No. 90-226
IN THE SUPREME COURT OF THE STATE OF MONTANA
1990
STATE ex rel. RONALD W. EGELAND,
plaintiff and Respondent,
THE CITY COUNCIL OF CUT BANK, MONTANA,
LEO SCHAEFER, PHILIP (PHIL) CHEETY,
FRANCES STRYREN and ED SNOECK, as Members
of the City council, and EUGENE 0. BOYLE,
City Treasurer of the City of Cut Bank,
Montana, a Municipal Corporation,
Respondents and Respondents
MELVIN SHULAND, HERITAGE BUILDERS, INC.,
ABERCROMBIE PIPE LINE & SERVICES, INC.,
Interplead Defendants,
D.A. DAVIDSON & CO.,
Interpled Defendant and Respondent,
LELAND FREED,
Interpled Defendant and Appellant.
APPEAL FROM: District Court of the Ninth Judicial District,
In and for the County of Glacier,
The Honorable Henry Loble, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Dennis McCaf ferty, Esq. ; James Gray & McCaf ferty, Great
Falls, Montana
For Respondents:
~eithStrong, Esq.; Dorsey & Whitney, Great Falls, Montana
Submitted on Briefs: November 1, 1990
Decided: December 11, 1990
Filed: e
Clerk
Justice John Conway Harrison delivered the Opinion of the Court.
This action originated in the District Court of the Ninth
Judicial District, Glacier County, Judge Henry Loble presiding.
Ronald W. Egeland sought a Writ of Mandamus ordering the City of
Cut Bank to pay interest on SID bonds. The parties to this appeal,
Leland Freed and D.A. Davidson & Co., were interpled defendants in
the action. Freed asserted claims against D.A. Davidson and both
parties moved for summary judgment. From grant of summary judgment
to D.A. Davidson, Freed appeals. We affirm.
The single issue is whether the District Court erred in
granting summary judgment to D.A. Davidson & Co. on the basis that
Freed's cross-claims were barred by the statute of limitations.
I
On February 26, 1982, Ronald Egeland and Leland Freed formed
Glacier Development Limited Partnership for the purpose of
developing a subdivision in Cut Bank, Montana. Freed and Egeland
were limited partners.
For sewer and water construction work, Glacier Development
received SID bonds as payment from the City of Cut Bank. Egeland
opened an account at D.A. Davidson and on August 23, 1983, Egeland
pledged the SID bonds to D.A. Davidson to secure his personal
margin account loan in the amount of $103,125. On December 21,
1983, Freed advised D.A. Davidson that Egeland had no authority to
make personal use of the bonds which were the property of Glacier
Development. D.A. Davidson responded that it held an interest in
the bonds superior to Freed's interest.
Two actions were filed involving Freed. On January 16, 1985,
Freed filed suit against Egeland and judgment was entered on July
9, 1987, giving all of the limited partnership's interest in the
bonds to Freed.
The present action was initiated on January 22, 1985, when
Egeland filed a mandamus petition to force the City of Cut Bank to
pay interest on the SID bonds. The City of Cut Bank answered
Egeland's petition and petitioned to interplead the parties who
claimed an interest in the bonds.
On March 3, 1987, the District Court entered an order
interpleading defendants D.A. Davidson and Freed and requesting
them to file a responsive pleading in the matter. Freed filed his
responsive pleading on March 16, 1987, alleging that he and Glacier
Development had an interest in the bonds superior to claims by any
other party. Freed also accused D.A. Davidson of "willful, wanton,
and conscious disregard of known duties," !'bad faith," and
voppression.H
Freed moved for summary judgment on June 9, 1988. The next
day D.A. Davidson cross-moved for summary judgment against Freed
on the basis that it had no actual notice of Freed's claim to the
bonds.
The District Court granted summary judgment to D.A. Davidson
on the ground that Freed's claims were time barred. Using December
21, 1983, as the triggering date, the court applied a three-year
statute of limitations to Freed's "bad faith1' claim, and a two-
year statute of limitations to Freed's llconversion'l
claim.
On March 26, 1990, D.A. Davidson and the City of Cut Bank
settled their claims, and this appeal of the summary judgment
ruling followed.
I1
Freed presents four arguments to support his contention that
cross-claims against D.A. Davidson are not time barred. First, he
argues that in relation to his claim of bad faith the statute of
limitations did not begin to run until October 25, 1985, when D.A.
Davidson first examined the documents showing that Egeland was not
the owner. Freed reasons that until then, D.A. Davidson could not
have acted in bad faith because it believed that the bonds belonged
to Egeland. The District Court considered this argument, but
determined that the latest possible date for purposes of the
statute of limitations was December 21, 1983, when Freed demanded
the bonds from D.A. Davidson.
The statute of limitations for '#badfaith1#or "breach of the
covenant of good faith and 'fair dealing1'is the three-year statute
applicable to torts, 27-2-204(l), MCA. Kitchen Krafters v.
Eastside Bank (Mont. 1990), 789 P.2d 567, 570, 47 St.Rep. 602, 605;
Tynes v. Bankers Life Company (1986), 224 Mont. 350, 357, 730 P.2d
1115, 1120. The statute of limitations begins to run when a claim
accrues :
(a) a claim or -cause of action accrues when all
elements of the claim or cause exist or have occurred,
the right to maintain an action on the claim or cause is
complete, and a court or other agency is authorized to
accept jurisdiction of the action;
(b) an action is commenced when the complaint is
filed.
(2) Unless otherwise provided by statute, the period of
limitation begins when the claim or cause of action
accrues. Lack of knowledge of the claim or cause of
action, or of its accrual, by the party to whom it has
accrued does not postpone the beginning of the period of
limitation.
Section 27-2-102, MCA. Freed advised D.A. Davidson on December 21,
1983, that Egeland had no authority to pledge the bonds, and at
that time D.A. Davidson asserted a superior interest in the bonds.
After D.A. Davidson refused to surrender the bonds to Freed, Freed
could have filed a claim, whether or not D.A. Davidson believed
that it had a right to hold the bonds. As pointed out by the
~istrictCourt, Freed's cause of action could have been said to
have accrued even earlier, on August 23, 1983, when D.A. Davidson
acquired the bonds. Lack of knowledge of one's legal rights or
even the facts upon which a cause arises does not toll the statute
of limitations in non-malpractice actions. Payne v. Stratman
(1987), 229 Mont. 377, 381, 747 P.2d 210, 212-13. We uphold the
District Court's determination that December 21, 1983 was the date
when Freed's bad faith claim accrued.
I11
Secondly, Freed argues that his claim against D.A. Davidson
is not a cross-claim, but "simply an answer or defense" to
Egeland's claim of ownership of the bonds. Freed maintains that
a limitations period should not be imposed with regard to his
answer or response as an interpleader. Therefore, the statute of
limitations was tolled on October 25, 1985, when the City named
D.A. avids son and Freed as interpled defendants. This date was
within two years of December 21, 1983, when D.A. avids son rejected
Freed's claim to the bonds.
We have examined Freed's pleadings and affirm the District
Court's conclusion that they constitute affirmative cross-claims,
rather than answers or defenses. Freed calls his pleadings of
March 16, 1987, "Claims of Interpled Defendant Leland Freed," and
labels allegations against D.A. Davidson as "Leland Freed's Claim
Against D.A. avid son." He does not refer to the allegations as
defenses or responses to Egeland's claims. Thus by his own
admission, Freed filed an affirmative cross-claim, not an answer
or response.
IV
Next Freed asserts that his cross-claim relates back to the
same conduct, transaction, or occurrence set forth in the complaint
filed by Egeland on January 22, 1985, a date within the applicable
statute of limitations. In other words, the statute of limitations
regarding Freed's claims was tolled by the filing of Egelandls
complaint.
Cross-claims are governed by Rule 13(g), M.R.Civ.P.:
Cross-claim a g a i n s t coparty.
A pleading may state as a
cross-claim any claim by one party against a coparty
arising out of the transaction or occurrence that is the
subject matter either of the original action or of a
counterclaim therein or relating to any property that is
the subject matter of the original action. Such cross-
claim may include a claim that the party against whom it
is asserted is or may be liable to the cross-claimant for
all or part of a claim asserted in the action against the
cross-claimant.
Most of the cases concerning the relation back issue involve
counterclaims, although the rationale of those decisions is equally
applicable to cross-claims. Appelbaum v. Ceres Land Co. (D. Minn.
1981), 546 F.Supp. 17, 20, affld, (8th Cir. 1982), 687 F.2d 261.
In some jurisdictions, a counterclaim relates back to the date of
the filing of the complaint in the action if it arises out of the
same transaction or occurrence. See, e.g., Employers1 Fire
Insurance v. Love It Ice Cream (Or. App. 1983), 670 P.2d 160, 163;
Doxey-Layton Co. v. Clark (Utah 1976), 548 P.2d 902, 906. As
stated by a Washington court, "A counterclaim is not barred by the
statute of limitations if the counterclaim would not have been
barred by the statute of limitations at the commencement of the
action in which it is pleaded." Logan v. North-West Insurance Co.
(Wash. App. 1986), 724 P.2d 1059, 1061.
Other jurisdictions hold that a counterclaim does not relate
back to the date the complaint was filed. See, e.g. , W. J. Kroeger
Co. v. Travelers Indemnity Co. (Ariz. 1975), 541 P.2d 385, 387-
88; Rochester American Insurance Co. v. Cassel Truck Lines (Kan.
1965), 402 P.2d 782, 784-86. Federal courts distinguish between
counterclaims and cross-claims that seek to somehow reduce the
amount a plaintiff can recover, such as by recoupment,
contribution, or indemnity, and claims that seek affirmative
relief. U.S. for Brothers Builders Supply v. Old World Artisans
(N.D. Ga. 1988), 702 F.Supp. 1561, 1569. "Defensive claims
generally relate back, while affirmative claims must satisfy the
applicable statute of limitation^.^^ A ~ ~ e l b a u m , F.Supp. at 20;
546
see also Hurst v. U.S. Department of Education (10th Cir. 1990),
901 F.2d 836, 837-38.
In Montana, this Court has not addressed the issue of when the
statute of limitations is tolled concerning the filing of a cross-
claim pursuant to Rule 13(g), M.R.Civ.P. We have determined that
a counterclaim or third-party complaint tolls the statute of
limitations when it is filed, rather than when a motion for leave
to amend an answer and file other claims is filed. Engine
Rebuilders, Inc. v. Seven Seas Import-Export (1980), 189 Mont. 236,
239, 615 P.2d 871, 872.
Our holding in Ensine Rebuilders implies that a counterclaim
or cross-claim for affirmative relief tolls the statute of
limitations when it is filed and does not relate back to the date
the initial complaint was filed. We therefore adopt the federal
rule. A counterclaim, cross-claim, or third-party complaint for
affirmative relief, other than a defensive claim where the
defendant attempts to offset the amount a plaintiff can recover,
such as by recoupment, contribution, or indemnity, must comply with
the applicable statute of limitations.
Freed urges that the relation back doctrine of Rule 15(c),
M.R.Civ.P., as interpreted by this Court in Tynes v. Bankers Life
Co. (1986), 224 Mont. 350, 730 P.2d 1115, applies. See also Priest
v. Taylor (1987), 227 Mont. 370, 740 P.2d 648. In Tynes for the
purposes of the statute of limitations an amended complaint adding
a second plaintiff was held to relate back to the date the original
plaintiff filed his complaint. Rule 15 (c), M.R. Civ. P. provides in
part:
Whenever the claim or defense asserted in the amended
pleading arose out of the conduct, transaction, or
occurrence set forth or attempted to be set forth in the
original pleading, the amendment relates back to the date
of the original pleading.
The rule made in Tynes is inappropriate here. First of all,
Rule 15(c) applies to an amended pleading, not a cross-claim filed
for the first time. Secondly, in Tynes, even though a second
plaintiff was added, since the cause of action arose out of the
same llconduct, transaction, or occurrencett1the defendant was
already on notice of adverse claims and was not prejudiced. Here
the original petition filed January 22, 1985, involved only Egeland
and the City of Cut Bank. D.A. Davidson and Freed were not joined
as defendants until March 3 , 1987, and D.A. Davidson had no notice
of Freed's cross-claims until March 16, 1987. As stated in Tvnes,
l'[s]tatutes of limitation exist in order to insure that a defendant
receives adequate notice of the claim against it. They provide a
defendant with the opportunity to adequately defend." Tynes, 224
Mont. at 358, 730 P.2d at 1120. Contrary to Freed's assertion,
D.A. Davidson was not put on notice of Freed's cross-claims against
it by Egeland's petition for a Writ of Mandamus ordering the City
to pay interest on the SID bonds.
Further, Freed's claims do not arise out of the same lrconduct,
transaction, or oc~urrence~~
because Egeland's suit involved the
failure of the City to pay interest on the SID bonds, while D.A.
Davidson and Freed were interpled as possible stakeholders to the
bonds. Freed's claims against D.A. Davidson arose out of D.A.
Davidson's refusal to release the SID bonds to Freed. See Walstad
v. Norwest Bank of Great Falls (1989), 240 Mont. 322, 324-326, 783
P.2d 1325, 1327-1328. We conclude that Freed's cross-claims do not
relate back to the date of Egeland's original complaint on the
basis of the Tynes decision or Rule 15(c), M.R.Civ.P.
v
Freed's last contention is that a five-year limitations period
applies to a "competing interest in personal property.'' An action
for claim and delivery of personal property is provided for by
5 3 27-17-101 to -405, MCA. Freed asserts that a five-year
limitations period applies to such a claim pursuant to 5 27-2-231,
MCA, which is a catch-all statute for !'relief not otherwise
provided for." However, the statute controlling a claim and
delivery action is 5 27-2-207, MCA:
Within 2 years is the period prescribed for the
commencement of an action for:
(1) injury to or waste or trespass on real or
personal property;
( 2 ) taking, detaining, or injuring any goods or
chattels, including actions for the specific recovery of
personal property.
Freed's cross-claim was not filed within the two-year limitations
period for a claim and delivery action.
The judgment of the District Court is affirmed.
We concur:
Justices / /'
Justice William E. Hunt, Sr., did not participate in this
decision.