text:
    In the MATTER OF WILLIAM R. MORSE, an Attorney and Counselor at Law, Respondent.
    No. 88-464.
    June 12, 1990.
    798 P.2d 75.
   OPINION AND ORDER

The Commission on Practice filed a complaint in this Court charging William R. Morse with various violations of the Rules of Professional Responsibility. On September 1, 1988, a citation was issued to Mr. Morse. Mr. Morse filed his answer to the complaint on October 27, 1988. Subsequently, an amended complaint and an amended answer were filed. A hearing was held before the Commission on Practice on July 28, 1989, with Francis E. Gallagher, Acting Chairman, presiding. Craig D. Martinson appeared as Special Prosecutor. Mr. Morse was also present and represented by C.W. Leaphart. Subsequently the Commission issued its findings, conclusions, and recommendations dated December 21,1989. The Commission recommended that Mr. Morse be publicly censured before this Court; be suspended from the practice of law for an indefinite period of time; and be assessed all costs of. these proceedings. The findings and recommendations of the Commission are detailed and lengthy and may be examined by interested parties in the office of the Clerk of the Supreme Court.

On February 5, 1990, Mr. Morse filed his brief in this Court containing his objections to the Commission’s findings and conclusions. On March 9, 1990, the Special Prosecutor filed his brief responding to Mr. Morse’s objections. Mr. Morse filed a reply brief on March 21,1990. In accordance with the rules governing the Commission on Practice, the matter was deemed submitted to the Supreme Court. This Court heard oral argument at Mr. Morse’s request on May 15, 1990, and has reviewed the briefs, .transcripts and other matters in the file.

The Court has concluded that it is appropriate to disbar Mr. Morse as recommended by the Special Prosecutor. We will review a number of the significant findings and conclusions of the Commission.

Mr. Morse is a duly licensed attorney with a principal office in Absarokee, Montana. All of the charges now against him arose out of events occurring when he represented Robert Eaton (Mr. Eaton), d/b/a/ Eaton Construction, in a legal claim that Mr. Eaton had against Natioiial Steel Products (Stran Steel). The suit was filed in the early 1970’s and settled in 1981. A written fee agreement was entered into between Mr. Morse and Mr. Eaton whereby all funds collected in this case would be divided 50/50 after payment of all costs incurred by either party in pursuit of that claim. Neither Mr. Morse or Mr. Eaton produced the written 50/50 costs and fee agreement. After trial in federal district court, a verdict was entered in favor of Mr. Eaton and against Stran Steel. Upon appeal, the case was ultimately remanded to federal district court for retrial. Subsequent to the remand and prior to a retrial, settlement negotiations resulted in an acceptance of an offer of settlement of $225,000 by Robert Eaton and his wife, Darleen. The acceptance of the settlement was in writing dated April 17, 1981. A check for $225,000 payable to William Morse and Robert T. Eaton, dated April 28, 1981, was delivered to Mr. Morse.

Prior to receiving the settlement check, Mr. Eaton wrote to Mr. Morse by letter dated April 24, 1981, which advised him that a fair disbursement of the settlement proceeds would be for Mr. Morse to get 25% and Mr. Eaton to get 75%, and with each party to pay his costs. Mr. Morse did not reply to this letter. Subsequently, several meetings and telephone conversations were held between Mr. Morse and Mr. Eaton regarding their fee agreement. On May 10, 1981, the settlement check was taken by Mr. Morse and Mr. Eaton, along with their wives, to New York City to cash the check. The parties left Billings, Montana and drove to Denver, Colorado. From Denver, they flew to New York where they cashed the check at the issuing bank. When they left the bank, Mr. Morse had $125,000 in cash in his briefcase and Mr. Eaton had $100,000 of cash in his briefcase.

The parties flew back to Denver, Colorado on May 12, 1981. While staying in a hotel in Denver, Mr. Morse gave Darleen Eaton $12,500 in cash and took no receipt. This left each party with $112,500, or one-half of the settlement. While in Denver, Mr. Morse and Mr. Eaton went to Empire Savings and Loan and purchased 30 day Certificates of Deposit (CD). The Eaton CD was in the sum of $100,000 and placed in the names of Eaton’s daughters. The Morse CD in the sum of $100,000 was in the name of “Wm. R. Morse Office Trust Account” with Mr. Morse and his brother, Stephen J. Morse, being authorized to sign the CD. Mr. Morse’s brother is not a lawyer. Mr. Morse used his brother’s North Dakota address on the CD.

Sometime in May or June, 1981, Mr. Morse presented to Mr. Eaton two agreements, one designated “Receipt and Agreement” and one designated “Agreement”. Mr. Morse drafted both agreements which are undated and in his handwriting. The “Receipt and Agreement” reduced the original fee agreement from a 50/50 fee agreement after costs to a 75/25 agreement in favor of Mr. Eaton, including costs expended by each party. Neither party had kept a detailed record of his costs. Both Mr. Morse and Mr. Eaton signed this agreement.

The “Agreement” indicated that Mr. Morse was paid the sum of $10,000 for all accounts which may be due and owing between the parties other than that relating to the Stran Steel case. Mr. Morse, Mr. Eaton and Mrs. Eaton signed this agreement.

On June 11, 1981, Eatons drove, and Morses flew to Denver to redeem their CD’s. On June 12, Mr. Morse redeemed his $100,000 CD as follows: (1) a check in the sum of $56,250 payable to ‘WILLIAM MORSE TRUST ACCT” (This check was deposited in Mr. Morse’s Absarokee bank on June 15,1981); (2) a check in the sum of $10,000 payable to “WM MORSE TRUST ACCT”, which he endorsed and cashed immediately; and (3) the balance of the $100,000 CD including interest in the sum of $1,376.71 earned, in cash totaling $35,126.71. The Morse and Eatons then drove back to Billings together.

Subsequently the Eatons made repeated demands upon Mr. Morse for the payment of the $56,250 retained by Mr. Morse. Such payment was not made. Eventually Eatons filed a civil suit alleging Mr. Morse fraudulently appropriated $56,250 due to them. The case was tried in the District Court of the Thirteenth Judicial District, Stillwater County, Montana and resulted in a judgment for $57,024.40 plus costs of $2,341.51 in favor of Mr. Eaton. On appeal the judgment was affirmed by this Court. See Eaton v. Morse (1984), 212 Mont. 233, 687 P.2d 1004.

Mr. Eaton filed a complaint with the Commission on Practice alleging professional misconduct in Mr. Morse’s mishandling of the settlement proceeds in the Stran Steel case. The hearing was held in Billings, Montana, in July 1989 before nine members of the Commission, consisting of six attorneys and three non-attorneys. The Commission unanimously concluded that Mr. Morse co-mingled funds, misappropriated funds and breached his fiduciary duty to his client.

The Commission made findings of fact 1 through 42 in connection with the charges brought against him. We will now review the findings and conclusions of the Commission with regard to each of the counts filed against Mr. Morse before the Commission.

“COUNT I: Failure of Mr. Morse to pay to Mr. Eaton $56,250.” The Commission found that Mr. Morse retained the sum of $56,250 plus interest which was the property of Mr. Eaton and to which he was not entitled. That finding is confirmed by the District Court judgment in the suit brought by Mr. Eaton against Mr. Morse, which was subsequently affirmed by this Court. The Commission concluded that such conduct constituted a violation of Rule 7(b) of the Rules for Lawyer Disciplinary Enforcement and is contrary to the highest standards of justice and morality. There can be no significant argument with regard to Count I because the essential elements were established by the District Court judgment and subsequent affirmation on appeal by this Court. Of itself, Count I is clearly sufficient to justify the conclusions and recommendations of the Commission. We affirm the findings and conclusions of the Commission as to Count I.
“COUNT IT. Failure to hold his clients funds separate from his own; failure to properly account for disbursement of the funds; failure to make a full accounting of all of the settlement money; false testimony under oath before the trial court; misrepresentation and deceit of client; and breach of fiduciary duty.”

The Commission concluded that Mr. Morse failed to safeguard Mr. Eaton’s funds by failing to maintain a separate account and place the proceeds in a properly negotiable instrument payable to the client. It concluded that Mr. Morse never gave Mr. Eaton a satisfactory written accounting of the $225,000 settlement proceeds despite numerous requests by Mr. Eaton. It concluded that Mr. Morse falsely testified, under oath at the civil trial, that all funds had been properly accounted for. It further concluded that the money was never accounted for by Mr. Morse nor shown to have been given to Mr. Eaton in any form. The Commission concluded that such conduct constitutes a violation of the Rules of Professional Conduct, Rule 1.15, Rule 3.3 and Rule 8.4.

Mr. Morse argues that the Commission erred in concluding he had violated Rule 3.3. It is true that Rule 3.3 primarily is directed to actions of a lawyer acting in his capacity as an advocate in court. Mr. Morse argues that he was speaking as a witness rather than as an advocate, so that Rule 3.3 is not applicable. That is a technical argument which overlooks the nature of the grievous conduct on the part of Mr. Morse. The key conclusions on the part of the Commission with regard to the false testimony are:

“15. That at the civil trial held on December 14-20, 1982, Morse testified, under oath, that all funds had been properly accounted for, which statements were, in fact, false.
“21. That the Testimony of Morse at the civil trial before the Honorable Nat Allen in regards to the accounting of the settlement was in fact false, and was a violation of Rule 3.3(a)(1) of the Rules of Professional Conduct.” (Emphasis supplied.)

So far as the technical argument is concerned, the violation of Rule 3.3 is not essential to the opinion for the reason that the conduct clearly violated Rule 7(b) of the Rules Governing the Commission on Practice which provides that discipline may be imposed for “any act committed by an attorney contrary to the highest standards of honesty, justice or morality.” (Emphasis supplied.) Making false statements under oath in the course of trial clearly violates the highest standards of honesty and morality required on the part of any attorney. We conclude that the giving of false testimony by Mr. Morse on the central issue of litigation, that is whether or not he had made payment to Mr. Eaton, is sufficiently reprehensible in nature to warrant indefinite suspension or disbarment in and of itself.

In oral argument Mr. Morse argued that this Court’s decision rested on which of two men’s version of the facts it chose to believe — Mr. Eaton’s or Mr. Morse’s. He argued that there is not clear and convincing evidence to support the Commission’s findings and conclusions. He further argued that Mr. Eaton is a “psychopath and a liar” and thus his testimony is not worthy of belief. However, as the Special Prosecutor pointed out, Mr. Eaton is not before this Court for violations of the Rules of Professional Responsibility. Mr. Morse is. We have carefully reviewed the transcript of the hearing before the Commission to determine whether the facts warrant discipline of Mr. Morse. We have concluded that there is clear, convincing, and overwhelming evidence to support both the findings and the conclusions of the Commission.

Mr. Morse contended that one receipt stating the agreement of the parties as to the distribution of the proceeds of the settlement check is a sufficient “accounting”. He argued that a “paper trail” is necessary for day to day operation of a law office when property moves from one ownership or status to another through the medium of the lawyers’ accounts, but that a paper trail is not necessary when the parties know how the money is agreed to be divided. We disagree. As Mr. Morse admits, the purpose of an accounting is to protect the client. Had a proper accounting been made in the present case, both the client and the lawyer would have been protected. Mr. Morse’s testimony was replete with his acknowledgment that the Eatons were hostile towards him. A proper accounting would have protected all parties. Clearly an appropriate accounting was not made in the present case. Mr. Morse gave contradictory explanations with regard to the transfer and delivery of the money. The testimony of Mr. Eaton was largely consistent and was supported by the testimony of other witnesses. As previously stated, there is clear, convincing and overwhelming evidence to support the findings and conclusions as to Count II. We affirm the findings and conclusions of the Commission as to Count II.

The Special Prosecutor has suggested that Mr. Morse should be disbarred rather than indefinitely suspended, as recommended by the Commission. Montana law does not provide any legal difference between the two. Under either punishment, the attorney may petition for reinstatement. However, we conclude there is a distinction to be made.

Black’s Law Dictionary (Fourth Addition) defines “disbar” in England as an act “analogous to striking an attorney off the rolls,” and in America as a rescission of an attorney’s license to practice at its bar. “Suspension” is defined as a “temporary stop, a temporary delay, interruption, or cessation.” Thus, while “suspension” implies only a temporary punishment, “disbarment” implies a more permanent or severe punishment.

Unfortunately, in the majority of jurisdictions there has been an implied difference between the two but a total failure to define what that difference may be. ha either case, under Montana law, an attorney may petition for reinstatement under Ride 20, Rules for Lawyer Disciplinary Enforcement. Section 37-61-309, MCA, provides that this Court has the discretion to deprive an attorney of the right to practice law permanently or for a limited period, according to the gravity of the offense, with one exception. The exception is where an attorney is convicted of a felony or misdemeanor involving moral turpitude. Upon conviction, the judgment must be that the attorneys name be stricken from the roll of attorneys. Sections 37-61-301 and 309, MCA.

There is confusion in this area of law in Montana. Disbarment and indefinite suspension are not statutorily or otherwise defined under Montana law. Our statutes cited above provide for one situation where an attorney must be “stricken from the roll of attorneys,” which is enumerated in a statute which refers to “disbarment” and “indefinite suspension” interchangeably. At the same time, the Rules for Lawyer Disciplinary Enforcement, Rule 20, provides for the reinstatement of both disbarred and suspended attorneys.

Due to the nature and severity of the offenses in this case, we conclude disbarment, as recommended by the Special Prosecutor, is appropriate rather than indefinite suspension and public censure as recommended by the Commission on Practice.

The Supreme Court of the State of Montana unanimously concludes as follows:

1. That Mr. Morse shall be disbarred from the practice of law.

2. That Mr. Morse shall pay all costs of the proceedings before the Commission on Practice.

IN ORDER TO CARRY OUT THE FOREGOING, THE COURT ORDERS:

1. That Mr. Morse’s disbarment from the practice of law as an attorney and counselor in the State of Montana, including all tribunals and other bodies of the State, shall commence at 5:00 p.m. on July 16,1990.

2. That Mr. Morse is required to give the notices, to deliver papers or property, and otherwise comply with the provisions of Rule 21, Supreme Court of the State of Montana, Rules for Lawyer Disciplinary Enforcement, which states as follows:

NOTICE TO CLIENTS AND OTHERS

“A. Recipients of Notice and Contents of Notice. Unless otherwise ordered by the Supreme Court, within ten (10) days after the date of the order of the Court imposing the discipline of disbarment or suspension, the respondent shall notify or cause to be notified by registered or certified mail, return receipt requested, (1) all clients being represented in pending matters; (2) any co-counsel in pending matters; and (3) any opposing counsel in pending matters or, in the absence of such counsel, the adverse parties, that the Court has ordered the disbarment or suspension of respondent and that respondent is therefore disqualified to act as a lawyer after the effective date of the order.

“B. Notice to Clients of Respondents Who Are Disbarred or Suspended. The respondent shall deliver to all clients being represented in pending matters any papers or other property to which they are entitled and shall notify them and any counsel representing them of a suitable time and place where the papers and other property may be obtained, calling attention to any urgency for obtaining the papers or other property.

“C. Notification to Court. In the event the client does not obtain another lawyer before the effective date of the disbarment or suspension, it shall be the responsibility of the respondent to notify in writing the judge of the court having jurisdiction of the pending matter of the circumstances.”

3. The Secretary of the Commission on Practice shall furnish to this Court, to Mr. Morse and to his counsel an appropriate statement of Commission costs. Costs shall be payable to the Commission on Practice of the State of Montana on July 16,1990, unless otherwise ordered by this Court. In the event that Mr. Morse shall fail to pay such costs by the designated date, this Court shall cause judgment to be entered against Mr. Morse and appropriate collection steps to be taken.

4. Copies of this opinion and order shall be mailed to Mr. Morse; Mr. C.W. Leaphart; Mr. Craig D. Martinson as Special Prosecutor; the chairman of the Commission on Practice; George L. Bousliman, Executive Director of the State Bar of Montana; to each of the clerks of all of the District Courts of the State of Montana; the Clerk of the Federal District Court for the District of Montana; and the Clerk of the Circuit Court of Appeals of the Ninth Circuit.

DATED this 12th day of June, 1990.

/s/ J.A. Tumage, Chief Justice

/s/ John Conway Harrison, Justice

/s/ Diane G. Barz, Justice

/s/William E. Hunt, Sr., Justice

/s/ R.C. McDonough, Justice

/s/ Fred J. Weber, Justice

/s/ Thomas Honzel, District Judge, sitting for Justice John C. Sheehy.


source: Caselaw Access Project

author: CHIEF JUSTICE TURNAGE

license: Public Domain

text:
    DOUG MAJERUS, Plaintiff and Appellant, v. SKAGGS ALPHA BETA, INC., a Delaware corporation: Wayne Jacobson; Judy Fugelstad and Dwight Krohmer, Defendants and Respondents.
    No. 89-563.
    Submitted on Briefs July 13, 1990.
    Decided Sept. 11, 1990.
    Rehearing Denied Oct. 19, 1990.
    799 P.2d 1053.

      H. L. McChesney, McChesney, Grenfell & Ogg, Missoula, Michael G. Majerus, Billings, for plaintiff and appellant.
    J. David Slovak, Ugrin, Alexander, Zadick & Slovak, P.C., Great Falls, for defendants and respondents.
   CHIEF JUSTICE TURNAGE

delivered the Opinion of the Court.

Doug Majerus appeals the summary judgment of the Fourth Judicial District Court, Missoula County, which dismissed his action against Skaggs Alpha Beta, Inc. (Skaggs), Wayne Jacobson, Judy Fuglestad, and Dwight Krohmer, for wrongful discharge, breach of the implied covenant of good faith and fair dealing, negligent infliction of emotional distress, and negligence. The court granted summary judgment: 1) based on the doctrine of res judicata, 2) because Majerus failed to establish, as a matter of law, a breach of the implied covenant of good faith and fair dealing, and 3) because no genuine issue of material fact existed. We affirm.

Majerus raises the following issues:

I. Did the District Court err in granting summary judgment based on the doctrine of res judicata?

2. Did the District Court err in granting summary judgment on the basis that Majerus failed to establish, as a matter of law, a breach of the implied covenant of good faith and fair dealing?

3. Did the District Court err in granting summary judgment on the basis that no genuine issue of material fact existed?

On August 15, 1986, Doug Majerus was discharged from his position as manager of the Buttrey Food Store located in Tremper Shopping Center in Missoula, Montana, following fifteen years of employment by Buttrey Food, Inc. (Buttrey) and its 1984 successor, Skaggs Alpha Beta, Inc. (Skaggs). Skaggs discharged Majerus because he violated company policy when he took $350.00 from a checkstand till on June 21,1986, and on the following day, used these company funds for his personal use on a gambling vacation in Jackpot, Nevada. Majerus returned these funds some sixteen days later.

Following his discharge, Majerus applied for unemployment benefits through the Montana Department of Labor & Industry. On October 1, 1986, by a deputy’s determination, Majerus was found to be eligible for unemployment benefits. Skaggs, however, appealed the deputy’s determination asserting that Majerus was not entitled to unemployment benefits because he was properly discharged from his employment for misuse of company funds.

A hearing was held before the Montana Department of Labor & Industry on October 29, 1986 — both parties attended and were represented by counsel. On October 31,1986, the appeals referee held that Majerus was properly discharged from his employment for work-related misconduct, and thereby not entitled to unemployment benefits under § 39-51-2303, MCA.

Majerus appealed this decision to the Montana Department of Labor & Industry Board of Labor Appeals (BLA). The BLA affirmed the decision, after determining that no substantial evidence existed to modify or reverse the prior findings and decision of the appeals referee. The BLA’s decision stated that Majerus had the right to further appeal to district court.

Majerus, however, did not pursue a further appeal regarding his ineligible status to unemployment benefits. Instead, on December 9, 1989, Majerus filed a district court action against Skaggs, and three Skaggs’ employees, Wayne Jacobson, Judy Fuglestad, and Dwight Krohmer, for wrongful discharge, breach of the implied covenant of good faith and fair dealing, negligent infliction of emotional distress, and negligence.

Prior to the filing of the district court action, Majerus, in a November 2, 1987, deposition, conceded that he acted improperly when he took the company funds. He also conceded that no company policy allowed or authorized the removal of company funds for personal use. Additionally, affidavits of Skaggs’ employees Ben Flaig and Dwight Krohmer dated June 13, 1989, established that it was the company policy of Skaggs, as well as Buttrey, that employees could not, under any circumstances, take, borrow, or use company funds, regardless of any intent to repay the funds. The affidavits further stated that this policy was well known by Skaggs’ employees, including Majerus, and that it was common knowledge to the employees that a violator of this policy would be subject to discharge from employment. Majerus never refuted these affidavits.

On June 16, 1989, the defendants moved the District Corut for summary judgment. The District Court granted summary judgment on August 30,1989:1) based on the doctrine of res judicata, 2) because Majerus failed to establish, as a matter of law, a breach of the implied covenant of good faith and fair dealing, and 3) because no material issue of fact existed. From this decision, Majerus appeals.

1. Did the District Corut err in granting summary judgment based on the doctrine of res judicata?

The District Corut granted summary judgment on three independent grounds, one of them being the doctrine of res judicata:

“The basic proposition embraced by the doctrine of res judicata has always remained the same: a party should not be able to relitigate a matter he or she has already had an opportunity to litigate. This policy reflects the notion that a lawsuit should not only bring justice to the aggrieved parties but provide a final resolution of the controversy.”

Brault v. Smith (1984), 209 Mont. 21, 25, 679 P.2d 236, 238. In determining whether res judicata applied, the District Court relied upon Nasi v. State Dep’t of Highways (1988), 231 Mont. 395, 753 P.2d 327, for the proposition that an employee, who unsuccessfully pursues a grievance at an administrative proceeding, is then precluded from pursuing a wrongful discharge action when: (1) the parties are the same; (2) the subject matter is the same; (3) the issues are the same; and (4) the relationship between the parties, the subject matter, and the issues is the same. Nasi, 753 P.2d at 329 (Citations omitted). The District Court found that the present facts satisfied the Nasi criteria and thereby held that res judicata applied.

This Court, however, recently distinguished Nasi in Niles v. Weissman & Sons, Inc., (Mont. 1990), [241 Mont. 230,] 786 P.2d 662, 47 St.Rep. 240:

“we determine that a final decision from an administrative agency that an employee is not entitled to unemployment compensation is not res judicata as to the employee’s separate action in District Court for wrongful discharge and breachofthecovenantofgoodfaithand fair dealing.”

Niles, 786 P.2d at 663. Because the present facts are on point with Niles, we hold that Niles, and not Nasi, is controlling to this case. Therefore, the District Court erred when it granted summary judgment based on the doctrine of res judicata. However, this does not necessarily mean that summary judgment was improper in this case — the District Court granted summary judgment based on two other grounds as well. A discussion of these two grounds follows.

2. Did the District Court err in granting summary judgment on the basis that Majerus failed to establish, as a matter of law, a breach of the implied covenant of good faith and fair dealing?

This Court established the implied covenant of good faith and fair dealing in employment relationships in Gates v. Life of Montana Insurance Co. (1982), 196 Mont. 178, 638 P.2d 1063. See Schramm, Montana Employment Law and the 1987 Wrongful Discharge From Employment Act: A New Order Begins, 51 Mont. L. Rev. 94 (1990). However, even when the implied covenant of good faith and fair dealing applies to an employment relationship, an employer may still terminate an employee without breaching the covenant if the employer has a “fair and honest reason” for the termination. Flanigan v. Prudential Federal Savings & Loan (1986), 221 Mont. 419, 428, 720 P.2d 257, 262.

Here, the defendants did not breach the implied covenant of good faith and fair dealing because they had a fair and honest reason to terminate Majerus — Majerus violated company policy when he admittedly took company funds and used them for his personal use of financing a gambling trip to Jackpot, Nevada. Moreover, the affidavits of Ben Flaig and Dwight Krohmer established that Skaggs’ employees, including Majerus, knew that it was against company policy to take company funds and use them for personal use, and a violator of this policy would be subject to discharge from employment. Therefore, Majerus had no basis for a claim of breach of the covenant of good faith and fair dealing and we uphold the District Court’s summary judgment based on the finding that Majerus failed to establish a breach of the implied covenant of good faith and fair dealing.

Majerus, however, argues that even though it was wrong to take the company funds and use them for his personal use, his infraction did not justify the harsh result of discharge from employment in light of his fifteen years of service to Buttrey and its successor, Skaggs, and his reasonable expectation of employment security. Majerus’ argument is without merit. We agree with the District Court when it found that Majerus’ infraction was “more than a simple transgression.” The seriousness of his infraction coupled with the unrefuted affidavits of Ben Flaig and Dwight Krohmer establish that discharge from employment is justified when an employee takes company funds and converts them for personal use.

Majerus further argues that the issue of whether the implied covenant of good faith and fair dealing has been breached is a jury determination, thereby summary judgment is inappropriate. This argument lacks merit because, as previously discussed, the record reflects that Majerus had no basis for a claim based on a breach of the implied covenant of good faith and fair dealing.

3. Did the District Court err in granting summary judgment on the basis that no genuine issue of material fact existed, and therefore, the defendants were entitled to judgment as a matter of law?

Rule 56(c) of the Montana Rules of Civil Procedure provides, in part:

“The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.”

Here, no genuine issue of material fact exists, because the record reflects an admitted and serious breach of store policy arising from the misuse of employer’s funds. Majerus admittedly took $350.00 from a Skaggs’ checkstand till and used these funds on a gambling vacation to Jackpot, Nevada. The affidavits of Ben Flaig and Dwight Krohmer establish that it was against store policy to take company funds and use them for personal use. Additionally, the affidavits establish that this policy was well-known to Skaggs’ employees, including Majerus, and the employees further knew that a violator of the policy would be subject to discharge from employment. Majerus never refuted these affidavits, and furthermore, admitted that there was no company policy that allowed for his misconduct. Based on these uncontroverted facts, we affirm the District Court’s summary judgment on the basis that no genuine issue of material fact existed, and the defendants were entitled to judgment as a matter of law.

Affirmed.

JUSTICES HARRISON, SHEEHY, WEBER and HUNT concur.


author: JUSTICE SHEEHY

text:
    ASSOCIATION OF UNIT OWNERS OF THE DEER LODGE CONDOMINIUM; Larry Burnside; Mary Burnside; Mel's Remodeling, Inc.; Robert Tousignant; Gerald Tereich; Carolyn Tereich; Bruce J. Hedbloom; Emil Eschenburg; Dolly Eschenburg; Raymond D. Ryan; Ernest M. Shewchuk; Murray B. Stevens; W. Keith Stinson; Sally Stinson; James Vanderbiesen; Norman Weckerly; Tomkins, Ulrich & Roll; Adrian Bom; William Brunsdale; Robert Garrity; Frank Lieber; Donald K. Miller; William Wood; Donna Wood; and Richard Winchell, Plaintiffs and Appellants. v. BIG SKY OF MONTANA, INC.; Big Sky of Montana Realty, Inc.; Boyne USA, Inc.; Thomas & Co. (General Electric Pension Trust); The Montana Power Company; the State of Montana, Defendants and Respondents.
    No. 89-407.
    Submitted June 12, 1990.
    Decided Sept. 24, 1990.
    Rehearing Oct. 25, 1990.
    798 P.2d 1018.

      Michael C. Coil, Bozeman, for plaintiffs and appellants.
    Patrick Fleming, Butte, Rockwood Brown, Billings, Allen B. Chronister, Chronister, Driscoll & Moreen, Helena, Page Wellcome, Well-come, Frost & Barrett, Bozeman, John S. Warren, Schulz, Davis & Warren, Dillon, Patrick Frank, Worden, Thane & Haines, Missoula, for defendants and respondents.
   JUSTICE SHEEHY

delivered the Opinion of the Court.

The plaintiffs (unit owners) sued to recover damages resulting from two fires in 1981 in two buildings comprising the Deer Lodge Condominiums at Big Sky, Montana. The District Court, Fifth Judicial District, Madison County, entered summary judgment against the unit owners and in favor of the defendants. The unit owners have appealed the summary judgment against them in this cause. We affirm the summary judgment.

To follow the complicated facts herein, the reader would do well to refer to the following outline of the parties involved:

“Unit Owners All but four of the appellants are owners of condominiums at Big Sky, Montana, located in two buildings, both commonly known as the Deer Lodge Condominiums. The four appellants who did not own condominiums owned personal property located in units of the Deer Lodge Condominiums. Except where necessary to distinguish the four personal property owners, all appellants are hereinafter referred to as ‘unit owners.’

“Big Sky of Montana Inc., (Big Sky) A corporation which originally developed the Big Sky, Montana, ski resort in the early 1970s and merged in 1978 with another corporation to form Boyne USA., Inc., hereinafter referred to as ‘Big Sky.’

“Big Sky of Montana Realty, Inc. (Realty) A corporation organized in 1976 to manage and liquidate certain real property at Big Sky formerly owned by Big Sky, including the Deer Lodge Condominiums, hereinafter referred to as ‘Realty.’ Realty performed significant repairs to the Deer Lodge Condominiums in 1976.

“Boyne Mountain Lodge, Inc. A corporation that acquired the Big Sky ski resort facilities and 39 units of the Deer Lodge Condominiums in 1976.

“Boyne USA, Inc. (Boyne) A corporation and the current owner of the Big Sky ski resort. Boyne is the product of a 1978 merger of Big Sky and Boyne Mountain Lodge, Inc.

“Thomas & Co. (General Electric Pension Trust) One of seven stockholders of Big Sky and Realty.

“The Montana Power Company One of seven stockholders of Big Sky and Realty.

“The State of Montana The governmental entity responsible for enforcement of building and fire codes at Big Sky, Montana.

“Bruce A. Houston The State’s fire inspector who investigated two fires which occurred in 1981 in the Deer Lodge Condominiums.

“Association of Unit Owners of the Deer Lodge Condominiums (Association) An incorporated Association comprised of the owners of the condominium units. The Association itself is a party plaintiff in this action.

“Lloyd W. Darg and Associates (Darg) Construction engineer, Deer Lodge Condominiums.

“Douglas A. Moe, Architects (Moe) Architect, Deer Lodge Condominiums.”

Big Sky constructed the Deer Lodge Condominiums in 1973-1975. Darg was the construction engineer, and Moe the architect for the project. In 1976, Big Sky’s shareholders negotiated the sale of their stock to Boyne Mountain, Inc. Because Boyne Mountain did not want to acquire stock in a corporation with real estate development assets, Big Sky transferred its real estate development assets to Big Sky Realty, a corporation newly formed on May 6, 1976, in exchange for its stock. The real estate development assets included 44 unsold units of the Deer Lodge Condominiums. Big Sky then distributed its Big Sky Realty stock to the original Big Sky shareholders.

Realty sold 39 of its 44 Deer Lodge Condominium units to Boyne Mountain Lodge Inc. on December 1,1976. Realty sold its remaining five Deer Lodge Condominium units during an auction in 1977. None of the unit owners purchased their units from Realty.

In 1978, Big Sky and Boyne Mountain Lodge, Inc. merged to become Boyne USA, Inc. Boyne is the current owner of Big Sky Resort.

Significant structural and safety deficiencies in the construction of Deer Lodge Condominiums were discovered in early 1976. The Association and unit owners were first notified of the deficiencies on April 1, 1976. Realty employed the engineering firm of MorrisonMaierle of Helena, Montana, to investigate and report concerning the structural and safety deficiencies at the condominiums. Realty notified each unit owner of the Morrison-Maierle findings on September 12, 1976. On September 22, 1976, Realty provided the chairman of the Association with a copy of the Morrison-Maierle report describing the structural deficiencies. The Association, through its board of directors, acknowledged receipt of the notice of the structural deficiencies, and thereafter authorized Realty to perform the work required to correct the deficiencies.

Realty made the repair effort during 1976-77. The repairs at that time cost approximately $1.4 million. There is no record that the fireplaces in the condominiums were repaired or reconstructed diming the 1976-77 reconstruction or repair effort. However, in a letter dated December 24, 1976, the president of Realty advised the unit owners that the condominiums had been satisfactorily repaired, and were sound and safe for occupancy.

Two fires occurred at the Deer Lodge Condominiums located at Big Sky, one on January 20, 1981, and one on February 20, 1981.

The deficiencies in the fireplaces related to lack of fire stops, improper or missing chimney connections, improper or lack of insulation around the chimney flues and throughways; and particularly, a failure to install a tin sheet protective covering over plywood at the base of the hearths. The purpose of the tin sheet was to guard against sparks which might work their way down through the mortar of the hearth to the plywood. Unit owners contend that the fires principally were ignited because of lack of the tin sheet protection.

The repairs instigated by the Morrison-Maierle report were completed and the condominiums reoccupied prior to the fires. The record does not show that the fireplace deficiencies were corrected in those repairs.

This action, seeking damages resulting from the fires and the fireplace deficiencies was filed on January 18, 1983. Certain of the original defendants named in the action were improperly served with process. The facts relating to the improper service and the resultant dismissal of certain of the defendants are chronicled in the first appeal to this Court, Association of Unit Owners et al. v. Big Sky of Montana, Inc. et al. (1986), 224 Mont. 142, 729 P.2d 469.

After the fire litigation started, the unit owners were advised that the buildings contained other structural defects of a serious nature. A second lawsuit involving many of the same parties was filed on November 1, 1984. That case was known to the parties as the “Structure” case. This action was known to them as the “Fire” case.

The Structure case came to this Court in a proceedings for supervisory control in State ex rel. Boyne USA, Inc. v. District Court of Fifth Judicial District (1987), 228 Mont. 314, 742 P.2d 464. In that original proceedings, this Court directed that the Structure case proceed as a class action on the part of the unit owners as plaintiffs.

On February 26, 1987, the District Court entered a stay order prohibiting any further action in the Fire case. The District Court allowed the Structure case to proceed. On May 28, 1985, the unit owners in the Fire case made a motion to consolidate the fire case with the Structure case. The motion to consolidate was denied by the District Court on July 8, 1985.

Thereafter the Structure case was pursued to settlement and was never tried on the merits. Two of the defendants in the Structure case, Darg and Moe, were granted summary judgment in their favor on November 12, 1986, and May 15, 1987, respectively. Motions for summary judgment made by Realty and by Boyne were denied by the District Court.

When the Structure case was finally settled, the District Court allowed the Fire case to proceed again. However, substantial discovery, including depositions, affidavits, and thousands of pages of exhibits had been compiled in the Structure case during the discovery phase. On motion of Realty in the Fire case, the District Court ordered that it would take judicial notice of the pleadings and discovery in the Structure case.

The subject of attorney fees in the Structure case came before this Court in cause No. 89-502 (unreported), Association of Unit Owners, et al. v. Big Sky of Montana, Inc. et al., [242 Mont. 358,] 790 P.2d 96. Opinion dated April 9, 1990. It is not otherwise pertinent here.

There are other facts interrelating the Fire case and the Structure case, to which we will advert in discussing the issues. It should be noted, however, that the State of Montana and Bruce Houston were not defendants in the Structure case. They were named as defendants in the Fire case on the contention of unit owners that Houston, as a fire inspector for the State of Montana, failed to report the numerous defects in the fireplaces found by later experts subsequent to the second fire of February 20, 1981.

The Deer Lodge Condominium buildings were, because of their deficiencies in design and construction, ultimately razed in 1988 as part of the settlement in the Structure case.

On appeal, the unit owners raise three issues:

1. Summary judgment was improperly entered by the District Court in favor of the defendants.

2. The District Court erred by refusing to grant the unit owners’ motion to consolidate the cases.

3. The District Court improperly entered summary judgment for Bruce Houston and the State of Montana.

GENERAL REMARKS

In determining that the District Court properly granted summary judgment in this, the Fire case, the Court is largely influenced by the following factors:

“a. Identity of Parties. All of the plaintiffs in the fire case, except for Mel’s Remodeling, Robert Tousignant, Gerald Tereich and Carolyn Tereich, were plaintiffs in the Structure case.

“b. Apparent complete settlement in the Structure case. In the court-approved settlement of the Structure case, the remaining defendants paid the sum of $3,526,857.32 to be allocated among the various unit owners. In addition, a part of the settlement included the agreement that the condominium buildings would be totally razed. This suggests that the totality of the buildings was defective. It is difficult to conceive that a claim for fire damages in a portion of the building survived a substantial money settlement and a demolition of the total buildings.

“c. Release. In August, 1977, the trustees of the Association entered into a written release with Big Sky of Montana Realty, wherein Realty paid $54,000.00 toward the repairs of the building, and relinquished a claim for $22,259.46 in payments due from the Association. As part of the release, the Association waived ‘any claims they may have’ against Big Sky of Montana, Inc, and its subsidiaries ‘arising out of the construction and sale of the condominium units known as Deer Lodge Condominium, such waiver and release to apply to all claims arising prior to and including the date of this settlement agreement.’

‘We recognize that the covenants of Deer Lodge Condominium gave to the Association the right to enter the contracts or hire personnel for the management of the affairs of the Association and the maintenance and repair of the common areas of the buildings, and thus did not preclude individual claims by the unit owners. Nonetheless, the settlement in the Structure case was one which included the entire demolition of the condominium buildings and when approved by the District Court on July 25, 1988, the order provided that:

“ ‘Following compliance with the terms and conditions of this settlement order, this cause shall be by a separate order dismissed with prejudice, each party to pay their or its own costs.’ (Emphasis added.)

“d. Dismissals of Darg and Moe. In the course of the litigation in the Structure case, motions were made by the defendants Darg and Moe for summary judgment. Separately the District Court considered those motions and in each case granted the same.”

In the Moe case, in finding of fact no. 4, the District Court found:

“4. During the period of April 1,1976 through September 28,1976, the owners of the condominiums and the Plaintiffs were repeatedly notified of and became aware of the deficiencies and defects in the condominiums. Such notices and knowledge were sufficient to put them on notice that they had been damaged and injured.”

When the District Court considered the Darg motion for summary judgment, it made the following findings:

“3. The Plaintiff-Owners of the condominiums became aware in 1976, of what was termed ‘significant structural defects.’ The Plaintiffs’ complaint alleges that they were advised and informed of the defects on or about April 1, 1976. Each of the individual Condominium owners were advised by letter dated September 12, 1976, from Big Sky Realty that the engineers, Morrison-Maierle, Inc., had discovered a ‘structural deficiency’ in the units and that the owners were cautioned with respect to occupancy until the problem was solved. Again, on September 22, 1976, Big Sky Realty by letter to Plaintiff Association notified the owners of the deficiency.

“4. The Court finds that from April 1,1976, through September 22, 1976, the owners were repeatedly notified of the structural defects and the notices were sufficient to put them on notice that they had been injured.

“On January 30, 1987, the District Court entered final judgment for Lloyd W. Darg and Associates, provided therein that the judgment was final, and certified it for appeal pursuant to Rule 54(b), M.R.Civ.P. In like manner, on May 15, 1987, the District Court entered final judgment in favor of Moe, and directed also that there be a final judgment and certified it for appeal pursuant to Rule 54(b).

“Both the Moe and the Darg cases were appealed, but eventually they were dismissed. The judgments in those cases have therefore become final.

“A principal argument of the unit owners in this Fire case, to avoid the statute of limitations, is that they never learned of the defects of the fireplaces until after the fires occurred in 1981. It is clear, however, that in the Structure case, the District Court determined that the defendants have been fully notified of the defective conditions of the construction of the condominiums, and that the notice of defects included all of the structural defects in the condominiums.

“e. Subrogation Claims

“In granting summary judgment in this case, the District Court noted that on oral argument on the motions, counsel for plaintiffs indicated that these claims were actually subrogated claims brought by the insurers involved. However, there is no amendment to the pleadings nor any other indication of the pleadings that persons other than the unit owners were the real parties in interest. That the claims the plaintiffs made may in fact be subrogation claims makes no difference, however. A subrogee stands in the shoes of the subrogor and is subject to the same defenses as though the action were sued upon by the insured. Beedie v. Shelley (1980), 187 Mont. 556, 610 P.2d 713, 716.

“f. Beginning Date of Statute of Limitations

“The unit owners contend that the beginning date of any applicable statute of limitations in this case occurred after the fires in the units in 1981. They contend that after the repair effort in 1976, they were never advised that the fireplaces had not been repaired or that they were still defective. On this contention, the unit owners based their various theories of liability, including express warranty, implied warranty, strict liability, negligence, fraud and deceptive practices.

“In entering its order granting summary judgment to the defendants in this, the Fire case, the District Court recited facts established in the Fire case and the Structure case which the District court denominated ‘findings of fact.’ Usually there are no findings of fact in an order granting summary judgment. In this case, however, the portion of the order denominated ‘findings of fact’is really a statement of the undisputed facts as they then appeared before the District Court and from which the court concluded there was no issue of material fact, and upon which the court based its order of summary judgment.

“Important to the findings were the statements relating to the fireplace deficiencies. The court stated that the 1976 repairs included work on the fireplaces; the same unit owners who were plaintiffs in the Fire case were also plaintiffs in the Structure case; and that in the Structure case, it had been alleged that the plaintiffs had been damaged by defective original fireplace installations in 1973-1975, and by defective fireplace repairs in 1976. The court determined that each of the legal theories alleged in the Fire case considering the defective fireplaces was also alleged as a theory of recovery against the defendants in the Structure case. On that basis, the court had determined in the Moe and Darg cases that during the period from April 1, 1976 through September 28, 1976, the owners of the condominiums and the plaintiffs were repeatedly notified of and became aware of the deficiencies in the condominiums and that such notices and acknowledgments were sufficient to put them on notice that they had been damaged and injured.

“Therefore, in view of the findings derived from the Structure case, and the fact that the summary judgment in both cases had become final judgments, there could be no dispute as a material fact of the beginning date of notice to the unit owners of the defects of the fireplace deficiencies.”

DEFENDANTS BRUCE HOUSTON AND THE STATE OF MONTANA

The unit owners claim that the District Court improperly granted summary judgment in favor of Bruce Houston and the State of Montana.

Houston and the State of Montana were not parties in the Structure case. The unit owners contend that Houston, as an employee of the State of Montana, committed acts of negligence in 1981 and following, in that he did not inform or warn the unit owners that he had discovered the deficiencies in the fireplaces that had led to the two earlier fires in 1981. The State of Montana is added as a defendant in this case because it was the employer of Houston, who was an assistant state fire inspector.

The unit owners point out that after the repairs were made in 1976, they were informed by an official of Realty that the units were “safe and sound” and that Houston’s negligence in failing to find the defects which existed constitutes a separate cause of action against Houston and the State of Montana based on different facts from the action pending against the other defendants.

In granting summary judgment, the District Court took judicial notice of the Structure case and the summary judgments granted to Darg and Moe. The District Court determined in effect that collateral estoppel arose from the judgments in both cases in that in 1976, the plaintiffs knew or should have known that the Deer Lodge Condominium in general and the fireplaces therein in particular were defective, and that such notice was sufficient to put the emit owners on notice of their injury and damage. The court further determined that the only possible claims that the unit owners might have against Houston and the State of Montana were founded upon negligence in the alleged failure to discover and warn the plaintiffs of the fireplace defects.

The unit owners contend that the summary judgment against them was improper on the basis that collateral estoppel does not apply, because there was no identity of the parties and identity of issues in the two cases. They also contend that collateral estoppel does not apply because the summary judgments were not final judgments in the Structure case.

The unit owners rely on a sentence in State ex rel. First Bank System v. District Court (1989), [240] Mont. [77,] 782 P.2d 1260, 1262, 46 St.Rep. 1956, in which this Court said: “... We do emphasize that summary judgment is not a decision on the merits.” That sentence, however, is taken out of context. The very next sentence in the case goes on to say that a denial of summary judgment is simply a decision that there are factual issues. We are not dealing in this case with a denial of summary judgment, but rather a grant of summary judgments to Darg and to Moe. There can be no doubt that a grant of summary judgment is a decision on the merits of the' case. Granger v. Time, Inc. (1977), 174 Mont. 43, 568 P.2d 535, 538.

In Marriage of Stout (1985), 216 Mont. 342, 701 P.2d 729, we determined that collateral estoppel had three elements: (1) identical issues decided in the prior adjudication; (2) a final judgment on the merits; and, (3) the party against whom collateral estoppel is asserted was a party or privy to a party in the prior adjudication.

Identical issues were litigated, and final judgments on the merits were entered in these cases.

The District Court found in the Structure case that the unit owners knew or should have known of the various defects in the condominiums in 1976 and prior thereto. On the whole record before us, we determine too, because of the final judgments, that as a matter of law the unit owners knew or should have known of the defects, including the defective fireplaces. The cause of action asserted by the unit owners against the State and Houston is based upon negligence in failing to discover or to warn of the deficiencies in the fireplaces. Houston, and his employer, the State, may not be held liable on the basis of a failure to warn when at the same time the unit owners knew or should have known of those same defects.

Since the beginning date of the running of the statute of limitations against the unit owners was in 1976 or earlier, the period of limitations for actions based on negligence was three years, § 27- 2-204, MCA. Thus, in 1981, any claim of the unit owners based on negligence for the defective fireplaces was already dead from the passage of time. Anew cause of action based on the same facts which barred the former action does not, like the phoenix, rise from the burned ashes of the old cause of action youthfully alive to live another period.

The unit owners also lose on their argument that there is no identity of parties in the Structure case and the Fire case which, if true, would preclude collateral estoppel. The unit owners, suing as a class in the Structure case, and the unit owners here in the Fire case were parties in both actions, and are the parties against whom collateral estoppel is asserted. This establishes one leg of the tripod test for collateral estoppel adopted by us in Aetna Life and Casualty Insurance Company v. Johnson (1984), 207 Mont. 409, 673 P.2d 1277 and in Marriage of Stout (1985), 216 Mont. 342, 701 P.2d 729. The other legs, adjudication of identical issues, and a final judgment on the merits, are also proved.

We therefore affirm the summary judgments in favor of Bruce Houston and the State of Montana.

BIG SKY OF MONTANA, INC.; BIG SKY OF MONTANA REALTY, INC.

On January 17, 1989, the District Court entered its findings of facts, conclusions and order granting summary judgment to Realty. As noted in the foregoing, Realty was a successor in interest of Big Sky of Montana, Inc.

In its order, the court discussed the several theories of claims brought by the unit owners. We will examine each claim or point of decision by the District Court to determine if we find therein an issue of material fact which would preclude summary judgment. Rule 56, M.R.Civ.P.

1. Collateral Estoppel

Essentially, the District Court concluded that the unit owners were collaterally estopped from disputing, and were bound by the facts and conclusions determined by the Moe and Darg final judgments in the Structure case. As we have discussed earlier, the District Court drew from those judgments the conclusion that in 1976 the unit owners knew or should have known the fireplaces within the Deer Lodge Condominiums were defective and that such knowledge was sufficient to put plaintiffs on notice of their property damage.

In the discussion foregoing relating to the claim against the State of Montana, we set out the legal essentials to establish collateral estoppel. Those legal essentials are met here. There can be no doubt in this case that the claims for fireplace damages were included in the Structure case, and settled in the same. In paragraph V of the amended complaint in the Structure case, we find the following:

“That said engineer and architect also discovered on or about August 1, 1984, that the fireplaces and the flues of said fireplaces in the Deer Lodge Condominium buildings were not installed in accordance with the Uniform Fire Code and did not have the required clearance from combustible material to make them safe for operation and that in some cases combustible insulation had been installed next to the fireplaces. That the foregoing enumeration of defects is representative of the defects but not inclusive of all the defects presently known or which may be hereafter discovered.”

Except for the date of discovery, which affects the application of the statute of limitations, and not collateral estoppel, the elements of the rmit owners’ claims relating to the fireplaces rising in the Fire case are fully included in the pleadings of the Structure case. There can be no dispute about the identity of issues.

As we said earlier, the other two legs of the collateral estoppel tripod, a final judgment and identity of parties, are also present.

The late-revealed possibility that the Fire case is in reality a subrogation case brought by the insurers does not affect the applicability of collateral estoppel against their insureds as unit owners.

2. Breach of Express or Implied Warranties

The District Court determined that Realty was entitled to summary judgment in its favor because there were no facts showing the existence of any written contract or express warranty between the unit owners and Realty, and if the written protective covenants established an express or implied warranty the claim was nevertheless barred by any applicable statutes of limitation, §§ 27-2-207(1), -202(3), -204(1) and 27-2-207(2), MCA. In like manner, the District Court determined that any implied warranty was likewise barred by arguably applicable statutes of limitation, §§ 27-2-207(1), and 27-2-204(1), MCA.

None of the unit owners purchased a condominium unit from Realty. Nonetheless, the unit owners present an interesting theory of express warranty. They point out that no specific language is required to constitute an express warranty, citing Scovil v. Chilcoat (Okla. 1967), 424 P.2d 87, 91. They contend that Big Sky of Montana, Inc. warranted that the Deer Lodge Condominiums would be built in accordance with the National Fire Code; and that Realty later warranted in 1977 that the units would be repaired in accordance with the National Fire Code. They then contend that Realty “had advised the owners that the units had been brought up to code.”

The unit owners base their claim against Big Sky of Montana, Inc. for express warranty upon the deposition of Bill Martel, the repair contractor in 1977. He testified that in his contract for repair, the reconstruction was to be done according to applicable codes. The unit owners also base claims against Realty upon the repair contract entered into by Realty with Martel Construction Company, and Morrison-Maierle, Inc., party of the third part. In that contract, the scope of the work was to correct defects, to meet reasonable structural standards, and to meet all applicable building codes.

The unit owners also rely on the protective covenants recorded by Big Sky of Montana, Inc. related to the Deer Lodge Condominiums which require that all construction on the premises comply with the provisions of the Uniform Building Code, the National Plumbing Code, and the National Electrical Code. They also rely on the preliminary declaration for Deer Lodge Condominiums, recorded in Madison County, which included the paragraph that the condominiums were subject to the protective covenants already recorded. The unit owners further maintain that the provisions of the condominium documents run with the land because state law requires that they be recorded in order to establish the condominium. Section 70-23-305(1), MCA.

The unit owners base their claim of implied warranty of habitability upon Chandler v. Madison (1982), 197 Mont. 234, 642 P.2d 1028; and also upon Degnan v. Executive Homes, Inc. (1985), 215 Mont. 162, 696 P.2d 431, which holds that an implied warranty of habitability is a legal duty placed on the builder/vendor of a house, that a breach of such legal duty is a tort, and that torts do not require privity of contract.

The unit owners further point to our decisions which have held that subdivision plats, which reserve roadways or which show a park or like open area, create an implied common law covenant between developers and subsequent purchasers that the seller will open and construct roadways or that the areas will be used in the manner designated. Majers v. the Shining Mountains (1986), 219 Mont. 366, 711 P.2d 1375; Benson v. Pyfer (Mont. 1989), [240 Mont. 175,] 783 P.2d 923, [46 St.Rep. 2033].

Realty answers these contentions by arguing that the unit owners purchased their units from Big Sky of Montana, Inc., and not from Realty and that there are no contract declarations or other documents between Realty and the unit owners upon which a warranty may he based. Realty further answers that if a breach of implied warranty of habitability could be found in the contract for repair in 1977, a breach of that implied warranty would be a tort (Degnan, supra) barred by the statute of limitations. Sections 27-2-204 and 27-2-207, MCA.

We will discuss the applicability of the statutes of limitations under the next caption, since the statutes are applicable to other issues raised by the unit owners. It is enough to say here that we find no express or implied warranties in the documents described which expose Realty to liability to the rmit owners. On this issue we uphold the District Court.

3. Statutes of Limitation

In its grant of summary judgment, the District Court determined that many of the claims of the unit owners were barred because various statutes of limitation had run on the theories of express warranty, implied warranty, strict liability, negligence, fraud, and deceptive practices.

In disputing the applicability of the statutes of limitation, the unit owners contend that they were never made aware of the deficiencies in the fireplaces prior to 1976, and were never advised after the repair effort of 1976 that the fireplaces were still defective. They contend the actual condition of the fireplaces was not discovered until the fires of 1981. They therefore maintain that the statutes of limitation on all theories did not start to run until the time of discovery. Since the Fire case was filed in January 18,1983, the unit owners contend they meet all applicable statutes of limitation based on the time of discovery.

Subject to certain exceptions not pertinent here, the Montana statutes of limitation provide that an action for the relief of fraud or mistake must be commenced within two years (§ 27-2-203, MCA); for a general tort, three years (§ 27-2-204, MCA); for an injury to real or personal property, two years (§ 27-2-207, MCA); and for damages arising out of construction of an approved real property, ten years (§ 27-2-208, MCA), which latter statute will require explanation.

The argument about late discovery is unavailable to the unit owners in this case. They are foreclosed from such argument by the final judgments entered in the Darg and Moe cases which determined knowledge of the defects on the part of the unit owners in 1976. Obviously, the unit owners may not rely on any cause of action for which the statute of limitations is two or three years.

The unit owners, however, point to § 27-2-208, MCA, contending that it provides a limitation period of ten years. That contentionneeds examination. The statute provides:

“27-2-208. Actions for damages arising out of work on improvements to real property. (1) Except as provided in subsections (2) and (3), no action to recover damages (other than an action upon any contract, obligation, or liability founded upon an instrument in writing) resulting from or arising out of the design, planning, supervision, inspection, construction, or observation of construction of or land surveying done in connection with any improvement to real property shall be commenced more than 10 years after completion of such improvement.
“(5) Nothing in this section shall be construed as extending the period prescribed by the laws of this state for the bringing of any action.”

Taken by its four comers, § 27-2-208, MCA, is not in itself a statute of limitation. Under subsection (5) of the statute, the ten-year period does not extend any other period prescribed by the laws of this state for bringing any action. What § 27-2-208, MCA, provides is that any other applicable statutes of limitation still remains applicable but in no event shall any cause be commenced more than ten years after the completion of the improvement. Section 27-2-208, MCA, is not in essence a statute of limitations, but rather a statute of repose which prevents any cause of action relating to an improvement to real property from arising after a ten year period. Thus, if late discovery of the facts were applicable in this case to extend the time for commencement of the action, or, if the circumstances which extend the periods of limitations set out in §§ 27-2-401, and -409, MCA, were involved, the specific applicable limitations periods would be extended, but in no event longer than ten years after the completion of the improvement. We determine that § 27-2-208, MCA, does not apply in this case to extend the applicable statutes of limitation.

We therefore hold that the District Court correctly interpreted the statutes of limitation in granting summary judgment in this case.

4. Other Theories of Recovery

The unit owners claimed that Realty was liable on the ground of negligence. The District Court held that the negligence claim was barred by the applicable statutes of limitation, §§ 27-2-207(1) and 27-2-204(1), MCA. From what we have said foregoing, we uphold the District Court.

With respect to the unit owners claim based on a count of fraud, the District Court held that the records showed no facts substantiating the knowledge of Realty of the defectively installed fireplaces in 1975, that the plaintiffs were collaterally estopped to deny that the unit owners knew or should have known of the defectively installed fireplaces in 1976 and again that their claims were barred by the applicable statutes of limitation, §§ 27-2-203 and 27-2-207(1), MCA.

The argument of the unit owners with regard to whether Realty had knowledge of the defectively installed fireplaces states that while it is true that Realty did not come into existence until 1976, its stockholders were the same as the stockholders of Big Sky of Montana, and many of those employees carried over to Realty. Although Big Sky of Montana knew of the defects in the buildings, based on a letter from an insurance inspector, Realty undertook the 1976 repairs. The unit owners contend that Realty knew or should have discovered the defects when it became responsible for the repairs of 1976. That argument may be accepted and still the other grounds relied upon by the District Court — collateral estoppel and limitations — would serve to bar the claims for fraud. Again we hold that the District Court was correct.

The unit owners also based a claim against Realty on the grounds of deceptive practices. Here, the District Court determined that the evidence did not substantiate that the plaintiffs purchased their homes “primarily for personal, family or household purposes” and that in any event, the claim is barred by limitations, § 27-2-211, MCA.

The Montana Consumer Protection Act provides in § 30-14-133, MCA, that a person who purchases goods or services primarily for personal, family or household purposes and suffers a loss of money or property may bring an action (but not a class action) to recover actual damages, which may be trebled. The Act also provides for the recovery of reasonable attorney fees.

The Act does not define the term “goods” and no issue is presented in this case as to whether the term “goods” includes a condominium unit. We are, therefore, not presented with that issue.

The unit owners contend that the finding of the District Court that the facts did not establish the use of the condominiums was for “personal, family or household purposes” is contra to the declarations filed for Deer Lodge Condominiums which stated that they should be for residential purposes only. Moreover, the unit owners contend that in any event, whether the use of the residences comes within the Act creates a material issue of fact.

Realty answers that the unit owners use their units for personal use only a few days of the year and allow the remainder of the year to be rented out to other persons and that the units were more investment than they were purchases of homes.

Whatever the merits of these arguments, the limitations of actions still apply and the claim in any event is barred. Again we uphold the District Court.

5. Release

The District Court also concluded that the claims against Realty were barred by a fully-performed release executed by the Association on behalf of the plaintiffs.

The unit owners contend that the release was not signed by the entire board of directors, that it was not binding, that it released only claims arising prior to the date of the document, was related only to the repairs performed on the roof of the condominiums and did not include undisclosed defects in the buildings and fireplaces.

Respondents answer by pointing to the provisions of the release:

“... Certain alleged deficiencies in the construction of the Deer Lodge condominium units including discrepancies between improvements constructed and the original and amended construction plans, uncompleted punch list, defective materials and construction, and the like;
“... Any claims they may have against BMSR [Realty], its employees, directors, shareholders, affiliates or subsidiaries, and against Big Sky of Montana, Inc., its employees, shareholders, directors, affiliates or subsidiaries, arising out of the construction and sale of the condominium units known as the Deer Lodge Condominiums, such waiver and release to apply to all claims arising prior to and including the date of this Settlement Agreement.”

In addition to the unit owners having released and waived any and all claims relating to the condominimns, Realty argues that the consideration of $76,259.46 in total cannot be disregarded.

The release in its terms is, of course, broad enough to include all of the defects in the condominiums at the time the release was signed. The unit owners avoid the all-inclusive language by contending that the release was obtained by fraud, in that Big Sky and Realty failed to disclose to the unit owners the defective nature of the buildings and the fireplaces, and further that the release itself was -unconscionable.

If the release had been obtained by fraud, the release would be unenforceable under § 28-3-304, MCA. As we have discussed foregoing, however, any claim of fraud is unavailable to the unit owners for two reasons: there are no facts in the record substantiating a claim of fraud, and in any event, the statute of limitations would apply.

As for the argued unconscionability, the circumstances here prevent us from considering that claim. It would be the height of judicial frivolity to state on the one hand that the claims of the unit owners in the Fire case were collaterally estopped by the settlement of the Structure case, and then to reopen the Fire case on the basis that a release executed four years before the fires was unconscionable. The settlement of the unit owners claims in the Structure case included the complete razing of the condominium buildings. Surely the Fire claim did not survive the razing, release or no release.

6. Indemnity

In granting summary judgment for Realty, the District court concluded that the 1976 agreement to indemnify Boyne against liability against claims arising out of Big Sky’s business affairs prior to the 1976 stock sale was not a contract for the benefit of the unit owners, nor did it create any rights for the unit owners justifying their claims against Realty.

The unit owners contend in this case that they are entitled to indemnity from Realty on three theories: as third party beneficiaries, on grounds of quasi-contract, and that privity of contract is not necessary to establish indemnity.

There are indications in the record that when Big Sky of Montana was sold to Boyne and Realty was formed at the same time, that Realty agreed that it would be responsible for and indemnify- both Big Sky and Boyne with respect to any pre-existing obligations. The actual agreement of indemnity is not in the record.

The record does show that Boyne contributed $400,000 to the settlement of the Structure case. Based on that, the unit owners make the following argument:

“Since the District Court chose to take judicial notice in the Structure case, part of the record in this case is the settlement payment made by the Defendants in the Structure case to the Plaintiffs therein. That settlement was for the approximate sum of 3.5 million dollars. Clearly, if that case was settled by payment of any funds by B.S.M., [Realty], Boyne, or any of the stockholders of those companies, then it raises a factual issue with respect to the application of indemnity agreements in these cases. Since a payment was made in the Structure case large enough to settle the same, there is a genuine issue of material fact as to the obligation which certain of the Respondents therein may have to the [unit owners] with respect to indemnification.”

Taking the unit owners’ claim for indemnification at face value, in the apparent agreement Realty is the indemnitor, and Big Sky of Montana and Boyne are the indemnitees. Boyne contributed to the settlement in the Structure case; Realty did not. We have no record here that an indemnitor made any payment on behalf of an indemnitee. There is no record of a payment by an indemnitor which would trigger any obligation to third parties.

It is unnecessary to discuss the three theories of indemnity posed by the unit owners. The District Court was correct in finding no basis for indemnity when it awarded summary judgment in favor of Realty.

SUMMARY JUDGMENTS IN FAVOR OF GENERAL ELECTRIC AND MONTANA POWER COMPANY

On March 1, 1989, the District Court adopted the undisputed findings and conclusions of law made in the Realty case on January 17, 1989, and, on the conclusion that their corporate veils could not be pierced in this case, rendered summary judgment in favor of General Electric Pension Trust, and the Montana Power Company. It also rendered summary judgment in favor of Boyne, U.S.A. which we will discuss separately.

The unit owners pose a derivative theory to upset the summary judgments in favor of G.E. and MPC. They claim that the Chrysler Realty Corporation, as a stockholder of Big Sky of Montana and Realty, used the corporations as an alter ego, and thereby, the corporate veil is pierced as to all other stockholders. The unit owners rely on Drilcon, Inc. v. Roil Energy Corporation, Inc. (1988), 230 Mont. 166, 749 P.2d 1058 and Hando v. PPG Industries, Inc. (1989), 236 Mont. 493, 771 P.2d 956.

Under Drilcon, supra, the corporate veil can be pierced if a stockholder of the corporation uses the corporation as an alter ego, or as a subterfuge to defeat public convenience, to justify wrong, or to perpetrate fraud. 749 P.2d at 1063. The unit owners utilize Hando, supra, to argue that a subsidiary is the alter ego of the parent corporation if the corporate affairs of both are so intertwined that in effect each corporation has no separate identity. 771 P.2d at 960.

We have nothing in this record to indicate anything but that G.E. and MPC were passive stockholders of Big Sky of Montana and of Realty. The affidavits before the District Court, which the District Court considered in granting summary judgment, were uncontradicted that these corporate stockholders had no more than a passive interest in the corporations, and took no action as stockholders which would indicate their use of the corporations either as an alter ego or for purposes of subterfuge. There simply can be no argument that each of the corporations is entitled to summary judgment and that as to them the corporate veil has not been pierced.

SUMMARY JUDGMENT IN FAVOR OF BOYNE U.S.A., INC.

The District Court’s order of March 1,1989 also granted summary judgment in favor of Boyne U.S.A., Inc.

In their appellate brief, the unit owners argue since Boyne absorbed Big Sky of Montana, Boyne became liable for its obligations which arose thereafter, under § 35-l-806(2)(e), MCA.

The District Court noted that Boyne took no part in the repairs or reconstruction of the condominiums in 1976 and 1977, nor made any representations regarding such repairs. It further awarded summary judgment in favor of Boyne on the grounds of the applicable statutes of limitation, the release, collateral estoppel, laches, and a splitting of causes of action.

Most of the grounds utilized by the District Court granting summary judgment have been discussed by us fully in the foregoing material. Without belaboring this Opinion further, we hold that the summary judgment in favor of Boyne was proper.

DENIAL OF CONSOLIDATION

On May 28, 1985, the unit owners in the Fire case made a motion to consolidate with the Structure case. The District Court denied the motion on July 8,1985. On February 26,1987, the District Court stayed any further proceedings in the Fire case. The stay was effective until June 6, 1988. Thereafter the District Court ruled that the unit owners were barred from any further action in the Fire case because of collateral estoppel arising out of the Structure case.

The unit owners contend that the motion for consolidation should have been granted because if it had, the situation of collateral estoppel would not have arisen and the unit owners would have had their day in court with respect to the Fire case.

Since 1929, it has been a rule in Montana that the subject of consolidation of cases is within the discretion of the district cotut, which will not be interfered with unless clearly abused. St. George v. Boucher (1929), 84 Mont. 158, 162, 274 P. 489.

Although there appeared to be common issues of law and fact in the two cases (Keller v. Llewellyn (1977), 175 Mont. 164, 573 P.2d 166), there are other factors which influenced the District Cotut not to consolidate.

The Fire case was initiated by the unit owners in 1983, through their counsel Michael C. Coil. In 1984, the unit owners, in a class action with other Deer Lodge Condominium owners, began the Structure case, again represented by Mr. Coil. In January, 1986, the plaintiffs in the Structure case discharged Mr. Coil. He was replaced by Page Wellcome as counsel for the unit owners in the Structure case.

The District Court was then presented with a situation where the unit owners may have been the same but there were different defendants involved. The reason there were different defendants was that in the Fire case, the shareholder defendants, Chrysler Realty Company, Burlington Northern, Continental Oil Company, Montana Power Company, Northwest Airlines Incorporated, and General Electric Pension Trust had been dismissed from the case for various reasons. Yet some or all of these were defendants in the Structure case. The Structure case would require piercing-the-corporate-veil issues, but these would not appear in the Fire case. After Mr. Well-come came into the case, the plaintiffs in two different cases were presenting different issues of discovery. These factors apparently moved the District Court to deny the motion to consolidate, and to stay proceedings of the Fire case.

Under the circumstances, we find no abuse of discretion in the denial by the District Court of the motion to consolidate the two cases.

PLAINTIFFS WHO WERE NOT IN STRUCTURE CASE

Four of the plaintiffs in the Fire case were not plaintiffs in the Structure case. They were Mel’s Remodeling, Robert Tousignant, Gerald Tereich and Carolyn Tereich. Their claims may have been subrogated to their insurers.

These four plaintiffs were not parties in this Structure case so the rule of collateral estoppel is not available as to them. Nonetheless, it is clear that their claims are barred by the statute of limitations based on any alleged negligence of the defendants (Montana Power Company and General Electric Pension Trust, of course, are not liable to these plaintiffs on any ground). In reaching this decision, we take judicial notice of the facts established in the Structure case which show that the unit owners knew, or should have known, of the fireplace defects, and were repeatedly notified of the structural defects from April 1, 1976 to September 28, 1976. We determine as a matter of law in this case that there is no genuine issue of material fact as to these plaintiffs and their knowledge before September 28, 1976, was sufficient to put them on notice.

“The law does not contemplate such discovery as would give complete knowledge before the cause of action accrues. Mobley v. Hall (1983), 202 Mont. 227, 657 P.2d 604. Rather, the discovery doctrine only tolls the running of the statutory clock until such time as the plaintiff, in the exercise of reasonable care and diligence, should have been aware of the wrongful act and injury.”

E.W. v. D.C.H. (1988), 231 Mont. 481, 754 P.2d 817, 820.

The claims of these plaintiffs based on negligence are time-barred, and no other ground of liability appears under any theory. We uphold the summary judgment against these plaintiffs.

CONCLUSION

For the reasons foregoing, we hold that the summary judgments granted by the District Court in this cause as to each and all defendants be, and are hereby AFFIRMED.

CHIEF JUSTICE TURNAGE and JUSTICES HARRISON, BARZ, WEBER, HUNT and McDONOUGH concur.