NO. 88-86

INTHE SUPREME COURTOF THE STATE OF MONTANA 1988

DAVID ERICKSON,an individual, and DOREENVAIR, an individual, f/d/b/aSTARHAVEN RANCH,LTD., a Montana corporation, PlaintiffsandAppellants,-vsBURTON CROFT, an individual,SHIRLEY CROFT, an individual, LARRY RULE, an individual f/d/b/aRule Realty; RONALD SCHOEN,an individual;JOHN WARREN, an individual, SCHULTZ,DAVIS & WARREN,a partnership, Defendantsand Respondents.

APPEAL FROM: District Court of the Fifth Judicial District, Inand for the County ofBeaverhead, TheHonorable Frank Davis,Judgepresiding.

COUNSELOF RECORD:

ForAppellant: O'Brien & Conrad; James P. O'Brien,Missoula,Montana

ForRespondent: Hooks & Budewitz;PatrickF. Hooks,Townsend,Montana Garlington, Lohn & Robinson; ShermanV. Lohn,Missoula, Montana

SubmittedonBriefs: June 9,1988 Decided: August 5, 1988 Filed: 

### XU65 t98@Mr. Justice 

### L. C. Gulbrandson delivered the Opinion of the Court.

David Erickson (Erickson) and Starhaven Ranch

(Starhaven) appeal a Fifth Judicial District Court, Beaverhead County, grant of summary judgment to defendants real estate broker Larry Rule (Rule),attorney John Warren

(Warren),and the Dillon,Montana law firm of Schultz,Davis
& Warren. We affirm. This case is related to the litigation involved in Erickson v. FirstNational Bank ofMinneapolis (Mont. 1985), 697 P.2d 1332, 42 St.Rep. 423. 

### In Erickson we determined that the First National Bank of Minneapolis had properly quieted title as against Erickson to certain ranch property located in Beaverhead County. Erickson, d/b/a Starhaven Ranch,Ltd.,purchased theproperty on a contract for deed on January 15, 1981 from Burton and Shirley Croft who had in turn purchased the property on a contract for deed from Herman and Patricia Clarno in 1976. The Crofts borrowed money from the First Bank of Minneapolis (the Bank) and, on August 5, 1980, assigned their purchaser's interest in the Clarno-Croft contract for deed to the Bank as collateral security. The Crofts subsequently defaulted on their obligations to the Bank and on July 1, 1981, the Bank recorded a quitclaim deed previously executed by the Crofts. Erickson, as president of Starhaven, was unaware of the assignment to the Bank or the Bank's quitclaim deed at the time he purchased theproperty from the Crofts in January of 1981.Under the Croft-Starhaven contract for deed, Starhaven

was required to make a downpayment and installmentpayments at specific dates to the Crofts who in turn were to deposit the money into an escrow account payable to the FirstNational Bank of Minneapolis. In addition, Starhaven executed a quitclaimdeed at closing which wasplaced in the

escrow account. Starhaven failed to make the payments as required and the Bank sent a notice of default on July 

### 24, 1981, to inform Starhaven that ithad sixty days to cure the default or the property would be repossessed. The July notice from the Bank was Starhaven's first indication that the Bankwas involved. On February 16, 1982, the Bank filed Starhaven's quitclaim deed and, three days later, served Starhavenwith notice to quit the property and notice of termination. Starhaven failed to quit the property and instead filed. a quiet title action in Beaverhead County District Court. The Bank brought an unlawful detainer action against Starhaven and the two actions were subsequently consolidated. The trial court quieted title to the property in the Bank and Starhaven appealed to this Court. We reversed the District Court in our first opinion. TheBank subsequently petitioned for rehearing and, on rehearing,we affirmed that portion of the judgment quieting title in the Bank. Erickson, 697 P.2d at 1338. Defendant Rule acted as the real estatebroker for the Crofts and attorney JohnWarren of the law firm of Schultz, Davis & Warren drafted the buy/sell agreement and contract for deed in the transactionbetween Erickson and the Crofts. On January 15, 1986,Erickson filed this lawsuit against the Crofts et al. Erickson's complaint alleged separate counts of fraud, negligence, and breach of contract against real estate broker Rule and his realty company and counts of malpractice, constructive fraud, and breach of an implied oral contract against Warren and his law firm. Rule and Warren moved separately for summary judgment on the basisthat the applicable statutes of limitation had run and that Erickson's causes of actionwere timebarred. On December 7, 1987, the District Court granted the motions for summary judgment on the grounds that no genuine issue of material fact existed as to the causes of action stated against Rule, Rule Realty, Warren and his law firm. Erickson appeals the order of summary judgmentand raises the following issues: 1. Does the doctrine of equitable tolling permit plaintiffs to maintain an action in tort more than three yearsafter the discovery of the alleged negligentact? 2. Did the District Court correctly rule that Count VII ofplaintiff's complaintwas a tort claim forpurposes of the statute

### of limitations? 3. Must a cause of action for the breach of an implied contract of employment and conflicts of interest in the context of the attorney/clientrelationshipbe broughtwithin the statutory period proscribed by Montana's attorney malpractice statute,S 27-2-206, MCA? The first two issues above apply only to defendant Larry Rule and Rule Realty in this action while the last issue applies to defendantsWarren and his law firm Schultz, Davis & Warren. Summary judgment is proper only were there are no genuine issues of material fact. Rule 56(c),M.R.Civ.P. The facts material to this case are not disputed on appeal. The issues to be decided

### by this Court on appeal are questions of law and we are free to review the District Court's legal analysis to draw our own legal conclusions. Schneider v. Leaphart (Mont. 1987), 743 P.2d 613, 616, 44 St.R.ep. 1699, 1703.Erickson's first issue relates to the statutes of limitation for fraud and negligence. Section 27-2-203, MCA,

### pre;< r,

### ol-.s pester- a two-year limitation in which to commence an action for fraud in Montana. Actions based on negligence must be commencedwithin threeyears. Section 27-2-204,MCA. Erickson admits that the statute of limitations has run on both of his actions for fraud and for negligence. However, Erickson urges this Court to adopt and apply a doctrine called "equitable tolling" to avoid the consequences of the statuteof limitationsin this case. Erickson contends thathis action in filinga complaint against Rulewith the Montana Board ofRealty Regulation (the Board) on November 29, 1983, serves to toll the applicable statutes of limitation until such time as the outcome of the complaint was determined by the Board. In the Board of Realty complaint, Erickson admits having knowledge of the facts which allegedly give rise to the causes of action against thedefendants in this case as early as Juneof 1981. The Board investigated Erickson's complaint againstRule and

onMay 5, 1985,dismissed the complaint. The Board ofRealty complaintwas filed within two years of

### rickso on's discovery of Rule's alleged misrepresentations. The complaint in Beaverhead County District Courtwas filed nearly five years after Erickson's discovery of the factswhich allegedly give rise to the causes of action againstRule. Erickson relies on case law from California, Alaska, and Arizona to support his argument. The cases cited stand for the proposition that, in certainwell-defined instances, the statute of limitations will notbe availableas adefense where equitable principles justify tolling of the statute. See e.g., Jones v. Tracy School District (Cal. 1980), 611 P.2d 441; Elkins v. Derby (Cal. 1974), 525 P.2d 81; Gudenau

v. Sweeny Ins. Co. (Alaska 1987), 736 P.2d 763; Hosogai v. Kadota (Ariz. 1985), 700 P.2d 1327. A California court summarized the doctrine of equitable tolling as follows:

### [Clourtshave adhered to a generalpolicy which favorsrelieving plaintiff from the bar of a limitations statute when, possessing several legal remedies he, reasonably and ingood faith,pursues one designated to lessen the extent of his injuries or damage. (Citationsomitted.) 

### Addisonv. State (Cal. 1978), 578 P.2d 941,943. In 

### Collier v. City of Pasadena (Cal.App. 1983), 191 Cal.Rptr. 681, 685, the Second District California Court of 

### Appeals listed the three requirements which a party seeking to avoid the consequences of a statute of limitations must meet to invoke the doctrine of equitable tolling: (1) timely notice to the defendant [within the applicable statute of limitations] in filing the first claim; (2) lack of prejudice to defendant in gathering evidence to defend against the second claim;and (3) 

### good faith and reasonable conductby 

### theplaintiff in filing the second claim.

(Additionsours.) 

### Collier also notes the historic circumstances in which the doctrineof equitabletollinghasbeen invoked: Prior to the 19701s, statutes of limitation had been tolled when a plaintiff filed 

### a casewhich promised to lessen damages or other harm that might have to be remedied through a second case. The statute for the second case was tolled while the plaintiff pursued the first,presumably for the purpose of minimizing harm 

# . . .Another line [of cases] tolled statutesof limitationwhen administrative remedies had to be exhausted before a court would consider the case 

# .. . Still a third line of cases tolled the limitation period of a second action during the pendency of a first action later found to be defectiveStarting in 1974, the California Supreme Courtweaved these earlier linesof cases in to a new, broader doctrine 

## -- "equitable tolling.'I This doctrine applies 

### "'[wlhen an injured person has several legal remedies and, reasonably and in good faith, pursues one.

### '"

(Citations omitted; additions ours.) Collier, 191 Cal.Rptr. at 684. Rule asserts that Erickson's complaint against him to the Board of Realty Regulation does not give him notice to begin investigating the facts which form the basis of the second claim in District Court. For this reason, Rule contends, Erickson has not met the first requirement of equitable tolling, timely notice to the defendant, as set forth inAddison and Collier. We agree. As pointed out by Rule, the Board of Realty Regulation governs the licensing of real estate brokers and salesmen. Sections 37-51-201 et seq., MCA. Upon receiving a complaint against a real estate broker, and after investigation and hearing, the Board may revoke or suspend a broker or salesman's license. Section 37-51-321, MCA. Persons found to have violated the statutes pertaining to real estate brokers and salesmen may face criminalpenalties andmay also have damages in a civil action imposed against them 

### by a "court of competent jurisdiction." Section 37-51-323, MCA. Therefore,Rule is correct inhis assertion that theBoard of Realty may only revoke or suspend a broker's license and has

no power to award damages for negligence or fraud. Section 37-51-323, MCA. Rule also points out that the Board is not designated by law as a quasi-judicial board pursuant to § 2-15-124, MCA. See § 2-15-1867, MCA. Under these circumstances, Erickson's Board of Realty Regulation complaint does not give adequate notice of the existence of a legal claim. Gudenau, 736 P.2d at 768. Under the facts aspresented, Erickson has failed to meet the first element of equitable tolling. Consequently,we need not decidewhether this Court recognizes the doctrine of equitable tolling and

we need not address theparties' arguments with regard to the remainingtwo elements of thedoctrine. Erickson also makes an argument in passing that the litigation involved in Erickson v. First National Bank of Minneapolis (Mont. 1985), 697 P.2d 1332, 42 St.Rep. 423, somehow gaveRule notice of the facts which formthebasis of the second claim. We note that Rule was not a party to the Erickson litigation nor were the claims in Erickson the same

as presented in this action. The Erickson litigation does not satisfy the notice requirement of the doctrine of equitable tolling. Count VII of Erickson's complaint incorporated by reference the fraud and negligence counts. CountVIIwent on to allege that an implied contract existed between Erickson and Rule and that Rule breached certain duties that arose

2z ~romthe implied contractual relationship. The duties allegedly breached are identical to those alleged in the fraud and negligence counts. Erickson acknowledges that no express oral or written contract existed between him and Rule. Nonetheless, Erickson argues in his second issue on appeal that CountVII is an implied contract action and that the five year statute of limitations forunwritten contracts specified inS 27-2-202(2), MCA, applies. The DistrictCourt ruled that the "gravamen" of the causes of action alleged in Count VII sound in common law fraud and negligence. The District Court relied on this Court's decision in Quitmeyer

v. Theroux (1964)

## , 144 Mont. 302, 395 P.2d 965, to conclude that,regardless of the contract label placed on CountVIT by Erickson, Count VII "simply rehashes" the fraud andnegligence claims and is, therefore, time barred by the statutes of limitations, 

### 5 27-2-203 and S 27-2-204, MCA. Erickson contends that he may electbetween a contract theory ornegligence theorywhere his claim has abasis under either theory and cites to Unruh v. Buffalo Bldg. Co. (Mont. 1981), 633P.2d 617, 618, 38 St.Rep. 1156, 1158, for support. Erickson's contention in this regard begs the question because the election to pursue one cause of action over another must be more than a mere relabeling of a claim to avoid the consequencesof a statuteof limitations. In Unruh this Court recognized that "'[ulnder certain circumstances, a ground of liability in tortmay coexistwith

a liability in contract, giving the injured party the right to elect which form of actionhe will pursue.

### '" Unruh, 633 P.2d at 618 (citing Garden City Floral Co. v. Hunt (19531, 126 Mont. 537, 255 P.2d 352). Unruh is unpersuasive in this

case. The Unruh holding was premised on the fact that the claim in questionwas not based on negligence but was based

on thebreach of an implied warranty. For that reason,this Court concluded that theplaintiff could elect topursue the implied warranty theory and the eight year statute 

### of limitations for contracts would apply. Unruh distinguishes Quitmeyer because the claim in Quitmeyer was based on negligence. While CountVII of Erickson's complaint alleges the existence of an implied contract, the asserted actionable conduct isbased on the same fraud and negligence allegations contained in the time barred negligence and fraud counts of his complaint. The gravamen of the claim, not the label attached, controls the limitations period to be applied to that claim. Thielv. Taurus Drilling Ltd. (Mont. 1985)

## , 710 P.2d 33, 38, 42 St.Rep. 1520, 1527; Quitmeyer, 395 P.2d at 969. The gravamen of CountVII is fraud and negligence and the claim is time barred by S 27-2-203 and 5 27-2-204,MCA.

### Rule also argues that Erickson has failed to present a genuine issue of inaterial fact as to the existence of an implied contract between him and Erickson. The above discussion presumes that an implied contract existed but finds that the claim asserted sounds in fraud and negligence and is, therefore, time barred. From the above analysis it is apparent that Erickson's Count VII 

### is time barred regardless of the existenceofan implied contract because of the nature of the claim asserted. While we tend to agree with Rule that there are no facts to establish an implied contract,we need not address the parties' arguments on the subject in lightof the foregoing discussion. Erickson's final issue affects only defendant Warren and his law firm. TheDistrict Court found Erickson's legal malpractice claim against Warren to be time barred by the legal malpractice statute of limitations, $ 

### 27-2-206, MCA. Erickson's complaint alsoalleged the existence ofan implied contract in the context of the attorney-client relationship. The District Court ruled that this implied contract claim, though "novel and somewhat ingenious," was also time barred by the legal malpractice statute of limitations. The DistrictCourt reasoned as follows: Toescape the obvious consequences of the legal malpractice statute 

# ... the Plaintiffs seek to stay in court on an implied contract theory by invoking the fiveyear statute (27-2-202,MCA).



### The Court will not allow a party to escape the consequences of a specific malpractice statute [of limitations] by permitting a party to state a claim for professional negligence in terms of a breach of contract. To do so would make the malpractice statute meaningless. If 

### Plaintiff's position is sound, therewould have been no need for the 1977 malpractice statute

# .

# .. The Court has considered the authorities cited by Plaintiffsbut finds them to be inapplicable sincethe jurisdictions have no malpractice statute similar to 

### 5 27-2-206,MCA.

In summary, there are no disputed issues of fact. The Plaintiffs admittedly had knowledgeof the factsessential to their malpractice claim in 1981. Such claims are accordingly barred by the three-year limitation of action 

### (527-2-206, MCA)

# . This section applies whether the action is premised in tort or contract. (Emphasis theirs;additions ours.)
The District Court's order granting summary judgment to Warren isdated December 7,1987. Erickson filed a notice of appeal on January 7, 1988. On March 25, 1988, this Court decided the case of Schweitzer v. Estate of Halko (Mont. 1988), 751 P.2d 1064, 1066, 45 St.Rep. 611, 613-614. Warren argues that the legal malpractice statute of limitations applies to all claims against an attorney in the attorney-client relationship regardless of how those claims

are enumerated and cites to Schweitzer for support. In Schweitzer, the District Court was presented with several claims, including an implied contract claim, in the context of an attorney-client relationship. The District Court noted that, when an attorney undertakes to represent a client, a contract and relationship is formed. If the attorney's services are improper, the District Court reasoned, there is a breach of contract. These improper services, by definition are "bad" acts, or "bad" practices



## --hence, malpractice. The District Court concluded that acts of legal malpractice, however denominated, fall within the purview of 

### 5 27-2-206, MCA. The District Court alsonoted that a specific statute,S 27-2-206,MCA,prevails over

a general statute, S 27-2-202, MCA, to the extent the two statutes are inconsistent with each other. We found the District Court's reasoning to be correct in Schweitzer and find Warren's related argument to control in this matter. Erickson's claims against Warren and the law firm of Schultz, Davis & Warren sound in legal malpractice and are time barred 

### by S 27-2-206, MCA. Schweitzer, 751 P.2d at 1066; see also, Southland Mechanical Constructors Co. v. Nixen (Cal.App. 1981), 173Cal.Rptr. 917,923. We hold that Erickson's claim against Rule, Rule Realty, Warren and Schultz, Davis & Warren are time barred and summary judgment was properly granted by the District Court. Affirmed. 

# / i 

# &,h

/ 4 Justice

We concur: