Pte v. United Banks, No. 05-565.

• Docket Nº: No. 05-565.
• Citation: 143 P.3d 442, 2006 MT 236
• Case Date: September 19, 2006
• Court: United States State Supreme Court of Montana

143 P.3d 442 2006 MT 236 PRECISION THEATRICAL EFFECTS, INC., a Montana corporation, and Russell R. Nickel, an individual, Plaintiffs and Appellants,
v.
UNITED BANKS, N.A., formerly known as United Bank of Columbus, N.A., Defendant and Respondent. No. 05-565. Supreme Court of Montana. Submitted on Briefs June 1, 2006. Decided September 19, 2006.

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For Appellants: W. Scott Green, Patten, Peterman, Bekkedahl & Green, PLLC, Billings, Montana Paul G. Matt, Attorney at Law, Billings, Montana.

For Respondent: Michael G. Alterowitz, Timothy B. Strauch, and Kelton D. Olney, Alterowitz, Strauch & Olney, P.C., Missoula, Montana.

Justice W. WILLIAM LEAPHART delivered the Opinion of the Court.

¶ 1 Precision Theatrical Effects, Inc. ("PTE"), and Russell R. Nickel, in his individual capacity, filed a complaint in the Twenty-Second Judicial District Court alleging three counts against United Banks, N.A. ("United"). United moved for summary judgment on all issues, while PTE and Nickel moved for partial summary judgment. The court granted summary judgment to United on all three issues and denied plaintiffs' motion.

¶ 2 We restate the issues as follows:

¶ 3 1. Did the District Court err in concluding, as a matter of law, that since PTE and Nickel defaulted on the bank loans, United did not commit breach of contract in freezing PTE's bank accounts?

¶ 4 2. Did the District Court err in granting summary judgment on the question of whether United breached the implied covenant of good faith and fair dealing as a matter of law?

¶ 5 3. Did the District Court err in determining that no fiduciary relationship existed between the plaintiffs and United?

¶ 6 We reverse in part and affirm in part.

BACKGROUND

¶ 7 PTE, a business that manufactured explosive pyrotechnic materials, and Nickel, the company's former majority owner and president, began a business relationship with United in 1997. As of April 2000, PTE had five loans in good standing with United. The total due on the combined PTE loans amounted to $170,420.50; Nickel also owed United an additional $41,164.66 on a separate loan.¹ At the time, the loans were secured by the following collateral: $110,000 held by United, $374,000 of accounts receivable, and $1,254,000 in assets. The loans were governed by promissory notes and security agreements which provided that PTE and Nickel would be in default if they "do or fail to do something which causes [United] to believe that [United] will have difficulty collecting the amount [owed]."

¶ 8 On November 8, 1999, United put a hold on all of PTE's accounts after law enforcement raided Nickel's residence and PTE's business premises. On April 11, 2000, Nickel was arrested in Stillwater County, Montana, and charged with nine felony counts related to possession, manufacture

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and sale of dangerous drugs. In order to conduct its business involving pyrotechnics, PTE was required to have a license from the Bureau of Alcohol, Tobacco and Firearms (ATF). The corporation's ATF license was in Nickel's name at the time of his arrest. Federal law prohibits anyone who engages in the business of importing, manufacturing, or dealing in explosive material to operate without a license. 18 U.S.C. § 842(a)(1) (2000). The law also precludes any licensee, while under felony indictment, from shipping or transporting any explosive in interstate or foreign commerce or to receive or possess any explosive which has been shipped or transported in interstate or foreign commerce. 18 U.S.C. § 842(i)(1) (2000).

¶ 9 United learned of Nickel's arrest on the day it occurred. Even though PTE's and Nickel's loans were current, United placed a hold on PTE's accounts from April 11, 2000, until April 28, 2000. While the loan contracts did not specify "accounts freezing" as a remedy, the agreements did provide for setoff. United, however, chose to freeze the accounts, rather than setoff existing loan obligations. During the time PTE's and Nickel's accounts remained frozen, several of their checks were returned despite the fact that funds existed to pay the checks.

¶ 10 Also on the same day as his arrest, Nickel's wife petitioned for divorce and requested a temporary restraining order barring the transfer, concealment or disposal of marital property. Consequently, at some point between April 11 and April 18, 2000, Nickel had $39,499.48 of PTE Europe BV funds transferred into his divorce attorney's trust account.

¶ 11 On April 18, 2000, about a week after Nickel's arrest, United sent PTE and Nickel notices that they were in default on their loans for the following reasons: Nickel was 90 percent stockholder and held the federal license required to operate the business; Nickel was barred from having contact with PTE because of pending criminal charges; ATF advised United that the criminal charges placed Nickel's ATF license in jeopardy; Nickel's wife filed for divorce and Nickel's parents (as landlords) threatened to evict the corporation; and Nickel moved $39,499.48 from PTE accounts receivable into his divorce attorney's trust account without advising United or seeking its consent. Ultimately United chose not to pursue the April 18, 2000, notices of default, and instead decided to work with PTE's counsel to resolve matters. By April 28, 2000, United and PTE reached a conditional agreement whereby United would release PTE funds, allowing the business to continue operating. Although a memorandum agreement specifying the terms of the agreement was prepared, neither party apparently signed it.

¶ 12 Since Nickel's arrest prohibited him from having contact with any PTE employee, Nickel assigned control of the business to his wife. A couple of weeks later, after determining that his wife had failed to adequately manage the corporation, Nickel orally turned control over to his father, Dennis Nickel. On May 27, 2000, Dennis blocked the road leading to PTE, thus denying access to employees. That same day, Nickel sent an official letter to his father terminating his wife and appointing Dennis as PTE's manager. In June 2000, Dennis informed United that he had sold PTE equipment, even though United had not requested such a sale. On June 5, 2000, United asked for assurances that PTE would reopen and resume normal operating procedures. Ten days later, on June 15, 2000, United issued a second set of default notices, setting forth the same bases as the April 18 notice, along with the following additional grounds: ATF advised that Nickel had failed to comply with ATF regulations and therefore revocation proceedings would be initiated; United had been told that equipment was sold for the purpose of shutting down the business, but Nickel refused to disclose the location of the equipment or identities of the purchasers; Nickel's order violated court orders; PTE failed to provide an accounting of accounts receivable; PTE employees were prevented from working and essential operating equipment had been sold; and PTE's landlord evicted the business because it failed to negotiate a lease. On July 10, 2000, United informed PTE's counsel that it would commence foreclosure proceedings if it did not receive authorization to pick up collateral. Thereafter, United agreed to

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postpone the commencement of foreclosure proceedings. On November 29, 2000, United filed suit to foreclose on four of the six loans.

¶ 13 On June 2, 2003, PTE and Nickel filed a complaint setting forth the following causes of action against United: (I) "on June 2, 2000, and thereafter [United breached its contract with PTE and Nickel by committing] acts and omissions outside of the accepted commercial banking practices to deprive [PTE and Nickel] of the benefit of their contract with [United]"; (II) "after April 11, 2000, [PTE and Nickel] and [United] entered into a contract involving a special relationship [and] on or about June 2, 2000, [United] breached its contractual implied covenant of good faith and fair dealing with [PTE and Nickel] based on their special relationship"; and (III) "after April 11, 2000, [United] committed acts which influenced PTE's business and advised and consulted with PTE ... [and] such acts by [United] are proof of special circumstances between the parties and gave rise to fiduciary responsibilities" which United breached.

¶ 14 The dissent argues that PTE and Nickel's claims would not have survived a motion to dismiss on the pleadings because they did not specifically allege that United lacked "honesty in fact" in declaring a default and freezing PTE's bank accounts. PTE and Nickel did allege, however, that United breached the implied covenant of good faith and fair dealing when it declared a default and froze all of PTE's and Nickel's bank accounts. Under notice pleading, this is sufficient to bring into play the statutory definition of "good faith" as meaning "honesty in fact in the conduct or transaction concerned." Section 30-1-201(19), MCA (1999). See Kunst v. Pass, 1998 MT 71, ¶¶ 35-36, 288 Mont. 264, ¶¶ 35-36, 957 P.2d 1, ¶¶ 35-36 (complaint's reference to the Landlord and Tenant Act sufficient to give notice of possible attorney fees provided for under the Act). In addition, a complaint should not be dismissed unless it appears certain that the plaintiff will be unable to recover under any set of facts...