Rutherford v. Ultra Shield

No. 01-675
IN THE SUPREME COURT OF THE STATE OF MONTANA
2002 MT 137N
JAY W. RUTHERFORD,
Plaintiff/Appellant,
v.
ULTRA SHIELD PRODUCTS INTERNATIONAL, INC., its
successors, assigns, and all other persons, unknown, claiming or
who might claim any right, title, estate, or interest in or lien or
encumbrance upon the real property described in the complaint
adverse to the plaintiff's ownership or any cloud upon plaintiff's title
thereto, whether such claim or possible claim be present or contingent,
Defendant and Respondent.
SUN MERCHANT GROUP, INC.,
Third-Party Plaintiff and Respondent,
v.
JAY W. RUTHERFORD, AMERICAN, BANK and all other persons,
unknown, claiming or who might claim any right, title, estate or interest
in or lien or encumbrance upon the real property described in the plaintiff's
complaint adverse to Sun Merchant Group, Inc.'s ownership, or any cloud
upon Sun Merchant Group, Inc.'s title thereto, whether such claim or possible
claim be present or contingent.
Third-Party Defendants and Appellant.
_______________________________________
APPEAL FROM: District Court of the Sixth Judicial District,
In and for the County of Park,
The Honorable Nels Swandal, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Patrick N. Dringman, Josephson & Dringman, Big Timber, Montana
For Respondent:
Karl Knuchel, Attorney at Law, Livingston, Montana
Submitted on Briefs: February 7, 2002
Decided: June 20, 2002
Filed:
__________________________________________
Clerk
Justice Jim Regnier delivered the Opinion of the Court.
¶1 Pursuant to Section I, Paragraph 3(c) Montana Supreme Court
1996 Internal Operating Rules, the following decision shall not be
cited as precedent but shall be filed as a public document with the
Clerk of the Supreme Court and shall be reported by case title,
Supreme Court cause number and result to the State Reporter
Publishing Company and to West Group in the quarterly table of
noncitable cases issued by this Court.
¶2 Jay W. Rutherford filed a quiet title action in the Sixth
Judicial District Court, Park County, against Ultra Shield Products
International, Inc. (“Ultra Shield”) seeking to quiet title to
certain property in Park County, Montana. Sun Merchant Group (“Sun
Merchant”) interpled as a third-party plaintiff to defend its
claimed interest in the subject property. Following a trial, the
District Court ruled in favor of Sun Merchant. Rutherford appeals
and we affirm.
¶3 The following issue is dispositive of this appeal:
¶4 Did the District Court err in quieting title to the disputed
property in favor of Sun Merchant?
BACKGROUND
¶5 This dispute revolves around two parcels of property in Big
Timber, Montana. On September 30, 1996, Rutherford made a $10,000
down payment toward the property out of his personal funds. Ultra
Shield paid the remainder of the purchase price and took title to
the property in its name. Ultra Shield is a business incorporated
in Delaware, with its principal place of business in Rancho
Cucamonga, California. Rutherford was the CEO and President of
Ultra Shield at the time of the transaction. Ultra Shield,
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however, later suspended Rutherford in September 1998.
¶6 On November 13, 1997, Rutherford took out a mortgage for
$75,000 from American Bank of Big Timber (“American Bank”). He
used the Big Timber property as collateral for the loan.
Rutherford took out a second mortgage from American Bank around
August 19, 1998, for $102,500. He again used the disputed property
as collateral for the loan. Rutherford claims that he used the
proceeds from these loans to repay Ultra Shield for the purchase
price of the property. Rutherford claims to have made all the
necessary payments on these loans, but no evidence exists that
Rutherford has fully paid off the loans or used other assets to
collateralize them.
¶7 Sun Merchant, an investment company incorporated in Florida,
purportedly lent Ultra Shield a total of $150,000 in August and
September 1998. On November 19, 1998, Rutherford filed a Complaint
to Quiet Title on the two parcels of property against Ultra Shield
and any successors or assigns. On November 23, 1998, and December
4, 1998, in exchange for a release from Sun Merchant’s loan and any
future claims, Ultra Shield transferred the two parcels of property
via quitclaim deeds to Sun Merchant. Sun Merchant later interpled
as a third-party plaintiff to defend its claimed interest in the
property.
¶8 On May 22, 2001, the District Court conducted a bench trial.
The court issued a judgment quieting title in favor of Sun
Merchant. Rutherford appeals from this judgment.
STANDARD OF REVIEW
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¶9 Rutherford’s claims of resulting and constructive trusts are
claims in equity. See Kauffman-Harmon v. Kauffman, 2001 MT 238, ¶
11, 307 Mont. 45, ¶ 11, 36 P.3d 408, ¶ 11. Therefore, in reviewing
the findings of fact, we decide if the District Court's findings
are clearly erroneous, and, in reviewing the conclusions of law, we
decide if the court’s interpretation of the law is correct. See
Hansen v. 75 Ranch Co., 1998 MT 77, ¶ 20, 288 Mont. 310, ¶ 20, 957
P.2d 32, ¶ 20.
DISCUSSION
¶10 Did the District Court err in quieting title to the disputed
property in favor of Sun Merchant?
¶11 Rutherford sought to quiet title based on theories of purchase
money resulting trust and constructive trust. A party must
establish a trust “by evidence that is clear, convincing and
practically free from doubt.” Hilliard v. Hilliard (1992), 255
Mont. 487, 492, 844 P.2d 54, 57. Sitting in equity empowers us to
determine all questions involved in the matter and to do complete
justice, including the power to fashion equitable results. See
Kauffman-Harmon, ¶ 11.
¶12 The District Court held that Rutherford was not entitled to
receive the property, either through a purchase money resulting
trust or constructive trust, because he did not have “clean hands.”
The doctrine of clean hands provides that “[p]arties must not
expect relief in equity, unless they come into court with clean
hands.” See Kauffman-Harmon, ¶ 19 (citing In re Marriage of Burner
(1991), 246 Mont. 394, 397, 803 P.2d 1099, 1100). As the statute
states, “[n]o one can take advantage of his own wrong.” Section 1-
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3-208, MCA. Accordingly, we will not assist a party whose claim
originated in the party’s wrongdoing, whether the victim of the
wrongdoing is the other party or a third party. See Kauffman-
Harmon, ¶ 19; Murphy v. Redland (1978), 178 Mont. 296, 309, 583
P.2d 1049, 1056.
¶13 Rutherford argues that the unclean hands doctrine does not
apply because he did not need to make an affirmative declaration
that he owned the property to establish a trust. Nevertheless,
Rutherford does claim that he did represent that he owned the
property. Regardless of his disclosures regarding the existence
of the trust, Rutherford misses the point of the unclean hands
doctrine. The issue is not whether a resulting trust requires a
party to affirmatively disclose the existence of a resulting trust.
Instead, the issue is whether Rutherford, as a party seeking
equity, did equity himself in this matter. See Kauffman-Harmon, ¶
13.
¶14 Here, the District Court concluded that Sun Merchant made its
loan to Ultra Shield after Rutherford made several representations
to Sun Merchant regarding the property. Specifically, these
representations indicated that Ultra Shield owned the property.
Although Rutherford testified at trial that he verbally informed
Sun Merchant that he owned the property, the District Court noted
that numerous written documents at the time of the negotiations
indicated that Ultra Shield owned the property. Perhaps the most
significant written document was Ultra Shield’s filings with the
United States Securities and Exchange Commission. In those
filings, which Rutherford signed as President and Chief Executive
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Officer, Ultra Shield listed the Montana property as assets of the
company.
¶15 At best, Rutherford made conflicting representations to
different parties depending on what benefitted him at the time. At
worst, if he did own the property through a trust, he violated
federal securities laws by knowingly representing the contrary in
public securities filings. See 17 C.F.R. § 240.10b-5 (stating that
using any national securities exchange to defraud or make any
untrue statement of material fact is illegal). Regardless,
Rutherford certainly did not bring his claim in equity with clean
hands.
¶16 Rutherford also argues that the court misapplied the clean
hands doctrine by failing to weigh the policy against unjust
enrichment against the policy giving relief to a person with
unclean hands. This argument confuses two separate legal concepts.
Rutherford combines a statutory exception to a purchase money
resulting trust with the equitable notion of clean hands.
¶17 A purchase money resulting trust does not apply in certain
instances where a party makes a transfer to accomplish an illegal
purpose. See § 72-33-218(2)(c), MCA. In such circumstances, the
court weighs the policy against unjust enrichment of the transferee
against the policy against giving relief to a person who has
entered an illegal transaction. See § 72-33-218(2)(c), MCA. The
doctrine of clean hands does not require such a balancing test.
¶18 For these reasons, we conclude that the clean hands doctrine
bars Rutherford from asserting his claims. Because his claims are
barred, we need not address any of his other issues.
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¶19 Affirmed.
/S/ JIM REGNIER
We Concur:
/S/ KARLA M. GRAY
/S/ PATRICIA COTTER
/S/ JIM RICE
/S/ W. WILLIAM LEAPHART
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