December 31 2009
DA 08-0220
IN THE SUPREME COURT OF THE STATE OF MONTANA
2009 MT 458
AVANTA FEDERAL CREDIT UNION,
Plaintiff and Appellant,
v.
STEVE SHUPAK,
Defendant, Appellee and Cross-Appellant.
APPEAL FROM: District Court of the Thirteenth Judicial District,
In and For the County of Yellowstone, Cause No. DV 06-0545
Honorable Ingrid G. Gustafson, Presiding Judge
COUNSEL OF RECORD:
For Appellant:
James A. Patten; Patten, Peterman, Bekkedahl & Green, P.L.L.C.;
Billings, Montana
For Appellee:
Steven Reida; Landoe, Brown, Planalp & Reida, P.C.; Bozeman, Montana
Submitted on Briefs: March 25, 2009
Decided: December 31, 2009
Filed:
__________________________________________
Clerk
Justice Jim Rice delivered the Opinion of the Court.
¶1 Avanta Federal Credit Union (Avanta) brought suit in the Thirteenth Judicial
District Court, Yellowstone County, against Steve Shupak to recover the money it
provisionally provided to Shupak when he cashed a fraudulent check from a German
scam artist. Avanta also sought enforcement of rights under contracts entered with
Shupak, including repossession of Shupak’s vehicles to pay off the debt, repossession and
recovery fees, attorney fees, and costs. Shupak raised the defense of equitable estoppel
and counterclaimed, claiming negligent misrepresentation of the validity of the check to
him, fraud, and punitive damages. The District Court granted summary judgment to
Avanta on its right to charge back the provisional settlement funds given to Shupak, and
the case proceeded to trial on the remaining issues. The jury found that Avanta
employees had negligently misrepresented the validity of the check and that Shupak was
contributorily negligent, finding damages of $5,000, and rendered an estoppel verdict
preventing Avanta from enforcing its contract rights. After trial, the District Court
denied Shupak’s request to estop Avanta’s charge-back right, but concluded that Shupak
was the prevailing party and awarded him costs and attorney fees of $48,916.85.
¶2 Both Avanta and Shupak appeal from the judgment, raising various issues
regarding equitable estoppel, sufficiency of the evidence, and the court’s determination of
the prevailing party. We affirm in part, reverse in part, and remand for further
proceedings.
¶3 We restate the issues as follows:
2
¶4 1. Did the District Court err in concluding that the jury’s estoppel verdict was not
applicable to Avanta’s statutory and contractual right to charge back?
¶5 2. Was there sufficient evidence to support the jury’s verdict that Avanta was
estopped from asserting other rights under the agreements, including repossession of
Shupak’s vehicles, recovery fees, and related attorney fees and costs?
¶6 3. Did the District Court err in denying Avanta its attorney fees and costs related
to the charge back, and determining that Shupak was the prevailing party?
BACKGROUND
¶7 In May 2005, Steve Shupak fell prey to a fraudulent check scheme. The scheme
began when Shupak was contacted by a German “buyer” inquiring about the purchase of
an automobile owned by Shupak’s parents.
¶8 In 1989, Shupak signed a Membership Agreement and became a member of the
Montana Media Credit Union, which later merged with Avanta. Shupak held an Avanta
checking account, savings account, and a joint checking account with his parents. He
also obtained two car loans from Avanta and, in conjunction with those transactions,
executed two loan and security agreements, or “Loan Liner agreements.” The loan liner
agreements provided the following cross-collateralization provision:
The Property secures the Loan and any extensions, renewals or refinancings
of the Loan. If the Property is not a dwelling, it also secures any other
loans, including any credit card loan, you have now or receive in the future
from us and any other amounts you owe us for any reason now or in the
future . . . . [Emphasis added.]
Both the membership and loan liner agreements provided for attorney fees and costs in
collecting any debts owed to Avanta by Shupak.
3
¶9 In 2005, Shupak’s mother, Wilma, decided to sell her 1993 Suzuki Sidekick
vehicle, which had 200,000 miles on it. Wilma did not obtain the “Bluebook” value of
the Sidekick, but determined the sales price by how much her husband thought it might
be worth and how much money they needed for bills. Wilma received a few local
inquiries regarding the Sidekick, but no sale occurred. Then, one day while Shupak was
visiting his parents, Wilma received a call from a potential buyer in Germany expressing
interest in the Sidekick. Because she was having trouble hearing the individual on the
phone, Wilma handed the phone to Shupak to broker the deal. The German explained to
Shupak that Suzukis were hard to find in Germany, and he had a client interested in
buying it. Eventually Shupak and the German reached an agreement for the sale of the
Sidekick for $7,400.
¶10 Approximately a month after the phone call, Tom and Wilma received what
appeared to be a Washington Mutual Bank cashier’s check, written to “Stove Shupak” for
$11,500. The German immediately contacted Shupak, and instructed him to wire the
extra $4,100 to the “shipper” in Brussels, Belgium. The “shipper” would then make
arrangements to ship the car from Montana to Europe.
¶11 After receiving the check, Shupak called Avanta’s Red Lodge branch, and
inquired with the branch manager about cashing the check. Shupak inquired whether
there would be a problem cashing the check because of the misspelling of his name, as
well as whether the Red Lodge branch had sufficient cash on hand to cash the $11,500
check. Avanta branch manager Laura Getz informed Shupak that the credit union could
cash the check despite the misspelling, and that sufficient cash was on hand.
4
¶12 On May 3, 2005, Shupak presented the check to Avanta teller, Bonnie Palmer.
Palmer advised Shupak that the amount of the check was beyond her authority and that
she needed approval from the assistant manager. Shupak insisted that the check had
already been approved to be cashed, but Palmer nonetheless sought and obtained
approval to cash the check from the assistant manager on duty, Jolene Collins, who was
the only other employee present. Palmer testified that the check appeared unusual to her,
in that there was no address listed under Washington Mutual on the check, and Shupak’s
name was misspelled. Both Getz and Palmer testified that they would have placed a hold
on the check if they had handled the transaction. The employees also testified that it
would have been inappropriate to tell Shupak the check was “good” or “secure.”
However, Shupak and Wilma testified that when Shupak presented the check to Palmer,
she told him the check was “secure.” Shupak also testified that he asked Palmer if he
needed to wait for the funds to clear, and Palmer responded no.
¶13 Despite the unusualness of the check, Collins authorized cashing of the check.
Shupak received $7,000 in cash, and requested $500 to be applied to one of his Avanta
vehicle loans and $4,000 to be deposited in his account. Several days later, Shupak wired
$4,100 to Belgium via Western Union. On May 16, 2005, the Washington Mutual check
was returned to Avanta as counterfeit. Avanta then charged back Shupak’s account for
$11,500, leaving his account $9,238.96 overdrawn and his vehicle loan past due.
Thereafter, Avanta applied several of Shupak’s direct deposit checks to his negative
account balance, bringing down the total owed to $8,185.97.
5
¶14 Shupak reported the scam to numerous authorities, and attempted to negotiate the
overdraft liability with Avanta. When these efforts were unfruitful, Shupak sought to end
all relations with Avanta. Shupak secured a home equity loan to pay off his Avanta
vehicle loans. In June 2005, Shupak went to Avanta and tendered money to pay off those
vehicle loans. Testimony at trial was disputed as to whether Avanta employees advised
Shupak before or after he tendered the money, that even though the car loans were paid
off, Avanta would continue to assert liens on his cars for the charge-back debt pursuant to
the cross-collateralization provisions of the loan liner agreements.
¶15 Avanta hired J&S Recovery to repossess Shupak’s vehicles to recover the
outstanding account balance, but the repossession efforts were unsuccessful. Over the
following months, Shupak received monthly account statements from Avanta stating an
increasing negative balance, reflecting the assessment of additional attorney and
repossession fees. The negative balance eventually grew to over $22,000.
¶16 Avanta sued Shupak in May 2006 to recover the outstanding balance, asserting its
right to charge back the fraudulent check funds, and seeking repossession of Shupak’s
vehicles, repossession fees, and all attorney fees and costs of suit. Shupak raised several
affirmative defenses, including estoppel, and countersued for negligence, malicious
prosecution, breach of the duty of good faith under the UCC, breach of the Fair Debt
Collection Practices Act, and fraud.
¶17 The District Court concluded Avanta had a statutory right to charge back the
money given Shupak for the fraudulent check, pursuant to § 30-4-212, MCA, and our
holding in Valley Bank of Ronan v. Hughes, 2006 MT 285, 334 Mont. 335, 147 P.3d 185,
6
and accordingly granted Avanta partial summary judgment. However, the court reserved
judgment against Shupak as to the $8,185.97 account deficit until a jury could determine
whether Shupak was entitled to offset that amount because of Avanta’s alleged negligent
misrepresentations regarding the validity of the check.
¶18 After trial on Shupak’s claims of negligence, negligent misrepresentation, fraud,
estoppel, and punitive damages, the jury found by special verdict that Avanta had been
77.5% negligent, Shupak had been 22.5% negligent, the negligence had caused $5,000 in
damages, and Avanta was estopped from enforcing its membership and loan liner
agreements.1 The jury rejected Shupak’s fraud and punitive damage claims. Thus,
Shupak was awarded $3,875.00 for Avanta’s negligence. The District Court subtracted
that amount from the $8,185.97 owed to Avanta by reason of the charge-back right,
awarding a net judgment to Avanta in the amount of $4,310.97.
¶19 Both parties sought recovery of their respective attorney fees and costs. The
District Court determined Shupak was the prevailing party because he had prevailed on
his negligence claims and reduced his financial liability to Avanta, despite Avanta
prevailing on the charge-back issue and recovering a net judgment. The court awarded
Shupak his attorney fees and costs of $48,916.85, for a net judgment in his favor of
$44,605.88.
¶20 Avanta appeals, challenging the sufficiency of the evidence supporting the jury’s
estoppel verdict and the District Court’s determination that Shupak was the prevailing
1
The special verdict form contained a single estoppel question: “Q9. Is Avanta estopped from
relying on the provisions of its member agreement or loan liner agreements?”
7
party, with the resulting award of attorney fees and costs to Shupak. Shupak
cross-appeals the District Court’s application of the estoppel verdict, arguing that Avanta
should be estopped from charging back the provisional funds given to Shupak for the
fraudulent check. Shupak also seeks his attorney fees and costs on appeal.
STANDARD OF REVIEW
¶21 The scope of our review of the jury’s verdict is narrow. We only determine
whether there is substantial credible evidence in the record supporting the jury’s verdict.
Barrett v. Asarco Inc., 245 Mont. 196, 200, 799 P.2d 1078, 1080 (1990) (citation
omitted). “Substantial credible evidence is defined as ‘evidence which a reasonable mind
might accept as adequate to support a conclusion.’” Baltrusch v. Baltrusch, 2003 MT
357, ¶ 32, 319 Mont. 23, 83 P.3d 256 (quoting Lee v. Kane, 270 Mont. 505, 510, 893
P.2d 854, 857 (1995)). The evidence must be viewed in the light most favorable to the
prevailing party. Bugger v. McGough, 2006 MT 248, ¶ 37, 334 Mont. 77, 144 P.3d 802
(citation omitted).
¶22 The standard of review of a district court’s conclusions of law is whether the
court’s interpretation of the law is correct. Gelderloos v. Duke, 2004 MT 94, ¶ 22, 321
Mont. 1, 88 P.3d 814 (citing Brumit v. Lewis, 2002 MT 346, ¶ 12, 313 Mont. 332, 61
P.3d 138). Whether a party is entitled to recover attorney fees is strictly a question of
law; we review a district court’s conclusions of law regarding attorney fees to determine
whether those conclusions are correct. Chase v. Bearpaw Ranch Assn., 2006 MT 67,
¶ 14, 331 Mont. 421, 133 P.3d 190 (quoting Transaction Network, Inc. v. Wellington
Techs., Inc., 2000 MT 223, ¶ 17, 301 Mont. 212, 7 P.3d 409).
8
ANALYSIS
¶23 1. Did the District Court err in concluding that the jury’s estoppel verdict was
not applicable to Avanta’s right to charge back?
¶24 Prior to trial, Avanta moved for partial summary judgment on its charge-back
right, citing § 30-4-212(4), MCA (2007), as well as our decision in Valley Bank of Ronan
v. Hughes, 2006 MT 285, 334 Mont. 335, 147 P.3d 185. Shupak opposed the motion,
arguing that factual questions existed regarding Avanta’s handling of the fraudulent
check under the statutory “ordinary care” standard of § 30-4-212(4), MCA. The District
Court granted Avanta’s summary judgment motion, finding that the bank had a statutory
right to charge back the fraudulent check funds on Shupak’s account without regard to
any alleged negligence by Avanta.
¶25 After trial on the remaining issues, the jury found that Avanta was estopped from
enforcing its membership agreement and loan liner agreements. The verdict form did not
distinguish between the right of charge-back and other contractual rights. Shupak then
argued that, despite the District Court’s summary judgment on the charge-back right, the
jury’s verdict should also estop Avanta from charging back the $11,500 sum it had
provisionally granted when he deposited the fraudulent check. Avanta contended it had
the right to charge back the $11,500 to Shupak’s accounts as a matter of law, as well as
collect the attorney fees it had incurred in pursuing that right. The District Court ruled
that the jury’s estoppel verdict could not prevent Avanta from its charge-back right, as it
was also rooted in statute. However, the District Court held that the jury’s estoppel
verdict prevented Avanta from otherwise enforcing its agreements, including
9
enforcement of its cross-collateralization right, repossession rights, and collection of
attorney fees and costs. The parties raise the same arguments on appeal.
¶26 In Hughes, we explained that when a customer deposits a check, the depositary
bank or institution will often credit the customer’s account immediately and permit the
customer to draw on these “provisional settlement” funds. Hughes, ¶ 17. Banks
commonly provide provisional settlement funds because more than ninety-nine percent of
deposited checks are later honored by the drawee bank, or finally settled. Section 30-4-
212, MCA, Official Comment 1. However, if the customer’s check is subsequently
dishonored by the drawee bank, the depositary bank may “charge back” the provisional
funds made available to the customer. By this procedure, the UCC “encourages the
provisional settlement process by protecting a depositary bank from fraudulent or
otherwise unenforceable check deposits.” Hughes, ¶ 17.
¶27 Courts and commentators have long recognized the reasoning behind UCC § 4-
212, which establishes a bank’s right to charge back the provisional settlement funds.
Were this not the rule, banking institutions would be placed “in the untenable position of
guaranteeing a customer’s [checks] whenever the bank gives a provisional settlement.”
Southside Natl. Bank v. Hepp, 739 S.W.2d 720, 723 (Mo. 1987); see Kacak v. Bank
Calumet, N.A., 869 N.E.2d 1239, 1240 n. 2 (Ind. App. 2007) (“it is the customer, not the
bank, who ultimately bears the risk of nonpayment of items presented to the bank”).
Such a practice would promote fraud, allowing customers to withdraw funds without
regard to final settlement or notice of dishonor. Hepp, 739 S.W.2d at 723. Moreover,
“[i]f there is a policy implicit in the UCC’s rules for the allocation of losses due to fraud,
10
it surely is that the loss be placed on the party in the best position to prevent it.”
Northpark Natl. Bank v. Bankers Trust Co., 572 F. Supp. 524 (S.D.N.Y. 1983); Allen v.
Carver Fed. Sav. and Loan Assn., 477 N.Y.S.2d 537, 538-39 (N.Y. App. Div. 1st Dept.
1984); Robert A. Hillman, Julian B. McDonnell & Steve H. Nickles, Common Law and
Equity under the Uniform Commercial Code § 14.01[1] (Warren, Gorham & Lamont,
Inc. 1985) (“[O]ur law of check fraud seeks to discourage fraud (or at least to reduce its
costs) by placing the loss on the party whose negligence allowed the scheme to succeed
or who was in the best position to prevent its occurrence.”).
¶28 By allocating the risk of loss to the banking customer until the check is finally
settled, the negotiability of commercial paper is enhanced, if not made commercially
certain. Hillman, McDonnell & Nickles, Common Law and Equity under the Uniform
Commercial Code at § 14.01[1]. As the New York Court of Appeals noted, “by
‘prospectively establishing rules of liability that are generally based not on actual fault
but on allocating responsibility to the party best able to prevent the loss by the exercise of
care, the UCC not only guides commercial behavior but increases certainty in the
marketplace and efficiency in dispute resolution.’” Call v. Ellenville Natl. Bank, 774
N.Y.S.2d 76, 78 (N.Y. App. Div. 2d Dept. 2004) (citations omitted); see William D.
Hawkland, J. Fairfax Leary, Jr. & Richard M. Alderman, Uniform Commercial Code
Series vol. 5, § 4-212:1 (West 1999) (“This rule is consistent with the general approach
of Article 4; the collecting bank is merely an agent for collection.”); Barkley Clark &
Barbara Clark, The Law of Bank Deposits, Collections and Credit Cards vol. 1,
11
¶ 6.01[1]-[5] (Rev. ed., A.S. Pratt & Sons Supp. 2005) (detailing the bank’s charge-back
right of the provisional settlement until final payment).
¶29 The bank’s right to “charge back” is codified at UCC § 4-212, and, in the Montana
Code, at § 30-4-212, MCA. The Montana statutes mirror the UCC provisions, providing
that “[t]he right to charge back is not affected by: . . . failure by any bank to exercise
ordinary care with respect to the item but any bank so failing remains liable.” Official
Comment 5 to § 30-4-212(4), MCA, further explains that “charge-back is permitted even
where nonpayment results from the depositary bank’s own negligence.” Applying this
statute, we held in Hughes that the bank has a statutory right to charge back the
provisional settlement funds, preempting any claim that the bank did not exercise
ordinary care. Hughes, ¶ 22. However, we also held that the statute did not preempt
common law claims related to the bank’s communications, such as negligent
misrepresentations made to the customer, which the customer could pursue to recover his
damages. Hughes, ¶ 23. “Therefore, while Hughes bore the obligation to repay Valley
Bank to satisfy the bank’s right of charge-back under § 30-4-212, MCA, it nevertheless
[was] possible for Hughes to obtain a judgment to compensate him for the charge-back
debt.” Hughes, ¶ 23 (citing First Georgia Bank v. Webster, 308 S.E.2d 579, 581 (Ga.
App. 1983); Henry J. Bailey & Richard B. Hagedorn, Brady on Bank Checks ¶ 24.05 n.
84 (8th ed., A.S. Pratt & Sons 1999)).
¶30 In Hughes we recognized several cases which supported our conclusion that
equitable principles supplement the UCC. Hughes, ¶ 23 n. 4 (citing First Natl. Bank of
Denver v. Ulibarri, 557 P.2d 1221 (Colo. App. 1976); Webster, 308 S.E.2d 579; Symonds
12
v. Mercury Sav. & Loan Assn., 275 Cal. Rptr. 871 (Cal. App. 2d Dist. 1990); Burke v.
First Peoples Bank of N.J., 412 A.2d 1089 (N.J. Dist. Ct. 1980)). However, we did not
address whether equitable estoppel might prevent the bank from exercising its charge-
back rights because the parties did not raise that issue on appeal. Hughes, ¶ 23 nn. 4-5.
We are now presented with that question.
¶31 The UCC and Montana’s statutory scheme provide clear guidance on the bank’s
right to charge back the provisional settlement funds.2 If a depositary bank has made
provisional settlement funds available to its customer, and the deposited check
subsequently fails by reason of dishonor, suspension or otherwise, § 30-4-212(1), MCA,
provides:
[T]he bank may revoke the settlement given by it, charge back the amount
of any credit given for the item to its customer’s account or obtain refund
from its customer whether or not it is able to return the [check] if by its
midnight deadline3 or within a longer reasonable time after it learns the
facts it returns the item or sends notification of the facts.
The statute further provides that the bank does not lose its right to revoke settlement,
charge back the credit or obtain a refund from the customer if it delays sending the return
or notice of dishonor past its midnight deadline or a longer reasonable time after learning
the facts, but will be liable for any loss resulting from the delay. Section 30-4-212(1),
MCA. However, the bank’s “rights to revoke, charge back and obtain refund terminate if
2
Because the Montana statutes mirror the UCC provisions, we will hereafter refer to the
applicable Montana statutes.
3
Section 30-4-104(1)(i), MCA, defines “midnight deadline” “with respect to a bank [as]
midnight on its next banking day following the banking day on which it receives the relevant
item or notice or from which the time for taking action commences to run, whichever is later.”
“Banking day” is likewise defined at § 30-4-104(1)(c), MCA.
13
and when a settlement for the [check] received by the bank is or becomes final.” Section
30-4-212(1), MCA.4 As we explained in Hughes, “[t]his practice is known in Uniform
Commercial Code parlance as ‘provisional settlement’ because the bank has not yet
presented the check to the drawee bank and received payment from the check maker’s
account (which would constitute ‘final settlement’).” Hughes, ¶ 17.
¶32 The bank’s charge-back right thus terminates only upon the final settlement of the
check. The bank’s right to charge back is not affected by the customer’s use of the
provisional settlement funds, or the bank’s failure to exercise ordinary care in handling
the check for settlement purposes. Section 30-4-212(4)(a)-(b), MCA; see § 30-4-212,
MCA, Official Comment 5. While principles of law and equity supplement the UCC,
those principles do not displace provisions of the UCC. Section 30-1-103, MCA.
Applying equitable estoppel as argued by Shupak would displace the clear statutory
provision of a bank’s right to charge back, and an equitable remedy cannot do so. Until a
check becomes final, the depositary bank has the right to charge back provisional
settlement funds to the customer, and the risk of loss remains with the customer.5
4
Subsections (3) and (4) of 30-4-211, MCA, and subsections (2) and (3) of 30-4-213, MCA,
determine when settlement becomes final. Section 30-4-212(1), MCA.
5
Official Comment 5 to § 30-4-212, MCA, provides both the rule and the policy behind the
bank’s charge-back right:
The rule of subsection (4) relating to charge-back (as distinguished from claim for
refund) applies irrespective of the cause of the nonpayment, and of the person
ultimately liable for nonpayment. Thus charge-back is permitted even where
nonpayment results from the depositary bank’s own negligence. Any other rule
would result in litigation based upon a claim for wrongful dishonor of other
checks of the customer, with potential damages far in excess of the amount of the
item. Any other rule would require a bank to determine difficult questions of fact.
14
¶33 In holding that the bank’s charge-back right cannot be equitably estopped, we join
other courts which have held similarly. See Ratner v. Central Natl. Bank of Miami, 414
So. 2d 210, 213 (Fla. 3d Dist. App. 1982); Wells Fargo Bank v. Hartford Natl. Bank and
Trust Co., 484 F. Supp. 817, 822-23 (D. Conn. 1980); Holcomb v. Wells Fargo Bank,
N.A., 66 Cal. Rptr. 3d 142 (Cal. App. 4th Dist. 2007); see Hepp, 739 S.W.2d at 722-23.
Both the Ratner and Wells Fargo Bank courts recognized the bank’s statutory right to
charge back the provisional settlement funds, as well as the customer’s right to pursue
affirmative relief by complaint or counterclaim. Ratner, 414 So. 2d at 213; Wells Fargo
Bank, 484 F. Supp. at 822-23. The California Court of Appeals likewise recognized that,
even though the UCC furnished the bank “with an absolute right to charge back the
check upon [the drawee bank’s] dishonor, it does not shield [the depositary bank] from
damages due to its branch manager’s alleged negligent misrepresentations regarding the
check’s status.” Holcomb, 66 Cal. Rptr. 3d at 148 (emphasis added).
¶34 A customer cannot prevent a bank from charging back the provisional settlement
funds. Section 30-4-212, MCA, provides for both the charge-back right and the
termination of that right, and thus displaces common law and equitable defenses, such as
estoppel. However, as explained in cases such as Hughes and Holcomb, the customer
who detrimentally relies on the negligent misrepresentations of the bank’s agents, and
thereby suffers damage, is not without recourse. A cause of action for damages based on
principles of common law or equity, by complaint or counterclaim, may be brought
The customer’s protection is found in the general obligation of good faith
(Sections 30-1-203 and 30-4-103) . . . .
15
against the bank. This process preserves the UCC’s carefully drawn balance between
“certainty and predictability in commercial transactions,” and the “comparative fault
principles taken from tort law,” Call, 774 N.Y.S.2d at 78, and is consistent with our
decision in Hughes, as well as a majority of courts and banking commentators.
Moreover, this determination logically addresses the actual harm to the parties. Rather
than estopping the bank from charging back the entire provisional settlement, an arguably
arbitrary measure of damages, the customer may sue in negligence or negligent
misrepresentation and recover the actual harm caused by the bank.
¶35 Thus, the District Court correctly determined that the jury’s estoppel verdict did
not apply to Avanta’s statutory and contractual right to charge back the provisional
settlement funds credited to Shupak’s account. We acknowledge the early cases cited by
Shupak in which courts have found equitable estoppel applicable to the bank’s right to
charge back, Webster, 308 S.E.2d at 581-82 and Ulibarri, 557 P.2d at 1223. Given the
authority cited herein, we decline to adopt these holdings. They represent a minority
position and the development of the law in the years since has been to the contrary.
¶36 We conclude that the District Court properly granted summary judgment to
Avanta regarding its charge-back right, and properly rejected application of the jury’s
estoppel verdict to the right. The District Court likewise correctly permitted Shupak to
pursue his separate claims for the damages suffered by reliance on Avanta’s negligent
misrepresentations.
16
¶37 2. Was there sufficient evidence to support the jury’s verdict that Avanta was
estopped from asserting other rights under the agreements, including repossession of
Shupak’s vehicles, recovery fees, and related attorney fees and costs?
¶38 Avanta argues there was insufficient evidence to support the jury’s estoppel
verdict. Avanta contends that, even if it is estopped from relying on the terms of the loan
liner agreement, the estoppel verdict should not affect the membership agreement it had
with Shupak. According to Avanta, to equitably estop both the membership and loan
liner agreements, Avanta must have misrepresented or concealed a material fact about
both of those agreements to Shupak.
¶39 Shupak argues he presented sufficient evidence to prove Avanta misrepresented
the validity of the check, and failed to explain to him that the cross-collateralization loan
liner agreements permitted Avanta to repossess his vehicles upon default of any account,
even though he had paid off the vehicle loans. Shupak claims the jury correctly estopped
Avanta’s enforcement of its agreements, as well as the repossession of Shupak’s vehicles,
given that the debt occurred solely because of Avanta’s negligent misrepresentations.
¶40 The membership agreement provided the following liability policy regarding
available funds:
Please remember that even after we have made funds available to you and
you have withdrawn the funds, you are still responsible for checks you
deposit that are returned to us unpaid and for any other problems involving
your deposit.
According to the loan liner agreements, Shupak agreed to the following cross-
collateralization policy:
The Property secures the Loan and any extensions, renewals or refinancings
of the Loan. If the Property is not a dwelling, it also secures any other
17
loans, including any credit card loan, you have now or receive in the future
from us and any other amounts you owe us for any reason now or in the
future . . . . [Emphasis added.]
¶41 The doctrine of equitable estoppel is predicated on equity and good conscience,
and will grant relief to prevent a party from suffering a gross injustice at the hands of the
other party who brought about the situation or condition. In re Shaw, 189 Mont. 310,
316, 615 P.2d 910, 914 (1980); In re Estate of Stukey, 2004 MT 279, ¶ 37, 323 Mont.
241, 100 P.3d 114 (citing Dagel v. Great Falls, 250 Mont. 224, 235, 819 P.2d 186, 193
(1991)). Although not generally favored, estoppel will be found “to prevent a party from
taking an unconscionable advantage of his own wrong while asserting his strict legal
right.” Shaw, 189 Mont. at 316, 615 P.2d at 914 (citation omitted); Stukey, ¶ 37 (citing
Dagel, 250 Mont. at 235, 819 P.2d at 193); Kenneth D. Collins Agency v. Hagerott, 211
Mont. 303, 310, 684 P.2d 487, 490-91 (1984).
¶42 A party must prove, by clear and convincing evidence, the following six elements
to succeed on an estoppel claim: (1) the existence of conduct, acts, language, or silence
amounting to a representation or a concealment of a material fact; (2) these facts must be
known to the party estopped at the time of his conduct, or at least the circumstances must
be such that knowledge of them is necessarily imputed to him; (3) the truth concerning
these facts must be unknown to the other party claiming the benefit of the estoppel at the
time it was acted upon by him; (4) the conduct must be done with the intention, or at least
the expectation, that it will be acted upon by the other party, or under circumstances both
natural and probable that it will be so acted upon; (5) the conduct must be relied upon by
the other party and, thus relying, he must be led to act upon it; and (6) he must in fact act
18
upon it in such a manner as to change his position for the worse. Stuckey, ¶ 38 (citation
omitted).
¶43 From a review of the record, we conclude that Shupak presented sufficient
evidence that Avanta induced his reliance on the fraudulent check’s validity, and Avanta
was therefore appropriately estopped from pursuing remedies under the membership and
loan liner agreements beyond the charge back. Avanta employees testified that the check
contained several red flags, such as a missing address for the Washington Mutual check,
as well as Shupak’s misspelled first name “Stove Shupak.” Given the unusual
characteristics of the check, the employees conceded it would have been inappropriate to
tell Shupak the check was “good” or “secure.” Nonetheless, both Shupak and his mother
testified that Avanta employees assured Shupak the Washington Mutual check was
“secure,” and that it was not necessary for him to wait for the funds to clear. Shupak then
acted upon Avanta’s assurance, cashing the check, making a vehicle loan payment, and
giving money to his parents to pay bills. Several days later, he wired $4,100.00 to the
“shipper” in Belgium.
¶44 The evidence regarding Avanta’s negligent misrepresentations regarding the
check’s validity is sufficient to establish estoppel. We reject Shupak’s contention that
Avanta’s failure to inform him of the cross-collateralization provisions of the loan liner
agreements, when he paid off the vehicle loans, without more, constituted concealment of
a material fact. Avanta was not required, by law or equity, to remind Shupak of the
contents of the agreements he had signed before accepting his payoff. However, the
other evidence was sufficient to support the estoppel verdict and, accordingly, we affirm
19
that verdict. As explained above, the jury’s estoppel verdict could not apply to Avanta’s
right to charge back the provisional settlement funds, nor will it apply to Avanta’s
attorney fees insofar as they relate to the charge-back right, as discussed below.
¶45 3. Did the District Court err in denying Avanta its attorney fees and costs
related to the charge back, and determining that Shupak was the prevailing party?
¶46 Traditionally, courts will not award attorney fees unless specifically provided for
by contract or statute. Terra West Townhomes, L.L.C. v. Stu Henkel Realty, 2000 MT 43,
¶ 40, 298 Mont. 344, 996 P.2d 866 (citation omitted). The membership agreement
provided for payment of Avanta’s attorney fees and costs in the event it prevailed in
litigation between the parties. Because the agreements provided Avanta a right to
attorney fees, Shupak was likewise entitled to attorney fees if he prevailed, pursuant to
§ 28-3-704, MCA. Similarly, under § 25-10-101(3), MCA, a litigant is entitled to costs if
he receives a judgment in an action to recover sums or damages in excess of $50.
¶47 Shupak resisted the charge back and forced Avanta to litigate the issue. As
explained above, Avanta had a right to charge back which could not be equitably
estopped, and the jury’s verdict thus did not prevent Avanta from pursuing this remedy.
Avanta is entitled to that portion of its attorney fees and costs related to the enforcement
of its charge-back right, as a matter of law. The District Court accordingly erred in
denying Avanta those fees and costs.6
6
We note that Avanta substantially prevailed on the charge-back issue upon the entry of
summary judgment, and that the trial was conducted on Shupak’s claims and defenses. The
charge-back issue then arose again in post-trial motions.
20
¶48 The District Court concluded that Shupak was the prevailing party because his
liability to Avanta had been reduced and because he had prevailed on his negligence and
estoppel claims. Avanta argues the court erred in determining that Shupak was the
prevailing party because Avanta prevailed on the main issue—Shupak’s liability for the
provisional settlement funds he received from Avanta followed by the failure to achieve
final settlement. Avanta thus contends it is the prevailing party, and as such is entitled to
full costs and attorney fees. Shupak counters that the key issue was rather Avanta’s
negligent misrepresentations, and the District Court correctly found him to be the
prevailing party.
¶49 We have previously held that the “prevailing party is the one who has an
affirmative judgment rendered in his favor at the conclusion of the entire case.” Schmidt
v. Colonial Terrace Assocs., 215 Mont. 62, 68, 694 P.2d 1340, 1344 (1985) (quoting
Jordan v. Elizabethan Manor, 181 Mont. 424, 434, 593 P.2d 1049, 1055 (1979)). While
a money award is not dispositive, E.C.A. Envtl. Mgt. Servs. v. Toenyes, 208 Mont. 336,
345, 679 P.2d 213, 217-18 (1984), we have explained that, generally, the party receiving
the net judgment is considered the prevailing party in an action involving a counterclaim.
Rod and Rifle Inn, Inc. v. Giltrap, 273 Mont. 232, 235, 902 P.2d 38, 41 (1995) (citing
Empire Dev. Co. v. Johnson, 236 Mont. 433, 441, 770 P.2d 525, 530 (1989)). Although
agreeing that Avanta had achieved a net judgment in its favor, exclusive of attorney fees
and costs, in the amount of $4,310.97, the District Court nonetheless determined that
Shupak was the prevailing party. We disagree.
21
¶50 Avanta initiated the litigation to enforce its charge-back rights and recover the
provisional settlement funds issued to Shupak, and prevailed on this claim. Avanta was
likewise entitled to that portion of its attorney fees and costs incurred to enforce its
charge-back right. Shupak prevailed on his estoppel defense for other contract remedies
sought by Avanta, and prevailed on his negligence claims. The jury determined the
damages were $5,000, and found Avanta to be 77.5% and Shupak 22.5% negligent,
resulting in a damage award to Shupak of just $3,875.00. Shupak lost his fraud and
punitive damage claims. Thus, despite the jury’s verdict that Avanta acted negligently,
Avanta still recovered a net judgment against Shupak when the verdicts were offset,
without considering Avanta’s right to collect related attorney fees. “The party that
survives an action involving a counterclaim, setoff, refund or penalty with the net
judgment should generally be considered the successful or prevailing party.” Toenyes,
208 Mont. at 345, 679 P.2d at 218 (citations omitted). Given these circumstances, we
conclude the District Court erred in determining Shupak to be the prevailing party.
Avanta is properly considered the prevailing party.
CONCLUSION
¶51 The jury’s verdict was supported by substantial evidence and is affirmed.
¶52 Post-trial, the District Court correctly determined that Avanta’s right to charge
back the provisional settlement funds given to Shupak was not estopped by the jury’s
verdict, and that order is affirmed.
¶53 The District Court erred by failing to award that portion of Avanta’s attorney fees
and costs related to enforcement of its charge-back right. Upon remand, the District
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Court will determine what fees were reasonably incurred for that purpose only. Attorney
and other fees incurred by Avanta to enforce other rights are estopped in accordance with
the jury’s verdict. The District Court’s determination that Shupak was the prevailing
party was in error. These orders are reversed, and the judgment is reversed. Following
further proceedings as provided herein, the District Court shall enter an amended
judgment.
¶54 Affirmed in part, reversed in part, and remanded for further proceedings.
/S/ JIM RICE
We concur:
/S/ MIKE McGRATH
/S/ JOHN WARNER
/S/ JAMES C. NELSON
/S/ PATRICIA O. COTTER
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AVANTA FEDERAL CREDIT UNION v. Shupak
Court: Montana Supreme Court
Date filed: 2009-12-31
Citations: 2009 MT 458, 223 P.3d 863, 354 Mont. 372
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