Tidyman's Management Services Inc. v. National Union Fire InsuranceTidyman's Management Services Inc. v. National Union Fire Insurance
Lead Opinion
delivered the Opinion of the Court.
¶1 In Tidyman’s Management Services v. Davis (Tidyman’s I),
ISSUES
¶2 We restate the issues on appeal as follows:
¶3 Did the District Court err in using a “reliable evidence” test to assess the reasonableness of the stipulated judgment?
¶4 Did the District Court err by not deducting from the $29 million judgment the amount paid out to ESOP participants following Tidyman’s merger with SuperValu?
¶5 Did the District Court err in awarding prejudgment interest from January 4, 2013?
FACTUAL AND PROCEDURAL BACKGROUND
¶6 This is the second time this case has come before us. We set forth the underlying facts in Tidyman’s I, and we will not repeat them here. In Tidyman’s I, we affirmed the District Court’s finding that NUFI unjustifiably refused to defend its insured, Davis and Maxwell, and was therefore estopped from denying coverage. Tidyman’s I, ¶ 33. However, we reversed the District Court’s entry of summary judgment. to the extent it approved a stipulated judgment of $29 million, and remanded for the District Court to hold a hearing to assess the reasonableness of the settlement amount. Tidyman’s I, ¶ 44. On
¶7 The District Court determined that additional but limited discovery was necessary prior to a hearing on reasonableness, so it opened discovery for the narrow purpose of obtaining information regarding the reasonableness of the underlying judgment. The District Court then held a reasonableness hearing on January 28-30, 2015. Following the hearing, the District Court concluded that “Maxwell and Davis were justified in settling for the amount of $29 million based [on] their knowledge of Plaintiffs’ claims and their exposure to financial ruin created by NUFI’s failure to defend.” The District Court therefore found that NUFI had not borne its burden to prove the stipulated judgment was unreasonable, and entered judgment against NUFI for $29 million. NUFI appeals.
STANDARD OF REVIEW
¶8 This Court reviews de novo issues of law, including a district court’s decision about which legal standard to apply in assessing the reasonableness of a stipulated judgment. Tidyman’s I, ¶ 13; see e.g. Seltzer v. Morton,
DISCUSSION
f 9 Did the District Court err in using a “,reliable evidence” test to assess the reasonableness of the stipulated judgment?
¶10 In Tidyman’s I, we concluded that “further consideration is necessary to determine whether the 29 million dollar stipulated settlement is reasonable, in light of the questions NUFI has raised.” Tidyman’s I, ¶ 44. Among the questions raised by NUFI were whether the $29 million figure was unreasonable “because it was based only on unsworn opinions of experts whom plaintiffs retained and paid and who have never been cross-examined by [NUFI’s] counsel” (internal quotations omitted); because “no buyer had been identified at the price TMSI’s financial advisor, Zachary Scott, suggested the corporation might bring if sold to another chain — the figure on which the 29 million dollars is based”; because “the settlement amount is magnitudes greater than the amount for which the plaintiffs had settled with other directors and the amount the plaintiffs had offered Davis himself in settlement”; and because “the plaintiffs’ own numbers reveal that Zachary Scott opined that the value of the corporation as a standalone entity was 11 million dollars.” Tidyman’s I, f 42. With these questions in mind, we reversed the District Court’s entry of summary judgment to the extent it approved of the $29 million sum, and remanded for a hearing focused on the reasonableness of the settlement amount. Tidyman’s I, ¶ 44.
¶11 On remand, the District Court articulated its own subjective standard for assessing the reasonableness of the settlement amount:
To determine whether the stipulated settlement is within the range of reasonableness, the Court has considered reasonableness from the perspective of the insured at the time of the stipulation, whether the information relied upon possessed sufficient indicia of reliability and whether the damages represented might naturally have been expected to result from the breach of the duty to defend.
Over the course of a three day hearing, the District Court received evidence and testimony from Plaintiffs and NUFI. Although the District Court allowed testimony from NUFI’s expert that the stipulated settlement was not reasonable because it exceeded his assessment of the value of the company prior to the insurer’s breach of the duty to defend, the District Court found that this perspective “fail[ed] to account for the measure of damages
¶12 However, as NUFI argues on appeal, by failing to consider the merits and value of the underlying case in assessing the reasonableness of the settlement amount, the District Court failed to comply with our instructions on remand. Instead of considering the challenges to reasonableness raised by NUFI and highlighted in our opinion in Tidyman’s I, the District Court based its conclusion that the settlement was reasonable on its assessment that “[t]he materials relied up[on] by Plaintiffs and Maxwell and Davis possess sufficient indicia of reliability.” We have previously stated that “[t]he insurer, even when in breach of its obligations to its insured, is entitled to have the district court make a determination of the reasonableness of a settlement entered by the insured.” Abbey/Land LLC v. Interstate Mechanical, Inc.,
¶13 NUFI and amicus curiae Montana Defense Trial Lawyers urge this Court to announce a requirement that “the settlement amount be analyzed from the perspective of the objective merits of the case and not from the subjective perspective of whether the insured was justified in accepting a release of liability in exchange for whatever the plaintiff requested” (emphasis in original). In support of this approach, NUFI cites cases from several of our sister states that analyze the merits of the underlying case, the plaintiffs theory of liability and damages, the strength of available defenses, and the risks and expenses to both parties of continued litigation in order to determine the reasonableness of a stipulated settlement amount. See e.g. Bird v. Best Plumbing Grp., LLC,
¶14 All parties agree that a reasonableness hearing should be conducted objectively from the point of view of a prudent person in the position of the insured defendant. See e.g. Miller v. Shugart, 316 N.W.2d 729, 735 (Minn. 1982). But as Plaintiffs and amicus curiae Montana Trial Lawyers Association point out, in a case in which there has been a breach of the duty to defend, such a defendant is no longer an insured defendant and is faced with personal responsibility for a potentially very large sum. We agree with Plaintiffs that a breach of the duty to defend is a factor that a prudent person in the position of the defendant would consider when determining what settlement amount is acceptable to him or her. In other words, an objective standard of reasonableness should account for a prudent assessment of the merits and value of the plaintiffs case, but also for the position in which the defendant has been left following an insurer’s breach of the duty to defend. No prudent defendant would fail to consider the latter circumstance. On the other hand, it should not be the court’s objective to further punish the insurer
¶15 On remand, the District Court shall employ an objective standard for assessing reasonableness. We borrow the Minnesota Supreme Court’s articulation of such a standard — “The test as to whether the settlement is reasonable and prudent is what a reasonably prudent person in the position of the defendant would have settled for on the merits of plaintiffs claim. This involves a consideration of the facts bearing on the liability and damage aspects of plaintiffs claim, as well as the risks of going to trial.” Miller,
¶16 On a final note, although the District Court retains discretion to determine what evidence to admit or refuse in a reasonableness hearing, it cannot refuse to consider material and relevant evidence. Cartwright v. Equitable Life Assurance Soc’y of the United States, 276 Mont. 1, 19,
¶17 In his Dissent, Justice Wheat argues that remand for another reasonableness hearing is not necessary because the court listened to extensive testimony on the valuation of the company during the reasonableness hearing. It is true that NUFI presented such testimony, but the court rejected the valuation testimony offered by its witnesses because it “fail[ed] to account for the measure of damages for the breach of duty to defend.” Because we previously found that NUFI was estopped from denying coverage for unjustifiably refusing to defend its insureds, any measure of damages for breach of the duty to defend has no place in an ensuing reasonableness analysis. The court said it would consider reasonableness “from the perspective of the insured at the time of the stipulation,” and indeed, it was only such evidence to which the court gave credence. As noted in ¶ 11 but sidestepped by both Dissents, the District Court concluded that NUFI had lost the right to litigate the merits of the underlying case. What we are directing the court to do on remand is determine value based both on an objective determination of where the stipulated settlement is within a reasonable range of what an arms’-length negotiation would have produced and the value to a prudent uninsured defendant of confessing judgment. The court erred as a matter of law in subjectively considering valuation solely from the perspective of the uninsured defendants.
¶18 Did the District Court err by not deducting from the $29 million judgment the amount paid out to ESOP participants following Tidyman’s merger with SuperValu?
¶19 NUFI argues that the $29 million judgment is “based on impermissible double counting.” Some retirees who retired after Tidyman’s 1998 merger with SuperValu received payouts from the employee stock ownership plan (ESOP), and some of those retirees are now plaintiffs in this case. NUFI alleges that these retirees are “double counting” damages by accepting the ESOP payments and seeking damages in this case. NUFI argues that the $29 million judgment
¶20 By definition, a stipulated or consent judgment is not a court’s or a jury’s calculation of actual damages to which individual plaintiffs are entitled, but rather the amount for which two parties have freely agreed to settle a claim. As we have said before, “[a] consent judgment is £a judgment, the provision and terms of which are settled and agreed to by the parties to the action.’ A judgment by consent or stipulation of the parties is construed as a contract between them embodying the terms of the judgment. It operates to end all controversy between the parties, within the scope of the judgment.” First Bank, (N.A.) v. District Court for Fourth Judicial Dist.,
¶21 The $29 million judgment in this case is a stipulatedjudgment, freely agreed to by Davis and Maxwell and Plaintiffs, and approved by the District Court. While the stipulated judgment is subject to an overall reasonableness assessment, it was not the result of a precise damages calculation performed by the District Court, so it does not account for deductions, credits, or offsets claimed by the insurer but not stipulated to by both parties. The question is simply “whether the settlement amount stipulated to is reasonable.” Tidyman’s I, ¶ 40. On remand, and after considering the valuation evidence presented, the District Court may decide to take into account the ESOP payouts in assessing the reasonableness of the settlement amount. However, because we are addressing a settlement here and not a trial recovery subject to statutory offsets, we conclude that the District Court did not err in declining to engage in the reductions and collateral source offsets urged by NUFI that are typical of post-trial adjustments in tort recovery actions.
¶22 Did the District Court err in awarding prejudgment interest from January 4, 2013?
¶23 We said in Tidyman’s I that “the District Court correctly determined the plaintiffs were entitled to pre-judgment interest beginning on January 4,2013, when the court approved the stipulated settlement agreements and entered judgment in the plaintiffs’ favor.” Tidyman’s I, ¶ 53. Following our remand and the first reasonableness hearing, the District Court complied with our instructions and granted the Plaintiffs prejudgment interest from January 4,2013. However, we reached the conclusion that Plaintiffs were entitled to prejudgment interest from the day the $29 million stipulated settlement was approved even though we reversed the judgment approving the settlement amount and remanded the case for a reasonableness hearing. Tidyman’s I, ¶ 50. This was in error. Plaintiffs would have been entitled to postjudgment interest, not prejudgment interest, from the day the District Court approved the settlement, but only if we had affirmed the amount of the judgment. Section 25-9-205, MCA; M. R. App. P. 19(4); Tipp v. Skjelset,
¶24 We take this opportunity to clarify that Plaintiffs are not entitled to prejudgment interest from January 4, 2013, because interest accruing after that date — the date of the court’s judgment — would by definition be postjudgment and not prejudgment interest. Rather, Plaintiffs may be entitled to postjudgment interest according to the instructions below.
In those cases in which a money judgment rendered in the district court is reversed, modified, or vacated on appeal, with the consequence that the district court is directed to enter an entirely new judgment no portion of which is discreetly identifiable from the original verdict or judgment, then interest on the new judgment shall begin to accrue only from the date the new judgment is entered on remand pursuant to this Court’s direction.
Woods v. Burlington N. & Santa Fe Ry. Co.,
CONCLUSION
¶26 For the foregoing reasons, we remand the case to the District Court for a second hearing to determine the reasonableness of Davis and Maxwell’s decision to settle with the Plaintiffs for $29 million in exchange for a covenant not to execute.
Concurrence in Part
concurring in part and dissenting in part.
¶27 I concur with the Court’s disposition of Issues 2 and 3.1 also agree with the standard the Court establishes for assessing the reasonableness of a stipulated settlement when there has been a breach of the duty to defend. Opinion, ¶ 15. However, I agree with Justice Wheat’s observation that the standard the Court articulates here is only a slight degree of separation from the standard applied by the District Court in the first reasonableness hearing. I also disagree with the Court’s conclusion that the District Court failed to consider the challenges to reasonableness raised by NUFI and highlighted in our opinion in Tidyman’s I. Therefore, I dissent from the Court’s conclusion on Issue 1 that this case should be remanded for a second reasonableness hearing.
¶28 The Court begins its analysis of Issue 1 by noting that in Tidyman’s I we concluded that “further consideration is necessary to determine whether the 29 million dollar stipulated settlement is reasonable, in light of the questions NUFI has raised.” Opinion, f 10 (quoting Tidyman’s I, ¶ 44). The Court then states that “[i]nstead of considering the challenges to reasonableness raised by NUFI and highlighted in our opinion in Tidyman’s I, the District Court based its conclusion that the settlement was reasonable on its assessment that ‘[t]he materials relied up[on] by Plaintiffs and Maxwell and Davis possess sufficient indicia of reliability.’ ” Opinion, ¶ 12. In fact, the District Court specifically noted its obligation to consider the reasonableness of the stipulated settlement in light of the challenges raised by NUFI and highlighted in Tidyman’s I, 4th Judicial Dist. Ct., Or., p. 4 (May 12, 2015) (hereinafter, “Order”), and addressed those challenges in Findings of Fact 89 through 92, Order, pp. 39-42. I believe the Court’s characterization of the District Court’s reasonableness assessment gives short shrift to the work the District Court did in the first reasonableness hearing.
¶29 To the extent that the Court suggests that the standard applied by the District Court in the first reasonableness hearing was deficient as compared to the standard the Court articulates in this Opinion, I submit the differences are, at most, semantic. In the first reasonableness hearing, the District Court applied the following standard for assessing
To determine whether the stipulated settlement is within the range of reasonableness, the Court has considered reasonableness from the perspective of the insured at the time of the stipulation, whether the information relied upon possessed sufficient indicia of reliability and whether the damages represented might naturally have been expected to result from the breach of the duty to defend.
Order, p. 7. The Court criticizes this standard as “subjective” and instructs the District Court to employ the following standard when conducting yet another reasonableness hearing on remand:
[I]n assessing the reasonableness of a stipulated settlement when there has been a breach of the insurer’s duty to defend, a district court should obj ectively consider both the merits of the underlying case and the value to a prudent uninsured defendant of confessing judgment in exchange for a covenant not to execute.
Opinion, ¶ 15. A comparison of the two standards, however, evinces little, if any, substantive difference.
¶30 Broken down to its discrete elements, the reasonableness standard the District Court applied in the first reasonableness hearing has three parts: (1) consider reasonableness from the perspective of the insured at the time of the stipulation; (2) assess whether the information relied upon in arriving at the stipulated settlement amount possessed sufficient indicia of reliability; and (3) determine whether the damages represented might naturally have been expected to result from the breach of the duty to defend. So how do these elements compare to the standard the Court instructs the District Court to apply in the second reasonableness hearing?
¶31 First, if considering reasonableness from the perspective of the insured at the time of the stipulation is a subjective standard, I fail to see how it is any more subjective than determining reasonableness by considering “the value to a prudent uninsured defendant of confessing judgment in exchange for a covenant not to execute,” which is what the Court instructs the District Court to do in the second reasonableness hearing. The perspective that the District Court considered in the first reasonableness hearing was Maxwell and Davis’s perspective as defendants who were left without “the benefit of insurance coverage” due to NUFI’s breach, a factor this Court says is an appropriate consideration, Opinion, ¶ 15. The District Court considered Maxwell and Davis’s perspective “at the time of the stipulation,” because that is the time when, to borrow the language the Court uses in the new standard, Maxwell and Davis “confess[ed] judgment in exchange for a covenant not to execute.” I view these elements as substantively the same.
¶32 Second, the District Court considered whether the information relied upon in arriving at the stipulated settlement possessed “sufficient indicia of reliability.” Again, I view this as substantively the same as the Court’s directive that the District Court should “objectively consider ... the merits of the underlying case.” The information relied upon by the parties in arriving at the stipulated settlement included the merits of the underlying case, at least as those merits had been developed by the time Maxwell and Davis “confess[ed] judgment in exchange for a covenant not to execute.” In that regard, it should be borne in mind that among the “benefit[s] of insurance coverage” that Maxwell and Davis were denied because of NUFI’s breach was the provision of defense costs necessary to develop the merits of the underlying case. Since NUFI’s breach deprived Maxwell and Davis of the means and wherewithal to develop the merits of their defense, they had to play the cards they were dealt. Nevertheless, the District Court recognized that it would be unreasonable to allow Maxwell and Davis to just sign off on any amount in exchange for a covenant not to execute. This is why the District Court objectively evaluated the information upon which the settlement was based to confirm that it “possessed sufficient indicia of reliability.”
¶33 Finally, the District Court assessed “whether the damages represented might naturally have been expected to result from
¶34 After this matter was remanded the first time, the District Court followed our instructions and allowed additional discovery, conducted a three day reasonableness hearing, and then issued a thorough Order in which it answered the questions that were set forth in Tidyman’s I. Now, the Court remands for a second reasonableness hearing with instructions to apply a standard I find to be either substantively the same as, or less stringent than, the standard the District Court applied during the first reasonableness hearing. Therefore I dissent as to the Court’s resolution of Issue 1. I concur with the Court’s resolution of Issues 2 and 3.
Concurrence in Part
concurring in part and dissenting in part.
¶35 I concur with the Court’s disposition of Issues 2 and 3. However, I disagree with the Court’s conclusion on Issue 1 that this case should be remanded for a second reasonableness hearing. In my opinion the Court is improperly interjecting its judgment in the place of the District Court by requesting the District Court repeat what has already been accomplished.
¶36 In Tidyman’s I we directed the District Court to conduct a “hearing focused on the reasonableness of the settlement amount,” with the burden of establishing unreasonableness of the judgment on NUFI. Tidyman’s I, ¶¶ 44, 50. We directed the court to set the parameters of the hearing at its discretion as to the need for the further discovery of pertinent information related to the limited scope of the remand. Tidyman’s I, ¶ 44. The directive we gave to the District Court was to follow the mandate of § 27-1-302, MCA, that settlement amounts in civil cases must be reasonable. We were explicit and clear that in this case, where the insurer elected to deny coverage and breached its duty to defend its insureds, no further analysis of whether there was coverage under the policy was necessary or acceptable under the law. Tidyman’s 7, ¶¶ 28, 30, 33. (“If we were to hold the District Court in error for failing to analyze coverage ... we would be providing insurers with an avenue to circumvent the clear requirement imposed by our precedent that where the insurer believes a policy exclusion applies, it should defend under a reservation of rights and seek a determination of coverage through a declaratory judgment action.” Tidyman’s I, ¶ 28.) We determined that the District Court was obligated under the law to determine only the substantive reasonableness of the stipulated settlement amount without evaluating the underlying policy coverage or any inquiry into potential collusion, as we determined it did not exist in this case. Tidyman’s I, ¶¶ 28, 50.
¶37 The Court how articulates a standard borrowed from the Minnesota Supreme Court to be used in this case to determine whether a settlement amount is reasonable. Opinion, ¶ 15. This standard includes the consideration of the liability and damage aspects of the Plaintiffs’ case, including the risks of going to trial, and in this case, a consideration of the insurer’s breach of its duty to defend its insureds. Opinion, ¶ 15. Yet, we have already determined that the settlement should be given the presumption of reasonableness, and the burden is on defendant NUFI to show unreasonableness. Tidyman’s I, ¶ 41. The Court now asks the District Court to inquire into NUFI’s questions
¶38 We have often repeated the maxim that district courts have broad discretion to make determinations related to evidence, which we rightfully review only for the abuse of this discretion. Watkins v. Williams,
¶39 Even if an insurer breaches its duty to its insured, it is still entitled to have a district court make a determination of the reasonableness of a settlement; however the settlement is presumed to be reasonable unless the insurer is able to show evidence of the lack of reasonableness. Abbey/Land LLC, ¶ 17; Tidyman’s I, ¶ 41. In this case, the District Court conducted a three-day hearing, and heard and evaluated the evidence presented by both sides. The evidence included testimony from various experts offered by both sides regarding the valuation of the company. NUFI has consistently argued that without a buyer the settlement amount in this case is a pie-in-the-sky scenario and therefore unreasonable. However, the court heard testimony that the existence of a buyer is not the determinative factor in the valuation of a company. The Plaintiffs presented evidence, NUFI presented evidence, and the court then evaluated the evidence to determine that NUFI did not meet its burden to overcome the presumption of reasonableness. But this Court is now asking the District Court to go back once again, sift through the same evidence and apply a new standard, which in my opinion in this case, is only a slight degree of separation from what the court has already done pursuant to our direction upon initial remand. Because this is a stipulated settlement the court has one of two options: accept or reject the settlement amount. Opinion, ¶ 15. We have already determined that there is no proof of collusion between the Plaintiffs and Maxwell and Davis, and the record shows that the settlement amount was derived from the conservative end of an independent valuation of the company — the assessment that was available to defendants Maxwell and Davis at the time of the settlement negotiations.
¶40 The Court now requires the District Court to employ a new objective standard — whether a reasonably prudent person in the position of the defendant would have settled, taking into consideration the liability and damage aspects of the claims, the risks of going to trial, and the lack of insurance coverage — but to what end? Not to conduct a trial on the merits of Plaintiffs’ claims and allow NUFI to reach back and interject itself into the litigation it chose to avoid when it left its insureds on their own to challenge the litigation, in direct contravention of our case law. Farmers Union Mut. Ins. Co. v. Staples,
¶41 The Court also indicates using the proposed objective standard will avoid further punishing the insurer for its failure to defend its insureds because the “insurer has already suffered the consequences of its failure to defend by having lost the right to invoke insurance contract defenses as well as the right to assert its policy limits.” Opinion,
¶42 For the foregoing reasons, I respectfully dissent from the Court’s disposition of Issue 1 regarding the remand of this case for a second reasonableness hearing. I concur with the majority on Issues 2 and 3 of this Opinion. Therefore, I would affirm the District Court’s order as to Issues 1 and 2.