EMILIO H. GARZA, CANDICE GARZA, ROBERT W. MILLER, RANDALL E. MILLER, ROBERT H. KRUGER, JAMES L. LARSON, JAMES W. BOLDING, JAMES W. BLOMGREN, SOUGH STICKELMEYER, JOHN W. WELLS, STEPHEN J. JOHNSON, ESTATE OF CANDICE GARZA and TRI-UNITA LLC, Plaintiffs and Appellees, v. FORQUEST VENTURES, INC.; KEN A HAGMAN; ALLISON HAGMAN; and DOES 1 THROUGH XX, Defendants, Third Party Plaintiffs and Appellants. KEN A. HAGMAN and ALLISON HAGMAN, Third Party Plaintiffs and Appellants, v. RONNIE MILLER and ADVANCED ANALYTICAL, LLC, ADVANCED ANALYTICAL, MATHIAS INVESTMENTS, LLC, and DOES 1-10, Third Party Defendants and Appellees.
No. DA 14-0666
Supreme Court of Montana
Decided September 29, 2015
2015 MT 284 | 381 Mont. 189 | 358 P.3d 189
For Appellees: Glenn E. Tremper, Glenn E. Tremper, PLLC, Great Falls (Attorney for Emilio Garza, et. al).
¶1 Forquest Ventures, Inc., Ken Hagman, and Allison Hagman1 (collectively Forquest) appeal the Order of the Eighth Judicial District Court, Cascade County, granting Appellees’2 motion for summary judgment and dismissing Advanced Analytical, LLC, for lack of personal jurisdiction. We address the following issues on appeal:
- Whether the District Court correctly determined that Investors timely asserted their claims under the Montana Securities Act,
§ 30-10-307(5)(b), MCA ; - Whether the District Court correctly determined that the non-Garza Investors’ claims relate back to the original complaint‘s filing date;
- Whether the District Court correctly determined that there were no genuine issues of material fact regarding Forquest‘s failure to use reasonable care in the sale of securities to Investors;
- Whether the District Court correctly dismissed Advanced Analytical for lack of personal jurisdiction.
¶2 We affirm on Issues 1, 2, and 3, reverse on Issue 4, and remand for further proceedings.
¶3 Forquest Ventures is an Idaho corporation formed to operate a placer mining enterprise at the El Dorado Bar site northeast of Helena, Montana. Its sole director, Ken Hagman, incorporated Forquest Ventures in October 2005. Hagman and his wife, Allison Hagman, were Forquest Ventures’ principal investors and shareholders and its only corporate officers.
¶4 In forming Forquest Ventures, Hagman, who had no commercial mining experience or expertise, relied in part on his brother-in-law Ronnie Miller‘s representations regarding the El Dorado Bar site. Miller, in turn, relied on purported assay reports of the site allegedly performed by Advanced Analytical. The assay reports purported to show high levels of precious metal content at the site. Hagman also reviewed Advanced Analytical‘s purported assays and other information provided by Miller about the El Dorado Bar site before forming Forquest Ventures. Forquest never completed any professional mining feasibility assessment of the El Dorado Bar site before soliciting investment.
¶5 Following incorporation, Forquest sold or issued stock to at least 36 shareholders, including Investors. Most of the shareholders, including Investors, are relatives or family friends of Miller and Hagman. In making their initial investments, Investors ultimately relied on Forquest‘s representations that the mine likely would be highly profitable. Forquest based these representations on the purported Advanced Analytical assays. Prior to the mine‘s start-up and throughout its operation, Forquest repeatedly made representations to Investors about the mine‘s profit potential and continued to solicit capital from Investors. In total, Forquest received over $600,000 from Investors.
¶6 Although Forquest acknowledged start-up and operational problems at the mine to Investors, Forquest‘s optimistic representations about the venture‘s ultimate profitability continued until late August 2007. In September 2007, Forquest received independent, third-party assay results showing very little precious metal content at the El Dorado Bar site. Forquest did not inform Investors about the third-party assay results until October 19, 2007. In that communication, Forquest told Investors that “reality and truth have finally been set in front of us” and also informed Investors that Forquest Ventures had ceased mining operations. Ultimately, Forquest Ventures realized no profits and Investors received no return on their investments. The Hagmans, who owned approximately 31 percent of Forquest Ventures’ stock, also received no return on their investment.
¶8 Advanced Analytical responded by filing an unsupported motion to dismiss for failure to state a claim that the District Court denied. Under new counsel, Advanced Analytical then filed a motion to dismiss for lack of personal jurisdiction and alternatively, for summary judgment on the ground that Forquest‘s claims were time-barred.
¶9 Investors moved for summary judgment on their Montana Securities Act claims and Forquest filed a cross-motion for summary judgment on the ground that the claims were statutorily time-barred. The District Court heard argument on all pending motions in June 2012.
¶10 In June 2013, the District Court issued a thorough 194-page order granting summary judgment to Investors, denying Forquest‘s cross-motion for summary judgment, and granting Advanced Analytical‘s motion to dismiss. After resolving subsequent motions, the District Court entered an amended and final judgment in September 2014. The District Court concluded the following: “Misrepresentation” under
STANDARD OF REVIEW
¶11 We review an entry of summary judgment de novo. Albert v. City of Billings, 2012 MT 159, ¶ 15, 365 Mont. 454, 282 P.3d 704.
¶12 We review a district court‘s decision on a motion to dismiss for lack of personal jurisdiction de novo. Milky Whey, Inc. v. Dairy Partners, LLC, 2015 MT 18, ¶ 7, 378 Mont. 75, 342 P.3d 13. We construe the complaint in the light most favorable to the plaintiff. Milky Whey, ¶ 7.
DISCUSSION
¶13 1. Whether the District Court correctly determined that Investors timely asserted their claims under the Montana Securities Act,
¶14 A person claiming fraud or misrepresentation under the Montana Securities Act must file suit “within 2 years after discovery of the fraud or misrepresentation on which the liability is founded or after the discovery should have been made by the exercise of reasonable diligence.”
¶15 The District Court granted summary judgment to Investors on the ground that Investors’ fraud and misrepresentation claims did not accrue prior to receiving Forquest‘s October 19, 2007 correspondence informing Investors that Advanced Analytical‘s purported assays were inaccurate and mining operations had ceased. Therefore, the court ruled that Investors timely filed their complaint on October 14, 2009, pursuant to
¶17 Forquest‘s argument that Investors’ claims are time-barred because the last securities sale occurred on February 27, 2007, is unpersuasive. Under
¶18 Forquest‘s reliance on
¶19 In Thieltges, we addressed whether the facts constituting investors’ claims against a brokerage firm were concealed or self-concealing. Thieltges, ¶ 13. The investors in Thieltges failed to learn that the certified public accountant handling their investments was a registered securities salesperson with the brokerage firm until they
¶20 Here, similar to Thieltges, Investors’ claims did not accrue until they became aware of their injuries. Investors did not become aware of their injuries until they were informed that Advanced Analytical‘s purported assays were inaccurate and they would not receive any return on their investment because Forquest ceased mining operations. Even if
¶22 In addressing the drug company‘s arguments, the Court emphasized that under
In determining the time at which “discovery” of [the facts constituting the violation] occurred, terms such as ‘inquiry notice’ and ‘storm warnings’ may be useful to the extent that they identify a time when the facts would have prompted a reasonably diligent plaintiff to begin investigating. But the limitations period does not begin to run until the plaintiff thereafter discovers or a reasonably diligent plaintiff would have discovered ‘the facts constituting the violation,’ ... irrespective of whether the actual plaintiff undertook a reasonably diligent investigation.
Merck, 559 U.S. at 653, 130 S. Ct. at 1798 (emphasis added).
¶23 Similar to the limitations period addressed in Merck, the limitations period prescribed in
¶24 Forquest has not met its burden of establishing specific facts, as opposed to speculation or conjecture, showing how and when a reasonably diligent investor should have discovered Forquest‘s misrepresentations prior to October 19, 2007. Advanced Analytical‘s assays of the El Dorado Bar site purportedly showing—as Forquest represents in its brief—“that the mine would be one of the richest in the world” led to Forquest Ventures’ formation. Forquest, in turn, relied on the purported assays in making representations to Investors. These representations included claims that the mine held “well over one billion dollars of precious metals and stones,” and led Forquest to project a “conservative” annual investment return rate of “200%.” Such representations are the representations on which Forquest‘s liability is founded. Investors reasonably could not have discovered that Forquest‘s representations were false or misleading until Investors knew that the purported assays of the El Dorado Bar site were inaccurate.
¶25 Forquest‘s argument that Investors had a duty to discover the inaccuracy of the purported assays based on the multiple issues surrounding the mine‘s operation is unpersuasive considering that Forquest did not discover the purported assays’ inaccuracies until receiving the results of an independent, third-party assay in September 2007. Forquest waited to communicate this information to Investors until October 19, 2007. Forquest does not explain why reasonable diligence would demand that individual Investors obtain their own independent third-party assay in the face of Forquest‘s representations. It speculates that Investors could have discovered, but does not justify why they should have discovered, the misrepresentations before October 19, 2007.
¶26 Investors’ claims did not accrue until October 19, 2007, and thus, Investors timely filed their complaint under
¶27 2. Whether the District Court correctly determined that the non-Garza Investors’ claims relate back to the original complaint‘s filing date.
¶28
¶29 In granting summary judgment to Investors, the District Court concluded that the non-Garza Investors’ claims related back to the original complaint because the claims arose out of the same continuing conduct, occurrence, and transactions—namely, Forquest‘s securities sales to Investors. On appeal, Forquest asserts that the District Court erred in its determination because Investors became involved in Forquest Ventures under different circumstances so there was no identity of interest among Investors. Forquest relies on this Court‘s decision in Walstad v. Northwest Bank of Great Falls, 240 Mont. 322, 783 P.2d 1325 (1989), to argue that the conduct asserted in the non-Garza Investors’ claims is not identical to the conduct asserted in the original complaint. Forquest therefore contends that the claims in the amended complaint do not relate back to the original complaint and the non-Garza Investors’ claims are barred by the statute of limitations.
¶30 As the District Court noted, Walstad is not applicable to the facts of this case. In Walstad, we held that the claims in the amended complaint did not relate back to the claims in the original complaint due to the dissimilar nature of the collateral transactions at issue. Walstad, 240 Mont. at 326, 783 P.2d at 1327-28. The alleged harm in the amended Walstad complaint arose from the defendants’ loan to the party seeking to be added as a plaintiff whereas the alleged harm in the original complaint arose from the plaintiffs’ guaranty of that loan. Walstad, 240 Mont. at 326, 783 P.2d at 1327. We concluded that the parties therefore had no “clear identity of interest.” Walstad, 240 Mont. at 326, 783 P.2d at 1327.
¶31 We agree with the District Court that the underlying transactions at issue—securities sales induced by common misrepresentations—
(1) The Garza and non-Garza [Investors] purchased of [sic] the same or similar securities in the same venture or corporate enterprise;
(2) [Forquest] sequentially offered and sold the same or similar securities to all of the [Investors] by means of the same or substantially similar negligently false and inaccurate representations of material fact; and
(3) the Garza [Investors] timely asserted their original claims individually in a representative capacity “on behalf of all others similarly situated.”
¶32 Moreover, concluding that the non-Garza Investors’ claims relate back to the original complaint does not undermine the policies underlying the statute of limitations. Forquest had notice of the claims against it in the original complaint and had an adequate opportunity to defend those claims because the Garzas’ original complaint asserted claims on behalf of all others similarly situated—which, as Forquest knew, was a relatively small pool.
¶33 We conclude that the non-Garza Investors’ claims arose out of the conduct, transaction, or occurrence set out in the original complaint and therefore relate back to the date of its filing. Accordingly, we affirm the District Court‘s grant of summary judgment to Investors on this issue.
¶34 3. Whether the District Court correctly determined that there were no genuine issues of material fact regarding Forquest‘s failure to use reasonable care in the sale of securities to Investors.
¶35 After a detailed analysis, the District Court construed
¶36 The District Court further determined that Investors demonstrated the absence of genuine issues of material fact regarding Forquest‘s failure to use reasonable care in the sale of securities. The District Court relied in part on the following facts in determining that, under the totality of the circumstances, Forquest failed to use reasonable care: Forquest affirmatively represented to Investors that the venture likely would be highly profitable; reasonably diligent analysis of the El Dorado Bar site would have revealed the site‘s
¶37 On appeal, Forquest argues that the District Court erred in determining that there were no genuine issues of material fact regarding Forquest‘s exercise of reasonable care. At minimum, Forquest asserts, reasonableness is a question of fact for the jury. Forquest offers the following as evidence of its use of reasonable care: Hagman relied on an attorney when organizing Forquest Ventures; Forquest told investors that there was risk associated with investing in the mining operation; and Forquest relied on Advanced Analytical to analyze samples and provide consulting services. Forquest further asserts that if this Court holds under Issue 1 that a reasonably diligent plaintiff would not have a duty to investigate Forquest‘s representations based on the issues surrounding the mining venture, then there must be questions of fact regarding whether Forquest used reasonable care in relying on Advanced Analytical‘s purported assays.
¶38 Although breach of a duty to exercise reasonable care is generally a question of fact, Nelson v. Driscoll, 1999 MT 193, ¶ 40, 295 Mont. 363, 983 P.2d 972, such questions may be determined as a matter of law “when reasonable minds cannot differ,” Wiley v. City of Glendive, 272 Mont. 213, 216, 900 P.2d 310, 312 (1995). Forquest has not met its burden of establishing by substantial evidence that a genuine issue of material fact exists regarding Forquest‘s failure to use reasonable care. In fact, Forquest‘s arguments under Issue 1 belie its argument here. Forquest argues that Investors were not reasonably diligent in discovering Forquest‘s misrepresentations because “Forquest was forecasting sunshine despite the fact that it was obviously raining.” Reasonable minds cannot differ that forecasting sunshine despite the fact that it was obviously raining constitutes a failure to use reasonable care. In selling securities to Investors, Forquest was the “weatherman” on whom Investors relied in making their investments.
¶39 Forquest‘s proffered evidence of reasonable care does not rise above the level of mere denial, speculation, or conclusory assertions. By asserting that he relied on an attorney in organizing Forquest Ventures, Hagman, who had no mining experience or expertise, does not demonstrate his exercise of reasonable care in representing to Investors the mine‘s high profit potential. Forquest‘s assertion that it told Investors that there was risk associated with the mining operation does not rise to the level of substantial evidence of reasonable care considering that those same communications also contained
¶40 Contrary to Forquest‘s argument, our holding on Issue 1 does not undermine this conclusion. One of the fundamental purposes of the Montana Securities Act is to protect investors.
¶41 Accordingly, we conclude that the District Court correctly determined that Forquest established no genuine issues of material fact demonstrating its exercise of reasonable care in the sale of securities to Investors. The District Court therefore properly concluded that Investors were entitled to summary judgment on this issue.
¶42 4. Whether the District Court correctly dismissed Advanced Analytical for lack of personal jurisdiction.
¶43
(i) make it by motion under this rule; [or]
(ii) include it in a responsive pleading ...
¶44 The District Court concluded that Advanced Analytical
¶45 On appeal, Forquest relies on Prentice Lumber Co. v. Spahn, 156 Mont. 68, 474 P.2d 141 (1970), and In re Marriage of Smith, 2008 MT 461, 348 Mont. 174, 199 P.3d 824, to argue that Advanced Analytical waived its jurisdictional defense by filing an initial
¶46 Investors argue that the District Court correctly determined that Advanced Analytical could not waive unintentionally its personal jurisdiction defense.4 Investors, however, lack standing to make this argument. Jones v. Mont. Univ. Sys., 2007 MT 82, ¶ 50, 337 Mont. 1, 155 P.3d 1247 (concluding a party lacks standing to “assert the constitutional rights of others“).
¶47 In Ireland, the U.S. Supreme Court began its discussion of personal jurisdiction by noting that “personal jurisdiction flows ... from the Due Process Clause,” and therefore “protects an individual liberty interest.” Ireland, 456 U.S. at 702, 102 S. Ct. at 2104. As an individual liberty interest, personal jurisdiction may, “like other such rights, be waived.” Ireland, 456 U.S. at 703, 102 S. Ct. at 2105. The Court went on to note that personal jurisdiction may be waived intentionally, “or for various reasons a defendant may be estopped from raising the issue.” Ireland, 456 U.S. at 704, 102 S. Ct. at 2105. Moreover, a party‘s
¶48
¶49 In Milky Whey, we analyzed waiver of personal jurisdiction under
¶50 We hold that Advanced Analytical‘s waiver does not implicate due process concerns. Accordingly, we reverse the District Court‘s dismissal of Advanced Analytical for lack of personal jurisdiction.
¶51 We affirm the District Court‘s Order granting summary judgment to Investors against Ken Hagman and Forquest Ventures and dismissing Allison Hagman. We reverse its dismissal of Advanced Analytical for lack of personal jurisdiction and remand to the District Court for further proceedings consistent with this Opinion.
CHIEF JUSTICE MCGRATH, JUSTICES MCKINNON, SHEA and RICE concur.