No. 8 9 - 4 0 4
IN THE SUPREME COURT OF THE STATE OF MONTANA
JOY SMITH,
Plaintiff and Appellant,
-VS-
IONA BARRETT, KENT LEMBKE, and EUGENE
ATHERTON,
Defendants and Respondents.
APPEAL FROM: District Court of the Eleventh Judicial District,
In and for the County of Flathead,
The Honorable Michael Keedy, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Michael Donahoe, Helena, Montana
For Respondent:
E. Eugene Atherton, Kalispell, Montana
Submitted on Briefs: Jan. 25, 1 9 9 0
Decided: March 8, 1990
*
Filed:
Justice R.C. McDonough delivered the Opinion of the Court.
This is an appeal from an order of the District Court of the
Eleventh Judicial District, Flathead County, granting summary
judgment in favor of the defendants/respondents in an action for
declaratory judgment and tortious interferance with a business
relationship, and awarding sanctions against the appellant and her
attorney. We affirm the order of summary judgment and reverse the
award of sanctions.
The issues on appeal are:
1. Whether the District Court properly granted summary
judgment .
2. Whether the imposition of sanctions by the District Court
was proper.
In late 1987, the appellant, Joy Smith (Smith) contacted Kent
Lembke (Lembke), a real estate agent, concerning her desire to
purchase a local general store. In response to this request,
Lembke showed her the Elmo Store, in Elmo, Montana. The store was
listed at $145,000.00. This price included both the store and all
of the inventory on hand at time of sale.
After some negotiations between Smith, Lembke and the owner
Iona Barrett (Barrett), Smith offered to buy the Elmo Store and its
inventory for $99,500.00. Barrett rejected this offer because the
price was too low and the inventory was to be paid for separately.
Smith then made a new written offer and offered to buy the store
for $99,500.00 and to buy the store's inventory for $2,500.00.
Barrett accepted this offer, and Smith gave Lembke a down payment
in the form of a personal check in the amount of $30,000.00.
Lembke as agent deposited the check in his trust account on
December 11, 1987, the day after the sales contract was signed.
His bank immediately forwarded it through banking channels for
collection. Subsequently Smith's bank in Oklahoma honored the
check, debited her account and forwarded a standard bank cashier's
check to Lembke's bank in Kalispell.
Later that day, Smith went to the Elmo Store with the
intention of doing an inventory of all of the store's merchandise.
A disagreement arose between Smith and Barrett concerning the
contractual provisions surrounding the sale of the inventory.
Apparently, Smith believed that she was entitled to the entire
inventory. Barrett, on the other hand, believed that Smith was
only entitled to $2,500.00 worth of inventory. As a result of this
disagreement, Smith expressed her desire to repudiate the contract.
Lembke attempted to hold the agreement together. However,
Smith adamantly expressed her desire to back out of the contract.
She was also very concerned over the whereabouts of the $30,000.00
payment she had given Lembke. She therefore stopped payment on the
check. Her bank then notified Lembke's bank that it would not
honor the cashier's check and payment was stopped at the federal
reserve level.
Lembke then conferred with Barrett and suggested she retain
3
an attorney. As a result of this suggestion, Lembke contacted E.
Eugene Atherton (Atherton), an attorney from Kalispell, Montana.
After consultation with both Lembke and Barrett, Atherton authored
three letters, one to Barrett, one to Smith and one to Smith's bank
in Oklahoma.
The letter to Barrett confirmed that Atherton was engaged to
induce Smith to complete the contract or to forfeit the $30,000.00.
The letter to Smith contained a demand that Smith either complete
the contract or forfeit the $30,000.00. And the letter to the bank
in Oklahoma demanded that the $30,000.00 check be honored. The
letter also suggested that the bank was exposing itself to
liability and that to be safe, the bank should at least hold the
money itself until the dispute was settled.
On receiving her letter, Smith contacted Michael Donahoe, an
attorney, (Donahoe) for advice. Donahoe wrote Atherton and
expressed his belief that no contract was ever formed due to a lack
of meeting of the minds on the inventory term. Furthermore,
Donahoe argued that the contract, if any, was not enforceable under
the Statute of Frauds. Donahoe demanded that the $30,000.00 be
released.
Following this exchange of letters, Atherton further conferred
with his client. Barrett informed him that although she felt she
was entitled to some money, she did not desire to litigate.
Atherton then began to attempt to reach a settlement of the
controversy. Eventually, when it became apparent that no
4
settlement would be forthcoming, the matter was dropped.
However, Smith was not satisfied by simply dropping the
matter. She maintained that the actions of Atherton and Lembke
deprived her of the use of her $30,000.00 for seven months, and as
a result she incurred severe financial hardship, which led to
destruction of her credit rating and loss of her health insurance.
As a result of these damages, she sued Atherton, Lembke and Barrett
alleging that they tortiously interfered with Smith's business
relations by compelling the bank to hold the funds.
Barrett was dismissed from the action. The remaining
defendants moved for summary judgment and also moved the court to
assess sanctions. The lower court granted their motion for summary
judgment and, in response to its opinion that plaintiff's cause of
action was frivolous, assessed sanctions in the amount of
$2,568.10. This appeal followed.
I
Smith maintains that the lower court erred in granting summary
judgment. We disagree.
Summary judgment is proper under Rule 56 (c), M. R.Civ.P. , when
the movant shows there is no genuine issue as to any fact deemed
material, in light of the substantive legal principals entitling
the movant to judgment as a matter of law. All reasonable
inferences must be drawn in favor of the party opposing the motion.
Cerek v. Albertsons's Inc. (1981), 195 Mont. 409, 637 P.2d 509.
In making its determination on whether to grant a motion for
5
summary judgment, the court must consider the entire record. Hager
v. Tandy (1965), 146 Mont. 531, 410 P.2d 447. We must now apply
these principles to the formal issues presented by this case.
In her amended complaint, Smith alleges in paragraph 7 that:
Since filing this ...action Plaintiff has become aware
that defendant Iona Barrett never had any intention to
engage in litigation against the Plaintiff concerning the
purchase and sale agreement that was executed on December
10, 1987. Moreover Plaintiff has become aware that Mr.
Lembke and Mr. Atherton brought significant pressure to
bear upon Mrs. Barrett to engage in a controversy against
the Plaintiff. Thus even though Mrs. Barrett had no
desire to litigate Mr. Lembke and Mr. Atherton
nonetheless made every effort to seize Plaintiff's Thirty
Thousand Dollars ($30,000.00) earnest money.
Smith further alleges that as a result of these actions, her credit
rating was ruined and she lost her health insurance. She
therefore, prayed the court to award all damages found to be
proximately caused by the defendant's alleged wrongful acts.
In her briefs on appeal, Smith maintains that the above
allegations make out a prima facie case for the torts of
interference with business relations and malicious defense. The
tort of malicious defense, which is an outgrowth of malicious
prosecution, has never been recognized in Montana. Although the
tort is largely unrecognized throughout most jurisdictions, it has
been the subject of indepth, scholarly discussion. See Comment,
47 Mont.L.Rev.101 (1986), Van Patten and Willard, 35 Hastings L.J.
891 (1984). The proponents of its recognition maintain that it is
needed to counteract unfounded and malicious defense tactics.
In the case now before us, we do not decide whether this new
tort should be recognized in Montana. However, for the sake of
argument we will take note of its elements and apply them to
Smith's case-in-chief.
The elements of malicious defense are:
1. The initiation, continuation or procurement of
proceedings;
2. By or at the insistence of the Defendant;
3. Favorable termination of the underlying proceeding
in which the frivolous or malicious defense was asserted
4. Lack of probable cause;
5. Malice; and
6. Injury or damages sustained as a result of the
previous proceeding.
The evidence, viewed in a light most favorable to Smith, fails
to satisfy these elements. In particular, we note that there is
no evidence that either Atherton or Lembke acted with malice toward
Smith. Barrett testified that although she did not desire to
engage in litigation with Smith, she did feel she had entered into
a valid contract for the sale of her store and that Smith breached
that contract. As a result of that breach, Barrett felt she was
entitled to retain the earnest money as liquidated damages.
Lembke and Atherton, working on her behalf, attempted to
obtain this money, which they felt she had a legal right to retain.
In their endeavor to complete this task, Atherton wrote Smith's
bank and informed it of his belief, that under the law of
commercial paper it had no right to stop payment on the $30,000.00
check, once the check had been delivered. He further stated his
belief that by issuing the cashier's check, the bank accepted
Smith's promise to pay the $30,000.00 and converted that promise
to its own obligation. If it stopped payment on the check, this
obligation would be breached and the bank would consequently expose
itself to liability.
Atherton then engaged in negotiations with Smith and her
attorney to work out some settlement in regard to the dispute over
the earnest money. Admittedly, these negotiations included a
series of statements and threats of litigation promulgated by
Atherton. However, such comments usually do not rise to the level
of malice required, before one can successfully assert a cause of
action against an opposing attorney.
We also note that Smith's allegation, that Lembke and Atherton
I1broughtsignificant pressure to bear upon Mrs. Barrett to engage
in a controversy against the Plaintiff ,I1 was denied by Barrett.
Her deposition contains the following exchange with Mr. Atherton:
Q: . . .Mrs. Barrett, at any time did I ever, ever
bring any pressure at all against you to litigate or to
engage in some sort of controversy against the Plaintiff?
A: No, you never did.
This exchange further supports our conclusion that neither
Atherton nor Lembke acted with any malice or improper purpose
towards Mrs. Smith. There is no other evidence except allegations
and therefore Mrs. Smith has failed to come forward with facts to
meet her burden of proof and we hold that summary judgment was
proper on the issue of whether the defendants committed the tort
of malicious defense.
Smith's second theory of recovery, alleging that Lembke and
Atherton wrongfully and intentionally interfered with her business
relations fails for the same reasons. In order to establish a
prima facie case of such interference, one must show that the acts
were :
(1) intentional and wilful
(2) calculated to cause damage to the Plaintiff in her
business
(3) were done with the unlawful purpose of causing
damage or loss, without right or justifiable cause on the
part of the actor, and
(4) that actual damages and loss resulted.
Peterson v. J.R. Simplot Co., (1989), 46 St.Rep. 1463, 1469, 778
P.2d 879, 884.
As we stated above, the evidence, taken as a whole, indicates
that Atherton and Lembke were merely attempting to obtain the
earnest money as liquidated damages on behalf of their client.
These damages were provided for under the contract and therefore,
their belief in their client's entitlement to the funds had a legal
basis. There is no evidence that their actions were done with an
Igunlawfulpurposeg1or were 'gcalculatedto cause damaget1to Smith.
Accordingly, this allegation also fails and we hold that summary
9
judgment on this issue was proper.
The lower court found that the claims asserted by Mrs. Smith
and her attorney, Mr. Donahoe, were frivolous. Acting on this
belief, the district judge assessed sanctions against them in the
amount of $2,658.10. Smith and her attorney argue these sanctions
were improperly imposed. We agree.
Sanctions are properly awarded if an attorney fails to abide
by the mandate of Rule 11, M.R.Civ.P., which states in pertinent
part :
If. .
. The signature of an attorney or party constitutes
a certificate by him that he has read the pleading . .
.
that to the best of his knowledge, information and
belief formed after reasonable inquiry, it is well
grounded in fact and is warranted by existing law or a
good faith argument for the extension, modification or
reversal of existing law, and that it is not interposed
for any improper purpose, such as to harass or to cause
unnecessary delay or needless increase in the cost of
litigation . . . .
If a pleading .. .
is signed in
violation of this rule, the Court, upon motion or upon
its own initiative, shall impose upon the person who
signed it, a represented party, or both, an appropriate
sanction, which may include an order to pay the other
party or parties the amount of the reasonable expenses
incurred because of the filing of the pleading, motion
or paper, including a reasonable attorney's fee."
The cause of action asserted in this case, although
unsuccessful, was not totally frivolous, nor is there any evidence
that it was interposed for any improper purpose. Mrs. Smith and
Mr. Donahoe brought this case upon the belief that Mr. Atherton and
Mr. Lembke improperly tied up Barrett's $30,000.00 down payment.
The complaint stated that this action resulted in severe financial
hardship upon his client. Mr. Donohoe therefore felt that the
cause of action was well grounded in fact and supported by the law
or supported by a good faith argument in support of extending the
law.
We have stated our disagreement with plaintiff's and Donahoe's
position. However, we do find the actions undertaken by Atherton
and Lembke had the effect of protraction. In light of these
conclusions, we hold that the sanctions were improperly awarded and
we reverse and vacate this portion of the judgment.
Affirmed in part and reversed in part.