Estate of Pruyn v. Axmen ( 2009 )

IN THE SUPREME COURT OF THE STATE OF MONTANA
Supreme Court Cause No. DA 08-0352
ESTATE OF EARL M. PRUYN, ACTING THROUGH
THE PERSONAL REPRESENTATIVE JACK MEYER,
AXMEN PROPANE, INC., a Montana corporation,
and EDWARD KIMBRELL, individually,
REPLY BRIEF OF APPELLANT
On Appeal from the Fourth Judicial District Court, Missoula County
Appearances:
-.
Randy J. Cox Edward N. Kimbrell
Scott M. Steams 1410 Pinnacle Falls
Thomas J. Leonard San Antonio, TX 78260
EOONE KARLBERG P.C. Telephone: (210) 462-9108
201 West Main, Suite 300
P.O. Box 9199
Missoula, MT 59807-9199
Telephone: (406) 543-6646
Facsimile: (406) 549-6804
rcox@boonekarlberg.com
ssteams@boonekarlberg.com
tleonard@boonekarlberg.com
Attorneys for Appellant
David R. Cotner
Trent N. Baker
DATSOPOULOS, MACDONALDLIND
&
201 West Main, Suite 201
Missoula, MT 59802
Telephone: (406) 728-08 10
Facsimile: (406) 543-0134
dcotner@dmllaw.com
tbaker@dmllaw.com
Attorneys for Appellee
TABLE OF CONTENTS
I. THE DISTRICT COURT ERRED IN OVERTURNING
ITS PRIOR SUMMARY JUDGMENT ORDER . . . . . . . . . . . . . . . . . . . . . . .1
A. Kimbrell Acted With Ostensible Authority To Bind Axmen ........1
B. ICimbrell Had Actual Authority to Speak for Amen's Board . . . . . . . . 2
C. Axmen's Motion for Reconsideration Was Improper ..............5
1. There Was No Newly Discovered Evidence . . . . . . . . . . . . . . . . 5
2. There Was No Manifest Error or Extraordinary
Circumstance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
D. Axmen's Motion Was Denied After 60 Days . . . . . . . . . . . . . . . . . . . .7
E. Judge Henson's Order Was the Law of the Case . . . . . . . . . . . . . . . . . . 8
I1. THE DISTRICT COURT ERRED IN GRANTING SUMMARY
JUDGMENT TO AXMEN ON BREACH OF CONTRACT . . . . . . . . . . . . . . 8
A. The District Court Disregarded Undisputed Facts .................8
B. Axmen Is Liable Under the UCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
C. The Par01 Evidence Rule Does Not Apply . . . . . . . . . . . . . . . . . . . . . .12
111. THE DISTRlCT COURT ERRED IN GRANTING SUMMARY
JUDGhlENT TO AXMEN ON UNJUST ENRICHMENT . . . . . . . . . . . . . . 13
A. Pruyn Should Recover In Equity If the Note Does Not
BindAxlnen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
B. Pruyn Did Not Waive His Claim By Accepting Payments . . . . . . . . . 14
C. Pruyn Satisfied the Elements of Unjust Enrichment . . . . . . . . . . . . . . 15
D. The UCC Does Not Preclude Pruyn's Claim In Equity . . . . . . . . . . . . 17
IV . THE DISTRICT COURTABUSED ITS DISCRETION IN
GRANTING AXMEN ITS ATTORNEY FEES . . . . . . . . . . . . . . . . . . . . . . 17
A. The Equitable Exception Does Not Apply . . . . . . . . . . . . . . . . . . . . . . 17
B. The Court Should Give Effect to Montana's Statutes.
Not Washington's or California's . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18
V. AXMEN'S EXPARTE COMMUNICATIONS TO THE DISTRICT
COURT VIOLATED PRUYN'S DUE PROCESS RIGHTS . . . . . . . . . . . . . 19
CERTIFICATE OF COMPLIANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
. ...
CERTIFICATE OF SERVICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 ::
TABLE OF AUTHORITIES
CASES
Federal Cases
Old Person v. Brown,
312 F.3d 1036 (9th Cir. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
State Cases
Bekkedahl v. McKittrick,
2002 MT 250,312 Mont. 156,58 P.3d 175 . . . . . . . . . . . . . . . . . . . . . . . . . .19
Carelli v. Hall,
279 Mont. 202,926 P.2d 756 (1996) . . . . . . . . . . . . . . . . . . . . . . . . .11,12,13
Daniels-Sheridan Federal Credit Union v. Bellanger,
2001 MT 235,307 Mont. 22,36 P.3d 397 . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Estate of Pruyn v. Axmen Propane, Inc.,
2008 MT 329,346 Mont. 162,194 P.3d 650 . . . . . . . . . . . . . . . . . . . . . . . . . .7
Fjelstad v. Mo~ztanaDept. of Highways,
267 Mont. 211,883 P.2d 106 (1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
In re Marriage ofRock,
257 Mont. 476,850 P.2d 296 (1993) ...............................
17
Johnson v. Eagles Lodge Aerie 3913,
284Mont.474,945P.2d62(1997) ................................8
.
Maxted v. Barrett
198 Mont. 81,643 P.2d 1161 (1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
.
Nortl7~iest
Polymeric, Inc. v. Farmers State Bank,
236 Mont. 175,768 P.2d 873 (1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Phelps v. Union Central Life Ins. Co.,
105 Mont. 195,71 P.2d 887 (1937) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Real Estate Loan Fund Oreg. Ltd. v. Hevner,
709P.2d727(Or.App.1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,5
Rex v. Sussex Justices,
1 K.B. 256 (1924) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ; . . . . . 20
.
Rudio v. Yellowstone Merchandising Corp.,
200 Mont. 537,652 P.2d 1163 (1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Shields v. Helena School District No. I ,
284 Mont. 138,943 P.2d 999 (1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
.
Suwco v. Kenyon Noble Ready-Mix,
204 Mont. 41 1,664 P.2d 943 (1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
.
Tanner v. Dream Island, Inc.,
275 Mont. 414,913 P.2d 641 (1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Teanzsters Union Local No. 2 v. C.N.H. Acquisitions, Inc.,
2009 MT 92, Mont. - , 204P.3d733 . . . . . . . . . . . . . . . . . . . . . . . . . .8
VanDyke Construction Co., Inc. v. Stillwater Mining Co.,
2003 MT279,317 Mont. 519,78 P.3d 844 . . . . . . . . . . . . . . . . . . . . . . . . . .14
Washington v. Montana Mining P~eoperties,
Inc.,
243 Mont. 509,795 P.2d 460 (1990) . . . . . . . . . . . . . . . . . . . . . . . . .
19,20,21
STATUTES
Mont. Code Ann. 5 28-3-704 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
18.
Mont. Code Ann . 5 28-10-403 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1.
Mont . Code Ann . 5 30-3-403(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 12
Mont. Code Ann . 5 30-3-404(1) ........................................
12
. .
Mont . Code Ann . 5 30-3-406 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11, 12
RULES
Mont . R.Civ. P . 59(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
,
Mont. R . Civ. P. 60(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.
Mont.R.Civ.P.60(~). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
.
MISCELLANEOUS
Cal.Civ.Code1717(a) ...............................................
19
RCW4.84.330 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Richard E. Flamm, Judicial DisqualiJication. 5 5.6.4 (1996) . . . . . . . . . . . . . . . . .20
I. THE DISTRICT COURT ERRED IN OVERTURNING ITS PRIOR
S
Y
- JUDGMENT ORDER.
Reading h e n ' s brief, one might conclude this litigation began not in July
2004, but some three years later when Judge Deschamps granted sum~nary
judgment
to Axmen. Axmen characterizes all matters pre-dating Judge Deschamps' ruling as
minor "procedural" issues not warranting remand. Axmen is wrong. Judge
Henson's initial order granting summary judgment to Pruyn was correct, and the
reversals of that order were procedurally and substantively improper.
A. fimbrell Acted With Ostensible Authority To Bind Axmen.
Judge Henson correctly ruled that h e n ' s president, Kimbrell, bound h e n
on the promissory note. A m e n professes ignorance of the loan transaction, and
insists its ignorance proves absence of Kimbrell's ostensible authority. But
ostensible authority exists if, "by want of ordinary care," Axmen allowed Pruyn to
believe Kimbrell possessed the requisite power to bind the company. See Mont.
Code Ann. $28-10-403. Ostensible authority "may be established by onzissions as
well as by commissions." Northwest Polymeric, Inc. v. Famzers State Bank (1989),
236 Mont. 175, 178, 768 P.2d 873, 875 (emphasis added).
As demonstrated in its brief, A m e n does not dispute it made Kimbrell
managing partnerlpresident of the company and allowed him virtually unchecked
control over h e n ' s operations. A m e n does not dispute it never told Kimbrell the
scope of his borrowing and purchasing authority. Axmen does not dispute it did
nothing to correct the understandable perception that Kimbrell, as president, had
authority to bind the company. Axmen acknowledged that the "level of awareness"
of Axmen's other owners, Grant and Guy Hanson, was lacking. (CR 22, Ex. A,
84:6-15.) Nonetheless, A m e n contends Pruyn should have done more and is stuck
with the loss.
Axmen argues "Pruyn's assertion that Kimbrell had ostensible authority to
bind Axmen cannot rely upon facts discovered after the Note was signed."
(Axmen's Brief, p. 12.) While it is true that facts supporting Pruyn's reasonable
reliance are those facts known to Pruyn at the time of the loan transaction, other
facts are not irrelevant. The facts establishing A m e n ' s lack of ordinary care in
controlling Kimbrell -whether known to Pruyn at the time or not - go to the heart of
ostensible authority. Because of Amen's negligence, Pruyn could not have known
about now-claimed limits on Kimbrell's authority before it was too late.
With respect to Pruyn's knowledge of the Powderhorn transaction, it makes no
difference whether Kiinbrell told Pruyn the money was going to pay a debt to
Powderhorn, buy new tanks in the Bitterroot, or purchase a company condo in the
Bahamas. The question is whether Kimbrell sought the loan on the company's
behalf, and whether Pruyn reasonably believed Axinen's president could bind
A m e n . Despite bald assertions the loan was personal to Kimbrell, Axmen does not
dispute that Kimbrell sought the loan, at least ostensibly, in his representative
capacity as Axmen president. Indeed, the money went to pay an Axrnen debt and
was never converted to Kimbrell's benefit. Nevertheless, Axmen claims Pruyn
should not have trusted its president.
Seeking to portray Pruyn's reliance on Kimbrell as unreasonable, Axlnen
presents misleading excerpts froin Piuyn's deposition. (Axmen's Brief, pp. 12-15.)
Axmen cites Pruyn's admittedly spotty recollection of his veryJirst meeting with
Kimbrell, in which Kimbrell informed Pruyn he was "running the propane business"
and provided Pruyn with certain company documentation. Still, Pruyn denied the
initial loan request. (CR 22, Ex. D, 65:12-25.) A m e n then skips forward to this
part of the transcript:
Q. (By Axmen's attorney) . . . Do you recall any other conversations
you had with Ed Kimbrell before the money was wired out of
your account?
A. No.
(Axmen's Brief, p. 15 (quoting CR 22, Ex. D, 8 1:14-20).)
A m e n skips over everything between Pruyn's initial meeting with Kimbrell
and his making the loan. This misleading portrayal of the record is telling. Axmen
disregards that Pruyn met with Kimbrell on several occasions following the initial
meeting, reviewed extensive company documentation provided by Kimbrell, and
conducted an independent investigation into the operations of the company. (CR 22,
EX.D, 44:15-24; 56:9-57:16; 89:12-23.)
Axmen correctly notes that a person dealing with a known agent may not
"blindly trust the agent's statements as to the extent of his powers." (See h e n ' s
Brief, pp. 15-16 (citing Phelps v. Union Central Life Ins. Co. (1937), 105 Mont. 195,
71 P.2d 887, 889.)) It is reinarkable that h e n makes this argument. Axmen, by
its own admission, blindly trusted Kimbrell to run the company, yet criticizes Pruyn
for not nailing down the precise extent of Kimbrell's powers - something Axmen
itself never did.
B. Kimbrell Had Actual Authority to Speak for Axmen's Board.
Axrnen ignores that Kimbrell had authority to relay the decision of the Axmen
board to Pruyn, even if he lacked authority to bind the company on his signature
alone. Pruyn reasonably relied on Kiinbrell's representation that all members of
Axinen's board approved the loan. See Real Estate Loan Fund Oreg. Ltd. v. Hevner
(Or. App. 1985), 709 P.2d 727.
C. Axmen's Motion for Reconsideration Was Improper.
Axmen claims its motion for reconsideration was appropriate because of
LLmanifest
errors of law or fact," and "newly discovered or previously unavailable
evidence." See id. In reality, Axmen's motion was just what Axmen said it was:
a motion filed "in lieu o f . . . an appeal." (CR 41.5.)
1. There Was No Newly Discovered Evidence.
Axmen's "newly discovered evidence" was a police interview of Dennis
Starkel, the attorney who drafted the promissory note, taken a year and two months
before Judge Henson granted summary judgment to Pruyn. Axmen claims the date
of the statement is immaterial, and the date it became "available" is what counts.
Tellingly, Axlnen never reveals that date. Nor does Axmen say when or how it
obtained the Starkel statement. Instead, it asserts, without citation to the record, that
the statement was not "available" for the initial summary judgment proceedings.
Axmen does not explain why it was able to obtain Starkel's statement for
Judge McLean, but unable to do so for Judge Henson. The fact is, Axmen knew of
the Starkel statement from the very beginning because Rich Ochsner, former
Missoula police detective and business partner of the Hansons, was involved in the
underlying criminal investigation.' Axmen has never disputed it was aware of the
Starkel statement from the moment it was taken. Still, it did nothing to bring the
statement to light until it lost on summary judgment and hired new lawyers. This
does not make the evidence "new." The evidence must be that "which by due
diligence could not have been discovered [earlier]." Mont. R. Civ. P. 60(b)(2); see
also Fjelstad v. Montana Dept. of Highways, (1994) 267 Mont. 21 1, 220, 883 P.2d
106,111. Axmen has made no such showing.
2. There Was No Manifest Error or Extraordinary
Circumstance.
Axmen's motion for reconsideration was not based upon "manifest error" or
"extraordinary circumstances," but on Axmen's dissatisfaction with Judge Henson's
ruling. See Shields v. Helena School District No. 1, (1997) 284 Mont. 138, 143,943
P.2d 999, 1002. Axmen's arguments did not change and, except for the immaterial
and cumulative Starkel statement, neither did the evidence. Axmen's attempt to
relitigate the case before a new judge, "in lieu of an expensive and time consuming
appeal" (CR 41.5, p. 2), was contrary to the rules.
' In the underlying criminal matter, it was at the hearing to suppress
Ochsner's interview of Kiinbrell that Judge Deschamps offered to recuse himself
because of his close relationship with the Axmen partner, Ochsner. (CR 135.1.)
In what amounted to an intermediate appeal, A m e n claims Judge Henson's
decision was manifestly wrong in two respects: (1) he failed to cite to the UCC, and
(2) he ignored disputed facts. A m e n fails to mention it did not raise the UCC in
response to Pruyn's motion for summary judgment. (CR 23.) To the extent this was
error, it was Axmen's error. Further, as set forth below, the UCC supports Pruyn's
position.
The undisputed facts relative to Kimbrell's ostensible authority have already
been discussed. Far from "manifestly wrong," Judge Henson was correct in granting
summary judgment to Pruyn.
D. Axmen's Motion Was Denied After 60 Days.
Judge McLean was required to rule on Amen's motion for reconsideration
within 60 days from the date of filing. Mont. R. Civ. P. 60(c), 59(d); see also Estate
ofPruyn v. Axmen Pvopane, Inc., 2008 MT 329,15,346 Mont. 162, 194 P.3d 650.
. .
He did not, and the motion was deemed denied.
A m e n argues, without authority, that the 60-day time limit oilly applies to a
final appealable judgment. (Amen's Brief, p. 3 1.) Though conceding its motion
was brought under Rule 59 and/or 60, Axmen argues the time limits of those rules
are inapplicable. While a district court generally retains jurisdiction over a case until
final judgment, this principle does not obviate the specific requirements of Rules 59
and 60. See, e.g., Johnson v. Eagles Lodge Aerie 3913 (1997), 284 Mont. 474,478,
945 P.2d 62, 64 (60-day time limit is "mandatory and strictly enforced").
E. Judge Henson's Order Was the Law of the Case.
Axlnen argues "Montana law is clear that only decisions rendered by the
Montana Supreme Court are 'law of the case."' (Axmen's Brief, p. 36.) This is
incorrect. As this Court recently stated: "[Wlhen an issue is once judicially
determined, that should be the end of the matter as far as successivejudges sitting in
the same case are concerned." Teamsters Union Local No. 2 v. C.N.H.Acquisitions,
Inc., 2009 MT 9 2 , l 16, Mont. , 204 P.3d 733; see also OldPerson v. Brown
(9th Cir. 2002), 3 12 F.3d 1036, 1039 ("[A] court is ordinarily precluded f?om
reexamining an issue previously decided by the same court, or a higher court, in the
same case." (Emphasis added)).
11. THE DISTRICT COURT ERRED IN GRANTING SUMMARY
JUDGMENT TO AXMEN ON BREACH OF CONTRACT.
A. The District Court Disregarded Undisputed Pacts.
Judge Henson found sufficient undisputed evidence to grant summary
judgment to Pruyn. Judge Deschamps, viewing the same evidence, concluded there
was "no evidence" supporting Pruyn's position. (App. D, p. 12.) In seeking to
justify this remarkable reversal, A m e n disregards evidence contrary to its position
and makes no attempt to address the evidence discussed in Pruyn's brief. Indeed,
Axmen's Statement of Facts cites almost entirely to one document - Guy Hanson's
own self-serving affidavit!
Fundamentally, the notion that Axrnen is entitled to summary judgment is
based on one purported "undisputed fact": "Starkel drafted the Note according to
Pruyn's instructions to create individual liability forKimbrel1 and the Hanson's, not
Axrnen." (Axrnen's Brief, p. 4.) Judge Deschamps similarly ruled that it is "crystal
clear to the Court that Pruyn understood and intended that the Note was to be a
personal responsibility of Kimbrell and the Hansons and specifically not an
obligation of Axrnen." (App. D, p. 12.) This conclusion disregards the testimony of
the individuals who negotiated the loan - Pruyn and Kimbrell - as well as the
testimony of the attorney who drafted the note, Starkel.
Pruyn testified without ambiguity that h e n was the borrower and the
parties intended to bind h e n . (CR 130,44: 15-24; 65:7-11; 8 1:2 1-22.) True,
Pruyn also wanted the personal signatures and guarantees of all owners of A m e n .
(CR 106, p. 102.) A m e n concludes this fact establishes that Axmen, the entity, was
not bound by the contract. But more than one party can be bound by a single
contract. Kimbrell similarly testified that the loan transaction "was not a transaction
that 1 did as an individual, it was something I did . . . on the business's behalf."
(CR 110, Ex. A, 59: 15-23.) Starkel testified to his understanding that Kimbrell and
the Hansons "were signing [the promissory note] in their capacities aspartners of
Axmen Propane." (CR 85, Ex. A, 82:5-7 (emphasis added).) Starkel's own billing
records show the promissory note was an "Axman [sic] agreement" (CR 85, Ex. B.).
Ignoring these facts, Judge Deschamps concluded it was "undisputed" and
"crystal clear" what was intended by Kimbrell and Pruyn, even though contrary to
their own testimony. Despite evidence of Kimbrell's unchecked control over
Axmen's operations and multiple meetings with Pruyn, Judge Deschamps ruled that
Pruyn was "unreasonable" in believing Axmen's president had the capacity to bind
Axmen! Judge Deschamps overlooked indisputable material facts provided by
Pruyn, Kimbrell, and Starkel to come to a conclusion 180 degrees from what Judge
Henson previously held.
B. Axmen Is Liable Under the UCC.
It is unclear how Judge Deschamps applied the UCC, but it makes no
difference. As Axmen acknowledges, even under the UCC the dispositive legal
issue comes down to Montana common law. (Axmen's Brief, p. 8.) The UCC
expressly provides that the signature of a person acting or purporting to act as a
representative is binding on the allegedly represented person or entity "to the same
extent the represented person would be bound if the signature were on a simple
contract." Mont. Code Ann. 5 30-3-403(1). "If the represented person is bound, the
signature of the representative is the 'authorized signature of the represented person'
and the represented person is liable on the instrument, whether or not identified in
the instrument." Id.
Axrnen's discussion of Carelli v. Hall (1996), 279 Mont. 202,205-06,926
P.2d 756, 758-59 misses the mark. Carelli involved a three-person partnership to
operate an elk ranch, and a promissory note that only referred to one of the partners.
Id., 279 Mont. at 205,926 P.2d at 758. The payee of the note sued the named and
un-named partners. Id., 279 Mont. at 206, 926 P.2d at 759. In a decision that hinged
on an interpretation of the UCC before its 1991 amendments, this Court held the
unnamed partners were not liable under the note. Id., 279 Mont. at 21 1, 926 P.2d at
762. However, the Court found that the post-1991 version of the UCC could change
the outcome: "Mnder the 1991 version of the UCC, if Hall [the named partner]
acted or 'purported to act' on behalf of the Game Ranch partnership and Stires [the
un-named partners] in executing the promissory note to Carelli, Stires potentially
could be liable for the debt underlying the note." Id. (emphasis added).
Axrnen's discussion of the UCC is noteworthy for what it omits. Axmen
avoids mention of Section 30-3-406, which relates to a party's "[nlegligence
contributing to forged signature or alteration of instrument," and precludes
Axmen from asserting "the forgery against a person who in good faith pays the
instrument. . . ." Mont. Code Ann. 5 30-3-406. Axrnen also ignores Pruyn's
discussion of Section 30-3-404(1), which states that "[aln unauthorized signature
may be ratified for all purposes of this chapter." Mont. Code Ann. 5 30-3-404(1).
Axmen ratified its president's actions by retaining the benefit of Pruyn's money used
to pay Axmen debt. Id.; see also Carelli, 279 Mont. at 215,926 P.2d at 764.
C. The Par01 Evidence Rule Does Not Apply.
The District Court's ruling is based on par01 evidence. Indeed, the District
Court discussed all manner of extrinsic evidence related to the parties' original intent
and Kimbrell's authority, and even quoted at length from a statement Starkel made to
police that supposedly made it "crystal clear" what the parties intended. (App. D.)
Further, Axmen relies heavily on extrinsic evidence in defense of Pruyn's
contract claim, including its argument that the signatures of two of its three
shareholders were forged. For this reason, Axrnen's discussion of Carrelli is
misplaced. In that case, there was no question of validity of the note, kaud or
illegality, and the note did not contain the purported signatures of every owner of the
represented entity. See Cai-elli,279 Mont. at 21 1, 926 P.2d at 762.
Likewise, as discussed above, Section 30-3-403(1) permits extrinsic evidence
to explain whether a person signing an instrument was doing so in a representative
capacity. See id. While extrinsic evidence was not allowed in Carelli, the 1991
amendments to the UCC were not applied retroactively in the case precisely because
they could have necessitated a different result. See id.
111. THE DISTRICT COURT ERRED IN GRANTING SUMMARY
JUDGMENT TO AXMEN ON UNJUST ENRICHMENT.
Pruyn's money was used to pay Axmen's account at Powderhorn. This is
undisputed. The remaining question is whether Axlnen should be allowed to retain a
windfall at Pruyn's expense.
A. . Pruyn Should Recover In Equity If the Note Does Not Bind Axmen.
''Wnjust enrichment] rests upon the equitable principle that a person shall not
be allowed to enrich himself at the expense of another. It is an obligation created by
law only in the absence of an agreement between the parties." Maxted v. Barrett
(1982), 198 Mont. 81, 87, 643 P.2d 1161, 1164. Axmen argues there is no
agreement between the parties, but also that there can be no relief in equity because
"an express contract governs the obligation." (Axmen's Brief, p. 17.) A m e n
cannot have it both ways. If there is a contract, A m e n owes Pruyn. If there is no
contract, equitable principles mandate repayment to Pruyn.
The crux of Axmen's argument appears to be that, because the note may be
binding as to other parties (i.e., Kimbrell), Pruyn has no claim against Amen. No
authority supports this theory. The case Axlnen cites, Suwco v. Kenyon Noble
Ready-Mix (1983), 204 Mont. 41 1,415,664 P.2d 943,946, stands for the
unreniarkable proposition that an express contract between the parties is fatal to an
implied contract between the sarneparties. The relationship between A m e n and
Pruyn is material. Kimbrell's obligations are irrelevant.
B. Pruyn Did Not Waive His Claim By Accepting Payments.
Axlnen contends Pruyn accepted three payments from Kimbrell and, therefore,
waived his right to recover from Axmen. To prevail under this theory, A m e n must
establish that Pruyn made "a voluntary and intentional relinquishment of a known
right, claim or privilege." VanDyke Construction Co., Inc, v. Stillwater Mining Co.,
2003 MT 279, fi 15,3 17 Mont. 519,78 P.3d 844. Axmen must firther prove that
Pruyn's acceptance of payments was inconsistent with his known right to recover
from Axmen. Id. Finally, h n e n must prove that Pruyn's acceptance of the
payments prejudiced it. Id.
h n e n presented no evidence that Pruyn's acceptance of payinents was
inconsistent with his belief that Kiinbrell represented Axmen. Two of the three
payments Pruyn accepted from Kimbrell occurred in August and September of 2003,
before Pruyn had any reason to question the validity of the promissory note and
Kimbrell's representations to him. The third payment was in April 2004, more than
three years before the District Court determined Kimbrell was acting without
authority.
There is no evidence Pruyn knowingly waived his right to recover from
A m e n or that his acceptance of payments in 2003 and 2004 was inconsistent with
his position in this lawsuit. Moreover, h n e n is unable to demonstrate how Pruyn's
acceptance of payments, reducing Axmen's debt, prejudiced Amen.
C. Pruyn Satisfied the Elements of Unjust Enrichment.
The undisputed facts establish the elements of Pruyn's unjust enrichment
claim. Axlnen acknowledges the existence of the debt in its Powderhorn account.
Axmen does not dispute that Pruyn's money satisfied that debt. Further, the
undisputed facts prove Amen's negligence in allowing the situation to unfold.
While this case is a textbook example of unjust enrichment, Axmen claims its debt at
Powderhorn was not "valid," no benefit was conferred by the retirement of its debt,
and that A m e n was coinpletely innocent in the matter. Axmen's argument is
wrong.
A m e n claims it had no contractual obligation to Powderhorn and would have
refused to pay off its account. But there is no dispute that A m e n profited from
Kimbrell's purchasing propane futures from Powderhorn before. There is no
question Kimbrell had ostensible authority, if not actual authority, to purchase
propane fiom Powderhorn on behalf of h e n . Thus, Axrnen's retroactive limits on
Kimbrell's authority would not affect its obligation to Powderhorn.
A m e n also seems to argue its debt would have disappeared when Powderhorn
filed for bankruptcy. The trustee in bankruptcy would have had something to say
about that.
Finally, A m e n cites to Guy Hanson's self-serving affidavit to claim the
Powderhorn obligation belonged to "KGD" - three individuals consisting of
Axmen's president Kimbrell, h e n ' s employee Shawn Diehl, and Axmen's banker
John Giuliani. (Axrnen's Brief, pp. 2-3.) But the debt to Powderhorn was in
Axmen's account, not the account of "KGD." Not surprisingly, Axmen does not
address Giuliani's statement that he had been told any proceeds would go toward
decreasing Axmen's debt at Community Bank, just as the first $75,000 in profit was
used. (CR 22, Ex. C.) If Axmen is so opposed to these types of transactions, it
should return the profits it made on earlier transactions.
Axmen allowed Kimbrell to run the business, purchase propane, incur debt
and speak on behalf of the company with virtually no oversight or internal controls.
Axmen accepted the fruits of Kimbrell's efforts for years without question but when
a transaction went south, it seeks to impose the loss on Pruyn. That is wrong.
D. The UCC Does Not Preclude Pruyn's Claim In Equity.
Contrary to Amen's suggestion, this Court has applied the doctrine of unjust
enrichment in cases involving promissory notes. See, e.g., In re Marriage of Rock
(1993), 257 Mont. 476, 850 P.2d 296. There is no authority for the sweeping UCC
preemption Axmen advocates.
h e n ' s own cases underscore the precarious nature of its theory. Daniels-
Sheridan Federal Credit Union v. Bellanger, 2001 MT 235, 307 Mont. 22, 36 P.3d
397 and Rudio v. Yellowstone Merchandising Corp. (1982), 200 Mont. 537, 652 P.2d
1163 both addressed possible displacements of Article 9 priority rules -the possible
assertion of an equitable claim within an established hierarchy of secured and
unsecured claims. Id., 7 39. Those cases have no application here.
IV. THE DISTRICT COURT ABUSED ITS DISCRETION IN GRANTING
AXMEN ITS ATTORNEY FEES.
A. The Equitable Exception Does Not Apply.
h e n claims Pruyn's lawsuit is frivolous because "Pi-uyn did not intend
Axmen to be obligated" when his attorney (who also happened to be the Hansons'
attorney) drafted the promissory note. There is a wealth of evidence showing both
Pruyn and Kimbrell sought to bind Axmen. That evidence has been discussed above.
Suffice it to say that no matter how many times Axmen repeats its erroneous
statement of an "undisputed fact," h e n ' s own ipse dixit cannot negate the record
it has chosen to ignore.
Further, even assuming arguendo that Pruyn's contract claim - a claim Judge
Henson found sufficiently meritorious to grant summary judgment - was "utterly
without merit or frivolous," this disregards Pruyn's alternative theory of recovery,
unjust enrichment. See Tanner v. Dreanz Island, Inc. (1996), 275 Mont. 414,429,
913 P.2d 641, 65 1. In sum, the District Court's determination that Pruyn's lawsuit
was frivolous, "and perhaps even malicious," was an abuse of discretion. (App. G,
B. The Court Should Give Effect to Montana's Statutes, Not
Washington's or California's.
h e n argues, for the first time on appeal, that the Court should create a new
exception to the American Rule. The new exception would impose the statutory
sules of other jurisdictions and allow an award of fees under contract to those who
are not parties to the contract. (See Axmen's Brief, pp. 27-29.)
Amen's argument is new. Axmen now acknowledges Mont. Code Ann.
5 28-3-704 does not allow an award of fees to a non-party to a contract, so A m e n
advocates a new judicially-created exception. (Amen's Brief, p. 27.) In the District
Court, however, A m e n argued that Mont. Code Ann. 5 28-3-704 mandated an
award of fees because it provides a "reciprocal remedy." (CR 140, 145.) A m e n ' s
18
new argument on appeal should be rejected. See, e.g., Bekkedahl v. McKittrick,
2002 MT 250,lY 31-32,312 Mont. 156,58 P.3d 175.
In any event, Axmen's theory lacks merit. If h e n is not a party to or bound
by the promissory note, it may not seek enforcement ofany provision contained
therein. See Mont. Code Ann. 8 28-3-704. While Axmen relies on statutes from
Washington and Califomia, those statutes expressly contemplate the recovery of fees
by a non-party. See RCW 4.84.330 and Cal. Civ. Code 1717(a). The Montana
statute, by contrast, expressly states that it is only "parties to the contract or
obligation" who may recover fees under the contract. Mont. Code Ann. 5 28-3-704.
V. AXMEN'S EX PARTE COMMUNICATIONS VIOLATED PRUYN'S
DUE PROCESS RIGHTS.
h e n declines to explain its exparte contacts to the court, choosing instead
expressions of indignation. It was Axmen, however, that attempted to hide by
redaction its exparte contacts from counsel's billing records. It was Axmen that
sent a "Personal and Confidential" letter to Judge McLean, arguing the merits of the
case. Yet Axmen criticizes Pruyn for seeking a real explanation. But it is a real
explanation, at the very least, to which Pruyn is entitled.
This Court has been clear - "Justice must satisfy the appearance of justice."
Washington v. Montana Mining Properties, Inc. (1990), 243 Mont. 509, 516, 795
P.2d 460, 464. In other words, although the Constitution requires an unbiased judge,
19
impartiality itself is not enough. Judges must maintain the appearance of
impartiality, and it is counsel's obligation to act at all times to assist the court in that
endeavor. In Washington,the Court quoted the "eloquent" Lord Hewart for this
critically important proposition:
. . . a long line of cases shows that it is not merely of some importance
but is of fundamental importance that justice should not only be done,
but should manifestly and undoubtedly be seen to be done. Nothing is
to be done which creates even a suspicion that there has been an
improper interference with the course of justice.
Id. (quoting Rex v. Sussex Justices (1924), 1 K.B. 256,259).
Though Axmen attempts to frame the issue as an attack on distinguished
public servants, the acts detailed in counsel's billing records strike at the very heart
of public confidence in lawyers and the judiciary. This is not a situation to be
explained away by affidavits from judges and law clerks. Even in disqualification
proceedings -which this is not - it is irrelevant whether the judge believes himself
to be impartial. See Richard E. Flamm, Judicial DisqualiJication, 8 5.6.4, p. 164
(1996). Judge McLean, in his affidavit, states "I regret and apologize for what may
appear to be an involvement in the case." (McLean Aff., 1 19.) But the rules against
exparte contact exist so judicial affidavits assuring the public and the parties of
impartiality and proper conduct are never necessary.
This Court stated it plainly. "The people's confidence in the ability of the
courts to administer justice must not be diminished. A state ruled by law cannot
afford any perceived notion that justice is not being served by the judiciary."
Washington, 243 Mont. 5 16, 795 P.2d 464. That issue is paramount.
Axrnen's briefing and attached affidavits raise more questions than answers,
and Amen's brief only begs the question: Why did it decline the opportunity to
address the specifics of its exparte contacts? Why did counsel redact the evidence
of contacts if the contacts were appropriate? This is particularly important where the
initially-redacted information in Datsopoulos, MacDonald & Lind's ("DML") billing
records, compared to the District Court docket, reveals substantive rulings within
days of the initiation of exparte contacts by counsel:
conference with court personnel. Draft
Renewed Motion for Relief From Opinion
and Order. Legal research regarding those
(See App. X.)
21
On July 6,2006, the Court issued an Order "over-tum[inglWJudge Henson's
Order granting summary judgment in Pruyn's favor. (App. B, p. 5.)
Six months later, while Pruyn's Motion to Set Aside Judge McLean's Order
was pending before Judge Deschsunps, DML's billing records reflect:
1/22/07 Dave Cotner Meeting with Judge McLean. Telephone 0.30
conference with Judge McLean.
1/22/07 Dave Cotner Draft letter to Judge McLean regarding 0.50
timeline of ruling.
(See App. K.) The letter referred to appears to be the "personal and confidential"
letter from Mr. Cotner to Judge McLean. (App. P.)
On January 24,2007, Judge Deschamps signed the Order refusing to set aside
Judge McLean's Order. (App. C.)
Finally, while Axmen's Motion for Summary Judgment was pending, DML's
billing records reflect the following:
711 1/07 Trent ... Research .
Phone call 4.30
Baker with court regarding decision and
conference with Dave regarding same.
7112/07 Dave Meeting with Court officials. 1.25
Cotner
7112/07 SEM Prepare for meeting - additional 0.50
briefs binder.
(See App. K.)
On July 23,2007, Judge Descharnps granted Axmen's Motion for Summary
Judgment. (App. D.)
Axmen argues "[t]he [Judges' and clerk's] affidavits speak for themselves and
make 'known' what Pruyn's attomeys were unwilling to discover prior to filing their
appellate brief. . . ." (Axmen's Brief, p. 41.) The affidavits do nothing of the kind,
and explanation by Amen's attomeys is hopelessly vague. For example, when
asked to explain a 1.25-hour meeting with "Court officials" on July 12,2007, for
which Axmen's counsel prepared an "additional briefs binder," Axmen's counsel
responded simply that he has "no specific recollection." (App. M.)
Axmen relies on an unsupported conclusory statement "there has been no
violation of Pruyn's due process rights." (Axmen's Brief, p. 41.) Pruyn is not
obligated to take Axmen's word for it. The evidence demonstrates at least some of.
the exparte colnlnunications instigated by Axmen's counsel involved substantive
argument regarding the case to which Pruyn was given no notice or opportunity to
respond. These contacts constituted a violation of Pruyn's due process rights.
CONCLUSION
Piuyn respectfully requests that Judge Henson's March 20,2006 order be
reinstated and affinned. The case should be remanded to determine Pruyn's
attorneys' fees and costs. If the Court determines the case must be remanded for
further proceedings, Pruyn respectfully requests appointment of a new judge given
the issues raised on this appeal.
Dated this b& day of May, 2009.
BOONE KARLBERG P.C.
Scott M. Stearns
Thomas J. Leonard
Attorneys for Appellant
CERTIFICATE OF COMPLIANCE
-
Pursuant to Rule 11(4)(d) of the Montana Rules of Appellate Procedure, the
undersigned hereby certifies that the foregoing REPLY BRIEF OF APPELLANT is
proportionately spaced, printed with the typeface Times New Roman, 14 point font,
is double-spaced, and contains approximately 4,976 words, excluding the Certificate
of Compliance and Certificate of Service.
Dated this day of May, 2009.
BOONE KARLBERG P.C.
Thomas J. Leonard
Attorneysfor Appellanl
CERTIFICATE OF SERVICE
1hereby certify that I have filed a true and accurate copy of the foregoing
REPLY BRIEF OF APPELLANT with the Clerk of the Montana Supreme Court;
and that I have served true and accurate copies of the foregoing REPLY BRIEF OF
APPELLANT upon each attorney of record and each party not represented by an
attorney as follows:
Edward Kimbrell
1410 Pinnacle Falls
San Antonio, TX 78260
David B. Cotner
Trent N. Baker
DATSOPOULOS, MACDONALD LIND
&
201 West Main, Suite 201
Missoula, MT 59802
Attorneys for Appellee hnzen Propane, Inc.
Dated this bKday of May, 2009.
BOONE KARLBERG P.C.
Thomas J. Leonard
Attorneys for Appellalzt