First National Bank v. First Security Bank of Montana, N.A.

No. 92-582

IN THE SUPREME COURT OF THE STATE OF MONTANA
1993

FIRST NATIONAL BANK OF GLASGOW,
Plaintiff and Respondent,
v.
FIRST SECURITY BANK OF MONTANA, N.A.,
Defendant and Appellant.

APPEAL FROM: District Court of the Seventeenth Judicial
District,
In and for the County of Valley,
The Honorable Leonard H. Langen, Judge presiding.

COUNSEL OF RECORD:
For Appellant:
Ward E. Taleff, Alexander, Baucus & LinnelP,
Great Falls, Montana; Matthew W. Knierim,
Christoffersen & Knierim, Glasgow, Montana
For Respondent:
Robert Hurly, Attorney at Law,
Glasgow, Montana
Justice Terry N. Trieweiler delivered the opinion of the Court.
The defendant, First Security Bank, appeals from an order of
the District Court of the Seventeenth Judicial District in Valley
County which granted summary judgment to First National Bank and
awarded attorney fees in the amount of $40,000. We reverse the
order of the District Court.
The dispositive issue on appeal is whether First National had
a right to recover attorney fees which were incurred as a result of
litigation with First Security.
First Security began lending money to James J. Nurnion for his
ranch operations in 1976. In 1977, Murnion gave First Security a
lien on the cattle that he then owned to secure payment of his
loans. In 1980, Murnion bought additional cattle with money
borrowed from First National. He gave First National a lien on
those cattle to secure repayment of that loan.
In 1982, when Murnion began experiencing financial
difficulties, he had to sell his cattle in order to repay his
loans, However, a dispute arose between the banks over whose lien
on the cattle purchased in 1980, and their progeny, had priority.
The cattle were sold, with some of the proceeds paid to First
National, and other proceeds from the sale of the disputed cattle
placed in trust by First Security. The record does not clearly
establish how much was realized by First Security from the sale of
the cattle in which First National claimed a security interest.
On March 19, 1985, First National filed a complaint consisting
of four counts which named First Security as a defendant. In the
first count, it sought a declaratory judgment establishing the
priority of its security interest in the Murnion cattle. Its
second count sought damages for intentional interference with the
contract that it had with PIurnion, and the third count sought
damages caused by First Security's alleged violation of the
covenant of good faith and fair dealing. In count four, First
National asked the court to order an accounting by First Security
of the proceeds it recovered from the sale of some of the cattle
owned by Murnion and in which First National alleged a prior
security interest.
Both parties moved for summary judgment. On September 6,
1985, the District Court issued its memorandum opinion and order
which denied First Security's motion and granted First National's
motion. The District Court concluded that First National's lien
was a first lien on all cattle owned by Murnion bearing the
"Rafter BN brand, and any of the progeny from those cattle. The
District Court specifically held that First National's lien had
priority over any lien claimed by First Security.
We affirmed the District Court's first order granting summary
Bank of Glasgow v. Fimt Security Bank of Montana (1986),
judgment. First Na~ional

222 Kent. 118, 721 P.2d 1270.
Before the first appeal, Lynn D. Grobel, president of First
National, filed an affidavit in the District Court in which he
stated that First Security had received $40,947.93 from the sale of
"Rafter Bsl
branded calves. After remittitur from this Court to the
District Court, First Security offered to pay $40,000, plus
3
interest and costs allowed by law, to First National. However, a
dispute arose over the issue of whether First National was entitled
to attorney fees, and if so, the amount.
On May 22, i985, First National filed a second motion for
partial summary judgment pursuant to counts one and four of its
complaint. In its motion, First National acknowledged that First
Security had paid the remaining principal balance in the amount of
$40,000, plus interest, which it had received from the sale of the
"Rafter Bv'cattle. However, First National alleged that no payment
had been made by First Security for the attorney fees and costs
incurred by First National to establish the priority of its lien.
It alleged that its promissory note and security agreement with
Murnion provided for an award of attorney fees to First National in
the event that collection efforts were necessary, and further
provided that proceeds from the disposition of the cattle would be
applied to payment of the bank's attorney fees and legal expenses.
There was no allegation that there were any further proceeds
from the sale of the "Rafter B" cattle, other than those that had
already been paid to First National. Nor was there any allegation
that First National's attorney fees were incurred because of any
efforts by Murnion to avoid repayment of First National's loan.
First National alleged that to collect the debt owed by Murnion it
had incurred attorney fees in the amount of $40,384.61, and that
pursuant to its written agreements with Murnion, it was entitled to
collect that amount in full from the proceeds of the sale of
"Rafter B1' cattle.

4
 In support of its motion, First National filed Murnion's
affidavit which stated that he thought the amount sf attorney fees
being claimed was reasonable. First National also attached the
affidavit of Lynn Grobel setting forth the exact amount of attorney
fees which had been incurred as a result of First National's
litigation with First Security over lien priority. Significantly,
he stated in his affidavit that it was necessary to incur the
attorney fees because of First Security's claim to the proceeds
from sale of "Rafter B" cattle. He made no statement that any
conduct t y Murnion caused First National to incur the attorney fees
for which this claim was being made.
First National did not and has not alleged that there is any
statutory basis for its attorney fee claim. Nor has it alleged
that there was a contract to which First Security was a party which
sel-tres as a basis for an award of attorney fees from First
Security. It simply alleged that because its contracts with
Murnion provided for attorney fees incurred to collect the debt
owed by Murnion, First Security was obligated to pay those fees
from the proceeds of "Rafter B" cattle which it sold.
Nothing further was done about First National's second motion
for partial summary judgment until August 31, 1992. At that time,
oral arguments were presented by both parties to the District
Court. However, no evidence was offered by First National in
addition to the previously mentioned affidavits. At the conclusion
of that hearing, the District Court held that since the security
agreement entered into between First National and Murnion provided
for attorney fees to First National from the disposition of the
secured cattle, the bank's security interest included not only the
amount owed for principal and interest, but also reasonable
attorney fees which it had to expend in order to enforce its
security agreement. The District Court went on to hold that since
First Security had prevented First National from exercising its
right to possession of the secured property, it stood in the shoes
of Murnion and was obligated to pay those attorney fees. The
District Court held that the affidavits were sufficient to
estabiish the amount of fees owed up to the date of tne court's
summary judgment .
The District Court's judgment was certified as a final order
pursuant to Rule 54(b), M.R.Civ.P., and First Security filed its
notice of appeal from that judgment.
On appeal, First Security argues first that there was no legal
basis for an award of attorney fees in this case, and second, that
if attorney fees are appropriate, it was at least entitled to an
evidentiary hearing at which the reasonableness of the attorney fee
amount could be contested. We conclude that First Security's first
argument is dispositive.
We have previously held that:
Montana adheres to the "American Rulem regarding
attorneysv fees. Under the American Rule, a party in a
civil action is generally not entitled to fees absent a
specific contractual or statutory provision. I reMamage
n
ofHereford (1986)' 223 Mont. 31, 723 P.2d 960.
MatterofDearbomDrainngeArea (1989), 240 Mont. 39, 42, 782 P.2d 898,

899.

In this case, there was no contract between First National and
First Security which could serve as the basis for the award of
attorney fees. Neither has any statutory basis for an award of
attorney fees been brought to the attention of this Court.
Instead, First National contends that it had an agreement with
Murnion that he would pay attorney fees that were incurred to
collect his debt to First National and that those fees could be
deducted from the sale of his cattle which were used to secure his
loan with First National. Therefore, according to First National,
it was entitled to collect those fees from the amount realized by
First Security from the sale of Murnion's "Rafter B" branded
cattle. The District Court agreed with First National's theory.
Its order was, in reality, an award of attorney fees imposed on
First Security based on a contract to which First Security was not
a party. However, for several reasons, we conclude that First
National's argument is without merit.
First, there was no evidence in this case that First Security
held proceeds from the sale of "Rafter Bm cattle, other than those
which had already been turned over to First National. The sketchy
evidence that does appear in the record seems to be to the
contrary.
Second, First National acknowledged that all proceeds from the
sale of "Rafter B" cattle to which it was entitled for repayment of
the principal and interest owed by Murnion had been turned over by
7
First Security. Any additional proceeds were owed by Murnion to
First Security, and were, in fact, inadequate to pay that entire
debt. Therefore, any award of attorney fees would, as a practical
matter, be paid by First Security, not Murnion, and no authority
has been provided which would authorize Murnion to bind a third
party to a contractual obligation for payment of attorney fees
simply because it chose to litigate the priority of its lien.
However, that is the practical result of the District Court's
order.
Finally, all of the attorney Fees which are the subject of
First National's claim were, according to its own president,
incurred because of its dispute with First Security. They were not
incurred because of any alleged lack of cooperation by Murnion.
Even though the District Court's order apparently had no practical
impact on Murnion, the precedent that First National asks us to
establish would mean that future debtors could see the value of
their assets reduced by tens of thousands of dollars for attorney
fees based on a dispute between two lending institutions in which
the debtor was not involved and over which the debtor had no
control. Such a result is contrary to the principals of contract
law which encourage parties to mitigate their expenses.
For these reasons, we reaffirm our adherence to the "American
Rule" regarding attorney fees. Since there was neither a statutory
nor contractual. basis for the District Court's award of attorney
fees to First National, we reverse the District Court's order of
summary judgment which awarded attorney fees, and remand this case

8
to the District Court for resolution of the remaining counts of
First National's complaint and for further proceedings consistent
with this opinion.

We concur: .

Justice R. C. McDonough, Retired, did not participate in this
decision.
 August 17, 1993

CERTIFICATE OF SERVICE

I hereby certify that the following order was sent by United States mail, prepaid, to the following
named:

Ward E. Taleff
Alexander, Baucus & Linnell
P.O. Box 2629
Great Falls, MT 59403

Matthew W. Knierim
Christoffersen & Knierim
P. 0. Box 29
Glasgow, MT 59230

Robert Hurly
Attorney at Law
P.O. Box 1170
Glasgow, MT 59230

ED SMITH
CLERK OF THE SUPREME COURT
STATE OF MONTANA