Lacey v. Herndon

1 0 82-517
1.
IN THE SUPREME COURT OF THE STATE OF MONTANA

1983

RUSSELL LACES and ROBERTA LACEY,
Plaintiffs and Appellants,
-VS-

JOHN C. HERNDON and BLAINE COUNTY,
Defendants and Cross-Plaintiffs
and Respondents,
-vs-
LEO KRAFT,
Cross-Defendant.

APPEAL FROM: District Court of the Twelfth Judicial District,
In and for the County of Blaine,
The Honorable B. W. Thomas, Judge presiding.

COUNSEL OF RECORD:
For Appellants :
Moses Law Firm; Michael G. Moses, Billings,
Montana

For Respondents:
Smith, Baillie & Walsh, Dennis P. Clarke, Great Falls,
Montana
J. Chan Ettien, Havre, Montana

Submitted on Briefs: April 8, 1983
Decided: August 24, 1983

AUG 2 4 1983'
Filed :

L- -
Clerk
Mr. Justice Fred J. Weber delivered the Opinion or the Court.
This is an appeal from a judgment of the District Court
of the Twelfth Judicial District, Blaine County, against
plaintiffs, Russell Lacey and Roberta Lacey, and in favor of
defendants, Blaine County and John C. Herndon, Blaine County
Sanitarian. We affirm the judgment.
The Plainsman Bar is located in Chinook, Montana.
Defendant Leo Kraft was the owner of the property, which
consisted of a building, personal property located in it, a
tract of land, and a Montana liquor license authorizing
operation of a 50-seat bar.
Les Stevenson, who contemplated purchasing the Plainsman
Bar from Leo Kraft, began operating the business in November,
1978. The Blaine County Sanitarian, John C. Herndon,
inspected the bar. He told Stevenson that engineering plans
to expand the sewer system would have to be submitted before
expansion of the business would be approved. Stevenson
experienced sewer backup in the bar and problems with the
water pressure from the well.
On November 30, 1978, Herndon reported by letter to the
Chief of the Department of Revenue, Liquor Control Board and
the Chief of the State Board of Health that the Plainsman Bar
water supply was inadequate and that the liquor license
transfer should not be granted. Herndon noted that
Stevenson's proposed addition of a kitchen and steakhouse in
the same building would completely deplete the existing water

supply He reported that the sewage treatment system
consisted of a 1,500-gallon septic tank and a surface
drainfield of 800 square feet, capable of disposing of sewage
from the bar and one trailer house. Herndon concluded that
an engineering study should be conducted and an additional
disposal system installed before a restaurant could be
licensed on the premises.
 Copies of the Herndon letter were mailed to Les
Stevenson, his attorney, and Leo Kraft's attorney. Acting
on behalf of Stevenson, attorney Ted Thompson obtained a
release from the sales agreement between Stevenson and Kraft.
During the period that Stevenson operated the Plainsman Bar,
Stevenson did not tell John Herndon about the sewer and water
problems he experienced.
On March 7, 1979, Leo Kraft listed the Plainsman Bar for
sale with Flynn Realty. Appellant Russell Lacey, a retired
ironworker from Anchorage, Alaska, had been looking for a bar
and restaurant business in the western United States. Lacey
inquired at Flynn Realty and was told about the Plainsman
Bar.
Relying on telephone conversations about the bar, Mr.
Lacey traveled from Anchorage to Havre to view the Plainsman
property. Two agents of Flynn Realty represented to Lacey
that the building itself was suitable for conversion to a
250-person restaurant and that the septic tank was large
enough to handle such a restaurant. The listing agreement
with Flynn Realty contained no information regarding the
actual capacity of the septic tank, nor mention of the fact
that the liquor license authorized only a 50-person bar.
Based upon identical representations made in a long-distance
telephone conversation with Flynn Realty agents, Roberta
Lacey and her son-in-law traveled from Anchorage to Havre to
inspect the Plainsman property.
Plaintiffs became interested in the Plainsman property
because they thought they could operate it as both a bar and
a restaurant. The floor space of the Plainsman would
accommodate 200 bar patrons. A partially equipped kitchen had
been operated as a sandwich and buffet facility. Plaintiffs
knew they would have to purchase additional equipment to
operate a full-service restaurant. The Flynn Realty agents
were aware of plaintiffs' plan to expand the existing
facilities. Kenneth R. Flynn confirmed his agents'
representations that the Plainsman had a 4,000 gallon septic
tank sufficient to handle a 250-person bar and restaurant.
During one of plaintiffs' visits to the Plainsman Bar,
plaintiffs and Flynn Realty agents observed a plumber's snake
and debris lying near a drain. The Flynn Realty agents
assured plaintiffs that the sewer problem would be corrected
and added a provision to the buy-sell agreement that the
plugged drain would be opened and the sewer would be in
"good, workable condition."
On April 9, 1979, plaintiffs executed a "Receipt and

Agreement to Sell and Purchase" in which they agreed to
purchase the Plainsman Bar from Leo Kraft. On May 9, 1979,
agents of Flynn Realty escorted Russell Lacey to attorney
Thompson's office. They explained that the buy-sell
agreement had been signed, that the terms and conditions of
the sale were already set, and that they would like Thompson
to review the contract for sale, which Leo Kraft's attorney
had prepared. Thompson agreed to represent the Laceys and
advised them of the existence of John Herndon's November 30,
1978 letter, regarding sewer and water problems at the
Plainsman Bar.
Testimony regarding the extent to which Thompson
explained the contents of Herndon's letter to the Laceys is
contradictory. Thompson testified that he went over the
letter sentence by sentence. Roberta Lacey testified that
Thompson did not tell them about Herndon's reference to the
1,500-gallon septic tank or the need for an engineering study
and expanded sewer system. Russell Lacey could not recall
specifically what Thompson discussed relative to the letter,
but testified that Thompson "checked with John Herndon to see
if this had been corrected." Roberta Lacey also testified
that Thompson called Herndon to make sure the sewer problems
had been corrected before they signed the contract for sale.
Some time after his May 9, 1979 meeting with the Laceys
and the Flynn agents, Thompson telephoned Herndon to find out
whether the conditions outlined in Herndon's November 30,
1978 letter still existed. Thompson testified that Herndon
assured him that the water supply was adequate for a
restaurant and bar with an occupancy load of 250 people; that
the sewer system problems had been corrected; and that
Herndon would check again to make certain there were no sewer
problems more serious than the minor blockage, evidenced by
the sewer snake the Laceys had seen. Herndon told Thompson
"he would check his file to see if there were any problems
other than a minor stoppage. " Thompson admitted that he did
not discuss the size of the septic tank with Herndon or
whether the sewer system had been enhanced since 1978.
Herndon testified that he was unable to contact Les
Stevenson, but that he talked to the Plainsman Bar manager
and plumbers, who reported that the problems had been
corrected. Herndon relayed this information to Thompson on
May 18, 1979.
Thompson testified he advised plaintiffs to wait until
the food purveyor's license was issued before signing the
contract for sale. Contrary to Thompson's advice, plaintiffs
executed the contract for sale of the Plainsman property with
Leo Kraft on May 18, 1979. Plaintiffs made a $35,000
downpayment and contracted to pay $135,000 in monthly
payments. The contract for sale was contingent upon
transferability of the Montana Retail Beer and Liquor
License, but no conditions regarding capacities of the water
or sewer systems were expressed. The agreement also provided
that plaintiffs had entered into the agreement in full
reliance on their independent investigation.
 On June 20, 1979, the State Department of Health &

Environmental Sciences issued a food purveyor's license to
plaintiffs. Herndon testified that the license was issued so
that plaintiffs could sell "knick knack foods" from the bar
as Kraft had. According to Russell Lacey's testimony, the
bar was opened in July, kitchen equipment was installed, and
the restaurant opened in August. Roberta Lacey testified the
restaurant opened in October. The Laceys did not seek formal
approval from the State before installing the kitchen
equipment. Herndon conducted a fire inspection of the new
kitchen equipment.
Plaintiffs experienced a serious backup problem the
first day the restaurant opened and requested that Herndon
inspect their sewage system. Herndon did so and several
meetings between Herndon, Kraft and plaintiffs took place.
Plaintiffs continued to report sewer problems to Herndon.
Herndon informed plaintiffs by letter dated January 22,
1980 that the sewage system was "a complete failure." Copies
of this letter were forwarded to attorney Thompson, the State
Food & Consumer Safety Bureau, the State Liquor Control
Board, and the engineering firm whose construction plans had
not been adhered to when the Plainsman Bar was built.
Herndon recommended that in order for the Plainsman Bar "to
comply with the Montana State Health Codes for a Bar and
Steakhouse, it will be necessary to revamp the entire sewage
system." He noted that review of engineering plans and
specifications for design, as well as approval of the
facility had to be completed before a license would be
granted for an eating establishment.
By letter dated January 29, 1980, the Liquor License
Bureau informed plaintiffs that their health permit was in
jeopardy of being revoked unless they corrected the sewage
system deficiency. On February 8, 1980, John Herndon wrote
the Liquor License Bureau Chief that the sewage disposal
system of the Plainsman Bar did not comply with the minimum
standards of the State Department of Health & Environmental
Sciences. On February 14, 1980, James Peterson of the Food &

Consumer Safety Bureau of the Department of Health and
Environmental Sciences informed Russell Lacey by letter that
the sewage system was approved for a 50-seat bar operation
only. Peterson noted that the installed system was "not
entirely as submitted and approved" and requested that Mr.
Lacey furnish "as-built" data on the existing sewer system.
Copies of Peterson's letter were forwarded to John Herndon
and the Liquor Control Division.
Herndon outlined a list of 13 violations in the
Plainsman Bar and steakhouse in a letter dated March 17, 1980
to Lee FJilliams of the Liquor Control Division and James
Peterson of the Department of Health and Environmental
Sciences. Plaintiffs failed to correct the violations.
Plaintiffs sued a number of parties. Nault Plumbing &

Heating, James M. Peterson and State of Montana were granted
summary judgments in their behalf. Plaintiffs, Leo Kraft and
Flynn Realty stipulated that the claims had been fully
settled by an agreement under which the plaintiffs received
$47,500 and returned the bar to Leo Kraft. Following the
dismissals with prejudice, plaintiffs' remaining claim for
relief was against John Herndon and Blaine County, for fraud
in the inducement and negligent misrepresentation.
After trial, the district court concluded that
plaintiffs' failure to argue the theory of negligent
misrepresentation indicated to the court an intention to
abandon that theory. Judgment in favor of Herndon and Blaine
County was entered.
The issues presented on appeal are:
 (1) Are the findings of fact, conclusions of law, and
judgment supported by substantial evidence?
(2) Are the findings of fact, conclusions of law, and
judgment clearly erroneous?
Plaintiffs challenge 8 of the district court's 38
findings of fact and 1 conclusion of law. Plaintiffs contend
that, in viewing the entire record, the findings of fact are
clearly erroneous and not supported by substantial, credible
evidence. Defendants contend that plaintiffs have not shown
abuse of discretion merely by quoting favorable portions of
conflicting testimony.
The challenged conclusion of law states:
"Plaintiffs have failed to prove their claims of
fraud and negligent misrepresentation against
defendants John Herndon and Blaine County."
We look to the evidence and the findings of fact to determine
whether this conclusion is supported by substantial credible
evidence.
On appeal, we will not disturb findings of fact that are
based on substantial evidence. "The evidence may be
inherently weak and still be deemed 'substantial' and
substantial evidence may conflict with other evidence
presented." Cameron v. Cameron (1978), 179 Mont. 219, 228,
587 P.2d 939, 945. Rule 52(a), M.R.Civ.P. states in part:
"Findings of fact shall not be set aside unless
clearly erroneous, and due regard shall be given to
the opportunity of the trial court to judge the
credibility of the witnesses."
In reviewing findings of fact in a civil action tried
without a jury, this Court may not substitute its judgment in
place of the trier of facts. Our function is confined to
determining whether there is substantial credible evidence to
support the court's findings. We view the evidence "in a
light most favorable to the prevailing party, recognizing
that substantial evidence may be weak or conflicting with
other evidence yet still support the findings." Wallace v.
Wallace (1983), Mont . , 661 P.2d 455, 457, 40
St.Rep. 430, 433, citing In Re Marriage of Bosacker (1980),
Mont . , 609 P.2d 253, 256, 37 St.Rep. 469, 471. It
is the duty of the trial court to resolve such conflicts.
Applying the above rules of review, we turn first to the
question of the sufficiency of evidence supporting each
challenged finding of fact. Plaintiffs allege findings of
fact 21, 22, 24, 31, 32, 33, 35 and 37 are clearly erroneous.
Findings 21 through 24 concern discussions between attorney
Thompson and sanitarian Herndon.
Finding of Fact 21 states:
"Thompson and Herndon did have at least two
discussions relating to the Plainsman Bar. One
occurred on May 9, 1979, and another on May 18,
1979, the date when the final agreement was entered
into by plaintiffs. In those conversations,
Herndon was discussing the facility as it existed
at that time, served by a 1,500 gallon septic tank
and licensed for a 50-seat bar. However, he did
not advise Thompson of that license restriction,
nor did Thompson inquire about any restriction."
In substance, Thompson testified that Herndon
represented to him that the sewer system would handle the

expanded facility, but admitted that he did not discuss the
septic tank size or ask whether the original tank had been
replaced. Herndon testified he was referring to existing
conditions when he advised Thompson that he saw no problem in
issuing a license on the (50-seat) bar. The finder of fact
chose to believe Herndon's testimony regarding the
misunderstood communication. There is sufficient evidence to
support finding of fact 21.
Finding of Fact 22 states:
"In the conversations mentioned in Finding 21, some
of the problems set out in Herndon's November 30,
1978 letter were discussed. Herndon stated the
well problems had been fixed and that there was an
adequate water supply. Ted Thompson did not
discuss the fact that the letter said the bar had a
1,500 gallon septic tank or have any discussion
with John Herndon regarding the size of the
 existing septic tank or any discussion that the
existing septic tank had been replaced. John
Herndon told Ted Thompson that an engineering study
was not necessary. Herndon said this because he
was referring to an existing facility. Ted
Thompson assumed the existing facility had been
expanded but was not told this by Herndon.
Thompson knew an engineering study had not been
filed with the Liquor Division but did not inquire
further."
Again the evidence is directly contradictory. Thompson
testified he reviewed the letter of November 30, 1978 with
Herndon sentence by sentence. Herndon denied this and
testified that they discussed such things as the food
purveyors' license and the water and sewer problem of May 9.
Herndon contacted the manager and plumbers to see if the
backup problem had been corrected and reported what he had
learned to attorney Thompson. A finding is not clearly
erroneous because one witness testifies to the contrary.
There is substantial evidence to support the court's finding.
Finding of Fact 24 states:
"In response to an inquiry from Thompson, Herndon
told Thompson that the bar had a capacity of 250
persons. By that, he had in mind that the place
had a floor or load capacity of 250 persons. He
did not understand from his conversations with
Thompson that the Laceys planned to expand the bar
to a restaurant operation for 250 persons. The
evidence is insufficient to find that Herndon
represented to Thompson that the existing sewer
system had the capacity to handle a 250-person
restaurant, although Thompson may have understood
him to so state."
In substance, Thompson testified that Herndon
represented to him that the sewer system and water would
handle the expanded facility, although he admitted he did not
inquire whether the existing sewer system had been expanded.
Herndon's testimony, on the other hand, established that he
told Thompson that the bar had the floor space for 250
people, but that he had received no plans for expansion of
the existing facility.
 Plaintiffs contend that the following testimony
constitutes an admission by Herndon that he told Thompson the
sewer system could handle a 250-person facility:
"Q. Did you advise him as you testified on your
direct examination that this facility had a
capacity of 250 people? A. I had it that ---
"Q. Did you say that? A. No.
"Q. So -- didn't you say on direct examination
that you told Mr. Thompson that it had a capacity
of 250 people? A. No, I did not. I said it had
the floor capacity.
"Q. For what, for how many people? A. For 250.
"Q Then there would be no question that you told
him that this place had a capacity of 250 to 300
people and that the sewer system was satisfactory?
"MR. CLARK: I don't believe that is his
testimony.
"Q. I don't know if that is his testimony or not,
I am asking him if that is his testimony? A. I
was more or less -- he was more or less licensed to
set up for the existing set up. The sewer had the
capacity and the floor space for that.
"Q. But you did tell Mr. Thompson those two
things? A. I must have."
Taken in context, the alleged admission that Herndon
"must have" told Thompson that the sewer had the capacity for
250 people could also be interpreted as a statement that the

sewer and floor space were adequate "for the existing set
This interpretation consistent with the rest
Herndon's testimony.
Plaintiffs assert the fact that Herndon issued a license
to them is evidence of Herndon's knowledge of their
restaurant expansion plan. However, a food purveyor's
license was required in order for the Laceys to continue to
sell sandwiches as their predecessors had. Issuance of the
license fails to show that Herndon had knowledge of
plaintiffs' plan to expand the bar to a restaurant of 250
person capacity.
 We conclude that the evidence is insufficient to show
that Herndon represented that the existing system had a
capacity to handle a 250 person restaurant, even though
Thompson may have so misunderstood him.
Finding of Fact 31 states:
"No evidence was presented that defendant John
Herndon intentionally made any representations to
plaintiffs or their attorney which were false."
Plaintiffs assert that Herndon intentionally made false
representations to Thompson regarding the capacity of the bar
and of the sewer system. Herndon's testimony is replete with
references to his understanding that his discussions
concerned the existing facility and not a proposed plan for
expansion.
We will not burden this opinion with an extensive review
of all of the testimony. There is clearly sufficient
evidence to support the court's finding. In addition,
according to James Peterson, sanitarian with the State
Department of Health and Environmental Sciences, Herndon
lacked authority to inspect sewer systems to determine
compliance of proposed plans with code requirements.
Thompson's testimony as to his understanding that
Herndon agreed to inspect the system does not constitute a
clear preponderance of evidence that Herndon intentionally
made false representations. Finding of Fact 31 is adequately
supported.
Finding of Fact 32 states in part:
" . . .
John Herndon first learned of the kitchen
installation plans in late summer of 1 9 7 9 . "
Plaintiffs argue that this finding is contrary to
Thompson's testimony and to Herndon's issuance of a food
purveyor's license on June 20, 1 9 7 9 .
Herndon testified that the initial license was issued
based on the assumption that the Plainsman kitchen would
continue to serve sandwiches. He testified that he did not
know until after the issuance of that license that the
plaintiffs planned a full restaurant. The testimony is
sufficient to support Finding of Fact 32.
Finding of Fact 33 states:
"Plaintiffs experienced no serious trouble with the
sewer system until October, 1979 when the
restaurant was opened and the sewer backed up and
flooded parts of the Plainsman building."
Plaintiffs challenge this finding on the basis of
Russell Lacey's testimony that the Plainsman Bar flooded
August 3, 1979. However, Roberta Lacey characterized the
August backup problem as minor and testified that serious
trouble began in October:
"Q. You had a major backup in August, is that
right. A. It wasn't a major one. The major one
was in October."
Again, there is substantial evidence to support the
finding.
Find of Fact 35 states in part:
" . . . After the Laceys discovered the facts set
out in Finding Number 32, Herndon was asked by
Russell Lacey to write letters which would help his
case against Leo Kraft."
Plaintiffs assert this finding is clearly erroneous
because it includes a statement which was stricken from the
record on the first day of trial. However, on the third day
of trial, Herndon was asked essentially the same question and
his answer remains part of the record. Herndon's testified
that a request was made of him to write letters which would
help the Laceys make a case against Leo Kraft. A review of
the evidence shows that plaintiffs were anticipating suing
Leo Kraft at the time Lacey asked Herndon to write the
letters. There is substantial evidence to support the
finding.
Finding of Fact 37 states:
 "The damages sustained Sy plaintiffs according to
admissible evidence, relevant to any statements
made by John Herndon, are as follows:
(a) Future Electric Company for the
installation of wiring for kitchen
equipment - $681.47;
(b) Equipment purchased for the installation
of the kitchen (purchase price of $9,380.58 less
current value of $4,500.00 =) $4,880.58;
(c) Printing menus - $50.00."
As we review the evidence, we do find indications that
additional damages may have been adequately proved by the
plaintiffs. However, we note that in its pre-trial order,
the trial court ruled that the Laceys had to prove damages in

excess of the $47,500 settlement received from Kraft and
Flynn Realty. The evidence does not show that plaintiffs met
that burden. We will, therefore, not review the damage
evidence in detail. We hold there is substantial evidence to
support the conclusion of the district court. "This Court
will not reverse or remand a decision of the District Court
when the eventual result in the District Court must be the
same. " Kirby Co. of Bozeman v. Employment Sec. (1980), 614
P.2d 1040, 1043, 37 St.Rep. 1255, 1258, citing Green v. Green
(1978), 176 Mont. 532, 579 P.2d 1235.
Finally, plaintiffs challenge Conclusion of Law 3, which
states:
"Plaintiffs have failed to prove their claims of
fraud and negligent misrepresentation against
defendants John Herndon and Blaine County."
There was a plethora of evidence proving
misunderstanding between Herndon and Thompson, but like the
trial court, we find no evidence that John Herndon made false
representations upon which he intended the Laceys to rely.
Thus, plaintiffs failed to prove their claim of fraud.
Plaintiffs argue that even if the court determined that
Herndon's representations were not sufficient to constitute
fraud, they were clearly negligent. As previously mentioned,
the district court concluded that plaintiffs' failure to
argue the theory of negligent misrepresentation indicated an
abandonment of that theory. We also note that plaintiffs
proposed no finding of fact or conclusion of law regarding
negligent misrepresentation to the district court. This
Court will not review a matter to which no argument has been
directed at the lower court level. Sands v. Nestegard

(19821, Mont . , 646 P.2d 1189, 1193, 39 St.Rep.
1101, 1105. The court found no false misrepresentation had
been proved. There is substantial evidence to support the
conclusion on the part of the district court.
A careful review of the evidence has resulted in our
conclusion that the findings of fact, conclusions of law and
judgment of the district court are supported by substantial
evidence and are not erroneous.
Affirmed.

We concur:

Sf;e.&J;
Chief Justice L
Rd&