Johnston v. Centennial Log Homes & Furnishings, Inc.

July 8 2013
DA 12-0405
IN THE SUPREME COURT OF THE STATE OF MONTANA
2013 MT 179GREG JOHNSTON, ELVIRA JOHNSTON,
ELVIRA JOHNSTON TRUST,
Plaintiffs, Appellants and Cross-Appellees,
v.
CENTENNIAL LOG HOMES &
FURNISHINGS, INC., RANDY TOAVS,
JOSH HARMON,
Defendants, Appellees and Cross-Appellants.
APPEAL FROM: District Court of the Twentieth Judicial District,
In and For the County of Lake, Cause No. DV 09-322
Honorable C.B. McNeil, Presiding Judge
COUNSEL OF RECORD:
For Appellants:
P. Bradford Condra; Milodragovich, Dale & Steinbrenner, P.C.;
Missoula, Montana
For Appellees:
Todd A. Hammer, Angela K. Jacobs; Hammer, Hewitt, Jacobs & Quinn,
PLLC; Kalispell, Montana
Submitted on Briefs: March 6, 2013
Decided: July 8, 2013
Filed:
__________________________________________
Clerk
Justice Beth Baker delivered the Opinion of the Court.
¶1 Greg and Elvira Johnston and the Elvira Johnston Trust appeal an order of the
Twentieth Judicial District Court, Lake County, granting summary judgment to
Centennial Log Homes & Furnishings, Inc. (Centennial) on the Johnstons’ claims for
negligence, breach of warranty and violations of the Montana Consumer Protection Act
and Unfair Trade Practices Act. We consider the following issues on appeal:
¶2 1. Whether the District Court erred in concluding as a matter of law that the
Johnstons’ claims are barred by the applicable statutes of limitations.
¶3 2. Whether the District Court erred in determining that the release executed by
the Leonards is binding on the Johnstons.
¶4 3. Whether the District Court abused its discretion in granting the Johnstons’
motion to dismiss Keeko Log Homes, Ltd. as a defendant.
¶5 We reverse in part and remand the case for further proceedings.
PROCEDURAL AND FACTUAL BACKGROUND
¶6 In 2001, Robert and Sandy Leonard purchased property in Bigfork, Montana.
That same year, the Leonards entered into contracts with Centennial for the sale of a log
home kit and construction of a custom log home on the property. After completion of the
home—a three story residence with a loft floor and daylight basement—the Leonards
moved in. By grant deed dated July 1, 2002, the Leonards granted 36% of the interest in
the property to the Johnstons, who are Sandy Leonard’s parents.
¶7 In October or November, 2002, the Leonards observed that their wood floors had
begun to “bubble,” heave and raise, and they discovered extensive mold underneath the
flooring. The Leonards discussed these problems with the Johnstons and Greg Johnston
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suggested that the Leonards hire an attorney. In an e-mail to the Leonards, Greg
Johnston stated, “since I own 34% [sic] of the house, I could have a lawyer friend write a
letter also to instill into Centennial that we mean business.” The Leonards hired Peter
Leander to represent them and began to meet with him. The Johnstons did not attend
those meetings. On December 16, 2002, Leander wrote a letter to Centennial’s counsel
that provided a “non-inclusive” list of additional problems with the home, such as
cracked tile grout in two bathrooms, a broken shower light, a missing soap dish, stairs
that were not to code, and the splitting apart of the corner of the office wall. Sandy
Leonard recalled during her May 6, 2011 deposition that she considered the items on this
list to be “some minor things.”
¶8 On April 10, 2003, the Leonards executed a “General Release” in favor of
Centennial, describing the Leonards’ “casualty” as:
Defective construction of log home in Sunset Heights, Woods Bay, Lake
County, Montana; mold infestation and eradication due to defective
construction; bodily injury claims due to mold infestation.
The Leonards released Centennial from “any and all” claims for damages, “asserted or
unasserted, known or unknown, foreseen or unforeseen, arising out of the described
casualty” and, as consideration, Centennial paid $6,000 to the Leonards, extinguished the
remaining $59,704.13 due on their construction contract, and released the construction
lien on the property. The release covered “all claims for defective construction or
warranty arising out of the construction of the premises described above.” The release
also covered future damages associated with the Leonards’ casualty:
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Inasmuch as the damages and losses resulting from the events described
herein may not be fully known and may be more numerous or more serious
than it is now understood or expected, the Releasors agree, as further
consideration of this agreement, that this Release applies to any and all
injuries, damages and losses resulting from the casualty described herein,
even though now unanticipated, unexpected and unknown, as well as any
and all injuries, damages and losses which have already developed and
which are now known or anticipated.
The Leonards, Centennial and all of Centennial’s subcontractors were parties to the
release. The Johnstons were not parties, though they held a 36% interest in the property
at the time the release was signed.
¶9 On March 31, 2004, the Johnstons granted their 36% interest to the Elvira M.
Johnston Trust (Johnston Trust). The following year, on April 5, 2005, the Leonards
granted their 64% interest in the property to the Johnston Trust.
¶10 In 2004 and 2005, the Johnstons employed Innovative Builders to conduct routine
maintenance of the log home. Innovative Builders provided a “punch-list” of repairs to
be performed, which included leveling of the home, chinking and staining the exterior
logs, repairing the exterior railing and stairway, repairing exterior rock around a post, and
replacing a structure beam on the deck in front of the south garage. The Johnstons paid
Innovative Builders approximately $50,000 to repair stairs, decks, and problems with
settling of the logs.
¶11 The Leonards moved out in 2005 and the home was used as a rental. In 2007,
James Johnson and his wife began renting the home. In the spring of 2008, the Johnsons
observed that the logs within the home had begun to split in an unusual manner. Johnson,
who had worked extensively in the construction and architectural design industries,
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documented the progression of each occurrence. He observed that “the main support for
the roof above the loft was twisting due to the shrinking and splitting of the surrounding
support members” and determined that intervention was needed.
¶12 In April 2008, Guy Clare of Rocky Mountain Design inspected the home due to
the excessive log cracking and post and beam movement in the loft area. He noted:
. . . cracked and rotting handrails on the outside deck, and major exterior
siding problems. The majority of the “cedar skirl” siding on the upper level
of the home had begun to peel away from the wall from lack of proper
fastening. The exterior stair posts had been set at ground level and
moisture had begun to rot the lower section of each post.
Clare advised the Johnstons to hire a structural engineer “because of the severity of the
log splitting and structural movement of the log roof beams located at the upper loft.”
¶13 John Thomas of A2Z Engineering performed site visits on May 7, 2008 and May
21, 2008 to evaluate the home’s structural integrity and the impact of extensive checking
on its structural performance. His report explained that “[l]og homes are inherently prone
to maintenance, settlement, and checking issues. However, with proper construction
techniques the impact of these issues can be greatly mitigated.” He outlined steps that
generally are taken in the harvesting and drying of logs to mitigate checking—the splits
in logs as they dry and shrink over time, which, Thomas described, “extend radially from
the center of the log and widen as they approach the log’s exterior”—and concluded that
these techniques likely had not been employed in construction of this home. Thomas
noted that, according to the homeowners and tenants, significant interior checking had
not occurred until the spring of 2008. He also noted that, between his May 7, 2008 and
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May 21, 2008 visits, the checking had become “significantly more advanced.” He
concluded that the logs had likely been sealed in a moist or “green” condition, which was
consistent with delayed onset and rapid acceleration of the wood checking:
During my site visit I observed significant checking of the majority of
beam and column logs in the residence. The fact that this checking has
occurred 6 years after the construction of the home suggests to me that the
logs were processed and sealed in a moist or “green” condition. Because
the logs were heavily sealed it would take a much longer time for the log to
lose enough moisture to initiate checking. However, once checking began
the log would then have an avenue to rapidly lose moisture through the
check and further drying would then proceed rapidly. . . . Homeowner
testimony of the windows breaking/jamming and multiple large screw jack
adjustments add to the likelihood that high moisture content material was
used.
According to Thomas, there was no way to ascertain the moisture content of the logs if
moisture samples were not taken at the time of construction. He discovered additional
problems, including several connections along the ridge beam of the structure which were
not code compliant, an intermediate valley support that appeared to push toward the ridge
beam, creating potential for large roof deflections and failure of the roof under snow
loads, and an inadequate header above the garage door, creating risk of significant
structural collapse.
¶14 Based on Thomas’s recommendations, Clare of Rocky Mountain Design estimated
the total repair cost to be $125,000, but clarified that the estimate pertained only to the
“current problems that can be seen as of this writing.” He noted again that there had been
“significant changes” to the interior logs of the home since his first visit in April 2008.
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¶15 In October 2008, A2Z Engineering conducted another structural evaluation,
limited to the high glass gable wall facing the lake, the lower garage door header facing
the lake, the main floor beam spanning into the header, and the ridge-splice support
connection. The report revealed numerous areas of deficiency under the 1997 Uniform
Building Code (UBC), applicable at the time of construction. The report concluded,
among other things, that the lower floor garage header had twice the amount of “sag”
permitted by the UBC, that the ridge beam splice connection had an “alarming likelihood
of failure”—since no method had been used to secure the connection—and that the glass
gable wall construction was inadequate to withstand a seismic event.
¶16 In December 2008, James Johnson discovered sheets of ice cascading down the
exterior walls of the home. Water also was flowing down the interior walls, causing
extensive flooding throughout the home, including the basement. Inspections performed
by Rocky Mountain Design and A2Z Engineering revealed that a copper pipe running
through the ceiling space beneath the home’s upper floor had ruptured. The pipe had
frozen in the recent below-zero temperatures, as a direct result of failure to insulate the
upper floor space. A2Z Engineering reported that “[g]aps between the soffit and siding
were found to be in excess of one inch and in some instances as great as two or three
inches . . . in substantial deviation from accepted standards of construction.”
Additionally, the large gaps allowed rodents to “enter the home and eat the insulation off
the electrical wiring,” which, the report concluded, created substantial risk of fire
damage:
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. . . had the home not flooded[,] it likely would have been an eventual loss
due to fire. Full culpability for this incident lies with the general contractor
for not properly sealing and weatherproofing the home.
A2Z Engineering recommended that the home “immediately be dried out by a qualified
disaster restoration team” and that the pipes be drained and filled with antifreeze.
¶17 Beaudette Consulting Engineers inspected the home twice in October 2009 and
found numerous structural defects—including lateral shifting of ridge corbels at post
locations in the roof, lack of positive fasteners in the roof framing between the ridges and
purlins to log columns, improperly sized log joists, excessively loaded floor joists,
laterally unstable stairs, an overstressed header beam above the garage door, and
inadequate log wall pinning. The report clarified that these findings were considered
“preliminary in nature.”
¶18 In January 2010, the Johnstons hired Rocky Mountain Design to deconstruct the
home. Clare prepared an expert report regarding the cost to dismantle and rebuild the
home—$25,900 and $627,000, respectively—and provided a list of the major problems
discovered upon deconstruction. “During the demolition phase of the home,” he
reported, “we discovered many deficiencies that are too numerous to list.” According to
Clare, the number of “hidden defects with the home, and the fact that many of the
deficiencies affected the structural integrity of the house,” confirmed that he would not
have been able to renovate the old structure and that demolition was the “correct course
of action.”
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¶19 Defects discovered upon demolition included: (1) Both decks were supported
solely by rotten structural logs, which “disintegrated and broke” during removal and
“would probably have gone unnoticed until the collapse of the deck.” The rotting
resulted from the “lack of any proper valley drainage” coupled with a “very poor
roof/valley design.” (2) Outside water infiltration from the second level deck, resulting
from a poorly designed roof valley, caused rotting of the structural log wall under the
apex of the deck. (3) Outside water infiltration from the second level deck resulted in
extensive interior water and mold. (4) A lack of sealing and weatherproofing allowed air
infiltration and massive rodent infestation in “almost every wall and ceiling cavity of the
home,” with up to fifteen dead mice found in one wall cavity. (5) Logs within the home
had checked excessively, in violation of the building code. (6) The post and beam in the
upper loft connection were turning, rolling and splitting, as was the corbel supporting that
intersection—to the point of nearly splitting in two. Directly above that intersection, a
third ridge beam, which supported the roof, lacked any mechanical connectors. (7) The
log structure was not secured to the foundation with mechanical fasteners; during
deconstruction, Rocky Mountain Design was able to slide the home off the main
sub-floor where it had been resting. (8) No hurricane connectors or structural hold downs
had been applied to the thirty-three-foot tall glass gable. (9) The deck joists used on the
exterior decks were not nailed properly—many sat loose within their hangers or had
fallen out. (10) Poor and inconsistent framing practice throughout the house resulted in
loose stair treads and a wobble to the finished staircase. Incomplete or missed framing in
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the basement, including a two- or three-inch gap where it should have connected to the
front gable and little connection between the entire basement level and the gable, would
subject the gable wall to complete failure during a catastrophic event. The two-story
chimney was primarily supported by the main floor framing, with no additional structural
support. (11) The header above the garage door was overstressed and sagging due to
having a large span and being undersized, the condition being exacerbated by an
additional beam supporting the main floor attached to the garage door header. (12) The
bottom of the posts supporting the decks showed signs of decay because they had been
set at ground level, without protection from the ground surface. Due to the rotting
support columns, the entry stairway was very unstable. Additionally, the log deck railing
was visibly rotting. (13) The cedar skirl siding was loose, cupping and falling away from
the wall, due to improper installation using staples, rather than nails.
¶20 In June 2008, Greg Johnston consulted with Charles Lewis, an attorney from
Chicago, regarding the home. Lewis revised a letter written on behalf of Elvira Johnston
to Centennial. In his e-mail to which the redrafted letter was attached (which was
included in Centennial’s summary judgment submission to the District Court), Lewis
stated to Greg Johnston: “I don’t want to refer to the earlier problems or the fact that the
structural problems have existed for some time. This will lead to a statute of limitations
defense.”
¶21 On October 8, 2009, the Johnstons filed a complaint against Centennial, alleging
negligent construction of the home, breach of statutory and implied warranties, and
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violations of the Montana Consumer Protection Act and Montana Unfair Trade Practices
Act. In their Amended Complaint, filed May 12, 2010, the Johnstons added as a
defendant Keeko Log Homes, Ltd. (Keeko), “the designer and/or manufacturer of the log
home package which was constructed by Centennial and others.”
¶22 On September 2, 2011, Centennial filed a motion for summary judgment arguing
that the Johnstons’ claims were time-barred under the applicable statutes of limitations
and also that their claims were waived by the Leonards’ release. The District Court
granted summary judgment to Centennial on both grounds. The court concluded that the
2004 and 2005 repairs “should have put Plaintiffs on notice of the need to have the home
evaluated by someone with a background in residential home construction,” at which
point the “alleged self-concealing defects would have become apparent[.]” The
Johnstons’ negligence and Unfair Trade Practices Act claims thus accrued by 2005 and
should have been filed by 2008 and 2007, respectively. The court also concluded that
because “[a]ll of the Trust’s ownership interest in the property arose after the execution
of the release and the Trust was plainly a ‘successor’ to the Leonards’ interest in the
property,” the release applied to the Johnstons’ interest in the property and waived all of
their claims. The court stated in a footnote: “Even if the release didn’t bar all of
Plaintiffs’ claims, which it does, it would at the very least bar at least 64% of Plaintiffs’
damages.” The Johnstons appeal the District Court’s summary judgment ruling.
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¶23 On June 4, 2012, the Johnstons filed a motion to dismiss their claims against
Keeko under M. R. Civ. P. 41(a)(1), which the District Court granted on June 7, 2012.
Centennial cross-appeals the District Court’s dismissal of Keeko.
STANDARD OF REVIEW
¶24 We review de novo a district court’s summary judgment ruling. Meloy v. Speedy
Auto Glass, Inc., 2008 MT 122, ¶ 10, 342 Mont. 530, 182 P.3d 741. Under M. R. Civ. P.
56(c), summary judgment may be granted only “when the pleadings, depositions, answers
to interrogatories, affidavits, and admissions on file show no genuine issues of material
fact exist and when the moving party is entitled to judgment as a matter of law.” Fasch v.
M.K. Weeden Constr., Inc., 2011 MT 258, ¶ 14, 362 Mont. 256, 262 P.3d 1117. The
moving party has the burden of demonstrating the absence of a genuine issue of material
fact. We draw all reasonable inferences and view all of the evidence in the light most
favorable to the non-moving party. Fasch, ¶ 16. At the summary judgment stage, “the
court does not make findings of fact, weigh the evidence, choose one disputed fact over
another, or assess the credibility of witnesses.” Fasch, ¶ 17 (quoting Andersen v. Schenk,
2009 MT 399, ¶ 2, 353 Mont. 424, 220 P.3d 675) (internal quotation marks admitted).
¶25 In Montana, “the law of contracts governs releases.” Sperry v. Mont. State Univ.,
239 Mont. 25, 30, 778 P.2d 895, 898 (1989). “The construction and interpretation of a
contract is a question of law” that we review for correctness. Mary J. Baker Revocable
Trust v. Cenex Harvest States, Coops., Inc., 2007 MT 159, ¶19, 338 Mont. 41, 164 P.3d
12851. Whether an ambiguity exists in a contract also “is a question of law” that we review
for correctness. Doble v. Bernhard, 1998 MT 124, ¶ 19, 289 Mont. 80, 959 P.2d 488.
¶26 We review for an abuse of discretion a district court’s discretionary rulings,
including the court’s order granting voluntary dismissal under M. R. Civ. P. 41(a)(2).
Teal, Inc. v. Wiedrich, 259 Mont. 323, 326, 856 P.2d 543, 545 (1993).
DISCUSSION
¶27 1. Whether the District Court erred in concluding as a matter of law that the
Johnstons’ claims are barred by the applicable statutes of limitations.
¶28 The Johnstons’ claims for negligence and breach of warranty were subject to a
three-year statute of limitations. Section 27-2-204(1), MCA. Their claims under the
Unfair Trade Practices Act were subject to a two-year statute of limitations. Section 27-
2-211(1)(c), MCA (providing that statute of limitations for “a liability created by statute”
generally is two years). The Johnstons allege that they “were unaware and could not
reasonably have been aware” of many of the serious structural problems until mid-2008
and that some of the problems with the home were not discoverable until the home was
deconstructed in 2010. They argue that the applicable statutes of limitations should have
been tolled under the “discovery rule,” which provides:
The period of limitation does not begin on any claim or cause of action for
injury to person or property until the facts constituting the claim have been
discovered or, in the exercise of due diligence, should have been discovered
by the injured party if:
(a) the facts constituting the claim are by their nature concealed or
self concealing; or
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(b) before, during, or after the act causing the injury, the defendant
has taken action which prevents the injured party from discovering
the injury or its cause.
Section 27-2-102(3), MCA. In short, “[t]he discovery rule applies where the facts
constituting the injury by their nature are concealing, or the defendant has taken some
action that prevents the injured party from discovering the injury or its causes.” Burley v.
Burlington N. & Santa Fe Ry. Co., 2012 MT 28, ¶ 17, 364 Mont. 77, 273 P.3d 825.
“[W]hen there is conflicting evidence as to when a cause of action accrued, the question
of whether an action is barred by the statute of limitations is for the jury to decide.”
Siebken v. Voderberg, 2012 MT 291, ¶ 23, 367 Mont. 344, 291 P.3d 572 (quoting Nelson
v. Nelson, 2002 MT 151, ¶ 24, 310 Mont. 329, 50 P.3d 139) (internal quotation marks
omitted).
¶29 The parties dispute whether genuine issues of material fact exist regarding
applicability of the discovery rule. The District Court granted summary judgment in
favor of Centennial based on its conclusion that the repairs the Leonards made to the
home during 2004 and 2005 “should have put Plaintiffs on notice” that an inspection
report was needed and its further conclusion that an inspection conducted in 2005 would
have revealed the structural defects that the Leonards later discovered:
Even assuming the Leonards’ issues with the home in 2002 and 2003 did
not put Plaintiffs on notice of their claim, Plaintiffs made repairs to the
home in 2004 and 2005 to correct numerous problems. Plaintiffs spent
approximately $50,000 doing so. That Plaintiffs did not know the exact
nature of the construction defects is irrelevant . . . . At the very least, the
numerous repairs made in 2004 and 2005 should have put Plaintiffs on
notice of the need to have the home evaluated by someone with a
background in residential home construction. Had Plaintiffs done so, the
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alleged self-concealing defects would have become apparent, as is evident
from the inspection report eventually they obtained.
¶30 The Johnstons allege that the issues with the home in 2002 were “minor flooring
and aesthetic problems” and that they considered the repairs made to the home in 2004
and 2005 to be “routine maintenance issues.” They argue that, in comparing the minor
defects discovered in 2002 and 2005 with the problems discovered in 2008, 2009 and
2010, “it becomes clear there is no rational relationship between the two distinct
categories.” Thus, they contend that whether they “‘should have known’ of hidden
defects such as the lack of critical log wall pinning, hidden mold and lack of connection
to the foundation in 2005 should not have been resolved on summary judgment.”
Viewing the facts in the light most favorable to the Johnstons, we conclude that genuine
factual issues exist regarding whether the Leonards reasonably were put on notice of the
more serious structural problems by 2005, as well as whether the problems experienced
by 2005 were related to those discovered in 2008 and 2010.
¶31 As noted, in 2002, the Leonards observed problems with the bubbling and heaving
of their wood floors, discovered extensive mold underneath the floors and began to
discuss these issues with Leander. Leander’s December 2002 letter to Centennial’s
counsel complained of the flooring and mold issues and provided the following list of
additional problems with the home:
1. Kids’ bathroom tile – grout is cracking
2. Master bathroom tile – grout is cracking
3. Kids’ bathroom is missing a soap dish (promised by Centennial for over
3 months)
4. Master bathroom shower light has fallen apart
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5. Kitchen vent still needs to be replaced
6. Stairs still not to code
7. Loft railing needs to be sanded and repaired
8. Office wall (corner) is splitting apart (plus wood in ceiling)
9. Total site cleanup
10. Pipes need adjusting (noise)
The inclusion of a building code violation and cracking of the walls and ceiling, while
supporting Centennial’s argument, does not eliminate factual questions regarding
applicability of the discovery rule. According to the Johnstons, these additional defects,
though adding to their frustration, fairly were characterized as aesthetic problems. As
noted, Sandy Leonard’s deposition testimony indicated that the Leonards viewed those
problems as “some minor things,” their true concerns being limited to the improperly laid
flooring and resulting mold infestation. A follow-up letter Leander wrote to Centennial’s
counsel in 2003 noted faulty installation of stairways and railings, but stated that
Centennial’s “malfeasance” consisted of laying flooring over gyp-crete that had not been
properly cured, failing to use standard plywood for the sub-flooring, and failing to attach
the sub-flooring to the gyp-crete.
¶32 Additionally, the Johnstons were aware that the logs in a newly constructed home
are prone to settlement issues and require maintenance in order to stabilize. In his May
2008 report prepared on behalf of A2Z Engineering, Thomas explained that “[l]og homes
are inherently prone to maintenance, settlement, and checking issues.” Josh Harmon,
owner of Centennial, indicated during his deposition that a “log house is designed to
settle and shift” and that screw jack adjustments and other maintenance may be required
in leveling the home. Centennial points out that, in 2004 and 2005, Innovative Builders
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performed repairs of more than one staircase, as well as the home’s decks, and that the
Johnstons paid them approximately $50,000—an expense Centennial suggests exceeds
the cost of mere maintenance. The Johnstons allege that, as first-time owners of a log
home, they reasonably considered the work performed by Innovative Builders as
constituting “routine maintenance” of a log home—regardless of the cost—and were led
by Centennial to believe that it could take five to ten years for the home to settle.
Harmon represented during his deposition that, as a log home settles, the movement of
windows and doors—even to the point where they fail to close—typically is not a
construction defect, but instead indicates that screw jack adjustments are required:
The log house is designed to settle. The windows and doors are
installed in such a manner that the logs can continue to settle. If a door
were to bind up or a window would not open, that is – that tells you that the
house is – that the jacks need to be adjusted in the house. The jacks are
located on vertical posts that don’t shrink in height. Logs shrink in
diameter only.
So there’s support places in the house that have a[n] adjustable jack
on them. If those jacks aren’t adjusted properly then you can have issues
with the doors and windows.
The parties thus have offered conflicting evidence regarding whether the problems
discovered in 2002 and the extent of repairs made in 2004 and 2005 reasonably put the
Leonards on notice of the serious nature of the problems with their home. Our well-
established summary judgment standard dictates that we may not weigh the evidence or
choose one disputed fact over another. Fasch, ¶ 17; see also Tacke v. Energy W., Inc.,
2010 MT 39, ¶ 16, 355 Mont. 243, 227 P.3d 601; Andersen v. Schenk, 2009 MT 399 ¶ 2,
353 Mont. 424, 220 P.3d 675.
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¶33 We also agree with the Johnstons that factual questions arise in determining the
extent to which the problems discovered by 2005 are related to the issues discovered
between 2008 and 2010. As discussed, in 2008, the Johnsons discovered a burst water
pipe that resulted from Centennial’s failure to insulate the upper level of the home. Upon
deconstruction of the home in 2010, Clare of Rocky Mountain Design documented many
“hidden defects” and provided a list of structural problems, some of which had not been
discovered through previous inspections. These included, among others, the rotting of
structural logs and posts supporting the decks, due to the lack of valley drainage and lack
of protection of the logs from the ground surface, the failure to seal and waterproof the
walls of the home, the failure to secure the front gable to the basement level, and the
failure to secure the entire log structure to the foundation. Even if the Johnstons were on
notice that some structural problems existed, the evidence raised a question of fact as to
whether, in the exercise of due diligence, they should reasonably have become aware of
the severity of those problems prior to the time the home was deconstructed.
¶34 We disagree with Centennial that the case simply raises disputes about whether the
extent of the plaintiffs’ damages was known. Thus, Centennial’s reliance on E.W. v.
D.C.H., 231 Mont. 481, 754 P.2d 817 (1988), is misguided. There, E.W., who had been
molested during childhood by the defendant, filed a complaint more than twenty years
later alleging various torts based on psychological damage resulting from the molestation.
E.W., 231 Mont. at 483, 754 P.2d at 818. The Court observed that E.W. “‘always knew’
she had been molested and had sought help for her psychological problems since late
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adolescence” but only much later came to associate those psychological problems with
the molestation. E.W., 231 Mont. at 487, 754 P.2d at 820. The Court refused to apply the
discovery rule and granted summary judgment to the defendant based on our conclusion
that “[t]his is not a case in which the plaintiff was unaware of the tortious conduct or the
injury has failed to manifest itself.” E.W., 231 Mont. at 486, 754 P.2d at 820. In contrast
to E.W., who was “clearly aware of the wrongful conduct,” E.W., 231 Mont. at 487, 754
P.2d at 820, factual questions exist as to whether the Johnstons were, or reasonably could
have become, aware by 2005 of the defendants’ tortious conduct—including the failure to
insulate the home or secure the walls to the foundation.
¶35 For similar reasons, we agree with the Johnstons that Deschamps v. Treasure State
Trailer Ct., Ltd., 2010 MT 74, 356 Mont. 1, 230 P.3d 800, factually is distinguishable.
Having purchased a mobile home park from the defendant, Deschamps became aware in
July 2003 of problems with the park’s water distribution system: a water system well
pump had failed and Deschamps replaced it. Deschamps, ¶ 8. In the fall of 2003, a
consultant informed Deschamps that the water system was “seriously and dangerously
defective.” Deschamps, ¶ 35. By December 2003, one-half of Deschamps’s tenants
vacated the park, allegedly due to dissatisfaction with the water system failure.
Deschamps, ¶ 34. Deschamps proceeded to excavate a portion of the water system in
May 2004, at which point he discovered that it had been constructed with improper
materials. Deschamps, ¶ 9. Deschamps filed a claim for actual and constructive fraud in
2007. We concluded that the fraud claim had accrued by December 2003, when
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Deschamps learned that the water system was seriously defective and observed the
occupancy rate dropping dramatically in response to water issues. The claim was thus
time-barred by a two-year statute of limitations. Deschamps, ¶ 35. Importantly, the
undisputed facts showed that Deschamps had been alerted to the serious nature of his
water system failure by 2003, when he received the consultant’s opinion.
¶36 Here, as discussed, evidence of when the Johnstons should have first discovered
the serious construction defects in their home is “inconsistent and unclear.” See
Thompson v. Nebraska Mobile Homes Corp., 198 Mont. 461, 469, 647 P.2d 334, 338
(1982). Factual questions exist as to whether the 2004 and 2005 repairs to the log home
should have alerted the Johnstons to the potential for more serious underlying structural
defects and whether those defects were self-concealing. We conclude that the question
whether the facts constituting the Johnstons’ claims were by their nature concealed or
self-concealing or, alternatively, whether they reasonably should have been discovered by
2005 cannot be resolved at this stage in the proceedings and should be decided by the
jury. Section 27-2-102(3), MCA; Siebken, ¶ 23; Burley, ¶¶ 92-93 (tolling of statute of
limitations for nuisance may be a jury question).
¶37 Centennial argues as an alternative ground for dismissal of the Johnstons’
Consumer Protection Act claim that “[t]he Johnstons do not fall within the definition of
‘consumers’” under the Act. Because the District Court ruled in Centennial’s favor on an
alternative ground, it did not reach this issue. The parties discuss one case, Estate of
Donald v. Kalispell Reg. Med. Ctr., 2011 MT 166, 361 Mont. 179, 258 P.3d 395,
20
regarding the issue of privity. We did not use the term “privity” in Donald, but rejected
the estate’s Consumer Protection Act claim because the plaintiff had not shown any
relationship with the defendant—a service provider—that would support a claim under
the Act. Donald, ¶¶ 30-31. The Johnstons claim that they did have a sufficient
relationship with Centennial to qualify as “consumers” under the Act and that the Act
does not require a direct relationship in any event. Despite the language in § 30-14-104,
MCA, that due consideration “shall be given” to parallel federal law, the parties cite little
other authority in support of their arguments. Given its lack of development in the record
or in the parties’ briefs, we decline to consider this question for the first time on appeal.
¶38 2. Whether the District Court erred in determining that the release executed by
the Leonards is binding on the Johnstons.
¶39 The Johnstons argue, first, that insofar as the Johnstons were not parties to the
release, it applies only to the Leonards’ interest in the property. Secondly, they argue that
“the Leonards released only those claims relating to mold and flooring issues and not the
significant latent deficiencies which were later found in the home.” We reverse the
District Court’s decision that the release applied to the Johnstons’ 36% interest in the
property, but agree with the court’s determination that the unambiguous language of the
release waived the Leonards’ subsequent claims.
¶40 The Leonards signed the release on April 10, 2003, at which time they owned a
64% interest and the Johnstons owned a 36% interest in the property. The Johnstons
were not a party to the release and thus, the terms of the release cannot be applied to their
36% interest. See Fordyce v. Musick, 245 Mont. 315, 319, 800 P.2d 1045, 1047 (1990)
21
(“It is elementary that a contract binds no one but the contracting parties.”) (citing
Gambles v. Perdue, 175 Mont. 112, 115, 572 P.2d 1241, 1243 (1977)). That the
Leonards and Johnstons each later transferred their interest to the Johnston Trust, thus
rendering the Trust “successor” to both interests, does not change the analysis. The
release can be binding only on the interests owned by the Leonards at the time that they
signed it; thus, as recognized by the District Court in its footnote, the release bars 64% of
any damages proven by the Johnston Trust. We disagree with the Johnstons, however,
that, to the extent the release applies to the Trust’s interests, its terms are “reasonably
susceptible to multiple interpretations” and therefore ambiguous.
¶41 Centennial cites Rich v. Ellingson, 2007 MT 346, 340 Mont. 285, 174 P.3d 491,
where we considered the scope of a release that included similar terms. Rich had hired
an attorney, Ellingson, to secure uninsured motorist and underinsured motorist (UIM)
coverage from her insurer, as well as a potential Unfair Trade Practices Act or bad faith
claim. Rich, ¶¶ 4-6. When Rich’s UIM claim was dismissed due to Ellingson’s failure to
timely serve the insurer, she filed a malpractice claim against him. She thereafter
executed a release in which she received $175,000 and agreed to absolve Ellingson from
“[a]lleged legal malpractice of any kind”—including claims “asserted or unasserted,
known or unknown, foreseen or unforeseen[.]” Rich, ¶ 9. When she later learned that her
Unfair Trade Practices Act claims had been dismissed due to expiration of the statute of
limitations, she filed a second legal malpractice claim against Ellingson. Rich, ¶ 10. We
rejected her argument that the term “alleged,” as used in the casualty description,
22
rendered the release ambiguous with regard to scope. Rich, ¶¶ 16-18. We also rejected
her argument that the release applied only to the malpractice “alleged” prior to its
execution, and declined to consider extrinsic evidence of the parties’ intentions at the
time the release was executed. We concluded that the release “clearly and
unambiguously” barred any future malpractice claims against Ellingson and therefore
affirmed summary judgment in his favor, noting that “[a] party’s ‘latent discontent’ with
a release, without more, is an insufficient basis upon which to premise an alteration of an
express agreement.” Rich, ¶¶ 17, 21.
¶42 Contrary to the Johnstons’ assertion, the casualty described in the release clearly
extends beyond the mold and flooring issues because it applies to “[d]efective
construction of log home in Sunset Heights, Woods Bay, Lake County, Montana; . . . .”
The Johnstons point out that the release repeatedly refers to mold issues and that the
Leonards specifically reserved a claim for mold-related injury to Sandy Leonard’s unborn
child. The specific language regarding mold issues, however, does not limit or conflict
with the release’s broader application to all other construction defects, known or
unknown. The Johnstons cite no authority supporting their argument that the release “can
only encompass those defects the Leonards knew about or could have known about with
reasonable diligence at the time of its execution.” To the contrary, the explicit language
of the release covered “all claims for defective construction or warranty,” including
claims for “any and all injuries, damages and losses resulting from the casualty described
herein, even though now unanticipated, unexpected, or unknown . . . .” As discussed, the
23
“casualty” was defined to include “defective construction of log home,” as one on a list
of three items separately designated.
¶43 Similar to Rich, the Johnstons refer to extrinsic evidence of the parties’ intentions
at the time the document was executed—such as correspondence between the parties’
attorneys—in suggesting that the contract is ambiguous. As in Rich, we conclude that the
terms of the release are clear and unambiguous; thus, we must “apply the language as
written.” Rich, ¶¶ 13, 15.
¶44 Because the Johnstons were not a party to the release, and given our conclusion
that the release was not binding on their 36% interest in the property, we need not reach
the Johnstons’ alternative argument that the release should be rescinded on the basis of
mutual mistake.
¶45 3. Whether the District Court abused its discretion in granting the Johnstons’
motion to dismiss Keeko Log Homes, Ltd. as a defendant.
¶46 Centennial argues that the District Court abused its discretion when it granted the
Johnstons’ motion to dismiss Keeko, three days after that motion was filed, without
giving Centennial an opportunity to respond. Centennial also argues that the Johnstons’
voluntary dismissal should have taken place under M. R. Civ. P. 41(a)(2), through
discretionary court order, rather than under Rule 41(a)(1).
¶47 Under M. R. Civ. P. 41(a)(1), a plaintiff voluntarily may dismiss a defendant
without a court order by filing “a notice of dismissal before the opposing party serves
either an answer or a motion for summary judgment.” Rule 41(a)(1) applies when “the
defendant has already been joined in the lawsuit” and preserves the “unqualified right of
24
the plaintiff to a dismissal without prejudice prior to the filing of defendant’s answer.”
Rich v. St. Farm Mut. Automobile Ins. Co., 2003 MT 51, ¶¶ 18, 23, 314 Mont. 338, 66
P.3d 274 (quoting Jangula v. U.S. Rubber Co., 147 Mont. 98, 113-14, 410 P.2d 462, 470
(1966)) (internal quotation marks omitted). We have clarified that voluntary dismissal
under Rule 41(a)(1) “automatically terminates the action upon the filing of the notice of
dismissal with the clerk of court” and thus, “no court order is required.” Rule 41(a)(2),
by contrast, “gives the district court discretion to dismiss an action upon the plaintiff’s
motion and ‘upon such terms and conditions as the court deems proper.’” U.S. Fidelity &
Guar. Co. v. Rodgers, 267 Mont. 178, 184, 882 P.2d 1037, 1040-41 (1994). Here, the
Johnstons filed a motion in the District Court to dismiss the defendant Keeko. Although
that motion sought dismissal under Rule 41(a)(1), the District Court issued an order
granting voluntary dismissal, in apparent reliance on Rule 41(a)(2).
¶48 The Johnstons cite State ex rel. Butte Teamsters Local v. Dist. Ct., 140 Mont. 581,
374 P.2d 336 (1962), where we applied Rule 41 to dismiss one of multiple defendants.
We followed the U.S. Court of Appeals for the Third Circuit in concluding that, under
Rule 41(a)(2), the district court has discretion to dismiss the case as to fewer than all of
the defendants, where “[n]o objecting defendant has served any cross-claim against a
moving defendant.” Butte Teamsters, 140 Mont. at 600-01, 374 P.2d at 346. We
reasoned that “[t]he joinder of the moving defendants by plaintiffs gave their fellow
defendants no vested interest in the presence of the moving defendants as co-parties”;
instead, the joinder of additional defendants by the plaintiff “was a voluntary gift to their
25
co-defendants by plaintiffs and plaintiffs, having given, could take away.” Butte
Teamsters, 140 Mont. at 601, 374 P.2d at 346.
¶49 The Johnstons point out that Keeko had not filed an answer or a motion for
summary judgment at the time that the Johnstons moved for voluntary dismissal and that
Centennial had not filed a cross-claim against Keeko. Nonetheless, the Johnstons’
motion stated that Centennial opposed dismissal of Keeko and, additionally, Centennial
argues that its answer to the Johnstons’ complaint included an affirmative defense
alleging Keeko’s liability. The answer averred that Centennial “constructed a log home
manufactured and designed by Keeko Log Homes” and reserved “the defense of
negligence and/or fault of other parties,” as well as entitlement to “contribution or
indemnification or causal apportionment.” We conclude that the District Court should
have provided Centennial the opportunity to brief its opposition to the motion before
ordering dismissal of Keeko under Rule 41(a)(2).
CONCLUSION
¶50 For the foregoing reasons, we reverse the District Court’s summary judgment
ruling and remand the case for further factual development on the issue whether the
Johnstons’ claims are time-barred under the applicable statutes of limitations. The
decision on remand will apply only to the 36% interest in the property owned by the
Johnstons at the time that the release was executed. We affirm the District Court’s
conclusion that the release is binding on the Leonards’ 64% interest, later transferred to
the Johnston Trust. We also reverse the District Court’s dismissal of Keeko and remand
26
for further consideration following full briefing on the Johnstons’ Rule 41 motion to
dismiss.
/S/ BETH BAKER
We concur:
/S/ MIKE McGRATH
/S/ BRIAN MORRIS
/S/ PATRICIA COTTER
/S/ JIM RICE
/S/ MICHAEL E WHEAT
Justice Laurie McKinnon, dissenting.
¶51 I would affirm the judgment of the District Court concluding that the Johnstons’
claims are time-barred as a matter of law. In my view, the undisputed facts establish that
the Johnstons were actually aware, or reasonably should have been aware, by 2005—if
not 2002—of the wrongful act that resulted in their injuries. I believe this Court, in its
Opinion today, has rendered the statutory period of limitations provided by the
Legislature meaningless. I do not believe it is the function of this Court to selectively
resurrect stale claims when the plaintiffs here actually knew of the alleged wrongful act
and concomitant injuries as early as 2002.
¶52 The Legislature has determined that the statutory period for bringing an action in
negligence and breach of warranty is three years. Section 27-2-204(1), MCA. Claims for
violations of the Unfair Trade Practices Act have a two-year statute of limitations.
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Section 27-2-211(1)(c), MCA; Osterman v. Sears, Roebuck & Co., 2003 MT 327, ¶ 24,
318 Mont. 342, 80 P.3d 435. “The fact that a person entitled to an action has no
knowledge of his right to sue, or of the facts out of which his right arises, does not, as a
general rule, prevent the running of the statute, or postpone the commencement of the
period of limitation, until he discovers the facts or learns of his right thereunder.” E.W. v.
D.C.H., 231 Mont. 481, 484-85, 754 P.2d 817, 819 (1988) (internal quotation marks
omitted) (citing Kerrigan v. O’Meara, 71 Mont. 1, 227 P. 819 (1924), Carlson v. Ray
Geophysical Div., 156 Mont. 450, 481 P.2d 327 (1971), and Bennett v. Dow Chem. Co.,
220 Mont. 117, 713 P.2d 992 (1986)). “Only the vigilant are viewed favorably under the
law.” E.W., 231 Mont. at 485, 754 P.2d at 819; see also § 1-3-218, MCA (“The law
helps the vigilant before those who sleep on their rights.”).
¶53 We have previously recognized that “[t]he policy underlying the bar imposed by
statutes of limitations is, at its roots, one of basic fairness. Our system of jurisprudence is
designed to achieve substantial justice through application of the law after the parties
have had an opportunity to fully present both sides of a controversy.” E.W., 231 Mont. at
484, 754 P.2d at 819. The ability to adequately prepare and present an effective defense
necessarily depends on the recovery and presentation of evidence. Thus, “ ‘[s]tatutes of
limitations are regarded as statutes of repose governing the period within which actions
must be brought and are designed to compel the exercise of a right of action within a
reasonable time, while the evidence remains fresh in the memory of the witnesses.’ ”
28
E.W., 231 Mont. at 484, 754 P.2d at 818-19 (quoting Monroe v. Harper, 164 Mont. 23,
26, 518 P.2d 788, 790 (1974)).
¶54 This Court has recognized, however, that some types of injuries preclude a strict
application of the statutory bar. In particular, the statutory bar will not be applied to
prevent the bringing of an action when the injury is self-concealing. This principle is
codified in the discovery rule, § 27-2-102(3), MCA. We first applied the discovery rule
in a medical negligence action where the injury was self-concealing. Johnson v. St.
Patrick’s Hosp., 148 Mont. 125, 417 P.2d 469 (1966). We have since extended the
discovery rule to other situations where the injury is not readily apparent. See Grey v.
Silver Bow County, 149 Mont. 213, 425 P.2d 819 (1967). We have never extended the
discovery rule, however, to situations where the plaintiff was aware, or in the exercise of
due diligence should have been aware, of the injury. The central premise of the
discovery rule is that “the plaintiff was unaware, and could not reasonably have been
aware, of the wrongful act which later resulted in his or her injury until after the statute of
limitations had run.” E.W., 231 Mont. at 486, 754 P.2d at 820.
¶55 Significantly, it is not necessary for the plaintiff to know the total extent of
damages that an act causes in order to begin the running of the statutory bar. Moreover,
the failure to understand the causal relationship between the wrongful conduct and the
injury does not serve to toll the statutory bar. E.W., 231 Mont. at 487, 754 P.2d at 820.
“The law does not contemplate such discovery as would give complete knowledge before
the cause of action accrues.” E.W., 231 Mont. at 487, 754 P.2d at 820 (citing Mobley v.
29
Hall, 202 Mont. 227, 657 P.2d 604 (1983)). To apply the discovery rule to toll the
statutory bar beyond discovery of the cause of an injury would have the effect of
postponing the statutory period indefinitely and denying defendants the protections of a
statute of limitations.
¶56 In October or November 2002, the Leonards observed that their wood floors had
begun to heave and rise, and they discovered extensive mold underneath the flooring.
The Leonards communicated these problems to the Johnstons. Additionally, they noted
that the stairs had not been installed according to building code and that the corner of the
office wall was splitting apart. They determined that the cause of these injuries was the
faulty construction of their home by Centennial. This is evidenced by the fact that the
Johnstons suggested hiring counsel, Peter Leander, to notify Centennial of the problems
with the home, to demand repair or compensation, and “to instill into Centennial that we
mean business.” Despite the Johnstons’ characterization of these injuries as “minor,”
Centennial paid $6,000.00 and agreed to extinguish $59,704.13 still owing from the
Leonards and the Johnstons on the construction contract. In return, the Leonards
executed a release on April 10, 2003, for the benefit of Centennial and its subcontractors
which covered “all claims for defective construction or warranty arising out of the
construction” of their log home. Finally, in 2004 and 2005, the Johnstons hired a
building contractor, Innovative Builders, to conduct extensive repairs to stairs, decks, and
problems with settling of the logs. The Johnstons paid Innovative Builders
approximately $50,000.00 to make the repairs.
30
¶57 Deposition testimony from the Leonards and the Johnstons established that the
repair work performed in 2004 and 2005 by Innovative Builders was for structural
damage. Sandy Leonard testified in her deposition that Innovative Builders “redid the
stairs and . . . adjust[ed] the doors.” Innovative Builders also repaired the outside decks
and “some of the foundation in front of the house [that] was starting to crack.”
Moreover, Innovative Builders “fixed gaps in the doors” which had developed because
Centennial “didn’t leave room for the house to slide.” Sandy explained that, due to this
defect, “the house was falling on top of each other and pushing the doors out” and also
“pushing the wall out.” Innovative Builders had to “go in and cut out places for the
house to move on top of each other.” Sandy indicated that the work was for structural
repair and was separate from the mold problem. Sandy was asked the following by
Centennial’s counsel during the deposition:
Q. So prior to your leaving in 2005 you were starting to experience
some problems with the home, windows, difficulty closing, doors not
shutting, logs starting to move and some of the railings becoming loose; is
that correct?
A. Correct.
¶58 The Johnstons’ position that they did not know the cause of their injuries until
2008 is particularly untenable, as noted by the District Court, in light of email
correspondence with their new counsel, Charles Lewis, in June 2008. Lewis revised a
letter written on behalf of Elvira Johnston to Centennial. In his email to Greg Johnston
attaching the redrafted letter, Lewis explained: “I don’t want to refer to the earlier
31
problems or the fact that the structural problems have existed for some time. This will
lead to a statute of limitations defense.”
¶59 In light of these undisputed facts establishing that the Johnstons actually knew of
the cause of their injuries as early as 2002, I cannot conclude that there is any genuine
factual dispute concerning application of the discovery rule sufficient to submit the issue
to a jury. Our legal precedent is clear that it is not necessary for the Johnstons to have
known the full extent of their damages or the causal relationship between Centennial’s
alleged wrongful acts and their injuries. Any failure of the Johnstons to understand their
legal rights is likewise insufficient to toll the statute of limitations. E.W., 231 Mont. at
487, 754 P.2d at 820.
¶60 The Court today submits for decision by a jury, Opinion, ¶ 36, an issue that ought
to be decided as a matter of law based on clear and undisputed facts. In doing so, we
have failed to follow the directives of a statute and the policy behind it—that is, the
suppression of stale claims which, due to the passage of time, inhibit a party’s ability to
mount an effective defense. We have elevated what we apparently believe is these
particular plaintiffs’ entitlement to bring an action over a legislative directive designed to
require all plaintiffs to be vigilant in their pursuit of a remedy.
¶61 I therefore would affirm the District Court in its decision that the Johnstons’
claims are time-barred. The undisputed facts establish that the Johnstons either did
discover, or in the exercise of due diligence should have discovered, the facts underlying
their claims by, at the latest, 2005. The Johnstons were required to file their Unfair Trade
32
Practices Act claim no later than 2007 and their negligence and breach of warranty claims
no later than 2008. As the Johnstons did not file their suit until 2009, their claims are
barred by the statute of limitations.
¶62 Given that the Johnstons’ action is time-barred, it is not necessary to address any
remaining issues.
¶63 I dissent.
/S/ LAURIE McKINNON
33