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Charles Kelly Kluver; Karson v. Ppl Montana

December 31, 2012


APPEAL FROM: District Court of the Sixteenth Judicial District, In and For the County of Rosebud, Cause No. DV 07-12 Honorable Joe L. Hegel, Presiding Judge

The opinion of the court was delivered by: Justice Michael E Wheat

Argued: September 21, 2012

Submitted: October 2, 2012

Filed: Decided: December 31, 2012


Justice Michael E Wheat delivered the Opinion of the Court.

¶1 Charles Kelly Kluver, Karson Kluver, and Genie Land Company (collectively the "Kluvers") appeal two orders of the Sixteenth Judicial District Court, Rosebud County; one involving rulings on evidentiary motions, and the other granting a motion to enforce a settlement agreement in favor of PPL Montana, LLC, Puget Sound Energy, Inc., Northwestern Corporation, the Clark Fork and Blackfoot, LLC, the Montana Power Company, LLC, Avista Corporation, Pacificorp, Portland General Electric Company, John Does 1-20, (collectively the "Power Companies"), and Douglas McRae, Kim McRae, and Greenleaf Land and Livestock Company (collectively the "McRaes"). We affirm.


¶2 The Kluvers and McRaes are neighbors and ranchers in Rosebud County. In February 2007, they commenced a lawsuit against the Power Companies*fn1 alleging that the Colstrip power facility, which borders land owned by the Kluvers and McRaes, contaminated groundwater under their property. The Kluvers and McRaes were represented by Monte Beck (Beck), John Amsden (Amsden), Jory Ruggiero (Ruggiero) and Brett Engel (Engel). The Power Companies' counsel included Guy Rogers (Rogers), Thomas Stoever (Stoever), and Stephen Redshaw (Redshaw).

¶3 After over three years of litigation, on July 14, 2010, the parties assembled in Billings to participate in a mediation to see if a negotiated settlement could be reached. Present at the mediation were the mediator, the Kluvers and their wives, Beck, Ruggiero, Engel, Rogers, Stoever, Redshaw, and Gordon Criswell (Criswell), an employee of PPL Montana and a representative for the Power Companies. The McRaes did not attend, but authorized their counsel to proceed with the mediation and agree to a settlement on their behalf. The mediation lasted the entire day, concluding at approximately 10:00 p.m. with the transmission of a Memorandum of Understanding (MOU) as an email from Ruggiero to Rogers and copied to other counsel.

¶4 The relevant portions of the MOU are as follows:

The following terms memorialize the global settlement agreement between all Plaintiffs in this matter . . . and all Defendants . . .

Defendants shall pay all Plaintiffs [____] dollars.*fn2 Plaintiffs shall sign a global release of all defendants . . . [that] shall include all past, present and future claims . . . [that] arise out of the subject matter of this lawsuit. . . .

Within 60 days, Plaintiffs shall convey fee simple title to the following lands to Defendant PPLM: [Sections 3 and 10 in their entirety, [t]he Southwest 8th of section 33 and all of section 4 that Plaintiffs own. This land is demarcated on the map held by the mediator].

Within 60 days, Defendants and Plaintiffs shall enter into a renewable, ninety-nine (99) year lease whereby Defendants shall lease to Plaintiffs [all land conveyed above and Section Nine]. This lease shall entitle Plaintiffs to make all uses of the surface . . . .

Within 60 days, Defendants and Plaintiffs shall enter into a perpetual first option to purchase whereby Plaintiffs . . . shall be entitled to the first right to purchase [all land conveyed above and Section Nine] for the sum of One

(1) dollar.

This Memorandum has been reviewed and approved by the parties and their counsel copied herein.

¶5 On the evening of July 14, 2010, Engel called the McRaes and informed them that a settlement had been reached at the mediation. A few days later, Karson Kluver went to the McRaes' home and expressed relief that the case was over, appreciation that the McRaes participated in the case, and sadness that he would have to part with some of his land as part of the settlement. As a result of this conversation, the McRaes both thought the Kluvers believed the parties reached a settlement at the mediation.

¶6 On July 19, 2010, Ruggiero filed a Notice of Tentative Settlement with the court. During the next few weeks, there were email communications between counsel discussing different aspects of the settlement, primarily those dealing with the real estate transactions and the documentation necessary to complete them. In some of these emails the MOU was referred to as a "draft."

¶7 A few weeks after the mediation, Doug McRae and the Kluvers had a conversation at a store in Miles City. The Kluvers told Doug that they had met with a tax attorney who informed them that the proceeds from the settlement would not be as great as they had anticipated, and they therefore were having reservations about accepting the settlement.

On September 14, 2010, at the insistence of the Kluvers, Ruggiero filed a Notice Regarding Failure of Settlement Discussions. It stated that the "tentative settlement has now failed and has resulted in no final, enforceable settlement agreement."

¶8 Approximately two weeks later, the Power Companies filed a Motion to Enforce Settlement Agreement and Request for Evidentiary Hearing, arguing that the MOU was a written and signed settlement agreement. They attached affidavits of Rogers, Criswell, and Redshaw discussing the negotiations at the mediation. Later, Beck, Ruggiero and Engel also filed affidavits with the court reporting what occurred at the mediation.

¶9 The Kluvers objected to the Power Companies' Motion and filed a Motion to Strike the Defendants' Brief and Affidavits. They maintained there was no enforceable settlement agreement and that the Power Companies relied upon confidential and privileged settlement negotiations that were inadmissible pursuant to the mediation confidentiality statute. The McRaes did not share the same position as the Kluvers; instead, they agreed with the Power Companies that the MOU was an enforceable agreement.

¶10 Several motions followed, which prompted the District Court to order a hearing for February 17, 2011. Following the hearing, the court ordered, among other things, that the Kluvers waived any right to confidentiality of the fact of a settlement and that the affidavits presented by the Power Companies were admissible. It ordered the mediator to submit a report to the court indicating whether a settlement was reached. It further scheduled an evidentiary hearing for March 21, 2011, to determine whether the MOU was an enforceable settlement agreement.

¶11 Pursuant to the District Court's order, the mediator filed a report on March 21, 2011, stating that the case had settled at the July 14, 2010, mediation.

¶12 At the March 21, 2011, evidentiary hearing, Rogers, Ruggiero, Beck, Criswell and the McRaes testified. The Kluvers did not. Among other things, the witnesses testified that the case settled at the mediation and the MOU and map were a final expression of the terms of the settlement. The testimony revealed details about the mediation process, including how the MOU was created and transmitted between the parties. Specifically, Ruggiero testified that during the mediation he sat in the same room as the Kluvers and that they authorized him to draft and send the MOU to opposing counsel at the conclusion of the mediation. The witnesses also explained some of the MOU's terms, particularly those involving the land transactions and the "perpetual first option to purchase." In addition, they addressed the parties' failure to complete certain duties specified in the MOU within the required 60-day period following the mediation. Rogers testified that because the Kluvers had fired their counsel, they could no longer communicate with them regarding these tasks. The McRaes also provided testimony regarding the conversations they had with the Kluvers following the mediation.

¶13 During the hearing, the MOU and map were admitted into evidence.

¶14 On October 20, 2011, the court issued its Findings of Fact, Conclusions of Law, and Order, in which it granted the Power Companies' and McRaes' (collectively "Appellees") Motion to Enforce the Settlement Agreement, and ordered the parties to complete the settlement set forth in the MOU within 60 days. The Kluvers appealed this order, along with the court's February 23, 2011, order involving rulings on the evidentiary motions. We heard oral argument on September 21, 2012, and the matter is now ripe for disposition.

¶15 The parties raise several arguments on appeal. We address the following three issues:

¶16 Issue One: Did the District Court err by finding that the MOU was a binding, enforceable settlement agreement?

¶17 Issue Two: Did the District Court err by allowing parol evidence to change an option to purchase into a right of first refusal?

¶18 Issue Three: Did the District Court err in allowing evidence about the conduct of the mediation, including testimony from the Kluvers' former attorneys and the mediator, to determine whether the parties reached a binding settlement agreement during the mediation?


¶19 Both the existence of a contract and its interpretation are questions of law which we review for correctness. Hurly v. Lake Cabin Dev., LLC, 2012 MT 77, ¶ 14, 364 Mont. 425, 276 P.3d 854. We review a trial court's factual findings for clear error. Hurly, ¶ 14. A trial court has broad discretion in determining the relevance and admissibility of evidence. State v. Derbyshire, 2009 MT 27, ¶ 19, 349 Mont. 114, 201 P.3d 811.

However, the trial court is bound by the Rules of Evidence or applicable statutes. Derbyshire, ¶ 19. The trial court's interpretation and construction of a statute or rule is a matter of law, which we review de novo to determine whether the court's interpretation and construction of the statute or rule is correct. State v. Dist. Ct. of the Eighteenth Jud. Dist., 2010 MT 263, ¶ 31, 358 Mont. 325, 246 P.3d 415.


¶20 Issue One: Did the District Court err by finding that the MOU was a binding, enforceable settlement agreement?

Statute of Frauds and the Uniform Electronic Transactions Act

¶21 The Kluvers argue that neither they nor Ruggiero signed the MOU, and the agreement therefore does not satisfy the statute of frauds. The statute of frauds is codified in §§ 28-2-903 and 70-20-101, MCA. Pursuant to § 28-2-903(1)(d), MCA, "an agreement for the leasing for a longer period than 1 year or for the sale of real property . . . is invalid unless the authority of the agent is in writing and subscribed by the party sought to be charged." Additionally, § 70-20-101, MCA, provides that an interest in real property may not be transferred unless there is an instrument in writing, subscribed by the party transferring it or by the party's lawful agent authorized by writing. Hayes v. Hartelius, 215 Mont. 391, 396, 697 P.2d 1349, 1353 (1985).

¶22 The Kluvers contend that the District Court improperly relied on the Uniform Electronic Transactions Act (UETA) "to dispense with the requirement of a signature by either Kluvers or their supposed agent." The UETA was adopted by the Montana Legislature in 2001 to address the increase in electronic transactions. The hope was for the Act to allow more business to be done electronically. See Mont. H. Comm. on Bus. and Lab., Minutes of the Hearing on H. Bill 234, 57th Legis., Reg. Sess., page 7 (Jan. 16, 2001). The bill's sponsor stated that its passage would show a confidence in electronic transactions as a legal process. See Mont. H. Comm. on Bus. and Lab., Minutes of the Hearing on H. Bill 234, 57th Legis., Reg. Sess., page 8 (Jan. 16, 2001).

¶23 With this in mind, we turn to the relevant portions of the UETA and their applicability to the case before us. The UETA applies to transactions between parties who have agreed to transact by electronic means. Section 30-18-104(2), MCA. This is determined by the context and surrounding circumstances, including the parties' conduct. Section 30-18-104(2), MCA. The UETA provides that a record, signature or contract may not be denied legal effect or enforceability solely because it is in electronic form. Sections 30-18-106(1), (2), MCA. Further, "if a law requires a record to be in writing, an electronic record satisfies the law," and "if a law requires a signature, an electronic signature satisfies the law." Sections 30-18-106(3), (4), MCA. An electronic signature is an "electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record." Section 30-18-102(9), MCA. To determine the effect of an electronic signature, we look to the "context and surrounding circumstances at the time of its creation, execution, or adoption, including the parties' agreement . . . ." Section 30-18-108, MCA.

¶24 Here, it is clear from the MOU that the parties agreed to memorialize the terms of their settlement by electronic means. The MOU is a writing created in email format on Ruggiero's computer during the mediation and explicitly states that the parties reviewed and approved it. At the conclusion of the mediation, it was transmitted by email from Ruggiero to Rogers. Even so, the Kluvers maintain that there is no evidence that they agreed to sell their land by electronic means. In making this argument, the Kluvers not only disregard the MOU, but also the statements Karson Kluver made to the McRaes after the mediation acknowledging that a settlement had been reached at the mediation. Because the MOU was the only settlement agreement that resulted from the mediation, Karson Kluver's statements corroborate that the parties intended to memorialize their agreement electronically. The UETA therefore applies.

¶25 Further, it is evident on the face of the MOU that Ruggiero, as an agent for the Kluvers and McRaes, provided the requisite electronic signature. In addition to the UETA, the District Court relied on Hillstrom v. Gosnay, 188 Mont. 388, 614 P.2d 466 (1980) to determine that the MOU was a signed document. Although decided prior to the UETA, Hillstrom is consistent with the UETA's recognition of the validity of electronic signatures. In Hillstrom, we noted that although we had not yet ruled on what constitutes a valid subscription for purposes of the statute of frauds, "[o]ther courts . . . have consistently held that any mark affixed to a writing with the intent to authenticate it constitutes a sufficient subscription by the party sought to be charged." Hillstrom, 188 Mont. at 394, 614 P.2d at 469 (internal citations omitted).We determined that a typewritten name at the bottom of a telegram was a sufficient subscription to satisfy the requirements of the statute of frauds. Hillstrom, 188 Mont. at 394, 614 P.2d at 469. Further, we found the subscriber's intent to authenticate her typewritten name on the telegram as her valid subscription was established on the face of the telegram which states, "PLEASE CONSIDER THIS MY WRITTEN ACCEPTANCE . . . ." Hillstrom, 188 Mont. at 395, 614 P.2d at 470.

¶26 Here, Appellees point to the paragraph at the bottom of the MOU that states, "This Memorandum has been reviewed and approved by the parties and their counsel copied herein," as the necessary "symbol" of an electronic signature. We find that this statement, taken together with the fact that the email containing the MOU designates Ruggiero as the sender-his name is specifically typed out in front of his email address in the "From" section of the email-and Rogers as the recipient, and was sent from Ruggiero to Rogers at the conclusion of the mediation, provide the necessary symbol and intent to authenticate to constitute Ruggiero's electronic signature.

¶27 The Kluvers argue that even if Ruggiero did sign the MOU, it is invalid because they never gave him written authorization to bind them to a contract to sell land. Pursuant to § 28-2-903(1)(d), MCA, an agreement for the sale of real property, "if made by an agent of the party sought to be charged, is invalid unless the authority of the agent is in writing and subscribed by the party sought to be charged." See also Schwedes v. Romain, 179 Mont. 466, 471, 587 P.2d 388, 391 (1978). Appellees concede that there was no written authorization, but assert that an exception to this rule exists when the principal is in the physical presence of the agent and directs the agent to act. They rely on a California case, Videau v. Griffin, 21 Cal. 389, 392 (Cal. 1863), in which the California Supreme Court held:

The only exception to the rule that an authority to execute a deed must be conferred by writing, is where the execution by the attorney is in the presence of the principal. The exception arises from the doctrine that what one does in the presence of and by the direction of another is the act of the latter -- as much so as if it were done by himself in person.

Other jurisdictions have carved out similar exceptions.*fn3

¶28 The cases the Kluvers rely upon in support of their position are distinguishable from the present case. In each of those cases, not only was there no written authorization from the principal, but there was no indication that the agent was acting while in the physical presence of the principal. See Zier v. Lewis, 2009 MT 266, 352 Mont. 76, 218 P.3d 465; Mahoney v. Lester, 118 Mont. 551, 168 P.2d 339; Schmidt v. White, 43 S.W.3d 871 (Mo. App. 2001); Central Idaho Agency, Inc. v. Turner, 442 P.2d 442 (Idaho 1968); Guel v. Bullock, 468 N.E.2d 811 (Ill. App. 1984); Tostenson v. Ihland, 147 N.W.2d 104 (N.D. 1966); Bennett v. First Natl. Bank of Glens Falls, 536 N.Y.S.2d 591 (N.Y. App. Div. 1989). We are in accord with the proposition that when an agent and principal are in physical proximity, such as in the context of a mediation session, the principal can authorize the agent to sign a contract involving realty on the principal's behalf without written authorization.

¶29 Here, while the Kluvers allege that they were not in the same room as Ruggiero when he sent the MOU, the District Court did not make such a finding, and the Kluvers do not specifically challenge the court's failure to do so. We conclude that because Ruggiero attended the entire mediation with the Kluvers as their attorney, the MOU explicitly states that the parties reviewed and approved it, and Karson Kluver later told the McRaes that a settlement had been reached, there is no clear error in the District Court's finding that the Kluvers authorized Ruggiero to agree to the MOU.

¶30 Furthermore, the purpose of the statute of frauds is to prevent fraud. In this case, the McRaes presented unchallenged testimony that Karson Kluver acknowledged the settlement when he visited their home a few days after the mediation. In Hayes, we determined that the statute of frauds was inapplicable when the parties admitted the existence of a contract. We pointed out that "[t]his Court has taken the position on several occasions that it will not allow the statute of frauds, the object of which is to prevent fraud, to be used to accomplish fraudulent purposes." Hayes, 215 Mont. at 396, 697 P.2d at 1353 (internal citations omitted). There, we stated that "it would be a fraud on the defendant to allow plaintiffs to admit to the contract, and then allow them to avoid its obligations by asserting the statute of frauds." Hayes, 215 Mont. at 396, 697 P.2d at 1353. See also Hillstrom, 188 Mont. at 396, 614 P.2d at 470 (stating that "in cases involving admitted contracts, we have construed the statute of frauds less technically, refusing to allow the statute to be used so as to defeat its purpose to prevent the commission of a fraud.").Here, because Karson Kluver acknowledged that a settlement had been reached when he spoke with the McRaes after the mediation, he cannot now attempt to invoke the statute of frauds to deny the existence of such an agreement. Essential Terms of the MOU

¶31 Settlement agreements are contracts, subject to the provisions of contract law. Murphy v. Home Depot, 2012 MT 23, ¶ 8, 364 Mont. 27, 270 P.3d 72. A contract requires (1) identifiable parties capable of contracting; (2) their consent; (3) a lawful object; and (4) a sufficient cause or consideration. Hurly, ¶ 17 (citing § 28-2-102, MCA). A contract must contain all its essential terms in order to be binding. Hurly, ¶ 17.

¶32 Here, the District Court found that the MOU and map contain all of the material terms of a contract, and concluded that they constitute an enforceable settlement agreement. The parties do not dispute that the MOU identifies parties capable of contracting. Nor do they challenge that there is sufficient consideration-the MOU provides an amount of money to be paid by the Power Companies to the Kluvers and McRaes, real estate to be transferred from the Kluvers to the Power Companies, a leaseback, a right of first refusal, and a release of future claims. The Kluvers contend, however, that the MOU lacks consent and contains illegal objects.

¶33 With respect to their consent argument, the Kluvers claim the MOU is an unenforceable agreement to agree, and that the parties' statements and conduct indicate their intent not to be bound. The intentions of parties are those disclosed and agreed to in the course of negotiations. Hetherington v. Ford Motor Co., 257 Mont. 395, 399, 849 P.2d 1039, 1042 (1993).A party is bound to a settlement agreement if "he or she has manifested assent to the agreement's terms and has not manifested an intent not to be bound by that assent." Lockhead v. Weinstein, 2003 MT 360, ¶ 12, 319 Mont. 62, 81 P.3d 1284 (citing Hetherington, 257 Mont. at 399, 849 P.2d at 1042). In other words, if parties unconditionally consent to an agreement, they are bound. Murphy, ¶ 8 (citing Lockhead, ¶ 13). A party's latent, or undisclosed, intention not to be bound does not prevent the formation of a binding contract. Murphy, ¶ 8 (citing Lockhead, ¶ 11).

¶34 In Marta Corp. v. Thoft, 271 Mont. 109, 894 P.2d 333 (1995), we held the parties were bound to a settlement agreement when they agreed to general terms at a settlement conference and their attorneys subsequently prepared a written stipulation. After the stipulation was drafted and signed by counsel, one of the parties argued it was unacceptable and refused to comply with its terms. We determined that because the parties were present and represented at the settlement conference, at which time the general terms of the stipulation were formulated and agreed to by the parties, and there were no conditions placed on the parties' acceptance of the agreement, the parties were bound by the terms of the written stipulation. Marta, 271 Mont. at 113, 894 P.2d at 335. "That Appellants no longer wish to be bound by the settlement agreement, as set forth in the written stipulation, does not excuse them from complying with the terms of that stipulation." Marta, 271 Mont. at 113, 894 P.2d at 335.

¶35 In the instant case, the District Court found that the Kluvers assented to the terms of the MOU and map at the mediation. While the court's finding was based upon evidence that included testimony from the evidentiary hearing discussing the mediation, we arrive at the same conclusion by looking solely at the MOU and map. Similar to Marta, the Kluvers were present and represented at the mediation when the terms of the MOU were negotiated. The MOU contains an explicit statement that it was "reviewed and approved" by the parties. Further, like Marta, there is nothing on the face of the MOU suggesting that the Kluvers did not intend to be bound by it, or that their acceptance was conditional or contingent in any way.

ΒΆ36 The Kluvers argue that since the settlement gave the parties additional time to prepare final documents, all of the essential terms were not agreed to at the end of the mediation and the MOU was thus an unenforceable agreement to agree. This Court has held that where parties intend to form a binding agreement, the fact that they plan to incorporate it into a more formal contract in the future does not render it unenforceable. Steen v. Rustad, 132 Mont. 96, 104, 313 P.2d 1014, 1019 (1957). "[A]bsolute certainty and completeness in every detail is not a prerequisite of specific performance, only reasonable certainty and completeness being required. Those matters which are merely subsidiary, collateral, or which go to ...

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