Madsen v. Borthick

Decision Date12 December 1988
Docket NumberNo. 19704,19704
PartiesRichard D. MADSEN and Nancy Madsen, Boyd A. Swensen and Beatrice Swensen, Blaine Anderson and Sheree Anderson, Hope A. Hilton, Cynthia Hilton, Ralph M. Hilton, Gene Helland and the Middle East Foundation, Plaintiffs and Appellants, v. Mirvin D. BORTHICK, W. Smoot Brimhall, and John Does I to V, being former Commissioners of the Utah Department of Financial Institutions, Defendants and Appellees.
CourtUtah Supreme Court

Daniel F. Bertch, Robert J. Debry, Phillip B. Shell, Salt Lake City, for plaintiffs and appellants.

David L. Wilkinson, Paul M. Warner, Stephen J. Sorenson, Salt Lake City, for defendants and appellees.

ZIMMERMAN, Justice:

Plaintiffs Richard D. and Nancy Madsen, Boyd A. and Beatrice Swensen, Blaine and Sheree Anderson, Hope A., Cynthia, and Ralph M. Hilton, Gene Helland, and the Middle East Foundation, all investors in the now-defunct Grove Finance Company ("the investors"), brought suit against defendants Mirvin D. Borthick and W. Smoot Brimhall, former commissioners of the Utah Department of Financial Institutions ("the Commissioners"). The investors seek to recover the amount of their lost investments from the Commissioners personally. The trial court granted a summary judgment in favor of the Commissioners, basing its ruling on several alternative grounds. The court held that the doctrine of res judicata barred the action, that the Commissioners are immune from suit under the Utah Governmental Immunity Act, and that the applicable statute of limitations bars this action. The investors challenge all of these legal conclusions. We agree with the investors that the trial court's ruling was incorrect and reverse and remand the matter for further proceedings.

In Madsen v. Borthick, 658 P.2d 627 (Utah 1983) [hereinafter Madsen I ], the plaintiffs in the instant case sued the State, its Department of Financial Institutions, and its Commissioner of Financial Institutions, Mirvin D. Borthick, in his official capacity, claiming that they had lost most of their investment in Grove Finance when it became insolvent and that its insolvency was due to the defendants' failure to perform their statutory duties. 1 658 P.2d at 627-28. The trial court dismissed that case for "failure to state a claim upon which relief could be granted" because the investors, in suing the State and state officers in their official capacities, had failed to file the statutorily required notice of claim within the allotted time. Id. at 628; see Utah Code Ann. §§ 63-30-11, -12 (Supp.1979). This Court upheld that dismissal. 658 P.2d at 633.

In our opinion in Madsen I, we indicated that one reason for affirming the trial court's dismissal was the investors' failure to sue Commissioner Borthick in his individual capacity. See id. at 632-33. Absent an allegation that he had "acted or failed to act through gross negligence, fraud or malice," the suit against him was in his official capacity only. See id. (quoting Utah Code Ann. § 63-30-4 (Supp.1979)). Because the investors had not made such an allegation, we were not called upon in Madsen I to decide whether the Act's notice requirement would bar a suit against the Commissioner in his individual capacity. 658 P.2d at 630 n. 5.

Following our decision in Madsen I, the investors, in an apparent attempt to avoid the notice requirement and its then-expired time limit, brought the present action against former commissioners Mirvin D. Borthick and W. Smoot Brimhall in their individual capacities, claiming that their failure to perform their statutory duties constituted gross negligence for which they are personally liable. See Utah Code Ann. § 63-30-4 (Supp.1979). The Commissioners moved for summary judgment. The trial court granted their motion on three grounds: first, that the doctrines of claim preclusion and issue preclusion barred the suit because a dismissal of the same action was affirmed in Madsen I; second, that the Commissioners were immune from suit under the Utah Governmental Immunity Act ("the Act"), Utah Code Ann. §§ 63-30-1 to -38 (1978 & Supp.1983); and third, that any applicable statute of limitations had run. See Utah Code Ann. §§ 78-12-26(4), -28(1), -29(2) (1987). The investors have appealed.

We note at the outset that a challenge to a summary judgment presents for review conclusions of law only because, by definition, summary judgments do not resolve factual disputes. See Utah R.Civ.P. 56(c). We accord no deference to a trial court's legal conclusions given to support the grant of a summary judgment, but review them for correctness. See, e.g., Atlas Corp. v. Clovis Nat'l Bank, 737 P.2d 225, 229 (Utah 1987).

The investors first claim that the trial court erred in granting summary judgment on grounds of res judicata. The doctrine of res judicata comprehends two different sets of legal rules that should be analyzed separately. These two sets of rules are known as the claim preclusion and issue preclusion branches of the doctrine. Noble v. Noble, 761 P.2d 1369, 1374 n. 5 (Utah 1988). We will consider the propriety of the trial court's ruling first under the law of claim preclusion and then under the law of issue preclusion.

Claim preclusion bars a cause of action only if the suit in which that cause of action is being asserted and the prior suit satisfy three requirements. First, both cases must involve the same parties or their privies. Second, the claim that is alleged to be barred must have been presented in the first suit or must be one that could and should have been raised in the first action. Third, the first suit must have resulted in a final judgment on the merits. See Penrod v. Nu Creation Creme, Inc., 669 P.2d 873, 875 (Utah 1983) (citing Church v. Meadow Springs Ranch Corp., 659 P.2d 1045, 1048 (Utah 1983); Bradshaw v. Kershaw, 627 P.2d 528, 531 (Utah 1981); International Resources v. Dunfield, 599 P.2d 515, 516-17 (Utah 1979); Krofcheck v. Downey State Bank, 580 P.2d 243, 244 (Utah 1978); Belliston v. Texaco, Inc., 521 P.2d 379, 380 (Utah 1974); National Fin. Co. v. Daley, 14 Utah 2d 263, 265-66, 382 P.2d 405, 407 (1963); Wheadon v. Pearson, 14 Utah 2d 45, 47, 376 P.2d 946, 947-48 (1962)).

The investors do not dispute that the first two requirements for claim preclusion are met. Therefore, the only question remaining is whether the finality requirement is satisfied. The investors argue that the order of dismissal in Madsen I was not a final judgment because it did not go to the merits of the suit; rather, it was based on the investors' failure to satisfy a precondition to suit, namely, the filing of a statutorily required notice of claim. The Commissioners, however, contend that the dismissal in Madsen I should be considered a judgment on the merits because Utah Rule of Civil Procedure 41(b) classifies "any dismissal not provided for in this rule" as "an adjudication upon the merits." 2 Utah R.Civ.P. 41(b). This definition, the Commissioners argue, by its plain terms governs all dismissals, not just those granted under rule 41(b). They observe that in Madsen I, we acknowledged that the trial court stated that it dismissed the action for "failure to state a claim upon which relief could be granted," 658 P.2d at 628, and they contend that such dismissals fall within rule 41(b)'s catchall category because they are not provided for in the rule. The Commissioners then defend the trial court's characterization of the dismissal in Madsen I as a dismissal for failure to state a claim by asserting that it was based both on the investors' failure to meet the notice requirement and on their failure to state a claim under the Governmental Immunity Act.

It is true that the trial court's order in Madsen I made it appear that the court based its dismissal both on failure to comply with the notice requirement and on failure to state a legally cognizable claim. The question for us is whether, having found that the plaintiffs in Madsen I had failed to satisfy the notice requirement, the trial court in that case could then legitimately pass on the merits of the complaint. We conclude that it could not. 3 Therefore, we find that the dismissal in Madsen I was not truly on the merits and cannot satisfy the third requirement for claim preclusion. This conclusion rests on our determination of two issues. First, we find that a dismissal for "lack of jurisdiction" under rule 41(b) includes a dismissal for failure to meet a precondition to suit. Second, we conclude that failure to meet the notice requirement of the Act constitutes failure to fulfill a precondition to suit. Each of these determinations must be more fully explained.

Although the last sentence of rule 41(b) may generally escape notice, in fact it does appear, as the Commissioners argue, to comprehensively define a dismissal on the merits; not just rule 41(b) dismissals, but all dismissals. It states:

Unless the court in its order for dismissal otherwise specifies, a dismissal under this subdivision and any dismissal not provided for in this rule, other than a dismissal for lack of jurisdiction or for improper venue or for lack of an indispensable party, operates as an adjudication upon the merits.

Utah R.Civ.P. 41(b) (emphasis added). The trial court in Madsen I did not specify that the dismissal was not on the merits. Therefore, under rule 41(b), unless it was a dismissal for "lack of jurisdiction or for improper venue or for lack of an indispensable party," it was a dismissal on the merits. Plainly, the dismissal was not for improper venue or for failure to join an indispensable party. Therefore, it can escape classification as a judgment on the merits only if it was based on "lack of jurisdiction." What does the phrase "lack of jurisdiction" in rule 41(b) mean?

At common law, a judgment based on "the plaintiff's failure to satisfy a precondition to suit" does not bar another action by the same plaintiff on the same...

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