No. 91-445
IN THE SUPREME COURT OF THE STATE OF MONTANA
NAFTCO LEASING LIMITED
PARTNERSHIP 301, et al.,
Plaintiffs and Appellants,
-vs-
APPEAL FROM: District Court of the Thirteenth Judicial District,
In and for the County of Yellowstone,
The Honorable Robert W. Holmstrom, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Stephen D. Bell and Robert L. Sterup, Dorsey &
Whitney, Billings, Montana
For Respondent:
Paul D. Miller and Kyle Anne Gray, Holland & Hart,
Billings, Montana
Submitted on Briefs: April 15, 1992
~ecided: July 27, 1992
Filed:
I
Clerk
Justice Fred J. Weber delivered the Opinion of the Court.
plaintiffs Naftco Leasing Limited Partnerships numbered 301,
302, 303, 304, and 305, and Moorhead Leasing Limited Partnership,
(collectively referred to as plaintiffs) brought an action to
reform lease contracts against defendant Finalco, Inc., in the
Thirteenth Judicial District Court, Yellowstone County, Montana.
The District Court found in favor of the defendant. Plaintiffs
appeal. We affirm in part and reverse in part.
The dispositive issues in this case are restated as follows:
1. Did the District Court correctly conclude that plaintiffs'
action was barred by the statute of limitations?
2. Did the District Court properly award attorney fees to
Finalco?
In this action, plaintiffs seek to reform a number of lease
contracts executed with the defendant covering computer equipment.
We will summarize the facts involved in this rather complex series
of transactions.
In 1983, defendant, Finalco purchased approximately $22
million worth of computer equipment and leased such equipment to
various parties under written lease agreements, which are herein
called end user leases. The terms of these leases varied but were
not longer than 60 months.
Defendant then sold the computer equipment to Lease-Pro, Inc.,
a corporate intermediary owned by Gerald DuBois and Dean Schennum.
Lease-Pro in turn sold the computer equipment, subject to the end
user leases, to the six plaintiff limited partnerships which leased
2
the equipment back to Finalco.
Also during 1983, Gerald DuBois and Dean Schennum were
marketing interests in the six plaintiff limited partnerships to
various investors as tax shelters. Naftco Leasing, Inc., owned by
DuBois and Schennum, was one of two general partners in all five of
the Naftco limited partnerships, and also acted as the managing
agent for Moorhead Leasing Limited Partnership, the sixth
plaintiff. Either Gerald DuBois or Dean Schennum were also
general partners in each of the Naftco limited partnerships.
During 1983, the plaintiffs entered into extensive
negotiations on the terms of lease back contracts to be executed
between the plaintiffs and the defendant. The terms of the lease
back contracts were to be 96 months in length. The amounts of the
glresidualrentalst1were key parts of the lease negotiations.
I1Residual rentalsu were those lease amounts to be received by the
defendant from business consumers after the expiration of the
original end user leases, and prior to the end of the 96 month term
of the lease back contracts. The distributions of such residual
rentals by the defendant to the plaintiffs during the first 60
months of the lease back contracts are the subjects of this suit.
In December 1983, the plaintiffs, through their agent, Larry
Hoffman, president of Naftco Leasing, Inc., executed the various
lease agreements with the defendant. Those agreements provided
that the defendant was entitled to 85 percent of the residual
rentals and the plaintiffs were entitled to 15 percent of the
residual rentals during the first 60 months of the lease
agreements. After the first 60 months, the agreements provided
that the plaintiffs would receive 75 percent of such residual
rentals and the defendant would receive 25 percent of the residual
rental income. Plaintiffs seek to reform the contracts based upon
mistake, contending the parties agreed to share the original
residual rentals on the following basis: 75 percent to the
plaintiffs and 25 percent to the defendant during the first 60
months of each of the leases. The District Court found in favor of
the defendant by concluding that the plaintiffs failed to prove
mistake. The District Court further held that the statute of
limitations contained in 5 27-2-203, MCA, barred the plaintiffs
from bringing their action. Finally, the District Court awarded
the defendant attorney fees. The plaintiffs appeal these
determinations.
I
Did the District Court properly conclude that the statute of
limitations barred the plaintiffs' action?
In 1983, the plaintiffs purchased over $22.6 million worth of
computer equipment from the defendant. The lease contracts in
connection with such purchases were executed by the parties in
December 1983. Plaintiffs filed the present action to reform the
lease agreements based upon mistake in January 1988. In substance,
plaintiffs contend that the 21 lease agreements involved in this
transaction were so lengthy that they failed to verify the
percentages pertaining to the residual rentals when signing the
agreements. The District Court concluded that the claims of the
plaintiffs were barred by the statute of limitations. We agree.
In a similar action, purchasers brought an a c t i o n to reform or
rescind a property contract based on mistake. DtAgostino v.
Swanson (1990), 240 Mont. 435, 784 P.2d 919. In that case we held
that where the purpose of the action was to modify the agreement
rather than enforce the agreement, the applicable statute of
limitations is 5 27-2-203, MCA. DtAqostino,240 Mont. at 442, 784
P.2d at 923.
section 27-2-203, MCA, provides:
The period prescribed for the commencement of an action
for relief on the ground of fraud or mistake is within 2
years, the cause of action in such case not to be deemed
to have accrued until the discovery by the aggrieved
party of the facts constituting the fraud or mistake.
Thus, the two year limitations period begins to run when the party
bringing the action discovered the mistake or in the exercise of
ordinary diligence would have discovered the mistake. DIAqostino,
240 Mont. at 443, 784 P.2d at 924.
Here the ~istrictCourt found that the statute of limitations
started to run by no later than October 1985. Accordingly, the
limitations period in this action ran by October 1987, prior to
Naftco's initiation of this suit. This Court will not disturb the
findings of the District Court unless those findings are clearly
erroneous. Rule 52(a), M . R . C i v . P .
The plaintiffs do not dispute that the present residual rental
distribution percentages were clearly delineated in the lease
agreements signed by Mr. Hoffman as agent for the plaintiffs in
December 1983. In the same way, such distribution percentages
again were listed in a December 30, 1983 acceptance letter from
defendant to the plaintiffs which was signed and returned by Mr.
Hoffman. Further, the ~istrictCourt found that the percentages
set forth in the contracts were clearly set forth in at least
eleven separate pieces of correspondence received by the plaintiffs
during the period July 5, 1984, through October 17, 1985. These
included an October 3, 1985 letter signed for by Mr. DuBois.
The District Court found that Mr. DuBois and Mr. Hoffman, both
officers of Naftco Leasing, had notice of the percentages listed in
the contracts, and therefore had notice of the alleged discrepancy
in the residual rental income distribution by no later than October
1985. After our review of the record, we conclude that the
District Court was not clearly erroneous in ruling that by the use
of ordinary diligence plaintiffs should have discovered the alleged
mistakes by no later than October 1985.
Plaintiffs next contend that the eight year statute of
limitations under 5 27-2-202 (I), MCA, should be applied rather than
the two year statute of limitations. We conclude that as was true
in DIAqostino,mutual mistake is the essence of the action and not
contract enforcement. As a result, 9 27-2-203, MCA, governs this
action. DIAsostino 2 4 0 Mont. at 442, 784 P.2d at 923. We also do
not accept plaintiffs' contentions that the statute of limitations
should be tolled until plaintiffs' right to receive the payments
had arisen.
We hold that the District Court properly concluded that the
statute of limitations barred the actions on the part of the
plaintiffs.
I1
Did the ~istrict Court properly award attorney fees to
defendant?
In this case, Finalco failed to list attorney fees in the pre-
trial order. Accordingly, plaintiffs contend the District Court
improperly granted defendant's motion to amend the final judgment
to include attorney fees. Plaintiffs contend that under Rule 16,
M.R.Civ.P., the pretrial order controls the course of the action,
and in this case, the defendant waived its right to recover
attorney fees by omitting the issue from the pretrial order.
Rule 16(e) M.R.Civ.P. provides:
After any conference held pursuant to this rule, an order
shall be entered reciting the action taken. This order
shall control the subsequent course of the action unless
modified by a subsequent order. The order following a
final pretrial conference shall be modified only to
prevent manifest injustice.
Although both parties raised the issue of attorney fees in the
pleadings, neither side raised the issue of attorney fees in the
final pretrial order. Finalco admits it failed to include the
issue of attorney fees in its pretrial order; however, it contends
that the District Court properly amended the judgment and awarded
attorney fees under this Court's holding in Bell v. Richards
(1987), 228 Mont. 215, 741 P.2d 788.
In that case, the defendants in a contract action failed to
list attorney fees under "defendant's contentions" in the pretrial
order. There, this Court reversed a district court's order denying
the defendant's posttrial motion to amend the judgment to include
7
attorney fees . The Bell contract, set forth the following
language :
In the event that either party may institute legal action
for the enforcement of any right, obligation, provision
or covenant of this Agreement, the prevailing party shall
be entitled to a reasonable attorney's fee in addition to
costs of suit. In addition, Seller shall be entitled to
their reasonable attorney's fee in the event Seller has
to furnish a default notice to Buyer.
228 Mont. at 217, 741 P.2d at 789. In Bell, both parties claimed
attorney fees in the pleadings. Further, the plaintiffs in Bell
included a right to attorney fees under the "plaintiff l s
c~ntentions'~ the pretrial order.
in In addition, that final
pretrial order presented the amount of fees to award to the
prevailing party as an issue of fact to be decided at trial. 228
Mont. at 219, 741 P.2d at 791.
The Court in Bell reversed the ~istrictCourt and remanded for
determination of reasonable attorney fees for the defendants,
stating as follows:
The defendants did not abandon their right to
attorney fees by failing to mention the issue under
Itdefendants contention^^^ on the pretrial order. The
right is reciprocal. Presumably, since the plaintiffs
mentioned the issue in the pretrial order, if they had
been successful in the lawsuit, they would have been
awarded attorney fees and costs. The plaintiffs had a
contractual right to attorney fees, and pursuant to
Section 28-3-704, MCA, so do the defendants.
The District Court reasoned further that, since
there was no evidence introduced at trial with respect to
attorney fees, to award attorney fees after a judgment
was announced would amount to an issue being raised post-
trial. However, the issue of attorney fees is not
outside the court's record. The contract upon which the
court relied in deciding the dispute is before the court
as evidence. A provision of that contract clearly
provides for attorney fees to the successful party in a
lawsuit concerning the contract. Also, the issue of
attorney fees was raised in two places on the pretrial
order.
228 Mont. at 219, 741 P.2d at 791.
Similarly, in this action, both parties claimed attorney fees
in the pleadings. However, here the final pretrial order did not
include any reference to attorney fees. Attorney fees were neither
listed as a contention of the plaintiff nor was the amount to be
awarded the prevailing party listed as a fact to be determined at
trial. Further, here, the lease contracts between Naftco and
Finalco failed to include a provision awarding attorney fees to the
prevailing party on any action to enforce the leases. The
contracts provided as follows: "Lessee shall . . . remain liable
for costs and expenses incurred by lessor arising from such event
of default or termination including without limitation reasonable
attorneys' fees. .. II
In this case, as in u,evidence was
no introduced on the
issue of attorney fees during trial. Contrary to the facts in
Bell
I here the issue of attorney fees is not derived from the
contract language itself, but is rather derived exclusively from 5
28-3-704, MCA, Montana's reciprocal attorney fees statute. Since
Finalco's attorney fees are not recoverable under the contract
language, and no evidence was presented on this issue at trial;
failure to raise the issue of attorney fees in the pretrial order
placed this issue outside the record of the District Court.
Since the facts in Bell are not comparable to this case, Bell
is not authority for allowing the defendant to collect attorney
fees in the present case. We conclude that the District Court
improperly granted defendant's motion t o amend the judgment.
We hold the District Court improperly awarded attorney fees to
the defendant.
Affirmed in part and reversed in part.
-m s t ' i c e
We Concur:
July 27, 1992
CERTIFICATE OF SERVICE
1 hereby certify that the following order was sent by United States mail, prepaid, to the following
named:
Stephen D. Bell and Robert L. Stemp
Dorsey & Whitney
P.O. Box 7188
BilIings, MT 59103
Paul D. Miller and Kyle Anne Gray
Holland & Hart
175 No. 27th St., Ste. 1400
Billings, MT 59101
ED SMITH
CLERK OF THE SUPREME COURT
STATE OF MONTANA