Estate of Pruyn v. Axmen

IN THE SUPREME COURT OF THE STATE OF MONTANA
Supreme Court Cause No. DA 08-0352

ESTATE OF EARL M. PRUYN, ACTING THROUGH
THE PERSONAL REPRESENTATIVE JACK MEYER,

AXMEN PROPANE, INC., a Montana corporation,
and EDWARD KIMBRELL, individually,

REPLY BRIEF OF APPELLANT

On Appeal from the Fourth Judicial District Court, Missoula County

Appearances:
-.

Randy J. Cox Edward N. Kimbrell
Scott M. Steams 1410 Pinnacle Falls
Thomas J. Leonard San Antonio, TX 78260
EOONE KARLBERG P.C. Telephone: (210) 462-9108
201 West Main, Suite 300
P.O. Box 9199
Missoula, MT 59807-9199
Telephone: (406) 543-6646
Facsimile: (406) 549-6804
rcox@boonekarlberg.com
ssteams@boonekarlberg.com
tleonard@boonekarlberg.com
Attorneys for Appellant

David R. Cotner
Trent N. Baker
DATSOPOULOS, MACDONALDLIND
&
201 West Main, Suite 201
Missoula, MT 59802
Telephone: (406) 728-08 10
Facsimile: (406) 543-0134
dcotner@dmllaw.com
tbaker@dmllaw.com
Attorneys for Appellee
 TABLE OF CONTENTS

I. THE DISTRICT COURT ERRED IN OVERTURNING
ITS PRIOR SUMMARY JUDGMENT ORDER . . . . . . . . . . . . . . . . . . . . . . .1

A. Kimbrell Acted With Ostensible Authority To Bind Axmen ........1
B. ICimbrell Had Actual Authority to Speak for Amen's Board . . . . . . . . 2

C. Axmen's Motion for Reconsideration Was Improper ..............5
1. There Was No Newly Discovered Evidence . . . . . . . . . . . . . . . . 5

2. There Was No Manifest Error or Extraordinary
Circumstance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

D. Axmen's Motion Was Denied After 60 Days . . . . . . . . . . . . . . . . . . . .7
E. Judge Henson's Order Was the Law of the Case . . . . . . . . . . . . . . . . . . 8

I1. THE DISTRICT COURT ERRED IN GRANTING SUMMARY
JUDGMENT TO AXMEN ON BREACH OF CONTRACT . . . . . . . . . . . . . . 8

A. The District Court Disregarded Undisputed Facts .................8
B. Axmen Is Liable Under the UCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

C. The Par01 Evidence Rule Does Not Apply . . . . . . . . . . . . . . . . . . . . . .12

111. THE DISTRlCT COURT ERRED IN GRANTING SUMMARY
JUDGhlENT TO AXMEN ON UNJUST ENRICHMENT . . . . . . . . . . . . . . 13

A. Pruyn Should Recover In Equity If the Note Does Not
BindAxlnen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
 B. Pruyn Did Not Waive His Claim By Accepting Payments . . . . . . . . . 14
C. Pruyn Satisfied the Elements of Unjust Enrichment . . . . . . . . . . . . . . 15

D. The UCC Does Not Preclude Pruyn's Claim In Equity . . . . . . . . . . . . 17
IV . THE DISTRICT COURTABUSED ITS DISCRETION IN
GRANTING AXMEN ITS ATTORNEY FEES . . . . . . . . . . . . . . . . . . . . . . 17

A. The Equitable Exception Does Not Apply . . . . . . . . . . . . . . . . . . . . . . 17
B. The Court Should Give Effect to Montana's Statutes.
Not Washington's or California's . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18

V. AXMEN'S EXPARTE COMMUNICATIONS TO THE DISTRICT
COURT VIOLATED PRUYN'S DUE PROCESS RIGHTS . . . . . . . . . . . . . 19

CERTIFICATE OF COMPLIANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
. ...

CERTIFICATE OF SERVICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 ::
 TABLE OF AUTHORITIES

CASES

Federal Cases

Old Person v. Brown,
312 F.3d 1036 (9th Cir. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
State Cases

Bekkedahl v. McKittrick,
2002 MT 250,312 Mont. 156,58 P.3d 175 . . . . . . . . . . . . . . . . . . . . . . . . . .19
Carelli v. Hall,
279 Mont. 202,926 P.2d 756 (1996) . . . . . . . . . . . . . . . . . . . . . . . . .11,12,13
Daniels-Sheridan Federal Credit Union v. Bellanger,
2001 MT 235,307 Mont. 22,36 P.3d 397 . . . . . . . . . . . . . . . . . . . . . . . . . . .17

Estate of Pruyn v. Axmen Propane, Inc.,
2008 MT 329,346 Mont. 162,194 P.3d 650 . . . . . . . . . . . . . . . . . . . . . . . . . .7
Fjelstad v. Mo~ztanaDept. of Highways,
267 Mont. 211,883 P.2d 106 (1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
In re Marriage ofRock,
257 Mont. 476,850 P.2d 296 (1993) ...............................
17

Johnson v. Eagles Lodge Aerie 3913,
284Mont.474,945P.2d62(1997) ................................8
.
Maxted v. Barrett
198 Mont. 81,643 P.2d 1161 (1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
.
Nortl7~iest
Polymeric, Inc. v. Farmers State Bank,
236 Mont. 175,768 P.2d 873 (1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Phelps v. Union Central Life Ins. Co.,
105 Mont. 195,71 P.2d 887 (1937) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Real Estate Loan Fund Oreg. Ltd. v. Hevner,
709P.2d727(Or.App.1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,5

Rex v. Sussex Justices,
1 K.B. 256 (1924) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ; . . . . . 20
.
Rudio v. Yellowstone Merchandising Corp.,
200 Mont. 537,652 P.2d 1163 (1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Shields v. Helena School District No. I ,
284 Mont. 138,943 P.2d 999 (1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
.
Suwco v. Kenyon Noble Ready-Mix,
204 Mont. 41 1,664 P.2d 943 (1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
.
Tanner v. Dream Island, Inc.,
275 Mont. 414,913 P.2d 641 (1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Teanzsters Union Local No. 2 v. C.N.H. Acquisitions, Inc.,
2009 MT 92, Mont. - , 204P.3d733 . . . . . . . . . . . . . . . . . . . . . . . . . .8
VanDyke Construction Co., Inc. v. Stillwater Mining Co.,
2003 MT279,317 Mont. 519,78 P.3d 844 . . . . . . . . . . . . . . . . . . . . . . . . . .14

Washington v. Montana Mining P~eoperties,
Inc.,
243 Mont. 509,795 P.2d 460 (1990) . . . . . . . . . . . . . . . . . . . . . . . . .
19,20,21
 STATUTES

Mont. Code Ann. 5 28-3-704 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
18.

Mont. Code Ann . 5 28-10-403 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1.
Mont . Code Ann . 5 30-3-403(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 12

Mont. Code Ann . 5 30-3-404(1) ........................................
12
. .
Mont . Code Ann . 5 30-3-406 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11, 12

RULES

Mont . R.Civ. P . 59(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
,
Mont. R . Civ. P. 60(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.
Mont.R.Civ.P.60(~). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
.

MISCELLANEOUS

Cal.Civ.Code1717(a) ...............................................
19

RCW4.84.330 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Richard E. Flamm, Judicial DisqualiJication. 5 5.6.4 (1996) . . . . . . . . . . . . . . . . .20
I. THE DISTRICT COURT ERRED IN OVERTURNING ITS PRIOR
S
Y
- JUDGMENT ORDER.

Reading h e n ' s brief, one might conclude this litigation began not in July

2004, but some three years later when Judge Deschamps granted sum~nary
judgment

to Axmen. Axmen characterizes all matters pre-dating Judge Deschamps' ruling as

minor "procedural" issues not warranting remand. Axmen is wrong. Judge

Henson's initial order granting summary judgment to Pruyn was correct, and the

reversals of that order were procedurally and substantively improper.

A. fimbrell Acted With Ostensible Authority To Bind Axmen.

Judge Henson correctly ruled that h e n ' s president, Kimbrell, bound h e n

on the promissory note. A m e n professes ignorance of the loan transaction, and

insists its ignorance proves absence of Kimbrell's ostensible authority. But

ostensible authority exists if, "by want of ordinary care," Axmen allowed Pruyn to

believe Kimbrell possessed the requisite power to bind the company. See Mont.

Code Ann. $28-10-403. Ostensible authority "may be established by onzissions as

well as by commissions." Northwest Polymeric, Inc. v. Famzers State Bank (1989),

236 Mont. 175, 178, 768 P.2d 873, 875 (emphasis added).

As demonstrated in its brief, A m e n does not dispute it made Kimbrell

managing partnerlpresident of the company and allowed him virtually unchecked

control over h e n ' s operations. A m e n does not dispute it never told Kimbrell the
scope of his borrowing and purchasing authority. Axmen does not dispute it did

nothing to correct the understandable perception that Kimbrell, as president, had

authority to bind the company. Axmen acknowledged that the "level of awareness"

of Axmen's other owners, Grant and Guy Hanson, was lacking. (CR 22, Ex. A,

84:6-15.) Nonetheless, A m e n contends Pruyn should have done more and is stuck

with the loss.

Axmen argues "Pruyn's assertion that Kimbrell had ostensible authority to

bind Axmen cannot rely upon facts discovered after the Note was signed."

(Axmen's Brief, p. 12.) While it is true that facts supporting Pruyn's reasonable

reliance are those facts known to Pruyn at the time of the loan transaction, other

facts are not irrelevant. The facts establishing A m e n ' s lack of ordinary care in

controlling Kimbrell -whether known to Pruyn at the time or not - go to the heart of

ostensible authority. Because of Amen's negligence, Pruyn could not have known

about now-claimed limits on Kimbrell's authority before it was too late.

With respect to Pruyn's knowledge of the Powderhorn transaction, it makes no

difference whether Kiinbrell told Pruyn the money was going to pay a debt to

Powderhorn, buy new tanks in the Bitterroot, or purchase a company condo in the

Bahamas. The question is whether Kimbrell sought the loan on the company's

behalf, and whether Pruyn reasonably believed Axinen's president could bind
A m e n . Despite bald assertions the loan was personal to Kimbrell, Axmen does not

dispute that Kimbrell sought the loan, at least ostensibly, in his representative

capacity as Axmen president. Indeed, the money went to pay an Axrnen debt and

was never converted to Kimbrell's benefit. Nevertheless, Axmen claims Pruyn

should not have trusted its president.

Seeking to portray Pruyn's reliance on Kimbrell as unreasonable, Axlnen

presents misleading excerpts froin Piuyn's deposition. (Axmen's Brief, pp. 12-15.)

Axmen cites Pruyn's admittedly spotty recollection of his veryJirst meeting with

Kimbrell, in which Kimbrell informed Pruyn he was "running the propane business"

and provided Pruyn with certain company documentation. Still, Pruyn denied the

initial loan request. (CR 22, Ex. D, 65:12-25.) A m e n then skips forward to this

part of the transcript:

Q. (By Axmen's attorney) . . . Do you recall any other conversations
you had with Ed Kimbrell before the money was wired out of
your account?

A. No.

(Axmen's Brief, p. 15 (quoting CR 22, Ex. D, 8 1:14-20).)

A m e n skips over everything between Pruyn's initial meeting with Kimbrell

and his making the loan. This misleading portrayal of the record is telling. Axmen

disregards that Pruyn met with Kimbrell on several occasions following the initial
meeting, reviewed extensive company documentation provided by Kimbrell, and

conducted an independent investigation into the operations of the company. (CR 22,

EX.D, 44:15-24; 56:9-57:16; 89:12-23.)

Axmen correctly notes that a person dealing with a known agent may not

"blindly trust the agent's statements as to the extent of his powers." (See h e n ' s

Brief, pp. 15-16 (citing Phelps v. Union Central Life Ins. Co. (1937), 105 Mont. 195,

71 P.2d 887, 889.)) It is reinarkable that h e n makes this argument. Axmen, by

its own admission, blindly trusted Kimbrell to run the company, yet criticizes Pruyn

for not nailing down the precise extent of Kimbrell's powers - something Axmen

itself never did.

B. Kimbrell Had Actual Authority to Speak for Axmen's Board.

Axrnen ignores that Kimbrell had authority to relay the decision of the Axmen

board to Pruyn, even if he lacked authority to bind the company on his signature

alone. Pruyn reasonably relied on Kiinbrell's representation that all members of

Axinen's board approved the loan. See Real Estate Loan Fund Oreg. Ltd. v. Hevner

(Or. App. 1985), 709 P.2d 727.
 C. Axmen's Motion for Reconsideration Was Improper.

Axmen claims its motion for reconsideration was appropriate because of

LLmanifest
errors of law or fact," and "newly discovered or previously unavailable

evidence." See id. In reality, Axmen's motion was just what Axmen said it was:

a motion filed "in lieu o f . . . an appeal." (CR 41.5.)

1. There Was No Newly Discovered Evidence.

Axmen's "newly discovered evidence" was a police interview of Dennis

Starkel, the attorney who drafted the promissory note, taken a year and two months

before Judge Henson granted summary judgment to Pruyn. Axmen claims the date

of the statement is immaterial, and the date it became "available" is what counts.

Tellingly, Axlnen never reveals that date. Nor does Axmen say when or how it

obtained the Starkel statement. Instead, it asserts, without citation to the record, that

the statement was not "available" for the initial summary judgment proceedings.

Axmen does not explain why it was able to obtain Starkel's statement for

Judge McLean, but unable to do so for Judge Henson. The fact is, Axmen knew of

the Starkel statement from the very beginning because Rich Ochsner, former

Missoula police detective and business partner of the Hansons, was involved in the
underlying criminal investigation.' Axmen has never disputed it was aware of the

Starkel statement from the moment it was taken. Still, it did nothing to bring the

statement to light until it lost on summary judgment and hired new lawyers. This

does not make the evidence "new." The evidence must be that "which by due

diligence could not have been discovered [earlier]." Mont. R. Civ. P. 60(b)(2); see

also Fjelstad v. Montana Dept. of Highways, (1994) 267 Mont. 21 1, 220, 883 P.2d

106,111. Axmen has made no such showing.

2. There Was No Manifest Error or Extraordinary
Circumstance.

Axmen's motion for reconsideration was not based upon "manifest error" or

"extraordinary circumstances," but on Axmen's dissatisfaction with Judge Henson's

ruling. See Shields v. Helena School District No. 1, (1997) 284 Mont. 138, 143,943

P.2d 999, 1002. Axmen's arguments did not change and, except for the immaterial

and cumulative Starkel statement, neither did the evidence. Axmen's attempt to

relitigate the case before a new judge, "in lieu of an expensive and time consuming

appeal" (CR 41.5, p. 2), was contrary to the rules.

' In the underlying criminal matter, it was at the hearing to suppress
Ochsner's interview of Kiinbrell that Judge Deschamps offered to recuse himself
because of his close relationship with the Axmen partner, Ochsner. (CR 135.1.)
 In what amounted to an intermediate appeal, A m e n claims Judge Henson's

decision was manifestly wrong in two respects: (1) he failed to cite to the UCC, and

(2) he ignored disputed facts. A m e n fails to mention it did not raise the UCC in

response to Pruyn's motion for summary judgment. (CR 23.) To the extent this was

error, it was Axmen's error. Further, as set forth below, the UCC supports Pruyn's

position.

The undisputed facts relative to Kimbrell's ostensible authority have already

been discussed. Far from "manifestly wrong," Judge Henson was correct in granting

summary judgment to Pruyn.

D. Axmen's Motion Was Denied After 60 Days.

Judge McLean was required to rule on Amen's motion for reconsideration

within 60 days from the date of filing. Mont. R. Civ. P. 60(c), 59(d); see also Estate

ofPruyn v. Axmen Pvopane, Inc., 2008 MT 329,15,346 Mont. 162, 194 P.3d 650.
. .

He did not, and the motion was deemed denied.

A m e n argues, without authority, that the 60-day time limit oilly applies to a

final appealable judgment. (Amen's Brief, p. 3 1.) Though conceding its motion

was brought under Rule 59 and/or 60, Axmen argues the time limits of those rules

are inapplicable. While a district court generally retains jurisdiction over a case until

final judgment, this principle does not obviate the specific requirements of Rules 59
and 60. See, e.g., Johnson v. Eagles Lodge Aerie 3913 (1997), 284 Mont. 474,478,

945 P.2d 62, 64 (60-day time limit is "mandatory and strictly enforced").

E. Judge Henson's Order Was the Law of the Case.

Axlnen argues "Montana law is clear that only decisions rendered by the

Montana Supreme Court are 'law of the case."' (Axmen's Brief, p. 36.) This is

incorrect. As this Court recently stated: "[Wlhen an issue is once judicially

determined, that should be the end of the matter as far as successivejudges sitting in

the same case are concerned." Teamsters Union Local No. 2 v. C.N.H.Acquisitions,

Inc., 2009 MT 9 2 , l 16, Mont. , 204 P.3d 733; see also OldPerson v. Brown

(9th Cir. 2002), 3 12 F.3d 1036, 1039 ("[A] court is ordinarily precluded f?om

reexamining an issue previously decided by the same court, or a higher court, in the

same case." (Emphasis added)).

11. THE DISTRICT COURT ERRED IN GRANTING SUMMARY
JUDGMENT TO AXMEN ON BREACH OF CONTRACT.

A. The District Court Disregarded Undisputed Pacts.

Judge Henson found sufficient undisputed evidence to grant summary

judgment to Pruyn. Judge Deschamps, viewing the same evidence, concluded there

was "no evidence" supporting Pruyn's position. (App. D, p. 12.) In seeking to

justify this remarkable reversal, A m e n disregards evidence contrary to its position
and makes no attempt to address the evidence discussed in Pruyn's brief. Indeed,

Axmen's Statement of Facts cites almost entirely to one document - Guy Hanson's

own self-serving affidavit!

Fundamentally, the notion that Axrnen is entitled to summary judgment is

based on one purported "undisputed fact": "Starkel drafted the Note according to

Pruyn's instructions to create individual liability forKimbrel1 and the Hanson's, not

Axrnen." (Axrnen's Brief, p. 4.) Judge Deschamps similarly ruled that it is "crystal

clear to the Court that Pruyn understood and intended that the Note was to be a

personal responsibility of Kimbrell and the Hansons and specifically not an

obligation of Axrnen." (App. D, p. 12.) This conclusion disregards the testimony of

the individuals who negotiated the loan - Pruyn and Kimbrell - as well as the

testimony of the attorney who drafted the note, Starkel.

Pruyn testified without ambiguity that h e n was the borrower and the

parties intended to bind h e n . (CR 130,44: 15-24; 65:7-11; 8 1:2 1-22.) True,

Pruyn also wanted the personal signatures and guarantees of all owners of A m e n .

(CR 106, p. 102.) A m e n concludes this fact establishes that Axmen, the entity, was

not bound by the contract. But more than one party can be bound by a single

contract. Kimbrell similarly testified that the loan transaction "was not a transaction

that 1 did as an individual, it was something I did . . . on the business's behalf."
(CR 110, Ex. A, 59: 15-23.) Starkel testified to his understanding that Kimbrell and

the Hansons "were signing [the promissory note] in their capacities aspartners of

Axmen Propane." (CR 85, Ex. A, 82:5-7 (emphasis added).) Starkel's own billing

records show the promissory note was an "Axman [sic] agreement" (CR 85, Ex. B.).

Ignoring these facts, Judge Deschamps concluded it was "undisputed" and

"crystal clear" what was intended by Kimbrell and Pruyn, even though contrary to

their own testimony. Despite evidence of Kimbrell's unchecked control over

Axmen's operations and multiple meetings with Pruyn, Judge Deschamps ruled that

Pruyn was "unreasonable" in believing Axmen's president had the capacity to bind

Axmen! Judge Deschamps overlooked indisputable material facts provided by

Pruyn, Kimbrell, and Starkel to come to a conclusion 180 degrees from what Judge

Henson previously held.

B. Axmen Is Liable Under the UCC.

It is unclear how Judge Deschamps applied the UCC, but it makes no

difference. As Axmen acknowledges, even under the UCC the dispositive legal

issue comes down to Montana common law. (Axmen's Brief, p. 8.) The UCC

expressly provides that the signature of a person acting or purporting to act as a

representative is binding on the allegedly represented person or entity "to the same

extent the represented person would be bound if the signature were on a simple
contract." Mont. Code Ann. 5 30-3-403(1). "If the represented person is bound, the

signature of the representative is the 'authorized signature of the represented person'

and the represented person is liable on the instrument, whether or not identified in

the instrument." Id.

Axrnen's discussion of Carelli v. Hall (1996), 279 Mont. 202,205-06,926

P.2d 756, 758-59 misses the mark. Carelli involved a three-person partnership to

operate an elk ranch, and a promissory note that only referred to one of the partners.

Id., 279 Mont. at 205,926 P.2d at 758. The payee of the note sued the named and

un-named partners. Id., 279 Mont. at 206, 926 P.2d at 759. In a decision that hinged

on an interpretation of the UCC before its 1991 amendments, this Court held the

unnamed partners were not liable under the note. Id., 279 Mont. at 21 1, 926 P.2d at

762. However, the Court found that the post-1991 version of the UCC could change

the outcome: "Mnder the 1991 version of the UCC, if Hall [the named partner]

acted or 'purported to act' on behalf of the Game Ranch partnership and Stires [the

un-named partners] in executing the promissory note to Carelli, Stires potentially

could be liable for the debt underlying the note." Id. (emphasis added).

Axrnen's discussion of the UCC is noteworthy for what it omits. Axmen

avoids mention of Section 30-3-406, which relates to a party's "[nlegligence

contributing to forged signature or alteration of instrument," and precludes
Axmen from asserting "the forgery against a person who in good faith pays the

instrument. . . ." Mont. Code Ann. 5 30-3-406. Axrnen also ignores Pruyn's

discussion of Section 30-3-404(1), which states that "[aln unauthorized signature

may be ratified for all purposes of this chapter." Mont. Code Ann. 5 30-3-404(1).

Axmen ratified its president's actions by retaining the benefit of Pruyn's money used

to pay Axmen debt. Id.; see also Carelli, 279 Mont. at 215,926 P.2d at 764.

C. The Par01 Evidence Rule Does Not Apply.

The District Court's ruling is based on par01 evidence. Indeed, the District

Court discussed all manner of extrinsic evidence related to the parties' original intent

and Kimbrell's authority, and even quoted at length from a statement Starkel made to

police that supposedly made it "crystal clear" what the parties intended. (App. D.)

Further, Axmen relies heavily on extrinsic evidence in defense of Pruyn's

contract claim, including its argument that the signatures of two of its three

shareholders were forged. For this reason, Axrnen's discussion of Carrelli is

misplaced. In that case, there was no question of validity of the note, kaud or

illegality, and the note did not contain the purported signatures of every owner of the

represented entity. See Cai-elli,279 Mont. at 21 1, 926 P.2d at 762.

Likewise, as discussed above, Section 30-3-403(1) permits extrinsic evidence

to explain whether a person signing an instrument was doing so in a representative
capacity. See id. While extrinsic evidence was not allowed in Carelli, the 1991

amendments to the UCC were not applied retroactively in the case precisely because

they could have necessitated a different result. See id.

111. THE DISTRICT COURT ERRED IN GRANTING SUMMARY
JUDGMENT TO AXMEN ON UNJUST ENRICHMENT.

Pruyn's money was used to pay Axmen's account at Powderhorn. This is

undisputed. The remaining question is whether Axlnen should be allowed to retain a

windfall at Pruyn's expense.

A. . Pruyn Should Recover In Equity If the Note Does Not Bind Axmen.

''Wnjust enrichment] rests upon the equitable principle that a person shall not

be allowed to enrich himself at the expense of another. It is an obligation created by

law only in the absence of an agreement between the parties." Maxted v. Barrett

(1982), 198 Mont. 81, 87, 643 P.2d 1161, 1164. Axmen argues there is no

agreement between the parties, but also that there can be no relief in equity because

"an express contract governs the obligation." (Axmen's Brief, p. 17.) A m e n

cannot have it both ways. If there is a contract, A m e n owes Pruyn. If there is no

contract, equitable principles mandate repayment to Pruyn.

The crux of Axmen's argument appears to be that, because the note may be

binding as to other parties (i.e., Kimbrell), Pruyn has no claim against Amen. No
authority supports this theory. The case Axlnen cites, Suwco v. Kenyon Noble

Ready-Mix (1983), 204 Mont. 41 1,415,664 P.2d 943,946, stands for the

unreniarkable proposition that an express contract between the parties is fatal to an

implied contract between the sarneparties. The relationship between A m e n and

Pruyn is material. Kimbrell's obligations are irrelevant.

B. Pruyn Did Not Waive His Claim By Accepting Payments.

Axlnen contends Pruyn accepted three payments from Kimbrell and, therefore,

waived his right to recover from Axmen. To prevail under this theory, A m e n must

establish that Pruyn made "a voluntary and intentional relinquishment of a known

right, claim or privilege." VanDyke Construction Co., Inc, v. Stillwater Mining Co.,

2003 MT 279, fi 15,3 17 Mont. 519,78 P.3d 844. Axmen must firther prove that

Pruyn's acceptance of payments was inconsistent with his known right to recover

from Axmen. Id. Finally, h n e n must prove that Pruyn's acceptance of the

payments prejudiced it. Id.

h n e n presented no evidence that Pruyn's acceptance of payinents was

inconsistent with his belief that Kiinbrell represented Axmen. Two of the three

payments Pruyn accepted from Kimbrell occurred in August and September of 2003,

before Pruyn had any reason to question the validity of the promissory note and

Kimbrell's representations to him. The third payment was in April 2004, more than
three years before the District Court determined Kimbrell was acting without

authority.

There is no evidence Pruyn knowingly waived his right to recover from

A m e n or that his acceptance of payments in 2003 and 2004 was inconsistent with

his position in this lawsuit. Moreover, h n e n is unable to demonstrate how Pruyn's

acceptance of payments, reducing Axmen's debt, prejudiced Amen.

C. Pruyn Satisfied the Elements of Unjust Enrichment.

The undisputed facts establish the elements of Pruyn's unjust enrichment

claim. Axlnen acknowledges the existence of the debt in its Powderhorn account.

Axmen does not dispute that Pruyn's money satisfied that debt. Further, the

undisputed facts prove Amen's negligence in allowing the situation to unfold.

While this case is a textbook example of unjust enrichment, Axmen claims its debt at

Powderhorn was not "valid," no benefit was conferred by the retirement of its debt,

and that A m e n was coinpletely innocent in the matter. Axmen's argument is

wrong.

A m e n claims it had no contractual obligation to Powderhorn and would have

refused to pay off its account. But there is no dispute that A m e n profited from

Kimbrell's purchasing propane futures from Powderhorn before. There is no

question Kimbrell had ostensible authority, if not actual authority, to purchase
propane fiom Powderhorn on behalf of h e n . Thus, Axrnen's retroactive limits on

Kimbrell's authority would not affect its obligation to Powderhorn.

A m e n also seems to argue its debt would have disappeared when Powderhorn

filed for bankruptcy. The trustee in bankruptcy would have had something to say

about that.

Finally, A m e n cites to Guy Hanson's self-serving affidavit to claim the

Powderhorn obligation belonged to "KGD" - three individuals consisting of

Axmen's president Kimbrell, h e n ' s employee Shawn Diehl, and Axmen's banker

John Giuliani. (Axrnen's Brief, pp. 2-3.) But the debt to Powderhorn was in

Axmen's account, not the account of "KGD." Not surprisingly, Axmen does not

address Giuliani's statement that he had been told any proceeds would go toward

decreasing Axmen's debt at Community Bank, just as the first $75,000 in profit was

used. (CR 22, Ex. C.) If Axmen is so opposed to these types of transactions, it

should return the profits it made on earlier transactions.

Axmen allowed Kimbrell to run the business, purchase propane, incur debt

and speak on behalf of the company with virtually no oversight or internal controls.

Axmen accepted the fruits of Kimbrell's efforts for years without question but when

a transaction went south, it seeks to impose the loss on Pruyn. That is wrong.
 D. The UCC Does Not Preclude Pruyn's Claim In Equity.

Contrary to Amen's suggestion, this Court has applied the doctrine of unjust

enrichment in cases involving promissory notes. See, e.g., In re Marriage of Rock

(1993), 257 Mont. 476, 850 P.2d 296. There is no authority for the sweeping UCC

preemption Axmen advocates.

h e n ' s own cases underscore the precarious nature of its theory. Daniels-

Sheridan Federal Credit Union v. Bellanger, 2001 MT 235, 307 Mont. 22, 36 P.3d

397 and Rudio v. Yellowstone Merchandising Corp. (1982), 200 Mont. 537, 652 P.2d

1163 both addressed possible displacements of Article 9 priority rules -the possible

assertion of an equitable claim within an established hierarchy of secured and

unsecured claims. Id., 7 39. Those cases have no application here.

IV. THE DISTRICT COURT ABUSED ITS DISCRETION IN GRANTING
AXMEN ITS ATTORNEY FEES.

A. The Equitable Exception Does Not Apply.

h e n claims Pruyn's lawsuit is frivolous because "Pi-uyn did not intend

Axmen to be obligated" when his attorney (who also happened to be the Hansons'

attorney) drafted the promissory note. There is a wealth of evidence showing both

Pruyn and Kimbrell sought to bind Axmen. That evidence has been discussed above.

Suffice it to say that no matter how many times Axmen repeats its erroneous
statement of an "undisputed fact," h e n ' s own ipse dixit cannot negate the record

it has chosen to ignore.

Further, even assuming arguendo that Pruyn's contract claim - a claim Judge

Henson found sufficiently meritorious to grant summary judgment - was "utterly

without merit or frivolous," this disregards Pruyn's alternative theory of recovery,

unjust enrichment. See Tanner v. Dreanz Island, Inc. (1996), 275 Mont. 414,429,

913 P.2d 641, 65 1. In sum, the District Court's determination that Pruyn's lawsuit

was frivolous, "and perhaps even malicious," was an abuse of discretion. (App. G,

B. The Court Should Give Effect to Montana's Statutes, Not
Washington's or California's.

h e n argues, for the first time on appeal, that the Court should create a new

exception to the American Rule. The new exception would impose the statutory

sules of other jurisdictions and allow an award of fees under contract to those who

are not parties to the contract. (See Axmen's Brief, pp. 27-29.)

Amen's argument is new. Axmen now acknowledges Mont. Code Ann.

5 28-3-704 does not allow an award of fees to a non-party to a contract, so A m e n
advocates a new judicially-created exception. (Amen's Brief, p. 27.) In the District

Court, however, A m e n argued that Mont. Code Ann. 5 28-3-704 mandated an

award of fees because it provides a "reciprocal remedy." (CR 140, 145.) A m e n ' s

18
new argument on appeal should be rejected. See, e.g., Bekkedahl v. McKittrick,

2002 MT 250,lY 31-32,312 Mont. 156,58 P.3d 175.

In any event, Axmen's theory lacks merit. If h e n is not a party to or bound

by the promissory note, it may not seek enforcement ofany provision contained

therein. See Mont. Code Ann. 8 28-3-704. While Axmen relies on statutes from

Washington and Califomia, those statutes expressly contemplate the recovery of fees

by a non-party. See RCW 4.84.330 and Cal. Civ. Code 1717(a). The Montana

statute, by contrast, expressly states that it is only "parties to the contract or

obligation" who may recover fees under the contract. Mont. Code Ann. 5 28-3-704.

V. AXMEN'S EX PARTE COMMUNICATIONS VIOLATED PRUYN'S
DUE PROCESS RIGHTS.

h e n declines to explain its exparte contacts to the court, choosing instead

expressions of indignation. It was Axmen, however, that attempted to hide by

redaction its exparte contacts from counsel's billing records. It was Axmen that

sent a "Personal and Confidential" letter to Judge McLean, arguing the merits of the

case. Yet Axmen criticizes Pruyn for seeking a real explanation. But it is a real

explanation, at the very least, to which Pruyn is entitled.

This Court has been clear - "Justice must satisfy the appearance of justice."

Washington v. Montana Mining Properties, Inc. (1990), 243 Mont. 509, 516, 795

P.2d 460, 464. In other words, although the Constitution requires an unbiased judge,

19
impartiality itself is not enough. Judges must maintain the appearance of

impartiality, and it is counsel's obligation to act at all times to assist the court in that

endeavor. In Washington,the Court quoted the "eloquent" Lord Hewart for this

critically important proposition:

. . . a long line of cases shows that it is not merely of some importance
but is of fundamental importance that justice should not only be done,
but should manifestly and undoubtedly be seen to be done. Nothing is
to be done which creates even a suspicion that there has been an
improper interference with the course of justice.

Id. (quoting Rex v. Sussex Justices (1924), 1 K.B. 256,259).

Though Axmen attempts to frame the issue as an attack on distinguished

public servants, the acts detailed in counsel's billing records strike at the very heart

of public confidence in lawyers and the judiciary. This is not a situation to be

explained away by affidavits from judges and law clerks. Even in disqualification

proceedings -which this is not - it is irrelevant whether the judge believes himself

to be impartial. See Richard E. Flamm, Judicial DisqualiJication, 8 5.6.4, p. 164

(1996). Judge McLean, in his affidavit, states "I regret and apologize for what may

appear to be an involvement in the case." (McLean Aff., 1 19.) But the rules against

exparte contact exist so judicial affidavits assuring the public and the parties of

impartiality and proper conduct are never necessary.
 This Court stated it plainly. "The people's confidence in the ability of the

courts to administer justice must not be diminished. A state ruled by law cannot

afford any perceived notion that justice is not being served by the judiciary."

Washington, 243 Mont. 5 16, 795 P.2d 464. That issue is paramount.

Axrnen's briefing and attached affidavits raise more questions than answers,

and Amen's brief only begs the question: Why did it decline the opportunity to

address the specifics of its exparte contacts? Why did counsel redact the evidence

of contacts if the contacts were appropriate? This is particularly important where the

initially-redacted information in Datsopoulos, MacDonald & Lind's ("DML") billing

records, compared to the District Court docket, reveals substantive rulings within

days of the initiation of exparte contacts by counsel:

conference with court personnel. Draft
Renewed Motion for Relief From Opinion
and Order. Legal research regarding those

(See App. X.)
21
 On July 6,2006, the Court issued an Order "over-tum[inglWJudge Henson's

Order granting summary judgment in Pruyn's favor. (App. B, p. 5.)

Six months later, while Pruyn's Motion to Set Aside Judge McLean's Order

was pending before Judge Deschsunps, DML's billing records reflect:

1/22/07 Dave Cotner Meeting with Judge McLean. Telephone 0.30
conference with Judge McLean.
1/22/07 Dave Cotner Draft letter to Judge McLean regarding 0.50
timeline of ruling.

(See App. K.) The letter referred to appears to be the "personal and confidential"

letter from Mr. Cotner to Judge McLean. (App. P.)

On January 24,2007, Judge Deschamps signed the Order refusing to set aside

Judge McLean's Order. (App. C.)

Finally, while Axmen's Motion for Summary Judgment was pending, DML's

billing records reflect the following:

711 1/07 Trent ... Research .
Phone call 4.30
Baker with court regarding decision and
conference with Dave regarding same.
7112/07 Dave Meeting with Court officials. 1.25
Cotner
7112/07 SEM Prepare for meeting - additional 0.50
briefs binder.

(See App. K.)
 On July 23,2007, Judge Descharnps granted Axmen's Motion for Summary

Judgment. (App. D.)

Axmen argues "[t]he [Judges' and clerk's] affidavits speak for themselves and

make 'known' what Pruyn's attomeys were unwilling to discover prior to filing their

appellate brief. . . ." (Axmen's Brief, p. 41.) The affidavits do nothing of the kind,

and explanation by Amen's attomeys is hopelessly vague. For example, when

asked to explain a 1.25-hour meeting with "Court officials" on July 12,2007, for

which Axmen's counsel prepared an "additional briefs binder," Axmen's counsel

responded simply that he has "no specific recollection." (App. M.)

Axmen relies on an unsupported conclusory statement "there has been no

violation of Pruyn's due process rights." (Axmen's Brief, p. 41.) Pruyn is not

obligated to take Axmen's word for it. The evidence demonstrates at least some of.

the exparte colnlnunications instigated by Axmen's counsel involved substantive

argument regarding the case to which Pruyn was given no notice or opportunity to

respond. These contacts constituted a violation of Pruyn's due process rights.

CONCLUSION

Piuyn respectfully requests that Judge Henson's March 20,2006 order be

reinstated and affinned. The case should be remanded to determine Pruyn's

attorneys' fees and costs. If the Court determines the case must be remanded for
further proceedings, Pruyn respectfully requests appointment of a new judge given

the issues raised on this appeal.

Dated this b& day of May, 2009.

BOONE KARLBERG P.C.

Scott M. Stearns
Thomas J. Leonard
Attorneys for Appellant
 CERTIFICATE OF COMPLIANCE
-

Pursuant to Rule 11(4)(d) of the Montana Rules of Appellate Procedure, the

undersigned hereby certifies that the foregoing REPLY BRIEF OF APPELLANT is

proportionately spaced, printed with the typeface Times New Roman, 14 point font,

is double-spaced, and contains approximately 4,976 words, excluding the Certificate

of Compliance and Certificate of Service.

Dated this day of May, 2009.

BOONE KARLBERG P.C.

Thomas J. Leonard
Attorneysfor Appellanl
 CERTIFICATE OF SERVICE

1hereby certify that I have filed a true and accurate copy of the foregoing

REPLY BRIEF OF APPELLANT with the Clerk of the Montana Supreme Court;

and that I have served true and accurate copies of the foregoing REPLY BRIEF OF

APPELLANT upon each attorney of record and each party not represented by an

attorney as follows:

Edward Kimbrell
1410 Pinnacle Falls
San Antonio, TX 78260

David B. Cotner
Trent N. Baker
DATSOPOULOS, MACDONALD LIND
&
201 West Main, Suite 201
Missoula, MT 59802
Attorneys for Appellee hnzen Propane, Inc.

Dated this bKday of May, 2009.
BOONE KARLBERG P.C.

Thomas J. Leonard
Attorneys for Appellalzt