Young v. Flathead County

• Decision Date: 13 June 1988
• Docket Number: No. 87-363,87-363
• Citation: 232 Mont. 274,757 P.2d 772
• Parties: Bruce A. YOUNG and Sherri D. Young, Husband and Wife; Leo B. Evans and Lona Lee Evans, husband and wife, and Ruth E. Palmer, Plaintiffs and Respondents, v. FLATHEAD COUNTY, a Body Corporate, Defendant and Appellant, and Flathead County Board of Commissioners, a Body Politic; Nakul S. Verma, Flathead County Zoning Administrator, Defendants, and Albert Seeley, Defendant-Intervenor, Plaintiff Cross-Claimant and Respondent, and Henry Oldenburg, Defendant and Intervenor.
• Court: Montana Supreme Court

Page 772

757 P.2d 772

232 Mont. 274

Bruce A. YOUNG and Sherri D. Young, Husband and Wife; Leo B. Evans and Lona Lee Evans, husband and wife, and Ruth E. Palmer, Plaintiffs and Respondents, v. FLATHEAD COUNTY, a Body Corporate, Defendant and Appellant and Flathead County Board of Commissioners, a Body Politic Nakul S. Verma, Flathead County Zoning Administrator, Defendants and Albert Seeley, Defendant-Intervenor, Plaintiff Cross-Claimant and Respondent and Henry Oldenburg, Defendant and Intervenor.

No. 87-363.

Supreme Court of Montana.

Submitted April 26, 1988.

Decided June 13, 1988.

Ted Lympus (argued), Co. Atty., and Jonathan B. Smith (argued), Deputy Co. Atty., Kalispell, for defendant and appellant.

Lawrence F. Daly (argued), Missoula, for plaintiffs and respondents.

GULBRANDSON, Justice.

This is an appeal of findings of fact, conclusions of law and judgment of the Eleventh Judicial District Court, Flathead County, in favor of defendants-intervenors Albert Seeley and West Central Resources, Inc., R.C. Lee & Associates, Inc., Tri-Fortune Investments, Inc., Early Bird Investments, Ltd., and Early Bird Properties, Inc. (Developers) against defendant-appellant, Flathead County (County). The findings and conclusions were adopted on April 22, 1982 and amended on July 12, 1982. The District Court entertained the damage claim and entered findings and conclusions on March 24, 1987 against the County in excess of two million dollars. A motion to alter the judgment, or in the alternative to grant Flathead County a new trial was denied June 2, 1987. The County appeals. We reverse and remand for further proceedings.

The following issues have been presented for our review:

1. Did the County's August 13, 1981, change of position on the requirement of subdivision review for condominium projects give rise to a claim for damages by Developers?

2. Was the County's change of position the proximate or legal cause of Developers' damages?

3. Should the County have been entitled to a new trial on grounds the District Court erred in not admitting evidence on the issue of proximate cause?

4. Whether Developers' reliance on the County's initial position of no requirement of subdivision review of condominium projects was supported by substantial evidence and, if so, whether that reliance was reasonable?

5. Is the County immune from damages under Sec. 2-9-111, MCA?

6. Did the damages awarded by the District Court exceed the statutory limit on governmental liability?

Reversal of this case is based on the first four issues and we therefore will not address issues five and six.

This case arises from a failed condominium development on the west shore of Flathead Lake. In the early 1980s, Developers approached the County and proposed construction of the Caroline Point Estates and Yacht Club condominiums on 28 acres of unzoned property. Prior to construction, Developers requested the parcel be zoned as a planned unit development (PUD) in order to construct the projected 84 units. If zoned R-2 (rural residential), the area could only hold 56 units which would not be financially viable for Developers.

Deputy County Attorney Charles Kuether (Kuether), and Wil Aiken of the Montana Department of Health and Environmental Sciences (DHES), informed Developers the project was not a "subdivision" under the Subdivision and Platting Act, Title 76, Chap. 3 and 4, MCA, and therefore would not be subject to subdivision review.

County Sanitarian Tom Cowan (Cowan) informed Developers on September 19, 1980, that sanitary review would not be initiated for "several months." Developers contend Cowan informed them that the basic concept for sewage treatment was approved. However, on December 18, 1980, Developers' attorney received a letter from DHES indicating that DHES considered the project a subdivision, and therefore subject to review. Developers were made aware of this letter. On December 23, 1980, the Board of Commissioners of Flathead County adopted Resolution 414 which zoned the property PUD. Developers commenced construction in late December, 1980. On January 6, 1981, and January 19, 1981, Ray Lee, one of Developers' partners, received letters from DHES requesting an application for sanitary review be filed with the Subdivision Bureau under the Sanitation in Subdivisions Act. The second letter stated continuing construction would violate the Act. A notice of violation was subsequently issued as Developers did not slow construction.

The County claims Lee also met with Ed Casne of DHES and was told the project was a subdivision. Developers claim they received additional assurances at this time from Kuether. Relying on these assurances, Developers claim they finalized their ownership interests in the property in January of 1981. At a February 11, 1981, meeting, Kuether stated the County disagreed with the DHES designation and the issue was likely to be decided through litigation. On February 13, 1981, the Commissioners re-approved the PUD designation in Resolution No. 421. On this same day, Dr. John Drynan, director of DHES, requested an opinion from the Montana Attorney General as to whether condominium developments are subdivisions subject to review.

On March 6, 1981, DHES conducted a hearing on its notice of violation earlier issued to Developers. The hearing resulted in a stipulation entered into between DHES and Developers which allowed construction of four model units, to be used to promote "pre-sales," a combination recreation center/caretaker's residence and a marina. Developers were also allowed to maintain a sales office on the project so that construction and production schedules were not halted. DHES issued findings of fact and conclusions of law April 27, 1981 that stated since Developers relied on previous assurances, equity demanded they be allowed to continue with the above-stated limited construction.

Opponents of the development filed a complaint on March 13, 1981, alleging the condominium project was a subdivision subject to review. Construction continued on the units allowed by the stipulation and Developers claim they planned to "presell" 11 of the next 15 units before further construction would occur.

By June of 1981, Developers invested over $900,000 in the project. Because additional operating capital was needed until pre-sales began to generate revenue, Developers borrowed $200,000 from First Interstate Bank of Kalispell and an additional $325,000 from a Canadian bank. Formal application for sanitary approval purposes was sent to DHES on June 24, 1981. On June 30, and July 19, 1981, Developers met with the County Sanitarian who informed them no problems were yet encountered.

The Attorney General Opinion, 39 A.G.Op., No. 28, was issued July 28, 1981, and held condominium projects were subdivisions subject to review. In this opinion, the Attorney General relied on the intention of the Legislature that a broad definition of "condominium" was intended when the Sanitation in Subdivisions Act definitions were adopted in 1973. The Attorney General stated:

It is the public policy of this state to extend present laws controlling water supply, sewage disposal, and solid waste disposal to include individual wells affected by adjoining sewage disposal and individual sewage systems to protect the quality and potability of water for public water supplies and domestic uses and to protect the quality of water for other beneficial uses, including uses relating to agriculture, industry, recreation, and wildlife.

This expression of legislative concern regarding water supply, sewage disposal, and solid waste disposal logically includes concern for the impact of the high density development that is characteristic of condominiums.

On August 13, 1981, the County Attorney wrote Developers' counsel and advised him to cease project construction until subdivision approval was attained. The letter imposed restrictions on further sales. By August 13, 1981, cost on the construction project had reached $1,065,578.

Developers continued to attempt to secure sanitation approval from the State and County and the State and County continued their review of the project. After the influx of money ceased, Developers were forced to abandon the project and absorb significant losses. Developers could not secure further financial support and because they purchased the property on an installment contract, were forced to default.

In response to the complaint filed by project opponents, Developers, specifically Seeley as court-authorized intervenor, filed a "Cross-Claim for Declaratory Relief against defendant Flathead County" on September 24, 1981. The cross-claim contained seven counts. Count III sought to estop the County from enforcing the subdivision review requirement. It alleged the County Attorney interpreted the regulations requiring subdivision review as being inapplicable to the development and Developers justifiably relied and acted upon these interpretations. Paragraph V of Count III states "[t]hat in August of 1981, the county, through the office of the county attorney, arbitrarily, capriciously and without justification" prohibited further construction resulting in financial damage. The cross-claim concluded with a prayer for declaration that the project was exempt from subdivision review and that Developers are "entitled to damages in an amount to be shown at trial."

The District Court addressed motions for summary judgment and the cross-claims in two phases. Pursuant to stipulations setting forth agreed facts and issues, on April 22, 1982, the District Court entered findings of fact and conclusions which were amended on July 12, 1982 and September 30, 1986. Hearings on the second issue of damages were held in October, 1984 and concluded on April 26, 1985. These hearings resulted in findings of fact and conclusions of law entered on March 24, 1987 and supplemented on June 2, 1987, along with a judgment on April 8, 1987 in...