Ammondson v. Northwestern Corp., DA 07-0243.

• Docket Nº: No. DA 07-0243.
• Citation: 353 Mont. 28, 220 P.3d 1, 2009 MT 331
• Case Date: October 13, 2009
• Court: United States State Supreme Court of Montana

220 P.3d 1 2009 MT 331 353 Mont. 28 Lester E. AMMONDSON, Catherine Couture (as surviving spouse of James W. Couture), Sherwood Christensen, W. Stephen Dee, Charles Guilder, John A. Lahr, Edmond Magone, Elmer Meldahl, John S. Miller, Roger L. Rawls, C. Daniel Regan, Allen T. Smith, George A. Thorson, John B. Van Gelder, and Wilhelmus C. Verbael, Plaintiffs and Appellees,
v.
NORTHWESTERN CORPORATION, and Gary G. Drook, Michael J. Hanson, Roger P. Schrum, Keith Kovash, and Kendall G. Kliewer, all as individuals and as corporate officers of Northwestern Corporation, Defendants and Appellants. No. DA 07-0243. Supreme Court of Montana. Submitted on Briefs July 15, 2009. Decided October 13, 2009. Rehearing Denied December 2, 2009.

[220 P.3d 5]

For Appellants: John Alke, Elizabeth S. Baker, Hughes, Kellner, Sullivan & Alke, PLLP, Helena, Montana, W. Wayne Harper, Attorney at Law, Butte, Montana.

For Appellees: A. Clifford Edwards, Triel D. Culver, Edwards, Frickle, Anner-Hughes & Culver, Billings, Montana.

Justice PATRICIA O. COTTER delivered the Opinion of the Court.

¶ 1 Defendants Northwestern Corporation (Northwestern), Gary G. Drook (Drook), Michael J. Hanson (Hanson), Roger P. Schrum (Schrum), Keith Kovash (Kovash), and Kendall G. Kliewer (Kliewer) (collectively Defendants), appeal from a jury verdict rendered against them in the Second Judicial District Court, Silver Bow County. The jury awarded the plaintiffs approximately $17.5 million dollars in compensatory damages, and $4 million dollars in punitive damages based on a claim for breach of contract, and the torts of breach of the covenant of good faith and fair dealing, abuse of process, and malicious prosecution. We affirm the jury's verdict.

PROCEDURAL AND FACTUAL BACKGROUND

¶ 2 Lester E. Ammondson (Ammondson), Sherwood Christensen (Christensen), W. Stephen Dee (Dee), Charles Gilder (Gilder), John A. Lahr (Lahr), Edmond Magone (Magone), Elmer Meldahl (Meldahl), John S. Miller (Miller), Roger L. Rawls (Rawls), C. Daniel Regan (Regan), Allen T. Smith (Smith), George A. Thorson (Thorson), John B. Van Gelder (Van Gelder), Wilhelmus C. Verbael (Verbael), and James Couture (Couture)¹ (collectively Retirees), were all former employees of the Montana Power Company (MPC), a Montana-based public utility company. These individuals had been employed with MPC for periods ranging from 3 to 40 years. Each of these plaintiffs left MPC after entering into separate agreements with MPC which provided them monthly payments to supplement their regular retirement plans. The agreements were known as "Top Hat Contracts," a term derived from the Employee Retirement Income Security Act. The combined value of these individual Top Hat Contracts was approximately $2.9 million dollars.

¶ 3 Northwestern is a Delaware corporation that currently operates as a public utility in Montana. In 2002, Northwestern purchased MPC's transmission and distribution assets. Northwestern hired the law firm of

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Paul, Hastings, Janofsky & Walker, LLP (Paul Hastings) to facilitate the purchase. In the course of its purchase of MPC, Northwestern assumed responsibility for the Top Hat Contracts in a unit purchase agreement (UPA), which specifically stated that Northwestern would maintain and be responsible for all current and future obligations of MPC as they related to any supplemental pension benefit or benefit replacement restoration plan, program, or individual agreement which had been maintained by MPC.

¶ 4 In September 2003, Northwestern filed for Chapter 11 reorganization in United States Bankruptcy Court in the Federal District of Delaware. The Paul Hastings law firm continued to provide Northwestern with legal representation during this time. When it filed for bankruptcy, Northwestern had several thousand potential creditors. In bankruptcy proceedings, Northwestern reviewed the contracts held by these creditors to determine if it would assume or reject them. If the contracts were assumed, their terms would be honored; if they were rejected, then the holders of those contracts would become general unsecured creditors and likely receive general, unsecured stock in the reorganized Northwestern. Northwestern did not provide notice to the holders of the Top Hat Contracts that it would reject their contracts during bankruptcy and seek to treat them as general, unsecured creditors. Instead, Northwestern continued to pay the Retirees under the terms of the Top Hat Contracts throughout bankruptcy proceedings in Delaware.

¶ 5 On October 19, 2004, the bankruptcy court confirmed Northwestern's Chapter 11 bankruptcy reorganization plan (Plan). The effective date of the Plan was November 1, 2004, at which time Northwestern officially emerged from bankruptcy as a reorganized entity. On December 30, 2004, Northwestern filed a notice of substantial confirmation of the Plan in Federal District Court in Delaware.

¶ 6 On January 1, 2005, Northwestern, without giving any prior notice to any of the Retirees, ceased making payments to them under the Top Hat Contracts.² Although some of the Retirees immediately contacted Northwestern in an attempt to discover why their payments had stopped, Northwestern failed to provide them with any answers. On January 26, 2005, Kovash, who was Northwestern's director of benefits, informed the Retirees in writing that it had discontinued payment under their Top Hat Contracts in connection with its plan of reorganization. Furthermore, Northwestern advised the Retirees that it anticipated filing a motion in bankruptcy court to terminate the Top Hat Contracts and that upon receipt of the motion, the Retirees should contact a legal advisor.

¶ 7 On January 31, 2005, Northwestern filed a motion to terminate the Top Hat Contracts in bankruptcy court in the Federal District of Delaware. After the filing of the motion in bankruptcy court, the Retirees were able to obtain Montana counsel, the Edwards Law Firm of Billings, to represent them in this matter. The Edwards Law Firm in turned hired local counsel in Delaware to represent the Retirees in federal bankruptcy court. On March 31, 2005, the Retirees filed an objection and response to Northwestern's motion to terminate the Top Hat Contracts. The Retirees sought to have Northwestern's motion dismissed on the grounds that the bankruptcy court did not have jurisdiction to entertain the motion since none of the Retirees had been listed as secured or unsecured creditors prior to Northwestern's reorganization during bankruptcy proceedings. Additionally, the Retirees counterclaimed against Northwestern for breach of contract, breach of the covenant of good faith and fair dealing, and abuse of process.

¶ 8 On March 31, 2005, the Retirees also filed a claim for compensatory and punitive damages against Northwestern, Drook, Hanson, Schrum, Kovash, and Kliewer in the Second Judicial District Court, Silver Bow County. This state complaint was later amended to add Paul Hastings as a defendant

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based on its actions in advising Northwestern in federal bankruptcy court proceedings against the Retirees. In the state complaint, the Retirees alleged that these defendants had committed breach of contract, breach of the covenant of good faith and fair dealing, tortious interference with contracts, abuse of process, and fraudulent conduct, by virtue of their actions in stopping payment under the Top Hat Contracts without notice, and then filing a motion to terminate those contracts in bankruptcy court after Northwestern had already finalized its reorganization under Chapter 11. The day prior to filing the state complaint, counsel for the Retirees notified Northwestern's counsel in writing as to the contents of the complaint and its intent to file suit in Montana, but also stated that he would hold off on serving the complaint on Northwestern until the bankruptcy court in Delaware had an opportunity to rule on the Retirees' response to Northwestern's motion to terminate.

¶ 9 On April 25, 2005, Northwestern filed a complaint against the Retirees in federal bankruptcy court in Delaware. In the complaint, Northwestern named itself as a plaintiff, and each of the Retirees as defendants. Contemporaneously, Northwestern also filed a motion for an order to show cause against the Retirees, and sought a preliminary injunction against their action in state court in Montana. Pursuant to Northwestern's motion, the Delaware federal bankruptcy court, Hon. John L. Peterson presiding, issued an order to show cause against the Retirees, and stayed all state court proceedings until the bankruptcy court could rule on the matter.

¶ 10 On May 3, 2005, Judge Peterson held a hearing on the pending motions and complaint before the bankruptcy court. Both Northwestern and the Retirees were represented by counsel, with some of the Retirees flying from Montana to attend the proceedings. The next day, Judge Peterson issued his ruling, dismissing Northwestern's motion to terminate and concluding that the bankruptcy court was without jurisdiction to entertain Northwestern's motion. In his written order, Judge Peterson noted that on December 30, 2004, Northwestern had filed a notice with the bankruptcy court of "substantial consummation of the Plan, meaning all matters required to be done under the Plan, and pursuant to the Plan, had been accomplished. Nowhere are the claims of the [Retirees] recognized as affecting consummation or implementation of the Plan." Judge Peterson further observed that specific language in the confirmed Plan contemplated that any disputes relating to issues concerning contractual and fiduciary duties owed by Northwestern to other parties (such as the Top Hat Contracts and corresponding duties owed to the Retirees by Northwestern) would be resolved in a forum outside of federal bankruptcy court. Third, Judge Peterson noted that under the Plan Northwestern was required to make appropriate filings in bankruptcy court if it wished to...