Lane v. MONTANA FOURTH JUDICIAL DIST. COURT

• Decision Date: 29 April 2003
• Docket Number: No. 02-017.,02-017.
• Citation: 2003 MT 130,68 P.3d 819
• Parties: William H. LANE, Jr., Petitioner, v. MONTANA FOURTH JUDICIAL DISTRICT COURT, The Honorable John W. Larson, Presiding, Respondent.
• Court: Montana Supreme Court

68 P.3d 819

2003 MT 130

William H. LANE, Jr., Petitioner, v. MONTANA FOURTH JUDICIAL DISTRICT COURT, The Honorable John W. Larson, Presiding, Respondent.

No. 02-017.

Supreme Court of Montana.

Orally Argued and Submitted May 23, 2002.

Decided April 29, 2003.

Randy J. Cox (argued), Boone, Karlberg, P.C., Missoula, Montana, James Goetz (argued), Goetz, Gallik, Baldwin & Dolan, Bozeman, Montana, For Petitioner.

Susan G. Ridgeway (argued), Attorney at Law, Missoula, Montana, Milton Datsopoulos, Datsopoulos, MacDonald & Lind, Missoula, Montana, For Respondent.

Larry Howell, University of Montana, Missoula, Montana, For Amicus Montana Trial Lawyers Association.

Justice TERRY N. TRIEWEILER delivered the Opinion of the Court.

¶ 1 The Petitioner, William H. Lane, Jr., has petitioned this Court pursuant to Rule 17, M.R.App.P., for supervisory control over the District Court for the Fourth Judicial District in Missoula County, and the Honorable John W. Larson, presiding. In support of his Petition, Lane contends that the District Court has erred by denying his motion for summary judgment based on principles of res judicata in an action brought against him by Kimble Properties, Inc., in Missoula County District Court Cause Number DV-01-410. We accept supervisory control and affirm the Order of the District Court.

¶ 2 There are two issues presented for this Court's consideration:

¶ 3 1. Is this an appropriate case for the exercise of supervisory control?

¶ 4 2. Did the District Court err when it concluded that the Plaintiff's claim is not barred by principles of res judicata?

FACTUAL BACKGROUND

¶ 5 The Plaintiff, Kimble Properties, Inc., brought this action in the District Court to enforce a judgment recovered against H-D Irrigating Company, Inc., in the District Court for the Sixth Judicial District in Sweet Grass County, Cause Number DV 92-26. In this action, it sought to pierce the corporate veil by alleging that H-D Irrigating was the mere agent or alter ego of William Lane, Jr., its president and sole shareholder. To understand the issue in this case, it is necessary to briefly summarize the facts which form the basis for Kimble's judgment against H-D Irrigating. The following facts are taken from this Court's decision in H-D Irrigating v. Kimble Properties, 2000 MT 212, 301 Mont. 34, 8 P.3d 95, in which we considered the parties' appeal and cross-appeal from the judgment entered in the Sixth Judicial District Court.

¶ 6 On February 13, 1991, William H. Lane, Jr., agreed with Hobble Diamond Cattle Company and Kimble Properties to purchase land from Hobble Diamond Cattle Company for $1,650,000 and irrigation equipment from Kimble Properties for $350,000. H-D Irrigating, ¶ 10. Subsequently, on April 1, 1991, Lane assigned his rights and his duties regarding the irrigation equipment to H-D Irrigating. Lane was the president of, and sole shareholder in, H-D Irrigating. On May 24, 1991, in accordance with the purchase agreement, H-D Irrigating paid Kimble Properties $150,000 and executed a promissory note in the amount of $200,000. H-D Irrigating, ¶ 11.

¶ 7 Slightly more than a year later, on June 16, 1992, H-D Irrigating and Lane sued Kimble Properties, and Lloyd Kimble, its president, in the Sixth Judicial District Court for alleged misrepresentation and breach of a duty to disclose. They alleged that Kimble falsely represented the condition of the irrigation system and that they had been damaged by its inadequacy. Kimble Properties and Kimble counterclaimed for the balance due for the irrigation equipment. In their counterclaim, the sellers alleged that H-D Irrigating was a mere sham and the alter ego of William H. Lane, Jr.

¶ 8 While it is not clear what happened during the entire course of the proceeding, it is clear that Kimble's alter ego claim was not pursued in its contentions in the pretrial order. It was not discussed in either the plaintiffs' or defendants' Proposed Findings of Fact or Conclusions of Law, nor was it discussed in the District Court's Findings, Conclusions or Judgment.

¶ 9 H-D Irrigating's claim and Kimble's counterclaim went to trial on March 1, 1995. Following trial, the District Court found and concluded that Kimble had made a material misrepresentation upon which Lane reasonably relied and by which Lane was damaged in the amount of $99,575. The District Court also found and concluded that H-D Irrigating owed Kimble $200,000 for the irrigation equipment and, after deducting the amount of H-D Irrigating's damage and adding interest, entered judgment for Kimble in the amount of $123,940.96.

¶ 10 Kimble appealed and H-D Irrigating and Lane cross-appealed the judgment of the District Court. We reversed in part and affirmed in part that judgment on August 10, 2000, and remanded to the District Court for entry of judgment in favor of Kimble and against H-D Irrigating in the amount of $237,495.71. An amended judgment was entered in the District Court on December 4, 2000.

¶ 11 On May 29, 2001, Kimble Properties filed this action in the District Court for the Fourth Judicial District in Missoula County to collect its judgment from William H. Lane, Jr., personally. In its complaint, it recited the particulars of the original agreement to purchase irrigation equipment; it noted that shortly after the agreement was entered into, Lane assigned his obligations to H-D Irrigating; and, it pointed out that a judgment had been collected against H-D Irrigating.

¶ 12 Kimble then alleged that following entry of judgment, it sought to compel Lane to testify regarding H-D Irrigating's assets but that rather than appear, Lane filed a petition for bankruptcy on behalf of H-D Irrigating pursuant to Chapter 7, Title 11 of the United States Code and received a stay of further proceedings.

¶ 13 In this action, Kimble has alleged that H-D Irrigating's only business was related to purchase of the irrigation equipment; and, that it was formed by Lane, who was its sole shareholder and president, for the sole purpose of avoiding his obligation to pay for that equipment. Kimble alleged that H-D Irrigating had not been adequately capitalized to fulfill its obligations under the agreement and that it sold the irrigation equipment, along with the ranch, in 1995 or 1996, without preserving sufficient funds to pay for the equipment. Kimble further alleged that H-D Irrigating had at least $125,000 of liquid assets as recently as July 29, 1998, but that schedules attached to its bankruptcy petition indicate that its only remaining assets have a value of $2618.30. Finally, Kimble alleged that H-D Irrigating was the mere agent or alter ego of William H. Lane, Jr., and formed solely for the purpose of enabling him to avoid his contractual obligations. It asks, as a matter of equity, that Lane be held personally responsible for satisfying Kimble Properties' judgment against H-D Irrigating.

¶ 14 Lane moved the District Court to dismiss Kimble's complaint based on principles of res judicata. He alleged that because Kimble had alleged alter ego in his original counterclaim, and because the District Court had not pierced the corporate veil in the Sixth Judicial District Court action, that claim was extinguished and barred by the previous judgment.

¶ 15 In reliance on the four-part test for application of res judicata established by this Court in Phelan v. Lee Blaine Enterprises (1986), 220 Mont. 296, 716 P.2d 601, the District Court concluded that Kimble's claim had not been extinguished by the prior judgment because the subject matter of this action and the issues raised by this action were different from those decided by the Sixth Judicial District Court.

¶ 16 Lane contends that the District Court has made a mistake of law which, if uncorrected, would cause a significant injustice by requiring that Lane defend against an action which is barred as a matter of law. Lane, therefore, contends that appeal is an inadequate remedy.

ISSUE ONE

¶ 17 Is this an appropriate case for the exercise of supervisory control?

¶ 18 In Plumb v. Fourth Jud. Dist. Court (1996), 279 Mont. 363, 368-69, 927 P.2d 1011, 1014, we concluded that supervisory control is appropriate where the district court is preceding under a mistake of law and, in so doing, is causing a gross injustice. In this case, Lane contends that he is being asked to re-defend against a claim that was previously made and extinguished by a previous judgment of another district court. If he is correct, he is entitled to summary judgment. If the district court was wrong when it denied his motion for summary judgment, requiring that he defend against the same claim a second time and incur the attendant delay and expense, would cause a gross injustice. Therefore, we conclude that the issue raised by Lane is appropriate for resolution by way of supervisory control.

ISSUE TWO

¶ 19 Did the District Court err when it concluded that the Plaintiff's claim is not barred by principles of res judicata?

¶ 20 Lane asks that we review and reverse the District Court's denial of his motion for summary judgment. We review a district court's decision to grant or deny summary judgment de novo. Spinler v. Allen, 1999 MT 160, ¶ 14, 295 Mont. 139, ¶ 14, 983 P.2d 348, ¶ 14. We consider the same criteria on which the district court relies and which are found at Rule 56(c), M.R.Civ.P., where it states that:

The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.

¶ 21 Lane contends that the doctrine of res judicata bars Kimble's action because Kimble previously sought to hold Lane personally liable for H-D Irrigating's debt on the basis of alter ego and that the current action has been filed on that same basis. Lane relies on this Court's decision in ...