RICHARD THIELTGES, individually and on behalf of THIELTGES FARMS, INCORPORATED, Plaintiffs and Appellants,
ROYAL ALLIANCE ASSOCIATES, INC., Defendant and Appellee.
Submitted on Briefs: August 20, 2014
District Court of the First Judicial District, In and For the County of Lewis and Clark, Cause No. DDV 2011-346 Honorable James P. Reynolds, Presiding Judge Cause Nos. BDV 2011-535, BDV 2012-446 Honorable Jeffrey Sherlock, Presiding Judge
For Appellants: Linda M. Deola, Morrison, Sherwood, Wilson, & Deola PLLP, Helena, Montana
For Appellee Alan L. Joscelyn, KD Feeback, Gough, Shanahan, Johnson & Waterman, PLLP, Helena, Montana, Sean Connelly, Katherine A. Roush, Reilly Pozner, LLP; Denver, Colorado
For Amicus Curiae Jesse Laslovich, Jameson C. Walker, Nicholas Mazanec, Office of the Commissioner of Securities and Insurance, Montana State Auditor, Helena, Montana
Laurie McKinnon Justice
¶1 This is the consolidated appeal of orders granting summary judgment in favor of Royal Alliance Associates, Inc., with respect to claims brought by Chevallier Ranch Company, Schindler Livestock, and Richard Thieltges, individually and on behalf of Thieltges Farms, Inc.
¶2 The issue presented for review is whether the facts constituting Appellants' claims against Royal Alliance were, by their nature, concealed or self-concealing such that they could not have been discovered in the exercise of due diligence.
PROCEDURAL AND FACTUAL BACKGROUND
¶3 Chevallier and Schindler are Montana ranching organizations. Thieltges is a retired third-generation family farmer. During 2003 and 2004, Chevallier, Schindler, and Thieltges each sought the advice of accounting firm Anderson ZurMuehlen & Co., P.C. (AZ) regarding sales of their respective farm and ranch properties. Each met with Ray Petersen, a certified public accountant and a shareholder in AZ. Petersen also worked with Acquiron, a subsidiary real estate brokerage firm co-founded by AZ and real estate broker Rick Ahmann. In addition to his roles within AZ and Acquiron, Petersen was a licensed securities salesperson registered with Royal Alliance from 2002 through 2005.
¶4 Acquiron was in the business of selling tenants-in-common (TIC) investments designed to take advantage of the tax-deferral benefits of a "1031 exchange." The TIC investments sold by Acquiron promised investors that they could defer tax liability on the gains realized from the sale of real property by reinvesting the proceeds in shares of commercial properties around the country. The commercial properties would be managed by DBSI Housing, Inc., and its subsidiaries. In addition to the tax-deferral benefits, investors would receive monthly payments from the lease revenues collected by DBSI. Investors were told they would receive returns on their investment of 6% to 7% annually, a rate which was expected to increase as the properties appreciated in value. Investors were also told that a substantial cash reserve was in place to ensure payment even if the properties could not be leased immediately.
¶5 Petersen advised Chevallier, Schindler, and Thieltges that Acquiron's TIC investments would allow them to defer taxation on the proceeds from the sale of their respective farm and ranch properties while also providing a reliable monthly income. Chevallier entered a written contract with Acquiron in October 2004, and the following month invested in the Metcalf 103, ACI Building, and Corporate Center I properties, paying $1, 491, 054.16 in cash and assuming debt of $919, 462.58. Schindler entered contracts with Acquiron in March 2003 and August 2004. In December 2004, Schindler invested in the Metcalf 103, Missouri Falls, and 48 Perimeter properties, paying $1, 587, 730.00 in cash and assuming debt of $1, 452, 130.00. Thieltges entered a written contract with Acquiron in November 2004. In January 2005, Thieltges invested in the Northridge Center I & II, Progress Center 7, and Executive Park properties, paying $1, 113, 493.04 in cash and assuming debt of $1, 267, 601.26.
¶6 In October 2008, Chevallier, Schindler, and Thieltges each received form letters addressed to "Dear Investor, " informing them that the properties were not generating sufficient cash flow to allow continued payments to investors. Soon after, DBSI filed for bankruptcy. Payments on the Chevallier and Thieltges properties ceased in October 2008. One of Schindler's properties stopped paying in October 2008. Schindler's other properties continued to pay at a greatly reduced rate until 2011.
¶7 On April 6, 2011, Thieltges filed a complaint in the District Court naming AZ, Petersen, Ahmann, Ahmann's real estate brokerage firm, and Acquiron as defendants. Thieltges alleged negligence, negligent misrepresentation, breach of fiduciary duty, breach of contract, contractual breach of the implied covenant of good faith and fair dealing, and tortious breach of the covenant of good faith and fair dealing. Thieltges also sought punitive damages. On May 23, 2011, Chevallier filed a ...