Romo v. Shirley

CourtUnited States State Supreme Court of Montana
Citation2022 MT 249
Docket NumberDA 21-0416
PartiesJESS ROMO, et al., Plaintiffs and Appellees, v. COREY SHIRLEY; OWEN KENNEY; KENT HOGGAN; SURETY LAND DEVELOPMENT, LLC, Utah Limited Liability Corporation; Defendants and Appellants, and USA BIOFUELS, LLC, Utah Limited Liability Corporation; VITALITY NATURAL HEALTH, LLC; EUREKA 93, INC.; GREG RANGER; DAVID RENDIMONTI; ROBERT LEAKER; SEAN POLI; STEPHEN ARCHAMBAULT; VITALITY CBD NATURAL HEALTH PRODUCTS, INC.; JOHN DOES 11-15, Defendants.
Decision Date27 December 2022

2022 MT 249

JESS ROMO, et al., Plaintiffs and Appellees,
v.

COREY SHIRLEY; OWEN KENNEY; KENT HOGGAN; SURETY LAND DEVELOPMENT, LLC, Utah Limited Liability Corporation; Defendants and Appellants,

and USA BIOFUELS, LLC, Utah Limited Liability Corporation; VITALITY NATURAL HEALTH, LLC; EUREKA 93, INC.; GREG RANGER; DAVID RENDIMONTI; ROBERT LEAKER; SEAN POLI; STEPHEN ARCHAMBAULT; VITALITY CBD NATURAL HEALTH PRODUCTS, INC.; JOHN DOES 11-15, Defendants.

No. DA 21-0416

Supreme Court of Montana

December 27, 2022


Submitted on Briefs: September 28, 2022

District Court of the Fifteenth Judicial District, In and For the County of Roosevelt, Cause No. DV-2018-45 Honorable Katherine Bidegaray, Presiding Judge

For Appellants Corey Shirley, Owen Kenney, Kent Hoggan and Surety Land Development, LLC: Mark D. Parker, Michael L. Dunphy, Parker, Heitz & Cosgrove, PLLC, Billings, Montana

For Appellees: Ben A. Snipes, Ross T. Johnson, Odegaard Kovacich Snipes, P.C., Great Falls, Montana

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BETH BAKER JUSTICE

¶1 Four affiliates of USA Biofuels-Kent Hoggan, Owen Kenney, Corey Shirley, and Surety Land Development-appeal a 2021 Roosevelt County judgment in favor of a group of eastern Montana farmers.[1] Affiliates argue that Farmers could not pursue tort remedies because their case was a contract case, not a tort case. Affiliates alternatively argue that they are entitled to a new trial because Farmers produced insufficient evidence to support the verdict and because the jury was not properly instructed. Hoggan, Kenney, and Surety Land-each shareholders of USA Biofuels-additionally challenge the trial court's summary judgment ruling that they were alter egos of the company. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

¶2 Hemp is a plant grown to produce a range of industrial and medicinal products, including CBD oil. In 2018, hemp was removed from the list of Schedule I controlled substances and became a federally legal agricultural commodity. Upon this development, two Canadian entrepreneurs-Kenney and Hoggan-planned to enter the hemp and CBD market. They created a company named USA Biofuels, secured investment from Surety

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Land, and hired a United States agent named Greg Ranger.[2] Ranger initiated relationships with over two dozen family farms in northeast Montana to grow hemp for USA Biofuels.

¶3 In spring 2018, Farmers entered individual written contracts with USA Biofuels to grow a total of 10,000 acres of hemp. The contracts were nearly identical. They each contained a "minimum acre guaranty" promising $100 per acre once Farmers planted the hemp seed. USA Biofuels also promised a payment once Farmers successfully raised, harvested, and baled the hemp. For this second payment, Farmers were to be paid $500 per dryland acre or $700 per irrigated acre. Half of the second payment was to be paid when the hemp was ready for shipment. The second half was to be paid thirty days later.

¶4 Farmers received the hemp seed in early summer 2018 and planted it. They notified Ranger that seeding was complete and requested their initial payments of $100 per acre. Ranger e-mailed Farmers back, with an attached letter from Hoggan on USA Biofuels letterhead. Hoggan's letter described cash flow bumps but explained that such bumps were ending and that the payments were expected to be made within the week. The payments did not arrive within the week, however, and Farmers initiated lawsuits for breach of contract. Farmers eventually received the initial seeding payments in late August 2018. They took the payments as a positive sign that they would receive their second payments in the fall once they baled the crop.

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¶5 Over the summer and fall of 2018, Farmers raised, swathed, and dried a successful crop of hemp-together they baled over 6,600 bales. They accordingly expected their second payments of $500 per dryland acre and $700 per irrigated acre. USA Biofuels never paid.

¶6 Farmers repeatedly reached out to Ranger and his eventual successor, Shirley, about payment for the hemp bales, which remained at the edges of Farmers' fields ready for shipment. Between September and December 2018, Shirley and other corporate representatives responded to Farmers' inquiries on a near-weekly basis. Defendants serially stated that funds existed and would imminently be paid to Farmers. Relying on Defendants' representations, Farmers did not pursue legal action to acquire ownership of the bales for resale and mitigation of damages.[3] The hemp bales deteriorated as winter came and, over the course of this litigation, rotted in Farmers' fields.

¶7 In August 2019, with leave of court, Farmers amended their claims to reflect that although they had received the initial seeding payments, they never received the second payments. Farmers sued USA Biofuels and various affiliated companies, agents, and employees on a variety of contract and tort theories. The lawsuits, filed in four northeastern Montana counties, were consolidated in Roosevelt County by stipulation. The District Court declared, on summary judgment, that USA Biofuels breached its contract and awarded contractual damages against USA Biofuels. Farmers continued to pursue their

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contract and tort claims against the remaining Defendants. The case went to trial in June 2021. Affiliates all appeared and defended. David Rendimonti, CEO of successor company Eureka 93, appeared and defended by counsel only. Farmers abandoned their contract claims and secured a tort judgment exceeding $65 million, comprising $7.5 million in compensatory damages, $2 million in emotional distress damages, and $56 million in punitive damages. Affiliates now appeal; Rendimonti does not.

STANDARD OF REVIEW

¶8 Whether a party owes a duty of care that may give rise to a tort claim is a matter of law to be decided by the court. Bassett v. Lamantia, 2018 MT 119, ¶ 10, 391 Mont. 309, 417 P.3d 299. We review such a conclusion of law for correctness. Newman v. Lichfield, 2012 MT 47, ¶ 23, 364 Mont. 243, 272 P.3d 625. We discuss separately the standards of review in our analysis of each remaining issue.

DISCUSSION

¶9 1. May Farmers recover damages in tort when their relationship with Defendants was grounded in contract?

¶10 Affiliates argue that Farmers should not have been awarded tort remedies because Farmers brought "purely a contract case." Affiliates point out each Farmer's admission that "the dispute would not have gone to court-at all-if the contracts with USA Biofuels had been performed." Because Montana law bars most emotional distress damages and all punitive damages in contract actions, Affiliates argue that the court should not have allowed the jury to consider those damages in this "contract action." See §§ 27-1-310, -220, MCA.

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¶11 Farmers counter that tort remedies were appropriate because their claims stem not from breach of contract but from Defendants' tortious conduct that occurred after the breach. Farmers point to evidence they produced at trial that, after failing to pay for the bales (the breach), USA Biofuels' representatives strung them along with promises of payment and negligently failed to release the bales to Farmers for resale. Farmers contend that Defendants' misrepresentations of fact, which induced Farmers to withhold pursuing legal action, and their otherwise negligent acts and omissions constituted tortious conduct "completely separate from any contractual duty."

¶12 The District Court repeatedly concluded that Farmers' claims properly were brought as tort claims because they were based on Defendants' post-breach conduct. We address first whether Farmers' claims sounded in contract or tort, second whether there was sufficient evidence for their claims, and third whether the awarded remedies-emotional distress damages and punitive damages-were lawful.

Contract or Tort Case

¶13 When a party's claim is based solely upon a breach of the specific terms of an agreement, the action sounds in contract. We have long recognized, however, that "if a defaulting party, by breaching the contract, also breaches a duty which he owes to the other party independently of the contract," a party may assert a claim of liability in tort. Dewey v. Stringer, 2014 MT 136, ¶ 8, 375 Mont. 176, 325 P.3d 1236 (quoting Boise Cascade Corp. v. First Sec. Bank, 183 Mont. 378, 392, 600 P.2d 173, 181 (1979)); Harrington v. Holiday Rambler, 176 Mont. 37, 46, 575 P.2d 578, 583 (1978). "Separate tort liability depends on whether the breaching party violated a legal duty that would exist

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in the absence of a contract .... There must be active negligence or misfeasance to support an independent tort claim." Dewey, ¶ 8 (citations omitted).

¶14 We have recognized in several cases that contract actions and tort actions in the same case "are not incompatible." Harrington, 176 Mont. at 46, 575 P.2d at 583. When a consumer sued a trailer manufacturer for deceitfully misrepresenting the quality of the trailer it had sold to the consumer, we held that the consumer brought the case in tort, "separate and distinct from any action arising out of contract." Harrington, 176 Mont. at 47, 575 P.2d at 583. Similarly, we held that even though a carpet seller's "trickery" and "conspiracy" occurred while contracting with a homeowner, the homeowner's case did not arise from contract. Paulson v. Kustom Enters., 157 Mont. 188, 202, 483 P.2d 708, 716 (1971). The homeowner could proceed with proving "a tort arising independent of the contract." Paulson, 157 Mont. at 202, 483 P.2d at 716.

¶15 More recently, in Plakorus v. University of Montana, we held that some of a university soccer coach's claims arose solely from the university's contractual duties, while others arose from separate duties and could be brought as tort claims. 2020 MT 312, ¶ 27, 402 Mont. 263, 477 P.3d 311. The coach's negligence and invasion of privacy claims were based on duties that arose from the...

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