No. 88-564
I N THE SUPREME COURT O THE STATE OF M N A A
F OTN
GAR 12. AMUNDSON,
P l a i n t i f f and R e s p o n d e n t ,
-vs-
RICHARD A . W RM N
O T A ,
D e f e n d a n t and A p p e l l a n t .
APPEAL FROM: D i s t r i c t Court of t h e Eighteenth J u d i c i a l D i s t r i c t ,
I n and f o r t h e County o f G a l l a t i n ,
The H o n o r a b l e J o s e p h B . G a r y , J u d g e p r e s i d i n g .
COUNSEL OF RECORD:
For Appellant:
Morrow, ~ e d i v y& R e n n e t t , P . C . ; Lyman H . Rennett, 111,
a n d T e r r y Schaplow, Bozeman, Montana
For Respondent:
D r y s d a l e , McLean, N e l l e n & N e l l e n ; ~ i c h a r d .
C g ell en,
Boze~nan, Montana
S u b m i t t e d on B r i e f s : J u n e 8 , 1989
D e c i d e d : J u l y 1 8 , 1989
Filed-: .
~
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Mr. Justice R. C. McDonough d e l i v e r e d t h e Opinion o f the
Court.
T h i s i s a n a p p e a l from an a c t i o n f o r b r e a c h o f a con-
t r a c t t o buy a b u s i n e s s . D e f e n d a n t R i c h a r d A. Wortman ap-
p e a l s from t h e judgment o f t h e D i s t r i c t C o u r t o f t h e
E i g h t e e n t h J u d i c i a l D i s t r i c t , G a l l a t i n County, f i n d i n g him i n
b r e a c h o f t h e c o n t r a c t and a w a r d i n g t h e b a l a n c e o f t h e p u r -
c h a s e p r i c e , plus i n t e r e s t , t o p l a i n t i f f Gar L . Amundson. W e
a f f i r m on t h e s u b s t a n t i v e i s s u e s r e g a r d i n g t h e b r e a c h , b u t
remand f o r f u r t h e r p r o c e e d i n g s .
Wortman p r e s e n t s t h r e e i s s u e s f o r r e v i e w :
1. Did t h e D i s t r i c t Court err i n f a i l i n g t o f i n d t h e
existence of constructive fraud?
2. Did t h e D i s t r i c t C o u r t err in equating "customer
l i s t s " with "mailing l i s t s " ?
3. Did t h e D i s t r i c t C o u r t err i n a w a r d i n g a t t o r n e y ' s
f e e s without holding an e v i d e n t i a r y hearing?
Amundson was t h e p r o p r i e t o r o f a b u s i n e s s c a l l e d I n f o r -
m a t i o n P r o c e s s i n g i n Bozeman, Montana. Information Process-
i n g p r o d u c e d a p r o d u c t known a s t h e Direct S c h o o l M a r k e t i n g
Program, a s e r i e s o f c o m p u t e r - g e n e r a t e d b o o k l e t s d e s i g n e d t o
l i s t t h e names, a d d r e s s e s and t e l e p h o n e numbers o f s c h o o l
officials, faculty and coaches, together with dates and
l o c a t i o n s o f v a r i o u s c o n f e r e n c e s and s t u d e n t e v e n t s t a k i n g
p l a c e during a given season o r school year. The b o o k l e t s
were s o l d t o b u s i n e s s e s - - c h i e f l y i n t h e lodging and r e s t a u -
rant industries--interested i n making c o n t a c t w i t h t h e l i s t e d
o f f i c i a l s i n order t o o b t a i n t h e i r patronage during a confer-
ence o r event. Information Processing a l s o offered a f o l -
low-up s e r v i c e , which i n v o l v e d p u t t i n g i t s s u b s c r i b e r s i n
t o u c h w i t h s c h o o l o f f i c i a l s by m a i l . Amundson s e t u p t h e
business himself, which included writing the computer program
that compiled the booklet.
In 1987, Wortman approached Amundson with a proposal to
buy the Direct School Marketing Program. While negotiating
terms of the sale, Amundson made various representations to
Wortman concerning subjects such as projected earnings from
the program, the costs involved and opportunities for new
business. Pursuant to these negotiations, Wortman drew up a
contract in longhand. Amundson read the contract and pre-
pared a typed version. The contract was executed on April 7,
1987. The price for the business was $18,000, to be paid
with a $2,000 down payment and two annual installments of
$8,000.
Among other provisions, the contract called for Amundson
to deliver to Wortman the computer equipment, software and
other items listed in an appendix to the contract, as well as
the copyright and logo for the Direct School Marketing Pro-
gram and all documents related to its course of business.
Amundson was also to provide Wortman with "whatever assis-
tance is deemed necessary" in the preparation, marketing and
distribution of the Fall 1987 edition of the program. The
contract called for Wortman to pursue the business in a
diligent, businessman-like manner, and. pay all expenses of
doing business.
Wortman began operating the business, but was dissatis-
fied with the results of his efforts. He sought to rescind
the contract and return the business, but Amundson did not
agree to the rescission. Wortman did not pay his first
installment. On September 17, 1987, Amundson made a written
demand through his attorney for payment of the installment.
When Wortman did not do so, Amundson filed this action on
October 21, 1987. The complaint sought payment of "all
monies owing now or in the future" under the contract, or
return of the business and damages for waste due to Wortman's
actions in running it. Wortman raised an affirmative de-
fense, alleging that Amundson had made several misrepresenta-
tions during negotiation of the sale that amounted to
constructive fraud and entitled him to rescission.
The case was tried before the District Court, sitting
without a jury. On August 10, 1988, the court issued its
Findings of Fact and Conclusions of Law with Memorandum, in
which Wortman was adjudged to be in breach of the contract.
Judgment was entered awarding Amundson the balance of the
contract price plus interest, together with attorney's fees
and costs, and Amundson's attorney filed a Notice of Judg-
ment. This appeal followed.
I.
On appeal, Wortman challenges the District Court's
Findings of Fact. When reviewing the findings of fact in a
civil action tried by a district court without a jury, this
Court will not substitute its judgment for that of the trier
of fact. Rather, our review is confined to determining
whether the findings of fact are clearly erroneous. Although
the evidence may conflict, the court's findings will be
presumed correct if supported by substantial evidence.
Meridian Minerals Co. v. Nicor Minerals, Inc. (Mont. 19871,
742 P.2d 456, 461, 44 St.Rep. 1516, 1523-24.
The District Court's Findings of Fact relevant to
Wortman's appeal read as follows:
12. That the Montana Supreme Court discusses
constructive fraud in the case of Moschelle v.
Hulse, 622 P.2d 155 (Mont. 1980). The Court spoke
in terms of "a pattern of repeated concealments of
the true state of affairs" and "withholding rele-
vant facts," all of which created a false impres-
sion to the purchaser.
13. That the Court does not find constructive
fraud by the seller to the buyer.
14. That the evidence did not show that past
profits of the Plaintiff were falsely stated, that
he made repeated concealments in promoting the
business sale, that an intentional lack of full
disclosure created a false impression, or that
there was deliberate misleading of the facts which
crossed the threshold of "puffing" and entered the
realm of constructive fraud.
15. That the Court finds a customer list was
provided, but any mailing list undergoes a constant
rollover, and use of such a list in a business
requires aggressive and continual updating.
16. That a sales person leaving the employment
upon the sale of a business is not reason to invoke
constructive fraud.
17. That the Contract was very vague regarding
what "assistance" was to be provided by the seller,
and compelling evidence has not been presented to
this Court justifying a lack of assistance to the
point of constructive fraud.
Wortman argues that the court's Finding of Fact No. 13 was in
error and contrary to the evidence in this case. Wortman
also argues that the court confused "customer lists" with
"mailing lists", which rendered its Finding of Fact No. 15
erroneous.
Constructive fraud is defined at 5 28-2-406, MCA, as
any breach of duty which, without an actually
fraudulent intent, gains an advantage to the person
in fault or anyone claiming under him by misleading
another to his prejudice or to the prejudice of
anyone claiming under him ...
In cases such as the one at bar, the "duty" involved is the
duty to disclose material facts to the purchaser, a breach of
which is an essential element of constructive fraud. Mends
v. Dykstra (1981), 195 Mont. 440, 637 P.2d 502. The Mends
case addressed the issue of when such a duty arises. While
the defendants in Mends asserted that no duty arose absent a
fiduciary or confidential relationship, it was pointed out
that this Court had found "special circumstances" surrounding
some transactions which give rise to the duty to disclose.
One such set of circumstances was the "pattern of repeated
concealments" found in the Moschelle case cited by Wortman in
support of his position and included in the District Court's
Findings of Fact quoted above.
Wortman argues that Amundson repeatedly concealed the
true state of affairs concerning the business. According to
Wortman, Amundson failed or refused to provide business
records detailing the financial history of the business and
did not disclose important details concerning its current
status. Wortman thus asserts that his negotiations with
Amundson created a false impression about the desirability of
purchasing the Direct School Marketing Program. We disagree.
The business records Wortman complains of are ledgers
and tax records for the years preceding the purchase. He
argues that he was unable to gauge the true performance of
the business without them, and was forced to rely on repre-
sentations Amundson made in income projections prepared
during their negotiations. Wortman also argues that the
projections presented an inflated notion of the profit, that
could be made selling booklets.
Both sides introduced income projections into evidence.
According to testimony by Amundson, as many as five or six
such projections were prepared for various possible approach-
es Wortxnan might take in operating the business. Amundson
also testified that the figures for such things as materials
costs, labor and net profit per booklet were based on the
past performance of the business. The projections introduced
at trial as Wortman's Exhibit "A" include a statement of
annual net profit for the years Amundson ran the business,
which Amundson testified he had taken from the ledgers at
issue. The projections state net profit forecasts that
closely approximate the actual figures from past operation,
although some projected profits are actually lower than past
performance. Amundson also testified that Wortman never
requested tax records during negotiations.
Wortman complains that Amundson also concealed facts
about the status of the business that worked to Wortman's
detriment. After the contract had been executed, Amundson
and Wortman met with Amundson's salesman, Tim Barrett, in
Butte to go over Barrett's role in the business. At this
meeting, Barrett informed Wortman that he would be quitting
his job to pursue other business interests. Wortman alleges
that Amundson knew this before the meeting and concealed it,
leading Wortman to believe that he was buying a business
employing an active salesman.
The testimony cited by Wortman on this point bears
examination. Barrett testified that he did in fact tell
Amundson of his decision to quit prior to the meeting.
However, Barrett said, "I believe I told Mr. Amundson the day
he called me and he said he had sold the business ...." This
testimony indicates that Amundson did not know of Barrett's
departure until after the sale was consumated. He therefore
could not have concealed it to Wortman's detriment in decid-
ing on the purchase. Furthermore, Wortman himself testified
that the presence or absence of a hired salesman was not
crucial to his plan for operating the business.
Wortman also complained that Amundson did not disclose
the "considerable ill will" he had generated among his cus-
tomers, or their complaints that the booklets were ineffec-
tive. However, Wortman testified that the sluggish sales he
experienced could have been the result of his own shortcom-
ings as a salesman. Wortman's Exhibit "I", a file folder
containing returned sales letters introduced in support of
his contention of customer animosity does not lend support to
his claim. The file contains 12 letters sent out by Wortman
and l a t e r r e t u r n e d . On one o f t h e e n v e l o p e s i s w r i t t e n " n o t
interested," but the other 11 were returned because the
a d d r e s s e e had moved. The o n l y l e t t e r a c t u a l l y w r i t t e n by a
customer s t a t e s t h a t t h e booklet p r e v i o u s l y purchased "helped
a g r e a t d e a l " and a s k s t h a t t h e c u s t o m e r be r e t a i n e d on
Wortman's m a i l i n g l i s t . When t e s t i f y i n g a b o u t t h e l e t t e r s ,
Wortman a d m i t t e d t h a t t h e d r o p i n s a l e s c o u l d have been
a t t r i b u t e d t o o t h e r c a u s e s , such a s a g e n e r a l l y slow b u s i n e s s
climate.
Still another of Wortman's c l a i m s was that Amundson
f a i l e d t o supply a s s i s t a n c e w i t h b u s i n e s s o p e r a t i o n s t h a t he
p r o m i s e d d u r i n g n e g o t i a t i o n s and i n t h e c o n t r a c t i t s e l f . In
r e s p o n s e , Amundson t e s t i f i e d t h a t h e had v o l u n t e e r e d a s s i s -
t a n c e , and s u p p l i e d a r e c o r d o f h i s a c t i v i t i e s .
While t h e e x a m p l e s above d o n o t a d d r e s s e v e r y c l a i m e d
concealment, t h e y a r e s u f f i c i e n t t o i l l u s t r a t e t h a t evidence
i n t h i s case supports t h e D i s t r i c t Court's conclusion t h a t
c o n s t r u c t i v e f r a u d was n o t p r e s e n t . W h a v e found no " p a t -
e
t e r n o f r e p e a t e d c o n c e a l m e n t s " i n t h e r e c o r d , and a f f i r m t h e
D i s t r i c t C o u r t on t h i s i s s u e .
Wortman's second challenge concerns "mailing lists"
v e r s u s "customer l i s t s " . One o f t h e i t e m s p u r c h a s e d by
Wortman a s p a r t o f t h e b u s i n e s s was a " c u s t o m e r l i s t " com-
p i l e d o v e r t h e c o u r s e o f t h e Direct S c h o o l M a r k e t i n g P r o -
gram's existence. Wortman's b r i e f t o t h i s C o u r t makes much
o f t h e d e f i n i t i o n o f " c u s t o m e r " a s one who r e p e a t e d l y makes
purchases o r h a s b u s i n e s s d e a l i n g s w i t h a tradesman.
A c c o r d i n g t o Wortman, t h e l i s t s u p p l i e d was a m i s r e p r e -
s e n t a t i o n , b e c a u s e h e was a b l e t o make o n l y a p p r o x i m a t e l y 8 0
s a l e s t o over 300 l i s t e d "customers". A t t r i a l , Amundson
t e s t i f i e d a s t o how t h e l i s t was c o m p i l e d . According t o
Amundson, b u s i n e s s e s w e r e p l a c e d on t h e l i s t when t h e y p u r -
chased a booklet. E n t r i e s were a l s o made f o r e a c h p u r c h a s e r
i n d i c a t i n g s u c h t h i n g s a s method o f payment. The names on
t h e l i s t were t h u s " c u s t o m e r s " i n t h a t e a c h b u s i n e s s had made
a t l e a s t one purchase. While n e a r l y e v e r y b u s i n e s s s t r i v e s
f o r r e p e a t customers, t h e r e i s no g u a r a n t e e t h a t a c u s t o m e r
with an e s t a b l i s h e d record of repeated purchases w i l l not
t a k e h i s b u s i n e s s e l s e w h e r e o r s i m p l y s t o p p u r c h a s i n g f o r any
number of reasons. We a l s o see n o t h i n g i n the record t o
i n d i c a t e t h a t Amundson made s u c h a g u a r a n t e e t o Wortman. The
manner i n which t h e l i s t was r e f e r r e d t o was t h u s i r r e l e v a n t ,
and w e a f f i r m t h e c o u r t on t h i s i s s u e .
Wortman c h a l l e n g e s t h e D i s t r i c t C o u r t ' s award o f a t t o r -
n e y ' s f e e s , a r g u i n g t h a t it d i d s o on t h e b a s i s o f t h e a f f i -
d a v i t o f Amundson's c o u n s e l a s t o t h e amount o f s u c h f e e s ,
without holding an evidentiary hearing. Wortman i s c o r r e c t
i n t h a t a t t o r n e y ' s f e e s c a n n o t b e awarded s o l e l y on t h e b a s i s
of an a t t o r n e y ' s a f f i d a v i t . An e v i d e n t i a r y h e a r i n g i s re-
quired. S t a r k v . B o r n e r (Mont. 1 9 8 8 ) , 762 P.2d 857, 860, 45
St.Rep. 1885, 1888.
Wortman's argument h a s p l a c e d t h i s C o u r t i n a n u n u s u a l
situation. When t h e D i s t r i c t C o u r t e n t e r e d i t s F i n d i n g s o f
Fact and Conclusions of Law w i t h Memorandum, counsel for
Amundson was instructed to draft a judgment i n conformity
with the court's ruling. Part of that ruling, and c o n s e -
q u e n t l y p a r t o f t h e "Judgment" s i g n e d a n d f i l e d by t h e c o u r t ,
was a n award o f " r e a s o n a b l e a t t o r n e y ' s f e e s and c o s t s , which
s h a l l be determined a t a s e p a r a t e hearing." Shortly a f t e r
t h e "Judgment" was f i l e d and n o t i c e d , b u t b e f o r e t h e t i m e f o r
t h e h e a r i n g , c o u n s e l f o r Wortman f i l e d h i s N o t i c e o f Appeal.
The problem a r i s e s b e c a u s e c o u n s e l f o r Wortman f i l e d h i s
N o t i c e o f Appeal p r e m a t u r e l y . A judgment t h a t awards c o s t s
and a t t o r n e y ' s f e e s t o be determined a t a l a t e r hearing i s
not final and appealable until those costs and fees are
determined. R o l e s v . Ler ( 1 9 8 4 ) , 213 Mont. 265, 692 P.2d 1.
However, n e i t h e r p a r t y r a i s e d t h i s i s s u e i n t h e i r b r i e f s , and
i t o n l y became a p p a r e n t upon o u r r e v i e w o f t h e r e c o r d , a f t e r
a l l b r i e f s had been f i l e d and t h e r e c o r d d e p o s i t e d w i t h t h i s
Court. T h e r e f o r e , i n t h e i n t e r e s t s o f j u d i c i a l economy, and
f o r t h e p u r p o s e s o f -- o n l y , we a f f i r m t h e d e c i s i o n o f
t h i s case
t h e D i s t r i c t C o u r t on t h e i s s u e s d i s c u s s e d above, and remand
t h e c a u s e t o t h e c o u r t f o r p r o p e r d e t e r m i n a t i o n o f c o s t s and
attorney's fees, b o t h a t t h e D i s t r i c t C o u r t l e v e l and upon
appeal.
Affirmed and remanded.
@ ~ - a ~ Justice
Wy Concur: