Kulczyk v. Tioga Ready Mix Co.

Decision Date01 September 2017
Docket NumberNo. 20160330.,20160330.
Parties William KULCZYK and Rhonda Kulczyk, Plaintiffs and Appellants v. TIOGA READY MIX CO., Scott Financial Corporation, Triple Aggregate, LLC, and all persons unknown, claiming any estate or interest in, or lien or encumbrance upon, the real estate described in the complaint, Defendants and Tioga Ready Mix Co., Appellee
CourtNorth Dakota Supreme Court

Monte L. Rogneby (argued) and Briana L. Hildebrand (appeared), Bismarck, ND, for plaintiffs and appellants.

Tyler J. Malm (argued) and David J. Smith (on brief), Bismarck, ND, for appellee.

VandeWalle, Chief Justice.

[¶1] William and Rhonda Kulczyk appealed a district court judgment dismissing their complaint seeking to foreclose a mortgage against Tioga Ready Mix Co. The court held res judicata barred the Kulczyks' foreclosure action on the basis of previous litigation between the parties. We reverse and remand, concluding res judicata does not bar the Kulczyks' foreclosure action against Tioga Ready Mix.

I

[¶2] William and Rhonda Kulczyk sold Tioga Ready Mix, a ready-mix concrete plant, to Bernard Vculek in December 2011. Under the terms of the sale from the Kulczyks to Vculek, Tioga Ready Mix executed a $1.4 million promissory note and granted a mortgage to the Kulczyks on its property in Williams County. Other documents involved in the sale included a stock redemption agreement, bill of sale, letter of understanding agreement, and confidentiality and non-compete agreements. Vculek and his wife, Marlene, also executed a $1.4 million personal guaranty agreement, promising to be personally responsible for Tioga Ready Mix's debt owed to the Kulczyks. Scott Financial Corporation acted as Vculek's financial advisor and assisted in facilitating the transaction between the parties.

[¶3] In May 2012, Triple Aggregate, LLC sued Tioga Ready Mix seeking over $85,000 for rock aggregate product supplied to Tioga Ready Mix. Tioga Ready Mix counterclaimed and denied it owed Triple Aggregate any payment because Triple Aggregate supplied substandard materials. Tioga Ready Mix also brought a third-party complaint against William Kulczyk, claiming that as Tioga Ready Mix's manager for the majority of 2011, he negligently allowed the use of Triple Aggregate's substandard materials.

[¶4] Before the trial scheduled for February 2014, Triple Aggregate settled its claim against Tioga Ready Mix. Tioga Ready Mix then sought to amend its third-party complaint against William Kulczyk and add additional parties to the action. The district court granted the request and continued the trial until October 2014. Tioga Ready Mix added the Vculeks as additional plaintiffs and Rhonda Kulczyk as a defendant. Tioga Ready Mix and the Vculeks filed an amended complaint against the Kulczyks, alleging breach of contract, fraud, and negligence relating to the Kulczyks' operation of Tioga Ready Mix before the sale. The Kulczyks counterclaimed against Tioga Ready Mix for breach of contract relating to the letter of understanding agreement and against the Vculeks for breaching the personal guaranty.

[¶5] After trial, the district court ruled Tioga Ready Mix was in default of its obligations under the promissory note and the Vculeks were liable to the Kulczyks under the personal guaranty for $1.4 million. The court dismissed the claims against the Kulczyks, and the Vculeks satisfied the $1.4 million judgment against them.

[¶6] In October 2015, the Kulczyks sued Tioga Ready Mix, Scott Financial Corporation, and Triple Aggregate, seeking to foreclose the mortgage executed by Tioga Ready Mix in the December 2011 sale. The Kulczyks alleged Tioga Ready Mix failed to make annual payments under the promissory note. The Kulczyks asserted that, although the Vculeks paid $1.4 million toward the amount secured by the promissory note and mortgage, Tioga Ready Mix still owed approximately $147,000 plus interest under the note and mortgage. The Kulczyks also alleged its mortgage was superior to the claims of Scott Financial, as the holder of two additional mortgages against the property, and Triple Aggregate, as the party in possession of the property under an agreement with Tioga Ready Mix.

[¶7] Tioga Ready Mix denied the claims and moved for summary judgment, arguing the Kulczyks' foreclosure action was barred by res judicata and collateral estoppel because they did not raise the issue in the earlier lawsuit between the parties. The district court agreed and ruled res judicata barred the Kulczyks' foreclosure action against Tioga Ready Mix because they did not raise that claim in the earlier lawsuit. The court ruled that because Tioga Ready Mix was a party to the earlier action, and because the parties litigated numerous issues arising from the Kulczyks' sale of Tioga Ready Mix to the Vculeks, the Kulczyks should have raised their foreclosure claim in the earlier lawsuit. The court entered a judgment dismissing the Kulczyks' complaint and releasing the Kulczyks' mortgage against the property.

II

[¶8] The Kulczyks argue the district court erred in granting Tioga Ready Mix's motion for summary judgment, concluding res judicata barred their foreclosure action against Tioga Ready Mix.

[¶9] Summary judgment is a procedural device under N.D.R.Civ.P. 56(c) for promptly resolving a controversy on the merits without a trial if there are no genuine issues of material fact, or if the only issues to be resolved are questions of law. A. R. Audit Services, Inc. v. Tuttle , 2017 ND 68, ¶ 5, 891 N.W.2d 757. The moving party must show there are no genuine issues of material fact and the case is appropriate for judgment as a matter of law. Id. We review a district court's decision on summary judgment de novo on the record. Id.

[¶10] "Res judicata, or claim preclusion, prevents relitigation of claims that were raised, or could have been raised, in prior actions between the same parties or their privies." Missouri Breaks v. Burns , 2010 ND 221, ¶ 10, 791 N.W.2d 33 (quoting Hager v. City of Devils Lake , 2009 ND 180, ¶ 10, 773 N.W.2d 420 ). Res judicata means a valid, final judgment from a court of competent jurisdiction is conclusive with regard to claims raised, or claims that could have been raised, as to the parties and their privies in future actions. Missouri Breaks , at ¶ 10. Under principles of res judicata, it is inappropriate to reargue issues that were tried or could have been tried in earlier proceedings. Id. The applicability of res judicata is a question of law, fully reviewable on appeal. Skogen v. Hemen Township Board , 2010 ND 92, ¶ 17, 782 N.W.2d 638.

[¶11] Privity exists if one is so identified in interest with another that he or she represents the same legal right. Ungar v. N.D. State Univ. , 2006 ND 185, ¶ 12, 721 N.W.2d 16. This Court has expanded privity to include a person not technically a party to a judgment, "but who is, nevertheless, connected with it by his interest in the prior litigation and by his right to participate therein." Id. (quoting Hofsommer v. Hofsommer Excavating, Inc. , 488 N.W.2d 380, 384 (N.D. 1992) ). The right to participate may be "actively exercised by prosecution of the action, employment of counsel, control of the defense, filing of an answer, payment of expenses or costs of the action, the taking of an appeal, or the doing of such other acts as are generally done by parties." Ungar , at ¶ 12 (quoting Hofsommer , at 384 ). Fundamental fairness underlies determinations of privity and res judicata. Riverwood Commercial Park v. Standard Oil Co. , 2007 ND 36, ¶ 14, 729 N.W.2d 101 ; Ungar , at ¶ 12.

[¶12] The Kulczyks argue their foreclosure action against Tioga Ready Mix is not barred by res judicata. The Kulczyks argue they were not required to bring their claims to enforce the guaranty against the Vculeks and foreclose the mortgage against Tioga Ready Mix in the same action. The Kulczyks argue this Court's holdings in Alerus Financial, N.A. v. Marcil Group , 2011 ND 205, 806 N.W.2d 160, support their argument.

[¶13] In Alerus , 2011 ND 205, ¶ 2, 806 N.W.2d 160, KRE, LLC received a $2.6 million loan to purchase commercial real estate. KRE granted Alerus a first mortgage against the property, and three guarantors each executed guaranty contracts guaranteeing KRE's debt. Id. After KRE defaulted on the promissory note, Alerus declared the entire balance of the loan due and began a foreclosure action against KRE. Id. at ¶ 3. Alerus also brought a separate action against the guarantors to enforce the guaranties. Id. at ¶ 4. The district court granted Alerus' motion for summary judgment in both actions, dismissing the guarantors' objection that Alerus had impermissibly split its cause of action between foreclosure and enforcing the guaranties. Id. at ¶¶ 5-6.

[¶14] On appeal, the guarantors argued Alerus impermissibly split its cause of action by bringing separate lawsuits to enforce the guaranties and foreclose the mortgage. Id. at ¶ 17. We rejected the guarantors' argument, noting that the defendants were different in each action, and "an action against a guarantor is based on the contract of guaranty which is an obligation distinct from the obligation imposed by a note and mortgage." Id. at ¶ 19 (citing Bank of Kirkwood Plaza v. Mueller , 294 N.W.2d 640, 643 (N.D. 1980) ). "An action to enforce a guaranty is not a necessary circumstance, condition, or consequence of an action to foreclose a commercial real estate mortgage." Alerus , at ¶ 13. "This Court has not required that actions to enforce a guaranty accompany actions to foreclose a mortgage." Id. at ¶ 19.

[¶15] The Kulczyks argue their separate foreclosure action against Tioga Ready Mix is allowed under Alerus . The Kulczyks argue the promissory note and mortgage were not litigated in the earlier lawsuit between the parties. The Kulczyks also argue that although Tioga Ready Mix was involved in the earlier action to enforce the guaranty, the foreclosure action includes a party, Scott Financial, not a party to...

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