No. 94-546

IN THE SUPREME COURT OF THE STATE OF MONTANA

1995

HKM ASSOCIATES,

Plaintiff and Appellant,

NORTHWEST PIPE FITTINGS, INC.,

a Montana corporation, and

J-M MANUFACTURING COMPANY, INC.,

a Delaware corporation,

Defendants and Respondents.

APPEAL FROM: District Court of the Thirteenth Judicial District,

In and for the County of Yellowstone,

The Honorable G. Todd Baugh, Judge presiding.

COUNSEL OF RECORD:

For Appellant:

David A. Veeder, Veeder Law Firm,

Billings, Montana

For Respondents:

Damon L. Gannett, Gannett, Anderson & Liechty,

Billings, Montana (for Northwest Pipe Fittings)

Paul D. Miler and Patricia D. Peterman,

Holland & Hart, Billings, Montana

(for J-M Manufacturing Company)

Filed:

Submitted on Briefs: May 18, 1995

Decided: August 1, 1995
Justice William E. Hunt, Sr., delivered the opinion of the Court.

Appellant HKM Associates appeals from two orders of the

Thirteenth Judicial District Court, Yellowstone County, granting

respondents Northwest Pipe Fittings, Inc.'s, and J-M Manufacturing

Company, Inc.'s, motions to dismiss appellant's claim of indemnity

and granting respondents' motions for summary judgment as to the

remainder of appellant's claims.

We affirm.

Appellant raised the following issues on appeal:

1 . Do genuine issues of material fact exist as to whether

HKM relied upon J-M's and Northwest's fraudulent misrepresentations, and whether HKM was damaged as a result?

2 . Do genuine issues of material fact exist as to whether

HKM could have discovered all of the facts constituting the fraud

prior to April 26, 1989?

3 . Do genuine issues of material fact exist as to whether

HKM's fraud claims are barred by the doctrine of collateral

estoppel?

4. Do genuine issues of material fact exist as to whether

J-M and Northwest fraudulently concealed from HKM the material

facts of HKM's fraud claims?

5 . Do genuine issues of material fact exist as to whether

Hm is barred by the doctrine of collateral estoppel from bringing

its claim for indemnification?

We restate the issues as follow:

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1 . Did the District Court err in granting respondents'

motions to dismiss appellant's claim for indemnity?

2 . Did the District Court err in granting respondents'

motions for summary judgment as to appellant's remaining claim of

fraudulent misrepresentation?

In 1985, the Lockwood Water Users Association (LWUA) hired

appellant HKM to design the plans and specifications for a pipeline

project. HKM acted as the project engineer and Jim's Excavating

Service, Inc. (JES), acted as the general contractor.

A section of the pipeline was to be laid through an "S" curve

which required the pipe to be either deflected at the appropriate

joint or to be laid with special fittings. HKM designed the

project to use deflectable, ductile iron pipe, rather than special

fittings. Prior to releasing the original bid form, HKM amended

the bid to solicit alternative bids for using PVC pipe.

Respondent J-M Manufacturing informed HKM that 24-inch PVC

pipe (Big Blue) could be deflected up to 3 degrees at the joint.

Based on this information, HKM determined that 24-inch PVC pipe

could be laid and deflected through the "S" curve without special

fittings.

The amended bid proposal did not contain any specifications

that fittings were to be used on the "S" curve. JES purchased PVC

pipe manufactured by J-M from respondent Northwest. Northwest

certified and subsequently verified to HKM that 24-inch PVC pipe

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manufactured by J-M could be deflected up to three degrees at the

joint. HKM ultimately approved of the bid submitted by JES.

Following the start of construction in September 1985, J-M

informed JES that the 24-inch PVC pipe could not be deflected and

that special fittings would have to be installed to accommodate the

II s ,1 curve. Construction at the "S" curve was halted until the

necessary fittings could be delivered. Work on the "S" curve

resumed after the fittings arrived on July 14, 1986. During a

September 10, 1986, inspection, HKM discovered that the cement

linings of the fittings were cracked and had to be removed. NWJ

fittings arrived at the project on October 5, 1986.

On May 8, 1987, JES filed a complaint against HKM and LWUA

claiming, inter alia, delay and extra work damages caused as a

result of HKM's negligent design and supervision of the pipeline

project. In Jim's Excavating Service, Inc., v. HKM Associates

(1994), 265 Mont. 494, 878 P.2d 248, we affirmed the jury verdict

of $381,000 in favor of JES.

On April 26, 1991, HKM filed a complaint against J-M and

Northwest, claiming negligence and negligent misrepresentation.

Northwest brought a motion to dismiss, and J-M filed a motion for

summary judgment. On August 27, 1992, HKM filed its first amended

complaint, adding a claim for fraudulent misrepresentation. J-M

and Northwest filed motions to dismiss all claims pursuant to

Rule 12(b)(6), M.R.Civ.P. The District Court treated these motions

as motions for summary judgment and ruled that HKM's claims for

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negligence and negligent misrepresentation were barred by the

statute of limitations. At the same time, the District Court held

that HKM's claim for fraudulent misrepresentation was not barred by

the statute of limitations or the doctrine of res judicata.

On September 13, 1993, HKM filed its second amended complaint,

adding a claim for indemnification. J-M and Northwest filed

motions to dismiss HKM's indemnity claim, which the District Court

granted on December 10, 1993.

In June 1994, J-M and Northwest filed renewed motions for

summary judgment on the remaining fraud claims. On August 26,

1994, the District Court granted those motions, concluding that

HKM's fraud claims were barred by the statute of limitations and

res judicata. The court also concluded that the fraud claims

lacked the elements of reliance and damages. HKM appeals from the

District Court's orders of December 10, 1993, and August 26, 1994.

ISSUE 1

Did the District Court err in granting respondents' motions to

dismiss appellant's claim for indemnity?

"in reviewing a motion to dismiss, we construe the complaint

in the light most favorable to the plaintiff and take the

allegations of the complaint as true." Goodman Realty, Inc. v.

Monson (1994), 267 Mont. 228, 231, 883 P.2d 121, 123. Our scope of

review is broad and we examine the entire case and make a

determination based on that examination. Goodman, 883 P.2d at 123.

We will affirm the dismissal only if we find that the plaintiff is

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not entitled to relief under any set of facts which could be proved

in support of the claim. Goodman, 883 P.2d at 123.

HKM added a count to its second amended complaint seeking

indemnification from J-M for the $381,000 judgment against HKM

rendered in Jim's Excavatinq. J-M and Northwest Pipe filed motions

to dismiss HKM's claim for indemnification.

In Jim's Excavating, the jury returned a special verdict

finding,that HKM was negligent in preparing the plans and specifications of the LWUA project, and that HKM's negligence was a cause

in fact of JES's damages. The District Court concluded that

"because negligence was the subject of the previous action, HKM

could have and should have asserted indemnity against J-M and

Northwest Pipe at that time. The issue of negligence cannot be

re-litigated and [HKMI 's claim for indemnification is barred by

application of the doctrine of collateral estoppel."

The right to indemnification is an equitable principle based

on the theory that a party compelled to pay for damages caused by

another should be able to seek recovery from that party. Paulsen

v. Treasure State Industries, Inc. (19811, 192 Mont. 69, 626 P.2d

872. Collateral estoppel bars an action, including an action for

indemnification, when: (1) the issue presented in a later action

has been decided in a prior adjudication; (2) a final judgment in

the action was issued; and (3) the party against whom collateral

estoppel is asserted was a party to the previous litigation.

Berlin v. Boedecker (1994), 268 Mont. 444, 453, 887 P.2d 1180,

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1185; Farmers Plant Aid, Inc. v. Huggans (1994), 266 Mont. 249,

254, 879 P.2d 1173, 1176. Of the three criteria needed to

establish collateral estoppel, identity of issues is the most

important and requires that the precise issue has been litigated in

the prior actions. Berlin, 887 P.2d at 1185. It is not necessary,

however, that there be an identical cause of action, but rather,

there must be an identical issue. Boyd v. First Interstate Bank

(1992), 253 Mont. 214, 218, 833 P.2d 149, 151.

The record shows that the issue of HKM's negligence was raised

in Jim’s Excavatinq. The jury determined that HKM was negligent

and a final judgment was entered. Finally, HKM was a party to

Jim's Excavatinq. The criteria for collateral estoppel has been

met, therefore, HKM is prevented from re-litigating the issue of

negligence. Because re-litigating the issue of negligence is

necessary to litigating HKM's claim of indemnification, the

District Court properly granted J-M's and Northwest Pipe's motions

to dismiss HKM's indemnification claim. See Auto Club Ins. Co. v.

Toyota Motor Sales, U.S.A., Inc. (19751, 166 Mont. 221, 225, 531

P.2d 1337, 1339.

We hold that the District Court did not err in granting

respondents' motions to dismiss appellant's claim for indemnity.

ISSUE 2

Did the District Court err in granting respondents' motions

for summary judgment as to appellant's remaining claim of

fraudulent misrepresentation?
Our standard of review on a grant of summary judgment is

identical to that of the district court. Cooper v. Sisters of

Charity (1994), 265 Mont. 205, 207, 875 P.2d 352, 353. Summary

judgment is only proper when there is no genuine issue of material

fact, and the moving party is entitled to judgment as a matter of

law. Rule 56(c), M.R.Civ.P.; Spain-Morrow Ranch, Inc. v. West

(1994), 264 Mont. 441, 442, 872 P.2d 330, 332. The burden of proof

rests with the party seeking summary judgment to provide the court

with evidence which excludes any real doubt as to the existence of

a genuine issue of material fact. Berens v. Wilson (19901, 246

Mont. 269, 271, 806 P.2d 14, 16. Only after the moving party has

met this burden of proof does the burden shift to the nonmoving

party to show that a genuine issue of material fact exists. Morton

v. N.W.M., Inc. (1994), 263 Mont. 245, 249, 868 P.2d 576, 579.

"When raising the allegations that disputed issues of fact exist,

the nonmoving party has an affirmative duty to respond by

affidavits or other sworn testimony containing material facts that

raise genuine issues; conclusory or speculative statements will not

suffice." Koepplin v. Zortman Mining (1994), 267 Mont. 53, 59, 881

P.2d 1306, 1309.

The District Court granted respondents' motions for summary

judgment concluding that appellant's remaining claim of negligent

misrepresentation was barred by the statute of limitations and the

doctrine of res judicata.
HKM's fraudulent misrepresentation claims are based on two

installation manuals issued by J-M for its 24-inch PVC pipe. The

first manual of May 1986 provides for no joint deflection. The

second manual of February 1987 allows for 1.5 degree joint

deflection. HKM asserts that J-M's internal correspondence reveals

that it did not actually change its recommendation to no

deflection, but rather, J-M always recommended joint deflection to

some degree. HKM maintains that it did not learn that J-M's

purported "flip-flop" as to the deflectability of its 24-inch PVC

pipe was false until the Jim’s Excavatinq trial in August 1992.

HKM asserts that its belief that fraud was committed was confirmed

in May 1994 when HKM received a July 1986 internal correspondence

which indicated that J-M's true recommendation provided for some

degree of deflection at the joint. The record does not support

HKM's position.

An action for fraudulent misrepresentation must be brought

within two years of discovery of the facts constituting the fraud

by the aggrieved party. Section 27-2-203, MCA. HKM filed its

complaint on April 26, 1991. However, as early as April 18, 1986,

HKM learned of J-M's inconsistent position as to the deflectability

of its 24-inch PVC pipe when a representative of J-M arrived at the

worksite and informed HKM that J-M was requiring zero deflection at

the joint and that HKM would need fittings for the pipe in order to

negotiate the curve. At HKM's request, J-M confirmed its revised

"no deflection" position in June 1986. In November 1986, HKM

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received J-M's installation guide which recommended no joint

deflection for 24-inch PVC pipe. When a defendant's fraudulent

concealment prevents a plaintiff from discovering a cause of

action, the statute of limitations is generally tolled. United

Methodist Church v. D.A. Davidson (1987), 228 Mont. 288, 296, 741

P.2d 794, 798; see § 27-2-102(3) (b), MCA. "In a non-malpractice

negligence action, there must be an affirmative act committed by

the defendant, and the affirmative act must be calculated to

obscure the existence of the cause of action." United Methodist

Church, 741 P.2d at 798. There is nothing in the record to suggest

that either J-M or Northwest engaged in affirmative acts calculated

to obscure from HKM the existence of a cause of action sufficient

to toll the two-year statute of limitations.

We conclude that HKM's claim for fraudulent misrepresentation

is barred by the two-year statute of limitations. As a result,

there exist no genuine issues of material fact. We hold that the

District Court did not err in granting respondents' motions for

summary judgment as to appellant's remaining claim of fraudulent

misrepresentation.

Affirmed.

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We concur:

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