Traders State Bank of Poplar v. Man ( 1993 )

No. 92-106
IN THE SUPREME COURT OF THE STATE OF MONTANA
TRADERS STATE BANK OF POPLAR,
Plaintiff and Respondent,
-vs-
.,
3 i993
.,
I,:?-, , :
,I> I
JOHN J. MANN and MANN FARMS, INC. 'I
Defendants, Third-Party Plaintiffs 'RP
and Appellants,
NORTHEAST MONTANA BANK SHARES, INC.;
JOHN WITTE; RICHARD LOEGERING; GERALD KREIG;
BRUCE A. FREDRICKSON; CHARLES R. CASHMORE;
MALCOLM H. GOODRICH: CROWLEY, HAUGHEY, HANSON,
TOOLE & DIETRICH,
Third-Party Defendants and Respondents.
APPEAL FROM: District Court of the Fifteenth ~udicialDistrict,
In and for the County of Roosevelt,
The Honorable Roy C. Rodeghiero, Judge presiding.
COUNSEL OF RECORD:
For Appellants:
John J. Mann, Pro Se, Wolf Point, Montana
Terry Wallace, Attorney at Law, Missoula, Montana
For Respondent:
Bruce A. Fredrickson, Ronald R. Lodders; Crowley,
Haughey, Hanson, Toole & Dietrich, Billings,
Montana
Submitted on Briefs: December 10, 1992
Decided: ., May 13, 1993
Filed:
Justice Karla M. Gray delivered the Opinion of the Court.
John J. Mann and Mann Farms, Inc. appeal from orders of the
Fifteenth Judicial District Court, Roosevelt County, granting
summary judgment and dismissing third-party claims. They also
appeal an order of the District Court denying a motion to dissolve
an injunction. John Mann appeals the contempt order entered
against him for refusing to comply with the injunction. We affirm
in part, reverse in part and remand.
We phrase the issues on appeal as follows:
1) Does the failure of John Mann and Mann Farms, Inc. to post
a supersedeas bond on appeal or otherwise stay the proceedings
below render this appeal moot?
2) Did the District Court err in concluding that the claims
the Mann Family asserted against the third-party defendants did not
constitute sufficient grounds for relief from the Mann I judgment
under Rule 60(b), M.R.Civ.P.?
3) Did the District Court err in granting summary judgment for
the Bank on its foreclosure complaint?
4) Can the District Court's grant of summary judgment on
foreclosure be upheld as to Mann Farms under the doctrines of
judicial estoppel, equitable estoppel or quasi-estoppel?
5) Did the District Court err in refusing to dissolve an
injunction and in finding John Mann in contempt for failing to
abide by the injunction?
The details surrounding this appeal constitute a morass of
factual and procedural intricacies. In 1 9 7 6 , Wilbur, Edna, John
and Frances Mann formed Mann Farms, Inc. (Mann Farms) . (Mann Farms
and the individual Mann family members are referred to collectively
herein as the Mann Defendants.) They began banking with Traders
State Bank of Poplar (the Bank) and operated for several years on
an unsecured basis. Mann Farms' debt load increased, however, and
in 1 9 8 3 , the Bank required security for Mann Farms' line of credit.
The parties began negotiations in late April of 1 9 8 5 in attempts to
reduce the loan balance.
On April 29, 1 9 8 5 , the Mann Defendants executed two promissory
notes to the Bank. The first note renewed a previous note of
$215,000, and the second renewed a previous note of $85,000. On
that date, the Mann Defendants also signed a mortgage pledging real
property to secure the $ 3 0 0 , 0 0 0 of existing debt (the $ 2 1 5 , 0 0 0 and
the $ 8 5 , 0 0 0 debts evidenced by the renewal notes) and $150,000 of
contemplated future advances. In addition, they executed four
security agreements, which were:
.A security agreement covering crops, livestock and farm
equipment and vehicles signed on April 29, 1 9 8 5 by John
Mann, Frances Mann, Wilbur Mann, and Edna Mann,
individually and as officers of Mann Farms as security
for notes totalling $300,000;
- A security agreement covering a 1 9 6 2 1 1 / 2 ton truck
signed on May 1 5 , 1 9 8 5 , by Wilbur Mann as security for
the $215,000 note;
.A security agreement covering various farm vehicles
signed on May 1 5 , 1 9 8 5 by John Mann as president of Mann
Farms as security for the $ 2 1 5 , 0 0 0 note; and
-A security agreement covering livestock signed on May
13, 1 9 8 5 , by Patricia Mann Mingus as security for notes
totalling $ 3 0 0 , 0 0 0 (Patricia Mingus is not a party to
this appeal but had ownership interest in the cattle).
On May 1, 1985, the Bank advanced the Mann Defendants $7,500,
which was evidenced by a promissory note and designated by the Bank
as operating money for 1985. Around this time, the Bank approved
two additional conditional loans of $25,000 each. Due to
disagreements over the collateral for the conditional loans, the
funds were not advanced
On May 15, 1987, Mann Farms filed for bankruptcy under Chapter
12 of the United States Bankruptcy Code. On March 28, 1988, the
Mann Defendants filed a tort claim against the Bank alleging, among
other things, breach of the covenant of good faith and fair dealing
and breach of fiduciary duty.
As required by the Bankruptcy Act, Mann Farms then filed its
plan of reorganization and characterized the debt with the Bank as
disputed. The reorganization plan specified that the Bank's lien
status would be determined in conjunction with the bad faith action
in state court. The Bank immediately contested the plan, arguing
that Mann Farms could not seek to cancel the notes in state court
and simultaneously seek to restructure the notes in the bankruptcy
action. Mann Farms amended its plan of reorganization, and
included the following clause:
The Debtor will not contest the validity of notes,
mortgages, or security interests of the Bank in state
court or by adversary proceedings in this court. Debtor
does intend to pursue the state court action previously
commenced by the debtor, insofar as prosecution of the
debtor's tort claims are concerned.
On June 22, 1988, the United States Bankruptcy Court for the
District of Montana approved the amended plan of reorganization,
and the Bank appealed to the United States District Court. That
court also affirmed the amended plan, and the Bank appealed to the
United States Court of Appeals for t h e Ninth circuit, arguing that
the state court tort action would restructure de facto its status
in the bankruptcy plan. The Ninth Circuit concluded that the tort
claims were independent of the contractual rights of the parties
and, therefore, that the Mann Defendants' action for tort damages
in state court could not affect the approved plan of
reorganization, In re Mann Farms, Inc. (9th Cir. 19901, 917 F.2d
1210, 1213.
~eanwhile, state court, the District Court granted summary
in
judgment in favor of the Bank on the tort claims. We affirmed in
Mann Farms, Inc. v. Traders State Bank (19901, 245 Mont. 234, 801
P.2d 73 (Mann I).
On April 19, 1991, the United States Bankruptcy Court
dismissed Mann Farms1 bankruptcy proceeding; final decree closing
the case was filed May 28, 1991. Two months later, the Bank filed
a complaint against the Mann Defendants, seeking judgment on the
promissory notes signed ~ p r i l29 and May 1, 1985, which totalled
$307,500, and foreclosure of the security agreements and mortgage
described above. The complaint alleged that on May 15, 1987, the
Mann Defendants had defaulted on the notes and that, at the time of
the complaint, they owed the Bank $575,709.85, The Bank also
sought to foreclose on a March 23, 1984, security agreement
covering crops, cattle, and farm equipment signed by John Mann as
president of Mann Farms as security for notes totalling $305,100.
John, Frances, Wilbur and Edna Mann (the Mann Family),
appearing pro se, answered the foreclosure complaint by generally
denying its allegations. They also asserted third-party claims
against Northeast Montana Bank Shares (the holding company for
Traders State Bank of Poplar) and two bank employees, John Witte
and Richard Loegering (the Bank Defendants), alleging that the Bank
Defendants had committed fraud upon the court in the earlier bad
faith action. Additionally, they asserted third-party claims
against Bruce Fredrickson, Charles Cashmore, Malcolm Goodrich, and
the law firm of Crowley, IIaughey, Hanson, Toole & Dietrich (the
Lawyer Defendants), claiming that the Lawyer Defendants had
assisted in perpetrating this alleged fraud. They also asserted
third-party claims against district court judge James Sorte, for
abandoning his judicial function in the bad faith action, and
against First Citizens Bank of Wolf Point, for conspiring with the
Bank to subvert the judicial process.
On August 12, 1991, John Mann, acting in his capacity as
president of Mann Farms, transferred all assets held by Mann Farms
into the Mann Family Trust. The Bank then sought an injunction
requiring the Mann Defendants to provide an accounting of all
proceeds received from any sale of the Bank's collateral and to
execute certain financing statements: the Bank also asked the court
to enjoin the Mann Defendants from disposing of any of the Bank's
collateral and from retaining any proceeds that may have been
obtained from the collateral.
Upon motion of the Bank, on September 3, 1991, the District
Court entered a default judgment on the foreclosure claim against
Mann Farms for failing to respond to the foreclosure complaint.
Judge Sorte and First Citizens Bank of Wolf Point moved to
dismiss the third-party claims. The Bank Defendants and the Lawyer
Defendants moved for summary judgment on the third-party claims
asserted against them. After a hearing on the motions on October
3, 1991, the District Court dismissedthe Mann Family's third-party
claims against Judge Sorte and First Citizens Bank of Wolf Point.
The court also granted the Lawyer Defendants and the Bank
Defendants' motions for summary judgment and issued the injunction
requested by the Bank.
On November 4, 1991, counsel appeared on behalf on Mann Farms.
On November 15, Mann Farms moved to set aside the default judgment
entered against it. The District Court set aside the default
judgment and allowed Mann Farms to file an answer. Mann Farms'
answer generally denied the foreclosure allegations and asserted
various affirmative defenses. John Mann and the other family
members continued to represent themselves pro se.
The Bank also moved for summary judgment on its foreclosure
complaint. In response, Mann Farms moved for summary judgment on
that issue; the Mann Family contended that summary judgment was
improper because genuine issues of material fact existed regarding
the foreclosure complaint. The Bank requested the District Court
to hold the Mann Defendants in contempt for their continued failure
to comply with the requirements of the October preliminary
injunction.
On December 20, 1991, a hearing was held on the remaining
motions. Mann Farms orally moved to dissolve the injunction; the
court denied the motion. After testimony and oral argument, the
District Court granted summary judgment for the Bank on the issue
of foreclosure. In a separate order, the District Court also found
each Mann family member to be in contempt of court for failing to
comply with its earlier injunction. This appeal follows.
During the lower court proceedings, John, Frances, Edna and
Wilbur Mann signed the pleadings individually and represented
themselves pro se. On appeal, we note that only John Mann and Mann
Farms have filed a notices of appeal. In Montana, a non-lawyer may
represent himself or herself, but only attorneys may practice law
and represent others. Weaver v. Law Firm of Graybill, et al.
(1990), 246 Mont. 175, 178, 803 P.2d 1089, 1091; $3 37-61-210, MCA.
John Mann may not appeal on behalf of Frances, Wilbur and Edna
Mann. Therefore, John Mann and Mann Farms are the only appellants
properly before this Court.
Does the failure of John Mann and Mann Farms, Inc. to post a
supersedeas bond on appeal or otherwise stay the proceedings below
render this appeal moot?
As a threshold issue, the Bank argues that because it has
foreclosed upon the security for the debt, and neither John Mann
nor Mann Farms posted a supersedeas bond or stayed the lower
proceedings, this appeal is moot. It cites First Sec. Bank of
Kalispell v. Income Properties, Inc. (1984), 208 Mont. 121, 126,
675 P.2d 982, 985, which held that a defendant is considered to
have acquiesced in a judgment if a bond is not posted or a stay of
proceedings obtained, citing Gallatin Trust & Sav. Bank v. Henke
(1969), 154 Mont. 170, 461 P.2d 448.
Since First Sec. Bank was decided, we have held that where
payment or performance of a judgment by an appellant is
involuntary, the appellant does not acquiesce to the judgment and
the right to appeal is not affected. LeClair v. Reiter (1988), 233
Mont. 332, 335, 760 P.2d 740, 742 (emphasis added). In LeClair,
the respondents foreclosed on a contract for deed and filed the
quitclaim deeds prior to our review. Like the Bank in this case,
the respondents argued that because they repossessed the property
and the appellant had not filed a supersedeas bond or otherwise
stayed execution, the appeal was moot. LeClair, 760 P.2d at 742.
We expressly overruled Henke and, in effect First Sec. Bank, and
held that the appeal was not moot because the defendant had not
voluntarily surrendered the property. LeClair, 760 P.2d at 742;
First Nat'l Bank in Eureka v. Giles (Mont. 1986), 43 St.Rep. 1326,
1328.
As in LeClair, Mann Farms and John Mann did not voluntarily
relinquish their real estate and personal property to the Bank; the
Bank foreclosed. We conclude that the failure to post a
supersedeas bond or otherwise stay the proceedings below does not
render Mann Farms and John Mann's appeal moot.
Did the District Court err in concluding that the claims the
Mann Family asserted against the third-party defendants did not
constitute sufficient grounds for relief from the Mann I judgment
pursuant to Rule 60(b), M.R.Civ.P.?
In response to the Bank's foreclosure complaint, the Mann
Family set forth a variety of third-party claims. John Mann
appeals only the dismissal of the third-party claims against the
Bank Defendants and the Lawyer Defendants. The substance of those
claims, as paraphrased by this Court, are:
*thatthe Bank Defendants conspired with the Lawyer Defendants
to deceive the court and subvert justice in Mann I;
*that Bank Defendant Loegering and Lawyer Defendant
Fredrickson perjured themselves during testimony and argu:ment
in Mann I;
that the Lawyer Defendants used I1f orceful argument1' and
"artful pleading1I to develop a fictitious theory of the case
that misled the district court in Mann I; and
-that the Lawyer Defendants misrepresented facts to the
district court in Mann I.
We note initially that although these allegations originally
were pled as third-party claims, John Mann testified at the October
3, 1991, hearing on the third-party claims that the claims were
filed under Rule 6O(b), M.R.Civ.P., and had no standing outside of
that rule. The District Court concluded that, even if all the
allegations against the Lawyer Defendants and the Bank Defendants
were true, the claims did not constitute sufficient grounds for
maintaining an independent equitable action to set aside the
judgment under Rule 60(b), M.R.c~v.P. The District Court also set
forth alternative bases for granting summary judgment in favor of
both the Lawyer Defendants and t h e Bank Defendants. Because we
find Rule 60(b), M.R.Civ.P., dispositive, we need not address the
alternative theories.
We have stated that a party seeking relief from a judgment
through an independent e q u i t a b l e a c t i o n under Rule 60(b) has three
avenues of relief: extrinsic fraud, lack of personal notification,
and fraud upon the court. Salway v. Arkava (1985), 215 Mont. 135,
140, 695 P.2d 1302, 1305; Brown v. Small (1992), 251 Mont. 414,
420, 825 P.2d 1209, 1213. Lack of personal notification is
inapplicable to the present case; accordingly, we examine the
third-party claims to determine whether extrinsic fraud or fraud
upon the court provide sufficient grounds for the Rule 60(b)
action.
Extrinsic fraud is defined as fraud that has prevented the
unsuccessful party from presenting his or her case. Extrinsic
fraud is collateral to the matters tried by the court and is not
fraud in the matters on which the judgment was rendered. Brown v.
Jensen (1988), 231 Mont. 340, 346, 753 P.2d 870, 874. We have held
repeatedly that neither perjured testimony nor false or fraudulent
allegations used in obtaining a judgment constitute extrinsic
fraud. Jensen, 753 P.2d at 875; Salwav, 695 P.2d at 1307.
It is apparent that none of the Mann family's allegations,
even if taken as true, constitute extrinsic fraud. None of the
allegations regarding the Lawyer Defendants or the Bank Defendants
are collateral to the action in Mann I; all focus on alleged fraud
during the proceedings in Mann I. Accordingly, we conclude that
the Mann family's allegations are insufficient for relief fromthe
judgment for extrinsic fraud pursuant to Rule 60(b), M.R.Civ.P.
Rule 6O(b), M.R.Civ.P. also allows relief from a judgment for
"fraud upon the court." We have characterized fraud upon the court
as that species of fraud which subverts or attempts to subvert the
integrity of the court itself. Sal-way,695 P.2d at 1306; Small,
825 P.2d at 1213. Fraud which attempts to defile the court has
been construed to include only the most egregious conduct, such as
bribery of a judge or member of the jury or the fabrication of
evidence in which an attorney has been implicated. Salway, 695
P.2d at 1306.
In this case, the record does not support any of the Mann
family's allegations, nor do such allegations, even if supported by
the record, constitute fraud upon the court. Fraud between the
parties, without more, does not rise to the level of fraud upon the
court. Small, 825 P.2d at 1213. John Mann can point to no outside
influence on the judicial proceedings in Mann I; the claims, even
if true, would constitute fraud between the parties. Additionally,
"forceful argument" and "artful pleading" do not rise to the
egregious conduct contemplated by this rule, but more closely
relate to the Lawyer Defendants' exercise of their duty to
zealously represent their client.
Because John Mann can demonstrate neither extrinsic fraud nor
fraud upon the court, we hold that the District Court did not err
in concluding that the third-party Claims Mann asserted against the
Bank Defendants and Lawyer Defendants did not constitute sufficient
grounds for maintaining an independent equitable action for relief
from the Mann I judgment under Rule 60(b), M.R.Civ.P.
Did the District Court err in granting summary judgment for
the Bank on its foreclosure complaint?
The District Court granted the Bank's summary judgment motion
12
on its foreclosure complaint and issued findings of fact,
conclusions of law and a decree of foreclosure. It concluded that
the Bank had established a prima facie case of foreclosure and that
all of the Mann Defendants' defenses to foreclosure were barred
under the doctrine of res judicata. Specifically, the court opined
that the gravamen of the defenses was that the Bank committed some
form of fraud in its lending relationship, and that those matters
were raised or could have been raised in Mann I. The court also
set forth additional legal doctrines supporting its decision.
Our standard in reviewing a grant of summary judgment is the
same as that initially utilized by the trial court. McCracken v.
City of Chinook (1990), 242 Mont. 21, 24, 788 P.2d 892, 894.
Summary judgment is appropriate when the pleadings, depositions,
and other documents on file demonstrate that no genuine issue of
material fact exists and that the moving party is entitled to
judgment as a matter of law. Rule 56 (c), M.R.Civ.P. With that
standard in mind, we review the District Court's decision.
The District Court's grant of summary judgment turned on its
conclusion that res judicata barred all of the Mann Defendants'
defenses. Having essentially removed the defenses from
consideration, the District Court then concluded that no genuine
issue of material fact remained and the Bank was entitled to
judgment as a matter of law. Therefore, we initially review
whether the District Court correctly concluded that res judicata
barred the defenses asserted by the Mann Defendants; our review of
legal conclusions is plenary. See Steer, Inc. v. Dep't of Revenue
(1990), 245 Mont. 470, 475, 803 P.2d 601, 603.
The principle underlying the doctrine of res judicata is that
a party is prohibited from relitigating a matter that the party has
already had an opportunity to litigate. Whirry v. Swanson (1992),
254 Mont. 248, 250, 836 P.2d 1227, 1228. The four criteria for res
judicata are:
1) the parties or their privies must be the same;
2) the subject matter of the action must be the same;
3) the issues must be the same and relate to the same
subject matter; and
4) the capacities of the persons must be the same in
reference to the subject matter and to the issues.
Whirry, 836 P.2d at 1228. Furthermore, once there has been full
opportunity to present an issue for judicial decision in a given
proceeding, the determination of the court in that proceeding must
be accorded finality as to all issues raised or which fairly could
have been raised. Filler v. Richland County (1991), 247 Mont. 285,
291, 806 P.2d 537, 541.
In this case, the parties are the same in both actions; the
Mann Defendants sued the Bank in Mann I, and the Bank's foreclosure
complaint named all Mann Defendants as defendants in the present
action. The subject matter is also generally the same; both suits
revolve around the banking relationship between the Bank and the
Mann Defendants.
As in Whirrv, the third element--whether the issues are the
same--is the key element here. In order to determine that the
issues are the same, the fundamental or essential question involved
in the second case must have been raised and determined in the
first case. Whirrv, 836 P.2d at 1229, citing Baertsch v. County of
14
Lewis and Clark (l986), 223 Mont. 206, 727 P.2d 504. Thus,
scrutiny of the precise questions involved in Mann I and those
involved in the present case is necessary.
In Mann I, the complaint against the Bank alleged tort claims,
including breach of the covenant of good faith and fair dealing,
negligent misrepresentation, and breach of fiduciary duty. As
paraphrased by the District Court, the facts supporting the Mann
Defendantsi tort claims in Mann I were:
1. The Bank's decision to withdraw $25,000 of
conditional operating credit in 1985.
2. The Bank's discussions with Citizens First National
Bank of Wolf Point regarding Mann Farmsf financial
situation.
3. The Bank's refusal to loan operating funds to Mann
Farms during the spring of 1986.
4. The SBAts refusal to loan disaster relief funds
unless certain conditions were met.
Here, the Bank's complaint alleged its prima facie case of
foreclosure. The Mann Family generally denied the foreclosure
allegations in their answer and, in response to the Bank's motion
for summary judgment, set forth in detail a multiplicity of
defenses to foreclosure. Mann Farms' answer also included
defenses. The majority of the Mann Defendants' defenses to
foreclosure sounded in contract; however, a few asserted defenses
were tort-related. We address first whether res judicata bars the
Mann Defendantst contract-related defenses.
Although the events surrounding both suits occurred in the
same time frame, the issues presented in the tort action are
distinct from those inherent in the contract defenses raised to the
foreclosure complaint. The issues in the first case were the Mann
Defendants' allegations of tortious conduct by the Bank over an
extended period of time and their resulting entitlement to damages.
The fundamental question raised and determined in Mann I was
whether the Bank's conduct in dealing with the Mann Defendants
violated a standard of due care. The fundamental question here is
whether the mortgage, security interests and notes are valid and
enforceable contracts. We conclude that the issues involved in
Mann I were different from those raised by the contract defenses to
foreclosure in this case.
We find support for this conclusion in Bras v. First Bank &
Trust Co. (Okla. l985), 735 P.2d 329, a closely analogous case. In
Bras, the bank foreclosed upon notes executed by the debtor, and
the debtor raised the defense of illegality of the notes due to
self-dealing by the bank. The bank was granted summary judgment on
the notes. Bras, 735 P.2d at 330. The debtor then sued the bank
in tort, alleging conspiracyto commit fraud based on circumstances
surrounding the original loan. The Oklahoma Supreme Court
concluded that his second suit was not barred by the first,
stating:
The [initial] summary judgment . . . necessarily
determined that the petitioner was primarily liable on
the note and that such note was not illegal because of
any "self-dealing." Unlike the former action, the
present one contains allegations of conspiracy to commit
fraud. We find no common elements between the fraud
action, a tort claim involving misrepresentation, and the
contract action in which illegal self-dealing was raised
as a defense to the validity of the note.
Bras, 735 P.2d at 333. Although the Mann cases occurred in reverse
order, the same is true here. The tort issues involved in Mann I
and the contract issues raised by the Mann Defendants' contract-
related defenses to foreclosure are not the same; therefore, res
judicata does not bar the defenses to foreclosure.
The Bank argues that although the validity of the notes was
not raised and determined in the first case, that issue fairly
should have been raised in Mann I. The Bank is correct that res
judicata prohibits both claims that were raised and claims that
should have been raised from being relitigated. Higham v. City of
Red Lodge (1991), 247 Mont. 400, 403, 807 P.2d 195, 197. We
disagree, however, that the Mann Defendants' defenses contesting
the validity of the notes should have been raised in Mann I.
Mann Farms filed for bankruptcy on May 15, 1987, and the
bankruptcy proceedings were eventually dismissed and closed in May
of 1991. The Mann Defendants commenced their tort action in Mann
- in March of 1988, and this Court affirmed the District Court's
I
grant of summary judgment on November 8, 1990. The entirety of the
tort action took place during the period Mann Farms was in
bankruptcy. During the pendency of Mann Farms' bankruptcy
proceeding, and pursuant to its plan of reorganization, the debtor
could not challenge the validity of the notes and security
interests. The plan also specifically allowed Mann Farms to
proceed with the tort claims in state court. The Bankruptcy Court,
the United States District Court and the Ninth Circuit Court of
Appeals all approved Mann Farms' amended plan of reorganization.
See In re Mann Farms, Inc., 917 F.2d at 1215.
The Ninth Circuit opinion also makes clear that Mann Farms'
agreement not to contest the validity of the notes was contingent
on the implementation of the bankruptcy plan of reorganization, by
noting "the debtor's agreement not to relitigate the matters
concluded by the approved plan . . . ." In re Mann Farms, Inc.,
917 F.2d at 1213 (emphasis added). Here, however, the bankrupcty
action ultimately was dismissed, and the reorganization plan was
not implemented; thus, issues surrounding the validity of the debt
to the Bank were never concluded pursuant to the approved plan.
Under such circumstances, Mann Farms' agreement not to "relitigate"
those matters was extinguished when the bankruptcy action was
dismissed.
The bankruptcy action was formally closed on May 28, 1991,
some months after our decision in Mann I. Only then could the Bank
foreclose on the notes, and only then could Mann Farms assert any
claims it had regarding the validity of the loan documents. Had
Mann Farms1 bankruptcy been pursued to a final conclusion and the
debts discharged or restructured, Mann Farms could not have
contested the validity of those documents; nor would such a
challenge have been necessary.
We conclude that the District Court's determination that the
Mann Defendants could have raised their contract-related defenses
to the notes in the earlier action is incorrect. Therefore, we
hold that the District Court erred in granting summary judgment to
the Bank on the basis that res judicata barred the Mann Defendants'
contract-related defenses.
For similar reasons, the District Court did not err in
concluding that the Mann Defendants' tort-related defenses were
precluded by res judicata. For example, the Mann Family raised
questions regarding whether the Bank owed the Manns a "general duty
of care" and whether the Bank was "negligent" in its dealings with
the Manns in their response to the Bank's motion for summary
judgment. Mann Farmsr answer included the affirmative defense of
"contributory negligence." Pursuant to our analysis and discussion
above, we conclude that tort-based allegations or defenses raised
by the Mann Defendants which do not directly concern the
contractual defenses to the notes, mortgage, and security interests
at issue are barred by res judicata because they could have been
raised in the earlier tort action.
Having determined that the Mann Defendants' contract-related
defenses are not barred by res judicata the issue is whether
genuine issues of disputed fact remain and whether the moving party
is entitled to judgment as a matter of law on those defenses. To
prevail on summary judgment, the initial burden on the Bank, as the
moving party, is to establish that the evidence raises no genuine
issue of material fact. Mayer Bros. v. Daniel Richard Jewelers
(l986), 223 Mont. 397, 399, 726 P.2d 815, 816. As noted above, the
District Court found that the Mann Defendants had executed the
promissory notes, security agreements and mortgage at issue and
that the Mann Defendants were in default on those instruments. It
concluded that the Bank had established a prima facie case for
foreclosure and, therefore, had met its initial burden on summary
judgment. We agree.
When the movant has met this initial burden, the burden shifts
to the party opposing summary judgment to show by present facts of
a substantial nature that a material fact issue does exist. Maver,
726 P.2d at 816. The party opposing summary judgment may not rest
upon the mere allegations of the pleadings, but has an affirmative
duty to respond by affidavits or sworn testimony with specific
facts that show a genuine issue of fact remains for trial. See
Maver, 726 P.2d at 816-7. Conclusory or speculative statements or
allegations in pleadings, arguments in briefs, and arguments made
by counsel do not constitute sufficient factual evidence to carry
the non-moving party's burden. See Sprunk v. First Bank System
(1992), 252 Mont. 463, 466-7, 830 P.2d 103, 104-5; Maver, 726 P.2d
at 817; Eitel v. Ryan (l988), 231 Mont. 174, 178, 751 P.2d 682,
684.
Because of its conclusion that res judicata barred the Mann
Defendants' defenses to foreclosure, the District Court did not
reach the question of whether the Mann Defendants had met their
burden in opposing summary judgment on the matter of foreclosure.
We have determined that the District Court erred in concluding that
res judicata barred the Mann Defendants' contract-related defenses.
Thus, the question of whether the Mann Defendants have presented
sufficient factual evidence to demonstrate a genuine issue of fact
on the contract-related defenses remains to be determined by the
District Court on the basis of the record before it.
Can the District Court's grant of summary judgment on
foreclosure be upheld as to Mann Farms under the doctrines of
20
judicial estoppel, equitable estoppel or quasi-estoppel?
As an alternative basis for summary judgment, the District
Court concluded that judicial estoppel, equitable estoppel and
quasi-estoppel barred Mann Farms from disputing the validity of the
debt instruments in the foreclosure action. The District Court did
not apply the estoppel doctrines to the Mann Family. Although the
parties do not argue these doctrines on appeal, this Court will
examine the record to determine whether separate support exists for
the District Court's result. Wolfe v. Webb (1992), 251 Mont.
217, 234, 824 P.2d 240, 250. We conclude that the aforementioned
doctrines do not bar Mann Farms from contesting the documents in
this case.
Judicial estoppel binds a party to his or her judicial
declarations, and precludes a party from contradicting those
declarations in a subsequent action or proceeding. DeMers v.
Roncor, Inc. (1991), 249 Mont. 176, 180, 814 P.2d 999, 1001. The
District Court concluded that the following clause in Mann Farms'
reorganization plan for bankruptcy triggered the doctrine:
The Debtor will not contest the validity of notes,
mortgages, or security interests of the Bank in state
court or by adversary proceedings in this court.
The court concluded that because Mann Farms had asserted this
proposition in bankruptcy proceedings, it could not challenge the
documents in defense of foreclosure.
The elements of judicial estoppel are:
1) the party being estopped must have knowledge of the
facts at the time the original position is taken;
2) the party must have succeeded in maintaining the
original position;
3) the position presently taken must be actually
inconsistent with the original position; and
4) the original position must have misled the adverse
party so that allowing the estopped party to change its
position would injuriously affect the adverse party.
DeMers, 814 P.2d at 1001-2. Applying those factors to the present
case, it is clear that neither element two nor element four is
satisfied here.
Mann Farms' bankruptcy proceeding was dismissed in May of
1991. Mann Farms did not "succeed" in its bankruptcy proceeding;
its debts were not discharged nor its reorganization plan fully
implemented. We stated in DeMers that acquiring a judgment in its
favor is not always necessary to satisfy this element, but the
party must have been at least successful in arguing its original
position against the party asserting the estoppel. DeMers, 814
P.2d at 1002. The record contains no evidence that would allow us
to conclude that Mann Farms successfully maintained the
reorganization plan and the pertinent clause against the Bank.
Furthermore, the record is devoid of evidence that the Bank
was misled by Mann Farms' original position or that allowing Mann
Farms to change its position adversely affects the Bank. On the
contrary, under the reorganization plan, the Bank was to receive a
$263,467.03 "cram down" debt in periodic payments. After
foreclosure, the Bank had at its disposal a foreclosure sale and
the possibility of a deficiency judgment against the individual
Mann family members--for the full amount of its debt. We conclude
that the clause in Mann Farms' reorganization plan, a plan that was
ultimately dismissed, does not trigger judicial estoppel and Mann
Farms is not barred from challenging the validity of the security
agreements in foreclosure proceedings.
For similar reasons, the doctrines of equitable estoppel and
quasi-estoppel are inapplicable to the present case. Equitable
estoppel requires reliance by the party asserting the estoppel on
an act or representation, and this reliance must induce the party
asserting estoppel to change its position for the worse. Wassberg
v. Anaconda Copper Co. (1985), 215 Mont. 309, 316, 697 P.2d 909,
914. Although this Court has not defined "quasi-estoppel, the
I
'
phrase is used interchangeably with equitable estoppel. See 28
Am. Jur.2d E s t o ~ ~ e l Waiver 5 29 (1966)
and . As discussed above, the
record contains no evidence that would support the application of
the estoppel doctrines.
Did the District Court err in refusing to dissolve an
injunction and in finding John Mann in contempt for failing to
abide by the injunction?
On September 19, 1991, the Bank applied for a preliminary
injunction under 5 27-19-201, MCA, against the Mann Defendants. On
October 3, 1991, following the evidentiary show cause hearing, the
District Court issued the requested injunction. The Mann
Defendants refused to comply with the terms, and the District Court
issued an order requiring the Mann Defendants to appear and show
cause why they should not be held in contempt for failing to comply
with the October injunction. At the show cause hearing in
December, Mann Farms orally moved to dissolve the injunction; the
District Court denied the motion and found the Mann Defendants in
contempt.
Mann Fams argues that the District Court erred in denying its
motion to dissolve the injunction; in essence, this argument goes
to the propriety of the District Court's decision to issue the
injunction itself. Mann Farms contends that the District Court
issued the injunction without any legal authority, and that the
injunction improperly resolved a contested issue regarding alleged
lapsed security interests. The Bank, on the other hand, argues
that the injunction was properly issued pursuant to 5 27-19-201,
MCA .
The injunction in question contained six integral provisions.
Mann Farms challenges only the following provision of the
injunction:
It is further ordered that the Mann D e f e n d a n t s complete
the following affirmative acts:
To execute the appropriate security documents,
including security agreements and Uniform
Commercial Code Financing Statements, which
documents are necessary to maintain the Bank's
security and priority positions in its collateral
pending appropriate resolution of the above
captioned litigation, and in order to bring the
Bank's security documents into conformity with the
Food Security Act of 1985.
Section 27-19-201, MCA, lists the specific circumstances under
which a District Court may issue a preliminary injunction. The
District Court did not include supporting findings of fact and
conclusions of l a w when it issued this injunction in October of
1991. We have specifically required that findings of fact and
conclusions of law must accompany preliminary injunctions. Ensley
v. Murphy (19831, 202 Mont. 406, 408, 658 P.2d 418, 419. Rule
52(a), M.R.Civ.P., expressly provides that:
[I]n granting or refusing interlocutory injunctions the
court shall similarly set forth the findings of fact and
conclusions of law which constitute the grounds of its
action.
An important purpose of findings of fact and conclusions of law is
to aid the appellate court in its review of the decision. See
Continental Realty, Inc. v. Gerry (1991), 251 Mont. 150, 153, 822
As in Ensley, we have no basis for determining whether the
disputed portion of the October injunction was properly included.
We cannot ascertain the facts on which the District Court relied or
the legal basis on which it issued the injunction or the order
denying Mann Farms' motion to dissolve it. Consequently, we cannot
properly determine whether the District Court erred. Therefore, we
vacate the preliminary injunction and remand for reconsideration
and entry of findings and conclusions. See Enslev, 658 P.2d at
Finally, John Mann also filed a notice of appeal of the order
finding him in contempt for failing to abide by the injunction.
Contempt orders generally are not appealable in Montana. Section
3-1-523, MCA, states in relevant part:
Judgment and orders i n contempt c a s e s f i n a l . The
judgment and orders of the court or judge made in cases
of contempt are final and conclusive. There is no
appeal, but the action of a district court or judge can
be reviewed on a writ of certiorari by the supreme court
John Mann has not filed the appropriate writ as directed by
the statute. This issue, therefore, is not properly before this
Court.
As a final matter we note that, by order dated October 14,
1992, this Court denied a motion by the Bank to strike John Mann's
briefs and for sanctions; we stated therein that we would address
the issue of sanctions against John Mann in our decision on appeal.
In light of our determinations herein, we conclude that further
consideration of the issue of sanctions is inappropriate at this
time .
Affirmed in part, reversed in part and remanded for further
proceedings consistent with this opinion.
We concur:
May 13, 1993
CERTIFICATE OF SERVICE
I hereby certify that the following order was sent by United States mail, prepaid, to the
following named:
JOHN J. MANN
P.O. Box 2219
Wolf Point, MT 59201
TERRY WALLACE
Attorney at Law
P.O. Box 4763
Missoula, MT 59806
Charles R. Cashmore
Bruce A. Fredrickson
Malcolm H. Goodrich
CROWLEY, HAUGHEY, HANSON, TOOLE & DJETRICH
P.O. Box 2529
Billings, MT 59103-2529
ED SMITH
CLERK OF THE SUPREME COURT
STATE OF MONTANA