author: JUSTICE HUNT JUSTICE GRAY,

text:
    CITY OF BILLINGS, Plaintiff and Respondent, v. COUNTY WATER DISTRICT OF BILLINGS HEIGHTS, Defendant and Appellant.
    No. 96-462.
    Submitted on Briefs December 5, 1996.
    Decided February 28, 1997.
    54 St.Rep. 144.
    281 Mont. 219.
    935 P.2d 246.

      For Appellant: Bruce A. Fredrickson, Antoinette M. Tease, Crowley, Haughey, Hanson, Toole & Dietrich, Billings.
    For Respondent: James L. Tillotson, Billings City Attorney Billings.
   JUSTICE HUNT

delivered the Opinion of the Court.

Appellant County Water District of Billings Heights (the District) appeals from the order issued by the Thirteenth Judicial District Court, Yellowstone County, denying its application for a preliminary injunction.

We reverse.

The question before us is whether the District Court manifestly abused its discretion in denying the District’s application for a preliminary injunction that would enjoin the City of Billings (the City) from enforcing against the District water rate increases approved by the Billings City Council.

BACKGROUND

In 1963, the City and the District entered into a contract whereby the District agreed to purchase water from the City. The District in turn intended to sell the water to its own customers. The contract states, in relevant part:

(3) Water Rate:
In addition to building the aforesaid 16-inch main from Sixth Avenue North and North Twelfth Street to the pumping facilities, the District agrees to pay for the water obtained from the City each month at the “OP” rate as follows:
Water Rate per 100 Cubic Feet:
First 1M $.37
Next 1M .23
Next 48M .16
Next 50M .12
Next 900M .08
Over 1,000,000 .07
Payment of the charges for water used by the District shall be subject to the same discount and other rules applying to the accounts of other users of City water.
The City agrees that it shall not apply to any court, commission or other authority for any increase in the District’s aforesaid “OP” rate unless it applies simultaneously for the same percentage of increase in the rates which apply to all other users of the City’s water.

At the time the parties entered into the contract, the Montana Public Service Commission (PSC) controlled the setting of municipal utility rates. In City of Billings v. Public Service Commission (1981), 193 Mont. 358, 631 P.2d 1295, this Court held that the PSC could set water rates that were inconsistent with the water rate provisions of the 1963 contract between the City and the District, but that its authority to do so could only be exercised “if the contract poses an immediate threat to the utility’s ability to serve or if the contract adversely affects the utility’s rate structure.” City of Billings, 631 P.2d at 1304.

However, in 1981, the Montana Legislature enacted the first of a number of statutes which effectively abrogated the PSC’s power to oversee water rates. Section 69-7-101, MCA (1981), gave to municipalities the “power and authority to regulate, establish, and change, as it considers proper, rates, charges, and classifications imposed for utility services to its inhabitants and other persons served by municipal utility systems.” The rates charged by the municipality had to be “reasonable and just,” and could not be raised to yield more than a 12% increase in total annual revenues unless the increase was approved by the PSC. Sections 69-7-101 and -102, MCA (1981). Section 69-7-201, MCA, also enacted in 1981, authorized municipal utilities to create, with some limitations, their own operating rules. By 1995, with the amendment of § 69-7-101, MCA and the repeal of § 69-7-102, MCA, effectively allowing municipalities to set their own utility rates without PSC review, the control PSC once had over utility rates had diminished dramatically; the control and oversight of municipal utility rates was now largely in the hands of the municipalities themselves.

In 1993, the City increased its water rates. While the average city water customer experienced a 9.2% increase in her monthly water bill as a result of the rate increase, the District experienced a 32% increase in its monthly water bill. The District, in accordance with its belief that the 1963 contract prohibited the City from raising the District’s water rate payment obligations by a percentage greater than the percentage increase imposed on its other customers, increased its monthly payment to the City by 9.2%.

In August 1994, the City initiated this action to recover from the District the difference between the water rate it enacted in 1993 and the rate the District has been paying since that time. The District answered, alleging that the rate increase was, in a number of respects, unconstitutional.

On May 13,1996, the Billings City Council enacted another water rate increase. This increase, effective July 1, 1996, raised the District’s water bill by 123% over the 1993 rates. No other City water customer experienced as dramatic a percentage increase as did the District.

On May 14,1996, the District filed an application for a preliminary injunction to prevent the City from enforcing the 1996 rate increase against the District until the court had an opportunity to rule on the constitutional issues raised by the District in its answer to the City’s 1994 complaint. After a hearing, the court issued an order on Jeme 28,1996, denying the District’s application. The District appeals from this order.

STANDARD OF REVIEW

A ruling on a motion for preliminary injunction is subject to the discretion of the district court. Van Loan v. Van Loan (1995), 271 Mont. 176, 178-79, 895 P.2d 614, 615. We will review a district court’s decision regarding a preliminary injunction motion to determine if the court has manifestly abused its discretion. Van Loan, 895 P.2d at 615 (citation omitted). If, however, the district court arrives at a conclusion of law, “no discretion is involved, and therefore, we review the district court’s conclusions of law to determine whether the district court’s interpretation of the law is correct.” Knudson v. McDunn (1995), 271 Mont. 61, 64, 894 P.2d 295, 297 (citation omitted).

DISCUSSION

Did the District Court manifestly abuse its discretion in denying the District’s application for a preliminary injunction that would enjoin the City from enforcing against the District water rate increases approved by the Billings City Council?

The purpose of a preliminary injunction is to prevent “further injury or irreparable harm by preserving the status quo of the subject in controversy pending an adjudication on the merits.” Knudson, 894 P.2d at 297-98. The District applied for a preliminary injunction pursuant to § 27-19-201(3), MCA, which states that a preliminary injunction may be granted

(3) when it appears during the litigation that the adverse party is doing or threatens or is about to do or is procuring or suffering to be done some act in violation of the applicant’s rights, respecting the subject of the action, and tending to render the judgment ineffectual; .... (Emphasis added.)

The District contends that the application here of the statutory scheme which replaced PSC control over utility rates with municipal control (§ 69-7-101, MCA (1981) (amended 1995); § 69-7-102, MCA (1981)(repealed 1995); and, § 69-7-201, MCA (1981) (collectively referred to herein as “the statutes”)) impairs its contractual relationship with the City in violation of the Montana and United States Constitutions. The District further contends that because of the nature of a constitutional right violation, a legal judgment of monetary damages would not effectively remedy its injuries.

In Knudson we explained that a preliminary injunction may issue if the applicant can establish a prima facie case. Knudson, 894 P.2d at 298. The District contends that it has established a prima facie case of a violation of its constitutional contract clause rights, and that the court therefore erred in failing to grant the preliminary injunction.

However, the City argues that because statutes are presumed to be constitutional, City of Billings v. Laedeke (1991), 247 Mont. 151, 154, 805 P.2d 1348, 1349, and because the District is raising a constitutional challenge, to be successful here the District must prove “beyond a reasonable doubt” that the statutes are unconstitutional as applied, Fallon County v. State (1988), 231 Mont. 443, 445, 753 P.2d 338, 339. We cannot agree with the City that the District must “prove beyond a reasonable doubt” that the statutes are unconstitutional as applied; rather, the District must make out a prima facie case of unconstitutionality.

While the City’s contention that a statute’s presumption of constitutionality must be overcome by proof beyond a reasonable doubt is correct, that rule is nevertheless inapplicable here. In Laedeke and Fallon County, cited by the City, the rule was applied in the context of trials on the merits of constitutional challenges to a municipal ordinance and a legislative tax apportionment, respectively. See Laedeke, 805 P.2d at 1349-50; Fallon County, 753 P.2d at 339-40. Here, however, in the context of an application for a preliminary injunction, requiring the District to prove the statutes unconstitutional beyond a reasonable doubt would be directly at odds with this Court’s holdings that a successful applicant for a preliminary injunction need only establish a prima facie case, Knudson, 894 P.2d at 298, and that “[an] applicant [for a preliminary injunction] need not make out such a case as would entitle him to final judgment on the merits,” Porter v. K & S Partnership (1981), 192 Mont. 175, 183, 627 P.2d 836, 840 (citing Atkinson v. Roosevelt County (1923), 66 Mont. 411, 422, 214 P. 74, 78). Therefore, in support of its application for preliminary injunction, the District must establish a prima facie case of a violation of its rights under the contract clauses of the Montana and United States Constitutions.

The contract clauses of the Montana and United States Constitutions have generally been interpreted as “ ‘interchangeable guarantees against legislation impairing the obligation of contract.’ ” Carmichael v. Workers’ Compensation Court (1988), 234 Mont. 410, 414, 763 P.2d 1122, 1125 (quoting Buckman v. Montana Deaconess Hosp. (1986), 224 Mont. 318, 325, 730 P.2d 380, 384); see also Art. II, Sec. 31, Mont.Const.; Art I, Sec. 10, U.S.Const. This Court employs a three-part test when analyzing a contract clause challenge:

(1) Is the state law a substantial impairment to the contractual relationship?
(2) Does the state have a significant and legitimate purpose for the law?
(3) Does the law impose reasonable conditions which are reasonably related to achieving the legitimate and public purpose?

Carmichael, 763 P.2d at 1125.

As to part (1), we point out that “[t]otal destruction of contractual expectations is not necessary, and a law which restricts a party to gains reasonably expected from a contract is not a substantial impairment.” Carmichael, 763 P.2d at 1125. The District argues that the application of the statutes granting the City control over utility rates substantially impairs the contractual relationship between the District and the City. Specifically, the District argues that the statutes are unconstitutional as applied because they allow the City to modify the utility rates in the 1963 contract to which it is a party; this unilateral power was not contemplated by the parties when they entered into the contract. The District claims that the 1993 32% increase, and the 1996 123% rate increase, clearly manifest the substantial impairment caused by the application of the statutes in this matter; the District’s percentage increase is many times higher than other City water users’ percentage increase, contradicting the relevant language in the contract. The District explains that if the rate increases continue, it will no longer enjoy the benefit of the bargain for which it contracted in 1963.

The District’s claims are supported by the record. Moreover, the City does not expressly deny that its actions violated the relevant language of the contract; rather, the City merely asserts that its actions, whatever their effect on the contract, were authorized by statute. For purposes of our review then, we presume as true the District’s allegation that the City’s 1993 and 1996 rate increases violate the language of the contract. We conclude that the District has made a sufficient showing that the application here of the statutes granting the City control over utility rates substantially impairs the District’s rights under the 1963 contract.

Next, according to part (2), we must consider whether the state has a legitimate and significant purpose for the law. Our review of the legislative history reveals that the general purposes behind replacing PSC control over municipal utility rates with municipal control were to avoid the cost and delay of PSC review of every proposed rate increase, and to allow municipalities to deal more immediately and directly with financial realities such as inflation. We conclude that these are legitimate state purposes.

Finally, with respect to part (3), we must consider whether the application of the statutes to the facts at issue here is reasonably related to achieving the legitimate and public purposes of the statutes. We point out at the outset that a heightened level of scrutiny applies when a governmental entity is a party to the contract. See Buckman, 730 P.2d at 385. As we stated in Buckman, quoting United States Trust Co. of New York v. New Jersey (1977), 431 U.S. 1, 25-26, 97 S.Ct. 1505, 1519, 52 L.Ed.2d 92, 111-12:

The Contract Clause is not an absolute bar to subsequent modification of a State’s own financial obligations. As with laws impairing the obligations of private contracts, an impairment may be constitutional if it is reasonable and necessary to serve an important public purpose. In applying this standard, however, complete deference to a legislative assessment of reasonableness and necessity is not appropriate [when] the State’s self-interest is at stake.

Buckman, 730 P.2d at 385. In Buckman we also stated that “[t]he severity of the impairment [to the contract] increases the level of scrutiny to which the legislation is subjected.” Buckman, 730 P.2d at 385.

We fail to see how the application of the statutes here, ostensibly allowing the City to modify its own contractual obligations, is reasonably related to the legitimate purposes of the statutes. To justify its rate increases, the City claims that the language in the 1963 contract limiting its ability to raise the District’s rates is unrealistic, and that it needs to raise revenue. Also, the City states in its brief that “[i]f the rate provisions of the 1963 Contract were superseded by the PSC prior to the enactment of Sec. 69-7-101, MCA, then it stands to reason that the enactment of Sec. 69-7-101, MCA vested the City Council with that same authority for any utility rate increases.”

We do not agree with the City’s arguments. There is no relationship between the purpose of § 69-7-101, MCA, avoiding the undue costs and delay of PSC rate hearings, and the City’s need to raise revenue (and its “need” therefore to disregard what it considers unrealistic or outdated contract language). Moreover, the City’s argument that its assumption of rate control from the PSC necessarily authorizes it to modify, “supersede,” or otherwise disregard its contractual obligations is flawed. Because the PSC, as overseer of rate increases prior to 1981, was able to “supersede” some of the language in the 1963 contract between the City and the District does not now mean that the City, in assuming the PSC’s power, can “supersede” language in that same contract or any other contract to which it is a party, particularly when its reasons for doing so are not related whatsoever to the purposes of the statute which transferred to it control once held by the PSC.

We hold that the District has made a prima facie showing that the application in this case of the statutes granting municipalities control over utility rates violates its rights under the contract clauses of the Montana and United States Constitutions. The District has sufficiently shown that the City’s rate increases, pursuant to the statutes and in violation of the rate increase provisions of the 1963 contract, substantially impair the contractual relationship between the District and the City. Further, the District has sufficiently shown that the City’s reasons for utilizing the authority of the statutes to override the contractual language are not reasonably related to the legitimate purposes of those statutes. Therefore, pursuant to the second prerequisite for obtaining a preliminary injunction under § 27-19-201(3), MCA, we must now determine whether the City’s actions would “[tend] to render [a] judgment [in the District’s favor] ineffectual.”

The City argues that the District cannot meet this requirement because, despite its water rate increases, a judgment in the District’s favor would be effective; assuming the District had been or will begin paying the increased rates, upon a judgment in its favor it could be recompensed the overpaid amount. More realistically, the City argues, because the District has not been paying the increased rates, and therefore essentially suffering no injury, the District has no need for an injunction.

The City’s arguments are misplaced. The District requested that the court enjoin the City from enforcing the increased rates pending the outcome of a trial on the merits. The District alleges that the enforcement of the increased rates will severely harm, perhaps dissolve, its business. The manager of the District, in a sworn affidavit, claims that enforcement of the 123% increase will either cause the District to become financially insolvent, or will require the District to pass the increase on to its bondholders, who would then be authorized, because its rates would be substantially higher than those charged by the City, to petition for dissolution of the District. See § 7-13-2351, MCA. These are not the types of injuries which could be effectively remedied by a monetary damages award after a trial on the merits. See Doran v. Salem Inn, Inc. (1975), 422 U.S. 922, 932, 95 S.Ct. 2561, 2568, 45 L.Ed.2d 648, 660 (threat of loss of business and threat of bankruptcy due to city ordinance are potential injuries worthy of injunctive relief).

Moreover, the District’s application for preliminary injunction is based on alleged violations of its constitutional rights. We are mindful that courts often consider constitutional rights violations as producing injuries which cannot effectively be remedied by a legal judgment. See, e.g., Elrod v. Burns (1976), 427 U.S. 347, 96 S.Ct. 2673, 49 L.Ed.2d 547 (violation of First Amendment rights produces irreparable injury); Mitchell v. Cuomo (2d Cir. 1984), 748 F.2d 804 (violation of Eighth Amendment rights produces irreparable injury).

Lastly, for this Court, or any other court, to adopt the City’s argument that the District has no need for an injunction because it is not paying the increased rates would, we believe, effectively encourage non-compliance with obligations absent legal authority to do so. The City has raised the District’s rates, allegedly pursuant to statutory authority. Until the merits of the parties’ respective claims regarding the propriety of raising the rates have been tried, it must be presumed that the City’s actions were correct, see § 26-1-602(15), MCA, and that it acted pursuant to statutes that are constitutional, see Laedeke, 805 P.2d at 1349. That being the case, we must also presume then that the District is obligated to pay the increased rates. It is the injunctive relief issued by the court, not the District’s unilateral decision not to pay the increased rates, that has any significance with respect to the suspension of the District’s performance of its obligations.

Therefore, the City’s actions here, raising the District’s water rates, allegedly pursuant to statutory authority, “[tend] to render [a] judgment [in the District’s favor] ineffectual.” The District has made a prima facie showing of a violation of its constitutional rights under the contract clause. Thus, the District has met the requirements of § 27-19-201(3), MCA, and is entitled to a preliminary injunction. The District Court erred in failing to grant the injunction.

Finally, in its opening brief, the District requests that in the event this Court vacates the order denying the District’s application for a preliminary injunction that we also instruct the District Court to waive the security requirement, pursuant to § 27-19-306(l)(b)(ii), MCA. The record reveals that the District Court has not yet considered this matter, a matter wholly within its discretion. We will not deny the District Court the opportunity or ability to exercise its discretion with respect to this issue.

CONCLUSION

For the reasons discussed above, the order of the District Court denying the District’s application for a preliminary injunction is vacated, and this matter is reversed. We hold here that the District, by establishing a prima facie case that its rights under the contract clauses of the Montana and United States Constitutions have been violated and that a judgment in its favor would be “ineffectual,” has met the requirements of § 27-19-201(3), MCA, and is therefore entitled to the preliminary injunction for which it has applied. In holding as we do, we comment neither on the merits of the District’s constitutional claims, nor on the propriety or impropriety of waiving the security requirement pursuant to § 27-19-306(l)(b)(ii), MCA; the former is irrelevant to a discussion of a preliminary injunction application, the latter within the District Court’s discretion, as yet unexercised.

Reversed.

CHIEF JUSTICE TURNAGE, JUSTICES TRIEWEILER and LEAPHART concur.

JUSTICE GRAY,

dissenting.

I respectfully dissent from the Court’s opinion. While I do not disagree that the Water District made a prima facie showing that the statutes at issue, as applied by the City, violate its rights under the contract clauses of the United States and Montana Constitutions, I cannot agree that the Water District has established that allowing the City to enforce the 1996 water rates would tend to render a later judgment in its favor ineffectual. Nor do I agree with the manner in which the Court applies standards of review in this case.

At the outset, it is important to observe that our standard in reviewing a trial court’s denial of an application for a preliminary injunction is “manifest abuse of discretion.” That the grant or denial of a preliminary injunction is a matter within the trial court’s discretion is evident from the permissive language of the controlling statute, which states that an injunction “may” be granted when the enumerated circumstances are met. See § 27-19-201, MCA. The Court, having correctly cited the applicable standard of review, never returns to it or discusses how the District Court abused its discretion in denying the Water District’s application for a preliminary injunction.

Nor does the Court’s reliance on the “conclusion of law” standard excuse its failure to properly apply the “abuse of discretion” standard of review. I agree with the Court’s implicit, but unstated, conclusion that the question of whether a party has made a prima facie showing is a legal question. Thus, to the extent we are reviewing a determination by the District Court that the Water District did not make a prima facie case of violation of its constitutional contract clause rights, it is proper to do so by determining whether that court’s interpretation of the law is correct. The Court concludes, and I agree, that the District Court erred as a matter of law when it determined that the Water District had not made a prima facie case.

That conclusion, however, is unrelated to the District Court’s ruling that allowing the City to enforce its 1996 water rates would not tend to render an ultimate judgment in the Water District’s favor ineffectual. See § 27-19-201(3), MCA. This is a discretionary call by the District Court, subject to the manifest abuse of discretion standard the Court cites. The Court refuses to apply the standard, however, preferring instead to merely substitute its own judgment for that of the District Court on this matter within the trial court’s discretion.

It is my view that, on the record before us, the District Court did not abuse its discretion in deciding that allowing the City to enforce its 1996 water rates would not tend to render a judgment in the Water District’s favor ineffectual. The record is very limited on this question and the Court’s statements in this regard are, at best, general. It is true that the affidavit of Mr. Aarness, the Water District’s manager, states that enforcement of the 1996 water rates will cause the Water District to “eventually” become financially insolvent — at some unspecified time in the future — if it does not pass the increases along to its customers. It is undisputed, however, that the Water District has $3,000,000 in unallocated reserves with which, presumably, it could pay the 1996 water rate increases over a significant period of time, either in whole or in part, to cushion the impact of the increased rates on its customers. The Water District has made no showing whatsoever that its available reserves would not be sufficient to absorb the entirety, much less only part, of the 1996 rate increase over the time period required for a decision on the merits in this litigation.

As an alternative to this insufficiently supported insolvency argument, Mr. Aarness’ affidavit states that, if the Water District passes the water rate increases on to its customers, they ‘likely” will petition to dissolve the Water District because their rates will be substantially higher than those charged by the City. This statement is problematic in several regards.

First, affidavits based on personal knowledge, as Mr. Aarness’ purports to be, are required to be based on admissible facts. They cannot properly be used to speculate or to predict the future actions of other people. No basis, much less any factual basis, is provided for Mr. Aarness’ statement. Thus, Mr. Aarness’ view of the “likely” response of the Water District’s customers in the event it passes the City’s water rate increase along is not properly considered here.

Moreover, as a practical matter, the fact that the Water District’s customers’ water rates would be substantially higher than those paid by City residents would not necessarily result in a petition to dissolve the Water District. It is not as simple a matter as switching from water service by the Water District to water service by the City. The customers of the Water District are not individually or directly attached to the City water system; nor are they necessarily entitled to City water service at all absent the existence of the Water District. Thus, the ‘likelihood” of a petition to dissolve is minimal, absent some showing by the Water District that its customers had options or alternatives regarding water service. No such showing has been made here.

Finally, a petition to dissolve pursuant to § 7-13-2351, MCA, even if one actually were signed by more than 50% of the freeholders of the district, does not dissolve the Water District. Such a petition is the beginning of a process, not the end of one. The Water District could be dissolved only if, after a public hearing, the board of directors determined that dissolution is in the best interest of the public and the Yellowstone County Commissioners approved the dissolution. Section 7-13-2351, MCA. Here, nothing of record supports reliance on the specter of dissolution of the Water District as a basis for this Court’s determination that the Water District established that a judgment in its favor would tend to be rendered ineffectual by allowing the City to enforce its 1996 water rates during the pendency of this litigation.

Faced with this record, and with an opening brief by the Water District that does not even mention the requirements of § 27-19-201(3), MCA, the statute under which it sought the preliminary injunction, the Court is compelled to rely on being “mindful that courts often consider constitutional rights violations as producing injuries which cannot effectively be remedied by a legal judgment.” Indeed, the Court cites to decisions where courts have done so in situations where irreparable injury is produced by a violation of certain constitutional rights. Those cases involve First and Eighth Amendment rights, however, and I submit that a violation of such rights is entirely and qualitatively different from a potential violation of the contract clause, in which money is at stake, such as the case presently before us. Neither the Water District nor the Court explains or establishes how the potential violation of constitutional contract clause rights will produce injuries to the Water District which cannot be remedied by a legal judgment.

In addition, the “irreparable injury” cases are not applicable here. Section 27-19-201, MCA, sets out a variety of circumstances under which a preliminary injunction may be granted. It is undisputed that the Water District brought its injunction application under § 27-19-201(3), MCA, which is the focal point of both the Court’s opinion and this dissent. The “irreparable injury” basis for seeking a preliminary injunction is contained in § 27-19-201(2), MCA, which is not at issue here. Indeed, counsel for the Water District stated unequivocally during oral argument on its application that it was not even attempting to show irreparable injury.

I cannot agree with the Court’s “stretch” to principles that have no application here or with its failure to properly apply our standard of review. I would hold that the District Court did not manifestly abuse its discretion in denying the Water District’s application for a preliminary injunction.

JUSTICE NELSON joins in the foregoing dissenting opinion.


source: Caselaw Access Project

author: JUSTICE REGNIER

license: Public Domain

text:
    FRED FISHER, Plaintiff and Appellant, v. STATE FARM INSURANCE COMPANIES and BRIAN TAYLOR, Defendants and Respondents.
    No. 96-590.
    Submitted on Briefs January 9, 1997.
    Decided March 3, 1997.
    54 St.Rep. 151.
    281 Mont. 236.
    934 P.2d 163.

      For Appellant: Roderick K. Ermatinger; Attorneys, Inc.; Missoula.
    For Respondents: Stephen C. Berg; Warden, Christiansen, Johnson & Berg; Kalispell.
   JUSTICE REGNIER

delivered the Opinion of the Court.

Appellant Fred Fisher filed a complaint in the Twentieth Judicial District Court, Sanders County, seeking damages for wrongful denial of fire insurance benefits under his State Farm Insurance policy. State Farm Insurance filed an offer of judgment on July 22, 1996, pursuant to Rule 68, M.R.Civ.R Fisher accepted the offer and the District Court entered judgment in favor of Fisher on July 26, 1996. On August 5,1996, State Farm Insurance filed a motion to tax costs, specifically objecting to Fisher’s claimed deposition expenses of $1,442.20. The District Court granted the motion to tax costs and disallowed Fisher’s claimed deposition expenses. Fisher appeals this order. We affirm.

The issue on appeal is whether a prevailing party is entitled to recover deposition costs incurred prior to the offer of judgment which resolved the claim.

FACTUAL BACKGROUND

On February 19,1986, Fred Fisher met with Brian Taylor, a State Farm Insurance agent, to discuss insurance coverage for his shop and mobile home. Fisher purchased the State Farm Insurance coverage from Taylor and a “Manufactured Home Policy” was issued. The policy was renewed annually and was in effect on March 18, 1994, when Fisher’s shop and property within the shop were destroyed by fire.

Fisher submitted a personal property inventory claiming over $50,000 on a replacement cost basis for the loss of personal property in the shop. The policy provided coverage in excess of $48,000 for loss of personal property. State Farm investigated and determined that a majority of the property in the shop was actually business property subject to a $1,000 limitation, as stated in the policy. State Farm identified $4,019 worth of personal property destroyed in the fire and paid Fisher that amount plus the $1,000 limitation for business property which was destroyed.

Fisher’s complaint alleged that Taylor falsely represented to him that there was coverage upon all business property, and that State Farm Insurance’s identification of business property, as distinguished from personal property, was incorrect. Ten depositions were taken during the discovery process. State Farm Insurance conducted four depositions and Fisher conducted six.

On July 18, 1995, State Farm Insurance and Taylor presented an Offer of Judgment pursuant to Rule 68, M.R.Civ.P. This offer, in the amount of $36,459.62, was accepted by Fisher on July 22, 1996. Judgment was entered by the District Court on July 25, 1996.

Fisher filed a memorandum of costs and disbursements with the District Court on July 26, 1996. This included $1,442 for costs of depositions taken. State Farm Insurance and Taylor filed a motion to tax costs, objecting to the claimed deposition expenses.

The District Court issued an order granting State Farm Insurance and Taylor’s motion to tax costs, disallowing all deposition expenses claimed by Fisher. Fisher appeals this order.

DISCUSSION

When an action is resolved by an offer of judgment pursuant to Rule 68, M.R.Civ.P, is the prevailing party entitled to recover deposition costs incurred prior to the offer?

The standard of review of a district court’s conclusions of law is whether the court’s interpretation of the law is correct. Carbon County v. Union Reserve Coal Co. (1995), 271 Mont. 459, 469, 898 P.2d 680, 686 (citing Steer, Inc. v. Department of Revenue (1990), 245 Mont. 470, 474-75, 803 P.2d 601, 603-04). This Court has previously held that the trial court has broad authority to tax costs. Baeta v. Don Tripp Trucking (1992), 254 Mont. 487, 839 P.2d 566.

Fisher asserts that the depositions should be allowable as costs because they were necessary for the prosecution of his claim even though it did not proceed to trial.

The offer of judgment by State Farm Insurance was made pursuant to Rule 68, M.R.Civ.P., which provides in part:

At any time more than 10 days before the trial begins, a party defending against a claim may serve upon the adverse party an offer to allow judgment to be taken against the defending party for the money or property or to the effect specified in the offer, with costs then accrued.

Although Rule 68, M.R.Civ.P., provides that costs are recoverable when an offer is accepted, it does not define the term “costs.” This Court has interpreted the same word as found in the governing statute, § 25-10-201(2), MCA.

We have consistently interpreted § 25-10-201(2), MCA, to allow costs for depositions in only limited circumstances where the depositions were relied upon by the district court, or were used in a trial setting. We have previously held that deposition costs are allowed where the depositions are used as evidence at trial or used for impeachment during trial. Gilluly v. Miller (1995), 270 Mont. 272, 891 P.2d 1147; Gee v. Egbert (1984), 209 Mont. 1, 679 P.2d 1194; Cash v. Otis Elevator Co. (1984), 210 Mont. 319, 684 P.2d 1041. Costs for depositions are also allowed where the depositions are not used at trial but are filed with the district court, and used by the court in a dispositive summary judgment motion. Roy v. Neibauer (1981), 191 Mont. 224, 227-28, 623 P.2d 555, 557. When the purpose of the deposition, however, is merely to assist the requesting party in compiling its case, and is taken only for the convenience of counsel, the cost of that deposition is not allowable. McGinley v. Ole’s Country Stores, Inc. (1990), 241 Mont. 248, 786 P.2d 1156; Semenza v. Leitzke (1988), 232 Mont. 15, 754 P.2d 509; Lovely v. Burroughs Corp. (1974), 165 Mont. 209, 527 P.2d 557.

This Court has not previously addressed the taxation of costs in an offer of judgment. In the offer of judgment before us, the depositions were not filed with the District Court and used at trial, nor does the record contain any evidence that the depositions would have been required in order to preserve the testimony for use at trial. See Gilluly, 891 P.2d at 1149, (quoting Johnson v. Furgeson (1971), 158 Mont. 170, 176, 489 P.2d 1032, 1035). The acceptance of the offer of judgment averted a trial and as a result the depositions were not used as evidence or for purposes of impeachment. The District Court did not use the depositions in deciding a dispositive summary judgment motion. It would be impossible for the District Court, and this Court, to speculate whether a particular deposition would, in fact, be used at a trial which never occurred or to support a summary judgment motion that was never filed and decided. Therefore, the District Court correctly disallowed Fisher’s deposition expenses.

We affirm.

CHIEF JUSTICE TURNAGE, GRAY, TRIEWEILER and HUNT concur.


author: CHIEF JUSTICE TURNAGE

text:
    CLEVE LONEY, Plaintiff and Appellant, v. HAROLD VAN DYE, Defendant and Respondent.
    No. 96-580.
    Submitted on Briefs February 20, 1997.
    Decided March 4, 1997.
    54 St.Rep. 153.
    281 Mont. 240.
    934 P.2d 169.
    For Appellant: Michael R. Tramelli, Great Falls.

      For Respondent: Gregory C. Black, Corette, Pohlman & Kebe, Butte.
   CHIEF JUSTICE TURNAGE

delivered the Opinion of the Court.

Cleve Loney appeals from the July 26, 1996, opinion and order of the Fourth Judicial District Court, Missoula Comity, granting Harold Van Dye’s motion for summary judgment and denying Loney’s motion for summary judgment. We affirm.

We restate the following issues raised by Loney on appeal:

1. Did the District Court err when it determined that § 27-2-206, MCA, barred Loney’s malpractice claim?

2. Did the District Court err when it granted summary judgment based on res judicata?

3. Did the District Court err when it ruled that the only allegation of malpractice raised in the pleadings was Dye’s failure to file a declaration of homestead?

4. Did damages result from Dye’s failure to file a declaration of homestead?

BACKGROUND

This case arises from Dye’s legal representation of Loney in bankruptcy proceedings. Additional facts are contained in Loney v. Milodragovich, Dale & Dye, P.C. (1995), 273 Mont. 506, 905 P.2d 158.

Loney filed a complaint on May 6, 1993, alleging that Dye was negligent and breached his implied contract with Loney by failing to file a declaration of homestead in Loney’s bankruptcy. In an amended answer, Dye asserted numerous affirmative defenses, including statute of limitations and res judicata. Dye moved for summary judgment, arguing that Loney’s claim was barred by res judicata. The District Court denied the motion because it determined that there was a genuine issue of material fact regarding when Loney should have known of the facts giving rise to his legal malpractice claim.

Subsequently Loney’s deposition was taken. Dye learned when Loney discovered Dye’s failure to file the declaration of homestead. Dye filed a second motion for summary judgment, again arguing res judicata and also arguing that Loney’s claim was barred by the statute of limitations for legal malpractice contained at § 27-2-206, MCA. Loney also moved for summary judgment.

The District Court granted Dye’s motion for summary judgment on the issues of res judicata and statute of limitations, and denied Loney’s motion for summary judgment. It concluded that Loney alleged additional claims of malpractice not properly raised in the pleadings. Loney appeals.

DISCUSSION

Did the District Court err when it determined that § 27-2-206, MCA, barred Loney’s malpractice claim?

We review summary judgment orders de novo. Spain-Morrow Ranch, Inc. v. West (1994), 264 Mont. 441, 444, 872 P.2d 330, 331. Summary judgment is proper only when no genuine issue of material fact exists and the moving party is entitled to a judgment as a matter of law. Rule 56(c), M.R.Civ.P. Spain-Morrow Ranch, 872 P.2d at 331-32.

Section 27-2-206, MCA, provides:

Actions for legal malpractice. An action against an attorney licensed to practice law in Montana or a paralegal assistant or a legal intern employed by an attorney based on the person’s alleged professional negligent act or for error or omission in the person’s practice must be commenced within 3 years after the plaintiff discovers or through the use of reasonable diligence should have discovered the act, error, or omission, whichever occurs last, but in no case may the action be commenced after 10 years from the date of the act, error, or omission.

It is the knowledge of facts, rather than the discovery of legal theories, that is the test for tolling the statute of limitations in a legal malpractice action. Burgett v. Flaherty (1983), 204 Mont. 169, 173, 663 P.2d 332, 334.

The testimony from Loney’s deposition establishes that on March 6, 1990, he discovered Dye’s failure to file the declaration of homestead. The applicable statute of limitations, § 27-2-206, MCA, began running and expired three years later. Because Loney did not file his complaint alleging legal malpractice until May 6, 1993, more than three years after he discovered Dye’s failure to file the declaration of homestead, his claim is barred by § 27-2-206, MCA.

We hold that the District Court did not err when it determined that § 27-2-206, MCA, barred Loney’s malpractice claim. Because we so hold, we decline to address the remaining issues raised on appeal. The District Court’s order granting Dye’s motion for summary judgment is affirmed.

JUSTICES HUNT, NELSON, TRIEWEILER and LEAPHART concur.


author: JUSTICE LEAPHART

text:
    WARREN V. TOAVS, JEFFREY W. TOAVS, and JANA L. TOAVS, Plaintiffs and Appellants, v. RANDY J. SAYRE, Individual, DONNA SIPES, Individual, BRUCE R. SUNDSETH and LANA G. SUNDSETH, Individuals, Defendants and Respondents.
    No. 96-611.
    Submitted on Briefs February 6, 1997.
    Decided March 4, 1997.
    54 St.Rep. 155.
    281 Mont. 243.
    934 P.2d 165.

      For Appellants: Stewart R. Kirkpatrick, Bruce F. Fain; Murphy, Kirkpatrick & Fain, Billings.
    For Respondents: Earl J. Hanson; Hanson, Roybal, Lee & Todd, Billings (for Sayer/Sipes); William J. Mattix; Crowley, Haughey, Hanson, Toole & Dietrich, Billings (for Sundseths).
   JUSTICE LEAPHART

delivered the Opinion of the Court.

The Toavses filed suit against Sayre, Sipes and the Sundseths to enforce restrictive covenants prohibiting mobile homes within a subdivision. Each party filed a motion for summary judgment. The District Court found that the covenants in question were ambiguous and granted summary judgment to the owners of the mobile homes in question. The Toavses appeal from that judgment. We affirm as to Sayre/Sipes and reverse as to the Sundseths.

BACKGROUND

The Toavses own property within a subdivision in Yellowstone County, Montana. All lots within the subdivision are subject to certain covenants which became effective on August 12, 1977. All of the parties to this litigation, plaintiffs and defendants alike, purchased property within the exterior boundaries of the subdivision and their respective properties are subject to the restrictive covenants.

Sayre and Sipes purchased their tract in 1977; the Toavses purchased their tracts in 1993 and 1994. Sundseths purchased their tract in 1994. Sayre/Sipes built their main residence in 1977. That residence is not in question. Sayre/Sipes placed a manufactured guest house on the tract in October 1993. Donna Sipes’ elderly mother lives in the guest house. The Toavses seek to have that guest house removed from the property.

The Sundseths also purchased a manufactured home which they placed on their property. That home is also at issue. Both of the homes in question were purchased from mobile home dealers and were transported to the property where they were permanently connected to and placed upon a foundation. Both homes had wheels and axles when purchased. The wheels and axles were removed when the homes were attached to their respective foundations.

STANDARD OF REVIEW

This Court reviews a district court’s summary judgment rulings de novo. Estate of Strever v. Cline (1996), [278 Mont. 165], 924 P.2d 666, 669. This Court “will apply the same evaluation as the district court based on Rule 56, M.R.Civ.R” Bruner v. Yellowstone County (1995), 272 Mont. 261, 264, 900 P.2d 901, 903.

DISCUSSION

The Rules for Interpreting Restrictive Covenants

In interpreting restrictive covenants, we apply the same rules as apply to interpreting contracts. Gosnay v. Big Sky Owners Ass’n (1983), 205 Mont. 221, 227, 666 P.2d 1247, 1250. We read all covenants as a whole to ascertain their meaning. Gosnay, 666 P.2d at 1250. Where the language of the covenant is clear and explicit, that language will govern our interpretation of the covenants as a whole. The language of the covenant is to be understood in its ordinary and popular sense. Section 28-3-501, MCA. Restrictive covenants are to be strictly construed and ambiguities in a covenant are to be construed to allow free use of the property. Town & Country Estates Ass’n v. Slater (1987), 227 Mont. 489, 492, 740 P.2d 668, 670-71 (quoting State v. District Court (1980), 187 Mont. 126, 130, 609 P.2d 245, 248). However, the free use of the property must be balanced against the rights of the other purchasers in the subdivision.

The District Court Ruling

As applicable to this case, Paragraph 5 of the Declaration of Restrictions and Conditions provides as follows:

No tent, trailer or other temporary shelter [missing words] for dwelling purposes nor shall any basement or garage be so used unless and until there is a completed private single family dwelling used in connection therewith. The work of constructing the dwelling and landscaping shall be prosecuted diligently from the commencement thereof until completion. No mobile homes or temporary dwellings may be used as the sole dwelling on any tract after July 1, 1977. [Emphasis added.]

The District Court held that, due to the absence of critical words, the first sentence was ambiguous. As to the last sentence, it held: “In reading the covenants as a whole, it is unclear whether that sentence restricts only mobile homes that are temporary dwellings or all mobile homes, including those placed on cement blocks, permanently hooked up to utilities and sanitary facilities, and exhibiting the proper siding.” In light of this ambiguity, the court felt constrained to interpret the covenant in favor of free use of the property. Accordingly, it granted summary judgment in favor of Sayre/Sipes and the Sundseths. We address the issues separately as they pertain to the two homes in question.

The Sundseths’Home

The Sundseth home was originally located at Big Sky Mobile Homes where wheels were mounted to attached axles. It was then attached to a hitch and towed to the Sundseths’ property where the wheels and axles were removed. The home was then fitted with masonite siding and asphalt shingles and attached to utilities. The Sundseths’ 1995 Assessment Notice indicates that the home is taxed as personal property.

The District Court held that the first sentence of Paragraph 5 of the covenants is ambiguous due to the absence of essential words. The court further held that the last sentence of the provision is ambiguous since it is unclear whether that sentence “restricts only mobile homes that are temporary dwellings or all mobile homes, including those placed on cement blocks, permanently hooked up to utilities and sanitary facilities, and exhibiting the proper siding.” We determine that the court’s determination of ambiguity is based upon a distinction without a difference in light of our decision in Newman v. Wittmer (1996), 277 Mont. 1, 917 P.2d 926. Newman involved a covenant which read as follows:

4. Trailers, Mobile Homes, Basement Homes and Temporary Structures. No structure of a temporary character, including but not limited to trailers, mobile homes, basements, tents, shacks, garages, bams or other out-bildings [sic] shall be used upon any lot or portion thereof at any time as a permanent residence....

Newman, 917 P.2d at 929. In Newman, the Wittmers argued that the above covenant prohibited structures of a “temporary” nature, not permanent mobile homes and, alternatively, that their home was not a mobile home.

Initially, we held that the covenant was not ambiguous; that it expressly prohibited use of mobile homes as permanent residences. Newman, 917 P.2d at 929. As to whether their home was a “mobile home,” we held that it was, despite the fact that Wittmers’ mobile home was bolted to a concrete pad with skirting. In light of its dimensions, transportability and its DMV designation as a trailer and tax assessment designation as personal property, the home fit within numerous statutory definitions of “mobile home.” Newman, 917 P.2d at 930. Additionally, the home fit within our case law definition of a mobile home, citing, inter alia, Timmerman v. Gabriel (1970), 155 Mont. 294, 470 P.2d 528, in which we held that the fact that a trailer was placed on a foundation and connected to utilities did not transform it to a permanent residence within the meaning of a prohibitive covenant; that the nature of the construction of the home was determinative. Newman, 917 P.2d at 931.

Here, the last sentence of the covenant in question provides that “[n]o mobile homes or temporary dwellings may be used as the sole dwelling on any tract after July 1, 1977.” This covenant, like the covenant in Newman, does not lend itself to a distinction between mobile homes which are used as temporary dwellings as opposed to mobile homes which are set on cement blocks with siding and used as permanent homes. Rather, given the broad definition of mobile home in Newman, the covenant unambiguously prohibits all mobile homes as permanent residences. Accordingly, we reverse the District Court judgment as to Sundseths and remand for entry of judgment in favor of the Toavses with regard to the Sundseths’ property.

The Sayre/Sipes Home

We held above that the last sentence of Paragraph 5 of the covenant is not ambiguous; that it clearly proscribes mobile homes and thus the Toavses’ motion for summary judgment must be granted as against Sundseths. However, the Sayre/Sipes guest home is another matter. Even though the last sentence clearly says “[n]o mobile homes ... may be used,” the covenant, when read as a whole, contains two caveats which inure to the benefit of Sayre/Sipes.

First of all, the initial sentence of Paragraph 5 of the covenant states:

No tent, trailer or other temporary shelter [missing words] for dwelling purposes nor shall any basement or garage be so used unless and until there is a completed private single family dwelling used in connection therewith.

The District Court was correct in concluding that this opening sentence, from which words were obviously omitted, is ambiguous. Despite any ambiguities, it is clear that the author was attempting to draft some sort of prohibition on use of temporary dwellings. Whatever may have been intended by the prohibition, it is readily apparent that it would not apply if the dwelling were used in conjunction with a completed single family dwelling.

In light of the qualifying language, it is apparent that a trailer or mobile home is allowed after a single family dwelling has been built on the property.

Sayre/Sipes’ position is further buttressed by the last sentence of Paragraph 5 of the covenant which states: “No mobile homes or temporary dwellings may be used as the sole dwelling on any tract after July 1, 1977.” The District Court concluded that this sentence was ambiguous as to whether it restricted use of mobile homes as temporary dwellings or restricted use of all mobile homes, including those placed on cement blocks with proper siding. That ambiguity, however, is immaterial to the Sayre/Sipes situation. Again, the sentence in question contains qualifying language: “No mobile homes or temporary dwellings may be used as the sole dwelling on any tract after July 1, 1977.” The sentence clearly contemplates that a mobile home is permissible so long as it is used in addition to a main residence. Sayre/Sipes were not using the mobile home as the “sole dwelling.” Rather it was being used as a guest house in conjunction with their main residence. Accordingly, although we affirm the District Court’s granting of summary judgement for Sayre/Sipes, we do so, not because of ambiguity, but because Sayre/Sipes’ guest home falls within the permissive implication of the last sentence of Paragraph 5 of the restrictive covenants.

Affirmed as to Sayre/Sipes and reversed as to the Sundseths.

CHIEF JUSTICE TURNAGE, JUSTICES REGNIER, NELSON and TRIEWEILER concur.