CONSTRUCTION LIEN VERDICT in favor of aircraft hangar insulation system designer/supplier affirmed… Holly Brown/Ohman affirmed.

Mark & Pam Duffy own 2 parcels near the airport in Belgrade that they lease to their Central Copters. In the fall of 2013 Mark ordered a steel building from R&M Steel of Idaho to serve as a hangar and repair facility. In the spring of 2014 Central Copters hired Steven Thorson and his son Travis (TNT Building Systems) to assemble it. Because Mark was concerned about the insulation he and Thorsons visited 3 of TNT’s completed projects including one with the “Simple Saver System” from Thermal Design which Mark preferred according to Steve. On 6/6/14 Steve emailed Mark a bid of $70,000 to erect the building with subcontractor invoices to be marked up 10% as a general contractor fee. While neither party signed it, Mark testified that they had an agreement encapsulated by the email. It did not specify a completion date or reference insulation costs.

When Mark was having trouble finding a contractor to pour the concrete foundation he gave TNT permission to engage C&H Engineering to re-engineer the slab and hire Kruse Enterprises to pour it. Central Copters paid TNT’s invoices within 10 days including a 10% markup.

On 8/15/14 Mark emailed Steve to “please confirm that you have ordered the insulation for the building from the source you have.” Steve testified that because the Simple Saver System was the only insulation that TNT offered, he understood Mark to request that he purchase it but that he waited until the building had progressed to a certain point in October to place the order. Thermal Design then designed a system specific to the Central Copters hangar. Johns Manville shipped the fiberglass insulation to the job site from its plant. Mark testified that when the pallets of insulation arrived he had “never heard of Thermal Design,” TNT never provided a quote for it, and he never authorized TNT to purchase it.

The pre-engineered building was shipped to the site in late August and TNT unloaded 8 trailer loads over 2 days. Kruse completed the foundation in mid-September. By mid-October the building was 40% complete and TNT invoiced Central Copters $62,250 including $25,000 for “1st labor deposit” which was 35% of TNT’s $70,000 bid and a $37,250 charge for the insulation. Mark testified that with winter approaching he was disappointed with the progress and “was not prepared to pay TNT for something he had not done.” Mark and Steve met 11/13/14. The meeting deteriorated into a shouting match. Mark emailed Steve later that day: “I fully intend to pay you in a timely manner, but I need you to outline the scope of the project with dates describing progress and completion of the project.” Steve never responded nor did TNT provide a progress report and TNT began removing its equipment. On 11/20/14 Mark emailed Steve: “Consider this email as notice that you are finished with this building project. You and your ‘company’ T&T Building Systems have failed to progress and erect the building and therefore you are ‘Terminated.'”

On 12/12/14 Mark informed Thermal Design that TNT had walked off the job and he was having trouble finding a reasonably priced installer. Thermal Design’s regional sales manager Micah James emailed TNT: “Brian [Geary] from Central Copters wants to pay us directly for the insulation. I want to make sure it is OK with you for us to submit the bill to them. Please contact me today so we can visit about this.” James emailed Geary asking for photos of the job site and sent him the name of an erector finishing a job in Great Falls who “should be able to help you out.” On 12/15/14 Geary emailed James indicating that due to higher-than-expected installation costs “this insulation has become a real problem” and asked James to let him know “when to expect trucks” to pick up the insulation and “this insulation was TNT’s Deal and they have Decided to walk off the job and is still there deal.” Central Copters hired Steel Concepts to complete the building and install spray urethane insulation for $79,025. Neither TNT nor Central Copter ever paid Thermal Design for the Simple Saver System.

Thermal Design filed a construction lien in 1/15 and sued in 5/15 to foreclose on it against Duffys & Central Copters. The complaint also asserted claims against Thorsons and TNT and Steel Concepts and its owner Steve Larson. Central Copters denied liability and Duffys counterclaimed against Thermal Design for declaratory judgment, breach of warranty, and trespass and cross-claimed against TNT for breach of contract, negligence, and indemnity. When TNT failed to respond default was entered against them. TNT moved to set aside entry of default and cross-claimed against Duffys for breach of contract claiming they owed $25,000 for labor and $31,266.12 for the insulation owed to Thermal Design. Thermal Design dismissed Steel Concepts and Larson in 3/17.

Trial commenced in 3/20. Panelist Claire Daines disclosed that he was a client of Rick Landers, a partner at Axilon Law where Thermal Design’s lawyer Mark Evans also worked. Kellie Sironi, counsel for Duffys & Central Copters, clarified the relationship between Evans and Daines:

Sironi: And you know his law partner?

Daines: I do. Rick Landers is my principal attorney.

Sironi: Mr. Evans’s partner is your attorney at the moment?

Daines: Yes. Yes, he is.

Sironi: Do you feel like that relationship would possibly influence the way that you see the evidence and hear the evidence?

Daines: I don’t think so.

Sironi: Your Honor, I would like to move to strike this juror for cause because of the relationship with the Plaintiff’s law firm.

Judge Holly Brown: Mr. Evans, are you still with Axilon?

Evans: I’m working as, like a contracted lawyer on this one case and then I’m gone. So I’m affiliated, yes, but I’m no longer a partner. I resigned back in September.

Sironi: Nothing personal, I just feel that the relationship is a little too close for my comfort, Your Honor.

Brown: Your comfort doesn’t count, Ms. Sironi. Sorry.

Sironi: That is true, but I’m making a —

Brown: It needs to fall under one of the statutory exceptions. So maybe follow up with a few more questions with Mr. Daines because he’s indicated at this point that he doesn’t have any concerns.

Sironi asked Daines how his experience with his lawyer would affect his ability to hear the evidence, to which Daines said he did not think it would have any effect. She asked if he felt that he could put his feelings for his attorney aside in hearing the evidence and Daines replied:

I don’t know why my current attorney matters. If it was my current attorney I would probably favor him very definitely because I have great respect for him. Mark, I have respect, but there’s no, you know, whatever. I have never really engaged with him in a legal way.

Sironi then asked if he felt uncomfortable judging the issues to which he replied, “No.” She moved again to strike him for cause. Brown reserved judgment but later denied the motion.

Sironi asked if any panelists knew the Judge. Chere LeClair indicated that Brown was her stepmother. Daines said, “I’ve just known [the Judge] for a long time.” Brown responded, “Almost 150 years. [Counsel], knowing the Judge has no factor or impact on this case, so you can move on with that question.” Sironi moved on without objection. She exercised peremptories for Daines and LeClair:

Sironi: Clair Daines, Number 14.

Brown: He’s going to be disappointed, you know.

Sironi: It’s probably not much of a surprise that I’m striking him.

Brown: He’s going to be disappointed, however.

…

Sironi: Chere LeClair.

Brown: She’ll be disappointed, too. I was surprised at the number of architects overall.

Sironi: A lot of contractors.

Brown. Not so surprising in this market.

At the close of Thermal Design’s case Duffys & Central Copters moved for JML, arguing that it could not prove existence of a real estate improvement contract related to the insulation. Brown denied the motion, ruling that there was no dispute that Central Copters hired TNT to erect the building and while fact questions remained as to the scope of that contract, it was a real estate improvement contract as a matter of law and TNT purchased the insulation from Thermal Design pursuant to it. She also ruled that because Mark was aware of and agreed to the improvement before construction began, pursuant to §71-3-525(3) Thermal Design’s lien would apply to Central Copters as the contracting party and Duffys as owners & lessors of the property.

The Bozeman jury found following a 5-day trial that Thermal Design’s insulation system was fabricated for installation in Central Copters’ building and not readily resalable in the ordinary course of Thermal Design’s business. It found that TNT, as an agent of Central Copters, contracted with Thermal Design for the insulation and that TNT and Central Copters were jointly & severally liable for $31,266.12 for breaching the contract with Thermal Design. It found that both TNT and Central Copters breached their agreement to erect the building but that only TNT incurred damages, totaling $23,753.88, resulting from Central Copters’ breach.

Brown retired and Judge Ohman took over and following a series of posttrial motions issued an order in 6/20 restating that the contract between Central Copters and TNT for erecting the building was a real estate improvement contract under which Thermal Design furnished the insulation and therefore it had a construction lien attaching to Duffys’ real property and Central Copters’ building which should be foreclosed. On 10/4/21 he entered judgment awarding Thermal Design $31,266.12 jointly & severally against Duffys, Central Copters, and TNT; $29,899.38 prejudgment interest which accrues at $15.42/day; $5,050.20 costs; $32,449.30 consequential damages against TNT; $16,298.59 attorney fees against TNT; $125,003.16 attorney fees against Duffys & Central Copters; postjudgment interest; foreclosure of Thermal Design’s lien; $23,753.88 to TNT against Central Copters with postjudgment interest. Duffys & Central Copters appeal.

Duffys & Central Copters argue that Brown erred in denying their challenge of Daines because he considered Thermal Design’s trial attorney’s former partner Landers to be his “principal attorney” and it was disclosed posttrial that Landers had billed time to the case but had not appeared as counsel of record. They contend that forcing them to use a peremptory to exclude Daines denied them an equal number of peremptories and entitles then to a new trial. Thermal Design responds that Brown did not abuse her discretion because Duffys & Central Copters failed to establish that Daines had business pending with Landers.

§25-7-223, which provides grounds to challenge jurors,

“does not expressly address past or present business relations between a juror and an attorney involved in the case.” Williams (Mont. 1988). We have held that “an ongoing attorney-client relationship between a prospective juror and trial counsel presents the strong possibility of bias in favor of the party represented by those attorneys.” Reff-Conlin’s (Mont. 2002). But in Williams we declined to find abuse of discretion when Judge Robb denied a challenge for cause after 2 jurors “considered defense counsel to be their attorney but neither had any business pending with the attorney at the time of trial” and after “one of the jurors answered that her past relationship would not affect her ability to act as a juror.”

Although Daines testified that Landers was his “principal” and “current” attorney, the record does not establish that he had any present business with Landers such that the attorney-client relationship would affect his ability to act as an impartial juror. Voir dire evinced no indication of his actual or implicit bias related to Evans. Without evidence that he had an ongoing attorney-client relationship with Thermal Design’s trial counsel or more than a bare allegation of partiality we cannot conclude that Brown abused her discretion in refusing to strike Daines.

Duffys & Central Copters also argue that they were unfairly forced to use a peremptory on LeClair, Brown’s stepdaughter, after Brown prevented further inquiry into her potential bias by telling counsel to “move on.” However, because they neither objected to the limitation nor challenged LeClair for cause, the Reff-Conlin automatic reversal rule and standard do not apply. They fail to present any argument beyond a mere assertion that they were somehow prejudiced, and instead assert that “the great impact on the jury of a judge’s instruction to an attorney” excuses counsel’s failure to object as any objection would be perceived as “a personal affront to the judge and juror.” However, “it is the duty of counsel to preserve the record for appellate review.” Searight (Mont. 1988). Without an objection or at least some evidence of partiality, Brown did not abuse her discretion by limiting voir dire as to her familial relationship with LeClair, and Duffys & Central Copters have waived any argument that she unfairly forced them to use a peremptory by not objecting.

Duffys & Central Copters contend that Brown erred by ruling that as a matter of law their contract with TNT to erect the hangar was a real estate improvement contract, arguing that because the lien was related to the insulation, the only relevant contract was that between TNT and Thermal Design for purchase of the insulation. They next argue that because Thermal Design contracted with Johns Manville to “fabricate” the insulation they cannot claim a lien under §71-3-524. And they assert that there was insufficient evidence to establish agency between TNT and Central Copters or Duffys for the insulation purchase.

Montana law does not require a contract between the property owner and material supplier for a construction lien to attach when a property owner expressly or impliedly consents to an improvement to his real estate or ratifies purchase of materials or work that has been done. Morin Lumber (Mont. 1940). “The rationale behind this rule is that by virtue of the contract between the contractor and the owner, there is an implied agency between the two, giving the contractor the authority to contract with materialmen for the purchase of necessary materials.” Hoyt (Mont. 1969). There is no dispute that Central Copters had an agreement with TNT to construct the building on the property it leased from Duffys. This meets the definition of a real estate improvement contract in §71-3-522(6)(a)(ii) (“an agreement to perform services for the purpose of producing a change in the physical condition of the real estate”). Independent from the scope of that agreement, Brown did not err in finding that as a matter of law this agreement was a real estate improvement contract or that TNT purchased the insulation from Thermal Design pursuant to TNT’s contract with Central Copters.

Duffys & Central Copters take issue with the verdict form because it inserted “Thermal Design” in place of “fabricator” in the question “Was the Simple Saver System readily resalable in the ordinary course of Thermal Design’s business?” They argue that Johns Manville was the “fabricator” under §71-3-524(1)(b)(ii). However, they point to no authority that mandates every component of a system or structure provided to a general contractor be fabricated directly by the party furnishing the materials. If that were so, a company supplying materials containing components procured from multiple vendors could never file a lien for an unpaid contract for those materials. Thermal Design presented testimony about its proprietary Simple Saver System which requires that each insulation kit is designed, developed, and fashioned — i.e., fabricated — by Thermal Design for use solely by its clients. While some components — like the insulation itself — may have been fabricated and shipped independently, the jury’s findings need not be limited to each individual piece of a proprietary system. There is substantial evidence that Thermal Design is a “fabricator” under §524(1)(b)(ii). Thus the jury’s finding that the Simple Savor System kit as a whole was not readily resalable in the ordinary course of either Thermal Design’s or Johns Manville’s business is not “inherently impossible to believe.” Wise (Mont. 1997). Further, Duffys & Central Copters failed to object to the verdict form on these grounds, resulting in waiver of this issue on appeal.

Because there was no evidence that would justify submitting the issue to the jury, Brown did not err by holding that as a matter of law the Simple Saver System insulation kit was purchased pursuant to Central Copters’ real estate improvement contract with TNT.

Duffys & Central Copters argue that the jury had insufficient evidence of agency between TNT and either Central Copters or Duffys for purchase of the insulation. (They also argue that Brown improperly allowed testimony regarding the agency relationship because under the statute of frauds the contract had to be in writing. However, “the rationale behind [Montana’s construction lien scheme] is that by virtue of the contract between the contractor and the owner, there is an implied agency between the two, giving the contractor the authority to contract with materialmen for the purchase of necessary materials.” Hoyt. If the contractor’s authorization to purchase materials was required to be in writing, the agency would be express and an implied agency would be unnecessary.) Thermal Design points to testimony and Mark’s 8/15/14 email to Steve inquiring whether TNT had “ordered the insulation for the building from the source you have,” noting that 8/15/14 is “well before TNT began erecting” the building. Alternatively, it asserts that, looking beyond the fact that Duffys cannot plausibly argue that Mark did not consent to the improvement before it began, Mark adopted the purchase when he failed to reject the Simple Saver shipments but instead sought help from Thermal Design to find another installer and offered to pay Thermal Design for the insulation directly.

Substantial evidence supports the jury’s agency finding. Steve testified that he, Travis, and Mark had a meeting “focused on” the Simple Saver System and that he later provided Mark a brochure with information on it as well as photos from the internet showing the kit fully installed. Travis largely corroborated Steve’s testimony, indicating that his impression was that “Mark was liking the Simple Saver System and wanted more information on it.” Mark disputed that he was focused only on the Simple Saver System, stated that he had “never heard of Thermal Design,” and denied receiving its brochure. However, he also testified that he had come to an agreement with TNT that it would be procuring the insulation on his behalf “at some point.” In response to questioning about TNT’s authority to order insulation, he testified: “They were just supposed to do it and that’s why I sent the one email with all the bullet points on it to try to get them off — my experience with Thorsons is, ‘Come on. Let’s go. Move. Move.'” While he offered a competing narrative, Duffys & Central Copters failed to establish that the verdict is “inherently impossible to believe,” Wise, and we will not “second-guess or seek to replace the jury” by making our own determination about the credibility of witnesses and persuasiveness of the evidence, Stubblefield (Mont. 2013). (Because we conclude that the jury correctly found that Duffys agreed to the improvement before it began we need not address Thermal Design’s contention that Mark adopted the purchase by inaction after it was delivered.)

Central Copters seeks reversal of the $23,753.88 judgment in favor of TNT, arguing that Brown allowed TNT to assert a last-minute cross-claim for unpaid labor costs. While it acknowledges that TNT asserted the claim in its answer brief attached to its motion to set aside entry of default, it maintains that it was not in the pretrial order. TNT did not respond to this issue on appeal. While the MRCivP provide that the pretrial order controls the course of action, they allow for modification at trial and it is within the judge’s discretion to allow amendment of the pleadings during trial if the objecting party fails to show it would result in prejudice. Keaster (Mont. 1981); Rule 15(b). Duffys & Central Copters are correct that TNT’s cross-claim was “neither embraced within the language nor otherwise implicit in the pretrial order,” Ganoung (Mont. 2017), and therefore is unpreserved. However, as Brown reasoned, counsel for Duffys & Central Copters “filed multiple documents regarding that claim so there’s no surprise or prejudice related to it.”

Shea, McKinnon, Baker, Sandefur, Rice.

Thermal Design v. Duffys/Central Copters and Thorsons (TNT Building Systems), DA 21-516, 10/4/22.

Michael Manning (Ritchie Manning Kautz), Billings, for Thermal Design; Kellie Sironi, Billings, for Duffys/Central Copters; Steven Thorson, Manhattan, pro se; Travis Thorson, Belgrade, pro se.