December 7 2010
DA 10-0133
IN THE SUPREME COURT OF THE STATE OF MONTANA 2010 MT 254
STEVE WHITE and DONNA WHITE, husband and wife,
Plaintiffs and Appellees,
v.
TOM LONGLEY, individually and CASTLE HOMES, LLC,
Defendants and Appellants.
APPEAL FROM: District Court of the Nineteenth Judicial District, In and For the County of Lincoln, Cause No. DV 07-265 Honorable Michael C. Prezeau, Presiding Judge
COUNSEL OF RECORD:
For Appellants:
Douglas Scotti; Morrison & Frampton, PLLP, Whitefish, Montana
For Appellees:
Amy N. Guth; Attorney at law Libby, Montana
Submitted on Briefs: September 15, 2010
Decided: December 7, 2010
Filed:
__________________________________________ Clerk Chief Justice Mike McGrath delivered the Opinion of the Court.
¶1 Tom Longley and Castle Homes, LLC, appeal from the decision of the District
Court of the Nineteenth Judicial District awarding damages to Steve and Donna White.
Longley and Castle Homes present a number of issues for review which will be noted
below. We affirm.
BACKGROUND
¶2 In 2006 Steve and Donna White bought 28 acres near Troy, Montana as the site of
their retirement home. Upon the recommendation of a family member they contacted
Tom Longley in Washington state about building their home. They met with Longley
and showed him drawings and pictures of the type of house they wanted. They toured
Longley’s personal house that he had built, and observed the house next door that he also
built. Longley gave them a business card identifying himself as the general manager of
Castle Homes, LLC, and representing that he was a professional engineer with a
doctorate degree. The promotional materials for Castle Homes, LLC contained
endorsements by satisfied customers and a biographical sketch that indicated that
Longley had earned a Ph. D. in civil engineering from the University of Idaho. Neither
Longley nor the materials disclosed that his degree was in agricultural engineering.
¶3 The Whites asked about hiring an architect but Longley told them he could design
the house based upon the ideas and images they had provided. After Donna confirmed
that Longley’s contractor license in Washington was current and that the Better Business
Bureau had no complaints against him or Castle Homes, the Whites believed that they
2 had found the right contractor to build their home. In January, 2007 the Whites entered a
written contract with Longley and Castle Homes. The contract provided that Castle
Homes would do the foundation and framing and would contract out the rest of the work.
The Whites agreed to pay costs plus 30% and tendered a down payment of $2,000.
¶4 A month later Longley sent a set of drawings depicting the floor plan and exterior
views. The District Court found that the drawings contained a “remarkable lack of detail
regarding framing.”
¶5 Steve White retired from his job in California and moved to Montana to camp on
the property and help work on the house. Jason Ellis, an employee of Longley’s in
Washington, volunteered to come to Montana to work on the White house project. Ellis
also camped on the property and Steve White became his primary helper, even though
Steve had no experience in home building. Longley flew Ellis to Montana and back to
Washington weekly in Longley’s personal airplane.
¶6 Longley’s initial crew of workers did some foundation work and departed, leaving
Ellis to finish the foundation and pour the concrete walls. The project suffered
throughout from a lack of skilled workers. While Ellis had years of experience as a
carpenter, he was “over his head” trying to build the large and complicated house for the
Whites. For example, Longley called for insulated forms to be used to pour concrete
walls. Ellis had never worked with these forms, so Longley left an instructional DVD for
him along with the materials. While Longley berated Ellis during the weekly flights back
to Washington that the work was not progressing fast enough, Ellis would complain that
the crew was inadequate and that many mistakes were being made.
3 ¶7 One of the largest problems was that the house had not been adequately designed
and that the roof would have to be fitted to the structure once the framing was done.
Both Ellis and Steve White saw that there were substantial structural problems, not the
least of which was that there would be inadequate support for the heavy roof beams.
¶8 Meanwhile, Donna White, who was then working outside of the United States,
became concerned with Longley’s billings. These were coming in increments of $25,000
with little detail. In June, 2007, she returned to Montana and met with Longley and Steve
at the property. At that time, in what the District Court described as a “remarkably
audacious move,” Longley proposed to the Whites that their best course of action was to
pay him $30,000 to “buy out” the written contract with Castle Homes. Longley’s plan
was to continue with the project, complete the framing and installation of the windows
and winterize the structure. The Whites would then hire the subcontractors to complete
the work.
¶9 The Whites paid Longley the $30,000 to “buy out” the contract, and agreed to
keep Longley on the project until the framing was finished, the windows were in and the
house was secured from the weather for the winter. The District Court found that nothing
changed and that the “job continued to be understaffed and the work continued to be
woefully substandard.” The Whites continued to pay Longley in $25,000 increments in
July and August, 2007, when it came time to install the roof.
¶10 Longley never consulted a structural engineer about the structural requirements
and installation of the roof, which was complicated by multiple dormers and intersecting
angles. Instead he went to Larson Lumber in Troy to order beams and rafters for the
4 project. Larson employees told Longley that the roof system needed to be sufficient to
handle a snow load of 80 pounds per square foot, and that specification was sent on to
Boise Cascade, which was to manufacture the beams and rafters. Against Larson’s
advice, Longley ordered a roof package rated at 40 pounds per square foot, along with
custom-made support hangers that would allow the rafters to be attached despite the
framing mistakes. When Bonnie Larson at Larson Lumber objected, Longley told her
that he was an engineer and that she should butt out.
¶11 Longley later blamed Larson and Boise Cascade for the inadequacies in the roof,
and for selling him a miscalculated and undersized system. The District Court found
“Larson to be believable on this issue and Longley to be unbelievable.” The District
Court found that while it was “inconceivable” that both Larson and Boise Cascade would
make such fundamental mistakes with the roof, even if mistakes had been made it was
Longley’s duty as the contractor to “catch the error and send the undersized roof package
back.” The District Court concluded that “Longley’s version of the roof transaction is
simply not credible.”
¶12 Shortly after the roof system arrived on site, Longley and Ellis disagreed on how it
should be installed. Ellis quit. The District Court found that by this point the Whites had
paid Longley more than $180,000 for a “shoddily constructed unroofed structure.” The
Whites hired an engineer from Kalispell to inspect the project and advise them on the
status. The engineer wrote a report describing numerous issues with the house and the
Whites sent it to Longley. He assured them that he was aware of the issues and that a
“super crew” was on its way to fix the problems and secure the structure for winter. With
5 the information they had, the Whites were concerned about the ability of the structure to
support the roof and became unwilling to pay Longley any more money.
¶13 Longley then threatened to take the Whites to arbitration pursuant to the contract
with Castle Homes, even though he had been paid $30,000 at his instigation to “buy out”
that same contract. He told the Whites that he had already talked to an arbitrator about
the situation; that their claims would not “hold water;” and that they would have to
arbitrate each of their complaints separately. Longley then served the Whites with an
arbitration notice. They hired counsel and filed the suit. The District Court enjoined
Longley’s attempt at arbitration.
¶14 On the eve of the trial in the Whites’ lawsuit, they entered a written settlement
with Longley. The parties agreed that Longley would hire the same engineer who he had
designated as his trial expert to evaluate the structure and recommend corrective
measures that Longley would complete. The settlement fell apart when Longley’s
engineer also found numerous serious structural problems with the work. Longley would
not agree to correct the problems and refused to pay the engineer for his work. The
Whites then filed an amended complaint incorporating a claim for breach of the
settlement agreement.
¶15 The Whites and Longley tried the case to the District Court sitting without a jury.
The District Court’s findings of fact detailed numerous structural issues and poor
workmanship with the house that made the “situation unsalvageable.” In just the
basement those issues included a foundation “significantly out of square;” undersized
footings with inadequate depth; a bearing wall that misses the foundation poured for it;
6 plumbing pipes intended to be inside a wall located in concrete outside the wall; wire
mesh designed to be within the concrete slab to strengthen it located under the slab;
structural errors in the floor heating system; door and window headers that are undersized
or missing; and rigid foam insulation omitted when the slab was poured. Above the
basement, there were too few anchor bolts to attach the sill plate; inferior lumber was
used for studs; support posts were not aligned from one floor to the next; support posts
were built from scraps of discarded lumber; vertical and horizontal framing members did
not butt squarely; and window and door headers were again undersized or missing.
¶16 The District Court found:
It is not just that there is a complete lack of craftsmanship, but the house is structurally compromised from top to bottom. It would be foolish to attach heavy Glulam beams and a roof system on top of this structure and expect that a crew of carpenters could go back and repair the pervasive damage caused by inadequate planning and shoddy workmanship in every phase of the construction. . . .
The fact of the matter is, however, that the house is a total loss even without considering the roof problem. With or without the undersized roof, the house is a tear down proposition. The evidence convinces the Court that it is doubtful that the deficiencies in this house could be remedied at any price, but it could certainly not be done cost effectively. The only reasonable remedy is to tear this house down, haul it away, and start over again.
The District Court awarded the Whites a total of $392,184.32 against Longley and Castle
Homes, LLC, jointly and severally. That amount included $100,000 for emotional
distress and $62,500 for demolition of the structure.
STANDARD OF REVIEW
7 ¶17 The district court’s findings of fact will be upheld unless they are clearly
erroneous. Baltrusch v. Baltrusch, 2003 MT 357, ¶ 23, 319 Mont. 23, 83 P.3d 256.
Conclusions of law will be upheld if they are correct. Id.
DISCUSSION
¶18 Issue One: Did the District Court properly find that Castle Homes and Longley
were in breach of contract with the Whites? One of the District Court’s Conclusions of
Law was that “Longley and Castle Homes breached their contract(s) with the Whites.”
Longley and Castle Homes contend that since there was a “buyout or recission of the
written contract” it was error to conclude that there was a breach of both the written and
subsequent “oral buyout” contracts.
¶19 Longley and Castle Homes first contend that the issue of the validity of both
contracts was not properly raised to the District Court. The pretrial order in this case
shows that all relevant contractual issues were raised. The Whites’ issues of fact in the
pretrial order included whether Castle Homes breached its contract; whether Longley
personally contracted; whether Longley breached his contract; and whether the Whites
were damaged by breach of contract. The issues of law listed in the pretrial order
included whether the Whites’ claims “should be only a breach of contract action against
Castle Homes; and nothing more.” There is no support for the contention of Longley and
Castle Homes that the breach of contract issues were not properly raised in the District
Court.
¶20 The position of Longley and Castle Homes on the “buyout” of the original written
contract is unclear. On the one hand they argue that the extra $30,000 the Whites were
8 convinced to pay amounted to a recission of the written contract. On the other, they
contend that the Whites were obliged to arbitrate because the written contract provided
for arbitration. At best, the “buyout” was, as the District Court found, a “remarkably
audacious move” by Longley that conferred no benefit at all to the Whites and for which
they paid Longley and Castle Homes an additional $30,000. As the District Court found,
“[a]fter the buy out, nothing changed.” The project “continued to be understaffed, and
the work continued to be woefully substandard.”
¶21 There was clearly no recission of the written contract. A recission requires the
rescinding party to “restore to the other party everything of value that the rescinding party
has received from the other party under the contract.” Section 28-2-1713(2), MCA;
Brunner v. LaCasse, 234 Mont. 368, 371, 763 P.2d 662, 664 (1988). There is no
evidence that Longley or Castle Homes ever restored the parties to their pre-contract
position or offered to do so. If there is no formal recission, a contract may still be
terminated or cancelled, thereby being abandoned “as a live and enforceable obligation.”
Cruse v. Clawson, 137 Mont. 439, 447, 352 P.2d 989, 994 (1960). Termination or
cancellation still entitles a party to “look to the contract to determine the compensation he
may be entitled to under its terms for the breach which gave him the right of
abandonment.” Id.
¶22 After the buyout, the Whites clearly continued in a contractual relationship with
Longley individually. The District Court’s findings contain sufficient evidence that
Longley breached the contractual obligations he had to the Whites after the buyout.
9 ¶23 After termination of the written contract, the Whites were still entitled to seek
recovery for any damages they suffered for any breach that occurred prior to the
termination. There is nothing in the record to show that when the Whites agreed to the
buyout they also agreed to forego any damages they had suffered up to that time.
¶24 Issue Two: Did the District Court err in concluding that Castle Homes and
Longley committed constructive fraud? Longley and Castle Homes argue on appeal that
there was insufficient evidence of constructive fraud. They argue that if the Whites were
misled it was due to their “own factual misunderstanding” and their failure to disclose
everything that they assumed from their dealings with him. Further, Longley and Castle
Homes remarkably assert in briefing on appeal that “[a]t no time did Longley practice,
offer to practice, or attempt to practice professional engineering in the design or
construction of the Whites’ home.” Longley’s representations to the Whites were,
according to Longley and Castle Homes, merely puffing.
¶25 Longley and Castle Homes present no support for their contention that a party
being defrauded has the obligation to inform the defrauder that he is being defrauded.
The District Court’s detailed findings describing the deficiencies in the house and the
conclusion that it was not salvageable support the truth of Longley’s contention on appeal
that he never practiced professional engineering in the design or construction of the
Whites’ house.
¶26 The District Court made express findings of fact that support the conclusion that
Longley engaged in constructive fraud. His written materials featured the fact that he had
“Ph.D., P.E.” credentials. He told the Whites that he could build the home they
10 envisioned with the budget they had to spend. He answered the Whites’ inquiry about
hiring an architect by telling them that he could complete the design of the house. He
promoted his “castle wall” concept of exterior wall insulation that would make the home
energy efficient. His written materials contained glowing endorsements that he
represented to be from satisfied customers. He furnished supposed construction drawings
for the house which were wholly inadequate to guide the construction of the project. He
represented that he would provide a sufficient crew of skilled workers to build the house.
He failed to disclose to the Whites the inadequacy of his preparation for the project, the
inferior materials being used, and the inferior workmanship. He cajoled the Whites into
the “buyout” of the written contract, which did not benefit the Whites and cost them an
additional $30,000 that went to Longley and Castle Homes. He threatened the Whites
with expensive and protracted arbitration, and represented that he had talked to the
arbitrator and that the Whites would lose.
¶27 Longley failed to disclose to the Whites that the structure was inadequate to
support the roof, that the roof was not properly engineered, and that the materials he
bought for the roof were inadequate. After deficiencies surfaced, Longley assured the
Whites that he would put a “super crew” on the project and repair any problems. He
listed Steve White as the “registered agent” for Castle Homes, LLC, in filings with the
State of Montana, without Steve White’s consent and without Steve White’s knowledge.
He threatened the Whites with expensive and protracted arbitration proceedings, even
after taking $30,000 from them to terminate the contract that provided for arbitration.
When he needed to do so, Longley blamed others for the problems with the project,
11 including Larson Lumber, Boise Cascade, and the Whites themselves. As the District
Court found, Longley “misrepresented his ability to assist in the design of the Whites’
home and to provide a skilled crew to construct the home according to applicable
industry standards. When problems were pointed out to Longley, he misrepresented the
seriousness of the problems and his ability to fix them.”
¶28 Constructive fraud is:
(1) any breach of duty that, without an actually fraudulent intent, gains an advantage to the person in fault or anyone claiming under the person in fault by misleading another person to that person’s prejudice or to the prejudice of anyone claiming under that person; or (2) any act or omission that the law especially declares to be fraudulent, without respect to actual fraud.
Section 28-2-406, MCA. This Court has determined that a prima facie case of
constructive fraud rests upon establishing a representation; the falsity of the
representation; the materiality of the representation; the speaker’s knowledge of the
representation’s falsity or ignorance of its truth; the hearer’s ignorance of the
representation’s falsity; the hearer’s reliance upon the truth of the representation; the
hearer’s right to rely upon the representation; and the hearer’s consequent and proximate
injury or damage caused by reliance on the representation. Town of Geraldine v. Mt.
Municipal Ins. Auth., 2008 MT 411, ¶ 28, 347 Mont. 267, 198 P.3d 796. The District
Court applied these standards in concluding that Longley committed constructive fraud.
¶29 It is clear from the facts that Longley knowingly made any number of material
representations about the Whites’ house project that induced them to trust him and to
invest substantial sums of money with him. Longley knew exactly what was going on.
12 He knew the limits of his own qualifications and abilities. He knew the deficiencies in
the project because they were obvious to any experienced contractor and because his
crew foreman Ellis told him. There is abundant evidence to support the District Court’s
findings and conclusions regarding constructive fraud.
¶30 Issue Three: Whether the District Court properly concluded that Tom Longley
was jointly and severally liable along with Castle Homes, LLC, to the Whites. The
District Court found that Longley as a general contractor owed a duty of care to the
Whites to produce a home built to industry standards, and that he breached that duty. The
District Court found that Longley misrepresented to the Whites his ability to assist in the
design on the house and to provide skilled workers to construct the home. When
problems arose during the construction, Longley misrepresented the seriousness of them
and his ability and willingness to fix them.
¶31 Longley described himself in an affidavit filed in the District Court as the
“operating manager, owner, principal, and sole member of defendant Castle Homes,
LLC.” The Whites dealt solely with Tom Longley and the District Court found that “as
far as the Whites were concerned, they hired Tom Longley” to build their house. The
District Court found that in “virtually every aspect . . . Castle Homes and Tom Longley
are indistinguishable.” Longley acknowledged that he had the power to contract for
Castle Homes and that he was responsible for doing the construction work on the Whites’
home for Castle Homes. Longley acknowledged that on behalf of Castle he accepted and
retained the $30,000 the Whites paid to buy out the Castle Homes contract.
13 ¶32 Longley, however, contends that he bears no personal liability to the Whites
because he was only the agent of Castle Homes, LLC. According to Longley, imposing
personal liability on him “eviscerates protections afforded to” him and will “undo
decades of law protecting those who properly form and operate commercial entities.”
These contentions are based upon the fact that Longley organized Castle Homes as a
limited liability company.
¶33 Castle Homes was organized as a Washington Limited Liability Company. Tom
Longley registered Castle Homes, LLC, with the Montana Secretary of State, listing
Steve White as Castle Homes’ registered agent.1 Because Castle Homes was a foreign
LLC operating in Montana, we apply Montana law to this issue. Under § 35-8-1008(2),
MCA, a foreign LLC with a certificate of authority to do business in Montana is subject
to the same “duties, restrictions, penalties, and liabilities imposed on a domestic limited
liability company of similar character.”
¶34 Statutory recognition of limited liability companies is relatively new, and the first
LLC statutes were enacted in Wyoming in 1977. Section 35-8-101, MCA, Official
Comments. Montana adopted a Limited Liability Company Act, §§ 35-8-101, et seq.,
MCA in 1993 and has since amended it to substantially follow the Uniform Limited
Liability Company Act (1996). Section 35-8-101, MCA, Official Comments. The intent
of the LLC form of organization is to provide a corporate-styled liability shield with pass-
through tax benefits of a partnership. Section 35-8-101, MCA, Official Comments.
1 White did not sign the registration documents and Longley never notified White that he had designated him as the registered agent for Castle Homes. Longley never received White’s permission to use his name. 14 There is little law on LLCs in Montana, although this Court has recognized them as legal
entities distinct from their members, with obligations separate from their members.
Ioerger v. Reiner, 2005 MT 155, ¶ 20, 327 Mont. 424, 114 P.3d 1028.
¶35 While individual liability limitation is an aspect of the LLC form of business
organization, there is wide-spread acknowledgement that individual members of an LLC
may be subjected to personal liability. Steven C. Bahls, Application of Corporate
Common Law Doctrines to Limited Liability Companies, 55 Mont. L. Rev. 44, 59-66
(1994). This is reflected in both the Uniform Limited Liability Company Act (1996), §
303 and the Revised Uniform Limited Liability Company Act (2006), § 304. 6B
Thomson, West, Uniform Laws Annotated, 475, 597 (2008). Both of those sections
provide that a member or manager of an LLC is not personally liable for an obligation of
the company solely by reason of being or acting as a member or manager. The comments
to the uniform acts make it clear that the intent of this language is that “a member or
manager is responsible for acts or omissions to the extent those acts or omissions would
be actionable in contract or tort against the member or manager if that person were acting
in an individual capacity.” Uniform Limited Liability Company Act (1996), § 303,
Comment.
¶36 The Montana LLC Act reflects the liability language of the 1996 Uniform Act.
Section 35-8-304, MCA, provides, in part:
A person who is a member or manager, or both, of a limited liability company is not liable, solely by reason of being a member or manager, or both, under a judgment, decree or order of a court, or in any other manner, for a debt, obligation, or liability of the limited liability company, whether arising in contract, tort, or otherwise or for the acts or omissions of any
15 other member, manager, agent, or employee of the limited liability company.
(Emphasis added.) The District Court applied this statute, concluding that the basis for
Tom Longley’s individual liability was not “solely by reason of his being a member or
manager” of the LLC, but was based upon his own conduct. The District Court held:
The Court does not read this statute as immunizing members or managers of an LLC from personal liability for their conduct. If an LLC has a liability, the member or manager cannot be held liable “solely by reason of being a member or manager, or both,” but that language does not offer blanket protection from liability for a member or manager’s conduct.
. . .
The Whites have been damaged by Longley. Castle Homes was nothing more than the entity through which Whites’ checks were funneled. The Court concludes that Longley should be jointly and severally liable for the Whites’ damages.
¶37 Contrary to Longley’s contentions, the Limited Liability Company Act does not
offer blanket protection from liability to a member of an LLC for the member’s own
conduct, and there are not “decades” of precedent establishing any such protection.
Section 35-8-304, MCA, merely provides that a member or manager may not be
personally liable based “solely” upon being a member or manager. The Official
Comments to § 35-8-304, MCA, adopted from the comments to § 303 of the Uniform
1996 Act, provide:
A member or manager is responsible for acts or omissions to the extent those acts or omissions would be actionable in contract or tort against the member or manager if that person were acting in an individual capacity.
The Official Comments are helpful in construing the statute. The Comments support the
District Court’s conclusion that Tom Longley could be held liable to the Whites because
16 his own conduct would have exposed him to liability “if [he] were acting in an individual
capacity.” We therefore construe § 35-8-304, MCA, to allow personal liability against a
member or manager of an LLC based upon contract or tort if the member or manager
would be liable if acting in an individual capacity.2
¶38 In the present case the District Court found ample evidence that Tom Longley’s
own acts or omissions in the construction of the Whites’ house damaged them and were
actionable against him individually in both contract and tort. Under § 35-8-304, MCA,
this removes any protection from liability that Longley might otherwise have based upon
the organization of Castle Homes as a limited liability company.
¶39 The District Court’s decision to impose joint and several liability on Tom Longley
and Castle Homes, LLC, is affirmed.
¶40 Issue Four: Whether the District Court erred in staying arbitration. As noted
above, when the Whites began to question the quality of the construction, Longley
threatened to institute arbitration as provided in the written contract. He did this after he
had talked the Whites into paying him $30,000 to terminate that same contract. Just
before the Whites filed their complaint, Longley served notice of arbitration proceedings.
On October 16, 2007 the District Court entered an order staying the arbitration
proceeding. Nothing else occurred on the arbitration issue until April, 2009 shortly
2 Some commentators and courts have advocated application to LLCs of the rules regulating piercing the corporate veil to impose individual liability. See e.g. Bahls, 59- 66. Because § 35-8-304, MCA, clearly does not establish blanket liability protection for members of LLCs, and because the intent of that section is to allow liability in a situation in which the member acting individually would be liable, it is not necessary to engraft the veil piercing law from the corporate arena to resolve this issue. 17 before the original trial date when Longley moved to compel arbitration. After
considering the arguments of the parties the District Court denied Longley’s motion.
¶41 This issue is simply disposed of by the fact that the only basis for arbitration was a
provision in the original written contract. Longley and Castle Homes received $30,000
from the Whites to terminate the parties’ on-going obligations under that contract. There
was no legal or factual basis upon which Longley could compel the Whites to arbitrate
any of their disputes and the District Court’s order denying arbitration was correct.
¶42 Issue Five: Whether the District Court erred in admitting improperly disclosed
expert testimony. Longley and Castle Homes contend that the District Court improperly
admitted testimony from the Whites’ engineering experts concerning the training and
experience required to practice as a professional engineer. The Whites called John
Thomas as an expert witness at trial, and opened his testimony by asking him to describe
the education and experience required for practicing professional engineering. As is
customary and required for qualifying an expert witness, Thomas described the training
requirements for certification as a professional engineer, the separation of the practice of
engineering into specialties by training, and his own background and training. He then
testified in detail as to the defects in the construction of the Whites’ house, and rendered
his opinion that it did not meet the reasonable standard of care for a “builder/engineer.”
The Whites also presented similar expert engineering testimony of Marc Waatti, which
was received without objection at trial or on appeal.
¶43 Longley and Castle Homes contend on appeal that the District Court improperly
allowed the portion of Thomas’ testimony in which he described the education and
18 experience requirements for a professional engineer, and the branches and specialties of
professional engineering. Longley and Castle Homes contend that the Whites did not
adequately disclose prior to trial that Thomas would be giving this testimony and that
they were unfairly surprised by it. As stated in a Longley-Castle Homes brief on appeal:
“The court committed clear error in permitting Thomas to testify to general qualifications
and standards of engineers.” They further claim that: “Thomas’ previously undisclosed
testimony, regarding engineering ethics and the standard of care for engineers, was
disastrously damaging to Defendants.”
¶44 Longley and Castle Homes appended to their brief Thomas’ two reports on the
Whites’ house and the many structural defects he found. These reports were disclosed to
Longley and Castle Homes prior to trial, and they comply with the requirements of M. R.
Civ. P. 26(b)(4) concerning disclosure of experts’ opinions.3 Rule 26(b)(4) does not
specifically require disclosure of an expert’s training and experience nor does it require
disclosure of an explanation of the nature of the expert’s area of expertise. While
Longley and Castle Homes might have obtained this information through specific
interrogatories or by deposing the Whites’ experts, nothing in the record indicates that
they did either. Therefore, Longley and Castle Homes have failed to establish that the
Whites failed to comply with any pre-trial disclosure obligation concerning Thomas’
testimony about engineering.
3 M. R. Civ. P. 26(b)(4) provides that a party may through interrogatories require another party to identify each person the other party expects to call as an expert, to state the subject matter upon which the expert is expected to testify, to state the substance of the facts and opinions to which the expert is expected to testify, and to provide a summary of the grounds for each opinion. 19 ¶45 In addition, the record of Thomas’ testimony concerning the education and
experience requirements for a professional engineer, and the branches and specialties of
professional engineering does not contain any objection from Longley and Castle Homes
based upon surprise or prior failure to disclose. The only objections lodged during this
portion of Thomas’ testimony were based on relevance and that a question was leading.
Because there was no relevant objection to this portion of Thomas’ testimony, we need
not further consider the Longley and Castle Homes contentions. We find no basis for
concluding that the District Court erred on this issue.
¶46 Issue Six: Whether the District Court erred in awarding damages to the Whites
for emotional distress. Longley and Castle Homes contend that the District Court erred
in awarding emotional distress damages to the Whites in a contract action. They
additionally contend that the proof of emotional distress did not rise to the level required
by Montana law.
¶47 Section 27-1-310, MCA, excludes recovery for emotional distress in contract
actions unless the plaintiff sustains actual physical injury. The District Court found
Longley and Castle Homes liable to the Whites on claims of negligence and constructive
fraud. Since the basis of their recovery was not limited to contract, the statute does not
preclude the award of emotional distress damages. As to obligations not arising from
contract, a party may recover damages in “the amount that will compensate for all the
detriment proximately caused . . . .” Section 27-1-317, MCA.
¶48 Longley and Castle Homes rely on First Bank v. Clark, 236 Mont. 195, 771 P.2d
84 (1989) and Sacco v. High Country Independent Press, 271 Mont. 209, 896 P.2d 411
20 (1995) for the proposition that emotional distress damages can be recovered only where
there is a substantial invasion of a legally protected interest causing serious or severe
emotional distress. Sacco applies only to independent causes of action for infliction of
emotional distress, and not to emotional distress claimed as an element of damage arising
from a different cause of action (sometimes called “parasitic claims” for emotional
distress). Jacobsen v. Allstate Ins. Co., 2009 MT 248, ¶¶ 62, 66, 351 Mont. 464, 215
P.3d 649. First Bank was overruled on the emotional distress issue in Jacobsen, ¶ 66,
where this Court held that there is no heightened threshold standard for parasitic
emotional distress claims, and that the severity of the distress affects the amount of
damages recovered but not the underlying entitlement to recover. Jacobsen also
endorsed the damage instructions in Montana Pattern Jury Instructions 2d, 25.02, as
containing a correct statement of the law. That instruction provides, in part, that there is
no “definite standard by which to calculate compensation for mental and emotional
suffering and distress.” Jacobsen, ¶ 66.
¶49 Here the District Court found that “there is no doubt that the Whites suffered
greatly as they watched their dream turn into a nightmare.” The Whites testified as to
stress, anxiety and depression they have suffered arising from dealing with the house-
building fiasco. They have had to live apart after Steve White had to abandon retirement
and return to California to work again.
¶50 There was substantial evidence to support the District Court’s award of damages
for emotional distress, and the District Court’s award met the proper legal standard.
21 ¶51 Issue Seven: Whether the District Court erred awarding damages for demolition
costs. Longley and Castle Homes contend that there was insufficient evidence to support
the District Court’s award of $62,500 to pay for demolition of the house. The District
Court found that the construction of the house was so substandard that it could not
reasonably be repaired, and that the Whites would have to tear down Longley’s structure
and start over. At trial the Whites presented an estimate of $62,500 they received from
Mack Excavating in Troy, Montana, for the cost of demolition of the existing structure
and hauling away the debris. Longley and Castle Homes did not object to the testimony.
¶52 Based upon this evidence that was received by the District Court without
objection, there is substantial evidence to support the award of demolition costs as an
element of damages.
¶53 The District Court’s “Findings of Fact, Conclusions of Law and Judgment Nunc
Pro Tunc” are affirmed.
/S/ MIKE McGRATH
We concur:
/S/ W. WILLIAM LEAPHART /S/ MICHAEL E WHEAT /S/ PATRICIA COTTER /S/ JIM RICE
Justice Jim Rice, concurring.
¶54 I concur with the Court’s holding on all issues and believe the Court has correctly
applied the statutes governing limited liability companies under Issue Three. Extensive
22 testimony and materials were provided to the legislative committees which considered
the LLC business form and ultimately enacted authorizing legislation during the 1993
Legislative Session. Law professor Steven Bahls testified that “[o]wners of limited
liability companies, like corporate shareholders, are generally not liable for the debts of
the limited liability company. . . . Exceptions include when owners guarantee debts of a
LLC or when owners personally commit wrongs while acting for an LLC. . . . For both of
these exceptions, owners will be personally liable for the debts or damages.” Mont. Sen.
Jud. Comm., Hearing on Sen. Bill 146, Exhibit 3, 53rd Legis., Reg. Sess. 3-4 (January 21,
1993) (emphasis added) (testimony of Steven Bahls, Associate Dean and Professor,
University of Montana School of Law). Presciently, he also provided an example
involving the same factual scenario at issue in the case before us:
For example, assume a construction company has become a limited liability company. Assume that the LLC was negligent in its design and erection of a building. The LLC, itself, and those who participated in the design or construction are responsible for the negligence. But just as corporate shareholders or officers who don’t participate in the design or construction are not responsible, similarly situated members of a LLC are not responsible.
Mont. Sen. Jud. Comm., Hearing on Sen. Bill 146, Exhibit 3 at 6 (emphasis added);
accord Mont. Sen. Jud. Comm., Hearing on Sen. Bill 146, Exhibit 5, 53rd Legis., Reg.
Sess. 7 (January 21, 1993) (Executive Summary, Questions and Answers About Limited
Liability Companies). Further, other courts examining this issue have reached the same
conclusion. See People v. Pac. Landmark, LLC, 129 Cal. App. 4th 1203, 1213, 29 Cal.
Rptr. 3d 193, 199 (2d Dist. 2005) (“we hold that whereas managers of limited liability
companies may not be held liable for the wrongful conduct of the companies merely
23 because of the managers’ status, they may nonetheless be held accountable . . . for their
personal participation in tortious or criminal conduct, even when performing their duties
as manager” (emphasis in original)).
¶55 I concur.
/S/ JIM RICE