State ex rel. State Compensation Mut. Ins. Fund v. Berg

• Decision Date: 12 December 1996
• Docket Number: No. 95-389,95-389
• Citation: 279 Mont. 161,927 P.2d 975
• Parties: STATE of Montana, ex rel. STATE COMPENSATION MUTUAL INSURANCE FUND, Plaintiff and Respondent/Cross-Appellant, v. George BERG, d/b/a Berg Lumber Co., and Berg Lumber, Inc., Defendants and Appellants/Cross-Respondents.
• Court: Montana Supreme Court

Page 975

927 P.2d 975

279 Mont. 161

STATE of Montana, ex rel. STATE COMPENSATION MUTUAL

INSURANCE FUND, Plaintiff and Respondent/Cross-Appellant, v. George BERG, d/b/a Berg Lumber Co., and Berg Lumber, Inc.,

Defendants and Appellants/Cross-Respondents.

No. 95-389.

Supreme Court of Montana.

Submitted on Briefs July 18, 1996.

Decided Nov. 14, 1996.

Rehearing Denied Dec. 12, 1996.

Robert J. Emmons, Emmons & Sullivan, Great Falls, for defendants and appellants.

Laurence A. Hubbard, State Compensation Mutual Insurance Fund, Helena, Robert James, James, Gray & McCafferty, Great Falls, for plaintiff and respondent.

GRAY, Justice.

George Berg, d/b/a Berg Lumber Co. and Berg Lumber, Inc. (Berg) appeals from the denial by the Tenth Judicial District Court, Fergus County, of his motions for a new trial and to vacate the judgment and enter judgment in his favor. The State of Montana, ex rel. State Compensation Mutual Insurance Fund (State Fund), cross-appeals from the judgment entered by the District Court and, in particular, from its order denying the State Fund's motion for a directed verdict. We affirm on the appeal, reverse on the cross-appeal and remand.

We restate the issues on appeal and cross-appeal as follows:

1. Did the District Court abuse its discretion in denying Berg's motion for a new trial which was based on juror misconduct?

2. Did the District Court abuse its discretion in denying Berg's motion for a new trial which was based on failure to instruct the jury on the definition of "misrepresent?"

3. Did the District Court abuse its discretion in denying Berg's motion to vacate the judgment and enter judgment in his favor which was based on the State Fund's failure to plead constructive fraud with sufficient particularity?

4. Did the District Court abuse its discretion in denying Berg's motion to vacate the judgment and enter judgment in his favor which was based on a statute of limitations bar to the constructive fraud claim?

5. Did the District Court err in denying the State Fund's motion for a directed verdict which was based on the existence of a disputable presumption of employee status?

FACTUAL AND PROCEDURAL BACKGROUND

Berg owns and operates a lumberyard, sawmill and planing operation in Lewistown, Montana. Montana law requires him to provide workers' compensation insurance and unemployment insurance for his employees. Berg's workers' compensation insurance through the State Fund authorized the State Fund to examine and audit Berg's payroll records, general ledger, disbursements, vouchers, contracts, tax reports and all other books, documents and records at any reasonable time.

In February of 1989, the Unemployment Insurance Division of the Montana Department of Labor and Industry (Department) requested an audit of Berg's operations as a result of an unemployment insurance benefits claim filed by Tim Murnion (Murnion).

Murnion claimed to have been employed by Berg, but no wage credits based on employment by Berg were on file with the Unemployment Insurance Division. Mike Knecht (Knecht), a Department field representative, was assigned to conduct an unemployment insurance audit of Berg's operations for the January 1, 1987, through December 31, 1988, period and a workers' compensation audit of those operations for the July 1, 1987, through September 30, 1988, period. The workers' compensation audit period was subsequently extended to December 31, 1988. Between the beginning of Knecht's audit of Berg's operations on February 22, 1989, and December of 1990, when he conducted a physical inspection of Berg's operations, Knecht visited the sawmill six or seven times.

Based on the results of Knecht's audit, the State Fund sued Berg in Lewis and Clark County on January 17, 1992. It alleged that Berg did not properly remit workers' compensation insurance premiums in that he (1) failed to make payments for individuals improperly treated as independent contractors rather than employees; (2) underreported employees' wages; and (3) misclassified employees' wages. Berg moved for a change of venue to Fergus County and the motion was granted. In March of 1993, the State Fund moved to amend its complaint to add actual and constructive fraud claims and the District Court granted the motion over Berg's objections. Berg answered the amended complaint by generally denying the State Fund's allegations and asserting the statute of limitations and estoppel as affirmative defenses. The parties conducted discovery and filed numerous pretrial motions. The District Court ruled on the motions and entered a pretrial order prepared by trial counsel for both parties.

After several trial dates were scheduled and vacated, a jury trial began on June 27, 1994, in Lewistown, Montana. The State Fund moved for a mistrial and change of venue, contending that it could not get a fair trial in Fergus County. The District Court declared a mistrial, but denied the State Fund's motion for change of venue.

The second trial began on June 6, 1995. At the conclusion of the State Fund's case-in-chief, the District Court granted its motion for a directed verdict on Berg's liability for workers' compensation premiums for the first quarter of 1991 in the amount of $13,333.49. At the end of the trial, the State Fund moved for a directed verdict on the employee status of certain individuals Berg claimed were independent contractors. The State Fund argued that Berg had presented insufficient evidence to rebut the presumption of employee status for the question to go to the jury. The District Court denied the motion.

The jury ultimately returned a special verdict finding that Berg committed constructive fraud in dealing with the State Fund and misrepresented payroll, employee status and employee duties by misclassifying his employees. The jury awarded $305,857.46 in damages to the State Fund. The District Court added the $13,333.49 directed verdict amount to the jury's award and entered judgment for the State Fund for $319,190.95.

Berg obtained new counsel and moved for a new trial and to vacate the judgment and enter judgment in his favor. He premised the new trial motion on alleged juror misconduct and instructional error. His motion to vacate the judgment and enter judgment in his favor was based on the State Fund's alleged failure to plead constructive fraud with sufficient particularity and a statute of limitations bar to the constructive fraud claim. The District Court denied Berg's motions.

Berg appeals from the denial of his postjudgment motions and the State Fund cross-appeals from the District Court's denial of its motion for a directed verdict. Additional facts are provided below as necessary for our resolution of the issues before us.

DISCUSSION

1. Did the District Court abuse its discretion in denying Berg's motion for a new trial which was based on juror misconduct?

Berg contended in his new trial motion that juror misconduct by juror James Carroll (Carroll) constituted irregularity in the proceedings of the jury. He supported his motion with an affidavit from juror Robert In denying Berg's new trial motion, the District Court concluded that Carroll's conduct was not an external influence on the jury but was, if anything, an internal influence for which a juror affidavit could not be used to impeach the verdict. The court determined, therefore, that Flinders' description of Carroll's conduct did not provide a basis on which it could grant a new trial.

                Flinders (Flinders).  According to Flinders, Carroll said to him, on several occasions during the trial, "That's it;  [t]hat's all I [279 Mont. 168] need to hear;  [i]t's all over."   Flinders also stated that Carroll pointed to another juror during several recesses and said, "That's one we'll have to convince."   Flinders either ignored Carroll's statements or told Carroll to be quiet
                

We review a district court's denial of a motion for a new trial to determine whether the district court abused its discretion. State v. Kelman (1996), 276 Mont. 253, 260, 915 P.2d 854, 859; State v. Brogan (1995), 272 Mont. 156, 160, 900 P.2d 284, 286. Whether certain conduct is an internal or external influence on the jury is a question of law, however. See Geiger v. Sherrodd, Inc. (1993), 262 Mont. 505, 510, 866 P.2d 1106, 1109. We review a district court's conclusions of law to determine whether they are correct. Topco, Inc. v. State Dept. of Highways (1996), 275 Mont. 352, 357, 912 P.2d 805, 808.

The grounds on which a new trial may be granted are statutorily defined in Montana. Section 25-11-102, MCA, provides in relevant part:

The former verdict or other decision may be vacated and a new trial granted on the application of the party aggrieved for any of the following causes materially affecting the substantial rights of such party:

(1) irregularity in the proceedings of the court, jury, or adverse party or any order of the court or abuse of discretion by which either party was prevented from having a fair trial;

(2) misconduct of the jury. Whenever any one or more of the jurors have been induced to assent to any general or special verdict or to a finding on any question submitted to them by the court by a resort to the determination of chance, such misconduct may be proved by the affidavit of any one of the jurors.

Motions for a new trial based on irregularity in the proceedings of the jury under § 25-11-102(1), MCA, may be made "on affidavits or on the minutes of the court;" new trial motions based on jury misconduct under § 25-11-102(2), MCA, must be made "only on affidavits." Section 25-11-104, MCA.

At the outset, we note the District Court's observation--in its order denying Berg's motion for a new trial based on Flinders' affidavit--that it was difficult to determine whether Berg was proceeding under subsection (1) or (2) of § 25-11-102, MCA. It is no more apparent to us on appeal. Therefore, we will address Berg's reliance on the Flinders affidavit under both...