No. 86-458
IN THE SUPREME COURT OF THE STATE OF MONTANA
1987
YELLOWSTONE CONFERENCE OF THE
UNITED METHODIST CHURCH,
Plaintiff and Appellant,
-VS-
D.A. DAVIDSON, INC., LARRY DOVER,
WARREN DREW and DICK HUGHES,
Defendants and Respondents.
APPEAL FROM: District Court of the Fourth Judicial District,
In and for the County of Missoula,
The Honorable James B. Wheelis, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Paterson, Marsillo, Tornabene & Schuyler; Charles J.
Tornabene argued, Missoula, Montana
For Respondent:
Mulroney, Delaney & Scott; Dexter L. Delaney argued
for D.A. Davidson, Dover and Hughes, Missoula, Montana
Milodragovich, Dale & Dye; Lon J. Dale, Missoula,
Montana
David Rodli argued for Drew, Missoula, Montana
Submitted: May 28, 1987
Decided: September 10, 1987
Filed:
. ~-
Clerk
Mr. Chief Justice J. A. Turnage delivered the Opinion of the
Court.
Plaintiff Yellowstone Conference of the United Method-
ist Church (Church) appeals an order of the Fourth Judicial
District, Missoula County, dismissing its claim following
presentation of the Church's case, for failure to file the
claim within the required time period. We affirm.
The following issues are raised on appeal:
1. Did the District Court abuse its discretion when
the court denied the Church's motion to amend its complaint?
2. Did the District Court err when it held that
S 27-2-204 (1), MCA, barred the Church's cause of action?
3. Did the District Court abuse its discretion when it
failed to specifically separate its findings of fact and
conclusions of law?
Plaintiff and appellant Church, a Montana corporation,
maintained financial accounts with funds received from local
Methodist church donations. Donations received by the Church
were disbursed to fund various Methodist church programs,
including the clergymen's pension fund. The Church's monthly
balance in these accounts varied greatly, fluctuating between
$20,000 and $300,000. Annually, $200,000 to $500,000 flowed
through the Church's accounts.
Defendant Larry Dover was hired in 1969 as the Church's
treasurer. Dover's duties included bookkeeping, payment of
bills and. a general responsibility for the Church's financial
accounting. At the time Dover became the Church's treasurer,
he was employed as a loan officer by Midland National Bank.
Dover had worked for Midland since 1955. Dover later moved
to Missoula and became employed by First Bank Southside.
Dover kept the Church funds invested at First Bank Southside.
In 1970 and 1971, Dover's annual income was between $10,000
and $11,000.
In 1971, Dover invested with D. A. Davidson $20,000 of
the Church's funds. Dover testified that he wanted to become
a "hero" by investing the Church's money in stocks and secu-
rities and thereby increasing the Church's pension funds.
Later, Dover opened a $20,000 account under the name of "CB
Radio Club of America."
From 1972 to 1975, defendant Warren Drew was D. A.
Davidson's account representative. Drew never requested
Church authorization from Dover to invest Church funds. Drew
encouraged Dover to invest in "speculative stocks." In 1974,
50 percent of the Church's portfolio was invested in specula-
tive stock. In 1977, Dover personally loaned Drew $10,000
that Dover had wrongfully taken from the Church.
In July 1976, defendant Richard Hughes became D. A.
Davidson's account representative. Hughes maintained the
Church's high investment ratio of speculative stock. In 1976
Dover invested $40,000 into a Missoula subdivision project
located on Grant Creek. Additionally, Dover opened an ac-
count with D. A. Davidson for each of his three children.
His children's investment of Church funds totaled approxi-
mately $30,000.
In 1974, Dover requested the Council of Finance and
Administration (COFA) to pass resolution granting Dover
authority to "sell some stocks." Reverend Hugh Herbert,
Chairman of COFA, signed approximately twenty stock author-
ization forms. In January 1978, Dover contacted Reverend
Hugh Herbert and again requested that Herbert, as chairman of
COFA, give approval authorizing Dover to invest Church funds
in stocks and securities. Reverend Herbert granted Dover's
request and Dover invested additional Church funds.
From 1971 to 1978, the Church employed the accounting
firm of Galusha, Higgins, and Galusha to annually review the
Church's finances. Following the audit, the Galusha firm
customarily presented its findings to Dover. Dover passed
the audit information on to COFA. Dover did not present the
audit itself, but rather gave general information concerning
the Church's financial condition. In June 1978, Dover failed
to present an audit statement to COFA at the annual meeting.
Dover assured Reverend Herbert and Bishop Wheatley, and the
members of COFA that the audit statement would be forthcom-
ing. Dover also spoke with Reverend Herbert on numerous
occasions during 1978. Dover told Herbert the Church was
experiencing financial difficulties but assured Herbert by
year's end, "[Tlhis would all be straightened out."
In December 1978, Dover contacted Herbert and stated
the Church was facing serious financial problems "due to the
poor stock market." Herbert then contacted Bishop Wheatley
and, the new chairman of COFA, Reverend Wilbur Whanger on or
about December 15, 1978. Herbert notified them of Dover's
improprieties and the resulting financial problems. In
January 1979, COFA met to discuss the Church's financial
problems. At that time, Dover told COFA that he had both
invested and wrongfully taken Church funds. Additionally,
Dover told COFA that many of the Church's investments had
failed. As a result of the January 1979 COFA meeting, Dover
was terminated as the Church's treasurer. Dover later plead-
ed guilty to felony theft, § 45-6-301 (1) (a), MCA.
Appellant Church claims that D. A. Davidson, and agents
Drew and Hughes acted negligently and fraudulently in han-
dling the Church's investments. The Church contends that
respondents: (1) failed to require proper authorization to
invest Church funds; (2) invested a large proportion of
Church funds into volatile and speculative stocks in viola-
tion of recognized investment procedures; and (3) frequently
changed or "churned" the Church's investments to increase
brokerage fees. As a result, the Church lost in excess of
$109,000 in stock market investments and in excess of $62,000
in brokerage fees.
Appellant Church filed its original complaint on Janu-
ary 12, 1982, for negligence, a tort which is governed by
statute of limitations set forth in 5 27-2-204(1), MCA. The
District Court found, in its April 29, 1986, amended order:
[Tlhat plaintiff [Church] knew in 1979
that Dover had been taking funds and the
last conversion had occurred on December
7, 1977. In December 1978, plaintiff
knew that some of the money entrusted to
Dover had been converted according to
the loss report received by plaintiff's
insurance carrier and admitted into
evidence at trial.
The court's April 18, 1986, opinion and order dismissed the
Church's complaint against all defendants.
Appellant Church, two weeks prior to trial and more
than four years after filing the original complaint, filed a
pretrial order by which the Church proposed to amend its
complaint. The Church generally alleged securities fraud
claiming D. A. Davidson and its agents Drew and ~ u g h e svio-
lated the following laws and rules:
1) Securities Act of Montana;
2) Securities and Exchange Act of 1934;
3) Securities Act of 1933;
4) National Association of Securities Dealers Rule of
Fair Practice;
5) Rule of the Board of Governors of the Pacific Stock
Exchange, Inc. ;
6) Midwest Stock Exchange Rules;
7) Montana Uniform Management of Institutional Funds
Act; and
8) Montana Consumer Protection Act.
The court held that the Church, by including these
claims of statutory violation, was " [S]eeking to amend its
original action, expanding the previous negligence action
into an action for securities fraud, one couched in the
broadest terms."
ISSUE I
Did the court abuse its discretion when it denied
appellant's pretrial motion to amend the pleadings?
The standard of review employed by this Court when
reviewing a District Court's denial of a motion to amend the
pleadings is whether the District Court abused its discre-
tion. Betor v. Chevalier (1948), 121 Mont. 337, 193 P.2d
374, 378.
Rule 15 (a), M. R. Civ. P. , provides, " [A] party may amend
his pleading only by leave of court or by written consent of
the adverse party; and leave shall be freely given when
justice so requires . . ."
In Prentice Lumber Co. v. Hukill (1972), 161 Monte 8,
17, 504 P.2d 277, 282, citing Foman v. Davis (1962), 371 U.S.
178, 83 S.Ct. 227, 9 L.Ed.2d 222, 226, we held it is error,
in the absence of any declared or apparent reason, for a
District Court to deny leave to amend the complaint.
... In the absence of any apparent or
declared reason--such as undue delay,
- -
bad faith or dilatory motive on the part
of the movant, repeated failure to cure
deficiencies by amendments previously
allowed, undue prejudice - - opposing
to the
party by virtue of allowance of the
amendment, futility of the amendment,
etc.--the leave sought should, as the
rules require, be "freely given. " . ..
[Emphasis added.]
Prentice Lumber, 161 Mont. at 17, 504 P.2d at 282.
In the case at bar, plaintiff Church, two weeks prior
to trial and more than four years after filing the original
complaint attempted to amend the pleadings. The Church
sought to introduce a securities fraud cause of action in
addition to its negligence claim. The District Court found
that plaintiff was attempting to introduce a wholly different
cause of action. Secondly, the court found plaintiff was
attempting to extend the three-year statute of limitations,
S 27-2-204 (I), MCA, by amending its complaint to include
securities fraud. Finally, the court found the Church's
accounting audit and evidence gathered through discovery
served to place the Church on notice of its cause of action.
In McGwire v. Nelson (1973), 162 Mont. 37, 42, 508 P.2d
558, 560, we held it was an abuse of discretion to grant an
amendment to the pleadings on the eve of trial, when the
amendment constituted a different cause of action. The
Church's amended complaint, offered after four years of
discovery and two weeks prior to trial, was properly denied
by the District Court. The evidence also supports the Dis-
trict Court's finding that defendants would be unduly preju-
diced by allowing the amended complaint. Therefore, in
accord with McGwire and Prentice Lumber Co. v. Hukill (1972),
161 Mont. 8, 17, 504 P.2d 277, 282, the court properly denied
defendant's motion for an amended complaint.
ISSUE 11
Did the District Court err when it held S 27-2-204(1),
MCA, barred the Church's complaint?
Section 27-2-204 (1), MCA, provides: "The period de-
scribed for commencement of an action upon liability not
founded upon an instrument in writing is within three years."
This Court has generally held that in non-malpractice tort
actions, the statute of ]-imitations begins to run on the date
of the plaintiff's injury. Kerrigan v. O'Mera (1924), 71
Mont. 1, 7, 227 P. 819, 821.
"[Tlhe fact that a party with a cause of action has no
knowledge of his rights, or even the facts out of which the
cause arises, does not delay the running of the statute of
limitations until [the party] discovers the facts or learns
of his rights under those facts." Bennett v. Dow Chemical
(Mont. 1986), 713 P.2d 992, 994, 43 St.Rep. 221, citing
Carlson v. Ray Geophysical Division (1971), 156 Mont. 450,
454, 481 P.2d 327, 329.
However, when defendant's "fraudulent concealment"
prevents a plaintiff from discovering a cause of action, the
statute of limitations is generally tolled. Much v. Sturm
Ruger and Co., Inc. (D. Mont. 1980), 502 F.Supp. 743, 745.
In a non-malpractice negligence action, there must be an
affirmative act committed by the defendant, and the affirma-
tive act must be calculated to obscure the existence of a
cause of action. Much, 502 F.Supp. at 745.
A review of the record reveals that on December 9,
1978, defendant Larry Dover contacted Reverend Herbert and
Bishop Wheatley and informed them of his tortious acts and
resulting financial problems. Herbert testified he was aware
of Dover's improprieties in January 1978. The Church argu-
ably had notice years earlier when Dover in 1974 requested
and received COFA's authorization for his stock transactions.
The District Court found that the Church had notice of
Dover's wrongdoing on December 15, 1978. However, the Church
failed to file a complaint until January 12, 1982. The Church
argues that although it was aware of defendant Dover's wrong-
doing, the Church was not aware that defendant D. A.
Davidson, Inc., was fraudulently "churning" stocks and negli-
gently investing in highly speculative securities.
The Church was placed on notice to investigate
defendant's tortious acts following defendant's meeting with
Reverend Herbert and Bishop Wheatley in December 1978. The
record reveals the Church failed to properly investigate its
cause of action. Additionally, no evidence was presented to
show that defendants fraudulently concealed the fact of
injury. Much, 502 F.Supp. at 744. Plaintiff's cause of
action is barred by § 27-2-204(1), MCA.
The Church also contends the District Court erred when
it failed to apply equitable estoppel. Keneco v. Cantrell
(1977), 174 Mont. 130, 136, 568 P.2d 1225, 1228. In order to
apply equitable estoppel, the party to be estopped must have
concealed facts material to another's injury. Keneco, 174
Mont. at 136, 568 P.2d at 1228.
Defendant Dover revealed his improprieties to Church
officials in 1978. Defendant D. A. Davidson and its employ-
ees did not conceal their alleged improprieties. Therefore,
the District Court properly denied appellant's motion to
apply equitable estoppel.
ISSUE I11
Did the District Court abuse its discretion when it
failed to specifically separate findings of fact and conclu-
sions of law?
Rule 52 (a), M. R.Civ. P., provides in pertinent part: "In
all actions tried upon the facts without a jury or with an
advisory jury, the court shall find the facts specially and
state separately its conclusions of law . . ."
The Church contends that the court's failure to sepa-
rate its findings of facts and conclusions of law was preju-
dicial. Montana Power Co. v. Kravik (1980), 189 Mont. 369,
372, 616 P.2d 321, 322, provides three reasons for Rule
52 (a): ( I . ) as an aid in the trial judge's process of adjudi-
cation, (2) for purpose of res judicata and estoppel by
judgment, and (3) as an aid to the appellate court on review.
Although the District Court did not adhere to Rule
52 (a), M. R. Civ. P., appellant Church has failed to provide
this Court with evidence of undue prejudice. We hold the
District Court did not commit reversible error. However, we
caution the District Court to comply with Rule 52(a),
M.R.Civ.P.
We hold the District Court properly denied plaintiff's
motion to amend the complaint and properly dismissed its suit
for failure to file the action within the required time
period.
Affirmed.
\ ~ concur:
d
District Judge, sitting i n
place of former Justice
Frank R . Morri.son, Jr.
Mr. Justice John C. Sheehy, concurring:
The essential issue in this case is whether the District
Court should have permitted an amendment to the pleadings
under Rule 50 (a), M.R.Civ.P.
My concurrence turns essentially on the point that
allowance of the amendment would have made a completely
different lawsuit as it affected D. A. Davidson, and that
therefore the doctrine of relation back under Rule 15 should
not apply.
If the amendment had been permitted the first problem
which the District Court would have to determine is whether a
fiduciary relationship existed between D. A. Davidson and the
church. A fiduciary relationship is not automatically
established in a stockbroker-client relationship as the court
in Paine, Webber, Jackson, and Curtis, Inc. v. Adams (Colo.
1986), 718 P.2d 508, 515, pointed out. Whether a stockbroker
is a fiduciary to its customer depends on the attendant facts
and circumstances. Thus discovery in this case would have to
begin all over related to different issues of fact just on
the point of whether the stockbroker in this case was a
fiduciary of the church. Then, if the relationship was
established in the eyes of the law, it would make no
difference that Dover himself was cheating the church. The
obligation of the fiduciary would run directly to the church.
Thus, if the amendment had been allowed, the prejudice to D.
A. Davidson is evident in that a completely different kind of
lawsuit would have resulted.
In like manner, I think equitable estoppel is not
available in this case. In Kenneco v. Cantrell (19771, 174
Mont. 130, 568 P.2d 1225, we approved the use of equitable
estoppel to set aside a statute of limitations so as to
prevent hardship. The elements of equitable estoppel set out
in that case do not apply here because the question is not
the same. Equitable estoppel was used to set aside - an
applicable statute - limitations. In the case at bar, the
of
question is simply whether the amendments should have been
allowed by the District Court. If the court had allowed the
amendment, there would be no question of statute of
limitations because the amendment would bring the case within
the statute.
I therefore concur in the opinion.
%e.h,--. Justice
Mr. Justice William E. Hunt, Sr.:
I concur in the foregoing special concurrence of Mr.
Justice Sheehy.