Phillip R. Morrow, Inc. v. FBS Ins. Montana-Hoiness Labar, Inc.

• Decision Date: 03 April 1989
• Docket Number: MONTANA-HOINESS,No. 88-457,88-457
• Citation: 236 Mont. 394,770 P.2d 859,46 St.Rep. 455
• Parties: PHILLIP R. MORROW, INC., and Phillip Morrow, Plaintiffs and Appellants, v. FBS INSURANCELABAR, INC., a Montana corporation, Defendant and Respondent.
• Court: Montana Supreme Court

Page 859

770 P.2d 859

236 Mont. 394

PHILLIP R. MORROW, INC., and Phillip Morrow, Plaintiffs and Appellants, v. FBS INSURANCE MONTANA-HOINESS LABAR, INC., a Montana corporation, Defendant and Respondent.

No. 88-457.

Supreme Court of Montana.

Submitted on Briefs Jan. 12, 1989.

Decided March 9, 1989.

Rehearing Denied April 3, 1989.

Holland & Hart, James M. Ragain and Kyle Anne Gray, Billings, for plaintiffs and appellants.

Gerald B. Murphy and T. Thomas Singer, Billings, for defendant and respondent.

McDONOUGH, Justice.

This action from the Thirteenth Judicial District, Yellowstone County, for intentional interference with prospective economic advantage and intentional infliction of emotional distress, is before this Court for the second time. The first appeal involved the District Court's decision to grant the motion for summary judgment made by respondent FBS Insurance Montana-Hoiness Labar, Inc., (FBS). We reversed. Morrow v. FBS Insurance (Mont.1988), 749 P.2d 1073, 45 St.Rep. 188. This appeal concerns the District Court's decision to grant FBS's motions for directed verdicts. The District Court decided that Morrow failed to present evidence to establish a prima facie case for either tort claim. We reverse on the interference claim and affirm on the claim for intentional infliction of emotional distress. The District Court further decided Morrow failed to come forward with facts sufficient to justify submission to the jury of his claim for punitive damages. We reverse the lower court on this issue.

The earlier opinion contains an extensive fact statement. Facts relevant to this appeal can be summarized as follows: Morrow, a plumbing contractor, alleged that FBS, acting as a bonding agent, prevented a general contractor from accepting his bid for a major mechanical subcontract. Fisher Construction, (Fisher), the general contractor involved, planned to submit a bid for the construction of a water plant. Morrow submitted a bid to Fisher for the mechanical portion of the job.

FBS had agreed to act as Fisher's bonding agent, and requested at some point that Fisher back-bond major subcontractors. FBS would not agree to bond Morrow. Morrow was aware that FBS would not provide him a bond prior to Fisher's award of the subcontract. Morrow told Fisher that a different bonding agent would bond his work for the subcontract.

Morrow and another subcontractor, Star Services, (Star), were the two low bidders for the mechanical subcontract. Fisher met with the two low bidders to discuss cost cutting measures to reduce Fisher's bid on the entire project. Fisher awarded the subcontract to Star.

Morrow's suit for interference alleged that personal dislike and prior financial dealings between Morrow and FBS motivated FBS to apply the pressure. FBS responded that it did not apply pressure on Fisher.

Dan Fisher and Alf Hulteng, agents of Fisher, testified that Star received the contract because they bid lower than Morrow. They also testified FBS did not pressure them to refuse Morrow's bid. Morrow testified that Dan Fisher and Hulteng told him Star received the contract because FBS pressured Fisher.

Hulteng testified that it was possible he told Donna Morrow that FBS's employee Kip Vanderverter disliked Morrows. Donna Morrow testified that Vanderverter once inquired whether FBS would be providing a bond for work done by Morrow in 1982. She stated that when she informed Vanderverter that Morrow would be bonding with another company, Vanderverter ended the conversation abruptly, and that she feared he had been angry.

A conflict in the evidence exists as to which subcontractor bid lowest. Hulteng testified that Morrow's bid appeared lowest, but that he wanted to make sure Morrow had included costs for the clearwell piping portion of the job. Hulteng called Morrow and Morrow told Hulteng he included the clearwell costs in his bid. Hulteng testified that a scope sheet detailing the figures Morrow used to calculate his bid showed Morrow omitted the clearwell portion. Morrow testified his scope sheet did not show that he omitted the clearwell portion.

Morrow raises the following issues:

(1) Did the trial court err by granting FBS's motion for a directed verdict on the claim of intentional interference with prospective economic advantage?

(2) Did the trial court err by granting FBS's motion for a directed verdict on the claim of intentional infliction of emotional distress?

(3) Did the trial court err by ruling on the issue of punitive damages before submitting the case to the jury?

I.

The trial court concluded that the jury could consider testimony by Morrow that Hulteng and Dan Fisher told Morrow that FBS pressured Fisher only as impeachment evidence. Clearly, this is not the rule on prior inconsistent statements admitted under Rule 801(d)(1)(A) M.R.Evid.:

Prior inconsistent statements traditionally have been admissible to impeach but not as substantive evidence. Under the rule they are substantive evidence.

Commission Comments, Rule 801(d)(1)(a), M.R.Evid. This Court has previously agreed with the Commission on this point. State v. Fitzpatrick (1980), 186 Mont. 187, 606 P.2d 1343.

FBS argues that the District Court should be affirmed on other grounds. First, FBS argues that the trial court correctly distinguished Fitzpatrick because Morrow's statement contains two hearsay declarations. Therefore, according to FBS, the trial court correctly excluded the testimony because the second statement does not come under any exception to the hearsay rule. We agree that Morrow's statement arguably contains two statements. The testimony could be characterized as "Dan Fisher told me Kip Vandeverter told him, 'don't do business with Morrow' ". Under similar circumstances, this Court has held such statements to come under the proscriptions of Rule 805. The rule requires that each statement fall under an exception to the general prohibition of proof by hearsay. State v. Martinez (1980), 188 Mont. 271, 613 P.2d 974.

We disagree, however, that Rule 805 excludes the testimony. The trial court should have admitted the second statement as non-hearsay under Rule 801(c), M.R.Evid., because the statement constitutes a "verbal act", in the sense that it goes to prove the operative facts of the alleged tort, i.e., pressuring Fisher. Weinstein comments on statements admitted under the verbal act doctrine as non-hearsay under Rule 801(c), as follows:

Although Morgan objected that the phrase "verbal act ... as commonly used, is less vague than res gestae only because it is couched in English, instead of Latin," commentators and courts today appear united in limiting the phrase to one particular aspect of nonhearsay utterances. It is applied, when as in the case of the defamation examples above, the utterance is an operative fact which gives rise to legal consequences.

For instance, in Creaghe v. Iowa Home Mutual Casualty Co. [323 F.2d 981 (10th Cir.1963) ], plaintiff, who had recovered a judgment as yet unsatisfied against one Osborn in an earlier action stemming from an automobile accident, now brought an action against Osborn's alleged insurer at the time of the accident. The insurer asserted that the policy had been cancelled shortly before the accident. Its agent (W) testified to statements by Osborn (D) requesting cancellation. Plaintiff objected that this testimony was hearsay. The court disagreed: "The hearsay rule does not exclude relevant testimony as to what the contracting parties said with respect to the making or the terms of an oral agreement. The presence or absence of such words and statements of themselves are part of the issues in the case. This use does not require a reliance by the jury or the judge upon the competency of the person who originally made the statements for the truth of their content....."

4 J. Weinstein, M. Berger, Weinstein's Evidence p 801(c) at 801-71-72 (1988) (emphasis added). An approximation of the application of this rule in a business interference claim may be found in Atlantic Building Systems v. Atlantic States Construction (1984), 172 Ga.App. 148, 322 S.E.2d 311. In Atlantic Building Systems, the plaintiff allegedly threatened to forgo paying a debt owed to a third party if the third party sold goods to the defendant. The defendant's counterclaim alleged the threats constituted tortious interference. An employee of the third party testified to the declarations constituting the threats. The appeals court affirmed the decision to allow the testimony because the defendant introduced the declarations to prove its inability to purchase goods from the third party. The court relied on Georgia's res gestae statute for authority in admitting the declarations. Atlantic Building Systems, 322 S.E.2d at 313.

Montana law requires that statements admitted under the res gestae rule be made under circumstances where reflection and fabrication are unlikely. State v. Collins (1978), 178 Mont. 36, 582 P.2d 1179. The statement must occur at the time the excitement of the circumstances motivated the utterance. State v. Fairburn (1959), 135 Mont. 449, 340 P.2d 157. The statements here do not meet these tests.

However, where the issue is the existence of statements, not the truth of the matters asserted within them, Montana recognizes the verbal act doctrine. Collins, 582 P.2d at 1183. Under the verbal act doctrine in Montana, statements may be admitted "for the purpose of establishing the fact that the words had been said by defendant." Collins, 582 P.2d at 1183. Threats may constitute verbal acts. United States v. Stratton (2nd Cir.1985), 779 F.2d 820, 830. The second set of statements in Morrow's testimony go to proving the existence of statements made by Vanderverter. The existence of the statements constitutes the operative fact of this particular action. They are admissible to prove the existence of acts by Vanderverter to pressure Dan Fisher and Hulteng, not for the truth of matters asserted within...