McAtee v. Morrison & Frampton ( 2021 )

09/07/2021
DA 20-0556
Case Number: DA 20-0556
IN THE SUPREME COURT OF THE STATE OF MONTANA
2021 MT 227DEANNA H. McATEE,
Plaintiff and Appellant,
v.
MORRISON AND FRAMPTON, PLLP,
Defendant and Appellee.
APPEAL FROM: District Court of the Eleventh Judicial District,
In and For the County of Flathead, Cause No. DV-14-1017
Honorable Dan Wilson, Presiding Judge
COUNSEL OF RECORD:
For Appellant:
Mark M. Kovacich, Ben A. Snipes, Odegaard Kovacich Snipes, P.C.,
Great Falls, Montana
Michael J. McKeon, Jr., McKeon Law, PLLC, Butte, Montana
For Appellee:
Fred Simpson, Jenks & Simpson, P.C., Missoula, Montana
Submitted on Briefs: July 14, 2021
Decided: September 7, 2021
Filed:
c .,.--.
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__________________________________________
Clerk
Justice James Jeremiah Shea delivered the Opinion of the Court.
¶1 Plaintiff Deanna H. McAtee appeals from the orders of the Eleventh Judicial District
Court, Flathead County, granting summary judgment in favor of Defendant Morrison and
Frampton, PLLP, (M&F) and dismissing McAtee’s malicious prosecution claim with
prejudice. We restate and address the following issues on appeal:
1. Did the District Court err by granting summary judgment to M&F on McAtee’s
malicious prosecution claim upon determining the claim was judicially
estopped?
2. Did the District Court err by granting summary judgment to M&F on McAtee’s
malicious prosecution claim upon its determination that McAtee could not
demonstrate M&F lacked probable cause to bring the claim?
¶2 We affirm in part, reverse in part, and remand for further proceedings consistent
with this Opinion.
FACTUAL AND PROCEDURAL BACKGROUND
¶3 In May 2007, McAtee owned The Mortgage Source (TMS), a mortgage company
that brokered loans under a line of credit with Whitefish Credit Union (WCU). McAtee
brokered a construction loan, managed by WCU employee Doug Johnson, on which the
borrowers defaulted in 2008. McAtee was included on the loan as a personal guarantor,
and TMS held a trust indenture on the property. TMS assigned its interest in the trust
indenture to WCU. The assignment was not recorded.
¶4 When the borrowers defaulted on the loan, Johnson instructed McAtee to foreclose
on the property to save WCU the foreclosure expenses. A trustee sale occurred in February
2010, at which time TMS obtained title to the property. TMS sought additional financing
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from WCU to complete the unfinished construction on the property and to enable the
property’s sale to satisfy a portion of the loan obligations owed to WCU. WCU refused,
which prompted McAtee to obtain a loan from another source secured by the property.
¶5 In March 2011, M&F filed a civil complaint against McAtee on behalf of WCU,
alleging that McAtee committed fraud when she foreclosed on the property and pledged
WCU’s collateral rather than TMS’s collateral as security for the mortgage to the new
lender, leaving WCU with an unsecured loan. M&F also reported the fraud allegations to
federal law enforcement authorities, resulting in McAtee’s indictment on two counts of
federal banking fraud.
¶6 The criminal charges and civil fraud claims were ultimately dismissed against
McAtee on September 19, 2012, and January 29, 2014, respectively. During the pendency
of the civil and criminal fraud actions, on July 30, 2011, McAtee filed for bankruptcy and
received a discharge from the bankruptcy court on November 9, 2011. The bankruptcy
court closed its file on May 20, 2013.
¶7 In January 2015, McAtee filed a separate civil lawsuit against M&F alleging
malicious prosecution (Count I), abuse of process (Count II), and constructive fraud (Count
III), based on M&F’s involvement in initiating the fraud proceedings against her. M&F
moved for summary judgment on all claims, asserting McAtee was judicially estopped
from pursuing her claims against M&F because she had failed to disclose the claims as
assets in her personal bankruptcy. M&F also argued it was immune from the malicious
prosecution claim based on federal law; that McAtee’s abuse of process and constructive
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fraud claims were time-barred under the applicable statutes of limitations; and that McAtee
failed to allege facts in her complaint establishing all elements of constructive fraud.
¶8 In its May 14, 2018 and January 31, 2019 orders, the District Court denied M&F
summary judgment on McAtee’s malicious prosecution claim upon determining that the
claim was not barred by judicial estoppel. The District Court granted M&F summary
judgment on each of McAtee’s claims on other grounds and dismissed the claims with
prejudice.
¶9 McAtee appealed the District Court’s orders, and M&F cross-appealed. We
dismissed the appeal without prejudice and remanded to the District Court for
reconsideration in light of our intervening opinion, Kucera v. City of Billings, 2020 MT 34,
399 Mont. 10, 457 P.3d 952. See McAtee v. Morrison & Frampton, PLLP,
No. DA 19-0278, Order (Mont. Mar. 10, 2020).
¶10 In its October 23, 2020 order on remand, the District Court granted summary
judgment in favor of M&F on the issue of judicial estoppel and dismissed McAtee’s
malicious prosecution claim with prejudice. McAtee appeals.
STANDARDS OF REVIEW
¶11 “We conduct a de novo review of a district court’s ruling on motions for summary
judgment, using the same M. R. Civ. P. 56 criteria as the district court.” Norbeck v.
Flathead Cty., 2019 MT 84, ¶ 12, 395 Mont. 294, 438 P.3d 811. M. R. Civ. P. 56(c)(3)
provides that summary judgment is only appropriate when “the pleadings, the discovery
and disclosure materials on file, and any affidavits show that there is no genuine issue as
to any material fact and that the movant is entitled to judgment as a matter of law.” If the
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movant establishes no material factual dispute and entitlement to judgment as a matter of
law, the burden then shifts to the non-movant “to prove, by more than mere denial and
speculation, that a genuine issue of material fact does exist.” Dovey v. BNSF Ry. Co., 2008
MT 350, ¶ 12, 346 Mont. 305, 195 P.3d 1223.
¶12 In deciding a motion for summary judgment, the court “makes no factual findings
and resolves no factual disputes . . . .” Dovey, ¶ 20 (citations omitted).
DISCUSSION
¶13 1. Did the District Court err by granting summary judgment to M&F on McAtee’s
malicious prosecution claim upon determining the claim was judicially estopped?
¶14 “Judicial estoppel is an equitable doctrine intended to protect the integrity of the
judicial process from manipulation by litigants who seek to prevail, twice, on opposite
theories.” Kucera, ¶ 9. The doctrine prevents a party to an action from intentionally taking
a position inconsistent with the party’s prior judicial declarations. Kucera, ¶ 9. Judicial
estoppel does not apply “when a party’s prior position was based on inadvertence or
mistake.” Kucera, ¶ 9.
¶15 In the context of bankruptcy, we have recognized that “a debtor who fails to disclose
a contingent and unliquidated claim in a bankruptcy proceeding is judicially estopped from
pursuing that claim after being discharged from bankruptcy.” Kucera, ¶ 9 (citing Hamilton
v. State Farm Fire & Cas. Co., 270 F.3d 778, 783 (9th Cir. 2001)). A debtor who realizes
she has a potential claim against a creditor must amend her bankruptcy schedule to include
the claim as an asset. Kucera, ¶ 10 (citing Dovey, ¶ 21). See also 11 U.S.C. § 541(a)
(providing the bankruptcy estate includes “all legal or equitable interests of the debtor in
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property as of the commencement of the case.”). The debtor’s duty to disclose the potential
claim continues until the bankruptcy proceeding closes. Kucera, ¶ 12.
¶16 McAtee argues on appeal that at the time she filed her bankruptcy petition, she was
not required “to schedule a potential malicious prosecution claim as if it were an accrued
cause of action” because no favorable termination of the action had occurred in the
underlying case.
¶17 “To determine whether a claim for malicious prosecution is part of the bankruptcy
estate, one must examine whether it is sufficiently rooted in pre-petition conduct.” Johnson
v. Mitchell, No. CIV S-10-1968 GEB GGH PS, 2011 U.S. Dist. LEXIS 44367, at *13, 2011
WL 1586069 (Apr. 22, 2011). A claim for malicious prosecution is established upon a
showing of the following elements:
(1) a judicial proceeding was commenced and prosecuted against the
plaintiff;
(2) the defendant was responsible for instigating, prosecuting or continuing
such proceeding;
(3) there was a lack of probable cause for the defendant’s acts;
(4) the defendant was actuated by malice;
(5) the judicial proceeding terminated favorably for plaintiff; and
(6) the plaintiff suffered damage.
Plouffe v. Mont. Dep’t of Pub. Health & Human Servs., 2002 MT 64, ¶ 16, 309 Mont. 184,
45 P.3d 10. All six elements must exist for the claim to accrue. Plouffe, ¶ 16; Belanus v.
Potter, 2017 MT 95, ¶ 17, 387 Mont. 298, 394 P.3d 906 (quoting § 27-2-102(2), MCA)
(“A claim accrues ‘when all elements of the claim or cause exist or have occurred, the right
to maintain an action on the claim or cause is complete, and a court or other agency is
authorized to accept jurisdiction of the action.’”).
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¶18 McAtee filed her bankruptcy petition on July 30, 2011. Because the criminal fraud
charges were commenced and dismissed against her during the time her bankruptcy case
was open, McAtee was required to disclose her malicious prosecution claim as premised
on the criminal case once the charges were dismissed. See Kucera, ¶ 12 (quotations
omitted). McAtee’s failure to disclose the claim as premised on the criminal charges in
her bankruptcy judicially estops her from pursuing the claim in this later action.1
¶19 McAtee was not required, however, to amend her bankruptcy schedules to include
her malicious prosecution claim as premised on the civil fraud action because no
termination, favorable or otherwise, existed in the civil fraud action while McAtee’s
bankruptcy case was pending. Considering that “the element of termination in [a]
plaintiff’s favor is of paramount importance to a malicious prosecution claim, and the claim
would not exist without this primary predicate,” Johnson, *20, McAtee’s malicious
prosecution claim, as premised on the civil fraud action, had not yet accrued at the time she
filed her bankruptcy petition and cannot be deemed rooted in her pre-bankruptcy conduct.
McAtee was therefore not required to schedule the claim as an asset in the bankruptcy
proceeding.
¶20 The District Court erred by holding that McAtee’s failure to disclose the unaccrued
malicious prosecution claim based on M&F’s civil fraud action in the bankruptcy
proceeding judicially estopped her from later pursuing the claim. To the extent McAtee’s
1
McAtee also argues on appeal that M&F’s report of fraud leading to the criminal charges was
not protected under 31 U.S.C. § 5318 of the Anunzio-Wylie Anti-Money Laundering Act. Because
we determine McAtee’s malicious prosecution claim as premised on the criminal charges is
judicially estopped, we decline to address this argument on appeal.
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claim was premised on M&F’s instigation of criminal charges against her, the District
Court correctly held that she is judicially estopped from pursuing the claim.
¶21 2. Did the District Court err by granting summary judgment to M&F on McAtee’s
malicious prosecution claim upon its determination that McAtee could not
demonstrate M&F lacked probable cause to bring the claim?
¶22 “A malicious prosecution begins in malice, without probable cause to believe the
action can succeed, and finally ends in failure.” Plouffe, ¶ 16. “Want of probable cause is
an essential element of a malicious prosecution cause of action.” Reece v. Pierce Flooring,
194 Mont. 91, 96, 634 P.2d 640, 643 (1981). In the context of malicious prosecution,
probable cause means “reasonable grounds for suspicion, supported by circumstances
reasonably strong in themselves to warrant a reasonably prudent and cautious person in the
belief that the accused is guilty of the offense charged.” White v. State, 2013 MT 187, ¶ 36,
371 Mont. 1, 305 P.3d 795 (internal alterations omitted).
¶23 McAtee correctly argues on appeal that the District Court erroneously determined
as a matter of law that M&F had probable cause to file the underlying fraud claim. Probable
cause is “determined under an objective standard on the basis of the facts known to the
party initiating the legal action . . . .” Plouffe, ¶ 18. “A finding of probable cause to
instigate civil litigation . . . is based on a totality of the circumstances.” Plouffe, ¶ 19. As
such, the issue of whether probable cause existed at the time of filing the underlying action
“must be submitted to the jury for resolution when direct and circumstantial evidence
related to the defendant’s knowledge is susceptible to different conclusions by reasonable
persons.” Plouffe, ¶ 18. “Only where the material facts are not in dispute, or when only
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reasonable inference can be drawn from the evidence, does the existence of probable cause
become an issue of law for the court to resolve.” Reece, 194 Mont. at 96, 634 P.2d at 643.
¶24 The theory underlying McAtee’s malicious prosecution claim is that M&F’s
investigation based solely on review of the WCU loan file formed an inadequate basis to
establish probable cause, because certain witnesses or possible witnesses were not
interviewed prior to M&F filing the civil fraud claim against McAtee.2 McAtee alleges in
her amended complaint that neither M&F nor WCU spoke with WCU employee Johnson,
who instructed that McAtee foreclose on WCU’s lien interest to avoid WCU bearing the
costs of foreclosure. McAtee’s allegations regarding the reasonableness of M&F’s actions
or inactions during its investigation are a material factual dispute that must be resolved by
a jury. The District Court erred in granting summary judgment to M&F on McAtee’s civil
malicious prosecution claim.
CONCLUSION
¶25 We reverse the District Court’s grant of summary judgment to M&F upon
determining that McAtee’s failure to disclose the civil fraud claim in the bankruptcy
proceeding judicially estopped her from later pursuing her malicious prosecution claim.
We affirm the District Court’s grant of summary judgment to M&F to the extent it applied
judicial estoppel to McAtee’s claim as premised on the criminal charges that were brought
against her. We reverse the District Court’s grant of summary judgment to M&F upon
2
Although McAtee focuses her argument on appeal primarily on whether M&F had probable
cause to institute its civil fraud claim, the lack of probable cause element of a malicious prosecution
claim may be established by a defendant’s conduct in “instigating, prosecuting or continuing a
judicial proceeding . . . .” Spoja v. White, 2014 MT 9, ¶ 12, 373 Mont. 269, 317 P.3d 153.
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determining that McAtee could not demonstrate as a matter of law that M&F lacked
probable cause at the time M&F filed its civil fraud claim. We remand the case for further
proceedings consistent with this Opinion.
/S/ JAMES JEREMIAH SHEA
We Concur:
/S/ MIKE McGRATH
/S/ BETH BAKER
/S/ DIRK M. SANDEFUR
/S/ JIM RICE
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