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Abbey/Land, LLC v. Glacier Construction Partners, LLC

Supreme Court of Montana

January 22, 2018

ABBEY/LAND, LLC, Montana Limited Liability Company, Plaintiff,
GLACIER CONSTRUCTION PARTNERS, LLC, Defendant, and JAMES RIVER INSURANCE COMPANY, a foreign corporation, Intervenor.

         RE: A/L GCP Settlement Rescinded



I am writing on behalf of Glacier Construction Partners, LLC (GCP). By now you have received, or shortly will, a copy of Abbey/Land LLC's (A/L's) notice that it is striking its request to have judgment entered on the settlement agreement between A/L and GCP, and is, as is A/L's right under the settlement, withdrawing from that settlement due to the failure of a condition subsequent (court approval of the settlement as reasonable in amount and entered in good faith).
A/L is asking for a trial date. GCP, although still in existence, has no employees, and no money. It is not able to defend itself Therefore, as things presently stand, GCP will not have counsel at the trial sought by A/L.
Given James River's (JR's) arguments that the settlement was not reasonable in amount, and given that the amount of damages is all that remains at issue in the Flathead case, it is clear that JR wants the opportunity to put those damages at issue. JR has no standing to do so on its own behalf on a trial on the merits, as JR's intervention was for the sole purpose of challenging the confessed judgment. However, GCP will give JR the opportunity' to defend GCP, and control that defense, by appointing defense counsel in the Flathead case, but GCP makes this demand on the following conditions:
JR must defend GCP without any reservation of rights as to coverage or limits. By operation of law JR lost those coverage defenses and limits when the Lake County court found that JR had breached the duty to defend GCP. Appointed counsel will be able to argue and present whatever evidence it develops that damages are less than A/L claims, but whatever damages are found, and entered as a judgment against GCP, JR must pay them,
A set off against the judgment to be taken against GCP in Flathead for recovery had against other prior parties in Flathead and Lake will not all be available for 100% of the settlement amount. GCP tendered to each of its subcontractors that was in the Flathead matter, and demanded defense and indemnity. It also named those parties in the Lake matter. It also tendered to those parties insurers as GCP was an AI under all those policies, and it named those insurers in the Lake matter. The payments made to settle the claims against those subcontractors in Flathead, and also to settle the claims against those subcontractors and their insurers in Lake, is thus not properly characterized as payment for property damage, loss of use, or breach of contract in Flathead. Some of it was for breach of duty to defend and indemnify, and those claims were in Lake and ran against both the subcontractors named in Flathead and Lake and against their insurers. Those settlement funds did not represent only payment for damages for defective work, property damage or loss of use. It also represented a recover}' for breach of the duty to defend by those parties which were in both Lake and Flathead The settlement agreements do not apportion those payments as between the claims, but settle them all. The claims in Flathead that were settled against parties that were in Flathead represent about 25% of the total settlement payments made by those parties that were in the Flathead matter and settled, hence GCP will recognize a set off against the judgment to be taken against GCP of 25% of the settlement amount paid by each such party. GCP requires that JR stipulate to this percentage of those settlement amounts to be offset against the judgment to be taken against GCP in Flathead.
This offer is further conditioned on JR waiving all claims of conflicts of interest it has asserted as to Mssrs. Cushman, Best, Cotner and Baker, in the past (and striking the present motion for disqualification, and the complaint lodged with ODC), and not asserting any claims of conflict of interest against those counsel representing A/L going forward. When A/L and GCP settled, GCP waived attorney client privilege as to A/L, and thereafter GCP's counsel went to work for A/L. GCP shall be signing a waiver permitting its former counsel to represent A/L in this matter, as provided by Rule 1.9(a) (attached). Thus, in the trial on the merits as to damages suffered by A/L due to GCP's breaches of contract and property damage tort claims, A/L will be represented by its current team of attorneys, and GCP will be represented by an attorney appointed by JR, who shall control that defense, and may put at issue the damages caused by GCP's breaches and the breaches of GCP's subcontractors and suppliers. However JR must drop its assertions of conflict of interest and recognize that GCP has waived those conflicts.
JR must agree not to appeal the judgment in Lake County finding that James River breached the duty to defend. Further, James River will have to pay all fees and costs incurred to date by GCP in Lake County, and all fees and costs incurred to date by GCP in Flathead, and all fees and costs incurred by GCP in the Oregon matter, as GCP would not have had to defend in that declaratory judgment action brought by Travelers and CWIC in Oregon if JR had been defending GCP in Flathead. Those fees and costs are as follows: GCP in Lake: $1, 346, 783 55 GCP in Flathead: $625, 897.14, GCP in Oregon: $299, 439.36. These total $2, 272, 120.05. Such fees and costs are recoverable by an insured that successfully prosecutes a declaratory judgment action against an insurer that has failed to defend, and such breach of the duty to defend is found by the court as it has been by the Lake court.
Finally, after GCP has defended A/L's claims for damages arising out of GCP's breaches, and the breaches of GCP's subcontractors and suppliers, and judgment is entered in Flathead against GCP, subject to setoff as limited above, that judgment will be entered in Lake County against JR, and that judgment will remain subject to all claims that JR's failure to defend was committed in bad faith, and hence that the judgment should be subject to a multiplier (albeit that the final judgment in Lake will be subject to set-off by the remaining 75% of settlements from prior settling defendants in either case, (Lake or Flathead), and by any payment made by JR of the judgment to be taken by A/L against GCP in Flathead).
Although this offer does not allow JR to escape all the consequences of JR's failure to defend (which occurred on October 5, 2011, when after having the tender from GCP for 45 minutes and having done no investigation, JR simply refused to defend based upon a letter declining to defend a prior claim a year earlier (the arbitration case between GCP and IMI», this offer does allow JR to appoint counsel for GCP in Flathead and control the defense by GCP as to the amount of damages suffered by A/L. As you are aware, Paul Pederson, an expert for A/L, set those damages in excess of $17 million, and the confessed judgment itself was for $12 million. A/L believes those damages are far greater in amount than set by Paul Pederson four or five years ago, and will be claiming those additional damages, but JR will have a renewed opportunity to defend GCP and attempt to avoid the damages to be sought by A/L.
GCP makes this offer without prejudice to its claim, well established in law in Montana and virtually every other jurisdiction in this country, that an insurer that fails to defend, in breach of a duty to defend, waives all policy defenses and limits. GCP is willing to mediate regarding these terms before Michael Viscomi, who is copied on this letter. If JR refuses to reach an agreement with GCP in response to this offer, GCP will be subjected to trial without benefit of counsel, and JR will have lost the ability to put at issue the damages suffered by A/L.

         Re: Abbey/Land, LLC v. Glacier Construction Partners, LLC, Flathead County Cause No. DV- 09-1198(4)

         Attorneys: George Best and Jon Cushman, pro hac vice

         Dear Office of Disciplinary Counsel, Please find enclosed my Order and Rationale in above-captioned matter. As is my obligation, I am referring the two above-mentioned attorneys to you for investigation for violation of Rule 1.7 of the Montana Rules of Professional Conduct. The Order should be self-explanatory, but I would refer you to page 6. ¶ 15, wherein Mr. Cushman refers to a pending ODC complaint against him thus matter, which would precede my involvement in the case.

         Please feel free to call with any questions


         No. DV-09-1198(A)


         Following the Court's Order, dated April 12, 2017, the Court hereby provides the following Rationale in support of its denial of Jon Cushman and George Best's M.R.Civ.P. 54(b) Motion Re: Disqualification of George Best and Jon Cushman and Request for Emergency Consideration, filed March 27, 2017. Cushman and Best seek to have the Court revisit its March 1, 2017, oral ruling granting James River Insurance Company's Combined Motions to Revoke Pro Hoc Vice Admission of Jon E. Cushman and Disqualify Counsel and Motion for Injunction Prohibiting Continued Representation.[1]

         I. Relevant Factual and Procedural Background

         As previously articulated by the Montana Supreme Court in Abbey/Land, LLC v. Interstate Mechanical, Inc., 2015 MT 77, 378 Mont. 372, 345 P.3d 1032:

In 2001, Donald Abbey, a wealthy real-estate developer, purchased Shelter Island, a small island in Flathead Lake, to build a personal residence there. Mr. Abbey bought the island through Abbey/Land LLC ("Abbey/Land"), of which he is the sole member. Abbey/Land began to build a large residence on the island, but fell into dispute with the original general contractor. Accordingly, in 2003, Mr. Abbey formed Glacier Construction Partners (GCP) to act as a new general contractor for the project. Mr. Abbey was also the sole member of GCP. GCP's only construction project was the residence on Shelter Island. Mr. Abbey signed the Abbey/Land-GCP construction contract on behalf of each entity.

         GCP entered a $1.4 million contract with Interstate Mechanical, Inc. for the design and installation of the plumbing and heating-cooling system for the house. Subsequent change orders increased the value of that contract by approximately $1 million. In 2009, disputes arose between Interstate and GCP; as well as the other contractors. This matter was filed on behalf of Abbey/Land and GCP against the other contractors, as well as an arbitration proceeding between Interstate and GCP. In 2011, GCP obtained an arbitration award against Interstate of slightly over $400, 000. Settlements were also entered into with the other contractors who were ultimately dismissed. Abbey/Land then filed the present claims against GCP. Reoriented as a defendant in this matter, GCP tendered Abbey/Land's claims to James River Insurance Company (James River). James River refused to provide defense or indemnity, asserting that the claims-made policy it issued to GCP did not provide coverage. That refusal to defend or indemnify led to the Lake County coverage action.

         On May 2, 2013, GCP and Abbey/Land settled this action. Among other things, the settlement required GCP to confess to a $12 million judgment in favor of Abbey/Land and to assign to Abbey/Land all its rights against various insurers, including James River. James River challenged the confessed judgment and the case went up on appeal. On March 10, 2015, the Montana Supreme Court issued its decision in Abbey/Land, holding in pertinent part:

We remand and direct the District Court to enter an order allowing James River Insurance Company to intervene in order to raise the issue of the reasonableness of the confessed judgment and whether it was the product of collusion. The District Court may set the reasonable parameters of the proceeding to determine these issues, and may determine whether there should be discovery and to what extent.

Abbey/Land, ¶l 7.

         On July 16, 2015, James River filed Combined Motions to Revoke Pro Hac Vice Admission of Jon E. Cushman and Disqualify Counsel. The relevant grounds for the disqualification portion of the motion were (1) that Best and Cushman were necessary witnesses as to whether the confessed judgment was reasonable, or collusive, and were therefore prohibited from acting as counsel of record under Rule 3.7 of the Montana Rules of Professional Conduct; and (2) the Court should exercise its inherent authority to control trial administration in the interest of fairness and justice. James River argued it would be prejudiced by Cushman and Best continuing their allegedly collusive conduct, and defending their prior conduct.

         On August 14, 2015, Abbey/Land and GCP filed a Combined Response Opposing Motion to Disqualify, Motion to Strike and Brief in Support. Abbey/Land and GCP generally argued that disqualification under Rule 3.7 was inappropriate, and that because collusion had not been conclusively established, the district court had no basis to exercise its inherent authority to disqualify Cushman and Best.

         On September 16, 2016, Cushman, on behalf of GCP, advised counsel for James River that Abbey/Land was unilaterally withdrawing from the settlement agreement and would be asking for a trial date and requesting exponentially greater damages than the confessed judgment would provide. The basis of the withdrawal was the failure to date of the district court to approve the settlement (which was not a condition of the settlement), and the fact Abbey/Land had discovered it had suffered much more damage than it had originally anticipated. Cushman advised that GCP would be left undefended at trial as it had no assets to defend itself. However, Cushman agreed James River could provide GCP a defense at trial, but only if certain conditions were met-which are startling in their audacity, including ...

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