No. 90-226 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1990 

STATE ex rel. RONALD W. EGELAND, 

plaintiff and Respondent, 

THE CITY COUNCIL OF CUT BANK, MONTANA, 

LEO SCHAEFER, PHILIP (PHIL) CHEETY, 

FRANCES STRYREN and ED SNOECK, as Members 

of the City council, and EUGENE 0. BOYLE, 

City Treasurer of the City of Cut Bank, 

Montana, a Municipal Corporation, 

Respondents and Respondents 

MELVIN SHULAND, HERITAGE BUILDERS, INC., 

ABERCROMBIE PIPE LINE & SERVICES, INC., 

Interplead Defendants, 

D.A. DAVIDSON & CO., 

Interpled Defendant and Respondent, 

LELAND FREED, 

Interpled Defendant and Appellant. 

APPEAL FROM: District Court of the Ninth Judicial District, 

In and for the County of Glacier, 

The Honorable Henry Loble, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Dennis McCaf ferty, Esq. ; James Gray & McCaf ferty, Great 

Falls, Montana 

For Respondents: 

~eith Strong, Esq.; Dorsey & Whitney, Great Falls, Montana 

Filed: 

Submitted on Briefs: November 1, 1990 

Decided: December 11, 1990 

e 

Clerk 
Justice John Conway Harrison delivered the Opinion of the Court. 

This action originated in the District Court of the Ninth 

Judicial District, Glacier County, Judge Henry Loble presiding. 

Ronald W. Egeland sought a Writ of Mandamus ordering the City of 

Cut Bank to pay interest on SID bonds. The parties to this appeal, 

Leland Freed and D.A. Davidson & Co., were interpled defendants in 

the action. Freed asserted claims against D.A. Davidson and both 

parties moved for summary judgment. From grant of summary judgment 

to D.A. Davidson, Freed appeals. We affirm. 

The single issue is whether the District Court erred in 

granting summary judgment to D.A. Davidson & Co. on the basis that 

Freed's cross-claims were barred by the statute of limitations. 

I 

On February 26, 1982, Ronald Egeland and Leland Freed formed 

Glacier Development Limited Partnership for the purpose of 

developing a subdivision in Cut Bank, Montana. Freed and Egeland 

were limited partners. 

For sewer and water construction work, Glacier Development 

received SID bonds as payment from the City of Cut Bank. Egeland 

opened an account at D.A. Davidson and on August 23, 1983, Egeland 

pledged the SID bonds to D.A. Davidson to secure his personal 
margin account loan in the amount of $103,125. On December 21, 

1983, Freed advised D.A. Davidson that Egeland had no authority to 

make personal use of the bonds which were the property of Glacier 

Development. D.A. Davidson responded that it held an interest in 

the bonds superior to Freed's interest. 

Two actions were filed involving Freed. On January 16, 1985, 

Freed filed suit against Egeland and judgment was entered on July 

9, 1987, giving all of the limited partnership's interest in the 

bonds to Freed. 

The present action was initiated on January 22, 1985, when 

Egeland filed a mandamus petition to force the City of Cut Bank to 

pay interest on the SID bonds. The City of Cut Bank answered 

Egeland's petition and petitioned to interplead the parties who 

claimed an interest in the bonds. 

On March 3, 1987, the District Court entered an order 

interpleading defendants D.A. Davidson and Freed and requesting 

them to file a responsive pleading in the matter. Freed filed his 

responsive pleading on March 16, 1987, alleging that he and Glacier 

Development had an interest in the bonds superior to claims by any 

other party. Freed also accused D.A. Davidson of "willful, wanton, 

and conscious disregard of known duties," !'bad faith," and 

voppression.H 

Freed moved for summary judgment on June 9, 1988. The next 

day D. A. Davidson cross-moved for summary judgment against Freed 

on the basis that it had no actual notice of Freed's claim to the 
bonds. 

The District Court granted summary judgment to D.A. Davidson 

on the ground that Freed's claims were time barred. Using December 

21, 1983, as the triggering date, the court applied a three-year 

statute of limitations to Freed's "bad faith1' claim, and a twoyear statute of limitations to Freed's llconversion'l claim. 

On March 26, 1990, D.A. Davidson and the City of Cut Bank 

settled their claims, and this appeal of the summary judgment 

ruling followed. 

I1 

Freed presents four arguments to support his contention that 

cross-claims against D.A. Davidson are not time barred. First, he 

argues that in relation to his claim of bad faith the statute of 

limitations did not begin to run until October 25, 1985, when D.A. 

Davidson first examined the documents showing that Egeland was not 

the owner. Freed reasons that until then, D.A. Davidson could not 

have acted in bad faith because it believed that the bonds belonged 

to Egeland. The District Court considered this argument, but 

determined that the latest possible date for purposes of the 

statute of limitations was December 21, 1983, when Freed demanded 

the bonds from D.A. Davidson. 

The statute of limitations for '#bad faith1# or "breach of the 

covenant of good faith and 'fair dealing1' is the three-year statute 

applicable to torts, 27-2-204(l), MCA. Kitchen Krafters v. 
Eastside Bank (Mont. 1990), 789 P.2d 567, 570, 47 St.Rep. 602, 605; 

Tynes v. Bankers Life Company (1986), 224 Mont. 350, 357, 730 P.2d 

1115, 1120. The statute of limitations begins to run when a claim 

accrues : 

(a) a claim or -cause of action accrues when all 

elements of the claim or cause exist or have occurred, 

the right to maintain an action on the claim or cause is 

complete, and a court or other agency is authorized to 

accept jurisdiction of the action; 

(b) an action is commenced when the complaint is 

filed. 

(2) Unless otherwise provided by statute, the period of 

limitation begins when the claim or cause of action 

accrues. Lack of knowledge of the claim or cause of 

action, or of its accrual, by the party to whom it has 

accrued does not postpone the beginning of the period of 

limitation. 

Section 27-2-102, MCA. Freed advised D.A. Davidson on December 21, 

1983, that Egeland had no authority to pledge the bonds, and at 

that time D.A. Davidson asserted a superior interest in the bonds. 

After D.A. Davidson refused to surrender the bonds to Freed, Freed 

could have filed a claim, whether or not D.A. Davidson believed 

that it had a right to hold the bonds. As pointed out by the 

~istrict Court, Freed's cause of action could have been said to 

have accrued even earlier, on August 23, 1983, when D.A. Davidson 

acquired the bonds. Lack of knowledge of one's legal rights or 

even the facts upon which a cause arises does not toll the statute 

of limitations in non-malpractice actions. Payne v. Stratman 

(1987), 229 Mont. 377, 381, 747 P.2d 210, 212-13. We uphold the 

District Court's determination that December 21, 1983 was the date 
when Freed's bad faith claim accrued. 

I11 

Secondly, Freed argues that his claim against D.A. Davidson 

is not a cross-claim, but "simply an answer or defense" to 

Egeland's claim of ownership of the bonds. Freed maintains that 

a limitations period should not be imposed with regard to his 

answer or response as an interpleader. Therefore, the statute of 

limitations was tolled on October 25, 1985, when the City named 

D.A. avids son and Freed as interpled defendants. This date was 

within two years of December 21, 1983, when D.A. avids son rejected 

Freed's claim to the bonds. 

We have examined Freed's pleadings and affirm the District 

Court's conclusion that they constitute affirmative cross-claims, 

rather than answers or defenses. Freed calls his pleadings of 

March 16, 1987, "Claims of Interpled Defendant Leland Freed," and 

labels allegations against D.A. Davidson as "Leland Freed's Claim 

Against D.A. avid son." He does not refer to the allegations as 

defenses or responses to Egeland's claims. Thus by his own 

admission, Freed filed an affirmative cross-claim, not an answer 

or response. 

IV 

Next Freed asserts that his cross-claim relates back to the 

same conduct, transaction, or occurrence set forth in the complaint 
filed by Egeland on January 22, 1985, a date within the applicable 

statute of limitations. In other words, the statute of limitations 

regarding Freed's claims was tolled by the filing of Egelandls 

complaint. 

Cross-claims are governed by Rule 13(g), M.R.Civ.P.: 

Cross-claim against coparty. A pleading may state as a 

cross-claim any claim by one party against a coparty 

arising out of the transaction or occurrence that is the 

subject matter either of the original action or of a 

counterclaim therein or relating to any property that is 

the subject matter of the original action. Such crossclaim may include a claim that the party against whom it 

is asserted is or may be liable to the cross-claimant for 

all or part of a claim asserted in the action against the 

cross-claimant. 

Most of the cases concerning the relation back issue involve 

counterclaims, although the rationale of those decisions is equally 

applicable to cross-claims. Appelbaum v. Ceres Land Co. (D. Minn. 

1981), 546 F.Supp. 17, 20, affld, (8th Cir. 1982), 687 F.2d 261. 

In some jurisdictions, a counterclaim relates back to the date of 

the filing of the complaint in the action if it arises out of the 

same transaction or occurrence. See, e.g., Employers1 Fire 

Insurance v. Love It Ice Cream (Or. App. 1983), 670 P.2d 160, 163; 

Doxey-Layton Co. v. Clark (Utah 1976), 548 P.2d 902, 906. As 

stated by a Washington court, "A counterclaim is not barred by the 

statute of limitations if the counterclaim would not have been 

barred by the statute of limitations at the commencement of the 

action in which it is pleaded." Logan v. North-West Insurance Co. 

(Wash. App. 1986), 724 P.2d 1059, 1061. 

Other jurisdictions hold that a counterclaim does not relate 
back to the date the complaint was filed. See, e.g. , W. J. Kroeger 

Co. v. Travelers Indemnity Co. (Ariz. 1975), 541 P.2d 385, 387- 

88; Rochester American Insurance Co. v. Cassel Truck Lines (Kan. 

1965), 402 P.2d 782, 784-86. Federal courts distinguish between 

counterclaims and cross-claims that seek to somehow reduce the 

amount a plaintiff can recover, such as by recoupment, 

contribution, or indemnity, and claims that seek affirmative 

relief. U.S. for Brothers Builders Supply v. Old World Artisans 

(N.D. Ga. 1988), 702 F.Supp. 1561, 1569. "Defensive claims 

generally relate back, while affirmative claims must satisfy the 

applicable statute of limitation^.^^ A~~elbaum, 546 F.Supp. at 20; 

see also Hurst v. U.S. Department of Education (10th Cir. 1990) , 

901 F.2d 836, 837-38. 

In Montana, this Court has not addressed the issue of when the 

statute of limitations is tolled concerning the filing of a crossclaim pursuant to Rule 13(g), M.R.Civ.P. We have determined that 

a counterclaim or third-party complaint tolls the statute of 

limitations when it is filed, rather than when a motion for leave 

to amend an answer and file other claims is filed. Engine 

Rebuilders, Inc. v. Seven Seas Import-Export (1980) , 189 Mont. 236, 

239, 615 P.2d 871, 872. 

Our holding in Ensine Rebuilders implies that a counterclaim 

or cross-claim for affirmative relief tolls the statute of 

limitations when it is filed and does not relate back to the date 

the initial complaint was filed. We therefore adopt the federal 
rule. A counterclaim, cross-claim, or third-party complaint for 

affirmative relief, other than a defensive claim where the 

defendant attempts to offset the amount a plaintiff can recover, 

such as by recoupment, contribution, or indemnity, must comply with 

the applicable statute of limitations. 

Freed urges that the relation back doctrine of Rule 15(c), 

M.R.Civ.P., as interpreted by this Court in Tynes v. Bankers Life 

Co. (1986), 224 Mont. 350, 730 P.2d 1115, applies. See also Priest 

v. Taylor (1987), 227 Mont. 370, 740 P.2d 648. In Tynes for the 

purposes of the statute of limitations an amended complaint adding 

a second plaintiff was held to relate back to the date the original 

plaintiff filed his complaint. Rule 15 (c) , M.R. Civ. P. provides in 

part: 

Whenever the claim or defense asserted in the amended 

pleading arose out of the conduct, transaction, or 

occurrence set forth or attempted to be set forth in the 

original pleading, the amendment relates back to the date 

of the original pleading. 

The rule made in Tynes is inappropriate here. First of all, 

Rule 15(c) applies to an amended pleading, not a cross-claim filed 

for the first time. Secondly, in Tynes, even though a second 

plaintiff was added, since the cause of action arose out of the 

same llconduct, transaction, or occurrencett1 the defendant was 

already on notice of adverse claims and was not prejudiced. Here 

the original petition filed January 22, 1985, involved only Egeland 

and the City of Cut Bank. D.A. Davidson and Freed were not joined 

as defendants until March 3, 1987, and D.A. Davidson had no notice 
of Freed's cross-claims until March 16, 1987. As stated in Tvnes, 

l'[s]tatutes of limitation exist in order to insure that a defendant 

receives adequate notice of the claim against it. They provide a 

defendant with the opportunity to adequately defend." Tynes, 224 

Mont. at 358, 730 P.2d at 1120. Contrary to Freed's assertion, 

D.A. Davidson was not put on notice of Freed's cross-claims against 

it by Egeland's petition for a Writ of Mandamus ordering the City 

to pay interest on the SID bonds. 

Further, Freed's claims do not arise out of the same lrconduct, 

transaction, or oc~urrence~~ because Egeland's suit involved the 

failure of the City to pay interest on the SID bonds, while D.A. 

Davidson and Freed were interpled as possible stakeholders to the 

bonds. Freed's claims against D.A. Davidson arose out of D.A. 

Davidson's refusal to release the SID bonds to Freed. See Walstad 

v. Norwest Bank of Great Falls (1989), 240 Mont. 322, 324-326, 783 

P.2d 1325, 1327-1328. We conclude that Freed's cross-claims do not 

relate back to the date of Egeland's original complaint on the 

basis of the Tynes decision or Rule 15(c), M.R.Civ.P. 

v 

Freed's last contention is that a five-year limitations period 

applies to a "competing interest in personal property.'' An action 

for claim and delivery of personal property is provided for by 

53 27-17-101 to -405, MCA. Freed asserts that a five-year 

limitations period applies to such a claim pursuant to 5 27-2-231, 
MCA, which is a catch-all statute for !'relief not otherwise 

provided for." However, the statute controlling a claim and 

delivery action is 5 27-2-207, MCA: 

Within 2 years is the period prescribed for the 

commencement of an action for: 

(1) injury to or waste or trespass on real or 

personal property; 

(2) taking, detaining, or injuring any goods or 

chattels, including actions for the specific recovery of 

personal property. 

Freed's cross-claim was not filed within the two-year limitations 

period for a claim and delivery action. 

The judgment of the District Court is affirmed. 

We concur: 

Justices / /' 

Justice William E. Hunt, Sr., did not participate in this 

decision.