November 27 2009
DA 08-0299
IN THE SUPREME COURT OF THE STATE OF MONTANA
2009 MT 410
CRAIG McKAY and LISA McKAY, Husband and Wife,
Plaintiffs, Appellees, and Cross-Appellants,
v.
WILDERNESS DEVELOPMENT, LLC,
Defendant, Appellant, and Cross-Appellees.
APPEAL FROM: District Court of the Nineteenth Judicial District,
In and For the County of Lincoln, Cause No. DV-07-158
Honorable Michael C. Prezeau, Presiding Judge
COUNSEL OF RECORD:
For Appellant:
Sean S. Frampton, Morrison & Frampton, PLLP, Whitefish, Montana
For Appellees:
Amy N. Guth, Attorney at Law, Libby, Montana
Submitted on Briefs: August 5, 2009
Decided: November 27, 2009
Filed:
__________________________________________
Clerk
Justice John Warner delivered the Opinion of the Court.
¶1 Craig and Lisa McKay brought suit against Wilderness Development, LLC
(Wilderness), in the District Court of the Nineteenth Judicial District Court, Lincoln
County, alleging it had violated restrictive covenants attached to the Koocanusa Estates
Subdivision near Eureka, Montana (Subdivision). The McKays also alleged that
Wilderness had trespassed on their property and converted some of their trees. The
District Court granted partial summary judgment to the McKays, holding that Wilderness
had violated a restrictive covenant. A Lincoln County jury found that the McKays had
suffered $350,000 in damages for violation of the restrictive covenant. The jury also
found that Wilderness had converted trees owned by the McKays with a value of $6,500,
and that it was not liable for trespass. The jury also awarded $1,000,000 in punitive
damages. The District Court reduced the punitive damage award to $25,000 and entered
judgment in favor of the McKays. Wilderness appeals the judgment and the McKays
cross-appeal. We affirm in part, reverse in part, and remand for further proceedings
consistent with this Opinion.
¶2 Wilderness raises eight issues on appeal, which we restate as follows:
¶3 Issue 1: Did the District Court err in holding that waiver and laches did not bar the
McKays from enforcing restrictive covenants?
¶4 Issue 2: Did the District Court err in precluding Wilderness from offering evidence
that the McKays failed to object in advance of construction of the maintenance building?
2
¶5 Issue 3: Did the District Court err in its instruction to the jury concerning recovery
of damages for emotional distress?
¶6 Issue 4: Is there sufficient evidence to support the jury’s award of damages for
breach of the restrictive covenant prohibiting the construction of a commercial building?
¶7 Issue 5: Did the District Court err in holding that Wilderness does not have an
easement across the McKays’ property?
¶8 Issue 6: Is there sufficient evidence to support the jury’s award of damages for
conversion?
¶9 Issue 7: Was the jury verdict reached under the influence of passion and
prejudice?
¶10 Issue 8: Is there sufficient evidence to establish malice, which is required to
award punitive damages?
¶11 The McKays raise an issue on cross-appeal which we restate as follows:
¶12 Issue 9: Did the District Court err in reducing the punitive damage award?
¶13 In addition, the McKays raise alternative issues on cross-appeal should this Court
reverse the District Court judgment:
¶14 Issue 10: Did the District Court err in refusing to require Wilderness to remove a
maintenance building it erected in violation of a restrictive covenant?
¶15 Issue 11: Did the District Court err in not enforcing a restrictive covenant
prohibiting further division of a lot Wilderness owns in the Subdivision?
3
BACKGROUND
¶16 In 1979, the Koocanusa Estates Subdivision was created. The Subdivision was
made subject to covenants which restrict use of the property to “single-family residential
or agricultural purposes” and which prohibit “further subdivision of the parcels.” Lot 4A
in the Subdivision was platted as a 20-acre lot. Despite the restrictions, Lot 4A was
subdivided into two 10-acre parcels in 2000 at the McKays’ request, and the McKays
then purchased the southerly 10 acres of Lot 4A. Later, the McKays purchased the
neighboring 20-acre Lot 5A, which is not involved in this dispute.
¶17 Wilderness purchased approximately 500 acres of land to the north of the
McKays’ part of Lot 4A, including 50 acres within the Subdivision. As a part of this
purchase, Wilderness acquired the northern 10 acres of Lot 4A. Thus, Wilderness and
the McKays share a common boundary, with Wilderness owning the northern 10 acres of
Lot 4A and the McKays owning the southern 10 acres.
¶18 At the time Lot 4A was divided and the McKays purchased its southern 10 acres,
the division left the owner of the northern 10 acres with no access to his portion of Lot
4A other than across the McKays’ property, or across a road which he had no legal right
to use.
¶19 Wilderness is developing a residential community and golf course on its 500 acres,
including the 50 acres it owns within the Subdivision. In May of 2007, Wilderness began
clearing trees on the western boundary of the McKays’ property, where it claims it has a
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road easement. It cleared an area 150-feet-long and 33-feet-wide along the western
boundary of the McKays’ portion of Lot 4A, removing over 100 trees.
¶20 The McKays filed suit in June 2007 to enjoin the construction of the road and for
damages for trespass and conversion.
¶21 Wilderness’ plans for the golf course include the construction of a maintenance
facility located on the northerly part of Lot 4A, adjacent to the McKays. Wilderness also
planned to further divide the northerly portion of Lot 10A into four separate parcels. In
August 2007, Wilderness poured the foundation for the maintenance facility. The
McKays then amended their complaint to pray for a permanent injunction against the
alleged violations of the covenants by Wilderness, including the construction of the
maintenance facility, and the further division of the northerly portion of Lot 4A. The
McKays also prayed for punitive damages.
¶22 The parties moved for summary judgment on three issues: Wilderness’ right to
access its property by constructing a road across the western boundary of the McKays’
property; whether the McKays could enforce the restrictive covenant prohibiting the
construction of the maintenance building; and whether the McKays could enforce the
restrictive covenant prohibiting further division of the northerly portion of Lot 4A. The
District Court ruled that Wilderness has no legal right to access its property through the
McKays’ property. The District Court also ruled that the covenant restricting further
subdivision was unenforceable in light of the McKays’ own violation of that covenant.
Finally, the District Court held as a matter of law that the McKays could enforce the
5
restrictive covenant that prohibited Wilderness from building a commercial maintenance
facility to service its golf course on the northerly portion of Lot 4A. The District Court
denied the McKays’ prayer for an injunction requiring that the maintenance building be
removed. Rather than order the building removed, the District Court ordered that a jury
would determine the amount of money damages the McKays had suffered because of the
violation of the restrictive covenant. The District Court also ordered a jury trial to decide
if Wilderness committed a trespass on the McKays’ property, had converted the McKays’
trees, and had acted with malice justifying punitive damages. The jury would also
determine the amount of any damages.
¶23 The case was tried to a Lincoln County jury on April 1-4, 2008. The jury fixed the
amount of damages suffered by the McKays for violation of the restrictive covenant at
$350,000. The jury concluded that Wilderness did not trespass on the McKays’ property.
However, the jury found that Wilderness had converted the McKays’ trees and awarded
$6,500 as damages for the conversion. The jury also awarded the McKays $1,000,000 in
punitive damages.
¶24 Following the verdict, Wilderness moved the District Court to strike the punitive
damage award and to grant a new trial. The District Court did not rule on Wilderness’
motion to strike and denied Wilderness’ Motion for a New Trial. The District Court then
reviewed the amount of punitive damages and reduced the award to $25,000. Wilderness
now appeals and the McKays cross-appeal. Further facts relating to the several issues
presented will be discussed as necessary.
6
DISCUSSION
¶25 Issue 1: Did the District Court err in holding that waiver and laches did not bar
the McKays from enforcing restrictive covenants?
¶26 We review a district court’s consideration of the grant or denial of summary
judgment de novo. Prosser v. Kennedy Enterprises, Inc., 2008 MT 87, ¶ 10, 342 Mont.
209, 179 P.3d 1178.
¶27 Wilderness sought approval of its development by Lincoln County. The approval
process required submission of plans detailing the development. Public hearings were
held concerning these plans. The McKays did not attend the public hearings and made no
objection to the maintenance building during the approval process. Wilderness argues
that the District Court erred in denying its motion for summary judgment, that the
McKays had waived their right to enforce the restrictive covenant preventing the
construction of the maintenance building because its location was shown on the
development plans which were available to the public. Wilderness claims that the
McKays were aware of the building’s proposed construction, and they neither attended
the public hearings nor made any objection during the approval process.
¶28 Waiver is a voluntary and intentional relinquishment of a known right or claim. It
may be proven by express declarations or by a course conduct which induces the belief
that the intent and purpose was waiver. To establish a waiver, the party asserting waiver
must demonstrate that the other party knew of the existing right, acted inconsistent with
7
that right, and prejudice resulted to the party asserting waiver. Edwards v. Cascade
County, 2009 MT 229, ¶ 30, 351 Mont. 360, 212 P.3d 289 (citations omitted).
¶29 As noted by the District Court, M. R. Civ. P. 8(c) requires that a defense of waiver
be affirmatively pled. Wilderness did not plead waiver as a defense and the District
Court correctly denied the motion for summary judgment on this basis.
¶30 The District Court further denied Wilderness’ motion for summary judgment
based on a portion of the restrictive covenants which states in pertinent part:
The failure of Declarants, their successors or assigns, or any owner of any
parcels to enforce such conditions, restrictions or covenants herein
contained shall in no way be deemed a waiver of right to enforce such
conditions, restrictions or covenants hereafter.
¶31 Considering this statement in the covenants, we agree with the District Court that
the McKays did not knowingly, voluntarily, and intentionally relinquish their right to
object to the large maintenance building being built next to their home.
¶32 Wilderness also argues that the doctrine of laches prevents the McKays from
enforcing the restrictive covenant against construction of the golf course maintenance
facility.
¶33 Laches is a concept of equity that can apply when persons are negligent in
asserting a right, and where there has been an unexplained delay of such duration or
character as to render the enforcement of the asserted right inequitable. Edwards, ¶ 32;
Kelleher v. Board of Social Work Examiners, 283 Mont. 188, 191, 939 P.2d 1003, 1005
(1997).
8
¶34 There is no certain time limit within which persons must assert their rights before
the doctrine of laches applies. Nevertheless, when an action to enforce a right is filed
within the applicable period of limitations, the party asserting the defense of laches must
show that extraordinary circumstances exist which require its application. McGregor v.
Mommer, 220 Mont. 98, 107, 717 P.2d 536, 542 (1986).
¶35 In an action of an equitable nature, we review independently all questions of fact
as well as questions of law. We uphold the district court’s findings of fact if they are not
clearly erroneous. Section 3-2-204(5), MCA; Edwards, ¶ 32.
¶36 The District Court found that there was a relatively short delay between the time
the McKays learned that a large maintenance building would be built next to their house
and the time they filed suit to stop its construction. The District Court found the delay
was simply not long enough to invoke the equitable doctrine of laches. In addition, the
District Court found that any prejudice to Wilderness was mitigated by not requiring the
building to be removed. These findings are supported by the record.
¶37 The McKays filed this action to enforce the restrictive covenant within the period
of limitations to enforce a written contract. The delay was, as found by the District
Court, relatively short. We conclude that the District Court did not err in concluding that
the restrictive covenant against construction of its maintenance building was neither
waived by the McKays, nor barred by laches.
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¶38 Issue 2: Did the District Court err in precluding Wilderness from offering
evidence that the McKays failed to object in advance of construction of the maintenance
building?
¶39 Wilderness sought to introduce evidence that the McKays made no objection to
the construction of the maintenance building in violation of the restrictive covenants until
they filed this suit. Wilderness argued in the District Court, and argues on appeal, that
this evidence is relevant and admissible concerning whether it acted with malice and
whether the McKays suffered emotional distress damages. The District Court excluded
such evidence based on M. R. Evid. 403, which provides that relevant evidence may be
excluded if its probative value is outweighed by danger of unfair prejudice, confusion of
the issues, or misleading the jury.
¶40 We review a district court’s evidentiary rulings for an abuse of discretion. A
district court abuses its discretion when it acts arbitrarily without conscientious judgment
or exceeds the bounds of reason. Anderson v. Woodward, 2009 MT 144, ¶ 13, 350 Mont.
343, 207 P.3d 329; State v. Stearns, 2008 MT 356, ¶ 13, 346 Mont. 348, 195 P.3d 794.
Evidence, although relevant, may be excluded if its probative value is substantially
outweighed by the danger of unfair prejudice. M. R. Evid. 403. The decision whether or
not to exclude such evidence will not be reversed by this Court unless the district court
has abused its discretion. Mauer v. Clausen Distributing Co., 275 Mont. 229, 238, 912
P.2d 195, 200 (1996) (citing Newville v. State, Dept. of Family Svcs., 267 Mont. 237,
10
260, 883 P.2d 793, 806 (1994); Kimes v. Herrin, 217 Mont. 330, 333, 705 P.2d 108, 110
(1985)).
¶41 The District Court found that evidence the McKays had knowledge of, but did not
object to the maintenance building before its construction was commenced, was only
marginally relevant. The District Court concluded that such evidence could be confusing
and unduly prejudicial because the jury could easily rely on it to decide that the McKays
had waived their right to object. The District Court noted in a written order that its
refusal to permit Wilderness to cross-examine Craig McKay pertaining to his knowledge
of the planning of the golf course development, the meetings the McKays may or may not
have attended, and written objections which may or may not have been filed or other
action or inaction by the McKays, did not prevent Wilderness from presenting evidence
concerning why it felt justified in taking the actions it took. In other words, the District
Court did not prevent Wilderness from presenting evidence of why it built the
maintenance building where it did.
¶42 We do not disagree with the District Court that the evidence at issue could confuse
the jury. And, as Wilderness was not precluded from presenting evidence of why it built
the maintenance building where it did, the probative value of the evidence of what the
McKays did or did not do is not high. The District Court carefully stated its reasons for
excluding the evidence at issue, and we conclude that it did not abuse its discretion.
¶43 Issue 3: Did the District Court err in its instruction to the jury concerning
recovery of damages for emotional distress?
11
¶44 The McKays did not allege in their amended complaint that they had suffered
emotional distress because of the construction of the maintenance building on the
northerly portion of Lot 4A.
¶45 In the pretrial order, which supersedes the pleadings, the McKays did not
specifically claim damages for emotional distress, but listed as a contention that “they
have lost security in their surroundings and the peaceful enjoyment of their residence
which was a foreseeable consequence of [Wilderness’] violation of the covenants.”
There is no allegation in the amended complaint or contention in the pretrial order that
Wilderness committed the tort of negligently or intentionally causing the McKays to
suffer emotional distress.
¶46 In discovery, Lisa McKay stated in her deposition that she had been through a lot
of emotional distress. After the pretrial order was entered by the District Court,
Wilderness filed a motion in limine to preclude the McKays from claiming damages for
emotional distress. Citing Sacco v. High Country Press, 271 Mont. 209, 896 P.2d 411
(1995), Wilderness argued that the McKays could not recover damages for emotional
distress because neither of the McKays had received any medical care as the result of
their claim for trespass and, as a matter of law, any emotional distress was not
sufficiently severe to merit an award of damages.
¶47 On the first day of trial, just before voir dire was commenced, the District Court,
without accepting argument, denied the motion in limine, concluding “there are cases that
say emotional damages are available for real estate claims.” The presiding judge also
12
commented that Sacco v. High Country Press dealt with causes of action for intentional
or negligent infliction of emotional distress.
¶48 At trial, Lisa McKay testified that the emotional distress caused by Wilderness
affected her memory and made her very emotional. Craig McKay testified that he lost his
privacy and that Lisa McKay has problems sleeping and problems with her memory as a
result of Wilderness building a large commercial building next to their home. Neighbors
of the McKays testified that the construction of the maintenance building had caused the
McKays emotional distress.
¶49 During the discussion of the trespass instruction proposed by Wilderness, the trial
judge rejected Wilderness’ proposed instruction and advised that he had drafted
instructions relating to trespass, one of which, inter alia, stated that in the event the jury
determined that the McKays had been damaged by a trespass, one of the elements of
damage to which they would be entitled is “(3) discomfort and annoyance caused by the
trespass.” When the judge proposed to so instruct the jury, the following exchange
occurred:
THE COURT: So, Mr. Frampton, since we are dealing with your
instruction, do you have an objection to that?
MR. FRAMPTON [Wilderness’ counsel]: Similar objection as before. Just
element no. 3, just that the amount of damages, I believe should be limited
to the property. But the Court has already ruled…
THE COURT: Oh, I see.
MR. FRAMPTON: They are entitled to emotional damages.
THE COURT: Emotional distress.
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MR. FRAMPTON: So I will maintain my objection.
THE COURT: All right. Just for the record then, previously Wilderness has
claimed that emotional distress damages are not available on a claim for
damage to real property. And I have indicated that I don’t agree with that.
Ms. Guth, do the Plaintiffs have an objection to Court’s proposed no. 1?
MS. GUTH [McKays’ counsel]: No.
THE COURT: Okay. 1 will be given then over the objection of Wilderness.
The instruction drafted by the trial judge was given to the jury as Court’s Instruction No.
12.1 The McKays submitted proposed jury instructions relating to damages for
emotional distress that were designed to be used when a plaintiff claims that the
defendant committed the tort of intentionally or negligently causing severe emotional
distress. The McKays’ proposed instruction No. 34 would have required the jury to find
that any emotional distress suffered was severe before awarding damages, as is required
by Sacco. When the District Court noted that intentional or negligent infliction of
severe emotional distress had not been pled by the McKays, these instructions were
withdrawn by the McKays’ counsel.
¶50 Instruction No. 17 only addresses the “defendant’s violation of the covenant
relating to the maintenance building.” The District Court instructed the jury in
considering damages, “any award should include reasonable compensation for any
mental and emotional suffering and distress experienced by the plaintiffs and reasonably
probable to be experienced in the future.” Instruction No. 17 closely parallels Mont.
1
The jury found that Wilderness did not trespass on the McKays’ property.
14
Pattern Jury Instr. 2d ed. 25.02. Counsel for Wilderness voiced no objection to this
specific instruction. However, the District Court had already ruled that emotional distress
damages for damage to real property would be allowed.
¶51 The jury returned its verdict that the McKays had sustained damages of $350,000
as a result of Wilderness’ violation of the restrictive covenant against using its property
for commercial purposes.
¶52 Wilderness filed a motion for a new trial arguing that the District Court had made
several erroneous rulings, one of which was instructing the jury that the McKays were
entitled to emotional distress damages for violation of the restrictive covenant prohibiting
construction of the maintenance building. In its motion Wilderness, for the first time,
cited § 27-1-310, MCA, which prohibits emotional distress damages in a contract action.2
Wilderness also reiterated its argument that the holding in Sacco, particularly that
emotional distress damages are not allowed absent severe emotional distress, applied to
this case. The District Court denied the motion for a new trial.
¶53 On appeal, Wilderness argues that, considering the pleadings and evidence, the
McKays are not entitled to damages for emotional distress. The McKays respond that the
District Court was correct that emotional distress damages may be recovered in an action
for breach of a restrictive covenant attached to the land, and in any event, Wilderness
2
In the motion for new trial, Wilderness argued that state law precludes damages for emotional
distress in contract actions. Section 27-1-310, MCA, provides: In an action for breach of an
obligation or duty arising from contract, recovery is prohibited for emotional or mental distress,
except in those actions involving actual physical injury to the plaintiff. This objection was not
properly preserved at trial and thus not considered here.
15
waived its argument that such is not the case because it was not timely presented to the
District Court.
¶54 The District Court’s determination that the McKays were entitled to emotional
distress damages for violation of the covenant prohibiting construction of the
maintenance facility is a conclusion of law. Our review of conclusions of law is plenary.
In re Marriage of Guffin, 2009 MT 169, ¶ 6, 350 Mont. 489, 209 P.3d 225.
¶55 The District Court was at least partially correct when it stated that there are
Montana cases relating to real estate in which damages for emotional distress have been
affirmed. See Maloney v. Home and Investment Center, Inc., 2000 MT 34, ¶ 68, 298
Mont. 213, 994 P.2d 1124 (emotional distress damages may result from negligent or
intentional interference with the acquisition of land where plaintiffs were devastated by a
sudden impact of a sale to someone else and suffered intense emotional hardship);
French v. Ralph E. Moore, Inc., 203 Mont. 327, 661 P.2d 844 (1983) (affirming award of
damages to plaintiffs for “pain, discomfort, fears, anxiety, annoyance, inconvenience and
other mental, physical and emotional distress suffered by plaintiffs as a result of the
invading gasoline vapors” produced by negligent contamination of plaintiff's business
and home); Johnson v. Murray, 201 Mont. 495, 507-08, 656 P.2d 170, 176-77 (1982)
(affirming an award of compensatory damages that included compensation for
humiliation, embarrassment, distress, and ridicule associated with the tortious imposition
of a lien on the plaintiff’s real property). However, in each of these cases, the plaintiffs
16
brought an action sounding in tort and claimed that emotional distress damages were
suffered as a result of the defendants’ tortuous conduct.
¶56 In Jacobsen v. Allstate Ins. Co., 2009 MT 248, 351 Mont. 464, 215 P.3d 649, after
acknowledging that there has been some confusion in Montana case law concerning the
availability of damages for emotional distress, the Court held that when emotional
distress is claimed as an element of damage for an underlying tort claim (parasitic
emotional distress damages), the standard set forth in the Mont. Pattern Jury Instr. 2d ed.
25.02, which was given by the District Court in this case, is appropriate. Jacobsen, ¶ 66.
We also held that the “serious or severe” standard announced in Sacco applies to
independent claims of negligent or intentional infliction of emotional distress, not
parasitic claims for emotional distress. Jacobsen, ¶ 66.
¶57 In this case, the McKays sued to enforce their rights under a restrictive covenant
preventing Wilderness from constructing a commercial building on land next to their
property. The rights created by restrictive covenants are contractual rights. Reinke v.
Biegel, 185 Mont. 31, 35, 604 P.2d 315, 317 (1979); Sheridan v. Martinsen, 164 Mont.
383, 388, 523 P.2d 1392, 1395 (1974). In the absence of physical injury, damages for
emotional distress are not allowed in an action to enforce a contract.
¶58 An independent tort action may be maintained for intentional infliction of
emotional distress which relates to violation of a restrictive covenant. Czajkowski v.
Meyers, 2007 MT 292, 339 Mont. 503, 172 P.3d 94. However, in this case, the McKays’
suit to enforce the restrictive covenant is essentially a contract action and the McKays did
17
not bring an action seeking damages for intentional infliction of emotional distress.
Instructing the jury by giving Montana Pattern Jury Instruction M.P.I.2d 25.02 was error.
¶59 The McKays argue that because Wilderness did not object to Instruction No. 17,
and because it did not cite the District Court to § 27-1-310, MCA, until after the jury
rendered its verdict, Wilderness’ objection comes too late. However, Wilderness did file
a motion in limine prior to trial, in which it argued that because neither of the McKays
had sought or received medical treatment, emotional distress damages could not be
recovered for violation of the covenant not to construct a commercial building. The
District Court summarily denied the motion. Later, when counsel for Wilderness again
objected to including emotional distress as an element of damages in connection with an
instruction drafted by the District Court concerning trespass, the District Court made a
record that even though Wilderness claimed that emotional distress damages are not
available on a claim for damage to real property, the court did not agree. The record
reflects that the District Court held the erroneous opinion that parasitic damages for
emotional distress were available in an action to enforce a restrictive covenant. Under
these singular circumstances, we conclude that Wilderness sufficiently preserved an
objection to the District Court’s jury instruction regarding emotional distress. See State
v. Harris, 1999 MT 115, ¶ 30, 294 Mont. 397, 983 P.2d 881.
¶60 Issue 4: Is there sufficient evidence to support the jury’s award of damages for
breach of the restrictive covenant prohibiting construction of a commercial building?
¶61 At trial, Craig McKay presented the only evidence concerning the reduction in the
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value of the McKays’ property. He testified that the southerly portion of Lot 4A had a
value of $300,000 before Wilderness built the maintenance building and cut the trees. He
opined that these activities reduced the value of the property by 25%, which is $75,000.
He said that cutting the trees caused 5% of the damage, which is $3,750. Craig McKay
also testified that he lost $67,000 of anticipated income because someone shot his dogs
and smeared feces in his daughter’s bedroom, making him unable to return to his fishing
job in Alaska. The jury was not asked to, and did not state how much of its award was
for diminution in the value of the McKays’ property and how much was for emotional
distress.
¶62 The evidence is not sufficient to support the award of $350,000 in damages for
violation of the covenant, absent damages for emotional distress. The jury was
improperly instructed on the McKay’s claim for emotional distress damages. We
conclude that because of instructional error, the judgment must be reversed and remanded
for a new trial on the issue of damages caused by Wilderness’ violation of the covenant
which prohibited construction of a commercial building on the northerly portion of Lot
4A.
¶63 While the McKays did not specifically plead a cause of action for intentional
infliction of emotional distress, during discovery they claimed that the actions of
Wilderness were intentional and did state that they had suffered emotional distress. In
the pretrial order, they contended they “lost security in their surroundings and the
peaceful enjoyment of their residence as a foreseeable consequence” of the covenant
19
violation. The McKays presented evidence that they had suffered emotional distress and
offered instructions concerning intentional infliction of severe emotional distress. These
instructions were withdrawn only after the District Court had made its erroneous rulings.
Given the history and posture of this case, Wilderness could not allege surprise if a claim
for intentional or negligent infliction of emotional distress was made after remand. Thus,
we conclude that upon retrial, the McKays may amend their complaint to claim damages
for intentional or negligent infliction of severe emotional distress.
¶64 Issue 5: Did the District Court err in holding that Wilderness does not have an
easement across the McKays’ property?
¶65 As noted in ¶ 19 above, Wilderness claims that it has an easement across the
western edge of the McKays’ property to access the northerly portion of Lot 4A. The
District Court granted the McKays’ motion for summary judgment, holding that such an
easement does not exist. We review a district court’s consideration of the grant or denial
of summary judgment de novo. Larchick v. Diocese of Great Falls-Billings, 2009 MT
175, ¶ 46, 350 Mont. 538, 208 P.3d 836.
¶66 Among other reasons, Wilderness claims it has such an easement because when
the predecessor in title to the McKays, Mr. Miyamoto, conveyed the southerly half of Lot
4A to them and retained the northerly half of Lot 4A, he had no remaining access to the
half of the lot that he retained. Thus, an implied easement by necessity arose across the
McKays’ property.
20
¶67 An easement by necessity exists over the lands of the grantor where an owner of
land conveys a parcel which has no outlet to a highway except over the remaining lands
of the grantor or over the land of strangers. Watson v. Dundas, 2006 MT 104, ¶ 33, 332
Mont. 164, 136 P.3d 973; Hoyem Trust v. Galt, 1998 MT 300, ¶ 18, 292 Mont. 56, 968
P.2d 1135. An implied easement by necessity requires two elements: (1) unity of
ownership, and (2) strict necessity at the time that the unified tracts were separated.
Hoyem Trust, ¶ 18.
¶68 Prior to being divided, the entirety of the 20-acre Lot 4A was owned by
Miyamoto. The District Court correctly found that this satisfied the unity of ownership
requirement of an easement by necessity. But, the District Court concluded that the
element of strict necessity was not satisfied because at the time Miyamoto severed the
southern half of Lot 4A, he was able to access the northern half of the lot by use of a road
called the Chapman Road, which connected to a public highway. The record shows that
at the time Lot 4A was divided, Miyamoto did not have a right to use the Chapman Road,
nor did he have any other access of right to the half of Lot 4A which he retained. At the
time unity of ownership was severed, the north half of Lot 4A lacked access to a public
road for ingress and egress. Therefore, a strict necessity existed. Consequently, an
easement by necessity arose.
¶69 The District Court erred in granting the McKays’ motion for summary judgment
claiming that Wilderness does not have an easement by necessity across the western
boundary of Lot 4A. The location, permissible use, and width of such easement could be
21
the subject of further litigation on remand. See Schmidt v. Pastor, 2009 MT 280, 352
Mont. 178, 216 P.3d 192. Because we conclude that Wilderness has an implied easement
by necessity, it is not necessary to discuss the other theories under which it claims an
easement.
¶70 Issue 6: Is there sufficient evidence to support the jury’s award of damages for
conversion?
¶71 Wilderness claims that the evidence does not support damages of $6,500 found by
the jury to be the value of the trees cut on the McKays’ property.
¶72 In the District Court’s Instruction No. 14, the jury was given the elements that the
McKays were required to prove to establish the tort of conversion. The instruction states
that one of the elements of conversion that a plaintiff must prove is damages. The jury
was not given instruction on how to determine the amount of any damages suffered for
conversion of the trees. Counsel for the McKays acknowledged on the record at the time
that instructions were settled that as far as the trees go, there were not “many damages at
all.”
¶73 The detriment caused by a wrongful conversion is presumed to be:
(a) the value of the property at the time of its conversion with the interest
from that time or, when the action has been prosecuted with reasonable
diligence, the highest market value of the property at any time between the
conversion and the verdict without interest, at the option of the injured
party; and
(b) a fair compensation for the time and money properly expended in
pursuit of the property.
Section 27-1-320(1), MCA.
22
¶74 In their brief on appeal, the McKays state on cross-examination that Craig McKay
testified that the damage associated with the tree removal was $6,633. However, no
citation to the record is given as is required by M. R. App. P. 12(2). The only evidence of
the value of the trees is the testimony of Craig McKay that the value of the trees
converted is $600, as noted by Wilderness. A judgment for damages must be supported
by evidence. In re Marriage of Mease, 2004 MT 59, ¶ 42, 320 Mont. 229, 92 P.3d 1148;
Cremer v. Cremer Rodeo Land & Livestock Co., 192 Mont. 208, 214, 627 P.2d 1199,
1202 (1981). The amount of the damage suffered by the McKays for conversion of their
trees must be reduced to that which the evidence will sustain, which is $600. Kiely
Const., LLC v. City of Red Lodge, 2002 MT 241, ¶ 102, 312 Mont. 52, 57 P.3d 836.
¶75 Issue 7: Was the jury verdict reached under the influence of passion and
prejudice?
¶76 Wilderness argues that they are entitled to a new trial because the McKays’ trial
strategy involved appealing to the jury’s passion and prejudice by making veiled “home
town” arguments. They argue this led to an excessive verdict not supported by the
evidence. According to Wilderness, the only explanation for the jury’s large verdict is
passion and prejudice on the part of the jury.
¶77 A new trial may be granted where excessive damages appear to have been
awarded under the influence of passion or prejudice. Section 25-11-102(5), MCA. This
Court’s scope of review of jury verdicts is limited. The amount of a damage award is
properly left to the jury. This Court will not substitute its judgment for that of the jury--
23
particularly where, as here, the District Court has approved the verdict by denying a new
trial. Only when the amount awarded is so grossly out of proportion to the injury as to
shock the conscience will an appellate court intervene. Frisnegger v. Gibson, 183 Mont.
57, 67, 598 P.2d 574, 580 (1979).
¶78 The record shows that the jury believed that the deliberate actions of Wilderness
substantially reduced the value of the McKays’ property and that the McKays have
suffered a great deal of emotional distress. After a review of the record, we conclude that
the amount of damages assessed does not shock the conscience of the Court. Further,
most of the damage award is vacated by this Opinion. Thus, it is unnecessary to discuss
this issue further.
¶79 Issue 8: Is there sufficient evidence to establish malice, which is required to award
punitive damages?
¶80 Reasonable punitive damages may be awarded when the defendant has been found
guilty of actual fraud or actual malice. Section 27-1-221, MCA. Upon proof that
Wilderness had knowledge of facts, or intentionally disregarded facts, that created a high
probability of injury to the McKays and deliberately proceeded to act in a conscious or
intentional disregard of the high probability of injury to the McKays, then Wilderness
may be found to be guilty of actual malice. Section 27-1-221(2)(a), MCA. All elements
in a claim for punitive damages must be proved by clear and convincing evidence,
meaning that there is no serious or substantial doubt about the correctness of the
conclusions drawn from the evidence. Section 27-1-221(5), MCA.
24
¶81 The jury was transported to the McKays’ property and viewed both the
maintenance building and the swath of trees that Wilderness removed along the western
boundary of the McKays’ property. The jury heard testimony about the conversion of the
trees. The McKays testified that Wilderness deliberately misinformed the McKays
regarding the cutting of the trees. Upon our review of the record, we conclude that
Wilderness went about the development of its golf course in such a way that the jury
could find, by clear and convincing evidence, that its conduct was malicious as defined
by § 27-1-221, MCA.
¶82 Issue 9 [Cross-Appeal]: Did the District Court err in reducing the punitive
damage award?
¶83 The jury determined that the McKays were entitled to punitive damages in the
amount of $1,000,000. Upon consideration of the punitive damage award, as required by
§ 27-1-221(7), MCA, the District Court reduced it to $25,000, because it considered the
violation of the restrictive covenant to be a contract action for which punitive damages
are not allowed, and the $1,000,000 award is grossly disproportionate to a compensatory
damage award of $6,500 for the tort of conversion.
¶84 The McKays do not contest that the portion of their action claiming damages for
violation of the restrictive covenant is based on contract, nor do they contest that punitive
damages are not allowed in an action based on a contract. Section 27-1-220(2)(a), MCA.
They argue that the District Court erred in reducing the amount of punitive damages
awarded because Wilderness did not object to the use of a special verdict form which
25
allowed the jury to find that punitive damages could be awarded if it found that
Wilderness was guilty of malice in the breach of the covenant not to construct a
commercial building on its part of Lot 4A. Thus, they argue Wilderness waived the
prohibition on an award of punitive damages based on contract.
¶85 The McKays’ argument assumes that (1) the punitive damage award was based on
the breach of contract and (2) that although punitive damages are not allowed in a
contract action, since Wilderness did not object to the verdict form, it waived any
objection to the award of punitive damages. The verdict form, however, allowed the jury
to consider punitive damages if it awarded damages for any of the McKays’ claims,
including the tort of conversion. Since the jury awarded the McKays damages on their
claim for conversion, punitive damages were properly awarded irrespective of whether
Wilderness objected to an award of punitive damages under a breach of contract theory.
However, the amount of the punitive damage award cannot be sustained.
¶86 A $1,000,000 punitive damage award for conversion of $600 worth of trees cannot
be sustained as it is grossly excessive. See Seltzer v. Morton, 2007 MT 62, ¶ 151, 336
Mont. 225, 154 P.3d 561 (citing State Farm Mutual Auto Ins. Co. v. Campbell, 538 U.S.
408, 418, 123 S. Ct. 1513, 1520 (2003)). And, the District Court’s reduction of the
punitive damage award was based on the jury’s erroneous verdict that the trees were
worth $6,500, not $600. Therefore, under the present circumstances, it would be
inappropriate to affirm a $25,000 judgment for punitive damages.
26
¶87 The amount of punitive damages to be awarded in this case has not been
appropriately considered by either the jury or the District Court. Thus, the judgment
fixing the amount of punitive damages in the amount of $25,000 must be vacated. Upon
retrial, the amount of punitive damages to be awarded should again be submitted to the
jury upon proper evidence and instructions of law. Also, any award of punitive damages
must again be reviewed by the District Court as provided in § 27-1-221(7), MCA.
¶88 Issue 10: [Cross-Appeal] Did the District Court err in refusing to require
Wilderness to remove a maintenance building it erected in violation of a restrictive
covenant?
¶89 Issue 11: [Cross-Appeal] Did the District Court err in not enforcing a restrictive
covenant prohibiting further division of a lot Wilderness owns in the Subdivision?
¶90 Issues 10 and 11 are cross-appeal issues presented by the McKays for
consideration in the event that the judgment for money damages is reversed. These
issues are interrelated and we discuss them together.
¶91 A final injunction may be granted to prevent the breach of an obligation existing in
favor of the applicant where:
(1) pecuniary compensation would not afford adequate relief;
(2) it would be extremely difficult to ascertain the amount of compensation
which would afford adequate relief;
(3) the restraint is necessary to prevent a multiplicity of judicial
proceedings; or
(4) the obligation arises from a trust.
Section 27-19-102, MCA.
27
¶92 The grant or denial of an injunction is within the sound discretion of the trial court
and will not be reversed absent a “manifest abuse of discretion.” Shammel v. Canyon
Resources Corp., 2003 MT 372, ¶ 12, 319 Mont. 132, 82 P.3d 912. A “manifest” abuse
of discretion is an abuse that is obvious, evident, or unthinkable. Shammel, ¶ 12.
¶93 The District Court determined that Wilderness would not be required to remove
the maintenance building on the northerly half of Lot 4A because: (1) monetary damages
will afford adequate relief to the McKays; (2) it would be more difficult for the jury to
assess damages for Wilderness’ breach of the covenant if it were required to speculate as
to the effect of removal of the building; (3) ordering removal of the maintenance building
would not prevent a multiplicity of lawsuits; and (4) Wilderness’ violation of the
covenant does not involve a breach of trust. Upon retrial the McKays shall have adequate
relief in the form of pecuniary compensation for any damage to their property occasioned
by the violation of the restrictive covenants. Section 27-19-102(1), MCA.3
¶94 The District Court also denied the McKays’ prayer for an injunction against
Wilderness’ division of the northerly half of Lot 4A into four separate parcels because a
number of the lots in the Subdivision had already been divided in violation of the
covenants without objection and the McKays themselves had violated the restrictive
covenant against further subdivision by purchasing the southerly half of Lot 4A. Under
the particular circumstances in this case, the District Court correctly concluded that “the
3
While this Court’s decisions in Homeowners Ass’n v. Wiley, 239 Mont. 54, 778 P.2d 421
(1989); Tipton v. Bennett, 281 Mont. 379, 934 P.2d 203 (1997); and Micklon v. Dudley, 2007
MT 265, 339 Mont. 373, 170 P.3d 960, could support removal of the building, the McKays did
not argue this line of cases on appeal.
28
McKays cannot at once both benefit from a violation of one of the covenants, and at the
same time prosecute Wilderness for violating the same covenant.” McKays violated the
same restrictive covenant which they seek to enforce against Wilderness through the
equitable remedy of an injunction. They do not come to court with clean hands. The
District Court did not err in denying the McKays injunctive relief.
¶95 We conclude that the District Court did not manifestly abuse its discretion in
denying the prayed for injunctions.
CONCLUSION
¶96 The judgment of the District Court is affirmed in part, reversed in part, and
remanded for a new trial as follows:
1. The judgment in favor of Wilderness that it did not trespass on the McKays’
property is affirmed.
2. The judgment in favor of the McKays and against Wilderness awarding
damages in the amount of $6,500 for conversion of trees is reversed. Upon remand, the
District Court is directed to enter a judgment in favor of the McKays and against
Wilderness for conversion in the amount of $600.
3. The judgment that Wilderness does not have an easement by necessity is
reversed. Wilderness has an easement by necessity across the southerly 10 acres of Lot
4A of the Koocanusa Subdivision. Upon remand the District Court shall consider the
location and scope of the easement.
4. The judgment in favor of the McKays and against Wilderness concluding that
29
Wilderness violated the restrictive covenant prohibiting the construction of a commercial
building on the northerly half of Lot 4A of the Koocanusa Subdivision is affirmed.
5. The judgment in favor of the McKays and against Wilderness awarding
damages in the amount of $350,000 for violation of the restrictive covenant prohibiting
the construction of a commercial building on the northerly half of Lot 4A of the
Koocanusa Subdivision is reversed. Determination of the amount of damages suffered by
the McKays as a result of the violation of this restrictive covenant is remanded for a new
trial. The McKays may amend their complaint to claim intentional or negligent infliction
of emotional distress.
6. The judgment that the McKays are entitled to punitive damages is affirmed.
7. The judgment in favor of the McKays and against Wilderness awarding
punitive damages in the amount of $25,000 is reversed. Upon retrial the amount of
punitive damages to be awarded shall be again submitted to the jury and reviewed by the
District Court.
8. The judgment of the District Court denying the McKays’ petition for
injunctions requiring Wilderness to remove its maintenance building on the northerly half
of Lot 4A of the Koocanusa Subdivision and prohibiting further subdivision of such
northerly half of Lot 4A is affirmed.
9. No party shall have costs on appeal.
/S/ JOHN WARNER
30
We Concur:
/S/ MIKE McGRATH
/S/ JAMES C. NELSON
/S/ JIM RICE
/S/ W. WILLIAM LEAPHART
31
McKay v. Wilderness Development, LLC
Court: Montana Supreme Court
Date filed: 2009-11-27
Citations: 2009 MT 410, 353 Mont. 471, 221 P.3d 1184, 2009 Mont. LEXIS 562
Copy CitationsCombined Opinion