Kuhns v. Scott , 50 State Rptr. 685 ( 1993 )

NO. 92-619
IN THE SUPREME COURT OF THE STATE OF MONTANA
1993
E. E. KUHNS,
Plaintiff and Appellant,
-vs-
THOMAS W. SCOTT and FIRST
INTERSTATE BANCSYSTEM OF
MONTANA, INC., a Montana
coruoration, and JOHN DOES
Defendants and Respondents.
APPEAL FROM: District Court of the Thirteenth Judicial District,
In and for the County of Yellowstone,
The Honorable G. Todd Bauqh, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Eldon E. Kuhns, Pro Se, Billings, Montana
For Respondents:
Sam E. Haddon, Esq., Randy J. Cox, Esq.; Bo
Karlberg & Haddon, Missoula, Montana
Submitted on Briefs: May 6, 1993
Justice John Conway Harrison delivered the Opinion of the Court.
Appellant Eldon E. Kuhns (Kuhns) appeals an order of the
Thirteenth Judicial District Court, Yellowstone County, granting
summary judgment to respondents Thomas W. Scott (Scott) and First
Interstate Bancsystem of Montana, Inc. (FIBM). We affirm.
On November 19, 1984, respondent Scott, as president and chief
executive officer of Security Banks of Montana, Inc. (now First
Interstate Bancsystem of Montana, Inc.) executed an agreement to
buy all of the issued and outstanding shares of Montana Bancsystem,
Inc. (MBI) for $36 million. Kuhns was MBI's principal shareholder.
The transaction, described in the stock purchase agreement signed
by Scott and Kuhns, was contingent on Federal Reserve Board
approval. The relevant provision follows:
The Federal Reserve Board shall have approved under the
Bank Holding Company Act of 1956, as amended, the
transactions contemplated by this Agreement. Such
approval shall not contain any material conditions
unacceptable to Buyer.
After preliminary discussions with Federal Reserve Board
staff, FIBM submitted a final application for approval of the stock
purchase to the Federal Reserve Board of Governors (Board). The
application was reviewed and approved by MBI1s general counsel,
Mark Safty, and MBI's consultant, Samuel Chase, before it was
submitted.
On February 22, 1985, the Board issued an order denying FIBM1s
application. Although the order described FIBM as a well-managed
company, owning banks in satisfactory condition, the Board was
"seriously concerned" about the effect of the proposed acquisition
2
on FIBM1s resources, ttparticularlythe substantial reduction of
[FIBM's] capital and [FIBM's] increased reliance on debt." Finding
that the proposed acquisition, which involved thirteen banks and
significant amount of debt" held by MBI, would reduce FIBM's
tangible primary capital below the level specified in its Capital
Adeauacv Guidelines, the Board concluded that the acquisition would
not be in the public interest.
In April 1986, Kuhns and two of MBI's other shareholders,
Christine Goodnow and Robert Grimes, brought an action against
Scott and FIBM, claiming breach of the stock purchase agreement and
two contingent contracts--a consulting agreement and an employment
agreement--between FIBM and Kuhns. The complaint alleged that
Kuhns had been damaged in an amount equal to the total value of the
compensation and benefits he would have received under the
consulting and employment agreements, or approximately $3.6
million.
In addition to breach of contract, the plaintiffs claimed that
Scott had "deliberately, improperly, and without justification or
excuse caused FIBM to breach its duties under the stock purchase
agreement" and thus interfered with Kuhns' prospective contractual
relations with FIBM, and that FIBM had "deliberately and
systematically operated its businesses and arranged financing of
its MBI acquisition in a manner designed and intended to cause the
Federal Reserve Board to disapprove the transactionw and thus
breached its duty of good faith and fair dealing.
The respondents denied all allegations and in their answer
took the position that the plaintiffs were estopped by their own
conduct or that of their agents from asserting any claims against
Scott and FIBM.
In September 1986, Kuhns filed a petition for relief in
bankruptcy court, under Chapter 11. His lawyer for the bankruptcy
proceeding moved to withdraw as counsel for plaintiff Robert Grimes
in the breach of contract action, on the grounds that Grimes had
sued Kuhns and was therefore listed as Kuhnst creditor, creating a
conflict of interest for the lawyer. In July 1987, the plaintiffs
filed a notice of substitution of counsel, but by April 1989 both
the substituted firms had withdrawn.
In November 1989, FIBM moved to dismiss the breach of contract
action for failure to prosecute, pointing out that the plaintiffs
had taken no action other than filing a set of interrogatories and
requests for discovery in July 1987. Kuhnst bankruptcy lawyers
filed an objection, stating that the plaintiffs were without
representation in this case, though their firm was representing
Kuhns in bankruptcy court: that the bankruptcy court had refused to
authorize litigation to proceed until reorganization was more
certain; and that until Kuhns' reorganization plan was confirmed,
it would be unfair to dismiss the plaintiffs' breach of contract
action.
The bankruptcy court approved Kuhns' reorganization plan in
December 1989, and the District Court denied FIBM's motion to
dismiss in January 1990. A scheduling conference was held on April
3, 1990, but the District Court decided that no schedule for
discovery or trial could be set because the plaintiffs were not
represented by counsel. On April 5, 1990, the court ordered the
plaintiffs to obtain counsel by May 7, 1990.
On May 11, 1990, the District Court dismissed plaintiffs
Grimes and Goodnow on FIBM's motion. Gene Huntley of Baker had
entered an appearance as counsel for Kuhns on May 7, and on May 14
he entered a general appearance for Grimes and Goodnow, too late to
prevent them from being dismissed by the court. On June 12, 1991,
FIBM moved for summary judgment on the grounds that no contract
existed because a condition precedent--Federal Reserve Board
approval--had not been fulfilled, and that Kuhns could not maintain
in his individual capacity a breach of contract claim that belonged
to MBI.
Kuhns requested an extension of the deadline for responding to
FIBM's motion, stating that Mr. Huntley had breached his contingent
fee hiring agreement by refusing to respond to FIBM's motions and
that he would have to respond pro se. An extension was granted and
on July 1, 1991, Kuhns filed a brief and affidavit, pro se,
contending that factual issues existed, in particular the issue of
whether the respondents had breached the covenant in the stock
purchasing agreement that required them to use reasonable and
continuous efforts to satisfy the conditions precedent, including
adequate financing.
Mr. Huntley withdrew as Kuhns' lawyer on July lo, 1991, citing
Rule 1.16(b) of the Rules of Professional Conduct, which allows a
lawyer to withdraw if the client makes representation unreasonably
difficult. In his accompanying affidavit, Mr. Huntley stated that
he had asked Kuhns to provide an independent banking expert who
would testify that FIBM intended that the Board would disapprove
the purchase of MBI, and that Kuhns had promised to provide such an
expert but had not done so.
The District Court granted summary judgment in favor of FIBM
on October 16, 1992. Kuhns appealed, pro se, raising several
issues. We restate them as follows:
1. Whether the District Court erred in finding that no
issues of material fact exist in this case.
2. Whether the District Court erred in finding no evi4ence
that Scott caused FIBM to breach its duties under the stock
purchase agreement between MBI and FIBM.
3. Whether the District Court erred in finding no evidence
that FIBM breached the implied covenant of good faith and
fair dealing.
The primary issue is whether the District Court erred in
granting summary judgment, not as to the plaintiffs' original
breach of contract claim but as to their claims regarding Scott's
alleged interference with contract and FIBM's alleged breach of the
implied covenant of good faith and fair dealing. The District
Court determined correctly that the stock purchase agreement never
became binding on either MBI or FIBM, due to failure of a condition
precedent--Federal Reserve Board approval. See Management, Inc. v.
Mastersons, Inc. (1980), 189 Mont. 435, 616 P.2d 356 (buyers'
failure to obtain financing rendered a real estate contract a
nullity because the "subject to financing" clause was a condition
precedent).
Summary judgment is appropriate when there is no genuine issue
6
of material fact and the moving party is entitled to judgment as a
matter of law. Rule 56(c), M.R.Civ.P. The initial burden of
demonstrating the absence of a genuine issue of material fact lies
with the moving party. Ravalli County Bank v. Gasvoda (1992), 253
Mont. 399, 401, 833 P.2d 1042, 1043. Once the moving party has met
that burden, the party opposing summary judgment must establish
that genuine issues of material fact exist. Peschel v. Jones
(1988), 232 Hont. 516, 521, 760 P.2d 51, 54. Conclusory or
speculative statements are insufficient to raise a genuine issue of
material fact. Simmons v. Jenkins (1988), 230 Mont. 429, 432, 750
P.2d 1067, 1069.
I
Did the District Court err in finding that no issues of
material fact exist in this case?
Kuhns argues that whether FIBM used "reasonable and continuous
efforts to cause every condition precedent to the other party's
obligations to be satisfied," as the stock purchase agreement
required, is an issue of material fact. He claims, for example,
that his briefs, affidavits, and exhibits make it "abundantly
clearw that FIBM had a duty to arrange "such debt and equity
financing as was necessary" to meet the Federal Reserve Board's
requirements. He claims further that in a letter dated January 2,
1985, he informed FIBM of several ways to "improve FIBM's financial
resources, decrease debt and increase capital.'* Because FIBM did
not adopt any of these suggestions, Kuhns argues, FIBM did not make
reasonable efforts to obtain Board approval.
FIBM contends that the contract did not require FIBM to comply
with material conditions unacceptable to it, even if those
conditions were imposed by the Board. William G. Wilson, FIBM's
senior vice president, stated in his affidavit that all of Kuhns'
suggestions would have increased the cost of acquisition, and one
would have required a $5 million to $7.5 million loan from the
Scott family to FIBM.
The stock purchase agreement provided for financing as
follows:
Buyer [FIBMI shall have arranged such financing as is
reasonably necessary for it to consummate the purchase of
Shares hereunder, on terms and conditions reasonably
acceptable to it ....
The record shows that FIBM obtained a commitment from First Bank
Minneapolis to loan FIBM $25 million, issued in November 1984 and
valid through June 1985. Kuhns does not argue that this amount was
not adequate to pay the purchase price; instead, he argues that the
agreement called for Itadequate financing," which is "that which
will be approved by the Fed Board." As the Board had expressed its
concerns about debt financing before FIBM submitted its proposal,
Kuhns argues, FIBM was obligated under the contract to arrange
financing other than debt financing.
The District Court characterizes this dispute as a
disagreement as to what was required of FIBM under the "reasonable
efforts" clause in the stock purchase agreement, rather than a
factual issue. We agree. A mere difference of interpretation does
not amount to a genuine issue of material fact. See Sprunk v.
First Bank System (1992), 252 Mont. 463, 830 P.2d 103 (plaintiff,
8
appealing from summary judgment in favor of a bank holding company,
recited "facts with his own interpretations and conclusions,"
which, we decided, did not raise a genuine issue of material fact).
Kuhns failed to support his interpretation of the "reasonable
effortsw clause with evidence that FIBM did not make efforts that
were reasonable under the terms of the contract. FIBM, on the
other hand, presented evidence that MBI's own consultant, along
with MBI's general counsel, had approved FIBMts final application
to the Board; that FIBM had spent approximately $400,000 in
attorneys' fees in attempting to obtain Board approval; and that
FIBM actually had obtained adequate financing.
Nothing in the stock purchase agreement required FIBM to
obtain a specific type of financing or to increase its capital. In
fact, Mark Safty, MBIts general counsel in 1984-85, stated in his
affidavit that "it was the intention and agreement of the parties
that . . . the bottom-line cost of the transaction to FIBM could
not be increased," and that FIBM had no contractual obligation to
@'inject additional capital."
We conclude that there is no genuine issue of material fact
with regard to FIBMts reasonable efforts to obtain Board approval
of its proposed acquisition, or with regard to the adequacy of
FIBM's proposed financing. As Kuhns has not met his burden of
establishing that genuine issues of material fact exist, FIBM is
entitled to judgment as a matter of law.
II
Did the District Court err in finding no evidence that Scott
caused FIBM to breach its duties under the stock purchase
agreement?
In their original complaint, Kuhns and the other plaintiffs
alleged that Scott deliberately and maliciously caused FIBM to
breach its duties under the stock purchase agreement. In his brief
on appeal, Kuhns merely contends that Scott, as chief executive
officer of FIBM, could have increased FIBM's equity capital to
"bring it in compliance with the [Board's guidelines] ," but did
not. He suggests that Scott "may well have had a personal
conflict" because increasing FIBM's equity capital would have meant
diluting Scott's ownership interest in FIBM.
The District Court found that Kuhns had presented no evidence
that Scott acted in a manner that would subject him to personal
liability. We agree. To establish a claim against Scott
individually, Kuhns would have to show that Scott had acted for his
own pecuniary benefit and against the best interests of the
corporation (FIBM); or that he had acted outside the scope of his
employment. Bottrell v. American Bank (1989), 237 Mont. 1, 25, 773
P.2d 694, 708. Instead, Kuhns merely speculated about Scott's
motivation. No evidence appears anywhere in the record that Scott
acted for his own benefit or against FIBM's best interests.
We conclude that no genuine issue of material fact exists as
to Scott's personal liability and that Scott is entitled to
judgment as a matter of law.
111
Did the District Court err in finding no evidence that FIBM
breached the implied covenant of good faith and fair dealing?
The plaintiffs alleged in their complaint that FIBM
"deliberately and sy~tematically'~
arranged financing of the MBI
acquisition "in a manner designed and intended to cause the Federal
Reserve Board to disapprove the transaction," contrary to the
standard of good faith and fair dealing. On appeal, Kuhns argues
that because FIBM knew its proposed financing would be unacceptable
to the Federal Reserve Board, and did nothing, it is "in clear
violation of 5 28-1-211, MCA."
In Story v. City of Bozeman (1990), 242 Mont. 436, 450, 791
P.2d 767, 775, we held that every contract contains an implied
covenant of good faith and fair dealing, and that 5 28-1-211, MCA,
defines the required standard of conduct as "honesty in fact and
the observance of reasonable commercial standards of fair dealing.If
Here, the District Court properly concluded that Kuhns had
presented no evidence showing that FIBM acted dishonestly or in
contravention of reasonable commercial standards. Indeed, the
record indicates that FIBM tried in good faith to achieve Federal
Reserve Board approval. No reasonable commercial standard required
FIBM, or Scott, to increase FIBM1s cost of acquiring MBI in order
to obtain Board approval. For that reason, we need not consider
whether a special relationship existed that would support tort
damages.
We hold that no genuine issue of material fact exists
regarding a breach of the implied covenant of good faith and fair
dealing, and that FIBM is entitled to judgment as a matter of law.
Affirmed.
,
June 10, 1993
CERTIFICATE OF SERVICE
I hereby certify that the following order was sent by United States mail, prepaid, to the following
named:
Eldon E. Kuhns
P.O. Box 602
Billings, MT 59103-0602
Sam E. Haddon, Esq.
Randy J. Cox, Esq.
BOONE, KARLBERG & HADDON
P.O. Box 9199
Missoula, MT 59807-9199
ED SMITH
CLERK OF THE SUPREME COURT
STATE OF MONTANA