No. 91-373
IN THE SUPREME COURT OF THE STATE OF MONTANA
1992
-
UNITED FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION,
an Idaho corporation,
Plaintiff, Respondent and Cross-Appellant,
-vs-
WHITE-STEVENS, LTD., and THOMAS STEVENS,
Defendants, Appellants, and Cross-Respondents.
APPEAL FROM: District Court of the Fourth Judicial District,
In and for the County of Missoula,
The Honorable C:. B. McNeil, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Harold V. Dve an
A
istine L. Foc
Dale & Dye, Missoula, Montana.
For Respondent:
Sam E. Haddon and Dean A. Stensland; Boone, Karlberq
& Haddon, Missoula, Montana
Submitted on Briefs: March 12, 1992
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Decided: June 4 , 1992
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Justice R. C. MCDOnough delivered the Opinion of the Court.
White-Stevens, Ltd., and Thomas Stevens appeal from a judgment
of the Fourth Judicial District Court, Missoula County, in favor of
United First Federal Savings and Loan Association. We reverse. We
frame the following issues for appeal:
1. Whether the District Court erred in admitting expert
testimony; and
2. Whether the District Court erred in awarding United First
Federal contractual damages.
Thomas Stevens, a professional appraiser and member of the
American Institute of Real Estate Appraisers, prepared two
appraisal reports on two properties in Missoula, Montana. The
appraisals were prepared at the request of the Curran family
(herein Curran). The first report was submitted on November 3,
1983, for a building located at 800 Kensington. According to the
report, the value of the property in 1983, was $1,600,000. The
second report was submitted on February 8, 1984, for an unimproved
6 acre tract located at the corner of Russell and 34th Street.
According to the report the value of the property was $960,000. At
the time of the appraisals, Stevens was a partner in White-Stevens,
Ltd.
The prospective lender, United First Federal (UFF) reviewed
the reports, and relied on the accuracy of the reports in making
its decision to grant loans to Curran, secured by the appraised
properties. On April 17, 1984, UFF loaned Curran approximately
$600,000, secured by a trust indenture on the 6 acre tract. On
August 31, 1984, UFF loaned Curran $975,000, secured by a trust
indenture on the Kensington property. The loan amounts were 61-62%
of the appraised market values and were well below the industry
average loan to value ratio of 70-75%.
Curran defaulted on both loans before the end of 1984. UFF
judicially foreclosed each obligation and security as a mortgage.
On December 10, 1985 the District Court entered a foreclosure
decree. A default judgment was entered against the Currans which
included interest, costs, and attorney fees. At the sheriff's
sale, UFF bid $850,000 for the Kensington property, and $200,000
for the 6 acre tract. As a result of the sheriff's sale, a
deficiency judgment of February 5, 1986, in the amount of $848,067,
was entered against the Currans. UFF has exhausted every
alternative in attempting to collect the debt. Curran did not
redeem either property. UFF later sold the Kensington property for
$775,000. UFF has not been able to sell the 6 acre tract.
UFF brought an action against White-Stevens, Ltd. and Thomas
Stevens for damages arising from negligent misrepresentations of
the appraisals of real property. A bench trial commenced on
December 21, 1990. The District Court entered judgment on April
17, 1991, awarding UFF $848,067. This appeal followed. The
standards of review are set out below as we discuss each issue.
I
Whether the District Court erred in admitting expert
testimony.
Questions of evidence are discretionary with the trial court.
The scope of review of discretionary acts by the trial court is
3
whether or not the trial court's determination was a misuse or
abuse of discretion. Steer, I ~ c . Dept. of Revenue (1990), 245
v.
Mont. 470, 803 P.2d 601.
Stevens argues the District Court improperly allowed expert
testimony at trial, in violation of the Montana Rules of Civil
Procedure. During discovery, Stevens' counsel propounded
interrogatories to UFF requesting UFF identify the names of persons
they expected to call as experts at trial. UFF responded, stating
they would be calling Steven Alan Hall as an expert. UFF did not
supplement its original answer to interrogatories. It is clear
that under Rule 26(b) (4)(A)(i), M.R.Civ.P., UFF was required to
disclose the names of experts it intended to call at trial.
Rule 26(b) (4)(A)(i), M.R.Civ.P., provides:
A party may through interrogatories require any
other party to identify each person whom the other party
expects to call a an expert witness at trial, to state
the subject matter on which the expert is expected to
testify, and to state the substance of the facts and
opinions to which the expert is expected to testify and
a summary of the grounds for each opinion. (Emphasis
added.)
Rule 702, M.R.Evid, which governs expert testimony provides:
If scientific, technical, or other specialized
knowledge will assist the trier of fact to understand the
evidence or to determine a fact in issue, a witness
qualified as an expert by knowledge, skill, experience,
training or education may testify thereto in the form of
opinion or otherwise.
The Commissioner's Comments to Rule 702, discuss two standards in
determining when testimony is expert in nature. The standard
involved under the facts here is concerned with whether or not the
subject matter requires expert testimony. Former 5 93-401-27(9),
RCM (1947) (superceded), admitted expert opinion when a case
involved questions of 8vscience,
art, or trade, when he is skilled
therein". This section has been interpreted to include matters not
within the range of ordinary training or intelligence. The modern
rule admits expert testimony to aid the trier of fact to understand
facts and draw correct conclusions. The Commissioner8s Comments
note that the modern rule intends to encompass both statements of
the rule.
Nicholas Kaufman, Ken Staninger, and James Benn (whose
testimony in part presented opinion evidence of Barney Olson, an
appraiser hired by UFF) were called to testify at trial on behalf
of UFF. UFF argues that neither Kaufman nor Staninger nor Olson,
were identified as experts because they were not expected to
testify as experts nor did they testify as such. We treat each
witness separately.
Kaufman
Nicholas P. Kaufman, a land use consultant with the
engineering firm of Sorenson and Co., was subpoenaed by UFF and
testified on their behalf. UFF hired Sorenson and Co. to study the
flood proofing problems on the 6 acre tract in an effort to market
the property. During direct examination, counsel for UFF stated:
I have the intention of inquiring of you and asking
you about what was available to you or to anyone who
would have looked at the public record as of that date
that related to flood-proofing or flood control issues on
this property.
Stevens' counsel objected on the grounds that Kaufman was an
undisclosed expert. UFF counter-argued that Kaufman would be
testifying to historical facts and would not be giving his opinion.
The objection was overruled.
Counsel for U F F then asked Kaufman,
Based on your review of the records. . .
what did your
analysis and investigation of the records show to you or
tell you about this property.
Counsel for Stevens repeated his objection. U F F argued it was
really a summary of facts in the public record. Stevens' counsel
counter-argued that without an expert to interpret the record, best
evidence of public records are certified copies, and that
interpreting public records is expert testimony. The objection was
overruled.
Kaufman went on to present an analysis of the appropriate city
council minutes, flood insurance rate maps, flood plain maps, and
several sections of the flood plain ordinance.
Next, counsel for U F F asked Kaufman:
Did Sorenson and Co. ...come up with the calculations
and a determination of what would need to be done? (to
flood proof the property)
An objection was made and sustained as to the expert testimony.
Kaufman went on to testify about the work he did relative to
floodproofing the property.
Counsel for U F F then asked:
What did you determine about the necessity of a
joint effort, multi-many owner effort to consider or deal
with the flood-proofing issues on this property?
Stevens' counsel objected on the grounds that the question called
for an expert opinion. The objection was sustained as to the
technical matters, but not as to the floodproofing. Kaufman
testified that the property needed to be raised to prevent
flooding, but was not allowed to testify as to how to fill the
property for floodproofing purposes. Kaufman was allowed over
objection to discuss five different options for floodproofing.
Kaufman is a land use consultant with a Bachelor's degree in
economics, a Master's in planning, and two years of education in
engineering. Kaufman has been working in the area of flood
permitting since 1978. Kaufman's area of specialty is not within
the range of ordinary training and intelligence. Further, his
testimony as such served to aid the trier of fact in drawing its
conclusions. Therefore, we conclude that the District Court abused
its discretion in allowing Kaufman to testify in violation of Rule
26, M.R.Civ.P.
Staninaer
Ken Staninger, a real estate broker in Missoula with 19 years
experience, was involved in the sale of the Kensington property and
received a commission. He acted as a co-broker working for the
sellers. Since 1989 he has been the exclusive listing broker on
the 6 acre tract. He was not listed as an expert by UFF. During
Staningerls testimony, a letter was admitted over objection,
containing his opinions as to the value of the property. Staninger
estimated what it would cost to sell the property with the water
problems. Stevens' counsel renewed his objection. The objection
was overruled and Staninger went on to explain the marketing
problems with the property.
Olson (Bennl
Mr. Benn, the attorney who handled the foreclosure proceeding,
was allowed to essentially testify over objection as to the value
of the property at the foreclosure sale. The value was provided in
a letter from Barney Olson, an appraiser hired by UFF. Barney
7
Olson was not named as an expert by UFF.
Ken Staninger, and Barney Olson, (through Benn's testimony)
both knowlegable and experienced in the area of real estate,
testified as to the value of the 6 acre tract. Montana has often
allowed lay opinion testimony regarding the value of land.
However, these cases involve the testimony of the verified owner of
the land as to its value. See State v. Marsh (1978), 175 Mont.
460, 464, 575 P.2d 38, 42; Zugg v. Rampage (1989), 239 Mont. 292,
297, 779 P.2d 913, 916. The case before us concerns commercial
property with significant flooding problems. The exact dispute in
issue is the value of the land in question. The market value of
the 6 acre tract required testimony beyond the scope of ordinary
training and intelligence, and required expert testimonyto aid the
trier of fact in determining facts in issue. Kaufman, Staninger
and Olson should have been named as experts upon the interrogatory
request by Stevens. The days of disclosure are here. We conclude
that the District Court abused its discretion in allowing such
testimony as it was in violation of Rule 26, M.R.Civ.P.
I1
Whether the District Court erred in awarding United First
Federal contractual interest.
In reviewing questions of law we will determine if the trial
court's determination as to the law is correct. Our review will be
plenary. Steer, Inc. v. Dept. of Revenue (1990), 245 Mont. 470,
803 P.2d 601. See also Hudson v. City of Butte (1940), 111 Mont.
210, 107 P.2d 882.
As stated above, the District Court awarded $848,067 in
8
damages to UFF. Stevens contends that $241,333.02 was awarded
erroneously because it represents contractual interest from the
note between Curran and UFF. UFF argues that it is entitled to the
$241,333.02, and in addition, $620,572 in lost earnings on the
deficiency at a rate of 15% interest from February 5, 1986 (the
date of deficiency)
The foreclosure judgment summarized the items of contractual
damages which included a 15% interest rate per annum from October
1, 1984 to December 6, 1985. The interest totaled $241,333.02.
Nothing in the record supports the notion that $241,333.02 was
anything but the contractual interest in the Curran-UFF note at a
contractual default rate of 15%.
The case before us rests on the legal theory of negligent
misrepresntation. Both parties cite § 552B of the Restatement
(Second) of Torts. It provides:
(1) The damages recoverable for a negligent misrepresentation
are those necessary to compensate the plaintiff for the pecuniary
loss to him of which the misrepresentation is a legal cause,
including
(a) the difference between the value of what he has received
in the transaction and its purchase price or other value given for
it; and
(b) pecuniary loss suffered otherwise as a consequence of the
plaintiff's reliance on the misrepresentaion.
(2) The damages recoverable for a negligent misrepresentaion
do not include the benefit of the plaintiff's contract with the
defendant.
Under the Restatement, UFF is entitled to out of pocket
expenses which accrued as a result of Stevens' negligent
misrepresentaion. UFF is entitled to the difference between what
they loaned to Curran (due to Stevens' misrepresentation) and what
they received. This does not include lost earnings, or opportunity
cost between the deficiency and the date of judgment.
We conclude that the ~istrict Court erred in including
$241,333.02 in the damage award against Stevens. The interest on
the deficiency as of December 10, 1985, the date of the foreclosure
action, has accrued at a rate of $348.44 per day between February
5, 1986 (date of foreclosure) and December 21, 1990 (date of trial)
in the amount of $620,572. The District Court awarded UFF damages
in the amount of $848,067 based on what the court deemed actual
pecuniary loss to UFF. The District Court declined to award UFF
its claim for the $620,572 in interest as a basis for lost
earnings. We affirm the District Court in its denial of awarding
UFF $620,572 in lost earnings.
The issue of whether the District Court's findings of fact and
conclusions of law were supported by substantial credible evidence
will not be discussed due to the fact we are reversing the judgment
and remanding for a new trial.
Reversed and remanded for a new trial.
We Concur: & c u d Justice
Chief Justice
Justice Karla M. Gray, concurring in part and dissenting in part.
I concur in the opinion of the majority on issue two. I
respectfully dissent from the majority's conclusion that the
testimony of Nicholas Kaufman, Ken Staninger and James Benn which
was admitted over "expert testimony" objection constituted expert
testimony requiring disclosure under Rule 26, M.R.Civ.P. Given the
content of the testimony at issue and the abuse of discretion
standard of review, I would affirm the District Court on issue one.
Nicholas Kaufman' s testimony is summarized by the majority.
It contained two discrete parts: first, Kaufman testified as to
flood plain regulations and other matters of public record
regarding those regulations as they relate to the two property
parcels at issue; he then testified generally on five alternatives
for flood-proofing the parcels. Stevens' counsel objected that
Kaufman's testimony was undisclosed expert testimony. The District
Court overruled the objection to testimony on the flood plain
regulations and related matters. The court specifically sustained
objections to portions of Kaufman's testimony addressed to the
engineering aspects of the various flood-proofing alternatives but
allowed Kaufman to testify generally on the alternatives "until we
get in any technical matters."
The majority states that Kaufman's area of specialty and,
assumedly, his testimony are not within the range of ordinary
training and intelligence, in direct derogation of the District
Court's conclusion that it was not. It is my view that Kaufman's
testimony was, indeed, a "close call." However, I cannot ascribe
11
an abuse of discretion to the District Court in light of the clear
and understandable nature of the testimony and the fact that, as
the trier of fact in this case, the District Court did not believe
the testimony was so complex or specialized as to constitute expert
testimony.
Furthermore, I do not understand the majority's reliance on
the fact that the court, as trier of fact, used Kaufman's testimony
in drawing its conclusions. The majority seems to suggest that the
court's actual use of the testimony renders the testimony "expert."
If that is to be the definition of expert testimony, then we have
reached a point where mere relevant testimony equates to expert
testimony.
As to Ken Staninger, the majority correctly notes that he is
a real estate broker of some years' experience who was involved
with both parcels of property at issue in this case. Stevens'
counsel's "expert opinion" objection to Staninger's opinion
testimony on the $775,000 selling price for the Buttrey parcel was
sustained because the testimony amounted to expert appraisal-type
testimony. Staninger did provide testimony on the 6 acre tract,
for which he was the exclusive listing broker. A letter from
Staninger to UFF, in which Staninger discussed market conditions
and his personal experiences in attempting to sell the property at
the $250,000 asking price, was admitted over objection by Stevens'
counsel that it constituted expert opinion on the value of the
property. The majority apparently concludes that this letter was
expert opinion testimony and that, as such, the District Court
abused its discretion in admittingthe letter because Staninger was
not identified as an expert. I disagree.
It is my view that the Staninger letter is lay opinion
testimony under Rule 701, M.R.Evid. There is nothing of a
scientific, technical or particularly specialized nature in
Staningerls letter which would constitute Rule 702 expert opinion.
Nor does Staninger's nineteen years1 experience in the real estate
business necessitate a conclusion that everything he says or does
invokes expert status requiring disclosure under Rule 26,
M.R.Civ.P. The letter recounts Staningerlspersonal experience in
trying to market the Russell property; it includes Staninger's
observations on market conditions he experienced relative to the
property and UFF1s asking price. Nothing in the letter approaches
the kind of expert valuation or appraisal testimony the majority
seems to suggest is there. The majority's conclusion that the
letter is expert testimony subject to Rule 26 disclosure is an
extremely broad view which renders virtually all testimony by any
person engaged in any trade or profession expert testimony. The
majority states that I1[t]he days of disclosure are here." As a
result of the majority opinion, that is certainly true; the
traditional distinction between lay and expert testimony is no
more.
It is my view that the majority similarly mischaracterizes the
testimony of James Benn. Benn did not testify as to the value of
the property at the foreclosure sale; he testified as to his own
involvement in the foreclosure of both parcels and in helping UFF
establish its bid price for each parcel.
Benn testified to the bid price for the Buttrey Suburban
Building. His testimony included the information that Barney Olson
was retained by UFF to provide a range of values for the property;
neither Olson's letter nor any specific valuation information from
that letter was testified to by Benn. No objection was made to the
referenced portion of Benn's testimony on the bid price, and the
manner of establishing it, for the Buttrey parcel. An objection
was made and sustained on "expert testimony" grounds to a later
portion of Benn's testimony about fair market value.
Benn then testified that the same process was utilized in
establishing UFF's $200,000 bid price for the 6 acre tract.
Stevenst counsel objected that the question called for hearsay
based on Olson's valuation; the objection was overruled. It is
this action by the District Court in overruling a hearsay objection
that the majority holds is an abuse of discretion because the
testimony was in violation of Rule 26, M.R.Evid. Again, I cannot
agree.
Benn's testimony as to the bid price for the 6 acre tract, and
how it was established, is not expert testimony. It is factual
testimony of Benn's own participation in UFFfs action to foreclose
the 6 acre tract. There is nothing specialized or technical about
it, it does not constitute opinion testimony of any kind, and it is
not valuation testimony as suggested by the majority. Furthermore,
the testimony was not inadmissible on the hearsay grounds upon
which the objection was based since it contained no reference
whatsoever to the contents of Olson's letter. I cannot find an
abuse of discretion by the District Court on these facts.
The majority's brief and generalized treatment of Benn's
testimony, and its resulting lack of clarity in concluding that
that testimony was expert testimony requiring disclosure under Rule
26, does not provide guidance to the bench and bar of Montana in
distinguishing lay and expert opinion. Instead, as noted above,
the message seems to be that the difference between the two no
longer exists. I dissent.
Chief Justice J. A. Turnage:
I concur in the foregoing concurring and dissenting
opinion of Justice Gray.