No. 86-571

INTHE SUPREME COURT OF THE STATE OF MONTANA
1987

STATE OF MONTANA, ex rel., LOREN S. VRANISH, H. LEE TOWER,GALLATIN-MADISON RANCH CO., aMontana corp., C. DALE and LORETTACOLLINS,AL DYKSTERHOUSE,HENRY DYKSTERHOUSE,et al., Relators,-vsTHEDISTRICTCOURTOF THE FIRSTJUDICIAL DISTRICTOF THE STATE OF MONTANA, INAND FOR THE COUNTY OF LEWIS & CLARK and THE HONORABLE HENRY LOBLE, Presiding Judge,and D.A. DAVIDSON & CO., INC., Respondents.

ORIGINAL PROCEEDING:

COUNSEL OF RECORD:
For Relator:
Luxan & Murfitt;Michael J. Mulroney argued, Helena, Montana
For Respondent:
Hooks & Budewitz; Patrick F. Hooks,argued, Townsend, Montana Dorsey & Whitney; Edward J. Pluimer,Minneapolis, Minnesota
Hon. Henry Loble,District Judge, Helena,Montana

Submitted: May 26, 1987 Decided: August 12, 1987
Filed:

### AUG

### 12

### 1987

ClerkMr. Justice William E. Hunt, Sr., delivered the Opinion of the Court.

This is an original proceeding before the Montana Supreme Court. Relators are applying for a writ of supervisory control regardingan order issuedby the District Court of the First Judicial District on September 30, 1986 denying their claim for punitive damages. We deny the application for a writ of supervisory control. The issues in the applicationare: 1. Should relators be estopped from requesting Count 1 be treated as a separate and distinct common law fraud claim for punitive damages purposes where respondents allege relators have previously represented to the trial court that Count 1 is a statutory claimunder the Montana SecuritiesAct for statuteof limitationspurposes? 2. Did the trial court correctly rule that Count 1 of relator-plaintiffs' complaint was a statutory claimunder the SecuritiesAct and that it should be treated as such for all purposes under the litigation? 3. Did the trial court err when it dismissed relator's punitive damages claim forCount 3? Relators filed their original complaint in February, 1982, and amended it inMarch, 1982 and December, 1983. The complaint is related to a 1976 purchase of limited partnership interests in a tax shelter known as Energy and Utility Coal Investments,Tnc. To avoid lengthy and potentially unnecessary discovery, both parties agreed that the statute of limitations issue should be settled prior to commencingdiscovery. On May 23, 1986, relators moved the trial court for a ruling that an eight-year statuteof limitations applied to Count 1of theirsecond amended complaint because it was part of a statutory claim under the SecuritiesAct ofMontana, § 30-10-307,MCA. The trial court found that Count 1 of the amended complaint is a claimbrought under the SecuritiesAct and ordered that the eight-year statute of limitations in S 27-2-202(1), MCA, is applicableto all three counts. Respondent D. A. Davidson filed two subsequent motions which were orally argued. The first motion sought clarification of the statute of limitations applicable to Count 1 and requested the Court to treat Count 1 consistently for allpurposes in the litigation. The secondmotion requested the dismissalofplaintiff's punitive damages claim sinceD. A. Davidson alleges the order found Counts 1and 2 tobe SecurityAct claimsand Count 3 to be a breach of contract claim also under the SecuritiesAct with the result that no punitive damages were recoverable. On September 30, 1986, the District Court granted both of respondents' motions and relators appeal the secondmotion denying thepunitive damages claims as to Counts 1 and 3 but not as to the second count. Relators bring this original proceeding for a writ of supervisory control on the dismissal of their punitive damages claim. The case is properly before this Court as this appears to be the only adequate remedy available to relators because the question of damages would necessitate a complete retrialof thematter. Rela-tors argue that their complaint is a civil securitiesaction alleging common law fraud andmistake and a violation of 

### 5 30-10-307, MCA, in connection with respondent's sale to relators of limited partnership interests in a coal tax shelter. In their application,they claim Count 1 of the amended complaint charges common law fraud on the part of the defendant; Count 2 chargessecurities law violations; and Count 3 charges breach of 

### - contract with the later two counts incorporatingby inference the allegations of the preceding counts. They argue itwas
error to dismiss theirpunitive damages claimwith respect to the common law fraud alleged in Count 1 and with respect to theirbreach of contract allegation in Count 3. Relators contend the trial court erred in concludina that since the action included the statutory claim, all countswere limited in recovery to the remedy provided by the Civil Securities Act under § 30-10-307, MCA,which does not provide for punitive damages. They argue here that Thielv. Taurus Drilling Ltd. 1980-11 (Mont. 1985), 710 P.2d 33, 41 St.Rep. 152, did not limit the eight-year statute of limitations period to just statutory claims. Instead they argue Thiel holds that the eight-year statuteof limitations
covers "civilactions" brought pursuant to § 30-10-307,MCA, and that Count 1of this action ispart of just such a "civil action" brought pursuant to this statute. The Thiel case dealt primarily with the question of which statute of limitations should apply to an action in a securitiescase. In that case this Court stated: It is, of course, possible to allege several individual causes of action based upon the same injury. A court may be obligated to segregate plaintiff's various claims and apply separate statutes of limitations to each. Multiple periods of limitation could apply to the same case. Construing this theory ofelectionof remedies with reference to statute of limitations, the United States Supreme Court has stated: 

### "



# ..

# . If the choice of statute of limitations were dependent upon the particular facts or the precise legal theory of each claim, counsel could almost always argue,with considerable force, that two or more periods of limitations should apply to each 1983 claim. Moreover, under such an approach, different statutes of limitations wouldbe applied to the various § 1983 claims arising in the same State,andmultiple periods of limitations would often apply to the same case. There is no reason to believe that Congress would have sanctioned this interpretation of its statute. Wilson v. Garcia (1985), 

### -U.S. 

## , 105 S.Ct. 1938, 1946, 85 L.Ed..2d 254." 

### - We appreciate the logic of this analysisand see no reasonwhy it should not be followed in securities cases,where claims of fraud, statutory violation, breach of fiduciary duty, and breach of contract may all spring from the same injury. Thiel at 38. Relators contend the Thiel court in essence sanctioned statutorily provided punitive damages from S 27-1-221, MCA, for a fraud count, such as their Count 1, when it specifically recognized that different periods of limitation should not be applied to different counts. Under this analysis they contend: (1) theremay be different counts in

a civil securities action; (2) each count carries an eight-year statute of limitations; and, (3) plaintiffs, in such actions,are entitled to the damages each countprovides if theymet the requisiteburden ofproof. While we believe these final three contentions do have merit, we note respondent's contentions paint a different picture of the controversy. Respondent argues the relators should be estopped from now claiming Count 1 is a separate and distinctcommon law fraud claimafter having successfully argued below that Count 1 isnot such a claimbut ispart of

a statutory claim brought pursuant to the Securities Act. To address this issue we must consider both the August 18, 1986 Order which allowed relators to utilize an eight year statute of limitation and which found that Count 1 was brought under the Securities Act and the September 30, 1986Order which dismissed relators punitive damages claim under Count 1. Relators' memorandum supporting its motion for an eight-year statute of limitationsread as follows: Count One of Plaintiffs Second Amended Complaint in this action is part of a civil action brought pursuant to § 30-10-307M.C.A. and is thus covered by the eight-year limitation period. (Emphasisin original.) TheDistrictCourt found: Count One is a claim brought under the Securities Act. Therefore, in accordance with Thiel the eight-year limitations period of $ 27-2-202(1)

## , MCA, is applicable to Count One of plaintiffs' Second Amended Complaint.
Relators now say: Count One of the Second Amended Complaint charges common law fraud on the part of the defendant. Relators represented to the trial court that Count 1 was
a statutory claim and the court found it to be characterized

as such. A courtwill consider those issuesplaced before it by theparties. Relators are estopped fromnowarguing Count 1 is not a statutory claim but a common law fraud claim. Further, we find no error by the trial court in the characterization of Count 1 as a statutory claim. The trial court recognized that each count could be interpreted as sounding in contract, tort or statutory violation but found the essence of Count 1 was the alleged violation of the Montana SecuritiesAct. It correctly concluded Count 1 could not be characterized as one claim for statute of limitations purposes but characterized as another type of claim for damages purposes. This Court has previously found it is imperative to characterize and treat each claim consistently for all purposes in the litigation. Israelson v. ~ountain TractorCo. (1970),155 Mont. 69,467P.2d 149.So long as this rule is applied consistently for all relevant purposes, the benefits and burdens of pursuing or defending a certain theory are fairly distributed in accordance with the law. We find no error on this issue. Since we have found no error in the characterizationof relator's Count 1 as a statutory claim we further conclude that the eight-year statute of limitations applies to this
case and relators are not entitled to seek punitive damages under their SecuritiesAct claims. Relators third argument is that the trial court erred in dismissing their claim forpunitive damages under Count 3 of their second amended complaint. In that count, relators assert a breach of contract and argue that the defendant violated an implied covenant of good faith and fair dealing in connectionwith thatbreach. They contend the trial court erroneously and prematurely ruled on the punitive damages claim with respect to Count 3. They further contend that discovery was not complete and factswere not yet developed
on this count so the decision which held punitive damages
were not available in this action effectively dismissed Count 3 aswell as Count 1 discussedabove. D. A. Davidson,in contrast,argues that the trial court did not err when it held that Count 3 was also a claim brought pursuant to the Montana Securities Act. They claim that while either characterizationof Count 3 as a breach of contract case or as a statutory violation is plausible, the outcome would be the same under both characterizations because relators would be entitled to an eight-year statute of limitations but could not seekpunitivedamages. They contend Count 3 has never been a claim for breach of the implied covenantof good faith and fairdealing but is solely a breach of contract claim, the two being entirely different claims.In its analysis of Count 3,the District Court concluded that the Count was brought under the Securities Act of Montana, as well as pursuant to principles of common law fraud and fordamages for breach of a contractualobligation. The District Court further pointed out that in Count 3, the plaintiffs incorporated both Counts 1 and 2, which both constitute Securities Act claims. For these reasons, the District Court concluded that Count 3 was a claim brought pursuant to the SecuritiesAct in the samemanner aswas true with Counts 1 and 2. We approve that analysis by the District Court. We alsopoint out that to the extent that Count 3 is classed as a breach of contract claim,punitive damages are not recoverable under Lemley v. Allen (1983)

### , 203 Mont. 37, 659 P.2d 262. Section 30-10-307, MCA, which is a part of the Securities Act, provides that any person who offers or sells
a security in violation of specified sections or offers or sells a security by means of fraud or misrepresentation is liable for the consideration paid for the security, together with interest at 10 percent, costs and reasonable attorney fees, less the amount of any income received on the security. If there is a sale of a security by means of fraud, as alleged in the pleadings, it specifically comes under the provisions of § 30-10-307,MCA,which allows recovery only of the considerationpaid for the securityplus interest, costs and attorney fees. This is a specific legislative limitation

on the right of recovery of damages in such a transaction. We have concluded that the complaint essentially sets forth claims under the Securities Act. That was the basis for application of the eight-year statute of limitations. We conclude that it would be inconsistentto allow theplaintiff to remain in court under the eight-year statute of limitations because the claims are under the SecuritiesActand yet disregard the limitation upon damages set forth in the same SecuritiesAct. We affirm the holding of the District Court in its dismissal of thepunitive damages claim as to Count 3. Relator'swrit of supervisory control isdenied.

We Concur:

Chief Justice

Mr. Justice L. C. Gulbrandson:

Iconcur with the result,but notwith all that is said in

A the foregoingdecision.

, , ,

Justipe /'