Nerco Minerals Co. v. Morrison Knudsen Corp.

• Decision Date: 31 March 1999
• Docket Number: No. 24152,24152
• Court: Idaho Supreme Court
• Parties: NERCO MINERALS COMPANY and Nerco Delamar Company, now doing business as Kinross Delamar Company, Plaintiffs-Appellants, v. MORRISON KNUDSEN CORPORATION and Morrison Knudsen Engineers, Inc., Defendants-Respondents. Boise, December 1998 Term

Page 457

976 P.2d 457

132 Idaho 531

NERCO MINERALS COMPANY and Nerco Delamar Company, now doing business as Kinross Delamar Company, Plaintiffs-Appellants, v. MORRISON KNUDSEN CORPORATION and Morrison Knudsen Engineers, Inc., Defendants-Respondents.

No. 24152.

Supreme Court of Idaho,

Boise, December 1998 Term.

March 31, 1999.

Stoel Rives and McDevitt & Miller, Boise, for appellants. Chas. F. McDevitt argued.

Hawley, Troxell, Ennis & Hawley, Boise, for respondents. Eugene A. Ritti argued.

TROUT, Chief Justice.

Nerco Minerals Company (Nerco) appeals from the district judge's decision dismissing its complaint under I.R.C.P. 4(a)(2). Nerco filed suit against Morrison Knudsen Corporation and Morrison Knudsen Engineers (collectively "MK") in federal and state court. Nerco served MK with a copy of the federal complaint. In an apparent attempt to avoid the cost of defending a motion to dismiss under I.R.C.P. 12(b)(8), Nerco chose not to serve a copy of the state complaint within the period set forth in I.R.C.P. 4(a)(2). Consequently, the district judge dismissed Nerco's state action.

I. FACTUAL AND PROCEDURAL HISTORY

Nerco contracted with MK to design a heap leach pad for Nerco's mine in Owyhee County. Nerco alleges the heap leach pad failed causing damages so severe that its mine was rendered useless. On November 24, 1993, Nerco filed complaints in federal district court and in state district court. The same day Nerco served MK with a copy of the federal complaint but not the state complaint. The case proceeded in federal court.

On June 20, 1995, District Judge Dennis E. Goff issued a notice of proposed dismissal of the state action due to lack of activity pursuant to I.R.C.P. 40(c). Nerco filed, under seal, an affidavit and memorandum in response. Nerco explained that it was also pursuing the same action in federal court. Nerco claimed it believed federal diversity jurisdiction existed, ¹ but if that belief proved false it also filed a complaint in state court to toll the statute of limitations. Because Nerco was actively pursuing the action in federal court at the time, Nerco argued that good cause existed for the state court to retain the case and that doing so was well within the court's discretion.

Judge Goff issued an order allowing Nerco fourteen days to file proof of service. Nerco filed a second affidavit and memorandum under seal. Without directly explaining why it did not want to serve MK with a copy of the state complaint other than not to reveal the potential jurisdictional problem, Nerco argued that where good cause exists, neither Rule 40(c) nor Rule 4(a)(2) require service of process. For the same reasons it argued before, Nerco asserted good cause existed for the court to retain the case. Judge Goff issued a second order retaining the case on the court's calendar for six months.

In September 1995, MK filed a motion to dismiss the federal claim for lack of subject matter jurisdiction. Nerco met with MK to discuss staying the federal action and continuing the litigation in state court. MK rejected the proposal. Nerco then filed a motion to stay the federal action which the federal court denied. As a result, Nerco agreed to voluntarily dismiss the federal action in exchange for MK's agreement to waive its right to attorney fees and costs. In October 1995, Nerco served MK with a copy of the state court complaint, nearly two years after Nerco originally filed the complaint in Owyhee County.

MK responded by filing a motion to transfer venue to Ada County or, alternatively, to dismiss the state action pursuant to I.R.C.P. 4(a)(2). In a May 21, 1996, order Judge Goff granted MK's motion to transfer venue without ruling on MK's motion to dismiss. Judge Goff stated that he did not condone Nerco's "judicial maneuvering," further noting that Nerco should have served MK with a copy of the state complaint and then moved to stay the state action pending the outcome of the federal proceedings. Judge Goff also indicated that throughout the state court proceedings, he had never directly ruled on a motion to dismiss under I.R.C.P. 4(a)(2). Consequently, the litigation was transferred to Ada County where Judge Neville was assigned the case.

Immediately upon transfer, MK renewed its motion to dismiss pursuant to I.R.C.P. 4(a)(2). After resolving some concerns about bankruptcy proceedings involving MK, Judge Neville granted the motion and dismissed the case without prejudice. Judge Neville found that Judge Goff had never ruled on a motion to dismiss under I.R.C.P. 4(a)(2) and that Judge Goff's rulings were limited to I.R.C.P. 40(c). Moreover, the district judge concluded that the determination of good cause under 4(a)(2) differs from that under 40(c). To avoid defending a motion to dismiss under I.R.C.P. 12(b)(8), Nerco intentionally chose not to serve MK with a copy of the state complaint within the time frame required by I.R.C.P. 4(a)(2). Judge Neville reasoned that Nerco's motivation does not constitute good cause under 4(a)(2). Nerco should have served MK with a copy of the state complaint and then filed a motion to stay the state proceedings pending a jurisdiction determination by the federal court.

Nerco appeals, and both parties request attorney fees on appeal.

II. STANDARD OF REVIEW

Rule 4(a)(2) requires a party to serve a copy of the complaint within six months of filing. Unless the party can show good cause for failure to serve within those six months, a court must dismiss the action without prejudice. I.R.C.P. 4(a)(2). This Court has recently noted that a determination of whether good cause, under Rule 4(a)(2), exists is a factual one. Sammis v. Magnetek, Inc., 130 Idaho 342, 346, 941 P.2d 314, 316 (1997). Consequently, when reviewing a decision dismissing a case under that Rule, "the appropriate standard of review is the same as that used to review an order granting summary judgment." Id. This Court will liberally construe the record in favor of Nerco and draw all reasonable inferences and conclusions in its favor. See Farm Credit Bank of Spokane v. Stevenson, 125 Idaho 270, 869 P.2d 1365 (1994).

III. DISCUSSION

Nerco filed a complaint against MK in state court on November 24, 1993. Nerco did not serve MK with a copy of that complaint until October 1995. The relevant portion of Rule 4(a)(2), as it existed when Nerco filed the state complaint provided:

If service of the summons and complaint is not made upon a defendant within six (6) months after the filing of the complaint and the party on whose behalf such service was required cannot show good cause why such service was not made within that period, the action shall be dismissed as to that defendant without prejudice.

I.R.C.P. 4(a)(2) (1994). Dismissal is mandatory unless a plaintiff can show good cause for failing to serve. Sammis, 130 Idaho at 346, 941 P.2d at 318. In analyzing whether the plaintiff had good cause, this Court must focus on the six-month period beginning the date the complaint was filed. Id. Thus, for the purpose of this case, the relevant time period is between November 24, 1993, and May 24, 1994. Moreover, whether the defendant suffered prejudice is irrelevant in determining if the plaintiff had good cause. Id. Instead this Court must, considering the totality of the circumstances, determine whether the plaintiff had a legitimate reason for not serving the defendant with a copy of the state complaint during the relevant time period. Telford v. Mart Produce, Inc., 130 Idaho 932, 950 P.2d 1271 (1998). Furthermore, the defendant's knowledge of the claim and complaint is irrelevant to a determination of good cause. Id. at 934, 950 P.2d at 1273.

A. Applicable Standard for Good Cause

I.R.C.P. 40(c)

Nerco argues that Judge Neville erred in granting MK's motion to dismiss for late service. Nerco argues that its decision not to serve MK was consistent with an established practice at the time; that is, when a plaintiff files a complaint in federal court and there is any question about federal jurisdiction that plaintiff files a parallel complaint in state court to prevent the statute of limitations from running. Nerco argues that it was also established practice not to serve the defendant with a copy of the state court complaint. Service, according to Nerco, only creates the possibility that the defendant will seek dismissal of the state action under I.R.C.P. 12(b)(8) based on the pending federal litigation. So long as the defendant had notice of the federal action, the defendant suffers no prejudice if later required to defend the same action in state court. Moreover, Nerco contends that the case law existing at the time Nerco filed the complaint suggested that, had it served MK, its state action would have been dismissed.

Addressing Sammis and Telford, Nerco argues that the good cause standard set forth in those decisions should not be applied to this case. Instead, Nerco asks that this Court apply the good cause standard applied under I.R.C.P. 40(c). Citing this Court's decision in Chacon v. Sperry Corporation, 111 Idaho 270, 723 P.2d 814 (1986), Nerco asserts that because it reasonably relied on an established procedural practice, the Sammis decision should not be retroactively applied to this case.

Nerco contends that before this Court's decision in Sammis, there was no indication that the good cause provision in the recently amended Rule 4(a)(2) differed in application from the good cause provision in Rule 40(c). Under Rule 40(c), the trial court has broad discretion when deciding whether to retain or dismiss inactive cases. See, e.g., Madsen v. Nuxoll, 120 Idaho 530, 531, 817 P.2d 196, 197 (Ct.App.1991). Citing a list of state court decisions, Nerco argues that state courts, before Sammis, "believed that issues such as prejudice and notice to the defendant would remain at the core of the inquiry regarding 'good cause.' " Consequently, Nerco's reliance on the established practice at the time was reasonable.

In Chaco...