HKM Associates v. Northwest Pipe Fittings, Inc.

• Decision Date: 01 August 1995
• Docket Number: No. 94-546,J-M,94-546
• Citation: 272 Mont. 187,900 P.2d 302
• Parties: HKM ASSOCIATES, Plaintiff and Appellant, v. NORTHWEST PIPE FITTINGS, INC., a Montana corporation, andManufacturing Company, Inc., a Delaware corporation, Defendants and Respondents.
• Court: Montana Supreme Court

Page 302

900 P.2d 302

272 Mont. 187

HKM ASSOCIATES, Plaintiff and Appellant, v. NORTHWEST PIPE FITTINGS, INC., a Montana corporation, and J-M Manufacturing Company, Inc., a Delaware corporation, Defendants and Respondents.

No. 94-546.

Supreme Court of Montana.

Submitted on Briefs May 18, 1995.

Decided Aug. 1, 1995.

David A. Veeder, Veeder Law Firm, Billings, for appellant.

Damon L. Gannett, Gannett, Anderson & Liechty, Billings, for Northwest Pipe Fittings.

Paul D. Miler and Patricia D. Peterman, Holland & Hart, Billings, for J-M Mfg. Co.

HUNT, Justice.

Appellant HKM Associates appeals from two orders of the Thirteenth Judicial District Court, Yellowstone County, granting respondents Northwest Pipe Fittings, Inc.'s, and J-M Manufacturing Company, Inc.'s, motions to dismiss appellant's claim of indemnity and granting respondents' motions for summary judgment as to the remainder of appellant's claims.

We affirm.

Appellant raised the following issues on appeal:

1. Do genuine issues of material fact exist as to whether HKM relied upon J-M's and Northwest's fraudulent misrepresentations, and whether HKM was damaged as a result?

2. Do genuine issues of material fact exist as to whether HKM could have discovered all of the facts constituting the fraud prior to April 26, 1989?

3. Do genuine issues of material fact exist as to whether HKM's fraud claims are barred by the doctrine of collateral estoppel?

4. Do genuine issues of material fact exist as to whether J-M and Northwest fraudulently concealed from HKM the material facts of HKM's fraud claims?

5. Do genuine issues of material fact exist as to whether HKM is barred by the doctrine of collateral estoppel from bringing its claim for indemnification?

We restate the issues as follow:

1. Did the District Court err in granting respondents' motions to dismiss appellant's claim for indemnity?

2. Did the District Court err in granting respondents' motions for summary judgment as to appellant's remaining claim of fraudulent misrepresentation?

In 1985, the Lockwood Water Users Association (LWUA) hired appellant HKM to design the plans and specifications for a pipeline project. HKM acted as the project engineer and Jim's Excavating Service, Inc. (JES), acted as the general contractor.

A section of the pipeline was to be laid through an "S" curve which required the pipe to be either deflected at the appropriate joint or to be laid with special fittings. HKM designed the project to use deflectable, ductile iron pipe, rather than special fittings. Prior to releasing the original bid form, HKM amended the bid to solicit alternative bids for using PVC pipe.

Respondent J-M Manufacturing informed HKM that 24-inch PVC pipe (Big Blue) could be deflected up to 3 degrees at the joint. Based on this information, HKM determined that 24-inch PVC pipe could be laid and deflected through the "S" curve without special fittings.

The amended bid proposal did not contain any specifications that fittings were to be used on the "S" curve. JES purchased PVC pipe manufactured by J-M from respondent Northwest. Northwest certified and subsequently verified to HKM that 24-inch PVC pipe manufactured by J-M could be deflected up to three degrees at the joint. HKM ultimately approved of the bid submitted by JES.

Following the start of construction in September 1985, J-M informed JES that the 24-inch PVC pipe could not be deflected and that special fittings would have to be installed to accommodate the "S" curve. Construction at the "S" curve was halted until the necessary fittings could be delivered. Work on the "S" curve resumed after the fittings arrived on July 14, 1986. During a September 10, 1986, inspection, HKM discovered that the cement linings of the fittings were cracked and had to be removed. New fittings arrived at the project on October 5, 1986.

On May 8, 1987, JES filed a complaint against HKM and LWUA claiming, inter alia, delay and extra work damages caused as a result of HKM's negligent design and supervision of the pipeline project. In Jim's Excavating Service, Inc., v. HKM Associates (1994), 265 Mont. 494, 878 P.2d 248, we affirmed the jury verdict of $381,000 in favor of JES.

On April 26, 1991, HKM filed a complaint against J-M and Northwest, claiming negligence and negligent misrepresentation. Northwest brought a motion to dismiss, and J-M filed a motion for summary judgment. On August 27, 1992, HKM filed its first amended complaint, adding a claim for fraudulent misrepresentation. J-M and Northwest filed motions to dismiss all claims pursuant to Rule 12(b)(6), M.R.Civ.P. The District Court treated these motions as motions for summary judgment and ruled that HKM's claims for negligence and negligent misrepresentation were barred by the statute of limitations. At the same time, the District Court held that HKM's claim for fraudulent misrepresentation was not barred by the statute of limitations or the doctrine of res judicata.

On September 13, 1993, HKM filed its second amended complaint, adding a claim for indemnification. J-M and Northwest filed motions to dismiss HKM's indemnity claim, which the District Court granted on December 10, 1993.

In June 1994, J-M and Northwest filed renewed motions for summary judgment on the remaining fraud claims. On August 26, 1994, the District Court granted those motions, concluding that HKM's fraud claims were barred by the statute of limitations and res judicata. The court also concluded that the fraud claims lacked the elements of reliance and damages. HKM appeals from the District Court's orders of December 10, 1993, and August 26, 1994.

ISSUE 1

Did the District Court err in granting respondents' motions to dismiss appellant's claim for indemnity?

"In reviewing a motion to dismiss, we construe the complaint in the light most favorable to the plaintiff and take the allegations of the complaint as true." Goodman Realty, Inc. v. Monson (1994), 267 Mont. 228, 231, 883 P.2d 121, 123. Our scope of review is broad and we examine the entire case and make a determination based on that examination. Goodman, 883 P.2d at 123. We will affirm the dismissal only if we find that the plaintiff is not entitled to relief under any set of facts which could be proved in support of the claim. Goodman, 883 P.2d at 123.

HKM added a count to its second amended complaint seeking indemnification from J-M for the $381,000 judgment against HKM rendered in Jim's Excavating. J-M and Northwest Pipe filed motions to dismiss HKM's claim for indemnification.

In Jim's Excavating, the jury returned a special verdict finding, that HKM was negligent in preparing the plans and specifications of the LWUA project, and that HKM's negligence was a cause in fact of JES's damages. The District Court concluded that "because negligence was the subject of the previous action, HKM could have and should have asserted indemnity against J-M and Northwest Pipe at that time. The issue of negligence cannot be re-litigated and [HKM]'s claim for indemnification is barred by application of the doctrine of collateral estoppel."

The right to indemnification is an equitable principle based on the theory that a party compelled to pay for damages caused by another should be able to seek recovery from that party. Poulsen v. Treasure State Industries, Inc. (1981), 192 Mont. 69, 626 P.2d 822. Collateral estoppel bars an action, including an action for indemnification, when: (1) the issue presented in a later action has been decided in a prior adjudication; (2) a final judgment in the action was issued; and (3) the party against whom collateral estoppel is asserted was a party to the previous litigation. Berlin v. Boedecker (1994), 268 Mont. 444, 453, 887 P.2d 1180, 1185; Farmers Plant Aid, Inc. v. Huggans (1994), 266 Mont. 249, 254, 879 P.2d 1173, 1176. Of the three criteria needed to establish collateral estoppel, identity of issues is the most important and requires that the precise issue has been litigated in the prior actions. Berlin, 887 P.2d at 1185. It is not necessary, however, that there be an identical cause of action, but rather, there must be an identical issue. Boyd v. First Interstate Bank (1992), 253 Mont. 214, 218, 833 P.2d 149, 151.

The record shows that the issue of HKM's negligence was...