Shammel v. Canyon Resources Corp.

Decision Date24 December 2003
Docket NumberNo. 02-736.,02-736.
PartiesAlan and Stephanie SHAMMEL, Maurice and Betty Mae Shammel, Jack and Ida Ruckman, Bob and Vicky Ruckman, Lewis and Mona Harrell, and Daniel and Lori Harrell, individually, Plaintiffs and Respondents, v. CANYON RESOURCES CORPORATION, a Delaware Corporation, and CR Kendall Corporation, a Colorado Corporation, Defendants and Appellants.
CourtMontana Supreme Court

For Appellants: Thomas Hattersley III and Alan Joscelyn, Gough, Shanahan, Johnson & Waterman, Helena, Montana.

For Respondents: A. Clifford Edwards, Roger W. Frickle, and Roberta Anner-Hughes, Edwards, Frickle, Halverson & Anner-Hughes, Billings, Montana.

Justice W. WILLIAM LEAPHART delivered the Opinion of the Court.

¶ 1 Canyon Resources Corporation and CR Kendall (collectively referred to as Canyon) appeal from the Tenth Judicial District Court's grant of a preliminary injunction and the denial of a motion for an undertaking for security in Fergus County.

¶ 2 We restate the issues on appeal as follows:

¶ 3 1. Did the District Court err when it granted the preliminary injunction?

¶ 4 2. Did the District Court err when it denied Canyon's motion for a written undertaking as provided for under § 27-19-306, MCA?

Factual and Procedural Background

¶ 5 From the late 1980s to the mid-1990s, CR Kendall, a Colorado Corporation and a wholly-owned subsidiary of Canyon Resources Corporation, a Delaware Corporation licensed to do business in the State of Montana, mined its property situated in the North Moccasin Mountain Range. The Respondents in this action, who will be collectively referred to as the Shammels, all own property downstream and downslope from the property that CR Kendall mined.

¶ 6 In 1996, Alan and Stephanie Shammel were notified that their water was contaminated with nitrates, selenium, thallium, and sulfate. That same year, Canyon installed a pump-back system on the mine site.1 Thereafter, in 1998, Alan and Stephanie began to experience water quantity problems.

¶ 7 The Shammels brought a civil action against Canyon on October 10, 2001, alleging theories of trespass, nuisance, and negligence, and seeking compensatory and punitive damages. The Shammels alleged that Canyon had tortiously affected the quantity and quality of water in several drainages—Dog Creek, Little Dog Creek, and the South Fork of Last Chance Creek—resulting in damage to their properties.

¶ 8 Canyon decided to sell many of its Montana properties and mineral rights at an auction, through the Sheldon Good Auction Company, on August 6, 2002. Canyon advertised the sale in several newspapers in Montana and around the country. The Shammels learned about the auction and filed an application for temporary restraining order and preliminary injunction on July 30, 2002, to restrain Canyon from dissipating the proceeds of the sale of any Montana assets. On August 5, 2002, the District Court granted the TRO and ordered Canyon to deposit any funds received from the auction, up to and including $12,359,141, with the Clerk of the Tenth Judicial District Court. The amount realized from the auction was $616,305. The TRO, as per § 27-19-316, MCA, expired in ten days time and a hearing on the application for preliminary injunction was held on August 14, 2002. The court granted the preliminary injunction but, recognizing that Canyon's harm may outweigh the Shammels', the court set another hearing date for October 1, 2002, to allow Canyon to present any evidence that further addressed the balancing of the equities and to consider Canyon's motion for undertaking for security pursuant to § 27-19-306, MCA.

¶ 9 After the October 1 hearing, the District Court issued a supplemental order to the preliminary injunction and an order on undertaking. The court found that the scale of equities tipped in the Shammels' favor and so continued the preliminary injunction. In the supplemental order, the court authorized the release of $133,000, which Canyon was contractually obligated to pay. Of the $616,000 sequestered funds, this left a balance of $483,000. The court ordered Canyon to deposit $45,000 from corporate cash on hand with the court to bring the total to $528,000. The $528,000 figure represented, according to the court, the value of Canyon's fee lands that would have been available, but were under contract for sale, to the Shammels were they to prevail at trial.

¶ 10 The court also denied Canyon's motion for undertaking for security because Canyon had nearly $1 million in cash on hand to use for payroll purposes, and because the court deemed it to be in the "interests of justice." Canyon now appeals the order granting the Shammels' application for preliminary injunction and the court's subsequent denial of the motion for an undertaking for security.

Standard of Review

¶ 11 It has come to our attention that there is confusion in our case law regarding the standard of review where an injunction has been granted or denied. The standard first used was an abuse of discretion standard. Nelson v. O'Neal (1871), 1 Mont. 284, 187 Mont. LEXIS 4. "The granting or refusing an injunction was discretionary with the court below ... it was [not] an abuse of discretion in refusing an injunction." Nelson, 1 Mont. at 286. Later, a manifest abuse of discretion standard was introduced. Craver v. Stapp (1902), 26 Mont. 314, 67 P. 937. "The granting or dissolving of an injunction is so largely within the discretion of the lower court, that the supreme court will never disturb its action, unless there has been a manifest abuse of discretion." Craver, 26 Mont. at 314, 67 P. at 937. These two different standards have been used interchangeably over the last hundred years. Hagener v. Wallace, 2002 MT 109, ¶ 12, 309 Mont. 473, ¶ 12, 47 P.3d 847, ¶ 12; M.H. v. Montana High School Ass'n (1996), 280 Mont. 123, 130, 929 P.2d 239, 243; Mont. Tavern Ass'n v. State, Dept. of Revenue (1986), 224 Mont. 258, 263, 729 P.2d 1310, 1314; Madison Fork Ranch v. L & B Lodge, Etc. (1980), 189 Mont. 292, 302, 615 P.2d 900, 906; Hansen v. Galiger (1949), 123 Mont. 101, 113, 208 P.2d 1049, 1056; Colusa Parrot Mining & Smelting Company v. Barnard (1903), 28 Mont. 11, 15, 72 P. 45, 45; Anaconda Copper-Min. Co. v. Butte Min. Co. (1896), 17 Mont. 519, 521, 43 P. 924, 925.

¶ 12 It is incumbent upon us to rectify this century-old confusion and provide consistency to the law and guidance to the bar by adopting one standard of review. Unfortunately, none of our prior decisions discuss the difference between the two standards nor state a reason for adopting one over the other. In light of the high degree of discretion vested in district courts to maintain the status quo through injunctive relief, we determine that the more deferential "manifest abuse of discretion" is the appropriate standard for reviewing the granting of a preliminary or permanent injunction. A "manifest" abuse of discretion is one that is obvious, evident or unmistakable. Black's Law Dictionary, 6th Ed. To the extent that the cases listed below are inconsistent with this holding, they are overruled.2

Discussion
Issue 1

¶ 13 Did the District Court err when it granted the preliminary injunction?

¶ 14 Canyon argues that the preliminary injunction should not have been granted for several reasons. The first, and most relevant for purposes of this opinion, is that the Shammels failed to meet the requirements under the Van Loan test. Van Loan v. Van Loan (1995), 271 Mont. 176, 181-82, 895 P.2d 614, 617. Second, the District Court did not set forth its reasoning for issuing the injunction with sufficient clarity to allow informed appellate review. Third, the lower court's sequestration of Canyon's assets is an improper prejudgment attachment. Fourth, the District Court took judicial notice of numerous pages of newspaper articles, editorials, letters, and excerpts from an MEIC report without first granting Canyon a hearing under Rule 201(e), M.R.Evid.

¶ 15 Section 27-19-201, MCA, provides for issuance of a preliminary injunction

(1) when it appears that the applicant is entitled to the relief demanded and the relief or any part of the relief consists in restraining the commission or continuance of the act complained of, either for a limited period or perpetually;
(2) when it appears that the commission or continuance of some act during the litigation would produce a great or irreparable injury to the applicant;
(3) when it appears during the litigation that the adverse party is doing or threatens or is about to do or is procuring or suffering to be done some act in violation of the applicant's rights, respecting the subject of the action, and tending to render the judgment ineffectual;
(4) when it appears that the adverse party, during the pendency of the action, threatens or is about to remove or to dispose of the adverse party's property with intent to defraud the applicant, an injunction order may be granted to restrain the removal or disposition;
(5) when it appears that the applicant has applied for an order under the provisions of 40-4-121 or an order of protection under Title 40, chapter 15.

This Court has held that only one of these subsections need be met for an injunction to be issued. Sweet Grass Farms v. Board of County Com'rs, 2000 MT 147, ¶ 27, 300 Mont. 66, ¶ 27, 2 P.3d 825, ¶ 27 (citing Stark v. Borner (1987), 226 Mont. 356, 359-60, 735 P.2d 314, 317).

¶ 16 Here, subsections two and three apply. In his affidavit, Richard De Voto (De Voto), President of Canyon Resources Corporation, stated that,

[h]alf the proceeds from the August 6th sale of assets of Canyon and its subsidiaries will go to their lenders, pursuant to prior agreements, and the remainder will be utilized to meet and fulfill the ongoing expenses and obligations of Canyon and its subsidiaries, including the funding of continued reclamation obligations at the Kendall mine site.

Accordingly,...

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