No. 87-363
IN THE SUPREME COURT OF THE STATE OF MONTANA
1988
BRUCE A. YOUNG and SHERRI D. YOUNG,
Husband and Wife; LEO B. EVANS and
LONA LEE EVANS, husband and wife, and
RUTH E. PALMER,
Plaintiffs and Respondents.
-vs-
FLATHEAD COUNTY, a Body Corporate,
Defendant and Appellant,
and
FLATHEAD COUNTY BOARD OF COMMISSIONERS,
a Body Politic; NAKUL S. VERMA, FLATHEAD
COUNTY ZONING ADMINISTRATOR,
Defendants.
and
ALBERT SEELEY,
Defendant-Intervenor, Plaintiff
Cross-Claimant and Respondent,
and
HENRY OLDENBURG,
Defendant and Intervenor.
APPEAL FROM: District Court of the Eleventh Judicial District,
In and for the County of Flathead,
The Honorable Jack L. Green, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Ted Lympus argued, County Attorney, and Jonathan B
Smith argued, Deputy County Atty., Kalispel.1, Montana
For Respondent :
Lawrence F. Daly argued, Missoula, Montana
Submitted: April 26, 1988
Decided: June 13, 1988
Filed: k!!&v
4
*
Mr. Justice L. C. Gulbrandson delivered the Opinion of the
Court.
This is an appeal of findings of fact, conclusions of
law and judgment of the Eleventh Judicial District Court,
Flathead County, in favor of defendants-intervenors Albert
Seeley and Henry Oldenburg (Developers) against
defendant-appellant, Flathead County (County). The findings
and conclusions were adopted on April 22, 1982 and amended on
July 12, 1982. The District Court entertained the damage
claim and entered findings and conclusions on March 24, 1987
against the County in excess of two million dollars. A
motion to alter the judgment, or in the alternative to grant
Flathead County a new trial was denied June 2, 1987. The
County appeals. We reverse and remand. for further
proceedings.
The following issues have been presented for our
review:
1. Did the County's August 13, 1981, change of
position on the requirement of subdivision review for
condominium projects give rise to a claim for damaqes by
Developers?
2. Was the County's change of position the proximate
or legal cause of Developers' damages?
3. Should the County have been entitled to a new trial
on grounds the District Court erred in not admitting evidence
on the issue of proximate cause?
4. Whether Developers1 reliance on the County's
initial position of no requirement of subdivision review of
condominium projects was supported by substantial evidence
and, if so, whether that reliance was reasonable?
5. Is the County immune from damages under S 2-9-111,
MCA ?
6. Did the damages awarded by the District Court
exceed the statutory limit on governmental liability?
Reversal of this case is based on the first four i,. ~
C ~ ~ e
and we therefore will not address issues five and six.
This case arises from a failed condominium development
on the west shore of Flathead Lake. In the early 1980s,
Developers approached the County and proposed construction of
the Caroline Point Estates and Yacht Club condominiums on 28
acres of unzoned property. Prior to construction, Developers
requested the parcel be zoned as a planned unit development
(PUD) in order to construct the projected 84 units. If zoned
R-2 (rural residential), the area could only hold 56 units
which would not be financially viable for Developers.
Deputy County Attorney Charles Kuether (Kuether), and
Wil Aiken of the Montana Department of Health and
Environmental Sciences (DHES), informed Developers the
project was not a "subdivision" under the Subdivision
Platting Act, Title 76, Chap. 3 and 4, MCA, and therefore
would not be subject to subdivision review.
County Sanitarian Tom Cowan (Cowan) informed Developers
on September 19, 1980, that sanitary review would not be
initiated for "several months." Developers contend Cowan
informed them that the basic concept for sewage treatment was
approved. However, on December 18, 1980, Developers'
attorney received a letter from DHES indicating that DHES
considered the project a subdivision, and therefore subject
to review. Developers were made aware of this letter. On
December 23, 1980, the Board of Commissioners of Flathead
County adopted Resolution 414 which zoned the property PUD.
Developers commenced construction in late December, 1980. On
January 6, 1981, and January 19, 1981, Ray Lee, one of
Developers' partners, received letters from DHES requesting
an application for sanitary review be filed with t-he
Subdivision Bureau under the Sanitation in Subdivisions Act.
The second letter stated continuing construction would
violate the Act. A notice of violation was subsequently
issued as Developers did not slow construction.
The County claims Lee also met with Ed Casne of DHES
and was told the project was a subdivision. Developers claim
they received additional assurances at this time from
Kuether. Relying on these assurances, Developers claim they
finalized their ownership interests in the property in
January of 1981. At a February 11, 1981, meeting, Kuether
stated the County disagreed with the DHES designation and the
issue was likely to be decided through litigation. On
February 13, 1981, the Commissioners re-approved the PUD
designation in Resolution No. 421. On this same day, Dr.
John Drynan, director of DHES, requested an opinion from the
Montana Attorney General as to whether condominium
developments are subdivisions subject to review.
On March 6, 1981, DEIES conducted a hearing on its
notice of violation earlier issued to Developers. The
hearing resulted in a stipulation entered into between DHES
and Developers which allowed construction of four model
units, to be used to promote "pre-sales," a combination
recreation center/caretakerrs residence and a marina.
Developers were also allowed t o maintain a sales office on
the project so that construction and production schedules
were not halted. DHES issued findings of fact and
conclusions of law April 27, 1981 that stated since
Developers relied on previous assurances, equity demanded
they be allowed to continue with the above-stated limited
construction.
Opponents of the development filed a complaint on March
13, 1981, alleging the condominium project was a subdivision
subject to review. Construction continued on the units
allowed by the stipulation and Developers claim they planned
to "presell" 11 of the next 15 units before further
construction would occur.
By June of 1981, Developers invested over $900,000 in
the project. Because additional operating capital was needed
until pre-sales began to generate revenue, Developers
borrowed $200,000 from First Interstate Bank of Kalispell and
an additional $325,000 from a Canadian bank. Formal
application for sanitary approval purposes was sent to DHES
on June 24, 1981. On June 30, and July 19, 1981, Developers
met with the County Sanitarian who informed them no problems
were yet encountered.
The Attorney General Opinion, 39 A.G.Op., No. 28, was
issued July 28, 1981, and held condominium projects were
subdivisions subject to review. In this opinion, the
Attorney General relied on the intention of the Legislature
that a broad definition of "condominiumt1 was intended when
the Sanitation in Subdivisions Act definitions were adopted
in 1973. The Attorney General stated:
It is the public policy of this state to
extend present laws controlling water
supply, sewage disposal, and solid waste
disposal to include individual wells
affected by adjoining sewage disposal and
individual sewage systems to protect the
quality and potability of water for
public water supplies and domestic uses
and to protect the quality of water for
other beneficial uses, including uses
relating to agriculture, industry,
recreation, and wildlife.
This expression of legislative concern
regarding water supply, sewage disposal,
and solid waste disposal logically
includes concern for the impact of the
high density development that is
characteristic of condominiums.
On August 13, 1981, the County Attorney wrote
Developers' counsel and advised him to cease project
construction until. subdivision approval was attained. The
letter imposed restrictions on further sales. By August 13,
1981, cost on the construction project had reached
$1,065,578.
Developers continued to attempt to secure sanitation
approval from the State and County and the State and County
continued their review of the project. After the influx of
money ceased, Developers were forced to abandon the project
and absorb significant losses. Developers could not secure
further financial support and because they purchased the
property on an installment contract, were forced to default.
In response to the complaint filed by project
opponents, Developers, specifically Seeley as
court-authorized intervenor, filed a "Cross-Claim for
Declaratory Relief against defendant Flathead County" on
September 24, 1981. The cross-claim contained seven counts.
Count I11 sought to estop the County from enforcing the
subdivision review requirement. It alleged the County
Attorney interpreted the regulations requiring subdivision
review as being inapplicable to the development and
Developers justifiably relied and acted upon these
interpretations. Paragraph V of Count I11 states "[tlhat in
August of 1981, the county, through the office of the county
attorney, arbitrarily, capriciously and without
justification" prohibited further construction resulting in
financial damage. The cross-claim concluded with a prayer
for declaration that the project was exempt from subdivision
review and that Developers are "entitled to damages in an
amount to be shown at trial."
The District Court addressed motions for summary
judgment and the cross-claims in two phases. Pursuant to
stipulations setting forth agreed facts and issues, on April
22, 1982, the District Court entered findings of fact and
conclusions which were amended on July 12, 1982 and September
30, 1986. Hearings on the second issue of damages were held
in October, 1984 and concluded on April 26, 1985. These
hearings resulted in findings of fact and conclusions of law
entered on March 24, 1987 and supplemented on June 2, 1987,
along with a judgment on April 8, 1987 in favor of the
Developers. The final order, issued June 2, 1987, was filed
over six years after the complaint was filed.
On appeal, the findings of the trial court are presumed
to be correct if supported by substantial evidence and we
refuse to substitute our judgment for that of the District
Court where, as here, the District Court is acting as the
trier of fact and there is substantial evidence to support
its decision. Department of Revenue v. New Life Fellowship
of Montana, Inc. (Mont. 1985), 703 P.2d 860, 862, 42 St.Rep.
401. We will not reverse the District Court absent a showing
that its determinations were clearly erroneous. Rule 52(a),
M.R.Civ.P.
The first three issues presented for our review are
very similar and we will deal with them jointly as we find
the District Court erred in its determination of proximate
cause and in its disallowance of evidence regarding this
issue.
Developers are entitled to recover damages if it can be
shown the alleged negligent representations of the County
caused the damages and injures suffered by Developers.
Generally, negligence requires existence of a duty, breach of
that duty and harm caused by that breach. R.H. Schwartz
Const. Specialties, Inc. v. Hanrahan (1983), 207 Mont. 105,
107, 672 P.2d 1116, 1117. In this case, the causation
question was not adequately satisfied by Developers to allow
for recovery of damages.
In the District Court's findings of fact and
conclusions of law dated March 24, 1987, it found that as of
August 13, 1981, the necessary sanitary approval had not been
granted by either DHES or the Flathead county sanitarian.
The County argues excluded evidence would have shown it had
further become increasingly apparent that the project would
not be able to support the 84 proposed units. The PUD
re-zoning plan that the County had worked out with Developers
was merely done so that Developers could construct the
84-unit rather than a 56-unit, project. The District Court
stated "the stop order issued by the County in the midst of
construction was not required by considerations of health or
safety." It went on to find that the stop order's only
effect was to require "repetitive and redundant" procedures
that halted the project construction.
Developers complied with the County order. The
District Court made a finding that after the order of August
13, 1981, the project lost favor with county officials. The
county sanitarian decided he would not approve a sewage
disposal system for 84 units and as a result of county
officials' conflicting representations, developers had no way
to service the underlying debt accumulated in financing the
project. The District Court, in its findings and conclusions
of March 24, 1987, made a specific conclusion that the County
proximately caused Developers' damages.
The County argues, and we agree, that the District
Court erred in this finding and in disallowing evidence
pertaining to the proximate cause issue after August 13,
1981. This evidence was contained in a number of County
exhibits that demonstrated Developers continued to work on
the project well beyond August 13, 1981. Developers sold
the project over a year later.
The county sanitarian testified that the sewer system
review process was not affected by the letter of August 13,
1981 and that even after this date Developers attempted to
gain approval in the same manner as before. The County
claims one of the exhibits was a letter dated October 9, 1981
to Casne, Chief of the DHES Subdivision Bureau from the
engineering firm of Thomas, Dean and Hoskins, stating the
realization that the 84-unit plan was not feasible. Four of
the exhibits allegedly dealt with the hiring of an
independent expert by the DHES to study the project in light
of two conflicting reports previously received by the DHES.
It is argued that not only did these exhibits show that it
was unlikely the project would ever receive approval, they
also demonstrated DHES' effort to analyze Developers ' proposal
and Developers' continued attempt to salvage the project.
The County contends a letter of January 13, 1982, which
was not allowed into evidence, demonstrated Developers'
continuing effort to revise the plan to receive sewer system
approval. An off-site treatment system was another design
consideration proposed and letters in regard to this attempt
were also not allowed. Other exhibits were offered but
disallowed that further demonstrated the continuing attempt,
even into 1983 and 1984, to gain approval for a sewage
system.
Lack of approval of the sewage system was fatal to the
project in addition to any subdivision review requirement.
These exhibits should have been allowed and
considered, failure to admit such evidence was error.
Developers briefly argue "but for" the representations
by the County, they would never have proceeded with the
enormous financial project and therefore no damage would have
occurred. As a consequence, Developers claim, all other
causes, especially those after August 13, 1981, are
irrelevant because financial commitment would not have
occurred. We disagree.
Liability, in any cause of action, attaches if the
plaintiff can prove first that defendant's act is a cause in
fact of injury and then that the injury is the direct or
indirect result, proximately caused by the negligent act.
Causation in fact has been determined by the use of the "but
for" test, argued by Developers, and in rare circumstances
under a substantial factor examination. Prosser and Keeton,
The Law of Torts, 5 41, pp. 264-268 (5th ed., 1984). In
Montana, the distinction between causation in fact and
proximate cause, now occasionally referred to as legal cause,
has not generally been made. See, Rudeck v. Wright (Mont.
1985), 709 P.2d 621, 638, 42 St.Rep. 1380; Kyriss v. State
(Mont. 1985), 707 P.2d 5, 8, 42 St.Rep. 1487.
Under causation in fact, the "but for" test has been
defined as but for defendant's conduct, the event would not
have occurred, or, conversely, defendant's conduct is not the
cause of the event, if the event would have occurred without
the conduct. Rudeck, supra, 709 P.2d at 628. As an uncommon
alternative to the "but for" test, the "substantial factor"
test has been designed to deal with problems where
application of the "but for'' test would allow each of a
number of defendants to escape responsibility because the
conduct of one or more others would have been sufficient to
produce the same result. Judeman v. Montana Deaconess
Medical Center (Mont. 1986), 726 P.2d 301, 305, 43 St.Rep.
1747.
In the case at bar, Developers present a reasonable
argument that but for the representations of the County they
would not have proceeded with the project. They claim the
second event, development of Caroline Point Estates, would
not have occurred but for the first event, the
representations of the County.
However, the representations did not "proximately
cause1'the damages in this case. In Montana, proximate cause
is one which in a natural and continuous sequence, unbroken
by any new, independent cause, produces injury, and without
which the injury would not have occurred. Jimison v. U.S.
(D.C. Mont. 1967), 267 F.Supp. 674, aff. 427 F.2d 1133;
Sztaba v. Great Northern Railway Co. (1966), 147 Mont. 185,
195-196, 411 P.2d 379, 385. This definition of proximate
cause incorporates the "but for" definition in the words of
the last clause "[alnd without which the injury would not
have occurred." It is from this wording that the distinction
between cause in fact and proximate, or legal, cause has
become clouded. Nonetheless, prior to analyzing proximate
cause, a claimant must satisfy cause in fact. Developers in
this case could satisfy the "but for" analysis but could not
show proximate cause. Proximate cause clearly must be
established to create liability in a negligent defendant.
Demaree v. Safeway Stores, Inc. (1973), 162 Mont. 47, 54, 508
P.2d 570, 575; see also, Dvorak v. Matador Services, Inc.
(Mont. 1986), 727 P.2d 1306, 1311, 43 St.Rep. 1562, 1568-1569
(where it was determined defendant's conduct must be proven
as the proximate cause of the claimant's injures to show
negligence in strict liability). Therefore, Developers had
to prove an uninterrupted chain of events from the alleged
negligent act of the County, e.g., erroneous relied-upon
representations and change of position, to the injuries and
damage suffered. Further, this chain of events could not be
broken by any new, independent cause, such as economic
factors or failure to secure sanitary approval. This burden
has not been met by Developers as is apparent from the
evidence which was erroneously excluded by the District
Court.
Further, since other factors -- the economy, failure to
secure additional financing, and especially the inability to
secure approval of the sewer system -- had an impact on the
resulting damage, Developers cannot claim the County's
representations alone "proximately caused" the damage. Where
more than one possible cause of damage appears, the plaintiff
must eliminate causes other than those for which the
defendant is responsible. Valley Inland Pacific
Constructors, Inc. v. Clackamas Water District (Or. 1979),
603 P.2d 1381. Developers' failure to separate the causes
and damage bars them from arguing proximate cause is
satisfied in this case. Numerous interruptions in the chain
of events occurred that could be considered the injury
causing damage.
In support,, the County directs this Court's attention
to the testimony of Albert Seeley that no pre-sales were to
be closed prior to complete approval of the units' sanitary
systems. Seeley further admitted that sanitary systems
approval for the 84 units was never received from the County
nor DHES.
Regardless of whether the County made any
representations that condominiums were or were not subject to
subdivision review, the fact is that it is likely the project
would not have been completed because sanitary approval could
not be secured. The County also points out that in addition
to the above mentioned factors, the testimony of Developers'
accountant was that a number of occurrences combined to cause
the demise of the development.
We note at this juncture that this argument takes us
into the fourth issue of whether reliance on the County's
initial position was reasonable. The District Court stated
in its conclusions of law of March 24, 1987, that "developers
justifiably relied upon the representations of Flathead
County that the Caroline Point condominium project was not
subject to the Flathead County Subdivision Regulations."
Further, the court concluded the order prohibiting further
construction and sales "was the proximate cause of injury to
the developers entitling the developers to recover from the
County as damages their net out-of-pocket loss which
reasonably resulted from their reliance upon previous County
representations." As previously set forth, the District
Court abused its discretion in its determination of proximate
cause of injury in this case. We also hold that the
conclusion that Developers justifiably relied upon the
representations was error.
Ground breaking on the project began December 23, 1980
after the County Commissioners initially passed the PUD
required to allow for increased density. Of importance,
'however, is the letter that was sent by DHES on December 18,
1980 informing Developers that DHES considered the project a
subdivision subject to review. Also, a review of the
statutes in effect at the time shows that "subdivision" did
include condominiums. The following statutes, state and
local regulation of subdivisions, provide:
5 76-4-102 (7), MCA (1979) --
"Subdivision" means a division of land or
land so divided which creates one or more
parcels containing less than 20 acres,
exclusive of public roadways, in order
that the title to or possession of the
parcels may be sold, rented, leased, or
otherwise conveyed and includes any
resubdivision any condominium or
area, regardless - -
of size, which provides
permanent multiple space for recreational
vehicles or mobile homes.
§ 76-3-103 (15), MCA (1979) --
"Subdivision" means a division of land or
land so divided which creates one or more
parcels containing less than 20 acres,
exclusive of public roadways, in order
that the title to or possession of the
parcels may be sold, rented, leased, or
otherwise conveyed and shall include any
resubdivision and shall further include
any condominium - -
or area, regardless of
- - which provides or will provide
its size,
multiple space for recreational camping
vehicles or mobile homes. (Emphasis
added. )
Developers were represented by counsel during the
entire period of time at issue. In light of the existence of
these statutes and the letter that was issued from DHES, the
question of the reasonableness of the Developers' reliance is
paramount in determination of this case.
Developers contend that their reliance was reasonable
because the County, through its attorney, "promised" it would
litigate its determination that condominiums were not subject
to subdivision review. However, agents of the DHES,
specifically Will Aiken, had also advised Developers that the
condominium development would not be subject to subdi~rision
review.
The County appropriately points out that Developers
were relying on an interpretation of law, an opinion, that
the condominiums would not be subject to subdivision review.
The County Attorney's office maintained no confidential or
professional relationship with Developers in this case.
Therefore, the County's opinion -- in light of the State's
determination that subdivision review would be required set
out in the letter of December 18, 1980; the fact that
Developers were represented by their own counsel; the
existence of the above-mentioned statutes and the actual
opposition to the lack of subdivision review that was
expressed by opponents of the project who ultimately filed
this suit -- was unreasonably relied upon by Developers.
We reverse and remand for further proceedings
consistent with this opinion. /'
We concur:
&c;s~~
Justices