NO. 93-166

IN THE SUPREME COURT OF THE STATE OF MONTANA

1994

JIM'S EXCAVATING SERVICE, INC.,

a Montana Corporation,

Plaintiff/Respondent/

Cross-Appellant

v.

HEM ASSOCIATES, a Montana

Corporation,

Defendant/Appellant.

APPEAL FROM: District Court of the Thirteenth Judicial District,

In and for the County of Yellowstone,

The Honorable Robert W. Holmstrom, Judge presiding.

COUNSEL OF RECORD:

For Appellant:

Neil G. Westesen and Donald L. Harris,

Crowley, Haughey, Hanson, Toole & Dietrich,

Billings, Montana

For Respondent:

Stephen D. Bell and Robert L. Sterup,

Dorsey & Whitney, Billings, Montana

For Amicus:

John F. Sullivan, Hughes, Kellner,

Sullivan & Alke, Helena, Montana

(Consulting Engineers Council of Montana

and Montana Technical Council)

Filed:

Submitted on Briefs: April 21, 1994

Decided: July 12, 1994
Justice James C. Nelson delivered the Opinion of the Court.

Jim's Excavating Service, Inc. (JES) , brought this action

against the engineering firm of HKM Associates, WW r in the

District Court of the Thirteenth Judicial District, Yellowstone

County, claiming delay and extra work damages as a result of HKM's

negligent design and supervision of the Lockwood Water User's

Association water pipeline project. The jury returned a verdict in

the amount of $301,000.00. HKM appeals and JES cross appeals on

the issue of prejudgment interest. We affirm.

The following issues are raised on appeal:

I . Did the District Court err by permitting JES to sue HKM

in tort to recover purely economic damages?

II. Did the District Court err by refusing to admit evidence

that J-M's pipe representative, Vince Pacifico, informed JES at the

beginning of the construction project that J-M's 24-inch PVC pipe

could not be deflected?

III. Did the District Court err by permitting JES's damage

expert to give his opinion concerning the damages JES incurred

where the expert relied upon business records and long-accepted

methodology?

IV. Did the District Court err by denying HKM's motion for a

judgment notwithstanding the verdict (JNOV) or in the alternative

a motion for a new trial?

V. Did the District Court err by failing to reduce the jury

award against HKM by the amount JES received from settling with

LWUA, J-M, and Northwest Pipe?

VI. Did the District Court err in denying JES's motion for

prejudgment interest?

FACTUAL BACKGROUND

This litigation arises out of the construction of a water

transmission pipeline for the Lockwood Water Users Association

(LWUA). LWUA retained HKM, a Billings based engineering firm, to

2
design the plans and specifications for the project. HKM also

acted as project engineer through the entire project, from the

design stage through completion. JES , a Billings construction

contractor, was the low bidder on the project, and LWUA awarded the

contract to JES in August 1985. The contract required JES to

construct a water transmission main using 16-inch and 24-inch pipe.

A portion of the pipeline was to be laid through what is known

as the l'S1* curve on Cerise Road. To negotiate this curve, the pipe

would either have to be capable of being deflected at the joint, or

special fittings would have to be installed. The project was

originally designed to use ductile iron pipe, which is capable of

deflection at the joint. Therefore, the plans and specifications

on the original bidding and contract requirement forms issued in

July 1985, did not call for fittings for the "S" curve on Cerise

Road. Six days prior to releasing the bid, HKM issued an addendum

to the bid forms requesting an alternate bid using polyvinyl

chloride (PVC) pipe.

While designing the pipeline, J-M Manufacturing Co., Inc.

(J-W, informed HKM's principal engineer Steve Quail, that the

24-inch PVC pipe could be deflected at the joint up to 3'. Relying

on this information, Quail determined that the PVC pipe could be

laid through the "S" curve without special fittings. Therefore,

the addendum to the bid forms did not include any specifications

that fittings be used for the "S" curve on Cerise Road.

JES submitted a bid which included the alternative bid for PVC

pipe, and as stated above, was awarded the contract. JES decided

3
to buy PVC pipe manufactured by J-M, from Northwest Pipe Fittings,

Inc. (Northwest Pipe). JES had Northwest Pipe provide the required

pipe information and certification to HKM. The submittal informed

HKM that 24-inch PVC pipe manufactured by J-M would be used on the

project. Included in the submittal was a deflection table

indicating that the 24-inch pipe could be deflected up to 3' at the

joint without fittings. Steve Quail called Northwest Pipe to

verify that the deflection table applied to PVC pipe, and upon

Northwest Pipe‘s assurance that the PVC pipe net the criteria

listed in the deflection table, Quail determined that the proposed

submittal satisfied the design plans and specifications, and

approved the submittal without exception.

Construction on the project began in September 1985. By the

spring of 1986, JES was ready to lay the pipe at Cerise Road. The

24-inch pipe to be installed for this part of the project was

delivered on April 10, 1986. Shortly thereafter, on April 18,

1986, a J-M representative told JES the pipe could not be

deflected. Therefore fittings would have to be installed in order

to negotiate the Cerise Road "S1' curve. Because fittings had not

been indicated for the Cerise Road portion of the project, JES had

not ordered any, and none were immediately available. Construction

of the pipeline effectively stopped until the fittings arrived.

JES did complete the straight sections of the project while waiting

for the fittings, and continued to work until May 6 or 7, 1986.

The fittings arrived on July 14, 1986. However, JES was not able

to resume work until their subcontractors had Worker's Compensation

4
insurance. JES resumed work August 28, 1986. on September 4,

1986, there was a break in the Cenex gas line in the immediate area

of the project. The area was evacuated by the sheriff, and the

project was shut down. On September 10, HKM inspected the 24-inch

fittings and discovered that the cement linings of the fittings

were cracked and had to be returned for repair. The new fittings

did not arrive on the project until October 5, or 6, 1986.

While waiting for the equipment, JES could not do other work

because its bonding was tied up, and because it had to keep its

equipment on standby so that it would be available to begin work

once the fittings did arrive. JES felt it was not free to use the

equipment on a long-term basis on any other job. Due to the delay

JES suffered economic loss.

PROCEDURAL BACKGROUND

JES filed a complaint against HKM and LWIJA on May 8, 1987.

The complaint contained a series of Counts, some in the nature of

alternate theories of recovery, some in the nature of separate

claims, some applicable to defendant HKM only, some applicable to

defendant LWDA only, and some applicable to both defendants

jointly. LWDA counterclaimed against JES and JES filed a third

party complaint against Northwest Pipe and J-M, asking to be

indemnified from the claims set forth in the LWDA's counterclaim.

Prior to trial, JES entered into a settlement agreement with

LWDA whereby LWUA paid JES a total of $135,000 and dismissed the

counterclaim asserted against JES. JES also entered into a

settlement agreement with Northwest Pipe and J-M, whereby the sum

5
of $135,000 was paid to JES in satisfaction of the claims asserted

by JES against Northwest Pipe and J-M. By the terms of the

agreements, JES did not release the claims it possessed against

HEM. Therefore the remaining parties to the action were JES and

HEM.

Following the settlements, JES filed an amended complaint

against HEM only on March 7, 1989. The amended complaint

incorporated some of the theories contained in the original

complaint which named LWUA as co-defendant. The amended complaint

alleged among other things, that HEM as project engineer owed JES,

as contractor, a duty to act as a reasonable prudent member of its

profession in its preparation of the contract plans and

specifications, in its overall design of the project, in its

direction, supervision and administration of the contract work, and

its recommendations to the Project Owner with regard to contract

payments and disputes. JES sought recovery of direct and

consequential damages incurred as a result of HEM's negligent

design.

A jury trial was held August 3 through 13, 1992. After

certain pretrial motions, the case was submitted to a jury upon a

negligence theory and the jury was asked to determine whether HKM

was negligent in preparing the plans and specifications of the

project and if so: whether HEM's negligence was a cause in fact of

JES's damages: whether HEM's negligence was the proximate cause of

damages to JES; and the amount of damages sustained by JES as a

result of HKM's negligence. The jury was also asked whether JES

6
was negligent, and if so, was the negligence of JES the cause in

fact of its damages. The jury by its special verdict, determined

that HKM was negligent and that its negligence was the cause in

fact and proximate cause of JES's damages. The jury also

determined that JES was negligent, but its negligence was not the

cause in fact of its damages. The jury determined JES's damages to

be in the amount of $381,000.

After trial HKM moved for a pro tanto reduction of the jury

verdict. HKM argued that the $381,000 damage award should be

reduced by $270,000, to reflect the compensation JES received from

settling with LWDA, J-M, and Northwest Pipe. The District Court

denied the motion, and entered judgment in favor of JES on October

30, 1992. HKM then moved for a judgment notwithstanding the

verdict or in the alternative for a new trial. HKM based its

motion in part on the argument that absent privity of contract, as

a matter of law, HKM owed no duty to JES, and therefore JES could

not bring a negligence action directly against HKM. After

considering the briefs of both parties, the District Court denied

this motion on December 17, 1992.

HKM appealed to this Court from this judgment, and JES cross

appealed an order denying JES's motion for prejudgment interest.

I . ECONOMIC LOSS DOCTRINE

Did the District Court err by permitting JES to sue HKM

in tort to recover purely economic damages?

HKM argues that because there was no contractual privity

between JES and HKM, the District Court could not, as a matter of

law, impose purely economic tort liability upon HRM. Our standard

7
of review relating to conclusions of law is whether the trial

judge's interpretation of the law is correct. Steer, Inc. v.

Department of Revenue (1990), 245 Mont. 470, 474-75, 803 P.2d 601,

603. Therefore, we must determine if the District Court erred in

determining that JES was not as a matter of law precluded from

bringing a negligence action against HKM absent privity of contract

between the two.

HKM asks this Court to adopt the economic loss doctrine which

provides that a contractor or subcontractor may not sue a design

professional in tort for economic damages, i.e., delay damages and

the cost of extra work. Rather, HKM argues, the parties should be

required to pursue their contract remedies, and resolve the dispute

in accordance with the law of contracts. Although this Court has

not addressed this specific question, the majority of jurisdictions

have done so and have rejected the economic loss doctrine. See

generally Annotation, Tort Liabilitv of Project Architect for

Economic Damages Suffered bv Contractor, 65 A.L.R.3d 249 (1975).

In the instant case, the District Court rejected HKM's

arguments that the economic loss doctrine precluded JES as a matter

of law, from recovering economic damages from HKM. The District

Court determined that HKM "had a duty to use ordinary care and

diligence in rendering its professional services in the preparation

of the plans and specifications," and allowed JES to establish a

breach of that duty and the resulting damage to it, entitling JES

to recover. HKM alleges that this decision was in error.

Montana law requires that engineers exercise the care and

8
competence expected of members of their profession. MorrisonMaierle, Inc. v. Selsco (1980), 186 Mont. 180, 185, 606 P.2d 1085,

1088. HKM argues however, that an engineer only has a duty to the

owner, and that duty arises from the contract between them.

Because there was no contractual privity between HI@l and JES, HKM

contends that it owes no duty to JES.

This argument ignores the established law in Montana

abolishing the requirement of privity of contract to maintain an

action in tort. Hawthorne v. Kober Con&. Co. (1982) t 196 Mont.

519, 640 P.2d 467; Tynes v. Bankers Life Co. (1986), 224 Mont. 350,

730 P.2d 1115. In Hawthorne, the case rejecting the privity

requirement, a subcontractor asserted claims against the general

contractor and the general contractor's steel supplier. The

subcontractor alleged that he suffered economic damages as a result

of the steel supplier's delay in delivering steel. The District

Court granted partial summary judgment in favor of the steel

supplier finding that the subcontractor could not maintain an

action against the steel supplier because there was no privity of

contract. This Court reversed the District Court holding that

privity of contract is not required to maintain an action grounded

in negligence. We adopted the following reasoning from Prosser,

Law of Torts, 5 93 (4th ed. 1971):

. . . by entering into a contract with A, the defendant

may place himself in such a relation toward B that the

law will impose upon him an obligation, sounding in tort

and not in contract, to act in such a way that B will not

be injured. The incidental fact of the existence of the

contract with A does not negative the responsibility of

the actor when he enters upon a course of affirmative

conduct which may be expected to affect the interests of

9
another person.

. . . there are situations in which the making of the

contract creates a relation between the defendant and the

promisee, which is sufficient to impose a tort duty of

reasonable care. By the same token, there are situations

in which the making of a contract with A may create a

relation between the defendant and B, which will create

a similar duty toward B, and may result in liability for

failure to act.

Hawthorne, 640 P.2d at 470.

In addition, as stated above, the clear trend in other

jurisdictions is to allow a negligence action for economic loss

without direct privity of contract. See for example, Mattingly v.

Sheldon Jackson College (Alaska 1987), 743 P.2d 356; Donnelly

Const. Co. v. Oberg/Hunt/Gilleland (Ariz. 1984), 677 P.2d 1292;

Bacco Const. Co. v. American Colloid Co. (Mich.App. 1986), 384

N.W.2d 427; A. Moyer, Inc. v. Graham (Fla. 1973), 285 So.2d 397.

For example, in Bacco Con&r. Co. v. American Colloid, the Michigan

Court of Appeals allowed a contractor to bring a negligence action

against a project engineer absent contractual privity. Bacco, 384

N.W.2d at 434. The Michigan court concluded that:

It is certainly foreseeable that an engineer's failure to

make proper calculations and specifications for a

aonstruction job may create a risk of harm to the thirdparty contractor who is responsible for applying those

specifications to the job itself. The risk of harm would

include the financial hardship created by having to cure

the defects which may very well not be caused by the

contractor.

Bacco, 384 N.W.2d at 434. Bacco adopted the reasoning of an

Arizona case, Donnelly Con&. Co. v. Oberg/Hunt/Gilleland. In that

case, a contractor brought a negligence claim against the

architects alleging that the architect's plans and specifications

10
contained errors which resulted in increased construction costs.

Donnelly, 677 P.2d at 1293-94. The architect moved to dismiss the

action based in part on the fact that there was no privity of

contract. The district court granted the motion. Donnelly, 677

P.2d at 1294. The Supreme Court of Arizona reversed and remanded,

holding that the claim should be allowed, in spite of the lack of

privity. Donnellv, 677 P.2d at 1296. The Arizona court concluded

that it was foreseeable that the contractor, hired to follow the

plans and specifications prepared by the architect, would incur

increased costs if those plans were not accurate. Donnellv, 677

P.2d at 1295-96.

HKM argues that our decision in Thayer v. Hicks (1990), 243

Mont. 138, 793 P.2d 784, which addressed the extent of negligence

liability accountants have to third parties with whom they are not

in privity of contract, is applicable to the instant case. HKM

maintains that Thaver stressed the necessity of some sort of

connection or "quasi-privity" before tort liability could be

imposed on a professional.

In Thaver, this Court examined three approaches to accountant

liability to third parties: (1) the "near privity" concept from

Credit Alliance Corp. v. Arthur Andersen & Co. (N.Y. 1985), 483

N.E.Zd 110, which limits the duty of care to those third parties

who are actually known to the accountant: (2) the "actually

foreseen" rule from the Restatement (Second) of Torts § 552 (1977),

which provides that the accountant foresee and intend members of a

limited class will rely on his representations: and (3) the

11
"ordinary negligence rule" which holds accountants liable to all

who might reasonably and foreseeably obtain and rely upon the

accountant‘s work product. Thaver, 793 P.2d at 788-89.

Thaver adopted a modified version of the Credit Alliance test,

which provides:

. . .[A]n accountant may owe a duty of care to third

parties with whom he is not in privity of contract.

However, this duty exists only if the accountant actually

knows that a specific third party intends to rely upon

his work product and only if the reliance is in

connection with a particular transaction or transactions

of which the accountant is aware when he prepares the

work product.

Thaver, 793 P.2d at 791. Because the facts of Thaver met the

strictest of the three tests, we declined to adopt one of the more

liberal standards at that time.

The jury in this case found that HIU4 was negligent in

preparing the project's plans and specifications. Therefore, the

negligent act, according to the special jury verdict, occurred

before HKM actually knew JES, specifically, would be relying on the

negligently prepared plans and specifications. The facts of this

case therefore do not meet the test we adopted in Thaver.

However, HKM should not escape from liability simply because

it did not actual.ly know JES would receive the bid, when it knew

that some contractor would be relying on its plans and

specifications. We conclude that in this case, and in other cases

wherein a contractor brings a suit against the project engineer or

architect, the approach set forth in 5 552 of the Restatement

should control. Section 552 of the Restatement provides:

(1) One who, in the course of his business, profession

12
or employment, or in any other transaction in which he

has a pecuniary interest, supplies false information for

the guidance of others in their business transactions, is

subject to liability for pecuniary loss caused to them by

their justifiable reliance upon the information, if he

fails to exercise reasonable care or competence in

obtaining or communicating the information.

(2) Except as stated in Subsection (3), the liability

stated in Subsection (1) is limited to loss suffered

(a) by the person or one of a limited group of

persons for whose benefit and guidance he intends to

supply the information or knows that the recipient

intends to supply it: and

(b) through reliance upon it in a transaction that

he intends the information to influence or knows that the

recipient so intends or in a substantially similar

transaction.

(3) The liability of one who is under a public duty to

give the information extends to loss suffered by any of

the class of persons for whose benefit the duty is

created, in any of the transactions in which it is

intended to protect them.

We adopted this section of the Restatement in State Bank of

Townsend v. Maryann's, Inc. (1983), 204 Mont. 21, 664 P.2d 295,

where we noted the following language from the comment to the

Restatement:

. . .[I]t does not follow that every user of commercial

information may hold every maker to a duty of care.

Unlike the duty of honesty, the duty of care to be

observed in supplying information for use in commercial

transactions implies an undertaking to observe a relative

standard, which may be defined only in terms of the use

to which the information will be put, weighed against the

magnitude and probability of loss that might attend that

use if the information proves to be incorrect. A user of

commercial information cannot reasonably expect its maker

to have undertaken to satisfy this obligation unless the

terms of the obligation were known to him. Rather, one

who relies upon information in connection with a

commercial transaction may reasonably expect to hold the

maker to a duty of care only in circumstances in which

the maker was manifestly aware of the use to which the

information was to be put and intended to supply it for

13
that purpose. . .

State Bank of Townsend, 664 P.2d at 302.

In addition, in discussing Subsection (Z), the comments to the

Restatement note that it is not necessary that the maker of the

negligent misrepresentation have any particular person in mind as

the intended, or even the probable, recipient of the information.

. . .[I]t is not required that the person who is to

become the plaintiff be identified or known to the

defendant as an individual when the information is

supplied. It is enough that the maker of the

representation intends it to reach and influence either

a particular person or persons, known to him, or a group

or class of persons, distinct from the much larger class

who might reasonably be expected sooner or later to have

access to the information and foreseeably to take some

action in reliance upon it.

We find illustration 9, of the comments to Subsection (2) to be

particularly applicable:

The City of A is about to ask for bids for work on a

sewer tunnel. It hires B Company, a firm of engineers,

to make boring tests and provide a report showing the

rock and soil conditions to be encountered. It notifies

B Company that the report will be make available to

bidders as a basis for their bids and that it is expected

to be used by the successful bidder in doing the work.

Without knowing the identity of any of the contractors

bidding on the work, B Company negligently prepares and

delivers to the City an inaccurate report, containing

false and misleading information. On the basis of the

report C makes a successful bid, and also on the basis of

the report D, a subcontractor, contracts with C to do a

part of the work. By reason of the inaccuracy of the

report, C and D suffer pecuniary loss in performing their

contracts. B Company is subject to liability to B and to

D.

Thus, we hold that a third party contractor may successfully

recover for purely economic loss against a project engineer or

architect when the design professional knew or should have foreseen

that the particular plaintiff or an identifiable class of

14
plaintiffs were at risk in relying on the information supplied.

II. HEARSAY EVIDENCE

Did the District Court err by refusing to admit evidence

that J-M's pipe representative, Vince Pacifico, informed

JES at the beginning of the construction project that JM's 24-inch PVC pipe could not be deflected?

At trial, HKM offered the deposition testimony of Rex Mishler,

a J-M sales representative, and a letter allegedly written by

Mishler. According to HKM, the deposition testimony and the letter

would prove that Vince Pacifico, a J-Mtechnical representative who

was deceased at the time of trial, informed JES at the project

start-up that the 24-inch pipe could not be deflected. HFM alleges

that the District Court erred when it refused to admit the

deposition testimony and the letter. In reviewing the alleged

error, we begin with the principle that questions of admissibility

of evidence are left to the sound discretion of the trial court,

and are subject to review only in the case of manifest abuse.

Mason v. Ditzel (1992), 255 Mont. 364, 370-71, 842 P.2d 707, 712.

The District Court excluded Rex Mishler's deposition testimony

as hearsay. On appeal, HKM sets forth two arguments to support its

position that the deposition testimony was not hearsay. First, HKM

contends that the deposition testimony was not offered to prove the

truth of the statements, but to show that JES had notice of the

pipe's non-deflectability.

Hearsay is defined as 'la statement, other than one made by the

declarant while testifying at the trial or hearing, offered in

evidence to prove the truth of the matter asserted." Rule 801(c),

15
M.R.Evid. If a statement is not offered to prove the truth of its

contents, but to show whether the statement was made, the statement

is not hearsay under the definition. Commissioner's Comments to

Rule 801(c), M.R.Evid. HKM contends the deposition testimony was

not offered to prove the truth of what was said, that the pipe

could not be deflected, but to prove that JES had notice of the

pipe's non-deflectability before April 1986.

HKM relies on Moats Trucking Co. v. Gallatin Dairies (1988),

231 Mont. 474, 753 P.2d 883, to support its position that the

statements should have been admitted not to prove they were true,

but to demonstrate the effect they had on the listener, JES.

However, the hearsay statement in Moats is distinguishable from

Mishler's hearsay statement. In Moats, the district court allowed

a witness to testify about a conversation his employee had with the

plaintiff. The district court permitted the testimony to show the

resulting effect the conversation had on the witness. Here, HKM

attempted to have Mishler testify to a conversation Vince Pacific0

had with JES to prove the effect the conversation should have had

on JES, not Mishler.

In addition, while HKM argues to the contrary, we conclude

that the content of Pacifico's conversation with JES cannot be

separated from the fact that he had the conversation, i.e, his

sivinq of the "notice". Without knowing what Pacific0 said to JES

about deflectability, the mere fact that he had the conversation is

meaningless. The offered testimony is probative only if the jury

is told that JES was advised by Pacific0 that the pipe could p& be

16
deflected. Accordingly, it is clear that Mishler's statements

about what Pacific0 said were offered, not simply to show that

Pacific0 made statements to JES about deflectability, but to prove

that Pacific0 said the pipe could not be deflected. Mishler's

statements were offered for the truth of the matters asserted and

are therefore, hearsay.

Second, HKM claims that the deposition testimony is not

hearsay under Rule 801(d)(l)(A), M.R.Evid, because it is a prior

inconsistent statement. After reviewing both Mishler's deposition

and trial testimony, we conclude that, taken as a whole, the two

are not clearly inconsistent. For example, at trial when

questioned about Vince Pacifico's statements concerning the pipe's

deflectability Mishler testified as follows:

Q: [by HKM's counsel] Do you have a general

recollection?

A: [by Mishler] Of what Vince Pacific0 said on the

jobsite?

Q: Yes.

A: At start-up?

Q: Yes.

. . .

A: I really don't remember what was said, no.

At his deposition, Mishler essentially said the same thing:

Q: [by counsel] Now, tell me your best recollection of

what you presented at that meeting and any questions,

answers, whatever.

A: [by Mishler] Vince made the presentation and told

them about the pipe and how to put it in.

Q: Explained to them that you couldn't deflect at the

17
joint no matter what, right?

A: I'm sure he did.

Q: Do you remember it?

A: Not specifically.

Because the deposition testimony and the trial testimony are

not clearly inconsistent, we conclude that the District Court did

not manifestly abuse its discretion in refusing to allow HEM to

impeach Mishler with his deposition testimony. See, Walsh-Anderson

Co. v. Keller (1961), 139 Mont. 210, 220, 362 P.2d 533, 538.

Finally, HEM contends that the District Court erred by

refusing to admit a letter allegedly written by Mishler because the

court concluded it was hearsay. This contention ignores the

District's Court's ruling. The District Court excluded the letter

because of lack of foundation, therefore, HEM's hearsay arguments

concerning the letter are irrelevant.

HEM's counsel attempted to introduce the letter as a recorded

recollection under Rule 803(5), M.R.Evid. That rule allows the

admission of:

A memorandum or record concerning a matter about which a

witness once had knowledge but now has insufficient

recollection to enable the witness to testify fully and

accurately, shown to have been made or adopted by the

witness when the matter was fresh in the witness' memory

and to reflect that knowledge correctly. . .

Marron v. Great Northern Ry. Co. (1913), 46 Mont. 593, 129 P. 1055,

is the leading case outlining the foundational requirements for a

recorded recollection:

(a) The entries must have been written by the witness

himself, or under his direction: (b) they must have been

written at the time the facts occurred, or at a time when

18
the facts were fresh in the witness' memory: and (c) the

witness must have known at the time the entries were made

that they correctly stated the facts.

Marron, 129 P. at 1057.

Mishler's testimony revealed that he wrote a draft of the

letter and sent it to his employer for approval. Mishler also

testified that changes were made to the letter but he could not

identify which portions were changed or who actually authored the

changes. Mishler also could not remember if the changes would have

been in accord with his memory at the time of the writing.

Finally, the letter was dated January 8, 1988, over two years after

the project start-up meeting would have occurred.

In light of these facts, it is clear that the letter does not

meet the foundational requirements for recorded recollection, as

the letter was not written when the facts were fresh in Mishler's

memory, because all of the entries were not made by him or under

his direction, and because Mishler could not state that the entries

accurately reflected his memory. We therefore conclude that the

District Court did not err when it refused to admit the letter due

to lack of foundation.

III. EXPERT TESTIMONY

Did the District Court err by permitting JES's damage

expert to give his opinion concerning the damages JES

incurred where the expert relied upon business records

and long-accepted methodology?

During trial, JES called Bruce Knudsen as an expert witness to

express his opinion concerning JES's extra work and delay damages.

HKM alleges it was error to permit Knudsen to express his opinion

because of lack of foundation, his opinion being based in part on

19
data supplied to him by JES's counsel.

The test for admissibility of expert testimony is whether the

matter is sufficiently beyond common experience that the opinion of

the expert will assist the trier of fact to understand the evidence

or to determine a fact in issue. Rule 702, M.R.Evid; Wagner v.

Cutler (1988), 232 Mont. 332, 339, 757 P.2d 779, 783. It is within

the discretion of the trial court to determine if an expert is

qualified to testify, and absent an abuse of discretion, the

court's determination will not be disturbed on appeal. State v.

Evans (1991), 247 Mont. 218, 228-29, 806 P.2d 512, 519.

HKM alleges Knudsen's expert testimony lacked foundation

because the records and testimony Knudsen relied upon were not of

a type reasonably relied upon by experts in that field. Under Rule

703, M.R.Evid, an expert may base his or her opinion on facts or

data perceived by or made known to him at or before the hearing.

If the facts or data are "of a type reasonably relied upon by

experts in a particular field in forming opinions or inferences

upon the subject, the facts or data need not be admissible in

evidence." Rule 703, M.R.Evid; Krueger v. General Motors Corp.

(1989), 240 Mont. 266, 783 P.2d 1340.

In addition, according to Rule 705, M.R.Evid., an expert may

give his opinion "without prior disclosure of the underlying facts

or data, unless the court requires otherwise." It is then a matter

for the cross-examiner to determine the underlying facts on which

the expert bases his opinion and expose the weaknesses if any of

the underlying facts for the consideration of the jury. Wollaston

20
v. Burlington Northern, Inc. (1980), 188 Mont. 192, 201, 612 P.2d

1277, 1282. In Wollaston, this Court held:

A s long as the cross-examiner is given adequate

opportunity to bring forth for the jury's consideration

the weaknesses of any assumptions or facts underlying the

opinion, the weight to be given the expert's testimony

even on the ultimate issue, is now for the jury to

determine.

Wollaston, 612 P.2d at 1282.

At trial, Knudsen testified he began his review of the damage

claim by examining the final claim prepared in part by JES's

counsel and submitted to HKM's counsel. He then verified the

information through an independent review of time cards, the field

notes of the engineer and the supervisor, and through discussions

with the superintendent and JES's office manager to test the

reasonableness of the claim. Knudsen testified that this type of

verification was a type of information upon which an accountant

would rely, and in fact he had done this type of verification work

in the past, and that it was reasonable in the instant case. Over

HKM's objection that the opinion testimony lacked foundation, the

District Court ruled that Knudsen's opinion regarding JES's delay

and extra work damages were based upon statistical sampling, which

is a type of data which is reasonably relied upon by experts in the

accounting field.

In addition, HKM was allowed to fully cross-examine Knudsen,

and was able to reveal through cross-examination that Knudsen based

his opinion in part upon the final claim which was prepared by

JES's counsel. HKM was also given the opportunity to discredit

Knudsen's testimony through its own witness, Loring Gurney, HKM's

21
field inspector. Gurney's testimony concerning delay damages

conflicted with Knudsen's testimony. HKM now asserts that because

Gurney's testimony was based on his observations and field notes,

it was superior to Knudsen's damage calculation based upon accepted

accounting methodology.

It is the province of the jury, not this Court to determine

the credibility and the weight of conflicting evidence. Silvis

Through Silvis v. Hobbs (1992), 251 Mont., 407, 411-12, 824 P.2d

1013, 1015-16. As we concluded in Silvis, "[t]his Court will not

retry this case because the jury chose to believe the respondents'

evidence over that of the appellants. It is within the jury's

province to adopt testimony presented on behalf of one side at the

exclusion of the other." Silvis, 824 P.2d at 1016.

Given the fact that Knudsen based his expert testimony upon

methodology accepted in the accounting field, and that HKM was

allowed adequate opportunity to cross-examine Knudsen, or otherwise

expose any weaknesses in his opinion, we hold that the District

Court did not err in allowing Knudsen*s testimony.

IV. INCONSISTENT VERDICT

Did the District Court err by denying HKM's motion for a

judgment notwithstanding the verdict (JNOV) or in the

alternative a motion for a new trial?

Subsequent to trial, HKM moved for a judgment notwithstanding

the verdict, or in the alternative a motion for a new trial. The

District Court denied both motions. On appeal, HKM contends that

the District Court erred by failing to grant HKM a new trial. HKM

did not raise any arguments concerning the District Court's denial

22
of its motion JNOV, therefore, we will limit our discussion to the

argument raised on appeal. HKM alleges it is entitled to a new

trial pursuant to 5 25-ll-102(6), MCA, which provides that a new

trial may be granted if the verdict is against the law. HKM

contends that the jury verdict violated the law because it was

totally inconsistent. HKM claims that the jury verdict was

inconsistent because the verdict found that JES and/or its agent,

Northwest Pipe, was negligent, but that JES's negligence was not a

cause-in-fact of JES's damages. HKM maintains that the only

negligence asserted against JES at trial was JES's selection of

pipe that it knew or should have known was non-deflectable. JES's

damage claim was for extra work and delay damages caused by the use

of the non-deflectable pipe. Therefore, according to HKM, JES's

negligence had to contribute to its damages. While HKM

acknowledges that negligence without causation is possible, HKM

claims that JES's negligence did cause JES's delay damages. See,

DeVerniero v. Eby (1972), 159 Mont. 146, 496 P.2d 290.

The decision to grant or deny a new trial is within the sound

discretion of the trial judge and will not be disturbed absent a

showing of manifest abuse of that discretion. Nelson v. Flathead

Valley Transit (1992), 251 Mont. 269, 274, 824 P.2d 263, 266. HKM

relies on Rudeck v. Wright (1985), 218 Mont. 41, 709 P.2d 621, in

support of its argument that a new trial may be granted when a

jury's verdict is so totally inconsistent that it is contrary to

the mandates of the law. While Rudeck is a correct statement of

the law, the facts of that case do not support HKM's position.

23
Rudeck involved a medical malpractice action where the surgeon

failed to remove a piece of surgical gauze placed in Mr. Rudeck

during surgery. Rudeck, 709 P.2d at 623. During the months after

surgery, Mr. Rudeck's physical condition deteriorated, and he

eventually died from complications resulting from having the gauze

inside his body. Rudeck, 709 P.2d at 623. After his death,

Rudeck's wife initiated a wrongful death action and a survival

action against the surgeon. Rudeck, 709 P.2d at 623. The jury

awarded damages on the wrongful death claim, but did not award

damages on the survival claim. This Court concluded that the

verdict was totally inconsistent because the same negligence that

caused Rudeck's personal injury also caused his death. Therefore,

we held that the jury should have been compelled to award damages

for both the survival action (arising out of the personal injury

claim) and the wrongful death claim. Rudeck, 709 P.2d at 624. In

sum, we found that the same negligence of the same defendant was

the basis for both the wrongful death action and the survival

action. Rudeck, 709 P.2d at 625.

The facts of the instant case are clearly distinguishable from

the facts of Rudeck. Here the jury found negligence on the part of

both the defendant, HKM and the plaintiff JES. JES's and HKM's

negligence did not arise out of one event. HIU4 had a duty to

determine whether the design for the Cerise Road would accommodate

the characteristics of the 24-inch PVC pipe. HKM also had a duty

when reviewing JES's submittal to determine whether the pipe

satisfied HKM's design plans and specifications. The jury found

24
that HI(M failed to meet these duties, which is entirely separate

from the negligence on the part of JES, in submitting a bid and

shop drawings using the non-deflectable pipe.

This Court's function in reviewing a jury's verdict is

limited. We review the evidence in a light most favorable to the

prevailing party to determine whether substantial evidence supports

the jury's verdict, and we cannot reweigh the evidence or disturb

the jury's findings unless the evidence is so inherently impossible

or improbable as not to be entitled to belief. Sizemore v. Montana

Power Co. (1990), 246 Mont. 37, 48, 803 P.2d 629, 636. (Citations

omitted). We will not speculate on how the jury viewed the

evidence or how it reached its decision. Suffice it to say that

there was substantial evidence from which the jury could have

concluded that JES's damages were not so much caused by its choice

of pipe as by HKM's failure to adequately prepare the plans and

specifications for the project.

W e therefore conclude that the jury verdict was not

inconsistent when it found that JES's negligence was not the causein-fact of its damages, and that the District Court did not abuse

its discretion in denying HKM's motion for a new trial.

V. PRO TART0 REDUCTION

Did the District Court err by failing to reduce the jury

award against HKM by the amount JES received from

settling with LWUA, J-M, and Northwest Pipe?

The jury awarded JES $381,000.00 for damages JES incurred as

a result of HICM's negligence in preparing the plans and

specifications for the water transmission project. HKN alleges

2 5
that the $381,000.00 damage award should be reduced by $270,000.00,

to reflect the amount JES received in settlement from LWA, and

jointly from J-M and Northwest Pipe.

Prior to trial, JES entered into a settlement agreement with

LWA wherein LWA agreed to pay JES $75,000.00 as final payment for

work JES performed on the contract. LWA also agreed to release

the $60,000.00 retainage which had been withheld under the contract

to ensure performance by JES. JES and LWA also stipulated to

dismiss with prejudice all claims JES had asserted against LWA and

all counterclaims LWA had asserted against JES.

JES also entered into a settlement agreement with J-M and

Northwest Pipe wherein J-M and Northwest Pipe paid JES $135,000.00

in satisfaction of the claim that J-M and Northwest Pipe had

supplied JES with defective pipe. In both agreements, JES

specifically reserved the right to pursue its claims for damages

against HKM.

Subsequent to trial, HKM moved the trial court to reduce the

$381,000.00 jury award by $270,000.00, the amount JES received from

the settlement agreements. The District Court denied the motion,

concluding that JES sustained injuries which were separate and

distinct, resulting from certain independent acts of HKM, LWA, J-M

and Northwest Pipe. HKM argues the District Court erred in

concluding that this was not a case where one injury was sustained

as a result of the concurrent negligence of HKM and the settling

parties.

HKM contends that because JES asserted claims against the

26
settling parties :for which it sought delay damages and lost profits

and because JES sought the same damages from HKM at trial, the

injuries suffered by JES were not divisible, and HKM is entitled to

an offset. HIQl further alleges that JES was able to avoid a pro

tanto reduction by crafting its settlement agreements to reflect

that it received compensation for claims which were distinct from

the claims it asserted against HKM at trial.

The principle of pro tanto reduction provides that "when a

joint tort-feasor settles with a claimant, the claimant's recovery

against the remaining tort-feasor is to be reduced dollar-fordollar by the consideration paid by the settling tort-feasor."

Boyken v. Steele (1993), 256 Mont. 419, 421, 847 P.2d 282, 284.

(Citations omitted). The pro tanto rule applies only if two or

more concurrent or joint tort-feasors cause a single "indivisible"

harm. Azure v. City of Billings (1979), 182 Mont. 234, 248, 596

P.2d 460, 468.

In Azure, we distinguished between situations where damages

should be divided between two or more parties because each is

responsible for a portion of the injuries inflicted and the

consequent damages, and joint and several liability. We concluded

that a pro tanto deduction is not allowed where the plaintiff's

injuries are divisible.

If liability is joint and several the plaintiff is

entitled to only one recovery. In that event deduction

of an amount already paid by a joint tortfeasor is

proper. But if apportionment of damages applies, each

defendant must pay his contribution to the whole, and

therefore a deduction is not allowed for what another

tortfeasor has paid.

27
Azure , 596 P.2d at 468. (Citations omitted).

We hold that the District Court was correct in finding that

HKM was not entitled to a pro tanto reduction because JES sustained

separate and distinct injuries as a result of independent acts of

HKM, J-M, and Northwest Pipe.

During trial, both parties introduced evidence, without

objection, of the previous settlements and their amounts. The

District Court also held a hearing on the motion for pro tanto

reduction. The evidence presented at trial and the hearing

disclosedthatthe $270,000.00 JES received from LWUA was comprised

of $60,000 as payment for a percentage of progress payments which

had been withheld as retainage pursuant to the contract, and

$75,000.00 for work JES had performed under the contract for which

it had not received payment.

The money JES received from J-M and Northwest Pipe was payment

for JES's claim against them for supplying JES with pipe which was

out of round. As a result of the pipe being out of round, JES

incurred extra expenses as it had to repair leaks caused by the

defective pipe. These damages were distinct and separate from the

extra work and delay damages awarded to JES as a result of HKM's

negligence in preparing the plans and specifications for the

project. Because the damages JES sustained as a result of HKM's

negligence were separate and divisible from the compensation it

received from the settling defendants, we hold the District Court

did not err in denying HlZM's motion for a pro tanto reduction.

VI. PREJUDGMENT INTEREST

28
Did the District Court err in denying JES's motion for

prejudgment interest?

Subsequent to trial, JES moved the District Court for an award

of prejudgment interest. After considering the briefs and

arguments of counsel the District Court denied the motion. JES

argues that it is entitled to prejudgment interest according to the

provisions of § 27-l-210, MCA, which allows the payment of

prejudgment interest on certain tort claims. Section 27-l-210,

MCA, provides:

Interest on torts. (1) Subject to subsection (2), in an

action for recovery on an injury as defined in 27-l-106,

a prevailing claimant is entitled to interest at a rate

of 10% on any claim for damages awarded that are capable

of being made certain by calculation, beginning from the

date 30 days after the claimant presented a written

statement to the opposing party or his agent stating the

claim and how the specific sum was calculated.

According to the statute, prejudgment interest is only allowed

for claims which are "capable of being made certain by

calculation." Although this Court has not ruled on that portion of

the statute, the same language is found in 5 27-1-211, MCA. In

construing the meaning of the same language found in that statute,

this Court has found that when a claimant alleges an award which is

substantially different from the amount ultimately awarded by the

trial court, the damages are not capable of being made certain by

calculation. See, Maddux v. Bunch (1990), 241 Mont. 61, 67, 784

P.2d 936, 940; Northwestern Nat. Bankv. Weaver-Maxwell (1986), 224

Mont. 33, 43-44, 729 P.2d 1258, 1264; Swenson v. Buffalo Bldg. Co.

(1981), 194 Mont. 141, 153, 635 P.2d 978, 985. For example, in

Maddux, the plaintiff claimed the loss of the value of a gravy

29
product in the amount of $35,614.08. Because the jury awarded the

plaintiff $23,378.95, this Court found that the amount of damages

due upon breach was not clearly ascertainable until determined by

the trial court. We therefore concluded that prejudgment interest

was not appropriate. Maddux, 784 P.2d at 940.

In the instant case, JES did not offer any evidence prior to

trial regarding how the specific sum of delay and extra work

damages at the Cerise Road "S" curve would be calculated. At trial

JES's damages expert calculated the damages to be $510,899.00.

However, the jury only awarded JES $381,000.00. We therefore

conclude that JES did not show that the damages it sustained as a

result of HEM's negligence in designing the portion of the pipeline

along the Cerise Road 1'S" curve was "capable of being made certain

by calculation,tq and hold that the District Court did not err in

denying JES prejudgment interest.

AFFIRMED.

We ConcurJustices

30
Justice Terry N. Trieweiler specially concurring.

I concur with the result of the majority opinion. However, I

specially concur with the majority's resolution of issues numbered

1 and 2.

I agree with the majority's conclusion that the plaintiff was

entitled to sue in tort to recover economic damages from the

defendant. Based on the facts in this case, I also agree that a

duty was proven, pursuant to the stricter standard set forth in the

Restatement (Second) of Torts § 552 (1977). However, I would not

limit an engineer's duty to exercise reasonable care to that class

of people set forth in § 552. Section 27-l-701, MCA, provides that

"everyone is responsible not only for the results of his willful

acts but also for an injury occasioned to another by his want of

ordinary care or skill . . . .I1 I see no reason to treat engineers

differently than anyone else, and therefore, would apply ordinary

negligence rules to determine the scope of liability of the

defendant in this case. I would conclude that the defendant owed

a duty to exercise reasonable care to all who might reasonably and

foreseeably obtain and rely upon his or her work product.

I also disagree with the majority's conclusion that Rex

Mishler's deposition was hearsay. I believe the testimony was

offered to simply prove that Vince Pacifico's statement was made,

and that because it was made, the plaintiff had notice that the

pipe could not be deflected. Whether or not Pacifico's statement

was true was immaterial. However, when considered in the entire

context of Mishler's deposition testimony, the statement that

31
defendant sought to offer was eguivocal and did not clearly

contradict Mishler's trial testimony. Its probative value was

questionable, and therefore, I agree that the District Court did

not abuse its discretion when it excluded the deposition testimony.

Furthermore, even if the District Court had erred by excluding the

testimony, it was of no value to the defendant, and therefore,

there was no prejudice from its exclusion.

For these reasons, although.1 do not agree with all that is

said in the majority opinion,, I concur with its result.

* LP%.. us ice

3 2
July 12, 1994

CERTIFICATE OF SERVICE

I hereby certify that the following certified order was sent by United States mail, prepaid,

to the following named:

NEIL G. WESTESEN and DONALD L. HARRIS

CROWLEY, HAUGHEY, HANSON, TOOLE & DIETRICH

P.O. BOX 2529

BILLINGS, MT 59103-2529

STEPHEN D. BELL and ROBERT L. STERUP

DORSEY & WHITNEY

P.O. Box 7188

Billings, MT 59103-7188

JOHN F. SULLIVAN

HUGHES, KELLNER, SULLIVAN & ALKE

P. 0. Box 1166

Helena, MT 59624-1166

ED SMITH

CLERK OF THE SUPREME COURT