“Taxes Relating to the Property” in Liquidation MOUs: No Implied Duty to Reserve for a Debtor’s Capital Gains; Extrinsic Evidence Controls Before Contra Proferentem

Introduction

Gabert v. Seaman, 2025 MT 198 (Mont. Sept. 2, 2025), presents a high-stakes post-judgment conflict arising out of a violent incident and the ensuing civil settlement. After a tragic shooting in which Garry Douglas Seaman killed James Freeman and seriously injured Heidi A. Gabert, the victims (Gabert and Dawn Freeman) obtained two $10 million civil judgments and negotiated a settlement memorialized in a memorandum of understanding (MOU). The MOU created a court-supervised liquidation framework and contemplated the use of a designated settlement fund (DSF) under 26 U.S.C. § 468B to marshal and distribute proceeds.

The core dispute centered on taxes: Did the MOU’s incorporation of a receivership clause obligating the receiver to “pay all required taxes relating to the Property” require the liquidating receiver to reserve funds from asset sales to cover Seaman’s personal capital gains taxes? The district court initially said yes, but on a post-judgment motion under M. R. Civ. P. 59(e) amended its order and struck the capital-gains set-aside, concluding its initial ruling rested on manifest errors of law and fact. Seaman appealed.

The Montana Supreme Court affirmed. The Court held that, read as a whole, the MOU is ambiguous on whether “taxes relating to the Property” include Seaman’s personal capital gains taxes; that the district court properly considered extrinsic evidence to find the parties did not intend to reserve liquidation proceeds for Seaman’s capital gains; and that the contra proferentem rule (construing ambiguities against the drafter) need not be invoked where extrinsic evidence resolves the ambiguity.

Summary of the Judgment

Standard of review: The Court reviewed the Rule 59(e) decision for abuse of discretion and the underlying contract interpretation questions for correctness, with factual findings on intent reviewed for clear error.
Ambiguity: The phrase “pay all required taxes relating to the Property” (incorporated from an earlier receivership order) is ambiguous when read in the context of the MOU’s explicit limitations on the liquidating receiver’s duties (owed solely to Gabert and Freeman, with only a homestead carve-out for Seaman) and distribution instructions directing all sale proceeds to satisfy judgments subject to limited exceptions.
Extrinsic evidence: The district court permissibly relied on negotiations evidence and testimony to determine the parties did not intend to reserve settlement proceeds to pay Seaman’s capital gains taxes.
Rule 59(e): The district court acted within its discretion to correct “manifest errors of law or fact” in its earlier DSF order by removing the capital-gains set-aside requirement.
Contra proferentem: The interpretive rule construing ambiguities against the drafter is a last resort and was unnecessary because the ambiguity was resolved through extrinsic evidence.
Holding: Affirmed. The amended order striking the capital-gains reserve stands.

Analysis

1) Precedents and Authorities Cited and How They Shaped the Decision

Folsom v. Montana Public Employees Ass’n, 2017 MT 204: Establishes that Rule 59(e) relief is extraordinary but appropriate to correct manifest errors of law or fact. The Supreme Court approved the district court’s use of Rule 59(e) to fix its initial misinterpretation and misapprehension of the evidence regarding the DSF’s purpose and the MOU’s tax language.
Dodds v. Tierney, 2024 MT 48: Supplies the abuse-of-discretion standard—error of law, clearly erroneous fact-finding, or arbitrary action. The Court found no abuse, emphasizing the district court exercised conscientious judgment to correct its earlier errors.
Murphy v. Home Depot, 2012 MT 23: Settlement agreements are contracts; contract law governs. This anchored the interpretive framework applied to the MOU.
Johnston v. Centennial Log Homes & Furnishings, Inc., 2013 MT 179; Kalispell Aircraft Co., LLC v. Patterson, 2019 MT 142: Contract interpretation, including whether an ambiguity exists, is a question of law. When unambiguous, apply the text as written. Here, the Court ultimately agreed the MOU was not unambiguous on capital gains.
In re Marriage of Mease, 2004 MT 59; Performance Machinery Co. v. Yellowstone Mountain Club, LLC, 2007 MT 250: Once ambiguity exists, party intent becomes a factual question, reviewed for clear error. The Supreme Court deferred to the district court’s intent finding based on substantial extrinsic evidence.
Riehl v. Cambridge Court GF, LLC, 2010 MT 28; Kuhr v. City of Billings, 2007 MT 201; Mary J. Baker Revocable Trust v. Cenex Harvest States, Coops., Inc., 2007 MT 159: Ambiguity is determined objectively; mere disagreement is insufficient; there must be at least two reasonable meanings. The Court found two reasonable readings: one including personal capital gains within “relating to the Property,” and one limiting the receiver’s obligations to property-level taxes or obligations consistent with the MOU’s explicit limitations and distribution scheme.
Richards v. JTL Group, Inc., 2009 MT 173; In re K.H., 2012 MT 175: Authorize use of extrinsic evidence to ascertain intent and require appellate deference to trial-level credibility and weight determinations. The district court’s reliance on negotiation history and testimony was affirmed.
Lewis & Clark County v. Wirth, 2022 MT 105; § 28-3-206, MCA: Contra proferentem is a tool of last resort and is not peremptory. Because extrinsic evidence clarified intent, the court appropriately did not apply the rule to construe against the MOU’s drafters.
Statutes: § 28-3-301, -303, -202, MCA (mutual intent; writing controls; whole-contract rule). The Court emphasized the “whole contract” approach: specific carve-outs and receiver-duty limitations in the MOU temper the broad “relating to the Property” phrase imported from the receivership order.
26 U.S.C. § 468B: Authorized creation of the DSF/QSF to facilitate liquidation and distribution. The Court rejected the notion that using a DSF equates to an intent to shield or pay the debtor’s personal capital gains absent clear contractual language.

2) The Court’s Legal Reasoning

The Supreme Court endorsed the district court’s recalibrated approach under Rule 59(e). The initial DSF order had treated “pay all required taxes relating to the Property” as dispositive of Seaman’s capital gains. On reconsideration, the district court recognized two manifest errors:

It construed “relating to the Property” in isolation rather than applying § 28-3-202, MCA’s whole-contract rule.
It misapprehended facts by stating the DSF was “designed to pay no capital gains,” which undervalued negotiations evidence and the MOU’s structure.

Once the district court stepped back to read the integrated documents together, several MOU provisions created tension with an expansive reading of “relating to the Property”:

Paragraph 6(c)(iii): The liquidating receiver owes a duty only to Gabert and Freeman, with the sole duty to Seaman being delivery of the homestead exemption amount.
Paragraph 6(vi): All sale proceeds go to a control account for distribution to claimants, subject only to the homestead and child-support carve-outs and other specified priorities.
Paragraph 6(c)(v)(11) (as incorporated): The receiver has no obligation to prepare or file Seaman’s income tax returns—an odd fit if the receiver had to administer Seaman’s personal capital-gains liabilities from the proceeds.

These provisions made the broad “relating to the Property” text susceptible to at least two reasonable meanings, rendering the MOU ambiguous as to capital gains. Under Montana law, ambiguity opened the door to extrinsic evidence. Considering the negotiations and testimony, the district court found as a fact that the parties did not intend to reserve proceeds to pay Seaman’s capital gains taxes. The Supreme Court found substantial evidence supported that finding and thus would not disturb it.

On Seaman’s argument that his homestead exemption would be rendered “meaningless” if he had to spend it on capital gains taxes, the Court was unpersuaded. The exemption is not illusory simply because the exempted funds might later be used for taxes; he still receives the agreed amount. The Court likewise declined to adopt Seaman’s broad textual argument that “relating to” necessarily reaches capital gains. Even if “relating to” is broad in other contexts (e.g., statutes, arbitration clauses), here the full MOU—including explicit duty and distribution limitations—precluded an unambiguous conclusion in Seaman’s favor.

Finally, the Court rejected Seaman’s plea to apply § 28-3-206, MCA (contra proferentem). That canon is a last resort, to be used only if ambiguity persists after application of other interpretive tools and consideration of extrinsic evidence. Because the extrinsic record clarified intent, contra proferentem had no role in the outcome.

3) Impact and Forward-Looking Significance

Receiverships and DSFs: Parties using qualified/ designated settlement funds and court-appointed receivers in Montana should not assume that generic tax-payment clauses (“pay all required taxes relating to the Property”) shift a debtor’s personal income-tax liabilities—such as capital gains—onto liquidation proceeds. The burden of personal income tax remains with the taxpayer absent clear, specific drafting.
Drafting discipline: This decision elevates the importance of precise drafting in MOUs that integrate earlier receivership orders. If parties intend for liquidation proceeds to reserve or satisfy the owner’s capital gains, they must say so expressly and reconcile that obligation with any receiver duty limitations and distribution priorities.
Whole-contract approach: Courts will harmonize imported clauses with bespoke MOU terms, and generalized language will yield to specific limitations and detailed distribution schemes. Boilerplate “relating to the property” provisions will not silently expand a receiver’s duties to include paying an owner’s personal taxes.
Litigation strategy: Rule 59(e) remains a potent but exceptional vehicle to correct material interpretive errors. Where a court’s initial order isolates a clause and disregards broader contractual context or misapprehends evidence, parties should consider timely Rule 59(e) relief.
Contra proferentem cabined: Montana reaffirms that ambiguities are not automatically resolved against the drafting party; courts will first consult extrinsic evidence to determine actual intent. Only if ambiguity persists does § 28-3-206, MCA, come into play.

Complex Concepts Simplified

Designated/Qualified Settlement Fund (DSF/QSF): A court-created fund (under 26 U.S.C. § 468B and related regulations) that can receive and hold settlement proceeds, pay claimants and certain expenses, and function as a separate taxpayer for interest earned. It streamlines distributions and can simplify tax timing for defendants and claimants. It does not, without more, assume an individual seller’s income tax liabilities.
Receivership and Liquidating Receiver: A receiver is a neutral fiduciary appointed by the court to preserve and manage a party’s assets. A “liquidating receiver” sells assets and distributes proceeds according to court-approved priorities. Here, the receiver’s duties were expressly limited—owed to the claimants, not Seaman, except to deliver his homestead exemption.
“Taxes relating to the Property” versus Capital Gains: Property-level taxes might include real property taxes, transfer taxes, sales taxes, HOA dues treated like assessments, and similar obligations arising from ownership or transfer. Capital gains tax is generally a personal income tax imposed on the seller’s gain recognized on a sale. Whether a contract’s “relating to the property” clause covers capital gains depends on context and drafting specificity.
Rule 59(e) (Montana): A procedural tool allowing a court to alter or amend a judgment in the interests of justice to correct manifest errors of law or fact or account for extraordinary circumstances. It is not a rerun of the case but a targeted corrective mechanism.
Ambiguity and Extrinsic Evidence: A contract is ambiguous if it supports at least two reasonable meanings. When ambiguous, courts consider evidence outside the four corners (negotiations, conduct, context) to determine the parties’ actual intent.
Contra Proferentem: The interpretive rule that ambiguities are construed against the drafter. In Montana, it is a last resort, used only if ambiguity remains after other interpretive tools and extrinsic evidence fail to clarify intent.

Practice Notes for Lawyers and Parties

Be explicit about tax allocations. If the goal is to reserve or pay the owner’s capital gains from sale proceeds, say so in unmistakable terms (e.g., “The Liquidating Receiver shall reserve and pay from sale proceeds all income taxes, including capital gains, incurred by Seaman in connection with sales conducted under this MOU.”).
Reconcile duties and priorities. If you expand a receiver’s obligations to a debtor, modify any “receiver owes no duty to the debtor” clauses and adjust distribution priorities so the set-aside is clearly permitted before payments to judgment creditors.
Avoid boilerplate clashes. When incorporating prior receivership orders, identify exactly which provisions are adopted and how they interact with new MOU terms. Consider expressly excluding personal tax liabilities from “taxes relating to the Property” if that is the parties’ intent.
Build the record. If ambiguity is likely, preserve negotiation history and intent evidence. As Gabert shows, extrinsic evidence can be outcome-determinative in Montana.
Remember homestead carve-outs. A homestead exemption is not “meaningless” merely because the recipient might use it to pay taxes. If preservation from tax exposure is desired, draft accordingly.

Conclusion

Gabert v. Seaman clarifies Montana law in three important ways. First, in integrated settlement-and-receivership arrangements, generic obligations to pay “taxes relating to the Property” do not unambiguously shift a debtor’s personal capital gains taxes onto liquidation proceeds when the MOU otherwise cabins the receiver’s duties and channels all proceeds to claimants subject to narrow carve-outs. Second, when ambiguity arises, Montana courts will look to extrinsic evidence of intent before turning to contra proferentem; the “against the drafter” rule is not a reflexive tie-breaker. Third, Rule 59(e) remains a carefully controlled but available means to correct manifest legal and factual errors in complex post-judgment orders.

The decision’s practical message is unmistakable: context and precision govern. Parties who intend to alter the default allocation of personal tax liabilities in liquidation MOUs must draft with specificity and harmonize those provisions with the receiver’s duties and distribution priorities. Absent such clarity, Montana courts will not imply a duty to reserve settlement funds for a debtor’s capital gains taxes.