Kelso v. Lance

• Decision Date: 03 March 2000
• Docket Number: No. 25413.,25413.
• Citation: 3 P.3d 51,134 Idaho 373
• Court: Idaho Supreme Court
• Parties: Starr KELSO and Jon Irwin, individually, and Kelso & Irwin, P.A., a professional corporation, Plaintiffs-Appellants, v. Alan G. LANCE, Attorney General for the State of Idaho; State of Idaho, Jane Does A-Z; John Does A-Z, Entities I-V, Defendants-Respondents.

3 P.3d 51

134 Idaho 373

Starr KELSO and Jon Irwin, individually, and Kelso & Irwin, P.A., a professional corporation, Plaintiffs-Appellants, v. Alan G. LANCE, Attorney General for the State of Idaho; State of Idaho, Jane Does A-Z; John Does A-Z, Entities I-V, Defendants-Respondents.

No. 25413.

Supreme Court of Idaho. Boise, November 1999 Term.

March 3, 2000.

Rehearing Denied May 10, 2000.

Scott W. Reed, Coeur d'Alene, for appellants.

Hon. Alan G. Lance, Attorney General, Boise; Paine, Hamblen, Coffin, Brooke & Miller, Coeur d'Alene, for respondents. Peter C. Erbland argued.

KIDWELL, Justice.

Plaintiff attorneys represented the Industrial Special Indemnity Fund (ISIF) pursuant to a contract with the Attorney General's Office. When these attorneys filed a notice of tort claim on behalf of private clients against the State Insurance Fund (SIF), the Attorney General characterized it as a conflict of interest. When the attorneys refused to choose between representing their private clients and the ISIF, the Attorney General withdrew their appointments as special deputy attorneys general. The district court granted summary judgment to the Attorney General. We affirm.

I. FACTS AND PROCEDURAL HISTORY

The Attorney General of the State of Idaho provides legal representation to a number of state entities, among them are the ISIF and the SIF. To assist in this representation, the Attorney General appoints private attorneys as special deputy attorneys general. This appeal involves two of these appointed attorneys.

On June 16, 1995, Starr Kelso and Jon Irwin submitted a proposal on forms provided by the State, for legal services with the Attorney General's office. The proposal was to represent the ISIF as a special deputy attorney general. To determine any possible conflicts of interest, the proposal form included a request for information on current clients B it explained:

Any offeror selected for this appointment will be precluded from representing any client in any matter against the State of Idaho, its officers, or agencies unless a written waiver is first obtained from the Attorney General.

In response both Kelso and Irwin listed four clients each, all regarding workers' compensation cases.

On August 15, 1995, Kelso was notified that his proposal to represent the ISIF had been approved by the Board of Examiners. On October 27, 1995, Irwin was similarly notified that he had also been selected. On September 29, 1995, Kelso was appointed as a special deputy attorney general to represent the ISIF. Irwin was appointed on October 27, 1995.

Because of the sporadic nature of their legal representation of the ISIF, Kelso and Irwin routinely took private client cases. On January 2, 1996, Kelso and Irwin filed a notice of tort claim of behalf of two private corporations against the SIF.

On February 9, 1996, The Attorney General wrote Kelso and Irwin to inform them that he considered it a conflict of interest to represent the ISIF while representing clients adverse to the SIF. The letter informed Kelso and Irwin that the Attorney General did not intend to grant a waiver to allow the conflict. The letter concluded that Kelso and Irwin would need to choose between continuing as counsel for the SIF or as counsel for the tort claimants against the SIF. If the latter were chosen, the Attorney General would withdraw Kelso and Irwin's appointments as special deputy attorneys general.

Kelso responded on February 15, 1996. He began by pointing out that his representation of the tort claimants was actually for the benefit of the SIF "in addressing significant problems that have statewide impact." Kelso noted that one of the conflicts listed in his proposal was for a similar case; and he assumed that since he had been appointed, that the Attorney General did not consider it a conflict. Concluding that he did not intend to discontinue representing the tort claimants, Kelso invited the Attorney General to "just FAX, or mail, me a note" to indicate that his appointment as a special deputy attorney general had been terminated.

By letter of February 21, 1996, the Attorney General terminated Kelso and Irwin's appointments. The letter indicated that the reason for the termination was Kelso's insistence on representing the tort claimants against the Idaho SIF.

Kelso and Irwin filed suit against the Attorney General, the State of Idaho, and other unnamed individuals and entities (the defendants) on June 27, 1996. Their complaint alleged violations under the Idaho Protection of Public Employees Act (Idaho Whistle-blower Act), 42 U.S.C. § 1983 (civil rights violation), breach of contract, and wrongful discharge. On August 15, 1996, Kelso and Irwin filed an amended complaint which alleged the same violations.

The defendants answered by filing a motion to dismiss the complaint pursuant to I.R.C.P. 12(b)(6), failure to state a claim upon which relief may be granted. Kelso and Irwin responded by filing a motion to convert defendants' 12(b)(6) motion to a motion for summary judgment, which would allow both sides to submit further briefs and memoranda. The district court granted the motion.

On January 28, 1998, the district court entered its memorandum opinion and order on defendants' motion to dismiss defendant's motion for summary judgment. The district court dismissed the § 1983 claims against the State of Idaho and the Attorney General in his official capacity. However, the court determined that there was a material issue of fact as to whether Attorney General Lance's conduct, as an individual, violated Kelso and Irwin's First Amendment rights.

The district court also dismissed Kelso and Irwin's claims of beach of contract because it found that the SIF was a state agency according to Idaho case law. The court further dismissed Kelso and Irwin's wrongful termination claims. Following the district court's decision, the parties entered a stipulation for conditional dismissal and entry of judgment pursuant to I.R.C.P. 41(a)(1). On March 18, 1999, Kelso and Irwin filed a notice of appeal, seeking a review of the district court's grant of summary judgment.

II. STANDARD OF REVIEW

On appeal from the grant of a motion for summary judgment, this Court employs the same standard as used by the district court originally ruling on the motion. Scona Inc. v. Green Willow Trust, 133 Idaho 283, 286, 985 P.2d 1145, 1148 (1999). Summary judgment is proper "if the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." I.R.C.P. 56(c). This Court liberally construes all disputed facts in favor of the non-moving party, and draws all reasonable inferences and conclusions supported by the record in favor of the party opposing the motion. Cook v. State, Dept. of Transp., 133 Idaho 288, 294, 985 P.2d 1150, 1156 (1999). If reasonable people could reach different conclusions or draw conflicting inferences from the evidence, the motion must be denied. Id. However, if the evidence reveals no disputed issues of material fact, the trial court should grant the motion for summary judgment. Id.

III. ANALYSIS

The State Insurance Fund Is A State Agency For The Purpose Of Evaluating Whether Kelso And Irwin Created A Conflict Of Interest By Filing A Claim Against The SIF While Representing The ISIF.

Kelso and Irwin argue that the SIF is not a state agency but rather merely a mutual insurance carrier. They assert that since it is not a state agency, they did not breach their contract with the Attorney General by creating a conflict of interest.

Interestingly, both sides and the district court agree that the Idaho case of State v. Musgrave, 84 Idaho 77, 370 P.2d 778 (1962), is controlling and dispositive. In Musgrave, the issues presented were whether the manager of the SIF could make payments for legal services out of SIF funds without legislative appropriation, and whether anyone other than the Attorney General could represent the SIF in front of the Industrial Accident Board. Id. at 80-81, 370 P.2d at 779. As manager of the SIF, Musgrave had made payments from the SIF account to one of the attorneys who had represented the SIF (Coughlan). Id. at 81, 370 P.2d at 780. At the time, the State Insurance Fund manager would sign sight drafts, which were then paid out by the State Treasurer from the rotary fund, which was in turn repaid from the SIF. Id. at 83, 370 P.2d at 781. The State Auditor brought suit against Musgrave for making the payments of state funds without an appropriation by the Legislature. Id.

In its holding, the Court first determined that Coughlan was an independent contractor of the SIF, rather than an employee. This was because the agreement between Coughlan and Musgrave provided that Coughlan would represent the SIF on matters that were referred to him by Musgrave, and then bill the SIF for the fees generated on each individual case. Id. at 81, 370 P.2d at 780.

The Court then went on to define the nature of the SIF as "an agency of the state created for the purpose of carrying on and effectuating a proprietary function as distinguished from a governmental function." Id. at 85, 370 P.2d at 782. Furthermore, "It serves a `public purpose' but not a 'governmental purpose.'" Id. The Court then quoted from decisions by several other states with similar funds to show that the money in the SIF is not state money and could be disbursed without legislative appropriation. Id.

One of the decisions quoted by the Court was the Minnesota Supreme Court case of Senske v. Fairmont & Waseca Canning Co., 232 Minn. 350, 45 N.W.2d 640 (1951). This Court quoted Senske that "it is erroneous to assume that an employee's [sic] claim for total disability benefits from the special fund is in the nature of a claim against the state." Id. at 645-46. Kelso and Irwin draw upon this quote to show that their claim...