First Citizens Bank v. Patrick Sull ( 2008 )

December 16 2008
DA 06-0719
IN THE SUPREME COURT OF THE STATE OF MONTANA
2008 MT 428FIRST CITIZENS BANK,
Plaintiff and Appellant,
v.
PATRICK J. SULLIVAN and GREG J. EIDE,
Defendants and Appellees.
APPEAL FROM: District Court of the Second Judicial District,
In and For the County of Silver Bow, Cause No. DV 2003-236
Honorable John W. Whelan, Presiding Judge
COUNSEL OF RECORD:
For Appellant:
Patrick T. Fleming, Fleming & O’Leary, PLLP, Butte, Montana
For Appellee:
Gregory C. Black, Sean E. Johnson, Corette Pohlman & Kebe,
Butte, Montana
Submitted on Briefs: January 4, 2008
Decided: December 16, 2008
Filed:
__________________________________________
Clerk
Justice James C. Nelson delivered the Opinion of the Court.
¶1 First Citizens Bank (the Bank) brought this action to recover a deficiency due on a
loan to Glacier Apparel Company, Ltd. (Glacier Apparel), which Patrick J. Sullivan and
Greg J. Eide had guaranteed. Sullivan and Eide denied liability and filed counterclaims,
including claims that Eide’s guaranty had been exonerated and he had suffered damages
as a result of the Bank’s refusal to release a second mortgage on his home, and that
Sullivan suffered damages as a result of the Bank’s failure to liquidate collateral in a
commercially reasonable manner. A jury in the Second Judicial District Court, Silver
Bow County, found the Bank had not liquidated Glacier Apparel’s collateral in a
commercially reasonable manner, Eide’s guaranty had been exonerated and he had been
damaged by the Bank’s refusal to release his guaranty, and Sullivan had established that a
surplus would have been generated if the Bank would have liquidated the collateral in a
commercially reasonable manner. The District Court then entered judgment awarding
Sullivan and Eide their costs, expenses and attorney fees, resulting in a total judgment
against the Bank of $260,111.25. The Bank appeals. We affirm.
¶2 The issues are:
¶3 1. Did the District Court abuse its discretion in prohibiting the Bank from
disclosing to the jury that Sullivan had pled guilty to a felony in an unrelated matter and
had invoked his Fifth Amendment rights during a deposition in a Minnesota civil case?
¶4 2. Did the District Court abuse its discretion in refusing to allow attorney
J. Richard Orizotti to offer expert opinions?
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¶5 3. Was sufficient evidence presented to support the jury’s verdict that Eide was
exonerated from his personal guaranty to the Bank?
¶6 4. Did the District Court abuse its discretion in awarding Sullivan and Eide
$9,600 in legal fees for trial time of attorney Sean Johnson?
¶7 5. Did the District Court err in awarding expert witness fees and costs to Sullivan
and Eide?
BACKGROUND
¶8 In September 1997, the Bank agreed to provide a $15,000 revolving line of credit
to Glacier Apparel for operation of a retail store in Whitefish, Montana. The line of
credit was secured by the business’s inventory, accounts, equipment and general
intangibles. In addition, Sullivan provided a personal guaranty as the business’s sole
shareholder.
¶9 In January 2000, Sullivan sold a portion of the stock in Glacier Apparel to Eide.
The two men decided to expand the company by opening additional stores in both
Montana and Minnesota. For purposes of the expansion, the Bank agreed to increase
Glacier Apparel’s revolving line of credit to $75,000, and Eide and Sullivan each signed
personal guaranties for that amount. As additional collateral, the Bank took a second
mortgage on Eide’s Fargo, North Dakota, home.
¶10 In April 2001, Sullivan re-purchased Eide’s stock in Glacier Apparel, and Eide’s
association with the business ended. Then, on June 19, 2001, Sullivan and the Bank
signed a Change of Terms Agreement under which Glacier Apparel’s revolving line of
credit was converted to a term loan repayable at $590.08 per month for five years, at
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which time a balloon payment of $72,356.32 would become due. Sullivan signed the
Change of Terms Agreement as both a guarantor of the loan and an officer of Glacier
Apparel. The Bank did not seek Eide’s signature or his consent to the Change of Terms
Agreement. After June 2001, the Bank refused to provide Glacier Apparel an operating
line of credit.
¶11 By letter dated July 6, 2001, Eide asked the Bank to cancel his guaranty and
release the mortgage on his North Dakota home. The Bank refused to do so. Eide’s
attorney revoked his guaranty in a letter dated August 24, 2001, but the Bank refused to
recognize that revocation.
¶12 In early 2002, Sullivan proposed to the Bank that he undertake a liquidation of
some or all of the inventory collateral of the Glacier Apparel stores, for which purpose he
requested an additional $20,000 loan to pay delinquent store rents. The Bank refused to
complete the loan transaction without a personal guaranty of all of Glacier Apparel’s
obligations from Sullivan’s son, which Sullivan was not willing to obtain. Sullivan then
submitted a liquidation plan, to which the Bank did not agree. In April 2002, Glacier
Apparel surrendered possession of the inventory collateral of its two Whitefish, Montana,
stores and its two Missoula, Montana, stores to the Bank by having its attorney deliver to
the Bank the keys to those stores.
¶13 Bank representatives took possession of the inventory and fixtures in the four
Whitefish and Missoula stores, boxed that collateral and transported it to Butte, Montana,
for storage at Christie’s Warehouse. The Bank then solicited bids for the repossessed
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collateral by advertising a bulk sale in the legal sections of the Sunday classified ads in
newspapers in Missoula, Great Falls, Helena, Butte, Bozeman and Billings.
¶14 The advertised sale of Glacier Apparel’s collateral received only two bids: one
from a retail clothing vendor in Butte for $7,000 and another from two Bank customers
for $13,750. The Bank rejected both bids as insufficient. Sullivan again offered to
liquidate the collateral, but the Bank refused his offer. Sullivan then hired RGIS
Inventory Specialists to conduct an inventory of the collateral in the Bank’s possession.
RGIS identified over 7,000 items of collateral with a cost basis of $239,290.34.
Subsequently, the Bank rejected yet another offer by Sullivan to liquidate the collateral.
¶15 In late January 2003, the Bank gave Eide and Sullivan notice that it intended to
sell the collateral in a private sale, which it did, for $15,000. After applying the sale
proceeds against Glacier Apparel’s debt, and adding to that debt repossession and
liquidation expenses of over $26,000, the Bank determined Sullivan and Eide owed it
over $11,000 more than Glacier Apparel had owed when it surrendered the collateral.
¶16 The Bank then filed this action against Sullivan and Eide to recover the balance
due on Glacier Apparel’s indebtedness. Sullivan counterclaimed that the Bank had failed
to liquidate the collateral in a commercially reasonable manner. Eide joined that
counterclaim, and also alleged the Bank improperly had refused to release the second
mortgage on his home and that he was exonerated from his personal guaranty because the
Bank had made a material change in the terms of the guaranteed obligation without his
consent or knowledge.
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¶17 The case was tried to a jury in a week-long trial. In a three-page verdict form, the
jury found the Bank had neither liquidated Glacier Apparel’s collateral in a commercially
reasonable manner nor established the amount of proceeds that would have been realized
if it had liquidated the collateral in a commercially reasonable manner. The jury further
found a surplus would have been generated had Glacier Apparel’s collateral been
liquidated in a commercially reasonable manner, and Sullivan had established the amount
of that surplus as $154,014. The jury found Eide’s guaranty to the Bank was exonerated,
the Bank’s refusal to release Eide’s guaranty and second mortgage caused him damage
and the amount of damage to be awarded Eide was $7,000.
¶18 Following a post-trial hearing, the District Court awarded Sullivan and Eide their
statutory costs of $2,900.73. The court further ordered that Sullivan and Eide were
entitled to additional costs of $9,287.30 under the terms of the guaranties. The court also
awarded Sullivan $2,586.02 and Eide $263.20 for their actual expenses incurred in
attending depositions and trial. Finally, the court awarded Sullivan and Eide their
attorney fees of $84,060. The Bank appeals.
STANDARDS OF REVIEW
¶19 We review a district court’s evidentiary rulings for abuse of discretion.
McDermott v. Carie, LLC, 2005 MT 293, ¶ 10, 329 Mont. 295, ¶ 10, 124 P.3d 168, ¶ 10.
We review a jury's verdict only to determine whether substantial credible evidence in the
record supports the verdict. Upky v. Marshall Mountain, LLC, 2008 MT 90, ¶ 22, 342
Mont. 273, ¶ 22, 180 P.3d 651, ¶ 22. We review an award of attorney fees and costs for
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abuse of discretion. See e.g., Lewistown Propane Co. v. Moncur, 2002 MT 349, ¶ 19,
313 Mont. 368, ¶ 19, 61 P.3d 780, ¶ 19.
ISSUE 1
¶20 Did the District Court abuse its discretion in prohibiting the Bank from disclosing
to the jury that Sullivan had pled guilty to a felony in an unrelated matter and had
invoked his Fifth Amendment rights during a deposition in a Minnesota civil case?
¶21 Sullivan moved in limine to prohibit any testimony or evidence that he had
exercised his Fifth Amendment right during a deposition in a separate civil lawsuit in
Minnesota, or that he had pled guilty to charges of falsifying records to obtain a Small
Business Administration loan in another case. The District Court granted his motion in
writing, stating such testimony or evidence would be irrelevant and unduly prejudicial to
Sullivan’s defense and counterclaim. Just before trial began, the court orally clarified
that this ruling would apply “unless the door is opened by the defendant.”
¶22 On appeal, the Bank contends Sullivan’s trial strategy was to portray himself to
the jury as a feeble, grandfatherly figure who would never lie or fabricate. The Bank
claims it had no way of effectively impeaching Sullivan because it was prohibited from
mentioning his conviction and his reliance on his Fifth Amendment right.
¶23 The sole authority cited by the Bank in support of its position is Cooper v.
Rosston, 232 Mont. 186, 756 P.2d 1125 (1988). Cooper was an action for damages from
an automobile accident. In that case, the trial court had excluded evidence of
misrepresentations and omissions by the defendant in statements he made to the police
immediately after the accident. We held the court had erred in so doing. Cooper, 232
Mont. at 193, 756 P.2d at 1129.
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¶24 The lack of connection in the present case between the evidence sought to be
disclosed and the facts of the case distinguishes this case from Cooper. In addition, the
District Court’s ruling is supported by rules of evidence not applicable in Cooper.
M. R. Evid. 609 provides, “[f]or the purpose of attacking the credibility of a witness,
evidence that the witness has been convicted of a crime is not admissible.” M. R. Evid.
404(b) provides that evidence of other crimes, wrongs, or acts is not admissible to prove
the character of a person in order to show action in conformity therewith. Those rules
prohibit evidence of Sullivan’s prior criminal conviction. Moreover, and despite the
District Court’s “unless the defendant opens the door” clarification, the Bank has pointed
to no instance during trial in which it asked the court to allow questioning about
Sullivan’s prior guilty plea or invocation of his Fifth Amendment right in response to or
as follow-up to any specific testimony by him.
¶25 We hold the Bank has not established that the District Court abused its discretion
in prohibiting evidence of these matters.
ISSUE 2
¶26 Did the District Court abuse its discretion in refusing to allow attorney J. Richard
Orizotti to offer expert opinions?
¶27 Shortly before trial, Sullivan and Eide moved to prohibit a witness for the Bank,
attorney J. Richard Orizotti, from offering any expert opinions, based on the Bank’s
failure to timely disclose Orizotti as an expert witness. Sullivan and Eide stated they had
served discovery requests on the Bank in August of 2004, including a request for
identification of the Bank’s expert witnesses, and the Bank had responded that it had
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retained no expert witnesses but that Orizotti would be called as a witness to render
opinions as to the reasonableness of steps he took in liquidating the collateral. Then, in
its September 2005 scheduling order, the District Court established October 21, 2005, as
the deadline for naming expert witnesses, but the Bank did not name Orizotti as an expert
witness by that deadline. Finally, the Bank did not identify Orizotti as an expert witness
in the final pretrial order, although it identified several other expert witnesses. The
District Court granted the motion in limine.
¶28 The Bank argues exclusion of expert testimony by Orizotti was “inexplicable”
because it had “fully disclosed” that Orizotti would be a witness and the testimony he
would present. The Bank further argues that, because of repeated objections during
Orizotti’s testimony, his testimony was “greatly limited” and “lacked flow.” The Bank
asserts Orizotti should have been allowed to give his opinion under either M. R. Evid.
701, which allows a lay witness to give opinions which are rationally based on his own
perceptions and are helpful to a clear understanding of the witness’s testimony or for
determination of a fact at issue, or under M. R. Evid. 702, which provides for testimony
by experts.
¶29 Failure to disclose an expert witness will usually prejudice the opposing party.
Superior Enterprises, LLC v. Montana Power Co., 2002 MT 139, ¶ 18, 310 Mont. 198,
¶ 18, 49 P.3d 565, ¶ 18. We have, on a number of occasions, affirmed the authority of a
district court to exclude expert testimony as a result of failure to properly disclose the
expert witness. Nelson v. Nelson, 2005 MT 263, ¶ 32, 329 Mont. 85, ¶ 32, 122 P.3d
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1196, ¶ 32. Here, the Bank did not disclose Orizotti as an expert witness despite three
requests to do so.
¶30 The Bank discusses three occasions during trial in which it feels Orizotti should
have been allowed to give opinion testimony. On two of those occasions, Orizotti’s
opinions would clearly have constituted expert opinion. In the first, the Bank’s counsel
asked Orizotti what he did with the invitation for bids for the collateral. Orizotti
responded, “I prepared it and advised the Bank that it is commercially reasonable to . . . .”
At that point, counsel for Sullivan and Eide objected that this was opinion testimony, and
the court advised Orizotti that he could tell what advice he gave, but could not give an
opinion. The next objection referenced by the Bank came while Orizotti was testifying
about the bids received for the collateral. Orizotti testified the fact that the defendants did
not submit a bid “signified to me that that was the market value of this property.” The
court ordered that remark stricken from the record on grounds that it was opinion
testimony.
¶31 Finally, the Bank points to an objection made when Orizotti testified about
something Sullivan told him. Because that objection was sustained on hearsay grounds,
not on expert testimony grounds, it is not pertinent to this issue on appeal.
¶32 We hold the District Court did not abuse its discretion in refusing to allow Orizotti
to testify as an expert witness.
ISSUE 3
¶33 Was sufficient legal and factual basis established to support the jury’s verdict that
Eide was exonerated from his personal guaranty to the Bank?
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¶34 The Bank argues there was no evidence to support Eide’s claim that his underlying
obligation to the Bank was exonerated. It points out that, in the guaranty Eide signed in
February 2000, he expressly authorized the Bank to “alter, compromise, renew, extend,
accelerate, or otherwise change one or more times the time for payment or other terms of
the indebtedness or any part of the indebtedness, including increases and decreases of the
rate of Interest on the indebtedness,” without notice to the guarantors. The Bank
contends the only changes made in the June 19, 2001 Change of Terms Agreement—
which Eide did not sign—were to convert the revolving line of credit to 59 monthly
installments with a balloon payment due on June 19, 2006, and to change the interest rate
from 12% to 8.75%. The Bank says these changes were within the terms to which Eide
had agreed in his guaranty.
¶35 At the close of the Bank’s case-in-chief, Eide argued to the District Court that the
terms of the guaranty were contrary to § 28-11-211, MCA, and moved for directed
verdict (properly denominated a motion for dismissal due to insufficiency of the
evidence1) on that basis. The District Court denied Eide’s motion. As a result, the matter
of exoneration was a question presented to the jury.
¶36 The Bank presented evidence at trial regarding the terms of the guaranty Eide had
signed. During closing argument, the Bank presented to the jury its argument that it did
not materially alter the terms of the guaranty, that Eide did not need to be notified of any
changes and that the guaranty had not been exonerated.
1
State v. McWilliams, 2008 MT 59, ¶ 36, 341 Mont. 517, ¶ 36, 178 P.3d 121, ¶ 36.
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¶37 Eide testified at trial that he was not aware of the Change of Terms Agreement
until the Bank filed this action. He testified the alteration of the underlying obligation
which he guaranteed from a line of credit to a term loan changed and extended his
exposure as a guarantor. Other witnesses, including banker and expert witness John
Koslosky and banker Casey Reilly, agreed that the Change of Terms Agreement was a
change in the underlying obligation. Eide also presented evidence that the Bank chose
not to enforce its security interest in collateral in Glacier Apparel’s Minnesota store,
which adversely affected him because it increased his exposure on his personal guaranty.
¶38 Based on § 28-11-211, MCA, the District Court instructed the jury that
Greg Eide is exonerated from his personal guaranty if by any act of First
Citizens Bank without the consent of Greg Eide the original obligation
which he guaranteed was altered to his detriment by First Citizens Bank in
any respect or the remedies or rights of First Citizens Bank against Glacier
Apparel Company in respect to the original obligation are in any way
impaired or suspended. Exoneration means that Greg Eide is not liable to
First Citizens Bank on his personal guaranty.
The jury found that Eide was exonerated.
¶39 Having reviewed the record, we have determined that Eide presented substantial
credible evidence which supports the jury’s verdict. We hold the evidence was sufficient
to support the verdict.
ISSUE 4
¶40 Did the District Court abuse its discretion in awarding Sullivan and Eide $9,600
in legal fees for trial time of attorney Sean Johnson?
¶41 Attorney Sean Johnson attended every day of the five-day trial, seated at Sullivan
and Eide’s counsel table. The Bank points out that Johnson handled only one foundation
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witness at trial and his participation consisted of asking fewer than 40 questions. Relying
on Plath v. Schronrock, 2003 MT 21, 314 Mont. 101, 64 P.3d 984, the Bank argues the
$9,600 in attorney fees awarded for trial time of attorney Johnson represents an abuse of
discretion.
¶42 We begin by reiterating that determination of attorney fees is a discretionary
function of the trial court. Lewistown Propane, ¶ 19. In Plath, ¶ 36, we stated the
reasonableness of attorney fees must be ascertained under the facts of the case, with the
following factors as guidelines: (1) the amount and character of the services rendered;
(2) the labor, time and trouble involved; (3) the character and importance of the litigation
in which the services were rendered; (4) the amount of money or the value of the property
to be affected; (5) the professional skill and experience called for; (6) the attorneys’
character and standing in their profession; and (7) the results secured by the services of
the attorneys.
¶43 Sullivan and Eide filed an affidavit prepared by Gregory C. Black, their lead trial
attorney, who documented the expenses and billing records of his law firm in this case,
including billing records for Sean Johnson. In his affidavit, Black stated that, in his
opinion based on 27 years of experience, this was a very difficult case with complicated
legal and factual issues. Black’s affidavit indicates that, in addition to conducting a
witness examination, Johnson assisted during trial with jury instructions, legal research
concerning trial issues, preparation of witnesses and general trial logistics. At the hearing
on attorney fees, Sullivan and Eide presented expert witness William Joyce, who testified
he had reviewed Black’s affidavit and that, in his opinion, the work reflected in that
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affidavit was reasonable and necessary for the case and the hourly rates reflected in
Black’s affidavit were reasonable.
¶44 We hold the District Court did not abuse its discretion in its award of attorney fees
for trial time of attorney Sean Johnson.
ISSUE 5
¶45 Did the District Court err in awarding expert witness fees and costs to Sullivan
and Eide?
¶46 The District Court awarded expert witness fees and other litigation costs claimed
by Sullivan and Eide. The Bank points out that some of the expert witness fees and costs
awarded by the District Court are not costs allowed under § 25-10-201, MCA.
¶47 However, Sullivan and Eide did not seek to recover these witness fees and costs
under § 25-10-201, MCA, but under the terms of their guaranties. The guaranties
provided “Guarantor agrees to pay upon demand all of Lender’s costs and expenses,
including attorneys’ fees and Lender’s legal expenses, incurred in connection with the
enforcement of this Guaranty.” Contractual attorney fee and cost provisions are
reciprocal. Section 28-3-704, MCA; Nicholson v. United Pacific, 219 Mont. 32, 46, 710
P.2d 1342, 1351 (1985), overruled in part on other grounds, Story v. City of Bozeman,
242 Mont. 436, 791 P.2d 767 (1990).
¶48 We hold the District Court did not err in awarding witness fees and costs to
Sullivan and Eide.
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¶49 Affirmed, and remanded to the District Court for determination of additional
attorney fees incurred by Sullivan and Eide in post-trial matters not previously claimed
and during this appeal.
/S/ JAMES C. NELSON
We Concur:
/S/ JOHN WARNER
/S/ PATRICIA COTTER
/S/ W. WILLIAM LEAPHART
/S/ BRIAN MORRIS
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