NO. 88-58
I N THE SUPREME COURT O THE STATE OF M N A A
F OTN
1988
WALTER H . PESCHEL,
P l a i n t i f f and A p p e l l a n t ,
-17s-
WILLIAM EVAN JONES,
D e f e n d a n t and R e s p o n d e n t .
APPEAL FROM: D i s t r i c t Court of t h e Fourth J u d i c i a l D i s t r i c t ,
I n a n d f o r t h e County o f M i s s o u l a ,
The H o n o r a b l e L e i f E r i c k s o n , J u d g e p r e s i d i n g .
COUNSEL OF RECORD:
For Appellant:
M a r t i n J . E l i s o n , M i s s o u l a , Montana
L a r r y M. E l i s o n , M i s s o u l a , Montana
W i l l i a m J . P o w e l l , S p o k a n e , Washington
For Respondent:
W i l l i a m L. Crowley; Boone, K a r l b e r q & Haddon, M i s s o u l a ,
Montana
S u b m i t t e d on B r i e f s : May 2 6 , 1988
Decided: July 1 4 , 1988
Filed:
qljt
'
¶ 4 1988'
Clerk
the loan was going to be assigned to HUD. On November 10,
1979, Peschel and the contractor Martin Development entered
into a written agreement, entitled Addenda No. 1. The
agreement was signed by these two parties only and was an
attempt to cure the financing problems so as to allow
construction to continue. The Addenda agreement released and
discharged both parties from all disputes existing between
them on that date. Work resumed on the project into
December, 1979. However, when Martin Development prepared
construction loan requisition No. 13 (Draw No. 13),
Washington Mortgage refused to pay the disbursement because
it intended to reassign the construction loan to HUD. As a
result, no further construction loan draws would be
authorized and disbursed until HUD accepted the assignment
and approved the draws. Many subcontractor bills were not
paid on time and construction ceased.
Peschel filed a "complaint for damages for professional
negligence" against Jones on November 14, 1985. The
complaint alleged that the agreement negotiated by Jones,
Addenda No. 1, was inadequate and proximately caused damages
totalling $1,095,740 for increased construction costs, monies
which could not be refunded from escrow, legal fees,
accounting fees, rent impoundment charges, and an interest
rate increase incurred when forced to refinance the project.
Peschel alleged Addenda No. 1 was defective because, inter
alia, it failed to obtain consent from HUD, the contractor's
bonding company, and Washington Mortgage. Additionally, the
complaint alleged various other defects including: Jones
failed to negotiate a resolution as to the current defaults
with Washington Mortgage, failed to advise Peschel that
construction would cease unless additional parties consented,
released the contractor Martin Development from all claims,
and incorrectly advised Peschel of liability limitations.
Mr. Justice John Conway Harrison delivered the Opinion of the
Court.
~laintiff/appellant, Walter H. Peschel, appeals a
summary judgment granted in favor of defendant/respondent,
William Evan Jones. Summary judgment was granted on two
separate dates, December 11, 1986 and December 8, 1987, in
the Fourth Judicial District, Missoula County. We affirm.
In October of 1978, Walter Peschel (Peschel) was
involved in the development and construction of an apartment
complex which was to be known as the "Mountain Wood
Apartments." Peschel was the sole general partner of a
limited partnership. In June, 1978, Peschel entered an oral
agreement, known as the MacDonald Agreement, with Charles
Isaly (Isaly) for the construction of the complex. Isaly
represented the construction contractor, Martin Development
Company (Martin Development).
The principal lender was the Washington Mortgage
Company (Washington Mortgage), the loan was guaranteed by the
Department of Housing and Urban Development (HUD), and the
parties entered a HUD form construction contract June 6,
1978. The loan amount obtained from Washington Mortgage did
not include the total amount needed for construction.
Peschel desired to construct a complex of a quality which
would cost more than the guarantee obtained from HUD.
Peschel intended to personally finance the amounts above that
provided in the principal loan.
Construction of the complex began in July, 1978 and
financing problems developed shortly thereafter. Peschel
later hired defendant, William Evan Jones (Jones) an attorney
at law, to assist in negotiations regarding the financing
difficulties. On October 2, 1979, Washington Mortgage
notified Peschel that he had defaulted on his loan and that
The District Court granted a partial summary judment in
favor of defendant Jones December 11, 1986, based on a theory
of collateral estoppel. The District Court granted summary
judgment for Jones as to the remainder of the complaint
December 8, 1987, holding that the statute of limitations
prohibited the remaining issues from going forward.
Peschel raises two issues on appeal:
1. Did the District Court correctly determine that
defendant was entitled to partial summary judgment based on
collateral estoppel?
2. Did the statute of limitations prohibit plaintiff
from his cause of action?
1. Collateral Estoppel.
The facts surrounding this case are somewhat involved
and have spawned a significant amount of litigation. In
Martin Development Co. v. Keeney Construction Co. (Mont .
1985), 703 P.2d 143, 42 St.Rep. 752, we affirmed a ~istrict
Court award of $40,000 to Martin Development for lost profits
and against Peschel . We also held that the Addenda
represented the entire agreement of the parties and reversed
an award of attorney's fees and an award of interest based on
lost profits. Martin Development Co., 703 P.2d at 148, 42
St.Rep. at 758. In the present case, plaintiff Peschel is
bound by the facts and law as established by this prior case.
Defendant Jones entered a motion for summary judgement
on November 10, 1986. Jones alleged that portions of the
acts or omissions alleged by Peschel to constitute legal
malpractice had been effectively determined by prior
litigation and that Jones was entitled to summary judgment as
to those acts or omissions according to the theory of
collateral estoppel. The District Court granted partial
summary judgment December 11, 1986, and denied a motion by
plaintiff Peschel to alter or amend the partial summary
judgment February 9, 1987. The District Court also issued
two orders clarifying the extent of the partial summary
judgment on June 5, 1987 and August 12, 1987.
Simply stated, Peschel's claim is that Jones produced a
defective document and offered Peschel defective legal advice
when he presented Addenda No. 1 to Peschel and advised him to
sign it. More specifically, Peschel listed the following
twelve acts or omissions in his complaint labeled a. through
1. of paragraph V:
a. Defendant failed to procure the
consent of HUD to "Addenda No. 1,"
agreement between Plaintiff and the
contractor.
b. Defendant failed to obtain the
consent of the contractor's bonding
company to "Addenda No. 1. "
c. Defendant failed to obtain the
consent of Washington Mortgage Company
to "Addenda No. 1" or to attempt to
negotiate resolution of current defaults
with that firm.
d. Defendant advised Plaintiff that the
consent of the foregoing parties was not
necessary for "Addenda No. 1" to be
effective and for the project to
continue.
e. Defendant drafted and advised
Plaintiff to agree to paragraph 11 of
"Addenda No. I , " which released and
discharged the contractor from all
claims.
f. Defendant failed to obtain
commitment from HUD to release draw No.
13 in conjunction with carrying out
"Addenda No. 1."
g. Defendant advised Plaintiff that
commitment of HUD to release Draw No. 13
was not necessary.
h. Defendant failed to obtain written
agreement from the contractor's bonding
company to guarantee completion of the
project.
i. Defendant advised Plaintiff that
such commitment from the bonding company
was not necessary and that the bonding
company would still be liable.
j. Defendant failed to include in
"Addenda No. 1" and failed to attempt to
negotiate provisions in said agreement
requiring the contractor to produce lien
waivers each month so that progress
disbursements would not be held up.
k. Defendant advised Plaintiff that his
liability under paragraph 13 of "Addenda
No. 1" was limited to the $50,000.00 and
$15,000.00 mentioned in paragraphs 2 (a)
and 2 (d).
1. Defendant advised Plaintiff not to
accept a proposal subsequently made by
the bonding company to construct a third
building and thereafter litigate certain
issues then pending.
By way of its order granting partial summary judgment, the
order denying Peschel's motion to alter or amend, and the two
orders of clarification, the District Court granted summary
judgment based on the doctrine of collateral estoppel as to
issues (a), (b), (dl, (£1, (91, (h), (i) (j) and the
portion of (c) referring to the failure to obtain the consent
of Washington Mortgage to Addenda No. 1 (the remainder of
subsection (c) was held to still be at issue).
In the initial order, the District Court stated Peschel
was bound by the facts and law as established in Martin
Development Co. v. Keeney construction Co. (Mont. 1 9 8 5 ) , 703
P.2d 143, 42 St.Rep. 752, and the District Court litigation
preceeding that appeal. The District Court framed Peschel's
issue by stating:
[Pllaintiff is not contesting whether or
not [he] is bound under the doctrine of
collateral estoppel by those facts and
matters found to be established in the
District Court action and the Supreme
Court action. Rather, Plaintiff's
position was that such established facts
and matters, while binding on Plaintiff
in this action, were not dispositive of
the specific issues raised between
Plaintiff and Defendant as framed and
defined by the pleadings and contentions
of the parties.
This is the crux of Peschel's argument on appeal. While
Peschel does not challenge the fact that he is bound by the
facts and law as established in the prior litigation, he does
contend that the prior litigation did not determine those
issues he now raises and were determined to be without merit
by the District Court according to collateral estoppel.
A party is entitled to summary judgment if the totality
of the record shows "that there is no genuine issue as to any
material fact and that the moving party is entitled to a
judgment as a matter of law. " Rule 5 6 (c), M.R.C~V.P. The
purpose of summary judgment is to promote judicial economy by
eliminating unnecessary trials. Still, the motion should be
granted only when there is no genuine issue as to any
material fact and the moving party is entitled to a judgment
as a matter of law. The initial burden of demonstrating the
absence of any genuine issue regarding any material fact lies
with the moving party. See, e.g. Rumph v. Dale Edwards, Inc.
(1979), 183 Mont. 359, 6 0 0 P.2d 163. If the moving party is
successful, the burden of proof shifts to the non-moving
party to demonstrate the presence of a genuine issue as to
some material fact. See, Rumph, supra; and DeWinter v. Capp
Homes, Inc. (1973), 162 Mont. 19, 507 P.2d 1061. "A11
reasonable inferences that may be drawn from the offered
proof are to be drawn in favor of the party opposing the
summary judgment. " Cereck v. Albertson's, Inc. (1981), 195
Mont. 409, 411, 637 P.2d 509, 511.
"Collateral estoppel or issue preclusion refers to the
situation where an issue has been previously litigated by a
party in a former case and that party is estopped from
re-litigating it in a subsequent case." In Re Marriage of
Stout (Mont. 1985), 701 P.2d 729, 733, 42 St.Rep. 856, 860,
861. Collateral estoppel is distinct from res judicata, or
claim preclusion, which prohibits the litigation of a claim
previously litigated and decided. Collateral estoppel refers
to a preclusion of issues, as opposed to a claim. We have
established a three-part inquiry to determine whether
collateral estoppel applies to a given case:
1. Was the issue decided in the prior
adjudication identical with the one
presented in the action in question?
2. Was there a final judgment on t.he
merits?
3. Was the party against whom the plea
is asserted a party or in privity with a
party to the prior adjudication?
Aetna Life Ins. Co. v. McElvain (Mont. 1986), 717 P.2d 1081,
1086, 43 St.Rep. 697, 703 (quoting, In Re Marriage of Stout
(Mont. 1985), 701 P.2d 729, 733-734, 42 St.Rep. 856-861, and
Aetna Life and Cas. Ins. Co. v. Johnson (Mont. 1984), 673
P.2d 1277, 1279, 41 St.Rep. 40, 42).
This Court has held that upon an affirmative answer to
all three questions, collateral estoppel bars litigation
regarding an issue in a civil trial which was previously
litigated in a criminal trial. Aetna Life and Cas. Ins. Co.
v. Johnson, 673 P.2d at 1279-80, 41 St.Rep. at 42-43. "We
have since broadened this holding by applying this test to
all cases in which collateral estoppel is at issue." In Re
Marriage of Holland (Mont. 1986), 730 P.2d 410, 412, 43
St.Rep. 2293, 2295.
Peschel does not challenge the second and third
elements of collateral estoppel as related above. Instead,
he focuses on the first element and states that the prior
adjudication did not decide the identical issues raised in
this case. Peschel is correct in that none of his identical
individual issues were determined in prior litigation. The
issue must be identical, and we are unable to locate where
issues identical to those raised by Peschel were previously
litigated. For example, the first issue raised in Peschel's
complaint would be whether defendant Jones was negligent when
he failed to procure the consent of HUD to Addenda No. 1.
This identical issue has not been decided by prior litigation
and is not prohibited under the theory of collateral
estoppel. Still, we affirm the District Court based on a
different reasoning.
The District Court granted the first motion for partial
summary judgment by analyzing facts established in the prior
litigation, applying them to this cause of action, and
concluding that as to certain issues raised in Peschel's
complaint there was no genuine issue as to any material fact
and that defendant Jones was entitled to a judgment as a
matter of law on those issues. In other words, certain facts
established in prior litigation now make some of Peschel's
current claims to be without merit. Counsel for Peschel has
admitted that he is bound by those facts established in the
prior litigation. The District Court certainly has the
authority to take judicial notice of facts established in
related prior litigation. In doing so, the District Court
correctly determined that there was no genuine issue as to
any material fact regarding certain issues raised in
Peschel's complaint.
The allegations Peschel states in sub-paragraphs (a),
(c), (d), (f), and (g), all relate to the consent and
commitment of HUD and Washington Mortgage. We previously
noted that shortly after construction began in 1978,
"problems arose concerning Peschel's obligations to fund the
cost shortages during the course of construction." Martin
Development Co., 703 P.2d at 145, 42 St.Rep. at 753. Addenda
No. 1 was the result of negotiations to settle these matters
and was not related to HUD. The parties agree that it was
Peschel's obligation to properly fund those amounts exceeding
that guaranteed by HUD. Additionally, the consent and
commitment of Washington Mortgage was not necessary because
they notified Peschel he defaulted on his loan October 2,
1979 and that it would be assigned to HUD. Addenda No. 1 was
not signed until November 10, 1979 and the consent and
commitment of Washington Mortgage after notice of default and
assignment would have been meaningless. Since the prior
litigation establishes a situation where there is now no
genuine issue as to any material fact, the District Court
correctly granted summary judgment on these issues.
Peschel alleges in sub-paragraphs (b), (h), and (i)
that Jones was negligent in his advice to Peschel and in not
obtaining the consent and a guarantee of completion from
Martin Development's bonding company. However, it has been
established that the bonding company would not have been
liable in any event because there was no default by Martin
Development. Martin Development Co., 703 P.2d at 146-147, 42
St.Rep. at 755-756. Finally, Peschel alleges in
sub-paragraph (j) that defendant was negligent in not
negotiating provisions "requiring the contractor to produce
lien waivers each month so that progress disbursements would
not be held up." However, the financing difficulties were
entirely unrelated to this issue and the reason draw No. 13
was not paid was because Washington Mortgage previously
assigned the loan to HUD. Martin Development Co., 703 P.2d
at 145, 42 St.Rep. at 754. We affirm the District Court
decision granting partial summary judgment as to issues
listed in Peschel's complaint in paragraph V, sub-paragraphs
(a), (b) (dl, (f), (g), (h), (i), and ( j ) , and the portion
of sub-paragraph (c) referring to the failure to obtain the
consent of Washington Mortgage to Addenda No. 1.
2. Statute of Limitations.
On December 8, 1987, the District Court granted an
additional partial summary judgment favoring defendant Jones
as to all of plaintiff Peschel's remaining issues. This
included two additional issues added to Peschel's complaint
by amendment. The District Court held that Peschel's
remaining claims were barred by the statute of limitations
for a legal malpractice action.
Section 27-2-206, MCA, states:
An action against an attorney licensed
to practice law in Montana or a
paralegal assistant or a legal intern
employed by an attorney based upon the
person's alleged professional negligent
act or for error or omission in the
person's practice must be commenced
within 3 years after t plaintiff
discovers - through t h e
or use of
reasonable diligence shou1d - ha=
discovered - - error, or omission,
the act,
whichever occurs last, b u t T n no case
may the action be commenced after 10
years from the date of the act, error,
or omission. (Emphasis added.)
Peschel filed his complaint November 14, 1985, and the
District Court noted that "the crucial question is whether
[Peschel] discovered or through the use of reasonable
diligence should have discovered the alleged act, error, or
omission prior to November 14, 1982." The District Court
concluded that "under the established facts, [Peschel]
discovered or though the use of reasonable diligence should
have discovered the alleged acts, errors or omissions prior
to November 14, 1982."
Peschel's claims remaining after the first partial
summary judgment were as follows (claims (m) and In) were
added by amendment) :
(c) Defendant's failure to negotiate
resolution of current default with
Washington Mortgage Company.
(e) Defendant's release and discharge
of the contractor, Martin, from all
claims in Paragraph 11 of the Addenda,
the exoneration clause.
(k) Defendant's advice that Plaintiff's
liability under the Addenda was limited
to a total of $65,000.00.
(1) Defendant's advice against
accepting a proposal by the bonding
company to build a third building and
thereafter litigate pending issues.
(m) Defendant's advice that Plaintiff
sign a letter of exoneration of the
contractor's prior defaults and send it
to HUD.
(n) Defendant's failure to attach
financial exhibits and the HUD agreement
to the Addenda.
Peschel claims he did not discover the facts essential to a
cause of action until after January 25, 1984, when a district
court decision found judgment for Martin Development and
against Peschel in the amount of $72,000. See,
Martin Development Co., 703 P.2d at 145, 42 St.Rep. at 754.
~lthoughPeschel knew of many of the above facts, he argues
he did not know those facts might constitute a cause of
action until he was found liable to Martin Development. In
short, he asserts he had knowledge of the acts, but did not
have knowledge of the alleged negligence.
The general issue to be determined is whether Peschel
discovered or through the use of reasonable diligence should
have discovered, the allegedly negligent acts, errors, or
omissions by defendant Jones before November 14, 1982. We
have previously addressed similar issues and in Burgett v.
Flaherty (1983), 204 Mont. 169, 173-174, 663 p.2d 332, 334,
we stated:
As a matter of law, what is critical in
determining when a legal malpractice
action accrues is knowledge of the facts
essential to the cause of action, not
knowledge of the legal theories upon
which an action may be brought.
" [I]t is the knowledge of facts rather
than discovery of legal theory, that is
the test. The test is whether the
plaintiff has information of
circumstances sufficient to put a
reasonable person on inquiry, or has the
opportunity to obtain knowledge from
sources open to his or her
investigation. (Sanchez v. South Hoover
Hospital 18 Cal.3d. 93, 101, 132
Cal.Rep. 657, 553 P.2d 1129.) If the
plaintiff believes that someone has done
something wrong because of the damages
suffered by her, such a fact is
sufficient to alert a plaintiff 'to the
necessity for investigation and pursuit
of her remedies.' (Sanchez v. South
Hoover Hospital, supra, 1 8 Cal. 3d at
.
Additionally, we have specifically rejected the "damage
rule," wherein the statute of limitations in a legal
malpractice action would not begin to run until the plaintiff
discovers his actual or determinable damages. Schneider v.
Leaphart (Mont. 1987), 743 P.2d 613, 616, 44 St.Rep. 1699,
1702. Such a rule would conflict with 5 27-2-206, MCA, which
speaks to the discovery of the act, error, or omission, and
not to the discovery of actual or determinable damages.
Despite this holding, Peschel states the statute of
limitations should have been tolled on his malpractice claim
until the District Court found him liable to Martin
Development. Peschel contends this is the time he discovered
he had a cause of action. Upon carefully reviewing each of
Peschel's remaining claims, it is clear that Peschel knew the
facts giving rise to each claim and through the use of
reasonable diligence he could have discovered any act, error,
or omission believed to constitute negligence long before
November 14, 1982. All of Peschel's claims involve Jones's
preparation, presentation, and advice regarding Addenda No.
1. This document was signed November 10, 1979, more than
three years before November 14, 1982. Peschel had litigation
pending against him, he was required to contribute more money
to the project than he believed to be his responsibility,
construction was delayed, Washington Mortgage had sent
Peschel a notice of default and assigned the loan to HUD, and
the fund release known as Draw No. 13 was not paid in
December, 1979. Peschel was aware of all of these events
when they occurred, and long before November 14, 1982. After
a careful review of all of the facts, we find that through
the use of reasonable diligence Peschel had sufficient
information to discover any alleged act, error or omission by
Jones. We affirm the decision of the District Court granting
partial summary judgment on Peschel's remaining claims.
For the foregoing reasons, the decision of the District
Court is affirmed.
n
We concur: