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IN THE WORKERS' COMPENSATION COURT OF THE STATE OF MONTANA
1994 MTWCC 20
STATE COMPENSATION INSURANCE FUND
FRANK C. RICHTER
The Court has under consideration an Amended Motion for Summary Judgment of respondent, Frank C. Richter (Richter), and a Cross-motion for Summary Judgment of the petitioner, State Compensation Insurance Fund (State Fund).
The motions are supported by affidavits of Willem Visser and Frank C. Richter. The parties also refer to, and the Court takes judicial notice of, the proceedings in State v. Sharon F. Young, Thirteenth Judicial District Court, No. DC 91-028 and the decision on appeal, State v. Young, 259 Mont. 371, 856 P.2d 961 (1993).
While parties have requested oral argument, I find oral argument unnecessary. For the reasons set forth in the following discussion, both motions for summary judgment are denied and this matter is set for trial.
The State Fund is attempting to recover amounts paid to Frank Richter, an attorney, out of a workers' compensation settlement he negotiated on behalf of Sharon Young. The settlement was based on an alleged injury Sharon suffered on May 4, 1983. It was negotiated and executed in 1987. Richter was paid $9,862.50 for his efforts. He was paid out of, not in addition to, the amounts due Young.
Sharon Young was thereafter criminally prosecuted for conspiracy to commit felony theft. The prosecution arose out of the benefits she obtained for her alleged May 4, 1983 industrial injury. The criminal information charged, and a jury found, that her 1983 claim was fraudulent. The conviction was upheld on appeal in State v. Young, 259 Mont. 371, 856 P.2d 961 (1993).
Following Young's conviction the State Fund petitioned this Court on August 10, 1993 to recover the attorney fees Richter received for representing Young. On August 26, 1993, Richter filed a Motion to Dismiss for Lack of Jurisdiction, which was denied. He filed a renewed motion to dismiss and a motion for summary judgment on October 5, 1993. These motions were also denied. On November 8, 1993, he again renewed his motion for summary judgment. On December 1, 1993, the State Fund filed a cross-motion for summary judgment. These later motions are now ready for decision.
The Court's earlier denials of Richter's motions were without prejudice except as to his challenge to this Court's subject matter jurisdiction. The remaining issues raised by Richter's motions are rephrased as follows:(1)
Many of the grounds asserted by Richter lack cogent legal analysis, are utterly unsupported by any citation to legal precedent, or are supported only by perfunctory assertions. The Court disapproves of this type of practice. The prospects of success are not improved by the sheer numbers of grounds asserted in a motion, and parties should not expect the Court to do their basic legal research for them.
The State Fund advances a singular ground for its motion. Simply stated, the State Fund asserts that uncontroverted facts entitle it to judgment for the full amount of the attorney fees paid Richter.
The rules of this Court contain no specific provision for summary judgment motions. However, the Court has in previous decisions borrowed Rule 56, Mont.R.Civ.P., and will continue to do so. Murer v. State Compensation Mutual Insurance Fund, 257 Mont. 434, 436, 849 P.2d 1036 (1993); Moen v. Peter Kiewit & Sons' Co., 201 Mont. 425, 434 655 P.2d 482 (1982).
Summary judgment must be based on sworn, admissible evidence, although it may be presented by way of affidavit, deposition and answers to written discovery. Rule 56, Mont.R.Civ.P. The Court cannot consider representations of the parties which are not rooted in the sworn evidence. B.M. by Berger v. State, 215 Mont. 175, 179, 698 P.2d 399 (1985); Prairie State Bank v. IRS of Treasury Dept., 745 P.2d 966 (Ariz. 1990). It is also not bound by the parties' characterization of evidence.
Summary judgment will be granted only if the uncontroverted material facts entitle the moving party to judgment as a matter of law. First Security Bank v. Vander Pas, 250 Mont. 148, 152, 818 P.2d 384 (1991). Every factual link in the chain of elements necessary to entitle a party to judgment must be uncontroverted. Bickler v. Racquet Club H&S Assoc., 50 St. Rep. 409, 410 (Mont. 1993); Tippens v. Celotex Corp., 805 F.2d 949, rehearing denied 815 F.2d 66 (Ga. Ct. App.)
The factual basis for the cross-motions are gleaned from the record of proceedings in the criminal prosecution against Sharon Young and affidavits submitted by Willem Visser and Frank Richter. No depositions or other evidence have been submitted. The following facts are deemed uncontroverted:
Other "uncontroverted facts" urged upon the Court are in fact controverted or irrelevant, or not based upon admissible evidence.
The first matter to be addressed is what, if any, cause of action or claim is stated against Richter. In his Renewed Motion to Dismiss, Motion for Summary Judgment, Answer and Affirmative Defenses filed October 5, 1993, Richter alleges that no claim is stated in the petition. However, he has not briefed the matter. Nonetheless, Richter's statute of limitations defense requires identification of the claim as a threshold matter. Moreover, the State Fund's cross-motion for summary judgment also requires an analysis of legal underpinnings of the action.
This is not an action for fraud. The petition does not allege, and the State Fund does not argue, that Richter was a participant in Sharon Young's fraud. Rather, the State Fund relies on the following cases as supporting its claim for restitution of amounts received by Richter: Reil v. State Compensation Mutual Insurance Fund, 254 Mont. 274, 836 P.2d 1334 (1992); Champion International Corp. v. McChesney, 239 Mont. 287, 779 P.2d 527 (1989); Waggoner v. Glacier Colony of Hutterites, 131 Mont. 525, 312 P.2d 117 (1957); Anderson v. Border, 87 Mont. 4, 285 P. 174 (1930); and State Compensation Insurance Fund v. Chapman and Pyfer, WCC No. 9207-6543 (September 1, 1993).
Reil, Waggoner and Anderson all involved restitution of amounts received through execution or payment of judgments which were later reversed. "The right to recover what one has lost by the enforcement of a judgment subsequently reversed is well established." Anderson, 87 Mont. at 11; accord Reil, 254 Mont. at 278. In McChesney an attorney was ordered to repay fees which were paid to him pursuant to section 39-71-611, MCA, under a conditional judgment of the Workers' Compensation Court. The judgment awarded claimant temporary total disability benefits on the condition that he submit to surgery. It was later learned that the claimant refused to submit to surgery, thus entitling the insurer to recoup the temporary total disability benefits paid after the date of refusal. Attorney fees paid with respect to the benefits were also ordered to be repaid since the fees were due the attorney only if claimant agreed to the surgery. The Court noted that the attorney was aware of the condition. In Chapman this Court ordered restitution of benefits and attorney fees awarded by the Workers' Compensation Court as a result of the claimant's fraud. The original judgment awarding benefits and fees was set aside.
This case does not involve the reversal or setting aside of a judgment, or payments made pursuant to a judgment which contained express conditions that were later found to have been violated. The amounts paid to Sharon Young were pursuant to a settlement agreement rather than a judgment. The amounts received by Richter were out of the settlement proceeds paid to claimant pursuant to her attorney fee contract with him, and not the result of a judgment awarding attorney fees. The cases cited by the State Fund are therefore inapposite.
However, the petition nonetheless states a claim based on a constructive trust. A constructive trust arises out of operation of law and is "an equitable device used to compel one who unfairly holds a property interest to convey that interest to another to whom it justly belongs." In re Marriage of Allen, 724 P.2d 651, 656-7 (Colo. 1986). It is "imposed in favor of one entitled to property that is wrongfully withheld or where to allow the present holder to retain the property would result in unjust enrichment." Stone v. Williams, 970 F.2d 1043, 1052-3 (2d Cir. 1992), cert. denied, 113 S.Ct. 233.
Current Montana law defines a constructive trust as follows:
Section 72-33-219, MCA (enacted in 1989 as a part of a general revision of the statutes governing trusts). The current statute is consistent with prior Montana law, as well as the law of other jurisdictions. The law in effect on the date of claimant's settlement was 72-20-111 and 72-20-301, MCA (1985, 1987). Those sections provided:
The substance of the latter provision was carried forward in the 1989 general revision of laws governing trusts. Section 72-36-210, MCA (1989).
Thus, a constructive trust may be "imposed on a third party into whose possession the property or its proceeds can be traced" unless that third party "acquired the property in good faith, for value, and without notice of the circumstances under which the property originally was wrongfully acquired." In re marriage of Allen, 724 P.2d at 657; and see sections 39-20-111 and 310, MCA (1985, 1987); sections 72-33-219, 72-33-220, 72-34-506, 72-36-210, MCA (1989); Ryan v. Stagg, 89 Mont. 390, 298 P. 353 (1931) (residuary legatees and devisees of an estate liable for debt of estate where the money owed was distributed to them and deemed held by them in constructive trust); Meagher v. Harrington, 78 Mont. 457, 254 P. 432 (1927) (where an officer of a corporation fraudulently diverts corporation funds, the corporation may follow and recover the funds unless the rights of innocent third parties intervene).
Initially, a constructive trust was imposed on Sharon Young, who illegally obtained the benefits:
Restatement of the Law of Restitution, § 168(1) (1937). Under the principles cited in the previous paragraph, Richter, as a transferee of claimant, similarly held amounts paid to him in constructive trust unless he gave value in return for the monies. The heart of this controversy is therefore whether Richter's legal services constituted value in return for the fees he received. At first blush, it would appear so. However, the evidence tendered to the Court, while not conclusive, suggests that Richter's services were rendered under a contingent fee agreement. Under a contingent fee agreement, the attorney is entitled to a fee only if his/her client recovers, otherwise s/he is entitled to nothing.(6) Assuming there was a contingency fee agreement in this case, Richter would have been entitled to nothing but for claimant's fraud.
Constructive trusts are rooted in the concept of unjust enrichment. See section 72-33-219, MCA (1989). "Unjust enrichment" is defined by Black's Law Dictionary, 1377 (5th ed. 1979) as:
If Richter was entitled to nothing in the first place, he parted with nothing of value in return for the fees and would be unjustly enriched if permitted to retain them.
However, the State Fund is not entitled to summary judgment for several reasons. First, it has not adequately established that the fee agreement between Richter and the claimant was in fact a contingency agreement. Second, even if the fee agreement was a contingent one, Richter may be entitled to recover his out-of-pocket costs if claimant's liability for those costs was non-contingent. Third, Richter's statute of limitations defense raises factual issues which must be resolved at trial.
The first step in any analysis of the statute of limitations defense is to determine which statute applies. In an action brought to impose a constructive trust, the applicable statute of limitations is the statute "applicable to the underlying cause of action." Howell Petroleum Corp. v. Samson Resources Co., 903 F.2d 778, 780 (10th Cir. 1990) (emphasis added); accord Stove v. Williams, 970 F.2d 1043, 1052-3 (2d Cir. 1992), cert. denied 113 S.Ct. 233; Kaken Pharmaceutical Co. v. Eli Lilly & Co., 737 F.Supp. 510, 518 (S.D. Ind. 1987). Where, as in this case, fraud is the basis for imposing the trust, then the statute of limitations for fraud applies. Kaken, 737 F.Supp. at 518.
The statute of limitations applicable in cases of fraud is section 27-2-203, MCA, which provides:
By its express terms, the statute does not begin to run "until the discovery by the aggrieved party of the facts constituting the fraud." Actual discovery is not required. A party who is aware of facts that would have led to discovery of the fraud had the party exercised ordinary diligence, is sufficient to start the clock. D'Agostino v. Swanson, 240 Mont. 435, 443, 784 P.2d 919 (1990), citing Gregory v. City of Forsyth, 187 Mont. 132, 609 P.2d 248 (1980). Where a party "has notice or information of circumstances which would put him on inquiry which if followed would lead to knowledge, he will be deemed to have had actual knowledge of the facts." Ray v. Divers, 81 Mont. 552, 559, 264 P.2d 673 (1928).
In the present case Richter claims that Visser was aware of Sharon Young's fraud as early as 1986. Richter states:
Affidavit of Frank C. Richter,
¶ 3 (October 4, 1993). Visser in his own affidavit does not deny there
was such a conversation, and Richter vigorously argues that the conversation
is enough to start the clock. Richter's argument, however, crumbles
in the face of the additional information he provides in his own affidavit.
Referring to his 1986 conversation with Visser and the information Visser
thereafter provided, Richter goes on to say:
Affidavit of Frank C. Richter, ¶ 3 (October 4, 1993). Visser's letter set out the chronology regarding insurance coverage, cancellations and claims for the Youngs.(7) While the chronology is suspicious, Richter felt in 1986 that it fell far short of any substantial evidence of fraud, and the Court agrees. Richter pressed on with Sharon Young's case, took the case to hearing, and then prior to any Court decision negotiated a full and final compromise settlement on behalf of the claimant, who executed the settlement on July 23, 1987. Richter's own conduct belies his present contention that Bill Visser knew enough in 1986 to commence the running of the statute of limitations.
On its part, the State Fund argues that the running of the statute of limitations did not begin until July 20, 1993, when the Supreme Court affirmed Sharon Young's conviction. State Fund's Brief at 9. It cites Castillo v. Franks, 213 Mont. 232, 690 P.2d 425 (1984) (Castillo II), as holding that the clock does not start until litigation in the underlying action is finally concluded. Although the peculiar facts in that case supported that conclusion, Castillo was factually unique and does not support the State Fund's contention in this case. Castillo involved a claim that the seller of ranch land had misrepresented appurtenant water rights. The action was commenced after an earlier case had adjudicated the water rights in question. Castillo v. Kunneman, 197 Mont. 190, 642 P.2d 1019 (1982)(Castillo I). In Castillo II the seller raised a statute of limitations defense. However, the district court specifically found that the plaintiffs did not discover the true facts, and therefore could not be certain of the truth or falsity of the representations at issue, until March 3, 1982, when the Supreme Court issued its decision in Castillo I. The Court in Castillo II upheld the district court's finding, stating: "Findings of fact made by a District Court come to us with a high quality of rectitude. Such findings are not to be overturned by us unless they are clearly erroneous." Id. at 239. In Castillo I, however, the seller and buyer were aligned against third parties, both taking the position that the water rights were in fact appurtenant to the land. The matter involved highly technical issues which were resolved only after extensive litigation and a Supreme Court decision. It could hardly be said that the buyers, who were plaintiffs in Castillo II, should have known or predicted the ultimate outcome of Castillo I.
Sharon Young's fraud did not involve technical legal issues. She was charged with and convicted of simple fraud. At least by the time the State Fund became aware of the evidence against Ms. Young, it was on notice of her fraud and the clock began. The critical question that must be answered in this case is, when did the State Fund become aware of sufficient facts to start the running of the statute of limitations? In Mobley v. Hall, 202 Mont. 227, 657 P.2d 604 (1983), a fraud case, the plaintiff purchased land which contained less acreage than had been represented to him. An initial survey indicated there was less cropland than the parties had agreed on. The Court held that at that time the plaintiff had adequate information to put him on inquiry notice and that therefore the situation had been discovered. It rejected plaintiff's argument that the fraud was not discovered until an aerial survey, which confirmed the earlier survey, was done.
The evidence presented to the Court in connection with the motions for summary judgment is insufficient for it to determine when the State Fund knew or should have known of Sharon Young's fraud. Bill Visser's affidavit states:
Affidavit of Willem Visser, ¶ 7. It is not clear from this statement when he reached this opinion. Did he reach it in 1988 or was 1988 merely the year in which the fraudulent claims were made? Moreover, it not clear whether the referral was based on mere suspicion arising from the chronology Bill Visser outlined in his 1986 letter to Richter and the involvement of the claimant's husband in a different fraud, or whether he had additional information which specifically implicated Sharon Young. He did initiate an inquiry and that in itself is suggestive of an awareness which could trigger the clock. The filing of the criminal information against Sharon Young on January 30, 1991, could also have triggered the running of the statute if Bill Visser or others at the State Fund were aware of the filing or with reasonable diligence should have been aware of the filing of the charges. However, without more evidence of the specific circumstances and the specific information available to Bill Visser and the State Fund, the Court cannot reach any definite conclusion concerning the statute of limitations.(8) The issue will therefore have to be resolved at trial. At trial "[t]he plaintiff must show when the fraud or concealment was discovered, and the circumstances of the discovery must be shown, so the court may see whether by ordinary diligence it might not have been made before." Frisbee v. Coburn, 101 Mont. 58, 52 P.2d 882 (1935).
Richter has asserted a number of other affirmative defenses. None merits more than passing mention.
Mediation: The dispute resolution requirements were enacted in 1987. They do not apply to claims arising prior to the effective date of the provisions. Carmichael v. Workers' Compensation Court, 234 Mont. 410, 763 P.2d 1122 (1988). Since the issues presented in this case stem from a 1983 claim, the mediation requirements do not apply.
Res Judicata etc: Richter argues that the claim against him is barred by equitable principles of res judicata, collateral estoppel, waiver, estoppel, or unjust enrichment. Res judicata and collateral estoppel must be premised on a prior adjudication of an identical issue. Davis v. LDS Church, 50 St. Rep. 535, 541 (Mont. 1993); Martinelli v. Anaconda Deerlodge Co., 50 St. Rep. 479, 480 (Mont. 1993); see also Boyd v. First Interstate Bank of Kalispel, N.A., 253 Mont. 214, 218, 833 P.2d 149 (1992) for discussion of res judicata and collateral estoppel. Richter's liability under a constructive trust theory has never been adjudicated.
His arguments concerning waiver and estoppel are premised on the State Fund's failure to pursue its claim at an earlier time and the 1987 settlement agreement with Sharon Young. He has failed to show, however, that at those times the State Fund knew of Sharon Young's fraud.
Finally, his unjust enrichment argument smacks of putting a shoe on the wrong foot.
Due Process and Jury Trial: A constructive trust is an equitable remedy. The right to a jury trial has not been extended to suits in equity. Mont. Coalition For Stream Access v. Hildreth, 211 Mont. 29, 38, 684 P.2d 1088 (1984). As to Richter's invocation of due process, that is what this proceeding is all about.
Standing: This defense is frivolous. The State Fund is attempting to recover money it lost on account of Sharon Young's fraud. It is clearly the real party in interest.
Impairment of Contract: This case does not involve any newly adopted statute which impairs a pre-existing contract.
Privity: This action is not based on contract. It arises as the result of Sharon Young's fraud and equitable principles.
In Personam Jurisdiction: This defense is frivolous. Richter is an attorney practicing in Montana and is subject to the jurisdiction of Montana courts.
For the reasons set forth above, the motions are denied and this matter is set for trial.
DATED in Helena, Montana, this 4th day of March, 1994.
c: Mr. Charles G. Adams
1. These issues are taken from Richter's Renewed and Amended Motion to Dismiss, Renewed and Amended Motion for Summary Judgment, Response to Petition and Amended Affirmative Defenses (November 9, 1993) and Richter's Renewed and Amended Motion to Dismiss, Renewed and Amended Motion for Summary Judgment (November 9, 1993).
2. The fee agreement has not been provided to the Court. While the Court can infer from the amounts paid Richter that the fee agreement was a contingent one, that fact is not conclusively established.
3. The exchange between Visser and Richter is discussed in more detail infra at 10.
4. According to the Petition For Full And Final Compromise Settlement which is attached as Exhibit 1 of the Affidavit of Willem Visser, the hearing was held November 20, 1986, and the parties thereafter agreed to settle.
5. The Supreme Court decision states that she was tried on "August 19 and 20, 1992." 259 Mont. at 375. A review of the district court record indicates, however, that the trial and the 1992 date was a typographical error and should be 1991.
6. Contingency fee agreements typically require the client to pay out of pocket expenses irrespective of the result. To this extent, Richter may have been entitled to reimbursement from the claimant even if a contingency fee agreement was used.
7. The letter provided the following history:
Exhibit C to Affidavit of Frank Richter (dated October 4, 1993 and filed October 5, 1993).
8. Claimant was ultimately convicted on August 20, 1991. Certainly by this time the State Fund should have been aware of sufficient facts to file a petition with this Court.
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