NO. 91-500
IN THE SUPREME COURT OF THE STATE OF MONTANA
1992
STEVEN G. BOYD and JERRI BOYD, husband
and wife, and MONTANA MEDICAL OXYGEN AND
SUPPLY, INC., a Montana corporation,
Plaintiffs and Appellants,
FIRST INTERSTATE BANK OF KALISPELL,
N.A., a National Banking Association,
Defendant, Third-Party Plaintiff
and Respondent,
STATE MEDICAL OXYGEN AND SUPPLY, INC., LARRY R.
WILLIAMS, MARK C. HUNGERFORD, BRIAN R. CLOUTIER,
STEPHEN KASPRISIN, and ROGER BOYD,
Third-Party Defendants
and Respondents.
APPEAL FROM: District Court of the Eleventh Judicial District,
In and for the County of Flathead,
The Honorable Leif B. Erickson, Judge presiding.
COUNSEL OF RECORD:
For Appellants:
Jon R. Binney and Lon J. Dale, Milodragovich,
Dale & Dye, Missoula, Montana
For Respondents:
Debra D. Parker, Murphy, Robinson, Heckathorn &
Phillips, Kalispell, Montana; Dexter L. Delaney
and Palmer Mars Scott, Mulroney, Delaney & Scott,
Missoula, Montana
i
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D Submitted on Briefs: March 26, 1992
MAY 2 81992 Decided: May 28, 1992
CLERK OF SUPREWE COURT
STATE OF MONTANA
Clerk
Justice William E. Hunt, Sr., delivered the opinion of the Court.
Plaintiffs/appellants Boyds brought suit against defendant/
respondent bank based on the deposit of certain negotiable
instruments between November 1983 and February 1985. Respondent
then brought State Medical into the action by way of a third-party
complaint, alleging entitlement to indemnification for any damages
which might be awarded in the action. Specifically, the appellants
brought suit for statutory conversion under the Uniform Commercial
Code pursuant to g 30-3-419, MCA (1989). The present action was
stayed by the District Court pending resolution of related
litigation arising out of the same events which were the basis for
the present action. Following a jury verdict, this Court affirmed
the decision in the related litigation. The District Court then
lifted the stay in this case and granted summary judgment for the
respondent bank on the grounds that the jury verdict in the related
action collaterally estopped appellants' action against the
respondent. Appellants brought this appeal arguing that collateral
estoppel does not apply in this situation and that summary judgment
was incorrectly granted to the respondent. We affirm.
The only issue before this Court is whether the District Court
erred in granting summary judgment to the respondent bank based on
the determination that the resolution of the related litigation
collaterally estopped the appellants from bringing this action.
Much of the factual background concerning this dispute was set
out by this Court in the related case of Boyd v. State Medical
Oxygen and Supply, Inc. (1990), 246 Mont. 247, 249, 805 p.2d 1282,
1283-84. The following facts, as set out in m, are relevant to
the present appeal:
Steven and Jerri Boyd, husband and wife, owned and
operated a corporation known as Montana Medical Oxygen
Supply, Inc. (Montana Medical). In 1983, the Federal
Medicare Division initiated Medicare fraud charges
against Montana Medical and Steven Boyd in federal court.
These criminal charges resulted in a five year prison
sentence for Steven Boyd and a $190,000 fine for Montana
Medical. The federal judge agreed to review the prison
sentence and fine under Rule 35 of the Criminal Rules of
Civil Procedure if Steven Boyd would divest himself of
all ownership in Montana Medical within 120 days. In
response, Boyd executed an agreement with defendants
Williams, Hungerford and Cloutier, for the sale and
purchase of the assets and assumption of certain
liabilities of Montana Medical. At about the same time,
the Boyds executed documents granting powers of attorney
to Williams, Hungerford and Cloutier and providing them
with the right to manage Montana Medical. Upon execution
of these documents, the federal judge reduced Steven
Boyd's prison term to sixty days and Montana Medical's
fine to $19.00.
At about the same time as the pleas to the federal
medicare fraud indictments were entered, Montana Medical
and Steven Boyd were suspended from receiving Medicare
reimbursements. As a result of the suspension and the
criminal fines against Montana Medical, Williams,
Hungerford, and Cloutier formed a new corporation, State
Medical Oxygen and Supply, Inc. (State Medical), to
purchase the assets of Montana Medical rather than
purchasing the corporation outright.
An agreement for the purchase of the assets of Montana Medical
was signed by both parties. The agreement provided that the
buyers, State Medical, were authorized to collect and retain all of
Montana Medical's outstanding accounts receivable. State Medical
opened a commercial deposit account for its new business with First
Interstate Bank in Kalispell. Some of the checks deposited into
this account by ~ i r s tInterstate were made payable to Montana
Medical. First Interstate deposited these checks into State
Medical's account based on the language in the agreement to
purchase which provided that State Medical was entitled to all of
Montana Medical's accounts receivable.
Shortly after the federal sentences against Boyd and Montana
Medical were reduced, a dispute arose between the parties
concerning the purchase of the assets. Eventually the sale fell
through and each party sought damages from the other, alleging that
the other had caused the breach. The present litigation,
instigated by the Boyds/Montana Medical against First Interstate on
a claim of statutory conversion, was stayed by the District Court
on August 3, 1987, pending the outcome of the suit between
Boyds/Montana Medical and State Medical. The District Court
indicated in the order staying the present action that If[t]he
resolution of that suit could be of great significance to this case
and others involving these parties and may well resolve many issues
raised herein." In the related litigation, the jury found against
both parties and neither Boyds/Montana Medical nor State Medical
recovered anything. One of the issues the jury considered was the
question of whether State Medical, or Williams, Hungerford, or
Cloutier individually, had converted any property of Montana
Medical. The jury determined that no conversion had occurred.
c his Court affirmed the verdict of the jury and the judgment of the
District Court. w, 805 P.2d at 1282.
The District Court in the present litigation between
Boyd/Montana Medical and respondent bank lifted the stay following
this Court's decision of the related appeal. On August 7, 1991,
the District Court denied both parties' motions for summary
judgment. Following the denial of both parties' motions for
summary judgment, the District Court, on August 13, 1991, issued an
amended order granting summary judgment for the respondent bank.
The District Court determined that the previous litigation
"collaterally estops the present action by Plaintiffs against First
Interstate Bank."
Did the District Court err in granting summary judgment to the
respondent bank based on the determination that the resolution of
the related litigation collaterally estopped the appellants from
bringing this action?
Appellants argue that the doctrine of collateral estoppel does
not apply to the present litigation. Appellants contend that if
collateral estoppel does not apply, then there are genuine issues
of material fact in this case which make the District Court's grant
of summary judgment erroneous.
The doctrine of collateral estoppel, which is at times
referred to as issue preclusion, has been previously explained by
this Court as follows:
"Collateral estoppel" ... may be considered as a branch
of the doctrine of res judicata but is distinguishable
from the bar to litigation normally called res judicata.
The distinction is that res judicata bars the same
parties from relitigating the same cause of action while
collateral estoppel bars the same parties from
relitigating issues which were decided with respect to a
different cause of action. [Citation omitted.] The bar
that arises from collateral estoppel extends to all
questions essential to the judgment and actually
determined by a prior valid judgment. [Citations
omitted. ]
Gessell v. Jones (1967), 149 Mont. 418, 421, 427 P.2d 295, 296.
Collateral estoppel provides that "the judgment in the prior suit
precludes relitigation of issues actually litigated and necessary
to the outcome.'* Nat'l Coal Ass'n. v. Hodel (D.Mont. l987), 675
F.Supp. 1231, 1237. Collateral estoppel prevents "relitigation of
a particular issue or determinative fact which was actually or
necessarily decided in a prior action . . . ." Fetherston v.
Asarco Inc. (D.Mont. 1986), 635 F.Supp. 1443, 1445. This Court
has adopted a three-prong test to determine if the doctrine of
collateral estoppel should be applied. Marriage of Stout (1985),
216 Mont. 342, 349, 701 P.2d 729, 733. Collateral estoppel will
act as a bar to litigation when:
1. The identical issue raised has been previously decided in
a prior adjudication;
2. A final judgment on the merits was issued in the prior
adjudication; and
3. The party against whom the plea is now asserted was a
party or in privity with a party to the prior adjudication. Stout,
701 P.2d at 733-34.
In this case, the appellants contend that the first prong of
the test is not satisfied in that the issue raised in the present
suit has not been previously adjudicated. Appellants argue that
the issue in the prior litigation was whether the buyers, State
Medical, were liable under a theory of common law conversion. In
the present action, appellants are seeking damages from the
respondent for statutory conversion pursuant to § 30-3-419, MCA
(1989). Appellants rely on that portion of 5 30-3-419, MCA (l989),
which provides that: "(1) An instrument is converted when . + .
(c) it is paid on a forged endorsement. " Appellants7 contention is
that the District Court erred in determining that the prior action
for conversion collaterally estops the appellants from bringing the
present action for statutory conversion.
In the amended order of the District Court granting summary
judgment to respondent, the court stated that:
In previously denying the motion of the Defendant
for summary judgment this Court was proceeding on the
basis that there still remained questions of fact on a
number of issues, including the authority of Third-Party
Defendants herein to authorize Defendant First Interstate
Bank to accept for deposit to Account No, 01-8550-7
checks made payable to Montana Medical. (It being clear
that absent appropriate authority the Defendant First
Interstate Bank would have been in error to deposit
checks payable to Montana Medical in that account, it
being an account for State Medical Services, Inc., a
separate entity.)
Upon further review the Court is satisfied that this
question of fact and others have been rendered moot by
the verdict of the jury and subsequent judgment rendered
in Flathead County Cause No. DV-84-146.
The District Court further explained that:
There can be no question that at issue as part of the
claim for conversion in DV-84-146 were the very funds at
issue here. That jury having determined that no
conversion occurred relative to these funds as between
Plaintiffs here and Third-Party Defendants here, it
follows that any claim against the bank, which was, after
all, acting only as conduit to the funds, can[not]
withstand a challenge of either res judicata or
collateral estoppel.
Thus it is the finding of this Court that the jury
verdict in Cause No. DV-84-146 finding in favor of the
Defendants as to Plaintiffs collaterally estops the
present action by Plaintiffs against First Interstate
Bank.
Appellants' contention that a previous action for common law
conversion does not collaterally estop subsequent litigation on a
theory of statutory conversion is based on this Court's decision in
Stapleton v. First Security Bank (1983), 207 Mont. 248, 675 P.2d
83. However, Stapleton is readily distinguishable from the present
case. In Stapleton, the husband deposited two joint-payee checks
into an account that his wife had previously closed. The checks
were both made payable to husband and wife. The bank accepted both
checks without the endorsement of either payee and without the
knowledge or consent of the wife. Shortly after depositing the
checks, the husband withdrew the funds from the account without the
knowledge or consent of the wife. The husband left Montana and
initiated divorce proceedings in Nevada. The Nevada court
determined that the funds had been converted by the husband.
Wife then brought suit in Montana against the depository bank
and both drawee banks under a claim for statutory conversion. One
of the issues in Stapleton was whether the wife was collaterally
estopped from pursuing this action in light of the previous
judicial determination regarding the underlying conversion by the
husband. This Court held that the question of the banks' liability
for statutory conversion had not been decided in the prior
litigation. The judicial determination in the prior litigation
that the husband converted the funds did not in any way settle the
question as to the banks.
In the present case, it has already been judicially determined
that no conversion took place between Montana Medical and State
Medical as to the very checks in question here. The prior
adjudication determined that the appellants had no interest in or
right to the checks deposited by the respondent into the account of
State Medical. As the District Court in this case correctly
pointed out, the decision in the related litigation also resolved
the issue the appellants are now attempting to relitigate. The
appellants' claim of statutory conversion involves questions of the
bank's authority to deposit the disputed checks into the account.
The determination of the jury indicates the bank correctly
deposited the checks into the account in question. The present
suit would not be barred by collateral estoppel if the jury had
determined t h a t a conversion of the checks had occurred. A
subsequent suit would have then been necessary to determine if the
bank was liable, and if so, t h e measure of damages. However, in
this situation we hold that the District Court c o r r e c t l y granted
summary judgment to the respondent based on the doctrine of
collateral estoppel.
Affirmed.
Justice
W e concur: