Draggin’ Y Cattle Company, Inc. v. Addink

Draggin’ Y Cattle Company, Inc. v. Addink, 2016 MT 98 (May 3, 2016) (Baker, J.; Rice, J., concurring; McKinnon, J., concurring & dissenting; McGrath, C.J. & Wheat, J., recused themselves) (5-0, appeal dismissed)

Issue: Whether New York Marine timely raised its disqualification claim, and if so, whether the claim should be considered on the merits given that the judge did not disclose circumstances that could cause the judge’s impartiality to be reasonably questioned.

Short Answer: Under these circumstances, the claim is not waived. The Court holds Judge Huss had a duty to disclose but declines to determine whether Judge Huss should have been disqualified for cause. It remands for determination of the disqualification issue by a district judge it will assign.

Appeal dismissed and case remanded for further proceedings

Facts: In January 2011, Peters filed suit against Junkermeier alleging multiple counts related to tax services performed for Peters. Junkermeier tendered the defense to New York Marine (NYM), which insured Junkermeier under a professional liability policy. NYM thereafter defended Junkermeier subject to a reservation of rights.

Junkermeier eventually moved for summary judgment on statute of limitations grounds. The district court granted the motion, Peters appealed, and this Court reversed. 2013 MT 319.

On remand Peters moved for substitution of the district court judge, and Judge Huss assumed jurisdiction in December 2013. In November 2014, the parties entered into a settlement agreement and stipulation for entry of judgment without NYM’s participation. On the same day, NYM filed suit in federal court against Junkermeier for declaratory judgment and breach of contract. The district court scheduled a hearing on the settlement’s reasonableness.

Before the hearing, NYM moved to intervene and asked for a stay of the hearing, discovery, and a status conference. The district court granted the motion to intervene but denied the other motions. The court held the hearing that day. At the hearing, Peters filed a cross-claim seeking a declaration that NYM was liable for the stipulated settlement.

Procedural Posture & Holding: In March 2015, the district court entered findings, conclusions and an order that the stipulated settlement amount was reasonable. In May 2015, the court entered judgment for Peter in the amount of $10 million, and ordered that Junkermeier was not liable for the amount. The court dismissed Peters’ cross-claims on the grounds that the federal district court had jurisdiction over all claims filed by NYM. NYM appeals the order denying its motion for discovery on the reasonableness of the settlement, and Peters cross-appeals the dismissal of their cross-claims. The Supreme Court dismisses the appeal and remands for further proceedings.

On appeal, NYM asserts for the first time that Judge Huss erred by not disclosing an apparent conflict stemming from a complaint filed against him by a former court reporter in February 2014. While this case was pending, Judge Huss entered into a stipulation and confession of judgment. The Office of the Court Administrator had been paying for Judge Huss’s defense, and he allegedly entered into the settlement without OCA’s participation or knowledge. Four days after Peters and Junkermeier entered into their stipulated settlement, OCA filed suit against Judge Huss, seeking a declaration that it had no duty to defend or indemnify him. OCA specifically contested the reasonableness of the stipulated settlement. Judge Huss did not disclose any of these facts to the parties. NYM asserts it did not become aware of these facts until May 2015, upon learning he had submitted a letter of resignation dated April 21, 2015. He resigned effective January 1, 2016.

Reasoning: Although the Court generally does not consider issues raised for the first time on appeal, it has the power to consider such an issue if it affects the substantial rights of a litigant. The Court concludes that NYM raises a claim sufficient to invoke its substantial right to due process based on Judge Huss’s potential conflict of interest. It further concludes that extenuating circumstances justify NYM’s failure to raise the issue below.

Under the facts presented, the Court concludes that NYM raised its claim for disqualification within a reasonable time after learning of the underlying circumstances. In the future, a party should raise a disqualification issue discovered after an order or final judgment through a Rule 60(b) motion.

The Court declines to address whether Rule 2.12 required Judge Huss to disqualify himself, instead addressing only whether he should have disclosed the circumstances to the parties. The circumstances under which a judge should disclose information that reasonably may cause a party to question the judge’s impartiality is an issue of first impression in Montana. The Montana Code of Judicial Conduct makes clear that a judge is disqualified whenever the judge’s impartiality might reasonably be questioned. A judge’s “average personal experiences” do not generally require disqualification. The facts presented here are not an average personal experience, however.

The timing and nature of the circumstances here reasonably raise concerns about Judge Huss’s impartiality, leading the Court to conclude that Judge Huss was required to disclose his participation in his personal stipulated settlement to the parties under Rule 2.12(C). The Court will dismiss the appeal and assign the case to a district judge to hear the matter of Judge Huss’s disqualification. The ruling on that issue will be appealable.

Justice Rice’s Concurrence (joined by Cotter, J.): Justice Rice understand the Court’s desire to carefully lay out the procedures to be followed to address the serious charge of impartiality, but on the basis of the facts herein, he would go further. He would reverse the May 2015 judgment and June 2015 dismissal order and remand for further proceedings before a new judge. He sees no point in holding an evidentiary hearing on the disqualification of a judge who has already resigned.

Justice McKinnon’s Concurrence & Dissent: Justice McKinnon concurs in the decision to dismiss the appeal and remand to a district judge who can determine Judge Huss’s impartiality. She dissents from the portion of the opinion that concludes Judge Huss was required to disclose his personal settlement.