Nicholson v. United Pacific Ins. Co.

Decision Date17 December 1985
Docket NumberNo. 84-247,84-247
Citation42 St.Rep. 1822,219 Mont. 32,710 P.2d 1342
CourtMontana Supreme Court
PartiesAlan D. NICHOLSON, Plaintiff and Respondent, v. UNITED PACIFIC INSURANCE COMPANY, Defendant and Appellant.

George T. Bennett, John R. Kline argued, Helena, for defendant and appellant.

Luxan & Murfitt, Gary Davis argued and Terry Cosgrove argued, Helena, for plaintiff and respondent.


The defendant, United Pacific Insurance Company (UPI) appeals from a judgment entered upon a jury verdict, and the subsequent denial of its motion for a judgment notwithstanding the verdict, in the District Court of the First Judicial District, Lewis and Clark County.

Nicholson, the plaintiff, instituted suit against UPI following a notice of default. He alleged several causes of action, including breach of contract, negligent misrepresentation, and fraud and deceit. He requested specific performance, compensatory damages and an award of punitive damages for breach of the implied covenant of good faith and fair dealing. UPI answered and counterclaimed alleging breach of contract, fraud in the inducement and breach of the implied covenant of good faith and fair dealing. We affirm the judgment and the denial of UPI's motion for a judgment notwithstanding the verdict.

UPI, a Washington based insurance company, has a branch office in Helena, Montana. Although subsequently renewed, UPI's lease on its space was due to expire September 30, 1982. UPI desired to locate new and larger office space in Helena.

Nicholson owns a building in downtown Helena called the New York Block. He also owns two construction companies, Nicholson, Inc. and Alan D. Nicholson, Inc. One of Nicholson's construction companies did the construction work in the New York Block.

In late 1980 or early 1981, Nicholson learned of UPI's desire for new office space. He contacted Jess Starns, the Helena branch manager, and suggested UPI consider locating in the New York Block. James Heath, facilities vice-president for UPI, came to Helena in July 1981 and toured the space offered by Nicholson. Thereafter, Nicholson wrote a series of letters to Starns and Heath encouraging UPI to rent space in the New York Block. Along with the letters, Nicholson forwarded various draft proposals for both the New York Block and the surrounding downtown mall area. Additionally, Nicholson represented to UPI that he would remodel the New York Block to UPI's specifications at his own cost.

In January 1982 both parties executed a letter of intent to enter a lease. Nicholson then proposed and circulated a draft lease. After negotiations, the parties both signed the lease by April 14, 1982. Two key conditions of the lease agreement were the requirement that Nicholson confer with UPI about the renovation of the New York Block space and that the final plans were subject to mutual approval.

While work progressed, disputes arose between Nicholson and UPI over the renovation project. These disputes revolved around interpretation of the renovation plans and about aspects of the project that had not been included within them. Nicholson and his architect were constantly in contact with the UPI planner in Seattle, Washington and the company architect in New York City.

On July 29, 1982, John Heath visited Helena. At this time he told Nicholson that UPI had never approved the construction plans. After the Heath visit, more problems arose. In addition to the problems with interpreting the construction plans, Nicholson and UPI began noting difficulty in dealing with each other. Nicholson had increasing trouble in communicating with the appropriate authorities within the UPI corporate structure to gain approval of his proposals. In August, Nicholson called the UPI architect directly in New York City and discovered that he was out of the office until August 25, three days before the project was to have been completed. On August 24 Nicholson sent his final revised plans to UPI. On August 27 Nicholson received a letter from UPI rescinding the lease. The letter alleged Nicholson's latest architectural drawings were incomplete and lacking in proper specification and detail, that the circumstances had changed materially and that the New York Block area was blighted.

UPI concluded:

Our investment in time and money continues to be greater than yours; therefore, from a business standpoint we have no choice but to rescind our lease. We will cease further activity on this project.

Up to this point Nicholson had expended $91,783 in remodeling costs. Nicholson then attempted to contact the president of UPI. Failing that, Nicholson sent UPI a notice of default on September 10, 1982 and then filed a complaint.

During discovery it became apparent that, at the time the events surrounding this action occurred, a "secret" UPI task force had made several recommendations about reorganizing the company. Most pertinent to this case was the recommendation that many of the functions and employees of the Helena office be transferred to Salt Lake City, Utah. Thus, UPI would have no need for the expanded office space in the New York Block. Nicholson argued that when UPI realized this, it became intransigent and threw obstacles in his path to cause him to breach the lease agreement. Nicholson also argued that UPI's concern with alleged "urban blight" in the downtown area had never been made known to him until he received word of rescission. In response to UPI's allegations that he did not meet all of the specifications of the architectural plans, he contended that he had difficulty in communicating and gaining approval for any final decisions; that UPI was intransigent on several aspects of the project which were merely being held as "bargaining chips;" and that, as with any renovation of an old building such as the New York Block, unforeseen difficulties arose. Based on all of this, Nicholson alleged UPI rescinded the lease without justification and thus, in addition to being liable for breach of contract, should be held liable for exemplary damages for a breach of the implied covenant of good faith and fair dealing.

In its answer and counter-suit UPI alleged Nicholson fraudulently misrepresented the conditions existing in both the New York Block and the downtown area and failed to fulfill the requirements called for in the architectural plans incorporated in the lease agreement. UPI contended Nicholson did this because he was in financial trouble and could not perform his contractual duties. Thus, UPI alleged, Nicholson began to "cut corners" thereby breaching the agreement. Further, UPI alleged Nicholson began to use items not specifically mentioned in the lease agreement or architectural plans as a tactic to bargain against the more costly aspects of the remodeling project. Finally, UPI attempted to portray Nicholson's work as shoddy.

The case went to trial on February 21, 1984. At the end of plaintiff's case UPI moved for a directed verdict and renewed this motion at the close of the evidence. The court denied UPI's motions and submitted the case to the jury. The jury returned a verdict in favor of Nicholson, assessing compensatory damages of $211,105 and exemplary damages of $225,000 against UPI. UPI then filed a motion for judgment notwithstanding the verdict or, in the alternative, for a new trial.

Hearings were held on UPI's motion, on Nicholson's motion for interest to be assessed at 18% and his request for attorney's fees and costs. On May 4, 1984, the District Court entered an order denying UPI's motion for a judgment notwithstanding the verdict and new trial, setting the judgment interest rate at 10%, awarding Nicholson attorney's fees of $75,000 to bear interest at 10% and awarding him $858.70 of the requested $20,000 for costs. The District Court entered final judgment on May 23, 1984. On that same day, UPI filed notice of appeal and on May 24, 1984, Nicholson filed a notice of cross-appeal.

Appellant raises the following issues:

(1) Whether UPI was entitled to a directed verdict.

(2) Whether there was any basis in law for the jury's award of punitive damages.

(3) Whether the compensatory damages awarded to Nicholson were excessive as a matter of law.

(4) Whether Nicholson was entitled to an award of attorney's fees.

Nicholson presents the following issue on cross-appeal:

(1) Whether the District Court erred in setting the pre- and post-judgment interest rate at 10% and erred in its award of costs.

UPI characterizes the lease agreement as an executory, unilateral contract and argues that since Nicholson failed to perform, judgment should be granted to UPI as a matter of law, citing Rogers v. Relyea (1979), 184 Mont. 1, 601 P.2d 37. Further, it claims Nicholson did not prove that UPI wrongfully prevented his performance, thus, McFarland v. Welch (1913), 48 Mont. 196, 136 P. 394, mandates a verdict in UPI's favor. In response, Nicholson argues the agreement required concurrent performance by UPI and he presented substantial evidence it wrongfully failed to do so.

In considering motions for a directed verdict or its procedural successor, a judgment notwithstanding the verdict, the District Court must view the evidence in a light most favorable to the plaintiff. MacDonald v. Protestant Episcopal Church (1967), 150 Mont. 332, 435 P.2d 369. If a prima facie case is made out, the motion should be denied. Motions made pursuant to Rule 50(b), M.R.Civ.P., cannot be granted if there is substantial conflict in the evidence. Like any form of directed verdict, it rests on a finding that the case of the party against whom it is directed is unsupported in some necessary particular. Jacques v. Montana Nat. Guard (1982), 199 Mont. 493, 649 P.2d 1319; Yetter v Kennedy (1977), 175 Mont. 1, 571 P.2d 1152.

UPI interprets the contract too narrowly. Rather than simply calling for Nicholson to provide possession and adequate plans, the lease set up a bilateral...

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