No. 88-239
IN THE STJPREME COURT OF THE STATE OF MONTANA
1988
LARRY STERRETT and GLORIA STERRETT,
Plaintiffs and Appellants,
-vs-
MILK RIVER PRODUCTION CREDIT ASSOCIATION,
et al.,
Defendants and Respondents.
APPEAL FROM: District Court of the Seventeenth Judicial District,
In and for the County of Blaine,
The Honorable Leonard Langen, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Theodore R . Thompson argued, Havre, Montana
For Respondent:
Martin S King argued, Worden, Thane & Haines, Missoula,
Montana
John Paul; Alexander & Baucus, Great Falls, Montana
Submitted: September 22, 1988
November 3, 1988
--
Clerk
Mr. Justice R. C. McDonough delivered the Opinion of the
Court.
This appeal from the Seventeenth Judicial District, in
and for the County of Blaine, involves Larry and Gloria
Sterrett's claim in tort against the Federal Intermediate
Credit Bank of Spokane (FICBS). We affirm.
Sterretts want damages from FICBS based on the alleged
misrepresentations of Sid Boe, an employee of the Milk River
Production Credit Association (MRPCA). The District Court
granted FICBS's motion for summary judgment concluding that
no agency relationship existed between MRPCA and FICBS, and
thus FICBS could not be vicariously liable for the alleged
misrepresentations of MRPCA's employee Boe. We affirm
because we find no statutory, express, or implied authority
to Roe from FICBS which would bind FICBS for Boe's actions.
The relevant facts are as follows: Sterretts entered an
agreement with Clay McCartney in April of 1980, which
provided that Sterretts would farm McCartney's land. Sid
Boe, employee of MRPCA, set up the financing for farming
McCartney's land. From 1980 to 1982, Sterretts borrowed from
MRPCA for operating expenses and equipment to farm the land,
and McCartney borrowed from MRPCA to pay Sterretts for the
farming. During these years McCartney co-signed the note
obligating Sterretts. In 1983, McCartney did not co-sign for
Sterretts' note, and Sterretts' personal property secured the
loan.
Sterretts farmed McCartney's land in 1983, and when they
billed McCartney for the farming, McCartney informed them
that he had been unable to obtain the loan from MRPCA to pay
Sterretts. Sterretts have alleged in this action that they
relied on the representations of Sid Boe that McCartney would
receive the loan when they farmed the land in 1983.
Sterretts present the following issues for review:
(1) Whether the District Court failed to recognize that
issues of agency were not specifically pleaded by plaintiffs
in their complaint?
(2) Whether FICBS failed to properly raise lack of
agency as an affirmative defense in its answer to the
complaint?
( 3 ) Whether issues of agency are susceptible to summary
judgment?
(4) Whether the Federal District Court's decision on
agency provides the law of the case?
I.
Sterretts argument on the first issue is that they
specifically pleaded active negligence on the part of FICBS,
and that the lower court erred in not recognizing discovery
facts raising the question of FICBS's active negligence. The
facts supporting this argument grow from supervisory duties
exercised by FICBS over MRPCA. Sterretts point out that
these duties include: pre-approving loans, controlling
internal operations, providing training for employees,
billing for supervisory and examination expenses, approving
the board of directors, setting salary ranges, approving and
setting the salary of the president, and establishing
performance rating guidelines for salary adjustments and
salary ranges. Sterretts also allege that FICBS paid Sid
Boe's salary, and thus Sid Boe acted as FICBS's agent.
FICBS responds that their duties by federal statute
include supervision of PCA operations. 12 U.S.C. S 2072(15)
(1982). Under federal case law, according to FICBS, the
regulatory function exercised by FICBS over MRPCA creates no
agency relationship. FICBS also argues that under federal
law the separate corporate nature of the two entities under
their enabling statutes mandates the conclusion that no
agency exists. FICBS also argues that unless MRPCA's
employee Boe was FICBS1s agent, there can be no liability on
the part of FICBS.
Sterretts also cite 12 U.S.C. S 2072(15) (1982), as the
statute authorizing the supervision which allegedly gives
rise to the agency relationship. The statute authorizes
supervision by Federal Intermediate Credit Ranks over
Production Credit Associations to:
Approve the salary scale of the officers and
employees of the association and the appointment
and compensation of the chief executive officer
thereof and supervise the exercise by the
production credit associations of the functions
vested in or delegated to them.
12 U.S.C. 2072(15) (1982). An identical statute enables
Federal Land Bank supervision over Federal Land Rank
Associations to:
Approve the salary scale of the officers and
employees of the Federa,-land bank associations and
the appointment and compensation of the chief
executive officer thereof and supervise the
exercise by such associations of the functions
vested in or delegated to them.
12 U.S.C. 2012(13) (1982). Except for the entities
involved, the statutes are identical. The Fifth Circuit
Court of Appeals in Federal Deposit Insurance Corp. T ~ .
Langley (1986), 792 F.2d 547, interpreted 12 U.S.C. S
2012(13) (1982), to determine if the supervision exercised by
the Federal Land Banks over the Federal Land Bank
Associations created a principal-agency relationship between
the two entities. The plaintiff in Langley alleged that the
supervision exercised pursuant to the statute created the
relationship between the Federal Land Bank Association of
Opelousas and the Federal Land Bank of Jackson (formerly the
Federal Land Bank of New Orleans). The Court rejected the
argument holding that the separate corporate structures and
functions of the organizations mandated a finding that no
agency relationship arose from the supervision. Langley, 7 9 2
F.2d at 5 4 9 . The entities at issue here are similarly
separate in their organization and function. See 1 2 U.S.C.
5 s 2 0 7 1 to- 2 0 9 4 ( 1 9 8 2 ) . And, the supervisory duties alleged
to create the agency relationship arise from an identical
statute. Thus, Langley provides strong support for FICBS's
argument.
However, Sterretts attempt to distinguish Langley. They
claim that Langley rests on the fact that the plaintiffs in
Langley sued the wrong Federal Land Bank. ~ccording to
Sterretts, the Federal Land Bank of Jackson did not
participate directly in the loan obligation at issue, and
thus no agency existed. Sterretts misread the case.
There were two Federal Land Bank Associations in
Langley, not two Federal Land Banks. The facts show that the
Federal Land Bank of Jackson approved and disbursed the loan
at issue, and that the Federal Land Bank of Jackson also sued
to collect the debt. Langley, 7 9 2 F.2d at 5 4 7 - 4 8 . The
confusion in Langley relates to which Federal Land Bank
Association was involved in the loan. The plaintiffs in
Langley alleged that the president of the Federal Land Bank
Association of Opelousas defrauded them, while the undisputed
facts showed that the Federal Land Bank Association of Baton
Rouge processed their loan application. The effect of this
flaw in the claim lead the Court to comment first on the
supervisory duties of the Federal Land Bank of Jackson, and
then on the inconsistent allegations as follows:
the Langleys fail to demonstrate how such a
regulatory function converts an officer of an
association (which was not even responsible for the
loan application) into an agent of the FLBJ
[Federal Land Bank of Jackson].
Langley, 792 F.2d at 549. The Court's analysis of the
statutory relationship between the two entities provides the
main thrust of the opinion. We agree with Langley that
supervision exercised according to federal statute by FICRS
over MRPCA did not create an agency relationship.
Sterretts offer no facts demonstrating any activity by
FICBS in the loan outside FICBS's supervisory duties which
would amount to an actual agency, or active negligence.
There is also a lack of facts showing any ostensible agency.
Thus, we agree with the District Court that Sterretts'
argument depends on the creation of an agency under federal
law, and that no such agency exists.
11.
Sterretts argue that lack of agency must be raised as an
affirmative defense under Rule 8 (c), M.R.Civ.P., and that
FICBS cannot now claim the defense because it failed to raise
the issue when it answered Sterretts' complaint. Lack of
agency is not explicitly denominated as an affirmative
defense under Rule 8(c). However, Sterretts claim that lack
of agency should be included under language in the Rule which
mandates that a defendant affirmatively plead,"... any other
matter constituting an avoidance or affirmative defense ...".
Rule 8(c), M.R.Civ.P. Sterretts cite no cases to support
this position. FICBS responds that lack of agency is not an
affirmative defense, and that its general denial of the
allegation that Sid Boe acted as its agent was sufficient for
raising agency as an issue.
In contrast to affirmative defenses under Rule 8(c!,
M.R.Civ.P., negative defenses are pleaded according to Rule
8(b), M.R.Civ.P. Rule 8(b):
is concerned with negative defenses--those that
controvert the adversary's claim. Rule 8(c), on
the other hand, is concerned with affirmative
defenses--the pleading of matter that is not within
the claimant's prima facie case.
2A J. Moore, Moore's Federal Practice S 8.27 (2d ed. 1982).
The issue here may be framed as whether lack of agency is a
negative or an affirmative defense.
Facing a similar claim under ~ u l e8 (c), F.R.Civ.P., in
Porto v. Peden (W.D. Pa.. 1964), 233 F.Supp. 1 7 8 , the Court
stated:
The specific denial of agency warned plaintiff that
he must prove agency as part of his prima facie
case; such a denial is a negative defense,
contradistinguished from an affirmative defense.
Porto, 233 F.Supp. at 180. We agree with Porto's conclusion
that lack of agency constitutes a negative defense, and hold
that FICBS's general denial of agency complies with the
applicable requirements under Rule 8 (ID) , M. R. Civ.P. See
Grimsley v. Estate of Spencer (1983), 206 Mont. 184, 199, 670
P.2d 85, 93 (general denial has the effect of putting every
material allega-tion in dispute) .Thus, we affirm on this
issue.
111.
Sterretts argue that the agency issue here should not
have heen decided on summary judgment. According to
Sterretts, normally agency issues are questions for the jury,
and here the jury should have decided whether MRPCA's
employee acted as agent for FICBS.
FICBS responds that there is no blanket prohibition for
granting summary judgment on agency issues. FICBS also
contends that Sterretts failed to present evidence creating a
material question of fact on the agency issue.
This Court in Stillman v. Fergus County (Mont. 19861,
715 P.2d 43, 43 St.Rep. 396, stated:
While there are no Montana cases on the subject,
there is a long line of California cases which hold
that, normally, allegations of agency are questions
of fact and should not be decided on motion for
summary judgment. ...However, when dealing with
a government entity, such as a county, this is not
always true. A principal cannot delegate authority
it does not possess.
Stillman, 715 P.2d at 44. As previously noted, Langley
mandates the conclusion that FICBS1s supervisory duties do
not create an agency relationship between FICBS and MRPCA1s
employees.
Except for the allegations and facts presented on
FICBS's supervision pursuant to federal statute, Sterretts
have failed to show participation by FICBS in the loan made
by MRPCA. Once FICBS made its argument on the effect of
Langley, Sterretts had the burden of coming forward with
facts demonstrating participation by FICBS which would create
a material fact question on the agency issue. In the absence
of such a showing, summary judgment was appropriate. Fleming
v. Fleming Farms (Mont. 1986), 717 P.2d 1103, 1106, 43
St.Rep. 776, 779. Thus we affirm on this issue.
IV.
Sterretts maintain that when the Federal District Court
declined jurisdiction and remanded this case "for trial", it
settled the agency issue and precluded summary judgment. We
disagree.
Generally, courts lacking subject matter jurisdiction
over a cause of action have no power to adjudicate issues in
the action. See Restatement of Judgments $ 7 (1942). The
basis for the Federal District Court's decision to deny
FICBS's removal petition was lack of subject matter
jurisdiction. Thus, the Court, already having found itself
without subject matter jurisdiction, had no power to decide
the agency issue. AFFIRMED.
We Concur: A