Abbey/Land, LLC v. Glacier Constr. Partners, LLC, DA 17-0705

Decision Date29 January 2019
Docket NumberDA 17-0705
Citation433 P.3d 1230,2019 MT 19,394 Mont. 135
Parties ABBEY/LAND, LLC, a Montana Limited Liability Company, Plaintiff, Appellee, and Cross-Appellant, v. GLACIER CONSTRUCTION PARTNERS, LLC, a Montana Limited Liability Company, Defendant, Appellee, and Cross-Appellant, and James River Insurance Company, Intervenor and Appellant.
CourtMontana Supreme Court

For Appellant James River Insurance Company: Robert K. Baldwin, Benjamin J. Alke, James H. Goetz, Goetz, Baldwin and Geddes, P.C., Bozeman, Montana

For Appellee Abbey/Land, LLC: David Berkoff, Berkoff Law Firm, P.C., Missoula, Montana

For Appellee Glacier Construction Partners, LLC: Mark D. Parker, Parker, Heitz and Cosgrove, PLLC, Billings, Montana

Justice Beth Baker delivered the Opinion of the Court.

¶1 In Abbey/Land LLC v. Interstate Mechanical, Inc. , 2015 MT 77, 378 Mont. 372, 345 P.3d 1032 [hereinafter Abbey/Land I ], we reversed and remanded the District Court’s $12 million stipulated judgment against Glacier Construction Partners, LLC ("Glacier") in favor of Abbey/Land LLC ("Abbey/Land"). We remanded with instructions for the District Court to grant James River Insurance Company’s ("James River") request to intervene to challenge the reasonableness of the confessed judgment and whether it was the product of collusion.

¶2 After discovery and a hearing on remand, the court determined that the confessed judgment was the product of collusion and was unreasonable. The court reduced the judgment to approximately $2.4 million and ordered Abbey/Land and Glacier to pay James River’s attorney fees and costs associated with the proceedings. James River appeals, and Abbey/Land and Glacier each cross-appeal. We address whether the District Court erred when it:

1. Found the $12 million confessed judgment unreasonable; and
2. Held that the settlement was the product of collusion.

Based on our analysis of these issues, we further address whether the District Court:

3. Fashioned a proper remedy by opting to reduce the settlement amount, rather than dismissing the action; and
4. Properly awarded attorney fees and costs to James River.

¶3 We affirm the District Court’s findings that the confessed judgment was unreasonable and the product of collusion. On the basis of those findings, we reverse and remand the District Court’s amended judgment with instructions to dismiss Abbey/Land’s claim with prejudice. We affirm the District Court’s decision to grant attorney fees, although on different grounds. We reverse and remand the attorney fee award for the District Court to reduce the award. Finally, we affirm the District Court’s decision to award costs, but reverse and remand for the District Court to recalculate the award to include only costs allowable under § 25-10-201, MCA.


¶4 This case, on appeal to the Court for a second time, is one of several actions in at least two counties and two United States district courts, as well as an arbitration proceeding, arising from the construction of a massive luxury home on Shelter Island, a small island in Flathead Lake, Montana. The instant action was originally filed in September 2009 over construction defects and associated problems.

¶5 Real estate developer Donald G. Abbey formed Abbey/Land in 2000 to purchase Shelter Island and related shoreline properties. Abbey/Land began to build a large residence on Shelter Island in 2001. After problems with the original contractor, Abbey formed Glacier to act as a new general contractor for the project. The construction on Shelter Island was Glacier’s only project. Abbey is the sole owner, manager, and member of both Abbey/Land and Glacier.

¶6 On May 1, 2006, Abbey/Land and Glacier entered into a general contract for the construction of the Shelter Island residence. Abbey signed on behalf of both parties. The contract included an arbitration provision, limited the prevailing party’s damages to actual damages, and specifically precluded any recovery of consequential damages. Under the contract, Glacier was reimbursed for the cost of all work it performed, including the cost of correcting defective work, but did not earn any profit. The District Court found that Glacier served more as a construction agent for Abbey/Land than as an independent, at-risk general contractor.

¶7 Glacier subcontracted with Interstate Mechanical, Inc. ("Interstate") for the design and installation of the plumbing and heating-cooling systems for the house. Subsequent change orders increased the value of Interstate’s original $1.4 million contract by approximately $1 million. Neither Abbey, Abbey/Land, nor Glacier employed an architect to oversee the changes to the project. Interstate initiated arbitration proceedings in 2009, alleging $806,917.95 in damages arising from Glacier’s breach of contract, violations of the Montana Prompt Payment Act, unjust enrichment, constructive fraud, and negligence.

Glacier counterclaimed against Interstate for $1,608,644.26 in damages due to Interstate’s alleged faulty work that Glacier alleged caused damage to the Shelter Island residence and property. Glacier eventually terminated Interstate from the project.

¶8 Abbey/Land and Glacier filed the instant action in Flathead County on September 23, 2009—the day before the scheduled preliminary hearing in the arbitration action. Abbey/Land and Glacier brought claims against Interstate and other subcontractors, seeking compensatory and punitive damages caused by a pipe rupture in October 2008 that flooded the basement with an uncontrolled loss of water. The flooding water over-saturated the septic system drain field, which in turn contaminated the water well with E-coli bacteria. In addition, Abbey/Land claimed Interstate’s deficient work caused various other damages, including leaks caused by frozen pipes, heat pumps that did not operate within the permit limits set by the Department of Environmental Quality, and a water treatment system that caused tons of salt and other contaminants to be deposited into the drain field. Abbey/Land and Glacier requested that the arbitration be stayed so they could recover consequential and punitive damages against Interstate in the state court action.

¶9 In response, Interstate sued in the United States District Court for the District of Montana to compel arbitration. The federal court ordered Glacier to arbitrate its dispute with Interstate and stayed the action in state court. On October 11, 2010, after the federal court compelled arbitration, Glacier made the first tender to its comprehensive general liability insurer James River to provide a defense. At that time Glacier was aligned as a plaintiff in this suit. Glacier represented to James River that damages were likely to be in the $1-2 million range. James River denied coverage.

¶10 In January 2011, the arbitrator awarded Glacier $414,021.11 in damages from Interstate. The arbitrator determined that some of Glacier’s claims were not for damages but for betterments, and he refused to make an award for those claims. The arbitrator also found "fault with Glacier in the way this Project was managed and administered," citing Abbey’s and Glacier’s failure to have "an architect to administer the Project, update schedules, respond to questions regarding ongoing coordination and design issues, and to deal with ongoing changes."

¶11 Immediately after the arbitration award, Abbey took actions to shut down Glacier’s operations and transfer all of the company’s assets to Abbey/Land and another one of Abbey’s companies. Glacier received no compensation for these transfers. Internal e-mails show that the scheduled "shut-down" date for Glacier was February 15, 2011. After Glacier’s shutdown and transfer of all assets, Abbey/Land made a written demand against Glacier for the total amount of the arbitration award. Abbey/Land wrote that it had "suffered property damages in a total amount that has yet to be determined and property damages from loss of use will be substantial." It explained that the amount of the arbitration award "is clearly owed to Abbey/Land LLC now, and any payment will be offset against the total amount of property damages ultimately awarded to Abbey/Land LLC from Interstate Mechanical, Inc. and/or Glacier Construction Partners, LLC."

¶12 Shortly after receiving this demand from Abbey/Land, Glacier voluntarily dismissed its claims against all the defendants in this action in April 2011. Abbey/Land’s Rule 30(b)(6) designee, William Matteson, testified that also during this time Abbey/Land and Glacier signed an amendment to their general contract. The amendment eliminated the arbitration requirement and removed the prohibition against any award of consequential or punitive damages. The amendment stated that it was "entered into as of June 9, 2009," but counsel who represented Glacier in 2012 appeared not to be aware of the modification, and the amendment did not surface in this litigation until 2013. The District Court found that even if the amendment was executed in April 2011, "[i]t was not in [Glacier’s] interest to amend the General Contract to remove significant contractual protections" at that time, because Abbey/Land already had made demands against Glacier.

¶13 Abbey/Land filed its second amended complaint on September 23, 2011, naming Glacier as a defendant. Abbey/Land alleged that the defendants collectively had been negligent. The second amended complaint contained no specific allegations against Glacier; rather, all of Abbey/Land’s claims against Glacier were pass-through claims against the subcontractors. Four days after Abbey/Land filed the second amended complaint, attorney George Best filed a notice of appearance for Glacier and a motion to admit Jon E. Cushman pro hac vice on behalf of Glacier.

¶14 Glacier renewed its tender for defense to James River on October 5, 2011. James River again denied coverage, citing its prior denial. Other insurers provided Glacier...

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