Montana Merchandising Inc. et al v. Dave's Killer Bread, Inc. et al
ORDER; MMI's Motion 42 to Take Disciplinary Action Against Annamarie A. Daley and Ian McIntosh is DENIED. MMIs request that Ms. Daley and Mr. McIntosh pay its attorneys fees and expenses is also DENIED. Signed by Magistrate Judge John Johnston on 9/25/2017. (TLO)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
GREAT FALLS DIVISION
INC., d/b/a MONTANA MILLING,
INC., et al.,
DAVE’S KILLER BREAD, INC., et
Plaintiffs Montana Merchandising Inc., Hinebauch Grain Inc., and OCCO’Conner Crops and Cattle LLC (hereinafter collectively “MMI”) filed a Motion to
take Appropriate Disciplinary Action Against Annamarie A. Daley and Ian
McIntosh. (Doc. 42). MMI argues that Ms. Daley, an attorney for Defendants
Dave’s Killer Bread, Inc. and Flowers Foods, Inc. (hereinafter collectively “DKB”),
disclosed confidential settlement discussions in violation on Montana Code
Annotated § 26-1-813 and that Ms. Daley and Mr. McIntosh violated several
provisions of the Montana Rules of Professional Conduct (“MRPC”) and the
American Bar Association Model Rules of Professional Conduct (“ABA Model
Rules”). (Id.) The parties fully briefed the issue, and the Court conducted a hearing
on the motions on June 8, 2017. (Doc. 84). The motion is ripe for decision.
DKB filed an action against MMI in Oregon before this case was filed. (Doc.
63 at 7). MMI moved to dismiss the case, transfer venue to Montana, or for a stay.
(Id.) In its motion, MMI argued that DKB was guilty of forum shopping and that
settlement discussions occurring in Montana regarding identical claims warranted a
change of venue to Montana. (Id.) DKB responded by arguing the settlement
discussions were more limited than MMI had led the Oregon Court to believe. (Id.)
Ms. Daley filed a Declaration in support of this argument. (Doc. 43-1). Ms.
Daley’s Declaration is a central subject of the motion before the Court.
Local Rule 83.2(a) sets the standard for professional conduct in this Court
and provides the following:
For a willful violation of any professional rules or standards in connection
with any pending matter, an attorney is subject to appropriate disciplinary
action and to referral of the matter to the appropriate authority for
Mont. Code Ann. § 26-1-813 provides that all mediation-related
communications between the parties, communications between the parties and the
mediator, and evidence presented to the mediator are confidential. MRPC Rules
8.4(c) and (d) provide that it is professional misconduct for an attorney to “engage
in conduct involving dishonesty, fraud, deceit, or misrepresentation” or conduct that
is “prejudicial to the administration of justice.” ABA Model Rule 1.6 provides that
“[a] lawyer shall make reasonable efforts to prevent the inadvertent or unauthorized
disclosure of . . . information relating to the representation of a client.” ABA Model
Rule 3.1 provides that an attorney must only make “meritorious claims and
contentions.” ABA Model Rule 3.3 provides that an attorney must disclose “legal
authority in the controlling jurisdiction known to the lawyer to be directly adverse
to the position of the client and not disclosed by the opposing party.” ABA Model
Rule 3.4 provides that a lawyer must not “unlawfully obstruct another party’s
access to evidence” or “conceal a document or other material having evidentiary
value.” ABA Model Rule 4.1 provides that a lawyer shall not knowingly make a
false statement of material fact or law to a third person. ABA Model Rule 8.3
provides that a lawyer must “maintain the integrity of the profession,” and must
inform the appropriate professional authority if a lawyer knows that another lawyer
has violated an ABA Model Rule.
Mont. Code Ann. § 26-1-813
MMI contends that Ms. Daley disclosed “absolutely confidential”
information regarding the parties’ unsuccessful January mediation in violation of
Mont. Code Ann. § 26-1-813. (Doc. 42 at 2). MMI argues that the matters
discussed in mediation are “absolutely confidential” and “can, under no
circumstances, be disclosed” and that “Section 26-1-813 mandates that every
mediation is private and confidential and that no information whatsoever can be
divulged concerning what transpired during the mediation.” (Doc. 42 at 2).
DKB argues that Ms. Daley made her Declaration to correct MMI’s own
disclosure of what occurred during the mediation, which it contends was misleading
to the Oregon Court. (Doc. 63 at 2). Ms. Daley’s Declaration states in pertinent
3. During the mediation that occurred between the parties in January 2017,
the parties spent most of the time with the mediator discussing whether
[MMI] would provide copies of the producer contracts. [DKB] left the
mediation still without any producer contracts except the one redacted page.
4. The purpose of the January 2017 mediation was solely to discuss the
parties’ disputes regarding the 2015 and 2016 harvest years.
(Doc. 43-1 at ¶¶ 3-4).
DKB contends that MMI urged the Oregon Court that the unsuccessful
mediation generally encompassed all of MMI’s claims. DKB cites to MMI’s
Motion to Dismiss, Transfer Venue, or, in the Alternative, to Stay, which MMI filed
in the Oregon Court and in which it states“[T]he parties made a good faith effort to
resolve their dispute, and discussed each claim, defense and/or issue raised in this
dispositive motion, but were unable to come to a resolution.” (Doc. 63-1 at 5)
MMI further stated the following in this motion:
Throughout 2016, MMI asserted that Flowers . . . and Defendant were in
breach of the January 5 and January 27 Agreements. MMI attempted to
resolve its dispute with Defendant and Flowers to no avail at a meeting in
November 2015 and May 2016 in Great Falls, Montana as well as one
meeting with Defendant in Portland. [citation omitted]. Those efforts
culminated in a mediation held in Great Falls, Montana on January 24,
2017 with a follow up meeting between counsel for the parties and MMI
representatives on February 10, 2017, again in Great Falls, Montana.
(Id. at 9) (emphasis added). MMI also stated that “Here, [DKB] filed this case
immediately after they participated in an unsuccessful mediation of these claims in
Montana.” (Id. at 23; Doc. 63 at 7).
The Court determines that Ms. Daley’s Declaration was about the scope of
the mediation in response to MMI’s representations about the scope of the
mediation. The Court further determines that Ms. Daley’s Declaration did not
divulge any offers or demands that may have been made at the mediation, any
positions that either party took at the mediation, or any statement any person made
at the mediation concerning any party’s claim(s) or otherwise. Therefore, Ms.
Daley’s Declaration did not violate Mont. Code Ann. § 26-1-813.
MRPC Rule 8.4(c) and (d)
As a basis for disciplinary action, MMI argues that Ms. Daley’s Declaration
violates Montana Rule of Professional Conduct 8.4(c) and (d), in that it is both
“prejudicial to the administration of justice” and reflects “dishonesty and
misrepresentation.” (Doc. 43 at 3). The Court determines that Ms. Daley’s
Declaration, because it was limited to describing her understanding of the scope of
the mediation compared to MMI’s understanding of the scope of the mediation as
set forth in its motion to the Oregon Court, does not constitute a violation of Rule
8.4(c) or (d).
ABA Model Rules
“As an advocate, a lawyer zealously asserts the client’s position under the
rules of the adversary system.” ABA Model Rules, pmbl. ¶ 2.1 While the Preamble
states that failing to comply with the Rules is a basis for disciplinary action, any
disciplinary assessment must consider the facts and circumstances. Id. ¶ 19. Even
if a party does violate a Rule, said violation “does not necessarily warrant any other
nondisciplinary remedy[.]” Id. ¶ 20. As discussed below, the Court determines that
The corresponding provision in the Montana Rules of Professional Conduct is identical,
except that the Montana Preamble omits the word “zealously.” Montana Rules of Professional
Conduct, pmbl. ¶ 3.
Ms. Daley and Mr. McIntosh’s actions do not warrant disciplinary action under the
ABA Model Rules.
Mode Rule 1.6(c)
MMI asserts that Ms. Daley’s Declaration is a “direct contravention to [ABA
Model Rule] 1.6(c),” which states that “[a] lawyer shall make reasonable efforts to
prevent the inadvertent or unauthorized disclosure of . . . information relating to the
representation of a client.” (Doc. 43 at 3). However, Model Rule 1.6 encompasses
the relationship between an attorney and her client. Ms. Daley filed her Declaration
in order to correct what she believed to be MMI’s potentially misleading
interpretation as to the scope of the mediation and was therefore not an inadvertent
or unauthorized disclosure of information relating to the representation of her client.
As an additional matter, MMI argues that in disclosing information relating
to the mediation, Ms. Daley has “expressly waived any attorney client privilege that
would have attached to such conversation.” (Id.) Specifically, MMI refers to
alleged conversations Ms. Daley “obviously” had with her client wherein she set
out her “diabolical scheme” to trick MMI into delaying its filing. (Id. at 6). As
explained above, Ms. Daley did not disclose information relating to her
communications with her client. Accordingly, there is no waiver of attorney-client
privilege with respect to the communications Ms. Daley had with her clients.
Model Rule 3.1
MMI asserts that Ms. Daley “lulled [MMI] into not filing suit under her ruse
of a supposed settlement” so she could file a breach of contract claim against
[MMI] in Oregon, despite “never once so much as mention[ing] a conceivable
breach of contract claim.” (Doc. 43 at 4).
Ms. Daley did not violate Model Rule 3.1 because her filing was not
frivolous. While DKB’s claim was eventually dismissed in Oregon, were it not for
the exception to the first-to-file rule, both the federal court in Oregon and this Court
may have concluded that the claim was properly filed. See Alltrade, Inc. v. Uniweld
Prod., Inc., 946 F.2d 622, 625 (9th Cir. 1991) (the first-to-file rule “should not be
disregarded lightly”). The Oregon Court also held that though DKB’s claims for
declaratory judgment should be dismissed, it did so without prejudice and stated
that the claims could be brought as counterclaims in the Montana action. (Doc.
108-2 at 6). Therefore, DKB’s claims are not frivolous and therefore do not violate
ABA Model Rule 3.1.
Model Rule 3.3
MMI claims that Ms. Daley and Mr. McIntosh violated their ethical duty of
candor to the tribunal by “intentionally hid[ing]” relevant case law from the Ninth
Circuit as well as from the Second, Third, Fifth, and Eighth Circuits. (Doc. 43 at 4).
MMI also seeks disciplinary action under Model Rule 3.3 claiming Ms. Daley and
Mr. McIntosh “never mentioned in their original motion to the Court, their bad faith
conduct, their race to the Oregon courthouse, or the fact that Daley led MMI and its
counsel to believe a response to a settlement proposal would be forthcoming.”
(Doc. 66 at 8).
MMI does not specify the controlling cases Ms. Daley and Mr. McIntosh
allegedly hid from the District Court. In its Order denying Defendants’ Motion to
Transfer, the District Court relied heavily on Pacesetter Sys., Inc. v. Meditronic,
Inc., 678 F.2d 93 (9th Cir. 1982) and Alltrade, Inc. v. Uniweld Prod., Inc., 946 F.2d
622 (9th Cir. 1991). (Doc. 81). Both were cited and distinguished by DKB in their
motion. (See Doc. 14 at 12-13, 21). Additionally, cases from the Second, Third,
Fifth, and Eighth Circuits are not from the controlling jurisdiction and therefore any
failure to disclose them would not violate Model Rule 3.3.2
MMI mistakenly cited Boatmen’s First National Bank of Kansas City v. Kansas Pub.
Employees Ret. System, 57 F.3d 638 (8th Cir. 1995), as a Ninth Circuit case in its Brief in
Opposition of Defendants DKB and Flowers’ Motion to Dismiss, Transfer Venue or in the
Alternative, Stay. (Doc. 25 at 3, 6).
While MMI strenuously asserts that DKB’s lawsuit in Oregon was filed in
bad faith, DKB is not required to agree that they acted in bad faith. More
importantly, the District Court did not find that DKB filed in bad faith, but rejected
its claim as an attempt to forum shop. The District Court’s order states that “[T]he
Ninth Circuit specifically has recognized three exceptions to the first-to-file rule:
bad faith, anticipatory suit, and forum shopping. [Citation omitted]. . . . [I]t appears
that the [DKB] filed an anticipatory suit in the District of Oregon as an apparent
attempt to forum shop.” (Doc. 81 at 8, 13). Therefore, this Court determines that
DKB’s filing in Oregon was not in bad faith and that Ms. Daley and Mr. McIntosh
were not was not obligated to inform the District Court that their filing was in bad
faith as MMI alleges they were.
Model Rule 3.4
MMI claims that Ms. Daley specifically violated Model Rule 3.4 by acting
unfairly in “hid[ing] from [MMI’s] counsel the fact that she was intending to flee to
Oregon to file the suit.” (Doc. 43 at 5).
Model Rule 3.4 applies to documents and physical evidence, not litigation
strategy. MMI does not allege Ms. Daley unlawfully obstructed their access to
“evidence” or altered or concealed “a document or other material having potential
evidentiary value.” The Court therefore determines that Ms. Daley did not violate
Model Rule 3.4 by filing the action in Oregon.
Model Rule 4.1
MMI also contends that Ms. Daley violated Model Rule 4.1. MMI equates
Ms. Daley “never claim[ing] that MMI had breached any contract” with making
“false statements to MMI and its counsel.” (Doc. 66 at 9). At a hearing on the
issue, counsel for MMI stated that he believed Ms. Daley was required to inform
him that she would file suit before she did so:
The Court: Well what’s [Ms. Daley’s] obligation? Is her obligation before
she leaves to say, well, Mr. Blewett, you know, my client is going to think
about your offer, but I’m going to file a lawsuit tomorrow? So if you want to
file before me, you should do it today, because I’m going to do it tomorrow?
Is that what you think she should have done?
Mr. Blewett: Absolutely that’s what she should have done.
Hr’g Tr. 12:4–12 (June 8, 2017).
As a part of the adversarial system, however, Ms. Daley was not required to
divulge litigation strategy to opposing counsel. The official comment to Model
Rule 4.1 provides the following:
[Rule 4.1] refers to statements of fact. Whether a particular statement should
be regarded as one of fact can depend on the circumstances. Under generally
accepted conventions in negotiation, certain types of statements ordinarily are
not taken as statements of material fact. . . . [A] party’s intentions as to an
acceptable settlement of a claim [is] ordinarily in this category.
ABA Model Rule 4.1, cmt. 2.
Ms. Daley states in her Declaration that she “never deceived” MMI, and that
she did not file the claim in Oregon “surreptitiously.” (Doc. 40-1 at 3). Ms. Daley
also stated that she never stated to MMI’s counsel that her clients would wait to file
a lawsuit. (Id.) While Ms. Daley did not disclose to MMI or its counsel that DKB
intended to file suit, neither did she make a “false statement of material fact” in
violation of Model Rule 4.1.
Model Rule 8.3
Finally, MMI claims that Ms. Daley and Mr. McIntosh violated ABA Model
Rule 8.3 by failing to report each other’s “egregious conduct” and their “diabolical
scheme” to file suit in Oregon to this Court. (Doc. 43 at 6).
ABA Model Rule 8.3 does not require an attorney to report every alleged
violation of the ABA Model Rules. “[Rule 8.3] limits the reporting obligation to
those offenses that a self-regulating profession must vigorously endeavor to
prevent. A measure of judgment is, therefore, required in complying with the
provisions of this Rule.” ABA Model Rule 8.3, cmt. 3. Alongside an attorney’s
judgment in reporting an ethical violation, “Rule 8.3 requires actual knowledge of,
or believing clearly that there has been a violation, which implies more than a
suspicion of misconduct.” S.C. Bar Ethics Advisory Committee, Ethics Advisory
Opinion 05-04 (2005).
MMI contends that Mr. McIntosh had knowledge of Ms. Daley’s egregious
conduct after their counsel sent an email to Mr. McIntosh’s partner. (Doc. 26-1).
According to MMI, “McIntosh was specifically told of [Ms. Daley’s] conduct,
which is more than sufficient to prove his knowledge. The email his law firm
received advising of Daley’s misconduct could not be more clear.” (Doc. 66 at 10).
MMI’s counsel’s email provides the following:
If [Ms. Daley] actually intends to appear in Judge Morris’ Court, I think it is
imperative for Judge Morris to know the conduct she has already exhibited.
Therefore, when you do file your motion, please note that we object and we
will proceed with advising Judge Morris precisely what Annamarie Daley did
in her filing of the litigation in Oregon.
Although MMI’s counsel holds the strong belief that Ms. Daley had acted
illegally and unethically, Mr. McIntosh was not obliged to agree. Furthermore, as
discussed above, the Court has determined that Ms. Daley’s conduct, no matter how
repugnant to MMI’s counsel, did not constitute illegal or unethical conduct.
Therefore, the Court concludes that Mr. McIntosh and Ms. Daley did not violate
Model Rule 8.3.
Attorney’s Fees and Costs.
In their Reply Brief, MMI requests that the Court order Ms. Daley and Mr.
McIntosh to personally satisfy all of their expenses and attorney’s fees under 28
U.S.C. § 1927 (“[a]ny attorney . . . who so multiplies the proceedings in any case
unreasonably and vexatiously may be required by the court to satisfy personally the
excess costs, expenses, and attorneys’ fees reasonably incurred because of such
conduct”). (Doc. 66 at 10). As explained above, Ms. Daley and Mr. McIntosh did
not act “unreasonably and vexatiously.” Therefore, MMI is not entitled to recover
their expenses and attorney’s fees pursuant to 28 U.S.C. § 1927.
For the reasons stated above, MMI’s Motion to Take Disciplinary Action
Against Annamarie A. Daley and Ian McIntosh is DENIED. MMI’s request that
Ms. Daley and Mr. McIntosh pay its attorney’s fees and expenses is also DENIED.
Dated the 25th day of September, 2017.
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