Caldwell v. Clifford Cody Sabo, Also Known Constr., Inc.

• Decision Date: 27 August 2013
• Docket Number: No. DA 12–0766.,DA 12–0766.
• Citation: 308 P.3d 81,371 Mont. 328
• Parties: Vernon L. CALDWELL and Laura J. Caldwell, individually and by and through their attorney-in-fact Carrie Heller, Plaintiffs and Appellees, v. Clifford Cody SABO, also known as Cody Sabo, individually and doing business as Sabo Brothers Construction, Inc., a Montana Corporation, Defendants and Appellants.
• Court: Montana Supreme Court

371 Mont. 328

308 P.3d 81

Vernon L. CALDWELL and Laura J. Caldwell, individually and by and through their attorney-in-fact Carrie Heller, Plaintiffs and Appellees,

v.Clifford Cody SABO, also known as Cody Sabo, individually and doing business as Sabo Brothers Construction, Inc., a Montana Corporation, Defendants and Appellants.

No. DA 12–0766.

Supreme Court of Montana.

Submitted on Briefs: July 10, 2013.

Decided: Aug. 27, 2013.

For Appellant: Arthur V. Wittich, Margaret M. Reader; Wittich Law Firm, P.C.; Bozeman, Montana.

For Appellee: Loren J. O'Toole, Brad W. Fjeldheim; O'Toole Law Firm; Plentywood, Montana.

Justice LAURIE McKINNON delivered the Opinion of the Court.

[371 Mont. 329]¶ 1 Clifford Cody Sabo and Sabo Brothers Construction (collectively “the Sabos”) appeal from the order entered by the Seventh Judicial District Court, Richland County, granting a preliminary injunction against them in favor of Vernon L. and Laura J. Caldwell (“the Caldwells”). We reverse and remand for further proceedings consistent with this Opinion.

¶ 2 The Sabos present two issues on appeal:

¶ 3 1. Did the District Court err in granting a preliminary injunction pursuant to § 27–19–201, MCA?

¶ 4 2. Did the District Court err in waiving a written undertaking pursuant to § 27–19–306, MCA?

¶ 5 We will not address the Sabo's second issue because we have determined that the District Court erred in granting the Caldwells a preliminary injunction.

Factual and Procedural Background

¶ 6 The Caldwells own real property in Richland County which contains a rock substance known as scoria. Scoria is located in a relatively small portion of the United States including eastern Montana, northern Wyoming, and western North Dakota. See Farley v. Booth Bros. Land & Livestock Co., 270 Mont. 1, 4, 890 P.2d 377, 379 (1995). Although it is not considered a mineral, scoria is valuable in road construction—particularly roads used for oil and gas exploration. Farley, 270 Mont. at 5–8, 890 P.2d at 379–80.

¶ 7 On May 1, 2011, the Caldwells and the Sabos entered into a written lease agreement (“Lease”) for the excavation of scoria on the Caldwells' land. Specifically, the agreement granted the Sabos an exclusive “Right and Lease” to enter the Caldwells property to “strip, develop, process, explore, excavate, crush, stockpile and store, remove, and sell for its own account Scoria from the [Caldwells'] lands.” The Sabos agreed to pay the Caldwells “a royalty rate of $3.00 per yard for all Scoria sold from [the Caldwells'] land.” The Lease terminated on May 1, 2014, and was silent as to when royalty payments were to be made.

¶ 8 Until January 2012, the Sabos made periodic royalty payments to the Caldwells depending upon when the Sabos were able to sell the scoria and when their company was paid. The payments were neither monthly nor at regular intervals. Since entering into the Lease in May of 2011, the Caldwells have been paid more than $300,000 in royalties. However, between January 12, 2012, and August 9, 2012, the Caldwells did not receive any royalty payments at all. Cody Sabo testified that during this period scoria sales were either substantially decreased or non-existent.

¶ 9 On July 13, 2012, counsel for the Caldwells sent Cody Sabo a letter demanding payment for any mined scoria. Included with the letter was an addendum to the Lease which would require monthly royalty payments to the Caldwells. The Sabos did not sign the addendum; however, the Sabos made royalty payments to the Caldwells of $12,000 on August 9, 2012, $5,000 on August 19, 2012, and $8,000 in September 2012.

¶ 10 On September 17, 2012, the Caldwells filed their Complaint alleging that the Sabos breached the Lease by failing to pay royalties in a timely manner. The Complaint alleged that the Sabos sold 136,328 yards of crushed scoria as of June 11, 2012, for which the Sabos owe the Caldwells $408,984. The Caldwells acknowledged in their Complaint that they received payments totaling $268,678 from March 2011, to January 2012, and that they received payments of $12,000 on August 9, 2012, $5,000 on August 19, 2012, and $5,000 in late August 2012. Thus, the total amount of royalty payments received by the Caldwells from the Sabos was $290,678. The Caldwells claimed, however, that the Sabos still owe them an additional $118,306. The Caldwells have asserted claims of breach of contract, unjust enrichment, and conversion. The Caldwells request monetary damages and a permanent injunction against the Sabos to prevent the Sabos from removing scoria from their property.

¶ 11 In their Answer, the Sabos denied that they have not paid the Caldwells for the scoria sold. The Sabos asserted that the Lease was silent as to when and how royalties were to be paid and that they are not in breach of the Lease. The Sabos specifically contested the amount of royalties that the Caldwells claim is past due and owing.

¶ 12 On the same day the Caldwells filed their Complaint, they filed an application for a temporary restraining order and preliminary injunction to prevent the Sabos from entering the Caldwells' property and removing scoria. On September 27, 2012, the District Court issued a temporary restraining order and scheduled a show cause hearing. The order was subsequently modified to allow the Sabos to access the property for the limited purpose of removing their equipment.

¶ 13 The court conducted a show cause hearing on October 25, 2012. During the hearing, the unrefuted testimony of Vernon Caldwell was that the lawsuit was only about money. Specifically, Vernon Caldwell testified as follows:

Q: And isn't it also true that you filed this lawsuit because you believe that you haven't been paid all the royalties due you?

A: All the royalties have not been paid.

Q: And so isn't it true that's why you filed this lawsuit?

A: Yes.

...

Q: So this lawsuit is about the payment of money, correct?

A: Yes.

¶ 14 Cody Sabo testified that, at the time the temporary restraining order was issued, there were stockpiles on the Caldwells' property of approximately 20,000 cubic yards of crushed scoria valued at $320,000, and 30,000 cubic yards of processed sand valued at $300,000. Sabo further testified that he has been unable to access and sell these stockpiles because of the court's restraining order. Sabo described for the court the nature of a crushing/mining operation, characterizing his business as having significant “upfront” costs required to get a pit “up and running,” with benefits not acquired until near the end of the operation. Sabo testified that the operation was nearing the end on the Caldwells' property when the temporary restraining order was issued. Sabo also explained what some of the “upfront” costs of a scoria operation are:

A: Sir, you have to pay engineers for permitting; you have to pay a reclamation bond to the DEQ; you have to have all of your insurance in place which includes Unemployment, Worker's Comp, General Commercial Liability and other types of specialty crushing insurance; you have to have MSHA compliance. The list goes on and on.

Q: And you also have to get some equipment out there?

A: Yes, sir. We haven't even talked about the crushing equipment, the large scale heavy equipment. The diesel cost alone can be $70,000 a month sometimes.

Q: So this is basically a mining operation with a crushing operation as well?

A: Yes, sir.

Q: And heavy equipment is needed.

A: Yes, sir.

Sabo further testified that he can only pay the royalties from his sales:

Q: And when would you pay them?

A: I like to pay them when I can so that the company doesn't go bankrupt. I have a lot of bills to pay; I pay them all and keep the business operating and get them all of their money. I enjoy giving them money; it makes me happy.

Q: So do you have to wait until you actually sell the scoria?

A: Yes, sir; not only wait for that, but I also have to wait until the company has paid us, which at sometimes it's been as long as 10 months before we've received payment.

¶ 15 According to Sabo's testimony, the demand for scoria is very seasonal and the mining and production of scoria is accordingly “[e]xtremely competitive” and “opportunistic.” Sabo also testified that when “the oil companies release their bid packs, the location builders bid on that and thereby buy the scoria from us. So when they call, it's extremely seasonal. You have to be able to grab a sale when you can so to speak.”

¶ 16 The District Court determined that the Caldwells had made a prima facie case that the Sabos had not paid them for all the scoria sold. The District Court further found that the Caldwells would suffer irreparable injury, “for which money damages could not compensate,” and that restoration of the status quo once the scoria was removed would be unlikely. Although recognizingthat the Lease “is silent as to when the Sabos are to pay the Caldwells,” the District Court concluded that “the Sabos are violating the Caldwells' rights by prima facie selling scoria from the Caldwells' lands without paying the Caldwells the agreed-upon $3.00/yard of ‘all Scoria sold.’ ”

¶ 17 Applying the criteria in § 27–19–201, MCA, and the four-factor test set forth in Van Loan v. Van Loan, 271 Mont. 176, 895 P.2d 614 (1995), the District Court concluded that money damages would not adequately compensate the Caldwells and that enjoining the alleged unpaid depletion of the Caldwells' scoria was an appropriate remedy. The District Court thereupon entered its written order enjoining the Sabos from hauling or selling any scoria from the Caldwells' land and, “in the interest of justice,” waived the requirement that the Caldwells file a written undertaking. The Sabos appeal.

Standard of Review

¶ 18 An order granting an injunction is immediately appealable, notwithstanding that the merits of the controversy remain to be determined. M.R.App. P. 6(3)(e). District courts are vested with a high degree of discretion to grant or deny preliminary injunctive relief....