont. 322, 326, 815 P.2d 1153, 1156. Remittitur issued on September 4, 1991.

Hobble-Diamond moved to substitute the sitting judge and, thereafter, Triangle moved to substitute the judge called in to assume jurisdiction. The Honorable Larry W. Moran assumed jurisdiction on November 15, 1991. Counsel for Hobble-Diamond was allowed to withdraw on February 21, 1992, and new counsel for Hobble-Diamond filed an appearance on March 20,1992. In June 1992, Hobble-Diamond formally requested a scheduling conference.

By oral order and minute entry dated April 22, 1993, the District Court ordered a telephonic status conference for early May 1993; Hobble-Diamond was to initiate the call. The parties also were ordered to file a status report prior to that time; neither party complied. The telephonic conference was rescheduled for May 25, 1993, by request of Hobble-Diamond’s counsel and stipulation by Triangle. The May 25 status conference did not take place and the facts regarding why have not been clearly established. The docket does not reflect any attempt to reschedule the conference and, indeed, no further activity occurred regarding the case.

In May, 1994, approximately one year later, Triangle moved for dismissal pursuant to Rule 41(b), M.R.Civ.R, for failure to prosecute. The motion was briefed and orally argued. The District Court orally granted the motion and, after a motion for reconsideration by Hobble-Diamond, entered its memorandum and judgment of dismissal. Hobble-Diamond appeals.

Did the District Court abuse its discretion in granting Triangle’s Rule 41(b), M.R.Civ.R, motion to dismiss for failure to prosecute?

Rule 41(b), M.R.Civ.R, authorizes a district court to dismiss an action for failure to prosecute upon motion of the defendant. The court has broad discretion in ruling on such a motion, and “its decision will be overturned only if it has abused that discretion.” Westland v. Weinmeister (1993), 259 Mont. 412, 415, 856 P.2d 1374, 1376 (citations omitted).

Decisions on motions to dismiss for failure to prosecute entail a careful balancing of the competing public policy interests in resolving lawsuits on the merits and encouraging prompt disposition of disputes. Westland, 856 P.2d at 1376 (citation omitted). To that end, we have established four factors to be considered in determining whether a district court abused its discretion in dismissing an action under Rule .41(b), M.R.Civ.R: 1) plaintiff’s diligence in prosecuting the claim; 2) prejudice to the defense caused by plaintiff’s delay; 3) availability of alternate sanctions; and 4) existence of a warning that the case is in danger of dismissal. Westland, 856 P.2d at 1376 (citation omitted). We examine the record before us regarding each Westland factor separately in order to properly balance the competing public policy interests at issue, as required by Westland.

With regard to the diligence factor, the District Court observed that Hobble-Diamond purchased the irrigation system at issue in this case in 1983, the action was filed in 1986 and Hobble-Diamond had done nothing since remittitur from this Court in September of 1991. We note that the first two time references are, indeed, correct. They are not, however, relevant here in that time periods prior to remittitur in the first appeal have no bearing on Hobble-Diamond’s diligence during the period since remittitur.

Moreover, the District Court’s characterization of Hobble-Diamond’s total lack of activity for the nearly three years since remittitur is neither correct nor fair to Hobble-Diamond. Hobble-Diamond moved to substitute the sitting judge, substituted counsel and, in June of 1992, requested a scheduling conference. The fact that ten months passed between the request and the minute entry setting up the status conference cannot be attributed to delay by Hobble-Diamond. The same is true of the time between the scheduling, and nonoccurrence, of the conference. Thus, based on the record before us, it is clear that the time period appropriate for consideration regarding Hobble-Diamond’s lack of diligence in this case is the year which passed between the aborted telephonic conference and Triangle’s motion to dismiss for failure to prosecute. Such a period of time is not per se unreasonable, although Hobble-Diamond’s failure to reschedule the conference after its failure to complete it as ordered cannot be condoned.

Regarding the prejudice factor, while the District Court observed that Hobble-Diamond had not established the reasonable excuse necessary pursuant to Westland to overcome the prejudice presumed by an unreasonable delay (see Westland, 856 P.2d at 1377), the court focused on the actual prejudice it determined Triangle had suffered as a result of Hobble-Diamond’s lack of diligence. That actual prejudice was based on the lapse of eleven years since the irrigation system was purchased by Hobble-Diamond, and the sale of the system and resulting lack of availability for trial purposes.

Again, as discussed above, the total lapse of time since the 1983 irrigation system transaction upon which this case is based is not relevant in the context of a Rule 41(b), M.R.Civ.P., motion to dismiss for failure to prosecute. The passage of time which is relevant to whether Hobble-Diamond’s lack of diligence caused actual prejudice to Triangle is the one year period between the aborted telephonic conference in May of 1993 and Triangle’s motion to dismiss one year later. While we do not disagree that this case is now somewhat stale, Triangle did not establish actual prejudice caused by the one-year period of delay with which we are concerned. Nor is the fact that the irrigation system may not be available for trial purposes particularly relevant since it appears that the system was sold during the period prior to remittitur in the first appeal. Thus, while the system’s possible lack of availability may be problematic to both parties, no prejudice to Triangle in that regard can fairly be said to have resulted from the delay at issue here.

The “availability of alternate sanctions” factor was not directly addressed by the District Court in its memorandum accompanying the judgment of dismissal. The court merely relied on Westland, in which we held that the district court did not abuse its discretion in deciding that it had “no other choice” than to dismiss. See Westland, 856 P.2d at 1378. We have determined above, however, that the District Court relied on inappropriate time periods and erroneously found actual prejudice in ruling on Triangle’s motion to dismiss. On that basis, we determine that the one-year period at issue here, much shorter than the overall period at issue in Westland, mandates close consideration of this factor.

The “availability of alternate sanctions” factor recognizes that Rule 41(b), M.R.Civ.P., dismissals should be imposed sparingly and must remain the exception rather than the rule. Here, it is clear that other sanctions were available. The court could have sanctioned counsel and/or Hobble-Diamond for failure to comply with its order placing responsibility for initiating the scheduling conference on Hobble-Diamond. It could have set the case for trial immediately, a remedy we determined was adequate in Doug Johns Real Estate, Inc. v. Banta (1990), 246 Mont. 295, 299, 805 P.2d 1301, 1304.

It also is clear, however, that nothing in the balancing of factors mandated by Westland requires a total unavailability of other sanctions prior to dismissal for failure to prosecute under Rule 41(b), M.R.Civ.P. Indeed, such a requirement would render involuntary dismissal pursuant to Rule 41(b) an impossibility since, as a practical matter, alternative sanctions always would be available to a court. Thus, a total absence of alternative sanctions is not necessary.

An involuntary dismissal is a severe result. See Doug Johns, 805 P.2d at 1303. Under the circumstances presented by this case, we determine that the “availability of alternate sanctions” factor weighs in Hobble-Diamond’s favor given the plethora of alternate sanctions and remedies available and the period of delay at issue.

Finally, with regard to the “warning” factor, the District Court gave no direct warning to Hobble-Diamond that its case was in danger of dismissal. Neither Westland nor any rule specifically requires a court to give such a warning, although it is the practice of many trial courts to do so through an order to show cause or other device. While such a warning is the better practice, we are not inclined to impose such a burden regarding the diligent prosecution of a case on the courts. For purposes of considering the Westland factors, however, it is sufficient to observe that the court did not formally warn Hobble-Diamond that its case was in danger of dismissal.

We do not condone counsel’s lack of attention over a one-year period to this case in his charge. In considering the Westland factors for purposes of balancing the competing public policy interests in resolving lawsuits on the merits and encouraging prompt disposition of disputes, however, we conclude that the District Court abused its discretion in granting Triangle’s Rule 41(b), M.R.Civ.R, motion to dismiss.

Reversed.

CHIEF JUSTICE TURNAGE, JUSTICES HUNT, NELSON, TRIEWEILER and JEFFREY H. LANGTON, District Judge, concur.

JUSTICE WEBER

dissents as follows:

The opinion concludes that, in applying the four Westland factors to this case, the District Court abused its discretion in granting Triangle’s Rule 41(b) motion to dismiss. I disagree with that conclusion and, therefore, dissent from the opinion.

It is significant to note that District Judge Moran assumed jurisdiction on November 15, 1991, and Hobble-Diamond had essentially done nothing during the next three years except for the appointment of new counsel.

In the District Court’s Memorandum and Judgment of Dismissal dated September 20,1994, the District Court points out that the case was filed in 1986, more than eight years ago, and arose from defendant Triangle selling plaintiff Hobble-Diamond an irrigation system in 1983. The court points out that shortly before trial, Hobble-Diamond attempted to add another claim based upon alleged problems with pivot number five. The Supreme Court reversed the District Court’s 1991 decision because of the failure to permit that amendment. The District Court then stated:

It is now 1994, and Hobble-Diamond still has not filed any pleading to state a claim based upon pivot no. 5. No discovery has been conducted, and there has been no activity by Plaintiff in this case since 1991, other than its change of attorneys two years ago.
This case is more than 8 years old; the subject matter is approximately 11 years old. At oral argument it was acknowledged that plaintiff [Hobble-Diamond] has sold the irrigation system and the ranch on which it was located, several years ago. (Emphasis added.)

The court then discussed the rules to be applied and specifically-analyzed the case based upon the Westland four factors. The District Court stated in regard to those factors:

Applying the factors set forth in Westland, the Court determines that this action should be dismissed:
1. Plaintiff has not diligently prosecuted its alleged claim. Nearly 11 years have passed since the irrigation system was installed, and more than eight years have passed since this action was commenced. Although the Supreme Court ordered in 1991 that Plaintiff could amend its Complaint to assert a claim based upon pivot no. 5, nearly three more years have now passed with no activity at all. Plaintiff has not been reasonable or diligent in prosecuting its alleged claim. See Westland, ... 856 P.2d at 1377.
2. Plaintiff’s delay in prosecution has prejudiced the Defendant. Hobble-Diamond’s unreasonable delay, noted in paragraph 1, “raises a presumption of prejudice to the Defendant and shifts the burden to the Plaintiff to show good cause or a reasonable excuse for inaction.” ... [Westland, 856 P.2d at 1377.] Plaintiff’s memorandum does not dispute either the presumption or its application here. Plaintiff submitted no affidavit or any discovery or evidentiary material to dispute the presumption that Defendant has been prejudiced. Further, it is readily apparent that Defendant has, in fact, been prejudiced, not only by the long period of time since the irrigation system was sold and installed, but also by Plaintiff’s sale of the system several years ago. Such circumstances make it virtually impossible for Defendant to test and inspect the system so as to separate alleged defects from 11 years of use and normal wear and tear.
3. Here, the dismissal sanction should be applied as it was in Westland. There, five years had elapsed between the filing of plaintiff’s Complaint and defendant’s Motion to Dismiss, and there had been no activity in the case for more than a year. ... Based on those facts, the court had “ ‘no other choice’ than to dismiss and enter final judgment against Westland.” ... Here, the facts are even more compelling: Hobble-Diamond filed the action eight years ago and has taken no actin for nearly three years. [Citations omitted.]
4. The factor of a warning to Plaintiff that dismissal could occur is also controlled by Westland. Here, this Court set a telephone status conference last year, at which it ordered that the parties confer with the Court regarding case status, and the issuance of a scheduling order. Although ordered to do so, Plaintiff never initiated the conference call. Plaintiff made no effort thereafter to reset the aborted status conference, and made no efforts whatsoever in this case, until Defendant filed its Motion to Dismiss. ... (Emphasis added.)
Finally, the Court reminds the Plaintiff that it, not the Court, has the ultimate responsibility to prosecute its claims, conduct discovery, and prepare its case for trial. ...

I conclude that the District Court’s analysis of the Westland factors does not demonstrate an abuse of discretion.

Our test is limited to a finding of an abuse of discretion. When I consider all of the facts as set forth in the District Court’s memorandum and judgment and the facts emphasized in the opinion, I conclude there is no basis upon which to hold there has been an abuse of discretion.

I dissent.