No. 86-431
IN THE SUPREME COURT OF THE STATE OF MONTANA
1987
FIRST BANK, (N.A.) WESTERN MONTANA,
MISSOULA, a National Banking Assoc.,
and DAN SIMPKINS,
Relators,
-VS-
DISTRICT COURT FOR THE FOURTH JUDICIAL
DISTRICT OF THE STATE OF MONTANA, in
and for the County of Missoula and the
Hon. Douglas Harkin, Presiding Judge.
Respondents.
ORIGINAL PROCEEDING :
COUNSEL OF RECORD:
For Relators:
Garlington, Lohn & Robinson; George Goodrich argued,
Missoula, Montana
For Respondent:
Small, Hatch, Doubek & Pyfer; John Doubek argued,
Helena, Montana
Submitted: March 15, 1 9 8 7
Decided: May 11, 1 9 8 7
Filed: !JAY 11. 1987
Clerk
Mr. Justice John C. Sheehy delivered the Opinion of the
Court.
This is an original proceeding. Applicants seek a writ
of supervisory control vacating the Fourth Judicial
District's denial of First Bank's motion to dismiss an action
filed by Bessie, Lee and Rick Stott and All West Equipment,
plaintiffs in the court below. The Stotts filed their action
alleging fraud, misrepresentation and breach of the duty of
good faith and fair dealing against First Bank. First Bank
filed a motion to dismiss on the grounds that the Stotts'
action was barred by the doctrine of - judicata, the
res
compulsory counterclaim rule, and the statute of limitations.
The District Court denied First Bank's motion to dismiss. We
grant applicant's request for supervisory control, vacate the
order denying the motion to dismiss and hereby enter an order
granting the motion to dismiss.
In June, 1982, First Rank Western Montana, Missoula,
loaned to plaintiffs All West Equipment and Lee Stott
(individually) $68,732.30, due in September, 1982. On the
same day, First Bank loaned $21,566.63 to All West Equipment.
The second loan was due December 15, 1982. The Stotts
defaulted on both of these notes. Bessie and Lee Stott were
guarantors of the debts of All West Equipment. In their
complaint, the Stotts claim that Rick Stott was also an owner
of All West Equipment. Possession of the collateral was
turned over to First Bank, by a written instrument dated
October 20, 1982 and signed by Rick Stott on behalf of All
West Equipment. The collateral was eventually sold by First
Bank.
On January 7, 1983, First Bank filed a complaint, in the
Fourth Judicial District Court, against All West Equipment
and Lee and Bessie Stott, to collect deficiencies owing after
sale of the collateral under the promissory notes and
guaranty. The Stotts and All West, through another attorney
than their present counsel, filed an answer which included
the two following affirmative defenses:
First Affirmative Defense
As and for a separate and affirmative defense to
Count One of Plaintiff's complaint, said defendants
allege that plaintiff sold or liquidated certain
property of defendants as collateral, not in
accordance with the requirements of Section
30-9-504 (1) and 30-9-504 (3) MCA and in this respect
allege that plaintiff conducted the sale not in a
commercially reasonably manner considering the time
and place of sale, the type of equipment being
sold, the lack of preparation of the equipment
before the sale, the sale of the equipment at
amounts substantially below market value. That the
plaintiff's agent led defendants to believe that by
not opposing the sale the defendants would not be
liable for any deficiency and defendants relying on
that promise did not at that time oppose the manner
of the sale.
Second Affirmative Defense
As and for a second and affirmative defense to
Count Two of Plaintiff's complaint defendant
alleges that plaintiff sold the collateral not in a
commercially reasonable manner considering lack of
notice of sale, time and place of sale, sale to
Plaintiff at less than market value, and the
promise by Plaintiff's agent that defendant would
be "protected" from any deficiency.
The matters between First Bank and All West and the
Stotts were settled without trial and a stipulation and order
of dismissal with prejudice was filed on January 4, 1985.
Ten months later, on October 1985, the Stotts and All
West Equipment, with different counsel, filed a complaint in
the Fourth Judicial District against First Bank alleging
fraud, misrepresentation, and breach of the duty of good
faith and fair dealing on the part of First Bank in making
the loans to them and in obtaining their signature for the
release of collateral.
The Stotts also alleged that the collateral was sold
without commercially reasonable preparation and that the bank
violated the requirements set out in S 30-9-504, MCA
(concerning the secured party's right to dispose of
collateral after default.)
First Bank responded by filing a motion to dismiss on
the grounds that the Stotts' action was barred by the
doctrine of - judicata, the compulsory counterclaim rule
res
and the statute of limitations. By order dated March 19,
1986, the District Court denied First Bank's Motion.
In doing so, the District Court hinted that it saw a
possible additional unresolved issue, suggesting that the
order of dismissal with prejudice might have been an intended
consent judgment. The court explained:
Because of the limited scope of the court's
discretion when ruling on a motion to dismiss,
construing the complaint in the light most
favorable to Plaintiffs would require that there
was an express or implied understanding that an
action such as the present action was exempt from
the judgment in the prior lawsuit.
First Bank disputes this holding, raising four issues:
1. Whether res judicata bars the Stotts' claims.
2. Whether the claims the Stotts' have against First
Bank were compulsory counterclaims in a prior action and are
barred.
3. Whether the District Court erred in concluding that
the prior action was resolved by a consent judgment.
4. Whether the statute of limitations bars the Stotts'
claims.
Notably absent from discussion in the parties' briefs is
the issue of this Court's jurisdiction for granting
supervisory control on an interlocutory order. No Rule 54
certification has been obtained. There is simply a denial of
a motion to dismiss. As such, it is not an appealable final
order within the terms of Rule 1 of the Montana Rules of
Appellate Procedure. This Court will nonetheless accept
jurisdiction to protect First Bank from participating in
needless litigation, a purpose for which a writ of
supervisory control is intended: " ... it is in the nature
of a summary appeal--a shortcut--to control the course of
litigation in the trial court ... and may be employed to
prevent extended and needless litigation." State ex rel.
Buttrey Foods, Inc. v. District Court (1966), 148 Mont. 350,
354, 420 P.2d 845, 847. State ex rel. Regis v. District
Court (1936), 102 Mont. 74, 77, 55 P.2d 1295, 1297.
The bank's central argument in this application is that
the Stotts are barred from bringing any action against it
regarding the promissory notes and guaranty because the
Stotts' claim is - judicata. The bank explains that all
res
the issues raised by the Stotts in their action against the
bank were raised in the Stotts' affirmative defenses in the
original default action brought by the bank. The bank claims
that the Stotts explicitly raised the following issues by
their affirmative defenses:
1. That the sale and liquidation of collateral violated
§ 30-9-504, MCA, concerning the secured party's right to
dispose of collateral after default.
2. That the sale and liquidation of collateral was not
conducted in a commercially reasonable manner.
3. That the bank and its agent, Dan Simpkins,
misrepresented facts when the Stotts gave their consent
for the sale of the collateral.
4. That the Stotts relied on the alleged
misrepresentations in consenting to the sale of the
collateral.
5. That the bank and its agents promised the Stotts
that they would be protected from any deficiency.
6. That the collateral was sold for less than market.
value.
The bank maintains that these are the same allegations which
the Stotts' are pleading in their present action, with the
exception that in the second action, the Stotts' allege that
the bank persuaded them to place their business with it.
The doctrine of - judicata is firmly established to
res
stand for the proposition that a party should not be able t.o
relitigate a matter that that party has already had the
opportunity to litigate, and the public policy that there
must be some end to litigation. Wellman v. Wellman (1982),
198 Mont. 42, 643 P.2d 573.
Once there has been 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 he attacked piecemeal
and without end. (Citation omitted.)
Wellman, 198 Mont at 45-46, 643 P.2d at 575. See Brault v.
Smith (Mont. 1984), 679 P.2d 236, 41 St.Rep. 527
The Stotts were given the opportunity to litigate the
issues raised in their complaint, but agreed to stipulate for
a dismissal with prejudice. The effect of a stipulation is
the same as a judgment on the merits. Accordingly, a
dismissal with prejudice is res judicata as to every issue
raised in the pleadings. City of Havre v. District Court
(1980), 187 Mont. 181, 609 P.2d 275; cert.denied Boucher v.
City of Havre (1980), 449 U.S. 875, 101 S.Ct. 219, 66 L.Ed.2d
97; Schillinger v. Brewer (Mont. 1985), 697 P.2d 919, 42
St.Rep. 408.
This Court has summarized the necessary criteria for
applying the doctrine of res judicata as follows:
-
... four criteria exist in Montana law which
must be met before a plea of res judicata can be
sustained. These criteria are: (1) the parties
or their privies must he the same; (2) the
subject matter of the action must be the
same; (3) the issues must be the same, and must
relate to the same subject matter; and (4) the
capacities of the persons must be the same in
reference to the subject matter and to the issues
between them.
Smith v. County of Musselshell (1970), 155 Mont. 376, 378,
472 P.2d 878, 880. See also S.W. Company v. John Wight, Inc.
(1978), 179 Mont. 392, 587 P.2d 348 and Fox v. 7L Bar Ranch
Co. (1982), 198 Mont. 201, 645 P.2d 929.
Each of the four criteria is met in this case. The
Stotts, of course, assert that the opposite is true, but
present no argument to support the assertion other than to
contend that the parties in the two actions are not the same.
Neither their son Rick nor Dan Simpkins, the bank officer,
were named in the first action, they assert. The bank
responds, and we agree, that while Rick Stott was not named
in the first action, he was in privity with the parties, as
he had signed the agreement for voluntary possession of the
collateral for All West Equipment. Further, Dan Simpkins was
also in privity for purposes of the original action, as he
was an officer and agent of the bank. As used here, privity
implies a connection, mutuality of will or an interaction of
the parties. State ex rel. Buttrey Foods, Inc. v. District
Court (1966), 148 Mont at 353, 420 P.2d at 847. Clearly,
this is established for the purposes of meeting the first
criterion.
We see no difficulty in reaching the same conclusion
about the remaining three criteria. The subject matter of
the answer and affirmative defenses are the same as those
raised in the present action, i.e. , First Bank's conduct in
obtaining the release and sale of the collateral. The issues
raised by the Stotts in their answer to the bank's collection
suit are the same as the issues raised in the present action,
although the Stotts' complaint sets forth the factual
allegations in more detail. Finally, the capacities of the
people and parties involved have not changed in the way they
relate to the subject matter and issues between them. The
criteria for application of res judicata are fully satisfied.
The next issue raised is whether the Stotts' second
action is also barred by Rule 13(a) of M.R.Civ.P. concerning
compulsory counterclaims. Rule 13 (a) provides:
A pleading shall state as a counterclaim any claim
which at the time of serving the pleading the
pleader has against any opposing party, if it
arises out of the transaction or occurrence that is
the subject matter of the opposing party's claim
and does not require for its adjudication the
presence of third parties of whom the court cannot
acquire jurisdiction . . ..
The purpose of this statute is to avoid multiplicity of suits
by requiring the parties to adjust in one action their
various differences growing out of any given transaction.
Fredrichsen v. Cobb (1929), 84 Mont. 238, 275 P. 267. his
insures that only one judicial proceeding is required to
settle all matters determinable by the facts or law and to
bring all logically related claims into a single litigation.
Julian v. Mattson (Mont. 1985), 710 P.2d 707, 42 St.Rep.
1908.
Since a claim which "arises out of the transaction or
occurrence that is the subject matter of the opposing party's
claim" must be pleaded or is barred, it is important to
understand what the quoted phrase means. The United States
Supreme Court defined "transaction" as follows:
'Transaction1 is a word of flexible meaning. It
may comprehend a series of many occurrence,
depending not so much upon the immediateness of
their connection as upon their logical
relationship . . . It is the one circumstance
without which neither party would have found it
necessary to seek relief. Essential facts alleged
by appellant enter into and constitute in part the
cause of action set forth in the counterclaim.
That they are not precisely identical, or that the
counterclaim embraces additional
allegations ... does not matter. To hold
otherwise would be to rob this branch of the rule
of all serviceable meaning, since the facts relied
upon by the plaintiff rarely, if ever, are, in all
particulars, the same as those constituting the
defendant's counterclaim.
Moore v. New York Cotton Exchange (1926), 270 U.S. 593, 610,
46 S.Ct. 367, 371, 70 L.Ed. 750, 757; Julian v. Mattson,
supra.
Rule 13(a) was adopted in this state in 1961 on the same
basis as the federal Rules of Civil Procedure (5 12, Ch. 13,
Laws of Montana (1961)). Long before, however, under
statutes, we recognized that a defendant who failed to raise
a counterclaim to a complaint could not thereafter maintain a
second action against the plaintiff. Frederichsen v. Cobb
(1929), 84 Mont. 238, 275 P. 267.
In response to the bank's initial action, the Stotts'
affirmative defenses alleged violation of S 30-9-504, MCA,
misrepresentation on the part of the bank's agent that
induced the Stotts to give their consent for the sale of
collateral, "promise by plaintiff's [bank's] agent that
defendant [Stotts] would be 'protected' from any deficiency,"
and sale of the collateral as a result of these wrong doings
for less than its market value. In their second action, the
Stotts allege that the acts of First Rank were fraudulent,
deceitful, wrongful, careless, reckless, wanton and
malicious. They allege fraud and misrepresentation on the
part of the bank in making the loans and in obtaining their
signature to release the collateral for sale. They also
allege violation of S 30-9-504, MCA. It is clear to this
Court that the Stotts' answer and affirmative defenses cover
the same ground as that addressed in their complaint. Their
answer and affirmative defenses indicate that they had
knowledge of all the facts necessary to raise the issues now
in their complaint as compulsory counterclaims in the bank's
initial action.
While it is true that the Stotts' complaint offers
greater detail in allegations, the factual history of the
complaint is the same as the history alluded to in the
affirmative defenses. The issues raised are the same. They
both arise out of the same transaction. There is a logical
relationship between the bank's foreclosure complaint and the
Stotts' answer, affirmative defense and complaint alleging
fraud, misrepresentation, bad faith and violations of 5
30-9-504, MCA. "That they are not precisely identical or
that the counterclaim embraces additional
allegation .. . does not matter," the U.S. Supreme Court
held in Moore.
We can only conclude that the Stotts' complaint is
barred because it arose from the same transaction alleged in
the bank's complaint. The claims of creditor misconduct were
compulsory counterclaims in the first action. Hence, the
effect is the same as our finding that the Statts' complaint
is res judicata.
The District Court did not decide whether the Stotts'
claims were compulsory counterclaims in the collection suit.
Rather, the District Court concluded that the parties had
resolved the dispute by a consent judgment (even though
another judge called it an Order of Dismissal With
Prejudice). Hence the District Court ruled that the Stotts'
right to bring an action on the counterclaim was not barred
because the parties reached a judgment by consent.
A consent judgment is "a judgment, the provision and
terms of which are settled and agreed to by the parties to
the action." Black's Law Dictionary (5th ed.) at 436. A
judgment by consent or stipulation of the parties is
construed as a contract between them embodying the terms of
the judgment. It operates to end all controversy between the
parties, within the scope of the judgment.
The Stotts cite 2 A.L.R.2d 514 for their position that
the general rules of - judicata
res do not apply
indiscriminately to consent judgments.
While we agree that this is true, we must point out that
nothing in the record or in the order of dismissal with
prejudice indicates that a consent judgment was intended. As
we noted, a judgment by consent is contractual in nature and
therefore it should be construed as a written contract. In
other words, the meaning of the consent judgment is to be
gathered from the terms of the contract and the judgment
should not be extended beyond the clear import of the terms.
The order of dismissal with prejudice, submitted by
First Bank stated:
ORDER
PURSUANT TO WRITTEN STIPULATION by and between
Plaintiff, FIRST BANK (N.A.) WESTERN MONTANA
MISSOULA, and Defendants ALL WEST EQUIPMENT, LEE
STOTT and BESSIE STOTT, through their respective
counsel, that the above entitled action has been
fully and finally compromised and settled upon the
merits.
IT IS HEREBY ORDERED, that the above entitled
action be, and the same is, hereby dismissed, with
prejudice, each party to bear its own costs.
DATED this 4th day of January, 1985.
(s/ James B. Wheelis
(Emphasis added.)
The Stotts assert that it was the bank's duty to specify
in its stipulation the issues it believed were finally
resolved, and state the specific extent it believed future
relitigation was precluded. They argue that if the bank had
specifically limited relitigation in the stipulation, they
would not have agreed to the stipulation. Hence they charge
that the bank, in order to gain the advantage, fraudulently
concealed its intentions to preclude future litigation by
writing the stipulation in such a way as to prevent the
Stotts from recognizing they were signing away their rights
to further legal action.
The Stotts cite no evidence or authority supporting
their assertion. Further, the difference between an order of
dismissal with prejudice, the equivalent of a final judgment
on the merits, and a consent judgment is clear. It is not
reasonable to assume that the District Court confused them.
Since we determine that the Stotts' cause of action is
barred, there is no need to discuss the issue of the statute
of limitations. As for the Stotts' argument that their
allegations included negligence, bad faith, and "other
torts," our ruling that these were compulsory counterclaims
precludes applying the statute of limitations to them.
Accordingly, we grant a writ of supervisory control,
which this Opinion shall be and constitute. The cause is
remanded to the District Court with directions to dismiss the
complaint.
-.\