Schmitz v. Smentowski, BANK-EXCHANG

• Docket Nº: C
• Citation: 109 N.M. 386, 1990 NMSC 2, 785 P.2d 726
• Case Date: January 10, 1990
• Court: Supreme Court of New Mexico

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785 P.2d 726 109 N.M. 386 Roger SCHMITZ, Plaintiff,
v.
Leo R. SMENTOWSKI and Keith Mock and Opal Mock, Defendants,
v.
COLORADO NATIONAL BANK-EXCHANGE, Cross-Defendant-Appellant,
v.
Keith MOCK and Opal Mock, Cross-Claimants-Appellees,
v.
Leo R. SMENTOWSKI and Marcella Smentowski,
Cross-Defendants. No. 17975. Supreme Court of New Mexico. Jan. 10, 1990.

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[109 NM 388] Beck & Cooper, Robert O. Beck, Clayton, Ross & O'Brien, P.C., Richard G. Gilloon, Colorado Springs, Colo., for appellant.

Kastler and Kamm, Paul A. Kastler, John William Clever, Raton, Charles D. Alsup, Clayton, for appellees.

OPINION

BACA, Justice.

This is an appeal from the judgment of the district court of Union County of a jury verdict in favor of appellees, cross-claimants below, the Mocks, against appellant, cross-defendant below, the Colorado National Bank-Exchange (the Bank). This case has presented us with multiple claims and asks us to consider an issue of first impression in this jurisdiction.

The Bank contends that the trial court erred in allowing judgment based on a theory of prima facie tort, arguing that we should not recognize the cause of action; that the Mocks did not demonstrate that the Bank was motivated solely by disinterested malevolence as required in a prima facie tort action; that the elements of prima facie tort were improperly pleaded and proved; that the Bank as a holder of a promissory note could not have been found negligent with regard to that note as a matter of law; that the resulting trust under which the note was held could not affect the Bank's right to that note; that the court abused its discretion by allowing the Mocks to amend their complaint to include prima facie tort, and that this abuse violated the Bank's due process rights. The Mocks, in turn, maintain that the Bank did not properly preserve its allegations for appeal, that they in fact are the rightful claimants of the note, and that they properly pleaded and proved their theory of prima facie tort. We agree with the Mocks' substantive claims and affirm the judgment below.

FACTS.

In 1979, the Mocks purchased two adjacent ranches from the Pogues and the Edmondsons (neither party is involved in this suit) as part of a three-party land exchange effectuated pursuant to Section 1031 of the Internal Revenue Code, I.R.C. Sec. 1031 (1969), whereby they sold a feed lot and farm to Schmitz, plaintiff below, in exchange for cash and a promissory note in the amount of $230,000. The Pogues received the cash as payment in full, while the Edmondsons were paid in part in cash, with the balance in the form of a note payable in annual installments of $35,838.66. Pursuant to the exchange, the Mocks received deeds to and possession of the two ranches; Schmitz received deed to and possession of the feed lot; the Pogues were paid in full, and Schmitz owed the Mocks $230,000 represented by the note. The note was made payable on its face to Smentowski, an accountant acting as strawman to facilitate the three-way tax-free exchange of property. Smentowski had no personal interest in the note. He held legal title in trust for the true parties in interest. The Mocks gave Edmondsons a first mortgage in their newly acquired ranch to secure their $230,000 debt on the property; the payments on the note received by Smentowski from Schmitz were paid directly to the Edmondsons to cover the mortgage payments.

In 1981, Smentowski received a loan from the Bank. The Bank took possession of the note, so that the Smentowski loan would appear to bank examiners to be

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[109 NM 389] backed by more collateral than it in fact was. The evidence indicates that all parties to the transaction, including the Bank, had actual knowledge that Smentowski did not have any beneficial interest in the note--thus, the Bank knew that it had no interest in the note as collateral and that others had claims and defenses to the note. However, despite this knowledge, in 1986, when Smentowski defaulted on his loan, the Bank attempted to collect the balance due on the note from Schmitz. The Bank notified Schmitz of Smentowski's default and requested that he direct future payments on the note into the court. Edmondsons thus did not receive their mortgage payments; they accelerated the mortgage and threatened foreclosure against the Mocks. The Mocks were forced to borrow on their cattle line of credit to prevent foreclosure, and this prevented them from using the line of credit to pursue their business of cattle raising.

Schmitz named Smentowski, the Bank, and the Mocks as defendants in his interpleader suit. The Mocks responded, filing cross-claims against Smentowski in gross negligence and fraud, and against the Bank in negligence. They subsequently amended their complaint against the Bank to include theories of fraud and conspiracy to defraud. On the morning of trial, the Mocks requested leave to amend their cross-claims to include theories of resulting trust and prima facie tort. The court allowed the resulting trust theory and reserved judgment on the prima facie tort. Subsequently, toward the end of Mocks' case, they moved to amend their pleadings to conform to the evidence, and the court allowed the prima facie tort theory.

The trial court directed a verdict against Smentowski, ruling he was a fiduciary holding title to the note in a resulting trust. The court also ruled against the Mocks on their conspiracy claim. The jury found the Bank was a mere holder of the note, not a holder in due course, and thus took the note subject to claims and defenses against it. The jury also found for the Mocks on their negligence and prima facie tort claims, awarding them the note and punitive and compensatory damages.

The Bank and the Mocks have raised several threshold issues, which we must resolve before reaching the substantive issues presented regarding the prima facie tort claim. The Bank claims that the district court violated its procedural due process rights and abused its discretion by allowing the Mocks to introduce the tort claim through amended pleadings late in the trial. The second threshold issue is raised by the Mocks, who claim that the Bank is precluded from pursuing its various points on appeal because it did not include them in their docketing statement. We address each issue in turn.

I. THE DISTRICT COURT DID NOT ABUSE ITS DISCRETION OR VIOLATE THE BANK'S DUE PROCESS RIGHTS BY ALLOWING THE MOCKS TO PROCEED ON THE THEORY OF PRIMA FACIE TORT.

A. Abuse of Discretion.

The Bank contends that the trial court abused its discretion by allowing the Mocks to amend their complaint at trial to conform to the evidence and to reflect their prima facie tort theory, relying on SCRA 1986, 1-015(B). It claims it did not expressly or impliedly consent to try the theory; it objected to the motion to amend and to subsequent jury instructions on prima facie tort; it was surprised by the theory and had no notice of it prior to trial and therefore was prejudiced because it could not defend properly.

The theory of pleadings is to give the parties fair notice of the claims and defenses against them, and the grounds upon which they are based. Seasons, Inc. v. Atwell, 86 N.M. 751, 753, 527 P.2d 792, 794 (1974). It is true that, before a party may take a case to a jury on a particular theory, that theory must have been pleaded, or tried with the consent of the opponent. Ciesielski v. Waterman, 86 N.M. 184, 186, 521 P.2d 649, 651 (Ct.App.), rev'd on other grounds, 87 N.M. 25, 528 P.2d 884 (1974). However, notice pleading does not require that every theory be denominated in the pleadings--general allegations of conduct

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[109 NM 390] are sufficient, as long as they show that the party is entitled to relief and the averments are set forth with sufficient detail so that the parties and the court will have a fair idea of the action about which the party is complaining and can see the basis for relief. Id.; Kisella v. Dunn, 58 N.M. 695, 700, 275 P.2d 181, 186 (1954); see SCRA 1986, 1-008.

The Mocks, in their original pleadings, stated the essential elements of prima facie tort as an alternative cause of action with sufficient particularity to give the Bank notice of their theory--our system of notice pleading does not require more. Although perhaps not as artful as would be hoped for, the pleadings outline the elements necessary to prove prima facie tort, by alleging:

(1) that the Bank had knowledge of Smentowski's strawman status;

(2) that the transfer of the note to the Bank was wrong because the Bank knew it had no interest in the note;

(3) the Bank accepted the note with knowledge that the Mocks would be injured;

(4) the Mocks were injured by the Bank's acts.

This recital is sufficient, as a bare minimum, to give notice that the Mocks were complaining of a lawful act, conducted with the intent to injure and without sufficient economic or social justification, that did injure them, i.e. a prima facie tort. See Azby Brokerage, Inc. v. Allstate Ins. Co., 681 F.Supp. 1084, 1087 (S.D.N.Y.1988); Porter v. Crawford & Co., 611 S.W.2d 265, 268 (Mo.Ct.App.1980).

It is insufficient for the Bank to complain that they did not recognize the theory underlying the allegations, and, in fact, they were apprised of the Mocks' theory before the trial began.

In the present case, although we recognize that the Mocks' initial pleadings were not a model of clarity, we are convinced that they adequately presented the elements of prima facie tort. The Bank did not object at trial to the introduction of evidence, and yet it claims that it did not consent to the theory and was prejudiced by the amendment. Simply because the Bank did not recognize the prima facie tort claim is not grounds for a finding that the court abused its discretion. However, because of the novelty of the prima facie tort claim and in the interest of justice, we have examined the Bank's claim of prejudice, and we find that...