February 18 2009
DA 08-0142
IN THE SUPREME COURT OF THE STATE OF MONTANA
2009 MT 35
BRUCE AND IRENE ROHRER,
Plaintiffs and Appellants,
v.
GARY L. KNUDSON, MARJORY A. KNUDSON,
Individually and d/b/a G & M PROPERTIES, DELTA
ENGINEERING, P.C., THE CITY OF GREAT FALLS,
and JOHN DOES 1-15,
Defendants and Appellees.
APPEAL FROM: District Court of the Eighth Judicial District,
In and for the County of Cascade, Cause No. CDV-05-538
Honorable Kenneth R. Neill, Presiding Judge
COUNSEL OF RECORD:
For Appellants:
Joe Seifert; Keller Reynolds, Drake, Johnson & Gillespie, P.C.,
Helena, Montana
For Appellees:
E. Lee LeVeque, Attorney at Law, Great Falls, Montana
Submitted on Briefs: January 7, 2009
Decided: February 18, 2009
Filed:
__________________________________________
Clerk
Chief Justice Mike McGrath delivered the Opinion of the Court.
¶1 Bruce and Irene Rohrer (Rohrers) appeal from a judgment of the Eighth Judicial
District Court, Cascade County, entered after a jury verdict denying them recovery on their
Montana Consumer Protection Act claims, and apportioning negligence 10% to Defendant
Gary Knudson (Knudson), 45% to (settled) Defendant City of Great Falls, and 45% to
Plaintiffs Rohrers. We reverse and remand for a new trial.
¶2 The Rohrers present the following issues for review:
¶3 Whether the District Court abused its discretion in prohibiting the Rohrers from
presenting evidence of differential settlement damage to other residences in Bel View
Palisades.
¶4 Whether the District Court’s instruction defining “unfair practice” under the Montana
Consumer Protection Act was a correct statement of the law.
FACTUAL AND PROCEDURAL BACKGROUND
¶5 The Rohrers purchased an undeveloped lot in the hillside Bel View Palisades
subdivision overlooking Great Falls from Knudson in 1999. The Rohrers built their own
home on the lot, finishing construction in 2002. In 2004, they learned that their neighbors,
Kurt and Mary Fagenstrom (Fagenstroms), were sustaining substantial damage to their home
from differential settlement. The Rohrers recognized similar damages developing in their
home, including cracked walls, broken floor tiles, and sticking doors.
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¶6 The Rohrers learned that NTL Engineering had prepared a geotechnical engineering
report concluding that the Fagenstroms’ home demonstrated substantial differential
movement. In February 2005, the Rohrers hired NTL Engineering to do a similar limited
evaluation of their lot. Core sampling revealed uncontrolled fill materials to a depth of
approximately 31 feet below grade.
¶7 The Rohrers attempted to mitigate their damages by hiring a contractor to install
resistance piers on their foundation. They installed 20 piers in March 2005 up to a depth of
55 feet below the foundation. At the time of trial in 2008, one of the piers had failed, the
house continued to settle, interior damage increased, and the Rohrers faced installing
additional piers.
¶8 Knudson, doing business as G & M Properties, developed many blocks in Bel View
Palisades, including Block 20 and Block 22 where the Rohrers built their house. Knudson is
a licensed professional engineer, and his firm, Delta Engineering, Inc., engineered the
development of Blocks 20 and 22. Knudson is a geologist with expertise in geotechnical
engineering and residential foundations.
¶9 Development of Block 22 in the mid-1990s was formally reviewed under the Montana
Subdivision and Platting Act, §§ 76-3-101 through -625, MCA. A joint City/County
Planning Board approved development subject to several conditions, including requiring
Knudson to submit to the Public Works and Community Development Department a report
on soil compaction and density tests for anticipated building and public improvement
locations. There is some dispute as to whether these soil compaction or density tests were
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completed on Block 22. While the annexation agreement between Knudson and the City of
Great Falls references such tests, Knudson was unable to produce the test results during
discovery or at trial.
¶10 Bruce Rohrer investigated the historic topography and development of Block 22 prior
to initiating suit. He found information that a ditch and steep railroad embankment existed
on Block 22 and that major earth moving activities filled in the ditch and eliminated the
railroad embankment sometime before 1964. The Rohrers claimed that Knudson should
have been aware of and disclosed the fill conditions on Block 22 for the following reasons:
topographical maps used by Knudson to develop Block 22 revealed the historic location of
the railroad embankment; publicly available aerial photographs revealed the deep ditch and
its elimination over time as the area developed; and Knudson’s activities, including grading,
recontouring, and excavating the site, would have revealed the widespread fill conditions.
¶11 Rohrers filed this action alleging negligence, negligent misrepresentation, and
violations of the Montana Consumer Protection Act. The Rohrers claimed Knudson was
negligent in failing to discover and disclose the existence of fill on their lot. Rohrers claimed
that Knudson made a negligent misrepresentation when he told Bruce Rohrer that “there’s
good dirt at curb height,” which Bruce Rohrer understood to represent that footings and
foundation could be installed without extraordinary precautions. Lastly, the Rohrers claimed
that Knudson’s failure to perform required soil compaction or density tests was an unfair or
deceptive act or practice resulting in damages recoverable under the Montana Consumer
Protection Act.
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¶12 At trial in late January 2008, Knudson claimed that the Rohrers’ settlement problems
resulted from their own negligence. Ray Womack, an engineering expert, testified that the
cause of settlement was “invariably a water problem” resulting from irrigation next to the
foundation, poor site grading, and the failure to install drains around the foundation footings.
¶13 The jury verdict denied the Rohrers recovery on their Montana Consumer Protection
Act claims, found no negligent misrepresentation, and apportioned negligence 10% to
Defendant Knudson, 45% to (settled) Defendant City of Great Falls, and 45% to Plaintiffs
Rohrers. The Rohrers appeal.
STANDARD OF REVIEW
¶14 We review a district court’s ruling on the admissibility of evidence for an abuse of
discretion. Payne v. Knutson, 2004 MT 271, ¶ 20, 323 Mont. 165, 99 P.3d 200. We will not
reverse the district court unless the error be “of such character to have affected the result.”
Payne, ¶ 20. The standard of review of a district court’s refusal to issue a proposed jury
instruction is whether it abused its discretion. Howard v. St. James Community Hosp., 2006
MT 23, ¶ 16, 331 Mont. 60, 129 P.3d 126.
DISCUSSION
¶15 Whether the District Court abused its discretion in prohibiting the Rohrers from
presenting evidence of differential settlement damage to other residences in Bel View
Palisades.
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¶16 On motion prior to trial, Knudson’s counsel sought to preclude the Rohrers from
presenting evidence of differential settlement damage to any residences in Bel View
Palisades other than the Rohrers’ and Fagenstroms’. Knudson’s counsel argued that such
evidence was irrelevant and prejudicial. In response the Rohrers’ counsel asserted:
[I]f the argument is either made or insinuated by the Defense that the Rohrers’
house is a unique anomalous occurrence, then I think it would be appropriate
to show that there are a number of other homes within shouting distance of
their house that are experiencing this, a similar thing.
Knudson’s counsel responded, “[w]e don’t intend to try to introduce that.” The court granted
the motion to exclude evidence of damage to residences other than the Rohrers’ and
Fagenstroms’.
¶17 The Rohrers recite a litany of instances from the trial when Knudson’s counsel
referred to hundreds of homes in the Bel View Palisades area. They suggest that such
testimony was presented to insinuate that damage to the Rohrers’ house was unique, and thus
likely the result of their own negligence. A review of the record reveals that much of this
testimony merely attempted to support Knudson’s argument that he did not know of any
differential settlement problems at the time the Rohrers built their house. However, some
testimony went beyond this legitimate argument and warranted an opportunity for rebuttal.
¶18 In one such instance, Knudson’s counsel ended his direct examination of Jean Clary, a
real estate expert, by inquiring “[a]re you aware of any reputation amongst buyers or sellers
in the real estate community that the homes in Bel View Palisades are not worth as much as
they used to be by virtue of any problems with settlement?” She replied that she was not. In
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a sidebar shortly thereafter, Rohrers’ counsel complained that opposing counsel had asked
every witness about the hundreds of homes in Bel View Palisades:
The only inference that can be drawn from that is that their house is an
aberration. We have evidence to the effect that there’s five houses on Block
22 that exhibit evidence of settlement. And she has testified that it has no
adverse reputation for settlement. And I think I should be entitled to ask her if
she is aware of those other houses that exhibit evidence of settlement.
However, the court adhered to its earlier ruling and prohibited counsel from inquiring about
other residences that had settled.
¶19 Similarly, at the close of Knudson’s case, Rohrers’ counsel sought to rebut Knudson’s
claims that no extraordinary foundation measures were needed on houses he constructed in
the area. In particular, Bruce Rohrer was prepared to testify that he observed substantial
settlement in a neighboring house that Knudson built and discussed in his testimony. Again
the court excluded the testimony.
¶20 Relevant evidence is generally admissible. M. R. Evid. 402. Evidence is relevant if it
has “any tendency to make the existence of any fact that is of consequence to the
determination of the action more probable or less probable than it would be without the
evidence.” M. R. Evid. 401. Evidence that is relevant may be excluded, however, if its
probative value is substantially outweighed by the danger of unfair prejudice. M. R. Evid.
403.
¶21 A fact of consequence to the determination of this action is the cause of settlement of
the Rohrers’ house. In particular, the jury had to apportion negligence among the parties.
The Rohrers contended that Knudson should have known of widespread fill in the area and
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disclosed that information. Knudson contended that the Rohrers were negligent in
constructing their home. The jury heard evidence that there are hundreds of homes in the Bel
View Palisades area, that the area has no reputation for settlement, that Knudson built homes
on Block 22 that did not require extraordinary foundations because they were not built on
fill, and that the Rohrers were negligent because they failed to install drains, they irrigated
next to their foundation, and their site grading was poor. The jury was prevented from
hearing evidence that a neighboring home built by Knudson, which he claimed did not
require an extraordinary foundation, was settling in the same way as the Rohrers’ home, and
that the area could have a reputation for settlement if the extent of other homes with failing
foundations were known. All of this evidence would be of consequence to determine the
relative negligence of the parties.
¶22 Whether the probative value of this evidence is substantially outweighed by the
danger of unfair prejudice is left to the discretion of the trial judge. However, we hold that
the District Court abused its discretion by excluding evidence of damage to other homes after
Knudson’s counsel presented evidence calculated to imply that such damage did not exist.
Knudson’s counsel opened the door to such rebuttal by eliciting testimony of the reputation
for settlement in the area and suggesting that no extraordinary foundations were required for
other houses in the area. Knudson cannot now complain of unfair prejudice when his own
counsel sought to benefit from a similar prejudice by excluding proper rebuttal testimony.
¶23 This Court has held that a lower court abused its discretion when it excluded
evidence, offered in a negligence case involving a fallen light fixture, that other light fixtures
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were loose and subsequently repaired. Rieger v. Coldwell, 254 Mont. 507, 512, 839 P.2d
1257, 1259-60 (1992). We found that such evidence was probative and tended to refute
expert testimony that defective sheetrock at the accident scene was the sole cause of the
accident. Rieger, 254 Mont. at 512, 839 P.2d at 1259-60. Similarly, here evidence of
differential settlement of other houses in the area was probative and tended to refute expert
testimony as to the area’s reputation for settlement and the implication that the Rohrers’
settlement problems were unique.
¶24 We conclude that the District Court’s exclusion of such rebuttal testimony affected
the result since any change in the apportionment of negligence would alter the Rohrers’
recovery. We therefore reverse and remand for retrial. Upon retrial, the Rohrers should be
allowed to present evidence of settlement of other houses in the area to rebut any contention
that there is no reputation for settlement in the area or that neighboring houses do not require
extraordinary foundations because they are not built on fill.
¶25 Whether the District Court’s instruction defining “unfair practice” under the
Montana Consumer Protection Act was a correct statement of the law.
¶26 This issue requires clarification of the law under the Montana Consumer Protection
Act (MCPA), §§ 30-14-101 through -143, MCA. Like many other jurisdictions, but unlike
the federal act, the MCPA provides a private cause of action. Plath v. Schonrock, 2003 MT
21, ¶ 21, 314 Mont. 101, 64 P.3d 984; § 30-14-133, MCA.
¶27 The MCPA declares that, “[u]nfair methods of competition and unfair or deceptive
acts or practices in the conduct of any trade or commerce are unlawful.” Section 30-14-103,
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MCA. While the MCPA does not further define these unlawful practices, it expresses a
legislative intent to give “due consideration and weight” to interpretations of the Federal
Trade Commission (FTC) and federal courts regarding § 5(a)(1) of the Federal Trade
Commission Act (FTC Act) (15 U.S.C. 45(a)(1)), as amended. Section 30-14-104(1), MCA.
Examples of unlawful acts or practices in the conduct of trade or commerce are listed in a
Montana regulation, which also references interpretations of the FTC and federal courts
regarding § 5(a)(1) of the FTC Act (15 U.S.C. 45(a)(1)), as amended. Admin. R. M.
23.19.101.
¶28 At trial, the Rohrers’ counsel offered a jury instruction defining an “unfair” act or
practice as “one which offends established public policy and which is either immoral,
unethical, oppressive, unscrupulous or substantially injurious to consumers.” Knudson’s
counsel proposed instructing the jury that an “unfair” act or practice is “one which offends
established public policy and which is either immoral, unethical, oppressive, or
unscrupulous.” Referring to the amount of damages sought, Knudson’s counsel argued that
including the language “or substantially injurious to consumers” would “essentially direct a
verdict” for the Rohrers. The court agreed and struck “substantially injurious” from the jury
instruction defining an “unfair” act or practice.
¶29 While this is a matter of first impression in Montana, there is abundant precedent in
other jurisdictions. Most states with consumer protection acts patterned after § 5(a)(1) of the
FTC Act interpret unfairness as described in the landmark United States Supreme Court case,
FTC v. Sperry & Hutchinson Co. (S&H), 405 U.S. 233, 92 S. Ct. 898 (1972). The Court
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noted with approval the FTC’s use of the following criteria for determining whether a
practice is unfair:
(1) whether the practice, without necessarily having been previously
considered unlawful, offends public policy as it has been established by
statutes, the common law, or otherwise—whether, in other words, it is within
at least the penumbra of some common-law, statutory, or other established
concept of unfairness; (2) whether it is immoral, unethical, oppressive, or
unscrupulous; (3) whether it causes substantial injury to consumers (or
competitors or other businessmen).
S&H, 405 U.S. at 244, n. 5, 92 S. Ct. at 905, n. 5.1
¶30 At least a dozen states apply the S&H standard to define unfairness under their
consumer protection acts.2 See State v. Grogan, 628 P.2d 570, 571-72 (Alaska 1981);
Cheshire Mortg. Serv., Inc. v. Montes, 612 A.2d 1130, 1143 (Conn. 1992); PNR, Inc. v.
Beacon Prop. Mgt., Inc., 842 So.2d 773, 777 (Fla. 2003); Balthazar v. Verizon Hawaii, Inc.,
123 P.3d 194, 202 (Haw. 2005); Robinson v. Toyota Motor Credit Corp., 775 N.E.2d 951,
960-61 (Ill. 2002); Tyler v. Rapid Cash, L.L.C., 930 So. 2d 1135, 1140 (La. App. 2006);
Morrison v. Toys “R” Us, Inc., 806 N.E.2d 388, 392 (Mass. 2004); State v. Moran, 861 A.2d
763, 766 (N.H. 2004); Gray v. North Carolina Ins. Underwriting Assn., 529 S.E.2d 676, 681
1
The FTC announced a new unfairness definition in 1980, which was codified by Congress
in 1994. Commission Statement of Policy on the Scope of Consumer Unfairness
Jurisdiction, attached to Commission letter to Senators Danforth and Ford (Dec. 17, 1980),
reprinted in H.R. Rpt. 98-156, at 33-40 (May 16, 1983); codified at 15 U.S.C. § 45(n). In
many regards this unfairness definition reiterates elements of the S&H standard, although the
primary focus is placed on consumer injury, which must be substantial.
2
While some states apply the S&H standard as a factors test, the more common approach is
to define an unfair act or practice as one which offends established public policy and which
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(N.C. 2000); Ames v. Oceanside Welding & Towing Co., 767 A.2d 677, 681 (R.I. 2001);
Blake v. Federal Way Cycle Ctr., 698 P.2d 578, 583 (Wash. App. 1985). The S&H standard
has been applied by several federal circuit courts as well. See Mass. Eye & Ear Infirmary v.
QLT Phototherapeutics, Inc., 412 F.3d 215, 243 (1st Cir. 2005); South Atlantic Ltd. P’ship of
Tenn., LP v. Riese, 284 F.3d 518, 535 (4th Cir. 2002); Spiegel, Inc. v. FTC, 540 F.2d 287,
293 (7th Cir. 1976).
¶31 We join these jurisdictions in adopting a version of the S&H standard to define
unfairness under the Montana Consumer Protection Act. In doing so, we give due
consideration and weight to interpretations of the FTC and federal courts regarding § 5(a)(1)
of the FTC Act, as required by § 30-14-104(1), MCA. We hold as a matter of law that an
unfair act or practice is one which offends established public policy and which is either
immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.3
¶32 We disagree with the District Court’s concern that this statement of law would
essentially direct a verdict for the Rohrers. While Knudson conceded that the City’s
subdivision review process represented a public policy to avoid the type of harm suffered by
the Rohrers, the record contains conflicting evidence as to whether soil compaction and
density studies were completed. Thus, although there is little dispute that the Rohrers
incurred substantial injury, a jury must still determine, as a question of fact, whether soil
is either immoral, unethical, oppressive, unscrupulous or substantially injurious to
consumers.
3
While the MCPA declares both unfair and deceptive acts or practices unlawful, this opinion
only addresses unfair acts or practices.
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compaction and density studies were completed before concluding whether Knudson
offended established public policy. A jury must also determine whether any unfair act or
practice caused the damages claimed by the Rohrers in order for them to recover under the
MCPA. See § 30-14-133(1), MCA. These questions should be left to the jury on remand.
¶33 Reversed and remanded for retrial.
/S/ MIKE McGRATH
/S/ JAMES C. NELSON
/S/ W. WILLIAM LEAPHART
/S/ PATRICIA COTTER
/S/ JIM RICE
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