No. DA 06-0028 IN THE SUPREME COURT OF THE STATE OF MONTANA 2007 MT 66

WHIPPS, L.L.C., Plaintiff and Appellant,

v. KAUFMAN, VIDAL, HILEMAN & RAMLOW, P.C., Defendant and Respondent.

APPEAL FROM: The District Court of the Eleventh Judicial District, In and For the County of Flathead, Cause No. DV 2004-793A, Honorable Stewart E. Stadler, Presiding Judge

COUNSEL OF RECORD: For Appellant: Dale P. Trigg, Trigg Law Firm, P.C., Kalispell, Montana For Respondent: Tracy Axelberg, Christensen, Moore, Cockrell, Cummings and Axelberg, P.C., Kalispell, Montana

Submitted on Briefs: October 18, 2006 Decided: March 13, 2007 Filed:

__________________________________________ ClerkJustice Patricia O. Cotter deliver ed the Opinion of the Court. ¶1 Whipps, L.L.C. (Whipps), as landlord, and Kaufman, Vidal, Hileman & Ramlow, P.C. (Kaufman), as tenants, entered into a commercial lease agreement. Shortly after taking possession of the premises Kaufman vacated them. Whi pps sued for breach of a commercial lease and Kaufman filed a counter claim for fraud and breach of contract. After offers and counter-offers were made , Kaufman tendered an Offer of Judgment pursuant to M. R. Civ. P. 68 (Rule 68). Wh ipps accepted the Offer and the District Court for the Eleventh Ju dicial District entered Judgment accordingly. Subsequently, Whipps moved for designation as prevailing party and for an award of attorn ey fees pursuant to the lease. The District Court denied th e motion. Whipps appeals. We affirm. ISSUE ¶2 A restatement of the dispos itive issue on appeal is wh ether the District Court abused its discretion by denying Whipps’ motion for attorney fees. FACTUAL AND PROCED URAL BACKGROUND ¶3 In June 2004 Kaufman entere d into a three-year lease with Whipps for commercial property in Kalispell, Montana. Approxim ately three months after taking possession of the premises, Kaufman vacated the premises, alleging the property was unacceptable for its needs. In November 2004 Whipps filed a complaint for breach of the lease, seeking unspecified damages. Kaufman filed a co unterclaim for fraud, constructive fraud and breach of contract. It soug ht damages of $20,432.56. Am ong other things, the lease provided that in “an action . . . brought by Lessor or Lessee in unlawful detainer for rent or any other sums of m oney due under this leas e, or to enforce performance of any of the

2covenants and conditions of this lease, the lo sing party shall pay reas onable attorney fees of the prevailing party allowed by the court, t ogether with court costs in any such action.” ¶4 During ensuing discussions, Whipps cl aimed damages in the amount of $67,500.00 but agreed to settle for $34,000. 00. Kaufman countered with an offer of $5,000.00. Whipps then reduced its settleme nt demand to $27,000.00. Subsequently, Kaufman tendered an Offer of Judgment under Ru le 68, offering to allow judgment to be taken against it in the amount of $14,110.00 plus taxable co sts accrued to the date of offer, totaling $220.00. The Offer further stated that it was “neith er an admission that [Kaufman] is at fault or liabl e to [Whipps], nor that [Whi pps] has suffered any damage.” ¶5 Whipps accepted the Offer of Settlement, filing its Notice of Acceptance, Bill of Costs, and Request for Entry of Judgment on August 2, 2005. Judgment was entered accordingly on August 11, 2005. In September 2005 Whipps moved to be designated as the “prevailing party” under the lease, and to be awarded its attorney fees of $3,592.00 and a judgment filing fee of $45.00. The Distri ct Court denied Whipps’ motion. Whipps appeals. STANDARD OF REVIEW ¶6 We review a district court’s determinati on of “prevailing” or “losing” parties for an abuse of discretion. We appl y the same standard to a distri ct court’s grant or denial of attorney fees. A district court abuses its discretion when it acts arbitrarily, without employment of conscientious judgment, or in excess of the bounds of reason resulting in substantial injustice. Pumphrey v. Empire Lath and Plaster , 2006 MT 255, ¶ 9, 334

3Mont. 102, ¶ 9, 144 P.3d 813, ¶ 9. See also H-D Irrigating v. Kimble Properties, 2000 MT 212, ¶ 61, 301 Mont. 34, ¶ 61, 8 P.3d 95, ¶ 61. DISCUSSION ¶7 Whipps challenges the District Court’s ru ling on three grounds: (1) the District Court incorrectly found that the terms of the Rule 68 Offer were “clear and unambiguous” and effected a waiver of Whipps ’ right to pursue attorney fees under the commercial lease agreement; (2) the District Court incorrectly concluded that Whipps was not the prevailing party under the contr act; and (3) the District Court incorrectly determined that the language in the Satisfaction of Judgm ent operated as a waiver of Whipps’ right to recover contractual attorn ey fees. Whether the court abused its discretion in determining that Whipps was no t the prevailing party under the contract is the dispositive issue in this case. ¶8 To recover attorney fees in this case, Wh ipps must clear two hurdles: (1) it must have a right to attorney fees as the “preva iling party” under the co ntract, and (2) it must not have waived its right to pursue these fe es when it accepted Kaufman’s Rule 68 Offer of Judgment. If Whipps fails to clear either hurdle, it is not entitled to attorney fees. ¶9 The District Court concluded that under the circumstances of this case neither party was clearly the prevailing party; theref ore, neither party was entitled to attorney fees under the contract. This conclusion wa s based on the court’s interpretation of the contract and the compromise reached by the parties. As we stated in H-D Irrigating , ¶ 60, there is no prevailing pa rty where both parties gain a vi ctory but also suffer a loss. In the case before us, as note d by the District Court, Whi pps gave up approximately 80%

4of its original damage claim, agreeing to accept only 20%. Kaufman, on the other hand, gave up its counterclaim of approximately $20,400.00 but paid only 20% of Whipps’ claimed damages, while denying liability. Under these circumstances, the District Court’s determination that neither party “pre vailed” was not an abuse of discretion. Therefore, the District Court’s Or der is affirmed on this ground. ¶10 Having determined that Whi pps was not entitled to attorn ey fees as the “prevailing party” under the lease agreement, it was unnece ssary for the District Court to determine whether Whipps had waived its right to pursue such fees . Nonetheless, relying on Montana Fair Housing, Inc., v. Barnes , 2002 MT 353, 313 Mont. 409, 61 P.3d 170, the District Court analyzed whether the Offer of Judgment by Kaufman contained “clear and unambiguous” language, effectively notifying Whipps that the settlement was a full and complete settlement, rather than a partial se ttlement that would allow Whipps to file a claim for its atto rney fees. ¶11 In Montana Fair Housing , the Barneses were alleged to have violated the Montana Human Rights Act by denying equal housing opportunities to persons based on familial, age, and marital status. Under the Human Rights Act, the prevailing party was entitled to an award of attorney fees. The Barneses served a Rule 68 offer of judgment on Montana Fair Housing (MFH). MFH accepted it, and s ubsequently sought its statutory attorney fees as the prevailing party. The district court denied MFH’s mo tion for fees, and MFH appealed. We reversed, hold ing that the Barneses’ offer of judgment did not contain “clear and unambiguous” language that would al ert MF H that an acceptance of the offer would result in a waiver of any claim for a ttorney fees; therefore, the court erred in

5denying MFH’s request for fees under the statut e. Unlike the case before us today, in Montana Fair Housing , there was no dispute as to who wa s the prevailing party, and thus the sole question was whether the Rule 68 offer of judgment adequately put the accepting party on notice that an acceptance of the offe r would result in a waiver of the right to recover attorney fees. ¶12 As noted above, relying on Montana Fair Housing , the District Court concluded that Kaufman’s Rule 68 Offer of Judgment cl early and unambiguously indicated that it was not “a partial offer of judg ment but was intended to settle both of [Whipps’] causes of action in their entirety.” Kaufman’ s Offer of Judgment stated, in part: [Kaufman] hereby offers to allow judgment to be taken against it in the amount of $14,110.00, together with ta xable costs accrued to date. This offer is made solely for the purpose set out in Rule 68, M. R. Civ. P., and is neither an admission that [Kaufman] is at fault or liable to [Whipps], nor that [Whipps] has suffered any damage. ¶13 We disagree with the District Court’s conclusion that, under Montana Fair Housing , the offer of judgment “clearly and unambiguously” placed Whipps on notice that an acceptance would constitu te a waiver of any right to pursue contractual attorney fees. Although we need not reach this issue in light of our decision affirming the District Court’s conclusion that neither party was the “prevailing” party, we do so in order to provide guidance to practitioners who wish to utilize the Rule 68 offer of judgment in the future as a vehicle for dispute resolution. An offe r of judgment should plainly, “clearly and unambiguously” alert the o pposing party that an accepta nce of the offer will resolve all counts and claims, including an y claim for attorney fees.

6CONCLUSION ¶14 While concluding that the District C ourt incorrectly interpreted and applied Montana Fair Housing , we nonetheless affirm the District Court’s decision on the independent ground that the court did not abus e its discretion by conc luding that neither party was the “prevailing party.”

/S/ PATRICIA COTTER

We Concur: /S/ KARLA M. GRAY /S/ JAMES C. NELSON /S/ BRIAN MORRIS

7Justice Jim Rice concurs in part and dissents in part. ¶14 I concur in affirming the order of the District Court, but dissent from the Court’s essential reversal of the District Court’s hol ding regarding the interpretation of the Rule 68 offer of settlement. ¶14 First, the District Court’s order is not correctly characterized in ¶ 10, which indicates that the District Court initially de termined Whipps was not entitled to attorney fees as a “prevailing party” under the agreement, and thus , it was “unnecessary” for the District Court to reach the waiver issue, bu t “nonetheless” did. Actually, the District Court first took up the waiv er issue and made it the prim ary focus of the decision, declaring it to be the “dis positive” issue, and holding: A review of the Plaintiff’s Complain t, indicates in both of the claimed causes of action that Plaintiff was seeking a judgment for damages, attorneys’ fees and costs. Clearly, the Defendants’ offer was not a partial offer of judgment but was intended to settle both of Plaintiff’s causes of action in their entirety and Plainti ff makes no argument to the contrary. Relying on Montana Fair Housing , the District Court concluded that the Rule 68 settlement offer was unambiguous and that Whipps waived its claim to attorney fees by accepting the offer. Then, the District Court gave a brief, two sentence discussion about the other two issues (prevailing party and effe ct of the satisfaction of judgment). Thus, the waiver issue is the central issue and is appropriately addressed by this Court. ¶14 In reversing the District Court’s conclusi ons, the Court fails to explain what about the offer made it ambiguous, particularly in light of Montana Fair Housing , which rejected a “magic-words approach” and held that an offer, to be clear and unambiguous, “need not include the wo rds ‘attorney fees’ to effect a waiver.” Montana Fair Housing ,

8¶ 18. Admittedly, the magic words were not used here, but that, by itself, does not render the offer ambiguous. ¶14 I agree with the District Court’s conclusi on about the offer, firs t, because that is the conclusion which would also be reached by the reasonable lawyer, working in the day-to-day world of litigation, who received such an offer. Th e offer allowed the Plaintiff to take judgment against the Defenda nts, plus costs, but explained that this would not constitute an admiss ion of fault or liability. Such terms are customarily interpreted as resolving the cas e. Further, this offer was sp ecifically made for purposes of Rule 68, which triggers a co st penalty to the offeree if th e offeree rejects the offer and the “judgment finally obtained” is less than the offer. M. R. Ci v. P. 68. Here, Plaintiff’s claims included attorney fees, and thus, any judgment for attorn ey fees ultimately obtained, had the offer been rejected, would have been included in determining which party would suffer the payment of costs unde r Rule 68. Thus, attorney fees were necessarily already in the mix. ¶14 Looking to the circumstances surrounding the transaction, the parties had been negotiating by exchangi ng demands and offers in vary ing amounts until an acceptable figure was arrived at. After the Plaintiff’s acc eptance of the offer, a notice of acceptance and a judgment against the Defendant was filed. Payment was then made by the Defendant, after which a “full” satisfaction of judgment was filed by the Plaintiff. These actions simply reinforce the unambiguous meaning of the o ffer. To allow a party to interpret the offer and these circumstances as somehow pres erving a claim for attorney

9fees, in my view, encourag es sharp practice and underm ines the integrity of the settlement process.

/S/ JIM RICE

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