No. 91-373 IN THE SUPREME COURT OF THE STATE OF MONTANA 1992 

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UNITED FIRST FEDERAL SAVINGSAND LOAN ASSOCIATION, an Idaho corporation, Plaintiff, Respondent and Cross-Appellant,

-vsWHITE-STEVENS, LTD., and THOMAS STEVENS, Defendants, Appellants, and Cross-Respondents.

APPEAL FROM: District Court of the Fourth Judicial District, In and for the County of Missoula, The Honorable C:. B. McNeil, Judgepresiding.

COUNSEL OF RECORD: For Appellant: Harold V. Dve an istine L. Foc

A Dale & Dye, Missoula, Montana. For Respondent: Sam E. Haddonand DeanA. Stensland;Boone,Karlberq & Haddon,Missoula,Montana

Submitted on Briefs: March 12, 1992 Decided: June 4, 1992 

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### Justice R. C. MCDOnough delivered the Opinion of the Court. White-Stevens, Ltd.,andThomasStevens appeal froma judgment of the FourthJudicialDistrict Court, Missoula County, in favor of United First Federal Savingsand Loan Association. We reverse. We frame the following issues for appeal: 1. 

### Whether the District Court erred in admitting expert testimony; and 2. 

### Whether the District Court erred in awarding United First Federal contractual damages. Thomas Stevens, a professional appraiser and member of the American Institute of Real Estate Appraisers, prepared two appraisal reports on two properties in Missoula, Montana. The appraisals were prepared at the request of the Curran family

(hereinCurran). The first report was submitted on November 3, 1983, 

### for a building located at 800 

### Kensington. According to the report, the value of the property in 1983, 

### was $1,600,000. 

### The second reportwas submittedon February 8, 1984, 

### for anunimproved 6 

### acre tract located at the corner of Russell and 34th Street. According to the report thevalue of the propertywas $960,000. 

### At thetime of theappraisals, Stevens was apartner inWhite-Stevens, Ltd. The prospective lender, United First Federal (UFF) reviewed the reports, and relied on the accuracy of the reports in making its decision to grant loans to Curran, secured by the appraised properties. On April 17, 1984, 

### UFF loaned Curran approximately $600,000, 

### secured by a trust indenture on the 6 

### acre tract. OnAugust 31, 1984, UFF loaned Curran $975,000, secured by a trust indentureon theKensingtonproperty. The loan amounts were 61-62% of the appraised market values and were well below the industry average loan to value ratio of 70-75%. Curran defaulted on both loans before the end of 1984. UFF judicially foreclosed each obligation and security as a mortgage. On December 10, 1985 the District Court entered a foreclosure decree. A default judgment was entered against the Currans which included interest, costs, and attorney fees. At the sheriff's sale, UFF bid $850,000 for the Kensington property, and $200,000 for the 6 acre tract. As a result of the sheriff's sale, a deficiency judgmentof February 5, 1986, in theamount of $848,067,

was entered against the Currans. UFF has exhausted every alternative in attempting to collect the debt. Curran did not redeem eitherproperty. UFF later sold theKensington property for $775,000. UFF has not been able to sell the 6 acre tract. UFF brought an action against White-Stevens, Ltd. and Thomas Stevens for damages arising from negligent misrepresentations of the appraisals of real property. A bench trial commenced on December 21, 1990. The District Court entered judgment on April 17, 1991, awarding UFF $848,067. This appeal followed. The standards of review are set out below as we discuss each issue. I Whether the District Court erred in admitting expert testimony. Questions of evidence are discretionarywith the trial court. The scope of review of discretionary acts by the trial court is 3whether or not the trial court's determination was a misuse or abuse of discretion. Steer, I~c. v. Dept. of Revenue (1990), 245 Mont. 470, 803 P.2d 601. Stevens argues the District Court improperly allowed expert testimony at trial, in violation of the Montana Rules of Civil Procedure. During discovery, Stevens' counsel propounded interrogatoriestoUFF requesting UFF identify thenamesof persons they expected to call as experts at trial. UFF responded, stating they would be calling StevenAlan Hall as an expert. UFF did not supplement its original answer to interrogatories. It is clear that under Rule 26(b) (4) (A)(i)

## , M.R.Civ.P., UFF was required to disclose the names of experts it intended to call at trial. Rule 26(b) (4)(A)(i), M.R.Civ.P., provides: 

### A party may through interrogatories require any otherparty to identify each personwhom the otherparty expects to call a an expert witness at trial, to state the subject matter on which the expert is expected to testify, and to state the substance of the facts and opinions to which the expert is expected to testify and a summary of the grounds for each opinion. (Emphasis added.) Rule 702,M.R.Evid, which governs expert testimony provides: If scientific, technical, or other specialized knowledgewill assist the trier of facttounderstand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training or educationmay testify thereto in the form of opinion or otherwise. The Commissioner's Comments to Rule 702, discuss two standards in determining when testimony is expert in nature. The standard involvedunder the factshere is concerned with whether or not the subjectmatter requires expert testimony. Former 5 93-401-27(9), RCM (1947) (superceded), admitted expert opinion when a caseinvolved questions of 8vscience, art, or trade, when he is skilled therein". This sectionhas been interpreted to includematters not within the range of ordinary training or intelligence. Themodern rule admits expert testimony to aid the trier of facttounderstand facts and draw correct conclusions. The Commissioner8sComments note that the modern rule intends to encompass both statements of the rule. Nicholas Kaufman, Ken Staninger, and James Benn (whose testimony in part presented opinion evidence of Barney Olson, an appraiserhired by UFF) were called to testify at trial on behalf of UFF. UFF argues that neither Kaufman nor Staninger nor Olson,

were identified as experts because they were not expected to testify as experts nor did they testify as such. We treat each witness separately. Kaufman Nicholas P. Kaufman, a land use consultant with the engineering firm of Sorenson and Co., was subpoenaed by UFF and testified on theirbehalf. UFF hired Sorensonand Co. to study the floodproofing problems on the 6acre tract in an effort tomarket the property. During direct examination, counsel for UFF stated: Ihave the intentionof inquiring of you and asking you about what was available to you or to anyone who would have looked at the public record as of that date thatrelatedto flood-proofingor floodcontrol issueson this property. Stevens' counsel objected on the grounds that Kaufman was an undisclosed expert. UFF counter-argued that Kaufman would be testifyingto historical factsandwould not be givinghis opinion. The objection was overruled.Counsel for UFF then asked Kaufman, Based on your review of the records. 

# . . what did your analysis and investigation of the records show to you or tell you about this property. Counsel for Stevens repeated his objection. UFF argued it was really a summary of facts in the public record. Stevens' counsel counter-arguedthatwithout an expert to interpretthe record,best evidence of public records are certified copies, and that interpreting public records isexpert testimony. The objection was overruled. Kaufmanwent on topresent ananalysis of theappropriatecity council minutes, flood insurance rate maps, flood plain maps, and several sections of the flood plain ordinance. Next, counsel for UFF asked Kaufman: Did Sorensonand Co. 

# . . . comeupwith the calculations and a determination of what would need to be done? (to flood proof the property) An objection was made and sustained as to the expert testimony. Kaufman went on to testify about the work he did relative to floodproofing the property. Counsel for UFF then asked: What did you determine about the necessity of a joint effort,multi-manyowner efforttoconsiderordeal with the flood-proofing issues on this property? Stevens' counsel objected on the grounds that the question called for an expert opinion. The objection was sustained as to the technical matters, but not as to the floodproofing. Kaufman testified that the property needed to be raised to prevent flooding, but was not allowed to testify as to how to fill the property for floodproofing purposes. Kaufman was allowed overobjection to discuss five different options for floodproofing. Kaufman is a land use consultant with a Bachelor's degree in economics, a Master's in planning, and two years of education in engineering. Kaufman has been working in the area of flood permitting since 1978. Kaufman's area of specialty is not within the range of ordinary training and intelligence. Further, his testimony as such served to aid the trier of fact in drawing its conclusions. Therefore,we conclude that theDistrict Courtabused its discretion in allowing Kaufman to testify inviolation of Rule 26,M.R.Civ.P. Staninaer Ken Staninger,a real estate broker inMissoula with 19 years experience,was involved in the sale of theKensingtonproperty and received a commission. He acted as a co-broker working for the sellers. Since 1989 he has been the exclusive listing broker on the 6 acre tract. He was not listed as an expert by UFF. During Staningerlstestimony, a letter was admitted over objection, containinghis opinions as to thevalue of theproperty. Staninger estimated what it would cost to sell the property with the water problems. Stevens' counsel renewed his objection. The objection

was overruled and Staninger went on to explain the marketing problems with the property. Olson (Bennl Mr. Benn, theattorneywhohandled the foreclosure proceeding,

was allowed to essentially testify over objection as to the value of theproperty at the foreclosure sale. Thevaluewasprovided in

a letter from Barney Olson, an appraiser hired by UFF. Barney

7Olson was not named as an expert by UFF. Ken Staninger, and Barney Olson, (through Benn's testimony) both knowlegable and experienced in the area of real estate, testified as to the value of the 6 acre tract. Montana has often allowed lay opinion testimony regarding the value of land. However, these cases involve thetestimony of theverified owner of the land as to its value. See State v. Marsh (1978), 175 Mont. 460, 464, 575 P.2d 38, 42; Zugg v. Rampage (1989), 239 Mont. 292, 297, 779 P.2d 913, 916. The case before us concerns commercial propertywith significant flooding problems. The exact dispute in issue is the value of the land in question. The market value of the 6 acre tract required testimony beyond the scope of ordinary trainingand intelligence,and required expert testimonytoaid the trier of fact in determining facts in issue. Kaufman, Staninger and Olson shouldhave been named as expertsupon the interrogatory requestby Stevens. The days of disclosure arehere. We conclude that the District Court abused its discretion in allowing such testimony as it was in violation of Rule 26,M.R.Civ.P. I1 Whether the District Court erred in awarding United First Federal contractual interest. In reviewing questions of law we will determine if the trial court's determinationas to the law is correct. Our review will be plenary. Steer, Inc. v. Dept. of Revenue (1990), 245 Mont. 470, 803 P.2d 601. See also Hudson v. City of Butte (1940), 111Mont. 210, 107 P.2d 882. As stated above, the District Court awarded $848,067 in 8damages to UFF. Stevens contends that $241,333.02 was awarded erroneously because it represents contractual interest from the note between Curran andUFF. UFF argues that it is entitled to the $241,333.02, and in addition, $620,572 in lost earnings on the deficiency at a rate of 15% interest from February 5, 1986 (the date of deficiency) The foreclosure judgment summarized the items of contractual damageswhich included a 15% interest rate per annum from October 1, 1984 to December 6, 1985. The interest totaled $241,333.02. Nothing in the record supports the notion that $241,333.02 was anything but the contractual interest in the Curran-UFF note at a contractual default rate of 15%. The case before us rests on the legal theory of negligent misrepresntation. Both parties cite § 552B of the Restatement

(Second) of Torts. Itprovides: (1) Thedamagesrecoverable foranegligentmisrepresentation are those necessary to compensate the plaintiff for the pecuniary loss to him of which the misrepresentation is a legal cause, including (a) the differencebetween the value of what he has received in the transaction and its purchase price or othervalue given for it; and (b) pecuniary loss suffered otherwise as a consequence of the plaintiff's reliance on the misrepresentaion. (2) The damages recoverable for a negligentmisrepresentaion do not include the benefit of the plaintiff's contract with the defendant. Under the Restatement, UFF is entitled to out of pocket expenses which accrued as a result of Stevens' negligent misrepresentaion. UFF is entitled to the difference between what they loaned to Curran (due to Stevens' misrepresentation) and what they received. Thisdoesnot include lost earnings, or opportunitycost between the deficiency and the date of judgment. We conclude that the ~istrictCourt erred in including $241,333.02 in the damage award against Stevens. The interest on thedeficiency as of December 10, 1985, thedate of the foreclosure action, has accrued at a rate of $348.44 per day between February 5, 1986 (dateof foreclosure)and December 21, 1990 (dateof trial) in the amount of $620,572. The District Court awardedUFF damages in the amount of $848,067 based on what the court deemed actual pecuniary loss to UFF. The District Court declined to award UFF its claim for the $620,572 in interest as a basis for lost earnings. We affirm the District Court in its denial of awarding UFF $620,572 in lost earnings. The issueofwhether theDistrict Court's findingsof factand conclusions of lawwere supportedby substantial credible evidence will notbe discussed due to the factwe are reversing the judgment and remanding for a new trial. Reversed and remanded for a new trial.

We Concur: 

# &cud Justice

Chief JusticeJustice Karla M. Gray, concurring in part and dissenting in part.



### I concur in the opinion of the majority on issue two. 

### I respectfully dissent from the majority's conclusion that the testimony of Nicholas Kaufman, Ken Staninger and James Benn which

was admitted over "expert testimony" objection constituted expert testimony requiring disclosure underRule 26,M.R.Civ.P. Giventhe content of the testimony at issue and the abuse of discretion standard of review, Iwould affirm the District Court on issueone. Nicholas Kaufman's testimony is summarized by the majority. It contained two discrete parts: first, Kaufman testified as to flood plain regulations and other matters of public record regarding those regulations as they relate to the two property parcels at issue;he then testified generally on fivealternatives for flood-proofing the parcels. Stevens' counsel objected that Kaufman's testimonywasundisclosed experttestimony. TheDistrict Court overruled the objection to testimony on the flood plain regulationsand related matters. The court specifically sustained objections to portions of Kaufman's testimony addressed to the engineering aspects of thevarious flood-proofing alternativesbut allowed Kaufman to testify generally on the alternatives "untilwe get in any technicalmatters." The majority states that Kaufman's area of specialty and, assumedly, his testimony are not within the range of ordinary training and intelligence, in direct derogation of the District Court's conclusion that it was not. It ismy view that Kaufman's testimonywas, indeed, a "close call." However, I cannot ascribe 11

### an abuse of discretion to the District Court in light of the clear and understandable nature of the testimony and the fact that, as the trier of fact in this case,the District Court did notbelieve the testimonywas socomplexor specializedas toconstituteexpert testimony. Furthermore, I do not understand the majority's reliance on the fact that the court,astrier of fact,used Kaufman's testimony indrawing itsconclusions. Themajority seemsto suggest that the court'sactual use of the testimony rendersthetestimony "expert." If that is to be the definition of expert testimony, then we have reached a point where mere relevant testimony equates to expert testimony. As to Ken Staninger, the majority correctly notes that he is a real estate broker of some years' experience who was involved with both parcels of property at issue in this case. Stevens' counsel's "expert opinion" objection to Staninger's opinion testimony on the $775,000

### selling price for the Buttrey parcel was sustained because the testimony amounted to expert appraisal-type testimony. Staninger did provide testimony on the 6 

### acre tract, for which he was the exclusive listing broker. A letter from Staninger to UFF, in which Staninger discussed market conditions and hispersonal experiences in attempting to sell theproperty at the $250,000 

### asking price,was admitted over objectionby Stevens' counsel that it constituted expert opinion on the value of the property. Themajority apparently concludes that this letter was expert opinion testimony and that, as such, the District Courtabused its discretion inadmittingthe letter because Staninger was not identified as an expert. Idisagree. It is my view that the Staninger letter is lay opinion testimony under Rule 701, M.R.Evid. There is nothing of a scientific, technical or particularly specialized nature in Staningerlsletterwhichwould constituteRule 702 expert opinion. Nor does Staninger's nineteenyears1experience in the real estate business necessitate a conclusion that everything he says or does invokes expert status requiring disclosure under Rule 26, M.R.Civ.P. The letter recounts Staningerlspersonal experience in trying to market the Russell property; it includes Staninger's observations on market conditions he experienced relative to the property and UFF1sasking price. Nothing in the letter approaches the kind of expert valuation or appraisal testimony the majority

seems to suggest is there. The majority's conclusion that the letter is expert testimony subject to Rule 26 disclosure is an extremely broad view which rendersvirtually all testimony by any person engaged in any trade or profession expert testimony. The majority states that I1[t]he days of disclosure are here." As a result of the majority opinion, that is certainly true; the traditional distinction between lay and expert testimony is no

more.It ismyview thatthemajority similarlymischaracterizes the testimony of James Benn. Benn did not testify as to the value of the property at the foreclosure sale;he testified as to his own involvement 

### in the foreclosure of both parcels and in helping UFFestablish its bid price for each parcel. Benn testified to the bid price for the Buttrey Suburban Building. His testimony includedthe informationthatBarney Olson

was retained by UFF toprovide a range ofvalues for theproperty; neitherOlson's letter nor any specific valuation information from that letterwas testified toby Benn. No objectionwas made to the referenced portion of Benn's testimony on the bid price, and the manner of establishing it, for the Buttrey parcel. An objection

was made and sustained on "expert testimony" grounds to a later portion of Benn's testimony about fair market value. Benn then testified that the same process was utilized in establishing UFF's $200,000 bid price for the 6 acre tract. Stevenst counsel objected that the question called for hearsay based on Olson's valuation; the objection was overruled. It is thisactionby theDistrict Court in overrulingahearsay objection that the majority holds is an abuse of discretion because the testimony was in violation of Rule 26, M.R.Evid. Again, I cannot agree. Benn's testimony as to thebid price for the 6 acre tract, and how it was established, is not expert testimony. It is factual testimony of Benn's own participation inUFFfsaction to foreclose the 6 acre tract. There isnothing specialized or technical about it, it does not constitute opiniontestimony of any kind, and it is notvaluation testimonyas suggestedby themajority. Furthermore, the testimony was not inadmissible on the hearsay grounds upon which the objection was based since it contained no referencewhatsoever to the contents of Olson's letter. I cannot find an abuse of discretion by the District Court on these facts. The majority's brief and generalized treatment of Benn's testimony, and its resulting lack of clarity in concluding that thattestimonywasexperttestimony requiring disclosureunderRule 26, does not provide guidance to the bench and bar of Montana in distinguishing lay and expert opinion. Instead, as noted above, the message seems to be that the difference between the two no longer exists. I dissent.

Chief Justice J. A. Turnage: I concur in the foregoing concurring and dissenting opinion of Justice Gray.