December 30 2010
DA 09-0404
IN THE SUPREME COURT OF THE STATE OF MONTANA
2010 MT 291
WESTERN SECURITY BANK and GLACIER
BANCORP, INC.,
Plaintiffs and Appellants,
v.
EIDE BAILLY LLP,
Defendant and Appellee.
APPEAL FROM: District Court of the Thirteenth Judicial District,
In and For the County of Yellowstone, Cause No. DV 07-1463
Honorable Gregory R. Todd, Presiding Judge
COUNSEL OF RECORD:
For Appellants:
Kyle A. Gray (argued), W. Scott Mitchell, and Robert L. Sterup; Holland &
Hart LLP, Billings, Montana
For Appellee:
W. Anderson Forsythe, Moulton Bellingham PC, Billings, Montana
Peter A. Koller (argued) and Thomas J. Shroyer, Moss & Barnett,
Minneapolis, Minnesota
Argued and Submitted: June 10, 2010
Decided: December 30, 2010
Filed:
_______________________________________
Clerk
Justice Brian Morris delivered the Opinion of the Court.
¶1 Glacier Bancorp, Inc. (Glacier) appeals the order of the Thirteenth Judicial District
Court, Yellowstone County, granting summary judgment to Eide Bailly LLP (Eide).
Western Security Bank (Western) appeals the judgment of the District Court awarding a
special jury verdict in favor of Eide. We affirm in part, reverse in part, and remand for
further proceedings.
¶2 We review the following issues on appeal:
¶3 Did the District Court properly grant summary judgment to Eide based upon its
conclusion that Eide did not owe Glacier a duty of care?
¶4 Did Glacier fail to plead with sufficient particularity its fraudulent misrepresentation
claim?
¶5 Did Western’s fraudulent misrepresentation claim and its negligent misrepresentation
claim fail to state claims upon which relief could be granted?
FACTUAL AND PROCEDURAL BACKGROUND
¶6 Intermountain Mortgage Company (IMC) was a Montana corporation in the business
of lending money to home purchasers. IMC borrowed money for its home loans through a
warehouse line of credit from First Citizens Bank (FCB). FCB was a subsidiary of Citizens
Development Corporation (CDC). The lending agreement between IMC and FCB required
IMC to procure for FCB’s benefit an annual audit of its balance sheet and income statement
to be performed by a certified public accounting firm. FCB used the audit reports yearly in
deciding whether to renew, and for how much, IMC’s warehouse line of credit. IMC chose
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Eide to perform the audits. Eide began performing the annual audits of IMC’s financial
statements in 1989. Eide never entered any contractual agreements with FCB, CDC, Glacier,
or Western.
¶7 Eide agreed to perform the annual audits in accordance with generally accepted
accounting principles. Eide’s engagement letter had informed that “because we will not
perform a detailed examination of all transactions, there is a risk that a material misstatement
may exist and not be detected by us.” Eide further agreed to render an opinion on the
fairness of IMC’s financial statements. Eide’s audits resulted in the issuance of “unqualified
opinions” regarding IMC’s financial statements. An unqualified opinion represents with
reasonable assurance, rather than absolute assurance, that the audited financial statements do
not contain material misstatements.
¶8 CDC announced in November 2005 that it would be selling its stock. Glacier
investigated whether to purchase CDC. Glacier, a bank holding company, owns subsidiary
banks in Montana and several other western states. Glacier reviewed the financial
information of CDC’s subsidiary banks, including FCB. Glacier reviewed Eide’s most
recent audit reports of IMC as part of its due diligence investigation.
¶9 Glacier publicly announced its merger with CDC on April 20, 2006. The sale closed
on September 30, 2006. Glacier merged FCB into Western, its existing Montana state-
chartered subsidiary bank. Western took over the line of credit to IMC that FCB previously
had issued. IMC disclosed on February 8, 2007, that its chief financial officer, Angela
Hakala (Hakala), had been manipulating the financial records of IMC.
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¶10 Hakala’s financial manipulation concealed the diversion of approximately $7.2
million that had been used to support IMC’s business operations. Hakala’s manipulation of
funds had occurred during the years when Eide had issued unqualified opinions of IMC’s
financial statements. Hakala’s misconduct had led IMC to overstate its assets, income, and
profits. Hakala’s misconduct left IMC unable to repay its loans to Western.
¶11 Glacier and Western filed a joint complaint against Eide on November 21, 2007, that
contained a single count entitled professional negligence. Glacier and Western claimed that
they had relied upon Eide’s audit reports of IMC’s financial statements in the purchase of
CDC. Glacier and Western alleged that IMC’s deposits and loans with FCB “constituted a
substantial portion” of CDC’s deposits and that Glacier had relied upon the accuracy of
Eide’s audit reports in establishing a price for the purchase of CDC.
¶12 Glacier moved for partial summary judgment on April 14, 2008. Glacier sought a
declaration regarding the duty of care that accountants owe to third parties when no privity of
contract exists between the parties. Eide responded with a cross-motion for summary
judgment. Eide argued that its auditors owed no duty of care to third parties like Glacier due
to a lack of “near privity” between the parties and because Eide had not intended to have
Glacier use the audit reports in evaluating the merger with CDC.
¶13 The parties disputed specifically the applicability of this Court’s decisions in Thayer
v. Hicks, 243 Mont. 138, 793 P.2d 784 (1990), and Jim’s Excavating Service v. HKM
Associates, 265 Mont. 494, 878 P.2d 248 (1994). The District Court determined that the near
privity rule from Thayer applied to Glacier’s claim. The court granted summary judgment to
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Eide on the grounds that Glacier had failed to establish that Eide owed it a duty under the
Thayer near privity approach, or, alternatively, under the Restatement (Second) of Torts §
552 (1977) approach.
¶14 Glacier further argued that its complaint alleged a fraudulent misrepresentation claim.
The District Court dismissed Glacier’s fraudulent misrepresentation claim for insufficient
pleading and noted that “the word fraud is absolutely absent from the Complaint.” These
summary judgment rulings of August 6, 2008, effectively ended Glacier’s involvement with
the litigation before the District Court.
¶15 Western, who had not been a party to the cross-motions for summary judgment, filed
an amended complaint on October 8, 2008. Western added a claim for negligent
misrepresentation and a claim for fraudulent misrepresentation. The court dismissed the two
new claims on the basis that they failed to state a claim upon which relief could be granted.
¶16 Western proceeded to trial. Trial lasted nine days. The court instructed the jury to
determine Eide’s duty of care to Western according to the Thayer near privity standard. The
jury returned a special verdict finding that Eide owed Western a duty of care and that both
Western and Eide had been causally negligent. The jury allocated seventy percent causal
negligence to Western and thirty percent causal negligence to Eide.
¶17 Western appeals the court’s application of the Thayer standard, appeals the dismissal
of its negligent misrepresentation claim and its fraudulent misrepresentation claim, and seeks
a new trial based upon various evidentiary rulings and the court’s jury instructions. Glacier
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appeals the court’s summary judgment ruling and the court’s dismissal of its fraudulent
misrepresentation claim.
STANDARD OF REVIEW
¶18 We review de novo a district court’s grant or denial of a summary judgment motion.
Cole v. Valley Ice Garden LLC, 2005 MT 115, ¶ 4, 327 Mont. 99, 113 P.3d 275. We review
de novo a district court's ruling on a motion to dismiss pursuant to M. R. Civ. P. 12(b)(6).
Cowan v. Cowan, 2004 MT 97, ¶ 10, 321 Mont. 13, 89 P.3d 6. This Court will not disturb a
district court’s ruling on the grant or denial of a motion to amend the pleadings absent an
abuse of discretion. Stipe v. First Interstate Bank-Polson, 2008 MT 239, ¶ 27, 344 Mont.
435, 188 P.3d 1063. We review jury instructions in their entirety in order to determine if
they fully and fairly instruct the jury on the law applicable to the case. Peterson v. St. Paul
Fire & Marine Ins. Co., 2010 MT 187, ¶ 22, 357 Mont. 293, 239 P.3d 904. We conduct
plenary review to the extent the district court bases its discretionary ruling upon a conclusion
of law. Jacobsen v. Allstate Ins. Co., 2009 MT 248, ¶ 26, 351 Mont. 464, 215 P.3d 649.
DISCUSSION
¶19 Did the District Court properly grant summary judgment to Eide based upon its
conclusion that Eide did not owe Glacier a duty of care?
¶20 The District Court concluded that the Thayer near privity approach controlled the
issue of whether Eide owed Glacier a duty of care. The court granted summary judgment to
Eide in light of its determination that Eide did not know or intend that Glacier would rely on
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Eide’s audit reports in the Glacier-CDC merger transaction. The court alternatively
concluded that Eide did not owe Glacier a duty of care under the Restatement (Second) of
Torts § 552.
¶21 We first draw a distinction between a claim against an accountant for professional
negligence and a claim against an accountant for negligent misrepresentation. The California
Supreme Court recognizes the tort of professional negligence as “separate and distinct” from
the tort of negligent misrepresentation. Bily v. Arthur Young & Co., 834 P.2d 745, 768 (Cal.
1992). This Court has not squarely addressed the issue. This Court instead has assumed that
the two claims represent separate causes of action. May v. ERA Landmark Real Est., 2000
MT 299, ¶¶ 42-43, 302 Mont. 326, 15 P.3d 1179; Durbin v. Ross, 276 Mont. 463, 472, 916
P.2d 758, 763-64 (1996).
¶22 A professional negligence claim asserts that the accountant negligently performed its
professional services. These professional services often involve the performance of an audit.
The plaintiff in any professional negligence action “must prove that the professional owed
him a duty, that the professional failed to live up to that duty,” and that the professional’s
failure caused damages to the plaintiff. Carlson v. Morton, 229 Mont. 234, 238, 745 P.2d
1133, 1136 (1987).
¶23 A negligent misrepresentation claim asserts, in contrast, that the plaintiff justifiably
relied on false information negligently provided by an accountant. False information
provided by an accountant often appears in an audit report. This Court has recognized a
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common law tort of negligent misrepresentation. Jackson v. State, 1998 MT 46, ¶ 36, 287
Mont. 473, 956 P.2d 35.
¶24 The Court also has approved the definition of negligent misrepresentation found in the
Restatement (Second) of Torts § 552 in the professional context. May, ¶ 61 (upholding a
negligent misrepresentation claim against a real estate agent who altered a contract
document); Durbin, 276 Mont. at 472, 916 P.2d at 764 (recognizing a negligent
misrepresentation claim when a realtor allegedly misrepresented facts to a buyer about the
legality of a septic system); St. Bank of Townsend v. Maryann’s, Inc., 204 Mont. 21, 33, 664
P.2d 295, 301 (1983) (approving a negligent misrepresentation claim against a bank in a
promissory note dispute); Jim’s Excavating Serv., 265 Mont. at 504-05, 878 P.2d at 254
(concluding that a § 552 claim should control the issue of a designer’s liability to an
unknown contractor who relies on the designer’s plans and specifications).
¶25 Glacier’s complaint contained a single count under the heading “Professional
Negligence.” Glacier asserted a third-party claim against Eide. Glacier sought partial
summary judgment regarding what duty of care an accountant owes to a third party. Glacier
does not assert a professional relationship. “[T]here can be no claim of professional
negligence,” without a duty arising from a professional relationship. Durbin, 276 Mont. at
472, 916 P.2d at 763.
¶26 Glacier’s complaint set out allegations that Eide supplied false information in Eide’s
audit reports of IMC. Glacier alleged that Eide produced overstated audit reports, falsely
represented that IMC financial statements had been prepared in accordance with generally
8
accepted accounting principles, and provided unqualified opinions that Glacier had relied
upon in a merger transaction. Glacier asserted that Eide negligently produced audit
information that failed to disclose that IMC had used funds for purpose other than paying
down the line of credit. Glacier claimed that its justifiable reliance on Eide’s audit reports
caused it to suffer money damages. Glacier’s claim more properly should be classified as
one for negligent misrepresentation despite the “Professional Negligence” label in its
complaint. Id., 916 P.2d at 763-64.
¶27 This Court has treated professional negligence claims according to § 552 standards
when the third party essentially alleges reliance on misrepresentations of information. Jim’s
Excavating Serv., 265 Mont. at 504-05, 878 P.2d at 254. The Court there concluded “that in
this case, and in other cases wherein a contractor brings a suit against the project engineer or
architect, the approach set forth in § 552 of the Restatement should control.” Id. at 504, 878
P.2d at 254. Other jurisdictions have followed § 552 when a plaintiff asserts a claim for
professional negligence based on alleged negligence in supplying information. The Supreme
Court of New Jersey noted that the plaintiffs’ claim “can be viewed as grounded in negligent
misrepresentation” even though the plaintiffs directed their theory at the service performed
by the accountant. H. Rosenblum, Inc. v. Adler, 461 A.2d 138, 142 (N.J. 1983) (superseded
by statute on other grounds). The California Supreme Court concluded that a claim presents
a cause of action in negligent misrepresentation when the third party alleges reliance on the
audit report itself rather than on the performance of the actual audit. Bily, 834 P.2d at 772.
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¶28 The District Court did not distinguish a professional negligence claim from a
negligent misrepresentation claim. The District Court simply determined that the Thayer
near privity standard controlled the issue of an accountant’s duty to third parties. We
conclude that Glacier has asserted a third-party negligent misrepresentation claim against
Eide. The Dissent claims that the Court’s characterization of Glacier’s claim essentially has
“remade” Glacier’s claim on appeal. We disagree. We have done nothing more than
identify the law applicable to the undisputed facts. Slauson v. Marozzo Plumbing &
Heating, 2009 MT 333, ¶ 13, 353 Mont. 75, 219 P.3d 509. The title that a party attaches to a
legal claim in a pleading does not bind our analysis, particularly when the party otherwise
has failed to allege facts to support the improperly titled claim. Glacier and Eide have
requested that this Court define the scope of liability stemming from their relationship. We
have committed no more impropriety here than any court would in refusing to allow a
litigant with a products liability claim to sue for “ordinary negligence.” See Dayberry v. City
of E. Helena, 2003 MT 321, ¶¶ 22-23, 318 Mont. 301, 80 P.3d 1218. Likewise, this Court
has refused to allow a workers’ compensation claimant to circumvent the exclusivity
provision by giving an ordinary negligence claim a title of intentional battery. Alexander v.
Bozeman Motors, Inc., 2010 MT 135, ¶ 32, 356 Mont. 439, 234 P.3d 880.
¶29 The Dissent denounces our refusal to be misled by the “Professional Negligence” title
as “especially egregious, given that Glacier actually eschews the Restatement’s approach.”
The record reveals, however, that Glacier alternatively advocated for the Restatement
approach, including its request to the District Court in its reply brief that “the Court should
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find that: (1) the § 552 standard governs [Glacier’s] claims.” We doubt Glacier will
experience the surprise exclaimed by the Dissent, given that the District Court found it
necessary to conduct an alternative analysis and reach an alternative conclusion that Glacier
had not satisfied its burden of proof to survive summary judgment under the Restatement
(Second) of Torts § 552 approach.
¶30 The facts do not present, and we do not address, the issue of an accountant’s liability
to third parties under a general theory of professional negligence, as the Dissent would have
us do. We instead address the appropriate duty of care that an accountant owes to a third
party who asserts a claim for negligent misrepresentation. We decline to address the
Dissent’s arguments on this point other than to state that we simply will not further develop
third-party professional negligence law until presented with a factual dispute that actually
gives rise to such a claim.
¶31 The Restatement (Second) of Torts § 552 defines the cause of action for negligent
misrepresentation that plaintiffs may assert against those who negligently obtain and
communicate false information. This Court followed the Restatement (Second) of Torts
§ 552 approach in Jim’s Excavating Service for professional negligence suits against
engineers and architects who had supplied information as part of their services. Jim’s
Excavating Serv., 265 Mont. at 504-05, 878 P.2d at 254. The Court concluded that the
engineering firm owed a duty of care to noncontractual contractors when it had supplied
design plans and specifications for a project even though the specific identity of the
contractors had not been known at the time that the firm supplied the information. Id. at 506,
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878 P.2d at 255. The Court determined that the firm “knew or should have foreseen” that
some contractor eventually would rely on the firm’s plans and specifications. Id.
¶32 Under § 552, the noncontractual third party does not have to be actually known or
specifically identified at the moment the accountant supplies the information. Restatement
(Second) of Torts § 552 cmt. h. Liability may attach if an accountant intends the information
to influence one “who might reasonably be expected sooner or later to have access to the
information and foreseeably to take some action in reliance upon it.” Id. A member of the
larger class of persons who might learn of the information through the ever-present
possibility of repetition and circulation of information, however, could not hold the
accountant liable. Id.
¶33 Comment a to § 552 further informs that not every user of commercial information
may hold the professional who supplied the information to a duty of care. Id. at cmt. a.
“[T]he use to which the information will be put” defines the scope of the duty of care when
supplying commercial information. Id. A third party who relies on information may hold
the supplier of that information to a duty of care in circumstances only in which the supplier
had been “manifestly aware of the use to which the information was to be put and intended
to supply it for that purpose.” Id.; Jim’s Excavating Serv., 265 Mont. at 505-06, 878 P.2d at
254-55.
¶34 Section 552(2) limits an accountant’s liability for negligent misrepresentation claims.
Section 552(2)(a) limits liability to parties for whose benefit the accountant intends to
supply the information and to parties whom the accountant knows will receive the
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information through the intended, benefitting parties. Section 552(2)(b) further limits
liability to parties who rely on the information in a transaction that the accountant intended
or knew the information would influence. This approach protects accountants from
unforeseen liability exposure when the recipients circulate the information to unforeseeable
parties and when the recipients use the information in unforeseeable transactions.
Restatement (Second) of Torts § 552 cmts. a, j.
¶35 We routinely have applied § 552 to claims for negligent misrepresentation. Durbin,
276 Mont. at 472, 916 P.2d at 764; Jim’s Excavating Serv., 265 Mont. at 504-05, 878 P.2d at
254; St. Bank of Townsend, 204 Mont. at 33, 664 P.2d at 301. The parties have presented no
compelling reasons why we should decline to apply § 552 here. We turn then to analyze
whether Eide owed Glacier a duty of care on Glacier’s negligent misrepresentation claim
according to the standards set forth in § 552.
¶36 Glacier and Eide filed cross-motions for summary judgment on an accountant’s duty
to third parties. Both parties filed affidavits in support of their motions. Eide presented the
affidavit of John Jacobsen, Eide audit partner, in which Jacobsen declared that Eide had not
intended or known that Glacier would rely upon any of its audit reports. Jacobsen attached
to his affidavit the engagement agreement between Eide and IMC. Jacobsen acknowledges
that, beginning in 1995, IMC funded its mortgage operations primarily through a warehouse
lending agreement that it had arranged with FCB. Jacobsen emphasizes, however, that Eide
never intended that the audit reports would be used to evaluate a possible merger transaction.
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Jacobsen further states that Eide had not been aware that IMC or other recipients of the audit
reports would use the audit reports to influence Glacier in a merger transaction.
¶37 Jacobson’s affidavit shifted the burden to Glacier to provide substantial evidence that
raises a genuine issue of material fact regarding Eide’s intent or Eide’s knowledge as to
Glacier’s use of the audit reports in evaluating the merger transaction. Glacier filed two
affidavits—one from its expert witness and one from its own counsel. Glacier’s expert,
Larry Barton, opined that Eide “knew or should have known” that the audit reports “likely”
would be circulated to financial institutions who did business with IMC, including Glacier.
Barton opines that Eide should have known that IMC could be acquired by Glacier in light of
the fact that Eide holds itself out as a Top 25 Accounting Firm.
¶38 Barton’s position potentially could expose Eide to liability to an infinitely large class
of possible users of the audit reports in transactions ranging from warehouse lending
agreements to merger transactions. The Restatement approach may not require that Glacier’s
specific identity be known to Eide at the time Eide issued the audit reports. Restatement
(Second) of Torts § 552 cmt. h; Jim’s Excavating Serv., 265 Mont. at 504, 878 P.2d at 254.
The Restatement does require, however, that Glacier be one for “whose benefit and
guidance” the information is supplied, and not merely one of the many potential persons to
whom the audit reports could be circulated. Restatement (Second) of Torts § 552 cmt. h.
¶39 Barton can do no more than speculate that Eide “likely” should have known that FCB
would supply the audit reports to Glacier. Barton’s affidavit failed to rebut Eide’s claim that
it had not known that FCB would provide the audit reports to Glacier for use in evaluating
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the merger transaction. Barton and Glacier have not provided evidence that Eide had been
“manifestly aware of the use to which the information was to be put” or that Eide “intended
to supply it for that purpose.” Id. at cmt. a; Jim’s Excavating Serv., 265 Mont. at 505-06,
878 P.2d at 254-55.
¶40 Glacier also filed a M. R. Civ. P. 56(f) affidavit from its counsel, who claimed that
ongoing discovery would reveal the essential facts that would preclude summary judgment in
Eide’s favor. Mere speculation as to what future discovery would reveal fails to give rise to
genuine issues of material fact sufficient to meet Glacier’s burden. Envtl. Contrs. LLC v.
Moon, 1999 MT 178, ¶ 19, 295 Mont. 268, 983 P.2d 390. Glacier had over eight months to
uncover some information that would indicate that Eide had known that the audit reports
would end up in Glacier’s hands. Glacier itself brought this issue to a head when Glacier
filed its motion for summary judgment on the issue of Eide’s duty. Glacier cannot complain
of insufficient time to conduct discovery.
¶41 Glacier did not provide an affidavit from any of its own representatives who could
assert that Eide had known that Glacier would rely on the audit reports. No affidavit from
any representatives of FCB, CDC, IMC, or Western likewise asserted that Eide knew or
intended that the audit reports would be supplied to Glacier. Finally, Glacier did not submit
any information to suggest that Eide knew that IMC and FCB intended to circulate the audit
reports to third parties.
¶42 Glacier failed to establish that its claim satisfied either of the requirements of
Restatement (Second) of Torts § 552(2). Glacier does not qualify as “one of a limited group
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of persons” intended or known by Eide to be receiving the audit reports. Restatement
(Second) of Torts § 552(2)(a). Glacier stands as a member of the greater class to whom Eide
owed no duty of care, even though the information in Eide’s audit reports may have been
repeated to Glacier and even though Glacier may have relied on the information. Id. at cmt.
h. Eide did not intend, and did not know that IMC intended, to circulate the audit reports to
the parties of the Glacier-CDC transaction.
¶43 Eide understood that “the use” to which the audit reports would be put involved the
suitability and scope of the warehouse lending agreement. No evidence established that Eide
understood that its audit reports would be used to evaluate a merger transaction. Id. at cmt.
a. The merger transaction is not “substantially similar” to the warehouse lending agreement
between IMC and FCB. Id. at § 552(2)(b). Glacier’s reliance on the audit reports in its
merger transaction constitutes a use different than the use for which Eide had supplied the
information and one for which Eide does not owe Glacier a duty of care.
¶44 The Dissent seems to agree that the Restatement (Second) of Torts § 552, as adopted
and applied in Jim’s Excavating Service, applies here. The Dissent apparently parts ways
with the Court over the interpretation of the phrase “knew or should have foreseen.” The
Dissent interprets this phrase to mean the equivalent of the “reasonably foreseeable plaintiff”
standard. Contrary to the Dissent’s interpretation, the phrase “knew or should have
foreseen” neither served as a litmus test in Jim’s Excavating Service, nor reflected that
Court’s analysis.
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¶45 The Court in Jim’s Excavating Service adopted and applied the principles of the
Restatement (Second) of Torts § 552. Jim’s Excavating Serv., 265 Mont. at 504-06, 878 P.2d
at 254-55. The Court held that “a third party contractor may successfully recover for purely
economic loss [. . .] when the design professional knew or should have foreseen that the
particular plaintiff or an identifiable class of plaintiffs were at risk in relying on the
information supplied.” Id. at 506, 878 P.2d at 255 (emphasis added). The Dissent neglects
to undertake the § 552 analysis applied in Jim’s Excavating Service and further
misrepresents its holding. Our § 552 analysis follows the analysis adopted in Jim’s
Excavating Service. Opinion, ¶¶ 24, 27, 31, 33, 35, 38-39. We have turned to principles set
forth in § 552 and determined that Glacier has not set forth facts to establish that Eide should
have identified Glacier as a plaintiff who might rely on the IMC audits that Eide provided for
purposes of the warehouse lending agreement.
¶46 We also agree with the District Court that Glacier failed to raise any genuine issue of
material fact as to whether Eide intended, or knew that IMC intended, that the audit reports
would be used in the CDC-Glacier merger transaction. The District Court correctly granted
summary judgment to Eide on Glacier’s negligent misrepresentation claim under the
Restatement (Second) of Torts § 552.
¶47 Did Glacier fail to plead with sufficient particularity its fraudulent misrepresentation
claim?
¶48 The District Court determined that Glacier had failed to plead the elements of fraud
with particularity as required under M. R. Civ. P. 9(b). Glacier argues that it pleaded with
17
particularity the elements of fraud, except intent, which it pleaded generally, as allowed by
M. R. Civ. P. 9(b). Glacier argues in the alternative that the court should have ruled on its
oral motion to amend the complaint that it raised during the summary judgment hearing.
¶49 This Court has determined that “[o]f primary importance in understanding the
particularity requirement of Rule 9(b) is the recognition that it does not render the general
principles set forth in Rule 8 entirely inapplicable.” Fraunhofer v. Price, 182 Mont. 7, 14,
594 P.2d 324, 328 (1979) (citation omitted). M. R. Civ. P. 8(a) requires only “a short and
plain statement of the claim” for relief. The sufficiency of a particular pleading under M. R.
Civ. P. 9(b) often depends on the context in which the fraud is alleged to have occurred, how
much detail is necessary to give adequate notice to an adverse party, and how much detail is
necessary to enable an adverse party to prepare a responsive pleading. Id. at 15, 594 P.2d at
329.
¶50 The District Court concluded that Glacier had failed to plead fraud with particularity,
in part, because the word “fraud” could be found nowhere in Glacier’s complaint. We agree
with Glacier that it necessarily need not have used the word fraud in its complaint. Glacier’s
argument that it intended to raise a fraud claim rings hollow, however, in light of the fact that
its complaint contains one count, entitled “Professional Negligence.” We reject Glacier’s
argument that all the elements of fraud sprinkled throughout general averments in its
complaint rise to a degree sufficient to have provided Eide with notice of its intent to raise a
fraudulent misrepresentation claim. Id., 594 P.2d at 329. Glacier failed to plead fraudulent
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misrepresentation with particular detail sufficient to put Eide on notice to prepare a
responsive pleading. Id., 594 P.2d at 329.
¶51 Glacier raised at the summary judgment hearing the possibility of filing an amended
complaint to state its fraud claim with particularity. The District Court did not rule on
Glacier’s claimed motion to amend. The court apparently concluded that Glacier never made
such a motion. Glacier argues on appeal that the court abused its discretion when it failed to
rule on the motion to amend. Glacier argues that two months remained under the court’s
scheduling order to allow for amendments at the time of the summary judgment hearing.
Glacier notes that M. R. Civ. P. 7(b) permits oral motions and that leave to amend a pleading
“shall be freely given when justice so requires.” M. R. Civ. P. 15(a).
¶52 Glacier never filed a written motion for leave to amend its complaint before, during,
or after the oral argument on the cross-motions for summary judgment. Glacier referred
several times at the hearing to the possibility of filing a motion to amend. For example,
Glacier’s counsel said, “so to the extent that we need to amend to add that complaint, we
would seek the Court’s leave now to go ahead and file an amended complaint to do that.”
Glacier’s counsel later added that “we asked for leave to file an amended complaint that
more specifically sets forth our fraudulent misrepresentation claim.” The court noted that
“[f]raud isn’t in [the complaint], so you’re going to have to run it up the flag pole again.”
Glacier’s counsel replied, “[f]ine, Your Honor, we will do that.” Finally, in Glacier’s closing
arguments, Glacier’s counsel emphasized, “[s]o to the extent that we need to – we have
asked your permission to file fraud with particularity, we will discuss that at a later time.”
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¶53 Nothing in the record indicates that Glacier ever pursued a motion to amend its
complaint at a later time. The District Court did not construe the comments made by
Glacier’s counsel at the hearing to rise to the level of an oral motion to amend. The court
analyzed the issue of whether Glacier had pleaded fraud with sufficient particularity on the
only complaint before it. We cannot determine on the record before us that the court
committed reversible error when it refused to rule on an oral motion to amend that Glacier
never clearly made.
¶54 Did Western’s fraudulent misrepresentation claim and its negligent misrepresentation
claim fail to state claims upon which relief could be granted?
¶55 The Court reviews an appeal from a district court's order granting a motion to dismiss
based on the sufficiency of the complaint. Cowan, ¶ 10. A court should not dismiss a
complaint for failure to state a claim “unless it appears beyond doubt that the plaintiff can
prove no set of facts” in support of the claim that would entitle the plaintiff to relief. Id. We
must construe the complaint in the light most favorable to the plaintiff when reviewing a
motion to dismiss under M. R. Civ. P. 12(b)(6) and take as admitted all well-pleaded factual
allegations. Id. The Court has no obligation, however, to take as true legal conclusions or
allegations that lack factual basis. Id. at ¶ 14.
¶56 Western’s amended complaint sets forth three counts: professional negligence,
negligent misrepresentation, and fraudulent misrepresentation. Western may assert
alternately or hypothetically “as many separate claims as [Western] has.” M. R. Civ. P. 8(e).
The District Court dismissed Western’s fraudulent misrepresentation claim for failure to
20
plead the fraud claim with particularity. M. R. Civ. P. 9(b) requires a party to state with
particularity “the circumstances constituting fraud or mistake.” A party may allege
generally, however, malice, intent, knowledge, and other condition of mind. M. R. Civ. P.
9(b). A party seeking to establish a fraud claim must plead the nine elements of fraud,
including materiality of the representation and the speaker’s intent that the receiving party
should rely upon the representation. Durbin, 276 Mont. at 469, 916 P.2d at 762.
¶57 Though the allegations of fraud need be stated with particularity, we must read M. R.
Civ. P. 9(b) in conjunction with the “short and plain statement” requirement of M. R. Civ. P.
8(a). Fraunhofer, 182 Mont. at 14, 594 P.2d at 328. This Court stated in Fraunhofer that
“the determination of how much detail is necessary to give adequate notice to an adverse
party and enable him to prepare a responsive pleading” constitutes perhaps the most basic
consideration in making a judgment as to the sufficiency of the pleading. Id. at 15, 594 P.2d
at 329.
¶58 The District Court concluded that Western had not pleaded with particularity both
materiality and “intent to injure.” Western’s complaint generally described the terms of the
lending agreement and purpose for which IMC had procured the audit reports. Western
specifically alleged that the warehouse agreement between IMC and FCB obligated IMC to
procure an annual audit report for FCB’s purposes and that Eide knew that IMC was
obligated to provide the audit reports to FCB. Western specifically alleged that Eide had
overstated amounts reported in the audit reports. Western specifically alleged that Eide
discovered that funds had been misappropriated, but had failed to indicate knowledge of the
21
misappropriated funds in its unqualified audit reports. And finally, Western specifically
alleged that FCB relied on Eide’s unqualified reports when it increased IMC’s line of credit
from $7.5 million to $19.5 million over six years. Western separately pleaded that the
allegedly false representations “were material to credit decisions made by FCB.”
¶59 We must construe these factual allegations in the light most favorable to Western.
Cowan, ¶ 10. Western recounted the allegedly false representations that resulted in its
reliance on the audit reports. Western described the significance of the representations to its
credit decisions and how the decisions led to its money damages. Western sufficiently
pleaded the materiality of the allegedly false representations to satisfy the pleading
requirement for fraudulent misrepresentation. See May, ¶ 26; Batten v. Watts Cycle &
Marine, 240 Mont. 113, 118, 783 P.2d 378, 381-382 (1989).
¶60 Western also argues that the court improperly required Western to plead “intent to
injure” as an element of its fraudulent misrepresentation claim. We agree. The court cited
no authority for the “intent to injure” standard that it imposed on Western. Section 27-1-221,
MCA, could be interpreted to require an “intent to injure” element as part of a claim for
punitive damages based on actual fraud. M. R. Civ. P. 9(b) permits Western, however, to
allege intent generally to support its claim for fraudulent misrepresentation.
¶61 Western only must plead factual allegations that Eide made a representation with the
“intent it be relied upon” to satisfy the intent element of a prima facie fraud claim. Durbin,
276 Mont. at 469, 916 P.2d at 762; May, ¶ 21. Western alleged that Eide knew that IMC had
procured the audit reports for FCB’s use in renewing the warehouse line of credit. Western
22
further alleged that Eide had intended that FCB would rely on the representations contained
in the audit reports.
¶62 M. R. Civ. P. 9(b) requires only that Western generally allege that Eide had intended
for FCB to rely on its representations. Durbin, 276 Mont. at 469, 916 P.2d at 762; May, ¶
21. The allegations in Western’s amended complaint contained sufficient detail to have put
Eide on notice that it should prepare a responsive pleading on Western’s fraudulent
misrepresentation claim. The District Court incorrectly imposed a heightened standard when
it required Western to allege an “intent to injure.”
¶63 The District Court also dismissed Western’s negligent misrepresentation claim that
Western included in its amended complaint. The court concluded this negligent
misrepresentation claim simply duplicated Western’s professional negligence claim. The
court expressed concern that Eide would be subject to different standards of duty if the court
permitted both the professional negligence claim and the negligent misrepresentation claim.
¶64 Western has alleged that Eide made false representations of material fact when it
supplied unqualified audit reports of IMC’s financial statements. Western has asserted that
Eide negligently misrepresented IMC’s financial condition when Eide failed to report IMC’s
conduct of covering older loans with proceeds from new loans. Western has alleged that
Eide knew that FCB would rely on the representations and that Eide knew the audit reports
would influence the warehouse lending agreement between IMC and FCB. Western further
alleged that FCB in fact had relied on the representations in increasing the amount of the line
of credit, and that Western, as successor to FCB, had suffered damages as a result of its
23
reliance. These allegations more properly set forth a cause of action for negligent
misrepresentation. Opinion, ¶ 26. Proper classification of Western’s claim as one for third-
party negligent misrepresentation alleviates the District Court’s concerns of repetitive claims
and different duty standards.
¶65 The District Court’s classification of Western’s case as one for professional
negligence resulted in its instruction to the jury on the Thayer near privity standard. Western
argues that the court’s instruction on the wrong duty standard presumptively prejudiced its
case. Eide counters that even if the court instructed on the wrong duty standard, the error
does not merit reversal because the jury found that Eide owed Western a duty of care under
the narrower Thayer duty standard.
¶66 Eide’s argument confuses the Thayer standard for the duty of care in third-party
professional negligence claims with the Restatement (Second) of Torts § 552(2) standard for
the duty of care in third-party negligent misrepresentation claims. Where a third party
asserts a claim for negligent misrepresentation against an accountant, the court must instruct
the jury according to the elements of a § 552 negligent misrepresentation claim. A § 552
claim includes the following elements: (1) the defendant supplied false information in the
course of the defendant’s business, (2) the defendant failed to exercise reasonable care in
obtaining or communicating the information, (3) the plaintiff’s justifiable reliance on the
false information caused the plaintiff’s financial loss, (4) the plaintiff was one of a limited
group of persons for whose benefit and guidance the defendant intended to supply the
information or knew that the recipient intended to supply it, and (5) the plaintiff relied on the
24
information in a transaction that the defendant knew the information would influence.
Restatement (Second) of Torts § 552; Batten, 240 Mont. at 117, 783 P.2d at 381; Weigand v.
Mont. Land & Real Est. Inv., 223 Mont. 137, 139, 724 P.2d 194, 196 (1986).
¶67 We agree with Western that the trial court must instruct the jurors fully and correctly
on the applicable law of the case. Schuff v. Jackson, 2002 MT 215, ¶ 38, 311 Mont. 312, 55
P.3d 387. The District Court’s failure to instruct the jury fully and correctly on the
applicable law of Restatement (Second) of Torts § 552 constitutes reversible error. Id. at ¶¶
38-39. We reverse the District Court’s judgment awarding a special verdict in Eide’s favor
and remand for a new trial at which the court must instruct the jury on Western’s § 552
negligent misrepresentation claim. We need not address Western’s various evidentiary
claims and other challenges to the court’s jury instructions in light of our decision to remand
for a new trial.
CONCLUSION
¶68 We affirm the District Court’s grant of summary judgment to Eide on all of Glacier’s
claims. Glacier failed to present any evidence to establish that Eide intended, or knew that
25
IMC intended, its audit reports to be used by Glacier or to be used in a merger transaction.
Glacier failed to plead fraud with sufficient particularity.
¶69 We reverse the District Court’s dismissal of Western’s negligent misrepresentation
claim and its fraudulent misrepresentation claim. We reverse the jury’s special verdict in
favor of Eide and remand for a new trial.
/S/ BRIAN MORRIS
We Concur:
/S/ MIKE McGRATH
/S/ W. WILLIAM LEAPHART
/S/ PATRICIA COTTER
/S/ MICHAEL E WHEAT
/S/ JIM RICE
Justice James C. Nelson, concurring in part and dissenting in part.
¶70 I concur in the Court’s resolution of Issue 2 and certain parts of Issue 3. I dissent,
however, from the Court’s decision as to Issue 1 and other parts of Issue 3.
Issue 1
¶71 The Court begins by drawing a distinction between a professional negligence claim
and a negligent misrepresentation claim. Opinion, ¶¶ 21-24. The Court explains that a
26
professional negligence claim is an ordinary negligence action consisting of the traditional
four elements:
1. duty
2. breach
3. causation
4. damages
Opinion, ¶ 22. A negligent misrepresentation claim, in contrast, is governed by Restatement
(Second) of Torts § 552 (1977), hence prompting the moniker “§ 552 claim.” Opinion,
¶¶ 23-24. It consists of five elements:
1. the defendant supplied false information in the course of its business
2. the defendant failed to exercise reasonable care in obtaining or communicating the
information
3. the plaintiff’s justifiable reliance on the false information caused the plaintiff’s
financial loss
4. the defendant intended to supply the information, or knew that the recipient of the
information intended to supply it, for the benefit and guidance of a limited group
of persons that included the plaintiff
5. the plaintiff relied on the information in a transaction that the defendant knew the
information would influence
Opinion, ¶ 66. It should be noted that § 552’s standard weighs in favor of the negligent
purveyor of false information, limiting liability to only those persons who the defendant
intended or actually foresaw would rely on the information in a foreseen transaction.
¶72 After distinguishing between these two causes of action, the Court takes Glacier’s
four-element professional negligence claim and remakes it into a five-element negligent
misrepresentation claim. Opinion, ¶ 26. The Court then reviews Glacier’s filings in support
of its motion for summary judgment and holds that Glacier has not satisfied the requirements
of a § 552 claim. Opinion, ¶¶ 37-42.
27
¶73 It will surely come as a surprise to Glacier, however, when it learns that it has lost this
case because it failed to adequately support a claim that it never even raised! Glacier
alleged, and has always pursued, a professional negligence claim against Eide, not the
negligent misrepresentation claim contrived by the Court. As noted, in order to recover in a
professional negligence action, the plaintiff must prove that the professional owed him a
duty, and that the professional failed to live up to that duty, thus causing damages to the
plaintiff. Merzlak v. Purcell, 252 Mont. 527, 529, 830 P.2d 1278, 1279 (1992); accord
Opinion, ¶ 22. Here, Glacier alleged in its complaint:
duty: Eide “had a duty to perform its professional obligations with the degree of
learning, skill and judgment ordinarily possessed by members of the accounting
profession and to perform any service undertaken in the manner a reasonably careful
public accountant would do under the same or similar circumstances.”
breach: Eide “failed to satisfy the standard of care imposed on public accounting
firms” and therefore “breached the applicable standard of care and such breach
constitutes negligence.”
causation and damages: “As a result of [Eide’s] breach of the standard of care owed
by public accountants, [Western Security and Glacier] have been damaged . . . .”
¶74 In its motion for partial summary judgment, Glacier asked the District Court to rule on
what legal standard would be applied in determining the existence of a duty in Glacier’s
professional negligence claim against Eide. Glacier began with the proposition that
“[c]ertified public accountants are professionals and are liable for their professional
negligence.” Glacier went on to argue (on the issue of duty) that “[t]o the extent Eide Bailly
now claims the [near-privity] test governs professional negligence claims against an
accountant in Montana, the defense must be rejected” (emphasis added). Glacier instead
28
argued in favor of the “ordinary negligence” or “reasonably foreseeable plaintiff” test. In
this regard, Glacier specifically eschewed the “intended or actually foreseen” standard of
§ 552, quoting the following remarks by Justice Trieweiler in Jim’s Excavating Service v.
HKM Assocs., 265 Mont. 494, 878 P.2d 248 (1994):
I would not limit an engineer’s duty to exercise reasonable care to that class of
people set forth in § 552. Section 27-1-701, MCA, provides that “everyone is
responsible not only for the results of his willful acts but also for an injury
occasioned to another by his want of ordinary care or skill . . . .” I see no
reason to treat engineers differently than anyone else, and therefore, would
apply ordinary negligence rules to determine the scope of liability of the
defendant in this case.
Id. at 517, 878 P.2d at 261 (Trieweiler, J., specially concurring). And in its reply brief, as the
Court is forced to concede (Opinion, ¶ 29), Glacier offered § 552 only as an “alternative” to
its preferred approach of applying ordinary negligence principles to the issue of duty. For
these reasons, the Court’s remaking of Glacier’s professional negligence claim into a § 552
claim is especially egregious, given that Glacier actually eschews the Restatement’s
approach.
¶75 Likewise on appeal, the parties discuss § 552 not as a free-standing cause of action,
but as one of the several standards which have been discussed in this Court’s cases for
deciding whether a duty exists in an action for professional negligence. (The other
standards, discussed below, are the near-privity standard, the Prosser standard, and ordinary
negligence rules.) Significantly, Glacier again does not argue in favor of adopting the
restrictive “intended or actually foreseen” standard of § 552, but instead argues in favor of
the broader “reasonably foreseeable plaintiff” standard or, at a minimum, the “knew or
29
should have foreseen” standard we applied in Jim’s Excavating. Indeed, contrary to the
Court’s untenable remaking of Glacier’s claim and legal theories, Glacier summarizes its
argument as follows:
The [District Court] erred in rejecting the “reasonable foreseeability”
standard for the imposition of a duty on Eide regarding users of its IMC audit
reports. This Court’s decisions have either adopted that standard for
professional negligence cases, or signaled it would be adopted in the proper
case. [Emphasis added.] The court erred in holding that public policy does
not support imposition of that standard. In fact, Montana statute imposes
public duties on CPA auditors as to all reasonably foreseeable users of its audit
reports.
Although this Court need not reach this issue if it agrees with Glacier
on issue one, the court also erred in holding Eide was entitled to summary
judgment on the duty issue under the “actually foreseen” [i.e., § 552] and
“near privity” standards.
Glacier then goes on to argue that it is “entitled to have a jury decide whether Eide’s
professionals were negligent, i.e., whether they ‘fail[ed] to use reasonable care.’ ” Glacier
emphasizes that “reasonably foreseeable” is “the proper duty standard, and the [District
Court] erred in refusing to apply it when ruling on summary judgment.” As noted, Glacier
offers § 552 only as an alternative standard for determining the existence of a duty; and even
then, Glacier asks this Court to apply the modified “knew or should have foreseen” version
of § 552 that we adopted in Jim’s Excavating. Analogously, Eide argues in favor of the
“near privity” standard, but then addresses § 552 only “to the extent that standard applies
instead of the [near-privity] standard” for determining duty under what Eide refers to as
Glacier’s “accounting negligence” claim.
30
¶76 In sum, Glacier and Eide have always analyzed the question of duty with the
understanding that Glacier is pursuing a professional negligence claim. And so did the
District Court. The court specifically stated in its order that Glacier sued Eide “alleging a
single count of professional malpractice,” and the court then went on to address “the test in
Montana for accountant liability to third parties” in professional negligence cases, ultimately
adopting the near-privity standard.
¶77 Accordingly, it appears that this Court, once again, is the only participant in this case
that does not recognize what the litigants and the trial court have known all along: that
Glacier raised a professional negligence claim, not a negligent misrepresentation claim. Cf.
Jones v. Mont. Univ. Sys., 2007 MT 82, ¶¶ 60-76, 337 Mont. 1, 155 P.3d 1247 (Nelson, J.,
dissenting) (discussing the Court’s remaking of Bob Kelleher’s and Stan Jones’ First
Amendment claims in that case, despite the fact that “at every stage of the proceedings
leading up to this appeal, the parties and the District Court all recognized that Kelleher and
Jones were pursuing, among other things, a free speech claim under the First Amendment”
(emphasis omitted)). Evidently unwilling to address the District Court’s patently erroneous
ruling on the issue of duty in a third-party professional negligence action against an
accounting firm, the Court distorts Glacier’s pleadings—proclaiming them to mean what the
Court chooses them to mean, not what they actually say, cf. Mont. Sports Shooting Assn. v.
State, 2008 MT 190, ¶ 38, 344 Mont. 1, 185 P.3d 1003 (Nelson, J., dissenting)—and then
dismisses its own false construct. “It is inappropriate, however, for this Court to remake this
31
case, in ways that are contrary to the record before us, so as to facilitate expedient disposal of
a case that presents difficult issues . . . .” Jones, ¶ 67 (Nelson, J., dissenting).
¶78 As support for its remaking of Glacier’s claim, the Court observes that “Glacier does
not assert a professional relationship.” Opinion, ¶ 25. This is simply untrue. Glacier does
assert a professional relationship: a third-party “professional relationship” between Glacier
and Eide, under which Eide owed a duty of care to Glacier in the preparation of the IMC
audit reports. However, to the extent the Court is suggesting that Glacier needed to assert a
first-party “professional relationship” in order to maintain a professional negligence action,
we have already rejected this restrictive, actual-privity approach. See Watkins Trust v.
Lacosta, 2004 MT 144, ¶¶ 21-22, 321 Mont. 432, 92 P.3d 620; Redies v. ALPS, 2007 MT 9,
¶ 50, 335 Mont. 233, 150 P.3d 930. Indeed, such a requirement would be an indefensible
reversal of the progression in our caselaw over the last three decades and take us back to the
dark ages of privity.
¶79 Also as support for its approach, the Court points out that Glacier’s complaint
included allegations that Eide supplied false information in the audit reports of IMC.
Opinion, ¶ 26. This is true, but these allegations were included to establish the element of
breach (i.e., how Eide had breached the standard of care) in Glacier’s professional
negligence claim. Likewise, the Court points out that Glacier alleged justifiable reliance on
the audit reports, Opinion, ¶ 26, but these allegations were included to establish the element
of causation (i.e., how Eide’s breach of duty had caused Glacier’s damages) in Glacier’s
professional negligence claim. Glacier was not attempting to frame a negligent
32
misrepresentation claim, and the references to Eide’s supplying of false information and
Glacier’s reliance on the audit reports do not give this Court license to morph Glacier’s claim
into something Glacier never intended—especially since Glacier had no notice that this
Court would take Glacier’s pleadings and affidavits, which were prepared and filed in
support of a well-established four-element cause of action, and evaluate their sufficiency
within the context of a newly articulated five-element cause of action.1 This sort of bait-and-
switch tactic by the Court is unfair in the extreme.
¶80 Finally, the Court observes that we have “treated professional negligence claims
according to § 552 standards when the third party essentially alleges reliance on
misrepresentations of information.” Opinion, ¶ 27. Yet, that is not what the Court is doing
here. It is not “treating” Glacier’s “professional negligence” claim according to § 552
standards. Indeed, the Court asserts unequivocally that Glacier has not presented a
“professional negligence” claim. Opinion, ¶¶ 26, 30. Rather, what the Court is doing here is
“remaking” Glacier’s “professional negligence” claim into a “§ 552 claim.” It is axiomatic
that “treating” a claim according to certain standards is not the same as “remaking” that
claim into an entirely different cause of action. My disagreement with the Court’s Opinion
would be narrower if it were simply a question of which standard should be applied to
1
The Court cites Batten v. Watts Cycle & Marine, Inc., 240 Mont. 113, 117, 783 P.2d
378, 381 (1989), and Weigand v. Mont. Land & Real Estate Inv., 223 Mont. 137, 139, 724
P.2d 194, 196 (1986), as authority for a negligent misrepresentation claim. See Opinion,
¶ 66. Yet, neither of these cases articulates the five-element “§ 552 claim” created by the
Court today.
33
Glacier’s “professional negligence” claim. As it is, however, my disagreement also includes
the Court’s sua sponte transformation of that claim.
¶81 It is unfair to remake a plaintiff’s cause of action into something it never was intended
to be and then to deny the plaintiff relief for failing to adequately support this remade cause.
Indeed, if the plaintiff itself had changed the theory of its claim on appeal from that
advanced in the district court, this Court would refuse to consider the changed theory. In
Stanton v. Wells Fargo Bank Mont., N.A., 2007 MT 22, 335 Mont. 384, 152 P.3d 115, for
example, we observed:
Trail’s End argued in the District Court that Stanton had committed
constructive fraud . . . . Trail’s End argues on appeal, however, that Stanton
committed actual fraud. The general rule in Montana is that we will not
address either an issue raised for the first time on appeal or a party’s change in
legal theory. We decline to address this issue.
Stanton, ¶ 35 (citation omitted).2 If on appeal a party may not change its legal theory from
constructive fraud to actual fraud, certainly this Court may not sua sponte change a party’s
legal theory from professional negligence to negligent misrepresentation.
¶82 To summarize, then, “[a] professional negligence claim asserts that the accountant
negligently performed its professional services.” Opinion, ¶ 22. Here, Glacier asserts that
Eide “had a duty to perform its professional obligations with the degree of learning, skill and
judgment ordinarily possessed by members of the accounting profession,” that Eide “failed
to satisfy the standard of care imposed on public accounting firms,” that Eide thus “breached
2
This rule is so often invoked by every member of this Court that it would be silly to
provide pages of string-cites for the principle—which, in this case, we ignore.
34
the applicable standard of care,” and that “such breach constitutes negligence.” This is a
professional negligence claim under the Court’s own definition, and the Court’s refusal to
recognize it as such undermines Glacier’s pleadings and the manner in which Glacier has
developed its case against Eide. The fact is that Glacier is pursuing a professional
negligence claim against an accounting firm, and the question presented—which the Court
does not answer (Opinion, ¶ 30)—is what standard should be applied for determining
whether a duty exists between the accountant and the plaintiff.
¶83 Turning to this question, we summarized the rules with respect to duty in Fisher v.
Swift Transp. Co., 2008 MT 105, 342 Mont. 335, 181 P.3d 601: “[T]he existence of a duty
turns primarily on foreseeability. . . . We ask whether the defendant could have reasonably
foreseen that his or her conduct could have resulted in an injury to the plaintiff. A plaintiff is
a foreseeable plaintiff if she or he is within the foreseeable zone of risk created by the
defendant’s negligent act.” Fisher, ¶ 21 (internal quotation marks and citations omitted).
While this “foreseeable plaintiff” standard would seem applicable as a general rule, see
§ 27-1-701, MCA, our caselaw contains other standards for determining the scope of a
professional’s duty to a third party (nonclient) in a professional negligence action. These
other standards reflect the somewhat cautious progression nationwide away from the
“privity” approach toward the “foreseeable plaintiff” approach. I review the standards below
but first note the “privity of contract” defense.
¶84 “Privity of contract” refers to “[t]he relationship between the parties to a contract,
allowing them to sue each other but preventing a third party from doing so.” Black’s Law
35
Dictionary 1320 (Bryan A. Garner ed., 9th ed., Thomson Reuters 2009). We have held that
privity is not required to maintain an action grounded in negligence:
This Court was a pioneer in abolishing privity as a requirement for
recovery in a personal injury or wrongful death case. Brandenburger v.
Toyota (1973), 162 Mont. 506, 513 P.2d 268. We have not felt permanently
bound to archaic legal concepts no matter how deeply rooted they may be. We
view privity to be a concept having proper application in the area of contract
law. There seems to be no sound public policy argument for extending its
application to tort.
Hawthorne v. Kober Const. Co., 196 Mont. 519, 523, 640 P.2d 467, 469 (1982).
¶85 Consistent with Hawthorne, we have rejected the privity of contract defense in a
variety of contexts. See e.g. Tynes v. Bankers Life Co., 224 Mont. 350, 359-60, 730 P.2d
1115, 1121 (1986) (insurer liable in tort to insured’s father, notwithstanding the absence of
privity); Thayer v. Hicks, 243 Mont. 138, 149, 793 P.2d 784, 791 (1990) (accountant liable to
third parties who he knows intend to rely upon his work product); Jim’s Excavating Service
v. HKM Assocs., 265 Mont. 494, 502-06, 878 P.2d 248, 252-55 (1994) (project engineer or
architect liable to third parties who foreseeably may rely on the information supplied by the
engineer or architect); Turner v. Kerin & Assocs., 283 Mont. 117, 125-26, 938 P.2d 1368,
1373-74 (1997) (engineering firm liable to any party who holds or succeeds to a security
interest in the property serviced by the firm); Watkins Trust v. Lacosta, 2004 MT 144,
¶¶ 21-22, 321 Mont. 432, 92 P.3d 620 (drafting attorney owes duty to nonclient beneficiaries
named in the drafted instrument).
¶86 Furthermore, this Court more recently explained that
36
Hawthorne, Tynes, Thayer, Jim’s Excavating, Turner, and Rhode [v. Adams,
1998 MT 73, 288 Mont. 278, 957 P.2d 1124,] reflected the demise of the
“privity of contract” requirement historically imposed upon a plaintiff seeking
to hold a defendant liable for professional malpractice. Indeed, we indicated
in Jim’s Excavating that this requirement had been “abolish[ed].” See Jim’s
Excavating, 265 Mont. at 502, 878 P.2d at 253 (referring to “the established
law in Montana abolishing the requirement of privity of contract to maintain
an action in tort”). However, none of these cases abolished the requirement
that a plaintiff in a professional malpractice action first prove that the
defendant owed her a duty of care . . . . In other words, the mere absence of a
privity requirement does not render a professional liable for the negligent
performance of a contract to any and all third parties. To the contrary, in
recognizing tort liability in the absence of privity, we have concomitantly
limited the class of plaintiffs to identifiable third parties (typically, those who
are known or are reasonably foreseeable by the professional, see Thayer, 243
Mont. at 149, 793 P.2d at 791; Jim’s Excavating, 265 Mont. at 506, 878 P.2d
at 255).
Redies v. ALPS, 2007 MT 9, ¶ 50, 335 Mont. 233, 150 P.3d 930.
¶87 The question, then, “is not whether [the professional] owes a duty of care to third
parties but, rather, just how far the duty extends.” Thayer, 243 Mont. at 144, 793 P.2d at
788. In this regard, we have recognized the following possible approaches.
¶88 1. Prosser’s Standard. In Prosser, The Law of Torts § 93, at 622, 623 (4th ed., West
1971), Professor Prosser states:
[B]y entering into a contract with A, the defendant may place himself in such a
relation toward B that the law will impose upon him an obligation, sounding in
tort and not in contract, to act in such a way that B will not be injured. The
incidental fact of the existence of the contract with A does not negative the
responsibility of the actor when he enters upon a course of affirmative conduct
which may be expected to affect the interests of another person. [Emphasis
added.]
. . .
37
. . . [T]here are situations in which the making of the contract creates a
relation between the defendant and the promisee, which is sufficient to impose
a tort duty of reasonable care. By the same token, there are situations in which
the making of a contract with A may create a relation between the defendant
and B, which will create a similar duty toward B, and may result in liability for
failure to act.
¶89 We adopted this standard in Hawthorne, 196 Mont. at 523-24, 640 P.2d at 470, and
held that a subcontractor may assert negligence claims against the general contractor’s steel
supplier. We observed that “by entering into a contract with [the general contractor], [the
steel supplier] has placed itself in such a relation toward [the subcontractor], that the law will
impose upon [the steel supplier] an obligation, sounding in tort, to act in such a way that [the
subcontractor] will not be injured.” Id. at 524, 640 P.2d at 470. We have since applied
Prosser’s standard in subsequent cases. See e.g. Tynes, 224 Mont. at 359-60, 730 P.2d at
1121; Jim’s Excavating, 265 Mont. at 502, 506, 878 P.2d at 253, 255; Turner, 283 Mont. at
125-26, 938 P.2d at 1373-74.
¶90 2. The Thayer Standards. Meanwhile, in Thayer, we addressed the issue of “[t]o
what extent does an accountant owe a duty of care to third parties with whom he is not in
privity?” 243 Mont. at 144, 793 P.2d at 788. At the outset, we observed:
While some jurisdictions adhere to the rule that an accountant may not
be held liable in negligence to parties with whom he is not in privity of
contract, the modern trend allows recovery to non-clients in certain instances.
The question most courts grapple with today is not whether an accountant
owes a duty of care to third parties but, rather, just how far the duty extends.
In dealing with this issue, courts have employed three different approaches.
The first approach limits the duty of care to those third parties who are
actually known to the accountant, the second limits the duty to those who are
actually foreseen and the third expands the duty to all those who are
reasonably foreseeable.
38
Id. (emphases added, citations omitted). We then explained these three approaches.
¶91 2a. Near Privity (“actually known”). In Ultramares Corp. v. Touche, 174 N.E. 441
(N.Y. 1931), the court limited an accountant’s duty of care to those in privity of contract
with the accountant or those whose bond was so close as to approach that of privity. In
Credit Alliance Corp. v. Arthur Andersen & Co., 483 N.E.2d 110, 115 (N.Y. 1985), the court
held that “a relationship ‘so close as to approach that of privity’ [Ultramares] remains valid
as the predicate for imposing liability upon accountants to noncontractual parties for the
negligent preparation of financial reports.” The Credit Alliance court delineated three factors
to guide courts in determining whether this “near privity” bond exists: (1) the accountants
must have been aware that the financial reports were to be used for a particular purpose or
purposes; (2) in the furtherance of which a known party or parties was intended to rely; and
(3) there must have been some conduct on the part of the accountants linking them to that
party or parties, which evinces the accountants’ understanding of that party or parties’
reliance. Id. at 118; see also Thayer, 243 Mont. at 144-45, 793 P.2d at 788.
¶92 2b. Restatement (Second) of Torts § 552 (1977) (“actually foreseen”). The
Restatement expands the “known third party” rule of Credit Alliance. It provides:
(1) One who, in the course of his business, profession or employment, or in
any other transaction in which he has a pecuniary interest, supplies false
information for the guidance of others in their business transactions, is subject
to liability for pecuniary loss caused to them by their justifiable reliance upon
the information, if he fails to exercise reasonable care or competence in
obtaining or communicating the information.
39
(2) Except as stated in Subsection (3), the liability stated in Subsection (1) is
limited to loss suffered
(a) by the person or one of a limited group of persons for whose benefit
and guidance he intends to supply the information or knows that the recipient
intends to supply it; and
(b) through reliance upon it in a transaction that he intends the
information to influence or knows that the recipient so intends or in a
substantially similar transaction.
(3) The liability of one who is under a public duty to give the information
extends to loss suffered by any of the class of persons for whose benefit the
duty is created, in any of the transactions in which it is intended to protect
them.
Unlike the “near privity” approach, § 552 does not require the accountant to actually know
the identity of the specific third party and the particular transaction before liability will lie.
Section 552 requires only that the accountant intend or foresee that members of a limited
class will rely on his representations in determining whether to enter into a transaction with
the audited entity, and the transaction the parties enter into must be of a type actually
foreseen by the accountant. See Thayer, 243 Mont. at 146, 793 P.2d at 789.
¶93 2c. Ordinary Negligence Rules (“reasonably foreseeable”). Some jurisdictions
have extended an accountant’s duty to third parties beyond the “actually foreseen” class of
§ 552. These jurisdictions apply ordinary negligence rules when dealing with the question of
the scope of liability, holding that an accountant owes a duty to all who might reasonably
and foreseeably obtain and rely upon the accountant’s work product. See Thayer, 243 Mont.
at 146, 793 P.2d at 789 (citing cases); see also Jim’s Excavating, 265 Mont. at 516-17, 878
P.2d at 261 (Trieweiler, J., specially concurring).
40
¶94 2d. Thayer’s Ultimate Approach. After discussing these three approaches, we
observed that “[i]n the present case, as in Credit Alliance, the accountant actually knew that a
specific third party would obtain and rely upon the audit in question.” Thayer, 243 Mont. at
147, 793 P.2d at 790. Thus, because the facts met the strictest of the three formulations of an
accountant’s duty of care to nonclients (i.e., the “near privity” standard), we saw “no need to
adopt a more liberal standard at this time.” Id. at 146, 793 P.2d at 789. We instead applied
“a modified version of the Credit Alliance rule.” Id. Specifically, we held that an accountant
may owe a duty of care to third parties “only if the accountant actually knows that a specific
third party intends to rely upon his work product and only if the reliance is in connection
with a particular transaction or transactions of which the accountant is aware when he
prepares the work product.” Id. at 149, 793 P.2d at 791. Accordingly, we adopted in Thayer
the strictest approach that was necessary to resolve the case, but we did not preclude the
possibility that a broader standard could apply under a different set of facts.
¶95 3. The Modified § 552 Standard. In Jim’s Excavating, the plaintiff (JES), a
construction contractor, filed suit against the defendant (HKM), an engineering firm, over
the negligent preparation of plans and specifications relating to a water transmission
pipeline. In defense, HKM first argued that JES’s negligence claim failed because HKM had
been retained by a different entity and, thus, there was no contractual privity between JES
and HKM. We rejected this argument outright, noting that the requirement of privity to
maintain an action in tort had been “abolish[ed].” Jim’s Excavating, 265 Mont. at 502, 878
P.2d at 253. HKM then relied on Thayer (as Eide does here) for the proposition that there
41
has to be some sort of connection or “quasi-privity” before tort liability can be imposed on a
professional. We acknowledged that the facts before us did not meet the test adopted in
Thayer because HKM’s negligent act occurred before HKM “actually knew” that JES,
specifically, would be relying on the negligently prepared plans and specifications. But we
concluded that “HKM should not escape from liability simply because it did not actually
know JES would receive the bid, when it knew that some contractor would be relying on its
plans and specifications.” Id. at 504, 878 P.2d at 254.
¶96 To that end, we applied Restatement (Second) of Torts § 552—which this Court had
adopted 11 years earlier in State Bank of Townsend v. Maryann’s, Inc., 204 Mont. 21, 33-35,
664 P.2d 295, 301-02 (1983)—though we modified the § 552 test in a significant way. As
noted, § 552 limits liability to only those persons who the accountant intended or actually
foresaw would rely on his representations in a foreseen transaction. We held in Jim’s
Excavating, however, that a third-party contractor may recover from a project engineer or
architect when the design professional “knew or should have foreseen that the particular
plaintiff or an identifiable class of plaintiffs were at risk in relying on the information
supplied.” 265 Mont. at 506, 878 P.2d at 255 (emphases added). The critical question is
whether the plaintiff is someone who the professional knew or should have foreseen was at
risk in relying on the information or services provided.
¶97 4. Prosser’s Standard and the Modified § 552 Standard Combined. Three years
later, in Turner, the district court held that the plaintiff (Turner) could not state a claim under
the modified § 552 standard because he could not prove that the engineering firm (Kerin)
42
“should have foreseen that the particular plaintiff, or an identifiable class of plaintiffs were at
risk in relying on the information supplied.” See Turner, 283 Mont. at 125, 938 P.2d at
1374. We disagreed. After quoting both Prosser’s Standard and our holding in Jim’s
Excavating, we reasoned:
In the present case, by contracting with the owners to perform
engineering work on the property, Kerin placed itself in a relation toward any
party who held a security interest in the property that the law imposed upon
him an obligation, sounding in tort and not in contract, to act in such a way
that the security interest would not be injured [Prosser’s Standard]. Kerin
knew or should have foreseen that if, contrary to his representations, he relaid
with pipe not meeting requisite pipe standards, he would diminish the value of
the property and thereby impair the value of the property as security [the
modified § 552 standard]. It was foreseeable that failure to lay the proper pipe
would damage an identifiable class of plaintiffs; i.e. those who held an interest
in the property, both mortgagors and mortgagees [the modified § 552
standard]. The fact that Kerin could not specifically foresee Turner’s entry
into the picture does not change the fact that Turner is a member of an
identifiable class of plaintiffs, that is, he is a mortgagee by virtue of having
purchased mortgages which were in existence at the time of Kerin’s work and
which, allegedly, have not been satisfied.
Id. at 126, 938 P.2d at 1374 (emphases added).
¶98 Summary. The question, again, “is not whether [the professional] owes a duty of
care to third parties but, rather, just how far the duty extends.” Thayer, 243 Mont. at 144,
793 P.2d at 788. As Glacier points out, and as our post-Thayer decisions confirm, we have
already expanded this duty beyond the “near privity” standard we applied in Thayer. Since
then, we have applied a modified, broader version of § 552 and have also applied the Prosser
Standard. The progression in our caselaw, with regard to a professional’s duty of care to
noncontractual third parties, has clearly been toward extending that duty to include those
43
who the professional knew or should have foreseen were at risk in relying on the information
or services provided. All that is left to do is to make that holding explicit with respect to
accountants—something we did not do in Thayer only because we did not have to on the
facts presented there.
¶99 Returning to Glacier’s claim, it is important to reiterate that Glacier is not advocating
for the application of § 552, and Glacier is certainly not pursuing a so-called “§ 552 claim.”
Rather, Glacier is pursuing a professional negligence claim and is arguing for the
“reasonably foreseeable plaintiff” standard or, at a minimum, the “knew or should have
foreseen” version of § 552 that we adopted in Jim’s Excavating. In my view, Glacier’s
argument is well-taken because the unmodified version of § 552 (the “intended or actually
foreseen” test) is an unduly restrictive standard to the extent it precludes Glacier’s claim
against Eide in this case. I would apply the standard that we applied to engineers and
architects and hold that an accountant owes a duty of care to a person or entity who the
accountant “knew or should have foreseen” was at risk in relying on the information
supplied. Jim’s Excavating, 265 Mont. at 506, 878 P.2d at 255.
¶100 Here, Eide held itself out as a Top 25 accounting firm in the nation, in business since
1917. It provided audits of IMC’s financial statements and issued “unqualified opinions”
regarding those financial statements. Eide purportedly did so in accordance with generally
accepted accounting principles—although Glacier’s expert (Larry Barton), a certified public
accountant, reviewed the audit work papers produced by Eide from 2001 through 2006 and
concluded (as stated in his affidavit) that Eide had breached the professional standards
44
applicable to CPAs. Eide knew that these audits were required by FCB for purposes of
determining whether and how much credit should be extended to IMC. Eide knew or should
have foreseen that a prospective purchaser of FCB or FCB’s holding company (CDC) would
review and rely on the IMC audits as part of its due diligence. In this regard, Barton stated
that a Top 25 CPA firm like Eide “would have information and reason to know” that the
financial institutions with which IMC did business, including their holding companies, are
often bought and sold. Moreover, Eide “would have reason to know or expect,” and in fact
“knew or should have known,” that a company (such as Glacier), which was considering
acquiring those financial institutions with which IMC did business, “would likely review and
rely upon documents maintained in the files of those financial institutions, particularly the
audited financial statements of the companies, like IMC, with which such financial
institutions have on-going, multi-million dollar lending relationships.” Indeed, Eide actually
did know when it issued the June 2006 report that Glacier had agreed to acquire CDC and,
thus, would be relying on the IMC audits—a fact the Court chooses to ignore.3 As we stated
in Jim’s Excavating, a third party may recover in tort from a project engineer or architect
who “knew or should have foreseen that the particular plaintiff or an identifiable class of
plaintiffs were at risk in relying on the information supplied.” 265 Mont. at 506, 878 P.2d at
255. While Eide seeks a special exemption from this standard, Eide has provided no
3
John Jacobsen (an Eide CPA) admits in his affidavit that Glacier’s purchase was
announced in April 2006. But he then attempts to hide behind the fact that “[a]t that time,
Eide Bailly was merely the auditor of IMC”—a defense premised entirely on privity of
45
compelling reason why the duty applicable to other professionals should not also apply to
accountants.
¶101 The Court engages in some shoveling of smoke and a little sleight of hand, asserting
that Jim’s Excavating “adopted and applied the principles of [§ 552]” and that the Court’s
analysis herein “follows the analysis adopted in Jim’s Excavating.” Opinion, ¶ 45. I
authored the Jim’s Excavating opinion, however, and can state with certainty that the Court’s
analysis in the present case is not at all faithful to the analysis in Jim’s Excavating. For one
thing, we did not remake JES’s four-element professional negligence claim into a five-
element negligent misrepresentation claim, as the Court does to Glacier here. See Jim’s
Excavating, 265 Mont. at 500-01, 878 P.2d at 251-52 (describing JES’s professional
negligence claim). Furthermore, contrary to the Court’s revisionist history, we did not apply
§ 552’s “intended or actually foreseen” standard which the Court imposes on Glacier today.
Rather, we held that a professional’s duty of care extends to those who the professional
“knew or should have foreseen” were at risk in relying on the information supplied. Id. at
506, 878 P.2d at 255.4 Obviously, a duty of care limited to what the professional “intended”
or “actually foresaw” is much narrower than a duty of care that includes what the
professional “knew” or “should have foreseen.”
contract which, as explained above, this Court has consistently rejected since the early
1970s.
4
Specifically, we stated: “Thus, we hold that a third party contractor may
successfully recover for purely economic loss against a project engineer or architect when
the design professional knew or should have foreseen that the particular plaintiff or an
identifiable class of plaintiffs were at risk in relying on the information supplied.” Id.
46
¶102 Nevertheless, in quoting from this part of the Jim’s Excavating opinion, the Court
emphasizes the words “the particular plaintiff or an identifiable class of plaintiffs” and then
asserts that it has “turned to principles set forth in § 552” in order to define this class of
plaintiffs. Opinion, ¶ 45. What the Court fails to acknowledge, however, is that we already
defined the class in Jim’s Excavating. As stated, it consists of those persons who the
professional knew or should have foreseen were at risk in relying on the information
supplied. 265 Mont. at 506, 878 P.2d at 255. Of course, what the professional knew or
should have foreseen will depend on the surrounding circumstances. But in the present case,
Glacier has come forward with evidence, sufficient in my view to withstand summary
judgment against it, that Eide should have foreseen that a prospective purchaser of FCB
would review and rely on the pre-2006 IMC audits as part of its due diligence, and that Eide
did know that Glacier would review and rely on the 2006 IMC audit.
¶103 The Court resorts to subtle scare tactics—employing terms such as “unforeseen
liability exposure” and “an infinitely large class” of plaintiffs—in rejecting Barton’s
affidavit. Opinion, ¶¶ 34, 38. I am not persuaded, however, that the “knew or should have
foreseen” standard would lead to the “unforeseen” and “infinitely large” liability exposure
feared by the Court. We have applied this standard to engineers and architects, and those
industries have in no way collapsed as a result.
¶104 I also am not persuaded by the Court’s assertion that “Glacier’s reliance on the audit
reports in its merger transaction constitutes a use different than the use for which Eide had
supplied the information.” Opinion, ¶ 43. This is absurd. The obvious “use” of the audit
47
reports by all involved was to obtain an accurate assessment of IMC’s ability to pay back its
loans from FCB. Certainly, a prospective buyer of FCB would review the reports for that
very purpose.
¶105 Finally, it is contrary to public policy to hold that the purchaser of FCB cannot
maintain an action in tort against Eide for the negligent preparation of the IMC audit reports.
As Glacier points out, an independent auditor serves not only the client, but also the
foreseeable users of its work product. Cf. United States v. Arthur Young & Co., 465 U.S.
805, 817-18, 104 S. Ct. 1495, 1503 (1984). Indeed, the practice of public accounting is
defined as “performing . . . for a client . . . one or more types of services involving the use of
accounting or auditing skills,” including “the issuance of reports or financial statements on
which the public may rely.” Section 37-50-101(10)(a), MCA (emphasis added). Moreover,
an accountant “who, because of negligence, . . . issues or permits the issuance of any false
statement of the financial transactions, standing, or condition of any firm or individual
business undertaking is guilty of a misdemeanor . . . .” Section 37-50-401, MCA (emphasis
added). Montana’s public policy is reflected in these statutory provisions, see First Bank
(N.A.)-Billings v. Transamerica Ins. Co., 209 Mont. 93, 96, 679 P.2d 1217, 1219 (1984), and
these policy considerations call for application of the “knew or should have foreseen”
standard. An accountant who is negligent in the preparation of reports on the financial
condition of a firm should not be permitted to hide behind the defense that “I did not intend,
nor did I foresee, that a future prospective buyer of that firm would look at and rely on the
reports I negligently prepared concerning the firm’s financial standing.” Such an assertion—
48
which Eide shamelessly employs in the present case—is preposterous and defeats the intent
of Montana’s statutes governing accountants. Eide failed to discover and disclose that
Hakala was cooking IMC’s books to the tune of $7.2 million, but Eide nevertheless issued
“unqualified opinions” regarding IMC’s financial statements. Eide’s defense to Glacier’s
legitimate reliance on the IMC audits smacks of Arthur Andersen’s when Enron folded.
¶106 In short, § 552’s “intended or actually foreseen” standard limits an accountant’s
liability too narrowly. The better standard, which is consistent with the public policy of this
state, is the one that we have already adopted and applied to other professionals: the “knew
or should have foreseen” standard. I would hold that the District Court erred in applying the
outmoded “near privity” standard and that Glacier is entitled to a trial on its professional
negligence claim under the “knew or should have foreseen” standard.
Issue 3
¶107 Turning now to Issue 3, I agree with the Court that the District Court erred in
dismissing Western’s fraudulent misrepresentation claim. Opinion, ¶¶ 56-62. I disagree,
however, with the Court’s conflation of Western’s professional negligence claim into its
negligent misrepresentation claim. Opinion, ¶ 64. As the Court acknowledges at the outset,
Western’s amended complaint contains both a “professional negligence” claim and a
“negligent misrepresentation” claim, which are set out as two separate counts. See Opinion,
¶ 56. It is unfair and unacceptable for the Court to conflate these two counts into one “§ 552
claim.”
49
¶108 The case proceeded to trial on Western’s professional negligence claim, and the court
erroneously instructed the jury based on the obsolete “near privity” standard applied in
Thayer. Western presents a persuasive argument that this error was not harmless. Thus, I
would reverse and remand for a new trial on this claim.
¶109 In addition, the Court explains in ¶¶ 21-24 that a negligent misrepresentation claim is
distinct from a professional negligence claim. It follows, therefore, that the District Court
erred in dismissing Western’s negligent misrepresentation claim on the ground that it simply
“duplicated” Western’s professional negligence claim. See Opinion, ¶ 63. I therefore agree
with the Court’s decision to remand for a new trial on the negligent misrepresentation claim.
Opinion, ¶ 67.
Conclusion
¶110 Rather than clarify the scope of a professional’s liability to noncontractual third
parties, the Court only muddles our jurisprudence in this area even further. With today’s
decision, there are at least eight standards recognized in our caselaw:
1. the “near privity” test (Thayer, citing Credit Alliance)
2. the “modified version of the Credit Alliance rule” test (Thayer)
3. the § 552 “intended or actually foreseen” test (Thayer and today’s decision)
4. the modified § 552 “knew or should have foreseen” test (Jim’s Excavating)
5. Prosser’s “expected to affect the interests of another person” test (Hawthorne and
Tynes; also discussed in Jim’s Excavating)
6. the combined Prosser and modified § 552 test (Turner)
7. the Trask multi-factor balancing test (Rhode and Redies5)
5
See Rhode v. Adams, 1998 MT 73, ¶ 17, 288 Mont. 278, 957 P.2d 1124; Redies v.
ALPS, 2007 MT 9, ¶¶ 44, 50, 335 Mont. 233, 150 P.3d 930. The Trask test addresses
whether an attorney owes a duty of care to nonclients.
50
8. the “reasonably foreseeable plaintiff” test (§ 27-1-701, MCA, and ordinary
negligence rules)
How a litigant is to know which of these standards applies in a given case we are not told.
Nor are we told why accountants presently enjoy greater protection for their negligent acts
and omissions which injure third parties than do engineers (Jim’s Excavating and Turner),
insurers (Tynes), and attorneys (Watkins Trust and Redies). What is clear, however, is that
this Court has no qualms about remaking a plaintiff’s cause of action into whatever claim
this Court wants it to be and then applying whichever standard the Court believes suits the
occasion.
¶111 I therefore dissent from the Court’s decision as to Issue 1. Glacier alleged a
professional negligence claim, not a negligent misrepresentation claim. In determining the
issue of duty, I would apply the “knew or should have foreseen” standard that we apply to
engineers and architects. Doing so, I conclude that prospective purchasers of FCB (such as
Glacier) are an identifiable class of plaintiffs which Eide knew or should have foreseen were
at risk in relying on Eide’s “unqualified opinions” regarding IMC’s financial statements.
Accordingly, I would hold that the District Court erred in granting summary judgment to
Eide and that Glacier should be allowed to proceed to trial on its professional negligence
claim.
¶112 As to Issue 2, I concur in the Court’s resolution of this issue.
¶113 Lastly, as to Issue 3, I concur in the Court’s decision to reverse the District Court’s
dismissal of Western’s fraudulent misrepresentation claim. I also concur in the Court’s
51
decision to remand for a trial on Western’s negligent misrepresentation claim. But I dissent
from the Court’s conflation of Western’s professional negligence and negligent
misrepresentation claims. Western alleged these as separate counts; and because the District
Court rendered erroneous jury instructions on the professional negligence claim, I would
reverse and remand for a retrial on this claim.
¶114 In closing, plaintiffs should be aware that, henceforth, when they assert a professional
negligence claim in district court, on appeal this Court may sua sponte morph that claim into
a negligent misrepresentation claim. Accordingly, plaintiffs should plead and argue their
cases with enough flexibility to cover whatever action this Court happens to land on.
Glacier’s complaint, a copy of which is included below, shows the sort of pleading that may
result in the remaking of a professional negligence claim into a negligent misrepresentation
claim by this Court.
¶115 I concur and dissent.
/S/ JAMES C. NELSON
52
Appendix
(Pages 1 to 7 of Glacier’s Complaint)
53
54
55
56
57
58
59
60
Western Security Bank v. Eide Bailly LLP
Court: Montana Supreme Court
Date filed: 2010-12-30
Citations: 2010 MT 291, 359 Mont. 34
Copy CitationsCombined Opinion