Osterman v. Sears, Roebuck & Co.

No. 02-028

IN THE SUPREME COURT OF THE STATE OF MONTANA

2003 MT 327

LAURA OSTERMAN,

Plaintiff and Appellant,

v.

SEARS, ROEBUCK & COMPANY, and
K-DECORATORS, INC., a Montana
corporation, d/b/a K-DESIGNERS,

Defendants and Respondents.

APPEAL FROM: District Court of the Eighth Judicial District,
In and For the County of Cascade, Cause No. BDV 99-522,
Honorable Kenneth R. Neill, Presiding Judge

COUNSEL OF RECORD:

For Appellant:

Thomas E. Boland and Mark D. Meyer, Attorneys at Law, Great
Falls, Montana

For Respondents:

Michael K. Rapkoch and Randolph Jacobs, Jr., Felt, Martin, Frazier
Jacobs & Rapkoch, P.C., Billings, Montana (K-Decorators)

J. Michael Young, Alexander, Baucus, Taleff, Paul & Young, PLLC,
Great Falls, Montana (Sears, Roebuck)

Submitted on Briefs: August 8, 2002

Decided: November 26, 2003

Filed:

__________________________________________
Clerk
Justice Jim Rice delivered the Opinion of the Court.

¶1 Laura Osterman (Osterman) brought this action in the District Court for the Eighth

Judicial District, Cascade County, alleging actual and constructive fraud, negligent

misrepresentation, negligence, negligent hiring of an independent contractor, breach of

express warranty, and deceptive, unfair trade practices. Defendants moved for summary

judgment on all claims. The District Court granted summary judgment to Defendants on

Osterman’s claims for actual and constructive fraud, unfair trade practices, and negligent

misrepresentation. A jury trial ensued on the remaining claims, and a verdict was returned

in favor of Osterman for breach of express warranty. Osterman thereafter sought attorney

fees and costs. Following a hearing, the District Court concluded Osterman was entitled to

attorney fees and costs for her breach of warranty claim only, reducing her requested amount

based upon a pro rata calculation of the attorneys’ time spent on that claim. Osterman

appeals the District Court’s order granting summary judgment on her claims for fraud and

unfair trade practices, as well as the court’s award of attorney fees. We affirm in part,

reverse in part, and remand.

¶2 Osterman raises the following issues on appeal:

¶3 1. Did the District Court err in granting summary judgment to Defendants on

Osterman’s claims for actual fraud, constructive fraud, unfair trade practices, and negligent

misrepresentation?

¶4 2. Did the District Court abuse its discretion in applying a pro rata reduction to

Osterman’s requested attorney fees?

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 FACTUAL AND PROCEDURAL BACKGROUND

¶5 In the summer of 1996, Laura Osterman, then age 69 and recently widowed,

responded to a written solicitation from Sears, Roebuck & Co. (Sears) regarding vinyl

siding for her home. On August 15, 1996, James E. Sluder (Sluder) of K-Designers (K-

Designers), an authorized contractor of Sears, visited Osterman at her home to discuss the

purchase and installation of vinyl siding. During his visit, Sluder provided Osterman with

a number of color brochures, including one clearly identifying the manufacturer of the siding

as a company named “Gentek.” Sluder also provided a brochure, several pages in length,

in which the words “SEARS SIDING,” repeatedly appeared throughout the brochure in large

print followed by the slogan, “[p]roudly sold, furnished and installed by K-Designers, a

Sears authorized contractor,” which appeared in small font near the bottom of the page. The

brochure also contained one page dedicated entirely to promoting K-Designers, bearing the

K-Designers logo at the bottom right hand corner.

¶6 On the day of Sluder’s visit, Osterman agreed to purchase approximately $22,000

worth of vinyl siding, to be financed through “Sears Financial,” and installed at her residence

the following month. Osterman and Sluder executed a Sales Agreement, whereby Osterman

agreed to purchase the siding and “to contract with K-Designers, to furnish, deliver, and

arrange for installation of all materials . . . .” Osterman additionally agreed to participate in

a product awareness program and signed a certificate-like document indicating that she

would, among other things, allow K-Designers to use “before and after” photographs of her

home, allow placement of a Sears Siding/K-Designers sign on her property during

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installation, and allow K-Designers to show the exterior of her property to prospective

customers.

¶7 Despite this, Osterman believed she was dealing exclusively with Sears, that Sluder

was a Sears’ employee, and that the materials provided would be Sears’ products. When

installation of the siding commenced in September 1996, however, it was K-Designers, not

Sears, that arrived to install the siding.

¶8 On October 7, 1996, at the completion of installation, Osterman tendered a check to

K-Designers for approximately $11,000 and signed a Certificate of Completion

acknowledging “that all goods and services sold to us by K-Designers have been furnished

and performed in a workmanlike manner and in accordance with the terms of said contract.”

However, shortly after signing this document, Osterman discovered numerous defects in the

installation of the siding. In particular, she noticed that the trim was not properly installed,

that nails were put through the siding at inappropriate places, that some of the trim siding

was attached to the house with double sided tape, and that the siding material was

inappropriate to Montana’s climate. Osterman accordingly notified her local Sears store

regarding her dissatisfaction.

¶9 Following several warranty service calls by both K-Designers and Sears, Osterman

continued to be dissatisfied with the siding project. On May 4, 1999, Osterman filed suit,

seeking damages for actual and constructive fraud, negligent misrepresentation, breach of

express warranty, negligent hiring of an independent contractor, negligent installation, and

deceptive, unfair trade practices.

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¶10 After substantial discovery, K-Designers filed a motion for summary judgment

asserting that Osterman’s claims for fraud, misrepresentation, and unfair trade practices were

barred by the applicable two years statute of limitations. Thereafter, both K-Designers and

Sears moved for summary judgment on the merits of Osterman’s fraud, negligent

misrepresentation, and unfair trade practices claims, with K-Designers additionally

requesting summary judgment on Osterman’s claims for negligent installation and breach

of express warranty.

¶11 Following a hearing, the District Court granted summary judgment in favor of K-

Designers and Sears on Osterman’s claims for actual and constructive fraud, as well as unfair

trade practices, as time barred. The District Court also concluded that summary judgment

on the merits of these claims and on Osterman’s negligent misrepresentation claim was

appropriate. The court reserved the breach of express warranty, negligence, and negligent

hiring of an independent contractor claims for trial.

¶12 On November 9, 2000, a Cascade County jury returned a verdict for Osterman in the

amount of $12,500 for breach of express warranty against both K-Designers and Sears. The

jury rejected, however, Osterman’s negligent installation claim against K-Designers and the

negligent hiring of an independent contractor claim against Sears.

¶13 Osterman thereafter moved for an award of attorney fees and costs. Pursuant to the

Sales Agreement entered with K-Designers, the District Court determined Osterman was

entitled to recover attorney fees and costs, but only from K-Designers and only with respect

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to her breach of express warranty claim. The court accordingly scheduled a hearing to

determine the proper amount of fees and costs to be awarded to Osterman.

¶14 At the hearing, Osterman’s attorneys indicated that they had expended 147.15 hours

prior to the entry of summary of judgment, which dismissed four of Osterman’s seven

claims, and 68.65 hours thereafter, for a total of 215.80 hours. Allocating this time between

the various claims on a pro rata basis, the District Court concluded Osterman was entitled

to one-seventh of the 147.15 hours expended prior to the entry of summary of judgment, or

21.02 hours, and one-third of the 68.65 hours spent thereafter, or 22.88 hours, for a total of

43.9 hours. At $125.00 per hour, which the parties agreed was a reasonable hourly rate, the

District Court awarded Osterman attorney fees in the amount of $5,487.50.

¶15 With respect to costs, the court similarly concluded Osterman should receive only

those incurred in relation to the breach of express warranty claim. The court reduced

Osterman’s requested amount of costs proportionately, for a total award of $790.25.

Osterman appeals the District Court’s summary dismissal of her claims for fraud, negligent

misrepresentation, and unfair trade practices, and the court’s award of partial attorney fees

against K-Designers. We affirm the District Court’s order granting summary judgment in

favor of Sears and K-Designers. However, we conclude the District Court erred in its award

of attorney fees and costs, and remand that issue to the District Court for redetermination.

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 DISCUSSION

¶16 Did the District Court err in granting summary judgment to Defendants on

Osterman’s claims for actual fraud, constructive fraud, unfair trade practices, and

negligent misrepresentation?

¶17 We review a district court’s summary judgment ruling de novo and employ the same

method of evaluation, based upon Rule 56 M.R.Civ.P., as applied by the district court.

Andrews v. Plum Creek Manufacturing, LP., 2001 MT 94, ¶ 5, 305 Mont. 194, ¶ 5, 27 P.3d

426, ¶ 5. Pursuant to Rule 56, M.R.Civ.P., we apply the following inquiry:

The movant must demonstrate that no genuine issues of material fact exist.
Once this has been accomplished, the burden then shifts to the non-moving
party to prove, by more than mere denial and speculation, that a genuine issue
[of fact] does exist. Having determined that genuine issues of fact do not
exist, the court must then determine whether the moving party is entitled to
judgment as a matter of law. We review the legal determinations made by a
district court as to whether the court erred.

Bruner v. Yellowstone County (1995), 272 Mont. 261, 264, 900 P.2d 901, 903 (citations

omitted).

¶18 In the instant case, the District Court granted summary judgment in favor of K-

Designers and Sears as to Osterman’s claims for actual and constructive fraud, as well as her

claim for unfair trade practices, on the basis that these claims were barred by the applicable

two-year statute of limitations set forth in §§ 27-2-203 and 27-2-211, MCA (1999).

Osterman argues that the two-year period was tolled and that her filing was timely.

¶19 Section 27-2-203, MCA, provides that:

The period prescribed for the commencement of an action for relief on the
ground of fraud or mistake is within 2 years, the cause of action in such case

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 not to be deemed to have accrued until the discovery by the aggrieved party
of the facts constituting the fraud or mistake.

¶20 Under Montana law, it is well settled that fraud claims are subject to a two-year

statute of limitations. Fleming v. Fleming Farms, Inc. (1986), 221 Mont. 237, 243, 717 P.2d

1103, 1107. This two-year statute of limitations also applies to actions for constructive

fraud. Tynes v. Bankers Life Co. (1986), 224 Mont. 350, 357, 730 P.2d 1115, 1120 (citing

Purcell v. Automatic Gas Distributors, Inc. (1983), 207 Mont. 223, 232, 673 P.2d 1246,

1251 (defining “constructive fraud” as within the definition of fraud)).

¶21 In Association of Unit Owners of Deer Lodge Condominium v. Big Sky of Montana,

Inc. (1990), 245 Mont. 64, 82, 798 P.2d 1018, 1029, this Court upheld, without analysis, the

district court’s determination that the unit owners’ claim for unfair trade practices under

§ 30-14-133, MCA, was time barred by the statute of limitations set forth at § 27-2-211,

MCA. That section provides, in relevant part:

(1) Within 2 years is the period prescribed for the
commencement of an action upon:
...
(c) a liability created by statute other than:
(i) a penalty or forfeiture; or
(ii) a statutory debt created by the payment of public
assistance.

¶22 As defined by this Court in Royal Ins. Co. v. Roadarmel, 2000 MT 259, ¶ 17, 301

Mont. 508, ¶ 17, 11 P.3d 105, ¶ 17, a “liability created by statute” is one which “establishes

a new rule of private right unknown to the common law.” Put another way, it is a “‘liability

which would not exist but for the statute . . . .’” Royal Ins. Co., ¶ 17 (citing Abell v. Bishop

(1930), 86 Mont. 478, 486, 284 P. 525, 528). In Royal Ins. Co., we concluded that an

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insurer’s right to subrogation in a workers’ compensation claim constituted a “liability

created by statute” within the meaning of § 27-2-211(1)(c), MCA, “because it amount[ed]

to an unqualified right of reimbursement not found at common law.” Royal Ins. Co., ¶ 33.

¶23 Montana’s Unfair Trade Practices Act authorizes private individuals to maintain a

cause of action for injuries sustained as a result of unfair or deceptive trade practices and

allows recovery of actual damages or $200, whichever is greater. See § 30-14-133(1), MCA.

Additionally, the district court may, in its discretion, award up to three times the amount of

actual damages and reasonable attorney fees. See § 30-14-133(1), MCA; Dillree v. Devoe

(1986), 223 Mont. 47, 54, 724 P.2d 171, 176. While it is possible to conceive of a case in

which the same conduct gives rise to a common law cause of action and a claim under the

Act, we conclude the Act creates a liability not existing at common law by providing the

successful claimant the unqualified right to receive the greater of $200, or actual damages.

Further, the Act provides authority for the district court to award treble damages upon

successful proof of unfair or deceptive practices. In Plath v. Schonrock, 2003 MT 21, ¶ 27,

314 Mont. 101, ¶ 27, 64 P.3d 984, ¶ 27, we determined that such damages are intended to

be compensatory rather than punitive, and thus, do not constitute a penalty.

¶24 Therefore, as a liability created by statute that is neither a penalty nor a statutory debt,

claims brought under Montana’s Unfair Trade Practices Act, § 30-14-101, et seq., MCA, are

subject to the two-year time limitation set forth at § 27-2-211, MCA. Having so concluded,

we now turn to the record to determine whether Osterman’s claims were timely filed.

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¶25 Osterman filed her complaint on May 4, 1999, approximately two years and nine

months after entering the Sales Agreement with K-Designers and Sears. This period of time

notwithstanding, Osterman argues the District Court erred in dismissing her claims for fraud

and unfair trade practices as untimely because when she entered the Sales Agreement, she

believed she was dealing exclusively with Sears, and that it was not until sometime later that

she discovered K-Designer’s involvement in the siding project. Accordingly, Osterman

argues that disputed issues of material fact regarding discovery of her cause of action raised

the possibility that her action had accrued beyond the two-year statutory period, and thus,

precluded an award of summary judgment.

¶26 As a general rule, the statute of limitations for actions based on fraud begins to run

when the fraud occurs, unless the facts forming the basis for the alleged fraud are, by their

nature, concealed, or the defendant takes affirmative action to prevent the plaintiff from

discovering the injury. Cartwright v. Equitable Life Assurance Soc’y (1996), 276 Mont. 1,

17, 914 P.2d 976, 986. A significant number of jurisdictions also apply this rule to actions

for unfair trade practices. Teran v. Citicorp. Person-to-Person Financial Center (Ariz.

1985), 706 P.2d 382, 389; Miller v. Dickenson (Tex. App. 1984), 677 S.W.2d 253, 258;

Pickett v. Holland America Line-Westours, Inc. (Wash. App. 2000), 6 P.3d 63, 69;

Medimatch, Inc. v. Lucent Technologies Inc. (N.D. Cal. 2000), 120 F.Supp.2d 842, 852.

¶27 For purposes of tolling the statute of limitations in an action for fraud or unfair trade

practices, ordinary diligence must be exercised by the aggrieved party in the discovery of the

facts constituting the fraud or deceptive practice. See Gregory v. City of Forsyth (1980), 187

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Mont. 132, 137, 609 P.2d 248, 251. “When the statute of limitations issue involves the time

at which the plaintiff, through the use of reasonable diligence, should have discovered the

facts, ‘[t]he 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.’” Johnson v. Barrett, 1999 MT 594, ¶ 11, 295 Mont. 254, ¶ 11,

983 P.2d 925, ¶ 11.

¶28 Here, the District Court found that Osterman failed to specify any representation

made by either K-Designers or Sears that K-Designers was part of the Sears Company, that

Sluder was a Sears’ employee, or that the product sold was manufactured by Sears. Rather,

Osterman simply asserted she was led to believe that was the case. This assertion, however,

would have been in derogation to the information actually provided to Osterman on August

15, 1996, whereupon she received sales brochures identifying the manufacturer of the siding

as a company named “Gentek,” and K-Designers as “a Sears authorized Contractor.” On

that same date, Osterman also executed a Sales Agreement authorizing K-Designers to

“furnish, deliver, and arrange for installation of all materials . . .” and agreed to participate

in a product awareness program in which she would, among other things, allow K-Designers

to use before and after photographs of her home, place a Sears Siding/K-Designers sign on

her property during installation, and show the exterior of her property to prospective

customers.

¶29 By October 7, 1996, Osterman had demonstrated her knowledge of K-Designer’s

relationship with Sears by tendering a check to K-Designers for approximately $11,000 and

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signing a Certificate of Completion acknowledging “that all goods and services sold to us

by K-Designers have been furnished and performed in a workmanlike manner and in

accordance with the terms of said contract.” Thus, even if Osterman was not fully aware of

K-Designers’ relationship with Sears on August 15, 1996, this confusion was clearly

resolved by October 7 of that same year when she wrote the payment check to K-Designers

and signed a Certificate of completion, more than two years prior to the filing of her suit.

¶30 A “party asserting fraud is put on inquiry notice of the other party’s misdeeds, and

must exercise ordinary diligence to discover the facts constituting the fraud. . . . Mere

ignorance of the facts will not suffice to toll the statute of limitations.” Holman v. Hansen

(1989), 237 Mont. 198, 202, 773 P.2d 1200, 1203 (citations omitted). Here, Osterman has

not shown affirmative conduct by Sears or K-Designers calculated to obscure the existence

of a cause of action. Nor is this a situation in which the facts giving rise to the alleged fraud

are, by their nature, concealed. Rather, K-Designers’ relationship with Sears as an

“authorized contractor” is evident from a plain reading of the August 15, 1996 Sales

Agreement. Although Osterman correctly points out that a person who fails to take the

opportunity to examine a written form before executing it may still claim fraud to a

document “where he is prevented from reading it or having it read to him by some fraud,

trick, artifice, or devise by the other party,” Cartwright, 276 Mont. at 26, 914 P.2d at 992,

she has not shown that to be the case here. Accordingly, the District Court was correct in

holding Osterman’s claims for actual and constructive fraud and unfair trade practices to be

barred under the statute of limitations because she discovered, or reasonably should have

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discovered, the facts constituting the alleged fraud and deceptive practices more than two

years prior to filing suit.

¶31 Turning to Osterman’s claim for negligent misrepresentation, the District Court

correctly concluded this claim was not barred by the statute of limitations. See Cechovic v.

Hardin & Assoc., Inc. (1995), 273 Mont. 104, 119, 902 P.2d 520, 529 (holding that because

negligent misrepresentation is couched in terms of negligence, the three-year statute of

limitations for negligence applies). However, the court found that Osterman failed to make

a prima facie showing of negligent misrepresentation and granted summary judgment in

favor of K-Designers and Sears on that basis.

¶32 This Court has long recognized the tort of negligent misrepresentation. See

Yellowstone II Dev. Gr. v. First Amer. Title Co., 2001 MT 41, ¶ 78, 304 Mont. 223, ¶ 78, 20

P.3d 755, ¶ 78. To prevail on a claim for negligent misrepresentation, the plaintiff must

prove the following elements:

a) the defendant made a representation as to a past or existing material fact;

b) the representation must have been untrue;

c) regardless of its actual belief, the defendant must have made the
representation without any reasonable ground for believing it to be true;

d) the representation must have been made with the intent to induce the
plaintiff to rely on it;

e) the plaintiff must have been unaware of the falsity of the representation; it
must have acted in reliance upon the truth of the representation and it must
have been justified in relying upon the representation;

f) the plaintiff, as a result of its reliance, must sustain damage.

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Yellowstone II, ¶ 78.

¶33 Here, the gravamen of Osterman’s claim is that the vinyl siding was sold, furnished,

and installed on her home under false and misleading circumstances. Essentially, Osterman

argues that Sluder’s failure to clearly identify his relationship with Sears and K-Designers

when he visited her home on August 15, 1996, along with the sales brochures’ heavy

promotion of the product as “SEARS SIDING,” lulled her into believing she was dealing

exclusively with Sears. During the proceedings for summary judgment, however, Osterman

failed to specify any false statements allegedly made by K-Designers or Sears causing her

to believe this was true.

¶34 As this Court has often noted, the party opposing summary judgment must “set forth

specific facts and cannot rely on speculative, fanciful, or conclusory statements.” Sprunk

v. First Bank System (Sprunk II) (1992), 252 Mont. 463, 466-67, 830 P.2d 103, 105; Klock

v. Town of Cascade (1997), 284 Mont. 167, 174, 943 P.2d 1262, 1266. Here, Osterman’s

claim fails to offer evidence demonstrating the primary element of the cause of action;

namely, that Sears or K-Designers made a false representation of material fact. Her claim

for negligent misrepresentation accordingly fails, entitling Sears and K-Designers to

judgment as a matter of law.

¶35 Did the District Court abuse its discretion in applying a pro rata reduction to

Osterman’s requested attorney fees?

¶36 We review a district court’s award of attorney fees to determine whether the court

abused its discretion. Mortgage Source, Inc. v. Strong, 2003 MT 205, ¶ 8, 317 Mont. 37,

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¶ 8, 75 P.3d 304, ¶ 8. A district court abuses its discretion if its fee award is based on an

inaccurate view of the law or a finding of fact is clearly erroneous. Ihler v. Chisholm, 2000

MT 37, ¶ 24, 298 Mont. 254, ¶ 24, 995 P.2d 439, ¶ 24.

¶37 The District Court awarded attorney fees and costs to Osterman for the breach of

warranty portion of her claim only, this being the only theory based upon contract for which

Osterman received a verdict against both Sears and K-Designers. To calculate the award,

the District Court allocated the total amount of time expended by Osterman’s attorneys

among the seven claims that existed prior to summary judgment, and the three claims which

existed thereafter, on a pro rata basis. Based upon the evidence received at the June 13, 2001

hearing, the court awarded Osterman one-seventh of the time expended by her attorneys

prior to entry of summary of judgment, or 21.02 hours, and one-third of their time expended

thereafter, or 22.88 hours, for a total of 43.9 hours or a total fee of $5,487.50. The court

similarly pro rated costs, awarding Osterman one-third of total costs, or $790.25.

¶38 Osterman asserts the District Court erred in applying such a mechanical, pro rata

division of her requested attorney fees because each of her claims were inextricably

intertwined and predicated upon common core facts. She argues that, in awarding attorney

fees, a district court must focus on the nature of the claims advanced, regardless of their

ultimate disposition.

¶39 Indeed, the United States Supreme Court rejected “a mathematical approach

comparing the total number of issues in the case with those actually prevailed upon” for

determining attorney fee awards in Hensley v. Eckerhart (1983), 461 U.S. 424, 435 n.11, 103

15
S.Ct. 1933, 1940 n.11, 76 L.Ed.2d 40, 52 n.11, upon which we have relied. See Laudert v.

Richland County Sheriff’s Dept., 2001 MT 287, ¶ 18, 307 Mont. 403, ¶ 18, 38 P.3d 790,

¶ 18. The Hensley Court noted that “[s]uch a ratio provides little aid in determining what

is a reasonable fee in light of all the relevant factors.” Hensley, 461 U.S. at 435, n.11, 103

S.Ct. at 1940 n.11, 76 L.Ed.2d at 52 n.11.

¶40 A pro rata calculation is also inconsistent with a consideration of the guidelines we

have established for determining a reasonable fee award: (1) the amount and character of the

services rendered; (2) the labor, time, and trouble involved; (3) the character and importance

of the litigation in which the services were rendered; (4) the amount of money or the value

of the property to be affected; (5) the professional skill and experience called for; (6) the

attorneys' character and standing in their profession; and (7) the results secured by the

services of the attorneys. Swenson v. Janke (1995), 274 Mont. 354, 361, 908 P.2d 678, 682-

83; see also Plath, ¶ 36. Although these factors are not exclusive–that is, a district court may

consider other factors–they serve as guidelines for determining what constitutes a reasonable

fee. Morning Star Enterprises, Inc. v. R.H. Grover Inc. (1991), 247 Mont. 105, 113, 805

P.2d 553, 558. Because the District Court’s pro rata calculation failed to consider these

factors, Osterman was deprived of a proper assessment of her fee claim.

¶41 Accordingly, we reverse the District Court’s attorney fee award and remand this

matter for a determination of reasonable attorney fees in accordance with the requirements

of Swenson, 274 Mont. at 361, 908 P.2d at 682-83, and Plath, ¶ 36.

¶42 Affirmed in part, reversed in part, and remanded.

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 /S/ JIM RICE

We concur:

/S/ KARLA M. GRAY
/S/ W. WILLIAM LEAPHART
/S/ JAMES C. NELSON

[end]

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