Kraft v. High Country Motors, Inc.

• Decision Date: 17 April 2012
• Docket Number: No. DA 11–0473.,DA 11–0473.
• Citation: 276 P.3d 908,364 Mont. 465,2012 MT 83
• Parties: Raleigh KRAFT, Plaintiff, Appellee and Cross–Appellant, v. HIGH COUNTRY MOTORS, INC., and Mitchell A. Rider; et al., Respondents and Appellants.
• Court: Montana Supreme Court

364 Mont. 465

276 P.3d 908

2012 MT 83

Raleigh KRAFT, Plaintiff, Appellee and Cross–Appellant,

v.HIGH COUNTRY MOTORS, INC., and Mitchell A. Rider; et al., Respondents and Appellants.

No. DA 11–0473.

Supreme Court of Montana.

Submitted on Briefs Feb. 29, 2012.

Decided April 17, 2012.

For Appellants: Charles H. Carpenter, Carpenter Law Firm, PLC, Missoula, Montana.

For Appellee: Trent N. Baker, Datsopoulos, MacDonald & Lind, P.C., Missoula, Montana.

Justice JAMES C. NELSONdelivered the Opinion of the Court.

[364 Mont. 466]¶ 1 High Country Motors, Inc. (HCMI) and Mitchell Rider appeal an Order of the District Court for the Fourth Judicial District, Missoula County, imposing a default judgment against them as a discovery sanction.We affirm in part, reverse in part and remand for further proceedings consistent with this Opinion.

¶ 2Appellants raise the following issues on appeal:

1.Whether the District Court abused its discretion when it entered a default judgment for Raleigh Kraft as a discovery sanction.

2.Whether the District Court abused its discretion when it refused to set aside the sanction orders.

3.Whether the District Court erred as a matter of law in calculating damages.

¶ 3 In addition, Kraft raises the following issue by way of cross-appeal:

4.Whether the District Court failed to properly calculate and award prejudgment interest.

Factual and Procedural Background

¶ 4 Kraft is a financial advisor residing in Virginia.He spent part of his childhood in eastern Montana where he became acquainted with Rider.Rider is a used car salesman and the sole shareholder of HCMI, a used car dealership.

¶ 5 In 2006, Kraft and Rider entered into a verbal agreement to buy and then resell a motor coach.The agreement required Rider to travel from Missoula to an auction in Arizona and purchase the motor coach with funds that Kraft borrowed from the bank.Kraft would then fly from his home in Virginia to Arizona to pick up the motor coach and use it for the summer season.

¶ 6 The motor coach was to be titled and insured by Kraft using Rider's Missoula business address.Rider and Kraft were to alternate making payments on the loan until they sold the motor coach at the end of the season.When the motor coach was sold, the loan was to be repaid, and Kraft was to recover his out-of-pocket expenses related to the purchase.Rider was to keep any remaining funds to reimburse his out-of-pocket expenses and to provide his profit.

¶ 7 The particular motor coach Kraft and Rider were interested in had a minimum bid price of $430,000.Kraft applied for a loan for that amount, which was approved by the bank.The bank issued a check made payable to HCMI, Rider's car dealership.Rider went to the Arizona auction and purchased the motor coach.Because no one else bid on the coach, Rider was able to get it for $360,000 plus a buyer's fee of $2,300 and a $5,000 finder's fee paid to the individual who located the motor coach at auction.Rider did not inform Kraft of the discounted price.Kraft picked up the motor coach, took it to Virginia, and used it for the 2006 summer season.

¶ 8 When Rider picked up the motor coach in the fall of 2006, it was in terrible shape.Because it was still under warranty, the manufacturer was willing to do extensive repairs on it.Hence, the motor coach was fully reconditioned and Kraft picked it up in Oregon in May 2007.In a letter dated June 6, 2007, Kraft informed Rider that Kraft intended to use the motor coach for the 2007 summer season as well.

¶ 9 Kraft discovered the true purchase price of the motor coach when the individual who located it at auction contacted Kraft about a potential buyer.Kraft maintains that because of the inflated loan amount, Kraft has never been able to sell the motor coach for more than what he owed on it.Consequently, he has continued to make payments on the motor coach.

¶ 10 Kraft brought suit against Rider, HCMI and the bank on December 20, 2007, asserting claims of breach of contract, fraud, negligent misrepresentation, negligence, conspiracy and unjust enrichment.Rider and HCMI engaged Paul Cooley of Skelton & Cooley to defend them in the action.

¶ 11 In February 2008, Kraft served discovery on both Rider and HCMI, requesting, among other things, various tax records and financial data.Over the next several months, Rider and HCMI produced some of the requested information while asserting that other information was not relevant or that discovery was unduly burdensome.Deeming their responses insufficient, Kraft filed a motion in May 2010 requesting the District Court compel Rider and HCMI to produce the information and documents sought in discovery.Thereafter, Rider and HCMI filed a Motion for a Protective Order and to Limit the Scope of Discovery.

¶ 12The District Court granted Kraft's motion to compel and denied Rider's and HCMI's motion for a protective order on November 22, 2010.The court ordered that Rider and HCMI provide the requested documents and responses to the interrogatories, but the court did not give a specific deadline for compliance.According to Rider, he worked with Cooley's paralegal to provide everything that Kraft requested.Rider also asserts that Cooley never informed him that he needed to produce additional information, nor did Cooley seek an extension of time to allow Rider to produce additional information.

[364 Mont. 469]¶ 13 On December 28, 2010, Kraft filed a motion for sanctions for failure to comply with the District Court's order.Thereafter, Cooley provided Kraft with supplemental discovery responses, but Kraft's counsel continued to assert that the discovery responses were inadequate because certain tax returns had not been provided.On February 14, 2011, the District Court granted Kraft his attorneys' fees as a sanction against Rider and HCMI, but denied Kraft's request that default judgment be entered in his favor.The court noted that it would not enter a default judgment provided that Rider and HCMI fully complied with the order to compel within 20 days.

¶ 14 On February 22, 2011, Cooley moved to set aside the District Court's order arguing that the District Court failed to hold a hearing on the matter; that Cooley's failure to comply was excusable because he was in the process of closing his practice in Montana and move out of State; and that Kraft had not shown that the supplemental discovery responses were inadequate.Thereafter, Cooley notified opposing counsel that he intended to withdraw as counsel for Rider and HCMI, and that he would be filing a notice under Uniform District Court Rule 10, along with a motion for an extension of time due to his withdrawal.

¶ 15The District Court set a status conference for March 15, 2011.Neither Cooley nor anyone else appeared on behalf of Rider or HCMI at that conference.The District Court set a new status conference for March 22, 2011, and ordered Cooley to appear.Again Cooley did not attend.Instead, Dan Cahalan appeared for Rider and HCMI; however, Cahalan notified the court that Cooley was not actually withdrawing, and that Cahalan would be acting as local counsel since Cooley was now living in Arizona.Cahalan requested a stay while he familiarized himself with the matter, and the court agreed to continue the matter for two weeks.

¶ 16 Kraft filed a renewed motion for sanctions on April 1, 2011, claiming that “Rider and HCMI's discovery abuse and recent shenanigans have caused further delay and expense.”Another status conference was held on April 5, 2011.Cooley did not attend despite the District Court's specific request that he do so.Instead, Rider and HCMI were represented by Cahalan who characterized himself as “the cardboard cut-out.”Cahalan asked the court to schedule a hearing on the pending motions on a date when Cooley would be available.The court closed the status conference without setting a new date for a hearing.Immediately after the status conference, Cahalan served supplemental discovery responses on Kraft.In addition, Cahalan filed and served a demand that Kraft clarify exactly what deficiencies he claimed still existed in the discovery responses.

¶ 17 On April 11, 2011, the District Court denied Rider's and HCMI's motion to set aside the February 14, 2011 order regarding sanctions, and entered default judgment against them.The court noted in its order that the supplemental discovery responses filed by Rider and HCMI on April 5, 2011, came too late to avoid an imposition of the sanctions described in the court's February 14, 2011 order.

¶ 18 Cahalan filed a motion on April 15, 2011, requesting that the court set aside this order on the basis that counsel's failure to meet the discovery deadlines was caused by the collapse of Cooley's law practice and amounted to excusable neglect.Rider and HCMI subsequently engaged new counsel who filed a second motion to set aside the April 11, 2011 order.In this second motion, filed on May 2, 2011, Rider submitted a lengthy affidavit pointing out that the discovery violations were trivial, and that they were attributable to Cooley and not to any intentional conduct by Rider or HCMI.In addition, according to Rider and HCMI, their new counsel was able to find the missing tax returns by contacting the son of HCMI's deceased prior accountant, and provide them to Kraft.

¶ 19The District Court denied this second motion in an Opinion dated June 3, 2011.The court noted that this motion was untimely because it was not filed within 10 days of the court's April 11, 2011 order pursuant to M.R. Civ. P. 59(e).¹With respect to the argument that the default judgment was unjust because it punished Rider and HCMI for Cooley's gross neglect, the court held that the appropriate standard is that neglect of an attorney is attributable to the client unless the attorney completely abandoned the client.Finding that Cooley had not abandoned Rider and HCMI, the court denied the second motion.In addition, the court...