No. 03-217
IN THE SUPREME COURT OF THE STATE OF MONTANA
2005 MT 4
OLYMPIC COAST INVESTMENT INC.,
a Washington Corp.,
Plaintiff and Respondent,
v.
LARRY D. WRIGHT, a/k/a L.D. WRIGHT, a/k/a LAWRENCE D. WRIGHT
and ANN MARIE WRIGHT, a/k/a ANN M. WRIGHT; VALLEY COUNTY
ABSTRACT COMPANY, INC., a Montana Corporation; ST. MARIE
CONDOMINIUM ASSOCIATION, et al.,
Defendants and Appellants.
APPEAL FROM: District Court of the Seventeenth Judicial District,
In and for the County of Valley, Cause No. DV 1999-27
The Honorable John C. McKeon, Judge presiding.
COUNSEL OF RECORD:
For Appellants:
Gary S. Deschenes, Deschenes Law Office, Great Falls, Montana (Attorney
for Appellants Larry and Ann Marie Wright)
For Respondent:
Quentin M. Rhoades, Sullivan, Tabaracci, & Rhoades, P.C., Missoula,
Montana
Submitted on Briefs: November 13, 2003
Decided: January 18, 2005
Filed:
__________________________________________
Clerk
Justice Patricia O. Cotter delivered the Opinion of the Court.
¶1 Appellants Larry D. Wright, et al., (Wrights), appeal the grant of summary judgment
entered by the Seventeenth Judicial District, Valley County for the Respondents, Olympic
Coast Investment, Inc., (Olympic). We affirm.
¶2 We restate the sole issue on appeal as follows:
¶3 Whether the District Court erred in granting Olympic’s Motion for Summary
Judgment after determining Wrights’ claims were barred by res judicata.
PROCEDURAL AND FACTUAL BACKGROUND
¶4 This matter was submitted to the District Court and to this Court with an agreed
Statement of Facts which we reiterate and elaborate on below.
¶5 Wrights are residents of the State of Montana, presently residing in Cascade County,
Montana. Olympic is an investment company incorporated and registered in the State of
Washington. In December of 1996, Wrights approached Olympic about securing loans for
commercial construction projects, including building or improving condominiums and hotels,
throughout the State of Montana.
¶6 In December of 1996, Wrights executed and delivered a promissory note to Olympic
in the principle sum of $910,000 (Note 1), with interest payable at the rate of 12 percent per
annum. Under Note 1, the net disbursement of proceeds in the sum of $346,390 was wired
directly to Wrights’ bank account in Great Falls. Additionally, a Montana Trust Indenture
was executed on December 11, 1996. Wrights have not made all the payments due under
Note 1.
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¶7 In October of 1997, Wrights executed and delivered a second promissory note to
Olympic in the principle sum of $695,000. The second promissory note was subsequently
refinanced in December of 1997, with Wrights executing and delivering to Olympic a
promissory note in the sum of $1,220,000 (Note 2), also payable at the rate of 12 percent per
annum. A Montana Trust Indenture was again executed, this time in connection with Note
2 on January 7, 1998. Wrights obtained the net proceeds under Note 2 by Federal Express.
Wrights have not made all the payments due under Note 2.
¶8 Finally, in June of 1998, Wrights executed and delivered to Olympic a third
promissory note in the sum of $3,550,000 (Note 3) with interest payable at the rate of 13
percent per annum. Wrights obtained the net proceeds from Note 3 at the offices of an
escrow and closing agent in the State of Washington. Wrights have not made all the
payments due under Note 3.
¶9 Each of the three promissory notes (the Notes) executed and delivered by Wrights to
Olympic contain a promise to repay the principle sum as well as a condition securing the
loan by a deed of trust. Although the Notes provided the deeds of trust were made within
the State of Montana pursuant to the Small Tract Financing Act of Montana (see §§ 71-1-
301-321, MCA), they also included a choice of law provision dictating their construal under
Washington State law.
¶10 When Wrights were unable to meet their obligations under the Notes, Olympic filed
a complaint in Cascade County on December 16, 1999, seeking collection of debt on the
Notes and foreclosure of real property. Wrights then sought the protections afforded by the
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Bankruptcy Code by filing a voluntary Chapter 11 Bankruptcy Petition in the United States
Bankruptcy Court, District of Montana on December 17, 1999.
¶11 Olympic initiated adversary proceedings pursuant to 28 U.S.C. § 2201 in the
Bankruptcy Court against Wrights on April 11, 2000. Olympic sought declaratory relief
relative to the obligations owed by Wrights to Olympic arising from the Notes. Wrights filed
an answer to Olympic’s complaint in Bankruptcy Court denying each of the allegations set
forth therein. Wrights also filed a counterclaim for damages claiming the interest rate
charged by Olympic under each of the Notes was usurious and prompted by fraud under the
laws of the State of Montana. Thereafter, Olympic filed a Motion for Partial Summary
Judgment on August 8, 2000, requesting that the Bankruptcy Court adjudicate Wrights’
counterclaim under the laws of the State of Washington, rather than the laws of the State of
Montana. The Bankruptcy Court denied Olympic’s Motion on September 7, 2000.
¶12 On October 11 and 12, 2000, the Bankruptcy Court held trial on the adversary
complaint. Both parties appeared with counsel, witnesses were presented and evidence on
the issue of usury was offered by both parties. Following the trial, the Bankruptcy Court
issued its Findings of Fact, Conclusions of Law and Order on December 14, 2000, entering
judgment in favor of Olympic and against Wrights. Applying Montana law, the court
determined the Notes were valid, enforceable and unaffected by usury or fraud.
¶13 Wrights timely appealed the Bankruptcy Court Judgment to the United States
Bankruptcy Appellate Panel (BAP) and Olympic cross-appealed the application of Montana
law, rather than Washington law.
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¶14 During the appeal to the BAP, Olympic moved the Bankruptcy Court to lift the
automatic stay freezing Wrights’ assets. The court lifted the stay and certain portions of
Wrights’ property were sold. After the sale, Wrights made a Motion to Dismiss their
Chapter 11 case, stating that with the forced sale of their assets, they were no longer able to
put together a feasible reorganization plan as necessitated under the Bankruptcy Act. The
court granted Wrights’ Motion to Dismiss the bankruptcy claim several days before the
scheduled oral argument on the BAP appeal.
¶15 The Wrights eventually moved to dismiss their BAP appeal and Olympic’s cross-
appeal, contending their dismissal of the Chapter 11 case automatically mooted the
controversy presented by the adversary proceeding. Although the BAP noted and honored
Wrights’ request to abandon their proceedings, it proceeded with oral argument, reasoning
since Olympic did not abandon its cross-appeal, the controversy was still justiciable.
¶16 The BAP issued an unpublished Memorandum Opinion on October 9, 2001. In its
Opinion, the BAP held the dismissal of the underlying Chapter 11 case did not moot the
adversary proceedings as the appeal was not from an “objection to claim” proceeding, but
rather from a “not so closely related” declaratory judgment proceeding “litigated through
complete trial to judgment by parties who had the incentive to raise every possible matter.”
¶17 After dismissal of the bankruptcy claim, Olympic moved for summary judgment in
the District Court proceeding, asserting the binding effect of the Bankruptcy Court holding
and res judicata. Wrights failed to appear and summary judgment was entered.
Subsequently, on Motion made under Rule 60(b), the Order of Summary Judgment was set
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aside. Thereafter, Wrights moved to amend their answer to allege usury and the “one-action
rule” as affirmative defenses.
¶18 Ultimately, the District Court entered an Order granting Olympic’s Motion for
Summary Judgment. The court concluded that the judgment entered in the Bankruptcy Court
met all four of the criteria for the application of res judicata, and that Wrights’ claims were
barred under the doctrine. It then determined that Olympic was entitled to judgment on the
Notes and for foreclosure. It rejected the motion to amend the answer as moot. This appeal
follows. Notably, Wrights do not appeal from the District Court’s dismissal of their “one-
action rule” affirmative defense.
STANDARD OF REVIEW
¶19 We review a district court’s grant of summary judgment de novo, applying the same
evaluation under Rule 56, M.R.Civ.P., as the district court. Glacier Tennis Club at the
Summit, LLC v. Treweek Constr. Co., Inc., 2004 MT 70, ¶ 21, 320 Mont. 351, ¶ 21, 87 P.3d
431, ¶ 21 (citations omitted). Rule 56(c), M.R.Civ.P., provides summary judgment should
result where there is no genuine issue of material fact and the moving party is entitled to
judgment as a matter of law. Motarie v. Northern Montana Joint Refuse Disposal District
(1995), 274 Mont. 239, 242, 907 P.2d 154, 156 (citations omitted). We look to the
pleadings, depositions, answers to interrogatories, admissions on file and affidavits to
determine the existence or nonexistence of genuine issues of material fact. Krebs v. Ryan
Oldsmobile (1992), 255 Mont. 291, 294, 843 P.2d 312, 314 (citations omitted).
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¶20 A party seeking summary judgment has the burden of establishing a complete absence
of any genuine factual issues. Motarie, 274 Mont. at 242, 907 P.2d at 156 (citations
omitted). In light of the pleadings and the evidence before the court, there must be no
material issue of fact remaining which would entitle a nonmoving party to recover. Motarie,
274 Mont. at 242, 907 P.2d at 156 (citations omitted). Once the moving party has met its
burden, the opposing party must present material and substantial evidence, rather than mere
conclusory or speculative statements, to raise a genuine issue of material fact. Motarie, 274
Mont. at 242, 907 P.2d at 156 (citations omitted). Once it is established no genuine issues
of material fact exist, the district court must then determine whether the moving party is
entitled to judgment as a matter of law, and this Court reviews that judgment to determine
whether the district court erred. Glacier Tennis Club, ¶ 21.
DISCUSSION
¶21 Whether the District Court erred in granting Olympic’s Motion for Summary
Judgment after determining Wrights’ claims were barred by res judicata.
¶22 Wrights argue the District Court erroneously granted Olympic’s Motion for Summary
Judgment after concluding Wrights’ amended claims were barred by the doctrine of res
judicata. While Wrights concede they argued usury in the Bankruptcy Court during their
Chapter 11 proceedings, they maintain the District Court improperly ruled res judicata
prevented them from pursuing this defense and claim in state court.
¶23 Wrights assert they never received a “final judgment” on the usury claim as they were
never afforded a complete opportunity to appeal the Bankruptcy Court’s decision. Rather,
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Wrights contend they were compelled to dismiss their bankruptcy proceedings during the
appeal to the BAP after the Bankruptcy Court lifted the automatic stay and allowed their
hotels and buildings to be sold by trust indenture. They argue that the trust indenture sale
prevented them from presenting a feasible plan in bankruptcy, which would have resulted
in a dismissal. As such, even if they had been successful in the BAP on the usury issue,
Wrights allege their case would have been dismissed anyway. Thus, Wrights assert they
were never afforded a full and final judgment regarding their usury claim, and thus the
District Court erred and res judicata should not apply.
¶24 Olympic counters the District Court did not err when it granted Olympic’s Motion for
Summary Judgment after concluding Wrights’ amended claims were barred by the doctrine
of res judicata. Olympic contends the usury matter was litigated to a final judgment in the
bankruptcy proceedings, and the Wrights thereafter voluntarily dismissed their appeal of that
judgment. Moreover, Olympic points to the BAP’s Order ruling the declaratory judgment
action was not so closely related to the bankruptcy that the dismissal of the Chapter 11 case
rendered the declaratory judgment action moot. Thus, Olympic asserts the declaratory
judgment action remained valid and enforceable according to the court, even though the
Chapter 11 case had been dismissed, and Wrights’ contention their appeal was dismissed as
moot is incorrect. The court did not dismiss the case as moot but rather dismissed it on
Wrights’ voluntary motion. Res judicata, according to Olympic, therefore applies.
¶25 In sum, then, Olympic contends the decisions in the Bankruptcy Court are res judicata
to the issues raised in the District Court, including those sought to be included by Wrights’
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last motion to amend. Wrights respond res judicata does not apply because they were
required to abandon their BAP appeal due to cash flow obligations under a reorganization
plan. Thus, Wrights contend they were prevented from getting their full remedy before the
bankruptcy courts.
¶26 Res judicata effectively “bars a party from re-litigating a matter he or she has already
had an opportunity to litigate.” Grenz v. Fire Casualty of Connecticut, 2001 MT 8, ¶ 14, 304
Mont. 83, ¶ 14, 18 P.3d 994, ¶ 14. Once there has been a full opportunity to present an issue
for judicial decision in a given proceeding, the determination of the court in that proceeding
must be accorded finality as to all issues raised or which fairly could have been raised, else
judgments might be attacked piecemeal and without end. Slater v. Central Plumbing &
Heating Co., 1999 MT 257, ¶ 25, 297 Mont. 7, ¶ 25, 993 P.2d 654, ¶ 25. Res judicata
applies when the following criteria are met:
1. The parties or their privies are the same;
2. The subject matter of the action is the same;
3. The issues related to the subject matter are the same;
4. The capacities of the person are the same in reference to the subject matter
and the issues between them.
Fox v. 7L Bar Ranch Company (1982), 198 Mont. 201, 206, 645 P.2d 929, 931. Res judicata
serves the public function of finality of judgments and conservation of scarce judicial
resources by avoiding multiplicity of proceedings on the same legal and factual issues.
Wellman v. Wellman (1986), 198 Mont. 42, 45-46, 643 P.2d 573, 575.
¶27 Wrights maintain that pursuant to our holding in Traders State Bank v. Mann (1993),
258 Mont. 226, 852 P.2d 604 (Mann II), the judgment in bankruptcy court was not binding
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on the state district court action. In Mann II, we considered whether a district court erred
in granting summary judgment for the plaintiffs after determining the doctrine of res judicata
barred the defendants from raising contract defenses on a foreclosure action.
¶28 In Mann II, the defendants executed two promissory notes to the plaintiffs secured by
real property. Mann II, 258 Mont. at 231, 852 P.2d at 607. When the defendants were
unable to meet their obligations under the promissory notes, they filed for relief under
Chapter 12 of the Bankruptcy Code in the United States Bankruptcy Court for the District
of Montana. The defendants also filed a tort claim against the plaintiffs in state court,
alleging breach of the covenant of good faith and fair dealing and breach of fiduciary duty.
Mann II, 258 Mont. at 231, 852 P.2d at 607. The state district court eventually granted
summary judgment in favor of the defendants on the tort claims. We affirmed that judgment
in Mann Farms, Inc. v. Traders State Bank (1990), 245 Mont. 234, 801 P.2d 73 (Mann I).
¶29 Following complicated proceedings, the United States Bankruptcy Court dismissed
the defendant’s bankruptcy proceeding. Mann II, 258 Mont. at 232, 852 P.2d at 608.
Thereafter, the plaintiffs filed a complaint against the defendants, seeking judgment on the
promissory notes. The complaint alleged the defendants had defaulted on the notes and the
amounts remaining were owing. Mann II, 258 Mont. at 232, 852 P.2d at 608. The
defendants answered and asserted third-party claims against the plaintiffs and others alleging
the plaintiffs had committed fraud upon the court in the earlier bad faith action. Mann II,
258 Mont. at 232-33, 852 P.2d at 608. Eventually, the District Court granted summary
judgment for the plaintiffs on the foreclosure issue. Mann II, 258 Mont. at 234, 852 P.2d at
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609. The district court reasoned the plaintiffs had established a prima facie case of
foreclosure, and that all of the defendants’ defenses to foreclosure were barred under the
doctrine of res judicata.
¶30 We reversed, concluding in Mann II that the issues involved in Mann I were different
from those later raised as contract defenses to foreclosure. Specifically, on the issue of res
judicata, we held the entirety of the defendants’ tort action took place while they were in
bankruptcy, and during which time they could not challenge the validity of the notes and
security interests. Mann II, 258 Mont. at 239, 852 P.2d at 612. In fact, during the pendency
of the defendants’ bankruptcy proceeding, and pursuant to the specific terms of their plan of
reorganization, the Mann II defendants were precluded from challenging the validity of the
notes and security interests. As such, the district court’s determination the defendants could
have raised their contract-related defenses in Mann I was incorrect and the defendants’
claims were not barred by res judicata.
¶31 In this case, the judgment following the adversary proceeding in bankruptcy court
meets all four of the res judicata criteria. The parties are the same in this case as in the
adversary proceedings. Olympic sued Wrights in the foreclosure complaint and the parties
are the same in the present action. The subject matter is also the same in that the cases
address the underlying obligation of Wrights to Olympic under the Notes. Similarly, the
parties litigating the issues served in the same capacity with Olympic as the creditor and
Wrights as the debtors.
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¶32 As in Mann II, the third element--whether the issues are the same--is the key element
here. In order to determine whether the issues are the same, “the fundamental or essential
question involved in the second case must have been raised and determined in the first case.”
Mann II, 258 Mont. at 238, 852 P.2d at 611 (citing Whirry v. Swanson (1992), 254 Mont.
248, 251, 836 P.2d 1227, 1229). Thus, we must resolve whether the precise questions raised
in the adversary proceedings are the same as those raised in the present case.
¶33 Based on our review of the record, we hold Wrights were not precluded from
litigating any of their defenses to the Notes in the bankruptcy adversary proceedings, thus
distinguishing this case from Mann II. In Mann II, the defendants were precluded from
litigating certain issues in the bankruptcy action due to an agreement in their reorganization
plan. Here, however, Wrights litigated their defenses to the Notes in the adversary
proceedings in the Bankruptcy Court to conclusion. In opposition to Olympic’s declaratory
judgment action, Wrights filed counterclaims arguing usury and fraud. Indeed, unlike the
defendants in Mann II, nothing in Wrights’ Chapter 11 plan prevented them from litigating
their usury claim. A two-day trial was held at which both parties appeared represented by
counsel and presented evidence on the usury claim. The Bankruptcy Court considered the
evidence and issued its Findings of Facts, Conclusions of Law and Order disposing of all
issues in favor of Olympic, and dismissing Wrights’ usury claims. Moreover, the BAP
issued an Order ruling the declaratory action was not so closely related to the bankruptcy that
the dismissal of the Chapter 11 case rendered the declaratory action moot. As such, the
declaratory judgment action would have remained valid had Wrights not requested dismissal.
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Thus, we conclude Wrights were not precluded from litigating any of their defenses to the
Notes in the bankruptcy adversary proceedings. This being so, they were properly barred
by res judicata from relitigating the usury issue in District Court.
¶34 We next assess whether Olympic was entitled to judgment as a matter of law. To
prevail on summary judgment, Olympic, as the moving party, had to establish the evidence
raised no genuine issues of material fact. Motarie, 274 Mont. at 242, 907 P.2d at 156
(citations omitted). As noted above, the District Court found Wrights had executed the Notes
and security agreements at issue and Wrights were in default on those instruments. It
concluded Wrights were not precluded from litigating any of their defenses to the Notes in
the adversary proceedings and were barred by res judicata from relitigating the usury issue.
Thus, Olympic met its initial burden on summary judgment. Based on our review of the
record and the conclusions contained above, we agree.
¶35 Once the moving party has met its burden, the opposing party must present material
and substantial evidence, rather than mere conclusory or speculative statements, to raise a
genuine issue of material fact. Motarie, 274 Mont. at 242, 907 P.2d at 156 (citations
omitted). Here, the District Court determined Wrights presented no material or substantial
evidence to raise a genuine issue of material fact relating to the default on the Notes. We
agree. Thus, the District Court did not err in granting Olympic’s Motion for Summary
Judgment.
¶36 For the foregoing reasons, the District Court is affirmed.
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/S/ PATRICIA O. COTTER
We Concur:
/S/ JAMES C. NELSON
/S/ W. WILLIAM LEAPHART
/S/ JOHN WARNER
[End]
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