DA 07
- 0611 IN THE SUPREME COURT OF THE STATE OF MONTANA

2008 MT 284
APPLE PARK, L
. L
. C
. , Plaint iff and Appellee,
v. APPLE PARK CONDOMINIUMS, L
. L
. C
. , and ANDREW SAUNDERS, Individually, Defendan

ts and Appellants.

APPEAL FROM: District Court of the Eleventh Judicial District,

In and For the County

of Flathead, Cause No. DV 20 06
- 107A Honorable Ted O. Lympus, Presiding Judge
COUNSEL OF RECORD:

For Appellant s : Richard De Jana , Richard De Jana & Associates, PLLC, Kalispell, M ontana For Appellee: Sean S. Frampton, Morrison & Frampton, PLLP, Whitefish, M ontana
Submitted on Briefs: July 8, 2008 Decided: August 12, 2008 Filed:

__________________________________________ Clerk August 12 20082

Justice Patricia O. Cotter delivered the Opinion of the Court. ¶1 Andrew Saunders, a New York resident, incorporated Apple Park Condominiums, L. L.C. , f or the purpose of purchasing a multi

-unit condominium building in Kalispell, Montana. A

pple Park, L. L. C. ( Seller) and Apple Park Condominiums, L.L.C. and Saunders (Buyer s ) entered into a Buy/Sell Agreement (Agreement) in July 2 005. Subsequently , B uyers refused to close on the Agreement. Seller sued and the Eleventh Judicial District Court ruled that Buyers had breached the contract. Buyers appeal. We affirm. ISSUE S ¶2 A restatement of thedispositive issue son appeal is : ¶3 Did the District Court abuse its discretion in excluding affidavit testimony submitted by Buyers’ witnesses on the basis that said testimonyc ontained inadmissible hearsay? ¶4 Did the District Court err in finding that Buyersf ailed to raise a ge nuine issue of material fact vis

- à

- vis encroachment son the property? ¶5 Did the District Court err in concluding that the absenceo f utility easement sf or individual condominium units was not a “Condition of Title” as set forthin the Buy/ Sell Agreement? FACTUAL AND PROCEDURAL BACKGROUND ¶6 In July 2005, Seller and Buyer sentered into a Buy/Sell Agreement for a sixteen

unit condominium building located in Kalispell, Montana. Closing was set for September 15, 2005, and Buyer spaid $10,000 in earnest money to the Sterling Title Company. The3

parties agreed in writing to extend the closing date twice with a final closing date set for October 31, 2005. Additionally, the parties agreed in as econd addendum that Buyer s would reimburse Seller $4,288.80at c losingf or gutter repair work performed on the property. Buyer s refused to close on October 31. On February 9, 2006, Seller brought a civil action against Buyers for breach of contract . S eller argued for the right to retain the earnest money plus interest , and also sought reimbursement for the gutter repair and attorney’s fees and costs. ¶7 Seller filed a motion for summary judgment on the ground that the undisputed facts demonstrate dthat Buyer s breached the contract and Seller wa s entitled to the relief requested. Buyer sfiled a cross

- motion for summary judgment alleging they were legally entitled to forego closingon the ground that they had notified Seller of three problems that Seller had not remedied. Thethree problems Buyersidentified were : (1) an error in the legal description of the propertyin the propertytitle ; ( 2) an encroachment on the property; and (3) the lack of e asements by each individual unit for utilities through the
common area s on the property . They maintain that the Seller should have corrected these defects before the day of c losing and Seller’s failure to do so legally excused them from closing. Buyers maintained they were entitled tothe return of their earnest money and should not be responsible for reimbursing Seller for gutter repair work. M oreover, Buyers s ought

attorney’s fees and prejudgment interest. ¶8 The District Court determined that the undisputed facts revealed that the erroneous property description in the title was corrected by October 31 ; the encroachment identified by Buyers was removed prior to the scheduled closing ; and the lack of an easement for4

the individual condominium units across the common area of the property was not an adverse title condition excusing Buyer sf rom performing. The court concluded therefore that none of these claims excused Buyers from performing. ¶9 The District Court held that the Buyers breached the contract and that the Seller
wasentitled to the earnest money. The court also held that Buyers were not required to reimburse Seller

f or the gutter repair costs because such reimbursement was contingent up on Buyers owning the property. The court observed that both parties had agreed that prejudgment interest and attorney’s fees should be awarded to the prevailing party; therefore, the Seller was instructed to submit an affidavit setting forth those costs to the District Court

for payment by Buyers

. Seller did so and after determining the appropriate interest, the court awarded Seller approximately $9,000.00. ¶10 Buyers appeal. STANDARD OF REVIEW ¶11 We review de novo a district court ’ s gr ant of summary judgment, using the same standards applied by the district court under M. R. Civ. P. 56. Rich v. Ellingso n , 2007 MT 346, ¶

1 2, 340 Mont. 285, ¶

1 2, 174 P.3d 491, ¶

1 2. The mo ving party has the burden of establishing the absence of a genuine issue of material fact, and entitlement to judgment as a matter of law. Rich , ¶ 12. Once the moving party has met thi s burden, the
non - mo ving party must present substantial evidence essential to one or more elements of the case to raise a genuine issue of material fact. Rich , ¶ 1 2. “The non - mo ving party must set forth specific factsand cannot simply rely upon their pl eadings nor [sic] upon speculative , fanciful, or conclusory statements. ” Hiebert v. Cascade Co unty , 2002 MT5

233, ¶ 2 1, 311 Mont. 471, ¶

2 1, 56 P.3d 848, ¶

2 1 (quotation omitted , emphasis in original). ¶12 We review the conclusions of law upon which the distri ct court bases its decision to determine if they are correct. Rich , ¶ 1 2. In the context of a summary judgment ruling, we review the district court’s admission or exclusion of evidence for an abuse of discretion. Hiebert, ¶ 22. DISCUSSION ¶13 Did the District Court abuse its discretion in excluding affidavit testimony submitted by Buyers’ witnesses on the basis that said testimony contained inadmissible hearsay? ¶14 In response to Seller’s mo tion for summary judgment and its concomitant implication that no material facts were in dispute , Buyers argued that whether the encroachments had been removed from the property by October 31 was a question of material fact and was in dispute. To support their argument, Saunders ’ New York attorney, Rodney H. Ertischek, sub mitted testimony to the District Court byaffidavit which stated in relevant part : Thomas Dean and Hoskins (“TD&H”), a local Kalispell engineering firm, was retained by [Buyers] to verify whether the adverse conditions had been rectified. O n October 31, 2 005, I was notified by them that the encroachments were still on the property. A fter advising my clients

. . . both I and [Buyers] received photographsf rom TD&H demonstrating that as of October 31, 2005 encroachments still existed on the Premises. Seller challenged Ertischek’s affidavit a s containing parol evidence and inadmissible hearsay. Saunderssubsequently submitted an affidavit t othe court containing essentially the same statement

a s that contained in Ertischek’s

. Additionally, Buyers submitted an6

affidavit of the TD&H engineer , Ray Halloran, who took the photographs referenced in the affidavit that purportedly represented the continued existence of the encroachments as of October 31, 2005. T he District Court concluded thes tatements in Ertisch e k’s and Saunders’ affidavits constituted inadmissible hearsay and therefore did not consider the se affidavitsin determining whether the encroachments remained on the property. As stated above, the court decided the encroachments had been removed before October 31

. ¶15 O n appeal, Buyers assert that the above

- quoted testimony from the affidavits is not hearsay but rather establishes “why” Buyers refused to close on the transaction and is admissiblef

or this purpose . They maintain that a “statement offered not to prove the truth of the matter asserted but for the purpose of showing that the statement was made and the resulting state of mind is admissible.” They insist that the statements should not have been excluded as hearsay but should have been admitted toshow the reason for their actions. With regard to the photographs provided by TD&H to Buyers and attorney Ertischek and e - mails sent by the parties , Buyers argue that these are business records that qualify as an exemption to the rule against hearsay. ¶16 Seller maintains that Buyer s arepresenting a new legal theory on appeal. It asserts that while inD istrict Court , B uyers did not counter Seller’s“hearsay” argument with the argument being presented on appeal. In other words, they did not argue to the D istrict Court that the affidavits were admissible to show their “motivation for acting” or as business records. Seller opines that because Buyers are presenting a new legal theory on appeal, we should decline to address the issue. Alternatively, Seller r eiterate sits7

argument that the challenged evidence is hearsay and was correctly excluded for purposes
o f ruling on summary judgment. ¶17 Buyersadmit that Se ller’s “new theory” argument “[t]o an extent . . . is true ,” but argue that

the District Court exclude d the affidavit evidence “on its own ruling and not [on] the objection raised below,” and they had no opportunity to address the court’s ruling until this appeal. While it is impossible to determine whether the District Court excluded the evidence based on Seller’s objection or on its own rationale , we will nonetheless address the issue on the merits. ¶18 The affidavit testimony is hearsayand was properly excluded from evidence

. Hearsay is a statement, other than one made by the declarant while testifying at atrial or hearing, offered in evidence to prove the truth of the matter asserted. M
. R. Evid. 801. Hearsay is not admissible unless it meets a statutory or regulatory exception. M. R. Evid. 802. In the case before us, a Kalispell engineer told Ertischek, who was in New York, that the encroachment remained on the property. Ertischek, in turn, relayed this information toSaunders , who was also in New York. Neither Ertischek nor Saunders had personal knowledge as to whether the encroachments had been removed or not
. B oth Ertischek and Saunders in turn submitted the engineer’s information as testimony in their affidavits to prove that the encroachments remained on the property ; therefore , they were submitting this information to justify their refusaltoclose

. Under Smith v. Bur

. Northern and Santa FeR

y. Co. , 2008 MT 225, ¶ 41, 344 Mont. 278, ¶ 41, 187 P.3d 639, ¶ 41, Ertischek’s and Saunders’ affidavits do not satisfy the required “personal knowledge” standard.8

¶19 In Smith , Smith was killed at the Hesper railroad crossing

outside of Billings, Montana, when his c ar collided with a BNSF train. His daughter brought a wrongful death and survival action against the railroad claiming, in part, that BNSF was negligent in itsinstallation of warning devices at this particular crossing. Smith , ¶ 2. BNSF sought partial summary judgment asserting that Smith’s claim was preempted by federal railroad lawb ecause federal funds were use d to install warning devices at railroad crossings
across Montana , including the Hesper crossing

. Smith , ¶ 4. As evidence, BNSF submitted multiple affidavit s with documentary exhibits from individuals who stated that federal funds were used for improvements to crossings throughout Montana ; however, they had no personal knowledge that such funds were used at the Hesper crossing. Smith , ¶¶ 26
- 30. Based on these affidavits and the attached documents reviewed and relied upon by the affiants, the District Court granted BNSF’s motion for partial summary judgment. Smith , ¶ 4. ¶20 Smith appealed the District Court’s ruling arguing, among other things, that the BNSF affidavits were not based on personal knowledge and therefore should not have been relied upon by the District Court. Smith , ¶ 34. We agreed , stating that under M. R. Civ. P. 56(e) , an affidavit presented in a summary judgment proceeding whichi s not based on personal knowledge “does not raise a genuine issue of material fact as a matter of law.” Smith , ¶ 41. W e held that affiants for BNSF did not have the requisite “personal knowled ge” and therefore did not demonstrate the absence of a genuine issue of material fact. The same holding applies to the case before us.9

¶21 Moreover, the e - mails and photographs submitted by Halloran, Saunders and Ertischek are not admissible as business reco rd s under M. R. Evid. 803(6). Buyers do not direct us to any place in the record where they presented these e - mails and photographs for admission as business records or where they established the necessary foundation for admission. Rafanelli v. Dale , 278 M ont. 28, 45, 924 P.2d 242, 253 ( 1996)

. Again, in Smith , we adopted the rule that unauthenticated documents will not be considered on a motion for summary judgment. Smith , ¶¶ 47
- 48, citing Hal Roach Studios, Inc. v. Richard Feiner and Co., Inc. , 896 F.2 d 1542, 1550
- 51 (9th Cir. 1990). The District Court did not abuse its discretion by excluding the hearsay testimony or the e - mails and photographs. ¶22 Did the District Court err in finding t hat B uyersf a iled to raise a genuine issue of material fact vis

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- v is encroachment son the property? ¶23 Having excluded the hearsay evidence from Saunders’ and Ertischek’s affidavits, the District Court determined that the remaining portions of the affidavits did not raise a genuine issue of material fact as to the encroachments. Turning to Halloran’s affidavit in which he s tated “[a]s of October 31, 2005 an encroachment appeared to still be present
on the property” (emphasis added), the District Court determined that this “ speculative” claim was insufficient to raise a genuine issue of fact. In addition to Buyers’ witnesses, the c ourt received testimony from one of Seller’s co

- managers, Earl Holbeck, who stated that after receiving permission from the owner of the encroachments, Holbeck hired three people to do the removalw ork

. H e inspected the job upon completion and paid the workers on October 29
. Based on this evidence, the District Court concluded that the10

encroachments were in fact removed from the property before October 31 and that the Buyers had failed to raise agenuine issue of materialfact as to the encroachments. ¶24 We affirm the District Court’s ruling. As weh ave held previously, speculative statements are insufficient to raise genuine issues of material fact. See Stanton v. Wells Fargo Bank Mon ana ., NA , 200 7 MT 22, ¶ 29, 335 Mont. 384, ¶ 29, 152 P.3d 115, ¶ 29. The District Court was presented with conflicting arguments regarding whether the encroachments had been removed before October 31, 2005
. However, Seller presented
non - speculative evidencewhile Buy ers presented merely speculation as to whether the encroachments still existed

. The District Court correctly relied on the non - speculative evidence in determining whether Buyers had raised a genuine issue of material fact. ¶25 Did the District Court err in co ncluding that the absenceo f u tility easement

sf or individual condominium units was not a “Condition of Title” as set forth in the Buy / Sell Agreement? ¶26 Buyers claim that the District Court erred as a matter of law when it held that the absenceo f utility e asements for the individual condominium units was not a condition adversely affecting the title to the property , and as a result Buyers were not legally excused f rom p erforming on this basis. Buyers assert that the Declarationo f Unit Ownership, one of th e documents pertinent to this transaction which was created by the original developers of the property in 1973 , defines and describes the property and provides for certaine asements but does not account for “open space” through which the underground utilities must travel to get to the buildings and the individual units. B uyers maintain that the absence of such easements associated with each unit through these “open spaces”(whichB uyers neither i dentify nor describe by location) , creates an11

adverse title c ondition. They submit that the “Condition of Title” term of the Agreement required Seller to agree “that no additional encumbrances, restrictions, easements or other adverse title conditions will be placed against the title to the property subsequent to the effective date of the preliminary title commitment approved by the Buyer.” They complain that the “lack of easement was shown in the commitment and was not approved by the Buyer,” and therefore they were entitled to refus eto close. ¶27 Seller arguesthat the absence of an express provision for these easements was not
a title defect and did not affect their ability to convey clear title; therefore, the District Court correctly concluded that the non - existence of the easements was not a condition of title. Seller argues that Buyers misinterpret the relied

-upon provision of the Agreement and that “Condition of T itle” refers to circumstances that affect the viabilityo f titleand any encumbrances on the title to the property. It s tates that the first sentence in the “Condition of Title” provision provides that “All mortgages, judgements, and liens shall be paid or satisfied by the Seller at or prior to closing unless otherwise provided herein .” Seller maintains that the second sentence of this provision , reli ed upon by Buyers , m ust be read in conjunction with the first sentence to mean that Seller should not place any additional mortgages , j udgments, or liens against the property after th e date of the title commitment. Therefore, it a sserts, thel anguage of this provision was not intended to apply to the easement situationof which the Buyers complain. ¶28 Seller also proffers that a party owning both the dominant and servient estates may choose to dedicate a portion of the estates to a described easement, or may chose to not do so. Either way, such choice does not affect the viability of the title. While Buyers12

argue that under these circumstances the utility companies would hold the dominant estate and the condominiums w ould hold the servient estate , the fact i s that the Seller w as selling, and Buyers were buying, the entire property, inclusive of all units and appurtenances. I f Buyers wanted each unit to have a stated right to access the utility areas, Buyers, as the property owners, could have affirmatively granted such right to each unit upon acquisition of the property

. ¶29 Seller notes that the condominium units have operated as such for over thirty years and this historic use would be sufficient to establish an easement by prescription should that ever be come necessary. They also opine, as did the District Court, that Buyerscould have required the express establishment of these easements in a written addendum to the Agreement to be a condition precedent to closing but they did not do so. ¶30 The D istrict Court determined that the lack of expressutility easements in this
case was not a condition that adversely affected

title

. For the reasons set forth above, we agree. Moreover, while Buyers have submitted the treatise, Carroll G. Patton & Joyce D. Palomar, Patto n and Palomar on Land Titles ( 3d ed., West, 2001) , a s authority for the proposition that “ [ a] ny particular parcel of property comprises not only the land described, but also all appurtenances
. . . [including] appurtenant easements,” this proposition does not

support Buyers’ theory that the absence of individual unit easements in this c ase is an adverse condition of title. In conclusion , w e do not interpret the Agreement to allow Buyers to refuse to close based on this ground. CONCLUSION13

¶31 For the foregoing reasons , we affirm the District Court’s order granting Seller’s motion for summary judgment and denying Buyers’ motion for partial summary judgment.
/S/ PATRICIA COTTER
We concur: /S/ KARLA M. GRAY /S/ JOHN WARNER /S/ JAMES C. NELSON /S/ W. WILLIAM LE APHART