Grizzly Security Armored Express, Inc. v. Bancard Services, Inc.

11/14/2016
DA 16-0038
Case Number: DA 16-0038
IN THE SUPREME COURT OF THE STATE OF MONTANA
2016 MT 287GRIZZLY SECURITY ARMORED EXPRESS, INC.,
a Montana corporation,
Plaintiff and Appellant,
v.
BANCARD SERVICES, INC., a Montana
corporation, B&B LOUNGE, INC., a
South Dakota corporation, LELAND
RUZICKA, an individual resident of
South Dakota, and Does 1-2,
Defendants and Appellees.
APPEAL FROM: District Court of the Eleventh Judicial District,
In and For the County of Flathead, Cause No. DV 13-787(C)
Honorable Amy Eddy, Presiding Judge
COUNSEL OF RECORD:
For Appellant:
Bruce A. Fredrickson, Rocky Mountain Law Partners, PLLP, Kalispell,
Montana
For Appellees:
Dean D. Chisholm, Chisholm & Chisholm, P.C., Columbia Falls, Montana
Doug Scotti, Morrison & Frampton, PLLP, Whitefish, Montana
Submitted on Briefs: August 31, 2016
Decided: November 14, 2016
Filed:
__________________________________________
Clerk
Justice Patricia Cotter delivered the Opinion of the Court.
¶1 Grizzly Security Armored Express, Inc. (Grizzly Security), filed suit against
Bancard Services, Inc. (Bancard), and Leland Ruzicka and B&B Lounge, Inc.
(collectively Ruzicka) relating to circumstances surrounding a data entry error that
resulted in a substantial sum of money being deposited into the wrong bank account.
Bancard and Ruzicka filed motions for summary judgment against Grizzly Security on
their respective issues. The District Court determined that the claim against Ruzicka was
timed barred due to the applicable statute of limitations and that the claims against
Bancard failed for various reasons which we discuss herein, and awarded attorney’s fees
to Bancard based on the language of the contract between the two parties. Grizzly
Security appeals. We affirm.
ISSUES
¶2 Grizzly Security raises four issues on appeal, which we restate:
1. Did the District Court err in granting summary judgment in favor of Leland
Ruzicka and B&B Lounge, Inc.?
2. Did the District Court err in granting summary judgment in favor of Bancard
Services, Inc.?
3. Did the District Court err in awarding attorney’s fees to Bancard Services,
Inc.?
FACTUAL AND PROCEDURAL BACKGROUND
¶3 Grizzly Security owns a number of ATM machines at various locations in
Montana. One of these ATMs is located at St. Mary’s Lodge, outside of Glacier National
Park. Bancard is a Montana corporation with operations involving owning, processing,
and leasing automated teller machines. In 2004, Grizzly Security and Bancard entered
2
into a Processing Service and Maintenance Agreement (PSMA). Under the terms of the
PSMA, Bancard agreed to provide processing services for Grizzly Security’s ATMs.
Bancard agreed to provide these services “through its agreement with First Interstate
Bancorp (First Interstate), or such other processing services as [Bancorp], in its sole
discretion, may select.”
¶4 Pursuant to the language in the PSMA allowing Bancorp to delegate processing
services to a third party, Grizzly Security entered into an ACH Authorization Agreement
(ACH Agreement) with First Interstate in June of 2004. The ACH Agreement authorized
First Interstate’s electronic access into Grizzly Security’s checking account in order to
deposit funds relating to ATM settlement transactions. In terms of liability, the ACH
Agreement provided that First Interstate would be responsible for the “loss of funds
transferred into an account not designated in the ACH Authorization Agreement in force
at the time of transfer.”
¶5 In June of 2008, Bancard exercised its right under the PSMA to change the third
party payment processor utilized to assist in processing ATM transactions at Grizzly
Security’s ATM in St. Mary’s (among others) from First Interstate to Columbus Data
Services (CDS). As part of the changeover process, Grizzly Security’s account
information had to be transferred from First Interstate to CDS. This transfer required that
First Interstate enter the numbers or digits of various ATM terminal IDs. During the
transfer, a transposition error resulted in Grizzly Security’s ATM located at St. Mary’s
becoming misidentified as an ATM located in South Dakota and owned by Ruzicka. As
a result of the error, amounts belonging to Grizzly Security and totaling approximately
3
$285,520 were deposited into Ruzicka’s bank account between June 2008 and September
2009. Instead of notifying Bancard or CDS that he had received these funds in error,
Ruzicka kept the money.
¶6 While the exact date is not apparent from the record in this case, Grizzly Security
notified Bancard of the error in mid-2009. In turn, Bancard notified CDS of the error on
September 9, 2009. Two days later, CDS notified Bancard that a technician had
completed the modification Bancard had requested, updating and correcting the account
file associated with Grizzly Security’s St. Mary’s ATM. After the error had been
remedied, Bancard recovered approximately $250,000 of misplaced funds from Ruzicka
between September 2010 and December 2010, subsequently returning the money to
Grizzly Security.
¶7 At this point in the saga, the viewpoints of the parties regarding the subsequent
series of events and circumstances vary dramatically. Bancard states that Grizzly
Security contacted it in December 2011 regarding the remaining funds, totaling $35,520,
which had not been recovered from Ruzicka. During this conversation, Bancard
maintains that it informed Grizzly Security that it was under no obligation to recover the
remaining funds from Ruzicka, that it had previously repeatedly informed Grizzly
Security that sole liability for the missing funds lay with Ruzicka, and that Grizzly
Security should seek the remainder of the funds from Ruzicka. Conspicuously absent
from Bancard’s version of the facts is any reference to events during, or circumstances
surrounding, the time period between December 2010, when Bancard states it ceased
4
recovery efforts from Ruzicka, and December 2011, when Bancard states it informed
Grizzly Security it should seek recovery from Ruzicka directly.
¶8 Grizzly Security’s recitation of the circumstances and events surrounding the
twelve-month period between December 2010 and December 2011 is strikingly different.
Grizzly Security states that the missing funds were recovered on the following timeline:
September 29, 2010–$50,000; October 9, 2010–$50,000; and, December 2, 2010–
$150,000. Following the December 2010 payout, Grizzly Security alleges that Bancard
instructed the employees it had tasked with recovery of the funds from Ruzicka to “keep
quiet” about the $35,520 still outstanding, presumably hoping that Grizzly Security
would not notice that these funds were still missing. In support of this allegation, Grizzly
Security presented affidavits tending to show that this directive was the primary reason
the two Bancard employees tasked with recovering the funds from Ruzicka, Vincent
Sarff and Wendy Sarff, subsequently terminated their employment with Bancard, and that
those employees believed Grizzly Security was entitled to know of the outstanding
balance at that time. Grizzly Security alleges that it was only after Vincent and Wendy
Sarff left Bancard’s employ and informed Grizzly Security of the outstanding funds that
Grizzly Security was notified not only that $35,520 had not been collected but that
Bancard had ceased collection efforts against Ruzicka.
¶9 The factual timelines presented by the parties re-converge following December
2011. Shortly after the December 2011 conversation between Bancard and Grizzly
Security, Bancard states that Grizzly Security terminated all its arrangements and
contracts with Bancard. In response to the cessation of the business relationship, Bancard
5
notes that it filed two pending lawsuits against Grizzly Security, alleging that Grizzly
Security breached the contract contained in the PSMA and tortiously interfered with
PSMAs between Bancard and other entities.1
¶10 As noted above, there is a clear difference between both parties’ recitation of the
factual narrative in this case. The District Court apparently noticed this discrepancy,
stating, “For reasons unknown to the Court, [Grizzly Security] did not realize the
outstanding balance had not been collected by Bancard. Bancard has denied any
obligation to do so, and it appears from the record before the Court they were hoping the
whole matter would be forgotten.”
¶11 In August of 2013, Grizzly Security filed a Complaint and Demand for Jury Trial
in the Eleventh Judicial District Court, Flathead County, alleging that Bancard breached a
contractual duty owed to Grizzly Security, that Bancard had engaged in actual or
constructive fraud and/or had made negligent or intentional misrepresentations, that
Bancard was negligent in its handling of Grizzly Security’s account, and that Ruzicka and
B&B Lounge were unjustly enriched by the erroneous deposits.
¶12 Bancard and Ruzicka filed motions for summary judgment against Grizzly
Security, addressed in more detail below. The District Court granted both motions and
awarded Bancard attorney’s fees under the PSMA.
1
Bancard Services, Inc. v. Christopher Gillette d/b/a Fatt Boys and Grizzly Security Armored
Express, Inc., DV-13-462(B); Bancard Services, Inc. v. Grizzly Security Armored Express, Inc.,
DV-14-1214(B).
6
STANDARD OF REVIEW
¶13 We review de novo a district court’s grant or denial of summary judgment,
applying the same criteria of M. R. Civ. P. 56 as a district court. Pilgeram v. GreenPoint
Mortg. Funding, Inc., 2013 MT 354, ¶ 9, 373 Mont. 1, 313 P.3d 839 (citation omitted).
Under Rule 56(c), judgment “shall be rendered forthwith if the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the affidavits, if any,
show that there is no genuine issue as to any material fact and that the moving party is
entitled to a judgment as a matter of law.” Roe v. City of Missoula, 2009 MT 417, ¶ 14,
354 Mont. 1, 221 P.3d 1200 (citation omitted). “A material fact is a fact that involves the
elements of the cause of action or defenses at issue to an extent that necessitates
resolution of the issue by a trier of fact.” Roe, ¶ 14 (citation omitted). “The party
moving for summary judgment has the initial burden of establishing both the absence of
genuine issues of material fact and entitlement to judgment as a matter of law.” Roe, ¶ 14
(citation omitted). If the moving party meets this burden, then the burden “shifts to the
nonmoving party to establish that a genuine issue of material fact does exist.” Roe, ¶ 14
(citation omitted). If no genuine issues of material fact exist, the district court “then
determines whether the moving party is entitled to judgment as a matter of law.” Roe,
¶ 14 (citation omitted). Finally, “[o]ur de novo standard of review of summary judgment
decision allows us to review the record and make our own determinations regarding the
existence of disputed issues of fact and entitlement to judgment as a matter of
law.’” Chapman v. Maxwell, 2014 MT 35, ¶ 12, 374 Mont. 12, 322 P.3d 1029 (quoting
Wurl v. Polson School District No. 23, 2006 MT 8, ¶ 29, 330 Mont. 282, 127 P.3d 436).
7
DISCUSSION
¶14 1. Did the District Court err in granting summary judgment in favor of Leland
Ruzicka and B&B Lounge, Inc.?
¶15 Grizzly Security alleges that defendants B&B Lounge and Ruzicka were unjustly
enriched by retaining the funds erroneously deposited into their account. Ruzicka does
not contest that funds were deposited into the account, nor does Ruzicka contest that he
has failed to return the remainder of the funds. It is undisputed that Grizzly Security
notified Bancard of the missing funds in mid-2009. While the exact date is unclear, the
notification occurred sometime prior to September 2009, when Bancard subsequently
notified CDS of the error. Further, the record reflects that after CDS corrected the data
entry error in September 2009, no erroneous deposits occurred.
¶16 In Montana, an action for unjust enrichment must be brought within three years.
Christian v. Atl. Richfield Co., 2015 MT 255, ¶ 14, 380 Mont. 495, 358 P.3d 131. The
period of limitation begins to run “when all elements of the claim exist or have occurred.”
Christian, ¶ 53; § 27-2-102(2), MCA. Further, “[l]ack of knowledge of the claim or
cause of action, or of its accrual, by the party to whom it has accrued does not postpone
the beginning of the period of limitation.” Section 27-2-102(2), MCA. The latest
possible date on which the unjust enrichment claim against Ruzicka could have accrued
was in September 2009, the latest date upon which an erroneous deposit could have been
debited into Ruzicka’s account. Grizzly Security filed this lawsuit in August of 2013,
well after the applicable three-year statute of limitations had run.
8
¶17 However, Grizzly Security argues that the exception this Court recognized in N.
Cheyenne Tribe v. Roman Catholic Church, 2013 MT 24, 368 Mont. 330, 296 P.3d 450,
where a relationship of trust and confidence between the parties tolls the statute of
limitations until an adverse interest is asserted, should apply in the instant case. When
addressing this matter below, the District Court noted that “the uncontradicted facts of
this case are that at the time the elements of the claim of unjust enrichment arose,
between May 2008 and September 2009, [Grizzly Security and Ruzicka] had utterly no
relationship, business or otherwise, let alone the type of ‘relationship of trust and
confidence’ relied upon by the Montana Supreme Court” in previous cases. We agree.
¶18 As noted by the District Court, we previously addressed the existence of a
“relationship of trust and confidence,” sufficient to toll the statute of limitations for an
unjust enrichment claim in N. Cheyenne Tribe, in which the parties had interacted with
each other for over 50 years. The Church had raised significant sums of money on behalf
of the Tribe, and the Tribe had routinely demanded disbursements of those funds. N.
Cheyenne Tribe, ¶¶ 15-17. Further, we noted that a commentator had suggested “[t]he
Cheyenne people viewed the [Church] as a means to improve their material condition on
the reservation and as an intermediary who might speak for the Cheyenne people to
federal officials.” N. Cheyenne Tribe, ¶ 15. In summary, the relationship of trust and
confidence between the Tribe and the Church was based on a quantifiable relationship
and a history of fiduciary obligations.
¶19 In the instant case, the record reflects that the only commonality between Grizzly
Security and Ruzicka was the fact that they were both customers of Bancard. This fact
9
does not establish a relationship of trust and confidence. Therefore, the District Court did
not err by dismissing Grizzly Security’s unjust enrichment claim against Ruzicka as
barred by the statute of limitations.
¶20 2. Did the District Court err in granting summary judgment in favor of Bancard
Services, Inc.?
¶21 Grizzly Security argues that the District Court erred by either ignoring issues of
material fact sufficient to preclude summary judgment in its analysis or impermissibly
resolving issues of material fact in favor of Bancard in its analysis of each of the
following issues: whether Bancard owed a contractual duty to Grizzly Security; whether
Bancard owed a duty to Grizzly Security outside of its contractual obligations; and,
whether Bancard’s conduct constituted actual or constructive fraud and/or negligent or
intentional misrepresentation. Further, Grizzly Security argues that the District Court
misapplied the law in determining that Bancard did not breach the implied covenant of
good faith and fair dealing. We address each theory in turn.
BREACH OF A CONTRACTUAL DUTY
¶22 The District Court determined that no genuine issues of material fact precluded the
conclusion that, as a matter of law, Bancard did not have an obligation arising out of the
PSMA to monitor the deposits being made by First Interstate or CDS, or to guarantee
recovery of the misplaced funds. In reaching this determination, the District Court held
that there was no specific written contractual duty owed to Grizzly Security contained in
the PSMA that had been breached. Further, the District Court determined that no oral
contract, whereby Bancard allegedly agreed to ensure complete recovery of the funds on
10
behalf of Grizzly Security, existed between the parties. We address the existence of
contractual duty under the PSMA and the existence of an oral contract separately.
A. Contractual Duty under the PSMA
¶23 Grizzly Security argues that the PSMA clause requiring Bancard to provide
processing services to Grizzly Security through a processing bank and giving Bancard
full discretion as to the identity of the processing bank implicitly required that a transition
between processing banks occur in a reasonable manner that didn’t jeopardize Grizzly
Security. Grizzly Security argues that this implicit duty was breached when the account
entry error occurred during the transition between First Interstate and CDS. Further,
Grizzly Security argues that this conclusion is supported by testimony from Wendy Sarff,
who stated she was the Bancard employee assigned to verify the account numbers during
the transition from First Interstate to CDS.
¶24 Grizzly Security draws our attention to a clerical error by the District Court
relating to this issue. In its order granting summary judgment, the District Court stated
that Ms. Sarff’s testimony indicated that CDS, not Bancard, was the entity that
recognized and assumed responsibility to verify the account information that was being
provided. This is incorrect. Ms. Sarff stated that, as an employee of Bancard, she was
tasked with verifying the account information during the transfer and that, due to time
constraints, she was instructed to verify only every fifteenth account number for
accuracy. Ms. Sarff stated that, if she had been allowed to check each account number,
the error would have been identified and corrected during the transfer.
11
¶25 In response, Bancard argues that the obligation to verify that any third-party
processing is performed correctly cannot be imputed to Bancard without inserting new
substantive language into the PSMA. Bancard argues that because the PSMA grants
Bancard sole authority to change data processors (as illustrated by its decision to change
servicers from First Interstate to CDS), it is shielded from liability for errors occurring
during that transition by the clauses in the PSMA limiting liability in general. Bancard
notes that the ACH Authorization Agreement between Grizzly Security and First
Interstate “expressly contemplates [Grizzly Security] holding [First Interstate]
accountable for loss of funds transferred to an account not designated . . . at the time of
transfer.” The subsequent agreement between Grizzly Security and CDS has a similar
provision and required that Grizzly Security audit its own account and notify CDS within
30 days of the date on which funds go missing.
¶26 In response to Grizzly Security’s statements involving the testimony of Ms. Sarff,
Bancard argues that it had no legal obligation to verify the account numbers during the
transition between First Interstate and CDS. Bancard supports this conclusion by stating
that it did not have access to Grizzly Security’s bank accounts and that it had no way of
knowing if the funds had been correctly deposited until Grizzly Security notified it of the
error.
¶27 The construction and interpretation of a contract is a question of a law. State ex
rel. Bullock v. Philip Morris, Inc., 2009 MT 261, ¶ 16, 352 Mont. 30, 217 P.3d 475.
“When a contract is reduced to writing, the intention of the parties is to be ascertained
from the writing alone if possible.” Section 28-3-303, MCA. “If the language of a
12
contract is unambiguous—i.e., reasonably susceptible to only one construction—the court
must apply the language as written.” State ex rel. Bullock, ¶ 16 (citing Mary J. Baker
Revocable Trust v. Cenex Harvest States, 2007 MT 159, ¶ 19, 338 Mont. 41, 164 P.3d
851).
¶28 Section 17 of the PSMA states, in relevant part,
[BANCARD] SHALL IN NO EVENT BE RESPONSIBLE FOR ANY
LOST PROFITS OR DIRECT, INCIDENTAL, CONSEQUENTIAL,
SPECIAL, OR IN DIRECT [sic] DAMAGES THAT [GRIZZLY
SECURITY] MAY INCUR. [BANCARD’S] SOLE LIABILITY TO
[GRIZZLY SECURITY] HEREUNDER, EXCEPT AS OTHERWISE
PROVIDED, SHALL BE TO REMEDY ANY BREACH IN A TIMELY
MANNER. FURTHERMORE, BANCARD SERVICES INC. SHALL BE
HELD HARMLESS FROM ANY LIABILITY CONCERNING
[GRIZZLY SECURITY’S] PREVIOUS AGREEMENTS WITH ANY
OTHER ENTITY, BUSINESS, OR ATM PROCESSOR.
The language of this provision and the language of the PSMA in general is unambiguous.
Grizzly Security seeks the recovery of money that, it argues, Bancard is liable for
misplacing. However, the language of § 17 precludes a determination that Bancard is
liable, as it expressly disclaims responsibility for any lost profits or other damages
incurred by Grizzly Security.
¶29 In summary, Grizzly Security cannot impute a duty to Bancard that is expressly
contradicted by a provision in the written contract between the two parties. Were we to
hold that Bancard was liable, it would force a conclusion that Bancard would be
responsible for Grizzly Security’s lost profits or other damages stemming from the
erroneous banking transactions. This conclusion would render § 17 of the PSMA void.
Further, while not dispositive of our determination here, we note that Grizzly Security’s
13
contracts with both First Interstate and CDS contemplated that Grizzly Security would
hold those parties liable for precisely the type of error that occurred in this case. For
these reasons, we determine that the District Court did not err in granting summary
judgment under the contract in favor of Bancard.
B. Existence of an Oral Contract
¶30 As noted above, Grizzly Security also alleges that it entered into an oral contract
with Bancard whereby Bancard agreed to ensure complete recovery on Grizzly Security’s
behalf. In granting summary judgment in favor of Bancard, the District Court determined
that the testimony of Greg Harris, Grizzly Security’s President, coupled with Bancard’s
denial of an oral contract, “satisfies this Court that there is no genuine issue of material
fact that the parties did not enter into an oral contract which specifically conflicted with
the terms and obligations of the written contract.”
¶31 Bancard contends that Grizzly Security’s position regarding the creation of an oral
agreement is both “vague and otherwise heavily contradicted.” Bancard argues that the
fact it “received no consideration—nothing whatsoever—in exchange for this alleged
promise to ‘collect-or pay’” is evidence against the formation of an oral agreement.
Further, Bancard states that the evidence offered by Grizzly Security is, at best, unclear,
and that any collection efforts it undertook were voluntary and conducted while the
PSMA was still in effect.
¶32 Grizzly Security argues the District Court erred by resolving issues of material fact
in favor of Bancard, improperly making findings of fact, and weighing the evidence in
favor of Bancard. Specifically, Grizzly Security argues that the District Court selectively
14
relied on the testimony of Mr. Harris, and failed to consider the parts of his testimony that
directly evidenced an oral contract between the two parties. Further, Grizzly Security
argues that the District Court ignored testimony by Vincent Sarff, which allegedly
evidenced the existence of an oral contract.
¶33 In support of its argument, Grizzly Security directs this Court to the general rule
that, “[w]here the existence of an oral contract is contested and the evidence is
conflicting, the existence of a contract is a question for the trier of fact.” Como v. Rhines,
198 Mont. 279, 284, 645 P.2d 948, 950-51 (1982) (citations omitted). However, as noted
by the District Court, Montana law requires that “[a] contract in writing may be altered
by a contract in writing or by an executed oral agreement, and not otherwise.” Section
28-2-1602, MCA. “An executed oral agreement exists where the obligations of both
parties have been fully performed, and nothing remains to be done by either party.”
Morrow v. Bank of America, N.A., 2014 MT 117, ¶ 26, 375 Mont. 38, 324 P.3d 1167.
“Full execution must occur on both sides of the agreement.” Richards v. JTL Group,
Inc., 2009 MT 173, ¶ 20, 350 Mont. 516, 212 P.3d 264. “Performance by only one party
is not sufficient.” Morrow, ¶ 26. As articulated by Bancard, were an oral contract found
to exist in this case, it would have been created while the PSMA was still in force.
Therefore, because we determine that § 28-2-1602, MCA, applies, the threshold question
is whether an executed oral agreement exists.
¶34 Initially, we note that it is undisputed that the obligations of the parties have not
been fully performed in this case. Indeed, had the parties fully performed the obligations
allegedly contained within the oral agreement, Bancard would have delivered the
15
remaining funds to Grizzly Security and this case would not be before the Court.
Therefore, we are faced with a question of statutory interpretation: does § 28-2-1602,
MCA, require full performance in order for an executed oral agreement to exist? We
have addressed this question in previous cases, although with conflicting results. A
review of our previous decisions on this issue is instructive.
¶35 In Dalakow v. Geery, 132 Mont. 457, 318 P.2d 253 (1957), we addressed a
situation where the plaintiff had fully performed under the alleged oral modification of
the contract, and the defendant had received a benefit not provided for in the written
contract. Dalakow, 132 Mont. at 467, 318 P.2d at 259. We held that, under that factual
scenario, justice and equity guided the conclusion that execution by only one party was
sufficient to allow enforcement of the modification against the other party. Dalakow, 132
Mont. at 467, 318 P.2d at 259.
¶36 However, in Winkel v. Family Health Care, P.C., 205 Mont. 40, 668 P.2d 208(1983), a case with a similar factual narrative to the instant appeal, we limited this
holding significantly. In Winkel, the issue before this Court was whether the plaintiff,
Winkel, could take advantage of an alleged oral modification to an employment contract,
promising a share of the profits from a business. Winkel, 205 Mont. at 45-46, 668 P.2d at
210-11. Defendant Vranish argued that Winkel was not entitled to a profit sharing bonus
because the written employment contract did not provide for such a bonus and was never
amended as a matter of law under § 28-2-1602, MCA. Winkel, 205 Mont. at 45, 668 P.2d
at 210. Interpreting the requirements of the statute, we held that because “the oral
agreement concerning [the] profit-sharing bonus was never performed . . . the oral
16
agreement was not executed.” Winkel, 205 Mont. at 46, 668 P.2d at 211. In other words,
because Vranish had never given Winkel the profit sharing bonus, the oral agreement was
never performed and, therefore, the oral agreement was never executed and the written
contract remained unaltered. Winkel, 205 Mont. at 46, 668 P.2d at 211.
¶37 The resulting rule from Winkel, that an oral agreement must be fully performed by
both parties in order for it to be executed, is arguably harsh, but in line with the plain
meaning of § 28-2-1602, MCA. Applied to the instant case, the result is clear. Even if we
were to determine that the alleged oral agreement existed, Bancard did not fully perform.
As noted above, if Bancard had fully performed, this case would not be before the court.
Therefore, as Bancard has not fully performed, the oral agreement remains unexecuted
and the original written contract between Grizzly Security and Bancard remains
unaltered. Under this analysis, we hold that the District Court did not error in granting
summary judgment in favor of Bancard on the existence of an oral agreement.
IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING
¶38 Grizzly Security also argues that the District Court erred by dismissing its claim
involving breach of the implied covenant of good faith and fair dealing because of its
determination that there was no contract to which the covenant attached and its failure to
consider the honesty in fact prong of the covenant.
¶39 Under Montana law, “[e]very contract, regardless of type, contains an implied
covenant of good faith and fair dealing. A breach of the covenant is a breach of the
contract. Thus, breach of an express contractual term is not a prerequisite to breach of
the implied covenant.” Masters Group Int’l, Inc. v. Comerica Bank, 2015 MT 192, ¶ 67,
17
380 Mont. 1, 352 P.3d 1101 (quoting McCoy v. First Citizens Bank, 2006 MT 307, ¶ 21,
335 Mont. 1, 148 P.3d 677). “The conduct required by the implied covenant of good
faith and fair dealing is honesty in fact and the observance of reasonable commercial
standards of fair dealing in the trade.” Section 28-1-211, MCA. We have interpreted this
statute as allowing either dishonesty or commercially unreasonable conduct to implicate
the covenant. May v. ERA Landmark Real Estate of Bozeman, 2000 MT 299, ¶ 49, 302
Mont. 326, 15 P.3d 1179. Where a party seeks to prove commercially unreasonable
conduct, this Court has held that, in the absence of statutorily defined standards of
conduct, expert testimony is required. See May, ¶¶ 46-48. Proving conduct that violates
the honesty in fact requirement, however, does not require expert testimony. May, ¶ 49.
¶40 When determining issues involving the implied covenant of good faith and fair
dealing, we have consistently held that the covenant is “a mutual promise that the
contracting parties will not attempt, through dishonesty or abuse of discretion in
performance, to deprive each other of the benefits of the contract.” Phelps v. Frampton,
2007 MT 263, ¶ 38, 339 Mont. 330, 170 P.3d 474 (citing Beaverhead Bar Supply v.
Harrington, 247 Mont. 117, 124, 805 P.2d 560, 564 (1991)) (emphasis in original).
Further, we have held that evidence that the other party acted in bad faith is, by itself,
insufficient to maintain a claim for breach of the covenant. Phelps, ¶ 39. We have
required that a “claimant must also come forward with evidence sufficient to support the
conclusion that as a result of the other party’s action, the claimant was deprived of a
benefit or a justified expectation under the contract.” Phelps, ¶ 39. A determination of
whether an expectation was justified under the contract “depends on the various
18
circumstances that surround the parties’ relationship and thereby shape or give contour to
the expectation in the first instance.” Phelps, ¶ 39.
¶41 As we have determined that there was not an executed oral agreement modifying
the underlying contract in this case, our case law requires that Grizzly Security present
evidence sufficient to support the conclusion that, as a result of Bancard’s actions, it was
deprived of a benefit or justified expectation under the PSMA. Grizzly Security has not
presented such evidence. The benefit that Grizzly Security implies exists in this case is
that Bancard is required to recover any missing or misplaced funds on its behalf. Grizzly
Security has not directed this Court to any clause of the contract that requires or confers
such a benefit. Further, Grizzly Security has presented no evidence that forcing Bancard
to recover these funds is a justified expectation under the contract. The circumstances
surrounding the parties’ relationship, specifically the subcontracts Bancard required
Grizzly Security to sign with both First Interstate and CDS which explicitly state that
those two entities would be liable under circumstances as present in this case, establish
that Grizzly Security’s expectation that Bancard would recover the funds or had a duty to
recover the funds was not justified.
¶42 We therefore conclude that the District Court did not err in granting summary
judgment to Bancard on Grizzly Security’s claims for breach of the implied covenant of
good faith and fair dealing.
ACTUAL OR CONSTRUCTIVE FRAUD
¶43 Grizzly Security argues that the District Court erred in granting summary
judgment to Bancard on Grizzly Security’s claims of actual and/or constructive fraud by
19
improperly weighing the evidence in favor of Bancard and resolving issues of material
fact in favor of Bancard. We address each theory in turn.
A. Fraud
¶44 We have clearly defined the requirements a party must meet when claiming fraud:
To survive a motion for summary judgment, a party alleging fraud must
establish a prima facie case by providing evidence of the following
elements:
1. a representation;
2. its falsity;
3. its materiality;
4. the speaker’s knowledge of its falsity or ignorance of its truth;
5. the speaker’s intent that it should be acted upon by the person and
in the manner reasonably contemplated;
6. the hearer’s ignorance of its falsity;
7. the hearer’s reliance upon its truth;
8. the right of the hearer to rely upon it; and
9. the hearer’s consequent and proximate injury or damage.
May, ¶ 21.
¶45 After reviewing the record, we determine that Grizzly Security has not met its
burden of establishing a prima facie case of fraud. In its complaint Grizzly Security
states in conclusory fashion: “Bancard’s actions have resulted in damages to Grizzly all
in an amount to be proven at trial.” Further, Grizzly Security’s Reply to Bancard’s
Motion for Summary Judgment does not state what injury or damage occurred as a result
of the alleged fraudulent statement. Liberally construing the argument on appeal, it
appears Grizzly Security would argue that its inability to recover the remaining funds
from Ruzicka is the consequent and proximate damage of Bancard’s alleged fraudulent
statement. We disagree.
20
¶46 The fraud Grizzly Security claims is Bancard’s alleged concealment of the fact
that it would not continue to pursue recovery of the remaining funds from Ruzicka. It
follows, then, that the injury to Grizzly Security must have occurred between the time of
the alleged fraud, December 2010 (at the earliest), and the time the alleged fraud was
discovered, December 2011. Grizzly Security has not described any injury, apart from
the fact that a sum remains unrecovered from Ruzicka, that occurred as a direct result of
this alleged concealment. Bancard’s alleged concealment was not the cause of the funds
being deposited into Ruzicka’s account. Bancard’s alleged concealment did not prevent
Grizzly Security from seeking the funds on its own accord. Notably, Grizzly Security has
not argued that Bancard’s alleged concealment prevented its recovery against Ruzicka.
Therefore, under these facts, we find that Grizzly Security has not provided evidence that
Bancard’s alleged concealment, even if we assume it occurred, has injured or caused
damages to Grizzly Security.
¶47 After a review of the record and under our analysis above, we determine that the
District Court did not err in granting summary judgment to Bancard on Grizzly Security’s
claims of fraud.
21
B. Constructive Fraud2
¶48 Grizzly Security’s arguments involving constructive fraud are similar to those it
presented in support of its arguments for actual fraud: the District Court improperly
weighed the evidence when granting summary judgment in favor of Bancard. In its
Order and Rationale on Summary Judgment, the District Court again relied on its
determination that “there is no evidence that either Shaun or Russell Pandina, or Vincent
Sarff, affirmatively stated to Greg Harris that Bancard would either obtain full
reimbursement from [Ruzicka] or that Bancard would pay whatever [Ruzicka] did not
refund,” when granting summary judgment in favor of Bancard.
¶49 In Montana, a claim for constructive fraud “merely requires the establishment of a
duty.” Morrow, ¶ 63 (quoting Mattingly, 285 Mont. at 218, 947 P.2d at 72). We have
held that “[u]nder certain special circumstances, neither a confidential nor a fiduciary
relationship is necessary for a finding of constructive fraud.” Mattingly, 285 Mont. at
219, 947 P.2d at 72 (internal quotation marks omitted). In defining these “special
circumstances,” we have stated that “[a] duty sufficient to support a finding of
constructive fraud ‘may exist where one party has acted to mislead the other in some
way.’” Morrow, ¶ 64 (quoting Mattingly, 285 Mont. at 219, 947 P.2d at 72). A review
2
We note briefly that, while the constructive fraud statute cited by both the District Court and
Grizzly Security is located within the subsection entitled “Circumstances Which Affect Validity
of Apparent Consent” and is therefore generally applicable only in cases involving apparent
consent to contract, we have previously held that constructive fraud in particular, within the
meaning of § 28-2-406, MCA, allows a plaintiff to seek damages independent of a contract
action. Morrow, ¶ 62; Mattingly v. First Bank of Lincoln, 285 Mont. 209, 218-20, 947 P.2d 66,
71-73 (1997); Lee v. Armstrong, 244 Mont. 289, 295, 798 P.2d 84, 88 (1990).
22
of our case law applying this rule is instructive as to why it is not implicated in the instant
case.
¶50 In McGregor v. Mommer, 220 Mont. 98, 714 P.2d 536 (1986), we summarized
one such special circumstance as existing “[w]here sellers, by words or conduct, create a
false impression concerning serious impairments or other important matters and
subsequently fail to disclose the relevant factors.” McGregor, 220 Mont. at 109, 714
P.2d at 543 (citing Moschelle v. Hulse, 190 Mont. 532, 538-39, 622 P.2d 155, 159
(1980)). In McJunkin v. Kaufman & Broad Home Systems, Inc., 229 Mont. 432, 748 P.2d
910 (1987), we noted that another special circumstance could exist between parties to a
commercial transaction relating to the purchase of a mobile home from a
manufacturer/seller, holding “defendants had a duty to refrain from intentionally or
negligently creating a false impression by words or conduct.” McJunkin, 299 Mont. at
435-436, 439, 748 P.2d at 912-13, 915. In Mattingly v. First Bank of Lincoln, we
determined that the requisite special circumstance existed where the seller of a gas station
made misleading statements about the condition or value of the property to the
subsequent purchaser. Mattingly, 285 Mont. at 219-220, 947 P.2d at 72-73. Further, in
H-D Irrigating, Inc. v. Kimble Props., Inc., 2000 MT 212, 301 Mont. 34, 8 P.3d 95, we
held that the special circumstance requirement was met where a seller created a false
impression relating to the effectiveness of equipment he was selling. H-D Irrigating,
Inc., ¶¶ 25-30. Finally, and perhaps most instructively, we recently addressed this issue
in Morrow v. Bank of America, N.A., where we stated “[c]onstructive fraud is a breach of
duty, which without fraudulent intent, creates an advantage for the breaching party by
23
misleading another person to that person’s prejudice.” Morrow, ¶ 62. Our statement in
Morrow illuminates what has been implicit in our previous decisions involving
constructive fraud: the allegedly fraudulent party must gain some advantage over a party
to that party’s prejudice.
¶51 Turning to the instant case, we have not identified a duty owed by Bancard to
Grizzly Security that would require the full repayment of the missing funds or require
that Bancard continue to seek the funds from Ruzicka. In the absence of such an
articulable duty, we hold that Grizzly Security may not take advantage of the general rule
relating to constructive fraud allowing special circumstances to alleviate the duty
requirement. As a review of our case law indicates, we have yet to expand this duty
outside of the circumstances where one party gains an advantage over the other party to
that party’s prejudice. Grizzly Security does not allege or identify any benefit gained by
Bancard through its alleged misrepresentations. Further, Grizzly Security does not
indicate what prejudice it faced as a result of Bancard’s alleged misrepresentations.
Therefore, the exception to the general rule that constructive fraud requires a duty is
inapplicable in this case.
¶52 Accordingly, under the above analysis, we determine that the District Court did
not err in granting summary judgment to Bancard on Grizzly Security’s claim of
constructive fraud.
NEGLIGENT OR INTENTIONAL MISREPRESENTATION
¶53 Grizzly Security argues that the District Court erred in granting summary
judgment in favor of Bancard on its claim of negligent or intentional misrepresentation
24
because issues of material fact exist. In granting summary judgment, the District Court
determined the testimony provided by Russell Pandina, the principal officer and owner of
Bancard, coupled with Grizzly Security’s failure “to establish, by admissible evidence”
that Bancard, through any of its representatives, made the representation to Grizzly
Security that Bancard would guarantee return of the missing funds or reimburse Grizzly
Security for any funds that were not returned, was dispositive.
¶54 We have adopted the following definition of negligent misrepresentation:
One who, in the course of his business, profession or employment, or in any
other transaction to which he has a pecuniary interest, supplies false
information for the guidance of others in their business transactions, is
subject to liability for pecuniary loss caused to them by their justifiable
reliance upon the information, if he fails to exercise reasonable care or
competence in obtaining or communicating the information.
Morrow, ¶ 45 (citations omitted). This definition has been expanded to require that the
following elements be met:
a) the defendant made a representation as to a past or existing material fact;
b) the representation must have been untrue;
c) regardless of its actual belief, the defendant must have made the
representations without any reasonable ground for believing it [sic] to be
true;
d) the representation must have been made with the intent to induce the
plaintiff to rely on it; [and]
e) the plaintiff, as a result of its reliance, must sustain damage.
Morrow, ¶ 45 (citations omitted).
¶55 Grizzly Security argues that Bancard recognized its obligation to collect when it
proceeded to recover funds from Ruzicka and that this constitutes a representation which,
after Bancard later asserted that it did not have an obligation to recover funds, was false
or made without reasonable grounds for believing it was true. We disagree, but find it
25
unnecessary to delve into the merits of that argument in light of the fact that Grizzly
Security has failed to demonstrate the damage it sustained as a result of its purported
reliance on these alleged misrepresentations. We reiterate that, while we recognize that a
portion of the misplaced funds remain outstanding, those funds were not misplaced as a
result of Bancard’s alleged misrepresentation, and Grizzly Security has not demonstrated
how that representation, if it did occur, caused it to be unable to recover those funds from
Ruzicka or pursuant to its ACH Agreement with CDS. Therefore, under the above
analysis, we determine that the District Court did not err in granting summary judgment
to Bancard on Grizzly Security’s claims for negligent or intentional misrepresentation.
BREACH OF A GENERAL DUTY
¶56 In its reply brief to Bancard’s motion for summary judgment, Grizzly Security
argued that, “[o]nce [Bancard] had made its representations to Mr. Harris that it would
collect the funds owing . . . [Bancard’s] duty was established and it had an obligation to
use reasonable efforts to see it through.” In addressing this argument, the District Court
construed the duty to collect outstanding funds as an offshoot of the contractual claims
and subsequently dismissed it. However, the District Court noted that the claim
involving a duty to deposit funds into the correct account was separate and distinct from
the contractual duty analysis. Because Grizzly Security takes issue with both
determinations on appeal, we address each issue.
¶57 A cause of action for negligence requires four elements: duty, a breach of that
duty, causation, and damages. Henricksen v. State, 2004 MT 20, ¶ 20, 319 Mont. 307,
84 P.3d 38 (citing Wiley v. City of Glendive, 272 Mont. 213, 217, 900 P.2d 310, 312
26
(1995)). “The existence of a legal duty is a question of law to be determined by the
court.” Fisher v. Swift Transportation Co., 2008 MT 105, ¶ 17, 342 Mont. 335, 181 P.3d
601 (citations omitted). “In analyzing whether a duty exists, we consider whether the
imposition of that duty comports with public policy, and whether the defendant could
have foreseen that his conduct could have resulted in an injury to the plaintiff.” Fisher,
¶ 17 (citing Henrickson, ¶ 21).
¶58 On appeal, Grizzly Security simply restates, as a broad proposition, that “Bancard
had a duty to finish what it started and had a further duty to inform Grizzly, up front, if it
did not believe it had a duty to collect.” Grizzly Security cites no legal authority for the
preposition that where a party to a contract voluntarily performs an act outside of that
contract, it assumes a duty to complete performance of that act to the satisfaction of the
other party. Further, the scope of this general duty alleged by Grizzly Security, if it were
to exist, is necessarily limited by the other claims raised by Grizzly Security in this case.
To illustrate, as stated above, we hold that Bancard has not violated either a contractual
duty owed to Grizzly Security, or the duty required by the implied covenant of good faith
and fair dealing. Further, we have held that Bancard did not engage in actual or
constructive fraud or make negligent or intentional misrepresentations. Therefore, any
general duty that would exist here must exist outside of the scope of these issues we have
already addressed. As a matter of public policy, we are not inclined to find that a
company, like Bancard, has violated some general duty and opened itself up to liability
for endeavoring to retrieve funds it was under no identifiable obligation to retrieve.
27
¶59 Finally, Grizzly Security argues that Bancard had a “duty to inform [Grizzly
Security], up front, if it did not believe it had a duty to collect.” Grizzly Security did not
raise the question of whether Bancard had a duty to so inform Grizzly Security prior to
this appeal. Our rule with regard to arguments presented for the first time on appeal is
well established. We will generally “not address either an issue raised for the first time
on appeal or a party’s change in legal theory. The basis for the general rule is that it is
fundamentally unfair to fault the trial court for failing to rule correctly on an issue it was
never given the opportunity to consider.” Becker v. Rosebud Operating Servs., Inc., 2008
MT 285, ¶ 17 345 Mont. 368, 191 P.3d 435 (quoting Unified Industries, Inc., v. Easley,
1998 MT 145, ¶ 15, 289 Mont. 255, 961 P.2d 100) (internal citations and quotations
omitted). Therefore, we hold that the District Court did not err in granting summary
judgment to Bancard on Grizzly Security’s claim of general negligence.
¶60 3. Did the District Court err in awarding attorney’s fees to Bancard Services,
Inc.?
¶61 The District Court awarded attorney’s fees to Bancard in the amount of $21,500,
and costs in the amount of $171, for a total judgment of $21,671. Further, the District
Court held that Bancard would be entitled to an award of attorney’s fees incurred during
the instant proceeding. On appeal, Grizzly Security argues solely that, because “material
issues of fact exist with respect to the contract claims, this Court should reverse the
District Court’s fee award pending the jury’s determination of all issues in this action.”
As noted above, we affirm the District Court’s grant of summary judgment in this case.
Therefore, because § 15 of the PSMA expressly states that the prevailing party is entitled
28
to attorney’s fees and costs for any action instituted to enforce or interpret the terms of
the PSMA, we affirm the District Court’s award of attorney’s fees and costs.
CONCLUSION
¶62 Based on the foregoing, the District Court did not err in granting summary
judgment to Bancard and Ruzicka, or in awarding attorney’s fees to Bancard under the
terms of the PSMA. We remand to the District Court to determine the attorney’s fees
incurred during this appeal. Affirmed.
/S/ PATRICIA COTTER
We Concur:
/S/ MIKE McGRATH
/S/ BETH BAKER
/S/ JAMES JEREMIAH SHEA
Justice Laurie McKinnon, specially concurring.
¶63 While I agree that the District Court’s order resolving the parties’ motions for
summary judgment should be affirmed, I would do so along the more succinctly stated
analysis provided in the District Court’s order. In my opinion, the Court’s analysis is
excessively long, far-reaching, and unnecessary. Such an analysis, while not
immediately problematic for the case at hand, may potentially be cumbersome for the
Court to deal with in the future. Further, for reasons I have previously provided in my
dissent in Morrow v. Bank of America, N.A., I disagree with the Court’s analysis
regarding constructive fraud. See ¶¶ 72-99 (McKinnon, J., dissenting).
/S/ LAURIE McKINNON
29