Case Title: AMUNDSON v WORTMAN

Citation: 

Docket Number: 88-564

State: montana

Court: Montana Supreme Court

Date: 1989-07-18T00:00:00Z

Document:
No. 88-564 I N THE SUPREME COURT O F T H E STATE O F M O N T A N A GAR 1 2 . A M U N D S O N , P l a i n t i f f and Respondent, -vs- RICHARD A. W O R T M A N , Defendant and Appellant. APPEAL F R O M : D i s t r i c t Court o f t h e E i g h t e e n t h J u d i c i a l D i s t r i c t , I n and f o r t h e County of G a l l a t i n , The Honorable Joseph B. Gary, Judge p r e s i d i n g . COUNSEL O F RECORD: For Appellant: Morrow, ~ e d i v y & Rennett, P.C.; Lyman H . Rennett, 111, and T e r r y Schaplow, Bozeman, Montana For Respondent: Drysdale, McLean, Nellen & Nellen; ~ i c h a r d C. g ell en, Boze~nan, Montana Submitted on B r i e f s : June 8, 1989 Filed-: ~ . -- Decided: J u l y 18, 1989 M r . J u s t i c e R. C. McDonough d e l i v e r e d t h e Opinion o f t h e Court. This i s an appeal from an a c t i o n f o r breach o f a con- t r a c t t o buy a business. Defendant Richard A. Wortman ap- p e a l s from t h e judgment o f t h e D i s t r i c t Court o f t h e Eighteenth J u d i c i a l D i s t r i c t , G a l l a t i n County, f i n d i n g him i n breach o f t h e c o n t r a c t and awarding t h e balance o f t h e pur- chase p r i c e , plus i n t e r e s t , t o p l a i n t i f f Gar L. Amundson. W e a f f i r m on t h e s u b s t a n t i v e i s s u e s regarding t h e breach, b u t remand f o r f u r t h e r proceedings. Wortman p r e s e n t s t h r e e i s s u e s f o r review: 1. Did t h e D i s t r i c t Court err i n f a i l i n g t o f i n d t h e e x i s t e n c e o f c o n s t r u c t i v e fraud? 2 . Did t h e D i s t r i c t Court err i n equating "customer l i s t s " w i t h "mailing l i s t s " ? 3 . Did t h e D i s t r i c t Court err i n awarding a t t o r n e y ' s f e e s without holding an e v i d e n t i a r y hearing? Amundson was t h e p r o p r i e t o r o f a b u s i n e s s c a l l e d I n f o r - mation Processing i n Bozeman, Montana. Information Process- ing produced a product known a s t h e Direct School Marketing Program, a series o f computer-generated b o o k l e t s designed t o l i s t t h e names, a d d r e s s e s and telephone numbers o f school o f f i c i a l s , f a c u l t y and coaches, t o g e t h e r with d a t e s and l o c a t i o n s o f v a r i o u s conferences and s t u d e n t e v e n t s t a k i n g p l a c e during a given season o r school y e a r . The b o o k l e t s were s o l d t o businesses--chiefly i n t h e lodging and r e s t a u - r a n t i n d u s t r i e s - - i n t e r e s t e d i n making c o n t a c t w i t h t h e l i s t e d o f f i c i a l s i n o r d e r t o o b t a i n t h e i r patronage during a confer- ence o r event. Information Processing a l s o o f f e r e d a f o l - low-up s e r v i c e , which involved p u t t i n g i t s s u b s c r i b e r s i n touch w i t h school o f f i c i a l s by mail. Amundson set up t h e business himself, which included writing the computer program that compiled the booklet. In 1987, Wortman approached Amundson with a proposal to buy the Direct School Marketing Program. While negotiating terms of the sale, Amundson made various representations to Wortman concerning subjects such as projected earnings from the program, the costs involved and opportunities for new business. Pursuant to these negotiations, Wortman drew up a contract in longhand. Amundson read the contract and pre- pared a typed version. The contract was executed on April 7, 1987. The price for the business was $18,000, to be paid with a $2,000 down payment and two annual installments of $8,000. Among other provisions, the contract called for Amundson to deliver to Wortman the computer equipment, software and other items listed in an appendix to the contract, as well as the copyright and logo for the Direct School Marketing Pro- gram and all documents related to its course of business. Amundson was also to provide Wortman with "whatever assis- tance is deemed necessary" in the preparation, marketing and distribution of the Fall 1987 edition of the program. The contract called for Wortman to pursue the business in a diligent, businessman-like manner, and. pay all expenses of doing business. Wortman began operating the business, but was dissatis- fied with the results of his efforts. He sought to rescind the contract and return the business, but Amundson did not agree to the rescission. Wortman did not pay his first installment. On September 17, 1987, Amundson made a written demand through his attorney for payment of the installment. When Wortman did not do so, Amundson filed this action on October 21, 1987. The complaint sought payment of "all monies owing now or in the future" under the contract, or return of the business and damages for waste due to Wortman's actions in running it. Wortman raised an affirmative de- fense, alleging that Amundson had made several misrepresenta- tions during negotiation of the sale that amounted to constructive fraud and entitled him to rescission. The case was tried before the District Court, sitting without a jury. On August 10, 1988, the court issued its Findings of Fact and Conclusions of Law with Memorandum, in which Wortman was adjudged to be in breach of the contract. Judgment was entered awarding Amundson the balance of the contract price plus interest, together with attorney's fees and costs, and Amundson's attorney filed a Notice of Judg- ment. This appeal followed. I. On appeal, Wortman challenges the District Court's Findings of Fact. When reviewing the findings of fact in a civil action tried by a district court without a jury, this Court will not substitute its judgment for that of the trier of fact. Rather, our review is confined to determining whether the findings of fact are clearly erroneous. Although the evidence may conflict, the court's findings will be presumed correct if supported by substantial evidence. Meridian Minerals Co. v. Nicor Minerals, Inc. (Mont. 19871, 742 P.2d 456, 461, 44 St.Rep. 1516, 1523-24. The District Court's Findings of Fact relevant to Wortman's appeal read as follows: 12. That the Montana Supreme Court discusses constructive fraud in the case of Moschelle v. Hulse, 622 P.2d 155 (Mont. 1980). The Court spoke in terms of "a pattern of repeated concealments of the true state of affairs" and "withholding rele- vant facts," all of which created a false impres- sion to the purchaser. 13. That the Court does not find constructive fraud by the seller to the buyer. 14. That the evidence did not show that past profits of the Plaintiff were falsely stated, that he made repeated concealments in promoting the business sale, that an intentional lack of full disclosure created a false impression, or that there was deliberate misleading of the facts which crossed the threshold of "puffing" and entered the realm of constructive fraud. 15. That the Court finds a customer list was provided, but any mailing list undergoes a constant rollover, and use of such a list in a business requires aggressive and continual updating. 16. That a sales person leaving the employment upon the sale of a business is not reason to invoke constructive fraud. 17. That the Contract was very vague regarding what "assistance" was to be provided by the seller, and compelling evidence has not been presented to this Court justifying a lack of assistance to the point of constructive fraud. Wortman argues that the court's Finding of Fact No. 13 was in error and contrary to the evidence in this case. Wortman also argues that the court confused "customer lists" with "mailing lists", which rendered its Finding of Fact No. 15 erroneous. Constructive fraud is defined at 5 28-2-406, MCA, as any breach of duty which, without an actually fraudulent intent, gains an advantage to the person in fault or anyone claiming under him by misleading another to his prejudice or to the prejudice of anyone claiming under him ... In cases such as the one at bar, the "duty" involved is the duty to disclose material facts to the purchaser, a breach of which is an essential element of constructive fraud. Mends v. Dykstra (1981), 195 Mont. 440, 637 P.2d 502. The Mends case addressed the issue of when such a duty arises. While the defendants in Mends asserted that no duty arose absent a fiduciary or confidential relationship, it was pointed out that this Court had found "special circumstances" surrounding some transactions which give rise to the duty to disclose. One such set of circumstances was the "pattern of repeated concealments" found in the Moschelle case cited by Wortman in support of his position and included in the District Court's Findings of Fact quoted above. Wortman argues that Amundson repeatedly concealed the true state of affairs concerning the business. According to Wortman, Amundson failed or refused to provide business records detailing the financial history of the business and did not disclose important details concerning its current status. Wortman thus asserts that his negotiations with Amundson created a false impression about the desirability of purchasing the Direct School Marketing Program. We disagree. The business records Wortman complains of are ledgers and tax records for the years preceding the purchase. He argues that he was unable to gauge the true performance of the business without them, and was forced to rely on repre- sentations Amundson made in income projections prepared during their negotiations. Wortman also argues that the projections presented an inflated notion of the profit, that could be made selling booklets. Both sides introduced income projections into evidence. According to testimony by Amundson, as many as five or six such projections were prepared for various possible approach- es Wortxnan might take in operating the business. Amundson also testified that the figures for such things as materials costs, labor and net profit per booklet were based on the past performance of the business. The projections introduced at trial as Wortman's Exhibit "A" include a statement of annual net profit for the years Amundson ran the business, which Amundson testified he had taken from the ledgers at issue. The projections state net profit forecasts that closely approximate the actual figures from past operation, although some projected profits are actually lower than past performance. Amundson also testified that Wortman never requested tax records during negotiations. Wortman complains that Amundson also concealed facts about the status of the business that worked to Wortman's detriment. After the contract had been executed, Amundson and Wortman met with Amundson's salesman, Tim Barrett, in Butte to go over Barrett's role in the business. At this meeting, Barrett informed Wortman that he would be quitting his job to pursue other business interests. Wortman alleges that Amundson knew this before the meeting and concealed it, leading Wortman to believe that he was buying a business employing an active salesman. The testimony cited by Wortman on this point bears examination. Barrett testified that he did in fact tell Amundson of his decision to quit prior to the meeting. However, Barrett said, "I believe I told Mr. Amundson the day he called me and he said he had sold the business ...." This testimony indicates that Amundson did not know of Barrett's departure until after the sale was consumated. He therefore could not have concealed it to Wortman's detriment in decid- ing on the purchase. Furthermore, Wortman himself testified that the presence or absence of a hired salesman was not crucial to his plan for operating the business. Wortman also complained that Amundson did not disclose the "considerable ill will" he had generated among his cus- tomers, or their complaints that the booklets were ineffec- tive. However, Wortman testified that the sluggish sales he experienced could have been the result of his own shortcom- ings as a salesman. Wortman's Exhibit "I", a file folder containing returned sales letters introduced in support of his contention of customer animosity does not lend support to his claim. The file contains 12 letters sent out by Wortman and l a t e r r e t u r n e d . On one o f t h e envelopes i s w r i t t e n " n o t i n t e r e s t e d , " b u t t h e o t h e r 11 were r e t u r n e d because t h e addressee had moved. The only l e t t e r a c t u a l l y w r i t t e n by a customer s t a t e s t h a t t h e booklet p r e v i o u s l y purchased "helped a g r e a t d e a l " and a s k s t h a t t h e customer be r e t a i n e d on Wortman's mailing l i s t . When t e s t i f y i n g about t h e letters, Wortman admitted t h a t t h e drop i n s a l e s could have been a t t r i b u t e d t o o t h e r causes, such a s a g e n e r a l l y slow b u s i n e s s c l i m a t e . S t i l l another o f Wortman's claims was t h a t Amundson f a i l e d t o supply a s s i s t a n c e with business o p e r a t i o n s t h a t he promised during n e g o t i a t i o n s and i n t h e c o n t r a c t i t s e l f . I n response, Amundson t e s t i f i e d t h a t he had volunteered a s s i s - t a n c e , and s u p p l i e d a r e c o r d of h i s a c t i v i t i e s . While t h e examples above do n o t a d d r e s s every claimed concealment, t h e y a r e s u f f i c i e n t t o i l l u s t r a t e t h a t evidence i n t h i s c a s e s u p p o r t s t h e D i s t r i c t C o u r t ' s conclusion t h a t c o n s t r u c t i v e f r a u d was n o t p r e s e n t . W e have found no "pat- t e r n o f r e p e a t e d concealments" i n t h e r e c o r d , and a f f i r m t h e District Court on t h i s i s s u e . Wortman's second challenge concerns "mailing l i s t s " v e r s u s "customer l i s t s " . One o f t h e i t e m s purchased by Wortman a s p a r t o f t h e business was a "customer l i s t " com- p i l e d o v e r t h e course o f t h e Direct School Marketing Pro- gram's e x i s t e n c e . Wortman's b r i e f t o t h i s Court makes much o f t h e d e f i n i t i o n o f "customer" a s one who r e p e a t e d l y makes purchases o r has b u s i n e s s d e a l i n g s w i t h a tradesman. According t o Wortman, t h e l i s t s u p p l i e d was a misrepre- s e n t a t i o n , because he was a b l e t o make o n l y approximately 80 s a l e s t o over 300 l i s t e d "customers". A t t r i a l , Amundson t e s t i f i e d a s t o how t h e l i s t was compiled. According t o Amundson, businesses w e r e placed on t h e l i s t when t h e y pur- chased a booklet. E n t r i e s were a l s o made f o r each purchaser i n d i c a t i n g such t h i n g s a s method o f payment. The names on t h e l i s t were t h u s "customers" i n t h a t each business had made a t l e a s t one purchase. While n e a r l y every business s t r i v e s f o r r e p e a t customers, t h e r e is no guarantee t h a t a customer w i t h an e s t a b l i s h e d r e c o r d of repeated purchases w i l l n o t t a k e h i s b u s i n e s s elsewhere o r simply s t o p purchasing f o r any number o f reasons. W e a l s o see nothing i n t h e r e c o r d t o i n d i c a t e t h a t Amundson made such a guarantee t o Wortman. The manner i n which t h e l i s t was r e f e r r e d t o was t h u s i r r e l e v a n t , and w e a f f i r m t h e c o u r t on t h i s i s s u e . Wortman c h a l l e n g e s t h e D i s t r i c t C o u r t ' s award o f a t t o r - n e y ' s f e e s , arguing t h a t it d i d s o on t h e b a s i s o f t h e a f f i - d a v i t o f Amundson's counsel a s t o t h e amount o f such f e e s , without holding an e v i d e n t i a r y hearing. Wortman i s c o r r e c t i n t h a t a t t o r n e y ' s f e e s cannot be awarded s o l e l y on t h e b a s i s o f an a t t o r n e y ' s a f f i d a v i t . An e v i d e n t i a r y hearing i s re- q u i r e d . S t a r k v. Borner (Mont. 1988), 762 P.2d 857, 860, 45 St.Rep. 1885, 1888. Wortman's argument has placed t h i s Court i n an unusual s i t u a t i o n . When t h e District Court e n t e r e d i t s Findings o f F a c t and Conclusions o f Law w i t h Memorandum, counsel f o r Amundson was i n s t r u c t e d t o d r a f t a judgment i n conformity w i t h t h e c o u r t ' s r u l i n g . P a r t o f t h a t r u l i n g , and conse- q u e n t l y p a r t of t h e "Judgment" signed and f i l e d by t h e c o u r t , was an award o f "reasonable a t t o r n e y ' s f e e s and c o s t s , which s h a l l be determined a t a s e p a r a t e hearing." S h o r t l y a f t e r t h e "Judgment" was f i l e d and n o t i c e d , b u t b e f o r e t h e t i m e f o r t h e h e a r i n g , counsel f o r Wortman f i l e d h i s Notice o f Appeal. The problem a r i s e s because counsel f o r Wortman f i l e d h i s Notice o f Appeal prematurely. A judgment t h a t awards c o s t s and a t t o r n e y ' s f e e s t o be determined a t a l a t e r hearing i s n o t f i n a l and appealable u n t i l t h o s e c o s t s and f e e s a r e determined. Roles v. Ler (1984), 213 Mont. 265, 692 P.2d 1. However, n e i t h e r p a r t y r a i s e d t h i s i s s u e i n t h e i r b r i e f s , and it only became apparent upon our review of t h e record, a f t e r a l l b r i e f s had been f i l e d and t h e record deposited with t h i s Court. Therefore, i n t h e i n t e r e s t s of j u d i c i a l economy, and f o r t h e purposes of -- t h i s case only, we a f f i r m t h e decision of t h e D i s t r i c t Court on t h e i s s u e s discussed above, and remand t h e cause t o t h e c o u r t f o r proper determination of c o s t s and a t t o r n e y ' s f e e s , both a t t h e D i s t r i c t Court l e v e l and upon appeal. Affirmed and remanded. Wy Concur: @ ~ - a J u s t i c e