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 McCafferty, Esq.; James Gray & McCafferty, 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

ClerkJustice 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 topay interest on SIDbonds. Theparties 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 partiesmoved for summary judgment. Fromgrant 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 onAugust 23, 1983, Egeland pledged the SID bonds to D.A. Davidson to secure his personalmargin 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 mandamuspetition 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 responsivepleading in thematter. Freed filed his responsivepleading onMarch 16, 1987,alleging that he and Glacier Developmenthad an interest in thebonds superior to claimsby any otherparty. Freed also accused D.A. Davidsonof "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 thebonds. The District Court granted summary judgment to D.A. Davidson on theground that Freed's claimswere timebarred. 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-claimsagainst D.A. Davidsonare not timebarred. First,he argues that in relation to his claim of bad faith the statute of limitationsdid notbegin to run until October 25, 1985,when D.A. Davidson first examined thedocuments showing that Egeland was not the owner. Freed reasons thatuntil then, D.A. Davidson could not have acted inbad faith because itbelieved that thebonds belonged to Egeland. The District Court considered this argument, but determined that the latest possible date for purposes of the statute of limitationswas December 21, 1983,when Freed demanded the bonds from D.A. Davidson. The statute of limitations for '#badfaith1# or "breach of the covenant of good faith and 'fairdealing1'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, 47St.Rep. 602,605; Tynesv. Bankers Life Company (1986), 224Mont. 350, 357, 730 P.2d 1115, 1120. The statute of limitations begins to runwhen 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 tomaintain 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 otherwiseprovided 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 notpostpone thebeginning of theperiod 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. Davidsonasserted a superior interest in the bonds. After D.A. Davidson refused to surrender thebonds 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 factsupon 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 thedatewhen 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 twoyears 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
sameconduct,transaction,or occurrence set forth in the complaintfiled by Egeland on January 22, 1985,a datewithin the applicable statuteof limitations. Inotherwords, the statuteof 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 anyproperty that is the subject matter of the original action. Such crossclaim may includea claim that theparty againstwhom it isasserted is ormay be liabletothecross-claimant for all orpart of a claim asserted in theaction against the cross-claimant. Most of the cases concerning the relation back issue involve counterclaims, althoughtherationale of those decisions is equally applicable to cross-claims. Appelbaum v. Ceres Land Co. (D.Minn. 1981), 546 F.Supp. 17, 20, affld,(8thCir. 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 Insurancev. 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 inwhich it ispleaded." Loganv. North-West InsuranceCo.

(Wash.App. 1986), 724 P.2d 1059, 1061. Other jurisdictionshold that a counterclaim does not relateback to thedate 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. InMontana, thisCourthasnot 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 SeasImport-Export (1980)

## , 189Mont. 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 federalrule. 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, suchasby recoupment,contribution,or indemnity,must complywith 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),224Mont. 350, 730P.2d 1115,applies. Seealso Priest
v. Taylor (1987), 227 Mont. 370, 740 P.2d 648. In Tynes for the purposes of the statute of limitationsan amended complaintadding
a secondplaintiffwasheld to relateback to thedate the original plaintiff filedhis 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 tobe set forth in the originalpleading, theamendmentrelatesback tothe date of the original pleading. The rulemade in Tynes is inappropriatehere. First of all, Rule 15(c) applies to an amendedpleading, 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 originalpetition filedJanuary 22,1985, involved onlyEgeland and the City of Cut Bank. D.A. Davidson and Freed were not joined
as defendantsuntil March 3,1987,and D.A. Davidson had no noticeof Freed's cross-claims untilMarch 16, 1987. As stated in Tvnes, l'[s]tatutes of limitation exist in orderto insurethat adefendant 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 wasnotput onnotice ofFreed's cross-claimsagainst it by Egeland's petition for a Writ of Mandamus ordering the City to pay interest on the SID bonds. Further,Freed's claimsdo not ariseoutof 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'srefusal to release the SIDbonds to Freed. SeeWalstad
v. Norwest Bank of Great Falls (1989), 240Mont. 322, 324-326, 783 P.2d 1325, 1327-1328. We conclude that Freed's cross-claimsdo 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 thata five-year limitationsperiod 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 limitationsperiod 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 forthe 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.