Erickson v. Croft

NO. 88-86
IN THE SUPREME COURT OF THE STATE OF MONTANA
1988

DAVID ERICKSON, an individual,
and DOREEN VAIR, an individual,
f/d/b/a STARHAVEN RANCH, LTD.,
a Montana corporation,
Plaintiffs and Appellants,
-vs-
BURTON CROFT, an individual, SHIRLEY
CROFT, an individual, LARRY RULE,
an individual f/d/b/a Rule Realty;
RONALD SCHOEN, an individual; JOHN
WARREN, an individual, SCHULTZ, DAVIS
& WARREN, a partnership,
Defendants and Respondents.

APPEAL FROM: District Court of the Fifth Judicial District,
In and for the County of Beaverhead,
The Honorable Frank Davis, Judge presiding.
COUNSEL OF RECORD:
For Appellant:

O'Brien & Conrad; James P. O'Brien, Missoula, Montana
For Respondent:
Hooks & Budewitz; Patrick F. Hooks, Townsend, Montana
Garlington, Lohn & Robinson; Sherman V. Lohn, Missoula,
Montana

Submitted on Briefs: June 9, 1988
Decided: August 5, 1988

Filed:
XU6 5 t98@
Mr. Justice L. C. Gulbrandson delivered the Opinion of the
Court.

David Erickson (Erickson) and Starhaven Ranch
(Starhaven) appeal a Fifth Judicial District Court,
Beaverhead County, grant of summary judgment to defendants
real estate broker Larry Rule (Rule), attorney John Warren
(Warren), and the Dillon, Montana law firm of Schultz, Davis
& Warren. We affirm.
This case is related to the litigation involved in
Erickson v. First National Bank of Minneapolis (Mont. 1985),
697 P.2d 1332, 42 St.Rep. 423. In Erickson we determined
that the First National Bank of Minneapolis had properly
quieted title as against Erickson to certain ranch property
located in Beaverhead County. Erickson, d/b/a Starhaven
Ranch, Ltd., purchased the property on a contract for deed on
January 15, 1981 from Burton and Shirley Croft who had in
turn purchased the property on a contract for deed from
Herman and Patricia Clarno in 1976. The Crofts borrowed
money from the First Bank of Minneapolis (the Bank) and, on
August 5, 1980, assigned their purchaser's interest in the
Clarno-Croft contract for deed to the Bank as collateral
security. The Crofts subsequently defaulted on their
obligations to the Bank and on July 1, 1981, the Bank
recorded a quitclaim deed previously executed by the Crofts.
Erickson, as president of Starhaven, was unaware of the
assignment to the Bank or the Bank's quitclaim deed at the
time he purchased the property from the Crofts in January of
1981.
Under the Croft-Starhaven contract for deed, Starhaven
was required to make a down payment and installment payments
at specific dates to the Crofts who in turn were to deposit
the money into an escrow account payable to the First
National Bank of Minneapolis. In addition, Starhaven
executed a quitclaim deed at closing which was placed in the
escrow account. Starhaven failed to make the payments as
required and the Bank sent a notice of default on July 24,
1981, to inform Starhaven that it had sixty days to cure the
default or the property would be repossessed. The July
notice from the Bank was Starhaven's first indication that
the Bank was involved.
On February 16, 1982, the Bank filed Starhaven's
quitclaim deed and, three days later, served Starhaven with
notice to quit the property and notice of termination.
Starhaven failed to quit the property and instead filed. a
quiet title action in Beaverhead County District Court. The
Bank brought an unlawful detainer action against Starhaven
and the two actions were subsequently consolidated. The
trial court quieted title to the property in the Bank and
Starhaven appealed to this Court. We reversed the District
Court in our first opinion. The Bank subsequently petitioned
for rehearing and, on rehearing, we affirmed that portion of
the judgment quieting title in the Bank. Erickson, 697 P.2d
at 1338.
Defendant Rule acted as the real estate broker for the
Crofts and attorney John Warren of the law firm of Schultz,
Davis & Warren drafted the buy/sell agreement and contract
for deed in the transaction between Erickson and the Crofts.
On January 15, 1986, Erickson filed this lawsuit against the
Crofts et al. Erickson's complaint alleged separate counts
of fraud, negligence, and breach of contract against real
estate broker Rule and his realty company and counts of
malpractice, constructive fraud, and breach of an implied
oral contract against Warren and his law firm. Rule and
Warren moved separately for summary judgment on the basis
that the applicable statutes of limitation had run and that
Erickson's causes of action were time barred.
On December 7, 1987, the District Court granted the
motions for summary judgment on the grounds that no genuine
issue of material fact existed as to the causes of action
stated against Rule, Rule Realty, Warren and his law firm.
Erickson appeals the order of summary judgment and raises the
following issues:
1. Does the doctrine of equitable tolling permit
plaintiffs to maintain an action in tort more than three
years after the discovery of the alleged negligent act?
2. Did the District Court correctly rule that Count
VII of plaintiff's complaint was a tort claim for purposes of
the statute of limitations?
3. Must a cause of action for the breach of an implied
contract of employment and conflicts of interest in the
context of the attorney/client relationship be brought within
the statutory period proscribed by Montana's attorney
malpractice statute, S 27-2-206, MCA?
The first two issues above apply only to defendant
Larry Rule and Rule Realty in this action while the last
issue applies to defendants Warren and his law firm Schultz,
Davis & Warren.
Summary judgment is proper only were there are no
genuine issues of material fact. Rule 56(c), M.R.Civ.P. The
facts material to this case are not disputed on appeal. The
issues to be decided by this Court on appeal are questions of
law and we are free to review the District Court's legal
analysis to draw our own legal conclusions. Schneider v.
Leaphart (Mont. 1987), 743 P.2d 613, 616, 44 St.R.ep. 1699,
1703.
Erickson's first issue relates to the statutes of
limitation for fraud and negligence. Section 27-2-203, MCA,
pre;< r, ol-.s
pester- a two-year limitation in which to commence an
action for fraud in Montana. Actions based on negligence
must be commenced within three years. Section 27-2-204, MCA.
Erickson admits that the statute of limitations has run on
both of his actions for fraud and for negligence. However,
Erickson urges this Court to adopt and apply a doctrine
called "equitable tolling" to avoid the consequences of the
statute of limitations in this case.
Erickson contends that his action in filing a complaint
against Rule with the Montana Board of Realty Regulation (the
Board) on November 29, 1983, serves to toll the applicable
statutes of limitation until such time as the outcome of the
complaint was determined by the Board. In the Board of
Realty complaint, Erickson admits having knowledge of the
facts which allegedly give rise to the causes of action
against the defendants in this case as early as June of 1981.
The Board investigated Erickson's complaint against Rule and
on May 5, 1985, dismissed the complaint. The Board of Realty
complaint was filed within two years of rickso on's discovery
of Rule's alleged misrepresentations. The complaint in
Beaverhead County District Court was filed nearly five years
after Erickson's discovery of the facts which allegedly give
rise to the causes of action against Rule.
Erickson relies on case law from California, Alaska,
and Arizona to support his argument. The cases cited stand
for the proposition that, in certain well-defined instances,
the statute of limitations will not be available as a defense
where equitable principles justify tolling of the statute.
See e.g., Jones v. Tracy School District (Cal. 1980), 611
P.2d 441; Elkins v. Derby (Cal. 1974), 525 P.2d 81; Gudenau
v. Sweeny Ins. Co. (Alaska 1987), 736 P.2d 763; Hosogai v.
Kadota (Ariz. 1985), 700 P.2d 1327. A California court
summarized the doctrine of equitable tolling as follows:
 [Clourts have adhered to a general policy
which favors relieving plaintiff from the
bar of a limitations statute when,
possessing several legal remedies he,
reasonably and in good faith, pursues one
designated to lessen the extent of his
injuries or damage. (Citations omitted. )
Addison v. State (Cal. 1978), 578 P.2d 941, 943.
In Collier v. City of Pasadena (Cal.App. 1983), 191
Cal.Rptr. 681, 685, the Second District California Court of
Appeals listed the three requirements which a party seeking
to avoid the consequences of a statute of limitations must
meet to invoke the doctrine of equitable tolling:
(1) timely notice to the defendant
[within the applicable statute of
limitations] in filing the first claim;
(2) lack of prejudice to defendant in
gathering evidence to defend against the
second claim; and
(3) good faith and reasonable conduct by
the plaintiff in filing the second claim.
(Additions ours. )
Collier also notes the historic circumstances in which the
doctrine of equitable tolling has been invoked:
Prior to the 19701s, statutes of
limitation had been tolled when a
plaintiff filed a case which promised to
lessen damages or other harm that might
have to be remedied through a second
case. The statute for the second case
was tolled while the plaintiff pursued
the first, presumably for the purpose of
minimizing harm ... Another line [of
cases] tolled statutes of limitation when
administrative remedies had to be
exhausted before a court would consider
the case ... Still a third line of
cases tolled the limitation period of a
second action during the pendency of a
first action later found to be defective
 Starting in 1974, the California Supreme
Court weaved these earlier lines of cases
in to a new, broader doctrine --
"equitable tolling. ' I This doctrine
applies " ' [wlhen an injured person has
several legal remedies and, reasonably
and in good faith, pursues one. ' "
(Citations omitted; additions ours.)
Collier, 191 Cal.Rptr. at 684.
Rule asserts that Erickson's complaint against him to
the Board of Realty Regulation does not give him notice to
begin investigating the facts which form the basis of the
second claim in District Court. For this reason, Rule
contends, Erickson has not met the first requirement of
equitable tolling, timely notice to the defendant, as set
forth in Addison and Collier. We agree.
As pointed out by Rule, the Board of Realty Regulation
governs the licensing of real estate brokers and salesmen.
Sections 37-51-201 et seq., MCA. Upon receiving a complaint
against a real estate broker, and after investigation and
hearing, the Board may revoke or suspend a broker or
salesman's license. Section 37-51-321, MCA. Persons found
to have violated the statutes pertaining to real estate
brokers and salesmen may face criminal penalties and may also
have damages in a civil action imposed against them by a
"court of competent jurisdiction." Section 37-51-323, MCA.
Therefore, Rule is correct in his assertion that the Board of
Realty may only revoke or suspend a broker's license and has
no power to award damages for negligence or fraud. Section
37-51-323, MCA. Rule also points out that the Board is not
designated by law as a quasi-judicial board pursuant to
§ 2-15-124, MCA. See § 2-15-1867, MCA. Under these
circumstances, Erickson's Board of Realty Regulation
complaint does not give adequate notice of the existence of a
legal claim. Gudenau, 736 P.2d at 768. Under the facts as
presented, Erickson has failed to meet the first element of
equitable tolling. Consequently, we need not decide whether
this Court recognizes the doctrine of equitable tolling and
we need not address the parties' arguments with regard to the
remaining two elements of the doctrine.
Erickson also makes an argument in passing that the
litigation involved in Erickson v. First National Bank of
Minneapolis (Mont. 1985), 697 P.2d 1332, 42 St.Rep. 423,
somehow gave Rule notice of the facts which form the basis of
the second claim. We note that Rule was not a party to the
Erickson litigation nor were the claims in Erickson the same
as presented in this action. The Erickson litigation does
not satisfy the notice requirement of the doctrine of
equitable tolling.
Count VII of Erickson's complaint incorporated by
reference the fraud and negligence counts. Count VII went on
to allege that an implied contract existed between Erickson
and Rule and that Rule breached certain duties that arose
~ r o m the implied contractual relationship.
2z The duties
allegedly breached are identical to those alleged in the
fraud and negligence counts. Erickson acknowledges that no
express oral or written contract existed between him and
Rule. Nonetheless, Erickson argues in his second issue on
appeal that Count VII is an implied contract action and that
the five year statute of limitations for unwritten contracts
specified in S 27-2-202(2), MCA, applies. The District Court
ruled that the "gravamen" of the causes of action alleged in
Count VII sound in common law fraud and negligence. The
District Court relied on this Court's decision in Quitmeyer
v. Theroux (1964), 144 Mont. 302, 395 P. 2d 965, to conclude
that, regardless of the contract label placed on Count VIT by
Erickson, Count VII "simply rehashes" the fraud and
negligence claims and is, therefore, time barred by the
statutes of limitations, 5 27-2-203 and S 27-2-204, MCA.
Erickson contends that he may elect between a contract
theory or negligence theory where his claim has a basis under
either theory and cites to Unruh v. Buffalo Bldg. Co. (Mont.
1981), 633 P.2d 617, 618, 38 St.Rep. 1156, 1158, for support.
Erickson's contention in this regard begs the question
because the election to pursue one cause of action over
another must be more than a mere relabeling of a claim to
avoid the consequences of a statute of limitations.
In Unruh this Court recognized that "'[ulnder certain
circumstances, a ground of liability in tort may coexist with
a liability in contract, giving the injured party the right
to elect which form of action he will pursue. ' " Unruh, 633
P.2d at 618 (citing Garden City Floral Co. v. Hunt (19531,
126 Mont. 537, 255 P.2d 352). Unruh is unpersuasive in this
case. The Unruh holding was premised on the fact that the
claim in question was not based on negligence but was based
on the breach of an implied warranty. For that reason, this
Court concluded that the plaintiff could elect to pursue the
implied warranty theory and the eight year statute of
limitations for contracts would apply. Unruh distinguishes
Quitmeyer because the claim in Quitmeyer was based on
negligence. While Count VII of Erickson's complaint alleges
the existence of an implied contract, the asserted actionable
conduct is based on the same fraud and negligence allegations
contained in the time barred negligence and fraud counts of
his complaint. The gravamen of the claim, not the label
attached, controls the limitations period to be applied to
that claim. Thiel v. Taurus Drilling Ltd. (Mont. 1985) , 710
P.2d 33, 38, 42 St.Rep. 1520, 1527; Quitmeyer, 395 P.2d at
969. The gravamen of Count VII is fraud and negligence and
the claim is time barred by S 27-2-203 and 5 27-2-204, MCA.
 Rule also argues that Erickson has failed to present a
genuine issue of inaterial fact as to the existence of an
implied contract between him and Erickson. The above
discussion presumes that an implied contract existed but
finds that the claim asserted sounds in fraud and negligence
and is, therefore, time barred. From the above analysis it
is apparent that Erickson's Count VII is time barred
regardless of the existence of an implied contract because of
the nature of the claim asserted. While we tend to agree
with Rule that there are no facts to establish an implied
contract, we need not address the parties' arguments on the
subject in light of the foregoing discussion.
Erickson's final issue affects only defendant Warren
and his law firm. The District Court found Erickson's legal
malpractice claim against Warren to be time barred by the
legal malpractice statute of limitations, $ 27-2-206, MCA.
Erickson's complaint also alleged the existence of an implied
contract in the context of the attorney-client relationship.
The District Court ruled that this implied contract claim,
though "novel and somewhat ingenious," was also time barred
by the legal malpractice statute of limitations. The
District Court reasoned as follows:
To escape the obvious consequences of the
legal malpractice statute ... the
Plaintiffs seek to stay in court on an
implied contract theory by invoking the
five year statute (27-2-202, MCA).

The Court will not allow a party to
escape the consequences of a specific
malpractice statute [of limitations] by
permitting a party to state a claim for
professional negligence in terms of a
breach of contract. To do so would make
the malpractice statute meaningless. If
Plaintiff's position is sound, there
 would have been no need for the 1977
malpractice statute ...
The Court has considered the authorities
cited by Plaintiffs but finds them to be
inapplicable since the jurisdictions have
no malpractice statute similar to
5 27-2-206, MCA.
In summary, there are no disputed issues
of fact. The Plaintiffs admittedly had
knowledge of the facts essential to their
malpractice claim in 1981. Such claims
are accordingly barred by the three-year
limitation of action (5 27-2-206, MCA) .
This section applies whether the action
is premised in tort or contract.
(Emphasis theirs; additions ours.)

The District Court's order granting summary judgment to
Warren is dated December 7, 1987. Erickson filed a notice of
appeal on January 7, 1988. On March 25, 1988, this Court
decided the case of Schweitzer v. Estate of Halko (Mont.
1988), 751 P.2d 1064, 1066, 45 St.Rep. 611, 613-614. Warren
argues that the legal malpractice statute of limitations
applies to all claims against an attorney in the
attorney-client relationship regardless of how those claims
are enumerated and cites to Schweitzer for support.
In Schweitzer, the District Court was presented with
several claims, including an implied contract claim, in the
context of an attorney-client relationship. The District
Court noted that, when an attorney undertakes to represent a
client, a contract and relationship is formed. If the
attorney's services are improper, the District Court
reasoned, there is a breach of contract. These improper
services, by definition are "bad" acts, or "bad" practices
-- hence, malpractice. The District Court concluded that
acts of legal malpractice, however denominated, fall within
the purview of 5 27-2-206, MCA. The District Court also
noted that a specific statute, S 27-2-206, MCA, prevails over
a general statute, S 27-2-202, MCA, to the extent the two
statutes are inconsistent with each other. We found the
District Court's reasoning to be correct in Schweitzer and
find Warren's related argument to control in this matter.
Erickson's claims against Warren and the law firm of
Schultz, Davis & Warren sound in legal malpractice and are
time barred by S 27-2-206, MCA. Schweitzer, 751 P.2d at
1066; see also, Southland Mechanical Constructors Co. v.
Nixen (Cal.App. 1981), 173 Cal.Rptr. 917, 923.
We hold that Erickson's claim against Rule, Rule
Realty, Warren and Schultz, Davis & Warren are time barred
and summary judgment was properly granted by the District
Court.
Affirmed. /

&,
Justice
/
i

4

We concur: