No. 88-457
IN THE SUPREME COURT OF THE STATE OF MONTANA
PHILLIP R. MORROW, INC., and
PHILLIP MORROW ,
Plaintiffs and Appellants,
-vs-
FBS INSURANCE MONTANA-HOINESS LABAR, INC.,
a Montana corporation,
Defendant and Respondent.
APPEAL FROM: District Court of the Thirteenth Judicial District,
In and for the County of Yellowstone,
The Honorable G. Todd Baugh, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Holland & Hart; James M. Ragain and Kyle Anne Gray,
Billings, Montana
For Respondent :
Gerald B. Murphy and T. Thomas Singer, Billings,
Montana
P
cr: Submitted on Briefs: Jan. 12, 1989
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, Decided: March 9, 1989
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Mr. Justice R. C. McDonough delivered the Opinion of the
Court.
This action from the Thirteenth Judicial District,
Yellowstone County, for intentional interference with
prospective economic advantage and intentional infliction of
emotional distress, is before this Court for the second time.
The first appeal involved the District Court's decision to
grant the motion for summary iudgment made by respondent FBS
Insurance Montana-Hoiness Labar, Inc., (FAS). We reversed.
Morrow v. FBS Insurance (Mont. 1988), 749 P.2d 1073, 45
St.Rep. 188. This appeal concerns the District Court's
decision to grant FBS1s motions for directed verdicts. The
District Court decided that Morrow failed to present evidence
to establish a prima facie case for either tort claim. We
reverse on the interference claim and affirm on the claim for
intentional infliction of emotional distress. The District
Court further decided Morrow failed to come forward with
facts sufficient to justify submission to the jury of his
claim for punitive damages. We reverse the lower court on
this issue.
The earlier opinion contains an extensive fact
statement. Facts relevant to this appeal can be summarized
as follows: Morrow, a plumbing contractor, alleged that FRS,
acting as a bonding agent, prevented a general contractor
from accepting his bid for a major mechanical subcontract.
Fisher Construction, (Fisher), the general contractor
involved, planned to submit a bid for the construction of a
water plant. Morrow submitted a bid to Fisher for the
mechanical portion of the job.
FBS had agreed to act as Fisher's bonding agent, and
requested at some point that Fisher back-bond major
subcontractors. FBS would not agree to bond Morrow. Morrow
was aware that FBS would not provide him a bond prior to
Fisher's award of the subcontract. Morrow told Fisher that a
different bonding agent would bond his work for the
subcontract.
Morrow and another subcontractor, Star Services, (Star),
were the two low bidders for the mechanical subcontract.
Fisher met with the two low bidders to discuss cost cutting
measures to reduce Fisher's bid on the entire project.
Fisher awarded the subcontract to Star.
Morrow's suit for interference alleged that personal
dislike and prior financial dealings between Morrow and FBS
motivated FBS to apply the pressure. FBS responded that it
did not apply pressure on Fisher.
Dan Fisher and Alf Hulteng, agents of Fisher, testified
that Star received the contract because they bid lower than
Morrow. They also testified FBS did not pressure them to
refuse Morrow's bid. Morrow testified that Dan Fisher and
Hulteng told him Star received the contract because FBS
pressured Fisher.
Hulteng testified that it was possible he told Donna
Morrow that FBS's employee Kip Vanderverter disliked Morrows.
Donna Morrow testified that Vanderverter once inquired
whether FBS would be providing a bond for work done by Morrow
in 1982. She stated that when she informed Vanderverter that
Morrow would be bonding with another company, Vanderverter
ended the conversation abruptly, and that she feared he had
been angry.
A conflict in the evidence exists as to which
subcontractor bid lowest. Hulteng testified that Morrow's
bid appeared lowest, but that he wanted to make sure Morrow
had included costs for the clearwell piping portion of the
job. Hulteng called Morrow and Morrow told Hulteng he
included the clearwell costs in his bid. Hulteng testified
that a scope sheet detailing the figures Morrow used to
calculate his bid showed Morrow omitted the clearwell
portion. Morrow testified his scope sheet did not show that
he omitted the clearwell portion.
Morrow raises the following issues:
(1) Did the trial court err by granting FBS's motion
for a directed verdict on the claim of intentional
interference with prospective economic advantage?
(2) Did the trial court err by granting FBS's motion
for a directed verdict on the claim of intentional infliction
of emotional distress?
(3) Did the trial court err by ruling on the issue of
punitive damages before submitting the case to the jury?
The trial court concluded that the jury could consider
testimony by Morrow that Hulteng and Dan Fisher told Morrow
that FBS pressured Fisher only as impeachment evidence.
Clearly, this is not the rule on prior inconsistent
statements admitted under Rule 801 (d)(1) (a) M.R.Evid. :
Prior inconsistent statements traditionally have
been admissible to impeach but not as substantive
evidence. Under the rule they are substantive
evidence.
Commission Comments, Rule 801 (d) (1)(a), M.R.Evid. This Court
has previously agreed with the Commission on this point.
State v. Fitzpatrick (1980), 186 Mont. 187, 606 P.2d 1343.
FBS argues that the District Court should be affirmed on
other grounds. First, FBS argues that the trial court
correctly distinguished Fitzpatrick because Morrow's
statement contains two hearsay declarations. Therefore,
according to FBS, the trial court correctly excluded the
testimony because the second statement does not come under
any exception to the hearsay rule. We agree that Morrow's
statement arguably contains two statements. The testimony
could be characterized as "Dan Fisher told me Kip Vandeverter
told him, 'don't do business with Morrowt". Under similar
circumstances, this Court has held such statements to come
under the proscriptions of Rule 805. The rule requires that
each statement fall under an exception to the general
prohibition of proof by hearsay. State v. Martinez (19831,
188 Mont. 271, 613 P.2d 972.
We disagree, however, that Rule 805 excludes the
testimony. The trial court should have admitted the second
statement as non-hearsay under Rule 801 (c), M.R.Evid.,
because the statement constitutes a "verbal act", in the
sense that it goes to prove the operative facts of the
alleged tort, i.e., pressuring Fisher. Weinstein comments on
statements admitted under the verbal act doctrine as
non-hearsay under Rule 801(c), as follows:
Although Morgan objected that the phrase
"verbal act ... as commonly used, is less vague
than res gestae only because it is couched in
English, instead of Latin," commentators and courts
today appear united in limiting the phrase to one
particular aspect of nonhearsay utterances. It is
applied, when as in the case of the defamation
examples above, the utterance is an operative fact
which gives rise to legal consequences.
For instance. in Creaahe v. Iowa Home Mutual
Casualty Co. 132; F.2d 961 (10th Cir. 1963)1 ,
plaintiff, who had recovered a judgment as yet
unsatisfied against one Osborn in an earlier action
stemming from an automobile accident, now brought
an action against Osbornts alleged insurer at the
time of the accident. The insurer asserted that
the policy had been cancelled shortly before the
accident. Its agent (W) testified to statements by
Osborn (D) requesting cancellation. Plaintiff
objected that this testimony was hearsay. The
court disagreed: "The hearsay rule does not
exclude relevant testimony as to what the
contracting parties said with respect to the making
or the terms of an oral agreement. The presence or
absence of such words and statements of themselves
are part of the issues in the case. This use does
not require a reliance by the jury or the judge
upon the competency of the person who originally
made the statements for the truth of their content.
. . . I1
4 J. Weinstein, M. Berger, Weinstein's Evidence 9 801(c)[011
at 801-71-72 (1988)(emphasis added). An approximation of the
application of this rule in a business interference claim may
be found in Atlantic Building Systems v. Atlantic States
Construction (Ga.App. 1984) , 322 S.E.2d 311. In
Atlantic Building Svstems, the plaintiff allegedly threatened
to forgo paying a debt owed to a third party if the t.hird
party sold goods to the defendant. The defendant ' s
counterclaim alleged the threats constituted tortious
interference. An employee of the third party testified to
the declarations constituting the threats. The appeals court
affirmed the decision to allow the testimony because the
defendant introduced the declarations to prove its inability
to purchase goods from the third party. The court relied on
Georgia's - gestae statute for authority in admitting the
res
declarations. Atlantic Building Systems, 322 S.E.2d at 313.
Montana law requires that statements admitted under the
- gestae rule be made under circumstances where reflection
res
and fabrication are unlikely. State v. Collins (1978), 178
Mont. 36, 582 P.2d 1179. The statement must occur at the
time the excitement of the circumstances motivated the
utterance. State v. Fairburn (1959), 135 Mont. 449, 340 P . 2 d
157. The statements here do not meet these tests.
However, where the issue is the existence of statements,
not the truth of the matters asserted within them, Montana
recognizes the verbal act doctrine. Collins, 582 P.2d at
1183. Under the verbal act doctrine in Montana, statements
may be admitted "for the purpose of establishing the fact
that the words had been said by defendant." Collins, 582
P.2d at 1183. Threats may constitute verbal acts. United
States v. Stratton (2nd Cir. 1985), 779 F.2d 820, 830. The
second set of statements in Morrow's testimony go to proving
the existence of statements made by Vanderverter. The
existence of the statements constitutes the operative fact of
this particular action. They are admissible to prove the
existence of acts by Vanderverter to pressure Dan Fisher and
Hulteng, not for the truth of matters asserted within them.
See 6 J. Wigmore, Wigmore on Evidence § 1774 (Chadbourn Rev.
1976) (citing Caplan v. Caplan (N.H. 1928), 142 A. 121, 124) ;
and see Tocco v. Great Falls (Mont. 1986), 714 P.2d 160, 43
St-Rep. 310. Thus, the statements may be properly admitted
as non-hearsay evidence under Rule 801(c), M.R.Evid.
The lower court also relied on Rule 403, M.R.Evid., to
exclude consideration of Morrow's testimony ruling that the
second hand nature of the testimony would mislead the jury,
cause confusion, and result in unfair prejudice. The lower
court held that these factors outweighed the probative value
of the testimony.
Rule 403, M.R.Evid., allows an objection to admission of
confusing and misleading evidence. Trial courts must balance
the probative value of evidence against the possibility that
the evidence will confuse or mislead the jury. Here,
Morrow's testimony is crucial to his case, therefore its
probative value, for the purpose of applying Rule 403,
M.R.Evid, is high. Wigmore comments that exclusion for
confusion is an "extreme measure" not properly used:
unless either the evidential material was
necessarily and thoroughly objectionable or else
was of minor utility and could be easily
sacrificed; [moreover] nor should the exclusion be
an absolute one, unless a conditional or temporary
exclusion would not suffice for the purpose.
6 J. Wigmore, Wigmore on Evidence 5 1864 (Chadbourn Rev.
1976). The evidence here is in no sense thoroughly
objectionable and its utility to Morrow is great. Therefore,
it was not properly excludable under Rule 403, M.R.Evid.
The lower court also relied on Rule 602, M.R.Evid., to
exclude Morrow's testimony. The lower court apparently
reasoned that Morrow had no personal knowledge of the matters
he testified to in connection with the statements made by Dan
Fisher and Hulteng. Rule 602, M.R.Evid., requires witnesses
to have personal knowledge of matters embraced within their
testimony. Morrow contends that the lower court erred
because Rule 602:
is subject to the hearsay rule. If a witness is
testifying to what he heard he may do so unless
what he heard is excluded under the hearsay rules
of Article VIII. The witness' testimony may even
contain hearsay within hearsay. See Rule 805.
There is no inconsistency between Rule 602 and the
hearsay rules since the "matter" he is testifying
to is what he heard rather than the event described
by the hearsay declarant.
3 J. Weinstein & M. Berger, Weinstein's Evidence 9 602 [Ol]
at 602-04. On this point the Commission on Evidence agrees:
The exceptions stated in Section 93-401-2
[superseded], opinions and hearsay, are intended to
apply to this rule.
Commission Comments, Rule 602, M.R.Evid. The Court in
Stratton explained the rule in the context of statements
alleged to be hearsay within hearsay:
[Alppellants misconceive the nature of the personal
knowledge requirement, see Fed.R.Evid. 602, in the
hearsay context. Whenrtestifies that B told him
of an event, A usually has personal knowledge only
of B's report. It is B who has personal knowledge
of the event. Thus, the hearsay rules require that
the declarant, B in our example, have personal
knowledge of the events recounted, not that the
witness have such personal knowledge.
See United States v. Lang, 589 F.2d 92, 98 (2d Cir.
1978). Thus, Farber could have testified to
Stratton's report of the threats because the
threats were within the personal knowledge of
Stratton. Nor is there a hearsay within hearsay
problem. Stratton's report of threats to Farber,
his chief assistant, is not hearsay because it is a
statement of a co-conspirator in furtherance of the
conspiracy, ...
Stratton, 779 F.2d at 829-30. We hold that the analysis from
Stratton provides the correct holding on the interaction of
the hearsay rules with the personal knowledge requirement as
applied to the facts of this case. Thus, Rule 602,
M.R.Evid., does not operate to exclude Morrow's testimony.
The lower court also held that Rule 701, M.R.Evid.,
mandated exclusion of Morrowts testimony. Rule 701 requires
that opinions and inferences from the testimony of lay
witnesses be rationally based on the witnesses' perceptions,
and that the opinions and inferences further a clear
understanding of the witnesses' testimony or the
determination of the facts at issue. Rule 701, M.R.Evid.
Morrow argues that Rule 701 does not apply because
Morrow's testimony contains no opinions. FBS responds that
the opinion at issue is whether acts of FBS constituted
pressure on Dan Fisher or Hulteng to avoid awarding the
subcontract to Morrow. FBS also contends that it is
impossible to ascertain who of the witnesses formed the
opinion that pressure existed.
Testimony in the record reveals that Dan Fisher and
Hulteng had opinions as to what is meant when someone is
"pressuring" another to do something in a particular manner.
They also testified that FBS exerted no pressure to prevent
hiring Morrow. These perceptions, as well as the perception
introduced through Morrow's testimony on the presence of
pressure, may he properly admitted as questions concerning
"'~rarious mental and moral aspects of humanity, such as
disposition and temper, anger, fear, excitement,
intoxication, veracity, general character, and particular
phases of character, and other conditions and things, both
moral and physical, too numerous to mention."' Commission
Comments, R.ule 701, M.R.Evid. (quoting State v. Trueman
(1906), 34 Mont. 249, 85 P. 1024). Thus, no issue exists
here under Rule 701, M.R.Evid.
The District Court also concluded that even if Morrow's
evidence were admissible, no prima facie case existed because
Morrow failed to present evidence that FBS improperly
interfered with selection of the subcontractor. Morrow
argues the lower court erred because evidence demonstrated
that Vanderverter pressured Fisher because he disliked
Morrows. Morrow also argues that justification for
interference must be pleaded under Rule 8 (c), M.R.Civ.P., as
an affirmative defense citing Phillips v. Montana Education
Association (1980), 187 Mont. 419, 610 P.2d 154.
In Phillips, plaintiff claimed defendant induced breach
of an existing contract. Phillips, 610 P.2d at 156. This
Court, in analyzing the tort, stated:
Generally, an intentional interference with the
existing contractual relations of another is prima
facie sufficient for liability and the burden of
proving that it is "justified" rests upon the
defendant.
Phillips, 619 P.2d at 157. This view accords with Prosser
who comments:
The early cases, with their emphasis upon "malice,"
regarded proof of an improper motive as an
essential part of plaintiff's cause of action. As
the tort became more firmly established, there was
a gradual shift of emphasis, until today it is
generally agreed that an intentional interference
with the existing contractual relations of another
is prima facie sufficient for liability, and that
the burden of proving it is "justified" rests with
the defendant.
W. Prosser, Law of Torts § 129 at 942 (4th ed. 1971).
However, in Montana, a showing that the defendant acted
without right or justification is part of the plaintiff's
prima facie case in an action for intentional interference
with prospective business advantage. Bolz v. Meyers (1982),
200 Mont. 286, 651 P.2d 606. Affirmative defenses generally
concern the pleading of matter outside the plaintiff's prima
facie case. 2A J. Moore, Moore's Federal Practice § 8.27 (2d
ed. 1982). Morrow's complaint alleged intentional
interference with prospective business advantage. FRS
answered generally denying the allegation. A general denial
puts every material allegation in dispute. Thus, no issue
under Rule 8 (c), M.R.Civ.P., exists.
In the first opinion we stated that evidence from
discovery created a material fact question on whether FBS
acted improperly in allegedly interfering with the
subcontract. Morrow, 749 P.2d at 1076. Similarly here, the
jury could find from the evidence introduced at trial that
FBS's alleged actions were motivated without right or
justification. In addition to evidence showing that FBS may
have a "legitimate" financial interest in forcing Fisher to
select certain subcontractors, evidence indicated FBS may
have been motivated to avenge for imagined wrongs in previous
dealings. Evidence also inferred that the alleged pressure
could have been fueled by Vanderverter's personal dislike of
Morrows. The jury may or may not consider this to be weak
evidence that FBS acted without privilege or justification in
allegedly interfering. However, in granting a motion for a
directed verdict, the evidence must be viewed in a light most
favorable to the party opposing the motion. Nicholson v.
United Pacific Ins. Co. (Mont. 1985), 710 P.2d 1342, 42
St.Rep. 1822. Viewing the evidence in a light most favorable
to Morrow, we hold that the evidence supports a prima facie
case of intentional interference with prospective business
advantage.
11.
We agree with the District Court that Morrow failed to
make out a prima facie case for intentional infliction o f
emotional distress. This Court has yet to recognize the tort
in Montana. Frigon v. Morrison-Maierle, Inc. (Mont. 1988) ,
760 P.2d 57, 45 St.Rep. 1344. In Frigon we affirmed the
District Court's decision that no material fact question
existed on plaintiff's claim for intentional infliction of
emotional distress because the defendant's actions in denying
her a raise failed to amount to conduct beyond all possible
bounds of decency. Frigon, 760 P.2d at 64. Thus, while we
have yet to decide under what facts we will recognize the
tort, we have at least decided some situations where we will
not. No facts here demonstrate extreme and outrageous
conduct. Thus, we affirm the District Court's decision that
Morrow did not make out a prima facie case for intentional
infliction of emotional distress, and dismissal of the claim
is appropriate. First Bank Billings v. Clark (Mont. 1989),
,
- P.2d - 46 St. Rep. 291.
111.
Our decision to remand for a new trial raises the issue
of whether the lower court properly concluded Morrow failed
to present evidence sufficient to submit his claim for
punitive damages to the jury. The applicable portion of S
27-1-221(5), MCA (1985), provides for punitive damages for
oppression where a defendant:
intentionally causes cruel and unjust hardship by
(a) misuse or abuse of authority or power; or
(b) taking advantage of some weakness, disability,
or misfortune of another person.
Morrow argues that F B S knew that Morrow needed the
subcontract to avoid financial ruin, and that the jury could
find F B S intentionally took advantage of Morrow's financial
disability to cause cruel and unjust hardship on Morrow. We
agree that under the above subsection Morrow presented
sufficient evidence to go to the jury on this issue. We
reverse for a new trial in accordance with this opinion.
We Concur: /