Avanta Federal Credit Union v. Shupak

• Decision Date: 31 December 2009
• Docket Number: No. DA 08-0220.,DA 08-0220.
• Citation: 2009 MT 458,223 P.3d 863,354 Mont. 372
• Parties: AVANTA FEDERAL CREDIT UNION, Plaintiff and Appellant, v. Steve SHUPAK, Defendant, Appellee and Cross-Appellant.
• Court: Montana Supreme Court

223 P.3d 863

2009 MT 458

354 Mont. 372

AVANTA FEDERAL CREDIT UNION, Plaintiff and Appellant, v. Steve SHUPAK, Defendant, Appellee and Cross-Appellant.

No. DA 08-0220.

Supreme Court of Montana.

Submitted on Briefs March 25, 2009.

Decided December 31, 2009.

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.

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:

¶ 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.

¶ 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.

¶ 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.

¶ 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, 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...