Smith v. Hartman Walsh Industrial Services et al

Filing 214

ORDER ADOPTING, IN PART, AND REVERSING, IN PART, 203 REPORT AND RECOMMENDATION; granting 197 Motion to Set Aside Judgment under Rule 60(b)(6); granting 197 Motion to Vacate under Rule 60(b)(6) by Judge Ralph R. Erickson. The parties are directed to brief the issue identified by the court within 21 days.(SH)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NORTH DAKOTA
Robert Charles Smith,
Plaintiff,

Case No. 1:15-cv-94

-vs-

ORDER REVERSING, IN PART,
MAGISTRATE JUDGE’S REPORT
AND RECOMMENDATION AND
GRANTING MOTION FOR RELIEF
UNDER FED.R.CIV.P. 60(b)

Hartman Walsh Painting Company, Basic
Electric Power Cooperative, and Sargent &
Lundy, LLC,
Defendants.
-andHarman Walsh Painting Company,
Defendant/Third-Party Plaintiff
-vsDuromar, Inc.,
Third-Party Defendant.

On February 5, 2018, the court received a Report and Recommendation from
Magistrate Judge Alice R.

Senechal.1

The report recommends that the plaintiff’s

Fed.R.Civ.P. 60(b) motion be denied because he failed to satisfy the rule’s requirements.
Plaintiff Robert Smith filed objections to the Report and Recommendation.2
Smith has asserted, in part, a right to relief under Rule 60(b)(6), which provides that
relief may be granted from an order for “any other reason that justifies relief.” The Eighth
Circuit has noted that the rule is grounded in equity and exists “to prevent the judgment

1

Doc. #203.

2

Doc. #204.

1

from becoming a vehicle of injustice.3 An “important equitable consideration” is whether
the litigants received a ruling on the merits of their claim.4 Prior to deciding whether this
court should exercise its equitable powers, the undersigned directed the defendants and
third-party defendant to file a response to the merits of the plaintiff’s arguments regarding
the applicability of the circuity of obligation/indemnity provisions. The court has carefully
considered the briefs filed by the parties5 and now issues this order.
The defendants/third-party defendants (collectively “defendants”) frame the issues
as general lack of consent to the indemnity agreements, lack of intent of the parties, and
whether there is ambiguity in the release agreement. The court sees the issue raised by
Smith a bit differently. The release agreement provided:
for the sole consideration of Two-Thousand Dollars ($2,000.00), . . .
[plaintiff] does hereby release, and acquit and forever discharge Duromar,
Inc., its heirs, representatives, . . . from any and all actions, claims, damages,
costs, loss of services, expenses, and compensation on account of, or in any
way growing out of, any and all personal injuries, whether physical or mental,
resulting from an alleged accident that occurred on or about the 15th day of
July, 2009, at or near Stanton, North Dakota.
***
It is further specifically agreed by the undersigned that by accepting
this offer of settlement, that any and all claims save and except for the
liabilities for workers’ compensation benefits that are being settled pursuant
to a separate agreement incorporated herein by reference,6 for the injuries
that the undersigned may have against Duromar, Inc. are settled by this
release. It is understood that any potential claims the undersigned may have
against any other tortfeasor are unaffected by the terms and agreements set
forth herein.

3

MIF Realty L.P. v. Rochester Ass’n, 92 F.3d 752, 755 (8th Cir. 1996).

4

Id.

5

Docs. #209, #210, & #213.

6

The workers compensation claim against Duromar was settled for $53,000.00.

2

***
It is further expressly understood and agreed that the undersigned reserves
himself and preserves the balance of the whole claims, demands and causes
of action against any and all persons and parties other than Duromar, Inc.,
and that he does not by this compromise settlement intend to release or
discharge from liability any person or party or entity other than Duromar,
Inc.7
By the time Smith signed this release agreement, various indemnification agreements had
been executed that Smith would have no reason to know about. Under these agreements,
Basin and Sargent & Lundy were entitled to indemnification from Hartman Walsh;
Hartman Walsh was entitled to indemnification from Duromar; and Duromar was entitled
to indemnification from Smith. Thus, when Smith signed the release agreement he was
responsible for satisfying any judgment he received from Basin, Sargent & Lundy, or
Hartman Walsh. The statements in the release agreement– that any potential claims Smith
might pursue against tortfeasors not named Duromar are “unaffected by the terms and
agreements” and the agreement between Smith and Duromar does not “release or discharge
from liability any person or party or entity other than Duromar”–misrepresented the reality
of the situation. The indemnity agreements, for which Smith was not a party, made it a
legal impossibility for Smith to recover from any other tortfeasor.
It was not until Smith commenced this action for damages against Hartman Walsh,
Basin Electric, and Sargent & Lundy for the incident occurring on July 15, 2009, that he
discovered the legal impossibility. After commencing this action, Smith was met with
motions to dismiss and for summary judgment. The court previously concluded that

7

Doc. #90-2 (emphasis added).

3

Smith’s complaint was subject to dismissal because the circuity of obligation made him
responsible for satisfying any judgment he obtained against the non-settling tortfeasors.
It was after this finding that Smith brought a motion under Rule 60(b), asserting various
legal reasons why the release agreement should not bar his claims against Basin, Sargent
& Lundy, and Hartman Walsh.
The magistrate judge previously found that North Dakota law is applicable in this
diversity action.8 The court has reviewed North Dakota law focusing on the “important
equitable consideration” of whether the parties received a ruling on the merits of their
claim. “A valid contract requires parties capable of contracting, consent, a lawful object,
and sufficient consideration. The parties’ consent must be free, mutual, and communicated
to each other.”9 If a party’s free consent to a contract is obtained by fraud, the defrauded
party may rescind the contract or affirm the contract and recover damages. Fraud under
North Dakota law includes the following acts done with the intent to deceive another party
or induce the other party to enter into the contract:
1.
2.

The suggestion as a fact of that which is not true by one who does not
believe it to be true;
The positive assertion, in a manner not warranted by the information

3.

of the person making it, of that which is not true though that person
believes it to be true;
The suppression of that which is true by one having knowledge or

4.

belief of the fact;
A promise made without any intention of performing it; or

5.

Any other act fitted to deceive.10

8

Doc. #161, n.4.

9

Matter of Estate of Harris, 2017 ND 35, ¶ 8, 890 N.W.2d 561 (quoting Valentina Williston, LLC v.
Gadeco, LLC, 2016 ND 84, ¶ 16, 878 N.W.2d 397)).
10

N.D. Cent. Code § 9-03-08.

4

Lack of intent to deceive does not protect one who makes a false statement without a
sufficient factual basis, as North Dakota also recognizes a statutory claim based on
negligent misrepresentation under N.D. Cent. Code 9-03-08.11
The threshold issue in this litigation, one that has not been resolved, is whether the
release agreement signed by Smith is a valid contract that precludes him from recovering
against any other tortfeasor not named Duromar. The defendants believe this litigation
should come to a quick end because the contract is plainly enforceable as there was no duty
to disclose the existence of the indemnification agreements. What the defendants overlook
is that the failure to disclose resulted in a contract that affirmatively retained Smith’s right
to assert claims against the non-settling tortfeasors, but effectively precluded Smith from
recovering against any non-settling tortfeasor.
An unresolved legal issue in North Dakota is whether a party has a duty to disclose
to the other party a fact within its knowledge that would have been material to the decision
to enter into the contract for the specified consideration when the other party lacked the
means of ascertaining that fact on his own.12 Resolution of this issue impacts the merits of
Smith’s claim that the contract is unenforceable against the non-settling tortfeasors. The
court believes that this question involves interpretation of North Dakota law of some
magnitude, and should be resolved by the North Dakota Supreme Court. For this reason,

11

Bourgois v. Montana-Dakota Utilities Co., 466 N.W.2d 813, 818 (N.D. 1991).

12

The North Dakota Supreme Court has held that a duty to disclose exists when one party knows
the other party to a contract is about to enter into a contract under a mistake of fact which rendered them
insecure. Dewey v. Lutz, 462 N.W.2d 435, 441 (N.D. 1990). Here the question is similar but not identical:
is there a duty to disclose when a party is aware that a statement it includes in a settlement agreement,
while technically true, is misleading because separate agreements exist which are unknown and perhaps
unknowable to the other party which renders the preserved right illusory.

5

the court finds there exists an unresolved issue in this case that is worthy of certifying to the
North Dakota Supreme Court.
Under the catch-all provision of Rule 60(b)(6), the court exercises its equitable
powers and REVERSES, in part, the magistrate judge’s Report and Recommendation
that found Smith failed to meet the requirements of Rule 60(b)(6). The court ADOPTS
the other portions of the magistrate judge’s Report and Recommendation.
For the reasons stated above, the court HEREBY GRANTS the plaintiff’s motion
under Rule 60(b)(6). The parties are directed to file a brief outlining any undisputed facts
and any disputed facts and setting forth their legal arguments pertaining to the issue
identified by the court that it is inclined to certify to the North Dakota Supreme Court
within 21 days of the date of this order.
IT IS SO ORDERED.
Dated this 3rd day of August, 2018.

Sitting by designation:
/s/ Ralph R. Erickson
Ralph R. Erickson, Circuit Judge
Eighth Circuit Court of Appeals

6