No. 89-507
IN THE SUPREME COURT OF THE STATE OF MONTANA
1990
ROBERT C. TURTAINEN and
MAR1 G. TURTAINEN,
Plaintiffs and Appellants,
-vs-
H . RANDOLPH POULSEN,
Defendant and Respondent.
APPEAL FROM: District Court of the First Judicial District,
In and for the County of Lewis and Clark,
The Honorable Jeffrey Sherlock, Judge presiding.
COUNSEL OF RECORD:
For Appellants:
Stephen R. McCue, Harrison Loendorf & Poston,
.
'?
J.
Helena, Montana
(. .1
I
'- -I For Respondent:
Dale E. Reagor, Luxan & Murfitt, Helena, Montana
Submitted on Briefs: March 29, 1990
Decided: May 22, 1990
Filed: D
Justice John Conway Harrison delivered the Opinion of the Court.
This case is an appeal from a grant of summary judgment by the
I
First Judicial District Court, Lewis and Clark County, ~onta'na,
in
a real estate contract dispute. We affirm.
Appellants raise two issues for review:
1. id the District Court err in finding appellants1 claims
barred by the doctrine of res judicata and the compulsory
counterclaim rule?
2. Were appellants not required to assert their counterclaims
for fraud and other related causes of action in respondent's
earlier injunction action because the District Court proceeded with
the injunction action on a summary basis?
On September 28, 1984, appellants purchased a lot in Mountain
Heritage Tracts, Lewis and Clark County, from respondent who owned
and lived on an adjoining lot. Respondent conveyed the property
to appellants by warranty deed which included a number of
restrictive covenants. On June 21, 1985, respondent filed a
lawsuit against appellants seeking through an injunction to enforce
the restrictive covenants. Specifically, respondent sought an
injunction forbidding appellants from living on the premises in a
trailer for a period in excess of twelve months and from engaging
in certain nuisance-type activities such as leaving garbage on the
premises and racing up and down the property with a motorcycle.
At trial, the only issue before the court related to the trailer
which the court decided in respondentls favor by issuing the
requested injunction.
On September 16, 1986, appellants sued respondent over the
September 28, 1984 contract for sale of the property. Appellants
alleged that respondent had made various false representations to
them that induced them to enter into the contract. The most
harmful alleged misrepresentations were the following: (1) a
representation that appellants could live in a trailer on the
premises for an indefinite time; (2) that appellants were not
informed of the presence of buried utility lines on their land;
(3) appellants were told that an access road did not encroach on
their land; (4) that the water system serving the land would be
owned by a non-profit corporation; and (5) that the property was
approved for FHA financing. Appellants1 complaint alleged that
respondent's false representations constituted fraud, unfair
business practices, constructive fraud, negligent misrepresenta-
tion, breach of warranty of habitability and fitness for a
particular purpose and breach of the implied covenant of good faith
and fair dealing.
Respondent moved for summary judgment arguing essentially that
the previous lawsuit barred appellants1 claims, either through the
doctrine of res judicata or the compulsory counterclaim rule. The
District Court agreed. It found that the trailer issue was res
judicata because whether the appellants could live on the premises
in a trailer was specifically litigated in the previous lawsuit.
Further, the District Court ruled that appellants1 other claims
were barred by the compulsory counterclaim rule because those
claims were logically related to the contract for sale of the land
which formed the basis of the previous lawsuit between the parties.
Rule 13 (a), of Montana Rules of Civil Procedure governs
compulsory counterclaims. In pertinent part Rule 13(a) provides:
A pleading shall state as a counterclaim any
claim which at the time of serving the
pleading the pleader has against any opposing
party, if it arises out of the transaction or
occurrence that is the subject matter of the
opposing party's claim ...
Rule 13(a)'s mandate regarding compulsory counterclaims avoids
needless multiplicity of suits. The rule "insures that only one
judicial proceeding is required to settle all matters determinable
by the facts or law and to bring all logically related claims into
a single litigati~n.~~
First Bank v. Fourth Judicial Dist. Court
(1987), 226 Mont. 515, 521, 737 P.2d 1132, 1135-36, citing Julian
v. Mattson (1985), 219 Mont. 145, 148, 710 P.2d 707, 709.
Appellants contend that the instant action does not arise out
of the same transaction or occurrence as the previous lawsuit
because the previous lawsuit related to appellants1 conduct after
the parties entered into the contract for sale of the property.
The instant action, however, relates to respondent's conduct prior
to the contract. Thus, appellants assert that the claims do not
arise from the same aggregate of operative facts necessary to
satisfy the logical relationship test. See Springs v. First Nat'l
Bank of Cut Bank (D. Mont. 1986), 647 F.Supp. 1394. We disagree.
Plainly, both lawsuits arose out of the same aggregate of
operative facts, the creation and execution of the contract for
sale of land from-respondentto appellants. The respondent filed
the initial suit to enforce the contract. The timing of the
disputed conduct in the first suit does not overshadow the fact
that the sale of the property constitutes the underlying
transaction which generated the dispute. At that time, appellants
should have counterclaimed any claim they had concerning alleged
misrepresentations respondent made that led to the creation and
execution of the contract.
Appellants mistakenly rely on Citizens State Bank v. Duus
(1969), 154 Mont. 18, 459 P.2d 696, as support for their contention
that these two lawsuits relate to different transactions, or in
other words that the appellantst claims were permissive counter-
claims in relation to the first lawsuit. However, Citizens State
Bank readily distinguishes itself from the instant case. In ruling
that the counterclaim at issue in Citizens State Bank was permis-
sive we stated:
This rendition illustrates that the claim
and counterclaim involved different contracts,
entered into at different dates between dif-
ferent parties, and further that the chattel
mortgage securing the notes in the original
action covered personal property located in
Hamilton, Montana, whereas the real estate
mortgage covered real property located in
Darby, Montana. The original action was for
non-payments of promissory notes and to fore-
close a chattel mortgage while the cross-
complaint and counterclaim was an action in
tort. The measure of computation of damages
thus, would be materially different. Obvious-
ly neither the issues of fact or law are the
same and further, the same evidence would not
support or refute defendants' claim and count-
erclaim. Thus, the counterclaim cannot be
said to arise out of the transaction or occur-
rence surrounding plaintiff's claim based on
the two promissory notes and chattel mortgage.
Citizens State Bank, 459 P.2d at 702. To the contrary, the claims
in the instant case and the claims in the previous lawsuit relate
to the creation and execution of a single contract relating to the
same property and involving the same parties.
Although appellants argue that the two lawsuits require
different proof, identical evidence is not required for compulsory
counterclaims. First State Bank, 737 P.2d at 1136. All that is
required is that the claims be logically related. Appellants'
claims logically relate to respondent's claims because they arise
out of a single transaction, the sale of land.
Appellants further contend, citing Citizens State Bank as
authority, that a counterclaim for legal relief can not be compul-
sory if the plajntiff's suit seeks equitable relief, as did
respondent's initial lawsuit. Citizens State Bank does not support
that contention. At most, Citizens State Bank stands for the
proposition that defendants who interpose a permissive counter-
claim for legal relief into an equitable suit are not entitled to
a jury trial on the permissive counterclaim. Rule 13, M.R.Civ.P.
makes no distinction between legal and equitable counterclaims or
suits, but only between compulsory and permissive counterclaims.
The general rule mandated by Rule 13 (a), M.R.Civ.P. is that if a
defendant's counterclaim is compulsory it must be pled regardless
of whether the plaintiff's suit is legal or equitable in nature.
If not pled, the compulsory counterclaim will be barred.
Next, appellants assert that their claim regarding FHA financ-
ing did not exist at the time they filed their answer in the
initial suit, on July 24, 1985. They argue that they did not
verify that FHA financing was unavailable until 1986. The District
Court specifically noted that appellants' interrogatory answers
revealed that they had been turned down for FHA financing in May
and June of 1985. Thus, appellants had notice prior to filing
their answer that problems with FHA financing existed. Inter-
rogatory answers reveal that appellants were also turned down for
FHA financing in 1986 and in 1987. However, appellants do not
argue that the District Court erroneously determined that they had
knowledge of problems with FHA financing prior to filing their
answer. Thus we reject appellants1 contention. We hold that Rule
13(a), M.R.Civ.P. bars appellants' nontrailer-related claims
because the claims are compulsory and should have been pled in the
initial suit.
Appellants also assert that the District Court erred in
finding that appellants1 claim regarding the trailer was res
judicata. We disagree.
The doctrine of res judicata is firmly es-
tablished to stand for the proposition that a
party should not be able to relitigate a
matter that that party has already had the
o~portunitvto litigate, and the public policy
that there must be some end to litigation.
(Citation omitted; emphasis in original.)
First Bank, 737 P.2d at 1134. The following four criteria must be
met before the res judicata doctrine will apply:
(1) the parties or their privies must be the
same; (2) the subject matter of the action
must be the same; (3) the issues must be the
same, and must relate to the same subject
matter; and (4) the capacities of the persons
must be the same in reference to the subject
matter and to the issues between them.
First Bank, 737 P.2d at 1135.
Appellants contend that the issue relating to the trailer is
different in the instant case than the issue litigated earlier.
The first lawsuit decided the issue of whether respondent made any
representations regarding covenant no. 9, the trailer covenant,
that constituted a waiver or estoppel of his right to enforce the
contract. However, in the instant case the different issue is
whether respondent defrauded appellants by exercising his legal
right to enforce covenant no. 9 after representing to them prior
to the sale that he would not do so. We fail to see a meaningful
distinction between the two llissues.w The second issue is merely
another way of focussing on alleged statements respondent made
prior to the sale regarding how long appellants could occupy a
trailer on the property. The first lawsuit resolved that exact
issue in respondent's favor. If appellants did not raise some
particular claim for damages regarding the trailer dispute in the
first lawsuit, they cannot do so now because they clearly had an
opportunity to do so at that time. We hold that appellants' claim
regarding the trailer is res judicata.
Appellantst second issue apparently relates to an exception
to Rule 13(a), M.R.Civ.P. which appellants argue applies when the
District Court proceeds on a summary basis in the initial suit.
We will not address this issue. Appellants did not raise this
issue before the District Court and we will not consider the issue
for the first time on appeal. Wyman v. DuBray Land Realty (1988),
231 Mont. 294, 299, 752 P.2d 196, 200.
We affirm the District Court.
Justices
Justice John C. Sheehy, concurring specially:
When this State in 1961 adopted its Rules of Civil Procedure
to comport with the Federal Rules of Civil Procedure, it adopted
the advances that had been made in procedure in the federal system
to that time.
One of the casualties in the adoption of our Rules of Civil
Procedure was the change of perception of the right to a
counterclaim. Under former statutes, a counterclaim was defined
as one which tended, in some way, to diminish or defeat the
plaintiff's recovery. See section 9138, R.C.M. (1935). Because
of that definition, this Court denied a counterclaim in Cook-
Reynolds Company v. Wilson (1923), 67 Mont. 147, 150, 214 P. 1104,
where plaintiff brought action to enjoin the defendant from
interfering with plaintiff's harvesting operations, the defendant
answered, claiming a share of the crop according to the terms of
a contract constituting a counterclaim for the value of his share.
Because of the counterclaim definition, this Court held the
counterclaim was not allowable for two reasons, one, the action
being for an injunction and the counterclaim seeking an affirmative
judgment, the counterclaim did not in any matter tend to diminish
or defeat plaintiff's recovery; and two, the cause of action which
defendant attempted to make the basis of the counterclaim was not
in existence at the time of the commencement of the action.
What Poulsen got in the first action brought in Lewis and
Clark County was an injunction restraining the plaintiffs from
certain activities on the described real property. The claims the
plaintiffs now attempt to assert in their independent action would
not tend to defeat or diminish, in some instances, the injunction
obtained in the first action. Nevertheless, because compulsory
counterclaims must now be pleaded under our present Rules of Civil
Procedure, even though an injunctive order is here involved, the
plaintiffs should have counterclaimed for all causes of action then
in existence arising out of the same occurrence or transaction.
On another matter, I trust that the reader will not take the
dicta in the majority opinion regarding Citizens State Bank v. Duus
(1969), 154 Mont. 18, 459 P.2d 696, as anything more than dicta.
In a proper case, I am not sure that the holding in Citizens State
Bank respected the right to a jury trial is now in accord with the
state of the law. The distinction between legal and equitable
causes of action has been abolished in this State and any cause of
action, legal or equitable, is now denominated a llclaimll against
which a compulsory or permissive counterclaim may be made. The
right of trial by jury is under our State Constitution inviolate,
and if a counterclaim comprised a cause of action which would
formerly entitle the counterclaimant to a jury trial, the
counterclaimant cannot be deprived of that right because the
counterclaim is against a cause which formerly was recognized in
equity. The federal cases conclude that there is no waiver of a
jury trial even when a permissive counterclaim is filed. Thermo-
Stitch, Inc. v. Chim-Cord Processing Corp. (5th Cir. 1961), 294
F.2d 486. In any event, the right to a jury trial can be preserved
under Rule 13(i) of the Montana Rules of Civil Procedure, whereby
the Court can order separate trials of any claims, cross-claims,
or counterclaims. Thus, the right to a jury trial can be
preserved.
4.
,p -I
Justice
I agree with and join in the special concurrence of Justice
Sheehy .
/
Justice